THE JOSIP JURAJ STROSSMAYER UNIVERSITY OF OSIJEK

FACULTY OF ECONOMICS IN OSIJEK  CROATIA
HOCHSCHULE PFORZHEIM UNIVERSITY
_____________________________________________________________
INTERDISCIPLINARY MANAGEMENT RESEARCH XI
INTERDISZIPLINÄRE MANAGEMENTFORSCHUNG XI

Under the auspices of the President of the
Republic of Croatia

Opatija, 2015

Published by:
Josip Juraj Strossmayer University of Osijek, Faculty of Economics in Osijek, Croatia,
Postgraduate Studies “Management”
Hochschule Pforzheim University
For the Publisher:
Ulrich Jautz, Ph.D., Dean, Germany
Vladimir Cini, Ph.D., Dean, Croatia
Editors:
Urban Bacher, Ph.D., Pforzheim University, Business School, Germany
Dražen Barković, Ph.D., Faculty of Economics in Osijek, Croatia
Karl – Heinz Dernoscheg, Ph.D., International Business School Styria, Austria
Maja Lamza - Maronić, Ph.D., Faculty of Economics in Osijek, Croatia
Branko Matić, Ph.D., Faculty of Economics in Osijek, Croatia
Norbert Pap, Ph.D., University of Pecs, Hungary
Bodo Runzheimer, Ph.D., Pforzheim University, Business School, Germany
Review Committee:
Ivana Barković Bojanić, Ph.D., Faculty of Law in Osijek, Croatia
Ivan Ferenčak, Ph.D., Faculty of Economics in Osijek, Croatia
Nino Grau, Ph.D. University of Applied Sciences, Fachhochschule Giesen-Friedberg, Germany
Mladen Jurišić, Ph.D., Faculty of Agriculture in Osijek, Croatia
Slavo Kukić, Ph.D., University of Mostar, Faculty of Economics in Mostar, Bosnia and Hercegovina
Hartmut Loffler, Ph.D., Pforzheim University, Business School, Germany
Brano Markić, Ph.D., University of Mostar, Faculty of Economics in Mostar, Bosnia and Hercegovina
Renata Perić, Ph.D., Faculty of Law in Osijek, Croatia
Bela Orosdy, Ph.D., University of Pécs, Faculty of Business and Economics, Hungary
Ivan Pavlović, Ph.D., University of Mostar, Faculty of Economics in Mostar, Bosnia and Hercegovina
Sunčica Oberman Peterka, Ph.D., Faculty of Economics in Osijek, Croatia
Jusuf Šehanović, Ph.D., Juraj Dobrila University of Pula, Croatia
Dirk Wentzel, Ph.D., Hochschule Pforzheim University, Germany
Technical editors:
Jerko Glavaš, Ph.D., Faculty of Economics in Osijek, Croatia
Hrvoje Serdarušić, Ph.D., Faculty of Economics in Osijek, Croatia
Language Editing and Proofreading:
Ljerka Radoš, Faculty of Economics in Osijek, Croatia
Design and print:
Krešimir Rezo, graf.ing.
Krešendo, Osijek
ISSN 1847-0408
Indexed in: EBSCOhost, RePEc, EconPapers, Socionet

Program committee:
Mate Babić, Ph.D., University of Zagreb, Faculty of Economics in Zagreb, Croatia
Heinrich Badura, Ph.D., President, Schlesischen Universität Katowice, Poland
Firouz Gahvari, Ph.D., University of Illinois at Urbana-Campaign, Department of Economics, USA
Gunther Gottlieb, Ph.D., University of Augsburg, Germany
Rupert Huth, Ph.D., Pforzheim University, Business School, Germany
Zoran Jašić, Ph.D., Former Ambassador of the Republic of Croatia to the Republic of Austria
Zlatko Kramarić, Ph.D., Ambassador of the Republic of Croatia to the Republic of Kosovo
Ulrich Jautz, Ph.D., Pforzheim University, Business School, Germany
Željko Turkalj, Ph.D., Rector, University of Osijek, Croatia
Mladen Vedriš, Ph.D., University of Zagreb, Faculty of Law, Croatia

CONTENTS
VORWORT .........................................................................................................................................13
FOREWORD.......................................................................................................................................14
Management
Lena Duspara, Dražen Holmik
COMPETITIVENESS INDICATORS IN THE MANUFACTURING
INDUSTRY IN THE REPUBLIC OF CROATIA ..................................................................... 17
Robert Obraz, Zlatko Rešetar, Nikolina Pavičić
EXAMPLE OF LEAN MANAGEMENT IN PRACTICAL USE 
BASED ON REDUCTION “NVAT” ACTIVITIES IN THE 
PRODUCT ASSEMBLY PROCESS ............................................................................................. 28
Igor Pureta
LIFELONG LEARNING PROCESS USING DIGITAL TECHNOLOGY ..................... 39
Romina Sinosich, Ivan Herak, Andreja Rudančić-Lugarić
APPLICABILITY OF EUROPEAN DEVELOPMENT PROGRAMMES
TO TOURISTIC MANAGEMENT OF ISTRIAN DESTINATION ................................ 49
Ioana Beleiu, Emil Crisan, Razvan Nistor
MAIN FACTORS INFLUENCING PROJECT SUCCESS ..................................................... 59
Martina Briš Alić, Mirko Cobović, Alen Alić
OPTIMISATION OF OPERATIONS USING A TRANSPORTATION MODEL ........ 73
Sonja Brlečić Valčić, Jana Katunar
INTERDEPENDENCE OF BUSINESS VALUE COMPONENTS
IN VALUE CREATION AND VALUE CAPTURE CONCEPTS ....................................... 84
Dominika Crnjac Milić
ECONOMETRIC APPROACH TO THE DEMAND FUNCTION ................................... 96
Maja Lamza - Maronić, Anđelko Lojpur, Jerko Glavaš
KNOWLEDGE MANAGEMENT AND SCIENTIFIC INCLUSION
ON AN INTERNATIONAL LEVEL CASE STUDY: THE BILATERAL
PROGRAM REPUBLIC OF CROATIA  REPUBLIC OF MONTENEGRO
IN THE PERIOD 20152017. ....................................................................................................... 103
Jelena Legčević
INTELECTUAL CAPITAL AS A DRIVING FORCE OF
ECONOMIC DEVELOPMENT ................................................................................................. 112
Tanja Nedimović, Jelena Prtljaga, Predrag Prtljaga
CHARACTERISTICS OF MANAGERIAL WORK  CHANCES AND RISKS ........ 121
Ana Pap, Marija Ham, Ana Turalija
PRODUCT POLICY MANAGEMENT AS PART OF
SUSTAINABLE MARKETING STRATEGY ........................................................................ 131
Teufik Čočić, Velimir Lovrić
MANAGEMENT AND LEADERSHIP IN CULTURAL INSTITUTIONS ............... 141

Djurdja Solesa-Grijak, Dragan Solesa, Nedjo Kojic
STUDENTS’ POTENTIAL FOR AUTHENTIC LEADERSHIP....................................... 149
Ivan Miloloža
RELATION OF LEADERSHIP AND BUSINESS PERFORMANCE:
BALANCED SCORECARD PERSPECTIVE .......................................................................... 159
Sandra Herman
MANAGEMENT OF HUMAN RESOURCES IN TOURISM............................................ 180
Zorislav Kalazić, Jasna Horvat, Josipa Mijoč
THE STOCK PHOTOGRAPHY AS A PART OF CULTURAL
AND CREATIVE INDUSTRIES OF THE DIGITAL AGE .............................................. 189
Lara Jelenc, Slavomir Vukmirović, Zvonko Čapko
FIRM’S STRATEGIC THINKING IN THE CONTEXT
OF BUSINESS INFORMATIZATION ..................................................................................... 204
Adel Ghodbane, Habib Affes
RELATIONAL NETWORK, ABSORPTION CAPACITY AND
ACCESS TO EXTERNAL RESOURCES BY TUNISIAN CONTRACTORS ............. 217
Mato Pušeljić, Ana Skledar, Ivan Pokupec
DECISION-MAKING AS A MANAGEMENT FUNCTION ............................................. 234
General Economics
Jelena Franjković, Dario Šebalj, Ana Živković
YOUTH: DOES UNEMPLOYMENT LEAD TO SELF-EMPLOYMENT? ..................... 247
Besim Aliti, Marko Markić, Boris Štulina
THE IMPACT OF CHANGES IN PRICES OF PETROLEUM
PRODUCTS ON THE GENERAL PRICE LEVEL .............................................................. 258
Goran Sučić, Željko Požega, Boris Crnković
IMPACT ANALYSIS OF ECONOMIC PARAMETERS ON SOCIAL
DEVELOPMENT ........................................................................................................................... 274
Mladen Vedriš
THE NEW ECONOMIC POLICY OF THE EU AND ITS
APPLICATION IN THE REPUBLIC OF CROATIA ............................................................. 286
Microeconomics, Macroeconomics and Monetary Economics
Bodo Runzheimer
DER NEUE STANDARD IFRS 15 – IASB UND FASB VERABSCHIEDEN
EINEN WEITGEHEND EINHEITLICHEN STANDARD ZUR
UMSATZREALISIERUNG ............................................................................................................ 313
International Economics
Larisa Nicoleta Pop
AN ANALYSIS OF THE ROMANIAN AGRICULTURAL MARKET
IN THE CONTEXT OF COMMON AGRICULTURAL POLICY ................................... 333

Thomas Cleff, Helen Loris, Nadine Walter
SHOPPING ON TO GO  AN ANALYSIS OF CONSUMERS`
INTENTION TO USE MCOMMERCE IN GERMANY AND PERU ......................... 344
Martin Vlcek
THE FIRM WITHOUT SUBORDINATIONS .................................................................... 373
Financial Economics
Liviu Daniel Deceanu
SOVEREIGN DEBT UNDER SCRUTINY. WHAT TO DO? ............................................ 385
Melita Cita, Milan Stanić, Berislav Bolfek
RESTRUCTURING OF SMALL BUSINESS IN THE RERUBLIC OF CROATIA
DURING CRISIS ............................................................................................................................. 400
Ticijan Peruško, Iva Hasić
THE ANALYSIS OF THE FINANCIAL POSSIBILITIES ON THE LIFE
INSURANCE MARKET AFTER ECONOMIC CRISIS  CASE OF
REPUBLIC OF CROATIA ............................................................................................................ 409
Urban Bacher, Julia Bacher
NACHHALTIGES INVESTIEREN MIT FONDS
 AUSWAHLSTRATEGIEN UND ERSTE HINWEISE
ZUR ERFOLGSMESSUNG ........................................................................................................ 421
Ozren Pilipović, Meta Ahtik, Nenad Rančić
FDI INFLOWS IN TIME OF CRISIS – PANEL DATA ANALYSIS
OF FDI INFLOWS TO THE SELECTED EU MEMBER STATES .................................. 433
Branko Matić; Hrvoje Serdarušić, Maja Vretenar Cobović
MANAGING PERSONAL FINANCES: EXAMPLES AND
LESSONS FROM CROATIAN STUDENT POPULATION .......................................... 467
Helena Miloloža, Marina Šunjerga
IMPACT OF THE PUBLIC DEBT OF THE REPUBLIC OF CROATIA
ON THE CROATIAN EXPORT SETOR ............................................................................... 478
Ivan Lukić, Izabela Belić, Davor Vlaović
CONSOLIDATED (CENTRAL) PUBLIC PROCUREMENT AS
EFFECTIVE TOOL FOR THE COUNTY MANAGEMENT FOR
RATIONALIZATION OF COSTS OF REGIONAL UNITS ............................................ 491
Public Economics
Željko Turkalj, Dubravka Mahaček
EFFICIENCY OF COMPANIES OWNED BY LOCAL AND
REGIONAL SELF-GOVERNMENT UNITS ........................................................................ 509
Domagoj Pavić, Domagoj Karačić
NEWLY CREATED CONSEQUENCES CAUSED BY CHANGE
OF INCOME TAX .......................................................................................................................... 524

Health, Education and Welfare
Martina Dragija, Berislav Žmuk
IMPORTANCE OF MANAGEMENT REPORTS FOR DECISION
MAKING PROCESS IN HIGHER EDUCATION SYSTEM .............................................. 537
Adrijana Nikić-Katić
EDUCATION AS AN INDICATOR OF DEVELOPMENT ON
THE ROAD TO THE KNOWLEDGE ECONOMY ............................................................. 549
Grozdanka Gojkov, Aleksandar Stojanović, Aleksandra Gojkov Rajić
QUO VADIS UNIVERZITAS? ORGANIZATIONAL
CONCEPTS  IMPERATIVES OF SUCCESS AND VALUE ........................................ 558
Dražen Barković, Nedeljko Kovačić 
THE DEVELOPMENT OF QUALITY MANAGEMENT
SYSTEMS AT THE PRIMARY LEVEL OF HEALTH CARE ............................................ 569
Helena Štimac, Sendi Katić
QUALITY ASSURANCE IN HIGHER EDUCATION ........................................................ 581
Vladimir Masaryk, Eva Musilová, Marta Vaverčáková, Timo Keppler
HEALTH MANAGEMENT IN THE SLOVAK REPUBLIC ............................................... 592
Monika Mačinková, Peter Slovák, Jana Keketiová, Thorsten Eidenmüller
PERSONAL MANAGEMENT IN SOCIAL CARE IN THE SLOVAK REPUBLIC ..... 608
Klara Šćuka, Branka Martić, Miroslav Jarić
COUNTY MANAGEMENT – AN IMPORTANT FACTOR
OF AVALIABLE HEALTH CARE................................................................................................ 622
Ante Mihanović, Ante Sanader, Mate Krce
INFLUENCE OF VARIABLE COMPENSATION ON BUSINESS
PERFORMANCE OF THE SPLIT – DALMATIA COUNTY PHARMACIES .............. 633
Oliver Kesar, Renata Deželjin, Martina Bienenfeld
TOURISM GENTRIFICATION IN THE CITY OF ZAGREB:
TIME FOR A DEBATE? ................................................................................................................. 657
Agneza Aleksijević, Luka Stanić
ROLE OF INFORMATION SYSTEM IN VUKOVAR
GCH SYSTEM ON THE EXAMPLE OF NURSING E-RECORDS ........................... 669
Law and Economics
Emina Jerković
IMPORTANCE OF TAX REVENUE CONCERNING
BUDGETS OF LOCAL AND REGIONAL SELFGOVERNMENT UNITS .............. 683
Corina Cristina Buzdugan, Elena Mihaela Fodor, Rodica Diana Apan
DOING BUSINESS IN ROMANIA; FOREIGN DIRECT
INVESTMENTS FDI; TRADING ENTITIES  INVESTMENT
MECHANISMS; PROTECTION SYSTEM; GUARANTEES ........................................ 694

Pavao Gagro
OPPORTUNITIES FOR ICT USE IN THE NOTARY PUBLIC SERVICE .................... 706
Željko Turkalj, Ante Orlović, Ivica Milković
PHENOMENOLOGY OF PUNISHABLE BEHAVIORS IN THE
ECONOMY AND THEIR IMPACT ON THE SUCCESS OF THE
ORGANIZATIONS ........................................................................................................................ 727
Vjekoslav Puljko
REGULATION (EU) No 1215/2012 ON JURISDICTION AND
THE RECOGNITION AND ENFORCEMENT OF JUDGMENTS IN
CIVIL AND COMMERCIAL MATTERS WITH SPECIAL REFERENCE TO
THE RELATIONSHIP BETWEEN THE REGULATION AND ARBITRATION ..... 739
Igor Bojanić, Ivana Barković Bojanić
PLEA BARGAINING: A CHALLEGING ISSUE
IN THE LAW AND ECONOMICS .......................................................................................... 752
Economic Systems
Dunja Škalamera–Alilović, Mira Dimitrić
RESOLVING INSOLVENCY MANAGEMENT:
COMPETITIVENESS OF NATIONAL BUSINESS ENVIRONMENTS ...................... 769
Industrial Organization
Markus Hafele, Brigitte Mayer
QUALITÄTSSICHERUNG IN DER WIRTSCHAFTSPRÜFUNG
 EIN SYSTEM MIT STÄNDIGEM REFORMBEDARF? ............................................... 781
Business Administration and Bussines Economics
Marija Mihaljević, Ivana Tokić
ETHICS AND PHILANTHROPY IN THE FIELD OF
CORPORATE SOCIAL RESPONSIBILITY PYRAMID ..................................................... 799
Ajdanai Yuktanandana, Dissatat Prasertsakul
THE EFFECTS OF SERVICE QUALITY AND CUSTOMER
SATISFACTION ON CUSTOMER LOYALTY:
A CASE OF THAI MOBILE NETWORK INDUSTRY ...................................................... 808
Economic Development, Technological Change and Growth
Sofija Adžić
PROCESS OF REINDUSTRALIZATION IN THE CONTEXT
OF EUROPEAN INTEGRATION ............................................................................................. 827
Ljiljana Božić, Valerija Botrić
INNOVATORS’ VS. NONINNOVATORS’ PERCEPTIONS ON BUSINESS
BARRIERS IN SOUTHEASTERN EUROPE ....................................................................... 839

Drago Pupavac, Mimo Drašković
EMPLOYMENT IN TRANSPORTATION: LOOKING BACKWARD AND
LOOKING FORWARD ................................................................................................................ 850
Ivan Ambroš, Ivan Miškulin, Gabrijela Žalac
APPLYING TRIPLE HELIX CONCEPT TO DEVELOP WOOD SECTOR IN
VUKOVARSRIJEM COUNTY ................................................................................................. 860
Cătălina Crișan-Mitra, Anca Borza
HOW MEASURING CSR PERFORMANCE IMPACTS CSR RESULTS? .................. 869
Ioana Sorina Mihuţ
ECONOMIC GOVERNANCE AS TRIGGERING FACTOR FOR ECONOMIC
CONVERGENCE ACROSS EUROPEAN UNION MEMBER STATES ........................ 880
Marcel Pîrvu, Mihaela Rovinaru, Flavius Rovinaru
PROGRESS ASSESSMENT ON RENEWABLE ENERGY ACROSS
THE EUROPEAN UNION. POTENTIAL AND CHALLENGES OF
REACHING THE TARGETS OF THE 2020 HORIZON ................................................. 891
José Guadalupe Vargas Hernández
THEORETICAL APPROACHES FOR THE ANALYSIS OF INNOVATION
CAPACITY AS A FACTOR THAT AFFECTS THE COMPETITIVENESS
OF SOFTWARE INDUSTRY OF JALISCO ............................................................................ 904
Branimir Dukić, Sanja Ćorić, Danijel Bara
INFORMATION SYSTEM REENGINEERING EFFECTS THROUGH THE
ESTABLISHMENT OF THE SPECIAL DEPARTMENT FOR BUSINESS
INTELLIGENCE IN BUSINESS ENTITIES .......................................................................... 936
Guy Fournier, René Seign, Véronique Goehlich, Klaus Bogenberger
CARSHARING WITH ELECTRIC VEHICLES: A CONTRIBUTION
TO SUSTAINABLE MOBILITY? ............................................................................................. 955
Josip Mesarić, Nenad Stanišić
PROBLEMS OF TRANSITION FROM CLASSICAL DEDICATED
ICT SYSTEM TO CLOUD COMPUTING ............................................................................. 976
Marija Šmit, Zorislav Šmit
IMPACT OF DIGITAL DEVICES AND MOBILE APPLICATIONS
ON CHILD DEVELOPMENT ................................................................................................... 989
Nino Grau
CHANGE MANAGEMENT  VORAUSSSTZUNG FÜR ERFOLGREICHE
EINFÜHRUNG DER PROJECTMANAGEMENTNORM ISO 21.500 ...................... 1003
Damir Lucović
PERSPECTIVES OF THE CLOUD COMPUTING FOR
FINANCIAL INSTITUTIONS .................................................................................................1013
Morana Mesarić, Luka Burilović
MANAGEMENT OF ICT BASED ENTERPRISES – APPROACH THROUGH
FRAMES FOR BUSINESS ARCHITECTURE, IT GOVERNANCE AND IT
MANAGEMENT ........................................................................................................................... 1027

Urban, Rural and Regional Economics and Growth
Višnja Bartolović, Tomislav Kovačević
VALUATION OF ECONOMIC - SOCIAL DEVELOPMENT OF THE COUNTIES
BRODSKO-POSAVSKA AND POŽEŠKO-SLAVONSKA THROUGH EU FUNDS ....1041
Vladimir Cini, Nataša Drvenkar, Mario Banožić
HEALTH TOURISM DEVELOPMENT IN CONTINENTAL CROATIA .......................1052
Sanja Knežević, Anita Kulaš
THE IMPACT OF DEMOGRAPHIC TRENDS IN BROD-POSAVINA
COUNTY WITH REGARD TO THE LABOR MARKET ......................................................1066
Josip Britvić, Dejan Tubić, Božidar Jaković
TOURIST CLUSTER - HOLDER OF RURAL DEVELOPMENT OF CROATIA ...........1077
Marcela Monica Stoica
YOUTH PERCEPTIONS ON THE POLITICAL AND ECONOMIC FUTURE OF
ROMANIA IN A GLOBAL WORLD. REASONS FOR MIGRATION ................................1089
Miscellaneous Categories
Iva Buljubašić
IMPACT OF UNCONVENTIONAL ADVERTISING ON
PERFORMANCE OF CULTURAL INSTITUTIONS IN CITY OF OSIJEK ................... 1097
Zdravko Tolušić, Sandra Odobašić, Marija Tolušić
VALUATING BRANDS OF WINE USING BRAND FINANCE
METHOD - A CASE STUDY .......................................................................................................... 1106
Ulrich Föhl, Simon Elser
MEASURING BRAND PERSONALITY – CONSTRUCT VALIDITY
OF A SHORT VERSION OF A BRAND PERSONALITY SCALE ...................................... 1116
Tihomir Zec, Vice Mihanović, Jerko Žunić
ACHIEVING COMPETITIVE ADVANTAGE OF A COMPANY THROUGH
EFFICIENT MANAGEMENT OF WAGES AND EMPLOYEE REWARDS .................... 1133
Damir Butković
INTEGRATED PROJECT PLAN AS BASIS FOR
MULTI-PROJECT SYSTEMS MANAGEMENT ...................................................................... 1146
Gabriele Hildman, Urlich Vossebein
THE APPROACH OF SYSTEMS THINKING IN STRATEGIC
MARKETING CONTROLLING ................................................................................................. 1159
Wolfgang Gohout
SOME INVESTIGATIONS OF THE SAMPLE MAXIMUM ............................................... 1173
Izabela Pruchnicka-Grabias
HEDGE FUND ASSETS RATES OF RETURN  THEORY
AND EMPIRICAL TESTS .............................................................................................................. 1188
Andreja Hašček
INTRODUCING AND MANAGEMENT OF INVESTOR RELATIONS IN
A COMPANY WHOSE SHARES ARE ADMITTED TO TRADING
ON THE A REGULATED MARKET IN THE REPUBLIC OF CROATIA ....................... 1207

Vorwort
Es ist uns ein Vergnügen, das Konferenzband „Interdisziplinäre Managementforschung
XI / Interdisciplinary Management Research XI“ vorstellen zu können. Ein Buch aus
dieser Reihe ist zum ersten Mal 2005 erschienen, als Resultat der Zusammenarbeit
zwischen der Wirtschaftsfakultät in Osijek, Kroatien und der Hochschule Pforzheim,
Deutschland, und insbesondere durch das Magisterstudium des Management. Die
Zusammenarbeit der zwei genannten Partnerinstitutionen ist unter anderem durch
jährliche wissenschaftliche Symposien gekennzeichnet, auf welchen interessante Themen
aus verschiedenen Bereichen der Wirtschaft und des Managements vorgestellt und folglich
in einem Band veröffentlicht werden. Jedes Jahr ziehen die wissenschaftlichen Symposien
Akadamiker anderer kroatischer, sowie ausländischer Universitäten, einschließlich
Australien, Deutschland, Ungarn, Polen, Rumänien, Slovenien, Montenegro, Bosnien und
Herzegovina, Serbien, Indien, Irland, Czechien, Israel, Italien, Sudafrica, Belgien, Schweiz,
USA, Slowakei, Dänemark, Mazedonien, Mexico, Zypern und Großbritannien an, die
ihren wissenschaftlichen und profesionellen Beitrag zur Diskussion über zeitgenössische
Fragen aus dem Bereich des Managements leisten. Die Aktualität der behandelten
Fragen, der internationale Charakter im Hinblick auf Themen und Autoren, die höchsten
Standards der Forschungsmethodologie sowie die Kontinuität dieser Konferenzreihe
wurden auch von der internationalen akademischen Gemeinde erkannt, weswegen sie auch
in internationalen Datenbanken, wie Web of Science, Thomson ISI, RePEc, EconPapers
und Socionet, zu finden ist.
Die neueste Ausgabe von „Interdisziplinäre Managementforschung XI / Interdisciplinary
Management Research XI“ umfasst 86 Arbeiten geschrieben von 186 Autoren. Der
Erfolg früherer Ausgaben ging über die Grenzen der Länder hinaus, deren Autoren
schon traditionell Teil der Reihe waren und zog neue Autoren aus Taiwan und Tunesien
an. Jedes der Autoren leistete einen bedeutenden Beitrag zu diesem fachübergreifenden
Managementforum.
Als Herausgeber dieses Bandes hoffen wir, dass diese Reihe auch weiterhin Akademiker
und Profesionelle dazu bewegen wird, in Forschung und Beruf die höchsten Standards zu
beanspruchen, und dass es weiterhin als Ansporn zu weiteren Formen von Zusammenarbeit
unter Teilnehmern dieses Projektes dienen wird.

Prof. Dr. Dražen Barković
Prof. Dr. Bodo Runzheimer

Foreword

It is our pleasure to introduce the book “Interdisziplinäre Managementforschung XI /
Interdisciplinary Management Research XI” to you. The first volume appeared in 2005 as a
result of co-operation between the Faculty of Economics in Osijek (Croatia) and Pforzheim
University (Germany), particularly through the postgraduate programme “Management”.
The co-operation between these partnering institutions has been nurtured, amongst
else, through annual scientific colloquiums at which interesting topics in various fields of
economics and management have been presented and later published in the proceedings.
Over the years, the scientific colloquiums have drawn the attention of academic scholars
from other Croatian universities, as well as from other countries including Australia,
Germany, Hungary, Poland, Romania, Slovenia, Montenegro, Bosnia and Herzegovina,
Serbia, India, Ireland, Czech Republic, Israel, Italy, South Africa, Belgium, Switzerland,
USA, Slovakia, Denmark, Macedonia, Mexico, Cyprus and the United Kingdom each
making a contribution in academic and professional discussion about contemporary
management issues. Actuality and importance of the issues discussed, the international
character of the book in terms of authors and topics, the highest standards of research
methodology and continuity in publishing have been recognized by the international
academic community, resulting in the book now being indexed in world-known data bases
such as Web of Science, Thomson ISI, RePEc, EconPapers, and Socionet.
The latest edition, i.e. “Interdisziplinäre Managementforschung XI / Interdisciplinary
Management Research XI” encompasses 86 papers written by 186 authors. The success
of former editions has echoed beyond the traditionally participative countries and authors
and now includes new authors from Taiwan and Tunisia, each providing a valuable
contribution to this interdisciplinary management forum.
As editors we hope that this book will continue to encourage academic scholars and
professionals to pursue excellence in their work and research, and to provide an incentive
for developing various forms of co-operation among all involved in this project.

Prof. Dr. Dražen Barković
Prof. Dr. Bodo Runzheimer

Management

COMPETITIVENESS INDICATORS
IN THE MANUFACTURING
INDUSTRY IN THE REPUBLIC OF
CROATIA
Lena DUSPARA, BSc
College of Slavonski Brod,
Slavonski Brod, Croatia
lena.duspara@vusb.hr

Dražen HOLMIK, M.Sc.Sc
Croatian Chambor of Economy, Croatia
lena.duspara@vusb.hr

Competitive advantage is what each enterprise stands out from the rest of the
competitors in the market. It is the reason why the enterprise operates maintains and achieves growth. For the majority of enterprise competitive advantage
is rarely unique and changes over a longer time period. Successful enterprises
are therefore constantly looking for new competitive advantages and spend a
lot of time for market research. When calculating the index of competitiveness
it should calculate indicators such as: allocation of public funds, trust in politicians, judicial independence, ethical corporate behavior, GDP, the nature of
competitive advantage, control of international trade, capacity for innovation,
procurement of advanced technology products, the rate of inflation etc.
The aim of this paper is to research financial indicators of 20 small enterprises in
Croatian manufacturing industry and compare their results form 2011, 2012
and 2013. Indicators are base that shows success and development of enterprise.
The research is conducted through a survey. The goal is to present a current
state of the competitiveness of enterprises in manufacturing industry, and to
determine the indicators which improve the competitive position of enterprises.
Keywords: competitiveness, indicator, manufacturing, enterprise, advantage
JEL Classification: L16, L20, L52, L6

17

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Abstract

Lena Duspara: COMPETITIVENESS INDICATORS IN THE MANUFACTURING INDUSTRY IN REPUBLIC OF CROATIA

1.

INTRODUCTION

The industry consists of a group of companies that produce very similar
products. Industries differ in economic characteristics, competitive characteristics and profit prospects. Under the economic characteristics that should
be considered in identifying the dominant characteristics of the industry are
considered: size and growth rate of the market, the geographic boundaries of
the market, the number and size of competitors, production capacity, customer
needs, technological changes, differentiation, product innovation, economies
of scale etc. All industries have different characteristics and for them specific
competitive forces. Competitive advantage is unimaginable to reach without
successful business strategy. Competitive strategy enables the creation of better
competitiveness of enterprises, determines objectives that should be achieved,
and what elements should be satisfied in order to achieve the intended goals.

2.

COMPETITIVE ADVANTAGE

Competitive advantage is what the company stands out from the rest of the
competitors in the market. “The biggest threat for entrepreneur or manager is to
lose customers. Competitive advantage is the reason why the customer decides
to purchase in a particular company. In the case of a reduction of profits companies decide for lower prices, in order to compete in the market” (Porter, M.E.,
2004., p.25). In such conflict survive can only financially powerful enterprises.
Companies to its customers have to offer more than low prices. It needs to promote its competitive advantage or develop and implement new to achieve the
best possible position for the defense of competition. Key success factors are the
factors that affect every member of the industry. They include certain strategic
elements, characteristics of products, resources, expertise, etc.
There are two types of competitive advantage, which is divided into external and internal. For external competitive advantage for company is the most
important reputation perceived by customers. Under external competitive advantages are considered: patented products or special services which the competition cannot be measured, better product quality, quick delivery, etc. “Internal
competitive advantages have influence on customers, but customers may not see
it. These are: purchasing power, substitute products or services, market position, experience, production advantages, distribution advantages, links with the
authorities”( Smith, J.L., 2007., p. 163). In case the company does not have a

18

competitive advantage, then as soon as possible it should be created. Creating
competitive advantage not only helps the company, but redirects the way of doing business and focus on new goals.

.. Porter’s five generic competitive forces
Five competitive forces affects more or less on all companies in the industry.
All five competitive forces have influence on intensity of the competitiveness
and profitability of the industry, and a major power or force becomes the most
important point for the determination of the company’s strategy. “The company
with a strong market position in the industry, where is a small possibility of entry of new competitors into the market, will reduce the prices of their products
if there are substitution product with low price. The structure of the industry
that affects the strength of the force should be visibly different from the many
short-term factors affecting the competitiveness and profitability. Fluctuations
in economic conditions in a business cycle influence the level of short-term profitability of almost all companies in various industries” (Porter, M.E., 2004., p.3).

-The threat of new entrants. New companies that entering in the market create new market capacity. Such companies often have substitution products that
cause lower price levels and reduce profitability. The threat of entry into the
industry depends on the existing barriers to entry, and the reaction of already
existing companies.
-The rivalry within industry. The rivalry among existing competitors means
balancing between tender prices, advertising, introduction of products, construction of commercial networks, the development of knowledge and skills.
The rivalry occurs when one or more competitors insights opportunity to improve their position.

19

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Fine competitive forces are shown in picture 1:

Lena Duspara: COMPETITIVENESS INDICATORS IN THE MANUFACTURING INDUSTRY IN REPUBLIC OF CROATIA

Picture 1. Five porter’s competitive forces

Source: http://www.tutor2u.net

-Threat of substitute products. Companies that compete in an industry are
under pressure from competing companies that offer substitutes. If substitutes
are cheaper than the product of an industry, then industry tries to reduce prices
of their products.
-Bargaining power of buyers. Customers in the industry require a reduction
of price of products, higher quality products or services. Power to influence customers of the industry depends on the number and characteristics of the market situation. If a large portion of sales purchased by one customer, it increases
the importance of the customer to achieve business results to sellers.
-Bargaining power of suppliers. Suppliers can show their power over the prices of products in ways that threat: an increase in price or reduction in quality of
goods or services.

.. Indicators of competitiveness in Republic of Croatia
Competitiveness of the country is characterized by numerous elements that
constitute a lack of Croatian competitiveness, such as: costs of agricultural policy, the ability to attract talented people, incentives to investment, cooperation
of employers and employees, employee education, sophistication of customers,
protecting investors, development cluster, to protect the interests of minority
shareholders, technology transfer, bias decisions of government officials, the
impact on the market, the independence of the system, strengthening of local
competition, the effectiveness of management boards, transparency of government policies, the availability of credit, the representation of foreign ownership,
willingness to delegate responsibilities, balance the government budget.

20

Table 1. Problems of national competitiveness
Innovation capacity
Manufacturing technology
Development of clusters
Marketing
Contorl of international distribution
Credit availability

2012.
72
104
94
83
96
94

2013.
110
103
114
94
97
105

Change
-38
1
-20
-11
-1
-11

Source: Izvješće o globalnoj konkurentnosti 2014-2015

Table 1. presents biggest problems are innovation, which has negative change
-38 in comparison form 2012 to 2013 year, other problems are development of
clusters with negative change of -20, marketing and credit availability with -20,
and only technology development doesn’t have negative change, it is almost the
same in 2012. and 2013.
Table 2. shows positive indicators for business competitiveness in Republic
of Croatia. Contrary to negative indicators positive indicators are development
of research and development (R&D), comparison of wages and labor productivity, customer orientation, business ethics and its implementation, efficiency
of CEO and supervisory boards.

Investments in R & D
Wages and productivity
Customers orientation
Business ethics
Efficiency of CEO boards

2012.
76
101
107
94
127

2013.
65
82
84
76
106

Change
11
19
23
18
21

Source: Nacionalno vijeće za konkurentnost, 2014

Positive indicators have growth form 2012 to 2013. The bigesst positive
change is customer orientation, than growth of efficiency of CEO boards.
Croatia chould support development od indicators shown it table, and create
new indicators which would be leaders of national competitivness. Technolgy
should is one of most important indicators that should become strong positive
indicator.

21

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Table 2. Positive indicators of business competitiveness in Republic of Croatia

3.

COMPETITIVENESS OF REPUBLIC OF
CROATIA

Lena Duspara: COMPETITIVENESS INDICATORS IN THE MANUFACTURING INDUSTRY IN REPUBLIC OF CROATIA

Comparing competitiveness on global level, it is clear that Republic Croatia is not competitive. Croatia is one of lowest ranging competitive country in
European Union, and not very well positioned in the world. Indicators as rate
of unemployment, rate of growth of GDP is low, ratio of export and import is
unfavorable, there are not enough investments, and profits are low and so on.
Table 3. shows data on the competitiveness ranking list and competitiveness
index, between top fifteen most competitive countries in the world and Republic Croatia in 2013/2014. Table shows that Croatia is currently on 75th place in
terms of competitiveness in the world with an index of competitiveness of 4.13.
Before the global economic crisis 2006-2007 was the 56th place. Very similar
are rated countries in region Bosna and Herzegovina and Slovenia.
Table 3. Range of competitiveness in period from 2008-2013

Switzerland
Singapur
Finland
Germany
USA
Sweeden
Hong Kong
Netherland
Japan
UK
Norway
Taiwan
Qatar
Canada
Denmark
Slovenia
Croatia
BiH
Serbia

Index
Index
201320122011Index
20082014 2013-2014 2013 2013-2014 2012 2011-2012 2009
1
5,67
1
5,72
1
5,74
2
2
5,61
2
5,67
2
63
5
3
5,54
3
5,55
4
5,47
6
4
5,51
6
5,48
6
5,41
7
5
5,48
7
5,47
5
5,43
1
6
5,48
4
5,53
3
5,61
4
7
5,47
9
5,41
11
5,36
11
8
5,42
5
5,50
7
5,41
8
9
5,40
10
5,40
9
5,40
9
10
5,37
8
5,45
10
5,39
12
11
5,33
15
5,27
16
5,18
15
12
5,29
13
5,28
13
5,26
17
13
5,24
11
5,38
14
5,24
26
14
5,20
14
5,27
12
5,33
10
15
5,18
12
5,29
8
5,40
3
62
4,25
39
5,05
39
5,12
42
75
4,13
81
4,04
52
4,76
61
87
4,02
88
3,93
92
4,25
107
101
3,77
95
3,87
88
4,28
85

Source: made by author according to World Economic Forum

22

Index
2008-2009
5,61
5,53
5.50
5,46
5,74
5,53
5,33
5,41
5,38
5,30
5,22
5,22
4,83
5,37
5,58
4,50
4,22
3,56
3,90

Compared to previous period for example 2008 or 2011 Croatia had better
rank, it was on 52nd and 61st position. Croatia is far away from average of most
developed countries. It should make effort to improve Croatian position in future period and to improve its indicators that effect on it. Republic of Croatia as
a member of EU should reach similar position as a developed western countries.
One of most important factor shown in table that presents competitiveness
is GDP (GDP in HRK, GDP in EUR, GDP per capita, GDP rate of growth,
% of GDP in foreign debt). Table 4. shows data form 2007 to 2013.year.
Table 4. Value of GDP in Republic of Croatia on period form 2007-2013.
godine
2007.
2008.
2009.
2010.
2011.
2012.
2013.
GDP (mil.HRK,)
322.310 347.685 330.966 328.041 332.587 330.456 330.135
GDP (Mil. EUR,)
49.935 48.135 45.093 45.022 44.737 43.959 43.591
GDP per capita(EUR)
9.904
10.856 10.181 10.191 10.453 10.300 10.213
GDP (real rate of growth (%)
5,2
2,1
-7,4
-1,7
-0,3
-2,2
-0,9
Foreign debt (% of GDP)
76,8
84,3
100,4
103,3
102,6
102,1
104,7

Source: made by author according to HNB (www.hnb.hr)

4.

MANUFACTURING INDUSTRY

“Industrial production in Croatia is occupied by a recession has significant
place in the overall production. Some companies off are in transition or died
during the war. Above all this applies to textile, leather, metal and wood industry. The value of sales of industrial products in 2011 amounted to 17.4 billion
euros. To the total income of the leading industries are food processing, beverages and tobacco, followed by the chemical and oil industries. The exports were
the most common processing of petroleum products (11.8%), motor vehicles
(11.2%), chemical products (8.3%), food products (8.1%), electrical equipment
(7.8%), machines (6.3%), fabricated metal products (6.1%), pharmaceutical
products (4.8%), clothing (2.9%), wood and wood products (3.4%)” (http://

23

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Sum of GDP is becoming every year less and less. It is not good trend and
it lasts for very long period of time. Expectations for future are not optimistic.
Real rate of growth is negative since 2009. with negative value of -7,4. It is time
of beginning of global economic crisis, which lasts in Croatia till now.

www.croatia.eu ). Manufacturing industry was developed at the end of 18th
century after the invention of steam engine in Britain. Manufacturing accounts
for a relatively large part of the total world production of goods and services. In
Croatia it was about “223.000 employed in manufacturing industry” (http://
www.poslovni.hr)

Lena Duspara: COMPETITIVENESS INDICATORS IN THE MANUFACTURING INDUSTRY IN REPUBLIC OF CROATIA

5.

RESEARCH

In this paper, the primary research by survey was conducted on 20 enterprises: 16 small, 3 medium and 1 big manufacturing enterprises in Republic of Croatia. The analysis was conducted on one enterprise from Varaždinska County,
Koprivničko-križevačka County, Sisačko-moslavačka County, two from Zagreb
and 15 companies with headquarters in Brodsko-posavska County. The results
are based on business activity in 2014. Table 5. show number of employees in
enterprises from research.
Table 5. Number of employees in each enterprise
Number of employees
0-10
10-20
20-30
30-50
50-100
100 <

Number of enterprises
0
4
9
5
2
1

Source: made by author

Table 5. shows that most enterprises are small: 4 have 10-20 employees, 9
with 20-30, 5 with 35-50; two medium sized enterprises with 50-100 and 1 big
with more than 100. The most enterprises in manufacturing industry are small.
Table 6. shows total revenues and total expenses of researched enterprises.
Many enterprises have acceptable and high revenuers, but problem is because
they also have high expenses. Revenues should be higher than expenses as much
as it can. Low expenses and high revenues show that enterprise is competitive.
Enterprise should know how to manage with expenses and costs and how to
make reduction of costs especially in production process.

24

Table 6. Total revenue and total expenses of enterprises
Total revenue in HRK
0-100.000 kn
100.000-500.000
500.000-1.000.000
1.000.0000 <

Number of enterprises
0
2
4
14

Total expenses in HRK
0-100.000
100.000-500.000
500.000-1.000.000
1.000.0000 <

Number of enterprises
2
4
2
12

Source: made by author

In table 6. are presented revenues, 2 enterprises have revenues in interval
form 100.000 till 500.000 HRK, 4 have in interval from 500.000 to 1 million
HRK, and 14 have profit higher than 1 million. Expenses are not significantly lower than revenues. Many enterprises, 12 of 20 have expenses higher that
1 million. The revenue-expenses ration is not satisfied. Enterprises have very
high total expenses in comparison with revenue. Total result of their business is
shown in table 7 that presents profit or loss in 2014.
Table 7. Profit/loss
Total profit/loss in HRK
Loss
0-50.000
50.000-100.000
100.000-1.000.000
1.000.000 <

Number of enterprises
2
0
9
5
4

Table 7. shows that even enterprises have high total revenues, they don’t
achieve profit. Two enterprises don’t have positive business and they had loss at
the end of 2014. The most of them, 9 enterprises have profits in interval from
50- 100.000 HRK, and only 4 enterprises have profit higher than 1.000.000
HRK. In table 8. below are presented data about amount of import and export
of enterprises.
Table 8. Value of import and export
Amount of import
0-100.000
100.000-1.000.000
1.000.000 <

Number of enterprises
1
3
16

Amount of export
0-100.000
100.000-1.000.000
1.000.000 <

Number of enterprises
9
9
2

Source: made by author

25

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Source: made by author

Lena Duspara: COMPETITIVENESS INDICATORS IN THE MANUFACTURING INDUSTRY IN REPUBLIC OF CROATIA

Value of export and import has reciprocal results. Most enterprises import
products and inputs, but doesn’t export any. The result is lack of competitiveness of domestic enterprises, and un-development of manufacturing industry.
Enterprises are not competitive with their product, methodology of production, technology and so on. One of result is lack of investments, just 11 enterprises had investments in 2014 till 100.000 HRK, and only two enterprises
have investments higher that 1 million HRK. It is important to invest in technology, new production methods, in IT technology, in robots in production and
marketing activities. Most technology is out of date and can’t produce products
which are competitive on European market. According to research enterprises
mostly don’t have or have few high educated employees. Without educated human resource it is impossible to develop competitive advantage. “Competitiveness is the basis that determines the success or failure of the company. It also
determines the suitability of the company’s activities that contribute to its performance, such as innovation, cohesion organizational culture or good implementation” (Porter, M.E., 2008, p.20)

6.

CONCLUSION

In order to achieve competitiveness of manufacturing industry, it is necessary to achieve the strategic goals of growth. One of the goals is to increase
GDP, reduction of unemployment in the industry, increasing the quality of life
and increase the investment climate. Manufacturing industry should be a pillar of the economy, but the production is very low quoted. It is necessary to
encourage the development and investments to modernize production suited,
procure new technology which makes it possible to produce products that will
be at the price and quality will be able to compete on the international market.
It is important to invest in the development of human resources and employee
education. All these changes will allow companies tempt not only high operating income, but to reduce expenses and that is earned higher profits. Research
has shown that a small number of companies were able to realize significant
profits that would enable further development and not just their survival in the
market, but also the achievement of sustainable competitive advantage.

26

References

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Porter, M.E., (2004.) Competitive Strategy, Free press, str. 24-27
Smith, J.L. (2007.) Kako stvoriti konkurentsku prednost, Naklada Ljevak, Zagreb,
str.163-166
Porter, M.E., (2004.) Competitive Strategy, Free press, str. 3-7
http://www.tutor2u.net/business/strategy/porter_five_forces.htm
Izvješće o globalnoj konkurentnosti 2014-2015, dostupno online na Nacionalno vijeće za
konkurentnost www.konkurentnost.hr
Nacionalno vijeće za konkurentnost, 2014, www.konkurentnost.hr
World Economic Forum http://gcr.weforum.org/ 08.07.2014.
HNB www.hnb.hr, 15.02.2015
http://www.croatia.eu/article.php?lang=1&id=32
http://www.poslovni.hr/hrvatska/najvise-poduzetnika-u-trgovini-a-zaposlenih-u-preraivackoj-industriji-271894
Porter, M. E. (2008). Konkurentska prednost: postizanje i održavanje vrhunskog poslovanja,
Masmedia, Zagreb, str. 20

27

Robert Obraz • Zlatko Rešetar • Nikolina Pavičić: EXAMPLE OF LEAN MANAGEMENT IN PRACTICAL USE BASED ON REDUCTION “NVAT” ...

EXAMPLE OF LEAN MANAGEMENT
IN PRACTICAL USE BASED ON
REDUCTION “NVAT” ACTIVITIES
IN THE PRODUCT ASSEMBLY
PROCESS
Robert OBRAZ, univ.spec.oec.
Klimaoprema d.d.
robert.obraz@zg.t-com.hr

Zlatko REŠETAR, univ.spec.oec.
Veleučilište „Baltazar Zaprešić“
zlatko.resetar@bak.hr

Nikolina PAVIČIĆ, univ.spec.oec.
Veleučilište „Baltazar Zaprešić“
nikolina.pavicic@bak.hr

Abstract
The long recession and the need to maintain competitive advantages have triggered businesses in manufacturing sectors to question the efficiency of their
business processes. Cost reduction has become the dominant orientation of
business strategies in domestic enterprises because, while reducing operating
income, costs should also be kept under control if we want to ensure the survival
of the company. Cost reduction can be achieved by improvements and enhancements of existing manufacturing processes, using methods of quality improvement such as Six Sigma, introduction of Lean concept to eliminate unnecessary
business activities or implementation of new technologies thereby increasing
technological equipment of the company to the next level and thus provides an
advantage in relation to other competitors in the market.
Western business practices, in the past four decades, shows that the application
of methods and techniques of Lean Management can help businesses to opti-

28

mize their business processes and eliminate unnecessary activities in a business
system that only increase costs, and do not generate additional value.
The aim of this paper is to examine the applicability of Lean concept in real
business environment in the domestic enterprises to identify business activities
that do not bring value to the product (NVAT activities) and try to reduce any
NVAT activities with Lean management techniques and thus speed up the
process of making products.
Results of the study show that the Lean concept is useful tool to speed up the
existing production processes as well as to increase the efficiency of the process.
Keywords: Lean Management, Lean Manufacturing, production improvement, business excellence.
JEL Classification: M11, O32

INTRODUCTION

Looking at the global economy, we see that at the present time in the market
to be “good is not good enough” and business organizations must aspire to business excellence if they want to survive in the market. In order to retain existing and win new competitive position in the market, many businesses realize
that the traditional ways of managing business systems and other historical approaches are no longer sufficient. View today’s business practices draws attention to one business philosophy used by Western businesses, and whose roots
are in Japanese thinking organization of production. It is Lean Manufacturing
or Lean concept.
The hypothesis of the paper assumes that the application of Lean concepts
is possible, in the real production process, identify and reduce activities that
do not bring value to the product (NVAT activities) and expedite the process
of making products. As a testing ground for hypotheses was selected domestic
business subject that is engaged in producing parts for the automotive industry.

2.

CONCEPT OF LEAN MANAGEMENT

Lean management is also known as lean manufacturing, lean enterprise, or
simply Lean. The term refers to a system of methods and techniques that emphasize the identification and removal of all business activities that do not add

29

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

1.

Robert Obraz • Zlatko Rešetar • Nikolina Pavičić: EXAMPLE OF LEAN MANAGEMENT IN PRACTICAL USE BASED ON REDUCTION “NVAT” ...

value to the product and/or service. These activities are called “waste” and seek
to eliminate them from the process of production.
Lean Business Systems is characterized by rapid development of business
cycles, “Just-In-Time” method, pull systems, few or no supplies, a continuous
flow of production, levelling production and reliable quality. Business organization that applies Lean concept in this manner is called the Lean enterprise. Lean
companies are efficient, flexible and understanding of consumer needs (Paul;
1999, 21). Karlson and Ahlstorm believe that Lean concept should be included
in all business functions of enterprises; in the procurement of raw materials,
production and distribution of products. Furthermore, Lean concept should be
seen as a way in which to navigate through and not as a state to be achieved after
a certain time (Karlson & Ahlstorm; 1996, 2, 11)

.. Historical Overview of the Lean Management
Lean business philosophy began its development in America at the end of 70ies of the last century. But if we look a little deeper into the past, the roots of Lean
production we find in the automotive industry in the late 19th century. Usage of
Ford’s assembly-line for assembling the car indicated the need for adequate organization of business processes, introduction of quality management systems, efficient logistics and procurement of raw materials and the appropriate channels of
product distribution. These are all activities that we find today in the business concept of Lean Production. The most significant contribution to the evolutionary
development of Lean concept contributed to the founders of the Toyota production system, Kiichiro Toyoda and Taiichi Ohno. They have, over the years, developed and rewrote the effective methods and techniques for improving operations
that are still successfully used in large international companies. These are SMED
(Single Minute Exchange of Die - change work tools in one minute), Kaizen, 5S,
Kaikaku, Kanban, Jidoka, Poka-Joke, etc. (Lazibat; 2009, 272). Most of these
techniques we find today in the concept of Lean Manufacturing, which are used
primarily in order to achieve the fundamental principles of Lean management.

.. Principles of Lean Management
According to Womack and Jones function Lean management is easiest to
describe through the five basic principles, namely (Womack & Jones; 1996, 26):

30

1. Elimination of waste / losses (jap. muda).
2. Determining the flow value - includes all activities necessary to deliver product to the consumer.
3. To achieve flow through the process - allow easy movement through
the business process.
4. Determining the speed of work to pull signals - the achievement of
system in which the final consumer is helping to create a new product.
5. Continuous quest for perfection - create a business system without
errors, or actual defects.
According to these principles, it is evident that Lean management emphasizes the production of small series products and the progress of individual pieces
through the production process. The term pull implies that nothing is being
produced until it is ordered by buyers. The main goal of Lean Production is to
eliminate waste in a way that all business ongoing value activities create value,
which is the object of pursuit for perfection. (Womack & Jones; 1996, 31)

The main objective of Lean system is to increase the speed of the process
through the relentless elimination of waste in business processes. Organizations that apply this system implanted it in full flow values, i.e. In all activities
undertaken since receiving consumers request throe the delivery of the final
product and / or services (Meisll et al.; 2007, 2) According to the Lean methodology, business enterprises, may appear three types of activities that affect
production costs, and thus directly on the price of products or services. These
activities are (Womack & Jones; 1996, 45):
1. Activities that add value to the product or service (VAT)
2. Activities that do not add value to the product or service (NVAT)
3. Other activities that do not add value to the product or service (WT).
VAT activities (Value Added Time) – are activities where resources are
transformed from one form to another. These activities include the processes of
transformation of raw materials, processes of exchange of necessary information or production workflows. It is important that these activities consumers
perceive as desirable and that they are willing to pay for them. Also, it is impor-

31

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

.. Activities according to Lean management

Robert Obraz • Zlatko Rešetar • Nikolina Pavičić: EXAMPLE OF LEAN MANAGEMENT IN PRACTICAL USE BASED ON REDUCTION “NVAT” ...

tant to VAT activities are carried out without errors, otherwise occurs waste
and losses.
NVAT activities (Non Value Added Time) – are activities that are a necessary loss, it is impossible to eliminate them from the process, and do they do not
create added value to the product or service. The most common consequence
of the existing level of technology, prescribed working rules or business policy.
These activities included the procedures of intermediate and final control of
products, measurements and similar activities.
WT or other activities (Waste Time) – these are activities that represent
a loss and need to be removed from the production process. These activities
consume resources, extend the production process of products or services, and
consumers are not willing to pay for them. This group includes a variety of activities waiting (waiting for transport, raw materials waiting, waiting in intermediate stages of production), excess inventories, stock manipulation and the like.

3.

THE CONCEPT OF LEAN PRODUCTION IN
THE PRACTICAL APPLICATION

The hypothesis of the paper was tested in the domestic business subject,
manufacturer of plastic parts for the automotive industry. As a testing ground
selected was semi-automatic line where compiled handrails, safety elements of
every modern car. The product consists of seven parts that must be assembled
in the integral whole, and thus to ensure the proper function of the handle.
Since the assembly process is based on a greater proportion of manual work
these jobs are a bottleneck in the observed production process.

.. Description of the product assembly process
The manufacturing assembly process of products included three assembly line handrail schematically shown in Figure 1. The lines are operated in
two shifts, and three operators had the task to manually take all components
(parts) from the tank, set bookmarks “S”, and them stacked them according to a
specified schedule in semi-automatic device for product assembly. After correct
positioning of parts, the operator’s hand closes assembly device, visually check
the signal display and with activation of two-handed switch start the assembly

32

process of product in 5 steps. At the end of the assembly process of product
operator opens the protective cover, takes product and visually checks out the
finished product he examines the function of the product. Upon control products completion correct products are dumped in cardboard boxes, and defective
products go to recycling.
Figure 1. Scheme of semi-automatic assembly handrail

Source: created by authors

.. Process analysis according to Lean activities
If we analyse the sequence of the operations according to the figure 1, using
the previously explained Lean activities, we observe that only 5 working operations can be classified into group activities that add value to the product or service (VAT). A close analysis of the remaining 21 working operations has shown
that they do not add value to the product, but also that they are not activities
that represent the loss in production (WT). These are manual work activities
necessary to ensure that all needed parts of handrail are positioned in the device
for product assembly and final inspection activities of the product. Specified
activities must be carried out due to the limitations of technological process of
the product and as such can be classified into group activities NVAT. The ratio

33

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Measurement of the labour time required to perform the operations according to the scheme first showed that for product assembly is required 26 working
operations. Work operations are performed in a time between 1 and 6 seconds,
and a total time assembly cycle of products is 51 seconds. It is also the working
stroke of this process.

Robert Obraz • Zlatko Rešetar • Nikolina Pavičić: EXAMPLE OF LEAN MANAGEMENT IN PRACTICAL USE BASED ON REDUCTION “NVAT” ...

of the observed process of the product and the total operating time is shown in
the first diagram.

Diagram 1. Display VAT and NVAT activities in the work process

Source: created by authors

According to first diagram 22% of working activities in the process make
VAT activities, and 78% are NVAT activities. This display shows that the proving process of the product there are many NVAT activities that do not add
value to the product, the process can be improved to carry out the smoothing
process of the product and thus speed up the workflow observed.

.. Processes improving by applying the methodology of
Lean Six Sigma
After conducted analysis of the current product assembly processes shown
in first figure it was decided to try to speed up the process of creating one automated workstations for product assembly. When designing new workstations
DMAIC methodology was used with simultaneous applied Lean management
principles whose aim was to speed up the product preparation process and
eliminate NVAT activities in the production process. The project lasted a year,
and in the development of new automated workstations participated experts
and engineers form company Sinel Ltd. from Labin. The experience synergy,
knowledge and use of modern information technology made the automated
process of preparation of the product for which work is one operator sufficient,
and the product has undergone structural changes so that the number of components increased from 7 to 11. New design products with more parts have
enabled easier and faster installation in the car’s interior.

34

.. Automated preparation process
Improvement of product assembly process was carried out in a manner that
in an automated work stations for product assembly reduced NVAT activities, a new, fully automated product preparation process, is shown in the second
figure.
Figure 2. Automated handrail assembly process

On the second figure it is noticeable that the new assembly process is more
complex compared to the previous process is shown in Figure 1. The main reason of this fact lies in the methods of automated addition of parts to assemble.
Parts are in the assembly process introduced via elevator and rotational-vibrational conveyor thus speeding up the process, the operator adds body handrail
in the machine and if necessary fills a tank with parts.

.. Analysis of the new process according to Lean activities
The new product assembly process is shown in the second diagram consists
of nine working operations whose unscrewing 11 parts installed in the products
assembly. The sequence of the operations and results of new process time measuring are shown in the second diagram.

35

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Source: created by authors

Robert Obraz • Zlatko Rešetar • Nikolina Pavičić: EXAMPLE OF LEAN MANAGEMENT IN PRACTICAL USE BASED ON REDUCTION “NVAT” ...

Diagram 2. Display of activities in the new assembly process

Source: created by authors

In the central part of the second diagram shown in red are VAT activities
and those occur in the time period of one to three seconds. In the bottom of
the chart, marked in orange, are shown NVAT activities, and in the upper part
of the diagram shown in green are WT activities. In this case VAT activities
are working operations product assembly from 11 parts, and NVAT activities
related to taking parts from the feeder and positioning the movable desk. WT
activities are waiting activities for automated feeder to complete the previous
work operations. In the new process all work operations are performed simultaneously without barriers, and the working stroke of the process is reduced from
51 seconds to 9 seconds.

4.

RESULTS OF IMPROVING

Verification of project advancement can be carried out by comparing the
production parameters before and after improvements. The comparison process
is shown in Table 1.
Table 1. Comparison of manual and automated product assembly.
Observed parameters
Number of workers
Number of machines
Number of shifts
Coefficient of the process
Working stroke [s]
Productivity [pcs/day]
Source: author’s calculations

36

Manual process
6
3
2
0,72
51
2280

Automated process
3
1
3
0,99
9
9500

%
-50
-67
+50
+38
-82
+417

According to first table, it is evident that in the new product assembly process are 50% less operators and only on one machine, the number of shifts increased by 50% and the quality of the process (includes the amount of compliant products and the daily utilization of machines) grew by 38%. The working
stroke of the production process is reduced from 51 seconds to 9 seconds which
is an acceleration cycle by 82%, and productivity, observed on a daily basis, increased from 2280 to 9500 pieces of products, an increase of 417%.

4.

CONCLUSION

The measurement results of the process after several improvements indicate
that the project has fully complied with the quality management principles as it
is removed subjective evaluation of the product by the operator at the stage of
final inspection and is assured and implemented effective components control
at the entrance to the assembler. Herewith are the variations of the production process, increased productivity and the number of compliant products (less
scrap), and increased efficiency and daily work units work in three shifts.
By improving the products preparation process, there are significant changes
in the process because variability is reduced by implementing levelling production as the main objective of the Lean system. Levelling production is directly
related to the flow of product through the production process, levelling a new
process enables conduct of the adding operations and assembling parts simultaneously without obstacles.

37

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

The example from the real business environment proves the initial hypothesis of work that by applying methods and techniques of Lean management
can improve and speed up production processes. Processes improvement in
this particular case was conducted by eliminating activities that did not bring
value to the product (NVAT activities), which were necessary because of the
semi-automated product forming method. Technological advancement and application of automation process product is integrated into a single workstation
with automated final product control, and the working stroke of the process is
shortened by 82%.

Robert Obraz • Zlatko Rešetar • Nikolina Pavičić: EXAMPLE OF LEAN MANAGEMENT IN PRACTICAL USE BASED ON REDUCTION “NVAT” ...

references
Karlson, C. & Ahlstorm, P. (1996). Assessing changes towards lean production, International Journal of Operation & Production Management, Vol. 16, p. 2-11.
Lazibat, T. (2009). Upravljanje kvalitetom, Znanstvena knjiga d.o.o., ISBN 978-953-959021-3, Zagreb.
Meisll, R. M. et al. (2007). The Executive Guide to Understanding and Implementing Lean
Six Sigma: The Financial Impact, ASQ Quality Press, Milwaukee, WI, p 2.
Paul, L. (1999). Practice makes perfect, CIO Enterprise, Vol. 12, No. 7.
Womack, J. P. & Jones, D. T. (1996). Lean Thinking, Simon and Schuster, ISBN
9780743231640, New York.

38

LIFELONG LEARNING PROCESS
USING DIGITAL TECHNOLOGY
Igor PURETA, Ph.D. Candidate
Grawe Hrvatska JSC, Republic of Croatia
igor.pureta@grawe.hr

Over the last few decades, the education system has gone through significant
changes. Formal education, as the basis of a complete education, was rebuilt
over the centuries in order to meet the demands of time. In today’s fast-growing
world filled with constant changes, formal education appears to be insufficient
and inappropriate for the needs of modern society. The amount of available
knowledge is increasing, and the ways in which it is transmitted show some
weaknesses. Today’s society seeks to remove these shortcomings by introducing
lifelong learning through formal, non-formal, and informal education. Lifelong
learning should enable access of knowledge and competency development to
people of all ages. This allows the acquisition of knowledge to persons whose
age exceeds that of formal education and where informal knowledge is not close
at hand. Digital technology is having a stronger and stronger influence on all
aspects of education through mobile devices that make the world of knowledge
accessible in places and times that suit students. The adaptation of existing
knowledge for easier distribution through digital technology, and the presentation of knowledge and its easier adoption is affected. We should avoid the
pitfalls that technology offers, and always keep in mind, in the first place, the
students and the way that knowledge is most likely to be accepted. Lifelong
learning, with the help of digital technology, has the ability to give each individual the knowledge that they need if andragogy principles and the needs of
students have an advantage over the technology.
Keywords: Lifelong learning, competence, digital technology, e-learning
JEL Classification: D8, D83, L86

39

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Abstract

1.

INTRODUCTION

Today’s education system is based on the needs of a society from 250 years
ago; a staple of knowledge that in such a way could have been sufficient for
lifelong professional work. Today, the knowledge gained in formal education becomes insufficient for modern business needs, as well as for society as a whole.
In order to bridge these challenges, the importance of lifelong learning is growing, and improved digital devices provide prerequisites for easy access, quality,
and structured learning based on a multimedia approach. Thus, prepared tools
allow people access to the content, which should be adopted at a time when it
suits them, and the place where they currently are, without the need for additional resource organization.

Igor Pureta: LIFELONG LEARNING PROCESS USING DIGITAL TECHNOLOGY

.. Learning as a result of the knowledge, tools, activities
and contexts
According to Engeström (1987), learning is a cultural-historical system of
activities and tools for learning. These activities and tools are helping students,
but also limit the transformation of their own knowledge and skills. As a part
of learning, students interact among themselves and with teachers, creating a
shared knowledge framed by cultural constraints and historical practices (Sharples et al., 2006).
Cole (1996) makes an important distinction between the context as “that
which surrounds us” and context as “what we create together.” The context is
never static, because the common denominator of learning is constantly changing, as we move from one place to another, we gain new funds, or enter into new
conversations (Lonsdale et al., 2003).

.. Adult education
Adult education is a highly developed sub-discipline of education within
which adults go through a systematic and continuous activity of learning in
order to change their “knowledge, attitudes, values, and skills” (Darkenwald &
Merriam, 1982).
Despite the increased number of formal educational institutions, they can
not cover the needs of all who wish to improve their knowledge or skills. In ad-

40

dition, these institutions are neither trained for certain types of education, nor
are specific training needs even known to them. Therefore, adult education is
organized in the workplace, mainly through the courses organized with the help
of experts in adult education (Kumar).
Participants of adult education have great expectations from the convenience
of the learning content, and ‘practical’ can have different meanings for different
groups of students (Keskin & Metcalf, 2011). With regard to the requirement
of practicality, it is good to organize education in the workplace, because people
will be immediately able to examine the possibilities and limitations that a new
tool or skill offers.

2.

LIFELONG LEARNING

Lifelong learning is widely accepted as a process of continuous upgrading
of knowledge, skills, and competencies of people around the world, used for
promoting their social life (Koper & Tattersall, 2004).

.. Different aspects of lifelong learning
Education, not only a lifelong one, is present in different forms, so the working paper of the European Commission (CEC, 2010) reported the following:
• Formal learning takes place in education and training institutions, leading
to recognized diplomas and qualifications.
• Non-formal learning takes place alongside the formal education system
and does not typically lead to formalized certificates. It may be organized
in the workplace and through the activities of civil society organizations,
such as youth organizations, trade unions, or political parties. Education
that someone can get through organizations that serve as a supplement to

41

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

In a broader sense, lifelong learning applies to all kinds of experiences that
help people to become wiser, more enlightened, and full members of society.
Lifelong learning is an educational philosophy that is changing rapidly and
modernizes the entire society. It is an educational movement that says it is never
too early nor too late to learn. Lifelong learning involves changing attitudes and
beliefs, keeping in mind that anyone can and should be open to new ideas, decisions, skills and behaviors (Kumar).

the formal education system include music and sports classes, or private
lessons, as preparation for examinations.
• Informal learning is a natural accompaniment to everyday life. Unlike
formal and non-formal education, informal learning does not have to be
done consciously. Even individuals themselves do not necessarily need to
identify it as a contribution to the improvement of their knowledge and
skills.
The continuum of lifelong learning brings more non-formal and informal
learning. Non-formal learning, by definition, stands outside schools, colleges,
or official training centers. It is not usually seen as ‘real’ learning, nor do its outcomes have much value in the labor market. Non-formal learning is therefore
typically undervalued.

Igor Pureta: LIFELONG LEARNING PROCESS USING DIGITAL TECHNOLOGY

However, it seems that informal learning is the most neglected, even though
it is the oldest form of learning, and is still one of the main ways of learning in
early childhood.

. Lifelong learning as a supplement to formal schooling
As an inseparable part of daily life, lifelong learning helps us to solve immediate problems, gain an understanding, or practice some specific skills wherever
the need arises (Fischer & Konomi, 2007). So, to make use of the natural benefits of lifelong learning, it is important to devise a practical content that is easily
applied in practice. The fastest growth in demand for education has modern,
ambitious business people who are looking for education that will help advance
their career, accelerate their personal development, and/or increase their profits
(Wall, 2012).
Necessary knowledge is not always in the curriculum of professions and disciplines that are adopted through a formal system of education. The purpose
of lifelong learning is to complement existing formal system failures, and until
societies come up with a better learning system, it is very important for further
professional development of almost all professions.
Wall (2012) also believes that educational institutions are in a better position
than most others to systematically respond to these requests. These answers
should come through formal quality assurance systems that are in place in edu-

42

cation systems and in its individual institutions. Higher education institutions
can achieve this through already developed graduate programs that can meet
the criteria of various professional bodies, and thus meet the needs of modern
industry.

.. Lifelong learning as a key factor for economic
development and progress
Education is the key factor in maintaining and further improving competitiveness and growth. It is the basic capital of modern society and a key for economic development. Numerous changes in the economy and technology, such
as the increased involvement of all participants in the global economy, demands
that individuals and organizations have to fulfill demands in order to survive in
a market that is constantly changing. The individual is expected to participate
in the creation and development of new values in the organization where they
work, and in society where they belong, and also to have a positive attitude
towards ethnic, cultural, and religious diversity with which they encounter in
everyday life and work.

A corollary of such a situation is that the existing and future workforce must
be engaged, either independently or with the help of organizations in which
they work, on continuous expansion and deepening of their own knowledge.
This leads to the necessity of creating the preconditions for learning throughout life, even after the termination of a work contract and the acceptance of the
concept of learning, which we know as lifelong learning.

.. Lifelong learning for a higher quality of life
In a recent study conducted from 2011 to 2014 (Bell Project, 2014) on a
sample of nine countries of the European Union and Serbia on the benefits that
adults have from organized, but non-formal education, interesting results have
been observed. Research has focused on proving the existence of the benefits of
lifelong learning in the perception of respondents, rather than through objective

43

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

For these new, unpredictable, and demanding changes, the best possible answer for challenges and opportunities is widespread and intense education for
people directly involved in the economy and its development, but also for those
on which economic growth depends.

indicators that could be seen in the behavior change. The data shows that adults
pointed out numerous benefits of non-formal education. They felt healthier,
and to them, they seemed to live more active lives, they established new friendships, and increased life satisfaction. They were also more motivated for further
involvement in lifelong learning and viewed it as an opportunity to improve
their quality of life. These benefits were observed in all the countries that participated in the survey and was unrelated to the type of learning in which they
took part: learning foreign languages, art, sports activities, or activities related
to civil society.

Igor Pureta: LIFELONG LEARNING PROCESS USING DIGITAL TECHNOLOGY

3.

DIGITAL TECHNOLOGY IN THE SERVICE OF
EDUCATION

Digital technology can be seen as a challenge to formal schooling, the autonomy of the classroom and the curriculum as a means of teaching the knowledge and skills needed for adulthood. But, it can also be an opportunity, because technology can bridge the gap between formal and experiential education
(Sharples, Taylor & Vavoula, 2006).
Because technology allows us to be mobile, irrespective of place, time, and
context (Vavoula & Sharples, 2009), mobile technologies have the potential
to give people access to education anytime and anywhere in a world of rapid
change (Waycott, Jones & Scanlon, 2005).
Mobile education, at least for now, does not replace formal education: it offers support in learning outside the classroom, in conversations and interactions
that characterize daily life (Sharples, Taylor & Vavoula, 2006).

.. The challenges that digital technology has in the
learning process
Berge (1998) suggests that teachers have been increasingly sought to use
technology to support existing educational programs, so they should be given
the possibility to acquire appropriate skills or support in preparation of the
program based on the more complex technology (Wall, 2012).
Bearing in mind the ever-increasing variety of digital technology that can be
used in the learning process, awareness is growing stronger and stronger that it

44

is necessary to find the optimal combination of supplies to ensure that their use
is well-designed and adapted in order to attract, retain, and motivate students,
as well as lecturers.
Factors to be taken into account when using technology for the development
of learning materials are: (i) the attitude of students towards learning a specific topic, (ii) the advantages and disadvantages of existing technologies, (iii)
the skills of instructors in the use of technology, (iv) the structure of content
that needs to be adopted, (v) the quality of existing learning materials, and (vi)
the interaction that occurs between students and teachers, as well as among
students (Martinez et al., 2007). In order to promote the use of e-learning,
emphasis should be less on technology and more on “experience while using,”
“inclusion,” and other general important factors for the successful acquisition of
knowledge (Hamid, 2002).

.. E-learning and its benefits

A world where students of all ages, including those outside the formal institutions of education, have strong multimedia communicators, file sharing, and
text communication skills that significantly shatters the traditional classroom
education. (Sharples et al., 2006).

.. Mobile learning
In recent years, a new form of learning has appeared as a result of constant
development of technological infrastructure. This form of learning is completely away from the classroom or other preset and stationary space for teaching,
and learning only takes place virtually.
In order for this tool to be successful, the content must be useful, interesting,
and adapted to everyday needs for new information, as well as the needs for the
sake of the learning and communication. The conclusion has been made that it

45

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Learning with the help of electronic aids or e-learning concepts, which is
most commonly used to describe learning by systems based on computers, and
is occasionally associated with the use of advanced technologies for distance
learning. It can be seen as a virtual act or process used to collect data, information, or create knowledge (Bennett & Bennett, 2008).

is important to divide the contents into very small units that the user can easily
insert in her own busy schedule. Thus, conceived content is easier to adopt even
in situations where users are exposed to the interference in their daily operational work (York, 2004).

Igor Pureta: LIFELONG LEARNING PROCESS USING DIGITAL TECHNOLOGY

In a Vavoula (2005) study about the daily adult education for the MOBIlearn project, which is based on personal diaries of students, it was found that
almost half (49 percent) reported learning situations occurred away from the
home or office, or the student’s usual surroundings. Mobile networked technology allows people to acquire and share information in all the places where they
have this need, which is more often than just when they are at fixed locations,
such as classrooms (Sharples et al., 2006).
Therefore, the technology can display ideas or offer advice on the descriptive
level, as does the Internet, online help system, or special tools that are offered as
an aid for the finishing of contracts, which are based on conceptual maps and
systems for visualization. In addition, technology enables an environment in
which classic learning is used. Also, the technology provides the tools for data
collection and for the construction and testing of various response models. It
can through games and simulations extend the range of activities that help in
easier adoption of content and can significantly increase the scope of discussion
of participants from various fields, as well as from different parts of our world
via cell phone or e-mail. The technology enables a common interactive learning
space, which can be used for individual students and the entire group (Sharples
et al., 2006).

4.

DISCUSSION

Given the availability of mobile devices and the development of digital technology, it is reasonable to assume that mobile learning can be a key solution for
lifelong learning. Mobile devices are very widespread, and already more readily
available, and their ability to connect and interact with the users offer great potential to support lifelong learning outside formal learning contexts (Ultralab,
2003; Fischer & Konomi, 2007; Clough et al., 2008). Mobile devices can appear in different forms and shapes and are therefore acceptable to a wide range
of users, as they can easily adapt them to their own habits and daily rhythm.
Supporters of lifelong learning, thanks to technology, can easily access content
that allows them to learn new knowledge on the theoretical and increasingly,

46

on a practical level. With content directly related to their particular interests,
because of their connectivity with various data sources (e.g. Wikipedia.org,
YouTube.com, or Academia.edu), their knowledge can easily be extended beyond the scope of the selected program of lifelong learning. The fact that mobile
devices are constantly with users enables the users to choose the place, time, and
even specific pieces of knowledge that they want to adopt. Therefore, mobile
learning has all the prerequisites to become one of the fundamental platforms
for enabling lifelong learning as an essential need of each individual, which allows them to successfully live and work in a modern society, which is increasingly and rapidly changing.

BeLL project. Available for download at: http://www.bell-project.eu/cms/ [accessed 23. 02.
2015]
Berge, Z. L. (1998). Barriers to online teaching in post-secondary institutions: can policy
changes fix it?. Online Journal of Distance Learning Administration. 2 (1). Available for
download at: http://www.westga.edu/~distance/Berge12.html [accessed 3. 11. 2004]
Bennett, A., Bennett D., (2008). E-learning as energetic learning. Vine. 38(2) pp 206 – 220.
Clough, G., Jones, A., McAndrew, P., Scanlon, E. (2008) Informal learning with PDAs and
smartphones. Journal of Computer Assisted Learning 24, pp 359–37
Cole, M. (1996). Cultural psychology: A once and future discipline.Cambridge, MA: Harvard University Press.
Commission of the European Communities (2000). A Memorandum on Lifelong Learning.
Available for download at: http://tvu.acs.si/dokumenti/LLLmemorandum_Oct2000.pdf
[accessed 19. 01. 2015]
Darkenwald, G., Merriam, S. B. (1982). Adult education: foundations of practice. New York:
Harper & Row. ISBN 9780690015416
Engeström, Y. (1987). Learning by expanding: An activity-theoretical approach to developmental research. Helsinki: Orienta-Konsultit.
Fischer, G., Konomi, S. (2007) Innovative socio-technical environments in support of distributed intelligence and lifelong learning. Journal of Computer Assisted Learning 23, pp
338–350.
Hamid, A. A., (2002) e-learning Is it the “e” or the Learning that matters?, The Internet and
Higher Education, 4, pp 311 – 316.
Keskin, N. O., Metcalf, D. (2011). The Current Perspectives, Theories and Practices of Mobile Learning. The Turkish Online Journal of Educational Technology. 10(2) pp 202-208.
Koper, R., Tattersall, C. (2004). New directions for lifelong learning using network technologies. British Journal of Educational Technology 35, pp 689–700

47

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

References

Igor Pureta: LIFELONG LEARNING PROCESS USING DIGITAL TECHNOLOGY

Kumar, A., Philosophical Background of Adult and Lifelong Learning, Available for download at: http://www.unesco.org/education/aladin/paldin/pdf/course01/unit_03.pdf [accessed 25. 01. 2015.]
Martinez, R. A., del Bosch M., Herrero M., Nuno A. (2007). Psychopedagogical components and processes in e-learning. Lessons from an unsuccessful on-line course Computers
in Human Behavior, Vol. 23, pp 146 – 161.
Sharples, M., Taylor, J., Vavoula, G. (2006) A Theory of Learning for the Mobile Age.
Ultralab (2003) M-Learn Project. Available for download at: http://www.mlearning.org/
[accessed: 31. siječnja 2010].
Vavoula, G., Sharples, M. (2009). Lifelong learning organisers: requirements for tools for
supporting episodic and semantic learning. Educational Technology & Society 12, pp 82.
Wall, J., (2012). Strategically Integrating Blended Learning to Deliver Lifelong Learning,
International Perspectives of Distance Learning in Higher Education, Dr. Joi L. Moore (ur.),
ISBN: 978-953-51-0330-1.
Waycott, J., Jones, A., Scanlon E. (2005) PDAs as lifelong learning tools: an activity theory
based analysis. Learning, Media, & Technology 30, pp 107–130.

48

APPLICABILITY OF EUROPEAN
DEVELOPMENT PROGRAMMES
TO TOURISTIC MANAGEMENT OF
ISTRIAN DESTINATION
Romina SINOSICH, PH.D. Candidate
Postgraduate Ph.D. study „Management“
romina.sinosich@gmail.com

Ivan HERAK, Ph.D.
High Business Touristic School Višnjan
i.herak@yahoo.com

Andreja RUDANČIĆLUGARIĆ, B.Sc.
Doctoral candidate, Postgraduate Ph.D. study „Management“
alugaric@hotmail.com

The authors wonted to demonstrated the management of Istrian touristic
management resources emphasizing current conditions and development prospects. The main idea was an hypothesis: if the touristic management and the
resources management is organized and strategicly planned, positive synergy
effects can be expected in each level of touristic management, and through the
years,the positive impact to all destination will be a fact. That is also truth
for Istrian undeveloped areas, such as middle istrian villages. Although Istria
boasts reputation of a region with positive potentials, one must emphasize there
are still undeveloped areas, a high number of uneducated population, shortage
of staff in educational institutions, all which requires a more professional approach to the issue of management. Middle istrian villages can also become an
interesting touristic micro – destinations. This research, first of its kind int he
County of Istria, has attempted to gain a realistic insight into the condition oft
he Istrian County territory. The research has been conducted by means oft he

49

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Abstract

Romina Sinosich • Ivan Herak • Andreja Rudančić-Lugarić: APPLICABILITY OF EUROPEAN DEVELOPMENT PROGRAMMES TO TOURISTIC ...

Delphy method in two intervals, the theory analysis method, observation and
intervju on a sample consisting of 34 local self – government units (municipalities and cities). Questions were replied by heads and municipal prefects of local
self – government units and others in charge of management. The research
objective was to determine the type of help and who provided it as well as the
type of management required for a more quality development and touristic
management. Though the Istrian region has been recognized as a quality tourist destination for years, its possibility for a bigger and better step forward must
be pointed out in terms of managing the destination itself. To achieve optimal
solutions, professional management modules and innovative guidelines set by
tourism trends and new european programmes must be followed in order to
adjust them to destination needs and requirements.
Keywords: tourism, management, resources, development, Istria.
JEL Classification: L83, O1,R11

1.

INTRODUCTION

Starting from the basic definition of a manamement being a process of shaping
and maintaining the environment in which individuals, working together in groups,
efficiently achieve selected goals (Werhrich, Koontz, 1998.), we have reached the
conclusion that quality management rources depends on many factors. Istrian
territory has long been characterized by various issues which have resulted in
its delayed development , including the loss of human resources, insufficient
staff education and unsystematic touristic management, various natural, cultural and historic resources which has had a direct impact on the development
oft he tourism and the economy itself. This paper was written as a guideline for
achieving a basic goal of presenting new solutions and answers to questions of
managing Istria as a quality tourist destination. Having observed an increasing
need for a more efficient tourism management, based on a balanced development and the use of potentials i.e. resources, this dissertation explores actual
assertions and possibilities of new perspectives. Tourism destination management is a complex challenge requiring a multidisciplinary and interdisciplinary
approach, synergy and coordination of all tourism entities, leading to the same
result. The authors provided detailed information on the existing management
style as well as findings resulting from the multi-month long field work based
on the future of managing Istria as a tourist destination.

50

DEVELOPMENT MODEL OF TOURISTIC
DESTINATION THROUGH IMPROVING
EDUCATION AND NEW PRODUCTS

Resource management are general an extremely important link int he entire
touristic development of a destination or region. The professional knoweledge
and not the politics is the only possible champion of management and development oft his or any other touristic region. The research has given insight into
the presence of management in the delivery of the Istrian rural area development touristic programme, and the findings have shown the insufficient number of elementary expert staff. Due to insufficient founds, unresolved property
issues and weak motivation as well as insufficient state incentives, most raw
materials are imported and of questionable quality. In view of agriculture as the
main business activity in rural areas of Istria, until few years ago, farmers have
not been permitted to sell their products to their guests legally and on their own
prices, but they were forced to transport their products to larger touristic towns
to be sold. However, the situation today is a little bit different, but the problems
of touristic development in rural Istrian areas (int he middle villages), are still
an issue to resolve. Rural tourism development associations are still emerging
in Croatia lacking professional employees. Schools in many villages are relatively badly equipped. We belive that a large chain of this process has been determined by human resources as a carrier of Istrian development towards a
rich and respectable region. Furthermore, based on obtained research results,
methods of tourism destination quality management have been offered. If tourism destination management is organized and synergistically conducted under
agreed guidelines, more quality tourism results in line with those achieved by
top destinations in our competitive regions can be expected.
Though the Istrian region has been recognized as a quality tourist destination for years, its possibility for a bigger and better step forward must be
pointed out in terms of managing the destination itself. To achieve optimal
solutions, professional management modules and innovative guidelines set by
world tourism trends must be followed in order to adjust them to our needs and
requirements. A certain reorganization of some management branches as well
as permanent staff education is essential for tourism in Istria and Croatia as a
whole. Cooperation between individual administrative bodies in the County is
not satisfactory nor systematically organized. It depends on affinities of individ-

51

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

2.

Romina Sinosich • Ivan Herak • Andreja Rudančić-Lugarić: APPLICABILITY OF EUROPEAN DEVELOPMENT PROGRAMMES TO TOURISTIC ...

ual heads and other employees in administrative bodies. In terms of education,
there is an insufficient number of employees with university degrees in regional
self-government bodies as well as a very low number of the employed with the
master’s degree (M.sc/M.A.) and a doctorate (Ph.D./D.Sc). One of the key
tasks of the new development model must be evaluation and recognition of
products and services for each micro-level. In this light, such programme development must include all interested parties, local development carriers from
private, public or civil sectors in the County of Istria. Local and regional programming is of extreme importance because it is the only way for determining
real local needs and rural touristic development. It is also important to propose
a compromise when faced with choosing between local needs and available resources. As this paper has been focused on the issue of management as the basis
for the very process of tourism destination development, it has been necessary
to obtain opinions, experiences and suggestion from local tourism institutions
and players to reach correct solutions based on obtained research information.
The existing condition of Istrian tourism management as well as the condition of the destination itself is certainly not unsatisfactory. However, available
resources and rather broad experience in tourism should contribute to the increased quality of the Istrian region as a tourist destination.

3.

IMPLEMENTATION OF LEADER PROGRAMME
PRINCIPLES IN RURAL AREA DEVELOPMENT

“Rural development is a new developmental model of the agricultural sector” (Plog et al., 2000., p. 392). “Apart from the increase in agricultural production competitiveness, it also includes protection of the environment, land
management, diversification, improvement of life in rural areas and LEADER
approach (Liaison Entre Actions de Développement de l’Economie rurale),
which means that all the initiatives for starting of activities should come from
the local community” (Moehler, 2006, p. 56). “One of the basic characteristics of
rural development implementation in rural communities is putting an accent on
local population, by which it is validated as a main factor of the overall rural area
development. It is this particularity of trust in people who live in rural areas and
in their abilities to discover what suits best their environment, culture, work
traditions and skills itself that makes the LEADER Project special”. (Štifanić,
Debelić, 2009, p. 8). Connecting at the local level brings people together in or-

52

der for them to exchange their experiences and knowledge, inform themselves
and promote rural development activities, find project partners, as well as create
a feeling of belonging to a larger entity, such as the local action group.

Equally, rural tourism also, “as a growing business in the tourist industry
offers many benefits to the local community development. It can be developed
locally, in partnership with small businesses, local government, other agencies in
the area and its development is not dependent on external or large companies’
decisions” (Kumrić, Franić, 2007, p. 135). The Leader approach supports innovative approaches and stimulation of unexploited resource development, or, just
a different view on existing issues; the problem of rural areas, its preservation
and sustainable development had been recognised in Europe much earlier than
in Croatia. One more principle by which this programme is recognisable is local financing and management, which gives big powers to the LAGs in decision
making and financing of specific programmes.

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

During recent years in Croatia, there have been intensive talks about rural
development. Plans and programmes are being produced, development strategies and laws are being proposed, legislation is being coordinated with the EU
and the means/funds from the EU programmes, intended for those purposes,
are being used (CARDS, INTERREG, SAPARD and other). However, in order to implement the rural development plans and programmes, Croatia needs
expert consulting assistance from the EU, as well as a greater self-initiative. Given that Croatia is a candidate for accession to the European Union, it should
dedicate itself more to familiarising with the experiences of the other EU member countries in the process of rural development in order to avoid other countries’ mistakes. The first analyses and evaluations of the EU rural development
policy show that the means from the EU funds were mostly spent on structural
measures, namely approximately 34%, which includes the increase in competitiveness, i.e. investment in companies and food production, assistance to young
farmers and earlier retirement. Approximately 38% of means were spent on
environmental protection, soil quality improvement, afforestation and natural
resource protection. “A large part of the means was also spent on the preservation of old, traditional crafts, village reconstruction, improvement of life quality
in rural areas, as well as the preservation of tradition for the purposes of the
development of tourism in rural areas” (Montelone, Storti, 2004, p. 139).

Romina Sinosich • Ivan Herak • Andreja Rudančić-Lugarić: APPLICABILITY OF EUROPEAN DEVELOPMENT PROGRAMMES TO TOURISTIC ...

.. Leader Programme principles
Fundamental principles of the LEADER Programme in the rural communities sustainable development are based on the characteristics of the areas to
which they are applied, which means that an attempt has been made to use own
unexploited resources. This principle emanates from the participants’ need to
base their development on local values.
According to the Leader’s action groups, there are four main values of this
programme:
1. decentralised, integral approach, based on a specific area’s characteristics
2. community involvement
3. uniting of development bearers at the local level
4. possibility of implementing in practice unrealised ideas (LEADER, 2004,
p. 47).
For example, the bottom-up approach (typical for Italy), as opposed to the
majority of developmental plans, is a completely opposite approach, by which
an attempt was made to encompass the largest possible number of participants
who would influence the decision making process for an area. Literally everyone who wishes and believes that they can assist the developmental process,
whether it concerns the inhabitants or the public, private, or some other sector
representatives. “The bottom-up approach means that the local factors take part
in the decision making processes pertinent to the strategy and selection of the
priorities which should be implemented in their local area. The European experience has shown that the bottom-up approach should not be considered as an
alternative or contrast for the top-down approaches of national and/or regional
authorities, but that they should be combined in order to achieve better overall
results”. (Štifanić, Debelić, 2009, p.11).
Therefore, the principles based on good European practice and LEADER approach are:
• Sustainable rural development which is based on preservation and development of environmental, human, social and creative/productive capital.
• Approach based on area characteristics, as they form a foundation for quality
development.

54

• Starting up the community, as it lags behind in inclusion in developmental processes and needs support in order to get involved in developmental
processes.
• Bottom-up approach – today’s development is not possible without involvement of the public. This is why all available forces in local communities
should be involved in order to, by richness of ideas and possible solutions, as
high a quality as possible development could be achieved.
• Development of local partnerships in approaches and actions – presently,
fragmented initiatives are often condemned to failure beforehand, they lack
power and trust.
• Networking and cooperation, as well as connecting, synergistic acting in developmental processes, exchange of knowledge and experiences, both in today’s modern Europe and here, in Croatia.
• Innovative quality and tradition, together with sustainable rural development, but innovations are essential in order for traditional values to be represented in a new and market competitive way.

• Local financing and project management – it is extremely important that local level activities should also be financed from local budgets.

4.

LEADER PROGRAMME FUNCTION AND ITS
ROLE IN RURAL DEVELOPMENT

Member countries of the European Union apply the rural development programme Leader in strengthening the local development as a counter-balance for
europisation. In the period between the years 1991 and 2006, Leader I, Leader
II and Leader+ Programmes demonstrated a new approach for integral and
sustainable rural area development, strengthening local communities’ developmental policies.
In the solution of the problem of a less favourable position of rural Europe
in comparison to the urban, the Leader programme represents a new social

55

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

• Integral approach – sector division is a frequent cause of problems in development. Horizontally, inter-sector linking, as well as the vertical one, linking
of local, regional and national institutions, is of great importance in realisation of sustainable rural development.

Romina Sinosich • Ivan Herak • Andreja Rudančić-Lugarić: APPLICABILITY OF EUROPEAN DEVELOPMENT PROGRAMMES TO TOURISTIC ...

and economic model (Ray, 2001, p. 280). In analysing rural development programmes in the European Union and in Croatia, an attempt was made to concentrate on the Leader Programme as a new and innovative approach to the
development of rural community, village and agriculture. In the period when
Croatia is negotiating its accession to the European Union we can observe the
results of the Leader Programme and principles and give recommendations for
its application in Croatia. The main advantage of the Leader Programme was
the bottom-up approach, which helped activate local resources for the purposes
of local community development. Additionally, it involves the local population
who has the closest insight into the developmental opportunities and who is
deemed partly responsible for and more dedicated to the project than the external active participants. Such an approach is not in opposition to the top-down
approach in the sense of the influence coming from the top of the state, regional
authorities or through relevant ministries. For Croatia, the Leader Programme
is considered to be positive for the purposes of rural development and we expect fast adjustment of local active participants in the creation of LAGs, as well
as strengthening of their role as developmental factors. For example, we find
the first institutional initiative of that kind in the Istrian County’s attempts to
include the Leader Programme in their rural development (Laginja and Čorić,
2000). One of the non-government organisations using the Leader Programme
principles is the Croatian Rural Development Network. After the years of informal work, in January 2006, it was formally registered with the task of gathering and representing civil society organisations which deal with the sustainable
rural development of Croatia (www.odraz.hr, of 23. 10. 2011).

5.

CONCLUSION

The research provide a good direction and a base for forming a single management and development strategy emphasizing the education of a new management staff, focused on individual growth as well as comprehensive development. Although oriented on the Istrian Region, conclusions can be transferred
to other Croatian territories. The main advantage of the Leader Programme
was the bottom-up approach, which helped activate local resources for the
purposes of local community development. Additionally, it involves the local
population who has the closest insight into the developmental opportunities
and who is deemed partly responsible for and more dedicated to the project

56

Cooperation alone in that area goes further than the networking itself. It
involves Local Action Groups which carry out a mutual project with another
LEADER group, or with a group which has a similar approach in another region,
member-country, or even in some third country. “Cooperation can help LEADER
groups to bring into focus their local activities. This can enable them to solve particular problems or to add value to local resources”. (Štifanić, Debelić, 2009, p.27).
The cooperation projects are not only a simple exchange of experiences; they have
to include specific mutual projects, ideally conducted within a common structure. This system implies the establishment of institutions which come with costs,
which can be non-profits ones, while founds needed for their operation can be
found in various incentives and other self-governing measures. Correct solutions
require pursuing professional management modules, which will demand certain
reorganization as well as modern education in the management area.

Literature:
1. Brenner, A. November 1, 1993. Environmental Protection Agency. Re: GIS as a Science [Discussion]. Geographic Information Systems Discussion List [Online]. Available
e-mail: GIS-L@UBVM.CC.BUFFALO.EDU
2. Bocher M. Regional Governance and Rural Development in Germany the implementation of Leader+ , 2008.

57

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

than the external active participants. Such an approach is not in opposition to
the top-down approach in the sense of the influence coming from the top of the
state, regional authorities or through relevant ministries. Only by managerial
approach, respecting all managerial fuctions, is it possible to realise the concept
of management and development as, objectively speaking, the situation in rural
areas is stagnant and advancement cannot be felt. Regardless of the fact that it
concerns the investment in the economic and non-economic sectors, it is possible to realise such an approach. If one wishes to have efficient management in
the Istrian Region, one should also establish a system of quality communication, systematic monitoring and provide as much financial support to the entire
development as well as to educate new people and work on increased education
of the entire population. Equally, a team of people with managerial competences, with knowledge about the matter of rural area management, can and ought
to conduct rural development actions and stimulate the implementation of the
EU programmes for rural part development.

Romina Sinosich • Ivan Herak • Andreja Rudančić-Lugarić: APPLICABILITY OF EUROPEAN DEVELOPMENT PROGRAMMES TO TOURISTIC ...

3. Buller H.: Re-creating Rural Territories: Leader in France. Sociologia Ruralis, 2000.,40(2),
str.190-199.
4. EC Directorate-General for Agriculture: Leader+ best practices, Rue de la Loi 200, B104 Brussels, 2008.
5. EC Office for official Publications of the European Communities: The Leader approach:
A basic guide, Brussels, 2006.
6. Kumrić, O., Franić, R.: Politika ruralnog razvitka – iskustvo Italije, Agronomski fakultet
Sveučilišta u Zagrebu, Zbornik radova 2. međunarodnog simpozija Agronoma,Opatija,
str. 134.-137., 13.-16. veljače 2007.
7. Laginja I., Ćorić G. : Europski opservatorij LEADER/AEIDL, Rural, 2000.
8. LEADER od inicijative do metode, ZOE – centar za održivi razvoj ruralnih krajeva,
Zagreb, travanj 2004.
9. Moehler, R.:Rural Development-The Second Pillar of the Common Agricultural Policy,
2006.
10. Montelone, A., Storti, D.: Rural development policy in Italy after Agenda 2000: First
results for the period 2000-2003, 87th seminar of the European Association of Agricultural Economists Viena, 21-24 April, 2004.
11. Osti G.: Leader and Partnerships: The case of Italy, Sociologia Ruralis 40(2), str. 173180, 2000
12. Perez J.E.: The Leader Programme and the Rise of Rural Development in Spain, Sociologia Ruralis 40(2), str. 200-207., 2000.
13. Ploeg, J. D., Renting, H., Brunori, G., Knickel, K., Mannion, J., Marsden, T., De Roest, K., Sevilla-Guzman, E., Flaminia Ventura: Rural Development: From Practises and
Policies towards Theory. Sociologia Ruralis 40 (4), str. 392-408., 2000.
14. Program vlade republike hrvatske za mandat 2008. – 2011., dostupno na http://
www.vlada.hr/hr/content/download/37519/516157/file/Program%20Vlade%20
Republike%20Hrvatske%20u%20mandatnom
15. Ray, C.: Transnational Co-operation Between Rural Areas: Elements of a Political
Economy of EU Rural Development. Sociologia Ruralis 41(3), 2001., str. 279-295.
16. Štifanić, I., Debelić, B.,: Europskom praksom do vlastitih prilika, 2009.
16. http://www.hrvatski-farmer
17. www.odraz.hr
18. Weihrich, H., Koontz, H: Menadžment, deseto izdanje, Mate, Zagreb, 1998.

58

MAIN FACTORS INFLUENCING
PROJECT SUCCESS
Ioana BELEIU, Ph.D.
Babeș-Bolyai University, Romania
ioana.beleiu@econ.ubbcluj.ro

Emil CRISAN, Ph.D.
Babeș-Bolyai University, Romania
emil.crisan@econ.ubbcluj.ro

Razvan NISTOR, Ph.D.
Babeș-Bolyai University, Romania
razvan.nistor@econ.ubbcluj.ro

The high frequency of using projects in all fields determined the increasing importance of adequate project management. Considering the direct relationship
between reaching projects’ objectives and the long term development of an organization, aspects regarding projects’ success and the success factors of projects
are topics of great interest in project management literature. Reaching projects’
objectives in compliance with constraints of cost, time and performance is usually not sufficient to determine whether the project was successful or not. While
literature provides different perspectives regarding this topic, in practice things
get sometimes even more complicated, project success being often vaguely defined. This article aims to present an overview on the topic of project success
and identify main success factors when dealing with projects using a quantitative research.
Keywords: project, management, success, criteria
JEL Classification: M00, O22

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Abstract

1.

INTRODUCTION

Ioana Beleiu • Emil Crisan • Razvan Nistor: MAIN FACTORS INFLUENCING PROJECT SUCCESS

Projects are used in all economic and non-economic fields as mean of organizing the activity, aiming the achievement of desired objectives. There is a direct relationship between projects, projects portfolio, programs and the organisational
strategy. Projects, as the main way of creating and dealing with change (Cleland,
Gareis, 2006), are used to implement strategies. Meskendahl (2010) refers to
projects as the central building block used in implementing strategies, therefore
business success is determined by the success of the projects. According to PMI
(2013), aligning projects with strategic objectives brings value to an organization. Implementing successful projects generates positives effects on the organisation, influencing not just short and medium, but also long term development.
The topic of business success is related to aspects of profitability and competitive advantage. Several studies have been made in this field due to the importance of finding what success is and how it is measured. In this paper we
focus on projects’ success, a topic of great interest in project management literature. Success approached in relationship with projects is even more important
since the number of failing projects is extremely high, more than one third of
projects failing to reach their objectives (PMI, 2013).
Initially, project success was referred to as reaching the objectives and
the planned results in compliance with predetermined conditions of time, cost
and performance. As knowledge in project management field developed, the
“golden triangle” was considered not enough to define project success. Project
success was recognised to be a complex, multi-dimensional concept encompassing many attributes (Mir, Pinnington, 2014). Projects are unique, reason
why project success criteria differ from one project to another (Müller, Turner,
2007). To increase complexity even more, within the last decades the concept
of project success is approached in relationship with stakeholders’ perception
(Davis, 2014), being accepted that success means different things to different
people (Shenhar et al, 2001). What determines project success, referred to as
success factors, is also approached and considered to be of great interest.
Base on the importance of the topic and the challenge of reaching project
success, in this paper we analyse the main aspects related to project success
based on a literature review: success criteria and success factors. Furthermore,
we complement the study with an empirical research focused on the main factors of project success.

60

2.

THEORETICAL BACKGROUND

.. Projects’ success criteria
A differentiation should be made between the two related concepts: success
criteria and success factors. First, relevant success criteria have to be identified
and then, success factors should be determined in order to increase the chances
of project success (Müller, Turner, 2007). Although, in this article, we focus our
attention mostly on success factors, success criteria cannot be neglected.

This increased level of complexity when approaching aspects of projects’
success is normal and determined by the dynamic environment where projects
are implemented. While in project management literature the list of success
criteria is supplemented constantly with measurable or non-measurable items,
in practice the situation becomes confusing, project managers having to deal
with situations of implementing projects that don’t have clearly defined success
criteria. One of the success conditions mentioned by Davis (2004), based on a
comprehensive literature study, is that “success criteria should be agreed on with
stakeholders before the start of the project, and repeatedly at configuration review points throughout the project”.

.. Projects’ success factors
Success factors can be perceived as main variables that contribute to projects’
success (Dvir, 1998), as levers that can be operated by project managers to increase chances of obtaining the desired outcomes (Westerveld, 2003). A combination of factors determine the success or failure of a project and influencing
these factors at the right time makes success more probable (Savolainen, 2012).
In earlier project management literature the main focus was on identifying ge-

61

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Success criteria are defined by Muller and Turner (2007) as variables that
measure project success. Since project success might be perceived differently
by stakeholders, there is a need for comprehensive criteria that reflect their interests and views (Dvir et al., 1998). Westerveld (2003) emphasises the importance of stakeholders’ satisfaction as a main success criteria, complementary
to the golden triangle of time, budget and quality, and adds that different time
lags should be considered. Establishing a set of criteria applicable to any type of
project is unrealistic (Mir, Pinnington, 2014). Although certain criteria might
be relevant in measuring the success of most projects, they should be adapted to
size, complexity, duration, type and stakeholders’ requirements.

Ioana Beleiu • Emil Crisan • Razvan Nistor: MAIN FACTORS INFLUENCING PROJECT SUCCESS

neric factors that contribute to projects’ success. Within the last years, authors
emphasised on the existence of different success factors depending on project
type. The struggle to identify the critical success factors is an ongoing topic,
approached by many researchers especially due to the pressure of implementing successful projects in a dynamic global market and ever changing business
world (Crisan, Borza, 2014), where continuous innovation is a must in order to
achieve competitive advantage (Salanta, Popa, 2014).
Davis (2014) studies project management success in literature from 1970s
to present, classifying the evolution of success factors into decades. According to
this study, approaches of success factors evolved from focusing on the operation
level of a project in 1970s to embracing a stakeholder focused approached after
2000s (Davis, 2014). As a result of the numerous studies that approached the
topic of project success, several lists of success factors exist. Pinto and Slevin’s
paper from 1987 represents a reference point by establishing a list of ten success factors, recognised by other authors as accurate (Turner, Müller, 2005):
project mission, top management support, schedule and plans, client consultation, personnel, technical tasks, client acceptance, monitoring and feedback,
communication, trouble-shooting (Pinto, Slevin, 1987). Davis (2014) adopted
in her paper a set of nine themes in order to describe success factors of projects: cooperation and communication, timing, identifying/ agreeing objectives,
stakeholder satisfaction, acceptance and use of final products, cost/ budget aspects, competencies of the project manager, strategic benefits of the project and
top management support. These lists of factors mentioned above, completed by
inputs from practitioners, are the basis of the empirical research presented in
this paper.
Yu et al. (2005) discussed the timing of project evaluations which aim analysing the success, concluding that the process is useful at any time between the first
milestone until the completion of the project. The results of these evaluations
might indicate inconsistencies that can have negative influence on the final outcomes. Whenever these situations occur, project managers should act in order to
increase success chances by influencing the previously identified success factors.

3.

METHODOLOGY

The article complements the literature review with an empirical study on
success factors. The objectives of the study are to identify the main factors of

62

projects’ success. By conducting the research we aim to answer the following
research questions:
RQ1: What are the top five factors that have the highest influence on projects’ success?
RQ2: What is the correlation between the factor considered to have the
highest influence on projects’ success and the other factors?

The structure of the questionnaire includes a first section where respondents are asked to choose from a list of success factors five factors that have the
highest influence on projects’ success. The list of nineteen success factors presented in the questionnaire is based on previous studies of Pinto, Slevin (1987)
and Davis (2014) and on inputs received from project managers. Thus, it was
elaborated a comprehensive list of success factors that approaches operational
and strategic aspects, and also considers both internal and external projects’ environment. The second section of the questionnaire requests respondents to the
rank the statements on a Likert scale from 1 to 5 (1- strongly disagree, 2- disagree, 3- uncertain, 4- agree, 5- strongly agree), based on their experience and
reflecting the situation within a project that they are currently working on. The
last part of the questionnaire includes general identification data as: the role of
respondents in the project, their experience in dealing with projects, the country
where they are located, and the type of the project they referred to.
The phases of the analysis are in accordance with the structure of the questionnaire. Thus, in the first phase we analyse the factors having the highest
impact on projects’ success. The second phase of the analysis refers to specific
projects that respondents currently work on. In this phase, for the top five factors that received the highest number of votes previously, an in-depth analysis
is made. Since it is generally accepted that success factors relate to each other,
statistical tests are applied in order to analyse the correlation between the success factor that received the highest number of votes and all the other factors.

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

The study is based on a quantitative research. Quantitative research involves
studies that make use of statistical analyses to obtain their findings (Marczyk
et al, 2005). The method of data collection used is a questionnaire addressed
to project managers, project team members, owners, sponsors, contractors, clients or other interested parties involved in projects’ implementation. The several
roles targeted aimed capturing a comprehensive overview of the approached
topics.

The number of responses received within a month of applying the questionnaire is 47. Although this number might be seen as a limit of the quantitative
research, a higher number of responses being needed for accurate generalisation
of the results, the study can be perceived as a pilot study that provides useful
information and directions for future research.

Ioana Beleiu • Emil Crisan • Razvan Nistor: MAIN FACTORS INFLUENCING PROJECT SUCCESS

The respondents answering the questionnaire are mostly project managers (51%) and project team members (38%), with an experience in managing
projects of 2 to 5 years (47%) and of 6 to 10 years (28%), working in Romania (80,9%), Austria (8,5%), China (4,3%), France (2,1%), Israel (2,1%) and
United Arab Emirates (2,1%). The types of analysed projects are: IT projects
(38%), engineering and construction projects (19%), organizational change
projects (15%) and others (human resource development projects, research and
development project, social projects).

4.

DATA ANALYSIS AND RESULTS
INTERPRETATION

As mentioned before, respondents were asked to choose from the list of factors presented in the table below (Table 1) five factors that have the highest impact on projects’ success. Since all these factors are relevant to projects’ success,
it can be observed that each of them received votes. However, there are certain
factors that were chosen by more respondents. Thereby, it can be stated that
the factors that were chosen by most of the respondents have higher impact
on projects’ success that the others. Based on the results of the questionnaire,
the five factors with highest impact on projects’ success are: clearly defined goal
and directions (70.2%), competent project team members (53.2%), clearly defined roles and responsibilities (53.2%), communication and consultation with
stakeholders (40.4%) and compliance with the planned budget, time frame and
performance criteria (40.4%). Owner’s and sponsor’s involvement within the
project, and the provision of timely data to key players are considered to have
the lowest impact on projects’ success, since they received the smallest number
of votes.

64

Table 1. Ranking of success factors
Success factors
Compliance with the planned budget, time frame and performance
criteria
Clearly defined goals and directions

Number
Percentage of
of
respondents
choices choosing the factor
19

40.4 %

33

70.2 %

Accurate schedule and plan

17

36.2 %

Timely and comprehensive control

10

21.3 %

Adequate use of project management techniques

10

21.3 %

Adequate use of technical skills

5

10.6 %

Competent project team members

25

53.2 %

Clearly defined roles and responsibilities

25

53.2 %

Synergy of the team

15

31.9 %

Experience and expertise of the project manager

7

14.9 %

Adequate risk management

5

10.6 %

Ability to handle unexpected problems

15

31.9 %

Communication and consultation with stakeholders

19

40.4 %

Provision of timely data to key players

2

4.3 %

Client acceptance of the results

11

23.4 %

Stakeholders satisfaction

6

12.8 %

Owner involvement within the project

1

2.1 %

Sponsor involvement within the project

3

6.4 %

Top management support

7

14.9 %

On the second phase of the analysis we focused on projects where respondents are currently involved. An analysis was made in order to see whether the
top five success factors are given adequate importance in practice. Thus, studied
aspects were, whether:
• Projects have clearly defined goals and directions;
• Projects’ team members have the necessary competences;
• Roles and responsibilities are clearly defined;
• The communication and consultation with stakeholders take place whenever necessary;
• Projects respect the planned budget, time frame and performance criteria.

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Source: Author’s calculations

Most of the analysed projects have clearly defined goals and directions, more
than 44% of respondents agreeing with the first analysed statement and more
than 36% strongly agreeing with it (Figure 1). Though, 6.38% of the respondents consider that projects they are involved in, do not have clearly defined
goals and directions.

Ioana Beleiu • Emil Crisan • Razvan Nistor: MAIN FACTORS INFLUENCING PROJECT SUCCESS

Figure 1. Analysis on the clarity of defined goals and directions

Source: Author’s calculations

Concerning the competence level of team members, the majority of respondents consider that it is adequate (40.4% of respondents agree with the statement and 31.8% strongly agree). It can also be observed in the figure below
(Figure 2) that several respondents face situations where project team members
do not have the necessary competences.

66

Figure 2. Analysis on the competence level of team members

Source: Author’s calculations

Clearly defined roles and responsibilities are a must when dealing with projects in order to ensure a successful implementation. By knowing what they have
to do and when they have to do it, team’s efficiency is increased. A useful tool
that clarifies roles and responsibilities is the Responsibility Matrix. Despite the
importance of this factor, a percentage of more than 19% respondents consider
that roles and responsibilities are not clearly defined in the projects they referred to. On the other hand, a percentage of 34% respondents agree and 34%
strongly agree with the statement (Figure 3).

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Figure 3. Analysis on the clear definition of roles and responsibilities

Source: Author’s calculations

67

A percentage of 21% respondents strongly agree and 44% agree that the
communication and consultation with stakeholders is adequate in the case of
the studied projects. However, the percentage of undecided respondents is quite
high (27%). Most of the respondents consider that projects respect the planned
budget, time frame and performance criteria. Whereas the percentage of those
agreeing with the statement is the same as in the case above, only 12% strongly
agree and the percentage of those who disagree or are undecided is higher comparing to the situation analysed previously.

Ioana Beleiu • Emil Crisan • Razvan Nistor: MAIN FACTORS INFLUENCING PROJECT SUCCESS

In order to verify the correlation between the success factor “clearly defined
goals and directions” and the other success factors applied in the context of the
analysed projects, the statistical test Pearson was used (Table 2).
The value of Sig. lower than 0.05 confirms that there is a statistically significant correlation between the statements “The project has clearly defined goals
and directions” and:
• The project respects the planned budget, time frame and performance
criteria;
• The project has accurate schedules and plans;
• During project’s implementation a timely and comprehensive control
takes place;
• Project team members have the necessary competences;
• Roles and responsibilities are clearly defined;
• Project team has a high level of effectiveness and efficiency;
• The project manager is empowered with flexibility to deal with unforeseen
circumstances;
• The project manager and the team members have the ability to handle
unexpected problems;
• The communication and consultation with stakeholders takes place whenever necessary;
• Clients accept the results of the project;
• The level of stakeholders’ satisfaction is adequate;
• The owner takes an interest in the performance of the project and provides
guidance whenever necessary.
These results indicate that changes within one variable imply changes within
the other variable that is related. Pearson coefficient provides additional information regarding the correlation of the analysed variables. The positive values

68

of the Pearson coefficient indicate a positive correlation: if values of one variable
increase, the values of the other variable also increase and vice versa. In all the
cases presented in the table below, where significant correlation was identified,
the values of Pearson coefficient are positive.
The results obtained through the application of these statistical tests show
that more clear goals and directions have positive influences as:

These results highlight the importance of identifying the main success factors. Through a positive influence on the factors that have the highest influence
on project’s success, other factors that are related will also be influenced, increasing the chances of fulfilling success criteria.

69

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

• project are more likely to respects the planned budget, time frame and
performance criteria;
• the level of accuracy of projects’ plans and schedules increases;
• control becomes more adequate and is made on time;
• projects’ team members are more competent, since they can be selected or
trained according to the requirements, goals and directions of the projects;
• roles and responsibilities are more likely to be clearly defined;
• projects team’s level of effectiveness and efficiency increases;
• project managers become more empowered to deal with unforeseen
circumstances;
• project managers and team members have better abilities to handle unexpected problems;
• communication and consultation with stakeholders improves;
• chances of clients to accept the results of the project increase;
• the level of stakeholders’ satisfaction increases;
• the owner takes more interest in the performance of the project and provides more guidance.

Table 2. Correlations between success factors

The project respects the planned budget, time frame and
performance criteria.

The project has clearly defined goals and
directions.
Pearson Correlation 0.576**
Significant correlation
Sig.
0.000

The project has accurate schedules and plans.

Significant correlation

Correlations

During project’s implementation a timely and
comprehensive control takes place.

Significant correlation

There is an adequate use of project management
techniques.

No correlation

The project team is able to adequately use technical skills.

No correlation

Ioana Beleiu • Emil Crisan • Razvan Nistor: MAIN FACTORS INFLUENCING PROJECT SUCCESS

Project team members have the necessary competences. Significant correlation
Roles and responsibilities are clearly defined.
Project team has a high level of effectiveness and
efficiency.
The project manager has the necessary level of
experience and expertise.

Significant correlation
Significant correlation
No correlation

The project manager is empowered with flexibility to deal
with unforeseen circumstances.

Significant correlation

The project manager and the team members have the
ability to handle unexpected problems.

Significant correlation

The communication and consultation with stakeholders
takes place whenever necessary.

Significant correlation

Relevant data is provided to key players on time.
Clients accept the results of the project.

No correlation
Significant correlation

The level of stakeholders’ satisfaction is adequate.

Significant correlation

The owner takes an interest in the performance of the
project and provides guidance whenever necessary.

Significant correlation

The sponsor’s involvement within the project is adequate.

No correlation

The project receives top management support.

No correlation

Source: Author’s calculations

70

Pearson Correlation 0.490**
Sig.

0.000

Pearson Correlation 0.321*
Sig.

0.028

Pearson Correlation

0.271

Sig.

0.066

Pearson Correlation

0.227

Sig.

0.125

Pearson Correlation 0.348*
Sig.

0.017

Pearson Correlation 0.381**
Sig.

0.008

Pearson Correlation 0.407**
Sig.

0.005

Pearson Correlation

0.171

Sig.

0.251

Pearson Correlation 0.412**
Sig.

0.004

Pearson Correlation 0.420**
Sig.

0.003

Pearson Correlation 0.334*
Sig.

0.022

Pearson Correlation

0.193

Sig.

0.193

Pearson Correlation 0.302*
Sig.

0.039

Pearson Correlation 0.425**
Sig.

0.003

Pearson Correlation 0.385**
Sig.

0.007

Pearson Correlation

0.205

Sig.

0.167

Pearson Correlation

0.229

Sig.

0.121

5.

CONCLUSIONS

Success is desired in everyday life, in business activities and in projects. Given
the high rate of projects that fail reaching their objectives or creating the wanted
effects, researches that approach the topic of success bring positive inputs both
to literature and to practice. Relating literature reviews with studies that capture the realities of business environments increase the usefulness of the results.
Success factors determine the positive outcomes of implementing projects.
They have to be identified before projects’ implementation, from the conception
phase. But projects environments are dynamic, so success factors might change
their level of influence in time. Thus, a permanent monitoring of these factors
is needed and whenever necessary the project manager should influence certain
factors in order to increase chances of accomplishing success criteria.
The research presented in this article is relevant because it aims to identify
the main success factors from a very comprehensive list of factors. Since factors
are usually related to each other, knowing the factors that have higher influence
on projects’ success supports the management process and increases its efficiency. Future research should be done in order to continue the study on a higher
sample, by testing the correlation between rankings of success factors and the
roles or the experience of respondents.

Cleland, D., Gareis, R. (2006). Global Project Management Handbook, 2nd Edition, McGraw-Hill Print
Crisan C. S., Borza A. (2014). Strategic entrepreneurship, Managerial Challenges of the
Contemporary Society, Ed. Risoprint, 170-174
Davis, K. (2014). Different stakeholder groups and their perceptions of project success, International Journal of Project Management 32, 189–201
Dvir D., Lipovetsky S., Shenhar A., Tishler A. (1998). In search of project classification: a
non-universal approach to project success factors, Research Policy 27, 915–935
Marczyk, G., DeMatteo, D., Festinger, D. (2005). Essentials of Research Design and Methodology, Ed. New Jersey: John Wiley & Sons.
Meskendahl, S. (2010), The influence of business strategy on project portfolio management
and its success — A conceptual framework, International Journal of Project Management
28, 807–817
Mir, F.A., Pinnington, A.H. (2014). Exploring the value of project management: Linking
Project Management Performance and Project Success, International Journal of Project
Management 32, 202–217

71

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

references

Ioana Beleiu • Emil Crisan • Razvan Nistor: MAIN FACTORS INFLUENCING PROJECT SUCCESS

Müller, R., Turner, R. (2007). The influence of project managers on project success criteria
and project success by type of project. European Management Journal 25 (4), 298–309
Pinto, J.K., Slevin, D.P., (1987). Critical factors in successful project implementation, IEEE
Transactions on Engineering Management 34 (1), 22–28
PMI (2013). Pulse of the Profession In-Depth Report: The Impact of PMOs on Strategy
Implementation
Salanţă I., Popa, M. (2014). An Empirical Investigation into the Outsourcing Logistics Contract, Proceedings Of The 8th International Management Conference “Management Challenges for Sustainable Development”, Bucharest, Romania, 350-357
Savolainen P., Ahonen, J.J., Richardson, I. (2012). Software development project success and
failure from the supplier’s perspective: A systematic literature review, International Journal
of Project Management 30, 458–469
Shenhar, A. J., Dvir, D., Levy, O., Maltz, A. C. (2001). Project Success: A Multidimensional
Strategic Concept, Long Range Planning 34, 699–725
Turner, J.R., Müller, R. (2005). The project manager’s leadership style as a success factor on
projects: a review, Project Management Journal 36 (2), 49–61
Westerveld E. (2003). The Project Excellence Model: linking success criteria and critical success factors, International Journal of Project Management 21, 411–418
Yu, A. G., Flett, P. D., Bowers, J. A. (2005). Developing a value-centred proposal for assessing
project success, International Journal of Project Management 23, 428–436
Acknowledgments:
* This work was co-financed from the European Social Fund through Sectoral Operational Programme Human Resources Development 2007-2013, project number
POSDRU/159/1.5/S/134197 „Performance and excellence in doctoral and postdoctoral
research in Romanian economics science domain”

72

OPTIMISATION OF OPERATIONS
USING A TRANSPORTATION
MODEL
Martina BRIŠ ALIĆ, Ph.D.
J.J. Strossmayer University of Osijek,
Faculty of Economics in Osijek, Republic of Croatia
mbris@efos.hr

Mirko COBOVIĆ, Ph.D. Candidate
College of Slavonski Brod, Croatia, Republic of Croatia
mirko.mobovic@vusb.hr

Alen ALIĆ, Ph.D. Candidate
Aurea Grupa d.d., Republic of Croatia
uprava@aurea-grupa.hr

Hrvatske šume d.o.o. (limited liability company) is a state-owned enterprise
for forest and woodland management in the Republic of Croatia. The area
under its governance provides for annual increment of 9.6 million m3 of gross
wood mass, whereas 5.4 million m3 is on a yearly basis. This cut wood mass
needs to be transported to designated destinations. Wood mass transport has
continuously increased, with 4.8 million m3 transported in 2013. Out of this
quantity, the company Hrvatske šume d.o.o. transported 12.8% of wood mass
using its own facilities, and the rest was transported by subcontractors. For
these reasons, a transportation model can be an important part of operations.
The paper aims to analyze transport-related issues in the company Hrvatske
šume d.o.o. The insight into the current situation in wood mass transport will
provide a basis for the proposed optimization of operations. Key factors of
transport will be considered in devising an optimization proposal.

73

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Abstract

Keywords: optimization, transportation model, Hrvatske šume d.o.o., Croatian wood industry
JEL Classification: C4, C44, C49

Martina Briš Alić • Mirko Cobović • Alen Alić: OPTIMISATION OF OPERATIONS USING A TRANSPORTATION MODEL

INTRODUCTION
Influenced by the minimization of the tied-up capital volume, transport is an
important area for optimization of business processes within a company. Efforts
invested in rationalization of business operations in the company Hrvatske
šume d.o.o. over years have resulted in changes in the transport of wood mass.
There are two types of transport of wood mass- primaryand secondary. Primary transport involves transport of processed wood mass from a production
site to a storage yard, whereas secondary transport involves transport of wood
mass from the storage yard to the site where it will be further processed. Secondary transportby using own facilities in the company Hrvatske šume d.o.o.
has been reduced over years and transferred to subcontractors.
The paper provides further analysis of secondary or distance transport of
wood mass by truck units owned by Hrvatske šume d.o.o toward large and
mediumsized companies involved in wood processing. The analysis was used as
a basis for operations optimization by using a transportation model.

HRVATSKE ŠUME D.O.O.
Hrvatske šume d.o.o. is a state-owned enterprise for forest and woodland
management in the Republic of Croatia. The company is organized in three
tiers, consisting of Headquarters in Zagreb, 16Forest Administrations and 171
Forrest Offices.Wood and woodlands account for 37% of the total country area,
with annual increment of 9.6 millionm3of wood mass, whereas 5.4 million m3
is cut over one year1.
The cut wood mass is transported from the cutting area toa storage yard,
from where it is transported to processors.
Total wood mass transported in 2013 amounted to 4.8 millionm3. Hrvatske
šume d.o.o. transported 12.8% of wood mass using its own facilities, whereas
1

http://portal.hrsume.hr/index.php/hr/tvrtka/onama

74

the remaining 77.1% of wood mass was transported by subcontractors.A more
detailed overview is provided in Table 1.

Table 1.Transport of wood mass by m3
Total

Percentage

Own facilities

611,839

12.76%

Subcontractors

3,696,294

77.10%

Self-production

486,168

10.14%

Total

4,794,301

100.00%

Source: Kuric et al., 2014: 31

The share of own facilities and subcontractors has reduced over years – in
the total wood transport by means of truck units in Croatia in 2006, Hrvatske
šume d.o.o. participated with 21%, whereas the remaining 79% of wood was
transported by private entrepreneurs (Beuk et al., 2007: 72); in contrast to2012,
when Hrvatske šume d.o.o. participated with 13% (Tomašić, 2012: 63).
Transportation capacity of Hrvatske šume d.o.o. consists of 101 truck units
distributed among Forest Administrations as shown in Table 2. According to
the table, 3 out of total 16 Forest Administrations do not have their own facilities, i.e. available trucks.

Forest Administration

Trucks

Forest Administration

Trucks

1

Bjelovar

11

9

Ogulin

12

2

Buzet

0

10

Osijek

5

3

Delnice

11

11

Požega

4

4

Gospić

6

12

Senj

15

5

Karlovac

4

13

Sisak

0

6

Koprivnica

6

14

Split

0

7

Našice

9

15

Vinkovci

7

8

Nova Gradiška

4

16

Zagreb

7

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Table 2. Capacity distribution among Forest Administrations

Source: web site Hrvatske šume d.o.o.

75

TRANSPORTATION PROBLEM

Martina Briš Alić • Mirko Cobović • Alen Alić: OPTIMISATION OF OPERATIONS USING A TRANSPORTATION MODEL

Transportation problem or transportation model is a special case of linear
programming. Transportation problem refers to a situation where some homogenous2 good in the ai amount is transported from the Ii supply point (for
i=1,...,m) to the Oj demand point (for j=1,...,n) at minimal costs. The starting
point is that transportation costs per unit are constant (they do not vary with
the quantity being transported) from the i point to the j point and they are
equal to cij. The quantity being transported from the i point to the j point is
marked with xij (Barković, 2002: 117).
The basic terms are as follows:
Supply point I (source) → supply (a total mof supply points),
Demand point O(destination) → demand (a total nof demand points)
ai– Capacity of a particular supply point(supply),
bi– Demand of a particular demand point(demand),
ci – Transportation costs per unit or transportation prices,
xij– Transported quantities – quantities transported from the i supply point
to the j demand point.
Transportation model can be formulated as a problem in linear programming (Hillier&Lieberman, 2010: 310-311):
m

Minimize

Z

n

¦¦ c

x

ij ij

i 1 j 1

n

¦x

subject to

ij

si ,

for i 1, , m

dj,

for j 1, , n

j 1
m

¦x

ij

i 1

and
When:
1.

xij t 0

m

n

¦s ¦d
i

i 1

2.

j

( i 1,, m; j 1,, n )

→ supply = demand → closed transportation problem

j 1
n

m

dj
¦s ˂¦
j 1
i

→ supply ˂ demand → open transportation problem

i 1

2

Goods are homogenous in the sense that it is possible to transport goods together in such a way that
a particular good will not affect the quality of another good, or that a particular good will not damage
another good; but also in such a way that each unit of the good from one source can be freely substituted for a unit of the good from any other source.

76

1.

m

n

¦s ¦d
i

i 1

2.

j

→ supply = demand → closed transportation problem

j 1
n

m

dj
¦s ˂¦
j 1
i

→ supply ˂ demand → open transportation problem

i 1

a) All supply constraints will contain the equals sign, whereas demand constraints
will contain the ≤ sign, as some destinations will receive less than they requested.
b) An open transportation problem can be turned into a closed transportation
problem by introducing the so-called fictional source I m1 whose capacity equals
to

n

m

¦d  ¦s
j

j 1

i

, and transportation prices are equal to zero, i.e. cm1, j 0 . In this

i 1

way, the fictional source I m1 does not affect the costs with its “shipped”
quantities.
The fictional source is interpreted in the following way: demand of destinations
that would be supplied from the fictional source will not be satisfied.
m

n

¦ s ˃ ¦d
i

i 1

j

→ supply ˃ demand → open transportation problem

j 1

a) All demand constraints will contain the equals sign, whereas supply constraints
will contain the ≤ sign, as the surplus (the difference between supply and
demand) will stay at some supply points.
b) It can be turned into a closed transportation problem by introducing the so-called
fictional destination On1 whose demand equals to

m

n

¦s  ¦d
i

i 1

j

, and

j 1

transportation prices are equal to zero, i.e. ci ,n1 0 . In this way, the fictional
destination On1 does not affect the cost with its “received” quantities.

The fictional destination is interpreted in the following way: in the sources that
should supply fictional destinations, there will remain capacity units that will not be
transported.

APPLICATION OF THE TRANSPORTATION MODEL
ON DISTANCE TRANSPORTATION OF WOOD
MASS
For the purpose of this paper, secondary data on total annual turnover, assets and average number of employees in the field of wood processing were
analyzed. For the purpose of this analysis, the data from the Financial Agency
(FINA) of the Republic of Croatia were used, which are based on the National Classification of Economic Activities (Regulations on the Classification
of Business Entities according to the National Classification of Economic Ac-

77

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

3.

tivities 2007 (NKD2007), Official Gazette 58/2007). According to the NKD
2007, researched business entities belong to SectionC – Manufacturing, division 16 – Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials. Furthermore, the
observed units were companies.

Martina Briš Alić • Mirko Cobović • Alen Alić: OPTIMISATION OF OPERATIONS USING A TRANSPORTATION MODEL

According to the Croatian law, companies are categorized as small, medium
sized or large companies according to three criteria: total assets, total revenue
and the average number of employees (Table 3).

Table 3. Criteria for determining company size
Company size
Small companies (shall meet two of the stated three
requirements)

Medium-sized companies(shall meet two of the stated
three requirements)

Criteria

Amount in HRK

Total assets

<32,500,000.00

Total revenue

< 65,000,000.00

Number of employees

<50

Total assets

<130,000,000.00

Total revenue

<260,000,000.00

Number of employees

< 250

Large companies (shall exceed at least two criteria for medium-sized companies)

Source: Ramljak, 2009:22

Taking into account the above classification as well as higher demand for
wood mass which also requires increased transport volumes of wood mass, the
analysis in this paper was aimed at large and mediumsized companies (Figure
1).

78

Figure 1. Locations of Forest Administrations and wood processors

Wood mass is transported by 101 trucks distributed among 13 Forest Administrations. From there it can be further distributed to 33 destinations –
large and mediumsized wood processors.

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

The distances between certain sources and destinations are shown in Table
4. The data were calculated by means of Google Earth and the HAK interactive
map.

79

Table 4. Distances between Forest Administrations and wood processors

Wood processors

Martina Briš Alić • Mirko Cobović • Alen Alić: OPTIMISATION OF OPERATIONS USING A TRANSPORTATION MODEL

 

Forest Administrations
1

2

3

4

5

6

7

8

9

10

11

12

13

D

1

105

223

300

154

195

128

50

206

187

78

262

176

104

2

2

253

55

212

122

286

390

312

97

450

340

74

439

171

8

3

3

206

282

137

40

143

147

188

284

121

245

273

85

1

4

213

332

409

263

304

68

77

315

86

64

371

72

212

4

5

31

179

256

110

62

195

116

161

254

144

218

243

59

1

6

31

179

256

110

62

195

116

161

254

144

218

243

59

1

7

78

272

228

82

111

229

150

133

287

178

190

277

25

1

8

106

184

261

115

67

280

202

167

339

230

223

328

82

5

9

121

97

17

173

154

259

181

78

318

209

135

307

39

1

10 86

123

200

53

120

224

146

105

284

175

161

272

5

7

11 276

395

471

325

367

115

140

377

61

144

433

22

275

1

12 31

232

308

162

28

115

178

214

163

128

270

199

111

3

13 69

212

288

142

30

170

211

194

248

240

250

337

91

3

14 62

147

223

77

99

223

146

129

282

173

185

272

22

3

15 3

206

282

137

40

143

147

188

284

121

245

273

85

8

16 252

55

211

122

286

390

312

97

450

340

74

439

170

2

17 92

188

264

118

61

264

186

170

324

214

226

313

67

2

18 67

231

308

161

106

135

57

213

195

85

270

184

111

1

19 210

10

169

80

244

350

270

54

406

297

86

396

128

1

20 127

223

299

154

52

192

222

205

359

250

261

348

102

3

21 76

225

301

155

197

129

51

207

188

79

264

178

104

2

22 117

346

423

278

114

26

92

329

79

51

385

97

227

2

23 127

223

299

154

52

192

222

205

359

250

261

348

102

2

24 63

228

304

159

25

164

227

210

364

254

266

353

107

1

25 63

228

304

159

25

164

227

210

364

254

266

353

107

2

26 117

211

287

141

208

175

98

192

235

125

249

223

93

2

27 191

310

387

241

282

54

56

292

94

42

349

83

190

3

28 86

123

200

53

120

224

146

105

284

175

161

272

5

1

29 98

178

255

108

160

199

121

160

258

149

217

248

60

2

30 273

392

469

323

364

75

137

374

42

142

431

3

272

7

31 235

354

431

285

186

48

99

336

62

104

393

34

234

5

32 86

123

200

53

120

224

146

105

284

175

161

272

5

4

33 86

123

200

53

120

224

146

105

284

175

161

272

5

10

S

11

6

4

6

9

4

12

5

4

15

7

7

 

11

Source: Authors

80

An optimal schedule of truck movement, i.e. transportation shipments
among particular destinations should be created, taking into account the needs
of large and medium sized wood processors, as well as the number of available
trucks at a particular source, i.e. Forest Administration, with the aim of reducing mileage.
Data analysis was carried out by applying MS Excel and POM-QM for Windows program. Table 5 provides the optimal solution to the observed problem.
Table 5. Optimal solution for transportation shipments
Forest Administrations
1
2
3
4
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33

5

6

7
2

8

9

10

11

12

13

8
1
4
1
1
1
5
1
7
1
2

1
0

3
3

8
2
2
1

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Wood processors

 

1
2

1
1

1

2
2
1
2
1

1
2

1
1
1

1
1
0
4

1
4

6

4
1

5

Source: Authors

81

Table 6 shows the combined data for all the observed sources, i.e. Forest
Administrations, the destinations for which the transportation model yielded
that a certain quantity of wood mass should be transported by means of truck
units, distances between particular sources and destinations where truck units
should be stationed, the number of truck units between a particular source and
a particular destination, as well as total kilometres driven.

Martina Briš Alić • Mirko Cobović • Alen Alić: OPTIMISATION OF OPERATIONS USING A TRANSPORTATION MODEL

Table 6. Shipping list (FA = Forest Administration, WP = Wood Processor, S
= Shipment, D/U = Distance per Unit, SD = Shipment Distance)
FA

WP

S

D/U

SD

FA

WP

S

D/U

SD

1

3

1

3

3

7

18

1

57

57

1

12

2

31

62

7

21

1

51

51

1

15

8

3

24

8

5

1

161

161

2

8

5

184

920

8

6

1

161

161

2

19

1

10

10

8

10

7

105

735

2

29

1

178

178

8

26

1

192

192

2

32

0

123

0

8

28

1

105

105

2

33

4

123

492

8

29

1

160

160

3

9

1

17

17

9

30

1

42

42

3

13

0

288

0

9

31

4

62

248

3

17

2

264

528

10

21

1

79

79

3

20

2

299

598

10

26

1

125

125

3

33

1

200

200

10

27

2

42

84

4

32

4

53

212

11

2

8

74

592

5

13

3

30

90

11

16

2

74

148

5

24

1

25

25

11

33

5

161

805

5

25

2

25

50

12

11

1

22

22

6

4

4

68

272

12

30

6

3

18

6

12

1

115

115

13

7

1

25

25

6

22

2

26

52

13

14

3

22

66

6

27

1

54

54

13

20

1

102

102

13

23

2

102

204

6

31

1

48

48

7

1

2

50

100

Source: Authors

82

CONCLUSION
Due to globalization, today’s business environment is governed by uncertainty and a high degree of turbulence. In such conditions, Hrvatske šume d.o.o.
can secure its future and achieve competitive advantages by continuous optimization of operations. This paper has presented one optimization method,
namely, the transportation model.
Taking into account the number of trucks available to Hrvatske šume d.o.o.,
the revenue of particular large and medium-sized wood processors – and related to this, the need/demand of a processor for wood mass, an optimal schedule
of truck movement has been devised, i.e. the number of transportation shipments among particular destinations has been determined, all with the aim of
reducing mileage.
This paper can be a starting point for further optimization of operations and
decrease of operating costs for the company Hrvatske šume d.o.o.

Barković, D. (2002).Operacijska istraživanja, Ekonomski fakultet u Osijeku, Osijek.
Beuk, D.,Tomašić, Ž., Horvat, D. (2007).Status and development of forest harvesting mechanisation in Croatian state forestry, Croatian Journal Of Forest Engineering, Vol. 28 Issue 1,
Zagreb, 63-82.
Hillier F., Lieberman G. (2010). Introduction to Operations Research, Holden-Day Inc,
Oakland, California.
Kuric, D., Stankić, M., Juričić Musa, A., Rupčić, J., Paunović, I. (2014). Godišnje izvješće
2013, Hrvatske šume d.o.o., Zagreb.
http://portal.hrsume.hr/index.php/hr/tvrtka/onama (Accessed 15-01-2015)
Ramljak, B. (2009). Stanje i perspektive razvoja financijskog izvještavanja za mala i srednja poduzeća, Računovodstveno izvještavanje u RH i harmonizacija sa zahtjevima EU,
Sveučilište u Splitu, Ekonomski fakultet, Split, 21-46.
Tomašić, Ž. (2012). Razvoj tehnologije i tehničkih sredstava u pridobivanju drva s obzirom na posebnosti šuma i šumarstva u Republici Hrvatskoj, Nova mehanizacija šumarstva,
Vol.33 No.1, Zagreb, 53-67.

83

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

REFERENCES

Sonja Brlečić Valčić • Jana Katunar: INTERDEPENDENCE OF BUSINESS VALUE COMPONENTS IN VALUE CREATION AND VALUE CAPTURE CONCEPTS

INTERDEPENDENCE OF BUSINESS
VALUE COMPONENTS IN VALUE
CREATION AND VALUE CAPTURE
CONCEPTS1
Sonja BRLEČIĆ VALČIĆ, Ph.D.
Saipem SpA Croatian Branch, Rijeka, Croatia
sonja.brlecic@gmail.com

Jana KATUNAR, univ. spec. oec.
University of Rijeka, Faculty of Economics, Rijeka, Croatia
jana@efri.hr

Abstract
Modern economic concepts are focused on sustainable business models where
key processes and resources contribute to a company’s value creation and capture. It is important to notice the existence and the interdependence of the three
value categories in this process: value in use, shareholder value and shared
value. This process is manifested with the ability to create future cash flows
based on strategy and business excellence, capital structure, optimal shareholder value, as well as competitiveness of a company in advancing the economic
and social conditions in the communities in which it operates. Such a sustainable system of value creation and capture is based on trust, cooperation and
responsibility.
The value in use category is presented in this paper through combination of the
return on existing assets and new investments evaluation. Shareholder value
category implies the increase of equity market value, dividends paid during the
year, other payments to shareholders and outlays for capital increases. Connection of social needs, business opportunities together with corporate assets and
expertise form the basis for the shared value component.

1

This work has been supported by the Croatian Science Foundation under the project 6558 Business
and Personal Insolvency - the Ways to Overcome Excessive Indebtedness.

84

Based on the essential parts of the aforementioned value categories, the authors propose a conceptual model for value creation and value capture. This
approach emphasizes the connectivity of company success with social progress.
Keywords: value creation, value capture, value in use, shareholder value,
shared value
JEL Classification: G32, L21, M10

1.

INTRODUCTION

The company that creates value can be defined as one in which the management manages to integrate the interests and actions of all participants interested
in the company’s business processes. These are primarily the owners, managers
and employees, as internal creators of business processes, and customers, suppliers, creditors, as well as the entire community in which the company operates
as external participants.

Capital is the input entering the system of value creation, which, through
assets and business activities and interactions, is transformed into output business results. The business results, in short, medium and long term, either create
or destroy value for the company, the business process stakeholders, community
and the environment (EY, 2013).
The goal of optimization within the process of value creation is to provide
consistency between operating, investing and financing activities. Such a system
should result in a positive sustainable cash flow that exceeds the cost of capital.
The essence of the strategy in the value creation process is to harmonize a series of activities, from procuring raw materials to satisfying the end consumer,
which will allow the creation of a new product or service in the future. The value
is captured by retaining part of the benefits derived from these activities for the
means of further development and operation (Chesbrough, 2007).
Value capture is primarily related to the allocation of business profit, which
should ensure conditions for future production or provision of services, ensur-

85

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Creating value for the company is achieved by optimizing the system of business performance and business models which are aimed at achieving sustainable
competitive advantages and operational objectives with the support of optimal
capital structures.

Sonja Brlečić Valčić • Jana Katunar: INTERDEPENDENCE OF BUSINESS VALUE COMPONENTS IN VALUE CREATION AND VALUE CAPTURE CONCEPTS

ing thus sustainable operations and meeting the expectations of all participants
in the business process.
Therefore, the control points in the process of value capture are related to the
organization’s focus on new technologies, intellectual capital, ownership, brand
creation and so on. The ability to develop implies a balance between the key
potentials of existing resources and processes (Bowman & Ambrosini, 2000).
According to Hamel (2000), modern era requires business models in which
value creation and values capture occur in business networks that include suppliers, partners, distribution channels, as well as associations that expand access
to resources (Zott et al., 2011).
Resulting from the above mentioned, there is a need for the analysis, research and appropriate defining of value creation factors and their interdependence. Therefore, within this paper, the authors define the basic value concepts
and propose a conceptual model with the purpose of identifying the elements
that contribute to value creation. The proposed model is based on value preservation and business sustainability.

2.

BASIC VALUE CONCEPTS IN VALUE CREATION
AND VALUE CAPTURE

A company as an asset for itself has no value, unless it can generate profit for
the owner. Therefore, in simplest terms, the theory which surrounds value interests in business operations depends on the future benefits for its owner (Brlečić
Valčić & Crnković-Stumpf, 2013). In this context, the value of a company can
be observed as an estimate of the future benefits that a company, as an asset, can
produce for its stakeholders and the needed rate of return at which this future
benefits are discounted to present value (Brlečić Valčić & Crnković-Stumpf,
2013). Creating and capturing a company’s value can be seen through several
value concepts depending on the stakeholders in the value process.
The first value concept refers to the stakeholders who are directly involved
in the business process and the achievement of business results i.e. value in use.
Value in use represents the possibility of creating future cash flows. It reflects the value for employees, customers, suppliers and owners, recognizing the
extent to which assets contribute to the company in terms of achieving positive

86

business results. However, the essence of this concept are not only the assets
contributing to positive business processes, but also the value of each individual factor in these processes that contribute to value creation, as well as their
interaction.
For example, a company’s collaborative relation with its buyers and suppliers
can lead to value creation and excellent business performance of all participants
in the business process. Increasing the total relational value created in such a
relationship, results in a share of value capture for all participants (Miguel et
al., 2014). The specificity of these relations in the context of value creation is
mainly reflected in the mutual access to resources, since value is created through
the integration of resources, and affects the mere nature of the system by defining the course of changes in the context in which value creation will create
processes that will occur in the future (Corsaro, 2014). The complexity of this
process affects and is affected by social and economic exchange (Corsaro, 2014).
Value creation can be seen as the ability of companies to understand and
meet the needs of consumers by developing superior solutions. In this aspect,
suppliers participate in value creation as value facilitator, value advisor, value
organizer, value amplifier, and/or value experience supporter, while customers
as co-diagnosers, co-designers, co-producers, and co-implementers (AarikkaStenroos & Jaakkola, 2012).

On the other hand, the way in which employees are treated results in value
creation through their business performance. Allocation of a part of retained
value for creating better working conditions, further training and new intellectual capital provides the creation of value in the future.
The value of the company’s management is viewed in set business strategies,
achievement of set objectives, management of business processes, resources and
employees management, as well as the management’s liability in these actions.
Therefore, the essence of creating and capturing value in use is the survival
and continuity of business operations i.e. the ability to create future business
results. In this context, the objective value, as a real independent interpretive
value, can be formed based on the value of the substance or the reproductive

87

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Value capture can be conceived as the outcome of managing customer as
assets. Risks and assets, according to some authors, are the key aspects of value
capture (Nenonen & Storbacka, 2014).

Sonja Brlečić Valčić • Jana Katunar: INTERDEPENDENCE OF BUSINESS VALUE COMPONENTS IN VALUE CREATION AND VALUE CAPTURE CONCEPTS

value. A company’s value is long-term when average operating expenses become
commercially justified and determine the value effect (Koletnik, 1991).
The second value concept is shareholder value i.e. the value from the capital
(equity) market value aspect.
The current market value is closely related to the concept of value in use, and
in the context of value creation depends on:
• strategy and business excellence created through internal improvements;
• conclusion and termination of partnership (acquisitions and sales) that
create improvements caused by external action;
• capital structure;
• optimal shareholder value that contributes to the positioning on the financial markets;
• ability to create greater value for shareholders.
However, shareholder value is not the same as the market value of equity.
Shareholder value is created by increasing the market value of equity, dividends
paid during the year and other payments to shareholders and it is decreased
by increasing company’s investment in capital expenditure and the conversion
of convertible bonds (Fernandez, 2002). If shareholders decide that that they
did not achieve sufficient value or return on invested money, they can decide to
withdraw their invested capital. However, if the money which is not fully paid
through the dividend is reinvested and thus creates new value, the relationship
between the management and shareholders can improve. Added shareholder
value that the shareholders gained can also be reinvested in the purchase of new
shares of the company.
According to the shared value concept, value is created and accumulated in
a joint system made up of companies and communities in whom the companies
operate. Such system of creating and preserving value requires development of
new skills and knowledge by the company’s management, but also the ability
to act within profit and non-profit boundaries. The creation and preservation
of value within such a concept brings benefits to all participants in this process through the improvement in terms of: living standard, community selfsustainment, resource conservation, work/life balance, economic contribution,
stakeholder trust, reduced business risk and enhanced business opportunities,
obtaining and maintaining licences for operation and growth, operational performance and efficiency, attraction and retention of workforce, maintained se-

88

curity of operations, ability to strategically make long term plans and brand
recognition and reputation.
The social value in the shared value concept refers to the dialogue between
economic organizations and companies in the context of creating a modern
economy (Santos, 2012). This concept emphasizes that there is no duality between the economic and social component of value.

CONCEPTUAL MODEL OF VALUE CREATION
BASED ON VALUE CAPTURE AND BUSINESS
SUSTAINABILITY

The central focus in value analysis is put on the manner in which the company shares the created value between interested participants in the value chain.
The basic idea on how to divide the value among the various users in the value system is presented by authors in (Garcia-Castro et al., 2013), where value
creation is represented as a system on a scale between willingness to pay and
opportunity costs. The subsystems include price categories in view of the remaining profits and interests of the owners who finance the capital i.e. the costs
which are made up of taxes, top management salaries, labour costs and costs of
materials and services. On the other hand, value users are defined as consumers,
providers of capital, government, management, employees and suppliers. When
talking about the concept of value creation, authors emphasize that value is not
only that positioned towards capital providers, but towards all participants in
the value process. Therefore, in order to create, but also capture value, it is necessary to define all users of value in the value process and their relationship with
the value. In this context, business results are efficient if there is a maximum
possible realization of all value chain users in created value. Added value, or the
total amount of created value, will be lost if a group of value creators does not
participate in its further creation (Chatain & Zemsky, 2009). Therefore, there
is a need for an optimal allocation of created value in the value chain as well as
for the understanding of all stakeholders of the level of value accumulation per
group, in order to enable its further creation.
The proposed conceptual model of value creation based on value capture
and business sustainability is shown in Figure 1. The inputs within the model
are strategies, governance and engagement (Two Tomorrows, 2011). It is im-

89

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

3.

Sonja Brlečić Valčić • Jana Katunar: INTERDEPENDENCE OF BUSINESS VALUE COMPONENTS IN VALUE CREATION AND VALUE CAPTURE CONCEPTS

portant to emphasize the mutual interactions in these relations. Namely, strategies, in the context of alignment between sustainability and core business
strategy focused on managing major sustainability impacts, opportunities and
risks, affects governance, which represents the quality of top-level governance of
sustainability issues and vice versa. Governance is, on the other hand, directly
related to engagement which refers to the understanding and acting on process
participants’ concerns and vice versa. These processes directly affect the most
important subsystem in value creation - the value chain. Business policies manage the value chain, from suppliers to distributors, including the product’s life
cycle. They are developed to enable business process participants to efficiently
use assets and capital to create sufficient positive cash flows in the context of
value creation.
Value can be created by a single participant or through collaboration of more
participants in the value process. The sources of value in the collaborative process refer to (Austin & Seitanidi, 2012):
• complementarity of resource through the access to necessary resources for
value creation, which is not possible or is difficult for a single participant
and as such requires cooperation between several participants in order to
create value for all stakeholders in the value process;
• nature of resources through cooperation between partners in the process
of value creation that may contribute to generic resources i.e. those that
each participant in the cooperative process possesses e.g. money, or common intangible resources, such as creating a positive reputation, knowledge, skills, infrastructure;
• use and direction of resources through the flow of resources that can be
unilateral or bilateral, and can come from multiple sources within the
partnership;
• linked interests through the achievement of equal frameworks of value creation so that different perceptions of value lead to an unfair value-exchange.

90

Figure 1. Simplified conceptual model of value creation based on value capture
and business sustainability

STRATEGIES

GOVERNANCE

ENGAGEMENT

MANAGEMENT

EMPLOYEES

CUSTOMERS

DISTRIBUTORS

SUPPLIERS

CAPITAL OWNERS

VALUE CHAIN

ASSETS

YES

CAPITAL

SUFFICIENT
CASH FLOW
?

NO

YES

TAXES

INCOME

NET INCOME

DIVIDENDS

VALUE
CAPTURE

MEASURES FOR IMPROVING
BUSINESS SUSTAINABILITY

Source: Prepared by the authors

In this way efficient positive business results are achieved, which after settling the obligations towards the state, are distributed to owners of capital or
are retained.
The concept of value creation in the context of a sustainable business requires measures for the retention of the remaining profit and its allocation to

91

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

STATE

Sonja Brlečić Valčić • Jana Katunar: INTERDEPENDENCE OF BUSINESS VALUE COMPONENTS IN VALUE CREATION AND VALUE CAPTURE CONCEPTS

funds for achieving procedures that improve business sustainability. Such allocations are necessarily linked to the strategies of those companies that start
over with all value creation processes in a new business cycle. The strategy has
to be changed when it is found that the achieved positive effects on the creation
of cash flows in the system of value creation are not sufficient. Therefore, it is
very important to constantly assess the value chains in order to determine the
degree of each element’s effect, but also their relation in the value chain, on the
creation of positive cash flows.
The characteristics that drive the selection of mechanisms for capturing value include the definition of the mechanism, institutional frameworks, industrial
characteristics, the characteristics of the company and technological characteristics ( James et al., 2013).
The mechanisms that create value capture are: patents, secrecy, lead time,
complementary assets, combination of patents and secrecy, and the combination of patents and complementary assets ( James et al., 2013).
Institutional frameworks must ensure strength of intellectual property
rights i.e. a concentrated ownership over intellectual property.
Competitive intensity, number of rivals, barriers to imitators, fragmentation
of suppliers, rivals and buyers, signalization, technological standards, horizontal
differentiation (differences in product features) versus vertical differentiation
(differences in the quality and efficiency) are factors that constitute the industrial characteristics in the value creation mechanisms. The characteristics of the
company within the mechanisms of value capture relate to the scale and scope
of R&D, innovation activities, the ability to manage the patenting process, but
also the scope of R&D technological specialization, in relation to the company’s
size, absorptive capacity, as well as the ability to acquire and use information.
In technological terms, value capture is related to investments in innovation
processes and product innovations, rapid or radical technological changes, complexity in generating intellectual capital and the utilization of processes.
The higher the created value of the company, the higher is the value for the
state and society and therefore, the state, in the shared value concept, should
create preconditions which will help the company to create value. This refers
mainly to the interaction between state institutions and companies in realizing
those activities which include measures for improving business efficiency. The
measures by which the state can impact value creation and value capture relate

92

primarily to satisfactory legal solutions for patenting innovations, obtaining licences for new investments, investment into universities in order for them to be
able to effectively contribute to the business community, the formation of effective technological parks to enable open innovation (Gassmann et al., 2010), cooperation between universities and companies in finding and testing new technologies and business processes, better education of future employees tailored
to meet company requirements, further training or retraining of employees, tax
relief for investment in new value creation etc.
The model of the value creation system based on value capture in the context
of business sustainability is a constant dynamic process in a company’s life cycle.
This is reflected in the constant connection between all elements of the system.

CONCLUDING REMARKS AND GUIDELINES
FOR FUTURE RESEARCH

Creating and maintaining value in the context of sustainable
business depends on strategies, governance, engagement, value chain
and innovation. Strategies and business policies that are aligned with
the operational purpose and capacity of companies in a competitive
environment ensure safe returns to shareholders, awards for managers
and employees, but also provide for quality and excellence in the
relationships with customers, suppliers and creditors. This, in turn,
provides for expected future cash flow patterns. Value chains and
relations within them are a central part of the value creation process.
Competitiveness between the value users in the value chain is always present. Value users are organized into certain subgroups and each group is trying
to take advantage of and create the largest part of the value. The result of this
competition is limited value capture by individual interest groups. Therefore, in
a collaborative process requires organizational compatibility and focus on same
goals.
By observing cash flows, as well as other operating results over a period of
several years, and on this basis, projection of future results, conclusions are
drawn about the benefits a particular company, through its business activities,
brings to the stakeholders in the value process, based on which it is possible to
determine the quality of business operations.

93

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

4.

Sonja Brlečić Valčić • Jana Katunar: INTERDEPENDENCE OF BUSINESS VALUE COMPONENTS IN VALUE CREATION AND VALUE CAPTURE CONCEPTS

This paper presents a conceptual model of value creation based on value
capture and business sustainability, as well as the factors participating in this
system.
In order to further this research, the interdependence of participants in value creation should be analysed, as well as the impact of selected strategies and
business policies on the value chain.
It is also important to further develop the shared value concept and acknowledge the importance of value creation and business sustainability for the state
in which the company operates. It is only by investing into systems that help
transform companies’ retained value into new value creation that new value for
the society is created.

References
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Austin, J.E. & Seitanidi, M.M. (2012). Collaborative Value Creation: A Review of Partnering Between Nonprofits and Businesses: Part I. Value Creation Spectrum and Collaboration Stages, Nonprofit and Voluntary Sector Quarterly, vol. 41, no. 5, p. 726-758, ISSN:
0899-7640.
Bowman, C. & Ambrosini, V. (2000). Value Creation Versus Value Capture: Towards a Coherent Definition of Value in Strategy, British Journal of Management, vol. 11, p. 1-15, Online ISSN: 1467-8551.
Brlečić Valčić, S., Crnković-Stumpf, B. (2013.). Potreba za približavanjem uporabne i fer
tržišne vrijednosti poduzeća u suvremenom pristupu vrednovanju poduzeća, Ekonomska
misao i praksa, vol. 22, no. 2, p. 379-396, ISSN: 1330-1039.
Chatain, O. & Zemsky, P. (2009). Value Creation and Value Capture with Frictions,
INSEAD, France. Available at: http://www.insead.edu/facultyresearch/research/doc.
cfm?did=42344 (Access: 25 February 2015).
Chesbrough, H. (2007). Business model innovation: it’s not just about technology anymore,
Strategy & Leadership, vol. 35, no. 6, p. 12-17, ISSN: 1087-8572.
Corsaro, D. (2014). The emergent role of value representation in managing business relationships, Industrial Marketing Management, vol. 43, p. 985-995, ISSN: 0019-8501.
EY, The concept of “value creation” in Integrated Reporting, Integrated Reporting Update,
Ernst & Young Global Limited, August 2013.
Fernandez, P., (2002). Valuation Methods and Shareholder Value Creation Hardcover, Academic Press, ISBN-10: 0122538412.

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Garcia-Castro, R., Balasubramanian, N. & Lieberman M.B. (2013). Measuring value creation and appropriation in firms: application of the VCA model. Available at: http://papers.
ssrn.com/sol3/papers.cfm?abstract_id=2381822 (Access: 25 February 2015).
Gassmann, O., Enkel, E. & Chesbrough, H. (2010). The future of open innovation, R&D
Management, vol. 40, no. 3, p. 1-9, Online ISSN: 1467-9310.
Hamel, G. (2000). Leading the revolution. Harvard Business School Press, ISBN 978-0452-28324-4, Boston, USA.
James, S.D., Leiblein, M.J. & Lu, S. (2013). How Firms Capture Value From Their Innovations, Journal of Management, vol. 39, no. 5, p. 1123-1155, ISSN: 0149-2063.
Koletnik, F. (1991.). Koliko vrijedi poduzeće? - Teorijski i praktični aspekti poduzeća. Savez
računovodstvenih i financijskih radnika hrvatske, Zagreb.
Miguel, P.L.S., Brito, L.A.L., Fernandes, A.R. & Tescari, F.V.C.S. (2014). Relational value
creation and appropriation in buyer-supplier relationships, International Journal of Physical
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95

ECONOMETRIC APPROACH TO
THE DEMAND FUNCTION
Dominika CRNJAC MILIĆ, Ph.D.
Associate Professor
Faculty of Electrical Engineering,
J.J. Strossmayer University of Osijek,
Osijek , Croatia
dominika.crnjac@etfos.hr

Abstract
Econometric methods are applied in the analysis of many phenomena in the
economic reality, such as production, costs, and supply search.
Valuable results are found in certain limits and under certain conditions by
using functions.
Dominika Crnjac Milić: CONOMETRIC APPROACH TO THE DEMAND FUNCTION

Synergy of statistical data and the application of mathematical methods will be
used to analyze the demand function.
Key words: demand function, econometric methods, market, supply function
JEL Classification: C4, C5, C54

96

1.

INTRODUCTION

Research into the forms of the demand function enables us to deal with and
solve complex economic problems. This paper investigates the demand function
without highlighting aspects of demand or differentiating demand for certain
products on the market or certain groups of consumers.
The demand for a product depends on many variables, such as the price of
the observed product, its substitutes, as well as other products on the market.
Furthermore, the demand depends on the purchasing power, consumer
tastes, the time factor, but also on many other factors that directly and indirectly
affect the demand for products.
The demand for a product can be expressed by the following mathematical
expression (Chiang A.C.;1994, p.64): q T ( p, p1,..., pn , x1, x2 ,..., xm , k , t ) , where q is
the quantity of the desired product, p is the price of the desired product, p1 ,..., pn are
prices of other products on the market, x1 ,..., xm are other factors affecting the market,

k is consumer income, and t is time.
Let the function of the quantity of the product q be a first derivative with respect
to the variable p (the price of the desired product) in the time interval c, d in which
the demand is observed; then the condition
.

Knowing that the first derivative refers to the change in the speed, we may conclude
that the demand decreases if the price rises in free market conditions.
In applications, the results are satisfactory if, under certain conditions, the
demand is considered only as a function of price, i.e., q T p .

wT 
0 , knowing that the partial
wp
derivative and the differential for functions of one variable are equivalent.
Furthermore, the demand function q must also satisfy the following conditions:

If T p is a derivative of the interval c, d , then

Interval c, d must be finite and approximately equal to the interval of empirical
values, q must be a positive function of the price p . Hence, it must be p ! 0 and

q ! 0 in the interval c, d

.

Indeed, the analytical form of the function q T p often varies and depends on
empirical values of p and q .

97

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

interval c, d

wT 
0 must be satisfied in the time
wp

Dominika Crnjac Milić: CONOMETRIC APPROACH TO THE DEMAND FUNCTION

The forms of demand functions are usually simple because of the amount of
empirical data and due to the complexity of determining the parameters of the
function itself.
The most common forms of demand models are as follows:
a) q 

ap  b ,

b) q 

ap 2  b ,

c) q

1
,
ap  b

d) q 

ap  b ,

e) q 

a p  b ,

f) q

a 
b , and
pn

g) q

aebp ,

where a and b are positive constants for a certain time interval.
Parameters a and b are found from the empirical demand values, provided that the
sum of the squared deviations of empirical demand values from the corresponding
values on the selected curve is minimal, i.e., by the least squares method (Scitovski R.
et al;1995, p.102).
Mathematical analogy yields an economic supply function.
Since mathematics is an approximate science, we can ignore all variables except the
price of a product, and the supply function becomes P q p .
In the interval c, d , which corresponds to the empirical data, p ! 0 and q ! 0 .

wP
!0.
wp
Supply and demand for a product on the free market determine its price.
Market price is determined by equalizing demand and supply functions cijenu
(Kmenta J.;1997, p.722).
Hence, T p P p is the condition of equilibrium.

The supply function is an increasing function, so

A realistic solution p* in the interval c, d in which the functions are analyzed is
unique, since one function is decreasing and the other one is increasing in the interval
c, d .
Note that outside the interval c, d

there may be more sections that have no

economic significance and thus they are not taken into consideration.
According to the aforementioned, we may conclude that a product market
model is given by the demand function, the supply function and the balance equation.

98

2.

DEMAND WITH MULTIPLE VARIABLES
Consider multiple products on the market, e.g., n products Q1, Q2 ,..., Qs ,..., Qn ,

and let us pay attention to the product Qs .
Demand for the product Qs is actually a function of the prices of all products, if we
consider the dependence of demand on prices and not on other factors.
Denote by qs and p1, p2 ,..., pn the amount of demand for the product Qs and the prices
of products Q1, Q2 ,..., Qn , respectively.
The demand function for the product Qs can be taken as an unambiguous function of
prices ps .
The system of interdependence between prices and the corresponding amount of
demand for s 1,2,..., n , can be written as (Gruić B. et al; 2006, p.76)

q1 T1 p1 , p2 ,..., pn
q2 T2 p1 , p2 ,..., pn
qn

Tn p1 , p2 ,..., pn

Similarly to the previous system, we can observe the system of demand functions in
inverse form if there is a solution with respect to ps , s 1,2,...,n , i.e.,
p1 T11 q1 , q2 ,..., qn
p2

T21 q1 , q2 ,..., qn

pn

Tn1 q1 , q2 ,..., qn

Consider a system of affine demand functions
q1 a11 p1  a12 p2  ...  a1n pn  b1

q2

a21 p1  a22 p2  ...  a2 n pn  b2

qn

an1 p1  an 2 p2  ...  ann pn  bn

,

where ass d 0, s 1,2,..., n , that can be written in matrix form

i.e., q

ª q1 º ª a11
«q » «a
« 2 » « 21
« » «
« » «
¬ qn ¼ ¬ an1
Ap  b , where q, p and b

a1n º ª p1 º ª b1 º
a2 n » « p2 » «b2 »
»« »  « » ,
»« » « »
»« » « »
an 2
ann ¼ ¬ pn ¼ ¬bn ¼
are n  dimensional vectors of demand, prices and
a12
a22

free members, respectively, and the square matrix A is the coefficient matrix of the
system of n  th order.

99

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Example 1.

From the previous matrix equation, for a given demand vector, we find
p

A1 x  b , where A1 is the inverse demand coefficient matrix and A z 0 .

Ap  b gives a relationship between market prices and the
corresponding demand for the products under consideration.
The expression q

3.

DETERMINATION OF DEMAND FUNCTION
PARAMETERS

Let the demand function be given in form of a polynomial:
q a1 p k 1  a2 p k 2  ...  ak 1 p  ak , where k parameters should be defined.
Suppose an empirical demand function is given in an affine form q ap  b , where
parameters a and b are unknown.
According to the least squares method (Scitovski R. et al; 1994, p.182) (looking
vertically), the sum of the squared deviations of empirical demand values from the
corresponding values on the line tends to minimality, i.e.,

n

¦ q  qˆ
i

2

o min .

i

i 1

Dominika Crnjac Milić: CONOMETRIC APPROACH TO THE DEMAND FUNCTION

Since by assumption points pi , qi , i 1,2,..., n lie on the line, they satisfy the
equation q ap  b .
After the substitution in

n

¦ q  qˆ
i

i

2

o min , we have T a, b

i 1

¦ q  ap  b
i

i

2

.

Partial derivatives of the previous function are as follows:
n
n
wT
wT
2¦ qi  api  b  pi ,
2¦ qi  api  b 1 .
wa
wb
i 1
i 1
wT wT
0 , and after summing, we get the following normal equations:
By putting
wa wb
¦ qi a¦ pi  nb
,
¦ qi pi a¦ pi2  b¦ pi
such that solving with respect to a and b yields
n¦ pi qi  ¦ pi ¦ qi
a
2
n¦ pi2  ¦ pi

b

¦ qi  a¦ pi

,

n
where n is the number of data.
Function T a, b has a minimum value if the following condition is satisfied (Barnett
et al.; 2006, p.379)

100

2

§ w 2T · w 2T w 2T
w 2T
w 2T
! 0,
! 0, ¨
¸  2 2  0.
2
2
wa
wb
© wawb ¹ wa wb

w 2T
wa 2

We have

w 2T
wawb
w 2T w 2T w 2T 

wawb wa 2 wb2

w 2T
wb2

2¦ pi2 ! 0,

2n ! 0

2¦ pi , and

4 ¦ pi  4n¦ pi2

2 
4 ª n¦ pi2  ¦ pi º
¬
¼

2

2
º 
4 ª ¦ pi 
p2 »
2 «
n ¬ n
¼

2 

4 2 § 2 ·
V p  ¨ V p ¸  0, where V p2 is price variance.
n2
©n ¹
Let us note the symmetry in forming the normal equations that can be used for other
forms of demand.
By summing equations qi api  b with respect to i , we have

¦q

a¦ pi  nb .

i

Then by multiplying by pi and summing with respect to i , we obtain

¦q p
i

a¦ pi2  b¦ pi ,

i

which leads to finding parameters a and b .
The previous procedure can be carried out for the formation of normal demand
equations
qˆ a1 p k 1  a2 p k 2  ...  ak 1 p  ak ,

wT
was

2¦ qi  qˆi pik s

¦p

k s
i
i

¦p
¦ ª¬a p

k s
i
i

¦p

k s
i
i

q

1

q

2 k  s 1
i

q

0, s 1,2,..., k

¦ qˆ p
i

¦ ª¬a p
1

k 1
i

k s
i

, i.e., 

a2 pik 2  ...  ak º¼ p k s , i.e., 

a2 pi2 k s2  ...  ak pik s º¼, s 1,2,..., k .

101

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

bearing in mind

CONCLUSION
It can be said that mathematical methods have been used in economics for
a long time. One of the reasons lies in the difference that exists between dependence in economics and dependence in natural sciences where mathematics has
been largely used.
Today, the application of mathematical methods in economic research is
characterized by the emergence of mathematical models.
The very selection of models and their interpretation are studied by operations research, linear and nonlinear programming, econometric analysis, etc.
Today, significant solutions in optimization of many economic phenomena
are found thanks to mathematics.

Dominika Crnjac Milić: CONOMETRIC APPROACH TO THE DEMAND FUNCTION

References
Barnett R. A., Ziegler M. R. & Byleen K. E. (2006). Primjenjena matematika za poslovanje,
ekonomiju, znanost o živom svijetu i humanističke znanosti, Biblioteka Gospodarska misao,
ISBN: 953-246-013-6, Zagreb
Chiang A. C. (1994). Osnovne metode matematičke ekonomije, 3. izdanje, Mate Zagreb,
ISBN: 953-6070-05-7, Zagreb
Kmenta J. (1997). Počela ekonometrije, Mate Zagreb, ISBN: 953-6070-20-0, Zagreb
Gruić B., Jermić I., Šutalo I. & Volarević H. (2006). Matematika za ekonomiste i managere,
Mate Zagreb, ISBN: 953-6070-94-4, Zagreb
Scitovski R., Galić R., Marošević T. (1994). Primjena pomične metode najmanjih kvadrata
za rješavanje problema identifikacije parametara u matematičkom modelu, Zbornik radova
4. Konferencije iz operacijskih istraživanja, 181-191, Zagreb
Scitovski R., Jukić D. & Crnjac M. (1995). Primjena metode potpunih najmanjih kvadrata
za procjenu parametara u matematičkom modelu, Zbornik radova 5. Konferencije iz operacijskih istraživanja, 99-110, Zagreb

102

KNOWLEDGE MANAGEMENT AND
SCIENTIFIC INCLUSION ON AN
INTERNATIONAL LEVEL
CASE STUDY: THE BILATERAL
PROGRAM REPUBLIC OF CROATIA 
REPUBLIC OF MONTENEGRO IN THE
PERIOD 20152017
Maja LAMZA  MARONIĆ, Ph.D., Full Professor
Faculty of Economics in Osijek, Republic of Croatia
maja@efos.hr

Anđelko LOJPUR, Ph.D.,Full Professor
Faculty of Economics in Podgorica, Republic of Montenegro
andjelko@ac.me

Jerko GLAVAŠ, Ph.D., Assistant Professor
Faculty of Economics in Osijek, Republic of Croatia

Abstract
Every national economy and its competitive advantage depend on the quality
of their own human resources. The use of these resources and investment into
their quality are the main factors of development.
The project presented in this paper is important for further development of the
Republic of Croatia and the Republic of Montenegro as knowledge societies
through different segments of national and international cooperation among
scientists.
Keywords: knowledge, management, inclusion, project, bilateral program
JEL Classification: D8, D83, J53, M15, O32

103

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

jglavas@efos.hr

Maja Lamza – Maronić • Anđelko Lojpur • Jerko Glavaš: KNOWLEDGE MANAGEMENT AND SCIENTIFIC INCLUSION ON AN INTERNATIONAL LEVEL

1.

KNOWLEDGE  A DRIVER OF CHANGE

Quality education system, more precisely education itself, is an important
participant when it comes to enhancing the competitiveness of the national
economy through the provision of the necessary quality and quantity of human
capital, as the main resource of progress. Education is essential in all this because
it enables the acquisition of knowledge, skills, attitudes and values necessary for
an individual to fulfil his job and social role in all segments of everyday life.
Over the last decades, intangible assets such as knowledge, patents and
innovations have been identified as the key sources of wealth and prosperity.
(García-Ayuso, 2003)
Since knowledge promotes national economic growth and has a significant
impact on future national value and innovations, both learning and gross domestic product (GDP) represent the fount of a nation´s competence and capabilities that are deemed essential for economic growth, competitive advantage,
human resource development and quality of life. (Malhotra, 2003)
Consequently, countries rich in intangible assets are the leaders in the national wealth more than those countries whose assets are limited to land, labour
and capital. (Malhotra, 2003)
The development of information and communication technologies has significantly reduced operating costs and also facilitated interaction for knowledge
exchange, which has become a fundamental factor in the production of goods
and services. For material productivity, to produce something old (already perfected) is no longer relevant. Instead of that, something new has become more
important and for that, knowledge is necessary. (Sundać, Švast, 2009)
Knowledge brings profit to the business system and provides prosperity of
the national economy. Short-term goals of the business systems are still based
on making a bigger income by minimizing expenses, i.e. to achieve the greatest
possible profit. It is no longer possible to achieve that in the classical way, but
through the creation of added value using intellectual capital, retaining loyal
customers (20% of the customers create 80% of the income), increasing the value of brand names, as well as introducing the collective knowledge management
in the business systems and collecting data. That way, a competitive advantage
at the national and global level would be achieved and maintained. The share of
intangible assets (knowledge in its various manifestations) in the final products

104

or the companies´ and corporations´ total market value frequently indicates a
higher growth rate.

2.

PERCEIVING THE IMPORTANCE OF
KNOWLEDGE AS A PREREQUISITE FOR THE
DEVELOPMENT OF A KNOWLEDGE SOCIETY

Nowadays literature accompanied by neoclassical economic theories for
the most part is actually focused on the knowledge-based economy, while the
knowledge society itself is viewed as a by-product of the knowledge-based
economy because it is very difficult to define some of the aspects, such as: politological aspects, sociological, cultural and others, whereas in the knowledgebased economy the share of knowledge-based sectors in the national economy
it can be measured. (Švarc, 2009:43).
In the knowledge society, the human intellect, cognition and knowledge have
intrinsic values that arise from their uniqueness and rarity. Even though no explicit price is set for the knowledge in the market, knowledge has a value in itself
and that value only keeps growing.

1. Learning to survive - based on their own and others’ mistakes, following
the relevant sources of commercial, scientific, financial and other information,
an individual or an organization creates the presumption of survival by removing errors and making behaviour adjustments in the environment.
2. Learning to create (it is also called the generic learning) - it is the higher
phase of learning that aims at creating something new or at further improvement of the already existing solutions, it results in the active participation of
individuals and organizations in changing their environment.
In today’s business conditions, in terms of knowledge-based society, it is exactly the creation of new knowledge and the use of existing ones, in addition to
continuous innovation, that have become an imperative in order to achieve a
competitive advantage in the market. Nonaka and Takeuchi introduce a simple
model that shows the components on which the competitive advantage of today’s operating system is based on. The model is also focused on knowledge.

105

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Having that in mind, Professor Velimir Srića emphasizes two basic types of
learning that not only affect the business strategy, but are also the result of the
latter: (Knežević, 2007:159)

Maja Lamza – Maronić • Anđelko Lojpur • Jerko Glavaš: KNOWLEDGE MANAGEMENT AND SCIENTIFIC INCLUSION ON AN INTERNATIONAL LEVEL

Figure 1: The source of competitive advantage
Knowledge

Continuous

creation

innovation

Competitive
advantage

Source: Adapted from Nonaka, I., Takeuchi, H., The Knowledge Creating Company, Oxford
University Press, 1995, p. 6

A few changes have been made from 1995 until today, but the initial setting
has remained constant (Figure 1).

Case Study: The bilateral program Republic of Croatia Republic of Montenegro in the period -
Bilateral cooperation of the Ministry of Science, Education and Sports in
the field of education and scientific research is based on bilateral agreements,
programmes and other implementing acts, and it is structured as:
• Cooperation in the field of higher education and science
• The field of education at the primary and secondary school levels.
Cooperation in the field of higher education and science includes scholarship exchange and implementation of international projects in the field of scientific research.

Cooperation in research projects of the Croatian Ministry
of Science, Education and Sports and the Ministry of
Education of Montenegro
Based on bilateral programmes and in accordance with common interests
and priority fields, the Ministry usually supports two-year international scientific research projects with the following countries: Albania, Austria, France,
India, China, Hungary, Macedonia, Germany, the USA and Slovenia.
Currently there are around 200 active bilateral scientific research projects in
all scientific fields. The Ministry of Science, Education and Sports covers only
travel costs of Croatian scientists abroad and costs of stay of foreign partners

106

(mobility) in Croatia according to the criteria determined by implementation
programmes. The most represented fields are the fields of natural, biomedical,
technical and biotechnical sciences. This paper analyses the observed project
and its goals.
Cooperation with many countries and foreign partners with whom the Government of Croatia, i.e. the Ministry of Science, Education and Sports, has not
signed any international legal acts is implemented solely based on direct agreements between institutions.

Theoretical ground of the project “Knowledge management
in the function of development strategy”
The habit of concluding agreements at the government level is being abandoned in the light of globalisation processes; therefore, mainly highly developed
countries support direct cooperation of institutions in the field of education,
higher education, science and technology.

Overall, international cooperation of educational, academic and scientific
institutions implies the exchange of various forms of scholarships in all categories, implementation of common (scientific research) projects and organization
of international conferences and seminars (Ministry of Science, Education and
Sports, 2015).
Exponential and continuous growth of total human knowledge opens new
opportunities for its creative application and it countinues to generate new
needs. The EU accession process has accelerated changes in economic development in both the Republic of Croatia and the Republic of Montenegro. The
process of harmonisation with the European Union in the field of science and
education started with the Bologna process. Being a full member of the European Union, the Republic of Croatia continues to strengthen regional and global recognisability of its higher education system, with neighbouring countries

107

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

With the aim of accelerating integration of the Republic of Croatia in the
European Higher Education Area (EHEA) and the European Research and
Innovation Area (ERIA), the task of the Ministry is to create prerequisites for
free movement of students, teaching staff, scientists and researchers in the field
of higher education and science, which is in accordance with the European policy aimed at creating the common educational and scientific area.

Maja Lamza – Maronić • Anđelko Lojpur • Jerko Glavaš: KNOWLEDGE MANAGEMENT AND SCIENTIFIC INCLUSION ON AN INTERNATIONAL LEVEL

playing a significant role. New educational environment is partially placed in
the field of information and communication technologies. Successful teaching
in such an environment is ensured through mastering parts of the knowledge
and learning management systems.
Knowlege and learning management systems rely on at least three different,
but necessary aspects of knowledge and learning, and these are:
: Learning content management system
: Course management; and
: User rights management.
Being a component of the scientific and technological cooperation, the research itself has a certain applicative character related to the teaching process
and development of cooperation with associates in the Republic of Montenegro.
The project can further be applied to projects co-financed by the European
Union. It is certainly also applicable in practice and it can contribute to knowledge-based development of business entities and encourage entrepreneurs to exchange tacit knowledge, which is today’s driving force leading to better business
performance, particularly important in today’s global economy hit by recession.

Reasons for cooperation (with special emphasis on the
complementary character of partner institutions)
• The emergence and development of blended learning, along with Web 2.0
tools, present a modern solution for the development and acquisition of
key competences that are in the function of business development.
• The goal is to present the role and application of management in institutions of higher education through integration of the e-learning system in
the existing infrastructure to adapt education programmes to the needs of
business entities and the labour market.
• Based on the conducted analysis, the methods for implementing educational measures, i.e. educational activities will be defined and the model
of e-learning system will be proposed that will be implemented in the
existing programmes for the development of education, thus contributing
to the development of higher education institutions and business entities.

108

As a result and respecting the characteristics and potentials of both the
Croatian and Montenegrin economy and their complementary character, it is
concluded that the areas of significant potential for cooperation, which require
intensive focused activity, are processes of higher education, lifelong education
and blended learning.

Project Objectives

Improvement of knowledge and skills in the field of management as well
as potential building of a new LMS system (Learning Management System)
that will integrate both theoretical and practical experience through an interdisciplinary approach to issues recognised in the environment by using efficient
evaluation and monitoring techniques.
A special module for making comments in the form of public discussion is
also envisaged. It will be further developed with the aim of encouraging new
opportunities for cooperation between the two parties, and potentially third
parties, such as business entities, non-profit organizations, etc. Information
gathered in this way would provide an excellent foundation for further learning,
development and new projects.

109

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

One of the main objectives of the project is to create a model of knowledge
management (theoretical and/or applicative) through the process of lifelong
learning with the aim of improving knowledge, skills and competences aimed
at the development strategy through scientific and technological cooperation
between the Republic of Croatia and the Republic of Montenegro. Knowledge
management today means explicit and systematic management of vital knowledge and related processes of creation, collection, organization, diffusion, use
and exploitation. Knowledge management requires transformation of personal
knowledge into corporate knowledge that may and must be shared in the process of searching for adequate application aimed at an applicative development
strategy. Knowledge management is a growing management discipline that includes locating, organization, transfer and use of knowledge and expertise within an organisation with the aim of carrying out business operations. Knowledge
management means application of the processes of creation, maintenance, application, sharing and renewal of knowledge to improve organizational performance and create value. Accordingly, the objective of the project is:

Maja Lamza – Maronić • Anđelko Lojpur • Jerko Glavaš: KNOWLEDGE MANAGEMENT AND SCIENTIFIC INCLUSION ON AN INTERNATIONAL LEVEL

Expected advantages of the cooperation for both the
Republic of Croatia and the Republic of Montenegro –
instead of conclusion
Expected advantages of mutual cooperation are linking and networking processes during cooperation in the field of higher education and science,
through a common system for distance learning and exchange of knowledge
and experience.
The project will additionally achieve the following benefits:
• Increased mobility of scientists between the two countries;
• Participation of young researchers in the project as a guarantee for future
cooperation on similar projects;
• Improved knowledge and skills of scientific and teaching staff and students
in the field of human resource management and project management;
• Cross-evaluation of the current curriculum by using efficient monitoring
and evaluation techniques on partner institutions.
• Cooperation on the project between equal partners creates conditions for
all other forms of international cooperation, whereas the national programme is linked to the research throughout Europe and the world.

REFERENCES
1. García-Ayuso, M., Factors explaining the inefficient valuation of intangibles, Accounting,
Auditing & Accountability Journal, Vol. 16 Iss: 1, 2003.
2. Knežević, B., Utjecaj znanja na stvaranje vrijednosti u trgovini, Doktorska disertacija,
Sveučilište u Zagrebu, Ekonomski fakultet Zagreb, Zagreb, 2007.
3. Lamza-Maronić, M., Glavaš, J., Horvatin, T., Promoting Knowledge Society through
Quality Assurance Model // 35th international convention MIPRO 2012 / Biljanović,
P. (ur.). Rijeka: Croatian Society for Information and Communication Technology, Electronics and Microelectronics - MIPRO, 2012.
4. Lojpur, A., Lalević-Filipović, A., Road ‘paved’ with Knowledge – is there a shortcut to
the European Union?, Strategic management and Decision Support Systems in Strategic Management, SM2014; Book of Abstracts, ISBN 978-86-7233-344-2; Ekonmski
fakultet Subotice p.62; May 2014.
5. Malhotra, Y., Measuring national knowledge assets of a nation: knowledge systems for
development (expert background paper), Expanding Public Space for the Development
of the Knowledge Society: Report of the Ad Hoc Expert Group Meeting on Knowledge
Systems for Development, 4-5 September, Department of Economic and Social Affairs

110

Division for Public Administration and Development Management, United Nations,
New York, 2003.
6. Matić, B., Serdarušić, H., Vretenar Cobović, M., Economic Circumstances and Personal
Finance Management // Interdisciplinary Management Research X / Bacher, Urban ;
Barković, Dražen, Dernoscheg, Karl – Heinz ; Lamza - Maronić, Maja ; Matić, Branko
; Pap Norbert ; Runzheimer, Bodo (ur.). Osijek : Josip Juraj Strossmayer University in
Osijek, Faculty of Economics in Osijek, Croatia Postgraduate Studies “Management” ;
Hochschule Pforzheim University, 2014.
7. Ministry of Science, Education and Sports, 2015, http://public.mzos.hr/Default.
aspx?sec=3211 (12.02.2015.)
8. Nonaka, I., Takeuchi, H., The Knowledge Creating Company, Oxford University Press,
1995.
9. Sundać, D., Švast, N., Intelektualni kapital – temeljni čimbenik konkurentnosti poduzeća, Ministarstvo gospodarstva, rada i poduzetništva Republike Hrvatske, Zagreb, 2009.
10. Švarc, J., Hrvatska u društvu znanja – prijepori i perspektive inovacijske politike, Školska
knjiga Zagreb, Institut društvenih znanosti „Ivo Pilar“, Zagreb, 2009.

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Acknowledgement: The paper was written within the bilateral research project entitled
“Knowledge management in the function of development strategy” co-financed pursuant to
the Protocol on Scientific and Technological Cooperation between the Republic of Croatia and
the Republic of Montenegro for the years 2015/2016.

111

INTELECTUAL CAPITAL AS A
DRIVING FORCE OF ECONOMIC
DEVELOPMENT
Jelena LEGČEVIĆ, PhD., Assistant Professor
Faculty of Law University of J. J. Strossmayer in Osijek
legcevic@pravos.hr

Abstract

Jelena Legčević: INTELECTUAL CAPITAL AS A DRIVING FORCE OF ECONOMIC DEVELOPMENT

Intellectual capital is a collaboration and mutual learning within and between
undertakings which ensures their long-term successful business association. Intellectual capital is an attempt at assigning financial value to knowledge within
a particular economic entity. This paper will present ways of measuring intellectual capital, i.e. valorization techniques of intangible assets. The increased
interest in the measurement of intangible assets is the result of increasing enterprise value which is not shown in the accounting statements and therefore
creates the wrong information. The biggest difference between market and
book value is recorded in high-tech enterprises and industries where intensive
knowledge is invested in intangible assets such as research and development
and brand. Therefore, one of the main challenges for management is creating
conditions for successful generation of intangible value (knowledge, services,
experience, benefits, speed, quality and reputation) and its transformation into
tangible forms (income, profits, value added, stocks, market value).
Keywords: intellectual capital, knowledge, economic development
JEL Classification: O3, O34, Q32

112

1.

INTRODUCTION

We live in a time when knowledge is the largest and most powerful capital.
In modern companies from 70 to 80 percent of the work is performed by people
using the intellect. In the period of the corporation and control by the powerful
elite who orchestrate monetary policy, market and all social spheres, the only
thing over which they have no control is our brain, which is managed by an
individual. The human brain overrides the traditional means of production-raw
materials, heavy physical work and capital.
Value is no longer in the tangible elements, since moved to the invisible. Today is therefore a decisive factor in person, by itself, that is, his knowledge. It is
a new battlefield for countries, corporations and individuals.
Today the road to riches tiled repeatedly to fill an imaginative use of information, because that information means cash. In a world built on the strength
of mind we need to change our definition of education and training. In a world
where competitive advantage can be found anywhere, education must be continuous and last for our entire life. Education is the weapon both for the individual
and for the company. It must be directed towards the acquisition of practical
work and skills required to perform duties in accordance with the profession
and occupation.

The study of legality, conditions and processes of employment or unemployment is extremely complex problem because the category of human potential is
dynamic category of each production system.
Also, human capital as an input in the production of a dynamic category that
can be different regularities work in different national economies.
However, in all this emphasizes the legality of action: production function,
marginal product and the law of diminishing returns, because that principle
directly resting on the success of enterprises and national economies.
If we start from the production function representing the relationship between the maximum quantity of product that can be produced with the help of
the available inputs on the basis of the achieved level of technology in the given

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2. RESEARCH THE BEGINNINGS OF
INTELLECTUAL CAPITAL VALORIZATION

time, on the one hand, and also: the boundary of the product which is the feedstock produced quantity of a product, and as a result of one filler unit specific
inputs, provided ceteris paribus; and the law of diminishing returns, which says
that each incremental amount of production caused by the successive increase
in one of the inputs finally after a while begin to decline, again provided ceteris
paribus, on the other hand, you can get to the concept of the marginal revenue
for a factor (Pulić, Sundać, 2008.)

. Measuring of intellectual capital

Jelena Legčević: INTELECTUAL CAPITAL AS A DRIVING FORCE OF ECONOMIC DEVELOPMENT

The world today is mainly applied 12 methods of measuring intellectual
capital of the company. They are also known techniques valorization of intangible assets (Edvinsson, Malone, 1997.)
Relative values - Proponents of this approach are Bob Buckman (Buckman
Laboratories) and Leif Edvinsson (Skandia Insurance). The ultimate goal is the
improvement of access. Example: to have 80% of employees associated with the
client in a significant way.
Balanced goals map - replacement for traditional financial measurements
with three additional perspective - customers, internal business processes and
learning / growth. They created the professors from Harvard Business School,
and is used in Skandia Insurance.
Models of competitiveness’ observations and classification of behavior “successful” employee (“a competitive model”) and calculating the market value of
their output, it is possible to allocate the value of 1 for the intellectual capital
that create and use at work.
Systematic performance - Sometimes it is relatively easy to quantify success or
progress of one’s intellectual capital. For example, Dow Chemical could quantify the growth in license revenue due to better control their patent assets
Crisis period - include the identification of companies that are leading in procurement of intellectual property for their own needs, determining how successfully meet certain criteria and then comparing the results with the company’s own achievements leading. An example of the relevant criteria: leading
systematically identify gaps in knowledge and use well-defined processes to fill
these gaps.

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Business Value- This approach focuses on three questions. What would happen if the information that you currently use completely disappeared? What
would happen if you doubled the key information that is available? As the value
of this information changes daily, weekly, yearly? The evaluation focuses on the
cost of the lack of or insufficient use of business opportunities, avoiding or minimizing risk.
Business process inspection- Measures the way that information to enrich the
value of the business process, such as accounting, manufacturing, marketing or
order.
Knowledge bank - Treats use of capital as an expense (rather than as an asset), a part of the salary (usually 100% of the cost) as an asset, because they
create the future cash flow.
Assessment of “brand equity” - methodology that measures the economic impact of “labels” (or other intangible assets) to phenomena such as power pricing,
distribution reach, the ability of getting new products as a “supplement lines”.
Calculated intangible asset- compares the company’s return on assets (Return
on Assets) with the published average return on assets for the industry.

Colored reports - This method replaces the traditional financial statements
(which give black - white picture) with additional information (by adding “color”). Examples of “colors” include the value of the label (brand), measuring customer satisfaction, value-trained workforce.

3.

A NEW WAY TO CREATE VALUE AND THE OLD
WAY OF MEASURING

The vast majority of companies today is torn between new ways of creating
value and the old ways of monitoring operations. The cause of this condition in
the opinion of many analysts is the emergence of new business criteria seeking
new indicators based on which order to make business decisions.

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Micro-borrowing - new type of borrowing that replaces the non-guarantee
(partner support group, training and personal qualities of entrepreneurs) for
tangible assets. It is primarily used to stimulate economic development in poor
areas.

There are three essential elements that make up this difference in business
(Ross, Pike, Fernstrom, 2005):

Jelena Legčević: INTELECTUAL CAPITAL AS A DRIVING FORCE OF ECONOMIC DEVELOPMENT

The first is that there is no more scarcity, and it is precisely in such circumstances for centuries operated an average company. Today’s situation is best explained by well known American economist L.Thurow: “Take any conceivable
product and let’s calculate then around the whole world how much could be
produced if all the factories operating at full capacity. Then assess how generous than this world can buy. The result reads 30 % overcapacity, and for some
products such as cars, airplanes or computers it is 50 %”.
The second is that of changing the structure of work required in the industrial economy dominated by manufacturing, routine work. This applies to
both the production and the administrative work. In today’s new, information
economy is dominated by an entirely different kind of work, and that is intellectual work.
The third is completely changed cost structure. In the classical relationship
between the production company and all other expenses was average compared
80:20. In today’s enterprise this relationship is almost reversed. Production
costs are accounted for the bulk of industrial economics for today’s enterprise
almost irrelevant, as well as the production itself in the overall activities of the
company. The criterion of the company’s size was considered (even today is considered) total revenue. However, the modern company is fighting for its market
primarily quality and innovation. For modern enterprise core resources are information and knowledge A for these resources is still no adequate information
models. This is why the lack of necessary information on business operations,
the Achilles heel of the modern enterprise. There is no doubt that the main task
of today’s managers in business enterprises to enter knowledge.
The organization of the company must be set so that all individuals have to
work a day in acquiring knowledge. Leif Edvinsson of Skandia has three principles for understanding intellectual capital (Edvinsson, 2000.):
1) The value of intellectual property several times greater than the value of
the assets shown on the balance sheet carrying. What does it mean when the
market price of a company 3-5 times higher than the book value of the company. It is clear that in this company intellectual capital created this new market
value of more than book value.

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2) Intellectual capital is a material that formed the financial results.
3) Managers must distinguish between two types of intellectual capital: human and structural.
The increased interest in the measurement of intangible assets and intellectual capital is the result of increasing enterprise value which is not shown in the
accounting statements and therefore creates the wrong information. The biggest
difference between market and book value recorded just high-tech enterprises
and industries intensive knowledge which is invested in intangible assets such as
research and development and brand. Professor Baruch Lev at the Stern School
of Business New York University estimates that American companies today are
investing in intangible assets as much invested in machinery and equipment,
and that many companies more than 75% of its market value had precisely in
intangible assets (Sundać, Švast, 2009). That is why experts in the field of intellectual capital intensive work on developing new methods of measuring intellectual capital that would complement the classic accounts and gave a more
realistic picture of the enterprise value. In practice, but there are a number of
methods to measure the intangible assets of the company, but none of these
methods is not exhaustive.

1. Methods of direct intellectual capital (eng. Direct Intellectual Capital
Methods - DIC) - methods estimate the value of intangible assets by placing
its various components. Following the finding of these components, they can be
directly evaluated as an individual or aggregated coefficient.
2. Methods of market capitalization (eng. Market Capitalization Methods
- MCM) - method calculated the difference between the market capitalization
of the company and shareholder value as the value of intellectual capital and
intangible assets.
3. Methods of return on assets (eng. Return on Assets Methods - ROA)
- the average gross earnings of enterprises in a period divided by the average
tangible assets of enterprises. The result is ROA companies, which are then
compared with the industry average. The difference is multiplied by the average
assets of the company to obtain the average annual earnings of intangible prop-

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Karl-Erik Sveiby (2010) divides all known methods of measuring intellectual capital into four categories. Categories represent an extension of the existing
classification proposed by Luthyja (1998) and Mc Pherson and Pike (2001):

erty. Sharing the above average earnings with average capital costs of companies
or interest rate, can be estimated value of intangible assets or intellectual capital
of the company.
4. Methods maps of goals (eng. Scorecard Methods - SC) - identify the different components of tangible assets or intellectual capital, and the indicators
and indications are created and displayed in a map of goals or to charts. Methods cards goals are similar to the methods of direct intellectual capital, finding
that estimates are not available on the monetary value of the intangible asset.

Jelena Legčević: INTELECTUAL CAPITAL AS A DRIVING FORCE OF ECONOMIC DEVELOPMENT

It is noteworthy that none of the methods can fully satisfy all the wishes and
needs of companies in the measurement of intangible assets, i.e. the intellectual
capital. It is important however to measure intellectual capital, because the only
way the company can be familiar with their inner strength, and based on that
manage to become a competitive advantage.

4.

THE IMPACT OF EDUCATION ON ECONOMIC
AND SOCIAL DEVELOPMENT

Today, there is a prevailing awareness that education is an inescapable component of socialization matrix of every society. It may structurally differ from
society to society, but is increasingly present intention to equalize the levels of
education in the widest possible number of countries to geographical mobility
of learners was that freer. Education is mainly assigned a positive contribution
to the development of any society, even it is determined at the time the “good
society”. Education, understood in a broad sense, includes learning and skills,
and its purpose is to develop people primarily as individuals. Thus understood,
education can be viewed as a potential path to freedom for every individual.
“The education of the actions which affect the adult generation has not sufficiently mature for life in society. Its purpose is that the children excited and
develop certain physical, mental and moral qualities required by the society
as a whole, but the individual environment to which they belong.” (Šundalić,
Zmajić, Sudarić, 2013).
According to the conclusion of the OECD “The task of education is to develop a variety of skills which are required by the modern economy, but by doing so it becomes a powerful lever of social selection that will be acting opposite
of a stated objective of greater social equality, actually only deepen inequalities”.

118

Education would be in the knowledge society should be the path to equality of opportunity, exiting inequalities created education. Time that education
is a step closer to the interpersonal, time in the “alienation of social relations”
through the understanding of language equally educated, understanding the
needs of equally educated and understanding of diversity differently educated.
The result should be a true democratization of social relations that individual
open space of freedom of choice, starting with the choice of education, vocational guidance and to build a career. Knowledge society is increasingly being
portrayed as a system that consists of the knowledge economy and knowledge
workers and symbolic capital ahead of all other capital. An uneducated person
in the concept of a knowledge society “outside the system” and it does not count
as a productive component.

CONCLUSION

Today the main problem of the knowledge economy is its lowest level of
development which is called corporate capitalism, based on the ideology of market fundamentalism and neo-liberalism and thus purified of social, democratic
and humanitarian values and using the principles of economy of knowledge
solely for your benefit, changing the core values of social, economic and political
structures causing economic and social crisis in the world. The responsibility is
divided between the transition and developed countries, international financial
institutions and transnational corporations that have a military, economic and
political power and monopoly of technology, communications and cultures and
aim to reproduce the capital and increase profits rich transnational elite with
the cost of destroying the overall economic, social and natural structures.

Literature
1. G. Roos, S. Pike, L. Fernstrom, Managing Intellectual Capital in Practice, ButterworthHeinemann, New York 2005, p. 19.
2. L. Edvinsson, M. S. Malone, The Copyright Book: Intellectual Capital, Harper Business
1997, p. 44.
3. Leif Edvinsson:Some perspectives on intangibles and intellectual capital, Journal of Intellectual Capital,2000.
4. Luthy, D.H. (1998): Intellectual capital and its measurement. paper presented at the Asian
Pacific Interdisciplinary Research in Accounting (APIRA) Conference, Osaka, available
at: www3.bus.osaka-cu.ac.jp/apira98/archives/htmls/25.htm

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5.

Jelena Legčević: INTELECTUAL CAPITAL AS A DRIVING FORCE OF ECONOMIC DEVELOPMENT

5. McPherson P. and Pike S. (2001): Accounting, empirical measurement and intellectual
capital. Journal of Intellectual Capital, Vol 2, No. 3, p.246, (2001).
6. Pulić, Ante; Sundać, Dragomir, Intelektualni kapital: doprinos zaustavljanju odlaska mladih iz Republike Hrvatske i aktivnoj politici zapošljavanja, International Business Consulting Center, Rijeka, 2008.,str. 33.
7. Sundać, Dragomir; Švast, Nataša, Ljudski potencijali i ekonomski razvoj, Intelektualni
kapital : temeljni čimbenik konkurentnosti poduzeća, Ministarstvo gospodarstva, rada i
poduzetništva, Zagreb, 2009.,str. 83.
8. Sveiby, K-E 2010, ‘The First Leadership? Shared Leadership in Indigenous Hunter-Gatherer Bands’. in S Lowe (ed.), Managing in changing times: a guide for the perplexed manager. SAGE Publications, London.
9. Šundalić, Antun; Zmaić, Krunoslav; Sudarić, Tihana, Zbornik radova sa znanstvenog
skupa: Globalizacija i regionalni identitet 2013., Uloga obrazovanja u identitetu društva
i ekonomiji znanja, Ekonomski fakultet; Poljoprivredni fakultet, Osijek, 2013., str. 14.

120

CHARACTERISTICS OF
MANAGERIAL WORK  CHANCES
AND RISKS
Tanja NEDIMOVIĆ, Ph.D.
Preschool Teacher Training College “Mihailo Palov“ Vršac,
Republic of Serbia
nedimovic.tanja@gmail.com

Jelena PRTLJAGA, Ph.D.
Teacher Training Faculty – Belgrade and Preschool Teacher
Training College “Mihailo Palov” Vršac, Republic of Serbia
vsvasdirektor@hemo.net

Predrag PRTLJAGA, M.A.
Preschool Teacher Training College “Mihailo Palov” Vršac,
Republic of Serbia

Abstract
The paper discusses important characteristics related to working tasks and
personality features of a manager. In order to do his/her job successfully, it
is crucial for a manager to have efficient management of resources. Resource
management has to correspond with the increasingly complex and demanding
market both the organization and the management are part of. Such a dynamics requires continuous life-long development of professional skills and personality features of a manager. The paper deals with the opportunities and benefits
arising out of professional development and improvement of the existing managerial skills and acquisition of new ones, as well as the risks typical for this job,
with the most significant factor being stress caused at working place, i.e. the job
related stress. In other words, the paper aims to identify what job related stress
is, its causes and symptoms, and how to manage it.

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jpivan@hemo.net

Keywords: managerial work, self-development management, job related
stress.
JEL Classification: M1, G32, D81

Tanja Nedimović • Jelena Prtljaga • Predrag Prtljaga: CHARACTERISTICS OF MANAGERIAL WORK – CHANCES AND RISKS

1.

INTRODUCTION

“Most important characteristics of leadership are visions, ideas and determination of direction; it has more to do with inspiring people through guidance
and aims than with day to day management” (Bennis, 1989).
One of the key tasks of manager is to manage resources encompassing a
whole range of managerial work, like e.g. finances management, human resources
management, knowledge management, equipment and infrastructure management… The nature of all these tasks is versatile, complicated and elaborate, while
the changes occurring in organizational structures, dictated by the pace and dynamics of the market, as well as aspiration to reach a vision and the desired aim
and make profit are all the more complex and demanding. Successful manager is
expected to make the organization more flexible and have higher market competitiveness. Apart from professional competencies, a successful manager should
own and develop a variety of other business skills. They refer to resource management skills, business communication skills, management styles, all significantly influencing stimulating corporative working climate and success of functioning of an organization as a whole. On the one hand, the work of a manager
is closely related to risks and responsibilities, on the other, it involves a feeling of
great satisfaction when success is achieved. For managers to be able to adequately
respond to constant demands for change of strategies and ways of functioning
of an organization (in accordance with complex, dynamic and changing market
conditions) it is necessary to continually plan their own self-development as well
as the development of an organization (enterprise) as a whole.

2.

CHANCES  SELF DEVELOPMENT
MANAGEMENT

Any manager who wants to promote his/her style of management and work
with other people (with both those who are at the same hierarchical level in an
organization and those are their subordinates and/or their superiors) should

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In his search for specific personality features of leaders, Mann has found 7
personality features typical for leaders (managers) correlating with successful
organization management (Mann, 1957, 253). These are the following: superiority of intelligence (not higher than 30 IQ units as compared to the average), having in mind that such a difference would produce great differences in
interests and aspirations between leaders (managers and other members of an
organization); highly developed self-confidence and expressed feature of being
sure of oneself and self-reliant; dominance – manifested in a desire for prestige
and power encouraging him or her to aspire for the position of a leader; adaptability (flexibility) guarantying that a leader will not get confused in new situations; emphasized extraversion – manifested through more expressed open-

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permanently improve one’s own management skills and aspire for one’s own
self-development. Only when a person is ready and successful in establishing
one’s own inner harmony and balance can he or she make purposeful and decisive steps in successful creation of a balance with other people and with the
environment he or she lives and works in. The benefits of this process have at
least twofold effect – both for the manager him/herself and for his/her (private
as well as working) environment. In other words, management processes start
in the manager himself to be subsequently directed and transferred to others
implied in the organization. In accordance to such a standpoint, the way according to which a manager fulfils his/her managerial role is based on the style
and way of his/her own self-development management (Oljača, 2004, 225).
Self-development management is a dynamic process of changes occurring in a
man (manager) him/herself, opening up possibilities for him or her to establish contact with the outer world, turning back to personality and along the
way changing both the personality and the environment. Individuals who are
successful in self-development management are characterized by the following
features: they assess themselves in a positive way; they evaluate themselves as
more realistic and more accurate; they are more ready to accept both themselves
and others in the way they really are; the express readiness to identify with other
people at a higher level; the have more developed empathy and more objective
perception of reality; the own more expressed independence and self-reliance;
they have more meaningful and highly qualitative interpersonal relations with
other people at a higher level of connectedness and closeness; they have democratically structured characters and show readiness to cooperate with others;
and, last but not least, they have good sense of humour.

ness for new experiences and easily establishing of contacts with other people;
interpersonal sensitivity – highly developed ability to accurately assess motives,
intentions and standpoints of others; poorly expressed conservativeness of attitudes and viewpoints.

Tanja Nedimović • Jelena Prtljaga • Predrag Prtljaga: CHARACTERISTICS OF MANAGERIAL WORK – CHANCES AND RISKS

How to successfully manage one’s own self-development?
Identification of priorities – time management
According to Rogers, a scientist who is considered to be the founder of
research on the problem issue of self-development and management of this
process, the first task imposed on a person striving for improvement of selfdevelopment management refers to and is inseparable from understanding of
dynamics of time and ability to manage one’s own time (Rogers, 1961, 268).
In the time, dynamics and pace of contemporary life, time is not a resource
which is of indefinite capacity; as a consequence, it is crucial for an individual
to know how to spend it. Time (current moment, an hour, a day, a year…) is
unique, unrepeatable and irreparable, just as the life itself is unrepeatable and
irreversible. Consequently, parallel can be made and it could be claimed that
time management is in a way management of life, with the implications of being more successful both at work and in private life, to reach greater number of
one’s own personal aims and aspirations with optimal use of physical energy
and mental efforts preserving (or at least not jeopardizing) one’s own psychophysical health.
“How to find time” actually means how to indisputably establish one’s own
priorities. Management of available time is planning of maximum of time for
what is most significant to us. According to Oljača (Oljača, 2004, 228), time
management refers to identification and establishment of priorities; they arise
out of predetermined life aims, desires and tasks; establishment of tasks is
planning; planning means control; to control means to work on one’s own selfdevelopment; people who work on their own self-development manage their
time successfully.

3.

RISK  JOB RELATED STRESS

Everyday life permeated by life problems not possible to easily overcome
condition inner tension caused by neuroendocrine systems. Long lasting expo-

124

sure of an organism to influence and effects of hormones (adrenaline and cortisol) can manifest in changes in behaviour and disharmony in communication.
Cortisol and adrenaline are in natural conditions secreted when an organism
faces a new task or in circumstances of more intense physical efforts. In such
situations these biochemical substances increase neural and muscular activity
of an organism, intensify blood flow through organs, especially through central
nervous system, preparing an organism for a new response. If the mentioned
hormones are secreted at daily basis with increased intensity due to life situations an individual cannot subjectively or objectively overcome, their constant
presence can damage certain systems of an organism, leading to occurrence of
chronic disease (Nedimović & Stanojlović, 2012, 100).

It can be noticed that in the literature in the domain of psychology, as well
as in formal and informal communication in which experts are involved, stress
is most often understood in one of two ways. Within each of the two ways of
defining stress there are two different ways. The first way of defining stress determines it as an event occurring in an external setting, i.e. (1) an event which
is a threat or a loss (or, less frequently a challenge) for majority of people; or (2)
an event which is a treat or a loss (or challenge) for an individual person. Another standpoint is that stress is a reaction to an event in an external setting, i.e.
(1) activation of intensive feelings (most often unpleasant ones); and/or (2) a
whole range of characteristic body reactions (Zotović, 2002, 4). A definition
suggestion by Aldwin (Aldwin, 1994) encompasses both the above mentioned
standpoints, while in the scope of the first stated determination of stress (as an
event), subjective evaluation of a person is emphasized, due to which certain
events are seen as threats, losses or challenges.
Burn out syndrome is a state of excessive stress, i.e. high level of stress and
a complex human reaction to long-lasting and continuous exposure to stress.
Signs are similar to those appearing in the case of stress, but burnout involves

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Stress can be determined as an emotional or physiological process appearing
when people try to adjust or cope with circumstances which disrupt (or threatening to disturb) their everyday functioning (Taylor, 1995). Various events imposing the need on people to adjust (e.g. job demands, examinations, personal
tragedies or annoying disturbing at daily basis) are called stressors. Body, psychological or behavioural reactions (like e.g. accelerated heartbeat, anger, impulsiveness) are called stress reactions.

Tanja Nedimović • Jelena Prtljaga • Predrag Prtljaga: CHARACTERISTICS OF MANAGERIAL WORK – CHANCES AND RISKS

emotional exhaustion and increasing negative attitude towards work, and even
life. Some of the symptoms of burnout are similar to psychosomatic diseases:
headaches, heart attacks, high blood pressure, fatigue. A person who is at the
edge of a burnout feels: weakness, lack of strength, hopelessness, frustration,
separation from people, i.e. lack of contact with people and things surrounding
him or her, little satisfaction with work, anger appearing due to the lack of time
for working tasks, irritation, anxiousness, uncertainty… Prevalence of this syndrome is highest in the case of ambitious people with high potentials (and these
are most common characteristics of successful managers).

.. Job related stress
Stresses experienced by people at work are classified within the category of
so called job related stresses. Some of the most common symptoms of job related stress (there are other expressions used in the English language referring
to the same phenomenon: organizational stress, occupational stress, job stress,
stress at work, work stress, work place stress…) are as follows: dissatisfaction
and being unadjusted to work, and they can also be related to the difficulty and
content, i.e. nature of work (Pajević, 2006).
Research carried out in the North America in the last decade have shown
that even up to 40% of those employed experience their job as highly stressful.
In the studies by Sonenntag and Frese (Sonnentag, & Frese, 2003) conducted
in Europe, the percentage is slightly lower, i.e. 30%. The approach to research
on job related stress has undergone a whole range of developmental phases,
just like the study and explanation of stress in general context (Popov & Popov,
2011, 180), based on stimulus-reaction approach according to which stressful
reaction has been understood as a consequence of a stressful event – stressor. It
is beyond dispute that various people do not react in the same way to the same
stressor ant this fact has imposed the need for further research on this relation,
as well as the introduction of different moderating variables in the examination of the relation between a stressor and a stressful reaction (Hart & Cooper,
2001).
Sources of work related stress are numerous and different authors have classified them into various categories Ivančević i Mejson (Ivancevich & Matteson,
1993) have classified sources of stress into three categories: a group of personal
ones, a group of interpersonal ones and a group of organizational stress sources.

126

The category of organizational, i.e. job generated stresses is dominant in the
case of managerial work; thus, it could be said that managerial jobs are professions which are more subject to stress as compared to other professions.
For an employed person job related stress is a whole range of harmful, physiological, psychological and behavioural reactions to the situations in which job
demands are not in accordance with person’s abilities, skills and needs. Work
related stress is manifested through specific patterns of emotional, cognitive,
behavioural, physiological of organism occurring as a response to a variety of
harmful influences arising out of contents and organization of work and working environment. The notion of job related stress refers to the changes which
are consequences of accumulating influences of stressors appearing in a working
place for longer period of time.

Modern models of work related stress involve to various degrees elements
of transactional model of stress research, viewing stress as a dynamic relation
between a person and his/her environment, putting emphasis on the dynamics
of mechanism of cognitive evaluation of stressful events by the person (Lazarus
& Folkman, 1984) as well as copying mechanisms as strategies of overcoming
stress. Generally speaking, researchers have identified two clusters of factors
generating stressful reactions at work, one referring to characteristics of a job
and organization, another to individual characteristics of the employee. Having
in mind that stress indicators can be considered at individual (e.g. cognitive,
physiological and behavioural) and organizational level (e.g. low productivity,
absence from work, etc) there is in the research on work related stress a great
heterogeneity in the selection of variables according to which the phenomenon
is operationalized. Stress indicators, as well as stressors perception are more
often measured according to measures of self-evaluation (Cooper, et al, 2001).

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The significant of research on stress in modern conditions and work related
demands is manifold. As a bio-psycho-social problem, stress can endanger psycho-physical health and reduce working capability. The consequences in health
domain can lead to liability to various psychosomatic diseases and injuries at
work. Furthermore, consequences referring to working ability can lead to reduction of working performance, increase of fluctuation, absence from work, etc.
At emotional plan consequences can lead to apathy, anxiety, aggressiveness, and
at cognitive plan they can lead to a decrease in thinking capacity, memory and
problem solving.

Tanja Nedimović • Jelena Prtljaga • Predrag Prtljaga: CHARACTERISTICS OF MANAGERIAL WORK – CHANCES AND RISKS

Having all the above mentioned in mind, it could be concluded that consequences of stress can be highly unfavourable both for an individual (manager and other members of an organization) and for organization as a whole.
According to this standpoint it is rather significant to operationalize and define measures and programs of work related stress prevention (Stanojević &
Milošević, 2011). Two preventive approaches can be applied individually or
simultaneously: at the level of an individual (work on self-development of an
individual through education and trainings dealing with stress management)
and at the level of an organization as a whole (work on introduction of change
of work organization in order to create better working conditions and working
climate, leading to reduction of potential stressors).

4.

CONCLUSIONS

Managerial job is rather demanding and complex. It implies dealing with
a broad spectrum of jobs: ranging from management of human resources to
achieving of a desired aim and making profit at the level of organization as a
whole. For a manager to successfully do his/her job he/she has to be prepared
for lifelong learning and permanent (self )development of his/her own professional abilities and skills. In other words, self-development is seen as a dynamic
process implying positive change.
Only when a manager develops these competencies to a satisfactory degree
and learns how to efficiently determine priorities and manage his/her own time
can he or she create successful cooperation with other people and maximally realize his/her own potentials. Benefits of such (not always easy) work on oneself
belong not only to the manager him/herself, but also to other people he or she
works or cooperates with.
Studies have shown that successful managers, compared to those who are
not so successful, are characterized by the following: positive self-image (they
assess themselves as more realistic and more accurate than others), emphasized
manifestation of certain personality features (intelligence, self-confidence, flexibility, interpersonal sensitivity, empathy), as well as certain abilities (to start
dealing with a work task immediately, to be always ready for cooperation, to accept themselves and those surrounding them as they really are, to easily identify
with other people).

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It is beyond dispute that a job of a manager is conventional; on the contrary,
it can be rather exciting, it can be a source of great satisfaction; at the same time,
it can also be a source of anxiety and stress. Research conducted in individualistic cultures (like ours) have shown that between 30 and 40 percentages of the
employed population experience their job as highly stressful. Having in mind
that these data refer to all professions, it can be assumed that when the job of a
manager is in question, which is understood as extremely exciting and dynamic,
these percentages can only be significantly higher. The paper has pointed to
negative consequences of stress, especially working place generated stress, i.e.
job related or organizational stress. This type of stress can have negative consequences for working efficacy, dissatisfaction and the lack of adjustment to work,
as well as increased level of absence from work. Even though there are great individual differences in the way one experiences stress (the same event will never
be equally stressful for two different persons), it is crucial for managers to learn
how to cope with stressful events through permanent and dedicated work on
self-development of their own stress management mechanisms and their own
perception of these events.

Aldwin, C.M. (1994). Stress, coping, and development. New York: Guilford Press.
Benis, W. (1989). On becoming a leader. New York.
Cooper, C. L., Dewe, P. J., & O’Driscoll, M. P. (2001). Organizational Stress: A Review
and Critique of Theory, Research, and Applications. Thousand Oaks: Sage Publications.
Dostupno na http://cclp.mior.ca/Reference%20Shelf/PDF_OISE/Bennis.pdf. Pristup
(13-03-2015).
Hart, P. M., & Cooper, C. L. (2001). Occupational stress: Toward a more integrated framework. In N. Anderson, D. S. Ones, H. K. Sinangil, & C. Viswesvaran (Eds.), Handbook of
industrial, work, and organisational psychology, Vol.2:Personnel Psychology (93-114). London: Sage.
Ivancevich, J., M. & Matteson, M., T. (1993). Organizational behavior, Irwin (Homewood,
IL).
Lazarus, R. S., & Folkman, S. (1984). Stress, appraisal, and coping. New York: Springer-Verlag.
Mann, R. D. (1959). A review of the relationship between personality and performance in
small groups. Psychological Bulletin, 56, 241–270.
Nedimović, T. & Stanojlović, D. (2012). Priručnik za vaspitače za rad sa decom sa simptomima razvojnih poremećaja. Vršac: Visoka škola strukovnih studija za obrazovanje vaspitača.
Oljača, M. (2004). Menadžment vremena i samoaktualizacija. U Priručnik za polaznike Poslovne škole NSHC-a (Laura Fodor – Agošton….et al.) Novi Sad: Novosadski humanitarni
centar.

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REFERENCES

Tanja Nedimović • Jelena Prtljaga • Predrag Prtljaga: CHARACTERISTICS OF MANAGERIAL WORK – CHANCES AND RISKS

Pajević, D. (2006) Psihologija rada. Beograd: Liber.
Popov, B. & Popov, S. (2011). Struktura polnih razlika u doživljaju stresa na radu. Primenjena psihologija. 2011/2 (179-195).
Rogers, C.R. (1961). On Becoming a Person. A Therapist s view of Psyhotherapy, Hougthon,
Mifflin Company, Boston.
Sonnentag, S., & Frese, M. (2003). Stress in organizations. In W. C. Borman, D. R. Ilgen,
& R. J. Klimoski (Eds.), Comprehensive handbook of psychology, Volume12: Industrial and
organizational psychology (pp. 453-491). New York: Wiley.
Stanojević, D. Z., & Milošević, B. N. (2011). Profesionalni stres. Zbornik radova Filozofskog
fakulteta u Prištini, (41), 621-637.
Taylor, S. (1995). Health Psychology. New York: McGraw-Hill.
Zotović, M. (2002). Stres i posledice stresa - prikaz transakcionističkog teorijskog modela.
Psihologija, 35(1-2), 3-23.

130

PRODUCT POLICY MANAGEMENT
AS PART OF SUSTAINABLE
MARKETING STRATEGY
Ana PAP, M. Sc. Econ., assistant
Faculty of Economics in Osijek
anapap@efos.hr

Marija HAM, Ph.D., Assistant Professor
Faculty of Economics in Osijek
mham@efos.hr

Ana TURALIJA, student
Faculty of Economics in Osijek
ana.turky@gmail.com

The product as an element of the marketing mix represents the primary mechanism through which value is provided to the consumer. If we add the fact
that it is precise decisions related to product design that determine the types
of resources, production processes, and the nature and type of future flows of
waste, it is clear that product policy management is a key issue in sustainable
marketing strategy.
The purpose of the present study is to analyse and discuss the key elements
and prerequisites of green products and the issues in green product policy management with the goal of contributing to sustainable marketing strategy effectiveness. Marketing managers in the modern marketing environment must
consider all of these issues because in the near future embedding the elements
of sustainability into business processes will no longer represent the source of
competitive advantage, but the precondition of competitive parity on the global
market.

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Abstract

Keywords: green product, product policy management, marketing mix, sustainable marketing strategy.
JEL Classification: E2, L23, M3

Ana Pap • Marija Ham • Ana Turalija: PRODUCT POLICY MANAGEMENT AS PART OF SUSTAINABLE MARKETING STRATEGY

1.

INTRODUCTION

The strengthening of consumers’ environmental awareness is often considered the greatest opportunity, since the industrial revolution, for the rearrangement of forces on the market, innovation and the introduction of new technologies. Actually, these are the changes which represent, at the same time, an
opportunity and a threat for economic entities. It is clear that those wishing to
capitalize on these changes must adjust all elements of their marketing program. In addition, it is also necessary to adjust other business processes of an
economic entity which have been, so far, mostly outside the domain of consumers’ interest. In this sense, a specific marketing mix can be identified within the
sustainable marketing strategy.
For the products on the contemporary market, acceptable price and confirmed quality are no longer an adequate prerequisite for finding their way to
the consumer. Increasingly growing ecological awareness has placed demands
before producers for making products that meet high ecological standards.
Therefore, we can say that the environmental acceptability has become “added
quality” to the product.
The product as an element of the marketing mix represents the primary
mechanism through which value is provided to the consumer. Decisions related
to product design determine the types of resources and production processes
which are going to be used. These decisions also determine the character and
the type of future waste flow. That is the main reason why product design and
product policy management represent the key point in sustainable marketing
strategy. (Fuller;1999,172).

2.

GREEN PRODUCT CONCEPT AND ITS
CHARACTERISTICS

An environmentally friendly product is a type of product that balances three
dimensions: technical features, price acceptability and compatibility with envi-

132

ronmental protection. In other words, market entities are facing the challenge
of creating a product that will satisfy consumers’ needs and wants, including
environmental protection in a way that the product, its usage and the waste created after its usage, do not cause pollution or that its environmental pollution is
minimal. (Grbac et al., 2008,115). For products that meet the above mentioned
conditions, in theory and practice, the conventional term is “green products”.

The concept implied under the term of green marketing in marketing practices covers the range from green brands that include ecological characteristics
in all product life cycle phases to the conventional products that contain any
kind of improvement related to the ecological friendliness of the product itself
or some of its parts (e.g. packaging). Franjić et al. state that the green product is
green if it satisfies consumers’ needs, if it effectively uses energy and resources
and if it is socially acceptable due to the fact that neither the product or its producer endanger flora, fauna and human habitat and its usage and disposal does
not harm human health and the environment. (Franjić et al.;2009,253)
When it comes to green marketing, it is not only necessary to consider product features and its environmental influence before, during and after its usage.
It is also important to consider other processes and company policies which are
directly or indirectly related to that product. According to the previous statement, green product characteristics can be classified in two general categories:
1. Characteristics related to the ecological and social influence of the material product itself. The main challenge in product management is emphasizing the destiny of the product after its usage. Improving the ecological
performances of the product after its usage can be achieved through modular design approach, quality post-product services or product collecting
systems after its usage.

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

According to Ottman, the term green product usually implies a more durable product which does not contain any, or a minimum of toxic substance,
is made of more types of recycled material and has less wrapping material.
(Ottman;1998,89). Green products have positive ecological features embedded during decision making about the product design. These features represent
operationalized P2 (pollution prevention) and R2 (resource recovery) strategies. These strategies affect production, the material from which the product
is made, how it works, how long it lasts, how it is distributed and how it is
disposed. (Fuller;1999,172).

Ana Pap • Marija Ham • Ana Turalija: PRODUCT POLICY MANAGEMENT AS PART OF SUSTAINABLE MARKETING STRATEGY

2. Characteristics related to production processes, policies and practices of
the producer, i.e. fair trade products, organic food products, recycled paper and cruelty-free cosmetics.(Peattie;2008,577-578).
It is also necessary to point out the dynamics, i.e. variability as the attribute
of both of these characteristics. The development of a general level of awareness
about ecological issues and its representation in legal and other regulations led to
certain changes in the list of possible green characteristics. For example, what was
once considered as a green characteristic of a product (e.g. spray that doesn’t contain CFC gas) now is considered only a compliance of legal regulations or industry standards. On the other hand, using a specific synthetic material in the production process, instead of a natural one that comes from endangered species, can
be considered a green characteristic of the production process. Ecological characteristics mentioned above are in most cases intangible, invisible and of secondary
importance to the consumers. Those characteristics don’t reflect key benefits as a
primary reason for buying a product, they represent long-term eco system needs
that will be reflected to the consumers in the way of improving their life quality.
The need for short term oriented consumers education about long term benefits
that result from ecological characteristics, represents one of the main challenges
that sustainable marketing deals with. (Fuller;1999,131-132).
When it comes to green product characteristics, the importance of product
durability is growing. We can say that most products these days exist only as
partially durable products, and creating more durable product variants can be an
important part of green marketing strategy. For example, Agfa Geveart changed
its policy from selling photocopiers to renting them with full additional service.
This led to significant product redesign focused on durability and resulted with
extending the product life cycle from less than 3 million copies to more than
100 million copies. For marketing executives this represents a significant change
of previous strategies because it results in a significant product replacement rate
decrease. Thus it requires a change in strategic direction from sales to renting
and complementary product and services marketing. (Peattie;2008,576).
Green product failure can be the result of a mistake or marketing myopia in
product policy management or in any of the other marketing mix elements, but
it can also be the result of their inadequate combination. Definitions and green
product characteristics stated above indicate that product policy management
is an extremely complex process which is interdependent with other marketing
mix elements as well as with other company’s business departments.

134

3.

GREEN PRODUCT POLICY MANAGEMENT

This shows that establishing relative ecological performance measures can
be extremely complicated. In other words, it is hard to differentiate and professionally claim that one product is greener than the other. It is also important
to point out that characteristics which determine whether the product is green
or not depend on the product category, on where, how, for what purpose, how
often it will be used and who will use it. For example, it can be said that fluorescent bulbs are green products because they save a significant amount of electricity. However, if eco-bulbs are used in lamps that are often turned on and off,
their lifetime will be reduced and by the end of their lifetime they will be able to
save less energy than it was used to produce them. This means that regular light
bulbs represent an ecologically acceptable alternative. A specific product can
influence different social and ecological issues, but changes in the product itself
and its production process don’t necessarily have the same influence on different
issues. In that case, it is often common to resort to an optimization approach
in a way that issues with greater weight (importance) receive greater priority.
Defining relevant issues as well as their relative significance is not even remotely
easy and it has to be continuously thought out and revised.

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

On average, about 70% of a product’s adverse environmental effects are embedded in product design or production process. That is why companies must
integrate ecological characteristics in products and processes in the initial phase
of new product development along with a quality concept. (Polonsky;2001,23).
Efforts for developing new “clean” technologies and products have been more
present lately than efforts for reducing adverse ecological impacts of the existing
ones. Including ecological performances as factors in a new product development process is known as the “Design for environment” concept, and it represents the process of integrating ecological criteria in the procedures of product
design and production process. These processes result in products that have
different levels of ecological performances. Peattie points out some of the issues
that should be considered: Which social and ecological issues are relevant for
this product? What is the weight of each individual influence? Should influences along a supply chain be considered and if so, how far into the supply
chain? Apart from the production process, should the usage and disposal of the
product also be considered? (Peattie;2001,133).

Ana Pap • Marija Ham • Ana Turalija: PRODUCT POLICY MANAGEMENT AS PART OF SUSTAINABLE MARKETING STRATEGY

Environmental protection is present in all product lifecycle phases, and includes numerous sub-issues like preserving natural resources, energy efficiency,
natural habitat protection, endangered species protection etc. Companies that
decide to implement green marketing through all product lifecycle phases must
consider issues related to: supply and processing of raw materials, production and
distribution, packaging and product usage, issues related to the product after its
usage and issues related to its disposal. (Marušić;2003,45). Therefore, product
policy management in green marketing represents integration of ecological acceptability in each of the life cycle phases with a special emphasis on the phase of
creating an idea about a product where the most ecological influence is being reduced. As it has been stated, lately there have been tendencies to create completely
new products and technologies because in that way it is possible to achieve a significantly larger positive influence on the environment than improving existing
products and adding ecological characteristics to existing product characteristics.
Ecological acceptance of the product can be estimated on the so called “cradle-to-grave” analysis which accounts for energy, the amount and the type of
material spent on production and the packaging of the product; transportation
activities related to supply and distribution of the product; process of consumption of the product and the process of its disposal. (Wagner;2003,24)
This kind of activity analysis in the whole product supply chain is also called
impact analysis and life cycle analysis. Life cycle analysis is an important and one
of the most used patterns or concepts for evaluating the total ecological impact
of the product on the environment. Thereby, one of the main challenges for the
marketers is estimating the analysis range inside of the supply chain, i.e. how
far forward or backward along the supply chain should they go and how many
branches of the supply chain these analyses should include.
In order to incorporate ecological characteristics compatible with needs,
wants and expectations of the consumer in the initial phase of product development, companies can use the following product research methods: focus groups
who reveal problems/issues (they are a good base for planning further researches and planning the program), consumer research (reveals attitudes), opinion
researches (they establish awareness and perceptions), contingent analysis (estimates willingness to pay), conjoint analysis (discovers consumers’ preferences
and willingness to pay premium), market testing and simulations (they reveal
behaviour and are good for testing the packaging). (Holt & Holt;2004,66)

136

In the phase of creating an idea about a new product, besides establishing the
previously mentioned needs, wants and expectations of the consumer, it is also
necessary to perform a quality market analysis in order to gather information
about all types of ecological products present on the market; does the competition offer the same or similar products or services? Which are benchmarking
characteristics that should be considered while generating ideas? Which are potential threats (fast developing technology, a sector that doesn’t provide enough
data, etc.)? When it comes to the consumers’ attitude, it is important to point
out that the approach of evaluating consumer satisfaction is being progressively
modified. Namely, the consumer can have either a negative or positive attitude
towards the product, which is the result of conditions and the way that product was created. A negative or positive attitude towards the product can also
be formed during its consumption as well as after its consumption. (Grbac et
al.;2008,109)
The importance that consumers give to ecological characteristics of the
products and the producers is different in individual product categories. Food
products are usually the leaders in this list, which is expected considering they
have a significant effect on peoples’ health and well-being as well as the well-being of their families. This is confirmed in the research conducted by the authors
in 2011. (Ham;2012)

Source: Ham, M. (2012), Ekološka svjesnost potrošača kao čimbenik daljnjeg razvitka marketinga, Doctoral thesis, Faculty of Economics, Osijek

137

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Table 1: Frequency of purchasing various green product categories

Ana Pap • Marija Ham • Ana Turalija: PRODUCT POLICY MANAGEMENT AS PART OF SUSTAINABLE MARKETING STRATEGY

Table 1 shows that when buying green products, people mostly buy organic
food, while cosmetics, electronics and lighting products are less represented.
Detergents are right behind organic foods, which suggest health awareness,
given that both of these categories are related to their influence on health.
It is also important to mention product packaging as a specific problem
that requires great attention in product policy management. It is additionally
emphasized in green marketing for several reasons. The first reason lies in the
fact that product packaging has a large share in the total waste in industrialized countries, and also that packaging represents a significant part of product
influence on the environment. The second reason is the relative simplicity of
adjusting packaging to ecological requirements. In other words, it is considerably simpler (and less risky) to reduce the amount of products or changing the
type of packaging material than it is the case with other interventions related
to product that generally cause higher costs and demand a long-term approach.
For the above reasons, packaging represents a starting point from which the
product and its producer start their way towards satisfying the ecological demands of the consumers.
The above mentioned is confirmed in Crane’s research, which showed that
packaging represents the first aim in going green for most of surveyed companies, both in terms of reducing the amount of packaging and re-using or recycling transport packaging. In most cases this led (apart from environmental
benefits) to savings, i.e., companies treated these changes as a win-win situation.
(Crane;2000,123) Besides modifying packaging, it is possible to organize its
collection after the product is used. This could imply some larger investments
because it is necessary to ensure efficient infrastructure for collecting (so that
consumers’ efforts could be as small as possible). Besides that, it is necessary to
educate consumers and redesign the production system or its parts so that reusage or recycling of the packaging could be enabled.
There are numerous examples of successful re-use packaging systems. However, the example of Sony shows that caution should be exercised. Sony tried
to introduce the system of taking over TV packaging after delivery and its reusage. This caused a negative reaction in some consumers because they thought
that the product in this packaging is also being re-used. (Peattie;2008,578)

138

4.

CONCLUSION

For all the strategic advantages of sustainable marketing strategy to be realized, it is necessary for a company to question the very basis on which the mission, vision, strategy and goals of the company stand.

Green products are strongly exposed to the dynamics of changes which result from recent scientific discoveries and changes in main environmental issues.
Thus, a product which is today considered green because it saves electricity can
tomorrow be considered ecologically unacceptable if it is discovered that a certain substance generated during its decomposition is toxic to people, animals or
plants. It is also possible for a company which invested in a new plant for producing phosphate-free detergents ten years ago to get exposed to criticism today
for producing a large amount of carbon dioxide that causes greenhouse effect,
global warming or disastrous climate changes, which are some of the most important environmental issues today.
Marketing managers in the modern marketing environment must consider
all of these issues because soon embedding the elements of sustainability into
business processes will no longer represent the source of competitive advantage, but the precondition of competitive parity (the prerequisite for a product
to even be considered for inclusion in distribution channels and in consumers’
decision making process).

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

The product is the element of a marketing mix through which a company
provides value to its consumer. If we add the fact that it is precisely the decisions
related to product design that determine the types of resources, production processes, and the nature and type of future flows of waste, it is clear that product
policy management is a key issue for sustainable marketing strategy. In order
to emphasize the fact that every product has a certain effect on the environment, it is often figuratively said that the only product that is completely green
is the one that does not exist. Namely, in production and during the transport
of every product, energy is used, by-products are created and after the disposal,
waste is generated. Hence, we can conclude that a green product represents a
relative category which consists of products with less environmental influence
then their alternatives.

Ana Pap • Marija Ham • Ana Turalija: PRODUCT POLICY MANAGEMENT AS PART OF SUSTAINABLE MARKETING STRATEGY

References
Crane, A. (2000). Marketing, Morality and the Natural Environment (Routledge Advances
in Management and Business Studies), Taylor and Francis Group, ISBN 978-0415439619,
London
Franjić, Z., Paliaga, M. & Flego, M. (2009). Green Marketing in Croatia – Research of Experience and Effects on the Establishment of Environmentally and Socially Responsible Business, Proceedings of the 34th Annual Macromarketing Conference - Rethinking Marketing
in a Global Economy, 247-259, ISBN 0-9795440-9-2, The Macromarketing Society, Inc.
and the University of Agder, Kristiansand
Fuller, D. A. (1999). Sustainable Marketing – Managerial – Ecological Issues, SAGE Publications, ISBN 978-0761912194, California
Grbac, B., Dlačić, J. & First, I. (2008). Trendovi marketinga, Faculty of Economics in Rijeka,
ISBN 978-953-7332-03-7, Rijeka.
Ham, M. (2012). Ekološka svjesnost potrošača kao čimbenik daljnjeg razvitka marketinga,
Doctoral thesis, Faculty of Economics in Osijek
Holt, E. A. & Holt, M. S. (2004). Green Pricing Resource Guide, second edition, Prepared
for American Wind Energy Association, Ed Holt & Associates, Inc., Maine
Marušić, A. (2003). Zeleni marketing u suvremenom gospodarstvu, Master’s thesis, Faculty
of Economics Zagreb, Zagreb.
Ottman, J. A. (1998). Green Marketing: Opportunity for Innovation, J. Ottman Consulting
Inc., ISBN 0-8442-32339-4, USA
Peattie, K. (2001). Towards Sustainability: The Third Age of Green Marketing, The Marketing Review, 2, 129-146, ISSN 1472-1384/2001/020129
Peattie, K. (2008). Green Marketing, in Baker, M. J. & Hart, S. J. (eds.), The Marketing
Book, 6th ed., Elsevier Ltd., ISBN 978-0750685665, USA
Polonsky, M. J. & Rosenberger, P. J. (2001). Reevaluating Green Marketing: A Strategic Approach, Business Horizons, September/October, 21-30, ISSN 0007-6813
Wagner, S. A. (2003). Understanding Green Consumer Behaviour – A Qualitative Cognitive Approach, Routledge, Taylor and Francis Group, ISBN 978-0415316194, London and
New York

140

MANAGEMENT AND LEADERSHIP
IN CULTURAL INSTITUTIONS
Teufik ČOČIĆ, M.Sc.
Bajment d.o.o., Sarajevo, Bosnia and Herzegovina
cocic.teufik@gmail.com

Velimir LOVRIĆ, Ph.D.
HEP APO d.o.o. Zagreb, Croatia
velimir.lovric@hep.hr

Abstract

This paper examines possible strategies for efficient management of cultural
institutions. Since cultural institutions are dependent on grants from public
founders, this is frequently a challenge. The paper studies the problems that
administration and management in cultural institutions are faced with, in
terms of market orientation and action, on their way to efficient management.
Today, efficient management requires a market-based approach because the
effort and work invested, as well as the implementation of all work activities
and business processes are aimed at creating income and achieving economic
efficiency through planning and implementing a strategy to achieve the set and
planned objectives.
Keywords: management, leadership, cultural institutions
JEL Classification: Z1, Z10, Z19

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Management and leadership are necessary in cultural institutions just as much
as in any company. Management of cultural institutions in Croatia is a complex task, since they mostly need to rely on funding from the founder, i.e. the
state, a county or a city.

1.

MANAGERS IN CULTURAL INSTITUTIONS

Teufik Čočić • Velimir Lovrić: MANAGEMENT AND LEADERSHIP IN CULTURAL INSTITUTIONS

A manager is effective if he has a clear vision on what an effective institution
is, if he is able to determine personnel to share his vision, if he manages his time
as to see the mission deriving from this vision come to fruition.1 All economic,
social and political activities of the world we live in cannot be conceived in the
absence of a concern for performance, achievement and success. Performance,
achievement and success have become the priorities and the motivation of any
cultural institution that subscribes to the economic exigencies. Irrespective of
the field of activity, its legal form or size and the social and economic area in
which it operates, the cultural institution has to periodically review its economic and financial achievements, to discover what lies beneath its positive or
negative aspects, to correctly assess its ability to adapt to the dynamics of the
environment in its field of activity as well as the development perspectives and
its position on the market.2
Who are the managers in culture and what they are doing?
The real answer to this question can be found in only one way. When we
managers in culture considered only those who are due to its location destined
to perform some management functions, such as directors of cultural institutions, leaders of the organizations dealing with cultural programs or the artists
who promote their works, we would not nearly have given the correct answer.
The managers in the culture we have considered all those persons responsible
for the implementation of certain cultural programs or activities, regardless of
where the formal position there.3
Managers in culture have the following tasks:
• Developed plans of cultural programs and activities.
• Available fundraising plan and organize its implementation.
• Investigated and win the confidence of sponsors, donors and financiers.
• They collect funds support the budget and other sources.

1

Ceauşu, Iulian, Cartea conducătorului, Editura Asociaţia de Terotehnicăşi Terotehnologie, Bucureşti,
1998, p. 27. (According to Cristina Andreescu)

2

Negoiţă, Octav, Managementul performanţei întreprinderii, Editura Ex Ponto, Constanţa, 2007, p.
10. (According to Cristina Andreescu)

3

Dragojević, S., Dragičević – Šešić, M. (2008). Menadžment umjetnosti u turbulentnim vremenima.
Zagreb: Jesenski i Turk, p. 22

142

• Examines the cultural market.
• Developed marketing plans.
• Promote relations with the public (public).
• Provide human resources, as well as the necessary equipment for the execution of planned Affairs.
• They support and encourage the development of cultural creativity.
• Manage human resources, or employed or engaged people.
• Realize the role of leadership, especially the coordination and supervision.
• They create financial policies and manage financial resources.
• Prepare, monitor and, if necessary, revise the budget.
• Establish the necessary level of office, and administrative operations.
• Negotiates procurement of necessary goods and services, etc..4

In practice, the cultural manager intermediary between the market and art.
It is not necessary to be a top expert on art, history, museology and the like. It is
essential that the management of a professional support. The cultural activities
that are specifically some of the following types of experts in these areas:
• Arts,
• History of Art,
• Museology and
• Curators.
A manager in the cultural institutions of course has to have some kind of
sense of culture in a domain in which it operates or the primary task of managers to ensure the smooth running of all business processes in the work and
activities of these institutions, so as to provide all the necessary conditions for
it. The current weather and the state in which the cultural institutions activity
is must provide:
• financial stability,
4

Antolović, J. (2009). Menadžment u kulturi. Zagreb: Hadrian d.o.o., p. 24

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

For these tasks, it is evident that managers in culture have to act like any
other managers in the market and the economy. The manager at the cultural
institution must possess a range of management skills and the opportunity to
acquire a large number of tasks and obligations aggregate it all that could effectively manage the institution.

• excellent cooperation with the sources of funding,
• developed communication cultural institutions with the market,
• take care of the audience,
• take care of all the obstacles and opportunities for the institution he
manages,
• constantly monitor changes and trends in activities and
• adapt an institution run by the market conditions and activities.

Teufik Čočić • Velimir Lovrić: MANAGEMENT AND LEADERSHIP IN CULTURAL INSTITUTIONS

Only by ensuring the above, we can create and implement effective management strategies.
Professional and efficient staff is the most important factor for effective
management of a cultural institution. Management should lead management
and manager institutions with managerial skills to attract funding primarily,
and enable the implementation of program activities with the technical processes that are part of the accompanying program of action. With them an integral
part must be qualified personnel and artistic profession, curators, etc. Management must connect, integrate, but also through the articulation and division of
tasks and responsibilities to lead to the same goal, which is the ultimate result
of managerial and artistic activities, as well as additional activities and services
that cultural institutions implemented.

2.

PLANNING AND LEADERSHIP

Planning is a prerequisite thought out management that is capable of addressing needs and business decision-making process in cultural institutions.
Only quality planning allows the management of the institution of effective
decision-making aimed at achieving the set goals and mission. Planning is extremely challenging activity because it requires not only objectively outline the
mission and goals, but also clearly defined pathways and activities to the mission
and goals to achieve in real life. The planning process should be distinguished
numerous concepts including mission, goals, strategies, policies, rules and programs. Mission the reason of existence and to the social and economic aspects.
The objectives of the endpoint to which they are directed activities. Strategy
defines the way of achieving the goals or guidelines for management that will
accomplish these goals. Policies establish procedures for making decisions, and
express the attitudes, principles or criteria. The rules determine how to proceed

144

in a given situation. The programs represent a set of objectives, policies, procedures and rules necessary to carry out the activities and their execution, as a rule
supported by the budget.5
Type of control must be established immediately in the planning, because
planning covers all segments, rules and forms of governance that factor thought
out management that may result in high-quality and efficient management of a
cultural institutions, which will result in specific business objectives.
Planning is a set of guidelines and factors, tools, plans, vision, mission, goals
and foundation for the launch of any discussion, and then the implementation
of cultural activities with all the parameters and characteristics of the possible
consequences and outcomes that are possible in the evaluation and completion
of certain processes and activities. Without planning it is almost impossible any
idea or business solution successfully implement and lead a cultural institution
in a desired state. Management of the implementation is characterized by three
important elements, namely the way of change management and risk management and the method of monitoring the implementation.6 The planned activities
is a process of change in which the goal is to achieve the planned result. In order
to achieve true change in the expected goal it is necessary to manage the change.

STRATEGY PROGRAM  ORGANIZATIONAL
DEVELOPMENT

In addition to entrepreneurial energy director, organizational arrangements
and its program activities included with the resulting identity of the cultural
institution. The identity of the cultural institution uniqueness and recognition
of certain cultural institution by saying it stands out from the others and their
different characteristics and peculiarities of attracting audiences and visitors.
Means that the new cultural institution a reality today does not only involve
virtual preservation and presentation of the cultural institution but also more
than that - the same one way or the practice of visits to cultural institution. 7

5

Antolović, J. (2009). Menadžment u kulturi. Zagreb: Hadrian d.o.o., p. 69.

6

Ibidem, p. 100

7

Despotović, J. (2006). Sajber kultura - virtuelni muzej. U: Godišnjak grada Beograda. JovovićProdanović, D. (ur.). Beograd: Muzej grada Beograda. p. 399. - 407.

145

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

3.

Teufik Čočić • Velimir Lovrić: MANAGEMENT AND LEADERSHIP IN CULTURAL INSTITUTIONS

The first step involves a discussion of strategic planning, analysis and selection of development scenarios and the appropriate strategies. This is a key
job that requires the greatest creativity and synthetic, multidimensional thinking. Advantage of its benefits, find a solution for the weaknesses and threats,
requires a decision on a very precise strategic solutions that can sometimes be
painful or risky for the organization, whether in terms of policy change (which
can be understood as a waiver of tradition) or in terms of reducing the number
of employees. It may involve a variety of analysis, discussion, controversy, brainstorming, monitoring of existing scenarios and strategies, or SWOT analyzes.
Strategic planning, as opposed to the classic plan, requires the development
scenario, a vision that can and should be determined on the already defined the
mission of the organization, but also to draw attention to the way that organizations will move in the next five or ten years. The vision of their own future,
in terms of the development scenario, you should be realistic but ambitious,
should be a noticeable step forward from the daily, current routines and also
be a mobilizing and inspiring factor for the selection of a completely new, and
sometimes radical and risky strategy.8
The vision is a goal, a desire where the organization wants to be, literally.
The vision includes ambitions, desires, plans, meaning activities and all those
imaginary things, processes, activities and target condition that management
wants to achieve and accomplish. The vision is a guiding theme to the goal and
the success of the organization. Vision is an integral part of how the mission,
strategy and goals, because only together make a whole to define the institution
or organization.

4.

MARKETING IN CULTURAL INSTITUTIONS

Marketing management is important managerial dimension which must be
continually evaluated to ensure profit.
Marketing has always been, and so in recent times of rapid change, globalization and recession, each business entity is an expense that is neces-

8

Dragojević, S., Dragičević – Šešić, M. (2008). Menadžment umjetnosti u turbulentnim vremenima.
Zagreb: Jesenski i Turk, str. 137.

146

sary for promoting the convergence of products and services to end users. 9
Marketing is one of the primary business functions. The task is a marketing tool that discovers and develops sources of demand. Marketing department must demonstrate understanding of the nature of the transformation
process, how it affects the acquisition, which is produced can allocate specific groups of consumers, when they will be able to produce a new product. 10
Marketing is the art of finding, developing and generating a profit from various
opportunities. If the marketing department does not see any chance, it’s time
to dissolve. If managers for marketing cannot imagine new products, services,
programs and systems, which are then paid? 11
Since cultural institutions, in Croatia and the region still characterized by a
lack of financial resources, faced with the problem about attracting visitors as
users of their services.

A thorough understanding of marketing will put emphasis on the importance of creating good, attractive products. If the marketing misunderstood,
which is not rare, attractiveness is identified with sensationalism.12 This is exactly the reverse of each acceptable formulation mission of the cultural institutions. Product cultural institutions regular ‘’input’’ incentive, effective pulses in
9

Mokhtar, M. F., & Azilah, K. (2011), Motivations for visiting and nost visiting museums among
young adults: a case study on UUM students. International Conference on Management (ICM 2011)
Proceeding, Conference Master Resources. No 2011-099-103

10

Barković, D. (1999). Uvod u operacijski management. Osijek: Ekonomski fakultet u Osijeku, p. 28

11

Kotler, P. (2006). Kotler o marketingu, Kako stvoriti, osvojiti i gospodariti tržištima. Zagreb: Masmedia,
p. 44

12

Šola, T. (2001). Marketing u muzejima ili o vrlini kako ju obznaniti. Zagreb: Hrvatsko muzejsko
društvo, p. 85

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

All the world’s cultural institutions, and the Croatian one, have to set up
employee / s in charge of marketing. Marketing in cultural institutions is still
not enough clear, but without argument assumes that everyone understands the
nature of the cultural institutions. Cultural institutions and other industries in
the field of heritage, often in its mission and obligations only formally defined.
Most experts employed at the cultural institutions are unable to clearly define
the goals of the cultural institutions and role in society, by the usual formula of
concern for future generations, preserving the collective memory or the production and presentation skills. On the other hand, often speaks about marketing,
and thoughts on propaganda. Marketing is much more than that.

a community where there are and what should be served. The result of these
impulses is neat, complete, creative sublimated transfer of cultural experiences, with the aim of continuation of identity regardless of the changes through
which the community and its members pass. The most widely established goal
of the cultural institutions, and its products, is the common good, as wisdom
generated from the past.

Teufik Čočić • Velimir Lovrić: MANAGEMENT AND LEADERSHIP IN CULTURAL INSTITUTIONS

Bibliography:
Antolović, J. (2009). Menadžment u kulturi. Zagreb: Hadrian d.o.o.
Barković, D. (1999). Uvod u operacijski management. Osijek: Ekonomski fakultet u Osijeku
Ceauşu, Iulian, (1998) Cartea conducătorului, Editura Asociaţia de Terotehnicăşi Terotehnologie, Bucureşti
Despotović, J. (2006). Sajber kultura - virtuelni muzej. U: Godišnjak grada Beograda. JovovićProdanović, D. (ur.). Beograd: Muzej grada Beograda.
Dragojević, S., Dragičević – Šešić, M. (2008). Menadžment umjetnosti u turbulentnim vremenima. Zagreb: Jesenski i Turk
Kotler, P. (2006). Kotler o marketingu, Kako stvoriti, osvojiti i gospodariti tržištima. Zagreb:
Masmedia d.o.o.
Negoiţă, Octav, (2007). Managementul performanţei întreprinderii, Editura Ex Ponto,
Constanţa
Mokhtar, M. F., & Azilah, K. (2011), Motivations for visiting and nost visiting museums among
young adults: a case study on UUM students. International Conference on Management (ICM
2011) Proceeding, Conference Master Resources. No 2011-099-103.
Šola, T. (2001). Marketing u muzejima ili o vrlini kako ju obznaniti. Zagreb, Hrvatsko muzejsko društvo

148

STUDENTS’ POTENTIAL FOR
AUTHENTIC LEADERSHIP
Djurdja SOLESAGRIJAK, Ph.D.
University of Novi Sad, Technical Faculty “
Mihajlo Pupin” Zrenjanin, Republic of Serbia
gdjurdja@gmail.com

Dragan SOLESA, Ph.D.
University of Business Academy of Novi Sad,
Faculty of Economics and Engineering Management, Serbia
solesadragan@gmail.com

Nedjo KOJIC
University of Business Academy of Novi Sad,
Faculty of Economics and Engineering Management, Serbia

Abstract

The aim of this research was to determine potential of students for authentic
leadership and relation between their authentic personality and potential for
authentic leadership. The sample consisted of students (N=133) from Serbia
(male – 59% and female – 41%). The average age of students was M=21.9.
Instruments used were Authenticity Scale (Wood et al., 2008) and Authentic
Leadership Self-Assessment Questionnaire (ALQ – Walumbwa et al., 2008).
Authenticity scale had three subscales – authentic living, accepting external
influence and self-alienation. Authentic Leadership Self-Assessment Questionnaire had four subscales – self-awareness, internalized moral perspective, balanced processing and relational transparency.
Results showed that students are authentic persons - M=43.16 (with theoretical range of scores from 12 to 84) and have a potential for authentic leadership – M=57.41 (with theoretical range of scores from 16 to 80). Authentic

149

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

To know yourself and to act accordingly has been seen as a moral imperative
throughout history.

Djurdja Solesa-Grijak • Dragan Solesa • Nedjo Kojic: STUDENTS’ POTENTIAL FOR AUTHENTIC LEADERSHIP

personality in students is not a predictor of authentic leadership (R2=.001,
F(1,132)=.08, p<.05). Correlation analysis showed that individual’s authentic living is positively correlated to leader’s self-awareness (r(131)=.360,
p<.01), internalized moral perspective (r(131)=.378, p<.01) and to relational transparency (r(131)=.194, p<.05). Also, accepting external influence is
negatively correlated to internalized moral perspective (r(131)=-.178, p<.05).
This research has confirmed theoretical implications that if a person behaves
and expresses emotions in a way that is consistent with his/her physiological
states, emotions, beliefs and cognitions, then he/she will be perceived by others
as being aware of their own and others values, knowledge and strengths, of the
context in which they operate and capable of ethical and transparent decision
making. Furthermore, a person more susceptible to the influence of others and
to the belief that one has to conform to others’ expectations is less capable for
authentic and sustained moral actions.
Keywords: authenticity, leadership, students
JEL Classification: L2, L31, L29

INTRODUCTION
When discussing authentic leadership, it is necessary to start from the concept of authenticity itself.
Authenticity as a construct dates back to ancient Greeks, and the time it
was first recognized in their timeless piece of advice – Be honest to yourself
(Harter, 2002). Within the realm of positive psychology, authenticity is defined
as having personal experience, acting in accordance with one’s own thoughts,
emotions, needs, interests or beliefs, and stemming from the need for a person
to know oneself and act in accordance with one’s true SELF (Seligman, 2002).
Even though the very concept of authenticity is not new, in recent years,
we have witnessed a revival of interest for the elements of authentic leadership
in literature dealing with applied (Gardner & Schermerhorn, 2004; George et
al., 2007; George, 2003; May et al., 2003) and academic management (Avolio
et al., 2004; Avolio & Luthans, 2006; Avolio & Walumbwa, 2006; Gardner et
al., 2005; Luthans & Avolio, 2003). All these authors conclude that authentic
leadership is a multi-dimensional construct of a higher order, which further
reflects in the development of the theory of authentic leadership following the

150

One of the results of such an increased interest in this new construct is the
emergence of several new models of authentic leadership in literature. The first
one is the model (Avolio et al., 2004) which defines authentic leadership as a process stemming from positive organizational behavior, trust, new achievements
in the field of leadership and emotions, identity theories developed to describe
the processes through which leaders transfer their influence on the attitudes
of their employees such as job satisfaction, and behaviors such as work results.
This model also includes the outcomes of the employees which reflect in their
performance, extra performance and their withdrawal behaviors such as absence and lateness. Further research brought authors to a better-focused model
of authentic leadership which also includes self-awareness, impartial processing
of information, authentic behavior, and authentic relational orientation (Ilies
et al., 2005). Gardner and associates (2005) tried to integrate these different
perspectives and definitions of authentic leadership and suggested the model of
processes which happen in authentic leadership and work. This model is based
on the idea that one of the key factors which contribute to the development of
authentic leadership is the leader’s self-awareness which includes their personal
values, emotions, identity and goals. The second factor is self-regulation which
involves internalized regulation, balanced processing of information related to
the persons themselves, authentic behavior and relational transparency, which
implies that the leader shows a high level of openness and trust in close relationships. According to this model, the personal past of the leader (influences of
their family members, educational and professional experience) and key events
(personal crises and positive events such as promotions) are a pre-condition
for authentic leadership. Later, authors (Avolio & Gardner, 2005) came to conclude that authentic leadership also involves positive moral perspective which
is characterized by high ethical standards affecting the making of decisions and
behavior. Here, self-awareness and the process of self-control are reflected in
the internalized moral perspective, balanced processing of information and relational transparency as the key components of authentic leadership.
This kind of definition shows that authentic leadership shares some characteristics with other contemporary perspectives of positive leadership such as
transformational, spiritual and servant leadership. Authentic leadership justifies

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

interrelations occurring between leadership, ethics and positive organizational
behavior (Avolio et al., 2004; Cameron et al., 2003; Cooper & Nelson, 2006;
Luthans & Avolio, 2003).

Djurdja Solesa-Grijak • Dragan Solesa • Nedjo Kojic: STUDENTS’ POTENTIAL FOR AUTHENTIC LEADERSHIP

its place among these forms of leadership with the fact that researchers started
to make difference between it and similar constructs by putting it in theoretical
frameworks and searching for its confirmation in empirical researches. Transformational leaders are, the same as authentic leaders, described as people full
of optimism and hope, people of high moral character and oriented towards
development (Bass, 1998). Also, transformational leadership has opened up a
way towards a complex moral specter with which most leaders combine their
authentic and non-authentic behaviors, which leads to differentiating between
authentic transformational leader who expands the domain of freedom and
conscious acting and a pseudo or non-authentic transformational leader who
strives to justify their own narcissism, authoritarianism, and need for power.
Still, other authors (Avolio & Gardner, 2005) state that authentic leaders, unlike transformational leaders, can but don’t have to be oriented towards developing their employees into leaders, even though they themselves have a positive
influence on their employees through the model of roles. On the other hand,
similar to authentic leaders, servant and spiritual leaders show explicit or implicit self-awareness, and focus on integrity, trust, courage and hope (Bass &
Steidlmeier, 1999). However, these components of servant and spiritual leaders
still lack theoretical and empirical background. Therefore, authentic leadership
can encompass transformational, servant, spiritual, and many other forms of
positive leadership. Even though it is still necessary to define authentic leadership, Avolio and associates (2004) state that the main element which differentiates authentic from other forms of leadership is the fact that it lies at the base of
contemporary positive leadership regardless of the form it appears in.
Characteristics of an authentic leader as a person are discussed and explained by George (2003). In his view, authentic leaders strive to serve others
through their leading activities. They are more interested in how to encourage
their employees to make a change, than they are interested in power, money
or their personal status. They are driven by their personal desires and feelings
rather than by their sense. However, authentic leaders are not born that way.
Lots of people have natural qualities for leadership, but they need to develop all
their capacities in order to become excellent leaders. Authentic leaders use their
natural abilities, and they recognize their disadvantages and work hard on overcoming them. Their leadership is purposeful, meaningful and based on values.
They are persistent and self-disciplined. When their principles are tested, they
make no compromises. Authentic leaders are committed to their personal de-

152

velopment, because they know very well that leadership implies lifelong growth
and development. The basic quality each leader needs to possess is being honest
to oneself in every situation. The best leaders are autonomous and independent. Those who are over-sensitive to the needs of others are more prone to be
beaten by opposite interests, to stray from their chosen course or be reluctant to
make tough decisions in fear of offending others. In order to be effective leaders,
authentic leaders first need to discover the purpose of their leadership. If they
fail to do it, they will find themselves in the grip of their own ego and narcissistic needs. Acquisition of these characteristics is not a sequential process, every
leader develops them throughout life.

In the person-directed concept, authenticity was defined as a three-part
construct by Barrett-Lennard (1998, p. 82) who emphasizes the balance between the three levels of a person – (a) personal experience (the real SELF,
including the current emotional state and beliefs), (b) symbolic consciousness
(experience represented in the cognitive sphere) and (c) external behaviors and
communication. The first aspect of authenticity (self-alienation) includes the inevitable inconsistency between the consciousness and the current experience.
Perfect harmonization between these types of experience is not possible and
the extent to which a person experiences self-alienation in the relation between
consciousness and the current experience (true SELF) by shaping the first aspect of authenticity leads to psychopathology. The second aspect of authenticity
(authentic living) involves harmonization between one’s consciously perceived
experience and behavior. Authentic living implies behavior and expressing emotions in a way consistent with the conscience of psychological states, emotions,
beliefs and thoughts. In other words, authentic living means being honest to
oneself in most situations and living in accordance with one’s own values and
beliefs. The third aspect of authenticity (accepting the external influence) involves
the extent to which one accepts the influence of others and the belief that one
needs to adjust to other people’s expectations. People are basically sociable beings, and thus both self-alienation and authentic living fall under the influence
of the environment. Accepting other people’s perspectives and accepting external influence affects both one’s feeling of self-alienation and the experience of

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

George himself (2003) gave a description of the traits of an authentic leader,
thus touching on the story of an authentic personality, a construct which psychologists of many different orientations (humanist, existentialist, positive psychology) are trying to define more clearly.

authentic living. Taking all of these together – self-alienation, authentic living
and the acceptance of external influence creates the three-part construct and a
person-oriented perspective of authenticity which offers the widest and clearest
explanation of authenticity.
In this article, the author describes the research aimed at determining the
potential of students for authentic leadership and the relation between their
authentic personality and their potential for authentic leadership.

Djurdja Solesa-Grijak • Dragan Solesa • Nedjo Kojic: STUDENTS’ POTENTIAL FOR AUTHENTIC LEADERSHIP

METHODOLOGY
The aim of this research was to determine potential of students for authentic
leadership and relation between their authentic personality and potential for
authentic leadership.
The sample was consisted of students (N=133) from Serbia (male – 59%
and female – 41%). The average age of students was M=21.9.
Instruments used were Authenticity Scale (Wood et al., 2008) and Authentic Leadership Self-Assessment Questionnaire (ALQ – Walumbwa et al.,
2008).
Authenticity scale had three subscales – authentic living, accepting external
influence and self-alienation.
Authentic Leadership Self-Assessment Questionnaire had four subscales
– self-awareness, internalized moral perspective, balanced processing and relational transparency.
Results shown in Table 1 show that students are authentic personalities –
M=43.16 (with theoretical range of scores from 12 to 84).
Table 1. Authenticity Scale
Scale
Subscales

154

N

Minimum

Maximum

AS

SD

Authentic personality

133

23

67

43,16

7,79

Authentic living

133

4

28

22,84

4,39

Accepting external influence

133

4

28

10,25

4,86

Self-alienation

133

4

28

10,07

5,15

Students achieved best scores on the subscale Authentic living, which implies that they are honest to themselves in most situations and that they live in
accordance to their own values and beliefs.
Table 2. Authentic leadership Scale
Scale

Subscales

N

Minimum

Maximum

AS

SD

Authentic leadership

133

36

74

57,41

7,61

Self-awareness

133

8

20

14,91

2,73

Balanced processing of information

133

4

20

13,17

2,97

Relational transparency

133

6

20

14,05

3,05

Internalized moral perspective

133

8

20

14,88

2,62

Results achieved on the scale of authentic leadership in Table 2 show that
students have the potential for authentic leadership – M=57.41 (with theoretical range of scores from 16 to 80). They achieved the highest score on the subscale Self-awareness, which implies the existence of a continuous process during which a student develops their conscience and understanding of their own
talents, strengths, purpose, values, beliefs and desires. Students also achieved a
high score on the subscale of Internalized moral perspective characterized by
highly ethical standards which affect their decision making and behavior.

Authentic personality

B

SE

b

-,037

.09

-,038

Note: R2 = .001, F(1, 132)=,168, p< .05

Linear regression analysis (Table 3) shows that the students’ authentic personality is not a predictor of authentic leadership. Even though authenticity is
a concept which stands at the foundation of both constructs, statistic analysis
shows that they do not necessarily have a causal connection.

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Table 3. The results of linear regression with the criterion of authentic leadership

Djurdja Solesa-Grijak • Dragan Solesa • Nedjo Kojic: STUDENTS’ POTENTIAL FOR AUTHENTIC LEADERSHIP

Table 4. Pearson’s correlation coefficient
Balanced
Internalized
Accepting
SelfRelational
Authentic
Selfprocessing of
moral
the external
awareness
transparency
living
alienation
information
perspective
influence
Self-awareness
1
,229**
,388**
,355**
,360**
-,126
-,275**
Balanced
processing of
,229**
1
,351**
,081
,060
,022
-,136
information
Relational
,388**
,351**
1
,235**
,194*
,013
-,167
transparency
Internalized
moral
,355**
,081
,235**
1
,378**
-,178*
-,311**
perspective
Authentic living
,360**
,060
,194*
,378**
1
-,251**
-,40**
Accepting
the external
-,126
,022
,013
-,178*
-,251**
1
,502**
influence
Self-alienation
-,275**
-,136
-,167
-,311**
-,40**
,502**
1

*p< .05 **p< .01

Pearson’s correlation coefficient represented in Table 4 shows that there exist
statistically significant correlations between some (most) subscales of authentic
personality and authentic leadership.
It is interesting to notice that balanced processing of information which implies making decisions based on personal beliefs is not connected to personal
ethical standards or any other indicator of authentic personality (authentic living, accepting external influence, self-alienation). Also, relational transparency
is not statistically significantly connected to either accepting external influence
or the feeling of self-alienation as indicators of an authentic personality. Therefore, the connection between balanced processing of information and relational
transparency is statistically significant (p< .01).
Based on these results, we can conclude that students as future authentic leaders would rely on the following when making decisions: their personal beliefs (selfawareness) and opinion of their close colleagues (relational transparency), whereas they are still not ready for conformism, i.e. non-critical adjusting to common
norms (accepting external influence). It is important for them as authentic leaders
to maintain their creativity, leadership, activism, independence and self-respect
oriented towards change and progress (without the feeling of self-alienation).
This article describes a research aimed at determining the students’ potential
for authentic leadership and the relation between their authentic personality

156

and their potential for authentic leadership. The research sample consisted of
students from Serbia (N=133). Average age of respondents was M=21.
The results showed that students are authentic personalities, that they are
honest to themselves in most situations and that they live in accordance with
their own values, with the highest scores achieved on the subscales expressing
their clear self-awareness and moral perspective.

All of these results can be viewed as a confirmation of the model of authentic
leadership suggested by Avolio and Gardner (2005) as well as the characteristics
of the person of authentic leadership suggested by George (2003). The research
described in the article confirms the model of authentic leadership suggested
by Avolio and Gardner (2005). According to that model, basic components of
authentic leadership are self-awareness and self-regulation which involves balanced processing of information, relational transparency and internalized moral
perspective. Students achieved high scores on each of these subscales of the
scale of Authentic leadership (ALQ – Walumbwa et al., 2008), thus confirming
the suggested model of authentic leadership.
The research described also confirmed the characteristics of the personality of authentic leadership suggested by George (2003). In his view, authentic
leaders are committed to their personal development, since they know very well
that leadership demands lifelong growth and development. The basic quality
each leader needs to possess is to be honest to themselves in each situation. The
best leaders are autonomous and independent. This claim is used to point out
the authentic personality (self-alienation, authentic living and accepting external influence) as an important segment of authentic leadership (self-awareness
and self-control). The students involved in the research showed that they are
authentic personalities and that they have the potential for authentic leadership.

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Even though the results show that an authentic personality is not a predictor
for authentic leadership, the analysis of Pearson’s correlation coefficient showed
that most subscales of authentic personality and authentic leadership are in a
statistically significant correlation. Furthermore, the results show that students
as future authentic leaders are not ready for conformism, i.e. non-critical adjusting to common group norms (accepting external influence). It is important
for them as authentic leaders to maintain their creativity, leadership, activism,
independence and self-respect oriented towards change and progress (without
the feeling of self-alienation).

Djurdja Solesa-Grijak • Dragan Solesa • Nedjo Kojic: STUDENTS’ POTENTIAL FOR AUTHENTIC LEADERSHIP

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Ilies, R., Morgeson, F. P., & Nahrgang, J. D. (2005). Authentic leadership and eudaemonic well-being: Understanding leader– follower outcomes. The Leadership Quarterly, 16(3),
373-394
Luthans, F., & Avolio, B. J. (2003). Authentic leadership: A positive developmental approach.
In: K. S. Cameron, J. E. Dutton, & R. E. Quinn (Eds.), Positive organizational scholarship (pp.
241–261). San Francisco, Barrett-Koehler.
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authentic leadership. Organization Dynamics, 32, 247–60.
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Your Potential for Lasting Fulfillment. New York: Free Press.
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Leadership: Development and Validation of a Theory-Based Measure. Journal of Management, 34, 1, pp. 89-126

158

RELATION OF LEADERSHIP
AND BUSINESS PERFORMANCE:
BALANCED SCORECARD
PERSPECTIVE
mr. sc. Ivan MILOLOŽA
Munja d.d., Koledovčina 3, HR – 10000 Zagreb, Croatia
ivan.miloloza@munja.hr; ivan.miloloza1@gmail.com

Abstract

be leaders and to cooperate and develop, thus contributing to the development of companies. Leadership obviously contributes to business
performance. The goal of this paper is to investigate the relationship of
leadership and performance of the companies measured by the Balanced
Scorecard Approach. In order to attain this goal, a survey has been conducted on the sample of Croatian companies. The results of the research
indicate that authoritarian leadership style has in general a negative effect on
business performance of Croatian companies, while democratic leadership style
has in general a positive effect. The impact of laissez-faire leadership style was
mostly neutral. Further research should focus on the impact of leadership style
on business performance of companies with various characteristics, e.g. different stages of their development.
Keywords: Leadership, SME, international business, business performance,
Balanced Scorecard
JEL Classification: M11, M12, M199

159

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Leadership is a major factor of managing the companies during the
change, but also throughout the problem, because only a leader is capable
of creating an environment in which his co-workers are encouraged to

Ivan Miloloža: RELATION OF LEADERSHIP AND BUSINESS PERFORMANCE: BALANCED SCORECARD PERSPECTIVE

1.

INTRODUCTION

Leadership is one of the functions of management, but also the most important, because the success of the entire top management depends on process
of leadership (Sikavica and Bahtijarević-Šiber, 2004). Management involves directing others to the execution of the tasks, while leadership is the process of
influencing others who need to perform a specific task, but also includes their
willingness to follow the leader (Bahtijarević Siber et al, 2008). Leading and
following a leader are connected to each other, because leaders must achieve
a positive relationship with their followers in order to influence on them and
guide them towards the achievement of the objectives (Hollander, 1995; Sikavica et al, 2008).
In today’s business environment of rapid change and to adapting to international markets, leadership is needed to change or adapt to new business situations (Bennis, 2007; Matic, 2004b; Matic and Vouk, 2005). Today, companies
are most focused on customers, employees and the constant innovations in order to compete with their competitors and to be able to successfully respond to
requests from the environment (Verhoef, 2003; Matic, 2004a; Miloloža, 2013;
Carnall, 1990).
Previous studies have shown that leadership affects the success of the company, but it has not been sufficiently studied the impact of leadership on the
success of the company, if the same has been measured with the system of balanced scorecard. Therefore, the subject of this paper is the impact of leadership
on the performance of companies measured by a system of balanced scorecard
in the Republic of Croatia.

2.

LITERATURE REVIEW

The basic models of leadership
Leadership is a process of influence on people, and because each person is
different so there are more models of leadership (Stogdill, 1948; Gagné and
Deci, 2005). Depending on the industry in which the company is located, but
also on the characteristics of employees we can identify varies types based on
leadership qualities and the behavior of leaders, contingency approach to leadership and some new approaches to leadership models (Korman, 1973; Podsakoff et al, 1995).

160

Leadership based on the characteristics of leaders accepts the theory that
leaders are born, or that the leadership is genetically predetermined. As desirable leadership qualities can be highlighted: an independent spirit, self-esteem
and respect for others, efficiently and effectively master new tasks and willingness for rapid change, a willingness to learn new, pleasant private life, especially
the ability to communicate with new people (Levitsky, 1998; Palmer Woodward, 2007).

It is important to highlight Likert four degrees of leadership that are mostly based on motivation and communication between co-workers and leaders
(Yousef, 2000). Extremely - authoritative leaders used fear and punishment to
subordinates, as well as awards in certain situations and does not allow any
independent decision - making. Benevolently - authoritarian leader usually uses
with rewards to motivate associates, accepts the idea of co - workers as well as
decision - making. The consultative leader quite believes to its subordinates and
to some extent used their ideas and knowledge. Participatory joint - leaders fully
believes to its associates, accept their ideas and encourages a system of rewards
and communicate with each other. Research has shown that the most successful
companies are those in which the process of leadership involves participatory
- joint leader (Chen and Tjosvold, 2006; Huang et al, 2010). Given the complexity of the company and the business it is impossible to use only one style of
leadership and a combination of several styles contributes most to the success of
teams and achieving targets (Ranganayakulu, 2005). Continuity of leadership
involves the application of a certain type of leadership, and selection of the best
leadership to a particular situation (Tannenbaum and Schmidt, 1973).

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Leadership based on the behavior of leaders involves several types: leadership based on the use of authority, Likert systems of leadership, leadership oriented tasks, a continuum of leadership (Bahtijarević et al., 2008). Leadership
based on the use of authority includes three basic styles: autocratic and democratic leader and leader of the free hand (Mullins, 2005). Autocratic leader is
a person who manages other people with system of rewards and punishments,
communicates by ordering and command and asks submission of the associates. Democratic leaders cooperate closely with associates and encourage their
participation in the design and implementation of decisions. The leader of the
free hand (laissez faire) almost entirely left to the associates autonomy and independence in their work.

Ivan Miloloža: RELATION OF LEADERSHIP AND BUSINESS PERFORMANCE: BALANCED SCORECARD PERSPECTIVE

Contingency approach to leadership involves a leader who is heavily influenced by the situation in which it is located and which must be adjusted. Such an
approach to leadership emphasizes that people do not become leaders because
of its characteristics, but because of the situation they are in and which requires
their actions (Buble, 2009). These models of leadership have their advantages
and disadvantages, which means that the leaders must adapt its characteristics,
the characteristics of its associates, but also a situation in which they are located
so that they can successfully lead a team toward achieving the strategic goals of
the company. In addition to the above models there are new approaches to the
leadership as transformational leadership, charismatic leadership, systematic
leadership, transactional leadership (Buble, 2009; Stewart, 2006).
An experienced leader who possesses the skills, knowledge and capabilities
needed to run a team is very important in very challenging international business (Matic and Lazibat, 2001; Matic and others, 2010). The leaders are a key
factor in solving the problems and conflicts in international business thus contributing to achieving the goals and a long-term success (Zorlu and Hacıoğlu,
2012). Multinational companies operating in different parts of the world are
facing problems because of cultural differences and business practices specific to
each country. It is the task of leaders to reduce those differences in international
business and align employees’ performance with respect to different business
cultures within the same company (Peterson and Hunt, 1997).

Measuring the performance of the company with a system of
balanced scorecard
Today’s business environment has been characterized by rapid change and
adaptation to market conditions, and the companies, unless they need to achieve
competitive advantage and success over the competition, should measure success in achieving strategic goals. The system of balanced scorecard proved to be
a very effective instrument for the measurement and evaluation of performance
in order to improve the efficiency of company management (Sekso, 2011).
The system of balanced scorecard was developed by professors at Harvard
University in the 1990s of the last century (Kaplan and Norton, 1996). Their
intention was to establish a way of measuring the achieved results and their
comparison with the plan in order to monitor the success of the business. It is
important to point out that the system of balanced scorecard derived from the

162

company’s strategy and how it is used to synchronize the financial results obtained with planned results in the future. Companies that have not developed a
business strategy, as well as those who have a strategy, but it is not implemented
or not exercising, cannot use the method of performance measurement with
system of balanced scorecard (Niven, 2007).

3.

METHODOLOGY

Research unit is a company registered in Croatia, and the population is a set
of all such companies. The frame of choice is a database of the Croatian Chamber of Commerce, from which it will randomly select a sample of companies.
Respondent is a president or member of the management of the company, in
which case the companies has been previously contacted by telephone in order
to establish contact and explain the purpose, but also the confidentiality of research results, as well as their exclusive use for scientific purposes. The survey
was conducted on a stratified sample of Total 60 companies divided into six
sub-samples. Of that: (1) 10 small and medium-sized companies in the growth
phase (code subsamples: SME growth); (2) 10 small and medium-sized compa-

163

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

The system of balanced scorecard involves four perspectives that are studied
at the same time when measuring the performance of the company: customers, internal processes, finances and employee learning and growth (Lončarević,
2006). The financial perspective is a key factor contributing to the success of the
company and it is the result of activities of the other three non - financial perspectives. Clients represent a strategic orientation of the business management.
In addition to retaining existing customers it is important to constantly be looking for new clients. Satisfied and loyal customers greatly contribute to the success of the company. Internal processes represent the possibility of growth and
development of the business. Internal processes include improvement of existing business processes, but also the introduction of innovative ways of doing
business. Learning and growth of employees involves training skills and knowledge of employees, encouraging their motivation, includes the possibility of the
information system, but also creates a work environment conducive to success.
The application of the system of balanced scorecards and achieve success within
all four perspectives greatly leads to changes in the structure and organizational
culture, as it moves from the present to the desired future of the organization
(Sikavica and Novak, 1999).

Ivan Miloloža: RELATION OF LEADERSHIP AND BUSINESS PERFORMANCE: BALANCED SCORECARD PERSPECTIVE

nies in the maturity stage (code subsamples: SME-maturity); (3) 10 small and
medium-sized enterprises in the phase of stagnation (Code sub-samples: SMEs
stagnation); (4) 10 large companies in the growth phase (code subsamples:
Large-growth); (5) 10 large companies in the maturity stage (code subsamples:
Large-growth) and (6) 10 large companies in the phase of stagnation (Code
sub-samples: Large-stagnation).
Styles of leadership in organizations from the sample were measured using a
questionnaire attached to this paper which are measured, using specific claims,
autocratic, democratic and laissez-faire leadership style. The Leadership Styles
Questionnaire was taken from Northouse (2012). Respondents expressed on a
scale of 1 to 5 the extent to which they agree with each statement.
Claims that measure the presence of an autocratic leadership style are:
• L 1. Employees need to be supervised closely, or they are not likely to do
their work.
• L 4. It is fair to say that most employees in the general population are lazy.
• L 7. As a rule, employees must be given rewards or punishments in order
to motivate them to achieve organizational objectives.
• L 10. Most employees feel insecure about their work and need direction.
• L 13. The leader is the chief judge of the achievements of the members of
the group.
• L 16. Effective leaders give orders and clarify procedures.
Claims that measure the presence of a democratic leadership style are:
• L 2. Employees want to be a part of the decision-making process.
• L 5. Providing guidance without pressure is the key to being a good leader.
• L 8. Most workers want frequent and supportive communication from
their leaders.
• L 11. Leaders need to help subordinates accept responsibility for completing their work.
• L 14. It is the leader’s job to help subordinates find their “passion.”
• L 17. People are basically competent and if given a task will do a good job.
Claims that measure the presence of laissez-faire leadership style are:
• L 3. In complex situations, leaders should let subordinates work problems
out on their own.
• L 6. Leadership requires staying out of the way of subordinates as they do
their work.

164

• L 9. As a rule, leaders should allow subordinates to appraise their own
work.
• L 12. Leaders should give subordinates complete freedom to solve problems on their own.
• L 15. In most situations, workers prefer little input from the leader.
• L 18. In general, it is best to leave subordinates alone.

Measuring the success of organizations in the sample:
Measuring the success of organizations in the sample was conducted using
a questionnaire which measures the performance of the company relative to its
competitors in the principal activity, with respect to financial, process, market
dimension to the success and the success of knowledge management. Respondents expressed on a scale of 1 to 5 the extent to which they agree with the statement that their company is better than the competition in the sector.
Dimensions of financial success are:
• F1. Profitability
• F2. Actual profit
• F3. Return on Investment

Dimensions process success are:
• P1. The efficiency of internal processes
• P2. Innovation of products / services
• P3. Innovating internal processes
Dimensions success of knowledge management are:
• Z1. Employee competence
• Z2. Application of new technologies
• Z 3. Organizational climate

Data collected by primary research has been analyzed by the correlation
analysis where examined the correlation between some variables which measure a certain style of leadership and individual variables that measure the
success of company with system of balanced scorecards.

165

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Dimensions of market success are:
• T1. Customer satisfaction
• T2. Market share
• T3. Quality of products / services

4.

RESEARCH RESULT

.. Description of the Sample
Table 1 shows the analyzed companies from the sample by the year of establishment. Approximately the same number of enterprises was established
before 1945 (8) and after 2000 (6). The largest number of companies was established in the period of the 1991st to 2000th years (24).

Ivan Miloloža: RELATION OF LEADERSHIP AND BUSINESS PERFORMANCE: BALANCED SCORECARD PERSPECTIVE

Table 1. Companies in the sample by the year of establishment
Company was founded

Number

Structure in %

Cumulative %

< 1945

8

13,3

13,3

1946-1990

22

36,7

50,0

1991-2000

24

40,0

90,0

2000 >

6

10,0

100,0

Total

60

100,0

Source: Research of the author, May, 2014

Table 2 shows the number of companies with respect to the number of employees. Of the total number of enterprises (60) half employs more than 250
people. Approximately the same number of companies that have 50 employees
(16) and 51-250 employees (14).
Table 2. Distribution of the frequency of the sample companies according to
the number of employees
Number of employees

Number

Structure in %

Cumulative %

< 50

16

26,7

26,7

51-250

14

23,3

50,0

>250

30

50,0

100,0

Total

60

100,0

 

Source: Research of the author, May, 2014

Table 3 shows the number of companies by activity. The minimum number of companies (1) is represented in the following activities: C - Mining and
quarrying, E - supply an electric power, gas and water supply, and Q - Extraterritorial organizations and bodies. A third of companies (20) is represented in
D – Processing Industry. In most activities, are represented by two companies:
I - Transport, storage and communication, J - Financial intermediation, M Education and N - Health and social care.

166

Table 3. Number of companies by activity
Industry

Number Structure in % Cumulative %

A - Agriculture, hunting and forestry

9

15,0

15,0

C - Mining and quarrying

1

1,7

16,7

D - Processing Industry

20

33,3

50,0

E - Electricity, gas and water supply

1

1,7

51,7

F - Construction
G - Wholesale and retail trade; repair of motor vehicles and
motorcycles and personal and household goods
H - Hotels and restaurants

4

6,7

58,3

3

5,0

63,3

5

8,3

71,7

I - Transport, storage and communication

2

3,3

75,0

J - financial intermediation

2

3,3

78,3

K - Real estate, renting and business activities

4

6,7

85,0

M - Education

2

3,3

88,3

N - Health and social care

2

3,3

91,7

O - Other community, social and personal service activities

4

6,7

98,3

Q - Extra-territorial organizations and bodies

1

1,7

100,0

Total

60

100

 

Source: Research of an Author, May, 2014

Table 4. Number of companies by ownership
The majority ownership of companies

Number

Structure in %

Cumulative %

Majority locally

47

78,3

78,3

Majority foreign

9

15,0

93,3

Majority state

4

6,7

100,0

Total

60

100,0

 

Source: Research of an Author, May, 2014

.. Analysis of leadership in all businesses together
Table 5 shows the answers of respondents, managers board members, questions which are evaluated to what extent you agree with the views that reflect
the autocratic style of leadership. It May be noted that the respondents largely

167

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Table 4 shows the number of companies by ownership. Most of the analyzed companies (47) is predominantly locally owned. The minimum number
of enterprises are mainly state (4), while a growing number of foreign - owned
companies (9)

Ivan Miloloža: RELATION OF LEADERSHIP AND BUSINESS PERFORMANCE: BALANCED SCORECARD PERSPECTIVE

agree with particles L7. The rule is that employees should be rewarded or punished
in order to motivate them to achieve company goals (average score 4.12) and L13.
A superior is the one who should evaluate the extent to which employees achieve goals
(average score 4.10). Respondents are at least agreeing with particle L4. It is fair
to say that the majority of employees, generally in the population, is lazy (average
score 1.75). Standard deviations are in the range 0.77 to 1.40, based on which it
concludes that the average grades are representative.
Table 5. The presence of an autocratic style of leadership in all businesses
together
L 1. Employees need to be supervised closely, or they are not likely to
do their work.
L 4. It is fair to say that most employees in the general population are
lazy.
L 7. As a rule, employees must be given rewards or punishments in
order to motivate them to achieve organizational objectives.
L 10. Most employees feel insecure about their work and need
direction.
L 13. The leader is the chief judge of the achievements of the
members of the group.
L 16. Effective leaders give orders and clarify procedures.

N

Min

Max Average St. dev.

60

1

5

2,65

1,23

60

1

5

1,75

1,07

60

1

5

4,12

1,01

60

1

5

2,62

1,11

60

2

5

4,10

0,77

60

1

5

2,85

1,40

Source: Research of an Author, May, 2014

Table 6 shows the answers of respondents, managers board members, questions which are evaluated to what extent you agree with the views that reflect
the democratic style of leadership. It May be noted that the respondents largely
agree with particles L 11. Superior should help their subordinates to accept responsibility for the performance of their jobs (average score 4.32) and L8. Most employees want to frequent and friendly communication with their superiors (average
score 4.18). Respondents are at least agreeing with particle L 14. The task of
the superior is to assist employees’ favorite part of the job “(average score 3.65).
Standard deviations are in the range 0.72 to 1.01, based on which it concludes
that the average grade representative.

168

Table 6. The presence of a democratic style of leadership in all businesses
together
L 2. Employees want to be a part of the decision-making process.
L 5. Providing guidance without pressure is the key to being a good
leader.
L 8. Most workers want frequent and supportive communication from
their leaders.
L 11. Leaders need to help subordinates accept responsibility for
completing their work.
L 14. It is the leader’s job to help subordinates find their “passion.”
L 17. People are basically competent and if given a task will do a
good job.

N

Min

60

2

Max Average St. dev.
5

4,05

0,79

60

2

5

4,00

1,01

60

2

5

4,18

0,72

60

2

5

4,32

0,77

60

1

5

3,23

0,89

60

2

5

3,65

0,86

Source: Research of an Author, May, 2014

Table 7. The presence of a laissez-faire style of leadership in all businesses
together
N

Min

60

1

5

2,78

1,33

60

1

5

3,02

1,03

60

1

5

2,77

1,05

60

1

5

2,90

1,15

L 15. In most situations, workers prefer little input from the leader.

60

1

5

2,97

1,07

L 18. In general, it is best to leave subordinates alone.

60

1

5

3,17

1,12

L 3. In complex situations, leaders should let subordinates work
problems out on their own.
L 6. Leadership requires staying out of the way of subordinates as
they do their work.
L 9. As a rule, leaders should allow subordinates to appraise their own
work.
L 12. Leaders should give subordinates complete freedom to solve
problems on their own.

Max Average St.dev.

Source: Research of an Author, May, 2014

169

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Table 7 shows the answers of respondents, managers board members, questions which are evaluated to what extent you agree with the views that reflect
the laissez-faire leadership style. It May be noted that the respondents largely
agree with particles L 18. Generally, it is best to let subordinates to do their job
(average score 3.17) and L6. Superior should stay on the sidelines, while employees
perform their jobs (average score 2.3). Respondents are at least agree with particle L9. Rule is that a superior should be left to the employees themselves to assess
how well they have done their job. (average score 2.77). Standard deviations are
in the range 1.03 to 3.33, based on which it concludes that the average grade
representative.

Ivan Miloloža: RELATION OF LEADERSHIP AND BUSINESS PERFORMANCE: BALANCED SCORECARD PERSPECTIVE

.. The success of the company measured by a system of
balanced scorecard
Table 8 shows the answers of respondents, manager board members, questions which evaluated the performance of all companies along the measured
system of balanced scorecards while comparing the mean of answers from all
companies. It May be noted that respondents from all companies are considered
to be equally important particles F1. Profitability, F2. Realized gains and F3.
Return on investment within the dimensions of financial performance (average
score 3.50). Within the dimensions of market performance of participants of
all companies are most consistent with two particles (T1. Customer satisfaction
and T3. The quality of products / services; average score 4.20). Respondents
are most agree with particle P2. Innovation of products / services within the
dimensions of process performance (average score 4:00). Respondents from all
companies are considered to be equally important particles Z1. Staff competency, Z2. Application of new technologies and Z3. Organizational climate within
the dimensions of Knowledge and employees (average score 2.4).
Comparing these dimensions, it can be concluded that respondents largely
agree with particles T1. Customer satisfaction and T3. Quality of products
/ services (average score 4.20) within the dimensions of market performance
until at least agree with particle F3. Return on investment within the dimensions of financial performance (average score 3.52). For particles in the all four
dimensions of the performance, the standard deviations are in the range from
0.62 to 1.03, based on which it is concluded that the average score is representative. For all groups of indicators by dimensions of success, Cronbach’s alpha is
greater than or approximately 0.7, indicating their consistency.

170

Table 8. The success of all businesses together measured with system of balanced scorecard
N

Min

Max Average

St.dev.

F1. Profitability

60

2

5

3,533

0,833

F2. Actual Profit

60

2

5

3,500

0,893

F3. Return of the Investment

60

2

5

3,517

0,930

T1. Customer satisfaction

60

2

5

4,200

0,684

T2. Market Share

60

1

5

3,883

1,027

T3. Quality of the product / service

60

2

5

4,200

0,755

60

2

5

3,767

0,767

Cronbach’s alpha

Financial success
0,825

Market success
0,710

Process success
P1. The efficiency of internal processes
P2. Innovation of products / services

60

2

5

4,000

0,781

P3. Innovating internal processes

60

1

5

3,833

0,886

Z1. Employee competence

60

3

5

4,017

0,624

Z2. Application of new technologies

60

2

5

4,017

0,854

Z3. Organizational climate

60

2

5

4,017

0,748

0,717

Success of knowledge management
0,679

Table 9 shows the average value of the success measured with system of
balanced scorecard for all companies together. Highest average grade is for the
dimension Market (4.094), and dimension Finance (3.517) has the lowest average grade. Standard deviations are in the range 0.58 to 0.76, based on which
it concludes that the average grade representative.
Table 9. Average values by measuring the success with a system of balanced
scorecard for all companies together
N

Min

Max

Average

St.dev.

Financial average score

60

2,000

5,000

3,517

0,763

Market average score

60

2,333

5,000

4,094

0,664

Process average score

60

2,000

5,000

3,867

0,650

Knowledge average score

60

2,333

5,000

4,017

0,584

Source: Research of an Author, May, 2014

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Source: Research of an Author, May, 2014

Ivan Miloloža: RELATION OF LEADERSHIP AND BUSINESS PERFORMANCE: BALANCED SCORECARD PERSPECTIVE

.. Correlations
Table 10 presents Spearman correlation analysis of the authoritarian leadership style and BSC. Companies in which managers believe that „It is fair to say
that most employees in the general population are lazy” (L4) has lower results
in knowledge average score as well as in the indicator Z2. Implementation of
new technologies (as indicated by the negative correlation coefficient). Companies in which managers believe that „Most employees feel insecure about their
work and need direction.” (L10) has lower results in following indicators T2,
T3, Z1, Z2, and Z3, as well as market average score and knowledge average
score (as indicated by the negative correlation coefficient).
Table 10. Spearman correlation analysis of the Authoritarian leadership style
and BSC indicators
Authoritarian leadership style

BSC indicators

Spearman
correlation analysis

F1

Corr Coefficient

-0,046

 

Sig. (2-tailed)

0,725

F2

Corr Coefficient

0,013

 

Sig. (2-tailed)

0,920

F3

Corr Coefficient

0,059

 

Sig. (2-tailed)

0,656

T1

Corr Coefficient

 

Sig. (2-tailed)

T2

Corr Coefficient

 
T3

L7

L10

0,031

0,083

-0,096

0,205

0,144

0,816

0,530

0,467

0,116

0,272

0,002

0,111

-0,134

0,074

0,173

0,987

0,398

0,307

0,576

0,187

-0,043

0,059

-0,212

0,073

-0,058

0,746

0,657

0,104

0,582

0,661

0,140

-0,032

0,128

-0,224

0,228

-0,072

0,287

0,809

0,329

0,085

0,079

0,585

-0,091

-0,199

-0,008

-0,319(*)

0,198

0,043

Sig. (2-tailed)

0,488

0,127

0,950

0,013

0,129

0,744

Corr Coefficient

0,151

0,082

-0,179

-0,267(*)

0,152

-0,027

 

Sig. (2-tailed)

0,250

0,531

0,172

0,039

0,245

0,841

P1

Corr Coefficient

0,108

-0,056

0,159

0,046

0,023

0,113

 

Sig. (2-tailed)

0,412

0,671

0,225

0,729

0,859

0,391

P2

Corr Coefficient

0,077

-0,196

-0,099

-0,166

-0,032

-0,049

 

Sig. (2-tailed)

0,556

0,133

0,451

0,205

0,81

0,713

P3

Corr Coefficient

-0,066

-0,169

0,088

-0,13

-0,07

-0,055

 
 

Sig. (2-tailed)
Corr Coefficient
Sig. (2-tailed)

0,619
-0,209
0,110

0,197
-0,126
0,337

0,505
0,091
0,490

0,324
-0,306(*)
0,017

0,595
-0,042
0,752

0,679
-0,097
0,459

Z2

Corr Coefficient

-0,052

-0,499(**)

-0,067

-0,302(*)

0,095

-0,07

 

Sig. (2-tailed)

0,693

0,000

0,613

0,019

0,469

0,597

Z1

172

L1

L4

L13

L16

Z3

Corr Coefficient

-0,142

-0,124

0,048

-0,348(**)

0,105

0,079

 

Sig. (2-tailed)

0,278

0,346

0,714

0,006

0,427

0,548

Financial average Corr Coefficient
score
Sig. (2-tailed)
Market average
score

0,020

-0,011

0,115

-0,191

0,136

0,083

0,877

0,935

0,381

0,144

0,299

0,528

Corr Coefficient

0,022

-0,101

-0,050

Sig. (2-tailed)

0,867

0,442

0,705

0,005

-0,355(**) 0,262(*)

-0,014

0,044

0,914

Process average
score

Corr Coefficient

0,049

-0,148

0,041

-0,102

-0,04

-0,006

Sig. (2-tailed)

0,710

0,259

0,757

0,44

0,759

0,964

Knowledge
average score

Corr Coefficient

-0,148

-0,327(*)

0,000

-0,410(**)

0,069

-0,031

0,259

0,011

0,998

0,001

0,602

0,812

-0/+0

-2/+0

-0/+0

-7/+0

-0/+0

-0/+0

Sig. (2-tailed)
Total number of positive and
negative correlations

Table 11. presents Spearman correlation analysis of the democratic leadership style and BSC. Companies in which managers believe that Employees
want to be a part of the decision-making process (L2) also have higher score
of F2 (as indicated by the positive correlation coefficient). Companies in which
managers believe that Providing guidance without pressure is the key to being a
good leader (L5) also have higher score of Z2 (as indicated by the positive correlation coefficient). Companies in which managers believe that Leaders need
to help subordinates accept responsibility for completing their work. (L11) also
have higher score of P2 (as indicated by the positive correlation coefficient).
Finally, companies in which managers believe that It is the leader’s job to help
subordinates find their “passion.” (L14) also have higher score of F1, F2, and
Financial average score (as indicated by the positive correlation coefficient).

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Note: * statistically significant at 5%, ** statistically significant at 1%

Table 11. Spearman correlation analysis of the Democratic leadership style and
BSC indicators

Ivan Miloloža: RELATION OF LEADERSHIP AND BUSINESS PERFORMANCE: BALANCED SCORECARD PERSPECTIVE

BSC
indicators

Spearman
correlation analysis

Democratic leadership style
L2

L5

L8

L11

L14

L17

F1

Corr Coefficient

0,073

-0,081

0,119

0,126

0,305(*)

-0,03

 

Sig. (2-tailed)

0,578

0,538

0,363

0,339

0,018

0,821

F2

Corr Coefficient

0,264(*)

0,155

0,183

0,051

0,374(**)

0,036

 

Sig. (2-tailed)

0,041

0,238

0,162

0,699

0,003

0,786

F3

Corr Coefficient

0,023

-0,02

0,016

0,091

0,075

-0,063

 

Sig. (2-tailed)

0,862

0,878

0,904

0,488

0,571

0,632

T1

Corr Coefficient

0,131

0,089

-0,001

0,182

0,066

-0,035

 

Sig. (2-tailed)

0,318

0,498

0,993

0,164

0,617

0,788

T2

Corr Coefficient

0,061

-0,119

0,015

0,205

-0,033

0,185

 

Sig. (2-tailed)

0,644

0,366

0,911

0,116

0,803

0,157

T3

Corr Coefficient

0,082

-0,106

-0,113

0,079

-0,067

0,004

 

Sig. (2-tailed)

0,532

0,419

0,391

0,548

0,611

0,976

P1

Corr Coefficient

0,166

-0,009

0,047

-0,034

0,253

-0,082

 

Sig. (2-tailed)

0,206

0,946

0,72

0,795

0,051

0,534

P2

Corr Coefficient

0,100

-0,134

-0,039

0,258(*)

-0,012

-0,139

 

Sig. (2-tailed)

0,447

0,307

0,768

0,046

0,927

0,288

P3

Corr Coefficient

0,244

-0,006

0,089

-0,049

0,027

-0,192

 

Sig. (2-tailed)

0,060

0,963

0,497

0,708

0,837

0,141

Z1

Corr Coefficient

0,166

0,273(*)

0,048

0,043

-0,142

-0,098

 

Sig. (2-tailed)

0,206

0,035

0,718

0,742

0,28

0,458

Z2

Corr Coefficient

0,046

0,189

0,032

0,062

-0,143

0,12

 

Sig. (2-tailed)

0,728

0,149

0,811

0,641

0,277

0,359

Z3

Corr Coefficient

0,036

0,179

0,094

-0,117

-0,113

-0,117

 

Sig. (2-tailed)

0,787

0,170

0,474

0,372

0,388

0,372

Financial
average score

Corr Coefficient

0,149

0,015

0,094

0,106

0,278(*)

0,001

Sig. (2-tailed)

0,255

0,908

0,473

0,420

0,032

0,992

Market
average score

Corr Coefficient

0,103

-0,076

0,000

0,234

-0,022

0,087

Sig. (2-tailed)

0,435

0,564

0,999

0,072

0,869

0,51

Process
average score

Corr Coefficient

0,206

-0,126

0,034

0,047

0,098

-0,191

Sig. (2-tailed)

0,115

0,337

0,795

0,722

0,457

0,144

Knowledge
average score

Corr Coefficient

0,068

0,277(*)

0,053

-0,067

-0,177

0,023

0,604

0,032

0,69

0,609

0,175

0,861

+1/-0

+2/-0

-0/+0

+1/-0

+3/-0

-0/+0

Sig. (2-tailed)
Total number of positive and
negative correlations

Note: * statistically significant at 5%, ** statistically significant at 1%

174

Table 12. presents Spearman correlation analysis of the Laissez-faire leadership style and BSC. Companies in which managers believe that Leadership
requires staying out of the way of subordinates as they do their work. (L6) also
have lower score of P2 (as indicated by the negative correlation coefficient), but
int he same time higher score of Z3 (as indicated by the positive correlation
coefficient). Companies in which managers believe that as a rule, leaders should
allow subordinates to appraise their own work (L9) also have higher score of
T1 (as indicated by the positive correlation coefficient). Finally, companies in
which managers believe that in most situations, workers prefer little input from
the leader (L25) also have higher score of F3 (as indicated by the positive correlation coefficient).
Table 12. Spearman correlation analysis of the Laissez-faire leadership style
and BSC indicators
Spearman
correlation analysis

Laissez-faire leadership style
L3

L6

L9

L12

L15

L18

F1

Corr Coefficient

-0,166

0

-0,149

-0,183

0,136

-0,141

 

Sig. (2-tailed)

0,206

1

0,256

0,161

0,299

0,283

F2

Corr Coefficient

-0,18

-0,016

-0,142

-0,097

0,066

-0,15

 

Sig. (2-tailed)

0,168

0,906

0,28

0,462

0,618

0,253

F3

Corr Coefficient

0,029

-0,011

0,018

-0,191

0,365(**)

-0,083

 

Sig. (2-tailed)

0,824

0,932

0,889

0,144

0,004

0,529

T1

Corr Coefficient

-0,027

0,075

0,278(*)

-0,152

-0,094

0,104

 

Sig. (2-tailed)

0,836

0,571

0,031

0,246

0,476

0,43

T2

Corr Coefficient

-0,112

-0,077

0,167

-0,139

-0,090

-0,173

 

Sig. (2-tailed)

0,393

0,561

0,201

0,288

0,493

0,186

T3

Corr Coefficient

-0,119

-0,072

0,06

-0,253

-0,042

-0,098

 

Sig. (2-tailed)

0,367

0,584

0,651

0,051

0,748

0,455

P1

Corr Coefficient

-0,043

-0,02

0,041

-0,147

0,093

-0,03

 

Sig. (2-tailed)

0,745

0,881

0,758

0,262

0,480

0,820

P2

Corr Coefficient

-0,082

-0,257(*)

0,007

-0,074

0,021

-0,172

 

Sig. (2-tailed)

0,536

0,047

0,959

0,572

0,874

0,188

P3

Corr Coefficient

-0,035

-0,101

0,137

-0,17

0,186

0,095

 

Sig. (2-tailed)

0,789

0,444

0,297

0,195

0,156

0,47

Z1

Corr Coefficient

0,17

0,17

0,116

-0,166

0,073

0,155

 

Sig. (2-tailed)

0,193

0,195

0,379

0,206

0,579

0,238

Z2

Corr Coefficient

-0,114

-0,153

0,085

-0,164

0,072

-0,064

 

Sig. (2-tailed)

0,387

0,244

0,516

0,21

0,584

0,627

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

BSC indicators

Ivan Miloloža: RELATION OF LEADERSHIP AND BUSINESS PERFORMANCE: BALANCED SCORECARD PERSPECTIVE

Z3

Corr Coefficient

0,121

0,298(*)

-0,028

-0,245

0,081

0,1

 

Sig. (2-tailed)

0,358

0,021

0,829

0,059

0,538

0,448

Financial average
score

Corr Coefficient

-0,127

-0,012

-0,086

-0,183

0,229

-0,155

Sig. (2-tailed)

0,334

0,925

0,511

0,161

0,079

0,238

Market average
score

Corr Coefficient

-0,138

-0,057

0,159

-0,229

-0,143

-0,118

Sig. (2-tailed)

0,293

0,665

0,226

0,079

0,277

0,369

Process average
score

Corr Coefficient

-0,056

-0,152

0,045

-0,156

0,131

-0,046

Sig. (2-tailed)

0,668

0,247

0,733

0,235

0,318

0,727

Knowledge
average score

Corr Coefficient

Sig. (2-tailed)
Total number of positive and negative
correlations

0,071

0,12

0,067

-0,215

0,109

0,091

0,588

0,362

0,612

0,099

0,407

0,488

-0/+0

+1/-1

+1/-0

-0/+0

+1/-0

-0/+0

Note: * statistically significant at 5%, ** statistically significant at 1%

Table 13 provides the information on total number of statistically significant
Spearman correlation coefficients according to leadership style. Statements that
reflect authoritarian style had total number of 9 negative impacts to the business performance, and none positive. Statements that reflect democratic style
had total number of 6 positive impacts to the business performance, and none
negative. Statements that reflect Laissez-faire style had total number of 3 positive impacts to the business performance, and one negative.
Table 13. Total number of statistically significant Spearman correlation coefficients according to leadership style
Leadership style

Total number of positive and negative correlations

Authoritarian

-9/+0

Democratic

+6/-0

Laissez-faire

+3/-1

5.

CONCLUSION

Leaders contribute to the success of the organization on several levels: manage change, directing associates, leading to the resolution of the set goals, encourage others to fully use their skills and abilities (Locke and Latham, 1990;
Turkalj and Mujić, 2002). The aim of this study was to investigate the impact of
leadership on the performance of companies measured with system of balanced
scorecard in the Republic of Croatia.

176

The results showed that there is a correlation between leadership styles and
corporate performance measured with the method of balanced scorecard. It is
possible to conclude that authoritarian leadership style has in general negative
effect to the business performance of the Croatian companies, especially in the
field of knowledge management performance. On the other hand democratic
leadership style has in general positive effect to the business performance of the
Croatian companies, especially in the field of financial performance, but also in
the field of process and knowledge management performance. Impact of laissezfaire leadership style was the weakest. It can be concluded that it is necessary in
future research papers further investigate the impact of leadership on the company due to their size, stage of growth and international orientation.

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179

MANAGEMENT OF HUMAN
RESOURCES IN TOURISM
Sandra HERMAN, univ.spec.oec.
Faculty of Economics in Osijek, Republic of Croatia
hermansandra1@gmail.com

Abstract
Topic of this paper is human resources management in tourism with the aim of
increasing the quality of products and services and achieving greater economic
effects and competitiveness on the tourist market.
Whereas products and services in tourism highly depend on quality human
labor, the task of human resources management is to ensure high quality man
labor, and encourage it by motivation, education as well as with the possibility
of career advancement to maximal efficiency, and retention within the business
sector.
Sandra Herman: MANAGEMENT OF HUMAN RESOURCES IN TOURISM

The SWOT analysis in the paper shows all weaknesses and threats, but also
strengths and opportunities for improvement of characteristics and qualities of
job positions in Croatian tourism.
Quality human resources management in tourism contributes to increase of
economic performances and competitiveness on the tourist market.
Keywords: tourism, human resources, management, quality, competitiveness
JEL Classification: L83, O1, O15

180

1.

INTRODUCTION

Management of human resources is a complete and integrated system of
complex and interconnected initiatives, activities and tasks of the management
for purposes of ensuring an appropriate number and structure of employees,
their knowledge, skills, competence, interest, motivation and form of behavior necessary to achieve current developmental and strategies objectives of the
organization, to achieve sustainable competitive advantage and organizational
success (Bahtijarević-Šiber; 2014,5). Human resources in a certain company
don’t only apply to the number of employees on specific and foreseen positions,
but it also applies to a wide range of knowledge, abilities, skills, competencies
as well as personal characteristics of each and every employee which with all
the above mentioned factors contributes to overall success of the company. All
thise knowledge, skills but also characteristics of every single employee as well
as the interrelationships of employees are the subject of human resources management. Activities and tasks of human resources management are as follows:
ensuring human potentials (planning, attracting and recruitment, selection,
arrangement), maintenance of human resources (security and health, organizational culture, retention of employees, services to employees), motivation and
rewarding of human resources (monitoring and evaluation of work efficiency,
motivation, rewarding, benefits), professional training and development (education and training, development of human resources, career advancement, development of managers) (Bahtijarević-Šiber;2014,24).

181

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Socio-economic and technically-technological changes in the world also influence the changes in tourism and the development of modern tourism from
the mass tourism to specific interest tourism. Tourism is employing the increasing number of people and is of great economic significance for many countries
including Croatia. Tourism, being highly work intensive activity, has results
which are, for the most part, dependent on the quality of human resources. In
order to achieve and sustain optimal quality of work of every person working in
tourism it is necessary to manage people and their relationships within a work
organization, motivate them to work, educate them and evaluate their results
and accomplishments. Therefore it is important to manage them properly and
the management of all the employees in a company or an organization the responsible factor is the management of human resources.

The main objective of the human resources management is to ensure quality work force and provide it with stimulating work environment, training and
advancement because employee satisfaction contributes to increase in success
and competitiveness of the entire company, especially in tourism, because the
tourism is a work intensive activity in which its products and services are highly
based on the quality of human labor.

Sandra Herman: MANAGEMENT OF HUMAN RESOURCES IN TOURISM

2.

CHARACTERISTICS OF EMPLOYMENT AND
QUALITY OF JOB POSITIONS IN TOURISM

Tourism is an economic activity which generates the largest number of jobs.
As the success and results of work in tourism, for the most part, depend on
human resources, it is necessary to take into account quality and professional
work force which will be motivated to work and will contribute to success and
competitiveness of the company. However, as it has been stated, optimization
of tourism development will take place in the environment of the constant
counterpoint between the necessary increase of competitiveness which, among
other things also means the cost reduction, and work costs, and the expected increase in the employment which is important for standard growth and
overall improvement of the life quality for Croatian citizens (Bartoluci et al;
2007,29). These are the shortcomings of employment and quality of job positions in Croatian tourism. The main problems are incompetence, low wages,
insufficient motivation of employees, inability to advance and the accentuated
seasonality in employment along with the inability to become employed for the
unspecified amount of time. All of this often results in seasonal employment
of incompetent workers who are ready to work in difficult conditions for low
wages. This brings into question the quality of service in tourism, an economic
branch whose success and competitiveness is, for the most part, based on human resource.
In the following tables there are basic indicators of development of Croatian
tourism and employment in tourism based on the data of the National institute
for statistics and Croatian employment service, processed by the Institute for
economics and the Ministry of tourism.

182

Table 1. Basic indicators of development of tourism in Croatia
Number of overnight stays
(in mil.)
Profit from tourism (in billions
of EUR)
Share of the activity in the
GDP (in %)
Share of employees (% of the
total number)
Unit labor cost (kn per 1.000
units of GVA)

2008.

2009.

2010.

2011.

2012.

57,1

56,3

56,4

60,4

62,7

7,5

6,4

6,2

6,6

6,8

3,7

3,8

3,9

4,1

4,1

6,0

5,9

6,0

6,0

6,1

544,56

527,70

497,05

476,56

476,42

Source: Institute for economy Zagreb (2013), Sectorial analysis; no.19, year.

Table 2. Employees in tourism (2013.)
Working on specified Working on unspecified
amount of time
amount of time - seasonal
68
37

Graduated economist for hotel industry

72

Economist for tourism and catering

161

155

91

Tourist animator

57

56

38

Economist for hotel industry

34

33

17

Hotel and tourism officer

929

876

480

Receptionist

581

571

420

Assistant chef

1.603

1.554

1.009

Chef

4.186

4.040

2.648

113

110

68

Master chef
Assistant waiter

885

842

447

5.261

5.041

2.635

Bartender

81

80

48

Head waiter

63

60

33

Maid

1.841

1.834

1.495

Kitchen worker

1.418

1.396

1.037

Laundry woman

181

180

153

Waiter

Other occupations in tourism and catering

18.515

17.826

9.788

IN TOTAL

35.981

34.722

20.444

Source: HZZ (Ministry of Tourism,(2013),Tourism in numbers 2013.)

Based on the listed indicators we can conclude that the income from the
tourism hasn’t proportionally followed the growth of overnight stays. Tourism
is an activity which has generally increased its share in the economy, but the

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Total

share of tourism in Croatian GVA still isn’t at the level of other Mediterranean
destinations; in Spain and Greece tourism has 8% in the GVA (Institute for
economics;2013,5). The importance of tourism in the employment rate hasn’t
been changed for years and the share of the employees in this area in Croatia is
about 6%, whereas global trends show that the share of employment in tourism
in the total employment rate ranges from 10% (USA, Ireland, Netherlands) to
15% (Great Britain, Italy, Spain) which aligns with the share of tourism industry
in the GDP of these countries (Bartoluci et al;2007,29). The mentioned data
shows that real net and gross wages have fallen and are lesser than the national
average. An obstacle for this work intensive activity is the fact that wages are as
high as the 85% of the average Croatian wages, i.e. this activity sector is underpaid and increased growth of wages is certainly a factor which could contribute
to the quality of the tourist service (Institute for economy Zagreb;2013,6).
Below in the paper the SWOT analysis will present weaknesses, strengths,
opportunities and threats of the work places in tourism.

Sandra Herman: MANAGEMENT OF HUMAN RESOURCES IN TOURISM

Table 3. SWOT analysis of jobs in Croatian tourism
STRENGTH:

OPPORTUNITIES:

- increase in the number of tourists

-introduction of new programs and curriculum in
educational system

- increase in economic effects from the tourism
- increased growth in demand of work force in tourism
-investments of domestic and foreign capital, new
investments in tourism
-development of tourist economy
-opening of new work places
-entry of the Republic of Croatia in the EU; incentives
through different programs and employment measures,
retraining and life-long learning, programs and support
for development of new tourist product

-encouraging professional staff for purposes of work in
tourism
-introduction of human resources potential management
into companies
-enabling continuous professional training
-enabling employees to advance in their careers and to
create careers
-creating of positive and motivating work environment
by various incentives and benefits
- evaluation of success, rewards
-introduction of a program before and after the tourist
season; decrease of seasonality, increase of the number
of jobs for the unspecified time of work

184

WEAKNESSES:

THREATS:

-unqualified work labor

-little chance of employment for the unspecified time of
work because of the distinct seasonality

-low wages
-seasonality –employment on specified amount of time
-insecurity of employment
-poor working conditions

-low paycheck considering work conditions and
professional qualifications (unqualified work labor
crashes the cost of labor)

-prolonged working hours

-entrance in the EU has opened a market of goods and
services, but also a work market

-unmotivated employees

-better paid positions in the EU

-insufficient possibilities of professional training and
career advancement

-decrease in the quality of the offer and services due to
employment of unqualified and low paid work labor

-outdated programs and methods of work in nurture
and education for purposes of employment in tourism

Source: individual work of the author

According to the analysis of strengths, weaknesses, opportunities and threats
listed in the SWOT analysis of jobs in Croatian tourism, one can draw the conclusion that for development of tourism and achievement of economic goals extra capital investment and new investments are much needed, but what is even
more important for gaining competitive advantage, the increase in productivity
and survival on the tourist market, is definitely the investment in high quality,
educated, professional and motivated human resources.

HUMAN RESOURCE MANAGEMENT

As it has already been established in the paper, the key factor to success,
competitiveness and survival on the tourist market is definitely a human factor.
Human resources with its knowledge, skills, abilities and motivation contribute
to creation of new values on the market. Therefore, it is necessary for each company to introduce a system for management with the operations regarding human resources i.e. human resources management because managing work and
human resources is becoming a more and more important task in the management of modern business systems for all activities, especially for activities like
tourism in which it has a dominant role (Bartoluci; 2013, 343).
Human resources management in a certain business system includes all activities from planning, making choices, arrangement of human resources to certain
positions depending on the needs and the strategy of work and development in
the company, to influencing positive interrelationships between employees, cre-

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

3.

Sandra Herman: MANAGEMENT OF HUMAN RESOURCES IN TOURISM

ation of pleasant and motivating work environment, different incentives for increase of efficiency and giving its workers the possibility of constant professional
training, advancement and making a career within the company. Each business
system, i.e. each company has to have a clear strategy of its development and a
clear vision of achieving certain results and competitiveness on the market. In
systems and companies who are engaged in tourism, this strategy should, for the
most part, be related to human resources as one of the key factors in achieving
economic effects and competitiveness on the market. By doing so their motto can
be the saying of a well-known American hotelier, E. Stalter (1863-1928) which
states that the one who gives a little bit more and provides guests with a bit better
service is the one who will go forward (Stalter,Holjevac;2002,110). In order to
be able to provide guests with a bit better service and offer them something more,
what is necessary, is constant professional training and tracking of new trends in
supply and demand on the tourist market.
This is the reason why, professional training plays very important role in
the process of human resources management. Already in planning of human
resources it is essential to make a good plan about what type of and what degree of education, knowledge and skills are necessary for each position, and by
choosing employees the management should be guided by the above mentioned
criteria in order to reduce the fairly large amount of unqualified staff in tourism. Business systems and companies engaged in tourism should in their plans
definitely have vocational and professional training for their employees in order
to enable them to constantly acquire new skills and knowledge, and by doing
so, the management would increase the productivity and competitiveness of the
company itself. The employers need to be aware that spending money on constant professional training of their own employees doesn’t represent a cost but
and an investment into increase of performance and productivity.
Along with proper planning and possibility of training in the process of human resources management one very important role is also played by motivation and possibility of career advancement. There are different ways in which
employees can be motivated to reach better work efficiency and better goal
achievement. Motivation doesn’t necessarily have to be financial in terms of
salary increases, but it can also be related to other benefits like days off, paid
insurance, vacation trips etc. In order for an employee to be as efficient as he/
she can be, he/she has to work in a positive and pleasant environment, he/she
has to be aware of the meaning of his/her importance and the meaning of the

186

4.

CONCLUSION

In order for business systems and companies engaged in tourism to be successful, key factors have to be the product and service quality and competitive-

187

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

work he/she performs, as well as the consequences in case he/she doesn’t fulfill his/her obligations. The employee also needs to be able to express his/her
own ideas and visions and be able to make certain decisions on his/her own.
In order to achieve that, positive interrelationships between employees are very
important, especially the relationship between managers and employees. The
manager is a key figure in linking all of the above mentioned components important for successful human resources management with the aim of quality
and productive performance of business tasks, and in order to succeed the manager has to possess the following features: leadership, determination, flexibility,
organization, initiative, creativity and has to be prepared to take consequences.
A person with such features is able to assess, plan, choose, allocate and manage human resources well and have in mind that the ultimate goal is to achieve
productivity and competitiveness. In order to achieve maximum productivity
and competitiveness, along with planning, motivation and professional training, one other factor which is important, is monitoring and work evaluation of
each individual within the rewarding system, as well as the possibility for career
advancement and development. This is the component which is usually lacking
in our business systems and companies that work in tourism, which to a large
extent discourages young and educated individuals to work in tourism and it
often leads them to search for jobs in other business sectors, while on the other
hand contributes to employment of incompetent or low-skilled staff on certain
positions which directly influences the product and service quality. In all major tourism companies the development of motivation and rewarding system is
becoming the objective which enables the management to successfully manage
human resources. Management of human resources has the main objective to
win the people over and to ensure their development and stay within the organization (Bartoluci; 2011, 65-66). In other words the task of the management is
to ensure high quality and competent human resources and by proper management influence their happiness and motivation to work, because only satisfied
and motivated human factor influences the increase of quality, contributes to
success and competitiveness of the company on the tourist market.

Sandra Herman: MANAGEMENT OF HUMAN RESOURCES IN TOURISM

ness. By connecting different business operations in tourism one achieves increase in the efficiency and quality level of products and services. Management
in companies is mainly focused on profit and control of expenses and less attention is given to human resources management which is the crucial for creation
of quality products and generating quality services, upon which the success and
competitiveness of a certain company on the tourist market depends.
In Croatia the tourism is underlined as a strategic system of the economy
which in order to be profitable has to be competitive. Human resources are the
factor which contributes the most to success and competitiveness of the company on the tourist market. As already established in the paper, content and
motivated work force contributes to customer’s perception about the quality of
tourist product and services and they create a positive image for an organization. For achievement of company’s competitiveness the synergy between the
management and all employees is very important, as it serves to clarify business
goals and ways to achieve them, whereas the competence in the field of work of
every employee also plays an important role. Management needs the knowledge
to coordinate human resources, to use them effectively by creating positive environment, to motivate, to provide their employees with education and chance
to advance in their careers and it also needs to know how to maximize their
efficiency all with the aim to create better productivity and competitiveness of
the company.

References
Bahtijarević-Šiber,F.(2014), Strateški menadžment ljudskih potencijala, Školska knjiga, Zagreb
Bartoluci,M.(2013), Upravljanje razvojem turizma i poduzetništva, Školska knjiga, Zagreb
Bartoluci, M.,Čavlek,N.et al(2007),Turizam i sport-razvojni aspekti,Školska knjiga,Zagreb
Bartoluci,M.(2011), Acta Turistica Nova, Vol 5, No.1,pp.1-142
Stlater,E.,Holjevac,A.(2002.), Upravljanje kvalitetom u turizmu i hotelskoj industriji,
Opatija:Fakultet za turistički i hotelski menadžment
Ekonomski institut Zagreb(2013), Sektorske analize,br.19,god.2, Dostupno na:www.
eizg.hr/hr-HR/Sektorske-analize-993.aspx, (SA_turizam_ozujak-2013.pdf ), Preuzeto:
(02.04.2015.)
Ministarstvo turizma (2013), Turizam u brojkama 2013, Dostupno na: business.croatia.hr/
Documents/3256/Turizam-u-brojkama-2013.pdf , Preuzeto: (02.04.2015.)

188

THE STOCK PHOTOGRAPHY
AS A PART OF CULTURAL AND
CREATIVE INDUSTRIES OF THE
DIGITAL AGE
Zorislav KALAZIĆ, M.Sc.
Ph.D.Student, Faculty of Economics in Osijek, Croatia
zorislav.kalazic@gmail.com

Jasna HORVAT, Ph.D.
Faculty of Economics in Osijek, Croatia
jasna@efos.hr

Josipa MIJOČ, Ph.D.
Faculty of Economics in Osijek, Croatia
jmijoc@efos.hr

Photography of the digital age has lost the properties of a physically tangible
product and has become intellectual property. Simultaneously with this process,
the process of transition of photography into a mass-produced good has taken
place. Market demands towards photography as a product of mass consumption
often reduce the aesthetic and artistic standards that have been set by its development period in the process of photography coming to life as a medium. Despite
the negative effects that accompany the transition of photography in its process of
transformation into a mass-produced good, even such photographic “products”
are able to encourage to a particular activity and ultimately generate revenue for
numerous industries standing in the background of the “photography-product”.
Production and distribution of stock photographs1 is one of the derivates of the
1

Stock photography derives from the word „stock“ and implies the sale/rent of an already existing photograph, which was not taken according to the customer’s order. On the other hand, the use of stock

189

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Abstract

Zorislav Kalazić • Jasna Horvat • Josipa Mijoč: THE STOCK PHOTOGRAPHY AS A PART OF CULTURAL AND CREATIVE INDUSTRIES OF THE DIGITAL AGE

digital age in which business in the domain of production of photographs is expanded to their distribution to users of websites and/or digital communication
channels. In doing so, websites are at the same time used as distribution channels
for photography as a creative product. Such symbiosis of photography – means
of communication and network space – communication space – allows business
association of these communication subjects and their new perspectives in the
digital age. The Internet is becoming a bridge for photography, which allows it to
cross into a new dimension, thus expanding its production and sales capacities.
After the first 100 years of photography as a medium, its new forms of existence
are just being unfolded. It is important to point out that stock photography has
an important role in cultural and creative industry, which is currently in the
phase of being formally defined in the Republic of Croatia.
Keywords: stock photography, visual content industry, cultural and creative
industries, digital imagery
JEL Classification: Z1, Z19, L82

INTRODUCTION
Although 100 years have passed since the discovery of photography, the
communication power of photography as a medium gets new dimensions in
the digital age. The global age uses photography as an easily understandable
universal communication language without mediation of the textual message.
Photography is globally omnipresent today for several reasons:
1. For the same price, digital photo cameras today allow taking higher quality of photographs than ever before. Britton & Joinson (2012)
2. Minimal technical knowledge is required for photographic recording due
to sophisticated electronics built into the latest cameras Clark (2008)
3. Once taken, photographs are distributed via internet quickly, securely and
without financial demands.
4. Computer applications (Photoshop2 and related software) are important
and accessible tools for digital processing of the photographed content.
photographs is determined by the customer, but the stock photograph still remains the property of
the person (physical or legal) who holds the copyright of the photographs.
2

An image editing software developed and manufactured by Adobe Systems Inc. Photoshop is considered one of the leaders in photo editing software. The software allows users to manipulate, crop,

190

5. Human brain decodes visual content much faster than textual content
(Hand 2014).
This paper analyses the situation in the stock photography market and possible future photography trends.

1.

STOCK PHOTOGRAPHY

Stock photography derives from the word „stock“ and implies the sale/rent
of an already existing photograph, which was not taken according to the customer’s order. On the other hand, the use of stock photographs is determined
by the customer, but the stock photograph still remains the property of the person (physical or legal) who holds the copyright of the photographs. Stock photography as an independent industry has emerged in the 70s of the last century,
and is based on the sale of the copyright to reproduce photographs. Relations
between the stakeholders in this industry are as follows:
- Agencies are intermediaries between photographers and customers
- Customers are:
• Journal editors
• Book editors
• magazine editors
• Graphic and web designers
Before the appearance of the stock photography phenomenon, customers had
to order photographs and there was a long delivery period. The point of the
stock photography business is that it enables the client to select and immediately
buy the desired photograph, which was taken in advance and stored in agency
database. A customer can easily find the desired photograph using well-defined
keywords, since the photograph was already taken in advance and stored in the
database. Before, customer had to order the photograph, and a there was a long
period of waiting until the delivery. Photographs in the digital age are becoming
affordable due to mass production. However, photographers still manage to generate sufficient revenues because they can repeatedly sell the same photograph
resize, and correct color on digital photos. The software is particularly popular amongst professional
photographers and graphic designers.

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

•...

Zorislav Kalazić • Jasna Horvat • Josipa Mijoč: THE STOCK PHOTOGRAPHY AS A PART OF CULTURAL AND CREATIVE INDUSTRIES OF THE DIGITAL AGE

to different customers who purchase them for different purposes. Therefore, in
addition to technical and aesthetic value of photographs, in the stock business it
is of utmost importance that the photographer successfully defines the keywords
that describe individual photographs. In this way photographer helps the customer to search the content, i.e., with well-defined keywords, customer can easily
find the desired photographic content by using internet browsers.
The object of the sale is the photograph that the customer selects when he
has already defined the objectives in advance – in what way will they affect the
viewer.
„Commercial digital imagery consists of licensed photographs, illustrations
and video clips that companies use in their visual communications, such as websites, digital and print marketing materials, corporate communications, books,
publications and video content.“ Shutterstock (2013:3)
Photographs in marketing systematically affect consumer awareness, influencing their decisions and forming habits. Despite the negative effects that accompany the transition of photography in its process of transformation into a
mass-produced good, even such photographic „products“ (stock photographs)
are able to encourage to a particular activity and ultimately generate revenue for
numerous industries standing in the background of the „photography-product“.
According to Frosh (2001:3) „Stock photography is a global business that manufactures, promotes and distributes photographic images primarily for use in
marketing promotions, packaging design, corporate communications and advertising.“ While Glückler & Panitz (2013a:3) define the stock image market „As
the business of licensing pre-produced visual/ audio-visual content for specific
uses.“Still images (photos) account for 94 per cent of total image stock, while
moving images (video footage) and other images represent 3 per cent. Production and distribution of stock photographs is one of the derivates of the digital
age in which business in the domain of production of photographs is expanded
to their distribution to users of websites and/or digital communication channels.
Retouching is a major use of digital imaging for stock. It’s easy to remove
a blemish that makes stock less saleable…Another common use of digital retouching is to add background to enhance the shape of a photo...But the most
exciting aspect of imaging is the ability to create new, unimagined photos.
The end users are often not aware of the origin of photographs that surround
them. Particularly surprising and worrying is the fact that the most scholars of

192

contemporary photography, visual culture, advertising and consumer culture
also ignore the theoretical study of the stock business, with rare exceptions being Miller (1999), Frosh (2003) and Glückler & Panitz (2013).
The stock photography market is based on the interaction of its three stakeholders: photographers, intermediaries and users – mutually dependent on
each other (Sheme 1).
Sheme 1. Stakeholders in the stock photography market
Photographers

A
Agencies
- in
ntermediate
image
suppliers
Image userrs - news media,
adveertising
and
pub
blishers 

2.

PHOTOGRAPHERS AS CREATORS OF VISUAL
CONTENT OF CULTURAL AND CREATIVE
INDUSTRY

The task of the photographer is to capture a successful stock photograph
that conveys a direct message to the observer, which can be a thought or a concept. So, whoever publishes that photograph communicates with the observer
through a concept. And that concept can be ideas or feelings. For example, if
we enter words „new ideas“ into a stock agency’s search engine, majority of the
photographs will show the household light bulb. Such visual communication
is appropriate for all cultures and the majority of observers will understand
the sent message, and thus Sontag (1977:48) has concluded that „The painter
constructs, the photographer discloses.“ Abbott (1989) has added that photography helps people to see. The task of commercial stock photography is to affect consumers’ awareness exclusively in the way desired by the sender of visual

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Source: Authors

Zorislav Kalazić • Jasna Horvat • Josipa Mijoč: THE STOCK PHOTOGRAPHY AS A PART OF CULTURAL AND CREATIVE INDUSTRIES OF THE DIGITAL AGE

content – the ultimate goal is the purchase of their product or service. That
is why Frosh (2001:635) concludes that „Photographers and agencies also are
themselves responsive to changes in cultural trends.“ Dijck (2008) continues by
stating that digital cameras, camera phones, photo blogs and other multipurpose devices are used to promote the use of images as the preferred idiom of a
new generation of users. Successful stock photo, then, is a term that authorizes
and executes the twin attributes of Adorno and Horkheimer’s (1979) culture
industry: standardization and pseudo-individuation.
Furthermore, Frosh (2003:59) published: “As contracted freelancers, photographers are only paid when their images are sold. Without the benefit of
an income unrelated to immediate sales, they are therefore discouraged from
undue experimentation, it being far less risky to produce technically competent
variations of an already successful formula.“
In the context of commercial use, photography is increasingly seen as a raw
material for some future image, which will be created by combining several different photographs and text. The success of a stock photograph can be very
simply tracked according to the number of sales it has generated, and thus also
the revenue it has brought to its author. The same photographs can be sold to
different users several thousand times. This data is publicly available on agency
websites, and therefore such photographs become success stories, i.e., become
the subject of detailed analyses through which photographers are trying to figure out the reason for their commercial success. The above is one of the most
common reasons for plagiarizing successful stock photographs, where because
of the lack of creativity and uniqueness, photographers plagiarize each other in
order to achieve quick profits.
The market set-up in this way, in which photography is more popular, accessible and cheaper than ever, has resulted in the emergence of top amateur and
professional photographers and the reason for their excellence lies in the availability of quality cameras. it is also important to mention that technical support
has facilitated the learning process, which comes down to the „trial and error“
principle (taking the photograph – observing the image on the screen – decision – and the photograph is accepted, or taken again).
Most professional photographers are dissatisfied with the direction of the
development of the stock photography market that has occurred in the 21st century. According to discussions of the stock photographers’ community on so-

194

cial networks, many excellent creative people ignore the whole business because
they do not want to sell their works at a price of only $0.25 and up.

In relation to professional photographers, amateurs are in a more favourable
position, because their professional career does not depend on income from the
sale of photographs, and their interest is often satisfied with self-promotion in
photographic circles. Observed in this way, amateurs in the stock photography
business constitute unfair competition for professionals and directly endanger
their careers. Due to immense supply of photographs in the market, agencies
are in a position to constantly raise the quality criteria, which are hard for some
to follow. On the other hand, digital technology enables amateurs to take photographs of professional quality, and they are becoming a major threat for the
professionals. According to the Pareto principle, 20% of the highest quality
photographers create 80% of the best-selling visual content. Accordingly, the
Microstock agency (2013) has announced that out the total number of their
registered contributors, as much as 73% of photographers are amateurs, while
stock photography is the main source of income for 17% of photographers. The
levels of financial performance of these two groups would be an interesting topic for some future research.

3.

AGENCIES

One of the first major stock photography agencies was founded in 1920 by
H. Roberts, which continues today under the name RobertStock. Over time,
agencies have become increasingly sophisticated, they are trying to monitor and
anticipate the needs of the advertising industry, and then obtain precisely defined photographs from photographers, which will be ready for sale in advance.
The first wave of interest into stock photography by individual freelance amateur and hobbyist photographers started in the 1980s, spurred on by the publication of a book series “Sell & Re-Sell your Photos” by Engh R. In the 1990s,

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Stock photography is only a minor activity for amateurs, where, e.g. on a trip
or an afternoon stroll, they take some dozen photographs, which they can monetize, but the key is that they do not depend on that revenue. Therefore, image
prices can vary widely depending on criteria such as image size, file format, intended use, download frequency and type of contributor. Based on the author’s
insight in the prices of photographs in microstock agencies, it can be concluded
that these prices usually do not exceed $10.

Zorislav Kalazić • Jasna Horvat • Josipa Mijoč: THE STOCK PHOTOGRAPHY AS A PART OF CULTURAL AND CREATIVE INDUSTRIES OF THE DIGITAL AGE

a period of consolidation followed, with Getty Images and Corbis becoming
the two largest companies as a result of acquisitions. But the real revolution of
stock photography began with the mass use of the internet and digitalization of
photography, when it lost the properties of a physically tangible product and became intellectual property. Internet is becoming a bridge for photography, which
allows it to cross into a new dimension, thus expanding its production and sales
capacities. Today, it is a fact that stock photography could not exist in its present form without internet, meaning that a symbiosis of photography – means
of communication and network space – communication space – allows business
association of these communication subjects and their new perspectives in the
digital age. In the year 2000, the iStockphoto agency began selling photographs
for only $1, which has irreversibly changed the market. There is a mass production of cheap and quality photo cameras of high resolution, because of which
amateurs have offered large quantities of commercial photographs.
According to price range of photographs they offer in the market, there are
two groups of stock agencies:
a) Microstock agencies
that sell the rights to use of photographs for as low as $1-10, and they have
a large number of photographers with whom they collaborate, including amateurs. Copyright licenses of those images are mostly royalty-free, which means
that the same photograph can be sold countless times to different users. The
first such agency was iStockphoto, and later established were Fotolia, Depositphotos, 123RF.com, Can Stock Photo, Dreamstime, Shutterstock, etc. Testifying to the scope of this business is the fact that in December of 2014 global
software giant Adobe purchased the Fotolia agency for dizzying $800 million.
If it is known that agencies own mainly intangible assets (database of photographs, contracts with customers and contributors and company’s goodwill),
it is evident what kind of business potential does the stock photography have.
Frosh (2003:58) states that „One of the fundamental commercial premises
of stock photography, allowing photographers and agencies to make money
while charging lower prices than for assignment photographs.“
b) Macrostock agencies
They operate in the traditional way; they offer quality personalized service
and meet the customers’ strict specific requirements. The two largest macrostock agencies are Corbis and Getty Images.

196

They are used by customers that can afford to do so financially, or do not
have the time to personally search databases. These agencies exclusively sell
copyrights for the exclusive use of the content, rights-managed. For example,
it would be insulting for a pharmaceutical company if they would find out they
are using the same photograph as a competitor. The prices of photographs range
from $100 to $10,000. These agencies mediate exclusively with top artists of or
photographers specialized for strictly specific or scientific motives, e.g., taking
photographs of rare animal species.

According to research by Glückler & Panitz (2013b) 4 types of agencies
have been segmented according to their specialities, and the Sheme 2. shows
modes of operation of stock photography agencies:
a) Classic agencies receive the relative majority of their images from original
creators and generate more than 50 per cent of their revenues with final
image users.
b) Collector agencies also receive the relative majority of their images from
original creators but realize the majority of revenues through sales partnerships with other agencies.
c) Distributor agencies receive the relative majority of their images from
partner agencies and generate more than 50% of their revenues with final
image users.
d) Go-between agencies that receive and sell the majority of images from
and through partner agencies.
Sheme 2. Modes of operation of 4 types of stock photography agencies

Source: Glückler & Panitz (2013c)

Glückler & Panitz (2013a) furthermore conclude that, looking geographically, 68% of all agencies are concentrated in Germany (31%), United Kingdom

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Thinking about such creative people, (Frosh 2002:7) concludes that „Artists
have that rare ability to think visually and communicate visually.”

Zorislav Kalazić • Jasna Horvat • Josipa Mijoč: THE STOCK PHOTOGRAPHY AS A PART OF CULTURAL AND CREATIVE INDUSTRIES OF THE DIGITAL AGE

(19%) and the U.S. (18%). If these countries are joined by Switzerland (6%),
France (4%) and China (2%), these countries make up the list of the 6 most significant countries in the stock business. Approximately 1.5 million photographs
is the average portfolio of an agency, but as much as 50% of agencies are small
and have only about 100,000 photographs. This shows a strong concentration
in the market. Eleven of the largest agencies (5%) offer as many as 189 million photographs, which accounts for over 50% of the total supply. In terms of
license models, rights-managed photography (RM) takes share of (62%), while
royalty-free photography (RF) contributes 22 per cent to total sales. Out of the
total revenue, the largest expenses for the agencies are the payments to photographers, which amount to about 24 % of total revenues. According to agencies’
annual reports, it can be assumed that European and U.S. agencies today offer
about 600 million photographs. 20% of those agencies create 80% of total revenues. An interesting assumption is that only 18% of total annual image growth
represents original content and the rest are duplicates because photographers
usually offer the same content for sale in 4-5 different agencies.
Technological development of digital photography has enabled end users to
purchase photographs at prices that are lower than ever before in history, and
the market is growing dramatically each year. Published financial statements of
the Shutterstock agency (2013) at the Grafics 1.show the trends in demand for
visual content:
Grafics 1. Shutterstock annual revenue 2009-2013
250
200
150
100
50
0

Million $

2009.

2010.

2011.

2012.

2013. 

Source: Shutterstock Annual report (2013:10)

Sheme 3. shows that agency has 50,000 contributors-photographers, and as
many as 900,000 customers who annually buy 100 million downloads, which
they pay $ 236 million, which represents an annual revenue growth of 39%.

198

Sheme 3. Key data on operations of the Shutterstock agency in 2013.
50,000
approved
contributors

39%
annual revenue
growth

$236 million
revenue

900,000
active, paying
users

100 million
downloads

Source: Shutterstock Annual report (2013:6)

4.

BUYERS OF PHOTOGRAPHS
Demand for commercial digital imagery comes primarily from:
a) Businesses: Large corporations, small and medium-sized businesses and
sole proprietorships that have marketing, communications and design
needs.
b) Marketing Agencies: Creative service providers such as advertising agencies, media agencies, graphic design firms, web design firms.

Modern agencies can accurately adjust their offer to the wishes of a particular customer. New smart technology records searches and purchase history, and
leaves a digital footprint in the agency’s system. Suppliers systematically analyse
the history of internet searches, and through special algorithms are able to detect customers’ future preferences and offer personalized results according to
the expected needs of each customer. According to Glückler & Panitz (2013b),
only 21% of agencies are using such mechanisms so far.
The use of language is crucial for the search and selection of visual content.
English is dominant and the vast majority, as much as 85% of agencies, according to Glückler & Panitz (2013b), offer their photographs in English. Due to
high demand for photographs in Germany, it is not surprising that 40% of agencies also offer their photographs in German, while only 13% do it in French. It
is interesting that 74% of agencies from non-English speaking countries offer

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

c) Media Organizations: Creators of print and digital content, from large
publishers and broadcast companies to professional bloggers.

Zorislav Kalazić • Jasna Horvat • Josipa Mijoč: THE STOCK PHOTOGRAPHY AS A PART OF CULTURAL AND CREATIVE INDUSTRIES OF THE DIGITAL AGE

their content also in English, while only 10% of Anglophone agencies offer content to customers in other languages. This fact confirms English as the dominant language in the industry of visual content.

5.

STOCK PHOTOGRAPHY MARKET

The first global research on stock industry was conducted in 2012 at the
Heidelberg University. Glückler & Panitz (2013a) conclude that today in the
world there is a total of 2,439 for-profit image suppliers. Furthermore, it is evident that Europe is the global hub for the collection of original content from
creators around the world.
Majority of photographers in the stock business are located in Europe, they
record mainly for European and U.S. agencies, and they create 80% of the visual content. U.S. agencies buy 8 times more (31,400 photographs) in Europe
than Europeans do in the U.S. (4,000 photographs). But Asian, Latin American, African and Australian creators do produce their images basically for European image agencies. Europe is the only region that delivers content to all
world regions and at the same time is the most important regional partner for
the other regions. As a result of this composite estimation approach, it can be
spoken of $2.88 billion gross global revenues in the stock image market in 2012.
Glückler&Panitz (2013a).
The Shutterstock agency has collected even more ambitious data, so that
they estimate that the market for pre-shot commercial digital imagery will grow
from approximately $4 billion in 2011 to approximately $6 billion in 2016,
based on a study conducted on our behalf by L.E.K. Consulting LLC. (Shutterstock 2013).
„In the last five years to 2015, the number of public websites has grown
an average rate of 43% annually to more than 785 million“, according to news.
netcraft.com (2015). It is expected, therefore, that the sales of photographs will
also grow, because communication and creativity are cheaper than ever before.
According to BIA/Kelsey Company (2015), „More than 32% of small and
medium-sized U.S. businesses, or SMBs, surveyed do not yet have a website.
Therefore, they estimate that SMB advertising spending on online digital media
will increase from $5.4 billion in 2010 to $16.6 billion in 2015, representing a
compound annual growth rate of 25%.“

200

Interesting is the emergence of web portals that offer download of visual content completely free of charge: e.g. Freeimages was launched in February 2001
as an alternative for expensive stock photography, there are over 2,500,000 registered users and around 400,000 high quality and high resolution photographs.
Stock photography also successfully exists as a part of the cultural and creative industry in the Republic of Croatia. According to the UNCTD report
(2013), this is important because countries with a high concentration of cultural and creative industry have the highest rate of growth of the economy, their
stakeholders are the biggest drivers of innovation, and as such they start new
cycles of growth of mature industries, they are a valuable tool for the development of identity and attractiveness of each country, they are accelerators of
development of cities. According to the characteristics of the market, Glückler
& Panitz (2013c) classify Croatia as part of the group of Eastern Europe and
Asian countries. Categories of customers are the same as in foreign markets,
and photographers are selling their photographs through European and U.S.
agencies, because domestic agencies do not yet exist.

SWOT analysis of the stock photography market

STRENGTHS
Constant growth of the stock photography market.
Quick, easy and inexpensive distribution of digital
content over the internet.
Thousands of photographers as agency
contributors are eager for additional earnings and
affirmation.
Cameras are of very high quality and affordable.

OPPORTUNITIES
There are businesses without web pages.
Increasing quality of photographic equipment of
the future will enable recruiting of new
generations of photographers in the stock
business.
Creation of specific niches that will be accessible
to a narrow circle of specialized photographers.

WEAKNESSES
Agencies are lowering photographers'
commissions, but it is necessary to set the lower
limit, since otherwise the system could collapse.
Plagiarism of others' content leads to
impersonality.
Constant demands for raising the criteria of quality
of photographs.
Danger of filling up the database to the point when
new photographs will no longer be necessary in
such numbers.

THREATS
The offer of free photographs is increasing.
The demand for aternative visual content is
increasing (vector drawings and stock video
content).
Possibility of a sudden drop in the market after
several years of continuous growth.
Theft and unauthorised use of photographs.
Establishment of photographic associations in
order to avoid agencies as intermediaries.

Source: Authors

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Sheme 4. SWOT analysis of the stock photography market

Zorislav Kalazić • Jasna Horvat • Josipa Mijoč: THE STOCK PHOTOGRAPHY AS A PART OF CULTURAL AND CREATIVE INDUSTRIES OF THE DIGITAL AGE

7.

DISCUSSION

Since the beginning of the 21st century, the stock photography market has
been in constant growth, and hundreds of thousands of photographers are active contributors to stock agencies. Technological advances in the production of
photographic equipment have enabled amateurs to catch up with professionals,
and this phenomenon is going to continue as it is expected that the quality of
photographic equipment will continue to increase in the future. High demand
for visual content is predicted in the coming years, since according to research,
e.g. more that 32% of small businesses in the U.S. still do not have webpages
and that market niche represents a business opportunity for further growth.
Also, agencies require strictly specific motives, where there is still a lack of quality photographs, which expands possible activity of photographers who offer
their stock photographs.
In their desire for the highest possible profit, stock agencies systematically
lower the share of commissions that they pay to photographers, while on the
other hand, due to high influx of stock photographs, the level of quality that is
required from the providers of stock photographs is increasing.
Also, it is just a question of time when some of databases will become filled
up to such an extent that out of the content offered, only exceptionally highquality work will be received and accepted for (re)sale. Each new stock photograph will be competing with millions of already stored photographs. In the
end, it is evident that only after its first 100 hundred years photography has entered its golden age. But the real significance of the impact of stock photography
on cultural and creative industry of the digital age still has to be explored, and
open questions of copyright protection, fair and healthy market competition,
and possibilities for future networking – both of professional businesses and
professionals and the stock photography content.

REFERENCES
Abbott B. (1989) Berenice Abbott: An American Matter, ASMP Bulletin, Oct 1989.
Adorno, T. W. & Horkheimer, M. (1979) Dialectic of Enlightenment Verso, London, pp.
120-4.
Britton B.& Joinson S.(2012) Why buy a digital SLR? http://www.dpreview.com/articles/9566705626/buying-a-digital-slr (accesed 08.02.15)

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Dijck, van J. (2008) Digital photography: communication, identity, memory, Visual Communication February 2008 7: 57-76
Clark R. (2008) http://www.clarkvision.com/articles/digital.sensor.performance.summary/(accesed: 23.01.15)
Eavis D. http://www.business2community.com/infographics/everyone-can-make-moneyvideos-photos-infographic-0938944 (accesed: 23.01.15)
Engh R.,(2003) Sell & Re-Sell Your Photos, Writer’s Digest Books; Fifth Edition edition
Frosh P.,(2001) Inside the image factory: stock photography and cultural production, Media
Culture Society September 2001 vol. 23 no. 5 625-646
Frosh P., (2002), Picturing the digital info Pixel, Photografic Archives and Visual Content
Industry, The Institute for Advenced Studies in Humanities, The University of Edinburgh
Glückler J, Panitz R. (2013) Survey of the Global Stock Image Market 2012. Part I: Regions,
Trade, Divisions of Labor. Heidelberg: GSIM Research Group
Glückler J, Panitz R. (2013) Survey of the Global Stock Image Market 2012. Part II: Regions, Trade, Divisions of Labor. Heidelberg: GSIM Research Group
Glückler J, Panitz R. (2013) Survey of the Global Stock Image Market 2012. Part III: Regions, Trade, Divisions of Labor. Heidelberg: GSIM Research Group
Hand M.(2014), Digitization and Memory: Researching Practices of Adaption to Visual
and Textual Data in Everyday Life, Emerald Group Publishing Limited, pp.205 – 227
http://blogs.photopreneur.com/(accesed:20.02.15.)
http://www.businessdictionary.com/definition/Photoshop.html#ixzz3WvXj8Swe01.02.15
http://www.freeimages.com/help/1(accesed:15.03.2015)
http://www.unesco.org/culture/pdf/creative-economy-report-2013.pdf
(accesed15.03.2015)
Keightley, E. (2014), Technologies of memory: Practices of remembering in analogue and
digital photography Pickering, Michael. New Media & Society. Jun2014, Vol. 16 Issue 4,
p576-593. 18p.
Pickerell J. (2012) Making Stock Photography Profitable, http://www.selling-stock.com,
30.03.2015.
Sontag, S. (1977) On Photography, Penguin, London
UNCTD report (2013), CreativeEconomyReport, United Nations Conference on Trade
and Development

Lara Jelenc • Slavomir Vukmirović • Zvonko Čapko: FIRM’S STRATEGIC THINKING IN THE CONTEXT OF BUSINESS INFORMATIZATION

FIRM’S STRATEGIC THINKING
IN THE CONTEXT OF BUSINESS
INFORMATIZATION
Lara JELENC, Ph.D., Assistant professor
ljelenc@efri.hr

Slavomir VUKMIROVIĆ, Ph.D., Full professor
vukmirovics@gmail.com

Zvonko ČAPKO, Ph.D., Associate professor
zvonko.capko@efri.hr

Faculty of Economics in Rijeka
University of Rijeka

Abstract
This paper discusses the factors of business change management in the context
of transition from traditional to computerized business systems. The factors
of change management are presented as a firm’s strategic characteristics in
the context of the relationship between traditional and computerized business
management. The purpose of the research is the systematization of strategic
characteristics of business informatization, and ranking and positioning of
strategic characteristics in the context of competitive relationship between traditional and computerized business management. The aim of the research is
to select and systematize strategic elements of business informatization into a
small number of features that can be grouped as common factors according to
certain criteria.
The interdependence of strategic characteristics was established based on a factor analysis. This method was applied to real data obtained through business

204

informatization questionnaires. During our study on strategic characteristics
of business informatization, we collected data from 41 large and medium-sized
companies in Croatia in the period from 2011 to 2014.
The study included 15 strategic characteristics of business systems that were
considered in the context of the factors of change management. Factor analysis
of the data was performed using SPSS 21.0, and systematized into five steps:
1. The first step was the reduction of the number of attributes and determining
the initial results to extract factors.
2. The second step was defining the factor matrix after rotation of the factors.
3. The third step was the interpretation of the extracted factors.
4. The fourth step included testing for significance of results by determining the
values of Cronbach’s alpha coefficient.
5. The final, fifth step was the post-optimal analysis.
By arranging the factors into groups we have focused on key areas of activity. We have also discussed various approaches to strategic thinking in the
context of business informatization when combined with different levels of
competitiveness.
Keywords: strategic thinking, change management factors, factor analysis of features of computerized business management, business systems,
competitiveness

1.

INTRODUCTION

The goal of enterprise informatization is to achieve higher level of fit, alignment and efficiency producing better, higher level of quality and profitable results. ICT management and strategy activities are and should be developed hand
in hand- as natural synergy (Whittington, 2014). The sign of collaboration is
synergy reflected as the competitive advantage in relation to direct competitor.
IT solutions mirror the complex structure of reality and therefore its implementation is demanding. The cost of maintaining such solutions within the
company can be justified only with the continuous proof of value added to current market, competitor and customer expectations. Therefore it is in a continu-

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

JEL Classification: L1, D8, M15

Lara Jelenc • Slavomir Vukmirović • Zvonko Čapko: FIRM’S STRATEGIC THINKING IN THE CONTEXT OF BUSINESS INFORMATIZATION

al push of improvement, adjustment with fewer costs. The perceived value of IT
solution depends on the organizational structure for accepting change, accepting new technological solutions and accepting new ways of business models.
The aim of this paper is to denote the strategic thinking within the context
of level of IT development within the companies. The strategic thinking represents the way companies treat strategic factors known for contributing to the
enterprise information system. The strategic factors are recognized as the main
factors of change and can be grouped depending on the relevance. Additionally,
we analyze strategic level of informatization, as a sign of development, on specific strategic factors in the context of IT processes in the Croatian companies.
With this article we contribute to the literature of strategic thinking in IT
sectors in two ways. Firstly, we define strategic thinking by grouping the strategic factors of similar IT development characteristics. Therefore we offer new
insights for initial stage of implementing any of the suggested framework for
enterprise informatization on strategic level. Secondly, we presented the results
of research in Croatian firms.
The aim of the research is to identify, systematize and analyze strategic factors, and define basic business strategy features from the perspective of the
transition from traditional to computerized business systems, using empirical
methods and strategic thinking approach. Pursuant to the research problem
and purpose, the following hypothesis has been proposed: identification, systematization and analysis of strategic factors, and identification of the main
strategic features of business process informatization to manage the transition
from traditional to computerized business systems and achieve a higher level of
strategic IT development in companies.
The paper is structured in six interrelated parts. In the first section, the introduction, we elaborate the purpose, objectives and methodology of research. The
second part discusses the significance of strategic development of business process informatization. In the third section, we define and describe strategic factors
of business process informatization that affect the effect of moving from traditional to computerized operations. The fourth part presents and analyzes the
results of the analysis of strategic factors from the perspective of the relationship
between traditional and computerized operations. In the fifth part, we systematize strategic factors and identify strategic characteristics of business process informatization. The conclusion summarizes the main ideas of our work.

206

2.

THE MEANING OF STRATEGIC
INFORMATIZATION DEVELOPMENT OF
BUSINESS SYSTEM

Strategy is an organizational process-oriented task of gathering resources,
focusing on priorities and delivering results. Strategic thinking denotes the activity of gathering insights which represent the core of the future strategy. It
is recognized that idea created outside existing mental model represents the
core of competitive advantage if developed and implemented in the proper way.
Strategic thinking can be understood as seeing, a combination of numerous perspectives, which perceive the problem from different points of views Mintzberg
(Mintzberg, Ahlstrand, Lampel, 1998, p.128):
• Seeing ahead- see the future of the firm,
• Seeing behind- understands the roots of today in the past,
• Seeing down- perceive the big picture of the problem,
• Seeing below- inductive thinking from close relations,
• Seeing beside- lateral thinking, challenging conventional wisdom,
• Seeing beyond- inventing the world by putting the ideas into the context, and
• Seeing it through- understanding things deeper as presented.

The marriage of strategic planning and information systems was set in the
two books in mid 70-ties, Strategic Planning of Management Information System by Siegal (1975) and Strategic Planninng for MIS by McLean et al. (1977).
Information systems qualified for the source of competitive advantage of the
companies (Peppard, Galliers, Thorogood, 2014) and it is recognized for having the ability to shape the strategy of a business. Clemens and Row rose the
contribution of IT to sustainability of competitive advantage; it does need organizational infrastructure (Kettinger et. al, 1994), an IS strategic platform (Ross
et. al. 1996) while IT alone is not enough (Powell, Dent-Micallef, 1997).
Information technology qualified for the source of added value and it is recognized for being a key factor for contributing to sustainable business performance in Croatian companies. In order to become a strategic factor for business
success, IT should be intensely involved in business processes and gradually

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

This article follows the strategic thinking as seeing below and seeing it through.
Strategic thinking is depicted as the gathering of certain factors, their grouping
and looking closer at their mutual interactions.

Lara Jelenc • Slavomir Vukmirović • Zvonko Čapko: FIRM’S STRATEGIC THINKING IN THE CONTEXT OF BUSINESS INFORMATIZATION

grow into a business technology, whose main goal is not only to support the
business, but also allow that it exists.
A change from information technology (IT) to business technology (BT) is
certainly a lot more than just a change of acronyms. At its core it is a change in company culture which involves not only the IT department and its employees, but
the entire organization, from the board of directors over the senior management
to the lowest level employees (Sesvećan; 2008). Managers are becoming aware
that information system activities are not separate and unrelated to other enterprise activities. Incorporating IT investment in business development budget, being well-informed and closely cooperating in implementing projects through project methodology is guarantor of success. This leads to easier understanding and
communicating management ideas and company goals such as: optimizing costs,
increasing productivity, improving business processes. The strategic integration
of business systems and information systems based on sophisticated information
and communication technologies (ICT) as a function of the synergistic development and use of business applications is becoming a necessity (Evello; 2012).
The development and use of new technologies in business allows us to leave
the cooperative form of cooperation (division of labor, where each person is
responsible for a certain part of the job) and is increasingly being replaced by
collaboration (joint work with a view to resolving any problems).
There has never been a bigger need for changing quickly in executing business processes with respect to the period of traditional business systems where
it was enough to plan changes for one, three or five years to come. Lengthy time
interval is contrary to the rapid changes in the business environment and focused processes become less critical, and replaced with new (Hammer, Champy;
1993). As conditions of business informatization development change, more
flexibility and adaptivity is required in linking with potential and active
partners in business environment. Ability of reconfiguring relevant business
processes on organizational level as well as inter-organisational processes and
activities in a changing business environment is critica (Vukmirović, Čapko;
2009). Strategic computerized business system based on the sinergy of iterative
and incremental approach is focused on anticipating the changes in business
environment and proactive functioning.
Companies that are able to adapt their information systems to new paradigms of strategy-oriented computerized business processes that rest on infor-

208

mation and knowledge, through a series of generally simple applications enable
rapid sharing of knowledge both among employees and between the organization and its environment. In fact, this type of applications is based on cooperation and dynamism, the ability to easily connect and transfer information in
new contexts, which contributes to the openness of the enterprise and its better
perception of customer needs. Changing from a complex technical system to a
user-oriented system that offers business applications which are synergistically
linked and integrated into business is likely to be reflected in a flexible and adaptive organization that will allow rapid knowledge exchange and dissemination
among managers and employees. At the same time, computerized operations
would not completely replace traditional business; information systems should
be able to provide greater flexibility and faster restructuring depending on the
changes in the environment.
Concepts of traditional and computerized enterprise are not independent,
but rather complementary to each other. This means that the concepts of computerized enterprises to a lesser extent replace, and more complement the concepts of traditional enterprises.

STRATEGIC FACTORS OF BUSINESS SYSTEMS
INFORMATIZATION

Factors affecting change management from traditional to computerized
business have been systematized according to research findings presented within E2 Conference on innovation management using business apps. Strategic
factors of business systems informatization were analyzed from the perspective
of traditional and computerized business using rating scale method.
Table 1 presents comparative features of traditional and computerized business, mutually opposing or complementary to each other (can also be used in
combination and synergy). Directions and intensities of strategic factor orientation towards computerized or traditional business can be determined on the
rating scale (5- 0 - 5). High numbers mean a strong focus on the features of the
left or right side, while scores in the middle or going down to zero mean more
moderate orientation with the possibility of combining the opposite features.
It should be noted that the concepts and technologies of traditional and computerized business are not mutually exclusive but can build on and complement

209

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

3.

Lara Jelenc • Slavomir Vukmirović • Zvonko Čapko: FIRM’S STRATEGIC THINKING IN THE CONTEXT OF BUSINESS INFORMATIZATION

each other, and they can operate simultaneously. For example, when speaking
of resource, information and knowledge do not exclude the use of capital, labor, material and financial resources, but they build on and complement them.
Or, in terms of relationship between people and technology, technology can be
alternately encouraged and driven by users and IT experts. Indeed, closer cooperation between users and IT experts is likely to be reflected in a higher level of
business development.
Table 1: Strategic factors of business systems informatization
Computerized business

No. Main features

Traditional business

1

Purpose

Growth, Size

2

Resource

Capital, Labor, Material Resources Information, Knowledge

3

Motive

Short-Term, Profit

4

Success, Actions, Results

6

Environmental relation
Competition
Objectives and manner of
Efficiency, Execution of Tasks
functioning
Functioning in an environment Procedural, relatively fast

7

Strategy

Production in line with market needs

8

Business perspective

Business function

Business process

9

Organizational unit

Department

Cross-functional team

10

Focus for employees

Supremacy, Competitiveness

Participation, Cooperation

11

Business tasks

Closely defined

Flexible, Comprehensive

12

Complex technical system

Business apps

Technology driven by IT experts

Technology driven by users

14

Information systems
Relationship between people
and technology
Openness of enterprise

Departments and clear boundaries Unmarked boundaries

15

Value chain

Supplier and consumer oriented

5

13

Production Planning

(e-business)
Development, Quality
Long-Term, Success
Cooperation

Flexible, Adaptive, Momentary (Prompt)

Business oriented

Source: As modified by the authors acc. to: Enterprise 2.0 Conference, May 2009, http://
www.e2conf.com/about/what-is-enterprise2.0.php

4.

RESEARCH METHODOLOGY AND RESULTS

This chapter presents and analyzes the results of the study of the strategic
factors that influence enterprise informatization. In the study data were collected by a questionnaire on strategic factors affecting IT development in Croatian
companies. Data from 50 large and medium-sized companies in Croatia were
collected in the period from 2011 to 2014, of which a total of 41 companies

210

responded to all questions. Based on the findings we were able to analyze the
strategic factors determining the level of IT development from the perspective
of the transition from traditional to computerized business systems. The strategic factors were systematized, using a factor analysis method, enabling us to
identify key strategic features of enterprise informatization.

.. Analysis of strategic factors from aspect of
interrelationshipbetween traditional and
computerized business
Table 2 presents research findings on strategic factors of business systems
informatization, conducted on a sample of 50 companies. It reveals factor positions from the perspective of the transition from traditional to computerized
business systems. In this context, in order to be able to reliably define factor
positions, several statistical indicators have been calculated such as mean value,
standard deviation, median, mode, rate, interval and level of significance.

No
1
2
3
4
5
6
7
8
9
10
11
12

Factors
Purpose
Resource
Motive
Environmental relation
Objectives of functioning
Functioning in an envinronment
Strategy
Business perspective
Organizational unit
Focus for employees
Business tasks
Information system
Relationship between people
13
and technology
14 Openness of enterprise
15 Value chain

AS
2,05
1,56
2,70
0,30
1,40
1,70
1,80
1,60
-0,70
1,50
0,44
2,40

STDEV
2,27
1,90
2,40
2,70
2,30
2,40
2,60
1,90
2,90
2,80
3,10
2,10

Med
2,00
1,00
3,00
0,00
1,00
2,00
2,00
1,00
0,00
2,00
1,00
3,00

Mod
0,00
0,00
5,00
0,00
0,00
0,00
5,00
0,00
0,00
4,00
4,00
4,00

Percent
22%
39%
36%
17%
27%
29%
22%
17%
29%
18%
18%
24%

Interval
1,3 - 2,8
1,0 - 2,2
1,9 - 3,5
-0,5 - 1,2
0,7 - 2,2
1,0 - 2,5
1,0 - 2,7
1,0 - 2,2
-1,6 - 0,2
0,7 - 2,4
-0,5 - 1,4
1,7 - 3,0

Sig.
.000
.000
.000
.459
.000
.000
.000
.000
.151
.001
.373
.000

0,80

3,10

0,00

0,00

20%

-0,1 - 1,8

.093

-0,50
-0,80

2,70
2,80

0,00
0,00

0,00
0,00

22%
22%

-0,9 - 0,8
-1,7 - 0,2

.908
.100

The table reveals that most of the strategic factors that affect enterprise informatization incline us in a varying extent to computerized operations. As indicated by all calculated statistical indicators, strategic factors that fully incline
us to computerized operations are motive (3) and information systems (12).
Also, we have been able to identify strategic factors that incline us to a lesser

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Table 2: Strategic factors affecting business systems within the context of IT
developement in companies

Lara Jelenc • Slavomir Vukmirović • Zvonko Čapko: FIRM’S STRATEGIC THINKING IN THE CONTEXT OF BUSINESS INFORMATIZATION

extent to traditional business such as organizational unit (9), openness of enterprise (14) and value chain (15).
As Table 2 shows, there are two categories of change management factors that
can be denoted as dichotomous factors and synergy factors. In dichotomous factors, two directions of orientation are expressed: a) towards traditional business
and b) towards computerized business. Synergy factors reveal a synergy of traditional and computerized operations that can be recognized in those features
where arithmetic mean equals to or is close to the mean value of 0. In other words,
arithmetic mean value may not be a sure indication that the assessment tends towards zero. For example, company A can evaluate one factor by score of +5, and
company B by score of -5, where the arithmetic mean would produce a neutral
value of 0, with the factors being assessed by end values. It is therefore an important indicator of the number of companies that marked the 0 value. Accordingly,
strategic factors that are affecting business systems informatization can be systematized into two categories: 1) shift factors, and 2) synergy factors.
Shift factors indicate hierarchical relationship between variables of traditional and computerized business being identified as different levels of strategic IT development. This means that variables of enterprise informatization
are at higher levels of the hierarchy with respect to the variables of traditional
business.
Information system is an example of shift factor. From the viewpoint of traditional enterprise information system functions as a complex technical system,
while from the viewpoint of computerized enterprise it is recognised as a system of integrated business applications, as can be seen from the table, revealing
a hierarchical relationship between traditional and computerized business. The
goal is to achieve a shift from complex technical system to integrated business
applications.
When speaking of synergy, both traditional and computerized business
strategies are complementary to each other and interdependent. This means
that variables of traditional and computerized business function synergically at
the same level. An example of synergy feature is resource. From the viewpoint of
traditional enterprise main resources are capital, labor and material resources,
while computerized enterprises focus on information and knowledge. A key
factor for the optimal and efficient use of resources is their mutual compatibility and synergy.

212

.. Identifying basic strategic attributes of business
systems informatization by using factor analysis
Systematizing strategic factors and identifying basic strategic attributes of
business systems informatization was done by using factor analysis. Data from
41 large and medium-sized companies in Croatia were collected in the period
from 2011 to 2014. In the survey questionnaire respondents were invited to
assess features of the enterprise in terms of relationship between traditional
and computerized business processes by bolding or underlining the appropriate
response. Based on the analyzed data, factors were complementary and comparatively systematized and analyzed.Table 3 presents the results of factor analysis
after performing all methodological optimization steps.

We applied oblimin rotation as oblique rotation method wherein factors are
interrelated (angles between axes may be different than 90 degrees). A saturation of the two strategic factors was observed such as environmental relation
and business perspective, split into two components which reduce the internal
reliability. Therefore, they were excluded from further analysis. Systematization
of factors based on post optimal analysis is as follows: the first component is
strategic value declaration, the second is operations, the third is attitude and the
fourth is the velocity.
The first component does not correspond to classical strategic issues, rather
to the declaration of values on which they founding their business. It implies
wheather they base their operation on quality, knowledge, long-run business
or fast growth, capital, short-run and profit. This findings are similar to the
classical notion of strategic management literature. The second component- operations- is about ways how to implement the strategic declaration. It implies
the ways how to bring value to the customer and be pertained for the market.
It consist of the decision how to organize the flow of work, the relation toward
technology and value chain producion for maximizing customers satisfaction.
This component is related to the never ending problem of high rate the failure
of strategy implementation that is usually overlooked in practice. - attitude

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Table 3 shows that attributes within factors have a satisfactory measure of
correlation, that confirms the reliability of research. Value of coefficient Cronbach a> 0.6010 represents an acceptable level of reliability in research (Fulgosi;
1988).The high value of total coefficient Cronbach a (0,803) which is calculated and shown in the table 3. confirms the reliability of the questionnaire used.

Lara Jelenc • Slavomir Vukmirović • Zvonko Čapko: FIRM’S STRATEGIC THINKING IN THE CONTEXT OF BUSINESS INFORMATIZATION

toward the strategic declaration and the way the operations are set in place. It
consists of the way people collaborate and how is the information system set
for the information to flow within the organization. This result is important
focus of organizational behavior literature. The last, forth component is about
velocity of perceived changes and the way it reacts on changes within the firm
or in the relation with the environment The dynamic environment is setting
the scenary for all the competitive firms that would like to compete and survive
on the market. Change management is the crucial moment in leading the firm.
Table 3: Factor analysis of strategic factors
Strategic factors*

Component
Component 1

Mission

,882

Motivation

,872

Resource

,769

Component 2

Business tasks

,757

Organizational unit

,734

Value chain

,663

Component 3

People-technology relation

,551

,423

Firm openeness

,349

-,324

Information system

,849

Employee focus

,783

Goal and way of operating

,380

Mode of operating
Production policy
Cronbach alpha
(for all 0.803)
Sum
Number
Mean

Component 4

,675

,454
,751

-,428

,671

,801

,720

,728

,621

258

-11

160

205

3

5

2

3

6,29

-,275

3,904

5

Std. Deviation

5,631

10,07

4,369

5,834

Variance

31,712

101,487

19,090

34,05

N=41. Extraction Method: Principal Component Analysis. Rotation Method:
Oblimin with Kaiser Normalization. Rotation converged in 11 iterations. Supressed values less than 0.30. Bartlett’s Test of Sphericity sig. 0.000. KaiserMeyer-Olkin Measure of sampling adequacy: 0.639. Variance explained 37,717
percent.
Source: Empirical analysis

214

Based on a postoptimal analysis, the strategic factors have been systematized
as follows: I) Strategic Value Declaration, II) Operations, III) Attitude, and
IV) Velocity. The table shows that the strategic factors are grouped in strategic features as follows: 1) Strategic Value Declaration (Mission, Motivation,
Resource), 2) Attitude (Business tasks, Organization, Value chain, Relationship between people and technology, Openness of enterprise), 3) Operations
(Objectives and manner of functioning, Functioning in an environment, Strategy) and 4) Velocity (Information systems, Focus for employees).

5.

CONCLUSION

Research conducted on the basis of data collected on a sample of 50 companies and using the multivariate analysis method enabled us to reduce a large
number of original attributes to a small number of attributes of common features, which lead to the shaping of factors. Based on the factor matrix made after
completion of the oblimin rotation, we were able to establish that attributes
indicated five immeasurable groups of attributes grouped into factors. Four factors have been extracted from the perspective of strategic business features: 1)
Value, 2) Attiude, 3) Operation and 4) Velocity.
The findings will be used in further research which is aimed at recognizing
and using strategic business features as the function of strategic IT development and the transition from traditional to computerized enterprise.
On the base of research, presented in this paper, we proposed the four components of strategic factors that influence the business level informatization.
The following components are the component of strategic declaration of value,
component of operations, component of attitude and component of velocity,
depicted by Croatian firms interviewed in our research project. The components of the strategic factors partially correspond to the classical approaches in
building enterprise architecture (Zachman, 1996) by answering the question
of what, how, where and when. The research could be directed toward deeper

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

This paper presents methodology of empirical research on strategic development and management of enterprise informatization. Identifying main strategic
features of business systems informatization can be useful from the perspective
of managing the transition from traditional to computerized business processes
and achieving a higher level of strategic IT development.

Lara Jelenc • Slavomir Vukmirović • Zvonko Čapko: FIRM’S STRATEGIC THINKING IN THE CONTEXT OF BUSINESS INFORMATIZATION

insight of wheather this way of grouping factors is the path toward competitiveness and successful long-run business operations by comparing financial
and non financial data from firms in the region. The paper suggested hints for
setting the strategic thinking priorities like strategic declaration of values, operations, attitude and velocity issues that should be taken into account when
managing business informatization in the firm.

References
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Enterprise 2.0 Conference, May (2009).
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Fulgosi, A. (1988). Faktorska analiza, Školska knjiga, Zagreb
Hammer, M., Champy (1993). J., Reengineering the Corporation: A Manifesto for Business
Revolution, Harper Business
Kettinger, W.J., Grover, V., Guha, S., Segars, A.H. (1994). Strategic information systems
revisited: a study in sustainability and performance. MIS Quarterly 18 (1), pages: 31–58
McLean, E., Soden, J., Steiner, G. (1977). Strategic Planning for MIS. John Wiley & Sons
Inc., New York
Mintzberg, H., Ahlstrand, B. W., Lampel, J. (1998). Strategy Safari : A Guided Tour
Through the Wilds of Strategic Management,Prentice Hall
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Powell, T.C., Dent-Micallef, A. (1997). Information technology as competitive advantage:
the role of human, business, and technology resources. Strategic Management Journal 18
(5), pages 375–405
Ross, J. [et all] (1996). Develop long-term competitiveness through IT assets. Sloan Management Review 38 (1), pages 31–42
Sesvecan, V. (2008). Sve će više informaticara postajati glavni direktori, Poslovni dnevnik,
Zagreb, URL:/www.poslovni.hr/85153.aspx
Siegel, P. (1975). Strategic Planning of Management Information Systems, Petrocelli Books,
1975
Vukmirović, S., Čapko, Z. (2009). Informacijski sustavi u menadžerskom odlučivanju, Ekonomski fakultet, Sveučilište u Rijeci, Rijeka
Wittington, R., (2014). Information Systems Strategy and Strategy-as-Practice: A joint
agenda, Journal of Strategic Information Systems, Volume 23 Issue 1, March, 2014, pages
87-91

216

RELATIONAL NETWORK,
ABSORPTION CAPACITY AND
ACCESS TO EXTERNAL RESOURCES
BY TUNISIAN CONTRACTORS
Adel GHODHBANE
Faculty of Economics and Management,
University of Sfax, Tunisia
adelghodbane@gmail.com

Habib AFFES
Faculty of Economics and Management,
University of Sfax, Tunisia
habib.affes@yahoo.fr

This paper will try to analyze the impact of relational network characteristics
on the absorption capacity and the external resources of contractors. The originality of our approach lies in the choice of the context in which our empirical
analysis is applied, and relative to the Tunisian context. In addition, a range
of theoretical approaches are integrated that have examined the links between
absorption capacity and relational network.
Keywords: Relational network, absorption capacity, external resources,
Tunisia.
JEL Classification: M12; M14.

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Abstract

1.

INTRODUCTION

Adel Ghodhbane • Habib Affes: RELATIONAL NETWORK, ABSORPTION CAPACITY AND ACCESS TO EXTERNAL ...

Many studies have shown the essential role played by personal networks of
contractors in the elimination of informational and institutional gaps and in the
mobilization of external resources (Lallement and Bevort 2006; Mercklé 2004;
Lazega, 1999).
Furthermore, the literature clearly indicates that the social capital or the
resources that contractors can access through their personal networks (Adler
and Kwon, 2002) allows contractors to identify opportunities (Bhagavatula and
al. 2010), mobilize resources (Batjargal, 2003). A branch of this literature has
highlighted the network structure (Stam, 2010), while other branches have focused instead on the strength of network ties of contractors (McEvily and Zaheer, 1999) or resources from the various synergies characterizing the network
(Batjargal, 2003).
However, in order to realize the gains from “learning feed-forward” (Dutta
and Crossan 2005), the knowledge must be successfully transferred from people who possess to the organization as a whole. In addition, knowledge alone is
not enough, the company should be able to use and act on the knowledge gained
from its environment (Dutta and Crossan, 2005). Information and knowledge
held in functional silos do not contribute to the success of the company, because
the company in this example lacks the capacity to exploit.

2.

CONCEPTUAL FRAMEWORK OF THE
ABSORPTION CAPACITY

Zahra and George (2002) characterize the absorption capacity as a dynamic
capacity, it is a process at the organization which enables to change and evolve as
required by reconfiguring its resources in a way that best meets the current and
projected needs. The absorption capacity meets this criterion, since it involves
in part the acquisition and assimilation of knowledge. Thus, knowledge enables
the organization to adapt and evolve (Forsgren and al 2005, Gunawan and
Rose, 2014 ,Zahra and George, 2002).
Some researchers, however, argue that “... the absorption capacity still lacks
a solid foundation in the theory ...” (Camisón and Forés 2010, p. 708). To this
end, Cohen and Levinthal (1990) offer perhaps the most widely cited definition of absorption capacity, seeing it as the company’s ability to develop, acquire

218

and apply new knowledge. In addition, Mowery and Oxley (1995) define the
absorption capacity as a broad set of skills to deal with the tacit component
of transferring knowledge and the need to change this imported knowledge.
It is agreed that the absorption capacity is a multidimensional concept involving the ability to assess, assimilate and apply knowledge (Cohen and Levinthal,
1990) or a combination of bases of effort and knowledge (Mowery and Oxley
(1995). With respect to absorption capacity in the transfer of knowledge within
the company, Liu (2012) found a relationship between absorption capacity and
learning, while Yao, Yang, Fisher, Ma and Fang (2013) found a relationship between effective absorption of knowledge and creation of new products. Szulanski (1996) identifie the lack of absorptive capacity as the main obstacle to the
transfer of best practices within the company.

Many studies published to date agree that the absorption capacity is a multidimensional concept (Cohen and Levinthal, 1990; Lane and Lubatkin 1998;
Todorova and Durisin 2007; Xia and Roper, 2008 and Zahra and George,
2002), but set a different number of dimensions with different content. There is
no consensus among researchers to determine the number of phases that make
up the building to investigate.
Cohen and Levinthal (1990, p. 128) define absorption capacity as “the ability
to recognize the value of new information, assimilate it and apply it to commercial use.”
The authors establish three dimensions, corresponding to the three capabilities that arise from this definition. The first is the ability to recognize the value
of new external knowledge. For effective and creative use of new knowledge by
learning business, factors that facilitate the recognition of the value of external
knowledge must have both common knowledge bases prior to new knowledge
and a part of the knowledge of the company that is completely different.

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Based on a review of the relevant literature, the absorption capacity can be
defined as a set of processes by which firms acquire, assimilate, transform and
exploit knowledge to produce a dynamic organizational capacity of four dimensions. Each dimension appears to play a different but complementary role in the
relevant organizational results (Zahra and George, 2002). The main interest of
this research is the extent to which the absorption capacity helps to produce a
significant and valuable advantage for the company.

Adel Ghodhbane • Habib Affes: RELATIONAL NETWORK, ABSORPTION CAPACITY AND ACCESS TO EXTERNAL ...

Second, the company must be able to assimilate new external knowledge.
Once the company has identified the useful external knowledge, it must determine how to internalize. It will be easier for a company to assimilate the
knowledge of another if processing systems of knowledge of both companies are
similar. Third, the company must be able to market the new external knowledge.
The subsequent study of Lane and al. (2001) expands and improves considerably the components of the three dimensions, in the framework of international joint ventures. The first dimension, qualified the ability to understand
the knowledge, depends on the trust between the parties, cultural compatibility,
basic knowledge, and the relationship between the activities of both parties.
The second dimension, the ability to assimilate new knowledge, depends on
the flexibility and adaptability, management support, training and official targets and specialization of parties involved in the exchange of knowledge. Finally,
the third dimension is the ability to apply external knowledge.
After empirical refinements, Lane and al. (2001) leave open the possibility
that the absorption capacity is composed of only two different dimensions. This
is the case because their findings lead them to say that the first two components of the ability to understand and ability to assimilate external knowledge
are independent and different from the third component, the ability to apply
that knowledge. Therefore, the absorption capacity might have two dimensions.
These results are supported by Heeley (1997), which take into account only
two components, the acquisition of external knowledge and its dissemination
to the company.
Zahra and George (2002, p. 198), however, distinguish four dimensions,
which coincide with the phases of the absorption capacity. These authors suggest that the absorption capacity “is a set of organizational routines and strategic
processes by which firms acquire, assimilate, transform and exploit knowledge
for a value creation.” Thus, the first dimension is the acquisition. This dimension was initially identified by Cohen and Levinthal (1990) as recognition of
the value. Zahra and George (2002) redefined the term, focusing not only on
the evaluation of the use of knowledge, but also their transfer from one company to another.
The second dimension is the assimilation. In this phase, the goal of the company is to understand the external knowledge through its own specific routines.

220

To assimilate knowledge and obtain benefits, members of the organization
must interpret and understand this knowledge to finally learn.
The third dimension is the transformation. To this end, capacity of transformation is the internalization and conversion of new knowledge acquired and
assimilated. It seeks to combine existing knowledge with newly acquired ones.
This ability is related to the recognition of entrepreneurial opportunities.
The fourth and final dimension is exploitation. This dimension is strategic
for a company because it generates results after the effort to acquire, assimilate
and transform knowledge. The exploitation is the development of routines to
implement and use the knowledge and thus create new products, systems and
processes (for example, new forms of organization) and improve existing skills,
or even create new skills.
Each dimension plays a different but complementary role to explain how the
absorption capacity may influence the results of the organization.

Todorova and Durisin (2007) propose to reconceptualize the absorption
capacity of long-term by making some changes in the definition proposed by
Zahra and George (2002) and therefore in its dimensions. They show that the
recognition of the value as a critical first step in the acquisition of new external knowledge is a term much clearer, because it is based on the idea initially
proposed by Cohen and Levinthal (1990) that if there is no prior knowledge,
organizations will not be able to evaluate the new information and thus, will not
be able to absorb it.
Moreover, the authors argue that the transformation is an alternative and
not a later stage of assimilation. The transformation occurs only with the
knowledge that is too recent to be considered in its raw state.
Finally, Lichtenthaler (2009) distinguished between three learning processes
that are complementary to the absorption capacity: First, exploratory learning
which comprises the steps of recognizing external knowledge and assimilation.
Next, learning processing which includes the steps of maintaining assimilated
knowledge and its reactivation. Finally, the operational learning that includes
the steps of transmutation and application of assimilated knowledge. Although

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Jansen and al. (2005) took over the dimensions proposed by Zahra and
George (2002) and conclude that the absorption capacity has two different components which correspond to the potential and the actual absorption capacity.

these steps were analyzed in previous research (eg the research of Lane and al.,
2006; Todorova and Durisin 2007; Zahra and George, 2002), how to group
them is differently analyzed.

Adel Ghodhbane • Habib Affes: RELATIONAL NETWORK, ABSORPTION CAPACITY AND ACCESS TO EXTERNAL ...

3.

RELATIONAL NETWORK AND ABSORPTION
CAPACITY: FORMULATION OF HYPOTHESES

In what follows, we will examine some ways in which each of the four dimensions of relational network acts on the access of the contractor on external
resources and its absorption capacity.
Greve (1995) argues that a higher number of contacts in the relational network of the contractor increases the possibilities to receive diverse information. The author admits that the intentional search for information is difficult
and that luck is needed to obtain useful information. However, the diversity
of information within a broad network increases the chances of the existence
of a similarity between the stock of knowledge held by the contractor and the
knowledge that it can be obtained from the outside. This similarity is necessary
for the absorption of external knowledge in that it facilitates its acquisition, assimilation, transformation and exploitation (Cohen and Levinthal, 1990; Lane
and Lubatkin, 1998). However, if a minimum of diversity is valued for improving the absorption capacity of the contractor, a wide variety of links leads to
fragmentation of knowledge that prevents the development of heuristics for its
treatment. Then, it would be legitimate to think that beyond a certain limit,
the diversity of the relational network of the contractor hinders his absorption
capacity. Hence, the following assumptions:
H.1: The network size determines the capacity to absorb external knowledge of
contractors.
Furthermore, based on the argument of redundancy, Burt (2001) argues
that network density improves communication between members who are best
placed to recognize the value of resources held by the partners. In this same line
of thought, (Reagans R. & E. Zuckerman, 2001) argue that the importance of
the amount of information that a dense network creates helps members to value
the knowledge circulating in the network. Also, Eriksson and Sharma (2003)
find a positive relationship between redundant links and assimilation of knowledge by the contractors.

222

The authors propose a redundant link is useful for understanding and assimilation of knowledge acquired in another relationship. However, studies
by Granovetter (1982) and Rogers, Everett M (1983) show that low-density
networks are more favorable to the spread of new ideas and the diffusion of
innovation. Thus, the network members would be more likely to find new solutions to their problems from the experiences of other members and new ideas
generated by them. Finally, the increased communication between partners in a
dense network increases the chance that the knowledge gained to better target
the receptor partner objectives and therefore, leads to a good exploitation of
knowledge. In addition, redundant links within the network increases the circulation of skills that members need to achieve their goals. Hypothesis about
the impact of the network density on the absorption capacity of contractors are
formulated as follows.
H.2: The network density is positively related to the capacity to absorb of external
knowledge of contractors.

This similarity is important for the development of new knowledge. In addition, by increasing the activities and knowledge sharing routines, social interactions enhance the ability for an individual to value and assimilate external
knowledge provided by his network members (Yli-Renko and al, 2001). Then,
when the actor maintains the same partners exchange over time, the number of
shared experiences increases (Bouty, 2000). Now, more partners have experience in solving problems of similar types, will be easier for the leader to find
commercial applications for knowledge he has acquired and assimilated (Lane
and Lubatkin, 1998).
However, more the stronger links between partners increase, more the diversity of knowledge exchanged decreases. As noted above, although Cohen
and Levinthal (1990) emphasize the importance of the similarity of knowledge
bases between the partners for the development of the absorption capacity, they
also highlight the need for the existence of a minimum of different knowledge
ensuring complementarity between partners. So while we expect a positive initial effect of the intensity of ties on the various components of the absorptive

223

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Furthermore, the repeated interaction between the members of a network
induces a similarity of their knowledge of stocks (Coleman, 1988; McFadyen,
Cannella and Albert, 2004).

capacity of the contractor, it is also contemplated that such effects fade over
time. Hence, the following hypothesis:

Adel Ghodhbane • Habib Affes: RELATIONAL NETWORK, ABSORPTION CAPACITY AND ACCESS TO EXTERNAL ...

H.3: The intensity of ties significantly affects the capacity to absorb external knowledge of the contractors.
Furthermore, the heterogeneity of information and knowledge increases the
chances of discovery of new opportunities. This is for example to be aware of
the emergence of a new resource. Similarly, network heterogeneity exposes individuals to different points of view. Therefore, these people will be more inclined
to try the different opportunities and by comparing the different points of view.
Also, network heterogeneity increases the possibilities of interpretation and
analysis of knowledge gained and thereby, increases the degree of assimilation
of knowledge. However, the diversity of knowledge areas should not exclude
the sharing of a common language between them, necessary for the assimilation of knowledge. In addition, access to heterogeneous knowledge increases
the potential for the creation of an individual. This potential revet of form of an
interconnection between ideas and different concepts in the mind of the individual (Rodan and Galunic, 2004).
Then, the network diversity improves the ability of an individual to implement his ideas and execute complex tasks. Indeed, the heterogeneity of knowledge enables the individual to establish causal links between the elements of a
complex system that characterizes some of the gained knowledge. Finally, the
variety of areas of expertise, offers a wide range of skills related to different fields
of expertise. The variety of available skills is especially important in situations of
high uncertainty, as is the case for innovation.
H.4: The scope of the network is positively related to the absorption capacity of external knowledge of contractors.
Although the effects of each dimension of relational network are examined
separately, we assume that the three dimensions are interrelated. For example,
previous studies simultaneously examining the effects of density and diversity
of the network. These studies suggest that despite the diversity and density are
separate, they are not mutually exclusive. Indeed, the redundancy of ties that
characterizes a dense network does not mean that the network is diverse, from
the time when its members belong to different fields of expertise (Greve, 1995;
Reagans and McEvily, 2003). In other words, the redundancy of information

224

is not only the number of relations between the partners, but also the degree
of homogeneity of network contacts in terms of occupations and experiences
(Greve, 1995). Similarly, previous research has shown the existence of a relationship between network density and intensity of ties within it. Thus, it is generally recognized that strong ties are developed further in the dense networks
(Granovetter, 1973). In addition, McEvily and Zaheer (2003) found that when
the density of the network is introduced into their model, the contingent effect
of the intensity of the ties on the ease of knowledge transfer decreases. According to the authors, this is due in part to the fact that the intensity of ties and
network density are interrelated.

4.

RESULTS AND DISCUSSION

In what follows, we tried to formulate the items related to the absorption
capacity (these items are 8 in number as shown in Table 1). We then try to
analyze the structure of the entire scale on the absorption capacity. To this end,
the principal component analysis (PCA) needs a rotation of the axes. We then
obtained the results presented below. As we can see, we have selected a single
factor explaining 71.09% of the total variance.
Table 1: Principal components analysis of the absorption capacity
Access to basic knowledge related to the project

Contribution F.1
0.867

Access to other knowledge which are not related to the project

0.855

Description of situations, concepts or processes

0.922

Use of terms you can understand

0.807

Adapt to external changes
Difficulties in sharing experiences

0.92
0.744

A greater understanding of the way in which you activity is accomplished

0.881

Similarly to solve problems

0.725

Eigenvalue

5.68

% Of the explained variance

71.09%

Moreover, we have condensed the variables initially adopted in reduced
number of composite variables in order to proceed to the validation of the
hypotheses. We synthesize the results of all the factor analyzes conducted on
the different variables. It should be recalled that in the study of validation of

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Items

Adel Ghodhbane • Habib Affes: RELATIONAL NETWORK, ABSORPTION CAPACITY AND ACCESS TO EXTERNAL ...

hypotheses, we have established choice of analytical methods of the reference
sample. We used the nonparametric tests and simple regression tests. Indeed,
the division of the sample into two groups of samples results in a decrease in the
number of observations per group of individuals. Given this, it is necessary to
mobilize adequate statistical tests (parametric and nonparametric tests).
The analysis in this research is based on two components. In the first, it is to
check the change in the variables of our model for the two age categories (under
40 and over 40 years). In this phase of the analysis, the sample will be divided
into two groups (variable according to age). The goal is to study the quality of
cause and effect between the dependent variable and the explanatory variables
contained in the research hypotheses. We will focus on testing hypotheses regarding the change of variable age of contractors.
In order to test the relationships of variables affecting access to external resources and the absorption capacity, we used multiple regression tests that are
done in three levels: The dependence intensity of each component of the relational network personnel (structure-type of network ties-attributes of alters)
on access to external resources and the absorption capacity which is calculated
using the correlation coefficient. The significance of the connection and the
quality of the fit of the model is assessed through the determination coefficient
R2 and the F test of Fischer, and finally, the examination of residues which reflect the accuracy of the model.
It should be noted that the linear coefficient of determination, R2 is the
main indicator of the quality of regression. In other words, it summarizes the
ability of the regression to represent all of the point cloud of the observed values. However, the interpretation of R2 must take into account also the number
of explanatory variables and observations included in the model. To this end,
the adjusted R2 provides a more realistic assessment of the results of the model.

226

Table 2: Results of multiple regression of the structure of the relational network and access to external resources

Scope of the network
Network density
Structural holes
Constant
N.obs
RMSE
Parms

(p-value)
Informational resource
0.48***

Financial resource
0.569**

Absorption capacity
-0.03ns

(0.000)
-0.371**

(0.013)
-0.416 ns

(0.579)
1.6**

( 0.022)
-0.0027ns

(0.28)
0.031**

(0.046)
0.066

(0.649)
3.902***

(0.045)
4.096 ***

(0.961)
0.65***

(0.000)
32

(0.001)
32

(0.000)
32

0.43

1.078

3.859

4

4

4

R2

54.04%

38.67%

18.4%

Value of F

10.976

5.884

3.106

p-value of F

0.0001

0.0030

0.072

The first relationship we wished to verify logically equivalent to the assumption on the possible influence of the structure of the relational network of the
contractors on the access to external resources. Multiple regression tests in this
regard provided a significant result. Indeed, the F value is 10,976 with probability p-value = 0.0001 for the first regression, and the value of F is 5.884
with probability p-value = 0.003, for the second regression. It allows concluding
about the quality of the value in the two variables. At this stage, we have verified
three main relationships related to the extent of network, structural holes and
network density.
To check the first relationship, that is to say the effect of the extent of network on the access to external resources, our empirical results indicate a coefficient of 0.48 with a p-value = 0.000 for the relationship between the size of
the network and access to information resources and a coefficient of 0.569 with
a p-value = 0.013 for the relationship between size of network and access to
financial resources.
These results are consistent with our theoretical prediction and they have
been previously recommended by the work of Baron (2007) and Brown and

227

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Coefficient

Adel Ghodhbane • Habib Affes: RELATIONAL NETWORK, ABSORPTION CAPACITY AND ACCESS TO EXTERNAL ...

Dugrant (1992) who show that a large network of contractors improves the
chance to pick up useful information in one hand, and to access to external
information resources and recognition of the other opportunities. Thus, our
hypothesis which postulates that access to external resources depends on the
size of the network is accepted.
It is the same for the test on the relationship between network density and
access to strategic informational resources. The result shows a coefficient of
0.031 which significant (p-value = 0.045) and we then can conclude the acceptance of the hypothesis assuming that the density of the network apprehended
in the side of gestures and contacts roles significantly influences access to external resources and in particular increases the likelihood that the contacts share
the same information.
However, by refining the research on the role that can play structural holes
in access to external resources, our empirical results show a non-significant coefficient (p-value = 0.28), and the hypothesis is rejected and that these non
Significant fallout do not allow the speed of information and a better quality of
information. In this sense, we can conclude that the hypothesis of the relationship between the relational personal network structure and access to external
resources is partially validated.
Moreover, the first review of the relationship between the extent of the
network and the absorption capacity shows a non-significant test (p-value =
0.579). In this sense, we performed an analysis based on the results provided by
the non-parametric tests on the change of the absorption capacity by the age of
the contractor. Indeed, the structure of the relational network in the side of the
scope shows a significant difference between the two age groups. In the same
sense, we see a non-significant test.
In opposition, the test of the relation between the structural holes and the
absorption capacity indicates a significant coefficient. Indeed, the test shows
a coefficient of the order of 1.6 to 5% risk (p-value = 0.046). These results
strengthen those recommended by Granovetter (1982) and Royers (1983) who
argue that a high number of contacts increase the possibility of receiving a variety of information and the existence of a similarity between the stock of knowledge and knowledge from outside.
Moreover, the results also reveal a significant relationship between network
density and absorptive capacity. The multiple regression tests show a significant

228

coefficient at the threshold of 1%. Thus, it is apparent that the gained knowledge is better targeted to partner goals in a dense network, which supports the
dissemination of new ideas and therefore, the generalization of innovation. In
this regard, we conclude that hypothesis H.2 is validated.
The second relationship we have studied is the influence of the nature of the
ties on access to external resources. The analysis of the first simple regression
test revealed a non-significant test (F = 0.01 with p-value = 0.92). In this sense,
we conducted an analysis based on the results provided by the non-parametric
tests on changing of the nature of ties in the two age groups. Regression test still
not significant (F = 0.029 with p-value = 0.074). In opposition, the test of the
second regression indicates a significant value of F equals to 3.13 at the level of
10% (p-value = 0.086).
The share of the returned variance is equal to 9.4%. Thus, we conclude a
partial validation of the hypothesis of Mackle (2004) which shows that the typology of the existing strong ties between two distinct social groups provides
more access to financial resources to meet all business objectives.

Table 3: Regression model of the nature of ties, access to external resources and
absorption capacity
ANOVA
DF

Sum of squared Mean square

R2

R2 ajusted

Error

Value of F p-value of F

Model 1

1

0.633

0.373

2.9%

7.4%

11.22

0.01

0.92

Model 2

1

1.27

1.71

9.4%

6.4%

45.22

3.13

0.086

Model 3 1
Coefficient
(p-value)

1.45

4.12

2.3%

3.04%

16.99

0.09

0.77

Nature of social ties
Constant

Informational resource
-0.027ns
(0.924)
4.19***
(0.000)

Financial resource
1.027*
(0.087)
4.43 ***
(0.001)

Absorption capacity
0.55 ns
(0.772)
4.38***
(0.003)

229

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

However, the analysis of the relationship between the nature of the ties and
the absorption capacity indicates an insignificant test. The test shows a value
of F equal to 0.09 with a p-value = 0.77, and the share of explained variance is
2.3% with a coefficient of adjusted R2 almost 3%. Thus, H.3 hypothesis which
postulates that the absorption capacity depends on the nature of the ties is
rejected.

In order to check third the effect of attributes of alters on the access to external resources, we conducted a regression test between the two variables. Our
empirical results indicate a null value of F with a p-value of 96.9%. In addition,
the simple regression test is significant for either the first regression (F = 0.22;
p-value = 0.8) or for access to external resources (F = 0.08; p-value = 0.92).
Table 4: Regression model between the attributes of alters and the access to
external resources
ANOVA
Adel Ghodhbane • Habib Affes: RELATIONAL NETWORK, ABSORPTION CAPACITY AND ACCESS TO EXTERNAL ...

DF Sum of squared Mean square

R2

R2 ajusted

Error

Value of F p-value of F

Model 1

1

11.39

0.37

15%

17%

0.8005

11.39

0.22

Model 2

1

1.81

0.14

5%

6.3%

0.925

52.81

0.08

Model 3 1
Coefficient
(p-value)

13.3

4.07

2.6%

3.4%

0.077

16.59

3.8

Attributes of
alters
Constant

Informational resource
-0.084ns
(0.969)
4.201***
(0.000)

Financial resource
0.179
(0.704)
4.63 ***
(0.000)

Absorption capacity
1.28*(0.082)
7.6**
(0.029)

The last relationship we wanted to check logically equivalent to the hypothesis H.4 about the influence that can have the attributes of alters on the absorption capacity. The simple regression test provided a significant result. However,
the F value is 3.8 with probability p-value = 0.077 allowing comment on the
quality of the relationship between the two variables. This assessment is assigned by a correlation coefficient of 1.28 with a probability of p-value = 0.082.
Thus, our hypothesis H.4 is validated.

5

CONCLUDING REMARKS

Our results show that access to external resources is mainly dependent on
certain structural characteristics of the relational network of the contractor, to
know the size and density of the network, as opposed to structural holes, which
has no significant effect on access.
Moreover, our empirical result shows that the absorption capacity as a key
step in access to resources is strongly conditioned by the relational network of
the contractor. To this end, our analysis reveals that the number of structural

230

holes, besides the density of the network, significantly affect the absorption capacity. However, while non-parametric tests indicate a significant difference in
the absorption capacity between the two age groups of contractors, our econometric results show that the extent of the network has no significant effect on
the absorption capacity.

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233

DECISIONMAKING AS A
MANAGEMENT FUNCTION
mr. sc. Mato PUŠELJIĆ
University of Applied Sciences Baltazar Zaprešić,
Republic of Croatia
mato.puseljic@bak.hr

Ana SKLEDAR, univ.spec.oec.
University of Applied Sciences Baltazar Zaprešić,
Republic of Croatia
Mato Pušeljić • Ana Skledar • Ivan Pokupec: DECISION-MAKING AS A MANAGEMENT FUNCTION

ana.skledar@bak.hr

Ivan POKUPEC, univ.spec.oec.
University of Applied Sciences Baltazar Zaprešić,
Republic of Croatia
ivan.pokupec@bak.hr

Abstract
Organizations survive or disappear primarily thanks to the quality of management that leads them. Decision-making is not the only, but the basic function
of management that contributes most to the success or failure of the organization. The manager is the one who makes decisions and decision-making is the
essence of planning. Planning is the first and most important function of management as a process that determines all other functions: organizing, managing
human resources, managing and control. Techniques of decision-making are
associated with levels of management and with types of decisions taken at each
level of management. Today, we do not have enough time to spend on decision
making process, but that does not mean that we can make decisions thoughtless.
Keywords: decision-making, management functions, decisions, organizing,
managing human resources, control, managers
JEL Classification: M5, M51, C44

234

1.

INTRODUCTION

Because of many years of crisis and recession high quality management in
general and quality managers are required by large and small organizations,
profit and non-profit organizations, real and public sector, government and
non-governmental organizations. Management is required at all levels of the
organization and is required in all organizational processes of work. The managerial job, unlike other jobs, is not easy, nor can be described or prescribed in
details. This situation is a chance for every manager to demonstrate its ability and quality of reasoning. However, if the organization’s success largely depends on the quality of management, the question arises: what does a successful
manager know (have) and others are missing? Knowledge and skills necessary
for the performance of managerial work are not uncommon. These are simplified conceptual skills, knowledge of job (profession) and knowledge of people,
and all these skills are correlated with the level of management. It is interesting
to note and a study we conducted confirms it, that the majority of executives
(managers) thinks that they are competent to perform managerial jobs, and to
have qualified knowledge and skills. When asked: Do you consider yourself adequately prepared for a managing position, respondents answered as follows:
Table 1. Preparedness of managers to perform managing tasks
number of respondents

% of respondents

Yes, I am fully prepared

192

70,32

Partially prepared

74

27,10

Not enough prepared

7

2,56

Not at all prepared

0

0

Source: own study conducted at the Ministry of Internal Affairs in Republic of Croatia

235

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Management is a phenomenon of the 20th century and in his hundred years
of existence has in general transformed the economic and social content. The
largest contribution of management to humanity development lies in the fact
that management is omnipresent in our daily life and work. There is almost
no organization that does not have its management, and whether some organizations will succeed or will not succeed primarily depends on the quality of
management of an organization. Our study examined a convenience sample of
executives of Croatian Ministry of the Internal Affairs in all organizational levels. The total number of respondents who participated in the study was 273, of
which 268 were males and 5 females. The average life expectancy is 42 years,
with on average 19 years of work in the Ministry.

Mato Pušeljić • Ana Skledar • Ivan Pokupec: DECISION-MAKING AS A MANAGEMENT FUNCTION

Today, the management can be discussed as a: scientific discipline, skill,
profession, process. Since the beginning of the 20th century management has
been studied in almost all higher education institutions. Management is a skill,
which like any other skill is acquired by experience. Today, management is an
established profession in the labor market. The understanding of management
as a process or a process approach to management is the most important for understanding not only the term, but its actual content. Management as a process
consists of certain functions. In the contemporary theory and practice five basic
functions of management have been accepted. These are: planning, organizing,
human resource management, leadership and control.
On the other hand, classification of managerial functions consists of opinion
that the most important function of management is decision making. (Sikavica et.al; 2008, 22) The question is: which managers are competent to perform
the tasks that are result of certain managerial functions, how much knowledge
do they have about planning, organizing, managing human resources and control. Every larger organization consists of specialized organizational units and
competent employees who are professionally engaged in planning, organizing,
managing human resources and control. Therefore, it can be concluded that
the only content that no one else can perform as well as managers is leadership.
Decision-making is not the only, but it is the basic function of management, and
the need for decision-making is so widespread that the decision has become a
synonym for management. Decision making is imminent to any management
function as a way of achieving those functions. Each managerial function is
eventually determined by a particular decision.
The following paper deals with functions of management as a process correlated with time, the definition and importance of decision-making, decisionmaking techniques, steps in decision-making and the decision-making under
conditions of high centralization or decentralization of individual organizations. The paper presents partial results of research of adequate training for the
performance of management tasks, autonomy in decision making, the importance of decisions made independently, and exposure of control. The paper ends
with a conclusion and a list of used references.

236

2.

MANAGERIAL FUNCTIONS IN CORRELATION
WITH TIME

According to some opinions management process consists of four functions:
organization, planning, control and influence. Therefore, influence includes motivating, leading and directing. (Sikavica et al; 2008, 20) The concept of classification of managerial functions such as planning, organizing, human resources
management, managing and controlling dominates today. Such an approach is
dominant in the way of structuring managerial functions. (Weihrich & Koontz;
1994, 15) Managers do not differ according to whether they need to perform
some or all of these tasks or functions, but in that to what extent they will
devote to some of these activities or functions. (Sikavica et al; 2008, 23) So,
all managers, regardless of organizational level, perform all management tasks,
main difference is how much time they spend on each of the functions of management. Planning is the most important function for managers at the highest
levels of management, less important features are organization and control, and
the least important features are guiding and management. At the middle level

237

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Each process, and management is a process, is a set of activities and / or operations that transform certain inputs into outputs. The process can be recognized by changes that occur during the performance of activities and operations.
Results of these changes are outputs. Management activities in the process are
called management functions. H. Fayol gave us the first well-known classification of managerial functions in the early 20th century. With logical sequence he
lined up management functions such as planning, organizing, ordering, coordination and control. Half a century later, P. Drucker presented his conception
of management functions, namely: setting goals, organizing, motivating and
communicating, measuring and evaluating of achieved results and staff development. Considering the time in which they occurred significant differences in the
concept of function are more than visible. (Buble; 2006, 12) Fayolle concept is
almost rigid, the terms are strictly defined, and partly borrowed from the military terminology. According to him, all these functions are required not only
for the successful conduct of business, but also in politics, military, religion, and
elsewhere, which means that the management functions are universally applicable. Drucker’s concept is characterized by mainly two new moments. Firstly,
a different attitude toward people (insists on communicating and motivating
instead of ordering and controlling). And secondly, emphasizes the qualitative
aspect of management, and measurement of achieved results.

Mato Pušeljić • Ana Skledar • Ivan Pokupec: DECISION-MAKING AS A MANAGEMENT FUNCTION

of management, all the managerial functions are equally important, while at the
lowest level of management the most important function is guiding or managing, less important is function of control, while the least important features are
planning and organizing. (Sikavica et.al; 2008, 24) It is evident that managing
is crucial important at the lowest level of management because they are the only
managers in direct contact with the executors. Other authors agree that management functions are generated by all managers in the organization, and they
devote more time to particular functions, as already been said, and function
like control takes the least amount of time at all levels of management. (Buble;
2006, 15) Not because it is the least important function in comparison to other
managerial functions, but because of constructed control systems which facilitate the work of managers and also because of self-control which is increasingly
important part of every business. The results of our research mostly support
this view. When asked to express daily time spent on individual managerial
process in percentages, respondents answered as follows:
Table 2. Percentage of daily time spent on individual managerial process
% of respondents
How much time do you spend planning your work?

24,80

How much time do you spend on organizing work?

22,60

How much time do you spend on guiding?
How much time do you spend on management

29,60
12,80

human resources?
How much time do you spend on control?

10,20

Source: own study conducted at the Ministry of Internal Affairs in Republic of Croatia

Nearly a third of the time managers spend on directing staff (guiding),
equally on planning and organizing work, and the least time on human resources management (quality of public and state organizations, executives are largely
limited in “staffing”) and control. When asked: How often are you controlled by
your superiors, respondents answered as follows:
Table 3. Frequency of control
number of respondents

% of respondents

Controls are frequent and constant

73

26,73

Controls are occasional and rare

192

70,32

8

2,93

Never controlled by superiors

Source: own study conducted at the Ministry of Internal Affairs in Republic of Croatia

238

While a quarter of managers are frequently controlled by their superiors,
more than seventy percent of managers are occasionally, almost rarely controlled.

CONCEPTUAL DEFINITION OF DECISION
MAKING

It has already been pointed out that some authors considered decisionmaking, not the only, but certainly the primary function of management, which
in simple terms can be expressed by the sintagm “the manager is the one who
decides.” ( Jurina; 2011, 156) Decision-making is determined by each manager.
In our numerous, but also in foreign literature, decision-making is conceptually
very easily determined. “Decision-making is defined as a chosen way of conducting business among several alternatives; it is the essence of planning.” (Weihrich
& Koontz; 1994, 199) This kind of approach to defining the concepts is associated with planning because during various stages of planning process managers
make expert and managerial decisions. Decision-making is considered to be the
essence of planning and until a decision is made, we cannot tell that planning
document has the character of the plan. Decision-making can be defined as “a
process that allows decision-maker to select at least one option from a set of
possible alternative decisions”. (Barković; 2009, 119) Decision-making is a very
wide term , so we can talk about decision-making in various areas of life and
work, for example there is decision-making in our personal lives, decision-making in business entities, and decision making in the state and in related institutions. “Decision-making is a process that takes a (longer or shorter) time, and
it ends with decision making, and its implementation and control. The process
of decision-making depends on the type of decision; it lasts from fractions of a
second to several hours and days, months even year.” (Bahtijarević-Šiber; 2008,
336) In conceptual determination decision-making can proceed with a number
of different aspects of which two are important. (Buble; 2006, 143) First is the
one which starts with the procedural aspect, so in that case, decision-making is
defined as a process of identifying problems and possibilities of their solution.
Second is the one that starts with condition terms in defining decision, so in
that case, deciding is defined as the act of choosing between several potential
opportunities. No matter how it is defined, decision-making is a creative process that is realized rationally, with the following three assumptions:

239

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

3.

1. there is a clear understanding of the alternative directions through which
stated goals with existing opportunities and limitations are possible to achieve;
2. there are information and the ability of decision makers to analyze and
evaluate alternatives within the set objectives;

Mato Pušeljić • Ana Skledar • Ivan Pokupec: DECISION-MAKING AS A MANAGEMENT FUNCTION

3. there is a will of decision makers in finding the best alternative solution
which must be effective In order to achieve settled goals.
From all of the above it follows that making decision on the occasion of solving a problem, or the decision-making process, is primarily determined by the
number of alternatives that appear as possible solutions to problems. If there are
no alternatives to solve the problem, then we cannot speak about the decisionmaking process. How will managers, from a number of alternatives, choose the
best one, how to conduct selection and narrow down the best alternatives that
are complementary with restrictive resources that can be used to achieve the
objective? In response to a question usually they use different techniques of
decision-making, depending on the type of decision, or whether it is a routine,
adaptive or innovative decision. (Buble; 2006, 158) Many authors point out
the connection between types of decisions with the level of decision-making.
( Jurina; 2011, 157) For making routine or operational decisions, related to well
known and well defined problems, rules and standard operating procedures
(SOPs) and artificial intelligence are applicable. This type of decision is usually brought by managers at lower organizational levels, immediate managers, and even non-managers or the executors themselves. For the adoption of
adaptive decision, referring to moderately unspecified problems and alternative
solutions, analysis of critical points and techniques of matrix payment are applicable. Decisions are mostly taken by functional managers at the middle management level. And finally, for the adoption of innovative or strategic decisions,
referring to unusual and unspecified problems, techniques of decision trees and
Osborne’s model creativity are applicable. Decisions are made by managing authorities and managers at higher organizational levels. Of course there are other
techniques of decision-making; these are techniques that are commonly used in
practice. (Buble; 2006, 160) Rules and standard (operational) procedures are
the simplest techniques of making routine decisions. These are pre-written procedures (steps) when making routine, programmed decisions. Artificial intelligence is the ability of programmed computer systems to perform the functions
that usually remind us of human intelligence. The essence of analysis is to determine the relationship between costs and profits in relation to the movement

240

of the level of activity or the volume effect. Matrix of payment (decision) is a
technique that is primarily used in the case of risk; it shows the consequences
of choices of some alternatives depending on the situation. A decision tree is a
special technique of decision making, based on the relationship between strategy and conditions, and is used to solve complex problems. Osborne’s model
of creativity indicates to a special technique that is used in the process of making innovative decisions, and is focused on stimulating the creation, developing
cooperation and innovative group decision-making. It consists of three main
phases: researching problems, detecting ideas and searching for solutions.

. Stages of decision-making
No matter which technique of decision making is used, in the process of deciding, on the way from detecting problem to making a decision, it is important
to apply certain stages (phases, steps). In the literature, there are different classifications of decision-making process from the simplest that talks about two
phases, to complex that talks about four, five or more steps in decision-making
process. The decision making process can be divided into the preparation phase
and the phase of making a decision. Most authors say that the decision-making
process consists of five stages (phases) ( Jurina; 2011, 160):
1. problem identification,
2. diagnosing problems (problem formulation),
4. selection of alternatives (variants),
5. making decision on the best alternatives (variants).
Although some authors cite different numbers of stages in decision-making
process, all authors without exceptions, cite phases that are essential and without which it would not be possible to carry out the decision making process. A
complete decision-making process can be parsed at eight phases. (BahtijarevićŠiber; 2008, 370) The first phase in decision-making process is to identify
problems which need to be solved. Misdiagnosing the situation unavoidably
leads to wrong therapy. Therefore, the first stage of the decision making process
is crucial for all other phases. Defining the tasks is the second stage of decisionmaking process which follows when we know what needs to be solved. The third
stage in decision-making process is to record and analyze current situation. It

241

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

3. generalization of alternatives (variants),

Mato Pušeljić • Ana Skledar • Ivan Pokupec: DECISION-MAKING AS A MANAGEMENT FUNCTION

can be determinate which resources (human, material, financial) managers can
use to salve problems. Searching varies problem solutions as the fourth stage
in decision-making process is actually the first “real” phases in decision-making
process, and all the previous stages are preconditions for deciding. At this stage,
the process of developing ideas is carried out as possible solutions for problems.
The fifth stage of the decision making process is the evaluation of different versions for solving problems. After assessment, versions are accepted or rejected.
After five steps that can be considered as a preparation for making decision,
follows the sixth phase of the decision making process or the selection phase of
the best versions. Making a decision is choosing the most appropriate version,
respecting the present circumstances. The seventh phase of decision-making
process is the reason why the whole process of decision making and decision
implementation even starts. By monitoring the flow of implementation we ensure proper implementation of the decision. And at the end of the decision
making process (last eighth stage) follows the control of implemented decisions.
Control enables verification through all decision-making process.

4.

DEGREE OF CENTRALIZATION AND
DECISIONMAKING

The paper pointed out that many authors indicate the relation of organizational levels of management with the types of decisions that are made and
the importance of these decisions for the organization in general. How many
decisions will managers bring at each level of management and the importance
of these decisions, largely determines the degree of centralization or the decentralization of the organization itself. When senior management makes all
important decisions, we talk about the centralization of decision making, and
the decentralized organizations are the ones in which decisions are deployed at
lower levels in the organization. (Sikavica; 2011, 364) The range of decentralization in decision-making can be revised by answering to several questions.
1. What is the number of decisions made at lower levels of management?
2. What is the importance of the decisions made at lower levels of
management?
3. What is the impact of decisions made at lower levels of management?
4. How often does senior management check subordinate levels of
management?

242

If lower levels of management brings a large number of decisions, which are
important and significant, and controls of senior management are occasional or
rare, then one can speak of a high degree of decentralization in decision-making process. Of course, the reverse is also true. Results of our research suggest
the following. When asked: How many decisions associated with functioning
of the organizational unit, or the use of potential of organizational units are
made independently, without consultation with the supervisor. Respondents
answered as follows:
Table 4. Degree of autonomy in decision-making
number of respondents

% of respondents

None decisions can be made independently

2

0,73

I make a small number of independent decisions
I decide alone, and only in rare cases I consult
with a supervisor
I decide independently

90

32,96

176

64,46

5

1,83

Source: own study conducted at the Ministry of Internal Affairs in Republic of Croatia

Most of respondent’s decisions are made largely independently, while one
third of respondents are unable to make decisions without consulting superiors
managers. When asked: What is the importance of the decisions that are made
independently in the strategic, tactical and operational terms, respondents answered as follows:

These are mostly unimportant decisions
These are decisions of minor importance, which
are operational nature
These are decisions whose importance are
tactical and operational nature
These decisions have extensive strategic
significance

number of respondents

% of respondents

2

0,73

63

23,07

188

68,86

20

7,32

Source: own study conducted at the Ministry of Internal Affairs in Republic of Croatia

Managers who decide independently or mostly independently make exclusively decisions that are operational and tactical nature. Only a small number of
decisions have strategic significance. Strategic decisions are made at the political
level by the Government, the Minister and his associates.

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Table 5. Importance of decisions made independently

Mato Pušeljić • Ana Skledar • Ivan Pokupec: DECISION-MAKING AS A MANAGEMENT FUNCTION

5.

CONCLUSION

How competent, educated, qualified are managers (executives) to perform
the tasks? How many knowledge of the planning, organizing, managing human
resource and control do they have? The question is of subjective nature. This is
the knowledge that requires education throughout their entire life. However,
management is decision-making, being a manager means to make decisions and
take responsibility for the effects of decision implementation. Regardless of the
many techniques that are used in decision-making, the task of choosing a specific version (alternative) for solving a specific problem lies on the managers. We
live in a time of great uncertainty, rapid and frequent change and turbulence.
Long-term planning becomes an utopia, dynamic planning is evident more than
ever, plans on a daily basis must be corrected, and the decision-making is the
essence of planning. The decision process shortens, decision-making cannot
last indefinitely, but it does not mean that decisions can be taken recklessly,
without fundamental preparations. Despite constant environmental demands
for changes the use of approximate methods in decision-making process cannot
be useful. From presented answers it can be concluded, that it is an organization with appropriate decentralization in decision-making. Great autonomy
in decision-making comes primarily from clearly defined tasks, powers and responsibilities of each employee, including managers in system of the Ministry
of Internal Affairs. And finally, one author wrote that smart managers make
decisions only when they are sure of the outcome, and they delegate everything
else to close associates.

. Literature
Barković, D. (2009), Menadžersko odlučivanje, Ekonomski fakultet u Osijeku, 978-953253-069-8, Osijek
Buble, M. (2006), Osnove menadžmenta, Sinergija nakladništvo d.o.o., ISBN 953-689535-8, Zagreb
Jurina, M. (2011), Organizacija i menadžment, Visoka škola za poslovanje i upravljanje s
pravom javnosti „Baltazar Adam Krčelić“, ISBN: 978-953-96539-7-0, Zaprešić
Sikavica, P. (2011), Organizacija, Školska knjiga, ISBN 978-953-0-30394-2, Zagreb
Sikavica, P., Bahtijarević-Šiber, F., Pološki Vokić N. (2008), Temelji menadžmenta, Školska
knjiga, ISBN: 978-953-0-30346-1, Zagreb
Weihrich, H., Koontz, H. (1994), Menadžment, Mate d.o.o., ISBN: 953-6070-08-1, Zagreb

244

General
Economics

YOUTH: DOES UNEMPLOYMENT
LEAD TO SELFEMPLOYMENT?
Jelena FRANJKOVIĆ, mag.oec., Assistant
Josip Juraj Strossmayer University of Osijek,
Faculty of Economics in Osijek
jelenaf@efos.hr

Dario ŠEBALJ, mag.oec., Assistant
Josip Juraj Strossmayer University of Osijek,
Faculty of Economics in Osijek
dsebalj@efos.hr

Ana ŽIVKOVIĆ, mag.oec., Assistant
Josip Juraj Strossmayer University of Osijek,
Faculty of Economics in Osijek
azivkovi@efos.hr

Crisis on the labour market is widely dispersed all over European Union. A
great boost for employment increase could be self-employment, although young
people are not prone to engage in such activities. This paper focuses on youth
interest in self-employment within EU countries, with special emphasis on
Croatia. The main issue studies the youth unemployment impact on youth selfemployment. It is examined the extent of self-employment of all EU members
paying attention on differences between Nordic and Eastern European countries. Accordingly, push and pull factors are mentioned in a term of motivation
aspects.
Keywords: youth unemployment, youth self-employment, push and pull factors, EU member states, Croatia
JEL Classification: J1, J13, J21

247

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Abstract

INTRODUCTION

Jelena Franjković • Dario Šebalj • Ana Živković: YOUTH: DOES UNEMPLOYMENT LEAD TO SELF-EMPLOYMENT?

Even though testing own limits and exploring wastelands of passionate work
seems to be challenging, courage for the self-employment among young people
is more the exception than the rule. However, when there are no free vacancies
in the public, neither the private sectors, and when youth does not see perspective future careers, self-employment could be a great solution.
Theoretically, from macro view it is expected that self-employment represents economic growth. Obviously, the higher level of self-employment increases a total employment level, but the question is whether youth self-employment
is encouraged by high youth unemployment. This study should provide the answer for observed EU countries putting emphasis on Croatian labour market.
If there is any significant correlation between those two variables, it would
be interesting to find out a source of motivation: do young people have strong
intrinsic desire for self-employment or is it only a way out due to economic
crisis. According to Williams (2004, p. 330), young individuals who choose selfemployment might be those who are already less likely to complete schooling
and who have lower earnings potential. Therefore, micro view observes push
and pull factors which are explaining aforementioned correlation: if the correlation is stronger, the push factors are dominant.
The expectations lead us to assumptions that Western European countries
have the highest rate of youth self-employment among European Union member states by virtue of better conditions, and that increase in youth unemployment affects increase in youth self-employment.

LITERATURE REVIEW
Self-employment is mostly result of two opposing sides – push and pull
factors. Pull factors are represented by entrepreneurs who are credited with
stimulating job growth and encouraging innovation, while push factors are represented by entrepreneurs who choose self-employment as a consequence of
limited opportunities in the wage sector or become self-employed as an alternative to unemployment (Rissman, 2006, p. 14).
According to Baumol (1990, p. 909), entrepreneurship can be productive,
unproductive and destructive, which leads to the idea that entrepreneurship out

248

Unemployment is rarely the main driver of new firm formation, but it often
plays a role, which for certain countries has proved to be very significant during
economic downturns (Santarelli & Vivarelli, 2007, p. 461). In 2001, the analysis (Global Entrepreneurship Monitor, 2001, p. 4-5) indicated that developing
countries generally have a higher prevalence rate of necessity entrepreneurship
and that it may have a strong macro-economic function. The only European
country among the countries which were the highest ranked in the group of
necessity entrepreneurship was Poland, which had become democratic country
a few years before Croatia. At the beginning of transition of Croatian economy,
the self-employed were exploring the possibilities of new institutional set up,
but the reflection upon that period shows that although many new businesses
opened, many subsequently failed (Botrić, 2012).
According to Blanchflower (2000, p. 502), for most countries there is a negative relationship between the self-employment rate and the unemployment rate,
and from the time series regressions, evidence of positive effects is found only
in Iceland and Italy. In the last few years in Spain, large growth in number of
self-employed has been registered, and it is well known that Spain has one of
the highest youth unemployment rates in Europe, which may have forced many
young people to try their hand at self-employment (Hatfield, 2015, p. 15).
The unemployed could use the self-employment option for bypassing the
unemployment and, in that case, one would expect self-employment rates to

249

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

of necessity due to unemployment is destructive and destined to fail while opportunity-motivated and innovative entrepreneurship is productive and leads
to job creation and economic growth (Constant & Zimmermann, 2014, p. 52).
Santarelli and Vivarelli (2007) recognize macro and micro determinants to selfemployment entry and non-economic factors as well, while among macro determinants both “progressive” (promising economic perspectives) and “regressive”
(fear of unemployment) factors are important. Constant and Zimmermann
(2014, p. 53) identify two types of entrepreneurship – individuals who freely
choose an independent profession and individuals who are forced to go into
self-employment. First ones are the productive innovators who materialize their
visions, pulled by the lucrative aspects of self-employment. The next mentioned
are the ones who are pushed in self-employment at their own risk because nobody else wants to take the risk to employ them (Constant & Zimmermann,
2014, p. 53).

Jelena Franjković • Dario Šebalj • Ana Živković: YOUTH: DOES UNEMPLOYMENT LEAD TO SELF-EMPLOYMENT?

increase during the downturn and individuals to be pushed into forced selfemployment or self-employment out of necessity. However, the success and longevity of a business is rather low during the downturn, which in turn, can also
act as a deterrent to self-employment start-ups (Constant & Zimmermann,
2014, pp. 62-63). One of the major problems for self-employers during the
downturn are their consumers. They meet the great challenges in creating their
loyal and constant market, regardless of whether they offer products or services
to industrial or final consumers, because both are reducing their costs, or do not
have any budget at all. When it comes to youth employment, Williams (2004,
p. 326) finds that most self-employed youth are not “long-term” self-employed,
more precisely during only one year.
Some of the individuals who report being self-employed are unpaid family workers (Blanchflower, 2000, p. 478) and the similar situation is in Croatia
where the registered youth self-employment is rare, but very often is unpaid
work in family business (Matković, 2008, p. 495). Also, people with greater
family assets are more likely to be self-employed (Blanchflower, 2004, p. 32).
In the analyse of youth self-employment in the United States, self-employment is quite rare (from 1 to 4 percent) among young workers and these young
tend to have lower levels of educational attainment, but they are much more
likely to be self-employed in early adulthood (Williams, 2004, p. 334).

METHODOLOGY
For the purpose of this paper Eurostat database has been used in order to
gather information about youth employment. The data about youth employment, self-employment and unemployment have been collected, from the year
2005 to 2013. Although the youth category can be observed from different aspects, the ones from 15 to 29 years, both sex and all levels of education have
been selected. Data were available for all 28 EU member states.
By using of these collected data, it was possible to calculate the rate of youth
self-employment as a relation between the number of self-employed and the
number of employed.
With this paper the following hypotheses have been tried to prove:
1. Western European countries have the highest rates of youth self-employment
among EU member states.

250

2. Youth unemployment increase affects youth self-employment increase.
To prove the first hypothesis, descriptive statistics has been used and in order to prove the second hypothesis simple linear regression analysis has been
used. This analysis has been made for Croatia first. Then it has been researched
is there any difference between Nordic and Eastern European countries. In
Nordic countries Finland, Denmark, Sweden, Estonia, Latvia and Lithuania
were included. In Eastern European countries group were Croatia, Hungary,
Greece, Romania and Bulgaria.

RESULTS
Based on information about youth employment and self-employment, the
rate of youth self-employment of each EU member state was calculated (see
Table 1).

Country

2005

2006

2007

2008

2009

2010

2011

2012

2013

Belgium

6.1

6.6

6.5

6.3

6.6

6.4

6.5

6.9

7.7

Bulgaria

5.2

4.9

4.7

4.5

4.7

5.1

5.0

5.0

5.3

Czech Republic

9.0

8.7

8.6

8.7

9.3

10.2

10.8

10.8

9.9

Denmark

2.2

2.4

2.8

2.6

2.6

2.5

2.3

2.3

2.5

Germany

3.7

3.6

3.5

3.2

3.3

3.1

3.2

3.3

2.9

Estonia

4.2

4.9

4.7

4.7

4.7

4.4

4.5

4.6

4.3

Ireland

4.1

3.8

4.3

4.4

4.0

3.6

3.6

3.2

3.6

Greece

12.9

12.8

12.1

12.2

12.5

13.4

13.6

14.7

15.7

Spain

7.4

6.9

7.0

7.0

6.4

6.2

6.3

7.3

7.8

France

2.6

3.3

3.5

3.7

3.6

4.3

4.3

4.3

4.5

Croatia

10.2

10.3

7.9

6.5

6.5

8.1

8.6

7.8

7.8

Italy

15.5

15.9

15.7

14.6

14.2

15.1

14.3

15.0

15.5

Cyprus

7.2

8.1

9.6

8.9

7.9

6.8

6.5

6.0

7.0

Latvia

3.3

3.4

4.3

4.5

4.7

5.1

5.8

5.0

6.0

Lithuania

7.5

7.3

7.3

5.0

4.2

3.5

4.5

5.3

5.3

Luxembourg

2.2

2.2

3.5

3.0

3.9

2.5

4.5

4.8

4.2

Hungary

7.0

5.7

5.1

4.5

5.0

4.7

4.2

4.7

3.9

Malta

5.7

5.7

7.0

7.1

7.2

5.4

4.9

6.0

7.2

Netherlands

4.1

4.1

4.4

4.6

4.9

5.5

5.5

5.6

6.5

Austria

3.1

3.2

3.2

3.2

3.4

3.6

2.8

3.2

3.2

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Table 1 The rate of youth self-employment in EU member states

Poland

9.2

8.9

8.3

8.4

8.7

8.6

8.8

8.7

8.7

Portugal

7.0

6.4

6.4

6.1

6.1

5.7

5.4

5.3

5.4

Romania

11.6

11.4

11.3

11.4

11.5

12.9

10.8

10.7

10.0

Slovenia

2.7

3.1

3.3

2.9

3.8

4.5

4.9

4.9

5.0

Slovakia

8.4

8.7

9.1

9.8

11.9

12.5

11.7

12.3

11.0

Finland

4.7

4.3

4.0

4.7

5.1

4.7

5.1

5.0

4.9

Sweden

2.9

3.1

3.2

3.2

3.6

3.8

3.3

3.6

3.9

United Kingdom

5.3

5.5

5.6

5.8

5.9

6.0

6.7

6.8

6.7

Jelena Franjković • Dario Šebalj • Ana Živković: YOUTH: DOES UNEMPLOYMENT LEAD TO SELF-EMPLOYMENT?

Source: Authors’ calculations

The initial assumption was that Western European countries (especially
Germany, France, Ireland, UK) have the highest rates of youth self-employment
because those countries have better conditions (business incubators, encouraging of self-employment, less bureaucracy, imposts and taxes etc.) for selfemployment. Table 1 shows the opposite. The highest youth self-employment
rates, in 2013, have the following countries: Greece, Italy, Slovakia, Romania
and Czech Republic (between 10 and 16 percent). On the bottom of the list are
more developed countries: Denmark, Germany, Austria, Ireland and Sweden
(between 2.5 and 4 percent). Croatia has been placed above average on the 8th
place (7.8 percent). The main reason of high percent of youth self-employment
rate could be in high youth unemployment rate which forces young people into
entrepreneurial activity (push factor).
Until recent few years, Croatia has not got quality program to encourage
youth to run their own enterprise. According to Williams (2004, p. 323), individual governments have developed programs to assist youth in the formation
of new enterprises, through financial assistance or specialized training, in both
developed and developing countries such as Germany, Great Britain, Italy, India, Bangladesh, Botswana, Zambia and others, but according to Blanchflower
(2004, p.61) and research across the OECD, the probability of being self-employed is higher for men and for older workers compared to youth.
This conclusion opens another question: does youth unemployment increase
affects youth self-employment increase?

252

Graph 1 Scatterplot of „Youth unemployment“ variable against „Youth self-employment“ for Croatia 

Source: Authors’ calculations

Graph 1 shows scatterplot of independent variable “Youth unemployment”
against dependent variable “Youth self-employment” for Croatia. It suggests a
negative, very weak correlation. Though, in reality, there are several factors that
may affect youth self-employment (such as economic conditions), however, this
research is concerned only about the relationship between youth unemployment
and youth self-employment. Equation of the regression line can be shown as:

Table 2 Regression summary for dependent variable “Youth self-employment”
(Croatia)
r

R2

Adjusted R2

.55820668

.31159470

.21325108

Source: Authors’ calculations

According to this data, it can be concluded that there is no strong correlation
between those two variables in Croatian example. The increase of youth unemployment does not affect increase of youth self-employment. This conclusion
can be explained by the fact that young people in Croatia are afraid of possible
failure of business activity. Croatia has a large number of imposts and taxes
that increase costs of running a business. In the public, the private sector has a
bad reputation due to lower wages than in public sector, inability of charging
the invoices, big responsibility of owners etc. Therefore, youth will rather stay

253

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

y = 37.0961-0.1212x

Jelena Franjković • Dario Šebalj • Ana Živković: YOUTH: DOES UNEMPLOYMENT LEAD TO SELF-EMPLOYMENT?

unemployed then try to become self-employed. “The notion that self-employment could alleviate the unemployment problems was also incorporated in the
Croatian national employment policies, starting from year 1998, and staying,
although modified, within the employment promotion policies throughout the
period (Croatian Employment Service, 2010). However, even early evidence
has shown that the measures did not encourage a large share of unemployed
into self-employment. The most probable reason behind this relative unsuccessfulness of the measure is that starting your own business requires the financial
means as well as specific skills, which the unemployment population for the
most part lacks (Botrić, 2012).”
Also, the results of croatian regional analysis (Botrić, 2012, p. 1240) show
that high regional unemployment is not related to self-employment. Croatian
regions where the unemployment is high are not able to stimulate more intensive job creation through self-employment on average, even though there are
certain financing programmes available for the unemployed to initiate self-employment projects through the Croatian Employment Service. In order to see
do mentality and state regulations affect the possibility of stronger correlation
between two mentioned variables, several countries have been grouped in Nordic and Eastern European group. Then, the same analysis has been conducted.
Graph 2 Scatterplot of „Youth unemployment“ variable against „Youth self-employment“ for Nordic countries 

Source: Authors’ calculations

254

Graph 2 shows scatterplot of independent variable “Youth unemployment”
against dependent variable “Youth self-employment” for Nordic countries. It
shows a negative, very weak correlation. Equation of the regression line can be
shown as:
y = 112.9105-0.0243x

Table 3 Regression summary for dependent variable “Youth self-employment”
(Nordic countries)
r

R2

Adjusted R2

.48260829

.23291076

.12332658

Source: Authors’ calculations 

Source: Authors’ calculations

Graph 3 shows scatterplot of independent variable “Youth unemployment”
against dependent variable “Youth self-employment” for Eastern European
countries. It shows a medium strong correlation. Equation of the regression line
can be shown as:
y = 699.1812-0.3532x

255

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Graph 3 Scatterplot of „Youth unemployment“ variable against „Youth self-employment“ for eastern European countries

Table 4 Regression summary for dependent variable “Youth self-employment”
(Eastern European countries)
r

R2

Adjusted R2

.77589031

.60200577

.54514946

Jelena Franjković • Dario Šebalj • Ana Živković: YOUTH: DOES UNEMPLOYMENT LEAD TO SELF-EMPLOYMENT?

Source: Authors’ calculations

There are big differences in correlation between those two groups of countries. The Nordic countries are more developed and more focused on innovations. Their public and state sector play a major role in the economic prosperity.
They have a high-skilled labour and a higher rate of employment. Also, the
Nordic countries are very well connected with each other. The reason of the
youth self-employment in those countries might be found in their tendency to
innovations (pull factors) or because of the financial reasons (push factors). The
other key factor is their willingness to accept risks. According to Nordic Entrepreneurship Survey 2015 (2015), the majority of the Nordic entrepreneurs, 62
% of them, consider themselves to be risk-neutral.
On the other side, in the Eastern European countries the push factors affect
youth self-employment. The medium strong correlation, which is shown in Table 4, indicates that youth unemployment does affect youth self-employment.
Because of the high unemployment rate and often long term unemployment,
they are discouraged and usually have only two possibilities: going abroad or
taking risk and self-employed themselves.

CONCLUSION
Both proposed hypothesis are rejected: Western European countries do not
have the highest rate of youth self-employment among European Union member states; youth unemployment increase does not affect youth self-employment increase. Later assertion is also true for Nordic countries, unlike Eastern European countries, where correlation between youth unemployment and
youth self-employment is stronger. This proves that many conditions such as a
big role of public and state sector, but also influence of mentality and culture,
could be significant for self-employment increase. Nordic self-employed young
people are motivated by strong need to express creativity and innovation which
represents pull factors. On the other hand, in the Eastern European countries,
where unemployment level is higher, push factors are dominant.

256

Self-employed people are more likely to be satisfied by their job owing to
flexible work time, creativity freedom, high organizational discretion, strong
motivation due to personal risk and strong enthusiasm which is especially important for young people. Although experience and researches show that young
people in generally are not “long-term” self-employed, one thing is certain – if
there is any opportunity, it is better even to fail than charge the percentage of
unemployment by own passivity. Until Croatian economy expands, any way of
youth employment is welcomed.

Baumol, W. J. (1990). Entrepreneurship: Productive, unproductive and destructive. Journal
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Blanchflower, D.G. (2000). Self-employment in OECD countries. Labour Economics 7
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Botrić, V. (2012). Regional differences in self-employment: evidence from Croatia. Ekonomska istraživanja, 25(0), 243-266.
Blanchflower, D.G. (2004). Self-employment: more may not be better. Swedish Economic
Policy Review 11, 15-73.
Constant, A.F. & Zimmermann, K.F. (2014). Self-employment against employment
or unemployment: Markov transitions across the business cycle. Eurasian Bus Rev 4, 51–87.
Hatfield, I. (2015). Self-employment in Europe. Institute for Public Policy Research, London. Available at: http://www.ippr.org/assets/media/publications/pdf/self-employmentEurope_Jan2015.pdf (Accesed on: April 10, 2015).
Matković, T. (2008). Tko što radi? Dob i rod kao odrednice položaja na tržištu rada u
Hrvatskoj. Revija za socijalnu politiku, 15(3), 479-502.
Nordic Entrepreneurship Survey 2015 (2015). Available at: http://www.ey.com/Publication/vwLUAssets/EY-Entrepreneurship-Barometer-2015/$FILE/EY-EntrepreneurshipBarometer-2015.pdf (Accessed on: April 10, 2015).
Reynolds, P.D., Camp, S.M., Bygrave, W.D., Autio, E. and Hay, M. Global Entrepreneurship
Monitor (2001). Executive Report. Available at: http://www.gemconsortium.org/docs/
download/255 (Accessed on: April 9, 2015).
Rissman, E.R. (2006). The self-employment duration of younger men over the business
cycle. Economic Perspectives, 3Q. Federal Reserve Bank of Chicago.
Santarelli, E. & Vivarelli, M. (2007). Entrepreneurship and the process of firms’ entry, survival and growth. Industrial and Corporate Change, 16(3), 455–488.
Vukšić, G. (2014). Employment and employment conditions in the current economic crisis
in Croatia. Financial Theory and Practice. EconLit, 38(2), 103-38.
Williams, D.R. (2004). Youth Self Employment: Its Nature and Consequences. Small Business Economics 23, 323–336.

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References

Besim Aliti • Marko Markić • Boris Štulina: THE IMPACT OF CHANGES IN PRICES OF PETROLEUM PRODUCTS ON THE GENERAL PRICE LEVEL

THE IMPACT OF CHANGES IN
PRICES OF PETROLEUM PRODUCTS
ON THE GENERAL PRICE LEVEL
Besim ALITI, M.A.
(Kinesiology), BEGOC, Baku; Azerbaijan
besim.aliti@hotmail.com

Marko MARKIĆ, B.Sc.
Oil AC Ltd., Bosnia and Herzegovina
marko.markic@oilac.com

Boris ŠTULINA, B.Sc.
Doctoral Candidate, Postgraduate Ph.D. study “Management”,
Republic of Croatia
boris.stulina@gmail.com

Abstract
Market is a complex mechanism; a regulator which, using the logic of competition and price, balances the supply and demand for products and services. In
quantitative terms, the price is an expression of a seller’s willingness to trade
goods or services for their cash equivalent, and at the same time a customer’s
willingness to pay this amount of money in exchange for acceptable goods or
services.
The economic importance of the price of a product is not the same for all products. The prices of some products are more important for the functioning of the
entire economy than the prices of other products. Such are the prices of crude
oil and petroleum products because they have a strong and direct impact on the
pricing of other products and services, because petroleum products are inputs
in almost every manufacturing process.
This paper attempts to establish the correlation between changes in the prices of
oil and petroleum products and the prices of consumer goods.

258

The main hypothesis is that an increase, or a decrease, in crude oil and petroleum product prices directly and automatically increases, or decreases, the
prices of consumer goods.
The paper explores the regularity and patterns that appear between changes
in the prices of petroleum products and the prices of consumer goods in Bosnia
and Herzegovina for the period from 2008 to 2014.
Keywords: general price level, correlation, regression, time series, prices of
petroleum products.
JEL Classification: R11, E3, E31

INTRODUCTION
In this paper is written about topic which is always current, impact of oil
price changes on general price movement. It has been analyzed situation and
movement of consumer products prices as oil prices changes in same period of
time. It has been analyzed market of Bosnia and Herzegovina.

Today when all business activities are made throughout advanced information technologies, which accelerated process of globalization, local market is
impacted with global market as well. Specific impact of globalization could be
seen on oil market. Oil prices on any local market is reflection of crude oil price
changes on global market. Market of Bosnia and Herzegovina, which is analyzed, is not an exception.
Economic growth and social development are very strongly linked and are
impossible without using different aspects of energy. Significance of oil in global
economy as well as in EU members, is of essential importance. Crude oil and
it´s price volatility is a key indicator for various market participants such as
investors, producers and most important for consumers. It is a major factor for
international and national economic growth. Increasing dynamics of oil prices
has provoked many researchers to study it´s instability. Global increase in crude
oil prices is causing a sustained increase in prices of petroleum products in the
world as well as in Bosnia and Herzegovina. In 2013 the EU consumed about

259

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Main hypothesis, which is center of research, is: “Changes of oil prices in
analyzed time period have positive correlation with consumer prices change for
the same period. “

Besim Aliti • Marko Markić • Boris Štulina: THE IMPACT OF CHANGES IN PRICES OF PETROLEUM PRODUCTS ON THE GENERAL PRICE LEVEL

4 billion barrels. At an average price of $100 this translated into $400 billion of
EU final oil consumer spending or 2, 2% of EU GDP (Zachman, 2015). Recent
studies have tried to explain this dynamics by taking into account the role of
various market participants many of whom have increasingly used crude oil for
portfolio diversification (D´Ecclesia et al, 2014, vol. 46).
Keun-Young Lee concluded that a rise in oil prices reduces the GDP and increases the CPI (consumer price index). After analyzing the asymmetric effect
of oil prices on the GDP and CPI, it is shown that a rise in oil prices affect the
GDP and inflation more significantly than a decline in oil prices. In particular,
the asymmetric effect is more attuned to the CPI rather than to GDP (KeunYoung, 2002, 103).

1.

OIL AS A KEY ENERGY SOURCE FOR EVERY
ECONOMY

Oil is one of the most important and strategic energy resource in world
economy. On the global level, still more than 40% of energy needs is completed
with oil, and in USA (as the biggest oil consumer) more than that. Therefore it
can be reasonable that crude oil pricing, consumption and demand analysis are
in main focus of many researches and energy analysis.
Strategic role of oil and its whole meaning for every economy can be analyzed throughout whole last century, starting from world war one. Oil prices,
beside politics and diplomatic affairs are affected by increase of demand and by
insufficient producers’ reserves in situation of offer decrease (Dekanić, 2011, str.
360). Oil is very important strategic part of energy system and it has significant
impact on economy of every country. Today, oil sector is characterized by trend
of constant increase of demand, especially in developing countries where average yearly growth rate is 2.5%.
Developed countries increase their consumption as well but with slower
pace, because of their rationalizations programs and high technologic improvements. Oil market is still very sensitive of global political changes, whereas by
every new crisis, price of oil increases. That implicates on fact that every country
needs to have its own energy policy with long-term vision of this energetic sector development.

260

In world oil market analysis, in economic terms, it can be supply domination or demand domination. Although, political relations in the world can be
characterized as dominant bipolar or dominant multipolar political relations.
At the dominant bipolar relations, as for example in time of cold war or in time
of détente, key political relations were between two most powerful countries. In
the stage of dominant multipolar structure (time before world war two for example or postindustrial development in second part of 80’s last century) is present higher complexity in political relations and multiple dependency in global
relations (Dekanić, 2011, str. 360).
Those relations result with four possible situations on oil market:
• Stability at the lower price level (demand domination and bipolar political
stage);
• Stability at the higher price level (supply domination and bipolar political
stage);
• Price oscillation with supply domination and multipolar global political
structures (oil shocks);
• Price oscillation with demand domination and multipolar global political
structures.
In stage of stability there are these tendencies:
• Supply domination (high oil prices) which forces development of technology of saving energy, as well as technology of exploring oil and gas fields
(Dekanić, 2001, str.360).
In stage of market oscillation, technology of exploring resources has priority
with:
• Domination of supply which develops technologies which are base for exploring of oil and gas fields, as well as technology for energy save;
• Domination of demand with technologies of exploring new resources and
new ways of oil refining.

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

• Demand domination which develops technology of oil refining;

Besim Aliti • Marko Markić • Boris Štulina: THE IMPACT OF CHANGES IN PRICES OF PETROLEUM PRODUCTS ON THE GENERAL PRICE LEVEL

Chart 1: Brent Crude oil price in US dollars per barrel (2000-2015)

Note: The chart is taken from http://blogs.lse.ac.uk/europpblog/2015/01/21/falling-oilprices-should-help-europes-ailing-economies-but-the-wider-implications-of-the-pricedrop-remain-to-be-seen/

Chart 1 shows crude oil Brent movements expressed in American dollars for
period from 2000 till 2015.
With the increase in oil prices, rises costs, particularly in the production and
transport, wherein grows prices even on products that are not directly related to
oil. The so called winners of the decrease in prices of oil are countries that import more than they produce, countries most dependent on agriculture, because
agriculture is more energy-intensive than manufacturing.
The so called losers are EU, trying to reduce dependence on Russia and to
cut carbon emissions by turning away from fossil fuels, cheaper oil makes these
aims slightly harder to achieve, Saudi Arabia – at $115 a barrel makes $360
billion in net export a year, at $85 it is $270 billion (The Economist, Winners
and losers, 2014).

262

Chart 2. Oil consumption

p 

Note: Author calculation

2.

MARKET OF OIL AND OIL DERIVATIVES IN
BOSNIA AND HERZEGOVINA

The oil market in Bosnia and Herzegovina is almost fully dependent on import which was one of the important aspects for analysis. According to available
data, petroleum products consumption in Bosnia and Herzegovina ranged from
about 800 000 tons by 2000. to 1.3 million tons in 2005. Imports of petroleum
products were mostly from Croatia, Serbia, Montenegro and Hungary. According to the structure of the final consumption the largest share in final consumption of petroleum products takes traffic (almost 70%) followed by industry with
12%, households with 10%, agriculture with 8% and services with only 2%.
In Bosnia and Herzegovina operates more than 800 gas stations, of which a
large number are built after enactment of law on independent economic activity
in Bosnia and Herzegovina in 1990. In terms of competitiveness that may be

263

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

As shown in chart 2. in 1980 world annual consumption of petroleum products amounted 63, 1 million barrels per day, in 2000 it was around 76, 9 million
and in 2013 it was around 91, 2 million barrels per day. Since 1980 till 2013, the
growth of annual consumption has increased by 44, 47 %. The IMF projected
the volume of world oil demand in 2020 to be around 115 million barrels per
day (WEO, 2000, 115). North America and Europe rely on oil for about 40%
of their energy needs, and this share has been relatively stable over the past several decades (Barrell & Pomerantz, 2004, 154).

Besim Aliti • Marko Markić • Boris Štulina: THE IMPACT OF CHANGES IN PRICES OF PETROLEUM PRODUCTS ON THE GENERAL PRICE LEVEL

perceived as acceptable, but in terms of economically certainly is an irrational
investments however, even now management of certain number of gas stations
takes place on the verge of profitability, and some are closing. It is important
to emphasize that in Bosnia and Herzegovina there is so-called free pricing
respectively prices defines market. In comparison with EU countries, the retail price of derivatives are in Bosnia and Herzegovina significantly lower, but
it is exclusively due to lower excise duties and taxes. If one compares the net
price, then they are in Bosnia and Herzegovina something higher than in EU
countries.
In the pre-war period the needs of Bosnia and Herzegovina for petroleum
products were between 1.5 and 1.7 million tons annually. For example, in 1990.
on the market of Bosnia and Herzegovina was sold 1.68 million tons of various derivatives. During the design and construction of a new line of processing
3 million tons per year in the oil refinery in Bosanski Brod it was calculated
that the needs of Bosnia and Herzegovina will be around 2.3 million tons of
petroleum products a year. According to available data from 2004. till 2009.
consumption of petroleum derivatives in Bosnia and Herzegovina ranged from
about 800 000 tons to 1.3 million tons per year.

3.

CPI CONSUMER PRICE INDEX

The CPI (consumer price index) is a measurement of change in prices of consumer goods tracked from month to month. Consumer goods covers all sorts of
products and services (food, clothes, education, transport...) and is considered
to be the true “cost of living” concept. CPI is the most common and closely observed price statistics and indicator of efficiency of the economic policy of the
state itself.
The Consumer Price Index is a measure of change in prices of goods and services which consumers buy for their personal needs on the economic territory
of Bosnia and Herzegovina. The Consumer Price index is a measure of inflation in the county. CPI in Bosnia and Herzegovina is calculated on the basis of
the representative list of products. Every month is collected over 21.000 prices
in advance defined sample of outlets in twelve major cities in Bosnia and Herzegovina. Prices are collected in twelve locations (cities) in the county (Banja
Luka, Bihać, Bijeljina, Brčko, Doboj, East Sarajevo, Mostar, Prijedor, Sarajevo,

264

Tuzla i Zenica) chosen by the criteria of population and their role in the geographical areas.
For classification of the products from statistics in the CPI it is used classification of individual consumption by purpose which divides expenditure on
twelve primary groups of products and services for which are calculated indexes, as follows:
• food and non-alcoholic drinks;
• alcoholic beverages and tobacco;
• clothing and footwear;
• housing, water, electricity, gas and other fuels;
• furniture, household equipment and routine household maintenance;
• health;
• transport;
• communications;
• recreation and culture;
• education;
• restaurants and hotels;
• other goods and services.

ANALYSIS OF OIL PRICE CHANGES IMPACT OF
CONSUMER PRICE CHANGE

In this chapter will be analyzed consumer product price change and oil price
change and its correlation on the market of Bosnia and Herzegovina. Main
goal of this analysis is show how consumer products price change due oil price
changes on market of Bosnia and Herzegovina in time period from 2008 until
2014.
Analysis of correlation between consumer product price change and oil price
change in past 7 years will be done by appliance of programming language R
and its packages. All commands in R language are intuitive and there is no need
of higher level computer programming knowledge to its understanding. All data
for analysis, consumer product price change and oil price change in percentage
are prepared in dataset form and stored in Excel worksheet.
Below is shown part of data (only for two years) in Excel worksheet. Data
about average oil prices, oil price changes in percentage and consumer products

265

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

4.

Table 1. Oil price and consumer prices change data

2008

Year

2009

Besim Aliti • Marko Markić • Boris Štulina: THE IMPACT OF CHANGES IN PRICES OF PETROLEUM PRODUCTS ON THE GENERAL PRICE LEVEL

price changes in percentage for time period from 2008 till 2014. These data are
collected throughout conducted research with help of Ministry of trade of BiH
and Agency for statistics of BiH.

Months

Average Oil Price

Oil Price Change in %

1.

2,040

-

Consumer Products Price
Change in %
-

2.

2,092

2,55

1,80

3.

2,164

3,44

0,10

4.

2,242

3,60

-0,40

5.

2,405

7,27

0,90

6.

2,523

4,91

0,90

7.

2,533

0,40

0,10

8.

2,447

-3,40

0,10

9.

2,336

-4,54

0,10

10.

2,182

-6,59

0,70

11.

1,996

-8,52

-0,60

12.

1,79

-10,32

-0,60

13.

1,667

-6,87

-0,10

14.

1,624

-2,58

-0,10

15.

1,559

-4,00

-0,10

16.

1,534

-1,60

-1,20

17.

1,582

3,13

-0,10

18.

1,656

4,68

0,10

19.

1,777

7,31

0,70

20.

1,855

4,39

-0,20

21.

1,844

-0,59

0,10

22.

1,812

-1,74

0,70

23.

1,869

3,15

0,10

24.

1,847

-1,18

0,10

Note: Author calculation

Command conn = odbcConnectExcel(“C:\\DataOilPrice.xls”) connects
with data stored in Excel file named DataOilPrice. In business intelligence system is usuall to interpret data using three-dimensional visualization (in data
cube form). In our example data cube is formed by data of consumer products
prices changes, and oil price changes in Bosnia and Herzegovina of time period

266

for 84 months, from 2008 until 2014. Lines of commands in programming language R to create three-dimensional data cube:
> library(RODBC)
> conn = odbcConnectExcel(“C:\\DataOilPrice.xls”)
> korel = sqlFetch(conn, “List1”)
> X=korel$Time
> Y=korel$OPCP
> Z=korel$CCPP
> scatterplot3d (X, Y, Z, pch=16, type=”h”, main=”Data cube:Consumr products
price change and oil price change”, xlab=”Time”, ylab=” Consumer Products Price
Change”, zlab = “ Oil Price Change “)

Note: Author calculation

Picture above shows the correlation between consumer products price
change and oil price change for the period from 2008 until 2014. Z-axis represents the percentage of oil price change, Y-axis percentage of consumer products price change and axis-X represents time (84 months).

267

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Chart 4. Consumer products price change and oil price change

Besim Aliti • Marko Markić • Boris Štulina: THE IMPACT OF CHANGES IN PRICES OF PETROLEUM PRODUCTS ON THE GENERAL PRICE LEVEL

Graph 5. Regression line 

Note: Author calculation

Graph 5 shows regression line which presents correlation between consumer
products price change and oil price change in time period from 2008 till 2014.
Polynomial sixth grade (regression function), best adapts to the original data
(best approximates them).
CPPC = -1E-11OPC6 - 4E-09OPC
0,0099OPC2 - 0,1707OPC + 0, 9264

5

+ 2E-06OPC4 - 0,0002OPC3 +

CPPC is the change consumer products price and OPC is oil price change
in Bosnia and Herzegovina for the period from 2008 till 2014.

.. Regression analysis in programming language R
First, data are load from file DataOilPrices.xls Then connection string to
that file is set:
> conn = odbcConnectExcel(“C:\\DataOilPrice.xls”)
After that data from sheet in Excel are imported with this commands:
>korel = sqlFetch(conn, “List1”)
With command korel data are loaded and shown (as below).
> korel

268

Time AOP
OPCP
CCPP
1
2.040
0.00000000 0.0
2
2.092
2.54901961 1.8
3
2.164
3.44168260 0.1
4
2.242
3.60443623 -0.4
5
2.405
7.27029438 0.9
6
2.523
4.90644491 0.9
7
2.533
0.39635355 0.1
8
2.447
-3.39518358 0.1
9
2.336
-4.53616673 0.1
10
2.182
-6.59246575 0.7
11
1.996
-8.52428964 -0.6
12
1.791
-10.27054108 -0.6
.....................................................................
.....................................................................
78
2.359
-0.42211904 -0.2
79
2.345
-0.59347181 -0.3
80
2.369
1.02345416 0.0
81
2.378
0.37990713 0.5
82
2.336
-1.76619008 0.4
83
2.279
-2.44006849 -0.2

Commands in R language to call function lm():
> regresija<-lm(korel$CCPP~korel$OPCP,data=korel)
> summary(regresija)
After input of commands in R language for regression analysis, result is:
Call:
lm(formula = korel$CCPP ~ korel$OPCP, data = korel)
Residuals:
Min

1Q

Median

3Q

Max

269

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

After data are loaded, significant model of regression is calculated using
function lm() in R language.

-1.22544

-0.22108

-0.04201

0.24179

1.53383
Pr(>|t|)

Besim Aliti • Marko Markić • Boris Štulina: THE IMPACT OF CHANGES IN PRICES OF PETROLEUM PRODUCTS ON THE GENERAL PRICE LEVEL

Coefficients:
Estimate

Std. Error

t value

(Intercept)

0.11840

0.05240

2.260

0.02653 *

korel$OPCP

0.05797

0.01702

3.407

0.00103 **

--Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1
Residual standard error: 0.4765 on 81 degrees of freedom
Multiple R-squared: 0.1253, Adjusted R-squared: 0.1145
F-statistic: 11.61 on 1 and 81 DF, p-value: 0.001025
From this calculation result it is possible to form model of regression:
CCPP = b0 + b1* OPCP
Where CCPP is change of consumer products price, OPCP is oil price
change and coefficient b0 is part on Y axis and its value is b0= 0.11840 and
coefficient b1 is incline of regression line and it value is b1= 0.05797.
From analysis is clear that part on Y axis (coefficient b0) is not 0, as well as
incline of regression line (b1).
CCPP = b0 + b1* OPCP
CCPP = 0.11840 + 0.05797 * OPCP
Probability is labeled as p-value. That value is probability that coefficient by
variable is not significant. Smaller values are better in that case. Bigger p-value
indicates bigger probability of insignificance coefficient in regression. In this
analysis for coefficient beside variable OPCP, p-value is 0.001025. That value
is small (lower from most common value 0.05), which indicates that value of
coefficient beside variable OPCP cannot be considered as equal zero.
R language uses appropriate marks to visualize quick identification of variables. In last column are special marks *. One mark signify value between 0.01
and 0.05 (p-value). (Markić, 2014, 92).

270

Table 2. P-value marks
***

p-value između 0 i 0.001

**

p-value između 0.001 i 0.01

*

p-value između 0.01 i 0.05

.

p-value između 0.05 i 0.1

(blank)

p-value između 0.1 i 1.0

Source: Markić, Brano; Sustavi za otporu odlučivanju, 2014, str 92

Column marked with Std. Error is standard error estimated coefficients.
Column marked as t value is t-statistics from which is probability is calculated
(p-value). Row: “Residual standard error: 0.4765 on 81 degrees of freedom is standard deviation errors e.
Coefficient determination R2 is measure of model quality. Higher value is
better.
In this analysis Multiple R-squared is 0.1253.
Row: F-statistic: 11.61 on 1 and 81 DF, p-value: 0.001025 indicates model
significance or it insignificance. Model is significant if one of coefficients is not
equal zero. Model is insignificant if all its coefficients are equal zero (b1 = b2 =
… = bn = 0).

Also using R language is calculated coefficient of correlation between two
variables, consumer products price change and oil price change to measure
strength of correlation between those two variables.
Commands in R language to calculate coefficient of correlation between two
variables:
> library(RODBC)
> conn = odbcConnectExcel(“C:\\DataOilPrice.xls”)
> korel = sqlFetch(conn, “List1”)
> X=korel$OPCP
> Y=korel$CCPP

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

If p-value is lower than 0.05 that indicates that model is significant. In presented analysis probability (p-value) is 0.001025 which is less than 0.05. That
indicates that presented regression model is significant.

> cor(X,Y)

Besim Aliti • Marko Markić • Boris Štulina: THE IMPACT OF CHANGES IN PRICES OF PETROLEUM PRODUCTS ON THE GENERAL PRICE LEVEL

[1] 0.3540327
As a result of calculation in R language is correlation value which is
0.3540327. That correlation value show that although impact of oil price
changes on changes of consumer products prices exists, what is proven by model of regression which is significant, that correlation is not so strong.

5.

CONCLUSION

The aim of whole paper is, trough analysis, to show connection/correlation
between two variables, change of oil prices as independent variable and change
of consumer products prices as dependent variable.
Regression analysis showed that it is possible to describe that correlation
with model:
CCPP = 0.11840 + 0.05797 * OPCP.
In this model dependent variable is CCPP – consumer products price
change is with positive correlation with oil price change. Percentage change of
oil prices implicates percentage price change of consumer products in same direction. By shown model above if oil prices rise by 1% of consumer prices will
rise by 1.11840%.
But, although it is shown that assumed model is significant, with calculation
of coefficient of correlation (correlation value = 0, 3540327) it was concluded
that the relationship between the assumed variables is not so strong.
Based on that analysis it can be concluded that although there is a connection/correlation between the variables it is not so dominant. In another words,
oil price change in the short time period, does not implicates strong reaction of
consumer products price change.
Based on presented facts it can be concluded that on the Bosnia and Herzegovina market at consumer products pricing doesn’t dominate cost principle of
price determination.
It is natural to assume that process of pricing is mostly affected with value
principle, whereas consumers associate to certain product value based on the
purchase or after purchase experience and with market competition.

272

Barrell, R., Pomerantz, Olga (2004). Oil prices and world economy, Focus on
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D´Ecclesia, Rita L., Magrini,Emiliano, Montalbano,Pierluigi, Energy economics, Vol.46,
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kongresa za naftu, godina 41, broj 7-8, str. 360.
Dekanić, I. Geopolitika energije. Zagreb : Golden marketing - Tehnička knjiga, 2011.
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(2011), 9-10., str. 320- 330. URL: http://hrcak.srce.hr/file/108985
Galović, S., (1999), Low oil prices dictate industy restructuring, „NAFTA“journal, 50(6),
181.-183.
Keun-Young, Lee, 2002, An effect of oil price increase on the national income, inflation and
monetary policy, Review of financial economics, vol. 16, 103-130, ISSN:1225-9489
Sigalla Fiona D. & Wynne Mark A. (1994) The consumer price index
The Economist, Winners and losers, Oct.23, 2014
WEO, 2000 (15.03.2015)
http://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=5&pid=5&aid=2&cid=ww,&
syid=1980&eyid=2013&unit=TBPD (20.03.2015)
http://www.bruegel.org/nc/blog/detail/view/1538/ (13.03.2015)
http://blogs.lse.ac.uk/europpblog/2015/01/21/falling-oil-prices-should-help-europesailing-economies-but-the-wider-implications-of-the-price-drop-remain-to-be-seen/
(13.03.2015)
http://www.bruegel.org/nc/blog/detail/view/1538/ (13.03.2015)
http://blogs.lse.ac.uk/europpblog/2015/01/21/falling-oil-prices-should-help-europesailing-economies-but-the-wider-implications-of-the-price-drop-remain-to-be-seen/
(13.03.2015)
http://www.vizijadanas.com/svet_nafte.html (09.03.2015)
http://parlamentfbih.gov.ba/dom_naroda/bos/parlament/propisi/El_materijali/
Zakon%20o%20naftnim%20derivatima.pdf (09.03.2015)

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Literature

IMPACT ANALYSIS OF ECONOMIC
PARAMETERS ON SOCIAL
DEVELOPMENT

Goran Sučić • Željko Požega • Boris Crnković: IMPACT ANALYSIS OF ECONOMIC PARAMETERS ON SOCIAL DEVELOPMENT

Goran SUČIĆ, Ph.D., Assistant professor
Faculty of Humanities and social sciences University in Split
gsucic@ffst.hr

Željko POŽEGA, Ph.D., Associated professor
Faculty of Economics in Osijek
zpozega@efos.hr

Boris CRNKOVIĆ, Ph.D., Associated professor
Faculty of Economics in Osijek
bcrnko@efos.hr

Abstract
Countries in the world generally don’t have clear policy or sufficiently understanding of investing importance in people and their potential. Today, human
factor is of too little importance, although thr country that invest in people,
raising their motivation, knowledge and teamwork, provide much higher rate
of return and more equitable growth structure than is the case with investments in buildings, machinery and equipment. The process, therefore, in many
countries of the world is going wrong and should be reversed, instead of current
priority investments in tangible assets, much more should be invest in human
resources, and less in physical capital, at the same time and without ignoring
its importance.
Keywords: economic development, human development, countries in the
world
JEL Classification: H12, O 52, C8

274

1.

INTRODUCTION

Research in this paper is conducted on a sample of 177 countries and 74
variables for each of the observed countries in the world that have available
and collected data.1 Change in variable value was observed and analyzed in the
time period 1975th – 2015th, projected values of the variables for 2015th, chisquare test and level of significance of observed variables. Hypothesis of this
paper is: economic parameters that determine level of development of human
capital have the highest level of significance to social development.

ANALYSIS OF CHANGE OF VARIABLE VALUES
USED IN THE PAPER IN TIME PERIOD
1975TH  2015TH.

Considering the values obtained with descriptive statistics analysis of variables of countries in the period 1975th – 2015th (projection), we can see that
the average value is growing at high rates in variables: population (from 22,7
million to 35,8 million, the projected value for 2015 is 40,2 million), urban
population (from 42,3 percent to 54,3 percent, the projected value for 2015 is
59,1%), number of subscribers of mobile devices (3,2 subscribers per thousand
inhabitants to 314,6 subscribers per thousand inhabitants), number of Internet
users (from 0,3 users per thousand inhabitants to 155,4 users per thousand
inhabitants), GDP per capita (from 4.012,1 dollars to 9.552,9 dollars), external
debt (from $16.732,4 million to $71.122,9 million), GDP (from 181,4 billion
dollars to 309,2 billion dollars), GDP (purchasing power parity) (from 277,9
billion dollars to 311,1 billion dollars) and number of working-age population
(from 1,7 million to 17,4 million).
The average value grows at low rates at variables: Human Development Index (from 0,59 to 0,71), life expectancy (from 58,5 years to 66,1 years), investment in education (from 4,4 percent to 4,9 percent), investment of government
funds in education (from 14,7 percent to 15,8 percent), the rate of adults in
education (from 73,1 percent to 81,7 percent), enrollment rates in primary education (from 78,8 percent to 85,6 percent), enrollment rates in secondary education (from 58,8 percent to 63,5 percent), the number of telephone lines (from
1
Data are part of United Nations (UN) database, published on the web site: http://hdr.undp.org/ and
http://unstats.un.org/unsd/

275

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

2.

Goran Sučić • Željko Požega • Boris Crnković: IMPACT ANALYSIS OF ECONOMIC PARAMETERS ON SOCIAL DEVELOPMENT

126,4 lines per thousand inhabitants to 200,4 lines per thousand inhabitants),
imports ( from 40,5 percent to 45,9 percent), exports (from 33,9 percent to
40,1 percent), foreign direct investment (from 1,7 percent to 4 percent), investment in health (from 3,1 percent to 3,5 percent), the growth rate of GDP (from
2,4 percent to 4,6 percent), the combined proportion of primary, secondary and
tertiary education (from 67,8 percent to 71,1 percent), GDP per capita ( purchasing power parity) (from $8.661,4 million to $9.566.3 million), the index of
life expectancy (from 0,67 to 0,68), education index (from 0,76 to 0,78), longterm unemployment rate (from 2,6 percent to 2,7 percent) and the number of
population over age of 65 (from 5,9 percent to the projected value for 2015. of
8,3 percent).
The average value decreases at low rates at variables: total debt (from 6,2
percent to 5,7 percent), investment in the army (from 3,8 percent to 2,5 percent), investment in research and development (from 1,04 percent to 1,01 percent), Human Poverty Index (from 25,5 percent to 25 percent), the rate of illiteracy of adults (from 25,6 percent to 25,4 percent), annual growth rate of the
population (from 1,8 percent to the projected value for 2015 of 1,3 percent) and
population under age of 15 (from 31,5 per cent of the projected value for 2015
of 27,9 percent).
The average value decreases at high rates only at the variable rate of inflation
(from 101,9 percent to 6,4 percent).
The average value fluctuates at variables: investment in pre-primary and primary education (from 40,4 percent to 41,9 percent), investment in secondary
education (from 33,1 percent to 36,4 percent), investment in tertiary education
(16,1 percent to 19,3 percent), the number of students who reach the fifth grade
in education (from 80,3 percent to 82,6 percent), the rate of education of not
adults (from 83,1 percent to 87,8 percent) and unemployment rate (from 7,1
percent to 14,7 percent).
If we look at changes in the standard deviation of variables, we can see that
the standard deviation is growing at high rates at variables: population (from
86,9 million to 132,4 million, the projected value for 2015. is 145,8 million), the
number of subscribers of mobile devices (8,9 subscribers per thousand inhabitants to 323,2 subscribers per thousand inhabitants), the number of Internet
users (from 1,2 users per thousand inhabitants to 178,4 users per thousand inhabitants), GDP per capita (from $5.385,7 to $10.559,9), external debt (from

276

$51 .826,9 million to $390.754,5 million), GDP (from 866,8 billion dollars to
1.141,1 billion), GDP (purchasing power parity) (from 961,9 billion dollars to
1.086,5 billion) and the number of working-age population (from 69,1 million
to 72 million).
Standard deviation is growing at low rates at variables: investment in education (from 1,9 percent to 2,3 percent), enrollment rates in secondary education (from 27,2 percent to 27,5 percent), the number of telephone lines (161,2
lines per thousand inhabitants at 203,2 lines per thousand inhabitants), exports
(from 21,6 percent to 24 percent), foreign direct investment (from 3,6 percent
to 6,9 percent), the growth rate of GDP (from 3,4 percent to 4 percent), investment in research and development (from 0,94 percent to 1,03 percent), GDP
per capita (purchasing power parity) (9,081,6 dollars to 10,247.6 US dollars),
Human Poverty Index (from 16,03 percent to 16,07 percent), the rate of illiteracy adults (from 20,2 percent to 20,8 percent), long-term unemployment
rate (from 2,4 percent to 2,7 percent) and population over age of 65 (from 4,3
percent to the projected value for 2015 of 6,8 percent).

Standard deviation decreases at low rates at variables: Human Development
Index (from 0,19 to 0,17), the urban population (from 23,7 percent to 23,3 percent, the projected value for 2015. of 22,3 per cent), investment in pre-primary
and primary education (from 16,7 percent to 10,9 percent), investment in secondary education (from 13,8 percent to 9,9 percent), the rate of adults in education (from 22,9 percent to 19,9 percent ), enrollment rates in primary education
(from 21,5 percent to 15,5 percent), imports (from 23,2 percent to 23 percent),
total debt (from 7,8 percent to 5,1 percent), investment in the army (from 5,1
percent to 2,5 percent), investment in health care (from 1,94 percent to 1,9
percent), the combined proportion of primary, secondary and tertiary education
(from 19,8 percent to 19,6 percent), annual growth rate of the population (from
1,2 percent to the projected value for 2015. of 1 percent) and population under
age of 15 (from 10,6 percent to the projected value for 2015. of 10,5 percent).
Standard deviation decreases at high rates only variable inflation rate (from
523,8 percent to 11,7 percent).
Standard deviation oscillates at variables: life expectancy (from 10 years to
12,4 years), the investment of government funds in education (from 5,2 per-

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Standard deviation is stagnating at a specified index in life expectancy (0,2)
and education index (0,19).

Goran Sučić • Željko Požega • Boris Crnković: IMPACT ANALYSIS OF ECONOMIC PARAMETERS ON SOCIAL DEVELOPMENT

cent to 5,7 percent), investment in tertiary education (from 7,8 percent to 9,4
percent), the number of students who reach grade fifth grade in education
(from 15,6 percent to 18,8 percent), the rate of education of not adult person
(from 16,3 percent to 19,5 percent) and unemployment rate (3,9 percent to 13
percent).
If we look at changes in the minimum values of variables, we can see that the
minimum value is growing at high rates at variables: urban population (from
3,2 percent to 7,7 percent, the projected value for 2015. by 9,5 percent), investment in primary and pre-primary education (from 2,2 percent to 20 percent),
investment in secondary education (from 0,7 percent to 12 percent), enrollment
rates in primary education (from 16 percent to 36 percent) and the number of
working-age population (25 inhabitants per 18.170 inhabitants).
The minimum value is growing at low rates at variables: Human Development Index (0,23 to 0,28), investment in tertiary education (from 0 percent to
2,4 percent), imports (from 5 percent to 10 percent), exports (from 3 percent to
7 percent), foreign direct investment (from 3,3 percent to 0,8 percent), investment in health (from 0 percent to 0,4 percent), the combined proportion of primary, secondary and tertiary education (from 17 percent to 21 percent), GDP
per capita (purchasing power parity) (from $470 to $548), Human Poverty
Index (from 2,5 percent to 3,6 percent), long-term unemployment rate (from
0,2 percent to 0,3 percent) and the number of population over age of 65 (from
0,8 per cent of the projected value for 2015 of 1,4 percent).
The minimum value is stagnant at variables: population (0,1 million, projected value for 2015. is also 0,1 million), the number enrolled in secondary education (5 percent), the number of telephone lines (2 lines per thousand inhabitants), the number of subscribers mobile devices (0 subscribers per thousand
inhabitants), the number of Internet users (0 users per thousand inhabitants),
investment in the army (0 percent), external debt ($0 million), investment in
research and development (0,1 percent), the rate illiteracy adults (0,3 percent)
and GDP (purchasing power parity) (0,4 billion dollars).
The minimum value decreases at low rates at variables: investment of government funds in education (from 2,8 percent to 1,6 percent), total debt (from
0,4 percent to 0,1 percent), the index of life expectancy (from 0,14 to 0,12),
education index (from 0,17 to 0,16), the annual growth rate of the population
(from 0,4 percent of the projected value for 2015. of 1,1 percent) and popula-

278

tion under age of 15 (from 14,1 per cent of the projected value for 2015. of 12,7
percent).
Minimum value fluctuates at variables: life expectancy (from 33 years to 38
years), investment in education (from 0,5 percent to 0,9 percent), the rate of
adults in education (from 11,4 percent to 17,6 percent), the number of students
who reach the fifth grade in education (from 22 percent to 38 percent), the rate
of education nepunoljetnih person (from 17 percent to 23,8 percent), GDP
per capita (from $83 to $600), inflation rate (from 6 percent to 0,5 percent),
unemployment rate (from 0 percent to 2,5 percent), the growth rate of GDP
(from 14.7 percent to 8,2 percent) and GDP (from 0,1 billion dollars to 0,214
billion dollars).

The maximum value is growing at low rates at variables: Human Development Index (0,88 to 0,96), life expectancy (from 74,7 years to 81,6 years), the
investment of government funds in education (26,9 percent to 32,8 percent),
the rate of adults in education (from 99,8 percent to 100 percent), enrollment
rates in secondary education (from 97 percent to 104 percent), the number of
telephone lines (681 lines per thousand inhabitants in the 797 line on the thousand inhabitants), imports (from 124 percent to 161 percent), exports (from
132 percent to 170 percent), foreign direct investment (from 30,7 percent to
49,1 percent), investment in health (from 9,5 percent to 9,7 percent), investment in research and development (from 3,8 percent to 5,1 percent), the combined proportion of primary, secondary and tertiary education (from 114 percent to 123 percent), GDP per capita (at purchasing power parity ) (53.780 US
dollars to 62.298 US dollars), the index of life expectancy (from 0,94 to 0,95),
Human Poverty Index (from 61,8 percent to 64,4 percent), the rate of illiteracy

279

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

If we look at changes in maximum values of variables, we can see that the
maximum value is growing at high rates at variables: population (from 927,8
million to 1.306,3 million, the projected value for 2015. of 1.393 million), the
number of subscribers of mobile devices (from 54 subscribers per thousand
inhabitants to 1.194 subscribers per thousand inhabitants), the number of Internet users (from 8 users per thousand inhabitants to 675 users per thousand
inhabitants), GDP per capita (21.082 US dollars to 58.900 US dollars), the
growth rate of GDP -a (from 15 percent to 38 percent), GDP (purchasing power parity) (9.792,5 billion to 10.923 billion) and the number of working-age
population (from 74 million to 760 million).

Goran Sučić • Željko Požega • Boris Crnković: IMPACT ANALYSIS OF ECONOMIC PARAMETERS ON SOCIAL DEVELOPMENT

adults (from 83,5 percent to 87,2 percent), long-term unemployment rate (from
9,3 percent to 10,7 percent), GDP (from 10.065,3 billion to 11.750 billion),
the population under age of 15 (50,4 percent of the projected value for 2015. of
50,8 percent) and the number of population over age of 65 (from 16,7 percent
to the projected value for 2015. of 26 percent).
The maximum value stagnates at variables: urban population (100 percent,
the projected value for 2015. is also 100 percent), the number of students who
reach the fifth grade in education (100 percent), the rate of education not adults
persons (99,9 percent) and education index (0,99).
The maximum value decreases at low rates with variables: total debt (from
74,5 percent to 36,4 percent) and annual growth rate of the population (of 7,2
per cent on the projected value for 2015 of 4,9 percent).
The maximum value decreases at high rates at variables: investment in preprimary and primary education (from 96,3 percent to 71,4 percent), investment
in secondary education (from 84,3 percent to 57,5 percent), investment in the
army (of 48,5 percent to 19,4 percent), inflation (from 4.925 percent to 133
percent) and foreign debt (from $532 billion to 4.710 million).
The maximum value fluctuates at variables: investment in education (from
10.4 percent to 18.7 percent), investment in tertiary education (from 34,3 percent to 46,7 percent), enrollment rates in primary education (from 100 percent
to 109 percent) and unemployment rate (from 19,6 percent to 70 percent).

3.

ANALYSIS OF PROJECTED VALUES OF
VARIABLES USED IN THE PAPER FOR 2015TH

By examining results of descriptive statistical analysis of variables countries
projected data for 2015. (see Table 1), we can see that the variable population
has an average value of 40,242 (variable number of residents expressed in millions), the median is 8,15, while mode is 0,1. Variance and standard deviation
amounted to 21.263,898, and 145,821. The minimum value is 0,1, the maximum value of 1.393, the range of variation is 1.392,9. Lower and upper quartile
values are 2,7 to 29,325.
Variable annual growth rate of population has an average value of 1,302
(variable annual growth rate of the population is expressed as a percentage), the

280

median is 1,3, while the mode is 0,3. Variance and standard deviation amount
to 1,051 or 1,025. The minimum value is – 1,1, the maximum value is 4,9, the
range of variation is 6. Lower and upper quartile values are 0,425, respectively 2.
The variable urban population has an average value of 59,107 (variable
urban population is expressed as a percentage), the median is 60,1, while the
mode is 44,2. Variance and standard deviation amounted to 496,603, ie 22,285.
The minimum value is 9,5, the maximum value of 100, the range of variation
was 90,5. The lower quartile has a value of 43,15, while the upper quartile has
value of 75,95.
Variable population under age of 15 has an average value of 27,977 (variable
population under 15 expressed as a percentage), the median is 27,1, while the
mode is 16,4. Variance and standard deviation amounted to 110,555, ie 10,515.
The minimum value is 12,7, the maximum value is 50,8, the range of variation
is 38,1. The lower quartile has a value of 17,6, while the upper quartile has value
of 36,225.

4.

ANALYSIS OF THE CHISQUARE TEST AND
SIGNIFICANCE LEVEL OF VARIABLES USED IN
THE PAPER

By examining the results of the analysis chi-square test and significance level
variables countries (see Table 2), we can see that the high level of significance
from 0,5 to 1 at variables: Human Development Index (1), Human Poverty
Index (1), the probability of not surviving 40 (developing countries) or 60th
(OECD countries) years of age (1), the rate of illiteracy adults (1), the rate of
long-term unemployment (1), population (1), the urban population (1), population under age of 15 (1), investment in health care (0.841), the mortality rate of
children (20 percent of the poorest segment of the population (1)), the mortality
rate of children (20 percent wealthiest segment of the population (1)), the num-

281

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

A variable number of population over age of 65 has an average value of 8,3
(variable number of population over age of 65, expressed as a percentage), the
median is 5,7, while the mode is 3,4. Variance and standard deviation amounted
to 34,098, ie 6,839. The minimum value is 1,4, the maximum value is 26, the
range of variation is 24,6. The lower quartile has a value of 3,7, while the upper
quartile has value of 13,3.

Goran Sučić • Željko Požega • Boris Crnković: IMPACT ANALYSIS OF ECONOMIC PARAMETERS ON SOCIAL DEVELOPMENT

ber of adult men smokers (0,999), the number of adult women smokers (0,899),
life expectancy (1), the probability of survival of 65 years for men (1), the probability of surviving 65 years for women (1), investment in education (0,988),
the investment of government funds in education (1), investment in pre-primary
and primary education (1), investment in secondary education (1), investment
in tertiary education (1), rate of education of adults (1), the number enrolled
in secondary education (0,805), number of telephone lines (1), the number of
subscribers of mobile devices (1), the number of Internet users (1), the number of researchers (1), GDP per capita (1), the annual growth rate of GDP per
capita (0,838), the average annual change in the consumer price index (1), imports (0,681), foreign direct investment (0,806), total debt (1), unemployment
rate (1), electricity consumption per capita (1), Gender - Related Development
Index (1 ), life expectancy for men (1), life expectancy for women (1), the rate of
adult education for men (1), the rate of adult education of women (1), predicted
earned income for men (1), predicted earned income for women (1), Gender
Empowerment Measure (1), the number of women in Parliament (1), the number of women according to the number of men enrolled in tertiary education
(1), women as contributing family workers (0,996), the population below the
poverty line (1), the index of press freedom (1), increased productivity (1), the
number of working-age population (1) and external debt (1).
Following variables have significance level from 0,1 to 0,5: GDP per capita
ranking - Human Development Index ranking (0,12), the population over age
of 65 (0,131), export (0,275) and inflation rate (0,205).
Following variables have low level of significance from 0 to 0,1: the combined proportion of primary, secondary and tertiary education (0,02), the index of life expectancy (0,003), education index (0), the annual growth rate of
the population (0,004), the mortality rate of children (0), the mortality rate of
children under 5 years (0), the number enrolled in primary education (0), the
number of students who reach the fifth grade in Education (0), the number
of students of biology, mathematics and engineering sciences (0.021), number
of patents granted to residents (0), investment in research and development
(0,001), investment in the army (0,002), the import of weapons (0), the export
of weapons (0), the number of women in the legislature and in managerial positions (0,089), number women in government (0), the population with less than
$1 per day (0), the rate of education of not adult person (0.022), the number of
Olympic medals to GDP (0) and growth rate of GDP (0,001).

282

5.

SYNTHESIS OF RESEARCH FINDINGS

Countries in the world generally don’t have clear policy or sufficiently understanding of investing importance in people and their potential. Today, human
factor is of too little importance, although thr country that invest in people,
raising their motivation, knowledge and teamwork, provide much higher rate of
return and more equitable growth structure than is the case with investments
in buildings, machinery and equipment. The process, therefore, in many countries of the world is going wrong and should be reversed, instead of current
priority investments in tangible assets, much more should be invest in human
resources, and less in physical capital, at the same time and without ignoring its
importance.

Annexes
Table 1. Analysis of the projected values of variables used in the paper for
2015th.
broj
stanovnika
godisnja
urbano
ispod 15
broj
stopa rasta stanovn
godina
istvo
stanovnika stanovnika
N
Valid
176
172
177
172
Missing
1
5
0
5
Mean
40.242
1.302
59.107
27.977
Median
8.150
1.300
60.100
27.100
Mode
.1
.3
44.2 a
16.4
Std. Deviation
145.821
1.025
22.285
10.515
Variance
21263.898
1.051 496.603
110.555
Range
1392.9
6.0
90.5
38.1
Minimum
.1
-1.1
9.5
12.7
Maximum
1393.0
4.9
100.0
50.8
Percentiles
25
2.700
.425
43.150
17.600
50
8.150
1.300
60.100
27.100
75
29.325
2.000
75.950
36.225
a. Multiple modes exist. The smallest value is
h

broj
stanovnika
iznad 65
godina
172
5
8.300
5.700
3.4 a
5.839
34.098
24.6
1.4
26.0
3.700
5.700
13.300

(made by authors)

Legend: broj stanovnika – population; godisnja stopa rasta stanovnika - annual growth rate of the population; urbano stanovnistvo - urban population;
broj stanovnika ispod 15 godina - population under age of 15; broj stanovnika
iznad 65 godina - population over age of 65.

283

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Statistics

Table 2. Results of analysis chi-square test and significance level of variables
used in the paper.
ChiAsymp.
Asymp.
df
variable
Chi-Square df
Square
Sig.
Sig.
human development index 34294 148 1000 investments in education
41333
64 0.988
the combined proportion
investment of
of primary, secondary and 95266 69
0.02 government funds in
17947
73 1000
tertiary education
education
life expectancy index
89322 56 0.003 investments in education
41333
64 0.988
investment of
education index
118508 54
0
government funds in
17947
73 1000
education
bdp per capita rank minus
investments in prehuman development index 89593 62 0.012 primary and primary
11691
96 1000
rank
education
investments in secondary
12327
95 1000
human poverty index
10207 107 1000
education
probability of not surviving
investment in tertiary
16704
90 1000
more that 40 or 60 years 38326 132 1000
education
of life
the rate of illiteracy of
rate of education of
13609 101 1000
25394
105 1000
adults
adults
the number enrolled in
rate of long-term
157159
40
0
2333
23 1000
unemployment
primary education
the number enrolled in
population
72818 118 1000
61577
72 0.805
secondary education
the number of students
annual rate of population
71339 43 0.004 that reaches grade 5 in
84526
45
0
growth
education
number of students of
urban population
11785 162 1000 biology, mathematics and
46400
29 0.021
engineering sciences
population under age
number of telephone
33500 136 1000
23534
118 1000
of 15
lines
number of subscribers to
population over age of 65 97581 83 0.131
21962
138 1000
mobile devices

Goran Sučić • Željko Požega • Boris Crnković: IMPACT ANALYSIS OF ECONOMIC PARAMETERS ON SOCIAL DEVELOPMENT

variable

investments in education
the mortality rate of
children
the mortality rate of
children
number of adult male
smokers
number of adult female
smokers

284

51839

63

0.841

33347

91

1000

0

53

1000

918176

46

0

0.963

52

1000

49143

23

0.001

11608

30

0.999 number of researchers

5583

91

1000

13275

21

0.899 bdp per capita

2893

164

1000

Internet users
number of patents
granted to residents
investment in research
and development

29860

139

1000

131773

73

0

146000

87

0

24209

142

29442

141

total debt

35076

83

investments in army

78985

47

unemployment rate

2933

25

electricity consumption
per capita

3813

166

weapon import

3E+06

85

weapon export

731139

40

56647

110

25768

112

0

153

4844

150

1000

0

26

7462
3805

the mortality rate of
children
the mortality rate of
children under 5 years
the probability of surviving
65 years for men
the probability of surviving
65 years for women

rate of education of adult
men
rate of education of adult
women
predicted earned income
for men
predicted earned income
for women
increase of productivity
the number of workingage population
external debt

annual growth rate of
GDP per capita
Average annual change
in consumer price index

59278

71

0.838

43550

117

1000

import

63939

70

0.681

1000

export

70282

64

0.275

1000

foreign direct investment

61529

72

0.806

2775

76

1000

53310

129

1000

45529

34

0.089

50331

100

1000

22188

43

0.996

154306

76

0

135494

64

0

12640

87

1000

114286

86

0.022

press freedom index

28234

98

1000

1000

olympics medal count
to GDP

3E+06

50

0

149

1000

inflation rate

106121

95

0.205

159

1000

the growth rate of GDP

116897

75

0.001

gender empowerment
measure
number of women in
0.002
parliament
number of women in
1000 the legislature and in
managerial positions
number of women vs
1000 number of men enrolled
in tertiary education
women as contributing
0
family workers
number of women in
0
government
population with less than
1000
1 USD per day
population below poverty
1000
line
rate of education of not
1000
adults persons
1000

(made by authors)

285

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

life expectancy

THE NEW ECONOMIC POLICY OF
THE EU AND ITS APPLICATION IN
THE REPUBLIC OF CROATIA
Mladen Vedriš, Ph.D., Full professor
Faculty of Law in Zagreb
University of Zagreb

Mladen Vedriš: THE NEW ECONOMIC POLICY OF THE EU AND ITS APPLICATION IN THE REPUBLIC OF CROATIA

Abstract
The global crisis has created new challenges and new ways of solving them
in different parts of the world. In the United States it has been characterized
primarily by powerful actions and financial stimuli from the central bank, the
Federal Reserve Bank, or the Fed, to stabilize the banking (financial) system,
and by further stimuli in the real sector. Within the EU the accent in the first
period was placed on implementing structural reforms in individual countries
and then on activities directed at significantly greater coordination and monitoring in achieving national goals of economic and development policy.
In this context a new control and corrective mechanism (the EU Semester) has
been created through which the European Commission analyses the fiscal and
structural reform policies of every member state, provides recommendations,
and monitors their implementation. Also, the presence, role and activities of
the European Central Bank have been enhanced to create a mechanism to
prevent possible future financial crises, but also one to provide the prerequisites
for stimulating economic growth.
As a full member of the EU since 1 July 2013, the Republic of Croatia is in a
position for opening new opportunities but also to take on new responsibilities.
The long, deep economic crisis can be resolved with the assistance of EU institutions and EU structural funds, but at the same time it demands a considerably
greater degree of responsibility and effort by the executive authorities in achieving the necessary structural reforms. This work cites the causes of the economic
crisis in Croatia and it then analyzes the possibility for overcoming it by a series
of synchronized measures and actions: reforms that for one populist political
reason or another were ignored for a long time, or postponed, contrary to the
warnings from foreign and domestic professional institutions.

286

Keywords: crisis, new EU economic policy, EU Semester, programs for economic adaptation, EDP procedure and Croatia, structural reforms, economic
growth.
JEL Classification: D04, E6, F68

1.

INTRODUCTION

With two year of experience as the newest member of the EU, the Republic of Croatia is actively engaged in achieving a real convergence with the EU,
which is a long, demanding process after the political and normative one that
concluded successfully on 1 July 2013.
This work has two goals. The first one is to describe the current situation
and the essential guidelines for creating a common EU economic policy under
the circumstances of an unfolding economic crisis. And that crisis was the basic
reason for the construction of joint mechanisms to create and monitor and to
correct individual national economic policies. The second goal is to analyze the
current economic position of Croatia, individually but also in comparison to
other EU members, to establish what must be done; which instruments and
mechanisms can encourage economic growth. What are the endogenous factors and responsibilities – first for implementing structural reforms – and what
are the possible contributions by the EU, beginning with the active cooperation

287

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

The position of the European Union today is not ambiguous. On one hand
it is a community of states with a high degree of social responsibility and that
also continuously identifies new instruments for stimulating development, not
only of its members as a whole but also for several of its regions in particular.
On the other hand, it is a collection of economies with various degrees of economic development and various capacities for future growth, but also of with a
variety of conceptual views about how to achieve important goals, which have
been defined in a jointly adopted development document Europa 2020. How to
navigate the global crisis, how to make the EU economic area in general more
competitive, how to encourage new investment, and how to respond to a series
of challenges for sustainable development: from environmental protection to
demographic trends and the relations of the working and the supported populations - are open questions that the EU must address.

with the European Commission in creating and implementing the necessary
reforms to taking greater advantage of the resources of EU funds.

Mladen Vedriš: THE NEW ECONOMIC POLICY OF THE EU AND ITS APPLICATION IN THE REPUBLIC OF CROATIA

Based on these goals, the first part of the work will analyze the economic
position and performance of the EU, and in the second part the economic position and performance of Croatia in the context of the requirements that the
EU’s common economic policy sets before each of its members. The conclusion
with point to the possible positive synergies in achieving the development goals
of Croatia, but also to the important challenges, responsibilities and opportunities in several areas that have become accessible with the country’s membership
in the EU.

2.

THE EUROPEAN UNION  A NEW ECONOMIC
POLICY

At the very beginning, a question is raised about the circumstances that are
demanding changes in the activities of the EU and the establishment of new
mechanisms, which are accepted by EU members and become obligations for
future individual behavior within national frameworks.1 The immediate conclusion would refer to the appearance of the economic crisis that moved from
the United States to Europe (2007-2008) and became a global crisis. However,
an awareness of the need for deep changes in the EU framework to raise the
level of competitiveness as a key tool for maintaining its own position, economically and socially, was created before this event in the 1990s and was formally
structured in the document of the Lisbon Strategy (2000-2010), which for
about half of its life span, was subject to revisions and additions for a stronger
focus on concrete goals with individual countries. Upon the expiration of the
Lisbon Strategy, the EU undertook an evaluation of the current situation (the
powerful shock of the 2009 crisis) and adopted a new development document:
Europa 2020.2
1

2

The European Semester is the first phase of the EU’s annual cycle of economic policy guidance
and surveillance. In the second phase, the National Semester, member states implement the
policies they have agreed.
Europe 2020 - Europe’s growth strategy: Growing to a sustainable and job-rich future, European
Commission, Brussels, 2010. This ten-year strategy for growth and jobs in the EU, began in
2010. Its goal was not just to overcome the crisis from which our economy is gradually recovering, but to resolve the shortcomings of our model of growth and to create the conditions for
intelligent, sustainable and inclusive growth.

288

Table 1. EU 2020 strategic goals
Europe 2020 strategy headline indicators, EU28
Past situation
 
Headline indicator
2008
Employment rate, total
Employment
70.3
(% of the population aged 20-64)
Gross domestic expenditure on R&D
R&D
1.85
(% of GDP)
Greenhouse gas emissions*
90.4
(index 1990=100)
Share of renewable energy in gross final
10.5
Climate change & energy consumption (%)
energy
Primary energy consumption
1,689
(Million tons of oil equivalent)
Final energy consumption
1,175
(Million tons of oil equivalent)
Early leavers from education & training,
total
14.7
(% of population aged 18-24)
Education
Tertiary educational attainment, total
31.2
(% of population aged 30-34)
People at risk of poverty or social
Poverty or social
exclusion
116.6
**
exclusion
(million)

Current situation
2012 2013

2020
Target

68.4

68.4

75.0

2.01

2.02e

3.00

82.1

:

80.0

14.1

15.0

20.0

1,584 1,566.5 1,483
1,103 1,104.6 1,086
12.7

12.0

<10.0

35.9

36.9

≥40.0

123.1 121.4e

96.6

However, in contrast to the previous document (the Lisbon Strategy), a conviction within the EU had matured that it was now necessary to move away
from popular declarative commitments and a rickety format for the general
monitoring of the achievement of an agreed upon development policy. It was
necessary to create specific control mechanisms for monitoring and measuring
results and also a powerful mechanism for concrete action in the event of a lesser or greater failure to meet obligations. In other words, after the establishment
of common development goals and priorities, the EU created clear and effective mechanisms for monitoring the implementation of the goals of economic
policy at the national level for each member individually. For that purpose a new
framework was established for creating, monitoring, and also for the quick intervention and correction of, the economic policies of individual member states
based on transparent and measurable instruments.

289

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Source: Eurostat; http://ec.europa.eu/eurostat/web/europe-2020-indicators/
europe-2020-strategy

Mladen Vedriš: THE NEW ECONOMIC POLICY OF THE EU AND ITS APPLICATION IN THE REPUBLIC OF CROATIA

This framework is called the European Semester. It is a mechanism for economic management that was introduced after the adoption of the Europa 2020
strategy. It has been in effect since 2011. The European Semester is not just
an instrument for fiscal oversight, but also for the overall coordination of the
policies of the member states with the development and economic policy of the
European Union. It is aimed at achieving intelligent, sustainable, and inclusive
growth. With that same goal, the member states of the European Semester coordinate their budget and economic policies with the goals and rules that have
been agreed upon at the European Union level and they define and implement
a series of reforms that stimulate growth. The European Semester occurs in annual cycles. Every EU member state is obligated to participate in it.
In the first phase the member states mutually coordinate budget, macroeconomic and structural policies to achieve the goals of the Europe 2020 strategy
(employment, research and development, climate change, education, poverty).3
The European Semester starts when the Commission adopts its Annual Growth
Survey, usually toward the end of the year. This document sets out EU priorities
to boost growth and job creation. The Commission simultaneously publishes
its Alert Mechanism Report in the context of the Macroeconomic Imbalance
Procedure. Based on a scoreboard of indicators, the Alert Mechanism Report
identifies the member states that require further analysis, in the form of an indepth review, in order to conclude on the possible existence and the nature of
potential imbalances. Drawing on the experience from the first exercises of the
European Semester, the 2015 Annual Growth Survey contains proposals to
streamline the process, whose main steps are the following:
In October, member states submit their draft budgetary plans for the following year. The Commission issues an opinion on each of them in November.
The Commission assesses whether the draft budgetary plans comply with the
requirements under the Stability and Growth Pact. 
The spring meeting of the European Council in March takes stock of the
overall macroeconomic situation and progress towards the Europe 2020 targets
and provides policy orientations covering fiscal, macroeconomic and structural
reforms.

3

The European Semester and the Procedure for an Excessive Deficit – Implications for industrial relations in the Republic of Croatia, European Commission, 2014.

290

Also in March, the Commission publishes a single analytical economic assessment per Member State analyzing their economic situation, their reform
agendas and whenever deemed relevant on the basis of the Alert Mechanism
Report, possible imbalances faced by the Member State.
In April, Member States present their plans for sound public finances (stability or convergence programmers) and their reforms and measures to make
progress towards smart, sustainable and inclusive growth in areas such as employment, education, research, innovation, energy or social inclusion (national
reform programmers).
In May, the Commission proposes country-specific recommendations as appropriate. These recommendations provide tailor-made policy advice to Member States in areas deemed as priorities for the next 12-18 months. The Council
discusses and the European Council endorses the recommendations. Policy
guidance is thus given to Member States before they start to finalize their draft
budgets for the following year.

The need for this structuring and monitoring of economic policy within the
EU, and mutual coordination in general, has also been confirmed by experience to date. Thus, the European Commission has stated “the crisis has shown
that problems from one member state of the Euroarea can spread and have a
harmful effect on neighboring states.” Therefore, the enhanced supervision provided would not have prevented the spread of the problems before they became
systematic.
With a packet of two measures that went into effect on 30 May 2013, the
EU introduced a new cycle of monitoring, under which member states (except
those included in programs for macroeconomic adaptation) submit draft budget plans to the European Commission in October of every year. The commission then publishes its opinion. This procedure ensures a more detailed monitoring of Euroarea member states with excessive deficits and closer supervision
of countries that are facing more serious difficulties.

4

Making it happen – The European Semester, European Commission, Brussels, http://
ec.europa.eu/europe2020/making-it-happen/index_en.htm

291

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Finally, end of June or in early July, the Council formally adopts the countryspecific recommendations.4

• Member states for which a procedure for excessive deficits has been initiated are obligated to submit not only their budget plans but also their
programs for economic partnerships with plans for broader fiscal-structural reforms (for example, in the areas of retirement, tax and healthcare
systems) that will reduce their deficits.

Mladen Vedriš: THE NEW ECONOMIC POLICY OF THE EU AND ITS APPLICATION IN THE REPUBLIC OF CROATIA

• Member states in financial difficulties or those include in preventive assistance programs within the European Stabilization Mechanism are subject to “enhanced surveillance,” which means that which means they are
subject to regular review missions by the Commission and must provide
additional data on their financial sectors.”5
Member states that are facing these imbalances will be included in special,
enhanced mechanisms for monitoring their achievement of the recommended
corrections. “The first step of a possible EDP usually follows the identification by the Commission of prima facie non-compliance with the deficit and/
or debt criterion. A Member State is prima facie non-compliant with the deficit
requirement if its general government deficit is above 3% of GDP. As regards
debt, the criterion for prima facie non-compliance is a general government debt
greater than 60% of GDP and not declining at a satisfactory pace. A satisfactory pace is defined as a reduction of the gap between a country’s debt ratio and
the 60% of GDP reference value of the Treaty by 1/20th annually on average
over three years. In these cases, the Commission provides a report under Article
126(3) TFEU which considers all the relevant factors and on that basis concludes whether or not the deficit and/or the debt criterion are complied with.”6
The degree of success of each member is measured concretely and directly
and it then becomes a ranking within individual groups of success. Here it may
be relevant and useful to show results of the Report of the European Commission on the Achievement of the Measures of the European Semester.

5

6

European Commission, MEMO 13/318, Press Release – Economic Management in the EU,
Brussels, 28 May 2014, p. 5.
European Semester 2015: country-specific updates, European Commission, Brussels,
26.02.2015., dostupno: http://europa.eu/rapid/press-release_MEMO-15-4511_hr.htm, p. 2

292

BOX. European Semester  – Country specific updates
The main findings can be summarised as follows:
• Croatia, Bulgaria, France, Italy and Portugal are considered to be in a
situation of excessive imbalance requiring decisive policy action and
specific monitoring, including regular reviews of progress by all Member
States in the relevant committees at EU level:
o   For Croatia and France, risks of imbalances have significantly increased. For
France, this represents a stepping-up of the status under the procedure compared to last year. The Commission will consider in May, taking into account
the level of ambition of National Reform Programmes and other commitments presented by that date whether to recommend to the Council to launch
an Excessive Imbalance Procedure.
o   For Italy, imbalances remain excessive, requiring decisive policy and specific
monitoring of the ongoing and planned reforms.
o   For Bulgaria and Portugal the IDRs also point to excessive imbalances. In light
of this situation, the Commission will carry out specific monitoring of the
policies recommended by the Council.
• Ireland, Spain and Slovenia are considered to be in a situation of imbalance requiring decisive policy action, with specific monitoring:

o   For Slovenia, the Commission considers that a significant adjustment has
taken place over the last year; while this is the basis to conclude that imbalances are no longer excessive, the Commission stresses that important risks
are still present.
• Germany and Hungary are considered to be in a situation of imbalance
requiring decisive policy action and monitoring. For Germany, the Commission considers that there is no tangible improvement in the trends of
imbalances identified last time and that the policy response has been insufficient so far. For Hungary, the Commission considers that there is no
tangible improvement.

7

Ibidem, p. 3.

293

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

o   For Ireland and Spain, this monitoring will rely on post-programme
surveillance.

• Belgium, the Netherlands, Romania, Finland, Sweden and the United
Kingdom are considered to be in a situation of imbalance requiring policy action and monitoring.
The results of the IDRs will be taken into account in the next steps of the European Semester of economic policy coordination

Mladen Vedriš: THE NEW ECONOMIC POLICY OF THE EU AND ITS APPLICATION IN THE REPUBLIC OF CROATIA

3.

THE REPUBLIC OF CROATIA  A NEW
ECONOMIC POLICY AS A FORMAL AND
SUBSTANTIVE EU CONDITION

Because of the war and political obstacles, the Republic of Croatia was not
able to join in the either of the two earlier waves of transition countries entering
the EU (2004 and 2007). With exceptional negotiating efforts, it achieved that
goal in 2013 and in doing so it closed the list of expanded membership for at
least another decade or longer.8 For almost the entire period Croatia’s economic
performances have not converged with those of the EU, neither with the group
of core countries (the EU 15) nor with the group of new members (the EU
10). These performances related both to the period of high conjuncture (20002007) and to the period of crisis and the period of the search for mechanisms
that would ease the burden of the crisis and create the conditions to exit from
it (2008-present). What this means in a comparative context, and especially in
the period from the beginning of the global economic crisis, is apparent from a
comparison with referent countries in the EU and with the average values for
the EU as a whole.

8

This, of course, does not mean an absence of interest by the EU in the region and of possible
further expansion in the future because there are continuing efforts to achieve the so-called
para-membership, which means the adoption of EU practices and coordination of the legal
framework in several areas of life so that formal accession will be more efficient and simpler
for both side – the EU and the potential new members.

294

Graph 1. Deeper and longer recession than in most MSs
Change in real GDP
now vs 2007

Greece

Croatia

Latvia

Portugal

Cyprus

Hungary

Estonia

EU

Lithuania

Bulgaria

Romania

Slovakia

Poland

25
20
15
10
5
0
-5
-10
-15
-20
-25 

Source: Croatia: Is this the end of the long recession?, EBRD presentation, Macroeconomic
Outlook Conference, Hypo Alpe Adria Bank, 27 March 2015, p. 2.

With the international comparison of the aggregate position of Croatia in
regard to the EU environment, it is important also to observe the more detailed
parameters of economic events and changes in the period of the crisis and of
immediate expectations. 

Source: SEE Economic Research: Macroeconomic Outlook, Hypo Alpe Adria, Zagreb,
March 2015, p. 3.

Within these parameters, and in the context of the new EU economic policy
for the period to 2020 the position of industrial production in Croatia can be
analyzed in absolute and comparative terms.

295

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Table 2. Selected economic forecast

Mladen Vedriš: THE NEW ECONOMIC POLICY OF THE EU AND ITS APPLICATION IN THE REPUBLIC OF CROATIA

Graph 2. Industrial production ( January 2007 = 100)

Source: Hrvoje Stojić, Economic Prospects 2015-2016 – Walking the tightrope, Macroeconomic Outlook Conference, Hypo Alpe Adria, Zagreb, 31 March 2015, p. 6.

The crisis-induced decline in industrial production in Croatia up to 2014
has been drastic and it has been accompanied by a similarly drastic decline in
employment in that sector and by a subsequent stagnation of exports. At the
same time the sharp decline of activity in the construction sector and of overall
investment (private and public sectors) has made Croatia’s position the weakest
in the EU, with the exception of Greece.
The reasons for this situation can be sought primarily in the sphere of political decision making and the (un)preparedness to change, which has characterized the behavior of the executive authority in the entire period being analyzed
regardless of political considerations or the party (or coalition) that formed a
government in individual time periods.9 Expert analyzes and evaluation (the
World Bank, the IMF) from individual periods speak clearly and exactly about
this issue. Thus, the document Assessment of the 2013 Economic Programme for
Croatia by the European Commission underlines the important structural measures that can promote economic growth and competitiveness. The inadequate
quality of the business environment and the lack of competition in key markets
weigh on the growth prospects for the Croatian economy. Despite recent im9

For this paper and analysis the focus is on measures and activities that were (not) undertaken
in Croatia after its entry into the EU and the beginning of the use of the mechanism of the
European Semester.

296

It further underlines the areas of activity for which the executive authority is
responsible and where changes are unavoidable – and urgent. It is especially important to emphasize the need to stimulate more adequately research and innovation and the process of modernization of public administration, which is apparent from the following statements: Croatia is a moderate innovator with the
research and innovation system showing a number of inefficiencies. Inefficiencies mainly concern cooperation between public research organisations and the
private sector, the commercialisation of research results and technology transfer
mechanisms. At the same time, the policy frameworks in the area of research,
innovation and industrial policy are not sufficiently developed. In addition, the
total level of R&D expenditure reached 0.75 % in 2010 and 2011, which is below the EU average and too low to advance the transition to a knowledge-based
economy. In particular, public R&D investment spending in 2011 amounted to
0.41 % compared to the EU average of 0.74 %. Business expenditure on R&D
stood at 0.33 % in 2011, well below the EU-27 average (1.26 %). Croatia aims
to achieve a level of 1.4 % by 2020, which should be facilitated by the expected
contribution of EU Structural Funds.11
In regard to public administration, it means the following: While a Civil Service Act is in place, the current performance evaluation system does not ensure
merit-based career progression which would attract and retain qualified staff.
Amendments to the Civil Service Act are currently under preparation with a
view to streamlining recruitment procedures and introducing performance appraisal. A draft Act on Salaries in State Administration has been prepared but
10

11

Assessment of the 2013 Economic Programme for Croatia,“ European Commission, Commission Staff Working Document, Brussels, 29.5.2013, SWD (2013) 361 final p. 22.
Ibidem, p. 25.

297

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

provements, administrative and regulatory obstacles are still a major hurdle for
investment activity and for setting up a business. There is also scope to improve
the efficiency of the judiciary, so that the legal framework supports a swift resolution of insolvent firms. The markets for energy, transport and postal services
are dominated by single suppliers, which distorts competition and undermines
the cost-competitiveness of Croatian businesses. Looking forward, productivity
growth and a faster transition to a knowledge-based economy are hampered by
a low level of spending on research and development and by inefficiencies in the
policy framework.10

Mladen Vedriš: THE NEW ECONOMIC POLICY OF THE EU AND ITS APPLICATION IN THE REPUBLIC OF CROATIA

there have been delays in finalising the overall legal framework for a transparent
and merit-based salary system in the whole public administration. On the other
hand, a new register of public sector employees has been established, which is
increasing the efficiency of processing, analysing and following up relevant civil
service data. The new State School for Public Administration has improved its
capacity to provide training for civil servants, local and regional self-government
officials and public officials.12
As a complement to this assessment, we can also point to an analysis of Croatia’s economic position by the EBRD in the chapter Structural reform context,
which states, “In the Bank’s annual assessment of transition challenges across 16
sectors (see the EBRD Transition Report 2012), Croatia lags behind most other
countries in central Europe and the Baltic states – see Figure 2. The country
scores well in the corporate sectors, where the remaining transition gaps are
mostly assessed as small, and in some infrastructure sectors, reflecting the cumulative progress over the years, notably in the road sector. Even here, however,
there are significant challenges ahead in promoting institutional reform and
enhancing private sector involvement. The water and wastewater and railways
sectors still present major challenges on the reform front. In the energy sector,
the biggest transition gap concerns the electric power sector, particularly when
it comes to market structure. In common with other advanced countries, the
transition gaps in the financial sector mostly lie in improving access to finance
for MSMEs and developing private equity markets.”13

12
13

Ibidem, p. 26.
Strategy for Croatia, As approved by the Board of Directors at its meeting on 25 June 2013,
Documentation of the European Bank for Reconstruction and Development. EBRD, p. 9

298

Graph 3. Croatia Sector Transition Scores14

In the Bank’s annual assessment of transition challenges across 16 sectors
(see the EBRD Transition Report 2012), Croatia lags behind most other countries in central Europe and the Baltic states – see Figure 2. The country scores
well in the corporate sectors, where the remaining transition gaps are mostly
assessed as small, and in some infrastructure sectors, reflecting the cumulative
progress over the years, notably in the road sector. Even here, however, there are
significant challenges ahead in promoting institutional reform and enhancing
private sector involvement. The water and wastewater and railways sectors still
present major challenges on the reform front. In the energy sector, the biggest
transition gap concerns the electric power sector, particularly when it comes
to market structure. In common with other advanced countries, the transition
gaps in the financial sector mostly lie in improving access to finance for MSMEs
and developing private equity markets. No less important is the analysis in the
same report that points to the micro-aspects of Croatia’s economic position in
regard to the quality of its business environment. Although various reforms
have been introduced over the years to improve the quality of the business environment, Croatia continues to face significant challenges as shown on several
14

The transition indicators range from 1 to 4+, with 1 representing little or no change from
a rigid centrally planned economy and 4+ representing the standards of an industrialised
market economy. The scores range from 1 to 4+ and are based on a classification system that
was originally developed in the 1994 Transition Report, but has been refined and amended
in subsequent Reports.

299

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Source: Strategy for Croatia, As approved by the Board of Directors at its meeting on 25 June
2013, Documentation of the European Bank for Reconstruction and Development. EBRD,
p. 9.

Mladen Vedriš: THE NEW ECONOMIC POLICY OF THE EU AND ITS APPLICATION IN THE REPUBLIC OF CROATIA

cross-country surveys and analyses of competitiveness and ease of doing business. In the latest World Bank’s annual Doing Business report, Croatia ranks
84th in the world (out of 185 countries) in overall ease of doing business, down
from 80th place the previous year. Indicators relating to construction permits
and protecting investors are particularly low. A similar picture emerges from the
World Economic Forum’s Global Competitiveness index 2012-13, where Croatia ranks 81st out of 144 countries. In the 2008/09 EBRD/World Bank Business Environment and Enterprise Performance Survey (BEEPS), enterprises
in Croatia singled out tax administration, the judiciary and lack of appropriate
skills in the workforce as the three most significant obstacles to doing business.15
The existing limitation were also analyzed in detail in a document of the
European Commission (2 June 2014)16 which cited the important structural
limitations in the public administration. “With the current regulatory framework for business in a Croatian enterprise are faced with major burdens, including a shortage of legal recourse, nontransparent decision making, especially at
the local level, and a series of para-fiscal taxes. Furthermore, because of the very
fragmented responsibilities of public administration at the regional and local
level and the complex division of responsibilities among ministries and agencies
at the central level, business decisions are complicated and legal procedures can
be very extended. A structured approach has been introduced at the level of the
central government to establish what the barriers to doing business are, but a
consistent methodology is not being applied to measured administrative burdens, which reduce the effectiveness of measure already undertaken. It is necessary to rationalize and improve the control of public subsidies and guarantees,
and a central register of enterprises and individuals that are receiving support
would be a first step in that regard. Croatia has initiated reforms of its public
administration with the goal of strengthening its administrative capacities and
improving its orientation to the needs of clients in public services for citizens
and enterprises. However, the quality of public administration continues to be
low with weak coordination among the various levels of administration, and
policies and evaluations are rarely or only formally based on evidence. Adopting
a strategy for the reform of public administration is a step in the right direction,
15
16

Ibidem, p. 10.
Recommendation to the Recommendation of the Commission on the National Reform Program of Croatia, 2014 and Delivery of the Opinion of the Commission on the Convergence
Program of Croatia for 2014, European Commission, 2 June 2014, COM (2014) 412 final.

300

In addition to the trends already described and to their corresponding analyses, and to the suggestions and recommendations about what to do to start to
exit from the now six-year old crisis, it is important to emphasize the evaluations and recommendations from the European Commission document Results
of In-Depth Reviews under Regulation (EU) No. 1176/2011 on the Prevention
and Correction of Macroeconomic Imbalances, prepared as part of the implementation of the European Semester. Croatia is experiencing excessive macroeconomic imbalances, which require specific monitoring and strong policy action. In
particular, policy action is required in view of the vulnerabilities arising from
sizeable external liabilities, declining export performance, highly leveraged firms
and fast-increasing general government debt, all within a context of low growth
and poor adjustment capacity. More specifically, after an expansionary phase, in
which imbalances accumulated, Croatia is now experiencing a prolonged bust,
in which a range of external and internal risks have come to the fore. External
rebalancing is beset by important risks pending the reduction of Croatia’s foreign liabilities to safer levels and is conditioned on improved competitiveness
and broadening exports beyond tourism to support growth. The deleveraging of
non-financial corporates is still at an early stage and non-performing loan developments in this segment need monitoring. State-owned enterprises, which in
some sectors still play a dominant role and which are often un-restructured, are
overall highly indebted and weakly profitable. Croatia has the lowest activity and
employment rates in the EU, which is partly related to underlying institutions
and policy settings. Better labour market functioning will be crucial to support
the growth and adjustment needed in view of external and internal vulnerabilities. On nearly a range of standard indicators, Croatia’s business environment
ranks significantly below the average for central and eastern European Member
States. These factors combine to lower potential growth, which hinders private
sector balance sheet repair and increases the required fiscal consolidation effort.

17

Ibidem, p. 7.

301

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

but the strategy must be implemented at all levels of administration. Experience
in the field of implementation of pre-accession funds points to shortcomings in
regard to strategic planning and institutional capacities and in regard to preparing and monitoring projects.”17

Mladen Vedriš: THE NEW ECONOMIC POLICY OF THE EU AND ITS APPLICATION IN THE REPUBLIC OF CROATIA

There is a need for significant additional fiscal consolidation efforts to curtail
the deficit and prevent debt from rising unsustainably.18
This close and summary analysis points to the apparent problem of a deepening of the economic crisis, which has also become a social one. But at the
same time there is the unpreparedness of the executive authority to initiate a
more dynamic and concrete use and implementation of a program for structural
reforms. As a commitment and as a response to the challenges, and the trends,
that have been cited, the Croatian government has adopted a document called
the National Program of Reforms,19 which states, or better to say, makes an obligation to initiate, the following essential reforms. The measures that it is undertaking or is planning to undertake in the upcoming period are represented
by four key areas – public finance, the financial sector, the labor market, and
competitiveness, with 13 corresponding sub-categories.
The introductory chapter, “Macroeconomic Perspectives for the Period
Covered by the Program,” states that the negative economic trends in Croatia
continued in 2012. Based on an initial evaluation of gross domestic product
(GSP), economic activity in 2013 declined by one percent in comparison to
2012, which represents a cumulative reduction of 11.9% compared to 2008.
The most significant contribution to the decline of actual GDP was made by
consumption of households (-0.6%) and gross investment (-0.2%). In 2013, almost all components of GDP registered a decline. An increase was observed
only in government expenditure, which grew by 0.5% because of the payments
of debts in the healthcare sector. The document also states that a decline was
especially noticeable in the component for exports and imports. Since the decline in exports was more expressed than the decline in imports, the component
for net exports was registered as a negative contribution to the growth of GDP.
The reduced export of goods at a time of greater foreign demand indicates a
continuation of the reduced share of Croatian companies on foreign markets.
In 2013, the deficit in the exchange of good increased by 1.9%. The continuing
decline in economic activity in 2013 was also reflected in the labor market. The
18

19

Results of In-Depth Reviews under Regulation (EU) No 1176/2011 on the Prevention and Correction of Macroeconomic Imbalances, European Commission, Brussels, 5 March 2014, pp. 15-16.
National Program of Reforms, Government of the Republic of Croatia, Zagreb, 24 April 2014. It
is also the first national program of reforms that the government has adopted as a member state
of the EU as part of the process for coordinating economic policy with the goals and regulations of the European Semester.

302

average number of workers fell 2.7%, primarily because of reduced employment
in the processing industries, construction, trade and the handicraft and free
professions. The polled rate of unemployment was 17.2% in 2013, which was
1.4 percentage points higher than the previous year.20 Especially concerning is
the data on the trends in export, shown in the following graph, for the period
since the year 2000, and which depicts the low competitive capability of the
industrial sector compared to other economies.

Source: Servas Deroose: European Semester 2014, Policy Recommendations – CROATIA,
Zagreb, 3 June 2014, p. 11; available at: http://ec.eu/croatia/pdf/20140603_croatia-policyrecommendations.pdf

The chapter “Recent Economic Developments” in the World Bank document, Country Program Snapshot,21 published in the same period (April 2014),
stresses the importance of the preparation for and capability of a country absorb the resources of EU funds as an important factor in achieving the goals
of national economic policy: “Beyond ensuring macro stability and increas20
21

Ibidem, p. 3.
Country Program Snapshot, World Bank Group – Croatia Partnership, April 2014, available
at: http://www.worldbank.org/content/dam/Worldbank/document/Uzbekistan-Snapshot.
pdf

303

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Graph 4. Exports fall behind regional peers, reflecting poor competitiveness

Mladen Vedriš: THE NEW ECONOMIC POLICY OF THE EU AND ITS APPLICATION IN THE REPUBLIC OF CROATIA

ing Croatia’s competitiveness, the government faces the strategic challenge of
maximizing the use of EU Structural and Cohesion Funds. With EU accession
Croatia’s access to EU funds increased sevenfold. Since joining the EU, Croatia
is expected to benefit from large net inflows of resources of an average size of
two percent of GDP in 2013–20. While the overall effect of EU-related transfers on Croatia’s economic growth is expected to be positive, Croatia will need
to secure around one percent of GDP per year for pre- and co-financing. Successfully combating the challenges to the efficient utilization of EU funds, while
also streamlining the budget, will ensure fiscal sustainability and foster income
convergence with the rest of the EU.”22

Graph 5. Allocations from EU funds (in millions of euros)

Source: Zvonimir Savić, European Structural and Investment Funds in Croatia, HGK, Zagreb, 10 March 2015, p. 16.

Data on the degree of preparations for the use of the resources from EU
funds that has been achieved to date, followed by the actual use, point to the
need for a significant strengthening of institutional capacity so that the degree
of absorption will be raised to a significantly higher level.
After an extended period of warnings and highlighting problems by the
World Bank, the IMF, the EU Commission and other institutions and inter22

Ibidem, p. 3.

304

national agencies, and of the further tendencies and consequences of not doing
anything, achievement of full membership in the EU now meant not just the
adoption but also the full use of a new framework of monitoring EU policy with
special responsibilities in regard to individual national economies.

In March 2014, the Commission concluded that Croatia was experiencing
excessive macroeconomic imbalances. More specifically the risks stemming from
high external liabilities, declining export performance, highly leveraged firms
and fast increasing general government debt, all in a context of low growth and
poor adjustment capacity, required specific monitoring and strong policy action.
The identified imbalances strongly informed the country-specific recommendations issued to Croatia by the Council in June 2014. This Country Report assesses Croatia’s economy against the background of the Commission’s Annual
Growth Survey which recommends three main pillars for the EU’s economic
and social policy in 2015: investment, structural reforms, and fiscal responsibility. In line with the Investment Plan for Europe, it also explores ways to maximise the impact of public resources and unlock private investment. Finally, it
assesses Croatia in light of the findings of the 2015 Alert Mechanism Report,
in which the Commission found it useful to further examine the persistence of
imbalances or their unwinding.23
The main findings of the In-Depth Review contained in this Country Report
are: Croatia is experiencing excessive macroeconomic imbalances, which require
decisive policy action and specific monitoring. The Commission will take in May,
23

Country Report Croatia 2015 - Including an In-Depth Review on the prevention and correction of macroeconomic imbalances, European Commission, Brussels, 26 February 2015.

305

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

For example, a document of the EU Commission states: “In 2014, Croatia’s
economy contracted for its sixth year in a row and although the recession is
expected to come to an end in 2015, the economic outlook remains bleak. The
pace of the contraction abated over the course of 2014, bringing the overall fall
in GDP to -0.5 %. Growth is set to be just above zero in 2015 and to pick up
timidly to 1% in 2016. Against this background, the unemployment rate is not
expected to decline significantly from the current 17%. Internal demand should
progressively start contributing positively to growth on the back of investments
spurred by EU funds, while the export performance should remain strong as
the recovery progresses in the EU. Significant fiscal consolidation and deleveraging needs nevertheless weigh on the growth perspectives.

Mladen Vedriš: THE NEW ECONOMIC POLICY OF THE EU AND ITS APPLICATION IN THE REPUBLIC OF CROATIA

on the basis of the National Reform Programmes (NRPs) and other commitments to structural reforms announced by that date, the decision to activate the
Excessive Imbalance Procedure (EIP). In a context of subdued growth, delayed
restructuring of firms and dismal performance of employment, risks related to
weak competitiveness, large external liabilities and rising public debt coupled
with weak public sector governance, have significantly increased.”24
The Croatian government is required to review and to provide a qualified
response by May 2015,25 and with the additional instruments at the disposal of
the EU Commission in communicating with individual members,26 this means
that a member’s failure to adhere to the Commission’s recommendations can
result in a warning. More concrete sanctions (blocking structural funds, a deposit in the amount of 0.2% of GDP, a fine in the amount of 0.2% of GDP) are
possible if entering the procedure for macroeconomic imbalance or the procedure for an excessive deficit. The procedure for excessive deficit is a corrective
mechanism of the Stability and Growth Pact that is applied to member countries with a budget deficit greater than 3% and/or public debt greater than 60%
of GDP (only if there is not a clear trend of reducing the debt).

4.

CONCLUSION

The European Union finds itself in the grip of an economic stagnation that
has now lasted for nearly a decade (2008-2014), with expectations or predictions that it may last to 2017 and even beyond. Here it is worth comparing the
achieved and expected rates of growth to two global partners and competitors,
the United States and the Far East – especially the Republic of China. Weakening economic power and strength leads to several other questions. Viewed
externally, it is a question of the EU’s relevance in decision making on issues
24
25
26

Ibidem, p. 1.
Croatia has officially bee in the procedure for excessive deficit since January 2014.
With the dialogue and search for a solution to the economic crisis in Greece, there has been
less dialogue and attention present on the monitoring in two other countries, Portugal and
Spain, where joint agreements and jointly prepared structural programs are being achieved,
not simply but step by step.
See more at:
Portugal: http://ec.europa.eu/europe2020/pdf/csr2015/cr2015_portugal_en.pdf
Španjolska:http://ec.europa.eu/economy_finance/publications/occasional_paper/2014/
op193_en.htm

306

at a global level, participation in international institutions, and geopolitical
positioning.
Viewed internally, it is a question of preserving social stability by preserving (well-paid) jobs because the EU, with less than one-tenth of the world’s
population, spends more than 50% of global resources for social purposes (retirement, health, social responsibility – OECD). Such expenditures will not
be permanently sustainable without stable and strong economic growth. Thus,
the demand for structural reforms are becoming increasingly loud and urgent
and – more legitimate, as is the establishment and then control of jointly agreed
economic policies at the national level.

The Republic of Croatia is faced with an ambivalent situation. Its membership in the EU has brought several new requirements and criteria for achieving
(specific) reforms, which are demanding to articulate, but also to communicate
and achieve. On the other hand, the decade or more that was wasted in preparing to face the need to resolve the endogenous crisis even before the appearance
of the global crisis has created circumstances and conditions that do not permit
further postponement. It can be concluded that a kind of win-win situation has
been created. On one side is the possibility that the EU as a whole, and the European Commission in particular, test the newly created concept of monitoring
the conduct of the common economic policy in an individual member state in
order to systematically monitor and manage an important reform process. On
the other side is the fact that Croatia, or the political elites who did not want,
or did not know how, to achieve reforms independently, do that now with the
support and control and also in alliance with, institutions of the EU. From the
aspect of the development and national interests of Croatia, there remains the
question also of how to ensure the understanding and support of the general
public in implementing such reforms, and then how to find the appropriate in-

307

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

In this regard, the established control mechanisms of the economic performances of individual national economies will receive additional significance,
instrumentation and authorities. It is apparent that the process that has been
initiated to create a coherent EU economic policy is accelerating and that it will
require more intensive and rapid adaptation and activity at the national level
because there is no question that the structuring of reforms and their implementation requires complete national orientation and responsibility.

stitutions and partners to strengthen institutional capacity necessary for implementing the new economic policy.

Mladen Vedriš: THE NEW ECONOMIC POLICY OF THE EU AND ITS APPLICATION IN THE REPUBLIC OF CROATIA

LITERATURE
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with renowned professors from the world’s top business schools, Institute for Innovation,
Školska knjiga, Zagreb, April – September 2015.
Assessment of the 2013 Economic Programme for Croatia, European Commission, Commission Staff Working Document, Brussels, 29 May 2013, SWD(2013) 361 final, p. 22.
Country Program Snapshot, World Bank Group – Croatia Partnership, April 2014, available at:
http://www.worldbank.org/content/dam/Worldbank/document/Uzbekistan-Snapshot.
pdf.
Country Report Croatia 2015 Including an In-Depth Review on the Prevention and Correction of
Macroeconomic Imbalances, Commission Staff Working Document, European Commission,
Brussels, 26.2.2015., SWD (2015) 30 final.
Croatia – Public Finance Review, Restructuring Spending for Stability and Growth, World
Bank, Report No 78320-HR, October 2014.
Croatia: Is this the end of the long recession?, EBRD presentation, Macroeconomic Outlook
Conference, Hypo Alpe Adria Bank, 27 March 2015.
Deroose, Servas: European Semester 2014, Policy Recommendations – CROATIA, Zagreb, 3 June 2014, available at:
http://ec.europa.eu/croatia/pdf/20140603_croatia-policy-recommendations.pdf.
Domazet, Tihomir: Ekonomika rasta i pune zaposlenosti u Hrvatskoj, Hrvatska gospodarska komora, Zagreb, 2014.
Enderlein, Henrik, Pisani-Ferry, Jean: Reforms, Investment and Growth: An agenda for
France, Germany and Europe, 27 November 2014.
European Semester 2015: country-specific updates, European Commission, Brussels, 26 February 2015, available at: http://europa.eu/rapid/press-release_MEMO-15-4511_hr.htm.
Europe 2020 - Europe’s growth strategy: Growing to a sustainable and job-rich future, European
Commission, Brussels, 2010.
European Commission: Making it happen – The European Semester, Brussels, available at:
http://ec.europa.eu/europe2020/making-it-happen/index_en.htm.
European Commission, MEMO 13/318, Report – Economic management in the EU, Brussels, 28 May 2014, p. 5.
The European Semester and the Procedure for Excessive Deficit – Implications for Industrial Relations in Croatia, European Commission, 2014.
Eurostat; http://ec.europa.eu/eurostat/web/europe-2020-indicators/
europe-2020-strategy

308

309

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The Economic Adjustment Programme for Portugal – Eighth and Ninth Review; European
commission, June 2011;
http://ec.europa.eu/europe2020/pdf/csr2015/cr2015_portugal_en.pdf
http://ec.europa.eu/economy_finance/assistance_eu_ms/portugal/index_en.htm
Spain – Post Programme Surveillance, Spring 2014 Report, European Commission, Occasional Papers 193, May 2014, available at: http://ec.europa.eu/economy_finance/
publications/occasional_paper/2014/pdf/ocp193_en.pdf
HUP SKOR, Hrvatska udruga poslodavaca, Zagreb, 2013.
National Program of Reforms, Government of the Republic of Croatia, Zagreb, 24 April
2014.
Recommendations for the Recommendation of the Commission on the National Program
of Reforms Croatia 2014. And forwarding the opinion of the Commission on the Convergence Program of Croatia for 2014, Brussels, 2 June 2014, COM (2014) 412 final.
Prognoze i očekivanja 2015, Perspektive, Zagrebačka inicijativa, god. 4., Br. 4, Zagreb, prosinac 2014.
Results of In-Depth Reviews under Regulation (EU) No 1176/2011 on the Prevention and Correction of Macroeconomic Imbalances, European Commission, Brussels, pp. 15-16.
SEE Economic Research: Macroeconomic Outlook, Hypo Alpe Adria, Zagreb, March 2015.
Savić, Zvonimir: Europski strukturni i investicijski fondovi u Hrvatskoj, HGK, Zagreb
(working material), 10 March 2015.
Stojić, Hrvoje: Ekonomski izgledi 2015.-2016. – Hod po žici, Macroeconomic Outlook
Conference, Hypo Alpe Adria, Zagreb, 31 March 2015.
Strategy for Croatia, as approved by the Board of Directors at its meeting on 25 June 2013,
Documentation of the European Bank for Reconstruction and Development (EBRD).
Reform Barometer 2014, Business Europe, Brussels, Spring 2014; available at:
http://www.spcr.cz/images/MO/BE_Reform_Barometer_2014_2014-00285-E.pdf .
The Western Balkans: 15 Years of Economic Transition, Regional Economics Issues, Special
Report, International Monetary Fund, Washington D.C., 2015.
Transition Report 2014 - Innovation in Transition, EBRD, London, November 2014
http://www.ebrd.com/news/publications/transition-report/transition-report-2014.html.
Bottom of Form

Microeconomics,
Macroeconomics
and Monetary
Economics

DER NEUE STANDARD IFRS 15 
IASB UND FASB VERABSCHIEDEN
EINEN WEITGEHEND
EINHEITLICHEN STANDARD ZUR
UMSATZREALISIERUNG
Wesentliche Eckpunkte und potentielle
Auswirkungen auf Unternehmen
Bodo RUNZHEIMER, Ph.D.
University of Pforzheim

Abstract

The core principle of the new IFRS 15 is that an entity will recognize revenue
to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. IFRS 15 (Revenue from Contracts with
Costumers) replaces fully all the existing US-GAAP and IFRS regulations on
revenue recording. The new standard IFRS 15 combines all the former regulations on revenue recording in a single standard. Application of the standard is
mandatory for annual reporting periods beginning on or after 1 January 2017.
Since the changes are significant, it is essential for companies to prepare for the
application of new standards on time.
Keywords: International Financial Reporting Standard 15 (IFRS 15), International Accounting Standards Board (IASB), Revenue from Contracts
with Customers, Five-step model framework for recording revenues
JEL classification: L15, M41, E6

313

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

The international accounting regulations regarding sales revenues have been
changed. In May 2014, the International Accounting Standards Board
(IASB) and the US regulator, the Financial Accounting Standards Board
(FASB), published together new revenue recording regulations, which will be
applied in IFRS (International Financial Reporting Standards) as well as in
US-GAAP (United States Generally Accepted Accounting Principles).

Bodo Runzheimer: DER NEUE STANDARD IFRS 15 – IASB UND FASB VERABSCHIEDEN EINEN WEITGEHEND EINHEITLICHEN STANDARD ...

EINLEITUNG
Am 28. Mai 2014 veröffentlichte das International Accounting Standards
Board (IASB) gemeinsam mit dem US-amerikanischen Financial Accounting
Standards Board (FASB) den neuen Standard zum Thema Umsatzrealisierung (Gewinnrealisierung, Erlöserfassung) IFRS 15 (Revenue from Contracts with Customers).
Das erklärte Ziel des neuen Standards IFRS 15 ist es, die Regelungen
zur Umsatz-/Erlösrealisierung in einem einzigen Standard umfassend und
einheitlich zusammenzufassen. Der neue Standard IFRS 15 betrifft alle
Verträge mit Kunden über den Verkauf von Gütern oder die Erbringung von
Dienstleistungen. Obwohl grundsätzlich eine Anwendung des Standards auf
einzelne Verträge gefordert wird, kann auch die Zusammenfassung von Verträgen zu Portfolios - als eine Anwendungserleichterung (vgl. IFRS 15.4) - erlaubt sein. Der neue Standard IFRS 15 beinhaltet ein Modell (Fünf-SchritteModell/“IFRS-Erfolgsrealisierungsmodell“), mit dessen Hilfe die Höhe des
Erlöses und der Zeitpunkt beziehungsweise der Zeitraum der Erlösrealisierung zu ermitteln ist.
„Die Auswirkungen des neuen Standards werden in verschiedenen Branchen
in unterschiedlichem Ausmaß bemerkbar sein. Während sich die Änderungen
für einfache Verkaufstransaktionen auf ein Minimum beschränken, werden sich
für Unternehmen mit komplexen Transaktionen, wie sie beispielsweise bei Telekommunikationsunternehmen mit vielfältigen Mehrkomponentenverträgen
vorzufinden sind, Änderungen ergeben“ (www.kpmg.com/DE/de.2014, S. 3).
Der neue Standard IFRS 15 ist prinzipienbasiert, die Umsatzrealisierung
(Erlösrealisierung) wird abstrakt geregelt. Dies erschwert die Umsetzung der
im Standard formulierten Grundsätze auf spezifische Sachverhalte. Deshalb ist
zu empfehlen, dass die Auseinandersetzung der Unternehmen mit den neuen
Regelungen deutlich vor dem Erstanwendungszeitpunkt einsetzen sollte,
„um die notwendige Anwendungs- und Prozesssicherheit zum Erstanwendungsstichtag zu gewährleisten“ (www.kpmg.com/DE/de.2014, S. 3).
Da die Bedeutung der Kapitalmärkte für die Unternehmen zunimmt, wachsen damit auf Unternehmensebene die Anforderungen an die Informationsversorgung von Investoren und gleichzeitig der Stellenwert der Internationalen
Rechnungslegung für die kapitalmarktorientierten Unternehmen. International herrscht Einigkeit darüber, dass prinzipienbasierte Rechnungslegungsstan-

314

dards notwendig sind, um entsprechend des angestrebten „true and fair view“
-Prinzips vereinheitlichte Bewertungen vornehmen zu können. Die International Financial Reporting Standards (IFRS) stellen inzwischen das weltweit
dominierende Rechnungslegungssystem dar (vgl. Winkler, C., S. 354; Runzheimer, B., 2014, S. 590).

Zum aktuellen Stand des von der EU vorgeschriebenen Endorsement- bzw.
Komitologieverfahrens – der Übernahme von IFRS in europäisches Gemeinschaftsrecht - vgl. www.efrag.org. Der neue Standard IFRS 15 ist - die Übernahme in europäisches Gemeinschaftsrecht vorausgesetzt; diese ist für das
zweite Quartal 2015 geplant -verpflichtend für die Geschäftsjahre anzuwenden, die am oder nach dem 1. Januar 2017 beginnen. IFRS 15 ist grundsätzlich retrospektiv anzuwenden, wobei eine Anwendung vor dem 1. Januar 2017
zulässig ist und empfohlen wird. Ein Unternehmen, das sich entscheidet, IFRS
15 vor dem 1. Januar 2017 anzuwenden, hat dies im Abschluss zu vermerken
(vgl. www.ifrs-portal.com; www.rbs-partner.de, S 2; IFRS 15:C1).
Im Einzelabschluss des einzelnen Mitgliedsunternehmens eines Konzerns
sowie für die Steuerbemessung sind die IFRS in Deutschland und Österreich
bisher nicht maßgeblich. Für die Konzernabschlüsse von kapitalmarktorientierten Unternehmen, die nach IFRS Rechnung legen müssen, gilt daher für
diese beiden Länder, dass zusätzlich zum IFRS-Konzernabschluss auch Einzelabschlüsse nach nationalem Recht (HGB in Deutschland) zu erstellen sind
(vgl. Runzheimer, B., 2010, S. 825 ff.).

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Die IFRS werden von einer internationalen Organisation erlassen, dem International Accounting Standards Board (IASB) mit Sitz in London. Trägerverein des IASB ist die International Accounting Standards Committee Foundation
(vgl. Grünberger, G., S. 1 ff.). „Der Rat der europäischen Union stimmte mit
großer Mehrheit 2002 einer Verordnung zu, mit der der Anwendung der International Accounting Standards (IAS, neu: IFRS – International Financial
Reporting Standards) ab 2005 für die Konzernabschlüsse von kapitalmarktorientierten Unternehmen verbindlich vorgeschrieben ist“ (www.ax-net.de).
Die Standards sind in den Amtsblättern in der jeweiligen Landessprache der
Mitgliedsstaaten der EU (Europäischen Union) veröffentlicht (vgl. Hoffmann,
W.-D./Lüdenbach, N.: IAS/IFRS-Texte; Runzheimer, B., 2014 S. 590). Die
IFRS „werden nun regelmäßig unter Berücksichtigung einer interessierten
Öffentlichkeit weiterentwickelt“ (www.ax-net.de).

Bodo Runzheimer: DER NEUE STANDARD IFRS 15 – IASB UND FASB VERABSCHIEDEN EINEN WEITGEHEND EINHEITLICHEN STANDARD ...

1.

WESENTLICHE ECKPUNKTE UND
NEUERUNGEN DES NEUEN STANDARDS
IFRS 15

Der neue Standard IFRS 15 Umsatzerlöse aus Verträgen mit Kunden
(„Revenue from Contracts with Customers“) wurde vom IASB gemeinsam
mit dem US-amerikanischen FASB entwickelt und veröffentlicht. Der neue
Standard IFRS 15 ersetzt alle bisher auf verschiedene Standards und Interpretationen verstreuten, einzelfallbezogenen Regelungen zur Umsatzerfassung
und Bewertung, nämlich konkret: International Accounting Standard/IAS
11 (Fertigungsaufträge), IAS 18 (Umsatzerlöse), International Financial Reporting Interpretations Committee/IFRIC 13 (Kundenbindungsprogramme),
IFRIC 15 (Verträge über die Errichtung von Immobilien), IFRIC 18 (Übertragung von Vermögenswerten durch einen Kunden) und Standing Interpretations Committee (seit 2002: IFRIC; früher: SIC)/SIC-31 (Umsatzerlöse –
Tausch von Werbedienstleistungen) (vgl. www.kpmg.com/DE/de.2014, S. 2).
Künftig werden im Konzernjahresabschluss kapitalmarktorientierter Unternehmen gemäß IFRS 15 neue qualitative und quantitative Angaben gefordert, die es den Abschlussadressaten ermöglichen sollen, Art, Höhe, Zeitpunkt (Zeitraum) und Unsicherheit der Umsatzerlöse sowie Cashflows aus
Verträgen mit Kunden zu verstehen (vgl. Hirschböck, G./Lehner, G./Kerschbaumer, H., S. 3 f.). Hierdurch soll ein robuster Rahmen für die Lösung
komplexer Umsatzerfassungsprobleme (insbesondere auch bei so genannten
Mehrkomponentenverträgen) geschaffen werden, der eine unternehmens-,
branchen-, rechtssystem- und kapitalmarktübergreifende Vergleichbarkeit
gewährleistet (vgl. IFRS 15.IN5 sowie Wüstemann, J./Wüstemann, S., S. 929).
Nach IFRS 15 sollen den Abschlussadressaten nützliche Informationen in Bezug auf Umsatzerlöse und Zahlungsströme aus Verträgen mit Kunden geliefert
werden. „Die Darstellung der Umsatzerlöse als `Top-Line´ einer jeden Ergebnisrechnung genießt seit jeher eine besondere Aufmerksamkeit. Vielfach wird
ihnen eine große Bedeutung zur Beurteilung der wirtschaftlichen Leistung eines
Unternehmens (und nicht zuletzt auch dessen Managements) zugewiesen, sind
sie doch ein Maß für den Umfang und den Erfolg der am Markt abgesetzten
Produkte“ (Morich, S., S. 1).
Für die Konzernabschlüsse von kapitalmarktorientierten Unternehmen, die
nach IFRS Rechnung legen müssen, schreibt IFRS 15 verbindlich vor, anhand

316

eines Fünf-Schritte-Modells („IFRS-Erfolgsrealisierungsmodells“) zu bestimmen, zu welchem Zeitpunkt (oder über welchem Zeitraum) und in welcher
Höhe sie Umsatzerlöse erfassen. Umsatzerlöse sind so zu bilanzieren, dass
sie den Übergang von vertraglich vereinbarten Gütern oder Dienstleistungen
an den Kunden in der Höhe abbilden, die der beanspruchten Gegenleistung
entspricht (IFRS 15.1 f.). IFRS 15 spezifiziert grundsätzlich die Bilanzierung
einzelner Verträge, räumt aber die Möglichkeit ein, gleichartige Verträge als
Portfolio zu betrachten (als eine Anwendungserleichterung), wenn diese ähnliche Charakteristika aufweisen und davon auszugehen ist, dass die Einzelfallbetrachtung keine wesentlich abweichende Bilanzierung begründen würde (vgl.
IFRS 15.4).
Ausdrücklich aus dem Anwendungsbereich des IFRS 15 ausgenommen
sind folgende Vertragstypen (vgl. IFRS 15.4):
• Leasingverträge gemäß IAS 17 „Leases“
• Versicherungsverträge gemäß IFRS 4 „Insurance Contracts“
• Finanzinstrumente und andere vertragliche Rechte und Pflichten im
Anwendungsbereich von IFRS 9 „Financial Instruments“, IFRS 10 „Consolidated Financial Statements“, IFRS 11 „Joint Arrangements“, IAS 27
„Separate Financial Statements“ sowie IAS 28 „Investments in Associates
and Joint Ventures“

Nach IFRS 15.6 gilt als Kunde im Sinne des neuen Standards ein Vertragspartner nur dann, wenn sich der Vertrag auf die Abnahme eines Produkts
(Güter oder Dienstleistungen) im Rahmen der gewöhnlichen Geschäftstätigkeit des bilanzierenden Unternehmens bezieht (vgl. Morich, S., S. 3).
Der Schwebezustand wird nicht brutto in Leistung und Gegenleistung als
Vermögenswert und Schuld getrennt, sondern als ein Nettoposten bilanziert.
„In einer Nebenbuchhaltung mag man sich dazu gedanklich vorstellen, dass
Leistungsverpflichtungen passivisch und Gegenleistungen aktivisch erfasst und
fortgeschrieben werden und der Saldo entsprechend ins Hauptbuch übertragen
wird“ (Morich, S., S. 3).
Das in IFRS 15 vorgeschriebene Fünf-Schritte-Modell zur Erfassung von
Umsatzerlösen

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

• Bartermingeschäfte bei gleichartiger Leistung und Gegenleistung.

Bodo Runzheimer: DER NEUE STANDARD IFRS 15 – IASB UND FASB VERABSCHIEDEN EINEN WEITGEHEND EINHEITLICHEN STANDARD ...

Schritt 1: Identifizierung eines Vertrages mit einem Kunden
IFRS 15 definiert als Vertrag jegliche Vereinbarung - schriftlich, mündlich
oder auch faktischer Natur - zwischen mindestens zwei Parteien, die durchsetzbare Rechte und Pflichten begründet. Die Durchsetzbarkeit wird durch
den individuellen Rechtsrahmen geprägt (vgl. IFRS 15.10). Ein Vertrag fällt
in den Anwendungsbereich von IFRS 15, wenn die in IFRS 15,9 aufgeführten
Kriterien kumulativ erfüllt sind, d.h.
a) alle Parteien dem Vertrag zugestimmt haben
b) die Rechte der Parteien hinsichtlich der zu übertragenden Güter oder zu
erbringenden Dienstleistungen identifiziert werden können
c) die Zahlungsbedingungen identifiziert werden können
d) der Vertrag wirtschaftliche Substanz hat und
e) es wahrscheinlich ist, dass die Gegenleistung vereinnahmt wird.
Gegebenenfalls sind mehrere Verträge als ein Gesamtvertrag zu behandeln
(vgl. www.rbs-partner.de/publikationen/iasb, S.1). Entsprechend dem oben
genannten Grundkonzept gilt der Standard für - und nur für - unabdingbar
schwebende Geschäfte (vgl. Morich, S., S. 4). Vertragsänderungen sind ggf.
als separater Vertrag zu behandeln, wenn diese zu einer zusätzlichen eigenständigen Leistungsverpflichtung führen und unabhängige faire Bepreisungen der
zusätzlichen Güter oder Dienstleistungen vorsehen (vgl. IFRS 15.20).
Schritt 2: Identifizierung von eigenständigen Leistungsverpflichtungen
(performance obligations) aus dem Vertrag
Nach IFRS 15.22 ff. sind die Umsatzerlöse auf Ebene der einzelnen Leistungsverpflichtungen zu erfassen. Güter oder Dienstleistungen sind dann abgrenzbar und somit als einzelne Leistungsverpflichtung anzusehen, wenn der
Kunde daraus – unabhängig von anderen im Vertrag geregelten Leistungszusagen – einen Nutzen ziehen kann. Zudem müssen die Leistungszusagen voneinander trennbar sein. „Keine separate Leistungszusage ist z.B. die Lieferung von
Fenstern, wenn vertraglich der Bau eines schlüsselfertigen Hauses vereinbart
wurde“ (www.rbs-partner.de/iasb, S. 1).

318

Schritt 3: Ermittlung des Transaktionspreises (transaction price), der sich
auf Basis der Vertragsinhalte und unter Berücksichtigung des üblichen Geschäftsgebarens ergibt ( vgl. IFRS 15.47)
Der Transaktionspreis wird hierzu definiert als der Betrag, der für die versprochenen Güter und Dienstleistungen zu erwarten ist, jedoch ohne solche
Beträge, die für Dritte (Agentenrolle) eingesammelt werden. Art, Zeitpunkt
und Umfang der vereinbarten Gegenleistungen beeinflussen dabei die Ermittlung des Transaktionspreises (vgl. Morich, S., S. 5). Auch wenn dieser Preis
häufig ein fixer Betrag sein wird, kann der Transaktionspreis auch variable
Komponenten, wie etwa Rabatte, Boni, Leistungsprämien, Strafzahlungen
etc., enthalten (vgl. IFRS 15.51). Die Höhe dieser variablen Bestandteile ist
zu schätzen und geht in den Transaktionspreis ein. Der damit einhergehenden
Unsicherheit wird dadurch Rechnung getragen, dass diese variablen Beträge
nur insofern berücksichtigt werden dürfen, als es hochwahrscheinlich ist, dass
sich bei Wegfall der Unsicherheit (wenn z.B. feststeht, dass eine angenommene
Absatzmenge in einer Periode erreicht/nicht erreicht wird) keine wesentlichen
Anpassungen der erfassten Umsatzerlöse ergeben. In den Transaktionspreis
gehen auch mögliche Finanzierungskomponenten oder non-cash-Leistungen bewertet zum Fair Value -ein (vgl. www.rbs-partner.de/iasb, S. 1).

Sobald der Vertrag mehr als eine Leistungsverpflichtung umfasst, ist eine
Zuordnung des zuvor ermittelten Transaktionspreises zu den einzelnen Leistungen notwendig. Zielsetzung der Zuordnung des Transaktionspreises ist es,
für jede Leistungsverpflichtung denjenigen Betrag abzubilden, den das Unternehmen für die jeweils zugesicherten Güter und Dienstleistungen im Rahmen des
Vertragsverhältnisses erwartet (vgl. IFRS 15,73). Dies ist insbesondere dann
relevant, wenn die Leistungen zu verschiedenen Zeitpunkten/Zeiträumen erfüllt werden und damit das Muster der Umsatzerfassung von der Verteilung
abhängig ist (vgl. Morich, S., S. 2).
Auf Basis der relativen Einzelveräußerungspreise (relative stand-alone selling price) hat die Zuordnung zu erfolgen (vgl. IFRS 15,74). Dazu werden diese
Preise je Leistungsverpflichtung ermittelt und dann der Transaktionspreis proportional zugeordnet (vgl. IFRS 15,76). Als Einzelveräußerungspreis wird derjenige Preis definiert, zu dem das Unternehmen die zugesicherte Ware oder die

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Schritt 4: Zuordnung des so ermittelten Transaktionspreises zu den
einzelnen Leistungsverpflichtungen (vgl. IFRS 15.74 ff.)

Bodo Runzheimer: DER NEUE STANDARD IFRS 15 – IASB UND FASB VERABSCHIEDEN EINEN WEITGEHEND EINHEITLICHEN STANDARD ...

zugesicherte Dienstleistung einzeln an den Kunden veräußern würde (vgl. IFRS
15.77). Der Einzelveräußerungspreis ist grundsätzlich ein unternehmensspezifischer Maßstab (vgl. Morich, S., S. 2). Sind keine Preise direkt beobachtbar, ist
das Unternehmen gehalten, den Einzelveräußerungspreis unter Berücksichtigung der Markt-, Unternehmens- und Kundensituation zu schätzen (vgl. IFRS
15.78). Als mögliche Schätzmethoden, die dann auch konsistent anzuwenden
sind, kommen in Frage (vgl. IFRS 15.79:
- angepasster marktbasierter Ansatz: Schätzung eines Preises am relevanten
Markt, den ein gedachter Kunde bereit wäre zu zahlen
- retrogrades Verfahren: Hochrechnung der erwarteten Kosten zur Erfüllung der Leistungsverpflichtung und Hinzurechnung einer angemessenen
Marge
- Residualansatz: Ermittlung des Einzelveräußerungspreises als Residuum zwischen Transaktionspreis und den bereits (nach vorgenannten Methoden) ermittelten Einzelveräußerungspreisen anderer
Leistungsverpflichtungen.
Eine Kombination der vorgenannten Schätzmethoden innerhalb einer
Transaktion ist zulässig, ggf. notwendig, nämlich dann, wenn mindestens zwei
Leistungsverpflichtungen in den Residualansatz fallen (vgl. IFRS 15.81).

Schritt 5: Erfüllung von Leistungsverpflichtungen (vgl. IFRS 15.30 ff.)
Erlöse sind dann und genau dann zu bilanzieren, wenn das Unternehmen
eine Leistungsverpflichtung erfüllt, d.h. die vereinbarten Güter oder Dienstleistungen überträgt (Prinzip der Erfüllung durch Kontrollübergang). Unter
Kontrolle wird in diesem Zusammenhang die Möglichkeit verstanden, die Verwendung des Vermögenswertes oder der Dienstleistung zu bestimmen und dabei den wesentlichen Nutzen selbst zu vereinnahmen, das beinhaltet die Fähigkeit, andere von der Verwendung sowie Nutzenziehung auszuschließen (vgl.
IFRS 15.33). Der Nutzen kann hier in vielerlei Hinsicht erzielt werden. Denkbar ist beispielsweise der Zufluss von Cshflows oder auch die Vermeidung von
Ausgaben (vgl. www.kpmg.com/DE/de.2014, S. 21). Dienstleistungen werden
in diesem Zusammenhang als Vermögenswerte angesehen, wenngleich sie in
der Regel direkt „verbraucht“ werden.
Indikatoren für einen Übergang der Kontrolle sind, dass ein Kunde

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- eine gegenwärtige Zahlungsverpflichtung hat
- den physischen Besitz des Gutes erlangt
- rechtliches Eigentum erlangt
- den Vermögenswert abgenommen hat (vgl. www.kpmg.com/DE/de.2014,
S. 23).
Es gibt spezifische Anwendungsregeln zur Beurteilung, ob Umsatzerlöse
aus einer unterscheidbaren Lizenz zur Nutzung geistigen Eigentums zu einem Zeitpunkt oder über einen Zeitraum zu erfassen sind. Ist die Lizenz von
anderen vertraglichen Zusagen nicht unterscheidbar, werden die allgemeinen
Kriterien (vgl. oben Schritt 5) angewendet. Ansonsten benutzt das Unternehmen besondere Kriterien, um zu bestimmen, welches Recht die unterscheidbare Lizenz dem Kunden verschafft und mithin wann die Umsatzerlöse
zu erfassen sind:
- verschafft die Lizenz das Recht der Nutzung des geistigen Eigentums,
wie es zum Zeitpunkt der Lizenzgewährung zur Verfügung steht und bleibt
es während des Nutzungszeitraums unverändert, so sind die Umsatzerlöse zu
diesem Zeitpunkt zu erfassen

Der Zeitpunkt der Erfassung von Umsatzerlösen aus Lizenzen kann sich
ändern. Die Notwendigkeit der Beurteilung, ob eine Lizenz ein Recht zur Nutzung des geistigen Eigentums oder Zugang zum geistigen Eigentum verschafft,
stellt eine Neuerung in dem neuen Standard dar. Für die Bilanzierung von
Lizenzen gibt IFRS 15 konkretere Regelungen vor als dies bisher der Fall war.
Dies bedingt die Notwendigkeit eines Umdenkens bei der Bestimmung des
Zeitpunktes der Realisierung der Umsatzerlöse aus Lizenzentgelten.
„Die Beurteilung der Kriterien könnte mit erheblichen Ermessensentscheidungen verbunden sein, und das Ergebnis kann dazu führen, dass Umsatzerlöse,
die derzeit über einen Zeitraum erfasst werden, zu einem Zeitpunkt erfasst
werden oder umgekehrt“ (www.kpmg.com/DE/de.2014, S. 24).

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

- verschafft die Lizenz dem Kunden das Recht des Zugangs zu geistigem
Eigentum so, wie es über den Lizenzierungszeitraum zur Verfügung steht, so
sind die Umsatzerlöse über einen Zeitraum zu erfassen (vgl.www.kpmg.com/
DE/de.2014, S. 23 f.).

Bodo Runzheimer: DER NEUE STANDARD IFRS 15 – IASB UND FASB VERABSCHIEDEN EINEN WEITGEHEND EINHEITLICHEN STANDARD ...

Beispiel einer Umsatzrealisierung für das Recht auf Nutzung des geistigen
Eigentums zu einem Zeitpunkt:
Das Unternehmen hat in einem Vertrag mit einem Kunden über die
Gewährung einer Softwarelizenz für den Zeitraum von drei Jahren abgeschlossen. Der Kunde verfügt über kein exklusives Nutzungsrecht an der Software
und erwartet nicht, dass das Unternehmen etwaige Maßnahmen durchführt,
die wesentliche Auswirkungen auf das geistige Eigentum haben, auf dessen
Nutzung der Kunde ein Recht hat. Durch die Softwarelizenz wird mithin ein
Recht gewährt, das geistige Eigentum des Unternehmens in der Form zu nutzen, in der es im Gewährleistungszeitpunkt besteht. Die Umsatzerlöse sind zu
diesem Zeitpunkt zu erfassen (vgl. www.kpmg.com/DE/de.2014, S. 24).
Die neuen spezifischen Anwendungsregeln zu Lizenzen machen es für
alle Unternehmen erforderlich, die vorhandenen Lizenzen daraufhin zu überprüfen, ob die Umsatzerlöse zeitpunkt- oder zeitraumbezogen zu erfassen sind.
„Unter Umständen können Änderungen an Systemen, Prozessen und Kontrollen notwendig sein, um den neuen Kriterien und gegebenenfalls den Änderungen beim Zeitpunkt der Erfassung der Umsatzerlöse gerecht zu werden“
(www.kpmg.com/DE/de.2014, S. 25). Im FINANCE-Magazin befindet sich
am 26.04.2014 zum Beispiel folgende Headline: „Die Deutsche Telekom rüstet
sich für neue Bilanzierungsregeln: IFRS 15 kostet uns einen zweistelligen Millionenbetrag“ (Becker, J., in: www.finance-magazin.de/bilanzierung&controling,
24.06.2014).

2.

WICHTIGE POTENTIELLE AUSWIRKUNGEN
DES NEUEN STANDARDS IFRS 15 AUF
UNTERNEHMEN

Der neue Standard IFRS 15 verlangt, dass bei Vertragsabschluss für jede
Leistungsverpflichtung festgestellt wird, ob diese zeitpunktbezogen (at a
point in time) oder zeitraumbezogen (over time) erfüllt wird (vgl. Morich,
S., S. 3).
Als zeitraumbezogen werden Leistungsverpflichtungen angesehen, wenn

322

- der Kunde zeitgleich und simultan zur Erfüllung durch das Unternehmen
den Nutzen erhält und konsumiert
- die Leistung des Unternehmens einen Vermögenswert schafft oder verbessert, welchen der Kunde währenddessen bereits kontrolliert
- die Leistung des Unternehmens nicht einen Vermögenswert mit alternativer Nutzungsmöglichkeit schafft, aber einen durchsetzbaren Anspruch
auf die Gegenleistung für die bis dato erbrachte Leistung begründet (vgl.
Morich, S., S. 5).

Voraussetzung für die bilanzielle Abbildung einer sukzessiven Leistungserfüllung bei entsprechend anteiliger Bilanzierung der Erlöse ist stets, dass der
Fertigungsgrad der Leistungsverpflichtung verlässlich bestimmt werden kann
(vgl. IFRS 15.44). Kann das Unternehmen die sukzessive Erfüllung einer Leistungsverpflichtung nicht verlässlich ermitteln (z.B. in der Anfangsphase eines
Vertrags), kann es jedoch davon ausgehen, dass zumindest die entstandenen
Kosten vergütet werden, so sind Erlöse in Höhe dieser Kosten (also ohne eine
Marge) zu erfassen (vgl. IFRS 15.45).
Alle Leistungsverpflichtungen, die nicht zeitraumbezogen sind, gelten
als zeitpunktbezogen (Umkehrschluss). Als Kriterium zur Ermittlung des
genauen Zeitpunkts der Erfüllung und damit des Realisationszeitpunkts von
Erlösen stellt IFRS 15 zusätzlich neben das Konzept der Kontrollerlangung
weitere Indikatoren, wann der Kunde üblicherweise die Fähigkeit erlangt haben könnte, andere von der Verwendung sowie Nutzenziehung auszuschließen
(vgl. IFRS 15.38):
- das Unternehmen hat ein gegenwärtiges Recht auf Gegenleistung
- der Kunde hat einen eigentumsähnlichen Rechtsanspruch auf den Vermögenswert. Eigentumsvorbehalte hindern nicht die Erlangung von Kontrolle durch den Kunden

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Die zeitraumbezogene Erfüllung einer Leistungsverpflichtung begründet
eine entsprechende sukzessive, kontinuierliche und verteilte Bilanzierung der
Erlöse mit dem Ziel, den Leistungsfortschritt im Zeitablauf adäquat abzubilden (vgl. IFRS 15.39). Verschiedene Methoden werden im neuen Standard
SFRS 15 zur Fortschrittsermittlung angeboten, wobei eine einmal gewählte
Methode im Zeitablauf beizubehalten und auch für gleichartige Leistungsverpflichtungen einheitlich anzuwenden ist (vgl. IFRS 15.40).

Bodo Runzheimer: DER NEUE STANDARD IFRS 15 – IASB UND FASB VERABSCHIEDEN EINEN WEITGEHEND EINHEITLICHEN STANDARD ...

- der Kunde ist im physischen Besitz des Vermögenswertes. Gleichwohl
gibt es hierzu zahlreiche Ausnahmen
- der Kunde ist den wesentlichen Chancen und Risiken aus dem Eigentum
am Vermögenswert ausgesetzt
- der Kunde hat den Vermögenswert akzeptiert bzw. abgenommen.
Die Erfassung von Umsatzerlösen wird möglicherweise vorgezogen oder
aufgeschoben. Dies kann bei Mehrkomponentengeschäften, variablen Kaufpreisbestandteilen und Lizenzen der Fall sein. Dieser Sachverhalt kann sich
auf wesentliche Finanzkennzahlen auswirken, die gegebenenfalls Einfluss auf
die Erwartungen von Analysten sowie auf Verträge mit Earn-out-Klauseln,
Vergütungsvereinbarungen und vereinbarte Klauseln in Kreditverträgen haben
(vgl. www.kpmg.com/DE/de.2014, S. 6).
IFRS 15 führt neue Schätzungen und Beurteilungsmaßstäbe für Ermessensentscheidungen ein, die bemerkenswerte Auswirkungen auf die Höhe
und/oder den Zeitpunkt der Umsatzerlöserfassung haben können. „Schätzungen und Ermessensentscheidungen müssen regelmäßig aktualisiert werden, was
möglicherweise vermehrt zu Anpassungen im Abschluss aufgrund von Schätzungsänderungen in Folgeperioden führt“ (www.kpmg.com/DE/de.2014, S. 6).
Der Zeitpunkt der Steuerzahlungen (abhängig von der jeweiligen Rechtsordnung), die Fähigkeit zur Zahlung von Gewinnausschüttungen und die
Einhaltung von vereinbarten Klauseln in Kreditverträgen können sich durch
die Neuregelungen des IFRS 15 ändern. Unter Umständen müssen Unternehmen auch Erfolgsbeteiligungen für ihre Mitarbeiter und Prämiensysteme
überarbeiten, um sicherzustellen, dass sie weiterhin mit den Unternehmenszielen in Einklang stehen.
Einige Unternehmen werden ihre derzeitigen Verkaufs- und Vertragsprozesse (einschließlich Vertriebskanäle) überprüfen müssen, um eine bestimmte
Verteilung der Umsatzerlöse zu erreichen (vgl. www.kpmg.com/DE/de.2014,
S. 6).
Um die gemäß IFRS 15 notwendigen Daten, die für die Schätzungen oder
für die erforderlichen Nachweise im Anhang bereitstellen zu können, sind die
IT-Systeme eventuell zu aktualisieren.
„Unternehmen benötigen effiziente Prozesse, um neue Informationen an
ihrer Quelle – beispielsweise Unternehmensleitung, Vertrieb, Marketing und
Geschäftsentwicklung – zu erfassen und in angemessener Weise zu dokumen-

324

tieren, insbesondere wenn sie sich auf Schätzungen und Ermessensentscheidungen beziehen“ (www.kpmg.com/DE/de.2014, S. 7). Die Rechnungslegungsprozesse und die internen Kontrollsysteme müssen mithin überarbeitet und
angepasst werden.

Investoren und andere Stakeholder wollen die Auswirkungen des neuen
IFRS 15 auf die Finanzkennzahlen des operativen Geschäfts (auch schon vor
Inkrafttreten des neuen Standards) verstehen. Deshalb müssen die Unternehmen rechtzeitig mit ihren Stakeholdern kommunizieren. Zu den gewünschten Informationen könnten darüber hinaus die zu erwartenden Kosten
für die Umsetzung des neuen Standards IFRS 15, gegebenenfalls vorhandene
Vorschläge zu Änderungen der Geschäftpraktiken, der gewählte Übergangsansatz und eventuell die Absicht in Bezug auf eine frühzeitige Anwendung
(vor dem 1. Januar 2017 ist dies zulässig und wird empfohlen) des IFRS 15
gehören (vgl. www.kpmg.com/DE/de.2014, S. 7).

3.

DARSTELLUNG UND ANGABEPFLICHTEN DES
NEUEN STANDARDS IFRS 15

IFRS 15 führt die Posten „vertraglicher Vermögenswert“ und „vertragliche Verbindlichkeit“ neu ein. Das Recht eines Unternehmens auf Gegenleistung, wenn es seine Leistung erbracht hat und die Erfüllung der Gegenleistung
noch von einer anderen Bedingung als der Fälligkeit abhängt, stellt einen „vertraglichen Vermögenswert“ dar.

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Der neue Standard IFRS 15 sieht zur Erlöserfassung tendenziell zunehmende Angabepflichten im Anhang vor. Grundsätzlich ist hierbei der Nutzer
in die Lage zu versetzen, Art, Umfang, Zeitpunkt und Unsicherheit in Bezug
auf Erlöse und Zahlungsströme aus Verträgen mit Kunden zu verstehen (vgl.
IFRS 15.110). Gefordert werden hierzu sowohl qualitative als auch quantitative Angaben. Der neue Standard IFRS 15 weist ausdrücklich darauf hin,
dass das Unternehmen das richtige Maß an Aggregation bzw. Disaggregation
hinsichtlich der Detailtiefe finden solle (vgl. IFRS 15.111). Das Bereitstellen
dieser Angaben kann aufwendig sein und auch Systemänderungen bedingen.
Ausnahmen für wirtschaftlich sensible Informationen sind in IFRS 15 nicht
vorgesehen.

Bodo Runzheimer: DER NEUE STANDARD IFRS 15 – IASB UND FASB VERABSCHIEDEN EINEN WEITGEHEND EINHEITLICHEN STANDARD ...

Hat ein Unternehmen bereits Zahlungen – z.B. Anzahlungen – erhalten
für eine Verpflichtung gegenüber einem Kunden Güter zu liefern oder Dienstleistungen zu erbringen, so stellt dies eine „vertragliche Verbindlichkeit“ dar
(vgl. IFRS 15.105 ff.). Ein unbedingtes Recht auf Gegenleistung – d.h. die
Fälligkeit einer Geldleistung wird höchstens noch durch Zeitablauf gehemmt
– ist bei dem Unternehmen separat als Forderung (als Finanzinstrument) darzustellen und entsprechend nicht als Teil des vertragsbasierten Nettopostens
zu bilanzieren (vgl. IFRS 15.108, sowie www.kpmg.com/DE/de.2014, S. 31).
Sowohl ein vertraglicher Vermögenswert als auch eine Forderung sind nach den
allgemeinen Regeln des IAS 39 bzw. IFRS 9 hinsichtlich Wertminderungen für
finanzielle Vermögenswerte zu behandeln (vgl. IFRS 15.107 f.).
Das generelle Ziel im neuen Standard IFRS 15 ist es, den Abschlussadressaten des Unternehmens in die Lage zu versetzen, Art, Umfang, Zeitpunkt
und Unsicherheiten in Bezug auf Umsatzerlöse und Zahlungsströme (Cashflows) aus Verträgen mit Kunden zu verstehen (vgl. IFRS 15.110). Dies führt
zu tendenziell zunehmenden Angabepflichten. Quantitative und qualitative
Angaben sind in folgenden Bereichen erforderlich (vgl. www.kpmg.com/DE/
de.2014, S. 31 f.):
- Verträge mit Kunden (Aufgliederung von Umsatzerlösen, Änderungen
der vertraglichen Vermögenswerte und Verbindlichkeiten, Leistungsverpflichtungen, Aufteilung der Gegenleistung auf die verbleibenden
Leistungsverpflichtungen)
- Wesentliche Ermessensentscheidungen und Änderungen von Ermessensentscheidungen bei der Anwendung der Anforderungen (Bestimmung des Erfüllungszeitpunkts von Leistungsverpflichtungen, Bestimmung der Gegenleistung und der auf die Leistungsverpflichtungen aufgeteilten Beträge)
- Vermögenswerte aufgrund aktivierter Kosten für die Erlangung oder Erfüllung eines Vertrages mit Kunden (Beschreibung der Ermessensentscheidungen hinsichtlich der Höhe der aktivierten Kosten, Aufgliederung
des Gesamtbetrags der aktivierten Kosten, zum Beispiel nach Vertragserlangungskosten, Vorlaufkosten eines Vertrags oder Rüstkosten).
Bei den Angaben hat das Untenehmen das „richtige Maß“ hinsichtlich Detailtiefe zu finden. Einerseits sollen keine signifikant unterschiedlichen Informationen zusammengefasst werden, andererseits dürfen aber relevante In-

326

formationen nicht durch unwesentliche Einzelheiten verschleiert werden (vgl.
IFRS 15.111).

4.

ZUSAMMENFASSUNG

Die Regelungen zur Realisierung von Umsatzerlösen ändern sich. Das Internationale Accounting Standards Board (IASB) und der US-amerikanische
Standardsetter, das Financial Accounting Standards Board (FASB) haben
gemeinsam im Mai 2014 neue Vorschriften zur Realisierung von Umsatzerlösen publiziert, die sowohl in den IFRS (International Financial Reporting
Standards) als auch in den US-GAAP (United States Generally Accepted Accounting Principles) Anwendung finden. Der neue Standard IFRS 15 ist das
Ergebnis von mehr als zehn Jahren Arbeit, zahlreichen Diskussionen und umfangreichen Beratungen der Boards.

(vgl. www.ey.com/Publikationen. 2014). IFRS 15 (Revenue from Contracts with Costumers) ersetzt alle bestehenden Regelungen von US-GAAP
und IFRS zur Bilanzierung von Umsatzerlösen vollständig. Der neue Standard IFRS 15 fasst alle Regelungen zur Umsatzerfassung in einem einzigen
Standard umfassend und einheitlich zusammen. Obwohl grundsätzlich eine
Anwendung des Standards auf einzelne Verträge gefordert wird, kann auch
die Zusammenfassung von Verträgen zu Portfolios als Anwendungserleichterung erlaubt sein (vgl. www.kpmg/DE.de/2014, S 3). Der neue Standard
IFRS 15 ist erstmals für die Geschäftsjahre, die am oder nach dem 1. Januar
2017 beginnen, verpflichtend anzuwenden. Eine vorzeitige (vor dem 1. Januar
2017) Anwendung ist zulässig und wird empfohlen.
Eine frühzeitige Vorbereitung dürfte für eine erfolgreiche Umsetzung des
neuen Standards IFRS 15 unabdingbar sein. Die erstmalige Anwendung der
neuen Regelungen ist sicherlich für viele Unternehmen sehr aufwendig.

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Kernprinzip des neuen Standards IFRS 15 für die Bilanzierung von Umsatzerlösen ist die Abbildung der Lieferung von Gütern oder der Erbringung
von Dienstleistungen an den Kunden mit einem Betrag, welcher der Gegenleistung entspricht, die das Unternehmen im Tausch für diese Güter oder Dienstleistungen voraussichtlich (wahrscheinlich) erhalten wird

Bodo Runzheimer: DER NEUE STANDARD IFRS 15 – IASB UND FASB VERABSCHIEDEN EINEN WEITGEHEND EINHEITLICHEN STANDARD ...

Auf alle Unternehmen – die nach IFRS Rechnung legen, dies trifft verbindlich für die Konzernabschlüsse von kapitalmarktorientierten Unternehmen zu
(vgl. www.ax-net.de). –
in allen Branchen hat der neue IFRS 15 Auswirkungen. Zur Umsetzung der
Umsatzrealisierung schreibt IFRS 15 ein Fünf-Schritte-Modell vor. IFRS 15
bietet zwar detaillierte Anwendungsleitlinien, jedoch müssen die Unternehmen
bei der Anwendung der Regelungen in hohem Maße auf Ermessensentscheidungen zurückgreifen, da häufig Schätzverfahren anzuwenden sind.
Für manche Unternehmen werden die potentiellen Änderungen in Bezug
auf die Umsatzrealisierung erheblich sein, so dass es wichtig ist, dass sich die
Unternehmen zeitnah mit den Auswirkungen auseinandersetzen (vgl. www.
ey.com/Publikationen. 2014).

Literaturverzeichnis
Baetge, J./Celik, A.: Umsatzerlöse nach IFRS 15 – ein inkonsistenter Ansatz, in: Zeitschrift
für Internationale Rechnungslegung (IRZ), H. 10, 01.10.2014, S. 365 ff.
Becker J.: Deutsche Telekom. „IFRS 15 kostet uns Millionen“, in: Finance-Magazin,
24.06.21014.
Deloitte: IFRS 15 Erlöse aus Verträgen mit Kunden: www.iasplus.com.de/standards/ifrs15.
Ernst&Young: www.ey.com/Publication. /IFRS.
European Financial Reporting Advisory Group: www.efrag.org.
Gros, S.: IFRS 15 im Überblick: www.coputerwoche.de/a/ifrs-15-imueberblick.17.11.2014.
Grote, A./Hold, C.: IASB und FASB veröffentlichen neuen Standard zur Umsatzrealisierung – IFRS 15, in: www.ey.com/IFRS/Publication, 2014.
Grote, A./Hold, C./Pilhofer, J.: Die neuen Vorschriften zur Umsatz- und Gewinnrealisierung (Teil 1), in: Zeitschrift für internationale und kapitalmarktorientierte Rechnungslegung
(KoR), H. 9, 2014, S. 405 - 415.
Grote, A./Hold, C./Pilhofer, J.: Die neuen Vorschriften zur Umsatz- und Gewinnrealisierung – Was sich (nicht) ändert, in: Zeitschrift für internationale und kapitalmarktorientierte
Rechnungslegung (KoR), H. 9, 2014, S. 339 - 344.
Grünberger, D.: IFRS 2013, Ein systematischer Praxis-Leitfaden, 11. A., Herne 2012.
Hirschböck, G./Lehner, G./Kerschbaumer, H.: IFRS 15 – Umsatzerlöse aus Verträgen mit
Kunden, in: kpmg.at/ACCOUNT INSIGHTS September 2014, www.kpmg.at 2014.
Hoffmann, W.-D./Lüdenbach, N.: IAS/IFRS-Texte, 2. A., Herne 2009.
IASB: International Financial Reporting Standard 15, Revenue from Contracts with Costumers, in: www.efrag.org/Files/... May 2014, S. 1 – 130.
IAS IFRS internationale Rechnungslegung: www.ax-net.de.
IFRS- Portal : www.ifrs-portal.com/literaturdatenbank/index.php.

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IAS Plus: www.iasplus.com/de/standards.
Kirch, H.: Bilanzierung von langfristigen Kundenaufträgen nach IFRS 15 – Beispiele und
Buchungen zur Anwendung des IFRS-Erfolgsrealisierungsmodells – in: Zeitschrift für internationale und kapitalmarktorientierte Rechnungslegung (KoR), H. 10, 01.10.2014, S.
505 ff.
KPMG: www.kpmg.com/DE/de/Documents/accounting-insights-ifrs15-KPMG-2014.
KPMG: www.kpmg.com/DE/de/Documents/integrated-repoting.pdf-2014.
Lüke, C.: IFRS 15: Umsatzerlöse aus Kundenverträgen, in: www.rechnungswesen-portal.
de/05.09.2014.
Morich, S.: IFRS 15: Neue Regeln zur Erlöserfassung nach IFRS 15, in: Der Betrieb (DB),
www.der-betrieb.de/content/dft, 192,665356, S. 1 – 17.
Rechnungswesenportal: www.rechnungswesen-portal.de/Fachinfo/...IFRS.
RoeverBroennerSusat: www.rbs-partner.de/publikationen/iasb. 2014.
RoeverBroennerSusat: www.rbs-partner.de.
Runzheimer, B. (2014): Fair Value Measurement – The New IFRS 13 – Conceptual Suitability as a Data Basis for Controlling and Impact on Performance Measurement, in: Barkovic, D./Runzheimer, B. (Hrsg.): Interdisziplinäre Managementforschung X, Osijek 2014,
S. 589 – 606.
Runzheimer, B. (2012): Neue bilanzpolitische Konzeption für die Segmentberichterstattung nach International Reporting Standard 8 (IFRS 8) im Deutschen Bilanzrecht, in: Barkovic, D./Runzheimer, B. (Hrsg.): Interdisziplinäre Managementforschung VIII, Osijek
2012, S. 889 – 904.
Runzheimer, B. (2010): Internationalisierung der deutschen Rechnungslegung – Führt die
Fair Value-Bewertung zu einer nützlicheren Berichterstattung? in: Barkovic, D./Runzheimer, B. (Hrsg.): Interdisziplinäre Managementforschung VI, Osijek 2010, S. 820 – 842.
Sandleben, H.-M./Reinholdt, A.: IFRS 15 – Revenue Recognition neu gefasst, in:
Zeitschrift für Internationale Rechnungslegung (IRZ), H. 7/8, 2014, S. 269 ff.
Theile, C.: Das „neue“ Realisationsprinzip; IASB veröffentlicht IFRS 15, in: www.controllingportal.de/Das-neue-Realisationsprinzip... 09.10.2014.
Universität Münster: www.wiwi.uni-muenster.de/irw/ download.
Winkler, C.: Fair Value und Controlling, in: Kajüter, P./Mindermann, T./Winkler, C.
(Hrsg.): Controlling und Rechnungslegung/Bestandsaufnahme, Schnittstellen, Perspektiven, Stuttgart 2011, S. 353 – 376.
Wüstemann, J./Wüstemann, S.: Grundsätze für die Erfassung von Umsatzerlösen aus
Verträgen mit Kunden – IFRS 15 „Revenue from Contracts with Costumers“, in: Die
Wirtschaftsprüfung (WPg) Nr. 18, 2014, S. 929 -937.

International
Economics

AN ANALYSIS OF THE ROMANIAN
AGRICULTURAL MARKET IN
THE CONTEXT OF COMMON
AGRICULTURAL POLICY
Larisa Nicoleta POP, Ph.D.
Faculty of Economics and Business Administration,
Babes-Bolyai University
Cluj-Napoca, ROMANIA
larisa.pop@econ.ubbcluj.ro

The Romanian economy has experienced significant challenges after its European Union (EU) integration in January 2007. Considering the significance of
the agricultural sector in Romania’s economy, the implications for this activity
have been substantial, especially in the framework imposed by the Common
Agricultural Policy (CAP) and its recent reforms. The process of adapting the
internal agricultural markets to the requirements of the EU community determined Romania to completely reshape its internal supporting instruments. The
purpose of this paper is to analyze the effects of CAP mechanisms on Romanian agriculture from the viewpoint of its market configurations, highlighting
the impact on price volatility. The results emphasize the need for investments
in this sector – through the absorption of EU and state funds, banking products
and other alternatives – investments that could contribute to increased productivity, better results and, in time, lower import levels.
Keywords: price volatility, price risk, agricultural markets, Romanian market, Common Agricultural Policy.
JEL Classification: E30, E37, Q02.
Acknowledgement: This work was cofinanced from the European Social
Fund through Sectoral Operational Programme Human Resources Development 2007-2013, project number POSDRU/159/1.5/S/134197 „Performance and excellence in doctoral and postdoctoral research in Romanian economics science domain”. 

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Abstract

INTRODUCTION

Larisa Nicoleta Pop : THE CONTEXT OF COMMON AGRICULTURAL POLICY

When analysing the agricultural markets, the topic of price volatility becomes one of strategic importance, both at private and governmental level, as
concerns about food and energy security, combined with the latest commodity
market turmoil, in a context deeply marked by the recent economic crisis, have
brought agricultural markets again into the debates of both political and academic spheres worldwide.
Confronted with the structural imperfections of agricultural markets and
their profoundly strategic nature in assuring food security, governments formulate and implement consistent regulatory policies whose international coordination is a sine qua non condition for stabilizing these markets. However,
the turbulences on commodity markets often generate policy responses (export
restrictions, domestic price controls) that sometimes exacerbate rather than
mitigate the price instability. Due to the EU’s key role in the global economy,
the consequences of its decisions and the policies implemented are reflected
not only domestically but also on the world market. Therefore, the CAP plays
a crucial role in the transmission mechanism of price volatility of agricultural
products primarily inside the Member States’ markets. Accordingly, regarding
Romania, as a consequence of the transformation processes undergone in the
recent decades, its sensitivity to external shocks has increased, adding new pressures to those caused by internal turmoil and deepening the context of risk to
which its economic actors are exposed. Moreover, the CAP and its relationship
with agricultural price volatility is an important topic, as for decades the measures taken by EU led to distortions on the international markets.
The purpose of this paper is to analyze the effects of CAP mechanisms on
Romanian agriculture, highlighting its impact on price volatility. The remainder
of this paper is structured as follows. Section two presents the CAP’s implications for price volatility, offering both a literature review and empirical support
for the aspects expressed. Section three analyzes the Romanian agricultural
market’s present outlook based on empirical researches previously conducted
and on relevant data. The last section offers the conclusions of the investigation,
aiming at formulating some policy implications and recommendations for the
participants at economic life exposed to an increasingly competitive environment after the EU integration.

334

THE COMMON AGRICULTURAL POLICY’S
IMPLICATIONS FOR PRICE VOLATILITY 
LITERATUREREVIEW AND EMPIRICAL SUPPORT

The CAP clusters the entire legislative framework regarding agriculture and
rural development in the EU, consisting of a system of agricultural subsidies
and programs. Its primary objectives are to increase agricultural productivity
and to ensure a fair standard of living for agricultural producers, while stabilizing markets and guaranteeing availability of food supplies at reasonable prices
to consumers (Ferrucci et al.; 2012, 188). Over the years, it operated with several types of intervention mechanisms influencing prices and the quantities of agricultural commodities within the EU: direct subsidy payments, price support
mechanisms, guaranteed minimum prices, tariffs and quotas on imports from
outside the EU, etc. These mechanisms influenced substantially the price stability on the EU market over the decades. However, the reformatory waves that
the policy underwent over the years have reshaped its mechanisms and its impact. Consequently, the shift towards a greater market orientation has exposed
European farmers to higher market volatility, making them more susceptible to

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

The turmoil from the first decade of the new millennium, culminating in
the recent economic crisis, has offered new connotations to the phenomenon of
price volatility. The significant increase in volatility sparked many debates (Balcombe, 2011; FAO, 2011; Huchet-Bourdon, 2011) about its generating factors,
the implications in terms of risk exposure of economic actors, but also the need
for reconfiguring regulatory policy frameworks. Although the main causes of
price fluctuations are complex and impossible to express exhaustively, the researches in the field (Piot-Lepetit&M’Barek, 2011) mostly support the impact
of three factors: the specific characteristics of agricultural markets (low elasticity
of demand and supply), geopolitical tensions existing on international markets
and, last but not least, the reduced effectiveness of an international system of
governance in the management of this instability. The unstable global environment revealed an insufficient coordination necessary to prevent accumulation
of macroeconomic and fiscal imbalances in European countries. Agricultural
markets of the Member States have experienced significant price fluctuations.
Some studies have reported the role of CAP in the transmission mechanism
of price volatility (Bardarji et al., 2011), opening the context for analyzing the
good governance of this policy.

changes in the macroeconomic outlook. As a result of this trade openness, the
instability on world commodity markets is passing through more prominently
to the EU markets (Tothova& Velazquez; 2012). The empirical investigations
have shown that, historically, international commodity prices were generally
more volatile than EU internal prices. The graph in Figure 1, illustrating the
evolution of food commodity price indices on the EU and international market,
emphasizes the instability of the international prices compared to the EU ones.

Larisa Nicoleta Pop : THE CONTEXT OF COMMON AGRICULTURAL POLICY

Figure 1. Food Commodity Price Indices – EU and International Market
(2005=100)

Source: Ferrucci et al.; 2012, 191.

As shown in Figure 1, before 2005, international commodity prices were
generally below CAP intervention prices, supporting the idea that the relative
stability of EU prices could represent a side-effect of CAP. However, as international commodity prices gradually crossed EU intervention prices from 2006
onwards, due to the commodity price shock that troubled the world economy,
the two series commenced to move in synchrony, emphasizing that CAP provides a price stabilization mechanism mainly against price falls (Ferrucci et al.;
2012, 191).
The higher volatility context for internal EU markets opened significant
debates in the economic literature regarding causes, correlations and implications. Due to the high importance of the subject, several studies concentrated
upon the problem of policy implication for domestic price volatility. Tothova
and Velazquez (2012) analyzed the EU market and compared its price volatility
developments with the international markets, showing that as market environment is changing, policy is adjusting. They also presented instruments avail-

336

ANALYSIS OF THE ROMANIAN AGRICULTURAL
MARKET’S PRESENT OUTLOOK RELEVANT
DATA AND INTERPRETATIONS
When approaching the problem of agriculture’s role for domestic markets,
it is elemental to emphasize that a fundamental pre-condition for sustainable
development and growth resides in the capacity of a country to grow or to
buy food at affordable prices. Certainly, price volatility in domestic markets is
strongly dependent upon the policy environment. To stabilize internal markets

337

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

able to deal with volatility, indicating advantages and disadvantages based on
implementation experience. Cantore (2012) analyzed the effects of CAP (both
existing measures and proposed changes after 2013) on price volatility in developing countries, finding that existing protectionist measures may continue to
exacerbate price volatility at world level and arguing that the abolition of CAP
instruments will help stabilize prices in world commodity markets. The literature on the matter also concentrates on analyzing policy instruments designed
to deal with the volatility, as the CAP has always had the declared objective of
stabilizing agricultural markets, even though the policy mix in place has been
regularly adapted over the last decades in line with a changing economic, social
and political environment (Tothova& Velazquez; 2012, 9).Among the most
representative instruments, a special role has been played by the price support
mechanism. For decades, guaranteed institutional prices represented the most
important instrument of support for EU farmers, keeping domestic prices relatively high and stable in comparison to those on the international market. Correlated with border protection, the price support offered shelter against competition from imports, ensuring market isolation and thus defence from external
shocks. As the high prices caused production increases, expensive public interventions for withdrawing excess quantities or substantial export subsidies were
necessary, eventually culminating in budgetary crises. Thus, the various reforms
undergone by CAP concentrated on emphasizing competitiveness and market
orientation, by shifting support from product to producer through decoupled
payments. Intervention prices were progressively reduced and aligned to world
prices, public intervention today representing a targeted product safety-net,
with institutional prices set at a level that ensures they are used only in times
of real crisis.

Larisa Nicoleta Pop : THE CONTEXT OF COMMON AGRICULTURAL POLICY

and to protect producers and consumers, governments tend to implement measures that cause the export of the internal instability to international markets.
This tendency acts as a vicious circle because as world markets become more
volatile, governments seek to stabilize domestic markets even more, thus augmenting the instability. International price trends are transmitted to domestic
markets depending on the relative share of domestic demand satisfied by imports (Blein& Longo; 2009, 4).
Empirical analyses(Blein& Longo; 2009) comparing price volatility on domestic and international markets for the previous decade generally show that
the volatility of domestic prices is greater if compared to the volatility of international prices, exception being 2004-2008, during which global price volatility
proved to be higher. This feature confirms the incomplete transmission of price
movements and a partial disconnection of domestic price trends from international markets. These results are confirmed also for the Romanian market, by
empirical studies made recently by Pop et al. (2013) for some representative
crops and for sugar, and by Pop et al. (2014) for agricultural food commodities.
However, the domestic degree of volatility often appears to be highly influenced
by the internal context of an economy, by its policy coherence and the strength
of its internal market structures. This is mainly the case of Romania’s agricultural price stability, highly determined by both its internal context and its position as a new Member State of the EU.
Pop et al. (2013, 2014) conducted extensive empirical researches on the
Romanian agricultural market from the price volatility perspective, in order to
illustrate the price volatility recently experienced by some representative agricultural commodities for the Romanian economy (an aggregate index of agricultural food commodities, and price indexes for wheat, maize and sugar) and
to compare it with the situation registered on the international market. The
analyses were based on econometric modelling using the GARCH models to
estimate the models for each variable. Combined models ARIMA-EGARCH
with a GED distribution were selected. Based on the estimated equations, the
series of conditional volatility were generated, in order to compare the instability for the Romanian and international market. The illustration of the results is
given in Figure 2, performed in Eviews 7.1, based on data released by the Romanian National Institute of Statistics (RNIS) and the International Monetary
Fund (IMF).

338

Figure 2. Comparison between Domestic and International Price Volatility for
Some Representative Agricultural Commodities for Romania, Monthly Data
(2004=100)
(a) Food – Merged Graphs of Variances – Romanian and International Market
4

3

2

1

0    

-1

-2

-3

-4

I 

II

III 

I

IV

2006 

II 

D L 

III

I

IV

II

2007

III

IV

2008  

I

II

III

I

IV

2009 

N _ F O O D _ IN T S F

II

III

IV

2010

I

II

III 

IV

2011

D L N _ F O O D _ R O S F

(b) Wheat – Merged Graphs of Variances – Romanian and International
Market
10

8

6

4

2

0 

-2

2004 

2005

2006 

    

     
2007 

_

_

WHEAT _ RO

2009

2010

2011

_ 

2012

_ 

        

WHEAT _INT

(c) Maize – Merged Graphs of Variances – Romanian and International Market
8

6

4

2

0 

-2

2004 

2005

2006      

    

MAIZE_RO
2007

_

2008

_

2009

2010
_

2011 

2012

_ 

 MAIZE_INT 
      

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10

(d) Sugar – Merged Graphs of Variances – Romanian and International Market
4
3
2
1
0
-1
-2 

Jan
-3 2001 

Jan 2002 

Jan 2003 

Jan 2004 

Jan 2005 

Jan 2006

SUGAR_RO 

  

Jan 2007 



Jan 2008

Jan 2009

Jan 2010

Jan 2011 

Jan 2012

SUGAR_INT 

     

Larisa Nicoleta Pop : THE CONTEXT OF COMMON AGRICULTURAL POLICY

Sources: Pop et al.; 2013 (a), Pop et al.; 2013 (b), Pop et al.; 2014.

Examining the results, there are some descriptions regarding price volatility
that can be made for the agricultural market in Romania. The analyzed price series experienced significant volatility in the last decade, but they experienced it
in a different manner. The wheat market has been characterized by a lower but
permanent volatility, combined with very acute spikes in moments of significant
turmoil at international level (e.g. in 2008 in the midst of the economic crisis or
in 2011 during the Euro Area turmoil). After 2007, these spikes appeared with
a lag of two-three months after the international wheat market experienced a
significant fluctuation. For maize, it can be noticed a permanent higher level
of volatility, but the spikes do not reach such soaring levels. For sugar, in the
two years prior to EU accession, the Romanian market experienced periods of
significant volatility, much more acute than the ones registered on the world
market. In 2008 and especially in 2009, there has been an increase in volatility
on the Romanian market. Though at the beginning of 2010 the volatility seems
more attenuated, the spring and summer of 2010 brought new volatility peaks
in correlation with the ones signalized on the world market. Therefore, for all
products it can be detected a mix of imported and domestic volatility. Analyzing the equations for the Romanian market, it can be observed that the current
volatility depends more on passed shocks than on passed volatility. Thus, the
current volatility has its origins on the shocks and transformations Romanian
agricultural sector experienced in the recent period (Pop et al.; 2013, 2014).
Since 2007, when Romania has joined EU, both its government and its economic actors are struggling to adapt to the new competitive environment. Romania’s entry into the EU changed the character of European agriculture, but
also the EU is in the process of changing the character of Romanian agriculture

340

(Knight; 2010, 6). In its rural area, Romania has approximately 14.7 million
hectares of agricultural land, incorporating over four million farms. Compared
to the other Member States, Romania represents the country most heavily reliant on agriculture and the country with the largest number of farmers in the
union as a whole, the Romanian farmers representing 20% of the entire EU
labour force involved in agriculture (Alboiu; 2009). Contrasting with most EU
countries, Romanian farmers are divided into a peasant and an industrial class,
having 2.6 million farms which are under a hectare, and only 9,600 farms which
are more than 100 hectares. Until now, those 9,600 farms absorbed the most
significant portion of agricultural subsidies within the CAP (Luca &Ghinea;
2009). Also in terms of economic size of farms, Romanian family farms are
quite small compared to their Western equivalents, in Romania the average size
of the family farm is 2.2 hectares, much smaller than the Western European
ones. From the over 4 million family farms, only 1.24 million are at least 1 European Standard Unit (ESU) and 98% of all Romanian farms are less than 8
ESU (Alexandri& Luca; 2008, 3). Consequently, when compared with the Romanian situation, it can be observed that most Member States of the EU have
developed on completely different paths, and consequently the policies formulated under the common framework often do not resonate with the Romanian
realities.

Due to the European Union’s decisive role in the global economy, the consequences of its decisions and the policies implemented are reflected not only
domestically but also on the world market. Therefore, the CAP plays a key role
in the transmission mechanism of price volatility of agricultural products. The
EU precedent experience of implementing mechanisms to stabilize the markets
using price controls has proved inadequate to today’s context, putting the EU
in the position of reshaping its common agricultural framework. However, the
recent troubled economic environment emphasized the need to maintain income support and to reinforce instruments to better manage risks and respond
to crises. The current CAP offers viable mechanisms for price volatility, product
safety-nets and decoupled payments contributing to make farms less vulnerable
to fluctuations in prices and to provide an income safety net independent of the

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CONCLUSIONS, POLICY IMPLICATIONS AND
RECOMMENDATIONS

Larisa Nicoleta Pop : THE CONTEXT OF COMMON AGRICULTURAL POLICY

market situation (Tothova& Velazquez, 2012). Still, these instruments need to
be adjusted to achieve market stability on the medium-term perspective, in the
most effective and efficient way.
With regard to Romania, its current volatility context is a mixture between
imported volatility, internal instability and lack of maturity of the market structures. Romania should concentrate on strengthening its internal potential of
production in order to reduce the level of imported volatility, while also dealing with the problem through price risk management strategies. The Romanian producers are adapting with high difficulty to a highly volatile market
environment. Investments in this sector – through the absorption of EU and
state funds, banking products and other alternatives– could contribute to increased productivity, better internal results and, in time, lower import levels.
When comparing the Romanian situation with other Member States, it can be
observed that most Member States of the EU have developed on completely
different paths, and consequently the policies formulated under the common
agricultural framework often do not resonate with the Romanian realities. To
meet Romania’s perspectives, the CAP would need to undergo fundamental
changes or Romania’s agricultural outlook should transform dramatically. During the process of formulation of the latest CAP reform – the Ciolos reform
from 2013, when for the first time in the history of major CAP reforms Romania participated as a member, it supported the maintenance of CAP on its
present path. Still, Romania must proceed as a more dynamic player in the CAP
debates, in order to support its distinctive status and to negotiate regulations
that fit more its internal agricultural outlook.

References
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Volatility.In I. Piot-Lepetit& R. M’Barek (Eds.), Methods to Analyse Agricultural Commodity Price Volatility, Springer, New York.
Pop, L.N., Rovinaru, F. &Rovinaru, M. (2013) (a). Assessing the Price Risk on the Romanian Agricultural Market: Analyses and Implications, Interdisciplinary Management
Research IX: 469- 479, Opatija: J.J. Strossmayer University Osijek, HochschulePforyheim
University, Croatia.
Pop, L.N., Rovinaru, M. &Rovinaru, F. (2013) (b). The Challenges of the Sugar Market: An
Assessment from the Price Volatility Perspective and Its Implications for Romania, Elsevier
Procedia Economics and Finance, 5, 605-614.
Pop, L.N., Rovinaru F. &Rovinaru M. (2014). Commodity Price Volatility During and After
the Economic Crisis – Implications for Romania, South East European Journal of Economics and Business, 8(1), 40-47.
Tothova, M. & Velasquez, B. (2012). Issues and policy solutions to commodity price volatility in the European Union. Paper presented to the 2nd IFAMA annual symposium: The
road to 2050, the China Factor, Shanghai.

SHOPPING ON THE GO  AN
ANALYSIS OF CONSUMERS’
INTENTION TO USE MCOMMERCE
IN GERMANY AND PERU
Thomas Cleff • Helen Loris • Nadine Walter: SHOPPING ON THE GO – AN ANALYSIS OF CONSUMERS’ INTENTION TO USE ...

Thomas CLEFF, Ph.D.
Professor of Quantitative Methods for Business & Economics,
Dean of the Business School at Pforzheim University,
Germany, and Research Associate at the Centre for European
Economic Research (ZEW), Mannheim, Germany.
Helen LORIS
Bachelor of International Marketing graduate of Pforzheim
University.
Nadine WALTER, Ph.D.
Professor for International Marketing at Pforzheim University,
Germany.

Abstract
M-Commerce is steadily on the rise – mainly driven by increasing smartphone
usage. This so-called “Mobile Revolution” is even considered to be of similar
impact as the “Internet Revolution” in the 1990s. This study aims to analyse
the level of consumers’ intention to use M-Commerce – and the factors which
influence their intentions. Since the level of M-Commerce varies country by
country, a comparison of two countries, a developed market (Germany) and
a developing country (Peru), has been conducted. The following influencing
factors have been analysed: (1) sense of comfort (including perceived ease of
use, social influence, convenience, appreciation of consultative services and cash
preferences), (2) involvement into E-Business (including intention to purchase online, trust in online shops and intention to use social commerce) and
(3) perception of safety (attitude towards data protection, attitudes towards
transaction security and safety precautions).

344

The study could identify the most important influencing factors (i.e. perceived
ease of use, social influence, convenience, trust in online stores, intention to use
social commerce and the general perception of safety). In addition, it showed
the major differences between Peru and Germany: Peruvians tend to be influenced by others to a larger extend than Germans, they value consultative
selling higher, they have a lower intention to purchase online (but a higher
social commerce usage) and data protection/transaction security plays a more
important role.
These findings should help corporations to better understand the still existing
boundaries for M-Commerce and to be able to implement measures to remove
them. It should also enable German firms to get a better understanding of the
M-Commerce behaviour in Peru – and vice versa.
Keywords: E-Business, E-Commerce, M-Commerce, Mobile Commerce, influencing factors, Germany, Peru
Jel Classification: D11, N3, L81

INTRODUCTION

The so-called “Internet Revolution” occurred in the late 90s when the web,
which was since then only an instrument to be used in research institutions,
became accessible for a broad user group.1 Today, more than 20 years later, the
term “Mobile Revolution” is frequently stressed and some authors claim that it
is expected to be even more impacting than the Internet Revolution2. Around
17% of all Internet traffic comes from smartphones.3 Smartphone users can
watch advertising (Mobile Marketing) or shop online (M-Commerce) while
on the go, and even use mobile payment techniques. Both phenomena, mobile
cellular subscription and smartphone usage, drive the potential of Mobile Marketing (which includes Mobile Advertising and M-Commerce).
This study aims to analyse the level of consumers’ intention to use M-Commerce and the factors which influence their intentions. Since we assume that
this varies country by country, a comparison of two countries, a developed market and a developing country, seems to be most suitable. Germany was selected
1
2
3

cf. Ryan and Jones (2012), pp. 7 et seq.
cf. Eckstein and Halbach (2012), p. 52
cf. Zolezzi (2013), p. 5

345

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

1

Thomas Cleff • Helen Loris • Nadine Walter: SHOPPING ON THE GO – AN ANALYSIS OF CONSUMERS’ INTENTION TO USE ...

as an example of a developed country, and Peru as an example of a developing country. Both vary in mobile-cellular subscription (Peru has 98 of mobilecellular subscriptions per 100 inhabitants, versus Germany with 112)4 and in
smartphone/table share (Germany has 45% of smartphone/tablet users, i.e.
27.3 million people, versus 17% in Peru, i.e. 3.1. million people)5. However,
the consumption-based influencing factors will be most likely to influence MCommerce usage and therefore are the focus of this analysis.

2

CONCEPTUAL FRAMEWORK AND
HYPOTHESES

. Mobile Commerce
In the broadest sense, M-Commerce can be considered as an extension to
E-Commerce which “is the sale or purchase of goods or services, whether between
businesses, households, individuals, governments, and other public or private organizations, conducted over computer-mediated networks.”6 M-Commerce in contrast
to E-commerce refers to transactions that only take place through mobile devices, starting from the information search up to the monetary exchange: “MCommerce is the buying and selling of goods and services through wireless hand-held
devices such as cellular telephones, personal digital assistants (PDAs) and wireless
computers.“7 While the products and services are ordered online, the payment
and the delivery might be online or off-line. In this study the mobile devices
analysed will be smartphones and tablets. Due to their size, both are hand-held
and portable devices that furthermore contain the same features as PCs and the
ability to connect to the internet, enabling mobile transactions.

. Influencing factors on consumers’ intention to use
M-Commerce
When comparing the mobile usage in Germany and Peru, three main dimensions can be used to describe the influence on the use of M-commerce:
4
5
6
7

cf. ITU (URL)
Cf. Eckstein and Halbach (2012), p. 12 and Ipsos Peru (2013a and b)
OECD (URL)
Michael and Salter (2006), p. 79

346

Consumers’ sense of comfort, their involvement into E-business and their perception
of safety. These influencing factors will be explained in the following chapters:
.. Sense of comfort

The consumers’ sense of comfort consists of the
- Perceived ease of use
- Social influence
- Convenience
- Appreciation of consultative service
- Cash preference
...

Perceived ease of use

Perceived ease of use is affected by application features and by “physical features of mobile devices such as its small display screen”8. If the usage of M-Commerce is perceived as easy, consumers’ acceptance of using the service increases.
Considering the wider distribution of advanced mobile devices in Germany and
the resulting higher familiarity with M-Commerce applications than in Peru9,
it is expected that the ease of use is considered to be higher in Germany. We
therefore assume:

H1b: Perceived ease of use is estimated to be greater in Germany than in
Peru.
... Social influence

Social influences affect consumer acceptance of mobile technologies and
services. Kelman distinguished three categories of social influence: Compliance, identification, and internalization.10 In all three cases though, an individual strives to gain approval by a third party, independent on whether he
is denying himself or strengthening his own position. The third party may
involve family members, friends, social networks, public organizations and
8

Chong et al. (2012), p. 37
cf. Zolezzi (2013), p. 6
10
cf. Kelman (1958), p. 53
9

347

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

H1a: Perceived ease of use relates positive to consumer intention to use
M-Commerce.

Thomas Cleff • Helen Loris • Nadine Walter: SHOPPING ON THE GO – AN ANALYSIS OF CONSUMERS’ INTENTION TO USE ...

media, or the validation from trusted institutions. The level of individualism
influences consumers’ perceptions. Individualism according to Hofstede is “the
degree of interdependence a society maintains among its members”11 According to his empirical research, Germany scores a 67 on individualism (versus 16
for Peru) and thus follows an approach of self-actualization. The opinion of a
third party will not have the strong influence on an individualistic person as on
a group-oriented or collectivistic person. Contrarily, in a collectivistic society
as Peru, the opinion will strongly influence an individual’s usage behaviour: “In
order for consumers to fully embrace M-Commerce services, education and
validation from independent and trusted parties are key factors.”12 Therefore, it
seems reasonable to assume:
H2a: Social influence relates positive to consumer intention to use
M-Commerce.
H2b: Social influence tends to be lower in Germany than in Peru.
...

Convenience

Talking about the consumer adaption to new technology trends, including
M-Commerce, the perceived convenience is considered a key element.13 Primarily, convenience is “closely related to time-place flexibility”14 and the possibility to
make best use of one’s time when on the go. Besides that, the net reliability contributes to consumer convenience in using M-Commerce. According to ECC15
a fast loading time of the single pages are important to mobile device users. That
is because the data transfer rate for mobile devices is slower than for laptops or
PCs. The fear that “M-Commerce transactions can be interrupted or disturbed
by an unreliable Internet connection”16 prevents users from using M-Commerce
applications. Due to the fact that the German culture values reliability, achievement and efficiency highly, it is expected that time-consuming inconvenience is
considered to be more negative than in Peru. Therefore we assume:

11
12
13
14
15
16

Hofstede (URL1)
Ericsson (2013), p. 3
cf. Kim et al. (2010), pp. 310 et seq.
Okazaki and Mendez (2013), p. 1234
cf. Eckstein and Halbach (2012), p. 42
Ericsson (2013), p. 3

348

H3a: Convenience relates positive to consumer intention to use
M-Commerce.
H3b: Convenience is estimated to be higher in Germany than in Peru.
... Appreciation of consultative service

The attitude towards sales advice is indispensable with a view to the channel decision. The mobile channel has the lowest media richness compared to an
in-store channel or even an E-commerce channel 17 and does not allow a direct
interaction with the product or service. It is apparent that the intention to use
M-Commerce contradicts the intention to consult a sales advisor in person.
In Latin America, the consumer apparently appreciates a high degree of
control, also with regard to his expenses18. Especially Peru scores high in the
dimension of “uncertainty avoidance” (87 versus 65 for Germany) according
to Hofstede’s framework.19 Uncertainty avoidance is the “extent to which the
members of a culture feel threatened by ambiguous or unknown situations”20.
M-Commerce as an arising technology is faced with these doubts, as it does not
rebuild the consumers’ control. Following the line of arguments, the following
is expected:
H4a: Appreciation of consultative selling relates negative to consumer intention to use M-Commerce

... Cash preference

Cash preference describes the usage of cash as the main payment method,
alternative to transaction via a bank account, online transactions, including
credit card use or PayPal, or even transaction via mobile device, for example per
SMS, QR Code or App. In a cashonomy, people usually prefer cash payments,
no matter their socioeconomic status.21 Cash is “a fast, convenient and transpar17
18
19
20
21

cf. Maity and Dass (2014), p. 35
cf. Ericsson (2013), p. 5
Cf. Hofstede (URL1)
Hofstede (URL1)
cf. Ericsson (2013), p. 3

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

H4b: Appreciation of consultative selling is estimated to be lower in Germany than in Peru.

ent means of payment”22. In Peru, it is promoted by a high amount of informal
sales in the streets or in small shops and hence, the acceptance of cash only.
Contrarily, in Germany most jobs are formal, accordingly the payment. Taking
these findings into consideration, it is presumed:

Thomas Cleff • Helen Loris • Nadine Walter: SHOPPING ON THE GO – AN ANALYSIS OF CONSUMERS’ INTENTION TO USE ...

H5a: Cash preference relates negative to consumer intention to use
M-Commerce
H5b: Cash preference is estimated to be lower in Germany than in Peru.
.. Involvement into e-business

The involvement into E-Business was determined as relevant for M-Commerce, because it is assumed that both the intention to purchase online as well
as the intention to use social commerce have potential to lead digital users towards the use of M-Commerce. Further, the trust in online shops is defined as
an additional element, as it influences highly the choice of the purchasing channel. The consumers’ involvement into E-Business is therefore determined by the
- Intention to purchase online
- Trust in online shops
- Intention to use social commerce
... Intention to purchase online

E-commerce is a forerunner of M-Commerce. M-Commerce is therefore
predicted to evolve in a similar way23. E-commerce sales in both countries,
Germany and Peru, increased by approximately 50% from 2005 to 2011, and
are expected to grow further. Peru made US$ 611 million24 and Germany €
26.1 billion25 in E-commerce sales in 2011. With Germany being a more developed country than Peru, the recognition and distribution of E-commerce is
higher than in Peru. Therefore, it is expected:
H6a: Intention to purchase on-line relates positive to consumer intention to
use M-Commerce.
22
23
24
25

Ericsson (2013), p. 3
cf. Ericsson (2013), p. 6
cf. Selman Carranza (2012), p. 5
cf. Statista (URL)

350

H6b: Intention to purchase on-line is estimated to be greater in Germany
than in Peru.
... Trust in online shops

Consumer trust in an online shop, thus a specific website, is the basic requirement in order to engage into a purchase decision through this online shop,
irrespective of whether engaging into E-commerce or M-Commerce. Trust may
imply a minimum expectation of an individual, a subjective belief or probability26 or the “willingness of an individual to be vulnerable, reliance on parties
other than oneself, or a person’s expectation“27. With regard to M-Commerce,
it means the presumption of the customer that the online shop will fulfil the
transactions on the previously agreed terms without any incident. The reputation of an online site and the familiarity of an individual with this website have a
positive impact on the consumer loyalty and preference over other online shops.

H7a: Trust in online shops relates positive to consumer intention to use
M-Commerce
H7b: Trust in online shops is estimated to be greater in Germany than in
Peru.
... Intention to use social commerce

26
27
28
29
30

cf. Kim et al. (2008), p. 545
Kim et al. (2008), pp. 545 et. seq.
Ericsson (2013), p. 6
cf. Ericsson (2013), p. 6
cf. Zolezzi (2013), p. 11

351

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

In Germany, a large number of recognized online shops exist: Amazon.de,
Ebay.de, and Otto.de are among the most popular ones, all of them have optimized mobile websites and apps. In Peru, the online marketplace Mercadolibre
is “the largest e-commerce ecosystem in Latin America”28. Seven percent of its
sales already come from the mobile channel.29 The most popular are the online
shops which offer coupons, such as Groupon, Ofertop.pe and Descuentosperu.
com. However, the optimized mobile website versions are still veryg few in Peru.30 Therefore, we assume:

Thomas Cleff • Helen Loris • Nadine Walter: SHOPPING ON THE GO – AN ANALYSIS OF CONSUMERS’ INTENTION TO USE ...

Social commerce are all activities that involve social networks to assist online buying and selling of products and services. Thus, all companies linked to
Facebook that either enable a direct purchase from a Facebook store or promote
their online stores on a Facebook app or fan page are regarded as social commerce sites.31 The usage of social commerce reinforces user-generated content,
for example user reviews and customer interaction and communication via social network sites. A large number of social network sites are nowadays consumed additionally on a mobile device and generate even more users. The incremental audience generated via mobile devices of Facebook is 23%32 for example.
When looking at Germany versus Peru, although in Peru a lot less people
have access to the internet (34%), 80% of them are Facebook subscribers. 33
In Germany, 83% of the population has access to the internet, but only 31%
use Facebook.34 As the awareness of social media is a lot higher in Peru, it is
assumed that the awareness for social commerce is also higher. Hence, the following is proposed:
H8a: Intention to use social commerce relates positive to consumer intention to use M-Commerce.
H8b: Intention to use social commerce is estimated to be lower in Germany
than in Peru.
... Perception of safety

The category perception of safety is based on the perceived risk from the
consumers’ point of view that negatively affects their acceptance of M-Commerce. The perception of safety is driven by
- Attitudes towards data protection
- Attitudes towards transaction security
- Safety precautions

31
32
33
34

cf. Ng (2013), p. 610
cf. ComScore (URL2)
cf. Worldbank (URL)
Internet World Stats (URL)

352

... Attitudes towards data protection

Mistrust about their privacy protection is rated one of the largest obstacle
of customers’ adaption to M-Commerce.35 In order to protect the customers’
sensitive personal information, a safe data transmission must be guaranteed.
Customer might fear identity theft or fraudulent credit card charges when being asked to disclose personal information such as name, email, and credit card
number.36 In general, the attitude towards privacy protection is different in Germany and Peru. Whereas Peruvians are less concerned in giving away private information, German subscribers are more concerned and rather reluctant. When
purchasing a product or service through a mobile device, a safe encoding of data
is crucially important to German smartphone users.37 Hence, the following hypotheses are proposed:
H9a: Data protection relates positive to consumer intention to use
M-Commerce.
H9b: Data protection is considered to be more important in Germany than
in Peru.
... Attitudes towards transaction security

With respect to online and mobile payment methods, usage preferences differ between countries. In Germany, internet-specific payment methods such as
PayPal and “Sofortüberweisung.de” are most popular for mobile purchases, followed by invoice payment , direct debit order, and credit card use.39
On the other hand, Peruvians seem to have a lack of trust in online transactions40, which includes transactions through mobile devices. Still not all Peruvian credit cards carry a security chip, which makes frauds even easier.
35
36
37
38
39
40

cf. Eckstein and Halbach (2012), p. 48
cf. Kim et al. (2008), p. 550
cf. Eckstein and Halbach (2012), p. 43
Kim et al. (2008), p. 550
cf. Eckstein and Halbach (2012), p. 45
cf. Euromonitor International (URL)

353

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Transaction security refers to the conviction that the “Internet vendor will
fulfill security requirements such as authentication, integrity, encryption, and
non-repudiation”38 in order to generate a secure payment via a mobile device.

Therefore it is assumed:
H10a: Transaction security relates positive to consumer intention to use
M-Commerce.
H10b: Transaction security is estimated to be greater in Germany than in
Peru.
Thomas Cleff • Helen Loris • Nadine Walter: SHOPPING ON THE GO – AN ANALYSIS OF CONSUMERS’ INTENTION TO USE ...

... Safety precautions

In this context, safety precautions are referred to as measurements to avoid
the robbery of mobile devices. Safety precautions also include restricting the
usage of a device to avoid robbery. In Germany, this is hardly the case whereas
in Peru, the theft of mobile phones is part of everyday’s life: According to an
OSIPTEL study, the denounced thefts from January to March 2014 in Peru
were 1.1 millions.41. As the awareness of mobile thefts is high, it is assumed
that this fact restricts Peruvians in their intention to use their mobile device for
purchasing purposes.
H11a: Safety precautions relate negative to consumer intention to use
M-Commerce
H11b: Safety precautions are estimated to be lower in Germany than in
Peru.

. Summary
Based on the theory concerning the usage behaviour with respect to MCommerce in Germany and Peru, eleven factors were distinguished that are
determining for the consumer intention to use M-Commerce.
The factors perceived ease of use, social influence, convenience, appreciation
of consultative service and cash preference form part of the perceived sense of
comfort concerning their contents. It is assumed, that their extent of difference
is strongly influenced by cultural aspects, having either a positive or a negative
influence on the intention to use M-Commerce.
The involvement into E-business includes the factors intention to purchase
online, trust in online shops and intention to use social commerce. Comprehen-

41

cf. OSIPTEL (URL)

354

sibly, the more pronounced these factors are, the higher the consumer intention
will be to use M-Commerce.
Crucial for an analysis of M-Commerce is the perception of safety; this topic
is to be equated with risk avoidance. This article amplifies the three factors data
protection, transaction security and safety precautions. Figure 1 depicts the research model. The positive (+) and negative (-) associations between the independent variables on the left hand side and the dependent variable consumer intention to use M-Commerce are highlighted. Additionally, the factor moderation
effect of culture is integrated that will help in the analysis of difference between
the countries Germany and Peru.

Facing the rapid development of mobile services and application, as well as
the expansion of advanced mobile devices, this article presumes a high potential
for M-Commerce worldwide. In a developing country such as Peru, several factors were assumed to be more relevant to mobile device users than in Germany,
promising success for M-Commerce: Social influence, appreciation of consultative service, cash handling, intention to use social commerce, and safety pre-

355

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Figure 1: Research model

cautions. On the other hand, the factors that were estimated to be greater in
Germany than in Peru include perceived ease of use, convenience, intention to
purchase online, trust in online shops, data protection, and transaction security.
These hypotheses are to be analysed in the empirical research.

Thomas Cleff • Helen Loris • Nadine Walter: SHOPPING ON THE GO – AN ANALYSIS OF CONSUMERS’ INTENTION TO USE ...

3

RESEARCH DESIGN

The data report is based on respondents who went through all questions in
the questionnaire. Anyhow, the absence of single responses is not ensured.
The questionnaire did not include any open questions (see Appendix). To
each topic, one to five questions were asked, resulting into a total of 32. The
questions were mainly designed using the Likert scale with a list of choices ranking from “totally disagree” (1) to “totally agree” (7). Only 4 out of 32 questions
were nominal-scaled (“Yes”, “No”, “I don’t know”).The answer “I don’t know”
was interpreted according to the specific question. This survey was performed
with the software package Soscisurvey, a free online-tool that supports online
questionnaires.
The survey period was from June 3rd to 16th, 2014 (two weeks) and targeted
exclusively Germans and Peruvians. Therefore, an online questionnaire was
send to inhabitants in the region Baden-Wuerttemberg, Germany and in Lima,
Peru. In order to ensure the comprehensibility of the questions, the survey was
made available in English, German and Spanish. As the respondents included
a broad audience of mobile device users, only quantitative primary data was
collected in the online interviews. With Germany as a developed country and
Peru representing a developing country, fundamental differences in the usage
behaviour concerning M-Commerce were assumed and made an analysis reasonable. 56 respondents from Germany and 52 complete responses from Peru
were obtained, which include male and female from the age of 14 to 58. No
limitations based on demographic factors were made and data was randomly
sampled. Age, gender and occupation of the respondents were requested due to
their possible influence.
Out of 169 participants who started the survey, 111 finished it, while 21
cancelled it during the questionnaire. Three participants were excluded from
the analysis, because they did not form part of the target population.

356

Most respondents were female. Further, the survey was distributed mainly
among university students, which explains the greatest participation of respondents between the age of 18 and 30, next to the fact that most mobile phone
users in Germany42 and Peru43 form part of this age group. The variable “age”
was coded from a metric scale into an ordinal-scaled variable in order to demonstrate the concentrated distribution of age. The highest portion indicated as
their current occupation was either voted as “university“ or “working“.
Table 1 - Demographic profile
German
Number
Sex

Age

Peruvian

Percentage

Number

Percentage

Male

21

37,5%

21

Female

35

62,5%

31

60,0%

Total

56

52

100,0%

Under 18

13

23,2%

10

19,2%

18 - 30

42

75,0%

39

75,0%

1

1,8%

3

5,8%

Above 30
Occupation Highschool
University
Professional training
Working
Unemployed
Total

40,0%

2

3,6%

2

3,8%

23

41,1%

24

46,2%

3

5,4%

1

1,9%

26

46,4%

22

42,3%

2

3,6%

3

5,8%

56

100,0%

52

100,0%

Further, 7 out of 108 respondents indicated that they were no smartphone
or tablet user, nor had access to one of these mobile devices. The overwhelming
majority responded that they had access to a mobile device though. Neither
sex nor age was found as relevant for MC by conducting an independent ttest or Pearson correlation. No direct correlation could be determined between
nationality and MC. Nevertheless, the relations of the independent variables,
together with the moderating effects of nationality, are examined in the further
analysis.

42
43

cf. ComScore (URL1), p. 12
Zolezzi (2013), p. 16

357

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Demographic profile

4

RESULTS

Thomas Cleff • Helen Loris • Nadine Walter: SHOPPING ON THE GO – AN ANALYSIS OF CONSUMERS’ INTENTION TO USE ...

. Perceived ease of use: Hab
A Linear Regression Analysis was used in order to determine the causality
between the variables: MC and PE, all interval-scaled. Hereby, the variation of
relevant independent variables (PE) was expected to explain the variation in one
dependent variable “I like the idea of purchasing a product or service through my
mobile device” (MC). In order to analyse if the nationality has any impact on the
model, a dummy variable is created and coded as follows: 1= German, 0= Peruvian.
According to the p-value observation, only three variables have a significant
influence, namely “process online banking”, “download music”, and “buy a product”. The variables “find information on products and services” and “browse a
search engine” with a p-value > 0.05 are not associated with MC. They were
deleted from the model for the further analysis.
According to the new model summary, R2=40.4% of the variation in the dependent variable might be explained by the variation in the independent variables.
The variable “buy a product” has the highest standardized Beta-Coefficient. Unexpected was the negative influence of the variable “download music” on MC. It
may be that the smartphone users who preferably download music perceive their
mobile device as an entertainment media and therefore, are less likely to use it for
other purposes or that the download of free music hampers them to engage in
commercial M-Commerce. Anyway, The H1a hypothesis thus is approved.
The B-value of “nationality” is -1.365 which means that the MC score for the
Germans knows a mean of 1.365 lower than for Peruvians. This leads to the rejection of the H1b hypothesis. Results are summarized in the following Table 2.
Table 2 – Coefficient table

358

. Social influence: Hab
In order to determine the relationship among the interval-scaled variables
MC and SI, their bivariate correlation was analysed. The meaningfulness of the
model was approved, as all variables are significant (p-value < 0.05). The Pearson correlation is continuously positive. The strongest positive correlation is
found between MC and “SI_Comments and Likes on FB influence my opinion
about a product or service”. With 0.4 it demonstrates a medium linear association. In contrast, “SI_Mass media will influence my decision to use MC” has the
lowest linear association as the Pearson Correlation is below 0.3 (see table 3).
Thanks to the above-listed arguments, the H2a hypothesis is approved.

At this point, a nominal variable was introduced into the model: nationality.
The results of the Point-Biserial Correlation are shown in table 4. The model
is meaningful regarding the association between nationality and the variable
“SI_ Family members and friends influence me on using MC” has a significance level of 0.033 < 0.05 and a negative low linear association (Correlation =
-0.209). “SI_ Comments and Likes on FB influence my opinion about a product or service” has a significance level of 0 < 0.05 and a negative medium linear
relationship (Correlation = -0.351). There is a positive relation between these
two SI variables and the Peruvian nationality. This leads to the conclusion that
neither mass media nor the awareness of M-Commerce as a trend is important

359

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Table 3 - MC*SI Correlations

for Peruvians, but social networks and personal contacts. For all other variables
results, that the H2b hypothesis is confirmed.

Thomas Cleff • Helen Loris • Nadine Walter: SHOPPING ON THE GO – AN ANALYSIS OF CONSUMERS’ INTENTION TO USE ...

Table 4 - SI*nationality correlations

. Convenience: Hab
It is assumed that there is a positive correlation between the dependent variable MC and the independent variables CON, all interval-scaled. A Pearson
correlation analysis is run. Table 5 demonstrates for all independent variables
a significant large and positive linear association (Pearson correlations > 0.5,
p-value < 0.05), except for the variable “CON_I am afraid that the internet
connection will be interrupted” (p-value 0.661 > 0.05). Therefore, the null hypothesis is rejected and the H3a hypothesis is approved.
Table 5 - CON*MC Correlations

An independent samples t-test was performed to examine if Germans perceive M-Commerce as more convenient than Peruvians. The scale CON included items regarding convenience related topics: Mobile banking, flexibility,

360

work productivity, network reliability, and time saving. It was analysed, if the
grouping variable nationality makes a difference regarding the convenience.
The first assumption of equal variances applies for all items except for
“Adapting to M-Commerce applications helps to save time” (Sig 0.012 < 0.05).
Further, for these items the p-values for the t-values were smaller than 0.05. It
results, that a significant difference between Germans and Peruvians in their
estimation of convenience is assumed.
Peruvians have a higher mean than Germans for all items. Apparently, the
highest difference in the mean has “Mobile banking is more convenient than traditional banking” (Mean = 2.91 < 4.79), followed by “M-Commerce allows me
to improve my work productivity” (Mean = 3.36 < 4.87). The lowest differences
exists for “Regarding its flexibility, I find that M-Commerce is more convenient
than E-commerce” (Mean = 4 < 4.96). Resulting from this analysis, the H3b
hypothesis is rejected.

. Appreciation of consultative service: Hab

In order to define the influence of nationality on ACS, an ANOVA was performed. In accordance with the Levene’s Test, the assumption of equal variances
is fulfilled (Sign. 0.891 > 0.05). Further, the differences in the mean (t-value)
are significant (Sign. 0 < 0.05). The group statistics has a higher mean for Peru
than for Germany, meaning that Peruvians put more value on the opinion of a
sales advisor. The H4b hypothesis therefore can be confirmed.

. Cash preference: Hab
In order to analyze if CH (interval-scaled independent items) has an influence on MC (interval-scaled dependent variable), a linear regression analysis
was conducted. The independent variables hereby are:

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ACS was queried with just one interval-scaled variable. Thus, the association with MC is measured with the Pearson correlation, leading to the following results: A correlation exists (p-value 0.001 < 0.05), but different to the
assumption, it is positive. Responding “I set a high value on the opinion of a
sales consultant when buying” and MC thus have a positive linear association.
Therefore, the H4a hypothesis is rejected.

1. I prefer cash payments in comparison to any other payment method.
2. I trust in payment methods such as PayPal, bank collection, and credit card
use.

Thomas Cleff • Helen Loris • Nadine Walter: SHOPPING ON THE GO – AN ANALYSIS OF CONSUMERS’ INTENTION TO USE ...

3. I would like to proceed with payment via my mobile device (e.g. per SMS,
QR Code, per App).
According to the R Square, 45.1% of the variation in MC can be explained
by the variation in the independent variables. Regarding the independent variables, only the variable “payments with my mobile device” has a p-value below
0.05. This variable has a moderate association with MC (B-value = 0.562). On
the other hand, “I prefer cash payments” and “I trust in payment methods” are
not significant; these variables are fundamental for the H5a hypothesis. Therefore, a direct indication about the negative correlation between “I prefer cash
payments” and MC is not given, and the analysis is cancelled at this point. The
finding about the correlation between the variable “payment via mobile device”
and “MC” is taken into account later in this paper. The H5a hypothesis therefore is rejected.
The influence of nationality on the dependent variable CH was found as
statistically relevant by performing an ANOVA: A significant difference exists only for the variable “CH_proceed payments via a mobile device”. Differently than expected, this variable is quoted as higher for Peruvians (mean =
4.87) than for Germans (mean = 3.07), this leads to the rejection of the H5b
hypothesis.

. Intention to purchase online: Hab
It was assumed that a higher PO, leads to a higher MC. ANOVA was performed with a PO as independent variable (“PO_Have you bought a product
or service online before?” Answers: “Yes”, “No”) and MC as dependent interval-scaled variable. First, the Levene’s test of equal variances was checked. As
the significance is 0.662 (> 0.05), the variances are assumed to be equal . To
prove an association between PO and MC statistically, the effect of the factors
must be significant (p value smaller than 0.05), which is not the case (p=0.238).
Thus, the H6a hypothesis is rejected.
To examine the relation between nationality and PO, the binary scaled item
“Have you bought a product or service online before?” was examined in asso-

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ciation to MC. 80.8% of Peruvians and 98.2% of Germans indicated that they
have purchased a product or service online before. According to the Chi-Square
test, this difference is statistically significant and meaningful, anyhow with a
small association (PHI = 0.288; p=0.003). Anyway, the H6b hypothesis can
be approved.

. Trust in online shops: Hab
The relation between MC, TO, and nationality was determined with OLS.
According to this output, 30.5% of the variation in the dependent variable
might be explained by the variation in the independent variables. All dependent
variables have a significant influence on MC (Sig. < 0.05). The coefficients displayed in table 6. The unstandardized coefficient for nationality is -.772 which
means that the MC score for the Germans knows a mean of 1.365 lower than
for Peruvians. This analysis leads to an approval of the H7a hypothesis and to
a rejection of the H7b hypothesis.

. Intention to use social commerce Hab
It is assumed that there is positive correlation between SC and MC. For
the variables “SC_ I have a strong intention to purchase a product online if the
product is recommended by my social network friends” and “MC_ I like the
idea of purchasing a product or service through my mobile device” the Pearson
correlation is almost 0.6, indicating a moderate to strong association between
the two variables. Therefore, the H8a hypothesis is confirmed.
The binary scale “I have ordered a product or service before through a social
network site (e.g. Facebook)” has a statistically significant moderate correlation with nationality according to the Chi-Square test (Cramer’s V = 0.413;

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Table 6 - Coefficient Table

p=0.000). Accordingly, 41.2% Peruvians indicated that they have purchased on
a social commerce site before, whereas only 5.4% Germans indicated the same.
Peruvians therefore are more likely to respond to social commerce. Thus, the
H8b hypothesis is confirmed.

Thomas Cleff • Helen Loris • Nadine Walter: SHOPPING ON THE GO – AN ANALYSIS OF CONSUMERS’ INTENTION TO USE ...

. Data protection and transaction security H/ab
Considering DP, the general statement “I often refuse to provide my personal information such as name or email address in order to access information in which I am interested” does not show any significant correlation to MC.
Anyhow, one significant relation (p-value < 0.05) is found between MC and
“DP_I think using M-Commerce puts my privacy at risk”. In compliance with
the formulation of the question, the association is negative. Anyhow, there is
only a small linear association (Pearson Correlation: -0.235 < 0.3). The significant association (p-value < 0.05) between MC and TS is 0.526, a moderate
linear association. This leads to the approval of the H9a and H10a hypotheses.
In a following ANOVA, the dependency of nationality (nominal-scaled) on
DP and TS (interval-scaled) was examined. Table 9 proves that the model is
meaningful for all variables except for “TS_Online transactions are secured”
(p=0.105).
Table 7 - DP*TS*nationality ANOVA

For the three relevant variables, the mean plots showed clearly that the variables “DP_ I often refuse to provide my personal information such as name
or email address in order to access information in which I am interested” have

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higher means for Germans than for Peruvians, while for the variable “TS_ Payments made through M-Commerce are processed securely” the contrary applies. This leads to the confirmation of the H9b and H10b hypotheses.

. Safety precautions Hab

84.6% of Peruvians indicated that they know somebody whose mobile device has been stolen whereas only 46.6% of German could mention the same.
Further, 46.2% of Peruvians said that they were afraid to purchase via their
mobile device due to safety risks, but only 27.3% of Germans. Anyway, a correlation between the item “Are you afraid to make a purchase via a mobile device
due to the fact that it could be stolen?” and nationality could not be statistically
proven, as the model performing a Chi-Square test was not found significant
(p-value is 0.085 > 0.05). Therefore, the null hypothesis does apply and the
H11b hypothesis is rejected.

5

DISCUSSION AND RECOMMENDATIONS

In this last chapter the findings of each hypothesis are discussed. Fourteen
hypotheses were confirmed and eight hypotheses were rejected. For Cash Preference no hypothesis was found as relevant. Five of the rejected hypotheses concerned nationality, the other three referred to MC.

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In this analysis the interval-scaled variable MC “I like the idea of purchasing a product or service through my mobile device” is explained by taking into
account the nominal-scaled variables regarding safety precaution. Therefore,
a two-way ANOVA was performed with “SP_ My own or one of my friend’s
mobile phone has been stolen before” and “SP_ Are you afraid to make a purchase via a mobile device due to the fact that it could be stolen?” as categorical
variables. As the Levene’s test for equality of variances is Sig 0.162 > 0.05, results are considered as homoscedastic. The significance of the corrected model
is 0.010 < 0.05, which means that there is a significant effect of the variables on
MC, but only the variable “Are you afraid to make a purchase via a mobile device
due to the fact that it could be stolen?” is significant (p-value 0.047 < 0.05).
This variable explains 16.7% of the dependent variable. Therefore, the H11a
hypothesis is confirmed.

Thomas Cleff • Helen Loris • Nadine Walter: SHOPPING ON THE GO – AN ANALYSIS OF CONSUMERS’ INTENTION TO USE ...

H1ab: Perceived ease of use
PE has a significant influence on M-Commerce, but only regarding activities
that are directly connected to M-Commerce transactions. Anyhow, activities
such as browsing a search engine or searching product information are not associated with M-Commerce. This might be a sign that most people use their
mobile device for browsing products and information gathering only and prefer
a laptop or PC for the purchasing activity. One reason according to this study
is that not a lot of knowledge exists regarding how to download music or buy
a product via a smartphone, or it is experienced as too complicated. In order to
optimize the buying decision process and to lead the mobile device user straight
to the purchasing via a smartphone or tablet, it is essential to facilitate the process from information gathering up to integrating into a transaction via mobile.
There should be only a few steps between the product’s presentation and the
product’s ordering. The visualization must be in accordance with the smartphone’s or tablet’s smaller display.
Different to the assumptions made on the hypothesis, Peruvians more than
Germans, appreciate perceived ease of use. Anyway, according to further analyses, this influence was not found as statistically relevant.
H2ab: Social influence
Two items were found to have an impact on the consumer intention to use
M-Commerce: “Comments and Likes on Facebook influence my opinion about
a product or service” and “Family members and friends influence me on using
M-Commerce”. The social influence for Peruvians should not be underestimated by German firms. Contrarily to Germans, Peruvians attach high value to
the attitudes in their personal environment, also when it comes to the usage of
M-Commerce. Comments and recommendations on social networks such as
Facebook will be decisive for their openness to the new technology. Thus, it is
recommended to promote on the firm’s Facebook site and other social networking activities in order to be more personal to the Peruvian media user, and from
there on, advertise their products. As Facebook is popular among mobile devices users, the firm’s site might pass on the user directly to a mobile version of the
firm’s website, including its mobile online shop. Vice versa, the mobile version
of the firm’s website is directly connected to Facebook, Twitter, and other social
network sites. The mobile online shop should give the opportunity to communicate between the users and to evaluate and comment on products.

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H3ab: Convenience
Convenience was found to have a strong linear association with the intention to use M-Commerce. Different than expected, the fear that the internet
connection is interrupted when processing M-Commerce was not confirmed.
As an application, mobile banking has a high potential. Further, Peruvians perceive M-Commerce as more productive than Germans. Thus, a success factor
might be the presentation of the benefits of M-Commerce, with focus on the
work productivity and flexibility. It must be highlighted, that the usage of MCommerce is easy for modern mobile device users, it helps them to save time
and to become more productive. By promoting applications that are connected
to M-Commerce, the interest about M-Commerce applications will automatically rise.
H4ab: Appreciation of consultative services
Peruvians put a higher value on the consultation of a sales advisor. Anyway,
this does not have a significant influence on M-Commerce.
H5ab: Cash preference

Though an influence of cash preference on M-Commerce could not be demonstrated, another finding was made: The item “I would like to proceed payments via a mobile device” has a significant influence on M-Commerce and is
more relevant for Peruvians than for Germans. It is recommended, to invest
into new payment methods such as payment per SMS, QR code, or App and to
offer a variety of choices on the method of mobile payment.
H6ab: Intention to purchase online
It was found that the intention to purchase online influences the consumer
intention to use M-Commerce. The assumption that Peruvians use less E-commerce than Germans was proven, but has no significant influence on intention
to use M-Commerce.
H7ab: Trust in online shops

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The high usage of cash in Peru seems not to be an obstacle for M-Commerce, since Peruvians are open for new payment methods which are closely
linked to M-Commerce.

Thomas Cleff • Helen Loris • Nadine Walter: SHOPPING ON THE GO – AN ANALYSIS OF CONSUMERS’ INTENTION TO USE ...

As expected, trust in online shops influences positively the intention to use
M-Commerce. Different than expected, trust is estimated to a larger extent in
Peru than in Germany. Therefore, trustful M-Commerce sites are essential.
Germans generally trust Peruvian online shops less, than Peruvian trust German online shops. Foreign companies tend to have a better reputation in the
Peruvian population, which means that a German company might benefit from
this recognition.
H8ab: Intention to use social commerce
Social commerce was identified as a driver for M-Commerce. Peruvians are
much more likely to engage into social commerce, which should be integrated
into an overall strategic digital approach. A more personal relationship to the
consumers is a key element, taking place on a social media platform, such as
Facebook, Twitter, Stripe, etc. The distribution of videos, advertisements and announcements of new products on social platforms can be encouraged, as well as
the presentation of behind-the-scenes stories. Above all, personalized content is
expected to make the consumers interact and start buying from a social platform.
H9ab: Data protection
The influence of data protection on the intention to use M-Commerce is
very small, and affects Peruvian less than German mobile device users. As a
result, additional data protection methods like the ones in Germany are not
believed to be necessary in Peru.
H10ab: Transaction security
Transaction security is closely related to the intention to use M-Commerce
in the factor analysis and showed a high correlation. As presumed, transaction
security is even more important for Peruvians than for Germans, due to high
fraud rates. Therefore, as a first step, mentioning security standards as obvious
as possible will generate more trust in the specific online shop. As a second step,
it is crucial to use secure payment methods.
H11ab: Security precautions
It was found that the perception of a safe environment has an influence on
the intention to use M-Commerce. However, the nationality was not found as
statistically significant.

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6

CONCLUSION

Three major areas have been identified as most influencing for the usage
intention for M-Commerce in the German-Peruvian context: Sense of comfort,
involvement into E-business, and perception of safety. It was found, that by
implementing M-Commerce in a developing country such as Peru, other elements are meaningful to secure its success, in comparison to Germany.
First, the sense of comfort is generally more essential for Peruvians when
it comes to using M-Commerce. Convenience and a perceived ease of use, but
also social influences and consultative service play a more important part to
them than to German mobile device users. Second, social commerce contrarily
to traditional E-commerce, finds great acceptance, as personal contributes are
very popular among Peruvian mobile device users. Adaption to M-Commerce
in Peru will depend on the people’s trust in a specific mobile app or shop, its
image or recommendations by a user platform. Third, due to the insecure environment in Peru in contrast to Germany, people valuate highly transaction
security. All these aspects need to be taken into account by German firms that
want to make M-business in Peru; under these considerations, M-Commerce
will be successful.

Chong, A.Y.-L., Chan, F.T. and Ooi, K.-B. (2012), “Predicting consumer decisions to adopt
mobile commerce: Cross country empirical examination between China and Malaysia”, Decision Support Systems, Vol. 53 No. 1, pp. 34–43.
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Perceived Ease of Use
It is easy to use my mobile device to find information on products and services
It is easy to use my mobile device to process online banking
It is easy to use my mobile device to browse a search engine
It is easy to use my mobile device to download music
It is easy to use my mobile device to buy a product
Social Influence
It is a trend to use M-COMMERCE (such as mobile banking, purchase through mobile
devices, etc.)
Mass media, such as radio or TV, will influence my decision to use M-Commerce
Family members and friends influence me on using M-Commerce
Comments and “Likes” on facebook influence my opinion about a product or service
Convenience
Mobile banking is more convenient than traditional banking
Regarding its flexibility, I find that M-Commerce is more convenient than E-commerce
M-Commerce allows me to improve my work productivity
When processing orders via mobile devices, I am afraid that the internet connection will be
interrupted
Adapting to M-Commerce applications helps to save time.
Appreciation of Consultative Service
I set a high value on the opinion of a sales consultant when buying
Cash Preference
I prefer cash payments in comparison to any other payment method
I trust in payment methods such as PayPal, bank collection, and credit card use
I would like to proceed with payment via my mobile device (e.g. per SMS, QR Code, per
App)
Intention to purchase online
Have you bought a product or service online before?
I am familiar with online transactions (online baking, online shopping, online services)?
Trust in online shops
I consider German online shops as trustworthy (e.g. otto.de, ebay, amazon.de)

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Appendix (Questionnaire)

Thomas Cleff • Helen Loris • Nadine Walter: SHOPPING ON THE GO – AN ANALYSIS OF CONSUMERS’ INTENTION TO USE ...

I consider Peruvian online shops as trustworthy (e.g. mercadolibre, ofertop, descuentosperu)
Intention to use social commerce
I have a strong intention to purchase a product online if the product is recommended by my
social network friends (e.g. facebook)
I have ordered a product or service before through a social network site (e.g. facebook)
Data Protection
I often refuse to provide my personal information such as name or email address in order to
access information in which I am interested
I think using M-Commerce puts my privacy at risk
Transaction Security
Online transactions are secured
Payments made through M-Commerce are processed securely
Safe environment
My own or one of my friend’s mobile phone has been stolen before
Are you afraid to make a purchase via a mobile device due to the fact that it could be stolen?
Intention to use M-Commerce
Given that I had access to M-COMMERCE, I predict that I would use it
I like the idea of purchasing a product or service through my mobile device

372

THE FIRM WITHOUT
SUBORDINATIONS
Martin VLCEK
martin.vlcek@efunctionality.eu

Abstract
The firm is one of last totalitarian structures. On the other hand, the position of
an entrepreneur with its freedom and responsibility is the most productive one.
All known successful structures in the nature are by contrast established on
concurrence and relative freedom.
The presented paper devises on the basis of analogies a structure of a firm, what
will not be totalitarian and will respond to existing structures in the nature. At
the same time positions of employees are as close as possible to the position of
an entrepreneur.
Keywords: : firm, subordinations, entrepreneur, structure
JEL Classification: M5, M51

INTRODUCTION

The identification of existing structures started through a long-lasting study
on the level of macro-economy. By the help of a non-econometric model, the
controlling structures of the economy and of the whole society were successively
discovered. Termination of this work was made upon data from the New York
Stock Exchange. Thus it is possible to summarize that the proposed structure
into the firm corresponds to the relations among firms in USA.

2.

CONTROL OF THE FIRM

.. New Quality
Today firm is not yet an object of a new quality, it is only a wrapped up
structure around the position of a director and his will and thus the unity of the
control is realized by a pyramid of totalitarian relations.

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

1.

New quality originates only from the new structure of the control. It has
three new parts taking over their functions from the old management, what
persists in the firm but only with residual functions - coordination mainly.
All new controlling structures of a firm work with the satisfaction. The satisfaction of employees solves the controlling part EM0. The satisfaction of the
firm as whole, its successfulness, but not only the profit – solves EM1. The
control of the old management ensures part ENE.
Besides the notion of satisfaction the notion of successfulness is also used.
The satisfaction concerns only one input, sometimes the notion of demand is
also used. The successfulness is a broader notion defined by a satisfaction of
all employees with one concrete employee, if they are consumers of one of his
outputs. Depending on circumstances this successfulness can be expressed as a
simple sum of all satisfactions or as an average over one consuming employee.

.. Followed up Quantities

Martin Vlcek: THE FIRM WITHOUT SUBORDINATIONS

The satisfaction of employees is detected depending on particular possibilities in a firm. There is no one unique correct way, but the maximal fidelity is
important. Therefore more sources can be used together with the questionnaire as one of them. There are other more objective methods not burdening
an employee, but may be not so specific. In addition, they don’t respond to the
spirit of a new firm, where the maximum of freedom, the freedom of evaluation and of the choice of inputs as a sequel is given to employees.

374

Fig. 1: Development of the Control of a Firm. The original management –
VED is transformed into TOT, what is controlling at time the input of goods
– ZBOD, the production – VÝR and the sale of goods – ZBOV. At the same
time it is deprived of part of competences and yet influenced by another control,
realised by ENE. EM0 evaluates the satisfaction of employees – SK0, EM1 the
satisfaction of the firm as whole – SK1. REK is a new position in the firm –
the advertisement and its goal is to intermediate information about activities of
employees throughout the firm.

.. Principles of the Control
The control goes on analogically in all controlling structures. Measured out
values of a followed up quantity are grouped into subsets, for example depending on the structure of the firm. The volatility and the average of subsets are
pursued. The intervention will occur on the basis of a subset with the highest
volatility and the highest average altogether. Weights of these two values, volatility and average, change perhaps depending on the state of the firm. When the
value of one of them growths all over the firm, its weight will probably growth
together.

3.

OLD MANAGEMENT

The structure connected with the flow of energy, it means with the dynamics
of the firm, is a residue of the original totalitarian management. The engagement of an employee into the productive process, this is its function. This is a
coordination of his activities with other employees, the control of intensity of
the work included. Hereafter it will be named as an old management, TOT. Its
architecture was submitted to substantial changes.
When a new employee wants to be engaged into the production, he must become a consumer of a coordinative control from TOT. But for every employee
there is a possibility of the choice - there is a concurrence inside the TOT.
TOT has a special relation with the group of employees of the sale. It goes
not about the coordination but about the feedback there, describing how different outputs – goods or services – are demanded.

375

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

.. Old Management and the Coordination of the Work

.. Control of the Old Management
Beside TOT rises another structure called ENE, with a function of controlling TOT. ENE carries out the reconstruction of the structure of TOT and at
the same time, realizes the influence of other controlling structures.

.. Reconstruction of TOT
ENE stems from the knowledge of the structure of the firm and from the
satisfaction of consumers of services of TOT. For particular workrooms rise
subsets of successfulness (non-averaged out) and ENE makes the reconstruction on the basis of their volatility and average. The reconstruction consists in
establishing a new position with same relations beside the employee from TOT
with the highest successfulness, means a concurrence. After on TOT locates
into a new employee and the system expects an equalization of successfulness.
Besides the activity of employees from TOT with substantially lower successfulness is weakened, until their positions are eventually totally cancelled.

Martin Vlcek: THE FIRM WITHOUT SUBORDINATIONS

.. Higher-level Influences over ENE
There are influences from the control connected with the satisfaction of
employees – EM0 and from the control connected with the satisfaction of the
firm as whole – EM1. Altogether, these influences are expressions of an equalization of inputs. Through them, the intensity of the reconstruction and of the
activity of TOT itself is influenced.
Through these influences, the general philosophy of existence of an object
is realized. It means that the activity leading to a change is suppressed at a
state where relations with the environment become more stabilized and therefore the border smoother, and vice versa. EM1 traces the balance of relations
and the smoothness of the border of the firm, EM0 traces the balance of inputs of employees. Therefore it is necessary to realize their influence over ENE
and throughout over TOT.

.. Information and the Freedom of the Entrepreneurship
There rises a new department in the productive structure, what is devoted
to a certain advertisement into the firm. Its goal is to spread information con-

376

cerning activities of individual employees in a manner to be at disposal of other employees. This is a necessary supposition for the approach of their activity
to the activity of an entrepreneur, means to be maximally free on the basis of
information.
But the space for the freedom of the entrepreneurship of employees cannot
cross over certain limits and this is perhaps all concerning the activity of TOT,
it means the coordination of the work.
The main manifestation of the freedom of entrepreneurship of the employee is the possibility of influencing his working relations through their constant evaluation, thus nearly by their purchase, and the freedom of a choice of
concurring inputs.

4.

EM0

.. Principle of Activities
The task of EM0 – shortly „empathyzer 0“ – is to solve the reconstruction
of the firm in a manner to maximally equalize the satisfaction of employees
with their inputs and to get it on a highest level. At this activity, the satisfaction can be understood as a demand for a particular input.

EM0 gets information about the satisfactions of all employees by the already mentioned method of questionnaire. Besides this source, different values
obtained more objectively can be used, e.g. indicators of productivity, consumption of energy etc.

.. Detection of Satisfaction
Information concerning satisfaction tells how an individual employee is satisfied with particular working inputs, how they contribute to his overall working success. From the market point of view this contribution to the success is
possible to be understood as a demand of a concrete employee for individual
inputs – see fig. 2.

377

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

EM0 solves this task by establishing new positions near the most demanded ones, and by offering the most demanded relations into other positions. It
means, throughout investments into new positions and new relations.

Martin Vlcek: THE FIRM WITHOUT SUBORDINATIONS

Fig. 2: The Basis for Satisfaction Monitoring. Working relations among employees – positions - are showed in a model structure – see graph. Every employee, in the frame of evaluation of satisfaction, fills in values for input relations. E.g. employee O2 will evaluate positions O4 and N1, himself is evaluated
by P1, P2 and O3. Every employee receives for evaluation 100 points. Sum of
evaluations is a value showed in the column sum and after a normalisation in
the column norm. This value represents the successfulness of every employee
in a given model structure. At the next evaluation – e.g. weekly – the employee
will receive for new 100 points or only the value received as result of the previous evaluation. Thus, the employee N2 would receive only 40 points, but the
employee N1 105 ones. For employees from P1 till P3 – these are outputs – a
technical calculation of successfulness is used, using their share on the profit of
the firm.

378

.. Investments into Positions and Relations
EM0 groups successfulness into particular subsets and searches critical
spots. These are subsets the most volatile and in the same time, with the highest
average value.
Then EM0 establishes a new position beside the highly demanded one and
the demand is thus weakened. In the same way, it reaches a weakening of the
demand by offering relations from a very demanded position to other positions
and thus forming presuppositions for new relations in the structure of the firm.
Here it is to note, that in the case of relations the normalised successfulness over
one relation is used.
Liquidation of positions with the lowest successfulness happens concurrently with the formation of new positions. The same holds for relations, too.

5.

EM1

Specialised employees – later on named shoppers –influence supplies of
certain entities into the firm. It can concern the engagement of a position by
an appropriate employee – then the shopper is an employee of the personal department. It can concern the shopping of a material for the production, etc. The
majority of shoppers need for their work some financial resources, funds. The
personal department needs wages’-fund, the shopping department funds for the
provision of the production, etc. On the other side, they receive the feedback in
the form of information about the satisfaction of consumers.
As result of the activity of shoppers, there is a different concentration of
peoples, goods and services in the firm in comparison with the environment.
Shoppers thus form the border between the firm and the environment.

.. Satisfaction and Tension
Let two similar goods a supplied into the firm. But let the satisfaction with
them between two consumers or two groups of consumers is substantially different. Such a phenomenon is later on named as tension. It is a difference between similar inputs and dissimilar satisfaction, or demand. Throughout the
control of the border the task of EM1 is to remove such tensions.

379

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

.. Shoppers and the Border

At the same time, the total distribution of tensions over the border, its
smoothness, and the average satisfaction over the border define the satisfaction
or successfulness of the overall firm.
EM1 searches subsets with a high tension, it means with a volatile demand.
The subset in EM1 is defined as a group of shoppers of similar inputs. EM1
searches not only subsets with a high tension, but also with a high level of demand and steps into the solution on their basis.

.. Investments and Distribution of Funds
The redistribution of funds through investments is an instrument of solution. Investments are directed to a position in the border, it means to a shopper,
where is a high demand and thus a new position is formed and also a concurrence for this shopper. The used part of the fund can be got from the spot with
a lower demand, conversely. Thanks to this redistribution of the fund the lowering of the tension happens.
In general it is possible to say that the activity of EM1 is connected with the
distribution of funds for purpose of a lowering of the tension. It concerns the
wages’-fund, fund for shopping material inputs, etc. Finally, the redistribution
among funds is also on the principle of minimisation of the tension.

Martin Vlcek: THE FIRM WITHOUT SUBORDINATIONS

.. Investment as a Movement
EM1 by establishing another position of a shopper for a certain input makes
an elementary movement, a reconstruction of the border. It can be e.g. a formation of another input just in the area, where these inputs are of a better quality
or cheaper.
But what about the searching of a better quality or a better price, this is the
role of the shopper, not of EM1.

.. Wages
The task of HR is to ensure for every position an employee. They fulfil this
task by setting the level of the wage in a manner to be sufficiently attractive for
interested persons of the environment. When the amount of leaving persons is
the same as the amount of coming ones, the level of equilibrium happens.

380

Fig. 3: Work of EM1. The satisfaction SK of employees in positions P.1 till P.x
is monitored through unequal values of different inputs V1 till Vx, and also
through unequal wages M. For every monitoring, a similar graph as is shown
at the right part for input Vy rises. Let for example input Vy for P.x is got from
a different shopper than P.2. There are near values but nevertheless there is a
high enough difference in the satisfaction, thus there is a tension. That is why
EM1 will form a new position “beside” P.x, it means a better input from the
environment and P.2 will be eventually canceled. The wage is solved by a similar
manner.

6.

FOR CONCLUSION

.. Transfer to a New Quality
It is probable that the transfer of the firm to a new structure of organization
can be made gradually, without necessity of establishing quite a new firm. The
first step towards is a start of evaluation of satisfaction of employees.
The second step ought to be a partial transfer to the new principles of evaluation of wages, namely of the personal part. Only a part of the wages’-fund can

381

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Thus the basic, nominal wage is determined objectively, it means through the
comparison with the environment and on the basis of the tension on the border.
Besides this every wage has a part of a personal evaluation what is a function of
the successfulness of the employee in the firm. It is a result of a periodical evaluation of satisfaction - see fig. 2 - and is perhaps already a task for EM0.

be devoted to this new principle. After this step an evaluation of effectiveness
ought to happen. If the effectiveness of the firm is higher, the transformation
has to continue.
In other steps it is possible to gradually transfer to the control of parts of
other funds through EM1 and similarly for the EM0. After every step the effectiveness is evaluated and the transformation continues only in the case of an
amelioration of indices of the firm. The goal is not only the higher profit but a
profit sustainable, means an equally distributed profit among more consumers,
etc.

.. Profit
The new structure of the firm is not build only upon the satisfaction of employees and thus against the profit of the firm, as could be an impression. The
satisfaction has its beginning in the share on profit of employees of the sale, as
was mentioned in fig.2. The satisfaction, what is from another point of view a
demand for inputs, spreads over the structure of the firm. The role of the profit
is yet strengthened through the fact of a variation of point being to the disposal
of an employee for evaluation, depending on previous results. And this is its
successfulness in the firm, means the share on the created profit.

Martin Vlcek: THE FIRM WITHOUT SUBORDINATIONS

Because all interventions of EM0 and EM1 are oriented to the strengthening of satisfaction, they eventually strengthen the profit.

References
1. Vlcek, M.: Functioning of the Object, unpublished material, 2008
2. Vlcek, M.: Functioning of the Brain, in ISB2010 proceedings, Su Zhou, China, 2010
3. Vlcek, M.: Movers of the Economy - Model of Interactions, in Developments in Economic
Theory and Policy proceedings, Bilbao, Spain, 2010
4. Vlcek, M.: New Object Discovered through the Stock Market, in International Conference on Economics and Finance Research proceedings, Seoul, South Korea 2014

382

Financial
Economics

SOVEREIGN DEBT UNDER
SCRUTINY. WHAT TO DO?
Liviu-Daniel DECEANU1*, Ph.D.
Babeş-Bolyai University, Cluj-Napoca, Romania
liviu.deceanu@econ.ubbcluj.ro

Abstract
No one can deny that, nowadays, the different states of the world, developed
or developing ones, have reached record levels of indebtedness. In this context,
we can talk about a crisis or even some sovereign debt crises, and country risk
suffered important changes.

Relative to the impact of sovereign debt, it is clear that we already find ourselves
in the field of uncertainty; of course, a high debt level is not synonymous with the
disappearance of sustainability. This may, in our opinion, be analyzed correctly
only on a case by case basis, taking into consideration the specificities of national
economies, their performance, and the quality of economic policy measures.
Therefore, can we achieve growth in the context of a significant debt? Default
risk can be controlled without resorting routinely to restructuring? What relevant indicators of sovereign risk can be used by an investor or a bank? Here
are some interesting questions to which economists must answer.
Key words: sovereign debt, sovereign risk, default, economic growth, sustainability, governance.
JEL Classification: F3 (F34), G01.
1

This work was co-financed from the European Social Fund through Sectoral Operational Programme Human Resources Development 2007-2013, project number
POSDRU/159/1.5/S/134197 „Performance and excellence in doctoral and postdoctoral research in Romanian economics science domain”.

385

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Many specialists have made and are making significant efforts in recent years,
trying to identify thresholds of indebtedness for the countries of the world, to
build reliable indicators of sovereign risk, in order to make possible a kind of
alert (so important in the current international context), or to show from what
level onwards public debt becomes toxic and affects growth.

1.

SOVEREIGN DEBT  GENERAL ASPECTS

The current context, of excessive debt, often puts sovereign debt in a very
bad light. As a consequence, the concept is often considered to be extremely
negative. In our opinion, such a view is superficial and does not reflect reality.
Sovereign debt should exist, and its place and role are well established.

Liviu-Daniel DECEANU : SOVEREIGN DEBT UNDER SCRUTINY. WHAT TO DO?

First of all, sovereign debt allows the funding of states, while a budgetary imbalance is often recorded. Of course, it is essential in this context that the funding can provide economic growth, so that the debt repayment can be achieved
without major problems. Also, we emphasize here that the debt to GDP ratio
should remain stable over time, a fact unfortunately often contradicted by practice. The upward trend has been a very significant one; of course, sometimes this
evolution is fully justified, but many exceptions are recorded; as emphasized by
some authors (Landau; 2012, 214), it is normal for future generations to pay for
infrastructure or technology now requiring massive investment in research and
development, but it is at least incorrect for descendants to pay for the current
public consumption, for example.
Sovereign debt often takes the form of bonds issued by states. From this
point of view, we are dealing with assets, often very appreciated by investors.
For many decades, these assets were considered as risk free. Currently, however,
sovereign risk can not be ignored, even if states maintain their ability to increase
taxation or to issue currency (the limits are increasingly apparent in this context
– for example, the situation of countries that are part of an economic and monetary union). A function of sovereign debt associated to sovereign bonds is storing value – we can speak about a sovereign debt market, with often surprising
developments, with more or less liquid areas, depending on the characteristics
of states, their economic performance, or even rating.
States must always take into account the preferences of private actors in this
regard, the issues being related to public preferences for different maturities
(Turner; 2011, 74).
One thing appears to be obvious, however: the lack of financial assets with
high liquidity and low associated risk. And this, while the demand for such assets is increasing. But, sovereign debt really represents a low risk asset, as seen
for a long time? And most importantly, how it will be in the future? Developed
countries are still characterized by a high solvency? What influence will have the

386

budgetary discipline, so necessary today, on sovereign bonds issues? Here are
some questions that will have to find clear answers in the near future.

2.

SOVEREIGN DEBT  NEW MEANINGS AND
FACTS

Sovereign indebtedness and especially over indebtedness is certainly a scourge
of the modern world. The developed countries of the world have reached, from
this point of view, a level of sovereign debt to GDP of over 100%. Of course,
this relative expression has its limits, but seems to be the most heavily used by
analysts; by comparing sovereign debt to GDP, we compare it to the wealth created
within a State, wealth created by the state itself, but also by households and businesses
(Garello, Spassova; 2006, 3). This does not allow a perfect understanding of
governance quality, but better depicts the magnitude of the phenomenon.

At the end of the first decade of the new millennium, the global financial
system crisis (especially the Western one) claimed a strong intervention from
the states. The reaction came, sooner or later, with more or less pro-cyclical effects. Among the measures that were taken, we can mention the support offered
to banks and to economic activity in general, in the context of the severe decline
in global demand. But policies that allow economic revival have also adverse
effects, such as recording significant budget deficits. From this point of view,
a trend has emerged in recent years – private indebtedness had a tendency to
stagnation, while the public debt has increased significantly.
Many authors argue that the developments of 2008-2009 represent the start
of the sovereign debt crisis; desiring to develop a little bit the subject, we think
that the onset of the financial crisis and its global manifestation favored the
development of the sovereign debt issues, but they are much older.
Moreover, sovereign risk was always present in the economy, being even one
of the oldest “components” of country risk. Country risk is often associated with
the political, sovereign, systemic, transfer or market risk.

387

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

For about seven years, the word crisis seems to have become very often used
in economic analysis and it actuality persists today. Undoubtedly, during all
these years we have witnessed not a single financial crisis, but a succession of crises following the direction financial crisis - economic crisis – sovereign debt crisis.

The global financial and economic crisis has forced governments to react, to
adopt economic policies that stimulate economic growth and revival. On the
other hand, the governments went even further, taking over some risks from
the private area; an example is the transfer of risk from the banking sector. Undoubtedly, public finances had been degraded, public debt sustainability being
also seriously affected.
An interesting analysis of sovereign debt could be achieved not only by reference to GDP, but also to exports or state incomes. Of course, in such a logic...
we would assimilate the state to a private enterprise. The differences are however notable, one being that a state is sovereign and can tax its “subjects”.

Liviu-Daniel DECEANU : SOVEREIGN DEBT UNDER SCRUTINY. WHAT TO DO?

The manner in which various investors began to perceive the state as a borrower has changed dramatically in recent years. To this mutation has contributed significantly the attitude – sometimes pro-cyclical – of rating agencies,
which operated several degradation of sovereign ratings, having as an effect, obviously, the explosion of interest rates levels required by investors.
As we pointed out above, we will not say, however, that the current sovereign
debt situation is a direct consequence of the global financial and economic crisis;
the public debt increase occurred almost constantly for more than five decades,
so the issue is not new at all. Of course, some explanations of the phenomenon
can be identified – the public sector development in recent decades, the state
maintaining an important role in the economy, the need for social policy, and
many others.
Several sources (Banque de France; 2012, 5) emphasize that the effects of
these phenomena have not been felt for some time, due to a still lower share of
the deficit / debt to GDP ratio. In other words, the indicators degradation occurred in time, and was extremely difficult to identify for a while.
On the other hand, in the past, inflationary episodes could act as a counterweight to the increase in size of debts, and real interest rates close to zero
or even negative were able to limit their development. But the last two decades
have brought a more rigorous inflation targeting and control, and, in the context
of weak economic growth, imbalances have emerged.
An overview of the performances of different states (EU and others) in recent decades reveals that roughly governments have not obtained “profit” for a
long time; for example, in France, the “enterprise state” obtained a “profit” for the

388

last time in the early 1970s (Garello, Spassova; 2006, 6). Even in years when the
indicator sovereign debt / GDP declined in comparison to the previous year,
sovereign debt in absolute value continued to grow. In this context, many of the
commitments made in the traditional way by states, such as those in the field of
social protection, have become increasingly difficult to meet. In the early 2000s,
during the period preceding the crisis, some countries have managed to reduce
sovereign debt to GDP (for instance Spain, which also managed to achieve an
economic growth above the EU average), but in general the indicator exceeded
60% for most economies.
It is clear, therefore, that on the eve of the global financial crisis the different countries of the world were largely indebted, the problem being one of a
structural nature, and the various commitments (Stability and Growth Pact
in the EU, the Maastricht Treaty, and others) had lost the initially established
significance.
In 2008, developed countries recorded a relatively high public debt – the
Euro area average was around 65-70% of GDP (Greece already exceeded 100%
of GDP, France was over 60% since 2003, Italy also exceeded 100%,) Japan was
situated around 170% of GDP and the US exceeded 60%.
Figure 1 – Sovereign debt evolution before the economic and financial crisis (%
of GDP) – selected states
Sovereign Debt - % of GDP

Canada
120
100

Germany
Finland
France

80

Italy

60

Greece
Spain

40
20

US
UK
OECD average

19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07

0

Source  : Author’s calculations, using data from IMF, World Economic Outlook, 2012, and
World Bank.

389

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

140

The period that preceded the global financial and economic crisis can thus
be characterized as one of increased indebtedness, or even over-indebtedness.
After 2008, however, governments were placed in an even more difficult situation. The collapse of private indebtedness and demand led to a significant degradation of budget balances; already indebted, with uncertain growth prospects,
many countries have become, as emphasized several authors (Brender, Pisani,
Gagna; 2013, 3), unable to maintain a significant budget deficit without endanger the solvency.

Liviu-Daniel DECEANU : SOVEREIGN DEBT UNDER SCRUTINY. WHAT TO DO?

The collapse of private agents appetite for debt was proportional to the
propensity towards it before the crisis; in the EU, for example, it was significant
in Ireland and less evident in Germany. Lending was quasi-stopped, private saving exploded and deflationary effects became imminent.
Of course, avoiding borrowing in such a situation would have been harmful
to the stimulation of economic activity; therefore, governments have borrowed
even more, at least for a while. From this perspective, it becomes increasingly
important to discuss about the sovereign debt sustainability. The visions of governments were slightly different in recent years – European officials have explicitly fixed as a target the return to budget balance, while the United States stayed
focused on growth; Japan took a similar approach, and the country continues to
have a huge public debt. However, since private savings surplus partially absorbs
this debt, and the Japanese economy remains extremely strong, the asian state
continues to benefit from relatively low interest rate loans.
For Europeans the situation is delicate, primarily due to the special architecture of the European Union – we are not dealing with a state or a federation,
but with Member States that are sovereign and independent, but nevertheless
transferring significant powers from the national to the supranational level. So,
the problems of a member state (Greece, for example, although it is not the only
European country in a delicate situation) seriously put in discussion the opportunity of solidarity (especially financial one) between union member states. In
the same time, spillover effects have been there, and the sovereign debt crisis is a
European one, first of all; the PIIGS episode can also be evoked here.
Some voices repeatedly highlighted the idea of a Euro currency crisis; however, we believe that it is not a crisis of the Euro currency, but one generated
by the behavior of national governments. The European currency has proved
– during its existence – to be viable, well received by the international markets,

390

a stable currency, widely used internationally – in other words, all of the attributes of a successful currency.
After 2008, supporting demand involved extensive budgetary measures, in
most countries of the world, as we outlined above. Even so, the recession could
not be avoided, and the 2007 activity level was reached only in 2012.
These measures, however, significantly affected the budget deficits; we can
talk here about the side effects of the economic recovery plans, the increased
public spending (for social purposes, for example), the significant reduction of
fiscal revenues, the lower gross domestic product.

Another set of government interventions made in recent years aimed to assist the banking sector, through state guarantees, capital injections, and other
actions.
All these developments have marked significant changes of sovereign risk
indicators, which we will summarize in the table below. For OECD countries,
the public debt problem turns out to be extremely serious; after the crisis, the
true extent of the developed countries indebtedness was highlighted by a drastic
decrease in budget revenues.
For some countries, this will be extremely difficult to manage politically and
socially, as it requires important decisions concerning the reallocation of national income, subject already delicate due to the effects of the crisis; and, as we
all know, the political element is strongly influenced by social reactions.

391

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Undoubtedly, the economic recovery measures taken have had considerable
effects, and succeeded in part to eliminate, at least in the short term, the negative effects of the crisis. In the medium and long term, consequences are however difficult to predict. Some analysts talk about some contradictory effects
(Banque de France; 2012, 12), for example in the case of households. If in a
crisis situation households face a shortness of credit, and therefore are unable to
modulate their consumption over time, they will tend to immediately consume
the additional revenues provided by the budgetary relaunch, thereby enhancing
their efficiency; at the same time, however, if a future tax increase is expected,
in order to finance deficits, households will save a substantial part of the additional revenue generated by the relaunching policy, reducing the magnitude of
the expected effects.

Figure 2 – Sovereign Debt evolution after the Crisis, selected states (percentage
of GDP)
Government Debt to GDP (% )
250.0
Canada
Germany
200.0

Finland
France
Italy

150.0

Greece
Portugal
Ireland

100.0

Japan
Spain
US

50.0

UK
OECD average
0.0

Liviu-Daniel DECEANU : SOVEREIGN DEBT UNDER SCRUTINY. WHAT TO DO?

2008

2009

2010

2011

2012

2013

2014

Source: Author’s calculations, using data from BNP Paribas, World Bank, www.tradingeconomics.com.

Table 1 – Governmental Debt evolution, selected states (% of GDP)
Country/year

2008

2009

2010

2011

2012

2013

2014

Canada

43.0

51.3

51.5

52.5

53.5

51.9

52.3

Germany

41.0

46.0

53.7

53.3

69.0

77.0

76.0

Finland

31.9

41.2

47.0

45.9

51.0

53.2

59.0

France

70.9

82.6

86.4

90.6

100.1

99.0

93.6

Italy

103.4

117.1

115.9

108.9

126.2

128.5

132.1

Greece

116.8

133.2

127.0

108.7

163.5

161.0

174.0

Portugal

75.9

87.9

91.4

90.2

122.8

124.1

129.0

Ireland

46.8

67.0

83.7

97.8

120.5

121.7

123.3

Japan

153.0

166.8

174.7

189.5

196.0

218.8

227.0

Spain

33.5

45.5

47.1

54.6

66.0

82.4

92.1

US

64.0

76.3

85.5

90.2

94.3

96.2

101.5

UK

54.3

68.6

81.2

94.6

97.2

97.5

98.2

OECD average

39.4

44.1

52.6

58.2

67.9

69.0

71.3

Source: Author’s calculations, using data from BNP Paribas, World Bank, www.tradingeconomics.com.

392

3.

SOME ASPECTS CONCERNING SOVEREIGN
DEBT SUSTAINABILITY

The evolution of sovereign debt is obvious, its increase during last years is
significant, both for developed and developing countries. Of course, the sovereign debt has evolved differently from country to country, from region to region,
but the remark can be considered as a general one. Anyway, it is not the debt
itself that we consider the most concerning, but rather debt sustainability.
We can also notice that the developed countries took advantage of the low
interest rates available for them, and this practice contributed to the accumulation of debt. Of course, we will not say here that indebtedness is synonymous
with a total lack of government responsibility, but we believe that economic
theory recommending state intervention in order to stimulate growth was not
the only one behind these decisions. Several authors even talk about a political,
electoral connotation of indebtedness (Garello, Spassova; 2011, 25).

As stressed by many economists, such as Jean-Pierre Landau (Landau; 2012,
16), most often the economic literature is search for a categorical answer to the
question of sustainability – the debt is sustainable or not. In practice things are
much more complicated, and even influenced by political factors – the states
attitude towards markets (governments are “market friendly” or not / the “willingness to pay” matter).
Often, debt indicators (most notably the total external debt / GDP) are
used to determine thresholds of indebtedness, thresholds above which default
becomes imminent. This practice is extremely useful, and we made such exercises in other works, but we would like to point out here the limits of such an
analysis. World states behave very differently, and a given level of debt can be
perfectly sustainable in one state, and totally unsustainable in another. Economic history has recorded situations where states having a level of the sovereign
debt / GDP ratio of 200% continued to repay their debt, while others went into
default at 40-50% or even less.

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Analysts talk more and more about the bankruptcy of a state nowadays,
although technically this is relatively unlikely, given the sovereign status of
the debtor. What really interests us is the risk of default; is debt sustainable
or not, and will it be followed by default – or, in some cases, restructuring or
moratorium.

Also, the he sovereign debtor myth must be regarded with skepticism – during the 1998 Russian crisis, for example, private companies continued to repay,
while the state has refused to do it at a certain point.
Relative to the sustainability of sovereign debt, we can make several remarks:
• The point from which debt becomes unsustainable varies from borrower
to borrower;

Liviu-Daniel DECEANU : SOVEREIGN DEBT UNDER SCRUTINY. WHAT TO DO?

• Sovereign debt sustainability is overwhelmingly influenced by the economic policies; we can give some examples in this context – a state that
encourages exports and international trade in general will increase its
chances to repay smoothly, especially if indebted in foreign currency; also,
policies concerning the control public finances, in order to eliminate budgetary drifts and a clear expression of the desire for debt repayment will
positively influence credibility and sovereign rating;
• Growth prospects are essential when talking about sustainability – a state
with significant economic growth has all the prerequisites for a refund
without problems, but at the same time, indebtedness may affect growth,
as evidenced by several recent studies that converge towards stating that
the negative effects on economic growth increase when the sovereign debt
is approaching 100% of GDP (Reinhart, Rogoff; 2010, 23); as shown
in the table and graphs below, heavily indebted states and those that are
generally recording lower rates of growth:

394

2014

Debt/GDP (%)

Economic growth rate (%)

Canada

52.3

1.6

Germany

76.0

0.5

Finland

59.0

0.3

France

93.6

0.3

Italy

132.1

0.1

Romania

38.4

3.5

Greece

174.0

-3.8

China

22.4

7.4

Portugal

129.0

-1.8

Ireland

123.3

0.6

Japan

227.0

2.0

Spain

92.1

-1.3

US

101.5

1.6

UK

98.2

1.8

Singapore

105.5

4.1

UAE

16.7

4.0

Lithuania

39.4

3.4

Australia

28.6

2.5

Switzerland

35.4

2.0

Turkey

34.8

3.8

OECD average

71.3

0.8

Source: Author’s calculations, using data from Eurostat, World Bank, www.tradingeconomics.com.

395

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Table 2 – Economic growth rate and Debt/GDP ratio (selected countries)

Figure 3 – Debt/GDP (%) (Selected countries)
Canada

250.0

Germany
Finland
France
Italy

200.0

Romania
Greece
China
150.0

Portugal
Ireland
Japan
Spain

100.0

US
UK
Singapore
UAE

50.0

Lithuania
Australia
Sw itzerland
0.0

Turkey
Debt/GDP (%)

OECD average

Figure 4 – Sovereign Debt and GDP Growth (2014), selected countries
Sovereign Debt and GDP Growth (2014)
8.0
6.0

4.0
GDP Growth (%)

Liviu-Daniel DECEANU : SOVEREIGN DEBT UNDER SCRUTINY. WHAT TO DO?

Source: Author’s calculations, using data from Eurostat, World Bank, www.tradingeconomics.com.

2.0

0.0
0.0

50.0

100.0

150.0

200.0

250.0

-2.0

-4.0
-6.0
Debt/GDP (%)

Source: Author’s calculations, using data from Eurostat, World Bank, www.tradingeconomics.com.

396

• Debt sustainability is strongly influenced by the activity of rating agencies,
and the functioning of financial markets; in this context, we should highlight the problems related to the pro-cyclical effects of rating, or to the
inefficiency of markets. If, for a relatively long period of time, fragilities
could not be identified, the reaction during the crisis was, in our opinion,
oversized, increasing eventually sovereign risk; the pro-cyclical influence
of evaluations caused partially the spectacular rise in the cost of funding
for states with difficulties, but also the emergence and maintenance of a
climate of mistrust regarding the solvency of these states.

4. CONCLUDING REMARKS, IDEAS FOR A
BETTER GOVERNANCE IN THE CONTEXT OF
SOVEREIGN OVER INDEBTEDNESS
The statistical data clearly show that the sovereign debt has now become
a real problem, given that it reached a record level for many countries of the
world. Much of it is owned by non-residents, and many countries are forced to
borrow in foreign currency.

• Surprisingly, the excess of debt seems to affect more developed countries.
Governance is, in this context – today more than ever – put under scrutiny. Sovereign debt sustainability depends largely on economic policies
and measures taken by the authorities. Of course, there are a number of
external factors, but their influence is not overwhelming.
• Regarding the outlook for sovereign debt, we will make the following
remarks, not without leaving room for further studies and developments:
• The will of authorities to repay must be well outlined, in order to restore
confidence;
• The purchase of securities by central banks (see the case of the ECB)
should not take away them from the traditional objectives; of course, such
practices are sometimes welcome, counteracting the liquidity crises, deflation, or carrying out the monetization ensuring the solvency of the sovereign
issuer (Landau; 2012, 219);

397

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

• Also, in many cases, governments borrow only to repay old debts, and sustainability, as well as the impact on future economic growth, are subject
to uncertainty.

Liviu-Daniel DECEANU : SOVEREIGN DEBT UNDER SCRUTINY. WHAT TO DO?

• Ensuring economic growth on different channels, as well as the intensification of international trade and exports in particular can have positive effects on the sustainability; recording some outstanding economic results
helps maintaining sustainability even in a context of massive debt;
• The use of ratings should be done with care, in order to avoid misinterpretations; the subjectivity, the conflict of interests or even the error can
be associated with the activity of rating agencies, despite their notoriety;
• The sovereignty of states still allows fighting liquidity crises through “injections” of “fresh” money (although more and more countries lost this
lever, for example European countries that are part of economic and
monetary union – but they retain full sovereignty in matters of taxation);
however, the effects on inflation can be dangerous, and such practices
are not recommended; but what is clear is that monetary union member
states are more exposed to sovereign risk than others – a good example is
represented by the states on the periphery of the Eurozone;
• The need for a better control of public spending, which has exploded in
recent years, exceeding for many countries the growth rate of GDP; as we
have seen in recent years, the cost of financing sovereign debt is rapidly
increased by the degradation of the state public finances;
• Orienting a more significant fraction of debt towards investment, given that
very often states are borrowing in order to ensure current expenses or to
repay older debts; it is also obvious the need to increase public investment
profitability, and, why not, to question the role of the state in the economy.
What interests us particularly when addressing the issue of public debt sustainability is its current level, but also the relationship between the interest rate
(and debt service in general) and growth prospects (growth rate of real GDP),
and the state tax income compared with the public expenditure.
We believe that the sustainability of sovereign debt is a concept that should
be viewed dynamically; what matters first is the ability of governments to ensure the future debt service. Quantifying this capacity is always a challenge because future state revenues and spending can not be predicted accurately.
When we intend to identify the level from which debt becomes toxic, dangerous,
we can be very creative, setting alert thresholds or introducing more or less complex
indicators (from the classic public debt / GDP ratio or Government debt / exports,
to the more elaborate indicators, aiming for instance institutional quality).

398

As highlighted in some recent books (Brender, Pisani, Gagna; 2013), studies
(Minea, Parent; 2012) and papers (Reinhart, Rogoff; 2010), the level of debt
from which onwards there is an imminent danger of default is difficult to identify and, on the other hand, impossible to generalize. More suitable is to set
thresholds above which sovereign debt implies adverse consequences of economic life; from this point of view, most of the papers identify an alert threshold
around 90-95% of GDP. Above this value, growth seems to be difficult, if not
impossible, to achieve.
The current situation, the sovereign debt crisis, is not a disaster in itself.
Rather, it is a warning, a lesson to be learned and well understood, than can
definitely serve to improve governance.

Banque de France (2012). La crise de la dette souveraine, Documents et débats, may.
Brender, A., Pisani, F. & Gagna, E. (2013). La crise des dettes souveraines, Editions La Découverte, ISBN: 978-2-7071-7764-3, Paris.
Garello, P. & Spassova, V. (2006). L’endettement de l’Etat : stratégie de croissance ou myopie
insouciante ?, IREF : Studies on Debt and Growth, nr. 6, april.
Garello, P. & Spassova, V. (2011). La crise de la dette souveraine française, IREF : Studies on
Debt and Growth, nr. 26, october.
Landau, J.P. (2012). Quelle politique pour la dette souveraine ?, Banque de France (Dette
publique, politique monétaire et stabilité financière), Revue de la stabilité financière, nr. 16,
april.
Minea, A. & Parent, A. (2012). Is High Public Debt Always Harmful to Economic Growth ?
Reinhart and Rogoff and some complex nonlinearities, CERDI Clermont-Ferrand, Etudes
et documents, February.
Reinhart, C. & Rogoff, K. (2009). This time is different. Eight Centuries of Financial Folly,
Princeton Universitu Press, ISBN: 978-0-691-14216-6, Princeton, New Jersey.
Reinhart, C. & Rogoff, K. (2010). Growth in a Time of Debt, NBER Working Paper 15639,
Cambridge, January.
Turner, P. (2011). Fiscal dominance and the long term interest rate, Financial Market
Groups, Special Paper series 199, may.

399

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

References

RESTRUCTURING OF SMALL
BUSINESSES IN THE REPUBLIC OF
CROATIA DURING CRISIS
Melita Cita • Milan Stanić • Berislav Bolfek: RESTRUCTURING OF SMALL BUSINESSES IN THE REPUBLIC OF CROATIA DURING CRISIS

mr.sc. Melita CITA
University of Applied Sciences of VERN,
Zagreb
Milan STANIĆ, univ.spec.oec.
University of Applied Sciences of Slavonski Brod,
Slavonski Brod
Berislav BOLFEK, Ph.D.
University of Zadar,
Zadar

Abstract
Doing business in a modern environment exposes small companies to numerous risks. Due to changes in economy, which are primarily dictated by the
global crisis, companies must adapt to changeable market conditions to continue their business operations. Therefore, their market survival depends on
the timely conduct of certain activities by the company management, resulting
in operational savings and ensuring their competitive advantage. This requires
changes in the business strategy as well as the market, organisational and financial structure of these companies.
The paper will show an in-depth analysis of the market position taken up by
small businesses using three practical examples, and indicating the pros and
cons of restructuring which does not necessarily result in a desired effect.
Keywords: restructuring, small businesses, financial indicators
JEL Classification: F3 (F34), G01.

400

1

INTRODUCTION

Small businesses are a very dynamic part of the Croatian economy. They
are more flexible and innovative than bigger companies and play an important
role in the employment process. Fast changes occurring in the market, competition pressure and the recession force company management structures to adapt
to newly emerged market conditions. A company faces a decreased operating
volume, reduced liquidity, increased operating costs and employee surplus. It
is important to conduct certain activities on time so as to retain a company’s
competitiveness. Company restructuring is a strategic decision made by the
management, which leads to a change in the company’s strategic management
and operating policies.
This paper aims at exploring the restructuring process of small companies in
the Republic of Croatia during the crisis. The research methodology is based on
benchmarking financial data of observed companies in a three year period. The
paper starts with the introduction of the said issue, and continues with a theoretical part listing characteristics of small companies in the Republic of Croatia,
the restructuring process and types as well as various small company restructuring models. This is followed by the analysis of small company restructurings
based on practical examples and ends with the final conclusion.

CHARACTERISTICS OF SMALL COMPANIES IN
THE REPUBLIC OF CROATIA

According to the Financial Agency (FINA) data on company operations
– corporate taxpayers, (http://rgfi.fina.hr), the number of operating businesses which submitted their 2013 annual financial statements in Croatia was
101,191, of which 99,573 or 98.4% were small and 1,618 or 1.6% middle-sized
and large enterprises.
In the period between the start of the crisis in 2009 until 2013, the share
of small businesses in a total number of the employed increased from 47.5% to
49.8%, accompanied by the increase of their share in pre-tax profit from 41.9%
to 43.9%. This rise in the number of small businesses might be explained in
light of the crisis during which many employees lost their jobs and subsequently
rather tried to launch their own business than look for work with some other
employer.

401

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

2

Melita Cita • Milan Stanić • Berislav Bolfek: RESTRUCTURING OF SMALL BUSINESSES IN THE REPUBLIC OF CROATIA DURING CRISIS

Pursuant to the Accountancy Act, small entrepreneurs are defined as those
who comply with two out of the following three conditions: total assets and annual income not exceeding HRK 32.5 million and HRK 65 million, respectively,
and an average number of the employed during the year limited to 50. Mediumsized businesses are those which numbers exceed two out of the previous three
conditions, but comply with two out of the following three: assets and total annual income not exceeding HRK 130 million and HRK 260 million, respectively, and an average number of the employed during the year limited to 250.

3

RESTRUCTURING

Restructuring is a process of implementing large changes in the organizational structure, which often includes streamlining management tiers and the
change of organizational components by transferring and outsourcing some
activities or functions as well as frequent employee downsizing. An integral
and essential part of the process is reducing the company depth and width
also known as downsizing. (Bahtijarević Šiber F.&Sikavica P. 2001, 498-499).
Worldwide companies opt for restructuring, primarily to improve their weak
financial results in time of the crisis, which might jeopardize its very operations
and lead the company into bankruptcy. Another reason for choosing restructuring is a new business opportunity which requires the unbundling of business
parts or merging with other enterprises.

.. Types of restructuring
On principle, there are two types of restructuring in practice: defensive
and strategic. Defensive restructuring includes two activities: reducing the
number of employees and financial rehabilitation. This approach is conducted
when business operations are bad, it is done quickly, the restructuring process
is shorter and positive effects are maily short-term. Strategic restructuring is
more complex and based on the two activity groups: activities connected with
human resource management and activities connected with investments into
assets, knowledge, products and services, development of new markets. This approach is conducted in times of a company’s good operating result, accompanied
by indepth due dilligence, a longer restructuring process and positive long-term
effects, not immediately visible.

402

.. Restructuring phases
There are various restructuring phases which can, in general terms, be summarized into three basic ones: financial, operational-organizational and strategic restructuring. All of these should be preceded by a ‘zero phase’ i.e. an evaluation phase which represents a foundation for a quality implementation of the
restructuring process (Benaković, 2012).
Financial restructuring includes the restructuring of the company’s balance
sheet i.e. the change in the structure of company’s assets and liabilities. The basic goal of such restructuring is to increase company liquidity.
Operational-organizational restructuring or business restructuring includes
changes in the company organization and management as well as operational
restructuring based on marketing, production process, technology, cost, management system and staff restructuring. Its basic goal is to improve profitability,
reduce costs and increase company liquidity.

To carry out quality restructuring, small company management must possess certain knowledge and management skills. It has to develop a restructuring plan including the analysis of company operations and the restructuring
programme.
The operating analysis includes the legal status, financial statements (for the
previous three years), production programme, facility and equipment characteristics, operational environmental impact, organizational structure, employment
(the employee structure), funding, state aid, market analysis (for the previous
three years), and the SWOT analysis before the restructuring.
The restructuring programme includes the restructuring period and the
2-year plan following the restructuring completion. It consists of the product
range sales plan, raw material procurement plan (products, the plan of production and sales capacities, environmental protection programme, ownership and
organizational structure restructuring programme, planned number and structure of the employed, financial plans for the restructuring period as well as for

403

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

The goal of strategic restructuring is to maintain long-term operating sustainability. It includes range reduction, identification of additional profit areas,
innovative design for emerging markets, focusing on the most profitable value
chain elements along with unbundling non-core business activities and introducing new business models (Benaković, 2012, 114).

Melita Cita • Milan Stanić • Berislav Bolfek: RESTRUCTURING OF SMALL BUSINESSES IN THE REPUBLIC OF CROATIA DURING CRISIS

the two-year period after the completion of the said process, state aid, SWOT
analysis after the restructuring (estimate) and the restructuring phased plan.
(http:// www.mppr.hr/UserDocslmages/Prilog )
Results stemming from small business restructurings to-date have shown
that the small business restructuring is conducted without a plan i.e. with no
formal restructuring plans (http://europski- fondovi.eu/vijesti/).

.. Restructuring models
The restructuring of a company can be conducted by means of an outsourcing, downsizing, company liquidation, merger or acquisition as well as internal
or in-house restructuring.
Outsourcing i.e. separating non-core activities as a restructuring model is
a process of transferring activities which had been carried out in-house onto
external partners, which will be entrusted to their conduct instead of the parent company (Galetić, L., 2011, 287). The decision on the activities which will
be separated depends on the organizational strategic decision. A good business
model is such which focuses on the organizational key processes i.e. on those
which are most profitable and which represent the company’s core operation.
There are two outsourcing types: the one which separates core value chain
activities and the other which separates supporting ones (Galetić, L., 2011,
288). The most frequent examples of the first outsourcing type include the procurement, production and distribution chains, while the second type mostly includes research and development, business maintenance, legal affairs and others.
A question as to the reason why companies opt for outsourcing might be put
forward. The implementation of outsourcing may improve business operations
in terms of employees, reduce costs and enhance organizational financial and
market aspects of its operation.
Downsizing often has various interpretations including enhanced productivity, reduced costs, restructuring, business process reengineering. It has been one
of the most popular measures in the last two decades. It is not limited only to
reducing the number of employees, despite it being its most frequent effect. For
some, it represents the loss of work, for others a company survival. As costs are
more easily planned than income, the focus on its decrease is the prevailing basis
for efficiency increase. Reactive and proactive downsizing represent two various

404

options in terms of employee reduction. Reactive downsizing is carried out as a
response to already implemented changes in terms of losing a market share and
weak business results while proactive downsizing occurs as soon as a first sign
of change emerges on the market resulting in the management passing decisions
for enhancing operations aimed at forestalling competition.
For achieving a successful downsizing process, it must be planned way in
advance, during and after its implementation and it must be an integral part of
the strategic business plan of all companies regardless whether they consider
its implementation or not. If necessary, company management will be prepared
to start dismissing employees. It must be emphasized that the initial phase requires large direct costs, which must be planned, such as severances or incentive
programmes that should stimulate an employee to leave the company voluntarily. A disadvantage of such a programme is losing employees with key knowledge, abilities and skills necessary for company development.

The Republic of Croatia has started paying large attention to the establishment of new companies by means of the simpliest way possible (simple limited
liability companies), while on the other hand, there is a very expensive model
of voluntary market exit. The fastest procedure of voluntary liquidation excluding any disputes with creditors is 12-18 months long and incurs large costs. A
cheaper and faster process of a simple liquidation must be introduced for cases
not burdened by any owner – creditor disputes.
Internal restructuring includes those activities which facilitate company’s
successful competition based on company’s internal adjustability to its environment. The restructuring area is set on the basis of four underlying factors: environment, strategy, technology and company size. Restructuring might resolve
the crisis occuring in-house or externally. Internal or in-house restructuring
can be divided into physical, human resouce-related, IT and financial (Miletić,
2010, 59). Financial restructuring includes the optimal use of fixed assets necessary for conducting business operations, while the restructuring of human
resources includes HR management. IT restructuring includes the optimal use

405

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Company liquidiation means the termination of company operations. It
can be orderly as a result of the non-fulfillment of prescibed conditions for the
performance of a business activity or forced (bankruptcy). Forced liquidation
includes a court procedure over the assets of a debtor that is no longer in a possition to settle its obligations towards its creditors.

Melita Cita • Milan Stanić • Berislav Bolfek: RESTRUCTURING OF SMALL BUSINESSES IN THE REPUBLIC OF CROATIA DURING CRISIS

of information regarding in-house as well as external changes, while accounting restructuring represents an in-depth analysis of financial statements i.e. a
division of necessary and unnecessary company assets or income and expenses
which may ensure its market survival.

4

EXAMPLES OF SMALL BUSINESS
RESTRUCTURINGS

Restructuring models of three operating companies have been analysed in
this chapter. Documentation used herein is available on the Financial Agency
website (http://rgfi.fina.hr).
TROHA-DIL d.o.o. has been registered for the production of plastic products used in construction. The crisis which hit the construction sector affected
the operating results of this company as well. In the period between 2011-2013,
its operating income decreased by 21.4%, operating expenses by 22.9%, and the
number of employees by 20. A lower number of employees in 2013 resulted in
reduced staff costs by HRK 1.85 million compared to 2012, which, along with
a decrease of material cost of HRK 6.11 million, led to increased profit before
taxes. The 2013 current ratio was 1.6 compared to 0.85 in 2011. It should not
be lower than 2, although the minimal current ratio of 1.5 is seen in some cases
(Žager i Žager, 1999). The quick ratio also improved in 2013 to 1.6 compared
to 0.10 in 2011.
The management conducted financial restructuring and decreased material
and staff cost, in particular. As the staff cost decrease was conducted according
to the reactive downsizing model, it enabled the company the achievement of its
operating savings.
METALIND d.o.o. has been registered for the production and assembly
of fire doors and metal constructions. Its business results were affected by the
construction sector crisis as well. The 2011 income of HRK 76.5 million decreased to HRK 65.9 million in 2013. The 2011 expenses of HRK 57 million
decreased to HRK 52.6 million in 2013. The number of employees was reduced from 125 to 121. In view of its small number of customers and suppliers,
this company was facing another large risk in this operating segment. In line
with the decision to sell made by the company management i.e. its owner, in

406

2011 it was acquired by the new owner Assa Abloy East Europe AB with its
head office in Sweden.
This company was merged with the parent company and continued doing
business recording bad performance indicators. The current and quick ratios
decreased from 2.64 to 1.65 and 2.15 to 1.42, respectively, while the debt ratio
increased from 38.7% to 42%.
RIBA d.d. is a company engaged in fish and juvenile production and farming. Under the Commercial Court Decision, the company pre-bankruptcy settlement was granted in 2013 (http://predstečajnenagodbe.fina.hr). In 2012,
the company had 26 employees, the number it retained in 2013.
Actually,whole plan goes around measures of operative restructuring and
calculation of their effects on positive business, which should lead to revitalization of solvency. This measures should be sort of turnaround in business; while
old way of business have brought company into problems.

In line with the Operating and Financial Restructuring Plan, short-term liabilities of HRK 1.22 million out of total HRK 2.93 m liabilities were written
off. Liabilities to banks of 543,000 were converted into equity. In 2013, the
company recorded profit of 18,000 compared to the 2012 loss of HRK 12.9
million.

5

CONCLUSION

Small businesses differ from medium-sized and large ones by their market presence and specific characteristics required for conducting such business
operations. Nevertheless, they have also been affected by the global economic
crisis and experienced problems with product placement and the collection of
receivables. Strategic restructuring of a company represents an important part
of the restructuring process, which is often neglected by small companies as
shown by concrete practical examples. This is caused by insufficient manage-

407

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

The 2012 income from sale of HRK 3.3 million decreased to HRK 2.49
million in 2013. Other operating income in 2013 included income from writing
a debt portion off under the pre-bankruptcy settlement i.e. the loan of HRK
1.23 million, and state and trade liabilities of HRK 348,000. The 2012 operating expenses amounted to HRK 16.76 million, compared to HRK 3.88 million
in 2013.

Melita Cita • Milan Stanić • Berislav Bolfek: RESTRUCTURING OF SMALL BUSINESSES IN THE REPUBLIC OF CROATIA DURING CRISIS

ment experience of a company owner and insufficient decisiveness for carrying
out radical operating changes. The first company example showed that the management had carried out financial restructuring and reduced costs. A staff cost
decrease was carried out under the reactive downsizing model, which provided
the company with its operating savings.
The crisis in the construction sector affected business results of the company, which restructuring model was described as example 2. Having changed
its owners and management, this company became a part of a new parent company. As such, it continued its operations recording weaker operating results.
The company management, described as example three, accepted the pre-bankruptcy settlement as its restructuring model. According to the operational and
financial restructuring plan, 40% of the company’s short-term liabilities as well
as its liabilities towards banks of HRK 543,000 were written off. Following its
2012 losses of HRK 12.9 million, the company recorded profit of HRK 18,000
in 2013.
The basic shortcoming of small company management is its conduct of solely financial restructuring, followed by changes of its business organization with
no detailed restructuring and indepth change.

References
Bahtijarević Šiber, F.&Sikavica, P. Leksikon menadžmenta, Masmedia, Zagreb,2001.
Benaković, I. Plan restrukturiranja kao dio obvezne dokumentacije u postupku prestečajne
nagodbe, Računovodstvo i financije-časopis 12, 2012. str.113-117.
Galetić, L., Organizacija velikih poduzeća. Sinergija, Zagreb.2011.
Miletić, Ž. Restrukturiranje poduzeća u hrvatskom gospodarstvu s posebnim osvrtom na
hotelska poduzeća, Magistarski rad, Ekonomski fakultet Split.2010.
Zakon o financijskom poslovanju i predstečajnoj nagodbi, Narodne novine br. 108/12,
144/12, 81/13, 112/13.
Zakon o računovodstvu, Narodne novine br. 109/07, 54/13
Žager, K. et. Al. Analiza financijskih izvještaja. Masmedia., Zagreb.1999 http://europskifondovi.eu/vijesti/restrukturiranje-malih i srednjih europskih podze (pristup 2.2.2015)
http:// www.mppr.hr/UserDocslmages/Prilog (pristup 3.3.2015.)
http://predstecajnenagodbe.fina.hr (pristup 2.2.2015.)
http://rgfi.fina.hr/JavnaObjava-web/pSubjektTraži.do,(pristup 10.2.2015.)

408

THE ANALYSIS OF THE FINANCIAL
POSSIBILITIES ON THE LIFE
INSURANCE MARKET AFTER
ECONOMIC CRISIS  CASE OF
REPUBLIC OF CROATIA
Ticijan PERUŠKO Ph.D.,
Assistant Professor
Juraj Dobrila University of Pula,
Faculty of Economics and Tourism “Dr. Mijo Mirković” Pula
tperusko@unipu.hr

Iva HASIĆ, student
Juraj Dobrila University of Pula,
Faculty of Economics and Tourism “Dr. Mijo Mirković” Pula
ihasic@unipu.hr

The global economic crisis has caused a series of changes in the markets around
the world. Following such an occurrence, the planning of future trends has become essential in order to appropriately use more modest financial possibilities
available. The period after the global economic crisis has set different trends in
motion characterised by low growth rates. Such trends have also affected the
life insurance market.
New economic circumstances which swept through the life insurance market
require different analysis and forecasts. In planning the movements and financial possibilities in the life insurance market, it is necessary to identify specific
qualities which have been created in the market following the economic crisis.
Scientific statistical and mathematical methods were used in order to develop a
model which meets the said prerequisites.
The aim of this paper is to show the method of creation and implementation
of the model for the life insurance market for the period following the global
economic crisis. The implementation of the model is illustrated for the Republic

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Abstract

Ticijan Peruško • Iva Hasić: THE ANALYSIS OF THE FINANCIAL POSSIBILITIES ON THE LIFE INSURANCE MARKET AFTER ECONOMIC CRISIS – CASE ...

of Croatia life insurance market. The information obtained has multiple application. It provides prognostic information about the future annual financial
values of the life insurance market. The course of future market trends is determined by using the financial trend analysis in the forecast periods, as well
as by comparison with the values realised in previous years. The information
obtained by the model is useful for stakeholders in the life insurance market as
additional information for business strategy and income planning.
Keywords: life insurance, planning information, economic crisis, insurance
market, prognostic model.
JEL Classification: P33, G22, I13.

1.

INTRODUCTION

The specific quality of life insurances lies in the possibility of negotiating an
unlimited number of life insurance policies by both legal and physical entities.
This enables each entity to be able to have an unlimited number of policies by
which they cover the occurrence of the insured event and provide compensation
for the damage from each policy and, if so agreed, return of the premium of
each negotiated life insurance policy, with addition of bonuses in the event that
the insured occurrence does not happen.
The life insurance market is not limited by the number of existing cases
which are the subject of the possibility to negotiate insurance and existence of
already agreed insurances, as is the case with property insurance.Insurance companies, therefore, organise resources in attracting policyholders and in earning
their trust in order to realise benefits in their business. (Felicioa & Rodrigues;
2015, 7).
Global processes have led to the liberalisation and deregulation of the market, which is evidenced in modern economies, including the insurance industry.
(Njegomira & Marković; 2012, 135). Insurance business has its special place
as a factor of every country’s economic development and life insurance is an
important factor in economic stability (Milosevic; 2012, 148).World economic
movements affect market movements and the world economic crisisdisturbedall the markets, including the life insurance market.

410

The goal of the conducted research is to evaluate annual life insurance market trends in the Republic of Croatia, thus determining the potential market
capacity. The evaluation of the planned annual capacity plays a considerable role
in the planning of business goals of all stakeholders in that market. The period
after the economic crises is characterised by market instability, which requires
a high flexibility of life insurance market stakeholders. The models which are
developed for evaluation in the post-crisis periods are important as they facilitate procurement of information which is of the utmost significance for good
business decision-making.

2.

RESEARCH METHODS

The evaluation of future movements in the life insurance market was made
by application of the statistical analysis of trend modelling.A trend can be defined as a statistical regularity of movement of the analysed occurrence (Žužul,
J. atalt.; 2008, 139).Using a trend which indicates a dynamic mean value expressed by a mathematical function for illustration of the tendency of a timedependent change, the movement of a gross premium value in the Republic of
Croatia insurance market is forecast.
Starting from the fact that, after the year 2008, the growth rates of all
markets,thus the life insurance market too, have been considerably different, the
movements of the life insurance market in the periodbetween the years 2009
and 2014 have been included in the formation of the model.Applying those
periods for prognosis offuture market valuesthe previous growth rates, which
marked the period before the beginning of the economic crisis, are excluded.
In trend model testing, the polynomial trend proved to be most representative.
The kth degree polynomial trend is expressed as follows (Šošić; 2008, 604):

411

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Business planning and management require information for evaluation of
future movements. Evaluation of future movements and trends in the life insurance market enables development of market presentation, depending on information users. The economic crisis has led to disturbances in the life insurance
market in the way that, following the world economic crisis, the growth rates
considerably differ from the period before the crisis.

Ticijan Peruško • Iva Hasić: THE ANALYSIS OF THE FINANCIAL POSSIBILITIES ON THE LIFE INSURANCE MARKET AFTER ECONOMIC CRISIS – CASE ...

ANALYSIS OF FINANCIAL POSSIBILITIES ON THE
MARKET AFTER THE ECONOMIC CRISIS – CASE O
OF CROATIA
Abstract

Whereytare time series frequencies, xis variable time, which acquires the
values of the first n natural numbers, i.e.xt=t=1,2…,n;a,bj, j=1,2,…, k are unknown parameters; k is the degree of the polynom, k<n; etare unknown values
of the variable u (Šošić; 2008, 604).The regression representativeness indicator
is obtained using the coefficient of determination. The coefficient of determination is the proportion of the part of the sum of squares in the total number of
squares, interpreted by the model, and is expressed as (Šošić; 2008, 391):

the life insurance market, it is necessary to identify spe
een created in the market following the economic cri
mathematical methods were used in order to develop a
prerequisites.
of this paper is to show the method of creation and impl
In testing of the polynomial trend model, the third degree polynomial expression showed the highest representativeness (Šošić; 2008, 607):
yt= a + b1xt + b2x2t + b3x3t + et

(4)

Evaluations of the value of gross life insurance premiums in the Republic of
Croatia for the period of three years, i.e. the period between the years 2015 and
2017, were carried out by means of implementation of the obtained model.The
application of the obtained information facilitated the analysis of the life insurance market movement, as well as the financial possibilities being offered to the
stakeholders in the market.

3.

MOVEMENT OF LIFE INSURANCE MARKET IN
REPUBLIC OF CROATIA IN PERIODS BEFORE
AND AFTER THE ECONOMIC CRISIS

Movements in the life insurance market in the period between the years
2003 and 2014 can be divided into two parts. The first part is characterised by a

412

powerful growth in the total life insurance gross premiums throughout each of
those years. The disturbances which took place in 2008 affected the life insurance market, followed by stagnation of market growth and then growth at very
low rates. A more detailed overview is provided by the table below, which shows
the movement of the life insurance gross premiums in the period between the
years 2003 and 2014.
Table 1. Calculated gross premiums in the life insurance market in the Republic of Croatia in the period betweenthe years 2003 and 2014
Calculated gross premium

Index

2003

(in 000 kunas)
1,349,981

2004

1,569,421

1.16

2005

1,895,769

1.21

2006

2,165,061

1.14

2007

2,482,743

1.15

2008

2,545,775

1.03

2009

2,488,675

0.98

2010

2,457,683

0.99

2011

2,431,268

0.99

2012

2,461,154

1.01

2013

2,538,414

1.03

2014

2,637,726

1.04

Source: Croatian Insurance Bureau, Retrieved from http://www.huo.hr/hrv/statistickaizvjesca/18/ (06.03.2015)

The annual growth rates were ranging from the lowest rate of14% in 2006,
to the highest market growth rate of 21% in 2005. After the year 2008, stagnation, caused by economic movements, set in. Thus, in 2008 the life insurance
market records a low annual premium growth of 3% only to, in the following
three-year period, record a fall between the years 2009 and 2011. The annual
growth of the calculated gross premium was realised in the year 2011 to the
value of 1% and the trend of market growth continues until the year 2014.
The life insurance market in the Republic of Croatia encompasses standard
life insurances, annuity insurances, additional covers with life insurance, event
insurances, such as weddings or childbirth and life or annuity insurances where

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Year

Ticijan Peruško • Iva Hasić: THE ANALYSIS OF THE FINANCIAL POSSIBILITIES ON THE LIFE INSURANCE MARKET AFTER ECONOMIC CRISIS – CASE ...

the policyholder bears the investment risk (http://www.huo.hr/hrv/statisticka-izvjesca/18/(06.03.2015)). The value structure in the total gross premium
of the overall life insurance market is such that a standard life insurance represents a significant share in the total calculated gross premium.
Table 2. Illustration of the standard life insurance gross premiums in the total
of life insurance premiums in the Republic of Croatia in the period
between the years 2003 and 2014
Year

Calculated life insurance
market gross premiums

Calculated standard life
insurance gross premiums

2003

(in 000kunas)
1,349,981

(in 000 kunas)
1,349,981

2004

1,569,421

1,569,421

100%

2005

1,895,769

1,895,769

100%

2006

2,165,061

2,165,061

100%

2007

2,482,743

2,073,627

84%

2008

2,545,775

2,140,992

84%

2009

2,488,675

2,143,134

86%

2010

2,457,683

2,095,817

85%

2011

2,431,268

2,092,895

86%

2012

2,461,154

2,134,691

87%

2013

2,538,414

2,231,682

88%

2014

2,637,726

2,322,926

88%

% share of the standard life
insurance premiums in total life
insurance market premium
100%

Source: Croatian Insurance Bureau, Retrieved from http://www.huo.hr/hrv/statistickaizvjesca/18/ (06.03.2015)

The movement of the standard life insurance gross premiumsfollowed the
movement of the total of the insurance market. A high share of the gross standard life insurance premiums of 88% in the total premiums of the life insurance
group illustrates that the main market movement trends will be determined by
standard life insurances.
For that reason, the annual standard life insurance premium movements affect the entire movement of the life insurance market in the Republic of Croatia.
By means of evaluation and prognosis of the movement of the annual gross
standard life insurance premiums will enable the consideration of market possibilities of all stakeholders in this insurance market segment.

414

4.

EVALUATION OF THE MOVEMENTS OF THE
LIFE INSURANCE MARKET AND ANTICIPATED
FINANCIAL POSSIBILITIES

The evaluation of the movement of the life insurance premiums in the Republic of Croatia was carried out using the trend prognostic model. Using the
trend prognostic model, the values of future annual gross premiums for the
period between the years 2015 and 2017 have been evaluated.Two important
moments in the movement of annual premiums in the Republic of Croatia life
insurance market have been noticed. The trend of a constant life insurance premium growth was recorded in the market before the economic crisis began.A
constant life insurance premium growth before the economic crisis was also
recorded in other European countries, especially in the fast growing East European economies (Fritescu; 2014, 354).After the year 2008 the market growth
was halted and the growth rates record a fall in the annual gross premium in the
period between the years 2009 and 2011.
In order to, as realistically as possible, predict the movement of the annual
gross premiums in the Republic of Croatia life insurance market, the year 2009
was taken as a starting point. By this approach, market movements during the
previous years, when markets were not affected by the world economic crisis,
were not taken into account.
Using the trend prognostic model, covariation of the change in the annual
gross premiums in the standard life insurance market over time was described.
In testing of the prognostic models, the polynomial trend model of the third

415

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

The evaluation of future insurance market movements is significant for several reasons. The insurance market affects the economic results and economic
development of a country (Hou & Cheng; 2012, 126). Insurance has become
the main component in the economies of developed countries (Cristea et.al.;
2014, 227). The insurance market stakeholders create their business strategies
on the basis of evaluation of future market movements. Market expansion requires a different strategy from the strategy of a stagnant market. Economic subjects evaluate movements in order to determine the advantages which they can
achieve in the life insurance market. Evaluation of future market movements,
therefore, must be as realistic as possible, as wrong evaluation and prognosis affect the decisions of all the subjects who base their undertakingson information
about movements in the life insurance market.

Ticijan Peruško • Iva Hasić: THE ANALYSIS OF THE FINANCIAL POSSIBILITIES ON THE LIFE INSURANCE MARKET AFTER ECONOMIC CRISIS – CASE ...

degree proved to be the most representative for the Republic of Croatia life insurance market. The data used for the formation of the prognostic trend model
is shown in the table below.
Table 3. Illustration of the data for formation of thepolynomial trend model
of the third degree for predicting the standard life insurance market
movements in the Republic of Croatia
Year

xt

Standard life insurance calculated
gross premiums

Gross premiums annual
growth/fall

Index %

2009

0

(in 000 kunas)
2,143,134

(in 000 kunas)
-

2010

1

2,095,817

-47,318

97.80

2011

2

2,092,895

-2,922

99.90

2012

3

2,134,691

41,796

102.00

2013

4

2,231,682

96,991

104.50

2014

5

2,322,926

91,244

104.10

Source: Author’s calculations

Using the data from the table, the scatter diagram and the polynomial trend
model were produced. The representativeness, shown using the coefficient of
determination R2, must be very high due to a relatively low number of years, i.e.
the coefficient of determination must have values which include the comprehensiveness of the observed set.The coefficient of determination is expressed as
a percentage of the relationship between the observed variables, interpreted by
the model (Šošić; 2008, 391). The reason for this is the representativeness of
the model for calculation of the estimated values which reflect the evaluation of
the position, including the observed past periods.
Graph 1. Illustration of the scatter diagram for the Republic of Croatia life insurance market in the period between the years 2009 and 2014

ANALYSIS OF FINANCIAL POSSIBILITIES ON THE LIFE INSURANC
MARKET AFTER THE ECONOMIC CRISIS – CASE OF THE REPUBLI
OF CROATIA
Abstract
The global economic crisis has caused a series of changes in the mar
d th
ld F ll i
h
th l i
ff t
t d

Source: Prepared by the author

416

The polynomial trend model of the third degree for the prognosis of the
movement of the gross standard life insurance premiums in the Republic of
Croatiais expressed as follows:
y= 2.000.000-2030,4x3+34736x2-86833x
The coefficient of determination R2equals 0.966, which means that the
prognostic trend model has the representativeness of 0.996, i.e. that it encompasses 99.60% of all observed occurrences. Supposing that the movement of
the gross standard life insurance premiums in the Republic of Croatia market
will continue to progress in accordance with the obtained polynomial trend, the
values for the period between the years 2015 and 2017 have been predicted.The
calculated values are shown in the table below.
Table 4. Predicted values of the calculated gross premiums in the Republic
of Croatia standard life insurance market for the period between the
years 2015 and 2017
Year

Standard life insurance planned
calculated gross premiums
(in 000 kunas)

Gross premiums planned
annual growth/fall

Index %

2015

2,290,931

(in 000 kunas)
-31,944

2016

2,397,805

106,974

104.70

2017

2,488,875

91,069

103.80

98.60

The standard life insurance market realised a fall in the calculated gross
insurance premiums following the economic crisis. The fall in premiums was
recorded in the period between the years 2009 and2011. After that, a slight
growth in the year 2012 was achieved, of 2%. The following two years saw gross
premium growth of 4.5% in 2013 and 4.1% in 2014. According to the values
obtained by application of the trend model, the fall in premiums by 31,944 million kunas, i.e. by 1.4%, follows in 2015. The insurance companies, therefore,
face preparation of business goals in accordance with the anticipated trend in
the market. Given that standard life insurances have a share of 88% in the total
life insurance group, it is to be expected that, in 2015, a fall will follow in the
calculated gross premiums of the total life insurance market in the Republic of
Croatia.

417

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Source: Author’s calculations

Ticijan Peruško • Iva Hasić: THE ANALYSIS OF THE FINANCIAL POSSIBILITIES ON THE LIFE INSURANCE MARKET AFTER ECONOMIC CRISIS – CASE ...

After the fall in the gross premium value in 2015, a predicted market growth
will follow in 2016 of 4.7%, i.e. 106,974 million kunas. Considering the entire period after the crisis started, value-wise and percentage-wise, this planned
market growth represents the highest market plunge in the Republic of Croatia
in the period after the economic crisis. The trend of the standard life insurance
market value growth is also expected in the year 2017. Although the anticipated
growth is lower than the previous year, namely 3.80%, i.e. 91,069million kunas,
it represents an additional indication of possible market recovery.
Provided the trend which is marked by the post-crisis period in the observed
and planned periods continues, the highest annual growth of the calculated
gross premiums of 5% in the life insurance market of the Republic of Croatia is
to be expected. Accordingly, powerful competition in attracting policyholders is
also expected. This still unstable market will not record large growths in annual
gross premiums, with possible market value falls. It is, therefore, to be expected
that all existing channels for attracting policyholders will be intensified in order
to achieve the planned financial goals in such market conditions.

5.

CONCLUSION

The period after world economic crises requires different approaches and
changes in company business strategy. Evaluations are therefore very important
for the periods following market disturbances caused by the economic crisis.
The market characteristics after such events are annual falls in the market value,
followed by a multiannual period of market recovery. The stakeholders in the
market must be prepared to apply innovative strategies in order to realise their
planned business goals, as new conditions also require new approaches. Companies which are not flexible, prepared for changes,or able to adapt their business to the new conditions are susceptible to the risk of jeopardisingtheir own
businessexistence.
Predicting market movement in such conditions is extremely important, as
information is obtained about market potentials which require a specific approach in business. The models which predict annual market movements are
significant, as they indicate possible threats in business due to the market fall, as
well as the opportunities which arise due to market growth.Using the illustrated prognostic model, additional information is provided, which complements

418

the data base for business planning and decision-making in the life insurance
segment.
In income planning, a series of scenarios is used and, based on the analysis
of strengths and weaknesses, opportunities and threats, the most realistic are
chosen in the life insurance market. Adaptation to various business scenarios
in the planning of market representation is the propertyof the illustrated prognostic model. Due to the planned values of market movements, the planning
of income from life insurance facilitates the realisation of the planned gross
premiums from life insurance and the number of insurances in insurance companies in line with the changeable market possibilities. At the annual level as
well asduring monthly, quarterly and half-yearly checks of realised and planned
income, new scenarios can be created for prediction of the financial impacts on
stakeholders’ business in the life insurance market.

Felícioa, J. A. & Rodrigues, R. (2015). Organizational factors and customers’ motivation effect on insurance companies’ performance, in Press, Journal of Business Research available
online 10 February 2015, available at: http://www.sciencedirect.com/science/article/pii/
S0148296315000788#
Njegomira, V. &Marović, B. (2012). Contemporary Trends in the Global Insurance Industry, XI International Conference, Service Sector in Terms of Changing Environment, 27-29
October 2011, Ohrid, available at:
http://www.sciencedirect.com/science/article/pii/S1877042812011342#
Milosevic, B. (2012) Global Financial Crisis – Determination for Development of Life Insurance in the Republic of Macedonia, XI International Conference, Service Sector in Terms
of Changing Environment, 27-29 October 2011, Ohrid, available at: http://www.sciencedirect.com/science/article/pii/S1877042812011354#
Ioncică, M., Petrescu, E., Ioncică, D., Constantinescu, M., (2012). The Role of Education on
Consumer Behavior on the Insurance Market, 4th WORLD CONFERENCE ON EDUCATIONAL SCIENCES (WCES-2012) 02-05 February 2012 Barcelona, Spain, available
at: http://www.sciencedirect.com/science/article/pii/S1877042812019532#
Houa, H., Cheng, S., Yuc, C., (2012). Life Insurance and Euro Zone’s Economic Growth,
International Conference on Asia Pacific Business Innovation and Technology Management,
available at: http://www.sciencedirect.com/science/article/pii/S1877042812046277#
Beqiri, G. & Candidate, P. (2014). Innovative Business Models and Crisis Management, The
Economies of Balkan and Eastern Europe Countries in the Changed World (EBEEC 2013),
available at: http://www.sciencedirect.com/science/article/pii/S2212567114000379#
Cristea, M., Marcu, N., Cârstina, S. (2014). The Relationship between Insurance and Economic Growth in Romania Compared to the Main Results in Europe – A Theoretical and
Empirical Analysis, 1st International Conference ‘Economic Scientific Research - Theoreti-

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

. Literature

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cal, Empirical and Practical Approaches’, ESPERA 2013, available at: http://www.sciencedirect.com/science/article/pii/S2212567114000859#
Firtescu, B. (2014). Influence Factors on European Life Insurance Market during Crises,
21st International Economic Conference of Sibiu 2014, IECS 2014 Prospects of Economic
Recovery in a Volatile International Context: Major Obstacles, Initiatives and Projects, available at: http://www.sciencedirect.com/science/article/pii/S2212567114008132#
Žužul, J., Šimonović, V., Novosel, S. (2008). Statistika u informacijskomdruštvu, Europskic
entarzanaprednaisustavnaistraživanja ECNSI, Zagreb, ISBN 978-953-99326-5-5, Zagreb.
Dumičić, K. et alt. (2011). Poslovnastatistika, Sveučilište u Zagrebu, Zagreb, ISBN 978953-197-648-0, Zagreb.
Šošić, I. (2006). Primijenjenastatistika, Školskaknjigad.d. Zagreb, ISBN 953-0-30337-8,
Zagreb.
Croatian Insurance Bureau, Retrieved -http://www.huo.hr/hrv/statisticka-izvjesca/18/
(06.03.2015).
HANFA, Retrieved - http://www.hanfa.hr/statistika.html#section2 (06.03.2015).

420

NACHHALTIGES INVESTIEREN
MIT FONDS
 AUSWAHLSTRATEGIEN UND ERSTE
HINWEISE ZUR ERFOLGSMESSUNG
Urban BACHER, Ph.D. und Julia Bacher
Prof. Dr. Urban Bacher ist seit 1999 Professor für allgemeine
Betriebswirtschaftslehre und Bankmanagement an der Hochschule
Pforzheim. Julia Bacher studiert seit 2011 BWL an der Universität
Bayreuth.

Abstract
The issue of sustainability is becoming increasingly important, especially in
Germany. Besides the classical financial investment objectives such as return,
risk and liquidity, sustainability funds need to fulfill also ethical, social or environmental criteria. Sustainability funds perform at least no worse than traditional funds and have a reasonable risk-return ratio. Overall, sustainable
investing provides a good opportunity for citizens to make their own contribution to creating a more socially and environmentally responsible society.
Keywords: Risk Performance, Environ¬mental/Social/Governance, Socially Responsible Invest¬ment, Sharpe-Ratio, sector leader, sustainable leader
INTERDISCIPLINARY MANAGEMENT RESEARCH XI

JEL Classification: O16, P33

421

1

PROBLEMSTELLUNG

Das nachhaltige Investieren erfreut sich immer größerer Beliebtheit. Insgesamt gesehen zeichnet sich hier ein Trend mit allmählich wachsendem gesellschaftlichem Konsens ab.1 Demnach wollen immer mehr Investoren ihr
Geld nicht mehr nur nach den klassischen drei Zielen „Rentabilität, Liquidität
und Sicherheit“2 anlegen. Immer wichtiger werden ethische, soziale und ökologische Kriterien.3 Noch vor wenigen Jahren galt die Investition in die Nachhaltigkeit als idealistische Verbindung von Finanz- und Ethikwelt, die wenig
gewinnbringend erschien. Dieser Beitrag erläutert, „wie“ man nachhaltig Investieren kann und gibt erste Hinweise – insbesondere auf Studien – für deren
Rendite- und Risiko-Performance.

2

DIE INVESTITION IN EINEN
NACHHALTIGKEITSFONDS

Urban Bacher • Julia Bacher: NACHHALTIGES INVESTIEREN MIT FONDS

. Begriff „Nachhaltigkeit“
Der Nachhaltigkeitsbegriff fand seinen Ursprung in der Forstwirtschaft im
18. Jahrhundert. Nachhaltiges Handeln muss danach im Einklang mit der Natur erfolgen („Gebot, nicht mehr Holz zu schlagen als nachwächst“).4 Nachhaltigkeit wird heute umfassender definiert und üblicherweise in drei Säulen
eingeteilt: ökologisches, soziales und ökonomisches Handeln. Bei einem nachhaltigen Investment werden vor allem nicht monetäre Ziele verfolgt. Die Säule
der Ökologie beschreibt die Wechselbeziehungen zwischen den einzelnen
Lebewesen und deren Umwelt, die zweite Säule Soziales bezieht sich auf die
mitmenschlichen Verflechtungen und die Rücksichtnahme auf die Gesellschaft, wohingegen die dritte Säule Ökonomie die Ziele Rendite, Risiko und
Liquidität berücksichtigt.

1
2

3
4

Vgl. Ziermann, 2013, S. 237; Kempf/Osthoff, 2007, S. 908.
Allgemein als „Magisches Dreieck der Geldanlage“ bekannt, vgl. hierzu Bacher, 2012, S.
155/156.
Vgl. Reisch, 2001, S. 49.
Vgl. Schulz/Burschel/Weigert, 2001, S. 375 f.

422

. Nachhaltigkeitsfonds
Bei einer nachhaltigen Kapitalanlage reicht die Entscheidung über eine rein
monetäre Sichtweise hinaus. Soziale, ethische und ökologische Kriterien bestimmen maßgebend die Anlageentscheidung, wobei als typische Anlageform der
Investmentfonds dient.5 Neben den klassischen (monetären) Anlagekriterien
„Rendite, Risiko und Liquidität“ steht die Nachhaltigkeit von Unternehmen bei
der Geldanlage in einem besonderen Fokus.6 Das „magische Dreieck“ der Vermögensanlage bestehend aus den drei Dimensionen „Rendite, Risiko und Liquidität“
wird durch eine vierte Dimension der Mittelverwendung zum „magischen Viereck der nachhaltigen Vermögensanlage“ (siehe Abb. 1) erweitert.

Abbildung 1: Magisches Viereck der nachhaltigen Geldanlage

Rendite

Liquidität

Magisches Viereck der
nachhaltigen
Geldanlage

Mittelverwendung
(Ökologie, Ökonomie, Soziales)

Im Englischen wird die vierte Ebene als ESG (Environmental/Social/Governance) oder SRI (Social Responsible Investment) bezeichnet. Historisch geht
das nachhaltige Investieren auf Kirchen, religiöse und caritative Bewegungen
der 1920er Jahre in den USA zurück. Diese Gruppen entwickelten Anlagephilosophien, die mit ihren Wertvorstellungen vereinbar waren und eine moralisch
vertretbare Investmentalternative darstellten. So investierten sie nicht in Unternehmen, die Sklavenhandel betrieben. Sie erwarben auch keine Aktien der
Tabak-, Alkohol- und Glückspielindustrie. 1928 wurde der „Pioneer Fund“ in
5
6

Zum Investmentfonds grundlegend vgl. Bacher, 2012, S. 253 ff.
Vgl. Arnold, 2011, S. 81.

423

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Risiko

Boston aufgelegt. Dieser schloss Investments in die Tabak- und Alkoholindustrie aus und stellte so einen ersten Bezug zu ethischen Investieren dar.7 Bis in die
1980er Jahre hat sich das SRI jedoch nicht wirklich durchsetzen können. Die
eigentliche Bedeutung erlangten SRI-Fonds innerhalb der letzten 15 Jahre.8

. Auswahlstrategien von Nachhaltigkeitsfonds
Nachhaltigkeitsfonds müssen die Frage nach der Auswahl der Einzelwerte
für den Fonds klären. Konkret besteht die Aufgabe darin, relevante Einzelwerte
aufgrund sozialer, ethischer oder ökologischer Kriterien zu selektieren (Screening). Nach Schoenheit9 versteht man unter einem SRI-Screening die „Beobachtung, Untersuchung, Bewertung und Selektion von Unternehmen hinsichtlich
ihrer Eignung, den Anforderungen der jeweiligen Anlagepolitik eines SRIFonds zu entsprechen.“

Urban Bacher • Julia Bacher: NACHHALTIGES INVESTIEREN MIT FONDS

.. Negatives Screening

Beim Negativscreening werden Unternehmen aus dem Investmentuniversum ausgeschlossen, an deren Produkte oder Firmenverhalten Zweifel bestehen. Als häufigstes Ausschlusskriterium gelten Unternehmen, die mit Tabak,
Alkohol, Glücksspiel, Pornografie, Militär, Verletzung der Menschenrechte
oder Arbeitsrechte sowie Rüstung und Waffen oder Atomenergie in Verbindung gebracht werden können.10 Ein Problem dieses Auswahlverfahrens ist, dass
das Negativscreening keine eigenständige Anlagestrategie darstellt. Grund:
Diese Strategie führt nur zu einem möglichen Anlageuniversum, nicht zu einem
konkreten Portfolio. Dabei wird aufgezeigt, worin nicht investiert werden darf,
aber nicht, worin letztendlich investiert wird.11 Dennoch ist das Negativscreening ein weit verbreitetes Auswahlverfahren, weil es einfach und konkret in der
Handhabung ist.12
7

Vgl. Arnold, 2011, S. 82; Clinebell, 2013, S. 15 f.
Vgl. Berry/Junkus, 2013, S. 707.
9
Vgl. Schoenheit (2005): Markttransparenz im Socially Responsible Investment. Konsequenzen für eine nachhaltige Erwachsenenbildung, Frankfurt am Main, zitiert in: Arnold, 2011,
S. 86 f. Übersicht der Filter vgl. Bacher, 2012, S. 229.
10
Vgl. Kempf/Osthoff, 2007, S. 909; Berry/Junkus, 2013, S. 708; Schröder, 2004, S. 123.
11
Vgl. Schaefers, 2012, S. 345.
12
Vgl. Berry/Junkus, 2013, S. 708.
8

424

.. Positives Screening

Beim Positiven Screeningansatz wird in Unternehmen investiert, die bestimmte Nachhaltigkeitskriterien erfüllen, sich nachhaltig engagieren oder nachhaltige Produkte und Serviceleistungen anbieten.13 So werden zweifelhafte Unternehmen nicht von vornherein aus dem Investitionsuniversum ausgeschlossen. Vielmehr werden Punkte bzw. Ratings für Positivmerkmale wie Chancengleichheit für die Mitarbeiter, gute allgemeine Arbeitsbedingungen, Diversity,
Artenschutz, Umweltverträglichkeit etc. vergeben.14 Positiv fällt bei diesem
Auswahlverfahren auf, dass gezielt in Pionierunternehmen investiert wird, die
Vorreiter in einer Branche sind.15 Problematisch dabei ist, dass die Punktvergabe subjektiv ist. Jeder einzelnen Aktivität muss ein Urteil, eine Gewichtung
im Vergleich zu anderen Handlungen im Unternehmen und schließlich eine
Bewertung in Punkten gegeben werden.16

Der Best-in-Class Ansatz ist eine weiterentwickelte Variante des Positivscreenings. 17 In jeder „class“ (= Branche) wird ein Unternehmen ausgewählt,
das den Positivkriterien am meisten entspricht. Innerhalb der Branche wird
nach Nachhaltigkeitskriterien sortiert. Ausgewählte Unternehmen nennt
man „sector leader“ (= Branchenführer) oder „sustainable leader“ (= Nachhaltigkeitsführer). Die Branchenführer werden zu einem Best-in-Class-Anlageuniversum zusammengefasst, wonach nach weiteren Investmentkriterien
ein Portfolio erstellt wird. Oft wird der erste Schritt bis zum Best-in-ClassAnlageuniversum auch von Ratingagenturen übernommen. Insgesamt werden
die Unternehmen relativ zur jeweiligen Branche herausgefiltert und nicht die
absolut nachhaltigste Branche bzw. das absolut nachhaltigste Unternehmen
ausgemacht. Problematisch ist, dass es von Anbieter zu Anbieter im Detail unterschiedliche Bewertungsmethoden gibt. Zur Lösung dieses Problems hat sich
mittlerweile ein standardisierter Best-in-Class-Selektionsprozess durchgesetzt.
Kritisch anzumerken ist weiterhin, dass keine Branche von vornherein ausgeschlossen wird und somit auch Branchen, die allgemein als „nicht“-nachhaltig
13
14
15
16
17

Vgl. Weber, 2012, S. 18.
Vgl. Kempf/Osthoff, 2007, S. 909.
Vgl. Seitz, 2010, S. 28.
Vgl. Berry/Junkus, 2013, S. 708.
Vgl. Schaefers 2012, S. 357 f.

425

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

.. Best-in-Class Ansatz

gelten, ins nachhaltige Anlageuniversum aufgenommen werden, so z.B. die Öloder Tabakindustrie.

3

DIE ERFOLGSMESSUNG VON
NACHHALTIGKEITSFONDS

Bei Nachhaltigkeitsfonds stehen zwei Ziele im Vordergrund: finanziellen
Ziele - und - Kriterien der Nachhaltigkeit. Letztgenanntes Ziel strebt nach
dem „guten Gewinn“. Dieser Gewinn kann nicht unmittelbar in Geld gemessen
werden. Die These, dass eine gute ökologische Performance mit guter finanzieller
Performance zusammenhängt, beschreiben ausführlich Delmas et al. wie folgt:18
• Begründung 1: Weniger Material und Energie bei der Verarbeitung bedeutet umweltbewusstere und schlankere Produktion, was mit reduzierten
Produktionskosten und somit mit erhöhter Profitabilität einhergeht.

Urban Bacher • Julia Bacher: NACHHALTIGES INVESTIEREN MIT FONDS

• Begründung 2: Weniger Abfall und Schadstoffemission erzeugen weniger
Kosten für die Abfallbeseitigung und kann Strafen verhindern, falls die
Richtlinien eingehalten wurden.
• Begründung 3: Die Reputation eines verantwortungsbewussten Unternehmens verbessert sich. So kann die Beziehung zu Stakeholdern wie
Angestellten, Kunden, Zulieferern, Gemeinden und Investoren gestärkt
werden.
SRI-Fonds unterscheiden sich in zweierlei Hinsicht von konventionellen
Fonds. Erstens sortieren Investoren in SRI-Fonds neben finanziellen Kriterien
auch noch nach nicht-finanziellen Kriterien und bekommen so ein meist kleineres Anlageuniversum. Zweitens haben diese Investoren ein gesteigertes Interesse, dass die nachhaltigkeitsbezogenen Kriterien eingehalten werden. Investoren, die z.B. in SRI-Aktien anlegen, verfolgen oft nachhaltige Shareholderaufgaben, um an dem Unternehmen bezüglich Corporate Social Responsibility
(CSR) teilzuhaben und CSR zu fördern.19 Außerdem investieren SRI-Fonds,
gerade in Europa, häufiger in kleine oder mittelgroße Unternehmen mit geringer Marktkapitalisation.20
18
19
20

Vgl. Delmas/Etzion/Nairn-Birch, 2013, S. 257. Hierzu auch Siegel, 2009, S. 11.
Vgl. Crifo/Forget, 2013, S. 21.
Vgl. Schröder, 2004, S. 125; Seitz, 2010, S. 25.

426

. Performanceanalyse von Nachhaltigkeitsfonds

Viele Studien kommen zu dem Ergebnis, dass Nachhaltigkeitsfonds gleich
gut performen wie konventionelle Fonds oder zumindest nicht schlechter bzw.
dass es keinen signifikanten Unterschied gebe.24 Schröder kommt beim Vergleich
der Literatur zu dem Schluss, dass SRI-Fonds mit konventionellen Fonds hinsichtlich ihrer Performance vergleichbar sind. Dieses Ergebnis sei aussagekräftig, weil die verschiedenen Studien unterschiedliche Ansätze benutzt haben.
So wurden unterschiedliche Methoden vom einfachen Ein-Faktor-Modell bis
zum Vier-Faktor-Modell, verschiedene Zeithorizonte und Länder zur Analyse
herangezogen.25 Auch eine Zusammenfassung von 75 Studien mit 161 Experimenten über die finanzielle Performance von SRI kommt zu dem Resümee,
dass Nachhaltigkeitsfonds und konventionelle Fonds ein ähnliches Ergebnis
aufweisen.26

21

22
23
24
25
26

Im Sinne eines jedweden Wertzuwachses unterschiedlicher Erfolgsquellen wie Zins, Dividende, Kursgewinn, Subvention etc.
Vgl. Steiner/Bruns/Stöckl, 2012, S. 49 f.; Bacher, 2012, S. 159/160.
Vgl. Gerth, 2008, S. 102.
Vgl. Revelli/Viviani, 2013, S. 109; Chung/Lee/Tsai, 2012, S. 1.
Vgl. Schröder, 2004, S. 124.
Vgl. Revelli/Viviani, 2013, S. 113.

427

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Die zentrale Kennziffer der Ertragskraft ist die Rendite. Damit können
verschiedene Anlageformen direkt vergleichen werden. Die Rendite ist der
„Gewinn“21 einer Investition bezogen auf das eingesetzte Kapital.22 Um ein aussagekräftiges Urteil zur Wertentwicklung von SRI-Fonds abgeben zu können,
sollte eine langfristige Wertentwicklung, z. B. der letzten 15 Jahre betrachtet
werden. Nur so kann die Qualität des Fondsmanagers nachhaltig beurteilt werden. Das Problem besteht darin, dass die wenigsten SRI-Fonds vor 2000 aufgelegt wurden und sich somit nur ein eingeschränktes Urteil über eine langfristige
Wertentwicklung bilden lässt.23 Zudem ist die Wertentwicklung eines nachhaltigen Fonds wenig aussagekräftig, ohne die genauen Umstände zu kennen.
So ist z. B. ein jährlicher Wertzuwachs von acht Prozent in guten Zeiten wenig,
in schlechten Zeiten wäre dies zufriedenstellend oder sogar gut. So sollte der
einzelne Fonds mit dem Gesamtmarkt verglichen werden, der am Index oder
am Durchschnitt der Fondskategorie gemessen wird.

Andere Quellen äußern, dass Nachhaltigkeitsfonds besser als konventionelle Fonds performen, zumindest aber nicht schlechter.27 SRI können kurzfristig
zwar underperformen, auf mittlere Sicht gleicht sich die Performance von SRI
und Nicht-SRI an, in der Regel outperformen SRI-Fonds sogar langfristig. Ergebnis: Ein langfristiger Anlagehorizont ist der Erfolgsschlüssel für nachhaltiges Investieren.28

. Risiko und Volatilität von Nachhaltigkeitsfonds

Urban Bacher • Julia Bacher: NACHHALTIGES INVESTIEREN MIT FONDS

Die Sicherheit einer Anlageform zielt auf den „Erhalt des Kapitalstamms“
ab und richtet sich nach den Risiken einer Anlageform. Das Sicherheitsziel ist
also ein Risikovermeidungsziel. Die Risikovermeidung ist schwer zu definieren
und wird in der Regel bei Wertpapieren durch die Volatilität, also die Schwankungsbreite (Varianz/Standardabweichung) bzw. bei einem Portfolio durch die
Kennzahl Value-at-Risk beschrieben. Berechnet wird das Risiko gewöhnlicherweise durch die Standardabweichung, wo die Schwankung von Renditen eines
Wertpapieres oder Portfolios um ihren langfristigen Mittelwert gemessen wird.
Die Abweichungen werden quadriert und die Summe anschließend radiziert.29
Auch hinsichtlich des Risikos gibt es für Nachhaltigkeitsfonds wie schon
bei der Renditeperformanceanalyse zwei unterschiedliche Meinungen: weniger
riskant – oder – riskanter als konventionelle Fonds. Herrschende Meinung ist,
dass SRI-Fonds einem höheren Risiko und Schwankungsbreite ausgesetzt sind.
Begründet wird diese These damit, dass weniger Aktien aufgrund des Screenings für das Anlageuniversum des Fonds zur Verfügung stehen.30 Durch das
Filterkriterium Nachhaltigkeit kann der Fonds nicht so breit gestreut werden
wie ein konventioneller Fonds, wodurch die Diversifikationseffekte sinken und
somit das Risiko steigt.31 SRI-Gegner begründen diesen Gedankengang mit
der modernen Portfoliotheorie, die durch die geringere Anlagemöglichkeit von
geringeren Diversifikationseffekten und damit einer schlechteren Performance
ausgeht. Dagegen spricht, dass auch ein konventioneller Durchschnittsfonds
aus 20 bis 30 Einzelwerten besteht und nur wenige aus über 100 Einzelwerten.
27
28
29
30
31

Vgl. Schröder, 2004, S. 124 ; Revelli/Viviani, 2013, S. 113.
Vgl. Revelli/Viviani, 2013, S. 107 ; Cummings, 2000, S. 88.
Vgl. Steiner/Bruns/Stöckl, 2012, S. 53 ; Bacher, 2012, S. 157/158; Pfeifer, 2009, S. 1370 f.
Vgl. Lundberg/Novak/Vikman, 2009, S. 2.
Vgl. Lundberg/Novak/Vikman, 2009, S. 14; Revelli/Viviani, 2013, S. 107.

428

Somit kann auch ein SRI-Fonds von der Anzahl der Einzelwerte mit einem
konventionellen Fonds mithalten.32 Der Vergleich von MSCI World SRI Series
– ein gängiger Index für SRI-Engagements – mit dem Standardindex weltweiter Industrieunternehmen MSCI AC World Index zeigt auch, dass SRI-Fonds
weniger Risiko hinsichtlich Beta und Volatilität haben.33

. Rendite-Risiko-Verhältnis von Nachhaltigkeitsfonds

Wie oben unten 3.1. dargestellt kommt es beim nachhaltigen Investieren auf einen langfristigen Anlagehorizont an. Da viele Nachhaltigkeitsfonds
noch nicht allzu lange existieren und damit auch keine lange Erfolgsgeschichte
(so genannter Track Record) aufweisen können, wird der Fonds gewöhnlich
zurückgerechnet was Probleme bereiten kann. Grund: Die Rückrechnung ist
eine Hilfsrechnung, bei der man das jeweilige Portfolio in die Vergangenheit
versetzt und fiktive Wertentwicklungen misst.35 Die Gefahr besteht darin, dass
der Assetmanager das Portfolio solange variiert, bis rückwirkend die Ergebnisse
zufriedenstellend sind. Zudem kann es passieren, dass der Fondsmanager aus
Angst, schlechter als die Benchmark oder der Index zu performen, den Index
einfach kopiert oder sich an diesem orientiert. Der Fondsanleger zahlt in diesem Fall teuer für einen aktiv gemanagten Fonds, ohne dafür eine Extraleistung
zu erhalten.36

32
33
34
35
36

Vgl. Lundberg/Novak/Vikman, 2009, S. 14.
Vgl. Escrig-Olmedo/Muñoz-Torres/Fernández-Izquierdo, 2013, S. 419.
Vgl. Steiner/Bruns/Stöckl, 2012, S. 598 f.
Vgl. Gerth, 2008, S. 166 f.
Vgl. Gerth, 2008, S. 166.

429

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Sich über die Kriterien „Rendite“ und „Risiko“ von SRI-Investments Gedanken zu machen ist gut, entscheidend ist jedoch die Frage, ob eine Rendite mit
viel oder wenig Risiko zustande kommt. Ziel eines Exposures sollte sein, die
Rendite eines Investments mit seinem jeweiligen Risiko in Bezug zu setzen.
Man spricht in diesem Zusammenhang von „risikobereinigter“ oder „risikoadjustierter Rendite“. Hierzu gibt es spezielle Kennzahlen, z. B. das Sharpe-Ratio.
Für SRI-Fonds sollte also neben Rendite und Risiko ein angemessenes Rendite-Risiko-Verhältnis im Fokus des Anlegerinteresses stehen. 34

Urban Bacher • Julia Bacher: NACHHALTIGES INVESTIEREN MIT FONDS

4

NACHHALTIGES INVESTIEREN IST KEINE
MODEERSCHEINUNG

Das Thema Nachhaltigkeit gewinnt immer mehr an Bedeutung, gerade
auch in Deutschland. Neben den klassischen finanziellen Anlagezielen Rendite, Risiko und Liquidität erfüllen Nachhaltigkeitsfonds zudem ethische, soziale oder ökologische Kriterien. Nachhaltigkeitsfonds performen zumindest
nicht schlechter als herkömmliche Fonds und weisen ein angemessenes Rendite-Risiko-Verhältnis auf. Insgesamt bietet das nachhaltige Investieren eine
gute Möglichkeit, einen eigenen Beitrag zu leisten, unsere Gesellschaft sozialer und umweltfreundlicher zu gestalten. Nachhaltiges Investieren ist auch
keine Modeerscheinung, zumal Nachhaltigkeits-, Umwelt- und Sozialthemen
keinem Trend unterliegen und im Alltag und in Unternehmen aufgrund ihrer
hohen gesellschaftspolitischen Bedeutung nicht mehr wegzudenken sind. Dazu
äußerte sich Bergius treffend wie folgt: „Nachhaltigkeit bedeutet Zukunftsfähigkeit - und die Einsicht, dass die Umwelt und soziale Lebensqualität wichtige
Voraussetzungen auch für ökonomische Zukunftsfähigkeit sind. Wer langfristig am Markt bestehen will, muss ein Leitbild für seine ökonomischen Ziele
haben. Die Frage dabei lautet nicht mehr nur, „ob“ das Geld verdient, sondern
auch „wie“ das Geld verdient wird.“37 Den richtigen Nachhaltigkeitsfonds zu
finden, kann also in vielerlei Hinsicht gewinnbringend sein.

37

Vgl. Bergius, 2004.

430

Arnold, Jens (2011): Die Kommunikation gesellschaftlicher Verantwortung am nachhaltigen Kapitalmarkt, Wiesbaden: VS Verlag für Sozialwissenschaften.
Bacher, Urban (2012): Bankmanagement kompakt, Praxiswissen der Bankbetriebslehre, 3.
Auflage, Konstanz: Hartung-Gorre-Verlag.
Bergius, Susanne (2004): Nachhaltigkeit bedeutet Zukunftsfähigkeit. In: Handelsblatt.
Unter: http://www.handelsblatt.com/politik/deutschland/warum-deutschland-hinterherhinkt-nachhaltigkeit-bedeutet-zukunftsfaehigkeit-seite-all/2434098-all.html (aufgerufen
19. Febr. 2015).
Berry, Thomas / Junkus, Joan (2013): Socially Responsible Investing: An Investor Perspective. In: Journal of Business Ethics, Vol. 112, S. 707-720.
Chung, Huimin / Lee, Han-Hsing / Tsai, Pei-Chun (2012): Are Green Fund Investor Really Socially Responsible? In: Review of Pacific Basin Financial Markets and Policies, Vol. 15(4),
S. 1250023-1 - 1250023-25.
Clinebell, John (2013): Socially responsible investing and student managed investment
funds: Expanding investment education. In: Financial Services Review, Vol. 22, S. 13-22.
Crifo, Patricia / Forget, Vanina (2013): Think Global, Invest Responsible: Why the Private
Equity Industry Goes Green. In: Journal of Business Ethics, Vol. 116, S. 21-48.
Cummings, Lorne (2000): The Financial Performance of Ethical Investment Trusts: An
Australian Perspective. In: Journal of Business Ethics, Vol. 25, S. 79-92.
Delmas, Magali / Etzion, Dror / Nairn-Birch, Nicholas (2013): Triangulating environmental performance: What do corporate social responsibility ratings really capture? In: The Academy of Management Perspectives, Vol. 27(3), S. 255-267.
Escrig-Olmedo, Elena / Muñoz-Torres, María / Fernández-Izquierdo, María (2013): Sustainable Development and the Financial System: Society’s Perceptions. In: Business Strategy
and the Environment, Vol. 22, S. 410-428.
Fombrum, Charles / Shanley, Mark (1990): What’s in a name? Reputation building and
corporate strategy. In: Academy of Management Journal, Vol. 33(2), S. 233-258.
Gerth, Martin (2008): Die Geldverbesserer. München: FinanzBuch Verlag GmbH.
Harrington, John (1992): Investing with Your Conscience - How to Achieve High Returns
Using Socially Responsible Investing. New York: John Wiley & Sons, Inc.
Jonker, Jan / Stark, Wolfgang / Tewes, Stefan (2011): Corporate Social Responsibility und
nachhaltige Entwicklung. Berlin Heidelberg: Springer-Verlag.
Kempf, Alexander / Osthoff, Peer (2007): The Effect of Socially Responsible Investing on
Portfolio Performance. In: European Financial Management, Vol. 13(5), S. 908-922.
Lundberg, Linnéa / Novak, Jiri / Vikman, Maria (2009): Ethical vs. Non-Ethical - Is There
a Difference? Analysing Performance of Ethical and Non-Ethical Investment Funds. Charles
Universität Prag, S. 1-29.
Pfeifer, Andreas (2009): Volatilität - Ein Maß für die Schwankung von Renditen. In: WISU,
Vol. 10, S. 1370-1378.
Reisch, Lucia (2001): Ethical-ecological Investment. Frankfurt am Main: IKO - Verlag für
Interkulturelle Kommunikation.

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INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Literaturverzeichnis

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Revelli, Christophe, / Viviani, Jean-Laurant (2013): The Link Between SRI and Financial
Performance. In: Management Internation, Vol. 17(2), S. 105-123.
Schaefers, Kevin (2012): Nachhaltiges Investieren - ein wirtschaftsethisches Beratungskonzept. Dissertation. St. Gallen, 2012.
Schröder, Michael (2004): The performance of socially responsible investments: investment
funds. In: Financial Markets and Portfolio Management, Vol. 18, S. 122-142.
Schulz, Werner / Burschel, Carlo / Weigert, Martin (2001): Nachhaltiges Wirtschaften.
München/Wien: Oldenbourg Wissenschaftsverlag.
Seitz, Johann (2010): Nachhaltige Investments - Eine empirisch-vergleichende Analyse der
Performance ethisch-nachhaltiger Investmentfonds in Europa. Hamburg: Diplomica-Verlag.
Siegel, Donald (2009): Green Management Matters Only If It Yields More Green: An Economic/Strategic Perspective. In: Academy of Management Perspectives, Vol. 23(3), S. 5-16.
Steiner, Manfred / Bruns, Christoph / Stöckl, Stefan (2012): Wertpapiermanagement
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Ziermann, Stefan (2013). Socially Responsible Investments in Banken. Köln: Bank-Verlag.

432

FDI INFLOWS IN TIME OF CRISIS
 PANEL DATA ANALYSIS OF FDI
INFLOWS TO THE SELECTED EU
MEMBER STATES
Ozren PILIPOVIĆ, Ph.D.
Assisant Professor, department of Economics Faculty of Law,
Zagreb
Meta AHTIK, Ph.D.
Assisant Professor, department of Economics Faculty of Law,
Ljubljana and economist at National Bank of Slovenia
Nenad RANČIĆ, Ph.D.
Assisant Professor department of Economics Faculty of Law,
Zagreb

The purpose of his article is to examine the relationship between FDI and
national economic policy in the time of crisis. We will test this subject on the
following EU member states: Portugal, Italy, Ireland, Greece, Spain, Baltic
and CEE countries, Romania, Bulgaria and Croatia. They make the European Union periphery (with the exception of Italy) and all of them with the
exception of Italy (and Slovenia up to 2008) rely heavily on FDI attraction in
order to foster economic growth. We assume the existence of certain differences
between these groups of countries, which are caused by the possibility to accommodate the effects of international financial crisis through autonomously run
monetary and fiscal policy. In order to test this empirically we used panel data
econometric analysis. Analysis has shown that with adequate economic policy,
and membership in larger regional economic integrations, it is possible to ease
negative influences of financial crisis and increase share of FDI in GDP. GDP
growth rate (which in our model stood as a proxy for market demand) is also

433

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Abstract

Ozren Pilipović • Meta Ahtik • Nenad Rančić: FDI INFLOWS IN TIME OF CRISIS - PANEL DATA ANALYSIS OF FDI INFLOWS TO THE SELECTED EU ...

one of the essential ingredients of FDI attraction. On the other hand, economic
crisis (manifested as negative GDP growth rate) negatively influences FDI
attraction.
Key words: FDI, economic crisis, economic policy, PIIGS, Baltic States, CEE
Countries, Panel data analysis
JEL Classification: H12, O52, C8

INTRODUCTION
One of the usual ingredients of economic growth and indicators of openness, as well as desirability of a country as a partner in the international trade
are FDI (foreign direct investment). Usually FDI are defined as a type of international investment by residents of one country with the aim of establishing
a lasting interest in enterprises within the economy of another country. Also,
FDI is viewed by many economists to be one of the main pillars of globalization
(de Soysa, 2003) and even John Stuart Mill once famously observed that “the
opening of foreign trade . . . sometimes works a sort of industrial revolution in a
country whose resources were previously underdeveloped” (quoted in de Soysa,
2003, p. 20).
Global FDI flows showed consistent and rapid growth between 2004 and
2007. During this period, the global FDI grew by 155%, from $717.7 billion
in 2004 to $1,833.3 billion in 2007. 68.1 % of the FDI went to the developed
economies such as United States and Canada, while EU region attracted almost two thirds of the total FDI inflows to the developed countries (UNCTAD, 2008) & (World Investment Report 2008.). In 2008 and 2009 the world
economy suffered the deepest global financial crisis since The Great Depression. Countries around the world were hit by major declines in the rate of BDP
growth and employment. In 2008 GDP in industrial countries fell by 4.5%, and
by the end of 2008 average real GDP growth in emerging economies dropped
from 8.8% in 2007 to 0.4%. The unemployment rate rose to 9 percent across
OECD economies, and reached double digit numbers in many industrial and
developing nations. The volume of international trade plummeted by more than
40% in the second half of 2008. In 2008, multinationals foreign affiliate sales
fell by 4.6%, in sharp contrast to the 24% growth rate the year before, after
global FDI flows reached a historic record of $1.9 trillion in 2007. (UNCTAD,
2009).

434

Eurostat, on the other hand, points out that in 2007, EU foreign direct investment flows to the countries outside the EU reached the record level of EUR
530.7 billion, mainly as a result of major cross-border mergers and acquisitions
and reinvestment of earnings. „In 2008, the reinvested earnings paid to extraEU investors dropped by 50% and continued to decline in 2009. Equity capital
— mainly mergers and acquisitions activity — showed a similar trend, dropping
by one third in 2008 and continuing to go down, resulting in EUR 263.3 billion
EU outward investments in total in 2009. Income from investments abroad has
also declined from the record level of 2007, meaning that the rate of return on
EU outward stocks fell to its lowest level since 2004 (Eurostat.com). The European Union is the world’s largest investor abroad. Even if the importance of
the emerging markets is growing the EU remains the largest recipient of FDI.
“Within the EU, FDI flows are a crucial element for the consolidation of the
internal market, while investments to and from the rest of the world ensure
that the EU is well positioned in world markets and well integrated in worldwide technology flows. ... Currently, within the EU, the inward FDI stock is still
largely concentrated in the EU-15 Member States. These offer good market
access, scope for linkages to strong industrial bases, and well-educated labour
forces. However, in the years before the crisis, the most dynamic part of FDI
flows within the EU was between the EU-15 and the new Member States. As
several of the new Members States have been hard hit by the crisis, this trend
has partly been reversed in the last two years.” (European Commission, 2011)
One of the first signs of economic crisis is lower levels of international trade
and FDI flows, so the aim of this paper is to examine the relationship between
FDI and national economic policy in the time of crisis. By joining the EU and

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As Kumo points out: “In 2010, FDI flows into developed economies contracted by 7% compared to 2009. The European Union was the worst hit with
FDI inflows contracting by 20% in 2010. Among the developed economies, Japan saw the biggest decline in FDI inflows in 2010 with FDI contracting by
a whopping 83.4% due to major disinvestments. With 66.3% contraction in
FDI, Ireland, whose economy was ravaged by the financial crisis, witnessed the
second highest FDI contraction among the developed economies due primary
to uncertainties about sovereign debt. FDI inflows to Germany and France declined marginally. Unlike other major industrialized nations, the United States,
the world’s largest economy, enjoyed a robust expansion in FDI inflows in 2010.
FDI flows into United States increased by 43.4% in 2010”. (Kumo, 2011)

Ozren Pilipović • Meta Ahtik • Nenad Rančić: FDI INFLOWS IN TIME OF CRISIS - PANEL DATA ANALYSIS OF FDI INFLOWS TO THE SELECTED EU ...

the Eurozone some participating countries gave up certain parts of their political and economic sovereignty, while others for various reasons didn’t participate
in the Eurozone. We assume the existence of certain differences between those
groups of countries, which are caused by the possibility to accommodate the effects of international financial crisis through autonomously run monetary and
fiscal policy. We expect to find positive correlation between low inflation, low
public debt, higher trade openness, GDP growth rate, EU membership and FDI
inflows to our selected countries. We have selected countries in our study based
on the fact that all of them with the exception of Italy base their economic development to a higher or lesser extent on FDI attraction since they lack domestic capital to launch the virtuous cycle of economic growth and development.
The countries can broadly be divided in three groups; first among them being
PIIGS which is made of Portugal, Italy, Ireland and Spain. These are the “old”
member states of EU. Countries in this group have been selected on the criteria
that they have been the hardest hit by the economic crises. The second group,
CEE, is made of newcomers from the Central Europe and Baltic and includes
Slovenia, Hungary, Slovakia, Czech Republic, Poland, Lithuania and Latvia. All
of these countries base their economic development on FDI attraction. Among
them Baltic countries, Hungary and Slovenia were hardest hit by the economic
crisis. Finally, the third group is made by the recent arrivals to EU - Romania,
Bulgaria and Croatia (which has not experienced economic growth in 6 years).
Although all of SEE countries pursue strategies for FDI attraction they have
been less efficient in attracting FDI then countries from other two groups.

FDI IN ECONOMIC THEORY
FDI is usually defined as a type of international investment by residents of
one country with the aim of establishing a lasting interest in enterprises within the economy of another country. Lasting interest implies the existence of
long-term relationship of direct influence on the management of investors’ direct investments in selected companies. Direct investment includes the initial
transaction between the two entities and all subsequent transactions between
them and among affiliated enterprises, regardless of their formal status. Direct
investment is considered to be established when an investor acquires at least
10% of ordinary shares or voting rights to foreign companies. Precisely because

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of the contribution to the process of economic growth and development1, particularly in job creation, transfer of technology, managerial skills, increasing exports, productivity, and competitiveness in the global market, it is important to
investigate those factors contributing to the choice of a country as a destination
for foreign direct investment. Therefore it is necessary to pay special attention
to institutional factors; legal system, justice system and domestic legislation (especially the part relating to the protection of property and taxes), as well as their
stability and efficiency, absence of corruption, the size and market development
and market mechanisms, quality of physical infrastructure, etc. They are largely
influenced by public authorities, concerned with the creators and holders of
economic policy, and their existence and quality often crucially influence the
perception of a country as a desirable destination for foreign direct investment.
There are many ways to classify the different forms of FDI. Here we will
describe some of them. The most obvious classification is by objectives of international investors, multinational corporations (MNC) when they establish
foreign subsidiary;

From the historic perspective, that was the first sustainable FDI that came
into being in the later part of the 19th century, and was dominant even during the years after the World War II (to 1950s). The logic of FDI investment
was, and still is guided by location and climate. Investors usually want weak
labour laws, few regulation of protection of environment and minimal tax
burden (little or no corporate tax). Other factors in decisions on where to
extract natural resources may include the quality of the infrastructure (both
institutional and physical), abundance and accessibility of the raw materials,
and the extent to which political officials are ready to deal favourably with
foreign companies by providing good governance, favourable tax and regulatory policies, and the rule of law, not to mention low cost of labour and
environmental practices. Investors’ behaviour in this sector regarding the
host governments and the way by which they treated “native” workers are
infamous at best. United Fruit Company did much as it liked in El Salvador

1

For further details see Borensztein et al. (1998) that, based on empirical analysis of FDI flows
from 69 developed countries through the last two decades, emphasize the positive impact of
FDI on technology transfer, provided that the destination country has an adequate level of
human capital that enables its absorption.

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1. Resource seeking FDI.

Ozren Pilipović • Meta Ahtik • Nenad Rančić: FDI INFLOWS IN TIME OF CRISIS - PANEL DATA ANALYSIS OF FDI INFLOWS TO THE SELECTED EU ...

(Chapman, 2007). This type of the FDI was very good for the outward FDI
country, since the operations in the host country did not outsource jobs,
did not compete with the investor country exports, and majority of raw
materials were imported to the headquarter countries thus further fuelling
their own economy. On the other hand, this type of FDI impact on the
host country economy left much to be desired for. There were net foreign
exchange earnings for the exports of raw materials, but what of the environmental damage, human/labour rights and concession prices? Were they fair
or not? Mostly it depends on the local political elite motivation either for
economic development or personal wealth increase.
2. Market-seeking FDI.
One of the reasons for this kind of investment was the potential for reducing
the transportation costs, and making consumers feel more at ease with the
“domestic” products rather than the imported ones. These FDI are generally
made in rich countries, because these investors want customers for their
products. Cohen points out that market-seeking FDI have the potential to
provide more benefits to host countries than any other form of incoming
direct investment (Cohen, 2007). These types of investment usually bring
new employment, technologies, know-how, and business practices.
3. Efficiency seeking FDI.
The first reason for this type of FDI is the intention of investors to outsource some of its production to countries where cost of production is low.
If these low wage countries have work ethic like say East Asian Tigers the
outsourcing is usually very cost efficient in rage of industrial and increasingly service products. The other reason for this type of FDI is the wish of
investors to reap the benefits of economics of scale and by outsourcing to
minimise the costs of production. These kinds of FDI are not welcomed
by the labour union in the source countries since this type of FDI is widely
perceived as exporting jobs, while on the other hand the consumers are supposedly benefiting from the cheaper price of imported goods. USA lead the
way in this kind of FDI, particularly to Mexico, China and East Asia, while
Japan followed suite with investments in East Asia, and Germany somewhat more shyly to the transitional countries of Central Europe. (More on

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this in Cohen, 2007, p. 70: similar in: Agnew and Corbridge, 1995, p. 169,
Rupert, 2000, p. 48)
4. Strategic Assets- Seeking FDI.
The nature of this FDI is to bring more competitiveness to the multinational companies by acquiring assets of other companies in different countries.
This type of FDI allows company to broaden its product offer, to enhance
its existing products, to create new products or simply to swallow rival firms.
5. Objective of pleasing the host country government.

The second way to classify the FDI is by its role in the parent company
global strategy. It is either horizontal or vertical. Horizontal FDI is when MNC
transfers a part of its activity overseas in order to strengthen its global (or local)
competitiveness. Vertical FDI has been growing since 1980s and the cause of its
growth was the increased advanced in production technology and communications. The version of vertical FDI that appears most often is the division of the
manufacturing process into segments in which various parts of a finished product are made by two or more subsidiaries in two or more countries anywhere in
the world. By using vertical FDI companies minimize production costs, by taking advantage of international factor-price differentials, which is a core concept
of the law of comparative adva