28th IBIMA Conference Proceedings (2016-Volumn II) PDF

Proceedings of
th
the 28 International Business Information Management Association Conference
9-10 November 2016

Seville, Spain
ISBN: 978-0-9860419-8-3
Vision 2020:
Innovation Management, Development Sustainability, and Competitive Economic Growth
Editor
Khalid S. Soliman
International Business Information Management Association (IBIMA)
Copyright 2016
Vision 2020: Innovation Management, Development Sustainability, and Competitive Economic Growth
Conference Chair
Khalid S. Soliman
International Business Information Management Association, USA
Local Chair
Ángel Jesús Varela Vaca
University of Seville, Spain
Conference Advisory Committee
John F. Affisco, Hofstra University, USA

Abdul Rahman Ahmad, Universiti Tun Hussein Onn Malaysia, Malaysia
Omar Al-Azzam, University of Minnesota Crookston, USA
Hesham H. Ali, University of Nebraska at Omaha, USA
Najiba Benabess, Norwich University, Northfield, USA
Az-Eddine Bennani, Reims Management School, France
Emil Boasson, Central Michigan University, USA
Regina Connolly, Dublin City University, Ireland
Reggie Davidrajuh, Stavanger University College, Norway
Susana de Juana Espinosa, Universidad de Alicante, Spain
Xiuzhen Feng, Beijing University of Technology, China
Mohammad Ayub Khan, Technologico de Monterrey, Mexico
Sherif Kamel, The American University in Cairo, Egypt
Roman Povalej, University of Karlsruhe (TH), Germany
Alcina Prata, ESCE, Portugal
Muhammad Najib Razali, Universiti Hussein Onn Malaysia, Malaysia
Joseph Sarkis, Clark University, USA
Najib Saylani, Florida State College at Jacksonville, USA
Magdy Serour, InContext Solutions, Australia
Amine Nehari Talet, King Fahd University of Petroleum & Mineral, KSA
Abraham G. van der Vyver, Monash University, South Africa
Dianne Wingham, Australia
Paul H.P. Yeow, Monash University, Sunway Campus, Malaysia
Program Committee
Chokri Abdennader, University of Sfax, Tunisia
Haslinda Abdullah, National Defence University Malaysia, Malaysia
Azura Abdullah Effendi, Universiti Sains Malaysia, Malaysia
Mohd Helmy Abd Wahab, Univ. Tun Hussein Onn Malaysia, Malaysia
Mirela Ionela Aceleanu, The Bucharest University of Economic Studies, Romania
Nicoleta Acomi, Constanta Maritime University, Romania
Oluwasogo Adediran, Covenant University, Ota, Nigeria
II
Ngozi Adeleye, Covenant University, Ota, Nigeria

Kehinde Adetiloye, Covenant University, Nigeria
Dorcas Titilayo Adetula, Covenant University, Nigeria
Sussan Olufunmilola Adeusi, Covenant University, Nigeria
Mayowa G. Agboola, Covenant University, Nigeria
Vera Ageeva, Tomsk Polytechnic University, Russia
Saoussen Aguir Bargaoui, Business School of Management - Sousse, Tunisia
Arshad Ahmad, King Saud Univrsity, KSA
Nawaz Ahmad, Institute of Business Management (IoBM), Pakistan
Sayed Sayeed Ahmad, Al Ghurair University, Dubai, UAE
Abd Rahman Ahmad, Universiti Tun Hussein Onn Malaysia, Malaysia
Bilal Ahmad Ali Al-khateeb, Universitis Utara Malaysia, Malaysia
Braham Ait Atmane, University of Bejaia, Algeria
Imen Akermi, University of Paul Sabatier Toulouse III, France
Raja Akermi, Institut Superieur de Gestion, University of Tunis, Tunisia
Temidayo O. Akinbobola, Obafemi Awolowo University, Nigeria
Ali Alashwal, University of Malaya, Malaysia
Ali Ahmad Alawneh, Philadelphia University, Jordan
Kamla Al-Busaidi, Sultan Qaboos University, Oman
Basel M Al-Eideh, Kuwait University, Kuwait
Lidia Alexa, “Gheorghe Asachi” Technical University Iasi, Romania
Abdullah Al-Hamdani, Sultan Qaboos University, Oman
Dawuda Alhassan, University of Warsaw, Poland
Mohammad Mansour Al-Khasawneh, The World Islamic Sciences and Education University, Jordan
Chokri Aloui, University of Jendouba, Tunisia
Mahmoud Al-Sayed, Southampton Business School, UK
Fatimah Alwi, UiTM Johor, Malaysia
Alaa Abdul Salam Alyamani, University Mosul, Iraq
Yehia Alzoubi, University of Technology Sydney, Australia
Kamal Amarouche, University Mohammed V, Morocco
K P Saraswathy Amma, APJ Abdul Kalam Technological University, India
Petrică Sorin Angheluță, The Bucharest University of Economic Studies, Romania
Sanaullah Ansari, Shaheed Zulfikar Ali Bhutto Institute of Science and Technology (SZABIST), Pakistan
Klara Antlova, Technical University of Liberec, Czech Republic
Sorin Gabriel Anton, Alexandru Ioan Cuza University of Iasi, Romania
Irine S. Antonova, Tomsk Polytechnic University, Russia
Anisoara Niculina Apetri, Stefan Cel Mare University Suceava, Romania
Constantin-Marius Apostoaie, Alexandru Ioan Cuza University of Iaşi, Romania
Isibor Areghan, Covenant University, Nigeria
Nouha Arfaoui, High Institute of Management, Tunisia
Abdallah Arman, Palestine Polytechnic University, Palestine
Georgiana Armenița Arghiroiu, UASVM Bucharest, Romania
Sonia Aroussi Bennani, University Elmanar, Tunisia
Nicoleta Asalos, Ovidius Univeristy of Constanta, Romania
Mehmet N. Aydin, Kadir Has University, Turkey
Souheila Ayoun, University 20 Aout 1955-SKIKDA, Algeria
Mohammad Ayub Khan, University Tecnologico de Monterrey, Mexico
Rosalina Bessa Babo, Oporto Polytechnic Institute /ISCAP, Portugal
Suzaida Bakar, University Tenaga Nasional, Malaysia
Ioana Balan, European Public Institution, Romania
Mariem Balti, University of Tunis El Manar, Tunisia
Kristina A. Bannova, Tomsk Polytechnic University, Russia
Jolanta Baran, Silesian University of Technology, Poland
Nicoleta Bărbuţă-Mişu, ”Dunărea de Jos” University of Galati, Romania
Suleiman Barnabas M., Covenant University, Nigeria
III
Vladimir Bartosek, Brno University of Technology, Czech Republic

Josef Basl, University of Westbohemia Pilsen, Czech Republic
Blanka Bazsová, VŠB-Technical University of Ostrava, Czech Republic
Silviu Beciu, University of Agronomic Sciences and Veterinary Medicine Bucharest, Romania
Hassan Bellihi, ENCG, Ibn Zohr University, Agadir , Morroco
Amal Ben Cheikh, Tunis University, Tunisia
Raoudha Ben Djemaa, ISITCOM, Tunisia
Haykel Ben Khelil, FSEGT, Tunisia
Khaoula Ben Zarb, Pantheon-Sorbonne University / Université de Tunis El Manar FSEGT, Tunisia
Rozi Liliana Berevoianu, ICEADR – Bucharest, Romania
Irina Bilan, “Al. I. Cuza” University of Iasi, Romania
Omar Bin Musa, Unitar International University, Malaysia
Norzuraiza Rina binti Ahmad, University Technology MARA (UiTM), Malaysia
Azmin Azliza Binti Aziz, University of Malaya, Malaysia
Siti Rohaida Binti Mohamed Zainal, Universiti Sains Malaysia, Malaysia
Abdul Hadi Bin Zulkafli, Universiti Sains Malaysia, Malaysia
Ilze Birzniece, Riga Technical University, Latvia
Ovidiu Blajina, University Politehnica of Bucharest, Romania
Gratiela Dana Boca, Technical University of Cluj Napoca, Romania
Constanta-Nicoleta Bodea, Bucharest University of Economic Studies, Romania
Dumitru-Alexandru Bodislav, Bucharest University of Economic Studies, Romania
Carmen Boghean, Stefan cel Mare University, Romania
Monica Boldea, West University of Timisoara, Faculty of Economics & Business Administration, Romania
Irina Boncea, Bucharest University of Economic Studies, Romania
Josef Botlík, Silesian University in Opava, Czech Republic
Imen Bouaziz Mezghanni, Sfax University, Tunisia
Hafida Bouziane-Chouarfia, USTO-MB, Algeria
Karim Bouzoubaa, Mohamed Vth University, Morocco
Liviu Bozga, Romania
Ioana-Alexandra Bradea, Bucharest Academy of Economic Studies, Romania
Pavla Breckova, University of Finance & Administration Prague (VSFS), Czech Republic
Aurelia Ioana I. Brinaru, Romania
Mumtaz Bte Ahmad, Universiti Teknologi MARA, Malaysia
Rohana Bt Sham, Universiti Teknologi Mara, Johor, Malaysia
Alena Buchalcevova, Prague University of Economics, Czech Republic
Marius Bulearca, Center for Industry and Services Economics, Romanian Academy, Bucharest, Romania
Ap-Azli Bunawan, University Technology MARA, Malaysia
Denisa-Florentina Burcea, UASVM Bucharest, Romania
Aurel Burciu, „Ștefan cel Mare” University of Suceava, Romania
Vladimír Bureš, University of Hradec Králové, Czech Republic
Marek Bureš, University of West Bohemia, Czech Republic
Cristina Burghelea, Hyperion University, Romania
Simona Buta, Stefan Cel Mare Univeristy of Suceava, Romania
Dagmar Čámská, Czech Technical University in Prague, Czech Republic
Lourdes Canós-Darós, Universitat Politècnica de València - UPV, Spain
Mihai Carp, “Alexandru Ioan Cuza” University of Iaşi, Romania
Claudia-Georgeta Carstea, Transilvania University of Brasov, Romania
Petr Čech, Institute of Hospitality Management in Prague, Czech Republic
Eduard Gabriel Ceptureanu, Bucharest University of Economic Studies, Romania
Sebastian Ion Ceptureanu, Bucharest University of Economic Studies, Romania
Nizar Chaari, UQAM, Canada
Kaouther Châari Mefteh, University of Sfax, Tunisia
Vladimír Chalupský, Brno University of Technology, Czech Republic
Lee-Kwun Chan, Universiti Tunku Abdul Rahman, Malaysia
Phaik Kin Cheah, Universiti Tunku Abdul Rahman, Malaysia
IV
Ali Chebbi, University of Tunis, Dept of Quantitive Methods and Economy, ISG, Tunisia
Yong Chen Chen, University of Malaya, Malaysia
Alina Stefania Chenic (Cretu), Academy of Economic Studies Bucharest, Romania
Madalina Cheptea, Academia De Studii Economice, Bucuresti, Romania
Natalia Cherepanova, Tomsk Polytechnic University, Russia
Irina A. Chesnokova, Tomsk Polytechnic University, Russia
Puja Chhabra Sharma, Ansal University, Gurgaon, India
Jan Chromy, The Institute of Hospitality Management in Prague, Czech Republic
Zuzana Chvatalova, BUT, Czech Republic
Daniela Constantin, Bucharest University of Economic Studies, Romania
Claudiu Constantin Cicea, Bucharest University of Economic Studies, Romania
Ibrahim Cil, Sakarya University, Turkey
Simona Činčalová, University of Pardubice, Czech Republic
Carmen Nadia Ciocoiu, Bucharest University of Economic Studies, Romania
Alexandru Costin Cîrstea, Bucharest University of Economic Studies, Romania
Laura Mariana Cismas, West University of Timișoara, Romania
Cristian Ciurea, Bucharest University of Economic Studies, Romania
Maria Ciurea, University of Petrosani, Romania
Oana Coca, ”Alexandru Ioan Cuza” University of Iasi, Romania
Adela Coman, University of Bucharest, Romania
Carmen Costea, Spiru Haret University, Romania
Anca Costea-Dunarintu, “Dimitrie Cantemir” Christian University, Romania
Liviu-Adrian Cotfas, Bucharest University of Economic Studies, Romania
Daniela Cristina Creţ, University ”Vasile Goldiş” Arad, Romania
Daniela Creţu, The Univ. of Agronomic Sc. & Veterinary Medicine Bucharest, Romania
Melinda Czegledi, Corvinus University of Budapest, Hungary
Aniela Raluca Danciu, Academy of Economic Studies, Romania
Mihai-Ionut Danciu, University Politehnica Timisoara, Romania
Maria-Iuliana Dascalu, University Politehnica of Bucharest, Romania
Camelia Delcea, Bucharest University of Economic Studies, Romania
Roxana Manuela Dicu, University “Alexandru Ioan Cuza” of Iasi, Romania
Emil Dinga, Romanian Academy, Romania
Toma Adrian Dinu, University of Agricultural Sciences and Veterinary Medicine of Bucharest, Romania
Elena Dobre, Ovidius University Constanta, Romania
Ramona Dobre, Bucharest University of Economic Studies, Romania
Razvan Catalin Dobrea, Bucharest University of Economic Studies, Romania
Diana Dobrescu, The Bucharest University of Economic Studies, Romania
Adina Dornean, Al. I. Cuza University of Iasi, Romania
Sławomir Dorocki, Pedagogical University of Cracow, Poland
Radek Doskočil, Brno University of Technology, Faculty of Business and Management, Czech Republic
Octavian Dospinescu, Alexandru Ioan Cuza University, Romania
Petr Dostál, Brno University of Technology, Czech Republic
Petr Doucek, University of Economics, Prague, Czech Republic
Anca Draghici, Politehnica University of Timisoara, Romania
Andreea Emanuela Drăgoi, Romanian Academy, Institute for World Economy, Romania
Elia Georgiana Dragomir, Petroleum Gas University from Ploiesti, Romania
Elena Druică, University of Bucharest, Romania
Josef Dvořák, University of West Bohemia, Czech Republic
Petr Dydowicz, BUT FBM Brno, Czech Republic
Waleed M. Ead, Beni-suef University, Egypt
Ludvík Eger, WBU in Pilsen, Czech Republic
Maria Egorova, National Research Tomsk Polytechnic University, Russia
Nawal El-Kahina Khelalfa, University of Saad Dahlab Blida1, Algeria
Younes El Manzani, Cadi Ayyad university and Lyon III university, Morocco
Calcedonia Enache, University of Agronomic Sciences and Veterinary Medicine, Romania
V
Nicoleta Enache-David, Transilvania University of Brasov, Romania

Olivia Fachrunnisa, Unissula University, Indonesia
Alina-Maria Fărcaș, Bucharest University of Economic Studies, Romania
Hafedh Ferchichi, Higher Institute of Technological Studies of Jendouba, Tunisia
Marisa Roriz Ferreira, Instituto Politécnico do Porto- Escola Superior de Tecnologia e Gestão, CIICESI,
Portugal
Tatyana Filippova, National Research Tomsk Polytechnic University, Russian Federation
Gina Fintineru, University of Agronomic Sciences and Veterinary Medicine of Bucharest, Romania
Dorian-Laurentiu Florea, Universidad Anáhuac México, Mexico
Jan Fuka, University of Pardubice, Czech Republic
Iulian Furdu, Vasile Alecsandri of Bacău, Romania
Ekaterina Galanina, National Research Tomsk Polytechnic University, Russia
Daniel Adrian Gârdan, Spiru Haret University, Romania
Iuliana Petronela Gârdan, Spiru Haret University, Romania
Mircea Georgescu, “Al. I. Cuza” University of Iasi, Romania
Alexandru Gheorghe, Oil and Gas University Ploiesti, Romania
Consuela-Madalina Gheorghe, “Carol Davila” University of Medicine and Pharmacy, Bucharest, Romania
Iuliana Raluca Gheorghe, Carol Davila University of Medicine and Pharmacy, Romania
Gabriela Gheorghiu, “Ovidius” University of Constanta, Romania
Ştefan Cristian Gherghina, Bucharest University of Economic Studies, Romania
Alina Ginghina, University of Bucharest, Romania
Natalia Goncharova, National Research Tomsk Polytechnic University, Russian Federation
Corina Grigore, World Bank, Romania
Hassen Guenichi, University of Kairouan, Tunisia
Annetta Gunawan, Binus University, Indonesia
Markus Günther, Bielefeld University, Germany
Liudmila A. Guzikova, Peter the Great Saint-Petersburg Polytechnic University, Russia
Mariem Gzara, High School of Computer Science and Mathematics, University of Monastir, Tunisia
Raja Hached, Polytech Centrale, Tunisia
Wa'el Hadi, University of Petra, Jordan
Issam Hamdi, Monastir University, Tunisia
Abedalqader Hasan Al Rababah, AL-Balqa’ Applied University, Jordan
Muhammad Hasmi Abu Hassan Asaari, Universiti Sains Malaysia, Malaysia
Indrani Hazarika, Higher Colleges of Technology, Dubai Women’s Campus, UAE
Pavlína Hejduková, University of West Bohemia, Czech Republic
Daniela Hincu, Economic University from Bucharest, Romania
Monika Hodinková, Sting Academy, Czech Republic
Tamara Högler, Högler Consulting & Management, Germany
Woo Kok Hoong, Universiti Tunku Abdul Rahman, Malaysia
Ana-Maria Hrimiuc-Zaiceanu, Universidad de Valencia, Spain
Safdar Husain Tahir, Govt. College University Faisalabad, Pakistan
Martina Husáková, University of Hradec Králové, Faculty of Informatics and Management, Czech
Republic
Viorela Beatrice Iacovoiu, Oil and Gas University of Ploiesti, Romania
Eugenia Iancu, University Stefan cel Mare, Romania
Haslindar Ibrahim, Universiti Sains Malaysia, Malaysia
Elizabeth Ibukunoluwa Olowookere, Covenant University, Nigeria
Nicoleta Ignat, University Politehnica of Bucharest, Romania
Ramona Ștefania Igreț, Bucharest University of Economic Studies, Romania
Anca Gabriela Ilie, Academy of Economic Study, Faculty of International Business and Economics,
Romania
Constantin Ilie, OVIDIUS from Constanta, Romania
Margareta Ilie, Ovidius University of Constanta, Romania
Rabia Imran, Dhofar University, Sultanate of Oman
Gabriela Mariana Ionescu, Romanian Agency for Quality Assurance in Higher Education, Romania
VI
Nicolae Ionescu, Politehnica University of Bucharest, Romania

Sabina Irimie, University of Petrosani, Romania
Syuhaida Ismail, Universiti Teknologi Malaysia, Malaysia
Larisa Ivascu, Politehnica University, Romania
Hazril Izwar Ibrahim, Universiti Sains Malaysia, Malaysia
Leila Jamel Menzli, Princess Noura University-Saudi Arabia, ENSI- RIADI Laboratory- Tunisia
Agnieszka Janik, Silesian University of Technology, Poland
Martin Januska, University of West Bohemia in Pilsen, Czech Republic
Sreenivasan Jayashree, Multimedia University, Malaysia
Olawale David Johnson, Covenant University, Ota, Nigeria
Maria José Angélico Gonçalves, IPP/ISCAP, Portugal
Omar Jridi, ESSEC de Tunis, Tunisia
Rym Kaddour Kaffel, FSEGT, Tunisia
Meral Kagitci (Ibraim), Bucharest University of Economics, Romania
Tatyana V. Kalashnikova, National Research Tomsk Polytechnic University, Russia
Damir Kalpić, University of Zagreb, Croatia
Ismail Kamariah, Universiti Teknologi Malaysia, Malaysia
Lucie Kanovska, Brno University of Technology, Faculty of Business and Management, Czech Republic
Ismail Kassou, University Mohammed V in Rabat, Morocco
Noorliza Karia, Universiti Sains Malaysia, Malaysia
Phua Lian Kee, Universiti Sains Malaysia, Malaysia
Sevag Kertechian, University Paris 1 – Pantheon Sorbonne, France
Mohammad Khaled AL Hassan, UAE
Munadil Khaleel Faaeq Al Sammarraie, University Utara Malaysia, Malaysia
Islem Khefacha, FSEG Mahdia, University of Monastir, Tunisia
Oualid Kherbach, University Polithenica of Timisoara, Romania
Rozalia Kicsi, ”Ștefan cel Mare” University of Suceava, Romania
Lai Kim Piew, Multimedia University, Malaysia
Ng Kim Soon, UTHM, Malaysia
Alžbeta Kiráľová, University College of Business in Prague, Alžbeta Kiráľová
Elena Stanislavovna Kiseleva, Tomsk Polytechnic University, Russia
Hana Klcova, Brno University of Technology, Czech Republic
Maria Klevtsova, South-West State University, Russia
Mojmír Kokles, University of Economics, Slovakia
Christophe Kolski, Univ. of Valenciennes, France
Wafa Kort, ISG Tunis, Tunisia
Jana Kostalova, University of Pardubice, Czech Republic
Eva Kotlánová, School of Business Administration in Karviná, Silesian University in Opava, Czech
Republic
Balazs Kotosz, University of Szeged, Hungary
Jan Kramoliš, Tomas Bata University in Zlín, Czech Republic
Katarína Krpálková Krelová, University of Economics, Prague, Czech Republic
Jayanty A/P Kuppusamy, Multimedia University, Malaysia
Heru Kurnianto Tjahjono, Universitas Muhammadiyah Yogyakarta, Indonesia
Natalia Kuzmina, Tomsk Polytechnic University, Russia
Georgiana-Raluca Lădaru, Bucharest University of Economic Studies, Romania
Fadoua Laghzaoui, University: Abdelmalek Essaâdi (Tanger), Morocco
Soulaimane Laghzaoui, Ibn Tofail University, Morocco
Arij Lahmar, FSEG Sfax- University of Sfax, Tunisia
Nathalie Lameta, University: Université, France
Iwona Lapunka, Opole University of Technology, Poland
Fitra Lestari, UIN Sultan Syarif Kasim, Indonesia
Beatrice Leustean, University Politehnica of Bucharest, Romania
Ioana – Ruxandra Lie, The Bucharest University of Economic Studies, Romania
Martin Lnenicka, University of Pardubice, Czech Republic
VII
Eva Lukášková, CBHM Brno, Czech Republic

Nadezhda A. Lvova, St Petersburg State University, Russia
Dorin Maier, Technical University of Cluj–Napoca, Romania
Daniela Majerčáková, Comenius University, Slovakia
Irina Maltseva, Southwest State University, Russia
Liliana Manea, Athenaeum Bucharest, Romania
Alina Mărcuță, University of Agricultural Sciences and Veterinary Medicine Bucharest, Romania
Daniela Mardiros, University Alexandru Ioan Cuza of Iasi, Romania
Janusz Marek Lichtarski, Wroclaw University of Economics, Poland
Georgiana Marin, The Bucharest University of Economic Studies, Romania
Laura Elena Marinas, Bucharest University of Economic Studies, Romania
Milos Maryska, University of Economics, Czech Republic
Maslin Masrom, Universiti Teknologi Malaysia, Malaysia
Nasina Mat Desa, Universiti Sains Malaysia, Malaysia
Jana Matošková, Tomas Bata University in Zlín, Czech Republic
Aida Matri Ben Jemaa, High Institute of Management (Tunis), Tunisia
Daniela Matušíková, University of Prešov in Prešov, Slovakia
Alexandru Maxim, Alexandru Ioan Cuza University of Iasi, Romania
Noraina Mazuin Sapuan, Universiti Tenaga Nasional, Malaysia
Aqilah Nadiah Md Sahiq, Universiti Teknologi MARA, Malaysia
Hend Mejri, University of Tunis El Manar, Tunisia
Dang Merduwati Hashim, Universiti Teknologi MARA, Malaysia
Karim Mezghani, Al-Imam Mohammad Ibn Saud Islamic University (IMSIU), KSA
Farid Meziane, University of Salford, UK
Francesca Michelino, University of Salerno, Italy
Liliana Mihaela Moga, Dunarea de Jos University of Galati, Romania
Orzan Mihai Cristian, Bucharest University of Economic Studies, Romania
Aleksandr Mikhalchuk, Tomsk Polytechnic University, Russian Federation
František Milichovský, Faculty of Business & management,Brno University of Technology,Czech Republic
Gheorghe Militaru, University Politehnica of Bucharest, Romania
Marinela Mircea, The Bucharest University of Economic Studies, Romania
Andreea Mirica, Bucharest University of Economic Studies, Romania
Amit Mittal, Chitkara University, India
Vlad Ionela Mituko, USAMV Bucharest, Romania
Nor Hazleza Mohamad, Multimedia University, Malaysia
Shafie Mohamed Zabri, University Tun Hussein Onn Malaysia, Malaysia
Nawaz Mohamudally, University of Technology, Mauritius, Mauritius
Sulfeeza Mohd Drus, Universiti Tenaga Nasional, Malaysia
Aizzat Mohd. Nasurdin, Universiti Sains Malaysia, Malaysia
Roziah Mohd Rasdi, Universiti Putra Malaysia, Malaysia
Norazah Mohd Suki, Universiti Malaysia Sabah, Malaysia
Ana Verónica Morales Bezeira, Universidad Central de Venezuela, Venezuela
Anca Andreea Morar, Univ. Politehnica of Bucharest, Romania
Ntebogang Dinah Moroke, North West University, South Africa
Miroslaw Moroz, Wroclaw University of Economics, Poland
Bolanle Deborah Motilewa, Covenant University, Nigeria
Ghulam Muhammad, Mohammad Ali Jinnah University, Karachi, Pakistan
Mihaela-Carmen Muntean, “Dunarea de Jos” University of Galati, Romania
Andreea-Clara Munteanu, Romanian Academy Institute of National Economy, Romania
Maria-Cristiana Munthiu, Conservatoire National des \Arts et des Métiers, Paris, France
Muhammad Fakhir Musharraf Khan, Institute of Business Management, Karachi – Pakistan
Leonid Mylnikov, Perm National Research Polytechnic University, Russia
Meysam Namayandeh, University Technology Malaysia, Iran
Fatiha Naoui, ESCA EM, Casablanca, Morocco
Valentina Ndou, University of Salento, Italy
VIII
Ana-Maria Neagu, University Politehnica from Bucharest, Romania

Cornelia Neagu, University Center for Industry and Services Economics, Romanian Academy, Bucharest,
Romania
Mihaela Neculita, Dunarea De Jos University, Romania
Farhad Nejadi, University of Malaya (UM), Malaysia
Elena Alexandra Nenu, Bucharest University of Economic Studies, Romania
Simona Nicolae, Politehnica University of Bucharest, Romania
Anthony Nkem Ede, Covenant University, Ota, Nigeria
Umara Noreen, Prince Sultan University, Saudi Arabia
Michal Novák, Faculty of Management, University of Economics, Prague, Czech Republic
Virlanuta Florina Oana, Dunarea de Jos University of Galati, Romania
Barnabas Olusegun Obasaju, Landmark University, Omu-Aran, Kwara State, Nigeria
Paula Odete Fernandes, Polytechnic Institute of Bragança, Portugal
Lawrence Uchenna Okoye, Covenant University, Ota-Nigeria
Felicia O. Olokoyo, Covenant University, Nigeria
Uwuigbe Olubukunola, Covenant University, Nigeria
Isaiah Oluranti Olurinola, Covenant University, Nigeria
Olamide Adeola Olusanmi, Covenant University, Nigeria
Azizah Omar, Universiti Sains Malaysia, Malaysia
Amina Omrane, University of Sfax and Carthage, Tunisia
Bogdan Oancea, University of Bucharest, Romania
Dumitru-Cristian Oanea, The Bucharest University of Economic Studies, Romania
Robert Ong’eta Kinanga, Maasai Mara University, Kenya
Evans Osabuohien, Covenant University, Nigeria
Ísmah Osman, Universiti Teknologi Mara, Malaysia
Nidžara Osmanagić Bedenik, University of Zagreb, Croatia
Carl Osunde, Onitsha Business School, Nigeria
Abdul Kadir Othman, University Teknologi MARA, Malaysia
Manta P. Otilia, School of Advanced Studies of the Romanian Academy, Romania
Rachid Oumlil, ENCG-Agdir_Ibnou Zohr, Morocco
Wided Oueslati, Institut Supérieur de Gestion, Tunisia
Ogundana Oyebisi Mary, Bells University of Technology, Nigeria
Mirela Panait, Petroleum-Gas University of Ploiesti, Romania
Andra-Mădălina Pantilie, University of Economic Studies, Romania
Mihai Parean, West University of Timisoara, Romania
Andrei Pârvan, University Politehnica of Bucharest, Romania
Alfred Paszek, The Opole University of Technology, Poland
Vasile-Daniel Pavaloaia, Al.I.Cuza University of Iasi, Romania
Irina Pavlova, National Research Tomsk Polytechnic University, Russia
Corina Pelau, Bucharest University of Economic Studies, Romania
Wong Wai Peng, Universiti Sains Malaysia, Malaysia
Maja Pervan, University of Split, Faculty of Economics, Croatia
Oleg Nikolaevich Petukhov, National Research Tomsk Polytechnic University, Russia
Jeong Chun Phuoc, Management & Science University, Malaysia
Ionela Carmen Pirnea, Constantin Brâncoveanu University, Rm.Vâlcea, România
Cerasela Adriana Pirvu, University of Craiova, Romania
Iwona Pisz, Opole University, Poland
Katerina Pitrova, TBU in Zlin, Czech Republic
Michel Plaisent, Université du Québec à Montréal, Canada
Vladimir Plotnikov, St. Petersburg State University of Economics, Russia
Athanasios Podaras, Technical University of Liberec, Czech Republic
Tomáš Poláček, University of Technology Brno, Czech Republic
Agatha Popescu,Univ. of Agricultural Sciences & Veterinary Medicine Bucharest,Romania
Catalin Popescu, Petroleum-Gas University from Ploiesti, Romania
Doina I. Popescu, Bucharest University of Economic Studies, Romania
IX
Madalina Ecaterina Popescu, Bucharest University of Economic Studies, Romania

Nina Potekhina, Tomsk Polytechnic University, Russia
Gabriela Prelipcean, ”Stefan cel Mare” University of Suceava, Romania
Andrei Iova Radu, The University of Agronomic Sciences and Veterinary Medicine Bucharest, the Faculty
of Management, Economic Engineering in Agriculture and Rural Development–Calarasi Branch, Romania
Laura-Diana Radu, University Alexandru Ioan Cuza form Iasi, Romania
Corina Radulescu, Technical University of Cluj-Napoca, Romania
Nasrin Rahmati, Dar Al-Hekma University, KSA
Timur R. Rakhimov, Tomsk Polytechnic University, Russia
Suganthi Ramasamy, Multimedia University, Malaysia
Ainon Ramli, Universiti Malaysia Kelantan, Malaysia
Martina Rašticová, Mendel University in Brno, Czech Republic
Muhammad Najib Razali, Universiti Teknologi Malaysia, Malaysia
Mohd Razilan Abdul Kadir, Universiti Teknologi MARA (UiTM), Malaysia
Petr Rehacek, VŠB-Technical University of Ostrava, Czech Republic
Katarina Rentkova, Comenius University in Bratislava, Faculty of Management, Slovakia
Adriana Reveiu, Bucharest University of Economic Studies, Romania
Pavla Říhová, University of West Bohemia in Pilsen, Czech Republic
Raja Rizal Iskandar Raja Hisham, Infrastructure University Kuala Lumpur (IUKL), Malaysia
Ioan-Bogdan Robu, Alexandru Ioan Cuza University of Iasi, Romania
Ana C. Rodrigues, ISCAP- Polytechnic Institute of Porto, Portugal
Angela Roman, Alexandru Ioan Cuza University of Iasi, Romania
Awanis Romli, Universiti Malaysia Pahang, Malaysia
Adam Ryszko, Silesian University of Technology, Poland
Marina Ryzhkova, Department of Economics Tomsk Polytechnic University, Tomsk, Russia, Department
of Economics Tomsk State University of Control Systems and Radioelectronics, Tomsk, Russia
Claudia Diana Sabău-Popa, University of Oradea, Romania
Tomas Sadilek, University of Economics, Prague, Czech Republic
Diana Sadoveanu, Alexandru Ioan Cuza, Romania
Zdenek Safarik, Tomas Bata University in Zlin, Czech Republic
Fazelina Sahul Hamid, Universiti sains Malaysia, Malaysia
Odunayo Paul Salau, Covenant University, Ota, Nigeria, Nigeria
Bassem Salhi, Majmaah University, KSA
Dani Salleh, The Northern Univ. of Malaysia, Malaysia
Livia Sangeorzan, University Transilvania of Brasov, Romania
Michał Sąsiadek, University of Zielona Góra, Poland
Isaias Scalabrin Bianchi, University of Minho, Portugal
Paola Scorrano, University of Salento, Italy
Liliana Scutaru, Stefan cel Mare University of Suceava, Romania
Tereza Semerádová, Technical University of Liberec, Czech Republic
Andreea Claudia Serban, The Bucharest University of Economic Studies, Romania
Liviu Serbanescu, Hyperion University of Bucharest, Romania
George Șerban-Oprescu, Bucharest University of Economic Studies, Romania
Francesca Sgobbi, University of Brescia, Italy
Sabrina O. Sihombing, Universitas Pelita Harapan, Indonesia
Violeta Sima, Petoleum-Gas University Of Ploiesti, Romania
Iveta Simberova, Brno University of Technology, Czech Republic
Nicoleta Sîrghi, West University of Timişoara, Romania
Aziza Saïda Slimane, University of Sousse, Tunisia
Harit Satt, Al Akhawayn University in Ifrane, Morocco
Adriana Schiopoiu Burlea, University of Craiova, Romania
Dragos Ion Smedescu, University of Agronomic Sciences & Veterinary Medicine of Bucharest, Romania
Liliana Nicoleta Simionescu, Bucharest University of Economic Studies, Romania
Viktorija Šipilova, Daugavpils University, Latvia
Camelia Slave, University of agronomic sciences and veterinary medicine Bucharest, Romnia
X
Ching Sock Lee, University Science Malaysia, Malaysia

Osama Sohaib, University of Technology Sydney, Australia
Petra Solarová, Institute of Technology and Business in České Budějovice, Czech Republic
Nataliya Soldatyuk, University of Economics, Prague, Czech Republic
Lew Sook Ling, Multimedia University, Malaysia
Ivan Soukal, University of Hradec Králové, Czech Republic
Vladislav Spitsin, Tomsk Polytechnic University, Russian Federation
Lubov Spitsina, Tomsk Polytechnic University, Russian Federation
Miltiade Stanciu, Spiru Haret University, Romania
Silvius Stanciu, University Dunărea de Jos of Galați, Romania
Anca Cristina Stanciu, Ovidius University of Constanta, Romania
Roberta Mihaela Stanef-Puica, University Of Economic Studies, Romania
Simona Cătălina Ștefan, The Bucharest University of Economic Studies, Romania
Viorela- Georgiana Stinga, Constanta Maritime University, Romania
Florin Stoica, University ”Lucian Blaga” of Sibiu, Romania
Jan Strohmandl, Tomas Bata University in Zlín, Czech Republic
Ivan Strugar, University of Zagreb, Croatia
Subhacini Subramaniam, Multimedia University, Malaysia
Marta-Christina Suciu, Bucharest University of Economic Studies, Romania
Citra Sukmadilaga, Universitas Padjadjaran, Indonesia
Ruswiati Suryasaputra, Universiti Utara Malaysia, Malaysia
Dalia Susniene, Kaunas University of Technology, Lithuania
Tereza Sustrova, Brno University of Technology, Czech Republic
Ștefăniță Șușu, „Ștefan cel Mare” University of Suceava, Romania
Anna Svirina, Kazan National Research Technical University, Russia
Libuše Svobodová, University of Hradec Králové, Czech Republic
Faisal Syafar, Universitas Negeri Makassar, Indonesia
Andrea Szekely, University of Szeged, Hungary
Hamed Taherdoost, Ahoora Ltd | Management Consultation Group, Malaysia
Choo-Kim Tan, Multimedia University, Malaysia
Li Pin Tan, Universiti Teknologi Malaysia, Malaysia
Antranig Tangoukian, Notre Dame University, Lebanon
Laura Tarantino, University of L’Aquila, Italy
Petra Tausl Prochazkova, University of West Bohemia, Czech Republic
Dhafer Thabet, University of Mannouba, Tunisia
Seethaletchumy Thambiah, Multimedia University, Malaysia, Malaysia
Amara Tijani, University of GAFSA, Tunisia
Kateryna Tiulkina, Odessa State Academy of Civil Eng. & Architecture, Odessa State Environmental
University, Ukraine
Arsen Tleppayev, German Kazakh University, Kazakhstan
Antonio Toma, University of Salento, Italy
Elena Toma, University of Agronomic Studies and Veterinary Medicine, Romania
Alexandru Trifu, University “Petre Andrei” of Iasi, Romania
Sara Trigueros Preciado, University: Universidad de Cantabria, Spain
Ciprian-Octavian Truică, University “Politehnica” of Bucharest, Romania
Zuzana Tučková, Tomas Bata University in Zlín, Czech Republic
Nicoleta Liviana Tudor, Petroleum-Gas University of Ploiesti, Romania
Adrian Turek Rahoveanu, University of Agricultural Sciences & Veterinary Medicine Bucharest, Romania
Jamal M. Twati, The Academy of Graduate Studies, Libya
Ngene Ben Uchechukwu, Covenant University, Ota, Nigeria
Ana Ursu, Research Institute for Agricultural Economics and Rural Development, Romania
Uwuigbe Uwalomwa, Covenant University, Nigeria
Lukas Valek, University of Hradec Kralove, Czech Republic
JP Van Belle, University of Cape Town, RSA
Jean Andrei Vasile, Petroleum-Gas University of Ploiesti, Romania
XI
Laura Vasilescu, University of Craiova, Romania

Krinitcyna Zoya Vasilyevna, Tomsk Polytechnic University, Russia
Tatapudi Gopikrishna Vasista, Jawaharlal Nehru Technological University, Hyderabad, India
Damjan Vavpotič, University of Ljubljana, Slovenia
Marsida Vishkurti, University Aleksandër Moisiu, Durrës, Albania
Guillermina C. Vizcarra, Trinity University of Asia, Philippines
Ana Iolanda Vodă, University Alexandru Ioan Cuza, Romania
Marinela Vrîncianu, Academy of Economic Studies, Romania
Wan Fadzilah Wan Yusoff, Universiti Tun Hussein Onn Malaysia, Malaysia
Piotr Wittbrodt, Opole University of Technology, Poland
Waldemar Woźniak, University of Zielona Góra, Poland
Stanislaw Wrycza, University of Gdansk, Poland
Wejdene Yangui, Institute of High Business of Studies of Sfax, Tunisia
Wee Yu Ghee, Universiti Malaysia Kelantan, Malaysia
Olga Yudakhina, Tomsk Polytechnic University, Russia
Shulinina Yulia, National Research Tomsk Polytechnic University, Russia
Anna Yuryevna Dolinskaia, South Ural State University, Russia
Suzana Zambri, Universiti Teknologi MARA, Malaysia
Andreea Zamfir, Bucharest University of Economic Studies, Romania
Sarka Zapletalova, Silesian University in Opava, Czech Republic
Ecaterina Daniela Zeca, ”Dunarea de Jos” University of Galati, Romania
Jameleddine Ziadi, University of Sfax, Tunisia
Ondrej Zizlavsky, Brno University of Technology, Czech Republic
Daiva Žostautienė, Kaunas University of Technology, Lithuania
Abir Zouari, Sfax University, Tunisia
Mária Zúbková, Slovak University of Technology in Bratislava, Slovakia
Boštjan Žvanut, University of Primorska, Slovenia
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XII
Innovation Management and Education Excellence Vision 2020: Regional Development to Global Economic Growth
Table of Content
Study and Assessment of the Synergetic Effect in Integrated Industrial Structures………………………. 1

,Aleksandr V. Babkin and V. Svetlana Zdolnikova
Neural Networks as a Tool of Forecasting of Socioeconomic Systems Strategic Development………….. 11

,A. V. Babkin, E. P. Karlina and N. Sh. Epifanova
Comparative Study over the Encryption and Non-Encryption of the MySQL Database.............................. 18
Alexandru Boicea, Florin Rădulescu, Ciprian-Octavian Truică and Elena Mihaela Grigore
Sustainability of Family Businesses in Cameroon: An Empirical Study in Northwest and Southwest 24

Regions of Cameroon………………………………………………………………………………………
Nkam Micheal Cho, Sena Okuboyejo and Ndamsa Dickson
Ontology of Video Game Virtual World…………………………………………………………………... 33

Ekaterina Galanina, Evgenii Akchelov and Elena Sakharova
A New Perspective on Knowledge Management Processes: An Empirical Validation of the 5C KMLC

Theory............................................................................................................................................................ 44
Firas M. Alkhaldi
The Role of Brand Love Towards Word of Mouth Marketing with Customer trust as Moderating
Variable (The Case of ‘Hijup’ Fashion Brand among the Indonesian Customers)……………………….. 56
Anas Hidayat and Febri Tri Intan Azhana
The Need for a Change in Roles of Universities as Participants in Innovation Systems………………….. 68

Maria Elizabeth Eggink
Empowering RMG workers: Towards a Conceptual Framework…………………………………...…….. 78

Taimur Ahad, Yvette Blount, Peter Busch and Savanid (Nui) Vatanasakdakul
Mobile Phone Enabled SCM: The Bangladeshi RMG Sector………………………………………..…… 85

Taimur Ahad, Yvette Blount, Peter Busch and Savanid (Nui) Vatanasakdakul
Human Resources Education: Approaches and Contents………………………………………………….. 92

Viviana Andrade Meirinhos
Case Study – Using HACCP by F&B Manager and Importance of Insurance……………………………. 109
Zdeněk Málek, Eva Lukášková, Kateřina Pitrová and Helena Velichová
Déterminants de l’Activité et du Chômage des Immigrants au Canada: Analyse Comparative entre le

Québec et l’Ontario ……………………………………………………………………………………….. 119
Sana Mami Kefi
Immigrants’ Human Capital Return and the Relationship between Risk and Return: The Case of
Canada……………………………………………………………………………………………………. 138
Sana Mami Kefi
XIII
The Application of the Spatial Model of Monopolistic Competition in Market of Baked Goods……...... 157
Roman Svoboda, Lenka Kopecká and Elizbar Rodonaia
Social Entrepreneurship: Definition and Specifics………………………………………………………… 164

Petra Tausl Prochazkova
Developing a New Paradigm for Discovering 21st Century Economics………………………………….. 173

Ildiko Ioan, Dumitru-Alexandru Bodislav, Florina Bran, Mariana Iovițu and Carmen Valentina
Rădulescu
Managing Natural Resources to Obtain Economic Growth in Emerging Countries……………………… 179

Lamman Mammadzada, Karimov Tural, Umid Abuzarli, Ildiko Ioan and Ovidiu Buzoianu
Change and Public Relations as Engine for Organizational Growth……………………………………… 187

Ramona Mihaela Ghințu (Bănică), Carmen Valentina Rădulescu, Irina Petrescu, Carmen Georgiana
Badea, Bogdan Pascu and Ionuț Victor Rătezanu
Fiscal Policy in the EU Compared with the US – What Makes Businesses Thrive……………………….. 193
Evelina Petronela Bălu, Eugen Albu, Loredana Ionica Stan, Amelia Diaconu and Ramona Mihaela
Ghințu (Bănică)
The Solution Options of an E-shop Model Veronika Novotná……………………………………………. 201

Veronika Novotná
Towards a General Solution for Business Process Model Extension with Cost Perspective based on 208
Process Mining……………………………………………………………………………………………..
Dhafer Thabet, Sonia Ayachi Ghannouchi and Henda Hajjami Ben Ghezala
The Enhancement of Distribution Management System through Knowledge Transfer Program………… 221
Rosman Md Yusoff, Abd Rahman Ahmad, Sairun Syakira Binti Saiman, Ng Kim Soon, Khairol Anuar
Kamri and Khairunesa Isa
Performance Based Funding at Malaysian Public Universities.................................................................... 232

Abd Rahman Ahmad, Lee Jia Wen, Ng Kim Soon, Kek Siok Yee and Hairul Rizad Md Sapry
Special Aspects of Risk Management in IT-Projects……………………………………………………... 241

Valentin S. Nikolaenko, Oleg N. Petuhov, Olga V. Petukhova and Vladislav V. Romanovsky
The Textile Industry in the Context of Economic Growth, Economic Development and Sustainable
Development – A Nowadays Economic and Managerial Approach………………………………………. 260
Gheorghe N. Popescu, Cristina Raluca Gh. Popescu and Veronica Adriana A. V. Popescu
Temporal Inference Mechanism…………………………………………………………………………… 270

Zeineb Neji, Lamia Hadrich Belguith and Marieme Ellouze Khmakhem
Factors Influencing Alumni Donations at Malaysian Public Universities.................................................... 278

Khairol Anuar Kamri, Khairunesa Isa, Atikah Yahya, Abd Rahman Ahmad and Rosman Md. Yusoff
The Improvement of Operational Management in E-Administration……………………………………... 287

Mădălina Ecaterina Popescu (Andreica), Gheorghe Păcurar and Florentina Ivanov
XIV
Impact of Managerial Ownership on Financial Decisions: Evidence from Non-Financial Listed

Companies PSX……………………………………………………………………………………………. 293
Safdar Husain Tahi, Kosar Altaf, Sadia Naeem and Humera Naz
Customized Software Implementation of Dynamic Yield Curve Models in R as a Decision Support

Tool................................................................................................................................................................ 308
Lukas Falat, Tatiana Potkanova, Lucia Pancikova and Alexander Abrosimov
Agricultural Output and Economic Growth in Nigeria (1981-2014)…………………………………………… 321

Ewetan O. and Fakile Adebisi
The Analysis of Profitability and Leverage of Family Firm: Founder, Sibling Partnership and Cousin
Consortium………………………………………………………………………………………………… 331
Arif Singapurwoko
Causal Relationship among Trading Volume, Returns and Stock Volatility: Evidence from an Emerging
Market……………………………………………………………………………………………………… 344
Safdar Husain Tahir, Fahad Ali, Nouman Ghaffar and Hazoor M. Sabir
Critical Ethical Factors and Organizational Performance: A Proposed Model……………………………. 359

Sherine Farouk and Fauzia Jabeen
Measuring Innovation and Predicting Firm Performance (Part 2)………………………………………… 365

Michael Studeny, Andreas Bartels, Manfred Rauch, Mathias Scheiblich, Vanessa Just and Melanie
Buchmüller
Sustainable Value and its Role in Regional Development………………………………………………… 375
Petra Lešáková, Karel Šatera and Ebo Tawian Quartey
A five Dimension Framework for International Business Relationships the B2B Approach…………….. 385
Elena-Mădălina Vătămănescu, Vlad-Andrei Alexandru and Laurențiu-Mihai Treapăt
Examining the Factors of Social Commerce Effectiveness………………………………………………... 396

Erne Suzila Kassim, Abdul Kadir Othman, Norol Hamiza Zamzuri
Statistical Analysis of Pensions and Incomes of Old Generation in Russia and Tomsk Region…………. 404
Marina Ryzhkova, Vladislav Spitsin, Aleksandr Mikhalchuk, Lubov Spitsina and Viktor Kanov
Use of Artificial Intelligence in Medical Sciences………………………………………………………… 415

Anwar M. A and Sayed Sayeed Ahmad
The Managerial Prerogative: A Meta-Legal Policy Analysis…………………..………………………… 423

Nehaluddin Ahmad and Gary Ian Lilienthal
Pension and Income in Russia: Regional Differences and Affecting Factors……………………………... 433
Marina Ryzhkova, Vladislav Spitsin, Aleksandr Mikhalchuk, Lubov Spitsina and Mikhail Shinkeev
Investing in Farmland in the Czech Republic as a Growth Factor in its Price…………………………….. 443
Lucie Severová, Roman Svoboda and Lenka Kopecká
The Use of Management According to Activities……………………………………………..………….. 452

Valentin S. Nikolaenko, Oleg N. Petuhov, Olga V. Petukhova and Vladislav V. Romanovsky
XV
Disposition in Digital Records Management and Information Systems: A Conceptual Analysis…..…… 459
Sherry. L. Xie and Guanyan Fan
A Model of Work-Family Enrichment and Job Satisfaction………………………………………………. 464

Burhanudin, Heru Kurnianto Tjahjono and Majang Palupi
Why People Use Facebook: Analysis of Factors influencing Users in the Czech Republic……………… 470
Jitka, Novotová
Regulatory Pressure and Bank Capital and Risk Behavior in Pakistan……………………………………. 482
Samina Riaz, Venus Khim-Sen Liew and Rossazana Bt Ab Rahim
Pricing Strategy and Efficiency Advertising Activity................................................................................... 492

Ekaterina Kalmykova and Galina Fangmann
The Impact of Innovation and Technical Progress on the Economy………………………………………. 497

Gavril Stefan and Oana Coca
The Relationship between Monetary Policy and Foreign Direct Investment in Romania during 2003- 507
2014…………………………………………………………………………………………………..
Valentin Mihai Leoveanu
Further Professional Education Reflecting Market Needs In Gastro-Services In The Czech Republic......... 523
Jan Chromy
Code of Ethics and Accountants’ and Auditors’ Activity…………………………………………………. 530

Natalya Frolova and Svetlana Danilova
The Ethical Consumer’s Behavior in Romania and Bulgaria: An Exploratory Research………………… 535
Adela Coman, Virginica Rusu and Valentin Mihai Leoveanu
Basel Implementation and Performance of Pakistani Banking Sector…………………………………….. 548

Samina Riaz, Venus Khim-Sen Liew and Rossazana Bt Ab Rahim
Complex Logical Connectors in Unified Modeling Language……………………………………………. 562

Josef Myslin
Organizational Agility: Online Retailing at a Glance………………………………………………..…… 573

Florina Pînzaru, Sergiu - Octavian Stan and Elena-Mădălina Vătămănescu
The Main Fields of Technology for the Top 10 Universities in PCT Patent Application………………… 577
Petr Zdralek, Ruzena Stemberkova, Pavla Matulova, Petra Maresova and Kamil Kuca
Process Framework of Information Modeling for BIM Execution Planning……………………………… 582

Josef Myslin
L’Effet du Pays d’Origine du Client sur la Perception de l’Hospitalité dans un Espace Marchand: Une
Etude auprès des Clientes Tunisiennes et Saoudiennes……………………………………………………. 592
Ghali Zohra
XVI
Negotiations and due Diligence in the Czech Legal System………………………………………………. 606

Mgr. Lenka Hanáková
Consumers’ Buying Intention of Environmental Friendly Cosmetic Products: Perspective of Norm

Activation Theory………………………………………………………………………………………….. 614
Siti Munerah, Seethaletchumy Thambiah and Saravanan Muthaiyah
A Novel Approach Based on Reinforcement Learning for Anaphora Resolution in Arabic texts……..… 625
Saoussen Mathlouthi, Fériel Ben Fraj Trabelsi and Chiraz Ben Othmane Zribi
Why Labour Market of V4 Countries Developed Differently Compared to Western Countries? ............... 639
Martin Hudcovský, Elena Fifeková and Eduard Nežinský
Inventory and the Economic Cycle in the Czech Republic………………………………………………... 649

Václav Olešovský
Obtaining Customer Feedback: Experience of “Staffino” from the Managerial Point of View…………... 657
Petra Solarová and Roman Švec
The Concept of Financial Paradoxes: Origins, Essence, Potential for Development……………………… 671
Nadezhda A. Lvova, Natalia V. Pokrovskaia, Natalya S. Voronova and Viktor V. Ivanov
Developing Methodology of Monitoring Companies' Financial Stability: Abnormal Profitability

Evaluation………………………………………………………………………………………………….. 681
Nadezhda A. Lvova, Natalia V. Pokrovskaia, Neli R. Abramishvili and Viktor V. Ivanov
Competitive Strength of a Concession Integration Model of Labour Market to Education Market

Interaction………………………………………………………………………………………………….. 689
Rodionov D.G, Nikolova L.V, Velikova M.D and Kalubi R.D.M
Personnel Management on the Example of Selected National Parks in Germany………………………… 700

Josef Stemberk, Ruzena Stemberkova, Petra Maresova and Kamil Kuca
Ranking of Reward and Recognition Preferences among Hospitality Workers in UAE………….……… 708
Hassan Younies and Tareq Al-Tawil
Knowledge Management in Quality Management System………………………………………………... 712

Ekaterina V. Men’shikova, Marina.V. Verkhovskaya and Elena T. Sakharova
Comparative Analysis (Romania – Spain) on Investment in Human Capital and its Recovery. An 719
Approach from the Investment Perspective in Education………………………………………………….
Ioana – Julieta Josan
Satisfaction Profiles of Students in a University…………………………………………………………... 731

Corina Pelau, Dana Olar
Perception of the Service Quality in the Senior Tourism Market…………………………………………. 741

Roman Švec and Petra Solarová
XVII
Labor Resources of the Far North Territories: Problems and Prospects…………………………………... 758
Irina M. Zaychenko, Olga V. Kalinina and Svetlana S. Gutman
Application of Service-Oriented Approach to Business Process Reengineering………………………….. 768

Igor V. Ilin, Oksana Yu. Iliashenko and Anastasia I. Levina
Analysis of the Dependence of the Czech Stock Market on the Main European and G-20 Stock
Markets…………………………………………………………………………………………………... 782
Elena Kuchina and Pavel Pikola
The Influence of Slovak Pension Reform on the Second Pillar during the Financial Crisis……………… 793
Mário Papík and Jana Kajanová
Big Data Security using Fragmentation in Mongo Data Store…………………………………………….. 801

Houyem Heni and Faiez Gargouri
The CSR Mechanism in the International Banking Design……………………………………………... 813

Georgiana-Loredana Frecea
The Break-Even Estimative Analysis for the Medicinal Plants Cultivated in Romania in the 822
Conventional and Organic Agriculture Systems…………………………………………………………...
Rozi Liliana Berevoianu, Cristina Mihaela Vlad, Diana Maria Necula and Raluca Necula
Vertical Specialization and the Dynamic Effects of Financial Frictions…………………………………... 837

Selma Chaker and Sana Mami Kefi
Online Marketing - Communication Strategy for Managers Aquaponics Farms………………………….. 839

Maria Magdalena Turek Rahoveanu and Adrian Gh. Zugravu
Economic Evaluation in the Structure of Production of an Agricultural Holding - Case Study………….. 848
Adrian Turek Rahoveanu
Leadership Styles and Presenteeism: A Study on Health-Care Professionals in Karachi…………………. 857

Syeda Nadia Bokhari, Nawaz Ahmed and Syed Irfan Hyder
Determinants of Dividend Payout: An Empirical Study of Pharmaceutical Companies of Pakistan Stock

Exchange (PSE)……………………………………………………………………………………………. 869
Farman Ali Khan and Nawaz Ahmad
The Relationship between Entrepreneurial Intention, the Big Five Personality Traits and Emotional
Intelligence………………………………………………………………………………………………… 889
M. Botha, W. Fourie and D.W. Wasserman
Challenges Faced By Brand Managers in the Luxury Industry:Attitudes and Motivations of Luxury
Clothing Consumers……………………………………………………………………………………….. 909
Valentina Iuliana Diaconu and Mădălin Lucian Cerceloiu
The Effect of Honey Production on Beekeepers Income. A Study Case in South Muntenia Development
Region of Romania……………………………………………………………………………………..… 919
Agatha Popescu
XVIII
Regression and Elasticity of the Average Delivery Price and Production of Honey in Romania……….... 935
Agatha Popescu
Comparative Analysis of Typical Features of the Economies of the States in around the Crisis Period
2005-2011………………………………………………………………………………………………….. 945
Tatiana O. Dyukina, Sergey I. Shanygin and Ekaterina I. Zuga
Lack of Trust and Loss of Money – Challenges in Online Financial Trade……………………………….. 954
Tove Engvall
@Risk Software as a Decision Support Tool……………………………………………………………… 963

Martin Januška and Marek Čech
Reducing Products Costs by Prescribing Geometric Precision based on Size - Dependent Tolerances….. 979
Cătălin Ionescu, Paulina Spânu and Aurelian Vișan
Efficient Manageability and Intelligent Classification of Web Browsing History Using Machine
Learning ………………………………………………………………………………………………….... 993
Suraj G. and Sumantha Udupa U.
Implication of the New EU Directive for Disclosing Non-financial Information on Sustainability,

Environment and Social Aspects…………………………………………………………………………. 998
Singer Klaus, Bußian Aykut and Kopia Jan
Special Economic Zones as an instrument of Industrial Policy Pharmaceutical Clusters in Russia……… 1008
Tatyana Kudryavtseva, Dmitry Rodionov, Valentina Kravchenko and Vladislav Maryta
Evaluation Software Applications Using Royalty Savings Method ……………………………………… 1019

Paula-Angela Vidrașcu, Cristina Burghelea, Oana Camelia Iacob and Ana-Maria Volintiru
Comparison of the Minimum Wage in the Czech Republic and Selected Central European Countries…. 1026
Karel Šrédl, Roman Svoboda and Lucie Severová
Dynamics of Agricultural Land Usage, Production and Agricultural Potential, and Prospects of
Economic Development in Trascău Mountains, Romania………………………………………………… 1031
Elena Bogan, Dana Maria (Oprea) Constantin, Irina-Adriana Chiurciu, Elena Soare and Sebastian
Gabor
A Study of The Impact of Corporate Governance of the Upper Echelon on the Value of The Firm - A
Focus on the Gender of the Board and Supervisory Board………………………………………………... 1044
Jochen Schmid, Vanessa Just, Bastian Heinemann and Melanie Buchmüller
Study of the Effects of ESG Analysis on the Economic Value of a Firm…………………………………. 1053
Jochen Schmid, Marieta Olaru, Aykut Bussian, Tobias Stiegler and Andreas Bartels
Analysis of Regional Expansion Effect toward People Welfare in South Sorong-Papua…………………. 1065
Suwandi
Bottom-Up Policies for Rural Development Evidence from the LEADER Experience…………………... 1070
Andreea Emanuela Drăgoi and Otilia Manta
XIX
Influence of Different Tillage Systems on Soybean Grain Yield, (Glycine Max L. (Merrill), Under the
Conditions of South East Romania………………………………………………………………………… 1081
Nicoleta Căpățână and Horia Nicolae Ciocan
Selected Development Factors of Small and Medium Enterprises………………………………………... 1090

Anna Lemańska-Majdzik, Małgorzata Okręglicka and Iwona Gorzeń-Mitka
The Information Literacy Level of Slovak Managers……………………………………………………... 1100

Vladimír Bolek, Mojmír Kokles and František Korček
Qualitative Marketing Research on the Mures County Managers’ Opinions and Perceptions Regarding
the Causal Relationship between The Performance on a Model of Decision and Strategic Action and the
Economic Performances of a Company………………………………………………………………… 1112
Alina-Maria Fărcaș and Constantin Nicolaescu
Approach to Information Support and Ensure the Implementation of PR-activities of the State Industrial
Policy………………………………………………………………………………………………………. 1124
Vladimir Plotnikov and Valeria Rodina
Are Migrant Entrepreneurs an Opportunity for the Export Industry? An Analysis of the Austrian Region
of Burgenland……………………………………………………………………………………....……… 1133
Doris Maria Granabetter
Ethical Leadership in the Context of CSR…………………………………………………………………. 1144

Zuzana Kirchmayer, Anna Remišová and Anna Lašáková
Mediating Effect of Psychological Capital between Transformational Leadership and Innovative Work
Behavior; An investigation within Omani context………………………………………………………… 1151
Rabia Imran, Khayar Hassan Salim Al-Ansi and Afsheen Fatima
The Role of Information Technology in Enhancing SMEs Capabilities through Knowledge

Management……………………………………………………………………………………………… 1162
Naief G Azyabi
Research on Current Global Market Trends in the Business Process Outsourcing Industry……………… 1176
Alexandra Mateiu (Sârbu), Elisa Gotesman(Bercovici), Irmer-Sven Joachim, and Mihaela Maftei
Development Model of An Integrated Aquaponics with Social Services Activities in Romania……… 1185
Gheorghe Adrian Zugravu, Maria Magdalena Turek Rahoveanu, Adrian Turek Rahoveanu, Nistor
Costel, Marian Tiberiu Coada, Stefan Mihai Petrea, Alexandru Cristian Bandi, Mirela Cretu, and Ira
Adeline Chihaia
Optimization of Distribution Routes through The Clark-Wright Method………………………………… 1195

Čejka Jiří and Smetanová Dana
Social Economy and Corporate Social Responsibility the Joint Venture between Democracy and
Capitalism………………………………………………………………………………………………….. 1208
Violeta Stanciu (CHIRILOAIE) and Gabriela Marchis
XX
Assessment of the Housing Stock Condition as an Element for Estimating the Conditions for Human
Capital Development in the Regions of the Russian Federation…………………………………………... 1218
Olga V. Zaborovskaia and Ekaterina V. Plotnikova
Predictive Factors of the Exceptionally High Number of Industrial Accidents at Work in Greece: A
Statistical Analysis of Sample Survey Results……………………………………………………………. 1226
Christos C. Frangos, Vaios Skordas, Stavros Chaniotis, Constantinos Kyritsis, and Konstantinos C.
Fragkos
Smart Technologies in the Process of Adaptation of Newly Recruited Employees at Industrial

Enterprises…………………………………………………………………………………………………. 1236
Tatiana V. Kalashnikova, Natalia V. Frolova, Sergei V. Sorokin, and Anna S. Shumakova
The Analysis of Investment Incentives in the Slovak Republic…………………………………………… 1240

Ľubomír Darmo
Regional Development of Small and Medium Enterprise in Correlation of the Life Cycle………………. 1253
Pavla Matulova, Ruzena Stemberkova, Petr Zdralek, Petra Maresova, and Kamil Kuca
Implications of Regulations and Taxes on Inbound Investments in Alternative Asset Classes in

Germany…………………………………………………………………………………………………… 1262
Bußian Aykut, Stiegler Tobias, and Schmid Jochen
The Problems of Innovation Development in Russia……………………………………………………... 1274

Egorova Maria, Shatova Maria, Kashapova Elmira, and Zhavoronok Anastasiya
Problems of the Investment Climate Formation in Russia………………………………………………… 1284

Egorova Maria, Yilmaz Ilkay, Shatova Maria, and Varlacheva Natalia
The Implementation of Risk Management in a Medium Sized Company………………………………… 1294

Bastian Heinemann, Melanie Buchmüller, Steffen Lange, and Jochen Schmid
Analysis of the Physical Organic Food Availability at Retail Stores in The Czech Republic……………. 1305
Eva Lukášková, Kateřina Pitrová, Jakub Trojan, and Nikola Hasníková
“What I ate” Videos on YouTube…………………………………………………………………………. 1314

Muna Sultan Al Abri
Simulation Model for the Firms’ Financial Resource Management………………………………………. 1317

Orlova Ekaterina Vladimirovna
The Role of Trust & Business Relationships in Successful Management of Project Contracts: A Case of
Construction Sector of Middle East……………………………………………………………………….. 1322
Mohammad Ahmed and Umara Noreen
Application of Selected Statistical Methods in the Issue of Enterprise Financial Performance…………... 1336
Beata Sofrankova, Jarmila Horvathova, Dana Kiselakova, and Svetlana Matkova
Social Factors and Women Technology Entrepreneurs in Saudi Arabia…………………………………... 1346

Asma I. Aleidi and Daniel Chandran
XXI
Study upon Applying Multi-Criteria Analysis to the Selection of Building Materials…….……………… 1354
Andreea-Terezia Mircea
The Determinants of Youth Unemployment: A Microeconomic Approach………………………………. 1361

Maria Denisa Vasilescu and Amalia Cristescu
The Main Barriers of Accessing EU Structural Funds in Romania……………………………………….. 1371

Corcodel Ștefan-Florin, Tănase Ion Alexandru, and Urîtu Daniel
Value Management Impact and Economic Policy of State on Stakeholders……………………………… 1382

Tatiana Potkanová and Alžbeta Kucharčíková
Methods of Assessment the Effectiveness of Small Business Management in the Telecommunications

Industry…………………………………………………………………………………………………….. 1391
Yulia Vertakova, Vladimir Plotnikov, and Evgeniy Leontyev
A Snapshot over Dynamics of Innovation in Romanian SMEs…………………………………………… 1400

Ion Verboncu, Sabina Irimie, Luise Zeininger, and Mircea Mihai
Regulation Effects in the Swiss Property Market………………………………………………………….. 1407

Roman Eduard Kocher
Is it Document? Or is it Record? ………………………………………………………………………….. 1409

Ap-Azli Bunawan, Safawi Abdul Rahman, Mohd Razilan Abdul Kadir, Mohd Zailan Endin, and Mohd
Kamil Mohamed Nor
Innovation And Sustainability at the Swiss Building Industry due to Digital Business Transformation….. 1414
Simon C. Vlachos
Organizational Culture Role in Operational Risk Management…………………………………………… 1417

Violeta Mihaela Grecu
Partage des Connaissances et Capacité D’apprentissage Organisationnel : Ebauche D’un Modèle

D’évaluation de la Performance Organisationnelle……………………………………………………… 1423
Aloulou Olfaand and Karima Bouzguenda
Simulation Optimizer used for Testing Optimization Methods…………………………………………… 1429

Pavel Raska and Zdenek Ulrych
Energy Audit and Increase of Energy Efficiency in the Republic of Kazakhstan…………………………. 1446
Arsen Tleppayev and Nataliya Tovma
Mapping Industry Dynamics: The Case of the Audiovisual Archiving Sector …………………………… 1457
Chiara Bernardi and Giovanni Camponovo
Entrepreneurial Intention’s Antecedents and Educational Level: A Case of Indonesia’s State-Owned
Higher Education Institutions…………………………………………………………………………….. 1468
Restu, Ika Febrilia, Ari Warokka, and Mohamad Rizan
FMEA Application to Improvement of Designed Technical Products……………………………………. 1480

Michał Sąsiadek, Wojciech Babirecki and Waldemar Woźniak
XXII
An Algorithmic Concept for Optimising the Number of Handling Operations in an Intermodal Terminal
Node……………………………………………………………………………………………………….. 1490
Waldemar Woźniak, Michał Sąsiadek, Roman Stryjski, Janusz Mielniczuk, and Tomasz Wojnarowski
An Analysis of the Evolution Of Romania’s Cereals Production and Trade in the Period Of Post-
Accession to the EU Community Economic Space………………………………………………….. 1501
Cristian Cristu, Mihaela Scurtu Cristu and Silvius Stanciu
The Economic Convergence – Empirical Analysis of Balassa-Samuelson Effect in Romania in the

Context of Monetary and Macroeconomic Policy Mix…………………………………………………… 1515
Petre Adrian and Ionita Georgiana Alina
Real Business Cycles Analysis for Romanian Economy – A Bayesian Approach of Macroeconomic
Policy Mix in the Context of Real Economic Convergence……………………………………………….. 1527
Ionita Georgiana Alina and Petre Adrian
Leadership Styles in Project Management………………………………………………………………… 1540

Michal Mičík
A Structural Legal Rule for Goodwill: From Business Facts to Case Law……………………………….. 1549
Gary Lilienth and Nehaluddin Ahmad
Analysis of the Structural Components and Measurement of the Effects of Cost Inflation in the Industry 1559
with the Help of the Index Method…………………………………………………………………………
Aleksandr N. Tsatsulin, Aleksandr V. Babkin, and Nina I. Babkina
Privacy and Security Issues in the Use of Clouds in E-Health in the Kingdom Of Saudi Arabia………… 1574
Emna Chikhaoui, Jawahitha Sarabdeen, and Rehana Parveen
Predicting Students’ Performance Using Mutli-Criteria Classification: A Case Study…………………… 1590

Feras Al-Obeidat and Abdallah Tubasihat
Information Technology Capabilities and Competitive Advantage in Small and Medium Enterprises 1600
(Smes) and Large Enterprises………………………………………………………………………………
Lew Sook Ling
Factors Influencing Islamic Microfinance Participation in Malaysia…………………………………… 1609

Seethaletchumy Thambiah, Saravanan Muthaiyah, Kew Jie Jun and Mariati Norhashim
What Explains Our Slow Economic Growth? Causality Analysis between Economic Growth and
Defense Spending in Pakistan……………………………………………………………………………... 1615
Sabeen Anwar
Role of Municipal Police in Providing Of Security in Selected Municipality in Czech Republic……….. 1636
Jan Fuka, Jan Fuka, and Zdeněk Brodský
Appraising and Enhancing a Leadership in Innovation Model……………………………………………. 1644

Monica George, Hiyam Al-Kilidar and Grant Mooney
Le Traitement Des Phobies Par La Réalité Virtuelle………………………………………………………. 1655

Iulia-Cristina Stănică, Maria-Iuliana Dascalu, Alin Moldoveanu, and Florica Moldoveanu
XXIII
Application of Oaxaca Decomposition in R. Case Study: Roma Minority in Romania…………………... 1667

Glăvan Ionela-Roxana, Mincu-Rădulescu George Ioan, and Andrei Tudorel
Early Warning Information Spread with the Aspect of Exclusivity during Emergency Events…………... 1675
Tomas Žižka and David Kubát
Early Warning in Traffic: Current and Novel Approaches and Methods………………………………….. 1682
David Kubát and Tomas Žižka
Evaluation of Sustainable Development Requirements for Companies in the Context of Global

Progress…………………………………………………………………………………………………...... 1688
Larisa Ivascu and Lucian-Ionel Cioca
Specific Practices in Risk Management of Biogas Production……………………………………………. 1694

Katarína Rentková and Jan Janać
Application for Visualization and Analysis of Traffic Accident Information…………………………….. 1703

Marián Lamr and Robin Dvořák
The Importance and Influence of Country-of-Origin on Consumer Brand Perception……………………. 1710

Lenka Ližbetinová, Dagmar Weberová and Peter Štarchoň
Perception of E-Teaching Experience in Latvian Higher Education Institutions…………………………. 1723

Jekaterina Bierne and Jelena Titko
Theoretical and Practical Aspects regarding the Management of Project Sustainability – The Impact on
European Union Funded Projects………………………………………………………………………….. 1731
Nicoleta Daniela Ignat and Roxana Adriana Motorga (MECHNO)
The Role of Corporate Social Responsibility in Risk Management: The Case of Multinational
Companies…………………………………………………………………………………………………. 1738
Carmen Nadia Ciocoiu and Miruna Mosoia
Regulatory Reforms and OTC Derivatives – A Look at Some Changes Reshaping the Markets………… 1753
Ľudomír Šlahor, Andrea Zajačeková, Daniela Majerčáková and Mária Barteková
Proposition d’une Taxonomie des PME Industrielles Tunisiennes selon leur Orientation
Entrepreneuriale (OE) ……………………………………………………………………...……………... 1767
Chiraz Ben Salem and Mahmoud Zouaoui
Financial Markets Integration within EU Countries from Central and Eastern Europe……………………. 1779
Stela Jakova
WINAlarm – innovative IoT-based information System as Python service………………………………. 1790

Anca Vasilescu, Claudia Carstea and Cristina Maria Pacurar
Two Link Value Chain: Development, Managerial Capabilities and Performance……………………….. 1798
Kazi Afaq Ahmed
XXIV
Demand for IT Students in Latvian Labour Market: Viewpoint of Employers……………….….……….. 1812

Jelena Titko, Irina.Smatkova and Edgars Cerkovskis
An Analysis of Czech Political Events Reflections in Facebook …………………………………………. 1824

Ivan Jelínek
Institutional Quality of the EU and OECD Countries …………………………………………………….. 1833

Eduard Nežinský, Elena Fifeková and Andrea Valachová
Use of Multi-Agent System for Management Issues Solving in a Manufacturing Company…………….. 1844
Aleksandra Szajna and Roman Stryjski
Identification of Company’s Critical Success Factors. Case Study of Google……………………………. 1856

František Hortai and Anikó Molnárová
NAFIS: A Gold Standard Corpus for Arabic Stemmers Evaluation………………………………………. 1868

Driss Namly, Rachida Tajmout, Karim Bouzoubaa and Lahsen Abouenour
Le Rôle des Ressources Immatérielles dans la Création de Valeur dans une PME Exportatrice 1878
Marocaine…………………………………………………………………………………………………..
Mostafa Abakouy and Ibtissam Jadir
Knowledge Management Strategies in Creating World Class University………………………………… 1890

Anna A. Kornienko, Natalia N. Kabanova, Uliya A. Nikitina and Elena T. Sakharova
A Comparison of the Water Poverty and Water Vulnerability Indices…………………………………… 1898

Charles van der Vyver
Crisis Effects on Banking System Management in Romania……………………………………………… 1910

Simona Rus, Marian Mocan, Anca Draghici, and Larisa Ivascu
Drivers of Active and Passive Information Sharing Behavior on the Internet: The Role of Internet Usage 1917
Patterns and User Demographics……………………………………………………………………
Maria Madlberger
Interpenetration of Technological and Human Capital Assets in the Context of a Modernization

Paradigm…………………………………………………………………………………………………… 1928
Olga Rogova, Tatyana Filippova, Uliya Nikitina, Irina Snopok, and Tatiana Kalashnikova
Analysis of the Bakery Industry Sector in Romania………………………………………………………. 1939

Mihaela Scurtu Cristu, Cristian Cristu and Silvius Stanciu
Implementation of Project Management Practices in the Direct Purchasing System of a Company…….. 1948
Vera Sá and Anabela Tereso
The Regional Dimension of Income Inequality in EU Countries: A DEA Approach…………………….. 1957

Ing. Elena Fifeková, Andrea Valachová and Matej Valach
Product Information and its Impact on Consumer Brand Perception……………………………………… 1964

Dagmar Weberová, Peter Štarchoň and Lenka Ližbetinová
XXV
Perception of Brownfields by Local Population: Some Implications for Public Administration………… 1975
Jaroslav Škrabal, Vojtěch Benda, Stanislav Martinát and Kamila Turečková
Processus de Gestion des Injonctions Paradoxales de la Nouvelle Gestion Publique…………………….. 1986

Fouad Bazzine and Hassane Boujettou
Marketing du Tourisme Durable: Essai d’analyse d’une Evolution vers un Marketing Responsible……. 1994
Saida Marso
The New German Tax Regime for Investment Funds: An Exemplar for Europe? ...................................... 2005
Tobias Stiegler, Axel Ulrich Wiesener, Aykut Bussian and Jochen Schmid
The Analysis of Regional Disparities in the Slovak Republic…………………………………………….. 2014

Katarína Rentková, Monika Roštárová and Milan Mazanovský
The Intercultural Approach to the Teaching and Learning at Digital Business Management……………. 2026
Eulalia Torras and Andreu Bellot
Consumers Behaviors of Online Banking Services………………………………………………………... 2037

Bucur (Manea) Luiza Emanuela and Cetină Iuliana
Risk Management System Application Efficiency on Enterprise…………………………………………. 2046

Daniel S. Demidenko and Ekaterina D. Malevskaia-Malevich
Systems Archetypes in Time Banking: The First Step…………………………………………………….. 2052

Lukas Valek
Innovation Capabilities in Bureaucratic Organization: Rationalization Perspective…………………… 2059

Sana Miladi and Soumaya Ben Dhaou
Construction of Kazakhstan's System of Energy Efficiency Indicators for the Development of Industrial
Competitiveness……………………………………………………………………………………………. 2071
Arsen Tleppayev, Nataliya Tovma and Saule Zeinolla
Attitudes of Students to the Lecture Streaming and New Elements of E-learning Portal…………………. 2080
Klára Císařová, Marián Lamr, Přemysl Svoboda and Pavel Tyl
The Risk of Creativity: EaR for the Intellectual Assets Portfolio…………………………………………. 2088
Victor S. Voronov, Viktor V. Ivanov and Ivan A. Darushin
Operational and Economic Requirements of Innovative Products Designed to Prepare Business Plans… 2098
Natalia Y.Izotkina, Tatiana G. Trubchenko, Natalia V. Shaftelskaya, Alice Krechetova, Elena M.
Krukova, Anastasia A. Karelina and Tatiana V. Kalashnikova
Identification of Gifted Students via ANFIS for a Purpose of their Inclusion into Special Educational
Program……………………………………………………………………………………………………. 2105
Petr Dostál, Eva Machů and Imrich Rukovanský
Program-Target Management in Organization…………………………………………………………….. 2114

Nikulina Irina, Khomenko Igor and Petrochenkov Constantine
XXVI
Optimal Financial Means and Profit Distribution between Public and Private Partners in PPP Project
Realization…………………………………………………………………………………………………. 2122
Alexander Sergeevich Sokolitsyn, Maxim Vladimirovich Ivanov and Natalya Alexandrovna Sokolitsyna
Investment Policy: Determining Short-term Credit under Circulating Capital……………………………. 2130

Alexander Sergeevich Sokolitsyn, Maxim Vladimirovich Ivanov and Natalya Alexandrovna Sokolitsyna
The Peculiarities of the Sectoral Innovative Development of the Russian Economy……………………... 2145
Yulia Vertakova, Olga Grechenyuk and Anton Grechenyuk
Outsourcing as a Form of Disintegration Process Administration in the Economy……………………….. 2158

Yulia Vertakova and Artur Kurbanov
Management of Innovative Processes in Industry: Method of "Road Maps"…………………………… 2168

Yulia Vertakova, Yulia Polozhentseva and Maria Klevtsova
“Rabbit Effect”: the Reasons of Volunteer Movements as the Diagnostics of the Role Transformations
of Human Resource Management…………………………………………………………………………. 2179
Vladimir F. Tarasenko, Maria V. Melik-Gaykazyan, Maria S. Gorbuleva and Irina V. Melik-Gaykazyan
The Global and the Local: the Model of Measuring Efficiency of International Business……………….. 2183
Vladimir F. Tarasenko, Maria V. Melik-Gaykazyan and Irina V. Melik-Gaykazyan
Place of Bioethics in Knowledge Management in the Information Society………………………………. 2187

Tamara V. Mescheryakova, Maria V. Melik-Gaykazyan, Bogdan O. Kirilenko and Irina V. Melik-
Gaykazyan
Managerial Investment Decision Making in a Medium – Sized IT Company…………………………….. 2192

Eva Malichova, Maria Durisova and Emese Tokarcikova
Improvement of the Mechanism Ensuring Innovative Development of the Oil Sector in Times of Crisis 2201
Aleksey V. Melnikov, Olga S. Nadezhina and Irina A. Rudskaya
Development of an Adaptive Management Model for Innovative Activities of an Enterprise………… 2210

Svetlana R. Niyazova, Juriy Ju. Kuporov and Olga S. Nadezhina
Proposing an Integrative Framework of Strategic Consensus……………………………………………... 2223

Rachel Maritz
Supply Chain Risk Management – Actual Research Progression and Potential Future Directions in the
context of Supply Chain Resilience……………………………………………………………………… 2234
Johannes Litzenburger, Nicole Mau and Markus Mau
Classification des Risques dans le Secteur des TIC : Enjeux et Implications Théoriques et Pratiques….. 2239
Karima Bouzguenda and Amina El Abed
Economic Features of Human Migration………………………………………………………………….. 2249

Alexandra Deviatilova, Irina Ershova, Daria Kvashnina and Larisa Sevryukova
Measurement of Socio-Economic Development Using Better Life Index………………………………… 2259

Andrea Valachová, Matej Valach and Kristína Petríková
XXVII
Clustering in Relation to Brand Perception: An Example Based on Czech Consumers………………….. 2271

Peter Štarchoň, Lenka Ližbetinová and Dagmar Weberová
An Analysis of Romania’s Production, Consumption and Trade with Wine Products…………………… 2286
Silvius Stanciu and Cezar Ionuț Bichescu
Informative-Documentation Providing of Public Management of Businesses……………………………. 2295

Alexandra Deviatilova, Sergey Emelyanov, Aleksandr Zapolskii and Irina Ershova
Brexit Impact on Romania’s Economy…………………………………………………………………….. 2307

Silvius Stanciu
Innovation from a Macroeconomic Perspective, its Support, Evaluation and Application………………. 2315
Simona Činčalová
How Do ICT Impact on Smart City Assessment? A Case Study………………………………………….. 2328

Dante Carrizo and Marcelino Gajardo
SWOT Analysis of the Cambodian Construction Industry within the ASEAN Economic Community… 2335
Serdar Durdyev, Maksat Omarov and Syuhaida Ismail
Draft of Systematic Performance Management Process Framework……………………………………… 2342

Michaela Striteska and Lucie Jelinkova
Publicity in Banking Services: Planning and Evaluation………………………………………………….. 2357

Nikulina Irina, Fangmann Galina and Tsevegmed Gantuyaa
Analysis of Convergence of the Slovak Economy: Past Successes and Future Challenge………………... 2366
Ing. Matej Valach, Kristína Petríková and Martin Hudcovský
Statistical Analysis of Social Activity of Older Adults …………………………………………………… 2375

Galina Barysheva, Aleksandr Mikhalchuk, Veronika Malanina, Marina Ryzhkova, Vladimir Zalmezh
and Julia Aksenova
Associations and Foundations in Europe A Special Approach to Practising Economy…………..……… 2383

Violeta Stanciu (CHIRILOAIE) and Liviu Mărcuță
Economic Aspects of the Use of Cloud Computing……………………………………………………….. 2390

Vaclav Sova Martinovsky
Consumer Usage Patterns of the Major Retail Banks in the Czech Republic……………………………... 2399
Ivan Soukal and Jan Draessler
Development of Major Banks’ Typical Consumer Profiles in Recent Years……………………………… 2403

Ivan Soukal and Jan Draessler
Female Entrepreneurship in Romania, a Higher Education Perspective…………………………………... 2408

Ana-Maria Neagu, Bujorel Ionel Păvăloiu and George Drăgoi
XXVIII
Information Security Policies Compliance among Employees in Cybersecurity Malaysia………………. 2419

Mohd Razilan Abdul Kadir, Sharifah Norwahidah Syed Norman, Safawi Abdul Rahman, Abdul Rahman
Ahmad and Ap-Azli Bunawan
Open Innovation and Network approaches in Healthcare Ecosystems……………………………………. 2431

Antonio Toma, Giustina Secundo and Giuseppina Passiante
Re-use of brownfields in Karvina: The challenge for local urban development…………………………... 2436
Kamila Turečková, Jaroslav Škrabal, Vojtěch Benda and Stanislav Martinát
SW To Support the Project Management of Conveyor Design and Installation…………………………... 2448

J. Strohmandl, M. Tomek, Z. Šafařík and Z. Málek
Technology and Lifelong Learning: Dynamics of Human Capital in the Digital Context…………..…… 2454
Yakub R. Agishev, Anna A. Svirina and Gulnara N. Khadiullina
Information Technology: A Way for Supporting Innovation……………………………………………… 2460

Jana Školudová and Lenka Horáková
The Process of Crisis in the Organization…………………………………………………………………. 2569

Marie Mikušová
Craftsmen – Between National Heritage and the New Age of the Economy…………………………… 2478
Petronela Tudorache
Exploring the Relationship between Transformational Leadership and Student Performance ……...…… 2486
Gheorghe Militaru, Dana Deselnicu, Alexandra Ioanid and Cristina Simion
Constructing and Validating Measures of Islamic Human Resource Management Practices……………. 2495
Junaidah Hashim and Saodah Wok
Mediating Effect of Communication Power on the Relationships between Networking and Career
Success: A Structural Equation Modeling Approach……………………………………………………… 2506
Saodah Wok and Junaidah Hashim
Cotton Market Trends in the World and in the European Union………………………………………….. 2521
Irina-Adriana Chiurciu, Elena Soare, Dana Maria (Oprea) Constantin, Elena Bogan and Elena Grigore
Human Capital Management: Monitoring Of the Key Employees in Organizations in the Czech
Republic ………………………………………………………………………………………………….. 2537
Jana Školudová
Code of Ethics and Related Clarity of Behavioral Standards: Do they Decrease the Influence of
Organizational Factors that Elicit Unethical Decision-Making of Managers? ............................................. 2542
Anna Remišová and Anna Lašáková
Key Dimensions of the Enterprise Architecture Value Drivers: Time Frame and Quantification……...… 2552
Luis Silva Rodrigues and Luis Amaral
Bening the Scope of User Experience Design with Behavioral Psychology…………………….……….. 2555
Tereza Semerádová and Petr Weinlich
XXIX
Design of Employee Training and Development System by Utilizing Competency Model…………...… 2561
Katerina Kashi
Talent Management and Evaluation of its Functioning in the Organization……………………………… 2570

Petra Horváthová and Katerina Kashi
Economico-Statistical Study on Time Series of Number of Conferences in Mass Accommodation

Facilities in the Czech Republic…………………………………………………………………………… 2579
Sylva Skupinová, Jan Máče, Martin Petříček, Petr Čech and Eliška Smotlachová
Writing Czech Annual Reports in English ………………………………………………………………... 2585

Blanka Klimova
Tics Y Educación: Técnicas On Line De Autocorrección En Asignaturas Financieras…………...……… 2590

J. David Cabedo, Mª Amparo Maset Llaudes and Nuria Segarra Adell
Methods and Instruments of Assessing the Life Quality…………………………………………………... 2599

Dorina Nicoleta Mocuta
Ethics in Advertising: Exploring the Telecommunication Industry’s Employment of Ethics in

Advertisements…………………………………………………………………………………………….. 2605
Mohammad Ekhlaque Ahmed and Marium Mateen Khan
Models for Online Grocery Shopping – A Study of Pakistani Online Market……………………………. 2619
Sanober Ali, Mariam Saleem, Mohammad Ekhlaque Ahmed, Mohammad Ekhlaque Ahmed, Marium
Mateen Khan, and Neha Shah and Saad Rafiq
Assessment of Housing Stock and its Influence on Sustainable Regional Development Management.… 2639
Ekaterina V. Plotnikova and Daria I. Pavlova
Does Culture Similarity Matter? The Nexus of Work-Family Conflict, Job Satisfaction, Turnover
Intention, and Job Performance in Islamic Southeast Asian Countries……………………………………. 2649
Restu, Ika Febrilia and Ari Warokka
Primary Roadmap Towards a Project and Portfolio Management Framework to Support Innovation-
Driven SMEs…………………………………………………………………………………………….… 2668
Mohamad Ali Mishly and Anabela Tereso
Development of Supply Chain Vulnerability Drivers Interrelationships Model using Interpretive

Structural Modeling………………………………………………………………………………………... 2675
Arij lahmar, François Galasso, Habib Chabchoub and Jacques Lamothe
International Licensing: A Royalties’ Calculation Model Based on the Monitoring of Fluctuations of the
Net Sales………………………………………………………………………………………………… 2690
Ana-Maria Giurea
Driving the Sustainability and Competitiveness of the European Energy Sector. How Can the Juncker
Plan Achieve More? .................................................................................................................................... 2697
Corina Murafa
XXX
“Practices of CSR in Moroccan Banks: Analytical Study of CSR on the Extra-Financial Reporting
Integrated”…………………………………………………………………………………………………. 2705
Houda Sefrioui and Abdeljalil Louhmadi
Transformation of Higher Education based on Change of Technological Structures……………………... 2729

Tulegenova Madina, Sadykhanova Dinara and Yermekova Zhanna
A Review: Data mining and Text mining Tools in Biological Domain……………………………....…… 2737
Manel Gouider, Ines Hamdi and Henda Ben Ghezala
Status Quo of Data Centers: Is Green Computing a Myth or Fact? ............................................................. 2747
Saravanan Muthaiyah, Sethaletchumy Thambiah and Siti Munerah Nadar
New Scytale - Improving Encryption Techniques ………………………………………………………… 2755

Alexandru Boicea, Florin Rădulescu, Ciprian-Octavian Truică and Elena Mihaela Grigore
Analysis of Structure of Social Entrepreneurs in the Czech Republic…………………………………….. 2762

Alexandr Asmalovskij and Tomáš Sadílek
Attitude Tolabour: Features of Developing Markets ……………………………………………………… 2770

Tulegenova Madina, Sadykhanova Dinara and Tuleybayeva Aigul
The Most Frequently Used Social Network Sites in Travel and Tourism – A Czech Case Study……..… 2776
Jaroslav Kacetl and Blanka Klimova
RoaML for Data Integration ………………………………………………………………………………. 2782

Strîmbei Cătălin, Dospinescu Octavian, Străinu Roxana-Marina and Nistor Alexandra
Do Differences Matter? The Impact of Employees’Socio-demographic Characteristics and Type of

Organization on Perception of Values…………………………………………………………………….. 2792
Jolita Vveinhardt, Evelina Gulbovaitė and Rizwan Raheem Ahmed
The Fourth Facet of Psychological Portrait of the Client, based on the Theory of Archetypes in the
Context of Relationship Marketing ……………………………………………………………………….. 2810
Elena S. Kiseleva, Elena V. Yakimenko, Tatiana V. Kalashnikova, Sergey V. Berkalov, Inna V.
Krakoveckaya and Elena M. Krukova
The Universal Model of Stages of Customer Relationships as a Tool for Effective Managing with
Personal Sales in the Context of Relationship Marketing ………………………………………………… 2821
Elena S. Kiseleva, Elena V. Yakimenko, Elena T. Sakharova, Nathalia V. Khmelkova and Pavel A.
Neverov
Evaluation of the Learning Outcome in Organizations……………………………………………………. 2827

Marek Botek
How Do Labor Markets of Central European Small Open Economies Perform? Measuring the NAIRU
using Bayesian Approach………………………………………………………………………………….. 2831
Jakub Chalmovianský
Factors Influencing Organic Food Buying Behavior on Czech Market …………………………………... 2839
Olga Kutnohorská
XXXI
Analyzing the Relationships among the Spatial Characteristics of Cultural Structure, Activities, and the
Tourism Demand ………………………………………………………………………………………... 2842
Deniz Karagöz Yüncü, Hakan Sezerel, Yeliz Mert Kantar and Semra Günay Aktaş
Approaches of Integrated Territorial Investment in Romania during the 2014-2020 Programming

Period ……………………………………………………………………………………………………… 2847
Florian Marin
Towards the Theory of Professionalization of Family Firm………………………………………………. 2858

Josef Toman and Blanka Klimova
Brand Personality of Apple in Slovak Context………………………………………………………..….. 2863

Lucia Vilčeková
Volatility Characteristics of Tertiary Trend on the Czech Stock Market Applicable in Technical
Analysis……………………………………………………………………………………………………. 2869
Pavla Říhová and Milan Svoboda
Mobile Payment and Business Model Innovation: A Longitudinal Analysis from a Customer
Perspective…………………………………………………………………………………………………. 2878
Carolina López-Nicolás and Francisco-José Molina-Castillo
Analysis and Implications of the Giant Component for an Online Interactive Platform………………….. 2890
Mehmet N. Aydin and N. Ziya Perdahci
Structural Changes of Czech Agriculture and the Impact of these on Inner Foodstuffs Self-Sufficiency
of Czech Republic……………………………………………...……………………………………….. 2905
Marie Prášilová and Radka Procházková
3D Laser Scanned Data Processing Possibilities for Production Floors Models………………………….. 2920
Martin Strapek, Petr Hořejší and Jiří Polcar
Upon Sustainable Development of the Extractive Industry in Romania…………………………………... 2931

Cornelia Neagu, Marius Bulearcă, Constantin Ghiga and Cristian Sima
Econometric Models Applicable in Oil Industry…………………………………………………………... 2942

Marius Bulearcă, Cornelia Neagu and Cristian Sima
Current Trends in Internet Grocery Shopping in the Czech Republic……………………………………... 2952

Tomáš Sadílek
Understanding Supply Chain Exposure to Risk: A Three-dimensional Conceptual Model……...……… 2956

Arij lahmar, François Galasso, Habib Chabchoub and Jacques Lamothe
Reducing Negative Feelings Using Mobile Apps…………………………………………………………. 2966

Lew Sook Ling and Fong Kah Hern
Les CDS: Vecteurs de Contagion? ............................................................................................................... 2977

Souhir Amri Amamou and Sleheddine Hellara
XXXII
Impact Investment Product Possibilities …………………………………………………………………... 2985

Daniela Majerčáková and Alexandra Mittelman
Analysis of the Use of Marketing Communication in the Nonprofit Sector in Slovak Republic …...…… 2992
Róbert Štefko, Jaroslava Gburová and Daniela Matušíková
Business in Fitness - Success or Insolvency in Romania? ………………………………………………... 2999

Teodora-Mihaela Iconomescu and Silvius Stanc
ERP-Based Innovation Management System for Engineered-to-Order Production ……………………… 3007

Sławomir Kłos, Katarzyna Skrzypek and Karol Dąbrowski
Analysis of Innovation Levels Exhibited by Polish Manufacturing Companies in the Metal and
Automotive Industries …………………………………………………………………………………….. 3017
Katarzyna Skrzypek, Karol Dąbrowski, Magdalena Wojciech and Sławomir Kłos
La Diplomatie de l’Union Européenne dans son Voisinage ………………………………………………. 3034

Redouane Mouhoub and Abdelmalek Debbihi
The Application of Artificial Intelligence in the Prediction Systems on the Example of a Cutting Tool ... 3045
Piotr Wittbrodt, Iwona Lapunka and Katarzyna Marek-Kolodziej
Analysis of Factors Having an Impact on the Economic Growth of the Country…………………………. 3053
Podoprigora Ignat, Sinelnikova Ylia and Maltseva Polina
Employees Teaching Strategy from the Perspective of Gender Differences ……………………………… 3059
Lenka Hrušková and Gabriela Mádlová
SQL Mining: Knowledge Discovery from DML Statements ……………………………………………... 3068
Cristina-Claudia Osman
Factors Influencing Career Choice: Empirical Investigation from Business Students …………………. 3079
Kazi Afaq Ahmed, Nimra Sharif and Nawaz Ahmad
A Survey on Fuzzy Association Rules Mining ………………………………………..…………………. 3093

Imen Mguiris, Hamida Amdouni and Mohamed Mohsen Gammoudi
Testing the Frequency of Using the Database Records of Discrete Event Simulation Model Input
Parameters during the Simulation Optimization …………………………………………..……………... 3104
Human Capital as a Development Factor in the Globalized World ………………………………………. 3116

Ekaterina Kalmykova, Nina Potekhina, Yulia Shulinina, Ekaterina Barmina and Tatiana Fadeeva
Determinants of Corporate Social and Environmental Disclosure (CSED): In Jordanian Context………. 3123
Tareq Bani-Khalid, Reza Kouhy and Aminu Hassan
A Theoretical Analysis of Factors Influencing Students Decision to Use Learning Technologies in the
Context of Institutions of Higher Education ………………………………………………………………. 3149
Mohammad Ayub Khan and Amina Omrane
XXXIII
FCSA-RTSBD: Feedback Control Scheduling Architecture for Real-Time Spatial Big Data …………… 3163
Sana Hamdi, Emna Bouazizi and Sami Faiz
Motivational Factors for Employees - Support For Operational Risk Management within an Insurance
Company …………………………………………………………………………………………………... 3174
Violeta Mihaela Grecu, Ioana Maria Popescu, Eugen Albu and Marius Nicolae Pacurari
Gestion des Avis en Ligne par des Hôtels : les Cas de la France et de la Biélorussie ……………………. 3181
Tatiana Pekarskaia Dauxert
Income, Occupational Structure and Standard of Living in Romania’s Rural Areas Compared to Urban
Areas ………………………………………………………………………………………………………. 3187
Malina Ionela Burlacu
Project Education in Entrepreneurial Universities: An Exploratory Analysis ……………………………. 3196

Irina Pavlova and Violetta Chernobuk
Impact of Optimal Economic Taxes Setting On Achieving Sustainable Development – An Experimental

CGE Model Approach……………………………………………………………………… 3205
Martin Hudcovsky, Eduard Nezinsky and Kristina Petrikova
Sensemaking with Interactive Data Visualization ………………………………………………………… 3213

Alina Barbulescu, Florin Stoica and Laura Florentina Stoica
Business Process Management – Process Modelling ……………………………………………………... 3229

Tomas Kupka and Veronika Zelena
Crisis Management Approaches: Comparison and a Necessity of a Process Analysis …………………… 3236
Veronika Zelena, Blanka Bartova and Vlastimil Vasicek
Incorporating Web 2.0 Technologies in Education: Opportunities and Challenges ………………...…… 3242
Redouan Faizi and Sanaa El Fkihi
Artificial IntelligenceVersus Exact Methods via Inverse Logistics: A Comparative Study ……...…… 3249
Walid Ellili, Mounir Samet and Abdennaceur Kachouri
An Investigative Analysis into Capital Market And Economic Growth in Nigeria ………………...…… 3271
Ogochukwu Cynthia Ikwuetoghu, Ochei Ailemen Ikpefan, Tochukwu Okafor and Areghan Isibor
Growth of Bank Frauds and its Impact on the Nigerian Banking Industry ……………………………….. 3287
J.N. Taiwo, A.A. Babajide, T.C. Okafor and A.A. Isibor
Modeling Security Investment Costs in Multi-Broker Cloud Architectures ……………………………… 3302

Sihem Trabelsi, Yosra Miaoui and Noureddine Boudriga
Effect of Banker-Customer Relationship on the Performance of Nigerian Banks ………………………... 3317

Felicia O. Olokoyo, A. A. Isibor, T. F. Oladeji and O. Edosomwan
Study of Business Efficiency of Small and Medium Enterprises in Eastern Europe Using Data
Envelopment Analysis …………………………………………………………………………………….. 3332
XXXIV
Nataliya Soldatyuk
Internet and Its Influence on the Consumer Behavior of Slovak Consumer ……………………...……… 3342
Radovan Bačík and Jaroslava Gburová
The Changes in the Global Enterprise Management ……………………………………………………… 3348

Rozalia Nistor and Mihaela-Carmen Muntean
Framework for Sharing Security Related Data in Collaborative Organizations ………………………….. 3360
Ana-Maria Ghiran
Implementation of Lean Tools Used in Logistics: A Case Study Approach ……………………………… 3372
Barbora Zemanová and Petr Slavík
Could Social Media Replace Formal Education? …………………………………………………………. 3380

Rdouan Faizi and Sanaa El Fkihi
Development Fuzzy FMEA Application to Improve Management of Project Driven Orders…………... 3385
Iwona Pisz, Iwona Lapunka and Piotr Wittbrodt
Multifunctional Econometrics Models of Turnover Dynamics of using Primary Factors of the Economic 3395
Process ……………………………………………………………………………………………………..
Vasile Bendic, Cristina Mohora, Dana Tilină, Elisabeta Turcu and Aurel Mircea Niță
National Universities in the World Educational Landscape: Evaluation, Trends, and Prospects ………… 3415
Vorobyeva Ekaterina Sergeevna, Krakovetskaya Inna Valentinovna, Osokin Georgiy Evgenyevich,
Gromova Tatiana Victorovna and Adelshin Ruslan Rimovich
Swing entre Malédiction et Bénédiction des Ressources Naturelles: Etude Comparative entre Deux
Echantillons de Pays ………………………………………………………………………………………. 3424
Ekbel Jilani
Organizational Change and Capabilities. A Theoretical Perspective ……………………………………... 3440

Ceptureanu Eduard Gabriel
Policies for Small and Medium Sized Enterprises ………………………………………………………... 3447

Ceptureanu Sebastian Ion
Ethnocentrism of Slovak and Czech consumers – Generation Approach ………………………………… 3458

František Olšavský
Les Dimensions de l'Expérience Médiatique Vécue par les Enfants: Etude Exploratoire avec les Enfants
Tunisiens …………………………………………………………………………………………………... 3467
Myriam Elghali Mansouri and Aïda Jemmali Kallala
Assessing Well-being of the Older Generation in Russia: Development of the Russian Elderly Well-
Being Index ………………………………………………………………………………………… 3477
Irina Pavlova, Ilya Gumennikov and Evgeny Monastyrny
XXXV
Selected Risk Factors in Preparation of Megaprojects ……………………………………………………. 3483

Daniela Spirkova
The Length of Minor Trend Duration and Its Applicability in Technical Analysis ……………………… 3491
Milan Svoboda and Pavla Říhová
Credibility of Current Travelers to Internet Purchase in Tourism Sphere ………………………………… 3498

Róbert Štefko, Daniela Matušíková and Jaroslava Gburová
Innovations in Healthcare: The Risks of Regional Development ………………………………………… 3504

Viktoria A. Degtereva, Olga V. Zaborovskaia and Elena E. Sharafanova
Financial Support by the State Activity of Non-Profit Organizations on the Example of The Russian
Federation …………………………………………………………………………………………………. 3513
R. T. Bazarov, N. A. Appalonova, E.I. Basyrova, R.G. Sinetova and T.V. Tishkina
Territorial Hospitality: State of Art ……………………………………………………………………….. 3525

Mostafa Abakouy, Hamid Housni and Yasmine Alaoui
An Analysis of the Educational Activity in the Field of Physical Education in Romania ………………. 3540
Teodora-Mihaela Iconomescu
Innovative Firm and Its Performance: A Study of Smes in Johore State, Malaysia ……………………… 3549
Ng Kim-Soon, Abd Rahman Ahmad, Chan Wei Kiat and Hairul Rizad Md Sapry
The Livestock Sector in Romania 10 Years after European Union Accession- Overview. Case Study:
Cattle Breeding In North – West Region – Bihor County, Romania ……………………………………... 3565
Ioan Chereji, Cristina Maria Maerescu, Anca Popa, Aurelia Ioana Brînaru and Ioan Jr. Chereji
KRI Adoption as Part of Continuous Risk Monitoring and Assessment among Internal Audit
Departments in Germany ………………………………………………………………………………….. 3573
Johannes Martin Wagner
New Functional Requirements for Information Systems in the Context of IoT …………..…………….... 3578
Gabriela Mesnita
Collective-Collegial: Leadership Model of Muhammadiyah Education ………………………………….. 3595

Farid Setiawan and Heru Kurnianto Tjahjono
Internet and Social Networks as a Support for Communication in the Municipality Environment……..... 3600
Libuše, Svobodová and Martina Hedvičáková
The Contemporary Approach of Leadership: Theoretical Comparison of Transformational, Authentic,

and Servant Leadership ………………………………………………………………………………….... 3606
Mariem Balti and Samia Karoui-Zouaoui
Implications of Managerial Response to Customer Dissatisfaction on Customer Loyalty……………….. 3615
Aihie Osarenkhoe
Management Accounting Practices Among Small and Medium Enterprises……………………………… 3627

Kamilah Ahmad and Shafie Mohamed Zabri
XXXVI
Standards for Risk Management …………………………………………………………………………... 3638

Petr Rehacek
Attitude et Comportement Logistiques a L’export: Cas d’une PME Marocaine du Secteur

Agroalimentaire……………………………………………………………………………………………. 3658
Mostafa Abakouy and Hamid Housni
The Implementation of Risk Management in a Medium Sized Company………………………………… 3671

Bastian Heinemann, Melanie Buchmüller, Steffen Lange and Jochen Schmid
An FCA-based Method for Multilingual Documents Clustering …………………………………………. 3682

Mahran Farhat and Mohamed Mohsen Gammoudi
Lean Strategy Implementation and the Roles of Performance Measurement……………………………... 3694

Kamilah Ahmad, Nurul Nadzirah Mohamad Redahe and Shafie Mohamed Zabri
Revisiting the Formation of Creative Competences in the System of Engineering Education (Through
the Example of “Creativity of Engineer” – Course Taught in National Research Tomsk Polytechnic
University -Russia)……………………………………………………………………………………... 3704
Ardashkin Igor, Vtorushin Nikolay, Guryeva Irina and Shtanko Marina
Library Therapeutic Concepts to Promote Children’s Well Being ……………………………………….. 3709

Siti Arpah Noordin, Haslinda Husaini, Shamila Mohamed Shuhidan and Dang Merduwati Hashim
Building Competitive Advantage with Flexible Collaborative Networks ……………………………… 3716

Hamid Noori and Adrian Tan
An Ontological Framework towards Unplanned Information System Outages in Organizations……… 3728

Athanasios Podaras
Ontological Representation of Conceptual Frameworks in Business Management Research…………….. 3735

Junaid Ansari, Tayyaba Fasih, Muhammad Sufyan Ramish, Muhammad Yasir and Syed Muhammad
Irfan Hyder
The Impact of Transport Infrastructure on the Success of Humanitarian Operations……………………... 3748

Monika Cabicarová and David Ullrich
Measuring the Effectiveness of HR Metrics on Return on Investment-An Empirical Study on Pakistani

Organizations……………………………………………………………………………………………… 3758
Afshan Rauf, Saba Gulzar and Juveria Baig
Higher Education Funding Policies in the BSR Countries and Higher Education Tuition Expenses and
Thematic Field Indices in Latvia………………………………………………………………………… 3771
Jana Erina, Ingars Erins and Gundars Berzins
How to Determine the Expertise Degree of an Agent in a Multi-Agent Recommender System………… 3783
Afef Selmi and Zaki Brahmi
Resource Management in Enterprise’s Production Process ………………………………………………. 3789
XXXVII
Daniel S. Demidenko and Ekaterina D. Malevskaia-Malevich
Employees’ Retention- A Key to Effective Organizational Performance ………………………………… 3794

Saba Gulzar, Avinash Advani and Afshan Rauf
The Importance of Stakeholders in Services – Case Study in the Czech Market…………………………. 3808
Marie Slabá
Comparative Analysis of Stakeholder Groups in Selected Sectors ………………………………………. 3822

Marie Slabá
Analysis of Spatial Distribution of the Number of Students per Class in Secondary Schools for Rural
and Urban Areas in Turkey ……………………………………………………………………………….. 3840
Nazlı Gökçe, Erdoğan Kaya, Semra Günay Aktaş and Yeliz Mert Kantar
Integration of Enterprise Resource Planning System in the Multinational Corporation Case Study …… 3847
Pavel Jirava and Evelyn Toseafa
The Gold Commodity as a Value Holder and an Investment Instrument ………………………………… 3855
František Hortai
Simulated Exercise - “Gale” Crisis Scenario ……………………………………………………………. 3867

Alena Oulehlová, Hana Malachová, Pavel Kinc and Josef Navrátil
Quality of Life Evaluation of Visegrad Group Compared with EU and Austria …………………………. 3877
Martin Šanda and Jiří Křupka
Testing - A Tool for Ensuring Software Product Quality ………………………………………………… 3884

Nicoleta Daniela Ignat and Cristina Iorga
Adopting the Quantitative and Qualitative Methods in the Social Science Research: Justifying the
Underpinning Philosophical Orientation …………………………………………………………………. 3891
Siti Arpah Noordin and Mohamad Noorman Masrek
Modified Phillips Curve in Slovakia ……………………………………………………………………… 3904

Zuzana Stoličná, Dalibor Černička and Lucia Kočišová
Neuromarketing Based Online Marketing Research: Critical Review and Future Practice………………. 3917
Andreea-Larisa Boboc, Gheorghe Orzan, Ivona Stoica and Anamaria-Cătălina Radu
Developing Service Innovation – Electromobility in a Regiopolitan Area in Germany ……………….... 3924

Feriha Özdemir, Christophe Said, Jürgen Daub, Gustav Bergmann and Stefanie Bingener
Does `Country of Origin` Effect apply to Online Shopping? – An Exploratory Research- ……………... 3932
Elisabeta Ioanăș, Dan Alexandru Smedescu, Ivona Stoica and Mihai-Cristian Orzan
Accountability & Web Accessibility of the Portuguese official Municipal Websites ………………….... 3941
Amélia Silva, Maria José Angélico Gonçalves, Sandrina Teixeira, Anabela Martins Silva and Telma
Maia
Performance Management Evaluation Model for Third-party Logistics Companies …………………….. 3953
XXXVIII
Ilie Nae, Irina Severin and Gheorghe Solomon
Cloud-Working or Telework through Cloud Computing – Another Step towards Cloudsourcing…….. 3966
Stoica Marian and Ghilic-Micu Bogdan
Analysis of the Beef Market in the European Union ……………………………………………………. 3974

Irina-Adriana Chiurciu, Elena Soare, Aurelia Bălan, Paula Stoicea and Marcela Ștefan
Psychosocial Risks and Wellbeing: A Variance Based Approach ………………………………………... 3990

Ahmad Shahrul Nizam Isha and Muhammad Umair Javaid
Optimizing Decisions Using Game Theory in Project Procurement Management ……………………….. 4002
Iwona Lapunka, Katarzyna Marek-Kolodziej and Piotr Wittbrodt
Monte Carlo Simulation in Risk Analysis of Investment Projects………………………………………… 4011

Iwona Lapunka, Iwona Pisz and Katarzyna Marek-Kolodziej
The Implementation of Business Process Reengineering: Evidence from Romanian Companies ……….. 4024
Andrei Ionut Serban
Mitigating Risks for Oil and Gas Supply Chains: Evidence from UAE ………………………………… 4033
Fauzia Jabeen and Mohd. Nishat Faisal
Problems of Creative Project Implementation Process at Universities ………………….…….………… 4034

Radomila Soukalova
Mobilisation des Etudes de Laboratoire dans la Gestion de L’eau: Cas des Oasis Tunisiennes du Bassin
SASS……………………………………………………………………………………...……………… 4043
Azza Bchir
Important Commercialization Issues of Innovative Medical Devices in the Conditions of Import 4052
Substitution ……………………………………………………………………………….……………….
Kudryavtseva Tatiana Yuryevna, Skhvediani Angi Erastievich, and Zaborovskaya Olga Vitalievna
Le Management Achats et Processus de Sélection des Fournisseurs « connus ou inconnus » : Cas CIRC
Energie …………………………………………………………………………………...……………….. 4057
Fatiha NAOUI-OUTINI et Adeline SIAU
Confirmatory Factor Analysis of the Instructors’ Acceptance of h-Learning……………...…….……….. 4072

Hassan M. Selim
L’Agilité Organisationnelle et ses Principales Composantes : Quelles Différences ? 4098

……………………..
Amina Ben Salah Mokaddem et Samia KAROUI-ZOUAOUI
Ambidextrous Leadership: A Theoretical Perspective ……………………………………………………. 4114

Khaoula Ben Zarb, Samia Karoui Zouaoui, and Catherine de La Robertie
South Korean Model of Innovations……………………………………………………………………………..4117

Olga Shvetsova
XXXIX
Competence Management in Innovative Entrepreneurship……………………………………………… 4130

Olga Shvetsova
Problems of Organizational and Managerial Activities of Engineer at the Industrial Enterprises of the
Tyumen Region (1964-1985) …………………………………………………………………………….. 4142
Olga Fanenshtyl
Employees and Entrepreneurs' Opinions about Income Inequalities among Bucharest Population….. 4146
Ionuț Constantin and Mihaela Cornelia Sandu
About innovation and optimization with Logical Analysis of Data and WEKA…………………………. 4157
Alexandra Băicoianu
Impact of the Knowledge Based Economy on the Organizational Competitiveness and Competitive
Advantage………………………………………………………………………………………………... 4170
Luchian Cristian-Eugen, Luchian Iuliana and Florescu Margareta Stela
The Implementation of Goods and Services Tax (GST) and Changes in Spending Behavior among
Malaysian Consumers ……………………………………………………………..……………………… 4180
Shafie Mohamed Zabri, Kamilah Ahmad and Tham Gen He
Improvement of Maintenance Process by Practical Approach of Total Productive Maintenance (TPM) in

the View of Quality Management…………………………………………………………………………. 4187
Elisabeta Turcu, Vasile Bendic, Cristina Mohora, Dana Tilină and Aurel Mircea Niță
Work Allocation in Organizations: The Contribution of the Personality Assessment Frameworks in the
Selection of Human Resources…………………………………………………………………………... 4200
Robbie Uahi and José Luís Pereira
Neural Networks of the Reactive Dispatching…………………………………………………………….. 4211

Walid Ellili, Mounir Samet and Abdennaceur Kachouri
Unemployment in the European Union with the Emphasis on the Visegrad Four………………………... 4217
Martina Hedvicakova and Libuse Svobodova
Knowledge Management and Ergonomics Integration for Occupational Risks Management…………... 4222
Alin Gaureanu, Larisa Ivascu, Hugo Weinschrott and Anca Draghici
Workplace Wellbeing – An Ergonomics Approach Focus on Workplace Usability Evaluation…………. 4232

Alin Gaureanu, Hugo Weinschrott, Adrian Mateescu and Anca Draghici
Tomsk’s Destination Image (Russia) as Perceived by the International Students of Tomsk Polytechnic
University: a SketchMap Technique………………………………………………………………………. 4241
Natalia A. Goncharova, Liliya G. Kiriyanova and Evgeny V. Korobov
Continuous Performance Improvement of Innovation: Why, How and What to Measure? ……………… 4248
Lamyaa EL Bassiti and Rachida Ajhoun
XL
The Judicial Reorganization in Romania and Its Social Consequence…………………………………… 4263

Simona Petrina Gavrila, Stefania Cristina Mirica, Andreea Elena Matic, Florin Tudor and Mihai
Floroiu
Innovative Business Models and Responsible Consumption –Case Study……………………………… 4275

Doina I. Popescu, Ion Popa, Simona Cătălina Ştefan and Cristina Vlăsceanu
Enhanced CBA algorithm Based on Apriori Optimization and Statistical Ranking Measure…………….. 4291
Jaber Alwidian, Bassam H. Hammo and Nadim Obeid
A New Algorithm for Creating Q - Voting Schemes……………………………………………………... 4307

Andrei-Horia Mogoş, Bianca Mogoş and Adina Magda Florea
Customs Compliance as the Optimization Prospect of Relations between the Participants of Foreign
Economic Activity and Customs Authorities in the Russian Federation………………………….……. 4317
Ilya Aleksandrovich Ageev, Marina Aleksandrovna Shtanko and Oksana Evgenievna Brazovskaya
Simulating Banking Service Quality Websites in Egypt: A System Dynamic Approach………………… 4325
Miran Ismail Hussien and Rasha Abd El.Aziz
Innovations as a Determinant of Competitiveness and Success in Small and Medium Enterprises……... 4341
Wadim Strielkowski, Marek Ehrenberger, Inessa Karnauch and Igor Alikperov
Competitiveness and Economic Innovation Potential: A Case Study of Russia…………………………. 4350

Wadim Strielkowski, Pavel Коrchagin and Еlena Коrneeva
Financing of Rental Housing in Slovakia…………………………………………………………………….. 4360

Daniela Spirkova and Janka Babelova
Demand Side Factors as Source of Foreign Trade………………………………………………………… 4367

Marcel Ševela
Sustainability and Competitiveness at The Wholesale Electricity Markets……………………………… 4373

Wadim Strielkowski, Evgeny Lisin, Galina Kurdiukova and Vladimir Kindra
Financial Inclusion: A Panacea for Balanced Economic Development………………………………….. 4384

Okoye, Lawrence Uchenna, Adetiloye, Kehinde A. Erin, Olayinka, and Modebe, Nwanneka J
Impact of Banking Consolidation on the Performance of the Banking Sector in Nigeria……………….. 4395
Okoye, Lawrence Uchenna, Adetiloye, Kehinde A., Erin, Olayinka, and Evbuomwan, Grace O.
Working Capital Management and the Performance of Consumer and Industrial Goods Sectors in
Nigeria …………………………………………………………………………………………………... 4408
Okoye, Lawrence Uchenna, Erin, Olayinka, and Achugamonu, Uzoma
Agent Banking and Financial Inclusion: The Nigerian Experience …………………………………….. 4418
Achugamonu, B. Uzoma, Taiwo, J. N, Ikpefan, Ochei Ailemen, I.O Olurinola and Okorie Uchechukwu
Emena
XLI
Undercapitalization and Loan Delinquency: Implications on Financial Inclusion in Nigeria ………….. 4431
Omankhanlen Alex Ehimare, Babajide A. A, Achugamonu, B. Uzoma, Okorie Uchechukwu Emena and
Okoye Lawrence
Risk and Profitability Considerations in Off-Balance Sheet Engagements: A Comparative Analysis of

Deposit Money Banks in Nigeria ………………………………………………………………………... 4443
Achugamonu Bede Uzoma, Michael Osunkoya, Aiyepeku Dochearty Ayo, Kehinde Adetiloye and
Victoria Akinjare
Formalizing the Requirements of Big Open Linked Data Analytics in the Public Sector…………..…….. 4453
Martin Lnenicka, Jitka Komarkova, Renata Machova and Miroslav Pasler
Actual trends IS/IT in Customer Relationship Management…………………………………….…..…….. 4458

Peter Stuchlý, Anna Látečková and Petra Krutáková
Factors Influencing Life Satisfaction of Elderly. Perspectives of Three Generations………………….….. 4468

Ivana Kolarova, Monika Bediova and Martina Rasticova
The Perception of Inequality in Employment of Specific Groups of Employees in the Czech Republic…. 4476
Ivana Kolarova, Monika Bediova and Martina Rasticova
Application of New Methods to Efficiently Identify Talented Adults in the Framework of (Large)
Companies………………………………………………………………………………………………… 4486
Martin Kursch and Jaroslav Veteška
Quality of Life Sandwich Generation: A Review of the Literature ……………………….……………... 4499
Mumtaz Bte Ahmad, Siti Noorsuriani Bt Maon, Mohammad Naqiuddin Md Mansor and
Norzaidi Mohd Daud
Internal Control System in the Nigerian Tertiary Institutions…………………………………………….. 4505

Dorcas Titilayo Adetula, Sheriff Balogun, Paul Uwajeh and Folashade Owolabi
The Need for Proper IFRS Education and its Inclusion in the Nigerian Curriculum: Academics and
Practitioners…………………………………………………………………………………………….. 4509
Owolabi Folashade, Ilogho Simon Osiregbemhe, Eluyela Damilola Felix, Akomolafe Johnson Adewale
and Bassey Inemesit Ibanga
Evaluating Supply Chain in Egyptian SMEs using Object Oriented Analysis: A Case Study………….… 4517
Omneya Kandil and Rasha Abd El Aziz
Creating a Situated Learning Environment in the Classroom for Final Year IT Students……………….. 4540
Rene Leveaux, Alan Sixsmith and Sandra Gallagher
Cost Management and Performance of Manufacturing Companies:A Study of Listed Firms in Nigeria… 4541
Adetula Dorcas Titilayo, Eluyela Damilola Felix, Akomolafe Johnson Adewale, Ilogho Simon
Osiregbemhe and Adubi Akindele Olubukola
Innovative Economy and the Development of Industrial Park in the Republic Of Kazakhstan………….. 4547
Zakhida Kozhabekova, Aymzhan Zhakesheva, Gulzhan Isatayeva, Ainash Isakhmetova, Gulzhamal
Koptayeva, Gulzhan Agambekova, Labar Turabekova
Balanced score card and performance evaluation in Small and Medium Enterprises (SMEs) in
Nigeria……………………………………………………………………………………………………. 4554
Folashade Owolabi, Dorcas Titilayo Adetula (formerly Oyerinde) and Akinwumi Taleatu
XLII
Public Relations Strategy: A Tool for Building Organizational Corporate Image …………..……………. 4562
Agboola, Mayowa G., Olabowale, Elizabeth, Osunde, Carl, Akinbode, Mosunmola, Borishade, Taiye
Employees’ Attitudes towards Organizational Change and Its Effects on Employee Commitment………. 4569
Adeniji, Chinyerem G., Iyiola, Oluwole O., Agboola, Mayowa G., Akinbode Mosunmola, Epetimehin,
Samuel O.
XLIII
Study and Assessment of the Synergetic Effect in Integrated

Industrial Structures
Babkin, Aleksandr V. – Peter the Great St. Petersburg Polytechnic University, St. Petersburg,
Russia; babkin@spbstu.ru
Zdolnikova, Svetlana V. – Peter the Great St. Petersburg Polytechnic University, St. Petersburg,
Russia; s.v.zdolnikova@yandex.ru
Abstract
The economy of developed countries is based on the activities of large integrated structures; entire
networks of small and medium-sized business organizations inevitably operate in contact with these
structures. The creation of integrated industrial structures (IISs) is, in this context, regarded as one of
the possible ways of overcoming the crisis in industrial enterprises due to a more rapid propagation of
new technologies within the integrated structure, the reduction of costs, etc., which is made possible
through the synergetic effect. In this study, the authors analyzed the nature of the synergistic effect in
the IIS, reviewed the existing approaches to assessing it, and offered an analytical expression for
quantitatively evaluating the synergetic effect in IIS based on the key provisions of marginal analysis.
Keywords: synergetic effect, integration, integrated industrial structure, industry.
Introduction
Current market conditions, as well as the reorientation of the Russian economy with resource-based
model to the innovative development model based, in particular, on strengthening the positions of the
national industry capable of competing with international-level manufacturers present an incentive to
searching for possible ways of improving the performance and create additional competitive
advantages (which currently are innovative products and services). One such method is the
integration of economic entities, in particular the creation of integrated industrial structures (IIS).
Integrated structures were studied by Russian economists, such as as Y.B. Vinslav, Y.V. Yakutin,
V.E. Dementyev A.V. Bandurin, I.Y. Khrabrova, E.L. Dracheva, A.M. Libman et al., as well as by
foreign economists, such as G. Ahuja, C.M. Lampert, M. Hobday, A. Davies, A. Prencipe, M.
Schilling, C. Phelps, R. Cowan, N. Jonard, J. Zimmermann, G. Bell, Y.T.H. Chiu, M. Bradley, A.
Desai, E.H. Kim, J. Huang, J. Pierce, S. Tsyplakov, S.A. Jansen, J.C. Linder, B.C. Dwight, et al.
The advantages of corporate integration are determined by the expansion of production and
technological ties between the enterprises belonging to IIS, which contributes to achieving the
synergetic effect, which, in turn, reduces the cost of the manufactured products and the transaction
costs, increases the intensity of the development of new products and technological processes,
ensures the implementation of a unified marketing strategy, improves the efficiency of the
development of all sorts of innovations, etc. The achievement of the synergetic effect secures the
success of an IIS, which is why identifying and assessing these structures is a relevant research topic.
Nature of the Synergetic Effect in IIS

An IIS is a complex business structure which is a legal entity (joint-stock company) or a group of
legal entities (simple partnership, holding, financial and industrial group), involving the integration of
the assets of its members for business purposes on the basis of legislation or a contract concluded for
the implementation of joint economic activities. The main type of these activities is manufacturing
industrial products.
1
Such features of an IIS as the presence of a decision-making center, the management and
manufacturing complexity, the integrity and continuity of the economic interests of its element allow
regarding it as a system, i.e., as a set of structural elements isolated from the external environment
and interacting with each other towards a specific goal:
S IIS ≡< A, R , Z >, (1)
where SIIS is the IIS regarded as a system;

A is the totality of the elements comprising the IIS, A = { ai };
R is the totality of relationships (connections) emerging in the IIS, R = { ri };
Z is the totality or the structure of the goals of the IIS, Z = { zi }.
The synergetic effect emerges in the IIS because the IIS is a self-organizing system, i.e., a complex
dynamic system capable of maintaining or improving its organization in view of the past experience
with a change in the internal or external conditions of its operation and development. The following
features of the IIS allow classifying it as a self-organizing system:
1) the uniqueness and unpredictability of the IIS under specific conditions. The IIS exhibits these
characteristics because it contains active elements; at the same time, the limits of certain
opportunities are determined by the available resources;
2) the ability to adapt to the changing market conditions;
3) the ability to generate various lines of behavior and to change its structure;
4) the ability to resist entropic (destroying the system) trends and to exhibit negentropic ones (actual
self-organization, development). The ability to resist entropy is caused by the presence of active
elements stimulating the exchange of material, information and other resources with the environment
and showing their own "initiatives", the active core;
5) the ability of the system to forming goals, i.e., the goals are generated within the system.
The Concept of the Synergetic Effect

The term "synergy" as an interdisciplinary field of science studying the general laws of phenomena
and processes in complex non-equilibrium systems based on the inherent principles of self-
organization was first introduced by Hermann Haken in 1977 in his book "Synergetics" (1977, p. 11-
13). Synergy is the summation effect of the interaction of two or more elements, characterized by the
fact that their combined effect is much greater than the effect of each individual element in the form
of their simple sum. The nature of the synergetic effects was studied by such scholars as the V.I.
Arshinov, E.N. Knyazev, S.P. Kurdyumov, V.A. Bellavin, V.G. Budanov, Y.A. Danilov, J.S.
Dobronravova, I.A. Yevin, G.G. Malinetsky, Wei-Bin Zhang, Liu Jingyan, J. Hron, T. Macak, Li
Chunjie; Sun Jingqi, et al. However, the problem of assessing the synergetic effects in economics
currently remains under-researched.
The interest in studying the synergetic effect in economic systems is caused by an increase in
integration processes, in particular, the formation of various types of integrated structures, clusters,
inter-company networks, etc. Musayev L. (2011, p. 134) points out that the main goal of integration
is in providing a synergetic effect, i.e., "an increase in the cost of the integrating companies not by a
simple summation of their values but by adding to it a new value". By cooperating, the companies
compensate for their weaknesses and enhance their strengths, which gives them an additional
competitive advantage in the market.
Nesmachnykh O. and Litvinenko V. (2013, p. 1221) highlight the following as the main benefits of
integration achieved through the synergetic effect: an increase in the rate of mastering innovations, a
wide coverage of the sales market, a reduction of costs and an increase in the efficiency of the
2
production of goods and services, an increase in the flexibility of organizations. Khasanov R.Kh.
(2009) notes that the synergetic effect helps to reduce transaction costs and both the external and the
internal risks, to increase the costs of the integrated structure for research and development, and to
increase profitability and attract investments.
Galeeva E.I. considers the synergetic effects as both qualitative and quantitative indicators of
business activity of the integrated structure determining the efficiency of its performance, while
introducing the concept of the integrated information and entropy potential or the activity of the
system that describes the totality of all the synergetic effects occurring in the structure. Quantitative
indicators include different turnover ratios, and qualitative ones the specific characteristics and the
creative potential of the productive forces, the efficiency of the interaction of the leaders at various
levels, how satisfied the employees are with their work, the company's image, and so forth.
Thus, the synergetic effect of the integrated structure manifests in the following key areas: the
efficiency of resource use increases; the competitiveness increases; the ability to generate and use
innovations increases.
Approaches to Assessing the Synergetic Effect in IIS

Currently, various methods for determining the synergetic effect are used in the scientific literature in
relation to integrated structures. However, in our opinion, these techniques can be summarized as
three main approaches: the actual synergetic, the cost-based and the resource-based ones.
Within the synergetic approach itself, the synergetic effect is considered to be a result of cooperative
action in the super-system (the integrated structure), changing the quality of the system. This
understanding of the synergetic effect is traditional for synergetics; H. Haken (1977, p. 14), in
particular, noted that "a qualitative change in the system is the change in the conditions of the
structure and the mechanism of how its elements interact" and leads to "an abrupt change in the
output characteristics of the system and its claims to a place in the outside world ".
The gist of these methods is in constructing synergetic models of the development of the enterprise,
the integrated structure, the cluster, the region or the national economy as a whole, taking into
account the two main provisions of synergetics:
- the non-linearity of the development: the theory and the practices of synergetics make note of the
fact that the state of rest or linear development is an abstraction which adequately describes the
behavior of the system only a short time interval;
- the ability of the economic system to make a qualitative leap: the accumulation of minor
perturbations in the system (fluctuations) can cause a qualitative shift of the system from one level to
another.
Methods of constructing synergetic models involve using the theory of catastrophes, bifurcations,
autocatalytic and autowave processes, and economic kinetics. Methods based on this approach are
developed by such Russian economists as Serkov L., Bystrai G., Galeeva E.I., and others.
The advantage of these methods is in providing opportunities for a deeper study of the synergetic
processes at an enterprise, in an integrated structure, in a cluster, and so on. However, as a conceptual
approach, it does not answer the question of what the synergetic effect is, and does not allow to carry
out its unified quantitative assessment, since synergetic models are constructed individually for each
specific market entity, taking into account the current market situation and the particular set of factors
affecting this economic entity.
According to the cost-based approach, the synergetic effect is the increase in value formed in the
course of the integration of the structure, i.e., the result of merging when the value of the combined
organization exceeds that of the individual pre-existing companies. The quantitative assessment of
3
the synergetic effect is based on the methods of assessing the value of the organizations within the
integrated structure, i.e., on the cost-based, the sales comparison and the income-based approaches.
Assessing the synergetic effect of the integrated structures with the help of cost-based approach is
proposed by such Russian economists as Tsyura E.Yu., Khasanov R.Kh, Pozhidaeva S.V., Chemetov
E.A., and others.
In our opinion, this approach is limited by the reliability of the assessments of the values of
businesses within the integrated structure, firstly, due to the complexity of using a uniform procedure
for assessing them (as their activities are fundamentally incomparable), and secondly, due to the non-
market price formation of the share value of both the individual organizations and the integrated
structure, or their lack. It is the price of the shares that is the most substantial factor limiting the scope
of the application of this approach, as the majority of the methods of business assessment are based
on calculating the value of the capital stock.
The resource-based approach to understanding the synergetic effect is that by entering the integrated
structure, the organization uses the "free rider effect" when resources accumulated in some elements
of the structure are simultaneously used without any cost by its other elements. In this situation, the
resources can be used simultaneously without wearing out, and when they are combined with each
other, the integrated structure can obtain a fundamentally new product, i.e., increase its innovative
capacity. The synergetic effect is, according to this approach, the result of the shared use of resources
and manifests as an increase in the level of profitability of the integrated structure.
For example, L. Musayev’s (2011, p. 134) technique proposes to take into account three factors that
the synergetic effect depends on, which are the thesaurus of the employees (i.e., their abilities, skills,
and education), the technical equipment of the workplace, and the cooperation ties between the
employees. Gusev E.V and Kardapoltsev K.V. (2011, p. 12) take into account the factors that
determine the financial, material and technical, investment, management, and other types of
efficiency of the integrated structure.
However, there currently no consensus in the Russian scientific literature regarding the specific
resources whose shared use creates a synergetic effect, so the methods for assessing the synergetic
effect pay attention to different types of resources, thus making it difficult to use this approach.
Each of these approaches focuses on the individual components of the synergetic effect: the
improvement of the result of the cooperative effect over time, the increase in the value of the
company, the more efficient use of resources. However, none of them reflects the main reason of the
synergetic effect emerging, which is the creative activities of the employees.
It is difficult to formalize the quantitative measurement of the creative activities of the employees, as
well as the personal qualities of the leader and the individual workers, their abilities, skills,
competences, etc. In this connection, it is expedient to carry out a quantitative asessment of the
results of these creative activities, which, in our opinion, are expressed in increasing the level of
innovation activity of the integrated structure, increasing the volume of the produced and sold
innovative goods (services), the development and integration of new technologies, etc.
To summarize the above-said, let us define the synergetic effect of the integrated structure as an
increase in the result of the activity of the integrated structure through more effective interaction of
the employees accompanied by a decrease in the average total costs per production unit of innovative
goods (services).
Results Obtained
In view of the discussed definitions of the synergetic effect, as well as the existing methods of
identifying it, the authors laid the groundwork for assessing the synergetic in the IIS based on the key
provisions of marginal analysis. According to this concept, the behavior of the industrial enterprises
4
of a particular manufacturing sector of the market is similar to the behavior of a monopolistic

competitor; this assumption is true, if a region or a country as a whole is regarded as a market.
Let us have two enterprises of a certain manufacturing industry, operating in the market of
monopolistic competition. Each of them has its own function of the demand for production and its
own function of the total costs of producing this production given (Table. 1).
Table 1: Input Data
Input data Enterprise 1 Enterprise 2

Demand function D1 = A1 – B1Q, D2 = A2 – B2Q,
where А1 and В1 are the constants where А2 and В2 are the constants
measured in the range of (0, ∞) measured in the range (0, ∞)
Total costs TC1 = a1Q2 + b1Q+c1, TC2 = a2Q2 + b2Q+c2,
function where а1, b1, c1 are the constants where а2, b2, c2 are the constants
measured in the range of (0, ∞) measured in the range of (0, ∞)
The expression a1Q2 + b1Q describes The expression a2Q2 + b2Q describes
the variable costs VC1, and the the variable costs VC2, and the
constant с1 the fixed costs FC1. constant с2 the fixed costs FC2.
Let us assume that the enterprises merged. In this case, their demand and total costs functions are
summed, if the production volume remains constant. However, in practice, enterprises benefit from
the integration, as both fixed (rent, insurance payments, etc.) and variable costs (costs of raw
materials, transport costs, etc.) can be reduced (see Table 2).
Table 2: Calculated Data
Indicators Combined for Enterprise 1 and For IIS taking into account the synergetic
Enterprise 2 effect
Demand D = A1 – B1Q + A2 – B2Q
Marginal MR = 0,5(A1 – B1Q + A2 – B2Q)
income
Variable costs VCtot = a1Q2 + b1Q + a2Q2 + b2Q VCsiis = (1 – α)(a1Q2 + b1Q + a2Q2 +
b2Q)
where α is the relative reduction in the
variable costs of the IIS compared with the
total variable costs of the enterprises before
the integration
Fixed costs FCtot = c1 + c2 FCsiis = (1 – β)(c1 + c2)
where β is the relative reduction in the fixed
costs of the IIS compared with the total fixed
costs of the enterprises before the integration
Total costs TCtot = VCtot + FCtot ТCsiis = VCsiis + FCsiis
Marginal MCtot = 2a1 + b1 + 2a2 + b2 MCsiis = MCtot – α MCtot
costs
Equilibrium A1 + A2 − 2b1 − 2b2 A1 + A2 − 2b1 − 2b2 + 2α b1 + 2α b2
output Qeq = Q S eq =
4a1 + 4a2 + B1 + B2 4a1 + 4a2 − 4α a1 − 4α a2 + B1 + B2
Synergetic effect SE* = TCtot – ТCsiis = αVCtot + βFCtot
SE ** = DtotQeq – TCtot – DsiisQseq +
ТCsiis
* calculated at Q = Qeq
** where Dtot and TCtot are calculated at Q = Qeq, while Dsiis and ТCsiis are calculated at Q =
Qseq
5
The synergetic effect is in this context reflected in value units as the savings on the total costs of the
IIS; and the authors would like to stress that these savings arise not only due to economies of scale,
but also due to a more efficient use of the intellectual and the scientific and technical potentials of the
merged companies. In the first case, the synergetic effect is achieved when the output of the IIS does
not increase in relation to the outputs of the enterprises before integration (Fig. 1).
Fig. 1. Synergetic Effect of the IIS At Q = Qeq
The situation shown in Fig. 1 is not optimal for the IIS, since a short-term equilibrium in the market,
MR = MCiis, is not achieved. Fig. 2 shows the case when by increasing the output from Qeq to Qseq
and by reducing the price from Рeq до Рseq, the IIS moves into an equilibrium state and receives the
economic profit of the size DQseq – TCsiis. The synergetic effect in this case is equal to the
difference between the economic profit of the IIS and the combined economic profit of Enterprise 1
and Enterprise 2 (see Table 2).
6
Fig. 2. Synergetic Effect of the IIS At Q = Qseq
The above-described cases are valid only for the short-term period of the functioning of the IIS. In
the long-term period, the achieved savings (1 – α)VCtot и (1 – β)FCtot are lost, due to inflation
processes, aging of the technologies and the equipment used, administrative errors, reduction in the
competitiveness, etc., and the synergetic effect is lost as well.
The authors propose using marginal costs as an indicator of the presence of the synergetic effect in
the long-term period because they reflect the trend of the changes and of the variable and fixed costs
in general. In the short-term period the difference between МСtot and МСstot is α(b1 – b2) value
units, but over time and at a constant Q, the marginal costs will increase and the synergetic effect will
decrease (Fig. 3).
Fig. 3. The Change of the Synergetic Effect of the IIS At Q = Const
The authors propose to consider the synergetic effect presented to be a second-order power function:
7
n < 0, n = const,
m > 0, m = const,
SE = nt2 + mt +β(c1 + c2), если МСtot – МСsiis = α(b1 + b2), СЭ ∈ [0; t*],
МСtot – МСsiis < α(b1 + b2), СЭ ∈ (t*; ∞),
Q = const
Thus, the synergetic effect occurs in the IIS at the time of the integration, but is lost over time, unless
measures aimed at improving the efficiency of the IIS performance are taken, such as entering new
markets, developing new technologies, diversifying the manufacturing process, etc. However, in
practice, as a self-organizing system, the IIS is capable of flexibly responding to external stimuli by
transforming the internal environment, and therefore, it can be assumed that at some period of time ti
∈ [0; t*] after some management decision d, a new synergetic effect SEti will emerge in the IIS.
Conclusions
Thus, the assessment of the synergetic effect in the IIS is one of the relevant directions of scientific
research, as the efficiency of the IIS performance directly influences the efficiency of the branches of
industry.
The following results were obtained during this study:
1) we carried out an analysis of the literature dedicated to the problem of the formation and
assessment of the synergetic effect in the IIS, and studied the main approaches to defining the
synergetic effect;
2) we examined the existing methods for assessing the synergetic effect in the IIS, identified three
main approaches allowing to assess the synergetic effect from the standpoint of the theory of
catastrophes and economic kinetics, from the standpoint of the key provisions of business assessment
using the resource-based approach;
3) we offered an analytical expression for quantitatively assessing the synergetic effect based on the
key provisions of marginal analysis.
Directions for Further Research

A promising direction for further research is related to developing the methodology for assessing the
synergetic effect in the IIS, as well as forming the organizational and economic mechanism of
managing the innovative potential of the IIS.
Acknowledgment
The article is prepared with the support of the Ministry of Science and Education of the Russian
Federation (project No. 26.1303.2014/K).
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10
Neural Networks as a Tool of Forecasting of Socioeconomic Systems

Strategic Development
Babkin, A. V. – Peter the Great St. Petersburg Polytechnic University, St. Petersburg, Russia;
babkin@spbstu.ru
Karlina, E. P. – Astrakhan State Technical University, Astrakhan, Russia; e_karlina@list.ru
Epifanova, N. Sh. – Astrakhan State Technical University, Astrakhan, Russia; nellynew@mail.ru
Abstract
When forecasting socio-economic processes it is essential to choose a forecasting method that will
objectively reflect the tendencies in development of socio-economic systems. The most common
forecasting methods - linear, quadratic, exponential, the autoregressive model and the Holt-Winters
forecasting method - are based on extrapolation, i.e. extension of a tendency observed in the past and
present to the future. The principal non-linearity in the development of the socioeconomic systems
that are managed under conditions of uncertainty and partial observability of the functioning
processes, has helped to formulate the expediency of their forecasting based on neural networks.
Comparative evaluation of the effectiveness of different forecasting methods is implemented using
the example of the Astrakhan region socioeconomic development forecast for 2014-2015. The initial
data has been compiled of the GRP (gross regional product), the volume of industrial production,
gross agricultural product, the amount of investments in fixed assets, the scope of construction work,
the average monthly salary, the CPI (consumer price index) and the unemployment rate in 2001-
2012. The minimum value of errors in the regional socio-economic development forecast based on
neural networks has showed the higher degree of objectivity in the results of neural network
forecasting in comparison with other methods.
Keywords: forecasting, socioeconomic system, forecasting models, neural networks, nonlinearity.
Introduction
Forecasting as a specific management function sets a number of nontrivial methodological problems

for the researchers. These problems are mainly caused by the fact that forecast suggests studying an
object that does not exist so far. It requires a justified choice of methods and a forecasting model
based on the characteristics of an object and the statement of the basic principles that enable creation
of a constructive basis for the development of the applied forecasting methods.
Problem Statement
Forecasting in the general is an extrapolation of the past and present on the future. Extrapolation
assumes finding levels outside the studied series, which means extension of the tendencies observed
in the past to the future (prospective extrapolation). Since the tendency of development in fact
remains unchanged, the data obtained by means of extrapolation of the series should be considered as
probability assessments. Therefore, the traditional approach to the economic forecasting is based on
two assumptions:
- The applied model is an adequate reflection of the economic system;
- The economic structure will remain constant in the future.
Practical development of a quantitative model involves construction of a general tendency of level

changes of time series based on the analytical alignment of dynamic time series. The main point of
the analytical alignment method in dynamic time series is that the general tendency of development is
calculated as a function of time: Υt =f (t),
11
where Yt stands for the levels of the dynamic series, calculated accordingly to the appropriate
analytical equation at time t.
Determination of the theoretical (estimated) levels of Yt is implemented on the basis of an adequate

mathematical model that approximates the basic tendency of dynamic time series in the best way.
The most common methods of construction for the time series forecasting are: linear, quadratic,
exponential, the autoregressive model and the Holt-Winters forecasting method, which are based on
different approaches to the estimation and determination of the factors that affect the system in the
past and present and on the assumption that they will have the same impact in the future (G.A.
Parsadanov, V.V. Egorov, 2002, Erich Jantsch, 1974, G. Box, G. Jenkins,1974, J.D. Hamilton, 1998,
G. Kantorovich, 2002, John E. Hanke, Arthur G. Reitsch, Dean W. Wichern, 2003, J. Scott
Armstrong, 2001, E. Karlina, 2013).
Using these methods we can extrapolate the quantitative characteristics of economic, scientific and
productive capacity, the performance data of scientific and technical progress, the characteristics of
the ratio of the particular subsystems, blocks and elements in the index system of complex systems,
etc.
This brings up the question: is it proper to transfer the patterns describing the past and the present on
the future? This question becomes especially important when it comes to forecasting socio-economic
systems that are managed under conditions of uncertainty and partial observability of the functioning
processes (V.N. Tsygichko, 2007; O.V. Zaborovskaia, E.V. Plotnikova, E.E. Sharafanova, 2014). The
applied methods of socioeconomic systems forecasting are based on the idealization of reality, i.e. the
cause in different circumstances leads to the same effect. That assumes the linearity of development
and does not consider the internal processes of self-development, initiating new situations and new
effects unrelated to the previous causes.
Non-linearity of the world development, including socio-economic systems, is the basic principle of
neodeterminism, considering the socio-economic processes as fundamentally non-linear (I. Prigozhin,
I. Stingers, 1986, G. Deleuze, 1998), which does not deny the existence of determinism in the
development of nature and society in general, but limits it with the short periods of linear
development. Sticking to this position concerning the causes of phenomena, we propose to use neural
networks to forecast the development of socioeconomic systems.
Emergence of neural networks as a forecasting method is an attempt to simplify modelling of

intellectual and natural processes, which are random to a great extent. Application of neural networks
is justified when it is impossible to build an accurate mathematical model of the studied object or
phenomenon.
With the properties of artificial intelligence, neural networks are capable of learning (changing
weight coefficients in accordance with a particular algorithm), accumulating and summarizing
available information, using it as a new data. In most cases it leads to good results. Neural networks
are a flexible tool, so there is a variety of both the networks final models and options of their
application (Simon Haykin, 2005, A. Galushkin, 2012, V. Borovikov, 2008).
Forecast Results
Construction of the forecasted sphere involves formation of a composite indices characterizing the
possible ways of socioeconomic systems development. The object of this study is a regional
socioeconomic system. Construction of dynamic time series for forecasting was based on a data
system that, to some extent, reflects the state and the level of socioeconomic development of the
Astrakhan region (Table 1) in 2001-2012. Comparative characteristics of the forecast results based on
the use of different methods are presented in Table 1.
12
Table 1: Estimated Results of the Forecasted Indices
Holt-Winters Linear Quadratic

Unit of Method Regression Method
measure
st error
st error
st error
Foreca
Foreca
Foreca
2014
2015
2014
2015
2014
2015
ment
Index
(GRP) Gross bln. rub.
49.640380
236.3128
258.3912
219.3428
50.99339
regional product
48.5106
207.255
221.134
204.792
(current prices)
Volume of shipped bln. rub.
24.449855
119.1204
129.9301
23.97493
105.2864
112.0318
104.1528
111.2074
25.06013
goods of
manufactured
locally
Gross agricultural bln. rub.
7.0861590
34.55406
38.02418
7.003615
27.55851
29.52688
26.88891
7.495237
output in all
29.0399
categories of
production
Investments in bln. rub.
21.841825
83.61061
88.67838
22.50027
93.31021
86.28215
92.54218
fixed assets
87.3382
22.4092
Volume of bln. rub.
6.8700097
15.94896
15.08698
7.391166
27.47264
29.22084
27.71529
29.39731
6.778996
construction work
Average monthly
5066.1193
21903.15
23514.36
4892.186
20623.53
22052.27
20392.83
21884.48
5192.389
salary
rub.
CPI (consumer
3.7108177
price index) (to the

104.2425
103.2303
3.892935
105.4055
104.4453
105.3498
104.4048
3.687711
corresponding %
period of the
previous year)
Registered
0.316752934
unemployment
rate (to the
1.455078
1.341406
0.427312
1.793823
1.762704
1.858566
0.348056
%
1.80979
economically active
population), at the
end of the period
13
Continuation of Table 1
Exponential Autoregressiv Neural

Unit of model e model networks
measure
st error
st error
st error
Foreca
Foreca
Foreca
2014
2015
2014
2015
2014
2015
ment
Index
(GRP) Gross bln. rub.
327.9256
389.9016
51.54007
327.9256
389.9016
51.54007
327.9256
389.9016
51.54007
regional product
(current prices)
Volume of shipped bln. rub.
151.3409
176.0935
24.94644
151.3409
176.0935
24.94644
151.3409
176.0935
24.94644
goods of
manufactured
locally
Gross agricultural bln. rub.

46.43239
7.214772
46.43239
7.214772
46.43239
7.214772
output in all 56.5884
56.5884
56.5884
categories of
production
Investments in bln. rub.

137.8096
164.9594
22.28779
137.8096
164.9594
22.28779
137.8096
164.9594
22.28779
fixed assets
Volume of bln. rub.

40.85266
47.88751
7.100236
40.85266
47.88751
7.100236
40.85266
47.88751
7.100236
construction work
Average monthly
36965.33
45062.46
5421.758
36965.33
45062.46
5421.758
36965.33
45062.46
5421.758
salary
rub.
CPI (consumer
price index) (to the
105.6302
104.7411
3.710131
105.6302
104.7411
3.710131
105.6302
104.7411
3.710131
corresponding %
period of the
previous year)
Registered
unemployment
rate (to the
1.749267
1.720452
0.318934
1.749267
1.720452
0.318934
1.749267
1.720452
0.318934
%
economically active
population), at the
end of the period
The most optimistic forecast of the regional socio-economic system development is the one based on
the exponential model, since it relies on the assumption that all the figures in a given time period
(2013 -2015) tend to increase. The dynamics of changes in figures is not linear, which makes the
forecast more objective in comparison with linear regression, but the possibility of forecast errors is
relatively high compared to other methods.
14
The pessimistic variant of the socio-economic system forecast is formed by a set of results - the
forecast values of all of the calculation models with the smallest error (Table 2).
Table 2: Variants of the Forecast of Regional Socio-Economic Development Indices
The most objective forecast is the one based on the neural network method.
This is explained by the fact that predictive values constructed on the basis of traditional methods
(linear regression, quadratic dependence, the exponential model, autoregressive model and Holt-
Winters method) are based on the solution of the corresponding equations system and extrapolation
of the calculated coefficient values for the future. In this case, the calculation base is composed of
consecutive comparison of the previous values with the following ones. The procedure is carried out
according to the following pattern: ...→X2010→X2011→X2012 →...→ Xt, and so on. Therefore,
once derived dependence is retained – correspondence with the theory of determinism.
From the mathematical point of view, neural network is a multilayer network structure consisting of
the similar, simple elements - neurons, connected in a complex topology of interconnections and
grouped into layers (usually two or three), where we can distinguish between the input and the output
layers. In neural networks used for forecasting the input layer neurons receive information about the
characteristics of the situation, and the output layer indicates possible response to the situation.
The prognosis procedure based on neural networks consists of the following (N.Epifanova, 2012,
V.Borovikov, 2008):
- Creation and optimization of the sample input data: annual figures of development of the regional
socioeconomic systems (Table 1);
- Construction of a neural model: selection of a neural network structure and learning algorithm;
- Training of a neural network. Each type of a neural network has its own way of learning.
Thus, the linear network (LN) and the multilayer perceptron (MLP) are trained using an error back-
propagation algorithm or the method of descent by the conjugate gradient; the networks of radial
basis function (RBF) and generalized regression neural networks (GRNN) are trained with the help of
15
k-means algorithm (the most popular clustering method) for the assignment of radial centres, k-
nearest neighbour algorithm (the most simple method of classification) to determine deviations (radii)
of the radial elements and a minimal quadratic optimization algorithm for the linear output layer;
probabilistic neural network (PNN) uses the methods of nuclear approximation as its learning
algorithm.
In order to find the best architecture and to select the optimal training method we used the “Intelligent
Problem Solver” (IPS) which contains the software package Statistica Neural Networks (STNN). IPS
module is used in the process of the neural network construction and can automatically select the type
of network architecture and the learning method, considering search for the best option as an
optimization problem. As a result, IPS identified RBF neural network as the best option for the object
forecasting (Figure 1).
Архитектура : РБФ s5 1:5-3-1:1 , N = 19

Производительность обуч. = 0,026486 , Контр. производительность = 0,980270 , Тест.
производительность = 0,314588
Fig. 1. RBF Neural Network Selected for Socioeconomic Systems Forecasting
- Testing of a neural network in the course of which the quality of a network forecast is determined.
Thus, the derived forecasted values according to this method are the result of the tendency which
reflects the complex influence of the factors behind the actual values of all parameters and helps to
construct an equation to calculate the forecasted values more accurately. It was confirmed by the
calculated forecast errors which have the minimum values compared to other methods.
Conclusions
1. Traditional forecasting methods (linear regression, quadratic dependence, exponential model,
autoregressive model, Holt-Winters method) extrapolate the tendencies of the past and present
socioeconomic systems development on its future state, i.e. the forecast is implemented through the
analysis of the area of potential. However, the process of socioeconomic systems development
conjugates with the high uncertainty degree of the future changes and partial observability of its
functioning processes. At the same time the “sociality” of the functioning processes and significant
unpredictability of environmental effects prove principle non-linearity of socioeconomic systems
development.
2. Application of neural networks in forecasting of socioeconomic systems, inherently nonlinear and

“self-learning”, enables the increase of forecast objectivity by means of determination of the
dependence between inputs and outputs throughout the learning process and by accounting a large
number of variables of different dimensions.
16
Acknowledgment
References
Armstrong, J. S. (2001), Principles of Forecasting - A Handbook for Researchers and Practitioners,
Springer, ISBN 0792379306
Borovikov, V. (2008) Neural networks. Statistica Neural Networks. Methodology and technology of
modern data analysis, Goryachaya Liniya, ISBN 978-5-9912-0015-8
Box, G., Jenkins, G. (1974), Time Series Analysis: Forecasting & Control, 406.
Hanke, J.E., Reitsch, A.G., Wichern, D.W. (2003), Business Forecasting Seventh Edition, Williams
Publishers, ISBN 5-8459-0436-6
Deleuze, G. (2000) The Logic of Sense, Delovaya Kniga, ISBN 5-85735-095-6
Epifanova, N.Sh. (2012) Forecast of industrial enterprises development on the basis of the neural
networks construction (on the example of the Astrakhan region), Actual problems of Economics and
Law, 2, 30-35.
Galushkin, A. (2012), Basics of neural networks theory, Goryachaya Liniya, ISBN 978-5-9912-0082-
0.
Hamilton, J. D. (1994), Time Series Analysis, Princeton University Press, Ch 1, 2.
Haykin, S. (1999), Neural Networks - A Comprehensive Foundation, Second Edition. Pearson

Education, Reprint, ISBN 8I-7808-300-0
Jantsch, E. (1974), Technological Forecasting in Perspective, Progress Publishers, 592.
Kantorovich, G.G. (2002), Time Series Analysis, Economic Journal of Higher School of Economics,
1, 21-26.
Karlina, E.P., Epifanova, N.Sh., Dolgova, I.S., Pokrovskaya, M.Y. (2013) Development of a range of
industry sectors and entities in the Astrakhan region, Journal of the Astrakhan State Technical
University. Series: Economics, 2, 92-103.
Parsadanov, G.A., Egorov, V.V. (2002), National Economy Forecasting, ISBN: 5-06-004256-1.
Prigozhin, I., Stingers, I. (1986), Order out of Chaos: Man's New Dialogue with Nature, Progress
Publishers, 432.
Tsygichko, V.N. (2007) Socio-economic Processes Forecasting, KomKniga, ISBN 978-5-484-0092-3
Zaborovskaia, O.V., Plotnikova, E.V. and Sharafanova, E.E. (2014), Assessment of Conditions for
Formation and Development of Human Capital in the Regions of the Russian Federation, Asian
Social Science, 10 (21), 267-274.
17
Comparative Study over the Encryption and Non-Encryption of the

MySQL Database
Alexandru Boicea, Florin Rădulescu, Ciprian-Octavian Truică, Elena Mihaela Grigore
Computer Science and Engineering Department, Faculty of Automatic Control and Computers,
University Politehnica of Bucharest, Bucharest, Romania
alexandru.boicea@cs.pub.ro, florin.radulescu@cs.pub.ro, ciprian.truica@cs.pub.ro,
elena.grigore@cti.pub.ro
Abstract
Many software applications store confidential data in databases. This inevitably creates a security
breach and once the access measures have been overcome the content will be fully exposed. For this
reason, different algorithms are sometimes used to encrypt the data. This paper will put in balance the
compromises that have to be made for deciding to encrypt or not encrypt a MySQL database. A
software application has been developed for testing the database performance.
Keywords: Cryptography, database encryption, AES algorithm, database performance
1. Introduction
Encryption is one of the most effective ways to ensure data and information security. The main three
objectives of information security are confidentiality, integrity, and availability which guarantee a
high data security lavel using cryptography (Alshboul, 2010). Modern cryptography uses complex
algorithms and large cryptographic keys for encryption and decryption. The main three methods used
in cryography are: symmetric, asymmetric and hashing algorithms.
However, the U.S. National Institute of Standards and Technology raised some serious concerns
regarding the security of government standard hash algorithm when used for the generation of digital
signatures and in other security applications that require collision resistance (Chang et al., 2012).
The information that is to be encrypted has evolved too, from no more than one sentence to databases
with millions of records. The latest trend in database security is to keep the performance overhead of
data encryption process away from the database, by using dedicated encryption machines (Boicea et
al., 2010).
This paper presents the impact of applying a complex encryption algorithm over a large volume of
information. The experimental validation presents a clear view of what methods should be used when
trying to balance data security and overall database performance.
To study the impact, the MySQL relational database system is used. The GNU version of MySQL
offers multiple encryption methods and algorithms: AES (Advanced Encryption Standard), DES
(Data Encryption Standard), MD5 (Message-Digest algorithm) and SHA (Secure Hash Algorithm). In
the MySQL Enterprise Edition version, asymmetric encryption methods are also available: RSA
(Rivest-Shamir-Adleman cryptosystem), DSA (Digital Signature Algorithm), and DH (Diffie–
Hellman key exchange). These methods use an encryption/decryption string message. This approach
is limited because some fields cannot be directly encrypted at the DBMS (Database Management
System) level due to their data type, e.g. number, date, etc., and the encryption algorithm must be
implemented at the application layer. Also, queries that require numerical calculations, are hindered
by the necessary conversions.
A performance comparison between not encrypting and encrypting information is presented in this
paper. Two applications were developed for experimental validation. Using these applications, tests
are performed to determine the performance of insert and select operations and the storage cost when
the data is not encrypted and when it is encrypted using the AES encryption algorithm. AES
18
encryption is fast, flexible and it can be implemented on various platforms especially on small
devices (Rathod and Dhote, 2014).
2. Comparative Study over MySQL Database

The study of the effect of encryption on the time cost used a software application based on a MySQL
database. Application interface is shown in Figure 1. The application has a web-based interface to
populate the MySQL database and the user is able to add records for employee’s sensitive data like
personal information (address and CNP - a personal code number like SSN) and monthly incomes.
There is also possible to upload a batch file for inserting, updating or deleting multiple records.
Figure 1. Application interface
The interface also allows the user to interrogate the database. The application was made in two
versions: The first manipulates unencrypted data (EmployeesIncomes) and the second manipulates
data encrypted using AES algorithm (EmployeesIncomesAES).
2.1. Transaction execution times
Five scenarios are considered as benchmark for the INSERT operations:

I1 - (Employees table) - one simple insert into CNP field involving 13 characters per
record;
I2 - (Employees table) - one simple insert into CNP and Address fields, involving
maximum 200 characters for address;
I3 - (Employees table) - batch complete inserts with 10.000 records;
I4 - (JobRoles table) - batch complete inserts with 15.000 records;
I5 - (Incomes table) - batch complete inserts with 200.000 records.
Average times for the INSERT operations are shown in Figure 2.
For determining the influence of encryption over the transactions speed, different types of queries
were chosen by gradually increasing the complexity.
For the SELECT operations the following queries were chosen:

S1 - A simple select on a single table, filtering out over one field returning only one row
with two columns (search the name after the CNP - a personal code number like SSN);
19
S2 - A simple select on a single table, filtering out over one field returning an unknown
number of rows and three columns (search incomes after SSN). The rows are ordered
descending by two columns so conversion to a numeric type is needed;
S3 - A simple select on two tables returning an unlimited number of rows (employees that
subordinated to a specific manager; its code is the filtering key);
S4 - A simple select on a single table using DATE type comparison.
Average times for the SELECT operations are shown in Figure 3.
Figure 2. Average times in miliseconds for the INSERT operations
Figure 3. Average times in miliseconds for the SELECT operations
Test results show that cost times for INSERT operations are not significantly different for encrypted
or unencrypted data. The reasons are: Firstly, the databases have different structures. Secondly, the
encryption time is very small, about 1-2 percent of the total cost. Thirdly, the unencrypted database
has additional cost times because integrity constraints. Fourthly, inserting encrypted data in the
database is done in bulk. Lastly, the usage of character encryption leads to about a 30% lower
memory consumption compared to the non-encryption database (Fahrnberger, 2013).
The SELECT operations are visible slower for an encrypted database. Considering that batch imports
are the isolated use cases, for example porting the application, and that user interaction with the
database consists mainly in SELECT operations than INSERT ones, then the advantage of speed is
brought by the unencrypted case. However, the advantage is minor since the differences are not so
big (at least not for the chosen volume of data) in order to noticeably degrade the user experience.
2.2. Impact over the code implementation
Implementation of the application code and also the database definition were majorly affected by the
decision to encrypt or not the information. From the database point of view, the difference was in
choosing the field types. For the EmployeesIncomes these types were defined in order to sustain data
integrity. For example: the field for the “hiring date” is DATE type, the field for CNP is BIGINT
20
type and so on. DBemployees unencrypted database structure is shown in Figure 4. The other
application that uses encryption, EmployeesIncomesAES, had to use a database were all the fields are
VARBINARY type. DBemployeesAES encrypted database structure is shown in Figure 5.
Also, the string length is modified after the AES algorithm (with a key of 128 bits) is applied:
encrypted_string_lenght = 16*(trunc((string_length / 16) + 1).
Employees JobRoles Incomes

cnp (PK) bigint(13) id_empl (PK) int(11) id_sal (PK) int(11)
name varchar(50) cnp bigint(13) cnp bigint(13)
surname varchar(50) job varchar(100) month int(2)
address varchar(200) start_date date year int(4)
cass varchar(100) manager varchar(100) income int(6)
tax_deduction varchar(2)
Figure 4. DBemployees - database structure
Employees JobRoles Incomes

cnp (PK) varbinary(208) id_empl (PK) int(11) id_sal (PK) int(11)
name varbinary(208) cnp varbinary(208) cnp varbinary(208)
surname varbinary(208) job varbinary(208) month varbinary(208)
address varbinary(208) start_date varbinary(208) year varbinary(208)
cass varbinary(208) manager varbinary(208) income varbinary(208)
tax_deduction varbinary(208)
Figure 5. DBemployeesAES - database structure
From the application point of view the differences lies in: composing the input string for the
createNativeQuery() function (the encryption method AES_ENCRYPT had to be applied, also the
decryption and the needed conversion methods) and performing additional checks in code in order to
ensure data integrity. Examples of Query structures are shown in Table 1.
Table 1 – Examples of Query structures
Querying Query query = em.createNativeQuery("insert into Employee values ( :cnp ,

DBemployees :name, :surname, :address, :cass)");
Querying Query query = em.createNativeQuery("insert into Employees values (
DBemployeesAES AES_ENCRYPT(:cnp, :key ), AES_ENCRYPT(:name,:key),
AES_ENCRYPT(:surname,:key),
AES_ENCRYPT(:address,:key),AES_ENCRYPT(:cass,:key))");
Querying Query query = em.createNativeQuery("select name, surname from Employees
DBemployees where cnp in (select cnp from JobRole where manager like :name)");
Querying Query query = em.createNativeQuery(
DBemployeesAES "select
CAST(AES_DECRYPT(name,:key) AS CHAR(50)),
CAST(AES_DECRYPT(surname,:key) AS CHAR(50)) from Employees
where AES_DECRYPT(cnp,:key) in
(select
CAST(AES_DECRYPT(cnp,:key) AS CHAR(50)) from JobRole
where
CAST(AES_DECRYPT(manager,:key) AS CHAR(50)) like :name)");
21
2.3. Database size
To check how the database size is affected in both cases a dump was made for each application using:
>mysqldump -u j2ee -p --databases DBemployeesAES > C:\Home\dump\DBemployeesAES.sql
The two databases the same volume of data (10.000 records in Employees table, 15.000 records in
JobRoles table and 200.000 records in Incomes table). A major difference between the two databases
is in the data fields’ definition types. At the end of the experiment DBemployeesAES database dump
was 2.5 times bigger than DBemployees one (Table 2).
Table 2 –Backup file size
DBemployees 9,932,800 bytes (9.46 MB)

DBemployeesAES 23,846,912 bytes (22.7 MB)
2.4. Data integrity
In terms of data integrity, the study took into account several aspects: i) data validation, ii) data
processing and interpretation, and iii) data recovery from backups.
Data verification for the application that uses encryption (EmployeesIncomesAES) is done
programatically by implementing specific methods. The disadvantage in this approach is that there is
no “restriction” rule or check applied over the batch insert file records besides the default SQL syntax
checks. This leads to the possibility of heaving inconsistent information, such as: alphanumeric cnp,
dates or incomes.
Data validation for the the application that does not use encryption (EmployeesIncomes) is done by
using database constraints and restrictions applied over table fields and methods implemented at the
application layer. This validation ensures that inconsistent data is not imported into the database. If,
during a transaction with 200.000 inserts one fails because of database checks, the entire transaction
is rolled back – so the import data has to have 100% valid.
The second part of data integrity is data processing and interpretation. Because using encryption
implies VARBINARY values there is always a need of data conversion and cast – this leads in being
circumspect about the quality of the query result. This was roughly checked by comparing the results
of the queries that used functions as DISTINCT, COUNT and ORDER BY to see if the results are
exactly the same when applied to both databases.
The third aspect refers to the database backups and restore. Backups have to be reliable and to ensure
full restoration of the data when needed. Study concluded that the export-import operation didn’t
impact, under any circumstance, the integrity of the encrypted database.
2.5. Data protection and security
From the point of view of data protection and security, an application that uses encrypted data has
indisputable advantages. A more robust implementation would involve: storing logging information
in a database and encrypt them using an asymmetric algorithm (such as RSA). By keeping the private
key in a second database or location and by encrypting it with using an asymmetric algorithm would
make the application and data inaccessible to unwanted attacks. Among the obvious advantage, the
following stand up: i) a database export is useless because the private key used by the encryption
algorithm is not accesible and decrypting the information is almost impossible, ii) using the technique
of SQL injection to modify the conditions of a query has a diminished effect as long as the returned
data is encrypted, and iii) there is an increased risk to generate a SQL syntax error due to data
conversion operations.
22
Due to these advantages, many contemporary cryptography solutions are used for database security,
including in cloud architecture (Ahamed et al., 2013).
3. Conclusions
Table 3 presents the analysis of the experimental results by comparing the performance between the
non-encrypted and the AES encrypted MySQL database.
Table 3 – Performance analyse between the non-encrypted and encrypted database
Database evaluation criteria Non-encryption database AES encryption database

Inserts execution times → →
Queries execution times ↘ ↗
Databases size ↘ ↗
Data integrity ↗ ↘
Data flexibility ↗ ↘
Database import/export → →
Data protection and security ↘ ↗
Therefore, data encryption is indicated for increasing the database security, but if improved efficency
is needed then it is recommended to keep the database unencrypted because data encryption
significantly reduces query response and overall performance.
References
Ahamed, F., Shahrestani, S. and Ginige, A. (2013). “Cloud Computing: Security and Reliability
Issues”, Communications of the IBIMA, 2013 (http://dx.doi.org/10.5171/2013.655710)
Alshboul, A. (2010). “Information Systems Security Measures and Countermeasures: Protecting

Organizational Assets fromMalicious Attacks”, Communications of the IBIMA, 2010
http://www.ibimapublishing.com/journals/CIBIMA/2010/486878/486878.pdf
Boicea, A., Ghiță, V., Rădulescu, F. and Sârbu, A.D. (2010). “Encryption Strategies in Databases”,
The 21th International DAAAM Symposium, Intelligent Manufacturing & Automation, 165-166
Chang, S., Perlner, R., Burr, W. E., Turan, M. S., Kelsey, J. M., Paul, S. and Bassham, L.E. (2012).
“Third-Round Report of the SHA-3 Cryptographic Hash Algorithm Competition”, U.S. Department
of Commerce National Institute of Standards and Technology
http://dx.doi.org/10.6028/NIST.IR.7896
Fahrnberger, G. (2013). “Computing on Encrypted Character Strings in Clouds”, International

Conference Distributed Computing and Internet Technology, 244-254 (http://dx.doi.org/10.1007/978-
3-642-36071-8_19)
Rathod, R. H. and Dhote, C.A. (2014). “Comparison of Symmetric Key Encryption Algorithms”,
International Journal of Research in Information Technology, 2(12), 101-106
23
Sustainability of Family Businesses in Cameroon: An Empirical Study

in Northwest and Southwest Regions of Cameroon
Nkam Micheal Cho
ICT University Cameroon
nkammike@yahoo.com
Dr. Sena Okuboyejo

sena.okuboyejo@covenantuniversity.edu.ng; sena.okuboyejo@ictuniversity.org
Dr. Ndamsa Dickson
Dicko200048@yahoo.fr
Abstract
Family businesses, most of which fall within the small and medium size enterprises (SMEs) are at the
centre of growth in most developing countries including Cameroon and provide employment to many
jobseekers. These businesses face so many challenges ranging from initiation, management, and their
lifespan. Given the importance of this sector and its contributions to the economy of Cameroon, the worry
is the fact that most of these family businesses in Cameroon close down when their initiators die, leaving
many people unemployed. This study seeks to answer the question “what are the factors responsible for
the sustainability of family businesses in Cameroon?” Given that this was an exploratory research, we
made use of a survey-based approach which enabled us to investigate and analyze the factors that affect
sustainability of family-owned and managed businesses in Cameroon. This study also proposed measures
that can be put in place by both the policies makers and owners of family businesses to ensure their
sustainability. This study was carried out in the Northwest and Southwest Regions of Cameroon where
through purposive sampling some thirty family businesses were studied with the use of questionnaires to
some workers and interviews with the owners of these businesses. The study made use of both
qualitative and quantitative research methods. We made use of the SPSS 17 and Stata 14 software
programs for our analysis. Descriptive statistics was used to summarize the sampled opinions of the
respondents. Results from this study will enlighten stakeholders concerned with family businesses on the
extent of sustainability and its configuration across business size as well as its determinants.
Keywords: Family businesses, Business Sustainability, Cameroon, Northwest and Southwest Regions
24
Background of the Study
Throughout history, families and businesses have always existed to a large extent in tandem (Narva,
2001; Morck & Yeung, 2002). The economic landscape of most nations remains dominated by family
businesses (Heck and Stafford, 2001; Klein, 2000) which constitute a greater percentage of the private
sector. Family businesses carry the weight of economic wealth and job creation in most economies. For
example, in the US, Canada and Slovenia, etc., family businesses account for about 80 to 90 percent of
the business enterprises and about 50 percent of the employment and GNP (Phan et al., 2005; Dun et al.,
2007). Other researchers have also observed that generally about 66% of new jobs in the world are
created by family businesses (Perreault, 2000; Gaspé Beaubien, 1995). Similarly, Etcheu (2003) observed
that 90% to 95% of businesses in Cameroon are small and medium size enterprises comprising of family
businesses and account for about 49.7% of the employment (Perdrix, 2005). Family Business Consulting
(2009) indicates that only about 30% of family businesses survive into the second generation, 12% are
still viable into the third generation and only about 3% of all family businesses operate into the fourth
generation and beyond. These challenges inevitably provide a base for several preoccupations to be raised
on issues pertaining to the sustainability of family businesses.
Problem Statement: Family-owned and managed businesses in Cameroon have not been an exemption
to the issues that plague the existence of family enterprises around the world, given that they face a
considerable number of challenges ranging from their initiation to management and consequently their
lifespan. This researcher has witnessed some family businesses in Cameroon which have attained a high
growth level but eventually collapsed after the death of the initiators. However, there exist some few
family businesses that have survived into the second and third generations. Given the importance of this
sector and its contributions to the economy of Cameroon, the worry is the fact that most of these family
businesses in Cameroon close down especially when their initiators die, leaving many people
unemployed. This inevitably has a negative impact on the economic development of Cameroon. It is
assumed that this failure is due to some particular factors ranging from managerial, cultural, financial,
political and social factors. Based on this, our study therefore is preoccupied with the following
questions, objectives and hypothesis as it seeks to carry out an in-depth investigation on issues pertaining
to sustainability of family- owned and managed businesses in Cameroon.
Research questions: To what extend are family-owned and managed businesses in Cameroon
sustainable? What are the factors that affect the sustainability of family-owned and managed enterprises
25
in Cameroon? What can be done to ensure that family-owned and managed businesses in Cameroon are
more sustainable?
The Research Objectives: To find out the extent to which family businesses in Cameroon are
sustainable; to investigate and analyze factors that affect sustainability of family-owned and managed
businesses in Cameroon; and to propose measures that can be put in place by both the policies makers
and owners of family businesses to ensure that these businesses should be more sustainable.
The Scope of the Research: This research was conducted in the English speaking part of Cameroon
which are the Northwest and southwest Regions. The empirical part of this study was conducted in the
Northwest and Southwest Regions which make part of the ten administrative regions of Cameroon and
which are the two English speaking regions of Cameroon. Within this area of study we focused on family
businesses operating in the main towns of Bamenda in the Northwest region, Kumba, Buea and Limbe in
the Southwest region. The designated sample size for our study was 30 family businesses, targeting 130
respondents, with at least 4 respondents selected from each family-owned and managed business. .
Significance of the Study: This study provides a better understanding on how businesses that are failing
can draw from those that have recorded a marked success as far as sustainability is concerned. With
review of lessons drawn from other businesses worldwide that have succeeded in remaining
considerably sustainable even after the death of their initiators, it is helpful for Cameroonian family
business stakeholders to know how factors responsible for the sustainability of family-owned and
managed businesses can be handled during the running of a business. Lastly, apart from contributing to
the existing literature on Family business sustainability in Cameroon, this work would also likely arouse
the interest of other research students to conduct more research in this field of study.
1.0 Review of Related Works
The literature on family businesses ranges widely with respect to definitions of what family businesses
are. Although, there is a lack of widely accepted definition of what a family business is (Bennedsen et al.,
2010) , authors like Miller et al,.(2007), have succeeded in giving a comprehensive review of various
definitions of family businesses. Considering that the definition of a family business can vary widely
from study to study, Dyer (2006) suggests two versions of such definitions. The first one is subjective,
defining a family firm as one whose management is controlled by the family members who own it. The
second definition is more objective, considering a firm to be a family business if it meets certain criteria
such as the family’s ownership percentage or the number of family members holding directorships or
26
filling key management posts. According to Allouche & Amann (2008), a family business is a business in
which one or several families significantly influence its development through ownership of its capital. In
Cameroon, authors like Tchankam (2000) have attempted a definition of a family business taking into
consideration all specific aspects of the Cameroonian context. As such he defines a family business as a
type of enterprise where members of the same family control activities or work and actively participate in
the management. Olson et al. (2003) in their study define a family business as a business that is owned
and managed by one or more members of a household of two or more people related by blood, marriage
or adoption. For Olson et al., (2003) when families let tension builds up within the family, the business
suffers. Olson et al recommended that consultants and family business programs need to help business
owners realize the relationship between business revenue and employing relatives. Miller et al., (2007) on
their part adopt an empirical approach of small firms that are owned and managed by their founders. They
compare family-owned and managed businesses with non-family businesses. Their findings showed
significant support for aspects of stewardship perspective of family-owned businesses, and no support for
any element of the stagnation perspective. Kraiczy (2013) in his work accepts the challenges of
developing a general definition of family business. He affirms that this difficulty is due to the
heterogeneity of family businesses. To him, a business is said to be a family business if one of the
following characteristics applies; a family is the owner, the business is family-managed, or the business is
controlled by a family. Bertrand & Schoar (2006) attempt to bring out some reasons why family
businesses are so prevalent and the implications of family control for the governance, financing, and
overall performance of these businesses. To them a culture based on strong family ties may sometimes
impede economic development. They put forward a similar argument developed by Fukuyama (1945),
that in societies where people are raised to trust their closed family networks, they are also taught to
distrust people outside the family, which impedes the development of formal institution in the society. In
Cameroon, several works have also been done with respect to family-owned businesses and issues
relating to their productivity. Tabi & Fomba (2013) have attempted to explain productivity performance
between family and non-family firms in Cameroon.
Research Design and Methodology
Our research is an exploratory and causal study in which we made use of the survey and descriptive
design and using a sample given that the population under study was large, making it difficult to access
all the necessary and required information. We then resorted to conducting interviews and administering
questionnaires to some selected respondents especially the initiators or proprietors of family-owned
businesses, the managers, the accountants, influential family members, other workers etc, in our sampled
27
family-owned and managed enterprises. The non-probability sampling techniques were used for this
study; convenience sampling, judgmental sampling, and quota sampling were employed.
Data Analysis and Interpretation of Results
The data collected for this study were analyzed using descriptive statistics and logic regression using
SPSS 17. A logistic regression analysis was employed using STATA 14, given that the dependent
variable, sustainability of family-owned and managed businesses (S) is dichotomous or binary and takes
values 1 for a business that is profitable and deemed to live long and 0 otherwise.
Table 1: Summary views of respondents concerning decision making within the family business
Frequency/ OPTIONS
Percent
YES NO SOME WHAT DON'T KNOW TOTAL

The opinions of employees are Frequency 57 25 35 7 124
often taken into consideration Percent 46.0 20.2 28.2 5.6 100.0
The accounting system of the Frequency 57 9 25 33 124
enterprise is reliable and Percent 46.0 7.3 20.2 26.6 100.0
transparent
Auditing or stock taking within Frequency 63 13 16 32 124
the enterprise is usually well done Percent 50.8 10.5 12.9 25.8 100.0
Is the proprietor of this business Frequency 46 14 7 57 124
putting in place measures to Percent 37.1 11.3 5.6 46.0 100.0
ensure the survival of the business
after his/her death?
Discrimination amongst employees -.4846 .6159 .2473 -1.96 0.038
The children of the proprietor are Frequency 48 30 11 35 124
interested in their father/mother Percent 38.7 24.2 8.9 28.2 100.0
business
I think that this business can Frequency 71 18 22 13 124
continue moving very well Percent 57.3 14.5 17.7 10.5 100.0
whether the proprietor lives or
not
28
The responses from the tables above are supported by the views of some former workers of some
collapsed family businesses following some interviews held with them. As for the difficulties they faced
when running the businesses, many indicated the constant intervention of the business owners in some
technical issues such as recruitment. They always imposed some family members in some posts of
responsibility irrespective of their expertise
Table 2: Summary statistics of the result of the logistic model
Variables Coefficient Odd ratio Standard error t-statistic p-value

Tertiary Education .1038 1.1094 .0472 2.20 0.044
Opportunities for extra .1447 1.1557 .0233 6.22 0.000
training
Discrimination amongst -.4846 .6159 .2473 -1.96 0.038
employees
Opinions of employees taken .8905 2.4363 .5177 1.72 0.086
into consideration in decision
making
Transparent and reliable 1.7539 1.7771 .5241 3.35 0.001
accounting system
Family members work for free -.8671 .4202 .7061 -1.23 0.219
in the business
Proprietor puts in place .6795 1.9710 .0739 9.20 0.000
measures for the survival of
the business after his/her
death
Constant 1.0425 .6090 1.71 0.087
LR chi2(9) (p-value) 21.23 (0.0117)
Pseudo R2 0.4434
Following the logistic model analysis, the independent variable “Proprietor puts in place measures for the
survival of the business after his/her death” is very important for the sustainability of family businesses;
with a t-statistic value of 9.2 at 1% level of significance. It is therefore evidence that if this variable is not
well taken care of, the death of the proprietor will lead to the collapse of his/her business.
29
Discussion
Family businesses collapse after the initiators die because the notion of business sustainability was not in
their mind when they were creating these businesses, and hence did not put measures in place to ensure
their continuity after they die. This was supported by about 93% of the family business owners during a
series of interviews with them. Businesses that offer extra training opportunities to their employees tend
to be more profitable and sustainable than those that do not offer such opportunities. A family business
will be more profitable and sustainable if the accounting system put place is transparent and reliable.
Considering the opinions of the employees when taking decisions within the family business plays a vital
role in the profitability and sustainability of a family business. When the initiators of family businesses
encourage their children to participate and develop interest in their businesses, it will enhance the
sustainability of the businesses. A bad tax system will affect the sustainability of family businesses.
Implications of Findings: The initiator of a family business should choose his/her successor when he/she
is still relatively young and energetic. They should avoid changing employees so often since workers gain
more experience as they spend more time in a particular business. In addition, there are costs incurred as
a result of employees’ rotation and training. More attention should be placed on the recruitment process
so as to select well qualified workers for the various posts of responsibility. Family business owners
should constantly offer training opportunities to their employees. Family business owners should market
their businesses to the younger generation by letting them see the benefits and rewards they derive from
their businesses, instead of continuously letting their children understand how stressful the businesses are
to them. Family business owners should always choose independent firms that can provide a candid
appraisal of their accounting department’s operations so as to avoid fraud. The government should put in
place regulations together with follow-ups to ensure that family businesses are being operated within the
prescribed norms, and also to protect them from foreign threats such as importation favours. The
government should create an enabling environment for the smooth running of the various family
businesses through the provision of social amenities such as security, health facilities, infrastructures,
energy, water etc. Tax laws should be simplified to the understanding of the common man and tax payers
should be well informed of their rights so as to avoid exploitation whereby tax administrators.
Conclusion
The population under study was not homogeneous since the sub-groups were very different in size. On
the field we realized that the businesses were very different in size and carrying out different operations.
They therefore have different characteristics with different management principles. Most of the
proprietors were very busy and mobile, and were reticent to give out information concerning their
businesses. These made the realization of this research difficult.
30
This study reveals that only about 17% of the businesses were considered sustainable to the second
generation given that they have existed for at least twenty-five years. On the other hand, just about 7%
existed for at least fifty years and are therefore considered as having survived into the third generation.
This is very low compared to the finding by Family Business Consulting (2009) which indicates that only
about 30% of family businesses survive into the second generation, 12% are still viable into the third
generation and only about 3% of all family businesses operate into the fourth generation and beyond. This
research brings out some factors that are seen to be critical to the sustainability of family businesses such
as: poor succession planning which is as a result of the fact that the business initiators do not always have
the notion of sustainability in mine; poor tax system and lack of transparent and reliable accounting
system leading to corruption; discrimination among employees leading to unqualified workers occupying
some key positions because they are family members, lack of children’s interests in their parents
businesses together with the lack of the involvement of their children in the management of these
businesses, and lack of update of employees through training programs. Also, family business owners are
not often willing to incorporate non-family shareholders and hence mostly operate with little capital
which may not be able to enable them withstand competition within the various industries.
For better and recommendable findings further research on family business sustainability should be
carried out separately in the various sectors; for example in the transportation sector or educational sector.
References
Allouche, J., Amann, B., Jaussad, J., and Kurishina, T. (2008): The impact of family control on the
performance of financial characteristics of family versus non-family businesses in Japan. A matched-pair
investigation: Family business review; 21, 315-329
Bennedsen, M. and Nielsen, Kasper, M., (2010): “Incentive and Entrenchment Effects in European
Ownership”, Journal of Banking and Finance p. 34.
Bertrand & Schoar (2006): Mixing family with business: A study of Thai business groups and the
families behind them.
Dyer, W. G. Jr., (2006). “Examining ‘Family Effect’ on Firm Performance”: Family Business Review,
Vol. 19, No. 4, P. 253-273
Family Business Consulting (2009)
Fomba, E. (2007): Managing Human Resources in the Familistic Family Business in Cameroon, (pp.56-
72) in Gupta, V.; Levenburg, N.; Moore, L.; Motwani, J.; and Schwarz,T. (eds.). A Compendium
on the Family Business Models around the World (ten volumes), Hyderabad: ICFAI University
Press
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Heck, R.K.Z., and Stafford, K. (2001). “The Vital Institution of Family Business: Economic Benefits
Hidden in Plain Sight”: In G.K. McCann & N. Upton (Eds.), Destroying myths and Creating value in
Family Business (pp. 9-17). Deland, FL: Stetson University Press. Hellerstein, J. K., D. Neumark, and K
Klein, S. (2000). “Family Businesses in Germany: Significance and Structure”. Family Business Review,
13, 157-181.
Kraiczy N. (2013) Innovations in small and medium sized family firms, an analysis of innovation related
top management team behaviours and family firm- specific characteristics. Springer .p.173
Marianne Bertrand and Antoinette Schoar (2006): The Role of Family in Family Firms: Journal of
Economics perspectives Vol. 20, Spring 2006, pp. 73-96.
Maslow, A. H. (1943). A theory of human motivation: Psychological Review, 50, 370 –396.
Miller D., I Le Breton-Miller (2006): Family governance and Firm performance: Agency, stewardship,
and Capabilities. Family business review 19(1), 73-87
Morck, R. and B. Yeung (2003): "Agency Problems in Large Family Business Groups."
Entrepreneurship: Theory & Practice 27(4): 367-382.
Olson, P. D., Zuiker, V. S., Danes, S. M., Stafford, K., Heck, R.K. Z., & Duncan, K. A. (2003). The
impact of the family and the business on family business sustainability: Journal of Business Venturing,
18(5), 639–666
Perdrix, P. (2005). Il faut privilégier l’emploi, Jeune Afrique Intelligent,
http://www.jeuneafrique.com/partenariat.
Perreault, G. (2000). La relève dans l’entreprise familiale : Comment faire passer les descendants d’un
rôle de figurant à un rôle de réalisateur? Revue Organisation et Territoires, vol.9, n° 1.
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Performance between Family and Non-Family Firms: Perceptions and Poverty Reduction Effects in
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Weiping Liu, Haibin Yang & Guangxi Zhang (2010). “Does family business excel in firm performance?
An institution-based view”: Asia Pacific Journal of Management
32
Ontology of Video Game Virtual World

Ekaterina Galanina, National Research Tomsk Polytechnic University, Tomsk, Russian Federation,
galanina@tpu.ru
Evgenii Akchelov, National Research Tomsk Polytechnic University, Tomsk, Russian Federation,
seismopro@tpu.ru
Elena Sakharova, National Research Tomsk Polytechnic University, Tomsk, Russian Federation,
ets2@tpu.ru
Abstract
This article is devoted to the research of the virtual world in video games. The purpose of the article
is to create the ontology of video game virtual world to identify its fundamental basis, describe its
entities and essential links between them. On the grounds of the literature review we have
systematized scientific knowledge about genres of video games and formulated a general faceted
classification of video games according to their content, number of players, publishing criteria,
distribution type, platform, graphics, gameplay, rhythm, atmosphere, and ending type. The analysis
showed that the existing classifications of video games do not cover the variety of video games, and
sometimes do not allow to clearly identify the genre. They do not take into account interests and
needs of gamers and developers. We have developed the ontology of video game virtual world based
on the interaction between the Architect and the Beholder.
Keywords: classification, video game genre, ontology, video game structure, virtual world of video
game, game studies, simulacrum, virtual world Architect, Beholder, flow, game-related phenomena
Introduction
Video games are widely presented today. According to Entertainment Software Association statistics,
in the United States, a leading country in the industry, almost half of all people play video games.
The age of an average player is around 35. Many people prefer to spend their leisure time by playing
more video games than to read books or watch movies (Entertainment Software Assotiation 2016).
The number of people playing video games is growing every year. The Spil Games estimates that the
number of players around the world in 2016 will reach 1.55 billion people (Johnston 2013). The
gaming market now exceeds $ 90 billion. It is growing rapidly, and in many countries exceeds the
amount of film distribution market. Moreover, video games and game technologies penetrate into
other areas: education (Da Rocha Seixas et al. 2016; Galanina et al. 2015), business (Korn & Schmidt
2015), marketing (Lucassen & Jansen 2014), management (Robson et al. 2016), science (Bowser et
al. 2013), medicine (Cudney et al. 2015), social media (Love et al. 2016), etc. Gamification based on
the transfer of game elements and mechanics to non-gaming processes is quite popular today (McCall
et al. 2013; Deterding et al. 2013; Ašeriškis & Damaševičius 2014; Pedreira et al. 2015; Robson et al.
2015).
Video games have a great impact on modern culture. They construct various types of virtual worlds,
elements of which, on one hand, penetrate reality and continue to exist as «game-related phenomena»
(role playing game, cosplay, fun fiction), on the other hand, virtual images – simulacra – get their
existential form, design the real without being created as real in the first place. Virtual worlds of
video games constitute the simulacra space which causes social interaction and involve users into a
new type of economic relations (virtual economy) (Castronova 2003) changing modern social
economic landscape. Thus, video games and virtual worlds they create are significant cultural and
social phenomena that require enhanced studying.
A huge number and variety of video games along with their popularity leads to the need of
systematizing the existing knowledge about the types and genres of video games, their elements and
structures. We need to describe the nature of the video game virtual world. Thus, the virtual world of
33
video game is the subject of our research. The purpose of this research is to create the ontology of
video game virtual world to identify its fundamental basis, describe its entities and essential links
between them.
Video Games Classification

Classification and conceptualization of video games is crucial when studying them as a cultural and
social phenomenon. Researching their typology and genres allows creating a common ground for
communication between video game developers, gamers, scholars, and video game publishers. This
helps create the conceptual framework of the constantly changing field of video games, to classify
this area and make it easier to understand.
Presently, quite a large number of studies is devoted to the classification of video games by genre
(Clearwater 2011; Clarke et al. 2015; Apperley 2006; Arsenault 2009). Most classifications are based
on either interactivity, or on the understanding of the complex nature of video games consisting of
interactive, narrative, thematic and social aspects. However, as Clarke et al (Clarke et al. 2015)
correctly noted “Current conceptions and definitions of video game genres fail because they do not
offer concrete set identification, offer poor collocation and retrieval, inhibit creative development,
and monopolize and/or skew sales”.
In this article we systematize the existing scientific knowledge about video games. Basing on the
literature review we have compiled a generic faceted classification of video games (GameIsArt 2016;
Wikipedia 2016; Hafner & Lensky 2005; Tvtrophes 2016; Mobygames 2016; Gunn et al. 2009;
Room 2011; Stahl 2005; Arsenault 2009; The escapist staff 2010; Grace 2005; /v/’s 2012;
Dobrowolski et al. 2015; Shariff 2014; Makar 2003; Lee et al. 2014; Apperley 2006; Khenissi et al.
2016; Ludoscience 2016).
1. Classified by content
a. By genre
i. Games of information
1. Action role-playing games (ARPG)
2. Open role-playing games (open RPG)
3. Role-playing games (RPG)
4. Multi-user dungeon (MUD)
5. Massively multiplayer online role-playing game (MMORPG)
6. Puzzle
7. Quest
8. Point-and-click
9. Browser role-playing games (Browser RPG)
10. Adventure
11. Education
12. Test (Quiz)
13. Contact (Dating sim)
14. Visual novel
15. Hero
16. Toure (Environmental narrative games)
17. Full motion video (Interactive movie)
18. Roguelike
ii. Games of action
1. Open action
2. Action
3. Slasher
34
4. Battle-racing
5. Platformer
6. Stealth-action
7. Fighting
8. Racing
9. Arcade
10. Horror
11. Survival horror
12. Shooter
13. Sport
14. Simulator
15. Rhythm
16. Metroidvania
17. Beat ‘em up
18. Shoot ‘em up
19. Light gun games
20. Vehicular combat
21. Breaking out
22. Mad marble maze
23. Maze games
iii. Games of control and planning
1. Real-time strategy (RTS)
2. Multiplayer online battle arena (MOBA)
3. Global strategy
4. Turn-based strategy (TBS)
5. Sim strategy
6. Global wargames
7. Economical
8. Tower defense
9. Wargames
10. Card games
11. Logic
12. Tactic (+jRPG)
13. Microcontrol
14. Building
15. Life sim
b. By setting
i. According to the site of action
1. Real worlds
2. Asian
3. Casino
4. Castle
5. Game show
6. Hospital
7. Nature
8. Ocean
9. Rural
10. School
11. Space
12. Spaceship
13. Tundra
14. Urban
15. Parallel worlds
16. Alternative worlds
17. Fantasy
18. Heroic mythology
35
19. Christian mythology

20. Modern mythology
c. According to the time of action
1. Origin of life
2. Cyberpunk
3. Futuristic
4. Gothic
5. Historic
6. Medieval
7. Modern
8. Renaissance
9. Steampunk
10. Prehistoric times
11. Dawn of civilizations
12. Middle Ages
13. Colonization Ages
14. Industrialization Ages
15. Overpast wars
16. Modern times
17. Information era
18. Outer space exploration
19. Evolution
d. According to the purpose of action
1. Playthrough games
2. Education games
3. Entertainment games
4. Casual games
5. Sandbox games
6. Competitive games
7. Hardcore games
8. Exergaming
9. Party
10. Social
11. Meditation
e. According to the narrative
1. Adult (Sex)
2. Art & Design
3. Business
4. Children
5. Concept
6. End of the world
7. Food
8. Holydays
9. Drama
10. Law
11. Medicine
12. Nature
13. Politics
14. Religion
15. Science
16. Sport
17. Supernatural
18. Travel and Transportation
19. Comedy
20. Crime
21. Horror
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22. Romance
23. Spy, espionage
24. Survival
25. Mystery
26. Thriller
27. War, Fighting
28. Western
29. Cyberpunk, Dark Sci-Fi
30. Space
31. Post-apocalyptic games
32. Steampunk
33. Fantasy
34. Historic
35. Sci-fi, Futuristic
2. Classified by the number of players
1. Singleplayer (SP)
2. Multiplayer (MP)
3. Hotseat, Splitscreen
4. Play by Electronic Mail (PBEM)
5. Massively multiplayer online game (MMOG)
3. Classified by the publishing criteria
a. According to the budget development
1. AAA
2. B
3. Indie
4. Amateur
b. According to publishing format
1. Original
2. Sequel, prequel, remake
3. Add-on, expansion
4. Episodic
5. Downloadable content (DLC)
4. Classified by spread type
a. Chargeable
1. Physical copy
2. Digital copy
3. Subscription
b. Free
1. Shareware
2. Free to play (F2P)
3. Trial
4. Freeware
5. Classified by the platform
1. Personal computer
2. Gaming console
3. Mobile devices
4. Arcade machines
5. Browser (Web)
6. Classified by graphic image
a. According to the position of the game camera
1. First person view
2. Third person view
3. 2D side-view
4. 3D side-view
5. 2D top-down
6. 3D top-down
37
7. ¾ view
8. Vertical scrolling
9. Side scrolling
10. Perspective manipulation
b. According to the technology of graphic representation
1. Pseudographics
2. 2D
3. 3D
4. 3D stereo
5. Augmented reality
6. Virtual reality (VR)
c. According to the visual style
1. Comics
2. Cartoon
3. Anime, mange
4. Realistic
5. Abstract
6. Handicraft
7. Watercolor
8. Cel-shaded
9. Wireframe
7. Classified by gameplay
a. Goal-oriented
b. Process-oriented
c. According to the basic rules of gameplay
1. Avoid
2. Match
3. Destroy
4. Create
5. Manage
6. Move
7. Random
8. Select
9. Shoot
10. Write
8. Classified by a rhythm
a. Meditative (“Zen”)
b. Stable
c. In real time
d. Step by step
e. Games with the ability to manipulate time
f. Calendar-based game clock
g. Timed action
9. Classified by the atmosphere
1. Adventurous
2. Aggressive
3. Cute
4. Dark
5. Humourous
6. Ispirational
7. Intense
8. Light-hearted
9. Mysterious
10. Peaceful
11. Sarcastic
12. Sensual
38
13. Solitary
14. Quirky
10. Classified by the type of ending
1. Branching
2. Circuitous
3. Finite
4. Infinite
5. Post-Game(Lee et al. 2014)
Analysis of this classification has shown that, firstly, the existing classifications of video games do
not cover their variety. Secondly, the boundaries between different genres are blurred and sometimes
it is impossible to identify a particular game (for example, “GTA V” can be attributed to the genre of
third or first-person action, and to the racing genre with elements of RPG and MMO, sandbox).
Thirdly, classifications of video games do not take into account interests and needs of video game
players and developers.
Virtual World of Video Game

A video game is a complex and multifaceted subject of study. It exists on many levels of our
perception. A video game “is a particular piece of software created and run on particular computer
hardware at a particular moment in time” (Bogost 2009). Among other, a video game is code, a
platform, as well as a narrative, digital media, a new form of art, etc.
In fact, video game goes beyond its borders and it is no longer just a game, it constructs a kind of
virtual world, which continues to exist outside the game. Plunging into the virtual world of a video
game the consciousness of a player usually gets into the mental state of flow (Csikszentmihalyi 2008)
in which one is completely fascinated by the video game, which erases the boundaries between the
real and the fictional “here and now”. A video game is always something more than it is originally
meant to be. By forming virtual worlds with their own rules and laws, objects and characters, values,
beliefs, and codes of conduct video games significantly influence mass consciousness and modern
culture.
We believe that virtual world can be understood not only as computerized space that simulates the
real world where users presented by avatars are able to interact simultaneously (Messinger et al.
2009; Bell 2008; Koster 2004; Hughes 2012; Eisenbeiss et al. 2012). In a broader and more
philosophical sense virtual world is holistic space of simulacra which becomes relevant in the process
of interaction between the Architect and the Beholder of the virtual world. We put forward the
following idea – virtual world of a video game is the simulacra universum constructed by the
Architect (game designer, developers) and actualized in the process of interaction between: a) the
Beholder (gamer) and the Architect in singleplayer games; b) the Beholders (gamers) between each
other and the Architect – in multiplayer games via computer-based environment. Thus, the reality of
video game virtual world is constructed by the consciousness of the Beholder since he actualizes this
space in accordance with personal needs, interests and features, as well as with the gaming context.
Ontology of Video Game Virtual World

The virtual world of a video game has not been the subject of a separate research. We are
implementing the construction of the video game virtual world ontology as the ontology of form
(Bogost 2009). It is based on previously compiled classification of video games, as well as on the
research of the elements and structure of a video game, and the Beholder’s needs.
39
Figure 1. Ontology of Video Game Virtual World
The left side of the figure presents the area that describes the actions of the Architect creating and
developing a video game:
1) primary content includes the idea, the concept of a video game including concept art and
scenario;
2) video game programming – the process of turning the concept into the game content;
3) video game content consists of three main blocks: graphics, audio, and the script.
As a result of the Architect activity immersive video game environment has emerged. We
consider this environment as the space a players are immersed into interacting
interacting directly through
setting, narrative, gameplay, audio surroundings, user interface, platform and atmosphere:
• setting – video game environment where the action takes place including time and place
where the events unfold;
• narrative – substantial component
component of a video game, narration, exposition of interrelated
events presented to the player as a set of words and images;
• gameplay – set of all possible elementary actions that can be committed by a player in
the game environment. it is the game process from the player’s point of view;
• audio surroundings – audio component of a video game;
• user interface – set of commands and menus to communicate with the program;
• platform – hardware/software configuration which provides video game functioning;
• atmosphere – the tone of a video game which provokes certain psycho-emotional
emotional state.
The right part of the figure illustrates the interaction between the Beholder and a video game along
with the process of immersion into the video game environment. The player has basic needs: need for
competence, need for autonomy, need for relatedness (Gee et al. 2012).. Video games of different
40
genres satisfy these basic needs to a different extent. For example, if the need for competence
prevails, action games (e.g. action, slashers, platformers, racing shooter, sport, etc.) are more likely to
satisfy it.
In order to satisfy the need for autonomy games of control and planning are best suited (e.g. strategy,
card games, logic, sandbox, etc.). In order to satisfy the need for relatedness video games in which
social interaction plays the key role are more suitable (e.g. multiplayer online games, cooperative
games, role playing games, etc.). Generally, the Beholder’s needs satisfaction occurs when
interacting with gameplay, setting, narrative, audio surroundings through the prism of graphic
interface on certain platforms. All these provide special atmosphere of a video game.
The virtual world of a video game in Figure 1 is indicated by the color. The virtual world of a video
game is the simulacra universum constructed by the Architect and actualized by the consciousness of
the Beholder. The virtual world of a video game is constructed only during the process of interaction
between the Architect and the Beholder.
The ontology we present will allow classifying video games more clearly distinguishing between
different genres. Consider a similar classification of video games on an example of a video game
“Braid” (see table 1.).
Table 1. Ontology Application (“Braid”)
Ontology layer Description

Platform Xbox 360, PC, PlayStation 3
Keyboard, gamepad, main menu, jigsaw puzzle pieces indicator,
User Interface
minimalistic user interface
Atmosphere Mysterious, bright, melancholic, picturesque hand-drawn, fairytale
Move, avoid, destroy (platformer); interact, time manipulate, match
Gameplay
(puzzle)
Setting House, parallel worlds
Multi-faced and metaphor narrative: supernatural abilities, ethics and
Narrative philosophical questions, relationship issues, moral responsibility of
scientist
Prior Gamer’s Need Need for competence
The developed ontology of the video game virtual world allows to look at this phenomenon as at
something holistic, to see some links between video game elements, between the Architect and the
Beholder.
Conclusion
Video games are not just present-day entertainment. They construct virtual worlds plunging into
which a person gets an opportunity to learn more about oneself because video games meet specific
needs of players. Various genres did not appear by themselves, but as a result of the Architect’s work
embodied in the development of video games that satisfy those needs.
Acknowledgment
The authors thank the Russian Foundation for Humanities for its financial support. The research is
carried out as part of the scientific project 16-33-01069 “Ontology and Epistemology of Video Game:
Mythological Grounds of Gamification”.
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43
A New Prospective on Knowledge Management Processes:

An Empirical Validation of the 5C KMLC Theory
Firas M. Alkhaldi
Amman Arab University, Jordan
falkhaldi@aau.edu.jo; falkhaldi@hotmail.com
Abstract
This research is an attempts to develop and validate a new prospective on knowledge management life
cycle processes. It draws on the fast well established KM literature, mainly by focus on the earliest KM
theories between 1994 and 2005, where the researcher believes that the most contributions to KMLC
theories was founded at that era. Valuing the later literature ON KMLC, the researcher believes that most
that is either refection of the past theories or repeating it more presentable fashion. The proposed 5C
knowledge Process (5CKP) was validated and test empirically using structural equation modeling and
confirmatory factor analysis. The finding confirmed the proposed 5CKP theory with some adjustments
and reveled many interestingly and new relations concerning KMLC that required further research
attentions and consideration.
Keywords: Knowledge management process, Knowledge management life cycle, structural equation
modeling.
Introduction
The following review is an attempt to address the major theme in the literature of knowledge
management that informs the research. The review starts by exploring the meaning of the concept of
knowledge management. Well established and validate Knowledge process theories as the contribution
of major Knowledge philosophers and leading practitioners is placed within the overall context of
knowledge management. It is shown that knowledge management can be outlined generally by at least
four to five major processes, each of which is exceedingly interconnected. It reviews the relevant
knowledge management research findings and the major contributions of researchers to further our
understanding of the knowledge management life cycle theories. Then, the existing frameworks that
model the knowledge process are reviewed and validated.
Knowledge management (KM) is a set of procedure that utilize the value created by the transfer of
knowledge assets, where this value can be seen as knowledge creation, acquisition, application and
sharing (Knapp, 1998). KM is any practice that leads to create, acquire, capture, share and apply
knowledge, where it is located, to enhance in significance of learning and performance in organization
(Scarbrough et. al., 1999). Snowden (1998) defined knowledge management as the process of
identification, optimisation and active management of intellectual assets. Wilmott (1998) associated KM
with the capturing and disseminating of knowledge; he viewed KM as integration between information
technologies and the new work organisation. Bajaria (2000) sees KM as the practice that makes
knowledge instantaneously available in usable format and uses it. According to Wiig (1997), KM
encompass four topics of importance: top-down monitoring and support the progress of knowledge-
related activities; creation and maintenance of the knowledge infrastructure; renewing, arranging and
transforming knowledge assets; using knowledge assets to attain its value. Therefore, KM is the process
that sustains the way of working in which the significance of knowledge is conceived, appropriated and
shared. In other words, KM is a set of practices developed in an organisation to create, acquire, maintain
and transfer knowledge.
44
Knowledge Management in organisational knowledge processes theories

The following section is a review of the earliest major theories that shed the light of the nature of and
processes of KM. No doubt that he main reasons behind the organisation’s initiative to create and
employ knowledge is to innovate and develop new ways of achieving sustainable competitiveness.
Nonaka and Takeuchi (1995, p. 3) defined organisational knowledge creation as “the capability of a
company as a whole to create new knowledge, disseminate it throughout the organisation, and embody it
in product, services, and systems”. Concisely, it is the processes that enable the knowledge created by
individuals to be augmented, amplified, justified and crystallised within the organisation, as a part of the
organisational knowledge system (Nonaka, 1994; Nonaka and Takeuchi 1995).
The Earliest Major KM Theories

Wikstrom and Normann (1994) identify three forms of knowledge practices in an organisation: generative
processes, productive processes and representation processes. Generative processes are those by which
new knowledge is created in the course of problem solving, leading to an increase of the overall
knowledge pool of the organisation which, in return, can be used in a way to advance the organisation’s
competitive and innovative standing. Productive processes are the applications of the generated
knowledge into operational activities leading to an advancement of existing product/services or the
introduction of a new product or service. In other words, productive processes are the operationalization
of the new knowledge. Representation processes are the processes that pass the distinct knowledge to its
customer. The knowledge is represented by the product sold or the services provided to the customer,
since the product sold or the services provided will reflect all knowledge incorporated in it.
Leonard-Barton (1995) indicated that KM consist of four major processes in which organisations can
create and construct knowledge. These process are shared creative problem solving; implementing and
integrating new methodologies and tools; experimenting and prototyping; importing knowledge from
outside. The first activity is about helping an organisation members from different knowledge
backgrounds to get together; directing their aggregate knowledge to solve problem, the second is about
implementing and assimilating new means and tools, in which the individual or group activity of sense
making will yields knowledge and then are linked to the distinctive approaches and tools used to improve
internal operation. Experimenting and prototyping are set of practices intended to spread the
organisation’s existing capabilities and to develop new knowledge. Finally, importing external
knowledge can be seen as an activity to improve the organisation’s absorptive capacity.
Nonaka and Takeuchi (1995) suggested a five stage model to knowledge creation; sharing tacit
knowledge, creating concepts, justifying concepts, building an archetype and cross-levelling knowledge.
Sharing tacit knowledge corresponds to socialization, where tacit knowledge is shared between
individuals in the organisation. Creating concepts corresponds to externalization, where dialogue,
metaphors, analogies and models are used to convert the tacit knowledge to the explicit one. Justifying
concept corresponds to internalization, where screening process of the newly created concept are
conducted to ensure that the new concepts are not in conflict with the organisation’s objectives and
intention. Building and archetype is the process of conversion of the accepted concept into something
tangible. A prototype of a new product is an example of this phase. Cross levelling of knowledge is an
interactive spiral process of knowledge use gained to activate a new cycle of knowledge creation.
Building an archetype and cross-levelling are corresponding to combination.
Other Knowledge Management Theories

Nahapiet and Ghoshal (1998) identified a seven knowledge management (KM) practices in which can be
seen in a form of four processes; discover new knowledge, capture existing knowledge share knowledge
with others, and finally apply knowledge. Davenport & Prusak (1998), suggested three major activities of
KMLC; knowledge generation, knowledge codification & coordination, and knowledge transfer. Nissen
(1999), acknowledged five knowledge management activities: capture, organize, formalize, distribute,
45
and apply. Bettoni & Schneider (2002) proposed a wheel of knowledge model; use, share, preserve,
transparency, develop, acquire. McElroy (2000) introduced three fundamental knowledge process;
knowledge production, knowledge validation, knowledge integration. As seen from the above theories
that there are common denominators, but there are a quit lake of formalization, unify concepts and
validation. Despres and Chauvel (1999) stated that knowledge management life cycle model consist of six
processes; create, map/bundle, store, share/transfer, reuse, and evolve.
The proposed 5 C’s Model

The 5C KMLC model (Alkhaldi, 2005; Alkhaldi et. Al., 2008; Abdenaser et., al. 2010) is an attempt to
create a unified KM process model that under line the major KM theories and unified and empirically
validate the KM process in a well-defined model that synchronized the related KM process into one
concept for each major process. Following this notion the section below outline and unified the previous
KM theories contributions into a conceptual KMLC model
Knowledge capture process: Knowledge capture, is the act of acquiring knowledge components for future
use. Where the capacity to capture knowledge and make it available through various methods is relatively
a recent development. Activities to knowledge capture includes looking for several sources of
knowledge that are deemed essential and associated with the activities needed to accomplish the task,
detecting and perceiving the needs and requirements from knowledge resources, attaining knowledge that
already exist within the organization from its appropriate sources at right time and where it is required ,
extracting knowledge from other individuals within the organization, developing conceptual knowledge
from the existing ones in organization, using, brainstorming and metaphor so as to extract tacit
knowledge and determine work problems in the organization. Relating to individuals in the organization
to capture and procure their knowledge, and individual participation in workshops, to acquire new
knowledge.
Knowledge Construction process: Knowledge construction is the process of making available and
amplifying knowledge created by individuals as well as crystallizing and connecting it to an
organization's knowledge system. Activities to knowledge construction are seen in conducting research.
Knowledge utilization of past experiences, continuous learning, preparing an appropriate culture and
system, developing systematic knowledge by combining explicit knowledge, developing sympathetic
knowledge through socialization, developing new ways for performing work, relating to outside
consulting firms with the intention of discovering a new knowledge and new techniques, participation in
work meetings, enforcing hard pressures and conditions to force them for creating new knowledge and
new methods of doing, forming social networks to help generate new knowledge, raising a states of
uncertainty, searching and maintain general routine procedures.
Knowledge Codification Process: Codification is the process that creates knowledge storehouses.
Codification, increase ability to allow explicit knowledge transfer. Codification can be seen as
classification and categorization of existed knowledge, storing knowledge, mapping knowledge,
organizing knowledge, placing knowledge in suitable setting, refining and filtering knowledge.
Knowledge Communication Process: Knowledge communication is the activity of interactivity conveying

insights, assessments, experiences, or skills via verbal and non-verbal means. As indicated by Eppler
(2005) that knowledge can be best shared, developed and assessed in interactions. These interactions can
be both synchronous and asynchronous communication. Other activities to acceleration communication
are in considering the source, nature, and type of massages when sharing, encouraging culture of
knowledge sharing, providing ICT tools to transfer knowledge across organisation, encouraging dialogues
and discussions, collaborative group solutions, exchanging knowledge via formal means such as
documents and manuals, defining apparatuses and approaches for spreading knowledge across
organization.
46
Knowledge capitalization Process: Knowledge capitalization is an important step of the knowledge

process, in so far as it enables to restart a new cycle of knowledge process (Nonaka and Takeuchi 1995).
This process can be seen as capitalizing and exploiting knowledge assets in new techniques, approaches
of conducting work, improving feeling of individual obligation toward knowledge, enhancing individual
effectiveness, encouraging individual competitiveness, the application of knowledge to find new
management and cultural practices.
Proposed 5CKP Model and research Hypotheses

Based on the section above, the researcher proposed a model of KMLC that consist of five major process
that unified and integrate many previous major KMLC process, the major KM process in this model are
as follows:
1. Knowledge capture process

2. Knowledge construction process
3. Knowledge codification process
4. Knowledge communication process
5. Knowledge capitalizing process
The main hypotheses are:
H1: Knowledge capture process (KCAP) has a direct positive significate relationship with 5CKP
H2: Knowledge construction process (KCON) has a direct positive significate relationship with 5CKP
H3: Knowledge codification process (KCOD) has a direct positive significate relationship with 5CKP
H4: Knowledge communication process (KCOMM) has a direct positive significate relationship with
5CKP
H5: Knowledge capitalizing process (KCPT) has a direct positive significate relationship with 5CKP
KCAP E1
KCON E2
5CKP KCOD E3
KCOMM E4
KCP T E5
Figure 1: The hypothesized model
Data characteristics
One hundred and thirty questionnaires were sent to a population of thirteen public and private
Information systems organizations operating in Jordanian Market. A total of one hundred and fourteen
questionnaires were returned and deemed to be valid for data analysis. The age distribution ranges from
22 to 56 years with an average of 33.5, Job tenure were distribute equally between years interval. As far
47
as Year of experience, %70 of respondents did have less than 5 years of experience while the least group
that have more than 15 years constitute less than %3 more details can be seen in figure 2 and table 1.
Table 1. Sample characteristics

Item ranges AVG,
or %
Age 22-56 33.5
Education AD %21
BA %47
PG %31
other %1
Years at Job Less than 5 %26
(in position) 5-10 %26
10-15 %23
More than 15 %25
Years of Less than 5 %70
Experience 5-10 %23
10-15 %4
More than 15 %3
Figure 2: Data summary results
Data Operationalization and Analysis: Explanatory Factor Analysis

Knowledge Capture (KCAP:C1): The explanatory factor analysis showed a one-factor solution and a
clear discriminant validity as all items loaded on one dimension. Factor score ranges from 0.67 to 0.80.
KCAP construct Explained 57 % of the total variation, and Sampling Adequacy is consider fit for the
analysis. The Items demonstrating the knowledge management processes as knowledge capturing are
listed in table 2. The resulted factor will be referred to in the course of the analysis as Knowledge Capture
(KCAP
48
Table 2: Explanatory factor analysis knowledge capture (KCAP: C1)
Variable Description F1* Action

Searching for several sources of related knowledge which are
C11 0.75 In
necessary to performing the work improves KM
Creating a work environment that allows peers to gain expertise
C12 through practice (on the job) and apprenticeship improves KM 0.80 In
Extracting other people knowledge in the organization improves Removed ,

C13 -
KM single loading
Consulting others in the organization to capture and acquire their Removed ,
C14 -
knowledge improves KM Cross loading
Using brainstorming mechanism in order to solve work problems
C15 0.67 In
of the organizations improves KM
Interacting with external experts and informal meetings with
C16 0.79 In
competitors improves KM
Kaiser-Meyer-Olkin Measure of Sampling Adequacy. 0.73
Total Variance Explained 0.57
*F1, knowledge Capture (KCAP)
Knowledge Construction (KCON: C2): The explanatory factor analysis showed a two-factor solution as
items loaded into two dimension. Factors score ranges from 0.57 to 0.87. The two dimensions construct
Explained 62 % of the total variation, and Sampling Adequacy is consider fit for the analysis. The Items
demonstrating the knowledge management processes as knowledge construction revealed two major sub
process and was named knowledge Internal Support (KCON:KIS), and knowledge External Support
(KCON:KES) the items demonstrating the two new sub process are listed in table 3. The resulted factors
will be referred to in the course of the analysis as Knowledge Construction (KCON; KIS, KES)
Table 3: Explanatory factor analysis knowledge construction (KCON: C2)
Variable Description F1* F2** Action
Conducting research activities in order to discover

C21 - 0.57 In , KIS
knowledge in the organization improves KM
Exploitation of past experiences in the organization in
C22 - 0.80 In , KIS
order to discover new knowledge improves KM
Developing new methods for doing work tasks in the
C23 - 0.75 In , KIS
organization improves KM
Referring to external consulting firms in order to discover
C24 0.87 - In, KES
new knowledge and new ways of doing improves KM
Referring to departments and specialized units in
C25 organization to create and generate knowledge improves 0.85 - In, KES
KM
Forming social networks of people within the organization
Removed,
C26 in order to encourage them to generate new knowledge - -
single loading
among each other improves KM
49

*F1, knowledge Internal Support (KCON: KIS), **F2, knowledge External Support (KCON: KES),
Knowledge Codification (KCOD: C3): The explanatory factor analysis showed a two-factor solution as
demonstrating the knowledge management processes as knowledge codification revealed two major sub
process and was named as knowledge manipulations (KM), and knowledge referencing (KR). The items
demonstrating the two new sub process are listed in table 4. The resulted factors will be referred to in the
course of the analysis as Knowledge Codification (KCOD; KM, KR)
Table 4: Explanatory factor analysis knowledge codification (KCOD: C3)

Classification and categorization of existed knowledge in the
C31 organization according to its nature into categories such as 0.67 - In, KM
administrative, technical financial improves KM
Storing and mapping organizational knowledge in locations
C32 0.86 - In, KM
that are easily retrieved improves KM
Refining and filtering knowledge of the organization in order
C33 0.77 - In, KM
to access the most critical knowledge improves KM
Relating organizational knowledge reflects what is actually
C34 - 0.84 In, KR
known and done by the organization improves KM
Distinguishing between explicit and hidden knowledge of
C35 - 0.78 In, KR
people in the organization improves KM
Removed,
Auditing and orientation of available knowledge resources to
C36 - - single
organizational members improves KM
loading

*F1, knowledge manipulations (KCOD: KM), **F2, knowledge referencing (KCOD: KR)
Knowledge Communication (KCOMM: C4): The explanatory factor analysis showed a two-factor
solution as items loaded into two dimension. Factors score ranges from 0.60 to 0.82. The two
dimensions construct Explained 63 % of the total variation, and Sampling Adequacy is consider fit for the
analysis. The Items demonstrating the knowledge management processes as knowledge communication
revealed two major sub process and was named as knowledge Care (KC), and knowledge Tools (KT).
The items demonstrating the two new sub process are listed in table 5. The resulted factors will be
referred to in the course of the analysis as Knowledge Communication (KCOMM; KC, KT)
50
Table 5: Explanatory factor analysis knowledge communication (KCOMM: C4)

Taking knowledge source, nature, and type in to
Removed,
C41 consideration when transferring or sharing knowledge in - -
cross loading
the organization improves KM
encouraging and enhancing the culture of knowledge
C42 0.60 - In, KC
sharing among organizational members improves KM
Providing information and communication technology in In, KC
C43 order to transfer knowledge among people in the 0.83 -
organization improves KM
Encouraging dialogues, conversations, and discussions In, KC
C44 among people in the organization in order to share in their 0.82 -
knowledge improves KM
Having access to organizational knowledge, and In, KT
C45 - 0.75
determining who can transfer knowledge improves KM
Establishing mechanisms and methods for distributing and In, KT
C46 - 0.76
disseminating knowledge in the organization
*F1, knowledge Care (KCOMM: KC), **F2, knowledge Tools (KCOMM: KT)
Knowledge Capitalizing KCPT: C5): The explanatory factor analysis showed a two-factor solution as
demonstrating the knowledge management processes as knowledge capitalizing revealed two major sub
process and was named knowledge Social Policy (KSP), and knowledge Management Policy (KMP)The
items demonstrating the two new sub process are listed in table 6. The resulted factors will be referred to
in the course of the analysis as Knowledge Communication (KCPT; KSP, KMP)
Table 6: Explanatory factor analysis knowledge capitalization (KCPT: C5)
Variab Description F1* F2** Action

le
C51 Investing in new ways and methods to utilize organizational 0.68 - In, KSP
C52 Enhancing individual's feeling of responsibility and 0.83 - In, KSP
effectiveness though acquisition of organizational
C53 Encouraging individuals toward competitiveness through - 0.61 In, KMP
acquisition of organizational knowledge improves KM
C54 Application of knowledge which leads to change in 0.88 - In, KSP
organizational culture improves KM
C55 locating new managerial practices, making creative and - 0.50 In, KMP
intellectual resources available, and improving overall
performance improves KM
C56 Evaluating the outcomes of organizational knowledge after - 0.92 In, KMP
51
its application improves KM


*F1, knowledge Social Policy (KCPT: KSP), **F2, knowledge Management Policy (KCPT: KMP)
KCAP
KIS
(V1 ,F5 )
(V2 ,F1 )
KCON
(V3 ,F1 )
KES
(F1 ,F5 )
5CKP
KM
(F2 ,F5 )
(V4 ,F2 )
KCOD
(V5 ,F2 )
(F3 ,F5 ) KR
(F4 ,F5 )
KC
(V6 ,F3 )
KCOMM
(V7 ,F3 )
KT
(V8 ,F4 ) KS P
KC P T
(V9 ,F4 )
KMP
Figure 3: 5CKP Measurement Model
Hypothesis testing and analysis of the structural model

The structural model fit shows that the hypothesized model need adjustment based on the findings of the
parameter total effect both direct and indirect relations, the measurement model will not be discussed here
since the operationalization of 5CKP using CFA has already established. The analysis will proceed by
discussing the findings of the structural model of 5CKP. All indicator of the overall fit indices shows that
the adjusted model was accepted as all indices are with the accepted benchmark, results can be seen in
figure 2 and table 7.
52
KCAP 0.43 E1*
KCON:KIS 0.75 E3*
0.90*
-0.44*
0.66*
KM 0.58 E40.1
1.03
0.25*
5CKP* 1.00* KCOD
0.03*
KR 0.95 E5*
-0.12* -0.31*
0.00 KC 0.65 E6*

KCOMM
1.00 -0.26* 0.47*

0.60*
E7* 0.65*
KT 0.69
KSP 0.76 E8*

0.65
KCPT 0.38*
0.82*
KMP 0.58 E9*
Figure 4: Structural Model: the Adjusted and Validated 5CKP Model
Table 7: Structural model Results and fitness indicators
X 2, P GFI CFI MFI RMSR C Alfa RHO

Fitness Smaller
>0.85 >0.90 >0.90 >0.05 >0.6 >0.60
Indicators X2
5CKP
23;0.01 0.92 0.97 0.95 0.05 0.79 0.88
Model
Action Accepted Accepted Accepted Accepted Accepted Accepted Accepted
X2: Chi-Square, P: Probability, GFI: Goodness Fit Index, CFI: Comparative Fit Index, MFI: Mcdonald's
Fit Index, RMSR: Root Mean-Square Error of Approximation, C Alfa: Cronbach's Alpha, RHO;
Reliability Coefficient Rho
The regression relations represented in the structural model can be analyzed individually to understand
the magnitude of the direct relations. The followings in table 8 is the overall Regressions models as it
transparent of the structural model and its fit parameters and R2
Table 8: Decomposition of effects with standardized values and Coefficient of determination (R2)
PARAMETER TOTAL EFFECTS: R2

KCAP = .902*5CKP 0.81
KIS = .659*5CKP 0.44
KM= -.436*KM + 1.00 KCOD + .742 5CKP 0.66
KR = .031*KCOD - .307*KCOMM + .068 5CKP 0.10
KC = .248*KIS - .121 KR - .256*KT + .551*KMP - .004 KCOD- .116 KCOMM + .450 KCPT 0.58
53
+ .624 5CKP
KT = .472*KR + .375*KMP + .015 KCOD + .454*KCOMM + .307 KCPT + .266 5CKP 0.52
KSP = .653 KCOMM + .653 5CKP 0.42
KMP = .817*KCOMM + .817 5CKP 0.67
* All model parameters are accepted at 0.01 significance level
Discussion and Conclusions

The proposed model as in the hypothesized was not accepted as is and did need some modification as
suggested by the finding of the structural model, interestingly the new model revealed a new insight on
the knowledge management processes. The main findings can be summarized as follows:
Knowledge management process consists of number of major activities and they are Knowledge capture
activity, knowledge construction where this activity should focus only on internal knowledge support,
knowing that the knowledge external support as part of knowledge construct was rejected from the
hypothesized model, and the logic behind that is only internal knowledge activities and support constitute
the construction process as external activities is beyond the Organisational knowledge boundary and can
be seen as knowledge import or acquisition from outside the Organisational memory as the knowledge
here was not founded with the organisation. Other major finding shows that knowledge construction as a
result of internal support is negatively related to knowledge manipulations; an activity of knowledge
codification. The logic in this findings, tells us that knowledge manipulations as part of knowledge
codification should be based on stable knowledge findings in the process of knowledge construction and
violation to this will yield a different knowledge than expected. Knowledge codification represented in
two sub process; knowledge manipulation and knowledge referencing, where the latter is positively
related with knowledge tools; a sub process of knowledge communications. Knowledge referencing was
also seen to have a negative relations with knowledge communications as unclear relating and knowledge
state distinction with yield a negative results. Knowledge communication are seen here in two sub
process: knowledge care and knowledge tools, where later is positivity related and effect most
knowledge management process and sub process, which leads to conclude that is knowledge tools is the
ultimate knowledge processes, meanwhile knowledge care is positively related most knowledge processes
, but is negatively effecting knowledge referencing and direct communication. Knowledge capitalizing
confirmed two sub processes as one focused on socialization activities to promote knowledge utilization
activities and the other focuses on management polices to inforce knowledge utilization activities at the
organisation. Finally one can concluded that suggested and accepted Knowledge management processes
model revealed a new relations and insight that require s further investigation.
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55
The Role of Brand Love Towards Word of Mouth Marketing with

Costumer trust as Moderating Variable (The Case of ‘HijUP’
Fashion Brand among the Indonesian Costumers)
Anas Hidayat,
Post Graduated, Faculty of Economics, Universitas Islam Indonesia, Yogyakarta, Indonesia
E-mail: hidayatanas@gmail.com
Febri Tri Intan Azhana,

International Program, Faculty of Economics, Universitas Islam Indonesia, Yogyakarta, Indonesia
E-mail: ftiazhana@gmail.com
Abstract
The aim of the present research was to examine the effects of brand image, brand personality, brand
love, that significantly affect word of mouth marketing where trust will be set as moderating variable
between brand love and word of mouth marketing (WOMM). This research was conducted in
Indonesia in the context of word of mouth of ‘HijUp’ Fashion Brand efforts based on consumers’
experience. The data was collected by using enclosed questionnaire based on the Likert scale. Among
‘HijUp’ shoppers, 227 respondents who experienced purchasing goods and services in ‘HijUp’
Fashion Brand were chosen. The data was then analyzed by using Structural Equation Modelling
analysis to obtain the path coefficient as the determination for the hypothesis testing. The research
found that the indirect effect of brand personality toward WOMM is stronger than its direct effect.
Therefore, brand image and brand personality significantly affect brand love that will lead to word-
of-mouth marketing. Furthermore, trust has role to moderate the relationship between brand love and
WOMM. The more the costumer trust on product or brand, the more they will do WOMM.
Keyword: Brand Image, Brand Personality, Brand Love, WOMM , Trust
1. Introduction
Costumer are key play role in marketing in order to sustain the business growth. That is mandatory of
company build strong relationship to the costumer towards brand of the company. On the other hand,
companies have been competitively developed their brand image, personality and brand love.
Due to a huge costumer market in Indonesia are Muslim people that affected in economic growth.
Based on the statement of the Minister of Tourism and Creative Economy, Mari Elka Pangestu,
(Dewi, (2014) Indonesia is predicted to be a reference for Muslim fashion world in 2020. Thus, one
of the the sector business especially in Fashion Market are increased. Brand image build costumer’s
brand love and creates positive word of mouth marketing. The way costumers may love a particular
brand depends very much on the fitness of the brand with their life style and personal identity.
In brand personality, the personality will recognize the brand and also give a clue to the costumer in
assessing whether the brand will satisfy their need and desire of product consumption. Therefore, it is
necessary to create congruence between the personality of a fashion brand and the consumer’s
personality Oosterbroek (2010)
Equally important in reaching the stage where the costumer has the loyalty to continue using a
particular brand, clearly a fashion company must create costumers’ trust in the products of the brand.
56
Therefore, in case customers already trust a particular business or brand, they are willing to develop a
positive attitude to intentionally buy the brand Lombard & Tonder (2012)
Brand image and brand personality create brand love, and it actually makes advantage for the
company. Based on the explanation, those thing will lead costumer trust have along relationship with
brand then be lead to sustainability in the use of the product. Afterwards, costumer will promote the
brand that they wore to other people trough the words of mouth marketing. Thus, the company has an
advantage in selling their product more widely. Arndt (as cited in Raculla, 2012) defined Word of
Mouth Marketing as oral, person to person communication in between a receiver and a communicator
in which there is no perception of commercial efforts to promote a brand, a product, or a service.
From the explanation above, there is an effect among brand image, brand personality, brand love, and
trust that influence positive words of mouth marketing. Guna (2010) examined the link between
brand image and brand love that significantly influenced on word of mouth. This research compared
which one among brand image, brand personality, and brand love that significantly effect the
WOMM where trust set as moderating variable between brand love and WOMM.
This paper attempted to explore the consumers’ mindset in relation among brand image, brand
personality, brand love, and trust that influence positive words of mouth marketing. The result and
model of the previous research had a conclusion which might not be proper to be applied with the
recent condition in Indonesia, Indonesia and also the recent research tried to explore more the study
because none of the study has specifically investigated the relation with brand love. There are six the
main objectives of the current study. First, to identify the impact of brand image on brand love.
Second, to identify the impact of brand image on word of mouth marketing. Third, to identify the
impact of brand personality on brand love. Fourth, To identify the impact of brand personality on
word of mouth marketing. Fifth, To identify the impact of brand love on word of mouth marketing.
Sixth, To identify the role of customers trust have a role as moderating variable that has an impact on
the relationship between brand love and WOMM.
2. Literature Review
2.1 Brand Image
Brand image refers to consumers’ perceptions and beliefs on a particular brand in consumer memory
Kotler & Keller (2000). A powerful brand needs good image. Said in more specific manner, a good
brand image will attract customers. Because researcher believe in order to compete and survive in
competitive market and fulfilling costumer demands, brand image is needed to spent in the company
Anwar, et al. (2011)
Previous research primarily focused on the importance of establishment and sustainability of identity.
Some researchers Aaker, Fournier, & Ismail, et al (2012) found positive and significant effect of
brand image on brand love. Another research Sallam (2014) examine show brand image powerfully
influence brand love.
57
H1: Brand image has a positive significant influence on brand love
Word of mouth is the purposeful influence through consumers’ personal communication Kozinets (as
cited in Oosterbroek (2010). In this paper, word of mouth refers to informal advice shared by one
consumer to another.
Establishing and sustaining brand image play an important role in firm’s marketing program and
branding strategy Roth (1995). We expect the brand image also influence consumers WOMM
directly. Sharing ideas about a brand with other people is very important in the process of using the
brands to construct their identity Holt (1997). Another researcher Yavas (1996) revealed that image
formation is one of the main sources in WOMM.
H2: Brand image has a direct impact on word-of-mouth marketing
2.2 Brand Personality
According to Hankinson (as cited in Lückerath (2010) Brand personality is something unique and
different that makes the brand remembered by customers. Unique personality contributes to a
successful relationship with the consumer. In addition, the unique personality distinguishes the
quality of the brand at the company with other companies.
There are already a number of previous studies investigating the role of brand personality, none of the
study has specifically investigated the relationship between brand personality and brand love. Still
another researcher Jennifer & Aaker (1997) defines it to include excitement, uniqueness, and
affection dimension. Excitement, uniqueness, and affection rank third in the brand personality scale
(Mengxia, 2007), suggesting a positive relationship between brand personality and brand love.
H3: Brand personality has a significant impact on brand love.
Hankinson (as cited in Lückerath, 2010) postulated that there are unique personalities in brand that
play an important role in creating successful relationship with the consumer. Furthermore, the unique
personality may represent the brand’s quality compared to that of other brands.
Other studies Irmaiewan, Santoso, & Sufian (2011) stated on their research that the consumer have
willingness to but a product if the prudent represent their personality. If a brand has a personality that
does not fit, then it will spread is the weakness of a brand. In contrast, if a brand has a strong
personality, different and unique, then it would circulate in the community is the privilege of a brand.
According to Lin (2010) showed a significantly positive relationship between personality trait and
brand personality and brand loyalty, and also positive relationship between brand personality and
brand loyalty. If the consumer loyal to the brand they tend to love spread positive word regarding the
brand.
58
H4: Brand personality has a direct impact on word-of-mouth marketing
2.3 Brand Love
Brand love refers to the emotion and passion that a satisfied consumer builds toward a particular
brand Carroll and Ahuvia (2006). Schouten and McAlexander (as cited in Oosterbroek, 2010, p.05)
suggested that people can have emotional attachment to a brand.
If consumes feel they love the brand that in turn may translate into a desire of the recommended it to
friends and relatives. Thus, many people use their words of mouth marketing to inform others about
the products positively or negatively.
On the previous studies, we expand Roy, Esghi, & Sarkar (2013) work by proposing that brand love
mediates the relationship between independent variables which are brand image and brand
personality also dependent variable which is WOMM. Of equal importance, a company has to satisfy
their consumers to create strong willingness to disseminate word of mouth marketing Terblanche
(2011).
H5: Brand love has a significant impact on word-of-mouth marketing.
2.4 Costumer Trust
The importance of trust development is universally acknowledged. Trust refers to investment in

passionate relationship of customers and business. A relationship will be established between a
customer and a business when the customer finds the benefits received to exceed the effort in
obtaining benefits. It is clear that there are always costs in the interaction of both parties Huang &
Chiu (as cited in Lombard & Tonder, 2012)
Therefore, (Kantsperger & Kunz, 2010) in their study on 357 E-services customer in Malaysia and
Qatar E-Commerce concluded that when customers are satisfied they will build positive and
significant trust. It can be inferred that trust is a cumulative satisfaction that tends to lead to an
emotional bonding between consumer and brand. Customer trust indirectly, moderates a brand love to
word of mouth. Customers who have an emotional attachment to the brand, will have a sense of trust
and then use the brand a continuously. In the end the customer will do promotions through the words
to the crowd or called WOMM. It also means that implicitly, costumers trusts into moderation
between brand loves to WOM.
H6: Costumers trust has a role as moderating variable that has an impact on
the relationship between brand love and word-of-mouth marketing.
59
Theoretical Framework
Figure 1: Theoretical Framework
3. Research Method
3.1 Type and Source of Data
The primary data of this research is gathered from questionnaire distribution. The questionnaire was
developed based on five-point likert-scale. This research used quantative approach with convenience
sampling method and all of data collection were conducted from Maret 2016 until April 2016 in the
area of Jakarta, Indonesia, mostly the consumers are female and who had experience on ‘HijUp’
Fashion brand. The number of the sample obtained was 227 respondents. A total of 227 samples were
considered acceptable after being tested the reliability and validity. Then, the structural model was
examined to test the research hypothesis and model fitness. All calculations and analyzes were
conducted this study using the help of a data processing program SPSS ver. 17 and AMOS.
3.2 Measurement Instrument
The questionnaire was adopted from several previous research and which English language is used.
However, the questionnaire used in this study was translated in Indonesian language to ensure the
understanding of the respondents towards the questions. There are five section consisted of item
scales. The description of scale items and their validities and reliabilities are reflected in Table 1.
First section, the four items measured brand image were adapted form Ismail and Spinelli (2012).
Second section, the four items measured brand personality were adapted from Jennifer & Aaker
(1997). Third section, the four items measured brand love were adapted from Raushnabel and Ahuvia
(2014). Fourth section, the four items measured trust were adapted from Swan, Bowers, &
Richardson (1999). Last section, the ten items measured word of mouth marketing were adapted from
Buttle (1998). All items were measured on a five-point Likert scale with 1 representing “strongly
disagree” and 5 representing “strongly agree”. As Table 1 indicates, all construct is reliable since all
construct reliabilities (CR) are above 0.60.
60
Table 1: Items and Measurement Model Result
Construct Factors
Loadings
Brand Image (CR=0.8)
BI1. ‘HijUp’ has good reputation for quality 0.851
BI2. ‘HijUp’ is a well known and prestigious brand 0.877
BI3. ‘HijUp’ is the most sophisticated brand 0.848
BI4. ‘HijUp’ is the most of fashionable and trendy brand 0.880
Brand Personality (CR=0.72)
BP1. ‘HijUp’ represents Down to Earth, Honesty, Wholesomeness and Cheerfulness 0.741
BP2. ‘HijUp’ is unique and up to date
BP3. ‘HijUp’ provides the feeling of security and confidence 0.826
BP4. ‘HijUp’ is good-looking, glamorous and charming 0.792
Brand Love (CR=0.74) 0.865
BL1. ‘HijUp’ has positive affect while using
BL2. Emotional attachment (feeling awesome) when using ‘HijUp’ 0.751
BL3. Had life meaning after using ‘HijUp’ 0.833
BL4. Has passionate desire to use ‘HijUp’ 0.814
Trust 0.866
T1. ‘HijUp’ has Dependable quality in every product released
T2. ‘HijUp’ has Reliable quality as a fashion Muslim brand 0.888
T3. ‘HijUp’ has Trustworthy quality as a fashion Muslim brand 0.906
T4. ‘HijUp’ has reputable quality in every product 0.922
Words-of-Mouth Marketing (CR=0.8) 0.850
W1. I told the positive things of ‘HijUp’
W2. I promoted ‘HijUp’ to other person 0.814
W3. I told to other people about ‘HijUp’ with good description 0.763
W4. I recommended ‘HijUp’ to other person 0.856
W5. I influenced other people to used ‘HijUp’ just like I did 0.846
W6. I succeeded to make other people to looking information about ‘HijUp’ 0.882
W7. I succeeded to recruit other people to promote ‘HijUp’ 0.341
W8. I succeeded to invite other people to trying ‘HijUp’ product
W9. I mentioned ‘HijUp’ in daily conversation with other people 0.900
W10. I love being a ‘HijUp’ costumer and also influenced costumer at the same time 0.893
0.796
0.873
61
4. Research Findings
4.1 Result of Hypothesis Testing
Table 2: Inner Model Text
Endogen Function
Direct Effect
Brand Love (Y1) WOMM (Y2)
Exogenous Function Coef. p-value Coef. p-value
Brand Image X1 0.083 0.028 0.251 0.010
Brand Personality X2 0.792 0.000 0.035 0.004
Brand Love Y1 - - 0.909 0.000

Source : Primary Data Processed, 2016
In the inner model analysis in Table 2, this can be seen from the result of path coefficient between
brand image and brand love was 0.083. Therefore, it can be said that the first hypothesis was
accepted, followed by second hypothesis which was also support by the result of path coefficient
between brand image and words of mouth marketing was 0.25. Also, path coefficient between brand
personality and brand love was 0.792. Path coefficient between brand personality and words of mouth
marketing was 0.035. Thus third and fourth hypothesis was supported. As such, fifth hypothesis was
also supported, proven from the path coefficient between brand love and words of mouth marketing
was 0.909.
Table 3: Regression to Determination of Costumer Trust
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.

1(Constant) 13.521 1.362 9.907 .000
moderating .092 .005 .770 18.112 .000
Source: Primary Data Processed, WOMM as dependent variable
Moreover, as displayed in Table 3, the path coefficient of costumer trust was 0.000, that costumer
trust has a role as moderating variable that significantly has a positive impact the relationship
between brand love and WOMM.
62
Table 4: Path Analysis
Direct Effect Indirect Effect Description on Indirect

Effect
The effect of BI towards
BI WOMM = 0.251 BI BL WOMM
WOMM through BL
0.083 x 0.909 =0.075
The effect of BP towards

WOMM through BL
BP BL WOMM
BP WOMM = 0.035
0.792 x0.909 =0.719
Y1 Y2 = 0.909
From the result above, the calculated of direct effect on brand image towards WOMM is greater than
indirect effect on brand image towards WOMM. Therefore, it proved that brand image had direct
impact to WOMM. This result is in consonance with the findings of Ismail & Spinelli (2012) found
that positive brand image has a positive impact on WOMM. However, the calculated of indirect
effect on brand personality towards WOMM is greater than direct effect on brand personality towards
WOMM. Therefore, It means that brand love has an important role as an antecedent variable of brand
love that leads respondents to WOMM.
5. Research Discussion
The researcher concludes that brand image positively affected brand love from the customer’s point
of view. Ismail & Spinelli (2012) had proven that brand image has direct effect on brand love. The
same finding, in term of brand image and brand love, there has a positive relationship between brand
image and brand love Jennifer & Aaker (1997).
The finding of this research proved that when the image of brand or product promised by the business
was felt by the consumer. Consumer would love to have positive talk toward the brand. It is the same
as mentioned by Guna (2010) in his research. This research also found that respondents often discuss
about the product and service of ‘HijUp’ fashion brand in order to evaluate their performance. When
they found that it was good and positive, they would love to promote the products. Another similar
research conducted by Ismail & Spinelli (2012) found that positive brand image has a positive impact
on WOMM. Therefore, it proved that brand image had direct impact to WOMM.
Previously there were rare journals that studied this hypothesis, from the mentioned theory and the
empirical study that the researcher had conducted, it can be concluded that there was a significant
correlation between brand personality and brand love. The finding of this research proved that when
brand had a strong personality promised by the business which was perceived by the consumer. The
costumer tend to love would be improved. Thus, this makes theoretical sense because for more-loved
brands, aspects of brand love such as self-brand integration and positive emotional connection should
have relatively more influence. The researcher concluded that brand personality positively affects
63
brand love. More than that, brand personality was significantly stronger to affect brand love
compared to brand image.
Irmaiewan, Santoso, & Sufiana (2011) stated in their research that consumer tends to purchase the
product when the brand or product really fits on costumer personality. It means that this research
succeeded to prove that brand personality had direct impact to WOMM and also had indirect impact
to WOMM through brand love as intervening variable and it is even stronger than indirect effect of
brand image on WOMM.
In this section, the researcher explained about the impact of brand love on WOMM where brand
image and brand personality had a role as the antecedent variables that affect brand love. A research
that had been done by identifying brand image as the antecedents of brand love as intervening role
has a positive effect on WOMM Maisam & Mahsa (2016). Sallam (2014), also mentioned that brand
love mediates brand image and brand identification. In the same research it was found that brand love
has strong positive effect on costumer’s word of mouth marketing. Indirect effect of brand
personality towards WOMM through brand love is significantly stronger compared to its direct effect
to WOMM. It means that brand love has an important role as an antecedent variable of brand love
that leads respondents to WOMM.
Trust is empirically associated with love and intimacy Larzelere & Huston (1980). Furthermore, trust
affects word of mouth marketing and exchange towards particular products or services Mortazavi &
Barzoki (2014). Based on the literature pertaining to interpersonal love context Fehr (1988), trust in
the partner seems to help determines a person’s feeling toward the brand. Furthermore, two or three
trust dimensions enhanced brand love. The consumer’s attribution of fair motivations (honesty) and
expertise (reliability) influenced a feeling of love. It shows that trust is the customer priority which is
an important on brand love.
6. Conclusion
Based on the discussion above, it seems that brand image, brand personality, and brand love have a
positive impact on words-of-mouth marketing as well as using costumer trust as the moderating
variable. Brand love has a role as intervening variable because on of the antecedents of brand love
which is brand personality as the highest role of indirect impact contributions on WOMM towards
brand love.
7. Recommendations
Therefore, the researcher found a recommendation for ‘HijUp’ fashion brand manager, this research
gives contribution on in giving understanding about the decision making, create buying interest and
encourage WOMM communication as their marketing communication of the brands. For empirical
studies, researcher suggests the future research to examine the other elements that had an effect and
consequences in brand love and WOMM. Therefore, the researcher confidently says that all results in
this research could be used as a reference for future researcher or everyone who wants to conduct
other research with the similar topic.
64
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67
The Need for a Change in Roles of Universities as Participants in

Innovation Systems
Maria Elizabeth Eggink, University of Mpumalanga, Nelspruit, South Africa,
maria.eggink@ump.ac.za
Abstract
The roles played by universities have changed dramatically, especially over recent decades. This is a
global phenomenon. Since the 1980s, changes have been in the direction of the inclusion of
knowledge dissemination and transfer and not only of development of human capital and knowledge
creation. These changes in roles correspond with the evolution of economic growth theories from
neo-classical theories to neo-Schumpeterian economic growth theories. The latter economic theories
place emphasis on the importance of innovation and especially the impact of innovation systems on
economic growth. Universities play an important role in these innovation systems and, in order to
successfully contribute to the performance of an innovation system, universities should manage
knowledge dissemination effectively. The performance of the South African innovation system needs
to improve in order to address the high rates of poverty and unemployment. In this article South
African universities are evaluated to determine how they have been changing to include the role of
knowledge dissemination. The importance of this paper lies in the contribution to evolutionary
economics literature on the changing role of universities in innovation systems. The paper is further
intended to raise awareness of the changing roles of universities’ contribution to the innovation
system of South Africa.
Keywords: knowledge dissemination, universities, innovation systems.
Introduction
Innovation is key to economic development. Economists have in the past three decades increasingly
studied the role of innovation and the impact of innovation systems on economic growth and
development (Heertje, 2006; Hanusch and Pyka, 2007; Freeman, 2008). An innovation is defined as a
system that consists of the participants or actors and their activities and interactions, as well as the
socio-economic environment within which these actors or participants function, that together
determine the innovative performance of the system (Eggink, 2012). Universities play an important
role in national innovation systems. The change in the role of universities, as actors in innovation
systems, coincides with the change in views in economic theory from neo-classical theories to
evolutionary neo-Schumpeterian economics (Etzkowitz and Leydesdorff, 1997:3;156; Liefner and
Schiller, 2008:280). Evolutionary economic theories emphasise the importance of innovation in
economic theory. Universities globally are becoming more active in contributing to the performance
of innovation systems (Greenhalgh and Rogers, 2010; Mowery and Sampat, 2005). The roles of
universities have changed from only teaching to also include knowledge creation and knowledge
transfer (Gunasekara, 2006; Wong, Ho and Singh, 2007; Bramwell and Wolfe, 2008; Youtie and
Shapira, 2008; Peterson and Rumbelow, 2008; and Kaymaz and Eryiğit, 2011).
South Africa is a country that needs to improve its innovation system performance, due to high
poverty and unemployment rates. The unemployment rate in South Africa for the first quarter of 2016
was high at 26.7% (Statssa, 2016:iv). Poverty rates are alarmingly high in South Africa with 45.5%
(2011) of people regarded as poor, implying that they earn less than R620 per month (the amount
considered necessary to purchase both adequate food and non-food items) (Statssa,2014). In global
terms, the poverty headcount (of those earning $1.90 a day or below (2011 purchasing power parity)
is 16.6% (2011) of the population in South Africa, compared to 12.7% (2012): the world average
(World Bank. Data (a)). In the light of the dire need for growth and development in South Africa, all
the role players in the innovation system, including universities, should participate in and contribute
to enhancing the performance of the national innovation system.
68
The research question is: how have South African universities adapted to the changing role in tertiary
education? It is the aim of this paper to determine if and how South African universities are
responding to the increased need to contribute to the performance of the national innovation system.
A literature review is first conducted on the historic and current changes in the roles of universities in
innovation systems globally. The case of South Africa is then studied and the roles that universities
play in South Africa’s national innovation system are evaluated and reported on. There are not
specific measurement tools for knowledge creation and knowledge dissemination. Therefore
triangulation - by means of a combination of measurement tools - has been used to evaluate the
changes in these vital functions of universities. This study aims to contribute to the literature on the
importance of the changing role of universities in innovation systems, as well as to the improvement
of the performance of the national innovation system of South Africa.
A Historical Overview of the Changing Role of Universities

The importance of education and training institutions in the performance of innovation systems is
highlighted by Goldstein (2009:11), who states: “There is no question that universities increase
aggregate regional economic activity.… Empirical studies using regional production functions have
shown that universities, on average, lead to increases in productivity growth and innovation in the
region, controlling for other factors”. It should, however, be noted that universities are not all the
same and the roles that they play in their innovation systems may vary (Goldstein, 2009:15; Jansen et
al, 2007:181).
Although literature on the changing role of universities has increased significantly over the past three
decades, changes are not confined to this period. The role of universities has been changing since the
establishment of the first universities in the twelve century. Medieval universities were characterised
by the accumulation of knowledge, but they became more active in terms of knowledge generation at
the beginning of the nineteenth century. Universities took on a stronger role in scientific research
“based on rational inquiry and experimentation” and the Humboldt University in Berlin became the
model for such practice. Universities further expanded their roles to research and training in
technical disciplines and began educating students to meet the needs of industry (Youtie and Shapira,
2008:1189; Brockliss, 2000). Over the past few decades, the focus has shifted again: from training
students and conducting research (“knowledge factories”) to becoming more active in development
and innovation (“knowledge hub”) (Youtie and Shapira, 2008:1189). Wissema’s (2009:3-4)
identification of three distinct periods in the evolution of universities accords with the account
offered by Youtie and Shapira: the first generation university or medieval university; the second
generation university or Humboldt university (currently falling into obsolescence); and the third
generation university, or 3GU, that is the university still to come. Some of Wissema’s time periods
or phases overlap and between the three phases there are transition phases. Wissema contends that
universities are currently in a transition phase between being second and third generation institutions.
Sutz (1997:10) describes the changing role of universities as moving from a “two-role model” of
teaching and research to a “three-role model”, adding the focus on a direct relation to society: “In
former times, the university as such – with very few exceptions – did not carry out the functions that
are characteristic with the firm or enterprise: it did not market its capacities, it did not enter into
agreements specifying the article to be delivered or the delivery date, it did not compete with either
university or non-university agents to sell its intellectual production… Nowadays, the university has
become a direct producer of goods and services for end-users”.
Wissema (2009:45-46) classifies universities’ quality of research and education according to the
progress they made towards the third generation universities. Wissema identifies five types of
universities: universities with an emphasis on education only (higher professional and scientific);
universities with a solid research base and research-based teaching; universities active in research and
research-based teaching and with commercialisation facilities; universities with cutting-edge research
and excellent teaching capabilities; and universities with cutting-edge research and education and
strong commercialisation. Liefner and Schiller (2008) follow a similar reasoning by including more
69
categories and classify universities as low, intermediate or advanced in terms of different teaching,
research, functional and organisational capabilities, according to both quantitative and qualitative
criteria. Wissema, as well as Liefner and Schiller, imply therefore that universities should fulfil all
three roles (teaching, knowledge creation and knowledge dissemination). The worldwide trend for
universities to change their roles to include knowledge dissemination and transfer, points to evolution
in order to adapt to demand from industry and communities and highly competitive environments.
Next the role that South African universities play is evaluated and reported on in order to establish if
the South African universities have followed the world pattern of evolving to include knowledge
dissemination and transfer.
The Case of South Africa

South Africa’s universities are evaluated regarding their role in the creation of knowledge on the one
hand, and diffusion of knowledge on the other. The data for South African universities are compared
to those of the country’s main trading partners (US, Japan, Germany, Botswana, Namibia, UK, the
Netherlands, Switzerland) (South Africa Data Portal) and the BRICS countries (Brazil, India, Russia
and China), where available.
The creation of knowledge role of universities in South Africa
The quantitative criteria used to evaluate South African universities in terms of knowledge creation
include research outputs, R&D expenditure and patent registrations. South Africa’s share in research
publications worldwide increased from 0.49% (2000-2004) to 0.59% (2006-2010) (Pouris, 2012:5).
In Table 1 countries are ranked by number of research documents for 2013. Ranking has been done
for 229 countries, but the table only shows selected countries. South Africa is ranked 34th in the
number of research publications, which is fairly high considering the fact that South Africa only
ranks 79th in GDP per capita. If the number of research documents is compared with the population,
South Africa then only ranks 67th, but South Africa ranks a high 19th with regards to research outputs
per GDP per capita (purchasing power parity).
Table 1: Research Outputs, Population Size and Economic Performance
per GDP per capita ppp

Citations per Document
Number of documents
research publications)
documents per size of
international $) 2013
international $) 2013
GDP per capita ppp
GDP per capita ppp

Number of research
Rank (number of
international $)
(constant 2011
(constant 2011
(constant 2011
Documents
Population
Population
population
Country
h-index
h-index
Rank
Rank
Rank
United 563292 1518 316 128 839 Rank

1 0.64 1 3 23 51 451 10 3
States
China 425677 2 0.30 436 16 1 357 380 000 1 64 11 525 82 1
United 162574 3 0.70 934 2 64 097 085 22 13 35 041 26 4
Kingdom
Germany 148278 4 0.70 815 3 80 621 788 16 21 42 045 17 6
Japan 121668 5 0.44 694 6 127 338 621 18 37 35 481 25 7
France 108092 6 0.63 742 4 66 028 467 21 26 35 969 24 8
India 106029 7 0.28 341 23 125 213 9596 2 97 5 238 119 2
Brazil 59111 13 0.31 342 22 200 361 925 5 66 14 555 72 5
Netherl 50939 14 0.85 636 8 16 804 224 60 9 41 980 18 20
ands
70
Russian 43930 15 0.30 355 21 143 499 861 9 65 23 564 43 15

Federati
on
South 15181 34 0.54 260 34 52 981 991 24 67 12 106 79 19
Africa
Sources: SCImago; The World Bank..Data (b)
South Africa ranks high in terms of R&D expenditure by higher education as a percentage of GDP
per capita (12th of 26 countries), as indicated in Table 2. Table 2 shows the R&D expenditure of
higher education and the GDP per capita of a selected group of countries (where data was available
from the OECD database). South Africa’s R&D expenditure by higher education ranks 18th of the 26
countries. However, the rank of R&D expenditure as a percentage of GDP per capita may be better
due to the relatively low GDP and not the necessarily the high R&D expenditure.
Table 2: R&D Expenditure by Higher Education as A Percentage of GDP Per Capita
Rank of
2010 R&D Rank of GDP per countries
expenditure by countries capita % of R&D by % of
higher by size of ppp (2005 expenditure R&D
education R&D constant of GDP per expenditure
Country (2010) expenditure prices) capita per GDP
Japan 16564829 1 30886 53.63 1
Germany 13911208 2 34465 40.36 2
United Kingdom 9791927 3 34129 28.69 3
Russian 1906165 10 14136 13.48 9
Federation
South Africa 97419 18 10564 9.19 12
Source: OECDStatExtracts
Patent registration is another quantitative indicator of knowledge creation. In order to compare the
contribution to patent registration by universities of different countries, Patent Cooperation Treaty
(PCT) data was used. The total number of PCT applications from the top five universities in each
region is given in Table 3. The top five universities in Africa are all from South Africa and, thus, it
can be said that they contribute 61.2% of all applications in Africa. The total number of applications
from Africa, on the other hand, only constitute 0.56% of applications from top universities of all 148
PCT member countries. South African universities perform well regarding patent registrations in
comparison with the rest of Africa, but in world terms these numbers are insignificant.
Table 3: Top Five University PCT Applicants per Region, 2005-2013
Period Regional share

Region Name 2005-07 2008-10 2011-13 2011-13 %
Top five universities 32 78 98 61,2
Africa Others 10 21 62 38.8
Total 42 99 160 100.0
Top five universities 548 817 1 192 13.1
Asia Others 3 454 5 100 7 873 86.9
Total 4 002 5 917 9 065 100.0
Top five universities 444 512 636 9.9
Europe Others 3 679 5 265 5 785 90.1
Total 4 123 5 777 6 421 100.0
Latin America Top five universities 39 79 116 40.3
and the Others 45 101 172 59.7
71
Caribbean Total 84 180 288 100.0

Top five universities 2 319 2 453 2 675 22.6
North
Others 8 149 9 154 9 148 77.4
America
Total 10 468 11 607 11 823 100.0
University of Sydney 161 232 264 66.7
Oceania Others 141 140 132 33.3
Total 302 372 396 100.0
Total 19 021 23 952 28 153
Note: PCT data are based on the publication date and on the first-named applicant. Universities
include applications from all types of educational institutions.
Source: WIPO, 2014:25
One of the indicators that is used for quality of research publications is the h-index, listed in Table 1.
The h-index does not only include the number of publications, but the number of times the
publications were cited as well (Hirsch, 2005:5). The h-index is developed for an individual
researcher, but can be used for a group of researchers as well (Van Zyl, 2012). South Africa ranks
34th in the h-index, which is high for a developing country. If it is taken into consideration that South
Africa’s economic performance ranking, as indicated by GDP per capita ppp, is only 79th, South
Africa’s research outputs and h-index are higher than expected; but for the size of the population
(ranking 24th), the outputs are lower than expected. If we South Africa to the US (ranked number one
for number of citations and the h-index), the US had at least 1518 citations of 1518 published articles,
where South Africa had only 260 citations of at least 260 published articles (Van Zyl, 2012:2). The h-
index indicates that the quality of South African publications are not comparing well with that of its
trading partners and other BRICS countries.
Another index indicating quality of publications is the relative activity index. A value of one
indicates that the South African article in a certain discipline attracted the same number of citations as
the average article in the discipline in the world (Pouris, 2012:4). Pouris (2012) developed a list of
the relative citation indices for South Africa for different disciplines for the periods 2000-2004 and
2006-2010. The overall index increased during these periods from 0.69 to 0.88 and the index
decreased for only three disciplines out of the 22. Although the South African articles do no attract as
many citations as that of the average articles in rest of the world, there has been an improvement.
The knowledge diffusion role of universities in South Africa
To determine to what extent South African universities have followed the world trend in changing
their role to include knowledge diffusion and dissemination, criteria such as number of or time spent
on formal, informal, direct or indirect linkages between the universities and other innovation system
participants or role players must be employed. Diversity of linkages and lack of databases of linkages
make local and international comparisons difficult. Nevertheless, the available data give some insight
into the extent to which South African universities fulfil the role of knowledge diffusion.
In order to place South Africa in a global perspective, the results of a study by the OECD (2013) are
presented in Table 4. The table indicates that 16.2% of SMEs and 37.0% of large firms collaborate
with higher education and public research institutions on innovative activities in South Africa.
Although these percentages compare well with many developed and less developed countries, it
should be noted that the larger firms collaborate more with universities than SMEs. It should,
however, be more important for smaller firms to make use of the knowledge produced by
universities, due to the lower R&D expenditure of SMEs. In less developed countries the R&D
expenditure is also lower than that of developed countries, which again increases the importance of
university knowledge dissemination.
72
Table 4: Firms Collaborating on Innovation with Higher Education or Public Research

Institutions, by Firm Size, 2008-2010, as A Percentage Of Product and/or Process Innovative
Firms in each Size Category
Country SMEs Large firms

Germany 13.9 43.2
Japan (2009-10) 18.7 37.3
South Africa (2005-07) 16.2 37.0
France 13.7 34.9
Switzerland (2009-11) 9.9 32.3
United Kingdom 16.8 31.3
Netherlands 9.4 29.1
Russian Federation (2009-11) 16.2 23.3
Brazil 4.6 18.0
Source: OECD, 2013:127
Higher Education South Africa (HESA, 2012) reported on a survey conducted by the Human
Sciences Research Council (HSRC) on behalf of HESA of a sample of 2 159 academics from five
universities in South Africa (a rural university, a university of technology, two research universities
and a comprehensive university). This survey was done with the aim of determining the scale and
forms of interaction between the and firms, communities, local government or development agencies.
The total number of academics who engaged with external social partners is high in that 81% of the
academic staff members reported that they had interacted with external social partners. Of these
academics that indicated that they had engaged with external social partners, 58% engaged with
SMMEs, 56% with large South African firms and 42% with multinational enterprises (MNE) (HESA,
2012:10).
Although the percentage of academics who engaged with external partners was high, it does not
imply that these interactions were direct or had a direct influence on the firms in question. HESA
(2012:11) developed a matrix of university-industry interaction and distinguishes between four
forms: traditional, networked, dominant new and entrepreneurial. Traditional forms are long-standing
and primarily financial such as donations and sponsorships and dominant new forms of interaction
include, for example, consultancies and contracts. Entrepreneurial forms of interaction are
commercialisation of intellectual property (such as spin-off companies) and collaboration with
existing companies by means of royalties, licences, patents or venture capital where both the
university and the firm are motivated by financial gain. The networked forms are knowledge
intensive forms of interaction, often government funded and aimed at developing R&D and
innovation. Most linkages are of a traditional nature and related to teaching activities. There is a fairly
high degree of networking as well, but mostly with SMMEs. The entrepreneurial forms of interaction
occur the least and there is little commercialisation of new products, especially in collaboration with
larger firms.
HESA (2012:14) expanded the examination of university-industry linkages in South Africa by

investigating the channels through which interaction is facilitated. The channels most indicated by
academics were informal information exchange and conferences, seminars or workshops.
Technology networks, patent applications and spin-off forms seem less common. The findings of
HESA are confirmed by a study of ten South African universities by Pouris (2006), which analysed
the time spent by academics on different activities. Pouris (2006:15) found that academics spend
most of their time on administration and undergraduate teaching; the time spent on R&D activities
ranges between 12% and 15% for professors and associate professors and between 6% and 10% for
senior lecturers and lecturers; and academics spend less than 3% of their time on patent and
innovation related activities. Pouris found that the time spent by academics on R&D and innovation
related activities is substantially lower than that of other countries.
The quantitative data provide a clear description of the extent of involvement of universities with
external role players. The linkages and channels are mostly related to core educational functions and
73
therefore contribute to human capital capacity building and to some extent knowledge creation.
Knowledge diffusion linkages are less prominent in South African universities. Kruss (2008)
concluded from eleven case studies concerning technology cooperation networks in South Africa that
“…the intellectual capacity to develop cutting edge high technology products exists within some
South African universities, that there is a degree of entrepreneurial and interactive capability that can
create spin-off firms, and that there is a degree of government funded support for such initiatives.
However, the empirical analysis showed that despite a favourable policy and funding context, it is
extremely difficult and complex to sustain a competitive knowledge-intensive university spin-off firm
in South Africa.” Although there is proof of some knowledge diffusion activity, the data have not
indicated the quality of the different forms of interaction and linkages.
Conclusion
Universities play an important role in innovation systems and the historical role of universities has
changed. Universities have moved from knowledge accumulation to knowledge creation and, in
recent years, to knowledge transfer and dissemination. The change over the past thirty to forty years
coincides with an evolution in economic views, focusing on the role of innovation in economic
development and the study of the innovation system as a complex relationship between many role
players or participants. Universities are key participants in the innovation system. Although these
changes in the roles of universities are a general trend worldwide, it does not imply that all
universities followed the same trend. There are differences in the extent of the roles that universities
play in developed and less developed countries.
In order to develop in South Africa a well-functioning national innovation system, universities have
to follow the current trend in higher education to include knowledge transfer and dissemination as
functions. This paper reported on the state of South African universities in this regard.
The evaluation of South African universities revealed that, although there are individual exceptions,
the universities in South Africa on the whole do not play a strong enough role in the national
innovation system to contribute sufficiently to the economic development of the region. The
performance of South African universities, with respect to the creation of knowledge, compares well
with the rest of the world. This finding is contrary to what is expected in light of the size of the
economy.
The evaluation revealed that South African universities have not yet followed the world trend of
including knowledge transfer and dissemination as roles. Although most university academic staff
members have indicated in a study by Pouris (2006) that they have linkages with industry, these
linkages are related to the core education function of their universities, and not to innovation, R&D or
commercially-related activities.
This study focussed on the macro performance of universities and not on individual universities.
Although it is clear that the performance of South African universities has to improve in order to
contribute significantly to the performance of the national and regional innovation systems, it does
not imply that all universities have to perform the same functions or at the same level. The diversity
of South Africa’s universities is important in order to address the different demands of the country.
Furthermore, roles and functions, or perhaps the activities in carrying out these roles, may be
different in developing countries due to developing countries’ need to adapt rather than create
technology.
It should also be noted that the presence or quality of a university does not ensure high performance
of an innovation system. Higher education is only one of the participants in the innovation system
and if the other participants do not contribute fully, and if the environment is not conducive for
innovation to take place, innovation and development of the system will not be successful.
74
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Empowering RMG workers: towards a Conceptual Framework

Taimur Ahad, Department of Computing, Faculty of Science and Engineering,
Macquarie University, NSW 2109, Australia, md-taimur.ahad@students.mq.edu.au
Peter Busch, Department of Computing, Faculty of Science and Engineering,
Macquarie University, NSW 2109, Australia, Email: peter.busch@mq.edu.au
Yvette Blount, Senior Lecturer, Department of Accounting and Corporate Governance,
Macquarie University, NSW 2109, Australia, Email: yvette.blount@mq.edu.au
Savanid (Nui) Vatanasakdakul, Senior Lecturer,
Macquarie University, NSW 2109, Australia, Email: savanid.vatanasakdakul@mq.edu.au
Abstract
In the Bangladeshi Ready-made Garment (RMG) industry, workers face constant hardships in communicating
with government, accessing regulations and policies, banking to reduce poverty and disasters, educating
themselves for a better life and accessing government services. Recently, scholars from developing countries
have suggested that mobile phones have the potential to empower the deprived and disadvantaged. However, in
the Bangladeshi context the topic is still under researched. This research fills a gap by presenting an initial
mobile phone based empowerment framework for RMG workers. The framework examines possible mobile
phone based empowerment tools that could provide workers with access to information, market and government.
The framework suggests that outcomes include an increased sense of control, self-efficacy, knowledge and
competency. In future, the empowerment framework presented in this research will be applied to the
development of a mobile based information system for RMG workers. This research is significant as it adopts an
empowerment focus rather than an individual consumer focused development outcomes. The outcomes and
results of this research will be of potential value to the government, development agencies and mobile
telecommunications in accelerating the development of mobile based services in Bangladesh and in other
developing countries.
Keywords: Keywords: Mobile phones empowerment, Bangladesh RMG, Empowerment, Enabling factors of
mobile phone.
1 Introduction
Empowerment is a paramount criterion for social progress and economic development for any country.
Empowerment is the notion of well-being in a larger socio-political environment (Zimmerman 1990;
Zimmerman & Rappaport 1988). However, in developing countries, empowerment is considered a tool to
combat the challenge of inequality of the marginalised society typically women, the poor or rural citizens in
developing countries.
In Bangladesh, empowerment of RMG workers is crucial, especially in achieving the committed national goals
such as Vision2020. The sector has 2 million garment workers, of whom 80% are women, constituting the real
backbone of the country's economy (Haider 2007, Mohammad, Ahmad & Iqbal, 2015, Mottaleb & Sonobe
2011). Despite the significance of the RMG in the economy, the RMG workers receive very little support to
combat poverty and overcome challenges in better policy implementation, poor wages and child labour (Khan et
al. 2012).
The impact of mobile phones in promoting empowerment for marginal society has attracted significant interest
in developing countries (Aker & Mbiti 2010, Ojo et al. 2013). However little is known about how mobile phones
can empower RMG workers, which forms one of the main gaps in mobile phone development research. Another
rationale for undertaking such a study is, most of the Bangladeshi mobile phones studies are conducted from a
personal use perspective (Islam et al. 2013). Moreover, while extant literature has examined the mobile phone as
a service delivery platform for those in isolation, this paper argues that it needs to be considered in tandem with
citizen engagement through an analysis of the relationship between citizens and state institutions (Sri & Melissa
2012).
The aims of this study are (1) to provide insights into the existing body of knowledge of empowerment theories,
and (2) to explore the use of mobile phones in delivering empowerment outcomes to the targeted society. This
study contributes significantly to the theoretical understanding of mobile phone usage in achieving
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empowerment outcomes by providing a distribution channel for good governance, poverty alleviation, health,
education and human resource development.
2 Literature Review
2.1 Challenges for RMG workers
Despite the impressive significance of RMGs to the Bangladeshi economy, the situation of the RMG workforce
cannot be described with the same positive attitude. Workers in the sector face numerous challenges through
poor wages, employment insecurity, harassment in the workplace, unsafe working conditions and discrimination.
Despite the fact RMG in Bangladesh is a means to reduce the social exclusion of women, RMG has also been
criticized for child labour (Ahamed 2013), poor labour practices (Hossan et al. 2012) and gender discrimination
with unacceptably long hours of work (Kabeer & Mahmud 2004). Mariani (2013) study suggests that very low
law enforcement levels, little dialogue among government, business associations and workers (where the latter
has almost no power), are some of the contributors for poor working conditions.
2.2 Empowerment in a Mobile phone Context
A recent study by Mehta & Mehta (2014) researched socioeconomic empowerment of rural women through
mobile phone use in India. The study reports that mobile phones have the potential to empower women by
overcoming their physical boundaries and access to better economic and business opportunities, education and
health services. A similar empowerment study by Cai et al. (2015) in Indonesia suggested value-added services
of mobile phones such as SMS, MMS and texting also empowered female entrepreneurs (Cai et al. 2015). The
study reported empowerment outcomes such as greater business profits and higher profit ratios. Badran (2014)
study concentrated on how technology could play an effective role in empowering women in Egypt. The study
highlighted the effect of technology on women’s lives in relation to other relevant factors such as education,
income and geographic location. Another empowerment perspective paper by Dasuki, et al. (2013) showed how
online prepaid electricity billing can also empower poor citizens. The study reported that users who can assess
their consumption of electricity are more empowered with such a billing system. Another study by Chew et al
(2013) attempted to enrich our understanding of the role mobile phones play in the empowerment of women in
the developing world. Their study suggested that mobile phones allow females entrepreneurs to build business
networks, which in turn empower them. Zelezny-Green (2014) explored how mobile phones are used for
educational purposes in Nairobi. Their study suggested girls in Kenya commonly face multiple barriers to school
attendance, however with mobile phones they can manage their study.
A notable study by Ginige & Richards (2012) presented a model for enhancing empowerment of Sri Lankan
farmers using mobile based information systems. The proposed empowerment model has been designed to
achieve farmer’s goals, which were identified using a scenario-based approach. The model examined several
empowerment processes and supporting tools that would help them to achieve their goals, in the hope they
would have an increased sense of control, self-efficacy, knowledge and competency.
Another study examined empowerment through the lens of connectedness by using mobile phones (Walker et al.
2015), reporting that for refugees, relationship development during the early stages of resettlement is often
difficult. The study suggested that mobile phone technology can enhance interpersonal and community
connectedness that promotes health programs to refugee groups.
2.3 Research gap and questions
In Bangladesh most of the mobile phone studies are conducted from the person-to-person mobile based benefit
perspective (Ahmed et al. 2011; Dewan & Dewan 2009). Inspired by the lack of mobile phone research on
empowerment, aims of this study are (1) to provide insights into mobile phone based tools and services that can
produce empowerment outcomes for RMG workers’ and (2) explore the use of mobile phone implementation in
delivering such services. These aims may be realized through developing a conceptual empowerment
framework.
2.4 The conceptual empowerment framework
The conceptual framework (figure 1) has 4 main attributes: tools for empowerment, the empowerment process,
components and empowerment outcomes.
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2.5 Tools for empowerment
For this paper, a mobile phone is presented as a tool that enables empowerment in a user. Characteristics of a
mobile phone include its enabling technologies such as network and service technologies, mobile middleware,
mobile commerce terminals, mobile location technologies, mobile personalization technologies and content
delivery and format (SLN4MoP.org, Walisadeera et al. 2013), which all have the potential to make information
flow more efficient and coordinate operations within the extended enterprise (Siau & Shen 2002). Mobile
technology applications such as mobile email and internet for corporate users, mobile customer care and mobile
enterprise implementations, represent some enabling technologies that can be deployed for SCM (Siau & Shen
2002). In this study, the conceptual framework addresses the following research question:
RQ1. What tools of mobile phones can empower RMG workers?
2.6 Process of empowerment
The mobile phone offers several important processes of empowerment, such as communicating, information
sharing, decision making and developing through mobile learning, mobile banking and mobile health.
Mobile phone communication directly supports a deepened democracy through encouraging citizens’
participation in state affairs, influencing the political decision making process, and in holding governments
accountable (Aker & Mbiti 2010, Hellström 2011, Ojo et al. 2013). Moreover, in developing regions, mobile
phones can act as a new interface between government and citizens to make public services more accessible
(Hellström 2011, Ojo et al. 2013). Lastly, public services are suggested to be enabled with mobile phones, as
government processes in delivering public services in developing countries are always criticized for being poor
(Chowdhury & Satter 2012).
Mobile phones have empowered females, especially in developing countries in various forms, such as their
ability to articulate their own aspirations, reduced dependence on a husband’s income and a greater voice in
household decision making (Alam et al 2010). The mobile phone has advanced economic development
substantially in many developing countries by increasing market efficiency. First of all, mobile phones provide
access to critical information such as agricultural information, employment opportunities, business opportunity
which connects the labor demand and supply network (Dannenberg & Lakes 2013). Ukpere et al. (2014) also
suggested the relevance of mobile phone usage on the business ventures of Kenyan women entrepreneurs.
Access to banking and finance is another empowerment process (Ackerly 1995; Alam et al. 2010) that has
revolutionised banking and finance in developing countries by including the rural, poor and marginalised in
society (Ahad et al. 2013; Simonsson & Walin 2015). Mobile phones have proven to be a powerful tool for
addressing enduring health challenges in developing countries (Rotberg & Aker 2013). Sometimes, there has
been widespread recognition that mobile phone based learning is very effective for developing countries.
Empirical evidence suggests a positive impact of mobile phone-based literacy and numeracy programs,
especially for adults. Learning to use a mobile phone can be anytime, anywhere and is also cheap (Aker et al.
2010). Hence, this study also seeks to investigate:
RQ2. How can mobile phones empower RMG workers?
2.7 Empowerment components
The empowerment components are the variables those make a person believe in their empowerment
(Zimmerman et al. 1992). Self-perception, perceived control, self-efficacy, motivation to exert control, and
perceived competence are some empowerment components. In this research the framework seeks to answer:
RQ3. What components impact empowerment of RMG workers using mobile phones?
2.8 Empowerment outcomes
Prior studies suggest that mobile phones impact the human lives in at least in two ways - firstly by linking
business to the information that increases market opportunity, and secondly by providing a cost effective
platform for offering services, such as business, education, learning and banking services (Samarajiva, 2011).
Access to information about market and employment opportunities, market prices, and government programs,
are some of the means to enhance empowerment. The latest mobile phones are equipped with a myriad of
sensors such as GPS, camera and microphone, which offers an opportunity to develop the next generation of
80
information technology (SLN4MoP.org, Walisadeera et al. 2013). The opportunities are huge, connecting people
to people, people to business and linking government to citizens. In this study, the framework seeks to answer:
RQ4. What are the empowerment outcomes of using mobile phones for RMG workers?
Our framework may be visualised in the following figure (1):
3 Future Research Directions and Conclusion
Figure 1: Empowerment framework for RMG workers using Mobile phones

The above conceptual framework for RMG workers using mobile phones in Bangladesh provides a basis for
future research. Firstly, the empowerment framework needs to be verified. Future research will collect data from
RMG workers, industry, policy makers, mobile technology stakeholders and government to better understand
how mobile phones can facilitate the empowerment of the disadvantaged in society.
The merit of the research lies in presenting, for the first time, this research considers intrapersonal, interactional
and behavioural components of empowerment for RMG workers who provide the main foreign source of income
in the country. Furthermore, the study acts as a starting point for future research to explore the effect of macro-
level impacts in mobile based service adoption; this contribution is significant as a step forward in the
empowerment study vis-a-vis mobile phone research in Bangladesh.
81
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84
Mobile phone enabled SCM: The Bangladeshi RMG sector
Taimur Ahad, Department of Computing, Faculty of Science and Engineering,

Macquarie University, NSW 2109, Australia, md-taimur.ahad@students.mq.edu.au
Peter Busch, Department of Computing, Faculty of Science and Engineering,
Macquarie University, NSW 2109, Australia, Email: peter.busch@mq.edu.au
Yvette Blount, Senior Lecturer, Department of Accounting and Corporate Governance,
Macquarie University, NSW 2109, Australia, Email: yvette.blount@mq.edu.au
Savanid (Nui) Vatanasakdakul, Senior Lecturer,
Macquarie University, NSW 2109, Australia, Email: savanid.vatanasakdakul@mq.edu.au
Abstract
Relatively little is known about mobile phone use in a Supply Chain Management (SCM) context, especially in
the Bangladeshi Ready-Made Garment (RMG) industry. RMG is a very important industry for the Bangladeshi
economy, but is criticized for long product supply times due to poor SCM. RMG requires obtaining real-time
information and enhanced dynamic control, through utilizing information sharing and connecting stakeholders in
garment manufacture. However, a lack of IT support in the Bangladeshi RMG sector, the high price of
computers and the low level of adoption of computer based internet are obstacles to providing sophisticated
computer aided SCM. Alternatively, explosive adoption of mobile phones and continuous improvement of this
technology is an opportunity to provide mobile based SCM for the RMG sector. This research presents a mobile
phone based SCM framework for the Bangladeshi RMG sector. The proposed framework shows that mobile
phone based SCM can positively impact communication, information exchange, information retrieval and flow,
coordination and management, which represent the main processes of effective SCM. However, to capitalize on
these benefits, it is also important to discover the critical success factors and barriers to mobile SCM systems.
Keywords: Mobile phone based supply chain, innovative SCM, Supply chain in manufacturing, SC and
technology.
Introduction
In the information age, successful Supply Chain Management (SCM) requires information exchange and
integration within the SCM network. Information availability and flow integrates all key business activities
through improved relationships at all levels of the SCM (internal operations, upstream supplier networks and
downstream distribution channels (Al-Mashari & Zairi 2000). Mobile phone technologies, by virtue of being
carriers and conduits of information, play a role in providing large-scale information transfer within SC
(Abraham 2006; Doolin et al. 2008; Gonzálvez-Gallego et al. 2015; Kim et al. 2015; Kumar et al. 2014; Liang
2015; Qrunfleh & Tarafdar 2014; Singh & Garg 2015; Simatupang & Sridharan 2005; Tserng et al. 2005; Wang
et al. 2007; Youn et al. 2014). The literature extols the potential benefits of Mobile phone integration within the
SC and the crucial role of integrated IT to deliver those benefits and how information errors affect SC
performance (Kwak & Gavirneni 2014). However, Kumar et al. (2015) advocates that the new IT technologies
could pose new challenges in developing countries due to a lack of resources and directions available.
Recently, the term SCM has risen to prominence in mobile phone based research. Studies suggest implementing
mobile phones may overcome information availability challenges, especially in resource scarce environments
(Abraham 2006; Qrunfleh & Tarafdar 2014; Tserng et al. 2005; Wang et al. 2007). Isaksson et al. (2010)
suggests that process innovation using mobile phones for SCM improves communication effectiveness for the
SC. Furthermore Abraham (2006), Tserng et al. (2005) and Wang et al. (2007) conclude that communication
and information availability are the main benefits of mobile-based SC. However, as environmental factors and
social structures also play an important role in SC, Isaksson et al. (2010) suggests it is essential to study the
critical success factors of mobile based SC.
Another motivation for undertaking this study is that very little research has been undertaken on the Bangladeshi
RMG sector with regard to capitalizing on the benefits of ICT for the effectiveness of SC. This lack of
consideration partly explains why the Bangladeshi RMG sector finds it difficult to address the issue of long
product lead-times. Given the aim of investigating SC performance on Bangladeshi RMGs, this study presents
the literature as well as a conceptual mobile phone based SCM framework for the RMG sector in Bangladesh.
The paper concludes with questions for future research.
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1 Literature review
1.1 Mobile technology usage in SCM
With the characteristics of a mobile phone and its enabling technologies such as network technologies, service
technologies, mobile middleware, mobile commerce terminals, mobile location technologies, mobile
personalization technologies, and content delivery and format - has the potential to make information flows more
efficient and coordinate the operations within the extended enterprise (Siau & Shen 2002). Mobile technology
applications such as mobile email and internet for corporate users, mobile customer care and mobile enterprise
implementations, represent some enabling technologies that can be deployed for SCM (Siau & Shen 2002).
The main potential of mobile phones is in improving communication. A mobile phone can support internal,
external and inter-organizational communication (Litan & Rivlin 2001). Mobile phone communication provides
improved communication between firms and their suppliers, mobile phones can enable firms to manage their
SCs more effectively, streamline their production processes and engage in new activities (Hardy, 1980; Roller
and Waverman, 2001).
Doolin & Ali (2008) focused mobile technology in the SC and reported the most important factors influencing
mobile phone adoption were technological innovation and information intensity (transfer and use) of the
company. Other factors that appeared to influence mobile adoption included the compatibility of the technology
with the company's business approach, the presence of top management support, and the degree of
organizational readiness. Environmental factors such as competition within the industry or business partner
influence seemed less influential for these pioneers of mobile technology use in supply-side activities (Doolin &
Ali 2008).
Wang et al. (2007) implemented a mobile RFID-based SC control and found that information sharing can reduce
project conflicts and project delay. Improved communication, convenient information sharing, ease of
data/information acquisition, reliability, accuracy and comprehensive functionality represent some of the
reported benefits of implementing mobile based SC. Other studies by Cagliano et al. (2015), Nair et al. (2015)
and Tserng et al. (2005) also suggested mobile phone can be extremely useful in improving the effectiveness and
convenience of information flow in SCM. Abraham (2006) reported evidence from the fishing industry in India
that markets became more efficient with the introduction of mobile phones with subsequent freer flow of
information. Key advantages for the fishing industry here were price dispersion and fluctuation, less wastage of
time and resources and reduced risk and uncertainty (Abraham 2006).
1.2 Critical success factor (CSF) for effective SCM
Previous SCM studies identified several CSFs that ensures SC to flourish and goals to be attained. The identified
CSFs are listed in Table 1.
The SC is a network of businesses, it is therefore important to understand and examine how the SC network
structure is configured (Lambert & Cooper 2000). SCM therefore increasingly is recognized as the management
of key business processes across the network of organizations that comprise the SC (Choon et al. 2002; Cooper
et al. 1997; Lambert & Cooper 2000).
Communication has been identified as the one of the main CSFs in establishing effective SCM (Chen et al.,
2004; Denolf et al. 2015; Prahinksi and Benton 2004). Appropriate communication strategies enhance supplier
firm’s operational performance (Chen et al., 2004; Denolf et al. 2015; Prahinksi and Benton 2004). Effective
and efficient communication between SC partners reduces product cost and performance-related errors, thereby
enhancing quality, time, and customer responsiveness (Carr and Pearson 1999; Chen and Paulraj 2004; Dyer
1996 ; Paulraj et al. 2008; Turnbull et al., 1992).
Table 1: Main critical success factors (CFS) and barriers identified in previous SCM studies.
Success factors/Barriers Study

Communication Chan et al. (2004), Denolf et al. (2015)
Management of business process Lambert & Cooper (2000), Wang et al. (2007)
Integration of chains Choon et al. (2002), Mentzer et al (2001), Prajogo & Olhager (2012)
Simatupang & Sridharan (2005)
Collaborative performance Lee et al (2014)
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Competitive advantage Li et al.(2006), Doolin & Ali (2008), Kumar et al. (2015)
Better SC project management Akintoye et a. (2000), Abraham (2006), Chan et al. (2004), Denolf et al.
(2015), Lee et al (2014)
Top management support Akintoye et a. (2000), Kumar et al. (2015), Doolin & Ali (2008)
Lee et al (2014)
Decision synchronization Simatupang & Sridharan (2005)
Information flow and sharing Choon et al. (2002), Mentzer et al (2001), Simatupang & Sridharan
(2005), Tserng et al. (2005), Lee et al (2014), Prajogo & Olhager (2012)
IT Alignment and strategy Tserng et al. (2005), Harland et al. 2007, Youn et al. (2014), Lee et al
(2014), Denolf et al. (2015), Doolin & Ali (2008), Prajogo & Olhager
(2012), Qrunfleh & Tarafdar (2014), Wittstruck & Teuteberg (2012)
Customer service management Choon et al. (2002)
Higher levels of SCM practice Li et al. (2006)
Simatupang & Sridharan (2005) emphasized collaborative performance of the SC partners and the interaction
phenomena among different features of the SC. Their study suggests that collaborative systems, information
sharing, decision synchronization, incentive alignment and integrated SC processes are necessary to improving
SC. Recently Özdemir et al. (2015) also suggested supply chain integration as one of the CSFs in Turkish small
business SCM. Li et al.’s (2006) study reported higher levels of SCM practice could lead to enhanced
competitive advantage and improved organizational performance of the SC. Prajogo & Olhager (2012) also
examined the role of integration and the study reported logistics integration had a significant effect on operations
performance.
Prajogo & Olhager (2012) examined the role of the long-term supplier have both significant direct and indirect
effects on SCM performance. Chan et al. (2004) study indicated the establishment and communication of a
conflict resolution strategy, a willingness to share resources among project participants, a clear definition of
responsibilities, a commitment to a win-win attitude, and regular monitoring of partnering process - were the
significant underlying factors for SC collaboration success. Wittstruck & Teuteberg (2012) takes a sustainability
viewpoint on SC and found that signalling, information provision and the adoption of standards are crucial
preconditions for strategy commitment, mutual learning hence the overall success of SCM. Improved production
planning and purchasing (Akintoye et al. 2000), customer service management (Choon et al. 2002) were also
identified as CSFs in previous SCM research studies.
1.3 Barriers in Effective SC
Serdarasan (2013) identified three types of interrelated SC complexity- Static complexity describes the structure
of the SC, the variety of its components and strengths of interactions; dynamic complexity represents the
operational uncertainty in the SC and involves aspects of time and randomness; and decision-making complexity
involves the volume and nature of the information considered when making a SC related decision. Harland et al.
(2007) suggested that not only the lack of information, but also the lack of SC alignment to IS strategy is another
barrier to SC information integration. Qrunfleh & Tarafdar (2014) also emphasized that SC information system
strategy largely impacts on SC performance and firm performance. Among other barriers discussed in previous
literature, include the lack of strategic alignment of information strategies in the SC, firm size of some SC actors,
lack of awareness of the potential benefits of ICT, lack of motivation, and being in a less developed industry or
regional context (Harland et al. 2007). Ability to adopt IT, the high cost of ICT products, specific organizational
needs, inappropriate business size for ICT, are also some of the issues relating to barriers in the uptake of IT in
SCM (Kumar et al. 2015). Akintoye et al.’s (2000) study suggest barriers to SC success include: workplace
culture, lack of senior management commitment, inappropriate support structures and a lack of knowledge of
SCM philosophy. Training and education at all levels in the industry are necessary to overcome these barriers.
2 Research Gap and Questions

Potentially mobile phone and mobile technology in general could improve SCM in Bangladeshi RMG. Earlier
studies suggest the use of ICT and the development of IT based SC systems has been slower than expected,
particularly in SMEs in developing countries (Harland et al. 2007; Kumar et al. 2015; Lee et al. 2014). A recent
study by Denolf et al. (2015) argues analysis showed that some CSFs have been ignored and important supply
chain characteristics have been overlooked in contemporary SCM studies. SCM models should be based on
actual industry practices and SCM models should address how SC can assist the business (Choon et al. 2002).
87
Lastly, in this regard Isaksson et al. (2010) makes another justification for this research, to consider the
environmental factors and social factors as contextual and the social structures that play an important role in SC.
In Bangladesh, RMG consists of SMEs, it is therefore suggested to study the dynamics of these small firms
(Barrett & Rainnie 2002) and to examine the different variables (Edwards & Ram 2006). However, to
understand the underpinning concept of this study, it is important to take an ‘integrated’ perspective of SCM in
Bangladeshi RMGs. The research questions and our general conceptual framework (figure 1) are as follows:
1. How can mobile phone based SCM support information sharing in the Bangladeshi RMG?
2. Which CSFs explain the implementation of mobile based SCM within RMG in Bangladesh?
3. Which inhibitors limit mobile based SCM within RMG in Bangladesh?
Figure 1: A conceptual framework on Mobile phone based SCM in Bangladesh RMG
Future research direction and Conclusion

Future research should test the framework and extend the findings. More work is needed to explore the actual
business practices in Bangladeshi RMG. Data should be collected from other parts of the industry to provide a
greater perspective of SCM for Bangladeshi RMG. Future research should address SCM practices and evaluate
the existing system. This research does not claim that all factors are identified, SC itself a complex process, so
more exploratory investigation is required. However, the conceptual mobile based SC is an effort to navigate
through the complex landscape of SC. The merit of the research lies in presenting for the first time a mobile
88
phone based SC framework for RMG in Bangladesh, that considers customers and technological as well as
business perspectives. Moreover, for the first time this research takes into consideration mobile phones, which
are highly adopted, especially in developing counties. RMG is one of the main sources of income in the country.
The Bangladeshi RMG is also important to rest of the world for producing quality affordable garments.
Compared to other SC research, this research aims to understand the business practice of RMG. The contribution
is significant, as it represents a step forward in mobile-based research.
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91
Human Resources Education: Approaches and Contents
Viviana Andrade Meirinhos, Polytechnic of Porto – ISCAP - Centre for Human Resources Research
and Development (NID_RH), Porto, Portugal, vivivanameirinhos@eseig.ipp.pt
Abstract
This paper proposes a comprehensive perspective of Human Resources education (HRE) content
knowledge. Based on the European HRE field, it identifies four different approaches to analyze HR
educational episteme: management and development; micro and macro; administrative, technical, and
strategic; and core, contextual, and instrumental. Distinctions between approaches are made,
illustrating the diverse conceptual angles with empirical data from degree programs of Human
Resource higher education in Europe. The HR Four-Fold approach model emerges as a tool for
considering different epistemic identity options in HRE and simultaneously for suggesting a basic
systemic view of the HR educational episteme. The assumption is that, independently of the HR
educational epistemic focus, HR educators should endeavor to set HR contents in context by
providing a basic and comprehensive approach of the complete HR field of study.
Keywords: Education, Human Resources, Educational knowledge, Educational contents, Human
Resources Education, Europe, Higher Education
Introduction
At a time in which Human Resources (HR) is increasingly International HR, this work addresses
internationally HR education (HRE), providing an overview of European HR contemporary
educational contents. In Europe, where a common Higher Education Area (The European Higher
Education Area, 1999; Klemenčič, 2015) is almost established, the identification of standards for
contents in each field of study is progressively a fact. Tuning project is an example of this
normalization in higher education (Tuning Academy, 2015) and a clear illustration of the state of art
of HRE debate in Europe. HR has no ontological presence either as a conceptual framework in the
Tuning project (Tuning Academy, 2015), in the Fields of Science and Technology (OECD, 2007), in
the Fields of Education and Training (UNESCO, 2014) or, even wider, in the ‘certified knowledge’
(Quintana-Martinez & Ramos-Rodriguez, (2016) of ISI Web of Science and SCOPUSi.
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The intended aim of this article is to contribute for this lack of debate, presenting the core educational
knowledge streaming in HR in Europe. Grounded on the foundations of Bernstein’s “educational
knowledge” (1971), this research resulted in a conceptual tool which may be used as a resource for
enhancing HR teaching and learning, from the curriculum development stage to pedagogical options.
The model resulting from this research presents HR “knowledge contents” (Young, 2013) assembling
both vertical (by levels) and horizontal (by dimensions) perspectives. Each approach denotes a
different conceptual profile of HR in higher education, providing four diverse outlooks of the
educational knowledge and “knowing” suggested by HRE in Europe.
These conceptual angles don’t represent contradictory or mutually exclusive views for understanding
HRE, but rather embody a systemic model for approaching HR educational content. The model
rationale relies on a complementary perspective of analytical and systemic approaches, combining a
segmentary and a comprehensive coverage of HR knowledge within the educational field.
In the next sections we present the work in more detail. Starting with the research methodology, we
follow with the presentation of the Four-Fold model to HR education, illustrating it with data
gathered by the empirical study. Finally, we develop some concluding remarks, and avenues for
further research.
Methodology
This study is part of a broader research on HR education and training and its interdependency with
HR professionalization and research clusters. The first stage of the study approached Portuguese HR
higher education. The second phase, focused on the European context. And, finally, the last part of
this research (in development) is a comparison based research, contrasting European and American
HR higher education. In the specific context of this article, we mobilize the empirical findings on HR
higher education in Europe, grounded on the first and second part of the research.
The sample was constituted randomly from programs at three levels defined in Bergen (The European
Higher Education Area, 2005): bachelor, master and PhD. All programs integrating the expression
Human Resource(s) (HR) in the program designation were considered valid. Research was carried out
in English, German, Spanish, French, as well as in Italian, and the terms Human Resource(s) and
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bachelor, master and PhD were translated. These last according to the Examinations, Qualifications
and Titles (Eurydice, 2004).
To obtain the sample of HR programs we considered as primary source the Portal on Learning
Opportunities throughout the European Space promoted by the European Commission (PLOTEUS).
The ten first programs listed for each European Union country present were selected. For those cases
in which the ten programs were not identified, a second resource was utilized. This source was the
Studyportals, a private European project supported by the European Community comprising a
Bachelor, Master and a PhD search engine for Higher Education in Europe. The same criteria were
applied. Austria, Belgium, Cyprus, France, Germany, Hungary, Ireland, Italy, Netherlands, Slovenia,
Spain, Sweden, and the United Kingdom were represented. A total of 119 programs were selected to
the sample by this approach. For Portugal, since we already had current data, we mobilized from the
previous study to this sample all the higher education programs registered in the “Higher Education
Direction” of the Portuguese government; 48 programs were selected by this means.
After the sample definition, the websites of the institutions hosting the programs were explored and
information on program overview, courses, and contents was gathered. To address gaps, clarify
information, and obtain relevant data, mailed requests were sent to the program directors. Data
collection, including research to identify credible sources and sample constitution, occurred between
September and November 2014.
Information was treated qualitatively, guided by our intention to explore both patterns and
singularities of the HR education reality. If constants are needed to characterize and to understand the
frames of reference that are currently guiding HR higher education, particularities are crucial to
enhance its potential and development.
Management and Development
“Management” and “Development” represent two main epistemic forces structuring the HRE field in
Europe. Jointly or separately these two approaches shape programs, courses, and contents
materializing two different educational lines on HR. Grounded on the same object of knowledge – the
“human element as work factor” – and on the same aims – maximizing quantitative and qualitatively
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work processes and results – Human Resource Management (HRM) and Human Resource
Development (HRD) share start and ending points foundations, differentiating themselves only by the
method: managing or developing.
Although there are approaches (e.g. Guest, 1987) which integrate human resources development as a
sub-dimension of HRM, conceptualizing HRM as the major epistemological construct, HRM and
HRD emerge empirically and theoretically as two distinct educational frames within the generalist
HR field.. This distinction has expression in the educational field both in the scientific (Chalofsky,
2007; Hamlin & Stewart, 2011; Haslinda, 2009; Ruona & Gibson, 2004; Swanson & Holton, 2009;
Werner, 2014) and in the professional (e.g. European Association for People Management, Society
for Human Resource Management, and Chartered Institute of Personnel and Development or
Academy of Human Resource Development) fields.
As an educational approach HRM is widely considered in the HRE literature (Barba‐Sánchez, 2009;
Barber, 1999; Barclay, Wagner-Marsh, & Loewe, 2002; Coetzer & Sitlington, 2012; Cohen, 2005;
Davidson, 2012; Hayton, Cohen,, Hume, Kaufman, & Taylor, 2005; Heneman, 1999; Mencl, Lester,
Bourne, & Maranto, 2010; Scarpello, 2008; Thacker, 2000; Van Buren III & Greenwood, 2013;
Venter & Barkhuizen, 2005; Wimbush, 2008) referring, as in the classical conception of Drucker
(1954) or the contemporary approach of Unesco’s Fields of Education and Training (Unesco, 2014),
to a sub-process of management. On this assumption, the analytical boundary between management
and HRM relies on the “human ethos” (Bolton and Houlihan, 2007) of the (HR) management
process, assuming, in this perspective, the “people-related business issues” (Scarpello, 2008, p. xiv),
the epistemic singularity of HRM.
In HRD the educational epistemic focus shifts from the management to the development of the
“human element as work factor.” Strongly associated with “change” (Vince, 2003) and education
(Zachmeier & Cho, 2014), HRD is based on the assumption that individuals have potential to develop
through learning. Invoking a variety of methods and processes to promote development (McGuire &
Garavan, 2013), the contemporary approach of HRD breaks with the generalized tradition of
conceptualizing training as the main or almost unique means for HR development. Even though
research on the developmental approach of HRE has grown almost only in the last decade (Zachmeier
95
& Cho, 2014), considerable attention has already been drawn to HRD education as a scientific object
of study (Ardichvili & Oh, 2013; Chapman & Gedro, 2008; Cho & Zachmeier, 2015; Holden &
Griggs, 2010; Kuchinke, 2001, 2002, 2003; Lim, Song, Choi, & Kim, 2013; Sambrook & Stewart,
2010; Stewart, Mills, & Sambrook, 2015; Trehan & Rigg, 2003; Zachmeier & Cho, 2014).
Although the management focus clearly appears as dominant in the European educational ontology,
both HRM and HRD approaches reveal strong and transversal presence in higher education in
Europe. Table 1 illustrates how these two approaches are materialized in HRE in Europe either in
degree program’s general identity (titles) or in the curricula development (course contents).
Table 1: HRE – Management & Development Approaches

HRM HRD
HRM HRD
HRD – International
Strategic HRM
Development
Degree programs identities Management of HR and
Psychology and HRD
(Titles) Knowledge
Business and HRM HRD and Consultancy
International HRM HRD Policies
HRM and Organizational HRD and Organizational
Behavior Change
Performance management Adult learning theories
People resourcing Coaching
HRM theories Competencies development
Managing employment
Counseling
relations
Curricula development
International issues in HRM Leading and developing people
(course contents)
Learning and talent
Rewards and recognition
development
Managing diversity in
Management development
organizations
Professional development and
Selection and assessment
learning
This empirical sample of degree program titles and course contents exemplifies the epistemological
presence of HRM and HRD in HRE in Europe. With different expressions both as independent
programs and as course contents, “Management” and “Development” reveal to be two different
strong perspectives to HR in European higher education. These data suggest that a comprehensive
96
educational approach to HR has necessarily to consider HRM and HRD as core educational
“knowledge contents” (Young, 2013).
“Micro” and “Macro”
The inherent foundation of HR as a social science (Heery, 2008; Batt & Banerjee, 2012; Reio, 2012)
grounded on the multidimensionality of the HR construct leads to the presence of other variables in
the HR educational episteme.
The approach of HR from more than one level, as a multilevel outlook (Ployhart & Moliterno, 2011),
is an evident example of the multidimensionality of HR in education. Individual, team/group,
organizational, and societal approaches (Afiouni, Karam, & El-Hajj, 2013; Boxall, Purcell, & Wright,
2007; Garavan, MacGuire, & O’Donnell, 2004; MacGuire & Garavan, 2013; McLean & McLean,
2001; Scarpello, 2008; Thacker, 2000; Watson, 2010) represent four different levels of perspective
observed in the HR European higher education field.
The traditional micro-organizational approach, which has as referent HR as the human work/capital
factor in an organization, assumes the major narrative of the HR educational discourse in Europe. Its
origin as an organizational science (Ferris, Hochwarter, Buckley, Harrell-Cook, & Frink, 1999;
Mahoney & Deckop, 1986) and its main associated professional profiles may explain the core
epistemological identity of European HRE.
The team/ group approach arises as an educational knowledge especially framed within this micro-
organizational level, but it assumes relevant expression also as an autonomous epistemic object in the
HRE structure. In this independent outline, courses and contents focus specifically in team/ group
theories (concepts, assumptions, explanations) which may be mobilized for other contexts (e.g. for
societal level contexts) rather than exclusively the organizational.
On the other hand, individual approaches in HRE appear particularly as a consequence and within the
individual employment relationship paradigm. The shift held by HR management and development –
becoming increasingly individually customized and turning many processes into individual
responsibility – is reflected in HR educational programs, particularly with employability courses and
with individual approaches at the organizational level.
97
In these terms with both group and individual perspectives, HRE expands its exclusive organizational
boundaries. This micro approach, which underlies the HR foundational and main epistemology, is
challenged in this HRE field not only by the group and individual level rationality, but also by a
societal approach.
The macro-societal level embodies the broader approach to HR within the HR educational contents.
Referring to the human element as a work factor for communities, territories, economic clusters,
nations, or societies, this perspective has a non-transversal presence within HR curricula in Europe. It
closely integrates some HR programs, which have a clear HR macro approach (with political,
economic, and social focus on HR), but it is very incipient as an educational episteme in the
European HRE structure.
In the next table (Table 2), we present these four different focuses using an illustrative sample of HR
degree courses and contents designations. Individual, group, and organizational levels were
considered micro-approaches, and societal level a macro-approach.
Table 2: Micro and Macro level approaches on HRE – Examples of degree courses and contents
HR Micro approaches HR Macro approaches

Individual level Group level Organizational level Societal level
Conflict management Managing diversity in
Coaching Education and employment
in groups organizations
Continuing professional Employment and social
Group dynamics People resourcing
development policies
Performance management
Individual assessment Managing teams Employment management
and compensation
Individual behavior in Team building and
Recruitment and selection Labor market policies
organizations leadership skills
Team management Professional integration and
Personal development Roles of HR function
and leadership labor markets
Psychometrics and Team management The role of HRM in
Work in new economy
Psychological testing and leadership mergers and acquisitions
Although there is some expression (materialized in courses and contents) of an independent HR non-
organizational approach, as exemplified above, the individual, team, and society approach appear in
the European HRE mainly consubstantiated through the organizational filter in courses such as
98
“Corporate Social Responsibility,” “Organizational Behavior,” or “International Business Context.”
Notwithstanding, as suggested by the HRE configuration, not neglecting both micro and macro levels
of HR educational knowledge, rather conceptualizing HR as an individual, a group, an organizational,
and a societal object of study emerges as significant for an intended comprehensive and systemic
approach to HRE.
“Administrative,” “Technical,” and “Strategic”
The HR multilevel approach still reveals other perspectives in the European HRE episteme.
Regardless of a management or development viewpoint on micro or macro HR, administrative,
technical, and strategic level represent three further types of educational knowledge developed by HR
programs for higher education throughout Europe. Table 3 illustrates these three approaches by
presenting examples of degree courses and contents in each of these clusters – administrative HR,
technical HR, and strategic HR.
Table 3: “Administrative,” “Technical,” and “Strategic” approaches on HRE

Examples of degree courses and contents
Administrative Technical Strategic

Administrative HRM Compensation Management Corporate Strategy and HRM
Employee Assistance HR Auditing HR Strategic Planning
HR Document Management Instructional Design International HR Strategies
HR Social Report Job Analysis and Design Strategic Performance
Management
Payroll Process Performance Appraisal Strategic HRD
Training Logistics Recruitment and Selection Talent Development
This three-level perspective of HR evident in European higher education reflects HRE literature, in
which the technical approach is referred to as the “HR functional content knowledge” (Barber, 1999;
Heneman, 1999) discriminating in a methodological disaggregated manner the different HR
processes: the administrative level denotes the support dimension of HR practice, and the strategic
approach as the long-term and integrative perspective (Batt & Banerjee, 2012; Coetzer & Stilington,
2012; Giannantonio & Hurley, 2003; Langbert, 2005; Sincoff & Owen, 2004; Thacker, 2000;
Wimbush, 2008). Considering that each of these focuses explores different scopes of the HR field, to
99
drop any of these three approaches in HRE would be to forgo a comprehensive picture of the HR
field of study.
“Core,” Contextual,” and “Instrumental”
From another perspective, and independently of the degree program focus, all European HR curricula
contain both core educational contents and subsidiary educational contents. The distinction of
contents classification as core or subsidiary depends directly on the program’s central
epistemological identity. Core educational contents in one type of program may assume a subsidiary
nature in other educational epistemologies, and inversely subsidiary educational contents of some
programs may assume a core nature in others.
Core contents refer to nuclear and “substantive knowledge,” et al., 1996) while subsidiary contents
allude to educational knowledge that enables and facilitates core knowledge.
The data suggest that there are three main core educational conceptions on HR programs in Europe:
(1) the dominant is a technical organizational focus with intense business, performance, and
managerial subjects (e.g. managing HR to results; management development; performance and
competence management, organization of HR function; HR in organizational development), which
explicit objective is to provide skills and knowledge to enhance organizational performance through
HRM best practice; (2) a strategic organizational tendency: programs with a wide number of strategic
courses (e.g. contemporary HR strategies, strategic HRM, strategic HR development; strategic
planning; strategic resourcing), the formal aim stated is to develop HR managers to a strategic level;
and (3) an international technical organizational orientation focusing on preparing HR managers to
work in international settings (offering courses on international HRM, HR in the global and European
context, international resourcing, or managing expatriates).
Apart from the core educational identity, HRE emerges supported by subsidiary courses in HR
curricula, representing almost the same weight as core contents in program structures. The
multidimensionality nature of the HR construct on which core HR educational knowledge relies may
explain the claim for subsidiary multidisciplinary approaches (Jacobs, 1990; Kuchinke, 2001; Martin-
Alcázar, Romero-Fernández, & Sachez-Gardey, 2008; Molloy & Ployhart, 2012) in order to provide
an intensive and extensive understanding of HR as an educational study object. “Contextual” and
100
“Instrumental” contents assume the main configuration of this “enabling knowledge” (Hansen et al,
1996) supporting the HRE nuclear epistemic object.
Contextual approaches refer to disciplinary frameworks that set the core educational object of study
in context. It may vary, for example, from a neuro-physiological contextualization to a socio-political
frame. The most common courses of this kind in our study sample are business, organizational, and
psychological contextualizations.
Instrumental perspectives on HRE concern contents facilitating and enabling core HR competencies
development. Four main instrumental knowledge lines are discernible in the European HR
educational approach: information management, communication science, research methodologies,
and project management.
Although the core, contextual, and instrumental nature of educational knowledge varies upon the
program epistemological identity (e.g. if it is management or development focused; if it is micro or
macro centered; or if it is administrative, technical, or strategic oriented), we present a sample of
courses in European HRE that clearly illustrate the core, instrumental and contextual educational
approaches (Table 4).
Table 4: Core, Contextual, and Instrumental approaches on HRE

Core Contextual Instrumental
People Resourcing New Public Management Technical English
HR Planning Organizational Sociology HRM Information Systems
Performance Management Business Economics Applied Informatics
HR Development East Asian Business and Research Methods in HR
Management
Human Capital Assessment Legal Environment Interpersonal Communication
Compensation and Benefits European Integration and Negotiation Techniques
Institutions
Career Management International Environment Statistical Analysis
Strategic HR Organizational and Work Project Management
Psychology
101
Conclusion and avenues for further research
European HRE epistemological structure analysis enabled the identification of several approaches to
HR as an educational object of study, facilitating HR educators to have a global view of the spectrum
HR currently has at schools throughout Europe. It showed that education on HR has broadened, (1)
considering in its epistemological identity traditional HR management, but integrating as well the
development of HR; (2) overcoming the dominant organizational context boundary and considering
the individual, group, and societal perspectives of HR management and development; (3)
incorporating not only technical educational knowledge, but also strategic and administrative
conceptualizations of HR ; and (4) recognizing the importance of including in HR curricula not only
core educational contents, but instrumental and contextual as well.
The wide range of focus to HR educational content identified provides an epistemic tool for HR
programs both to identify their identity within this international framework, as well as to identify
possible gaps if the aim is a comprehensive approach to HR.
Figure 1 represents the integrative model of all HR educational conceptualizations in use in Europe,
suggesting an “HR Four-Fold Approach” to HRE.
Figure 1 – HR Four-Fold Approach
Management Macro
Development Micro
HR Four-Fold
Approach
Nuc
Strategic Nuclear
Technical Contextual
Administrative Instrumental
The model foundation relies on considering that each of these four dimensions, representing four
different focuses on HR (“management & development”, “macro & micro”, “strategic, technical, &
administrative”, and “nuclear, contextual, & instrumental”) may stand for a different emancipatory
102
valence for HRE, and in their assembled configuration they illustrate the contemporary state of art of
a comprehensive HRE conceptualization. Systemically or analytically this model empowers a new
and framed approach to sight HR educational practice and contents.
Independently of the conceptual options and epistemological identity of each HRE structure (based
on a specific or an integrative approach), setting the HR educational knowledge content frame is an
epistemological demand for HR teaching and learning quality development.
Future research could validate and extend this comprehensive model of HRE in several different
ways. Systematically identifying HRE programs’ epistemological identities in diverse territorial
contexts (especially outside Europe), as well as researching deeper the interrelations between the
proposed variable approaches that would contribute to the development of an increasingly more
comprehensive educational knowledge on HR. Analyzing HR professional and scientific knowledge
considering this Four-Fold model approach would also gather interesting data to mobilize for a
comparative study with the epistemic HRE field.
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i
From all the journals indexed within ISI and SCOPUS (considering the Journal Citation Reports and
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108
Case Study – Using HACCP by F&B Manager and Importance of

Insurance
Zdeněk Málek, Department of Gastronomy, College of Business and Hotel Management, Bosonožská 9,
625 00 Brno, malek@hotskolabrno.cz
Eva Lukášková, Department of Gastronomy, College of Business and Hotel Management, Bosonožská 9,
625 00 Brno, lukaskova@hotskolabrno.cz
Kateřina Pitrová, Department of Environmental Security, Faculty of Logistics and Crisis Management,
Tomas Bata University in Zlín, Nám T. G. Masaryka 5555, 760 01 Zlín, pitrova@flkr.utb.cz
Helena Velichová, Department of Gastronomy, College of Business and Hotel Management, Bosonožská 9,
625 00 Brno, velichova@hotskolabrno.cz
Abstract
The article presents a case study of the use of the HACCP system for controlling the activities associated
with food preparation in the selected operation. The HACCP system is an important tool for quality control
of meals prepared by an F & B manager. The article presents a hazard analysis and determination of critical
control points for the whole process of food preparation - from food intake, through their storage to their
preparation. The work also presents a diagram of the spatial arrangement of the cuisine with incorporated
symbols HACCP. Also insurance is presented here as an important tool for elimination of economic losses.
Keywords: Food safety, F&B manager, HACCP, insurance.
Introduction
System of control points, known under the English acronym HACCP, creates one of the inherent important
tools for achieving safe food together with good agricultural, manufacturing and hygiene practices
(Lukášková et al., 2012). In 1997 there was an accurate determination of the principles of the HACCP
system in “General Principles of Food Hygiene” issued by the Codex Alimentarius (Kameník, 2013).
Codex Alimentarius is engaged in food standards and guidelines and procedures for food safety with regard
to the health of consumers. It also tries to ensure quality during import and consumer confidence in food
safety (Codex Alimentarius, 2014). Entrepreneurs operating in the food sector, with the exception of
primary production, are required by law to exercise during their manufacture any of the procedures based
on the principles of HACCP (Lukášková et al., 2014). The paper discusses the process of risk analysis and
identification of critical control points in the pension for senior citizens.
1 HACCP system as an important tool for quality control by F&B manager
HACCP system functions by collecting data from the entire process of food production. Data obtained in
the analysis are used to determine the possibility of risk in specific situations, thus helping to put
safeguards in place to prevent the recurrent food hazards. It is a complex system, which takes into
consideration not only the technological processes and added substances or materials during production as
well as possible ways of treatment of consumers when completing the product or simple handling
(Koudelková, 2014). It is thus an important and necessary tool, whose functioning management determines
the success of a particular operation by an F & B manager. Critical control point system is based on seven
consecutive parts, which are based on the aforementioned document created by the Codex Alimentarius
Commission (Fig. 1).
109
Risk
analysis
Creating and Identification

managing
documents of CCP
Authentication
Establish
Corrective
measures
critical
limits
Monitoring
Fig. 1: System components of critical control points
Recommended symbols of HACCP system
When introducing a system of control points in a firm providing catering service, it is

recommended to use experienced symbols for representation of processes and transactions
relating to work with food. The symbols then help employees to quick and clear orientation
about potential threats during the manufacturing
manufacturing process. Overview of the symbols is given
in Figure 2. The following symbols have been analyzed in connection with threats of a
selected service – pension for senior citizens, and positioned so as to show the kind of
danger that could occur during food
od preparation.
The symbol The meanings

Working operation
Possible working operation
Production process direction
Food contamination possibility by pathogenic
microflora from people
Primary food or water infection or contamination
possibility by pathogenic microorganisms

Food contamination possibility from the surface
of the device or contact with the surface
Survival possibility of microorganisms
Reproduction possibility of microorganisms
Reproduction of microorganisms is unlikely
Own customization according to the source: Matyáš, 1993.
110
2 Case study of risk analysis and determination of critical control points in the
facility
In the following diagram layout of the facility there are numerically marked dispositions of the property
(e.g. a refrigerator, a freezer). With the use of recommended symbols there are marked the places where
food can be contaminated from different sources. The following describes the processes involved in
moving food - raw materials, their storage and processing the critical control points.
Numbers 1 - 4 in the diagram indicate the main door (1), a hall (2), a storage space for kitchen utensils in
the operating section (3), a sink (4). Risk analysis of good manufacturing practices disturbance can occur
during food acceptance, respectively even before it - from suppliers. Food in the pension is imported from
reliable suppliers; it is of the order of a dozen suppliers. There are small farming businesses located in the
surroundings among them. There have not been found any troubles with wrong assortment during the
period of mutual cooperation. It is possible to mark these suppliers as compliable in terms of raw materials
safety. Ramp for receiving goods (5) is a place where you need to perform a thorough scan of the range of
goods. Packaging integrity is checked, in terms of certain food also their sensory evaluation. Control
operation is performed by the F & B manager, in his absence by his deputy. After the takeover of food
there is their division into respective stores. It is carried out with the use of supply trucks. Possible
identified risks in the area for receiving food and raw materials are not important because of reliable system
of suppliers (Koudelková, 2014).
Suppliers = Dodavetelé
111
Source: Koudelková, 2014. (note: Dodavatelé = Suppliers)
Fig. 3: Spatial arrangement diagram of the operating section
The following table shows risk analysis in the process of receiving goods.
112
Table 1: Risk analysis in the context of receiving goods in the selected pension for senior citizens
Source: Own customization according to Koudelková, 2014.
PLACE TYPE OF RISK LEVEL RISK TYPE PREVENTIVE MEASURES PROPER

VALUES/
ACTIVITY DOCUMENTS
Ramp for Receiving food 1st and 2nd Biological: moulds,pathogenic Consumption only from reliable and Corrective
microorganisms,warehouse proved suppliers. Compliance with measures:
receiving and raw risk level pests sanitary conditions for receiving returning the
Chemical: extra and goods. Thorough inspection of the goods to a
contaminating substances, inviolability of the packaging and
goods materials disinfection and cleaners consumption data. Sensory control
supplier
Physical: damaged of the parameters of individual
packaging,inappropriate or foods - appearance, aroma, colour, Documents:
damp packaging,expired presence of impurities, food totality. Delivery bills
minimum guaranteed storage and invoices -
period type
and amount of
food, delivery
date must be
specified
Analysis of storage areas showed no significant risk. The reason is the compliance of demanded storage
conditions. F & B manager performs random controls of storage facilities to minimize the risk of hazards
arising in connection with the possible improper storage of raw materials. Table 2 summarizes the risk
analysis due to food storage.
During the risk analysis process in the preparation of food there have not been identified any significant
risks. There is assumed the preparation of various foods in separate parts of the warehouse and the use of
hygienic tools and surfaces. Transferring modified food in the kitchen is done in compliance with the
hygiene requirements for safe food. The analysis is summarized in Table 3.
Table 2: Risk analysis in the context of food storage in the selected pension for senior citizens
PLACE TYPE OF RISK LEVEL RISK TYPE PREVENTIVE PROPER VALUES/

ACTIVITY MEASURES DOCUMENTS
Storage rooms Storage of 1st, 3rd and 4th Occurrence and reproduction of Compliance with Proper values:
A-D food and raw risk level moulds and microorganisms over storage and hygienic
materials given extreme limits. Contamination conditions, especially Meat and poultry +4°
through disturbed packaging. temperature, humidity, C
Failure to comply with temperature twilight or darkness Minced meat +2° C
conditions, expired minimum depending on the food. Vegetables +10°C
guaranteed storage period. Separate storage space Eggs +5 to +18° C
for disparate types of Dairy products
food. +4 to +8° C
Regular control of the Refrigerated ready
pest. meals +4° C
Regular monitoring of Freezers
physical factors -12 to -18° C
(temperature and air). Dry storage
max. +25° C
Relative humidity
max. 75%
Documents:
Records on random
inspection
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Room A is a refrigeration and freezer space and is designed for storing food. There is a freezer for
vegetables - the freezer temperature is between -12 to -18 ° C (6), a freezer for poultry and fish - the
temperature is the same as in the previous case (7), a refrigerator for dairy products - the temperature
hovers between +4 to + 8 ° C (8), a refrigerator for cold food - the temperature of +4 to + 10 ° C (9). Room
B is divided into two parts. The larger area is used for meat preparation, where is the counter - part of the
panel, the sink and the board for meat, where it is being cut and overall prepared for necessary heat
treatment (10), as well as a refrigerator for meat - the temperature does not exceed + 4 ° C (13 ), the weight
for meat (14). A separate part inside the room is used for egg preparation and storage. There is a counter for
preparing and slicing eggs, part of it is a basin (11) and a fridge for eggs - temperature range +5 to + 18 ° C
(12). Banquet room, which is on the diagram marked with the letter C, is used as a warehouse for dry
beans, rice, flour, canned fruits and vegetables, jams and various kinds of canned food. Temperature here is
at + 25 ° C. The only part of the warehouse storage racks are needed for the location of raw materials.
Another room (D) is intended for storage and cooking of vegetables. There are a sink and storage space, as
well as vegetable waste grinder (15), a counter for cleaning vegetables (16) and a refrigerator for vegetables
- temperature + 10 ° C (17) (Koudelková, 2014).
Table 3: Risk analysis in the context of preparing food in the selected pension for senior citizens
PLACE TYPE OF RISK RISK TYPE PREVENTIVE PROPER VALUES/

DOCUMENTS
ACTIVITY LEVEL MEASURES
Sklady Preparation of 2nd, 3rd Wrong washing Thorough cleaning Proper values:
místností food and raw and 4th and cleansing of of food. Procedures according
materials risk level foods, or failure Preventing the to good hygiene
BaD to comply with possibility of cross- practice.
the principles of contamination by
good hygiene. separating
Contamination of conflicting
raw materials activities.
with unclean The use of clean
clothing, tools and and proper working
hands of workers. tools in different
The possibility of parts of the
foreign objects in warehouse.
food. Maintaining the
conditions of heat
chain.
E is a cleaning room; there is also a fridge for leftovers. The waste is stored in the designated transport
containers so as to correspond to all requirements. Subsequently, the waste is disposed of in a waste
disposer. The room F is connected with food consumption, so it is a dining room. Due to physical problems
of some clients of the pension food is being served to their room. To prevent potential risk of
contamination, food is transported by an elevator (room H in the diagram). G is a canteen room, which is
from the kitchen area separated by a short wall. There is a dishwasher there used for white dish - plates,
glasses and cutlery (19), further a window for used dish (20) and a delivery window (21).
Based on a risk analysis made by a person responsible for the pension there was set a control critical point
in this part of the working operation. This point focuses on delivering food and the desired temperature.
There is a related danger of reproduction of undesirable microorganisms which can be caused by a
temperature failure during dispensing. As a preventive measure there has been introduced stricter and more
frequent monitoring of the point. Random check measurements are performed by an operating officer.
Delivering in the kitchen, the dining room and individual departments are monitored. Measurements are
carried by a leading person in the kitchen always when distributing the main course. A needle thermometer
is used for monitoring the temperature. The degree issued for cold food must not exceed + 4 ° C, with hot
meals there is a minimum level of + 80-85 ° C. At a lower temperature there would not be guaranteed
proper food temperature when delivered to the client, it would be necessary to heat the food. In a worse
case there could be an exclusion of food from circulation. In addition the extreme limits of required
114
temperature include the deposit time for ready-made dishes; the range should not exceed 4 hours. At the
control point there is defined how to record the controls. In the pension there is a HACCP protocol with
records of measurements and any record of the exclusion of circulation (Internal source, 2014).
Table 4: Risk analysis in the context of delivering food in the selected pension for senior citizens
PLACE TYPE OF RISK RISK TYPE PREVENTIVE PROPER

ACTIVITY LEVEL MEASURES VALUES/
DOCUMENTS
Delivering Dish 4th risk level Contamination Cleanliness of Proper values:

part of the delivery due to non- working Hot meals
kitchen observance of environment and
sanitary white dishes. Core temperature of
conditions. Compliance with the food
Reproduction of right serving administered in the
unwanted temperature of dining room or in
microorganisms food. the client’s room
due to disregard Upon detection of may not be lower
of proper unsatisfying than + 60 ° C.
temperature when parameters, Cold meals
dispensing and exclusion of Cold meals may not
preserving food. circulation. be served with a
Refilling dishes temperature higher
only by replacing than + 8 ° C. The
entire gastro same criteria for
containers. issuing in the
client’s room or in
the dining room.
Table 5: Risk analysis in the context of hot meals production in the selected pension for senior
citizens
PLACE TYPE OF ACTIVITY

RISK LEVEL RISK TYPE PREVENTIVE MEASURES
PROPER VALUES/
DOCUMENTS
Kitchen Production 3rd and 4th Failure to comply Monitoring of Proper values:
of hot meals risk level with technological process Correct programme
processes of compliance. and parameters
production, Sensory control of adjustment of
especially dishes. electrical equipment
temperature. Using used for preparing
When thermometers for and finishing dishes.
undercooked or the control during Safe temperature
other bad heat the production level during the heat
treatment there process. treatment min. + 75 °
can survive Control of C.
pathogenic functioning and
microorganisms, cleanliness of the Documents:
or there may be a equipment used Use of proper
change in sensory for finishing hygiene practices.
properties. dishes.
115
Table 6: Risk analysis in the context of cold meals production in the selected pension for
senior citizens
PLACE TYPE OF RISK RISK TYPE PREVENTIVE PROPER VALUES/

ACTIVITY LEVEL MEASURES DOCUMENTS
Kitchen Production 2nd and 3rd risk Failure to comply Preventive Proper values:
of cold level with technological measures are the Using solely chilled
meals processes of same as for the raw materials and
production. preparation of hot food.
meals. Prepared meals are
delivered after
completion or stored
in a refrigerator at + 4
° C.
Kitchen is the pivotal room of entire scheme (room H). All the preparation and finalization of dishes, both
cold and hot, run here. There is a convection oven here - possibility of finishing meals with a variety of
thermal adjustment (22), a cutter - used to cut bread, salami and cheese (23), heating trolleys - they are
required for transportation and storage of food for the patients eating in their rooms (24) elevator for ready
meals (25) - transport of finished dishes using the heating trolley on each floor of the house. If serving hot
meals on another floor the trolley is plugged in to maintain the temperature of the meals served. For further
manipulation with the food a department worker is responsible. He is responsible for the temperature of the
food, which should not be at the time of consumption less than + 60 ° C. As for cold dishes, meals must be
stored in the refrigerator immediately after removal to the respective tray until delivery. Furthermore, the
kitchen is a working area for preparing cold dishes and finished meat (26) a handy refrigerator (27), the
area designated for the preparation of salads and fruit compotes (28), cooktops (29), a sink (30), a robot -
used to produce dough for pastries (31) and a preparation room for desserts (32).
The analysis confirms adherence to proper processes. Severity of risk is not significant interrupted if the
correct technology practice is somehow interrupted. Sensory controls show corresponding values.
The room CH is a daily room for cooks. There is a space in which all workers of the kitchen reside during
their breaks. In the room there is a refrigerator for personal food of the workers. It is also equipped with a
computer and printer needed to draw up weekly menus. The room I - cloakroom and storage space for
personal belongings of employees of the kitchen, as well as sanitary facilities. The room J is separated from
the kitchen by a short wall, it is used for storing and washing black crockery. There is a black crockery
dishwasher - dishwasher for small utensils needed to prepare meals (33).
In the interest of the pension it is to provide healthy food and meals, even if the serving of meals is a side
activity. To avoid creation of other critical points there are precisely defined limits of not only
aforementioned problematic points, but of all other work operations. Thanks to the use of standard
116
processes and equipment critical limits and corrective measures could be compiled based on the experience
of the kitchen workers (Koudelková, 2014).
The attributes monitored when receiving refrigerated and frozen food is the intact packaging and the
minimum guaranteed storage period, everything is based on visual inspection and during each delivery.
The critical limit is the integrity of the packaging and adequate storage period of food. When crossing the
limit, there is a return of the food to manufacturers. For storage of chilled and frozen products and semi-
finished products there is monitored by spot checks the temperature and continuously the minimum
guaranteed storage period. During the monitoring is to check the accuracy of food labeling and temperature
on individual devices. The critical limit is not exceeded in case of compliance with its durability and
accuracy of temperature according to the necessary requirements for individual types of food. If the limit is
not responding, the food is either transferred or withdrawn from circulation, it is evidenced by the record of
food disposal. In the heat preparation in the form of stewing, baking and cooking, the monitoring character
reaches the set of temperature and time adjustments in all parts of the process. Monitoring focuses only on
food finished differently than in a convection oven. There is performed sensory testing and temperature
measurement by a needle thermometer. Critical limit includes the effect of the temperature falling below 75
° C in the core of the food for 5 minutes. A corrective measurement is extending the period of completion.
There is also assessed the readiness of operations, especially in the context of the state of readiness of
operation before starting work. Assessment takes place at the beginning and the end of the shift in the form
of sensory assessment. The presence of foreign objects and debris of raw materials and food means
exceeding the extreme limits. Cleaning the area is part of the corrective measurement.
3 Insurance – a tool for possible elimination of economic losses
To avoid all the dangers related to food safety is almost impossible. This is due to errors, which are often
the result of human activity, but also a failure of machinery and equipment, an integral part of maintaining
the established principles. Therefore, it is appropriate to seek a variation how to replace possibly caused
damage. One option, in addition to rigorous checking compliance with the obligations, is the insurance.
Toxins, mold, bacteria or foreign substances - all these are becoming more common cause of health
problems associated with the consumption of food products. Negative publicity, that these cases are usually
accompanied with, often has very negative impact on financial results and the credibility of the producer of
the goods concerned. The impact of the additional costs incurred to remedy the situation and to meet the
additional measures imposed by the supervisory authority is also inconsiderable, the overall financial
impact in connection with the radical decline in income could lead to the insolvency of the company and to
its closure. Selecting appropriate measures and implementing control mechanisms can reduce the risk of
contamination, but it cannot completely eliminate them.
The potential risk of further increases is on the contrary the current development of the global security
situation and the associated threat of deliberate contamination, in order to make the product unsafe and
potentially enforce ransom of the producer.
Insurance coverage
To mitigate the financial consequences of the current risks of the insurance companies offering producers
of food and tobacco products, as well as pharmaceutical products and cosmetics that the possibility of
concluding a special insurance designed to cover a wide range of costs incurred in connection with the
insured event, which usually include:
• cost of the withdrawal of insured product costs resulting from business interruption,
• cost of sales recovery,
• cost of advisors and consultants and
• costs associated with extortion risks.
Within individually specified limits, insurance covers all common causes of contamination:
• accidental contamination,
• deliberate contamination,
• extortion and ransom.
117
When concluding the insurance the client and in addition the company receives a bonus in the form of
consulting services of a reputable counseling agency. Consultation can be used for example to assist in
drawing up a plan for the withdrawal from the market and examine the functioning of the existing crisis
plan.
Consultation services are provided in the areas of consumer industries - food, drinks and other items of
personal use and consumption. They apply to all stages of production - from product development through
production quality assurance, security, and consumer claims to crisis situations.
Whether the introduction of a system of verification procedures within the HACCP is working correctly, it
is verified by internal audit conducted once annually by an independent person. Responsibilities of the
audit are to verify compliance practice of good hygiene and manufacturing practices. The finding and
correcting actions are recorded in the corresponding record. It is also necessary to control required
documentation; it is represented in the form of orders, records, diaries and logs in the pension. Namely
there are: Control protocol to a critical point, Sanitation regulations of the kitchen, dining rooms and
warehouses, Sanitation storage records, Kitchen sanitation diary, Records of withdrawal or returning food
to suppliers, Operating rules of the kitchen, training records and health certificates of employees.
Conclusion
The risk analysis is made and documented in this article, which is part of the HACCP system, and the
results of the analysis describe the critical control points. The risk analysis was performed on several levels
according to the possible occurrence of possible danger during the preparation of food. Case studies of
selected pension for senior citizens found high standard of food safety. A functioning system HACCP is a
guarantee of quality for the running establishment in a closed system board for the F & B manager.
References
AIG. Pojištění kontaminace a stažení výrobku z trhu. [online]. © 2016, [cit. 2016-07-13]. Dostupné z:
https://www.aig.cz/content/dam/aig/emea/czech-republic/documents/cs/marketing-materials/prod-profile-
kontaminace-uprava.pdf
Anon. Dokumentace zavedení systému HACCP: Stanovení kritických bodů. [Interní zdroj]. [cit 2015-03-
01]. 2014
Codex Alimentarius: International Food Standards. About Codex [online]. © 2014, 24.1.2014 [cit. 2014-02-
23]. Dostupné z: http://www.codexalimentarius.org/about-codex/en/
KAMENÍK, Josef. Řízení kvality potravin živočišného původu. Vyd. 1. Brno: Veterinární
a farmaceutická univerzita Brno, 2013, 192 s. ISBN 978-80-7305-647-6.
KOUDELKOVÁ, Aneta. Analýza úrovně zajištění potravinové bezpečnosti v provozovně poskytující

stravovací služby. Brno, [cit. 2015-03-01]. Dostupnost: VŠOH. Bakalářská práce. Vysoká škola obchodní a
hotelová Brno.
LUKÁŠKOVÁ, Eva, VELICHOVÁ, Helena, TROJAN, Jakub. Analýza rizik zajištění potravinové
bezpečnosti ČR. In Bezpečnostní a krizový management na regionální úrovní. Uherské Hradiště : Fakulta
logistiky a krizového řízení Univerzity Tomáše Bati ve Zlíně, 2014, s. 1-444. ISBN 978-80-7454-413-2.
118
Déterminants de l’Activité et du Chômage des Immigrants

Au Canada : Analyse Comparative entre le Québec
Et l’Ontario
Sana Mami Kefi, Mediterranean School of Business (MSB), Tunis, Tunisia, sana.mami@msb.tn
Abstract
Cette étude a pour objectif d’identifier les difficultés que rencontrent les immigrants sur les marchés de
l’emploi ontarien et québécois. Nous estimons un logit bivarié et un logit multinomial pour analyser les
déterminants de l’activité et du chômage des immigrants dans ces deux provinces. Les principaux
résultats sont les suivants. Le transfert de l’éducation et de l’expérience de travail acquises à l’étranger est
aussi difficile en Ontario qu’au Québec. Sauf quelques exceptions, le risque d’inactivité et de chômage
est généralement plus élevé pour les minorités visibles que pour les natifs de race blanche dans les deux
provinces, mais ce désavantage est plus important au Québec. De plus, au Québec, même les immigrants
de race blanche ont moins de chance d’être actifs et sont plus enclins au chômage comparativement aux
natifs de race blanche. L’immigration à un âge plus jeune favorise l’activité au Québec et diminue le
risque de chômage en Ontario. Au Québec, avoir une langue maternelle étrangère augmente les risques
d’inactivité et de chômage alors qu’en Ontario, c’est le fait d’avoir le français comme langue maternelle
qui diminue les chances de participation au marché de l’emploi.
Keywords: Immigrants, chômage, marché du travail.
1. Introduction
Plusieurs études ont porté sur l’intégration des immigrants dans le marché du travail du pays d’accueil (à
titre d’exemples Miller et Neo (1997) pour l’Australie, McDonald et Worswick (1997) pour le Canada,
Mattoo et al. (2008) pour les Etats-Unis et Danzer et Ulku (2008) pour l’Allemagne). Au Canada, cette
dernière est très importante aux yeux des gouvernements (provinciaux et fédéral) et ce, pour maintes
raisons (démographiques, économiques etc.). L’écart entre les immigrants et les natifs canadiens a été
largement étudié dans la littérature. À titre d’exemple, en se basant sur les résultats de l’Enquête sur la
Population Active du Canada (EPA), Zietsma (2007) a mis en évidence les différences entre les natifs
canadiens et les immigrants1 en ce qui a trait aux taux d’emploi. Son étude a montré que les taux d’emploi
en 2006 des natifs canadiens dépassent largement ceux des immigrants et ce, quel que soit le niveau
d’études. Le transfert imparfait du capital humain a été souvent présenté dans la littérature comme un des
obstacles majeurs à l’intégration des immigrants dans le marché de travail du pays d’accueil. Ainsi, selon
Statistique Canada (2003), pour les immigrants âgés entre 25 et 44 ans qui, après 6 à 24 mois de leur
arrivée au Canada sont toujours en recherche d’emploi et ayant fait face à au moins un problème au cours
de leur recherche ; les difficultés les plus rencontrées sont en rapport avec le manque d’expérience sur le
marché du travail canadien, la non reconnaissance de l’expérience ainsi que des compétences acquises à
l’étranger, la langue et le manque d’emplois disponibles.
Par ailleurs, comme l’indique le tableau 1 ci-dessous, les statistiques montrent que parmi les trois
provinces qui accueillent la majorité des immigrants au Canada, soit l’Ontario, la Colombie- Britannique
et le Québec2, Québec est celle qui est caractérisée par le taux de chômage des immigrants le plus élevé.
119
Ceci montre que les différences existent non seulement entre les immigrants et les natifs canadiens, mais
aussi au sein même des immigrants, selon la province d’accueil. Plusieurs questions se posent : pourquoi
la situation des immigrants (au niveau de l’emploi) serait-elle meilleure en Ontario surtout que le
pourcentage d’immigrants au Québec est nettement inférieur à celui de l’Ontario ?3 Est-il plus facile pour
un immigrant de transférer ses compétences en Ontario qu’au Québec ? Les employeurs ontariens sont-ils
plus ouverts à l’idée d’embaucher des immigrants que leurs vis-à-vis québécois ? Les minorités visibles
sont-elles plus marginalisées au Québec et si oui, quels sont les groupes ethniques les plus touchés par la
discrimination ? Comment l’âge à l’immigration, le fait d’avoir l’anglais et/ou le français comme
langue(s) maternelle(s) et la situation matrimoniale affectent-ils la situation des immigrants sur le marché
du travail ? La réponse à ces questions réside dans le fait que pour tirer pleinement avantage de
l’immigration, il faut détecter les problèmes auxquels sont confrontés les immigrants afin de les aider à
les surmonter et à mieux réussir leur intégration. Il est clair que le succès sur le marché du travail est une
composante essentielle de l’insertion économique et sociale des immigrants. De plus, afin d’éviter que les
nouveaux arrivants quittent le Québec pour une autre province, il faut leur donner les moyens de parvenir
à y mener une vie décente. Par ailleurs, l’Institut de la Statistique du Québec avait prévu que le Québec
vivrait un déclin de la population en âge de travailler à partir de 2013.
Outre ces raisons, notre intérêt pour la situation des immigrants sur les marchés du travail québécois et
ontarien est motivé par le nombre limité d’études sur les immigrants au niveau provincial (Cousineau et
Boudarbat (2009), Boudarbat et Boulet (2007), Grenier et Nadeau (2011)). Ainsi, dans cet article, nous
essaierons de répondre à ces questions et de voir de quelle manière la situation de l'immigrant sur le
marché de l'emploi (activité et chômage) est-elle affectée par son origine ethnique, son capital humain et
ses caractéristiques démographiques.
Tableau 1 : Taux de chômage en 2015 de la population âgée entre 25 et 54 ans
Population née au Immigrants depuis Immigrants depuis 5 à

Canada moins de 5 ans 10 ans
Canada 5.4 10.9 8.0

Québec 5.7 16.4 10.5
Ontario 5.1 10.1 8.0
Colombie-Britannique 4.6 9.3 7.5
Source : Statistique Canada
2. Revue de la littérature
D’après Miller et Neo (1997), le nombre d’années d’études, l’âge, ainsi que la période de résidence en
Australie et le niveau de compétence en anglais (pour les individus qui sont nés à l’étranger) sont les
principaux facteurs qui affectent le succès sur le marché de l’emploi australien. Ils considèrent que,
comme les coûts de licenciement des jeunes sont faibles et que ces derniers ont moins de responsabilités
financières et de contraintes familiales que les individus plus âgés, le fait que les jeunes ont peu de
compétences spécifiques peut non seulement augmenter la probabilité qu’ils soient congédiés, mais aussi
leur incitation à quitter volontairement leurs emplois. Ceci impliquerait, selon Miller et Neo (1997), un
taux de chômage relativement élevé pour les individus les moins âgés et donc, une relation négative entre
l’âge et la probabilité d’être au chômage.
120
De plus, leur étude a mis en évidence un écart entre le taux de chômage des immigrants et celui des natifs
australiens. Ils attribuent cet écart au fait que les caractéristiques d’un immigrant et celles d’un australien
d’origine ne sont pas évaluées de la même façon. Leurs résultats indiquent que le taux de chômage des
immigrants dépasse celui des individus nés en Australie ayant des caractéristiques similaires. Miller et
Neo (1997) fournissent quatre explications possibles à ce résultat : la première est que le capital humain
acquis à l’étranger n’est pas parfaitement transférable au marché de l’emploi australien. La deuxième est
que les immigrants ne sont pas aussi informés que les natifs australiens sur les opportunités d’emploi sur
le marché de travail australien. La troisième est que les immigrants pourraient être moins compétents en
anglais. Finalement, ces derniers seraient victimes d’une discrimination, que ce soit de la part des
employeurs ou de leurs collègues de travail.
Cousineau et Boudarbat (2009) ont fait valoir la détérioration de la situation économique des immigrants
arrivés à l’âge adulte au Québec (des taux de chômage élevés, de faibles niveaux de salaires etc.). Selon
ces auteurs, la discrimination et les différences au niveau du capital humain acquis à l’étranger expliquent
en partie cette détérioration. Ils notent que les individus qui immigrent jeunes sont épargnés du problème
de reconnaissance du capital humain acquis à l’étranger. De plus, ils ont l’avantage d’avoir fait des études
au Canada. Ces deux facteurs devraient, selon Cousineau et Boudarbat (2009), faciliter l’intégration de
cette catégorie d’immigrants dans le marché du travail québécois. L’étude de Zietsma (2007) a révélé un
fait important : contrairement au cas des personnes nées au Canada, l’impact du niveau d’éducation sur le
taux de chômage est faible. En se basant sur les résultats de l’EPA du Canada, Zietsma (2007) a montré
que, comparativement aux immigrants dans les autres provinces, les immigrants établis au Québec
affichent le taux de chômage le plus élevé. D’après cette auteure, les taux de chômage élevés qui
caractérisent les immigrants au Canada, y compris ceux les plus scolarisés, sont principalement dus au
manque d’expérience de travail au Canada, au problème du transfert du capital humain étranger, mais
aussi à la non-maîtrise de la langue.
Dans le même ordre d’idées, Kogan (2004) a essayé de déterminer les facteurs à l’origine de la mauvaise
situation des immigrants sur le marché de l’emploi allemand. Son étude a montré que ce sont le poste
actuel, la taille de l’entreprise dans laquelle l’immigrant travaille ainsi que l’industrie qui expliquent en
grande partie le risque élevé de chômage des immigrants en Allemagne. Ses résultats indiquent également
que ce dernier est faiblement dû au capital humain des immigrants. Son étude a montré que le risque de
perte d’emploi pour ces immigrants est élevé. De plus, même dans le cas où ils retrouvent un emploi, il
s’agit généralement d’un poste dans le secteur non qualifié. D’après Kogan (2004), comme les
immigrants seraient en moyenne moins qualifiés que les natifs allemands, et ce, à cause des différences au
niveau des systèmes d’éducation; ceci pourrait expliquer leur désavantage sur le marché de l’emploi
allemand. Elle considère que la discrimination serait également à l’origine de ce désavantage. Une autre
raison évoquée par Friedberg (2000) est la spécificité de certaines composantes du capital humain : les
natifs auraient l’avantage de la langue et des connaissances propres au pays hôte. Par ailleurs, Kogan
(2004) a attribué la mauvaise situation des immigrants sur les marchés de l’emploi des différents pays
européens industrialisés (i.e. des emplois temporaires et à bas niveau de salaire) aux trois facteurs
suivants : le fait que les nouveaux immigrants préfèrent les emplois temporaires, le fait qu’ils ne sont pas
aussi informés que les natifs sur les opportunités d’emplois et la discrimination de la part des employeurs
lorsqu’il s’agit d’emplois de haut niveau. Ses résultats montrent que le fait qu’un immigrant en
Allemagne détienne un diplôme universitaire augmente ses chances de trouver un emploi et que
contrairement à l’expérience de travail en Allemagne, l’expérience étrangère entrave son accès à un
emploi. Ses résultats indiquent également que lorsqu’il s’agit de postuler pour un emploi de bureau, les
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immigrants expérimentent une dévalorisation de leur capital humain. En outre, Kogan (2004) trouve que
l’appartenance à une ethnie, de même que le fait que l’immigrant soit originaire d’un pays européen ou
d’un pays du Tiers-Monde, ont un effet sur leur situation sur le marché de l’emploi allemand. De manière
générale, son étude a montré que le risque de chômage est beaucoup plus élevé pour les immigrants,
comparativement aux natifs allemands et ce, à l’exception des immigrants en provenance de pays
européens.
D’après Miller et Neo (1997), l’écart entre le taux de chômage des immigrants et celui des natifs
australiens est plus grand dans le cas où les premiers sont originaires de pays où on ne parle pas l’anglais.
Par ailleurs, Parasnis et al. (2008) ont considéré le cas des immigrants en Australie afin d’étudier l’effet
d’acquérir des qualifications dans ce pays sur leur succès sur le marché de l’emploi australien.
Étonnamment, leurs résultats n’indiquent pas que cet impact est positif. Contrairement à Parasnis et al.
(2008), Constant et al. (2006b) trouvent que le niveau d’éducation en Allemagne affecte positivement la
probabilité qu’un immigrant ait un emploi. D’après Meurs et al. (2006), l’éducation ainsi que le nombre
d’années depuis l’immigration sont des facteurs qui diminuent le risque qu’un immigrant en France soit
au chômage.
Par ailleurs, d’après Leslie et Lindley (2001), le fait de détenir des diplômes étrangers affecte
positivement la probabilité que l’immigrant au Royaume-Uni soit actif et la probabilité qu’il ait un
emploi. Dans leur étude portant sur le chômage des individus de sexe masculin au Canada et qui couvre la
période 1982-1993, McDonald et Worswick (1997) trouvent que les probabilités de chômage des
immigrants récemment arrivés sont plus élevés que celles relatives aux natifs canadiens. De plus, l’écart
entre ces probabilités est plus prononcé en période de récession que d’expansion.4 D’après McDonald et
Worswick (1997), ceci indique que ce sont les changements dans la demande de travail (par opposition à
ceux de l’offre de travail) qui sont importants. Ils expliquent ce résultat comme suit : premièrement, les
pertes d’emplois en période de récession seraient principalement subies par les travailleurs qui occupent
des postes depuis peu de temps5. Contrairement aux nouveaux arrivants, les immigrants qui se sont
installés au Canada depuis une longue période de temps ont acquis, selon McDonald et Worswick (1997),
une expérience de travail et des compétences spécifiques relativement importantes. Deuxièmement, il
peut y avoir une incertitude, de la part des employeurs, quant aux compétences des nouveaux immigrants.
Ainsi, d’après ces auteurs, en période de récession, les employeurs seraient réticents à l’embauche de ces
nouveaux arrivants bien qu’ils satisfassent aux exigences des postes à pourvoir. De manière opposée, en
période d’expansion, ils seraient tentés d’embaucher un immigrant dont le capital humain a été acquis à
l’étranger et ce, à cause du coût d’opportunité élevé d’attendre qu’un natif canadien postule pour le poste.
La troisième explication que proposent McDonald et Worswick (1997) est la discrimination dont sont
victimes les immigrants. En effet, ils avancent qu’en période de récession, la discrimination à l’égard
d’un groupe religieux ou d’une minorité ethnique n’est pas coûteuse puisque les employeurs reçoivent
généralement un nombre de candidatures assez élevé. En revanche, la discrimination serait coûteuse pour
l’employeur en période d’expansion car les firmes font face à une forte demande de leurs biens6.
Danzer et Ulku (2008) ont étudié l’impact de l’intégration des immigrants sur leur succès économique en
considérant le cas de la communauté turque à Berlin. Ils ont défini trois facettes de l’intégration: politique
(avoir la citoyenneté allemande), économique (avoir un patron allemand ou des employés allemands) et
sociale (nombre de familles allemandes prêtes à aider l’immigrant en cas de difficultés financières).
Quant au succès économique, Danzer et Ulker (2008) le mesurent par le logarithme du revenu équivalent
du ménage par adulte. Leurs résultats montrent que, seule l’intégration politique affecte de façon
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significative le succès économique. Par ailleurs, les auteurs trouvent que le degré d’intégration, qui est
une combinaison des trois aspects de l’intégration, a un impact positif sur le succès économique. Ils
montrent aussi que l’éducation joue un rôle déterminant dans l’intégration et le succès économique.
Par ailleurs, en utilisant des données allemandes, Constant et al. (2006b) trouvent que la probabilité qu’un
immigrant accède à un emploi en Allemagne est affectée par son identité ethnique7 et que cet impact
diffère grandement selon le sexe de l’immigrant. De plus, leurs résultats montrent que pour les
immigrants de sexe masculin, ce sont les caractéristiques post-migratoires, plutôt que pré-migratoires8 qui
sont à l’origine de leur réussite sur le marché de l’emploi allemand.
Selon Zimmermann (2007), il existe au sein des immigrants, de grandes différences entre les groupes
ethniques au niveau de l’intégration dans le pays d’accueil et du succès économique. Bien que ces
différences puissent diminuer dans le temps, elles ne disparaissent pas facilement. Par ailleurs, Mattoo et
al. (2008) ont utilisé des données du recensement des États-Unis afin d’étudier la performance des
immigrants instruits sur le marché de l’emploi américain. Leurs résultats montrent qu’il existe des
différences majeures selon les pays d’origine et que ces différences ne peuvent être dues à des différences
d’âge, d’expérience de travail ou de niveau d’éducation. Par contre, ils trouvent que des caractéristiques
du pays d’origine telles que les dépenses dans l’éducation supérieure et l’utilisation de l’anglais
expliqueraient une grande partie de ces écarts observés. Oreopoulos (2011) a mis en évidence une forte
discrimination de la part des employeurs à Toronto à l’encontre des candidats appartenant à une ethnie ou
avec une expérience à l’étranger. Cette discrimination ne semble pas être atténuée par une maîtrise des
langues, une expérience dans une entreprise multinomiale ou des études dans des établissements de haut
niveau.
Selon Miller et Neo (1997), en Australie, les immigrants qui sont compétents en anglais et qui parlent une
autre langue à la maison pourraient être légèrement avantagés, sur le marché de l’emploi, par rapport aux
natifs australiens. En effet, ces immigrants ont non seulement accès à des postes dans des entreprises où
l’anglais est la seule langue parlée, mais aussi à ceux où la langue maternelle de l’immigrant est utilisée.
En revanche, les immigrants qui ne parlent pas bien l’anglais devraient éprouver des difficultés à accéder
à des emplois et seraient donc caractérisés par un taux de chômage relativement élevé.
Borjas (2005) explique la relation négative entre l’éducation et le taux de chômage comme suit : d’abord,
les travailleurs instruits investissent plus dans la formation continue (‘on-the-job training’). Comme cette
dernière crée un lien entre l’employeur et l’employé, il est moins probable que les firmes licencient ces
travailleurs dans le cas d’une mauvaise conjoncture économique. Ensuite, ces derniers seraient mieux
informés quant aux différentes opportunités d’emplois. Par conséquent, dans le cas où ils décideraient de
changer d’emplois, la période de chômage ne durerait pas longtemps.
Ainsi, bien que la plupart des études s’accordent sur l’importance de certains facteurs tels que l’âge et le
niveau de compétence linguistique dans la détermination de la situation des immigrants sur le marché de
l’emploi du pays hôte, il y a des divergences concernant les effets du niveau d’éducation, des
compétences acquises dans le pays d’accueil et de l’âge à l’immigration. Outre le problème de transfert
du capital humain (dû en grande partie à la différence entre les systèmes d’éducation), il semble que
l’appartenance à une ethnie pourrait également expliquer la mauvaise situation économique des
immigrants. En plus des raisons évoquées dans l’introduction, la présente étude est motivée par la volonté
de contribuer au débat sur la situation des immigrants au Canada sur le plan provincial. En particulier,
tout en tenant compte de la différence de langue, nous essaierons de voir si la facilité de transfert du
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capital humain acquis à l’étranger dépend de la province d’accueil et de déterminer, éventuellement,

l’ampleur de la discrimination, si elle existe. Cette étude s’inscrit donc dans le courant de recherche sur
l’intégration des immigrants sur le marché du travail du pays d’accueil et a pour objectif de détecter les
origines des difficultés qu’ils y rencontrent.
3. Données et méthodologie
Nous avons considéré un échantillon d'immigrants et de natifs canadiens tiré du fichier de micro données
accessible au public du recensement du Canada de 2001. Dans un premier temps, nous estimons un
modèle logit (Greene (2005)) afin d'étudier la probabilité d'être actif.9 Dans un second temps, nous
estimons un logit multinomial (Greene (2005)) pour le chômage en décomposant ‘actif’ en ‘employé’ et
‘chômeur’. Nous nous intéressons aux effets des caractéristiques de l’immigrant sur le risque qu’il soit au
chômage plutôt qu’en emploi. Pour les deux modèles, nous distinguons les individus résidant au Québec
de ceux résidant en Ontario. Il convient de souligner que le Québec se différencie de l’Ontario (et du
Canada anglais) par la langue, i.e. le français. Notre échantillon comprend 31 684 observations pour
l’Ontario et 24 881 observations pour le Québec.
Les variables explicatives que nous avons considérées (voir Annexe) sont les groupes de minorités
visibles, l'âge, l'âge à l'immigration, les langues maternelles, le plus haut diplôme obtenu, le lieu de son
obtention, l'expérience de travail10 au Canada ainsi que celle à l'étranger (pour les immigrants), le fait
d'être le principal soutien de la famille, l'état matrimonial et la présence d'enfants à la maison. Nous avons
également inclus quelques variables d’interaction. Tel qu’indiqué dans l’introduction, comme le transfert
du capital humain, les langues ainsi que le manque d’expérience de travail au Canada sont les principaux
obstacles auxquels sont confrontés les immigrants au Canada, il est intéressant de voir quels effets
auraient ces facteurs sur le plan provincial. La distinction entre différents groupes de minorités visibles
nous a semblé essentielle afin de déceler d’éventuelles différences au niveau de leurs situations sur les
marchés du travail provinciaux. En effet, il est possible que les immigrants appartenant à une minorité
visible bénéficient d’une aide de la part d’immigrants faisant partie de la même communauté et s’étant
établis dans une des provinces depuis quelques années. L’aide fournie serait en termes de conseil et
d’assistance lors de la recherche d’emploi ou encore de mise en contact avec des employeurs potentiels.
Le soutien moral est une autre forme d’aide. Certaines communautés se distinguent par une solidarité au
sein de leurs membres (à titre d’exemples les Chinois et les Asiatiques du sud-est). Par ailleurs, nous
prévoyons que plus l’âge de l’immigrant est avancé, plus sa situation économique serait meilleure car il
est plus probable qu’il ait acquis de l’expérience de travail de façon générale et de l’expérience
canadienne en particulier (surtout dans le cas où il s’est établi au pays depuis plusieurs années). L’âge à
l’immigration devrait avoir l’effet contraire : un jeune immigrant est plus susceptible de poursuivre ses
études à l’arrivée au pays et n’est pas confronté au problème de reconnaissance de l’expérience de travail
étrangère. Les langues et le niveau d’études, auraient également des effets positifs sur l’activité et négatifs
sur le risque de chômage. On s’attend à un impact différent du français comme langue maternelle selon
que l’immigrant réside en Ontario ou au Québec. En particulier, toutes choses étant égales par ailleurs, le
fait de maîtriser le français augmenterait les chances pour un immigrant au Québec d’être actif et
diminuerait le risque qu’il soit au chômage. D’un autre côté, ceteris paribus, nous prévoyons que lorsque
l’immigrant poursuit ses études au Canada et y obtient son plus haut diplôme, il aurait plus de chance
d’être actif et serait moins exposé au risque chômage. Par ailleurs, comme le fait d’avoir accumulé de
l’expérience de travail au Canada pourrait envoyer un signal aux employeurs que les compétences de
l’immigrant auraient été préalablement reconnues, nous nous attendons à l’augmentation de la probabilité
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d’être actif et à la diminution de la probabilité de chômage. L’effet contraire est prévu pour l’expérience
de travail à l’étranger. En effet, un employeur serait plus réticent à embaucher un immigrant ayant
beaucoup d’années d’expérience dans son pays d’origine car il aurait de la difficulté à évaluer ce que vaut
cette expérience sur le marché de travail local. En revanche, le fait d’être le principal soutien de la
famille, le fait d’être marié et la présence d’enfants augmenteraient la probabilité que l’immigrant soit
actif et diminueraient le risque qu’il soit sans emploi. En effet, ces facteurs exerceraient des pressions sur
l’immigrant et pourraient même l’amener à accepter un emploi pour lequel il serait surqualifié,
uniquement dans le but de satisfaire aux besoins de sa famille, ce qui constitue une priorité pour lui.
Nous allons considérer deux modèles : un logit bivarié et un logit multinomial. Le premier nous permet
d’analyser les effets des différentes variables discutées sur la probabilité pour un immigrant d’être actif.
Le deuxième nous permet d’étudier le risque d’être au chômage à travers la probabilité pour un immigrant
d’être chômeur, conditionnelle à être actif. Ainsi, dans le premier modèle, nous considérons deux
situations : l’activité et l’inactivité, alors que dans le deuxième, nous envisageons trois situations en
décomposant l’activité en deux états : le chômage et l’emploi. Ainsi, nous pourrons distinguer les effets
de l’origine ethnique, du capital humain et des caractéristiques démographiques de l’immigrant sur le
risque qu’il soit au chômage plutôt qu’en emploi.
'
Le modèle logit pour l’activité s’écrit comme suit : Pr(Yi = 1 / xi ) = F ( xi β ), avec :
Yi = {
1si l'individu i est actif
0 sinon , F : la fonction de répartition de la loi logistique, x : les variables explicatives,
β : l’ensemble des paramètres à estimer.
Le modèle logit multinomial pour le chômage s’écrit comme suit :

β 'j xi
e 1
Pr(Yi = j / xi ) = , pour j = 1, 2 et Pr(Yi = 0 / xi ) = avec 3 situations
2 β' x 2 β' x
1+ ∑e k i 1+ ∑e k i
k =1 k =1
possibles : j ∈ {0, 1, 2}, Yi = 0 : en emploi , Yi = 1 : au chômage , Yi = 2 : inactif . L’emploi ( Yi = 0 ) est la
catégorie de comparaison. Il est à noter que nous nous intéressons uniquement à la probabilité d’être
chômeur, conditionnelle à être actif afin d’étudier le risque d’être au chômage.
4. Résultats
4.1. Résultats pour le modèle logit
Les résultats de l'estimation d'un logit (voir tableaux 2 et 3 ci-dessous) avec la probabilité d'être actif
comme variable dépendante montrent que dans les deux provinces, le fait qu’un immigrant fasse partie
d’un des groupes de minorités visibles considérés affecte négativement la probabilité qu’il soit actif.
Cependant, il ya des exceptions. En effet, en Ontario (au Québec), il semble que les Latino-américains et
les Asiatiques du sud-est (les Philippins et les Coréens) ont d’autant de chances de participer au marché
de l’emploi que les natifs canadiens de race blanche. Ceci pourrait être expliqué par une solidarité au sein
de ces communautés et une faible exigence concernant les postes à occuper. Tous les autres groupes de
minorités visibles sont associés à une plus faible probabilité d’être actifs. Ceci est vrai également pour les
125
immigrants de race blanche installés au Québec, alors qu’en Ontario, il semble qu’ils ne se distinguent
pas des natifs canadiens en termes de chances d’être actifs.
Si les individus âgés de 35 ans et plus ont relativement plus de chances de participer au marché de
l’emploi (aussi bien ontarien que québécois), comparativement aux individus plus jeunes, le signe des
coefficients des variables d’interaction indique que toutes choses étant égales par ailleurs, l’immigrant est
désavantagé par rapport au natif canadien.
Les résultats indiquent également que le fait d’avoir immigré à un jeune âge favoriserait la participation
de l’immigrant au marché de l’emploi québécois (pas d’effet pour l’Ontario). Il en est de même pour les
langues officielles au Québec, alors qu’en Ontario, seul le français affecte la probabilité d’être actif et ce,
de manière négative. Toutes choses étant égales par ailleurs, ceci indiquerait qu’il y a moins d’exigence
concernant les langues en Ontario.
Concernant l’éducation, nos résultats indiquent qu’à l’exception d’un diplôme supérieur au baccalauréat,
tous les autres diplômes favoriseraient la participation de l’immigrant au marché de l’emploi aussi bien
québécois qu’ontarien. Ceci pourrait refléter une faible demande pour les individus détenant des diplômes
de haut niveau. Pour les deux provinces, le fait d’avoir obtenu son diplôme à l’étranger semble ne pas
affecter la probabilité que l’immigrant soit actif. Toutefois, l’expérience de travail à l’étranger diminue
ses chances de participation au marché de l’emploi. Concernant l’expérience de travail au Canada, les
résultats indiquent que son effet est nul. Les résultats du test de Wald rejettent l’hypothèse d’égalité entre
l’effet de l’expérience de travail au Canada et celui de l’expérience de travail à l’étranger pour un
immigrant. Il en est de même pour l’égalité entre les coefficients de l’expérience de travail canadienne
pour l’immigrant et le natif. Ceci indique que, toutes choses étant égales par ailleurs, la valeur de
l’expérience de travail dépend non seulement du statut de l’individu (natif ou immigrant) mais aussi du
lieu de son acquisition.
Enfin, le fait d’être le principal soutien de la famille et/ou la présence d’enfants sont des facteurs qui
augmentent les chances que l’immigrant soit actif dans les deux provinces. De même, un immigrant marié
a relativement une plus grande probabilité d’être actif, comparativement à un immigrant célibataire.
Tableau 2 : Estimation du modèle logit pour l’activité des immigrants en Ontario
Variables explicatives Coef. Ecrt. type

Constante 2,467*** 0,182
CHIN -0,877*** 0,223
SUDAS -0,510** 0,225
NOIR -0,433* 0,242
PHIL -0,461* 0,257
LATINOAM -0,142 0,335
ASIAOCC -1,187*** 0,273
ARAB -1,152*** 0,26
COREEN -0,734** 0,317
ASIASUDEST 0,059 0,463
126
BLANC -0,249 0,223

A3544 0,246* 0,138
A3544*IMM -0,21 0,187
A4554 0,882*** 0,193
A4554*IMM -0,678*** 0,248
A5564 0,357 0,228
A5564*IMM -0,514* 0,297
AIMMSUP30 0,071 0,103
MANG 0,068 0,057
MFRA -0,217** 0,096
MANGFRA -0,36 0,359
SEC 0,370*** 0.053
METCOL 0,477*** 0,051
CERBAC 0,164** 0,07
SUP 0,125 0,09
ETR -0,123 0,091
EXPCN -0,003 0,012
EXPCN2 -0,002*** 0
EXPC -0,060*** 0,018
EXPC2 -0,001*** 0
EXPE -0,083*** 0,011
EXPE2 0 0
PRINCIP 0,519*** 0,044
MAR 0,731*** 0,065
AUTRE 0,573*** 0,085
ENFINF25 0,442*** 0,045
ENF25ETPLUS 0,140* 0,069
R2 McFadden 0,184
Erreur standard de la regression 0,313
Note : *** p<0.01, ** p<0.05, * p<0.1. Voir l’Annexe pour la définition des variables.
Tableau 3 : Estimation du modèle logit pour l’activité des immigrants au Québec
Constante 2,790*** 0,202

CHIN -1,068*** 0,390
SUDAS -1,365*** 0,374
NOIR -1,067*** 0,370
PHIL -0,793 0,555
127
LATINOAM -1,037** 0,431

***
ASIAOCC -1,619 0,518
ARAB -1,404*** 0,362
COREEN -1.111 1,127
ASIASUDEST -2,012*** 0,432
***
BLANC -0,906 0,346
***
A3544 0,787 0,125
A3544*IMM -0,709** 0,296
***
A4554 1,449 0,172
A4554*IMM -0,899** 0,379
**
A5564 0,422 0,201
A5564*IMM -0,123 0,464
AIMMSUP30 -0,439** 0,212
MANG 0,260** 0,130
***
MFRA 0,473 0,107
MANGFRA 1,166*** 0,404
***
SEC 0,473 0,056
METCOL 0,567*** 0,059
***
CERBAC 0,215 0.084
SUP 0,111 0,116
ETR 0,185 0,191
EXPCN -0,016 0,025
EXPCN2 -0,002*** 0,000
EXPC -0,128*** 0,016
2
EXPC 0,000 0,000
EXPE -0,098*** 0,022
2
EXPE 0,001 0.001
***
PRINCIP 0,472 0,052
MAR 0,674*** 0,068
***
AUTRE 0,629 0,084
ENFINF25 0,690*** 0,050
***
ENF25ETPLUS 0,198 0,087
R2 McFadden 0,258
Erreur standard de la régression 0,305
4.2. Résultats pour le modèle logit multinomial
Les résultats de l’estimation du logit multinomial pour la probabilité de chômage (voir tableaux 4 et 5)
indiquent que presque tous les groupes de minorités visibles font face à un risque de chômage
relativement élevé par rapport à un natif canadien et ce, dans les deux provinces considérées. Les
exceptions sont les Philippins, les Asiatiques occidentaux et les Asiatiques du sud-est au Québec pour
lesquels il n’y a pas de différence avec les natifs. Il s’avère que même les immigrants ne faisant partie
d’aucun groupe de minorité visible sont plus enclins au chômage, comparativement aux natifs blancs. Nos
128
résultats s’accordent donc avec ceux de Kogan (2004) sur l’importance de l’origine ethnique en tant que
facteur déterminant de la situation de l’immigrant sur le marché de l’emploi du pays hôte. Il semble que
les groupes qui souffrent le plus (le moins) de la discrimination sont les Arabes (les Philippins) en
Ontario et les Coréens (les immigrants ne faisant pas partie d’une minorité visible) au Québec. Alors que
l’effet d’appartenir à la communauté latino-américaine sur le risque relatif de chômage est presque le
même dans les deux provinces, le fait d’être un immigrant d’origine coréenne augmente beaucoup plus le
risque qu’il soit au chômage au Québec, comparativement à l’Ontario. Nos résultats montrent donc qu’il
existe des différences non seulement à travers les groupes ethniques, mais aussi à travers les provinces, en
termes de risque relatif de chômage par rapport à l’emploi.
Contrairement à nos attentes, il semble que, de manière générale, l’âge n’affecte pas le risque de
chômage. Cependant, au Québec, le fait d’être un immigrant âgé de plus de 35 ans augmente le risque
qu’il soit au chômage. Si l’âge à l’immigration semble être déterminant pour un immigrant en Ontario, il
n’en est pas de même pour le Québec. En effet, les résultats pour l’Ontario confirment l’idée largement
répandue dans la littérature selon laquelle le fait d’immigrer à un âge jeune facilite l’intégration
économique des immigrants. Par ailleurs, il semble que le fait d’avoir l’anglais et/ou le français comme
langues maternelles n’affecte pas le risque de chômage pour un immigrant en Ontario (quoi que les
coefficients soient négatifs). Cependant, au Québec, ceci diminue le risque de chômage. Quant à
l’éducation, tous les diplômes considérés ont pour effet d’atténuer le risque de chômage pour un
immigrant et ce, aussi bien au Québec qu’en Ontario. Ainsi, il s’avère que le fait d’avoir obtenu son plus
haut diplôme à l’étranger ne semble pas affecter le risque de chômage pour l’immigrant. Concernant
l’expérience de travail, si l’expérience étrangère n’a d’effet sur le risque de chômage ni au Québec, ni en
Ontario, l’expérience acquise au Canada faciliterait son intégration sur le marché de l’emploi ontarien.
Ainsi, une année supplémentaire d’expérience de travail au Canada diminue de 0.96 le risque relatif pour
un immigrant en Ontario d’être au chômage plutôt qu’en emploi.
Par ailleurs, le fait que l’immigrant soit le principal soutien de la famille diminue le risque qu’il soit au
chômage et ce, aussi bien au Québec qu’en Ontario. De même, la situation matrimoniale de l’individu
affecte le risque qu’il soit au chômage : en effet, toutes choses étant égales par ailleurs, un immigrant
marié fait face à un risque de chômage relativement moindre, comparativement à un immigrant
célibataire. Enfin, il semble que la présence d’enfants n’a pas d’effet sur le risque de chômage pour un
individu et ce, quels que soient leurs âges.
L’analyse des résultats de l’estimation du logit multinomial nous permet d’apporter des réponses aux
questions posées dans l’introduction. Ainsi, il semble qu’il n’y a pas de différence entre les deux
provinces en termes de reconnaissance des compétences acquises à l’étranger. Nous avons montré que le
fait d’avoir obtenu son plus haut diplôme à l’étranger, de même que l’expérience de travail étrangère
n’ont pas d’effet sur le risque de chômage pour un immigrant. Il en ressort que le transfert des
compétences étrangères est également difficile dans les deux provinces. De plus, si on considère le fait
que l’expérience de travail de l’immigrant au Canada contribue à baisser le risque qu’il soit au chômage,
on pourrait en déduire que les employeurs ontariens sont plus ouverts à l’embauche des immigrants. À
l’opposé, nos résultats indiquent que cette expérience n’est pas reconnue au même degré par les
employeurs québécois. Quant à la question de savoir si les minorités visibles sont plus marginalisées au
Québec, il semble qu’il y a certains groupes qui ne diffèrent pas des natifs québécois en termes de risque
de chômage (les Philippins, les Asiatiques occidentaux et les Asiatiques du sud-est). Comme nous
n’avons pas tenu compte du type d’emploi, une exigence relativement faible quant au poste à occuper
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pourrait expliquer ce résultat. Pour les autres groupes ainsi que pour les immigrants n’appartenant à
aucune minorité visible, les résultats indiquent que le risque de chômage auquel ils font face est plus
élevé, comparativement aux natifs. De plus, de manière générale, les ratios de risque relatif de chômage11
sont plus grands pour les immigrants installés en Ontario et faisant partie de groupes ethniques ; ce qui
indiquerait que la discrimination à laquelle feraient face les immigrants serait moins forte au Québec.
Tableau 4 : Estimation du modèle logit multinomial pour l’échantillon d’immigrants en Ontario
Constante -3,182*** 0,305

CHIN 1,232*** 0,373
SUDAS 1,060*** 0,359
NOIR 1,585*** 0,376
PHIL 0,856** 0,435
LATINOAM 1,185** 0,494
ASIAOCC 1,920*** 0,446
ARAB 2,083*** 0,412
COREEN 1,699*** 0,507
ASIASUDEST 1,513** 0,636
BLANC 1,009*** 0,360
A3544 -0,301 0,193
A3544*IMM 0,379 0,283
A4554 -0,689** 0,295
A4554*IMM 0,812** 0,412
A5564 -0,326 0,419
A5564*IMM 0,429 0,582
AIMMSUP30 0,437** 0,222
MANG -0,114 0,107
MFRA -0.039 0,196
MANGFRA -0,666 1,011
SEC -0,465*** 0,102
METCOL -0,361*** 0,099
CERBAC -0,467*** 0,130
SUP -0,815*** 0,189
ETR 0,182 0,182
EXPCN -0,041* 0,023
EXPCN2 0,001 0,000
EXPC 0,090*** 0,031
EXPC2 -0,001** 0,001
EXPE -0,009 0,028
EXPE2 0,000 0,001
PRINCIP -0,613*** 0,082
MAR -0,629*** 0,110
130
AUTRE -0,131 0,139

ENFINF25 -0,016 0,090
ENF25ETPLUS 0,005 0.211
Tableau 5 : Estimation du modèle logit multinomial pour l’échantillon d’immigrants au Québec

***
Constante -1,860 0,255
CHI CHIN 0,913* 0,527
SUDAS 1,611*** 0,469
NOIR 1,455*** 0,456
PHIL -0,422 1,121
LATINOAM 1,134** 0,526
ASIAOCC 0,068 1,104
ARAB 1,919*** 0,432
COREEN 2,862*** 0,926
ASIASUDEST 0,518 0,734
BLANC 0,698* 0,435
A3544 -0,14 0,148
A3544*IMM 1,002*** 0,378
A4554 -0,325 0,215
A4554*IMM 1,591*** 0,538
A5564 -0,470* 0,294
A5564*IMM 1,827** 0,728
AIMMSUP30 0,174 0,366
MANG -0,351* 0,185
MFRA -0,537*** 0,141
MANGFRA -0,456 0,535
SEC -0,461*** 0,085
METCOL -0,476*** 0,085
CERBAC -1,136*** 0,143
SUP -1,645*** 0,255
ETR -0,127 0,3
EXPCN -0,064 0,041
EXPCN2 -0,000 0,001
EXPC 0,018 0,022
EXPC2 0 0
EXPE -0,005 0,048
EXPE2 -0,001 0,001
PRINCIP -0,351*** 0,072
MAR -0,775*** 0,088
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AUTRE -0,410*** 0,115

ENFINF25 -0,095 0,075
ENF25ETPLUS 0,238 0,197
5. Conclusion
Immigrer au Canada est une entreprise risquée en termes d'activité et d'emploi. Les risques qu'admet le
statut d'immigrant ne sont pas souvent contrôlables comme l'âge et l'appartenance à une minorité visible.
Notre étude révèle que contrairement à l’âge, de manière générale, l’origine ethnique semble être un
élément déterminant en ce qui concerne le chômage des immigrants aussi bien au Québec qu’en Ontario.
À ces deux facteurs viennent se rajouter l'obtention du plus haut diplôme à l'étranger et l'expérience de
travail étrangère qui n'ont pas de rôle majeur à jouer dans l'accès de l'immigrant à l'emploi.
Concrètement, l'immigrant doit se montrer entreprenant pour améliorer ses chances d'embauche et ceci
est d'autant plus vrai quand il est dans la nécessité : être le principal soutien de la famille, la situation
matrimoniale et le fait d'avoir des enfants augmentent ses chances d'être actif. De plus, les deux premières
diminuent le risque qu'il soit au chômage.
Contrairement aux résultats largement répandus dans la littérature, nous avons trouvé que la maîtrise des
langues officielles (l’expérience de travail au Canada) n’a pas d’effet sur le risque de chômage pour un
immigrant en Ontario (au Québec). Bien que nos résultats s’accordent avec ceux de Meurs et al. (2006)
sur le fait que l’éducation diminue le risque de chômage pour l’immigrant, ils divergent de ceux de Miller
et Neo (1997) concernant l’importance de l’âge ainsi que de l’âge à l’immigration dans la détermination
du succès de l’immigrant sur le marché de l’emploi.
La présente étude a révélé certains éléments intéressants tels que le fait d’être méconnaissant de l’anglais
ou du français ne constitue pas un obstacle majeur pour l’accès de l’immigrant à un emploi en Ontario, de
même que l’accumulation d’une expérience de travail canadienne permet de faciliter l’intégration de ce
dernier sur le marché de l’emploi ontarien. Toutefois, elle ne parvient pas à apporter une réponse
définitive à la question de savoir pourquoi la situation des immigrants serait meilleure en Ontario. Alors
que nous nous attendions à une discrimination moins forte à l’égard des immigrants en Ontario et à une
meilleure reconnaissance des compétences étrangères de la part des employeurs ontariens, les résultats
montrent le contraire. Ceci indique que d’autres facteurs devraient être pris en considération pour pouvoir
expliquer le chômage élevé des immigrants au Québec. Comme l’a souligné Zietsma (2007), au-delà de la
question du chômage, il serait intéressant de voir si les emplois que les immigrants réussissent à avoir
sont à la hauteur de leurs compétences et de leurs aspirations. De plus, il faudrait tenir compte du type
d’emploi (temporaire vs permanent), de la qualité des informations dont disposent les immigrants sur les
opportunités d’emplois, de même que de l’aide reçue lors de la recherche d’emplois (associations,
membres de la communauté, gouvernement etc.). Une étude qui tiendrait compte de ces facteurs ainsi que
d’autres, contribuerait probablement à mieux cerner les origines du désavantage des immigrants
québécois sur le marché de l’emploi.
132
1
Zietsma (2007) a considéré deux groupes d’immigrants. Le premier (le deuxième) comporte les
immigrants dont le nombre d’années depuis l’immigration est de 5 ans ou moins (entre 5 et 10 ans).
2
D’après les données du Recensement du Canada de 2011, 53.3% de la population née à l’étranger vit en
Ontario. Ce pourcentage est de 17.6% en Colombie-Britannique et de 14.4% au Québec (www.statcan.ca
).
3
Nous allons nous intéresser uniquement aux provinces affichant le pourcentage d’immigrants le plus
élevé (l’Ontario) et le moins élevé (Québec).
4
Les résultats de McDonald et Worswick (1997) montrent que cette différence est positive (presque
nulle) et significative (n’est pas significative) au cours des années de récession, soient 1983 et 1992
(durant la période d’expansion). Selon ces auteurs, ceci indique que les probabilités de chômage élevées
relatives aux nouveaux immigrants en période de récession ne sont pas persistantes. Par ailleurs,
McDonald et Worswick (1997) trouvent qu’en période d’expansion, il semble que même les nouveaux
immigrants ne font pas face à des taux de chômage plus élevés que ceux des natifs canadiens.
5
D’après McDonald et Worswick (1997), ce serait le cas des nouveaux immigrants.
6
Selon McDonald et Worswick (1997), le coût de la discrimination serait très élevé si cette dernière a
pour conséquence une baisse de la production le temps que l’employeur trouve un autre candidat.
7
Constant et al. (2006b) considèrent quatre concepts d’identité ethnique de l’immigrant : l’assimilation,
l’intégration, la séparation et la marginalisation. Le premier signifie une forte identification au pays
d’accueil accompagnée d’un isolement complet de la société et de la culture du pays d’origine. Le
deuxième s’applique en cas d’un grand attachement à l’origine ethnique et d’un fort engagement dans la
société d’accueil. Le troisième signifie un attachement exclusif à la société d’origine et une faible
implication dans la société et la culture du pays d’accueil. Quant au dernier, il s’applique en cas d’un
détachement complet à la fois de la culture de la société d’accueil et de celle du pays d’origine.
8
Dans Constant et al. (2006b), les caractéristiques post-migratoires comprennent le niveau d’éducation en
Allemagne, le fait de vivre dans une grande ville, l’état matrimonial, le fait d’avoir des enfants âgés de
moins de 16 ans et le nombre d’années depuis l’immigration. Les caractéristiques pré-migratoires sont le
pays d’origine, l’âge à l’immigration, la religion et le niveau d’études atteint dans le pays d’origine.
9
Un individu peut être soit actif (employé, au chômage), soit inactif.
10
Il convient de noter que le nombre d’années d’expérience de travail d’un immigrant (que ce soit au
Canada ou à l’étranger) est considéré sans égard à la pertinence de cette expérience par rapport à son
principal domaine d’études et ses compétences professionnelles.
11
Ces ratios ne sont pas rapportés ici.
Annexe : Définition des variables explicatives dans les modèles logit et logit multinomial pour
l’activité et le chômage des immigrants
Origine ethnique et groupe de minorité visible
- CHIN : variable binaire qui prend la valeur 1 lorsque l’immigrant est d’origine chinoise,
- SUDAS : variable binaire qui prend la valeur 1 lorsque l’immigrant est d’origine sud- asiatique,
- NOIR : variable binaire qui prend la valeur 1 lorsque l’immigrant est noir,
133
- PHIL : variable binaire qui prend la valeur 1 lorsque l’immigrant est d’origine philippine,
- LATINOAM : variable binaire qui prend la valeur 1 lorsque l’immigrant est d’origine latino-américaine,
- ASIAOCC : variable binaire qui prend la valeur 1 lorsque l’immigrant est originaire de l’Asie
occidentale,
- ARAB : variable binaire qui prend la valeur 1 lorsque l’immigrant est d’origine arabe,
- COREEN : variable binaire qui prend la valeur 1 lorsque l’immigrant est d’origine coréenne,
- ASIASUDEST : variable binaire qui prend la valeur 1 lorsque l’immigrant est originaire de l’Asie du
sud-est,
- BLANC : variable binaire qui prend la valeur 1 lorsque l’immigrant n’appartient pas à une minorité
visible,
La catégorie omise est le natif canadien de race blanche.
Âge
- A3544 : variable binaire qui prend la valeur 1 lorsque l’âge de l’individu se situe entre 35 et 44 ans,
La catégorie omise est le cas où l’individu est âgé de 25 à 34 ans.
Âge à l’immigration
- AIMMSUP30 : variable binaire qui prend la valeur 1 lorsque l’individu a immigré à un âge supérieur à
30 ans,
La catégorie omise est le cas où l’individu a immigré à un âge inférieur à 30 ans.
Langue maternelle
- MANG: variable binaire qui prend la valeur 1 lorsque la langue maternelle est l’anglais,
- MFRA: variable binaire qui prend la valeur 1 lorsque la langue maternelle est le français,
- MANGFRA: variable binaire qui prend la valeur 1 lorsque les langues maternelles sont l’anglais et le
français,
La catégorie omise est le cas où la langue maternelle est une langue non officielle.
Plus haut diplôme obtenu
- SEC: variable binaire qui prend la valeur 1 lorsque le plus haut diplôme obtenu est un certificat d’études
secondaires,
- METCOL: variable binaire qui prend la valeur 1 lorsque le plus haut diplôme obtenu est un certificat ou
diplôme d’une école de métiers ou collégial,
134
- CERBAC: variable binaire qui prend la valeur 1 lorsque le plus haut diplôme obtenu est un certificat ou
diplôme universitaire inférieur au baccalauréat ou un baccalauréat,
- SUP: variable binaire qui prend la valeur 1 lorsque le plus haut diplôme obtenu est un certificat
universitaire supérieur au baccalauréat ou une maîtrise ou un doctorat,
La catégorie omise est le cas où l’individu ne détient aucun grade, certificat ou diplôme.
Lieu d’obtention du plus haut diplôme
- ETR: variable binaire qui prend la valeur 1 lorsque le plus haut diplôme a été obtenu à l’étranger,
La catégorie omise est le cas où le plus haut diplôme a été obtenu au Canada.
Expérience de travail
- EXPCN : nombre d’années d’expérience de travail au Canada pour les immigrants,
- EXPC: le nombre d’années d’expérience de travail pour les natifs,
- EXPE: le nombre d’années d’expérience de travail à l’étranger pour les immigrants.
Principal soutien de la famille
- PRINCIP : variable binaire qui prend la valeur 1 lorsque l’individu est le principal soutien de la famille.
État matrimonial
- MAR : variable binaire qui prend la valeur 1 si l’individu est marié,
- AUTRE : variable binaire qui prend la valeur 1 si l’individu est divorcé, séparé ou veuf.
La catégorie omise est le cas où l’individu est célibataire.
Présence d’enfants à la maison
- ENFINF25 : variable binaire qui prend la valeur 1 lorsqu’il y a au moins un enfant de moins de 25 ans à
la maison dans la famille de recensement,
- ENF25ETPLUS : variable binaire qui prend la valeur 1 lorsqu’il y a au moins un enfant de 25 ans et
plus à la maison dans la famille de recensement.
La catégorie omise est le cas où il n’y a pas d’enfants à la maison.
Nous avons également inclus les variables croisées suivantes :
- A3544IMM : variable binaire qui prend la valeur 1 si l’individu est un immigrant dont l’âge se situe
entre 35 et 44 ans,
entre 45 et 54 ans,
entre 55 et 64 ans.
135
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137
Immigrants’ Human Capital Return and the Relationship between

Risk and Return: the Case of Canada
Abstract
We consider that an immigrant has a portfolio of human capital consisting of education, work
experience and languages and each asset is characterized by a risk and a return. The approach of
Mincer (1974) was adopted and the effect of the similarity between Canada and the country of origin
on salary was taken into account to determine the returns of these various components of human
capital. Then, the methodology of Pereira and Martins (2002) was used to assess the risks associated
with human capital, i.e. the risk for an individual to be in the lower part of the income distribution.
The results indicate that human capital is not perfectly transferable and show that the relationship
between risk and return is similar to that relating to financial assets: it is negative for assets that
represent insurance for their owners and positive for the others. In addition, the accumulation of work
experience in Canada and similar countries is accompanied by an increase in risk and a decrease in
returns. Contrary to our expectations, the results indicate that the risk does not decrease with
education level.
Keywords: Risk, return on human capital, quantile regression
1. Introduction
Canada is a country where immigration occupies a very important place. According to Statistics
Canada, in 2011, 20.6 % of the total population was born abroad; this assigns to Canada the second
place after Australia (26.8 % in 2010). Moreover, the proportion of foreign-born population would
reach between 25% and 28% by 2031 (Statistics Canada 2010). When new immigrants arrive in the
country, they bring with them their human capital which consists of, among others, education and
labor market experience. However, the differences from one country to another, in terms of education
systems and the requirements of labor market may complicate the transfer of this human capital
acquired in the country of origin and affect its return. It is often difficult for an immigrant to take up
an employment that matched his qualifications. He is then faced with the problem of over-
qualification and the risk of being in the lower part of the income distribution.
The contribution of this paper falls within the framework of the literature on human capital of
immigrants. Our motivation to explore this field of research stems from the affluence and diversity of
this investment. To our knowledge, no study has focused on the relationship between the risk and
return on the human capital of an immigrant. An analogy is made with the financial sector
considering that the immigrant has a human capital portfolio consisting of education (the place of
obtaining the highest degree varies), labor market experience (In Canada or abroad), and languages1.
This study will contribute to better understand the situation of immigrants in Canada and to see how
their human capital is perceived by the employers on the Canadian labor market. It will also help
identify the assets (degrees and experiences) that demonstrate the best combinations of risk and return
for the immigrant.
The questions we try to answer through this paper refer to education and labor market experience.
We believe that, for the immigrant, the place of obtaining the highest degree and the place of
acquisition of the professional experience are at the origin of the differences in returns and risks
associated with these assets. In fact, we are going to empirically check the following assumptions.
138
Firstly, there would be a disadvantage in terms of salary for the immigrants who obtained their
highest degree abroad. Similarly, the labor market experience gained in Canada will have the highest
return. Secondly, the gap would be greater if the difference between Canada and the country of origin
of the immigrant is huge (in terms of education systems for example). Thirdly, the labor market
experience in a country non-similar to Canada would be most risky (compared to experiences gained
in Canada or a similar country). Fourthly, as and when an individual advances in his studies, the
return (risk) on education is expected to increase (decrease). Generally, by considering the various
degrees and labor market experiences together, we expect that an increase in risk is to be
compensated by a higher return. In addition to the verification of these assumptions, we are
concerned with the evolution in time of the risks and returns on the different types of labor market
experience. We expect that the risk of work experience abroad (in Canada) increases (decreases) over
time.
The results confirm the first three hypotheses. However, contrarily to our expectations, it seems that a
higher educational level is not necessarily accompanied with a lower risk (except for a graduate
diploma which has a lower risk as compared to Bachelor. As in the case of financial assets, our
results suggest a ‘V’ shaped relationship between risk and return on human capital. As regards the
evolution of risk and return on work experience, according to our estimates, the risk of work
experience in a country not similar to Canada increases through time. We see the same trend for the
return (even if the latter is negative). As to the work experiences in Canada and similar countries, it
seems that their risks increase and their returns decrease over the years.
In this study, we first consider a variant of the Mincer’s (1974)2 approach to determine the returns of
different components of the human capital of an immigrant. Through the place where the highest
diploma and work experience were obtained, we consider the effect of the similarity between Canada
and the country of origin of the immigrant on wages. Then, assuming that the immigrant holds a
portfolio which consists of different assets (educational level, work experience, languages…), we
analyze the relationship between risk and return on human capital and compare it to the case of
financial assets.
This paper is organized as follows. Section 2 compares some aspects of the human capital with those
of the physical capital. Section 3 discusses the growth rate of the labor income per capita as a proxy
for the return on human capital and the shortcomings of this measure. Section 4 provides a discussion
of the transferability of the immigrant’s human capital. Section 5 presents the data and methodology.
Section 6 describes the model. Section 7 analyzes the results of the estimation. Section 8 discusses
the relationship between risk and return on the human capital of immigrants. The last section
concludes with the main results.
2. Human Capital Vs. Physical Capital

According to Jagannathan and Wang (1996), the human capital is similar to the physical capital as it
is exchangeable. Life insurance and unemployment insurance are examples of contracts based on the
risk of human capital. Unlike Jagannathan and Wang (1996), Palacios-Huerta (2003a) considers that
human capital is both risky and non-exchangeable. He points out the fact that the returns on the
human capital vary among individuals while the return on a financial asset is the same for all.
Furthermore, according to this author, for college studies, the investment in human capital is more
profitable than investing in exchangeable assets. In addition to the non-exchangeable nature of the
human capital, Palacios-Huerta (2003a) considers that the taxation of this capital is not the same as
139
that applied to financial assets and that those differences explain the fact that the two assets do not
have the same return per unit of risk.
Levhari and Weiss (1974) assume that the human capital is difficult to diversify. According to these
authors, from the perspective of the individual, the human capital is more risky than the physical
capital as it can neither be sold or bought, nor separated from its owner. Furthermore, according to
Hanchane et al. (2006), unlike physical capital, the human capital cannot be transferred following the
individual’s death.
3. Measuring The Return on Human Capital

Many studies which considered the human capital as an important component of the market portfolio
(for example Jahannathan and Wang (1993), Jagannathan et al. (1998)), used the growth rate of the
labor income per capita to measure the return on human capital. According to Palacios-Huerta
(2003b), this measure has some limits including the fact that it does not take into consideration the
work experience of the individual which is, nevertheless, an important component of his human
capital.
Unlike Jagannathan and Wang (1996), Campbell and Korniotis’s (2008) measure of the return on
human capital is not based on aggregate data on the labor income. They argue that as the financial
assets are not equally distributed among individuals, the use of aggregate data is irrelevant.
Moreover, according to Campbell and Korniotis (2008), the aggregate labor income and the labor
income of the richest households are not fully correlated. Thus, based on the assumption that the
high-income households are more likely to invest in the stock market, Campbell and Korniotis (2008)
measure the growth rate of labor income of the households making part of the richest 10 %, 5 % and
1 %. These measurements represent a proxy of the return on human capital.
Besides Palacios-Huerta’s critique (2003b), we believe that the growth rate of labor income per capita
is not a good approximation of the return on human capital, as the investment in the latter is a long
term investment and therefore, it is inappropriate to measure its performance on a monthly basis.
Indeed, a few years of education are required before a person can obtain a degree and note the
contribution of the investment.
In addition, the growth rate of labor income per capita is a measure which might be underestimated if
we consider an immigration country like Canada. Indeed, as has been shown by some studies
(Friedberg (2000), Finnie and Meng (2002)), the human capital (education and work experience) of
immigrants acquired abroad is undervalued in the host country. It would seem more appropriate to
separately estimate the returns on the human capital acquired abroad and that acquired in the host
country.
4. Human Capital of Immigrants

The return on human capital of an individual is closely linked to his country of origin (Friedberg
(2000)). Two factors explain the differences in return through the various origin groups: the variation
in the quality of education across countries and the degree of compatibility of the human capital
acquired abroad with labor market requirements in the host country. Thus, according to Friedberg
(2000), the education and work experience acquired abroad would be even more valued than the
levels of economic development and the institutional frameworks in home and host countries are
similar.
140
Friedberg (2000) finds that the return on a year of education or work experience in the host country
(Israel) is higher for a person from Israel. She attributes this to the fact that the latter has an advantage
over an immigrant in terms of knowledge of the language and specificities of the host country.
Moreover, the return on work experience acquired abroad by the immigrant is almost nil and the age
at immigration influences the returns on human capital acquired abroad (Schaafsma and Sweetman
(2001)). Indeed, their study demonstrates that the returns on human capital acquired abroad
(education and work experience) are lower for individuals who immigrate at a relatively advanced
age. They also find that the wage gap between immigrants belonging to visible minorities and
Canadian natives increases with age at immigration.
In their study on the evolution of immigrant wages in Quebec, compared to that of Ontario and
British Columbia, Boudarbat and Boulet (2007) highlight the difficulty that immigrants have to
transfer and assert their human capital acquired abroad. They also find that work experience in
Canada has much more value than experience abroad.
According to Boudarbat and Boulet (2007), the recognition of the experience acquired abroad is a
major problem facing the authorities. Thus, they emphasize the need to establish mechanisms to
promote the transfer of foreign experience and facilitate the access of newly graduated foreign
students to the labor market. The latters generally have little foreign experience. Their admission in
Canada as immigrants would allow them to earlier access to the labor market and therefore to
accumulate more Canadian experience. In addition, Boudarbat and Boulet (2007) point out the
advantage that this category of prospective immigrants has in terms of knowledge of the country.
Moreover, according to Aydemir and Skuterud (2005), lower returns on the work experience abroad
can explain one third of the deterioration of wages on the time of entry of immigrants. However, they
find no apparent connection between the decline in returns to education abroad and this deterioration.
Kogan (2004) finds that the work experience acquired abroad increases the risk of dismissal for the
immigrant. He also shows that this risk is higher for immigrants whose level of education is low.
5. Data and Methodology

The data for the analysis come from the 2001Census of Canada public use microdata files3. The
dataset is related to male immigrants aged between 18 and 65 years at the time of the census. They
speak at least one of the two official languages, are not studying and reported that they had worked
mostly full-time during the reference year (preceding the census year)4. Only immigrants who were in
the country for at least 2 years were included in the sample which comprises 29213 observations.
Indeed, we believe that within 2 years, immigrants would have had time to settle in Canada.
For each individual, the weekly wage is calculated by dividing the annual salary by the number of
weeks worked during the year preceding the census. Moreover, as the year of immigration is
sometimes presented in intervals of 2 years, we consider the middle year. In case the interval is of one
year, we choose the lower bound. The variable ‘age at immigration’ is given as an interval of 4 years
and over. We therefore had to estimate it by using the following formula: max (0, year of
immigration - (census year - age)).
As regards education, unlike many studies which consider the total number of years of education (for
example Schaafsma and Sweetman (2001), Aydemir and Skuterud (2005)), as in Boudarbat and
Boulet (2007), we use the variable ‘highest earned degree’5 and consider four levels relative to no
141
diploma): secondary, college, bachelor and graduate6. Even though the number of years of education
(in Canada and abroad) does not appear directly in the estimated model, it was necessary, however, to
be determined in order to calculate work experience (in Canada and abroad). Indeed, the work
experience of an individual is not a variable reported in the census. We were inspired by the approach
of Schaafsma and Sweetman (2001) to separate education and work experience into domestic and
foreign components7. Thus, by assuming that a person starts his studies at the age of 6 years on a
continuous basis and embark on work after finishing his studies, we first determine the number of
years of education in Canada EDC = max (0, total number of years of education + 6 - age at
immigration). Education abroad is then EDA = max (0, total number of years of study - EDC). Then,
we determine the potential experience abroad EXPA = max (0, age at immigration - EDA - 6).
Potential experience in Canada is then EXPC = max (0, total number of years of experience - EXPA),
where the total number of years of experience is max (0, age - total number of years of education - 6).
The number of years of study in Canada is used to determine whether the highest degree was
obtained in Canada or abroad (based on the number of years of study required to obtain a diploma)8 .
In case the degree was obtained abroad, we have made a distinction between two groups of countries
based on the country of birth of the immigrant: countries where education systems are similar to
Canadian systems versus dissimilar ones9. It shall be noted that in the public use micro data files of
Statistics Canada, the information concerning the country of origin of an immigrant is not precise as
the country of birth is often grouped with other countries. The classification that seems to be the most
plausible10 is to include in the group of the most similar countries the following countries: The United
States, Great Britain, Germany, Italy, Netherlands, Poland, Portugal, France, Greece and the group of
countries11 that includes Austria, Belgium, Czech Republic, Slovakia, Hungary, Romania, Denmark,
Finland, Iceland, Norway, Sweden, Liechtenstein, Luxembourg, Monaco, Switzerland, Bulgaria,
Ireland, Albania, Andorre, Gibraltar, Malta, San Marino, Spain and the Holy See. Table 1.1 below
shows the averages of some variables such as salary (in logarithm), work experience, age and age at
immigration.
Table 1.1: Averages of the variables
Immigrants
Variables 2001 1996
Log of wage 6. 6 6.4

Years since immigration 21.5 16.3
Years of experience in a similar country 1.7 3.3
Years of experience in a non-similar country 4.5 4.6
Years of experience in Canada 18 14
Age at immigration 22.7 25.4
Age 44.2 41.8
6. The Model
The estimated model is a variant of the Mincer approach (1974). We consider the wage as a function
of the highest earned degree, work experience and knowledge of official languages. For education,
We take account of the place where the highest degree was obtained. Indeed, given the importance of
the latter during job search, it is possible that from the point of view of an employer, a diploma in
Canada would not have the same value as a degree obtained somewhere else (in a country similar or
not similar to Canada). In addition, as has been suggested in several studies (for example Friedberg
(200) Boudabrat and Boulet 2007)), a distinction is made between work experience in Canada and the
142
experience acquired abroad. Moreover, the experience abroad is classified either as an experience in a
country similar to Canada, or as an experience in a non-similar country. In order to clarify the issue of
transferability of human capital, we also include cross terms that take into account the interaction
between work experience in Canada and the one abroad and between levels of education and the
place of obtaining the highest degree. The model is as follows12:
lwagei =c1+c2SECi+c3COLi+c4BACi+c5GRADi+c6EXPSIMi+c7EXPSIMi2+c8EXPNONSIMi+
+c9EXPNONSIMi2+c10EXPCi +c11EXPCi2+c12SIMi+ c13NONSIMi +c14EXPCi*EXPSIMi+c15EXPCi*
EXPNONSIMi+c16GRADi*SIMi+c17GRADi*NONSIMi+c18BACi*SIMi+ɛᵢ
(1.1)
where i = 1, 2..... , n, n is the number of individuals in the sample and variables are described in Table
1.2.
Table 1.2: Definition of the variables
Variable Description
lwage log of weekly wage
SEC a dummy variable that takes the value 1 when the highest degree is a secondary
diploma
COL a dummy variable that takes the value 1 when the highest degree is a college
diploma
BAC a dummy variable that takes the value 1 when the highest degree is the Bachelor
GRAD a dummy variable that takes the value 1 when the highest degree is a graduate
diploma
EXPSIM the number of years of work experience abroad in a country similar to Canada
EXPNONSIM the number of years of work experience abroad in a non-similar country
EXPC the number of years of work experience in Canada
SIM a dummy variable that takes the value 1 when the highest degree was earned in a
country similar to Canada
NONSIM a dummy variable that takes the value 1 if the highest degree was obtained in a
non-similar country
BIL a dummy variable that takes the value 1 when the individual is bilingual
7. Results
Table 1.3 reports the results of the estimation of model (1.1) by the Ordinary Least Squares (OLS)
method using a sample weighting. The average return of a graduate degree in comparison to the
bachelor is 12.17%. The bachelor’s degree provides a higher return of 32.6% in comparison with a
college certificate.
143
Table 1.3: Return on human capital of immigrants
Dependent variable: lwage

Explanatory variables Coef. Std. error
Constant 5.856*** 0.025

SEC 0.145*** 0.021
COL 0.303*** 0.019
***
BAC 0.629 0.026
GRAD 0.751*** 0.032
EXPSIM 0.031*** 0.005
EXPSIM 2 -0.001 ***
0.000
EXPNONSIM 0.004 0.003
EXP NONSIM 2 -0.000* 0.000
***
EXPC 0.039 0.002
EXPC 2 -0.001*** 0.000
SIM 0.008 0.025
NONSIM -0.044** 0.021
***
EXPC* EXPSIM -0.001 0.000
EXPC* EXPNONSIM -0.001*** 0.000
GRAD * SIM -0.078* 0.048
**
GRAD * NONSIM -0.079 0.040
BAC* SIM -0.034 0.049
BAC* NONSIM -0.126*** 0.033
***
BIL -0.098 0.016
Weighted statistics
R2 0.098
2 0.097
Adjusted R
Note: *** p<0.01, ** p<0.05, * p<0.1. See Table 1.2 for the definition
of the variables
Obtaining the highest degree in a country non-similar to Canada could constitute a disadvantage for
the individual in terms of salary if compared to the case in which he would have obtained it in
Canada. In addition, although the SIM variable is not statistically significant, the hypothesis of
equality between its coefficient and that of NONSIM is rejected at 5% significance level.
Furthermore, the interaction between GRAD and NONSIM is negative and significantly different
from zero at 5% significance level. This indicates that the immigrant who completed his university
studies in a country non-similar to Canada, has a return on education that is lower than that of an
immigrant who obtained the same degree in Canada. This is also true for the Bachelor’s degree.
However, the fact of having obtained such degrees in a country similar to Canada does not seem to
affect their returns. Concerning work experience, the results indicate that the average return of the
first year of experience in a country similar to Canada is 3.07%. In the case of a country non-similar
to Canada, the return is almost zero (insignificant coefficient). Work experience in Canada provides
an average return of 3.81% in the first year, which is a better return than in the previous cases. It
should also be noted that even though the coefficient of the variable EXPNONSIM is not statistically
significant, the null hypothesis of equality of the returns of EXPSIM and EXPNONSIM is rejected at
1% significance level. The interaction between work experience in Canada and abroad is negative
and significantly different from zero at 1% significance level. This confirms the idea that immigrants
144
have difficulties in transferring and asserting their human capital acquired abroad. Contrary to our
expectations, bilingualism provides a lower return than monolingualism which is of about -9.77%.
One possible explanation for this result is that the province of residence of the immigrant is not
considered in the analysis. However, as there is a high concentration of bilingual immigrants in
Quebec, the variable bilingualism would be an indicator of Quebec as a place of residence. Yet we
know that the price level and the nominal wage particularly, is 10% lower in Quebec than in other
provinces.
8. Human Capital and Risk

According to Levhari and Weiss (1974), the expected return on human capital is higher than a risk-
free asset only if the level of education positively affects the variance of incomes. They show that
under the assumptions of a decreasing absolute risk aversion and an increasing risk, and when the
individual is a net borrower during the investment period, any increase in the interest rates would
have a negative impact on investment in human capital. In case he is a net lender, the effect is
uncertain. Under the same assumptions, Levhari and Weiss (1974) find that an increase in initial
wealth would encourage investing in human capital. Their results indicate that uncertainty can either
stimulate or slow down the investment in human capital.
According to Christiansen et al. (2007), there are major differences between the fields and levels of
education in terms of return and return per unit of risk. By considering different levels and fields of
study at the same time, they are able to determine a set of efficient degrees according to the mean-
variance criterion used in financial analysis. By assimilating the combination of level and field of
study to an asset, they estimated the gain in terms of return per unit of risk from adding an asset to
another already existing one.
Using data relative to 16 countries, Pereira and Martins (2002) find that the relationship between risk
and return of education is positive except for Switzerland, Germany, the United States and Sweden.
The first two displayed a high return and low risk whereas the others are characterized by a low
return and a relatively high risk. Their results indicate that the investment in education is similar to an
investment in a financial asset.
In the United States as well as in other developed countries, labor income represents at least 2/3 of
the total income (Palacios-Huerta (2003a). Based on U.S. data, Palacios-Huerta (2003a) shows that
earnings per unit of risk from investing in college studies (or a higher level) exceed those relating to
investment in risky financial assets and the difference ranges from 5% to more than 20%.
Moreover, according to Hartog et al. (2007), the expected return and the risk are the criteria on which
an individual rely to take his decision about continuing his studies. They distinguish between two
types of risk: the first is the risk ‘ex ante’ due to uncertainty about the academic performance of the
individual, the uncertainty about his position in the income distribution upon entering the labor
market and to the market risk (technological progress etc..). The second type is the ‘ex post’ risk; it
originates mainly from the selection process in the labor market.
Hartog et al. (2007) find that the investment in college studies is similar to investing in a portfolio
of 30 randomly selected stocks. The measure of the risk of investment in human capital that they
adopt is the internal rate of return on education, which they identify as the discount rate such as the
discounted values of future incomes corresponding to two levels of education are equal.
145
Hartog and Vijverberg (2007) analyze the risk associated with the choice of the program of study.
Their results indicate the presence of a positive relationship between risk and expected gain. They
assimilated a study program to a portfolio of assets weighted according to the time devoted to study
some courses or to develop certain skills (mathematics, language ....). They considered the choice, for
an individual, between specializing in a specific domain and having a general education. They
demonstrate that for individuals (men and women) with a college education, the risk associated with a
specialization in mathematics or languages is less than that relating to the combination of these two
skills.
Hanchane et al. (2006) analyze the choice of education in a context of uncertainty. They argue that
when making decisions about education, individuals cannot perfectly predict their future situations,
particularly because of the existence of over-qualification and unemployment. According to these
authors, education is an irreversible investment. They consider that in each period, the individual who
is pursuing studies has the option to stop studying and to work at a wage that randomly depends on
his level of education. He cannot return to school after exercising the option. According to Hanchane
et al. (2006), this risk (variance of incomes) has the effect of encouraging the individual to pursue his
studies because he could not go back on his decision.
They find that the more the individual is rich, the more he invests in education. Their results indicate
that, other things being equal, the level of education and the wage of a wealthy individual are higher
than those of a less rich one because the opportunity cost of the human capital13 is lower for the first.
They note that possible unemployment encourages people to pursue their studies because it leads to a
decrease in this opportunity cost.
The results of the model developed by Hanchane et al. (2006) indicate that the individual invests
more in human capital when the risk associated with wage increases. In fact, according to Hanchane
et al. (2006), under the hypothesis that education is a risky asset, the individual faces the risk that the
investment will not be remunerated. Unless there is a sufficiently high risk premium, he will have to
reduce his investment. According to Hanchane et al. (2006), the investment in human capital is
affected by different types of uncertainties: an uncertainty about the process of accumulation of
human capital (academic performance of students etc.) and an uncertainty regarding the future market
situation. The first negatively affects the investment in human capital, while the second can stimulate
it. These opposing effects explain why it is difficult to clearly determine ‘ex ante ', the impact of
uncertainty on investment in human capital.
8.1 Risk and return on human capital
In this study, we consider that each individual has a portfolio of different assets (education, labor
market experience, knowledge of languages ...). Thus, each variable of interest in the estimated
models is an asset that could be characterized, just like a financial asset, by a return and a risk14.
Christiansen et al. (2008) find that, among 11 groups of education, the economists are most likely to
invest in the stock market. However, each individual is investing in human capital. Although the costs
of education constitute a barrier to the pursuit of studies, the option of accumulating labor market
experience still represents an investment in human capital.
To measure the risks associated with different levels of study, with labor market experience (acquired
in Canada as well as abroad) and the knowledge of languages, we adopt the methodology of Pereira
and Martins (2002). It consists in estimating the model for the first and last deciles. The risk relative
146
to an asset is the difference between the coefficient of this asset (its return) in the regression of the
last decile and its coefficient in the regression of the first decile15. Based upon data on 16 countries,
Pereira and Martins (2002) consider this measure to study the relationship between the risk and return
of investment in education. According to Pereira and Martins (2002), its use is based on the
assumption that prior to entering the labor market, the individual do not know what would be his
position in the income distribution. They consider that when the return to education is much higher in
the last decile (the difference between the coefficient of education in the last decile and that of the
first decile is small), it means that the risk that the individual faces is high (the risk is almost nil).
According to Andini (2009, p.307), Pereira and Martins (2002) use a measure of risk that is widely
accepted in the literature on the effect of education on income dispersion. In addition, Machado and
Mata (2001) first include the number of years of study in the regression. Then, they distinguish
between different types of studies. The distribution of wages which they consider is determined from
a sample of individuals with different levels of education. Their results indicate that education
increases wage inequality. Concerning the measurement of risk of Pereira and Martins (2002), a high
return of an asset in the last decile of the wage distribution, compared to the first decile, indicates that
the remuneration of this asset is better for the richest people. Conversely, if the effect of this asset (on
income) is relatively high for individuals who are at the bottom of the wage distribution, this suggests
that this asset is more valued in the case of low-wage jobs and thus plays the role of insurance
guaranteeing a minimum income for its holder. It should be noted that, as in Machado and Mata
(2001), we consider, in this study, the distribution of wages of individuals from different levels of
education. Another approach would be to distinguish between degrees and to use the probability that
an individual is in the first decile of the wage distribution relative to persons holding the same degree
as him16.
The estimation of model (1.2) by OLS gives the average returns of the different variables. To
determine risk, the model (1.2)17 is estimated by the quantile regression method. The results for the 1st
and 9th deciles are reported in Table 1.4.
lwagei =c1+c2SECi+c3COLi+c4BACi+c5GRAD+c6EXPSIMi+c7EXPSIMi2+c8EXPNONSIMi+
+c9EXPNONSIMi2+c10EXPCi +c11EXPCi2+c12SIMi+ c13 NONSIMi +c14BILi + ɛᵢ
(1.2)
Table 1. 4: Quantile regression results
1st decile 9th decile

Coef. Std. error Coef. Std. error
SEC 0.218*** 0.035 0.144*** 0.016
COL 0.429*** 0.041 0.279*** 0.016
BAC 0.621*** 0.054 0.571*** 0.029
GRAD 0.708 *** 0.037 0.715*** 0.024
EXPSIM 0.025*** 0.009 0.012*** 0.004
EXPSIM 2 -0.001** 0.000 -0.000 0.000
EXPNONSIM -0.008 0.006 -0.001 0.003
EXPNONSIM2 -0.000 0.000 0.000 0.000
EXPC 0.046*** 0.004 0.029*** 0.003
EXPC 2 -0.001*** 0.000 -0.000*** 0.000
SIM -0.062 0.053 0.036 0.026
NONSIM -0.152*** 0.039 -0.081*** 0.015
BIL -0.138*** 0.036 -0.038** 0.019
Constant 5.112*** 0.045 6.679*** 0.025
147
N 29213
Pseudo R 2 0.040 0.087
Note: *** p<0.01, ** p<0.05, * p<0.1. See Table 1.2 for the definition of
the variables
The tests of significance of risks indicate that only the risks associated with bachelor, graduate studies
and labor market experience abroad are statistically insignificant. This suggests that there are levels
of study with a non-zero risk and others that do not pose a risk.
Fig 1.1 represents all the assets corresponding to the sample of immigrants in a risk-return space18. It
seems that the labor market experience in Canada is the best choice among the options considered
and that work experience in a country non-similar to Canada is the most risky but also the less
profitable (its return is even negative). This confirms the general result in the literature that
immigrants have difficulties in transferring and asserting their human capital acquired abroad
(Friedberg (2000), Boudarbat and Boulet (2007)).
Moreover, among all levels of education, the Bachelor’s degree is the most risky asset, but also the
one with the higher return. Note that for secondary and collegial degrees, as well as labor market
experience in Canada and similar countries, the gap between the return on the lowest decile and that
corresponding to the first decile is negative. This means that, all things being equal, they are assets
that have good returns in the case of bad circumstances. By assimilating the human capital of an
individual to a portfolio, investing in at least one of these assets would reduce the risk of this
portfolio and would therefore constitute an insurance against any economic downturn. Recall that in
finance, an asset whose beta is negative is an asset whose return evolves in the opposite direction of
the market portfolio and is less than the risk-free rate. As in Campbell (1996), we consider that the
market portfolio is composed not only of financial assets but also of human capital. Concerning labor
market experiences in Canada and similar countries, it seems that they provide lower returns than the
risk free rate (at least until the eighth year for EXPSIM). Since we have, in the sample, considered
individuals who have declared having worked full-time during the reference year (2000), the low
level of returns means that the immigrant has accepted a position despite the fact that the assessment
of his professional experience was not in his favor. In other words and to make the analogy with the
financial sector, it is as if the immigrant perceives his experience as an insurance to guarantee him a
return in case he is faced with an economic downturn. The more he accumulates years of experience,
the more the relationship between him and his employer would be strengthened19, the less probable
for him to be dismissed in case of recession for example (McDonald and Worswick (1997), Kogan
(2004))20. Furthermore, this could also reflect the difficulty of integrating immigrants into the
Canadian labor market and the fact that they held positions for which they would be overqualified
because of an underestimation of their skills by the employers.
We observe that the relationship between risk and return is initially negative for the assets that
represent insurance for their holders (COL, and EXPC-1 and EXPSIM-1). Then it becomes positive
for the others (EXPNONSIM-1, GRAD and BAC)21. This result is similar to what Cloninger and et
al. (2004) have found for financial assets22. Indeed, in contrast to what is indicated in the theory, the
slope of the market line23 (Security Market Line: SML) is negative for assets whose betas (systematic
risks) are negative (Cloninger et al. (2004)). In addition, the results of Cloninger et al. (2004) show
that the SML is ‘V’ shaped when considering both securities whose betas are positive and securities
whose betas are negative. The point of the 'V' corresponds to a beta of zero and a return equal to the
risk-free rate. Fig 1.1 below shows that the high school and college diplomas are better than a
148
graduate degree because they represent a better risk-return combination (lower risk and higher
returns). Although the general belief is that as we advance in studies, the risk decreases and return
increases, it should be noted that individuals are faced with a labor market whose needs change over
years.
.3
BAC/COL
.2
SEC/NODIP
COL/SEC
GRAD/BAC
Return
.1
EXPC-1
EXPSIM-1
0 EXPNONSIM-1
-.1 BIL
-.1 -.05 0 .05 .1

Risk
Fig 1.1: Risk and return on human capital of immigrants
Indeed, a risk of higher education that is relatively high in comparison to that of a college degree may
simply reflect both, a strong need, in the labor market, for individuals working in sectors that do not
require a high level of education (manufacturing, sales and services ...) and a low demand for
individuals who hold a university diploma above bachelor level. In this case, people who hold a
graduate degree would face a relatively high risk because it is most likely that they cannot find jobs
that match their skills and to the level of the investment they have made. This uncertainty faced by
individuals concerning their future situation in income distribution is an element of the ‘ex ante' risk
defined by Hartog et al. (2007). In addition, with regard to secondary and collegial diplomas, the
results indicate that these are assets that operate in the opposite direction of the market portfolio. This
can be explained as follows: in case of favorable conditions (eg technological progress), these assets
lose their value. In fact, according to Gould et al. (2001), given that the specific skills are obsolete
and that the workers whose level of education is relatively low are generally those who invest in the
acquisition of these skills, these diplomas would be depreciated and their owners would have
difficulty to get integrated in the new economic environment. However, as in time of recession, job
losses would be mainly experienced by newly hired workers (McDonald and Worswick (1997)), it is
legitimate to suppose that the impact of the recession on the secondary or college diploma holders
would be lesser with respect to university degrees. Indeed, since the decision to pursue studies evokes
a choice to forgo acquiring years of professional experience in return for obtaining a higher degree; if
we consider two individuals of the same age, one having a high school diploma as the highest degree,
the other a bachelor, all other things being equal, the first would have relatively more experience than
the last.
149
8.2 Evolution over time of the risk and return of labor market experience
The evolution over time of the return and risk of different types of labor market experience24 is
plotted. Fig 1.2 shows that the risk increases and the return decreases gradually as the individual
accumulates work experience in Canada or in a similar country. This result may be explained as
follows: it is true that the more the individual accumulates experience, the more he would acquire
skills; but these are skills that are specific to a certain domain and which might be at risk because
they are difficult to transfer. For example, in manufacturing and within a context of globalization,
there were many job losses. However, new jobs requiring higher qualifications have been created.
The very large experience of employees in manufacture did not help them shifting into other sectors.
.04
EXPC-1
EXPC-3
.03
EXPC-6
EXPC-9
Return
EXPC-12
.02 EXPC-15
.01 EXPSIM-1
EXPSIM-3
EXPSIM-6
EXPSIM-9
EXPSIM-12
EXPSIM-15
0
-.015 -.01 -.005 0 .005 .01
Risk
Fig 1.2: Evolution of the risks and returns on labor market experience in Canada and in a
similar country
However, unlike Fig 1.2, Fig 1.3 illustrates that the more the number of years of labor market
experience in a country that is not similar to Canada is high, the more the loss due to such investment
is low (the return is negative) and the more the risk is higher. This indicates that, all other things
being equal, an immigrant who has accumulated many years of experience in his home country will
be relatively less disadvantaged in terms of wage. As in the case of financial assets, we observe that a
higher risk is associated with a higher return.
150
-.00641
EXPNONSIM-15
-.00642
EXPNONSIM-12
-.00643
EXPNONSIM-9
-.00644 EXPNONSIM-6
EXPNONSIM-3
-.00645
EXPNONSIM-1
-.00646
.006 .0065 .007 .0075 .008
Risk
Return Fitted values
Fig 1.3: Evolution of the risk and return on labor market experience in a country non-similar to
Canada
9. Conclusion
In this study, we estimate the returns on some components of the human capital of immigrants. We
take account of the impact of the similarity between the country of origin and Canada on wages,
through the place of obtaining the highest degree and labor market experience. We also analyze the
relationship between risk and return of human capital and compare it to the same relationship in the
case of financial assets. In addition, the evolution of the risk and return associated with each type of
work experience was examined.
The results indicate a disadvantage in terms of wage for the immigrant who obtained his highest
degree in a non-similar country, in comparison to the case in which he would have earned it in
Canada. In addition, the value of labor market experience of an immigrant depends on the place of its
acquisition. It is the work experience in Canada that has the highest return. Labor market experience
in a similar country is more valued than that acquired in a non-similar country. The latter has a return
that is close to zero. Our results are consistent with those of Friedberg (2000). They show that it is
relatively easy for an immigrant originating from a country similar to Canada to transfer his human
capital in comparison to an immigrant from a non-similar country.
We find that the relationship between risk and return on human capital is negative for those assets
that represent insurance for their owners, while it is positive for the other assets; this is similar to the
results of the study of Cloninger et al. (2004) on financial assets.
Moreover, contrary to what one might think, a higher level of education is not necessarily
accompanied by a lower risk. Labor market experience in a non-similar country is the one with the
highest risk as compared to other types of experience. Except for the work experience in a non-
similar country, the more the immigrant accumulates experience, the more the risk would increase
and return decrease.
151
Based on our literature review and to our knowledge, the existence of a 'V' relationship between risk
and return associated with the various components of human capital of immigrants was not
addressed. It would be interesting to see the impact of another risk measure on the results. In this
work, we consider the risk of ending up in the bottom part of the income distribution. We could also
evaluate the risk of failing in school, which is another component of the ‘ex ante’ risk defined by
Hartog et al. (2007).
The results suggest that efforts from government, employers and immigrants as well are required to
contribute to the success of the integration in Canada: the Canadian government should solve the
problem of recognition of qualifications acquired abroad and encourage employers to recruit
newcomers by providing, for example, subsidies or tax benefits. The provincial governments should
also invest more in professional mentorship programs for newcomers such as ‘Québec pluriel’
launched by Emploi Québec in 2004. More organisms, with purpose of accommodating and
facilitating the integration of immigrants (such as ‘l’Hirondelle’ in Quebec), should be implemented.
Concerning the regulated occupations or governed by a professional order (doctors, nurses, engineers
etc.), as pointed out by Boudarbat and Boulet (2007), it is important to ensure the increase in the
capacity of training programs intended to facilitate integration of immigrants with such qualifications.
In addition, the government may eventually impose a minimum number of immigrants in the
companies. On their side, the latter should show more openness to immigrants and grant them the
necessary time to adapt themselves to the Canadian working mode. The use of internship programs in
companies facilitates the integration of immigrants. As for the latter, they should arm themselves with
patience and courage and consider the possibility to return to school, or to occupy a position which is
not necessarily related to their skills in order to improve their chances of finding jobs up to their
expectations. As the results indicate that obtaining the highest degree abroad may represent a
disadvantage for immigrants, the fact of arriving early in Canada to pursue studies before starting to
work would facilitate the integration of the immigrant as it would initiate a period of adaptation to
Canadian society. However, the tuition fees for foreign students are relatively very high, which could
discourage them. We therefore believe that provincial governments should review their tuition fee
waiver program to enable more students to benefit from the scholarship tuition exemption. Thus, we
share the opinion of Boudarbat and Boulet (2007) on the importance of the category of foreign
students as potential immigrants. In concrete terms, we believe that if more efforts are made to retain
the latters, particularly in Quebec, the problem of an aging population (which is the major cause of
expected bankruptcy of the ‘Quebec Pension Plan’ in 2039) would be partly solved.
All these proposals have one point in common: to contribute to the success of the socio-professional
integration of immigrants in Canada. Thus, the risks (to find themselves in the bottom part of wage
distribution) associated with skills acquired abroad would be substantially reduced if additional
efforts are provided to facilitate the recognition of the foreign human capital. To leave one’s country
and family and restart life from scratch in a foreign country requires a lot of courage. In the current
economic and demographic contexts, it is the responsibility of all that the immigrants succeed in their
socio-economic integration because the problems of aging population and shortage of skilled
workers, which are at the origin of immigration policy in Canada, would only get worse.
1
In his study dealing with the investment in the human capital, Palacios-Huerta (2003a) considers
that each asset is a combination of an educational level and labor market experience. His
methodology is, however, different from ours.
2
Mincer (1974) expresses the incomes as a function of education and labor market experience.
Estimating this equation allows the calculation of the rate of return on education.
152
3
We have also estimated a model for native Canadians (63792 observations) and redone the
estimations with the 1996 data (9053 observations for immigrants and 59478 for natives). The results
are available upon request. Note, however, that all things being equal, the results of 2001 indicate that
natives have a higher return on labor market experience in comparison to that of immigrants, thus
confirming the idea of an undervaluation of the human capital of immigrants.
4
The wages reported are those relating to the reference year.
5
As one may exceed the number of years required to earn a degree, the highest earned degree is
considered as a most appropriate measure.
6
In the category ‘College’, we include the certificate or diploma of trade schools together with the
certificate or university diploma below the bachelor level. ‘Graduate’ includes all degrees
corresponding to levels that are above bachelor degree.
7
Schaafsma and Sweetman (2001) distinguish between three categories for education: the number of
years of study in Canada, the number of years of study abroad, and the 'unknown' number of years of
study. This corresponds to the rest of the total number of years of study once we deduct education in
Canada and abroad. The same distinction applies to labor market experience. Schaafsma and
Sweetman (2001) justify the existence of the third category by the fact that the age at immigration is
given as intervals. Unlike them, we do not consider this component, since we estimate the age at
immigration as explained in the text.
8
We consider the grid established by the Canadian Information Centre for International Credentials
(CICIC) available at the following address:
http://www.cicdi.ca/docs/postsec/graphics/EducationSystem_Canada.pdf.
9
According to the Council of Ministers of Education, the U.S., the UK, Australia, New Zealand, and
most European countries have education systems that are similar to those in Canada.
10
A better way to proceed would be to separate the developed countries of the Organization for
Economic Cooperation and Development (OECD) from the undeveloped countries. However, as
mentioned above, the grouping of countries in the census does not allow doing so.
11
Although it is preferable to further refine the selection of countries, the fact that they are sometimes
presented as a group is an obstacle to a better selection.
12
Although this is the base model, the results reported and their interpretation will focus on variants
of this model where some interaction variables have been removed (due to non-significance).
13
Hanchane et al. (2006, p.17) define the opportunity cost as the labor income which the individual
gives up by continuing his studies.
14
For education, we determine the risk of an educational level compared to the immediately lower
level. For example, for the bachelor, we calculate its risk compared to a certificate or diploma of
college studies.
15
Pereira and Martins (2002) use the absolute value of the difference between the coefficients
because they fiund that among the 16 countries considered in their study, there is a country (Greece)
for which the coefficient of education in the regression of the1st decile exceeds that on the 9th decile.
16
This goes beyond the scope of this study and might be considered in future work.
153
17
Although SIM and NONSIM variables were included in the model, the risk associated with studies
abroad will not be analyzed herein.
18
For education, we represent the risk and return of each study level compared to the level
immediately below. Regarding labor market experience, the return and risk being represented are
relative to the first year. However, we will also report the changes over time in the risk and return of
different labor market experiences. NODIP is a dummy variable that takes the value 1 when the
individual has no diploma.
19
Similarly, the investment in vocational training on the part of the employee has the same effect
(Borjas (2005)).
20
According to McDonald and Worswick (1997), in a period of recession, the new workers are the
most vulnerable to dismissal. Moreover, according to Kogan (2004), the fact of having accumulated
many years of experience within a company protects employees against dismissal, given the human
capital specific to this company that he accumulated thanks to this experience.
21
This result does not apply to the secondary diploma and the bilingualism assets. The secondary
diploma is both more risky and more profitable asset than college diploma.
22
We have also considered the absolute value of risk measurement. In this case, the risk and return
are positively linked.
23
The market line displays the expected return of a security as a function of its beta.
24
In particular, we reported the results for the 1st, 3rd, 6th, 9th, 12th, and 15th years of experience.
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156
The Application of the Spatial Model of Monopolistic Competition in

Market of Baked Goods
Roman Svoboda, Czech University of Life Sciences in Prague, Faculty of Economics and
Management, Kamýcká 129, Prague, 165 00, Czech Republic, e-mail: svobodar@pef.czu.cz
Lenka Kopecká, Czech University of Life Sciences in Prague, Faculty of Economics and
Management, Kamýcká 129, Prague, 165 00, Czech Republic, e-mail: kopeckal@pef.czu.cz
Elizbar Rodonaia, Czech University of Life Sciences in Prague, Faculty of Economics and
Management, Kamýcká 129, Prague, 165 00, Czech Republic, e-mail: rodonaia@pef.czu.cz
Abstract
Fresh baked goods are one of the examples of fast-moving consumer goods. Consumers want to
buy this type of good as close to their place of residence as possible and at a certain time, but at
the same time they require the highest possible quality, i.e. the freshness of the given good (rolls,
bread, etc.). Consumer choice by location is expressed in the spatial-differentiation model for
monopolistic competition. The practical implications of the summary of factors influencing the
production of baked goods in the Czech Republic is expressed in our analysis of the development
of profits in individual groups of producers of fresh baked goods in the Czech Republic. The aim
of this paper is to describe the ongoing changes in the structure of the baking industry in the Czech
Republic caused by the rising costs of raw material input, growing consumer demand for quality
and also fierce competition on the market for baked goods.
Keywords: baked goods, consumer, monopolistic competition, spatial model
Introduction
The spatial model of monopolistic competition is one of the most commonly used market models
for baked products. In principle, the homogeneity of production is assumed here, and there is also
the consumer’s habit to buy at a certain time the best possible quality product, in particular in
terms of freshness. The economic interest of producers of baked goods is to sell the largest
possible volume of product with the highest possible profit margin. The following essay deals with
the costs of producers of baked-goods and the impact of consumer choice on the economy of the
baking industry. The aim of this paper is to describe the ongoing changes in the structure of the
baking industry in the Czech Republic caused by the rising costs of raw material input, growing
consumer demand for quality and also fierce competition on the market for baked goods.
In terms of production costs it is necessary to consider two factors in particular:
• the price of agricultural commodities, i.e. food industry wheat, rye, etc.
• the price of fuel (petrol etc.)
Bakeries cannot effectively influence the prices of the agricultural commodities necessary for the
production of baked goods, as these are determined by the harvest of cereal and therefore by the
price of grain on the global market, which significantly affects domestic production and prices. Of
course, the highest possible price of grain is in the economic interest of agricultural producers.
157
However, the rising price of food-industry grain is reflected in the final price of baked goods for
consumers and their willingness to buy a certain quantity of baked goods production.
As one of the cost items, the price of fuel is of considerable importance, too, due to the fact that
large producers in particular (there are two in the Czech Republic - United Bakeries and Penam)
and over 400 medium-sized or big-sized industrial bakeries often transport their products to distant
stores. The competition on the baked-goods market is fierce. Besides two oligopolistic
competitors, there are a considerable number of small and medium-size firms within monopolistic
competition, which by its nature nears perfect competition. Consumers often do not distinguish
between products from various bakeries and consider them homogenous. Therefore, the cost of
transportation (in particular the cost of fuel) can play an important role in the determination of the
final price of baked products.
The freshness of baked goods, which for the majority of consumers plays an important role in the
decision to purchase, is given not only by the time of production but also by the distance the
product is transported to the store. The distance from the consumer's home is important for their
selection of store where they purchase the product, as for the customer not only the explicit costs
(expressed in monetary values) but also the implicit cost, i.e. the forgone opportunities, are of
importance. Those are important here as the product’s storage time is short. This is why the
greatest number of consumers buy baked goods close to their home, to save time which can be
used efficiently in another way.
From the above, it is apparent that the baking industry puts high and often contradictory demands
on producers of baked goods.
Material and Methods
Consumer choice by location is expressed in the following spatial-differentiation model for

monopolistic competition. The practical implications of the summary of factors influencing the
production of baked goods in the Czech Republic is expressed in the following analysis of the
development of profits in individual groups of producers of fresh baked goods in the Czech
Republic.
Conditions for application of Spatial-differentiation model
It is assumed that food producers sell homogenous goods. Sellers of a particular commodity, e.g.
baked goods, usually offer their product to buyers that do not live or work in the sales center of the
offering companies. The distance of the individual consumer’s "place of residence” (groups of
consumers) from the place of sale varies (spatial differentiation). The only major feature that
distinguishes one bakery from another is its location. In this case, in addition to the market price of
the goods, consumers also pay various costs of transportation from the production centers
(bakeries) to the point of sale, i.e. the locality of the consumers' residence. This may also mean the
cost of transportation of the customer to the store and back, which is not included in the price of
the goods. If the production prices charged by the individual bakeries are the same, consumers will
prefer to shop in the store nearest to their residence.
If we denote the price of the good (baked goods), determined by costs plus a normal profit, as P,
the distance from the production center to the point of sale as n, and the price of transportation per
km (transportation tariff) as t, the price paid by the buyer plus transportation costs will be
calculated as:
158
Pn = P + t ⋅ n
where the product of t ⋅ n is the cost of transportation and n is the distance from the buyer’s
“place of residence” to the point of sale. The differentiation of n for different distances leads to
variations in prices Pn.
Spatial-differentiation model for baked products
Let’s consider two producers of baked goods, located N km from each other, with buyers evenly
distributed between them. The competition boundaries between these two sellers will be
determined by the different prices of the baked goods produced by each producer, P1 and P2, and
the differences in transportation tariffs, t1 and t2, caused by the different distances of individual
buyers (groups) from the selling centers of both companies, n1 and n2. Competition boundaries
define the area within which it is more advantageous to buy baked goods from one or the other
seller. The location lying on the competition boundary is indifferent for the customer. At this
point, the total price Pn (price + cost of transportation) for the customer from both of the sellers is
the same. Here, (Mach, 1999):
P1 + t1 ⋅ n1 = P2 + t 2 ⋅ n2
N = n1 + n2
Fig 1. Competition boundaries can be expressed by sales “funnels”. (Source: Mach, 1999)
A1 – sales centre of bakery 1,
A2 – sales centre of bakery 2,
Line A1A2 – distance between the sales centres N.
159
At n1=A1D, Pn1=Pn2
At n2=A2D, Pn2=Pn1
n1 is measured from A1
n2 is measured from A2
The function of prices paid by customers at various distances, including the transportation cost,
Pn1, Pn2:
Pn1 = P1 + t1 ⋅ n1 ,
Pn 2 = P2 + t 2 ⋅ n2 ,
where P1, P2, t1, t2 are constants and n1, n2 are variable distances. It is assumed that the minimum
market price of both companies corresponds to the average cost and varies due to the different
average costs of both companies: P1 = AC1 > P2 = AC2. In the given model, the inclinations of the
Pn1 and Pn2 functions are caused by transportation tariffs t1 and t2. In the graph, t2 > t1 Point "B" is
the point through which the competition boundary between the two sellers runs; point "D" is the
point determining the division of distance N into sections A1D, A2D. A proportion of customers
live at distance D, which is indifferent for both sellers of baked goods due to Pn1 = Pn2. In the
section n1 < A1D, the buyers that live here will prefer seller 1 (sales centre A1), as the total price
including transportation costs Pn1 will be lower than the total price Pn2 (Pn1 < Pn2). In the section
n2 < A2D, the buyers that live here will prefer seller 2 (sales centre A2), as the total price Pn2 will
be lower than the total price Pn1 (Pn2 < Pn1). From the equations:
P1 + t1 ⋅ n1 = P2 + t 2 ⋅ n2
N = n1 + n2
the demand function “price, volume of supply” can be derived as a function of variable distance
n1, n2. Thus we can deduce the volume of supply of both companies q1, q2. We can assume that the
larger the funnelling area of buyers, i.e. the larger n1 (n2), the greater the number of customers, the
greater the demand and therefore also the greater the expected sales:
q1 = f (n1 )
q 2 = f (n2 )
where q1, q2 are the quantity of demand for the goods at both companies, dependent on n1, n2
(Mach, 1999).
160
Results and Discussion
Analysis of developments in the baking industry in recent years
The concerns of large and medium

medium-size
size bakeries about adverse development within the recent
years are being fulfilled. According to the calculations of the Association of Bakers and
Confectioners, the industry suffered losses of CZK 180 million in 2012; and the situation did not
improve in 2013, either, as is apparent from the Association’s data. Yet the data from the largest
bakeries show that in 2010 the industry reached a total profit of CZK 453 million (Kütner, 2014).
547.3
600 453
400
200 66.7
0
2008 2009 2010 2011 2012
-200 -180.3
-400 -343.7
Figure 2: Net profit of the 400 largest bakeries in the Czech Republic (in CZK million).
(Source: Association of Bakers and Confectioners, 2016)
According to bakers, there are several reasons. After the bad harvest of cereal in 2012, the price of
raw material inputs rose, as did the price of ene
energy
rgy and fuel. The cost of petrol is higher for the
baking industry in comparison to other industries due to the trend in recent years to deliver baked
goods three to four times a day, seven days a week over distances of many kilometers.
The bakers’ revenuess are not growing either. The reason is the pressure from retail chains to lower
the selling price even at a time when VAT on food has been increased twice. The sales of Penam,
which is number two on the domestic baked
baked-goods market, dropped by 12 % to CZK 3.35 billion
in 2009. Their net profit increased by 4 million to CZK 148 million ((ČTK, TK, 2010). Retail chains
have often tried to transfer this increase to producers. Consumers’ attempts to save even on the
cost of basic foods during the economic crisis also played its part, together with competition from
par-baked
baked goods finished in stores. Bakeries also solved their economic problems by illegal
cartels. The Antimonopoly Office repeatedly decided to impose a fine of 52.8 million CZK for the
cartel of baking companies
ompanies Delta Bakery, Penam and Odkolek in the sector of baking products
(Severová and Bendl, 2013).
The trend of par-baking

baking is growing, decreasing the profits of bakeries. Par
Par-baked
baked goods are made
by specialized companies, such as La Lorraine and ProFros
ProFrostt from the Agrofert group, and not by
industrial bakeries. Other par-baked
baked goods, in particular baguettes and buns, are imported.
161
27 26.4
26
24.8
25 24.3
23.5 23.7
24
23
22
2008 2009 2010 2011 2012
Figure 3. Profits of 400 largest bakeries in the Czech Republic (in CZK billion). (Source:
Association of Bakers and Confection
Confectioners, 2016)
According to the Association of Bakers, another reason the industry has been suffering losses in
recent years is that the number of small
small-scale
scale artisan bakeries is falling. The data from the
Association show that between 2000 and 2013 one in sev
seven
en bakers went bankrupt (Kütner, 2014).
The share of industrial bakeries is also declining in favor of chain stores. According to estimates
of the Union of Bakers, the share of chain stores reached 5.8 % in 2011, while the share of
approximately 600 artisann bakeries was 28 %. Industrial bakeries with over CZK 100 million
annual sales had approximately 36 % market share. The remainder consists of two main players:
United Bakeries (15.2 %) and Penam of the Agrofert group (14.7 %) (Kütner, 2014).
Change of ownership
ership of United Bakeries (the largest company in the industry)
likely to change. The group is to be taken over by Moulins de Kleinbettingen from Luxembourg.
The transaction is being examined by the Anti
Anti-monopoly
monopoly Office. The Luxembourg company is to
take over
ver the parent company, Bakeries International Luxembourg, which controls United
Bakeries. Marek Paříkřík
ík already wanted to sell United Bakeries in 2010. One of the most serious
candidates was Andrej Babiš, who wanted to merge the company with his Penam bakeries.
baker The
merger continued until July 2012, when the Slovakian Anti
Anti-monopoly
monopoly Office refused to approve
the transaction, although the Czech office did. Babiš then refused to pay and withdrew from the
contract. United Bakeries was created by the merger of the Delta Pekárny and Odkolek groups
(ČTK, 2015).
Conclusion
Czech bakeries suffered worse results than in recent years only in 2009. In 2012, the sector
recorded an aggregate loss of CZK 180 million, and in 2013 the situation was no better, according
to producers
ucers of baked goods. The worst problems for bakers are the par par-baked
baked goods that are
finished in retail chains. According to bakers, there are several reasons. After the bad harvest of
cereal in 2012, the price of raw material inputs rose, as did the price of energy and fuel. The cost
of petrol is higher for the baking industry in comparison to other industries due to the trend in
recent years to deliver baked goods three to four times a day, seven days a week over distances of
many kilometers.
162
Acknowledgment
This study is supported by the Internal Grant Agency of Faculty of Economics and Management,
Czech University of Life Sciences Prague (Projects No. 20151024 – Models of spatial
differentiation and their use in the markets for food production).
References
Association of Bakers and Confectioners, (2016), 'Statistika oboru,' [Online], [Retrieved July 7,
2016], http://www.svazpekaru.cz/index.php/pro-novinare/statistika
ČTK. (2015), 'Pařík prodává podíl v United Bakeries,' E15, 7.11.2015, 6.
ČTK. (2010), 'Společnosti Penam loni klesly tržby, zisk udržela,' E15, 16.6.2010, 3.
Kütner, D. (2014), 'Pekařům se dál nedaří vymanit ze ztrát,' E15, 17.1.2014, 4.
Mach, J. (1999) Obecná ekonomie I., Faculty of Economics and Management, Prague, Czech
Republic.
Severová, L. and Bendl, S. (2013), 'Cartels and Its Behaviour on Food Markets, ' Agricultural
Economics 59 (2), 81-89.
163
Social Entrepreneurship: Definition and Specifics

Petra Tausl Prochazkova
Assistant Professor at Department of Business Administration and Management,
University of West Bohemia, Faculty of Economics, Department of Business Administration
Husova 11, 306 14, Pilsen
Czech Republic
E-mail: pprochaz@kpm.zcu.cz
Phone: +420 377 633 618
Abstract
The field of social entrepreneurship shows up frequently in many sectors. It is referenced by
academics, public, governments or non-profit sector. Today, social entrepreneurship and its shifters
are dynamic and dedicated to distribute new business models combining social mission with
economic activity. There is a general consensus that the concept of social enterprise will gain in
strength. To track such expand understanding of social entrepreneurship components is more than
welcomed. Social entrepreneurs undertake a wide range of activity beyond work inclusion and social
services. However, we can find a lot of their definitions and views on their characterization. The
mapping on the social entrepreneur definition as well as social enterprise characterization can help to
identify the core of social entrepreneurial activities. It is more than common that many sorts of
activities are now being labelled as social entrepreneurship. Some opinions can be found that say it is
good, some argue that more clarity into this problem would be appropriate. This paper focuses on
discussion key definitions and attributes of entrepreneur and social entrepreneur followed by key
characterization of social enterprises. The theoretical part continues with a practical application of
empirical research provided among social enterprises. There is definitely a much to be learned and
understood about social entrepreneurship. We uncover a tiny part of this topic thinking that
identifying several views on social entrepreneurship and enterprises accompanied with practical
insight into their world will aid the development of the field.
Keywords: social entrepreneurship, entrepreneurship, value, entrepreneur, social
Introduction
We can start untypically with a question: “What does social entrepreneurship even mean?” There are
many ways how to understand what is social entrepreneurship about and how the social entrepreneurs
are presented. Social entrepreneurship, even the picture of social entrepreneurs, becomes an epitome
of buzzword. The terms very often mean different understanding to everyone, sometimes they might
cause a slightly obfuscation. Perhaps a first valuable step is to take a look into the understanding
through the key components and variables. In the relation to social entrepreneurship a lot is spoken
about entrepreneurship, creating values, about providing tangible benefits and about being interested
in social changes. These elements are solid part of the mainstream. First, entrepreneurship is
generally popular and understood very often as activity of people who have enthusiasm, courage and
ideas which can be turned into reasonable business model. In addition, social entrepreneurship
presents some kind of advocacy for social change. It is not only about doing business but be involved
in activities focused not only on economic benefit, but also on the social one. The mainstream differs
from those who attempt to sympathize likely more with the social component, or tend more to the
entrepreneurial side of it. However, important is the respect in favor of the economic and social (very
often also environmental) aspects.
When looking for understanding social entrepreneurship a valuable step is to learn through its
supporters´ and practioners´ opinions and experience. Each subject may perceive social
entrepreneurship issues in a different way. Scholars discuss very often classic entrepreneurship
definitions such as Schumpeter´s or Kirzner´s ones (Carsrud et al., 2007) and tend to utilize them in
favor of social context (e.g. Shockley, Frank, 2011; Abu-Saifan, 2012). The boundaries of social
entrepreneurial oriented and their activities are ill-defined. Dees (1998) describes social entrepreneur
as somebody who combines passion of social mission with innovation and business-like discipline.
164
Many attempts can be found in terms for looking the right definition. As the time past, a lot of can be
learned when following entrepreneurs and social entrepreneurs’ definitions. One could go on
reviewing the complete mainstream of entrepreneurship definition, but that wouldn´t been insightful
nor would reflect the primary purpose of this paper. In this context it is instructive to reflect and learn
just a little of many of the definitions developed. When the definition, or even better the attributes of
both followed areas are discussed core common, or contrast characteristic will show up. Afterwards
concrete specifics can demonstrate not only the theory, but also the praxis.
Entrepreneurship and Social Entrepreneurship Understanding

As Davidsson (2004) explained very well entrepreneurship is full of fun, fascinations and
frustrations. Moreover, the same can be said about social entrepreneurship. A ton of definitions and
attributes about entrepreneurship as well as about social entrepreneurship are available. All of them
show the effort to discover this multidimensional phenomenon. Table 1 point out a tiny set of this
effort as time passes.
Table 1: Entrepreneur/entrepreneurship definitions and attributes
Author (year of
Definition/Attribute
first appearance)
Cantillon Agent - active person who buys means of production at certain prices to
combine them into a new product.
Say (1800) Shifter - shifts economic resources out of an area of lower and into an area of
higher productivity and greater yield.
Marshall (1890) Leader and industry understanding – must have a thorough understanding
about the industry, be good leader and be able to foresee changes in supply
and demand.
Knight (1921) Risk taker – risk-taking is a central characteristic of entrepreneur, bears
uncertainty of market.
Schumpeter (1934) Innovators - in the business sense, identifying market opportunities and using
innovative approaches to exploit them.
McClelland (1961) Achiever - Entrepreneur is driven by need for achievement and need for
power.
Leibenstein H. Growth agent - person capable to explore new investment opportunities,
(1968) determine profitable activities.
Kirzner (1973) Arbitrageur - attempt to profit subconsciously from market opportunities. But
also innovator, employer, manager and anytime being alert to opportunities as
yet overlooked in the market.
Casson (1982) Judger, innovator - person who demonstrate good level of judgment, is
innovator and rewarded up to the conductive economic conditions.
Drucker (1985) The entrepreneur always searches for change, responds to it, and exploits it as
an opportunity.
Low, MacMillan Creator of new enterprises, jobs.
(1988)
Stevenson (1990) Entrepreneurship is the relentless pursuit of opportunity without regard to
resources currently controlled.
Shane, Believer about the value of resources - discovers studies and exploits sources
Venkataraman of entrepreneurial opportunities.
(2000)
Audretsch, Grilo, Person of multidimensional aspects – a unique definition is hardly achievable,
Thurik (2007) we speak about aspects such as value creator, strategic thinker, leader,
initiative taker.
Ahmad, Seymour Person (business owner) who seeks to generate value, through the creation or
for OECD (2008) expansion of economic activity, by identifying and exploiting new products,
165
processes or markets.
OECD (2015) Source of innovation, growth and employment.
European Actor upon opportunities and ideas – transforms them into values. Consists
Commission from several competences such as creativity, vision, coping with ambiguity ,
(2016) uncertainty and risk, self-awareness, taking the initiative etc.
Source: own according to Schoorl (2013), Knight (2002), Schumpeter (1934), Drucker (1985),
Marshall (2010), McClelland (1967), Leibenstein (1968), Kirzner (2015), Casson (2003), Low,
MacMillan (1988), European Commission (2016), Ahman, Seymour for OECD (2008), OECD
(2015), Stevenson, Carillo (1990)
Social entrepreneurship became a phenomenon as well as the entrepreneurship did. The richness of
the phenomenon leads not only for fascination but also for frustration, namely the lack of common
understanding of what the social entrepreneurship precisely is. There is no shortage of suggestion of
what the social entrepreneurship really consist of, but a few examples can be named (table 2).
Table 2: Social entrepreneur/entrepreneurship definitions and attributes
Author Definiton/Attributes
Waddock, Post Problem solver, innovator, emotionally charged, transforming leader -
(1991) involves in a long-term process of problem solving, holds people together to
the same goal (social one), sells the common vision.
Dees (1998) Relentless change agent, innovator and mission adopter – engages in a
process of innovation, learning, acts boldly without being limited by
resources, adopts a mission to create and sustain social value, exhibits
heightened accountability to the constituencies served and for the outcomes
created, recognizes and pursues new opportunities to serve mission.
Campbell (1997) Provider - provides social purpose ventures to communities with needed
products or services and generate profit to support activities that cannot
generate revenue
Leadbeater (1997) Leader, manager, creative person – his/her output is social, core assets are
forms of social capital (relationship, networks), solves problem often with
minimum costs
Thompson et al. Action taker - adds something new and different for the purpose of building
(2000) social value.
Martin, Osberg Developer of social value proposition – identifies an opportunity in today
(2007) unjust equilibrium and forges a new stable equilibrium that releases potential
for targeted groups.
Zahra et al. (2009) Opportunities exploiter, innovator - significant contributes to communities
and societies adopting business models to offer creative solutions to complex
and persistent social problems.
Mendell, Nogales Person provided new innovative business model that meets both social and
for OECD (2009) economic objectives contributing to labour market integration, social
inclusion and economic development.
Schwab Leader/pragmatic visionary – achieves systematic and sustainable social
Foundation (2016) change through a new invention. Innovates by finding a new product, service
or a new approach to a social problem.
Ashoka (2016) Individual - with innovative and practical ideas for solving social problems.
Source: own according to Martin, Osberg (2007), Schwab Foundation (2016), Ashoka (2016), Dees
(1998), Campbell (1997), Waddock, Post (1991), Zahra (2009), Mendell, Nogales (2009)
When looking on the two proposed tables, we believe that these phenomenon share mutual
characteristics and aims. Social entrepreneurship however, neither organizes nor expects a massive
financial profit for its stakeholders (especially investors or owners). We believe that the critical
contrast between social entrepreneur and entrepreneur dwells in the value proposition itself (as the
figure 1 shows).
166
• Industry Common
• Emotionally
understanding characteristics
charged
• Achiver
• Social problems
• Economic shifter • Innovator
solving
• Growth agent • Risk taker
• Change agent
• Arbitrageur • Judger
• Mission adapter
• Creator of new • Looking for change • Developer of social
enterprises and jobs • Opportunities proposition
exploiter, acting
upon ideas Mostly social
Mostly entrepreneur • Leader entrepreneur
characteristic • Creative person characteristic
• Action taker
Figure 1: Mutual and contrast characteristics of entrepreneur/social entrepreneur
Both, entrepreneur and social entrepreneurs are purely motivated by opportunity and are looking for
change. Both also accept risk as a daily part of their lives. What distinguishes social entrepreneur is
the social benefit which can create. It does not mean
mean that social entrepreneur do not follow generating
income, just providing service to disadvantaged group of population take preference over generating
high profit. For social entrepreneurs the social mission is central. So, looking for mission related
impact
act is the central criterion, afterwards come wealth creation. Schwab Foundation (2016) describe
social entrepreneur with exaggeration as a combination of Richard Branson and Mother Theresa. We
can define social entrepreneur: “as as somebody who is exploiting opportunities, taking risk, does take
care about social problems, is willing to solve them and acts as entrepreneur with strong context of
delivering the social mission.” The definition combines common characteristics of entrepreneur with
special of the social ones.
Understanding Social Enterprises Essence and Boundaries in Theory and

Praxis
Social enterprises are very often related to the trend of sustainability. As Porter (2011) mentions,
social enterprises are not locked
ocked into the traditional entrepreneurial thinking and are often well ahead
in of running sustainable business activities. Prochazkova (2015) discusses the social enterprises as
relationship of following attributes: SE = f (I, C, S) when subject to (S), (E)E) and (EC) where SE =
Social Enterprises, I = Innovation, C = Creativity, S = Sustainability, S = Social,
S E = Environment
and EC = Economic Mission.
Since social enterprises operate on the same market as classic enterprises, they have to face quite a
strong competition in order to fulfill their mission. As we already know finding the unique definition
of social entrepreneur is hardly achievable. In the very similar position is settled the social enterp
enterprises
‘definition. These characteristics seem not to be a complication, but the opposite is true. The lack of a
clear definition of social enterprises causes doubts by identifying concrete enterprises, e.g. for
funding opportunities or other reasons. However,
However, the majority of social enterprises can be
characterizes at least similar as described in the table 3.
167
Table 3: Social enterprises characterization
Social enterprises characterization

Social enterprises follow the mission of creating and sustaining social value and they actively
cooperate with local stakeholders.
Social entrepreneurship activities create work opportunities for vulnerable individuals (socially or
physically handicapped people).
Social enterprises are often started by individuals who are passionate to make a difference.
Social enterprises operate entrepreneurially with aim to redistribute into further development.
Social enterprises concentrate mostly on local communities and local development.
Social enterprises are directly engaged in the sale of goods, services or in the production.
Social enterprises develop new product/services using a viable business model while meeting social
(or environmental) needs.
Social enterprises involve a significant level of economic risk
Social enterprise has a democratic decision-making process.
Social enterprise is independent.
The social aim is priorities over profit making aim. Profit is not the key aim.
Source: own (2016), Prochazkova (2015), Porter (2011), OECD (2006), European Commission (2015)
The mainstream of social entrepreneur and enterprises was discussed and it showed more light on
their core. What distinguishes social enterprises further from the profit-one cousins? What are the
boundaries, especially limitations? First, we believe that the most useful and informative way was to
establish a complex view on entrepreneur and social entrepreneur. Second step was to transform these
attributes into a view on social enterprises. In order to follow the social entrepreneurship mission in
theory and praxis an understanding of their boundaries should be mentioned too.
Same as by entrepreneurship social entrepreneurship face several limitations. A dozen of them are
similar nonetheless we are speaking about the social one or just the entrepreneurial one concept. In
comparison to the profit-one model, social enterprises have to face several special limitations in
relation of their mission. The majority of social enterprises boundaries can be characterize at least
similar as described in the table 4
Table 4: Social enterprises boundaries
Social enterprises limitations (boundaries)

Lack of visibility, well-known concept among public. Poor understanding of the concept of social
enterprises across majority of stakeholders.
Difficult access to financing. Mainly need for multi-sourcing financing.
Poor specialized knowledge - especially in marketing, sale or other business development skills.
Work with concrete vulnerable individuals can be difficult in certain situations.
Difficulties to access the market.
Lack of single definition and supportive legislative framework.
Missing methodology for measurement impact of social enterprises. Social enterprises face the
problem how to show their benefit for society.
Lack of specialized business development services ensuring development of social enterprises.
Source: own (2016), Prochazkova (2015), European Commission (2015)
We have already known a lot of about social enterprises and entrepreneurs. To understand completely
their essence and boundaries an empirical research is provided. The research has been compiled
by using a quantitative analysis of social enterprises sample. The analysis was provided in March
2016 on a sample of 51 social enterprises situated in the Czech Republic. There is no official
evidence about how many social enterprises operated in this country, approximately about 220 is
expected to operate. According to this fact about 23% from the whole evidence took part in this
survey. The main part of the research focused on getting information from 3 main areas: basic
information about their activities and reason for running this kind of activity, kind of integration
(employee issues) and financing issues. Key findings are described in the following chapter.
168
Key Findings of the Empirical Research

The purpose of the research was to get closer information from a representative sample of social
enterprises. Some selected information was also compared to available international sources (OECD,
2013), (European Commission, 2015a) and national sources P3 (2015).
The characteristics of the sample are stated in the following tables. First, basic demography was
described. Some data was compared only with another national source (P3, 2015) in order to get as
much precise data as it is possible. The P3 national source is the most involved sources in the
observed country. Some data was compared also with international sources OECD and European
Commission.
Table 5: Basic demography of observed social enterprises (SE)
6 regions with Unemployment Legal form 3 sectors with Target group

highest in these regions highest (employees) –
concentration of (spring 2016) concentration of 4 main
SE (own, P3) activity categories
Prague 4.2% Ltd liability Gardening, Handicapped
company (53%, cleaning, people
50%) maintenance
(13%, 24%)
Usti region 8.91% Public benefit Recreation, Long-term
organizations hospitality unemployed
(31%, 20%) industry (12%,
15%)
South Moravia 7.01% Civic associations Wholesale, retail Ethnic
region (8%, 14%) trading (10%, minorities
18%)
Central Bohemia 5.41% Cooperative (8%, Teenagers and
10%) adolescents in
a difficult life
situation
Zlin region 5.98% Self-employed
(0%, 6%)
Olomouc region 7.01%
Source: own, P3 Source: CSU Source: own, Source: own, P3 Source: own,
European P3
Commission
Source: own (2016), P3 (2015), CSU (2016), European Commission (2015b)
Based on the research dataset the richest region on social enterprises is the capital city. The main
reason is usually not only because of higher concentration of socially thinking people and their
supporters, but also because of higher concentration of target groups ‘people. When we exclude the
Prague region, both, our research and the P3 research, showed us the same regions with higher
activities. We were thinking if there is any relation between the higher existence of social enterprises
in these regions and unemployment rate. We tested all the regions data (together 14 regions and their
rate of unemployment), only the Prague region was excluded from this test due to its special position
2
among others regions. A Chi-squared test ( χ test) can be used for this purpose as it establishes
whether or not an observed frequency distribution differs from a theoretical distribution. The value
2 2
of χ (test statistic) was compared with the critical value of χ - distribution of degrees of freedom
on the chosen level of significance (α = 5%). The results show that there is week rate of correlation
(r=0,4) between the regions and unemployment rate. The relationship is not dominant but still proved
that there is a slight dependence between the number of existing social enterprises in regions and rate
of unemployment.
169
A high correspondence was reached when we observed the legal form of social enterprises. A
majority of them are ltd companies followed by the public benefit organizations. Regarding the most
frequent sectors of activity and target groups we reached also interesting data. The research dataset
(own and P3 too) is dominated by three main sectors of activity – building support services, culture
and recreation and wholesale and retail trading. In comparison to the OECD data based on worldwide
research (2013) the dominance worldwide is in social assistance services sector, education and
training services and work intergration sector. These different data show us that there is a difference
between the local trends and the worldwide trends.
Social enterprises display a great variability also in terms of their target groups they work with.
However, the most common are handicaped people, long-term unemployed and ethnic
minorities.This commonality is strong also for European research (European Commission, 2015a).
We can agree that the mainstream of target groups social enterprises work with is clear pretty the
same on national and international level too. As a positive information was evaluated the fact that the
majority of observed social enterprises have not decreased number of employees during previous two
years. This fact is very positive when considering the situation about lower accessibility of financial
grants in last two years. In the majority of observed enterprises there was not observed an increase of
number of employees. Typical situation is about a stable number of employees. It was observed that
the reason is very simple. If the enterprises display with adequate financing sources, they are willing
to exploit this situation and broaden activities and work with more people from their target group.
Otherwise, 70% of respondents are trying to keep the situation stable.
Existing social enterprises usually have their financial model based on multi-sourcing financing. The
revenue streams for social enterprises can be clearly devided into 2 sources (European Commission,
2015): public funds (public contracting and grants/subsidies) and private funds (trading activity,
rental income, membership fees, sponsorship, donations and others). Among the most important
sources typically count own from trading activity, grants and subsidies. More details shows table 6
where also OECD data are confronted. Even when the percentage differs, the mainstream is still clear
and pretty same nonethelees we are speaking about national or international situation. There is a
slightly difference in trading activity. The international trend shows a higher percenatge by own
trading activity in the multi-sourcing model. Hopefully, the national social enterprises will reach soon
also higher numbers in order to raise their autonomy. The same scheme of financing is typical also
for European social enterprises in general, as confirmed European Commission (2015).
Table 6: Multi-sourcing financing of SE
Source OECD (2013) Own (2016)

Public contracting (including employment 16% 18%
contributions)
Grants/subsidies 31% 36%
Own trading activity, rental income on assets 31% 23%
Membership fees 7% 3%
Sponsorship, donations 12% 11%
Others 3% 9%
Source: own (2016), OECD (2013)
Conclusion
Social enterprises are the mainstream of current hybrid business between clear profit enterprise and
non-profit enterprise. They have the ability to have innovative touch and launch new products and
services which serve to solve social issues and problems. However, they are operating in quite
competitive environment. Identifying a social entrepreneur and social enterprise is not clear every
time. The recent emergence of social entrepreneurship significantly broadens interest in these
activities. A notable dynamic by which social enterprise appears in last several years deserve a
170
considerable attention. When we do not pay attention to elementary facts and do not give effort to try
understanding them, there will be minor possibility to move towards flourishing of these kinds of
activities. Public authorities, experts even the public are now trying to understand what is social
enterprise and being social entrepreneur about. This paper focuses on recognizing the past and current
definitions of (social) entrepreneur and characteristics of social enterprise. Recognizing the
conceptual insight and limitations in defining and understanding social enterprise activity is very
important. It enables to learn and adopt the situation and apply this information in practice. The
empirical part points out several research information. Not only own research was provided, some
data was also confronted with national or international research. The purpose is to get a complex
view on selected issues of social enterprises. Social enterprises operate currently more under the
radar. A number of countries are trying to institutionalize the concept of social enterprise. However,
the number is not enough and there is still the need to push the institutionalization. Social enterprises
are undertaking a large breadth of activities beyond work integration and social services. They
provided social activities of public interest and they have to challenge their multi-sourcing financing
system. Yet, still the majority of their revenue comes from public sector, they need to have supportive
environment to foster their social aim. The more will be known about social enterprises and
entrepreneurs in theory and practical life, the better for their ecosystem.
Acknowledgment
This paper was created within the project SGS-2016-034 Current trends in the management of
organisations and in entrepreneurship.
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172
Developing a New Paradigm for Discovering 21st Century Economics

Ildiko Ioan, Bucharest University of Economic Studies, Bucharest, Romania ase@infinitumgroup.com
Dumitru-Alexandru Bodislav, Bucharest University of Economic Studies, Bucharest, Romania

alexandru.bodislav@infinitumgroup.com
Florina Bran, Bucharest University of Economic Studies, Bucharest, Romania

florinabran@yahoo.com
Mariana Iovițu, Bucharest University of Economic Studies, Bucharest, Romania

mariana-iovitu@yahoo.com
Carmen Valentina Rădulescu, Bucharest University of Economic Studies, Bucharest, Romania

cvradulescu@yahoo.com
Abstract
From the desire to shape and exhibit synergy in this research paper, the authors wanted to emphasize the
idea of workflow in a macroeconomic framework, this way we put the spotlight on the limitations of
current models and the necessity of a rupture in the paradigm. The hypothesis of this paper is based on the
fact that we all have limitations, especially when it comes to economic mechanisms. When it comes to
macro-limitations, they are economically and financially, not only conceptually, but also in modeling
quantitative and qualitative solutions, with even a trend that has been given to the psychology of calm to
allow leaving room for maneuver, popularly being called as letting the guard down and so over
simplification and over-reliance economy allowed the emergence of this nexus of syncope which outlined
the current crisis. During this paper we’ll try to rise questions that would help others to follow new paths
towards a new paradigm in discovering 21st century economics.
Keywords: network, paradigm, corporate governance, economic growth
The Effect of Corporate – State Governance Network – The “Earth Is Flat” Spin
Off
In time, criticisms were made by critics of capitalism, but the prospect addressed in this paper was different
from point accelerator of the crisis, the financial system seen from the outside, from a broader perspective.
The new paradigm and trust given to range indicates shows an antithesis to the current economic system
that governs today's society. Things get worse over time, there was J. M. Keynes offering us a
macroeconomic doctrine that works in times of crisis and also provide solutions for the years 1929 - 1933,
but these solutions are expired when it comes to the crisis ignited in 2007. Today’s researchers are
spending billions of dollars trying to establish the origin of the universe and create absolute communion
between man and nature, but the conditions seen today from the economic, social and environmental
perspective are not of a functioning global economy and sustainability on the long-term cannot be outlined
and generalized.
Any economic system (micro - corporate level or macro - level state) forms groups (micro: joint venture;
macro: states that form an union). These groups represent the complex unity of the working progress
towards economic development in terms of globalization, but to start the engine of cooperation and global
collaboration there is needed a trigger for economic systems, especially the desire for creating
implementation models or hybrid corporate-state models in public governance. The latch in economic
systems is possible through fulfillment of three conditions set out as follows:
173
a. Knowledge as a source of development, not as resource, making note of unifying with capital
and labor, making resource prevalent.
b. The economy as a theoretical and practical experience of creating wealth, but out of control
when it comes to political power (state policy or corporate policy) and manifested as
intersubjective dimension of human nature.
c. Component limiting the economy's evolution through the intangibility of human subjectivity.
Limitations of any kind may hamper growth of an economy, but they can be seen by opinion makers
directly involved in the implementation of a state policy, organization or global commercial organizations,
as potential opportunities.
Thomas Friedman has followed in his book "Earth is flat" the evidence of an effect of globalization,
namely leveling "field of play" (Friedman, 2005) that makes competitors act in the global market.
Technological innovations achieved in the private sector, but with government support have revolutionized
the workplace, bringing the power represented by the competitiveness of emerging economies where new
players are found in the vicinity of the renowned players in developed countries. Paradoxically, while these
developments have led to a high flux of extra-border business, relational barriers - barriers to human
productivity, increase the odds due to the current economic context (Branson et al, 2010).
From the perspective of the human side of management inefficiency dilemma, the existence of
transnational companies that need functional leaders as they have to develop relationships with partners
through a hierarchy or a network (whether states or other companies) in other countries. Ministry top tier
leaders (at least in the private sector) have an easier path to perform after following technological advances
that help in decreasing the distance between countries and knowledge management imported for a faster
catching up, but these leaders are faced with limitations derived from economic and social issues. Such
limitations intensify conflict, imposing restrictions on performance and a level below the potential flow of
innovations.
Using Complexity to Create a New Economic Paradigm

What happens to societal development that seems likely remained in a quantitative state and cannot value
the network created from human interaction with corporate economies or state apparatus. The solution
could arise from the sciences field that can come with maximum design towards quantitative evaluation;
typology also found in qualitative physics and its interdisciplinary branch known as complexity. To explain
the phenomenon of complexity and validity of its use we could bring physics to the rank of science that can
explain the surrounding reality to the smallest detail, such physics transformed into a system purely
quantitative is translating its mathematics and coded equations, to which we add forecasts that are testable
and we can also demonstrate exactly how this natural flow is happening, but in turn gets physical
limitations.
System complexity is one that goes beyond current understanding of man (Helbing, 2009, pp. 3680-3685)
and thus creates the need to scroll through complexity theory shy of a desire to highlight a new solution.
Why is not mastered theory of complexity by today’s scientists? Due to non-observance of oversight, the
global economic complex establishment should be seen as an aquarium, the economic circuit is in distress
and disorder caused by either some of the leading exponents or by influence taken from an external factor,
especially when the aquarium’s water is whirling with a purposeful goal had by an entity with a hidden
agenda. This is just how it works in large groups of fish or birds, ants or termites colonies, human brains or
the financial markets, they all have the same workflow; these are only examples of which can be seen
outside the landmark, as in physics, in its mechanical branch.
The science of complexity is limited in mapping it by building working equations, so to physics there is a
174
rupture. Classical physics is explained through bivalent laws and are based on principles founded and tested
as real, as opposed to complexity, such as the separation of work branches leading to infinite fractal
systems. Complex systems, though are built on real fundamentals, have as a way of developing behavioral
tendencies resulting from some rules of interaction. These rules are brought to surface and is observed the
fact that they have a broad character emergence, ie for a new pattern (behavior) in the initial system, pattern
that cannot be predicted or understood by evaluating the inside of it and those who give these non-
mathematical results (mathematics calculus is 2 + 2 = 4, result that is valid forever) are the relationships or
interactions between components.
The current economy has developed as a network, the network is the best representation of a complex
system and network nodes are systemic components. The functional links created are the result of
considered interactions, equations seen as engines for the main elements of physics and mathematics that
form complex systems because those are powered by complex networks. Elements of interdisciplinary
sciences working together and being focused upon the economic and social development that would result
in shaping the new paradigms necessary for current and future economic development, the social-complex
economy. This is the main engine for validating classical mathematics (quantitative) and functional
validation by shading horizontal and vertical networks in the current economy which gives qualitative
results that validate a new vision and also by pioneering the entry into the new paradigm. This approach has
been used in physics, chemistry, anatomy, biology, IT, social sciences, but usage was extended to the
economy, although not observed even in theory or doctrinal literature is scant, with timid attempts, as
observed in the excellent study "The Network of Global Corporate Control" (2012). This paper is the first
extensive analysis on mapping and evaluation of the network economy that does not bring a new
component into the market but looks at things from a different angle. Economic nodes are represented by
corporations, governments, people and other extensions thereof. The functional links between nodes is a
measure of confidence and systemic involvement. The Swiss study was built by assigning important
positions depending on the degree of ownership in a corporation (X holds y% of company Z) and by the size
of the company's financial and market execution, and relationships with financial institutions as powerful
and potent links.
What Makes Globalization Great?

Government relations and governance, private property, public property resulting necessary relationships
needed to develop open valences or isolating certain entities even if they are highly interconnected. If an
array is created at global level it is observed who controls the world and it is possible to observe entire
economy, although it is made up of states, economic unions or military alliances, developed to reduce the
level of decision-making systems of (masked) corporate governance. This kind of behavior carries a high
systemic load, systemic risk which shows total system vulnerability, capitalizing pillar of globalization
contrary to the idea that a high degree of interconnection represents the engine of economic globalization. It
can be thus considered as a factor detrimental to the stability, as interconnection comes with a high degree
of exposure to the occurrence of "epidemic closeness". Important nodes like Lehman Brothers went
bankrupt because of a low degree of interconnection to the global financial mechanism, but also Goldman
Sachs who had a similar exposure played it well in reverse, high exposure to a defined market segment and
showing an opposite path of the portfolio management theory, this way they managed not to be affected
firsthand by hedging financial information.
The rift between scientists and economists resulted from the fact that economists have constructed and
imposed market economic principles and theories without testing them at least quantitatively. According to
the same study showed that the Swiss central issue - the periphery is validating the idea of global spread of
the main elements of a crisis, but there is a problem that can entitle hyper-center. This shows that in the
center there is a central pole of power, similar to a metropolitan area geographies (urban), such illustration
and being carried by his writings Paul Krugman (2009). In cities developed according to the principles of
architecture we deal with a suburb, a periphery and a center, and the center is divided on certain principles,
175
in an area being the financial center (usually there are observed the greatest and most imposing buildings).
The latest study done on this subject observed the following (Vitali et al., 2012): the center coordinates
75% of relationships and activities although it represents 25% of the physical flow; the hyper-center
absorbs 36% of global decision-makers and they represent 95% of total global relations (either financial or
of common flow only).
The study conducted in Switzerland was developed in 2011, was published in 2012 and contains the effect
observed for all transnational corporations existing worldwide, about 43,000, and the result was shaped and
underlined the flow for decision making overall (effect of center-periphery dilemma, considering the power
and control exercised in the entire mechanism), as Max Weber's idea is revalidated, that the will of one
member may reign over the desires of the opposing members. The same study evaluated holdings in
corporations and the resulting nodes created by the fact that we deal with network nodes of more than
600,000, that are absorbed in the 43,000 transnational corporations and 737 knot’ corporations that control
80% of the total. The surprise is that these 737 nodes represent financial corporations in the US and UK,
and of these 737 nodes, 146 nodes are global players controlling 40% of cash flow in a transnational
manner and at global level (Vitali et al., 2012). From this perspective follows the power, the influence, the
effect of the outbreak of the actual crisis, translated in a technical manner by systemic risk transposed to
the global economy and resulting into secondary emergence processes that influences top down (the same
system type as center - periphery), that self-organizes the global economy (this was the reality during the
crisis, 6 years after its installation, five global players, some representing nodes of the hyper center,
disappeared).
Current solutions that are discussed or adopted show that inefficiency lies in the high degree of ideology
found in economics, finance, politics and society, and the complexity perspective allows for the design of a
stepping stone towards the new paradigm, a rupture needed to create the change current situation.
The role of the market and the government is to create a comprehensive system of work used as a new
paradigm to replace this end of Modernity (Dinu, 2010) and allow the entrance towards a new aisle of
sustainable economic growth. It is built from the perspective of a multilateral developed global economy,
the market is one that nodal shifts all trade between the parties, and the government is keeping the economy
in a state that would not derail in such cases to the specificities of particular oligarchs implemented in
certain regions of the world. The government aims to be Democracy Cerberus by keeping in touch with the
economic result of the market economy as a way of expressing the efficiency of network nodes.
Economic growth enables development of certain nodes in the system, all under the vision of state entities
or the government itself or of the Central Bank to a particular country or union. An important
macroeconomic node is the Obama administration, and this case has been brought into question to show
that we need a relationship top down approval to allow even the desire to bring a paradigm shift, not only at
declarative level, but also at the level of intra-permissiveness.
Conclusion
To get into the core of the results that will monitor a country's economy if the government is the
transmission and the economic engine, corporate governance is the onboard computer that controls engine
performance from its ignition, towards performance acceleration, consumption flow and consumption parts
after a certain lifespan and keeping in line with the body (population and geo-socio-political environment)
that wear out depending on the result of the overall economy.
Property rights represent the component that empowers nodes to afford a certain level of performance for
the whole economy or the corporate side, or the side of state or as main customer / supplier for their
individuals (the people making up that nation). The concept of minimal state interventionism allows
strengthening non-interventionism behavior or is limited in that nation and aimed at performing a close
176
communion between the public and corporations, especially those that are on a branch of production
industry and the real economy.
Privatization of state owned entities is a way to reduce state interventionism in the economy and everything
going to corporate transparency level by developing their statutory and healthy reaching flows or programs.
The markets in which they operate must yield by being compared between regulated markets versus
deregulated markets and how they control and perform as an economy based on market regulation and
future forecasted results. Add to this the macro-development that depends on cost trends and results of
privatization on the economy in the medium and long term.
The corporation represents the foundation based on more than four centuries used as global hub connector,
the corporation is required to define its role and also how to build a sustainable approach through such an
entity and what is its purpose in the long term. It started from the hierarchical internal organization and
evolved to relationships that were refine formally and informally. This way, the corporation carries itself
and the economy on the highest peaks of their business branch in part and which components can be drawn
for use in the new economy, one that uses the principles of organizational business and corporate
governance for a sustainable economy.
If global relations evolve, they reach hyper-globalization, namely by outsourcing and by using global
cooperation as a system of decentralization of nationality and pursuing an ultimate goal to achieve
increased business flows, with significant results achieved in advance by those who implemented such
solutions. Global collaboration not only brings low production costs, but also allows local or regional
development the can be implemented globally in the lines of Research - Development - Innovation and in
the branch of executive management and corporate governance. As a result, it will outline the changing
efficiency and effectiveness at a conceptual level and at the level of a new paradigm for corporate strategy,
if applied as a phase of reverse engineering on a corporation we are dealing with a corporate strategy that
can be simulated at a wider than usual level, in a functional economy at national or regional level (as a
union). To sum up, its specificities can yield based on available resources, market outlets and how it is
intended to plan and implement an effective strategy, based on the academic strategy (as a theoretical
approach).
References
Bodislav, D. A. (2015a), ’Transferring Business Intelligence and Big Data analysis from Corporations to
Governments as a hybrid leading indicator’, Theoretical and Applied Economics, 22 (1), 255 – 264.
Bodislav, D. A. (2015b), Transferring Business Intelligence from Corporations to Governments, ASE

Publishing, Bucharest, Romania.
Branson R., Bodislav, D.A. and Stoyanova, P. (2010), ’If I Could Do it All Over Again’, Wall-Street
Journal, 10.08.2010, A4.
Dinu, M. (2010), Economia de dicţionar. Exerciţii de îndemânare epistemică, Economica Publishing,

Bucharest, Romania.
Ernst, C. and Chrobot-Mason, D. (2011), ’Flat World, Hard Boundaries: How to Lead Across Them’, MIT
Sloan Management Review, 52 (3), 81 – 88.
Friedman, T. (2005), The World is Flat, Farrar, Straus and Giroux Publishing, New York.
177
Helbing, D. (2009), ’The Outbreak of Cooperation among success-driven individuals under noisy
conditions’, Proceedings of the National Academy of Sciences of the USA, vol. 106, 3680 – 3685.
Krugman, P. (2009), A Country Is Not a Company, Harvard Business Review Classics, Cambridge,
Massachusetts.
Vitali, S., Glattefelder, J.and Battiston, S. (2012), ’The Network of Global Corporate Control’, PloS ONE
(data & journal base), 6 (10), Zurich, Open Journal.
178
Managing Natural Resources to Obtain Economic Growth in Emerging

Countries
Lamman Mammadzada, Bucharest University of Economic Studies, Bucharest, Romania,
lammanmammadzada@gmail.com
Karimov Tural, Bucharest University of Economic Studies, Bucharest, Romania,

turalk@yahoo.com
Umid Abuzarli, Bucharest University of Economic Studies, Bucharest, Romania,

umidabuzarli@gmail.com
Ildiko Ioan, Bucharest University of Economic Studies, Bucharest, Romania,

ase@infinitumgroup.com
Ovidiu Buzoianu, Bucharest University of Economic Studies, Bucharest, Romania,

Ovidiu_buzoianu@gmail.com
Abstract
This paper represents a scan of the macroeconomic perspective on natural resources and the
countries that own them. During the research we will highlight the tension between income from
natural resources (obtained through exports), GDP growth, excellence in state governance and
economic and social development of the population of resource-rich countries and from countries
that are poor in resources.
Keywords: natural resources, economic growth, emerging economies, infrastructure
Introduction
Use of natural resources to promote economic development sounds simple and efficient. A country
has deposits assets such as hydrocarbons and minerals, and they are trying to convert them and use
them to support employment and generate economic growth through the flow of human capital
and the increase in financial capital. Such assets should be particularly valuable for developing
countries, but with limited capital, especially as revenue from the sale of their accumulated
resources in foreign currency and complements otherwise limited in the fiscal capacity of their
governments.
In practice, this transformation has proved to be difficult. Indeed, some developing economies
have been successful with this approach, and economic growth was generally lower in developing
countries, but higher for those rich in resources than those without resources (IMF, 2012). In the
2000s (a period of rising commodity prices), resource-rich countries have grown faster, although
per capita growth was similar in both groups of countries (IMF, 2012b). The term "resource curse"
was coined (Auty 1993) to capture unrealized savings for resource-rich countries, drawing
attention to the poor performance of Bolivia, Nigeria and Venezuela, among others.
The successful use of natural resources that are nonrenewable involves several steps. Resource
deposits must be discovered and developed. If and when this is done, resource revenues are shared
between investors, government and other third parties. It is likely to be intense pressure on current
spending rather than investment in productive assets that will be done over time. Investments in
the domestic economy should be directed to projects of high social return, but they could be
difficult to identify and to be implemented. Placing income from offshore funds may be
179
appropriate for economies with rich capital, but it has little to spur economic development in a
country poor in capital. Finally, there is the private sector that will create sustainable jobs and
sustainable economic growth, so that resource management must be done in a way that will
support private sector investment. But even if the proceeds are used effectively, resource exports
appreciate the exchange rate and to prove detrimental to the tradable sectors of the economy other
so-called the "Dutch disease" effect. An economy with substantial exports of natural resources
may become too dependent on one source of income that is volatile, and this volatility can
destabilize the macro-economy.
Over the past eight years, until 2015, however, the landscape construction projects is to see a new
scenario characterized by a) complex project development to meet the changing factors (political,
economic, social, technological, legal and environmental) facing the project launched in the
market, b) profiling and development of innovative projects, c) requirement for engineering
innovative financing, and 4) meta-program management approach. Tanaka (2013) has listed the
typical high complexity events affecting the industry in the world and classified as monodukuri
the complexity of the factors and their involvement in the events industry. Monodukuri industry
was defined as industries to integrate environment and manufacturing systems. For analysis of this
paper, the first element of the definition, manufacturing is low and industry systems integration
industry average is reformulated project. The events listed are often complex, industry relevant to
the project and were further monitored (Tanaka, 2013b).
Natural Resources – the Key to Economic Development in Emerging

Countries
Deposits of natural resources are owned by the state in almost all countries except the United
States. Thus, to navigate several steps in the successful use of natural resources, governments in
resource-rich countries should be well-intentioned, without any deficiencies vin implementation
and extremely capable in governing. However, many resource-rich economies have weak
governance, which can be further undermined by the political forces that are unleashed with the
prospect of resource wealth.
The multistage nature of the challenge means that no single answer can be given to the question of
what has been so difficult to exploit that the wealth of natural resources is used for broader
economic development. While some countries have managed to use natural resources for
development, others have failed, each in their own way. This paper also reaches the challenges of
each stage, evidence on country performance and some individual country examples. We begin by
outlining the extent of the problem and essential facts about low-income countries with rich
resources.
The International Monetary Fund (IMF) classifies 51 countries home to 1.5 billion people, as
"resource rich". This classification includes those countries that have streamed at least 20% of
exports and 20% of tax revenues from non-renewable natural resources (based on averages from
2006 to 2010 as explained in the IMF, 2012b). In 25 of these countries, resources constitute more
than three-quarters of exports, and in 20 of these countries, traded resources provides more than
half of government revenues.
180
Fig 1: Exports versus Income Tax of Natural Resources
Legend: AGO = Angola; BOL = Bolivia; CMR = Cameroon; CODE = Congo (Democratic); COG
= Republic of the Congo; GAB = Gabon; GIN = Guinea; GNQ = Equatorial Guinea; GUY =
Guyana; IDN = Indonesia; IRQ = Iraq; LAO = Laos; MNG = Mongolia; NGA = Nigeria; MLI =
Mali; MRT = Mauritania; PNG = Papua New Guinea; SDN = Sudan; SYR = Syria; TCD =
Chiador; TKM = Turkmenistan; VNM = Vietnam; YEM = Yemen; ZMB = Zambia.
Source:
e: World Bank and IMF estimates, Venables, 2016.
Middle-income
income in these countries is higher for resource
resource-rich
rich economy and form a mixed group,
including Latin American countries (such as Chile and Venezuela), Central Asia (Azerbaijan and
Kazakhstan) and Africaica (Libya and Algeria). High
High-income, resource-rich
rich economies are mainly
from Middle East and are oil exporters, together with Norway and Trinidad and Tobago. Of the
twelve countries that are resource
resource-rich,
rich, with some new discoveries (be it in new resources,
resources
deposits or new technologies to extract them), which are not yet to be fully developed, the new
attraction being Africa.
Our focus is tilted towards resource

resource-rich
rich countries with lower than average income. For this group,
there are four key facts. First, for many of these countries, there is an extreme dependence on
natural resources for obtaining tax revenue, export sales, or both. Figure 1 shows the dependence
of export tax and for 24 of those countries for which reliable data is available and clear. Ten of
them receive more than half of the tax revenues from resources and in 17 of these countries,
resources constitute more than two thirds of their exports. Fiscal dependency is particularly acute
for oil producers.
Saving in these resource-rich

rich economies with low incomes has generally been low. This is
illustrated in Figure 2, which shows the relationship between resource royalties and adjusted net
savings, both expressed as a percentage of GDP for the 28 countries and in the same time being
resource-rich countries with low incomes. Resource royalties are measured by the World Bank in
its World Development Indicators as gross revenues from oil, gas, coal, minerals and forests
minus extraction costs estimated. Adjusted net savings are national savings plus education
e
expenditure and minus depletion of natural resources (World Bank, 2011). As it is evident, this
181
measure of adjusted national saving is strongly negative for a large number of low-income
low
economies, rich in resources, and there is a negative correla
correlation
tion between resource royalties and
savings rate.
Fig 2: Net Savings with State compared Revenues from Non

Non-Renewable
Renewable Resources
Legend: AGO = Angola; BGD = Bangladesh; BOL = Bolivia; BWA = Botswana; CMR =
Cameroon; COG = Congo; CIV = Cote d'Ivoire; GAB = Gabon; GHA = Ghana; GIN = Guinea;
GUY = Guyana; IDN = Indonesia; KAZ = Kazakhstan; LBR = Liberia; MNG = Mongolia; NAM
= Nambia; NER = Niger; MLI = Mali; MOZ = Mozambique; PER = Peru; SDN = Sudan; SYR =
Syria; TGO = Togo; TTO = Trinidad and Tobago; TZA = T
Tanzania;
anzania; VNM = Vietnam; ZAF =
South Africa; ZMB = Zambia.
Source: World Bank and IMF estimates, Venables, 2016.
Growth performance of all resource

resource-rich
rich economies as a group was generally weak, although some
countries have performed well, for example, Botsw Botswana,
ana, Malaysia and Chile. This finding at
country-level
level cross has been extensively researched by the work written by Sachs and Warner
(1995, 1997), who found (after evaluation of the initial income per capita, investment in physical
and human capital, trade openness, and rule of law) that dependence on natural resources had a
significant negative effect on GDP growth per capita, an increase of 10 percentage points in the
ratio of exports of resources to GDP growth shows a low average of 0.77 0.77-1.1
1.1 percentage points
p
per year. Subsequent contributions highlights include Mehlum, Moen and Torvik (2006), which
interact abundance of resources with quality of institutional environment and find the negative
effect of resource wealth on economic growth to be present (an (and
d bigger) only for countries with
quality of institutional environment which is weak and the breakeven point being located around
critical institutional quality of Botswana. More recent work has moved on to other dimensions of
connection to the wealth of nnatural
atural resources to economic growth. For example, subnational
evidence finds that the local impact of extraction has positive effects (Cust and Poelhekke, 2015),
but the local impact of the distribution fee is negative (Caselli and Michaels 2013). An extensive
exten
review of the literature discussing also endogeneity problems associated with different measures
of resource abundance is found in Smith (2015).
182
If we look only at developing countries, there has been a recent improvement in the relative
performance of resource-rich economies, with average growth rate of per capita resource-rich
developing economies equals that of rich non-resources in 2000, after a year was 1% lower in the
1990s flow, much of the early 2000s was also a time of oil and commodity prices booming and
resources to increase trade with China so that it remains a very modest increase performance.
As Ross (2012) wrote about the growth performance of resource-rich economies: "The real
problem ... is that growth has been slow, it would have been normal, but that was normal if it were
faster than normal."
Resource’ revenue can be extremely volatile. Some variables are predictable - due to the opening
of new stores and the closure of depleted natural resources, but greater is the rate of unpredictable
and largely because of the volatility of commodity prices, especially oil. There is an extensive
literature on the measurement and what causes instability of commodity prices (eg. Arezki,
Loungani, van der Ploeg and Venables 2014) and one of the concerns in this article is focused
mainly on its impact on resource producers.
Extent of the problem is illustrated by the fact that as royalties on resources of the World Bank,
the world functions as a unitary mechanism, fluctuated between 1% (1998) and 7% (2008) of
global GDP over the past 20 years. Natural resources in economies in developing countries show
that there are measures of volatility (eg, coefficient of variation of export earnings), which usually
exceed those of the countries non-resource-rich, around 50% for ore rich countries and more than
100% for oil-rich countries. Smoothing is made difficult by evolutionary cycles in commodity
prices (particularly oil, prices increased in 1974-1985 and 2003-2014 periods, periods of smaller
but still variable prices for commodities). The volatility of fiscal revenues is transmitted in greater
volatility through government spending due to cyclical public spending (IMF, 2012, b).
Economic Development and Policies Implemented for Major Projects

All major construction projects are developed to develop a multiple that includes missions with
high level objectives such as:
• Stimulating the national economy to start an accelerated growth;
• Consolidating the prestige or image of a nation/country;
• Supplying infrastructure that isn’t available on the short run;
• Scaling new or renewed technologies or introducing critical technologies used in the

development or growth of a country;
• Investments done and finalized;
• Achieving top tier positions in front of the competition, in the same industry with
competitor countries.
This mandate based on the intersection of multiple objectives requires a larger complex program
management. Since all developments are based on natural resources and major infrastructure
programs / projects occupies a high-profile political scenario of the country or even more
programs / projects require a correct answer out political expectations or pressures.
Formation or the emergence of owners and investors from several countries interested in a single
183
project or program components are necessary to fulfill a requirement of substance to combine

enormous source technologies and expertise to compose a complex program or project. Because of
the huge investment positions and their strategic programs and projects, those should enjoy the
combined benefits, but in the same time to cover the risks inherent in the award of a contract to a
single contractor, as well as export credits provided by several countries related to contractors
from a competitor country.
Suppliers and governments / countries are mobilized under a general contractor to create joint
ventures used to realize new sources of technological and economic development. As a result of
large programs, tens of thousands of people who are active labor migration will outline a process
that shows the impressive potency of globalization
Extreme programs and projects are conducted and being found in remote sites extremes, such as
the Arctic Sea and in areas that bring challenges in terms of security, the challenges being
nontraditional logistics and demand for innovative solutions, such as adaptation projects /
programs created to cope with harsh climatic seasons, modular construction, etc.
Programs and projects in extreme locations cannot escape the risks of damage done to the natural
habitat. The experience had with large oil spills in Alaska and the Gulf of Mexico by multinational
oil companies, which have seriously damaged the environment and requiring owners to intervene
to improve situations in the active conduct business created from sub-standard procedures.
Most of the major programs of infrastructure discussed here include basic elements of non-
traditional commercial operation and related services such as maintenance, as part of the program
itself where the prime contractor is a joint venture or consortium or even an investor who is
committed by contract for the provision of such services. These expanded services appear to be
complements of businesses, often state-owned enterprises who have no experience in the operation
of new types of infrastructure and help the creation of new infrastructure through a scheme for
implementing the program based on public-private partnership (PPP) or build an operating system
used to transfer new skills from corporate governance to state governance. Another reason for this
wide purpose is the recent trend of contracting contractors to develop countries competing for the
largest projects public possible created (usually, nuclear plants) or mass transportation programs,
which could develop into businesses that includes additional services such as trade, technology
transfer, skill development of local population and its social development.
Conclusion
Checking the nature of the complexity of major projects used in oil and gas projects and in
infrastructure projects represents practical situations and that are used for identifying the
discriminatory characteristics that contributes to the unique complexity of projects and as a
qualitative result it develops a new strategic framework which manages the program used to
generate continuous new projects.
The developments presented until now could also deliver situations that could peak into future
challenges for emerging countries in their race for catching up, but also of not destroying the
environment or indebting the future generations not only financially, but also socially and
environmentally.
The new framework includes strategic marketing projects; joint ventures and consortium
approach; programs for (meta) management; knowledge management and integration of
stakeholders to create and develop complex projects; planning and structuring finance as an
essential ingredient complex projects such materializing; risk management and quantifying the
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future, not the past.
The prerequisites for using natural resources to promote economic development are discovering
their investments in mines and wells required for their extraction, and subsequently ensuring the
flow of income and continuous calculation of return on investment. These steps situated upstream
resource management are complex, and resource endowments of developing countries remain
unexploited or underexploited.
The initial discovery and development of a repository of natural resources requires investment by
firms with considerable technical expertise. In developing countries, these companies are
generally foreign owned. Economic principles suggest that the host-owner of the resource should
implement a regulatory regime and the taxation mechanism in which the investor can make a
normal rate of return and fees above this rate can then be captured by the owner of the resource,
the State. A system of this type has a number of elements. Exploration and development licenses,
transport fees, often determined by tender rights. Subsequent extraction of resources is taxed
through a combination of royalties on production agreements, production sharing, in which a
certain fraction of production is taken by the government directly and also through income tax,
possibly an extractive sector specific rate.
In the end it is necessary to specify that resource rich countries are a magnet for attracting
contractors, business partners at state level and new point venture (public-private partnerships)
with the initial purpose to create growth for all parts involved, but sometimes this win-win
situation easily transforms into a huge loss for the population of the countries rich in resources, an
exception being Norway which has an intelligent approach on how it uses its natural resources and
how it obtains royalties from externalizing the service of extracting and selling its resources.
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The New Millennium’, World Bank, Washington DC.
186
Change and Public Relations as Engine for Organizational Growth

Ramona Mihaela Ghințu (Bănică), Bucharest University of Economic Studies, Bucharest,
Romania, ceo@infinitumgroup.com
Carmen Valentina Rădulescu, Bucharest University of Economic Studies, Bucharest, Romania,

cvradulescu@yahoo.com
Irina Petrescu, Bucharest University of Economic Studies, Bucharest, Romania,

irina.petrescu@gmail.com
Carmen Georgiana Badea, Bucharest University of Economic Studies, Bucharest, Romania,

badea.c.g@gmail.com
Bogdan Pascu, Bucharest University of Economic Studies, Bucharest, Romania,

pascu_bog@yahoo.com
Ionuț Victor Rătezanu, Bucharest University of Economic Studies, Bucharest, Romania,

ratezanu_ionut@yahoo.com
Abstract
This paper is developed as an overview of change in the terms seen in an organization and the
powerful approach had by the public relations department as a tool for top tier management to help
the company evolve not only in crisis situation, but also in times of calm to evolve towards its best
position in front of clients, suppliers and competitors. During the research we will highlight some
issues seen in achieving organizational goals and also by emphasizing the issue developed by path
dependence of individuals.
Keywords: public relations, organizational change, strategy, growth
Introduction
Ordinary experience shows that organizations are far from static. Our favorite little restaurant is
successful and expands. We go back to visit the college we graduated and see a variety of
programs and new buildings. As consumers, we recognize that such changes could have a
profound impact on the product or service. By extension, we can imagine that the changes have a
profound impact on those who work in the restaurant or in college. In itself, the changes are not
neither good nor bad. But how are they influenced and managed is crucial for customers and for
members.
All organizations are faced with two sources of pressure for change, external and internal. The
best example of the impact of the external environment to stimulate organizational change is
increased competitiveness in the business world. Partly forced by economic globalization,
reconciliation and advanced technology, businesses have become very important. Many
companies have abandoned the middle echelons of managers, developing flatter structures that
react more quickly to the demands of competition. Mergers, acquisitions and joint ventures with
foreign companies have become commonplace and relations with unions and suppliers devoid of
adversity. Change can be caused by forces from the internal environment of the organization. Low
productivity, conflicts, strikes, sabotage, absenteeism and turnover are some of the factors that
managers indicate that some changes are needed to be done. Very often the internal forces that
187
pose as problems arise in response to organizational changes designed to cope with the external
environment. Thus, many mergers and acquisitions aimed at increasing competitiveness were
followed by conflicts between cultures in merged organizations. Conflicts stimulate new changes,
unanticipated at the time of the merger, but dangerous if unsolved.
Cyclicality of Organizational Change

In contemporary organizations, much of the change is driven by senior management and involve
large changes in strategy. The whole organization is likely to be affected, this way employees’ and
family’ values will be discussed and somehow affected by change (Nadler, Tushman, 1989, pp.
194-203).
Internal and external environments of the various organizations will be more or less dynamic
despite changing trend. Change itself is not always a good thing and organizations can be too
much or too little involved or wanting change. A steady stream of changes in campaigns fail to fix
organizational behavior patterns that are needed for efficiency.
Theoretically, organizations can change almost any aspect of operations they want. Since change
is a broad concept, it is useful to identify some specific areas where changes may occur. Of course,
on what option is changed depends on well-informed analysis of internal and external forces that
signal the need for change. Factors to be changed include:
1. Objectives and Strategies. Organizations frequently change their goals and

strategies they use to achieve them. Expansion, introduction of new products
and seeking new markets represent such changes.
2. The technology. Technological change can vary from minor to major ones.
Introducing employees' access to a new line of computers is a rather small
change. Changing the rigid assembly with a flexible manufacturing system is a
major change.
3. Job design. Companies can redesign the individual stations to provide more or
less autonomy, identity, meaning and feedback.
4. Structure. Organizations can be passed from functional form to form that is
product oriented or vice versa.
Formalization and centralization can be handled, like height, the areas of control and cooperation
with other companies. Structural changes include changes to rules, policies and procedures.
1. Processes. The basic processes by which the activity can be changed. Stages of
a project, for instance, can be made simultaneously and not sequentially.
2. People. Membership of an organization can be changed in two ways. First, the

actual content can be changed by reviewing employment procedure. This is done to
bring new forces or to receive the benefits that a diverse workforce provides.
Secondly, existing components can be changed in terms of attitudes and skills
through various training methods and development.
Two important things must be said about the different areas in which organizations can introduce
change. First that a change in one area may require changes in others. Inability to change the
systemic nature of change in one area may require changes in others. To be effective, objective
and strategy changes require major structural changes, including a geographical division with
emphasis on form and decentralizing decision.
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Second, change the objectives, strategies, technology, structure, processes and job design always
require organizations to pay attention to and for the people. If possible, necessary skills and
positive attitudes will be grown before introducing changes.
Making the change process
By definition, a sequence of events involves changing organizational or psychological process that

takes place over time. Psychologist Karl Lewin suggested that the succession process involves
three stages or fundamental unfreezing, changing and refreezing (Lewin, 1951).
Thawing occurs when the existing state of things is perceived as unsatisfactory. This may involve
understanding that presented structure, design or technology is inefficient for operations, attitudes
or skills that are inadequate for organizational members. The crises likely to change thawing. Of
course, thawing can occur without crisis. To anticipate problems and initiate changes before the
crises, they use surveys to measure employee attitudes and customers as accounting data.
Change happens when a program or a plan is in place to move the organization or its members
toward a more satisfactory position. The terms are used nonspecifically in a program or plan for
change that some efforts were inadequate in measuring. Efforts may be higher or lower. A simple
training program for skills development or revision of the employment process is a relatively
small change, involving few members of the organization. Conversely, major changes involving
many members may include large-scale enrichment stations, or radical restructuring thoughtful
attempts to empower the workforce.
Refreezing, a situation that arises when non-formats behaviors, attitudes or structures become
permanent aspects of the organization. It can examine the effectiveness of change and must be
verified in the desire of future expansion. We can say that refreezing is a relative and temporary
state of affairs.
Public Relations as Support for Organizational Change

The role of public relations in the formal planning of an organization is significant. Counselors for
public relations helps to create a statement of principle to the organization - providing advice on
audiences and strategies for achieving the goals, as well as in environmental monitoring
organization - as part of establishing objectives and goals of the organization for one year, five
years, or maybe ten years. In addition, the public relations department should set their own goals
and purposes of communication. Some public relations communication plans are directly linked to
the organization's plans. Even if an organization has no plans established for certain periods,
however, the public relations department should have a generic communication plan tuned within
the organization's annual activities. In addition, the public relations department needs a
communication plan in a crisis, or at least some general rules for treating seizures. However, like
all other communication activities based on cooperation with other divisions of the organization
and the blessing given by senior management, crisis management’ plans must be developed in
cooperation with other departments of the organization and should be approved by senior
management. Public relations executives within management functions developed hierarchically
because they must interact directly with all parties at all levels of the organization.
Public relations are difficult to plan and manage high expectations, because there are different
levels of requirements and creative elements involved. They demand flexibility and leadership
talent, and these qualities are not often rewarded. Many public relations problems cannot manage a
domestic situation, and this often comes from management's failure to approve the actions
189
necessary to be done for the accomplishment of a task. Public relations practitioners often feel that
it is difficult not to be overwhelmed by details, but be careful not to observe the details has the
same disastrous effects.
The plan for the public relations department starts with its own mission statement, which describes
how it sees itself, its role and contributions to the organization. It takes this statement because the
public relations department is often called to do different things or react in different situations
unrelated and sometimes favorable (or counterproductive in other situations) with the mission of
center. The mission of public relations duties is to assist with the preparation of the entire
department – what it does for the organization and in the organization. Changes in top
management may disrupt the activity of public relations, if it cannot show a document describing
the department's activities and provide rational reasons for those activities. The new leadership
may wish to continue to make some changes, but still can benefit from understanding what is or
should be the function of public relations, especially when management was recruited from
another organization or a field unrelated, but inside organization, such as engineering.
Public relations department should set their own goals and objectives for the management of the
department. Furthermore, the public relations department must make a ranking of its own
audiences, depending on their importance. This is different from maintaining a database of
audiences for the organization, which may include the description (demographic and
psychographic), data (addresses, for example), analysis (attitudes towards the organization and to
its products and services) and relative importance according by theme or event. Own publics of the
public relations department may include senior management, other important sources of
information within the organization, the staff of media outlets and special audiences from industry
or government structures. The department must clearly understand who these audiences are and
what is their special link with them.
The relationship with the organization department must appear in their positioning statement,
which describes itself as "adviser to the leadership" or "communication center" or anything
intended to be within the organization, this way in times of abrupt changes for the organization,
these relations come in handy.
Then, the public relations department must make a schedule and set priorities for activities that
traditionally fall within its responsibilities. This is very important because sometimes when special
requests are made or when certain situations arise as favorable, other obligations could not be
fulfilled or be postponed. The schedule for the activities of the department helps to plan their time
effectively. Also, some activities that the department makes them just because "it has always done
them" can be replaced on the calendar of activities closer to the mission of the department.
Finally, the department has to monitor everything you do to see if the planned activities are carried
out correctly and produce responses. Monitoring activities of the department during their
deployment may have the effect of avoiding a final full of failures and facilitates the preparation of
the report at the end. The result of each action must be analyzed to discover what worked and what
did not; then there are made recommendations for the coming year. The department needs to carry
out a year-end report as part of the overall assessment of the management process, either as part of
the budget drafting process. In any event, activity reports of the public relations department
resemble those of other departments, except that most of its activities support the organization as a
whole or other departments within the organization, instead of being made to the department itself.
Sometimes, this may have the result that the department does not receive the recognition they
deserve. Along the way, plans of public relations for himself or organization can be interrupted by
the need to develop special strategies to solve problems.
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The resources available in the public relations department often need other divisions of the
organization. Public relations can provide information about the organization's publics about
socio-economic and political climate in which the organization operates and about the various
means of communication.
Intelligent strategy – the key public relations for organizational change
One of the oldest formulas for solving problems is RACE, the formula of John Marston, an
acronym for Research, Action, Communications and Evaluation (Marston, 1963). But the concept
appears earlier (with no acronym) in the 1952 edition of the book Effective Public Relations
(Effective Public Relations) by Scott Cutlip and Alton Center: discover the facts; establish a
policy and / or plan a program; communicates the story; receives feedback from external
audiences for changes or for future planning (Cutlip, Center, 1952 p. 87). A change (another
acronym) appears in Cases of Public Relations (Public Relations Cases) by Jerry Hendrix: ROPE
(Hendrix, 1998, pp. 5-6). As Marston, start researching Hendrix (R), but then proceeds to
objectives (O), which divides them into production targets and objectives impact. Production
objectives are communication activities that should be generated by public relations efforts in a
given period. Impact goals have three dimensions: informational goals (exposure to
unemployment, understanding and retention), attitudinal objectives (creation, consolidation and
change); and behavioral objectives (creation, consolidation and change). The P in Hendrix's
formula is developing programs. The final step, again, is evaluating (E).
Conclusion
People love their habits, and change frequently encountering resistance from those to whom it is
addressed. More specifically so people resist change and thawing. The causes of resistance is
resistance itself, which occurs when people do not support efforts to change. Some common
reasons are (Kotter, Schlesinger, 1979):
1. Politics and self-interest. They sense that people will lose status, power or
position, when the change occurs.
2. Poor individual tolerance to changes. Personality predispositions may
make some people feel uncomfortable change in routine they are used.
3. Misunderstanding. Reason for change or the precise action can be
misunderstood.
4. Lack of confidence. People can understand clear arguments, but do not
trust the motives of those who propose change.
5. Different assessment of the situation. Those subject to change may
sincerely feel that the situation does not justify the proposed changes and
that change supporters have misinterpreted it. For example, UPS managers
saw the introduction of packaging with lines of code a way to help
customers track their goods. Employees saw it as a way to track and spy
themselves (Frank, 1994). So apparent lack of communication.
6. Resistant organizational culture. Some organizational cultures
particularly emphasized and rewarded stability and tradition. Advocates of
change in such cultures are seen as deviant, aberrant or misguided. For
example, when deregulation imposed massive changes in AT & T, resistant
traditionalists were called "hard-headed" by the new guard.
Underlying these various reasons for resistance there are two major themes:
191
1) change is not necessary because there is a small gap between current and ideal
identity of the organization;
2) change cannot be obtained because there is too great of a gap between current and
ideal identity.
How is resistance treated (Kotter, Schlesinger 1979, pp. 106-114)? Poor tolerance to change is
mostly an individual problem and it can be overcome by a supervisory patient and solicitous.
If politics and self-interest are the roots of resistance, it may be co-opted by distributing its
stubborn person in a particular role, desirable in the process of change or negotiating special
benefits in case of change. Contemporary organizations learn that their obsessive discretion on
strategy and competition may have more internal than external benefits costs.
The involvement of those affected by the change in the very process often reduces its resistance
(Macy et al., 1989, pp. 1095-1165). This is positive, especially when there is time for
participation, and when it is important and a real commitment to change when the people affected
can provide invaluable knowledge.
References
Bodislav, D. A. (2015), Transferring Business Intelligence from Corporations to Governments,
ASE Publishing, Bucharest, Romania.
Broom, G. and Dozier, D. (1990), Using Research in Public Relations, Englewood Cliffs, New
Jersey.
Cutlip, S. and Center, A. (1952), Effective Public Relations, Prentice-Hall, Englewood Cliffs,
New Jersey.
Frank, R. (1994), ‘As UPS tries to deliver more to its customers, labor problems grow’, Wall
Street Journal, 23 May, A1, A8.
Hendrix, J. (1998), Public Relations Cases, Wadsworth, Belmont, California.
Kotter, J. and Schlesinger, L. (1979), Choosing Strategies for Change, Harvard Business Review,
no. 2, 106-114.
Lewin, K. (1951), Field Theory in Social Science, Harper&Row Publishing, New York.
Macy, B., Peterson, M. and Norton, L. (1989), ‘A test of participation theory in a work redesign
field setting: Degree of participation an comparison site contrasts’, Human Relations Journal, no.
5, 1095-1165.
Marston, J. (1964), The Nature of Public Relations, McGraw-Hill, New York.
Nadler, D. and Tushman, M. (1989), ‘Organizational Frame Bending: Principles for Managing
Reorientation’, Academy of Management Executives, no. 8, 194-203.
Tichy, N. and Devanna, M. (1986), The transformational leader, Wiley Publishing House, New
York.
192
Fiscal Policy in the EU Compared with the US –

What Makes Businesses Thrive
Evelina Petronela Bălu, Bucharest University of Economic Studies, Bucharest, Romania,
baluep@yahoo.com
Eugen Albu, Bucharest University of Economic Studies, Bucharest, Romania,

albu_eu@gmail.com
Loredana Ionica Stan, Bucharest University of Economic Studies, Bucharest, Romania,

stan_i.loredana@gmail.com
Amelia Diaconu, Bucharest University of Economic Studies, Bucharest, Romania,

amelia_diaconu@yahoo.com
Ramona Mihaela Ghințu (Bănică), Bucharest University of Economic Studies, Bucharest,

Romania, ceo@infinitumgroup.com
Abstract
This paper underlines the importance of a healthy and well developed fiscal system. To highlight
the need for unitary measures inside a fiscal system, the authors compared the European Union
and the United States from the fiscal perspective and how it helps the economy and especially the
growth of newly created SMEs (small and medium enterprises). Through this research there were
highlighted all the necessary measures needed to be achieved in the idea of reconfiguring or
reshaping fiscal systems, especially the EU’s system for creating a better catching up towards the
US. To sum up the research some remarks will stress some common sense characteristics that are
needed to be emphasized for helping taxpayers and the globalized business environment.
Keywords: fiscal system, taxation, administrative costs, globalization
Taxes, Taxation and the Fiscal System

Taxes and fees generate the revenues needed by state institutions, but also have an important
impact on the functioning of the economy as a whole, especially the redistribution of economic
resources. The links between taxes are conceptual, technical and practical. Taxes placed on
specific regulations account for the taxation they generate, besides the connections between these
and other influences on the environment is the social environment.
The tax system is regarded as a cybernetic system. Such a systemic vision on taxes understanding
of causality involves the establishment and the effects generated along with their establishment.
Taxes are placed in their various forms in a certain structure, conceived by certain principles and
restrictions generating multiple connections.
The financial system includes all financial funds in place, bounded on the economy, and the
connections between them and constituted as movements generated by operations or financial
resources, as they are called, financial flows.
Tax relations ensure the supply of funds but also their orientation through the attraction of
resources. Taxation is manifested thus in the process of placement, by mobilizing the various
channels of resources available to the state, representing a part of the function of finance, that of
193
distribution. It is therefore a result of event content filtered through a financial mechanism. Like
any effect, taxation should and can be streamlined.
Income tax revenues are part of the state and its budget and is the most important part of
governing apparatus. The fiscal effort is generating tax revenue and is focused on taxes. Part of
income tax payments represent the taxpayers’ destined fiscal effort. It is measured by what we call
the tax burden rate. The tax burden rate is of a relative size determined by the ratio of tax revenues
to the company and the taxpayer's gross domestic product, as the ratio of its fiscal obligations and
its income.
Taxation depends on the orientation of fiscal policy as part of the financial and fiscal process and
is conducted by the fiscal authority and taxpayers. Delimited in a territorial manner, it could be in
line with newly developed policies and could be coordinated in the same manner and also could
create and maintain the state’ tax system (Checherita-Wetsphal, Rother, 2012). The state through
its fiscal system transmits a part of its sovereignty that is manifested by its right to create and
impose taxes. Fiscal sovereignty in turn can be discussed and analyzed in relation to other tax
systems entering the economic relations of the type of international economic transactions,
commercial or international economic cooperation.
The modalities through which the ties with other countries shows both an economic and political
importance in the context of globalization of the world economy (Fatas, Mihov, 2013).
Specifically, these are defined by double taxation avoidance techniques, the precautions are
necessary to prevent international tax evasion and tax alignment requirements needed in a
economic union, if necessary.
The system is shaped by time and space and the content will work as long as the environment
created corresponds with the initial purpose. Designing the tax mechanism depends on fiscal
policy, and this will be translated into reality at the expense of tax mechanism.
Fiscal policies are diverse, depending on their underlying doctrines. State's right to regulate the
taxation system is discussed in the literature on account of economic theories and philosophical
thinkers of philosophy and classical political economy. It talks about organic theory, social theory,
social contract theory, exchange theory and the theory of sacrifice.
Organic theory explains the tax law through the need of cash funds available to the state, as an
essential condition for the existence of the state.
Sociological theory gives quality to the exuded state of unrest and in the name of society, has the
right to maintain the public within the state apparatus and society.
The theory of social contract, the right of taxation appears as an agreement between state and
society, in which citizens give up some of the revenue in exchange for ensuring social security and
other public goods.
Exchange theory has been founded by Adam Smith and taxes supposedly represents the value of
benefits made by the state and which will be received by the taxpayer.
Theory of sacrifice for public utilities highlights the existing state and taxpayers’ obligation to
contribute to its maintenance.
The basic idea of this theory is that whatever the cause or purpose of fiscal effort, based on a tax
will stay valid through a legislature that actually puts it in specific laws for taxation.
194
The Catching Up Process of the European Union – A Fiscal Perspective

The European Union’ economic development should not be viewed only in terms of endogenous
movements, but also under the influence exerted by external factors such as fiscal policy of the
United States of America. If this country, its fiscal barriers have disappeared almost completely,
and the extent to which the European Union does not undertake anything on this line, competitive
advantage of US products and services will be felt. In this respect, the business development of the
European Union and implicitly the catching up process of its emerging members (Romania,
Bulgaria and Croatia) are based on fiscal policy measures that are needed in general, which led to
the development of a common framework for taxation at company level.
One solution to this would be a uniform determination of the tax base for companies with cross-
border activities in several member states. This creates the possibility to use "Taxation in the State
of origin of the parent company" (also known as a Home State Taxation), which unlike other
previous projects not intended for harmonization of provisions specific to each member state or by
modifying the methodology of technical computing the tax base.
The EU compared with the US from the fiscal perspective
The existing gap between the EU economy and that the US economy must constitute an alarm for
European decision-making entities. Eurochambers’ study showed that the European Union would
take:
Ø 18 years to reach revenues of US citizens;
Ø 14 years to achieve the level of productivity of US workers;
Ø 24 years to match the level of investments in research and development.
In addition, as a result of tax rates lows and major opportunities, these have been engine for a rise
in emigration from Europe to the US, the benefits of the market overseas is obvious and only by
the simple fact that the consumption of a US citizen is on average 77% higher than of a European
(9,700 euro per year for the European and 17200 euro per year for an American citizen).
If we compare the economic situation in the euro area with the United States, it is evident that the
gap between them is growing, reaching the situation that has the difference between gross income
of people in the two main areas to grow since 2002 at a pace of 1.3% per year (Trichet, 2006,
Bodislav, 2013).
Analyzes and forecasts relating to taxes, even if fiscal pressure is often calculated as the ratio of
tax revenues to GDP, this measurement has its weak sides seen between tax rates and the pressure
on incomes higher than usual which creates an inverse relationship. Examples are relevant in these
situations. Thus Ireland, which has the lowest corporate tax rate in the European Union (12.5%)
achieved a fiscal revenue of 3.8% of GDP, while Germany with a share of 38% gets only 1.3% of
GDP. Quotas for marginal tax competitiveness is very important because such a system is on its
maximum level.
Tax revenues from income tax, weighted in relation to GDP decreased as a proportion of the total
revenues, but without taking into account weighting increased in the last 30 years. This may seem
strange, if we take into account the continuing decrease in tax rates. But there were situations
where extremely low rates have helped attract investment flows, which have not only offset the
195
decrease of percentage rates, but even caused increasing tax revenues. Also, this inclination
towards investments may have originated from a reallocation of savings and investments directly
to the SME sector.
Although high at global level, as we previously highlighted, the US taxation system is in some
cases in a position to look at the bottom line when it comes to profit taxation. In this regard, we
will submit two cases. The first one, in the USA there is a federal tax of 35%, plus other taxes in
various states and also could be supplemented by the use of percentages for agencies that operate
in other national markets. The application of such a system, to "penalize" business development
across national borders is not possible, nor would be welcomed in the European Union, on the
assumption of fueling cross-border activities, especially in the SMEs sector. Secondly, on the
same line stand the cases of double taxation of income. Subsequently, net income which is
reinvested to generate an increase in value of the company is taxed depending on capital gains.
But if it opts for distribution of net profits as dividends, the tax is levied on dividends. In other
words, regardless of the destination of profit, it is faulted with double taxation of corporate surplus
value.
Indirect taxation it shows many differences from direct taxation. For example, the European Union
charges VAT, which is applied in a broader framework and whose rates vary between 15% to
25%, the average being 19.8%. In the US there is an equivalent tax, sales tax, but which is kept
low (5%) and in addition has a restricted application base.
Globalization also plays an important role similar with a poor economic policy that will have an
impact on member states as a result of increased mobility, both in terms of investments, and in
terms of workforce. As an immediate consequence, many member states face an exodus of
investment and labor to the USA, among them being the newly accepted members of the EU
(Romania, Bulgaria and Croatia) that have a highly qualified population. From this point of view
of globalization, the US vision towards the OECD, the European Commission and the UN is not
that bright, experts in this part of the world considering that harmonization is desirable because it
alone could prevent this transfer. Inevitable due to increased mobility in a globalized adjusting tax
base is necessary, seen as the only way to attract inputs (Bodislav, 2012).
Imbalances between our two economies (US vs. EU) is amplified by the large amount of spending,
for which we expect an increase at EU level, not necessarily because of the aging population, but
because of the soon to retire person part of the so-called "European baby boomers".
The Globalization of the Fiscal System, EU’s Perspective

To eliminate the potential for any undesirable effects as a result of globalization, and in order to
obtain from taxpayers the fulfillment of all tax obligations, it is imperative that tax treaties that are
signed with other countries will provide full information about incomes of all foreigners resident
in the first state.
If a state wants to impose all revenue taxation within or appeal to the principle of source taxation,
if the exchange is considering taxing all income derived by residents will use the principle of
residence. If the first principle is used in all member states, the same cannot be said about the
second one (Cotarelli, Jaramillo, 2012). In this interplay of principles there is also a category of
states (indeed a few in number), which tax only by using the second principle, which often
constitutes an obstacle to foreign investors.
Although fiscal policy drafts of the double taxation are designed to simplify taxation, there are
196
situations where they may greatly aggravate the performance of activities as a result of cross-
border transactions that are made under conditions that are not very clear. Multinational
companies transfer profits through transfer pricing, by using tax jurisdictions in search of the most
lenient one. To counterbalance the negative effects triggered by these practices across different
states' tax revenue principles, there was introduced the principle of evaluating the price or tariff
that would normally be charged to complete that transaction (Cabrera, et al., 2015). The risk, as
mentioned above is setting as actual values that would lead to obtaining different results from one
state to another, and their views do not converge to that of a multinational company. In this case,
the danger of double taxation is eminent. Even so there are fields where this principle is almost
impossible to implement due to the high degree of complexity and innovation that characterize the
products in question.
Fiscal coordination can be achieved in two ways:
1. by harmonizing taxes. In this case, the European Union adopts regulations

that are applicable in all member states. Therefore, 28 different rules are
replaced by a single rule across the European Union (or 27 countries if
Brexit is finalized);
2. identifying obstacles to the free movement of goods, services, labor and
capital, some types of provisions and tax practices of a member state and
another, which is recommended to be removed, and by enhancing recovery
of member states in tax matters as, for instance, combat tax fraud by
exchanging information.
Fiscal coordination is made with respect to the two principles of European integration:
a. Accepting the principle of national fiscal policies, to the extent that they are
not discriminatory and do not contravene with the objectives and policies of
the European Union (horizontal coordination of national policies – Jorda,
Taylor, 2016);
b. The principle of subsidiarity, which, in case of awarding powers of fiscal
policy between the European Union and the member states requires that
these skills should be left to the member states, unless it can be
demonstrated that they could be better achieved at Union level (vertical
relations between European institutions and national governments).
Tax reforms are needed because even though many member states are generally based on the
market economy in most sectors of the economy, high tax rates decrease the market’s
competitiveness (Aghion et al., 2015). Such a situation occurs in the US, where the population has
more free time, because tax rates are higher for high income obtained as a result of rendering
overtime. However, there is the possibility to counterbalance these negative effects in the event
that individual taxpayers will opt for developing their own businesses as a result of increased free
time and extra financial inability to pay for services provided by third parties.
Tax reforms necessarily involve analysis of two aspects. The first relates to the purpose of the tax
system, which means the collection of the state tax revenue, using resources as low as possible,
imposing significantly lower administrative costs and offering conditions for the conduct of a fair
tax competition. The second aspect is based on the possibility of transferring the taxable mass. In
practice, some two types of transfers are found: one is that which occurs within the same national
framework, but change is in the status of the individual or legal entity, while the second aims to
shift into another national framework (Arrow, Kruz, 2011).
197
Each member state will take account of the tax rates in other countries, because these are the main
causes of transfer profits. But this constraint of permanent tax rates may cause erroneous decisions
in their sense of loss. This issue is caused by increasing competition between countries to attract
investments and capital flows.
Fiscal policy should not be automatic, there are opinions to guide discretionary fiscal methods,
generally in times of recession when turning to tax relief or additional spending is done for
economic recovery.
Fiscal policy is difficult to use in order to stabilize an economy, because there is a lag between
when they appear as in line or valid and the date when they are adopted and implemented as
various measures.
An expansionary fiscal policy will establish a higher yield at the moment, but this will cause
diminishing profitability in the future. Fiscal expansion will lead to a tightening of budgetary
savings, which will generate either reducing investment in equipment and factories or an increase
in the amounts borrowed from the member state.
In contrast, fiscal policy will diminish even limiting short-term tax revenues, although they will
register significant growth in the future. Fiscal policy directly affects the economy by influencing
investment flows and facilities in a certain industry because the sector concerned will be less
sought due to the tax regime in the meantime.
Concluding Remarks – Administrative Costs and the Incentive to Invest

Incentive for investment can be calculated either from the value of the tax revenue, from the
income tax or through taxes paid as a share of profits relative to the amount recorded as paid.
Choosing the optimum taxation for a member state, in terms of attracting investment is not likely
to develop into the cornerstone of an analysis performed only on the basis of comparison of each
member state tax revenue’ system, because their demographic and territorial dimensions vary
greatly. The solutions in this respect should be sizing of these tax revenues in relation to either
GDP or of total tax revenue. Expansionist fiscal policy reduces investment in the private sector
(Belingher, Bodislav, 2014).
Reforms should not be taken under pressure, since the risk of fixed taxes in certain areas of
interest without prior review may result in changing the action from the perspective of the
economic entity.
Another approach involves evaluating the tax system’ administrative costs that it generates, costs
that may be of two types:
- Pure administrative costs that relate to expenditures undertaken by tax

administrations for the proper development of the process for levying and
the collection of taxes. Administrative costs are generally high because
besides complexity of the system, there are a high number of authorities
with attributions in establishing and collecting the taxes. Even companies
that spend significant sums to improve compliance are in line with this
practice (DiFilippo, 2004). In addition, they are especially large in terms of
paid income tax and local taxes because they are difficult to administer,
have a limited tax base and there is a massive circumvention of the law;
- Compliance costs for framing the work done within the limits of legal
198
regulations, costs include all expenses incurred by the taxpayer, except the
actual tax or fee (Gervais, Mennuni, 2015).
Such compliance costs are associated with:
- Spending on adapting to the new legislative framework (identifying legal

obligations, understanding how to determine taxable income or profits,
knowing the deadlines for filing). Now it appears very clear how beneficial
it would be for entrepreneurs to adopt the system of taxation in the member
state of origin of the parent company;
- Expenditure on specialized services;
- Personnel expenses adequate to meet the obligations stipulated in the
legislature of the host member state;
- Expenses with the mental factor as a result of stress caused by the fear of
not filling the tax obligations in accordance with those specified in the
normative acts.
The decrease of these costs give an overall reduction in tax expenses for taxpayers, which
psychologically is similar to increasing the acceptance for the tax system in question and normally
develop a decrease in tax evasion. Based on these compliance costs we can conclude that it could
be enough for the business environment in the newly accepted member of the EU, Romania,
Bulgaria and Croatia. Perhaps if there had not been so many changes in the taxation methods,
which involved an increase in development costs that are mentioned above, foreign investors
would be more attracted to the markets of the emerging members of the European Union. If fiscal
policy changes, few people will be interested in investing. Tax system’s structure should be an
objective factor which economic agents that include it in their company policy and not to suffer
from an element that goes through repeated changes depending on the wishes of the acting
administration, instead of listening to the ideas of taxpayers that support the fiscal burden at the
end of the day.
References
Aghion, P., Hemous, D. and Kharroubi, E. (2014), ‘Cyclical fiscal policy, credit constraints, and
industry growth’, Journal of Monetary Economics, vol. 62, 41 – 58.
Arrow, K. and Kruz, M. (2011), Public Investment, the Rate of Return, and Optimal Fiscal Policy,
RFF Press, New York.
Belingher, D. and Bodislav, D. A. (2014), ‘Estimating the output gap for Romania’s economy’,
Hyperion Economic Journal, 2 (4), 12 – 18.
Bodislav, D. A. (2012), ‘How did we get to the deficit spectrum of the economic crisis?’,
Romanian Journal of Fiscal Policy, 3 (1), 9 – 19.
Cabrera, M., Lustig, N. and Moran, E. (2015), ‘Fiscal Policy, Inequality, and the Ethnic Divide in
Guatemala’, World Development, vol. 76, 263 – 279.
Checherita-Westphal, C., Rother, P. (2012), ‘The impact of high government debt on economic
growth and its channels: An empirical investigation for the euro area’, European Economic
Review, 56 (7), 1392 – 1405.
199
Cotarelli, C., Jaramillo, L. (2012), ‘Walking Hand in Hand: Fiscal Policy and Growth in Avanced
Economies’, IMF Working Paper, no. 12/137.
DiFilippo, D. (2004), ‘PricewaterhouseCoopers Global Leader for Performance Improvement and

US Leader for Governance, Risk and Compliance’, PricewaterhouseCoopers’ Management
Barometer, London.
Fatas, A. and Mihov, I. (2013), ‘Policy Volatility, Institutions, and Economic Growth’, The
Review of Economics and Statistics, 95 (2), 362 – 376.
Gervais, M. and Mennuni, A. (2015), ‘Optimal fiscal policy in the neoclassical growth model
revised’, European Economic Review, vol. 73, 1 – 17.
Jorda, O., Taylor, A. (2016), ‘The Time for Austerity: Estimating the Average Treatment Effect of
Fiscal Policy’, The Economic Journal, 126 (590), 219 – 255.
200
The Solution Options of an E-shop Model Veronika Novotná
Veronika Novotná, Institute of Informatics, Faculty of Business and Management, Brno University of
Technology, Brno, Czech Republic, novotna@fbm.vutbr.cz
Abstract
Presently it is becoming more and more obvious that the significance of informatics for the performance
and success of a company keeps increasing. That brings the need of rationalizing its management. For this
reason, many organizations define certain internal and external processes including IS/IT architecture to
support these methods and procedures. The model described in this paper is designed from the point of
view of an e-shop owner. The aim of this paper is to introduce the solution options by using modern
numerical methods. Furthermore, the effect of change in model parameters on the solution will be
monitored.
Keywords: differential equations with delay, e-commerce, ICT, Maple, strategic management
Introduction
The current situation of global economics has motivated managers to search for new methods and more
efficient procedures to achieve financial cost reduction, in particular for support processes. In this respect,
information technology has become an ever important factor of support in achieving company objectives.
IT has become an element that enables growth and development of organizations. Simultaneously, the
demands on IT have been increasing as well. The gradual development has shown that IT helps creating
values in areas where it enables support of company processes and thus brings profit in technological and
commercial sections of a company. Generally, the value of IT for a company may be viewed analytically or
pragmatically. The connection of information and communication technology (ICT) with strategic interests
and routine everyday operation seems to be an issue in many companies. The significance of informatics
for performance and success of a company has created pressure to rationalize its management and the
related methodologies and models. For this reason, many organizations define certain internal and external
processes including IS/IT architecture to support these methods and procedures.
The aim of this paper is to clarify the solution options of an e-shop model by using modern numerical
methods. The model is introduced as a dynamic system designed from the point of view of the
owner/operator. Furthermore, the effect of changes in the model parameters on the solution will be
monitored.
Problem Outline
E-commerce represents a fast developing sector predisposed to utilization of sophisticated solutions, even
in strategic management, using ICT.
These solutions are mostly related to modelling, namely to the creation of dynamic models that enable
viewing the subject from perspectives required for a qualified decision. High quality information gained
from real data using ICT plays a crucial role in this respect.
Strategic Management in E-Commerce
Electronic commerce is an activity linked closely to the data level and as such enables this data basis to be
utilized for acquiring information. Respect for development tendencies within strategic management seems
efficient in this respect as well. Besides, an important prerequisite of efficient strategic management of
electronic commerce is the management ability to react to the development of conditions in both internal
and external environment. Identification of the respective system elements represents a key area that
determines the use of particular methods. Strategic planning and creation of a model that would contribute
to successful risk management in planning the strategy of a new e-commerce company is described for
example in papers Azumach & Magiure (2007) and Ferguson & Yen (2007). In his paper Groesser & Jovy
(2016) evaluates the advantages and disadvantages of computer modelling as a tool of strategic
management and demonstrates them in a case study focused on e-commerce business. ALHARBI’s paper
proposes a new method for assessing the risks associated with e-commerce development using multi-
criteria decision-making techniques.
A significant prerequisite of efficient strategic management of e-commerce is the ability of the
management to react to the development of conditions in both internal and external environment. On the
201
contrary, the paper (Falk & Hagsten, 2015) investigates the impact of e-commerce on work productivity in
the group of 14 European countries. Study GAO, Baojun examines Gibrat’s law regarding size-growth
relationships in the consumer-to-consumer (C2C) online Marketplace.
E-commerce has also brought gradual harmonization of frameworks and methodologies for management
of quality and governance in fields that used to be separated – IT, digital content and telecommunication –
that results in gradual interconnection of the E-TOM, COBIT5 and ITIL standards (Latifi & Nasiri, 2013).
Today performance analyses and performance management both in commercial sphere and public
administration are among the topics of many international and lately even Czech publications. Bacal
(2012), Boyne & all. (2006), Paladino (2011), Ješuta (2012), Novotný & all. (2012) are among the most
notable ones. The paper (Zhang & Zhang, 2012) presents the results of a study analysing successful
utilization of organizational changes simultaneously with various information technologies in public
administration.
Methods
Modelling in Economics
One of the current important trends is to study different model situations, get familiar with simulated
conditions, search for possibilities, optimal solutions etc. Mathematical modelling has penetrated different
fields – technical, natural, economic and social sciences – and has become an important tool for modelling
and simulating of systems, analyses and prediction of different processes, phenomena, behaviour of species
and state of societies.
A number of applications from various scientific fields as well as conclusions provided by theoretical
mathematics show that the models based on dynamic relations describe the behaviour of state values very
well. In this case the mathematical description may be provided by functional differential equations (FDE)
or their special type – differential equation with delayed argument that can be used in deterministic models.
In these models it is assumed that all state values are not determined only by the immediate values of the
variables entering the solution but also by their preceding states, at the same time all random influences are
ignored.
Use of Delay Differential Equations in Economics
In a number of real systems that are mathematically modelled by dynamic systems, we come across the
issue of a delay of some modelled values. This applies to vector equations in the form
´( ) = ( ( ), ( − ∆ ), ( − ∆ ), . . . , ( − ∆ )), (1)
where the vector is both the searched function x = x(t) and its derivations, as well as the right side of the
equation – f. The delay ∆j, j = 1, 2, . . . ,m may have the nature of constants, then we talk about differential
equations with constant delays, or the delays may depend on time t, i.e. ∆j = ∆j (t), j = 1, 2, . . . ,m or on the
preceding values of variables xi, i = 1, 2, . . . , n , i.e. ∆j = ∆j (x1, x2, . . . , xn), j = 1, 2, . . . ,m; these are
differential equations with delay dependent on state variables or on both time and state variables.
An extensive and complex analysis of equations with deflecting arguments was carried out at a workshop
in Perm (Azbelev & all., 1991), (Azbelev, 2001); systematized results can be found in (Azbelev, 2003),
(Azbelev & all., 2007).
Problem Analysis
Model of Company E-Commerce
The model for monitoring electronic commerce has to be designed from the point of view of the e-shop
owner/operator and the selected level of abstraction has to correspond to the focus in strategic and
conceptual management.
In this paper by Luhan & Novotná (2013) an a dynamic model taking into account the impact of the data
from the preceding period has been constructed, expressed by a system of two differential equations with
delayed arguments.
The change in the e-shop costs (marked as ) is affected by the e-shop performance (marked as ) and its
development (marked as ). Furthermore, it is assumed that the change will also be affected by the
behaviour of in the past.
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performance and growth of in the period ( − ∆, ) .

The change in benefits (marked as ) is affected by performance and increases with increasing
Benefits affect development while increase in benefits is accompanied by the e-shop development.
The overall model design consists of two state variables and and three related linear delay differential
equations:
=∝ ( )− ( − ∆)
= ( ) − vh( P( ) − ( − ∆)) (8)

dV P(t) − N(t)
=u∗
dt P(t − ∆) − N(t − ∆)
The initial conditions for these equations are:

N(0) = N0
P(0) = P0 (9)
V(0) = V0
The coefficients $, are positive constants expressing the coefficients of the respective areas: $ –
development coefficient and – derformance coefficient of the e-shop, ∆ is (constant) period of delay,
∈%0, '(, ' is the length of the investigated period.
The realization parameter ) (quality in use and service quality) should not be negative – therefore ) >
0 and at the same time it should reflect performance and the fact that the higher its value, the higher the
overall e-shop performance.
expresses the coefficient of dependence rate between change in investments and performance , +ℎ
value of history, is a proportionality coefficient again.
The initial condition is set as (0) = - ; value - > 0 (initial costs must not be negative).
However, in reality one can expect that the delays for the respective variables will not be identical or that
solution of the above model needs to consider the problem of singularity, in the case that P(t − ∆) −
they will not be constant. Therefore it is appropriate to account for this fact in the model. Moreover, the
N(t − ∆) = 0. Therefore we modified the system to the following form that also reflects the reality more:
/ =∝ ( )− ( − ∆ ( ))
= ( ) − vh( P( ) − ( − ∆ ( ))) (8)

P(t) − N(t)
dV , P(t − ∆0 (t)) − N(t − ∆0 (t)) ≠ 0 3
= u ∗ /P(t − ∆0 (t)) − N(t − ∆0 (t))
dt
1, P(t − ∆0 (t)) − N(t − ∆0 (t)) = 0
N(0) = N0, P(0) = P0, V(0) = V0.
Discussion
Model System Solution
Contrary to regular linear differential equations with constant coefficients and their systems, there are no
direct calculation methods for the delay equations and systems. Therefore numerical methods need to be
applied. In the original paper by Luha & Novotná (2013) the so-called step method was used, based on
dividing the interval we search the solution within into subintervals of length determined by the delay
value. Within these subintervals we search for parts of the solution that eventually form a solution to the
whole original interval. As the system (2) thus belongs to the so-called (general linear) systems of regular
delay differential equations, or more generally – to systems of regular differential equations with deflecting
arguments, or to the so-called systems of functional differential equations, the solution can be based on
203
methods of a priori estimates of such equations and systems solutions (Kiguradze, 1988), forming a natural
basis for utilizing the method of gradual approximations on a suitable adjoint contractive operator equation.
This procedure was applied as an illustration by I. Kiguradze to construct a solution of an initial and
periodical task of a non-linear system of regular differential equations (Kiguradze, 1997) of a multipoint
and periodical task for a system of linear differential equations (textbook). A similar analysis of a
numerical solution of non-linear differential equations was carried out together with Gelashvilli in
(Gelashvili & Kiguradze, 1995).
In analogy to the procedure applied in the quoted papers with economic models and assuming we know the
task solution (4 ∈ ), which will enable us to change the input parameters in the course of the solution,
historical function, we will be searching for a solution of our system (2) as an (even) limit of progression of
such as altering the delay that has an immediate significance for the given model.
The calculations were performed using Maple. As mathematical software this system was used mainly due
to the possibility to make symbolic calculations. It is similar to Mathematica and Maxima; however, these
programmes offer considerably fewer functions. Maple is able to perform analytical formula calculations
but at the same time it is just as successful for numerical calculations and graphic depiction of results. It is a
system creating user-friendly environment while providing a very wide range of possibilities to use
quantitative methods in practice, application tasks, and scientific calculations for a number of fields etc.
Model Situation
The company that is the target of the particular model is a starting, fast-growing electronic shop with a
called historical cost function was defined as ( ) = 0,1678(1,1 ) + 1,5 and for benefits the ( ) =
relatively low performance rate. Due to the necessity to make periodical investments in equipment, the so-
|678(0,5 8<4(1,1 ) + 0.7 + 2) + 1 − 0,1 | function was used. The performance rate function is defined as
( ) = 0,38<4( + 0,1) + 1. Time unit is set for 1 year.
The values α = 1,5 β = 0,2 γ = 1,4, = 1,2, ) = 1,3, +ℎ = 0.2 were selected as input system parameters.
Furthermore, for our model situation we will expect different impact of history in the sense of different
delay values.
Graphic system solution was acquired using the method of gradual approximations described above.
First 4 years of the development 8 years of the development
Figure 1: model situation if ∆A = ∆B = ∆C = A
Figure 1 shows a model situation if the delay value is identical for all variables. The graph depicting the
first 4 years of the development in more detail shows that there was uneven development in the initial
periods that stabilized later and there was an increase in all monitored values.
204
Figure 2: model situation if ∆A = A, ∆B = , ∆C =

A
B
A
D
If we consider different delay in the respective equations, we can see (Figure 2) that the increase in the
monitored values was more even but slower. The values of benefits at the end of the monitored period P(t)
were considerably lower.
Figure 3: model situation if ∆A = B ∗ EFG(H, AI) + A/B, ∆B = D JKE(H, AI) + A, ∆C = L EFG(H,AI) + D

A A A A
If we consider inconstant delay in the respective equations, we see that at the end of the monitored period
there was a considerable increase in the monitored values, in particular the benefits P(t). However, in the
first years the development was uneven and demonstrated fluctuations.
205
Figure 4: model situation if ∝= H. A
If we consider inconstant delay in the respective equations and at the same time lower the development
coefficient alpha to 0.1, the behaviour of the model in the initial years will be almost chaotic (Figure 4.. At
the same time the increase in the monitored values will slow down and the values of costs at the end of the
monitored period will be very low (compared to the other cases).
Conclusion
Monitoring costs and benefits of e-commerce is a fundamental prerequisite for efficient company
management. Both costs and benefits evolve over time, undergo changes and represent a significant
element of the company budget.
The presented dynamic model demonstrates the behaviour of company electronic commerce as a system of
two linear differential equations with delayed argument. Modern methods of solving differential equations
with delayed arguments were utilized in its analysis. The model is relatively simple, which is a great
advantage. It is a basic model that can be adjusted to the needs of a particular entity. This approach can
then be used not only for processing the input factors of the system but also to interpret the results to
support strategic management. Assuming the mathematical model is correct, the obtained results enable to
model the impact of history and its extent as well as the effects of all the listed characteristics, thus
expanding the decision makers’ knowledge and making their decisions more accurate.
Acknowledgements
This paper was supported by the Czech Science Foundation. Name of the project: ”Development of new
methods of solving dynamic models of corporate processes management”. Project No.: GA16-03796S.
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Towards a General Solution for Business Process Model Extension with Cost
Perspective based on Process Mining
Dhafer Thabet, National School for Computer Sciences, Mannouba, Tunisia,
dhafer.thabet@isetso.rnu.tn
Sonia Ayachi Ghannouchi, National School for Computer Sciences, Mannouba, Tunisia,
sonia.ayachi@isgs.rnu.tn
Henda Hajjami Ben Ghezala, National School for Computer Sciences, Mannouba, Tunisia,
henda.benghezala@ensi.rnu.tn
Abstract - Several organizations look for improving their Business Processes (BP) in order to
enhance their efficiency and competitiveness. BP Management (BPM) approach includes techniques
allowing continuous BP improvement. Process Mining (PMining) is a BPM technique allowing to
extract knowledge from event logs commonly available in today’s information systems. BP model
extension is a PMining technique enriching a BP model with different perspectives useful for
decision making support. Furthermore, financial costs incurred during BP execution is prominent
information needed for BP improvement decision making in terms of cost reduction. We proposed a
solution for BP model extension with cost perspective based on PMining. The solution is based on
cost extension of the High Level Process Structure (HLPS) which is a meta-model enabling the
integration of different perspectives into one model independently of its notation. However, the cost
extension is designed only at the activity level and the general approach needs to be validated. In this
paper, on one hand, we propose an improved version of the proposed approach providing cost
extension including cost data description and analysis at both activity and BP levels, and on the other
hand, we present an illustration of the improved solution.
Keywords - Business Process Management, Process Mining, Cost Extension, High Level Process
Structure.
1. Introduction
The main concern of several organizations is to enhance their efficiency and competitiveness (Briol,
2008). The Business Process Management (BPM) approach aims at, continuously, improving
organizations’ business processes (Adams, et al., 2010; Rosemann and vom Brocke, 2010). The
Process Mining (PMining) technique is used to analyze business processes based on event logs
commonly available in today’s information systems (Adams, et al., 2010; Rosemann and vom
Brocke, 2010). Event logs can be used to conduct three types of PMining (Rozinat, 2010; van der
Aalst, 2011; IEEE Task Force on Process Mining, 2012): (1) discovery: produces a BP model using
event logs; (2) conformance: an existing process model is compared with the corresponding event
logs to identify the eventual deviations; (3) enhancement: includes two sub-types: repair (improving
the model to better reflect reality) and extension. The latter type allows to enrich the BP model with
additional perspectives useful for BP improvement decision making support (examples:
organizational, case and time perspectives).
Furthermore, organizations look to reduce the financial costs incurred during the execution of their
business processes using different techniques. Management Accounting (MA) is the field defining
how cost (and other information) should be used for planning, controlling, continuous improvement
and decision making (Hansen and Mowen, 2006; Weygandt, Kimmel and Kieso, 2010). It includes
several techniques such as: Activity-Based Costing/Management (ABC/M) (Hansen and Mowen,
2006; Weygandt, Kimmel and Kieso, 2010); Time-Driven ABC (TDABC) (Kaplan and Anderson,
2003); and Resource Consumption Accounting (RCA) (Clinton and Webber, 2004; RCA Institute,
2008). The goal of these techniques is to measure costs incurred during process execution and to
allocate them to the BP operations.
In order to facilitate access and interpretation of cost information for decision makers, it would be
interesting to have these information associated to the corresponding BP model. Indeed, this enables
decision makers to easily obtain accurate cost information about their business processes. Thus, we
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considered the issue of BP model extension with cost information based on PMining extension
technique. In (Thabet, A. Ghannouchi, and H. Ben Ghezala, 2014a; 2014b), we started by studying
this issue for business processes modeled with Petri Nets. Thus, we proposed an approach and its
implementation for Petri Net cost extension based on PMining extension technique. Furthermore, in
(Thabet, A. Ghannouchi, and H. Ben Ghezala, 2015a), the proposed solution was improved according
to recommendations we drew from interviews we conducted with experts in MA. Moreover, in
(Thabet, A. Ghannouchi, and H. Ben Ghezala, 2015b), we proposed a generalized version of the
proposed approach in order to make it independent of the BP modeling notation (not only Petri Nets).
However, on one hand, the latter version of the proposed approach deals with cost extension only at
the activity level while it’s important and useful to provide cost information at the BP level as well.
On the other hand, the generalized approach needs to be implemented and tested with different BP
modeling notations in order to be validated. Therefore, in this paper, we propose an improved version
of the generalized solution providing cost extension including description and analysis at activity
level as well as at BP level. In addition, we give an example illustrating the improved general
approach.
In the remainder of this paper, we introduce the research goal and questions in Section 2. In Section
3, we give an overview about the related works. Section 4 presents the proposed solution design and
illustration. Finally, a summary of the contribution, its limits and the future works are presented in
Section 5.
2. Research Goal and Questions

The main research goal is BP model extension with cost perspective using PMining extension
technique in order to support decision makers in their improvement decisions for cost reduction. The
solution we proposed in (Thabet, A. Ghannouchi, and H. Ben Ghezala, 2014a; 2014b) ensures a Petri
Net model cost extension based on PMining extension technique. In (Thabet, A. Ghannouchi, and H.
Ben Ghezala, 2015a), we improved the proposed solution with respect to recommendations drew
from interviews with experts in terms of MA. The considered improvements concern three main
levels: cost data structure, cost data description and cost data analysis. Besides, in (Thabet, A.
Ghannouchi, and H. Ben Ghezala, 2015b), we generalized the proposed approach in order to support
different BP modeling notations.
However, the generalized approach provides cost extension, cost data description and analysis, only
at the activity level. Thus, it would be useful for decision makers to also get insight on cost
information and knowledge at the BP level. For instance, this would provide information about the
activities which incurred the highest cost value among the considered BP activities. Therefore, in this
paper, the considered main research question is about the way to improve the proposed approach so
that it provides cost extension, cost data description and analysis at both activity and BP levels.
Moreover, this paper presents an illustration of the proposed approach with a business process
example.
3. Related Works
Firstly, the work of Nauta in (Nauta, 2011) is a proposal of an architecture to support cost-awareness
in PMining. Nauta’s solution, mainly, consists in annotating the initial event log -in XES (eXtensible
Event Stream) format (Hverbeek, 2012)- with cost information using a cost model. The cost
annotation is performed, per cost type, in the final event of each task instance. Then, the obtained cost
annotated event log -in XES format- is used to create cost reports (Nauta, 2011). Although cost
reports are used by management accountants to have details about the costs incurred by BP execution,
they are not sufficient for better decision making support. Moreover, the generation of only tabular
cost reports doesn’t facilitate decision making.
Secondly, this work has been pursued by the work of Low - a PhD project entitled “Cost-aware
BPM” (Wynn, 2012) - which is a proposal of a cost mining framework allowing cost reports
generation and cost prediction (Wynn, et al., 2014). The cost report can be customized in different
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ways. The cost prediction looks for cost patterns so that it would be possible to predict cost
consumption of an ongoing BP case (Wynn, et al., 2014). The cost prediction is performed by
proposing a cost extension of the transition system approach (van der Aalst, Schonenberg, and Song,
2011) to produce a cost-annotated transition system. However, in Low’s work, cost reports are
generated separately from the BP model which may not facilitate support for decision makers with no
MA background. Furthermore, the proposed cost prediction is mainly based on activities and
resources of the considered BP while different other attributes could influence cost values. In
addition, cost prediction aims at cost reduction for the current BP case but does not support
improvement decisions for the whole BP.
Thirdly, the technique proposed by Conforti in (Conforti, et al., 2013) aims at predicting faults related
to three dimensions of a BP which are time, cost and reputation. It allows process participants to
make risk-informed decisions when taking part in a BP. The technique relies on risk estimator trained
using data extracted from event logs. For each state of a process execution where input is required
from a participant, the estimator determines the severity and likelihood that a fault will occur if that
input is going to be used to carry on the process execution. The technique offers the considered
participant risk-based recommendations for reducing the number of faults and their severities
(Conforti, et al., 2013). However, as for Low’s solution, cost-related risk prediction is used to provide
recommendations supporting reduction of cost-related faults for the current BP case but not for the
whole BP improvement.
4. Proposed Solution
In (Thabet, A. Ghannouchi, and H. Ben Ghezala, 2015b), we introduced the first version of the
generalized approach for BP model cost extension based on PMining. In order to provide better
support for decision makers in their improvement decisions, we considered to further improve the
approach previous version so that cost extension covers the activity level as well as the BP level.
Moreover, the improved solution should be implemented and tested in order to be validated. In the
following, we present the improved solution design, implementation and tests.
4.1. Proposed Solution Design

In the following, we present an overview about the proposed approach and the adopted general meta-
model allowing cost extension at activity and BP levels.
4.1.1. Proposed Approach Overview

Fig. 1 shows an overview about the proposed approach. The BP model and the corresponding cost
annotated event log are the inputs of the generalized approach. The BP model is extended with cost
data extracted from the cost annotated event log. Thus, the obtained output of this step is a cost
extended BP model. Then, the output is graphically displayed with respect to the corresponding
notation. The following step is to handle the cost extended BP model in such a way to further support
decision makers in BP cost reduction. Cost data can be handled at two different levels: the activity
level and the BP level.
Firstly, activity level cost data is handled whether by description or analysis for each user-selected
activity. On one hand, cost data description allows decision makers to get insight about each activity
of the BP model from a cost point of view. Cost description is performed using user-customizable
tables and graphics. Tables are used to present cost values with respect to the user-specified options.
Graphics are used to represent views of average cost values based on different factors (resource, cost
types, instances) and to visualize a comparison between recorded cost values and the user-expected
ones. The user-defined cost values could be provided whether by a single cost expected value or a
cost expected interval representing a cost value range between expected minimum and maximum cost
values. On the other hand, cost data analysis supports decision makers to find out factors influencing
on incurred cost values. Two cost analysis methods are considered. The first method consists in
classifying resources into two groups by comparing resource-based average cost corresponding to the
selected activity with a user-defined cost value or interval. This method supports decision makers to
determine resources involved in incurring higher/lower cost values than the user-expected one for the
selected activity. The second cost data analysis method deals with how to support decision makers to
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know which activity-related attributes (resource, time and other data attributes) influence activity cost
values, and how. The method is based on using Machine Learning (ML) classification algorithms
which allow to extract knowledge about the influence of selected attributes on activity cost values
(Rozinat, 2010; Witten, Eibe, and Hall, 2011; Han, Kamber, and Pei, 2012). The inputs of a ML
classification algorithm are: training examples, attributes and classes. In our case, for each selected
activity of the BP model, training examples are the activity instances contained in the cost annotated
event log. The attributes are the activity-related ones including resource, time and data attributes. If
the user provides a single expected cost value, two classes are defined: C1 (respectively C2)
represents activity instances having an average cost value (cost type is selected by the user) higher
(respectively lower) than a user-estimated cost value. If an expected cost interval is provided
(expected maximum and minimum cost values), in addition to C1 and C2 classes, a third class C3 is
added to represent activity instances having an average cost value (cost type is selected by the user)
between the user-expected cost interval bounds. The outputs are the inferred structural patterns
represented, for instance, in the form of a list of classification rules which represent a simple and
expressive way to understand which attributes influence cost values, and how.
Secondly, BP cost data can be handled with two main ways. On one hand, the first way provides BP
cost data description using tables or graphics. Tables represent numeric cost data values calculated
according to user-customized options (computation modes and cost types). Graphics provide cost-
related views based on different factors (BP instances, activities and cost types) and are also used to
represent comparisons between recorded cost values and user-defined cost value or interval. On the
other hand, the second way consists in analyzing BP cost data in order to support decision makers
determining factors influencing cost values at the BP level. Cost data analysis includes two methods.
The first method provides statistics about BP instances that incurred costs more/less than a user-
defined cost value or interval. If the user chooses to provide a single cost value, the cost data analysis
consists in calculating the percentages of BP instances that incurred costs more and less than the user-
defined one. If the user provides an interval (expected maximum and minimum cost values), the cost
data analysis consists in computing percentages of BP instances that incurred costs higher, in and
lower than the user-defined cost interval. Then, the obtained percentages are displayed textually
and/or graphically. The second BP cost analysis method aims at extracting knowledge about BP-
related attributes (time and other data attributes) that influence BP cost values using ML classification
algorithms. The input data include training examples which are the BP instances (traces) contained in
the cost annotated event log; attributes which are BP instances-related attributes including time and
(if any) other data attributes; and classes which depend on the cost expected value(s) provided by the
user. If a single value is provided, two classes are generated: C1 (respectively C2) represents BP
instances with average costs higher (respectively lower) than the user-expected one. If an interval is
provided, a third class C3 is generated representing BP instances with average costs within the
provided interval. The outputs of this method are structural patterns representing knowledge about
factors that influence BP-related cost values.
4.1.2. Cost-extended High-Level Process Structure

The high-level process structure is a general meta-model designed to embed information from
different perspectives into the control flow and to make them as generic and reusable as possible
(Rozinat, 2010). As our goal is to incorporate cost information into the BP model, we considered to
extend the high-level process structure with the data structure representing the cost perspective. The
cost extended high-level process core data structure is shown in Fig. 2 as a UML class diagram. The
yellow-colored classes together with their relationships represent the high-level process structure. The
HLProcess is the central class and holds the high-level information independently of the BP model
type. It holds a list of process elements (HLProcessElement) such as activities (HLActivity) for the
process. Besides, each high-level process element is identified using the HLID class. The HLGlobal
class holds information that is globally relevant for the BP. The HLModel class enables to match the
nodes of an actual BP model to their corresponding elements in the HLProcess structure. The
ModelGraph class represents the actual BP model. These classes represent the common elements that
will be shared by all high-level processes, regardless of whether they refer to some Petri net model, or
YAWL model, etc (Rozinat, 2010; Thabet, A. Ghannouchi, and H. Ben Ghezala, 2015b).
211
Cost annotated event log (Nauta’s approach) Business process model Legend
Step/Sub-Step
Extend the business process model
Extract cost data Input/Output
with cost data
Sequential flow
Cost data extracted Associate cost data to the business process model
Optional flow
Cost extended business process model
Display the cost extended business process model
Cost extended business process model displayed
BP Level
Describe BP cost data Analyze BP cost data
Calculate and Define estimated cost Prepare and generate

Calculate and input data for ML
Display BP cost value/interval
Display BP cost
data according to classification algorithm
data based on the
the user-selected
user-selected factor
computation User-defined cost
(cases/ activities/
modes and cost value/interval ML input data generated
types cost types)
Calculate percentages of BP
cases that incurred costs Extract knowledge about
higher/lower than the user- attributes influencing
BP cost data BP cost data
defined cost value/interval cost values using a ML
displayed using displayed using
classification algorithm
tables graphics
Percentages displayed Knowledge extracted

Using text and/or graphic and displayed
Activity Level
Select an activity
Cost extended business process

model with selected activity
Describe selected activity Analyze selected activity

cost data cost data
Calculate and Display Calculate and Display Define estimated Prepare and generate
cost data according to cost data based on the cost value/interval input data for ML
the user-selected user-selected factor classification algorithm
computation modes (cases/ resources/ cost
and cost types types) User-defined cost
value/interval ML input data generated
Classify resources into

resources involved in Extract knowledge about
Activity cost data Activity cost data attributes influencing
incurring costs
displayed using displayed using cost values using a ML
higher/lower than the
tables graphics classification algorithm
user-defined cost
value/interval
Resources classified and Knowledge extracted

displayed using tables and displayed
212
Fig 1. Proposed approach overview.

HLYAWL HLEPC HLBPMN HLPetriNet
HLModel
HLProcessCost
DataAttribute HLGlobal
* 1 BPMNModel
-label 1 ProcessInstance 1 1
has
has 1 1
-id concerns
* *
1 ProcessInstanceCost 1 1 PetriNetModel
1 1 ModelGraph
HLProcess
has
Time
EPCModel
1 1..*
-start_ts
-end_ts has ActivityInstance 1 1 ActivityInstanceCost 1..*
-duration 1 1
-id HLProcessElement HLID YAWLModel
concerns
1 1 1
1..* executed by
1..*
Resource ElementaryCost
CostType
-value HLActivity
1 1 -currency
-label
Fig 2. Improved cost-extended HLPS.
As shown in Fig. 2, the cost data structure is represented by the grey-colored classes together with
their relationships. The HLProcessCost class and the corresponding relationships represent cost
information at BP level. It consists of a list of process instances costs each of which is represented by
the ProcessInstanceCost class. Moreover, as HLProcessCost class represents cost information at BP
level, it is associated to the HLProcess class. Each process instance cost consists of a list of activity
instances costs (ActivityInstanceCost class).
Each activity instance cost consists in turn of elementary costs (ElementaryCost class). Each
elementary cost has a value, a currency and a cost type (CostType class). Furthermore, each process
instance cost is related to a process instance (ProcessInstance class) and each activity instance cost is
related to an activity instance (ActivityInstance class). The ProcessInstance and ActivityInstance
classes are generalized using the abstract Instance class so that for each process instance and activity
instance, we retain the resources involved in its execution (Resource class), the corresponding time
information (Time class) and, if any, other related data attributes (DataAttribute class). This way,
HLProcessCost class holds cost information related to the whole BP and to each one of its activities
independently of the BP model notation. Thus, the cost-extended HLPS shown in Fig. 2 allows to get
cost information at both BP and activity levels.
4.2. Illustration of the Proposed Solution

In order to illustrate the proposed solution, the considered business process example is a simple
phone repair process. Fig. 3 shows the considered BP modeled with Petri Net notation. The BP
begins by the registration of the broken phone and then it is analyzed to determine the defect type.
Depending on the severity of the defect, a simple repair or a complex repair is carried out. Then, the
phone is tested to check whether it is fixed. If so, the repair details are archived and it is returned to
the customer. If it is not fixed, the repair and then the test are restarted again. If the phone is still
broken after the fifth repair test, the repair details are archived and the phone is returned to the
customer. Otherwise, the customer is informed about the defect type after the defect analysis and
before archiving the repair details (Nauta, 2011).
This process example was already used as a test case example in Nauta’s solution. We used the
produced cost annotated event log (1000 cases obtained by simulation) together with its
corresponding BP model (in PN, EPC and BPMN notations) as inputs for our tool test phase. In the
following two sub-sections, the obtained results of the carried out tests are presented for each of the
BP and the activity levels cost extensions with different BP modeling notations.
213
Fig 3. Petri Net model of the simple phone repair process (Nauta, 2011).
Table 1 presents three executed cases of the considered process example. These cases are annotated
with cost information through the application of Nauta’s approach. Each case is described by its
number and the corresponding sequence of executed activities instances. Each activity instance is
described the corresponding: resource which executed it, start and end timestamps, incurred costs
(types and values), and data attributes (labels and values). For simplicity reasons, we consider three
cases executed during the same day.
4.2.1. Business Process Model Cost Extension

The first step of the proposed approach consists in the extraction of cost data from the cost annotated
event log represented in Table 1. The output of this step is an instance of the grey-colored part of the
meta-model presented in Fig. 2, and is associated to an instance of the HLProcess class. The
considered BP model example (Fig. 3) is represented with Petri Net notation. Then, the considered
BP model example is a instance of the “PNML core model” and is, in turn, an instance of the
ModelGraph class. The matching between cost data contained in the HLProcess instance and
elements of the Petri Net model contained in the ModelGraph instance is ensured by an instance of
HLPetriNet class. Then, the obtained model is an extended Petri Net model with cost data extracted
from the corresponding cost annotated event log (Table 1). This model is an instance of the cost
extended HLPS (Fig. 2). The next step of the proposed approach consists in handling cost data in
order to understand, interpret and extract knowledge to support decision making for cost reduction.
4.2.2. Cost Data Description

Cost data description allows to get BP cost perspective from different points of view. The proposed
approach provides cost data description in two forms: significant cost values and representation of
cost in terms of other factors. Moreover, these cost description forms are provided for the whole BP
and for each activity of the BP:
- Cost description at BP level consists in presenting, for the whole BP, significant cost
values and cost representation in terms of other factors:
Significant cost values, at BP level, allows to get a general overview about costs
incurred by BP instances execution, for the corresponding cost types. An example of
significant cost values is the average total cost. Based on the considered BP example,
this cost value is calculated as follows:
214
Table 1: Cost annotated event log sample (simple phone repair process)
Timestamp Cost
Trace Activity Resource Data attribute
Start End Type Value
Register System 17:11:00 17:11:00 Fixed Cost 2.0 -
Tester2 17:11:00 17:16:00 Variable Overhead 9.45

defectType=9
Analyze Defect Fixed Cost 20.83
phoneType=T2
Labour 2.08
SolverC3 17:38:00 18:18:00 Variable Overhead 6.66

Repair (Complex) -
1 Labour 40.0
Inform User System 17:44:00 17:44:00 - - -
Tester5 18:18:00 18:27:00 Variable Overhead 2.25 numberRepairs=1

Test Repair
Labour 3.75 defectFixed=true
numberRepairs=1
Archive Repair System 18:34:00 18:34:00 Fixed Cost 2.0
defectFixed=true
Tester4 18:42:00 18:52:00 Variable Overhead 8.8

defectType=8
Analyze Defect Fixed Cost 1.66
phoneType=T2
Labour 4.16
SolverC3 18:53:00 19:43:00 Variable Overhead 8.33

Repair (Complex) -
2 Labour 62.5
Tester3 19:43:00 19:52:00 Variable Overhead 2.25 numberRepairs=1

Test Repair
numberRepairs=1
defectFixed=true

20:10:00 20:19:00 Variable Overhead 10.9
defectType=10
Analyze Defect Tester1 Fixed Cost 1.5
phoneType=T2
Labour 3.75
20:23:00 21:07:00 Variable Overhead 7.33
Repair (Complex) SolverC1 -
3 Labour 54.99
21:07:00 21:16:00 Variable Overhead 2.25 numberRepairs=1
Test Repair Tester6
numberRepairs=1
defectFixed=true
215
The execution of the BP example incurred an average total cost of 90.98 AUD. This
could be useful for decision makers, for instance, to know if this value corresponds to
the cost allocated to the execution of a BP instance. If the calculated cost exceeds the
expected cost, it would be useful, for decision makers, to seek for its cause(s). A
primary indication to these causes would be provided by the representation of cost in
terms of other factors.
Representation of BP level cost data in terms of other factors allows to view variation or
distribution of cost in terms of these factors. This is useful, for example, to get
indications about the causes of cost overtaking. For instance, we consider the
representation of average total cost in terms of BP activities. As shown in Table 2, this
representation indicates that average total costs of “Repair (Simple)” and “Restart
Repair” activities are null as the considered cost annotated event log sample (Table 1)
does not include executions of these activities. Average total cost of “Inform User”
activity is also null as it is neglected, compared to the other activities. Moreover,
“Repair (Complex)” activity incurs the most important part of the BP average total cost
(65.88%). Therefore, it is interesting to move to the cost description at the activity level
in order to get more details about the causes explaining the high cost incurred by the
execution of “Repair (Complex)” activity.
Table 2: Representation of BP average total cost based on average total costs of its activities
Analyze Repair Repair Test Restart Inform Archive
Register
Defect (Simple) (Complex) Repair Repair User Repair
Activity
average total 2 21.05 0 59.94 6 0 0 2
cost
BP average
90.98
total cost
Percentage 2.2% 23.13% 0% 65.88% 6.59% 0% 0% 2.2%
- Cost description at activity level: the proposed approach provides cost description for each
BP activity, in the form of significant cost values and cost representation in terms of other
factors. As the “Repair (Complex)” activity incurs the highest cost among the activities of
the considered BP example, we emphasize on cost description of this activity:
Significant cost values related to a given activity allow to get an overview about costs
incurred by its execution, for the corresponding cost types. For instance, we consider to
calculate the average and the minimum total cost value for the considered activity:
Average (59.93 AUD) and minimum (46.66 AUD) total costs can be compared to the
expected total cost for the considered activity in order to know how much the recorded
cost is, eventually, exceeding the expected one. In this case, it is useful to get a
representation of cost in terms of its corresponding types so that the highest cost type
value can be determined.
Representation of cost data in terms of other factors, at activity-level, allows to

visualize, from different points of view, the variation or the distribution of cost incurred
by the execution of the considered activity. For instance, we consider to represent total
cost in terms of its types, for the “Repair (Complex)” activity. As Table 3 shows, it is
clear that the “Labour” cost type corresponds to the highest value. This cost type is
216
related to expenses on resources executing this activity. Therefore, it is crucial to get

insight into the relationship between costs of this activity and the resources which
execute it.
Table 3: Representation of average cost of “Repair (Complex)” activity based on cost types
Activity « Repair (Complex) »
Average cost type « variable Average cost type

Average total cost
overhead » « Labour »
Value 59.93 7.44 52.49
Percentage 100% 12.41% 87.59%
- Cost analysis by simple classification concerns BP and activity levels. It consists in

classifying cost-related factors (process instances for the BP level and resources for the
activity level) based on cost values. For the considered example, we look to get insight into
the relationship between costs incurred by the execution of “Repair (Complex)” activity and
resources that participated in its execution. Then, we consider to classify these resources
based on costs related to the activity in hand. This classification require the cost expected
total cost value (or interval) for this activity. For instance, we assume that the cost expected
value equals 60 AUD. Table 4 illustrates the classification of the resources “SolverC1” and
“SolverC3” based on average total costs of activity “Repair (Complex)”.
Table 4: Classification of resources which executed “Repair (Complex)” activity based on

average total cost
Activity « Repair (Complex) »
BP Instances executed by SolverC3 BP Instances executed by SolverC1
Average total cost 58.74 62.32
Expected total cost 60
Resources with average total cost < Resources with average total cost >
Resources expected total cost expected total cost
Classification
SolverC3 SolverC1
Table 4 shows classification of the resources “SolverC1” and “SolverC2” (which

participated in the execution of “Repair (Complex)” activity) based on total cost. This
classification starts by calculating the average of total costs incurred by the considered
activity instances which were executed by each resource. Then, by comparing the average
total cost corresponding to each resource with the expected total cost, two resource classes
are obtained: the first one (respectively the second) includes resources with average total
cost exceeding (respectively not exceeding) the expected total cost.
Therefore, from Table 4, we can conclude that instances of “Repair (Complex)” activity
which were executed by “SolverC1” incurred costs higher than the expected one. Then, in
terms of resources, “SolverC1” may be one of the causes of the high costs incurred by
“Repair (Complex)” execution. However, this analysis focuses only on the influence of
resources on costs. Other factors may influence on costs incurred by the execution of this
activity. In order to find out other influencing factors, we consider to analyze cost data,
related to “Repair (Complex)” activity, based on classification algorithms.
- Cost analysis based on classification algorithm allows to extract knowledge about factors
influencing on costs incurred by BP execution. In the considered example, we look for
extracting knowledge about factors influencing on costs incurred by the execution of
“Repair (Complex)” activity. The cost analysis based on the classification algorithms starts
by preparing input data to be analyzed. Input data include instances, attributes and classes as
described in section 4.1.1. For the “Repair (Complex)” activity, instances are represented by
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the considered activity instances in the cost annotated event log. Attributes are represented
by input attributes of “Repair (Complex)” activity (phoneType et defectType) which are
output attributes of “Analyze Defect” activity. If we assume that the expected total cost is 60
AUD for the “Repair (Complex)” activity, three classes are then defined: “higher cost”
(respectively “lower cost”, “expected cost”) class which includes activity instances that
incurred a total cost higher than (respectively lower than, equal to) the expected one. Data
input are illustrated by Table 5.
Table 5: Input data to be analyzed using a classification algorithm

« Repair (Complex) »
Resource phoneType defectType Class
activity instances
1 SolverC3 T2 9 Lower cost
2 SolverC3 T2 8 Higher cost
3 SolverC1 T2 10 Higher cost
After the application of several classification algorithms to the considered input data, we
retained PRISM algorithm as it provided the best precision. Knowledge extracted by the
application of PRISM algorithm is in the form of decision rules. The application of the
considered algorithm on the input data produced the following decision rules:
If Resource = SolverC1 Then Higher cost

If phoneType = T3 Then Higher cost
If defectType = 9 Then Lower cost
The first decision rule confirms the result obtained by simple classification cost analysis.
Indeed, this decision rule indicates that when the resource is “SolverC1”, the total cost
incurred by the execution of the considered activity is higher than the expected one. The
second decision rule indicates that when the phone type is “T3”, the total cost is higher than
the expected one. The third decision rule shows that when the defect type is “9”, the total
cost is lower than the expected one.
The interpretation of the inferred decision rules supports decision making for “Repair
(Complex)” activity cost reduction. Indeed, the first decision rule may guide decision maker
to consider, for example, to assign the resource “SolverC1” to another activity for which its
participation incurs less than the expected total cost. Moreover, the second decision rule may
lead to review phone types to be considered for this repair process (for instance, type “T3”
may be avoided). This decision may be appropriate, particularly, for starting organizations.
Besides, the third decision rule may lead to adopt a repair priority order taking into account
defect types analyzed initially.
5. Conclusion and Future Works

In this paper, we proposed an improved solution providing BP model cost extension at the activity
level as well as the BP level based on Process Mining. In fact, we extended the proposed approach so
that it offers cost description and analysis at both activity and BP levels.
Besides, we improved the proposed meta-model (HLPS) in order to represent cost data at activity and
BP levels. Moreover, we illustrated the proposed solution using a simple phone repair process
example. Therefore, the obtained proposal is a general BP model cost extension solution providing
cost extension, description and analysis at activity and BP levels which further improve decision
making support for BP cost reduction.
However, the proposed solution has some limits especially for the ML-based cost data analysis. First,
the provided BP level cost analysis doesn’t include the influence of resources on BP costs while it
may be important in cost reduction decision making. Second, selection of the classification algorithm
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is left for the user which may be enhanced by guiding the selection in order to improve the quality of
the generated results. Third, the proposed solution doesn’t include means to simulate the impacts, of
changes brought to the BP, on its incurred costs before applying real actions on the BP.
Currently, we are studying further cost data analysis improvements in such a way to provide more
guidance for better decision making support. These improvements will be proposed and validated by
coordination with data mining experts. In future works, we consider to carry out real world case
studies in order to evaluate the proposed solution performances.
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The Enhancement of Distribution Management System through

Knowledge Transfer Program
Rosman Md Yusoff
Faculty of Science, Technology and Human Development, Universiti Tun Hussein Onn Malaysia,
86400 Batu Pahat, Johor, Malaysia
E-mail: rosmanmy@uthm.edu.my
Abd Rahman Ahmad

Faculty of Technology Management and Business, UniversitiTun Hussein Onn Malaysia, 86400
BatuPahat, Johor, Malaysia
Tel: +607 4533952 E-mail: arahman@uthm.edu.my
Sairun Syakira Binti Saiman

BatuPahat, Johor, Malaysia, sairunsyakira@yahoo.com.my
Ng Kim Soon
BatuPahat, Johor, Malaysia, ksng@uthm.edu.my
Khairol Anuar Kamri

Faculty of Science, Technology and Human Development, UniversitiTun Hussein Onn Malaysia,
86400 BatuPahat, Johor, Malaysia
E-mail:khairol@uthm.edu.my
Khairunesa Isa
Faculty of Science, Technology and Human Development, UniversitiTun Hussein Onn Malaysia,
86400 BatuPahat, Johor, Malaysia
E-mail: nesa@uthm.edu.my
Abstract
This paper presentsaKnowledge Transfer Program in effort to enhance the distribution management
system of Ben Smart fertilizer. Distribution management system isonly mechanisms to distribute the
products to the customer but an instrument for disperse the information and goodness to ensure the
customer receives sufficient value of the products as a whole. In directly, it response to the increment
of volume sales of Ben Smart fertilizer within the time basis. The methodology applied play the
important role to ensure the suitability of the method used in order to completely approach the
customer want and demand of the products. Therefore, there are two types of method been
implemented for the KTPprojects which single-tier distribution system and multi-tier distribution
management system.
Keywords: Marketing distribution system, fertilizer
1. Introduction
This paper presents a Knowledge Transfer Program in effort to enhance the distribution management
system of Ben Smart fertilizer. After that, discusses the methodology of distribution management
system of Ben Smart fertilizer that adopted to enhance the distribution system of the products (which
are single-tier distribution system and multi-tier distribution system). The details discussion of the
methodology takes places will be considerate (mainly on the concept and literature review) and it
been critically discussed on this paper.
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2. Distribution Management System
Dann and Dann (2004) stated, distribution is the movement of a product from the point of
production to the customer (also refer as the point of consumption of products). A
distribution management system can be defined as the operation which creates time, place
and form utility through the movement of good and person from one place to another
(Mossman & Norton, 1965). Distribution systemis not simply a mechanism to deliver the
products to the customer but an instrument for the company to disperse the advantageous,
information and benefits of the products. As stated by Ailawad and Singh (2012),
distribution is an operations which involved the flow of information that required to
facilitate and coordinate performance within the logistical facilities. It aimed to provide
product assortments to satisfy order requirements and to store specific inventory as it meets
the customer order requirements. The sufficient information of the products (Ben Smart
fertilizer) received by the customer assisted in the increase of sales and enhance the Ben
Smart fertilizer in consecutively manner.
A distribution can be recognized of overall supply management activities where it includes,

distribution management (which represented as physical distribution management,
determining finished goods inventory levels, finished goods warehouse location and
customer and others) (Leenders et al, 2002). Leenders et al (2002), again, stress out on main
concern of the products inflow process (which involved price to be paid, buyer-supplier
relation, transportation, meeting the internal and external customer). Aligned, it also been
emphasized by the academia of KTP project of Ben Smart fertilizer, the distribution system
are not relying to the distribution system as a whole, but it needs the other elements takes
into consideration such as, price, promotion and products. The Improvements in distribution
management system is a must and it need to be design by the distribution groups of
organization because, it represent a primary source to forecast the incoming demand and
sales trends. Indirectly, it can assist to develop the relevant supply strategies
(Sollish&Semanik, 2007). Crandall et al (2010) stated, distribution function contribute to
the total of output produce in the United State by five percent, also, for customizing tasks
previously done by the manufacturer. Hence, the distribution system of the organization
need to be managed within the rigid and time schedule.
2.1Distribution Channels
As mentioned before, the distribution have been involved in the designation of both Ben
Smart distribution system. Such of the distribution channels are: sales centre and
distribution centre. Those of the channels acquired their own responsibilities in achieve the
objective which is to enhance the distribution management system of Ben Smart fertilizer.
According to Coyle et al (2003), a channel of distribution consists of one or more
companies or individuals who involve in the flow of goods, services, and information from
the producer to the final user. Those of the involved parties required an effective strategy
formulation, operation, control and supervision. However, on behalf of the KTP project of
Ben Smart fertilizer, it represented as the marketing channels types of distribution channels
system which aligned to the aimed of the KTP project. Marketing channels refers to the
organizational or individual that takes into responsibility to managed the transactional
elements such as; customer orders, billing, account receivables and others (Coyle et al,
2003). Such of the channels distribution own their roles to be done in order to attain the
objective been established by the organization. Hugos (2006) had explained the definition of
distribution channels as below:
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Table 1: Type of Distribution Channels: Roles and Functions
Types of Distribution Channels Roles of Distribution Channels

It also known as producer which whom
Manufacturer responsible to produce the product. The
primary tasks are to process the raw
material to extend of the products.
On the KTP project, the manufacturer

involved was AnugerahAlam Marketing
who the sole manufacturer for the Ben
Smart fertilizer.
It act as the companies that take
inventory in bulk from manufacturer and
deliver a bundle of related product lines
Distributor Centre to customers. The distributor centre also
known as wholesaler.
The main function of distributor as, the

buffer to the products produce by
producer from fluctuations situation by
maintain the product demand and doing
much of sales works.
The distributor centre of KTP also

referred to the AnugerahAlam Marketing
company which they are the main
distributor to carry out the product
promotion and sales.
The function of the sales centre are
primarily similar to the role of distributor
Sales Centre centre. It is because, they will conducted
the sales of the products.
Besides, it advertises to the potential

customers and often uses the
combination of 4Ps marketing (price,
product selection, and convenience) to
attract the customer on product sell.
The integral part of does distribution channels need to be wisely serves for the purpose of aligning the
business strategy and attain the aimed which of KTP project which is to enhance the distribution
management system of Ben Smart fertilizer. This helps the company to deliver the products within
the appropriate mix of responsive and efficiency ways (Hugos, 2006). In this situation, the logistic
channel and marketing channel need to play their role to deals with the management, flow of product
through the channel, transportation, inventories, facilities, communication and information as whole
in related to the products (Bloomberg etl, 2002).Harrison and Hoek (2002), the flow of the products
deliver to the customer should not face any interruption to distract the negative effects to the end-
customer. Therefore, the paradigm look of the distribution system need to be shifted to the holistic
look to obtain the positive result of the KTP project (enhancement of distribution management
system of Ben smart fertilizer).
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2.2 Methodology Applied in KTP Project of Ben Smart Fertilizer
There are two methodology applied in the KTP project of Ben Smart fertilizer which are: single-tier
distribution system and multi-tier distribution system. Both of the methodology used possessed the
significant differences, relatively on how it being react to the customer, number and roles of channels
established (sales and distribution centre). Hugos and Thomas (2006) presented, it is depends to the
company nature of work in order to design the aggregate plan which it become the framework for the
decision making of production, inventory and distribution. The project of KTP towards the
enhancement of the distribution system had created two different types of method to distribute the
Ben Smart fertilizer to the customers. The method of distribution system implemented have diverging
impact, but it seem contributed to advantage and disadvantage to the KTP project of Ben Smart
fertilizer who are liberated to choose not only a type of method of distribution system but two
different types of distribution concept. It aligned to the case study of Amoco Corporations in which to
transform the distribution systems to increase the performance of logistics and marketing practices
more efficiently (Boyson et al, 1999).
Multi-tier Single-tier
Distribution System Distribution System
multiple number of only one of each sales
sales and distributor and distributor center
center established established
Method of Ben
Smart KTP Project
Figure 1: Ben Smart Distribution Strategy
2.2.1 Single-tier Distribution System

Single-tier distribution system is one of the most common methods used in the organizational
business (includes the activities buying and purchasing). The company could apply a method for the
distribution of the products which is, to appoint one or more intermediaries to sell its products
(Kapoor &Kansal, 2007). Dann & Dann (2004) defined the single-tier distribution system is a system
of delivering products to the customer where it primarily consisted of producer, distributor or retailer
and consumer. On this level of process, the retailer or distributor directly buying the products from
the producer and then sell to the end purchase.It also the steps for many other alternative of
distribution process of products. The channels involved in single-tier distribution system are stated as
below:
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Manufacturer Wholesaler Retailer Customer
Flow of Information
Figure 2: Single-tier Distribution System

(Source: Minis et al, 2011)
Minis et al (2011) stated, the above figure is the simplified figure of the distribution system which it
mainly refer to the distribution system. The figure shows, how the distribution process of products
takes place and to be correspondent to the customer. It only requires, the manufacturer, wholesaler,
retailer and customer who wanted to buy the products. However, Vassiliadis& Dounias
(2011).emphasized, there is a problem could be arise on the implementation of the simple realistic
model of distribution system, which is, vehicle routing problem and travelling salesman problem.
Rationally, the problem occurs which cause by, it is only a single distribution channels (distributor
centre and sales centre) been established.
By contrast, there are successfulness created by the company which relying on the single-tier
distribution system on the application of distribution of products have been proved by Alan & Hoek
(pp 25, 2002) where they stated, “…the links (flow of the information of products) directed to a
common and consistent set of competitive criteria, then the links will compete better in the
marketplace than those who links in different and conflicting priorities”. According to the above
quote, it crystal clear have been made where, the organization tend to be more success in the
distribution management system by applying a single types of distribution channels (establish only
one for each types of distribution channels).
Hackley (2009) stated on the various perspective of the single-tier distribution system (a short
distribution chain). The implementation of short distribution chain cause the company maintain solely
over the products produce, merchandising and profit margin received. Instead, the implementation of
other method of distribution strategy which is, long distribution chain. The manufacturer need to
incurred some of the expenses such as, paying off the intermediaries where, result to the
manufacturer to gain less margin of the products produce. It is because, every stage of the
intermediaries required margin to be attain by the distributor. According to Kerin et al (2015), the
single-tier distribution system also known as exclusive distribution. It is because, the producer of the
products choose to have only on distribution channels in a specified geographical area to carries the
company’s products. Rationally, it to limits head to head competition for the same products and put
distinctive point of tasks between the retailer and distributor.
2.3 Multi-tier Distribution System
Evolution of the distribution management had leads to the designation of the multi-tier distribution
system of Ben Smart fertilizer. The multi-tier (dual) distribution channels defined as the producer of
the products has selected two or more channels to distribute the same products to target markets
(McDaniel et al, 2010). In standard goods production, the flow of the products to be reach to the
consumer might become to the extent of complex process since, it will through the manufacturer,
shipping, and transport agent to wholesaler, retailer (Dann & Dann, 2004). The multi-tier distribution
system consist of more than one of the marketing channel created for this kind of distribution system.
The appointment of agent had taken place in this stage of distribution system. Bloomberg et al (2002)
explained the definition of agent on the details basis. They pointed out that, agent as the person or
organization which act on behalf of principles and acquire the authority to crate the legal binding
relationship between the customer and products sell. Agent also provides the expertise of the products
or services been carry out (for example products and services sell to the customer). Basically, the
225
agent will disperse the information of the products to the potential customer and multiple suppliers of
required service to get the best deal for customer.
Gillespieand Hennessey (2011) explained, the assesment and appointment of the agents been
determined on such factor which are: (1) location of sales office (2) salespersons’ home base, (3)
previous sales performance on the geopgraphic location. Those criteria has given the much impact on
the sales volume and sustaining of the prodcuts in the markets. Involving the multi-tier distribution
channels has result to the establishment to markets the products to the customer. According to
McDaniel et al (2010), the spectrum of an agent channels involves fairly complicated process. It is
because, they typically used a numbers of markets process which caused difficulty to find the
qualified agent. Mainly, the agent could sell the products to different types of retails that leads to the
lack of originality resource of the information on the products sell. On the other hand, the agent might
not take the possession of the products as they will bring out the manufacturer or distributor centre in
the negotiation of selling the products.
Fahyand Taguchi (1995) pointed out, the small scale of the retailer, had rooted to the problems of
limited on financial strength (account receivable, stocks, shares etc). However, the most crucial issue
raised was on the marketing capabilities to promote the products produce. The establishment of the
large number of the distribution channel assist in the developing a highly monopolistic system with
complex trade practices and institutional arrangements. The creation of multi-tier distribution channel
of the KTP project (Ben Smart fertilizer) had re-coordinate the distribution system in manner of
effective and efficiency pathway. The application of the multi-tier distribution system to the Japanese
country on Kao’s Corporation. Based on the Kao’s Corporation (which referred to the Japanese
country), the number and variations of complex channel structure have been proved the breadth of
description of distribution channels is extremely diverse to meet the customer’s needs and wants
(Dann & Dann, 2004).
Yet, the difficulties appeared apart from the establishment of dual distribution system which is, the
more consumer that an individual producer has to deal with directly, the task become more
complicated to dealing of. On the other hand, Keegan & Green (2003) explained, there are both
threats and opportunity whenever the organization have more intermediaries to promote the products.
It is either, reflect the cost adjustment and preferences in a market or to the innovative marketer to
pursue competitive advantage by introducing more effective distribution channel arrangements. Etzel
et al (2007), illustrated several types of distribution channels existed today. The example of multi-tier
distribution channels was commonly described for the purpose of distribute the tangible products to
the customer where it shown as below:
Producers of Merchants
Agents
goods Wholesalers
Ultimate Retailers
consumers
Figure 3: Channels of Distribution (for Multi-tier Distribution Channels)
Based on the above figure, there are variety of channels in the multi-tier distribution system which
are available for the products’ company to reach the customer. The company could arrange the
pathway system of the products and develop diverse marketing startegies in each channels
distribution to obtain the maximum approaches of the products from the ultimate customer.
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2.4 Summary of the Single-tier and Multi-tier Distribution Management System
Table 3: Comparison betweenSingle-Tier Distribution System and Multi-Tier

Distribution System
Single-Tier Distribution System Multi-Tier Distribution System
Producer select of the products Producer of the products has selected

only single for each of two or more channels to distribute the
distribution channels to same products to target markets.
distribute the same products to
the same target markets.
Involve only sales and Appointment of the agent to distribute
distributor centre for distribute the products to the market
the products to the markets
The manufacturer could control The breadth of description of

solely on the whole products, distribution channels is extremely
margin and prices. diverse to meet the customer’s needs
and wants
As perusal discussed above, the manufacturer of the products need to manage the distribution system
efficiently. Gillespie and Hennessey (2011) emphasized, The selection of suitable channels
participant (retailer, wholesaler, agents) are extremely important to achieve the integrated and
responsive distribution channels. The motivating channel participants such as monetray incentive are
the undertakes startegies could be implements to help make the channels members more efficient and
competitive. Besides, the controlling channels participants is equally important tin the managing the
distribution channels. The need step could be taken into consideration is, closely monitor the
performance of local channel members by informing the specific responsibilities od each channel
(includes, targets needed to be achieve in a specific times)
2.5. The Advantages and Disadvantages in Managing the Distribution Channels

Structure
There are always the potentials for agreements and disagreement occur concerning to the
formation of channels distribution system in the organization. It cause by dealing the activities
involved in various level of channels to take into consideration by the company such as,
customer, supplier, agent and others (Kerin et al, 2015). Hence, those fact of the distribution
channels (related to the advantages and disadvantages have been stated in the table as below:
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Table 4: The Advantages and Disadvantages of Single-tier Distribution System
Advantages Disadvantages
• It could deals with the large amount of • Limited marketing capabilities to
stocks in once time. promote the same products to
different target area
• Establishes direct relationships with the • It will takes a long time for the
retailer in order to maintain control of the customer to order cycle for an item
availability of the product in market. to be delivery to them.
• Limit the head to head competition • The manufacturer needs to set up
between the distributors. and elaborate the expansive
marketing tools for sales the
products to the markets
• Reduce the logistics cost concept by • The manufacturer have to keep the
which, the company only bear for a single inventory for the product produce in
transportation cost (by shipping in large a bulk number (Stone et al, 2007)
quantities to a distribution channel been
established).
• Low costs can be determine in purchasing • A single wholesaler or main
the products by the customer. Gillespie & distributor have to face increasing
Hennessey (2008) stated, the sophisticated pressures to sales the products.
or differentiated products include small Besides, they also have to adapt
fractional of total cost and less influence their services to the changing market
on price decision by the manufacturer to circumstances.
directly sales to the customer.
According to Lancaster and Reynolds (1995), the companies, marketing practitioner and academics
tends to concentrate on the aspects of marketing strategy and become more aware of the cost physical
distribution but at the same time provides the satisfaction to the customers. Hence, the single-tier
distribution system is one of the business logistical techniques which applied to optimally obtain both
of the cost advantages and customer satisfaction as a whole. Despite, there are relatively positive and
negative sided need to be face by the organization.
Table 5: The Advantages and Disadvantages of Multi-tier Distribution System
• Diverge the marketing capabilities to • The complicated of distribution
promote the same products to different channels structure leads to the
target area. difficulties for both customer and
producer to deal regarding on the
products.
• Could reach to each of potential buyer • The price of products sell might
which caused by the complex slightly increase from the real
interaction occurred. cost (mark up price)
• The manufacturer of the products • The horizontal conflicts might
could free up to concentrate on occur between institutions at the
production of goods and the retailer same level (in example, two
concentrate on sales different retailer from the same
company can potentially
compete against each other rather
228
than integrate for benefit of the
whole chain.
• The customer could have the best • Cost reflect (increase the cost) of
possible access to the reach the the company to have more retails
product produce. and distribution outlet.
• Make the convenience for the • The distributor have to bear for
customer to get the products which it some of the expenses (marketing
cause by, the multiple retailer been expenses) such as to sales the
created. The customer require the products to the market. As for
minimum of time and hassle to have example, the agent of Ben Smart
the product’s needs. fertilizer have to bear all the cost
to get involve in the agriculture
carnival
The multi-tier distribution system been established to deals within the different external environment
situation faced by the customer to reach the company’s products and mingle the continuous changes
happened on the surrounding lifestyle. Witcher and Chau (2010), in order to ensure the organization’s
strategic position align to the surrounding changes, it is necessary to ensure the company’s priorities
undertakes the efforts to maintains the competitive advantage (which aim to create values for the
customer in willing to pay for the products that provide unique benefits and higher price as compared
to the competitors). As explained, the multi-tier distribution system will cause the higher cost which
primarily need to bear by the customer. However, the company could achieve the sustainable
competitive advantage by maintain the competitive strategy (focus on differentiation approaches to
the customers such as through agent or consultancy). Henceforth, the firm grows the fundamentally
the customer value and not only focusing to the cost focus respectively.
3. Conclusion
The undertakes effort towards the enhancement of distribution management system of Ben Smart
fertilizer are vital and need to take into consideration in order to sustain the products markets within
the endure time basis. It is because, distribution channels are the vital elements to be ensure the
effectiveness of both creation distribution system in the KTP project of Ben Smart fertilizer. Due to
varies roles and function of each channels which helps to elaborates and serve in a particular
purposes (Czinkota et al, 2004).
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231
Performance Based Funding At Malaysian Public Universities
Abd Rahman Ahmad
Faculty of Technology Management and Business, Universiti Tun Hussein Onn Malaysia,
Lee Jia Wen
Tel: +607 4533952 E-mail: mankuittho@yahoo.com
Ng Kim Soon
86400 Batu Pahat, Johor, Malaysia, ksng@uthm.edu.my
Kek Siok Yee
Hairul Rizad Md Sapry
Faculty of Industry Logistics, Universiti Kuala Lumpur, Malaysia Institute of Industrial Technology,
81750 Masai, Johor, Malaysia
Tel: +607 3812400 E-mail: hairulrizad@unikl.edu.com.my
Abstract
Using a quantitative approach, this research aims to investigate the applicability of PBF mechanism
at Malaysian public universities. PBF mechanism has becomes popular currently in the education
sector worldwide and also rise and motivate the interest for researchers and policymakers to
undertake the study relevant with it. However, there are some issues to be addressed and found that
scarcely studies have discussed about the applicability of PBF in Malaysia. Through the perspective
of Malaysian public universities, the applicability of PBF mechanisms in the Malaysian context will
be investigated.
Keywords: Performance Based Funding, higher education, funding
1.0 Introduction
PBF is a key policy for greater transparency and responsibility in public higher education. PBF is a
system that based on dominating a portion of higher education budget according to the specific
performance measures, for instance course completion, credit achievement, and degree completion
instead of the funding distribution according to the enrolment entirely (Miao, 2012). PBF mechanisms for
Malaysian Public Universities will likely change the behaviour of universities. Hence, Malaysian
232
Government Federal introduced the system of PBF to all public HEIs to stimulate them to be more
competitive (Schiller & Liefner, 2006).
1.1 Research Background
According to Ahmad, Farley, and Naidoo (2012b), Universiti Malaya is the first HEIs established in
Malaysia in 1962 and there are around 20 public universities were established until today. Malaysian
Government Federal was introduced new version of funding mechanism to all Malaysian public
universities since 2007. Referring to Tenth Malaysian Plan (2011-2015), Malaysian Government plans to
implement PBF mechanism according to two elements which are fixed and variable. The block grants
will be cut down and replaced by PBF mechanism. Since PBF becomes popular used in universities and
elevate the interest of researchers to work on it.
1.2 Problem Statement
There are four fundamental components which are government intention outcome, level of understanding
of PBF and objectives of government were identified as the drivers of that could contribute to the
applicability factors of PBF mechanisms implementation at Malaysian public universities. Meanwhile,
Serban (2000) reported that the critical components which also important to the applicability of PBF
mechanisms which were purpose of program, performance indicators, success criteria, indicator weights,
allocation methods, and levels of funding.
World Bank (2007) identified that the old version of traditional funding method is no longer fit with
current competitive environment and the traditional funding method has been highlighted that it does not
show the relationship between the amount of funding given to universities and performance of
universities. Hence, the amount of funding given is not accordance to the actual performance of
universities. At last, it ended up with the problem of less competitiveness among the public universities.
1.3 Research Objectives
Objectives in this study are:
1. To identify the government intention outcome in the implementation of PBF mechanism at

Malaysian public universities.
2. To determine the level of understanding in the implementation of PBF mechanism at
3. To identify the influence of autonomy in the implementation of PBF mechanism at
1.4 Significance of Study
This study will be a significant endeavour in promoting PBF mechanism to all public universities in
Malaysia. This study will beneficial to public universities when they implemented the PBF mechanism.
Moreover, this study will be helpful and anticipated that the results of this study will serve as a future
reference which provide guidance and information for researchers in executing their future research
related to the performance funding.
233
2.0 Literature Review
2.1 Funding
According to Jongbloed (2004), different funding systems are classified by using four-quadrants which
“program oriented” quadrant is represented by PBF mechanism which indicates that HEIs receive the
higher education budget from government is depends to performance of HEIs. Funding is a mechanism
used to distribute the fund to HEIs and ensure that HEIs possess the same goals and objectives with them
in order to achieve objective (Ahmad, Saripuden, & Ng, 2014).
2.2.1 Performance Based Funding (PBF) Mechanism
According to Bloch and Schneider (2016), PBF mechanism is popular used in universities because there
are many researchers have been motivated to do more research relevant to PBF. PBF is a policy
instrument tool that linked the government funding for public higher education based on institutional
performance outcomes such as course and degree completion, credit achievement instead of distributing
funding according to the enrolment (Harnisch, 2011). PBF is directly tied to the state funding as it is a
system that allocating a portion of state’s budget according to the performance of HEIs (Miao, 2012).
PBF mechanism was introduced and promoted by Malaysian Government Federal to all Malaysian public
universities as a key policy to improve universities productivity and stimulate them to be more
competitive (Salmi & Hauptman, 2006). This may encourage universities in resource allocation and
improve universities program performance.
2.2.1.1 Performance Based Funding 1.0
According to Dougherty and Reddy (2011), PBF 1.0 is usually a bonus for higher education. Government
allocated the funding based on the typical indicators such as outcome indicators for graduation; indicators
for intermediate achievement; sometimes indicators for input and indicators of program quality.
2.2.1.2 Performance Based Funding 2.0
The new version of PBF often seeks to improve the negative aspects which attempt to influence the
performance such as the main failure of previous model was the exclusion of stakeholders, especially
community college leadership. Therefore, joint planning process of policymakers and constituents are the
major characteristic of PBF 2.0 model (Friedel, Thornton, D’Amico, & Katsinas, 2013). Based on
Offenstein and Shulock (2010), PBF 2.0 also emphasized on indicators of intermediate achievement, for
instance course completion, degree completion, developmental education completion, progress indicators
such as reaching to the certain credit such as 15 or 30 credits and retention indicators. PBF 2.0
encourages HEIs improve their performance and create a competition environment for universities to
compete between universities (Shulock, 2011).
2.3 Categorization of Malaysian Public Universities
According to Malaysia Education Blueprint (MoE, 2015) ,there are twenty public universities in Malaysia
and they are categorized into three main types of public universities, which are Research / Apex
Universities (RUs), Comprehensive Universities (CUs) and Focused Universities (FUs) as shown in
Table 1.
234
Table 1: The Categorization of Malaysian Public Universities
No Research / Apex Universities Characteristics
1 Universiti Malaya (UM) Field of study: Focus is on research

2 Universiti Sains Malaysia (USM) Competitive entries
Universiti Kebangsaan Malaysia
3 Quality lecturers
(UKM)
Ratio of undergraduates to
4 Universiti Putra Malaysia (UPM)
postgraduates is 50:50
Universiti Teknologi Malaysia
5
(UTM)
Comprehensive Universities Characteristics
Universiti Teknologi MARA
6 Various fields of study
(UiTM)
Universiti Islam Antarabangsa
7 Competitive entries
Malaysia (UIA)
8 Universiti Malaysia Sabah (UMS) Quality lecturers
Universiti Malaysia Sarawak Ratio of undergraduates to
9
(UNIMAS) postgraduates is 70:30
Focused Universities Characteristics
10 Universiti Utara Malaysia (UUM) Fields of study: Focus is on study
Universiti Pendidikan Sultan Idris
11 Competitive entries
(UPSI)
Universiti Tun Hussein Onn
12 Quality lecturers
Malaysia (UTHM)
Universiti Teknikal Malaysia Ratio of undergraduates to
13
Melaka (UTeM) postgraduates is 70:30
Universiti Malaysia Perlis
14
(UniMAP)
Universiti Malaysia Terengganu
15
(UMT)
16 Universiti Malaysia Pahang (UMP)
Universiti Sains Islam Malaysia
17
(USIM)
Universiti Sultan Zainal Abidin
18
(UniSZA)
Universiti Malaysia Kelantan
19
(UMK)
Universiti Pertahanan Nasional
20
Malaysia (UPNM)
Source: Adopted from MoE, 2015
2.3.1 Research Universities (RUs)
According to Singh, Thuraisingam, Nair, and David (2013), RUs are focused on research activities and
teaching based on research and development (R&D). These five public universities is specific to be
Malaysia first fully fledged research universities which each universities has been allocated with RM50
235
million every year to support their research, development and commercialization purpose (Ahmad et al.,
2012b).
2.3.2 Comprehensive Universities (CUs)
According to Singh et al. (2013), CUs also known as multi-disciplinary universities, it offers the courses
in various fields of studies for all level of education, such as pre-undergraduates, undergraduates and
postgraduates degree.
2.3.3 Focused Universities (FUs)
FUs are emphasized on specific fields of studies, for instance education, technical, management and
defence (Singh et al., 2013). These universities are concentrated on the specified discipline that linked to
the objective of their establishment.
2.4 Government Intention Outcome
To achieve the government intention outcomes, Malaysian Government has to introduce new version of
funding mechanism which is PBF mechanism and its benefits to HEIs. According to Ahmad, Farley, and
Naidoo (2012a), government intends to determine that the implementation of PBF mechanism will lead to
the desired changes in the public universities as Malaysian government seeks to plan the strategies and
review to the country that implement the PBF mechanism to ensure that HEIs in Malaysia are encouraged
to undertake the changes of funding allocation so they can generate competitive environment between
universities. Other than that, government’s goal is to ensure Malaysian public universities achieve the
world-class status and make Malaysia operate as a core of HEIs in Southeast Asia region (Ministry of
Higher Education, 2007).
2.5 Level of understanding on PBF
All the relevant staffs has to understand the reason of implementation of PBF and its benefits bring to
universities since the level of understanding will directly influence to the performance of universities.
There are four perspectives are useful for the understanding of PBF mechanism which PBF as an
accountability tool, a means of institutional improvement and quality enhancement, a budgetary and
resource allocation tool, and as an expression of higher education privatization and corporatization
(Gorbunov, 2013). Hillman, Tandberg, and Gross (2014) said to deepen the understanding of origins and
design features of PBF mechanism, government has to offer a brief overview effectiveness
implementation of PBF mechanism context.
2.6 Autonomy
The implementation of PBF can increase the autonomy of public universities (Ahmad et al., 2014).
Government rewarded HEIs when they improve measurements to meet the state goals and the incentives
are normally allocated from state appropriations, however, this autonomy also included the changes in
campus autonomy, for instance universities have greater tuition-setting authority (Harnisch, 2011).
2.7 Conceptual Framework and Hypothesis
funding research analysis is expected to give an overview of the PBF mechanism applicability in
Malaysia educational funding which also highlights the issues about the strengths and weaknesses of PBF
mechanism for public universities. As consequence to bring the reality of “World-class Universities” and
236
meet the desire of all the Malaysians citizen inspiration, it is important to find strategic and applicability
of funding mechanism, especially for Malaysian public universities perspective.
Desirability Drivers
Government Intention
Outcome Performance
Based Funding
Level of understanding (PBF)
Mechanisms for
Malaysian Public
Universities
Autonomy
Figure 1: Conceptual Framework of the Study
Source: Adapted from Kaullychurn (2009) and Kivistö (2008)
H1: There is a significant relationship between government intention outcome and the implementation of
PBF mechanism at Malaysian Public Universities.
H2: There is a significant relationship between level of understanding and the implementation of PBF
mechanism at Malaysian Public Universities.
H3: There is a significant relationship between autonomy and the implementation of PBF mechanism at
Malaysian Public Universities.
3.0 Methodology
3.1 Research Design
The quantitative research was employed in this study because suitable to identify the applicability of PBF
mechanism at Malaysian public universities. Data collected will be analysed by using SPSS.
3.2 Respondents
Random sampling is used in this study based on Krejcie and Morgan (1970) table to determine the sample
size of the study. The total of 247 Deans and Deputy Deans from eleven Malaysian FUs will be the
targeted population for this study. A total of 152 respondents were chosen randomly from the population.
3.3 Population of the Study
The total number of Deans and Deputy Deans are gathered from individual website of particular
university.
237
Table 2: Population of the Study
Focused Universities Number of Deans and

(FUs) Deputy Deans*
Universiti Utara Malaysia (UUM) 25
Universiti Pendidikan Sultan Idris (UPSI) 27
Universiti Tun Hussein Onn Malaysia 24
(UTHM)
Universiti Teknikal Malaysia Melaka 21
(UTeM)
Universiti Malaysia Perlis (UniMAP) 23
Universiti Malaysia Terengganu (UMT) 24
Universiti Malaysia Pahang (UMP) 27
Universiti Sains Islam Malaysia (USIM) 19
Universiti Sultan Zainal Abidin (UniSZA) 30
Universiti Malaysia Kelantan (UMK) 15
Universiti Pertahanan Nasional Malaysia 12
(UPNM)
Total 247
3.4 Instrument
The study was carried out by using survey method and the tool used to collect data was questionnaires
which made up of three parts. The first part was about the demographic information of respondents, while
the second section was the statements related to the implementation of PBF mechanism at Malaysian
public universities and divided into three sections which were government intention outcome, level of
understanding and autonomy. Lastly, the third part needs respondent’s suggestion or comment
concerning to this research. The measurement of the second part is using System Usability Scale (SUS)
which is a seven-point Likert scale measurement anchored by description strongly agree and strongly
disagree (Brooke, 1996). The third part is an open-ended question which respondents need to write down
their comment or suggestion in their own words.
3.5 Data Analysis
After distributed the questionnaires, the data collected were analysed by using the IBM Statistical
Package for Social Science (SPSS) version 22.0.
3.6 Pilot Test
Pilot test is conducted for preliminary analysis of survey before to reduce errors in the survey. Pilot test is
conducted with ten Deans and Deputy Deans in different public universities to the suitability of
questionnaire. After the pilot test, questionnaires are distributed to the targeted population of respondents.
4.0 Conclusion
As a conclusion, this paper is discussed overview study on the applicability of PBF mechanism at
Malaysian public universities. This study will be continued followed the research flows and the survey
will be conducted by distributing questionnaires, collecting data and finally analysing the data collected.
238
Acknowledgement
The authors would like to thank the Universiti Tun Hussein Onn Malaysia and Ministry of Education
Malaysia for supporting this research under the Fundamental Research Grant Scheme (FRGS) Vot No
1503. In addition the authors also to thank the respondents that give full support in this research.
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Science, 3(15).
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teaching and learning of Malaysian public universities. Higher Education Studies, 2(2), 114.
Ahmad, A. R., Saripuden, S., & Ng, K. S. (2014). Analysis of the higher education funding systems.
Bloch, C., & Schneider, J. W. (2016). Performance-based funding models and researcher behavior: An
analysis of the influence of the Norwegian Publication Indicator at the individual level. Research
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Special Aspects of Risk Management in IT-Projects
Valentin S. Nikolaenko
Tomsk Polytechnic University, Russia, nikolaenkovs@tpu.ru
Oleg N. Petukhov
Tomsk Polytechnic University, Russia, onpetukhov@tpu.ru
Olga V. Petukhova
Siberian State Medical University, Russia, polgavas@mail.ru
Vladislav V. Romanovsky
Tomsk Polytechnic University, Russia, limb58@mail.ru
Abstract
The article showcases methodological support for the management of IT-projects, which can be used by
IT-project managers, executives of IT-organizations and, other IT-professionals in order to eliminate
and/or to reduce typical and the most common risks. The methodological support is based on the analysis
of the major life cycle models used for the development of IT-projects, on the analysis of typical and most
common risk events in IT-projects, as well as on the results obtained during the study of methodological
support used in IT-project management.
Keywords: Risk, Risk management, IT-project.
1. Introduction
Information technologies have a significant impact on the organizational development. For example,
CNews Analytics analytical reports provide data, which states that more and more business processes in
organizations are becoming dependent on projects carried out in the field of information technology every
year [1].
McKinsey & Company experts nominally classify the IT market components into the following groups: IT
equipment, IT services, software (SW), among which the share of IT equipment is 60%, of IT services –
20%, and of SW – 20%. It should be noted that the Russian IT market volume amounts up to about 1.3%
241
of the GDP. In comparison, IT market in India, Brazil, and China is 2% of their GDPs, while in the US,
the UK and Hong Kong it is 4% [2].
McKinsey & Company experts also revealed a topical problem associated with risk-free management of
IT-projects, namely that the IT market needs such methodological support for IT-project management,
which would provide that the actual outcomes correspond to the planned ones (actual = planned). Such
risk-free management will significantly increase the proportion of successful IT-projects in the IT market.
In connection therewith, the purpose of the article is to elaborate a methodological support for IT-project
management, which would allow us to eliminate and/or reduce typical and the most common risks.
The achievement of the purpose demands that the following tasks are solved:
1. Analysis of methodological support, used in IT-project management;

2. Study of basic life cycle models, used for implementation of IT-projects;
3. Identification of typical and the most common risks in IT-projects;
4. Development of methodological support in order to eliminate and/or reduce typical and the most
common risks in IT-projects.
2. Methodological supports used in IT project management
According to the PMBoK standard of project management «a project» is a temporary process, aimed at
creation of unique products, services and/or results [3]. Temporary nature of the creation process means
that the project has a fixed duration, a limited budget and limited resources. The project is considered
complete if its goals have been achieved (i.e., its content has been elaborated, it has been completed on
time and within budget, and the quality requirements have been met) [4]. In contrast to the current
(process, operating) activities, project activities face uncertainty, i.e. a set of unpredictable situations, due
to the unique nature of product creation [5]. For example, project goals may be new to the project team,
which leads to the necessity of more careful planning.
It is believed that the completion of a project may bring the following:
• A product, for example, end product, or an element of a product;

• A service;
• A result, for example, a possible future opportunity, or a document.
242
The probability of a risk

isk event occurrence usually affects interrelated project key parameters: duration,
cost and quality (Figure 1).
). For example, an increase in the quality of the end product of the project will
cause an increase in the
he costs and implementation period [6].
Figure 1: Major project parameters
For the purposes of the article, an IT

IT-project
project is understood as a process which aims at creation of unique
products, services and/or results with respect to evaluation, modernization, adaptation, customization,
adjustment, introduction, testing, description, integration of information systems into certain company
business processes.
projects coun
Typically, IT-projects countt with five groups of stakeholders who are interested in successful
completion of an IT-project:
project: a user, a product owner, a project manager (PM), a team,
subcontractors (see
Figure 2).
Figure 2: Stakeholders of an IT project
243
A user is a person or an organization that uses the product, service and/or the result of an IT-project in
order to perform some functions [7].
A product owner is a person or an organization, which initiates a project, generates an order to create a
product, service and/or a result, provides funding for the project and receives the main product of the IT-
project [8]. A product owner may be a third-party person or an organization, then the IT-project is called
«external», or an organization which itself needs the product of an IT-project. In this case the project is
called «internal».
A PM is a person who performs management functions, i.e. it is a person responsible for the contents of
the IT project, its costs, duration, quality, personnel, communications and integration [9].
Table 1: Examples of methodologies, used to manage IT projects
Methodology Name
Developer
(original)
Project Management Body of Knowledge
Project Management Institute (PMI)
(RMBoK)
Capability Maturity Model Integration
Software Engineering Institute (SEI)
(CMMI framework)
Rational Unified Process (RUP) Rational Software Company
Project in Controlled Environments Central Computer and Telecommunications Agency
(PRINCE2) (CCTA)
System Development Life Cycle
(SDLC)
Microsoft Solution framework (MSF) Microsoft Corporation
Extreme Programming Kent Beck, Howard Cunningham, Martin Fowler, and
(XP) others
Rapid Application Development (RAD) James Martin (IBM)
Scrum Hirokata Takeuchi and Ikujiro Nonaka
Adaptive Software Development
Jim Highsmith и Sam Bayer
(ADS)
Agile Crystal Clear
Feature-Drive Development
Jeff De Luca
(FDD)
Dynamic System Development Method
DSDM Consortium
(DSDM)
Kanban
David J. Anderson (Toyota Corporation)
Lean Development
244
Structured System Analysis and Design Methodology

Central Computer and Telecommunications Agency
(SSADM)
SixSigma Motorola Corporation
A team consists of individuals who are direct performers of the works connected to the IT-project.
A subcontractor is a person or an organization which works on the base of a subcontract, i.e. which
implements the works on IT-project fully or partially under a contract.
A feature that distinguishes IT-projects from the others is an ability to introduce increments of a project
product (a part of the program code) into the business processes of the product owner before the project is
fully complete. This means that the user can use the software and hardware of a not yet completed product
on early stages of its development and to conduct test business transactions.
Different methodologies are used in order to manage a project in the field of information technology.
Examples of methodologies used in IT-project management are shown in Table 1 [10].
С. Brandas, О. Didraga, and N. Bibu in their article conduct a comparative study of current approaches
and methods, used in IT-project management [11]. We shall note that the authors interpret the achieved
results basing on the principles of risk management (Table 2).
Table 2: Comparative study of methodologies used IT-project management Need for resources
Risk indicator
Methodology
Focus on the
Difficulty of
Risk control
introduction
IT –project
volume
risk
PMBoK + + + Easy Medium Large

CMMI + + + Difficult Many Large
RUP + + + Difficult Few Large
PRINCE2 + + - Easy Medium Large
SDLC - - - Medium Medium Large
Agile + + + Easy Few Small
SSADM - - + Medium Medium Small
Among the methodologies from the Table 2 we shall emphasize Agile, an agile methodology of IT-project
management (Agile Software Development) [12]. Agile is a set of approaches which allow to iteratively
develop an IT-project, dynamically changing its requirements and goals [13]. The Standish Group
International experts asserted in 2013 Annual Report that the majority of successfully completed small
245
projects used approaches of the Agile methodology [14]. Studies, conducted by С. Brandas, О. Didraga и
N. Bibu in 124 IT-organizations,
organizations, prove these statistics ((Figure 3).
Figure 3: Analysis of approaches and methodologies in IT project management
C. Brandas, O. Didraga and N. Bibu emphasize in their analytical study that the Agile methodology is not
focused on the risks and does not use control system. However, this statement is partially wrong. An
iterative approach is used within the agile methodology, and the participants involved in the
implementation of an IT-project
project carry out a retrospective analysis afterwards. The main objective of the
retrospective analysis is to identify possible threats and dangers (negative risks) and to elaborate a set of
activities inn order to eliminate them.
3. IT project life cycle
According to the PMBoK guidelines for project management, a project life cycle is a sequence of
activities based on the needs of management ((Figure 4).
We shalll note that the use of life cycle model allows to determine the sequence of actions and to establish
the relationship between various types of risk events. Mostly, IT
IT-projects
projects are developed with the use
of [15]:
• Waterfall Life Cycle Model [16].. Within this model the implementation of an IT
IT-project
project is consistent. The
following sequence of actions may serve as an example: requirements analysis, design, implementation,
verification,
erification, integration and maintenance [17].. While using the Waterfall model, the project team
246
consistently moves from one stage of development to another only after the previous stage is fully and
successfully completed (Figure 5);
);
• Validation and Verification Life Cycle Model (V

(V-model) [18].. This model traces a connection between the
goals of an IT-project
project and testing resul
results,
ts, which minimizes the risks, making the project more transparent
(Figure 6);
• Rapid Application Development Model. This model allows to engage the product owner into all stages of
life cycle of an IT-project development
lopment [19].. Such communication with product owners minimizes the
risks, related to the further refinement of the created IT
IT-project (Figure 7);
• Incremental Life Cycle Model. It is a phased model, in which different parts of an IT-project
IT are
developed at different times and at different rates ((Figure 8) [20];
• Spiral Life Cycle Model.. This life cycle model accentuates identification and management of risks, where
the procedures of risk management are repeated after every iteration and prototype release.
Figure 4: An example of a project life cycle, accordi

according to PMBoK
Figure 5: Waterfall Life Cycle Model
247
Figure 6: V-model of the life cycle
Figure 7: Rapid Application Development Model
Figure 8: Incremental Life Cycle Model
248
Figure 9: Agile life cycle model
A generalized model of the IT-project life cycle, resulted from the analysis of different models, is shown
in the
Table 3.
We shall note that the level of detail of the life cycle stages is explained by complexity of an IT-project
that is why some stages may be combined or segmented in terms of the project goals.
The Spiral life cycle model by B.W. Boehm gained the most widespread acceptance by IT-project
managers and developers. The popularity of this model among managers and developers can be explained
by the fact that the spiral model allows to manage risks, iteratively implement an IT-project, choosing the
best development option, and to carry out a correlation between obtained prototypes and the IT-project
goals. However, development of IT-projects according to the Agile life cycle model enables the project
team to quickly respond to the risks associated with changes in the requirements, and to minimize negative
risk events related to users’ dissatisfaction (Figure 9).
4. Typical and most common risks in IT projects
249
Many scholars, working with IT-projects, empirically determined the most probable risks, or the most
common risks, that are typical of many IT-projects. For example, T. Addison analyzes a list of negative
risks, which IT projects are mostly vulnerable [22]. We shall note that the ranking of risk events in the
Table 4 is made according to the influence of the most common risks on an IT-project successful
completion.
T. Addison in his work also gives the data on the importance of each of the above mentioned risks (Figure
10).
Scholars K.J. Steven and S. Fowell in their work also analyze the risk events, which IT projects face more
often than the others (Table 5) [23].
Table 3: Generalized model an IT project life cycle

Stages of an IT- Description of the stage of an IT-
№ Actions of the IT-project manager
project life cycle project life cycle
Creation of a document, in which Elaborates a document, in which the
Initiation of a
the goals and tasks of the project, goals, tasks, and basic requirements of an
1 mini-project
the users and the planned project IT-project are formulated, the planned
(vision)
are described project and potential users are described
Raw estimation of the IT-project,
i.e. variance of budget and Prepares necessary legal documents
2 Initiation
implementation period estimates (Contract, Order, etc.)
up to 50%
Estimations of the IT-project are Builds a team.
made, i.e. variance of budget and Elaborates the Work Breakdown
3 Planning implementation period estimates Structure (WBS).
up to 10−15%. Estimates necessary resources.
Project backlog is formed. Estimates duration of actions and costs of
250
the IT project.
Develops metrics for IT project quality
management.
Creates a plan of communication
management. Elaborates «Plan A» and
«Plan B» for risk management [21]
Implementation
The team plans and assesses
(iteration Approves functionalities per iteration
functionalities per iteration
planning)
The project team conducts a brief
Implementation meeting on a daily basis, where
Controls the process of implementation of
(stand up each member gives a summary of
the IT-project increment
meeting) the completed tasks and explains
the challenges s/he faced
The team summarizes iterations. It
4 evaluates the status of previously
Implementation identified risks. The team Evaluate the project situation. Takes
(retrospective formulates new risks, discovered correction measures
analysis) during the iteration, analyzes
them, and works out control and
response measures
The manager unveils the IT-product
Implementation Presentation of the IT product increment. Approves functionalities for
(release) increment the next iteration
Delivers the IT-product increments.

Evaluates disagreement between the
Delivery of the IT-product
5 Completion actual and the planned results. Evaluates
increments to the product owner
the effectiveness of risk management
Introduction of the developed IT- Maintenance of the process of

6 Introduction
product introduction of the IT-product
Operation, maintenance and
7 Operation Maintenance of the IT-product operation
support for the developed IT-
251
product
Maintenance of the process of
Refinement and (or) improvement
8 Modernization modernization of the IT product.
of the developed IT
IT-product
Initiation of a new IT project if necessary
Liquidation of the developed IT
IT- Maintenance of the process of liquidation
9 Liquidation
product out of business processes. of the IT-product
product
M. Sumner in her work specifies basic risk factors in large IT projects [24].. We shall note that by a large
project M. Sumner understands a project with a scheduled implementation period of more than one year
(Table 6).
Figure 10: Importance of the risk management, according to T. Addison
Table 4: The most common risks, according to T. Addison

Risk
Negative risk
number
Risk 1 Imprecise or incorrect IT
IT-project goals
Risk 2 Underestimating the IT
IT-project requirements
Risk 3 The users won’t like the developed IT
IT-product
Risk 4 Bugs during the IT-project
project implementation
Risk 5 Insufficient involvement of the IT
IT-project manager into the project
Risk 6 Inadequate project schedule and budget
Risk 7 Changes in requirements during IT
IT-project implementation
252
Risk 8 Lack of project methodology (Waterfall, Agile, etc.)

Risk 9 Knowledge and skills of the project team won’t meet the project requirements
The IT-project manager will overestimate the quality expected from the project – gold
Risk 10
plating
Table 5: The most common risks, according to K.J. Steven and S. Fowell
Risk
Negative risk
number
Risk 1 Lack of interest of the project manager in IT-project’s success
Risk 2 Lack of communication with the users
Underestimating of the difficulty of the IT-project and its requirements by the members of
Risk 3
the project team
Risk 4 The users will not be interested in the developing IT-product
Risk 5 The IT-project outcomes will not meet expectances of the product owner and the users
Risk 6 Changes in requirements during the implementation of the project
Risk 7 Shortfalls of knowledge and skills of the project team for the IT-project implementation
Risk 8 No frozen requirements during the implementation of the IT-project
Risk 9 Use of new technologies
Risk 10 The members of the project team will not fit for the IT-project implementation
Risk 11 Conflict among the project stakeholders
Table 6: The most common risks, according to M. Sumner

Risk
Negative risk
number
Risk 1 Influence of the external environment on the IT-project
Risk 2 Lack of experience of the project team members
Risk 3 Lack of professional assessment
Risk 4 Unclear goals of the IT-project
Risk 5 Changes in requirements during the implementation of the IT-project
Risk 6 Lack of methodology for the IT-project management (Waterfall, Agile, etc.)
Risk 7 Lack or shortfalls of communication with the user
Risk 8 Poor planning of the budget and schedule for the IT-project implementation
253
Risk 9 Conflict among the project stakeholders
Factors that have an impact on the IT-project successful completion are listed in the Chaos
Manifesto 2013 annual analytical report. The specialists of The Standish Group International
conducted a survey among project managers and presented a rating of these factors in order of
importance with 100 points as maximum (
Table 7).
Table 7: Factors which have an impact on the IT project successful completion

Risk
Factors which have an impact on the IT-project successful completion Points
number
Risk 1 Low interest of the IT-project manager 20
Risk 2 Lack of users engagement into the implementation process 15
Risk 3 The IT-project will be too large or too complicated 15
Risk 4 Lack of necessary professional skills 13
Risk 5 Lack of expert assessment 12
Use of the classical technologies of the IT-project implementation (for example,
Risk 6 10
Waterfall)
Risk 7 Unclear goals of the IT-project 6
Risk 8 Lack of emotional motivation 5
Risk 9 No system of control and quick response 3
Risk 10 The instruments needed for the project management won’t be used 1
In that regard we can identify typical risks, which are very likely to occur in IT projects. The results
concerning the most common risks can be found in theTable 8.
254
Table 8: Typical and most common risks in IT projects

Risk
Negative risk
number
Risk 1 Unclear, imprecise and incorrect goals of the IT project
Risk 2 Inadequate implementation time and budget of the project
Risk 3 Changes in requirements during the IT project implementation
Risk 4 Underestimating of the requirements of the IT project and its difficulty
Risk 5 The developed IT product will not be popular among users
Risk 6 Bugs during the IT project implementation
Risk 7 Lack of necessary expertise in the project team
Risk 8 Lack of adequate methodology for IT project management (Agile, Waterfall, etc.)
Failures in communication among the stakeholders of the project (manager, product owner,
Risk 9
project team, etc.)
Risk 10 Subcontracting parties won’t fulfill contract conditions
Risk 11 Use of new technologies in the IT project
Risk 12 Low quality management of expectations of the product owner, the project team, etc.
Risk 13 Low efficiency and motivation of the project team
Risk 14 The IT project manager will overestimate the quality of the project – gold plating
While studying the most common risks, the experts of The Standish Group International found out that
small IT projects, i.e. the projects with implementation period of less than six months, are 70% more
successful than large IT-projects. Large IT-projects, according to Chaos Manifesto, are projects with
implementation period of more than six months. Risk events which have an impact on the implementation
period, budget and quality are 10 times more likely to occur in large projects than in small ones. A
comparative analysis of successful completion of large and small IT-projects in 2012 is shown in the
Figure 11.
Basing on the analysis of methodologies, used for IT-project management, of the of IT-projects life cycle
and the risks commonly encountered in IT-projects, the author formulated methodological approaches,
which eliminate and / or reduce the probability of occurrence of the typical and most common risk (Table
9) [25].
Table 9: Methodology for IT-project management
№ Name Description Risk
255
number
Segmentation of a large project into various small projects, i.e.

creation of a project portfolio, and designation of a responsible Risk 2
1 Project optimization
person, a project portfolio manager, who is responsible for the Risk 4
successful completion of those projects
Initiation of a mini-
project in order to
Creation of a document, where the goal and the tasks of the
2 create the project Risk 1
project are stated, users and planned product are described
vision
Risk 1
Risk 2
Engagement of Engagement of independent experts in order to identify and Risk 3
3
independent experts estimate the risks Risk 4
Risk 6
Risk 8
Estimations of implementation period and budget of the IT-project Risk 2

should not exceed 50% on the initial stage Risk 4
4 Raw estimate
Estimations of implementation period and budget of the IT-project Risk 2

should not exceed 10-15% on the planning stage Risk 4
Risk 3
Risk 8
Use of contemporary agile methodologies in the process of the IT-
5 Use of Agile Risk 12
project implementation
Risk 13
Risk 14
Risk 1
The iterative approach involves segmentation the IT-project life Risk 2
cycle into a series of iterations. We shall note that the iterative Risk 3
Iterative approach of approach gives the members of the project team an opportunity to Risk 4
6
implementation conduct a retrospective analysis after an iteration is completed in Risk 9
order to ensure that previously identified risks are controlled and Risk 12
to identify new ones Risk 13
Risk 14
7 Focus groups of users Testing of increments of the IT-product by potential customers Risk 5
256
after an iteration is completed

Risk 1
Correction of basic
Risk 2
parameters of the Correlation of basic parameters, goals of the project and obtained
8 Risk 3
project on the release increments of the IT
IT-product on the release stage
Risk 4
stage
Risk 9
«Personal
To make every member of the IT
IT-project have «personal Risk 2
responsibility for the
9 responsibility for the risk», i.e. to form an area of engagement into Risk 6
risk» for members of
risk control and monitoring Risk 13
the project team
Figure 11: Comparative analysis of successfully completed large and small projects
5. Conclusion
On the basis of the above mentioned study of methodologies used for IT

IT-project
project management, of analysis
of the IT projects life cycles and the most common risks, the author elaborated nine approaches to risk-
risk
free management, which formed the basis of methodological support for IT-project
project management (Table
(
9).
). In this regard, the following hypothesis can be formulated: the elaborated methodological support will
enable the heads of IT-organizations,
organizations, IT
IT-project managers and other IT-professionals
professionals to eliminate and/or
to reduce the most common risk events. Further research and testing are required in order to prove this
hypothesis.
References
257
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259
The Textile Industry in the Context of Economic Growth, Economic

Development and Sustainable Development –
A Nowadays Economic and Managerial Approach
Gheorghe N. Popescu, Faculty of Accounting and Management Information Systems, Department of
Management Information Systems and Accounting Doctoral School, The Bucharest University of
Economic Studies, Ion N. Angelescu Building, Piata Romana nr. 6, sector 1, 010371, Bucharest,
Romania; popescu_gh_cafr@yahoo.com
Cristina Raluca GH. Popescu, Faculty of Business and Administration, Department of Economic and
Administrative Sciences, University of Bucharest, Regina Elisabeta Boulevard, no. 4 – 12, sector 3,
Bucharest, Romania; Faculty of Economics, Economic I Doctoral School, The Bucharest University of
Economic Studies, Virgil Madgearu Building, Calea Dorobantilor no. 15 – 17, sector 1, 010371,
Bucharest, Romania; Faculty of Management, Department of Management, The Bucharest University of
Economic Studies, Ion N. Angelescu Building, Piata Romana nr. 6, sector 1, Bucharest, Romania;
popescu_cr@yahoo.com
Veronica Adriana A. V. Popescu, Faculty of Accounting and Management Information Systems,

Department of Management Information Systems, The Bucharest University of Economic Studies, Ion N.
Angelescu Building, Piata Romana nr. 6, sector 1, 010371, Bucharest, Romania; popescu_va@yahoo.com
Abstract
The present research aims to examine the place, the role and the importance of the economic growth, the
economic development and the sustainable development in the textile industry, focusing on the economic
and managerial dimensions of this topic. In the first part of the paper, the authors address to the
importance of the sustainable development factors, which encompass the importance and the length of the
ones provided by both economic growth and economic development in the context of the textile industry.
In the second part of the paper, the authors focused on a study conducted both in terms of a
bibliographical research focused on the role and importance of textile companies in the context of
sustainable development worldwide and in terms of a statistical analysis of textile companies’ specific
figures aimed to investigate the position held by the textile industry today and to bring to light future
directions capable to enhance textile companies’ competitiveness. The study has the purpose of enriching
the approach given nowadays to the textile industry, in the context of economic, social and environmental
aspects, making both future predictions and proposals (suggestions) capable to strengthen the position of
this sector worldwide.
Keywords: sustainable development, textile industry, economic growth, competitiveness, economic and
social progress, environmental protection, business environment, corporate social responsibility (CSR),
resources, business process management (BPM).
Introduction
It is generally believed that both economic growth and economic development were unable to ensure
individuals’ future development on long-run and in a constructive manner. In this matter, there are
numerous cases in which, even though economic growth and economic development were registered,
they were also accompanied by price growth, higher income inequities [1], higher unemployment rate,
inconsistent use of natural resources, overconsumption [2], loss of cultural identity and individual’s and
society’s values, as well as profound instable and disturbed political systems [3].
260
So, in this situation, the role of sustainable development became crucial, due to its ability to generate
consistent economic and social progress [4]. According to the United Nations World Commission on
Environment and Development (1987), the concept of “sustainable development” refers to meeting the
needs of present generations without compromising the ability of future generations to satisfy their own
needs in the same manner and at the same extent as today [5].
It is our belief that sustainable development encompasses the sphere that belongs to economic growth and
economic development by addressing in depth valuable economic, social, management, marketing,
leadership, environmental, and political issues (this list is not limited), such as the wellbeing of future
generations, social norms as well as environmental frameworks. In this regard, the ideas below should be
taken into account:
The first perspective states the fact that sustainable development should be seen in relation with economic
growth in the light of human development by bringing improvements in individuals’ knowledge and
skills strengthen by their efficient use, more and better jobs, and better conditions for new businesses to
be created and developed. Furthermore, in our opinion ensuring sustainable development in a country
should automatically imply a higher level of democracy [5-6].
The second perspective states the fact that sustainable development should be seen in relation with
economic development [1]. In this context, this relationship has the purpose of changing individuals’
mentalities as well as changing their attitude towards environmental protection, limited natural resources,
economic growth and development [6], quality of human life, and future generations’ perspectives [7], in
the context of improper use of natural resources, increased level of poverty, and alarming environmental
pollution and waste accumulation [8].
From the ideas above it can be noticed that both economic growth and economic development are two
concepts that “limit” somehow, in one way or another, one’s economic, social, management, marketing,
leadership, environmental, and political perspective. Sustainable development has the strength to bring
true value to the future of a country’s resources, its economic, social and political opportunities, due to its
“timeless” perspective, by breaking all boundaries and leaving all the limited notions and perspectives
and stepping into the future.
Nowadays, together with all the companies around the world, the textile companies face the challenges
brought in by sustainable development, addressing the issue of corporate social responsibility (CSR) [9],
relating to the way in which their operations impact the society and the natural environment [10] in
business operations and with regard to the stakeholders [11].
According to specialists, the textile industry represents the world’s oldest sector specialized in consumer
goods manufacturing as well as in business and managerial production processes, being a diverse and
heterogeneous sector covering the whole production chain starting from the transformation of natural and
chemical fibers (such as, natural fibers – cotton, wool, silk, linen, and hemp, and chemical ones –
synthetic fibers made from petrochemicals and oil, respectively polyamide and acrylic [12]) into already
processed and final goods (such as, garments, household/private goods, and industrial textiles) [13-15]
(Figure 1).
261
Figure 1: World demand for man-made fibers compared with cotton, wool and silk and other
natural fibers
Source: Authors’ adaptation, own calculations and future predictions for 2016 - 2020 after Julian, M.
Allwood, Søren, Ellebæk Laursen, Cecilia, Malvido de Rodríguez, Nancy, M P Bocken, Well dressed?
The present and future sustainability of clothing and textiles in the United Kingdom, University of
Cambridge Institute for Manufacturing, Mill Lane, Cambridge, Great Britain, 2006 and Performance
Apparel Markets, Issue 55, July 2016, available online: https://www.textilesintelligence.com/ (accessed
on 5 July 2016) [14-15]
Research Methodology
The paper is focused on a study conducted (1) first in terms of a bibliographical research (review of
literature) focused on the role and the importance of textile companies in the context of sustainable
development worldwide and (2) second in terms of a statistical analysis of textile companies’ specific
figures aimed to investigate the position held by the textile industry today and to bring to light future
directions capable to enhance textile companies’ competitiveness.
262

(A) The importance of textile companies in the context of sustainable development
This section emphasizes the state of the art of knowledge related to the role and the importance of textile
companies in the context of sustainable development worldwide.
According to the United Nations Environment Programme (UNEP), the figures show that the textile
industry is the world’s second-biggest economic activity, as follows:
In 2013 the textile industry was responsible for attracting a turnover of €166 billion, employing
1.7 million people and accounting for 30% of the world’s exports [16];
In 2006, 220,000 companies focused on the textile industry, employing 2.5 million people,
obtaining a turnover of €190 billion and accounting for 3% of total manufacturing value added only at the
European level [13];
In 2001, the textile industry registered a turnover of US$ 353 billion [17] and accounting for 7%
of the world’s exports [18].
Furthermore, a hundred years ago Europe and North America were seen as the central point for the textile
production, while Asia (particularly China and India) is today’s main attraction for the textile (and
clothing) industry. Even though this shift occurred at a global level, the textile industry is still an
important part of the European manufacturing industry [10]. The European textile industry has faced a
long period of decline due to the globalization processes, which enhanced competition and offered the
possibility of relocation to low-income and lower environmental standards countries, as well as to the
economic crises [19].
Moreover, the textile companies are seen as open systems dependent on the supply of resources – all
latent and/or abstract means which a company needs in order to accomplish its tasks [20], provided by
their environment [21], which, in turn, produce valuable resources for the society. Today, the textile
companies face the challenge of acting sustainably as part of resource networks enlarged due to the
environment system in order to secure their supply of resources, manage their resources in a
sustainable business rationality and maintain their survival in a world of scarce resources [22].
(B) A statistical analysis of textile companies specific figures and competitiveness challenges
This section presents a statistical analysis of the textile companies’ specific figures and the
competitiveness’s challenges.
Table 1: “European Union: Short Term Indicators” outlines the evolution of the textile and clothing
industry between the time period 2001 and 2015 at the European Union’s level.
263
Table 1: European Union: Short Term Indicators
EUROPEAN UNION: SHORT TERM INDICATORS

Time period: 15/14 14/13 2015*** 2014 2013 2012 2001 Source
EUROPEAN MILL CONSUMPTION of FIBRES
EUROPE * 0,2% – 3.217 3.211 4.872 4.766 5.203 CIRFS
1000 t 3.051****
* Western
Europe +
CEEC +
Turkey
E.U.-28 PRODUCTION INDEX - 2010 = 100
MAN-MADE -0,3% 0,8%** 106,2 84,6 84,8* 79,4 144,6 EUROSTAT
FIBRES 85,9***** 83,9**
TEXTILE -0,6% 2,5%** 94,7 95,3 91,9* 92,0 155,8 EUROSTAT
92,9**
CLOTHING -1,4% -1,8%** 85,5 85,9 86,7* 90,5 185,5 EUROSTAT
86,8***** 87,4**
E.U.-28 PRODUCTION PRICE INDEX in EURO - 2005 = 100

MAN-MADE -2,7% 1,6%** 104,6 107,4 105,7 106,8 95,5 EUROSTAT
FIBRES
TEXTILE 0,4% 0,7%** 109,5 109,1 108,3* 107,6 95,2 EUROSTAT
109,0***** 108,2**
CLOTHING 0,0% 0,7%** 105,1 105,1 104,6* 104,1 94,4 EUROSTAT
104,4**
Note:
* This figure is according to the data provided by The European Apparel and Textile Confederation (EURATEX) on
03.06.2014 in “Key Figures 2013 - The EU-28 Textile and Clothing Industry in the year 2013”, available online:
http://euratex.eu/library/statistics/key-data/key-data-details/?tx_ttnews%5Btt_news%5D=4285&cHash=080b12
174f0fe9ceb5bf368f4fcb9036 (accessed on 20 March 2016)
** This figure is according to the data provided by The European Apparel and Textile Confederation (EURATEX) on
21.05.2015 in “Key Figures 2014 - The EU-28 Textile and Clothing Industry in the year 2014”, available online:
http://euratex.eu/library/statistics/key-data/key-data-details/?tx_ttnews%5Btt_news%5D=4846&cHash=a43f98d
261ba88233db94846a8f7e08e (accessed on 20 March 2016)
*** The data available for the year 2015 refers only to the indicator “EUROPE * 1000 t * Western Europe + CEEC”
and is provided by The European Apparel and Textile Confederation (EURATEX) on 08.06.2016 in “Key Figures
2015 - The EU-28 Textile and Clothing Industry in the year 2015”, available online: http://euratex.eu/library/
statistics/key-data/key-data-details/?tx_ttnews%5Btt_news%5D=4846&cHash=a43f98d261ba88233d b94846a8f7
e08e (accessed on 16 June 2016)
**** This figure is according to the indicator “EUROPE * 1000 t * Western Europe + CEEC” and is provided by The
European Apparel and Textile Confederation (EURATEX) on 08.06.2016 in “Key Figures 2015 - The EU-28 Textile
and Clothing Industry in the year 2015”, available online: http://euratex.eu/library/ statistics/key-data/key-data-
details/?tx_ttnews%5Btt_news%5D=4846&cHash=a43f98d261ba88233d b94846a8f7 e08e (accessed on 16 June
2016)
***** This figure is according to the data provided by The European Apparel and Textile Confederation
(EURATEX) on 08.06.2016 in “Key Figures 2015 - The EU-28 Textile and Clothing Industry in the year 2015”,
available online: http://euratex.eu/library/ statistics/key-data/key-data-details/?tx_ttnews%5Btt_news%5D=4846&c
Hash=a43f98d261ba88233d b94846a8f7 e08e (accessed on 16 June 2016)
Source: The data presented in Table 1: “European Union: Short Term Indicators” represents the authors’ adaptation
after the figures provided by EURATEX estimates available online: http://euratex.eu/press/key-data/ (accessed on 16
June 2016)
264
In our opinion, after analyzing the data presented above, in order to become more competitive on the
marketplace, the textile industry needs to enhance its importance both in economic and social terms, as
showed in the lines below:
a) In the short-run: The main focus should be on providing incomes, jobs (mostly for women),
and foreign currency receipts [23].
b) In the long-run: The main focus should be on facilitating countries the opportunity for
sustained economic development, specific policies and institutions able to enhance the dynamic effects of
the textile industry by respecting and protecting the environment, the specific legal framework in order to
attract the investors, improving the life quality and strengthening the effectiveness of government policies
and institutions [23].
c) Both in the short-run and long-run: The strategy of leadership is extremely important for the
textile industry, due to leadership’s key role in initiating and developing CSR programs within
organizations, starting from the idea that leaders’ decisions affect economies and societies as a whole
[24], and continuing with the fact that leaders’ role in guiding business toward sustainable social
responsibility and socially responsible behavior is extremely valuable and based on its unique skills and
competencies [25]. Furthermore, the responsible leaders are those individuals characterized by the highest
integrity and deep understanding of sensible subjects such as sustainable development [26]. Moreover, in
order to survive difficult situations, the leaders that activate in the textile industry need to be charismatic,
act accordingly under the conditions imposed by the environmental uncertainty [27], have an innovative
vision, empower and determine the employees to innovate and accelerates innovation processes and CSR
[28].
It is a fact that the solutions on short-run and on long-run presented above for the European Union’s
textile industry can be applied successfully for other regions or countries worldwide, given the evolution
of the textile industry at the global level (Figure 2).
Figure 2: Textile industry’s evolution worldwide
Source: Authors’ adaptation after the data provided by World Bank, International Trade Statistics from
World Trade Organization (WTO), EUROSTAT and EURATEX [13, 16-18, 29-31]
265
According to the data presented above, it can be noticed that the textile sector is one of the most
globalized forms of industry, providing to customers probably one of the most globalized goods in
the world. In addition, both globalization and market power, belonging especially to multinational textile
industry companies, acted in favor of its evolution. Furthermore, especially after the time period 2004 -
2006, the textile industry became more competitive. Moreover, given the economic situation presented in
the chart above, the evolution of the textile industry for the time period 2016 - 2020 refers to the
following key elements:
a) The economic aspects: The textile industry plays a major role in every country in terms of
trade, gross domestic product (GDP) and employment. For example, additionally, this type of industry
provides opportunities for export diversification and economic expansion, especially in low-income
countries that can use the labor force in terms of cost advantage by generating emerging niches. In
addition, it is our belief that the economic aspects should put an emphasis on achieving development
goals based on improved working conditions, higher financial standards in terms of remuneration,
alternative skills gathered from the interaction with the competition and export diversification.
b) The social aspects: In our opinion, the major social aspect that needs to be taken into
consideration while addressing the textile industry refers to employment possibilities. Of course, apart
from this clear benefit, one can notice that this industry provides the authorities with the opportunity to
strengthen their policies and institutions with the appropriate law framework, able to generate the
necessary skills for this high value added activities.
c) The environmental aspects: A very important issue that needs further attention is the fact that
the textile industry has a major environmental impact at a global level due to the use of energy and toxic
chemicals being used into the processes: (1) first of all, this sector contributes to climate changes because
of the need for burning fossil fuel in order to generate electricity for heating the water and the air cleaning
processes; (2) second of all, toxic chemicals are used in the production process in many manufacturing
stages, such as pre-treatment, dyeing and printing; (3) third of all, toxic chemicals play also a major role
in cotton agriculture; (4) fourth of all, the water consumption turns out to be another critical aspect [14,
32].
Conclusions and Further Directions

All in all, it is our strong belief that the textile industry needs to become more aware of the following key
success factors:
Innovation in terms of products, processes, techniques, technology and marketing;
Higher respect for society and environment, by reducing the burden that the environment faces
and by focusing more on eco-friendly products and eco-labels;
High technology fibers, accompanied by quality and creativity in designing stages corroborated
with new marketing strategies and niches, as well as just-in-time management techniques;
Keen focus on research and development (R&D) strategies and techniques;
High quality products created based on environmental friendly fibers/textiles, such as organic
fibers, cotton, recycled fibers;
Sustainable environmental policies to which both employees and consumers should be more
aware;
266
Encourage the recycling process of old cloths/fibers/textiles in order to produce new clothes;
Encourage the implementation and proper application of norms supporting eco-friendly products
and eco-labels as well as environmental friendly policies;
Prevent the use of all the technologies (nanotechnologies) that might represent a risk to society
itself or to the environment;
Follow the effectiveness of governmental policies’ application in terms of chemical use in the
textile industry;
Establishing a new value creation system in terms of the textile industry, starting from the
resources that are chosen for the production process and ending with the way of promoting the final
product itself to customers.
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269
Temporal Inference Mechanism
Zeineb Neji, Lamia Hadrich Belguith and Marieme Ellouze Khmakhem
computer science, Sfax, Tunisia
zayneb.neji@gmail.com
l.belguith@fsegs.rnu.tn
Mariem.Ellouze@planet.tn
Abstract
One of the most crucial problems in any Natural Language Processing (NLP) task is the representation of
time. This includes applications such as Information Retrieval techniques (IR), Information Extraction (IE)
and Question/answering systems (QA). This paper deals with temporal information involving several forms
of inference in Arabic language.
Keywords: temporal inference, Arabic Language, several forms of inference, Natural language
processing.
Introduction
Over the years the problems of temporal analysis in Natural Language Processing (NLP) have been
addressed with various approaches, ranging from heavily inference-oriented to mostly NLP motivated ones
[1]. This analysis varies from one study to another. More details are shown in the table below. Although all
of these approaches have their own strengths in providing the infrastructure required for representing and
reasoning about time in NLP, few of them can at the same time deal with sophisticated inferences.
In this article we propose an approach for resolution of temporal information in particular, we focus our
effort in putting forward a practical way for handling temporal inference.
The challenge becomes huge when we try to automatically process a complex natural language such
Arabic. This complexity is mainly due to the inflectional nature of Arabic. The situation gets worse, when
we talk about the considerable lack of resources in general and the Arabic NLP (ANLP) community which
still suffers from the lack of free available annotated corpora.
The remaining of this paper is organized as following. In the next section, we give a short overview of QA
systems with a special attention to the QA systems based on complex questions. After that, we describe our
proposed approach and its different steps. Finally, we conclude this work and make suggestions for future
researches.
Table 1: Studies for temporal analysis
270
Study Tasks
Artale et al. [2] Dealing with temporal logics
Ohlbach et al [3] Creating formal accounts of calendars
Allen 1984 [4] Building a theory for representing actions and time
Hobbs et al. 2002 [5] Creating DAML Ontology of Time
Setzer 2001 [6] Annotation of temporal expressions in newswire texts
Pustejovsky et al. 2002 [7] TimeML a corpus annotated with: (a) time
expressions, (b) events and (c) links between them
Snodgrass 1995 [8] Dealing with temporal databases
Arabic Language
Arabic is a Semitic language spoken by more than 330 million people as a native language. At the historical
level, Arabic has remained unchanged, intelligible and functional for more than fifteen centuries.
Culturally, the Arabic language is closely associated with Islam and with a highly esteemed body of
literature. Strategically, it is the native language of more than 330 million speakers [9] CIA 2008 living in
an important region with huge oil reserves crucial to the world economy, and home as well to the sacred
sites of the world three monotheistic religions. Linguistically, it is characterized by a complex Diglossia
situation [10].
Over the years, Arabic natural language processing (ANLP) has gained increasing importance, and several
state-of-the-art systems have been developed for a wide range of applications, including machine
translation, information retrieval and extraction, speech synthesis and recognition, localization and
multilingual information retrieval systems, text to speech, and tutoring systems. These applications had to
deal with several complex problems pertinent to the nature and structure of the Arabic language.
Temporal information in Arabic language
The possibility of automatically tracking temporal information, capturing changes relating to events from
text documents, is a new challenge in the fields of information retrieval (IR) specifically temporal
information retrieval (TIR) and natural language processing (NLP). There was a lot of work on the
extraction of temporal information in other languages that use Latin alphabet, such as English, French, or
Spanish, by against the Arabic language is still not well supported in TIR and it needs to conduct more
researches. In this paper, we present an approach that support automated exploration and extraction of
temporal information from Arabic text documents for handling temporal inference.
In Arabic text documents, extraction of temporal entities is a hard task due to the morphology of the Arabic
language and the way that the temporal entities are expressed. Human-written text is not consistent about
the specificity of date expressions, some entities represent absolute time and dates such as 2013/10/28 or
2013 ‫ أ‬28 (28 October 2013), some entities represent relative time such as: (after eleven days).
271
To extract temporal information, a model is needed that precisely defines such information in documents
(or rather the corresponding textual expressions) and how to classify them. Our classification is based on
how the temporal terms are presented. For that, the proposed classification is shown in Table 2.
Table2: classes of temporal questions
Question Class Example
Time−Related .1955 ‫ا‬ 24 ‫ا‬ ‫ن‬ ‫ل‬ ‫و‬
Steve Paul Jobs was born in San Francisco on the 24 of February 1955.
Event−Related ‫ ن‬2011 ‫م‬ ! ‫ " و‬#‫و‬ $ %$&‫ و‬، ‫را‬ )* 2009 +,-
. &
He underwent in 2009 for a process for liver transplant, and since

January, Jobs was on sick leave until his death in 2011.
Temporal−Order / ‫ي‬% 1$ ‫ا‬ ) ‫ ا‬2 3‫ وأ‬4 ‫إ " أ‬ ‫ و د‬1996 ‫م‬ 7 " ‫ اذ‬9 : 4 ‫ أ‬7& ;
1997
The Apple acquired NeXT in 1996, Jobs returned to Apple and became
CEO in 1997.
Entity− Related <& ) ‫ب وا‬ 9 ‫ س ا‬$/) "? ‫) ا‬$ # ً A‫ً ر‬: 9! ‫ ة‬# ‫ ت‬/D 1970 ‫ا * م‬
‫وز ك‬
In 1970 the life of Jobs saw a major shift when he met computer
programmer and engineer Steve Wozniak
Related works
In this section, we present the earlier works related to question answering in Arabic language. Despite
extensive researches in Arabic, the criteria present a challenge to the automatic language processing
systems [11]. In the last decade, the volume of Arabic textual data has started growing on the Web.
Question Answering systems present a good solution for textual information retrieval and knowledge
sharing and discovery. This is reason why a large number of QA systems has been developed and
extensively studied recently.
Following a comprehensive survey of available Arabic QA systems, we realized that there are some well-
known such systems.
272
ArabiQA is an Arabic question answering system dealing with factoid questions, integrates NER (Named
Entity Recognition) module and adapts JIRS (Java Information Retrieval System) to extract passages from
Arabic texts [12]. A deep study of sentence formulation and structures in Arabic interrogative continues
with AQuASys [13] which is a Question Answering System designed to make it possible for the user to
type in a question formulated in Arabic natural language, and to answer questions related to a named entity
that can be of any type: person, location, organization, time, quantity, etc. Therefore, the system takes, as
input, questions starting with interrogative words (G&/who, &/what, G ‫أ‬/where, " &/when, H ‫ا * د‬/how many,
) ‫ ا‬H /how much). QArabPro [14], is an Arabic QA system that uses IR and NLP techniques to extract
answers. It supports the factoid but excludes how and why.
The problem of temporal representation
When asking a question that refers directly or indirectly to a temporal expression, the answer is expected to
validate the temporal constraints. To achieve such functionality, QA systems need, first, to deal with
relations between temporal expressions and events mentioned in the question and, second, time to rely on
temporal inference to justify the answer. Whenever the answer to a question needs to be justified, if
temporal expressions are involved, the justification must contain some form of temporal inference [15]. For
example, the expected answer type of question Q1 is a Date:
Q1: ‫ ة؟‬9 ‫ا‬ ‫& " رق‬
Q1: When Jobs died?
The expected answer type is an argument of the first event Evt1=‫رق‬ / died which has an argument:
/Jobs.
The answer to Q1: 2011 ) ‫ د‬12 / 12 December 2011, extracted from the context:
* 4#‫ً ; ر‬ &‫ً و‬ ‫ رؤ‬L ‫ي ن‬% ‫ ا‬2011 ) ‫د‬12 4#‫ ا ا‬/ A‫ و ة ر‬- G "4 ‫"أ‬ D 7$ ‫ أ‬: P1
.‫ ا ) ض‬+& 4 ‫ اع ط‬3
P1: The company " Apple " announced the news of the death of the late president on the twelve of
December 2011, which was a visionary and creative genius was gone after a long struggle with illness.
In the paragraph P1, the event Evt2=‫ و ة‬/the death which has as arguments4#‫ ا ا‬/ A‫ ر‬/ the late president.
The event Evt1 differs from the event Evt2, but they are related. To justify the answer, these relations must
be recognized into the temporal inference. In fact, it is through this example that we illustrate the
importance of temporal inference to determine the full content. In this paper, we present a Question
Answering QA methodology to handle temporal inference by combining all these forms of inference.
Proposed approach
The proposed approach involves three main modules (Figure 1), namely :(1) question processing for
interpreting the question, its temporal requirements and selecting candidate answers, (2) document
273
processing, which includes indexation based on temporal information, finally (3) answer processing, where
we start with the temporal inference before getting the answer.
Figure1: proposed approach
A. Question processing
The objective of this process is to understand the asked question, for which analytical operations are
performed for the representation and classification of the questions. The first step of the question
processing is based on the classification of questions referring to the temporal information extracted from
the question. We have used the list of questions produced in TERQAS Workshop1. Some of the question
classes are listed in Figure 2. This classification is based on the ways questions signal their time or event
dependence and on how straightforward it is to determine the time at which information needs to be
understood from a question so that it will be possible to provide a suitable answer (Table1).
We have experimented this classification using a set of 100 temporal questions and a corpus of 2000
temporal passages extracted from Wikipedia. The obtained results are very encouraging: 90% of the
temporal information selected from the suitable answer has been already expected from the question
classification, 7% to the unexpected answers and 3% to the unfounded answers. Some attempts were made
to reach a better question analysis in the question answering task. Most of these attempts focus on keyword
extraction from the user's question [16] made some query formulation and extracted the expected answer
type, question focus, and important question keywords. To perform a better question analysis, the research
of [17] analyzed questions by eliminating stop words, extracting named entities and classified the questions
into Name, Date, Quantity, and Definition questions according to the question word used.
274
B. Document processing
QA systems benefit from keywords to quickly and easily find the relevant passages. All the documents are
indexed with all these forms of information that enable the retrieval of the candidate’s text passages.
The step of temporal passage retrieval has allowed only passages that contained at least one absolute or
relative time expression. It also captures the event temporal orderings of the predicates and their relations to
the answer structures.
C. Answer processing
This module is responsible for selecting the response based on the relevant fragments of the documents. To
be able to answer time-related questions, a question answering system has to know when specific events
took place. For this purpose, temporal information can be associated with extracted facts from text
documents [18].
• Temporal inference
Either time expressions or events are related but are sometimes ambiguous. For example, question Q : “
‫؟‬4 ‫أ‬ D 2 P 4)* ‫ ا‬G ; ! " &/ When Jobs stopped working for Apple ?” is classified to ask about a
Time−Related, due to the presence of the question stem “When”.
(Q ‫و‬R‫ ق ا‬S ‫ ا‬7 ; 4 ‫ ا‬P $&) ‫ ر‬1 7 ; ً‫ ا‬/‫ ظ‬U U ‫ا‬ ‫ و; ا ا‬،2011 ‫ أ‬G& V& W ‫ا‬
4 R ‫ي‬% 1$! ) ? ‫ !? ) ا‬G& + ‫أ‬ * ‫أ‬ $) !.
Jobs died at his Palo Alto, California home around 3 p.m. on October 5, 2011. Jobs continued to work for
Apple until six weeks before his death.
The answer that is inferred from this paragraph is “ ‫ أ‬G& V& W ‫ا‬ / On the fifth of October 2011 – *
+ ‫أ‬/ six weeks before”
The final inference enables the recognition of the date of an event when a time expression is identified for
its initiation and for its termination. The correct answer is 2011 V X‫أ‬24/ On August 24, 2011.
Such answers are important in Arabic QA system as they can be used to provide an answer from a
document collection. We therefore decided to investigate the potential of those answers by acquiring
patterns automatically.
• Answers patterns
It has been noted in several QA systems that certain types of answer are expressed using regular forms. For
example, for temporal question like BIRTHDATEs (with questions like “When was X born?”/ ‫ن؟‬Y ‫)& " و‬,
typical answers are:
275
Mozart was born in 1756.

Gandhi (1869-1948)
These examples suggest
pattern like
<NAME> was born in <BIRTHDATE>
<NAME> <BIRTHDATE>-
1756 $ ‫و & زارت‬

(1948- 1869)‫ ي‬X
These examples suggest pattern like
<‫د‬Y & Z ‫ >! ر‬$ ‫ < و‬H ‫>إ‬
-<‫د‬Y & Z ‫<>! ر‬H ‫>إ‬
When formulated as regular expressions, they can be used to locate the correct answer. Patterns are then
automatically extracted from the returned documents and standardized to be then applied to find answers to
new questions from a document collection. The precision of the patterns is calculated by cross-checking the
patterns across various examples of the same type. This step will help to eliminate dubious patterns.
Conclusion
In this paper, we introduced a methodology to compute temporal inference for QA that enables us to
enhance the recognition of the exact answers to a variety of questions about time. We have argued that
answering questions about temporal information requires several different forms of inferences, including
inferences that derive from relations between events and their arguments.
Acknowledgment
I give my sincere thanks to my advisors Dr.Lamia Hadrich Belguith and Ms.Marieme Ellouze Khmekham
(University of Sfax-Tunisia) for their assistance and guidance.
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Reasoning in Artificial Intelligence. M. F. Dov Gabbay and L.Vila, eds. MIT Press, Cambridge, MA
[3] Ohlbach, H. and Gabbay, D. 1998. Calendar logic. J. Appl. Non-classical Logics ,1998.
[4] Allen. Towards a general theory of action and time. Artif. Intell,1984
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Time. http://www.cs.rochester.edu/~ferguson/daml/.
276
[6] Setzer, A. 2001. Temporal information in newswire articles: an annotation scheme and corpus study.
Ph.D. dissertation, University of Sheffield.
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1.0”, available at http://time2002.org.
[8] Snodgrass, R. T. ed. 1995. The TSQL2 Temporal Query Language. Kluwer Academic, Dordrecht, The
Netherlands.
[9] CIA. 2008. CIA Word Fact Book. Central Intelligence Agency, Washington, D.C.
[10] Farghaly, A. 1999. Arabic diglossia and Arabic identity in the information age. Al-Fikr Al-Arabi,
March-April.
[11] A. M. Ezzeldin and M. Shaheen, “A survey of Arabic question answering: challenges, tasks,
approaches, tools, and future trendsǁ”, the 13th International Arab Conference on Information Technology
ACIT’2012.
[12] Y. Benajiba, P. Rosso and A. Lyhyaoui, “Implementation of the ArabiQA Question Answering
System's components”, In: Proc. Workshop on Arabic Natural Language Processing, 2nd Information
Communication Technologies Int. Symposium. ICTIS-2007, Fez, Morroco, April 3-5, 2007.
[13] S. Bekhti, A. Rehman, M. AL-Harbi and T. Saba, “AQUASYS: an arabic question-answering system
based on extensive question analysis and answer relevance scoring”, In International Journal of Academic
Research; Jul2011, Vol. 3 Issue 4, p45.
[14] Hammo B., Abu-Salem H. and Lytinen S., “QARAB: A QA System to Support the Arabic Language”.
Proceedings of the workshop on computational approaches to Semitic languages, pp. 55-65, Philadelphia,
2002.
[15] S. Harabagiu, C. A. Bejan, “Question answering based on temporal inference.” in Proceedings of the
AAAI-2005 Workshop on Inference for Textual Question Answering, 2005 [10] Omar Alonso, J.Strötgen,
A. Baeza, and M.Gertz: “Temporal Information Retrieval: Challenges and Opportunities”. TWAW 2011:
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Conf. on Scientific Research Outlook Technology Development in the Arab world, SROIV, Damascus,
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[17] Harabagiu, S., Bejan, C., “An answer bank for temporal inference”, In Proceedings of LREC, 2006
[18] Lee, G.G., J. Seo, S. Lee, H. Jung, B-H. Cho, C.Lee, B-K. Kwak, J, Cha, D. Kim, J-H. An, H.Kim.
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Shallow NLP.Proceedings of the TREC-10 Conference.NIST, Gaithersburg, MD.
277
Factors Influencing Alumni Donations at Malaysian Public

Universities
Khairol Anuar Kamri
Tel: +607 4533952 E-mail: khairol@uthm.edu.my
Khairunesa Isa
Tel: +607 4533952 E-mail: nesa@uthm.edu.my
Atikah Yahya
Faculty of Technology Management and Business, Universiti Tun Hussein Onn Malaysia, 86400
Batu Pahat, Johor, Malaysia
Abd Rahman Ahmad
Faculty of Technology Management and Business, Universiti Tun Hussein Onn Malaysia, 86400
Batu Pahat, Johor, Malaysia
Rosman Md. Yusoff
Tel: +607 4533952 E-mail: rosmanmy@uthm.edu.my
Abstract
This study aims to identify factors that influence the contribution made by the alumni members at
Malaysian public universities in generating income for the university. Three main factors were
investigated in this study namely demographic, student experience and institutional. The respondents
consisted of 340 alumni members that graduated in 2014 convocation session. Survey questionnaire
was used as the instrument to solve three research questions in order to determine the factors that
affect the contribution of alumnus in generating the income for the universities. The respondents’
were randomly selected according to the selected Malaysian public universities. Data were analysed
using descriptive statistics to get the frequency and percentage for each contribution factors. The
results showed that both student experience and institutional factors contribute the most in generating
income for the university whereas demographic factor showed moderate influenced on contribution
by alumni. Future researches are suggested to add other factors such as personality year of graduation
and assessment on the role of alumni to the university.
Keywords: Alumni, income generation, public university
1.0 Introduction
Income generation is well emphasized in the development of a university. The dependency on tuition
fees and allocation from federal government can no longer serve as the main source of finance for a
university. To make matters worse, university expenses have continually increased and thus
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additional resources were needed to maintain existing course program and developing new co-
curriculum. Therefore, the Higher Education Institutions (HEIs) have been urged to be more
proactive in generating own sources of income, which includes activities such as research,
development and commercialization through patents and research and development (R&D)
production, consultation services with collaboration with industry and private sector, student
recruitment in human resource development and other activities.
1.1 Background of Study
Income generated by Alumni Association is not only in the form of monetary but also in non-
monetary form. Contribution in the form of monetary is necessarily involving money that can be used
in sale and purchase activities and while non-monetary contribution are in the form of ideas, energy,
creativity and social activities. Generally, an alumni act as a platform and a liaison between the
university and its former students. The role of the alumni also include by providing information
infrastructure on the activities and affairs of association, obtaining and sharing of career information
and advanced studies and in the planning and implementation of activities in order to develop
friendly relationships among alumni members.
In its effort to increase revenues, universities are faced with some difficulties and obstacles for the
institutions to obtain contribution from alumni members. The problems that exist among others, is the
lack of attention given by alumni members (Harris-Vasser, 2003). The universities are generally
struggling to receive pay back contributions. Furthermore, students are still lacking the attitudes and
culture of contributing back to universities upon graduation (Tierney, 1988) This is often faced by
most universities in Malaysia. In the meantime, universities are also faced with the problems of
getting students’ responses and involvement in the programs and activities that have been organized
by universities (Baade & Sundberg, 1996). Distance and time among the obstacles for them to
contribute (Ahmad & Soon, 2015; Dolbert, 2002), especially to those who are married and working.
This group often find it difficult to spend their time in engaging with university activities as they their
family and work have now become their main priority. At the same time, universities have also faced
with the problem of developing students’ experiences as this depends on the students’ own desire and
motivation (Scillitoe, 2013). In addition, only students with higher levels of satisfaction and positive
institutional experiences are more inclined to do their contribution (Khatimin, 2011). This is
problematic because their number is very small. Hence, based on a number of issues that have been
discussed above, it has clearly shown that studies of factors affecting alumni contributions are very
important. Studies on this aspect should be brought to the forefront to enable understanding on the
factors affecting alumni’s contributions. Here, the research questions have been formulated for these
studies are does demographic, students’ experience and institutional factors affecting the contribution
of alumni.
2.0 Literature Review
There are many previous studies that have agreed on the factors that affect alumni’ contribution. The
following section will further discuss the definition of alumni and past studies that support this
research.
2.1 Alumni
Alumni refer to individuals or group of students who have graduated from an institution (Kamus
Dewan Fourth Edition, 2005) while Alumni Association focuses on association that was established
(in the institution) where its members consist of the alumni/former students of the institution. In order
to enable alumni as one of body/association to help the university to generate income, the university
should also play a role in getting support from them. Alumni members that have high level of
279
confidence on an institution are usually more willing to contribute as a sign of their readiness (or
loyalty? – not sure which one) to the university (Holmes, 2009).
2.2 Form of Contribution
A contribution is defined as something that is given as an aid, assistance and support (Kamus Dewan
Fourth Edition, 2005). The contribution made by the alumni members are usually in the form of
either financial or in non-financial (Gaier, 2005). The financial form of contribution by alumni
members are usually in the form of money, while non-financial forms include alumni’s contribution
(David, 2009) in engagement in a particular program and activity. Astin (1999), in his research
indicated that the involvement of a student have interconnected between the curriculum and the
nature of the involvement. The results of Astin study showed that students’ participation comprises
the quantity and quality of physical and physiological students during their studies. Based on that the
more active involvement in the university, the greater the learning and experience that can be gained
by students.
2.3. Factors of Contribution by Alumni in Generating Revenue for University
Demographic Factor
Demography is defined as a population or group of people based on variables such as size, density,
and the growth rate (Kamus Dewan Bahasa Third Edition, 1996). In this study, the demographic
factors are gender, age, marital status, level of education, information of employment and earnings
(Sun et., al 2007). A demographic factor is one of the most important factors in influencing an alumni
contribution. Dean (2007) in his study showed that demographic factors will have a positive
contribution to the administration alumni. Meanwhile, Okunade and Berl (1990), change in age is one
of the important factors to measure the involvement of alumni. The findings of their study have also
revealed that a person with an age of 52 years or older are more committed to contribute. This is
because the younger generation, especially those (students) who are in their 30s or younger are
usually still in their early stage of life. Whereas for gender, a previous study by Harris-Vasser (2003)
found that women contribute more than men as they generally have less commitment to pay (such as
payment relating to household). In terms of job status, those who have permanent jobs and incomes
are usually more prone to contributing. Studies by Weerts and Ronca (2007) found that those who
have household income of more than US $ 60,000 are more likely to contribute and contribute in the
biggest amount.
Students’ Experience Factor
According to Kamus Dewan Fourth Edition (2008) experience is defined as encountering, feeling and
bearing something in various circumstances such as hardship, difficulties and changes. The findings
of a study by Gaier (2005) found that the simpler form of contribution given by a person is through
involvement in activities compared to financial contribution. Active involvement in curricular
activities would enable enhancement of relationship between the students and the faculty, staff
members. Various efforts have been put into organized activities as a research done by Weerts and
Ronca (2007) stated that the higher the involvement of former students in any programs and activities
that been organized, the higher the rate of their contribution in the Alumni. Tessema, Ready and Yu
(2012) pointed out that there are many factors that will affect the level of satisfaction among students
and one of the subjects that should be improved is the quality of programs which can influence the
alumni contribution. Furthermore, Harris-Venner (2003) stated that financial assistance received by
the students will affect mainly alumni giving back to the universities. This group of students will be
more likely to give reason to commemorate help that was previously given (Mc Dearmon, 2009).
280
Institutional Factor
A study done by Terry and Macy (2007) has observed the tendency in the involvement of alumni
members being influenced by institutional factor. According to Terenzini and Pascarella (2005), a
particular contribution that would be given by alumni members of an institution would be valued
based on career development dimension and career opportunities provided by the institution.
Meanwhile a study done by Lertputtarak and Supitchayangkool (2014) found that an effective
management system would lead to higher willingness in contributing. In other words, the quality of
an institution especially of the faculty can be used to measure the contribution of alumni members.
3.0 Methodology
Research methodology is methods and techniques in designing, collecting and analysing data in order
to produce evidence which could support a conclusion.
3.1 Design of Study
The data collected in this study was carried out through interview technique. Prior to conducting
interviews on randomly selected respondents, interviews with members of the Alumni Association
Executive Committee, the Director and Assistant Registrar were carried out to find out the issues and
problems faced in generating incomes. The findings from the interviews would be the basis for
formulating the main problem for this study. Interviews were then conducted on the respondents and
the results of would be made the result of this study.
3.2 Population and Location of Study
This research was conducted at the selected Malaysian public universities. The data collection
process was made during Convocation Ceremony at at 2014. During these events, respondents were
selected based on their availability and commitment. The study population were the graduates of
Bachelor Degree, Master and PhD that are members of the university alumni. The selection of this
group was based on the scope of the study which is to identify factors that affect alumni contributions
to the university. A total of 340 respondents were selected as sample to participate in this study. As
mention the population selected were from the Malaysian public universities.
3.3 Instrument of Study
The study was conducted using a survey questionnaire which consists of two parts:
Part A
Part A contains 10 questions related to respondents' demographic information such as gender, age,
marital status, level of education, faculty, place of residence, employment information, the average
income and the status of contributions.
Part B
Part B covers the factors that influence the involvement of alumni in helping to generate income for
the university.
4.0 Data Analysis and Discussion
The results of data analysis that have been obtained can identify factors that influence the
involvement of alumni in generating the income for the university. Table 1 show the demographic
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distribution and the percentage of respondents classified according to the gender, age, marital status,
level of education, and employment status and contribution.
Table 1: Frequency Analysis and Percentage of Demographic Information

obtained from Respondents.
Demographic Profile Frequency Percentage (%)

Gender
Male 150 44.1
Female 190 55.8
Age
24 years old and below 110 32.3
25 to 27 years old 10 2.90
28 to 30 years old 120 35.3
31 to 33 years old 100 29.4
34 years old and above 0 0
0 0
Marital Status
Married 160 47.1
Single 180 52.9
Educational Level
Doctor of Philosophy (Ph.D) 0 0
Master’s Degree
Bachelor’ Degree 50 14.7
Diploma 290 85.2
0 0
Employability Status
Employed 170 50.0
Non-employed 40 11.7
Working part-time 60 17.6
Furthering study 70 0.20
Contribution Status
Yes 180 52.9
No 160 47.1
Demographic profiles of the respondents involved in the study are shown in Table 1. The majority of
respondents were female and aged between 23 years to 30 years old. The study also found that most
of the respondents involved in this study were graduates with bachelor's degree qualification. For the
status of contribution, it was found that the majority of respondents in this study have contributed to
the university.
Next, the researcher has divided the questionnaires into three levels of agreement namely agreed,
disagreed and not sure as the statements made by the respondents. Data were analysed using
descriptive statistics for both frequency and percentage respectively.
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Table 2: Factors Affecting the Contribution by Alumni members
Score
Factors that affect the
Agree Disagree Not sure
contributions from alumni
f % f % f %
Demographic factor
Age 200 58.8 100 29.4 40 11.7
Employability and earnings 270 79.4 35 10.3 35 10.3
Time constraints 180 52.9 90 26.4 80 25.7
Marital Status 175 51.4 100 29.4 65 19.1
Student Experience Factor
Receive assistance and scholarship 67.6 26.4 5.88
230 90 20
holders
Active involvement in the
210 61.7 70 20.5 60 17.6
organization
Organization of the program 180 52.9 90 26.4 70 20.5
Provision of facilities by University 190 55.8 80 23.5 70 20.5
The importance of the establishment 230 67.6 80 23.5 30 8.82
of the Alumni Association
The university’s features 210 61.7 93 27.3 37 10.8
Offered program 210 61.7 100 29.4 30 8.82
University’s administration system 290 85.2 30 8.8 20 5.88
Based on respondents' perceptions of factors affecting alumni contribution in helping income

generation for university, most of the Higher Education Institutions (HEIs) are faced with the same
problem in getting contribution and pay back from their alumni. This constraint was caused by
several factors connected with and related to the contribution of alumni. These factors are
demographic, student experience and institutional factors (Table 2). Overall, the study found that
both the student’s experience and institutional factors are the main constraints faced by alumni
members to contribute and to give back to the university because of interesting experiences they have
obtained during their studies. As for institutional factor, university is a place where social
relationships between students and institutions were established. Therefore, it can be seen that alumni
members generally had positive views of the university in terms of the importance of the university
alumni and offering of the related majors. This was followed by demographic factors which were
related to the background of the respondents such as their employment and income status.
5.0 Discussion on Findings and Conclusion of Study
Furthermore, the study found that only 44.1 percent of the alumni were married and 55.8 percent
were still single. Alumni members who are married were mostly female students. Most alumni
members have their own career either permanently or part-time in both government and the private
sector. Meanwhile, 28% were pursuing their higher level of studies (postgraduate).
5.2 Factors Affecting the Provision of Funds/Contributions
There are three factors in this study and all of these factors have met the objectives of this study.
Demographic Factor
Overall, the results of this study have found that the majority of respondents agreed that demographic
factor was one of the factors that have influenced them to contribute to the university. This finding
283
was supported by both McDearmon and Shirley (2009) and Lertputtarak and Supitchayangkool
(2014) respectively. Employment and sources of income are the most important subjects to measure
the contribution of a person as it relates directly to the contribution of a person. Similarly, for those
who were married, it does not only involved money but also time. Most married students gave
priority on their families and kids. This factor concurred the findings of the study conducted by
Harris-Vasser (2003) which found that increase in age would likely enhance students to contribute a
lot. Nevertheless, there were some different findings that were obtained by Baruch and Sang (2012).
Student Experience Factor
For factor of experience of the students, the study found that the number of respondents who agreed
that this factor would affect their contribution of was considerably high. The findings of this study
have also been obtained from Gaier (2005). Student experience was taken based on both external and
internal factors. Internal factors consist of values, attitudes and culture that can be implemented
through the provision of education and preparation of good facilities in the hope that students would
appreciate the university. While external factors consists of direct involvement in co-curricular
activities and programs organized by the university. For both end-generation x and generation y, they
prefer activities that are relaxed and fun in nature such as sports and excursions to the outside.
Thus, students’ experience is important for students to to instil so that it is easier to obtain and accept
receive contribution from them.
The institution is also one of the critical factors influencing the contribution of alumni members to
university. This study also concurred similar results from a study carried out by Bedding (2014).
On the average, respondent had knowledge about the alumni, but were less exposed to the process
and the role of the association. This is because of the lack of exposure and effort to enhance
relationship between students and the university by Alumni Association. University management
quality represents the perceptions of the students. Thus students would appreciate their institutions
based on their gained experience which shaped their appreciation for the university.
Recommendation Future Studies
For future studies, the researcher suggests that this study can be further extended to investigate the
factors that influence the contribution of alumni who have graduated for 10 to 20 years after their
graduation. The aim is to see the factors that keep these alumni members to contribute to the
university. In addition, the researcher also suggests for other researchers to investigate personality
factors such as interest and motivation affecting alumni members’ contribution. Hence, the researcher
also encourages other researchers to widen the scope the study and obtain the relevant knowledge on
the role and importance of alumni to the university.
6. Conclusion
Overall, results of this study have found that all three factors had encouraged alumni members to
contribute to the university, whereby the most important factor was students’ experience. Although it
was difficult and time consuming to apply the values and culture of contribution to the students,
efforts through thorough and regular plan and strategy should be made by university as this will help
the universities to generate income for a long time.
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The Improvement of Operational Management In

E-Administration
Mădălina Ecaterina Popescu (Andreica)
Academy of Economic Studies, Bucharest, Romania, madalina.andreica@gmail.com
Gheorghe Păcurar
Academy of Economic Studies, Bucharest, Romania, gicu_p@yahoo.com
Florentina Ivanov
Academy of Economic Studies, Bucharest, Roumania, flory.ivanov@gmail.com
Abstract
The paper analyses the performance of management in public services and is oriented on the operational
side, aiming at improving the management of public services and the instruments that measure its
effectiveness.
The increase of the operational performance of management is approached by a research methodology

that allows for the evaluation of the effectiveness of public services, based on a comparative analysis and
specific indicators of performance, whose result is to improve the initial offering of public authorities.
The article highlights the main results obtained from implementing a performance management at
different levels, using modern technology as a tool necessary to achieve the objectives set by EU
Directives, where the citizen is placed at the centre of the administration.
Keywords: performance, electronic services, e-administration.
Introduction
Current competitions are ever closer at organization level, the business environment is dynamic and
challenging and managers place increasing value on human resource development, all of which contribute
to a performance-oriented organizational environment.
The concept of performance is used in many areas and it is best described in the specialized literature by
Lebas (1995), Wholey (1996) and Folan, Brown at all (2007). Performance management is used at all
organizational levels, representing an important factor present everywhere within the business
environment (Brudan, 2010) and classified on different levels: strategic, operational and individual. This
article recognises the importance of high performance in the public services at all three levels mentioned,
developing a framework for evaluating the investments and the results associated with the adaptation of
the administration services to the opportunities offered by available electronic applications.
Review of the Scientific Literature
The reports generated by Capgemini are an important tool in measuring the progress on the provision of
public electronic services in the EU. Capgemini has gathered and analysed data starting from 2001 and
submitted a report to the General Directorate for Information Society and Media of the European
287
Commission, including indicators for measuring the progress of e-administration in the EU. This report
shows a steady improvement in Europe on the availability of online services (from 59% up to 71% in
2007 -2009) and the refinement of such services (increasing from 76% in 2007 to 83% in 2009).
The specialized literature mentions an additional approach to the improvement of the economic
performance evaluation process, using the predictive ability of different models, among which we can
emphasize the efficiency of CHAID model based on specific indicators (Popescu E.M, 2014). In the same
time, the management forecast of economic organizations support the decision makers with effective and
efficient techniques that take into consideration the current unpredictability of the economic climate
(Andreica M, 2016).
In the current context, the Commission assessed Romania with a low score, placing the country among
the ones with less sophisticated online public services provided and ranking among the last ones in the
EU. The Commission recommends therefore the improvement of the level of sophistication of e-services
offered. However, the Commission indicated in different presentations that Romania has made significant
progress on promoting open data.
The progress in public administration aims at establishing measures to ensure modernization and high
performance in the decision-making process (Matei L., 2011). The latest changes regarding the public
services offered to citizens, announced by the Interior Ministry in May this year, are eliminating some
bureaucratic bottlenecks caused by:
⇒ obtaining the criminal record from any police unit connected to the informatics system on the
spot;
⇒ eliminating additional costs and time spent with making document copies, by accepting the
original documents in the passport issue applications;
⇒ Reducing the number of documents required for the registration of vehicles.
Indicators for assessing the efficiency of public services
This section presents a methodology for the evaluation of the effectiveness of public services, according
to certain indicators of absolute value - such as cost and savings - or indicators of relative value - like
effect / effort.
We define the total cost per citizen for accessing public service, CTotal as the sum of the cost of documents
issued (CI – identity card, PE – electronic pass, CJ – criminal record, PC – driving license), labelled CDoc,
and the cost of the time required for accessing public service, labelled CTime.
Therefore: CTotal=CDoc+ CTime
The cost of the documents relate both to taxes for the documents issued (CTaxes) and the cost of related
documents (Cdocuments_associated), the last one consisting from stamp and duty taxes, bank taxes, treasury fees
and so on - (CTaxes_associated), to which we add the cost of the transportation needed for paying these related
fees (Cdrive).
CDoc =CTaxes+Cdocuments_associated= CTaxes + Cdrive+ CTaxes_associated
We get thus the overall cost structure as it follows:

CTotal= CTaxes + Cdrive+ CTaxes_associated+ CTime
The cost indicator represented by time (CTime) is determined by the total time needed to access a public
service (KTime), multiplied by the value of time, which is usually the average wage per unit of time.
288
Therefore, KTime is defined as the sum of the time needed for the submission of the documents to the
public office counter and the time for processing the request. The last component, labelled K (CI, PC, PE, CJ),
consists from the waiting time at the counter where the documents are issued, noted with Kcounter and the
waiting periods at the counters of other intermediary institutions that release the related documents
requested by K counter_associated, labeled with Kdrive .
KTime= K(C.I, P.C. P.E., C.J) + Kdrive = Kcounter + K counter_associated + Kdrive ,

where the initials represent as it follows: CI – identity card, PE – electronic pass, CJ – criminal record,
PC – driving license.
Depending on the waiting time at the public office counter and the travel time, the indicator CTime
multiplied by the unit time value (value / u.t.) can be described as it follows:
CTime = KTime x value/ t.u.,
where time is expressed in hours (h) and the monthly average in 2016 is: 254 working days x 8 hours/day
/ 12 months = 169,333 hours/month
To estimate this indicator at economic level, we need to evaluate the number of employees who access
the public services during working hours. This is a difficult task because of limited data available and we
will thus make use of realistic assumptions that will come close to the real value or will calculate the
variation of the indicator.
If we consider that the persons who pay taxes are employees, then we have the following data for
Romania in 2016. The number of working hours is: 254 working days x 8 hours / day / 12 months = 169
333 hours / month. If the value per unit of time is the average hourly wage, about 2681 RON / month
(2016), then the value of an unit of time will be equal to 2681 / 169.333 = 15,83 RON / hour. The value
of the indicator CTime wasted by an average person for accessing public services will be:
CTime = Ttotal x 15,83 RON/hour.
The indicator Ttotal represents the total work time wasted by an average person for accessing the public
services in order to obtain the release of all necessary documents.
To estimate the time loss encountered by the entire society related to use of public services, we estimated
the total number of persons who apply for the activation of each service during one year. We also made
the following assumption regarding the share of employed persons using public services during a year
and leveraging these services during their worktime:
all are employees Ttotal_max

assumptions 50% are employees Ttotal_average
30% are employees Ttotal_min
Therefore, we can consider the labour time lost by the society within a period as an interval [Ttotal_min,
Ttotal_max]. Next, we analyse the structure of total individual time Tindividual, which sums up the allocated
time for each service:
Tindividual=TPE+TCJ+TCI+TPC,
emphasizing separately the time used for each service. For example, for issuing electronic passports:
TPE=Tdrive+Tcounter.
If N represents the number of citizens who are queuing for the release of documents, the relations
become:
289
N= NPE+NCI+NCJ+NPC,
Ttotal = TPE x NPE +TCJ x NCJ +TCI x NCI +TPC x NPC
Depending on the percentage of employees considered, we can obtain: Ttotal_max or Ttotal_min. In this case,
the value (cost) of the time wasted by the society will be:
STime = [TPE x NPE +TCJ x NCJ +TCI x NCI +TPC x NPC ] x P x 15,83 ,
where P is the weight of employees in the total amount of citizens accessing public services.
For P=1 we obtain Smax , and for P=0.3 we obtain Smin representing the maximum and minimum value of
the indicator, depending on the percentage of employees involved, according to the earlier assumption.
Observation: It is possible to set different weights for each service : PPE, PCJ, PCI, PPC. In this case, the
formula for wasted time S will be:
STime = [TPE x NPE x PPE +TCJ x NCJ x PCJ +TCI x NCI x PCI +TPC x NPC x PPC] x P x 15,83
Using this formula, we will obtain the maximum and minimum values for each weight separately, while
Smax and Smin will be calculated accordingly to these weighted results.
Based on these indicators we can evaluate the solutions existing for improving the management of public
services as it follows:
1. The following indicators will be calculated for each alternative a to the existing situation:
Saving time: ∆T = Ttotal -Tatotal
Cost reduction: ∆S = STimp - SaTimp
2. The efficiency of implementing different alternatives
E1 = ∆S/ Caimp, where Caimp represents the cost associated with the design and implementation of
alternative solutions to the existing one. This indicator reflects how much money the society will save for
each monetary unit invested in the implementation of alternative solutions.
Without considering the social or qualitative characteristics of the modernisation process, the
improvement of public services will be mandatory implemented with a ratio higher than the one of the
following indicator:
E2 = ∆T/ Caimp
This indicator shows how many hours the society will save for each monetary unit invested for the
implementation of alternative solutions. This indicator should also demonstrate that the time saving is
significant enough to justify the work needed to improve the public services.
If the designed and implemented solution covers only one of the four services indicated, all computation
would be limited strictly to the respective indicator. If the new solution will benefit society in other areas
such as electronic voting, payment of taxes etc., then the effects of the new services will be quantified and
added to the existing ones. However, the efforts will take into account only the total costs of design and
implementation of the analysed solution.
Efficiency can be calculated at the citizen level as well:
E3 = ∆Tcet / Cacet
E4=∆ S cet / Cacet
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These relationships will reflect the time saved by each citizen for an additional monetary unit used in the
acquisition of the respective service and how much money will be saved for each monetary unit spent in
the modernization process, respectively. The solutions for improving the management of public services
will have to offer the maximum level of the above mentioned indicators, obligatory greater than 1.
Conclusions
The designed solution with impact on the integrated management of public services results in lower costs
and reduced time, benefiting the citizens and improving the managerial performance within the public
service.
We also consider that the evolution of performance management in the public administration in Romania
has to implement a short-term action plan that aims to:
Prepare senior civil servants with management skills related to the current situation and relevant
unitary trends that occur in the public administration.
Identify a viable solution for attracting skilled human resources needed to develop ICT projects,
support the modernization of public administration through public electronic services offered
and assure the appropriate maintenance.
Raise European public funds for financing projects in e-administration.
Implementation of training programs for staff development at central and local level regarding
the use of ICT, in order to limit the impact of new technologies that can result in delays among
users.
References
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organizațiilor economice’, ISBN: 978-606-34-0063-6
Brudan A, (2010) ‘Rediscovering performance management system: systems, learning and integration’,
Measuring Business Excellence, 14 (1), ,pp 109-123
Capgemini. Benchmark Measurement of European eGovernment services. [Online] [Retrieved

20.05.2016] https://www.capgemini.com/resources/2009-egovernment-benchmark
Dragos Danut PadTV (03.05.2016). Noile reguli pentru obtinerea pasaportului si a cazierului au fost
simplificate! Iata schimbare care elimina birocratia [Online] [Retrieved 20.05.2016],
http://www.padtv.ro/noile-reguli-pentru-obtinerea-pasaportului-si-cazierului-au-fost-simplificate-iata-
schimbare-care-elimina-birocratia.html
European Commission. Digital Single Market [Online] [Retrieved 20.05.2016],

https://ec.europa.eu/digital-single-market/en/scoreboard/romania#5-digital-public-services
Folan, P., Browne, J. & Jagdev, H., (2007) ‘Performance: Its meaning and content for today's business
research’, Computers in Industry, Vol. 58, Nr. 7, , pp. 605-620
Lebas, M.,J., (1995) ‘Performance measurement and performance management’, International Journal of
Production Economics, Vol. 41, Nr. 1-3, , pp. 23-35.
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Matei, L. și Lazăr, C.G., (2011) ‘Managementul calității și reforma administrației publice în unele state
din sud-estul Europei. Analiză comparativă, 2011’, Economie teoretică și aplicată, vol. XVIII, nr. 4(557),
pp.64-98
Popescu E.M, Andreica M, Micu D, (2014) ‘A method to improve economic performance evaluation
using clasification tree models’, European Journal of Business and Social Sciences, Vol. 3, No. 4 , pp
249-256, July, pp. 249 - 256 URL: http://www.ejbss.com/recent.aspx ISSN: 2235 -767X
Wholey, J., S. (1996) ‘Formative and Summative Evaluation: Related Issues in Performance
Measurement’, American Journal of Evaluation, Vol. 17, Nr. 2, pp. 145-149.
292
Impact of Managerial Ownership on Financial Decisions: Evidence

from Non-Financial Listed Companies PSX
Safdar Husain Tahir
Assistant Professor
Banking & Finance
Govt. College University Faisalabad, Pakistan
safdartahir@gmail.com
Kosar Altaf
MS-Scholar
Banking & Finance
kosaraltaf910@gmail.com
Sadia Naeem
MS-Scholar
Banking & Finance
sadianaeem44@gmail.com
Humera Naz
MS-Scholar
Banking & Finance
humera8236@gmail.com
Abstract
This study aims to analyze the impact of managerial ownership of financial decisions and performance.
Data were collected from Pakistan Stock Exchange of seventy non-financial managerial owned firms, from
the period of 2009-2013. Asset tangibility, investment decision, liquidity and firm performance were taken
as dependent variable whereas managerial ownership was independent variable. Regression models were
applied to examine the coefficient of variable of interest. It was revealed that managerial ownership had
positive and significant impact on asset tangibility and investment decisions, but it also showed no
association between liquidity and managerial ownershipwhereas it also showed negative significant
association between firm performance and managerial ownership. Managerial ownership founded suitable
for the financial decision which only relates to tangible assets of firm.
JEL Classification: G32; L25
Keywords: Managerial ownership; Asset Tangibility; Investment Decisions; liquidity and Firm
Performance
1.0 Introduction
Ownership structure is very important factor in any business as it plays very vital role in the functions and
decisions. Owners may or may not be participate in the activities of firm. Sometime owners didn’t
participate only provide capital and business is being handled by mangers or the outside management
handled firm officially. In case when owners invest the capital and he also participate in the management
and activities of firm is called firm with managerial ownership. When the firm’s shares held by mangers of
firms it may be totally, partially or in a certain percentage. In the literatures of Morck et al. (1988) states
that the huge managerial ownership gives profits to shareholders because it increases manager’s wealth to
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rise up the firm value. Managerial ownership is a tool to reduce the agency problems it removes the gaps
and conflicts between agent and principal or managers, because manager with the ownership is fully
concerned with the betterment and best concern of firm without any doubt and any other preferences.
Alireza et al. (2011) argues that the ownership hold by management, controlling and monitoring activities
is a potential step in eliminating agency problems.
Ownership and management concern also influences thefirm’s financial decisions as in this study it
investigate the impact on asset tangibility, investment decisions, liquidity and firm performance. Tangible
assets are the best securities of firm to secure the firm at the time of liquidation, owners always try to invest
in more tangible assets which makes the firm strong in his fix holdings. Flor et al. (2015) claims that which
firms has more assets has strong financial strength these firms have no need of external financing but is
also minimize the interest of new investment, he also finds that more assets effect new investment.
Investment decisions, owners always desire to make investment for the best concern of firm and less risky
investment. Brigham et al. (1999) reveals that manger has more deep information other than the outside
investors may have, this gap is called asymmetry information. Asymmetry information has many theories
which relate the financial decisions as wise investment decision.
Liquidity refers to current assets of firm or liquid asset owned by firm to meets its liabilities and urgent
need of finance, to some extend the liquidity shows financial strength of firm that how much cash hold by a
firm to meet its obligations. Liquidity management is a key part of financial management and it takes
highly attention and time of mangers. Deficiencies in liquidity management make the firm powerless to
take advantage from favorable opportunities regarding investments and other financial decisions. Myers
and Majluf (1984) say that firms facing information asymmetry inducefinancial constraints are likely to
accumulate cash holdings. Firms increase investment in liquid assets in response to increase in the cost of
external financing, the variance of future cash flows or the return on future investment opportunities and
corporations with excessive cash holdings are less likely to be takeover targets. Almeida et al. (2004)
develop a liquidity demand model where firms have access to investment opportunities but cannot finance
them.
Firm performance is the reflection of manager’s struggle and the utilizations of owners finance and
investment decisions, all these activities give result in the name of performance whether it is good or bad.
Firm performance can be measure in many ways in the literatures but mostly Tobin Q is used to measure
performance of firm. Ownership is always determined to find key element for the enhancement of firm
performance and wok for the betterment and profit enhancement which is a common interestof all
stakeholders of firm.
1.1 Agency Theory
Due to separation of owners and managers the conflict and disputes arises because the interest of both
parties varies due to personal benefits these conflicts called as agency Problems. Farrer and Ramsay (1998)
argue that the difference between management creates the asymmetry information and then it cause agency
cost.
1.2 Managerial Discretion Theory
Stulz (1990) and Zwiebel (1996)present the models of managerial discretion theory. These models can help
in controlling the mangers. Shareholders keep voting rights in their hands and the prices of stock reveals
the activities of markets expects to mangers follows. Owners can look over the mangers activities and they
can fire them. But there will be a cost of this collective action procedure which can rent by manager to
secure their position.
1.3 The Timing Theory
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Timing theory is effort of Jenter (2005). This theory stated that the management has the information which
is very necessary and valuable for firm, this information contains the predictions of overvalue and
undervalue.
Ownership structure of any firm plays a basic role for important financing decisions of firm and firm
performance. When ownership and management handle by separate bodies then conflict arises and it
enhances the agency problems. Managers didn’t get it sincerely as much an owner can take it by his self, it
creates difference in interest. These all issues leads to heavy lose to firm strength, precious assets,
investment decisions regarding fixed assets and specially the missions of firm. Ownership structure affects
these basic and most important financing decisions of firm like assets, investment decisions, liquidity
management and at ultimately to performance of firm.
1.5 Objective of Study
• To test the relation between managerial ownership and Asset Tangibility.

• To explore relation between managerial ownership and investment decisions.
• To analyses the relation between managerial ownership and liquidity.
• To study the relation between managerial ownership and firm performance.
• To suggest the policy recommendation regarding the research
Anwar et al. (2013)analyzed the influence of managerial ownership on the firm’s profitability. Influence of
ownership analyses on percentage of dividend, total assets amount and percentage of sale. The effects
checked on the textile sector of Pakistan. The result of investigations concluded that total assets, percentage
of dividend and percentage of sale have a favorable and important relation with the profitability of related
sector while the profitability has negative and immaterial association with managerial ownership.
Campello and Giambona (2011) focused mainly on connection among asset structure and capital structure.
This study examined the relation among the PP&E as common proxy in tangible assets and leverage of
firms. Standard regressions of leverage were performed. The results show that diverts ability of tangible
assets pushes to experimental ratios of leverage.
Din and Y Javid (2011) this study investigate the relationship between managerial ownership and firm
performance and also financial policies. Conclusions support that there is negative influence of managerial
ownership on leverage and it also included that there is also negative relation between managerial
ownership and firm’s policy of dividend. But it shows that managerial ownership has a positive linkage
with firm performance in the concern of Pakistan’s corporate values, because here are mostly firms owned
by families.
Harc (2015) examined the association between the tangible asset and capital structure of Creation firms of
small and medium size. He applied Pearson Correlation Coefficient model. He finds that tangible assets are
negatively correlated with short- term leverage. But the impact of tangible asset is positive on long-term
leverage
Rizwanullah et al. (2015) studied the impact and relation between investment decisions and financing
decisions. Regression analysis was adopted to evaluate the factors of interest. Conclusions added that
investment chances have major impact on financing decisions though there is not a specified way for the
effects. Additionally actual/real investment has no influence on financing decisions.
Andrews (2015)inspected the impact of CEO inside debt on tangibility of assets and investment. There
were conclusions that inside debt have positive impact on tangible/fixed asset and value of liquidation of a
295
firm. CEO’s with more inside debt found more concern about investment decisions and risk aversion
activities.
Flor and Hirth (2013)explored that how corporate investment being effected by liquidity of real assets.
They concluded that asset’s liquidity effect the sensitivity of liquid investments. They suggested that
liquidity of real assets is an important element for the solution of negativities of investment in funds of
liquid category.
Li et al. (2011) identified the three ways of investment along the “decision-theoretic model”. This model is
used to develop a profit-based method for the purpose of decision making. It was added that positive rule
leads to make investment decisions, and a negative rule leads to non-investment. This model exercised on
the case study of an oil investment.
Bialowolski and W Bialowolska (2013) surveyed the importance of specified factors which effects
investment decisions investigated deeply. These factors included economic, risk factors and political, social
environment and government regulations. This study stated that the investment decisions activities are
essential from the point of view of firm’s performance and growth prospects. The results showed that the
contribution of factors also involves the “microeconomic environment” and “legal environment” create
reasons for investment reduction.
Clausen and Flor (2015) conducted study related to the impact of assets-in-place on investment and
financing decisions of firms. This study stated that with irregular information debt-equity and investment
timings considered. Rejection options and asset-in-place and extensions make debt more attractive. Mature
and young firms use debt and equity financing differently.
Clark et al. (2013) examined leadership/ managerial and strategic management and their consequences,
they argued that with managerial ownership performance of a firm on huge level depends but it only in case
of presence of some specific factors, these factors may include related work, environment of outside, co-
workers. This study results a new way as “opportunity structure of CEO impact, along some assumptions
after that the ownership of CEO can enhance performance of firm.
Ding and Qian (2014)studied about impact of managerial ownership and investment cash flow sensitivity.
These both differences on the state owned and privately owned firm in china. The state owned firm’s cash
flow sensitivity may explain in the hypothesis of “free cash flow”. Conclusions supported that the influence
of managerial ownership take over the improvement properties in non-stated owned firms.
Hall (2011) considered the study aboutthe association between asset tangibility and leverage. This study
explored that how leverage concern to asset being structured in different firms. For empirical analyses data
of Michaux and Mon (2014) presented a model “Structural Model of firm diversification”, to examine the
contribution of an organization’s mold ability for the control of liquidity in the situation for productivity
pressure and financial threats. This model focuses on two sector economy, in which each sector has
different level of tangibility of asset. Authors defined that the firms with low level of tangible asset has
high threats for liquidation concern. The Concluded asset tangibility has no effect on levels of productivity
of a firm’s capital, main countries of Eastern & Central Europe.
Gutierrez et al. (2014) contributed to the literature regarding in the investigation related to investment
decisions regarding the firm in financial stress. In conclusion area it is stated that effect on investment due
to financial stress depends on the investment opportunities available in stress phase. If a firm has minor or
not best opportunities it definitely goes to under-investment behaviors but in case of firm have best
opportunities so it will not show different behaviors then the firms in good financial condition.
Mollah et al. (2012) explored to find out the effect of corporate governance on performance of firm
relationship between ownership structures, financial performance and board characteristics is investigated.
Conclusions included that the ownership structure and board characteristics affects the performance of
296
listed firms of Botswana. Different corporate governance nature effects performance distinctly according to
measures used like differentiations between “accounting-based/hybrid and market-based” measures.
Loecker and Goldberg (2013) proposed to investigate the effects of increasing globalization on the
performance of firms. It also includes measurement of various threats faced by firms in global market place
like trade cost minimization. Conclusions included that the effect on firm performance by the market
liberalization is exist in particular industries. But some issued were shown as still outstanding but the
conclusions will be proved useful for further research.
Friebel and Schweiger (2012) looked over the link between management quality and firm performance with
the evidence of Russia. Questionnaires were constructed for scoring of management practices and quality
management in Russia with the comparison of other countries. It was concluded that the pressure of
markets of product and labor both affects the management practices, management practices effects the firm
performance as well.
Ekanem (2010) motivatedabout the liquidity management in firms at small level and it involves eight case
studies of firms for the learning of different types in small firm’s liquidity management. In the conclusions
it was stated that the structure of liquidity management is depends on the mangers experience and
knowledge and the learning from other firms and it also includes some standards for industries which are
like share rules of industries, but it doesn’t belongs to any financial estimations and calculations regarding
costa and benefit analysis regarding this specific issue.
Gambola et al. (2015) reviewed the influence of leverage and liquidity on the attitude of earnings and
management of capital in the economy of US. This study includes that if violent attitude of management of
capital it leads to violent attitude of liquidity and leverage plans, then one should suppose negative
association between measures of capital management earning management and also negative relation in
measures of liquidity and earning management. The results recommended that watchdogs should be
lookout all kinds of violent management behaviors or attitudes.
Ruan et al. (2011) searchedabout the impact of managerial ownership in performance of firm and capital
structure. The sample for the analysis selected from listed firms in the Chinese Stock. According to
experiential analyses output association among firm performance found negatively, managerial ownership
leads capital structure into non-linear form but fully inverse from firm performance’s impact. The results of
regressions propose that managerial ownership impact the capital structure, which in return upsets firm
performance.
Gugler and Weigand (2010) stated that there is an important connection between ownership structure and a
firm’s performance to ascertain efficiency of corporate governance, this study focused on two countries
regarding behaviors and mode of managerial ownership. They concluded that the role of inside ownership
or large shareholders cannot be ignored it is much important from the performance point of view of firm.
2.1 Research Gap
Pakistan is a country which has a long chain of family owned firms but till now it has not been much
focused for study regarding managerial ownership for Pakistan’s firm. It will be an innovation to study this
topic along the important financial decisions of firm and their firm’s performance this study will be a
contribution in previous literature with the research on Pakistan firm which is not done with these variables
before.
2.2 Contribution of Study
This study will help to reveal the aspects of managerial ownership regarding firm’s important decisions.
How managerial ownership reduce agency problems and in which decisions and factor managerial
ownership affects more in which manner negative or positive.
297
2.3 Theoretical Framework
Leverage Firm Size
Firm Age
Asset Tangibility
Investment Decisions
Cash
Managerial Ownership
Liquidity
Firm Performance Tobin’s Q
In the above theoretical framework the managerial variable as independent variable effecting the dependent
variable asset tangibility, investment decisions, liquidity and firm performance.
Leverage, firm size, firm age, cash and Tobin’s Q all are control variables.
3 Research Methodology
The data was used to conduct analysis from the period from 2009 to 2013. To calculate the variables
measurements the annual reports of the KSE non-financial listed firms of Pakistan are used. Only that
company was considered which have minimum 10% involvement of managerial ownership, it includes
total 70 firms.
3.1. Description of Variables
There were following types of variables used in study.
Table-1: Description of Variables
Variable Denoted By Formula

Independent
Managerial Ownership MG Shares owned by mgt./total shares of firms
Dependent
PPE.GT+PPE.NT+TANGIBILITY+
1-Asset Tangibility AT LIQUIDITY+TANGIBLES+CAP.EX
Log(change in fixed asset)

2-Investment Decisions NFA
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Total Current Assets

3-Liquidity LQD
4-Firm Performance FP Tobin’s Q=market value of assets/book
Control
1-Leverage LVG Total debts payable/total assets
2-Firm Size FS Log(total assets)
3-Firm Age FA Total years of firm age
4-Cash CASH Cash and short term investments/total assets
5-Tobin’s Q TQ Market value of assets/book value of assets
3.2 Development of hypothesis
H1=There is a correlation between managerial ownership and asset tangibility.

H2=There is correlation between managerial ownership and investment decisions.
H3= There is a correlationbetween managerial ownership and liquidity.
H4=There is a negative correlation between managerial ownership and Firm Performance.3.3
Research Model
A.T= α+β1M.Oi,t+β2Lvg.i,t+ β 3Frm.Szi,t+ β4 Frm.Tmi,t+ β5Cashi.t+ β6T.Qi, ……....(1)

N.F.A= α+β1M.Oi,t+β2 Lvg.i,t+ β 3Frm.Szi,t+ β4Frm.Agei,t+ β5Cashi.t+ β6T.Qi,t ……(2)LQD.=
α+β1M.Oi,t+β2 Lvg.i,t+ β 3Frm.Szi,t+ β4Frm.Agei,t+ β5Cashi.t+ β6T.Qi,t ……..(3)F.P= α+β1M.Oi,t+β2 Lvg.i,t+ β
3Frm.Szi,t+ β4 Frm.Agei,t+ β5Cashi.t………………….(4)
4 Empirical Results
It contains the explanation of results of regression analysis to check the impact ofmanagerial ownership of
financing decisions ad firm performance: Evidence from KSE non-financial listed firms of Pakistan.
Descriptive Statistics
The table-2 indicates the results of descriptive statistics on the behalf of analysis conduct on annual reports
of listed firms from the year 2009-2013. It shows that that mean of managerial ownership is less than asset
tangibility, firm size, firm age, cash firm and Tobin’s q but it is slightly more than leverage and net fixed
assets. The mean of firm performance and firm age is relatively high as comparative to other variables.
The standard deviation refers to the measurement which sum up the total by which each value in dataset
differs from the value of mean. Standard deviation is effective when it is round about to all other variable
this table shows that the standard deviation of firm performance and Tobin’s q is hugely different and more
than other variables all other variables has standard deviation round about each other. The difference
between mean and median shows that the data used is skewed or imbalance in some ways. But the table I
shows that there is not a huge differences in mean and median. Kurtosis shows degree of a distribution at
which it is less and more peaked comparatively from a degree of a normal distribution. Kurtosis results are
considered best when it shows more than 3 in this table firm performance, cash, net fixed assets, leverage
and Tobin’s q has more kurtosis result. Range indicates the differences in highest and lowest values in data.
299
The standard error refers to another usual way to define the deviancy from the values of mean and the level
of frequency of this deviancy but it will also count the effect of the size of data and number of observations
in table I the standard error of firm performance and Tobin’s q differs from the entire other variables of the
analysis. When the results shows the mean value less than the values of median it indicates and significant
in the table I firm performance, Tobin’s Q and cash showed the high mean value then its median value.
That sekwness is positive.
300
Table-2: Descriptive Statistics
St. St. Sample

Mean Median Mode Kurtosis Sekwness Range Max. Min. Sum Cont
Error Deviation Variance
Managerial
0.4308 0.01169 0.41 0.25 0.21086 0.0444 0.5597 0.3599 0.88 0.1 0.98 140.01
Ownership
Asset
Tangibility 8.35203 0.08141 8.8353 5.9385 1.4677 2.1541 -1.2926 -0.4324 5.5011 5.2413058 10.7424 2714.411
Net Fixed
Assets 0.03725 0.02823 0.0107 0.0044 0.5090 0.2591 168.04125 9.8625 10.6769 2.9370286 7.7399 12.10827
Firm
161.9615 25.13077 0.6191 6.5608 453.0515 205.7083 36.86726775 5.3291 4302.8548 0.002254881 4302.8571 52637.508
Performance
Liquidity 0.4366 0.01135 0.4037 0.44612 0.2046 0.041866 -0.2730 0.45826 0.9333 0.0006 0.9339 141.9269 325
Leverage 0.3801 0.0213 0.3362 0.52318 0.3841 0.147534 75.9946 7.2734 5.0216 0.0008 5.02249 123.561
Firm Size 8.3693 0.0794 8.9106 5.9048 1.4324 2.05201 -1.2258 -0.4654 5.1896 5.5026 10.6923 2720.04
Firm Age 29.03 0.819 26 22 14.77 218.3 -0.131 0.631 65 1 66 9436
Cash 2.295 2.252 0.015 0.161 40.61 1649 325 18.03 732.1 6E-05 732.1 745.7
Tobin’s Q 161.96 25.131 0.6192 6.5609 453.05 205 36.867 5.3292 4302.9 0.0023 4302.9 52638
301
The table-3 shows the correlation between variables, it shows that the correlation between managerial
ownership and asset tangibility in figures is 0.3431159 it shows that asset tangibility and managerial
ownership are positively correlated with each other, with the increase in inside ownership the asset
tangibility of ownership a firm also being changed or affected positively. The correlation between net fixed
assets and managerial in figure is 0.04474 which shows that there is not a significant correlation between
these two. Firm performance and managerial ownership has negative correlation in figures -0.1955 a low
and negative correlation which shows the rise in one variable will minimize the other variable. Liquidity
and managerial ownership has negative correlation in figures it is -0.02849 which shows insignificant or
very minor correlation in liquidity and managerial ownership. Managerial ownership has a positive
correlation with firm size. Cash and Tobin’s Q also has negative correlation and association with
managerial ownership by figure of -0.0769 and -0.1955 these variables also negatively associated with firm
size, but Tobin’s Q is significantly associated with firm age and liquidity in figures it shows 0.26224 and
0.31252. Asset tangibility and leverage also correlates each other negatively in figures -0.052. Net fixed
assets are correlated with liquidity but it also negatively associates with firm age, leverage and firm
performance. Asset tangibility is highly negatively correlated with firm performance and asset tangibility
also has highly positive correlation with firm size.
Table-3: Correlation Analysis
M.O A.T N.F.A F.P LIQ LEV F.S F.A Cash T.Q
M.O 1
A.T 0.34311 1
N.F.A 0.04474 0.03244 1
- -
F.P
0.19557 0.44197 0.00122 1
- -
LIQ
0.02849 0.27731 0.12412 0.31251 1
- - -
LEV
0.05644 0.05214 0.09228 0.00416 0.0959 1
- - -
F.S
0.33069 0.96092 0.04826 0.43873 0.2193 0.06641 1
- - -
F.A
0.04194 0.21928 0.02636 0.26224 0.1127 -0.0144 0.15733 1
- - -
Cash
0.07697 0.04199 0.00092 0.03084 0.0496 0.00923 0.06895 -0.037 1
- - -
T.Q
0.19557 -0.4419 0.00122 1 0.3125 0.00416 0.43874 0.2622 0.031 1
Table-4: Coefficient (Asset Tangibility)
Model Coefficients t-statistics p-value
(Constant) 7.254 0.000
MO 0.078*** 3.367 0.001
LEV -0.021 -0.981 0.327
FS 0.851*** 34.478 0.000
FA -0.114*** -5.062 0.000
302
CR 0.101*** 4.669 0.000
TQ -0.51** -2.076 0.039
R Square 0.224
The frequency in parentheses are p-value.*, **, *** significant at the 10, 5 and 1 percentlevels, respectively.
Table-4 shows the coefficients regarding the results of the first hypothesis which claims the correlation of
dependent variable asset tangibility with the independent variable managerial ownership with the five
control variables. Results shows highly significant correlation between managerial ownership and asset
tangibility with the value (coef.=0.078, t=3.367) which proves that given statement is strongly positive and
accepted. The indications regarding relation of asset tangibility with control variables as insignificant
correlation with leverage (coef.=-0.021, t=-.981), highly significant correlation with firm size (coef.=0.851,
t=34.478), cash is also highly significantcorrelationwith asset tangibility (coef.=0.101, t=4.669). The whole
results show healthy and positive response to the hypothesis statement and Tobin’s Q is also correlated
with asset tangibility (coef.=-0.51,t=-2.076)
Table-5: Coefficient (Net Fixed Assets)
Model Coefficient t-statistics p-value
(Constant) -0.237 0.813
MO 0.045* 0.752 0.053
LEV -0.094* -1.675 0.095
FS 0.038 0.597 0.551
FA -0.032 -0.55 0.582
CR 0.004 0.069 0.945
TQ 0.030 0.481 0.631
R Square 0.23.
Note: The frequency in parentheses are p-value.*, **, *** significant at the 10, 5 and 1 percent levels, respectively
Table-5 shows the result of regression regarding second hypothesis which gives the statement that the
correlation exist between managerial ownership and net fixed asset the investment decisions of firm
regarding assets investments it shows result with the help of five variables, so the results indicates that
there is significant correlation in managerial ownership and net fixed asset the managerial ownership can
affect the investment decisions regarding assets it indicates by (coef.=0.045,t=.752). The association of net
fixed assets with other control variables as per results is leverage is also has significantcorrelation to net
fixed assets (coef.=-0.094, t=-1.675), firm size shows insignificant correlation with N.F.A as (coef.=0.038,
t=.597), firm age also indicates no correlation with ne fixed assets it shows both have no connection to
effect each other the result shows as (coef.= -0.032,t=-.550) and the Tobin's Q also have insignificant
relation with the firm’s N.F.A it also indicates no correlation to change or effect each other in any ways
(coef.=0.030, t=0.481). Results accept the second hypothesis.
303
Table-6Coefficients (Liquidity)
Model Coefficient t-statistics p-value
(Constant) 6.321 0.000
MO 0.051 0.902 0.368
LEV 0.091* 1.715 0.087
FS -0.094 -1.564 0.119
FA 0.057 1.031 0.303
CR 0.040 0.756 0.450
TQ 0.270*** 4.522 0.000
R Square 0.42
Note: The frequency in parentheses are p-value.*, **, *** significant at the 10, 5 and 1 percent levels,
respectively 0
Table-6 narrates in regression model which analyzed the correlation between managerial ownership and
liquidity. The results showed that managerial ownership (MO) has no correlation with liquidity (coef..=
0.051, t= 0.902). As concern of LQD relation with other control variables its shows that it has significant
indications with leverage (coef.=0.091, t=1.715) and Tobin’s Q (coef.0.270, t=4.522). LQD has highly
insignificant relation with cash (coef. = 0.040, t= 0.756) also insignificantly relates with firm size. So this
results shows that this dependent variable has no relation with independent variable and slightly relates
with control variable.This result rejects our 3rd hypothesis it proves that there in no correlation in these
variables.
Table-7: Coefficients (Firm Performance)
Model Coefficients t-statistics p-value
(Constant) 6.797 0.000
MO -0.095* -1.809 0.071
LEV -0.045 -0.898 0.370
FS -0.351*** -6.627 0.000
FA -0.032*** 4.438 0.000
CR 0.223 0.175 0.861
TQ 0.009*** 6.797 0.000
R Square 0.44
Note The frequency in parentheses are p-value.*, **, *** significant at the10, 5and 1 percent levels,
respectively.
Table-7 indicates the results regarding the fourth hypothesis which stated that there is a correlation in
managerial ownership and firm performance as per the results this hypothesis is accepted due to negatively
significant relation with each other as (coef.=-0.095, t=-1.809), significantly managerial ownership will
304
effect firm performance with the increase and decrease of managerial ownership the firm performance also
get affected inversely. The association of firm performance with four control variables, LEV has no
significant association with firm performance so this didn’t get reactions from changing in firm
performance results indicates (coef.=-0.045,t=-0.898). Firm size is highly significant correlation with firm
performance as the result shows (coef.=-0.351t= -6.627). Firm performance and firm age high significant
correlation with each other as table shows (coef.=-0.032, t=4.438). No significance exist between firm
performance and the cash as the results reported (coef.0.223, t=0.175). The results are opposite from
expectations naturally firm performance should enhanced due to increase in managerial ownership but with
the reference of some studies and inverse correlation result of our regression, it may be suitable and
positive relation in firm performance and managerial ownership on a certain level.
The main purpose of this paper to find the impact of managerial ownership on major financial decisions
and firm performance because Pakistan is a country with higher inside ownership trend, people are running
family business from generation to generation. But very few works on this topic has conducted in past time
The main focus and expectations relates to positive influence of managerial ownership on financial
decisions as asset tangibility, net fixed investment, liquidity and firm performance. But our findings from
empirical analysis shows the positive results of our independent variable significantly with asset tangibility
and net fixed assets which shows positive effects of these variables. As the results of liquidity the
maintenance of liquid funds and liquid management it shows no association with ownership by mangers but
with some studies and personal perception this hypothesis constructed with expectation of positive and
definite correlation among the variables, but may be different proxy and method it may vary with our
findings. Our last hypothesis firm performance and ownership has numerous researches in background with
the same combination of these two variables but the mostly results was negatively significant our results
also shows negatively significant relations between managerial ownership and firm performance increase in
one decrease the other variable.
5. Conclusions
All the reported results are from the data of year 2009 to 2013 which test the four hypotheses to check the
impact of managerial ownership with the five control variables. Results indications are from the model of
regressions analysis the tables shows the H1 H2 andH4 has significant results with the independent variable
managerial ownership these three hypotheses are accepted. H3 shows the insignificant indication which
rejects the third hypotheses, managerial ownership and liquidity has no connection.
Managerial Ownership and Asset Tangibility: Results indicates that the managerial or inside ownership has
prominent relationship with asset tangibility with positive effects, it shows that when a firm has managerial
ownership the owners pay positive attention to asset tangibility maintenance to secure the firm from the
liquidation point of view and from the point of view of creditors preferences, it indicates highly positive
significant association with each other. We find reliable significantly favorable effects with the managerial
ownership also on these six measures of for our proxy for tangibility of assets (PPE.GT, PPE.NT,
TANGIBILITY, LIQUIDITY, TANGIBLES, and CAP.EX). We find the positive results on these relations
form the regression analysis. The adoption of this variable is inspired form the study by Lu Andrews & Yu-
Thompson (2015). They also found significant positive results of this variable. Managerial Ownership and
Net Fixed Assets: N.F.A also has a significant association with the managerial ownership they positively
relate each other. Inside holdings impact the changings in net fixed assets and investment decisions of
firms. Managerial ownership and investment decisions of net fixed asset are positively correlated with each
other. Managerial Ownership and Liquidity: According to our analysis liquidity shows link with managerial
ownership is insignificantly which shows that these both variables have no link or relation with each other
in any ways.
Managerial Ownership and Firm Performance: results indicate that there is negative significant association
with managerial ownership. Adams and Santos (2006) also conduct research on these variables different
studies showed different results on these two variables.
305
4.1 Recommendations
• Managerial ownership is suitable to help firms suffering from agency problems and poor financial
decisions procedure.
• In managerial owned firm managers should try to take imitative steps to make more investments is
fixed assets so that firms are safe from the liquidation point of view.
• Liquidity is the main aspect and decision of firm managers should pay more attention and make
connection with liquidity maintenance so that firm can take advantage from new investment opportunities.
• Study shows negative connection in managerial ownership and firm performance so that analysis
should made by firms on which level of managerial ownership performance will be positive.
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307
Customized Software Implementation of Dynamic Yield Curve

Models in R as a Decision Support Tool
Lukas Falat
Department of Macro and Microeconomics, Faculty of Management Science and Informatics,
University of Zilina, Zilina, Slovakia, lukas.falat@fri.uniza.sk
Tatiana Potkanova
University of Zilina, Zilina, Slovakia, tatiana.potkanova@fri.uniza.sk
Lucia Pancikova
University of Zilina, Zilina, Slovakia, lucia.pancikova@fri.uniza.sk
Alexander Abrosimov
University of Zilina, Zilina, Slovakia
Abstract
The goal of this paper is to create application for modelling time series of yield curves on base of
theoretical knowledge of selected methods. Authors come out from Nelson Siegel and Svensson model,
they create their application in JAVA software and use R software for statistical modelling procedures. In
order to connect JAVA and R they use the LPGL R-caller. Customized version of Svensson model is
programmed in R (function Sven.est). The result is the software which is able to create yield curves,
compare them a produces outputs of these models. Created software minimizes negative impacts of yield
curves models. Moreover, authors’ application enables easy importing of data, modelling yield curves.
Finally, tests for validating this application were realized. The application was tested on American state
bonds.
Keywords: dynamization, yields curves, Nelson Siegel model, R.
Introduction
One of the main task of financial system, whose important part are financial market, is the task of
intermediator. At financial market allocation of free financial resources is realized; passing them from
excessive subjects to deficit subjects. Bonds play an important role in this market. The mutual relation
between yield of maturity and the profit is defined as yield curve. These curves provide many information
regarding market and have a big sense for the issuer as well as for the investor. Bonds properties are a
significant factor which influences yield as well as the yield curve.
Today, there exists several specialized programs which enable us to model yield curves. Some of these
programs are commercial and are not easily accessible for everyone. Other programs which are free of
charge (such as R) are able to estimate yield curves on base of different models, however, working in this
programs is often very difficult for users who do not have a lot of experience with programming.
The goal of this paper is the construction of application for modelling economic and financial time series
on base of theoretical background of selected methods with focus on dynamic modelling of bond yield
308
curves. The application should be easy to use for anybody who is interested in modelling yield curves
from real data. It is also able to import selected bonds with given yield to maturity. The main function of
this app is the creation of yield curves on base of known models. For estimating yield curve authors use
Nelson-Siegel and Svensson model. After constructing yield curves parameters of the model as well as
various statistical characteristics are listed. On base of these characteristics one is able to assess the
applicability of the given model for the selected curve. Not to forget, this application is tested on real
data.
Theoretical Background
The bond is changeable security paper with which the issuer obliges to pay back the loaned amount of
finances. The life expectancy if fixed. The issuer obliges that in given due date he will pay back the face
value of the bond. Also, he obliges to pay out the coupon pay of the bonds regularly. [11]
The most used type of the bond is the bonds with the fixed coupon. If the owner of this bond receives one
coupon pay every year and if he receives the whole face value of the bond at the expiration date of the
bond, then it is possible to express the inner value (the current value of all future profits from the bond) as
follows [4]
= + + ⋯+ = ∑ +
( ) ( ) ( ) ( ) ( )
(1)
where:
P is the inner value of the bond,
Cnis the one-year coupon payment pay out in the nth year,
NH is the nominal value of the bond pay out at the expiration date of the bond,
n is number of year till the expiration date,
y is the market interest rate.

At the market bonds are traded on base of their market price. The comparison of bonds just on their
market price is not right, however. It is also necessary to watch for their coupon rate, nominal value and
risk connecting with their owning. For measuring of their performance several methods described can be
used:
Current yield
This is the simplest method which abstract time horizon of the money as well as the capital profit or loss
made due to different nominal and current price of the bond.
= ∗ ( %) (2)
where:
309
rc is the current yield,
C is the coupon,
P is the price of the bond.
Simple yield to maturity due dates
This method adds the abstracted capital profit or loss. The absence of time value of money is not present
and possible reinvesting of coupons is not taken into account yet. The mathematical expression of this
methods is as follows
= +
!
∗
(3)
where:
rs is the simple yield to maturity,
N is number of years till bond expiration

And other variables are discussed above.
Yield to maturity due dates
Yield to maturity method is one of the most used methods, mainly due to its complexity. It takes into
account factors such as distribution and the size of, the expiration date etc. The calculation looks like
=( + +⋯ + = ∑&) +
$ % & '( & '(
" #) ( #)$ ( #)% ( #)& ( #)& ( #)) ( #)&
(4)
where:
Pdis the market price of the bond,
rm is the one-year yield to maturity,
F is the nominal value of the bond,
N is number of periods in which the bond is interested.

The problem of measuring yield of bonds is difficult and in many cases the yield is not perceived
correctly. The use of just one method can deform the results, hence the final decisions.
Methods
Implemented Methods for Yield Curve Modelling
The yield curve (denoted as the structure of interest rates) expresses the relationship between the yield
and its expiration date. This type of curves is used mainly at the construction of state bonds due to data
limitation.
310
It is necessary to fulfil several assumptions while constructing yield curves. One of the basic assumptions
is the sufficient quantity of bonds with various expiration due dates. It would be good so that these bonds
would be actively traded on the market as this ensures that this price reflects the interests of investors.
Another assumption is that the bad solvency issuer (in case of state bonds) is perceived as null.
The yield curve constructed from the state bonds is the time structure of minimal risk free rates which is
demanded by the market in order to evaluate other assets. This curve is some sort of benchmark on base
of which the rationally-thinking investor decides about the demanded yield rate [5].
The yield curve provides information which are taking place in the market and which is the basic
assumption of investors regarding the future. The most important function of the yield curve is
quantification of future yields which realize by determining the form of the curve. From the form of the
curve investors forecast the future interest rates. The yield curve defines the value of the money till the
expiration due date. The yields coming out from the state bonds determine the border of all instruments in
the market, i.e. the yield curve defines the yield on the whole market. The curve can be also used for
analyzing of the bond value for determining of its adequacy which is determined according to the location
of the yield and the curve itself.
Lastly, by using the yield curve one can evaluate interest rates of financial derivatives. The yield curve
also defines risk bonus and assumed changes of interest rate which are performed by the central bank [6].
The process of yield curves modelling differs from one country to another one regarding mainly the using
of methods and models.
Into our application we decided to implement yield curves models which are the most used today. Even
though, for estimating the form of the yield curve central bank use various models, the most used model
is the Svesson model and Nelson-Siegel model. Svensson model is used for example in Canada,
Germany, Norway, Switzerland and Spain whereas Nelson-Siegel model is used in Italy, France, Finland
and the Czech Republic. Both of the models has their pros and cons. In practice, Nelson-Siegel is very
popular. This models is used by central banks as well as by individual investors. Svensson models is de-
facto the upgraded version of Nelson-Siegel model [1].
The Nelson-Siegel representation captures the whole curve of interest rates in every time moment. This
model has the following formula:
)* (+) = β + β$ - 4 + β% - − .!56 4
!./01 !./56
23 56
(5)
where β1, β2, β3 and λ are unknown parameters and λ > 0. Parameter β1 can be interpreted as the niveau to
which the interest rate converges if the maturity due date approximates to infinite. Parameter β2 can be
interpreted as the niveau to which the interest rate converges if the maturity due date approximates to
zero. It is the short-term factor whose weight declines to zero with the rising weight. This parameter
influences yield with short-term expiration due dates the most. The third coefficient converges to zero for
interest rates with the shortest and longest expiration due dates. This is caused by the function at
parameter β3which starts in zero, after that it increases with the expiration due date and finally it declines
to zero. The last parameter is λ. This parameter determines the rate of exponential decline. Parameters β1,
β2, β3can be considered as latent factors which develop in time (dynamic interpretation of Nelson-Siegel).
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The Svensson model (denoted also as Nelson-Siegel-Svensson model) extends Nelson-Siegel model with
new parameter called β3, which is another hump. In contrast with the previous model this model has an
advantage in that it is able to model the curve even with more local extremes. Moreover, it is also more
flexible. The Svensson model for the spot curve has the following form:
1 β ′ r
; <A ; (1 − . !τ⁄λ )⁄8 A ; <A <
:β @ D r F
β ′
(8) = :: @@ :: !τ⁄λ ⁄
@=
@ :β @ r=
λ (1 − . ) 8 − .!τ⁄λ
β λ
: =@ : @ : =@ r
(6)
9β> ? 9λ= (1 − . ⁄
)⁄8 − .!τ⁄λ ? 9β> ? >
β
!τ λ
where r(τ) is the spot interest rate with the maturity due date τ and β0, β1, β2, β3, λ1 and λ2 are coefficients
and λ1>0, λ2>0. The first three components are equal as in Nelson-Siegel model. The last component
β3,r3adds the second hump to the original Nelson-Siegel function. So, λ1and λ2 determine the location of
the two humps. The adequate forward curve is as follows [2]
1
; <A ; A ; < A f<
.!τ⁄λ
β ′ β ′
: β @
G(8) = : @ :H+⁄λ ) .!τ⁄λ @ :β @ D f F
I = :β @ f=
: =@ : @ : =@
(7)
9β> ? 9H+⁄λ= ) . I? 9β> ? f>
!τ⁄λ
β
where f(τ) is the forward interest rate with expiration due date τ.
Design
The goal of this paper is to suggest and create own application for modelling of yield curves. After deep
analysis of the theory of yield curves it was necessary to choose the programming language in which the
application, i.e. program will be created. JAVA and R languages were selected.
Java is the object-oriented language which was created in 1995. It is platform independent language, i.e.
the code which runs on one platform must not be recompiled to run on another one. In contract with other
programming languages where the results of compilation if the executable program (.exe in Windows),
Java apps are commonly compiled into byte-code, which can run over Java virtual machine (JVM)
regardless the platform. In spite of numerous advantages, we also discovered disadvantages regarding the
speed of code running which is definitely slower as in C languages. Also, it has much more memory
consumption than C languages.
R is the programming language which is mainly used for statistical data analysis and for data
visualization. It was originally developed as the free version of the commercial statistical language S.
Today, mainly due to its availability, compatibility for various platforms, simple extension potential
through packages as well as through new created functions, it is one of the most popular languages for
specialized statistical analysis of various problems. Commands are set from the command line, however
there exist more graphical interfaces such as RStudio, RKWard or Rattle. The big disadvantage is the
existence of several GUI created in R, however if we compare them with other commercial soft wares,
they are not of such a good quality.
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JAVA-R
The core of R functionality was written in the C language which was packed into R function in order to
facilitate the parameter sending. Call for these functions from languages based on C is easy but the
integration with JVM languages is worse. Possibilities with which Java and R are able to be connected
are as follows
R package rJava provides useful mechanism for creation instances of Java objects, accessing elements of
classes and moving R objects into methods of Java in R. This package is appropriate for R packages
which rely more on external functionality written in Java than in C, C++ or Fortran.
Library JRI which is SUCAST of rJava package today uses JNI (Java Native Interface) for calling R from
Java. Even though JNI is the most common way for accessing to native libraries in Java, JRI needs
correct setting of several system and environment variables before running. This could be quite difficult
for users who do not have so much experience with computers.
The Rserve package uses TCP sockets and acts at the TCP server. Client initiates a connection to Rserve,
sends there R commands and a results is returned to him. This type of R calling from other platforms is
more general because the initiation of connection and protocol initialization are platform independent.
RCaller is the LGPL library which is very easy to use. In contrast with several other libraries and
packages it does not need any difficult configuration, just installing of R package (Runiversal) and
entering the CESTA to Rscript.exe. This library is able to execute R code directly in Java code. The
disadvantage of this possibility is that it is relatively slower, however with the newest versions it
improves. The functionality of this library is as follows: Rscript.exe is executed and an external process
is created. It then sends the code to R which was written in Java and the output in XML is returned. This
XML document is then parsed and returned R objects are extracted into Java where their processing with
programmed methods is realized.
Fig. 1: Functionality of the R Caller library
For connecting Java and R we chose RCaller due to the fact that from the subjective point of view it is the
easiest for setting. This should not be a problem for anybody who is willing to run a created app. The
only disadvantage of this possibility is its lower speed. This disadvantage expresses mainly if calling of
the method RunAndReturnResult() is very frequent because the selected method always create the
instance of the Rscript. This problem can be avoided through method RunAndReturnResultOnline(). This
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methodcreates the instance of Rscript which will stay running in the background. This approach lowers
the time needed for creating an external process and loading packages in R in next callings.
For functioning this library in Java it is necessary to enter the navigation to r.exe which is going to be
made very easy in our application. Except for this it is necessary to have the Runiversal package
downloaded and installed. Rcaller uses this package of the R for converting of lists from R into XML
documents in R instance.
Rcaller is able to plot and return graphs to Java. The majority of graphical functions and packages is
written in R language a this makes the R software exceptional [9].
On base of the analysis of the current state we decided to implement into our application the following
yield curves models: Nelson-Siegel and Svensson. For estimation of yields we used the package
yieldcurve.
3.3. Implementation
The application was implemented in JAVA SE programming language with JDK 1.7 using the external
library Rcaller and the programming language R. Netbeans IDE 7.3 and RStudio were chosen as
development environments. The application was programmed according to principles of object oriented
programming, particular classes of yield curves models (Nelson-Siegel and Svensson) inherit methods
and attributes from the abstract class called AbstractModel. If we want to add some models for modelling
yield curves in the future, it will be not a problem.
The core of the application is separated from the user interface, classes are divided into packages
according to logical flow on Models, GUI and Util. In Models package the core of our application can be
found. After executing the application, the instance of the main class is created. This instance then
communicates with other classes. Moreover, this class store information about the file address, imported
data and their statistics, address of R.exe, statistics about particular models and estimates.
Particular models of classes Nelson-Siegel and Svensson inherit from the class AbstractModel. When the
creation of selected model is called in the user interface, the instance of this model is created in the main
class and runCode() is called. In this method the R code is written which is supposed to be executed for
the given model. On base of address which has been entered in the background the R.exe is executed and
commands from Java are sent to R. In R they are executed and returned values of this function are
temporally stored on the disk as XML document which is then ex-parsed and returned into Java. Finally,
these outputs are sent to GUI where are displayed for the user.
The class main contains methods for loading and stuffing graphs, statistics and tables in user interface as
well as loading data from files.
The graphical interface (GUI) is separated from the core of the application. It contains several classes
which facilitate the work for the user. GUI is the main class of this package. Data which have been
imported, graphs and statistics of selected models are displayed in this class. Moreover, we can find here
FilePicker and NumberOfCol classes which are used for data importing. If one chooses a model, the class
Models_first is executed a displayed. The user is then able to choose for which bond and for which day
he wants to create a yield curve.
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Fig. 2. Illustration of the graphical user interface of created application [own design and
implementation]
The final yield curves are shown on the right side of the graphical interface. Moreover, statistics about
given estimate (minimum, maximum, the average, median and standard deviation) are displayed in the
Table of GUI. As for yield curves for the selected day parameters of the model, i.e. beta0, beta1, beta2,
beta3, lambda1 and lambda2 are displayed. Lambda1 and lambda2 parameters are calculated
independently by the program. Statistics of estimated model (standard errors of parameters, coefficient of
determination, value of adjusted coefficient of determination and value of Fischer statistical test) are
outputted too.
Function “Sven.est” for estimating parameters
We also suggested and implemented our own function in R which estimates parameters of Svensson
model and returns adjusted coefficient of determination, standard errors of estimated parameters and F
statistics of the model. The outputted information simplify the analysis of estimated model to the user,
they also simplify the verification of the model and its parameters. This function is as follows
.Sven.est<- function( rate, maturity, lambda1, lambda2 )
{beta <- lm( rate ~ 1 + .factorBeta1(lambda1,maturity) +
.factorBeta2(lambda1,maturity) + .factorBeta2(lambda2,maturity))
betaPar<- coef(beta)
betaStErr<- summary(beta)$coef[4:7]
NaValues<- na.omit(betaPar) #
315
r2koef <- summary(beta)$r.squared

r2adj <- summary(beta)$adj.r.squared
fstat<- summary(beta)$fstatistic
kovar<- summary(beta)$cov.unscaled
names(betaPar) <- c("beta_0", "beta_1", "beta_2","beta_3")
names(betaStErr) <-c("StErr_B0","StErr_B1","StErr_B2","StErr_B3")
EstResults<- list(Par=betaPar, R2koef = r2koef, R2adj = r2adj, Fstat = fstat, ParErr =
betaStErr )
return(EstResults)}
estimation<-.Sven.est(rate = data[3,] , maturity = maturity.Fed, lambda_1 , lambda_2)
Following parameters are sent into the function:
- Rate – the vector of values of yields in the selected day

- Maturity – the vector of values with maturity due dates. This vector has to be of the same length
as number of bonds for one day.
- Lambda1, lambda2 – lambda parameters for the selected day. It is possible to manually set (or
estimate) values of these parameters using following function (for executing this function the
“yieldcurve” package has to be installed)
SvenParameters<- Svensson( rate=data, maturity=maturity.Fed)
The output of this function is the variable called estimation (type list). One can access any part of the list
easily, i.e.
- estimation$R2koef # returns R2 coefficient

- estimation$R2adj # returns R2 adjusted
- estimation$Fstat # returns F statistics
- estimation$Par # returns estimates of model parameters
- estimation$ParErr # returns standard errors of estimated parameters
Function which returns statistics and parameters of Nelson-Siegel model was created too in an analogical
way.
Results
Interest rates of FED bonds were used for our experiments in order to test and evaluate our application.
These bonds represent the yield from American state bonds at given maturity due date. Bonds with
maturity due date of 1 month, 3 months, 6 months and 1 year, 2 years, 3 years, 5 years, 7 years, 10 years,
20 years and 30 years were used. Using these data yield curves were created, these curves were then
analysed and on base of statistics these models were evaluated and compared.
The yield curve constructed for the selected day
Functions written in R were part of our application. These functions return parameters of estimated
models and statistics. For selected days these outputs are shown in the Table 1.
316
Table 1: Outputs of function – parameters and statistics [own implementation]
Nelson-Siegel β0 β1 β2 β3 λ1 λ2 R2 R2adj F_stat

2007.01.19 5,040 0,095 -1,067 - 0,272 - 0,781 0,726 14,260
2008.12.19 0,084 -0,089 9,535 - 0,077 - 0,965 0,962 624,30
2013.12.13 4,474 -4,343 -5,612 - 0,582 - 0,998 0,997 2328,11
Svensson β0 β1 β2 β3 λ1 λ2 R2 R2adj F_stat
2007.01.19 4,948 0,875 -1,621 -2,465 0,604 13,383 0,869 0,812 15,430
2008.12.19 2,930 -0,227 -6,610 -8,081 1,161 12,547 0,961 0,943 55,787
2013.12.13 4,170 -4,409 -19,95 13,73 1,161 1,673 0,994 0,991 407,73
Fig. 3: Yield curves 2007.01.19 [own implementation]
Fig. 4: Yield curves 2008.12.19 [own implementation]
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Nelson-Siegel model only has three parameters and therefore is not able to describe curves which do not
meet the basic assumption (the longer maturity due date the higher the revenue). As for Svensson model
which also has the fourth parameter exactly for this case. It is not possible to say which model is better in
general.
The average yield curve
We also implemented the function for averaging yield curve estimates. This curve is constructed by
averaging all observations for every type of bond. The estimation of the curve is made by estimating
parameters for all periods. The final parameters are made from these partial parameters by averaging
them. Deducing from the Figure 6 we can state that Nelson-Siegel and Svensson model are able to
estimate and plot observation with the same quality of estimations.
Fig. 5: Yield curves of averages [own implementation]
On base of tests which have been performed we can state that our suggestion met our goals. The
application provides possibility of modelling multiple types of yield curves (yield curve for selected day,
for selected bond with given maturity due date as well as a new approach – the average of yields of
bonds) with various yield curve models (Nelson-Siegel model and Svensson model). The main advantage
of our application is the easy import of data, easy construction of yield curve estimate thanks to graphical
and statistical outputs.
318
Discussion
Using our created application is easy. After entering a route to a file, data are displayed. Afterwards, yield
curves can be modelled using this data. The user can select from two models. In addition to that every
model is able to construct three different types of curves:
- The yield curve for the selected day
- Yield curve for bond with given maturity due date
- Yield curve from the average yields of all observed periods.
However, if a user happens to have any problems, there is the Help section which helps user to use the
application.
As for minimal hardware requirements, sufficient amount of RAM is recommended. Also, it is necessary
to have JVM and R installed. In R one also has to have packageRuniversal downloaded and installed.
Moreover, before data importing the route to R.exe must be entered.
In the future we would like to upgrade our application mainly by accelerating particular functions. To
resolve this, we plan to implement internal functions into Java which would count these parameters of
yield curves. We also want to make the import function much more flexible and make it possible to
import data from files other than .csv. Finally, we plan to extend our application by more yield curve
models in the future.
Conclusion
Today, yield curve modelling is the live theme in Slovakia as well as other European countries. Our
created application brings construction of yield curves in an easy and friendly way.
Nowadays, there exist a lot of models for modelling yield curves. However, plenty of these models just
like many other statistical models have disadvantages such as non-flexibility, non-variability, and non-
automatization. Moreover, it is not possible to make automatic dynamization of the model, the modelling
has to be realized from the beginning. Finally, client who does not have sufficient theoretical background
in the area of yields curves, has problem in realizing these estimations of yield curves.
The main goal of this paper was to create free application which was able to import bonds with different
maturity due dates, on base of the imported data the app was supposed to create yield curve of these
bonds. The final result was the implemented software which is able to construct yield curves, compare
them and state final statistical and graphical outputs about constructed models. Also, various tests and
experiments were performed in order to thoroughly test our application.
The main advantage of this application is its easy-to-use interface. Currently, there is not any free
available software which would be able to model yield curves from data with transparent outputs. This
modelling exists just in commercial specialized programs or in R environment which is however difficult
to use for a non-programmer. Our created application, which is free, enables user to import data easily,
model yield curves and find out the appropriateness of particular tested models. Practical use of this app
can be at watching the financial market or when managing the state debt. Also, investor or the bonds
issuer can find this application helpful.
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Acknowledgment
This paper was partially supported by the Slovak scientific grant VEGA 1/0942/14 Dynamic modelling
and soft techniques in predicting economic variables.
References
[1] ALJINOVIC, Z. et al.: Best fit model for yield curves estimation. Croatia Operational Research
Review (CRORR), Vol. 3, 2012, p. 28 – 40
[2] ANNAER, J. et al.: The Estimation of Svensson Model Term Structures and Their Volatilities.
2012
[3] BANK OF ENGLAND, Notes on the Bank of England UK yield curves. [online] [cited: 16. 4.
2014] Available at: http://www.bankofengland.co.uk/
statistics/Documents/yieldcurve/yields_background_note.pdf
[4] BLAKE, D.: Analyza financnich trhu. Praha: Grada Publishing, p. 120. ISBN 80-7169-201-8
[5] BURES, J.: Uvod do problematiky výnosových krivek [online] [cited: 8. 4. 2016] Available at:
http://hp482.wz.cz/matpred/text_bures_yieldcurve.pdf
[6] CHOUDHRY, M.: Analysing and interpreting the yield curve. New York: John While&Son, p.
355. ISBN 0-470-82125-6
[7] JILEK, J.: Financni trhy a investovani. Praha: Grada Publishing, p. 648. ISBN 978-80-247-1653-4
[8] MARCEK, M., PANCIKOVA, L., MARCEK, D.: Ekonometria a soft computing. Zilina: EDIS, p.
271. ISBN 978-80-8070-746-0
[9] SATMAN, H.M. RCaller: A library for calling R from Java
[10] The ECB´s Directorate General Statistics releases euro area yield curves every TARGET working
day of 12 noon Central European Summer Time (or Central European Time). [online] [cited: 16. 4. 2014]
Available at: https://www.ecb.europa.eu/stats/money/yc/html/technical_notes.pdf
[11] VESELA, J.: Investovani na kapitálových trzich. Praha: ASPI, p. 703. ISBN 978-8073-5729-76
320
Agricultural Output and Economic Growth in Nigeria (1981-2014)
Ewetan, O. O
Department of Economics & Development Studies,
Covenant University, Nigeria.
olabanji.ewetan@covenantuniversity.edu.ng
Nigeria. +2347035266631.
Fakile Adebisi,
bisifakile@gmail.com
Nigeria. +2348060028599.
Oduntan Emmanuel,
emmanuel.oduntan@covenantuniversity.edu.ng
Nigeria.
Urhie Ese,
ese.urhie@covenantuniversity.edu.ng
Nigeria..
Abstract
This paper examines the long run relationship between agricultural output and economic growth in
Nigeria for the period 1981 to 2014 using time series data. Results from Johansen maximum likelihood
co-integration approach and Vector error correction model support evidence of long run relationship
between agricultural output and economic growth in Nigeria. Granger causality test also confirm the co-
integration results indicating the existence of causality between agricultural output and economic growth
in Nigeria. The nature of the causality however depends on the variable used to measure Agricultural
output. The paper therefore recommends that government should further strengthen agricultural policies
in the area of funding, storage facilities, and market access to enhance agricultural production. Policy
Strategies that will make agriculture more profitable and attractive, less laborious with improved
technology should be adopted and promoted to attract investors and the youths back to agriculture.
Keywords: Agriculture, Agricultural output, Economic Growth, Co-integration, Granger Causality.
1. Introduction
The growth and development of any nation depend to a large extent, on the development of agriculture
(Iganiga & Unemhilin, 2011). Most of the world active but poor people live in rural areas and primarily
engage in agriculture. Nigeria is a vast agricultural country, endowed with substantial natural resources
which include: 68 million hectares of arable land, fresh water resources covering about 12.6 million
hectares, 960 km of coastline and an ecological diversity which enables the country to produce a wide
321
variety of crops, livestock, forestry and fishery products. Despite the articulation of government policies,
strategies and programmes and the commitment of Government and donors to the broader framework of
sustainable agriculture and pro-poor rural development, the rural communities of Nigeria remain
underdeveloped and many complex issues regarding the design, implementation, and monitoring and
evaluation remain unresolved (Bakare, 2013).
The role of agriculture in reforming both the social and economic framework of an economy cannot be
over-emphasized. It is a source of food and raw materials for the industrial sector. It is also essential for
the expansion of employment opportunity, for reduction of poverty and improvement of income
contribution, for speeding up industrialization and easing the pressure on balance of payment (Nwankwu,
1981). In effect, it has been the main source of gainful employment, basic food supply with which the
nation can feed its teeming population, a regenerative source of foreign exchange earnings, means of
providing the nation’s industries with local raw materials, and a reliable source of government revenue.
Generally, the agricultural sector contributes to the development of an economy in four major ways-
product contribution, factor contribution, market contribution and foreign exchange contribution (World
Bank 2014). In realization of this, the government has embarked on various policies and programmes
aimed at strengthening the sector in order to diversify the productive base of the economy.
Nigeria has a highly diversified agro-ecological condition, which makes possible the production of a wide
range of agricultural products. Hence, agriculture constitutes one of the most important sectors of the
economy. Despite Nigeria’s rich agricultural resource endowment, the agricultural sector has been
growing at a very low rate. Productivity is low and basically stagnant. Farming systems, which are mostly
small in scale, are still predominantly subsistence-based and for the most part depend on the vagaries of
the weather. Many agricultural policies have also been ineffective, either because they have been
misguided, or because their impacts have been swamped by macro policies affecting inflation, exchange
rates, and the cost of capital (Ehui & Tsigas, 2013).
It is recognized that agricultural commercialization and investment are the key strategies for, promoting
accelerated modernization, sustainable growth and development, and poverty reduction in the sector.
However, to attract investment into agriculture, it is imperative therefore to examine empirical
relationship between agricultural output and economic growth in Nigeria and the policy concerns it
engenders in Nigeria.
2. Literture Review
Literature is replete with the relationship between agriculture and economic growth in both developed
and developing countries. Agriculture is the science or practice of farming, including cultivation of the
soil for the growing of crops, the rearing of animals to provide food, and the preparation and marketing of
agricultural and agro allied products. Agricultural output is the value of agricultural products which, free
of intra-branch consumption, is produced during the accounting period and before processing, is available
for export and consumption. Economic growth is the increase in the monetary value of goods and services
produced in a country over a defined period of time usually a fiscal year. Many studies have examined the
relationship between agriculture and economic growth. Findings from these studies are mix. While some
studies established that agriculture exert a negative impact on economic growth, other findings
disapproved this position. This section reviews the findings on the relationship between agriculture and
economic growth and also reviews the factors that account for the mixed findings.
Christiensen and Yee (1964) in a study on how improvement in agricultural productivity contributed to
national economic growth of an imaginary country stated that increase in agricultural productivity comes
from two sources: use of additional inputs, and increased productivity resulting from improved
technology. They argued that Increases in agricultural productivity contribute to national economic
322
development and growth in three major ways: supply of an economic surplus for consumption and
production in agriculture or for capital formation; the release of labour and other resources for use in non-
agricultural sectors; and the resulting increase in purchasing power of rural people, expand markets for
industrial products, and structural changes needed for national economic growth. In a similar but more
recent study Chang, Chen and Hsu (2006) in an extended model of Matsuyama that incorporated
government taxation and infrastructure expenditure showed that, higher agricultural productivity creates a
positive growth effect via the revenue generation that dominates the negative growth effect through the
comparative advantage. On the contrary Patrick (1971) in a review paper on agriculture and economic
growth: Japan’s experience, concluded that agriculture had a less propelling role in Japan’s economic
development than earlier assumed. This he attributed to the slow change in people’s food consumption
habits which held down the growth in demand for food.
Syed, Muhammad & Rana (2015) analyse the impact of agricultural exports on macroeconomic
performance of Pakistan. Using secondary data and Johansen co-integration technique for the period
1972-2008 the study found a negative relationship between agricultural export and economic growth,
while non-agricultural exports was found to have positive relationship with economic growth. On the
basis of empirical results the study suggested that Pakistan has to embark on structural changes in
agricultural exports by converting its agricultural exports into value added products. Converting
agricultural exports into value added products is applicable to the Nigerian economy but their findings
showing a negative relationship between agricultural export and economic growth is not applicable to the
Nigerian economy.
Ideba, Iniobong, Otu & Itoro (2014) investigated the relationship between agricultural public capital
expenditure and economic growth in Nigeria over the period 1961 to 2010 using annual data obtained
from Central Bank of Nigeria. The data was analysed using Augmented Dickey-Fuller test, Johansen
maximum likelihood test and Granger Causality test. The result of the Johansen co-integration test
showed that there exists a long run relationship between all the explanatory variables and the explained
variable. The result of parsimonious error correction model showed that agricultural capital expenditure
had a positive impact on economic growth. Also, Granger Causality test showed a unidirectional
relationship between agricultural capital expenditure and agricultural economic growth. This means that
agricultural economic growth does not cause expansion of agricultural public capital expenditure rather; it
indicates that agricultural public capital expenditure raises the nation's agricultural economic growth.
Bakare, (2013) examined the relationship between sustainable agriculture and rural development in
Nigeria. Vector Auto Regression analytical technique (VAR) was employed for the empirical study. The
a priori expectation is that sustainable agriculture will impact positively on rural development in Nigeria.
The findings of the study show that the past values of agricultural output could be used to predict the
future behaviour of rural development in Nigeria. The main conclusion of this study was that while
agriculture remains dominant in the Nigerian economy, it is unsustainable; the food supply does not
provide adequate nutrients at affordable prices for the average citizen and rural development is
deteriorating. The findings and the conclusion of the study suggested the need for the policy makers to
promote agriculture to a sustainable level by driving rural development.
Odetola & Etumnu, (2013) investigated the contribution of the agriculture sector to economic growth in
Nigeria using the growth accounting framework and time series data from 1960 to 2011. The study found
that the agricultural sector has contributed positively and consistently to economic growth in Nigeria,
reaffirming the sector’s importance in the economy. The contribution of agriculture to economic growth
is further affirmed from a causality test which showed that agricultural growth Granger-causes GDP
growth, however no reverse relationship was found. The resilient nature of the sector is evident in its
ability to recover more quickly than other sectors from shocks resulting from disruptive events e.g. civil
war (1967-70) and economic recession (1981-85) periods. The study also found that the crop production
subsector contributes the most to agricultural sector growth and that growth in the agriculture sector is
323
overly dependent on growth of the crop production subsector. This indicates the importance of this
subsector and probably, lack of attention or investment to the other subsectors.
Aminu & Anono (2012) investigated the contribution of agricultural sector and petroleum sector to the
economic growth and development (GDP) of the Nigerian economy between 1960 and 2010 through the
application of Augmented Dickey-Fuller technique in testing the unit root property of the series; after
which Chow breakpoint test was conducted to test the presence of structural break in the economy. The
results of unit root test suggest that all the variables in the model are stationary at first difference and the
results of Chow breakpoint test suggest that there is no structural break in the period under review. The
results also revealed that agricultural sector is contributing higher than the petroleum sector, though they
both possessed a positive impact on economic growth and development of the economy. A good
performance of an economy in terms of per capita growth may therefore be attributed to a well-developed
agricultural sector.
Abogan, Akinola, & Baruwa (2014) investigated the impact of non-oil export on economic growth in
Nigeria between 1980 and 2010. The study examines the significant role of non-oil export on economic
growth which the previous studies might have ignored and the aggregate non-oil exports data used by
them might bias their conclusions. In achieving the objectives of the study, Ordinary Least Square
Methods involving Error correction mechanism, over parametization and parsimonious model were
adopted. In testing for the time series properties, the evidence from estimated economic models suggests
that all the variables examined are stationary at first difference I(I) using the Augmented Dickey- Fuller
(ADF) and Phillips- Perron. Besides, Johansen Co integration test reveals that the variables are co
integrated which confirms the existence of long-run equilibrium relationship between the variables. Thus,
this suggests that all the variables tend to move together in the long run. The study reveals that the impact
of non-oil export on economic growth was moderate as a unit increase in non-oil export raised the
productive capacity of the economy by 26%.
The review of the literature shows that the relationship between agriculture and economic growth is
inconclusive and an empirical issue that should be further investigated. Previous studies made use of
disaggregated variables to study the contribution of agriculture to economic growth. This study is
therefore different from previous studies as the total value of agricultural output will be used to capture
the contribution of agriculture to economic growth, also the study period is more recent.
3. Methodology and Sources of Data
This study makes use of secondary data in the analysis. The different annual time series data sets of
observation were collected from the Central Bank of Nigeria, National Bureau of statistics, International
Monetary Fund and World Bank Development Index. The data cover a period of thirty three years from
1981 to 2014.
Model Specification
The baseline model estimated for this study is presented as follows:

RGDPt= f(AGPO, INTR,INFL, EXR) _________________________________ (1)
This baseline equation is an extension of the national income equation in which national output (RGDP)
is a function of consumption, investment, government expenditure and net export. These variables
interest rate, inflation, and exchange rate also influence national output.
The function in equation (1) is transformed to natural logarithms as follows
logRGDPit= β0+ β1logAGPOt + β2logINTRt + β3logINFLt + β4logEXRt + Ut _________(2)
Where:
RGDP= Economic growth given by real GDP (naira)
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AGPO= Agricultural Output

INTR= Interest rate (per cent)
EXR= Exchange rate (naira per US dollar)
INFL= Inflation rate (per cent)
β0 = constant,
β0, β1. . . β 4 = the coefficients of the regression equation.
‘t’= is the time trend, and
Ut= Stochastic error term.
Model Estimation Technique
In terms of econometric methodology, the multivariate cointegration approach offers useful insights
towards testing for causal relationship. In principle, two or more variables are adjudged to be cointegrated
when they share a common trend. Hence, the existence of cointegration implies that causality runs in at
least one direction (Okodua and Ewetan, 2013; Akinlo and Egbetunde, 2010; Granger, 1988). However
there could be exceptions to this expectation. The cointegration and error correction methodology is
extensively used and well documented in literature (Banerjee, et al. 1993; Johansen and Juselius, 1990;
Johansen, 1988; Engle and Granger, 1987).
4. Empirical Results and Discussions

This study examines time series data from 1981 to 2014. The econometric analysis involves three basic
steps. First, the unit root test examines the stationarity of the data. Second the Johansen co integration test
investigates the long-run relationship between the variables. Third, the Vector Error Correction Model is
used to determine the speed of adjustment of the variables i.e. how errors generated in the short run are
corrected in the long run equilibrium path. The following sections present and discuss the result obtained
from the analysis.
4.1 Stationarity Tests

Table 1: Phillip Perron (PP) Unit root results
Variable PP Test PP Critical Test @ First PP Critical Remark

@Levels values @ Difference values @ 5%
5%
LRGDP 0.794712 -2.954021 -5.998143* -2.957110 Integrated to order 1
LAGPO 2.304606 -2.954021 -3.336547* -2.957110 Integrated to order 1
LINTR 0.476600 -1.951332 -8.460214* -2.957110 Integrated to order 1
LINFL -1.361450 -1.951332 -18.52405* -2.957110 Integrated to order 1
LEXR -2.189445 -2.954021 -4.842238 -2.957110 Integrated to order 1
*, **, Represents stationary trend at 1% and 5% level of significance respectively
Due to the stochastic trend process associated with most time series data, it is important that these series
are tested for the presence of unit root. The result of the unit root stationarity test in table 1 was conducted
using Phillip Perron (PP). The result of the PP test shows that all the variables were not stationary at
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level. Therefore the entire series were subjected to further test at first differencing. It is evident that all the
variables achieved a stationary trend process after the first differencing for the Phillip Perron test. Hence
the null hypothesis of unit root could no longer be accepted for the variables at this level. This means that
the series could be regarded to be integrated of order 1 process.
4.2 Johansen Co Integration Test

Table 2: Co-integration Result
Hypothesized Eigen Max- 0.05 Prob.**

No. of CE(s) Value Eigen Critical
Trace 0.05 Statistic Value
Statistics Critical Prob.**
Value
None * 0.708242 112.8733 88.80380 0.0003 39.41854 38.33101 0.0374
At most 1 * 0.645117 73.45477 63.87610 0.0063 33.15095 32.11832 0.0373
At most 2 0.493322 40.30382 42.91525 0.0891 21.75612 25.82321 0.1575
At most 3 0.297994 18.54770 25.87211 0.3083 11.32201 19.38704 0.4807
At most 4 0.202125 7.225691 12.51798 0.3215 7.225691 12.51798 0.3215
Source; Authors computation from E-views 7.1
Having established that all the variables are integrated of order one, this study employed the Johansen
and Jesulius (1992) co-integration approach to determine whether there is a co integrating relationship
between agricultural output, interest rate, inflation rate, exchange rate and real economic growth of
Nigeria. This method utilized both the trace and maximum Eigen statistic in determining the significance
or otherwise of the co integrated series as suggested by the unit root results. In ascertaining the existence
or non-existence of a co integrated series, the calculated trace and max Eigen statistic was compared to
their critical values at 5 percent significance. A higher value for the trace and max Eigen statistic in
relation to their critical values suggests the existence of co integrated equation in that rank order.
Evidence from the trace statistic as shown in the upper part of table 2 revealed two co integrated equation
in “at most 1” rank level for the trace and maximum Eigen value statistic. The existence of a co integrated
series from the result above thus implies the existence of possible long run relationship among the
variables over time.
Table 3: Normalized co integrating coefficients
1 Co integrating Equation(s): Log likelihood 86.96757
Normalized co integrating coefficients (standard error in parentheses)

LRGDP LAGPO LINTR LINFL LEXR
1.000000 0.425907 0.087806 0.059555 -0.114206
(0.04285) (0.08145) (0.02729) (0.04225)
T-Statistic [9.9394866] [1.0780356] [2.1823012] [2.7031006]
Source; Authors computation from E-view 7.1
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The result in table 3 above shows the long run estimated parameters for agricultural output, inflation rate
and exchange rate indicate statistically significant relationship with economic growth over the period
covered in this study. However, interest rate does not have a significant relationship with economic
growth. Given the long run estimates of the normalized co integrated results for the economic growth
model, the interpretations of the long run co efficient are based on the elasticity of the estimated results.
The coefficient of LAGPO is negative indicating a negative relationship between agricultural output and
economic growth which does not conform to a priori expectation. The coefficient is 0.426 which is less
than one which means that agricultural output is inelastic in relation to economic growth (LRGDP)
indicating a change in agricultural output leads to less proportionate change in economic growth. The
negative relationship with economic growth means that a 1 percent increase in agricultural output will
bring about 0.423 decrease in economic growth and vice versa, and it is statistically significant at 1
percent level of significance. The coefficients of interest rate and inflation rate are negative while that of
exchange rate is positive which conform with the a priori expectations. Also the coefficients are less than
one which means that interest rate, inflation rate and exchange rate are inelastic in relation to economic
growth indicating a change in interest rate, inflation rate and exchange rate will lead to less than
proportionate change in economic growth.
4.3 Vector Error Correction Model (Vecm)

Table 4: Error Correction Model
C -28.10225
Error Correction: D(LRGP(1)) D(LAGPRDO) D(LINTR) D(LINFL) D(LEXR)
CointEq1 -0.030253 -0.011920 0.023933 -0.491001 0.180678

(0.00506) (0.02272) (0.06032) (0.29136) (0.08220)
[-5.97657] [-0.52467] [ 0.39676] [-1.68519] [ 2.19797]
Source; Authors computation from E-view 7.1
The VECM coefficient is the speed of adjustment factor, which tells us how fast the system, adjusts in
order to restore equilibrium. It also shows the reconciliation of the variables over time right from the
disequilibrium position to the period where equilibrium is restored. The result of the vector error
correction model (VECM) is indicated above.
The VECM result shows that the coefficient of the error correction model for our dependent variable
LRGDP has a negative sign, is between zero and one and from the t-statistic, it is statistically significant.
From our result, the significance of the error correction model indicates that there is a steady long run
equilibrium state between Real GDP and the independent variables. The adjustment speed is -0.030253.
In addition, the coefficient lies between 0 and 1 and the t-Statistic is -5.97657 which is greater than 2 in
absolute value; therefore, it is statistically significant observing the rule of thumb. Thus, this implies that
about 3.03 percent of the errors in the current period would be corrected in subsequent periods. This
further shows the system has the ability of converging during instances of external shocks.
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4.4 Granger Causality Analysis
Table 5: Pairwise Granger Causality Tests
Pairwise Granger Causality Tests
Null Hypothesis: Obs F-Statistic Prob.
LAGPRDO does not Granger Cause LRGP 32 2.18747 0.1317

LRGP does not Granger Cause LAGPRDO 0.65053 0.5298
LINTR does not Granger Cause LRGP 32 0.65375 0.5281

LRGP does not Granger Cause LINTR 0.24751 0.7825
LINFL does not Granger Cause LRGP 32 0.85053 0.4383

LRGP does not Granger Cause LINFL 0.32547 0.7250
LEXR does not Granger Cause LRGP 32 1.91943 0.1662

LRGP does not Granger Cause LEXR 0.50387 0.6098
LINTR does not Granger Cause LAGPRDO 32 1.00474 0.3794

LAGPRDO does not Granger Cause LINTR 0.19286 0.8257
LINFL does not Granger Cause LAGPRDO 32 6.07124 0.0066

LAGPRDO does not Granger Cause LINFL 2.99269 0.0670
LEXR does not Granger Cause LAGPRDO 32 4.37568 0.0226

LAGPRDO does not Granger Cause LEXR 1.09176 0.3500
LINFL does not Granger Cause LINTR 32 3.30380 0.0521

LINTR does not Granger Cause LINFL 0.97165 0.3913
LEXR does not Granger Cause LINTR 32 0.31762 0.7306

LINTR does not Granger Cause LEXR 0.02716 0.9732
LEXR does not Granger Cause LINFL 32 0.86770 0.4313

LINFL does not Granger Cause LEXR 1.33654 0.2796
Source; Authors computation from E-views 7.1
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There is no directional causality between agricultural output and real economic growth. Real economic
growth do not granger causes interest rate while interest rate also do not granger causes interest rate. The
null hypothesis of no granger causality cannot be rejected for the relationship between inflation and real
economic growth for both directions. It is observed to be same for the relationship between interest rate
and economic growth and between exchange rate and economic growth.
The analysis of the granger causality test in table 5 reveals bidirectional causality between inflation rate
and agricultural output at 1 percent and 10 percent significance level. This further implies that inflation
rate do granger causes agricultural output and agricultural output do granger causes inflation rate though
at 10 percent. Hence, the null hypothesis that LINFL does not Granger Cause LAGRPDO and that
LAGPRDO does not Granger Cause LINFL is hereby rejected in this study.
There is a unidirectional causality between exchange rate and agricultural output at 5 percent significance
level such that exchange rate do granger causes agricultural output while agricultural output does not
granger causes exchange rate
Interest rate do not granger cause agricultural output and agricultural output do not granger cause interest
rate
Inflation rate do granger causes interest rate at 5 percent significance level while interest rate do not
granger causes inflation rate. Hence the null hypothesis of no granger causality is accepted for interest
rate while being rejected for inflation rate.
Further evidence from the study shows no directional causality from exchange rate and interest rate. This
shows that exchange rate do not granger causes interest rate and interest rate do not granger cause
exchange rate at 5 percent significance level. Thus the null hypothesis that LINFL does not Granger
Cause LINTR and LINTR does not Grange causes LINFL can be accepted in this study. Also exchange
rate and inflation reveals no granger causality in both directions.
5. Conclusion and Policy Implication

In conclusion, the key to resuscitation of agricultural output is to make the farm sector more productive
through better and efficient policies so as to reverse the negative relationship between agricultural output
and economic growth in Nigeria as revealed by the finding of this study. The study revealed a significant
long run relationship between agricultural output and economic growth. This being the general objective
of the study, it is necessary to emphasize how agricultural production in Nigeria can be improved which
in turn will increase the level of economic growth. Therefore the monoculture nature of the Nigerian
economy which basically relies on oil proceeds should no longer be allowed. This study suggests the need
for government to diversify the economy away from its major dependency on oil by promoting the
development of the agricultural sector. This will no doubt create more employment opportunities for the
teaming unemployed population, provide more investment opportunities, increase non-oil export,
improved technology, external reserve leading to favourable foreign exchange conditions and improved
economic growth for the country.
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The Analysis of Profitability and Leverage of Family Firm: Founder,

Sibling Partnership and Cousin Consortium
Arif Singapurwoko
Universitas Islam Indonesia, Yogyakarta, Indonesia, arif_singa@uii.ac.id
Abstract
This study examines profitability and leverage of family firms among the leadership of the first (founder),
second (sibling partnership), and third generation (cousin consortium). This study is conducted to prove
the results of previous studies which show that the number of family firms will decrease when the third
generation leads the company. The decrease of family firms is caused by many factors such as family
conflict, founder’s distrust to successor, successor’s unwillingness to continue founder’s leading, and
different competence in managing company between founder and successor. By assuming that family
firms have no problem with the three first factors, many family firms cannot continue the leadership from
founder to successor because of two financial factors including profitability and leverage. First, family
firms have no enough profitability to sustain. Second, family firms can go bankrupt because of running
up huge debt. The population of this study was all three-generation family firms at Indonesia Stock
Exchange, whereas the samples were selected based on purposive sampling technique. To analyze panel
data, this study collected data from 1982 to 2014. The findings of this study show that the mean value of
family firms’ profitability led by sibling partnership is the highest. Furthermore, the mean value of
leverage increases from founder to cousin consortium, yet the debt growth of family firms led by cousin
consortium is the highest. It is concluded that the results of statistic tests of this study show several
differences of profitability and leverage among founder, sibling partnership, and cousin consortium.
Keywords: profitability, leverage, founder, sibling partnership, cousin consortium.
Introduction
Succession becomes the most interesting topic in many studies of family firms. It is an important part
which distinguishes between family firms and non-family firms. The identity of family firms which
distinguishes from non-family firms can be seen from three variables: ownership, management, and
succession. According to the empirical studies of Birley (1986), De Vries (1994), and Ward (2011),
succession is the most difficult process for family firms. These previous studies show that about one third
of American family firms can survive into the second generation and that 10% to 15% of the second
generation makes the firms into the third generation. This finding issues a question whether succession of
family firms is difficult to be conducted so that many family firms cannot survive to the next generation.
Succession of family firms has particular measurements which show success or failure of succession. The
measurement of succession success is seen not only from leadership transfer, founder from successor, but
also from company’s performance led by successor which must be better than that of founder (Molly,
Laveren, and Deloof, 2010). The reason why financial performance can be a crucial part to measure
succession success is because founder’s trust to successor is in hand with successor’s competence.
Therefore, trust of founder, willingness of successor, and competence of successor become important
factors to determine succession success of family firms. Many family firms must assign their ownership
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or management to external party or non-family founders because the family firms are failed to do
succession.
Some researchers have proved that a succession of leadership from founder to sibling partnership can be
different from sibling partnership to cousin consortium (Davis and Harveston, 1999; Schulze, Lubatkin,
and Dino, 2003; Villalonga and Amit, 2006). Furthermore, Condition of company given by founder to
successor is different from sibling partnership to cousin consortium. Legacies in terms of low debt, high
profit, and good reputation given by founder to sibling partnership are better than those of sibling
partnership to cousin consortium. Founder tries to bequeath healthy company to his descendent, but this
company condition depends on the purpose of the company establishment. If family firms are established
upon family’s orientation, the founder will try not to use debt at all. Otherwise, if family firms are
established upon business orientation, the founder will run up huge debt. Basically, family firms have
lower debt than non-family firms (Mishra and McConaughy, 1999; Welsh and Zellweger, 2010;
González, Guzman, Pombo, and Trujillo, 2012; Zellweger and Sieger, 2012). Succession gives impact on
capital structure change of family firms because debt management of one generation to later generation is
different. Schulze et al (2003) state that when founder leads the company, the ownership of family firms
is concentrated while outsiders’ ownership is null or not much. Furthermore, when sibling partnership
leads the company, the ownership is divided to external party. Finally, the ownership of family firms will
be spread or diversified when cousin consortium leads the company. Cousin consortium prefers running
of debt to sharing ownership with external parties because there is difference of interest among the
shareholders when sibling partnership leads the company. Interest difference between shareholders
(family) who have purpose to advance the company with shareholders who only want dividend
encourages cousin consortium prefer issuing bond to issuing stock. Shareholders who only want dividend
do not like increasing debt because it can deduct company’s profit which impact to dividend. Bjuggren,
Duggal, and Giang (2012), supported Schulze et al (2003), state that the debt rate in family firms from
founder to cousin consortium is figured in U-Shaped. The debt rate with U-Shaped explains that the debt
rate from founder to sibling partnership decreases then it increases from sibling partnership to cousin
consortium. Based on the explanation, the researcher is interested in finding out the mean value of debt
rate among founder, sibling partnership, and cousin consortium. The mean value will figure whether the
debt rate will increase, decrease, or form U-Shaped.
Related to succession with profitability, family firms led by later generation are more profitable than
those of founder (McConaughy and Phillips, 2009). Education is one of important variables to determine
the profitability of family firms. Some previous studies find a positive relationship between education and
post-transfer profit (Chrisman, Chua, and Sharma, 1998; Morris, Williams, Allen, and Avila, 1997).
Factually, sibling partnership and cousin consortium have higher level of education than founder.
However, it is not only education which determines profitability, but also some other variables. Ibrahim,
Soufani, and Poutziouris (2003) find that there are three critical factors from successor to achieve high
profitability: (1) the successor’s capacity to lead, (2) his management skills and competencies, and (3) his
willingness and commitment to take over the company. The result of previous studies related to
performance comparison among founder, sibling partnership, and cousin consortium is debatable. The
study result of McConaughy and Phillips (2009), supported by Villalonga and Amit (2006) and Diwisch,
Voithofer, and Weiss (2009), states that company’s profitability increases from founder to the next
generation. This contrasts with the study results of Morck and Yeung (2003) and Perez-Gonzales (2006)
which state that the profitability of family firms led by sibling partnership and cousin consortium is less
profitable than that of founder. However, this study has not found the result which compare family firm
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performance across generation. In fact, many family firms listed on Indonesia Stock Exchange (IDX) are
led by the third generation. Finally, the researcher is interested in examining the comparison of
profitability of family firms among founder, sibling partnership, and cousin consortium leadership.
The aims of this study are to compare financial performance performed by profitability; and financial
structures performed by leverage of founder, sibling partnership, and cousin consortium leadership.
Furthermore, this study describes financial and structural performance of family firms across generations.
The results of this study indicate that the causes of family firm decline from founder to cousin consortium
(Birley 1986; De Vries 1994; and Ward 2011). Family firm’s inability to survive until next generation is
caused by prior generations’ bad-financial performance and/or structure. Bad-financial performance is
defined as low profitability or even loss, while bad-financial structure is defined as a company which runs
huge debt and finally goes bankrupt.
Literature Review
Family Firm
Chua, Chrisman, and Sharma (1999) state that family firms owned by family but not managed by family
and family firms managed and not owned by family are not family firms. Chua et al (1999) agree if
family not only owns the company but also manages it. Shanker and Astrachan (1996) state that the
criteria to define a family firm can be identified by (1) ownership percentage, (2) vote right, (3) power to
make strategic decision, (4) involving more than one generation in management, and (5) family’s active
participation in management. Ownership is a main point to differentiate family firm from non-family firm
(Astrachan, 2010). Burkart, Panunzi, and Shleifer (2003) add that either founder or family’s founder must
have power to run the company. To lead the company, the ownership of family must be bigger than that
of the other shareholders. Sindhuja (2009) argues if there are more than one different families, one of
them must be dominant in managing or owning company. According to Schulze et al (2003), the
ownership of family firms can be separated into three different stages of dispersion. At the startup phase,
there is a controlling owner who is most probably the founder and owns most of the shares. The firm
enters a sibling partnership in which the ownership dispersion is almost equally spread among the owners
in a single generation shortly thereafter. At last the, firm enters the era of third and later generations, and
as the shareholding is further fractionalized, the cousin consortium is reached. As the consequence,
family ownership more than 50% will be difficultly founded on family firms whose ownership structure
is dispersed. Family firm is defined by Donnelley (1964) as, “an organization is called family company if
there are at least (must have) two generations in the family are involved and have decision power in
influencing company’s policy”. Thus, a company can be named as family firm if the descendant or
successor of the founder has been involved in leading the company and has influence on taking company
policy. Furthermore, a company cannot be classified as a family firm if it is led by founder and not yet
given to successor. Succession is a transfer of leadership from one generation to the next generation
(Sharma, Chrisman, Pablo, and Chua, 2001). Succession becomes distinguishing between family firm and
non-family firm.
Generation
Terminology of founder can be found on any company, either family firm or non-family firm. However,
sibling partnership as well as cousin consortium can only be found on family firms which do succession.
According to Business Families Foundation (2016), there are four ownership stages on family firm as
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shown in figure 1. They are owner founder, owner manager, sibling partnership, and cousin consortium.
Owner founder is a person who starts or establishes a business. Meanwhile, owner manager is defined as
a person who inherits or buys the family business (totally or partly). This person may or may not be a
family member or may play an interim role until future generations of family members are in a position to
take a leadership role. Sibling partnership is a partnership of siblings who inherit – totally or partly – a
family business developed by the previous generation. There may be other owners in the partnership from
previous or succeeding family generations, though the ownership and leadership are typically
concentrated among the siblings from the same generation. Cousin consortium is defined as cousins who
share ownership of a joint enterprise; generally, third generation members of a family in business but not
necessarily—they could be second generation or even a first-generation start-up, although this is less
common. A cousin consortium can be formed by two cousins or more.
Figure 1. General Types of Ownership of a Family Business
Leverage
When family firm is established, the high-low rate of company debt depends on the orientation of founder
to establish the company. It may orientate to family or business. Reid, Dunn, Cromie, and Adams (1999)
argue that family-orientation firm will not desire to exert external capital leading to risk as debt.
Furthermore, it wishes to inherit a company without high debt in order to keep family reputation to
successor (Miller and Le Bretin-Miller, 2005). It is different from an orientation-business company
established by founder since it has no pretension or direction to be a family firm. Therefore, the founder
will tend to run up huge debt in his tenure. Family firms prefer retained profits to any source of external
finance (Romano, Tanewski, and Smyrnios, 2001; Blanco‐Mazagatos, Quevedo‐Puente, and Castrillo,
2007). However, when internal finance is insufficient, family firms prefer debt to external equity
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(Poutziouris, 2001; Romano et al, 2001; López-Gracia and Sánchez-Andújar, 2007; Peters and
Westerheide, 2009). The owners’ family is not interested in sharing the ownership to other shareholders
so that debt is priority. Family firms are less leveraged and use more self-financing, which is interpreted
as a proof to control risk aversion of family firms (McConaughy, Matthews, and Fialko, 2001). This
theory harmonizes with the result of López-Gracia and Sánchez-Andújar (2007), as well as Hamid,
Abdullah, and Kamaruzzaman (2015) which states that the debt rate of family firm is lower than that of
non-family firm in many countries. Furthermore, the result shows that there is a difference in managing
capital structure between family firm and non-family firm. The debt rate differs not only between family
and non-family firm, but also among generations in a family firm. The difference of debt rate can happen
in founder, sibling partnership, and cousin consortium leadership. Founder, sibling partnership, and
cousin consortium have different style in managing capital structure. Their difference can be seen on the
result of Schulze et al (2003) and Bjuggren et al (2012) i.e. which says that when founder leads a
company, debt rate rises. However, the debt rate declines when sibling partnership leads the company,
and finally it increases when cousin consortium leads the company.
Profitability
To measure financial performance of a company, there are some methods can be used. One of the
methods commonly used to measure financial performance is financial ratio. Financial ratios enable
company to identify the weakness and strength of company performance. One of the financial ratios often
used to measure and compare the performance of family firm is return on assets (ROA). ROA is a
measurement of company ability in resulting profitability by utilizing the assets of company. Greater
value of ROA indicates company’s better performance because the rate of return becomes bigger. In
many countries, the ROA of family firms is better than that of non-family firms (Anderson and Reeb
(2003), Maury (2006), Allouche, Amann, Jaussaud, and Kurashina, (2008), and Sindhuja (2009).
However, Barontini, and Caprio (2006) explain that valuation and operating performance are significantly
higher in founder-controlled firm, and they are controlled by descendants who sit on the board as non-
executive directors. When a descendant takes a position of Chief Executive Officer (CEO), family-
controlled companies are not statistically distinguishable from non-family ones in terms of valuation and
performance. After founder no longer leads, the position of CEO becomes a crucial issue either in
management or ownership structure. Talking about management structure in family firms, there are a
number of family firms whose management structure is not totally controlled by family. Several positions
of board of directors are charged by founder’s trusted people or partners and professionals. Related to
ownership structure in family firms, there are some family firms whose ownership structure is not fully
owned by family. It means the shareholders consist of not only family members but also non family
members. Overall, the successor must be able to convince other directors and shareholders who are not
from family, especially founder’s people or partner. CEO is a person who has strategic role in directing or
influencing other directors to support his decision. When a successor becomes CEO and cannot lead as
well as gain support from other directors, the company’s performance will decline. On the contrary, if a
successor cannot lead the company, staying in structure management is the best choice, but CEO position
can be given to other directors.
Research Question
335
Based on the previous research findings, family firms have lower rate of debt than non-family firms
(Mishra and McConaughy, 1999; Welsh and Zellweger, 2010; González et al, 2012; Zellweger and
Sieger, 2012; and Hamid et al, 2015). Basically, a founder wants to bequeath a profitable company to
successors for the sake of family name. Furthermore, a founder prefers to use equity than debt for funding
a company (Bork, 1996 in Sonfield, Lussier, Pfeifer, and Manikutty, 2005; Lussier and Sonfield, 2004).
However, this theory is incompatible with the research finding of Schulze et al (2003) and Bjuggren et al
(2012) which says that debt rate of a family firm led by founder to cousin consortium has a U-shaped
form which means that debt rate decreases in founder to sibling partnership’s leadership, and it increases
in sibling partnership to cousin consortium’s leadership. This research finding is also different from the
finding of Sonfield et al (2005). Sonfield’s finding shows that from his four sample countries, namely the
US, Croatia, France, and India, it is only the US which has different debt rate among tenures of founder,
sibling partnership, and cousin consortium. Therefore, the debt rate is in a form of inverted U-shaped
which means that the firm’s debt rate increases in founder to cousin consortium, then it decreases in
sibling partnership to cousin consortium. Those different findings indicate that debt rate occurs in not
only family or non-family firms, but also across generations of a company. From the previous
explanation, the researcher needs to conduct an innovative research which has never been done in
Indonesia before. Furthermore, the researcher needs to find out whether debt rate of a family firm’s
across generation exists. The following is the first proposition of this study:
Proposition 1: There is leverage difference in founder, sibling partnership, and cousin consortium
leadership.
The relationship between succession and profitability is an interesting topic to discuss or study since
family firm profitability of founder, sibling partnership, and cousin consortium is different. The same
case also occurs with conflicts of family firms. Family conflict does not occur in founder leadership, but
it does in sibling partnership, and it gets worse in cousin consortium leadership. Family conflicts which
occur in sibling and cousin consortium leadership are caused by more widespread family ownership.
According to Schulze et al (2003), The conflicts in family firms may arise because of the dispersion of
ownership, which creates a tension between the interest of those who manage a firm, and often own a
controlling interest, and other family owners. Meanwhile, according to Ward (1997), the increase of
family conflicts becomes a prominent reason why family firm stagnation, especially profitability, occurs.
However, previous research findings show that performance of a family firm is better than that of a non-
family firm particularly when it is assessed by profitability (Anderson and Reeb, 2003; Maury, 2006;
Allouche, Amann, Jaussaud, and Kurashina, 2008; and Sindhuja (2009). Sraer and Thesmar (2007) add
that the best performance of a family firm occurs in founder leadership, and a family firm led by
successors has better performance than a non-family firm. Family firm profitability can be influenced by
institutional ownership. This ownership has rarely or not occurred in founder leadership, but it
excessively grows in sibling partnership and cousin consortium leadership. Colot and Bauweraerts (2016)
argue that having an institutional investor as second blockholder can be beneficial or detrimental to firm
performance. Considering the distinctive nature of institutional investors, this research shows that the
combination of a family as the first shareholder and a pressure-insensitive institutional investor as second
blockholder exerts a positive influence on firm performance while a negative effect is found when the
institutional investor is pressure-sensitive. From this finding, the performance of cousin consortium in
leading family firm must be better than that of sibling partnership. However, when referring to finding
which says that family conflicts occur in sibling partnership as well as cousin consortium leadership and
has strong impact on company profitability, it can be deduced that founder leadership is better than
336
sibling partnership and cousin consortium leadership. From those different previous research findings, the
second proposition is as follow:
Proposition 2: There is profitability difference in founder, sibling partnership, and cousin consortium
leadership
The finding of Bennedsen, Nielsen, Perez-Gonzalez, and Wolfenzon (2006) explains that when
succession happens and CEO position is occupied by family members, the ROA value is more declining
than that of founder in his CEO tenure. Another result shows that the ROA value becomes worst when
founder dies earlier, but successor takes over without preparation. Villalonga and Amit (2006) prove that
family firms of which CEO is led by family members have better profitability than non-family members.
Che and Langli (2015) argue that when CEO position is occupied by family members and the company
ownership is mostly dominated by family (>50%), ROA value receives positives influence. A family
firms starts to recruit a professional CEO after company succession or leadership is taken over by sibling
partnership or cousin consortium. However, previous research finding on whether CEO position should
be occupied by family members or non-family members is still debatable. The following is the third
proposition related to CEO and profitability:
Proposition 3: There is profitability difference between family CEO and non-family CEO after succession
The population of this study was all three-generation family firms at IDX. To select the research sample,
this study employed purposive sampling technique based on three requisites: (1) family firms which have
been run by three generations (founder–sibling partnership–cousin consortium) during listing on IDX, (2)
having complete data to assess debt ratio (DR) and ROA, and (3) the availability of family history,
prospectus, and annual report to facilitate information collection. This study observed the samples from
1982 – 2014 and investigated each generation. Meanwhile, to test the propositions, this study employed
ANOVA test. The basic usage of ANOVA test on testing one dependent variable with data type was ratio,
while the basic on testing two independent variables with data type was nominal. This study used two
dependent variables namely leverage and profitability which were tested separately. The independent
variables of this study were divided into two groups, generation and CEO. Generation consisted of
founder, sibling partnership, and cousin consortium while the CEO group consisted of family and non-
family (or professional). To test the propositions, operational variable was needed to analyze data which
answered the propositions (see table 1 for the definition of each variable). Leverage was represented by
DR while profitability is represented by ROA. To collect the information and data, this study used the
company’s prospectus, annual report, and site. In Indonesia, the most complete data source is found in
IDX library or on Indonesian Capital Market Electronic Library (ICaMEL) site.
Table 1: Variable Definitions
Variable Definition
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Debt ratio the ratio of total debt (the sum of current liabilities and long-term
liabilities) and total assets (the sum of current assets, fixed assets,
and other assets such as 'goodwill')
Return on assets the ratio of annual net income to average total assets of a business
during a financial year
Generation equals one if founder, two if sibling partnership, and three if cousin
consortium
Chief executive officer Equals one if a family member holds CEO position and two if a non-
family member holds CEO position
The researcher finds that based on ownership or leadership, not many family firms which are registered in
IDX can survive until the third generation or cousin consortium. According to purposive sampling
technique, there are only 15 family firms which are proper for this study. The samples depict that family
owner can have one or more companies. To be understood, the term “PT (company name) Tbk” has same
meaning of “limited company”. For example, Ciputra family has three companies such as PT Ciputra
Development Tbk, PT Ciputra Property Tbk, and PT Ciputra Surya Tbk. The three companies are owned
and led by a family, though the CEO of one of them is not from a family member. In running the
business, Ciputra family involves their grandchildren or the third generation. Based on purposive
sampling technique, the example above proves that those companies have met three requisites, namely
surviving into the third generation, having complete data, and the availability of family history. Another
sample is Sampoerna family, the owner and manager of PT Sampoerna Agro Tbk. Though PT HM
Sampoerna Tbk is registered in IDX, the company cannot be used as a sample of this study since it is no
longer owned and run by Sampoerna family, but Philip Morris. The two examples clearly describe steps
to determine samples of this study. Finally, accuracy in identifying family firms as research sample is
very important.
Table 2 shows descriptive statistics which explains the data and samples. The mean values of DR on
founder, sibling partnership, and cousin consortium are 0.30, 0.56, and 0.66. The highest mean value of
DR is achieved in cousin consortium leadership, then successively followed by sibling partnership and
founder. If this result is drawn in a graph, it forms an increasing straight line. This result explains the
existence of debt rate raising in founder tenure to sibling partnership tenure. The data shows that almost
all family firms registered in IDX have debt for their structural capital. The lowest debt proportion is
gained in founder leadership, while the highest proportion is gained in cousin leadership.
Table 2: Descriptive Statistics of DR Based on Generation
Generation Mean Minimum (%) Maximum (%)

Founder 0.30 10 55
338
Sibling Partnership 0.56 30 87

Cousin Consortium 0.66 36 90
The explanation of descriptive statistic profitability is seen on table 3. The mean values of ROA on
founder, sibling partnership, and cousin consortium are 0.46, 0.63, and 0.32. The highest ROA mean is
gained by sibling partnership, then successively followed by founder and cousin consortium. If this result
is drawn in a graph, it forms an inverted U-shaped. This result explains the existence of increasing
profitability from founder to sibling partnership as well as decreasing profitability from sibling
partnership to cousin consortium.
Table 3: Descriptive Statistics of ROA Based on Generation
Mean Minimum (%) Maximum (%)

Founder 0.46 24 83
Sibling Partnership 0.63 48 82
Cousin Consortium 0.32 10 49
Based on the result of univariate test shown on table 4, the significant values is 0.00. This result proves
that the proposition 1 is ACCEPTED, which means that there is leverage difference in founder, sibling
partnership, and cousin consortium leadership. Tukey and Bonferroni test show the mean difference of
DR between founder and sibling partnership is -0.26, which means that the value of DR between founder
and sibling partnership increases. Then, the mean difference of DR between sibling partnership and
cousin consortium is -0.10, which means that the value of DR between sibling partnership and cousin
consortium increases. Partially, this result of this study does not support all research findings of Schulze
et al (2003), Sonfield et al (2005) and Bjuggren et al (2012). This result of this study is in line with result
of Schulze et al (2003) and Bjuggren et al (2012) which argues that the debt rate of sibling partnership to
cousin consortium increases. However, this result of this study is not in line with other research findings
which argue that the debt rate of founder to sibling partnership decreases. The result of this study agrees
with the argument of Sonfield et al (2005) which says that the debt rate of founder to sibling partnership
increases. However, the result of this study does not agree with another result which shows that the debt
rate of sibling partnership to cousin consortium decreases.
Table 4: ANOVA Test of DR
Founder Sibling Partnership Cousin Consortium

Between Groups (prob.) 0.00
Tukey and Bonferroni Test (Mean Difference)
Founder - -0.26*** -0.35***
***
Sibling Partnership 0.26 - -0.10
Cousin Consortium 0.35*** 0.10 -
Notes: *, **, and *** indicate significance at the 10, 5, and 1 percent levels, respectively.
Based on the result of univariate test shown on table 5, the significant value is 0.00. This result proves
that the proposition 2 is ACCEPTED, which means that there is profitability difference in founder, sibling
partnership, and cousin consortium leadership. According to the result of Tukey and Bonferroni test, the
mean difference of ROA between founder and sibling partnership is -0.17, which means that ROA value
339
between founder and sibling partnership increases. Then, the difference of ROA value between sibling
partnership and cousin consortium is 0.31, which means that ROA value between sibling partnership and
cousin consortium decreases. This research finding is not in line with the finding of Sraer and Thesmar
(2007) which says that the best performance of a family firm is gained by founder. This result shows an
inverted ROA value when sibling partnership takes over. The decline of ROA value from sibling
partnership to cousin consortium indicates that family conflicts highly influence company performance.
In cousin consortium leadership, the ownership is more widespread in which many family members own
and lead the company. This condition makes family conflicts more probably occur because each family
member has different interest. Thus, this result agrees with the finding of Schulze et al (2003) which finds
the correlation among widespread ownership, family conflict, and company performance. This result
correlates to the finding of Colot and Bauweraerts (2016) which argues that institutional investors have
positive or negative impacts which depend on their capacity. Pressure-insensitive type on institutional
investors will elevate a company performance. On the contrary, pressure-sensitive type will decline a
company performance. However, the finding of this study does not correlate to institutional investors
because most of three-generation family firms do not involve institutional investors.
Table 5: ANOVA Test of ROA

Between Groups (prob.) 0.00
Tukey and Bonferroni Test (Mean Difference)
Founder - -0.17** 0.14**
**
Sibling Partnership 0.17 - 0.31**
**
Cousin Consortium -0.14 -0.31** -
Notes: *, **, and *** indicate significance at the 10, 5, and 1 percent levels, respectively.
Based on the result of univariate test shown on table 6, the significant value is 0.45. This result proves
that the proposition 3 is REJECTED, which indicates that ROA means of a family firm with a family
CEO is not different from a family firm with a professional CEO. Contrary to the previous studies which
conducted by Villalonga and Amit (2006), Bennedsen et al (2006), and Che and Langli (2015), there is
difference on ROA between family CEO and professional CEO. The mean value of family CEO is 0.45,
while the mean value of professional CEO is 0.50. Professional CEO can perform better company
performance than family CEO. After two succession periods, there are 16 family firms with family CEO
and 14 family firms with professional CEO.
Table 6: ANOVA Test of ROA between Family and Professional CEO
Number Mean Minimum Maximum

of samples (%) (%)
Family CEO after succession (sibling 16 0.45 10 80
partnership and cousin consortium)
Professional CEO after succession (sibling 14 0.50 22 82
partnership and cousin consortium)
Between groups (prob.) 0.45
340
Conclusion and Recommendation
Leadership style of founder, sibling partnership, and cousin consortium is not similar. The difference
influences performance of a family firm. Furthermore, founder, sibling partnership, and cousin
consortium has significant difference in managing leverage. The firm’s leverage rate increases greater
from generation to generation. Founder carefully uses debt in running his structural capital, while cousin
consortium does not. Different leadership style effects not only leverage but also profitability. During
sibling partnership tenure, a family firm gains the highest profitability. However, founder is better in
increasing firm’s profitability than cousin consortium. Leverage of a family firm from founder to cousin
consortium forms an increasing straight line, while its profitability forms an inverted U-shaped line.
Family CEO or non-family CEO does not give significant differences because non-family CEO will work
for family interest. This action will maintain family’s trust on him to be selected as a CEO.
This study recommends that the following studies on family firms can add the number of samples,
examine, and test reasons as well as influential factors of a family firm increasing its debt. The next
studies ought to use non-financial factors as independent variable such as successors’ education, CEO’s
gender, etc. Overall, the results of this study can be used as preliminary study to find out about the
uniqueness of each generation.
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343
Causal Relationship among Trading Volume, Returns and Stock

Volatility: Evidence from an Emerging Market
Safdar Husain Tahir

Assistant Professor
Banking & Finance
Govt. College University Faisalabad
safdartahir@gmail.com
Fahad Ali
MS-Scholar
Banking & Finance
fahad870.pk@gmail.com
Nouman Ghaffar
MS-Scholar
Banking & Finance
noumanmirza786@gmail.com
Hazoor M. Sabir
Professor
Business Administration
Hazoor.sabir@yahoo.com
Abstract
The aim of this study was to examine contemporaneous as well as causal relationship among trading
volume, returns and volatility. The data at daily basis were collected from Standard Capital Securities
(SCS) Trade ranging period 2008 to 2014. Six non financial sectors were selected as a sample of
study. Trading volume was used as dependent variable where as stock return and volatility as
independent variables. Generalized Autoregressive Heteroskedasticity (GARCH 1,1) model was used
to check the normality of data. Multiple regression equation and granger causality models were
applied to estimate the contemporaneous as well as causal relationship respectively. From
contemporaneous perspective, all sectors results were founded significantly positive except Sugar.
These results were confirming the Sequential- Arrival of Information-Hypothesis (SAIH) and
Mixture of Distribution-Hypothesis (MDH). Finally by applying granger causality test, unidirectional
causality was founded among three sectors namely cement, food and composite in both trading
volume to return and trading volume to volatility. However bidirectional causality was founded
between chemical and food sectors from return to volume and volatility to volume respectively.
Investors were recommended to make the investment in all sectors except sugar.
Keywords: Stock Returns Volatility; GARCH effects; Trading Volume, Asymmetric Information,
Pakistan Stock Exchange (PSX).
JEL Classification: C22; C52; D53; D82
1 Introduction
No doubt Pakistani stock market is not too much efficient and has more asymmetric behavior than
that of the developed countries’ markets. On the other hand, there is unstable political as well as
economic condition of Pakistan due to whom, investors loose to forecast the uncertainty of financial
markets. In fundamental view, when news arrived in the market, what behave investors tends to
344
choose for future outcomes about trade volume and stock return? Is there increase in volatility of
stock return or not? These questions are convincing to precede this study as an important evidence for
supporting investor’s prediction capability. So, there is need for examining the relationship of these
financial variables whose asymmetric behavior make the investors uncertain about predicting future
outcome so that they can make their rationality true on the basis of historical view. Therefore, this
study focusing the causal as well as contemporaneous relation among these variables which will
make contribution towards investor predicting power for future returns.
Having the intention about finding this relation a lot of studies are conducted about attempting the
reasons behind the scene of investor’s behavior as well as market reaction on news arrival in the
markets in whole world and have some mixed results. It is reported by (Gabaix, at al. 2005) that some
large institutional investors which are able to get better knowledge about markets make the market
movements to much volatile by creating spikes in return and volume as they made sizeable
investments in markets. But when took in consideration about Pakistani stock market, here investors
has more asymmetric behavior due to the lack of knowledge skills, expertise and useable tools.
Return and volume are two main components of stock markets that attract investors to be active for
future earnings. But investor’s reaction can be observed through news arrival in the stock market;
even they have opportunities to invest, but don’t react until news arrival as they considered the
volatility in volume due to information arrival. Karpoff (1986) concluded that rise in trading volume
is positively in relation with information “surprise” and the link among both variables is influenced
by the institutional market design. Commonly investors predict return on the basis of their
predictability analysis as the market condition allows to them in which direction they have to go for
investment. Mostly, fundamental as well as technical analyses are conducted for this context. It is
suggested by (Balvers at al.1990) that stock return is predictable phenomenon that is based on the
output opportunities mean whatever investor can get. Variations in the stock return and stock volume
is driven by the information flow as the investors react more fastly whenever they have found new
information about future consequences. Guo (2002) founded that there is close link among return of
stock and volatility because of volatility is continuously correlated and return is in positive link with
past volatility but negative with contemporaneous volatility. Brailsford (1994) concluded that there is
observed positive relation between stock volatility and volume of trade as frequency of price
distribution is consistence with trading volume level.
Trading volume is a single phenomenon which is considered a good proxy by most of the researchers
because it is more sensitive with the market reaction upon news arrival. Brailsford (1996) founded
significant relation among volume and volatility and hence considered aggregate volume of trade a
good proxy for information flow. Consistence with Brailsford (1996), Phylaktis at al. (1996) also
suggested that trading volume is one of good proxies used for the information flow as entrance of
aggregate volume of trade tends to reduce the GARCH effects. Pyun at al.(2000) concluded that by
adding aggregate volume of trade in the conditional equation of variance aggregate volume tends to
reduce the GARCH effects and spillover of volatility happened towards small firms from large one.
(Miyakoshi, 2002; Wagner and Marsh, 2005).
In Pakistan investors are under the fear of some critical questions about the current situation as they
think what may happened at any time, means terrorism attacks has made them more sensitive for
taking the decision about investment, so therefore there is lack of confidence in investors that make
the market confused about reaction upon news arrival but still Pakistani market (PSX) is considered
one of the 10 best performing stock exchanges of the world in 2015 and one of the highly volatile
market. No doubt above discussed factors could differentiate the results about finding the relationship
among trading volume, return of stock and volatility, but it is quite easy to said that all previous
authors has found positive association among these variables regarding Pakistani market (Khan and
Rizwan, 2008; Nishat and Mustafa, 2008;Mubarik and Javid, 2009 & 2010; Mustafa and Nishat,
2010;Attari at al. 2012) just like as studies revealed in developed countries that are rejecting the
random walk theory which suggest that historical prices move in independent directions and could
not be used for predicting the future outcomes and also accepting the two main theoretical hypothesis
SAIH and MDH. Therefore this study is focusing upon finding this relation through a new field of
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variables organization for contributing in the literature so that the process of supporting the Pakistani
investors could be continue for making strong their predictability.
From casual relations perspective there is need to put focused intention because this relation has more
importance as its results support the argument that either information about one time series variable is
useful for predicting the other time series variable.
Finally dynamic relation among these variables has better implication for the investors as they have
to predict their future outcomes even living in an uncertain market environment, so following the
(Karpoff, 1987) who founded positive relation between trading volume and stock returns and
suggested about rising markets in the world are driven with rising volume and failing markets are
driven with failing volume. He also founded positive relation between trading volume and absolute
price changes which in turn suggest that volume tends to make market move. It is fact that many of
researchers has worked about finding the relation among these financial variables in different ways
such as some targeted the index, a market or specific markets of a country. This study is intend to
find this relationship with a new field as there is conducted comparison of Pakistan’s different sectors
portfolios which in turn will reveal that in which sector investors could get better returns through
prediction, so this study has important implications for investors, especially for aggressive and
institutional investors who have to make investment with high risk and at large level. No one has
done work like this study to compare the different non financial sectors by making portfolios and
taking volume as market turnover, this study is filling this gap to make sure the completeness of the
literature.
Remaining part of this study is organized as follow: section second is about literature review, third is
methodology, fourth is empirical results and fifth is conclusions and recommendations.
2 Literature Review
2.1 Contemporaneous Relationship

Many researchers have conducted studies about contemporaneous relation among three financial
variables trading volume, stock return and volatility. Here are given four theoretical models
explanations concluded by Chen at al. which suggest about why positive relation happened among
these variables. First one is introduced by (Karpoff, 1987) that is the SAIH. This model reveals that
the information comes in the market through a sequence and it is disseminated only one investor at a
time who in turn react upon each new piece of information which is the reason of positive relation
among trading volume and absolute price changes.
In accordance with above model, (Clark, 1973) has also invent a model called MDH which implies
that information is disseminated in the market gradually or simultaneously which in turn create
positive correlation among volatility of stock return and trading volume. Third model is also
introduced by the (Karpoff, 1987) which is the rational expectation-asset pricing model. This model
implies that due to investors asymmetric behavior there is happened positive relation among trading
volume and absolute price change.
Fourthly model of difference in opinions about which (Harris and Raviv, 1993) conclude that every
investor has different opinion and due to this difference they interpret the new information in
different way and accumulative impact of the past information tends to switches from a favorable
situation towards unfavorable situation which in turn tend to increase the trading volume and hence
there happened positive relation among trading volume and absolute price changes. Although these
all models suggest about positive relationship among these variables, some researchers has also tried
to find the reasons of this positive relation, such as (Liu at al. 2015) concluded by applying a model
in an artificial market that this positive relation among price and volume could happened due to the
investors aggressive style of trade so process of information spreading is not a necessary condition
for this relationship. Further (Dodonova, 2016) suggest that high dispersion in realized-return leads to
increase the volume of trade means due to this action there is happened positive relation among both.
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2.2 Causal Relationship

The approach of granger (1969) causality is used for finding the causal relation among these
variables. With the international markets context, (Chen at al., 2001) conducted the study about
dynamic linkage among these three variables in the nine markets of different countries and found
bidirectional causality as return causes volume and volume causes return among some of 9 sample
markets. McMillan and Speight (2002) examined this relation for UK stock market and also founded
the existence of bidirectional causality between changes in prices and volume. Darwish (2012)
applied this test and founded bidirectional causal relationship between volume and return in the
Palestine Exchange. Similarly Celik (2013) suggested that granger-causality test resulted positive
significant association between volume of trade and volatility in pre crises but bidirectional in crises
periods in the stock market of Istanbul.
Regardless of causal association, different markets results are different as some where there is
unidirectional association and somewhere is bidirectional. Such as Bajaj (2014) applied granger
causality test on stock data of Indian stock market and founded unidirectional relationship which
resulted about stock return power is greater for prediction of trade volume mean that information
about past stock return is useful for future volume predictions. Similarly, El Ouni (2015) investigated
about Tunisian market and founded unidirectional results which means return granger-cause volume
of stock in the Tunis market that is indicating about overconfidence of investors. Furthermore,
Samman and Jafari (2015) has also same results about Oman Stock market as they founded that
trading volume tend to granger cause the return of stock in this market. Finally Rojas and
Kristjanpoller (2015) also coated confident results about stock markets of Latin America that is return
of stock cause transactions of volume in all of sample markets.
From Pakistan’s perspective there is also mix results founded as (Khan & Rizwan, 2008) reported
bidirectional causality among trading volume, stock returns and return volatility which indicate that
all variables contain causal relationship among sample period at PSX. Attari at al. (2012) have also
same results as they founded bidirectional causality among both variables means volume granger-
cause stock return and stock return to volume but there is no causality founded between change in
volume and returns. In contrast, Mubarik and Javid (2009 & 2010) and Mustafa and Nishat (2010)
founded unidirectional causality between these variables.
3 Methodology
In the current study six non-financial sectors were taken namely cement, chemical, Food & Personal
Care Products Sugar & Allied Industries, Textile Composite and Textile Spinning as population. The
reason for selecting only non-financial sectors was that their capital structure is different from
financial structure. These six sectors were selected because they have highest annual turnover and
market share. Companies listed at the PSX during the stated period were selected from each sector as
sample. So after the filtration, daily basis time series data of 60 companies were collected for the
period ranging 2008 to 2014 from the Standard Capital Securities (SCS) Trade.
3.1 Variables Explanation
3.1.1 Dependent Variable
3.1.1.1Trading Volume
Trading-volume (which was employed as a proxy to information flow in the market) was taken as
dependent variable. For the representation of each sector market turnover was calculated as volume
of trade for each portfolio.
3.1.2 Independent Variables
3.1.2.1 Stock Return

Stock return was included in the study as independent variable and was being calculated for the
portfolio of each sector. Then absolute value of stock return was taken as a measure of price change
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which in turn will suggest about what results happened upon news arrival either prices change
sharply or not.
3.1.2.2 Volatility
Conditional volatility in the stock market was taken as independent variable. Here volatility was
measured as the reaction of changes in prices of stocks. Volume of trade was included in the GARCH
(1,1) model as measure of conditional volatility effect.
3.2 Models
Firstly portfolio was constructed for each sector stocks to find the contemporaneous and causal
relationship among return of stocks and trading volume. For this purpose aggregate daily market
value was calculated for the companies included in each portfolio. Hui-Ching (2014) has used this
way for finding the return of real estate companies of Taiwan and counted a good measure. For
finding the return and absolute return of portfolio of each sector following equation was used:
=
= − (1)
= | |= | − |
Where and both were in consideration as stock return and absolute stock return of portfolio at
daily bases at time t, and was treated as the overall value of the listed companies included in
portfolio.
Lo and Wang (2000) indicated that for the purpose of measuring the relationship among volume and
equilibrium assets market model, the turnover is considered the sharpest empirical implications and
founded the most natural measure. Hui-Ching (2014) also used this equation for finding the trading
volume as a market turnover, she has also suggested it a better measure for representing a portfolio
for finding the relation among aggregate values. So for this purpose daily volume was counted for
each portfolio as the turnover of market as follows:
∑ (#)* ×,-.
= !" # $ %&
= ∑ /()*
(2)
In this equation $ is used as the daily basis market turnover of each portfolio of stocks at time t,
0$ is trade volume of the stock i at time t $ is considered as market value of the stock i at time t.
For the purpose of measuring the conditional volatility GARCH (1.1) model introduced by the
Bollerslev 1986 was used. Who adds the previous lag in ARCH model which tend to allow the
volatility to fluctuate over-time. Here, trading volume series was included in the return equation to
find the contemporaneous relations between return of stock and trade volume. GARCH (1,1) model
was in estimation as follows:
= 12 + 1 +3
3 453 , 3 7,….. :~< 0, ℎ 4 (3)
ℎ = ? 7 = @2 + @ 3 7 + @7 ℎ
Here in estimation equation is the measure of trading volume captured in the last section, ℎ is
stand for conditional volatility taken from GARCH (1,1) at the time t.

As both trading volume and the stock return are the time series financial variables for which study
was conducted to know whether the movement in stock leads to movements in trading volume or
movements in trading volume leads to movements in stock return or both are contemporaneous. In
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first section study predict the relation among both variables that was measured through following
simple regression model:
= @2 + @ +B (4)
In second section, analyses was conducted to check that whether volume create movements/change in
the market or not. For this purpose study measured the contemporaneous relation between volume of
trade and absolute price-changes as follows:
= @2 + @ +B (5)
3.4 Granger Causality
The main aim of current study was to found the causal relation among three variables called stock
return, volume of trade and conditional volatility of portfolio. The Granger-causal test was used to
analyze that weather one time series variable was useful for forecasting the other time series variable.
For this purpose study estimate the following equation of bivariate autoregressive that is considered
to measure two time series variables C and D :
C = @2E ∑!
$G @$ C $ + ∑$G F$ D $ +3 (6)
D = D2 + ∑$G D$ D $ + ∑!
$G H$ C $ +I (7)
Where @2, @ , F$, D2, D and H$ were used as parameters for estimation and m&n were the no. of lags
terms.
4 Empirical Results
Table 1 is presenting the descriptive statistics of variables of the study with average 1623
observations for the sample period 2008 to 2014. Here, the mean values of cement sector volume and
return are (0.0064. 0.0006) with minimum value (0.0000, -.1511) and maximum value (0.0497, 861)
which indicating that both variables have traded well repute historically. The average values of
chemical sector volume and return are (0.0010, 0.0007)along with the minimum values (0.0000, -
0.186) and maximum values (0.0175, 0.2621). Sugar sector’s volume and return has average values
(0.0005, 0.0005) and beating the minimum level (0.0000, -.9294) and highest level (0.0212, 0.9129)
which are resulting that this sector less likely interested by investors as its standard deviation value of
volume is (0.0009) low. In food sector volume and returns mean values are (0.0001, 0.0010)and has
minimum value of (0.0000, -.1341) with maximum value of (0.0011, 0.0812) which is indicating
about low performance of this stock as it volume has very low standard deviation value (0.0001) but
its return has great deviation points (0.021). Average values of composite sector volume and returns
are (0.0073, 0.0002) with minimum values (0.0000, -.1305) and maximum values (0.0550, 0.2478)
having peak level points in stock market which indicating that investors has more interest in this
sector historically. In the spinning sector mean values of volume and returns are (0.0005, 0.0009)
along with the minimum values (0.0000, -0.5181) and maximum values (0.0346, 0.5096) which are
also indicating about appropriate investment made by investors.
4.1 Descriptive Statistics
Table 1 Descriptive Statistics
Sectors Observations Mean Median Minimum Maximum Std. Dev.

Cement Volume 1623 0.0064 0.0048 0.0000 0.0497 0.0054
Cement Returns 1622 0.0006 -0.0003 -0.1511 0.0861 0.0197
Chemical Volume 1623 0.0010 0.0004 0.0000 0.0175 0.0016
Chemical Returns 1622 0.0007 0.0004 -0.1860 0.2621 0.0204
Sugar Volume 1623 0.0005 0.0003 0.0000 0.0212 0.0009
Sugar Returns 1622 0.0005 0.0004 -0.9240 0.9129 0.0373
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Food Volume 1622 0.0001 0.0000 0.0000 0.0011 0.0001

Food Returns 1622 0.0010 0.0001 -0.1341 0.0812 0.0210
Composite Volume 1623 0.0073 0.0057 0.0000 0.0550 0.0063
Composite Returns 1609 0.0002 0.0006 -0.1305 0.2478 0.0230
Spinning Volume 1623 0.0011 0.0005 0.0000 0.0346 0.0024
Spinning Returns 1621 0.0009 0.0008 -0.5181 0.5096 0.0306
4.3 Correlation Matrix
To find the correlation among variables of the study, correlation analysis is conducted through
Pearson’s correlation matrix.
(Put Table 2 Pearson’s Correlation Matrix Here form Appendix-1)

In accordance with the Karpoff (1987) this has also intended to find the contemporaneous as well as
casual linkage. This study analyzed about the contemporaneous relation between trading-volume and
stock return, trading-volume and absolute return and then trading-volume and stock return after the
control of non-normality in error distribution.
Table 3 is presenting about contemporaneous-relationship between daily trading- volume and stock
returns of six sectors portfolios. There is significant positive relationship realized among all sectors
trading volume and stock returns except sugar sector. As table presenting the coefficients of five
sector’s both volume and returns are positive (0.0063, 0.0627), (0.0009, 0.0098), (0.0004, 0.0005),
(0.0073, 0.0637), (0.0011, 0.004) and significant that are confirming the first hypothesis of the study
“there is positive relation among trading volume and stock return” and revealing that by
increase/decrease in volume of trade, stock return also increased/decreased with significant level.
Table 3 Contemporaneous-relationship between trading-volume and stock-returns
Sectors @2 @ 7 % F-statistics
Cement 0.0063∗∗∗ 0.0627∗∗∗ 5.22 89.29∗∗∗
(48.37) (9.44)
Chemical 0.0009∗∗∗ 0.0098∗∗∗ 1.62 26.73∗∗∗
(25.24) (5.17)
Sugar 0.0004∗∗∗ −0.0001∗ 0.17 2.87∗∗∗
(21.19) (1.69)
Food 0.0004∗∗∗ 0.0005∗∗∗ 2.23 36.95∗∗∗
(24.40) (6.08)
Textile Composite 0.0073∗∗∗ 0.0637∗∗∗ 5.49 93.39∗∗∗
(48.38) (9.66)
Textile Spinning 0.0011∗∗∗ 0.004∗∗ 0.28 4.55∗∗∗
(19.39) (2.13)
.
This table is presenting contemporaneous relationship between the trading-volume and returns of
stocks for Pakistan’s six sectors portfolios. For this purpose time series regression equation is being
estimated as follows: VV = a2 + a R V + uV in which VV is the trading-volume measured at the time t
and R V is the daily stock return of each sectors portfolio. Here, t-statistics are shown in parentheses
and ***, **,* are the significant levels at 1%, 5% and 10%.
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In contrast sugar sector’s coefficient of volume is positive (0.0004) but coefficient of return is
significantly negative at 10% level (-0.001) which does not confirming the first hypothesis and
revealing that by increase/decrease in the volume of sugar sector, its return tend to decrease/increase
7
at insignificant level. Residual value is high in cement (2.22) and composite (5.49) sectors
which showing the high robustness of results during the sample period. Residual values 7 are less
in the chemical (1.62) and food (2.23) sectors which are indicating the less robustness of results
during sample period. Finally in sugar (0.17) and spinning (0.28) sectors this value is less than 1%
resulting about minor robustness during sample period.
Table 4 is presenting about contemporaneous relation between daily trading volume and absolute
return of six sectors portfolios. There is significant positive relationship realized among all sectors
trading volume and stock returns except composite. As table presenting the coefficients of five
sector’s both volume and absolute returns are positive (0.0058, 0.0266), (0.0009, 0.0050), (0.0004,
0.0050), (0.0003, 0.0004), (0.0010, 0.0068) and significant that are confirming the second hypothesis
“there is positive contemporaneous linkage among trading volume and stock return” and revealing
that by increase/decrease in volume of trade, stock prices also increased/decreased with significant
level. Coefficient of composite sector’s volume is significantly positive (0.0073) and return co-
efficient is also positive (0.0637) but insignificant which also confirming the second hypothesis with
difference that any change happened in trading volume has insignificant impact upon stock return
Residual values 7 of cement (0.46), chemical (0.23), sugar (0.40), food (0.68) and textile spinning
(0.56) sectors are too much low showing the stock prices changed upon news arrival but at minor
7
level.Residual value is zero (0.00) in textile composite which is indicating that there is no
change happened in its prices. Value of F-statistics is large in cement (7.55), food (11.15) and textile
spinning (9.14) sectors which is confirming the significant level and joint effect of both variables.
Table 4: Contemporaneous-relationship between trading-volume and absolute stock-returns

Sectors @2 @ 7 % F-statistics
Cement 0.0059∗∗∗ 0.0266∗∗∗ 0.46 7.55∗∗∗
(31.40) (2.74)
Chemical 0.0009∗∗∗ 0.0050∗ 0.23 3.79∗∗∗
(18.06) (1.95)
Sugar 0.0005∗∗∗ 0.0016∗∗ 0.40 6.52∗∗∗
(18.97) (2.55)
Food 0.0003∗∗∗ 0.0004∗∗∗ 0.68 11.15∗∗∗
(16.05) (3.34)
Textile Composite 0.0073∗∗∗ 0.0026 0.00 0.07
(32.80) (0.27)
Textile Spinning 0.001∗∗∗ 0.0068∗∗∗ 0.56 9.14∗∗∗
(14.88) (3.02)
This table is presenting contemporaneous relationship between trading volume and absolute return
of stocks for Pakistan’s six sectors portfolios. For this purpose time series regression equation is
being estimated as follows: = @2 + @ + B in which is the trading-volume measured at
the time t and is the daily absolute return of each sectors portfolio. Here, t-statistics are shown
in parentheses and *** is the significant level at 1%.
This table is presenting contemporaneous relationship between trading volume and absolute return
of stocks for Pakistan’s six sectors portfolios. For this purpose time series regression equation is
being estimated as follows: = @2 + @ + B in which is the trading-volume measured at
the time t and is the daily absolute return of each sectors portfolio. Here, t-statistics are shown
in parentheses and *** is the significant level at 1%.
Table 5 is presenting the relation between volume of trade and stock-returns of all six sectors
portfolios after the control of non-normality in error distribution. There is significant and positive
contemporaneous relation founded in all sectors portfolios as GARCH (1,1) recommended all
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positive coefficients (0.9715, 1.5886, 32.228, 1.0150, 1.4639) of 1 regressions except sugar sector
who’s coefficient of1 (-3.954) is negative and recommending that news arrival in the market has
negative impact upon return volatility in sugar sector as coefficient of variance @7 = −0.0392 is
also negative. The coefficients of variance in all sectors portfolios
@ = 0.2056, 0.0412, 0.0545, 0.0947,0.4210, 0.1480 are significantly positive and in case of
coefficients of @7 whose values (@7 = 0.6551, 0.9309, 0.8543, 0.1911, 0.8167) are also significantly
positive in five sectors portfolios which revealing that trading volume has the positive relation with
volatility means volatility tend to increase after news arrival as investors tend to react fastly.
Table 5: GARCH robustness-test of contemporaneous relation between trading-volume and the

stock-returns
7
Sectors 12 1 @2 @ @7 (%) LR
Cement -0.0045*** 0.2056*** 4.8 4229

(-7.01) 0.9715*** 5.4923*** (8.27) 0.6551***
(15.79) (11.68) (22.43)
Chemical -0.0007 1.61 4144
(-1.38) 1.5886*** 1.1126*** 0.0412*** 0.9309***
(6.18) (4.70) (12.05) (110.19)
Sugar 0.0025 -3.954*** -0.0392 -.13 3245
(0.98) (-4.40) 0.0017*** 0.0545*** (-0.99)
(24.35) (7.95)
Food - 2.03 4068
0.0014*** 32.228*** 2.2508*** 0.0947*** 0.8543***
(-2.62) (7.13) (7.79) (9.02) (82.64)
Textile - 4.93 3933
Composite 0.0051*** 1.0150*** 0.0002*** 0.4210*** 0.1911***
(-6.62) (14.02) (14.75) (10.26) (3.88)
Textile -0.0008 -0.08 3581
Spinning (-1.52) 1.4639*** 6.4343*** 0.1480*** 0.8167***
(5.18) (20.14) (22.70) (107.33)
This table is showing the relationship among daily volume of trade and stock returns after the control
of conditional variance of time-series data and past-squared residuals of process. The estimation of
GARCH (1,1) is applied as follows: = 12 + 1 + 3 , 3 453 , 3 7,….. :~< 0, ℎ 4ℎ = ? 7 =
7
@2 + @ 3 + @7 ℎ where is used as trading-volume measured at the time t, is the daily
portfolio return and ℎ is in consideration as conditional-volatility of stocks estimated through
GARCH (1,1) model. Z-statistics are given in parentheses and *** is the statistically significant level
at 1%.
The statistics value of Log-likelihood-ratio (LR) is also too large supporting the optimal values of all
coefficients. These all results imply about the fitness of GARCH model for measuring the daily
returns of stocks after taking the heteroskedasticity in account and it is the best measure to capture the
movements of return volatility. R-squared ( 7 )is indicating about heteroskedasticity of both variables
as in cement and composite sector ( 7 ) is (4.8%) and (4.03%) respectively which indicating high
volatility level. In chemical sector ( 7 ) is low (1.61%). Then in sugar andspinning sector ( 7 ) is
negative (-.13, -0.08) at minor level which is resulting that volatility tend to decrease upon news
arrival in these sectors. In food sector value of ( 7 ) is (2.03) have better level of volatility then last
sector.
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4.5 Casual Relationship

Table 6: Granger-causality test among trading volume & stock return
Volume does not Returns do not

Sectors No. of lags Granger-cause returns Granger-cause volume
F-statistics (prob.) F-statistics (prob.)
Cement 3 3.0238** 12.9429
(0.0286) (2.3479)
Chemical 5 1.2827 3.5713***
(0.2686) (0.0032)
Sugar 3 0.8967 0.1208
(0.4421) (0.9479)
Food 5 3.8713** 0.2428
(0.0210) (0.7844)
Textile Composite 3 2.6201** 11.6148
(0.0494) (1.5685)
Textile Spinning 4 7.4680 1.3375
(5.8596) (0.2537)
This table shows the granger-cause relation among daily traded volume and returns of stocks in the
six sectors portfolios. Here, granger-causality test is being estimated as fellows = @2 +
∑!$G @$ $ + ∑$G F +3 = D2 ∑$G D$ $ + ∑! $G H $ + I where is the daily basis
returns of each sector’s portfolio at the time t; is the trading-volume measured at the time, m & n
are the no. of lags which are selected by using the Akaike Information-Criterion (AIC), Schwarz
Criterion (SC) and Hannan-Quinn (HQ) information criteria. Probability-values of F-statistics are
given in parentheses and ***, **,* are the significant levels at 1%, 5% and 10% respectively.
In this relationship study intend to find that in two time series variable either one variable has
information for predicting the future value of other variable or not. So for this purpose granger
causality test is applied based on bivariate model to know that either trading volume granger cause
stock return or stock return to trading volume.
Table 6 is showing the casual relationship between trading volume and returns of stocks of six sectors
portfolios. Here cement, food and composite sectors results are significant for volume to return as
their F-statistics for volume is (3.0238, 3.8713, 2.6201) and p-value for volume is (0.0286, 0.0210,
0.494) which are significant at 5 percent level and rejecting the null hypothesis “trading volume does
not granger- cause stock return” which suggest that these sectors trading volume has information for
the prediction of future value of stock return. In remaining sectors we fails to reject this hypothesis
which means knowledge about volume of these sectors is not valuable for predicting the future
returns. From perspective of causality from return to volume only chemical sector return has valuable
results as its f-value is 3.5713 and p-value is 0.0032 indicating significant level of 1% and strongly
rejecting the second null hypothesis and suggest that current value of stock return has information to
predict the future value of trading volume.
Table 7 is presenting the casual relation between volume of trade and the conditional-volatility which
is captured by using the GARCH model. Here, in cement, food and composite sectors volume, null
hypothesis “trading volume does not granger cause conditional volatility” is rejected at 1%
significant level as their f-values (4.5027, 4.2886, 3.8253) and p-values are (0.0004, 0.005, 0.0004)
which are indicating that trading volume granger cause conditional volatility means current trading
volume has information to predict future volatility. In remaining sectors we fail to reject this
hypothesis which mean those sectors volume has not power to predict future volatility. But from the
volatility to volume’s point of view the hypothesis “conditional volatility does not granger cause
trading volume” is only rejected in food sector at 10% significant level as its f-value is (2.3156) and
353
p-value is (0.0740) which means only food sector current volatility has feedback relation with future
trading volume. In remaining five sectors study fails to reject this hypothesis.
Table 7 Granger-causality test between trading volume & conditional-volatility filtered through
GARCH model.
Volume does not Volatility does not

Sectors No. of lags Granger-cause volatility Granger-cause volume
F-statistics (prob.) F-statistics (prob.)
Cement 5 4.5027*** 0.5304
(0.0004) (0.7534)
Chemical 8 0.1973 0.2249
(0.9913) (0.9865)
Sugar 3 64.6762 0.2595
(1.7368) (0.8545)
Food 4 4.2886*** 2.3156*
(0.0050) (0.0740)
Textile Composite 5 3.8253*** 12.6573
(0.0004) (9.9630)
Textile Spinning 4 38.3454 0.5634
(1.0922) (0.6892)
This table shows the granger-cause relation between daily traded volume and daily conditional
volatility filtered by GARCH model in which series of trading volume are added in the estimation
equation of return. Here, granger-causality test is estimated as fellows ℎ = @2 + ∑! $G @$ ℎ $ +
!
∑$G F $ + 3 = D2 + ∑ $G D$ $ + ∑$G H ℎ $ + I where ℎ is the daily basis conditional-
volatility measured through GARCH model; is the traded volume measured at the time t. m & n
are the no. of lags selected by using the Akaike Information-Criterion (AIC) Schwarz Criterion (SC)
and Hannan-Quinn (HQ) information criteria. P-values of F-statistics are given in parentheses and
*,**, *** are the significant levels at 10%, 5% and 1% respectively.
5 Conclusions and Discussion
This study examines the contemporaneous and casual relation among daily volume of trade, returns
and stock volatility in six sectors portfolios of companies listed at Pakistan Stock Exchange.
In contemporaneous relation, results of this study are in accordance with previous studies as in all
sectors portfolios there is positive relation founded among all variables trading volume, stock returns,
absolute stock return and volatility except sugar sector results whose volume has positive and
significant relations but return has negative correlation. These positive results imply that investors
can use historical data of these sectors for predicting the future returns and hence their predictability
will increase that in turn will increase investment opportunities in PSX and economic growth will be
supported. These positive results are also supporting the argument that volume of trade is a good
proxy used for the information flow in the market. These results are also supporting two theoretical
models SAIH of (Clark, 1973) and MDH of (Karpoff, 1987) as they support positive relationship. In
contrast these results are rejecting the random walk theory which intends that historical data of stock
prices is useless for predicting the future outcomes as prices changed randomly. Being a developing
country market PSX has resulted good performance and these results are the proof of its performance.
Although there are some negative shocks that make investors uncertain and burden full such as
terrorism, political instability as well as economic growth but still PSX is surviving in this
environment and it indicates the confidence level of investors about their interest to avail investment
opportunities. Hence this study will support them to be in touch with PSX.
These results are also consistent with empirical literature as (Hui-ching, 2014) recommended positive
relation among these two variables in all of seven markets included in sample. From Pakistan’s
perspective researchers also reported positive relation among trading volume and return in PSX
(Nishat and Mustafa, 2008; Khan and Rizwan, 2008; Attari at al. 2012).
354
Turning towards casual relationship, whose implications are in accordance with both domestic and
foreigner studies as results of mostly portfolios are showing unidirectional causality. As from
perspective of volume, null hypotheses “trading volume does not granger cause stock returns” is
rejected by the three sectors portfolios namely cement, food and textile composite at 1% significant
level which are confirming the stock market reality of news impact upon return as by increase in
volume return also increased, so in PSX trading volume of these three sectors could be used for
predicting the future returns. Secondly causality from returns to volume is observed in only chemical
sector which also has rejected the null hypothesis at 1% significant level. For remaining sectors
namely sugar and spinning, study fails to reject the null hypothesis and resulting that these sectors has
not any feedback relation between return and volume and could not be predicted better for future
outcomes. Finally from volume to volatility relations perspective, there is again only three sectors
(cement, food and composite) for which study has rejected the null hypothesis “trading volume does
not granger cause volatility” which in turn indicating that these three sectors have been paid good
intention by investors historically and have information for forecasting the future volatility of stocks.
But from the volatility to volume relation null hypothesis “volatility does not granger cause stock
return” only food sector results could reject this hypothesis at 10% optimal level revealing that food
sectors volatility has feedback relation with trading volume and could be a predictable phenomenon.
These results are consistent with previous studies regarding Pakistan as (Khan and Rizwan, 2008)
indicate that both trading volume and return have causal relationship among them in sample period.
But (Mubarik and Javid, 2009 and 2010) have concluded some different results as they suggest that
trading volume granger cause returns but returns do not to volume. Finally (Attari at al., (2012)
resulted bidirectional causality among both variables means volume granger-cause stock return and
stock return to volume but there is no causality founded among change in volume and returns. For
inviting the foreigners for investment perspective, there is need to compare the performance of PSX
with other emerging markets in the world so In future a comprehensive study could be done which in
turn can enhance investment opportunities in Pakistan stock exchange.
5.1Recommendations
1. If investors have to made investment for better future outcomes, from contemporaneous
perspective, all sectors has better results except sugar to support their predictability.
2. From causal perspective trading volume of three sectors called cement, food and composite
has best implication for better investment decision about enhancing profit.
3. Sugar sector is a seasonal business due to this its results are not better, so investors should
not invest in this sector as it will be too risky.
4. It is fact that Pakistan’s investors are in fear of some loss due to some factors which intend
them to lose their confidence level but still the results of this study are better likely to other
studies in develop countries and it will make the investors predictability strong.
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357
Appendix 1
Table 2 Pearson’s Correlation Matrix
Cem_v Cem_rt Chem_v Chem_rt Sugar_v Sugar_rt Food_v Food_rt Comp_v Comp_rt Spin_v Spin_rt
Cement_v 1.0000
Cement_rt 0.2288 1.0000
Chemical_v 0.2224 0.0208 1.0000
Chemical_rt 0.0599 0.3495 0.1368 1.0000
Sugar_v 0.0115 0.1104 0.0115 0.0541 1.0000
Sugar_rt 0.0273 -0.0008 0.0873 0.0311 -0.0423 1.0000
Food_v 0.0024 0.1286 0.0165 0.1220 0.0684 0.0241 1.0000
Food_rt 0.0490 0.0129 0.0034 0.0595 0.0008 0.0639 0.1491 1.0000
Composite_v 0.1361 0.6360 0.0785 0.3044 0.1114 0.0080 0.1107 0.0157 1.0000
Composite_rt 0.1854 -0.0213 0.2173 -0.0176 -0.0025 0.0304 -0.0386 -0.0524 0.0368 1.0000
Spinning_v 0.2559 0.0367 0.2732 0.0498 0.0312 0.0349 -0.0118 0.0570 0.0534 0.1913 1.0000
Spinning_rt 0.1271 0.0063 0.1184 0.0393 0.0127 0.0042 0.0014 0.0671 0.0148 0.2297 0.4573 1.0000
Here v is the trading volume of each sector’s portfolio and rt. is the portfolio return.
Correlation Parameters Strength of Linear-Relation
1 Perfect
0.8 to 1.0 Very Strong
0.6 to 0.8 Strong
0.2 to 0.4 Weak
0.00 to 0.20 Extremely Weak
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Critical Ethical Factors and Organizational Performance:

A Proposed Model
Sherine Farouk, Associate Professor of Accounting, College of Business Administration
Abu Dhabi University, Abu Dhabi, U.A.E. E-mail: sherine.farouk@adu.ac.ae
Fauzia Jabeen, Associate Professor of Management, College of Business Administration,

Abu Dhabi University, Abu Dhabi, U.A.E., E-mail: fauzia.jabeen@adu.ac.ae
Abstract
The purpose of this study is to examine the role played by ethical climate, codes of ethics, and CSR on
organizational performance in public sector organizations. In particular, the research shed light on the
link between formalized ethical procedures and employee responses including corporate social
responsibility and organizational performance among public sector employees. Data was collected from
employees working in public sector organizations in Abu Dhabi, the capital of United Arab Emirates, and
Structural Equation Modeling was used to test the proposed hypotheses. The findings demonstrate that
ethical climate, code of ethics and corporate social responsibility directly affects the organizational
performance. The paper contributes to the literature by being one of the first to study organizational
ethical climate within a Middle Eastern context, and will offer important implications for theory and
practice.
Keywords: Codes of ethics, organizational performance, public sector, United Arab Emirates.
Introduction
The significance of an ethical climate and corporate social responsibility to achieve sustained competitive
advantage has increased, and have been reported in prior researches (Lee et al.2012; Moon and Choi,
2014). Organizations are in tremendous pressure to maintain a conducive ethical climate, and to pursue a
socially responsible behavior (Kapstein, 2001). Employees want to be associated with socially
responsible organizations (Viswesvaran and Ones, 2002), and have a positive view about the
organization's competitiveness in the marketplace (Lee et al. 2014).
Since a decade, UAE has emerged as a fast-developing economy through adopting western
developmental techniques in all areas. In order to achieve a sustainable growth at the individual,
organizational and national level, various strategies and initiatives such as CSR and ethical practices are
encouraged by the UAE Government (Anadol et al. 2015). In the UAE context, limited studies have been
carried out on ethical climate, code of ethics (McKechnie et al. 2007), and CSR (Anadol et al. 2015). To
fill this research gap, this study builds on the extant literature by exploring the public sector employees in
relation to ethical climate, code of ethics and CSR, and its impact on their organizational performance.
Literature Review
Ethical Climate, Code of Ethics and Organizational Performance
Numerous researches has been done on ethical climate (Kish-Gephart et al. 2010).Various researchers
have observed the magnitudes of ethical climate in various settings and concluded that it has a significant
impact on job satisfaction (Shapira-Lishchinnsky and Even-Zohar, 2011) and unethical behavior (Mayer
et al. 2010). Also, researchers have found that employees’ sensitivity of ethical climate was positively
associated with job satisfaction (Babin et al. 2000), trust in the organization (Mulki et al. 2006),
organizational commitment (Koh and Boo, 2004), ethical behavior (Fu and Deshpande, 2012),
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organizational citizenship behavior (Shin, 2012), and organizational performance (Gonzalez-Padron,

2008). Few studies (Verschoor, 1998; Wu, 2002) reported a positive link between ethical climate and
organizational performance. Thus:
H1: Ethical Climate is positively associated with code of Ethics

H3: Code of ethics is positively associated with organizational performance (OP)
Ethical Climate, CSR and Organizational Performance
The concept of CSR has received widespread attention over the past decades (Sandve, and Øgaard, 2014).
During recent years, corporate social responsibility (CSR) has become a critical consideration for
businesses and academics alike. Today, many companies consider CSR an important corporate strategy
for achieving a competitive advantage (Kim et al. 2012). A company’s participation in CSR activities
may lead employees to develop positive perceptions about the company (Lee et al. 2013). Subsequently,
when employees form positive attitudes toward work, competitive advantages can be realized (Lee et al.
2012). Previous researchers (Lee, 2008; Carroll and Shabana, 2010) have focused on the tangible and
financial benefits such as reducing cost and risk, increased competitive advantage, and corporate financial
performance (CFP) which are expected to come from CSR connection. Lindgreen (2009) have reported
an inconsistent relationship between CSR and performance outcome. However, many researchers
(Lindgreen, 2009; Anderson and Gerbing, 1988) found a significant link between a corporation's ethical
commitment and its financial and non-financial performance.
H2: Ethical Climate is positively associated with CSR

H4: CSR is positively associated with OP
Data was collected using a pre-tested questionnaire, and the variables were measured on a 7-point Likert
scale. A total of 600 copies of the questionnaire were distributed to 16 different types of Abu Dhabi based
public sector companies. This study employed a structural equation model to assess public sector
employee’s perception towards ethical climate, code of ethics and corporate social responsibility on their
organizational performance. All of the measures used in this study were drawn from existing literature
and adapted to the context of the current study.
Sample Characteristics
The sample comprised of respondents belonging to different age groups. 13.1% were less than 25 years,
28.4% between 26-30 years, 27% were between 31-35 years, 16.9% were between 36-40 years, and
11.2% were in the age of 41 or above. Most of the respondents (66.2 %) had graduate and master’s
degrees.
Findings and Discussion
Α two-step analysis process had to be followed in order the model to be validated [39]. First of all, the
overall construct validity of the measures was examined. The next step employed the structural equation
modeling (SEM) approach using AMOS 18 so that the hypothesized relationships to be tested.
All the study’s constructs were measured using 7-point Likert scale with “Strongly Disagree” and
“Strongly Agree” as the end-points. According to table 1, all factor loadings were significant and above
0.5 except from code of ethics item 3 which was deleted.
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Table 1: Item Loadings and Fits
Construct Standardized AVE CR

Item
Loadings
Ethical Climate 0.597 0.816
Q1 0.801**
Q2 0.752**
Q3 ONOMATA 0.765**
Code of Ethics 0.508 0.749
Q1 0.705**
Q2 0.863**
Q4 (R) 0.532**
CSR χ2=0.343, df=1, 0.553 0.831
CFI=0.917, TLI=0.903,
RMSEA=0.052
Q1 0.758**
Q2 0.759**
Q3 0.805**
Q4 0.642**
O.P χ2=0.013, df=1, 0.641 0.873
CFI=0.932, TLI=0.918,
RMSEA=0.041
Q1 0.905**
Q2 0.941**
Q3 0.718**
Q4 0.585**
Notes:
**= p<0.01, *=p<0.05,
Figure 1: Model Results
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According to the SEM results, H1 (γ=0.758, p<0.01) Ethical Climate has a significant impact on Code of
Ethics. Moreover, H2 is also verified since this construct also impacts CSR (γ=0,703, p<0.01). According
to hypothesis H3, Code of Ethics has an impact on O.P. (γ=0,222, p<0.01) in a significant way. Finally,
O.P has as antecedents the construct of CSR (γ=0,112, p<0.05) and hence verifies hypothesis H4.
This research examines the impact of employee perception of ethical climate, code of ethics and CSR on
organizational performance. The results suggest that perceived ethical climate and CSR induce positivity
that improves organizational performance. Results of the hypotheses tests demonstrate that ethical climate
has a significant effect on code of ethics and CSR, which, in turn, influences employees’ perception
towards organizational performance. Furthermore, the results indicate that UAE public sector companies
should consider employees' perception of ethical climate and CSR.
Conclusion, Limitations, Implications and Suggestions for future Research
There are certain limitations in this study. First, the study was conducted in the public sectors based in
Abu Dhabi region, the capital of United Arab Emirates, and hence cannot be generalized to the whole
country. The study provides an implication to the existing public sector companies that they need to
converse to their workforce the magnitude and specifics of their code of ethics, CSR activities in a clear
and consistent manner.
Note: We acknowledge the financial support provided by the Al Hosn Gas, Abu Dhabi to conduct this
research.
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Measuring Innovation and Predicting Firm Performance (Part 2)
Conceptual Paper for a Research Design to Determine the Effect of Innovation on Firm Performance
Based on Financial Analysis and Empirical Testing
Michael Studeny, the Bucharest University of Economic Studies,

Romania,michael.studeny@gmail.com
Andreas Bartels, the Bucharest University of Economic Studies, Romania,

andie.bartels@gmail.com
Manfred Rauch, the Bucharest University of Economic Studies, Romania,

manfred.rauch@gmx.at
Mathias Scheiblich, The Bucharest University of Economic Studies, Romania,

mathias.scheiblich@gmx.de
Vanessa Just, the Bucharest University of Economic Studies, Romania,

vanessa.just@bshg.com
Melanie Buchmüller, the Bucharest University of Economic Studies, Romania,

melaniebuchmueller@web.de
Abstract
Innovation has become a ‘magic word’ in management practice and economic policy as well as a
guiding concept in economic research and theory. An innovative company is defined as a company that
develops innovative products, services and internal processes. An innovative company is not a trend
follower but a trend setter and can thus profit from a competitive advantage. Therefore, innovation is
received as the actual path to growth because the assumption is that innovation is the success driver for
the firm and increases its value disproportionally. However, innovation initially results in only costs
and risks. Thus, the question arises regarding how to measure the performance contribution of
innovation in scientific studies to provide evidence of whether innovation really gives back,
particularly in the context of the concept of second mover advantage, which questions the idea of first
mover advantage and favors imitation instead of innovation. Therefore, the application of R&D
expenditures as general measure for innovation intensity is widely criticized in the literature as not
being sufficient to measure innovativeness. Accordingly, the first part of this conceptual paper has
developed a new predictor, which will be tested in this paper.
Keywords :Innovation, Innovativeness, Measuring Innovativeness, Research & Development, Key

Performance Indicators, Firm Performance
JEL Classification: C18 Methodological Issues: General; D22 Firm Behavior: Empirical Analysis;
O32 Management of Technological Innovation and R&D
Introduction Part 2
Part 1 of this study states that innovation has become a ‘magic word’ in management practice and
economic policy as well as a guiding concept in economic research and theory. Innovation is received
as the actual path to growth because the assumption is that innovation is the success driver for the
firm and increases its value disproportionally. The general assumption is: An innovative company is
distinguished in that it develops products, services and internal processes at least as fast as the market
changes. An innovative company is not a trend follower but a trend setter and can thus be one of the
first to gain an advantage, with the result of higher profitability due to a competitive advantage1.
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However, innovation initially means, first of all, costs and risks. Thus, the question arises regarding
how to measure the performance contribution of innovation in empirical studies to provide evidence
of whether innovativeness really gives back, particularly in the context of the concept of second
mover advantage, which questions the idea of first mover advantage and favors imitation instead of
innovation.
Part 1 of this study has determined, that innovation must be distinguished from invention. While
invention is, first of all, the realization of an idea resulting in a marketable product, innovation needs
the perception of novelty by customers as the basis for the commercializability of an invention2.
Furthermore, it was stated that innovativeness is not only the ability to generate new products, but
also refers to new processes or services. However, from the business economics viewpoint, all
innovations within or outside of the firm must be profitable. Otherwise, it is a nice but costly idea.
Part 1 of this study has identified the problem that the simple connection between innovation and
firm performance is not as simple as it seems, at first view, because empirical research regarding
innovation and firm performance must deal with the problem of detailed internal data at the firm level
are hardly available, so that research often must rely on external data available from, for example,
annual reports, etc. It was stated in part 1 that most empirical studies in this research area use only a
relatively simple approach to examine the relation between innovation and firm performance, based
only on a restricted set of variables, and apply almost exclusively R&D expenditures as the main
variable to determine innovativeness. However, the application of R&D expenditures as general
measure for innovation intensity is widely criticized in the literature as not being sufficient to
measure innovativeness3.
Therefore, part 1 concludes that innovativeness is difficult to measure due to two reasons: (1) the
multi-dimensionality of innovativeness, which can result from in-house innovations in terms of
business operations or new products and (2) the problem of data collection, which depends mainly on
external data. Therefore, the challenge is to make more use of the rare available data in using more
advanced instruments developed in the context of financial analysis, which is mainly developed to
evaluate a single company or a stock but is also relevant for analyzing larger datasets. Part 1 assumed
that the quality of empirical research in the field of innovation and firm performance may be
improved through new measures. For this purpose, part 1 has presented a new indicator for measuring
innovativeness, which may provide a better basis for determining causal effects of innovativeness on
firm performance.
Measures in Prior Studies and Alternatives
The concept of this study is to test a new approach with a limited data set of 30 companies from one
industry based on a further developed measure, which allows going beyond the testing of only first-
order and second-order financial variables from annual reports. The number of 30 cases results from
the availability of data regarding one industry, which is clearly definable in the sense that all cases
are active in one market and are not conglomerates. For example, industries such as
aerospace/defense products and service include a variety of companies that are not direct competitors.
Corporations, such as Siemens, are active in a variety of markets so that the number of competitors
depends on the market focus. Therefore, the auto manufacturer industry is selected because here all
companies are direct competitors whereas all companies realize the major portion of their revenue in
the automobile market. Although some companies also produce trucks or have a financial division to
provide financial services to their customers, particularly to finance car purchases. However, most of
this business is only a small share in the company results. Therefore, car manufacturers are selected,
whereas the problem of data collection occurs concerning the collection of valid data, because
particularly Asian manufacturers have only recently begun to apply international reporting rules. This
means that only 18 car manufacturers are included in the test sample for which the necessary data
were available. Therefore, the test sample is definitely small and allows only results with limited
explanatory power.
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The concept of this study is to develop a new measure for innovation to predict firm performance.
Part 1 of this study has identified that revenue is the most frequently applied firm performance
measure in the field of success factors research4,5,6,7,8,9. However, the main financial indicator in
quantitative empirical studies concerning innovation and its impact on firm performance is R&D
expenditures. As mentioned, this approach is criticized as insufficient3. This becomes particularly
apparent in relation to firm performance. Thus, Sridhar et al. (2014), for example, observe in their
study on innovation leaders, based on financials drawn from the investor database COMPUSTAT,
that R&D expenditures and revenue are correlated moderately high with r = 0.691 and p < 0.0510. Out
of this result they conclude that a firm’s R&D intensity is the explanatory variable for firm
performance in the longer term, at least in the case of the high-technology industry11.
However, it was questioned in part 1 whether the interpretation of this result is not as simple as it
may be at first view, because the existence of a correlation neither reveals anything about causality
nor the direction of a possible direct causal link between both variables. They can co-vary only
randomly or are influenced by a third variable, etc. Part 1 of this study determines, based on an
example of three companies, that the interpretation of Sridhar et al. (2014) is questionable. Apple,
Honda and Fiat are compared with the result that in all cases, revenue growth and R&D expenditures
are significantly highly correlated. From these results, it must be concluded in the context of the
results of Sridhar et al. (2014) that Fiat and Honda are companies with such high innovativeness as
Apple. Yet Apple can be seen as ideal–typical for an innovation-driven, ‘game-changing’ company12,
while the cases of Fiat and Honda are, at least, intuitively not game-changers.
Instead, further tests have indicated that Fiat and Honda are not able to convert R&D expenditures
into net income to the same extent as Apple. It was therefore argued that it is to question whether
R&D expenditures determine market success indicated by revenue growth or vice versa. Because it
could also be argued that companies follow a relatively static approach in budgeting R&D
expenditures, depending on revenue growth as a more or less fixed share of revenue, so that the
relationship suggested by Sridhar et al. (2014) only explains the budgeting process.
To sum up, the typical tests dominating the literature calculates correlations between revenue growth
and R&D expenditures growth. This explains only that revenue and R&D expenditures are correlated
and does not explain that R&D expenditures influence revenue growth. In the case of the auto
manufacturer sample, this problem becomes evident. While revenue and R&D costs are significantly
highly correlated, 5-years revenue growth and 5-years R&D growth correlate only low and are not
significant (see Tab. no. 1 and Tab. no. 2).
Table 1: Correlation between Revenue and R&D Expenditures
Revenue R&D
Revenue 1.000 .772*

R&D .772* 1.000
Source: Own Calculation.

Note: * p < 0.05 (2-tailed).
Basic Data: Morningstar database and annual reports; n = 18.
This correlation (see Tab. no. 1) indicates a high interacting effect between revenue and R&D
expenditures with the finding that the higher the revenue, the higher is the R&D budget. Instead, the
correlation between 5-years revenue growth and 5-years R&D expenditure is different. Here, the
correlation is not significant, but low and even negative (see Tab. no. 2).
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Table 2: Correlation between 5-Year Revenue Growth and 5-Year R&D Expenditures Growth
5y- 5y-R&D
Revenue Growth
Growth
5y-Revenue
Growth 1.000 .028
5y R&D Growth -.281 1.000
Source: Own presentation.
This result is contrary to prior research findings mentioned above. However, it must be stated that
this sample is extremely small, so that the results are not representative, though the sample includes
highly comparable cases from only one industry and companies that are direct competitors and thus
active in the same market, so that the corporate environment of all companies is equal.
However, the correlation between R&D expenditures growth and net income growth is slightly
higher, but likewise not significant (see Tab. no. 3). This result may be interpreted according to the
financial analysis as R&D expenditures growth is more effected by firm size in terms of revenue
growth without a large effect on net income. In other words and from the perspective of industrial
economics, it can be stated that R&D expenditures are not a prerequisite for firm growth, but a result
of keeping up with the competition and of inflexible budgeting, which is not strategic but only
adaptive in the sense that R&D expenditures are not budgeted according to an innovation strategy but
as a budget with a fixed share to revenue.
Table 3: Correlation between 5-Years Net Income Growth and 5-Years R&D Expenditures
Growth
5y-Net 5y-R&D
Income Growth
Growth
5y-Net Income
Growth 1.000 .349
5y R&D Growth .349 1.000
This becomes particularly evident, if one compares the 5-years R&D expenditures growth rates of all
companies. Here, it is apparent that the high-profitable companies are not ‘innovation leaders’ in
terms of R&D expenditures growth, but more the mass market companies such as Dongfeng, Tata,
Volkswagen and Toyota (see Tab. no. 4)
Table 4: 5-Year R&D Expenditures Growth
Company 5y-R&D
CAGR
Brilliance China 0.81
Mazda Motor Corp 0.16
Dongfeng Motor Group Co Ltd 0.15
Tata Motors Ltd 0.11
Audi AG 0.05
Volkswagen AG 0.05
Toyota Motor Corp 0.03
Peugeot 0.01
368
Hyundai Motor Co 0.00

Bayerische Motoren Werke AG 0.00
Great Wall Motor Co. -0.01
Fiat Chrysler Automobiles NV -0.01
Honda Motor Co Ltd -0.02
Renault SA -0.02
Nissan Motor Co Ltd -0.04
Ford Motor Co -0.09
Mitsubishi Motors Corp -0.12
Daimler AG -0.12

Instead, companies with high-end quality cars such as Audi, Daimler or BMW are distributed more or
less at random. In particular, Daimler is the company with the lowest R&D expenditures growth
among the total sample, but is a strong brand with innovativeness as its brand core. However, these
results may have several reasons. First, it must be mentioned again that this sample is very small, so
that extraordinary accounting effects can produce significant effects. Second, the time period is
extremely small with 5 years.
However, as mentioned, the objective of this conceptual paper is to test a predicator that allows a
prognosis of firm performance in subsequent years. However, the first results of descriptive statistics
support the criticism that the simple bivariate statistics of revenue and R&D expenditures are not
appropriate measures to determine firm innovativeness.
Therefore, part 1 of this study has derived from a small set of observations an alternative measure,
which is the PI predictor calculated as follows:
(1)
The hypothesis to be tested is: The PI predictor, calculated on a previous 5-year period, predicts firm
performance of the subsequent 5-year period. The assumption is: The higher the PI predictor in the
time period from 2005 to 2009, the higher is a company’s net income growth, revenue growth and 5-
years ROIC average in the subsequent time period from 2010 to 2014.
Accordingly, three data analysis series are to be implemented: (1) the test of the relationship between
the PI predictor and 5-years ROIC average, (2) the test of the relationship between the PI predictor
and the 5-years net income growth, and (3) the test of the relationship between the PI predictor and
the 5-years revenue growth.
The calculation of the PI predictor is exemplified by the case of Audi. Based on the values for net
income and R&D expenditures, the NI/R&D ratio is calculated as follows:
Table 5: Calculation of the Net Income/R&D Expenditures Ratio Exemplified by Audi

(in EUR mil)
2005 2006 2007 2008 2009

Net Income 824 1,343 1,654 2,207 1,347
R&D 1,584 1,982 2,226 2,920 2,050
NI/R&D 0.52 0.68 0.74 1.02 0.66
Ratio
Basic Data: Morningstar database and annual reports.
369
As it was determined in part 1 of this paper, innovativeness is not only to invent new products but to
generate profit from new products. Accordingly, the relationship with profitability must be
established. Correspondingly, part 1 of this paper has determined, by the example of Apple, Fiat, and
Honda, that the ROIC is a reasonable correction value. Therefore, the correlation between the net
income/R&D expenditures ratio (NI-R&D ratio) and the ROIC must be calculated, due to the
assumption that a high correlation can be interpreted as the company is not only spending a higher
share of R&D to net income but also generates profit from inventions. Accordingly, the correlation
between the net income/R&D expenditures ratio with the ROIC is calculated in the case of Audi
based on the following values:
Table 6: Basic Values for the Correlation between Net Income/R&D Expenditures Ratio and
ROIC Exemplified by Audi (in EUR mil)
2005 2006 2007 2008 2009

NI/R&D 0.52 0.68 0.74 1.02 0.66
Ratio
ROIC 12.32 20.09 21.24 26.07 14.75
However, the problem occurs that the ROIC is not an absolute number, but a ratio, which cannot
increase indefinitely. On the contrary, the ROIC is relatively constant in the longer term in most
industries. On the other hand, also the NI/R&D ratio cannot increase indefinitely. If R&D
expenditures are equal to net income, then the ratio is 1. If R&D expenditures increase, then the
NI/R&D ratio approximates to zero. Concerning the case that net income increases indefinitely, while
R&D expenditures remain constant, then at least theoretically, the NI/R&D ratio may increase
indefinitely. However, this case would mean that the company does spend less and less cash relative
to the rising net income, which also requires that revenue increases at least after a certain time period.
Therefore, it can be concluded that the NI/R&D ratio may not increase indefinitely, unless in the case
of a company that needs no R&D, such as a consumer brand in the food industry. Thus, for example,
Coca-Cola has increased its net income in the last decade without any R&D expenditures. However,
such cases demonstrate that larger samples, which mix companies from different industries, generate
no clear data. Therefore, this test sample consists of companies from only one industry, so it can be
assumed that the NI/R&D ratio does not vary extremely among the sample and in each case.
This assumption can be verified by the NI/R&D ratio table below (see Tab. no.7). The table supports
the assumption that, among the same industry, the NI/R&D ratios are relatively stable and move in a
relatively narrow range between -1 and 4.7. Only one company is an extreme outlier. For example,
the Chinese car manufacturer Brilliance, shows extreme volatility regarding net income and R&D
expenditures and thus extreme values for the NI/R&D ratio of -111.83 and 35.29.
Table 7: NI/R&D Ratios
NI/R&D Ratio 2005 2006 2007 2008 2009 Average

Audi 0.52 0.68 0.74 1.02 0.66 0.13
Bayerische Motoren Werke 0.91 1.13 1.07 0.12 0.09 0.45
Brilliance China -111.83 -4.77 3.50 9.00 -13.90 35.29
Daimler 0.50 0.61 1.26 0.46 -0.91 0.52
Dongfeng Motor Group 2.23 2.30 3.71 2.93 4.65 0.81
Fiat Chrysler Automobiles 0.29 0.23 0.42 0.32 -0.20 0.16
Ford Motor 0.25 -1.75 -0.36 -2.01 0.55 0.97
370
Great Wall Motor 1.43 2.16 2.94 2.06 3.20 0.57

Honda Motor 1.17 1.07 1.02 0.24 0.58 0.32
Hyundai Motor 3.94 1.98 1.86 1.23 4.48 1.21
Mazda Motor 0.12 0.09 0.10 -0.13 -0.01 0.08
Mitsubishi Motors -0.01 0.00 0.01 -0.02 0.00 0.01
Nissan Motor -0.19 0.02 0.07 -0.11 0.01 0.09
Peugeot 0.52 0.03 0.40 -0.24 -0.65 0.37
Renault 1.70 1.50 1.48 0.32 -1.71 1.08
Tata Motors 3.22 3.01 1.43 -8.59 4.73 3.74
Toyota Motor 1.76 2.02 1.92 -0.46 0.23 0.97
Volkswagen 0.27 0.60 0.77 0.88 0.19 0.25

The second step to determine the PI predictor for each company is the calculation of the correlation
between NI/R&D ratio and ROIC (see Equitation no. 1 above). In the case of Audi, the following
results are obtained:
Table 8: Correlation between NI/R&D Expenditures Ratio and ROIC Exemplified by Audi
NI/R&D ROIC
Ratio
NI/R&D Ratio (2005-2009 1.000 .927
ROIC (2005-2009) .927 1.000
This result provides the finding that, in the case of Audi, the correlation between the NI/R&D ratio
and the company’s profitability (ROIC) is very high. On the business level, the correlation can be
interpreted as that Audi spends a high amount of net income in R&D (see Tab. no. 5 above), which
highly contributes to the company’s profitability in terms of ROIC.
However, part 1 of this paper has identified a correction factor in the comparison of Apple, Honda
and Fiat, which is the correlation between net income and ROIC in a given time period (see Equation
1 above). Accordingly, the correlation between net income and ROIC is calculated and subtracted
from the NI/R&D ratio (see Tab. no. 9).
Table 9: PI Predictor for Each Company
Company PI-Predictor
Audi -0.00809981
Bayerische Motoren 0.00731123
Brilliance China -0.80255002
Daimler -0.02626406
Dongfeng Motor Group 0.15294463
Fiat Chrysler Automobiles -0.01659301
371
Ford Motor -0.04164489

Great Wall Motor -0.18497482
Honda Motor 0.01908118
Hyundai Motor 0.00689782
Mazda Motor -0.0328576
Mitsubishi Motors -0.13172142
Nissan Motor -0.01023016
Peugeot -0.01408359
Renault -0.00192359
Tata Motors 0.03918258
Toyota Motor 0.00563341
Volkswagen -0.01674696
Source: Own calculation and presentation.
Statistical Data Analysis
Based on these PI predictors, calculated on the data for the time period 2005 to 2009, the correlations
are calculated with 5-years revenue growth and 5-years net income growth in the period 2010 to
2014. Additionally, another predicator was calculated. Based on the criticism of usual measures in
innovation research, Abazi-Alili (2014, p. 6) used as an innovativeness metric the variable R&D
intensity. He notes: “The most often employed measures in the empirical literature are: R&D
expenditure – as a measure of input.” Abazi-Alili (2014) uses, as did only a few other prior studies,
R&D intensity as an indicator, which is the share of R&D to revenue, because prior research
indicates that R&D expenditures are linked with firm size in terms of revenue, which was also
determined in part 1 of this study. However, R&D intensity is not applied in this study for analyzing
the relationship of growth rates with innovativeness in the same time period. Rather, R&D intensity
was also calculated for the previous period as average value for the time period 2005 to 2009 and is
also tested with the 5-years revenue growth and 5-years net income growth in 2014 and thus with the
subsequent time period.
To mention it again, the hypothesis to be tested, which is drafted in part 1 was: The PI predictor,
calculated on a previous 5-year period, predicts firm performance of the subsequent 5-year period.
The assumption is: The higher the PI predictor, the higher is a company’s net income and revenue
growth in the subsequent period. However, the bivariate correlations does not support this
assumption: The PI predictor shows only a small correlation with the 5-year revenue growth, but a
higher and significantly negative correlation with the 5-year net income growth (see Tab. no. 10).
Therefore, on the one side, neither the PI predictor nor the net income/R&D ratio is appropriate to
predict revenue growth.
Table 10: Test Results for PI Predictors and Research Intensity
PI- 5y- Rev 5y Net R&D/Rev.

Predictor Growth Income (2005-
(2005- 2014 Growth 2009)
2009) 2014
PI-Predictor Pearson 1 .091 -,511* .246

(2005-2009) Correlation
Sig. (2-tailed) .718 .030 .325
N 18 18 18 18
372
5y- Rev. Pearson .091 1 .079 .596**

Growth 2014 Correlation
Sig. (2-tailed) .718 .756 .009
N 18 18 18 18
5y Net Income Pearson -,511* .079 1 -.246
Growth 2014 Correlation
Sig. (2-tailed) .030 .756 .325
N 18 18 18 18
**
R&D/Rev. Pearson .246 .596 -.246 1
(2005-2009) Correlation
Sig. (2-tailed) .325 .009 .325
N 18 18 18 18
Source: Own calculation and presentation.
Note: * p < 0.05 (2-tailed). ** p < 0.01 (2-tailed).
Instead, the variable research intensity (“R&D/Rev. (2005–2009)”) provides for much better
prediction power with a correlation of r = .596 with a high significance of p = .009 regarding 5-year
revenue growth (2010–2014). Yet, the correlation between 5-year net income growth and R&D
intensity is negative, low and not significant. Accordingly, the main result is that R&D intensity is a
better predicator.
Discussion and Conclusions
However, the question arises regarding how to interpret the results. On the hand, the PI predicator is
proven as irrelevant. On the other hand, the correlation between firm performance metrics and R&D
intensity leads to just the same question, because first, revenue is not profitability. The firm’s
objective is not to realize money, but cash flow and profit, because a company can generate higher
and higher revenue without earning money, so that in the end, the company grows but is insolvent.
Thus, it was concluded in part 1 of this study that profitability is also a required factor for
determining innovativeness. It was argued that ROIC and net income are appropriate measures to
determine the company’s profitability, so that both are integrated into the PI predictor. However, the
test of the PI predictor was not successful.
Despite the inappropriateness of the PI predictor, the data analysis provides further interesting
information. On the one hand, R&D intensity has been proven as an appropriate prediction variable,
although the sample is small, but includes comparable companies active in the same market. On the
other hand, it is obvious that revenue growth does not mean profitability. This is evident through the
correlation between revenue growth and net income growth with r = .079. The correlation is equal to
zero. This means that revenue growth and net income growth do not influence each other. In the
context of the arguments in the preceding paragraph, it can be stated that among the sample of the 19
largest global car manufacturers, higher R&D shares to revenue produce, in the best case, higher
revenue growth but do not lead to increasing profits in terms of net income growth.
In this sense, the simple causal relationship of mainstream innovation research must be rejected,
although based on a non-representative dataset with a small number of cases. Higher R&D intensity
does not lead to higher profitability but only to revenue growth and thus, presumably, to a higher
market share. Accordingly, it can be concluded that higher R&D expenditures do not lead to higher
innovativeness but only to higher market shares. That finding could be the reason for questioning the
simple relationship of higher R&D expenditures being equal to higher innovativeness. Or in other
words: Higher R&D intensity in a highly competitive industry, such as the car industry, does not lead
to innovation leadership but only to higher market shares, presumably based on an increasing number
373
of more differentiated products to open up further new segments in existing markets. However, this is
not, per definition, innovativeness.
Instead, it must be assumed that innovativeness is much more the result of qualitative factors, which
can hardly be measured only by financial data. And perhaps, innovativeness sometimes just happens
by chance. Accordingly, in the context of the car industry, it may be concluded, based on the results
of this study that companies in competitive industries must spend a comparably higher share of R&D
to revenue only, to remain in the market and not to increase their innovativeness. Accordingly, the
sample’s companies with the highest share of revenue spent for R&D are Fiat (9.7%), Great Wall
(9%) and Mazda (7.6%), which are companies that can hardly be seen as innovative. This leads to the
conclusion that a high R&D share to revenue sometimes indicates rather competitive intensity than
innovativeness.
References
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entfernt?. In: Arthur D. Little International, ed. 1991, Management der
Hochleistungsorganisation. Wiesbaden: Gabler, pp. 1.
2 Hauschildt, J., (2004), Innovationsmanagement (3rd ed.). Munich: Vahlen, p. 4-10
3 Abazi-Alili, H., (2014), Innovation Activities and Firm Performance: Empirical Evidence from
Transition Economies, Journal of Contemporary Economic and Business Issues, 1(2), pp. 14.
4 Delmar, F., Davidsson, P. and Gartner, W. B., (2003), Arriving at the high-growth firm, Journal
of Business Venturing, 18(2), pp. 189–216
5 Certo, S. T., Lester, R. H., Dalton, C. M. and Dalton, D. R., (2006), Top management teams,
strategy and financial performance: A meta-analytic examination, Journal of Management
Studies, 43(4), pp. 813–839.
6 Shepherd, D. and Wiklund, L. (2003), Aspiring for, and achieving growth: the moderating role
of resources and opportunities. Journal of Management Studies, 40(8), pp. 1919–1941.
7 Mollick, E., (2012), People and process, suits and innovators: the role of individuals in firm
performance, Strategic Management Journal, 33, pp. 1001–1015.
8 Mishina, Y., Pollock, T. G. and Porac, J. F., (2004). Are more resources always better for
growth? Resource stickiness in market and product expansion, Strategic Management Journal,
25, pp. 1179–1197.
9 Arthaud-Day, M. L., Trevis Certo, S., Dalton, C. and Dalton, D. R., (2006), A Changing of the
Guard: Executive and Director Turnover following Corporate Financial Restatement, Academy
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advertising, inventory and firm performance, Journal of the Academy of Marketing Science, 42,
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advertising, inventory and firm performance, Journal of the Academy of Marketing Science, 42,
p 288.
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p. 123
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Sustainable Value and its Role in Regional Development

Petra Lešáková, Institute of Administrative and Social Sciences, University of Pardubice, Pardubice,
petra.lesakova@student.upce.cz
Karel Šatera, Institute of Administrative and Social Sciences, University of Pardubice, Pardubice,
karel.satera@upce.cz
Ebo Tawian Quartey, Department of Regional and Business Economics, Mendel University, Brno,
ebo.quartey@mendelu.cz
Abstract
Sustainable Value approach serves as an integrated tool where economic, environmental and social
resources used are evaluated. This method has been mainly applied at corporate and national level.
Contribution of this work lies in unique application of Sustainable Value framework on regional level
because regions are supposed to be essential for understanding and achieving sustainability. For this
purpose, selected real economic, environmental and social data of fourteen regions of the Czech
Republic from 2006 to 2012 was analysed and evaluated based on Sustainable Value approach.
Sustainable Value approach was used to assess the sustainable performance of each region in
monetary terms and the selected regions ranked according to their value-creating character. This
work demonstrates practical use of this method and confirms its role in regional development
planning in the modern globalized world.
Keywords: Regional Development, Regional sustainability, Sustainable Value, Performance

Assessment, Regions of the Czech Republic
Introduction
Hopwood, Mellor and O´Brien (2005) defined the concept of sustainable development (SD) as an
attempt to combine growing concerns about environmental issues with socio-economic issues. One of
the first attempts to stress environmental issues was Stockholm Declaration at the United Nations
Conference on the Human Environment (Only one Earth) in 1972. This conference identified the
parameters of the global devastation of the environment and initiated development of global
environmental governance. Suggestions how to face these threats were outlined in Brundland Report
(also known as Our Common Future), published 1987 and followed by the Rio de Janeiro Earth
Summit in 1992. During this Summit, monumental Agenda 21 was introduced with extensive range
of specific instructions how to fulfil a blueprint for the protection of the planet and its sustainable
development.
Another important World Summit on Sustainable Development took place in Johannesburg in 2002.
Political representatives, business leaders and nongovernmental organizations (among others)
confirmed three pillars of sustainable development and agreed that the concept of sustainable
development is developing enough. National level is stressed as a vital in achieving sustainable
development.
United Nations Conference on Sustainable Development was held in Rio de Janeiro in 2012
(UNWTO, 2012) and it was understood as an “opportunity to define pathways to a safer, more
equitable, cleaner, greener and more prosperous world for all.”
That is why during last decade countries are experiencing a progress in their Development policy
planning where a wide range of nongovernmental as well as governmental organizations have
embraced sustainable development as the new paradigm of development where traditional financial
performance is stressed in the same way as social and environmental performance.
Nevertheless, according to Hřebík, Třebický, Gremlica (2006) it is evident that the strategies face
serious problems like insufficiently defined priorities for individual topics, unclear definition of
375
relations between sustainable development pillars, missing quantification of financial costs and
administrative requirements needed to achieve the targets. These deficiencies have resulted in a very
weak practical effect of the SD strategies. Another problematic task is how to measure sustainable
development and the level of application of sustainability indicators.
Sustainable Development
First of all, sustainable development needs to be clarified. According to Alfsen and Moe (2008)
sustainable development is a development where social well-being is non-declining over time.
Another definition of IUCN/UNEP, WWF (1991) says ‘‘sustainable development means improving
the quality of human living within the carrying capacity of the supporting eco-system’’. According to
EU Commission (2001) “Sustainable development requires dealing with economic, social and
environmental effects in a mutually reinforcing way”. In other words, SD is based on triple-bottom
line principle, where traditional financial performance is stressed in the same way as social and
environmental performance.
Atkinson, Dietz, Brink (2007) mentioned that besides the discussion of the definition the most
observed weakness of the concept of sustainable development is the one putting sustainable
development into practice. There is increasing need of practical and measurable definition of this
concept. On the one hand, nowadays, there exists a diversity of methods and tools for measuring
sustainability. On the other hand, there is an enduring need for measuring sustainability of different
scales (local, regional, economic sectors and corporations).
Measuring sustainable development
According to the document of UNECE (2009) there exist a wide variety of indicators that have been
proposed by researchers in universities, environmental organizations, think-tanks, national
governments and international agencies for measuring sustainable development.
For example, at the level of European Union, EU Commission (2015) uses a set of Sustainable
Development Indicators (SDI´s) to monitor the EU Sustainable Development Strategy and the
resulting values of member states can be compared. Of more than 130 indicators, ten have been
identified as headline indicators. They are intended to give an overall picture of whether the
European Union has achieved progress towards sustainable development in terms of the objectives
and targets defined in the strategy. For a more complete picture, it is necessary to look at the progress
of all indicators within a theme. Mentioned headline indicators consist of: Real GDP per capita,
growth rate and totals, Resource productivity, Persons at-risk-of-poverty or social exclusion, Healthy
life years and life expectancy at birth, by sex, Greenhouse gas emissions, Primary energy
consumption, Energy consumption of transport relative to GDP, Common bird index, Official
development assistance as share of gross national income.
Role of regions in Sustainability Initiatives
In a research study of Potts (2010), national governments are actively formulating policy and
providing investment to develop green economies as one of the responses to the global financial
crisis. Many of the political and economic drivers have been focused at the international and national
scale, and while critical for setting the national framework for development, it often neglects the key
role that regions and localities can play in ecological modernization.
On the other hand, according to Zilahy and Huisingh (2009) sustainability initiatives at the regional
level play an increasingly important role in the implementation of the principles of sustainable
development. This statement is supported by Wheeler (2009), who claims that it is the region which
is vitally important scale to sustainability planning.
Zilahy and Huisingh, (2009) provide key arguments for development and implementation of plans
and methods and tools to achieve sustainable development and measurement sustainable performance
on regional level are following:
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a) There is increased feasibility of utilizing ‘systems-thinking,’ at the regional level.
b) It is more effective and efficient to involve the key stakeholders in the planning and
decision-making processes toward SD at the regional level than at the national or global
levels.
Therefore, a regional approach can provide a number of advantages compared with efforts at either
the state/national or at the strictly local level.
Sustainable Value Approach

The concept of Sustainable Value (SV) was developed by Prof Frank Figge of Queen’s University
Belfast (United Kingdom) and Dr Tobias Hahn of (IZT) Institute for Futures Studies and Technology
Assessment in Berlin (Germany).
SV is seen as a complex multidimensional aggregating indicator for measuring contribution to

sustainability that involves economic, environmental and social aspects. According to Kuosmanen,
Kuosmanen (2009) SV is one of the promising attempts to measure sustainability performance.
Of course, SV method (and many other sustainability indicators) has been deeply and critically
examined, e.g. by Kuosmanen, Kuosmanen (2009). Conclusion of these critics is that SV framework
is widely considered as one of the most compelling and promising proposals thus so far. On the other
hand, critics recommend being careful with the implicit assumptions.
Sustainable Value approach has been mainly applied on corporate (see Hahn, Figge, Barkemayer,
2007) or national level (see Rhouma, 2010). SV concept is accepted as one of the key success factors
in the long term business strategy of firm. In corporate terms, SV is considered to form a new vision
of industry. Others claim, e.g. Laszlo (2008), that SV is a part of the greatest revolution in
management history.
In Figge et al. (2006) research study, SV approach measures and evaluate sustainability performance
in monetary terms, for this purpose it utilizes the well-known logic of financial analysis. In practical
terms, SV compares the resource use of an entity (corporation/region/country) to a benchmark. As a
result, SV shows in monetary terms the value that entity creates (or destroys) by the use of a set of
economic, environmental and social resources.
Advantage of this method lies in its universality and simple application. It operates with publicly
available data and provides comprehensible results. Therefore, in the following chapters, SV method
application on regional level is provided and evaluated.
Method Application on the Regions of the Czech Republic
For the method application regions of the Czech Republic were chosen. Before method application on
real data measured in the Czech Republic, essential information about Czech Republic is provided.
Czech Republic Czech Republic consists of thirteen regions and one capital city. The population of
the Czech Republic is around 10.5 million. Current GDP growth is around 3 % in the first quarter of
2016.
After political and economic transformation in 1989, the Czech Republic has passed significant
changes in all aspects of life. The nineties were marked by industrial restructuring and air and water
pollution reduction. The environment has undoubtedly improved, however, high level of air pollution
ranks among the greatest problems of the Czech Republic – especially in regions with high
concentration of industry. It has been shown by Zdravotní ústav (2009) that due to weather
conditions, situation in air pollution is often negatively influenced by undefined sources, especially
large industrial sources from Polish Silesian voivodship. But as Bollen and Brink (2014) declares,
with upcoming structural changes, structural changes in emissions can be expected.
377
In 2010, Czech Republic adopted Strategic Framework for Sustainable Development which serves as
a long-term framework for policy making process in the context of international commitments that
the Czech Republic has adopted or intends to adopt in the context of its membership in the UN,
OECD and EU, while respecting specific conditions and needs of the country.
Concerning the sustainability, the Czech Republic uses several indicators to evaluate each area of
sustainable development that can be also used for international comparisons. Nevertheless, Czech
Republic does not use any composite indicator of sustainable development that would present a quick
picture about sustainability issues. This perspective is offered by Sustainable Value approach.
Data Collection
SV compares the efficiency of the use of resources in a region to the efficiency of a benchmark. As a
benchmark, data for the Czech Republic was chosen. To get reliable outcome, good quality social,
economic and environmental data needs to be available both at national level and at regional level.
All the data was publicly available and collected from various sources. Economic and social
performance data was available from the Czech statistical Office (2012). Environmental data
performance is monitored and easily accessible Czech Hydro-meteorological Institute (2013). No
data had to be estimated. Monetary data were converted from CZK to EUR based on the exchange
rate at the last day of each year.
In this paper, following resources from all three dimensions of sustainability were taken into account:
Figure 1: Flowchart of SV calculation, source: own, based on Fuka and Lešáková (2016)
Four Steps of Assessment
Figge (2006) propose SV performance assessment in following four steps:
1. How much return does the company create with its resources?
2. How much return would the benchmark have created with each resource?
3. What is the value contribution of each resource?
4. How much Sustainable Value does the region create?
378
How much return does the company create with its resources?
In the first step, return of each region needs to be defined. Regional GDP is considered as the best
return value. As a first step, resource efficiency is calculated both on regional and benchmark level.
The return (GDP) is divided by amount of each resource in one year.
For example, SO2 emissions in Liberec Region was 1,448 t in 2012, return was 4,948,926,014 €.
Therefore, Liberec Region achieved 3,418,475 € per each ton. The same procedure will be applied to
all monitored indicators for every selected year.
Regional Return (GDP)

=
Regional Resource Consumption
(1)
Benchmark Return (GDP)

' ℎ) * =
Benchmark
Resource Consumption
(2)
Table 1: Liberec Region and benchmark resource efficiency in 2012
Efficienc
Amount of Efficiency Amount of
GDP of y of
sources used of Liberec GDP of sources used
Liberec benchma
Indicators in Liberec Region in benchmark in by benchmark
Region in rk in
Region in 2012 2012 (EUR) in
2012 (EUR) 2012
2012 (EUR/x) 2012
(EUR/x)
Arable Land
4,948,926,014 65,190 75,915 152,980,350,040 2,993,236 51,109
(ha)
Electricity 4,948,926,014 152,980,350,040

1,349,167 3,668 46,045,499 3,322
(MWh)
4,948,926,014 152,980,350,040
PM(t) 2,105 2,350,699 59,960 2,551,378
4,948,926,014 152,980,350,040
SO2 (t) 1,448 3,418,475 154,326 991,281
4,948,926,014 152,980,350,040
NOx (t) 3,908 1,266,520 211,440 723,515
4,948,926,014 152,980,350,040
CO (t) 19,469 254,199 546,400 279,979
4,948,926,014 152,980,350,040
VOC (t) 5,435 910,583 142,296 1,075,089
4,948,926,014 152,980,350,040
NH3 (t) 1,748 2,832,003 64,172 2,383,911
4,948,926,014 152,980,350,040
Waste (t) 489,270 10,115 19,938,705 7,673
4,948,926,014 152,980,350,040
Employment 193,783 25,538 4,890,053 31,284
4,948,926,014 152,980,350,040
S&R (EUR) 113,379,677 44 2,878,293,850 53
Source: own calculations
How much return would the benchmark have created with each resource?
In the second step, opportunity costs (OC) are calculated. Opportunity costs express, how much
return would be created, if the regional resources were used by the benchmark.
./ = ' ℎ) * ∗ / )12
379
(3)
Table 2: Opportunity costs in 2012
Efficiency of the
Amount used by Liberec Region Opportunity costs in
benchmark in 2012
in 2012 (EUR/x) 2012 (EUR)
(EUR/x)
Arable Land (ha) 51,109 65,190 3,331,775,049
Electricity (MWh) 3,322 1,349,167 4,482,436,816
Particulate matter (t) 2,551,378 2,105 5,371,415,412
SO2 (t) 991,281 1,448 1,435,077,668
NOx (t) 723,515 3,908 2,827,135,769
CO (t) 279,979 19,469 5,450,817,909
VOC (t) 1,075,089 5,435 5,843,002,094
NH3 (t) 2,383,911 1,748 4,165,884,836
Waste gen. by enterp. (t) 7,673 489,270 3,753,939,338
Employment 31,284 193,783 6,062,316,316
S&R Exp. (EUR) 53 113,379,677 6,026,091,700
What is the value contribution of each resource?
In this part, we need to answer which resources are used by the region in a value-creating way. In
other words, how much more or less value the region creates with particular resource in comparison
with the benchmark.
Value contribution (VC) for all environmental, economic and social resources is shown in Table 3.
3/ = 2 (456) − ./
(4)
1. How much Sustainable Value does the region create?
In the last step, we answer a question, what is the value created by each region with all considered
resources.
∑;< 3/;
SV =
n
(5)
Table 3: Calculation of VC and SV for Liberec Region in 2012

GDP (EUR) Opportunity costs (EUR) Value contribution (EUR)
Arable Land (ha) 4,948,926,014 3,331,775,049 1,617,150,966
Electricity (MWh) 4,948,926,014 4,482,436,816 466,489,198
Particulate matter (t) 4,948,926,014 5,371,415,412 -422,489,397
SO2 (t) 4,948,926,014 1,435,077,668 3,513,848,346
NOx (t) 4,948,926,014 2,827,135,769 2,121,790,246
CO (t) 4,948,926,014 5,450,817,909 -501,891,895
VOC (t) 4,948,926,014 5,843,002,094 -894,076,079
NH3 (t) 4,948,926,014 4,165,884,836 783,041,178
Waste gen. by enterp. (t) 4,948,926,014 3,753,939,338 1,194,986,677
Employment 4,948,926,014 6,062,316,316 -1,113,390,301
S&R Exp. (EUR) 4,948,926,014 6,026,091,700 -1,077,165,685
Sustainable Value (SV) 517,117,568 €
380
Table 4: Sustainable Value of the regions of the Czech Republic from 2006 to 2012
(in mil. EUR)
Region/Year 2006 2007 2008 2009 2010 2011 2012

Prague 17,137 16,816 20,683 20,713 22,115 21,642 23,263
Central Bohemia -3,199 -3,292 -3,128 -4,021 -4,386 -4,057 -4,409
South Bohemia -1,266 -1,502 -2,346 -2,496 -2,577 -2,302 -2,798
The Plzen -1,285 -1,250 -1,936 -1,780 -1,683 -1,373 -1,732
The Karlovy Vary -923 -1,252 -1,076 -784 -1,045 -862 -1,022
The Usti -6,037 -6,381 -6,384 -7,455 -7,589 -8,034 -7,852
The Liberec 918 822 210 708 757 552 517
The Hradec Kralove 35 66 125 116 60 165 -8
The Pardubice -1,330 -1,520 -1,539 -1,565 -2,026 -1,826 -2,512
The Vysocina -2,263 -1,837 -2,183 -2,460 -2,765 -2,327 -2,714
The South Moravian 1,318 1,212 1,933 807 1,980 1,939 1,983
The Olomouc -443 -158 -22 -287 -128 -289 -677
The Zlin 739 793 1,317 1,306 1,092 1,123 1,466
The Moravian-Silesian -3,398 -4,676 -3,106 -2,970 -3,823 -4,233 -2,765
Sustainable Value as an absolute figure shows, how much more or less return (GDP) a region
generates with a given set of resources in comparison to a benchmark.
Table 4 shows absolute Value from 2006 to 2012. Prague proves to be the top performing region in
terms of absolute Sustainable Value. Calculations prove the fact, that Prague created a value of
almost 23,263 million EUR in 2012. On the other hand, Central Bohemia Region created negative
Sustainable Value of 4,409 million EUR in 2012. That means more than 4,409 million EUR of
additional GDP could have been created if the resources had been used by the Czech Republic
average.
When comparing different regions, a size effect needs to be taken into account. For this purpose,
Sustainable Value Margin (SVM) was determined for more objective and meaningful interregional
comparison.
=3
=3> =
2 (456)
(6)
Table 5: SVM calculation for Liberec Region
2006 2007 2008 2009 2010 2011 2012

SV (EUR) 917,867,371 821,995,037 210,147,277 707,839,039 757,379,758 552,092,553 517,117,568
GDP 4,150,609 4,450,826,446 4,481,247,679 4,433,024,750 4,835,035,914 4,750,387,597 4,948,926,014
(EUR) 202
SVM 0.22 0.18 0.05 0.16 0.16 0.12 0.10
It means that Liberec Region was 0.1 more efficient than the Czech Republic on average in 2012.
Table 6 shows how much the final ranking would be distorted if the Sustainable Value was not
corrected according to the size of the regions.
Table 6: Regional ranking with regard to Sustainable Value and Sustainable Value Margin
Rank Sustainable Value Rank Sustainable Value Margin

Region/ 200 200 200 200 201 201 201 200 200 200 200 201 201 201
Year 6 7 8 9 0 1 2 6 7 8 9 0 1 2
381
Prague 1 1 1 1 1 1 1 1 1 1 1 1 1 1
Central
Bohemia 12 12 13 13 13 12 13 9 9 7 10 9 8 9
South
Bohemia 8 9 11 11 10 10 12 7 8 11 12 11 11 11
The Plzen 9 7 9 9 8 8 8 8 7 10 9 7 7 8
The
Karlovy
Vary 7 8 7 7 7 7 7 12 13 12 8 10 10 10
The Usti 14 14 14 14 14 14 14 14 14 14 14 14 14 14
The
Liberec 3 3 4 4 4 4 4 2 2 4 3 2 4 4
The
Hradec
Kralove 5 5 5 5 5 5 5 5 5 5 5 5 5 5
The
Pardubice 10 10 8 8 9 9 9 10 10 9 11 12 12 12
The
Vysocina 11 11 10 10 11 11 10 13 11 13 13 13 13 13
The South
Moravian 2 2 2 3 2 2 2 4 4 3 4 4 3 3
The
Olomouc 6 6 6 6 6 6 6 6 6 6 6 6 6 6
The Zlin 4 4 3 2 3 3 3 3 3 2 2 3 2 2
The
Moravian
-Silesian 13 13 12 12 12 13 11 11 12 8 7 8 9 7
Source: Source: own calculations
Conclusion
This article deals with Sustainable Value approach as a promising approach for measuring
contribution to sustainability and sustainable development. Sustainable Value framework is widely
considered as one of the most compelling and promising proposals thus so far, mainly used on
corporate or national level.
In comparison to international, national or strictly local scale, regional approach plays an increasingly
important role in the implementation of the principles of sustainable development and sustainability
planning.
According to new trends in perception of regional level as the optimal scale for implementation of
sustainable principles into practice, we suggest to implement well established and proven framework
of Sustainable Value on regional level. For this purpose, selected real economic, environmental and
social data of fourteen regions of the Czech Republic was analysed and evaluated based on
Sustainable Value approach while calculation process explained in depth. SV compares the resource
use of each region to a benchmark. As a result, SV shows in monetary terms the value that region
creates (or destroys) by the use of a set of economic, environmental and social resources.
Provided analysis ranks monitored regions with regard to their contribution to sustainability. It also
shows regions such as Prague, Zlin Region, South Moravian Region or Liberec Region create value
in the monitored period. Based on selected indicators, Usti, Vysocina and Pardubice Regions created
the most significant negative sustainable value. Analysis also provides insight into the strengths and
weaknesses of each region within the monitored indicators. With knowledge of these issues, regional
decision makers can adopt specific measures to avoid negative development in the future. Therefore,
this also opens up wide practical and scientific possibilities.
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384
A five Dimension Framework for International Business Relationships

the B2B Approach
Elena-Mădălina Vătămănescu, Doctoral School in Economics and International Business,
Bucharest University of Economic Studies, Bucharest, Romania,
madalina.vatamanescu@yahoo.com
Vlad-Andrei Alexandru, Center for Research in Management and Leadership, Bucharest,

Romania, alexandruvlad_05@ymail.com
Laurențiu-Mihai Treapăt, Faculty of Management, National University of Political Studies and Public
Administration, Bucharest, Romania, laurentiu.treapat@facultateademanagement.ro
Abstract
The current paper proposes an alternative overview on the formation and development of international
business relationships in a business-to-business (B2B) industrial sector. 107 Romanian managers from
small and medium-sized enterprises (SMEs) participated in a questionnaire-based survey regarding their
approaches and conducts when going international with a view to become more competitive and present
on the global market. Five dimensions of international business relationships are mainly discussed, that is
competitiveness, commonality, compatibility, credibility and connectivity. The findings of the study
indicate that all the five elements stand for catalysts, enhancing the establishment and development of
solid and sustainable business partnerships if shared by all the involved parties.
Keywords: international business relationships, SMEs, industrial field, B2B.
Introduction
Against the backdrop of globalization and the increased unpredictability of customers’ demands,
companies started to look for a way of obtaining new resources and benefits outside country’s
boundaries. Thus, SMEs internationalization captures the attention of both researchers and practitioners
and become a common figure when discussing international relationships.
Previous studies concentrate either on analyzing the process of decision-making during SMEs
internationalization (Schweizer, 2012; Child and Hsieh, 2014; Ocloo, Akaba and Worwui-Brown, 2014;
Lee, 2014; Vătămănescu et al., 2014) or on correlating / differentiating between the challenges of SMEs
versus the opportunities of large corporations (Hutchinson and Quintas, 2008; Mirshekary and Carr,
2015). In this front, Majocci and Zucchela (2003) underline that comparison between SMEs and
multinationals or transnationals should be avoided although they are forced to deal with similar
challenges, urging that the first ones are not a smaller clone of the last ones.
Focusing on SMEs, the extant literature emphasizes that the imperative for international action is being
based on survival or progress (Sandberg, 2014; Vătămănescu et al., 2014; Suh and Kim, 2014) and it is
the result of one of the four decision-making mode, namely: reactivity, incrementalism, bounded
rationality and real options reasoning (Child and Hsieh, 2014). Still, independent of the examined
variable(s), the analyses are mostly causative and focus on understanding new realities through old
theories. Here, it can be argued that SMEs internationalization should be conducted by a new managerial
385
prototype who is responsible for coping with current challenges, anticipating future threats and
opportunities, and ensuring firm’s competitiveness in an international and multicultural environment
(Vătămănescu, Alexandru and Gorgos, 2014; Nicolescu et al., 2015). This manager would admit the
challenges of operating in an international environment and would recognize the necessity of adapting to
intercultural specificity; sustainable relationships would become, thus, a decisive factor for the emergence
of an international open-culture and a key point for gaining competitive advantages.
Given the need for a holistic approach, the present paper proposes an alternative overview on the
formation and development of international business relationships in the B2B sector. The work was
structured as follows: in the next section, previous studies are reviewed. Then, the research method is
thoroughly depicted and the results and discussion section presents the empirical evidence. Finally, the
conclusions section consists of a summary of the findings, suggesting future research directions.
Literature Review
The approach on sustainable relationships is consistent with Hapenciuc et al.’s (2015) and Soto-Acosta et
al.’s (2016, p. 1) vision on “the importance of maintaining both a trust-based and reciprocal relationship
with those involved in the business – sustainable entrepreneurs need to provide a sense of responsibility
and accountability, and make sure that exploitation (involving any stakeholders, like workers, partners,
community) does not occur”.
Building on this logic, the demand for an integrative approach is high and its premises rely on a new
repertoire of intercultural and international issues capable of influencing SMEs competitiveness within
today’s global environment. Intercultural issues have a strong influence on business interactions
(Ashforth and Kreiner, 2014; Vătămănescu et al., 2014) interfering not only in the processes of
communication, but also in the relationship management strategies and firm’s behaviour on the market;
among the most powerful influence factors can be included language, the attitude towards mistakes and
uncertainty, and the predisposition of valuing the individual instead of the group (Leon, 2011). Even
when managers speak the same language or they use the services of a professional translator, it is likely
for different meanings to be attributed to words, while different rationales and approaches determine what
is formally relevant or not.
The first element inherent to sustainable relationships is competitiveness. Business internationalization

does not occur from one day to another - it is an organizational project focused on generating competitive
advantages which requires meeting three conditions: being committed to long-term internationalization
projects, ensuring the necessary resources and sustaining progress continuously (Danciu, 2012; Lee,
2014; Nicolescu et al., 2015).
The second element is commonality, a relational dimension which emphasizes the establishment of
international business relationships can be established only in a well-defined context, characterized by
various sets of available alternatives. In order to engage in international operations and to develop
competitive strategies in new territories, a firm must acquire general and specialized knowledge (Flecher,
Harris and Richey, 2013) about the characteristics of the new international context. Managers participate
to international thematic events - during these, they will not only acquire specialized knowledge, but will
also develop personal relationships in their area of interest. The context of common interests increases the
degree of mutual understanding and support (Festing and Maletzky, 2011; Schein, 2009) and facilitates
knowledge creation and acquisition during business internationalization (Casillas Casillas et al., 2009;
Tolstoy, 2009). Although, in the current IT-driven economy, information travel from one continent to
another in just a couple of mili-seconds, a progressive geographical venture into close markets would be a
wiser choice of doing businesses (Nordman and Tolstoy, 2014; Sandberg, 2014).
386
The third element is represented by interpersonal compatibility. Managers are expected to develop
sustainable relationships with their fellows by accepting others’ opinions and by focusing on applying
win-win strategies - if a potential partner has a different perspective on the matter, managers dear to
challenge their own rationales and visions, being open to diversity (Schein, 2009; Nicolescu et al., 2015).
They would be more oriented to valuing similarities, applying win-win strategies and wining
achievements and rewards through dialog and negotiation. These elements are practically describing the
characteristics of what the intercultural management theories call ‘feminism culture’. In order to achieve
compatibility, some concessions must be made at the beginning (Schein, 2009; Festing and Maletzky,
2011), by acknowledging that each culture has opinions and biases about others.
The fourth element is credibility, a fundamental dimension of business relationships, international

partnerships being developed based on trust and professionalism (Rodriguez and Wilson, 2002).
Although apparently business relationships are established based on economic exchanges and negotiation,
their real “engine” relies in the friendship resources. Credibility can only be achieved through
communication and compatibility which mark the first steps in building successful international
transactions. Getting along during the first business agreement is a sign for keeping the relationship alive
and a proof of initial credibility. The unfolding of successive businesses settles new drivers for long-run
relationships, a second phase of substantial credibility (Rodriguez and Wilson, 2002; Hampton and
Rowell, 2013).
The fifth element – connectivity – posits that creating a capital of trust and support reinforces the position
of the business within the network framework and generates incentives for the system development.
According to Möhring’s (2002) theory of business internationalization, organizations have different paths
of going international starting with becoming a key component of a value-added chain, of providing raw
material or even final products for foreign industries, of exploiting business opportunities through
different international collaborations or of generating innovation and information exchange in order to
consolidate the position on the international markets. The connectivity perspective adds up Held,
McGrew, Goldblatt and Perraton’s (1999) consideration on globalization – the escalade of the global
interconnectivity – through multiple and varied channels and connections. These vary from the
international institutionalized social relationships and from the cross-border flows of goods, information,
individuals and social and cultural practices to the new technological opportunities provided by new
media, and even social media (Glavas and Mathews, 2014; Nicolescu et al., 2015).
As Bell, McNaughton, Young and Crick (2003, p. 341) state, the relationship between networks and SME
internationalization is such that “internationalization is seen as an entrepreneurial process embedded in an
institutional and social web which supports the firm in terms of access to information, human capital,
finance, and so on”. A SME that can secure relevant information from its network should thereby be able
to strengthen its competitive position and to make a success of diversifying into international markets
(Johanson and Vahlne, 2009). Network attachment may include relations with other firm, institutional
agencies, consultant and other SMEs.
Against this backdrop, the research relies on the investigation of the five elements of sustainable business
relationships and on the importance and relevance attached to each of its elements by managers working
in the B2B industry. The study is focused simultaneously on facts, on previous experiences and on self-
perception, taking into consideration the mental approach of the subjects towards business
internationalization.
Based on the theoretical framework, the following hypotheses were advanced:

H1. Competitiveness stands for the key element for going international.
H2. Commonality stands for an important factor when going international.
H3. Compatibility stands for a relevant catalyst for establishing partnerships.
387
H4. Credibility stands for the key to long-term international collaboration.

H5. Connectivity stands for an important factor when going international.
Research Design and Method
Sample / Participants
Participants (N = 107) in the Romanian industrial field were invited to take part in a survey about facts
and representations associated with the business internationalization strategies, approaches, projects,
insights etc. Only managers who had an international experience participated in this study, but all of them
conformed to this condition.
Procedure and materials
The survey was fielded between May 20 and June 9, 2014. After agreeing to participate in this study, the
selected managers were asked to complete several self-administered questionnaires. Participants were
assured that all identifying information would be kept anonymous.
The convenient time for filling out the questionnaire was established in a pre-test conducted with four
volunteers and it was settled at seven minutes. The 25-item questionnaire developed contains five
categories of items assessing each of the theoretical elements and the personal information. The
questionnaire comprised only closed-ended questions (with the exception of the personal information
section) in order to have a higher degree of objectivity in categorizing the answers and with the view to
keep its filling as short as possible. Participants were asked to rate their opinion on a 1 (Not true) to 5
(Very true) Likert scale. Also, the option for a survey based on questionnaires relied on its quantitative
nature which provides information about the surface characteristics of a certain population or sample.
Measures
The 25 items of the questionnaire referred both to facts, opinions and attitudes related to subjects’
business internationalization experiences and strategies: (1) Competitiveness; (2) Commonality; (3)
Compatibility; (4) Credibility; (5) Connectivity. A final section included the respondents’ personal
information which consisted of age and nationality, the origin of the firm, the managers’ education level
and field, the estimated number of international partners and the managers’ experience in the field. All
these data were used to trace relevant correlations between the main analyzed variables and the social and
professional profiles of the questioned subjects.
Findings
The value of the Cronbach Alpha coefficient for the research scale was 0.889=88.9%, the result reflecting
a very good value for the internal consequence of the conceptual construction of the investigated scale, as
it exceeds 80% (Anastasiadou, 2006, p. 342).
Starting from this point, an overview of the results is liable to account for the importance and relevance
attached by the questioned managers to competitiveness, commonality, compatibility, credibility and
connectivity. To this end, a comparison between the average category scores was made (as seen in Figure
1).
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Figure1: The average category scores for the five dimensions
The results provide a preliminary perspective on the hierarchy of the five elements and on the value
attributed to each element. Accordingly, Competitiveness, the first dimension of the model is invested
with the highest relevance by the subjects, a fact which confirms the first hypothesis of the present study,
namely H1. Competitiveness is the key element for going international.
Competitiveness is followed by credibility, commonality and connectivity while compatibility occupies

the last position. Here, the compatibility between business partners is considered to be less important than
the other components, stressing the idea that business interests often surpass personal factors when
closing new international deals. Still, it is worth mentioning that the comparison has as a reference point
the scores gathered by the other dimensions, the assessment does not take into consideration the
configuration of the responses within the Compatibility dimension.
The first cross-tabulation pointed out the interrelation between the categories attributed to the five
elements and the “Age” variable, as seen in Figure 2.
Figure 2: The cross-tabulation of the five elements with the “Age” variable
389
The results show that most of the respondents which confirmed the pertinence of the proposed items of
each dimension are under 35 years old while the neutral positions are mainly characteristic for the
participants aged between 35 and 55 and the most negative positions are attributed to the participants over
55 years old. The cross-tabulation of the five elements with the “Experience as a manager in this field”
variable allowed the pursuit of new directions, as illustrated in Figure 3.
Figure 3: The cross-tabulation of the five elements with the “Experience as a manager
in this field” variable
As the results show, managers with 1 to 3-year experience in the field are the ones who mostly leverage
the importance of the proposed elements. They are followed by managers from the intermediary
categories (4-7 years and 8-10 years). An interesting pattern is brought to the fore by the neutral category
which is mostly present in the approaches of the participants with a managerial experience of over ten
years. One possible explanation of the results distribution is that with greater experience in the field
comes a better assessment of the encountered situations and, implicitly, of the fact that things are not
either white, or black. In this context, a balanced attitude towards the five elements may be interpreted as
a wiser or better understanding of the international contingencies, which avoids categorical opinions.
By correlating the present distributions with the ones from the previous cross-tabulation, it becomes
obvious that the more experienced managers are not implicitly the older ones, as the middle age category
proved to be more neutral than the last age category.
The third cross-tabulation refers to the interrelation between the categories attributed to the five elements
and the “Estimated number of international partners” variable which reflects the international experience
of the subjects in a quantitative manner (as illustrated in Figure 4). In addition, given the importance of
the “Estimated number of international partners” variable for the appraisal of the international experience
of the participants to the study, the cross-tabulation was performed on each dimension as well (as
presented in Figure 5).
390
Figure 4: The cross-tabulation of the five elements with the “Estimated number of international
partners” variable
Figure 5: The cross-tabulation of the categories attributed to the five elements with the “Estimated
number of international partners” variable
The analysis of the distributions marks out that managers with 11-20 international partners are the ones
who greatly appreciate the statements of the five dimensions as mostly or very true. At the same,
managers with 31-40 international partners are the ones who relieve the most prominent neutral attitude
towards the five dimensions, but the neutral values fall deeply below the positive values. Still, the
analysis of each of the five dimensions reveals that managers with 31-40 international partners have the
most neutral approaches towards the compatibility items while there is no neutral response towards the
competitiveness items, a fact which validates at its turn the imperative to be competitive on a dynamic
market.
An interesting fact is triggered by the distribution of the negative categories. In contrast with the other
groupings, managers who have the lowest number of international partners are the ones with the most
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negative approaches towards the model items (22.67% compared with 3.44%, 3.81%, 5.37% and 5.47%).
The distribution is more relevant as the managers who have the smallest number of international partners
bring together the lowest percentage on the positive category. This situation may be indicative of their
limited experience with other international businessmen and of an incipient insight into the international
collaborations. At this level, it is also worth mentioning that the competitiveness and connectivity
dimensions are the ones which gathered the lowest percentages on the negative category.
Another relevant analysis of the five dimensions relies on the inferential statistics, namely on the
Spearman Rho correlations among the five elements and, subsequently, among all the twenty-five items
comprised by the five dimensions. All the five elements are inter-related, a fact proven by the correlation
coefficients which exceed .500 (a representative level for strong correlations), the test being significant
(Sig. < .01).
Among the strongest relevant correlations (ρ > .600, Sig. (2-tailed) < .01), several patterns and variables
should be mentioned. Hence, the first important correlation is established between Competitiveness and
Connectivity (I2 - I25), revealing that the more local and national competitors, the more interest is shown
for maintaining global interconnectivity through multiple channels, as a source of competitive advantage
(ρ = .641, Sig. (2-tailed) < .01). Furthermore, a strong correlation between the two dimensions is
highlighted by I5 and I24, stressing out that the more the business internationalization is part of the
strategic planning and development, the more important is having access to the informational and
experiential resources of the business and professional networks, as a source of competitive advantage (ρ
= .649, Sig. (2-tailed) < .01). Both of the correlations greatly confirm the first and the fifth hypotheses of
the study, according to which Competitiveness stands for the key element for going international,
respectively Connectivity stands for an important factor when going international.
Hereafter, a strong correlation is traced between Competitiveness and Credibility (I3 - I17), showing that
the endeavor of going international as a condition of organizational development is strongly correlated
with the level of successful finished operations (ρ = .648, Sig. (2-tailed) < .01), the correlation sustaining
the confirmation of the fourth hypothesis - Credibility stands for the key to long-term international
collaboration.
Another strong correlation regards Commonality and Credibility, namely the interdependence between
approaching the global market whenever the economic and financial outcomes seem profitable, at a
reasonable risk level and paying attention to the partner’s previous experience and history in the
international business arena (ρ = .607, Sig. (2-tailed) < .01). This fact reveals that the global market
opportunities are filtered out through the potential partner’s antecedents, proving once again that
credibility mediates the endeavor of addressing the global market in the B2B sector.
The interdependence between Compatibility and Connectivity is obvious through the strong correlation
between I12 and I21, underlining that the more important the partner’s psychological, social and
professional features, the more important is building and becoming part of business networks for the
organizational development (ρ = .723, Sig. (2-tailed) < .01). This is indicative of the validation of the
third hypothesis - Compatibility stands for a relevant catalyst for establishing partnerships.
As the results show, the five hypotheses of the study were greatly validated. Therefore, each dimension
has gathered majorities of positive approaches to its role within the process of business
internationalization. Also, the patterns of the five elements are quite similar, sustaining the model
consistency and its pertinence for the B2B SMEs.
A rough hierarchy of the five elements – based on the average category scores, according to the
respondents’ answers – places Competitiveness as a leader dimension, followed by Credibility,
Commonality and Connectivity, while Compatibility occupies the last position. The order is natural as it
392
reflects the driving force of going international, the market condition which pushes organizations out of
their current habitat and determines them to venture into foreign markets.
Starting from this point, the “deployment” of the internationalization project follows its course, by
reifying the importance of the other dimensions for the creation, settlement and maintenance of strong
international partnerships and business networks. The cycle is consistently reiterated as new
collaborations are established due to the highly dynamic business environment at the local, national,
regional, international and global levels. As proved by the findings, B2B SMEs assume this challenge and
are ready to provide a pertinent answer to the business internationalization imperative.
Conclusions, limitations and future directions
Nowadays, staying away from the worldwide competition may trigger major effects on the organizational
performance and even survival. Being a strong competitor is of primary importance and managers have to
acknowledge the exigency to go internationally in search of new and relevant opportunities. There are
many times when opportunities come and go and a late action may cause substantial damage to the
company.
Focusing on sustainable business relationships, the international approach of the management is often the
key to success or the driver of failure. As illustrate, convergence, commonality, compatibility, credibility
and connectivity are pillars for business relationships formation and development, a fact which should be
properly capitalized by managers acting in a B2B arena. The advanced dimensions have not been
previously discussed in an overall research dedicated to the Romanian industrial field, in this way, the
current paper bringing to the fore a novel insight on the matter.
Still, in spite of the multidimensional analysis, the addressed dimensions are concentrated on the socio-
economic, professional, cultural and psychological components of the international business
relationships, other segments – as the financial and technical components – not being considered when
conceiving the analytic perspective. These elements were left aside as the purpose of this study was to
investigate the relationship-driven approach on B2B international projects through the lens of an
emerging European country. Another limit of the study refers to the convenience sampling which only
addressed managers in the Romania industrial sector. This leads to the fact that the results cannot be
applicable to the entire population.
Taking into consideration the forenamed limitations of the study, several future research directions are yet
to be considered. Firstly, new components are liable to be integrated in the overall outlook (for instance,
financial and technical components). Secondly, comparative surveys may be designed and conducted,
relying on different countries or different fields. Also, shifting the focus on transnational corporate actors
would provide new insights for the scholarly literature and for the managerial practice.
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Examining the Factors of Social Commerce Effectiveness

Erne Suzila Kassim, Abdul Kadir Othman, Norol Hamiza Zamzuri
Faculty of Business and Management, Universiti Teknologi MARA

42300 Puncak Alam, MALAYSIA
*
ernekassim@puncakalam.uitm.edu.my
Abstract
Social commerce is becoming a trend in the online business domain. However it is not solely about
selling-buying products. Since it involves social media, communication and customer relationships are
important issues. Besides, with many social commerce sites to choose from, it raises the question on what
factors determine the customers to be loyal to a particular social commerce, a situation which is crucial to
sustain the business. Thus far, limited formula is known on what strategies social commerce operators
focus in ensuring their sites and services are effective in promoting for repeat purchase. Therefore, the
study was conducted to examine the roles of process quality, service quality, communication quality and
privacy and security quality in explaining for social commerce effectiveness. Conducting a survey
method, data was collected from 520 active social commerce participants and run for exploratory
analysis, correlation and regression tests. The results reveal for the predicting factors of the antecedents in
explaining for social commerce effectiveness. The study is significant for theorizing a formula that
explains for the strategy in retaining customers in the social commerce environment. Implications and
future study directions are also offered.
Keywords: social commerce, social commerce effectiveness, online business, social commerce success
factors
Introduction
Tremendous growth in technological innovations has created emerging trends in business and customer
relationships. Social commerce is one of them. While a broader view defines social commerce as a new
form of e-commerce that deploys social media for social and business interactions, a more definitive
explanation describes social commerce as the use of Web 3.0 and social technologies such as ‘buy button’
(Facebook, Pinterest and Twitter) to support the social business interactions on the Internet.
In referring to this development, several other social tools such as forum and communities were
developed to support the idea of online purchase among social commerce users (Chen, Shen & Shen,
2014). This improves the bargaining power among consumers and causes a shift in the business-consumer
relationships (Ng, 2013). As a result, it enlarges the scope of choices among customers and also broadens
the customer’s interest to other products or social commerce services. The market openness then creates a
higher flexibility for customers to engage with any of the diverse social commerce operators. Social
commerce is not solely about selling products. As it involves social media, communication and
relationships are important issues. With many social commerce sites to choose from, it raises the question
on what factors determine the customers to be loyal to a particular social commerce, a situation which is
crucial for the social commerce operators to sustain the business.
In addition, even though social commerce has become common, discussion in the literature does not
adequately address the aspect of social commerce effectiveness. Therefore, limited formula is known on
what strategies the operators should focus in ensuring their sites and services are effective in promoting
for repeat purchase. The study was then conducted to address the importance of process quality, service
quality, communication quality and privacy and security quality in explaining for the strategies.
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Review of Literature
According to Kalpic and Bernus (2006) , the use of social media in business has lead to the new
innovation that drives society and business operators to work faster, create and manage more
interdependencies and provide opportunities for global market operations. Obviously, these new trends
are facilitating the construction of strong social media and virtual communities, affecting the design of
websites, and in general, increasing the competitiveness of organization. In particular, the growth of
social media such as Facebook, Instagram, Twitter and other kinds of social media application
technologies has been significant over the last few years.
Several factors have been found to explain for customers to purchase via social commerce. Among them
are perceived values (Jailani, Othman & Kassim, 2014), service quality, service responsiveness and
service recovery (Lee, Cha & Cho, 2012). As social commerce is growing, netizens and active social
commerce buyers are spoilt with varieties of product choices. Hence, social commerce operators must be
distinctive in offering their products and services, including adopting the customer relationship strategies.
Such effort is fundamental in promoting customers’ acceptance and ensuring the business survival and
sustainability.
In line with the emerging social commerce, debates continue on how to measure the customers’
acceptance for social commerce effectiveness. This includes for the assessment on customers loyalty
(Wong, Lo & Ramayah, 2014) and repurchase intention (Hsu, Chang, Chu & Lee, 2014; Fang, Chiu &
Wang, 2011). Armesh, Salarzehi, Yaghoobi, Heydari and Nikbin (2010) describe customer loyalty in the
online business environment as “the behavior approach criteria such as repeat purchase, share-of-wallet,
and word of mouth referrals”. In this regard, it highlights on the inclusiveness of repurchase intention in
social commerce effectiveness. In addition, the facilitation of social media signifies for the importance of
measuring communication and relationship qualities of social commerce. Similarly, the process of the
buying-selling and the privacy aspects are not less than significance.
Process is a basis of any business (Lohrmann & Reichert, 2013). In social commerce, it relates to the
attributes of reliability, ease of use, design and purpose fit (Victor Chen, Chen & Capistrano, 2013).
Failure to offer these qualities will put the customers in distance. As netizens are known to be the group
who prefers speedy process that fulfills their needs, reliable social commerce is argued to be important.
Therefore, we offer the following hypothesis:
H1: There is a significant relationship between process quality and social commerce effectiveness.
A good quality of communication and interaction is essential in business. It refers to the extent to which
appropriate and useful information is provided. Client loyalty requires improving the customer’s
experience (Janita & Mirada, 2013). Social commerce is about interaction, therefore maintaining the
interaction by giving prompt response is necessary (Kassim et al, 2016).
H2: There is a significant relationship between communication quality and social commerce
effectiveness.
Previous studies also have found customer’s trust in social network online purchase is affected by the
level of security quality (Jailani et al., 2014). As the communication and interaction is open, social
commerce operators must provide a secure protection to customer’s information. Customers who are
confident with the privacy features will be more likely to return, thus promoting for higher social
commerce effectiveness.
H3: There is a significant relationship between privacy and security quality and social commerce
effectiveness.
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Delivering service quality is very important, especially with the presence of web technologies. It is the
extent to which the online site facilitates efficient and effective shopping, purchasing and delivery of
products (Collier & Bienstock, 2015). Service quality has been found as a significant predictor to social
commerce adoption (Liang et al., 2011; Lee et al., 2012).
H4: There is a significant relationship between service quality and social commerce effectiveness.
Research Design
Using a survey method and random sampling strategy, data was collected from active social commerce
participants. In order to ensure for sample fit, a question was specifically asked if they have engaged in
any social commerce activity. Those who have not experienced the new trend were not included as the
research respondents. At the end of the data collection period, a total of 520 useful responses were
obtained.
Respondents’ Profile
Respondents’ information in the study was analyzed using descriptive analysis to examine its distribution.
The 520 responses were shared between 38.5% males and 61.5% females. With regard to the
respondents’ distribution based on occupation, 126 respondents or 24.2% were students, 101 respondents
or 19.4% were working on their own, and 290 respondents or 56.0% were in other categories, most
working as teachers, nurses, air stewards/stewardesses and government servants. Pertaining to
respondents’ IT competency, majority are competent, consisting 426 of them or 81.9%. Only three
respondents (0.6%) confessed for not having adequate IT skills. The remaining 91 of them or 17.5% just
know the basic IT applications. The average age of the respondents was 26 years old.
Results and Findings
Factor Analysis
Before the data was tested for the regression, factor analysis was run for both the independent and
dependent variables. Principal Component Factor Analyses with varimax rotation were utilized to identify
the underlying structure or dimensions. Factor analysis can recognize whether a common factor or more
than a single factor is present in the responses to the items. In essence, factor analysis was used to
understand the underlying structure in the data matrix, to identify the most parsimonious set of variables,
and to establish the goodness of measures for testing the hypotheses (Hair, Black, Babin, Anderson &
Tatham, 2006).
Overall, two factor analyses were performed independently for each scale. Two criteria were used to
determine the number of factors to be extracted: (1) the absolute magnitude of the eigenvalues of factors
(eigenvalue greater than one criterion), and (2) the relative magnitude of the eigenvalues (scree test plot)
(Hair et al., 2006). The eigenvalue of a factor represents the amount of total variance accounted by the
factor. The total amount of variance explained by the factor(s) was set at 60.0 % and above (Hair et al.,
2006). In addition, the scree test plot was also inspected to find a point at which the shape of the curve
changed direction and became horizontal. All factors above the elbow, or a break in the plot, were
retained as these factors contributed the most to the variance in the data set. In interpreting the factors,
only items with a loading of .50 or greater on one factor were considered.
Assessing the validity of the social commerce constructs, Principle Component Factor Analysis was
conducted. There were initially 19 items for the scale with different number of items for the four
dimensions; privacy and security (5 items), process quality (5 items), service quality (4 items), and
communication (5 items). Factor analysis with varimax rotation was used to determine factors’
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dimensionality. The results of the analysis revealed that 18 items formed four structures equivalent to the
original structures. The results are shown in Table 1.
Table 1: Factor Analysis for the Independent Variables
Component
1 2 3 4
Privacy and Security
I am confident with the information security protection. .869
The purchase is protected by terms and regulations. .861
I am confident that my personal information is not shared
.857
with others.
I am confident that the business protects my financial
.785
information when payments are made.
I do not feel dangerous when I release my credit
.690
card/financial information to the seller.
Process Quality
The purchase is reliable. .791
The product received is exactly what I have expected. .767
The design of the social commerce site is easy to understand. .758
The purchase enables me to achieve my buying purpose. .722
The purchase is easy to do. .620
Service Quality
The quality and quantity of the products I receive match the
.790
description that was made in the order.
In general, I am confident with the purchase. .760
The products are delivered in a good condition, free of
.727
defects.
The products are delivered within time. .721
Communication
I get prompt reply to my questions or comments. .792
I get quick response to my request. .791
The business deals with product returns properly. .681
I get acknowledgement or confirmation of my orders. .638
% variance explained (77.804) 23.049 20.841 17.295 16.619
Kaiser-Meyer-Olkin Measure of Sampling Adequacy .935
Bartlett’s Test of Sphericity Approx. Chi-Square 8500.823
Df 153
Sig. .000
MSA .917-.973
The KMO measure of sampling adequacy for the social commerce scale is .935 indicating that the items
were interrelated. Bartlett’s Test of Sphericity shows a significant value (Approx. Chi-Square = 8500.823,
p<.01) indicating the significance of the correlation matrix and appropriateness for factor analysis.
Moreover, the individual MSA values range from .917 to .973, indicating that the data matrix was
suitable to be factor analyzed. Results of factor analysis with varimax rotation indicated the existence of
four factors with initial eigenvalues greater than one that explained 78% of total variance. The results of a
scree test also provided support for a four-factor solution.
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Determining the unidimensionality of the social commerce effectiveness variable, Principle Component
Factor Analysis was also performed. The results of factor analysis are displayed in Table 2. The KMO
measure of sampling adequacy for the customer loyalty scale is .856 indicating that the items were
interrelated. Bartlett’s Test of Sphericity shows a significant value (Approx. Chi-Square = 1893.925,
p<.01) indicating the significance of the correlation matrix and appropriateness for factor analysis.
Moreover, the individual MSA values range from .815 to .902, indicating that the data matrix was
suitable to be factor analyzed. Results of factor analysis indicate the existence of one factor with initial
eigenvalues greater than one that explained 85% of total variance. The result of a scree test also provided
support for one-factor solution with its original name retained.
Table 2: Factor Analysis for the Dependent Variable
Component
1
Loyalty
I will do more purchases with the seller. .942
I consider the seller as my first choice for future purchase. .937
I will recommend the product to others. .901
I will recommend the seller to others. .898
% variance explained 84.593
Kaiser-Meyer-Olkin Measure of Sampling Adequacy .856
Bartlett’s Test of Sphericity Approx. Chi-Square 1893.925
Df 6
Sig. .000
MSA .815-.902
Reliability Analysis and Correlation Test

The results of reliability analysis denote that the measure gauging the intended variables has high internal
consistency and stability with Cronbach alpha values range from .899 for communication to .936 for
security. Results of correlation analysis indicate that all variables are highly correlated with each other.
The highly correlated variables indicate significant relationships among them which should be highly
considered in explaining the phenomenon of interest. Significant correlations are observed between the
independent variables or social commerce constructs. The results are shown in Table 3.
Table 3: Correlation Analysis
Variables Mean SD 1 2 3 4 5
Security 3.62 .84 (.936)
Process Quality 4.16 .69 .546** (.910)
Service Quality 4.10 .70 .579** .739** (.900)
**
Communication 3.93 .79 .678 .700** .613** (.899)
SC Effectiveness 4.18 .77 .572** .698** .807** .612** (.938)
Notes: **. Correlation is significant at the 0.01 level (1-tailed); N=520
The lowest correlation is between security and process quality (r=.546, p<.01). The highest correlation is
between product quality and service quality (r=.739, p<.01). These significant correlations signify
400
convergent validity of the independent variables. Besides, significant correlations are also observed
between independent variables and the dependent variable with the lowest correlation between privacy
and security and social commerce effectiveness (r=.572, p<.01). The highest correlation is found between
service quality and social commerce effectiveness (r=.807, p<.01). These significant correlations denote
concurrent validity of the measures.
Regression Test
Finally, a regression test was conducted to examine the factors to social commerce effectiveness. The
results are displayed in Table 4. The regression model is significant with R² of .711, indicating that 71.1%
of the variance was explained by social commerce factors (F (4, 510) = 314.286, p = 0.000). Looking at
the contribution of the individual independent variable, process quality (β = .175, p<.01), service quality
(β = .602, p<.01) and communication (β = .093, p<.05) are significant predictors of social commerce
effectiveness.
Table 4: Regression Analysis
Variables Std. β
Security .085*
Process Quality .175**
Service Quality .602**
Communication .093*
R .843
R² .711
Adjusted R² .709
F value 314.286
Significance F value .000
Durbin Watson 1.790
Discussion and Conclusion

The four factors of social commerce; process quality, service quality, privacy and security, and
communication are important to ensure customers are loyal in using the social commerce channels in
engaging in online purchasing. The most probable reasons for these findings are first similar to
conventional purchasing as customers perceive the process quality and quality of service as priorities over
other features. These two elements are crucial for the products or services sold online. For example, if the
process quality is not meeting the expectation of the buyers, they will not purchase using the same
channel in the future. Communication is another aspect that must be highly considered when selling
products or services via social commerce. This is due to the information seeking behaviour of the buyers.
They want to ensure that the products or services they buy via social media meet their needs and
requirements. Social commerce is interactive and able to meet the information need of buyers.
This study is intended to discover factors of social commerce that might contribute to customer loyalty.
This framework can be used by future researchers in investigating similar issues but in different contexts
or regarding specific product offerings such as apparels, sport equipment, and jewelries. Besides,
individual factors such as age, gender, personality traits, and others are also expected to pose some
influence on the relationships. On the other hand, other possible factors of referrals, availability of
product samples, and availability of a link to main website should also be considered. This kind of
investigation requires concerted future research efforts as it will contribute to the establishment of the
most parsimonious model of social commerce effectiveness.
401
Acknowledgement
The authors gratefully acknowledge the help of the Ministry of Higher Education of Malaysia in
providing the Fundamental Research Grant Scheme Fund (Project Number:
FRGS/2/2014/SS05/UITM/02/4) and Universiti Teknologi MARA for supporting the research work.
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electronic marketplaces’, Industrial Marketing Management, 42(5), 814-823.
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perspective’, Journal of Knowledge Management, 10(3), 40-56.
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Roles of Customer Focus, Innovative Business Model, Legality and Trust’, Information Journal, 19 (7B),
2907-2912.
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Heidelberg.
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Social Support and Relationship Quality’, International Journal of Electronic Commerce, 16(2), 69–90.
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Management (pp. 41-73). Springer Berlin Heidelberg.
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study’, Information & Management, 609-620.
402
Victor Chen, J., Chen, Y., and Paolo S. Capistrano, E. (2013). ‘Process quality and collaboration quality
on B2B e-commerce’. Industrial Management & Data Systems, 113(6), 908-926.
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Customer E-Loyalty and E-Satisfaction in Malaysia’, International Journal of Business and
Society, 15(3), 477.
403
Statistical Analysis of Pensions and Incomes of Old Generation in

Russia and Tomsk Region
Marina Ryzhkova, Department of Economics Tomsk Polytechnic University, Tomsk, Russia,

Department of Economics Tomsk State University of Control Systems and Radioelectronics, Tomsk,
Russia, marybox@inbox.ru
Vladislav Spitsin, Department of Management Tomsk Polytechnic University, Tomsk,
Russia, spitsin_vv@mail.ru,
Aleksandr Mikhalchuk, Department of Higher Mathematics Tomsk Polytechnic University, Tomsk,
Russia, aamih54@gmail.com
Lubov Spitsina, Department of Economics Tomsk Polytechnic University, Tomsk, Russia,
s_luba_07@mail.ru
Viktor Kanov, Tomsk State University, Tomsk, Russia, kvi-t@rambler.ru
Abstract
In the article the results of statistical analysis of pensions and incomes of old generation of Russia
and Tomsk Region are presented. We investigate the differentiation of the average pension and the
income of the elderly, caused by such factors as area of residence and gender. The analysis shows
that the current pension system in Russia at the level of regions of Russia can be characterized as
egalitarian. Differences in the average size of pensions and their ratio to the cost of living between
regions of Russia (regions of the Siberian Federal District as an example) were revealed, but the
differences between leading regions and region-outsiders does not exceed 27% in 2015. The average
monthly pension of male in Russia is slightly higher than that of women. Our research confirms this
thesis and shows statistically significant differences in the average income of elderly people by
gender in Tomsk region. Statistically significant is the excess of income of retired men over women
income in most surveyed areas of Tomsk region. The results of our study may be implemented to
improve public care and social support of pensioners in Russian Federation and its regions in difficult
economic situation. It is necessary to keep the current level of pensions to the subsistence minimum
ratio, which fell slightly in 2015. We hope that the indexation of pensions in 2016 will increase its
real value. On the other hand it is necessary to take into account the revealed differences in pensions
and income by gender.
Keywords: income, pension, the elderly, old generation, statistical analysis, opinion surveys.
Introduction
Research of human income and well-being ratio is one of the main issues describing lifelong well-
being of the population. This correlation is particularly important for elderly group of population,
which percentage is stably rising both in developed and in developing countries including Russia.
Researchers from institutions of OECD and developing countries (Chybalski (2015), EuroStat (2015),
Gardiner et al. (2015), Kiss and Dudas (2009), OECD (2013), OECD Regional Well-Being: A User’s
Guide (2014), Rad (2014), Seok et al. (2015), Whitehouse (2008), Zanier and Crespi (2015)), and
from Russia (Bekmurzaev and Shamilev (2014), Grjachenko (2015), Lebedeva and Feiguine (2015),
Misikhina (2014), Vafin (2015)), focus on different aspects of basic and special spheres of mentioned
categories:
1. The level of income of old people and its correlations with the subjective well-being in different
countries and cross-country comparisons.
2. The structure and efficiency of pension systems of different countries.
3. The structure of elderly income in regard to dwelling place, age and sex.
4. Subjective self-assessment of elderly well-being depending on a variety of objective and subjective
factors (employment, welfare, physical and mental health, social and marital status, etc.).
404
The investigations are usually conducted at the federal (national) level, but some data is collected on
a regional basis (OECD Regional Well-Being: A User’s Guide (2014)). In Russian Federation
regional dimension is very important due to significant differences in living standards of older people
in different regions of the country (Bekmurzaev and Shamilev (2014)). The results of study and
prediction made are the focus of interest not only of scientists (sociologists, economists,
psychologists etc.) but also of policy makers (consultants on pension insurance, long-term strategists,
officials in state social policy). Almost any theoretical study is based on large amount of statistical
information on living standards and well-being of older people, and on measurement techniques
which are proven in practice of the leading developed countries.
Russian Federation is currently one of the countries, for which it is important to use all possible ways
to enhance improvement of well-being. The dynamic of demographic indicators over the past 10
years shows a steady increase in the share of older people in the population, therefore quality of their
life is becoming one of the most important directions of the state economic policy (Frolova and
Ryzhkova (2015)).
We aim this study on investigation of income and pension differentiation for federal (Russian) level
and for regional disparities including the regions of Siberian Federal District and one of them (Tomsk
region) as an example. Also we examine connection between income and wealth status of pensioners
at the level of Russia and the regions of Siberian Federal District. At the level of Russia and the
regions of Siberian Federal District we use federal statistics as the main source of information
(Federal State Statictics (2015) and Unified Interdepartmental Statistical Information System (2015)).
At the level of the Tomsk region the data is also taken from panel study of the older generation of the
Tomsk region held by the Department of Economics of the Tomsk Polytechnic University. The study
period is 2001-2015 (for Russian level and the regions of Siberian Federal District) and 2014 (for
Tomsk region’s level).
Problem Statement and Research Methods
In this paper we analyze distribution of income of pensioners by territory and sex. The pension
system of the USSR and Russia was to some extent equalitarian, but allowed the differentiation of
pensions depending on seniority, regional factor, harmful exposure, etc. As a result pension level and
its differentiation are formed more depending on normative criteria rather than personal efforts.
Now government attempts to range pensions according to working income level of elderly. The
pensioner’s wealth is also influenced by possibility to have a job after retirement. In the paper we
analyze the average pensions’ differentiations in Russian regions and Tomsk region’s rayons on the
base of federal and regional statistics data (Federal State Statictics (2015) and Unified
Interdepartmental Statistical Information System (2015)). Among its advantages are objectiveness of
indicators, long interval of observation, possibility of comparing income (pensions) to the wealth
status (subsistence minimum) and other indicators. At the same time, a serious lack of federal
statistics is a narrow understanding of the income as only pension and also wealth status as only
subsistence minimum.
These disadvantages are compensated by the possibilities of panel data of the older generation of the
Tomsk region. Within this survey the households average income of pensioners were used. They
include pensions and other payments and can be considered as the regional objective well-being
indicator. In this study, income is defined as all possible cash flows. The study polled 400 pensioners
of the Tomsk region, living in six population centers. The questionnaire includes 78 questions that
reflect social, economic, psychological and physiological characteristics of respondents. At the same
time, we should pay attention to some limitations of the survey, for example, subjectivity of
responses, and interval scale of income determination.
The data of federal statistics and sociological research was processed using methods of statistical
analysis, including descriptive statistics, relative indicators, grouping into classes, visualization
techniques. Some of these methods were described and applied in the papers (Hill and Lewicki
405
(2007), Spitsin et al. (2015) for the case of Russian Vehicle Industry and Spitsin et al. (2015) for the
case Russian electronic industry). Statistical analysis was performed in STATISTICA 6.0 (Borovikov
(2003)).
Study Results
Analysis of the official statistics at Russian Federal Districts
Before studying Siberian Federal District indicators, it is useful to analyze the aggregate national
pension system data (Table 1, 2 (Average monthly size of pension: interval chart (2015), Real
disposable cash incomes in the Russian Federation: interval chart (2015)).
Table 1: Real pension and cash income dynamics in Russian Federation

(% to the previous year)
Indicator/Year 2010 2012 2013 2014 2015 2016*

Pensions 124,9 104,6 103,3 103,3 97,5 101,1
Disposable income of the population 105,9 104,6 104,0 99,3 95,7 -
* - 2016 – estimation
From table 1 we can see that last six years (excepting 2015) real pension was steady rising. At the
same time, the disposable incomes of other population grew much slower. As well, since 2014 the
disposable income decrease is observed despite the pension growth. Federal statistics data shows that
in the 1st quarter of 2016 real incomes dropped over the same period of the previous 2015 for 27%. If
the pension will increase in 2016, as the government assumes, the employed could not pay the
required sums to Federal Pension Fund. The deficit will grow and finally make an additional burden
on the federal budget as an obligation of repayment of the Pension Fund resulting in deficit of federal
budget.
Table 2: Federal Districts variety of real pension benefits in 2010-2016 (compared to

average growth of indicator) (Pensions in the Russian Federation (2015))
The coefficient of pensions

District Average annual growth
variation within the district
Uralian 100,58% 20,32%
North Caucasus 100,49% 6,48%
Volga 100,44% 3,80%
Siberian 100,24% 5,95%
Far Eastern 100,07% 22,28%
Russian Federation -
(average growth of
indicator) 100,00%
Northwestern 99,81% 14,94%
Moscow 99,79% -
Central 99,72% 4,89 %
Southern 99,60% 3,21%
* - 2016 – estimation
From the table 2 we can see that the most prosperous are Uralian Federal District pensioners. Uralian
and Volga Federal Districts demonstrate the pension’s level constant growth all over the period.
406
Southern Federal District, conversely, demonstrates constant decrease of real pensions

pensions. Moscow
pension’s level looks very unusual being lower than the average national indicator and also
Northwestern Federal District. The highest meanings of the pensions variation coefficient within the
district are in Far Eastern
rn and Uralian Federal Districts. There are two region types in Uralian Federal
Districts which are opposite to each other in income level and prices:
- Tyumen Region and Khanty - Mansi Autonomous Okrug;

- Kurgan and Chelyabinsk Regions.
The difference in regional disposable income level

level implies the same one for pensioners’ income too.
The pensions levels are more congenerous in such districts as Volga, Southern, Central, Siberian and
North Caucasus.
Analysis of the official statistics in regions of Siberian Federal District
Returning to the Siberian Federal District, we note that for the analysis we choose the pensions’ level
in a medium-sized
sized district and the relative level of pensions for each region was calculated. The
results are shown at the Fig. 1.
Figure1: The relative level of pension in Siberian Federal District (average district level as 100
%) (Pensions
Pensions in the Russian Federation (2015))
In the District two clusters of regions can be distinguished:
- Tomsk, Krasnoyarsk, Irkutsk, Kemerovo Regions with constantly higher pensions level;
- Other regions with lower pensions level.
The highest pension level is in Tomsk region, the lowest – in Altai region.
As you can see on the Fig. 2,, the average pension increases
increases throughout the observed period.
Especially the big jump was observed in 2008-2009.
2008
407
Figure 2: Dynamics of average pension in Siberian Federal District.
Probably, during the crisis the Russian government tried to stimulate effective demand by the
increase of pensions. This disparity of pension levels across regions has steadily maintained. Thus the
regional disparities are keeping stable.
stabl
The essential differentiation of pensions and pensions to the subsistence minimum ratio among the
Siberian Federal District is revealed and presented on the Fig. 3.
Figure 3: Dynamics of pensions and their comparison with subsistence minimum
Pensions grow significantly faster than the subsistence minimum. If during the period of 2001 2001-2006
they were comparable to the subsistence minimum, in 2013 they exceed the subsistence minimum
more than 1.6 times. The ratio of pensions to the subsistence minimum
mi in 2014-2015
2015 is slightly
decreased. These trends are obviously reasoned by politic crisis, sanctions, fall of oil prices and dollar
exchange rate growth (Fig 3).
At the same time the regional rankings on the pension level and on the pensions to the subsistence
minimum ratio are different. The pensions to the subsistence minimum ratio in 2015 in Kemerovo
region (one of the leaders) was 175% and in Zabaykalsky Krai (outsider) – 138 %. The difference
between these estimates is 27%.
408
The regression analysis shows steady sustainable growth of the ratio (the linear correlation
coefficients in the range from 0.67 to 0.88). So the regions ranking on pensions to the subsistence
minimum ratio is unstable unlike the absolute indicators of pension’s change.
Analysis of the panel data of the Tomsk region’s older generation.
We analyze the differences in income by gender. According the federal statistic data the average
monthly pension of men in Russia is slightly higher than that of women (11346,5 RUR and 10663,7
RUR respectively in 2015 (Dynamics of the average size of pensions according to gender and place
of residence of the pensioner in the Russian Federation Russian Federal State Statistics Service
(2015)). In our research we compare the income of men and women obtained during a sociological
survey of elderly people in Tomsk region.
General distribution of respondents by gender, place of residence and income is shown in Table 3.
Fig. 4 show the distribution of a set of attributes (gender – income).
As to sampling parameters, it is clear that most of the respondents have income equal to retirement
payment (more than 6,000 but less than 18,000 rubles). They are mainly residents of cities (Tomsk
and Seversk) - 64% of the sample. Most respondents are women. Analyzes of the distribution of
income by gender (Figure 564) shows that the second and third lower groups of women occupy
almost half of the sample (48%), male income distribution is more smooth.
Table 3: Structure of personal data of the sociological survey
No Code Class Number of Share of

Question Variant of answer mark respondents responden
(RUR) ts
Less than 6000 RUR In1 3000 12 3,00
What is the 6000 – 12000 RUR In2 9000 145 36,25
average 13000 – 18000 RUR In3 15000 143 35,75
income (In) of
74 19000 – 25000 RUR In4 21000 55 13,75
your family
member per More than 26000 In5
29000 21 5,25
month? RUR
Difficult to answer In6 24 6,00
Male M 143 35,75
66 Gender
Female F 257 64,25
Tomsk Np1 200 50,00
Seversk Np2 55 13,75
Asino Np3 25 6,25
Where do you Karagasok Np4 12 3,00
78
live? Teguldet Np5 8 2,00
Tomsk rayon Np6 75 18,75
Asino rayon Np7 13 3,25
Karagasok rayon Np8 12 3,00
409
Figure 4: Categorized histogram of absolute frequencies of income by gender
We compare the samples using parametric and nonparametric criteria for hypothesis testing. For
correct use of the parametric test to compare the empirical distributions we have to check their
compliance with the normal distribution law. The empirical distribution of "income" is highly
significant (at p <0,0005) differs from the theoretical normal and statistically significant (at a level of
0,050> p ≈0,041> 0,005) of the lognormal. Therefore, in this article, along with parametric tests we
also apply nonparametric.
The results of comparison of income of male and female are shown on Fig. 5.
Figure 5: Comparison of income for male and female on an interval and rank scales
(In thousand RUR)
The interval scale (left): circles - the group mean, vertical bars denote 95% confidence intervals. By rank scale (right): squares
– medians, box - 25% -75% quartile range, whisker button- full range (min - max).
According to parametric F- test the difference between the average value of income for male (15.48
thousand RUR) and female (13.13 thousand RUR) is highly significant (at pF ≈0,00016 <0,0005
level). Nonparametric (rank) Kruskal-Wallis test confirms findings of F-test but softens them to
strongly significant (at the level of 0.0050> P K-W ≈0,0008> 0,0005). This results confirm the
conclusion that male has higher incomes not only in Russia but also in the Tomsk region.
The results of comparison the income of pensioners in different population centers and for male and
female (G*Np) are shown on the Fig. 6 and the table 4.
410
Figure 6: Comparison of the income of male and female in different population centers on
interval and rank scale
The interval scale (left): circles - the group mean, vertical bars denote 95% confidence intervals. By rank scale (right): squares
– medians, box - 25% -75% quartile range, whisker button- full range (min - max).
Principles of shortenings: FNp3 – female in population center 3 (Np3- Asino) – see the table 3.
Table 4: Comparison of incomes of male and female in different population centers of the
Tomsk region (Fisher LSD test)
G*Np FNp3 MNp3 FNp2 MNp2 FNp1 MNp1 FNp6 MNp6

(AvIn*) (13,1) (13,0) (16,6) (21,3) (13,0) (15,3) (11,2) (14,0)
FNp3 0,958 0,0471 0,0001 0,942 0,161 0,244 0,638
MNp3 0,958 0,092 0,0005 0,993 0,245 0,386 0,657
FNp2 0,0471 0,092 0,0095 0,0023 0,301 0,0001 0,079
MNp2 0,0001 0,0005 0,0095 0,0000 0,0002 0,0000 0,0001
FNp1 0,942 0,993 0,0023 0,0000 0,0073 0,066 0,430
MNp1 0,161 0,245 0,301 0,0002 0,0073 0,0002 0,288
FNp6 0,244 0,386 0,0001 0,0000 0,066 0,0002 0,0452
MNp6 0,638 0,657 0,079 0,0001 0,430 0,288 0,0452
* - average income (in thousand RUR)
According to parametric F-test difference in means of income is highly significant (at pF <0,0005) on
the set of G*Np by a highly significant (0,0005> p) differences MNp2 income (average - 21.25
thousand RUR) from MNp1 (15,33 thousand RUR) and the others, except FNp2. The differences
between MNp2 (21,25) and FNp2 (16,64) are statistically significant (0,050> pF≈0,010> 0,005). The
values highlighted in red in the table 4 show statistically significant differences in the average
income. The values given in black show statistically insignificant differences in the average income.
Statistically significant differences in income between male and female are found in Tomsk, Seversk,
Tomsk rayon. In these areas, the mean income of male pensioners is higher than the mean income of
female pensioners. Nonparametric (rank) Kruskal-Wallis test softens conclusions of F-test. For
example, differences between male in Seversk (MNp2) and Tomsk (MNp1) are softened to strong
significant (0.005> PK-U ≈0,0018> 0,0005), and between male and female in Seversk (MNp2 and
FNp2) are softened to statistically significant (0.05> PK-U ≈0,028> 0.005).
Conclusions
The analysis showed that the current pension system in Russia at the level of regions is found as
egalitarian. Some differences in the average size of pensions and their relation to subsistence
minimum among the regions of Russia (Siberian Federal District regions as an example) were
revealed, but the difference between the leader and outsider regions does not exceed 27% in 2015.
411
Despite the conventional wisdom that the financial situation of pensioners in Russia is miserable, data
shows real pension steady growth, which is significantly higher than the growth of real disposable
income of employed. The standard rate of income replacement by pension has not yet been reached,
but recent financial opportunities on national level do not allow to go in the desired direction.
Moreover, in 2016 the indexation of pensions is planned, which will increase its real size.
It is observed a clear disparity in pension growth among the regions of Russia in general and Siberian
Federal District in particular. Uralian and Volga Federal Districts became the most prosperous in this
ranking, Siberian Federal District is on the 4th place. The highest pensions in Siberian Federal
District are in Tomsk, Krasnoyarsk, Irkutsk and Kemerovo Regions.
Pensioners income study is based on the data of the sociological survey in Tomsk region revealed
statistically significant differences at the average level of income in the context of gender of
respondents. We found a statistically significant excess of male pensioners income over the income
of women surveyed in most areas.
Female respondents are the majority of the sample for the Tomsk region. It is revealed that their
pensions are less, and this fact lowers the mean of pensions.
The above results have some limitations. Though pension is a significant part of cash income of a
pensioner, but it does not fully reflect the available sources of his or her income. Many of the options
for the purchase of consumer assets are not perceived by pensioners as an income. Such assets are the
vegetables and other food planted in their garden or subsidiary farm.
The results of our study may be used to improve public care and social support for pensioners in
Russian Federation and its regions in difficult economic situation. It is necessary to keep the current
proportion of pensions to the subsistence minimum ratio, which fell slightly in 2015. We hope that
the indexation of pensions in 2016 will increase its real size.
We plan to continue the research and evaluate the differences in pensions and income of elderly
people at the local level within the region.
Acknowledgements
This work was performed by the author in collaboration with Tomsk Polytechnic University
within the project in Evaluation and enhancement of social, economic and emotional wellbeing
of older adults under the Agreement No.14.Z50.31.0029.
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Use of Artificial Intelligence in Medical Sciences
Anwar M. A and Sayed Sayeed Ahmad
College of Engineering and Computing

Al Ghurair University, Dubai, UAE
Email: anwar@agu.ac.ae
Corresponding Author Email: sahmed@agu.ac.ae, saeed.ks@gmail.com
Abstract
The mental intelligence of humans is very important in daily life and helps to sense the different things.
The artificial intelligence or AI helps the humans to understand about the intelligent entities. So we can
say that it is important or an effort to learn about ourselves. Every day the world is facing many problems
regarding health and thus many challenges are faced by the medical personnel in terms of cost, new
therapeutics, new diseases and quick decisions etc. The medicine is the field which helps the people in a
very critical situation and ensures a good quality of life. This paper describes the medical industry related
person perceptions in using AI in the medical field.
Keywords: Case-based Reasoning (CBR), SETH, PROVANES

1 Introduction
Artificial intelligence is the type of intelligence that is exhibited through the machines. The mental
intelligence of humans is very important in daily life and helps to sense the different things. The artificial
intelligence or AI helps the humans to understand about the intelligent entities. So we can say that it is
important or an effort to learn about ourselves. The other reason to study the artificial intelligence is that
these entities are beneficial in own right. The products of AI are very important and made our lives so
easy but these cannot predict the future changes. The computers are a part of artificial intelligence and
played a great role in the human civilization. The artificial intelligence is not a new concept rather it is an
old discipline for about 2000 years. We can say that “artificial intelligence (IA) is the study that describes
and emulate the intelligent behaviour with regard to computational processes”. It can also be defines as
“the activities that are associated with the human thinking and the activities like decision making,
learning and the problem solving”.
Every day the world is facing many problems regarding health and thus many challenges are faced by the
medicine in terms of cost, new therapeutics, new diseases and quick decisions etc. medicine is the field
which helps the people in a very critical situation and ensures a good quality of life. The medical
knowledge is increasing day by day and the new diseases are investigating. The physicians find it hard to
give their full time to a single patient and read their case throughout. The training and the recertification
can help to resolve these issues but the lack of time makes it hard to rely only upon the unaided memory
of the physicians. These limitations of the human memory can be overcome by using the artificial
intelligence (AI). Artificial intelligence is very important in this field as it helps to take important
decisions and also it helps in collecting and gathering data about patient. This data is use for analysis and
for further treatment processes and scenarios. The artificial intelligence system is most ambitious and also
the controversial theme with medical field. In simple terms the artificial intelligence improves usability of
the programs and assists the physicians to figure out that what is happening to the patient and how can his
condition be improved and thus helps in making informed decisions. The artificial intelligence helps the
practitioners in their daily course of life to do their duties well through helping in tasks and through
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manipulating the data. So by using the medical and the technical feasibility the condition of the patient
can be improved.
The case based reasoning (CBR) is a system used for the reasoning by using it the patients can come to
know about diagnosis without having frequent visits to the doctors [1]. Another technique in Artificial
intelligence is the data mining which is used for collection of hidden information and this system is used
with the neural network which gives information about the patients for example AIDS and HIV. It is also
used as a scatter diagram and as a rule system improvement. ICHT system is used for taking the history
of the patients. HERMES is another tool of artificial intelligence that is used for diagnosis of the liver
diseases, SETH for drug poisoning, Neo-Dat for clinical trials, PROVANES (Proposal and Evaluating of
Anaesthesia Plan) hybrid system is used for Anaesthesiology and ISS is used for the diagnosis of the
sexually transferred diseases [2]. The use of artificial intelligence is very beneficial in case of quick
decision making about patient treatment by getting help through integrating the information and it makes
the consultancy easy too. The physicians’ use the centralized database and information can be shared
among them, online discussion occurs and thus they make an online better treatment. The records help the
doctors to choose the most appropriate treatment method and they provide better diagnosis. The artificial
intelligence also helps in the management and the treatment of the patients and to discover the new
medical application through research.
The paper is organized as; in section 2 we present the literature review, in section 3 we discuss the
methodology used for the case study, the findings are presented inn section 4 and conclusion and
recommendations are given in the last section.
2 Literature Review
In the developing country many deaths occurred due to the insufficient number of specialist. This has
caused a problem and led to many deaths due to the diseases. This can be overcome with the professional
institutions which can produce more doctors. But it is a time consuming task and this insufficiency cannot
overcome so fast. The time in which the student becomes a doctor is long that many patients cannot
survive for a long period. Now a day the medical processes involve the consultancy for diagnosis and
treatment. But in some areas the expertise are not enough so the patient has to wait for the time for
treatment and he cannot go to expertise. As the time reaches and the patient go to doctor the disease has
already spread out. Because there are many diseases which if are not cured on time than the patients
cannot survive longer.
Computer programs which are also known as artificial intelligence have helped the specialists to take
important clinical decisions [3]. This system helps in collecting the data about patient and helps in
knowledge domain and it also suggests the important treatment methods which can be applied on the
patients. The patient health information system is a centre which helps in the monitoring, interpreting and
managing the patient’s history [4]. This system helps the patients and also it gives large assist to
practitioner. This system is better in a way that it helps in making important decisions about the life of
patients and also the chance of medical error becomes less. Artificial intelligence has reduced the cost and
it also saved the time. In hospitals the attendance records are kept regarding the patient ID ns these are
kept to notify doctor. But the history records of patient through artificial intelligence assist the doctors
that which treatment method would be better for the patient. The prescription is sent to the dispensary
which avoids the medicine preparing problems [5].
Artificial intelligence or IA is the use of human intelligence into the computer technology. Many
researchers have explained the artificial intelligence in the medicine. In medicine the potential of the
techniques of artificial intelligence are:
a. It provides the laboratory for organization, cataloguing and examination of the medical knowledge.
b. To assist the decision making it produces the new tools which help in training and in research too.
c. It integrates the activities in sciences, cognitive, medical and in the computer.
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d. It offers the content discipline for medical specialty [6].
In the year 1990 the artificial intelligence is changed somehow according to the needs. Two or more than
two techniques were joined and system performance was ensured. ICHT was used in the rural areas for
the treatment of children and to reduce the rate of mortality. The risk factors were taken into
consideration while treating the system for example monitoring of weight, immunization, nutrition and
the milestones. The expert systems are used in this to take the past data about patients. HERMES is used
for the treatment of chronic liver diseases [7]. SETH is used for management of the drug poisoning [8].
PROVANES is used for the treatment of anaesthesiology [9] and in the same was the ISS is used for the
diagnosis of diseases that are sexually transmitted [10].
The diagnostic systems which are experienced based are accessible with internet [11]. In the case base
reasoning the knowledge is used for past experience. These are the systems which can be used by the
patients themselves without making often visits to the doctor. Another technique of artificial intelligence
is the data mining which is used for the analyses of the hidden information. These can also be used with
the patterns of neurons to analyze fuzzy patterns of the HIV and of the AIDS [12].
The very powerful technique of artificial intelligence is neural network in which the data is learnt
through the weight matrixes. Is has been applied in various fields. The artificial intelligence in the
medical is very important as it is a demand of future. The patients can use the electronic media for the
purpose to monitor the risk without going to the doctor [13]. If the artificial intelligence is used in a good
way in medicine then implementation can be making better. It will provide a better platform for the
treatment of diseases. The future of the medicine will be better through this artificial intelligence (AI)
[14].
3 Methodology
There are many steps that are included in this research process; literature review, artificial intelligence
questionnaire, data collection, data analysis, and conclusion.
3.1 Data Collection
We gathered data from different sources and these sources were both primary and secondary. Data
collected from both of these sources was used in analysis of this research. The secondary data was
collected from the various sources for example journals, research papers, documentaries etc. After
collection of data, we analysed it. We composed a questionnaire and it was filled by many doctors.
Questionnaire contains the questions of all aspects that are considerable in the research process of the
artificial intelligence (AI). The questionnaire consists of the questions and scales. These scales are helpful
in the analysis that how artificial intelligence is useful for treatment of diseases in the medical field
especially for the treatment of cancer. The questionnaire was developed after thoroughly studying the
secondary data resources in detail. We observed the literature review of the research papers. The
questionnaire was being filled with the physicist and the doctors to analyze the effect of artificial
intelligence (IA) in medicine. After taking the data from these sources we analyzed it and understood the
key benefits of artificial intelligence.
We present the summary of the questions asked to the participants.
1. Personal information (1-3)

2. Occupational information (4-7)
3. Commitment and management (8-11)
4. Implementation (12-13)
5. Training and education for operation of Artificial Intelligence Therapy (14)
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6. Plan and vision (15-16)

7. Communication (17)
The scale that was used for the data collection contains five parameters to measure the answers
a. Strongly disagree
b. Disagree
c. Neutral
d. Agree
e. Strongly agree
The questions (8 – 17) used in the questionnaire are given as under:
8. Is the top management of hospital cooperative and supportive to the lower management?
9. Is the health department of country or city committed to the hospital’s sector of Artificial Intelligence
Cancer Therapy?
10. Are the techniques and technologies that are used for the diagnosis of disease (i.e. cancer) efficient or
up to date enough?
11. Patients who are suffering from cancer are comfortable with the application of Artificial Intelligence
Cancer treatment.
12. Are doctors completely dependent on this technology for the cure of cancer in patients?
13. Was complete budget provided by government and other health organizations for the installation and
implementation of Artificial Intelligence Cancer treatment technologies?
14. Were doctors provided with compulsory training and education for operation of Artificial
Intelligence Therapy before its implementation at hospital?
15. Do you prefer Artificial Intelligence System on human intelligence?
16. Is the helping IT system and security system working in accordance with Artificial Intelligence
System for productive results?
17. Are the people living in far and distant areas from the hospital vicinity provided with the guidelines
necessary for self-assessment and compulsory prescriptions with the help of any medium? E.g.
Internet, Media etc.
4 Findings
The questionnaire paper was filled by the 40 doctors who could answer it accurately and were well aware
of the usage of artificial intelligence in the medicine. The physicist had a clear objective of using this
technology in the treatment of cancer and the diagnosis of various diseases which can be cured more
easily. Some questionnaire was filled by the doctors that work in well-developed hospitals and some were
filled by the doctors that sit in the average rank hospitals and the rest were being filled from the physicists
in clinics that use this artificial intelligence (AI) system. Here we present the analysis of questions from 8
– 17 with in form of charts followed by the explanation.
The analysis of the response of Question No. 8; “Is the top management of hospital is cooperative and
supportive to the lower management?” is shown in Figure 1.
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Figure 1: Response of Question No. 8
The response shows that 75% of the respondent were agree and strongly agreed that management support
is one of the most critical success factors of artificial intelligence in the organizations.
Analysis of the response of Question No: 99;; “Is the health department of country or city committed to the
hospital’s sector of Artificial Intelligence?”
50%
percentage of respondents
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Strongly Disagree Neutral Agree Strongly
Disagree Agree
In the light of above analysis of the response, it can be said that management support in installing the
artificial intelligence (AI) in health sector is one of the most critical success factor of artificial
intelligence in the organizations. The
There were 80% of the respondents who either agreed or strongly agreed
with this question statement.
Analysis of the response of Question No: 10; “Are the techniques and technologies that are used for the
diagnosis of disease (i.e. cancer) efficient or up to date enough?”
419
30%
percentage of respondents
25%
20%
15%
10%
5%
0%
Strongly Disagree Neutral Agree Strongly
Disagree Agree
The analysis of the data regarding this question shows that only 45% of the respondent were agree or
above for this question and hence it can be said that the artificial intelligence is efficient and the
technologies are sufficiently up to date enough to diagnose the cancer and it is the critical success factor
of artificial intelligence in the organizations.
Due to the limitation of the space we present the analysis of questions 11 – 17 in the following table.
Table 1: Summary of Analysis of Questions 11 – 17
Question % of agreed and strongly agreed

11 45
12 75
13 32
14 52
15 17
16 67
17 47
In the light of the above analysis and utilizing a substance investigation model and seeking more than
some articles and books, propose following basic achievement components for actualizing artificial
intelligence:
a. Internal Training/ Educational Training System for Doctors and Staff Members at Hospitals
b. Awareness and communication
c. Management support system at Hospitals
5 Conclusion
The artificial intelligence or AI helps the humans to understand about the intelligent entities. Artificial
intelligence is the type of intelligence that is exhibited through the machines. The mental intelligence of
humans is very important in daily life and helps to sense the different things.
420
The artificial intelligence is very important and helpful in curing and diagnosis of disease. The physicians
find it hard to give their full time to a single patient and read their case throughout so their works is made
easy by the artificial intelligence (AI). Sometime human intelligence shows certain limitations for
example they never know about the correctness of the models so the artificial intelligence helps to resolve
such limitations. . The physicians’ use the centralized database and information can be shared among
them, online discussion occurs and thus they make an online better treatment. New drugs can be
discovered by using artificial intelligence. Through the learning system the drugs can be identified which
poorly exhibit a certain activity and on this base their chemical structure can be found. It is used to treat
various diseases for example AIDS, cancer, HERMES and PROVANES etc. the factors are most
important for medical field to be successful. Most, medium and less critical factors in artificial
intelligence system play a part in the medicine. Overall success of the medicine is based on these factors.
It is vital to get support from doctors and physicists in light of the usage of artificial intelligence in
medicine. Nonetheless, there is a great deal of work that the doctors ought to do without anyone else's
input in the genuine execution process. The key performing artists in the usage of artificial intelligence
(AI) is the doctors and hospitals themselves. From our gathered information/data and facts we can
recommend few points to organization for the successful implementation of artificial intelligence. The
recommendations are as follows:
a. Communication should be strong and management must focus in effectively dealing with treatment
and diagnosis of the diseases for example the cancer.
b. Management support is essential for the success of ERP.
c. Management must recognize the benefits of artificial intelligence and follow the standards for the
successful implementation of artificial intelligence in their hospitals.
Acknowledgement
The authors wish to acknowledge the financial support provided by the Al Ghurair University, and Mr.
Obaid Juma for his support in conducting the survey..
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The Managerial Prerogative: A Meta-Legal Policy Analysis
Nehaluddin Ahmad, MA, LL.B., LL.M. (Luck. India) LL.M. (Strathclyde, UK), LL.D. (Meerut
University, India).Professor, School of Law, Sultan Sharif Ali Islamic University (UNISSA),
Brunei Darussalam.ahmadnehal@yahoo.com
Gary Ian Lilienthal, LL.B., (Sydney University), Grad. Dip. Legal Pract. (College of Law,
Sydney), M.Psychoanalytic Studs., (Deakin University), Ph.D., (Curtin University,
Australia).Associate Professor, Symbiosis Law School, Symbiosis International University,
Pune, India.glilienthal@me.com
Abstract
This paper’s significance is its argument that there is no legal basis to a managerial prerogative.
The objective of the paper is to critically examine the managerial prerogative, to see what it
means. Managerial prerogatives are described broadly as the manager’s right to manage.
Management appears to ignore how the law circumscribes its decisions. This represents a serious
disconnect. The research question asks whether a private manager can exercise what he or she
calls a prerogative. The paper tries to show that prerogative is derived ultimately from the
Crown, and as such, is non-delegable to private managers. Argument commences by providing a
briefing on the managerial prerogatives. The next section discusses prerogatives as non-statutory
powers, followed by a short section on Lord Bacon’s views on whether or not prerogative is
delegable. The research will suggest that, by law, no private manager could claim to be a
lawfully appointed delegate to exercise any royal prerogative.
Keywords: Managerial prerogative, non-statutory powers, crown’s interests, delegation of

prerogative.
Introduction
This paper’s significance is in its argument that, in law, there is no such thing as a managerial
prerogative. To illustrate, on 22nd February 2016, saboteurs from a high-status Indian caste
destroyed part of a water supply canal in Delhi, India. They acted subsequent to their demands to
be reclassified administratively as a lower caste, so they could access education and social
services benefits. Some 10 million people were without fresh drinking water in Delhi, as a result
of this damage, and the army took control of the situation.(BBC News, 2016) How could this
catastrophe have taken place except by a misuse of prerogative?
Burke used Aristotle’s concept of “entelechy”, meaning the realisation of form and matter in the
human psyche, (in De Anima, II, 412 a-b)or otherwise known as the “actuality” of the human
soul. According to Burke, human motivations compelled people to complete their tasks
regardless of the harm they may cause to others. This kind of oppressive outcome was both
inevitable and consequent on an effort of integrating substance with the merely formal and
rhetorical facets of hierarchy. The same applies in a management hierarchy. Burke argued that
hierarchy goaded man to act, or, moved him solely through his irresistible sense of order. (Hill,
2009)Through entelechy, he would be goaded against his understanding of right and wrong, and
would be unable to conform himself to the laws, thereby derogating from the royal prerogative
and the King’s broad interests in the commonwealth.
The Riccordi of the late middle ages compiled a text of maxims, considered valid regardless of
time or location. His maxim on the master and the servant was as follows.
423
“The master doth know his own servants less than any man; and so, in proportion, the ruler his
own subjects; because they do not shew themselves to others; but rather seek to cloak themselves
to him, and to appear of other sort than they be in truth.” (Guicciardini 1845, p. 144.)
This inferred an elision of understanding between the hierarchy and those it perceived to be at its
bottom levels. Thus, the employees already would have arranged their own lives, independent of
management cognizance. In this way, managers imagining employees to be situated at the bottom
of the management hierarchy, and subject to their managerial prerogative based in management’s
superior position, may be regarded as in a state of essential delusion.
Therefore, the objective of the paper is to critically examine the managerial version of
prerogative, as claimed by private managers, to see what it means and whether it has any
substance that can be used for generation of policy. Managers describe managerial prerogatives,
broadly, as the manager’s right to manage. These so-called prerogatives are said to be entirely
discretionary, (Storey 1983, p. 65)apparently on the basis of managers’ high levels of skill. Due
to the necessarily bureaucratic and hierarchical nature of managerial prerogatives, management
appears to ignore how prerogative might be circumscribed heavily by the administrative law, the
industrial relations law and by the general laws.This represents a serious disengagement with the
law.
Managers infer from all this, somewhat without regard to the real exigencies of the art of
negotiations, that employees cannot negotiate within the spheres of these managerial discretions.
Yet, the International Labour Organization refers to trade union and employee prerogatives, in
dialectic with managerial prerogatives. (International Labour Organisation 2008, p. 108.)Thus,
there appears to be a large disconnect between managers’ views of their discretions, claimed as
unique and unfettered, and managers’ actual obligations under the law, in the light of the fact that
they really don’t know their employees.
A very typical example of this disconnect was considered in Johnstone v Bloomsbury Health
Authority. ([1992] QB 333)Dr Johnstone had agreed expressly to work for a set time per week,
and he also agreed expressly to be available for an additional 48 hours per week emergencies.
The employer had unilaterally dictated the terms of the contract, and subsequently, abused this
term of the contract by demanding the doctor work inhumane hours, adversely affecting his
health. By majority, the court held that an implied term in law could prevail over an express term
of the contract. The court held that requiring oppressive and intolerable conditions of work
breached an implied term of the contract. It held further that there must be some limits to
managerial discretions. ([1992] QB 333, p. 351)
Thus, the question arises as to whether a private manager can exercise what he or she calls a
prerogative. The paper tries to show that prerogative is derived ultimately from the Crown, and
as such, is non-delegable to private managers.
The article assumes that courts are English courts, and for present purposes, ignores the forces of
European law. It is library research, theoretical in nature, in which the evidence is the argument’s
available and relevant evidence. The paper tries to employ cumulative synthesis to generate its
conclusions, and conducts a meta-legal policy analysis. Argument commences by providing a
briefing to the reader on the nature of the managerial prerogatives, including discussion about
whether or not they have any basis in law. The next section discusses prerogatives as non-
statutory powers, followed by a short section on Lord Bacon’s views on whether or not
prerogative is delegable, and if so, under what circumstances delegation might take place.
Finally, argument draws conclusions and further synthesis.
The research will suggest that, by law, no private manager could claim to be a lawfully appointed
delegate to exercise any royal prerogative. Any managerial claim to a prerogative must be a
claim unenforceable in law, as it would be in direct conflict of interest with the King’s
obligations to the commonwealth.
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The Managerial Form of Prerogative

In the absence of an organised labour union, where the employees’ views would have counter-
balanced management’s views, management assumes a traditional, or customary, authority
model, having the following features. The organisation is structured without consultation with its
overwhelming majority, following the Riccordi’s maxim, discussed above.The business is
divided into such functional areas as sales, credit, production, personnel.These functional areas
are administered so to achieve organizational objectives operating as mandates on management.
However, the right to manage is said to derive from the owners’ or stockholders’ property rights.
According to this theory, authority flows “downward” through a chain of command, beginning at
the top in the board of directors and flowing down to the lowest level of management. A
superior-subordinate relationship is assumed to exist between management and the employee. No
doubt, the manager’s property-based obligations make him or her imagine that he can bind the
“lower-level” employee. From an observational point within this hierarchy, the manager claims a
legal right to direct or command the employee in his duties, and management presumes this
inferior employee is legally obliged to obey. Thus, the so-called management prerogatives are the
claimed customary powers to exercise discretionary authority to organize and direct men,
machinery, materials, and money, so to obey the mandates flowing down the chain of command,
of the organisation.
In order to maximise its authority, management has tried to restrict the scope of the labour
contract, or in the alternative, to minimise the number of issues over which it will bargain.
Occasionally, management will try to regain its lost authority by demanding that certain matters
be deleted from the contract. Management also assumes the subsistence of its traditional powers
over any issues not expressly covered by the labour contract. It thinks it does not have to
interpret the labour agreement to exercise those powers. It continues to claim a unilateral power
to determine any issues not expressly covered by the letter of the labour contract. (Young 1963,
p. 242)In this way, management is authorised to contract with employees, but tries to overturn
the contracts.
If management really does have these claimed prerogatives, then arguably they ought to have
legal bases, either in legislation or within the common law. Management contend they have
property rights, authorized by the stockholders, to manage the business, including the power to
direct employee activity. This cannot be the case, or else there would be an exercise of a power
of property over another human being, which is a criminal offence is most of the world’s
jurisdictions.
Thus, management's legal rights must be restricted to decisions affecting how the property or
assets of the company will be used. These legal rights of property necessarily do not include a
property-based power over the employee. While management can organize, arrange and direct
machinery, materials, and money, no cognate right to direct the employee exists. Chamberlain
noted "Property ownership as a conferrer of authority is that it gives command over things. There
exists no legal compulsion upon the employee to cooperate." (Chamberlain 1951, p. 315.)The
shareholders cannot infuse into the chain of command a right they themselves do not have. The
specific authorities given to management are restricted to the right to contract with the employee,
and also, the authority to use the firm’s assets to compensate the employee for the services the
employee supplies to the firm, as mutually agreed. (Young 1963, p. 242)
According to Young’s argument, the employment relationship is legally and economically a

buyer-seller agreement. In the customary oral contract, the parties merely agree to continue their
relationship only while it is mutually beneficial.(Young 1963, p. 242)Each party may terminate
the contract at will, subject to the agreed contractual notice provisions. The buyer of the services
is obligated to pay a certain consideration to the seller of the services, by way of wages and
agreed or mandated employee benefits. The seller of the services is obligated to render agreed
consideration to the buyer by way of personal services. (Rottenberg 1960, pp. 40-52)Each party
may propose changes in the terms of the agreement at any time, which if mutually accepted,
425
amend the agreement. Either party can accept, or reject, a proposal of the other, or make a
counter-offer. Commons stated “The labour contract [between the employer and the individual
employee] is not a contract, it is a continuing renewal of a contract at every successive moment,
implied simply from the fact that the labourer keeps at his work and the employer accepts his
product”. (Commons 1939, p. 285)He added as follows.
The contract at the beginning of his [the employee's] employment is therefore not a contract. It is
usage, a custom, a habit. It is an understanding between the two, that at each point in the
continuous flow of impliedly renewing the contract, the terms of renewal shall conform to what
was understood, but without any duty on the other side to renew or conform. The labourer is thus
continuously on the labour market, even while he is working at his job he is both producing and
bargaining and the two are inseparable. (Commons 1939, p. 286)
However, the parties recognize the economic realities in their positions. The employer usually
determines the content of the agreement, as to the employee’s duties. The court held, in White v.
John Warwick & Co. Ltd, ([1953] 2 All ER 1021) that contract law dictated that this arrangement
meant the common law court would interpret the contract strictly against the employer, because
the employer drafted the contract.Arguably, the extent of the employee’s participation in
formulating terms of the contract has been restricted essentially to his consent to carry out the
employer’s lawful directions.
For the actual operation of the plant, employees always have had a legal right to participate in the
decisions or agreements with respect to his duties, (Knight 1947, pp. 67, 283-288) specifically
because their agreement seals the terms of the operative private law. Thus, a joint determination
between management and the union is no legal change in the decision-making process. The union
is merely a lawfully appointed agent of the employee(s). Through the union, the employees gain
enough economic power to exercise the private legal right that they always had, suggesting that
management continually desire to breach the private law. Management appears to have confused
its legal rights and its economic powers, (O'Donnell 1952, pp. 573- 588; Young 1963, p. 244)
believing the one to be the same as the other.
Because of this situation, and out of a natural fear of unemployment by virtue of employer
monopolies of enterprises, the seller of services often would accept dictated employment terms
unilaterally imposed by the buyer of the services. The employer would use economic duress by
the well-understood threat of discharge, rather than resort to the agreed private law, to coerce
employee compliance. (Young 1963, p. 244)Arguably, this economic duress could vitiate the
contract.
Managerial authority generally is thought to have originated in the general law, either in
legislation or within the common law. Management typically believes the general law establishes
superior-subordinate, or, master/servant relationships, where specific legal rights and obligations
as to superiority and inferiority are legally fixed, and enforced by legal sanctions. (Young 1963,
p. 245)However, in relationships of exchange there are no superior-subordinate roles. To the
contrary, the parties are really legal co-equals, voluntarily entering into a contractual relationship
where the contract specifies their rights and obligations. (Young 1963, p. 245)Both parties must
deal with the economic necessity of maintaining production. This, on its own, cannot not give
management the sole right to determine the conditions under which the employee will agree sell
his labour. (Young 1963, p. 245)If it did, then the employer would be exercising a proscribed
power of property over the employee, which would be a criminal offence in many jurisdictions.
Some employment terms not mentioned in the written agreement may be referred to as the
established plant practices. They would be the equivalent of customary rules binding on both
parties. Taylor opined as follows. "All sorts of understandings, explicit or tacit, have been
worked out by unions and management to give agreed-upon status to conditions of employment
not covered by a labour agreement." (Taylor 1946, p. 299)If there is consensus ad idem, then
these are binding on the parties, and they will be incorporated in the labour contract. Thus, the
terms of employment include all those express terms of exchange between the buyer and the
426
seller of the services, over which agreement has been reached. (Young 1963, p. 246)According to
the general law of contract, it also includes all terms implied by the general law or by the
decision of a common law court. Both parties must agree to any change in the terms of the
contract. (Young 1963, p. 246)
Management insists that it has inherent “prerogatives” as the purchaser of services, apparently
based on the public rhetoric of a perception that the buyer of services is the superior party.
According to this so-called managerial “prerogative”, management’s demands regarding the
terms of exchange must be accepted by the seller, unless they conflict with the written
agreement. However, this prerogative, so defined, arguably does not exist, as it ignores the
employees’ arguably superior residual knowledge in the product. Also, the shareholders’
property rights do not confer on management the unilateral power to determine the terms of
exchange. As in all contracts, the terms are subject to prior negotiation and may fail for
misrepresentation, or may be void for illegality by virtue of a contravention of the general law of
the jurisdiction. (Young 1963, p. 248)In particular, in view of the Riccordi’s maxim, and the
conflict of interest between the residual risk taker and the organisation, (Fama & Jensen 1983, p.
302)it appears that the employer-employee contract may be voidable for failure of consensus ad
idem.
Prerogative as Non-statutory Powers

Prerogative has its traditional meaning as the royal prerogative, appearing to be shorthand for
non-statutory administrative powers. Legal regimes like the passport system, ex gratia payment
schemes, and civil service rules have emanated from the prerogative. But the prerogatives
initially suggest a paradox of old and disappearing instruments of governance, while non-
statutory powers continue to grow under the necessary force of statute's inherent failings. (Cohn
2005, p. 103)
In 1965, the English courts appeared generally to sustain this view. For example, in the 1965 case
of Burmah Oil v Lord Advocate, ([1965] AC 75)the court held “[t]he prerogative is really a relic
of a past age, not lost by disuse, but only available for a case not covered by statute”. ([1965] AC
75, p. 101)Also, in BBC v Johns, ([1965] 1 Ch 33)Lord Diplock held “it is 350 years and a civil
war too late for the Queen's courts to broaden the prerogative”. ([1965] 1 Ch 33, p. 79)
The English courts have long fought against illegal and capricious government powers. Their
view of the rule of law is contained in the still current 1765 case of Entick v Carrington, (19
Howell’s State Trials 1029 (1765))in which Lord Camden stated as follows.
“The great end, for which men entered into society, was to secure their property. That right is
preserved sacred and incommunicable in all instances, where it has not been taken away or
abridged by some public law for the good of the whole. The cases where this right of property is
set aside by private law, are various. Distresses, executions, forfeitures, taxes etc are all of this
description; wherein every man by common consent gives up that right, for the sake of justice
and the general good. By the laws of England, every invasion of private property, be it ever so
minute, is a trespass. No man can set his foot upon my ground without my licence, but he is
liable to an action, though the damage be nothing; which is proved by every declaration in
trespass, where the defendant is called upon to answer for bruising the grass and even treading
upon the soil. If he admits the fact, he is bound to show by way of justification, that some
positive law has empowered or excused him. The justification is submitted to the judges, who are
to look into the books; and if such a justification can be maintained by the text of the statute law,
or by the principles of common law. If no excuse can be found or produced, the silence of the
books is an authority against the defendant, and the plaintiff must have judgment.” (19 Howell’s
State Trials 1029 (1765))
The principle was that the state might do nothing unless expressly authorised by law. However
the individual may do anything except whatever is forbidden by law. But more, the invasion of a
property right, such as, arguably, a contractual right, purely by virtue of a power without basis in
427
the law, is a trespass, which is an oppressive civil wrong.
Since this landmark case, the prerogative has received rigorous and frank judicial consideration.
The 1920 De Keyser case (Attorney General v De Keyser's Royal Hotel Ltd [1920] AC
508)clearly proposed its view of the quite narrow principle of “residuality”, under which
prerogative could not survive, once a parallel statute was introduced.The court held that “if the
whole ground of something which could be done by prerogative is covered by statute, it is the
statute that rules”. (Attorney General v De Keyser's Royal Hotel Ltd [1920] AC 508)Another and
broader view was taken in the earlier 1915 Kings Bench case of In Re a Petition of Right, ([1920]
AC 508)in which the court held that ‘the prerogative right cannot be interfered with or taken
away except by plain language or necessary implication’. ([1920] AC 508, p. 528)In Council of
Civil Service Unions v Minister for the Civil Service, ([1915] KB 649)also known as the GCHQ
case, the House of Lords held the royal prerogative was subject to judicial review, unless in
certain cases of national security. After the GCHQ case, ([1915] KB 649, p. 660)prerogative
appeared to be reduced to nothing different from other kinds of administrative powers, subject to
judicial review and correction. In judicial rhetoric when considering prerogatives, English courts
have disapproved of “medieval chains”, “older authorities” and similar. ([1983] UKHL 6)
The courts appear now to prefer a functional, rather than historical, basis for judicial analysis of
administrative power.This began with judicial references to Dicey's description of prerogative as
“the residue of discretionary or arbitrary authority which at any given time is legally left in the
hands of the crown”. (Carroll 2015, p. 246)This apparently marginalized the dicta of
Blackstone's, derived from Cowell's 1607 formulation.Cowell had stated “Prerogative of the
King is that special power, pre-eminence, or privilege that the King hath in any kinde, over and
above the ordinarie course of the common law, in right of his crowne”. (Cowell 1607)Dicey's
definition is regarded as functional and modern because it infers residuality and therefore
parliamentary supremacy. (Cohn 2005, p. 104)
Although most prerogatives are powers, others are different kinds of constructs. These include
entitlements, immunities, and hybrids made up of presumptions and immunities, suggesting
reverse onus claims subject to rebuttal.One such hybrid is the maxim “The King can do no
wrong”. Brazier identified three categories of prerogatives. The first was “constitutional
prerogatives”, which related to separation of powers issues, such as appointment of the Prime
Minister, the proroguing of Parliament, termination of ministers’ commissions and royal advice.
The second was “legal prerogatives”, which were rules, principles and maxims that gave the
Crown a special supremacy. The chief two of these were the maxim “the King can do no wrong”
and the convention that the Crown was not bound by statute unless the statute expressly stated it.
The third was “ministerial executive prerogatives”. They comprised the various executive powers
commonly exercised in administrative decision-making. (Brazier 1999)It inferred the old agency
problem of who might be entitled to act in the name of the government. (Cohn 2005, p. 107)
The historically based theory of government power suggests a gap between prerogative and
statutory powers. Both exigencies and government practice could generate new spheres of
activity unsupported by statute or prerogative. This gap includes government contracting and, for
example, the Inland Revenue's extra-statutory concessions.(Cohn 2005, p. 107)
Wade followed the Blackstone/Cowell concept, and argued that prerogative was “some special
power possessed by the Crown over and above the powers of an ordinary person, and by virtue of
the Crown’s special constitutional position”. (Wade 1989, p. 59)Thus, this view meant that
prerogative produced no legally enforceable effects, and, was unique only to the Crown. (Wade
1989, pp. 56-62)Wade worried that judges had fallen into a habit of describing as “prerogative”
any sort of government administrative action unsupported by statute. (Wade 1989, p. 61)He
concluded that newly formulated powers ought to rely on parliamentary sanction, otherwise there
would be a repeat of the Stuart kings historical abuse of the royal prerogative. (Wade 1989, p.
70)
The recently discovered “Ram doctrine”, in current use by the United Kingdom government,
428
illustrates this type of concern, as it supports sixty years of undisclosed UK government practice.
(The pre-emption of Parliament, 2016)It is reasonable to assume that this doctrine has subsisted
secretly in all the British Commonwealth countries.
Lester and Weait discovered that the Ram memorandum, penned in 1945 by First Parliamentary
Counsel Sir Granville Ram, emerged in a Cabinet Office report only as recently as in 2002. The
report traces three sources of executive power: (a) statutory powers; (b) implied powers; and, (c)
the so-called 'Ram' doctrine, whereby ‘a department can do anything that a natural person can,
provided it is not forbidden from doing so’.The Court of Appeal has relied on the memorandum
at least once,and its text is now freely available on the internet. (Lester & Weait, 2002)The
memorandum recognizes that ministerial powers are not sourced only from statute.
“[A] Minister of the Crown, even though there may have been a statute authorizing his
appointment, is not a creature of statute and may, as an agent of the Crown, exercise any powers
that the Crown has power to exercise, except so far as he is precluded from doing so by statute.
In other words, in the case of a Government Department, one must look at the statutes to see
what it may not do, not as in the case of a company to see what it may do... the governing
principle is that an express statutory provision is not necessary to enable a Minister to exercise
functions.” (R (Hooper) v Secretary of State for Work and Pensions [2003] 3 All ER 673, p. 707)
Reference to corporatization of the Crown is absent, but this analogy is central to the
government's reading of this memorandum’s inferences. (Debs 2003)Written answers to Lord
Lester's parliamentary questions on the topic revealed that “[t]he Ram doctrine reflects a well-
established principle of constitutional law. Ministers and their departments have common law
powers which derive from the Crown’s status as a corporation sole”.
Thus, following this doctrine in R v Secretary of State for Health, ex parte C, ([2000] HRLR
400)the Court of Appeal confirmed the health ministry’s power to maintain a non-statutory
registry of people of dubious suitability to work with children. ([2000] HRLR 400, p. 409)The
Court of Appeal found no suggestion of any prerogative power. It cited Halsbury's Laws that, at
common Law, the Crown, as a corporation with legal personality, had the capacities of a natural
person and therefore the same liberties as an individual. It therefore confirmed that the register
was not unlawful, because private citizens were free to maintain such services.In R (Hooper) v
Secretary of State for Work and Pensions,[2003] 3 All ER 673)the Court of Appeal cited the
Ram doctrine, thereby establishing it as newly discovered common law. ([2003] 3 All ER 673, p.
700)Lester and Weait observed that public authorities also had legal obligations because of their
public functions as servants of the public.The Ram doctrine appears to ignore the fact that human
beings are permitted in ordinary life to act irrationally. However, government departments, as
public authorities, must follow the administrative law and act rationally. They may not act
irrationally, such as for example with elided knowledge of the product-producing people, over
whom they claim they may exercise a power by virtue of a superior position of both hierarchical
positioning and residual risk-taking. In this respect, could they claim to have been delegated the
royal prerogative?
The King’s Prerogative

There is no doubt the King exercised ancient prerogatives, by virtue of his superior position as
King. Bacon provided an explanation of who would be proper persons to whom to delegate the
King’s prerogatives. Bacon was known to be in favour of expanding the prerogative, and yet his
views on delegating the prerogative were quite restrictive. Thus, the king’s absolute prerogative
may be exercised and executed by any of his subjects, whenever the king personally delegated
the power. But this delegation might only devolve onto a judge sitting in a place of judgment, or,
sitting on a commission, ordained personally by the King. Under this delegation, the judge could
not commit any wrong to the people, either civil or criminal, or he would be punished. Thus,
judges could not commit trespass, felony, or treason. They could punish the guilty only by lawful
punishment. In this way, the King’s prerogative governed all kinds of people by a publicly
known will. (Bacon1824, p. 305, ¶1)This public will must not be secret.
429
Those of the King’s absolute prerogatives, held by kings by their private will and judgment,
could not be executed by any of the King’s subjects. They could not be delegated to any subject
because the King was head of the commonwealth, with a discretion, judgment, and feeling of
love towards those over whom he reigned. This power was only proper to the King, because if
any people desired to be kings, to rule the people under the King, they would not administer
justice by law, but arbitrarily by their own will. (Bacon1824, p. 305, ¶2)This arbitrary and
capricious conduct is what Lord Camden sought to avoid in his Entick v Carrington (19 Howell’s
State Trials 1029 (1765))judgment, and arguably, this was the kind of prerogative claimed by
managers to have been delegated to them.
Thus, any subject administering the prerogative would be derogating from the King's prerogative.
This is because a subject’s administration of the prerogative would be necessarily out of a private
direction, incapable of a general direction on how to deal with the King's subjects. Such an
exercise must avoid the thrusting, into such administration, of the hope of gain. (Bacon 1824, p.
305, ¶3)
A Prince is never bound to render account to the law, but every subordinate judge must render an
account to the King. If a person had power to rule by private direction, for which there was no
law, no-one could question him by any law, if he were to offend the people. (Bacon 1824, p. 305,
¶4) Custom could not confirm anything unreasonable. Wisdom would not allow that to be so. It
would be dangerous, and unprofitable. Justice cannot approve government when it commits
wrongs. (Bacon 1824, p. 305, ¶6)
In consequence of these dicta, no manager could claim to be a lawfully appointed delegate to

exercise any form of royal prerogative. Any managerial claim to a prerogative must be, therefore,
a claim unenforceable in law, as it would be in direct conflict of interest with the King’s
obligations to the commonwealth.
Conclusion
Management regards itself as having exclusive exercise of inherent “prerogatives” because of its
perceived hierarchical positioning as the purchaser of services. This appears to be based on the
public rhetoric that the buyer of services is the hierarchically superior party. This view appears to
be unsustained by contract law. According to this so-called managerial “prerogative”,
management’s demands regarding the terms of exchange must be accepted by the seller, unless
they conflict with the written agreement. Such a prerogative does not exist, and may be only
imagined by anyone except the crown or a lawful judicial delegate. Shareholders’ property does
not confer on management the unilateral power to determine the terms of exchange. They cannot
bind third parties purely by virtue of their own obligations. As in all contracts, the terms are
subject to prior negotiation and may fail for misrepresentation, or may be void for illegality by
virtue of a contravention of the general law of the jurisdiction.
The principle in Entick v Carrington was that the state might do nothing unless expressly
authorised by law. However the individual may do anything except whatever is forbidden by law.
Managerial prerogatives appear to be a claim of entitlement for managers to override the general
law on contract, and private law formed by contract. When management believes it can invade a
property right, such as, a contractual right, through a claim of a prerogative, it could well be an
unlawful trespass. As a civil wrong, this would void any likely subsisting prerogative.
Prerogative is a mere discretion, judicially reviewable just like any exercise of a public officer’s
discretion. Prerogative generates no legally enforceable effects, is unique only to the crown, and
its ability to be delegated does not extend to private managers. The Ram doctrine operated
secretly for 60 years, and had certain irrational aspects. This Ram doctrine sounded like a claim
of a managerial version of a royal prerogative. However, by law, no manager could claim to be a
lawfully appointed delegate to exercise any royal prerogative.Any managerial claim to a
prerogative must be a claim unenforceable in law, as it would be in direct conflict of interest with
the King’s obligations to the commonwealth.
430
Any legislative policy arising from this discussion would demand either the term “managerial
prerogative” be proscribed as a misnomer, or else, some of the private managers’ claims to
inherent authority be enacted, in some agreed form, into legislation.
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Pension and Income in Russia:

Regional Differences and Affecting Factors
Marina Ryzhkova, Department of Economics Tomsk Polytechnic University, Tomsk, Russia,
Department of Economics Tomsk State University of Control Systems and Radioelectronics, Tomsk,
Russia, marybox@inbox.ru
Vladislav Spitsin, Department of Management Tomsk Polytechnic University, Tomsk,

Russia, spitsin_vv@mail.ru,
Aleksandr Mikhalchuk, Department of Higher Mathematics Tomsk Polytechnic University, Tomsk,

Russia, aamih54@gmail.com
Lubov Spitsina, Department of Economics Tomsk Polytechnic University, Tomsk, Russia,

s_luba_07@mail.ru
Mikhail Shinkeev, Department of Higher Mathematics Tomsk Polytechnic University, Tomsk,

Russia, schinkeev@tpu.ru
Abstract
The paper is focused on the differentiation of pensions and income of the elderly at the local level
(rayons of the Tomsk region). We used the federal and regional statistics data and panel data of the
older generation in the Tomsk region and applied methods of statistical analysis, including variance
analysis and regressions. The research revealed a statistically significant difference in pension
provision between rayons (77%) which is much higher than between regions. Regression analysis
showed a strong statistically significant correlation between the level of wages and pensions size in
rayons of Tomsk region. The study of retirement income based on the panel data of Tomsk region
reveals a statistically significant difference in average income level by territory. In particular, a
significantly higher amount of retirement payments was found in the territories where large industrial
production was located. At the same time, the analysis of income and pensions on rayons’ level does
not bring to light urban / rural differences, which are observed at the level of Russia. We suspect that
differences for cities and villages in Tomsk region are more complex and such factors as salary level,
mining of oil and gas, northern regional coefficient and wage rise for arduous working conditions
might be helpful in explanation of these discrepancies. The results of our study may be used to
improve public care and social support for pensioners at the local level analysis in Russia.
Keywords: salary, pension, elderly population, Tomsk region, urban area, rural area, correlation and
various analyses
Introduction
Over the past 50 years the share of elderly in the total population stably increased in most countries.
“Life expectancy at birth rose globally by 3 years between 2000 -2005 and 2010-2015, that is from
67 to 70 years. Globally, life expectancy at birth is projected to rise from 70 years in 2010-2015 to 77
years in 2045-2050 and to 83 years in 2095-2100” (World Population Prospects (2015)). As fertility
declines and life expectancy rises, the proportion of the population above a certain age rises. This
phenomenon, known as population ageing, is occurring throughout the world. It does not mean that
the fast growth of the number of old age population will lead to population aging. Some scientists, as
Nyqvist et al. (2013), Robine et al. (2013), Sanderson and Scherbov (2015), suppose that increases in
human life expectancy could lead to slower population aging. The influencing factor may be reducing
of child mortality and prolonging of active lifestyle. Sexagenarians, for example, could have become
healthier, longer life expectancies, better cognition (as Potočnik and Sonnentag (2013) assume) and
become less dependent upon others for their daily care (as Robine et al. (2013) and Boudiny K.
(2013) suppose).
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This case rises the problem of financing of elder people provision. Weil (2006) mentioned that
“Societies use three methods to transfer resources to people in dependent age groups: government,
family, and personal saving. In developed countries, families are predominant in supporting children,
while government is the main source of support for the elderly”. Within the population aging process
the population is projected to have a profound effect on the number of workers per retiree in various
countries, as measured by the Potential Support Ratio (PSR), defined as the number of people aged
20 to 64 divided by the number of people aged 65 or over.
The aging of the population occurs also in Russia. In 2015 the share of population 60+ is 20%, which
is lower than in Southern and Western Europe but higher than in Latin America, the Caribbean and
Africa. In 2100 the share of population 65+ is expected to rise up to 26% (as World Population
Prospects (2015) data show). If Russia has a population of 117 million people, it would be difficult to
finance pensioners’ needs by society funds. World experience offers the variety of sources for
pension. In Russian Federation the general sources of pensioners’ income are payments from the
Pension Fund of the Russian Federation.
The foreign pensioners receive diversified payments from different funds both public and private,
which are generalized to “pension”. Firstly, it is the accumulation of employer contributions. There
are two types of pension plans: defined contribution (DC) plan and defined benefit (DB) plan. The
first one, Cannon and Tonks (2013) say, is based on the employer’s (in some cases – additional
employee’s) payments in pension account. Their quantity and benefit from these investments will
form the future pension payments. The employer guarantees the contributions as a percentage of
revenues (as a rule, pre-tax), but not the precise amount of money. The second one (defined benefit
pension plan) allows to plan the exact benefit of the future pensioner. It is calculated by pre-
established formula. Sometimes it is necessary to entice the employee to these investments. Secondly,
the pensioner can receive funds from a special kind of insurance (severance pay), which can be paid
before pension age. Thirdly, the additional payments may come from such sources as the employer
special funds, insurance companies, the government or other institutions (employer associations or
trade unions). Employer’s pension component is referred to as an occupational or employer pension.
The tax systems of many countries allow employers to generate such funds and save on taxes. Some
insurance plans include the possibility to get special payments for disabled beneficiaries. Generally,
Pedersen (2004) guessed, pension systems in most of foreign countries become gradually private.
These trends are reasonable in the focus of population aging.
Russian authorities makes efforts to refocus the pension system from the unfunded pension scheme
(so called “Pay-As-You-Go” or PAYG system) to financial defined contributions. As Afanasiev
(2003) marked, the reform began in 2002 but it is too early to strike a balance. Economic and
political instability leads to a decrease in workers income and makes the possibility of achieving the
main goals of pension reform doubtful. Particularly, a moratorium on the accumulated pension
contributions has been extended ('Moratorium on the accumulative pension contributions could be
extended until 2019: Government donates funded system for the budget deficit reduction' (2016)) and
employed pensioners are discriminated in pension provision ('Working pensioners with high incomes
are offered not to pay pensions' (2016)). The pension system now, in fact, stays distributional.
Therefore, an important issue of pension provision of the elderly is the degree of pension dependence
on wages. However, it should be noted that well-being in older age is influenced not only and not so
much by monetary factors, but rather by such factors as health, active lifestyle, involvement in social
networks, Frolova and Ryzhkova (2015) affirm.
The current pension system in Russian Federation has such features:
- unfavorable coefficients of pension calculation at a higher level of wages;

- strong differences in wage levels by economic sectors;
- the lack of incentives to stop the “cash-in-hand” payments because employees have
guaranteed pension payments.
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Different approaches of reform are proposed to reduce the current costs on pension payments. But
economists do not offer to raise the wages which will help to form satisfying pension level by
increasing the size of the earnings from which pension contributions are paid. Moreover, these
measures will pump up the budget of the Pension Fund of the Russian Federation and reduce the
burden on the federal budget. In addition, higher level of salary allows the employees to save up
money and to carry out the pension investment strategy more actively.
In this paper we investigate the differentiation of the pensions at the local level and their dependence
on the average wages of the territory. Also the objective of the research includes revealing of the
differences in pension size between urban and rural pensioners. We use the federal and regional
statistics data (Federal State Statictics (2015), Monthly average pension and salary in local districts of
Tomsk region (2015) and Unified Interdepartmental Statistical Information System (2015)) and panel
data of the older generation in Tomsk region and apply methods of statistical analysis, including
variance analysis and regressions.
Problem Statement and Research Methods
In this paper we analyze distribution of pensions and income of the elderly and investigate factors
affecting the average pension and income on different territories in Russia. The pension systems of
the USSR and Russia were to some extent equalitarian, but allowed the differentiation of pensions
depending on different factors depending on the localization. Russian government attempts now to
range pension provision upon the level of former salaries of elderly. The pensioner’s wealth is also
influenced by the possibility to have a job after retirement.
In the paper we compare the differentiation of pensions at the level of regions (in the case of the
Siberian Federal District) and rayons (in the case of Tomsk region) in Russia. We investigate factors
affecting the average pension and income on rayons of Tomsk region and test the hypothesis of
correlation of average salaries and pensions for rayons. In our research we use the federal and
regional statistics data and panel data of the older generation in the Tomsk region.
Federal and regional statistics provide data of average pensions for the period 2001-2015 years at the
level of regions of Russia and rayons of Tomsk region. Sociological survey was conducted in 2014
and covers only this period. It was conducted in International Scientific Educational Laboratory for
the Improvement of Wellbeing Technologies of Older Adults which was founded on the basis of the
Tomsk Polytechnic University with financial support from the Ministry of Education and Science of
the Russian Federation in the framework of the research work in the direction of "Evaluation and
improvement of the social, economic and emotional well-being of older people”. Within the
mentioned above sociological survey we use the households’ average income of pensioners as an
indicator. It includes pensions and other payoffs and can be considered as the regional objective well-
being indicator. In this survey, income is defined as all possible cash flows. The survey polled 400
pensioners of the Tomsk region, living in six settlements. At the same time, we should pay attention
on some limitations of the survey, for example, subjectivity of responses and interval scale of income
determination.
The data of federal statistics and sociological survey was processed using methods of statistical
analysis, including variance analysis and regressions (Hill and Lewicki (2007), Spitsin et al for
Russian electronic industry(2015) and Spitsin et al for of transport equipment in Russia (2015)).
Statistical analysis was performed in STATISTICA 6.0 (Boudiny (2013)).
Study Results
Pension differentiation at the level of regions and rayons
We have conducted the analysis of pensions at the regional level only for the regions of Siberian
Federal District. The relative level of pensions for each region was calculated using official data
435
(Federal State Statictics (2015) and Unified Interdepartmental Statistical Information System (2015)
(2015)).
The results are shown in Fig. 1.. There are distinguished two clusters of regions:
- Tomsk, Krasnoyarsk, Irkutsk, Kemerovo regions

regions with constantly higher pension level
levels;
- Other regions with lower pension levels.
level
The highest pension level is in Tomsk region, the lowest – in Altai region.
The difference of average pensions between the leader and the outsider regions is 21%, and it is
admitted as minor.
According federal statistic data there is a difference between pension sizes in urban and rural
residents on the federal level. The average pensions of the urban population are higher (see
see table 1)
(Federal State Statictics (2015).
Figure 1: The relative level of pension in Siberian Federal District

(
(Average district level as 100 %)
Table 1: Size and dynamics

ynamics of average pension depending on location in Russian Federation
(for January, 1, in RUR)
Pension size 2011 2012 2013 2014 2015* 2016
Average pension in Russia 7593,9 8272,7 9153,6 10029,7 10888,7 12080,9

- in rural location 6885,1 7436,7 8243,4 9008,1 9801,8 10736,9
- in urban location 7892,6 8622,4 9527,3 10445,5 11305,2 12595,2
*For 31.12.2014.
Also we have conducted thehe analysis of pensions at the local level, e.g. for rayons of Tomsk region.
Thee average pension size dynamics for rayons of Tomsk region in 2010-2014 was calculated using
also official data (Monthly
Monthly average pension and salary in local districts of Tomsk region (2015)
(2015)). The
results are shown in Fig. 2.. The areas are presented in the descending order on the average pension
(based on 2014 data).
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Figure 2: The ratio of average pensions by rayons of the Tomsk region, 2014,, %
(Tomsk region – 100%)
It is immediately evident that relations between pensions in different rayons of the Tomsk region stay
more or less constant.. There are almost no changes in their proportions among areas, so we can
conclude the normative order of the pension calculation. These data highlight 4 groups of rayons on
the level of pensions with the difference between the first and last groups of more
more than 60%. And the
difference between the leading and the dead-last rayons is 77%. These differences are significant
significa and
they are vastly superior to the magnitude of variance between the regions of Siberian Federal District.
At the same time, these differences are quite complex and are formed by a number of factors such as
salary level, mining of oil and gas, northern regional coefficient and wage rise for arduous working
conditions in rayons of Tomsk region. The differences at the local level cannot be reduced to a
difference between urban / rural residents.
residents Tomsk city is the regional center but its average pension is
lower than in 10 rural areas.
Salary and pension regression analysis at the local level
To investigate the relationship between salary and pension at the local level of Tomsk region we use
the official data on average salary and average pensions by localities in 2000, 2005, 2010 and 2014
(Monthly
Monthly average pension and salary in local districts of Tomsk region (2015)). Linear
inear regression
regressi
models with 95% confidence interval are shown in Fig.
Fig 3.
437
2000 2005
2010 2014
Figure 3: Linear regression models between average salary (ZRP) and pension (PENS) by
localities of Tomsk region
Since 2005 the correlations and the linear models become significant. Coefficients of the regression
equations are statistically significant. Year by year the significance of the model increases, and thus
the relationship within the regression line becomes closer. Interpreting the linear model we can
conclude that the part of pension, which is linearly dependent on salary, is increasing every year. In
2005 the part of the average pension, which depended on the salary, was 8,5%, but in 2014 it reached
17,7%. Also the “quality” of residuals in the models rose. In 2014 the value of Durbin-Watson
statistic of the model is 1,944, so the value is close to 2, and it means no correlation between
residuals. Fisher criterion for homogeneity of variances of the same model (F = 1,42) and
significance level (p = 0,632) indicate insignificant dispersions difference. Distribution of residuals
approximates to a normal distribution. For the linear model (2014) the level of significance in
Shapiro-Wilk statistic is 0,059, so, at a significance level of 0,05 is possible to accept the hypothesis
of residuals normality.
The observed relationship, in our opinion, reflects the modern principles of the pension provision:
permanent part and variable part depending on employee’s pension contributions (from his or her
past salary). If we assume that the current level of salary in the region in some way determines the
level of the past salary (the contributions to the Pension Fund), the same dependence should be
observed. In 2014, a permanent part specifies half of the average value of pension, but the other half
includes the part, which is dependent on salary (with a coefficient of 0,17). If we subtract the minimal
438
value of pension (near 6436 rubles) from the average pension, and then calculate the ratio, the results
will be equal.
The significance level and the tightness of correlation are increasing from 2000 to 2014. The increase
of significance of correlation means that the size of pension is increasingly dependent on the salary in
modern Russia (after 1992). Regression models presented above describe the current Russian pension
system in which pension payments include a permanent (minimal) part and a variable one. Variable
component depends on pension contributions. Further, permanent part grows with time (because of
the inflation indexing) and our regression model allows us to take it into account.
Analysis of the panel data of Tomsk region’s older generation
General distribution of respondents by place of residence and income is shown in Table 2.
Table 2: Structure of panel data
Class Number Share of

Co
No Question Variant of answer mark of res- res-
de
(RUR) pondents pondents
Less than 6000 RUR In1 3000 12 3,00
What is the 6000 – 12000 RUR In2 9000 145 36,25
average income 13000 – 18000 RUR In3 15000 143 35,75
74 (In) of your
family member 19000 – 25000 RUR In4 21000 55 13,75
per month? More than 26000 RUR In5 29000 21 5,25
Difficult to answer In6 24 6,00
Tomsk Np1 200 50,00
Seversk Np2 55 13,75
Asino Np3 25 6,25
Where do you Karagasok Np4 12 3,00
78
live? Teguldet Np5 8 2,00
Tomsk rayon Np6 75 18,75
Asino rayon Np7 13 3,25
Karagasok rayon Np8 12 3,00
Refering sampling parameters, it is clear that most of the respondents have income equal to
retirement payment (more than 6,000 but less than 18,000 RUR). These are mainly residents of cities
(Tomsk and Seversk) which count up to 64% of the sample. The results of comparison of income of
pensioners in different localities are shown on Fig. 4 and Table 3.
Figure 4: Comparison of income for the interval and rank scales in different localities
(thousand RUR)
Note: By the interval scale (left): circles - the group mean, vertical bars - 95% confidence intervals.
By rank scale (right): squares – medians, box - 25% -75% quartile range, whiskers- full range (min - max).
439
Table 3: Comparison of incomes in different localities of the Tomsk region (Fisher LSD test)
Np Np1 Np2 Np3 Np4 Np5 Np6 Np7 Np8

(13,84) (18,32) (13,08) (16,00) (12,00) (12,23) (11,31) (14,50)
Np1 0,000 0,524 0,192 0,361 0,037 0,114 0,689
Np2 0,000 0,000 0,201 0,003 0,000 0,000 0,036
Np3 0,524 0,000 0,136 0,633 0,511 0,352 0,468
Np4 0,192 0,201 0,136 0,116 0,030 0,036 0,509
Np5 0,361 0,003 0,633 0,116 0,911 0,782 0,325
Np6 0,037 0,000 0,511 0,030 0,911 0,581 0,192
Np7 0,114 0,000 0,352 0,036 0,782 0,581 0,153
Np8 0,689 0,036 0,468 0,509 0,325 0,192 0,153
According to parametric F-test the differences between the average income in the different localities
are highly significant (at pF≈0,00016 <0,0005) due to highly significant (0,0005> p) differences Np2
income (mean - 18318 RUR) from Np1 (13836 RUR), Np3, Np6 and Np8. The differences between
Np2 and Np5 are also strong significant (0,005> pF≈0,003> 0,0005), between Np2 and Np8 are
statistically significant (0,050> pF≈0,036> 0,005), and between Np2 (18318 RUR) and Np4 (16000
RUR) are insignificant (pF ≈0,20> 0,10). Other levels of significance are represented in table 3. The
values highlighted in red show statistically significant differences in the average income. The values
given in black show statistically insignificant differences in the average income. Nonparametric
(rank) Kruskal-Wallis test softens the result of F-test. For example, the differences between Np2 and
Np3 become strongly significant (0.005> PK-W ≈0,0015> 0,0005), and between Np2 and Np5
become statistically significant (0.05> PK-W ≈0,006> 0,005).
Conclusion
1. The analysis shows that the current pension system in Russia at the level of regions is expressed
egalitarian. Some differences in the average size of pensions are revealed at the regional level
(regions of Siberian Federal District as an example), but the difference between the leaders and
outsiders does not exceed 21% in 2015. However, at the level of rayons differences in pension
size can be significant. In Tomsk region, they reach 77% between the leading and the dead-last
rayons.
2. Regression analysis showed a strong statistically significant correlation between the average
salary and pension at the rayon level of Tomsk region for 2005, 2010, 2014. The regression
models constructed for these years reflect the increasing influence of salary on the average
pension payment in modern Russian economy (after 1992). They also demonstrate that a
significant part of the pension at the local level (up to half pension) depends on the level of
salary, and the other part is a constant constituent.
3. The study of retirement income based on the panel data of Tomsk region revealed a statistically
significant difference in average income by localities (cities and rayon centers). In particular, a
significantly higher amount of retirement payments was found in the territories where large
industrial production was located (Np2).
4. At the same time, the analysis of rayons of Tomsk region has not confirmed the hypothesis of
the urban / rural difference in income and pensions which is observed at the level of Russia.
This difference is more complex and depends on many factors such as salary level, mining of oil
and gas, northern regional coefficient and wage rise for arduous working conditions, etc.
The study of pensioners’ income which is based on the data of the sociological survey in Tomsk
region reveals statistically significant differences at the average level of income by the place of
residence of respondents. It is found, in particular, that a significantly higher amount of income is in
the territory where large industrial production was formerly located. The higher pension size in
Seversk is reasoned, firstly, by higher regional coefficient (1.5 vs 1.3 in Tomsk and other localities).
Secondly, Seversk is industrial city with a few large-scale-production factories which employed in
440
the past predominantly male workers on positions with harmful working conditions and thus paid
them high salaries. Moreover the enterprises grant some fringe benefits for their pensioners.
The results listed above have some limitations. Though pension is a significant part of pensioner
income, it does not fully represent the available sources of expenditure of pensioners.
1) Many of the options for consumer asset acquisition are not perceived by pensioners as an
income. Such assets are the vegetables and other food gathered in their garden or subsidiary plot.
2) The revealed differences in income and pensions of the old people can be partly explained by
the availability of rental income in a number of localities. Such rental income may be got from
apartment and other property lease or bank deposits.
3) Many pensioners continue working. The labor markets of larger localities offer more
opportunities for their employment. This factor may increase their income.
The results of our study may be useful to improve public care and social support for pensioners
considering territory and gender in difficult economic situation.
Acknowledgements
This work was performed by the author in collaboration with Tomsk Polytechnic University
within the project in Evaluation and enhancement of social, economic and emotional wellbeing
of older adults under the Agreement No.14.Z50.31.0029.
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442
Investing in Farmland in the Czech Republic

As a Growth Factor in Its Price
Lucie Severová, Czech University of Life Sciences in Prague, Faculty of Economics and Management,
Kamýcká 129, Prague, 165 00, Czech Republic, e-mail: severova@pef.czu.cz
Roman Svoboda, Czech University of Life Sciences in Prague, Faculty of Economics and Management,
Kamýcká 129, Prague, 165 00, Czech Republic, e-mail: svobodar@pef.czu.cz
Lenka Kopecká, Czech University of Life Sciences in Prague, Faculty of Economics and Management,
Kamýcká 129, Prague, 165 00, Czech Republic, e-mail: kopeckal@pef.czu.cz
Abstract
The market price of farmland in the Czech Republic has been rising significantly. However, these prices
reach only one third of those in Western Europe; thus, the farmland presents an interesting investment
opportunity. But the farmland is difficult to obtain, since the majority of Czech farmers still farm on leased
land. Further, the area of agricultural plots is among the smallest in Europe, while an average size of fields
is among the largest ones. In the Czech Republic, 80 % of farmers farm on hired lands and growing rents
start to be an issue for many of them. The objective of this paper is to describe the development of farmland
prices in the Czech Republic and to analyze causes and impacts of this development on the land ownership
structure in the country. Primarily, description methods (especially for describing the creation of
investment farmland funds) and a comparative analysis (in the case of an indicator of the farmland prices in
the Czech Republic and in other states of EU) were used in this paper.
Keywords: farmland, farmland price, funds, lease
Introduction
The historical behavior of farmland prices, rental rates, and rates of return are examined by treating
farmland as an asset with an infinitely long life (Lence, 2014). In the first decade following the Velvet
Revolution, farmland in the Czech Republic only had a minimal value. If it was traded or leased at all at
that time, it was only done between farmers. The land market only began to develop more dynamically
after 2005; with other real estate segments having already been rather developed. To understand the
situation, we shall look into history. Farm plots in the Czech Republic have one of the smallest areas in
Europe.
443
Malta 1
Cyprus 3
Romania 4
Slovenia 7
Greece 7
Hungary 10
Croatia 10
Poland 10
Italy 12
Portugal 14
EU average 16
Lithuania 17
Bulgaria 18
Austria 19
Norway 23
Latvia 23
Spain 24
Netherlands 27
Belgium 35
Ireland 36
Finland 42
Sweden 45
Estonia 50
Germany 59
France 59
Luxembourg 63
Denmark 68
Slovakia 81
United Kingdom 94
Czech Republic 133
0 20 40 60 80 100 120 140
Figure 1: The Average Area of Farms in the EU (Farmy.cz, 2016)
It originates as far as in the Austro-Hungarian Empire when the land was not inherited by the oldest
descendant but in equal parts by all children. Due to this practice, many narrow, so-called belt plots arose in
course of years. In socialist period of Czech history, private farming and therefore private ownership of
farming lands ceased to exist in the Czech Republic unlike in other countries. Large agricultural
cooperatives and state farms were established farming on hundreds of hectares of farmland. After the
“Velvet Revolution” in 1989, farmers in the Czech Republic remained farming on large plots. Private
agricultural cooperatives were established on the basis of the existing unified cooperative farms. Land
ownership, however, returned to many private owners in course of the restitution process. Suddenly, there
444
were hundred thousands of private land owners. Owners of the lands are therefore often different from
those who actually farm the land today.
Many speculators made use of the situation, started to deal with restitution claims and gained large areas of
agricultural lands. Small owners did not realise the value of agricultural lands and often considered
ownership of a field or meadow rather a difficulty. They therefore often accepted not very favourable offers
of agricultural cooperatives willing to hire their lands. At that time and often till today, the rents amounted
to CZK 2,000 (approx. € 74) per hectare per year. Average subsidy received by farmers in the Czech
Republic for cultivated land amounts up to CZK 8,000 (approx. € 296) per hectare and year. This is the
beginning of stagnation of the rather low prices of agricultural land in the Czech Republic. On the other
hand, increase in operating subsidies of CZK 1,000 per hectare per year (approx. € 37) in the period 2001-
2011 led to an increase in net value added of CZK 682.4 per hectare per year (approx. € 25.3). The effect
of subsidies on the economic performance of agricultural enterprises is significant. (Řezbová, Škubna,
2013)
Today, farmland is still traded mainly between farmers, but the number of investors, both domestic and
foreign, who are aware of the profit opportunity, is growing (Novák, 2014). The market price of farmland
in the Czech Republic has been rising; in 2015, it exceeded CZK 162,565 (approx. EUR 6,020) per hectare
on average. Year-on-year, it represents the increase by 16.5 %. Just in the first half of 2016, prices of
agricultural lands grew by another 20 % to the level of CZK 200,000 per hectare. However, it is still low
compared to the old EU member states. The majority of Czech farmers still farm on leased land. Although
the total acreage of farmland owned by farmers has been growing, the proportion of leased farmland in the
Czech Republic is the second highest in Europe, right after Slovakia.
The question is whether a problem of this farmland is its low liquidity. For someone owning five or more
hectares and having their plots connected, it will not be a problem to sell the farmland. Another question is
the price the seller should ask for. In recent years, the prices of farmland have significantly increased, and
the farmland market has begun to gain dynamics.
The objective of this paper is to describe the development of farmland prices in the Czech Republic and to
analyze the causes and impacts of this development on the land ownership structure.
Theoretical concept of farmland prices
Generally, land has specific qualities: it is not a homogenous production factor because it varies in its
location, fertility and other properties. The farmland quality depends primarily on its usability for growing
crops. Grown production is offered by farmers on the commodity market for a certain market price. Income
from a limit product produced on a sufficient unit of higher-quality land is higher than of that produced on
lower-quality land. If a demand for a farm product produced on land (e.g. wheat) rises, the market price of
the product rises together with the ground rent. The curve of demand for farmland is shown by a curve of
income from the limit product of the land D = MRPA. The market supply of farmland “S” has a stable,
vertical shape (Urbánková, 2016).
445
Figure 2: Rent in terms of land quality (Urbánková, 2016)
The higher-situated demand function D2 represents demand for higher-quality (more fertile) land, while the
demand curve D1 represents demand for lower-quality farmland. Thus, there are different prices for
farmland in terms of its quality, as well as the total rents which owners of individual lands will receive.
Regarding the higher demand for fertile farmland, competition between buyers will lead to an increase in
the ground rent for a land unit, i.e. the buyers are willing to pay more for fertile farmland. Another cause of
the different ground rents may be the farmland location (mountain or lowland areas), determining its
suitability for growing various crops or its usage for providing various services in the given territory
(Urbánková, 2016). Hinke et al (2014) consider the economic aspects of the business as the elemental
aspect of their existence, without which they would not develop further and nor continue their activities, at
least in the long run.
Primarily, description methods (especially for describing the creation of investment farmland funds) and a
comparative analysis (in the case of an indicator of the farmland prices in the Czech Republic and in other
states of EU) were used in this paper.
In its annual report for 2014, the Ministry of Agriculture estimated that the scope of traded farmland would
stagnate or even slightly decrease in the next years. The estimate was based on the trend observed, related
particularly to the gradual termination of transfers of state-owned land onto private subjects.
According to calculations of the real estate website Farmy.cz, the price per hectare of farmland has been
growing without significant fluctuations. In 2015, it was more than CZK 162,565 (approx. EUR 6,020) per
hectare on average, which is more than double the price from 2004, when the Czech Republic joined the
EU. The EU accession influenced both territorial and commodity structure of the Czech foreign agrarian
trade (Smutka et al, 2015), which also resulted in the growth of farmland prices. The website states that
although the largest group of potential buyers of farmland are farmers, the biggest group in terms of trades
realized in CZK are long-term agricultural investors. Investing in farmland is presently viewed as an
attractive alternative investment and safe long-term deposition of financial resources (Farmy.cz, 2016).
446
180.0
162.6
y = 58.299e0.08x
160.0
R² = 0.988 139.6
140.0
124.1
118.7
120.0 108.1
102.5
96.3
100.0 86.7
80.0 74.0 76.9
65.9 68.3
60.0
40.0
20.0
0.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Figure 3: The market price of farmland in thousands CZK per hectare (Farmy.cz, 2016)
Comparison of farmland prices in the Czech Republic and the EU
According to agricultural experts (for example Martin Pýcha, chairman of Agricultural Association of the
CR), the market price of farmland in the Czech Republic has been increasing slowly, but constantly in
recent years, coming close to prices in Western Europe. Leases of the majority of land types usable for
farming have been increasing, too. No decrease should be expected; the main reason is the fact that the
farmland price in the Czech Republic is lower than, for example, in Slovakia or Germany (including the
new federal states).
Table below shows prices of agricultural lands in EU countries acquired from available data by Eurostat.
Table 1: Price per hectare of farmland in selected EU countries in EUR (Eurostat, 2016)
Country Price per hectare Year

Belgium 27,190.00 2006
Czech Republic 2,249.71 2009
Denmark 25,919.26 2009
Finland 6,885.00 2009
France 5,130.00 2009
Germany 8,909.00 2006
Ireland 16,230.00 2005
Italy 14,266.35 2001
Latvia 1,014.60 2009
Lithuania 971.39 2009
Luxembourg 20,000.00 2009
Malta 130,000.00 2009
Netherlands 47,051.00 2009
447
Slovakia 1,256.39 2009

Spain 10,465.00 2009
Sweden 3,747.96 2009
United Kingdom 17,772.64 2008
As shown in Table 1, in 2009 prices of agricultural lands in developed West European countries were more
than doubled (France) but also ten times higher (Denmark) compared to the Czech Republic. At present
(2016), prices of agricultural lands in the Czech Republic amount to one third of West European prices.
Even in neighboring Slovakia, the lands are sold for double prices.
It is hard to estimate how much more the price will rise; this will depend on the region, soil quality, and
prices of agricultural commodities.
modities. Besides the soil quality and plot area, the price also significantly
depends on local competition between farmers and whether a given plot is included in the Land-Parcel
Land
Identification System (LPIS) land block for which farmers receive subsidies (Sirotek, 2015).
In some cases, the price of farmland has hit the limit which, for example, farmers can afford to pay; in other
cases, there is still some space for increase. The price development may also be influenced by the reduction
of the basic directt payments from the EU funds. The Agricultural Intervention Fund paid 21 billion CZK
(approx. EUR 778 mil.) as the payment for agricultural land to farmers and agricultural enterprises in the
year 2014 (Šrédl and Mikhalkina, 2015). The subsidies dropped fr from
om CZK 21 billion in 2014 to CZK 12.5
billion (approx. EUR 463 mil.) in 2015 (however, the total amount of subsidies has not changed: farmers
will receive more money in other programmes).
120000
101484
100000 87121
80000 69938
60000 52741
43504 46851
42693
40000
20000
0
2005 2006 2007 2008 2009 2010 2011
Figure 4: Development of the price of farmland in the Czech Republic in CZK per hectare (PGRLF,
2014)
The current price per hectare (or square meter) of farmland is not easy to determine. The latest state of the
agricultural report, elaborated under the supervision of the Ministry of Agriculture for 2012, states that the
price has increased since 2005, according to the Czech Land Fund and the PGRLF, but decreased according
to data supplied by the Czech Statistical Office. This is related to the decrease in quality of
o plots sold by the
448
state because there are hardly any better-quality plots available for purchase and their price is lower than in
transactions between private subjects (Kütner, 2014).
The Farmy.cz website, specializing in the purchase of farmland and farms, estimates that the market price
of farmland is CZK 13-23 (approx. EUR 0.48-0.75) per m2 (Farmy.cz, 2016). The price of farmland has
been gradually increasing over the past ten years due to the combination of a number of factors. The
situation in the agricultural sector has improved, particularly due to increasing subsidies; non-agricultural
subjects are showing increased interest and banks are changing their approach to granting loans for the
purchase of farmland.
According to Farmy.cz, the price of farmland in the Czech Republic is lower than in the majority of the old
EU member states. Although farmland prices in the Czech Republic cannot be expected to reach those in
Austria or Germany, a continuous, gradual increase in farmland prices may be expected in the near future
(Farmy.cz, 2016).
Farmland in the Czech Republic purchased by investment funds
Land has one specific property. Diagrams of the correlation of the land price development and inflation
show that the land prices always increase at the time of economic recession. Thanks to this aspect, land is
interesting for the majority of investors and suitable for inclusion in an investment portfolio. 98 thousand
hectares changed hands in the Czech Republic in 2015. It is slightly more than in 2014. In total, however,
agricultural land is sold ever less in the Czech Republic. In the record year 2007, 158 thousand hectares
changed hands; since then, the sales decrease.
Investors are attracted to the newly established farmland funds in the Czech Republic by the vision of a
good yield, starting at 5% and going up to 12%. Since probably no bank deposit can currently offer a 5%
yield, even the lowest expected yield is lucrative.
The value of the investment should be increased by the connection of fragmented plots and their future
sales. The primary source of the increase in value will be capital gains from the difference between the
farmland sale price and purchase cost. Future buyers of extensive farmland areas may be, for example, big
financial groups. If the land fund will create a quality and consolidated portfolio, bigger investment actors
will come within ten years, willing to pay extra money for the purchase of a good portfolio (Novák, 2014).
Investment funds expect to have other gains from higher yields from the lease of land to farmers. The
bargaining power of big owners differs from that of owners of small fields and meadows. The current
annual gain from a plot lease does not usually exceed 3%.
Table 2: Rent and subsidy development in the Czech Republic (CleverMaps.cz, 2015)
2010 2011 2012 2013 2014

Purchase price/ha 86,228 102,550 115,856 119,535 128,295
Land valuation/ha 6.23 6.23 6.23 6.23 6.23
Subsidy/ha 4,061 4,687 5,387 6,069 8,000
Rent/ha 1,421 1,473 1,630 1,783 2,000
In the Czech Republic, 80 % of farmers farm on hired lands and growing rents start to be an issue for many
of them.
449
However, the farmland business is only suitable for long-time investors. The land fund will be primarily
intended for investors with a long-term investment horizon, at least five, optimally eight years. Their
reward should be a very interesting gain with a limited risk level (Novák, 2014).
Acquiring farmland in the Czech Republic is said not to be easy. The land is a rather interesting item of
investment, but it is difficult to find owners willing to sell their land. However, decrease in sales does not
mean a decreasing demand for agricultural lands, quite the contrary. Excess of money in the economy
drives the investors to look for “safe harbors” with stable profit. And agricultural lands meet the
characteristics. This matter is dealt with by Agro 21 – a company searching for offers throughout the
country. Currently, managers of bigger companies, who have savings and want to invest them in a rather
conservative way, invest in the farmland through the funds.
The new land funds begin as funds of qualified investors. It means that, after being entered in the Czech
National Bank, they will accept only partners with a minimal investment of EUR 125,000 (approx. CZK
3.4 million). The Česká pole (Czech Fields) fund accepts a minimum investment of CZK one million, if all
legal requirements are met (Novák, 2014).
Besides Czech land funds, foreign investors buy farmland in the Czech Republic, too. Dutch investors are
rather active, purchasing farmland throughout Europe. The business model of some of them is to harvest in
the Netherlands, in the Czech Republic, and. for example, in Romania. Further, German investors are active
in our country. Other investors keep limiting their business to Western Europe, or to large markets such as
Poland, Ukraine, and Romania; the Czech Republic is still too small for them.
Conclusion
The market prices of farmland have been gradually increasing over the past eleven years due to the
combination of a number of factors. Just in course of 2015, prices increased by 16.5 %. Price of a square
meter amounted up to CZK 16.26 while in 2004 to less than CZK 7. The situation in the Czech agricultural
sector has improved particularly due to increasing subsidies; non-agricultural subjects are showing
increased interest and banks are changing their approach to granting loans for the purchase of farmland.
Investing in farmland may also serve as a way of securing assets in turbulent times, since farmland prices
do not drop, even in a time of economic recession. Besides Czech land funds, foreign investors buy
farmland in the Czech Republic, too. Dutch investors are particularly active, purchasing farmland
throughout Europe. It is mainly caused by the fact that prices of agricultural lands in the Czech Republic
amount to one third of West European prices. Even in neighboring Slovakia, the lands are sold for double
prices.
Acknowledgment
This study is supported by the Internal Grant Agency of Faculty of Economics and Management, Czech
University of Life Sciences Prague (Projects No. 20161004 – Analysis of Price Competition Models in
Oligopolistic Markets with Food Commodities).
References
Farmy.cz., (2015), 'Zpráva o trhu s půdou,' [Online], [Retrieved December 15, 2015],
http://farmy.cz/dokumenty/ZPRAVA%20o%20trhu%20s%20pudou%20FARMYCZ%20leden%202015.pd
f
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Hinke, J., Zborková, J. and Černá, M. (2014), 'The Methodology of Sustainable Business Performance
Indicators Determination.' Proceedings of the 23rd International-Business-Information-Management-
Association Conference on Visio 2020: Sustainable Growth, Economic Development, and Global
Competitiveness, ISBN: 978-0-9860419-2-1, 13-14 May, Valencia, Spain, 1033-1047.
Kütner, D. (2014), 'Zemědělská půda je v Česku levnější než na Slovensku,' E15, 15.5.2014, 4.
Lence, S.H. (2014), ' Farmland Prices: Is This Time Different?,' Applied Economic Perspectives and
Policy, 36 (4), 577 -603.
Novák, D. (2014). 'Z české zemědělské půdy se stává investiční hit,' E15, 15.5.2014, 6-7.
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doc.pgrlf.cz:4443/weby/pub-doc/Stranky/default.aspx
Řezbová, H. and Škubna, O. (2013), 'Analysis of the Impact of Subsidies on Economic Performance of
Agricultural Enterprises in the Czech Republic.' Proceedings of the 22nd International Scientific
Conference on Agrarian Perspectives - Agrarian Perspectives XXII: Development Trends in Agribusiness,
ISBN: 978-80-213-2419-0, 17-18 September, Prague, Czech Republic, 78-85.
Sirotek, J. (2015), 'Půda začíná vydělávat,' E15, 1.9.2015, 14-15.
Smutka, L., Steininger, M., Maitah and M., Škubna, O. (2015), 'The Czech agrarian foreign trade - ten
years after the EU accession.' Proceedings of the 24th International Scientific Conference on Agrarian
Perspectives - Global Agribusiness and the Rural Economy, ISBN: 978-80-213-2581-4, 16-18 September,
Prague, Czech Republic, 385-392.
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the Czech Republic.' Proceedings of the International Scientific Conference on Opportunities and Threats
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Prague, Prague.
451
The Use of Management According to Activities

Valentin S. Nikolaenko
Tomsk Polytechnic University, Russia, nikolaenkovs@tpu.ru
Oleg N. Petukhov
Tomsk Polytechnic University, Russia, onpetukhov@tpu.ru
Olga V. Petukhova
Siberian State Medical University, Russia, polgavas@mail.ru
Vladislav V. Romanovsky
Tomsk Polytechnic University, Russia, limb58@mail.ru
Abstract
This article describes the characteristics of modern ERP- systems used for the purposes of cost
management. There are characteristics of ABC- costing - costing by activity. This calculation is used in
many modern information systems. In addition, costing by activity allows you to create an information
base to control costs. Formed base also allows you to manage business processes. Business processes are
allocated according to the needs of the enterprise. Business processes can be allocated depending on the
resources consumed by the enterprise.
Keywords: Business model, business process, ERP system.
1. Introduction
In order to develop and exist in the market successfully, today's organizations need a clear idea of what
business processes are the most valuable to consumers of their products and / or services, as well as to
understand how quickly the transformation of intangible assets into the final products takes place.
Speed and efficiency of information flow, as well as of intermediate business products between staff and
organizations’ divisions have a significant impact on the formation of the final cost of the goods and / or
services, and hence on customer’s loyalty and satisfaction. In this regard, the problem of the formalization
of internal and external business processes of the organization is relevant.
One of these solutions is the introduction of ERP-systems (Enterprise Resource Planning System). ERP
concept was introduced by Gartner Group in 1990s and was determined as the standard requirements for
the functions of software platforms on which to build IT solutions for organizations are being built [1].
According to Gartner Group, ERP-system must be able:
1. to automate basic accounting tasks and make up standardized reporting;

2. to solve the problems of financial management;
452
3. to automate the ordering and procurement;

4. to solve peculiar problems of inventory control and various production tasks; and
5. to plan personal relationships with customers and suppliers.
Positive effect from the introduction of such systems is substantial increase competitiveness by means of
rapid passage through the chains of internal and external business processes of the organization. However,
the process of implementation is associated with some risk of misinterpretation of the actual business
processes of organizations. Basically the sources of this risk are individual business models and business
processes complicating the collection of requirements for the ERP-systems.
2. Aims and Objectives of Article
The purpose of this article is to present a conceptual approach allowing to carry on decomposition and the
formalization of internal and external business processes, as well as to provide the collection of the
requirements that are applied to the ERP-systems.
Thus, the structure of the paper is presented as a consistent solution of the following tasks.
1. The elaboration of a conceptual approach on formalization of the business model describing the key
business processes of an organization. In this article these business processes will be called as
business processes of the first level;
2. The elaboration of a conceptual approach on decomposition of business processes of the first level
and obtaining the first level business processes describing the manufacture of intermediate business
products . In this article, these business processes will be called as business processes of the second
level;
3. The elaboration of a conceptual approach on decomposition of business processes of the second
level with the description of those responsible for the business processes and their key actions. In
this article these business processes will be called as business processes of the third level;
4. The conduct of the analytical study of ERP-systems which are present in the Russian market; and
5. The conduct of the analytical study of information systems (IS) using the ABC-costing algorithm
within the Russian market.
3. Business Model and Business Process
The solving of the first task includes formalization of the processes of interaction of elements of internal
and external environment of an organization. Similar formalization allows to visualize key business
processes. The key business processes include organization’s financial flows, the consumer contacts with
the organization, channels of interaction with partners, basic goods and / or services of the organization,
etc. [2,10]. Analysis of the literature relative to the first task has shown that the scheme of the business
model proposed by Alexander Osterwalder and Yves Pigneur has satisfied all the necessary conditions [3].
This business model proposed by Osterwalder and Pigneur Y. was being tested by 470 organizations,
including major players such as Google, IBM, Ericsson. The example of visualization of the organization's
business model is presented in figure I.
In their writings, Osterwalder A. and Pigneur Y. have offered to start the visualization of the business
model with the element “consumer segments”, because namely end-users form cash flows. Further it is
necessary to visualize “value propositions”. The value propositions are considered to be the reasons
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because of which end-users prefer the goods and/or services of the organization for which a business model
is created.
Marketing channels forming a system of interactions and ensuring the transfer of goods and/or services are
the points of contact of a consumer with the organization. The element called “the customer relation”
describes the interactions that are established with clients, for example, personally and / or with the help of
on-line services. After the consumer has made a purchase the cash flow which is described as the element
“revenue streams” is formed.
Osterwalder A. and Pigneur Y. have also recommended describing the key resources that are needed to
create the goods and/or services and key activities of the organization. The key activities are the most
important actions of the company, without which the successful work in the market is impossible. The
element “key partners” are those organizations that promote the development of that organization for which
the business model is rendered, and are integral to the production of goods and/or services. The final
element "cost structure" describes the costs associated with the functioning of the organization.
The number of the business model's elements may differ greatly from what is presented in Figure I. This
can be explained by the fact that internal and external business processes are unique for every separate
organization. However, the visualization method of Osterwalder A. and Pigneur Y.'s closed business model
which makes it possible to identify key business processes. Let us call them business processes of the first
level.
Figure 1: Business processes first level based on a business model Osterwalder A. and
Pigneur Y. [3]
The solving of the second task consists of the decomposition of the first level business processes up to
identification of intermediate business products for staff and departments of an organization. To solve the
problem it is offered to use the proposed by Robert Kaplan and Norton David strategic maps method,
which makes it possible to visualize the organization, and describes the process of converting intangible
assets into tangible results [4,5,6].The proposed by Kaplan R. and David N. approach helps to describe the
business process model arrayed among stakeholders. Kaplan R. and David N. have defined their method as
a tool to implement the organization's strategy, tracking its performance with the help of Balanced
Scorecard (BSC) [4].
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The main elements which have been distinguished by Kaplan R. and David N. in the method of strategic
maps are shown in figure II. The given elements allow the decomposition of the business processes of the
first level up to intermediate business products of the organization. Let us call them business processes of
the second level.
The solution of the third problem is possible due to the identification of the second level business
processes, that is the decomposition of processes up to final performers with the description of their
business operations is possible thanks to the received information. To formalize the business processes it is
encouraged to use the concept of business engineering, namely to use the Aris methodology of conducting
works to improve business using information systems [7].
The result of this decomposition is the business processes of the third level, with the help of which
visualization and formalization of the processes that are implemented in the organization are possible. In
this context, it becomes possible to form the requirements for the ERP-systems, which reduce the risk of
misinterpretation of real business processes in the organization.
4. Analysis of ERP-Systems
The growing number of small and large enterprises in Russia creates demand for ERP-systems that can
provide effective management of internal business processes. In this regard, further we'll consider the basic
ERP-systems, which are presented in the Russian market and compare their technological bases. The
Russian market is presented by the following EPR-systems: “Galaxy”, “Sail”.
Figure 2: Business processes are the second level on the basis of the method of Kaplan R. and
David N. [4]
The ERP-system product, created by Galaxy Corporation, is designed for small and medium businesses [8].
On the whole the functionality of the ERP-system “Galaxy” involves planning activities, accumulation of
actual data, and transformation of them into the information for the management, monitoring indicators
455
deviations from the planned values, the development of analytical procedures as well as the accounting, tax
and management accounting.
Figure 3: Example graphical representation of the business process Aris [7]
The technological base of the ERP-system “Galaxy” is presented by Microsoft DOS, Pervasive SQL
Server. At the time of writing this article Microsoft SQL Server version is being developed for the ERP-
system “Galaxy” [8].
Product ERP-system created by the corporation “Sail” has been designed for medium and large
businesses [9].
Basically the functionality of the “Sail” ERP-system provides the process of automating accounting, basic
trade processes, and inventory control, payroll and personnel records.
The technological base of the “Galaxy” ERP-system has been represented by Microsoft Windows, Oracle
SQL, Seagate Crystal Reports.
Further we will carry out the studies of information systems (IS), which use the ABC-costing algorithm in
the Russian market.
ABC (Activity Based Costing) is the value analysis method of calculations from transactions. The ABC
application involves the use of a process approach and the presence of formalized description of business
processes. ABC is largely based on the concept of forming the value added chain, which includes business
processes from order entry to final product. Thus, calculation occurs on the basis of evaluation of business
processes within the value added chain. The main tasks that can be solved with this ABC are cost
calculation and formalization of business processes. For example, ABC-analysis can identify costly
business processes of the organization. ABC-analysis also provides the possibility of temporary valuation
and accounting costs and complexity of business processes.
ABC-analysis:
• ensures control over the company;
• increases the transparency of business processes in the organization;
456
• manages the employees' working time; and

• improves the work performance quality.
Large information systems in the Russian market are:
• SAP;
• Oracle; and
• Microsoft Dynamics ERP.
These systems use the algorithm ABC-costing for calculating costs, which comprises:
• selection of activities;
• formation of related groups by activities;
• definition databases for distribution-related groups; and
• distribution of the product costs.
These IS are used for processes of budgeting, that is organization’s budgets are formed for all kinds of
activities, for example, a marketing budget is formed, operational budgets, etc. Budgeting processes allow
us to trace the connection between customer needs and the products' availability. Also, the system of
budgeting in the IS data allows to manage business processes of formation of planning schedules
efficiently.
The ABC-costing is applied to calculate the costs accurately. The ABC -costing also helps form the
information basis for management decisions.
Let us consider the IS in details. SAP company is one of the world's leaders in the field of software
development for enterprises. ERP-system is focused on large and medium-sized organizations. The task of
the ERP-system is to automate core business processes of the company.
Oracle is the company specializing in the production of business applications, server hardware. The
company creates software for company’s management processes. Oracle ERP-system consists of
customizable modules that form a customizable system for the various tasks of the organization.
Table 1: ERP-system in the Russian market
Name of a Name of the ERP-

Functions Technological base
company system
Planning activities;
collection of evidence;
evidence of transformation into
Microsoft DOS, Pervasive
information for management;
SQL Server
Galaxy Corporation control of deviations from the target
Galaxy
[8] values of indicators;
in the development version
development of analytical procedures;
Microsoft SQL Server [8]
accounting;
tax accounting; and
managerial Accounting
Parus Corporation Automation of accounting; Windows, Oracle SQL,

Parus
[9] automation of the main trade processes; Seagate Crystal Reports
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automation of inventory control;

payroll; and
personnel records
Microsoft Dynamics ERP produced by Microsoft is a relatively low-cost product rather than ERP-SAP
systems, and Oracle. The given ERP-system allows you to work with the organization's business processes
and includes customizable modules to the needs of a particular company.
5. Discussion
Apart from the above listed methods of formalizing business processes, many authors suggest alternative
variants. For example, the authors Sanchez Ramon, Sanchez Cuadrado and Garcia Molina offer business
process automation using Java [11]. Van Looy, De Backer have also used cluster and discriminant analysis
for business processes [12], or they have applied the technologic process model. In their works researchers
report about the difficulties associated with the installation of ERP-systems and have proposed the use of
CIMOSA methodology and UML [13].
References
[1] O'Leary, D. (2004). ERP system. Modern planning and enterprise resource planning. Vershina. (pp.
112-156).
[2] Mann, I. (2014). Points of Contact. Simple ideas to improve your marketing. Mann, Ivanov and
Feber. 156 p.
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Game Changers, and Challengers. Self Published.
[4] Kaplan, R.S., & Norton, D.P. (2004). Strategy oriented organization. How organizations using the
Balanced Scorecard succeed in the new business environment. Olympus-Business. 416 p.
[5] Kaplan, R.S., & Norton, D.P. (2003). Balanced Scorecard. From strategy to action. Olympus
Business. 214 p.
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Outcomes. Harvard Business School Press. 324 p.
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an organization. Вестник Томского государственного университета. (pp. 137-140). No. 374.
[11] Sanchez, R.O., Sanchez, C.J. & Garcia, M.J. (2014). Model-driven reverse engineering of legacy
graphical user interfaces. AUTOMATED SOFTWARE ENGINEERING. Vol. 21. (pp. 147-186).
[12] Van Looy, A., De Backer, M. & Poels, G. (2014). A conceptual framework and classification of
capability areas for business process maturity. ENTERPRISE INFORMATION SYSTEMS. Vol. 8.
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extended enterprise in ERP systems. Conference: 2nd International Conference on Research and
Practical.
458
Disposition in Digital Records Management and Information

Systems: A Conceptual Analysis
Sherry. L. Xie, Key Laboratory of Data Engineering and Knowledge Engineering, Ministry of
Education of China, School of Information Resource Management, iSchool@Remin University of
China, 59 Zhongguancun Ave, Beijing, China, 100872, sherrylx@outlook.com
Guanyan Fan, School of Information Resource Management, iSchool@Remin University of China,

59 Zhongguancun Ave, Beijing, China, 100872, fanguanyan@163.com
Abstract
This paper reports on the preliminary findings of the conceptual framework analysis phase of the
project Research on Digital Records Management in Organizational Complex Systems, in particular
those regarding the concept of disposition. This phase permitted extraction of the records disposition
approach from the U.S. regulatory requirements and the emergence of issues with information
disposition in the same setting. The emergent issues form the centre of inquiry immediate to the next
phase of the project.
Keywords: digital records management, information systems, digital records, digital information,
disposition
1. Introduction
The Research on Digital Records Management in Organizational Complex Systems (DRMinOCS)

project aims to investigate DRM challenges brought by complex computing systems in large
organizations. Included as one of its investigation areas is relationships between DRM and the fields
that it interacts with (AREAR in the figure), and AREAR–ISs is the one that assesses the relationships
between DRM system and information Systems (ISs). Two lines of inquiry are attached to AREAR–
ISs: conceptual analysis and functional requirements analysis. The conceptual analysis examines
individual concepts and the relationships among them first in their respective settings, and then across
the two settings. This paper reports on the preliminary findings of the conceptual analysis phase,
utilizing data collected from the U.S. Federal Government. The reason to choose the U.S. Federal
Government as data source is twofold. First, academic literature on ISs does not appear to present
universally agreed upon ideas on the various topics it covers (Xie 2015), which challenges discipline-
crossing researchers in gaining sufficient and accurate understandings of these ideas. To focus on one
application of these ideas, i.e., the U.S. Federal Government’s use of ISs, eases to a considerable
degree such difficulties. Second, the U.S. Federal Government has long been considered
internationally the pioneer in DRM, to examine first its DRM situation, suits logically the objectives
of the project. The reporting in this paper focuses on the analyses surrounding the concept of
disposition.
2. Disposition in DRM
DRM is part of the traditional RM in the U.S. Federal Government and has increasingly becoming a
dominate part. The most recent definition of records in the Federal records law adds to the previous
version that records encompass those existing in digital or electronic forms, making explicit the
implications suggested by the phrase “regardless of form or characteristics” in the previous version
(U.S.a. 2006). The Codified Federal Regulations (CFR) on RM defines electronic records as “any
information that is recorded in a form that only a computer can process and that satisfies the
definition of a Federal record”, thus equating electronic records to digital records. For information to
be qualified as Federal record, the following conditions must be met:
459
• be recorded
• made or received by a Federal agency under Federal law
o or in connection with the transaction of public business
• preserved by that agency or its legitimate successor
o or appropriate for preservation by that agency or its legitimate successor
• as evidence of the organization, functions, policies, decisions, procedures, operations, or
other activities of the United States Government
o or because of the informational value of data in them.
The U.S. law defines the term records disposition as such activities as “disposal of temporary records
no longer necessary for the conduct of business by destruction or donation, transfer of records to
Federal agency storage facilities or records centers, transfer to the National Archives of the United
States of records determined to have sufficient historical or other value to warrant continued
preservation, or transfer of records from one Federal agency to any other Federal agency” (U.S.b
2006). The two types of activity in the definition, i.e., disposal and transfer, each is further governed
by specific provisions in the same law and the regulations issued under its authority. For example,
Chapter 31 of Title 44 stipulates exclusively about disposal and Chapters 29 and 31 regulate on
transfer to records center and to the National Archives and Records Administration (NARA) (U.S.b
2006; U.S.c 2006).
Disposition constitutes one integral part of DRM programs, which encompasses “the planning,
controlling, directing, organizing, training, promoting, and other managerial activities involved with
respect to records creation, records maintenance and use, and records disposition in order to achieve
adequate and proper documentation of the policies and transactions of the Federal Government and
effective and economical management of agency operations” (U.S.a 2006). In the conduct of a DRM
program, disposition is procedurally connected to appraisal, i.e., the activity that assesses values of
records and permits the establishment of time periods for records to be retained, and disposition
authority, i.e., a legal instrument that authorizes disposal. Records with retention periods can be
described by the concepts of current and non-current records, where the former indicates the status of
being needed by agencies’ business, i.e., still within their retention periods, and the latter the
opposite, i.e., having reached the end of their retention periods. The moment of current records being
switched to their non-current status is the time that triggers the actions of disposition. In the U.S.
Federal Government, disposition has enabled the destruction of the absolute majority of non-current
records, resulting in NARA taking in only 1%-3% of such records considered legally or historically
significant as its permanent holdings (NARA 2016). Disposition, therefore, is one of the
indispensable activities that ensures Federal agencies’ goal of obtaining “economical and efficient”
management of their records (U.S.c 2006) and ultimately, the “effective and economical” operations
of their business (GSA 2015 ).
In summary, disposition in DRM possesses the following characteristics:
• DDRM-1: acting on records (i.e., records as the object)

• DDRM-2: an integral part of an organic process (i.e., actions/steps are logically ordered)
• DDRM-3: legally required and governed
• DDRM-4: instrumental to managerial efficiency and effectiveness
3. Disposition in Information Systems
The link between disposition and ISs is present in the ISs’ legal definition, which considers ISs “a
discrete set of information resources organized for the collection, processing, maintenance, use,
sharing, dissemination, or disposition of information (U.S.d 2011). Unlike disposition in the RM
context, disposition in ISs appears to have no specific provisions regarding its conduct in relevant
laws and regulations. In the System Development Life Cycle (SDLC) approach required to be
460
followed by agencies, disposition is the last phase of SDLC, by which an information system is
terminated as a whole. Results of such disposition include migration of the system to a new(er)
system or complete shutdown of the system with only selected components of it to be archived. As
one of such components, “data processed by the system” is required to be properly preserved “in
accordance with applicable records management regulations and policies for potential future access”
(Radack 2009; EPA 2015), thus linking disposition in DRM to disposition of data in ISs. This
linkage, however, is rather general as it does not answer the question how information in ISs - when
ISs are still up and running - is disposed of. It raises as well additional questions as to what the
relationships are between “data processed by the system” and “information” in the above definition
of information system, which is the focus of this study. The term information is not defined in the law
that defines information system yet Circular A-130 of the White House Office of Management and
Budget, Management of Federal Information Resources, defines both information and government
information, with the former being “any communication or representation of knowledge such as facts,
data, or opinions in any medium or form, including textual, numerical, graphic, cartographic,
narrative, or audiovisual forms” and the latter “information created, collected, processed,
disseminated, or disposed of by or for the Federal Government” (OMB 2000). According to these
definitions, data consists of only one type of government information, suggesting that disposition of
data should not be equated to disposition of information. In addition to be present in the ISs
definition, disposition of information is also considered one phase of information lifecycle governed
by information management (Ibid 2000). However, provisions on information management (IM)
leave still the question regarding information disposition unanswered.
4. Disposition of Information as Records
Because the search for answers to information disposition directly in the Federal ISs (including IM)
field yielded no results, an attempt was subsequently made to examine the effect of DRM on ISs,
starting with the concepts of federal records and government information. According to the above
articulated relationship between records and information, it is logical to apply rules and approaches of
records disposition to government information when it is identified as records. The question, then,
became, how should or can government information be identified as records?
The second place to indirectly examine information disposition are the DRM requirements over ISs.
According to the provisions on DRM in CFR (U.S. 2016):
• ISs contain federal records and other information (§1236.2)

• Agencies are responsible for integrating DRM considerations into the design,
development, enhancement, and implementation of ISs (§1236.6)
• Agencies must incorporate DRM controls into ISs or integrate them into a recordkeeping
system that is external to the IS itself (§1236.10)
o Recordkeeping functionality may be built into ISs or records can be transferred to
an recordkeeping repository (§1236.20)
These provisions confirm the previous understanding that when information in ISs is identified as
records, it can then be disposed of in accordance with rules governing records disposition. Moreover,
these provisions make it clear that disposition – as enclosed in the expressions of DRM consideration
and DRM controls – can take place either within ISs or in systems external to them.
5. Summary & Next Steps
The figure below summarizes the preliminary findings of this phase, with immediate next steps:
461
Figure 1: Preliminary findings and next steps
Acknowledgement
The research reported in this article was supported financially by the Central Universities of China
Significant Research Grant, No.15XNL 032.
References
Environment Protection Agency. (2015). System Life Cycle Management (SLCM) Policy. Available
from: https://www.epa.gov/sites/production/files/2013-11/documents/cio_2121-p-03.0.pdf [Accessed
5 March 2016].
General Services Administration. (2015). Subchapter G—Administrative programs. Available from:

http://www.gsa.gov/portal/ext/public/site/FMR/file/Part102-193.html/category/21863/ [Accessed 8
March 2016].
NARA. (2016). What is the National Archives?. Available from: http://www.archives.gov/about/

[Accessed 25 February 2016].
OMB. (2000). Management of Federal Information Resources. Available from:

https://www.whitehouse.gov/omb/circulars_a130_a130trans4/#3 [Accessed 1 March 2016]
Radack, S. (2009). The System Development Life Cycle. Available from:

http://csrc.nist.gov/publications/nistbul/april2009_system-development-life-cycle.pdf [Accessed 7
March 2016].
462
U.S. National Archives and Records Administration. (2006). 44 U.S.C. Chapter 33 Disposal of
Records. Available from: http://www.archives.gov/about/laws/disposal-of-records.html [Accessed 2
March 2016].
U.S. National Archives and Records Administration. (2006). 44 U.S.C. Chapter 29 Records
Management by the Archivist of the United States. Available from:
http://www.archives.gov/about/laws/records-management.html [Accessed 2 March 2016].
U.S. National Archives and Records Administration. (2006). 44 U.S.C. Chapter 31 Records
Management by Federal Agencies. Available from: http://www.archives.gov/about/laws/fed-
agencies.html [Accessed 2 March 2016]
U.S. National Archives and Records Administration. (2011). 44 U.S.C. Chapter 35 Coordination of
Federal Information Policy. Available from: https://www.gpo.gov/fdsys/pkg/USCODE-2011-
title44/pdf/USCODE-2011-title44-chap35-subchapI-sec3502.pdf [Accessed 2 March 2016].
Xie, S. L. (2015). Co-Design of Information Systems with Digital Records Management: A Proposal
for Research. In: Proceedings of the 7th KMIS IC3K Vol. 3, Lisbon, Portugal, 2015, pp 222-228.
463
A Model of Work-Family Enrichment

And Job Satisfaction
Burhanudin
Universitas Janabadra
burhanudin_ujb@yahoo.co.id
Heru Kurnianto Tjahjono

Universitas Muhammadiyah Yogyakarta Indonesia
E-mail: herukurnianto@umy.ac.id
Majang Palupi
Universitas Islam Indonesia
E-mail: majang_palupi@uii.ac.id
Abstract
This study aims to propose a research model with the antecedent of Work-Family Enrichment (WFE) and
its proposition. This model is less discussed than the relationship of work-family, seen from the aspect of
Work-Family Conflict (WFC). The existence of social capital has become novelty in the model, as it
positions in the level of individual analysis which is still lack of discussion in organizational study. The
proposition proposed in this study is that the supervisor and family support, self-esteem, and social capital
are positively related to work-family enrichment, and then the work-family enrichment positively related
to job satisfaction.
Keywords: Work-Family Enrichment (WFE), supervisor support, family support, self-esteem, social
capital, and job satisfaction.
Background
Two substantial domains in most people’s life are work and family. This is because the change of
demography which includes the increasing number of spouses with dual career, the role of non-
traditionalism, and the increasing number of working hours. Being responsible for the double work and
responsibilities, both in workplace and family is a great challenge. This change has driven research
dealing with the relationship between work and family.
Most researches about work and family focus on antecedent and adverse consequences whether for the
individual or the organization. Mitchel, et al. (2011) has done a meta-analysis to serve a quantitative
review about the antecedent of Work-Family Conflict (WFC) and Family-Work Conflict (FWC). Its
hypotheses show that work role stressor is the predictor of WFC, family role stressor is the predictor of
FWC, internal locus of control and negative affection / neuroticism are the predictor of WFC, and
demographic variable (marital status, parental status, and gender) is a significant moderator of the
relationship of work domain / WFC and family domain / FWC. The review results of Michel et al. (2011)
present an unpredictable finding, that work role stressor has relation with WFC. This may bring out cross
domain effect of various antecedents (Hargis et al., 2011).
Hargis, et al. (2011) perform a meta-analysis to enlarge the previous research and evaluate the importance
of several antecedents which are theoretically and simultaneously significant. This research combines two
conceptualizations of WFC to explore the relative significance of substantial antecedents for predicting
464
WFC and FWC based on time, stressor, and behavior. The antecedents of WFC are usually categorized to
three domains, such as working, non-working, and individual difference domains. The result of this
research shows that negative affection and work stressor are the most substantial predictors of all aspects
of WFC. It also shows that the antecedent of work domain, such as work stressor can be equally
important for both Work Interfering with Family (WIF) and Family Interfering with Work (FIW).
On the other side, Allen et al. (2012) performs another meta-analysis to examine the relationship between
dispositional variable and WFC. This research uses gender, parental status, and marital status as the
moderator variables. The findings show that dispositional is an important predictor of Work Interfering
with Family and Family Interfering with Work. This research presents comprehensive meta-analysis
about the relationship among dispositional variables, work-family conflict, and the moderator. The
research result shows that negative affection and neuroticism make the individual susceptible to WIF and
FIW. On the other hand, positive affection, internal locus of control, self-efficacy, and optimism seem to
be able to help the individual to overcome both work and family problems which are contradictory. The
other important dispositional variable in distinguishing attitude and behavior is social capital (Tjahjono,
2011; 2014). Generally, the result shows that dispositional factor is an important predictor of WIF and
FIW, and that demographical factor doesn’t take role as moderator.
Meanwhile, about the consequence or impact of WFC, Allen, et al. (2000) has conducted a review
through meta-analysis. The consequences or outcomes of WFC can be arranged into three categories,
such as related to work, non-work, and stress. The work consequences include job satisfaction,
organizational commitment, intention to turnover, absenteeism, working achievement, career satisfaction,
and career success. The non-work consequences include life satisfaction, marital satisfaction, family
satisfaction, family leisure, and family performance. The stress consequences include general
psychological health, somatic/physical indication, depression, alcohol abuse, burnout, work stress, and
family stress. The result shows that intention to turnover is the most related variable to WFC.
Inconsistent results are found in the relationship between WFC and job satisfaction, and between WFC
and work achievement. Indecisive results are found in the relationship between WFC and absenteeism,
although WFC significantly related to absenteeism. Life satisfaction is the most powerful consequence
related to WFC. The review result dealing with marital satisfaction is inconsistent. Limited number of
studies examining the relationship between WFC and family satisfaction show inconsistent result as well.
It shows that the most consistent and strong result is the relationship between WFC and stress. Allen et al.
(2000) states that a big deal of sample used in WFC studies examine gender difference or dual career
spouses than single career spouses and a few uses middle to upper class of sample.
Based on the meta-analysis, one recommendation for further research is the importance of examining the
impact of other antecedent and personality variables on work-family enrichment (Michel et al., 2011;
Hargis et al., 2011) and the positive impact of work and family relationship as there were only a few
researches studying it. To bridge the gap, this research proposes a study to analyze the impact of work,
non-work, and dispositional variables (consisting of supervisor support, family support, self-esteem, and
social capital) on work-family enrichment and its impact on job satisfaction. Supervisor support presents
variable of work, while family support presents variables of non-work and self-esteem, and then social
capital presents dispositional variable.
465
Supervisor Support
Family Support
Work-Family Job Satisfaction

Enrichment
Self-Esteem
Social capital
Figure 1: Antecedent model of Work-Family Enrichment and Job Satisfaction
Literature Review And Hypotheses
Work-Family Enrichment
Greenhaus and Powell (2006) define work-family enrichment (WFE) as on what extent does one of its
role (work) improve the life quality of another (family), and vice versa. Enrichment happens when the
resources (skill, perspective, flexibility, psychological and physical social-modal, and material resource)
are acquired from one role whether directly improve another’s performance (instrumental track), or
indirectly improve the performance through its impact on positive affection (affective track). WFE is one
of constructions representing how work and family can mutually beneficial. The basic idea of enrichment
is that both work and family gives resource to individual, such as award, salary, and many other benefits
which will be able to help the individual to perform better performance in all domain of his life.
WFE occurs in two-way direction, such as in work-family enrichment (development, affection, and
capital), and family-work enrichment (development, affection, and efficiency). This means that work can
bring advantage of resources which will affect on the enhancement of individual function in family
domain, or family can bring advantage of resources which will affect on the enhancement of individual
function in work domain (Carlson et al., 2006). In other words, work-family enrichment (WFE) happens
when working experience increases the quality of family life, while family-work enrichment (FWE)
happens when family experience increases the quality of work (Greenhaus and Powell, 2006). Then, the
antecedents of WFE are job autonomy, social support, job characteristic, core self-evaluations (locus of
control and self-esteem) and optimism.
Supervisor Support and Work-Family Enrichment

The perception of supervisor support is defined as a general perception of employees about how their
supervisor appreciates and cares about their welfare (Eisenberger et al., 2002). Some empirical findings
show that there is a positive relationship between work support (work resources) and WFE. Supervisor
support, co-workers support, and organizational support are important antecedents of WFE, because
social support in work place can decrease pressure and tension in work (Tang et al., 2014). The research
result of Baral and Bhargava (2011); Lu (2011) presents that supervisor support positively related to
WFE.
466
Proposition 1: Supervisor support positively related to work-family enrichment
Family Support and Work-Family Enrichment
Social support refers to instrumental support, emotional concern, information, and assessment function of
people which function to develop person’s feeling of self-significance. Social support of family domain
may come from spouses and/or the whole family (Michel et al., 2011). The support acquired from family,
such as encouragement, information, help, and suggestion can be used to develop one’s function in work
place regarding with WFE. The research result of Baral and Bhargava (2011); Lu (2011) presents that
family support positively related to WFE.
Proposition 2: Family support positively related to work-family enrichment.
Self-Esteem and Work-Family Enrichment

Self-esteem is defined as person’s feeling of liking or disliking himself and to what extent does he
consider himself as valuable or worthless as human. Self-esteem is the reflection of core self-evaluation.
An individual with positive perspective about himself and his skill tends to more like himself and
consider himself as valuable. Otherwise, individual with lower self-esteem tends to be easily affected by
external factors. This kind of person depends on the acceptance of positive evaluation from others
(Robbins and Judge, 2008). People with a high self-esteem can overcome conflicts occurred in the
relationship between work and family. The higher self-esteem, the more a person be able to see his
potential to be success in balancing his work and family (Rashid et al., 2011).
Preposition 3: Self-Esteem positively related to work-family enrichment
Social Capital and Work-Family Enrichment

Tjahjono (2011; 2014) and Akdere (2005) have same perspective that social capital refers to individual
property related to propensity to build harmony and long-term social relation. The individual are more
oriented in building social harmony and voluntarily involved in social system. Thus, person with high
social capital tends to be more accommodating.
Proposition 4: Social capital positively related to work-family enrichment
Work-Family Enrichment and Job Satisfaction
Job satisfaction can be defined as employees evaluation on their whole work whether it is pleasant or
unpleasant. Basically, job satisfaction is the employees’ view about their work. Job satisfaction covers
feeling, mind, and behavior of people which is relevant to their work. Many authors emphasize their
researches on the emotional component of job satisfaction. However, the cognitive and behavioral
components of job satisfaction are substantial aspects of this construct (Jex and Britt, 2008; Tjahjono and
Riniarti, 2015).
A research conducted by McNall et al. (2010) shows result that Work-Family Enrichment (WFE) and
Family-Work Enrichment (FWE) positively related to job satisfaction and affective commitment, but not
to turn-over intentions. WFE more closely related to work result, while FWE more closely related to non-
work result. McNall et al. (2010) finds that WFE and FWE positively related to both phisycal and mental
health. The results of research conducting by Akram et al. (2014); Lu (2011); Sim (2013); and Tang et al.
(2014) also show that WFE positively related to job satisfaction.
467
Proposition 5: Work-family enrichment positively related to job satisfaction
Conclusion
Researches about the relationship of work-to-family are mostly dominated by conflict perception
(Greenhaus and Powell, 2006). Thus, this study proposes a relationship model of work-to-family from the
positive side. The model of this study proposes that: (1) Supervisor support positively related to work-
family enrichment; (2) Family support positively related to work-family enrichment; (3) Self-Esteem
positively related to work-family enrichment; (4) Social capital positively related to work-family
enrichment; (5) Work-family enrichment positively related to job satisfaction.
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Why people use Facebook:

Analysis of factors influencing users in the Czech Republic
Jitka, Novotová, FacultyofEconomic, Technical university of Liberec, Liberec, Czech republic,

jitka.novotova1@tul.cz
Abstract
This paper aims to identify the major motivations of users to be active members of Facebook
community and determine whether these motivations depend on the demographic factors.
Quantitative research presented in this paper consisted in an analysis of data collected during an
online survey that was carried out in the spring of 2016. Overall, 749 respondents who were selected
on the basis of quota sampling participated to the survey.Age, gender and education of the
respondents were selected as quota parameters respecting the same proportions as they are
represented on Facebook in the Czech Republic. The results of the analysis show that most people
use Facebook to maintain contact with their friend and receive up to date information about public
affairs. As the weakest motivators were identified the prestige gained by being part of the social
network and the ability to communicate with company websites.Using and analysis of variance
(ANOVA), individual hypotheses were tested for each age, gender and education group of
parameters. The aim was to determine differences in preferences between various categories of users.
Education, which appeared to be statistically significant in 6 hypotheses, was identified as the most
important independent variable followed by age (statistically significant in 5 hypotheses).
Suprisingly, gender of the users was judged as the least important variable since it was stastistically
significant only in two hypotheses. Men and women have thus equal motivations to use Facebok
network.
Keywords:Facebook,factorsinfluencingusers,active Facebook members

Introduction
Facebook was founded on February 1st, 2004 by Mark Zuckerberg, a student at Harvard University.
In the early days, it was used for getting know the classmates. Once half of the students at Harvard
created a profile on Facebook, it quickly spread to other prestigious universities, then to high schools
and leading business corporations.In 2006, Facebook provided access to everyone who reached 13
years (Treadaway and Smith, 2011). Currently, Facebook is the largest social network worldwide and
is still keeps growing (Nettle, 2015).
The scientists often disdussed the very motivation of Facebook users to set up a profil and become
active on this network. Some of the major papers on this subject are presented in the research section
of this paper. This article aims to test the results of multiple foreing analyses on Czech Facebook
users while setting the main objective to „Determine the reasons that lead users in the Czech
Republic to use Facebook “. This objective was decomposed into three sub-goals:
1) Identify motivatorsto become a Facebook user.

2) Find out which of them are the most common and further analyze them.
3) Analyze how these motivators varydepending upon the demographic characteristics of
respondents.
The initial list of reasons to use Facebook was identified based on a literature review that included
international scientific papers. As a result, seven hypotheses were defined. All hypotheses are
described in the litterature review presented in the paragraphs below. Based on these hypotheses, a
questionnaire was designed and its statistical interpretaion is described in the analytical part of this
paper.
470
Being in touch with friends
The notion of social capital is defined in different fields of science (Adler and Kwon, 2002).
Generally, we can say that it is the ability of an individual or group of individuals to gain valuable
resources or symbolic benefits based on their social relationships and group membership.Both
individual and collective action is enabled and maintained from the resources that the individuals
gain from the social structure (Ritzer, 2005). Social capital is therefore built upon the interaction
between individuals, which is however nowadays not only of personal (face-to-face) nature but also
includes virtual interaction via the Internet.
Social networks clearly represent the best place for this kind of interactions since these websites are
generally based on the idea of connecting people that know each other from the offline world and
even people whom never met in the real life (Ellison, Steinfield, Lampe, 2007).Rafael Pérez-Currás
in his research confirmed that a positive attitudetoward Facebook use is mainly affected by the social
factor. Meaning that individuals use this social network in order to keep in touch with friends,
relatives and acquaintances (Currás-Pérez Ruiz-Mafe, Sanz-Blas, 2013).Further research was
conducted on students of Michigan State University in the US and confirmed that interpersonal
interactions on Facebook increase the above mentioned social capital. Students use Facebook mostly
because they do not want to lose contact with friends they met years ago. However, this research also
showed that Facebook is used significantly less to build new relationships situated solely in the online
envrionment (Ellison, Steinfield, Lampe, 2007).
Taking these findings into consideration, first hypotheses was formulated: “I use Facebook to stay in
touch with my friends.”
Facebook as a prestigious website
Being on the social network Facebook is nowadays considered as a matter of prestige. The prevailing
general opinion is that anyone who is not on Facebook is out.A number of psychological studies
conducted in the past showed that wanting to belong to a social group is a natural need. Each social
group is perceived differently in terms of prestige. The prestige of the group is transmitted to the
individual group members (Dutton, Duker and Harquail, 1994). Facebook´s social attributes that
answer to these human needs are probably the main reason why Facebook right after its opening to
the public became popular on a large scale. Its original exclusivity for Harvard students may also
contributed to the quick original increase of Facebook´s users (Treadaway and Smith, 2011).
The basic principle of Facebook consists in setting-up a personal profile, where the user shares
information and photos about himself, and thus creates his-own personal image. Possibility of
increasing personal status and prestige is regarded as one of the important factors that influence a
positive attitude toward the social network. This assumption was confirmed by Currás-Perez, who
found that the possibility of increasing social status enables a positive attitude toward the social
network (Currás-Pérez Ruiz-Mafe, Sanz-Blas, 2013).
Based on these findings, second hypothesis was formulated that was also incluedin the questionnaire:
"I use Facebook because it's a prestigious social network."
Facebook´s compatibility
„Perceived compatibility refers to the degree to which an individual perceives that the SNS service is
consistent with the existing public service channels and popular communication media“(Chiua et al.,
2013). Chiu also tested and confirmed that the above mentioned assertion is also valid for the social
network Facebook. His results showed that the user satisfaction with this network is influenced by
two factors: compatibility and complementarity.
471
Compatibility with portable media represents currently a top priority for Facebook. There are at the
moment 1.04 bilion users who connect every day. What is more important 934 million of them log in
from a mobile phone or tablet (Škopek, 2016).Nearly a third, ie 399 million users are connected only
via mobile phone (mobile idnes, 2014). Data related to the Czech users reflect this situation as well.
According to the Czech Statistical Office, the number of owners of mobile phones continues to
rapidly grow, reaching currently 98%.Simiraly, the number of users who have a mobile phone
Internet connection grows as well. In 2014,only a third of the adult population (29%, ie. 2.5 million
persons) had mobile Internet connection.We may assume that mobile Internet will soon become a
widespread technology used across all age categories and regardelles of achieved level of education
in the Czech Republic (CSO, 2015).
Based on these findings, another hypothesis was formulated: “I use Facebook because it´s
compatibles with all types of devices I use.”
Multiple functions
Facebook can be categorized as "Mixed Social Network." Social networks of this type seek to offer to
its users multiple functions in one place. Mixed social networks allow to get in touch with friends,
upload photos from family reunions, update status (such as engaged/single), join groups according
the user´s political preferences or interests and more. In short, these websitesallow toto do everything,
what current applications offer (Treadaway and Smith, 2011). Zhou and Lu (2011) in their research
identified a relationship between available complementarity of the various offered features and
perceived usefulness of the media and therefore user satisfaction. In the aformentioned article, Chiu
(2013) confirmed the hypothesis that complementarity is the main factor influencing satisfaction of
Facebook users.
Fourth hypothesis was formulated as an outcome of these previous studies: “I use Facebook because
it has multiple functions such as sharing of images, videos and text messages, and because it provides
many applications, games and allows to createprive groups.”
Entretainment
Nowadays, people come into contact with the technologies on daily basis. However, there is a
specific group of individuals who use new technologies purely for entertainment (Mathwick et al.,
2002).
Qualitative research presented by Anita Whiting and David Williams (2013) is considered to be the
foundation for the analysis of social networking. They identified seven attributes that explain why
people actively participate on social networking sites. Each attribute was tested via in-depth
interviews. One of these mentioned attributes was entertainment which was identified as an important
factor by 67% of respondents.Respondents indicated that they consider as fun playing games,
listening to music and watching videos. Then enjoy reading jokes and funny comments. Currás-Pérez
Ruiz-Mafe and Sanz-Blas (2013) in their article demonstrated as well that usersvisit social networks
mainly for entretainment. The developers of social networks should thus focus mainly on building
entertaining content and gaming applications that would keep the users hooked and visit the site
repetedly during their free time.
Facebook offers these and other entertaining activities, and therefore we may assume that the
following statement is applicable as well: “I am using Facebook because it´s entertaining.”
472
Being always up to date
Social networks generally allow users to share knowledge, information and resources with others.
Ultimately, such sharing brings benefits to all users in the form ofacquisition of innovative
information, or interesting news. All this information helps them gain superiority over both ordinary
users and businesses and build their competitive advantage (Currás-Pérez Ruiz-Mafe and Sanz-Blas,
2013). Other studies as well shown that the sharing of information between multiple users, increases
the information´s value for all the stakeholders (Lee, Yen and Hsiao, 2014).
The concept of information seeking was first introduced in 2000 by Rubin and Papacharissi. This
concept descibes the options of managing and using information on social networks.Social networks
may be used as a source of information or self-education. In the previously mentioned study
presented by the authors Anita Whiting and David Williams (2013) factor "Information seeking" was
identified as the second most important right after staying in touch with friends. Up to 80% of
respondents on social networsksdaily search information about products and their prices, nearby
events, updates about their friends and even work-related information. In the area of self-education,
the users the most often seekvarious tutorials or math quizzes.
Thanks to these previously decribed studieswe may formulate another assertion: "I use Facebook to
gain access to the latest information."
Company profiles on Facebook
Nowadays, not only individuals but also companies may set up a Facebook profile and use it as a
marketing tool (Gamboa, Goncalves, 2014). As stated in Fortune –the ranking of 100 the most
succesfulcompanies from around the world in 2010 showed that 79% of these companies actively
used social media and that 54% of them had a company Facebook profile.
From the user's perspective, being a fan of company websites on Facebook brings many benefits.
According to Juhe Kang (2013), Facebook company website offers to its fans two important benefits
being the socio-psychological benefit and the hedonic benefit. Socio-psychological benefit describes
the need to become part of a certain group of individuals with similar interests and subsequently
share their experience an interact with each other. Hedonic reffers to the need for relaxation and
entertainment.
These findings suggest that the following assertion could also be valid: "I use Facebook, because I
want to follow company sites of my favorite brands."
Methodology
The main sub-goals of this reasearch were to identify the main motivators leading individuals to use
Facebook, find out which of these motivators are dominant, and analyze how these motivators vary in
dependence to demographic characteristics of the respondents. In order to achieve these goals, a
quantitative reasearch in the form of electroninc polling was carried out. Responses were collected
via electronic questionnaire created in the application Google forms. The questionnaire was
distributed on the social network Facebook.
Taking into account the objectives of this research, as the two main sample inclusion criteria were set
that the respondent must have an account on the social network Facebook, and that he/she has to log
in at least occassionally. It was also determined that the research will include onlyCzech citizens
older than 18 years. Due to these inclusion criteria and the absence of the sampling frame,
probabilistic sampling methods could not be used. Quota selection according to age, gender and
education of the respondents was thus chosen as the most suitable method.
The electronic questionnaire was divided into three sections. The introductory section included
questions whose purpose was to determine how much time the respondents spent on Facebook and
473
when they created their profile on this social network. If the respondent did not have a Facebook
profil or practicaly did not use it, the questionnaire ended and was sent as completed. The main body
of the questionnaire contained set of assertions described in the previous chapter. The respondents
were asked to evaluate these assertions using a Likert scale from 1 (strongly agree) to 7 (strongly
disagree). The conclusive part of the questionnaire included questions related to age, gender and
education of the respondents.
The data collected during the online survey was evaluated via program Statgraphics XVII.
Descriptive stastics, namely the characteristic of position, was used as the starting point of the
analysis. To obtain clearer idea of the data distribution, box plot graphs were genereted showing all
the arguments, listed according to the averages. In the second stage of the research, each of the
previously described assertion was tested using the one-way analysis of variance ANOVA. Age,
gender and education of the respondents were used as independent factors.ANOVA was chosen as
analytical method based on the assumption that the rating scales used in the questionnaire are cardinal
variables and also due to the large number of units in each selection, which amounted to more than
20. Thanks to these properties it was not necessary to verify the normality of samples (Churchill,
1987).The second condition determining the use of analysis of variance was tested using Bartlett's
test, where the P-Value must be greater than 0.05.In cases where this condition was not met,
KruskalWalis nonparametric test was chosen, that does not requireto meet the condition of equality of
variances. When using KruskalWalis test the null hypothesis assumes that the measurement groups
have equal medians (Hendl 2004: 347). For both statistical methods were established hypotheses H0
of conformity of variances or medians and H1 hypotheses of differences. All claims have been tested
at a significance level of 95%.
Sample of Respondents
As mentioned above, respondents who participated to the quantitative survey were Facebook users
over the age of 18 who were at the same time citizens of the Czech Republic. Facebook frequently
publishes demographic statistic of its users featuring the variables: gender, age and education. Based
on these data, the respondents were selected using the quota sampling.
Overall, 794 respondents participated to the online survey. The characteristics and their distribution
are presented in Tables 1, 2 and 3. In the collected data, there is only small percentage of user over 55
years. These respondents were very difficult to reach and even many of those who completed the
questionnaire were subsequently excluded because the used Facebook very rarely. This age category
was due to a very small number of respondents merged with the age category 45-54 years.
Table 1: Distribution of respondents by age category (Source: the author)

Class Age Frequency %
1 18 - 24 251 31,6
2 25 - 34 281 35,4
3 35 - 44 160 20,2
4 45 - 54 92 11,6
5 55 - 64 10 1,3
As stated above, the distribution of female and male users should be rather equal. Hovewer, not
enough male respondents participated to the online survey and thus they represent only 44.5% in the
final sample. Despite the lower percentage this result was judged as sufficiently relevant to the
established quotas.
474
Table 2: Distribution of the respodents by gender (Source: the author)
Class Gender Frequency %

1 men 353 44,5
2 women 441 55,5
Facebook also provides statistics about the achieved level of education, but only distinguishes the
categories of primary, secondary and higher education. Since there are significant differences
between education without GCSE (mainly manual occupations) and eudation with GCSE these two
types were for the purposes of this research were divided into two groups. Due to the small number of
respondents with elementary education, it was necessary to merge this category with secondary
education without GCSE.
Table 3: Distribution of respondents by achieved level of education (Source: Author)
Class Education Frequency %

1 primary 7 0,88
2 secondary without diploma 69 8,7
3 secondary with diploma 319 40,2
4 colledge 399 50,3
Data evaluation
At first, in compliance with the research goals, descriptive statistics were calculated. Arithmetic mean
was chosen as the most important parementer to express the degree of agreement of respondents with
individual assertions. Staying in touch with friends was identified as the most frequent motivator
leading users to create a profile on Facebook. This assertion was confirmed with median = 1.
Acquiring new information appears to be the second most frequent reason to use Facebook. Technical
parameters such as compatibility and having multiple functions were judged as less important.
Prestige and having the possibility to follow company profiles of favourite brands were judged as the
least important factors.
Table 4: Summary statistics (Source: Author)
Conection New Many Prestigious Corporate FB

I enjoy it Compatibility
with friend information function soc. sites sites
Count 794 794 794 794 794 794 794
Average 2,09 2,93 3,53 3,63 4,07 5,14 5,27
Median 2 3 3 3 4 6 6
Mode 1 2 3 3 4 7 7
Standard
1,47116 1,67663 1,72437 1,83884 1,99098 1,74955 1,71711
deviation
The overall results are summarized by a Box plot showing noticeable differences (marked with a
cross) between the means, medians and lower and uppoerquartils for each assertion.
475
Why do you use FB?
conection with friends
new information
I enjoy it
many functions
compatibility
prestigious soc. network
corporate FB sites
1 2 3 4 5 6 7
Scale
Figure1: Box plot representing the results for all the assertions (Source: Author)
In the next stage, the research aimed at identifying the differences in the motivators according to age,
gender and achieved level of education using the statistical analysis of variance. Following
paragraphs describe in more detailesthe results for all seven examined assertions.
1) Staying in touch with friends

Data related to the assertion “staying in touch with friends” in relation to age and level of achieved
education did not pass the Bartlett test and thus could not be assed with the analysis of variance.
Instead a Kruskal-Wallis nonparametric test was used. For the variable gender, the data pass the
Bartlett test which made them suitable for the ANOVA.
Table 5: Kruskal-Wallis Test, Staying in touch with friend and age(Source: Author)
Age Sample Size Average Rank Test Statistic P-Value

18 - 24 251 317,612
25 - 34 281 379,722
35 - 44 160 472,95 93,6065 0,0
45 and more 102 524,711
Acording to the result, there is a statistical difference between Staying in touch wich friends and the
age of the resepondents.
Table 6: Kruskal-Wallis Test, Staying in touch with friends and education (Source: Author)
Education Sample Size Average Rank Test statistic P-Value
Without diploma 76 396,309
With diploma 319 410,875 2,22069 0,329446
College 399 387,034
On the other hand, the results did not confirm statistical difference between Staying in touch with
friends and achieved level of education.
476
Table 8: ANOVA, Staying in touch with friends and gender (Source: Author)
F-Ratio/
Source Sum of Squares Df Test P-Value Bartlett´s test
statistic
Between groups 3,32836 1
gender Within groups 1712,96 792 1,54 0,2148 0,361675
Total 1716,29 793
There was no statistical deifference between Staying in touch with friends and gender of the
respondents either.
2) Receiving latest information
Table 8: ANOVA, Receiving up to date information (Source: Author)
Source Sum of Squares Df F-Ratio P-Value Bartlett´s test

Age Within groups 2183,58 790 5,50 0,0010 0,192278
Total 2229,19 793
Gender Within groups 2186,53 792 15,45
0,0001 0,847828
Total 2229,19 793
Within groups 2210,89 791 3,27 0,0384 0,12888
Education
Total 2229,19 793
The results showed a statistically significant difference between the need of receiving up to date
information, age, gender and achieved level of education.
3) I use Facebook because it´s entertaining
Table 9: ANOVA, I use Facebook because it´s entertaining (Source: Author)

Total 2357,94 793
0,0000 0,952151
Total 2357,94 793
Within groups 2310,82 791 8,07 0,0003 0,397529
Education
Total 2357,94 793
Table 9 shows the statistical difference between the assertion I use Facebook because it´s entertaining
and the variables age, gender and educaton.
477
4) Multiple functions
Table 10: ANOVA, multiple functions (Source: Author)

Total 2681,4 793
0,8813 0,156408
Total 2681,4 793
Within groups 2635,72 791 6,85 0,0011 0,84892
Education
Total 2681,4 793
The results did not confirm any statistical difference between Multiple functions, age and gender.
However, there was a stastical difference between Multiple functions and the level of achieved
education.
5) Compatibility
Table 11: ANOVA, compatibility (Source: Author)

Total 3143,46 793
0,0758 0,648001
Total 3143,46 793
Within groups 3092,32 791 6,54 0,0015 0,736091
Education
Total 3143,46 793
The anylises did not find any statistical difference between compatibility of Facebook and the gender
of the respondents. On the other hand, there is statistical difference between Facebook´s
compatibility, age and education.
6) Prestigious social network
Data used for the analysis of dependence between Facebook as a pretigeous site and the level of
achieved education did not fulfill the condition of Bartlett's test, and therefore could not be used for
the ANOVA testing. Instead a nonparametric Kruskal-Wallis test was used. For the variables age and
genderthe conditions were met, and it was therefore possible to ran the ANOVA.
478
Table 12: ANOVA, Facebook as a prestigious social network (Source: Author)

Total 2427,31 793
0,7139 0,806675
Total 2427,31 793
There is a statistically significant difference between Facebook as a prestigious site and the age of the
respondents. Statistical difference between Facebook as a prestigious site and the gender of
respodents was not confirmed.
Table 13: Kruskal-Wallis Test, prestigious social network (Source: Author)
Education Sample Size Average Rank Test statistic P-Value

Without diploma 76 309,671
With diploma 319 390,484 15,9556 0,000342995
College 399 419,838
Results of the ANOVA showed a statistical difference between Facebook as a prestigious site and
achieved level of education.
7) Company Facebook profiles
Table 14: ANOVA, Company Facebook profiles (Source: Author)

Total 2338,15 793
Gender Within groups 2333,22 792 1,67 0,0205544
0,1959
Total 2338,15 793
Within groups 2319,83 791 3,12 0,0446 0,0711492
Education
Total 2338,15 793
Results did not confirm statistical difference between using Facebook to follow company profiles of
favourite brands, age and gender of respondents. However, such difference was confirmed for the
variable education.
Conclusion
The first aim of the article was to define the major reasons why individuals become active users of
the networking site Facebook.This objective was fulfilled by consulting theoretical research and
academic articles dealing with this topic. Based on the literature review, staying in touch with friends
was identified as the most influencing factor leading to the creation of a Facebook profile. This
479
assertion along with six others was tested on a sample of data collected from 794 respondents from
the Czech Republic. The results confirmed that staying in touch with friends trully is the most
important factor (arithmetic means 2.09), follwed by the possibility to acquire up to date information
(means 2.93). In conclusion, it was thus shown that Facebook is used to fulfilltwo main functions -
communicating with friends and gaining new information.These two reasons were mentioned by user
from different countries and can therefore be described as crucial. Furthermore, Facebook is vised by
user in order to get some entertainment. If a company whishes to get noticed or capture the audience
with its marketing campaignes it should fill its profile page with entertaining content. On the other
hand, the technical parameters such as multiple functions or compatibility are judged by the users as
less important. This result may suggest that technical support and a variety of features users take for
granted. The possibility to follow company profiles was evaluated as the least important. The results
showed that the communication with companies and learning about products and services are not the
primaary reason why individuals visit and use Facebook. The main purpose of Facebook is the same
as it was at the beginning of its existence which is to enable communication with friends and
marketing activities are treated more like an accessory.
Analysis of individual assertions in relation to demographic characteristics of Facebook users has

identified educationas the most important factor with the exeption of the frist assertion Staying in
touch with friends. Age, which might seem like the most important characteristic in connection with
Facebook, has been demonstrated as statistically significant for five assertions. Generally, there is a
difference between the young generation of Facebook users under 25 and those over 45, however,
differences found in this analysis were not as large as one might expect. Suprisingly, gender has the
smallest impact from the three studied variables. Gender was identified as statistically significant
only for the assertions Acquiring new information and Using Facebook for entertainment. It may be
thus concluded that there no differences in ways how men and women use Facebook.
In conclusion, we may say that Facebook, despite frequent changes of its feautres, still fulfills its
original function for which it was created – staying in touch with friends and sharing information.
The biggest differences in the ways of using Facebook may be observed between groups with
different levels of achieved education and between various age categories.
Acknowledgment
This article was written with financial support SGS-EF-3430-21140.
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481
Regulatory Pressure and Bank Capital and Risk Behavior in Pakistan
Samina Riaz1, Venus Khim-Sen Liew2 and Rossazana Bt Ab Rahim3

1
Institute of Business Management, Pakistan. Samina.riaz@iobm.edu.pk
2
Universiti Malaysia Sarawak, Malaysia. ksliew@unimas.my
3
Universiti Malaysia Sarawak, Malaysia. arrossazana@unimas.my
Abstract
This study addresses how banks specifically undercapitalized commercial banks in Pakistan adjust capital
and portfolio risk, in the light of regulatory pressure during the period of 2004-2014. The results show
that due to regulatory pressure, undercapitalized banks are not increasing their capital. Large investments
in government securities imply that all banks are risk averse and to comply with the regulatory
requirements they are increasing their risk free investments in assets portfolio. It is also found that there is
a one way inverse relationship between capital and portfolio risk, runs from capital to risk only. This
research will help policy makers to understand the capital and portfolio risk behavior of undercapitalized
banks and policy makers will seize an opportunity to devise strategies accordingly, to support the
economic activity through channeling the liquidity to businesses.
Keywords: regulatory pressure, capital adequacy ratio, undercapitalized banks, portfolio risk
JEL Classification: C33; G 21; G28
1. Introduction
In order to align the regulatory capital requirement with internationally accepted standards, capital to risk
weighted assets framework was introduced in Pakistan in 1997. As part of a move towards risk based
supervision, State bank of Pakistan (SBP) defined a two pronged strategy to strengthen the solvency of
banks. One strategy deals with the enhancement in minimum capital requirement (MCR) in a phased
manner, while the other takes care of capital adequacy ratio (CAR) of the banks (State Bank of Pakistan,
1990-2000).With the introduction of Basel II accord a road map was announced for its implementation in
Pakistan on March 31, 2005. Majority of the banks expressed their intention to adopt comparatively
standardized approach initially. Hence, all banks were instructed to minimum capital (net of losses) at
Rs.10 billion with CAR at 10%, to be aligned with the risk profile of banks by the end of December 31,
2013 and by the same date Basel III instructions by SBP became effective it will be fully implemented in
the phased manner by December 31, 2019.In Basel III the MCR and CAR requirements will be the same
as Rs 10 billion and 10% respectively in addition to 3% leverage ratio and 2.5% capital buffer. In
Pakistan minimum capital ratio was 8% during 2004 – 2008, 9% during 2009 and 10% during 2010-2014
(State Bank of Pakistan, 2014).
In compliance with the Basel Accord, some banks expected to meet the MCR through issuance of bonus
or right shares, whereas others opted for the process of mergers and acquisitions within banks. Eventually
some banks, particularly the smaller once, faced challenges to meet the MCR to grow gradually to Rs.10
billion as set by SBP. Though banks are making efforts to meet the above requirement by reinvestment in
profits, they still remain short of reaching the regulatory capital requirement on account of depressed
conditions (Zaidi, 2012).Moreover, report of the International Monetary Fund (IMF) with regards to
eighth review of Pakistan’s economic performance states that risk to banks is not from capital inadequacy
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and low profitability, but from the structure of their loan/investment portfolio. In this context, this study
will evolve a conclusion in answering the important question as to how do banks adjust capital and
portfolio risk due to regulatory pressure? Next section 2 summarizes literature review, section 3 explains
research design and methodology, in the section 4 empirical results are discussed and finally, the section
5 concludes with the results of the study.
The prevalence of minimum capital requirements (MCR) is mainly based on the premise that banks often
get involved in moral hazard behavior. Insufficiently-priced deposit insurance and information
asymmetries shield the banks from disciplined control of depositors, with an advantage of decreasing
capital and increasing asset risk by banks (Merton, 1977). The theoretical work focusing on the effects of
capital requirements on risk appetite of banks is subjugated by the moral hazard theory. According to the
theory of moral hazard, when a mispriced deposit insurance arrangement is present, the managers of the
banks do not take measures to reduce risk. The banks managers opt for risky projects that are
accompanied by higher return. If this malpractice is not checked in time, banks’ solvency might be
compromised in the long run. Therefore, in accordance with the theory, the regulations for capital
adequacy neutralize the risk-shifting incentives that happen as a result of deposit insurance. Koehn and
Santomero (1980) demonstrated in their study that when increased leverage ratios are introduced, banks
tend to shift their portfolio to assets that are riskier. Kim and Santomero (1988) suggested a solution that
in such a situation, there is a need for regulators to make accurate measures of risk while calculating the
solvency ratio. Following the work of Koehn and Santomero (1988) was further explored by Rochet
(1992) and discovered that the effectiveness of capital regulations relied on the bank were value
maximizing or utility maximizing? In case of a value-maximizing bank, capital regulations do not give
any guarantee for the bank when it comes to taking risk. In case of a utility-maximizing bank, capital
regulations can play a significant role if usage of weights during the calculation of ratios is equivalent to
the systematic risks associated with assets.
The second strand of literature sheds light on option models. Several frameworks related to the
aforementioned theory were developed during a study by Furlong and Keeley (1989) and Keeley and
Furlong (1990). According to those frameworks, higher capital requirements reduce the incentives for
value-maximizing banks to increase their assets risk, which is contrary to the earlier conclusions. Utility-
Maximizing model was criticized because this framework does not characterize the investment
opportunities of the bank, set through the omission of option value of deposit insurance nor characterizes
the probability of bank’s failure. However, this argument of option models was weakened in the study
carried out by Gennottee and Pyle (1991). Whereby, the assumption that banks’ investment in zero net
present value assets was relaxed and it was found that there are certain situations when an increased
capital requirement results in an increase in assets risk (Maji and De, 2015). According to the buffer
theory, when a bank approaches regulatory minimum capital ratio, then an incentive to boost capital
reduces risk so that costs of regulations incurred by breaching the capital requirements are avoided
(Rime, 2001).Moreover, Milne and Whalley (2001) predict that banks in the first stage increase their
capital and lower risks when regulatory minimum is increased at a later stage. As soon as the adjustments
are made when banks rebuild capital buffers to a certain degree, both risk and capital are increased
accordingly.
There will be more regulatory pressure on banks that have low capital ratios due to the reason that there is
rise in the minimal capital ratio requirement that will consequently give rise to a desired alteration in the
degree of capital or risks (Tanda, 2015). A bank that has more pressure from regulators often sees a rise
in the bank’s capital ratio (Shrieves & Dahl, 1992; Jacques & Nigro, 1997). Though, other relatively
newer studies show that there could also be a negative effect (Das & Ghosh, 2004; Heid, Porath & Stolz,
2004; Ahmad, Arif & Scully, 2008). As for regulatory pressure’s impact on risk exposure, studies have
found out that a negative relationship exits (Shrieves & Dahl, 1992; Jacques & Nigro, 1997). However,
483
there is opposing evidence that the effect could be either positively inclined or not significant (Van Roy,
2005; Bouri & Ben Hmida, 2006). Depending on the ex-ante level of capital, there is a variation on the
influence of regulatory pressure. To this end, undercapitalized banks have to undergo various incentives
(Godlewski, 2005; Van Roy, 2005; Hussain & Hassan, 2005; Rime, 2001). Moreover, there is a
modification of the bank’s behavior reliant upon capital’s definition (Kleff & Weber 2008; Camara et al.,
2013).
3. Methodology
In order to examine the relationships of variables in the research framework, annual data of 29
commercial banks covering the period 2004-2014 has been extracted from bankscope database and State
bank of Pakistan (SBP). This study uses the Shrieves and Dahl’s (1992) model, considering the changes
in capital as a function of changes in risk and vice versa. The following system of two-equation model is
used:
∆ CAP i , t = α 0 + α 1 DyREG i , t − α 2 CAP i , t − 1 + α 3 CYCLEGAP i, t + α 4 SIZE i , t

+ α 5 ROA i , t + α 6 INV i , t + α 7 LIQUID i , t + α 8 DyMERGER i, t + α 9 ∆ RISK i , t + εi , t ; (1 )
and
∆RISK i , t = β 0 + β 1 DyREG i , t − β 2 RISK i , t − 1 + β 3 CYCLEGAP i , t + β 4 SIZE i , t + β 5 ROA i , t

+ β 6 INV i , t + β 7 LIQUID i , t + β 8 DyMERGER + β 9 NPL i , t + β 10 ∆CAP i , t + εi , t . (2)
The variables used in the above equations and their expected signs are shown in Table 1 below:
Table 1: Description of Variables
Variables Definitions Expected Expected

sign for sign for
Capital Risk
Capital (CAP) The ratio of capital to risk-weighted assets -
Portfolio Risk (RISK) The ratio of risk-weighted assets to total assets -
Regulatory Pressure Unity in case capital adequacy ratio is below the minimum + +/-
(REG) capital adequacy ratio requirement plus bank-specific standard
deviation of capital adequacy ratio else zero
Business cycle HP filtered GDP growth is used as a proxy for the business +/- +/-
(Cyclegap) cycle
Liquidity (Liquid) Liquid assets over total assets ratio - +
Size The natural log of total assets - -
484
Profitability (ROA) It is the ratio of annual net profit to total assets +/- +
Merger (DyMerger) Dummy variable, which is unity for the acquirer in the year - +
of the merger, and zero otherwise
Investments (INV) It is the ratio of government investments to total assets - -
Asset Quality (NPL) Ratio of Non Performing loans to total loans as a proxy for +
Asset quality
Current loan losses Approximated with the ratio of new provisions to total assets -
provisions (LLOSS)
4. Empirical Results
Table 2 presents the simultaneous equations’ results of panel data estimated by two-step Generalized
Method of Moments (GMM) proposed by Blundell and Bond (1998). The GMM dynamic system of
estimation has ability to allow for the exogeneity of the explanatory variables which exists in the models.
Lags of each dependent variable have also been included as instruments to account for the simultaneity of
capital and risk. The consistency of the GMM estimation depends on the instruments’ validity and
uncorrelated disturbances in the equations (Derina, 2011).Wald chi-square statistic shows that overall, the
variables included are significant at p=0.000 in both explaining the variation in capital and portfolio risk.
Meanwhile, the results show that in the capital equation there is no first and second order serial
correlation. On the other hand, in the risk equation the first order serial correlation is significant and
negative but there is no second order serial correlation. It is consistent with Arellano and Bond’s (1991)
suggestion.
Table 2: Simultaneous Equations GMM Estimations
Independent ∆CAP Independen ∆RISK

Variables Beta z- p- t Variables Beta z- p-
Coefficient value value Coefficient value value
Constant (0.1777)*** 3.03 0.002 Constant (0.8261)*** 15.82 0.00
DyREG (-0.0797)** -1.94 0.05 DyREG (0.0199) 0.36 0.71
Cyclegap (0.0059)* 1.66 0.09 Cyclegap (0.0119)*** 3.19 0.00
∆Risk (-0.0162) -0.63 0.53
Liquidt-2 (-0.0760) -0.72 0.47 Liquid (-0.1257) -0.96 0.33
Size (-0.0009) -0.63 0.53 Size (-0.0014) -0.62 0.53
ROA (0.0353) 0.05 0.96 ROA (1.0544) 1.37 0.17
DyMerger (-0.0137) -0.70 0.48 DyMerger (-0.0078) -0.25 0.80
INV (-0.1041)** -2.27 0.02 INV (-0.6098)*** -6.52 0.00
CAPt-1 (-0.6873)*** -2.41 0.01
∆CAPt-2 (-0.3345)*** -2.52 0.01
485
RISKt-1 (-0.9834)*** -376 0.00

NPL (0.3902)*** 5.01 0.00
LLOSS (-0.0011) -1.52 0.13
Sargan test 7.7401 1.0000 11.3718 1.0000
statistic
Wald Joint test 134947.79 0.0000 1.23e+09 0.0000
AR(1) test -1.5616 0.1184 -3.1231 0.0018
AR(2) test -1.1949 0.2321 -1.0754 0.2822
***,** and * indicate statistical significance at the 1, 5, and 10 percent level, respectively. Wald Chi-Square statistic
shows overall model significance, Sargan test statistics refer to over-identifying restrictions and AR (1) and AR (2)
tests refer to first and second order serial correlation.
In the capital equation, the results indicate that (DyREG) has a significant and negative impact on
changes in capital (∆CAP) at p=0.05. The result imply that in Pakistan undercapitalized banks
(DyREG=1) are not increasing their capital due to regulatory pressure but reducing capital by 0.08
percentage points more than banks with no regulatory pressure (DyREG=0). The result is consistent with
the previous studies (Murinde & Yaseen, 2004; Das & Ghosh, 2004; Hussain & Hassan, 2005; Ahmad et
al., 2008). On the contrary, most of the studies suggest that bank capital increases due to regulatory
pressure (Shrieves and Dahl, 1992; Aggarwal & Jacques, 2001; Rime, 2001; Matejasak, Teply &
Cernohorsky, 2009; Derina, 2011).
In the risk equation, regulatory pressure (DyREG) has a positive but insignificant effect on changes in
portfolio risk (∆RISK). It also implies that regulatory pressure exert no influence on portfolio risk
adjustments of undercapitalized banks. The plausible explanation may be Pakistani banks’ substantial
large risk free government investments in risk weighted assets portfolio of banks. In the year 2011, risk
weighted assets of Pakistani banking sector was Rs 6.3 million but decreased to Rs 4.8 million by the end
of 2015 (State bank of Pakistan, 2015). Higher risk weight in assets portfolio results in higher risk
weighted assets’ amount. It, in turn, decreases risk-based capital ratio (Polk, 2016). The author further
postulated that the value of risk-based capital ratio decreases as the size of its denominator (risk weighted
assets) increases.
The results show that business cycle fluctuations (Cyclegap) have a significant and positive effect on
changes in capital (∆CAP) at p<0.1. The result indicates the pro-cyclical fluctuations of capital, in the
sense that capital increases as economic conditions improves. The result implies that Pakistani banks
increase their capital to risk weighted assets to meet the minimum capital requirements due to loan
demand in upturn and this situation in turn increases the credit risk. However, the magnitude is small: 1
percentage point increase in business cycle fluctuations will bring 0.005 percentage point increase in
capital. The period between 2003 and 2006 evinced high growth and low interest rates in Pakistan (State
Bank of Pakistan, 2011). Xu (2016) also found positive impact of business cycle on capital. On the
contrary, Brei and Gambacorta (2016) found negative impact of business cycle on capital as
countercyclical. Notably, Pereira and Saito (2015) found negative impact of business cycle and they
interpreted it as pro-cyclical behavior by banks, which tends to increase capital during economic
expansion. There is also a positive and significant impact of business cycle fluctuations (Cyclegap) on
changes in portfolio risk (∆RISK) at p<0.01 indicating that banks’ assets portfolio risk increase as
economic conditions improve. The result is consistent with Ghosh, (2008), Huang and Xiong (2015), who
argued that banks increase portfolio risk in upturns.
Changes in portfolio risk (∆RISK) has insignificant impact on changes in capital (∆CAP) but lagged
changes in capital (∆CAPt-2) has negative and significant effect on changes in portfolio risk (∆RISK) at
p<0.05. The impact is lagged by two years, reflecting that banks increase their capital while decreasing
asset’s portfolio risk and there is one-way coordination between capital and portfolio risk, runs from
486
capital to risk only not vice versa. The results support the buffer theory prediction that banks approaching
minimum capital requirement increase capital by reducing risk to avoid regulatory costs (Rime, 2001;
Stolz, 2007).
Lagged Liquidity (Liquidt-2) has insignificant impact on changes in capital (∆CAP) and Liquidity
(Liquid) has also insignificant impact on changes in portfolio risk (∆RISK). The results are consistent
with the previous studies (Ghosh, 2008; Athanasoglou, 2011).
Size has insignificant impact on changes in capital (∆CAP) reflecting that size has no influence on bank
capital. The finding is consistent with Das and Ghosh, (2004), Maji and De, (2015) who also found
insignificant relationship between size and capital in the Indian context and argued that the association of
size with capital and risk is inconclusive, indicates both positive and negative association. On the
contrary, most of the previous studies found negative relationship between size and capital and suggested
that Banks with large size acquire access to equity capital markets and capital ratio is anticipated to be at
the lower side as compared with the capital ratio of banks having smaller size (Matejasak et al., 2009;
Derina, 2011; Pereira & Saito, 2015; Zahid et al., 2015; Xu et al., 2015).
Size has also insignificant impact on changes in portfolio risk (∆RISK) reflecting that size has no
influence on portfolio risk. Maraghni and Bouheni (2015) also found insignificant impact of size on risk.
Contrary to result, the previous studies suggest that large size banks carried out within wider range, which
simultaneously increases their potential in diversifying the portfolio. Consequently, risk shows a
decreasing trend ( Matejasak et al.,2009; Derina, 2011; Stolz & Wedow, 2011; Pereira & Saito ,2015;
Zahid et al., 2015; Huang & Xiong, 2015).
Profitability (ROA) has insignificant impact on changes in capital (∆CAP) and changes in portfolio risk
(∆RISK). The results reflect that in Pakistan profitability has no significant influence on capital adequacy
ratio. The result is consistent with Godlewski, (2005) who also found insignificant impact contrary to the
findings of previous studies which emphasized that banks increase their capital through retained earnings
instead of issuing equity ( Matejasak et al., 2009; Athanasoglou, 2011; Derina, 2011; Maji and De,
2015; Zahid et al.,2015; Pereira and Saito, 2015; Xu et al., 2015; Xu, 2016). The results also reflect that
in Pakistan profitability has no influence on risk weighted assets to total assets ratio. The result is in line
with Guidara et al., (2013) who also found insignificant impact of ROA on bank portfolio risk. On the
contrary, Ghosh, (2008), Maji and De, (2015) found that profitable banks increase their risk weighted
assets.
Merger (DyMerger) has insignificant impact on changes in capital (∆CAP) and changes in portfolio risk
(∆RISK). It implies that acquiring banks are typically better capitalized before a merger and when weakly
capitalized banks are merged with healthy banks the merger may not influence on the capital and
portfolio risk of acquirer bank in the year of merger. Heid et al., (2004) also found insignificant impact of
merger on capital and risk. On the contrary, Ghosh, (2008) found that distress merger decreases the
capital and portfolio risk of acquirer in the year of merger. Investments in Government securities (INV)
has negative and significant effect on changes in capital (∆CAP) at p<0.05 indicating that banks have
large holdings of government securities. By the end of December, 2015 Pakistani banks’ investments in
government debt securities stood at Rs6.33 trillion out of Rs6.96trillion (Iqbal, 2016). Hussain and
Hassan (2005) argued that Banks that have bigger government-security holdings kept aside and not sold,
then these securities may lead the bank, during a falling rate environment, to have low capital to abide by
present regulations.
The effect of investments in government securities (INV) on changes in portfolio risk (∆RISK) is
significant and negative at p<0.01 reflecting banks with high ratios of government securities in their asset
portfolios will be exhibiting lower levels of risk. Hussain and Hassan (2005) suggested that both capital
and risk are inversely related with bank’s holding of government securities. lagged capital (CAPt-1)
487
parameter estimates show the speed of adjustments in capital ratio to desired levels and it is negative and
significant at p=0.01 with the parameter estimates of -0.68. Lagged risk (Riskt-1) parameter estimates also
show the speed of adjustments in portfolio risk to desired levels and it is negative and significant at
p<0.01 with the parameter estimates of -0.98. Looking at the amplitude of the estimates it can be
observed that Pakistani banks are quicker in the adjustment of portfolio risk to desired levels. It is
consistent with the previous studies (Shim, 2013). Due to adjustment costs banks are relatively slow in
increasing capital (Shim, 2013).
Nonperforming loans (NPL) has a significant and positive impact on changes in portfolio risk (∆RISK) at
p<0.01. It indicates that high non performing loans are increasing assets’ portfolio risk. The quality of
assets is not only consequential of risks behavior, but also an influencing factor on the risk taken by the
bank. To control and bring down the assets risk, Pakistani banks started investments in government
securities and by the end of 2014 total investments of banking sector amounted to Rs. 5,354,194 million.
On the other hand, by the end of 2014 provisions against advances was Rs. 482.6 million and non-
performing loans amounted to Rs. 604.6 million (State Bank of Pakistan, 2014). The result is consistent
with Zhang et al., (2008), Huang and Xiong (2015), who also argued that increase in non-performing
loans lead to increase in asset risks. Current loan losses provision (LLOSS) has insignificant impact on
changes in portfolio risk (∆RISK). The plausible reason for insignificant impact of loan loss provisions is
the intensity of NPLs; which tends to depress the overall profitability of the banks. To such an extent
increase in provisions of expected losses in loan may not significantly affect the ratio of risk-weighted
assets (RWA) to total assets. Roy (2008) also argued that banks with higher losses make high provisions
for losses which affect profitability and ultimately capital of banks.
5. Conclusion
Due to regulatory pressure, undercapitalized banks are not increasing their capital but are merged with
other banks. Large investments in government securities imply that all banks are risk averse and to
comply with the regulatory requirements they are increasing their capital ratio (capital to risk weighted
assets ratio) by minimizing the denominator. Thus, minimum capital adequacy ratio is achieved through
increase in risk free government investments in the assets’ portfolio. Exposure to government bonds
/treasury bills should be reduced Banks being the engine of the economy are supposed to support the
economic activity through channeling the liquidity to businesses. With the easing interest rates, banks
preferred to focus on risk free asset class which improves their capital adequacy ratio (CAR), reduce
provisioning of fresh investments and provided strong earnings growth. Now that the cycle has reached
its bottom, any further investment in government securities especially long term bonds makes less sense.
Banks must return to their core business now i.e. lending to private sector to shift from higher
investments to deposits ratio (IDR) to improve advances to deposit ratio (ADR). Lately, the interest rates
have been coming down with all-time low discount rate at 5.75% making it feasible for corporate sector
to avail the loans.
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Pricing Strategy and Efficiency Advertising Activity

Ekaterina Kalmykova, Tomsk Polytechnic University (TPU), Tomsk, Russia, kalmykova@tpu.ru
Galina Fangmann, Tomsk Polytechnic University (TPU), Tomsk, Russia, gomog@tpu.ru
Abstract
The investment process of any enterprise is associated with promotional activities. This is due to the
fact that the competitiveness of manufactured goods depends on the investment in advertising
directly. In the competitive goods market raises the question of economic expediency of costs and
measurement of investment performance of advertising.
The problem of the effectiveness of advertising costs is that it is rather difficult to identify the net
effect of advertising, since a change in the volume of sales is affected by many factors.
This paper investigates investments in advertising, pricing strategies and their impact on the method
of calculating the cost-effectiveness of advertising costs.
Keywords: advertising, investment, effectiveness, pricing strategy
1. Introduction
The relevance of assess the effectiveness of advertising associated with an increase in the cost of this
type of activity. This is according to the recent assessment of advertising costs by regions of the
world. (Table 1.).
Table 1: Advertising expenses by regions of the world, in million $.
Region 2010 2011 2012 2013 2014

North America 162165 165104 171039 178313 186344
Western Europe 106344 108688 107885 109668 112642
Asia/Pacific Region 125059 132172 140383 148423 157155
Central/Eastern Europe 24181 26151 26631 28592 31089
Latin America 31996 35344 38080 41935 45600
Middle East/Africa 4881 4155 4198 4313 4412
Rest of the world 10940 11592 12321 13468 14812
Total 465566 483206 501536 524712 552054
In general, the expenditures for the period 2010 - 2014 years have increased by 19%. Increase in the
cost of advertising in Russia for the period 2010-2014 year amounted to 4026 million US dollars.
The problem identification and analysis of the effectiveness of advertising is very relevant, as the
quality and effectiveness of advertising depends on the reliability of measurement of its results.
Advertising is an important tool for revitalization of demand for goods, although it is not the only
tool. Therefore, it is difficult assess its role in the increase of demand. Also advertising can be aimed
not only at stimulation of demand. It should be kept in mind that, in addition to commercial effect,
advertising has a social effect as well.
2. Advertising efficiency
The advertiser needs to organize monitoring of the effectiveness of advertising. It provides

information on the appropriateness of advertising and the impact of its individual means as well as to
determine the optimal conditions for the impact of advertising on potential consumers.
In most cases it is almost impossible to determine the effectiveness of individual advertising media or
whole advertising campaign with absolute precision.
492
Determination of the effectiveness of advertising in general is associated with the study of complex
mutually influencing factors, which are often almost impossible to measure. However, the inability to
accurate measurement of the overall effectiveness of advertising does not mean that its study should
be avoided.
The art of advertising is to draw attention of the greatest number of potential customers to the object
of advertising at the lowest cost. Promotional activity is associated with high costs, so it is important
to determine the optimal advertising costs, to choose the means, forms and methods of
implementation of the planned activities, to check their adequacy to the distribution channels and
target consumer groups, for which advertising is designed, to measure the degree and effectiveness of
advertising impact.
3. Investments in advertising
Advertising costs may be considered as investments, aimed at demand stimulation for goods sold.
These investments have a number of features.
Firstly, they have periodic renewable character. To get the effect from advertising it is necessary to
invest regularly in advertising campaigns.
Secondly, as a rule, the effect from investments in advertising has short-term nature (as opposed to
investments in fixed assets). This means that, once the funds are spent on advertising, the company
may expect positive effect only for a short period of time.
The difficulties of measuring the economic efficiency of advertising is that advertising usually does
not generate full effect immediately. In order to get real results of impact of an advertising campaign
in increase in sales volume, it is necessary to consider economic indicators of the enterprise, without
conducting other promotional activities at the same time.
It is important to bear in mind that sales growth is not a net indicator of the effectiveness of
advertising, as it is directly affected by sufficiently large number of factors, such as price,
distribution, level of service, etc.
In addition, changes in volume can occur as a result of:

• The impact of previous advertising campaigns of the company;
• Seasonal fluctuations in demand;
• Customer loyalty to the goods of the firm;
• Changes in the political situation;
• Changes in demand and other factors.
Given the variety of advertising goals and objectives, it should be noted that in addition to "fast"
stimulating effect, advertising can have long-term goals. For example, the positioning of the brand
and formation of demand and consumer preferences, gaining of market share, switching the customer
to company’s goods.
Economic evaluation of investment in advertising is based on the general principles of assessment of
effectiveness of investments: a comparison of investment costs and returns. This comparison can be
done in the form of the ratio or the difference of these values. With regard investment costs, there are
no special problems with their assessment. It is more difficult to determine results from the
investment of funds. These results will depend on the purpose and content of advertising.
The ultimate goal of advertising is to stimulate demand for goods and services. But this stimulation
can be accomplished in many ways, for example by informing customers about the existence of a
product (service), or focusing on price and consumer characteristics of goods (services).
4. Pricing strategies
The content of advertising must, ultimately, be determined by the pricing strategy. In the pricing
practice, the widest application received the following strategies:
• Premium pricing (high price strategy);

• Pricing breakthrough (low price strategy);
• Neutral pricing.
493
In the first case, the company focuses on consumer properties of the goods. Typically, companies use
such strategy when it has superiority in the quality of their goods. Advertising in this case must
convince buyers that the key factor in purchasing decision is not the price, but the usefulness of the
product.
If the company has a competitive advantage in terms of opportunities to reduce costs and prices,
respectively, then it is better to use advertising in order to focus buyers attention on comparative price
level of the company and competitors' products and thus to achieve the increase of their sensitivity to
prices.
By choosing the neutral pricing strategy the role of price, as tool of marketing policy of enterprise, is
minimised. A company is not able to use the first two strategies for various reasons.
5. The economic effect of investment in applying the premium pricing strategy
In the case of premium pricing strategy the firm hopes to increase profits due to the fact that the
effect of the price increase will cover losses from decrease in sales volume (as a consequence of
rising prices). Typically, such expectations are justified only if the sales volume is not reduced below
a certain value. The use of advertising in such situation allows to reduce the sensitivity to price and
lower the threshold of acceptable reduction in sales volume. Then the economic benefit of investing
in advertising can be determined by the following expression:
E = ∆P · V + (P – Сvar)·(- ∆VP + ∆Vadv) – Iadv (1)
where
∆P – price increase
V – sales before the price increase
P – price before increase
Сvar – variable costs
∆VP – expected decrease in sales volume due to price increase
∆Vadv – expected increase in sales volume due to advertisement
Iadv – advertising costs.
From the above formula we can obtain critical drop in sales, where summary effect is zero.
∆P ⋅V − I adv
∆V = (2)
cr
P − С var
In the case of inelastic demand, the use of advertising will be economically justified if it will reduce
the drop in sales volume (due to the rise in prices) not less than ∆Vcr. The task of marketing is to
assess whether this limit is achievable.
Then, anticipating the expected decrease in sales volume (∆Vex) under the influence of both factors
(price growth, and advertising), we can set the economic benefit in another way:
E= (∆Vcr–∆ Vex) · (P – Сvar) (3)
Taking into account the rounding error of some variables we obtained the same result as in the
formula (1), which proves the validity of the expression (3).
The above formula may be useful to assess the feasibility of stimulating demand for goods (through
advertising), with inelastic nature of demand.
494
6. The economic effect of investment in applying the strategy of breakthrough pricing
For goods with elastic demand the breakthrough strategy, or the strategy of low prices is more
justified. Advertising of such products should put emphasis on the price level. The use of low-price
strategy is economically justified when the losses from reduction in prices are covered by gains from
sales growth. The use of advertisement in this situation increases buyers’ sensitivity to prices and
thus stimulates sales growth. Economic effect of the advertisement can be determined by the formula:
E = -∆P⋅ V + (P – Сvar) (∆VP +∆Vadv) – Iadv (4)
where
∆P – decrease in price
∆VP – increase in demand due to the decrease in price without focused advertising campaign
∆Vadv – additional growth in demand due to advertising.
Thus, the decrease in prices, supported by advertising, will increase the demand due to the
simultaneous influence of two factors.
Ultimately, the economic effect of the investment into advertising is a function of all the parameters
taken into account in formula (4). Sequentially varying each of the analyzed parameters relative to
baseline in a certain range (e.g., 0 to ±10%) we can obtain the dependence of economic effect on the
change of each and several parameters.
7. The economic effect of investment in applying the strategy of neutral pricing
Advertisement in the context of neutral pricing strategy accomplishes different kind of tasks. With
this strategy the sales volume is not achieved due to changes in prices and a high level of product
quality, but by using different marketing tools (selection of effective forms of marketing of goods, the
use of favorable sales conditions, etc.). In this situation, advertising is designed to inform consumers
about the product (service), not focusing their attention on the price and properties of consumer
goods.
The economic effect of the investment in advertising using neutral pricing strategy can be determined
from the following expression:
E = (P – Сvar) ∆Vadv – Iadv , (5)
where
∆Vadv – the expected increase in sales as a result of advertising.
From formula (5) it is possible to establish break-even sales volume growth, beyond which the cost of
advertising will be economically justified:
I
∆V = adv (6)
adv P −С
var
This means that the advertising costs Iadv will be offset by the profits from product sales, if sales
exceed ∆ Vadv.
495
Conclusion
To make the advertising cost-effective it is important to define the required amount of investment
properly. However, it is difficult enough as it is necessary to take into account many factors:
• the volume and size of the intended sales market,

• the role of advertising in the marketing activities of the enterprise,
• the stages of the product life cycle and its form,
• the estimated volume of sales and profit margins,
• advertising activities of competitors,
• company’s potential etc.
In addition, well-chosen pricing strategy for each product will clarify the feasibility and volume of
required investments in advertising.
References
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[Retrieved February 16, 2016], http://www.viraj-spb.ru/o-kompanii/stati/obzory-reklamnogo-
rynka/2012-10-02-13-41-47.html
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RusPartner Ltd, Moscow.
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marketing solutions, publishing house “Piter”, St. Petersburg.
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International scientific-practical conference “Actual problems of the Human Sciences”, publishing
house of Tomsk Polytechnic University, Tomsk.
Ogilvi, D. (2009), About advertising, publishing house “Ecsmo”, Moscow.
Wells, U./Bernet, S./Moriarti. (2008), Advertising: principles and practice, seventh edition,
publishing house “Piter”, St. Petersburg.
Zazulin, A.N. (1998), Price and pricing in marketing systems: tutorial, second edition, publishing
house “Filin”, Moscow.
496
The Impact of Innovation and Technical Progress on the Economy

Gavril Stefan, University of Agricultural Sciences and Veterinary Medicine ‘Ion Ionescu de la Brad’, Iasi,
Romania, stefang@uaiasi.ro
Oana Coca, Alexandru Ioan – Cuza University, Iasi, Romania, oanacok@yahoo.com
Abstract
The purpose of the paper is to highlight the impact of innovation and technical progress on the economy.
The research methodology is based on a comparative and dynamic analysis of the indicators that
characterize the level of economic development, the potential for innovation, the technical progress
and innovative performance across eight countries members of Organisation for Economic Co-operation
and Development (OECD). The study results indicate that the economic level is positively influenced by
the innovation and technical progress stimulation, through allocating a larger percentage of GDP to the
research – development expenditures and through a prevailing involvement of business actors in these
activities. Also, the technical progress determines the increase of production factors productivity and
thus, a greater economic performance. Th governments must stimulate the innovation and technical
progress, in order to record growth and to be competitive in the global knowledge economy. Considering
that innovation and technical progress are the main market triggers that generate economic growth, the
research findings have practical implications. Thus, the results may substantiate the decisions making
regarding the economic growth strategy based on innovation, at both macroeconomic and microeconomic
level.
Keywords: innovation, technical progress, economy, OECD country
Introduction
Previous research revealed the importance of innovation and technical progress on economic growth and
competitiveness, both at enterprise level and at the level of national economy (Ciegis et al., 2008; Celik
and Ozerkek, 2009; Guloglu and Tekin, 2012; Peris-Ortiz and Sahut, 2015). The positive influence of
technological innovations on economic growth is given by the advantage obtained through the new, more
productive technologies and new products and processes (Kafouros et al., 2008). Innovation affects
economic growth by attracting the technical progress, respectively through more efficient use of
production factors as a result of changes in technology. According to Hasan and Tucci study, the
innovation activities are associated both in volume and quality with the economic growth and
development (2010). Thus, countries which recorded a high level of innovation patenting, had the biggest
growth rates and a high degree of economic development.
Literature Review
According Mnif (2014), innovation is the most important way of economic growth of nations. Innovation
becomes useful for the humans by attracting the technical progress, respectively through more efficient
use of production factors as a result of changes in technology. Many studies indicate that the highest
revenue growth in world economies is due to factors that promote efficient use of resources, that facilitate
the absorption of innovation and technological progress in production processes (Cáceres, Guzmán and
Rekowski, 2011; Zortea-Johnston, Darroch and Matear, 2012). According Fagerberg et al., the economic
effects of the technical progress consist in increasing the productivity of production factors, job cuts and
lower sale prices (2006). Factors that influence more than 70% the production increase are represented by
innovation and technology (Stefan, 2012). According to Karabarbounis and Neiman, labor contribution to
national revenue recorded a decline from 1975 and up to 2012, in the most of analyzed countries and
497
industries, due to the replacement of human labor with machines and more productive technological lines
(2013). The technological changes specific to innovative investments are a source of permanent shock to
labor productivity (Fisher, 2006) and cause, under certain conditions, its decline. Thus, according to
some industry researches, the negative impact on labor productivity is given by the lack of skills to
properly use of the new technologies, high costs for the change adaptation process level, learning
costs (Ahn, 1999) or the technological and organizational rigidities that may arise (Banner and Tushman,
2002). Gomez Suárez's study (2015) showed that both substitution of labor with tehnical capital, as well
as substitution of physical labor with human capital, have a positive impact on the long-term economic
growth. An economy with a high elasticity of substitution of factors will have a higher rate of economic
growth (Gomez Suárez, 2015) and a higher level of income per capita in steady state (Xue and Yip,
2012). Innovation is a source for change in the economy at all levels. It thus serves both as a driver for
organic growth of firms in the market (Hess and Kazanjian, 2006; Rochina et al., 2010), and as a source
of comparative advantage for national and regional development (Hansen and Winther, 2011; Scott,
2008). The OECD study (2013) highlights the impact on economic growth of the following components
of capital based on knowledge: computer data; innovative property (patents, intellectual property rights,
etc.) and economic abilities (the company's human capital, networks of people and institutions,
organizational know – how etc.). Among the results of this study conducted at the OECD level, it
highlights that in countries such as Finland, Norway and United States of America, the share of capital
investment based on knowledge exceeds the share of investment in physical infrastructure. From the
reviewed studies, it can be noticed that to innovation and technical progress are assigned important roles
in increasing performance, both at micro and macro level.
Based on the literature studied we aimed to find the answer to the question: What is the influence of
innovation and technical progress on the economy?
The Research Methodology
Research methodology is based on a comparative analysis of the indicators that characterize the level of
economic development and the extent to which states innovate and register technical progress. The
comparative and dynamic analysis was carried out on the following eight members of the Organisation
for Economic Co-operation and Development (OECD): Korea, Germany, Israel, Japan, Italy, Norway,
United States of America (USA) and Finland. It has also been analyzed the position of the European
Union - EU 28, compared to the selected countries. These countries are characterized by a Global
Innovation Index over 46.4 (out of 100) in 2014, ranking it the first 30 places at global level from the 141
countries included in the study (Figure 1) (Cornell University, INSEAD and WIPO, 2015). Global
Innovation Index is an aggregate indicator which is calculated based on the 79 other specific indicators.
80
60.159.9757.05
60 56.2653.97
53.8 53.5446.4
40
20 Global
Innovati…
0
Figure1 :Global Innovation Index (2014) (representation of the authors, according to

Cornell University, INSEAD and WIPO, 2015)
498
The analysis of the innovation and technical progress impact on the economy was over the 2000-2014
period, and included the following types of indicators:
indicators that measure the level of economic development: gross domestic product per
capita (GDP - USD/ capita);
indicators to assess the innovation potential: the share of research - development
expenditure (R&D) in GDP (%); the share of R&D expenditure financed by industry in
total R&D expenditure (%); number of research - development personal per 1,000
employees; number of research - development personal per 1,000 employees from
business field;
evaluation indicators of technical progress: hourly labor productivity (GDP/ hour
worked); capital productivity (gross capital formation/ GDP - %);
evaluation indicators of innovational performance: patent applications per 100,000
inhabitants.
The main source of data was represented by the OECD Statistics. The analysis was performed for the
2000-2014 period.
Results and discussions

A first indicator analyzed was GDP per capita. The GDP is the key indicator that statistically synthesizes
economic activity and is the most important variable used to analyse economic growth (Henderson et al.,
2012). As a measure of wellbeing, the GDP per capita is a quantitative indicator that quantifies progress
and the availability of resources in society (Chamberlin, 2011).
Figure 2: The evolution of GDP / capita, USD, constant prices 2010

(retrieved from the OECD.Stat)
We note that GDP/ per capita has an increasing tendency in all analyzed countries, until the emergence of
the global economic crisis since 2008, when it occurred a decrease of this indicator. It is noticed that at
Israel and Korea level, it was recorded the lowest negative impact of the economic crisis, measured by
GDP growth trend. During 2000 – 2014, Korea has recorded the highest growth in GDP per capita,
namely of 70%, exceeding in 2014, Italy and Israel. The evolution of this indicator is influenced by the
changing of the factors which characterize the potential for innovation, technical progress and innovative
performance.
Numerous studies assign to the indicator ‘share of R&D expenditure in GDP’ an important role in
assessing the potential of innovation, with positive indirect influence on the economic development at
499
nation-wide (Ibekwe, 2015; Gumus, 2015). The general trend of this indicator is of growth in the
analyzed period, which demonstrates the awareness of the research and innovation importance on
economic growth, for the analyzed countries.
Figure 3: Share of R&D expenditure in GDP - % (left) and Share of R&D expenditure financed by
industry in total R&D expenditure - % (right) (retrieved from the OECD.Stat)
We note in Figure 3 that the largest increase in the expenditure ratio of research - development has
recorded by Korea (93.18%), from 2.20% in 2000 to 4.25% in 2014. Also we note that Israel has
allocated over 4% of GDP to finance the research and development activities, over two times more than
the EU average (below 2%). Regarding the source of financing the R&D activities, we see that in the
most innovative countries (Japan, Korea, Finland and Germany), the industry contributes with private
sources of financing in a proportion of 65% in total R&D expenditure and the largest contribution is held
by the Japanese firms (77% in 2014). On the average, in the countries of European Union the industry is
funding to a lesser extent the research - development activities, respectively with a percentage of about
50%, which was relatively constant during the analized period. EU policies in 2020 horizon propose to
increase the private sector involvement in research - development activities and to achieve a minimum
percentage of 3% - research - development expenditure in total GDP, of which over 50% being the
private sector contribution. Some research has shown that the largest share of public initiatives in
research - development - innovation, to the detriment of those private, lowers the chance for achieving the
innovation success (Perez et al., 2011, p. 359). Innovation initiative must come mainly from businesses,
using at the same time the resources provided by the public environment (eg. researchers expertise,
generated knowledge in research organizations).
We note that countries that have invested the most in R&D activities, respectively Korea and Israel,
recorded the largest relative increase in GDP per capita. To maintain the growth, Korea promotes a
500
creative economy based on: improving the innovation system to maximize return on investment in RDI;
attracting of new economic actors in the innovation process, especially start-ups and SMEs; innovation
concentrating on ‘green growth’ (sustainable) and on services development (OECD, 2014). This Asian
country has recorded in 15 years the fastest growth, investing the highest percentage of its GDP in R&D,
exceeding in 2013, the Israel, who was the world leader before 2000. A major role in the economic
growth recorded by Korea have the groups of multinational companies called ‘chaebol’ (Hyundai,
Samsung, etc.), strongly interconnected with the state.
Another case that deserves to be analyzed is Israel, a small country in the Middle East which recorded an
annual increase of innovative performances. The priorities of this nation, according to the Office Chief
Scientist (OCS) are to support R&D activities in traditional industries, nanotechnology and biotechnology
sector and to promote the transfer of knowledge between the research and business environment.
Economic factors involved in nanotechnology and biotechnology sector are represented especially by
small companies, start-ups and firms which have a high growth rate. In 2010, the Israelite Finance
Ministry initiated the program called ‘The relative advantage’, which aims at awareness that SMEs with
high growth are the main driver of the economy in Israel. The program is addressed of sectors with high
growth potential by supporting the close relationship of firms with the research environment, for the
development of strong and competitive companies (Grimland, 2010). Development of innovative SMEs
in Israel is supported by the following measures: the allocation of grants to finance the research projects;
supporting companies through technological incubators that make available the technical infrastructure,
the financial resources, the administrative and technical assistance in the early stages of development;
promoting the technological transfer between research environment and enterprises.
An important resource affecting the impact of innovation on economic growth is the human resource. The
economy adaptation to technological change is influenced by the level of human capital (Nelson and
Phelps, 1966), respectively human capital stock determines the ability of an organization or a nation to
grow through innovation (Aghion and Howitt, 1992). Sourcing the nations with enough research staff and
highly qualified is one of the most important conditions for obtaining performance. The man is the creator
of new ideas and he has the ability to put them into practice, certainly in terms of holding and other
resources, as capital, financial and market resources.
501
Figure 4: Number of R&D personnel at 1000 employees (left) and Number of R&D personnel at
1000 employees in the business area (right) (retrieved from the OECD.Stat)
The number of research personnel has increased in most analyzed countries, excepting Finland which has
decreased the number of research personnel from a maximum of 25 in 2004, to 21 in 2014. However,
Finland remains the most ‘endowed’ country with research personnel (researchers, academics, laboratory
etc.), exceeding twice the EU28 average (12 persons/ 1000 employees). Also Finland is noticed by a large
number of researchers engaged in private activities (about 50% of research personnel), surpassed only by
Israel, and beginning with 2013, by Korea. We can notice again that Korea recorded the largest increase
of the number of researchers at 1000 employees (+ 158%), from 6.53 in 2000, to 16.83 in 2014.
The involvement of private enterprises in research - development activities is an important factor in

achieving the innovative performance and determines a more rapid capitalization on the market of the
research results, as compared to public research environment. This is due to a better capacity of
enterprises on implementing of research results, commercializing these and obtaining profits, unlike the
public research environment which makes harder to implement the research results.
The indicators chosen in the analysis for assessing the technical progress are represented by labor and
capital productivity. The labor productivity is a key element of economic performance and a determinant
for improving the living standards (OECD, 2015). The most relevant macroeconomic indicator used to
measure the labor productivity is the GDP per hour worked.
According to OECD statistics, in 2000-2014 period was an increase in labor productivity measured by the
GDP/ hour worked, in all examined countries (Figure 5). It is noted in Figure 5 that the highest labor
productivity was registered by Norway, about 80 USD/ hour worked. As regards the increase of labor
productivity, the highest growth was recorded by Korea, of 63%.
502
Figure5: Evolution of GDP / hour worked, USD, constant prices 2010

(Retrieved from the OECD.Stat)
Figure 5 shows that the average productivity of EU countries - UE28 records approximately 50% of
Norway's productivity and over 130% of Korea and Israel productivity. Analyzing the evolution of this
indicator, we can appreciate that this is due to the technological change and technical progress.
Another measure of technical progress is the productivity of capital, expressed as percentage of gross
capital formation in total GDP. This indicator shows what percentage of GDP is represented by
investments in fixed assets of the economy and net changes of inventories. In the analyzed period, the
capital productivity was over 15% in all countries, and the highest value was registered in Korea (30%)
(Figure 6).
35.00
Germany
30.00
Finland
25.00
20.00 Israel
15.00 Italy
Figure 6: Capital productivity (%) (gross capital formation/ GDP)

(Representation of the authors, according to World Bank statistics)
We note that this indicator did not have a steady trend in the analyzed period, while the largest decrease
was observed with the advent of the global economic crisis (2008 - 2010) when both GDP and investment
recorded considerable declines. Since 2010, is noted an increasing trend in Norway, USA and Japan,
which may suggest an economic recovery from the crisis.
503
The main results of research - development activities are represented by the patent applications submitted
by applicants at the following patent offices: the European Patent Office (EPO), the Office Japanese
Patent (JPO) and the Office for Patents and Trademarks of the United States (USPTO). For a complete
protection of patents, applicants must submit their applications at all three offices, and these patents are
called triadic patents. Intellectual property conferred by these patents provide protection for the products
of human intelligence and, at the same time, ensure the user concerning the quality of goods or services
offered. Patenting of inventions and their commercialization is a method of recovery of expenses incurred
for research and development product or innovation process (Schmid, 2013).
120.00
Finland
100.00
80.00
60.00
40.00 Germany
20.00
0.00
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Figure 7 :Patent applications filed to the EPO, JPO or UPSTO (patents/ 100,000 inhabitants)
(representation of authors, according to OECD.Stat)
In the analyzed period, the highest number of patent applications per 100,000 inhabitants was registered
by Israel and Finland, which is over 80 patents every year. We note that these countries have, in general,
the same evolution trend of the number of patents, being over two times higher than the EU28 average,
which was worth approximately constant lying around 30 patents. The most obvious increase in the
number of patents has been registered by Korea, which has increased the number of patent applications
by 300%, in the analyzed period, to protect its innovations on the market and to charge the price
advantage offered by innovation. Patent system is designed mainly to motivate future inventions and to
allow inventors to recover their research - development fixed costs by charging a price above marginal
cost (Hollanders and Es-Sadki, 2013). The patents create tradable rights and facilitates technological
transfer on market. Patenting legislation is in favor of competitiveness, by excluding competition by
copying and fostering competition and innovation substitution (Burk and Lemlet, 2009). The absence of a
system for recognizing patents discourages the initiation of research - development activities, because the
one who invests in such activities can not ensure exclusive exploitation of the results and the competitors
will not delay to copy these results.
Conclusions
From the analysis revealed that innovation and technical progress act towards the economic growth. The
most innovative countries generally recorded the largest increases in GDP/ capita, hourly labor
productivity and capital productivity. These are the result of technical progress and innovation. Korea is
the country with the strongest development of innovation capacity in the 2000 – 2014 period, due to the
existence of large companies, multinationals which are strongly supported by state. Another country that
invests over 4% of GDP in research - development is represented by Israel. Unlike Korea, the research
activities of this country are based on start-ups and SMEs, which records high growth rates (over 5% per
year). Also, the largely financed of research and development activities by businesses and the high
504
number of researchers in the private sector are correlated with high levels of innovation performance. The
analysis results show a high positive impact of innovation and technical progress on the economic
development. Considering that innovation and technical progress are the main market triggers that
generate economic growth, the research findings have practical implications. Thus, the results may
substantiate the decisions making regarding the economic growth strategy based on innovation, at both
macroeconomic and microeconomic level.
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The Relationship between Monetary Policy and Foreign

Direct Investment in Romania during 2003-2014
Valentin Mihai Leoveanu, University of Bucharest, Bucharest, Romania,
valentin.leoveanu@faa.unibuc.ro
Abstract
The present study tries to highlight the possible influence of the monetary policy decisions on the flows
of foreign direct investment in Romania through an econometric analysis. Advantages of FDI in the
economy are many, namely financial stability, increasing productivity of physical capital and increasing
employment of labor force but one can say that economic literature studied less the impact of monetary
policy measures on FDI. The methodology used is based on a quantitative analysis and involves a
database on: the flow of direct investment, money supply, exchange rate, monetary policy interest rate,
inflation and GDP. The relationship between monetary policy instruments and FDI flows was measured
and analyzed using a trigonometric equation for multifactor regression type. The estimated model was
used to test the hypotheses about individual relationships of the independent variables and foreign direct
investment in Romania. Calculations confirm that selected variables can be successfully used in the
calibration of monetary policy decisions with the purpose to attract foreign investment in our country.
Keywords: determinants of FDI, FDI flows and stocks, inflation targeting, instruments of monetary
policy
Introduction
Adverse economic developments worldwide, arising from the last global financial and economic crisis,
required the attention of economic analysts and researchers to recall the events and decisions taken during
the Great Depression, but most of all, to review the economic theories and to debate about the relevance
and effectiveness of macroeconomic policy instruments. A central issue in this debate was to analyze how
the most important central banks in the world are using monetary policy instruments in order to avoid
positioning the economy as a deflationary one or to exit from the liquidity trap, a phenomenon emerged in
developed country and expressed as zero value for the nominal interest rate on short term.
After the financial crash of 2007-10, although Romania has not passing through this particular
phenomenon, the Romanian central bank had to face the need to ensure liquidity in the money market and
an optimal level of lending in the economy, issues which put serious problems regarding the effectiveness
of monetary policy decisions. Besides the support of major international financial institutions such as
those of the IMF and the World Bank or the financial support provided by the EU through its grant funds,
a major factor to be considered in avoiding entering again into a state of the recession by the Romanian
economy is to attract FDI and thus to begin a process of economic growth resumption on a sustainable
basis. International economic environment is currently a difficult one, especially as a result of the
sovereign debt crisis in Europe, but the existence of some "oasis" of economic stability in Europe - such
as the economies of Poland or Turkey, can offer other countries, especially new members in the EU, an
example to follow sound macroeconomic policies.
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It is well known that economic growth is attracting foreign direct investment and not vice versa, and that
is why the authors try to analyze in this study the possible influence of the monetary policy decisions on
the FDI flows in Romania through an econometric analysis. Advantages of FDI in the economy are many,
namely providing financial stability through capital flows, ensuring increased productivity of physical
capital and increased employment of labor force and also its level of training, involving economic sectors
upstream and downstream, being a primary source regarding the transfer of technology and know-how. In
spite of fact that FDI require a stable macroeconomic environment based on economic growth, FDI could
be one important way to avoid the recession, by which Romania can achieve a healthy external balances
and reduce the current account deficit. In this respect, a stable course towards financial discipline
regarding fiscal and budgetary policies and proper monetary policy instruments could improve the
confidence of investors about future developments of the Romanian economy.
The importance of the study is reflected by the results of the econometric calculations, showing the link
between different monetary policy instruments, taken one by one and altogether, and FDI flows. The
impact of foreign capital flows on monetary policy and the measures taken by monetary authorities to
protect the economy from the negative effects that they can bring are well known as well as the role of
FDI determinants in an Eastern European country such as: privatization, trade linkages and borders, labor
cost, macroeconomic stability, as mentioned in a study by Holland and Pain (1998), but the economic
literature studied less the impact of monetary policy on FDI flows.
The methodology rely on a statistic database for the period 2003 - 2014 taking into account the following
variables for Romania: the flow of foreign direct investment, the money supply, the exchange rate, the
monetary policy interest rate, the inflation rate and the GDP. The relationship between monetary policy
instruments and the FDI flows were measured and analyzed using a trigonometric equation for
multifactor regression. After mathematical calculations performed on data series, the method requires the
application of different tests on the variables used in the regression equation.
Literature Review
Generally speaking, investments represents the support of a country economic development because they
have a variety of effects such as the rise of fixed and working capital, the increase of technical and
economic efficiency of equipments, the boost of productivity and the rise of employment. As part of the
investment in the economy, FDI is “a category of cross-border investment associated with a resident in
one economy having control or a significant degree of influence on the management of an enterprise that
is resident in another economy” as IMF specialists mentioned (2009)1.
According to Chang (2012)2, foreign capital flows are of three types: 1) grants - free money, most often
conditioned by a country or an international economic or financial institution (i.e.: EU funds); 2) debts -
bonds or bank loans or 3) investment – equity portfolio investment (ensuring ownership in the company,
but mainly focus on dividends and financial return) and foreign direct investment (similar to the first one,
but watching for predominant influence over decision making in the company).
In order to define FDI, this paper consider the methodology used by the National Bank to achieve
statistical surveys on FDI which is not different from that provided by the Balance of Payments and
International Investment Position Manual of the International Monetary Fund, 6th edition (2009).
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Globalization, defined by the World Bank specialists as "the growing interdependence of countries
resulting from the increasing integration of trade, finance, people, and ideas in one global marketplace"
(2004)3 or as "the process through which an increasingly free flow of ideas, people, goods, services, and
capital leads to the integration of economies and societies" in the IMF glossary of terms (2006)4,
amplified the volume of cross-border financial flows. As such, foreign capital flows have become
increasingly important in higher domestic investment demand of a country, in particular emerging and
developing countries. Nowadays, unlike the concept of financial integration of a country that signifies a
particular country access on specific capital markets, a financial indicator that measures the degree of
financial globalization of a country become well known. This is measured by the share in GDP of stocks
of external assets and liabilities of foreign direct investment and portfolio investment.
As main determinants of FDI in Romania, the study of Copaciu (2011)5 shows primary factors like: a)
Market factors: size, growth, GDP/pc, access to neighboring/export markets and b) Cost factors: labor
quality/costs, raw material/intermediates quality/costs, labor productivity, other sources/costs,
infrastructure etc.; factors of investment/business climate in the broadest sense: political/economic
stability, regulatory framework, taxes, labor market regulation, product market regulation, competition
policy, trade policy, privatization policy etc.; FDI regulation/policy: legal framework for FDI, investment
incentives, performance requirements, marketing of a country, servicing of foreign investors.
FDI characteristics in Romania
Since the ninth decade of the twentieth century, the Romanian economy experienced a phenomenon of
deindustrialization that produced major changes in the structure of the national economy as a result of
lowering production capacity due to the loss of sales markets and also supply markets. The literature
defines the phenomenon of deindustrialization by reducing the share of industry in GDP. To analyze the
degree of industrialization, we see the evolution of percentage of GDP accounted for industry, which
declined relatively steadily, although with a reduced rate for the period 2000-2011, as mentioned in a
study of Group of Applied Economics (GEA) (2010)6. As a result of such negative developments and in
order to preserve what remains from the industrial legacy left by the communist-era, Romanian
authorities must take into consideration planning, designing and putting in force an industrial policy for
Romanian economy, such as developed countries have already, not to mention the European Union
strategy “Europe 2020”. An industrial policy is needed especially in the context that Romania gave up
many of the leverages of the macroeconomic public policy such as trade policy through EU membership,
the fiscal policy by flat tax and prepares to drop national currency and monetary policy by entering the
Euro zone, as GEA mentioned7.
Considering some aspects of investment environment and country risk assessment, in a report prepared
by the Council of Foreign Investors in Romania8 in May 2015 there are some points to highlight such as:
the existence of a governance deficit that affects public life and generates inadequate institutional
arrangements, managerial incompetence, inefficient regulatory process and the absence of consistent
application of law; corruption is one of the major issues affecting the economic and social development;
the Romanian authorities and the private sector should take measures to increase the country's
competitiveness and welfare through improved management of public resources. The report indicates also
some measures to improve the present situation such as: judicial accountability, homogeneous
jurisprudence, strengthening the capacity to combat corruption and improving the legislative process.
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Among the Eastern European countries, Romania ranks 51 in the Financial Development Report 2012 of
World Economic Forum9: „Although Romania moved up only one spot over the past year, there were
some big swings in a number of pillars and sub pillars. Most notable were six- and four-spot declines in
the institutional (43rd) and business environment (39th) pillars, respectively. While weaker corporate
governance (60th) mechanisms and a diminishing human capital (53rd) pool are causes for concern,
Romania benefitted from improvements in other areas, such as financial stability (45th) and banking
financial services (52nd). Romania [has also] development disadvantages in the commercial access sub-
pillar, rank 55”.
In “Doing Business Report 2016”10, Romania has the rank 37 with no changes in rank to 2015, and
registered reforms in the areas of paying taxes, enforcing contracts and resolving insolvency. Thus,
paying taxes in Romania is less costly for companies by reducing the rate for social security contributions
and the rate for accident risk fund contributions; also, the contracts were enforced by transferring some
responsibilities from the court to the bailiff, and by making use of the electronic auction registry
mandatory. The insolvency system was primarly improved by introducing time limits for the observation
period and for the implementation of the reorganization plan and by introducing additional minimum
voting requirements for the approval of the reorganization plan.
According to the national legislation in force, investors who choose Romania as a destination to
implement their investment projects enjoy the same rights and the same obligations, either Romanian or
foreign citizens, residents or non-residents. As a result of EU accession, Romania benefits from EU
financial assistance provided in the forms of structural and cohesion funds.
Legal framework for governmental aid in order to stimulate investment was regulated by the Law
no. 35/1991 on foreign investment regime and the governmental act OUG no. 85/2008, as amended and
supplemented, which establishes principles for investments stimulation, areas where investments can be
made so the investor can access an aid scheme, the types of state aid that may be granted, the general
conditions of eligibility of investments and investors etc. Thus, investor incentives takes the form of
grants at the acquisition of tangible and intangible assets, grants for new jobs created, allowances for
interest to contract loans and other forms required by law. State aid can be accessed both by large
companies, as well as small and medium enterprises, depending on the type of investment and the field of
activity. Romania's main advantages in attracting foreign investors are well trained workforce, the tax
system which provides certain advantages for foreign investors, important marketplace and geographical
position. Also, to encourage foreign investors, the Government issued the Decision no. 7/2015 regarding
the organization and functioning of the Department for infrastructure projects and foreign investments, as
mentioned by InvestRomania11.
The evolution of FDI inflows in Romania and some other important Eastern European countries are
presented below in order to make some comparisons.
510
25.000
20.000
15.000
10.000
5.000
0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Bulgaria Czech Republic Hungary Poland Romania
Figure 1: Comparative evolution of FDI inflows in the main EEC in 2003-2014

(mil. $ in current prices and current exchange rates)
Source: UNCTADSTAT, DataCenter, Inward foreign direct investment flows, annual, 1970-2014, available on
http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx
35,00
30,00
25,00
20,00
15,00
10,00
5,00
0,00
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Bulgaria Czech Republic Hungary Poland Romania
Figure 2 : Comparative evolution of FDI inflows in the main EEC in 2003-2014 (% of GDP)
Source: UNCTADSTAT, DataCenter, Inward foreign direct investment flows, annual, 1970-2014, available on
http://unctadstat.unctad.org/wds/TableViewer/tableView.aspx
Romanian authorities envisaged some important directions in promoting investments: providing

incentives for investments that ensure the development of those priority economic activities and
contributing to one of the following objectives defined under state aid law: development and regional
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cohesion, protection and environmental rehabilitation, increase energy efficiency and/or production and
use of energy from renewable resources, dynamic process of R&D and innovation, employment and
training workforce, implementation of innovative technologies and research results in the national
production, development of new infrastructure for tourism.
FDI analysis for Romania may focus on both FDI flows and FDI stocks. A FDI statistic presentation of
Eurostat12 consider that ISD Flows are „an indicator about the attractiveness of the economies; it show the
net inward and outward investments with assets and liabilities in a given reference period (year, quarter)
and provide information to monitor recent economic developments. They are, also, subject to more
volatility and requires additional information to be properly interpreted”. Table 1 express the change in
FDI flows, having the year 2003 as base year on the one hand, and on the other hand calculating the
annual changes.
Table 1: FDI Flows in Romania, by years (million euros) for the period 2003-2014
Indicators 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Equity shares 691 3032 2688 4159 2220 4873 1729 1824 1512 2676 2764 4222
Reinvested earnings 572 1452 1164 2673 1327 -1881 -337 -1376
Credits 683 699 1361 2227 3703 4623 1759 396 303 1343 285 -425
TOTAL 1946 5183 5213 9059 7250 9496 3488 2220 1815 2138 2712 2421
Changes from 2003 100 266 268 466 373 488 179 114 93 110 139 124
Annual changes 1,66 0,01 0,74 -0,20 0,31 -0,63 -0,36 -0,18 0,18 0,27 -0,11
Source: National Bank of Romania, National Institute of Economic Statistics and authors calculation
Monetary policy in Romania
Although Romania did not share the same economic and financial situation as most of developed Western
countries, the crisis in Romania was dependent primarily on internal causes such as: fast growth in
consumption based on short-term external financing; implementing pro-cyclical policies such as fiscal
and budgetary policy; postponement of structural reforms in some economic sectors and in the central and
local administration; inconsistent measures at the political level and inconsistency in making and
applying laws, and at last but not the least, a too fast liberalization of the capital account, as mentioned by
Voinea13. These causes have led to adverse developments regarding the current account deficit and the
budgetary deficit, which resulted in operative intervention of international financial organizations (IMF,
World Bank and the ECB as an institution of the EU) at the request of Romanian governmental
authorities.
In this context, the National Bank of Romania had to ensure money market liquidity and an optimal level
of lending to the national economy through commercial banks. The first objective was achieved through
punctual intervention of the central bank on the money market and by the so-called Bank Coordination
Initiative in Vienna, which IMF initiated as a dialogue between the government and foreign banks
operating in Romania, dialogue whose goal was to prevent closing refinancing credit lines from parent
banks to their Romanian branches. As for the second case the central bank recorded a failure due to a
blockage manifested by shifting cash from banks to the government securities (bonds) or to deposits with
the central bank. In addition to its objectives of ensuring price stability and financial stability, National
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Bank of Romania has conducted the monetary policy in order to achieve accession to the European
Economic and Monetary Union (Euro zone) for Romania, in adopting the euro as currency.
According to its Statute, the National Bank of Romania has as main objective to achieve and maintain
price stability. However, National Bank supports the general economic policy of the State, but without to
prejudice its primary objective. In this respect, the central bank sets monetary policy strategy and decide
on what instruments and procedures to use to implement monetary policy (Law no.312/ 2004).
The NBR strategy of monetary policy is inflation targeting that was adopted in August 2005. This type of
strategy is characterized by: the institutional commitment of monetary authority to price stability; public
communication of the inflation target, expressed in figures and forecast for short and medium term;
establishing a regime of floating exchange rates; the absence of explicit rules on how the central bank
should set its target; the pursuit of intermediate targets through strategies; increasing the central bank
transparency by communicating monetary policy measures and goals to the public and financial and
foreign exchange markets; increased accountability of the central bank in achieving monetary policy
commitments.
Inflation targets in Romania are formulated in terms of the annual change in the consumer price index and
are set as midpoints within a target band of +/-1 percentage points. There are two distinct phases in the
type and the levels of the inflation targets set by the NBR14:
- 2005–12: the phase of declining inflation targets, set over a 2-year horizon as year-end annual rates, to
consolidate the disinflation process and achieve a sustainable annual inflation rate in the medium term;
- 2013–present: the phase of a flat multi-annual inflation target, an intermediate stage to ensure the
transition towards the phase of long-term continuous inflation targeting—in line with the ECB’s
quantitative definition of price stability.
Setting this strategic direction to achieve a low inflation rate brings, in terms of attracting FDI,
advantages such as: reduces uncertainty about the economic environment; simplifies decision taking
process for economic agents; reduces interest rates on medium and long term and stimulates investment
projects implementation. Generally, a central bank has the ability to influence directly only the short-term
interest rates, but the medium and long-term interest rates, however, are those that have a value for
investment projects and they depend heavily on anticipated inflation rate.
The use of monetary policy instruments by the National Bank of Romania during 2003-2015 was made
according to the specific characteristics of domestic macroeconomic conditions and developments on the
financial markets.
As NBR indicated, the adequacy of the real monetary conditions in terms of the overall objective of
monetary policy was based mainly on interest rate policy during this period, but an important role was
played by the minimum reserve along with banks liquidity management. The monetary policy interest
rate and the liquidity management tools were used in a conventional and unconventional manner, by
adaptation of the maturities, by the types of eligible assets employed or by the features procedures put in
place to the existing situation on the interbank market. Monetary policy interest rate in Romania averaged
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6.36 percent from 2005 until 2016 and reached an all time high of 12.50 percent in May of 2005 and a
record low of 1.75 percent in May of 2015. The minimum reserve (RMO) has been adapted to the
macroeconomic and financial conditions both internal and external and subjected to the harmonization
process of RMO mechanism with the European Central Bank standards. Another feature of this period
was the frequent alternation of NBR positions on interbank market as debtor or creditor as a result of
external and internal macroeconomic influences on the banking system and of the State Treasury activity.
The years after the onset of the international financial crisis led to the change of the bank business model
in Romania, such as banks are focusing on providing liquidity to equity (limited remuneration of new
deposits), to cover losses incurred due to financial crisis turmoil (high margins between loans / deposits),
and a more rigorous selection of customers. It is observed that, in case of an easing of monetary policy,
the banks act like real brakes in the way of resuming normal economic activity after the crisis, boosting
growth in the economy due to their financial difficulties rooted in past mistakes, made following the
business model adopted at that time.
The extension of monetary easing done by the NBR is supported by the IMF through a recent study15
which states that "there is space for more monetary easing. National Bank of Romania has implemented
monetary policy in an environment of low interest rates and low inflation. Monetary policy should
maintain monetary easing, as a lower inflation than the targeted inflation may take root in a negative
output gap, a low imported inflation and a decline in inflation expectations".
Nowadays, the National Bank of Romania policymakers said they're closely monitoring domestic and
external economic developments and stand ready to use all available policy tools in order to defend price
and financial stability, for the months and years to come after the post-Brexit vote market turmoil.
Methodology of Research
The present study is a quantitative analysis which attempted to highlight and quantify the influence of
monetary policy instruments on the flows of foreign direct investment in Romania for the period
2003 – 2014.
In order to pursue an econometric analysis the authors has previously built a database for the period
2003 - 2014, concerning statistical information on: the flow of foreign direct investment, money supply,
exchange rate, monetary policy interest rate, inflation rate and GDP.
- Foreign Direct Investment (FDI) (notation isd in econometric calculus) are the net inflows of
investment to acquire a lasting management interest (10 percent or more of voting stock) in an enterprise
operating in an economy other than that of the investor. It is the sum of equity capital, reinvestment of
earnings, other long-term capital, and short-term capital as shown in the balance of payments. This series
shows net inflows (new investment inflows less disinvestment) in the reporting economy from foreign
investors.
- Money Supply (MSP) (notation m3) is the category M3 of the money supply that includes M2 as
well as all large time deposits, institutional money-market funds, short-term repurchase agreements, along
with other larger liquid assets. This is the broadest measure of money (the broadest monetary aggregate)
and it is used by economists to estimate the entire supply of money within an economy.
514
- Exchange Rate (EXR) (notation cursschimb) is the price of one country's currency expressed in
another country's currency. In other words, the rate at which one currency can be exchanged for another.
Exchange rates included in the list of the average market exchange rates are nominal and are based on the
quotation of the banks licensed to perform foreign exchange transactions. The calculus is based on the
change in the nominal exchange rate to assess the effects on FDI flows. The exchange rate is expressed
against euro as the main currency for trade and investment in Romania.
- Monetary Policy Interest Rate (MPR) (notation rpolmon) is the interest rate used for the main open
market operations of the central bank. Currently, these are the repos within a week performed by fixed
rate tender.
- Inflation Rate (IFL) (notation rinfl) is defined by economists to be a general rise in the price level
that is measured using an index. Some economists use the gross domestic product deflator, or the GDP
deflator, to measure inflation, but the measurement of inflation in the European Union is the Consumer
Price Index (CPI). The CPI measures the price of a basket of goods that a typical consumer purchases.
There are a large number of studies that find a positive impact of a low inflation environment on FDI
inflows.
- Gross Domestic Product (GDP) (notation pib) is the monetary value of all the finished goods and
services produced within a country's borders in a specific time period, though GDP is usually calculated
on an annual basis. It includes all of private and public consumption, government outlays, investments
and exports less imports that occur within a defined territory. GDP is commonly used as an indicator of
the economic health of a country, as well as to gauge a country's standard of living. As mentioned above,
there can also be feedback effects from FDI (both current and past) on economic growth in return.
The relationship between monetary policy instruments and FDI flows was measured and analyzed using a
trigonometric equation for multifactor regression type. The econometric model realized by the authors to
analyse the influence of monetary policy instruments on foreign direct investment in Romania is specified
as follows:
FDI = c + α × EXR + α × MSP + α × GDP + α × IFL + α × MPR

1 2 3 4 5
The estimated model will be used to test the hypotheses about individual relationships of the independent
variables and foreign direct investment in Romania.
Built database contains statistical series of observations by constant frequency. Time series spans a period
of 10 years between 01/01/2003 and 31/12/2012. Data were taken from the National Bank of Romania16
and the National Institute of Economic Statistics17.
Processing necessary mathematical econometric analysis and estimation of coefficients that identify and
quantify causal relationships were made using econometric software EViews6.
Before actually applying regression to determine the coefficients of influence, the endogenous variable
(in our case the flow of foreign direct investment) and exogenous variables (instruments of monetary
policy), expressed as time series with constant frequency - quarterly, were processed for stationarity and
515
to facilitate econometric analysis. Mathematical operations applied to the statistical data series are
logarithm and the first difference.
Monetary policy influence on FDI flows in Romania during 2003-2014
After mathematical processing applied to the data series, the methodology requires the application of
different tests on agreed variables to use in the regression equation.
The first test is aimed to show the stationarity of the statistical series. This is necessary because most of
the time series regarding economic variables are not stationary, and models including these data sets will
be incorrectly specified, at least statistically. To check the stationarity of variables, can be used one of the
following tests: Dickey-Fuller test, ADF test (Augmented Dickey-Fuller test) and Phillips-Perron test.
Stationarity can easily be observed graphically, whatever the variable (endogenous or exogenous). For the
variable FDI (foreign direct investment flows in Romania) Phillips-Perron stationarity test shows that the
probability of detection is less than the most restrictive level of relevance (1%) so we can say that the data
series is stationary.
Table 2: FDI variable stationarity
t-Statistic Prob*
Augumented Dickey-Fuller test statistic -1.611905 0.0000
Test critical values: 1% level -3.626784
5% level -2.945842
10% level -2.611531
*MacKinnon (1996) one-sided p-values
Similar tests were run for all other variables used in the regression. All statistical series proved to be
stationary.
The next test performed on the explanatory variables concerns their collinearity. This test shows if there
is a high correlation coefficient between these variables, in which case they loose their explanatory
capacity and the approach to estimate the coefficients of regression by the method of least squares is no
longer possible. The authors chose to test the collinearity by performing auxiliary regressions given that
one explanatory variable is endogenous (left equation econometric) and others are exogenous (right
equation econometric). These auxiliary equations have been run and tested for individual variables
(dl_cursschimb, dl_m3, dl_pib, dl_rinfl, dl_rpolmon).
For the variable representing statistical series regarding the exchange rate, the table below shows the
results:
516
Table 3: Collinearity of the exchange rate
Variable Coefficient Std. Error t-Statistic Prob.

C -0.009125 0.009207 -0.991142 0.3286
DL_M3 0.034226 0.145445 0.235319 0.8154
DL_PIB 0.008150 0.020448 0.398591 0.6927
DL_RINFL 0.013513 0.035683 0.378686 0.7073
DL_RPOLMON 0.131202 0.062145 2.111218 0.0422
R-squared 0.138811 Mean dependent var -0.006132
Adjusted R-squared 0.037495 S.D. dependent var 0.035303
S.E. of regression 0.034537 Akaike info criterion -3.774376
Sum squared resid 0,040555 Schwarz criterion -3.561099
Log likelihood 78.60034 Hanan-Quinn criter. -3.697854
F-statistic 1.370080 Durbin-Watson stat. 1.732855
Prob(F-statistic) 0.264840
In the regression window could be noted that between variables there is a low degree of interdependence
because the correlation coefficient is low, about 0.13. In this case the authors say that the variable
"exchange rate" pass the test of collinearity.
The same happened with the other explanatory variables and they found that the explanatory variables are
not autocorrelated or collinear and hence they maintain their explanatory power, with no need to give up
any of them in the construction of econometric multifactorial equations.
The next step is testing the heteroskedasticity and the residual autocorrelation terms. These tests are very
important because if the residuals do not have constant variance and are autocorrelated, then estimation
of the equation coefficients with the method of least squares is performed with large errors. To test
heteroskedasticity we applied test White. The authors chose this test because it allows to check
simultaneously the independence of residual terms in relation to the explanatory variables of the equation
and the linearity of the relationship between the dependent variable (FDI flows in Romania) and the
independent ones (monetary policy instruments such as: exchange rate, money supply and so on). The
high probability of test White (0.6807) indicates that the three conditions above are met.
Table 4 Heteroskedasticity White test Result
F-statistic 0.806810 Prob. F(20,18) 0.6807

Obs*R-squared 18.43533 Prob. Chi-Square(20) 0.5588
Scaled explained SS 19.28121 Prob. Chi-Square(20) 0.5036
Testing the residuals autocorrelation was checked separately using test Breusch - Pagan - Godfrey. This
test checks the premise that there is no autocorrelation of the residuals so that high probability associated
with this test shows this achievement.
517
Table 5: Heteroskedasticity Breusch-Pagan-Godfrey test result
F-statistic 1.469524 Prob. F(20,18) 0.6262

Obs*R-squared 7.102206 Prob. Chi-Square(20) 0.6131
Scaled explained SS 7.428085 Prob. Chi-Square(20) 0.5906
Final Results
In my analysis I attempted to identify and quantify the impact of monetary policy on FDI trends for
Romania. This impact could be observed using multifactorial econometric equations whose result is
shown in the following figure:
Table 6: Results of multifactor regression
Variable Coefficient Std. Error t-Statistic Prob.

C 0.323664 0.018520 -1.277738 0.00026
DL_CURSSCHIMB -0.319224 0.340111 -3.290760 0.0024
DL_M3 0.290612 0.288677 2.392333 0.0125
DL_PIB 0.411402 0.040646 0.280524 0.0108
DL_RINFL -0.401629 0.070914 -0.566358 0.0749
DL_RPOLMON -0.116258 0.131074 0.124044 0.0920
R-squared 0.344125 Mean dependent var -0.050159
Adjusted R-squared 0.244750 S.D. dependent var 0.078813
S.E. of regression 0.068492 Akaike info criterion -2.383551
Sum squared resid 0.154810 Schwarz criterion -2.127619
Log likelihood 52.47925 Hanan-Quinn criter. -2.291725
F-statistic 3.462896 Durbin-Watson stat. 2.609412
Prob(F-statistic) 0.012629
Conclusions
Regression equation is:
FDI = 0.323664 − 0.319224 × EXR + 0.290612 × MSP + 0.411402 × GDP − 0.401629 × IFL - 0.116258 × MPR
The results are interpreted as follows:
- First of all, the value of 0.00026 for aggregated probability of explanatory variables shows that the
possibility that FDI flows are not at all influenced by changes in monetary policy instruments is
extremely small. This very low zero probability certifies us a link between FDI flows and monetary
policy decisions;
- The R-squared coefficient shows the explanatory power of the equation or in other words the
percentage of change in the value of foreign direct investment flow due to monetary policy decisions.
One can see that the monetary policy instruments influence the size of FDI in proportion of 34.41%. We
consider this percentage as a realistic one as we are aware that there are many other factors that influence
FDI in Romania.
518
- The coefficient of each instrument of monetary policy is also important. It can be seen as the
exchange rate and inflation adversely affect FDI flow size, thus increasing their values causes decreases
in the value of foreign investments in our country. For other instruments, the relationship is directly
proportional, namely an increase in money supply stimulates the growth of foreign investment flows with
29.06%. In this respect, an increase in money supply by one monetary unit, will determine an increase on
FDI flows by 0.099789 monetary units (the coefficient of 0.2906 multiplied by 0.3441 share of
influence).
- Also important is the negative coefficient of the monetary policy interest rate of 11.62% (0.1162)
that explained that an increase in the monetary policy interest rate by 1 percentage point, will decrease the
flow of FDI with 0.039984 monetary units.
The author considers the influences identified and quantified as accurate, giving reliability to this model.
Thus, these coefficients can be successfully used in the calibration of monetary policy decisions with the
purpose to attract foreign investment in my country.
A next step in my research will be the improvement of the model by adding to the regression equation
other categories of factors. Some of these factors could be from outside monetary policy influence such as
fiscal policy or fiscal incentives of FDI while others could be influenced by monetary policy decisions
such as interest rate of bank credit to private sector or gross fixed capital formation.
Fiscal policy has proven to be one of the most powerful tools to readjust macroeconomic developments.
Rejection by Parliament of the measures regarding the cutting of the fixed incomes such as public wages
and pensions led to an increase of consumption taxes, such as VAT and excises and put the Government
into a difficult situation in front of whole investor both domestic and foreign. Such type of measures has
had a negative impact on sales and profits, therefore on the intent of developing new production capacity
while so much touted measure of lowering costs of social insurance paid by employers, was not achieved.
Another theme of interest is the possible linkage between the interest rate of bank credit to private sector
and the FDI flows into Romania. Some Romanian economic analysts pointed out that there is little or no
influence of monetary policy interest rate on lending activity of commercial banks so that remains on a
negative path from one year to another. This new approach would increase the degree of explanation the
equation and allow use the new model in order to estimate the evolution of future FDI flows in Romania.
Endnotes
1. International Monetary Fund. (2009). Balance of Payments and International Investment Position
Manual. Sixth ed. Washington D.C. [Online]. IMF. [June 3, 2016] Available:
http://www.imf.org/external/pubs/ft/bop/2007/pdf/bpm6.pdf, p. 119
2. Chang, H.J. (2012) Samaritenii cei răi. Mitul liberului schimb și istoria secretă a capitalismului,
Polirom, București, p.88
3. Soubbotina, T.P. (2004). Beyond economic growth. An Introduction to Sustainable Development.

Second edition. WBI Learning Resources Series. The International Bank for Reconstruction and
Development/The World Bank. Washington D.C. [Online]. The World Bank. [June 3, 2016] Available:
http://www.worldbank.org/depweb/english/beyond/beyondco/beg_12.pdf, p. 83
4. International Monetary Fund. (2016). Glossary of Selected Financial Terms. Terms and Definitions.
Last Updated: October 31, 2006. Washington D.C. [Online]. IMF. [June 4, 2016] Available:
http://www.imf.org/external/np/exr/glossary/showTerm.asp#G
519
5. Copaciu, M. (2011). FDI Inflows in Romania. CEROPE. București. [Online] The World Bank. [June 4,
2016] Available: http://siteresources. worldbank.org/INTROMANIA/Resources/MCopaciu.pdf
6. Group of Applied Economics (2010). Reindustrializarea României: Politici și Strategii. Study

commissioned by the Ministry of Economy, Trade and Business Environment. GEA. București. [Online].
GEA. [May 25, 2016] Available: http://sar.org.ro/wp-content/uploads/2012/12/Reindustrializarea-
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7. Group of Applied Economics (2010). Reindustrializarea României: Politici și Strategii. Study

Romaniei-politici-si-strategii.pdf, p.23
8. The Foreign Investors Council (2015). Regaining momentum. FIC. Bucharest. [Online]. FIC.
[May 22, 2016] Available: http://www.fic.ro/Documents/view/White-Book-2015-English, p.6-11
9. World Economic Forum (2012). The Financial Development Report 2012. New York. [Online] WEF.
[May 23, 2016] Available: http://www3.weforum.org/docs/WEF_FinancialDevelopmentReport_2012.pdf
10. World Bank Group (2016). Doing Business 2016. Measuring Business Regulation. Washington.
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[June 15, 2016]. Available: https://www.imf.org/external/pubs/ft/scr/2015/cr1579.pdf, p.12-13
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Available: http://www.bnro.ro/Statistica-87.aspx
17. Institutul National de Statistica (2016). TEMPO-Online. INSSE. București. [Online]. INSSE.
[May 4, 2016]. Available: http://www.insse.ro/cms/ro/content/sdds
520
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521
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522
Further Professional Education Reflecting Market Needs In Gastro-

Services In The Czech Republic
Jan Chromy, Extrasystem Praha, Praha, Czech Republic, chromy.jan@gmail.com
Abstract
The paper introduces selected research results considering the impact of education level on the
unemployement rate in the Czech Republic and proposes possible solutions, particularly in gastronomic
services (gastro-services). Belonging to relatively prosperous market fields with good perspective, this
area provides fulfilment to professionals with different levels of education. The professionalism is highly
required that is why it should be developed within the further education system.
Keywords: professional education, education system, unemployement rate, gastro-services
Introduction
Identically to other fields, requirements on professional qualification of labour force in gastro-services are
steadily increasing. The labour market predominantly calls for qualified employees (Cech et al., 2015).
The reply to our research question whether the unemployement rate decreases in correlation to increasing
level of professional education can be found in the Czech Statistical Office databases.
In the second part of the research we focused of the question what the ways to increasing further
professional development are within the Czech education system with special focus on gastro-services. In
most countries this field belongs to relatively prosperous market fields with good perspective. We
researched whether there existed enough opportunities to further professional education in this area.
Correlation between the level of education and unemployement rate

In all fields the qualification requirements on labour force are increasing. Reflecting this fact more
employees enrol in formal and non-formal education (Infed, 2001), as proved by OECD researches which
detected the unemployement rate in correlation to the reached level of education (OECD, 2015). We
focused on eight states, including the Czech Republic (table 1, figure 1).
Table 1 : Structure of unemployment rates according to the level of education in 2014 (%)
Lower Upper Bachelor or Master or All levels of

secondary secondary equivalent equivalent education
Australia 7.0 4.6 2.7 3.9 4.5
Czech Republic 20.7 5.4 3.8 2.3 5.5
Germany 11.0 5.0 2.4 2.8 4.8
Slovak Republic 42.7 11.4 7.5 5.5 11.8
Spain 29.0 21.6 12.9 12.4 22.4
Sweden 11.7 4.6 3.8 3.3 5.8
United Kingdom 7.7 3.2 2.7 2.1 3.9
United States 12.5 7.2 3.9 2.6 5.8
OECD Average 12.9 7.5 5.6 4.5 7.3
EU21 Mean 16.3 9.0 6.8 5.2 9.0
(OECD, 2015, p. 92)
It is obvious that the level of education makes impact on the unemployement rate – the higher level of
education means the lower unemployment rate.
523
45
Unemployement rate in %
40
35 Lower secondary
30
25
Upper secondary
20
15
10 Bachelor or
5 equivalent
0 Master or
Sweden
Slovak Republic
Australia
Germany
United Kingdom
United States
Spain
OECD Mean
EU21 Mean
Czech Republic equivalent
All levels of
education
Figure 1 :Structure of unemployment rates according to the level of education, 2014 (%). (OECD,
2015)
The trends in the unemployement rates are displayed in table 2 and figure 2. They show that more people
with lower education are unemployed.
Table 2: Trend in unemployement rates according to the hoghest level of education (%)
1995 2000 2005 2010 2013

Primary and pre-primary 10.8 23.3 26.7 25.0 25.6
Lower secondary 3.8 8.9 8.9 8.5 8.4
Upper secondary 2.5 6.5 5.1 5.3 5.3
Bachelor, Master, or equivalent 1.2 2.9 2.3 2.8 2.8
Mean 4.0 8.8 7.9 7.3 7.0
(CSO, 2014)
524
30
25 Primary and pre-
Unemployement rate in %
primary
20 Lower secondary
15 Upper secondary
10 Bachelor, Master,
or equivalent
5 Average Mean
0
1995 2000 2005 2010 2013
Figure 2: Trend in unemployement rates by highest educational attainment (CSO, 2014)
Problem formulation
The field of further professional education in gastro-services in the Czech Republic is rather complicated.
The adult education is considered a process that is running all human lives and enables to keep all the
professional knowledge and skills on the level appropriate to the society development (Krpalkova
Krelova, 2015).
With respect to the economic development of the state, the adult education should be supported – only a
wide interdisciplinary education enables to participate in the world economic development and eliminate
negative socio-economic impacts of the individual (Chromý, 2016).
The National Strategic Framework 2007-13 (Národní strategický referenční rámec ČR 2007-2013) is one
of crucial documents focusing on European funds exploitation until 2013. This document highlighted the
unsufficiently developed system of further education in the Czech Republic which should prioritize
employees needs and adult education (MSMT, 2007).
This research focused on discovering the research question in what way the possibilities to reach further
professional education were changed in the Czech Republic with respect to the needs of an important
segment of gastro-services.
Problem solution
One of the first steps was to design and apply the National system of qualifications under the auspices of
the Ministry of Education. Primary, secondary, vocational schools and schools for learners with special
needs, and social partners of schools participated in the project as organizers of further education. The
main objective of the continual development of the project in 2015 was to provide qualifications on higher
levels, i.e. on the upper secondary and higher ones, reflecting the needs of labour market in the Czech
Republic. This form of further education is conducted in all types of schools, companies and other
organizations. The project provides a detailed overview of qualifications, including evaluation standards,
not only for interested persons but also for employers and educators. Reaching partial qualifications leads
to the full qualification. Having all certificates, the applicant can pass the appropriate final exam, e.g.
upper secondary school leaving exam or vocational school exam. The exam is considered equal to the one
reached in traditional form of education (NSK, 2012). An example from the field of gastro-services
follows (NSK, 2012):
525
Full qualification – means the capability to work on a certain position which requires a pre-defined level
of education … (e.g. candy-maker, cook, waiter etc.).
Partial qualification – means the capability to conduct a certain work activitiy which provides a certain
work fulfilment … (e.g. to produce ice-cream, prepare cold buffet, advanced guest service etc.).
Schools as centres of lifelong learning

Further on, other UNIV projects (Recognition of non-formal education results in school networks for adult
education) were conducted which focused on changing the upper (mainly professional) secondary schools
into open institutions – centres of lifelong learning which will actively support the lifelong education
concept (NUOV, 2012). To provide information to applicants, information systems were created which
are now available on web sites of single regions. This form summarizes the offer of further education
within the whole Czech Republic. The amount of schools included in the projects relates to the size and
amount of inhabitants in the region, as displayed in table 3.
Table 3 : Amounts of schools included in the UNIV 2 project
Region Schools (n) Region Schools (n)

Jihočeský 25 Pardubický 22
Jihomoravský 35 Plzeňský 26
Karlovarský 12 Středočeský 33
Královéhradecký 22 Ústecký 25
Liberecký 14 Vysočina 22
Moravskoslezský 36 Zlínský 25
Olomoucký 25 Total 325
(NUOV, 2012)
The main task of lifelong learning centres is to design three study programmes on further education as
minimum. The programmes are approved for four different groups: (1) tailored to employersńeeds, (2)
50+ years old applicants, (3) specializations not available in traditional education and (4) reflecting the
specialization of the school organizing the education. The programmes are based on key competences,
which enables the development of further education reflecting the labour market needs (Krpálek, 2015).
Providing the sufficient, understandable and clear information is a crucial aspect of the process of adult
education development. The UNIV project provides programmes in the form of information web pages in
regions where networks of schools participating in the project have been created.
To reach the objectives in the further education development a quality campaign through masmedia and
offices is necessary which focuses on various groups of inhabitants (upper secondary and university
graduates, the unemployed who are going to work and succeed on the labour market etc.). The campaign
is supported by the European Social Fund and Ministry of Education, Youth and Sports of the Czech
Republic within the UNIV project.
Table 4 displays a list of selected important courses in the field of gastro-services. The interested in the
further education can get information about the courses and qualification from web pages.
526
Table 4 :Selected important courses and their providers in the field of gastro-services
Course Provider
Secondary and higher professional school of tourism,
Modern gastronomy for everybody
České Budějovice
Secondary professional school and secondary
Gastronomy from od A to Z
vocational school of business and services, Chrudim
Modern gastronomy
vocational school, Polička
Different gastronomy
vocational school, Polička
Josefa Sousedík Secondary professional school,
Home-made sweets and family parties
Vsetín
Secondary school of gastronomy and services,
How to prepare Short Orders
Liberec, allowance organization
How to increase the qualification of
staff in business, services and Secondary professional school, Luhačovice
gastronomy
Gastronomy and tourism – cook the Secondary school of services and tourism, Varnsdorf,
beginner allowance organization
Gastronomy and tourism – cook, Secondary school of services and tourism, Varnsdorf,
intermediate level allowance organization
Secondary school of hotel business and
Complex guest service
entrepreneurship, Hronov
Integrated Secondary School – Centre of Practical
Education in the field of cold buffet Training (ISS - COP) and Language school ,
Valašské Meziříčí
Educational programmes in
Secondary trading school, Sokolov
gastronomy
Labská hotel secondary and vocational school,
Preparation of warm dishes
Pardubice
Introduction to gastro-skills Hotel school, Mariánské Lázně
(http://www.vzdelavaniaprace.cz/oProjektu.html)
Further educational organizations

Various educational activities are now available in the field of gastro-services, particularly towards
reaching additional knowlegde and professional skills, or both – schools, training programmes, culinary
institutes or cookery, barkeeping, sommelier courses etc. All these activities are held for both the
professionals and the public (Dvořáček, 2016). As a sample – the Prague Culinary Institute (Prakul) offers
courses in many professional categories conducted by home and foreign professional lecturers and chefs.
The main topics are e.g. new trends in gastronomy, courses dealing with enology a sommeliering. Gastro-
services are a very wide field, e.g. for F&B managers, who can attend courses of ethics and etiquette and
participate in other educational activities (Prakul, 2012).
Numerous courses are held by professional schools in co-operation with gastronomy associations. Course
graduates receive certificates recognized by appropriate professional association, e.g. managerial courses
(both general and specialized), gastronomy for professional public (molecular gastronomy, sommeliering,
barkeeping or barista courses), gastronomy for public (cookery courses focused on national cuisines,
preparation of festival tables, dining etc.), specialized courses for pro lower level managers and staff,
language courses specialized in communication in hotels and restaurants.
527
Discussion
The field of providing gastro-services has been intensively developing. The quality of professional schools
is mainly evaluated according to the success on the labour market of their graduates.
Within the curricular reform changes were introduced in the education concept of secondary professional
schools. The Framework Education Programmes made strong impact on the structure of professional
schools which can design their own educational programmes in accord with the study programmes
(specializations) they teach (Krpálková, 2015).
When considering the quality of professional education of the staff in gastro-services, the main criterion is
the professional qualification. The continual increasing of requirements on the qualification results in
wider and deeper learning content from the view of accepting new trends in all related fields. Qualification
requirements are part of single qualifications which are mainly defined by the employers. Schools provide
qualifications in the form of key and professional competences as final objectives/outputs of the
educational process. If we evaluate the role of key competences in the professional education with focus
on the field of gastro-services, we can conclude that each applicant for a position in this field should have
both the key and professional competences. To acquire them results in personal development of graduates
which should be prepared for the profession, and at the same time they realize the need for lifelearning to
succeed both on the labour market and in the society.
It was discovered by comparing the professional competences in two most frequently taught specialization
Cook – Waiter and Hotel Services that some of professional competences are identical for both
specializations, particularly knowledge and skills relating to the safety and health protection, keeping the
norms, instructions and technological procedures. Reflecting the last competence dealing with the strategy
of sustainable development, the graduates of both specializations should apply activities with respect to
economy, including environmental fields arising from global problems of the current world.
Conclusion
Courses for the development and spreading the professional education of staff in gastro-services non-
reflecting the acquired level of professional education are of special importance. Each professional longs
for further education, which leads to increasing the competitiveness of the labour market. The quality of
organizations providing the professional education is steadily increasing and the development of the
further education system is supported.
Considering the research results, following recommendations can be proposed:

To devote maximum support to formal and non-formal education, particularly to motivation aspects in all
forms with the educated and educators.
To continue the development of further education, mainly from the legal side.
To provide financial support to the school equipment.
To develop the co-operation of schools with social partners.
References
Cech, P., Koklarova, B. and Cechova, I. (2015) Professional education in different specializations.
Conference: Proceedings of the 8th International Conference of Education, Research and Innovation
(ICERI) ISBN 978-84-608-2657-6. 16-20 November 2015, Seville, Spain, 6771-6780.
Chromy, J. (2016) Motivační aspekty a jejich bariery při studiu odborných škol [Motivation aspects and
their barriers in studying secondary professional schools]. Media4u Magazine, vol. 13, No. 2 [Retrieved
July 1, 2016] http://www.media4u.cz/mm022016.pdf
Czech Statistical Office (2014) Unemployment rate by age and highest educational attainment. Czech
Statistical Office, Prague. https://www.czso.cz/csu/czso/250130-14-r_2014-40300.
528
Dvořáček, J. (2016) Význam autoevaluace pro práci škol [The importance of autoevaluation in the school
practice]. Media4u Magazine, vol. 13, No. 1 [Retrieved July 1, 2016]
http://www.media4u.cz/mm012016.pdf
INFED (2001) What is non-formal education? INFED [online], [Retrieved Juny 2, 2016]
http://infed.org/mobi/what-is-non-formal-education/
Krpálek, P. (2015) Podpora rozvoje podnikavosti ve výuce podnikové ekonomiky. Případová studie z
pedagogické praxe VŠO v Praze, o.p.s. [Support to entrepreneurship development in the company
economy. Case study of VŠO Prague, o.p.s.]. Media4u Magazine, vol. 12, No. 4, [Retrieved July 1, 2016]
http://www.media4u.cz/mm042015.pdf
Krpálková Krelová K. (2015) Možnosti využitia simulácie v príprave budúcich učitelov [The exploitation
of simulation in pre-service teacher preparation]. Media4u Magazine, vol. 12, No. 4, [Retrieved July 1,
2016] http://www.media4u.cz/mm042015.pdf
MSMT (2007) Strategie celoživotního učení v ČR. MSMT [Strategy of lifelong learning in the Czech
Republic]. [online], [Retrieved May 12, 2016] http://www.msmt.cz/vzdelavani/strategie–celozivotniho–
uceni–cr
NSK. (2012) Národní soustava kvalifikací NSK. NUOV [National system of qualifications]. [online],
[Retrieved Juny 1, 2016] http://www.nsk.nuov.cz/
NÚOV (2012) O projektu UNIV 2 KRAJE [On the UNIV 2 KRAJE project]. NUOV [online], [Retrieved
May 14, 2016]. http://www.nuov.cz/univ2k/projekt
NÚOV (2012) Rozvoj a implementace NSK: Uplatnění NSK [NSK development and implementation].
NUOV [online], [Retrieved May 18, 2016]. http://www.nuov.cz/nsk2/okoli–projektu
OECD (2015), Education at a Glance 2015: OECD Indicators, OECD [online], [Retrieved May 1, 2016]
http://www.oecd.org/edu/education-at-a-glance-19991487.htm
PRAKUL - Pražský kulinářský institut (2012) O institutu [Prague culinary institute]. PRAKUL [online],
[Retrieved May 16, 2016] http://www.prakul.cz/o–institut
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Code of Ethics and Accountants’ and Auditors’ Activity

Natalya Frolova, branch of Tyumen State University in Nizhnevartovsk, Russia, nat68366847@yandex.ru
Svetlana Danilova, branch of Tyumen State University in Nizhnevartovsk, Russia,
svdanilova@lenta.ru
Abstract
The article gives the view of certain regulations in the Code of ethics of accountants and auditors. To
justify the approach we have comparatively analyzed the basic principles of the Code and ethic
regulations of the commonly accepted business communication including regulations of the Russian
business culture. The main conditions of threat emergence in activities of accountants and auditors have
been pointed out. There have been systematized the basic options how to minimize the threats in
accountants’ and auditors’ activity. The research is based on Codes of ethics of professional accountants
and auditors approved by Institute of professional accountants of Russia and NP Chamber of Professional
Accountants and Auditors. There has been made the conclusion that the Code of ethics of professional
accountants and auditors is an internal document for members of professional accounting and auditor
associations without special legal status.
Keywords: auditor, accountant, ethics of business communication, principles of professional behavior,

Code of ethics of accountants and auditors.
Introduction
In the last decade professional activities of certain employee categories, especially activities connected
with communication, financial transactions, publicity and increased legislative regimentation, have given
birth to certain Codes of professional behavior (Codes of ethics). However, professionals have formed
their own conclusions that these documents are, for the most part, fictions, as no competent specialist
aiming to keep and approve their own business reputation will break generally accepted standards of
morality and ethics of business behavior. Over time the commonly accepted regulations of ethics and
morals fixed originally in the majority of world religions, and then in legal acts with prospect to receive
penalty both in "the future life" and in present, began to be transformed into business environment. There
is business ethics and professional culture, regulations which extend to business communication and
behavior in the professional environment.
Principles of ethics in business communication and forms of violation of business ethics
In the table below we have tried to show the principles of business culture, particularly, commonly
accepted principles of ethics in business communication opposed to the forms of violation of business
ethics:
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Table 1: Principles of ethics and forms of their violation
Commonly accepted principles of ethics Forms of violation of business

in business communication ethics
Legality Racketing
Statehood Corruption
Charity (social responsibility) Coercion
Business obligation Violation of contractual
commitments
Perfect structuring of economic Informal communication, nepotism
transactions
Motivations, perfect job management Irregular working hours, lack of
privileges and bonuses
Respect for the partner Disclosure of confidential
information
Weak religious expressiveness Religious (cultural) oppression
Education Illiteracy
Official clothes style Informal clothes style
Internal regulations of business behavior Absence of hierarchy,
and communication subordination, "domesticity" in
relations
Public, social or financial professional activity imposes additional working conditions on certain
categories of professions, and they started to appear in Codes of professional behavior or Codes of
business ethics, as economic, political, and legislative regulations are becoming complex and
transformed.
In our opinion, the code of ethics of accountants and auditors represents the act of financial law with
advisory nature. The Code does not possess absolute legitimacy as the majority of regulations stated in
the Code are rather conditional and their interpretation depends only on personal responsibility of a
certain accountant (auditor).
Principles of professional behavior of accountants and auditors

We will dwell upon provisions of the Code of ethics of accountants and auditors and compare the
principles of behavior of accountants and auditors with the commonly accepted principles of ethics of
business communication:
Table 2: Principles of professional behavior of accountants and auditors
Principles of behavior of accountants Commonly accepted principles of

and auditors ethics in business communication
Honesty Legality
Objectivity Perfect structuring of economic
transactions
Professional competence and due care Business obligation
Business obligation Violation of contractual
commitments
531
Perfect structuring of economic Informal communication, nepotism

transactions
Confidentiality Respect for the partner
Respect for the partner Disclosure of confidential
information
Professional behavior Internal regulations of business
behavior and communication
There are threats in professional activity of any specialist. The extent of threats depends on the
performance, personal qualities, and competence, that is, not only accountants and auditors have
professional threats. These threats correspond to any violations of business ethics.
However, the Code of ethics of accountants and auditors has a distinctive feature. It is necessary to pay
attention to the real examples of threat emergence. The examples of threat emergence circumstances
considerably help to minimize breaches from the principles of behavior of accountants (auditors), but it
depends on a certain accountant (auditor) whether to accomplish or considerably violate these principles.
Circumstances of violation of accountants’ and auditors’ professional behavior
The circumstances of violation professional behavior of accountants’ and auditors’ professional behavior
are shown in the table below:
Table 3: Potential hazards to violate the principles of behavior

and circumstances of threat emergence
Potential hazards to Circumstance of threat emergence

violate the principles of
behavior of accountants
and auditors
Threats of personal interest - financial interest (the size of salary,
encouragement, fee, credits or guarantees);
- the opportunity to receive or lose a job, a client;
- pressure from outside.
Self-checking threats - finding a mistake when rechecking work of the
accountant (auditor), confirmation of opinion of an
accountant (auditor) on work;
- rendering service to the client, preparation of the
necessary data;
- the accountant (auditor) was employed or was an
official, which exerted impact regarding work;
- preparing the decision on financial systems which
the accountant (auditor) developed or implemented.
Protection threats - promoting the listing company’s shares if this
organization is the accountant’s (auditor’s) client;
- acting as the client's defender when checking in
case of trial or dispute with the third party.
Threats of close - the accountant (auditor) is in close relationship the
acquaintance official (worker) of the client;
- the former colleague of the accountant (auditor) is
an official (worker) of the client;
- getting gifts by the accountant (auditor) (other
532
manifestations of special attention from the client);

- long business relations between the accountant
(auditor) and the client.
- the accountant’s (auditor’s) relatives are
interested in receiving certain benefits from the
client.
Blackmail threats - threat of dismissal, discharge from task
performance for the client, initiation of legal
proceeding;
- pressure from the client for the purpose to
decrease the amount of the performed works so that
to reduce payment amounts for a task;
- disagreements concerning conducting financial
accounting, financial reporting which can entail
dismissal or transfer to a subordinate position;
- pressure upon the accountant (auditor) for the
purpose to render influence on process of their
making decisions.
The circumstances of threat emergence provoking violation of ethical principles in the accountant’s
(auditor’s) activities are caused by features of the carried-out professional obligations, amount of
competences, depth of own knowledge, personal characteristics. It is natural that the Code gives the
generalized and most probable cases of threat manifestation. Their real properties and impact force, first
of all, depend on the performed task, the client and the accountant (auditor). For example, certain options
of threat emergence circumstances, which are not mentioned in the Code, can be:
- Threats, pressure from the client through a relative, which can lead to the relative’s dismissal or
decrease of their income size;
- Increase of the task amount stipulated by the agreement, which has led to breaches of deadlines;
- The client conceals real conditions of their economical provision and failed to execute financial
liabilities on a task, etc.
Options to minimize threats
Besides the above-given examples of threat emergence in Codes, we have structured the options to
minimize threats in the table below:
Table 4: Options to minimize threats
Groups of precaution Options of precaution measures

measures
General measures relating - managing the accountants’ (auditors’)
to the accountant’s organization paying attention to the basic principles
(auditor’s) activities of professional ethics;
- managing the accountants’ (auditors’)
organization for the public good;
- making "transparent" rules to monitor procedure
and checking quality of task performance;
- documentary registration of rules identifying
violation threats of ethic principles and
implementing measures for their reduction;
533
- documentary registration of rules and procedures

to identify relations between accountants (auditors)
and clients;
- documentary registration of rules and procedures
to see how the accountant’s (auditor’s) income
depends on a certain client;
- involving third-party accountants (auditors) to
render to the client the services which are not
connected with the main task;
- documentary registration of the rules prohibiting
to the persons not responsible for a task to influence
results of a task;
- availability of the disciplinary tools stimulating
observance of rules and others.
Specific measures relating - obligatory independent examination by a third-

to the accountant’s party accountant (auditor) of the performed work
(auditor’s) task (task) results;
- consultation given by a specialized monitoring
body or a third-party accountant;
- discussion of ethical problems with the client's
management;
- involvement of a third-party accountant (auditor)
to accomplish part of a task in case there is a lack of
own competence;
- staff rotation in the accountants’ (auditors’)
organization responsible for a task.
Conclusion
Prospects of efficient application of the Code in modern economy are seen to be rather limited,
and more depend on level of competence and law-abidingness of a certain specialist in financial
accounting and audit since there is no the administrative, criminal or civil responsibility for
violation of regulations of the Code. The accountant (auditor) risks only one’s own reputation
and can be subject to authority punishment.
References
Zagorskaya, L. (2012). Professional ethics and etiquette: education guidance. NGTU,

Novosibirsk.
The code of ethics of professional accountants-members of Institute of professional accountants

of Russia. [Accessed 01.08.2016]. Available URL:
http://www.consultant.ru/document/cons_doc_LAW_76749/
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The Ethical Consumer’s Behavior in Romania and Bulgaria:

An Exploratory Research
Adela Coman, University of Bucharest, Bucharest, Romania,
adela_coman2003@yahoo.com
Virginica Rusu, University of Playa Ancha, Valparaiso, Chile

virginica.rusu@upla.cl
Valentin Mihai Leoveanu, University of Bucharest, Bucharest, Romania,

valentin.leoveanu@faa.unibuc.ro
Abstract
The ethics of the consumption behavior was in the past a neglected and marginalized domain, rather than
an important subject meant for studying. Consumers were questioned especially with regard to their
opinions as to business ethics and less as to the ethics of their consumption behavior. This study focuses
upon the ethics of students’ consumption behavior from a comparative perspective: the students from the
Faculties of Business and Faculties of Medicine from Romania and Bulgaria. The results of the analysis
indicate the fact that there are no significant differences as to the ethical buying behavior between the two
groups of students from the two countries. Moreover there are no significant differences between the
students of the two approached majors in Romania and Bulgaria. Despite all these, our research proves
that when faced with real shopping situations, most students have the tendency of acting unethically,
using different types of pretexts („super-stories”) in order to justify their “sideslip” from the declared
behavior. This mismatch between the declared behavior and the real behavior can be explained by means
of social factors. In other words, in our case, theoretical education, information and the students’ efforts
to behave ethically as consumers seem to be highly undermined by the realities of the standard of living,
expressed through their families’ level of income.
Keywords: the ethics of consumer behavior, super-stories, family income
Introduction
Ethical consumption has become an important subject approached both in the written media and in
academic reviews (Crane & Matten, 2004; Vitell & Muncy, 1992). Aspects such as using child labor in
developing countries or the impact of production and consumption upon the environment seem to affect
the buying decisions process of consumers throughout the world (Auger et. al., 2003; Creyer & Ross,
1997; Elliott & Freeman, 2001). This change in the behavior of consumers has profound implications for
the managers and may influence their decisions as regards the choice of a location for their production
facilities, the human resources policies within the company and the role of ethical corporate business
practices.
Despite the ever increased attention for issues related to ethical consumption during the past years, the
data regarding its importance are at best contradictory. For example a study undertaken by Market &
Opinion Research International (MORI) shows that over one third of the British consumers were
concerned about ethical issues (Mason, 2000). The same study suggests that the potential for ethical
products in the UK could be of 30% of the market of staple products. Another study undertaken by
Corporate Edge shows even more attention and importance given to ethical behavior in the sense that
57% of consumers state that they would no longer buy a product if they knew that that product was done
by children or women, under improper conditions (Rogers, 1998).
535
On the other hand, other researchers suggested that the consumers’ opinions do not seem to be translated
into a change of their buying behavior (Carrigan & Attala, 2001). This suggests the fact that there seems
to be some incongruity between what consumers say as regards the importance of the ethical issues and
what they do when they are in a shop. This incongruity determined certain researchers to believe that
research of the ethical consumption is not reliable (Ulrich & Sarasin, 1995).
These issues even made certain researchers suggest that it might be opportune to take into consideration
this incongruity between attitude and behavior – an incongruity with a high impact upon ethical and
social issues which affect the buying decisions (Boulstridge & Carrigan, 2000; Carrigan & Attala, 2001;
Simon, 1995; Ulrich & Sarasin, 1995). In other words, consumers declare in market surveys that ethical
and social issues are important but they do not change their buying behavior accordingly.
The inconsistency between statement and deed seems to be particularly obvious amongst students, a
social category who has always played an active role in the development of a society’s consciousness
related to such issues as environment protection or women and children exploitation in developing
countries. As a consequence, several studies have been designed with the aim of deciphering their
attitudes and behaviors as to issues that society considers sensitive. Moreover, the fact that students will
be the ones who will manage and consume the current and the future resources of this planet was an
efficient incentive for this type of research.
Some of these researches have shown that direct economic consequences, such as paying a lower price
when buying a product, influence the degree of tolerance in consumers, and in students in particular, as
regards the equivocal behavior, arguable from an ethical perspective (Dodge, Edwards and Fullerton,
1996). A study undertaken by Bloch, Bush and Campbell (1993) showed that, generally, consumers will
choose a counterfeit product over an original one when there is a price advantage in question. Even
though counterfeit products compromise quality, consumers are willing to ignore this drawback as long as
they save some money. This does not mean that all consumers buy counterfeit products but merely that
amongst those who buy counterfeit products there exist differences as to the frequency of acquisitions and
differences as to the importance or degree of satisfaction generated by the characteristics of the product,
depending on the class of products to which it belongs (Gail, Garibaldi, Zeng, Pilcher, 1998).
Both consumers who buy counterfeit products consciously and those who do not buy them at all agree
upon the fact that these cause damage to companies producing original products. Price is nevertheless of
huge importance in the sales of counterfeit products. This is why consumers, when making decisions,
weigh their financial gain on the one hand, and the benefits they expect from the specific product on the
other hand (O’ Shaughnessy, 1987, McGregor, 2007).
Literature Review
Researches regarding consumer ethics are few. Some authors empirically analyzed specific consumer
behavior with ethical implications. The most researched domains are shop-lifting (Kallis et al., 1986;
Moschis & Powell, 1986) and ecologic consumption (Antil, 1984; Haldeman et al., 1987). Other authors
focused on behavior codes dealing with ethics issues, needed by consumers and businessmen. For
example, Stampfl (1979) developed a code of ethics for consumers, while Schubert (1979) described a
number of strategies useful in preventing the abuse that sometimes consumers face in the marketplace.
Other authors created a conceptual and empirical basis for the understanding of the consumer decision
making process. Thus Grove et al, (1989) designed a model based on the neutralization techniques
developed in sociology by Sykes and Matza (1987) who helps us understand the way people justify their
unethical behavior. Amongst these techniques we can mention: not assuming responsibility, not accepting
the existence of any damage, not admitting the existence of a certain victim or the appeal to superior
536
loyalties. Given the scarcity of research in this domain, the neutralization techniques seem able to shed
some light upon the study of the ethical consumption behavior.
In the literature dedicated to this issue there exist three empirical studies which analyze the consumer’s
ethical rationalizations. The first is Davis’ study (1979), who analyzes to what extent people are willing to
assume responsibility, in relation to the rights they have as consumers. The study shows that individuals
are bound to claim their rights as consumers rather than assume the responsibility incurred. More
specifically, 95% of the individuals accept the rights, while only 74% accept the incurred responsibilities.
In a similar study, DePaulo (1987) researched the students’ perceptions as regards the wrong buying
behaviors. Some of the situations presented to the interviewed individuals referred to the shop-assistants’
behavior and others focused on the consumers’ behavior. Thus pairs of behaviors were created, which
were conceptually similar, but which were different from the perspective of the individual engaged in an
unethical behavior, namely the shop-assistant or the buyer. According to Davis (1979), the interviewed
individuals were more critical with respect to the shop-assistant when these engaged into unethical
behaviors, and less critical with respect to consumers when these engaged into the same kind of
(unethical) behaviors.
Wilkes’ study (1978) analyzes the rationalizations of consumers regarding the extent to which a certain
type of behavior is considered “wrong” from their point of view. Despite the fact that there exist statistics
regarding the unethical or fraudulent consumption behavior, Wilkes’ study is the only one which analyzes
the individuals’ perceptions as regards these habits. Although certain fraudulent behaviors were
condemned less than others, most of these activities were perceived as being “wrong”. Relatively few
behaviors were perceived as being acceptable/tolerable. These “points of tolerance” seem to be linked to
those “blamable” behaviors in which the guilt is of the business environment rather than of the consumer.
The consumers’ ethical decisions gain moral motivation especially when one considers that a consumer’s
actions carried out in total freedom affect the wellbeing of others (Izzo, 1997). The ethical issue gains in
magnitude when the consumers’ wrong/unethical decisions harm other people (Jones, 1991). But
common people cannot become aware of such issues if they do not perceive consumption as having an
imperative moral accent. Unless people incorporate moral ideals (honesty, equity, fairness) into their own
identity, they will not feel tempted to perceive consumption as having a moral imperative (Moisander,
1998). This deficiency explains why people will not perceive themselves as being sensitive from an
ethical point of view, capable of discerning at a moment when a certain issue requires the application of
ethical principles and moral ideals. Practically, the moral imperative should become an integral part of
their selection criteria (McShane & Travaglione, 2005; McGregor, 2005).
In order that people should be able to make an ethical decision, they have to relate to a behavioral norm
or rule that they can use as benchmark. Secondly, people have to be aware that their decision will affect
others, whether employees, producers or consumers, sometimes with unexpected consequences. Thirdly,
people have to accept and assume the responsibility for the moral issue and the prejudice they create
(Schwartz, 1977).
If these conditions are not met, the idea of buying while assuming a certain moral conscience is
compromised, because the absence of these conditions means that consumers are unable to recognize the
moral side of their buying decisions. Cowe and Williams showed that only 17% of the interviewed
consumers declared that they felt guilty when they purchased a product that did not meet the principles of
ethics. In other words, 83% never felt guilty when they bought something without even considering the
potential damage caused to others.
537
This observation can have profound implications. Research has shown that the moral intensity of a certain
issue, correlated with the ethical intentions of a certain individual, influence the (ethical) decision making
process. Ballantine (2000) cites 7 studies undertaken in the ’90, all in support of this idea.
Izzo (1997) also approached the issue of moral intensity within the buying decision. According to Izzo,
moral intensity reflects the degree to which the consumer perceives the necessity of observing ethical
principles when shopping. The perceived level of moral intensity affects that individual’s evaluation of
the ethical content of a certain buying situation. Izzo also states that while some buyers are very sensitive
as to the buying decisions with ethical content, others must experience a shock before they react. This
lack of sensitiveness is more likely to appear if the society did not assimilate a set of principles according
to which ethical shopping represents the desired and expected behavior.
Next we wanted to analyze the ethical behavior of students from Romania and Bulgaria. We were equally
interested in the manner in which students define their own ethical behavior, using the answers provided
in our questionnaire, and in the motivation that could determine them to make unethical decisions once
they arrive in the shop.
Objective of the Research

Studies undertaken so far prove that, generally speaking, there exist differences in terms of behavior and
ethical and/or unethical attitudes amongst the undergraduate students. Yet the aim of our study was to
find out if, according to the things declared in surveys, there exist differences between the buying
behaviors and attitudes of students matriculated in two different majors - Business and Medicine – in
Romania and Bulgaria. On the other hand, we wanted to see if certain social and economical
characteristics (such as the level of income of the families from which these students originate) affect in
some way the ethical behavior declared (in surveys) as compared to the real behavior (in shops) of the
students from the two countries. We are thus trying to explain the differences between declarative
attitudes/behavior and the real behavior of Romanian and Bulgarian students.
Thus we tried to find answers to the following questions:
1. Are there any significant differences between the ethics of shopping for students in Romania and
Bulgaria?
2. Is there any significant difference in the ethical behavior of students enrolled in different faculties?
3. Is there any difference in the buying behavior of the students due to differences related to the family
income?
4. What are the main excuses/claims that students make in order to reconcile their behavior with their
actions?
There is one thing worth mentioning as to the two countries approached in this study: in 2010 Romania
and Bulgaria had the lowest GDP per capita in the European Union, by 55% below the average in the
European bloc. The standard of living in Romania and Bulgaria dropped in 2010, the GDP per capita
falling farther away from the European average (EUROSTAT, 2010). The two countries had the lowest
standard of living in 2011 as well. In 2015, Bulgaria was the member-state with the lowest per capita
GDP expressed in PPS, at 54% below the EU average. At short distance, Romania surpassed its neighbors
in the south with a GDP per capita of less than 50% as compared to the European bloc. Thus we can
speak about a relatively similar standard of living in the two countries (EUROSTAT, 2015).
538
3. Data and methods
3.1. Sample profile
Overall, there were 542 participants in the study, Romanians and Bulgarians in equal proportion. 52% of
the 542 respondents were male, 48% were female and 86% were not married. Of the 271 Romanian
students, 135 were students at the Faculty of Administration and Business, and 136 were students at the
Faculty of Medicine in Bucharest. Bulgarian students were selected similarly, i.e. 135 students from the
Faculty of Business in Sofia and 136 students at the Faculty of Medicine in Sofia. Both students in the
business faculties and students in medicine were in the second year, at bachelor level, with ages ranging
between 19 and 22.
3.2. Methodology
Our research was carried out in two stages. During the first stage we tried to answer the first two
questions, i.e. whether there are significant differences between the buying behavior of Romanian and
Bulgarian students from an ethical point of view, and if there exist differences between the students of the
two majors.
In order to gather information we designed a questionnaire which was submitted to a group of 271
students from the two capital cities – Bucharest and Sofia. Every student was asked to fill in the
questionnaire containing 8 statements. The Likert scale was used, and the students who answered
„Strongly Agree” got 5 points, those who answered „Agree” got 4 points and so on. Given the negative
meaning of questions 3 and 4, the scale was reverted for these, i.e the students who answered „Strongly
Agree” got 1 point, those who answered „Agree” got 2 points and so on. For every statement 4 results
according to the four majors were calculated.
In order to see whether there are any significant differences between the ethical behavior of students from
the Faculty of Business and the behavior of students from the Faculty of Medicine in both countries, we
applied the t (Student) test for differences between two means, for independent samples, assuming there
are equal dispersions (variations). The F (Fisher) test proved that the samples were taken from
populations with equal dispersions. The chosen significance level was 0.05.
During the second stage we wanted to find out whether there are significant differences between the
students’ declared behavior and their real ethical behavior, caused by their family’s income. Question 4 is
correlated to this; with question 4 we wanted to identify the main excuses/pretexts students use when they
want to justify their unethical buying behavior often noticed in shops.
To this end the students were presented three scenarios, imagined by researchers, and were asked to
imagine they are in a store, about to make a decision with regard to the purchase of a certain product
which was the topic of one of the three scenarios.
One scenario involved buying counterfeit products, one involved purchasing products manufactured
under women/children exploitation conditions and the final scenario involved a product that was
potentially harmful to the environment. Scenarios were rotated within each group of respondents
(Eckhardt, G. M. et al, 2010).
Surprisingly, the students chose to express their intention of buying at least one “dubious” product, i.e.
they would buy either a counterfeit product, or a product produced under improper working conditions by
women or children from the third world, or a product harmful for the environment, using quite some
“stories” in order to justify their option.
539
We called these answers „super-stories” because they explain the reasons for the differences between the
students’ declared behavior and their real one, obviously unethical. The “stories”/pretexts are common to
both Romanian and Bulgarian students, irrespective of their major.
Then we grouped these 8 „super-stories” into 3 categories: „super-stories” which mention the price as the
determining factor in the purchase, irrespective of the origin of the products (PRICE); „super-stories”
whose underlying principle is the fact that counterfeit products, those that contribute to the degradation of
the environment or those produced through the exploitation of women and children represent a feature of
developing countries and that, as long as the production of these products generates jobs, nothing else
should matter (DEV). Finally, there are those „super-stories” according to which the government and
public institutions should take measures and prevent the access of “dubious” products into the
marketplace, which practically exonerates the individual from any responsibility (INST). The 8 „super-
stories” are presented in annex 2.
Then we tried to find out whether there is any association between the type of „super-story” used (the
central element being the “price” factor, the “development” factor and the “institutional” factor) and the
type of income the student had.
To this end, the data were grouped into 3 categories: students whose parents earn between 300 and 500
Euro, students whose income per family is between 500 and 700 Euro, and students whose family income
is more than 700 Euro per month. The data were structured as contingence tables.
Test chi-square was then applied. It allows the evaluation of the significance of the differences among the
sub-groups of the sample. Low values of the test mean concordance among the sub-groups, and high
values mean discrepancy among the analyzed subgroups.
4. Discussion and results
For all of the 8 statements of the questionnaire 4 results were calculated: one for the students from the
Faculty of Administration and Business from Bucharest (FAA-B), one for the students from the Faculty
of Medicine in Bucharest (Med B), one for the students from the Faculty of Business in Sofia (Buss S)
and one for the students from the Faculty of Medicine in Sofia (Med S). According to the data centralized
in table 1, one can notice that there are no significant differences between Romanian and Bulgarian
students as to the ethical buying behavior. For this we used test t (Student) for differences between two
means, considering independent samples, assuming there are equal dispersions. The average result
obtained for the students from the Business faculties from the two countries for the 8 statements was 2.89
for the Romanian students and 2.97 for the Bulgarian students. The applied t test confirmed that the null
hypothesis according to which there are no significant differences between the ethical behavior of
Romanian and Bulgarian students from the Business faculties can be accepted (tcalculated = -0.4<1.76 =
ttabular and the value of p is 0.34).
As for the students in Medicine, the average result obtained was 2.88 for the Romanian students and 2.97
for the Bulgarian students. The t test also confirms that there are no significant differences between the
ethical behavior of students in Medicine from the two countries (tcalculated = -0.51<1.76 = ttabular, and the
value of p is 0.30 ).
540
In both cases the number of degrees of freedom was 14, and the level of significance was 0.05.
Table no. 1 Results of the t test for Business and Medicine students in Romania and Bulgaria
Item FAA-B Med B Buss S Med S

1 3,09 2,83 3,05 3,03
2 3,54 3,15 3,19 2,86
3 2,45 2,84 2,81 3,16
4 2,34 2,70 2,82 2,59
5 3,13 3,24 3,38 2,94
6 2,37 2,54 2,61 2,36
7 3,59 3,45 3,35 3,71
8 2,61 2,35 2,60 2,24
Total 23,12 23,10 23,81 22,87
Average 2,89 2,8875 2,97625 2,85875
The questionnaire with the questions the students were supposed to answer is presented in annex 1.
The analysis of the data presented in table 1 also supports the idea that there are no significant differences
between the students of the two majors either, in both countries. As regards the Romanian students, the
average result obtained for the 8 statements was 2.89 for the Faculty of Business and Administration
(FAA –B) and 2.8875 for the Faculty of Medicine (Med B), i.e. practically equal results. The applied t
test confirmed that the null hypothesis according to which there are no significant differences between the
ethical behavior of the students from the two majors in Romania (tcalculated = 0.011<1.76 = ttabular and the
value of p is 0.49).
As regards the Bulgarian students, the average result obtained was 2.97 for the students from the Faculty
of Business (Buss –S) and 2.85 for the Faculty of Medicine (Med S) from Sofia. The t test also confirmed
that there are no significant differences between the ethical behavior of the students from the two majors
(tcalculated = 0.14<1.76 = ttabular, and the value of p is 0.44 ).
In both cases the number of degrees of freedom was 14, and the level of significance was 0.05.
From the analysis of the data gathered one can notice that there are associations between the group of
income to which the student belongs and the pretext used by that student in order to justify his/her
unethical consumption behavior in both countries.
For this the following 3x3 contingency tables were used:
541
Table no. 2 Romanian students’ super-stories and the family’s income

PRICE INST DEV Total RO
300-500 45 18 27 90
500-700 9 6 3 18
700- 3 9 7 19
Total 57 33 37 127
The analysis technique used was the χ2 test. For 4 degrees of freedom and a level of significance of 0.05,
the tabulated value of χ2 is 9.48, and the calculated one is 10.24. Since χ2 calculated > χ2 tabulated, the
null hypothesis according to which there are no associations between the two variables (pretext and
income) for Romanian students is rejected.
Table no. 3 Bulgarian students’ super-stories and the family’s income
PRICE INST DEV Total BG

300-500 82 17 27 126
500-700 12 4 2 18
700- 5 8 11 24
Total 99 29 40 168
As regards the Bulgarian students, for 4 degrees of freedom and a level of significance of 0.05, the
tabulated value of χ2 is 9.48, and the calculated one is 57.44. Since χ2 calculated > χ2 tabulated, it is
confirmed that there exist associations between the two variables, i.e. pretext and income (http://www.
statisticssolutions.com/nonparametric-analysis-chi- square/). The association is nevertheless more
obvious in the case of Bulgarian students.
In general, one can notice that the students whose parents have lower incomes are influenced in their
buying decisions by the “Price” (PRICE) factor to a greater extent, then by the “Development” (DEV)
factor and only lastly by the “Institutional” (INST) factor, both in Romania and in Bulgaria.
Students originating from families with high income in Romania are influenced, as consumers, firstly by
the “Institutional” (INST) factor, then by the “Development” (DEV) factor and the “Price” (PRICE)
factor. The students with high incomes from Bulgaria on the other hand, are influenced firstly by the
“Development” (DEV) factor, then by the “Institutional” (INST) factor and lastly by the “Price” (PRICE)
factor.
Conclusions
The theories of reasoned action and planned behaviour have fundamentally changed the view that
attitudes directly translate into behavior by introducing intentions as a crucial intervening stage. Much
research across numerous ethical contexts has drawn on these theories to offer a better understanding of
how consumers form intentions to act in an ethical way. Persistently, researchers have suggested and
discussed the existence of an intention–behaviour gap in ethical consumption (Hassan, L. M., Shiu, E.,
Shaw, D.J., 2016). Yet, the factors that influence the extent of this gap and its magnitude have not been
542
systematically examined. We, therefore, contribute to the debate on the intention–behaviour gap: the
findings of our exploratory research suggest that there is indeed a large gap between intention and
behaviour, at least in the case of university students.
On the other hand, literature on consumer ethics tends to focus on factors such as the environment, and
treats other drivers of consumption decisions, such as family, as non-moral, less influencing factors
(Heath, T., O’Malley, L., Heath, M., Story, V., 2016). We argue that this is based upon a view of
consumer behavior as non-dillematic. By demonstrating the importance of context to consumption
decisions, we highlight how such decisions are both complex and situated when students have to face real
shopping situations.
Our research has some implications for those who study ethics in consumption behavior.
First of all, one can notice that there are more similarities than differences as regards the ethics of buying
behavior of students from Romania and Bulgaria. According to our results, there are no significant
differences between the ethical behavior of Romanian and Bulgarian students. Moreover, there are no
significant differences between the two majors-Business and Medicine-either. From a more general
perspective this could mean that there exist universal norms as regards important social issues, norms that
the students know they should respect.
Regardless of the country of origin or the major, most students declared they had knowledge in ethics
(they read the labels about the origin of the product and publications related to the conditions under which
products were produced, they attend lectures on environmental issues), they avoided to serve the interests
of unethical companies by refusing to buy “dubious products” and last but not least tried to turn from
counterfeit products to original products, even though the former most frequently represented a bargain.
Yet the latter implication complicated matters considerably. The moral imperative of the act of
purchasing seems to diminish a lot under concrete purchasing situations. According to the results of our
study, the students’ ethical behavior tends to become unethical, the moral intensity of the issue of
purchasing a product which disregards the principles of ethics no longer being perceived as part of their
own identity (own ego). To be more specific, the level of income of the families from which students
originate takes its toll on the purchasing decision. This indicator of the standard of living practically
distorts the way they make a choice.
When having to justify their choices when they buy products that go against ethical and responsible
behavior, both Romanian and Bulgarian students use pretexts, called „super-stories” by us, which
practically question their declared convictions. When inside a store, students from families with low
incomes prefer to buy the cheapest products, in most cases, regardless of the conditions under which they
were produced. On the other hand, students whose parents have higher incomes prefer to attribute their
unethical behavior to certain factors that exonerate them of their responsibility: the government (who
does not prevent the proliferation of dubious products) and capitalism (which makes the exploitation of
women and children seem normal, as a price paid on the road to development).
543
Under these circumstances, theoretical education, information and students’ efforts to behave ethically as
consumers seem to be strongly undermined by the reality of the standard of living, expressed by means of
the family’s income.
Our research has a number of limitations/weaknesses which do not allow the generalization of results.
First of all, the number of students in the sample was limited both in Romania and in Bulgaria.
Secondly, we limited the number of statements regarding the ethical buying behavior to 8.
Despite all these, these limitations included, we discovered aspects that can have a profound impact on
the way corporations can evaluate their clients.
Firstly, our research shows that young consumers, students especially, are vulnerable and prone to
equivocal behavior when faced with the situation of having to make a decision with regard to the
purchase of products. Their behavior is the more equivocal (the more unethical) the lower their families’
incomes are (the lower their standard of living is).
Secondly, there exists a generalized tendency of using pretexts (super-stories) when students are out
shopping. The unethical behavior has the tendency of manifesting itself in a real way, despite the fact that
Romanian and Bulgarian students prove to have the information and the knowledge necessary to
discriminate between original products and products that disregard ethical and moral norms.
Even though every „super-story” indicated by the respondents is different, when considered together
these suggest a discouraging situation as to the wide, daily adaptation of ethical consumption.
The difference between “statement” and “deed” or the difference between “theory” and “practice”
amongst young consumers can create confusion for the managers of companies producing original
products, who will thus feel more threatened by the proliferation of dubious products which are
sometimes extremely tempting to consumers. Maybe managers should identify more convincing
strategies for turning customers more loyal to their products, with accent on their advantages as compared
to the “dubious” products. The creation of products of high quality, sold at attractive prices could prove
extremely useful so that the difference in terms of the original product’s superiority to annihilate the one
created by the price when it comes to the counterfeit/harmful product produced in sweatshops. The way
socially responsible companies can induce an ethical behavior amongst consumers can be expressed on
the one hand by the favoring of positive buying behavior (to buy only products created under conditions
that observe ethical and moral norms, to ensure equitable commercialization from both the consumer’s
and the seller’s perspectives etc.) through marketing campaigns, and on the other hand by inducing the
idea of a moral imperative as a necessity associated to every act of consumption.
Finally, education has an essential role: that of discovering the instruments necessary to attenuate the
impact of social and economical factors on the ethical buying and consumption behavior. Assuming that
during the coming years economic development will allow a substantial increase in the standard of living
for ever larger categories of population, the debate about the ethics of consumer behavior and the
mentality related to it, which characterizes the new generation of educated young people is still open .
544
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Basel Implementation and Performance of Pakistani Banking Sector
Samina Riaz*, Venus Khim-Sen Liew** and Rossazana Bt Ab Rahim**
*Institute of Business Management, Pakistan. Samina.riaz@iobm.edu.pk

** Universiti Malaysia Sarawak, Malaysia. ksliew@unimas.my
**Universiti Malaysia Sarawak, Malaysia. arrossazana@unimas.my
Abstract
This paper discusses the Basel capital accords and its implementation process and status in Pakistani
banking sector. It also converses about the performance of Pakistani commercial banks in terms of assets
quality, solvency, liquidity and profitability during the period of 2004-2014. After the implementation of
Basel I and II, the implementation process of Basel III was started from December 31, 2013. It will
gradually be fully implemented by December 31, 2019. The performance of banking sector during 2004-
2014 shows that total assets of banking sector are increasing continuously since 2004 and reached up to
298% during the period 2004-14. The non-performing Loans (NPLs), which is the main indicator of
assets quality showed a surprise boost from 2007 to 2012. However banks diverted their assets mix to
investments in government securities. There was a visible improvement in indicators pertaining to
solvency of banking sector. Capital adequacy ratio reached 17.1 percent during 2004-14. The
accumulation of large stock in liquid assets through government securities provided more comfortable
funding in liquidity to banks. A remarkable improvement is observed in profitability. This paper will help
policy maker to make to gauge the Basel implementation progress in Pakistan.
Keywords: Basel capital accords, assets quality, solvency, liquidity, profitability
JEL Classification: G 21
1. Introduction
Sufficient capital resources are essential for well functioning of the banking sector. It forms a support to
absorb losses resulting from risks (Rime, 2001). The crucial roles of banks in maintaining the growth of
the economy and their feasible contributions when it comes to economic failures, leads the Basel
Committee on Banking Supervision (BCBS) to sufficiently concentrate on regulations of the banking
sector (Larson, 2011). In Pakistan the State Bank of Pakistan (SBP) is sole regulatory and supervisory
authority to monitor all banks. It is also the central bank in Pakistan. SBP plays the role of a facilitator in
growth and development as a leading regulator of banking sector.SBP is playing an active role in the
implementation Basel accords. Next section 2 summarizes Basel capital accords, section 3 discusses the
Basel implementation process and status in Pakistan and section 4 explains development of Pakistani
banking sector during the period of 2004-2014.
2. The Basel Accord (Risk-Based Capital Standards)
The BCBS was formed under auspices of the Bank for International Settlements (BIS) with the consent of
central bank authorities of all countries, included in G10 group. BCBS has so far issued three capital
accords known as Basel I, Basel II and Basel III, since its first inception in 1988. Along with the
imposition of Basel I and Basel II, Basel III started gradually coming into effect from January 1, 2013 in
most member countries (Kristiansen, 2014).
548
2.1 Basel I
The BCBS commenced Basel I Accord in 1988, with two important objectives for its initiative. The first
aim was to strengthen safe and sound stability in international banking system and secondly to create
level playing fields among banks of international repute by diminishing existing sources of competitive
inequality (BCBS, 1988). To achieve these goals, a set of two tiers is selected in order to define capital.
The capital in Tier 1 has common stock and preferred stock in perpetual terms, and retained earnings.
International banks were required to hold a Tier 1 risk weighted capital at least in level of up to 4%.
Capital in Tier 1 and Tier 2 are jointly defined as fixed maturity preferred stock, subordinated debt and
loan loss reserves with ratio of capital to risk weighted assets (RWA) by 8%.. Hence, the bank’s assets
are placed into categories or “buckets”, within the range of 0%, 20%, 50%, and 100%, pertaining to risks
as established by Basel I. These are then multiplied by the corresponding risk factor weight of each
category (BCBS, 1988). Table 1 explains different asset categories along with the assigned risk weight.
Table 1: Basel I Risk Weighted Assets
Category Assets and Characteristics Risk Factor Weight

Category I Cash, government securities, reserves, etc. which are taken to be 0%
risk-free
Category II Interbank deposits, general obligations of state and local 20%
governments, fully backed mortgage bonds, and securities of
government agencies and considered a bit more riskier than
assets of category I
Category III Revenue bonds of state and local governments including 50%
residential mortgages and considered to be even more riskier
Category IV Commercial paper, various fixed assets and business and 100%
household loans. This is considered to be the most risky asset
Source: BCBS (1988)
Although the Basel I is acclaimed for having been the first to create a worldwide benchmark for banking
regulations but its design was far from being perfect due to the presence of several deficiencies. Firstly, it
focuses only on credit risk. Although market risk is later added to it through 1996 Amendment, other core
types of risks (operational, reputation, strategic and liquidity) are still remained uncovered. Secondly, and
of greater significance, the idea of assigning risk and the corresponding regulatory capital following the
identity of the borrowers quickly revealed its failures. Any type of loan is assumed to be 100% risk
weighted assets under Basel I. Hence, banks are induced to include total risk-weighted assets in full value
of loan. However, recipients of commercial loans do not possess similar type of risks. The loan given to a
well-established company may be less risky than otherwise (Larson, 2011). Ong (2004) criticized Basel
Accord for a mono-sized fit towards all of its approaches, not being sensitive to any distinction among
credit risks and other similar risk possibilities (Hai et al., 2007).
When criticisms on Basel I began to surpass limits, the members of BCBS then decided to revise the
Basel I Accord of 1988. In this perspective, the first consultative paper (CP) was issued in June 1999
followed by two others before the final proposal was published five years later, in June 2004.The final
regulatory framework, which was entitled: “International Convergence of Capital Measurement and
Capital Standards: A Revised Framework,” emerged in the form of Basel II, and was published in June
2006. Three Quantitative Impact Studies (QIS) were subsequently undertaken to ensure that global level
of regulatory capital in the banking system remained sufficient (BCBS, 2006).
549
2.2 Basel II
According to Basel II Accord, banks were also required to maintain 8% minimum capital to risk weighted
assets ratio. It was found to be based on the idea of looking, not at the identity of the borrowers, but at its
introductory rating. Therefore, it concerned more with the borrowers’ inherent risk instead of its identity.
Hence, Basel II aimed to promote the adoption of more stringent practices in risk management based on
the three mutually reinforcing pillars: (i) Minimum Capital Requirements, (ii) Supervisory Review and
(iii) Market Discipline.
First Pillar extends some key features in measuring risks and is in alignment with regulatory capital
(Bailey, 2005). It further enhanced its description of risk to include credits risks and market and
operational risks. The credit risks are calculated by two methods: (i) standardized approach (SA) and (ii)
internal ratings based (IRB) Approach. Standardized Approach (SA) is one where external agencies rate
the borrower and the bank utilizes these inputs to compute the regulatory capital. On the other hand, IRB
approach allowed the banks to utilize internal estimates of worthiness of borrowers so as to estimate
losses to be incurred in future. IRB approach has two dissimilar options of complex variety. Firstly, under
foundation IRB (FIRB) approach, banks compute the probability of default (PD) of borrowers. Next step
made supervisors of various regions to complement such estimates through adequate inputs. On the other
hand, using advanced IRB (AIRB) approach, banks utilize probability of default (PD), exposures at
default (EAD), loss given default (LGD), and maturity (M) to compute credit risks (BCBS, 2006).
Second pillar relates to Supervisory Review, which makes financial institutions to establish risk
management structure. It could identify, evaluate and manage risks of major kind, inherent in the
institution. It will allocate appropriate capital against those risks. Some major risks (liquidity risk,
concentration risk, interest rate risk) which are not covered under Pillar I, are included in second pillar
(BCBS, 2006).
The third pillar of market discipline set requirements for public disclosures on bank. It is obligatory for
banks to publish information on business profile, exposure of risk and risk management (Drumond,
2009). This pillar mainly aims towards an increase in capital adequacy disclosure through public reports
(BCBS, 2006). In this way, various activities of banks and capability in managing exposures in risks can
be monitored. The market contributors will be able to appreciate efforts of the administration, and
simultaneously penalize those banks which fail in delivering accordingly (Makwiramiti, 2008).
A number of key flaws in Basel II were highlighted during the global financial crisis. The issue of the
pro-cyclicality of the regulatory capital and systemic risk dimension, a prudent macro prudential, and
details were lacking in the Basel II Accord, which was solely designed for the bank level. Pro- cyclicality
refers to an increase in capital requirements during a downturn. This, however, may turn into violence
and will be considered as an issue because it is likely to exacerbate the economic downturn. In fact, if
capital requirements tend to increase in some recessions, while accumulating reserves from lower profits
or rising capital afresh is difficult, and then banks attempt to reduce their activities in lending. The
squeeze in credit adds to downturn, and exacerbates the recession. An unwanted vicious circle is set in
motion, which in turn ultimately affects adversely the macroeconomic aspect of the economy.
Basel II also overlooked various issues of leverage, systemic risk and stability in macro-prudential. It
was astonishing to see amidst the crisis that banks which experienced problems because had excessive
leverage and risk-adjusted capital ratios well beyond the regulatory minimum capital requirements. This
leads to discussions in response to these deficiencies in the Basel II framework. The outcome of these
discussions was materialized by the release of Basel III document in December 2010 (BCBS, 2010).
550
2.3 Basel III
Basel III increases the amount required capitals. Effective from January 1, 2013, banks of participating
countries are required to gradually impose Basel III until it is fully implemented by 2019. Hence, under
Basel III banks have to retain ratio of minimum total capital to risk-weighted assets up to at least 8%.
Under this accord, after calculating its 8% capital requirement the bank will hold excess capital as
conservation buffer equals to 2.5% of risk-weighted assets. Hence, requirement in total capital is marked
up to 10.5% of risk-weighted assets. Since conservation buffer in capitals is well-maintained to ensure
safe and sufficient levels, banks prevent to absorb losses in assets, especially in times of financial stress
leading to economic crisis (BCBS, 2010).
To face pro-cyclical attitude, banks have to administer counter-cyclical buffer in Basel III, ranging from
0%-2.5% of risk-weighted assets. Its real quantity will be allocated by national regulatory authorities,
being generally determined through credit available in economy, whereas more capital will lead to higher
buffer. The counter-cyclical buffer ensures that banks have sufficient capitals during growth of excess
credit, which occurs generally when there is low level of perceived risk in assets. Consequently,
maintenance of higher capital levels in times of good economic conditions, banks may avoid large steps
to conserve capital in times of “bad” financial conditions. This buffer is seen as an extension of capital
conservation buffer.
Moreover, Basel III implements leverage ratio, wherein banks are required to maintain capital equivalent
to 3% of its exposure. In Basel III leverage ratio ensures the maintenance of least amount of capital at all
times. Thereby, limited capability in banks engaged in practices designed so as to scratch away
requirements of minimum capital. The leverage ratio, therefore, forms the basis of capital with some
amount for protection against any unforeseen disasters.
Some critics have also pointed out that restrictions in lending in the shape of high capital requirements in
Basel III will also effectively restrict the promotion of robust and safe and sound economy. However, the
real economic influence in the requirements of Basel III is becoming quite debatable. But obviously one
cannot tell with certainty regarding the real effect on the banks. However, initial reports project the
impact very vaguely (Larson, 2011).
3. Risk based standards: The Pakistan’s experience
To align regulatory capital requirement with internationally accepted standards, Pakistani banks were
required to achieve 8% capital to risk weighted assets, which was introduced in 1997.There were also
clear-cut instructions for banks to apply capital risk weighted system in accordance with Basel Accord
(SBP, 1990-2000).
The SBP took very effective measures through viable changes by issuing straightforward roadmaps for
the implementation of Basel II in Pakistan. The roadmaps submitted on 31st March 2005, made the banks
to submit their individual plans mentioning their specific approach (Standardized or IRB). The banks
were intended to adopt their own internal arrangements for its implementation. Many of these banks
expressed their intention to first adopt the comparatively Simple Standardized Approach keeping in view
the requirements imposed for more capital. However, under the regulations, the banks opting for IRB
Approach were required to first acquire approval from SBP. However, some foreign banks might go for
IRB Approach in view of their head offices' strategy adopted within their country. Detailed instructions
for adoption of various approaches including, market and operational risks, calculation of capital
adequacy, requirements for credits, were imposed on June 27, 2006. To bring standardized approaches to
run parallel, the formats of capital reporting under various instructions of Basel II were finalized in March
2007. These formats initially covered capital calculations as deemed suitable under Standardized
551
Approaches for credit and market risk, as well as Basic Indicators to work on operational risks (SBP,
2006).
The gap between practices for public disclosures and requirements under market disciplines (covered in
Pillar III) of Basel Accord II were identified. The detailed rules of requirements for public disclosure
were finalized and notified in February 2006, which the banks had to adopt and state accordingly, under
different approaches of Basel II (SBP, 2006). The guidelines provided for a gradual increment in
minimum capital requirements, along with capital adequacy ratio based on internal risk assessment
framework (IRAF), proved to be the first and most significant step towards the implementation of Basel
Accord II
The categories of non-compliant banks face various repercussions. Restrictions on acceptance of deposits
and lending to cancellation of license are some repercussions which the banks in non-compliance
category have to face. Similarly, high requirements of disclosure against forgery, fraud assist banks to
meet relevant requirements of Pillar I. The comprehensive clause to include risk management framework
in the directors’ annual report helps in bridging the requirements under supervisory review (Pillar II).
Various guidelines for dissemination of financial statements to all stakeholders, and their abridged
version had to be published and issued in the press. Such an activity will be an attempt to reduce the gap
in the disclosure practices and requirements under market disciplines (Pillar III) of Basel II. The
implementation of Reporting Chart of Accounts (RCOA) clearly supported to meet requirements of
disclosure under pillar II and pillar III of Basel II (SBP, 2007-08). All capital instructions have been
issued by the SBP to implement Basel III accordingly. The notifications of SBP will be effective from
December 31, 2013 and to be fully implemented by December 31, 2019, which is in line with the
internationally agreed time lines. Such a lengthy timeline would provide banks with an opportunity to
make arrangements for adjustments in capital. Moreover, a gradual and systematic transition from old
capital rules to the new ones will be also allowed (SBP, 2013).
SBP is gradually attempting to enhance the minimum capital requirements of all banking institutions to
provide the potential for their competitive ability, through a process of weeding out the weak banks and
by encouraging the economies of scale. In 1997, at the time of Implementation of Basel I, the minimum
capital requirement was Rs 500 million. Hence, in December 2000, the minimum capital requirement
was doubled to Rs.1000 million. Then every banking institution was forced to progressively raise its
minimum capital to Rs.1.0 billion (net of losses) by 1st January 2003 and Rs 1.5 billion by December 31,
2004. This activity obviously attracted mergers, acquisitions and leading to consolidation of financial
institutions. Keeping in view the systemic risk of weak banks caused by the weeding out process, the SBP
raised MCR up to Rs.2 billion, to be effective from 31 December 2005. there are 32 commercial banks
,excluding specialized banks, operating in the country as on September, 2015 as compared to 46 in the
year 1997 (SBP, 2015). The capital of commercial banks, on an average, led to an increasing trend.
Surprising in September 2008, the SBP announced that the banks must increase MCR up to Rs.23 billion
by 31st December, 2013 (SBP, 2008-09). But in April 2009 SBP slashed MCR requirement by 77%,
providing breathing space to banks, especially small- and medium-sized banks, which were desperately
looking for mergers or sale off.
Eventually, MCR slashed to Rs.10 billion by December 31, 2013 and for Basel III Accord the MCR
requirement will be the same as Rs 10 billion in addition to 3% leverage ratio and 2.5% capital buffer
(SBP, 2013). This decision was taken in view of the general slowdown in development process in
international market (Iqbal, 2009). As a result, it is noteworthy that any bank failing to match with
requirement of minimum capital or CAR, within the stipulated period will have to submit itself to be
liable for the three necessary actions: (i)Imposition of restrictions n acceptance of deposits and lending as
may be deemed fit by the SBP.(ii) The de-scheduling may convert the bank into non-scheduled
category.(iii)Cancellation of license if SBP affirms bank is not in a position to meet the minimum capital
requirement or CAR (SBP, 2008). Banks must maintain capital adequacy ratio of at least 10% of risk-
552
weighted assets, in order to protect depositors and improve stability and efficiency of financial systems
around the world (Zaidi, 2014).
4. Performance of Pakistani B
Banking Sector
The performance of Pakistani banking sector during 200
2004-2014
2014 and the implementation status of Basel
accords are discussed in this section.
2.4 3.1Assets Quality

2.5
The total assets of banking sector are increasing continuously since 2004 and reached up to 298% at 2014
(see figure1).
12,106,261
10,536,989
9,760,842
8,206,921
7,137,654
6,528,760
5,154,478 5,652,658
4,276,097
3,648,741
3,039,820
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Figure 11: Total Assets (In Million Rupees)
Source: SBP (2004-2014)
The non-performing loans (NPL), which is the main indicator for assets quality showed a surprise boost
from 2008. Within 10 years period the increase was marked up to 203.15%.The credit quality of loan
portfolios remained stable to some extent but financial crises in the world economy during 2007-2008
200
destabilized it (see figure 2). Global financial crisis 2007
2007-2008 damaged the Pakistan economy but it had
no direct effect on the banking sector. The surge in prices of various global commodities remained a very
predominant aspect in the catastrophe of affecting the macroeconomic fundamentals, leading to 81.7%
deficit in external current accounts during 2008.It was the cause of oil import bill shooting up to over
US$ 11 billion in 2008. It was relatively US$ 5.3 billion, on an average during 2004 2004--2007. A large
increasing trend caused fiscal deficit to be accounted for the delay in pass
pass‐through
through on international hike in
prices at retail levels (SBP, 2008-09)
09).
553
607,145 607,243 604,698

585,124
547,770
432,075
313,657
199,469 192,272 214,194

184,341
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
performing Loans to Advances (In Million Rupees)

Figure 2: Non-performing
Source: SBP (2004-2014)
In spite of economic challenges in domestic and international environment, scenario of banking sector in
Pakistan showed much resilience to early strong winds with robust capital base and sound profitability.
The banking sector cope
ope up the increasing trend in NPLs by heavy provisioning, increasing every year
since 2004. There is 238.11 percent rise observed in 10 years (see figure 3).
482,657
458,908
436,010
405,440
365,521
306,891
234,230
195,838
142,752 144,284 136,725
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Figure 2: Provisions Held Against Advances (In Million Rupees)

Source: SBP (2004-2014)
On the other hand, recovery against NPLs shows irregular trend. In 2007 there was a sharp rise in
recovery but could not perform consistently in subsequent years. On average a decrease of 33.45% is
observed in terms of recovery (see
see figure 4).
554
53,210
27,219 26,859 26,347

24,285 23,865
19,228 18,114
13,718 15,226
12,049
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Figure 3:: Recovery against NPLs (In Million Rupees)

Source: SBP (2004-2014)
Thus government relied on banking sector in funding the budget deficit. Consequently,, banks preferred to
alter their assets portfolio mix in order to redirect the funds in investment component in 2007 (see figure
5). This shift in assets mix had important implications from advances towards investment in government
papers. The eagerness and interest est to extend private sector credit was reduced by banks. The private
sector found bank credit apparently more expensive, and preferred to keep its borrowings more confined
to needs of immediate working capital. The credit demand of private sector is subdusubdued.
ed. The persistent
energy crises, acute law and order situations, slowdown of external demands (exports) are causes of
rejection of funds to the private sector ((SBP, 2007). In 2009-2010, the financial conditions on the whole
depicted, deteriorating power supply,
upply, along with security threats were predicted to be shaky for the
economy. Assets mix further diverted to invest largely in government papers/bonds of Public Sector
Enterprises (SBP, 2013).
5,354,194
4,347,099
4,045,677
3,089,662
2,167,528
1,770,711
1,277,612 1,089,559
669,092 779,675 795,922
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Figure 5:Investment
Investment in Government Assets (In Millions Ru
Rupees)
Source: SBP (2004-2014)
2.6 Solvency
The capital adequacy ratio (CAR) of banking sector increased from 10.5% in 2004 to 17.1%
1 in 2014,
which strengthened banking system to sustain adverse future shocks (see figure 6).
555
17.1
15 15.4 14.9
14.1 14
12.7 12.3 12.2
10.5 11.3
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Figure 66:Capital Adequacy Ratio (In Percentages)

Source: SBP (2004-2014)
The capital framework of some smaller banks showed substantial improvements, primarily attributed to
mergers and opening of Sindh Bank. More than half the number of banks had to face challenges to cope
up with the enhanced Minimum capital requirement ((MCR).. But if observed in terms of CAR, banks
with nearly 94% market shares maintained the requisite CAR of 10 % (SBP, 2010). Moreover,
Moreo the risk
weighted assets
ssets decreased by 23% in 2015 as compared to the figure from 2011(see figure 7).
6,307,775 6,259,916
5,602,835 5,245,539 4,855,933
2011 2012 2013 2014 2015
Figure 77: Risk Weighted Assets (In Millions Rupees)

Source: SBP (2004-2014)
In spite of making hard efforts to meet above requirement with reinvesting profits again and again, few
small banks still remained away from regulatory requirement. The situation remained challenging for
these banks, due to vague macroeconomic and politica
politicall position of the country, to attract funds for further
enhancement of their capital base ((SBP, 2011). However, SBP continued to monitor closely to follow
activities of non-compliant
compliant banks for pre
pre-hand rectification concerning capital adequacy element (SBP,
2014).
2.7 Liquidity
Liquidity is ability of a bank to accommodate decreasing trends in deposits in

n an efficient and economical
manner and provides funds when loan demand increases without any negative effect in its earnings.
Liquid assets grew to 433.51 percent
ercent during 2004-2014 (see figure 8).
556
5,950,455
5
4,988,246
4,624,661
3,640,647
2,498,894
2,110,483
11,713,032 1,556,703
1,354,614
1,115,348 1,238,231
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Figure 88: Liquid Assets (In Millions Rupees)

Source: SBP (2004-2014)
Due to global financial crisis, liquidity stress emerged in many global, industry
industry-specific
specific and domestic
factors were successfully withered away. Since
Since, some international financial icons burdened liquidity
profile specifically through news of their failure. This situation led to withdrawal of deposits from banks,
causing severe negative effects on some banks.. But the capacity to develop strong resilience and being
strong regulators SBP averted this transitory stress. Even the offsetting policy of SBP was in a position to
prevent the system from being converted into a financial calamity (SBP, 2008-09).Share Share in
i Government
securities increased significantly in total investments, mostly concentrated in shortshort-term
term investments.
Since such high concentration in government investments provide additional liquidity in the system (SBP,
2012). Circular
ircular debt was partially settled in cash whereas net retirement in loans from private sector
improved the funding of liquidity in banks (SBP, 2013).
2.8 Profitability
The net interest income is continuously growing from 2004 to 2011. A marked improvement is observed
in the year 2014 and income rose to Rs. 441,830 millions, which pertains to an increase of 397.41% (see
figure 9). Further consolidation in high capital bas
basee for resilience was undertaken to avoid adverse shocks
on banking system. In addition, high profitability continued to help in absorbing additional burden of
incremental non-performing
performing loans (NPLs).
557
414,830
341,197 339,882 332,222
262,852 288,272
238,255
165,969 199,566
143,726
83,396
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Figure 9: Net Mark

Mark-Up / Interest Income (In Millions Rupees)
Source: SBP (2004-2014)
The global financial crises 2007

2007-2008
2008 made some banks to attempt at the recognition strategy in
aggressive assets loss, additional provisions for loss charges in lending, and relative increase in expenses
on operating process. These factors affected the profitability by bringing main indicators of earning under
pressure to some extent (SBP,, 2008
2008-09). The ROA deteriorated to 1.2% from 1.69% in 2007 (see figure
10).
1.94 2.02
1.69
1.32 1.5 1.4 1.5
1.2 1.1
0.9 1.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Figure 10
10: Return on Assets (In Percentages)
Source: SBP (2004-2014)
The ROE also declined from 16.54% to 11.3%. On the other hand, the span of increase between lending
and deposit rates jumped from 6.7% to 6.9% (see figure 11).
558
28.32
23.69 23.96
16.54 16.1
15.1 14.7
11.3 12.4
8.7 9.8
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Figure 11
11: Return on Equity (ROE in Percentages)
Source: SBP (2004-2014)
However, the overall capacity for earnings remained well in control. Thus, these were mostly determined
in large and/or medium-sized
sized banks. When bottom lines of smaller banks are low, they are marked in
danger zone (SBP, 2013).
5. Conclusion
Global Financial Crises 2007-2008

2008 hit the Pakistan economy due to large fiscal deficit on account of hike
in international prices but it had no direct impact on financial sector. Instead, banking
anking sector showed
resilience due to robust base in capital and high level of profits. For Basel III's implementation, capital
instructions have been issued by the SBP that were started by December 31, 2013 and fully implemented
by December 31, 2019, which is in line with the internationally agreed time lin lines. This paper will help
policy maker to make to gauge the Basel implementation progress in Pakistani banking sector and to
devise appropriate strategies accordingly.
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standards’. (Updated April 1998), Retrieved from Bank for International
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to-raise-capital
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Complex Logical Connectors in Unified Modeling Language

Josef Myslin, Czech Technical University, Prague, Czech Republic, josef.myslin@fsv.cvut.cz
Abstract
Nowadays, very few development teams do not use a graphical notation Unified Modeling Language
(UML). This graphical way of modeling has become an industry standard that is widely supported by
commercial and freely available software tools. It is a methodology with a comprehensive and well-
structured standard, which manages modeling majority of situations that are encountered during
developing software. Nevertheless, there are situations where standard methodology UML does not offer
appropriate solutions. This mainly concerns the situation where the UML is not used directly in the
context of software development, but in the modeling process. This UML was not originally intended for
this purpose, but that is a fact, that nowadays it is relatively widely used for it. One such situation is the
modeling of parallel activities where the UML notation does not allow effectively to model more complex
situations in which it is necessary to precisely specify the logical connection between the individual
parallel streams. The aim of this article is to outline a possible approach to such situations by introducing
domain-specific solutions in the form of logical connectors.
Keywords: UML, activity diagram, parallel sub-activities, logical function
Introduction
UML (Unified Modeling Language) belongs among the standard tools used in software development now.
It offers several basic types of diagrams that allow modeling needed aspects of development so that the
developer obtains a clear idea which software is expected by the customer as is mentioned by Fowler and
Scott (2000) .
UML is a graphical notation which has seen significant development and now it is a very sophisticated
standard described in Rumbaugh, Jacobson and Booch (2004) or in OMG official standard (2016).
However, there are still situations where UML does not allow quality modeling. This fact is due to one
very simple reason – the graphic language notation does not contain symbols needed to record the
situation in the model.
One of such situations is state with parallel activities, i.e. situations where independently sub-activity are
running, while we need to control their subsequent connection. In some cases we need all parallel
activities to be properly completed.
In other cases this is such an undesirable situation, because we need to complete just one activity. It turns
out that the recording of such situations is often problematic or impossible. This can cause problems in the
modeling of complex software systems as is described in Selic (1998). For this reason it was decided to
write this article, which will explain possible approach for such situations.
In the second part there will be described UML activity diagram and problems that may occur during its
use. The second part describes possible new approach. In the fourth section the approach in case of simple
connectors is described. The fifth section describes the approach in the case of complex connector
motivation.
UML Activity Diagram and Parallel Activity Flows
Diagram of activities is one of the basic diagrams of UML notation. Its aim is to describe the course of the
activity as a sequence of sub-activities, then possibly other elements such as situations where there is a
562
decision-making process as described in OMG (Object Management Group) official standard (2016).
UML also allows easy assignment activities to the individual roles that are designed to perform the
activities. This is done by using swim lanes, graphic containers, which are assigned to individual roles and
activities that include those that belong to that role – see OMG official standard (2016).
In many cases it is necessary to model parallel flows, ie a situation where the activity is divided into
several parallel sub-activities. In some cases these sub-activities carried out by one role, in other cases, of
course, it can lead to a situation where each of the parallel branches is performed by different roles. In
fact, this aspect is not too important from the perspective of this article.
The main aspect of this article is to end branching parallel activities. Concretely it assesses what should be
the status of each of the parallel branches for the opportunity to continue further after combining the
parallel branches. OMG Official standard (2016) defines how to model such a parallel activity. This
method, that is the fundamental and also easy and elegant concept - is shown in Figure 1. However,
problematic is a fact regarding the activity to proceed after completion of the parallel sub-activities. So the
question is - under what conditions will activity after the completion of parallel streams continues?
Standard of UML according to Rumbaugh, Jacobson and Booch (2004) or in OMG official standard
(2016) speaks quite clearly. All parallel flows must be fully completed for continuation. It can be noted
that the notation for writing parallel activities implements a logical AND function.
563
Figure 1: Parralel flow in UML
Design of New Domain--Specific Approach

Selic (1998) describes how itt may be a major problem, especially if we intend to model complex activity.
The current reality is we need to model situations other than those that can be described using the AND
operator. Moreover, it should be noted that the notation of UML, especially activity diagram, today is not
only used in the phase of software development, but also as a notation for process modeling what is
mentioned in Erikkson and Penker (2000)
(2000),, which is the phase that precedes software development and
which aims to appropriatelyly describe processes the customer, so that they then developers can design
software according to the actual needs of the customer.
564
Although UML is specifically designed for modeling, this activity is very often used. This reason may be,
as is described by Gross and Doerr (2009), due to the fact that the UML is known to developers, while
other methods would require training of workers. Using of UML for process modeling also doesn’t require
additional software purchases. There are of course also significant drawbacks such as those described by
Geambasu (2012) or Gross and Doerr (2009), who compare UML with methodologies designed for
process modeling. In a fair assessment, however, be noted that many of the shortcomings can be remedied.
The modified methodology for UML may then be used for modeling of simpler processes, especially for
agile development what is described by Myslin (2016).
Here we see a particular problem as the lack of broader possibilities in the field of parallel activities and
connectors. Other methodologies, such as the EPC (Event-driven process chain) mentioned by Gross and
Doerr (2009) and BPMN (Business Process Moeling Notation) mentioned by Geambasu (2012) include in
their specifications possibility of defining connectors for not only obligate AND function, but also
function OR and XOR. This possibility is missing in UML.
These deficiencies and many others have been tried by many authors over the years. Mostly, however,
they went in the way of formalization, which should improve the properties of UML and remove
deficiencies. Thus approaches were used to help the pi-calculus described by Dong and Shensheng (2003),
finite automata described by Rodrigues (2000) and other techniques mentioned for example by Dumas and
Ter Hofstede (2001). These techniques usually show consistency, mathematical rigorosity and they are
certainly useful. However, their basic problem lies in the fact that they are unusable for many
practitioners, because they are incomprehensible to them. It turns out that in many cases their use is
strictly limited to cases in which we are working with sufficiently mathematically educated persons.
Firstly, it is a condition that is commonly expectable, but above all - from practice looking for the simplest
possible solution how to handle the model, but also how to understand the later model. This is the reason
that led to reflect on simpler way to let the show with activity diagram more complex logical connectors
that would allow to model complex of real-life situations. In such cases, we define two basic situations.
• Simple connectors - these simple connectors will be used in the event that utilized a single logical
function for all parallel branches. It is therefore formally same situation as defined in the
standard, but with the difference that we do not insist only on the use of AND function.
• Complex connectors - these complex connectors will be used in the event, which is described by
complex Boolean expressions containing more logic functions, brackets and other elements
useful in normal logical expressions. Logic elements of such term will be the results of individual
parallel branches.
Simple Connectors
First we pay attention to the simpler situation where for the continuation of activities after the completion
of parallel sub-activities is crucial result of one simple logical function. It can be stated that the standard
UML notation describes behavior of AND function, which is already mentioned in the previous
paragraphs. If the standard output defined as one particular feature, this feature was not necessary to
explicitly state as an AND function was defined by the standard.
If we want to analyst modeling process or activity we will have to decide which function will be used, you
need to figure out a way how this feature will be described in graphic form of the model, especially in the
activity diagram. Such a method must be easy to understand and easy to use, so we can expect that it will
be eventually used in practice.
In normal situations we want common logical functions to be possible to use in UML, especially in
activity diagram, in the same way in other methods of modeling of processes and activities. Therefore
there will especially be the usual and familiar features of AND, OR and XOR. Logic table for these basic
565
functions are displayed in Table 1, but this is a known issue so that it will not pursue further. Simply add
that these functions can be extended to multiple logic gates are therefore useful analogy for any number of
parallel branches.
Table 1: Basic logical functions
x y AND OR XOR
0 0 0 0 0
0 1 0 1 1
1 0 0 1 1
1 1 1 1 0
Suggested solution for this case is very simple. – Its significance just lies in this simplicity and usability,
but not in a revolutionary innovation, that uses sophisticated math, for example, or other instruments,
which can be potentially problematic. Solution that allows suitably specified logical function used instead
of the standard-defined functions AND, adding the rectangle at one end of the line, which represents the
merger process, branched into individual sub activity. This rectangle will contain information about the
used logic function.
566
Figure 2: Simple connector
Figure
re 2 is showing us presented a solution, which is complemented into the traditional diagram of the
activity. This solution especially uses the logical AND function there.
This feature was chosen for the demonstration deliberately. It may in fact seem at ffirst
irst sight that the AND
function may not be explicitly written as defined by the standard UML. For better understanding, it is
advisable to reckon with the fact that this domain
domain-specific
specific solution require explicit announcement of the
selected function - is logically consistent in the case of recording of any logical function – without any
exception.
This solution is really simple, but we can state that fulfills its function - extending UML the possibility to
specify a particular logical function. If we use the AND function, then we mean (in accordance with the
standard UML), that for continue all branches must be properly completed. Suggested solution allows the
use of other logical functions. OR function defines that the following must be fully completed, at
a least one
branch, the function XOR defines that the following must be properly completed just one branch. Of
course, the problem is not to define any additional functions (equivalence, negation), but only from
experience we assume that the functions of A AND,
ND, OR and XOR will be used more often.
567
Complex Connectors
The solution described in the previous chapter is effective and useful, however, in some cases insufficient.
In some cases, you cannot count on that continuing after the end of each of the parallel branches will be
decided by simple logical functions. It can happen, for example, this situation. There are three possible
options. Either the branches B1 and B2 are fulfilled or separate B3 is fulfilled. Then it will be possible to
enter the outlet
et follows a logical expression:
(B1 AND B2) OR B3
We are not able to implement such expressions by the proposed solution in chapter about simple
connectors.. Other methodologies, such as EPC, can implement such expressions using nested connectors.
Now thatat we are able to realize various logic functions, we could use the same approach. Realization of
this logical expression in such way is on Figure 3.
Figure 3: C
Complex
omplex logical expression realized by nested connectors
568
This approachh is of course possible to completely correct. An advantage of such an approach can
undoubtedly bring directness and clarity. Boolean expression is parsed into individual sub-expressions
sub
characterized by the use of just one logical function. In some simple cases we can certainly argue that such
a solution may even be the most appropriate solution because it is easy to use.
This solution, however, will be problematic in the event that we have to deal with more complex boolean
expression. Each additional bra
bracket
cket or other logic functions in this approach adds another single
connector. We are convinced that the third nested connector diagram is very hard to read and occupying
considerable space. There seems to be necessary to use a different approach, which is not so complicated
and confusing.
One of the ways that emerges is the inclusion of a logical expression directly into the final line. This
solution is shown on figure 4.
Figure 4: Complex connector
569
This solution is quite unusual and significantly changing the current practices in the use of UML activity
diagram. However, in my opinion, this solution is very efficient and allows you to incorporate the final
line of the entire logical expression, where the individual parallel branches serve as nodes, whose value is
calculated.
We can express almost any expression (the condition is that the node is in the phrase occurs only once) in
this way - the expression is space-saving and the entire diagram is simple and clear. Basic disadvantage
can be seen in the fact that such a solution is not supported by software, and it is problematic to resolve it.
Previous solutions can be implemented by using rectangles and text boxes, which is not an elegant
solution, but it is functional. It offers the possibility, however, in the case of interest to implement such a
solution as a module into existing programs to work with UML diagrams.
Short remark – the situation described in previous paragraphs could be modeled in current paradigm – the
model is on figure 5.
Figure 5: Complex connector in current paradigm
570
Problem of this model is especially inconsistency – various logical connector are modeled by another
symbol (AND and XOR). The model cannot be easy readable in the case of more complicated complex
connector. This is a reason why new way of modeling of such situation is described in this paper. Another
situation cannot be modeled in such way so new approach is needed.
Conclusion
This article provides insights into possible approach to parallel activities and modeling within the UML,
but particularly in the context of the activity diagram. Parallel activities are a normal part of the modeled
reality and that is why its representation in the diagram is shown as necessary.
The current standard UML modeling enables parallel activities, but it does not include precise
specification. It does also not work with logical functions, which would model conditions of continuation
after the completion of individual parallel branches. Meanwhile it is a normal part of the standard of other
methods intended for modeling, which is UML also widely used for.
My approach extends the capabilities of UML introduction of domain-specific graphical notation for
selecting the logic function or even to build their own logical expression in the context of the activity
diagram. Simple cases with only one logical function are covered and at the same time more complex
situations are also covered. These more complex situations include parallel paths, which are connected by
more complex way. Suggested graphical notation is, in my opinion, easily understandable for workers
who create a model, as well as for those who will eventually read it.
The disadvantage of the approach is that it is a domain-specific, and therefore is not a part of the
official standard UML and is not supported by existing software tools.. Thanks that this all new approach
is not supported by existing software tools. These tools, however, are mostly built modularly and it is not
a problem to adjust them for support of this approach.
The approach is understandably not a closed chapter, but rather an idea how to approach to parallel
activities and their modeling in UML. Information and observations from practice, which could help
further development, are welcomed.
Acknowledgment
This work was supported by the Grant Agency of the Czech Technical University in Prague, grant No.
SGS16/200/OHK1/3T/11
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65075-1
572
Organizational Agility: Online Retailing at a Glance

Florina Pînzaru
Faculty of Management, National University of Political Studies and Public Administration
Bucharest, Romania
florina.pinzaru@facultateademanagement.ro
Sergiu - Octavian Stan

Doctoral School in Management, Bucharest University of Economic Studies
Bucharest, Romania
stan_sergiu@yahoo.com
Elena-Mădălina Vătămănescu
Doctoral School in Economics and International Business, Bucharest University of Economic Studies
Bucharest, Romania
madalina.vatamanescu@yahoo.com
Abstract
The present paper intends to approach the issue of organizational agility in the context of a fast-changing
global environment. The focus is oriented towards the online retailing sector which has been subject of
multiple changes and developments over the past years. The study advances a preliminary outlook on the
topic, setting the general parameters for further investigations and interpretations. As the results posit,
agile endeavors applied in retail industry offer a pertinent answer to specific exigencies of the new
globalized market, providing opportunities for predictable revenues and consistent profit. The most
important insight is that leveraging agility is not only about introducing a new technic in the sales
optimization process, but also the assumption of a novel paradigm.
Keywords: organizational agility, online retailing, agile policies.
Introduction
Organizational agility has set itself up as a topical and relevant topic when discussing the organizational
dynamics in a highly competitive environment. Business internationalization and globalization, the
interconnected world and time-to-market pressures have placed agility to the core of current studies and
investigations. Both scholars and practitioners have asked themselves which are the main drivers and
strategies applicable by an organization in order to achieve and preserve agility.
In accordance with different research angles and disciplines, organizational agility has been addressed
from various standpoints, starting with mass customization, technological development, operation and
process coordination and knowledge management strategies (Dove, 2005) and finishing with continuous
improvement and integrated change management in a versatile context (Sherehiy, Karwowski and Layer,
2007; Williams, Worley and Lawler, 2013). The operationalization of agility covers a wide range of
dimensions such as and response capability, adaptability, alertness, flexibility, development, all of the
defining the primacies of agile organizations irrespective of the sector or industry. The aforementioned
pillars of agility are linked to the attainment of the competitive advantage “that requires strategic
thinking, an innovative mindset, exploitation of change and an unrelenting need to be adaptable and
proactive. Agility thus becomes a business imperative for survival rather than choice” (Harraf et al.,
2015, p. 675). Against this backdrop, Davis (2009) talks about the “restructuring of the business order”,
the agile organizations acting towards competitiveness, speed and responsiveness to the evolving external
market conditions.
Organizational agility stands for an imperative for business success, supporting the firms’ achievement of
competitive capabilities in dynamic business environments (Bi et al., 2012; Ghasemi, 2015). Agile
organizations act beyond adapting changes and envisage potential opportunities to attain development
and progress. In response to the changing and unpredictable business environment, there is a high
573
exigency for a global mindset regarding production, purchasing, selling, distribution opportunities. All
the inherent components should adhere to the consistent improvement and update of technology,
management, communication and transportation infrastructure, coordination and general harmonization
of priorities (Ghasemi, 2015). Here, the investigation of the organizational agility specificity among
chained components is indicative of the inter-influences and sectorial effects from a value network
perspective (Swafford, Ghosh and Murthy, 2006; Braunscheidel and Suresh, 2009).
The Online Retailing Sector – A Preliminary Insight

The first part of our paper depicted the theoretical fundaments of agility in the context of organizational
change. Also, there were presented various theories and scientific opinions of researchers about the
special role of agility within the framework of organizational transformations. In order to particularize
the presented constructs, the study will focus on specific benefits of introducing agility policies and
methodologies in the case of projects or activities from the retail industry.
In this vein, two questions are to be answered: why it is necessary to introduce agile policies and
methodologies in the projects/in the current activities of companies? and which are the implications of
applying agility policies and methodologies within the companies - will they ensure better results than
the traditional models?
The imperative of using agile principles in organizational change responds to the need of adapting to the
fast-changing context of global retail market. Some relevant big figures are meant to provide a thorough
image of the setting. The study of Price Waterhouse Cooper about reshaping the retail experience of
online consumers may be considered a milestone. It was conducted in 2012, comprising 7.005 online
consumer interviews worldwide (only 1.000 online customers in the United States). Based on the big
number of respondents and on the sociological methodology for data collecting, the study may be
considered representative for the retail market. Analyzing the results of the study, we can resume the
following key points (PwC 2012).
Firstly, as far as general purchasing on goods online from the retail market is concerned, the average
value shows that more than 40% of the population of the Western Europe purchase goods online (with a
peak over 50% in Germany, Switzerland and France). As forecasted for 2015, the figures showed an
average of 49% for Western Europe and 70% for UK and The Netherlands. To the best of our
knowledge, there has not been released new statistic data liable to confirm the forecasted data values for
2015. Secondly, in what concerns multichannel shopping, the study emphasizes that more than 86% of
global respondents (in comparison with 65% in US), shop across a multiple number of different channels
(online shopping, bricks and mortar, mobile applications, TV shopping, catalogue eso.) - even when
goods from the same retailer are purchased, the consumers use more than one channel (the highest
average of 45% was recorded in Hong-Kong). Thirdly, more than 80% of the respondents (88% in the
US) state that they research a product online before purchasing (when they buy computers, books,
electronics and music). Also, the worldwide respondents posit that, in 60% of the cases (73% in US),
they examine a product online in order to get the best price and best performances for the product.
Fourthly, regarding the perception of the respondents about themselves, 69% of the global respondents
(72% in the US), consider themselves confident in their expertise about purchasing online products (4
and 5 values on a five-point scale).
Considering the aforementioned results, the PwC study concluded that “the single biggest conclusion of
our study is that consumers are leading and shaping the multichannel trend, with retailers lagging
behind” (PwC study, 2012, p. 4). To face this challenges and forecasting the future trends for 2020, PwC
proclaim multichannel shopping as a major force for the retails companies which requires “a significant
increase in agility and flexibility by retailers, driven by a deeper understanding of their customers”
(PwC study, 2012, p. 4). This engenders a new approach about how retailers track consumer behavior
(based on agility measures), how they will operate in the future and how they will manage their supply
chains more agile.
The perspective of PwC representatives about the important role of agility in the retail industry is also
emphasized by other authors, mentors or top consultants in marketing and management fields. In this
574
context, the editors of Thought Works Magazine, consider that “the success in the next few years is going
to be defined by “Retail Agility”, the ability to take advantage of the emergence of a plethora of new
markets, channels, products and customer segment which shows no signs of abating” (Thought Works,
2012, p. 1). Similarly, the conclusions of a relevant study conducted in 2015 by L2Inc., in the retail
market, comprising over 82 brands across six sectors, approach the changing retail landscape and the
drivers of higher degrees of agility (L2Inc., 2015, p. 2). More than 80% of the analyzed brands applied
agility policies and specific methodologies in order to satisfy easier, quicker and better the demands of
their customers. In the majority of the cases, they used a complex solution based on customized e-
platforms with strong cloud capabilities. The usage of cloud capabilities is strongly recommended for
retailers, as more than 76% of Internet users leave an e-commerce site in less than two minutes if they are
unable to locate the product. The agility advantage consists not only of a better management of customer
needs, or stock management, but also of continuous increasing the margin of revenues. All the companies
involved in the study declared that, due to agility strategies applied, they gain on average more than 15%
in revenues than before changing market strategy.
A similar efficient solution for solving the retailers’ problems (in the context of low predictability of the
new emerging markets) using agile concepts, comes from the marketing researchers team of GT Nexus.
In their study, they bring to the fore - as a major problem – the fact that “many retailers are not equipped
to quickly adjust to new customer demand” from many reasons, but especially that “ERP systems track
inventory to shipment but, fail to shed light on transit products as they pass through the supply chain ”
(GT Nexus, 2015, p. 2). In the same article, the researchers of GT Nexus also found two roots for this
problem: sourcing and inventory allocation decision are made 90 to 180 days ahead of consumption
(which leads to lost sales and too many markdowns and inventory obsolescence) and supply chain flows
are rigid and inflexible (which leads to increasing the transport costs and inventory costs). The solution
for solving these problems resides in creating an agile supply chain on a cloud-based platform. This
solution offers the possibility to “easily adapt to its environment” and “increase profits to grater revenue
from sales” (GT Nexus, 2015, p. 3).
Conclusion
The present paper intended to elaborate on two main issues: the first one regarding the necessity of using
agile policies and methodologies in the retail sector and the second one referring to the implications of
agile methods in comparison with the traditional models. Focusing on the presented examples, we may
conclude that agile endeavors applied in retail industry offer a pertinent answer to specific exigencies of
the new globalized market, providing opportunities for predictable revenues and consistent profit. The
most important insight is that leveraging agility is not only about introducing a new technic in the sales
optimization process, but also the assumption of a novel paradigm. To sum up, the new agility
philosophy offers the retailers not only a quick answer to the clients’ needs, but also places companies in
a new paradigm of understanding and acting in the specialized markets, capitalizing agile principles as a
frame for a successful general change.
References
Bi, R., Davison, R.M., Kam, B. and Smyrnios, K.X. (2012), ‘Developing Organizational Agility through
IT and Supply Chain Capability’. PACIS 2012 Proceedings. Paper 64. [Online], [Retrieved July 9, 2016],
from http://aisel.aisnet.org/pacis2012/64.
Braunscheidel, M.J. and Suresh, N.C. (2009), ‘The organizational antecedents of a firm’s supply chain
agility for risk mitigation and response’, Journal of Operations Management, 27(2), 119–140.
Davis, I. (2009), ‘The new normal’, McKinsey Quarterly. [Online], [Retrieved August 7, 2016],
http://www.mckinsey.com/insights/strategy/the_new_normal.
Ghasemi, G.M. (2015), ‘Examining the Relationship of Organizational Agility and Organizational
Forgetting with Organizational Effectiveness’, Journal of Service Science and Management, 8, 443-451.
[Online], [Retrieved June 17, 2016], http://dx.doi.org/10.4236/jssm.2015.83045.
575
GT Nexus (2015), ‘Deliver supply chain agility. How to Meet Fluctuating Consumer Demand through
Dynamic Allocation and In–transit Visibility’. [Online], [Retrieved August 11, 2016],
http://mktforms.gtnexus.com/rs/gtnexus/images/GTNexus-Deliver-SCA-RSI.pdf.
Harraf, A., Wanasika, I., Tate, K. and Talbott, K. (2015), ‘Organizational Agility’, The Journal of
Applied Business Research, 31(2), 675-686.
L2Inc. (2015), ‘L2 intelligence report: E-commerce agility’. [Online], [Retrieved July 24, 2016],
www.l2inc.com/wp-content/uploads/2015/04/E-Commerce-Agility_NYC_April-30_v1.pdf.
PwC (2012), ‘Understanding how US online shoppers are reshaping retail experience’,
PricewaterhouseCoopers LLP, a Delaware limited liability partnership. [Online], [Retrieved June 29,
2016], www.pwc.com/us/en/retail-consumer/publications/assets/pwc-us-multichannel-shopping-
survey.pdf.
Sherehiy, B., Karwowski, W. and Layer, J. K. (2007), ‘A review of enterprise agility: Concepts,
frameworks, and attributes’, International Journal of Industrial Ergonomics, 37(5), 445-460.
Swafford, P.M., Ghosh, S. and Murthy, N. (2006), ‘The antecedents of supply chain agility of a firm:
Scale development and model testing’, Journal of Operations Management, 24(2), 170–188.
Thought Works (2012), ‘Retail agility: Catalyst to successful retailing in the 21st Century’, Retail
Industry Practice. [Online], [Retrieved July 9, 2015],
https://thoughtworks.fileburst.com/articles/retail_agility_21st_century.pdf.
Williams, T., Worley, C.G. and Lawler III, E.E. (2013, April 15). The Agility Factor. Strategy +
Business.
576
The Main Fields of Technology for the Top 10 Universities

In PCT patent application
Petr Zdralek, University of Hradec Kralove, Faculty of Informatics and Management, Hradec Kralove,
Czech Republic, zdralek@atlas.cz
Ruzena Stemberkova, University of Hradec Kralove, Faculty of Informatics and Management, Hradec
Kralove, Czech Republic, ruzena.stemberkova@uhk.cz
Pavla Matulova, University of Hradec Kralove, Faculty of Informatics and Management, Hradec Kralove,
Czech Republic, pavla.matulova@uhk.cz
Petra Maresova, University of Hradec Kralove, Faculty of Informatics and Management, Hradec Kralove,
Czech Republic,petra.maresova@uhk.cz
Kamil Kuca, University of Hradec Kralove, Faculty of Informatics and Management, Hradec Kralov,
Czech Republic,kamil.kuca@uhk.cz
Abstract
In the area of industrial property, patents and utility models are among the traditional and, at the same
time, most important tools of legal protection for technical solutions and inventions. Reliable intellectual
property (IP) statistics are an important tool in understanding trends in policy, business, and technology
worldwide. Translating patent data into intelligence service allows gauging its current technical
competitiveness, to forecast technological trends, and to evaluate commercial potential based on new
technologies developed by worldwide universities. Patent data analysis is a unique management tool for
addressing the strategic management of the technology and product service development process. We
provide analyses from an international perspective, examining patents at 10 universities worldwide.
Despite a worldwide increase in university patenting, empirical studies have largely focused on analyzing
university patenting in individual countries and regions. The main objective of this study is to provide a
review of the commercial potential of university patenting through numbers of PCT application filings.
Keywords: University Patents, Patenting activity analysis, Impact of Patents, Significant patent
information
Introduction
Universities contribute to economic growth through tree main streams of activities. The teaching and
research are the first and second stream of activities of universities and third stream of activities is the
contribution of universities to society by transferring their know-how. This third stream of activities builds
upon the first and second, but it is increasingly being seen as important and distinctive in its own right,
deserving of specific policies and resources to ensure their effective functioning (Veugelers, 2015).
For many technology subjects, developing a patent strategy is an important component of the business
plan. Large subjects can afford an offensive patent strategy, but small subjects may not have the resources
for this. Therefore, it is extremely important for private sector entities, especially small- and middle-sized
companies, to design and implement an effective and cost-efficient strategy for patent management
(Dodds, 2007). Universities are using the patent strategy differently from businesses because they are
usually trying to build commercial exploitation of their inventions. Universities are far more likely to use
the Patent Cooperation Treaty (PCT) than other applicants. Subjects from private sectors tend to file
disproportionally large numbers of domestic patents to protect an already established market, which is
usually their home market. Universities mainly engage in “upstream” innovation and may thus possess
less information about the commercial potential of their inventions than companies do; this also favors the
577
“wait and see” strategy that the PCT offers, whether invention has some commercial potential, and
moving it out of the university (WIPO).
PCT patents is very high among in Great Britain (circa 24%) and Australian universities lag behind
(50.2%). Average PCT activity is in United States of America (23.9%), Germany (21.4%) and Japan
(18.7%). Very low PCT activity is in South Korea (7.7%) and Czech Republic (6.3%). The lowest PCT
activity in university patenting is in China (1.9%) But Great Britain and Australian universities file fewer
patent applications than do their US, European and Asian counterparts (Zdřálek , 2016). If we compare
these German-speaking countries among themselves, the study shows that mutual comparison of the
number of surrendered applications and granted PCT patents Austria stands behind Germany and
Switzerland, if we compare these German-speaking countries among themselves (Štemberková , 2015).
The Main Body of the Paper
One way of measuring the commercial potential of university patenting is to examine patent activity.
Some results showed, that university patenting is highly influenced by government methodology of
evaluation of the results of research organizations (Zdřálek , 2016).
If technology transfer office managers determined that an invention has sufficient internationally
commercial potential, university has been chosen to file a PCT application on an invention. PCT (Patent
Cooperation Treaty) applications allow applicants to seek broad international documentation for an
invention before actually submitting a patent application. PCT patent applications are standardized
worldwide with regard to different aspects, such as formal requirements and a high-quality international
search. PCT application approval applies to the 144 PCT member countries and can help to drastically
decrease patenting costs from national and regional applications. In 2013, universities filed 9,804 PCT
applications. Shares of university filings in total PCT filings stood at 5.1% (WIPO).
Collectively in the world, the public sector organizations have created a set of legal protection that is
lower in number of legal protection cases than the private sectors portfolio. Patent commercialization is an
important issue to most country, but for only 0.3 percent of patent have commercialized in the world (Lee,
2016). The question therefore arises whether specific detachment of scientifically technological thinking
stems from a meagre university involvement in the process of commercialization of inventions developed
by them, whether it also has other institutional base? The main goal of our study is twofold:
What are the top 10 active universities in PCT patent application filing? This research in progress listing
the 10 Worldwide Universities that filed PCT patent application and is published by the World Intellectual
Property Organization (WIPO). To measure patent activity output, we use the number of PCT patent
applications filed by 10 universities between 2006 and 2015.
What is the technology specialization of the top 10 universities? The International Patent Classification
(IPC) and the WIPO Technology Classification were used in this study. The IPC is a comprehensive
patent classification system developed and maintained by WIPO. It provides a hierarchical system of
symbols for the classification of patents according to the different areas of technology (35 distinct
technology fields) (Schmoch, 2008). This WIPO technology classification is a widely accepted technology
grouping system for use in patent analytics (Commonwealth of Australia, 2013 & Fish , 2015)
Our empirical analysis is based on a newly created dataset. Patent data were obtained from the database
Espacenet from European Patent Office (EPO). We developed a variety of search patterns to match the
most active universities. The mining datasets involved two keys:
578
In stage 1, we identified bibliographic data of universities that list one of the 250 universities as applicant
or assignee.
In stage 2, search strings for top 10 of the universities were developed. (WO as the publication number
AND 2015 or 2014 or 2013 or 2012 or 2011 or 2010 or 2009 or 2008 or 2007 or 2006 as the publication
date AND “University bibliographic keywords” as the applicant. Some share of patent´s cases have been
counted twice, if the same application has been published also two times with different kind codes.
In stage 3, new search strings for top 10 universities were developed, because only 500 results can be
displayed in the extended view format. Some very small share of patent´s cases have been counted twice,
if the same application has been published also two times with different kind codes in two different years.
In stage 4, the patent data excel sheets for top 10 universities per year were downloaded from the
Espacenet database (100 excel sheets in total).
In stage 5, the individual datasets for each university were grouped together, but duplicate entries (if any)
weren’t removed. (10 excel sheets in total).
Figures and Tables
Patent publications per year. This first metric refers to the total number of patent documents for each
university published over the study period (1 January 2006 to 31 December 2015). A ranking of to 10
patenting universities shows a huge predominance of US universities.
Table 1: Top 10 universities in filing PCT patent application, published sin 2006 – 2015
Rank University Country Nr. of PCT application

1 University of California US 3669
2 University of Tokyo JP 2176
3 Massachusetts Institute of Technology US 2058
4 University of Texas US 2058
5 Osaka University JP 1238
6 Harvard College US 1218
7 Johns Hopkins University US 1199
8 University Florida US 1145
9 Columbia University US 1095
10 Kyoto University JP 1075
Measuring the distribution of PCT patent application across technology fields. University patents cover
many technology areas. This section provides insights into these areas and assesses the strength of
university patents across different technology sectors. This study uses four metrics to measure the
distribution of patented inventions among the top 10 universities. The top 10 technology areas with the
greatest occurrence as the all listing are Pharmaceuticals, Biotechnology, Measurement, Medical
technology, Analysis of biological materials, Organic fine chemistry, Semiconductors, Computer
technology, Chemical engineering. In table 2 are marked by grey color the 5 most occurrence technology
fields per each university.
Table 2: Top 10 universities in filing PCT patent application, published sin 2006 – 2015
579
Technology Field
Massachusetts Ins. of Tech.
Johns Hopkins University

University of California
Columbia University
University of Tokyo
University of Texas
University Florida
Osaka University
Kyoto University
Harvard College
Computer technology 5% 5% 5% 5% 5% 3% 5% 6% 9% 4%
Semiconductors 8% 12% 8% 2% 11% 3% 1% 7% 4% 9%
Measurement 14% 21% 12% 12% 18% 17% 18% 13% 9% 17%
Analysis biology material 9% 10% 5% 7% 9% 10% 15% 7% 5% 8%
Medical technology 11% 9% 10% 11% 11% 6% 22% 13% 11% 10%
Organic fine chemistry 7% 11% 4% 8% 12% 10% 7% 6% 8% 12%
Biotechnology 24% 26% 15% 21% 25% 27% 28% 17% 22% 31%
Pharmaceuticals 24% 21% 15% 32% 21% 27% 39% 21% 28% 21%
Basic materials chemistry 3% 4% 3% 7% 5% 4% 2% 4% 5% 5%
Chemical engineering 4% 7% 6% 3% 8% 7% 1% 5% 2% 6%
This paper investigated the patent activity of top 10 universities worldwide. It is a first attempt to compare
and study the PCT patent application output of universities across all fields of research on a worldwide
basis. Our study is with limitations based on using of not commercial database Espacenet with lower
functionality than commercial patent information providers and also on limited information about
bibliographic data of universities. Although we try to at first, a descriptive overview by means of a
university patent activity ranking was provided. At second, we performed an analysis to analyze how
different university characteristics influence the number of patent applications across the technology
fields. Our empirical results showed that European universities file fewer PCT patent applications than do
their US, Korea and Japan counterparts. Furthermore, the patent activity output is considerably influenced
by a university’s technological focus on chemistry, especially on biotechnology and pharmaceuticals.
Future research should award more attention to the 250 university worldwide how other university are
influenced by technology fields and provide comparison reveals interesting differences between countries,
which might similarly affect licensing, the generation of start-ups, and other forms and specific factors of
technology transfer on territories
580
Acknowledgment
This paper was supported by the research project - Economic and Managerial Aspects of Processes in
Biomedicine, University of Hradec Kralove, Faculty of Informatics and Management, 2014.
References
Veugelers, R., & Del Rey, E. (2015). The contribution of universities to innovation,(regional) growth and
employment.
Dodds, J., Krattiger, A., Mahoney, R. T., Nelsen, L., Thomson, J. A., Bennett, A. B., ... & Kowalski, S. P.
(2007). Patenting strategies: building an IP fortress. Intellectual property management in health and
agricultural innovation: a handbook of best practices, Volumes 1 and 2, 911-920
Patent Cooperation Treaty Yearly Review, World Intellectual Property Organization, WIPO Publication
No. 901E/2014, ISBN 978-92-805-2499-4.
Lee, Y. P. (2016). Innovation Management of Patent Commercialization. Advances in Technology

Innovation, 1(1), 16-20.
Schmoch, U. (2008). Concept of a technology classification for country comparisons. Final report to the
world intellectual property organisation (wipo), WIPO.
Commonwealth of Australia (2013). Research Performance of University Patenting in Australia: A Pilot

Assessment, Published by: IP Australia, available on: www.ipaustralia.gov.au
Fisch, C. O., Hassel, T. M., Sandner, P. G., & Block, J. H. (2015). University patenting: A comparison of
300 leading universities worldwide. The Journal of Technology Transfer, 40(2), 318-345.
Štemberková, R., et al., (2015), Evaluation of R&D results in German-speaking countries. In Špalková,
D., Matějová, L. (Eds): Proceedings of the International Conference: Current Trends in Public Sector
Research. Brno: Masaryk University, 84-91
Zdřálek , P., et al., (2016), Patent Activity Analysis of Czech Universities at the Industrial Property Office
of Czech Republic. In Špalková, D., Matějová, L. (Eds): Paper presented at the Proceedings of the
International Conference Current Trends in Public Sector Research, Slapanice, Czech Republic, Brno:
Masaryk University.
Zdřálek , P., et al., (2016), Commercial Potential of University Patents, through PCT Application, Paper
presented at the International Conference on Social Sciences and Humanities (SOSHUM 2016) 19th –
21st April 2016 in Kota Kinabalu.
581
Process Framework of Information Modeling for BIM

Execution Planning
Josef Myslin, Czech Technical University, Prague, Czech Republic, josef.myslin@fsv.cvut.cz
Abstract
Modern construction projects are (unlike earlier projects) very complex and complicated. Hitherto
approaches are therefore proving to be problematic or even unusable. Therefore new approaches
are created, usually based on the modeling methods. One of such methodology is the methodology
BIM (Building Information Modeling), which attempts to cover the entire life cycle of a
construction project. This methodology has a boom in recent years. However, there appear
objective difficulties that impede wider application of the methodology. In this article I will deal
with one of these problems. This is a vague process model based on non-standard methodology for
process modeling. The resulting process models show considerable ambiguity and do not provide
the information that we rightly expect from such a process model. The aim is to identify the major
problems of the methodology used and describe how they have (or could have) an impact on the
comprehensibility of the existing process model. Then we will form a basis of methodology really
useful for a comprehensive description of the process model. This methodology will be based on
existing and sophisticated methodology BPMN, which will eventually domain-specifically
adapted to the needs of BIM and construction.
Keywords: information modeling, knowledge modeling, process framework, BIM
Introduction
Modern construction project is characterized by the fact that it is very complex. The project
involves many organizations and projects require close cooperation of experts from many fields.
One of the fundamental problems in terms of management of such projects is to ensure needed
information for all actors. Lack of information is mentioned as a serious problem in many
publications, for example according to papers of Fangxiao, Chimay and Dinghao (2013) or paper
of Sherif, Hassan, Farrel (2014)
Information is logically fundamental aspect of the success of any project - this fact can be
described as permanent and unchanging. However, there was a significant increase in the volume
and complexity of information, which is, moreover, already described by Smith (2007). Thus
becoming a major challenge to the project to be able to provide adequate information to everyone -
not only adequate in terms of quality but also in terms of quantity - here it can be mentioned that
the information must be provided, for example, on time and in the desired format.
The task often contains completely contradictory requirements. One of the requirements is defined
by the need to store and process vast amounts of information of various kinds and from various
fields of human activity. Another requirement speaks about the need to provide this information to
those who need it in such a shape that is appropriate for them. Another situation means that the
ratio cost/quality is not optimal how is described in Bargstädt (2014). These calls usually cannot
be solved by standard methods, because the volume of data is simply too large for conventional
methods previously used in construction. This is also necessary to add also a complex structure of
these data and information. It was necessary to find a different approach able to capture higher
volumes of data and information, and also able to provide views on these entities.
Such an approach is modeling, which is obviously linked to the construction industry since its
inception. Probably we cannot imagine construction without schematics and layouts. And these
drawings and schemes are nothing more than a model - represent an abstraction and simplification
582
of reality according to explanation of Myslin (2011). What is new, however, is the use of
modeling for the entire life cycle of the entire construction project, not only to represent the
specific technical details of the project.
Any such modeling approach requires a defined reasonable procedural framework that defines
roles and their activities and competence. Myslin (2011) shows that such process framework must
be described in a way that is readable by all users. This, however, proves to be a problem - there
are reasonable methodologies for information and knowledge modeling, BIM (Building
information modelling) for example explained by Eastman, Teicholz, Sacks and Liston (2011), but
their process framework is defined very vaguely.
The aim of this article is to analyze the procedural framework, especially with regard to
methodology BIM, and define a new paradigm of process model so as to restrict the uncertainty of
such a model and a model to match the established methodologies, process modeling, or that these
methodologies appropriately and systematically developed with the needs of construction. The
first part of paper is about building information modeling in general. The second part describes
problems in process model of BIM. The third part describes modified process model.
Building Information Modeling

Practice shows that we need a tool that can simulate the process of construction and it meets
certain conditions. Myslin (2011) describes that the model itself is a simplification of the reality
and tries to ignore those aspects of reality, whose importance is zero or minimal at the moment.
However, if the model is actually used, and if it is to be a useful information base must be
simplification and abstraction appropriate to the situation. Oversimplification would lead to the
fact that the model is no longer useful.
Hunht (2010) assumes that the model will be usable to display the entire lifecycle of buildings
including possibility to display dynamic phenomena. In according to Bhatt (2001) it is also very
important to include the interaction between technology and people. It can be concluded that the
method will be applicable if and only if people finds this method useful, if they will be able to use
it, and if they are able to understand the resulting models. Such review must respect the fact that
the structure was involved people with different education, with varying degrees of understanding
of technical sciences. How describe Borrmann, König, Kochand Beetz (2015), Civil engineering
also has its field specifics that must be respected.
Borrmann, König, Kochand Beetz (2015) also think that BIM (Building Information Model) is
precisely such a method which seeks to be a unifying method for the entire life cycle of
applications. This is a relatively new method that is constantly evolving and which still suffers
from certain "childhood diseases". Logic therefore was that commenced consideration of the
application of different methods of information technology for processing large volumes of
information what is described by Whyte, Bouchlaghem and Thorpe (2003). At this time BIM is
developed and first publication on the subject have appeared described by Smith (2007) or Howell
and Batcheler (2016). The method is new, and its practical implementation is quite difficult.
According to Sherif, Hassan and Farell (2014] there is several reasons – conservativeness of civil
engineering, missing support for new method within existing software for construction, distrust.
However, new method is still developing and in several countries is used in big building projects.
Several textbooks exists, for example from Eastman, Teicholz, and Sacks (2011) or from
Autodesk company (2011). There is also the theory of education in BIM created and many
publications about this subject exists from example from Techel and Nassar (2007) or from
Barison and Santos (2010). So teaching of BIM is integral part of many study programmes in
several universities as is described by Matejka, Ruzicka, Zak, Hajek, Tomek, Kaiser and Veselka
(2016)
583
The aim of this paper is not to describe in detail the BIM methodology, but to concentrate on one
important aspect of the method, which in our opinion represents a serious problem and obstacle to
the further development of BIM methodology. This problem still persists, although the
methodology BIM as a complex is fast developing.
Present Process Framework of BIM

As will be shown below, this process model often handle BPMN (Business Process Modeling
Notation) standard in a way that is in contradiction to the BPMN formal definition (2016). The
way of adaptation of BPMN standard often leads to simplification at the expense of process model
accuracy how it is described by Kaiser (2011). Therefore, this fact means, that model may be
difficult to read for those users who are familiar with the general methods of process modeling.
Also, the absence of reasonable standardization is not a good signal for practice.
Description of present process framework of BIM
There are many of ways how to describe process framework of BIM. One of these possibilities is
to describe framework graphically using special graphical notation in official reference manual
(2016). These graphical diagrams try to describe every important process that is a part of BIM
methodology.
This process model shows activities planned and realized during process of BIM modeling. The
base of model is diagram representing overview. This overview is developed by individual process
diagrams for specific processes. We show in the next subchapter that these diagrams have several
problems which can lead to misunderstanding and misusing of BIM methodology. Process
framework is a base of every process – when this process in set in a bad way, people can
misunderstand this process. This can lead (and it usually leads) to bad use of methodology. So we
will see that main problem is ambiguity of process model – this model is not able to define
competences of roles in exact way.
This paper deals with substantive issues within the model, only the modeling methodology itself.
Many problems of factual character arise of inappropriate modeling methodology - it is therefore
appropriate to deal first with the issue of methodology and establish an appropriate methodology
of process modeling within the BIM. Therefore, further in the methodology assessment I will not
deal with specific data in models, such as specific activities, roles and artifacts.
Problems with present process framework
The process modeling methodology is based on BPMN standard (2016). This fact is certainly
positive as BPMN are among today's industry standards for process modeling. It is a mature and
sophisticated methodology; the standard is continuously developed and updated. The problem is
that the way how the BIM procedural framework is modeled in many cases differs from BPMN
standard.
Difference from formal methodology and its standards still cannot be considered as an error. It is
quite common that standard methodologies are adapted to the needs of a particular domain of
human activity. Such methodologies are called domain-specific modeling methododologies by
Bellinger, Castro and Mills (2004) . But this domain specificity must be properly documented by
the standard (although specific domain) and must not undermine the consistency of methodology
philosophy.
In describing the process there are three basic aspects especially important and these aspects need
to be modeled consistently and logically. These aspects are the activities, roles and artifacts as
584
mentioned by Allweyer (2010). Activities describe what to do - activities are the basis for
describing the process in BPMN and similar methodologies (there are methodologies that describe
the process by another way). Very important it is to assign activities to roles, make it clear who is
the executor of activity. Artifacts are used to describe objects that arise during the process, are
used, changing their status - and influence the course of the process. In practice, this includes for
example various documents.
In my opinion, the methodology used has significant shortcomings in the conception of all three
aspects, which I will now try to define more precisely.
Activities are the least problematic of all three aspects that have been mentioned. The problem can
be seen in the fact that activities are modeled as an unconditional follow-up - not take into account
the existence of triggers (time, news etc.) which can trigger individual activities. In this case, we
can understand the process so that activity starts immediately after the end of previous activity. Of
course, this procedure is not excluded, however, but from the model we cannot read this for its
simplicity.
Another problem lies in the vague definition of subsequence - when the process stream is
distributed into independent subsequence, it is not clear how they should be terminated. It is not
clear whether the subsequent process can continue after the end of one subsequence or whether it
must wait until the end of all subsequence. Logical connectors are missing. BPMN methodology
offers several triggers and several logical connectors and there is no reason not to use them – this
fact will be discussed in next part of this paper.
While the activities needed add important information, concept of roles in current process model is
more complicated. What is worse, it can be said that there is no coherent concept of roles.
Although the roles are very important (it is very important to know who is responsible for a
specific activity), the roles are rather marginal in the current process model. Roles are mentioned
only as a part of information about activity.
There is completely lacking comprehensive information about what actions is performed by

certain roles in the model. The only way to find out this information is to carefully go through the
whole process diagram and look at the role of individual activities. What's worse, there are
activities with no specific role defined.
What is meant by the words "all disciplines"? There is no philosophical problem with the activity
realized more roles. Often, however, it causes problems when drawing this fact to the diagram, but
this is a purely technical problem. The problem is that when we talk about any activity that is
implemented by all the roles, it is necessary to define a finite set of roles, which occur in the
process.
Finite (and clearly defined) set of roles we expect as a basic element of wisely defined process.
Without such a set of roles we are not able to process really describe. Defining set of roles as a list
of all roles that appear in the process diagram is possible, but not comfortable and not accurate.
Typically roles are modeled by "swim lanes" which are in BIM process modeling methodology
used by rather strange way. This way completely denies the original purpose of these "swim
lanes". So it is clear that return to standard approach to “swim lanes” should be useful.
Last but certainly very important aspect that has to be discussed is using of artifacts. These are
different entities, which are generated and used in the process. Typically, this includes the various
documents. It is logical that these artifacts can affect the entire process life cycle. And it is a fact
that is not respected in the model of BIM process. Artifacts are shown as entities that exist in a
certain sense out of this process (Fig. 7) and this is not, in my opinion, correct approach.
585
Artifacts are formed within the activities of the process but also there is no further influence of the
process. It is, of course, possible that there may be an artifact, which doesn’t affect the next phases
of process. But this is not usual situation. More frequent situation assumes that the output of one
activity (artifact – typically some document) is used as an input of another activity.
Short evaluation of current approach to process model of BIM

The process model is trying to be simple and easy to understand, without unnecessary information.
Unfortunately, it happens that pervasive information are trimmed and model without them is not
good applicable. The model is always a simplification of reality, but this simplification should be
adequate. As mentioned by Gunasekaran and Kobu (2010) - only the information that is irrelevant
can removed and ignored.
Additionally, the process model in certain aspects uses completely nonstandard approach to some
elements of the model - typical example could be the "redefinition" of swimlanes. It is therefore
concluded that procedural methodology undoubtedly contains errors that need to be fixed. These
repairs will ensure a better understanding of the process model and the improved usability of the
whole methodology BIM. The following paragraphs of the article will therefore be devoted to
basic principles on which the final methodology should be built.
Modified Process Framework

Efforts of creating a modified approach will be based on two fundamental propositions:
• It is necessary to reduce (or eliminate) the problems and shortcomings that were
described in the previous section.
• It must be a standard approach that will be understood by stakeholders of process.
Using a completely new standard could lead to interesting logically consistent methodology, but
this methodology would be unintelligible and incomprehensible for stakeholders.
Basic paradigm of modified approach
The methodology will therefore be based on a proven standard of BPMN methodology. Because
this methodology is perceived as (one of) industrial standard for process modeling and there is no
reason not to use such methodology. It is not possible to remain only in the methodology BPMN,
as defined in its standard. It will be necessary to add elements that are specific for the area of civil
engineering.
Such features, however, will be added so that they become part of the standard. They will be
properly documented and will be designed in way not violating the consistency of the entire
process model. This produces a DSML-based methodology BMPN enriched with domain-specific
aspects of the process.
Since this article we consider an introductory article of our efforts to develop a comprehensive
methodology, we focus on some of the most important problems that were defined in the previous
section. In pursuit of the same structure we will write especially about some important changes
particularly in the area of activities, roles and artifacts of the process.
In the field of representation activities was a major problem in the absence of connectors and
triggers. There is not much need to change the industry standard BPMN methodology. It offers
both areas needed opportunity adequately to express everything that is need, which is also shown
(Fig. 1).
586
Figure 1: Implementation of trigger and connector – own construction
What can be regarded as a representation beyond the BPMN, is the phase of the process. In some
cases, it can actually prove to be advantageous to be able to divide the process into phases.
Fortunately, such a division can be done in a relatively simple manner that does not disturb the
overall picture of the process (Fig. 2).
Figure 2: Phases of project – own construction
The roles can be very easily (and in accordance with the standard BPMN) address areas of
competence roles. Already mentioned good "swimlanes" - those actually be used, because their
use is actually very common and easy to understand (Fig.3).
587
Problems activities that are processed by multiple roles and their views so far remain unresolved.
However, because such activities exist and must be represented in the model, it will be necessary
to address this issue in further exploring the issue of modeling in BIM.
Figure 3: “Swimlanes” for roles – own construction
In the area of artifacts the main problem was in the fact that artifacts exist in isolation. Artifacts
were not connected with other activities, although it was evident that these artifacts are input for
other activities. So the solution is to use BPMN data connection and create connections between
artifacts (Fig. 4).
Figure 4: Connection between artifact and activity – own construction
Overall example of using of modified approach
The modified approach is demonstrated on the specific case. This case is the first of processes
(overview), which is mentioned in the chapter about the current process model. The first reason is
588
that it is possible to compare the various process models. A second reason is creation of a
foundation of BIM process model within a modified approach. (Fig. 5)
The model has become slightly more complicated (there is only a part of process modeled). It is a
fact that cannot be questioned. And unfortunately, in my opinion, it is also a fact which is
necessary to reconcile. The original model had been simplified so much that it stopped describing
the process in the needed way. As already mentioned, the simplification of reality within the
modeling must not cause the loss of important information.
The model is of course possible to graphically improve, thereby saving some space diagram.
However, some elements are definitely added - such as triggers for action, "swimlanes" to define
the role and connection of artifacts in the lifecycle process.
It is important to note that in this initial phase of the research had not been addressed factual issues
of the process, only modeling. In substance, the process is shown completely identical to the
original process.
Figure 5: example of modified methodology – own construction
Conclusion
It is evident that modern construction projects require a new approach, different from the existing
approaches. Such a statement is also shown in many sources, and it needs no further discussion. It
also shows that the BIM methodology for modeling informat
information
ion and knowledge in the process of
construction is built on rational basis and is applicable, although its introduction into routine
practice, of course, not entirely simple.
One of the problems that can be identified is unclear and vague procedural framework fram
methodology BIM - Process models are not clear and may cause complications in understanding
how BIM methodology to be used. It is therefore appropriate to consider the modification of
existing modeling paradigm, or try to create a new paradigm. This would, according to experience,
589
should be based on existing standards, to facilitate understanding, learning and understanding of

this approach to process modeling.
This paper presents an introduction to research, whose aim should be the creation of such a
process modeling methodology that would ensure clarity and brightness process model of BIM.
It identified some fundamental flaws in the process model and design some of them in general
possible solutions. Given that the research is at the beginning, there are not yet implemented the
changes in the processes themselves. Also, some problems, such as show activities involving the
multiple roles are left for further research that proves to be necessary. As a basis is taken BPMN
methodology because it is a proven methodology, and supported by many applications. In this
methodology there are (and will) be designed domain-specific features.
Acknowledgment
This work was supported by the Grant Agency of the Czech Technical University in Prague, grant
No. SGS16/200/OHK1/3T/11
References
Allweyer, T. (2010) ‘Unternehmen als Process Engine? Möglichkeiten und Grenzen mit BPMN‘
Proceedings of BPMN, Potsdam
Autodesk (2011) ‘Realizing the Benefits of BIM‘
Bargstädt, H.-J. (2014) ‘Modern Construction Quality – a technological approach to improve

quality and target accuracy for workers‘ Proceedings of International Scientific Conference at
Moscow State University of Civil Engineering, 12-13 November 2014, Moscow.
Barison M. B. and Santos E.T (2010) ‘BIM teaching strategies: an overview of current
approaches‘ Proceedings of International conference on computing in civil and building
engineering 2010
Bellinger, G., Castro, D., and Mills, A. (2004): “Data, information, knowledge, and wisdom”
[Online] [retrieved on Mar., 2016], http://www.systemsthinking.org/dikw/dikw.htm
Borrmann, A., König, M., Koch, C. and Beetz, J. (2015) ‘Building Information Modeling‘,
Springer
Bhatt, G.D. (2001) ‘Knowledge management in organizations: examining the interaction between
technologies, techniques, and people‘ Journal of Knowledge Management, 5, 68-75
Eastman, C., Teicholz, P., Sacks, R., and Liston, K. (2011) ‘BIM handbook: a guide to Building
Information Modeling for owners, managers, designers, engineers and contractors‘. Wiley & Sons,
Inc.
Fangxiao, A. K. J., Chimay J. A. and Dinghao W. (2013) ‘Building Knowledge Modeling:

Integrated Knowledge in BIM’ Proceedings of the CIB W78 2013: 30th International Conference
–Beijing, China
Gunasekaran, A. and Kobu, B. (2010) ‘Modelling and analysis of business process reengineering‘.
International Journal of Production Research, 40(11), 2521-2546
590
Howell, I. and Batcheler, B. (2005) 'Building Information Modeling two years later-huge
potential, some success and several limitations' [Online] [retrieved on Mar., 2016].
http://www.laiserin.com/features/bim/newforma_bim.pdf
Huhnt W., et al (2010) ‘Data management for animation of construction processes‘, Advanced
Engineering Informatics, 24 (4), pp. 404–416
Kaiser J. (2016) ‘Process modeling for BIM‘ Proceedings of Central Europe towards Sustainable
Building 2016 - Innovations for Sustainable Future. Prague, Czech Republic, Grada Publishing,
2016, 781 – 788. ISBN 978-80-271-0248-8.
Kamara, J.M., Augenbroe, G., Anumba, C.J. and Carrillo, P.M. (2010) ‘Knowledge management
in the architecture, engineering and construction industry‘. Construction Innovation: Information,
Process, Management, 2, 53-67
Matejka P., Ruzicka J., Zak J., Hajek P., Tomek A., Kaiser J. and Veselka J. (2016) ‘The
Implementation of Building Information Modeling into Educational Programs at CTU in Prague‘.
Proceedings of Central Europe towards Sustainable Building 2016 - Innovations for Sustainable
Future. Prague, Czech Republic, Grada Publishing, 2016, 853 - 860. ISBN 978-80-271-0248-8.
Myslin J. (2011) ‘Business modelování‘, textbook for education, VSMIEP Prague
PennState (2016) 'BIM Project Execution Planning Guide and Templates Version 2.0',
OMG (2016) 'BPMN reference textbook' [Online] (retrieved on Mar., 2016]
http://www.omg.org/spec/BPMN/2.0/
Sherif M. A., Hassan H.E. and Farell P. (2014) ‘Barriers to BIM/4D Implementation in Qatar’
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Information Modeling, 12-14.
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sustainability design perspective‘ Proceedings of 3rd Int’l ASCAAD Conference on Em‘body’ing
Virtual Architecture 2007
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organization. ‘ Engineering Construction and Architectural Management, 9, 371-377
591
L’effet du Pays d’Origine du Client sur la Perception

de l’Hospitalité dans un Espace Marchand : une Etude
auprès des Clientes Tunisiennes et Saoudiennes
Ghali Zohra
College of Administrative and Financial Sciences, Saudi Electronic University (SEU). Dammam
Branch. KSA
zohragh@yahoo.fr
Résumé
L’objectif de cette investigation est de mieux comprendre l’effet du pays d’origine du client sur la
perception de l’hospitalité de ce dernier dans un espace marchand dans deux contextes culturels
différents. Une étude qualitative a été menée auprès de 10 clientes dans chaque pays (Tunisie et
KSA), rencontrées au hasard dans des espaces marchands. L’analyse des entretiens nous a permis de
constater, d’abord, que les spécificités culturelles du pays jouent un rôle crucial dans la manière de
percevoir l’hospitalité. Ensuite, l’impact de cette dernière sur le comportement du consommateur et
son expérience de consommation est différent d’un pays à un autre. Les apports théoriques, les
implications managériales et les voies futures de la recherche seront dégagés à la fin de cette
recherche.
Mots clés : Hospitalité, origine du client, spécificités culturelles, espace marchand.
The Effect of Origin’s Country of Client on Hospitality Perception

Within a Merchant Space: Study with Saudi
And Tunisian Clients
Abstract
The goal of this investigation is to better understand the effect of origin’s country of client on the
perception of the hospitality within a merchant space in two different cultural contexts. A qualitative
study was conducted with 10 clients in each country (Tunisia and ksa) encountered in two
commercial spaces. The analysis of the interviews allowed us to note, first, that the cultural
specificities of the country play a vital role in the manner to perceive the hospitality. Then, the impact
of the latter on the consumer behavior and the consumption experience is different from one country
to another. The theoretical contributions, the managerial implications and the future research
pathways will be released by the end of this research.
Keywords: Hospitality, origin of client, cultural specificities, commercial space.
Introduction
Depuis les années 80, avec l’essor de l’article pionnier de Holbrook et Hischman (1982) à travers
lequel est apparue la notion de « l’expérience de consommation », la mise en œuvre des facteurs
affectifs et émotionnels dans la compréhension du comportement du consommateur n’a pas cessé de
s’intensifier. A partir de cette époque, les chercheurs ne cessent de démontrer que la visite d’un point
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de vente ne se limite plus à la rencontre des produits et services mais aussi pour vivre des moments
forts de plaisir et de sensation (Fornerino et al, 2005 ; Baker et al, 1986 ; Bouchet, 2004 ;
Hemmington, 2008). L’hospitalité dans l’espace marchand est apparue entant que réponse à cette
nouvelle demande du marché (Mani, 2011 ; Ghali et Gharbi, 2014). Il s’agit de « faire sentir le client
comme s’il est chez lui et le faire partager ce « chez lui » à travers des interactions sociales au sein
du point de vente aussi agréable et séduisante » (Ghali et Gharbi, 2012).
L’hospitalité, initialement connue dans le domaine touristique et de santé (Gotman, 1997 ; Cinotti,
2008 ; Mani, 2010 ; Cova, 2010 ; Pecherit, 2002 ; Tasci et Semrad, 2016), est mise en œuvre ces
dernières années par les managers en distribution pour attirer le client, le mettre à l’aise et le faire
sentir la chaleur de l’accueil et la convivialité de l’espace marchand (Mani, 2011 ; Ghali et Gharbi,
2014). Pour ce faire, les professionnels dans ce secteur sont appelés à comprendre ce que le client
attend de l’espace marchand et ce qui influence davantage son comportement (Mani, 2011). Certes, à
l’ère de la globalisation, les marchés sont ouverts et les mêmes marques sont présentes dans
différents pays et continents. Pour cette raison, les managers sont appelés à s’adapter aux contextes et
cultures locaux des clients. L’hospitalité en particulier doit être conçue par rapport aux spécificités
culturelles de chaque pays (Milon, 2004 ; Silvano, 2004 ; Gheude et Hullebroeck, 2007, Cinotti,
2011 ; Gheude et Hullebroeck, 2007). Autrement dit, l’environnement social et physique qui favorise
l’hospitalité doit être conçu en harmonie avec l’identité culturelle du client dans chaque pays
(Silvano, 2004, Baker et Grewal, 1986). Cette dernière peut être conçue de différente manière, de
même sa mesure et ses dimensions constituent des sujets de controverse entre les chercheurs (Dollot,
1996 ; Hofstede, et Bollinger, 1987 ; Journet et Dortier, 2002). Cependant, son impact sur le
comportement du consommateur ainsi que ses réactions face à son environnement ne cessent d’être
abordé par les chercheurs dans plusieurs disciplines (sociologie, philosophie, marketing, …) (Dollot,
1996 ; Dubois, 1987 ; Phinney, 2008). L’objectif de cette investigation est de mieux comprendre la
relation entre le pays d’origine du client et la perception de l’hospitalité de ce dernier dans un espace
marchand dans deux contextes culturels différents. Notre choix a été fixé sur le contexte tunisien et
celui saoudien. La question fondamentale de notre travail est la suivante : Dans quelle mesure
l’origine du client influence-t-elle sa perception de l’hospitalité dans un espace marchand ?
Pour répondre à cette question, nous essayerons de mieux appréhender, tout d’abord, le terme de
l’hospitalité dans un point de vente, puis le concept de l’origine du client selon une sphère culturelle
et enfin le l’effet de cette dernière sur l’hospitalité dans un espace marchand. Notre étude empirique
portera sur l’analyse des interviews menées auprès des clientes d’un espace marchand dans chaque
pays (KSA/Tunisie). Cette investigation se clôturera par une conclusion, apports, voies futures et
limites de la recherche.
Etude de l’Hospitalité dans un Milieu de Distribution

Pour Edmond (1991), l’hospitalité est d’origine Grecque et renvoie au « rite » pour la Grèce antique.
C’est le fait d’envoyer des invités dans tout le pays en leur garantissant le bon accueil (Gotmain,
2001 ; Gouirand, 2008 ; Cova et Giannelloni, 2012 ; Tasci et Semard, 2016). Il s’agit aussi d’une
relation entre un accueillant (host) et un accueilli (guest) (Gotman, 2001), spécialement située dans le
territoire (pays, région, ville, ..) de l’accueillant (Montandon, 2004 ; King, 1995).
Depuis le début des années 1990, le concept d’hospitalité a fait le centre d’intérêt des recherches
dans des domaines variés : littérature, philosophie, sociologie, anthropologie, théologie, études
féministes, marketing et tourisme (Edmond, 1991 ; Lashley et Morrison 2000; Gotman, 2001; Cinotti,
2008, Gheude et al, 2007, Picherit J-L, 2002).
Pour les philosophes, l’hospitalité est considérée comme une vertu d’une grande âme (Frère Denis
Hubert, 1996). Il s’agit d’un partage inconditionnel du «chez soi» sans s’attendre à une contrepartie
(Ricoeur, 1998 ; Gheude et Hullebroeck, 2007). Les sociologues la considèrent comme un fait social,
un rite de passage ou un moment de cohabitation (Cova et Giannelloni, 2012). Dans ce cas de figure,
l’hospitalité est caractérisée par des rituels sociaux (offrir le gîte et/ou le couvert) et donc ayant des
objets marqueurs, des comportements, des séquences, des règles… Cova(2010) réconcilie les uns et
les autres en considérant «l’hospitalité, une manière de vivre ensemble, régie par des règles, des rites
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et des lois». Le geste d’hospitalité pour Mani (2011) n’est pas facile à mettre en œuvre vu qu’il n’est
pas spontané ni aisé et fait appel à un effort supplémentaire de la part de son metteur en scène.
Aujourd'hui, la définition la plus commune de l'hospitalité en tourisme est « l’action de recevoir chez
soi un étranger» (Cinotti, 2011). Ces dernières années, l’hospitalité est inventée dans le domaine
marchand (Cova et Giannelloni, 2012). Mani (2010) l’a étudié dans le site marchand virtuel. Ghali et
al (2012) ont testé son rôle dans la stimulation d’une expérience de consommation dans un
hypermarché. Dans ce cas de figure, les auteurs ont considéré que « l’hospitalité signifie une
dimension humaine et un ensemble de pratiques mises en œuvre par une entreprise pour recevoir
dans un cadre convivial les acteurs susceptibles de contribuer à son succès commercial et les faire
sentir comme si chez eux ». Il s’agit dans ce cas d’« un partage de chez soi » favorisé par un cadre
physique convivial et des interactions sociales chaleureuses au sein de l’espace marchand.
L’hospitalité n’est pas uniquement un accueil chaleureux mais aussi un véritable don (Milon, 2001,
Ghali et Gharbi, 2012, Cova et Giannelloni, 2012). Un tel don qui ne concerne pas uniquement les
responsables (commerçants) de l’espace, mais aussi les clients eux mêmes (Ghali et Gharbi, 2014).
Pour favoriser ce « don », des interactions sociales bénéfiques se manifestent entre les clients et les
vendeurs ainsi qu’entre les clients eux mêmes. Des telles interactions sociales privilégiées par un
cadre physique agréable, une architecture séduisante et une offre satisfaisante (Ghali et Gharbi, 2012,
Mani, 2011).
Pour mieux appréhender le concept de l’hospitalité en domaine de distribution qui est à la base
inspiré du domaine touristique, nous avançons dans le tableau suivant un panorama de ses
définitions :
Tableau 1 : Panorama sur la définition l’hospitalité en domaine touristique et de distribution
Auteur(s) Domaine Définition

Lovelock (1992) Domaine Ensemble des services qui devrait, idéalement,
touristique refléter le plaisir de rencontrer de nouveaux clients
et/ou de retrouver des anciens. L’hospitalité trouve
son expression la plus complète dans les rencontres
en tête-à-tête.
Schérer (1993) Domaine C’est un sentiment d’amour puisque celui qui aime
touristique ou celui qui reçoit passe son âme à
l’autre et reçoit la sienne de lui
Ricoeur (1998) Domaine Le partage du « chez soi ».
Telfer et al (2000) touristique
Hemmington, (2008)
Gotman (2001) Domaine Obligation librement consenti, appartient à la sphère
touristique de don de façon qu’elle interdit toute sorte de calcul
et l’on ne devrait pouvoir la monétarisée
Silvano(2004) Domaine C’est une possibilité d’accueil de l’autre, apparaît,
touristique dans une conjoncture relationnelle, comme une
figure centrale dans la conception du travail de
terrain ».
Montandon(2004) Domaine une manière de vivre ensemble, régie par des règles,
touristique des rites et des lois.
Gouirand (2008) Domaine la seconde phase du processus d’accueil après la
touristique reconnaissance et avant le maternage,
Cinotti (2009) Domaine C’est un jugement des touristes concernant les
touristique rencontres dans une destination où ils se considèrent
comme étrangers.
Baker (1986) Lieu de C’est l’amabilité, la disponibilité et la serviabilité
distribution du personnel envers le client et aussi l’interaction qui
peut se créer entre les clients.
Bouchet (2004) Lieu de C’est une qualité d’accueil qui doit être ‘chaude’
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distribution dans le sens où l’absence de personnel d’accueil ou

de contact pourrait nuire à la satisfaction des
magasineurs ou engendrer une mauvaise image.
Lovelock et al (2008) Lieu de C’est un service périphérique qui entoure un service
distribution de base et qui devrait refléter le plaisir de rencontrer
de nouveaux clients et/ou de retrouver des anciens.
Mani(2010) Site C’est la générosité de la part de celui qui la pratique.
marchand
virtuel
Ghali et Gharbi (2012) Lieu de Les pratiques mises en œuvre par une entreprise
vente pour recevoir dans un cadre convivial les acteurs
susceptibles de contribuer à son succès commercial
A travers cette fouille de la littérature, nous constatons que ces définitions partagent un certain
nombre des éléments clés en l’occurrence le partage, la générosité et le bon accueil qui forment des
critères déterminants de l’hospitalité et par conséquent l’attractivité du lieu.
Pour mettre en œuvre l’hospitalité, les managers sont appelés à théâtraliser l’acte d’achat (Mani,
2010 ; Ghali et Gharbi, 2012). Ceci ne peut se faire qu’à travers un ensemble de composantes
physiques de l’espace (décor, couleur, musique, aménagement, l’architecture, ..), des gestes, des
pratiques, des phrases et des comportements bien établis afin d’exprimer la chaleur de l’accueil et le
plaisir de rencontrer ses clients (Lovelock et ali, 2008 ; Fernerino et al, 2005). Notre étude portera sur
le genre féminin pour des raisons que nous allons expliquer ultérieurement. Dans ce cadre les auteurs
(Ghali et Gharbi, 2012 ; Guguen-Gicquel, 2010) considèrent que les femmes sont plus affectées par
l’ambiance et l’atmosphère de l’espace marchand que les hommes. Ghali et al (2014) stipulent que les
femmes donnent beaucoup d’importance aux facteurs situationnels et sociaux quant à l’évaluation de
l’expérience de consommation. Dans ce sens, plus que la cliente apprécie une ambiance chaleureuse
et une serviabilité et amabilité des vendeurs, plus que le temps passé dans l’espace marchand est long
et l’attitude envers le produit est positive.
Dans l’expérience de visite du client, l’hospitalité se manifeste en trois temps : le temps de l’accueil,
le temps de l’acte et le temps de départ (Cinotti, 2011 ; Ghali et Gharbi, 2012).
A l’entrée, l’hospitalité s’exprime à travers les expressions de bon accueil (bienvenue chez nous,
bienvenue dans votre/notre centre commercial, …), sourires des agents de l’accueil, une indiction sur
le plan du centre, etc. Pendant l’acte de l’achat, l’hospitalité s’exprime à travers l’écoute, l’attention,
le bon service, la serviabilité, l’information sur le produit, la disponibilité et la gentillesse du
personnel de vente, sans oublier le cadre atmosphérique qui doit être agréable et convivial pour
stimuler une expérience de consommation chargée de sensations et de plaisir. A la sortie, l’hospitalité
s’exprime au passage en caisse à travers un sourire et une serviabilité du caissier mais également par
un bon de réduction, un échantillon gratuit ou un cadeau offert. Puis au moment du départ, un
message de politesse visant à remercier le client pour sa visite et le plaisir de le revoir prochainement,
etc. (Montandon, 2008 ; Ghali et Gharbi, 2012, Cova, 2010).
En ce qui concerne la mesure de l’hospitalité, les auteurs la considèrent comme un concept

pluridisciplinaire, riche et généreux, cependant, sa conceptualisation reste ambigüe, rarement traitée
et mesurée dans le monde de la distribution (Montandon, 2004 ; Mani, 2011 ; Tasci et Semrad, 2016).
Nous distinguons à titre d’exemple l’échelle multidimensionnelle de Brotheron (2006) de l’hospitalité
en tourisme. Elle est composée de quatre dimensions: où ? (dimension spatiale : le lieu de
l’hospitalité), pourquoi ? (dimension humaine : les motivations et rapports humains), quand ?
(dimension temporelle : les occasions d’hospitalité) et quoi ? (dimension physique: les produits
associés). Pour cet auteur, il existe des différences culturelles quant aux perceptions et pratiques de
l’hospitalité. Ces dernières années Tasci et Semrad (2016) ont présenté une tentative de mesure de
l’hospitalité dans l’activité de restauration qui s’exprime sous forme d’un « très bon accueil » du
client. Quant au domaine de distribution, à notre connaissance, les mesures sont encore absentes.
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Pays d’Origine du Client comme Composante de son Identité Culturelle

La culture est un concept pluridisciplinaire, ambigu et complexe (Poujol et Labourie, 1979 ; Dubois,
1987, Demorgon, 2000). Sa définition et sa conceptualisation font un débat dans les recherches
antérieures (Journet et Dortier, 2002, Stien, 2012 ; Phinney, 2008). Elles sont dépendantes de l’angle
d’analyse de chaque chercheur et de sa discipline (Dollot, 1996).
Cuche (1996) et Demorgon (2006) considèrent que la culture est un moyen d’adaptation à
l’environnement à travers la langue, les expressions verbales et non verbales, les attitudes, les
comportements, etc. Pour Dubois (1987), la culture englobe tous les éléments de la société et
s’articule autour de quatre principales propriétés : elle est globale, partagée, transmissible et
évolutive. Pour cet auteur, la culture se manifeste en termes de comportements qui sont différents
d’une culture à une autre. Ces comportements renvoient à une certaine façon de se nourrir, de se vêtir,
de se loger, se parler, d’exprimer ses sentiments et ses états d’âme.
A partir de la définition même de la culture entant qu’« expression de la totalité de la vie sociale de
l’homme » (Taylor, 1871 cité par Dollot, 1996) nous pouvons déduire de ceci qu’elle impacte ses
réactions, ses attitudes et ses interactions. Pour Henderson et Clark (1990), les caractéristiques de
personnalité des individus de chaque nation/pays sont distinctes sous l’influence du facteur culturel.
En comportement des consommateurs, les études transculturelles visent à identifier les similitudes et
les différences existantes entre les nations (Hofstede et Bollinger, 1987 ; Karahanna et ali, 2005). Ces
derniers ont soulignés le facteur spatial comme critère de distinction entre les comportements des
gens. Les personnes de même pays ou de même société partagent généralement les mêmes
comportements et réactions face à une action commerciale.
Pour Reichling (2013), l’identité culturelle caractérise un individu et lui distingue des autres. Il s’agit
d’un aspect de la notion globale d’identité, se caractérise par le sentiment d’appartenance à un groupe
culturel (Phinney, 2008, Dollot, 1996, Armstrong, 1996 ; Charai, 2014). Selon Marchal (2006), une
langue, une histoire, une religion et un territoire commun sont certains déterminants de l’identité
culturelle d’un pays. Pour cet auteur, nous distinguons l’identité culturelle à l’échelle nationale,
internationale, régionale ou locale. Pour Prichling (2013), dans le même pays nous distinguons des
identités culturelles aux fils des communautés. A l’échelle internationale, l’identité culturelle
caractérise le peuple dans chaque pays et le distingue des autres (Karahanna et al, 2005, Charai,
2014).
Hofstede et al (1987) ont tenté de caractériser l’identité culturelle d’un peuple de même nation à
travers une enquête menée auprès d’une MNE américaine qui s’étend dans plus que cinquante pays
du monde. L’objectif de l’enquête par le même questionnaire distribué aux employeurs dans toutes
les filiales est de repérer les différences entre les valeurs culturelles du pays. Au total, ils ont pu
dégager quatre dimensions de l’identité culturelle. D’abord, nous distinguons
l’individualisme/collectivisme qui porte sur la relation d’un individu et ses congénères. Ainsi le degré
d’individualisme d’un pays est statistiquement lié à sa richesse (Charai, 2013). Les liens vont de très
lâches (on veille à ses intérêts proches) à très forts (on veille aux intérêts du groupe.). Ensuite, nous
distinguons la distance hiérarchique qui s’exprime en degré de distance hiérarchique lié au degré de
centralisation de l’autorité et au degré d’autocratie de la direction. Dans notre cadre, il s’agit des
influenceurs sur le processus de choix et d’achat. Puis, le contrôle de l’incertitude, qui fait référence
au degré d’acceptation du risque de la part de l’individu ou de la société. Les sociétés qui recherchent
la sécurité vont chercher à maîtriser l’incertitude de trois manières telles que la technologie, les lois et
les règles, les religions et la science et enfin, la dimension masculinité/féminité : cette dimension
traite de la division des rôles dans la société entre sexes. Nous allons donc classer les sociétés selon
qu’elles maximisent ou minimisent le rôle des sexes. Dans les sociétés masculines, la division des
rôles des sexes a été maximisée (Japon, KSA, …). Dans les sociétés féminines, les valeurs
dominantes sont plus associées au rôle de la femme (Pays-Bas, Pays Nordiques…).
Plus tard (1991) est apparue une cinquième dimension de l’identité culturelle qui est l’orientation du
long terme vers le court-terme pour Prichling (2013). Sur le long terme, l’individu a des valeurs
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orientées vers le futur, par exemple faire des économies et être persévérant (Charai, 2014). À court
terme, les valeurs sont orientées vers le passé et le présent, comme le respect pour la tradition et
remplir ses engagements sociaux.
Dans notre étude empirique, nous allons analyser l’identité culturelle à travers ses dimensions. Ainsi
nous allons retenir uniquement les quatre premières dimensions pour mieux appréhender son effet sur
la perception de l’hospitalité dans un milieu marchand.
Relation entre l’Origine du Client et la Perception de l’Hospitalité dans

l’Espace Marchand
L’hospitalité conçue par Silvo (2004) entant qu’un type d’accueil de l’autre qui renvoi à un échange
culturel entre celui qui reçoit et celui visite. Cinotti (2011) considère l’hospitalité comme un élément
culturel faisant partie des particularités locales et donc sa mise en œuvre nécessite une bonne
appréhension de l’identité culturelle des visiteurs d’une destination donnée. Dans un milieu
touristique, Phinney (2008) et Armstrong (1996) stipulent que l’adaptation aux valeurs, attitudes et
significations des visiteurs de chaque nation est fortement intéressante pour réussir l’activité
touristique. Ghali et Gharbi (2014) voient que l’hospitalité dans un point de vente doit être adoptée
comme une culture d’entreprise et sa mise en œuvre nécessite l’implication de tous les employeurs et
les employés. Il s’agit d’une adaptation aux attentes du client et à ses valeurs en tout ce qui concerne
la stimulation d’une expérience émotionnelle lors de sa visite du point de vente. Pour Phinney (2008)
et Armstrong (1996), l’origine de l’individu renvoie à son identité culturelle en termes de la langue,
la religion, les coutumes, les habitudes et l’ethnie. Ils doivent être bien appréhendés par tout
investisseur avant de se lancer dans un projet donné. En domaine de distribution, en particulier, toutes
ses valeurs doivent être prises en considération pour mettre en œuvre l’expérience de consommation
du client dans un pays donné. Une telle expérience qui est devenue, ces dernières années, l’objectif de
la visite d’un espace marchand. Pour Stien (2012) et Karahanna et ali (2005) l’environnement culturel
et les caractéristiques individuelles du client influencent ses critères de choix et d’achat. Pour
Arnould et Thompson (2005) et Nilles (2001), puisque les firmes deviennent globales, les
consommateurs sont de plus en plus confrontés à des produits étrangers. L’acceptation de ces derniers
se base essentiellement sur leur capacité à répondre aux valeurs locales ou nationales des clients
(Demorgon, 2000 ; Arnould et Thompson, 2005). En distribution, l’adaptation aux valeurs et cultures
locales/nationales du client, se fait à travers les différentes composantes de l’espace de vente
(physique, sociale, architecturale, accueil, …) (Ghali et Gharbi, 2014).
La Méthodologie de la Recherche
Moyen de collecte des données
Notre objectif principal à travers cette investigation est d’étudier la perception de l’hospitalité dans
deux pays différents culturellement, la Tunisie et l’Arabie Saoudite. Le choix s’est fait sur la Tunisie
et l’Arabie Saoudite pour deux raisons. D’abord nous soulignons une différence dans la culture de
deux pays malgré la langue maternelle (Arabe) et la religion officielle (Islam) communes et ce selon
la LEA1. Aussi, je suis une Tunisienne qui travaille et réside en Arabie Saoudite, donc le choix des
deux champs d’investigation s’avère logique vu le vécu et la connaissance du proche des deux
milieux.
Dans notre cadre nous allons tester l’impact de l’origine du client (ou sa nationalité) sur la perception
de l’hospitalité dans un point de vente selon une approche culturelle. Ceci nous renvoie à étudier
certaines spécificités culturelles du client de chaque pays et leur impact sur la perception de
l’hospitalité dans un milieu marchand. Ainsi, la culture d’une communauté ou d’un peuple d’un pays
est très vague, très complexe et ambigüe, sa définition et ses mesures ont fait, depuis longtemps, une
controverse entre les chercheurs. Dans cette présente recherche, nous allons considérer ce concept
entant que «l’ensemble des valeurs, des attitudes et des préférences partagées entre les gens d’une
société particulière qui s’expriment en des comportements semblables».
1
Ligue des Etats Arabes.
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Le champ de recherche étant quasi vierge et émergeant, il nous paraît pertinent de mieux appréhender
le lien entre l’origine du client exprimant une identité culturelle et sa façon de percevoir l’hospitalité
dans un espace marchand. Une étude qualitative a été alors justifiée dans ce cadre. Des entretiens
semi-directifs ont été menés auprès de dix clientes tunisiennes et dix clientes saoudiennes d’une
grande surface dans chaque pays. C’est sur la base de la revue de littérature sur ce sujet que le guide
d’entretien a été élaboré. Il s’agit de repérer les « noyaux de sens » qui compose l’intervieweur avec
l’interrogé et dont la présence et la fréquence d’apparition sont déterminantes pour atteindre l’objectif
analytique choisi. Ces noyaux renvoient aux différentes dimensions de l’identité culturelle telles
quelles sont conçues par Hofstede et al (1987). Elles sont en nombre de quatre. La première
dimension (individualisme/collectivisme) s’exprime par la nature de l’interaction entre les clients
dans l’espace marchand. La deuxième dimension (hiérarchique) porte sur la personnalité du client
face au processus de choix et d’achat. La troisième dimension (contrôle de l’incertitude) porte sur la
confiance en sa décision et sa façon de générer l’incertitude et le risque. La quatrième dimension
(masculinité/féminité) porte sur le sexe du client et sa valeur dans la société qui s’exprime en traits de
comportement.
L’échantillon et le recueil des données
Un guide d’entretien a été mis au point (voir annexe). Les entretiens ont été menés en face à face dans
chaque pays dont la durée moyenne est de trente-cinq minutes. L’analyse du contenu est effectuée au
fur et à mesure du recueil des données afin de tenir compte de la saturation théorique. Pour le
contexte saoudien, la traduction des questions à la langue Arabe était plus que nécessaire.
L’échantillon interrogé est de convenance et donc n’est pas représentatif de la population puisqu’il se
compose de femmes uniquement. Le choix du sexe féminin revient à des contraintes culturelles en
Arabie Saoudite vu la difficulté de parler à un homme que nous ne connaissons pas ou « étranger »
selon le langage national. Donc, pour rendre les deux échantillons semblables, nous avons choisi un
échantillon composé de dix femmes de chaque pays rencontrées au hasard chez « Tunisia Mall » à
Tunis et « Marina Mall » à Dammam en KSA. Les entretiens ont été menés en Mars 2016 à Tunis et
en Février 2016 à Dammam en Arabie Saoudite.
Quelques spécificités de la culture de chaque pays (Tunisie/ KSA) selon LEA
L’Arabie Saoudite est un grand pays situé au Moyen Orient sur le continent asiatique. Elle est un
pays arabo-musulman. La culture saoudienne est codifiée par la religion et des principes moraux
hérités d'une longue tradition culturelle arabe et musulmane. Selon UNISCO, les saoudiens sont très
attachés à l’islam et aux principes moraux arabes. L'Arabie Saoudite est un Etat islamique et ses
citoyens sont pieux et conservateurs. Faire du shopping ou les courses en Arabie Saoudite est très
intéressant et l’éventail de choix est très large. Les espaces marchands sont très nombreux dans toutes
les villes et le consommateur saoudien est un bon client qui possède un pouvoir d’achat généralement
intéressant.
La Tunisie est un pays de Maghreb Arabe, située en nord Afrique. Sa langue maternelle est l’arabe et
sa religion est l’islam. La Tunisie est un pays touristique, son peuple est connu par son accueil et sa
chaleur. Les recherches sur le comportement du consommateur ont montré qu’il est sociable, ouvert
et cherche à s’épanouir dans son expérience de consommation (UNESCO, 2009, Kessab, 2009. Ghali
et Gharbi, 2012).
Analyser un Entretien : l’Analyse du « Contenu » d’un Corpus Verbal

Les principaux résultats dégagés
Nous proposons d’envisager l’analyse thématique dans notre étude qualitative. Ceci nous demande
d’interpréter les résultats à partir d’un travail de classification des noyaux de sens sans procéder à
l’énumération des extraits distribués dans les thèmes (Bardin, 2001). «Il s’agit de classer (et de
confronter) les propos de chacun des répondants en regard des thèmes et sous-thèmes, élaborés eux-
mêmes en relation au questionnement » (Quintin, 2013).
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Dans ce cadre, un ensemble de questions ouvertes a été posé à certaines femmes rencontrées au
hasard dans un espace marchand dans chaque pays afin d’appréhender le rôle de l’origine du client
dans la perception de l’hospitalité.
En effet, en répondant à la question « parlez-moi des choses qui ont retenu votre attention chez cet
espace marchand ? », les interrogées ont cité plusieurs éléments qui font partie des composantes de
l’hospitalité (Ghali et Gharbi, 2012 ; Mani, 2010). Pour les interrogées tunisiennes, l’accueil,
l’atmosphère architecturale, les couleurs, le parking, la rencontre des amis, l’échange avec les autres
clients sont tant d’éléments de choix d’un espace marchand (Chez Tunisia Mall, il y a une diversité
de l’offre, une disponibilité du produit,(…), je peux rencontrer des autres clients dans les boutiques,
voir ce qu’ils achètent, ce qu’ils portent, leurs avis sur les prix, sur le service, (…) de même je peux
être servi par les vendeurs avec beaucoup de chaleur, de serviabilité et d’amabilité,….Bref je me
sens à l’aise dans cet espace marchand… »-9). Cependant pour les saoudiennes, il y a une
concentration sur les composantes physiques de l’atmosphère du point de vente plus que ceux
sociaux. Pour ces dernières, la disponibilité du produit, l’éventail de choix, la diversité de choix,
l’aération de l’espace, la serviabilité du vendeur…, sont les principaux facteurs de visite de l’espace
marchand pour les saoudiennes (« l’ambiance est séduisante, les vendeuses sont gentilles, serviables,
… », -5,8).
Nous pouvons déduire de ces réponses que pour les tunisiennes, aussi bien le facteur physique que
social sont primordiaux pour choisir l’espace marchand. Pour les saoudiennes, nous remarquons
qu’au total il y une concentration sur le facteur physique plus que social (déjà l’interactivité avec les
autres clientes est citée uniquement par deux clientes interviewées).
Quant à la question sur les interactions sociales et son influence sur la décision de choix et d’achat
(dans l’espace marchand, préférez-vous parler avec les autres clients ou les vendeurs pour échanger
les avis sur les produits que vous cherchez ?), nous remarquons, généralement une différence dans les
réponses des interviewées dans les deux pays. En Tunisie, beaucoup des femmes interrogées (7 sur
10) expriment leurs besoins de parler avec les vendeurs dans l’espace de vente pour avoir plus
d’informations sur les produits, pour se renseigner sur l’offre et avoir un avis si le produit leur
convient ou non. De même, elles expriment leurs envies en se référant à l’avis des autres clientes
rencontrées dans l’espace de vente. Quant aux Saoudiennes, elles expriment leur besoin de discuter
avec les vendeurs principalement pour s’informer sur le produit et ses attributs. Cependant peu sont
les répondantes (2 sur 10) qui ont exprimé leurs besoins de discuter avec les clientes pour échanger
les idées sur l’offre, leurs avis,…
Notre quatrième question portait sur les facteurs d’influence sur le processus de choix et d’achat. Les
Tunisiennes notent un ensemble de facteurs que nous pouvons classer en deux catégories, physique et
sociale. La chaleur de l’accueil, les messages de bienvenue et d’adieu transmis par les vendeurs, la
bienveillance ressentie dans l’espace, la serviabilité, la cordialité et la disponibilité du vendeur sont
des facteurs qui attirent le client vers le point de vente et influence sa décision de choix et d’achat.
Quant aux facteurs physiques, nous distinguons l’ambiance, l’atmosphère, la musique, les couleurs,
les odeurs agréables, la disponibilité de places dans le parking, la diversité de choix, …sont des
éléments qui stimulent une expérience de consommation. Pour les clientes saoudiennes, la
concentration était beaucoup plus sur la variété de l’offre (diversité des marques et des niveaux de
prix, …) et la disponibilité de produits. Pour ces dernières, l’atmosphère et l’ambiance sont
importantes mais prennent un sens différent par rapport aux Tunisiennes. Dans ce dernier cas de
figure, les interviewées expriment leur plaisir d’être accompagnées par la famille ou leurs amies pour
passer des bons moments dans l’espace de vente, d’échanger les avis sur ce qu’elles achètent et ce
qu’elles choisissent.
La question 5 de notre interview porte sur la dimension de contrôle de l’incertitude de l’acheteur. La

question était « vous hésitez beaucoup avant d’acheter ? Vous ressentiez du risque ?». Ici, nous
remarquons, généralement, une divergence dans la réponse des interviewées dans les deux pays.
Pour les Tunisiennes, prendre suffisamment du temps pour découvrir toute l’offre disponible dans
l’espace de vente, comparer les prix de différentes marques, prendre l’avis de les accompagnants,
négocier le prix avec le vendeur, apparaissent comme des attitudes tout à fait normales avant de
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conclure l’acte d’achat (« Bien sûr je dois tourner tout l’espace, accéder à toutes les boutiques ayant
des offres pareilles, comparer les prix et les négocier avec les vendeurs si c’est possible ou se
renseigner sur certains attributs des produits, d’accéder au cabinet d’essayage et voir si l’article me
convient ou pas, … »-6).
Pour les Saoudiennes, d’abord le sujet de la négociation de prix avec le vendeur est cité par une seule
cliente et s’il ya discussion avec le vendeur c’est généralement pour se renseigner sur l’emplacement
de produit, les tailles disponibles, le mode de paiement… Ensuite, puisque l’essayage du produit dans
la boutique n’est pas possible vu l’absence de cabinets spécifiques pour chaque boutique (cependant
il existe un ou deux cabinet(s) d’essayage commun(s) pour chaque « Mall »), le temps passé dans la
seule boutique est beaucoup plus réduit par rapport au cas tunisien. Enfin, le choix du produit pour la
Saoudienne est généralement une décision individuelle ou après une légère discussion avec
l’accompagnant. C’est pour cette raison que le processus de choix et d’achat est beaucoup plus rapide
et simple, généralement, pour les Saoudiennes par rapport aux Tunisiennes.
En ce qui concerne la question (« ça vous dérange de parler avec un client ou un vendeur

homme ? ») qui porte sur la dimension masculinité/féminité de l’identité culturelle, les réponses des
répondantes dans les deux pays marquent une divergente. Pour la majorité des Tunisiennes
interviewées (9 clients sur 10), la question du sexe du vendeur n’a pas de valeur puisque l’essentiel
pour elle est de trouver le bon accueil, la serviabilité, la cordialité, la générosité, la compétence, la
chaleur de l’accueil et la disponibilité du vendeur (se) indépendamment de son sexe. Même parfois le
fait de discuter avec un client-homme et échanger les avis sont préférées dans certains cas puisqu’il
ajoute à la cliente une confiance en soi (« je veux savoir l’avis d’un homme sur ce que je porte (…)
ça me rassure davantage et ajoute une confiance en moi » -4). Dans le cas saoudien, les clientes
interrogées expriment leurs préférences aux vendeuses (sexe féminin) (Je veux échanger avec la
vendeur (se) mais je me trouve plus à l’aise si elle est femme)- 1, 3, 8). Elles se sentent plus « à
l’aise » avec une vendeuse plus qu’un vendeur (homme). Dans ce cas de figure, dans les boutiques ou
il n’y a que des vendeurs-hommes, l’interaction portait uniquement sur le produit et ses attributs
(disponibilité, taille, emplacement dans la boutique, …). De même, si la cliente est accompagnée par
un homme (époux, père, enfant, …), c’est celui-ci qui se chargeait, généralement, de discuter avec le
vendeur (6 clients sur 10 ont indiqué ce constat).
Quant à la dernière question : « Ce que vous trouvez dans cet espace marchand répond –t-il à vos
attentes ? », la réponse des clientes étaient généralement positives. En effet, à travers cette question,
nous avons voulu tester le niveau de satisfaction des clientes dans les deux pays à l’égard des produits
d’habillement offerts sur les deux marchés. Pour les Tunisiennes, elles sont généralement satisfaites
malgré l’absence de certaines marques comme « H &M » qui est très attendue par les Tunisiennes,
(oui aujourd’hui, il ya plein de boutiques qui offrent une large gamme de produits avec diversité de
choix et de différents prix, sincèrement je trouve ce que je cherche- 8). Pour les Saoudiennes, la
satisfaction est presque totale, puisque toutes les interviewées ont considéré que l’éventail de choix
est large et presque toutes les marques sont disponibles sur le marché.
Discussion des résultats
Notre recherche avait pour objectif de mieux appréhender l’impact de l’origine du client sur la
perception de l’hospitalité dans un espace marchand. L’analyse des interviews nous a permis de
dégager certains résultats. Généralement, dans les deux cadres, nous pouvons souligner l’existence
d’une hospitalité perçue dans l’espace marchand. Se sentir comme chez elle et partager des moments
de plaisir avec les « autres » sont des facteurs communs pour les enquêtées des deux pays. Un partage
de chez soi est une tentative adoptée par les espaces marchands de deux pays sauf que la façon de
mettre en ouvre ce partage est différente.
Les stimuli de l’hospitalité sont généralement de deux catégories (Mani, 2010 ; Ghali et Gharbi,
2012) : une physique et une autre sociale. En ce qui concerne la dimension physique, la perception est
presque identique dans les deux pays. Il s’agit dans ce cas d’une bonne perception de l’atmosphère
architecturale et l’ambiance de l’espace qui se manifeste en assortiment, couleurs, design,
architecture de l’espace, etc., malgré que le niveau de satisfaction de l’offre demeure beaucoup plus
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importante pour les Saoudiennes vu la présence de la majorité des marques d’habillement

internationales. Pour le cadre tunisien, l’absence de certaines marques très renommées à l’échelle
internationale (H&M ; Promod, Camaïeu,...) revient à notre sens à la taille du marché très restreinte, à
la stratégie adoptée par l’Etat Tunisien quant à la protection de son économie, au niveau de revenu et
de pouvoir d’achat du tunisien.
Quant au stimulus social, notre étude soulève une différence entre les deux cadres. Les Tunisiennes
aiment discuter, interagir et échanger avec les autres clients ainsi que les vendeurs (ses). Pour les
Saoudiennes, l’échange se limite généralement aux proches qui accompagnent l’acheteur. La
discussion avec le vendeur (se) se limite à des renseignements sur le produit et ses attributs. Nous
notons ici la présence de la dimension sociale et les interactivités entre les acheteurs et les vendeurs
dans les deux cas sauf que la nature et l’objet de ce lien sont différents. Ceci revient à des facteurs
culturels puisque, dans le contexte saoudien, la dimension masculinité / féminité est bel et bien
perçue pour des raisons religieuses et sociales. La femme dans ce cadre est limitée dans ses
interactions sociales et beaucoup plus réservée par rapport au contexte tunisien.
Pour la dimension « contrôle de l’incertitude », nos résultats montrent que les Tunisiennes s’avèrent
plus hésitantes dans leurs achats que les Saoudiennes. Ceci s’explique par plusieurs facteurs : d’abord
le pouvoir d’achat supérieur de la cliente Saoudienne renforce sa confiance en soi et réduit son temps
de l’expérience d’achat puisqu’elle est moins hésitante et son processus de décision moins long par
rapport aux Tunisiennes. Ensuite, le niveau de satisfaction est plus important dans le cas saoudien car
le produit recherché est aisé. Enfin, pour les Saoudiennes, les influenceurs sur son choix ne sont pas
trop nombreux puisqu’ils se basent essentiellement sur ses propres critères et sur l’avis des
accompagnant(e)s (époux, enfants, membres de famille, voisine, amies, …) ainsi les interactions
sociales dans le lieu de vente sont un peu réduites par rapport au cas tunisien.
A travers nos résultats nous pouvons conclure que dans les deux cas (saoudien et tunisien), il existe
une hospitalité perçue par les clientes cependant la façon de percevoir cette hospitalité est influencée
par l’identité culturelle de la cliente. Dans cette présente investigation, nous avons retenu quatre
dimensions de cette variable (masculinité/féminité ; distance hiérarchique ; contrôle de l’incertitude et
individualisme/collectivisme) ainsi nous avons adapté ces dimensions en ce qui concerne le champ de
notre étude (comportement au sein d’un point de vente). L’hospitalité entant que « partage de chez
soi » se ressent par la clientèle des deux pays. Autrement dit, les clientes se sentent à l’aise,
épanouies, aperçoivent le bon accueil, la serviabilité et la générosité des vendeurs. Les interactions
sociales sont aussi bien aperçues sauf qu’elles se limitent aux personnes accompagnant l’acheteur
dans le cas saoudien avec des discussions assez brèves avec les vendeurs. La distance hiérarchique est
aussi influencée par la culture de l’acheteur puisque le processus de choix d’une Tunisienne est
influencé par plusieurs facteurs (budget, avis des accompagnants, expérience émotionnelle vécue,
générosité du vendeur, discussion avec des autres clients, …) ainsi le temps de choix et d’achat est
plus long. Quant à la Saoudienne, les influenceurs sur son processus d’achat sont généralement les
personnes qui l’accompagnent, la cadre physique ainsi que les attributs du produit.
En conclusion, nous pouvons dire, que dans le cadre tunisien, les comportements des clients sont un
peu inspirés du cadre européens, principalement français, connus par l’ouverture, le partage, la
préférence à l’interaction et l’échange. Pour les saoudiennes, les pratiques consuméristes sont un peu
américanisées avec le poids prépondérant de la culture arabo-musulmane traditionnelle dans plusieurs
pratiques au sein du magasin (rapport client/vendeur, types de services attendus, processus de choix,
préférences,..).
Apports de la Recherche
Notre investigation présente des apports théoriques ainsi que des implications managériales. Au
niveau théorique, cette recherche nous a permis une meilleure compréhension de l’effet du pays
d’origine du client sur la perception de l’hospitalité dans un espace marchand. A notre sens, les
recherches sur l’hospitalité en distribution sont encore très rares. De même le traitement de ce sujet
selon une sphère culturelle est encore absent dans le contexte Tunisien et celui Saoudien.
601
D’un point de vue managérial, nous pouvons dire aux professionnels dans le secteur de distribution
que le client, quelque soit sa nationalité et son origine, cherche à vivre des expériences de
consommation dans un cadre thématisé centré sur des produits et services. D’ailleurs, l’objectif
primordial de la visite du point de vente est, généralement, de vivre des moments de plaisir, de
sensation et d’activation en choisissant et achetant le produit à travers un cadre spatial agréable ainsi
qu’un bon accueil, une serviabilité, une générosité et un bienveillance de la part des vendeurs
(Fernerino et al, 2006 ; Mani, 2010, Cova et al, 2012 ; Ghali et Gharbi, 2014). Ces éléments
constituent un stimulus de l’hospitalité dans un milieu de vente qui permet au client de se sentir
comme si « il était chez lui » ainsi que partager ce « chez lui » avec les autres (clients ou personnes
qui l’accompagnent). Pour mettre en œuvre cette hospitalité, il est primordial aux managers dans ce
secteurs de s’occuper de toute composante sociale et physique de leurs espaces de vente et mettre en
scène l’acte d’achat indépendamment de l’identité culturelle du client. Sauf que, pour le cadre
physique, la standardisation du concept du magasin est possible puisque les attentes des clients de ce
coté sont presque pareilles indépendamment de la culture ou des lieux. Cependant, pour le facteur
social, il fallait adapter la nature des interactions et des liens sociaux (clients/vendeurs) à la culture
locale du client. Ceci appelle à une attention particulière au rapport masculinité/féminité dans certains
pays (en l’occurrence KSA), la valeur des interactions sociales dans la stimulation de l’expérience de
consommation, le sexe privilégié pour le vendeur, la préférence quant aux contacts humains au sein
du magasin,…
Limites et Voies Futures de la Recherche

Quant aux limites de notre recherche, elles sont nombreuses, nous citons à titre d’exemple la taille de
l’échantillon (Dix clientes dans chaque pays) qui est relativement réduite ainsi que la non
représentativité de l’échantillon sélectionné. De même, nous avons exprimé l’origine du client par
certaines spécificités culturelles d’un pays en principalement quatre dimensions (masculinité
/féminité ; contrôle de l’incertitude ; distance hiérarchique et individualise/collectivisme) alors que ce
concept est si complexe et ambigu et ses mesures sont trop nombreuses de façon que les recherches
n’arrivent pas encore à cerner et appréhender.
Cette contribution ouvre de nombreuses voies futures de recherches dans le domaine du marketing
culturel. Notre recherche a besoin d’un prolongement pour proposer un modèle conceptuel mettant
en relief les relations entre certains déterminants d’une culture d’un pays et les mesures de
l’hospitalité dans un espace marchand. De même, la détermination de l’échelle de mesure de
l’hospitalité dans un milieu de distribution sera un ajout à la littérature dans ce domaine.
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Annexe : Guide d’entretien
1. Parlez-moi des choses qui ont retenu votre attention dans cet espace marchand ?
…………………………………………………………………………………………………
………………………………………………………………………………………………..
2. Voulez vous visiter l’espace marchand seule ou avec des amies ou familles ?
…………………………………………………………………………………………………
………………………………………………………………………………………………..
3. Préférez-vous discuter et échanger avec les autres clients dans l’espace marchand ?
…………………………………………………………………………………………………
………………………………………………………………………………………………..
4. Sur quelle base vous faites votre choix ?
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………………………………………………………………………………………………...
5. Préférez-vous que le vendeur soit homme ou femme ?
…………………………………………………………………………………………………
………………………………………………………………………………..
6. Êtes-vous influencés par l’ambiance, l’atmosphère, l’interactivité avec les autres (vendeurs
et clients) en moment de choix et d’achat ?
…………………………………………………………………………………………………
………………………………………………………………………………………………....
7. Que ressentez vous en visitant ce point de vente.
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605
Negotiations and due Diligence in the Czech Legal System

Mgr. Lenka Hanáková
Tomas Bata University in Zlín, Faculty of Management and Economics
Institute for Regional Development, Public Administration and Law
Mostní 5139, 760 01 Zlín, Czech Republic
lhanakova@fame.utb.cz
Abstract
Following 1 January 2014, a series of completely new legislation entered into effectiveness in the
Czech legal environment. In the area of private law, it comprises the new Civil Code, referred to as
Law No. 89/2012, and the Act on Business Corporation, No. 90/2012 Coll. (hereinafter referred to as
the “BCA”). The legal institute of negotiations and due diligence is governed by the Civil Code. This
is defined such that it constitutes performance of the function with the necessary loyalty, knowledge
and diligence (see § 159 of the Civil Code). This legal structure is modified for the corporate
environment by the business judgment rule (see § 51 of the BCA). According to this rule, a person
acts carefully and with all necessary knowledge under circumstances of the same having the
capability, in good faith, to reasonably assume in business decision-making matters that he or she acts
in the informed and defensible interest of the given commercial corporation. Emphasis is placed on
maintaining loyalty. It can be stated that such responsibility is merely limited to that for uninformed,
barely defensible decisions, regardless of the result. The law expressly prohibits limiting this legal
liability, for example, in the contract for performance of this function.
Keywords: Due diligence, business judgment rule, decision-making
Introduction
Issues concerning negotiations and due diligence and the business judgment rule are of major
importance to the activity of each statutory body of a business corporation, which represents the one
responsible for management of the company. Moreover, in any eventual lawsuit, said body is the
party who has to carry the so-called burden of proof, i.e. it must demonstrate that in the specific case
it indeed acted with due diligence. Should the body fail to do so, it is liable for damages caused to the
company due to its decision-making, and respectively it is obliged to relinquish financial benefits
earned in connection with such conduct. If the business corporation is in insolvency, the bankruptcy
court may additionally decide that a member, as well as a former member of the statutory body, is
responsible for fulfilling of obligations of the business corporation to the extent of all of his or her
assets, should the same have known or could have known that the business corporation was insolvent
or in impending decline, yet did not do everything necessary and reasonably foreseeable to avoid this
situation, hence was in contravention of due diligence. In addition, the insolvency administrator may
invite the members of the statutory bodies of the company to issue financial benefits gained through
the contract on execution of the function, and this is possible for two years preceding the declaration
of bankruptcy, should they have not fulfilled their legal obligations as described above.
The issues of negotiations and due diligence and the business judgment rule are essential to the
functioning of a commercial entity’s statutory body. The aim herein is to analyse current legislation
and to emphasise any specific aspects. The hope is that this paper proves an effective tool and is of
assistance to current and future members of such statutory bodies. The author intends to concurrently
highlight any potential difficulties associated with performing the given function.
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The author focuses on currently valid and effective legislation, including papers and publications on
the topic. The author analyses the text of the law. Based on said analysis, they provide an overview of
the legislation, drawing attention to specific aspects of the same and any potential problems.
The Concept of due Diligence
Negotiations involving members of a business’s statutory body are controlled by the rule of due
diligence. General specification of this rule is contained in the Civil Code, although it is amended by
the BCA when pertaining to commercial entities, specifically in § 51 et seq. The importance of this
issue is evidenced by the fact that several experts have written about it, e.g. Broulík, Hámorská,
Dvořák, Šolc, Knoblochová, Petr, Zrzavecký, Hrabec and Stejskalová. When applying the rule of due
diligence to negotiations by members of such statutory bodies, an exemption exists in relation to
members of the supreme authority of companies and cooperatives. The reason for this that partners of
limited liability companies and shareholders of joint stock companies are not members of an elected
body, as generally provided for in § 152 of the Civil Code and closely stipulated in § 70 of the BCA.
As reported by Lavický (2014), the provisions of § 152, paragraph 2 of the Civil Code establish the
legislative construct “member of an elected body”. This refers to a member of an individual or
collective authority of a legal entity who is elected, appointed or otherwise summoned to the
function. Lavický points out that this definition is broad enough to incorporate membership of any
legal entity’s body, excluding the supreme authority (i.e. a members’ meeting or general meeting,
these being the unelected bodies of a legal entity). To all other bodies of a legal entity, a natural
person or legal person is elected, appointed or otherwise summoned.
General Arrangements for due Diligence in the Civil Code
General regulation of due diligence is covered by the provisions of § 159, paragraph 1 of the Civil
Code. In accordance with said provisions, whoever accepts the position of member of an elected
authority thereby undertakes to conduct themself with necessary loyalty and with the due knowledge
and care. The legal provision additionally constructs a rebuttable presumption when it states: “It is
considered that a person acts negligently if the same is not capable of due diligence, even if this
discovery occurs upon acceptance of a position or during its execution, although the said person does
not draw such consequences for themself”. It can be comprehended from the text that general due
diligence comprises three components: 1) loyalty; 2) knowledge; 3) diligence. All of these have to be
fulfilled by the member of the elected body in performance of their function. Loyalty can be defined
as the obligation, when exercising said function, to always to favour the interests of the given legal
person before their own, and ultimately before those of persons close to him or her. Lavický gives an
example of breach of loyalty, this being a situation when a member of the statutory body of a legal
person taps off some funds for his or her own private purposes from the assets of said legal person,
contrary to the interests of said legal entity and outside regulations on accounting management. The
question remains as to what else could pertain to the concept of loyalty. The author agrees with
Lavický that under this concept it can be undoubtedly included the obligation of confidentiality
regarding confidential information which the board member acquires through performing their
function, including trade secrets. An exception may occur under circumstances when disclosure
necessitates, for example, the law, an enforceable judicial decision or another requirement for
properly carrying out the function. Generally, it is here given the obligation to act with due care, i.e.
with necessary knowledge and attention. Due to the fact that § 159 of Act no. 89/2012 Coll., the Civil
Code, establishes the obligation for all members of elected bodies (i.e. not only entrepreneurs) to act
with due diligence, a reasonable recommendation concerning the activities of such entities is to
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consult an expert on every important decision; thereby not allowing oneself to be exposed to the risk
of breaching the obligation to act with due diligence.
From the Decision-Making Practice of the Czech Republic’s Supreme Court
Said Supreme Court stated in its decision on 29 April 2013, Ref. no. 29 Cdo 2363/2011, that the
statutory body is responsible for proper performance (i.e. in accordance with the requirement of due
diligence) of its function, not as a direct consequence of the body’s activities. If a member of such a
body acts with due diligence, the same is not obliged to pay damages to the company, even if said
damages were incurred as a result of such conduct. The Supreme Court referred to its previous case
law in that decision. According to this, the member of the statutory body does not have to be
equipped with all the expertise, capabilities and skills needed for performing all the activities
pertaining to the scope of the statutory body. If a member of the same concludes that he or she lacks
the necessary expertise to ensure matters relating to exercise of their function, he or she is obliged to
guarantee for its assessment a person with the necessary knowledge. Through such a decision the
Supreme Court concluded that due diligence largely constitutes obtaining sufficient information for
making qualified decisions. If a decision of the statutory body is based on the professional judgment
of an expert, this being an individual trusted by the person(s) obliged to act with due diligence, then
the latter does not violate their duty to act with such care.
A further interesting, current decision by the Czech Supreme Court is that dated 27/10/2015, Ref. no.
29 Cdo 250/2015. As to performance of executive competency with due diligence, the Supreme Court
stated that negotiating disadvantageous prices for the company, i.e. instances of selling lower or
purchasing higher than the market price, can be judged - according to the circumstances of the case -
as violation of due diligence. The Supreme Court referred to a number of earlier decisions it had
made, including: a judgment dated 30/10/2008, Ref. no. 29 Cdo 2531/2008; a judgment dated
31/3/2011, Ref. no. 29 Cdo 5189/2008, published in the journal “Soudní judikatura” (Court Case
Law), edition 10, released in 2011, under number 143; a judgment dated 31/3/2011, Ref. no. 29 Cdo
4536/2009; a judgment dated 31/3/2011, Ref. no. 29 Cdo 4596/2009; and other judgments: Ref. no.
29 Cdo 3896/2009; Ref. no. 29 Cdo 2015/2011; Ref. no. 29 Cdo 2018/2011; and Ref. no. 29 Cdo
1955/2010.
The decision by the Supreme Court of the Czech Republic, Ref. no. 29 Cdo 440/2013, concerns the
transfer of burden of proof in disputes over compensation for loss caused by a statutory body. Two
significant conclusions stem from this decision. 1) If it fails to prove that the executive or board
member acted with due diligence, failure in dispute concerns the member of statutory body. This
applies provided that the loss, scope of the loss and causal link between the conduct of the member of
the statutory body and the incurrence of the loss are demonstrated. Should one fail to demonstrate the
incurrence of the loss or the causal link between the incurrence of the loss and the alleged unlawful
conduct, such objective uncertainty shall be construed against the party seeking the compensation for
such damage. 2) A person, who gave an appellate review, states that the defendant disposed of the
company’s funds. The defendant reacts to this assertion by explaining that the funds had been used
for the benefit of the company. The burden of proving his statement (i.e. the defendant’s statement) is
borne by the defendant. The reason is that through the defendant stating the same, which represents a
denial of the infringement’s very existence, the defendant seeks to prevent adverse effects of legal
principles against himself. Proving that the defendant used the finances of the company for this
company does not constitute proof of the loss.
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In this case, the person who gave an appellate review would carry the burden of proof regarding the
incurrence of (potential) loss, since the same proved that the funds the defendant had disposed of had
actually come from the company’s assets. However, the defendant’s assertion that these funds had
been used for the company is categorized as negotiations with due diligence. Therefore, in respect of
this claim, the defendant bears the burden of proof.
This decision was preceded by one of the Supreme Court dated 19/6/2012, Ref. no. 29 Cdo
3542/2011, which also covered questions of transferring the burden of proof (which at the time was
still stipulated under § 194 paragraph 5, second sentence, of the Commercial Code). In accordance
with this decision, the member of the statutory body of the company does not bear the burden of
proof for any assumptions of incurrence of liability for loss caused to the company. Transferring the
burden of proof merely pertains to the duty of the executive or board member to show that they acted
with due diligence. Regarding the loss, as well as the causal link between said loss and unlawful
conduct, the burden of proof is borne by the one claiming compensation for such loss.
Likewise in a decision dated 20/10/2009, Ref. no. 29 Cdo 3775/2008, the Supreme Court of the
Czech Republic arrived at and justified the conclusion that follows. The burden of proof for matters
concerning acting with due diligence (§ 135, paragraph 2, and § 194, paragraph 5, second sentence,
of the Commercial Code) assumes that the chief executive officer of a company with limited liability
shall, in the event of a dispute, specify the circumstances through which it follows that the same acted
with due diligence in the given case; i.e. said person shall state the all relevant facts and produce
evidence necessary for proving such facts.
In a decision on a Criminal Appeal of the Supreme Court dated 18/10/2006, Ref. no. 5 Tdo
1224/2006, it was stated that the concept of due diligence can be understood such that a proper
treasurer would conduct legal negotiations concerning the company´s operations responsibly and
conscientiously, concurrently providing care of its property to the same degree as if it were his own.
Another conclusion reached by the Court in this decision is that due diligence does not pertain to the
expectation of a member (i.e. a member of a statutory body) possessing all the expertise relating to
the listed function. The responsibility of the same can be served by fundamental knowledge that
enables discernment of any impending loss and prevents incurrence of such loss to the managed
assets. The Court is of the opinion that due diligence includes the obligation of a member of a
statutory body to recognize that professional aid is needed from a specially qualified entity, while the
obligation to guarantee such aid also exists.
Legal Modification within the Business Corporations Act
The rule of due diligence governed by the Civil Code is modified by the BCA for members of bodies
of corporations and proctors. The reason for this modification is the fact that members of statutory
bodies and proctors often have to make decisions under circumstances of lacking the ability to access
all information for such decision-making. Alternatively, situations exist when obtaining such
information would prove prohibitively expensive. Eventually it is necessary to arrive at a decision
quickly (hence not fully meeting the requirements of general law according to the Civil Code), while
concurrent delay in adopting such a decision could incur considerable loss for the organization.
Consequently, members of statutory bodies and proctors frequently have to make decisions under
conditions of risk, uncertainty and limited resources; as stated by Chalupa, Reiterman and Holý
(2016). In the provisions of § 51, paragraph 1, of the BCA there is inclusion of the so-called business
judgment rule. This rule applies to members of bodies of commercial organizations and states that the
same thoroughly, and with necessary knowledge, acts such that the same when making business
609
decisions could assume in good faith that they are informed and conduct themselves in defensible
interest of the given organization. This does not apply if such a decision has been made without the
necessary loyalty.
A member of statutory body of a capital company also has, as stipulated under the provisions, the
right to ask an order to be granted concerning commercial management. Naturally, this does not
affect their obligation to act with due diligence. From the way the law is written, it can be drawn that
disloyal behaviour towards the company is never defensible, and should be regarded as the very
negotiation by which due diligence is broken. However, it should be noted that the law does not
envisage application of the business judgment rule in all negotiations, merely in those to be taken in
the context of corporate decision-making. It can be assumed that the distinction between what
actually forms a business decision and what does not is relatively complicated, hence it depends on
the circumstances of the case. Not every decision in the framework of business management would
qualify as a business decision. Thus, the same will not usually comprise negotiations looking
inwardly within the corporation, as these represent matters of internal organization or technical
operation of the corporation, and so forth. However, it could constitute the concept of corporate
decision-making on, for example, the policy on personnel and other such determinations, as stated by
Štenglová et al. (2013).
According to the legal provisions, a member of the statutory body of the capital company may ask the
supreme body of the corporation to issue an instruction concerning business management. The Civil
Code (see § 152, para. 1) includes under the term “member of a statutory body” also individual
authorities of the business, i.e. executives, who do not form a collective authority. In accordance with
§ 156 of the Civil Code, if the authority is a collective, decides on matters of the legal person en
masse. Consequently, it is able to pass resolutions in the presence of or with the involvement of most
of its members, and decides in accordance with the majority voting of the participating members.
However, the aforementioned system does not apply when the responsibility of individual members
of the authority is divided up into certain domains; this potential division of competency does not
absolve the other members of their obligation to oversee how the affairs of the legal person are
governed. Currently, varying views are voiced on this issue. One perspective is that, in the case of a
collective statutory body, it is necessary to arrive at a collective decision for submitting an
application for issuing an instruction. However, an opposite view exists, namely that an application
for issuing the instruction may be made by any member of the statutory body; without this authority
would decide on this procedure in the manner laid down by law. The author of this contribution is
inclined towards the second view. An important role is also played by § 195, paragraph 1, of the
BCA. Its provisions state that if a company has a number of executives that do not form a collective
authority, it requires the consent of the majority of them for a decision on business management,
unless the social contract specifies otherwise.
The institute of due diligence not only protects the associates of the corporation, but also derivatively
protects its creditors. Therefore, if members of the statutory body fail to manage the corporation in its
best interest, they may be responsible for loss to the company and its creditors with respect to legal
liability (see § 159, paragraph 3, of the Civil Code; § 68 of the BCA). According to said paragraph of
the Civil Code, a member of the elected board at the legal entity has effectively a guarantor’s
obligation to the creditor of the legal entity for loss if the former chooses to not compensate for said
loss suffered by the legal entity; such loss having been caused by the individual breaching obligations
in the performance of their function. The scope of such a guarantor’s obligation is determined by the
extent of the loss not recompensed by the member of the board, even though the same is obliged to
610
provide such reimbursement. This applies if the creditor cannot obtain recompense for the loss from
the legal entity.
It can be summarized that the law connects the following requirements with the business judgment
rule: 1) It has to take the form of a business decision; hence, a decision bound to the business of the
corporation and issues of economic importance. This usually concerns decisions taken under the
following circumstances – a) when time is short; b) those associated with risk; c) when it is necessary
to select an option from multiple variants; and d) when it is unclear as to the consequences that shall
arise in the future. This does not pertain to decisions taken due to any obligation stipulated by a law,
statute or treaty for performance of the given function or any binding directions. The reason for this is
that under such circumstances the members of the statutory body do not have their own scope
necessary for decision-making. 2) Awareness. Conditions for this are met if the members of the body
are in possession of sufficient information. The resultant decision has to be based on the widest
possible basis of data. However, this requirement of awareness has limitations, which are denoted by
adopting a rational approach and the member of the body determining in good faith that he is not
arriving at a decision under conditions of insufficient information. 3) The member of the body has to
act in the defensible interest of the corporation. In other words, such members must favour the
interest of the corporation in their decision-making above their own interests or those of some groups
of members. Any measures adopted on the basis of the resultant decision should not endanger the
corporation.
If the conduct of the member is in line with all three of the characteristics above, then the irrefutable
presumption applies that the same acted with caution and in possession of the necessary knowledge.
This is extremely important because, should the company subsequently suffer loss or the level of
revenue anticipated does not materialize, the members of the body cannot be compromised by any
claims from the company for loss or other penalties.
It can be concluded that the implementation of the irrefutable presumption that member of a body
acted properly, has its limits. This limit is a breach of the duty of loyalty. Disloyal behaviour is
always considered as infringements of business judgment rule.
Conclusion
The author has focused on the subject of negotiations with due diligence and the business judgment
rule for the reason that these are highly topical issues. These topics are very wide-ranging, and
detailed analysis would far exceed any one contribution. Therefore, the author decided to only look at
certain aspects. Legislation is contained in both the Civil Code and the BCA. Knowledge of the
subject is crucial not only for those deciding to take on a function in an elected body of a corporation,
but also for associates or shareholders of such companies. The legal regulation is set so that members
of corporation’s bodies bear responsibility for their decisions, yet should not be too scared to arrive at
decisions. It is understandable and normal in commerce that numerous decisions have to be made
under the pressure of time while not all the relevant data information is available. If in such a
situation the member of the body chose not to expose themselves to the risk of liability for any loss,
this attitude could ultimately lead to adverse consequences for the company. Therefore, it is essential
that this matter is addressed by the law. The general rule is that ignorance of the law is no excuse. As
a result, anyone who decides to accept a position on an elected body of a corporation would be well
advised to become fully acquainted with them. Such individuals should always be able to prove that
they have acted in accordance with the law and with loyalty for the given organization. From the
decisional practice of the Supreme Court of the Czech Republic, it is obvious that this constitutes a
611
complex matter, not always completely clear. Therefore, the decisions arrived at by said Court are
extremely important for its practical application. Such judgments reveal how the Supreme Court
views specific statutory provisions and how they have been adopted for application in practice. In
particular, they comprise highly suitable guidelines for the members of elected bodies of
corporations.
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Consumers’ Buying Intention of Environmental Friendly Cosmetic

Products: Perspective of Norm Activation Theory
Siti Munerah, Multimedia University, Cyberjaya, Malaysia, munerah.s@gmail.com
Seethaletchumy Thambiah
Saravanan Muthaiyah
Abstract
The purpose of this paper is to develop an extended model for purchase intention of environmental-friendly
cosmetic products in Malaysia. This study attempts to investigate those factors that influence the purchase
intention of environmental- friendly cosmetic products specifically in Malaysia. Numerous studies have
been conducted on environmental friendly products thus far, but limited studies were focusing on
environmental friendly cosmetic products. Norm activation theory underpins the framework of this study.
The target population of this study is cosmetic users and unit of analysis is individual non-users of
environmental friendly cosmetic products. Non-probability sampling technique, in that convenient
sampling will be employed in this study, since the number of non-green consumers for cosmetic products
are unknown, hence not possible to obtain the customer list. The survey instrument for this study is
structured questionnaire. Approximately 800 questionnaires will be distributed for the purpose of data
collection, in various locations in Malaysia. This research offers significant contribution to the body of
knowledge through exploring the impact of cosmetic companies’ ECSR initiatives on consumer
environmental-friendly cosmetic products consumption intention and it will generate awareness among the
cosmetic companies that are about to embark on environmental initiatives on the importance of influencing
and shaping consumer green consumption.
Keywords: Consumer behaviour, Norm Activation Theory, ECSR, Environmental Friendly Cosmetic
Products.
Introduction
One of the catalysts of green consumerism is the awareness of the destruction of natural resources,
primarily the environment1. Cosmetic companies are championing green policies and promoting
environmental corporate social responsibility (ECSR) to appeal to the current green consumers market and
to encourage behavioural change among non-green consumers. Green or environmental friendly cosmetic
products are good for the environment as compared to the conventional cosmetic products. To drive the
sales of these products, non-green consumers have to change their purchase behaviour towards
environmental friendly products. However, according to Sharma and Garrison2, green concept of cosmetic
products are appealing to the consumer but not to the extent of driving purchases. The concerned about the
environmental issues by the consumers not necessarily translated into purchases3-7. In- depth understanding
on consumer behaviour is crucial to develop an effective marketing campaign in changing consumers’
behaviour towards environmental sustainability. Most of the researches in the field of green cosmetic
industry have dealt with marketing strategies rather than consumer behaviour8.
614
A research on green marketing for green cosmetics market in Thailand revealed that attributes such as
“good value for money”, “product performance”, “safe for skin”, etc are important for green consumers in
making purchase decision9. Another research on green cosmetic specifically on organic personal care
products in USA, showed that consumers’ past experiences with other organic products have a significant
impact on purchase intention for organic personal care products8. Green consumers are known to be the
user of green products and there are clear evidences of such behaviour in the previous researches on this
type of consumers. Thorough studies are needed to understand non-green consumers or non-user of green
cosmetic products’ behaviour towards environmental friendly cosmetic products.
Problem Statement
The topic of marketing strategies is often discussed by researches in the field of environmental friendly
cosmetic and the topic related to consumer behaviour is often overlooked8. There are also evidences of the
impact of corporate social responsibility (CSR) on consumer’s behaviour. Corporate social responsibility
(CSR) activities by corporations have direct and indirect relationships with consumers’ purchase
intention10. Furthermore, according to Feldman & Vasquez-Parraga11, research on corporate social
responsibility may be abundant but the research related to consumer responses to CSR initiatives is scarce.
That being said, those consumers who are concerned about the environment will based their buying
decision on company’s involvement in society and environmental responsibility12.
However, there is a lack of attention in investigating how corporates’ initiatives persuade consumers to
response toward companies’ CSR efforts13 specifically environmental aspect of CSR initiatives on
consumer behaviour and this particular initiative (environment) is often overlooked14. The previous
researches on the impact of corporate environmental CSR initiatives on consumer behaviour are both
contradictory and equivocal6,12.
Nik Ramli et al.14 explore a potion of CSR initiatives particularly environmental initiatives on consumer
behaviour and stated that environmental initiatives increased consumer loyalty and enhanced corporate
image. According to Nor Irwani et al.15, ECSR initiatives increased corporate image among consumers.
ESCR initiatives also have proven to positively effect corporate brand and corporate profitability10. There is
no research conducted to explore the concept of ECSR initiatives on consumer behavior or other marketing
constructs15.
There are many factors being discussed that may stimulate consumer’s purchase intention. However, there
are very limited studies conducted investigating the effectiveness of external stimulus created by
corporations to influence consumers’ behaviour and the utilization of Norm Activation Theory (NAT) to
predict the behaviour in the context of cosmetic industry in Malaysia.
Based on the aforementioned rationale, the objectives of this study are as the followings:
1. To assess the relationship between activators of consumer’s pro-environmental behavior and ECSR
initiatives toward purchase intention of environmental-friendly cosmetic products.
2. To determine the factors which influence the purchase intention of environmental-friendly cosmetic
products in Malaysia. 615
3. To evaluate the mediating effect of personal norm between the independent variables and purchase
intention of environmental-friendly cosmetic products.
Theory Building
Schwartz described Norm Activation theory (NAT) as the relationship between activators, personal norms,
and behaviour20,39. According to Schwartz39, personal norm needs activator that will then influence pro-
social behaviour. The initial steps for the activation of personal norms is based on the following concepts
by Schwartz39 :
1. Awareness of consequences - refers to person’s receptivity to situational cues of need.
a. It depends on ones perception pertaining to the seriousness of the needs of a situation or the needs of
others.
2. Ascription of responsibility - It is when a person feels responsible for a particular need such as the
consequences of the environment deterioration caused by the society at large.
a. Feeling responsible for doing harm to others.
b. Feeling responsible to help in an emergency or immediate response to a need.
3. Efficacy – the degree to which a person could provide the help.
4. Ability – referring to a person’s perception about the capabilities that are required to perform the action
and the availability of the resources in need.
5. Responsibility Denial - It is referring to a person’s denial of responsibility for the consequences of

their behavioral choices for the welfare of others.
There are four key activators of personal norm, which are awareness of consequences (AC), ascription of
responsibility (AR), efficacy and ability18. According to Schwartz39, the responsibility denial variable is
added to emphasize that individual may employ defence mechanism to deactivate personal norm (PN).
Based on Norm Activation Theory (NAT) the three key variables to predict pro-environmental behaviours
16,17
are personal norm (PN), awareness of consequences (AC) and ascription of responsibility (AR) .
17
Personal norm is activated by awareness of consequence (AC), ascription of responsibility (AR) and
efficacy18. van der Werff and Steg19 described NAT to have two factors that effect the activation of
personal norm (PN) that encourage energy saving actions. The first factor mentioned by them is the
awareness of consequence (AC) and the second factor is the outcome efficacy. Efficacy affects PN and
intention when efficacy was high while PN were weakest when efficacy was low18, 20. Personal norm is
crucial in determining pro-environmental behaviour21.
616
Several studies have demonstrated that NAT is useful to predict pro-environmental specific behaviors.
Zhang et al.17 studied employee energy saving behavior and showed positive effects. Other studies that are
shown to have demonstrated positive impacts are meat consumption and showering time19, recycling and
reuse22, public transportation and energy use20, total energy saving23, environmentally responsible
convention attendance24, travel mode25, 26, road traffic noise27, waste reduction behaviour28, organic milk
purchasing29 and other specific prosocial and pro-environmental behaviour16, 18. Social norm is integrated as
an additional predictor of pro-environmental or pro-social behaviour by various researches22, 30, 31, 32. To
retain an exceptional sufficiency for norm-based behaviour, numerous researchers have suggested social
norm into the conceptual framework of NAT 24, 32, 33, 45. To my knowledge, there is no study conducted in
the area of environmental friendly cosmetic products through the utilization of NAT to predict consumer
behavior in Malaysia.
Research Framework
Independent Variables Dependent Variable
Awareness of
consequences
Ascrip on of
Responsibility
Personal Norm Purchase Inten on

of Environmental
Efficacy
Friendly Products
Social Norm
ECSR Ini a ves
Figure 1: Proposed Research Framework
Definition of the variables and proposed hypothesis development

Awareness of consequences (AC)
Awareness of consequences (AC) is when a person is aware of the negative consequences of not acting pro-
socially16. Awareness of consequence (AC) is one of the key variables to predict pro-environmental
intention based on Schwartz (1977) Norm Activation Theory. A study on residents at tourist side in China
showed that the awareness of consequence of disasters affects residents’ behaviour towards environmental
protection34. In other related studies in the area of carbon footprint mitigation vacation showed that the
increase of awareness of consequences (AC) positively increase reported ecological behaviour35. Consumer
would opt for more environmental goods when the awareness of the environmental problem is significant36.
Awareness of consequences positively predicted personal norm (PN) based on the research by van der
Werff and Steg19 on energy saving. Personal norm will increase when there is an increase of awareness of
consequences (AC) that will eventually affect ecological behaviour35.
617
Given to that, the following hypotheses were developed:

H1a: There is a positive relationship between Awareness of Consequences (AC) and Purchase intention of
Environmental-Friendly (EF) cosmetic products.
H1b: There is a positive relationship between Awareness of consequences (AC) and Personal Norm (PN).
Ascription of Responsibility (AC)
The behaviour related to preserving the environmental can be affected through Ascription of responsibility
37, 38
(AR) . A study by Ebreo et al.28 showed that AR significantly predicted environmental related
behaviour. A person will most likely engage in waste reduction behaviour when the responsibility is
ascribed to oneself28. Ascription of responsibility (AR) positively affect personal norm based on a study
conducted by Vaske et al.35 on carbon footprint mitigation. Ascription of responsibility (AR) affects
personal norm (PN) and it will lead to pro-environmental behavior41. De Groot and Steg16 have conducted
various studies pertaining to pro-social intention and found that AR positively affects PN.
Due to the statements above, the following hypotheses were developed:

H2a: There is a positive relationship between Ascription of Responsibility (AR) and Purchase intention of
H2b: There is a positive relationship between Ascription of Responsibility (AR) and Personal Norm (PN).
Efficacy
Efficacy refers to the ability of an individual to identify actions that can help to reduce a problem18, 20, 39.
One of the factors of green personal care product purchase intention is self-efficacy40. A person’s belief of
39,41
own ability to make a difference will lead to the feeling of moral obligation or personal norm (PN) .
19
Efficacy is one of the factors that affect the activation of personal norm . There is a positive relationship
between efficacy and personal norm based on the studies conducted in various fields of prosocial
behavior18,20.
This leads to the following hypotheses:

H3a: There is a positive relationship between efficacy and Purchase intention of Environmental-Friendly
(EF) cosmetic products.
H3b: There is a positive relationship between efficacy and personal norm (PN).
Social Norms (SN)
Social norm is when an individual is aware of the social pressure of performing or not performing an
action24, 42. Social norm positively and significantly influence personal norm21, 27. It has been proven that
social norm has a strong role in the application of NAT from a theoretical perspective due to its positive
effect on personal norm22, 27. Social norm has also been proven to have a direct effect on behavioral
intention24 especially pro-environmental behaviour43. It has been proven that social norm is a vital
constituent to predict individuals pro-environmental purchase intention45.
Given to this, the following hypotheses were developed:

H4a: There is a positive relationship between Social Norm (SN) and Purchase intention of Environmental-
Friendly (EF) cosmetic products.
618
H4b: There is a positive relationship between Social Norm (SN) and Personal Norm.
ECSR Initiatives
The concept of ECSR is when a company combines environmental initiatives in its business operations as
well as in dealing with stakeholders without compromising economic performance of the business15. ECSR
initiatives have been proven to positively influence corporate image among the consumers15 and increase
loyalty14. Consumers are shifting towards green when exposed to corporate green initiative44 and
consumers react positively through the exposure of corporate CSR activities46. It was supported by
Feldman and Vasquez-Parraga11 that environmental commitment of companies are being evaluated during
the decision making process of purchasing a socially responsible products. ECSR initiative such as
environmental advertising that focuses on education creates awareness on environmental and nature among
the consumers47. ECSR initiative through cause-related campaign significantly influences consumer’s
purchase intention and attitude48. Due to socio-emotional reasons and economic reasons, consumers are
inspired to support CRM campaigns49.
Thus the following hypotheses were developed:

H5a: There is a positive relationship between ECSR initiatives and Purchase intention of Environmental-
Friendly (EF) cosmetic products.
H5b: There is a positive relationship between ECSR initiatives and personal norm.
Personal norm as mediator
According to Schwartz39, an activated personal norm is the mediator between awareness of consequences
and behavior. Personal Norm (PN) mediates the relationship between awareness of consequences (AC) and
ascription of responsibility (AR) with ecological behavior35. Personal norm also mediates social norm
influence on individual behavior50. It has also been proven that personal norm positively mediate other
predictors of behavioral intention and significantly related to intention, in line for the assumption of Norm
Activation Theory pertaining to the role of personal norm in the theory27. Personal norm has also proven to
have a mediating effect in other area of pro-environmental behaviour study such as pro-environmental
spillover51.
Thus, the following hypotheses are developed:

H6a: Personal norm (PN) mediates the relationship between awareness of consequences (AC) and Purchase
intention of Environmental-Friendly (EF) cosmetic products.
H6b: Personal norm (PN) mediates the relationship between ascription of responsibility (AR) and Purchase
intention of Environmental-Friendly (EF) cosmetic products.
H6c: Personal norm (PN) mediates the relationship between efficacy and Purchase intention of
H6d: Personal norm (PN) mediates the relationship between ECSR initiatives and Purchase intention of
619
Conclusion
The framework underpinning this research is based on the Norm Activation Theory. Hence, the framework
is developed to test Norm Activation Theory (NAT) and ECSR initiatives that may affect consumer
purchase intention of environmental-friendly cosmetic products. This research intends to provide more
compelling insights on consumers’ purchase behaviour of environmental friendly cosmetic products.
Besides, this study will generate awareness among the cosmetic companies that are about to embark on
environmental initiatives on the importance of influencing and shaping consumer green consumption.
Ultimately this study will fill the gap of knowledge pertaining to the impact of corporate ECSR initiatives
on consumer behaviour in the cosmetic industry in Malaysia.
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A Novel Approach Based on Reinforcement Learning for Anaphora

Resolution in Arabic texts
Saoussen Mathlouthi, Faculty of Science of Bizerte, Carthage University, Tunisia,

mathlouthi.saw@gmail.com
Fériel Ben Fraj Trabelsi, National School of Computer Sciences, Manouba University, Tunisia,
Feriel.benfraj@riadi.rnu.tn
Chiraz Ben Othmane Zribi, National School of Computer Sciences, Manouba University, Tunisia,
Chiraz.BenOthmane@riadi.rnu.tn
Abstract
This paper focuses on the anaphora resolution task in Arabic texts. The proposed approach includes
the following steps: identifying the anaphora, removing the non-referential ones, identifying the lists
of candidate antecedents and choosing the best of them for each processed anaphora. The last step
can be regarded as a dynamic and probable process that consists of a sequence of decisions. Thus, it
could be modeled by a Markov Decision Process (MDP). We propose a new approach based on
reinforcement learning as it is an effective method for learning in such uncertain and stochastic
environment and for resolving MDPs. When evaluating our approach, we have obtained encouraging
results that can reach about 80% of accuracy.
Keywords: Anaphora Resolution, reinforcement learning, Markov Decision Process (MDP), Arabic
language.
Introduction
Anaphora resolution aims at finding the reference, usually a noun phrase (NP), of an anaphoric
element. The anaphora must be interpreted in relation to the referential item appearing before or after
it in the speech, named antecedent.
The implementation of anaphora resolution system can reveal the ambiguity of the text, understand
sentences and check the consistency of context. So, such a resolution system has become necessary in
many applications of Natural Language Processing (NLP) such as:
- Applications of information extraction for the creation of knowledge bases
- Applications of topics detection for documentary research.
For anaphora resolution, several studies have been made in Indo-European languages. On the other
side, very few studies have focused on the Arabic. The lack of anaphora resolution works and the
want of resources (as annotation tools, training tagged corpus) for Arabic language, have motivated
us to propose a new anaphora resolution approach in Arabic texts.
In fact, Anaphora resolution is a hard task especially for the Arabic language which has some
specificities and frequently includes the anaphora phenomenon. Due to the complexity of the task, we
chose to limit our field of study to pronominal anaphora and at the meantime took into account the
625
anaphoric (anaphora follow the antecedent) and cataphoric (anaphora precede the antecedent)
relations.
The purpose of our work is to find, for each anaphora, the best antecedent from the list of identified
candidate antecedent. To achieve this aim, we have proposed the following steps:
- Identification of pronominal anaphora
- Elimination of non-referential pronouns
- Identification of possible candidate antecedents of each anaphora
- Filtering of the candidate antecedents list
- Evaluation of candidates and selection of the best one for each anaphora
The last step of our resolution approach is based on reinforcement learning using a Markov Decision
Process (MDP). In fact, our anaphora resolution system can be seen as a dynamic and probabilistic
process that consists of a sequence of decisions. This process can therefore be described as a Markov
Decision Process MDP that is used to model the decision choice of the criteria and the good
antecedents. The characteristics of our system led us to choose a reinforcement- learning method.
Since, this method is one of the best ways to learn in an uncertain and stochastic environment.
The present paper consists of six sections. To start with, Section 2 is a linguistic study of pronominal
anaphora in Arabic. Section 3 is a further elaboration of some characteristics of the Arabic language
and their impact on the anaphora resolution. As for Section 4, it is a study of the various existing
researches. When it comes to section 5, the different stages of our problem-solving approach are
introduced in detail with an elaboration of the usefulness of the reinforcement-learning model for the
anaphora resolution problem. Finally, our test corpus as well as the results of the achieved
experiments is carefully introduced in the last section.
Pronominal Anaphora in the Arabic Language

There are several types of anaphora in the Arabic literature. The frequency of anaphora usages
depends primarily on their types. The statistic studies presented in the work of (Hammami et al.,
2009) show that the pronominal anaphora are the most frequent ones in Arabic texts. Pronominal
anaphora includes personal, demonstrative and relative pronouns.
- Personal pronouns ( ‫ا‬ ‫ )ا‬are generally anaphoric and referential ‫ﻣ‬ ‫در ا‬
‫ــــ‬ (The man left with his bag). But, in certain contexts, they can be pleonastic1 like in
the sentence ‫( إ ـــ ﺗ‬It’s raining).
- Demonstrative pronouns (‫ )أ ء ا رة‬are generally cataphoric " #$‫ & ﺑ ﻣ‬#$‫( ھ ه (' ﻣ‬This is
not your umbrella but mine). They can also be anaphoric like pronouns & )‫( ھ‬There), ‫ذاك‬
(That), ‫ا‬-‫( ھ‬This). But in some cases they are both deictic2 and non-referential such as the
pronouns )‫( ھ‬Here), ‫ن‬/‫( ا‬Now).
- Relative pronouns ( 121 ‫ ء ا‬0‫ )ا‬are always anaphoric. They refer to the noun phrase that
immediately precedes them. 4‫ زﻣ‬-)‫ أرھ ﻣ‬6 ‫' ا )' ا‬#‫ ﺑ‬3 (I met the girl that I have not seen for
a long time).
626
Impact of Arabic Specificities on Anaphora Resolution
The great variety in the types used to represent anaphora and their frequency in the Arabic language
pose difficulties in their resolution. Moreover, the Arabic language is a morphologically rich
language marked by several distinctive characteristics. These characteristics can influence the
problems faced by the anaphora resolution as:
- The agglutination of clitics3 to words can induce a problem of ambiguity in the detection of
anaphoric pronoun. For example, in the word ‫ ﺑــ‬7 (his book) the letter ‫ ــــ‬is an enclitic
pronoun attached to the root while in the word 8 ‫( و‬face) the letter ‫ ــــ‬is a part of the word.
- The diacritical4 marks in the Arabic texts are necessary to pronounce correctly a word. The
lack of diacritical marks in several Arabic texts can produce a morphological ambiguity and
even grammatical ambiguity, like the non-vowelized word 6:; that can be interpreted like a
verb 6َ :ِ َ; (understanding) or like a personal pronoun 6‫ ھ‬attached to coordinating conjunction ‫ف‬
giving the agglutinative form 6ْ ُ:َ; (so they).
- Gender and number agreement in Arabic language pose two cases. In the general case, there
are agreement in gender and number between the anaphora and her antecedent. But in
exceptional case, the anaphoric pronoun in singular feminine form can refer a non-human
plural noun. For example, ‫ اھ‬A‫ ﺑ‬7B‫ إ ــ ﺗ‬، D ‫ ب‬F ‫( ا‬dogs are hungry, they eat greedily),
the feminine singular pronoun ‫ ھ‬refer the non-human masculine plural noun ‫ ب‬F ‫( ا‬dogs).
- The sentences' length, the frequency of anaphoric expressions and the lack of punctuation
make more difficult the segmentation of text. So the range of possible candidates of each
anaphora grows wider. The following example illustrate the frequency and the diversity of
anaphora in one sentence: ‫ دة‬D( ‫ھ ا‬ ‫(ــ‬K D ‫ ا‬LM ‫ ــ‬J( ‫ اء ا‬H ‫ ا‬I( ‫ا‬ & ) G 8F;
‫ )ــ‬D‫( ﺑ‬enjoy your eyes to these green valleys that have been created by nature itself, that's
all happiness)
Related Works
The specificities of each language may have an impact on the complexity of the anaphora resolution
problems, which explains the scarcity of researches carried out in the Arabic language. Indeed, the
anaphora resolution researches in both English and French are not only much more numerous but also
more ancient compared to those conducted in Arabic.
Researches can be ranked according to three types of approaches: The linguistic approach, the
corpus-based approach and the hybrid approach. The first one includes traditional approaches which
make use of morphological, syntactic and semantic knowledges. These knowledge are relatively easy
to handle and can be applied to corpora from different fields. Among the papers belonging to this
type of approach, we can cite Lappin et al (1994), Kennedy et al (1996), Baldwin (1997), Mitkov
(1998) and Chaumartin (2007) for the English language, Bittar (2006), Nouioua (2007) and Gelain et
al (2010) for the French language and Hammami et al (2009) for the Arabic language. While the
multilingual approach Mitkov et al (1998) adapts the robust approach Mitkov (1998) to Arabic,
English and Spanish. Thus, the linguistic approach uses general knowledge that do not benefit from
the models characterizing the corpus. The linguistic knowledge are, alone, unable to resolve semantic
627
ambiguities and insufficient to cover the uncertainty of the environment that changes according to the
corpus under study.
The shortcomings of linguistic approaches have motivated researchers to suggest a second type of
approach. The corpus-based approaches use knowledge that deal with the models presented in the
corpus. They apply a useful knowledge that helps to resolve the uncertainties in the linguistic
competence. The research studies belonging to this type of approach are useful in calculating the
most probable candidate by relying on statistical methods referring to corpora. For instance, the work
of Dagan et al (1990) conducted on the English language uses selective and statistical constraints of
co-occurrence patterns in the corpus. Regarding the approach Hinrichs et al (2005), for the German
language, it provides a binary classification method using feature vectors of the couple pronoun / NP.
As for the work of Ben Yahia et al (2012), for the Arabic language, it uses an automatic-learning
method that applies classification rules. However, the effectiveness of statistical approaches is highly
dependent on the nature of the handled corpora.
The third type of approaches combines both linguistic and corpus-based knowledge sources. These
approaches can achieve better resolution results since the sources of knowledge are integrated and
can settle one-another's deficiencies. The works of Mitkov (1996) and Weissenbacher et al (2007) for
the English language combine linguistic knowledge with syntactic and contextual surface indices by
relying on a Bayesian classifier. The approach of Abolohom et al (2015) for the Arabic language uses
both a rule-based method for the collection of anaphora and their antecedents as well as the k-nearest
neighbors machine learning method for the selection of their most suitable antecedents. However, the
hybrid approaches require intense study of linguistic knowledge and important computational cost in
the use of stochastic methods. Such type of approaches needs more important design and execution
costs then other approaches.
This study drove us to the conclusion that hybrid methods are advantageous because they allow us to
overcome the deficiencies of both linguistic and statistical methods. Despite design and execution
costs, hybrid approaches can reach best results. Added to that, we found that very few studies have
focused on the Arabic language. All this has motivated us to propose a new anaphora resolution
approach for Arabic texts.
Proposed Resolution Approach
Our main concern is seeking the most suitable antecedent for the anaphoric pronoun out of the list of
antecedent' candidates which are noun phrases (NPs). To solve this problem, we dispose of a set of
linguistic and statistical criteria used for the disambiguation among the possible antecedents. We
suggest a reinforcement- learning model that uses the Markov Decision Process (MDP) to represent
the selection of antecedents and, therefore, the selection of the criteria. The choice of this type of
learning is due the characteristics of our problem that are described in the subsection 5.6. The
proposed model receives, as input, the list of possible antecedents and a set of criteria then manages
to find, through reinforcement learning, the best antecedent. The choice of the candidate antecedent
depends on the choice of the best combination of criteria that able to make this antecedent combine
best with the processed anaphora. The steps of our anaphora resolution approach are illustrated with
the following figure.
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Preliminary stage
Tagged
text (XML) Detection of Elimination of non- Set of anaphoric
anaphora referential pronouns pronouns
∀
Anaphora
MDP
Identification of Filtering of candidate
candidate antecedents antecedents
Set of potential
antecedents Criteria
Text with adding anaphoric

links (XML) Identification of likely
antecedents
Fig 1: General architecture of the anaphora resolution approach
In this architecture, our system receives, as input, a text encoded in XML format. This text is
analyzed, segmented by Ben Fraj et al (2012) and tagged by Ben Othman-Zribi et al (2005). The
system identifies the anaphora and the possible candidate antecedents located around each detected
anaphora. Then, it determines the plausible antecedents by reinforcement learning via a Markov
Decision Process.
Anaphora Identification
All the pronouns are identified using their part-of-speech values that are generated by the
morphological analyzer of Ben Othman (1998). Like all words, pronouns have morpho-syntactic
information namely a part-of-speech, a gender and a number. Grammatical values of joint personal
pronouns are identified at the clitic. Morpho-syntactic information of the pronouns are also useful in
the following steps of resolution.
Elimination of non-referential pronouns
Our resolution system proposes to eliminate some non-referential pronouns by using the following
lists:
- A list of the models that represent the pleonastic pronouns. It includes constructions of the
form [ ] 4‫( إ ـــ ﻣ‬it is [not]) + a defined adjective from the incomplete list {… ،NDO ‫ا‬
L K ‫ ا‬،4F ‫ ا‬، :( ‫ ا‬،‫وري‬ ‫ ا‬،L J ‫ ا‬، Q ( ‫{( }ا‬difficult, impossible, good, necessary, easy,
possible, useful, …}). This idea is inspired from the work of Lappin and Leass (1994) for
English
- A list of deictic pronouns. In Arabic, the deictic pronouns refer, generally, to interlocutors
involved in the communication situation as the pronouns of the 1st and 2nd person ‫( أ‬I), ' ‫أ‬
(you), 4Q (we).
629
Identification of candidate antecedents
To identify the possible antecedents of an anaphora, we extract the different NPs located around the
pronoun. However, the identification of the candidate antecedents of a pronoun strongly depends on
its type.
- The relative pronouns that are always anaphoric have only one possible antecedent; it is the
noun phrase located immediately before the pronoun. So, it is useful to distinguish the easy
resolution of this type of pronouns from the other one.
- As for the personal and demonstrative pronouns which may have several possible
antecedents, the system identifies any NP around the anaphora in a window [-n, n], where n is
the number of sentences occurring before and after the sentence that contains the processed
anaphora. The value of n can be fixed during experiments. The candidates may be a single
word or a composed NP of: annexation NP ( ; R ‫)ا‬, approbative NP (L 71 ‫ )ا‬or conjunction
NP (S D ‫)ا‬, etc. For example, the following sentence has candidate antecedents in simple and
composed forms:
‫ة‬L ‫و‬ B‫ة وﺑ‬LG‫دا و‬LG ‫ــ‬#T‫ ب ﻣ‬D ‫ ف أرض ا‬D‫ ﺗ‬6 V "; M‫ز‬ 4 ‫ ا‬4‫ ﻣ‬W ‫& ﺗ‬# ‫ ج ا‬Y
Conjunction NP Annexion NP NP NP Approbative NP
(The king Tubaa left Yemen for war with an army that the Arab land has never seen like it in
number, equipment, power and strength)
The system identifies several candidates of antecedents. The list of possible candidate
antecedents will be processed in order to choose the most plausible antecedent of the target
anaphora.
Filtering of candidate antecedents
Filtering the candidates is a constraint that enables us to choose only the candidates having a gender
and number agreement with the anaphora. However, there is an exceptional case in the Arabic
language. It is the case of the non-human plural noun (animals, plants, objects). It is referred to an
anaphoric pronoun that does not have gender and number agreement with it, as in the sentence ‫ ب‬F ‫ا‬
‫ اھ‬A‫ ﺑ‬7B‫ إ ـــ ﺗ‬، D (Dogs are hungry, they eat with rapacity). So, we achieved filtering via gender
and number agreement from the list of candidate antecedents for all cases of anaphora; except for the
anaphora which are feminine singular whose antecedents have also been taken into consideration in
the plural form.
Evaluation of antecedents
The proposed resolution system looks for the best antecedent by using preference criteria that favor
some candidate antecedents more than others. These criteria consist of a set of linguistic and
statistical criterion extracted from a tagged corpus. They should help to disambiguate the candidate
antecedents.
630
‒ Linguistic criteria were selected, firstly, from the linguistic ascertainments, concerning
anaphora referents, done on a set of Arabic literary texts, and secondly, on the previous
approaches of Baldwin (1997), Mitkov (1998) and Bittar (2006).
- Definition: Defined NPs are preferred to those undefined.
- Topic: The subjects of the current and precedent sentences are favored to other
candidate antecedents. According to linguistic ascertainments, anaphora often refers
the active agents in the sentences (the subject, or vice-subject for passive form).
- Distance: the closest anaphora antecedents are the most salient.
- Head of the paragraph: the entity ahead of the paragraph is a preferred candidate.
- Proper names: these are important elements of speech preferred to others.
- Sentences' models: This criterion is based on linguistic deductions. It gives

privilege to candidates figuring in some models such as the ones below (the
anaphora refer the underlined NP):
- V1NP … conjunction V2 anaphora (conjunction V3 anaphora)

Example: 4 JD# ‫ـــــ‬KR‫ أذﺑــ و أ‬،‫ة‬L‫ﺑ‬Z ‫ ا‬W 3‫( ا‬Cut the butter, makes it melt and add
it to the dough).
- Connector V1 NP1, V2 NP2. (Phrase) Connector V3 Anaphora, V4 NP4

Connectors (linking words) express aim or give an explanation ‫ا‬L ‫ ا‬I‫أدوات ا ﺑ‬
#D ‫\ ا‬#G (...\ ,"7 ,‫)ل‬. For example . 0‫ر ا‬Z ‫\ ا‬#G I R‫ ا‬،1ML ; J(‫ ز ﺗ‬: A
J‫ ح ا ﻣ‬K‫ أدر ﻣ‬، ‫ ـــــ‬J‫ﻣ‬
(To operate a video recorder, press the red button. To program it, turn the
programming key on)
‒ The corpus-based criteria are statistical calculations carried out on textual corpus and
inspired from previous works, especially that of Nasukawa (1994).
- Co-occurrence models: based on statistical calculations made on textual corpus. We

proceed by replacing the anaphora by its antecedents' candidates and checking the
most frequently present candidate in the context, which enables us to decide on the
most appropriate one.
- Repetition: It considers the NP having a greater probability of repetition as a

preferred candidate since the words or more precisely the lemmas of the words of a
text tend to be repeated in the same text Ben Othmane et al (2003).
The antecedents' evaluation criteria are more or less effective. They represent preferences but not
absolute factors. The assignment of scores to criteria is also uncertain. It is generally applied without
any justification in different works dealing with the same issue. On our part, the scores attributed to
our criteria are estimations deduced from counts kept on our manually annotated texts. The counts
show the participation percentages of the different criteria in the resolution of anaphoric links.
631
Selection of the best antecedent
To choose the most plausible antecedent, we considered the linguistic and statistical criteria as
attributes in the reinforcement-learning model. Indeed, the lack of labeled and annotated corpora with
anaphoric relations in the Arabic language makes the use of supervised learning quite difficult.
Moreover, the characteristics of our problem led us to the choice of a reinforcement- learning
method. The choice of this type of learning is due to the following reasons:
- The system's environment is uncertain because the list of antecedents does not necessarily
cover all the candidate antecedents and is limited to a window of sentences. Besides, all
the linguistic and statistical criteria are probable and their pertinence may change
according to the processed text.
- The anaphora resolution can be viewed as a system that tends to optimize a sequence of
decisions (previously unknown) and to maximize a reward of a succession of criteria’s and
antecedents’ choices.
Indeed, a reinforcement learning-based approach is one of the best ways to learn in an uncertain and
stochastic environment. The agent anaphora resolution system engages in an autonomous learning
while interacting with its environment which includes the anaphora, the probable antecedents and the
whole linguistic and statistical criteria. It reinforces the actions which prove to be the best in order to
maximize the rewards obtained at the end of each action. Thus, the resolution system can be seen as a
dynamic and probabilistic process that consists of a sequence of decisions. This process can therefore
be described as a Markov Decision Process MDP (state, action, transition, reward).
Thereby, our anaphora resolution system is modeled as reinforcement learning problem that is
formally defined as a Markov Decision Process MDP. To achieve this model, we suggested to break
down our problem into two levels; a first level MDP for the choice of antecedents, generating many
sub-MDPs for the choice of criteria. The use of a MDP includes a model able to indicate at every
time what antecedent should be selected and associated with the anaphora, while the sub-MDPs
model the problem of selecting combinations of criteria around each antecedent.
At the MDP's level, the treatment of anaphora is performed in a sequential manner. The best
antecedent chosen is the one that has the biggest function of a value V determined at the level of sub-
MDPs. To solve the sub-MDP of all possible antecedents, the reinforcement- learning approach
affords as try-error methods to find the optimum strategies. However, each state of the sub-MDP
level receives initially an antecedent and a set of criteria then looks for the best combination of
criteria that maximizes the gain for this antecedent. The relevance of each criterion is random. That's
why we suggest to conduct experiments that enable us to vary random probabilities sets and calculate
the formula of the value function V for all possible combinations of criteria then choosing the
combination of criteria that maximizes V. The decision to choose the antecedents and the criteria
combination for each antecedent i is illustrated in Figure 2.
The value function V which depends on the probabilities of criteria pc, the recompenses of criteria rc
and the number l of the selected criteria is defined by the following formula:
= ∑ ∗ With l ≤ ; m is the number of criteria
632
The value function V calculated at each set of probabilities will be compared each other so that the
combination of criteria having the best value function will be chosen to evaluate the treated
antecedent.
For each set of probabilities, the best value function is given by the following formula:
V = max .. ∑ ∗ with l as the number of criteria in combination j and k as the
number of all possible criteria's combinations. The value of k is defined using the following formula:
!
k=∑ =∑ !( # )!
After comparing all the value functions of different sets of probabilities, the optimal value function
will be given by the following formula:
V* = max % …' = max ( max ∑ ∗ ) with y as the maximum number of probabilities'
..
sets.
S0
p1 pn
p2 pi
(A1, r1) (A, rn)
(A2, r2) (Ai, ri)
S1 S2 Si Sn
S0: anaphora + context (unknown antecedent)

Si: anaphora + context + antecedent i
(Ai, ri): (action of choosing antecedent i,
Si recompense of action Ai)
pi: transition probability from state S0 to state Si
(Aik, rik) Sij: anaphora + context + antecedent i + criteria
(Ai1, ri1)
(Ai2, ri2) (Aij, rij) combination j
(Aij, rij): (action of choosing combination j,
Si1 Si2 Si k recompense of action Aij)
Experiments on probability sets for

choosing the combination of criteria that
maximizes V
Sub-MDP for the choice of criteria's combinations.
Sij
Fig 2: MDP for the choice of antecedent
The resolution of sub-MDP generates the combinations of criteria that yield the best evaluation of the
antecedents; namely the combination which generates the highest value function.
633
Experiments and Results
To evaluate our resolution's system, we developed a tool that enables the user to check the approach's
performances and to test several scenarios via changeable input settings. The simulation of the
proposed approach uses input settings that include the XML text to solve, criteria's scores and some
resolution settings. As output, the tool keeps track of its execution in the XML files of the corpus
texts.
Corpus test
To test the tool, we used a corpus made of portions of literary texts extracted from the 8th form's
textbook of Tunisian basic education. This corpus contains 2610 words, 1649 phrases, 354 sentences
(with an average size of 7 words) and 38 paragraphs (with an average size of 9 sentences). The
corpus includes 420 anaphoric pronouns. In our resolution approach, we considered the personal,
demonstrative and relative pronouns. The majority of pronouns are personal (80%). Demonstrative
pronouns are much less used (12%). However, relative pronouns are rarely used (4%).
Evaluation of results
The proposed system succeeded in detecting all anaphoric pronouns and identifying them according
to their parts-of-speech. It covers all the anaphora considered in the resolution and generates a non-
empty list of candidate antecedents for each anaphoric pronoun. During the experiments, we used a
corpus with five texts. We decided to evaluate each text separately and to benefit the configurable
scoring criteria that impact differently on each type of text. The table below summarizes the
evaluation results and explains the performance of our resolution's approach in terms of precision,
recall, F-measure, accuracy5 and average position of the good candidate into the processed list of
possible candidate antecedents.
Table 1: Performance of resolution approach
Average position of
Text Precision (%) Recall (%) F-measure (%) Accuracy (%)
the good candidate
Text 1 58,62 57,30 57,95 95,40 1,91
Text 2 70,83 67,11 68,91 95,83 1,52
Text 3 75,27 71,43 73,29 96,77 1,45
Text 4 53,76 51,55 52,63 100 1,64
Text 5 83,33 78,95 81,08 100 1,22
Results have shown that our resolution's approach enabled us to solve up to 83.33% of anaphora in
the five text of the corpus. The latter text is mainly characterized by short sentences and paragraphs
and less complex syntactic structure. The average position of the good candidate is very close to 1
and does not exceed the value 2. Thus, the precision value can be improved since the good antecedent
of most of the anaphora occurs among the two first candidate antecedents. Figure 3 presents the
634
position of the good candidate and shows that the most correct antecedents are selected from the three
first candidates on the list.
Rate of accuracy 89,57% 97,59%

83,86%
100.00% 68,36%
80.00%
60.00%
40.00%
20.00%
0.00%
1st element Among the 2 Among the 3 Among the 4
of candidate top top top
list candidates candidates candidates
Fig 3: Position of the good candidate in the list of possible candidate antecedents.
Although our resolution system was able to generate up to 83.33% of good resolution, the success
rate decreases significantly for some texts. Therefore, the system has some errors and is unable to
correctly solve some anaphora. The wrong cases include, firstly, the anaphora whose resolution
chooses bad candidates due to the uncertainty of the used criteria of preference. This failure is
expressed by the noise rate like in the sentence ‫ــــ‬#T‫رض ﻣ‬0‫ ف ا‬D‫ ﺗ‬6 V "; M‫ ز‬4 ‫ ا‬4‫ ﻣ‬W ‫& ﺗ‬# ‫ ج ا‬Y
(The
The king Tubaa left Yemen for war with an army that Arab land has never seen in numbers,
equipment, power and strength). ). For this sentence the resolution system selected the phrase W ‫& ﺗ‬# ‫ا‬
that verifies the criteria "Distance", "Definition" and "Proper name", while anaphora ‫ ـ‬must locate
the NP V which only verifies the criterion "Distance". The errors include, secondly, the unresolved
anaphora like the event anaphora which does not refer to a NP but rather to a sentence. For example,
in the sentence ‫ ّ " وأو`دھ‬G \#G S D‫ ﺗ‬،6ّ ‫ھ‬0‫ ذ ا‬D ‫ و‬،"‫ﺗ‬L ' 7‫( و‬The The most important thing is that my
grandmother children The event anaphora ‫ ذ‬refers to the whole
andmother has affection to my aunt and her children).
sentence ‫ ّ " وأو`دھ‬G \#G S D‫ﺗ‬.
The nature of literary texts of our corpus has impact on the performance of the resolution. The wrong
cases are due to the following reasons:
- The length of the sentences and paragraphs that greatly affects the generation of
candidates. The good candidate can be lost when it is very far from the anaphora and
from the window of possible candidates.
candidates
- The existence of successive

success anaphora, for example: ‫ رة‬JQ ‫ ) ﺑ‬AG‫ أ‬c M ‫( ذ & ا ي‬it is him
who throws our nests with stones). The example shows two anaphora where the second
refers to the first.
- The sentencess in question form which has non-referential

non referential anaphora as the following
sentence: ‫)' ا ( ن؟‬G Q M \ 8 ‫( و ﻣ ھ ذ‬what
what is his crime to supports the injustice of
human?).
635
Comparison with similar works
We choose to compare our approach with those of Mitkov et al (1998) and Abolohom et al (2015).
The reason is that our approach is quite similar to their own as they use a set of helpful criteria to
disambiguate the candidate antecedents. Mitkov et al (1998) have proposed a method based on the
adaptation of the robust approach Mitkov (1998) from English to the Arabic language. The tests were
based on 63 examples of a technical manual. The evaluation reached a rate of success equal to 95.2%.
One reason for this high performance is due to the reduce size of test corpus. Also, the technical
manual texts have a morpho-syntactic structure less complex than that of literary texts. Abolohom et
al (2015) offered a hybrid approach that combines rule-based method and a machine learning method
for the resolution of pronominal anaphora. They tested their approach using a corpus extracted from
the Holy Quran. They obtained a rate of precision equal to 71.7%. Compared to those works, our
approach uses a sizable corpus and gives satisfactory results.
Conclusion
To conclude, we chose to implement an anaphora-resolution system based on a hybrid approach that

combines several types of knowledges. We considered the linguistic and statistical criteria as
attributes through an automatic reinforcement learning by modeling the decisions to choose
antecedents and criteria with MDPs. Statistics have shown that our resolution approach gives
encouraging results. The failures of the resolution are mainly due to the morpho-syntactic and
semantic diversity of texts. Therefore, we found that the specificities of the Arabic language,
especially literary texts, make the anaphora-resolution task more arduous. We note, also, that the
selected criteria scores significantly influence the resolution.
We suggest as perspectives to test other types of texts as technical textbooks and journalistic texts
since they generally have a morpho-syntactic and semantic structure less complex than that of literary
texts. Finally, we note that it will be useful to propose other criteria by relying on the linguistic
findings accumulated during the evaluation.
Notes
1
The pleonastic pronouns are semantically empty and don't refer to any antecedent.
2
Deictic expressions refer to the interlocutors, objects or people, the spatial and temporal
coordinates involved in the communication situations. Deictic pronouns are not referential.
3
Clitics are elements of grammar attached to a root of a word.
4
Short vowels in Arabic are replaced by symbols called diacritics.
5
Accuracy presents/shows the percentage of anaphora’s concordance with the appropriate
antecedent from the list of candidate ones.
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Why Labour Market of V4 Countries Developed Differently Compared

to Western Countries?
Martin Hudcovský, Department of Economic Policy, Faculty of National Economy, University of
Economics in Bratislava, Slovakia; Institute of Economic Research, Slovak Academy of Sciences,
Bratislava, Slovakia. martin.hudcovsky@euba.sk
Elena Fifeková, Department of Economic Policy, Faculty of National Economy, University of

Economics in Bratislava, Slovakia, elena.fifekova@euba.sk
Eduard Nežinský, Department of Economic Policy, Faculty of National Economy, University of

Economics in Bratislava, Slovakia, eduard.nezinsky@euba.sk
Abstract
The employment level of certain Eastern European countries (and Visegrad Group among them) was
still not able to reach levels typical for developed countries. This phenomenon can be clearly observed
in the case of employment development in Germany as one of the pioneers in a combination of
economic and employment growth. The obvious reason for the difference is the use of a different
market system which prevailed in countries during past half century. However, the paper aims to go
beyond this explanation. It utilises structural decomposition analysis for these countries within 1995 –
2009 time-frame based on World Input-Output Database. Beside typical and deeply analysed
contribution of labour productivity change, also the contribution of others structural determinants are
elaborated. Also, the contribution of various aspects of final demand is investigated and provides
results aiming at the better understanding of the role of structural changes in the labour market of
post-transformed economies.
Keywords: labour market, input-output, employment development, Germany, Visegrad Group.
JEL Classification: J21, O11
Introduction
The link between the economic growth and low unemployment level (or high employment level), as
partial aims of economic policy, is defined in the economic theory relatively straight forward. It is
based on the assumption that economy with strong economic growth invokes job process creation and
therefore growth of total employment. Empirically, this is valid in analysed period mainly for the
developed Western countries (and especially in the Germany) where the connection between economic
growth and employment is intense. Even low values of economic growth are sufficient for additional
job creation. On the other hand, the economic growth occurred in the Czechia, Hungary, Poland and
Slovakia (these countries form the Visegrad Group or V4 group). during past two decades affected
mainly the growth of labour productivity; however, such effects lacked in the field of employment
growth. Consequently, the whole group has been challenged with relatively low employment rate (but
not necessary high unemployment rate) and persisting jobless economic growth. The rapid growth of
labour productivity is usually the main factor to which is this situation attributed. It lowers potential job
creation once the significant economic growth occurs due the efficiency increase. However, such rigid
relationship between economic growth and employment could also be determined by some others
factors (other than labour productivity) which are not regularly analysed. In particular, structural
development of the economy (which was very dynamic in Visegrad Group in past two decades) and its
individual parts is one of the determinants with unknown, but relatively intuitive influence.
Literature
There has been much available literature on structural change topic and its influence on employment
development utilising input-output analysis. It allows revealing direct and indirect effects of the
639
structural change to employment level and development. One of such papers is the paper by Huachu
(2008). He utilises structural decomposition to uncover contribution of particular sectors to
employment development in China during years 1997 – 2002. The author notes in results that if all
other variables remained constant, the export would be main contributing sector to employment growth
(on average about 4 % per year).
On the other hand, the technological progress occurred in country lowered the employment growth by
approximately 6 % per year. The author suggests to focus growth of the economy to domestic
consumption and not to investments. The topic of labour productivity decomposition was addressed in
the paper by Yang a Lahr (2010) which identify the determinants of labour productivity growth in
China between years 1987 – 2005. The conclusion of their study explains that rapid growth rate of
Chinese labour productivity is caused by the low comparative base, especially in the agriculture sector.
Skolka (1989) studied structural changes of Austrian economy during 1964 – 1976. One of the
analysed factors was a change in employment. The analysis came to the conclusion that aggregate
change in the structure of domestic and foreign final demand was the main driver of employment
development. The changes in industry structure of employment changed mainly due different rates of
labour productivity growth among individual industries. Also, the change in technologies used in
economy expressed by changes in Leontief inverse matrix played a significant role in explaining the
development of the whole economy and employment as well. Moreover, the latest paper in the field of
structural decomposition focused on employment changes is by Tin (2014) where he pays attention to
the development of Malaysian economy. There are three input-output tables used for decomposition
(1970, 1991 and 2000). The main contributor to employment growth was in the first period 1970 –
1991 the change in the structure of domestic final demand, in the second period 1992 – 2000 the change
in export. The phenomenon of jobless growth creates ideal conditions to perform such decomposition
analysis.
Methodology and Data
The source of data used in the analysis is the World Input-Output Database (WIOD). The database
covers 27 European Union countries and other 13 major countries in the world for the period from 1995
to 2009. We use the data for V4 group and Germany. Two types of sources are used from this database.
First, world input-output tables in previous years´ prices, denoted in millions of dollars. Second,
Socio-Economic Accounts, were employment data by industries are available. World Input-Output
Tables are constructed for 35 industries. More information on the construction of the World
Input-Output Tables can be found in Dietzenbacher, Los et al. (2013).
Input-output model with employment effects
Open Static Leontief model is a widely used empirical method that allows us to analyse the complex
linkages among industries. Assuming the fixed industrial input structure, we are able to compute the
total production that is necessary to satisfy exogenously given final demand. The basic equation of the
model looks as follows
−1
x = ( I − AD ) f
(1)
D
Where x stands for a total production vector, f for a final demand vector and A for a matrix of
input coefficients. The upper index D indicates the use of domestic intermediate products. Matrix
D −1
(I − A ) is called Leontief inverse and its elements represent the amount of production from
industry i that is necessary to satisfy one unit of final demand for commodities from industry j. A
detailed description of the properties and assumptions behind the input-output model can be found in
Miller and Blair (2009).
If we assume fixed proportions between labour requirements and total production by industries, that
can be expressed in following way:
640
ej
lj = , j = 1… n (2)
xj
then the model can be augmented by the effects of final demand on total employment in the economy.
l = {l j }
The elements of the vector are direct labour coefficients computed as a ratio between
employment in industry j and total production of industry j. The inverse value of direct labour
coefficients is a labour productivity. Augmented input-output model then takes this form
−1
E = l′ ( I − A D ) f (3)
where E is a total employment in the economy. There are three determinants of the employment given
by equation (3): labour requirements per one unit of production (inverse of labour productivity),
structure of the production represented by Leontief inverse matrix and final demand vector f . Further,
D
we can decompose the input coefficient matrix A into two components and final demand vector f
into three components. The use of domestic intermediate products per unit of production is given by the
total use of intermediate products and corresponding share of domestic intermediates on total inputs.
D T T
Thus, matrix A = D A , where D is a matrix of import shares of domestic products, A is a
matrix of total input coefficients based on domestic and imported commodities and the symbol
represents the element-wise multiplication of the matrices (Hadamard product).
Input-output tables provide the information about the final demand according to industries as well as
final demand categories (final consumption expenditures of households, final consumption of
government, gross capital formation and export). So, we can calculate the share of each final demand
category on final demand s and the share of each industry on total final demand of particular final
demand category B . Final demand vector is then given by this expression f = BsF , where F is the
total volume of final demand. Taking these factors explicitly into account, we can rewrite the equation
(3) like this
−1
E = l′ ( I − D A T ) BsF (4)
From equation (4) follows that the total employment in the economy depends explicitly on six factors.
The volume of final demand F is just one of these determinants. We will elaborate more on this in the
following sections.
Multiplicative structural decomposition analysis
If we use an index 1 for a comparison period and index 0 for a base period, then the index of
employment between two periods is given by
−1
E1 l1′ ( I − D1 A1 ) B1s1F1
T
= (5)
E0 l′ ( I − D AT )−1 B s F
0 0 0 0 0 0
The overall change in employment, measured as employment index, is given by the change in six
factors described above, such that
E1
DE = = Dl × DD × DA × DB × Ds × DF (6)
E0
DE
where - the index of employment
Dl - weighted change in labour productivity (or direct labour intensity)
DD - weighted change in import shares
DA - weighted change in total input coefficient matrix
DB - weighted change in final demand structure by industries
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Ds - weighted change in final demand structure by sectors (by final demand categories)
DF - weighted change in final demand volume.
The final decomposition presented in the paper is thus given by the following formula
E1
DE = = DlF × DDF × DAF × DBF × DsF × DFF (7)
E0
Empirical Results
Our results reflect already mentioned contributions of each determinant to employment development in
the Visegrad Group and Germany as a result of performed structural decomposition. In total, we can
attribute and evaluate the list of following main determinants of employment.
• Contribution of labour intensity change (labour productivity)
• Contribution of economy structure change
o Contribution of changes in import of intermediates
o Contribution of changes in the structure of production
• Contribution of final demand change
o Contribution of change in the industrial final demand structure
o Contribution of change in the final demand structure by sectors
o Contribution of change in the final demand volume
To provide deeper analysis, the results of structural decomposition are aggregated in three selected time
periods. These periods differ by their characteristics when first period 1995 – 2002 could be described
as a period when signs of transformation from centrally planned to the market-oriented economy were
still present (in V4). The second period 2003 – 2009 is known as the period of very favourable
economic development (in each economy) and the third period is conclusive for the total period of
analysis (1995 – 2009). It depicts the total period of analysis also with the negative impact of the
starting latest crisis in 2009.
Contribution of changes in labour productivity
The process of technological catching up to Western countries in V4 countries (still presents even
nowadays) had a substantial impact on employment in the early years of transformation. The
technological gap and its gradual reduction resulted in an underlying growth rate of labour
productivity. We consider Germany as a well-developed economy which has already achieved a high
level of labour productivity. So in the field of labour productivity, the major increase rather occurred in
the V4 countries than in Germany. From the whole economy point of view, such growth had a positive
impact on the value added growth and created pressure on wages growth. However, regarding
employment development, such growth of labour productivity decreased possible additional growth in
total employment.
Table 1 shows that the V4 group experienced a decrease in volume of employment by -0.3 % per year
on average in 1995 – 2002 period. Such negative development was mainly caused by diminishing
aftermaths of the transformation process and privatisation of state enterprises. Similar negative effect
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on employment development was imposed by the recession in late 90’s when employment decreased
by more than -2 %.
The contribution of change in labour productivity was in this period negative when the potential growth
of employment was hampered by almost 4 % per year on average. It can be assigned to the catching-up
process of technologies in V4, productive gap and inflow of foreign capital which pushed the
economies towards better and more efficient use of production capacities. The technology gap in V4 is
mainly the result of a centrally-planned economic system with lack of focus on innovations. The
production was rather oriented on traditional industries like textile, steel production and similar.
In the second analysed period 2003 – 2009, well known for its unusual positive development of
economic growth with the start of the economic crisis, the employment had developed in qualitatively
better pattern. The employment experienced increase with the average rate of -0.7 % per year.
However, such growth rate could be even more pronounced if the contribution of productivity growth
would not act against this trend. It negatively contributed to employment growth by -2.3 % per year in
V4. The impact was negligible and amounted to almost insignificant -0.3 % per year.
In total period 1995 – 2009, the positive trend of the second period in employment development was
almost neutralised by the negative effects of the first period and total average growth of employment in
V4 remained on values close to zero (0.2 % per year). Also, the negative impact of labour productivity
was confirmed over the total period when the contribution of productivity development weakened
potential growth of employment.
It is clear from Table 2 that employment development in Germany has different nature in the total
period. In fact, the development of employment is stable over the total period at level 0.6 % per year.
The contribution of labour productivity has negative nature as well. However, when compared to the
V4 countries, the level of this contribution is dramatically lower. The average contribution was in the
first period -1 % per year. In the second period, Germany was in this period almost free of negative
contributing productivity growth. The negative contribution became negligible at level -0.3 % per year.
So we can conclude the same characteristics of the productivity growth influence in both compared
countries. However, the effect was in the V4 group much higher.
It needs to be underlined again that such labour productivity development could not be perceived as
negative phenomena in the economy, in fact, it is quite the opposite.
Contribution of structural changes in economy
Labour productivity growth was not the only factor that influenced the development of employment.
Also, the changing structure of the economy has played a major role in affecting the development of
employment growth. The total effect of the structural change has been split into two special factors.
The first factor is the contribution of intermediate consumption share of imported products on the total
intermediate consumption needed for production. The second factor is the contribution of the overall
structure change in the economy (direct and indirect effects) which could be obtained using
input-output analysis.
The first factor has an intuitive economic interpretation. The larger share of imported intermediate
products from abroad, the lower contribution to the domestic employment because employment effect
is generated in origin country of intermediate products. There may be several reasons for such negative
contribution; one of them might be cheaper labour costs and the overall price competitiveness of
intermediate consumption products in abroad. That means the import of such products is for
manufacturers cheaper than produce them by themselves in domestic country.
The gradual inflow of foreign investments in V4 countries along with more intense involvement in
international trade reflected in the share of domestic intermediate consumption on total intermediate
consumption. The negative trend of the indicator demonstrates that share of foreign intermediate
products over the time significantly increased. From the economy point of view this is a clearly positive
643
phenomenon, but regarding employment not that much. The employment remains generated abroad,
and therefore, the contribution of this factor is slightly negative.
In the first period 1995 – 2002, the contribution of changes in the import of V4 was on average negative
by -0.9 % per year. It could be interpreted as the increase of intermediate consumption products from
foreign countries affected the potential growth of employment by almost a 1 percentage per year.
However, in the second period, the contribution of this determinant decreased by more than half of its
intensity to -0.3 % per year.
In the overall period, this determinant affected the employment growth negatively by the average
contribution of -0.6 % per year. Based on this finding, the growing share of foreign intermediate
products in total intermediate consumption could be considered not to be as strong determinant of
employment development as productivity growth. However, we can still consider it to be strictly
negative.
Again, the same determinants have in the Germany a different contribution to employment. In the first
period, the change in the intermediates import had a slightly negative contribution at level -0.2 %. With
the gradual expansion of German companies in foreign countries, the influence in the second period
remained at the same level -0.2 % per year. True, the outsourcing or transferring of companies overseas
did not affect employment as much as it did in the case of the Eastern European countries grouped in
V4.
The second factor from the group of determinants connected with the structural change of economy is
the change of economy itself and particularly the change in the links between different sectors of the
economy. Such changes are expressed as changes in the Leontief inverse matrix which indicate how
many products of i-th sector must be produced for the purpose of supplying one more unit of final
demand in the j-th sector (Miller a Blair, 2009). The actual change in the Leontief inverse matrix shows
the change in technology that various sectors use for production and how they evolve in time.
The impact of changes in technology used in the economy shows that in the first period the size of the
determinant is marginal or even insignificant in both countries. On the other hand, the contribution of
the determinant slightly increased in the case of Germany with the potential contribution of 0.4 % per
year and decreased in V4 to -0.1 % per year. This was the period of huge FDI inflow which imported in
the V4 countries new technologies. However, they did not affect the employment in a significant
manner. In the case of Germany, the positive contribution could be explained by the fact, that the
technology change had already occurred a long time ago, and the country became one of the most
advanced nations in terms of efficiency and production process. Also, the orientation of country to
more sophisticated activities is rather more labour intensive than the focus of V4 just on manufacturing
and other forms of industries.
In the overall period, the contribution of this determinant fell to an insignificant level in V4 and
remained in positive values for Germany. We can conclude that while in the case of V4, the changes
occurred did not strongly contributed to positive employment development structural change, the
Germany partially benefited from occurred structural changes. Despite the positive contribution of
overall structural change of Germans economy, the slightly negative contribution to change in
production of intermediates was cancelled out by the positive influence of technology used.
Contribution of changes in final demand
The final group of employment development determinants included in the analysis is the contribution
of changes in final demand. However, this specification does not allow us to reveal the specific
contribution of all kind of dimensions of the determinant so further elaboration to another three
dimensions is performed.
Changes in industrial structure of final demand
The first dimension is the change in the industrial structure of final demand. It represents how the
production was produced by all industries. The V4 economies went through some changes with the
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gradual development of certain industries that have become pillars of the economy. The changes were
mainly represented by the significant inflow of FDI in manufacturing. The Germany can be
characterised by an increase in the foreign investments to other countries. On the other hand, the V4
countries were one of the receivers of these investments.
Transformation process which took place in every V4 country did not contribute to employment
growth positively. The same effect was still present in the Germany, but diminishing in Germany after
both parts reunion. Partly due to the situation when the transformed corporations were exposed to
global competition and many of them faced bankruptcy. Partly due to the transformation process which
led indirectly to structural changes in an economy with a similar effect on employment development.
In the case of V4, the labour intensive branches in manufacturing, such as textile industry, chemical
industry and others gradually disappeared and were replaced by new branches, which are characteristic
of their lower labour intensity of production. Manufacturing of vehicles or electronic and optic
equipment could be considered as one of these “new” industries. The role of the manufacturing was
already stable in the Germany, so the change has not influenced the country’s employment.
In Visegrad Group, the change had negatively affected employment development in the first period
1995 – 2002 when the average annual contribution of this determinant was more than -1 % per year. In
the second period 2003 – 2009, the negative contribution decreased considerably by almost half and
weakened potential employment growth by approximately -0.5 % per year. By extending the
decomposition to total period 1995 – 2009, we can conclude that changes in the industrial structure of
final demand contributed negatively to the employment growth. As already mentioned, the German’s
employment remained untouched by an industrial change in final demand and the average contribution
was close to zero or insignificant levels.
Although the magnitude of this determinant is not as high as was in changes in labour productivity, it is
necessary to take into account a non-positive character of the determinant in V4 and indifferent
relationship to German’s employment.
Changes in sectoral structure of final demand
The V4 economies gradually became typical small open economy (three out of four – except Poland)
where a significant proportion of production is meant for export. Habrman (2014) in his paper came to
the conclusion that export-oriented industries tend to generate less employment than industries oriented
for domestic consumption in the Slovakia. The results of decomposition support these findings. Mainly
the increase in the export sector and decline of domestic demand share on total production led to the
negative contribution of sectoral structure change to the development of employment.
Even though the results for the first period 1995 – 2002 show marginal effect of contribution in a
sectoral change of final demand for both countries, the second period 2003 – 2009 is characteristic for
negative contribution to potential employment growth. It affected mainly V4 economies when the
export of economy was continuously increasing. The same effect was also experienced in the case of
Germany, but with rather lower magnitude. In total period 1995 – 2009 this determinant became
similarly significant as the previous change in industrial structure for both countries. Even though the
contribution of these determinants is relatively small, the cumulative effect was strictly negative and
affected employment development in a non-negligible way.
Changes in volume of final demand
The last dimension which was analysed in case of structural change of final demand was its volume. It
can be vaguely understood as economic growth of country measured by GDP, even though they are not
the same categories. The GDP measured by expenditure approach, similar to the final demand, includes
final consumption, gross capital formation and export. However, in the case of GDP, the import is
subtracted from export so final value differs from final demand category. However, with a certain level
of caution, results can be interpreted as a substitute for economic growth itself.
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Table no 1 refers to change of volume in final demand as the only determinant with a positive
contribution to employment change. Average annual contribution in the first period was above 6 % per
year. The value of this contribution represents potential growth of employment per year in a scenario
where no structural change or productivity growth would appear. Even though the country was
growing rapidly, its effect on employment growth was just marginal. The employment growth was
even negative with magnitude -0.3 % per year. Such strong rigidity of labour market is in line with
already known findings.
The second analysed period characteristic for its strong economic growth. The average annual
contribution of determinant approaches almost 5 % level what reflected in very mild increase in the rate
of employment growth (0.7 % per year). The differences between these different rates of growth could
be partially explained by the development of labour productivity. However, the significant role could
also be attributed to contributions of the structural changes in the economy.
In total, the contribution of volume change in final demand was an adamant positive determinant of
employment growth in V4. The highest effect was recorded in the first period due to rapid economic
growth. However, it was not be transferred to employment growth. Although the contribution of the
factor was strongly positive, the combination of other negatively acting variables caused very mild and
relatively poor results approaching non-significant values.
The Germany is in this matter substantially different. The change in volume of final demand is
contributing to employment at a lower level than in the V4. The contribution was just 2.2 % per year in
the first period, but when considered with positive average employment growth, the situation on labour
market could be seen as a positive. In the second period, the contribution of economic growth
decreased and remained below the 1 % per year level. This rapid decrease may be attributed to the
emergence of the crisis in 2009 which hampered the average results during the analyzed period.
Especially results for V4 provides a strong recommendation for economic policy makers, when the sole
economic growth should not be the only benefiting factor to employment development, but also the
structure of the growth represents (among others) significant determinant of labour market
responsiveness to growth. The policy makers should not focus on just gross output growth, but rather
evaluate the quality of growth achieved. As proved above, the quality of growth is a strong determinant
of the labour market outcome.
Table 1: Structural decomposition analysis of employment growth in the V4 (1995 – 2009)
Changes Changes
Changes in
Changes Changes in in the in the Change in
Employm the
in labour import of industrial final the final
Period ent growth structure
productiv intermedia final demand demand
index of
ity tes demand structure volume
production
structure by sectors
1995-200
-0.30 -3.78 -0.97 0.05 -0.90 -0.37 5.91
2
2003-200
0.72 -2.37 -0.31 -0.11 -0.54 -0.65 4.86
9
1995-200
0.21 -3.08 -0.64 -0.03 -0.72 -0.51 5.38
9
Source: Authors calculations based on WIOD.
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Table 2: Structural decomposition analysis of employment growth in the Germany (1995 – 2009).
Changes in
Changes in
Changes in Changes in Changes in the Change in
Employmen the final
labour import of the structure industrial the final
Period t growth demand
productivit intermediat of final demand
index structure by
y es production demand volume
sectors
structure
1995-2002 0.56 -1.01 -0.23 0.05 -0.16 -0.26 2.20
2003-2009 0.63 -0.31 -0.25 0.37 0.04 -0.12 0.90
1995-2009 0.59 -0.66 -0.24 0.21 -0.06 -0.19 1.55
Source: Authors calculations based on WIOD.’
Conclusion
From the results achieved by use of structural decomposition of employment based on I-O analysis, we
can conclude that several factors have influenced the development of employment in V4 and Germany.
It is important to note that analysed factors have not been influencing the development of employment
individually (as one might want to interpret it from the structure of the analysis), but simultaneously
when each factor was just one piece of the greater jigsaw in the field of employment growth. That is the
reason why some of the relatively low influencing determinants also partially contributed to the whole
pattern of employment development. The results support already known facts about the negative
contribution of labour productivity growth in the country. This applies to both analysed samples.
However, the strength of the influence is much higher in the case of Eastern European countries. The
productivity growth was one of the highest negatively contributing factors affecting the growth of
employment. There have also been some other factors identified from an aggregate point of view as
factors of total change in the structure of the economy. In individual V4 approach, it was mainly the
change in share of imported intermediate products on total products. The change in the technological
level of economy expressed as change in the inverse Leontief matrix represents neutral results with no
significant influence on employment. Other significant factors in V4 were a change in the industrial
and sectoral structure of final demand, mainly due the growth of industries orienting their production
on foreign markets (export). In Germany, the influence of these factors was rather negligible. The only
positive determinant of employment growth in case of V4 was the change in the volume of final
demand which had the highest contribution to employment growth among all analysed factors. In the
Germany, also the change in technologies used in production process contributed to employment
development positively. The reason for such influence can be found in the entirely different level of
used technology represented by technology gap.
From the alternative point of view, it is necessary to note that labour productivity growth affected the
employment development in two dimensions. In the first dimension, as already concluded, it hampered
the potential employment growth, but in the other dimension, the growth of productivity supported the
growth of final demand volume what makes the final effect of such growth mixed. Remaining
determinants kept their negative affection on employment during the whole period what makes them
the interesting object of further research (except technology used in the Germany). Therefore, the
economic policy makers should also take into account the role of structural change when analysing the
possible reasons of labour market unresponsiveness to economic growth (especially in long-run
perspective). It would help them to predict and model more precise outcomes of their analyses and
better target the policy tools on actual labour market problems of countries.
647
This paper is a part of research project VEGA 1/0810/15, VEGA 2/0070/15 and VEGA 1/0313/14.
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648
Inventory and the Economic Cycle in the Czech Republic
Václav Olešovský, Institute of Informatics, Faculty of Business and Management,

Brno University of Technology, Brno, Czech Republic, olesovsky@fbm.vutbr.cz
Abstract
Creating new models requires the knowledge of relations between the individual quantities. The aim
of this paper is to establish the relation between inventory creation and the economic cycle. Time is a
significant variable, playing the role of an independent variable. It demonstrates that even delay needs
to be incorporated among the investigated indicators.
Keywords: economic cycle, inventory, delay, modelling
Introduction
Investigation of the laws of economics using the apparatus of economic theory and mathematics is
the domain of a scientific discipline called mathematical economics. The basic method of
mathematical economics is creating models of economic phenomena, the so-called mathematic
modelling. The mathematisation in modelling brings mostly general objective view of the examined
phenomena. As a consequence it thus leads to formalizing the findings and elaboration of new
theories, by which it substantially affects the progress within fields.
Inventory represents an integral component of every business. From a macroeconomic point of view
it is not a significant component of national wealth; however, in state economy inventory creation has
considerable impact on GDP for its size, or the economic cycle.
Dynamic Modelling
Mathematical modelling in economics is a field on the edge between mathematics and economy.
When considering a complex mathematical model that is difficult to solve, it often proves useful
forming the model into a mathematical model whose solution might not be so demanding. When
forming such a mathematical model, we attempt to establish a sufficient number of definite
regularities and relations for the economic quantities in question and thus describe their behaviour.
As economic quantities are hardly ever constant, we try to parameterize them, usually by a time
variable. Such parameterizations are called functions. We often wish to predict the development of
certain quantities, which may be achieved by using an acquired mathematical model. Modelling of
phenomena based in economic reality and described by statistical data is made possible by methods
formed on the basis of mathematical disciplines, such as differential count (Aluf, 2014;
Balasubramaniam, 2014; Faria, 2014), statistics (David, 2013), (Plaček et al., 2013), linear and
dynamic programming (Hassan, 2011), optimization (Subagyo, 2014, Zaarour et al.,2014) and others.
And dynamic models are the ones with characteristic time dependence. The subsequent state in such
models is determined by the present states, sometimes past states; however, never by future states.
There are only very few quantities for which the future state may be established solely by the
knowledge of the present state; however, it is also determined by other quantities that should be
accounted for in the model as well. Therefore the individual quantities are interrelated. Such a model
may consist of a set of equations, inequations, graphs and other relations.
In their monograph, Kobrinskij and Kuzmin (1981) have pointed out the necessity of using the
variable character of history in dynamic economic models, which affects system development and
leads to crucial changes in the nature of the process as a whole. Simonov adjusted some well-known
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microeconomic and macroeconomic models is his publications (Simonov, 2003; Simonov, 2009), e.g.
the Walras-Evans-Samuelson (WEC) model with regard to the delay between supply and demand, the
Allen model (Allen, 1971) in a single commodity market, taking account of supply delay and
dependence of supply and demand on price and rate of price changes, the Vidal-Wolf model (Dykhta
et al., 2003) of single product sale and others. Some authors have recently been returning to the
Kalecki model using delay differential equations (e.g. Asea et al, 1999; Collard et al., 2008).
If one understands time as a continuous quantity, the complex behaviour of the monitored quantities
may be described by differential equations. By considering not only the current states of the
quantities but also the progress of their behaviour in the past the model can be refined and brought
closer to reality.
When forming the model, establishing the relations between the respective quantities is crucial. The
first ideas are based on experience. So if the respective data are available, the relations in question
may be easier to estimate. Statistical tools, namely time series analysis, can be used to make the
estimates more precise. Based on regular decomposition every series can be decomposed to four
components:
= + + + ,
where At is the long-term trend, St seasonal effects, Ct cyclical component and εt white noise. There is
a number of approaches to modelling the individual components, in particular to model the At trend,
or At + St – trend with seasonal effects. The most well-known parametric modelling is performed
using linear regression models (or generalized regression models) where the polynomial trend is
estimated most often. However, this group also includes different smoothing methods, i.e. models of
the local gradual trend, such as moving averages or exponential smoothing. Nonparametric methods
that include kernel smoothing are a special area. However, the selection of smoothing window width
is the most important for all smoothing methods. With increasing size the time series becomes
oversmoothed and valuable data are eliminated. On the contrary, in the case of undersmoothing
oscillations that were meant to be removed remain in the data.
Business Management Decision-Making

The area of decision-making processes has become an integral part of all businesses. For developing
companies, effective decision-making in the conditions of uncertain and unstable external
environment is one of the foremost requisites of business success.
A responsible solution of a number of economic issues requires a large amount of appropriately
arranged information. On its basis the decision options have to be determined and the consequences
evaluated. Incorrect decisions made on the basis of incomplete or inadequately used information can
result in considerable economic losses.
The practical decision-making situations in economics can generally be solved in two ways. The first
one, intuitive, is performed based on experience. However, if the intuitive methods and their own
experience is not sufficient for a manager; quantitative analysis methods have to be used.
Company managers have been trying to reduce intuitive decision-making by using different
statistical, mathematical and other quantitative methods and thus eliminate the negative consequences
of subjective problem solutions in management.
For the solution of economic issues to be efficient and effective, it is necessary to gather and most
importantly to adequately arrange the information related to the management and decision-making
process. Based on this information the decision options need to be determined and correctly evaluated
and most importantly their results need to be interpreted.
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Undeniably, logistics is one of the most important decision-making disciplines in company

management. It dates back to the 9th century when it was required for army food supplying and
tactics (Drahotský a Řezníček, 2003).However, significant progress came about in the 1940s and
during WWII and thus one could say logistics is a relatively young discipline. The findings from this
progress had significant effects on business logistics, which led to a more in-depth examination of the
points at issue, such as the determination of optimum production amount, store placement and
efficient distribution (Štůsek, 2007).
Tangible inventory is one of the key logistics variables. In business management, it is crucial to
determine the optimum volume and adjust this value flexibly as necessary in order to minimize the
losses resulting from their maintenance.
Inventory is one of the most important elements of current assets, characteristic of their short-term
nature. When buying in bulk, the order costs can often be reduced; however, on the other hand the
inventory binds a considerable amount of financial resources and thus burden the economics of the
company. Thus inventory is an agent affecting the net income of each company as well as its position
in the market, therefore proper attention should be paid to it. High inventory levels reduce the risk of
shortage; enable the exploitation of bulk discount and the fulfilment of every contract. On the other
hand, they increase both the need of financial resources and the storage costs. Inventory build-up is
also usually a signal of imminent financial difficulties.
Despite the undoubtedly positive role of inventory, it is generally considered a manifestation of
reserves in the work of managers and there are efforts to decrease their level as much as possible.
Since its status is very well measurable and with the current level of computer technology we are able
to monitor the inventory status in the supply chains, inventory management is at the centre of
attention.
Inventory Creation and Economic Cycles

Change in inventory status (CIS) currently participates in the gross domestic product (GDP) of the
Czech Republic by percent units at most. Even such a small amount can affect the economic cycle.
GDP does not progress in a linear manner in time, there are certain fluctuations around a long-term
trend. It has been demonstrated (Kučera 2012) that 29% of this cycle variability can be explained by
CIS.
For the period of 1996–2010 it was established (Kučera 2012) that the highest dependency between
CIS and the cyclical component of GDP occurs when there is a delay of just one indicator. The
correlation reaches significantly negative values (-0.36) with a CIS delay of 4 quarters; on the
contrary, the highest positive values (0.33) are reached with a GDP delay of 3 quarters.
The current state is based on the data issued by the Czech Statistical Office:
Table 1: Data of the Czech Statistical Office in millions CZK
Time HDP ZSZ Time HDP ZSZ Time HDP ZSZ

1995 Q1 349 683 -7 115 2002 Q1 611 813 -15 442 2009 Q1 929 368 -7 432
Q2 390 304 6 951 Q2 671 613 7 980 Q2 980 926 1 197
Q3 410 608 6 750 Q3 684 430 25 939 Q3 987 262 7 385
Q4 429 520 -2 165 Q4 706 778 1 622 Q4 1 024 271 -28 608
1996 Q1 408 373 5 326 2003 Q1 639 690 -8 164 2010 Q1 914 538 -18 438
Q2 450 587 11 204 Q2 702 666 7 817 Q2 1 000 113 12 983
Q3 466 991 13 464 Q3 718 964 13 716 Q3 1 004 700 33 198
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Q4 486 671 -2 211 Q4 739 843 -9 371 Q4 1 034 300 -22 912
1997 Q1 439 588 12 871 2004 Q1 694 424 2 416 2011 Q1 935 801 -5 632
Q2 484 563 7 586 Q2 754 045 6 856 Q2 1 015 093 12 290
Q3 502 337 6 112 Q3 776 391 14 787 Q3 1 020 757 31 970
Q4 526 823 -22 547 Q4 832 800 10 304 Q4 1 062 104 -21 892
1998 Q1 484 005 -9 588 2005 Q1 748 169 748 2012 Q1 957 466 -16 379
Q2 541 239 3 231 Q2 816 100 7 282 Q2 1 021 068 14 320
Q3 554 510 11 933 Q3 823 330 16 835 Q3 1 021 043 15 343
Q4 562 833 -10 697 Q4 870 373 734 Q4 1 060 335 -8 123
1999 Q1 503 329 -8 687 2006 Q1 797 802 -8 364 2013 Q1 947 380 -24 954
Q2 561 412 4 454 Q2 870 410 30 680 Q2 1 020 805 -5 161
Q3 571 889 1 640 Q3 896 437 40 059 Q3 1 038 854 16 555
Q4 600 670 -5 367 Q4 942 482 7 497 Q4 1 091 089 -8 397
2000 Q1 535 093 -4 980 2007 Q1 882 421 210 2014 Q1 990 626 -23 811
Q2 594 227 13 548 Q2 949 243 32 468 Q2 1 076 850 17 508
Q3 608 866 12 937 Q3 976 901 59 611 Q3 1 107 159 34 132
Q4 634 444 -4 963 Q4 1 023 254 2 998 Q4 1 139 154 -1 294
2001 Q1 578 875 2 675 2008 Q1 926 672 -7 555 2015 Q1 1 052 854 -8 694
Q2 639 594 15 791 Q2 1 014 549 25 830 Q2 1 142 998 30 996
Q3 655 533 8 961 Q3 1 039 324 49 986 Q3 1 162 521 34 291
Q4 688 677 -2 716 Q4 1 034 801 12 230 Q4 1 196 242 -13 142
2016 Q1 1 093 697 -6 201
These data have been processed in the R-project statistical software. For the GDP time series the
trend is estimated by a fourth degree polynomial by which the data are adjusted. Due to the nature of
the data on CIS such adjustment is not required. Furthermore, it was advisable to remove periodical
components. This was achieved by smoothing by moving averages with a smoothing window width
of 2 periods, thus it is smoothed with regard to four consecutive periods. The series in centered form
are presented in Graph 1:
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Graph 1: Progress of CIS and the Economic Cycle 1995–2016

Graph 1 shows a black curve depicting the economic cycle and CIS in red multiplied by three for the
sake of clarity. Based on the experience from the results mentioned above the correlations between
series with different delays were examined (see Table 2).
Table 2: Series correlation with time shift
delay -8 -7 -6 -5 -4 -3
correlation 0.2855167 0.3593547 0.4401617 0.5072118 0.5608136 0.5975232
delay -2 -1 0 1 2 3
correlation 0.6075635 0.5897929 0.5371691 0.4273832 0.2803856 0.1115870
delay 4 5 6 7 8
correlation -0.0557074 -0.1977614 -0.2982164 -0.3652288 -0.4040942
The strongest relevant correlations were reached by the series with CIS delay by 2 periods after the
economic cycle, namely -0.607. These values are shown in Graph 2:
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Graph 2: Correlation with a delay of up to 24 quarters

The graph presents significant negative linear dependence (-0.629153) with the economic cycle being
delayed after CIS by 18 quarters, i.e. 4.5 years. Values this high can be explained by the delay of the
economic cycle series by a half of its period, which results in anticyclical behaviour. Therefore it
could be expected that the current value of the economic cycle period corresponds to double the delay
mentioned above. However, Graph 1 and the correlation values with zero delay clearly indicate
procyclical character of the examined series.
Conclusion
A number of applications from various scientific fields as well as conclusions provided by theoretical
mathematics show that the models based on dynamic relations describe the behaviour of state values
very well. The current methods of dynamic system investigation are focused mainly on identifying
states in which the system behaves unpredictably and on identifying states in which the system shows
signs of deterministic chaos.
When creating the models, the economists are not presented only with the problem of the theoretical
solution of the given problem itself but also with the selection of the tool used to calculate the
parameters required for sufficient model description. Delay differential equations can be used in
deterministic models, in which it is assumed that all state values are not determined only by the
immediate values of the variables entering the solution but also by their preceding states, at the same
time all random influences are ignored.
It appears that inventory creation is procyclical to GDP fluctuations with a delay of the inventory
creation time series; in contrast, if the delay is negative their behaviour is procyclical. However, an
interesting finding has been established that the delay in question probably changes in time. Delay for
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the period of 1995–2016 reaches values lower by one quarter than for the period of 1996–2010.
These findings could be exploited for prediction of both economic growth and inventory creation.
Acknowledgments
This paper was supported by grant FP-S-15-2787 ‘Effective Use of ICT and Quantitative Methods for
Business Process Optimisation’ from the Internal Grant Agency at Brno University of Technology.
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Obtaining Customer Feedback: Experience of “Staffino” from the

Managerial Point of View
Petra Solarová, Institute of Technology and Business in České Budějovice,

Department of Tourism and Marketing, Okružní 10, 370 01 České Budějovice, Czech Republic,
E-mail: petrasolarova@gmail.com
Roman Švec, Institute of Technology and Business in České Budějovice,

Department of Tourism and Marketing, Okružní 10, 370 01 České Budějovice, Czech Republic,
E-mail: svec.roman78@gmail.com
Abstract
Customer feedback is beneficial for business establishments because it is able to identify their weaknesses
and strengths. This paper deals with Staffino: a specialized tool for obtaining customer feedback. The aim
of the paper is to find out managers’ experience of this tool. In order to do this, twenty-three interviews
with managers were analysed with use of the qualitative approach in the form of content analysis. There
were identified four main thematic scopes: (1) how Staffino helps in doing business – in general,
(2) Staffino as an opportunity to communicate with customers, (3) received feedback/evaluation as an
impulse for improving business practices and (4) relation between staff and obtained feedback, especially
in the context of remuneration.
Keywords: customer feedback; online customer feedback tool; Staffino; customer value; customer
relationship management
Introduction
Customer feedback
Customer feedback can be simply described as a set of data containing customers’ experiences and
perceptions. Collecting customer feedback is carried out by companies or it can be outsourced. (Nash,
n.d.)
Businesses usually recognize customer feedback is beneficial for them: customer feedback is able to
identify weaknesses or strengths and it is an important source of ideas for possible improvements (Wirtz,
Tambyah and Mattila, 2010, Sampson, 1998). Caemmerer and Wilson (2010) state getting customer
feedback is a part of organizational learning which belongs to popular topics (Cavaleri, 2008). Goldstein
(2009) also thinks about benefits of asking customers and besides this, he suggests that if businesses
declare they wait for customer feedback, they admit they are not good enough and so they could be better.
It seems businesses are waiting for negative comments which will help them in their further development.
However, according to Goldstein (2009), businesses cannot expect a huge number of complaints because
in many cases it is much easier for a customer just to go to the competitor than to make a complaint. It is
estimated 91 % of unhappy customers do not make a complaint and simply go to the competitor (Beard,
2014).
Surprisingly, complaints as a kind of customer feedback can have a positive impact on customer loyalty.
Goldstein (2009, p. 6) introduces this example: “when a customer has a complaint and we satisfy it
quickly, we can generate greater satisfaction and loyalty with that customer than with the customer who
never had a complaint”. It means customers should be stimulated to give their feedback and the quick
response to them should be guaranteed (which implicates demands on employees who have to be ready
for solving complaints).
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There are not any doubts customers are expensive. Gerson (1998, p. 12) mentions: “it costs money to get
a customer, and it also costs the business money when it loses a customer.” Getting customers is a basic
necessity for running a profitable business – it means there are not many justifiable ways why to
eliminate this kind of costs. The second kind of costs, mentioned above by Gerson (1998), seems to be
unwanted; however, there can be some situations in reality when it is justifiable to get rid of such
customer who does not bring revenue and only requires costs. Assessing of revenues and costs, following
from the individual customers, is usually quite difficult. In the literature, the term “customer value” is
used (e.g. Khalifa, 2004, Gubíniová, 2015 or Calciu and Salerno, 2002). The question is what everything
should be taken into consideration when counting the customer value. In general it can be deduced that
customer feedback increases the customer value because it brings usable information that has a certain
economic value. It is similar to referral or recommendation, mentioned by Roberts-Phelps (2001).
Collecting customer feedback, which is able to increase customer value, belongs to the topics of customer
relationship management (commonly abbreviated as CRM). Customer relationship management is
a relatively broad topic and it emphasizes customer loyalty (e.g. Slabá, 2015 or Pícha, Skořepa and
Navrátil, 2013). As it is mentioned above, customer loyalty can be also built through enabling customers
to give their feedback. Last but not least, it is also possible to see the connections with the broader context
of labour market (Faltová Leitmanová and Krutina, 2008).
Customer feedback tools
Nowadays, there are many various customer feedback tools. It is possible to speak about specialized
programs operating online. In this context, Hayes (2009) states customer feedback programs help to
understand both customers’ experiences and attitudes – this emphasizes the main sense of all customer
feedback tools.
It is essential to set apart general online survey tools. These tools are not primarily designed only for
collecting customer feedback – they can be used in many other ways, such as making any kinds of
surveys among employees or colleagues etc. According to Chaffey (2016), so called Survey Monkey
belongs to the today’s best known general online survey tools.
In this paper the attention is paid to the specialized online tools that are designed just for obtaining
customer feedback – Staffino is one of these tools (see below).
Staffino
Staffino is a name of an evaluation system in which customers have a unique opportunity to evaluate the
individual salespersons and other members of staff or other matters (e.g. products) – it depends on the
specific conditions in which Staffino is implemented. Staffino can be used not only in restaurants and
other similar eating establishments, but also in business practice of banks, petrol stations, retail chains or
mobile operators. (Jedlička, 2016)
The use of Staffino is easy – customers can evaluate through the web or through their mobile phones (as
they download the application which is available for free). In order to give their feedback, they need to
find the particular place of business which they have visited and then they can send their evaluation. It
means managers/entrepreneurs have a chance to react directly and to solve the customers’ comments.
(Jedlička, 2016)
Staffino was created by a team of people from the Slovak Republic in May 2014. Now it has a big
popularity in the Slovak Republic and also in the Czech Republic (i.e. in the neighbouring country).
However, there are several similar tools that enable to evaluate, too. Despite this, there is at least one fact
that can be considered as the competitive advantage of Staffino: various evaluation webs are anonymous
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and enable only impersonal ways how to express the customer feedback, but Staffino requires logging in
via Facebook or Google account. It is also detected whether the account is indeed real. Customers
communicate with managers/entrepreneurs directly and customers’ evaluations are immediately
addressed to them. (Jedlička, 2016) On the other hand, the necessity to log in via Facebook or Google
account can be an obstacle for customers who would like to give their feedback – not everyone has these
accounts.
Staffino can be used throughout the world. The Czech Republic and the Slovak Republic are the today’s
main markets but Staffino is getting popular also in Great Britain and in the United Arab Emirates as
well. (Jedlička, 2016)
Aim and Methods

The aim of this paper is to find out managers’ experience of the evaluation system called “Staffino”
which is designed for obtaining customer feedback.
In order to do this, 23 interviews with managers were analysed. It means, data from secondary sources
(according to terminology by Krishnaswami and Satyaprasad, 2010 or Wren, Stevens and Loudon, 2002)
have been used because these interviews have been regularly published on the official both Czech and
Slovak Staffino websites. All interviews which had been published till June 9, 2016, were analysed –
i.e. all available cases were included in the subsequent analysis (it can be understood as a comprehensive
sample). There is a list of links to the analysed interviews (for further details, see References): Maderová
(2015), Miša (2015a), Miša (2015b), Miša (2015c), Miša (2015d), Miša (2015e), Miša (2015f), Miša
(2015g), Miša (2015h), Miša (2015i), Miša (2016a), Miša (2016b), Miša (2016c), Miša (2016d), Miša
(2016e), Miša (2016f), Miša (2016g), Miša (2016h), Zemánková (2015a), Zemánková (2015b),
Zemánková (2016a), Zemánková (2016b) and Zemánková (2016c).
Besides this, two workers from the company, that has created Staffino, were contacted in June 2016 via
e-mail messages in order to get detailed pieces of information. The communication with them had a
character of semi-structured interviews (according to terminology by Sachdeva, 2009). This kind of
obtained data belongs to the primary sources (Mishra, 2008).
It means, more than one source of data has been used – Bryman and Bell (2015) and Saunders, Lewis and
Thornhill (2009) mark it as triangulation.
The used research method for assessment of both primary and secondary data has a character of the
qualitative content analysis. In the almost same sense, Bryman and Bell (2015) speak about documents
that can be considered as sources of usable data. In the context of this paper, the used documents for
purposes of the content analysis were available on the Internet.

This section contains analysis of interviews with managers who use Staffino for their business. Some
parts are enriched witch information from own e-mail communication with creators of Staffino. However,
in the compliance with the title of this paper, the attention is paid more to the users’ (= managerial) point
of view than to the creators’ point of view.
In the interviews with managers who use Staffino for their business, there were identified four main
thematic scopes: (1) how Staffino helps in doing business – in general, (2) Staffino as an opportunity to
communicate with customers, (3) received feedback/evaluation as an impulse for improving business
practices and (4) relation between staff and obtained feedback, especially in the context of remuneration.
While the first thematic scope is general in nature and presents really the fundamental ideas, the other
scopes develop more deeply these basic thoughts.
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How Staffino helps in doing business – general pieces of knowledge from business practice
Managers are especially appreciative because of the possibility to obtain customer feedback in a relative
simple and quick way. In this sense, Staffino is an effective tool how to obtain feedback.
Managers state Staffino works in a relatively easy way – managers can administrate obtained customer
feedback with ease. Staffino creates a space for quick replies to customer feedback; there is a space for
reaction on the obtained comments. As a result, it helps to stay in touch with customers.
It also supports the customers’ willingness to give their feedback. Besides this, Staffino supports the
objectivity and seems to be able to reduce possible distortions – in comparison with personal interviews,
customers are not afraid of giving a negative feedback through Staffino (despite the fact Staffino is not
anonymous – see Section 1.2). Customers can also determine the most convenient time when they will be
in mood to give feedback – it is the difference in comparison with the situation when they should express
their opinion very quickly just at a moment of a personal interview: in this sense, Staffino represents
a comfortable way for customers.
Staffino is able to help with monitoring how individual employees work because customers evaluate the
individual members of staff (= employees). In this context, employees try to do their best because
customer feedback serves as a stimulus for them. It means Staffino is useful for human resources
management as well. Besides this, obtained customer feedback related to individual employees can be
used also as a supplementary material for purposes of employees’ curriculum vitae (it is obvious this is
done only if the received customer feedback is positive).
According to managers, Staffino helps to understand customers’ point of view and to remove corporate
blindness because it is a source of valuable comments. When a manager solves the individual comments
then it moves his/her business ahead. In other words, Staffino helps to identify weaknesses and then to
develop added value for customers in the form of positive customer experience.
Although there are many advantages why Staffino could be incorporated in businesses, there is at least
one disadvantage: the way of evaluating does not suit every customer (in the case of Staffino mobile
application, it is necessary to download it – this can be understood as an obstacle).
As for obtained customer feedback processing, managers tend to have a look at all received feedback,
usually together with their colleagues and employees. The received customer feedback is considered as
a source of experience which can be transferred to other business establishments then.
There is a clear effort to reply all incoming feedback by managers: the first reason for it is that customers
have then a feeling their opinions are taken seriously. The second reason lies in the fact Staffino is
designed as an interactive communication channel – i.e. it is not meant only for one-way communication
but it is able to develop a dialogue between business establishments and their customers. It means,
Staffino serves as a way how to be closer to customers. Some managers reply immediately (they admit
they are simply curious what customers have written and so they deal with the customer feedback
promptly), but some of them tend to deal with the obtained customer feedback later and at one fling.
Some managers receive notifications on their mobile phone and so they know instantly what is new.
Staffino as an opportunity to communicate with customers
According to managers, Staffino supports customers’ spontaneity to give feedback. For instance, guests
(= customers) in restaurant tend to give their feedback not only during the time when they are sitting in
the restaurant, but also at the time of leaving from the restaurant. The existing experience shows there are
more positive feedback than negative ones: praises have prevailed complaints.
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Customers meet the needs to express their satisfaction/dissatisfaction through Staffino. If they use
Staffino for this purpose, they do not need to speak face to face to the members of staff or even with the
manager/entrepreneur. In this sense, using Staffino can be considered as a result of the today’s behaviour
– people are accustomed to using virtual communication in their daily lives. For instance, Wallace (2014)
confirms this idea.
Figure 1: Staffino as a communication tool

Source: Own processing.
Fig. 1 shows why Staffino can be considered as a communication tool – it enables to stay in touch with
customers.
Customers are in focus of marketing communication (according to Slabá, Štarchoň and Jáč, 2014, it is
crucial to be aware of the target group of communication) so stimulation of them plays also an important
role (e.g. Bacsi et al., 2014; Kiss and Baranyai Hegedűsné, 2015; Skořepa and Pícha, 2016). It is
a common practice that customers are encouraged by employees to express their opinions through
Staffino. In order to support this, employees can have a special badge on a visible spot on their clothes
and this badge serves as a reminder for customers not to forget to give a feedback via Staffino.
According to official Staffino website, there are many possibilities, called “promo-materials”, how to
support customers in their activity to give feedback. For instance, these official materials can have a form
of small wooden stands, designed for placing on tables, moreover it can have a form of stick-on labels
which can be placed on the entrance door or on other suitable places, then small paper cards which can be
put to the bill, posters designed for hanging up on the walls, or it can look like a beer-mat. A relatively
innovative possibility is to use a special (rubber) stamp and then to put stamps on the bills.
Managers/entrepreneurs can order any of these official materials. (Staffino.com, n.d.)
In business reality, managers/entrepreneurs often use these official promo-materials, especially small
paper cards and small wooden stands. Besides this, they use Facebook in order to stimulate customers to
give feedback or they print a short notice about this opportunity on the bills. In one case, a QR code is
placed on the menu as a link at the possibility to give customer feedback. In some cases, members of staff
are encouraged to ask customers for feedback via Staffino, but on the other side, it can be considered as a
bit strange practice: according to the words of one manager, the request just for online giving customer
feedback can sound slightly comically, as the whole service has a character of personal (i.e. offline)
contact.
661
According to the creators of Staffino, the above introduced official promo-materials are the most efficient
and very popular with the managers. Nevertheless, managers can require some modifications of these
official materials; such as inserting additional text or logos and some alterations in graphics. Besides this,
managers can suggest even their own materials. It is always necessary to cooperate with creators of
Staffino who are able to ensure the quality of promo-materials (ensuring unified design, correct shade of
used colour etc. according to the design manual).
Managers agree customer feedback can be understood as a good reason for communication with the
customer – it is based on listening to the individual customer and then on solving the situation with
him/her in order to achieve his/her satisfaction. Besides this, one manager state customers need to have
a feeling that companies are able to listen to them and if it is so, customers will be loyal (this is similar to
the opinion by Goldstein, 2009). According to words of another manager, this kind of communication
strengths the relationships and builds trust – the term trust in the context of modern marketing
management is described by Samuhelová and Gubíniová (2014) and the issue of consumers’ trust is
discussed by many authors from various points of view (e.g. Zagata and Lošťák, 2012; Nagyová and
Tonkovičová, 2008).
Received customer feedback as an impulse for improving business performance
Managers state they have received the majority of positive customer feedback, i.e. positive customer
feedback is now predominating over negative comments. If the customer feedback has a character of
a complaint, it is usually easy to cope with it. Managers admit that customers assess absolutely everything
– even those things that seem to be only tiny details.
Some received customer feedback has a real impact on the current business practices. There is a short list
of particular examples which managers have mentioned:
• change in staff – it has followed from guests’ comments they are not satisfied with a certain type
of person => this person has been suitable for another position in the company;
• change in way how to seat a guest (in business practice of a restaurant);
• change in the offered menu (in business practice of a restaurant) – the guests were unsatisfied
with paying the whole menu (including the soup although they do not eat it) => the solution has
lain in separating the soup which can be ordered separately;
• change in number of personnel – on the basis of customer feedback, the number of personnel has
been increased (especially at the height of the day);
• change in preparing the table for guests (in business practice of a restaurant) – the necessity of
higher thoroughness has been identified from the comments.
The first example in the list shows clearly customer feedback can be used as a tool for identification and
further development of talented employees in companies (Kampf and Ližbetinová, 2015).
In order to use the customer feedback as a valuable basis for improving business practice, managers
would like to receive specific, definite and well described comments. Only then it is possible to process
it: especially to deliver it to the individual member of staff who is able to associate this feedback with
a particular recent situation. Managers/entrepreneurs would be grateful, if more customer feedback
concerns their staff – managers would like to use it as an additional piece of information for purposes of
remuneration (more details are in Section 3.4).
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Besides this, managers/entrepreneurs admit they will be happy about receiving more comments than up to
now – because of the fact they consider the received customer feedback as a source of inspiration for
further development which will have foundation just in customers’ wants = it means the marketing
approach is implemented in their business practice.
Fig. 2 shows how Staffino is useful as a generator of valuable ideas that can be successfully implemented
in business practice.
Figure 2: Staffino as a source of valuable ideas

Relation between staff and obtained feedback, especially in the context of remuneration
Employees are getting familiar with the received customer feedback mostly individually. In some cases,
received customer feedback is a part of meeting. However, managers think, the more efficient way is to
discuss about it individually than at the official meetings. Besides this, managers admit they will develop
a certain way of sharing and solving customer feedback in future, but only if the amount of received
customer feedback is on the significant increase and the system Staffino is used in all establishments of
a given company. The sense of doing that is to show to employees that customers’ opinions and
comments are taken really seriously.
When Staffino was launched in the analysed companies, employees usually adopted a negative stance on
it firstly. However, according to managers, it did not last a long time and employees started to be willing
to use this system. Employees’ own inquisitiveness and willingness to have a look at customer feedback
was the most likely reason of this attitudinal change.
Receiving customer feedback is stimulating for employees (especially if they are praised, i.e. it is a case
of positive customer feedback). Managers state employees are trying to do their best; the obtained
customer feedback is able to encourage them. According to managers’ experience, employees in some
companies compete with each other who will receive more positive customer feedback. Managers
consider this kind of employees’ behaviour as favourable.
In many analysed companies, managers are thinking about remuneration in the context of the obtained
customer feedback. It seems many of managers are now in the phase of consideration. Some managers
663
state they have it in reserve for future period or they are now dealing with implementation of the obtained
customer feedback from Staffino into the internal evaluation system. They also admit the implementation
is not easy because it is necessary to ensure the applicability for all individual establishments in the
company.
In one case, so-called “employee of the month” is awarded and just customer feedback obtained through
Staffino is the main criterion. In another case, employees’ remuneration consists also of bonus component
and this component is derived from the amount of positive customer feedback.
On the other hand, there are some arguments why not to take into account customer feedback obtained
through Staffino for purposes of remuneration. First of them is the lack of customer feedback; it means it
is impossible to draw a reasonable conclusion. Besides this, it is necessary to distinguish between
employees who are in touch with customers very often and those who are not – logically, these employees
get less customer feedback.
Some managers are convinced money does not always serve efficiently as a part in remuneration system
and they prefer other kinds of appreciation (e.g. giving oral appreciation before colleagues etc.). Another
manager states it is not appropriate to use customer feedback obtained through Staffino as a base for
employees’ remuneration. It is rather a basis for managers who are then able to give clear feedback to the
individual employees. This seems to be crucial especially for such employees who belong to the
generation of Millennials: according to Adkins and Rigoni (2016), Millennials need to get more feedback
in comparison with other generations.
Figure 3: Use of Staffino in human resources management

It seems there are both positive and negative opinions whether to take into consideration the obtained
customer feedback in the context of remuneration. Despite the negative opinions, Staffino remains
a working tool for receiving customer feedback which can be used e.g. for purposes of improving
business practice. In this sense, using customer feedback in remuneration seems to be something like
a supplement, but not the main purpose of Staffino. Fig. 3 shows the main sense lies in obtaining
customer feedback used as a stimulus, possibly used also as a basis for evaluation of the individual
employees, whereas strict taking into consideration customer feedback in the process of remuneration
seems to be less appropriate.
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Synthesis of findings
Fig. 4 shows the main advantages and disadvantages of implementation of Staffino and also
consequences of the obtained customer feedback. These consequences are described in Sections 3.2 – 3.4.
Figure 4: Advantages and disadvantages of implementation of Staffino and consequences of the

obtained customer feedback
Note: “HRM” means human resources management.
It should be mentioned Staffino is not provided for free – it is a ready solution which is offered to
business establishments. However, this tool is tailored to managers’ needs: managers/entrepreneurs have
influenced the form of Staffino application quite significantly. Especially in the very beginning, they
expressed which functions Staffino could have and what it would be useful for them. In these days, their
feedback bears mainly on situations when something is not working properly and on particular technical
errors. Managers tell the creators their comments through Staffino’s sales representatives and through
Facebook or Google Play Store.
Limitations
The analysed interviews have been published on the official Staffino websites. It could mean there has
been published rather positive experience.
Paper’s contributions and further research
Nowadays, there are not many papers dealing with customer feedback in the context of specialized
mobile applications. Therefore, the presented paper tried to contribute to this topic. There are also many
ideas for further research. For instance, differences among people who give feedback via mobile
application and those who give feedback through web could be deeply researched. It means there are
many opportunities for further research.
665
Conclusion
The aim of this paper was to find out managers’ experience of the evaluation system called “Staffino”. It
can be summarized that:
• Managers state Staffino helps to understand customers’ point of view and to remove corporate
blindness. When a manager solves the individual comments it moves his/her business ahead. In
other words, Staffino helps to develop added value for customers.
• Staffino enables to stay in touch with customers – customer feedback can be understood as
a good reason for communication with customers. This kind of communication strengths the
relationships and builds trust.
• The received customer feedback is an impulse for improving business practices. This improving
has foundation just in customers’ wants = it means the marketing approach is implemented in the
business practice.
• Receiving customer feedback is stimulating for employees (especially in the cases of positive
customer feedback). The obtained customer feedback can serve for purposes of human resources
management.
Acknowledgment
The scientific study resulted from scientific activities at the Institute of Technology and Business in
České Budějovice.
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The Concept of Financial Paradoxes: Origins, Essence, Potential for

Development
Nadezhda A. Lvova, Saint Petersburg State University, 7/9 Universitetskaya nab., Saint Petersburg,
199034 Russia, E-mail: n.lvova@spbu.ru
Natalia V. Pokrovskaia, Saint Petersburg State University, 7/9 Universitetskaya nab.,

Sain Petersburg, 199034 Russia, E-mail: n.pokrovskaia@spbu.ru
Natalya S. Voronova, Saint Petersburg State University, 7/9 Universitetskaya nab., Saint Petersburg,
199034 Russia, E-mail: n.voronova@spbu.ru
Viktor V. Ivanov, Saint Petersburg State University, 7/9 Universitetskaya nab., Saint Petersburg, 199034
Russia, E-mail: viktor.ivanov@spbu.ru
Abstract
This article focuses on financial paradoxes as a separate area for financial and interdisciplinary studies.
Authors define the concept of financial paradoxes and suggest basic classification principles. Conceptual
framework for key aspects of the problematic was analyzed and systematized within the theoretical
framework. In order to outline the essence, basic kinds and research method of financial paradoxes, a
series of academicians who specialized in teaching financial disciplines was interviewed. The interviews
were followed by a detailed elaboration on highlights of crises in the Russian financial market that were
accompanied by signature financial paradoxes. Thus, important prerequisites were created for developing
research methods for financial paradoxes. Hypotheses that need further investigation and thorough
rethinking were formulated taking into account empirical research results.
Key words: financial paradox, financial information, financial communication, financial behavior.
Introduction
Multiple financial paradoxes seen daily in the literature and practice draw attention of academic and
professional communities and act as an effective stimulus for elaboration, development and refutation of
theory. However, it would be no exaggeration to say that the larger part of the iceberg escapes perception
despite the transparency of paradoxical situations and, probably, their self-evidence. This circumstance
can be explained by different reasons that lie far beyond the realm of financial science in most cases and
border on sociology and psychology. As a rule, the object of financial research within this frontier area
includes various behavioral anomalies correlated with financial solutions limited to rational economic
subjects1. In this regard, the behavioral finance theory should be mentioned that explains financial
decision making process within the framework of fundamental ideas of behavioral economics. The
pioneers of this approach were P. Slovic (1969; 1972), D. Kahneman and A. Tversky (1974; 1979) who
discovered enormous financial paradoxes which had been neglected by classics. Significant contribution
to the behavioral finance theory was made by R. Thaler (1991, 1994), H. Shefrin (2007), R. Shiller
(2001), N. Taleb (2007) and others (for more information see Baker, Nofsinger, 2010).
Another mainstream direction in the researches of financial paradoxes correlates with institutional
aspects of financial economics. In this respect, the research of informal financial activity has an extreme
scientific potential as it in demand in the emerging markets. Important theoretical basis of financial
research was formed by the theory of economic mechanisms, its key developers being L. Hurwicz (1960;
1972; 1993 etc.), R. Myerson (1981 etc.) и E. Maskin (1999 etc), and an extensive corpus of works on
informal economics (Portes; Scott; de Soto and others). It is noteworthy that today key aspects of the
neoinstitutional and behavioral theory are shared by major representatives of mainstream finance science
(Merton, Bodie, 2005). Nevertheless, the concept of financial paradoxes being relevant for different areas
of financial science actually does not exist, what is paradoxical itself2. Taking into account the above
mentioned, the purpose of the study was set as follows: formulate and test the concept of financial
paradoxes explaining their essence and basic kinds.
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Methodology
Research methods imply two key approaches: theoretical and empirical. The theoretical research is based
on generalization results, rethinking and systematizing conceptual framework for key aspects of the
problematic. Namely, it is suggested that a financial paradox is considered as a statement on a financial
topic and/or an action (inaction) that contradict with generally accepted ideas on the subject in question
(action sequence in a given situation) and, consequently, become a ground for conflicting conclusions
(Kovalenko, pp. 2, 3)3. According to this definition, financial paradoxes can have only theoretical nature
or the theory can contradict practice (Panchamukhi, p. 1).
Thus, one may talk of at least two basic kinds of paradoxes: fundamental and empirical. These can be
explained in their turn by both objective and subjective reasons: a) they can reflect cognitive and
behavioral principles; b) result from a pre-existing agreement or, on the contrary, disagreement in actions
and/or comprehension of financial information. Following the logic of this classification, it would be
expedient to separate financial behavior paradoxes from paradoxes arising from comprehension of
financial information (behavioral and informational paradoxes correspondingly). Besides, it is
appropriate, according to the authors, to divide financial paradoxes into different application areas
(corporate finance paradoxes, financial market paradoxes, individual finance paradoxes and so on), what
to a great extent predefines further research methods.
The leading role in redistributing financial information belongs to specialized institutional units
(Sokolov), and financial information requires specific terminology. Special mention should be made of
the problem of intentional information manipulation by representatives of financial community (Brett, p.
5). This very phenomenon within a broader context involves professional jargon used for different
reasons including pursuit of informational monopoly. The latter is achieved through a wide range of
options including both professional jargon and intentional misinformation.
Explaining this view point, it should be added that financial information monopoly allows making profit.
In this respect, it is no doubt that the level of informational efficiency in the manipulative financial
markets including the Russian one concedes to the developed markets (Darushin et all). At the same time,
there are intrinsic boarders for financial communication. The variety of informational boarders generates
comprehension paradoxes. Thus, intentionally manipulated and intrinsically limited financial information
in terms of rendering is the cause of unjustified assertions and unsound financial decisions that in their
turn interrelate with the problem of informational asymmetry.
Theoretical analysis results allowed to formulate questions for the main empirical part of the research
intended to outline the essence and kinds of financial paradoxes taking into account the opinion of the
academic community. The interview, analogue and comparison methods were used for the purposes of
empirical research. Interviews were arranged individually in a proper format. The interviewees were
Economic faculty members (the Chair of Credit Theory and Financial Management) at Saint Petersburg
State University (SPbSU).
The interviewees were asked the following questions (table).
Table 1: Brief description of interview questions on the problematic
Question #
in the Question text Research focus
interview
What is a 'financial paradox', what do you associate with this
1 The essence of
term?
financial
2 Give examples of financial paradoxes.
paradoxes
9 What is the role of financial paradoxes in economic systems?
Do the terms ' financial behavior paradox' and 'paradox of The typology of
4 comprehension of financial information' differ in meaning? financial
Can a general term 'financial paradox' be applied to them? paradoxes
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Question #
in the Question text Research focus
interview
What kind of reasons mostly explains the existence of financial
5
paradoxes – objective or subjective?
Which area of financial science accounts for the highest number
3
of paradoxes?
Assess potential, theoretical and practical importance of
10
financial paradoxes research. Developing
Assess the general transparency level of modern financial methods of
7
information. financial
Is it true that financiers use a peculiar language, comprehend paradoxes
6 information in a specific way and have financial behavior research.
unnatural for non-professionals?
8 Assess your familiarity with the subject of the interview. Misc.
Prepared by the authors
In addition to the number of interviews and for the purpose of empirical research, case method was used
involving famous financial paradoxes from the Russian practice from 1994 to 2014. This method
included analysis of the interviews, information from scientific publications and information analysis
materials issued by the Central Bank of the Russian Federation.
Interview Results
The essence of financial paradoxes
The questions on the gist and examples of financial paradoxes received different and sometimes
absolutely surprising comments. Some of the interviewees addressed the term's semantics. Some used
empirical generalizations and talked about peculiarities of financial systems and institutional
circumstances under which those exist. To answer the question the interviewees used both approaches
inductive and deductive. Several times they pointed out the difficulty of overcoming the problem of
financial paradoxes due to limited cognitive ability of those in charge of decision-making. A viewpoint
mentioning cultural context of financial paradoxes should be also noted as it refocuses our attention on a
relevant issue of comparative research of traditional and alternative financial systems. We would like to
emphasize that the role of financial paradoxes in economic systems was deemed unequivocally
important.
The typology of financial paradoxes
Interviewees agreed with the assumption that it is appropriate to divide financial paradoxes into two basic
types: financial behavior paradoxes and paradoxes of comprehension of financial information that differ
in meaning and content.
The questions of relation of subjective and objective factors for financial paradoxes were interpreted
differently. The majority considered objective and subjective factors as equally valid. However, some
interviewees underscored the priority of subjective factors explaining the existence of financial paradoxes
with incompetence and ignorance of those in charge of making financial decisions.
Financial markets were mentioned most often as the area with the highest number paradoxes. Besides,
certain aspects of national financial policy were touched upon. Special attention was paid to the specifics
of emerging financial markets that were contrasted with mature markets in terms of their multiplicity and
caused effect.
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Developing financial paradoxes research methods
Interviewees assessed potential, theoretical and practical importance of financial paradoxes research to
quite a high degree mentioning its relevance for improving financial literacy.
The question about transparency level of modern financial information received mixed answers. On the
one hand, there were answers arguing there was total informational non-transparency and extremely high
moral hazard in this respect. On the other hand, the level of informational transparency was described as
decent. Thus, there is an informational paradox with equally provable but completely opposite
conclusions. Generally, the interviewees agreed with the hypothesis that financial information
transparency depends significantly on economic development of countries being analyzed.
As for communication and behavior characteristics of financial community representative, opinions were
mixed. The dominant opinion was that financiers speak a specific language, what is typical for
professional communities. At the same time, comprehension of information just like financial behavior,
according to some interviewees, could hardly be considered as significant impact factors, and the only
thing that made difference there was the level of financial literacy.
As for familiarity with the subject of the interview, there were different opinions, but in general it can be
concluded that interviewees were quite comfortable with the problematic and suggested remarkable and
original opinions that need considering with further research.
Cases
As W. Churchill said, Russia is 'a riddle wrapped in a mystery inside an enigma' (quote from:
Lowenstein, p. 219). Currently, Russian Federation is described as an emerging financial system
alongside with Brazil, China, India, South Africa and so on (Lvova). However, despite such a decent
status, achievements and a wide range of possibilities for development its financial system often gives the
impression of a random bunch of paradoxes that show themselves more clearly in hard times. It is no
surprise that interviewees gave as examples non-standard situations in the Russian market that can hardly
make sense at least for foreign investors.
Let us analyze some of them in more detail.
Case 1: Foundation of RTS ‘Black Tuesday’ 1994
In the early 1990s, Russia had to develop a financial system complying with principles of a market
economy. Representatives from western countries were actively involved in developing such a system4.
Foreign investors were attracted with the potential of spontaneously forming Russian market and
undervalued assets, although this potential was mitigated by exceptionally high investment risks.
The Russian finance market has many times showed its immaturity. Thus, rapid fluctuations of exchange-
value of ruble on Black Tuesday October 11, 1994 endangered the very existence of financial institutions
of market infrastructure not only of some accounting authorities, but also of one of the stock exchanges
operating at that time, i.e. Moscow Central Stock Exchange (Mirkin, 1998, p. 79) (fig. 1)5.
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40
38
36
34
32
30
28
26
24
22
11-Sep-94
14-Sep-94
17-Sep-94
20-Sep-94
23-Sep-94
26-Sep-94
29-Sep-94
2-Oct-94
5-Oct-94
8-Oct-94
2-Sep-94
5-Sep-94
8-Sep-94
11-Oct-94
14-Oct-94
17-Oct-94
20-Oct-94
23-Oct-94
26-Oct-94
Figure1: Dynamics of the official rate of ruble (USD/RUB) in September-October 1994.
(according to the Central Bank of the Russian Federation)
Abstracting away from typical paradoxes that appear in financial crises including investors' panic-driven
moves, we would like to focus on the specifics of the Russian market that to a large extent involves
dominant informal financial institutions and mechanisms. In this respect, the stage of creating the Russian
Trade System (RTS) in 1995 is worth mentioning.
The fact of transferring stock exchange institutions by the American example could create a false
impression of transferring rules and usages automatically. However, at the start of RTS operation, a
paradoxical situation was revealed as market-makers did not settle trade, what compromised electronic
trade6.
According to authors, the causes of such paradoxical behavior just like in many other cases in the
emerging markets refer first of all to financial illiteracy that prevents introduction on efficient financial
mechanisms and often substitutes them for informal and, consequently, non-transparent and inefficient
ones. Transparency issues of the Russian financial market were also seriously aggravated by
incompleteness of regulatory system. It will just suffice to mention that the official status of a nominee
holder was unavailable for many years, what resulted in absolutely unpredictable judicial decisions
regarding disputes over stock exchange activity.
Case 2: Long-Term Capital Management (LTCM) and ‘Black Monday’ 1998
In 1998, Russia announced its default on national debt, what resulted in massive turbulence in
international financial markets. The most paradoxical thing about it was that the Central Bank of the
Russian Federation virtually opted out of supporting ruble exchange rate, what contradicted with a
generally accepted idea of 'respect towards national currency' (Lowenstein, p. 226) (fig. 2).
675
21
19
17
15
13
11
9
7
5
3-Sep-98
6-Sep-98
9-Sep-98
12-Sep-98
15-Sep-98
18-Sep-98
21-Sep-98
24-Sep-98
27-Sep-98
30-Sep-98
1-Aug-98
4-Aug-98
7-Aug-98
10-Aug-98
13-Aug-98
16-Aug-98
19-Aug-98
22-Aug-98
25-Aug-98
28-Aug-98
31-Aug-98
Figure 2: Dynamics of the official rate of ruble (USD/RUB) in August-September 1998.
(according to the Central Bank of the Russian Federation)
Russian financial crisis dramatically affected the future of a large number of investors. However, one of
the leading positions in terms of financial failures caused by that crisis arguable belongs a hedge fund
Long-Term Capital Management (LTCM) investment value of which almost dropped down to zero over
the observed period ( (Lowenstein, p. xiv)
The story of rise and fall of LTCM founded among others by Nobel prize winners M. Scholes and
R. Merton is described in the literature in detail (Lowenstein; Bernstein etc.). Nevertheless, the moral of a
story is usually confined to financially paradoxical behavior of hedge fund managers with emphasis on
their superfluous optimism and self-assurance, blind confidence in financial models and underestimation
of the uncertainty factor etc.
At the same time, the specifics of the Russian financial market that played a fatal role for LTCM is, from
our point of view, underestimated. Special attention should be paid to not only paradoxical behavior of
Russian financial market regulators but also to that of Russian banks that was in total disregard of
generally accepted ideas of financial institutions' behavior within a market economy.
Russian banks paradoxically refused to fulfill obligations on forward transactions with LTCM (Gutbrod
and George), what is absolutely inappropriate for a developed market where financial institutions value
their business reputation. Just as paradoxical were steps taken by regulatory agencies that not in the least
attempted to repair damaged reputation7, what only added up to country risk and changed traditional
assumptions about rationality proving them to be absolutely ineffective within a transition economy.
In our opinion, one of the most important possible conclusions on this situation directly involves
evolutionary and social and cultural specifics of financial mechanisms. Namely, those mechanisms were
malformed under the conditions of an emerging financial Russian market, what resulted in paradoxical
and unexpected consequences. Reputational setbacks are relevant in developed economies. However, in
Russia business prospects are defined by different, i.e. informal, factors what explains deviant behavior
of banks and regulatory agencies.
676
Case 3: Key rate and ‘Black Tuesday’ 2014
Significant fluctuations of ruble exchange rate in 2014 alongside unfavorable geopolitical environment
caused active involvement of the national financial markets regulator (the Central Bank of the Russian
Federation). Incremental decline of ruble exchange rate in summer 2014 sped up by the beginning of
winter. Within a day (December 15), decline rate exceeded 10%.
That was one of the most outstanding episodes of national currency devaluation over that previous 15
years that at that point received a mixed anti-crisis reaction. Already the next day, the key rate was8
increased from 10.5 to 17% out of expectation to "significantly curb recently increased devaluation and
inflation risks"9.
That meant that the regulator was trying to limit profiteering of Russian banks in the currency market and
thus stabilize ruble exchange rate. However, the rate increase caused panic in the consumer market,
dramatic downward change in share indexes and rapid growth of USD/RUB exchange rate (fig. 3).
65
60
55
50
45
40
35
30
3-Jun-14
13-Jun-14
23-Jun-14
3-Jul-14
13-Jul-14
23-Jul-14
1-Oct-14
11-Oct-14
21-Oct-14
31-Oct-14
10-Dec-14
20-Dec-14
30-Dec-14
2-Aug-14
12-Aug-14
22-Aug-14
1-Sep-14
11-Sep-14
21-Sep-14
10-Nov-14
20-Nov-14
30-Nov-14
Figure 3: Dynamics of the official rate of ruble (USD/RUB) in June-December 2014.

(According to the Central Bank of the Russian Federation)
Thus, paradoxical anti-crisis measures for market participants had no less paradoxical ramifications for
the regulator that exacerbated the difficult situation even more. In our opinion, the reason for a
paradoxical anti-crisis decision just like in the first case is directly relevant to the problem of financial
incompetence.
Interestingly enough, in spite of panic in the financial market, the actions of its participants could still be
rationally explained, however, that was not the case with the inefficient anti-crisis policy of the Central
Bank (for more information see: Annual report of the Association of Russian Banks 2015).
Conclusions
Summing up the above said, we would like to not that financial paradoxes, obviously, are unavoidable
but they can be and have to be overcome. The importance of this objective is predefined by the fact that
extreme informational asymmetry as well as unpredictability of financial behavior are unfavorable for
participants in the economic process and endanger the very existence of financial systems. Scientific
novelty of the given work consists in raising the question of economic paradoxes as a separate subject for
study. Theoretical analysis of literature in the field of behavioral and institutional finance allowed to
formulate author’s concept of financial paradoxes and to analyze basic approaches towards their
677
classification. Thus, important groundwork has been laid for developing methods for further studies with
a promising vector being more extensive surveys on this topic among financial community members but
not limited to. Calling upon psychological and sociological aspects of economic behavior,
interdisciplinary studies of financial paradoxes are of special interest from our point of view. Case study,
in its turn, allowed formulating a number of hypotheses that need investigating in further studies.
Namely, it is the hypothesis suggesting that the number of financial paradoxes grows at the time of
financial crises. Besides, it is also the hypothesis of financial incompetence as a key reason for financial
paradoxes in the emerging markets. And, finally, it is the hypothesis of false paradoxes that are relevant
to informal financial institutions and mechanisms in different social and cultural backgrounds and at
different development stages of economic systems.
Notes
1
It is important to understand that normal range limits are determined by social and cultural context of
economic behavior. Namely, religious and ethical values predefine mechanisms of Islamic financial
institutions the possibility of which being transferred to countries and regions with low Islamic
population is highly questionable (for more details see Lvova et al, 2016).
2
In some cases, financial paradoxes become a separate object for research. E.g. see: Eggert (2004);
Panchamukhi (2014); Girdzijauskas (2000); Sokolov, Pyatov (2005, pp. 152 – 165). However, the
authors do not ask themselves about justifying research methods in this field.
3
Philosophy discerns two kinds of logical paradoxes: aporia (an argument that contradicts with obvious
or a commonly held opinion) and antinomy (two contradicting equally provable statements) (Kovalenko,
p. 2).
4
Namely, in October 1990, a Soviet-American seminar 'Stock exchanges and their role in finance
markets functioning' took place, it was organized by Ministry of Finance and State Bank of the USSR
with assistance of NYSE (transcript of the Soviet-American seminar).
5
From October 7 to October 12, 1994 official rate of US dollar increased by 38.5% (according to the
Central Bank of the Russian Federation).
6
In October 1995, Professional Association of Securities Market Participants (PAUFOR) including
Moscow RTS traders adopted a Code of disciplinary proceedings that implied fines for association
members who violated trade regulations in RTS in order to mitigate risks of failure to perform obligations
on market transactions. Nevertheless, the Russian market was firmly believed by investors to be
manipulative and insider in the early 2000s (Mirkin 2002).
7
See in particular: Press release by the Central Bank of the Russian Federation dd. August 18, 1998.
8
The key rate is a minimum interest rate with which the Central Bank of the Russian Federation gives
loans to commercial banks for a term of 1 week. Consequently, this rate determines interest rates of bank
loans. Before the analyzed period, the key rate used to be changed no more than for 1 percentage point.
On December 12, 2014, the key rate was increased from 9.5 to 10.5 % (according to the Bank of Russia
as of 11.12.2014), previously on November 5, 2014 it had been increased from 8.5% (according to the
Bank of Russia as of October 31, 2014).
9 Press release by the Central Bank of the Russian Federation dd. December 16, 2014. "On the key rate
of the Bank of Russia and other measure of the Bank of Russia"
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Developing Methodology of Monitoring Companies' Financial

Stability: Abnormal Profitability Evaluation
Nadezhda A. Lvova, Natalia V. Pokrovskaia, Neli R. Abramishvili and Viktor V. Ivanov
Saint Petersburg State University, 7/9 Universitetskaya nab., Saint Petersburg, 199034 Russia
n.lvova@spbu.ru
n.pokrovskaia@spbu.ru
n.abramishvili@spbu.ru
viktor.ivanov@spbu.ru
Abstract
This article covers methodological aspects of monitoring financial stability. The purpose of the study
is to justify recommendations on abnormal profitability evaluation as a key indicator for efficient
growth of business. An assessment framework of abnormal profitability is proposed in the
elaboration of the economic value added concept, the abnormal profitability being considered as an
excess of the adjusted return on investment above the weighted average cost of capital. The
framework has been tested on key industries in the Russian economy. There are reasons given for the
abnormal profitability evaluation to be a much needed tool for monitoring companies' financial
stability for the purposes of providing sustainable economic growth.
Keywords: financial stability, financial stability monitoring, real sector monitoring, abnormal
profitability.
Introduction
Financial stability is one of the key attributes of modern financial systems. Therefore monitoring
financial stability is quite in demand and extremely important under growing geopolitical, financial
and economic uncertainty. Theoretical and methodological foundation of monitoring financial
stability is shaped by research done under the auspices of financial market regulatory bodies in
intense cooperation with professional and academic communities1. The leading roles in developing
methodology here belong to the Financial Stability Board, International Monetary Fund, Bank for
International Settlements, World Bank, European Central Bank and national central banks, their
modern organizational structure coming with a specialized financial stability department as a rule2.
The Central Bank of the Russian Federation being no exception in this respect has evaluated the
financial stability of the Russian economy since 2001. Now the Financial Stability Reviews are
published by the Bank of Russia biannually.
Problematic issues of financial stability evaluation are considered with reference to the functioning of
financial systems. Financial stability monitoring focuses on finding advantages and disadvantages of
financial systems for the purpose of diagnosing and averting financial crises or at least offsetting
related negative impact on global, regional and national economies. The scientific research of this
problematics is concentrated on financial sector: financial institutions, financial markets and financial
infrastructure. And the priority is given to depository institutions. Additionally, financial stability
evaluation focuses on fiscal stability3 as well as financial stability of non-financial corporations and
households (Financial Soundness Indicators and the IMF, 2015). The role of financial mechanisms in
terms of providing financial stability is viewed differently. For instance, financial market stability can
be positioned as a self-sufficient factor of financial development or as a subfactor of financial
stability of the depository institutions (cf. methodology of the World Bank and the International
Monetary Fund correspondingly).
681
Conceptual basis of monitoring financial stability goes back to macropudential policy research started
in the late 1970s (Moiseev, 2013). From this perspective, however, the general direction of modern
methods was set in the late 1990s and early 2000s (Sahel, Vesala, 2001). Significant change in the
philosophy of financial stability monitoring was outlined not until 2007–2009. Financial market
regulatory bodies' greater attention to monetary stability was refocused on providing financial
stability in terms of macroprudential regulation (Constâncio, 2012; Smets; 2013; Allen; 2014).
In our view, it is expedient to use a comprehensive and balanced concept of financial stability
according to which monitoring objects are not limited to the financial sector and financial
mechanisms are considered equal on the whole. Financial stability of the corporate sector (non-
financial corporations, companies) in its turn should, in our view, be researched in connection with
financial mechanisms, what logically corresponds with functional and structural finance, concept of
which being introduced by Z. Bodie and R. Merton (2005). It is worth noting that under
disintermediation and increasing investment risk the corporate sector seems to be quite an important
financial stability monitoring object, what partially is taken into consideration in international
practices. It must be admitted, however, that methodology of monitoring companies' financial
stability ought to be thoroughly revised and elaborated.
Mainly, the basic set of methods in this case comes down to the traditional ratio analysis and related
methods are limited to a rather narrow range of indicators4. In other words, financial stability
monitoring methods are not given due consideration, what has determined the purpose of our study.
The purpose was to justify recommendations on abnormal profitability evaluation as a key indicator
for efficient growth of corporate sector.
Methodology
Profitability evaluation is one of the most important monitoring tools for financial stability of both
financial and non-financial companies. In this respect aggregate accounting ratios of return on equity
and profitability of sales are used mainly including return on assets and return on equity (for financial
and non-financial corporations); interest margin to gross income and noninterest expenses to gross
income (for deposit takers); earnings to interest and principal expenses and earnings to interest
expenses (for non-financial corporations) (Financial Soundness Indicators and the IMF, 2015).
Bank Z-score is an interesting hybrid indicator combining financial solvency evaluation and return on
assets, and its concept goes back to John H. Boyd and Stanley L. Graham (1986). This indicator is
used for monitoring financial stability of depository institutions and also within the World Bank
methodology (Lvova, 2016a).
It should be noted, however, that companies' profitability is evaluated as it is seen from the
accounting point of view. In our opinion, other views should be taken into account as a possible
alternative. Namely, we are talking about the abnormal earnings concept that found wide application
in the field of corporate finance (Stewart, 2013).
For the research purpose, abnormal return on investment (AROI) is considered as an actual return on
investment excess over its allowed minimum represented here as a weighted average cost of capital
(WACC). Thus, assessment framework of abnormal profitability complies with the logic of abnormal
earning evaluation.
= − (1)
AROI – abnormal return on investment;

ROIadj – adjusted return on investment;
WACC – weighted average cost of capital.
Framework parameters of abnormal profitability have been adjusted taking into account analytical
purposes (Lvova, 2016b). Namely, it is suggested to evaluate return on investment (ROIadj) using an
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adjusted formula (2) where net operational profit is calculated as follows: first, taking into account
not only operational profit, but also non-operating income, and, second, based on an aggregate
corporate profit tax and not the only part of it that concerns operating profit (3).
adj = С
(2)
ROIadj – adjusted return on investment;

NOPLATadj – adjusted net operating lessr tax;
С – invested capital.
= + _ – (3)
OP – operational profit;
Inon-op – non-operating income;
T – total tax on profit.
This evaluation logic is inspired by the ambition to provide correct value of financial result that
represents the actual source for covering costs of invested capital. For the research purpose, the
invested capital is considered as a company's long-term funding source (equity and long-term debt).
To evaluate abnormal profitability sectoral frontiers, industry average return on equity is
recommended to be analyzed in comparison with average financing cost for every corresponding
industry (4).
= adj_s − (4)
AROIs – abnormal return on investment for a corresponding sector;

ROIadj_s – adjusted return on investment for the sector;
WACCs – weighted average cost of capital for the sector.
It is suggested to evaluate weighted average cost of capital by sectors (WACCs) using the Adjusted
Capital Assets Pricing Model (ACAPM) that goes back to the research by W.F. Sharpe (1964) and
C.Z. Mercer (1989), also it is widely used in the Russian financial management practice and can be
adjusted for performing a variety of financial tasks (Abramishvili et al., 2016) including financial
stability monitoring.
In this case, when evaluating cost of equity (re) corresponding data from mature market can be used5,
and these are corrected taking into account country risk and relatively low capitalization of Russian
companies (5 – 7).
!" = !"_ "# + ∆"_ % (5)
re_dev – cost of equity on a developed market (for a corresponding sector);

∆e_dom – risk premium for a domestic market.
!"_ "# = !&' + ()"# ∗ (!% – !&' ) (6)
rrf – risk-free rate of return on a developed market;

βlev – leveraged beta on a developed market (for a corresponding sector);
rm – market rate of return of a developed market.
∆"_ %= ∆-& + ∆) .- (7)
∆cr – country risk premium;

∆low cap – risk premium for low capitalization.
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Companies' profitability evaluation targeted at abnormal earnings will allow to logically combine
financial stability monitoring tasks and providing efficient
efficient business growth as an important
requirement for sustainable economic growth (other requirements are presented in Pokrovskaia et al al,
etc). Thus, abnormal profitability value seems to be a consistent supplement for the applied financial
stability monitoring
oring methodology in the corporate sector.
Application
The application of abnormal profitability framework has been demonstrated on the example of
Russian companies, most complete and relative financial information on which is currently available
for the year 2014. Data for ROIadj evaluation and structure of capital
apital were received from the Central
Base of Statistical Data by the Federal State Statistics Service (Rosstat). Cost of equity evaluation
was performed using archive data published on the Damodaran online website. Cost of debt was used
according to the data
ata of the Central Bank of the Russian Federation. Thus, we received average levels
of ROIadj and WACC per key economic industries including the banking sector (for comparison)
(Fig. 1).
ROIadj WACC
0.45
0.40
0.35
0.30
0.25
0.20
0.15
0.10
0.05
0.00
Power
Bank
Paper & Forest Products

Aerospace Defense
Oil Gas (Production)
Steel
Transportation (Railroads)
Homebuilding
Metals & Mining

Coal & Related Energy
Telecom. Services
Building Materials
Retail (General)
Farming & Agriculture
Oil Gas (Distribution)
Figure 1: Adjusted return on investment and weighted average cost of capital of Russian
companies per industry
Ranged evaluation results of the abnormal profitability of Russian companies are represented per
industry, see Fig. 2.
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24%
Oil Gas (Distribution) 24%
Transportation (Railroads) -12% Aerospace Defense
23%
Power -6% Oil Gas (Production)
20%
Building Materials 5% Retail (General)
20%
Farming & Agriculture 6% Metals & Mining
6%
18%
Telecom. Services Steel
11%
13%
Coal & Related Energy 12% 13% Paper & Forest Products
Homebuilding Bank
Figure 2: Abnormal profitability of Russian companies per industry
Upon the research results of abnormal profitability sectoral frontiers, the following initial conclusion
can be made. Highest values of adjusted return on investment have been found in the sectors of oil
extraction and distribution as well as gas, aerospace defense, the lowest have been found in railway
service and energetics. The relation of adjusted return on investment and weighted average cost of
capital points at the negative abnormal profitability in railroad service and energetics.’
Significant difference in values of abnormal profitability per industry should be particularly noted. It
is noticeable that weighted average cost of capital values differ not so radically. The highest value for
this indicator is typical for oil and gas extraction was well as mining industry and railroad service,
this can be explained partially by the fact that funds mainly come from equity capital that costs on
average 15–20% higher than cost of debt, tax shield not taken into account.
Let us compare the conclusions with informational and analytics materials published in the Financial
Stability Reviews by the Central Bank of the Russian Federation in 2014. Sustainable financial
condition had been forecast by the Central Bank for oil and gas companies (Financial Stability
Review for 4 quarter 2014, p. 31), and it was proven by the value of abnormal profitability per sectors
of oil and gas extraction and distribution. Vulnerability growth due to debt load increase including
foreign currency was noticed among metal, power (Financial Stability Review for 2-3 quarter 2014,
p. 7) and building industries (Financial Stability Review for 4 quarter 2014, p. 5).
Abnormal profitability evaluation allows to verify non-financial companies' risks found by the
Central Bank using traditional approaches to financial stability evaluation. Namely, negative trends
noted by the Megaregulator are of most concern for power companies with a typical negative
abnormal profitability of -6%. At the same time, relatively high companies' abnormal profitability in
the metal industry (20%) gives reasons to assume that the forecast growth of debt load will not have
critical impact in terms of financial stability.
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Thus, abnormal profitability evaluation complying with the concept of economic value added allows
to prepare the ground for profound and correct conclusions on companies' financial stability in the
light of providing sustainable economic growth. In our opinion, abnormal profitability dynamic
analysis results have their own value.
Conclusions and Discussion

Sustainable abnormal profitability of domestic companies in the light of their existing financial
structure is considered to be an important factor of corporate financial stability and a significant
prerequisite for economic growth. Therefore, the methodology of abnormal profitability evaluation is
a topical direction of research. The proposed framework's advantage is that it can be used based on
freely accessible data published by national, foreign and international financial information
institutions. Thus, abnormal profitability evaluation can be considered as one of the key directions of
monitoring companies' abnormal profitability as exemplified by the Russian Federation. Developing
methodology taking into account information on sector rotation seems to be a promising direction for
further studies in this field. Abnormal profitability evaluation is needed, in our opinion, even in case
of justifying investment and financial strategies of individual companies. Thus, no abnormal
profitability and its value not high enough in comparison with industry frontier should be considered
as symptoms of financial instability, these in its turn requires to revise and overcome a given
situation, what makes microeconomic studies engaging case method in this field relevant.
Notes
1
The following informational resources on international financial stability should be mentioned:
Global Financial Development Reports; Global Financial Stability Reports; Financial Stability
Institute Surveys.
2
The following work gives a review of European central banks' activity in this field: (Smaga. 2013).
3
The following work provides research results of fiscal stability as a factor of successful functioning
of financial systems: (Tagkalakis, 2014). We must also point out that fiscal stability evaluation by the
way was provided for by the methodology of the World Economic Forum and it was used for
monitoring financial development from 2008 to 2012 (Reuttner, Glass, 2012).
4
Financial institutions stability is usually recommended to be evaluated using various indicators of
financial structure, quality, debt, profitability etc. Financial markets' stability is mainly associated
with price volatility level (Čihák et al, 2012; Modifications to the Current List of Financial
Soundness Indicators, 2013; Modifications to the Current List of Financial Soundness Indicators
Background, 2013). A wide range of works should be mentioned in this connection that is dedicated
to indexes of financial stability (Oet et al, 2012, p. 2 – 5). The following work gives in this respect an
interesting methodological alternative targeted at providing a comprehensive financial stability:
(Sales et al. 2012).
5
American statistical data are traditionally used for these purposes (Damodaran, 2016).
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Competitive Strength of a Concession Integration Model of Labour

Market to Education Market Interaction
Rodionov D.G, Peter the Great St.Petersburg Polytechnic University,

Russia, 195251, St. Petersburg, Politekhnicheskaya street, 29, E-mail: rodion_dm@mail.ru
Nikolova L.V, Peter the Great St.Petersburg Polytechnic University,

Russia, 195251, St. Petersburg, Politekhnicheskaya street, 29, E-mail: nikalvsk@yandex.ru
Velikova M.D, Varna Free University "Chernorizets Hrabar", Bulgaria,

Varna, k.k. Gull, 9007. E-mail: velikova.mariya@gmail.com
Kalubi R.D.M., Peter the Great St.Petersburg Polytechnic University,

Russia, 195251, St. Petersburg, Politekhnicheskaya street, 29, E-mail: mazubajerry@gmail.com
Abstract
Recent research has proved that the factor of sustainable economic development of a country is the
growth of education market based on its reciprocal integration with the market of labour. One of the
promising forms of education market to labour market interaction is an educational public-private
partnership (EPPP) shaped as a cluster whose nature allows us to build a competitive integration
model relying on factor analysis of serial processes. The substantiation of our methodological
framework was done using system and economic analysis, the method of scientific observation and
generalization, and comparative analysis. The methodological significance of our study relies on the
fact that its findings can be applied to the task of building up a methodology of shaping educational
market clusters and, particularly, to new approaches to the improvement of labour market and
educational market models, to the shaping of a strategy of establishing partnerships between
educational institutions and their business partners. Scientific novelty of the study is the proposed
substantiation of competitive ability of a concessionary integrative model of interaction between
labour market and education market using factor analysis of serial processes, in order to improve the
competitive strength of public and private educational institutions both federally and regionally, and
to prove that collaboration between the education sector and its business partners can be effective.
Keywords: education market, labour market, concession model, competitive ability, cluster
approach, public-private partnership in education, factor analysis of serial processes.
Introduction
Having engaged on the road of innovative development, Russia has changed its vector of economic
growth and shifted from resource portfolio development to putting more effort into education and hi-
end technology (Nikolova L., Kuporov J., & Rodionov D., 2015). Human capital today has become
the key factor of progress ensuring the largest national income increment. Nowadays, for a successful
growth of the education market, what we need is its reciprocal integration and close collaboration
with the labour market, which will ensure high competitive ability (Arauz J., 2010). Educational
public-private partnership (EPPP) acts as one of forms of such interaction. Educational private-public
partnerships (EPPP) is a form of collaboration between education (public sector) and business, in
order to implement socially-focused tasks aiming at the economic development of a country
(Ispravnikova N.R. 2008). Of particular interest are EPPPs set up using cluster forms that help
implement the system approach to substantiating EPPP-cluster's competitive strength; this is what
determined the relevance of the subject of our study.
689
The problems of private-public partnerships (PPP) development and work have been in the focus of
such researchers as V.G.Varnavsky, V.A.Deryabin, Ya.M.Mirkin, E.A.Semenov, A.A.Shevchenko,
A.I.Shelgunov, V.I.Yakunin, O.A.Yastrebov, etc. Their works specify the principles and mechanisms
of private-public partnering. Education market to labour market interaction has been studied also by
foreign colleagues like D.Bell, Spiring, G.Devoulfe, P.Druker, M.Castels, M.Polagny, J.Saipir,
E.Toffler, J.Schempeter, and others. On the other hand, EPPP competitive ability evaluation in the
context of education market to labour market interplay seems to have been underinvestigated, which
leads to a significant slowdown of cluster-based EPPP development and, consequently, retards the
economic growth of the country ((Jurievna, K.T., 2015; Kim J. & Han M., 2015).
The goal of our study is to substantiate competitive integration models of interaction between
education and labour markets in the form of PPP based on the cluster approach and relying on factor
analysis of multi-stage processes.
Nowadays, the basic integration model seems to be public-private partnership (PPP) which creates
prerequisites for an efficient collaboration between educational institutions and enterprises (Quah V.,
Lim C.P. & Brook C., 2010). The concept of a public-private partnership in education was first
determined in UN Economic Commission's documents where it is interpreted as a relationship
between businessmen and the state including "various forms of long-term contracts between public
authorities and legal entities whose goal it is to fund, develop, implement and manage services
provided to the society" (Economic Commission for Europe, 2000).
The performance of a PPP is determined by the pooling of resources for professional training of
specialists which would meet the state-of-the-art industrial requirements, by joint financial
management which helps optimize financial flows and minimize costs, and employ innovative
approaches in order to accomplish tasks and goals that have been identified and posited (Bataev A.,
2015).
One of the progressive forms of PPP is nowadays a 'cluster' ((Rodionov, D.G., Kudryavtseva,
T.J.,2016). First it was described by M.Porter in his influential work "Competition". In it he
introduced the idea of an economic cluster, following on A.Marshal's study where it was established
that successful development of a national economy depends on local concentration of specialized
industry sectors. A cluster is a group of geographically linked interrelated companies (suppliers,
producers, etc.) and other associated organizations (educational institutions, public authorities,
infrastructure companies) which carry out their activities in certain areas and in this process
complement each other (Porter M. & Vil'jams, 2010).
Cluster is not a legal entity. The structure of an economic cluster is not united and permeated by an
agreement adhered to by everybody (Porter M. & Vil'jams, 2010). In Table 1 (Gubashev N.M. and
Tarshilova L.S., 2013) we can see various models of private-public partnership in its cluster
development.
From an analysis based on Table 1 data, we can make a conclusion that the key participant of all the
models is to be an investor, while an educational cluster is one of PPP forms which is most often
implemented as a concession model. Educational cluster is a conglomerate of inter-related institutions
of vocational education consolidated both sectorially and by partnerships with the sector's businesses
(Smirnov A.V., 2010). It includes a system of training and peer-teaching/instruments in the
innovative chain 'science - technology - business' based predominantly on horizontal links (Filippov
P., 2003).
A review of Russian and foreign studies has shown that the educational cluster's specific feature is
not its participants (enterprises, public authorities, partnership organizations) or the key role of
690
universities and colleges (they can become the core of any other cluster), but the specific product it
turns out - educational services (Porter M. et. al., 2010).
In our study we view the educational cluster as an integrative concession model of interaction
between the labour and education markets formed as a PPP (EPPP) whose competitive ability
contributes to the economic growth of the country.
Table 1: Models of private-public partnerships in cluster development
Model name Model characteristic Areas of application

The investor undertakes to manage and operate an
object/site/building in public ownership and is being
paid for this, while the state is responsible to end users
Management and for realizing this public-service function. The state
Business incubators
operation funds the setting up of an industrial park, owns and
controls it, while the developer provides services
pertaining to creating the park's infrastructure and
operating it.
The investor provides certain services to end users and
is granted the right to directly cover its costs from the
Secondary and higher
Concession object's user fees. At the same time, responsibility is
education institutions
borne by the concessioner, while the state retains its
control functions.
Provision of public services is delegated to a joint
venture. The project implementation scheme is based Technology parks,
Cooperation on the public funding of infrastructure and provision of production&education
space and objects, while other works are financed by clusters
the investor.
(source: Gubashev N.M. and Tarshilova L.S., 2013).
Methodology
The task of evaluating competitive ability is no doubt topical in the context of the current competitive
market economy. The competitive performance of an EPPP is hard to define. An economic entity's
competitive ability is at the same time its key characteristic and a prerequisite for its successful
business performance. Thus far, in literature we cannot find an unequivocal definition of the notion
'competitive ability', so in our study we shall interpret it in the following way: 'competitive ability is
the ability of something to outdo similar objects by certain parameters' (Notchenko V.V., 2007).
An EPPP is comprised of individual participants but has a shared characteristic of competitive

advantage/ability. The problem of competitive ability evaluation in EPPPs relates to the large number
of parameters impacting it. Accordingly, for each EPPP we need to carry out expert analysis of such
parameters' values and then infer about its general competitive ability (Rodionov D.G., Rudskaia I.A.,
Guzikova L.A. (2014).
Most often, for an EPPP's competitive ability evaluation, groups of objects with similar competitive
ability levels are singled out, while any subsequent EPPP is evaluated without engaging experts and
simply relying on the chosen method. (Kalinina O.V., Lopatin M.V., 2016). Input data for the
proposed method are economic indicators of an EPPP which, like the majority of 'practical data', have
specific features and characteristics of their own (Lung M. (Moladovan), Moldovan J., & Nistor Lung
A., 2012). The process of competitive ability evaluation begins with classification of EPPPs by
economic indicators. For this, we develop business activity data by groups of indicators (Eastwood
691
M. & Jayne C., 2014). The activity of each EPPP participant can be characterized by 10 to 20
economic indicators (Quah V., Lim C.P. & Brook C., 2010). The processing of the economic data for
competitive advantage evaluation is a laborous and time-consuming task, within this approach.
A review of competitive performance evaluation methods, as presented in the literature, which can be
employed for the task of solving this problem gives us grounds to say that all of them also have their
weak points too and are difficult to use, for instance, such as the method of principal components,
factor analysis, the five forces model (Porter M., 1993), discriminative analysis, probabilistic
analysis (Kalinina O.V., 2016), cluster analysis.
For the evaluation of competitive performance of the concession integrative model of a PPP we
propose to use factor analysis of serial processes which allows us to consider the problem holistically
relying on the system approach. It was this which helped us circumvent the problematic aspects of the
majority of the methods referred to above.
Result
Competitive advantage criteria of a concession integrative model of EPPP
Our substantiation of the competitive advantage of an educational cluster in the form of a PPP
(EPPP) - which is in fact a concession integrative model of the labour and education markets - has
been carried out using factor analysis of serial processes.
The labour market is represented by private companies. The education sector is represented by public
educational institutions. Their interaction is voluntary in its nature and based on agreements which
actually create the concession integrative model of an EPPP.
To form the competitiveness criteria of concession integration EPPP model means to build upon
voluntary reciprocal integration and take into account the interests of all sides during the EPPP
planning and shaping. Here we consider the form of integration that is capable of capitalizing on its
advantages in every EPPP.
For evaluation we used the competitive performance indicators of an EPPP that take into account
socio-economic indicators of each of the components in the integrated structure which is in itself a
complicated system with multi-level management.
In accordance with this, to determine which competitiveness estimation criteria are the most
important ones we have applied the factor analysis of multi-stage processes. The competitiveness
criteria of EPPP were assessed by significant factors depending on the goals and conditions of their
formation.
There are two types of competitiveness criteria: formal and substantive.
The formal class of estimation criteria is reflected in the international standards of social corporate
responsibility. One of the greatest accomplishments of the international community in this area was
the establishment of the International Committee on Corporate Social Responsibility (Lin X. и R.
Germain, 1998). This international body has developed the IC CSR-26000-2011 global standard
"Social responsibility of an organization. Requirements" (Kolobov A. et. al., 2008) and the ISO
26000:2010 "Guidance on social responsibility".
692
The substantive class of criteria contains four items, together making up an integrated tool for
estimating the competitiveness criteria of EPPP: "process assessment", "goal assessment",
"satisfaction assessment", "result assessment". The four parameters below make up an integrated
competitive performance estimation tool for EPPPs: satisfaction from the process of EPPP operation,
individual significance of results for each participant, attainment of the anticipated goals of setting up
an EPPP, socio-economic significance of the results.
In our study we consider the building of two basic concession integrative models of competitive
ability evaluation relying on an informal class of criteria: a state model allowing us to shape an EPPP,
and a model of forecasting possible variants of participant cooperation within the EPPP leading to
stable collaboration. For the purpose of shaping and substantiation of the models’ stability we use the
system approach, factor analysis and decision-making techniques.
Formation of concession integration EPPP model
State model
Concession integration model of EPPP represents a system in which a condition of business relations
of EPPP participants can be cooperation or competition, management structure (rigid or flexible),
objectives of its activity (short-term or long-term).
Condition of functioning of the offered concession integration EPPP model: EPPP as a system can
operate, develop and modify if and only if the interests of participants in it are though unbalanced yet
manageable. Discrepancy between results of EPPP competitiveness arises due to inconsistent
application of the criteria during the assessment procedure. Some CEO’s carry out the
competitiveness of EPPP assessment by "social economic significance of the EPPP work results",
while others appy the criterion of "individual significance of results for each participant". Possible
states of EPPP activity are shown on fig. 1.
EPPP (cooperation/competition)
Activity goals of EPPP Management structure of EPPP
Long-term Short-term Rigid Flexible
Figure 1: State model of EPPP activity
The criteria specified in the present study have an important theoretical and practical value for our
understanding of the principles underlying the assessment of EPPP by both its organizers and
participants. The model provides a means of substantiating the results of the EPPP activity:
sustainable development, merger, dissolution, unsteady states of the participants' businesses.
Sustainable development is only possible when the steadiness of an EPPP's activity is in inverse ratio
to the difference between the level of cooperation and the level of competition in the economic
process, or else when the stability of the EPPP is in inverse ratio to the difference between the level
of rigidity and the level of flexibility of participants' business entities, or again when the steadiness of
the EPPP is in inverse ratio to the difference between the level of short-term and the level of long-
term economic orientation of the participants.
693
Merge of EPPP participants activity tends to shift towards merger rather than disintegration if
cooperation, rigidity and long-term orientation prevail in its work.
Disintegration of EPPP participants activity tends to shift towards dissolution rather than merger if
competition, flexibility and short-term orientation prevail in its work.
Unstable conditions of EPPP activity come when rigidity and cooperation levels (as well as flexibility
and competition levels) are in positive inter-dependence if partners in the EPPP demonstrate a short-
term orientation. Unstable conditions of an EPPP's activity may come with a high level of rigidity,
cooperation and rigidity (as well as competition and flexibility) are in negative inter-dependence if
partners have a long-term orientation.
The model helps us choose the forms of interaction which are most stable under certain conditions
(the nature, time orientation and structure of interaction). For instance, if the participants are oriented
towards long-term flexible and competitive interaction, than the most stable EPPP forms shall be
licensing and joint activity (Chernorytckii I., 2001).
The model presented above cannot be used to forecast sustainably developing business relationships
before an EPPP is created.
We did our forecasting of business relations which lead to sustainable EPPP development prior to its
creation, using a model of forecasting possible variants of inter-corporate cooperation between its
participants.
A model of forecasting possible variants of inter-corporate cooperation
Predicting the results of any type of processes is a hard-to-achieve task, while forecasting the
interaction of activities of socio-economic entities - in our case EPPP participants - requires some sort
of abstraction from the activities as such.
In our study we consider the problem of forecasting the competitive advantage of EPPPs leading to
their sustainable development and growth; all other variants of development are less significant from
this point of view. Forecasting the development of EPPPs' activity was done using a body of
mathematics from the theory of decision-making in sequential processes.
Let us consider the building of a mathematical economic model of concession integration model
sustainability of EPPP if the following forms of interaction are involved: long-term competitive
interaction and long-term cooperative interaction.
Traditionally, researchers have been most interested in the issues of how and why forms of
participants interaction are chosen and what are the ensuing results. The choice of this or that type of
interaction between companies is largely determined by its objective that limits the range of relevant
structures to be chosen from. For instance, if the goal of participants is to purchase proprietary know-
how, than the structures of relevance will be licensing, joint production and joint ventures, etc. If,
however, derisking and cost reduction at the stage of R&D is what is being pursued, than the most
appropriate path of action will be joint R&D, possibly with the subsequent buying-out of the stake of
one of the participants. The relation between an EPPP's goals and objectives is reflected in their
interaction.
694
Generalizing from the research of the last 15 years by colleagues in different countries (J.F.Hennart,
J.Bleak, D.Kent, S.H.Park, M.V.Russeau, J.M.Pennings, H.Yamawaki etc.), we can single out the
following types of interaction between participants: short-term competitive interaction, long-term
competitive interaction, short-term cooperative interaction, long-term cooperative interaction.
Short-term competitive interaction: flexible interaction leading to short-term contacts; rigid

interaction providing grounds for joint R&D, joint marketing.
Long-term competitive interaction: flexible interaction - normally implies joint business activities and
licensing; rigid interaction - establishing joint ventures, EPPPs with mergers.
Short-term cooperative interaction: flexible interaction - implies joint business activities where the
key ones are funding of research, joint distribution; rigid interaction - joint activities comprised
primarily of joint R&D, joint marketing.
Long-term cooperative interaction: flexible interaction - joint activities, provision of resources on the
long-term basis; rigid interaction - setting up joint ventures, EPPPs with the buying-out of the stake
of one of the participants, creating subsidiary companies.
Long-term competitive interactions and long-term cooperative interactions lead to sustainable

development of EPPP.
The methodology of forecasting competitive strength of an EPPP's activity which leads to its
sustainable development - the one looked into above - allows us to build a concession integrative
model relying on the theory of decision making in multi-stage processes. To formalize the forecast
results, we have to rely on the language of binary relations and the criteria language of choice
description.
We propose the following procedure of building the model of decision-making when setting up a
long-term competitive EPPP using the language of binary relations and the criteria language of
choice description:
- mathematical description of the choice situation model;
- analysis of uncertainties, formalization of the "goal/objective" concept, criteria and target

functions building;
- solution of optimisation mathematical problems which may arise.
This sequence of actions seems to be rather arbitrary, as each of the steps is deeply intertwined with
the others in the process of solving a particular task.
As is well known, any investigation should start with the building of a choice situation model; to this
end, we have to gain a good understanding of the specific features of the process. In order to
formulate the problem, we employ for decision taking the language of binary relations and the criteria
language of choice description. The language of binary relations has a more generalized nature in
comparison with the criteria language, as the former requires no numerical estimate of the quality of
each particular alternative. The criteria language is used when the comparison of alternatives reduces
695
to comparison of relevant figures. At the same time, multicriteriality is also possible, which means
that the estimation of an alternative is done with more than one factor (Chernorytckii I., 2001).
The initial objectives of the participating companies joining into EPPP are not always rendered fully
concrete; therefore at the initial stage of model building we have to use a more general language, i.e.
the choice factor language. Assume that U is a given set of goals of the setting-up of EPPP for
participating companies "A", i.e. U is a class of non-empty subsets of the set of alternatives A. The
choice function here (for U) are the goals for the attainment of which EPPP with participating
company "C" is being formed, i.e. the transformation of C that relates the С(В) ⊆ В subset to all and
every В ∈ U subset (i.e. the subset of "chosen", "most preferable" alternatives of the goals). In a
particular case, if the preference relation R is given, the choice function can be determined by the
equation С(В) = МахRВ. Here the set of goals C(B) is the same as the final goals of the EPPP – the
set of maximal members from B as related to R. The refined model of the objectives of EPPP is
formed on the basis of the decision-taking theory.
The proposed approach to the forecasting of competitive advantage under the current conditions of
the concession integrative model of EPPP is a generalised and formalised one.
The strategic goals of an EPPP when it is being set up need to be in keeping with the economic nature
of the dynamic processes of the EPPP's development, they have to ensure that the partnership retains
its competitive advantage throughout the life cycles of its goals and objectives (International
Committee on Corporate Social Responsibility, 2010) regardless of the fact at which life cycle phase
EPPP participants are and what their cooperation is like.
The key parameters of the economic level of an EPPP are the enhancement of social economic
performance and the rise in education quality. Compliance with these criteria is the key source of
competitive advantages of EPPP leading to its sustainable development.
Discussion
In our study we endeavoured to substantiate the competitive strength of an integrative concession
model of interaction between the labour and education markets, in the form of a cluster-based
educational private-public partnership (EPPP).
Application of factor analysis theory to sequential processes allowed us to build a concession

integrative model of EPPP as a system in which the state of participant business relations can be
cooperation or competition, rigid or flexible management structure, short-term or long-term
objectives. The model paves a way to substantiating the results of EPPP activity: sustainable
development, merger, dissolution, unsteady states of the participants' businesses.
In our study we consider building two basic concession integrative models of competitive ability
evaluation of an EPPP: a state model allowing us to shape an EPPP, and a model of forecasting
possible variants of participant cooperation leading to stable collaboration. For the purpose of
shaping and substantiation of the models’ stability we use the system approach, factor analysis and
decision-making techniques.
Forecasting the development of EPPPs' activity was done using a body of mathematics from the
theory of decision-making in sequential processes.
The methodology of forecasting competitive strength of an EPPP's activity which leads to its
sustainable development - the one looked into above - allows us to build a concession integrative
model relying on the theory of decision making in multi-stage processes. To formalize the forecast
696
results, we have to rely on the language of binary relations and the criteria language of choice
description.
The strategic goals of an EPPP when it is being set up need to be in keeping with the economic nature
of the dynamic processes of the EPPP's development, they have to ensure that the partnership retains
its competitive advantage throughout the life cycles of its goals and objectives (International
Committee on Corporate Social Responsibility, 2010) regardless of the fact at which life cycle phase
EPPP participants are and what their cooperation is like. The key parameters of the economic level of
an EPPP are the enhancement of social economic performance and the rise in education quality.
Compliance with these criteria is the key source of competitive advantages of EPPP leading to its
sustainable development.
Conclusion
The strategic goals of EPPP creation correspond to the economic nature of the dynamic processes of
EPPP development and ensure the retaining of competitive advantages during the whole length of
EPPP and their products’ life-cycles. Regardless of the fact at which specific phase of life cycle an
EPPP is, the key parameters of the economic level of the EPPP are the enhancement of socio-
economic performance and the rise in education quality. Compliance with these criteria is the key
source of competitive advantages of EPPP leading to its sustainable development.
In this paper we are concerned with substantiating the competitive advantage of an EPPP-based
educational cluster - which is in fact a concession integrative model of the labour and education
markets interaction - which was carried out using factor analysis of serial processes. The model
provides a means of substantiating the results of the EPPP activity: sustainable development, merger,
dissolution, unsteady states of the participants' businesses.
To solve this problem, we built two basic concession integrative models for evaluating competitive
ability of an EPPP: a state model allowing us to shape an EPPP, and a model of forecasting possible
variants of participant cooperation leading to stable collaboration. For the purpose of shaping and
substantiation of the models’ stability we use the system approach, factor analysis and decision-
making techniques.
To further specify our substantiation of the model of forecasting variants participant cooperation
forms, we propose a decision-making model for setting up a long-term competitive EPPP under
current conditions.
In the study we develop a methodology for evaluating competitive ability of integrative models
describing the interplay of the labour market and the market of educational private-public partnership
clusters, whose structural features makes it possible to apply factor analysis of sequential processes as
a mathematical tool. The proposed approach is what gives us an opportunity to evaluate the
competitive advantage of EPPPs quickly, with a high rate of quality and regardless of the area of
application. The approach we put forward here will be a reliable tool to specify and substantiate such
competitive strength and, accordingly, the competitive strength of whole regions along with their
investment potential.
Our findings are applicable to the task of building up a methodology aimed to shape educational
market clusters and, particularly, new approaches to the improvement of labour market and
educational market demand interaction, to the shaping of a strategy of developing partnerships
between educational institutions and their business partners. The results of the study can also be used
to enhance the competitive ability of governmental and non-governmental educational institutions
697
both federally and regionally, and also to substantiate efficient cooperation of the education sector
and its business-partners.
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699
Personnel Management on the Example
Of Selected National Parks in Germany
Josef Stemberk, Ruzena Stemberkova, Petra Maresova and Kamil Kuca
University of Hradec Kralove, Faculty of Informatics and Management, Hradec Kralove, Czech Republic
josef.stemberk@seznam.cz
rstemberkova@seznam.cz
petra.maresova@uhk.cz
kamil.kuca@uhk.cz
Abstract
The primary importance of developing the tourism industry in the national parks in the 21st century
significantly targeted at sustainable development and it is a convenient combination of environmental
protection, economic development and the creation of social welfare for visitors who increasingly choose
for your visit between competing hiking opportunities the field offers. The aim of this article is to compare
the personal and knowledge management of national parks in Germany. For a detailed analysis, I chose
four national parks, which were created at different times of historical development. In this study it was
necessary to study history of the creation of protected areas and national parks in Germany. The relation of
historical description with the purpose of the study to better understand the development of the protected
areas in Germany, for about that it is never ending process. We selected four specific National Parks
(Table 2), where we carried out an analysis. We studied various attributes of the selected parks and
literature about them. We found out their specific condition, in which differ from other parks and make
them interesting. It was also done in selected areas of a survey, which examined primarily social attributes
of management and selected values subjected to a series of analytical methods. The aim was to determine
the plus and minus of personnel management, to control individual governments and their development
from the perspectives of selected factors. When comparing individual selected parameters within our case
studies, it is clear that in terms of the management of the organization chart, each message very similar
regardless of whether they belong to newer or older national parks. Similarly, on a comparison
parameter percent of graduates employed population, which is also very similar. When comparing the
total number of employed persons in the administrations of the national parks and the average monthly
salary it is evident that the highest salary paid to employees, which is the lowest number of employees,
but for visitors the most attractive national park (according to the annual number of visitors). In
conclusion, the creation of national parks in Germany is slightly more modern process or trend. Structure
and crystallization of individual administrations and its management based on the same assumptions,
and therefore cannot significantly differ from the others. In the framework of selective values of the
parameters are very similar and at the same time find the values that each park differ from one another
depending on local conditions and factors.
Keywords: National Park, personnel management, Germany
Introduction
On a global scale belong national parks among the oldest and most popular visited protected areas. In
Germany was the first national park declared in 1970 and from a global perspective, we can say it was
relatively late. National parks belong to public goods. Their main mission is to preserve the natural, by
human power untouched, pristine wealth.
700
National Parks and surrounding communities are very dependent on each other and their next task is to
manage stakeholder interests. Conflicts of interests between the conservation objectives and the
continuation of conventional land use has been already discussed at the time of creation of German
national parks and even before delivering the first of them in 1970. This is not surprising since most of
Central Europe is densely populated and the landscape has been used intensively over the centuries, for
agriculture, forestry, mining and recreational purposes. For this reason, hard to find in Europe unchanged
and intact landscape. The European concept distinguishes the concept of national parks from their
counterparts in the America, Africa and Asia.
Germany is an excellent example for others because no one of the existing 16 national parks (complete
overview Table 1) was established before 1970, on the contrary, most of them after 1990. Their size varies
between 30 km2 (Jasmund) up to 4,500 km2 (Schleswig-Holsteinisches
Wattenmeer), which cover altogether only about 0,54% of the mainland.
Increasing tourist activities in each national park affects potentially the quality of the region.
In sight of this fact at first we outline in this study the historical development of national parks in Germany
and then we wanted to compare the example of four of them – their personnel management with respect to
institutional economics and managerial organization of national parks, which is an important goal of every
national park management. This study is based on an analysis of selected four national parks in Germany,
it explores the concept of workforce for the protected area, as well as the number of university graduates in
the individual park management and the effectiveness of human resource management. The findings of
this study should have practical implications for increasing importance for the long-term sustainability.
Methodology
In this study it was necessary to study and carry out research on the available evidences about the history
of the creation of protected areas and national parks. We selected four specific National Parks, where we
make an analysis. To studied various attributes of the selected parks and literature about them. We found
out their specific condition, in which differ from other parks and make them interesting. It was also done
in selected areas of a survey, which examined primarily social attributes of management and selected
values subjected to a series of analytical methods. The outputs of the analysis of the factors are then
presented in the final part of this study. Its aims are to determine the pros and cons of personnel
management, to control individual governments and their development from the perspectives of selected
factors (Štemberk et al, 2015).
Organizations represent in all its diversity basic framework, scope and synergies background people in
achieving their personal, individual potential (their personal qualities, qualifications, inclinations,
capacities, capabilities and commitment) and other available resources and potentials to achieve common
goals. Organizations are the result attribute (Essential property) and principal means of joint purposeful
and coordinated (synergistic) human effort (Mateiciuc, 2003, 2004).
The studies in this topic are focused on organisational culture, which is facilitated by significant
management and leadership in the institution and enhances efficiency. (Štemberková et al, 2015).
Community can be defined as a group of people that has the same interests, and in which all are willing to
learn each other. (Collison and Parcel, 2005).
Bartak (2008) defines information in knowledge management as "data, which the user assigns the
importance of interpretation and meaning. These are the data that have some relation to their needs and
requirements, as the relevant data containing the purpose ".
Mládková (2008) states that: "Knowledge is dynamic systems involving the interaction under experiences,
skills, facts, relationship, values, thought processes and relevance. It is information plus our experience,
skills, intuition, personal ideas, mental models."
Organization fulfils its finality that performs a variety of organizational functions. In the interest of its
mission, the survival and development organization also plays supportive and secondary tasks, such as
701
maintaining an internal system of coordination of human activity and technological processes controlling
influence in the external environment, the formation of this environment and adapt to it, self-production
(Appleby, 1991, Collinson 2005).
History of Foundation of the National Parks in Germany

The first law that regulated the protection of nature on the territory of today's Germany, was the imperial
law on protection of nature called “Reichsnaturschutzgesetz”, 1935. It was later verified its compliance
with the Basic Law (i. e. the German constitution, Grundgesetz 1949) and remained valid only as
country´s law.
The first national park in Germany originated on this Act. Bavarian Landtag unanimously passed the
founding Bavarian Forest National Park on 11 June 1969. Association (Bund), then in 1976 issued within
the framework of his former legislative competence of the Federal Nature Conservation Act, which
modified the statute § 14 national parks. Except for the validity of this law began some German countries
to announce provincial laws and regulations, possibly new national parks. In 2009, it approved the new
Federal Nature Conservation Act.
On the territory of the former GDR was in 1990 adopted Resolution Program known as National Parks
Program (Nationalparkprogramm), on the basis of which was published five national parks: Hochharz,
Saxon Switzerland, Müritz, Pomeranian Boddenlandschaft and Jasmund.
Currently in Germany, ordained 16 national parks with a total area of 214.588 ha (without any waters),
which corresponds to the surface area of about 0,60% of the total area of Germany. To meet international
rules must ¾ IUCN protected area correspond to the main objectives, i. e. that according EUROPARC and
IUCN is necessary to the development of the area has been left to its own development and avoid it on to
any economic recovery. At the same subject area must be large enough to be there to develop the entire
ecosystem. For national parks in Germany there is a minimum size of 10,000 hectares. (Completed
overview of national parks in Germany – Table 1)
Table 1: Overview of the National Parks in Germany
Overview of the National Parks in Germany (by the date of their creation)
Year of
National Park Total area [ha] Items of the protection of the national park
foundation
Bayerischer Wald 1970 24.217 Beech and fir mixed forests, pine forests, peat bogs
Alpine rock debris, grasslands, subalpine, mountain
Berchtesgaden 1978 20.804
forests, pastures and lakes
441.500
Schleswig-
out of it ca.
Holsteinisches 1985 Ecosystems shallows, salt marsh, sand dunes
97,7% water
Wattenmeer
surface
345.000
Niedersächsisches out of it ca. Ecosystems shallows, salt marsh and sand dunes of
1986
Wattenmeer 93% water the Ostfriesische Islands
surface
13.750
Hamburgisches out of it ca. Shallow sea at the mouth of the Elbe with significant
1990
Wattenmeer 97,1% water tides and brackish water
surface
3.070
out of it ca.
Jasmund 1990 Beech forests, peat bogs, chalk coast, Baltic coast
22% water
surface
702
Higher ground spruce forests, beech forests, peat

Harz 1990/1994 24.732 bogs, mountain meadows, rock formations,
waterways
Sand rock cities, piedmont warm and dry forests,
Sächsische Schweiz 1990 9.350
shady woods and forests in ravines
Pine and beech forests, alder and birch forests, lakes
Müritz- Nationalpark 1990 32.200
and bogs
78.600
Lower water supplies, salt marsh, sand dunes and
Vorpommersche out of it ca.
1990 reed communities, pine and beech forests, dry
Boddenlandschaft 83% water
meadows
surface
River floodplain, dead river arms, marshes and reed
Unteres Odertal 1995 10.323
forests, floodplain meadows, steppe grassland
Mixed deciduous beech forests with moderate
Hainich 1997 7.513
different succession stages
Atlantic beech mixed forests on acidic soils, spruce
Eifel 2004 10.770
forests, rocks and water reservoir Urft
Beech forests on acidic soil, rock overhangs, forest
Kellerwald-Edersee 2004 5.738
meadows
Mountain mixed forests, beech and spruce, conifers,
Schwarzwald 2014 10.062
alpine pastures
Beech and oak forests, pine plantations, stone fields
Hunsrück-Hochwald 2015 10.230
and peat bogs
Source: Own according specific national parks administrations, 2016
Comparison of the Management of Four National Parks in Germany
We choose four out of existing 16 national parks in Germany for our comparison reasons. There were
chosen deliberately different parks, which were created at different times, i.e. young and old, and whose
attractiveness is very different – from attractive mountains to a national park located in coastal areas.
Table 2: Selected National parks for comparison
Name of the National park Established in Area (ha)

NP Bayerischer Wald 1970 24.217
NP_Berschtesgaden 1978 20.800
NP Schwarzwald 2014 10.062
NP Vorpommersche Boddelandschaft 1990 78.600
At the outset I would like to briefly mention that in terms of the organizational structure of the national
parks they are very similar. Our selected ones for mutual comparisons are organized into unions, which are
from divided five to seven unions according to their own activity. When comparing the proportion of
university-educated workers on various administrations it is interesting that in our sample of our case
study the percentage is very similar, ranging between 34% to 45%. While the highest proportion of
university-educated staff to manage them is in Bayerischer Wald NP and the lowest in Berchtesgaden NP.
When comparing the total annual number of visitors it is clear that the most attractive national park is
located on the seashore of Germany, founded in 1990. As the second most visited national park of our
samples is the oldest Bayerischer Wald. The least attractive of the total annual number of visitors seems to
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be the Schwarzwald National Park, however it might be caused by the fact that it is one of the youngest
and newest national parks and its reputation has not been yet as high among the population.
D_NP_Berschtesgaden
D-NP Vorpommersche
Boddelandschaft
D_NP Bayerischer Wald
D_NP Schwarzwald
0 1000000 2000000 3000000 4000000
Figure 1: The number of visitors
In terms of the most attractiveness according the numbers of visitors leaning to coastal areas, we believe
that the main reason is the social trend of spending holidays and leisure time at the sea and close locations.
They offer from the view of tourism, cycling, etc. a very pleasant terrain for all groups, especially families
with children and seniors.
In terms of comparison of the number of employees in different national parks and an average wage shows
that the highest average wage in the framework of our comparison is just in the national park with the
highest visitor numbers, therefore Vorpommersche Bodenlandschaft, but where the number of employees
in the administration is also the lowest at all. The lowest average wage is then in one of the newest
national parks, in Schwarzwald. National parks extending to the mountains and alpine areas have balanced
average wages.
Comparison of number of employees and average income
3,450
D_NP_Berschtesgaden
95
3,875
D-NP Vorpommersche Boddelandschaft
40
3,300
D_NP Bayerischer Wald
197
2,750
D_NP Schwarzwald
85
0 500 1000 1500 2000 2500 3000 3500 4000 4500
Average income in Number of employees
Figure 2: Comparison of number of employees and average income
704
In the context of comparing the number of researchers and the number of rangers at various national parks
it is shown that in general, in all national parks within our comparative study exceeds the number of
rangers the number of scientific personnel. However, the highest number of rangers is clearly in the
Bayerischer Wald National Park, who has also the highest number of employees. This is mainly due to the
fact that within the national park are very diversified fields of the protection they need doubtless their
specialists. For other national parks are both observed values and counts the number of rangers and
researchers very comparable.
The number of researchers and rangers

40
35
30
25
20
15
10
5
0
D_NP SchwarzwaldD_NP Bayerischer
D-NP Vorpommersche
Wald Boddelandschaft
D_NP_Berschtesgaden
Researches Rangers
Figure 3: The number of researches and rangers
Conclusions
In the context of the establishment of national parks within Germany it was mainly the identification and
definition of the rules and directing them functioning as well as their level of acceptance by the affected
local communities. This process is, in practice, the identification values and the embodiment of the new
structure. As part of its daily operations management of national parks strives for acceptance and
identification with the society with its new values. It is also necessary to mention that national parks in
general are under pressure from economic exploitation and possibly the most economical driving.
Management of individual administrations therefore seeks the best possible setting control parameters.
(Štemberk et al, 2015)
When comparing individual selected parameters within our case studies, it is clear that in terms of the
management of the organization chart, each message very similar regardless of whether they belong to
newer or older national parks. Similarly, on a comparison parameter percent of graduates employed
population, which is also very similar.
When comparing the total number of employed persons in the administrations of the national parks and the
average monthly salary it is evident that the highest salary paid to employees, which is the lowest number
of employees, but for visitors the most attractive national park (according to the annual number of
visitors). The second youngest National Park, Schwarzwald, does have the lowest average monthly wage,
but in terms of comparing moderately high number of employees. However, the future can be expected to
find an increase in the average monthly wage, given the fact that tourism contributes more than 60% of the
income of the individual administrations.
705
The most attractiveness in our case study according the numbers of visitors leaning to coastal areas, we
believe that the main reason is the social trend of spending holidays and leisure time at the sea and close
locations. They offer from the view of tourism, cycling, etc. a very pleasant terrain for all groups,
especially families with children and seniors, which could be the most important reason which plays the
major factor of the decision making for the visitors.
In terms of comparison of the number of employees in different national parks and an average wage shows
that the highest average wage in the framework of our comparison is just in the national park with the
highest visitor numbers, therefore Vorpommersche Bodenlandschaft, but where the number of employees
in the administration is also the lowest at all. The lowest average wage is then in one of the newest
national parks, in Schwarzwald, which is starting with his promotion for the visitors and preparing some
attractiveness for the future visitors. National parks extending to the mountains and alpine areas have
balanced average wages.
In conclusion, the creation of national parks in Germany is slightly more modern process or trend.
Structure and crystallization of individual administrations and its management based on the same
assumptions, and therefore cannot significantly differ from the others. In the framework of selective values
of the parameters are very similar and at the same time find the values that each park differ from one
another depending on local conditions and factors.
As part of the further direction of my research, I would like to compare national parks selected in
European countries, especially with regard to their human resource management and organizational
structure. Subsequently, an evaluation of its functionality inward toward the organization as well as
against its founder, in most cases it is the Ministry of Environment. For this reason we have now made a
partial study on the functioning of German national parks and especially selected four of them with respect
to the formation of various ages.
References
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COLLISON, CH., PARCEL, G. (2005), Knowledge Management. Brno: Computer Press, ISBN 80-251-
0760-4.
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Krizový management. Vítkovice v Krkonoších: MV ČR, Institut ochrany obyvatelstva a Universita
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Výsledky vědecké práce studentů doktorského studia. Ostrava: EkF VŠB-TU
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80-7400-013-3
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Management in Public Administration. International Scientific Multidisciplinary Conferences (SGEM).
ISBN:978-619-7105-46-9. August 2015, Albena, Bulgary, 509-517.
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case study on the national parks in the Czech Republic. International Scientific Multidisciplinary
Conferences (SGEM). ISBN:978-619-7105-46-9. August 2015, Albena, Bulgary, 629-637.
706
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Evaluation of research & development in selected Portuguese – speaking countries. International Scientific
Multidisciplinary Conferences (SGEM). ISBN: 978-619-7105-46-9. August 2015, Albena, Bulgary, 119-
127.
707
Ranking Of Reward and Recognition Preferences

Among Hospitality Workers in UAE
Hassan Younies and Tareq Al-Tawil
New York Institute of Technology
hassan.younies@gmail.com
taltawil@nyit.edu
Abstract
This study investigates UAE hospitality industry workers preference in material and non material
incentives.The study is a questionnaires based in Abu Dhabi Emirates. The findings of the research are
expected to provide policy makers with insights of work satisfaction determinants. In addition it will aid
in developing appropriate reward and recognition policies.
Keywords: United Arab Emirates, Satisfaction, Rewards, Recognition
Introduction
Employees’ experience at work is the major source of their positive or negative feeling towards their jobs.
If employees’ job expectations are met, they would be satisfied, else job dissatisfaction occurs. Different
dimensions of job satisfaction exist, including job itself, recognition and wages.
A higher job satisfaction level would result in higher work performance (Schermerhorn et al. 2003: 14).
Other factors such as organisation size could have an effect on job satisfaction. Holland et al. (1987)
show that hospital size, with the ability to get up the job ladder has a positive influence on motivation.
Satisfied employee will provide better service for customers, Hoffman and Ingram, 1992. Other literature
showed that job satisfaction has an effect on turnover and retention, absenteeism and performance
(Hellman 1997; Strachota et al. 2003,among others).
Hansen et al. (2002) discuss the differences between rewards and recognition and their role in employee
motivation. According to Hansen et al. (2002, p. 67)
An organization needs a reward strategy for the specific behaviours driven by extrinsic motivation and a
recognition strategy for those behaviours driven by intrinsic motivation.
A reward and recognition (RR) system is a tool widely applied by organizations to motivate their
employees. Outstanding employees expect their effort to be acknowledged by the organization. However,
the variety of rewards and recognitions systems used by organizations may be perceived differently by
different employees
708
One major concept shared by different motivation theories is the existence of two motivational directions,
from within and from outside.
Deci (1975) identifies two kinds of motivational factor, intrinsic and extrinsic. Behaviours which
are motivated by the need for competence and self-determination are considered intrinsic factors, while
behaviours motivated by rewards are considered extrinsic. Finally, Herzberg’s (1966) motivation-hygiene
theory distinguishes between hygiene, dissatisfaction components and motivators or satisfaction
components. The theory states that the opposite of job satisfaction is no job satisfaction, while the
opposite of dissatisfaction is no job dissatisfaction. The relationship between intrinsic and extrinsic
motivation is discussed in Dermer (1975).
In addition, since different people respond to different incentives (Goetsch and Stanley, 2003), it is
advisable for organizations to survey their employees before investing in a reward and recognition (RR)
system. Creating a cost-effective incentive programme is a challenging task, which should be carefully
planned and properly controlled
Managers need to ask employees about their expectations from the reward system (Spitzer, 1996, p. 45);
this necessitates designing a sound RR system which addresses employees’ needs.
Freed (1999) maintains that RR programmes are important in retaining and engaging employees, in
managing scarce resources and improving performance. Lack of RR is cited as one of the main reasons
behind employee turnover (Urichuk, 1999, p. 27):
In this article a preliminary outline of the research will outlined. The final analysis of the article to be
published in near future. The data were collected through a self administered questionnaire to
convenience sample. The study was limited to the emirate of Abu Dhabi due to logistical reasons. The
authors believe that the results can be generalised, with some limitations, to other emirates. Demographic
of respondents are as shown in Table 1.
The ranking preferences for material incentives, in descending importance, are as shown in Table 2. In
table 3 the workers preferences for recognition in descending order is shown in Table 3
Table 1: Demographics of respondents
Category Frequency Percent

Age < 21 2 2.0
21-25 34 36
26-30 28 28
31-35 29 26
36-40 6 6
GT. 41 4 2
Certificate 18 17.5
Education
Professional 17 16.5
Bachelor 58 56.3
709
Graduate 10 9.7
< 3 years 37 35.9
3-5 31 30.1
Experience
5-10 27 26.2
More Than 10 8 7.8
Marital status Single 67 55.3

Married 42 40.8
Divorced 4 3.9
Gender Male 69 67.0
Female 34 33.0
Company size <100 48 46.6
100-200 36 35
200-500 10 9.7
More than 500 9 8.7
Employment Type Full-time time 89 86.4
Part-time/Cont 11 10.7
Other 3 2.9
Type of work Administration 32 31.1
HR 23 22.3
Engineering 8 7.8
Finance 22 21.4
Other 18 17.5
Wok years <3 52 54
3-5 33 30
5-10 13 10
More Than 10 5 6
TOTAL 103 100.0
Table 2: Workers preference for Material Incentives
N Mean
Cash 103 1.3010
PaidVacation 103 5.0194
Benifits 103 5.1942
HealthInsurance 103 5.4175
TravelAlowance 103 5.4466
Bonus 103 5.7864
Retirement 103 6.0000
Compensation 103 6.1068
EducationalSpos 103 6.1456
GiftItem 103 7.1262
Valid N (listwise) 103
710
Table 3: Workers preference for Non-Material Incentives.
N Mean
Promotion 103 2.1942
JobPower 103 4.1942
FlexibleTime 103 4.6505
WorkLoad 103 5.1262
PayPerform 103 5.4660
Praise 103 5.7767
Title 103 6.1553
Training 103 6.5825
JobRedesign 103 6.6408
Influence 103 6.9806
Valid N (listwise) 103
References
Deci E. 1975. Intrinsic Motivation. Plenum: New York
Hansen F, Smith M, Hansen R. 2002. Reward and recognition in employee motivation.

Compensat Benefit Rev 34(5): 64–72. DOI 10.1177
Goetsch D, Stanley D. 2003. Quality Management: Introduction to Total Quality Management

for Production, Processing, and Services, 4th edn. Prentice Hall: New Jersey.
Hoffman, K.D. and Ingram, T.N. (1992), “Service provider job satisfaction and customer-oriented
performance”, Journal of Services Marketing, Vol. 6 No. 2, pp. 68-78.
Hellman, C. (1997). Job satisfaction and intent to leave. Journal of Social Psychology, 137(6),
677–89.
Herzberg F. 1966. Work and the Nature of Man. Thomas Y. Corwell: New York.
Schermerhorn, Hunt J. Jr., and R. Osborn (2003), Organizational Behaviour, John Wiley
& Sons, Inc.
Strachota, E., P. Normandin, N. O’Brien, M. Clary, B. Krukow (2003). Reasons registered

nurses leave or change employment status. Journal of Nursing Administration, 33(2),
111–17
Spitzer D. 1996. Power rewards: rewards that really motivate. Manage Rev 45–50.
Urichuk B. 1999. Employee recognition and praise. Can Manag 24(2): 27–29.
711
Knowledge Management in Quality Management System

Ekaterina V. Men’shikova, Marina.V. Verkhovskaya and Elena T. Sakharova
National Research Tomsk Polytechnic University, Institute of Humanities,

Social Sciences & Technologies, Department of Management, 634050, Tomsk, Russia
caty-mp@yandex.ru.
tomsk2008@list.ru.
sakharovaet@gmail.com
Abstract
The paper proves the need for knowledge management in an organization on the basis of the new
requirements of international standard ISO 9001-2015. It is shown that knowledge management
improves the efficiency of the functioning of processes, aimed at achieving goals of the organization.
A procedure for knowledge management process organization has been developed and main stages
and methods for knowledge formation have been pointed out. The paper describes the process of
building knowledge from a various information resources, There are also identified the types of
knowledge. Authors have described structure of knowledge base of organization which is formed
from a variety of information sources. Problems of knowledge base formation are revealed and ways
of their solution are suggested. The block diagram of the process of knowledge management has been
developed. This model is needed to describe and regulate the business processes at every
management level of the organization and improve the effectiveness of the decisions.
Keywords: knowledge, management, personal, information.
Introduction
The new version of ISO 9001 actualized a number of issues related to strategic planning, risk
management, as well as knowledge management. With all the variety of publications on various
aspects of knowledge management, organization of the process, steps and methods used are not yet
defined adequately (Verkhovskaya M. et al, 2016).
In accordance with the requirements for the effective functioning of the process and for achieving
compliance of products and services, organizations need to identify knowledge.
The knowledge is created by man on the basis of various information resources, it is always
personified, because it is is generated by men through the prism of personal experience and intellect.
Knowledge reflects beliefs and values of the person, his professional skills and knowledge, as well as
his principles, relationships and concepts. When interacting with others group and organizational
knowledge can be formed (Filippova, T., 2015).
Types of Knowledge
Thus we can distinguish:
1. Personal knowledge - individual knowledge of a person, his qualifications, experience

and creativity.
2. Collective knowledge - a knowledge of a particular group to address the group tasks,

which exceeds a simple sum of the knowledge of members of the group because of the
synergies in the group.
712
3. Organizational knowledge - a process that multiplies the knowledge created by

individuals and forming it into a knowledge network in the organization. Organizational
knowledge, spreading, becomes part of an individual knowledge base. Organizational
knowledge is expressed in organizational procedures and corporate culture.
The Process of Knowledge Creation

The process of knowledge creation has 2 levels - empirical and theoretical. Empirical knowledge is
extracted in the course of practical experience, research, observation, experiment. On the theoretical
level, there is a generalization of cognitive activities and abstraction from the object of observation.
Theoretical knowledge is a product of creative thinking activity. These levels are interrelated and
intertwined (Negrul S.V. et al, 2016).
A feature of knowledge functioning in the organization is knowledge heterogeneity. It can be formal

and informal.
Formal knowledge (explicit) - knowledge that can be described, documented, passed on to other
people. People can directly communicate formalized knowledge in the form of text, video, audio,
software, etc. Formal knowledge is stored on physical media (books, paper documents, drawings,
diagrams, films, audio and video - records, electronic files and databases, etc.).
Some types of knowledge exist implicitly - in the minds of employees of the enterprise. This
knowledge cannot be seen or documented. it can be passed only through personal and direct
communication. Thus, non-formalized knowledge is a product of personal human experience, which
reflects his beliefs, values and attitudes. This implicit knowledge also included experience, skill,
culture of thinking, intuition.
Implicit knowledge exists in the minds of experts, evolving over time, through experience, drawn
from professional activities, books, mentoring, and training. Implicit knowledge depends on the vital
resources of personality and psychological potential.
The peculiarity of the interaction of explicit and implicit knowledge, is that the more competent
experts become, the less they are able to describe the knowledge, which they use to solve problems.
This knowledge becomes the most important for success. It exists partially or completely in implicit
form and is communicated mainly in direct mutual activities through universalized training methods.
All the above forms of knowledge form the knowledge base of the organization.
If there are problems of forming a knowledge base, such as:
• knowledge duplication;
• knowledge leak.
Duplication of knowledge occurs when one task is performed by several departments or outside
organizations. Management of several parallel projects focused on development of the same element
of knowledge may lead to unnecessary high costs for the company. As a result of duplication
excessive knowledge is created. This can only be justified under conditions of uncertainty when the
cost of the possible failure of the decision is more than duplication costs.
Knowledge leaks occurs when employees are dismissed or when effective knowledge is not
developed and supported. Fire employees take with them experience and expertise, organizational
skills and knowledge of the past projects of the organization (the results of which cannot be fully
documented). But even if the knowledge was recorded and stored in the database, it does not mean
that it will be found at the right moment, correctly interpreted or verified. In addition, an employee
who has worked in the organization for a long time, cannot be replaced by another, albeit equally
713
qualified, without breaking the network of formal and informal relationships. It will take time to
establish interpersonal relationships and gain trust. In this context, professionals leaving the company
can seriously affect the structure of the relationships and affect the functioning of the organization.
Sources of Information by Types of Knowledge

We represent the classification of kinds of knowledge by information sources. Information flows of
organization can be from both internal and external sources.
Internal sources of information by types of knowledge
Internal sources of information are formed by the development strategy of the organization,
organizational and regulatory support, personnel management, performance of the organization.
Table 1: internal sources of information by types of knowledge
Types of knowledge Sources of Information
Empirical knowledge The results of studies of organizational and psychosocial factors;

(observations, observed multifactorial analysis of the enterprise; results of the statistical
phenomena) analysis of the enterprise; indicators of products renewal; service,
nomenclature. Strategic plans and long-term forecasts of the
enterprise. Indicators of defects; level of industrial labor;
fulfillment of work norms; staff turnover rates and retirement.
Theoretical knowledge Internal organizational and regulatory support: enterprise policy,
(laws, theories, the charter of the enterprise, organizational structure, orders,
abstractions, regulations, instructions on general rules of labor protection and
generalizations) fire safety; instructions for employees; etc.). The quality
management system, quality policy. Technical assignments,
processes, the results of research and development, business
process map.
Organizational knowledge Personnel policy. vocational training system; indicators and criteria
(theoretical knowledge of a of performance of personnel; turnover rates, retirement of
particular field of activity, specialists. Methodical materials for personnel management.
technological and industrial Grants, certificates, patents, licenses, copyrights, contests.
standards, rules and Profile of the enterprise; specialization; indicators of labor-
regulations, business intensiveness of manufacturing, production output.
knowledge). Corporate culture of the enterprise: history, traditions, rituals and
rules; method of distribution and exercise of power; the degree of
formalization and standardization of process management;
language of professional communication; opportunities for creative
expression of individuals and groups, staff opinions registration
system.
Performance indicators of the company (profit, sales, profitability,
etc.).
Development of new products, services and technologies. The
degree of centralization of the company, motivation system, type of
power, decision-making methods.
Information processing technology; information technology
management; office automation; information technology decision-
making; information technology expert systems. Computer
software: image editors; accounting software. Databases: libraries;
archives; funds; databases; hardware and software support of
information processes; software. Computer equipment and
communication equipment.
714
External sources of information by types of knowledge
External sources of information are formed under the influence of the external environment of the
organization, which may be represented by the economy, politics, society, technology.
Table 2: external sources of information by types of knowledge
Types of knowledge Sources of Information
Empirical knowledge The marketing analysis (market share, market trends, new
(observations, observed products, new technologies, demand analysis); monitoring
phenomena) of the activities of the enterprise; analysis of the external
environment (the state of the industry, competitors,
suppliers, etc.). Foreign economic activity of the enterprise.
Production characteristics of the industry.
Theoretical knowledge (laws, External "legislation" (state laws and regulations): laws on
theories, abstractions, enterprises and entrepreneurial activity. Tax legislation,
generalizations) labor legislation, audit legislation. Supervisors, fiscal and
regulatory authorities. The law on protection of competition,
antitrust law. Environmental standards, international quality
standards. State standards and norms, technical regulations
and conditions. Quality standards, consumer requirements
[5].
Organizational knowledge Labor legislation; legislative and regulatory acts.
(theoretical knowledge of a Technologies of training; training programs; educational
particular field of activity, programs. Rating companies. Analysis of new products on
technological and industrial the market.
standards, rules and regulations, Technological and production standards of the enterprise.
business knowledge). Market information systems; information technologies;
information and telecommunication systems.
Main Stages and Methods for Knowledge Formation

Initiation of the process of knowledge management is carried out through the identification of the
need for new knowledge and competencies. Input data can be obtained from the following sources:
analysis of the personal performance of employees, needs for new knowledge formulated by
personnel for implementation of development projects (Fig. 1).
715
Figure 1: Block diagram of the knowledge management process
Stage of the identification of new knowledge needs involves the collection and processing of the
above information. Analysis of employees' personal performance is conducted to identify employees
who consistently demonstrate achievement or even the over-fulfillment of the goals. This indicates
that these employees have personal knowledge which is needed for the organization. Planned projects
almost always require the formation of new knowledge and skills for the successful implementation
(Selyutin A. et al, 2016).
Fulfilling duties, employees of the organization are often faced with problems, the solution of which
requires additional knowledge. Identification of these needs can be carried out by regular staff
surveys.
After compilation of a list of needs for knowledge, taking into account limited resources, the
organization should identify priority needs. Such analysis should take into account the degree of
impact of knowledge on achieving the organization's objectives and the resources needed to meet the
knowledge needs (Kiseleva E.S., 2016).
716
In the absence of a source of knowledge (employee) in the organization, it must start the process of
finding the source of knowledge in the external environment. The need for knowledge from the
external environment can be satisfied by involving experts to carry out the work, referring to training
organizations, hiring specialists.
Translation and retention of knowledge are aimed at the dissemination of knowledge to all interested
employees. Translation and retention of knowledge can be realized through:
• Development of training and coaching systems to recruit staff.
• Conducting regular internal workshops and competitions of professional skill
• Development of a set of internal regulatory documents.
• Development and optimization based on the needs in knowledge, corporate information systems.
Concluding Remarks
Knowledge management is a process which aims at creation, distribution and use of knowledge to
improve the performance and achieve organizational goals. Knowledge about the organizational
processes and functioning, serves as framework on which various types of management information
are "built up". Authors are shown classification of kinds of knowledge of the organization on the
basis of external and internal information sources. Developed the block diagram of the process of
knowledge management is needed to identify the demand for knowledge in order to increase its
competitiveness and for the regulation of business processes during knowledge management.
References
Abraham, P., Suganthi, L. (2013), ‘Intelligent quality management system using analytic hierarchy
process and fuzzy association rules for manufacturing sector,’ International Journal of Productivity
and Quality Management 12 (3), 287-312.
Abu-Khadra, H., Barqawi, B., Alramahi, N. (2012), ‘Governance using ISO 9001:2000 challenges
and barriers: empirical study applied on the Jordanian private mobile companies,’ International
Journal of Project Organisation and Management, 4 (2), 171-202.
Filippova, T. (2015) ‘Priority fields of E-learning development in Russia, ‘Procedia - Social and
Behavioral Sciences, 206, 348 – 353.
Keller, N.L., Grif, M.G. (2005) ‘The expert system for quality management in higher educational
establishments based on ISO 9000: An outline of the knowledgebase structure’, Proceedings - 9th
Russian-Korean International Symposium on Science and Technology, KORUS-2005, 1, 1507977,
1084-1086.
Kiseleva E.S. (2016) ‘The Essence, Purpose and Principles of Marketing Relationships’, International
Business Information Management Association Conference (IBIMA: 27th International Conference),
4-5 May 2016, Milan, Italy, 2909-2915.
Molenda, M. (2015) ‘The intelligent integrated system management’, International Multidisciplinary

Scientific GeoConference Surveying Geology and Mining Ecology Management, SGE (5), 681-688.
Negrul S.V., Trubchenko T.G. and Lemeshko E.Yu. (2016) ‘Safety and risks of nuclear power:
Changing the discourse (by the example of Tomsk region)’ SHS Web of Conferences 28, n/a. Les
Ulis: EDP Sciences.
717
Selyutin A., Kalasnikova T.V., Chasovskiy P., Frolova N.V. (2016) ‘Organizational changes of the
university's corporate culture under the influence of the social Internet communications’ SHS Web of
Conferences 28, n/a. Les Ulis: EDP Sciences.
State standard of the RF GOST R ISO 9001-2015 «System of quality management. Requirements».
International standard ISO 19011:2011 "Guidelines for auditing management systems".
Verkhovskaya M., Men’shikova E., Khazanov O. (2016) ‘Particularities of the Implement of Quality
Management System Based on the Requirements of the ISO 9001 in the Telecommunications
Companies’ International Review of Management and Marketing Vol. 6, No. 3, 603-607.
718
Comparative Analysis (Romania – Spain) on Investment in

Human Capital and its Recovery. An Approach from the
Investment Perspective in Education
Ioana – Julieta Josan
University of Bucharest, Bucharest, Romania
ioanajulieta@yahoo.com
ioana.josan@faa.unibuc.ro
Abstract
Developing human capital means effective made investments by family and individual by the state
through formal education, health and facilities for businesses to develop the initial training of its
employees. Meanwhile, the quality of educational policies translates into effective and competitive
educational policy tailored based on changes of globalization and transition to a market economy.
If education and social policies are deficient in terms of quality and or investment, there are
imbalances in the economy either in the form of unemployment, or in the form of migration. The
objective of this work is to create an overview of investment in human capital and its recovery.
The analysis is based on education investment and the recovery and losses that is calculated
having as a base the number of people who migrated from Romania, especially in Spain. The aim
of this work is reflected in the interest shown today to the general education funding which is a
matter of debate and analysis both in the economic field, and at the level of policy makers. Also it
is a subject of debate and concerns for states that provide human capital to other states in terms of
non-recovery of investment and effects on their economy.
Keywords: education, investment, human capital, recovery
Introduction
The globalization of economic markets led to an unprecedented development of the sectors based
on advanced technologies and the use of highly qualified human resources. Besides the
reconfiguration of the power poles as a result of increased competitiveness and wealth of certain
countries based on innovation and technology, we are witnessing today to a restructuring of the
labour market characterized by a demand for workforce well trained, with a high level of skills
and a greater ability to adapt to dynamic organizational environments, that are competing in the
introduction new technologies, grabbing as many markets. Therefore, with the development of the
new economy and the transition from an economy based on industry economy characterized by
knowledge and information, to the educational component is assigned a significant role in
ensuring progress and economic development. In such a context, it is required a balanced
investments with a component of human capital development needed to increase economic
competitiveness.
Investing in Human Capital and its Recovery
Wealth found in the human resource can be effectively used as long as there are policies to support
valuing this type of capital. In their absence, some of the human capital of a nation is lost through
719
phenomena such as unemployment, migration and misuse. If we analyze the Romanian economy
as a whole, we find the last two decades, both at an increased level of unemployment and a high
rate of migration. Therefore, while we stand as a country with an unemployment rate average
compared with other European countries, in terms of migration Romania remains a major supplier
of manpower for Member States, losing in the last 20 years about three million people. The figure
is estimated based on data drawn from countries where statistics are most of Romanian
immigrants.
From the data by the National Statistics Institute, but also those provided by European institutions,
it is noted that in recent years that the migration of Romanian citizens increased. Member States'
statistics and the results of surveys on the labour market at the end of 2010, indicates a number of
2.5 million Romanian and Bulgarian citizens working in 15 countries of the European Union.
Of these, about 2.1 million are Romanian citizens who have chosen to work in EU countries. Most
of them have chosen as destination countries Italy (890,000), Spain (825,000) and Germany
(110,000). The remaining 275,000 Romanians included in official statistics have a jobs in France,
UK, Belgium, Denmark, Finland, Greece, Ireland, Luxembourg, Netherlands, Portugal and
Sweden. In 2013, it was estimated that one in six Romanian citizens have a job abroad (mainly in
EU countries) and can be found in high-tech fields (IT, medicine), but also in agriculture and
construction.
Distribution of migrants by country
34%
46%
7%
6%
3% 4%
Spain Germany Great Britain Hungary Other countries Italy
Figure 1: The 2012 distribution of migrants by country, year 2012i
The figures shown above correspond to the first official reports made by representatives of the
European Commission. In reality, the exact number of people going abroad do not exist, there are
performed only expectations taking into account either the number of workers who left by contract
brokered by the National Agency for Employment (ANOFM) or based on estimates from the
National Bank of Romania (BNR) which calculates each year the amounts of money sent to the
country by Romanians living abroad. Thus, it is estimated that two-thirds of the money sent from
abroad are from Romanians are working in Italy and Spain. For example, in 2007, they sent home
6.5 billion euros with an increase of one billion euros compared to 2006. The level of remittances
represented about 5.7% of GDP, while Romania ranked second in the European Union and the
tenth in the world in a ranking of remittances by the world Bank. In 2010 the amount was sent to
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the country of 4.5 billion, later this year as a result of the financial crisis, the remittances shrank to
2.2 billion euros in 2011 and 2012 respectively.
From 1 January 2014, the European Union, has lifted all restrictions on the availability of migrants
Romanian and Bulgarian nationals in the labour market in states that put the restrictions before
2014 (Austria, UK, Germany, Holland, Belgium, France Luxembourg, Malta and Spain). This
liberalization of the European labour market boosted, to some extent, the number of Romanian
citizens in search of a job. At the end of 2013, it was estimated that three million Romanian
citizens have left Romania in the last two decades. For the period after 1 January 2014, no official
statistics are available regarding the number of Romanian citizens abroad. United Nations signal
that Romania could lose by 2050 about 15% of the population by migration.
Through migration, Romania is exporting human capital, supporting, inherently the effects of this
phenomenon. The cost of this type of export for our country is increasing and the potential
economic and social benefits are only partially compensating this negative effect. Migration of
people registered in recent years show trends of increasing the number of highly qualified workers
(doctors, engineers, researchers, IT specialists) whose investment in human capital is much higher
rather than for workers who left solely to get a place in unskilled labour.
Romania loses not only from the failure to recover the investment in training, but the contributions
related to salaries and other taxes that might be collected (excise, VAT). In the current economic
development of Romania, which requires the extension and application of new technologies by IT,
this brain drain may slow the pace of development. These considerations have led researchers to
affirm that "Labour migration can be seen as a partial and temporary export, associated with
relatively clear potential benefits. Through individual gains that are transferred to the families in
Romania for domestic consumption of goods and services support domestic demand and, to some
extent, national production." Constantin et all argue that the export of workforce who have made
significant investments represent a loss of added value that would have been achieved in the
country, a source for sustainable economic growth. We believe that the researchers’ above-
mentioned opinion finds a direct reflection on what characterizes today's labour market in
Romania and the visible effects of export of human capital. Feeding the phenomena of the brain
drain, which represents more than 10% of the population with higher education brings to the
economy serious damage on the long run, changing the demographic structure of the population
and slowing considerably the advance on technical and technological level of the national
economy . Export of human capital effects are diverse, interdependent and integrated,
transforming over time, evolving and multiplying.
The Analysis of Major Losses by Romania, as a Supplier, Compared to the

Financial Benefits achieved by Spain, the Host Country for Romanian
Human Capital
To highlight one of the main effects of the export of labour through migration there will be
analyzed the main losses of Romania, as a supplier, compared to the financial benefits made by the
host . Spain was chosen for comparative study, as it the second of countries that hosts the biggest
number of Romanian migrants, representing the highest number of emigrants in Spain. According
to the National Statistics Institute of Spain, Romanians officially registered on 1 January 2013,
were 769 608 persons, followed by the Moroccan population (759 273 persons). Of the total
number of emigrants (5.07268 million people) in Spain, 19% of them belong to highly qualified
employees. As a starting point for analyzing the losses incurred by Romania through migration
there will be used the number of 769 608 for Spain and the whole people who migrated from
721
Romania in 2014 will be used the number of 3 million people using estimates that I mentioned
above. Also, regarding the investment in human capital of these people will be used official data
provided by authorities for pre-university and university studies of the Ministry of Education and
Research. For analysis, costs were converted into euro using the average annual exchange rate set
by the Romanian National Bank. Education costs funded by public sources for schools are
highlighted in the table below:
Table 1: The standard cost per student (pre-university, 2002 -2014)ii
*estimated data ** standard cost per student *** for Lei (Romanian currency) is expressed in thousands
Using the above expenses, the Romanian state invests in a student who started first grade in 2002
and completed high school in 2013, an average of 6816, 44 euro. If for some reason that student
completed only primary and secondary education investment costs are reduced to 4563,64 euros.
If the student that opts for continuation of studies, the investment in education will be higher, both
in terms of public funding and the family. In the tables below average expenditures of a student's
education.
Table 2: The average cost per student, public sources investmentiii
* For Lei (Romanian currency) is expressed in thousands
Financing from public sources of a student attending an undergraduate university program of

study lasting three years is 5347.91 euro and for a student attending an undergraduate degree
program lasting four years is 6493.91 euros. The investment was calculated for a student who
began their studies in 2008 and completed studies 2011 (for undergraduate studies lasting three
years) and in 2012 (for undergraduate studies lasting four years).
Summing the undergraduate and graduate education costs, results in an investment of Romanian
state in university education to a graduate of Bachelor, with three-year model of EUR 12 164.35.
For undergraduate studies the student who has followed a program of bachelor studies lasting four
years, public investment is EUR 13310.35. Average investment for a graduate-level education,
including undergraduate education cost is EUR 12 754.67.
If that graduate from high school or faculty after graduation is hired in Romania, he could earn an
average gross salary of 487.6 euros / month for which the Romanian state will collect from taxes
722
40%. The average salary and average net profit in Romania is presented in the table below. Net
average wage is 355.22 euros / month.
Table 3: The average gross and net salary in Romania (2002 – 2014)iv
* Earnings since 2005 are available in RON ** October 2014 ***For Lei (Romanian currency) is
expressed in thousands
If that university graduate would earn the average gross wage employment in a year, the
Romanian state would collect in taxes about 2 337,6 euros.
Using estimated figures on the total number of people who have left Romania through migration,
the Romanian state loses both investment which it did in its formation and the amounts that would
be derived annually from fees that would be charged from the salaries. Calculating these costs the
losses are significant. If we estimate that from the total three million people that left the country,
40% have secondary education (high school), results the loss of investment that the Romanian
state has made in education of 8.18 billion euros.
Meanwhile, the other 35% of people who have left Romania and have a level of education which
comprises only primary and secondary schools only results in a loss of investment that the
Romanian state has made in education of 7.157 billion euros. And for the remaining 25% of
people who have emigrated and have higher education, the Romanian state investment in
education made the lost is of 9,56 billion euro. If we include annual contributions from taxes for
three million people, they lead to widening the losses, representing approximately 7.0128 billion
euro / year. Apart from these figures the losses also come from potential fees that graduate that
would have paid through VAT, excise duties, local taxes etc.
In summary, the total loss of investment in education and the taxes they would have paid in salary,
are shown in Table 4. If these graduates would choose to work in Romania, investing in their
education could be recovered through taxes and duties in about three years’ salary for high school
graduates and in about six years for university graduates, taking in consideration that the average
contributions is 2337, 6 euro / employee / year.
Table 4: The financial losses registered by Romania due to migration
To underline the ratio of losses to the Romanian state, as provider of workforce and financial
benefits to the host country, it will be examined in particular the situation of investments and gains
723
that Spain recorded since the Romanians represent the largest share of all emigrants and is the
second country of destination chosen by the Romanian, by the number of registered immigrants
(769 608 people).
The year 2007 represented for Romania the moment it entered the European Union, a status
which led to a series of rights and freedoms, among them the free movement of persons, with
some restrictions, which were lifted on January 1, 2014.
The effect generated by migration, but also by other factors such as low birth rates and an aging
population, is the decrease of employment and number of employees. Although Romania's
economic situation in recent years has started to improve, with periods of sustained economic
growth, the evolution of the employed population is declining, a sign that some policies that
should stimulate increased number of jobs and increase the birth rate are not working suitable.
The table below presents the evolution of the employed population in Romania in the past 12
years, but also that of Spain, a country which has experienced high economic deficiencies, as well
as a high rate of foreigners who have chosen this country as a destination country for labour,
approximately 13.5% of the total population.
Table 5: The evolution of employed population in Romania and Spain (2004 – 2014)v
Looking at the figure on the evolution of the employed population, we note an increasing trend in
both countries in the period 2005 - 2008, years marked by growth followed by a period of steady
decline seen so far.
In Spain, the decline was significantly higher, being one of the countries with the highest level of
registered unemployment during the economic crisis, reaching a high of 25.77% in 2012,
according to the Institute of Statistics of Spain (INE). Therefore, comparing the employed
population in 2008 to that of 2014 results in a decrease of approximately 21% in the number of
people employed in Spain and in Romania by around 8.5%. The economic crisis - had financial
effects on the workforce, bringing employment while reducing an increase in the phenomenon of
unemployment. It should be noted that although the economic situation of Romania was severely
tested by imbalances caused by the crisis through measures to combat managed to keep a
relatively low level of unemployment, the highest rate was recorded in 2009, 7.8 %, according to
the National Agency for Employment (ANOFM).
724
The evolution of employed population in Romania and Spain

30000000
20000000
10000000
0
T1 2004 T1 2005 T1 2006 T1 2007 T1 2008 T1 2009 T1 2010 T1 2011 T1 2012 T1 2013 T1 2014
Employed population Employed population

Romania Spain
Figure 2: the Evolution of employed population in Romania and Spainvi
In these circumstances, in Romania there is a steady decline in employment at a lower level than
in Spain, but worrying when you consider the large volume of retirements in the last decade (in
2014 the ratio was at 1.17 retired employee) and the high share of the population that migrated.
These outputs of the total labour force in Romania are highlighted in the table below, in the data
on the number of employees in Romania.
Table 6: Evolution of the number of employees Romania and Spain (2004-2014)vii
Synthetic, the situation for number of employees in the two countries analyzed is shown in Figure
3. Romania remained in recent years, without nearly one million employees in the economy. So
far there are about 4.4 million employees, the largest decreases after the ’90 was recorded in 2010.
The causes of this reduction are multiple: the biggest influences were the departures by migration,
especially after 2007; the laying offs made during the crisis, mainly in the private sector; and fiscal
policy which makes it very hard balance of payments for the employer which sometimes leads to
circumvent laws and employment without an employment contract ( “black market”) or partial
payment of wages, often less than the economy ( “grey market”) or with an employment contract
for a determined period which could be renewed or not in economic sectors such as agriculture,
construction and services etc.
725
25000000
20000000
15000000
10000000
5000000
0
1 2 3 4 5 6 7 8 9 10 11 12
Year Total employees Romania Total employees Spain
Figure 3: Evolution of the number of employees in Romania and Spainviii
In Spain, the lower number of employees recorded around the same amount as for employment,
about 2.75 million employees in 2008 comparing to the situation in 2014. The precarious situation
of the Spanish economy in recent years had an impact on the migrant population in the sense that
the highest level of unemployment is recorded in areas that use labour force with low levels of
education, and most of them are immigrants.
In case of Romanian migrants, most of them agrees to work on a salary level lower than the
population of Spanish origin works or remain a certain time unemployed in Spain rather than to
return home and earn a salary level lower than the unemployment benefit or other social benefits
received in Spain in the period they are working.
Even with these social costs that Spain pays for the unemployed, the gain in terms of human
capital and its contribution to GDP is much higher than the losses migrant origin countries are
recording. If we consider the costs they would have paid with their education, plus other social
spending and health you would have had if the labour force that would be formed in Spain, then
the public expenditure would have been much bigger. But if we take the particular case of the
population of Romanian origin who chose to work in Spain and the average costs of their
education in Romania and Spain, which add to earnings taken in taxes paid for their salaries and
other contributions that they pay indirectly through their living there (excise, contribution to GDP
by increasing the demand for goods, etc.), resulting in a net win of the host country versus country
of origin. The table below highlights the costs of education in Spain.
Table 7: Average cost of education in Spainix
726
In terms of costs, the Spanish state spending for secondary education student approximately 13
926.33 euros/year, representing a total amount of EUR 167115.96 for the 12th graduating class.
Where that student chooses to complete his university education, the average cost per student,
average cost calculated for years 2009 - 2011, is 10143.66 euros/year, while total expenses for
four years of study is 40574.64 euros.
Therefore, Spain's public spending on average get a university graduate, cumulating with the
average cost of undergraduate studies, at a level of 207,690.60 euro / graduate. Alongside these
expenditures funded by the state, are present and additional family expenses which are on average
300 euro / year just for books and teaching material, except extracurricular activities. For a 12
classes graduate family has a minimum cost of 3600 euro, but in most cases, the costs are
significantly higher. In case of a student, family costs grow significantly, reaching to vary between
350-1 000 euro / month. In a four-year university cycle, a family invests on average 32 400 euro
for a graduate.
Through migration, Spain wins workforce whose education has been achieved at home, in case of
Romania 769 608 people officially registered in Spain from 1 January 2013. Where 30% of
Romanian immigrants would have primary education means Romanian state investment is
1,053,665 251.20 euros and 55% would have secondary education, state spent a total of 2,885,292
715.53 euros and the remaining 15% of Romanian immigrants would graduate higher education in
Romania, an investment made from public sources would be 1,470,414 391.61 euros. Given the
cost of education with people who left to work in Spain, it is estimated a total loss of their
investment in training by the Romanian state of about 5,409,372 358.34 euros. If these people had
followed education in Spain, public authorities would have had a much bigger investment given
the cost of higher education in Spain. Therefore, the host country made a saving of
2,736,570,587,18 euros if from all people in Romania officially registered in Spain, 30% had
completed primary education in the host country.
Also, if we estimate that 55% would be followed secondary education, it gives to host country a
significant financial advantage of 70,735,578,859,02 euros, while the remaining 15% would have
opted for the completion of pre-university education with higher education, which leads to savings
of 23,976,052 092.72 euros given that a university graduate and undergraduate studies in the
Spanish State costs 207,690.60 euros. Adding the costs of education they would have gained if
labour migration would followed education in Spain, it results in the advantage obtained of
97,448,201 538.92 euros. While for 769 608 people registered in Spain, the Romanian state loses
the investment made in education about 5,409,372 358.34 euros.
This imbalance generated by the migration is completed by the collection the Romanian state
could get from taxes paid by the employer and employee if these people would have been
employed in Romania and aggregating approximately 1,799,035,660, 80 euro/year. For Romania
the total losses, including investment in education and potential taxes that would be charged
annually, stands at 7,208,308,019, 14 euros. While Spain receives annual contributions paid from
salaries of Romanian migrants about 6,659,631 686.22 euros / year. The calculation includes a
monthly gross salary of 1926.14 euros / month and a 38% level of contributions. Spain has a
variable system of taxes on wages, depending on salary level and 38% is the average of the tax
system.
In summary, the losses estimated incurred by Romania through the departure of 769 608 people
and gain for Spain as host country is shown in the table below:
727
Table 8: Losses recorded by Romania by migration in Spain
Currently, the only gains that come to Romania are the remittances sent to the country by the
migrants. Money sent by Romanians living abroad each year are calculated by the National Bank
of Romania.
Finally, it should mention that data and analysis used in paper are estimated because the accurate
number of people who emigrated from Romania is not provided by the official institutions.
Meanwhile, in the scenario used for assessing the gains and losses of the two countries (Romania
and Spain) were not included costs covered by Spain in terms of social inclusion measures to
immigrants and other expenses of social workers.
Conclusion
Following very important economic and social consequences, it is needed to outline a series of
proposals for resolving the phenomenon, based on the proposal that states that are absorbing
human capital should financially support countries that are affected by the export of human
capital or impose new regulations on the right of the free movement of persons in EU, which is
considered illegal in terms of communitarian laws , if we consider that most of the Romanian
choose as a country of destination one of the EU Member States.
Another proposal underlines the creation of policies to stimulate the return of educated youth by
raising salary levels (reduction of taxes or subsidizing part of the state), offering facilities to create
their own businesses, modernizing infrastructure in education and research. However, none of
these proposals was not actually materialized since the expected results are not reported.
Also, another measure to minimize loss from continuing migration could include graduates who
have received funding for education from the state budget, especially for the university studies to
sign an agreement of working for a specified period in Romania, thus paying the taxes in the home
country, or refund the cost for the education if they choose to leave the home country. This
measure could help to streamline the labour market by increasing skilled human resources.
A solution agreed by the authorities to recoup losses from all the investments made in the human
capital of the persons who have emigrated has been imposed since 2016. Thus, starting with this
year the Romanian citizens with tax residence in another state, will have to pay a tax on income
abroad. This solution is quite controversial because it can interfere double taxation and legally
there are conventions for avoidance of double taxation concluded by Romania with other states.
Therefore, the decision takes into account all other taxing of foreign income earned abroad except
wages for work abroad. Unfortunately, it's hard to predict whether taxing income from abroad will
be done properly and if it is the best solution. An evaluation of this fiscal measure can be made
until next year.
728
From my point of view, a more appropriate measure would be to use active measures for inclusion
of immigrants in the Romanian labour market as it gains more from the use of their human capital
in the country than the collection of these taxes from abroad. In this way, Romania could benefit
from their know-how, could generate higher performance in areas which are suffering in present.
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i
Data collected from National Institute of Statistics
ii
Data collected from CNFIP (National Pre-University Education Funding Council)
iii
Data collected from CNFIS (National Higher Education Funding Council)
iv
Data collected from National Institute of Statistics (AMIGO)
v
Data collected from INS (for Romania) and INE (for Spain)
vi
Data collected from INS (for Romania) and INE (for Spain)
vii
Data collected from INS (for Romania), Ministerio de Empleo y Seguridad Social (for Spain)
viii
Data collected from INS (for Romania), Ministerio de Empleo y Seguridad Social (for Spain)
ix
Data collected from Ministerio de Educacion, Cultura y Deporte, Spain
730
Satisfaction Profiles of Students in a University

Corina Pelau, Bucharest University of Economic Studies, Romania, corina.pelau@fabiz.ase.ro
Dana Olar, Western University Vasile Goldis, Arad, Romania; danaolar56@yahoo.com
Abstract
One of the highly debated topics nowadays is the idea of defining the relationship between a
university and its students. A much debated topic is in this sense is the idea of seeing students as
customers. There are many authors who agree with this idea. But, there are also many authors who
disagree stating that seeing students as customers decreases the value of the degree offered. As long
as a big part of the incomes of a university depend on the students, they should be regarded as a
special type of customers or as partners according to some authors. In this article there are presented
the results of a research in which the satisfaction of the students is analyzed and used in order to
define better the relation between a university and its students. The research is designed in two
phases. In a first phase the correlations between the analyzed items are determined with the help of
the factorial analysis. Based on these results, there were defined 6 factors used afterwards for the
determination of clusters of students. These cluster were analyzed and recommendations are
developed.
Keywords: satisfaction, university, perception, factor analysis, cluster analysis
Introduction
Decreasing demographics and increased globalization and mobility lead to an intensification of

competition on the national and international education market. Under this circumstances in order to
have a sustainable development, universities see and treat students more and more like customers.
Similar to any other customers, students have a cross-selling potential by continuing their studies in
the same university and they do have a recommendation and information potential by the network of
alumni (Grönroos, 2004, pg. 99-113; Priluck, 2003, pg. 37-52; Cornelsen, 2000).
In the literature, there are different perspectives on the idea of seeing students as customers. Different
researchers have revealed both the advantages and disadvantages of students as customers, having
implications both on the way the knowledge is transmitted to students, the academic performance and
the way in which the strategy of the university is designed. One of the authors who doesn’t agree on
the idea of seeing students as customers is Randal (1998), who sustains that “treating students like
customers undermines the education” (Randal, 1998, pg. 63-69). Finney and Finney (2010) confirm
this idea by the results of a research which revealed the fact that students who see themselves as
customer are not necessarily oriented to academic performance (Finney & Finney, 2010, pg. 276-291)
as they see more their rights as customers and not the obligation towards the learning process. One
elements which favors the idea of seeing students as customers is the financing of university
depending on the number of students. Therefore in order to assure a financial security a university
tends to attract and treat students like companies do with customers. According to Boland (2015) the
model by which universities are financed by the number of students has a negative influence on the
value of the degree, decreasing its importance (Boland, 2015). Not only has this model influence on
the reduced implication of students in the learning process, but it also influences their expectations
towards the university and therefore increases the costs of the university (Boland, 2015). According
to Parson (2014) in the relationship between professors and students, a professor has to be able to tell
its students what they need to hear and not what they want to hear. Therefore he is against the idea of
seeing students as customers as you have to tell a customer what he wants to hear which is not valid
for students (Parson, 2014). He also favors the idea that a degree cannot be produced as any other
good (Parson, 2014).
731
There are also authors who try to find a middle way between seeing students as customers and the
particularities of the education services. Therefore Brown believes that seeing students as customer is
not an issue, while there is kept the academic integrity (Brown, 2015). Other authors such as Randal
(1998) or Cuthbert (2010) rather see the relationship between university and students as a partnership,
in which both parts are involved in shaping the education (Randal, 1998, pg. 63-69; Cuthbert, 2010;
Seymour, 1993). Professors and university have their role in providing the adequate environment and
knowledge for the education, while students agree to give their involvement and willingness in order
to “get” the education. Cuthbert also points out the importance of the good relation between students
and university for an efficient education process (Cuthbert, 2010). Seymour also sustains the idea of
students being a special kind of customers. On one hand they are an important revenue source for a
university, on the other hand by “consuming” education services they will be educated and they will
have a positive influence on the level of education in the whole society. Seymore also points out the
idea of education as an investment in the human capital and less as the consumption of education
services (Seymour, 1993).
Besides the general perception of the student’s status as customers and their satisfaction towards a
university, there are also other aspects important for the sustainability of a university. In order to be
able to shape its strategy, a university has to know its students. A research by Obermiller et. al.
(2005) pointed out the fact that there is a difference in the student’s perception towards the university,
depending on the studied disciplines. This research reveals the fact that business, arts and law
students need for their satisfaction a higher customer orientation, while engineering students are more
focused on the efficiency of processes at the university (Obermiller, Fleenor, Raven, 2005, pg. 27-
36). There are also studies which reveal the importance of several issues such as the overall
perception of courses or the knowledge transfer for the satisfaction and perception of students (Pelau,
et.al., 2011, pg. 322-327). Other issues are the relation to the administrative staff and the academic
performance. A research conducted by Finney and Finney reveals a higher involvement for students,
who are older, who have better degrees or who attend classes (Finney & Finney, 2010, pg. 276-291).
Different researches such as Pelau (2010) points out the fact that better academic performance does
not necessarily lead to a higher satisfaction. Students with high academic performance have also high
expectation and therefore their satisfaction level is not always fulfilled by the university (Appleton-
Knapp, Krentler, 2006, pg. 254-264; Pelau, 2010).
In this paper there are presented the results of a research about a satisfaction study of students
towards their university. The analysis is done in two phases. In a first phase there are determined the
items for which students have similar satisfactions. In the second phase there are determined
typologies of students based on their satisfaction and perception towards their university. Analyzing
these typologies can sustain the strategy of the university regarding the relation with its students.
Only by knowing the typologies of students and their interests, a university can develop an
appropriate learning system and an adequate administrative support in order to sustain the learning
efforts within the university.
Methods and Coordinates of Research
The main objective of the research presented in this paper was to determine the satisfaction of
students and the impact of the results on the strategy and success of the university. The research was
conducted at the Bucharest University of Economic Studies on a sample of 351 students. The sample
was homogeneously distributed among the faculties, containing only answers from students attending
the bachelor programs. In the questionnaire there were asked questions about different aspects of the
student’s satisfaction such as the academic and administrative aspects, the competences and
collaboration with the teaching staff as well as other aspects of the student’s life.
The research was carried out in the period April-May 2013 and there were questioned students from
all faculties within the Bucharest University of Economic Studies. The questionnaire contained
Likert-scale questions, scaled from 1 to 7, where 7 has represented a total satisfaction, while 1 has
732
represented a total dissatisfaction. The demographic elements such as age, faculty were also collected
in the questionnaire.
The results of the research were analyzed in two phases: a factorial analysis for the correlation
between the items and a cluster analysis for the determination of students with same satisfaction. The
application and analysis of the two methods took place with the help of the SPSS program. The
detailed methodology and interpretation of results is presented in the following.
In the first phase the factorial analysis was applied with the help of the SPSS program. The value of
the Kaiser-Meyer-Olkin criterion of 0.936 has indicated a marvelous adequation of the data for the
factorial analysis. The values of the main axes in the anti-image matrix also showed a high adequacy
of the variables for this multivariate analysis method (Backhaus, et. al. 2000). For the determination
of the ideal number of factors, there was applied the principal axis factoring with eigenvalues higher
than 1. This method indicated an ideal number of 16 factors, a value which is too a high for a proper
analysis. Therefore, we took the scree plot (see fig. 1) for the determination of the number of factors.
The elbow criterion in the scree plot indicated at the first sight a number of 2 factors, which was
considered to be restrictive for the analysis of the data. A closer look at the scree plot shows a small
elbow at number 6 and therefore 6 was considered the ideal number of factors. In order to determine
the loadings of the items on the six factors, the factor analysis was run for the second time for a fixed
number of 6 factors. The following interpretations were done based on these factors.
Scree Plot
30
25
20
Eigenvalue
15
10
1 2 3 4 5 6 7 8 9 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 3 3 3 3 3 3 3 3 3 3 4 4 4 4 4 4 4 4 4 4 5 5 5 5 5 5 5 5 5 5 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 8 8 8
0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2
Factor Number
Figure 1: The scree plot for the factor analysis
In order to be able to tell the impact of the satisfaction of the students on the sustainability on the
strategy of the university, it is important to categorize the students depending on their satisfaction.
Based on the obtained categories the university can develop strategies for each category. In order to
achieve categories of students, a cluster analysis was run based on the values from the factor analysis.
There was used the Ward Cluster Analysis Method, which categorizes the respondents based on the
Square Euclidian Distance between the items (Backhaus, et. al. 2000).
The number of clusters for this analysis was determined based on the elbow criterion in the scree plot.
The coefficients of the agglomeration schedule put together in an ordinal system with the number of
potential groups has indicated a number of 3 clusters. Based on this result the cluster analysis was run
again for a fixed number of three clusters determining the grouping automatically with the help of the
SPSS program.
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Discussion and Results of the Factor Analysis
Based on the results of the factor analysis, the items were divided into six groups based on the
correlations among them. With the help of the SPSS program, there were determined the loadings of
the items of the six factors. Based on the items included in each factor, they were named generically.
The six factors and their components are presented in the following.
Factor 1: General conditions
In the first factor there were included most of the items. Because of the diversity of items in this
factor, it was named generically “general conditions”. The factor contains items regarding different
aspects of the life at university such as the social life and logistic issues. A first category of items
included in this factor are related to the social life of the students such as the atmosphere at the
university and the relation and communication to the colleagues. Another two items related to the
social life, is the representation of the students in the management structures of the university such as
the student’s senate or the presence of different student’s organization in the university. Sports
activities have also similar satisfaction as the items presented above.
Another category of items included in this factor are different logistics issues. The length of the
examination period, the structure of the timetable and the distance between the buildings of the
university are logistical aspects, where the students have similar satisfactions. Not less important are
the medical services and the parking spaces offered by the university. Different aspects regarding the
communication between the university and the students have similar satisfactions and belong to this
factor. Items like the internet page of the university and the faculties, the personal page of students
where information about their grades are posted are items which belong to this factor.
Apparently all items, which didn’t fit to the other items are included in this factor. Besides the items
presented above, this factor also includes the study fees, the loan service and the behavior of the
personnel at the library, waiting times at the canteen, safety in the dorms or the activity of the cahier.
There are also included some academic items such as visual support, applications and examples at the
seminar, utility of projects during the seminar and the relevance of the bibliography.
Factor 2: Teaching quality
In the second factor there are included all the items related to the quality of the teaching and the
relation between the professors/ teaching staff and the students. There is evaluated the satisfaction for
the general impression on the courses and seminars as well as aspects regarding the content of the
course, the achieved knowledge during the teaching activities, the relevance and recency of the
information presented. The interactivity during classes and the utility of the proposed topics for the
semester projects are also items with similar satisfactions.
The communication between the professors and the students is also an important element for the
efficiency of the learning process. The better the communication between them, the easier is the
learning process. Items like the perceived competences, the teaching and pedagogical style of the
professors are included in this factor. Not less important is the attitude of the professor towards its
students and his/ her implication in the student’s activity. The evaluation system is correlated with the
satisfaction regarding the teaching style. The inclusion of the selection of dorm places for students in
this factor can be explained by the fact that it is based on the grades. Therefore the two items have
similar satisfactions. The structure of this factor shows a correlation between the content of certain
disciplines and the communication and competences of a professor.
734
Factor 3: Research and information possibilities
The items related to the research and information possibilities are included in factor 3. This factor
contains two categories of items. One of them refers to the possibilities offered by the university to do
research and it focuses mainly on the activities of the library. They refer to the number and relevance
of books in the library, the access of the students to the books and electronic resources and the
opening hours of the library.
The information component refers to the ability of the university to transmit important news to its
students. It includes items like the information sent and received by the secretary’s office, the updates
on the internet site of the university and of the faculties, the availability of the professors to have
discussions with students.
Factor 4: Equipment and conditions at the university
The factor equipment and conditions contain all items related to the facilities offered by the
university, the conditions and the equipment used in the classrooms and laboratories. The wireless
network and the spaces for team-work or break-time are also important issues in this factor.
Besides the elements related to the learning process, this factor contains elements regarding other
conditions such as the canteen or restrooms. For the canteen, there are analyzed the satisfaction with
the quality and diversity of food, the prices, the hygiene and the behavior and attitude of the
personnel.
Factor 5: Administrative organization
The fifth factor includes mainly the activity and the relation of the students to the secretary’s office
and was generically named administrative organization. This factor contains items like the opening
hours of the secretary’s office, the activity and the behavior of the personnel. This is the factor with
the lowest satisfaction value showing that several measures should be taken. This factor also includes
items related to the living possibilities of the students within the university. Regarding this topic, it
includes the number of places and the cost of living in a dorm, the comfort offered and the behavior
of the personnel responsible with the dorms.
Analyzing the items included in the fourth and fifth factor, it can be observed that they are similar.
Both of them contain items about the social life or administrative issues. Analyzing the satisfaction
with the two factors, it can be stated that the difference between them can be explained with
Herzberg’s motivation theory (French et.al. 2008). The fourth factor is rather a motivator contributing
in a direct way to the satisfaction of the student’s, while factor 5 is rather a hygiene factor. If the
items of factor 5 are not fulfilled a student might be determined to change his study place.
Factor 6: Personal development and international relations
The last factor refers to the personal development and the possibility of an international experience
during the study period. This factor contains mainly items related to the Erasmus exchange program
and the involvement and management of the university regarding the possibility to do an internship.
For the international experiences, there is measured the satisfaction of the students regarding the
possibility to obtain an Erasmus scholarship, the number of scholarships as well as the value of the
scholarship. Another important issue is the coordination of this process regarding the preparation of
the documents and the equivalation of the grades after returning back from the program. Also
included in this factor, are the items related to the opportunities of finding an internship or a future
job. Both the international experience and the insertion on the job market are related to the personal
development of students and therefore they are included in the same factor.
735
Discussions and Results of the Cluster Analysis
Analyzing the values of the six factors for the three determined clusters, there can be determined a
category average satisfied students (cluster 1), the satisfied students (cluster 2) and the dissatisfied
students (cluster 3). In the following there are determined the characteristics of these three groups,
besides the general satisfaction.
Cluster 1: The average satisficed students
For cluster 1 the values of the satisfaction for the six factors range between 4.0 and 4.83. As it can be
observed the most satisfying element is the teaching quality (4.83), followed by the research and
information potential (4.69) and the general conditions offered by the university (4.68). As for all
clusters the most dissatisfying element is the administrative organization of the university (4.0). The
personal development and the international relations factor (4.42) and the equipment and the
conditions (4.37) cause a lower satisfaction among the students.
Cluster 2: The satisfied students
The values of the satisfaction for this cluster are the highest ranging from 4.95 to 5.68. It can be
observed that with one exception all satisfaction values are higher than 5. For this cluster the highest
satisfaction value has the factor research and information possibility (5.68). This factor is followed by
the general conditions offered by the university (5.62) and the teaching quality (5.60). Although the
teaching quality has the highest value among the three clusters, it is the only cluster where it is ranked
on the third position compared to the other factors. Therefore, it is not the teaching quality the
determinant factor for the high satisfaction. It is followed by the equipment and the conditions at the
university (5.53) and the development possibilities and international relations (5.53). The least
satisfying element is the administrative organization at the university (4.95).
Cluster 3: The dissatisfied
This is the cluster with the lowest satisfactions for all factors and therefore it was named the
dissatisfied students. The values of the satisfactions for this factor range between 3.24 and 4.03. It can
be observed that with exception of the satisfaction with the teaching quality (4.03), all other
satisfactions are lower than 4. For this cluster the next most satisfying elements are the general
conditions offered by the university (3.90) and the personal development and international relations
factor (3.89). There is a similar satisfaction for the research and information possibility (3.58) and
equipment and conditions offered by the university (3.58), while the satisfaction with the
administrative organization (3.24) is the lowest.
There can be observed that cluster 1 – the average satisfied students and cluster 3 – the dissatisfied
students have the same hierarchy of satisfaction among the factors in opposition to cluster 2. For
cluster 1 and cluster 3 the most satisfying element is factor 2 – the teaching quality, while for cluster
2 research and information possibilities is the most satisfying element. For all three clusters the
administrative organization including the relation to the secretary’s office is the most dissatisfying
element.
In table 1 there are presented the characteristics of the three clusters. The representation of the three
cluster among the whole sample is almost equally represented (cluster 1 – 35%, cluster 2 – 32.4% and
cluster 3 – 31.9%), fact that might be influenced by the chosen clustering method. It is known that the
Ward cluster analysis method divides the respondents in groups with a similar number of elements
(Backhaus, et. al. 2000). Regarding the distribution on years of study, it can be observed that in
cluster 2 (the satisfied students) most of the respondents are in their first year of study. This can be
explained by the fact that the freshman are enthusiastic about their new status as students and also
have high expectations towards the university. In cluster 1 (the average satisfied students) and cluster
736
3 (the dissatisfied students) most of the respondents are in their second year of study. From the last
year of study in the Bachelor program most of the students are in cluster 1 (the average satisfied
students). The students in the second and third year of study are not necessarily unsatisfied, but they
start to be more realistic and don’t have any more the enthusiasm of the first year students.
6 5.62 5.6 5.68 5.53

5.35
4.95
5 4.68 4.83 4.69
4.37 4.42
4 3.9 4.03 3.89
4 3.58 3.58
3.24
3
0
Cluster 1 Cluster 2 Cluster 3
Factor 1 Factor 2 Factor 3 Factor 4 Factor 5 Factor 6
Figure 2: Satisfaction of the three cluster of students for the mentioned factors
Another interesting aspect in the analysis of the perception and satisfaction of students is its relation
to the academic performance of students. Therefore the students with the best academic performance
are best represented in the cluster of the dissatisfied (38.6%) and average satisfied (35.7%) students.
Only 25.7% of the satisfied students have grades higher than 9. One explanation for this is the fact
that students with high performances have higher standards and therefore higher expectations from
others. Consequently they are not that satisfied. Students with average academic performance are best
represented in cluster 2 (the satisfied students) and cluster 1 (the average satisfied students). Students
with weaker academic performance are best represented in cluster 3 (the dissatisfied students). This
can be explained by the fact that probably they don’t show much interest for the university and
therefore have also a lower satisfaction towards the university.
Another characterization of the students is their interest for an international exchange program like
Erasmus or the involvement in extracurricular activities like students organizations. As it can be
observed in table 1, the cluster of students which have the highest unsatisfaction is the group which
applied most for an Erasmus exchange program. Only 82.1% of these students did not apply for a
scholarship in opposition to the other cluster where over 91.9% of the students didn’t show interest
for these programs. From the students who have applied more than half of them were awarded an
Erasmus scholarship (10.7%). In the cluster 2, with the average satisfied students there were more
students who were not awarded a scholarship (4.9% in opposition to 3.3% who were awarded a
scholarship). Cluster 2 with the most satisfied students is the cluster with the fewest applications for
an Exchange program (only 4.7% have applied). Despite of these most of them were awarded a
scholarship. One possible explanation is that the unsatisfied students are the ones who are seeking for
something else and therefore the percentage of the ones applying for an Erasmus scholarship is
higher.
Regarding the involvement in extracurricular activities, it can be observed that the behavior differs
from one cluster to another. As a general observation a bit more than half of the students have
extracurricular activities. The unsatisfied students (cluster 3) have preponderantly weekly
extracurricular activities, while the satisfied ones have preponderantly monthly activities. The group
with the average satisfied students has the least extracurricular activities, but from the one who do
these activities in the cluster, they do them daily (11.4%).
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Table 1: Profiles of the three clusters of students
Cluster 1 Cluster 2 Cluster 3

Percentage 35.0% 32.4% 31.9%
1st year of study 30.0% 41.2% 32.1%
2nd year of study 39.0% 35.9% 44.6%
3rd year of study 30.8% 22.8% 23.2%
Grade*
9.0 – 10 (high academic performance) 35.7% 25.7% 38.6%
7.0 – 8.99 (average academic performance) 35.5% 36.3% 27.8%
5.0 – 6.99 (weaker academic performance) 32.6% 21.7% 43.5%
Erasmus
Yes I received a scholarship 3.3% 3.2% 10.7%
Yes, but I didn’t receive a scholarship 4.9% 1.5% 7.1%
No I did not apply 91.9% 94.7% 82.1%
Extra curricular activities
Daily 11.4% 2.6% 8.0%
Weekly 19.5% 27.2% 24.1%
Monthly 16.3% 30.7% 20.5%
Rarely 52.8% 39.5% 47.3%
* In Romania the grades are between 1 and 10, while 10 is the maximum grade and 5 is the minimum grade of
passing the exam.
Conclusions
It was expected that there will be a mix of satisfactions among the students, but apparently there are
similarities only in the satisfaction of the students. The satisfied ones are satisfied with all elements,
while the dissatisfied ones are dissatisfied with everything. For the obtained clusters, in this article
there was presented a characterization of the students based on the academic performance, interest for
practical, extracurricular or international experiences as well as the year of study. It is interesting to
observe if this clustering of students depends on demographic or psychological or personality factors
of the students.
For a university it is important to understand its students and their aspirations, preoccupations and
interests. Based on these information a university can adjust its strategy. Knowing for instance that
the clustering of students was based mainly on the satisfaction and that the satisfaction was similar
for all analyzed factors, a university can focus more on attracting students from the satisfied and
average satisfied students. Knowing also that the students with high academic performance are not
necessarily the most satisfied one, a university should focus on creating programs and activities of
excellence in order to satisfy the high standards of these students.
Another interesting issue resulted from the factorial analysis, is the existence of a Herzberg
motivation model in the university among students. Apparently there are factors which motivate
students to be satisfied with the university and there are factors which are eliminatory. Not fulfilling
these factors might determine the students to leave the university. Therefore it is interesting in a
future research to determine the hygiene factors and motivators for students in the learning process
and in measuring the satisfaction towards their university.
738
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740
Perception of the Service Quality in the Senior Tourism Market
Roman Švec and Petra Solarová
Institute of Technology and Business in České Budějovice,

Department of Tourism and Marketing, Okružní 10, 370 01 České Budějovice, Czech Republic
svec.roman78@gmail.com
petrasolarova@gmail.com
Abstract
The paper deals with the preferences of seniors in tourism. The conducted research is divided into two
parts. The first part seeks for an answer to the question what elements of tourist infrastructure stimulate
seniors to travel, whereas the second part examines the preferences of seniors when choosing a spot for
their stay. Preferences stated in the literature were the base for questions in the both parts of the
questionnaire. The aim of this paper is to verify allegations formulated in the introduction and to find out
preferences of seniors when travelling. Conclusions can be used as inspiration for entrepreneurs in
tourism who target at the segment of the elderly people and also for destination management as one of the
guideline how to prepare an attractive destination offer.
Keywords: senior tourism market; seniors’ preferences; seniors’ travelling
Introduction
Tourism is defined by many authors, e.g. Gúčik (2010), Batta (2000), Buhalis and Darcy (2011). The
majority of authors divide tourism through various viewpoints; their definitions differ very often – we can
compare e.g. Hesková et al. (2011), Ryglová, Burian and Vajčnerová (2011) in the Czech literature, or
Lickorish and Jenkins (1997) and Goeldner and Ritchie (2012) in the foreign literature. The issue of
tourism and its market has been the subject of research since the beginning of the 20th century (Jindra,
2011), when “modern” tourism appeared in Czech country around 1918 and its effects have been
examined for the first time (Kašpar, 2011). The definition by Swiss professors Hunziker and Krapf was
an important milestone which has been considered as a basic and classic work in tourism theory (Franke
and Studnička, 2011). The current definitions, in comparison with older definitions, include also business
trips in the area of tourism. Palatková and Zichová (2011) or Kotíková (2010) state similar definitions.
Mainly foreign authors characterize tourism as a part (subsector) of hispitality industry and the hospitality
industry is characterized as a set of accommodation and catering services and tourism (Scollo, Lal,
Hyland and Glantz, 2003, respectively Olsen, Ching-Yick and West, 1998). Definitions given by various
authors differ considerably in many cases – Morley (2009) confirms there is no general consensus in
definitions.
Tourism is often described as a cross-industry, spanning a wide range of provided products, often linked
to many other industries (Vystoupil et al., 2006) which include a complex of partial services (information,
transport, accommodation) that are provided to visitors during their stay at the destination (Gunn, 1997).
Tourism as one of the more and more important field of economy is affected by natural and historical
determinants which emphasize its regional dimension (Leitmanová, 2000). Tourism creates a range of
products through enterprises (Horner and Swarbrooke, 2003) or through destination organisations
(Middleton, 2009) and participants of the tourism consume these products; it means we can speak about
tourism market where supply and demand meet and which are made up of objects and subjects of tourism
(Kaspar, 1975). Enterprises in tourism offer their products in the market – products are generally defined
741
e.g. by Šmída (2007) or Marinič (2008). For purposes of successful introduction of products to the
market, it is essential to know your customers and their needs (Hitl, 2009). The needs are generally
mentioned e.g. by Lester (1995), Brooks (2003) or Kerzner (2009). Kučerová (1997), Plamínek (2008) or
Gillernová (2006) deal closer with the needs. Human needs can be met among other through services
which are mentioned e.g. by Inman (1985) or Lipsey and Nakamura (2006). Customers represent the
second side of the market. The current participants in tourism are demanding in their requirements, they
look for new experiences, adventure and are interesting in leading a healthy lifestyle and want to discover
the local culture (Yeoman, 2008). In the Czech Republic, the kinds and forms of tourism are often
distinguished in the terminology of tourism; however, there is little clear consensus of what can be
considered as a kind and what as a form of tourism. In this matter, it is possible to compare Kaspar
(1995), Hesková et al. (2011), Čertík et al. (2001) or Pásková and Zelenka (2012). Sometimes the
uncertainty occurs when using notions of “forms” and “types” all at once (e.g. Foret, Konečný, and
Klusáček, 2014). Goeldner and Ritchie (2012) do not distinguish kinds and forms at all; instead of it they
use a term “types of tourism”. One important type of tourism is senior tourism what has a considerable
dynamics worldwide and seniors are popular clientele.
In many approaches, the term “segment” means a part of the market (Kotler and Keller, 2012). For
purposes of tourism, segment means a relatively homogenous group of tourism participants who are
sufficiently different from the other participants from a certain viewpoint (Orieška, 2010). Čertík et al.
(2001) describes the market segmentation as dividing the market into various groups of customers who
have common characteristics. According to him, the individual segments create target markets on which
enterprises are then focused. According to Novacká et al. (2010), segment means a certain group (or
subset of persons who have specific interests and personality traits from the all universally given group of
people. She also states the segments can be determined through demographic characteristics (e.g. age,
marital status, gender etc.), also through geographic characteristics or through the length of stay and their
interests. Indrová et al. (2004) explains the importance of segmentation in tourism: it is because of better
understanding customer needs and creating the right marketing strategy.
After the World War II, so-called baby boom occurred in a number of countries, i.e. many children were
born and now this generation is getting to the senior age category. The fact that the average age of
population increases is a prerequisite for the growth of the importance of this segment (Canevale et al.,
2007); this is illustrated in Fig. 1.
Figure 1: The average life expectancy - a comparison between 1950 and 2007 by regions.
Source: Own processing according to Haub (2007).
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The situation is similar also in the Czech Republic where a gradual increase of life expectancy is obvious
(CZSO, 2014). It suggests the importance of this group of people in the future. For instance, Daňhelová
(2004) deals with this matter.
According to the Czech Statistical Office, the rapid increase in population in the age 65+ occurred in the
Czech Republic after 2005. The increase has currently slowed down; however, a significant increase is
expected after 2025. Also another calculation made by the Czech Statistical Office shows a gradual
increase in the age of the population in the Czech Republic – the median age of the population is
gradually increasing – see Tab. 1.
Table 1: Median age of the population in the Czech Republic
Year 1995 2000 2005 2010 2011 2012 2013 2014
Median age 36,2 37,3 38,8 39,6 39,8 40,1 40,4 40,8
Source: Own processing according to CZSO (2015).
According to Orieška (2010), it is a problem to determine who can be considered as a senior because
seniors do not often consider themselves to be old people (Dann, 2001). Senior tourism is tourism of the
elderly generation which will continue to strengthen (see the above mentioned assumptions) and will
belong to the remarkable areas of tourism in the future because it is a very interesting and growing
segment of tourism participants (Drobná and Morávková, 2004). Pavlovič (2015) agrees also with this
statement. This type of tourism is important mainly in terms of eliminating seasonality – it is interesting
for all investors and may also bring a reduction of regional disparities (Vavrečka, 2008). For providers of
services, the perception of seniors of their age is an important factor – there are different perceptions of
older age (Coni, Davidson a Webster, 1992) and they should be approached individually. The evaluation
of the own old age is often influences with a fear of losing a partner, a fear of illness and a fear of
loneliness or a fear of dependence on another person (Šipr, 1997).
As the population grows older, the characteristic traits of elderly generation are becoming more dominant
in the society than those of younger (Glover and Prideaux, 2009); this must influence the behaviour of
subjects offering services in tourism. According to Dann (2001), it is important there is a shift from
traditional values (family, work) to the self- realization and to the desire for entertainment. And just
because of it, the basic motives of senior tourism are sightseeing, cultural and educational reasons, health
reasons and also social motives which are consequences of feelings of loneliness (Čertík, 2001). Orieška
(2010) suggests the segment of seniors is characterized by plenty of free time and by the buying power,
so seniors can travel more frequently and for any length of time. In the case of seniors’ unfavourable
income situation, regional pension schemes seem to be an interesting topic for strengthening of seniors’
well-off (Bednář and Faltová Leitmanová, 2016). Citizens in the European Union from the age category
65+ spent a third more on travelling in 2011 than in 2006 (Demunter, 2012) and thus became an
important segment of tourism participants at the time of financial crisis.
Seniors prefer certain types of tourism, such as sightseeing trips, spa and wellness stays and visits of
relatives and friends (Orieška, 2010). The Association of Tour Operators and Travel Agents of the Czech
Republic agrees with this idea. It states seniors do not like organizing at the last moment, therefore
seniors are ideal customers for first-minute-offerings. Further it highlights the need to ensure adequate
accommodation services and characterizes the seniors as less open and more cautious. It means the
necessity to organize a tour in a sensitive manner. (www.ackcr.cz, 2011). The main types of tourism
realised for seniors are recreational tourism in seaside resorts, health and spa tourism, sports tourism
(especially hiking), cultural tourism directed mainly to the cities of the European Union, and religious
tourism (Indrová et al., 2008). The demand and requirements of seniors as for the tourism is given, of
course, also by a general life quality (Szendi, 2016). According to the representatives of travel agencies,
743
stays in domestic spas and stays in the mountains are still demanded in the Czech Republic (Štěrbová,
2010); however, some approaches refuse this idea and point to the fact travelling of seniors is not just spa
stays and watching TV in quiet hotel resorts (padesatpetplus.cz, 2014). The health and functional
condition of the organism of seniors is a limited factor for participation in travelling (Kalvach, 1997). The
most common health problems of elderly people are atherosclerosis, Alzheimer’s disease, disorders of
eyesight and hearing, disorders of fat metabolism (especially high blood cholesterol), disorders of
carbohydrate metabolism (diabetes mellitus), high blood pressure, smoking, obesity and lack of physical
activity (Kalvach, 2004).
Seniors prefer to be accommodated in a quieter part of the hotel, with a lift and barrier-free access
(Orieška, 2010) and they often book accommodation in single rooms (Indrová et al., 2008). The basic
requirement for room equipment is a comfortable bed (about 10-15 centimetres higher than the standard),
stable chairs, fixed handrails in bathrooms, bath with shower and nonslip pads (Čertík, 2001). If an
accommodation facility is designed for elderly people, barrier free access should be taken for granted
(Aliagaoglu, 2008). Besides this, seniors like the individual approach by the hotel staff and efforts to
comply also with special wishes (Baum, 2002). Another important service for tourists is catering. The
offer in catering should be adapted to habits and especially to certain health limitations, even if the
consumers’ health-consciousness is various (Peter, Kaszás and Németh, 2014). It is advisable to serve
nutritious valuable meals containing sufficient amount of minerals and vitamins (Burianová, 2008) and
also a sufficient amount of proteins (Gregor, 1990). Due to frequent food restrictions, meals should not be
served as unified menu – the possibility to choose is more appropriate (Čertík, 2001). Seniors prefer
dishes made from regional ingredients which are mentioned e.g. by Pícha, Skořepa and Navrátil (2013).
Regional products could be available also in form of organic food (Doležalová, Pícha and Navrátil, 2009;
Doležalová, Pícha and Hanzalová, 2016) which could contribute to the healthy and nutritional value of
the meals. Attention should be paid even to various food intolerances (e.g. Šálková and Hes, 2015,
Nagyová et al., 2016).
Sports activities are beneficial for seniors although not all of them have a liking for sport. However, there
is evidence of the beneficial effects of sports activities on the senior’s organism (Gregor, 1990). The
comfort during transport and accommodation must be respected when offering services to seniors
(Magazinpadesatpetplus, 2014). Kotíková (2013) defines characteristic traits of senior behaviour; for
instance: seniors do not greatly change their consumer behaviour, they prefer already tried products,
travel often in the low season, emphasize the price-quality ratio and prefer organized tours. Their
reluctance to order and pay via internet, experience in travelling and making purchase a relatively long
time before travel belong to other characteristic traits (Magazin 50 plus, 2014).
Cultural tourism is typical of the segment of seniors. Cultural tourism is one of the very often defined
types that is described as a movement of individuals because of culture reasons: e.g. study tour, art
performance, culture excursion tour, travel to festivals and other events, visit of historic buildings,
journeys in order to see nature, folklore, art or carnivals (Kesner et al., 2008). Cultural tourism covers all
aspects of travelling and people can learn about various ways of life and thinking (Goeldner and Ritchie,
2012). In many cases, it is perceived as a tool for understanding amongst nations, it helps to remove
xenophobia, racism and other preconceptions (Vitáková, 2007; Inkson and Minnaert, 2012). According to
many opinions, cultural tourism shows an increasing trend for the future (Gelder, Robinson, 2009). The
single term culture is defined as a collection of patterns that relating behaviour, art, belief and other
products of human activities and thoughts that are characteristic for the given society and are transferred
in the society (Ritchie and Crouch, 2003). In the broadest sense of word, culture provides a complex of
materials and symbolic sources that are probably infinite (Robinson and Picard, 2006).
Study area
The study area České Budějovice is the capital of the region, as well as the centre of the South Bohemia
tourist region (Cetkovský et al., 2007, Navrátil, Pícha and Martinát, 2012, Klufová, 2016) and with
approx. 94,000 inhabitants, it is ranked at the ninth place in the Czech Republic. The dimension of its
cadastral area is approx. 5,560 ha, where the built-up area represents 601 ha. The lowest altitude is
744
379 m.a.s.l. and the highest altitude is 528 m.a.s.l. (ČSÚ, 2013). České Budějovice was founded in 1265
and became a commercial and handcraft centre of the entire region (c-budejovice.cz, 2014). The historical
centre of the town was declared a monument reservation in 1980 and includes nowadays approx. 250
cultural monuments. The contiguous zone of protection comprises more recent suburbs with an additional
more 50 monuments. The existing building monuments cover all style periods (i-cestování.cz, 2012). The
current offer of tourism in town could be based on five main pillars: historical monuments, culture,
gastronomic tourism, exhibitions and interesting sites in the surrounding area (In Puncto, 2008).
As for the tourism supply, the studied area disposed with the important historical objects, but in
comparison with the monuments in proximity of the town, those in the town are not as well known.
According to the statements of experts, the town has a lack of significant attractions that are important for
tourism. On the contrary, there is a good structure of accommodation capacities. Thanks to the rich offer
of cultural programs, the studied area has become a base for visitors’ travel destinations not only in the
area of České Budějovice, but also within the entire South Bohemian Region. Another important role is
also played in České Budějovice in gastrotourism, particularly related to the Budvar Brewery, as well as
the tradition of exhibitions (shortened according to In Puncto, 2008). The accommodation sector and the
catering industry employs 2,424 people in the area (ČSÚ, 2013), which is cca 5.1 % of the total
economically active population (47,185) in this area (ČSÚ, 2014b).
Aim and Methods
The conducted research deals with perception of the service quality in the senior tourism market. In order
to obtain primary data, a questionnaire was distributed among seniors in the town České Budějovice in
the first half of 2016. The fact the respondent was tourism participant was a condition for involving in the
survey: the respondents were asked about it. When they were not tourism participants, the questionnaires
were excluded from the further data processing.
The aim of the research was to determine the preferences of seniors, relating to the demand for tourism
products in the study area. The questionnaire contained three parts – two of them were prepared for
determining respondents’ preferences and the third part served for collecting information about
respondents in this survey.
First part of the questionnaire

The first part of the questionnaire examined the importance of chosen tourist attractions during the visit of
the study area. This part helped to determine which attractions seniors prefer. In order to find it out,
twenty factors able to stimulate travelling were stated and respondents rated on a five-point scale their
agreement with the statement “[this specific attraction] is stimulating me to travel”.
The five-point scale was graded: 1 = “I strongly agree”, 2 = “I rather agree”, 3 = “I cannot decide”, 4 =
“I rather disagree” and 5 = “I strongly disagree”. For better clarity in the subsequent data processing,
values 1 and 2 were merged and they were considered as positive answers, values 4 and 5 were also
merged and they were considered as negative answers. This part of the questionnaire was processed with
the use of absolute frequencies. The list of the chosen attractions is in Tab. 2. Attractions, which are able
to stimulate elderly people to travel, were determined on the basis of the obtained answers.
745
Table 2: Chosen tourist attractions
Castles and palaces Body of water with the opportunity for bathing
Fortresses and military buildings Body of water with the opportunity for sports
Religious buildings Visiting friends and relatives
Technical monuments Relaxation in nature
Nature trails Cultural events (festivals, funfairs)
Hiking trails Zoological garden = zoo
Bridleways (horse riding) Botanical garden, eventually well-kept park
Bicycle paths Spa
Lookout towers Wellness facilities
Nature only little negatively affected by human Possibility of travelling in the border area of
activities another state
Second part of the questionnaire
The second part of the questionnaire contained mutually opposite statements and the respondents were
asked to express the degree of their preferences to each statement, using five-point scale: 1 = strongly
agreement with the statement on the left, 2 = agreement with the statement on the left, 3 = neutral, 4 =
agreement with the statement on the right, 5 = strong agreement with the statement on the right. Tab. 3
shows the mutually opposite statements. The statements were divided into several logical units:
requirements for destinations, accommodation requirements, catering requirements and requirements for
other services. In the questionnaire, the individual statements were not visibly grouped into units – the
reason for it was the effort not to affect the respondents by the answer to the previous question.
Consistency of answers was one of the important indicators whether the questionnaire was completed
conscientiously and so whether it can be included in the data processing.
Table 3: Statements in the second part of the questionnaire
1. I travel in the low season. vs. I travel at the height of the tourist season.
2. I take a train for travelling in the I take a bus for travelling in the surroundings of
vs.
surroundings of holiday destination. holiday destination.
3. I choose a destination where are many I choose a quiet destination without the high
vs.
visitors. concentration of visitors.
4. I prefer technical monuments. vs. I prefer nature attractions (forests, rocks, ponds).
5. I prefer rural architecture. vs. I prefer urban architecture.

6. I prefer large hotel complexes. vs. I prefer small accommodation facilities.
7. I prefer accommodation facilities with higher
I prefer accommodation facilities with lower
standard of provided services for higher vs.
standard of provided services for lower price.
price.
8. I prefer such accommodation facilities where I do not care who is staying in the same
vs.
are mostly seniors. accommodation facility as me.
Note: The table continues on the next page.
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Table 3: Statements in the second part of the questionnaire – cont.
9. In the accommodation facility, I prefer In the accommodation facility, I prefer a bed of

vs.
a higher bed. standard height.
I prefer rooms situated in the part of
10. I prefer rooms situated in a quiet part of the
vs. accommodation facility where a higher
accommodation facility.
concentration of guests is.
11. In the accommodation facility, I prefer
vs. In the accommodation facility, I prefer bathtub.
shower enclosure.
12. In the accommodation facility, I prefer stable In the accommodation facility, I do not prefer
vs.
chairs and handrails in the bathrooms. stable chairs and handrails in the bathrooms.
13. During my stay, I seek for sports activities. vs. During my stay, I do not seek for sports activities.
14. I prefer to stay without ordered food. vs. I prefer all inclusive stay.
15. I prefer home-made dishes prepared from I prefer meals of international cuisine made from
vs.
local food. quality foreign ingredients.
16. I prefer free choice of meals. vs. Free choice of meals is not important for me.
17. I am willing to order and pay via the Internet. vs. I am not willing to order and pay via the Internet
A total number of 324 questionnaires were obtained, however, only 263 of them could be used for further
data processing (for purposes of the second part, only 261 questionnaires were used). The ratio of
respondents, depending on the gender, was following: 68 % of respondent were women and 32 % of
respondents were men. The majority of completed questionnaires was obtained from younger seniors
under 70 (55 %). 29 % of questionnaires was completed by seniors under 75 and 16 % of questionnaires
was from seniors at the age of 76 and more. The answers were processed and expressed in absolute and
relative frequencies and supplemented by visual presentations.

First part of the questionnaire
The results from the first part of the completed questionnaires are illustrated in Fig. 2
747
Figure 2: The importance of tourist attractions according to the seniors’ perception.

perception
The obtained results (see Fig. 3) show a very high number of positive answers in the category of castles
and palaces (75.6 %). In this category, the lowest number of negative answers was found out (only
8.3 %). Similar results were obtained in a previous rresearch
esearch focused on all age categories (Váchal et al.,
2016). The importance of castles and palaces as historical monuments is also supported by Navrátil, Pícha
and Hřebcová
ebcová (2010). It is possible to claim castles and palaces belong to important factors for
stimulation to travel in the study area.
Technical monuments are also considered as an important tourist attraction in the South Bohemian
Region (63.8 % of positive answers). However, there are some discrepancies with the previous research:
it was statedd elderly people seek for technical monuments not very often because of access difficulties;
according to the results presented in this paper, there was a significant share of negative answers by
seniors at the age of 76 and more (72 %).
Hiking and naturee trails can be evaluated as an important motivational fa factor

ctor (58.1 %, respectively
57.4 % of positive answers; 13.3 %, respectively 10.6 % of neutral answers and 28.5 %, respectively 31.9
% of negative answers). The state of health was mentioned as the ma main
in reason of negative answers. For
instance, Navrátil, Knotek and Pícha (2016) consider nature trails as one of the important tourist
attractions. These results sharply contrast with the research conducted by Váchal et al. (2016) where
nature trails have 89%
9% share of negative answers. Results presented in this paper confirm the fact hiking
and nature trails encourage especially elderly tourists, regardless of their gender.
748
Relaxation in nature and also nature only little (negatively) affected by human activities were identified
as important factors stimulating to travel (76.8 %, respectively 74.5 % of positive answers). These results
can be interpreted in connection with the popularity of staying in weekend cottages and country cottages
that is popular mainly with older generation of people in the Czech Republic (Kubeš, 2004) – this is
significantly connected with relaxation in nature. The other researched factors – botanical gardens,
eventually well-kept parks – are also related to nature: they were positively evaluated by respondents and
they create an important part of tourism in the study area (Navrátil et al., 2015).
Spa has the highest number of positive answers – nearly 90 % of answers (while 9.1 % of respondents do
not consider it as stimulating factor for visit). Consensus in the answers is in all age categories; the share
of negative answers was evident across the whole spectrum of respondents, i.e. negative answers are not
typical of particular gender, age of financial situation of the respondent. This result confirms the view of
Štěrbová (2010)): spa stays are important for seniors. However, the result is in contrast with research by
Váchal et al. (2016) – spa had only about 10 % of positive answers (this result was anticipated because
this paper is focused only on respondents of higher age categories). Similar results relate to wellness
facilities: however, 38 % of answers were neutral (which is the highest share in neutral answers from all
chosen tourist attractions). This result can be caused by ignorance of wellness facilities or by an attempt
not to try anything new – this is stated by Kotíková (2013). Prevention or improvement of the current
state of health is a provable wellness benefit and so it can be a part of extra care (Baum, 2002).
A high share of positive answers was also found out in the case of visiting friends and relatives (80 %),
which proves the veracity of the claim by Čertík (2001): the motives for seniors’ travelling often result
from feelings of loneliness. Religious buildings surprisingly achieve a significant share of negative
answers (62.3 %). According to additional answers, it is partly due to the currently ongoing church
restitutions in the Czech Republic. As for the lookout towers, they obtained a significant share of negative
answers (approximately 51 %) what does not seem to be logical because of the often positive attitude
towards naturals wealth (see above). A common reason for negative answers is again a state of
respondents’ health making their use impossible.
Both types of bodies of water are negatively evaluated (68 %, respectively 69.9 % of negative answers).
Bodies of water are one of the main tourist attractions in the study area (Navrátil and Švec, 2008) but it is
evident they are not important for seniors. A similar number of respondents stated cultural events and
festivals are not stimulating for them (68 % of negative answers, 16 % of neutral answers and 16 % of
positive answers), as well as in the case of bicycle paths (67.3 % of negative answers). In the case of
cultural events, it is an unexpected result because many authors consider cultural tourism as travelling
especially suitable for elderly tourism participants. However, the above mentioned Indrová et al. (2008)
point to the fact tourism participants visit meaningful places of the European Union – the study area
offers cultural activities only to a certain extent and just this could be an explanation. As for the bicycle
paths, there are significant differences in positive and negative answers: bicycle paths are important
especially for men (93.5 %). This fact suggests bicycle paths are not important for women. Negative
perception (86 % of respondents across all age categories) of the possibility to travel in the border area of
another state was unexpected. And bridleways became the words factor for stimulating to travel – only
women under 65 have a positive attitude towards horse riding.
749
Second part of the questionnaire

Through the second part of the questionnaire, seniors’ preferences between each couple of two mutually
opposite statements were found out – the preferences are introduced in Tab. 3. For purposes of graphical
presentation, see Fig. 3.
ly opposite couples of statements – preferences of seniors.

Figure 3: Mutually seniors

Note: 1 = strongly agreement with the statement on the left, 2 = agreement with the statement on the left,
3 = neutral, 4 = agreement with the statement on the right, 5 = strong agreement with the statement on the right.
The first statement shows the preference for travelling out of season (64 % of respondents). Despite this
fact, there is a significant group of seniors who want to travel at the height of the tourist season.
sea The
second statement was focused on the preference for transport means for travelling in the surroundings of
holiday destination. Seniors deflect from traditional transport means (i.e. train). When choosing between
the train and the bus, they inclined to the bus (46 %) in comparison with thee train (16 %). There is also
a big number of undecided respondents (38 %) which perhaps follows from the inability of other choices.
It is evident from the answers respondent do not use the train for travelling in tthe
he holiday destination. The
explanation for it does not arise clearly from the questionnaire; however, this segment was expected to be
clients of railway transport.
The third statement dealt with the concentration of visitors in the destination: a clear popularity of quieter
destinations is obvious (77 %). The fourth statement gave a choice of two tourism attractions: technical
750
monuments and nature attractions. Both these attractions are considered in the literature to be stimulating
for visit in the segment of seniors. It was difficult to decide for respondents: they missed the possibility to
choose both attractions. 23 % of respondents prefer technical monuments and 22 % of them prefer nature
attractions. 55 % of respondents chose the neutral variant which cannot be interpreted as lack of interest,
but rather indecision. Therefore, it can be claimed both attractions are important for travelling of seniors.
The fifth and sixth statement confirm conclusions of the third statement: 60 % of respondents prefer rural
architecture and 75 % of respondents prefer small accommodation facilities. These findings confirm the
fact seniors seek for tranquillity during their travelling which also Orieška (2010) claims.
The next set of statements was related to accommodation facilities (statements 9-12). The height of the
bed does not play an important role (11.5 % of positive answers vs. 12.5 % of negative answers although
this issue is mentioned in the literature. In this case, 76 % of respondents chose the neutral variant of the
answer. The assumption seniors seek for rooms situated in a quiet part of the accommodation facility can
be confirmed (86 %). Rooms situated in the part with a higher concentration of guests prefer mainly those
respondents who stay with family and grandchildren – this segment of respondents showed differences
also in other statements but in this statement, their diversion from majority was the most extreme. The
eleventh statement dealt with bathroom and preference for a shower enclosure or a bathtub. This problem
has been solved by the owners of the accommodation facilities for a long time. Results presented in this
paper indicate showers are more preferred (67.5 %) in comparison with bathtubs (19 %). These
preferences are probably related to the requirements on barrier-free access (Aliagaoglu, 2008). The stable
chairs and handrails in the bathrooms, mentioned by Čertík (2010), are not considered to be important –
there was 80 % of neutral answers.
The third set of statements dealt with preferences for catering. The fourteenth statement focused on
preferences either to stay without ordered food or “all inclusive” stay. 74 % of respondents like “all
inclusive” – this corresponds to claims by Kotíková (2013) that seniors prefer organized tours with
arranged services by a travel agency. Also Haškovcová (2010) agrees with it. As for eating habits,
preference for home-made dishes prepared from local ingredients significantly predominates over meals
of international cuisine (89 % vs. 11 %). It implies entrepreneurs in catering services in the study area
should prepare home-made dishes for visitors. Free choice of meals is preferred (79 %), mainly in the
form of self-service. This allows seniors to choose food which meets their health limitations and do not
need to give this information to the staff. Only for 18 % of respondents – especially for men (82 %), free
choice of meals is not important.
By means of the final set of statements, other preferences were determined. Seniors are generally
considered to be highly cost-sensitive people who assess the relationship between quality and price; for
instance Kotíková (2013) deals with this issue. Therefore, the seventh statement focused on seniors’
preference relating to standard of provided services and price. The result does not indicate any significant
predominance of one type of answer. 29.5 % of respondents prefer higher standard for a higher price,
while 25.5 % of respondents prefer lower standard of services for a lower price. 45 % of respondents
marked the neutral variant of answer – it indicates indecision nearly by half of the respondents.
The eighth statement tried to find out which accommodation facility seniors prefer with respect to other
accommodated guests. A significant number of respondents (58.5 %) prefer accommodation facilities
where are mostly seniors, while 16 % of respondents do not care who is staying in the same
accommodation facility and 25.5 % of respondents were not able to adopt an attitude and so they chose
the neutral answer. Dann (2001) perceives it similarly and states it is necessary to adapt products for
needs of seniors and is often useful to specialize on them and try to prepare tailor-made products for
them. Preferences related to leisure activities were determined by means of the thirteenth statement.
Despite the fact that many authors highlight the benefits of sport (e.g. Gregor, 1990), only 35 % of
respondents seek for sports activities. As it was mentioned, the state of health is the most frequent reason
for the lack for motivation for sport. The last statement is related to preferences for payments. Frequently
751
stated claim that seniors are not interested in paying via the Internet (Magazin 50 plus, 2014) was
confirmed – only 14 % of respondents are willing and pay via the Internet.
Conclusion
Because of the growing seniors’ interest in travelling, more and more travel agencies are nowadays trying
to adapt their offer to the older generation. It includes various forms of special service packages,
possibilities of travelling with grandchildren with a provided discount for a child etc. (Redakce
www.i60.cz, 2012).
As the market segment of seniors is increasingly becoming attractive, this fact should be reflected in new
and exciting products created by travel agencies and it should be also motivational for the staff in tourism
– they should focus on typical characteristics and needs of this clientele.
The findings show spa seems to be considered by all age categories of respondents as the most important
stimulating factor for travelling to the destination. In the study area, there are two spas, but they are
distant from the centre of the Region. Spas can be used not only as an element for purposes of marketing
communication but also for development of other businesses in their vicinity.
Nature attractions were identified as the second significant stimulating factor. The study area has the
image of a place with preserved nature (Navrátil et al., 2012), therefore it is possible to use this fact as
a tool for stimulating for travelling of elderly tourists. Seniors consider nature and hiking trails to be
attractive for them. Also parks and gardens are popular with them. Therefore, marketing communication
of the Region and also of the individual businesses should be focused on nature beauty of the Region.
On the contrary, bridleways, bicycle paths, zoological gardens and cultural festivals are only little
stimulating. These findings correspond to the research by CzechTourism (2016) dealing with the most
popular attractions, such as Hluboká nad Vltavou Castle and Český Krumlov Castle which have large
parks, i.e. an important stimulus for seniors.
The second part of the questionnaire shows seniors can be a market segment ensuring traffic in the low
season in tourist destinations and in businesses related to tourism. They do not go by train when travelling
in the surroundings of holiday destination, also buses are not attractive enough for them – they prefer
other means of transport at most. Seniors seek for tranquillity during their travelling: either by choosing
a calm destination or by choosing a smaller accommodation facility, respectively they prefer a room
situated in a quiet part of the accommodation facilities. As for catering, they prefer “all inclusive” with
free choice of meals, mainly because of their state of health. And paying for the services in advance via
the Internet is problematic for them.
According to demographic analyses, the group of seniors will be constantly on the increase; the age in
which seniors remain active is still extending. With more time, they can more dedicate to travelling and
so they become an interesting market segment. This segment is evolving: today’s seniors are using
computers and mobile phones, they have large amount of information and it is not easy to meet all their
requirements. Destinations and businesses can obtain an interesting group of clients who are able to
positively affect their economic results if they are successful in meeting seniors’ needs.
Acknowledgment
The scientific study resulted from scientific activities at the Institute of Technology and Business in
České Budějovice.
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Labor Resources of the Far North Territories: Problems and

Prospects
Irina M. Zaychenko, Olga V. Kalinina and Svetlana S. Gutman
Peter the Great St. Petersburg Polytechnic University, 29 Polytehnicheskaya st., St. Petersburg,
195251, Russia
imz.fem.spbpu@mail.ru
olgakalinina@bk.ru
svelanka@mail.ru
Abstract
The paper presents the characteristics of the labor force on the Far North regions of the Russian
Federation. It describes the impact of various factors on human resources in different areas. The main
government measures to mitigate negative impact of geopolitical factors on the human resources of
the Russian Federation were analyzed, relating to, or equivalent to the Far North. Indices
characterizing the labor market of the northern regions are determined. The obtained data is
compared with the average for Russia. The basic problems of the labor market of the Far North of
Russia are revealed.
Keywords: human resources, unemployment rate, labor market, Russia, the Far North.
Introduction
Development of the Far North is one of the main priorities of the state policy of Russian Federation.
One of the urgent tasks of the state policy in the region is to intensify business activity, whose growth
will lead to an increase in the number of jobs in the region. At the same time, in recent years there has
been a negative trend in the development of the labor force of the Far North.
Socio-economic development of the Far North and areas equated to them, is based on "Russian
Strategy for the Development of the Arctic zone and national security for the period till 2020", the
purpose of which is the realization of national interests of ensuring national security and sustainable
socio-economic development of the Russian Arctic (the Government of the Russian Federation,
2013). According to this strategy, constraints and threats to the development of the Arctic zone are
unfavorable demographic trends in most of the northern territories of the Russian Federation, the
outflow of labor resources (particularly skilled) in the Russian regions with a more comfortable living
conditions, as well as beyond its borders, the lack of an effective training system, the imbalance
between supply and demand of labor resources in the territorial and professional relationships, as well
as people who have no professional education. At the same time the labor force is one of the basic
factors of production.
As known the economic growth in the country and its regions depends on the employment potential
and the efficiency of its usage. In this regard, the study of labor resources of the Far North is quite
topical.
Recent Research and Publications Analysis

Currently in questions of labor research of different areas and regions are engaged many scientists, in
particular, D.H. Autor et al. (2015), P.S. Budhwar and A.D. Yaw (2013), T. Büttner (2013), M.
Fafchamps and A.R. Quisumbing (1999), J.I. Gimenez-Nadal and J.A. Molina (2014), I.S. Glebova et
al. (2015), M.J. Greenwood (2014), S. Harper (2014), I.V. Ilin et al. (2014), A.L. Kalleberg and K.
758
Hewison (2013), P.L. Knox and S.A. Marston (2013), E. Marrocu et al. (2013), Ch.F. Mueller (2013),
L.V. Nikolova et al. (2015), V.V. Okrepilov (2015), P. Osterman (2014), B.A. Revich et al. (2014),
A.N. Silin and N.A. Tkacheva (2015), J. Tampubolon (2004), I.V. Zikunova and V.S. Zikunova
(2016).
It should be noted that in the period of the Soviet Union there have already been conducted studies of
the labor market and human resources in the northern areas by national scientists (Arikaynen, 1991)
and foreign (Di Maio, 1980). The need for such an analysis has arisen in connection with a difficult
climatic and geopolitical features of the territory, which led to the nature of socio-economic
development of the northern territories at that time.
At the present time, in connection with the implementation of the Russian Federation President
program (the Government of the Russian Federation, 2014), northern regions of Russia are frequently
becoming the object of study. Studies involving the topic of the labor market of the northern regions
can be divided into three groups. In the works of the first group (Korchak A. and Korchak E., 2013;
Kozlova and Karmakulova, 2013)) carried out an overall assessment of labor resources of the Russian
North: described the negative effects of demographic, migration, social and economic processes of
the Far North in the labor force, formed the principles of effectiveness of regional policy, investigated
various forms of employment that are typical for the region.
The works, representing the second group (Peskovskaya, 2012; Govorova, 2015; Fedorchenko, 2015;
Almuhametova, 2015), focused on the involvement of labor resources into the Russian North.
Problems of formation of human resources, and opportunities for staffing in the region are described,
analyzed the available data about the prosperity of the Far North workforce.
The third group (Ruvil and Galmukova, 2010; Ruvil and Morozovoj, 2012) consists of studies where
analyzed the state regulation of labor resources development and offered solutions to the problems of
the region, but the emphasis is solely made on manpower employed in agriculture. An exception is
the work by by V. Fauzer and I. Nazarova (2010), which analyzes the experience of the formation of
the population and human resources of Overseas North, including in the context of regional policy;
carried out the analysis of migration flows.
Quite a number of works devoted to the human resources of the Far North, performed by A.
Korovkina or under his supervision: A.G. Korovkin et al. (2006), A.G. Korovkin (2011), A.G.
Korovkin et al. (2011), A.G. Korovkin (2013), E.A. Edinak and A.G. Korovkin (2014), A.G.
Korovkin (2016). These works cover almost all aspects of the Russian Federation labor market,
including those aspects of constructing the balance of labor mobility, the problem of labor shortages
in some regions of Russia, forecasts for the dynamic development of the labor market and
employment in the Russian Federation until 2030.
Problem Formulation
As a territory of strategic importance for the country Vyboldina E. et al (2016), the Far North is
attracting increased attention not only of scientists, but also of the state. Trying to compensate the
inconvenience that the population suffers working in the harsh climate, environmental pollution and
poor infrastructure, the government is pursuing a policy shift method and controls the usage of the
system of coefficients and northern allowances. The effectiveness of these methods can be evaluated
using indicators of the labor market, employment and unemployment of the population.
Recent years there has been an outflow of population, and the labor force from the northern regions
of Russia. In this regard, there is a need to analyze the manpower to establish possible causes of
migration loss.
With a population, accounts for only 8% of the state population, the North produces 20% of Russia's
GDP, which makes it a strategic reserve and support for economic development (Koltynyuk and
Fedorov, 2009). Human resources are playing a key role in all kinds of economic activities of the
North.
759
The satisfaction with the standard of living and working conditions in the region can be determined
by the migration index. Statistical data of the Federal Service for State Statistics of Russian
Federation for the years 2014-2015 (gks.ru) are shown in table 1. It is not difficult to notice that
people are leaving the North more recently.
Table 1: Migration growth in Far North regions of Russia, 2010-2014 *
2010 2011 2012 2013 2014

Migration growth, persons. -60741 -55774 -71164 -94332 -73823
* Data for net migration in 2015 will be presented on the official website of the Federal Service for State
Statistics of Russian Federation from 30.09.16 (gks.ru).
Thus, it can be assumed that the features of the northern regions have a negative impact on the
working conditions of employees, and public policy of the Far North regions is unable to prevent
negative migration. As a consequence, the problem of the Far North labor resources analysis of is
becoming extremely urgent.
In accordance with the above, the aim of this work is the analysis of labor resources of the Far North
of Russia and the identification of the labor market development problems in the region.
The objectives of the work are:
- to analyze the labor market performance of the Far North for further differentiation;
- to analyze the labor market specifics of the northern territories of Russia;
- to identify the labor market problems of the Far North of Russia.
The objects of study are subjects of the Russian Federation, which are fully or partly relate to the Far
North and equivalent areas in accordance with the Resolution of the Council of Ministers of the
USSR № 12 from 03.01.1983 1983 (the Council of Ministers of the USSR, 1983).
Problem Solution
In order to attract and retain workers in the harsh climatic conditions of the north state pays the so-
called "northern allowances". Thus, the authorities are trying to neutralize the negative impact of the
northern traits in that territories on the labor conditions and attract human resources into the area.
The analysis of the Federal Service for State Statistics of Russian Federation (gks.ru) data at an
average monthly nominal wage of employees shows the difference of northern regions residents
income, and helps to evaluate the work of the regional authorities in the area of employees
compensation.
Thus, in Fig. 1 noticeable clear leaders - Chukotka, Yamalo-Nenets and Nenets Autonomous Okrug.
In these regions, the average wage reaches almost 70 thousand rubles, which exceeds the average for
Russia to 2.35 times.
In spite of the state policy in the sphere of "northern" salaries in 8 regions out of 24, the average
monthly salary is less than the national average - and reaches only 21124 rubles in the Republic of
Altai.
Average nominal gross wage in January 2015 amounted to 40492 rubles., which is 30% higher than
the figure for the country. This shows that in most of the region, the system of coefficients and
northern allowances works. The level of the economically active population will assess whether it
motivates people to work in such difficult conditions
The economically active population is a part of the labor force in the region, namely the sum of
employed and unemployed. This group of people ensures the supply of labor in the labor market for
760
the production of goods, works and services. The ratio of the economically active population to the
total population will show how actively human resources are involved in the area.
Figure 1:The average monthly nominal wage of employees of Russian Far North in January
2015, rub.
According to the data of the Federal Service for State Statistics of Russian Federation (gks.ru), the
average economically active population of the northern regions is higher than the average for Russia.
This is due to the fact that many people come to the region for a living, but reaching the retirement
age or with the other reasons, are moving to areas with more favorable climate. This feature of the
region is also affects the migration rate.
Also, the proportion of economically active population characterizes the success or failure of the
regional authorities policy in the field of employment, working conditions in the region.
So, in the Chukotka Autonomous District, where natural conditions are most severe on the globe, the
proportion of the labor force is the highest - more than 80%. Above 75% of the population working
or looking for a job in the Magadan region, Yamalo-Nenets Autonomous District and the Murmansk
region (Fig. 2). The average figure for the Far North of the population exceeds the level of economic
activity in the country less than 1%.
The analysis of the region's labor force should include the unemployment rate as the main index
characterizing human resources of the region and the standard of living of the population.
According to the data of the Federal Service for State Statistics of Russian Federation (gks.ru), the
average unemployment rate in Russia is 5.6%. It is worth noting that in all the northern regions the
level is lower, since, given the characteristics of the terrain and working conditions, the achievement
of such indicators is the undoubted merit of the regional authorities. These regions are: Yamalo-
Nenets Autonomous District, where the unemployment rate is two per cent lower that in Russian and
equals to 3.6% in 2015. In the Chukotka Autonomous District, the Magadan Region, the Khanty-
Mansi Autonomous District and the Kamchatka region the number of people registered with
employment services does not exceed 5%.
761
Over all the regions related to the Far North, the Republic of Tuva stands out - the unemployment
rate in this region of the Russian Federation is up to 18.6%, which is higher than the Russian average
and the average for the Far North (7%) more than to three times (Fig. 3.).
Figure 2: The economic activity rate for the subjects of the Russian Federation for 2015, the
average for the year as a percentage
Figure 3: The level of unemployment on the Russian Federation subjects in 2015, the average
for the year as a percentage
762
The Ministry of Labor of Tyva identifies several reasons for such a high rate (the Ministry of Labor
of Tuva, 2016): an imbalance between the regional market of educational services and labor, as well
as the weakness of the economic base of the republic.
The analysis of statistical data of the Federal Service for State Statistics of Russian Federation
(gks.ru) on the basic parameters of the labor force of the Far North, presented in Table. 2, allowed to
identify three RF subject with the "best" indicators showing the favorable conditions in the region,
and three subjects with the "worst" performance (Table. 3).
Table 2: Statistical Workforce data of the Far North (gks.ru)
2013 2014 2015 2013 2014 2015 2013 2014 2015

LEAP, LEAP, LEAP, UL, UL, UL, AMNWE, AMNWE, AMNWE,
% % % 3% % % rub. rub. rub.
1 68,5 68,9 69,1 5,5 5,2 5,6 29792 29792 34030
2 65,9 67,3 66,8 6,1 5,6 5,8 30542 2397 32902
3 67,5 67,0 67,6 6,1 7,2 6,8 32465 35572 38300
4 64,8 65,6 66,3 10,5 10,0 10,4 27279 29319 30931
5 68,5 68,1 69,9 8,3 8,8 8,2 29050 31408 32704
6 73,9 73,7 74,3 5,7 6,1 4,5 48629 53167 57404
7 68,8 69,6 68,9 5,7 5,0 6,2 31623 34178 36071
8 79,0 76,8 77,7 2,9 3,1 4,3 57121 62152 65996
9 74,4 74,2 75,2 7,2 6,7 7,8 40225 43378 45989
10 71,8 71,2 71,9 7,1 5,3 7,9 61765 65816 71230
11 66,6 64,5 66,0 6,5 5,8 6,3 24716 27102 28528
12 68,8 69,0 69,7 7,1 6,9 6,9 29966 32431 33807
13 67,7 66,8 67,7 11,5 10,4 9,7 20722 22598 22903
14 63,8 63,8 64,5 8,0 8,4 9,2 26038 27739 28386
15 66,6 67,1 67,9 8,2 8,1 8,8 27503 29371 30704
16 72,0 69,9 71,2 7,1 6,0 7,0 37717 40222 41365
17 70,4 70,6 70,8 7,4 7,4 7,3 46542 51111 54631
18 57,7 59,8 60,4 19,3 19,1 18,6 25087 27507 28322
19 72,1 72,3 72,7 7,2 6,5 6,3 49007 54896 61311
20 62,6 67,0 64,0 7,6 7,6 7,7 29814 32042 34041
21 71,3 71,8 71,3 4,7 4,7 4,9 51009 54498 56616
22 70,0 70,5 69,6 5,7 5,9 5,3 34132 36781 38041
23 73,4 74,4 74,5 4,9 4,6 4,4 54508 57976 60068
24 83,1 83,9 81,8 3,3 3,2 4,0 68261 76285 79531
25 77,0 77,5 75,3 3,2 3,1 3,6 69192 74489 77272
There are the following abbreviations used in Table 2:

LEAP - the level of economic activity of the population;
UL – the level of unemployment;
AMNWE - the average monthly nominal wage of employees.
1 - Russian Federation, 2 - The Amur Region, 3 - the Arkhangelsk Region, 4 -the Zabaykalye
Territory , 5- Irkutsk region, 6 -Kamchatka Krai, 7 -Krasnoyarsk region, 8 - Magadan Region, 9 -
Murmansk region, 10 - Nenets Autonomous Okrug, 11 - Perm Krai, 12 - Primorsky Krai, 13 -Altai
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Republic, 14 - The Republic of Buryatia, 15 - The Republic of Karelia, 16 - Komi Republic, 17 -The
Republic of Sakha (Yakutia) , 18 - Tyva Republic, 19 - Sakhalin region, 20 -Tomsk region, 21 -
Tyumen region, 22 -Khabarovsk region, 23 -Khanty-Mansi Autonomous Area, 24 -Chukotka
Autonomous Okrug, 25 - Yamalo-Nenets Autonomous Okrug
Table 3: Analysis of Far North region labor resources, 2015
“The worst” Average for Average for the Far

Indicator “The Best” indicators
indicators Russia North/Best/Worst
Chukotka Autonomous
Altai Republic 45294/
Okrug
The average 34030 rub. 76011/
monthly nominal Yamalo-Nenets 26584,33
Perm Krai
wage of employees Autonomous Okrug rub.
Nenets Autonomous
Tyva Republic
Okrug
Chukotka Autonomous
Tyva Republic
Okrug 70.2/
Economic activity 78,27/
Magadan Region Tomsk region 69.1%
rate 62,97,
Yamalo-Nenets The Republic of %
Autonomous Okrug Buryatia
Yamalo-Nenets
Tyva Republic 7.2/
Autonomous Okrug
Chukotka Autonomous the Zabaykalye 3,97/
The level of
Okrug Territory 5.6% 12,9,
unemployment
%
Magadan Region Altai Republic
Chukotka and Yamalo-Nenets District are clear leaders, a little behind the Nenets Autonomous
District and Magadan region. Tuva Republic lags behind on all counts - not surprising, because all
the studied factors are closely interrelated and reflect the socio-economic situation in the region.
According to the Table. 2, all three studied parameters of the Far North are higher than the average
for Russia - the nominal wage, the proportion of economically active population and, unfortunately,
unemployment.
Conclusion
Based on the results shown in this paper we can draw the following conclusions:
1. Labor force in the territory of the Russian is mainly influenced by factors such as the region's
infrastructure, localized population, low population density, harsh climate and other specific
characteristics of the northern territories of Russia.
2. Specifics of the northern territories of Russia are having mainly negative impact on the working
conditions of workers, creating a need for government measures to attract and retain manpower in
areas of the Far North.
3. The main indicators characterizing the labor market, employment and unemployment, the northern
regions of Russia are as follows: average monthly nominal wage of employees of organizations, the
level of unemployment and the population level of economic activity.
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4. The analysis of these indicators revealed a strong differentiation of the regions and to identify the
main problems of the labor market regions in the Far North of Russia: the labor market narrowness of
single-industry towns, high unemployment in some regions, "raw" dependence of production.
5. Among the Far North regions "leaders" can be identified, which indicators reflect the most
favorable situation on the labor market and great attention to human resources from the regional
authorities. These regions are Chukotka, Yamalo-Nenets, Nenets Autonomous District and Magadan
region. In turn, a "lagging" regions are: Republic of Tyva and Altai Republic.
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Application of Service-Oriented Approach to Business Process

Reengineering
Igor V. Ilin, Oksana Yu. Iliashenko and Anastasia I. Levina
Peter the Great Saint Petersburg Polytechnic University, Saint Petersburg, Russian Federation
ivi2475@gmail.com
ioy120878@gmail.com
alyovina@gmail.com
Abstract
Reorganization activities in the enterprise require a systematic approach to evaluating the results
of individual projects. Currently, in order to improve competitiveness and the need to meet new
business challenges, many companies implement business processes reengineering projects. Even
the most well-judged processes reengineering decisions in practice demonstrate lower
effectiveness than expected, because during the implementation uncontrolled factors are revealed.
A systematic approach to the implementation of such projects involves consideration of any
organizational change in the context of enterprise architecture: it is necessary to take into account
the interconnection and interdependence of business processes, organizational structure,
information systems, IT infrastructure and other components of the enterprise architecture. In
practice, the reorganization projects are often implemented in isolation without taking into account
the existing relationship of a particular component of the enterprise architecture with other ones,
which leads to unsatisfactory results of projects. In this paper the approach of the service-oriented
analysis of organizational changes for business process reengineering was described, and the
application of this approach was demonstrated in the project of business processes reengineering
in the Saint Petersburg underground railway.
Keywords: business process reengineering, enterprise architecture, service-oriented architecture,

reorganizational projects.
Introduction
Currently, in order to enhance their competitiveness many companies establish projects of
implementation of organizational changes: business process reengineering projects, organizational
structure reforming projects, implementation of information systems, etc. Often reorganization
projects are being implemented with a focus only on the reorganized component of company’s
management system, not taking into account its relationship with other components of enterprise
architecture, which results in poor performance of such projects. Russian experience in business
process reengineering has a shorter history than the western one, and inefficient solutions, related
to the lack of a systematic approach to implement any organizational changes, still have place.
Thus, in the Russian practice of business processes reengineering projects there is lack of analysis
of the changes in IT-systems architecture, IT-services architecture, organizational structure,
workflow etc., that are inevitably have to be implemented as a consequence of business processes
changes. As a result, even the process reengineering solutions are effective by themselves, they
turn to be not that effective from the holistic management viewpoint, because they require a
subsequent refinement in establishing interfaces between the changed components of the
management system.
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This paper describes the example of process reengineering project in the underground railway
system of Saint-Petersburg. Saint-Petersburg underground railway is an enterprise that provides
express off-street passenger transportation in Saint-Petersburg, it is the second largest in Russia, it
serves 5 million residents. Saint-Petersburg underground is thriving, because currently the metro
network of the city is not developed enough– 6 out of 18 districts of the city are poorly covered by
subway network. (St. Petersburg Government Decree, 2014) In this regard, not only the units
engaged in core activity (i.e. passenger transportation) are actively developing, but support
services as well in order to ensure reliable and uninterrupted functioning of the core units. This
article is focused the project of re-engineering of compressed air production and distribution
process in Saint-Petersburg underground.
Compressed air is an important energy source for the underground, which is used to provide both
train operations and supporting processes. Compressed air is produced by one of the departments
of the underground and is sold to operation departments. There were two reasons to establish the
project: the external reason – change of energy efficiency law, and the internal one – need to bring
the compressed air system in accordance with the modernized rolling stock, manufacturing
equipment and air distributing system involved in the process of production and distribution of
compressed air. Management of the company recognized the need to reengineer the existing
processes of compressed air production and distribution for the purposes of future sustainable
development and effective and reliable operations of the underground. But in the meantime they
were disappointed by the previous practices of process reengineering as they failed, because of:
• lack of integration of new processes with existing information systems and

technological equipment;
• ineffective information exchange between the compressed air production department

and management divisions;
• non transparent procedure of compressed air pricing.
As a solution to these management concerns the service-oriented enterprise architecture analysis

was used for developing the holistic solution for process reengineering and related areas. The
paper describes the systematic approach of business process reengineering based on service-
oriented analysis and shows the results of its application in the project in Saint-Petersburg
underground.
Literature Review and Research Methodology

Competitive performance of an enterprise highly depends on the quality of goods and services that
it provides to its customers. Quality in this context refers to compliance with the requirements of
consumers to consume goods and services (together referred as services). (ISO, 2011) If the
services take into account the exact customer requirements and meet customer’s expectations,
goods and services can be considered as those of a certain quality and the company – as a reliable
one. Thus, the customers (i.e. service consumers)are those who put requirements to the results of
company’s operations and the customers ultimately define the level of company's competitiveness
in the market. Similarly to customer-company relationship, the quality of the internal processes,
interactions and the quality of management system of the company can be assessed using the
concept of services that different components of company’s internal structure provide to each
other.(Ilin, Levina, 2015)
The basic idea of service-oriented management approach is to consider a result of the company’s
operations as a service for customers. A set of services provided to external customers, determine
a list of key business processes which realize these services. To ensure the quality of business
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services, the company’s processes should be defined, formalized, be transparent and measurable.
The same service-oriented principle is used to build relationships between business processes and
IT support, and between IT processes and the objects of IT infrastructure. Such presentation of
enterprise management system is called service-oriented architecture (hereinafter referred as SOA)
(Lankhorst, 2013). Service-oriented architecture is an emerging architectural style that has been
suggested as one of the best ways to ensure organizational agility. It has therefore been
incorporated very quickly in the practices and frameworks of enterprise architecture management.
(MacLennan, VanBelle, 2014) Service-oriented approach can serve as a tool for the analysis and
evaluation of individual reorganization projects, and as a means of selecting projects for a strategic
portfolio as well. In spite of the wide spreading of the idea of using service-oriented nature of the
enterprise architecture in business management, it is still lack of theoretical foundation of service-
oriented analysis of enterprise architecture components relationship and lack of practical cases
description.
Publications analysis
Nowadays “enterprise architecture” concept is widely recognized as a mainstream systematic

approach of enterprise management. Different definitions of this concept can be found
in(Lankhorst, 2013),(MIT Center for Information Systems Research, 2016), (Gartner, 2016),
(Kondratiev, 2007) and other sources, but the main idea of all authors is the same: “enterprise
architecture” is a set of different components of the company’s management system and the
relationship between them. These components are: business processes, organizational structure,
information systems and applications, document flow, data bases and technological infrastructure.
Traditionally the enterprise architecture is presented as a layered-structure, while the number and
names of layers can be differ in different sources ((Lankhorst, 2013), (Kalyanov, 2011)). Despite
of this fact, the list of the enterprise architecture components is the same and layering is the matter
of the grouping. For example,(The Open Group, 2009) which is de-facto one of the world
enterprise architecture standards, defines the following architecture layers: business layer
(business processes, organizational structure), IT (application) layer (information systems and
applications), technology layer (data bases and technological infrastructure). Thus, the enterprise
architecture offers a holistic view of all enterprise components, provides a tool of systematic
structuring and analysis of the enterprise and enables to effectively engineer business as a whole
integrated system. Well-structured and, in the meantime, agile business is crucially important for
the success of the company, especially in a volatile environment. (Anisimov, Anisimov, &
Kapitonenko, 2009)
Service-oriented architecture (SOA) represents a set of design principles that enable units of
functionality to be provided and consumed as services. (Lankhorst, 2013)Service orientation came
from the IT area but it is reasonably considered to be applicable equally well to the business
components as it does to software applications. The number of emerged research, concerning
service-orientation of different business fields, justifies this opinion: (Goldstein et al., 2002),
(Fitzsimmons & Fitzsimmons, 2000), (Illeris, 1997), (Kalinina O.V., 2016), (Kistasamy et
al.,2010), (Khoshnevis et al. 2009), (Lewis et al., 2007), (Nikolova et al., 2015) and others. The
importance of service-orientation at the business level of enterprise architecture is highlighted
in(Op ’t Land, et al., 2009). It has been argued that SOA, together with Business Process
Management, form the two fundamental tools to implement enterprise architecture strategy and
policies (Iliashenko, Shirokova 2014), (Shankararaman and Kazmi 2011).
The current approaches of business process reengineering (described in (Becker, et al., 2010),
(Hammer, 2007), (Weske, 2007) and others) traditionally carefully analyze the internal
relationships between processes, but do not put proper attention the external interfaces of business
process layer which are presented as services, provided by or consumed by these processes. In
order to find the results of researches or case studies concerning service-oriented approach to
business process reengineering the following databases were searched: Google scholar,
770
ScienceDirect, IEEE Explore, Wiley InterScience, Springer. In addition, the manually conducted
search was carried out. The terms “service-oriented reengineering”, “service-oriented analysis”,
“architecture solution analysis”, “service-oriented + business process” were used as a search
string. The extraordinary majority of the sources found were devoted to information systems and
IT architecture design, software engineering, IT service management. In spite of generally
accepted concept of service-orientation of the enterprise architecture, methods and approaches of
service-oriented enterprise architecture analysis and specifically service-oriented process
reengineering are poorly researched.
Method
The practical need of the service-oriented approach to business process reengineering projects is
caused by the fact of the complexity of such projects: business processes are not isolated within
the enterprise architecture and always are a part of a complicated chain of relationships throughout
the whole management system of the enterprise. Any changes within the business process system
always cause consequent changes whether in IT systems or document flow or business services
etc. Thus the process reengineering projects should be carefully analyzed in the context of the
corresponding enterprise architecture system. Such analysis will help to reveal all the necessary
changes and to implement them together with process changes. This, in turn, can help to save
time, money and efforts for implementing organizational changes and to make reorganizational
projects more effective.
The service-oriented approach to the analysis and evaluation of business process re-engineering
projects, presented in the paper, can be formalized in the form of the following algorithm:
1. Develop an architecture model of the problem domain "as is" (in accordance with the model
of service-oriented architecture);
2. Develop a business processes model of the problem domain "as is";
3. Define the services, provided by the business processes to customers, as well as services, used
by business processes and provided by IT systems and applications, "as is";
4. Develop requirements for business process services "to be";
5. Suggest a business process reengineering to meet the requirements business process services
and create a process model "to be";
6. Develop requirements of the “to be” business processes to IT systems and applications "to
be";
7. Establish service-oriented KPI to assess the effectiveness of process performance.
The process analysis and reengineering algorithm, developed by the authors and presented above,
can be considered as the main contribution of the paper. It can be tailored not only to process
reengineering projects, but to any reorganizational projects of companies and their departments.
The application of the algorithm is demonstrated in the Results section and the enterprise
architecture models, mentioned there in Fig.1and Fig.2, can be adopted for any particular case as a
part of the service-oriented analysis approach.
771
Results
Describing the results of the application of service-oriented architecture analysis to real process
reengineering project, it is necessary to remember the reasons for the project (see Introduction).
Using the enterprise architecture vocabulary, on the one hand the requirements for services
provided by the business process have changed, on the other hand – there were changes in the
technological infrastructure and there appeared the opportunity to provide services of the higher
level of quality to the information systems layer, and consequently, to business processes. For the
effective implementation of such projects it is advisable to carry out a comprehensive analysis of
the architecture of the problem domain, to identify bottlenecks and to provide a comprehensive
architectural design of the problem domain. Thus, the need to make changes in the services,
provided to customers, will entail the need for reengineering the relevant business processes, and
new technological infrastructure capacity will enable to provide additional services for
information systems, which will require changes to IT processes. Service-oriented approach
implies the consideration of these interrelated issues in the unity and is intended to the
development of an integrated solution by means of service-oriented architecture layers alignment.
After examining the working documents of the company and interviews with service engineers,
responsible for the compressed air production, and units-consumers of compressed air, the
requirements to business process "Provision and distribution of compressed air" were developed:
• Consumers have to be provided with compressed air with required technical parameters in the
required volume in real time;
• It must be possible to provide compressed air with different technical parameters to different
consumers according to the purpose of use;
• It is necessary to make an accurate accounting of the produced, distributed and consumed

compressed air volume by each consumer;
• Planning of the compressed air price for consumers for the future financial periods should be
as precise as possible (in a given deviation range).
Taking onto account the requirements, mentioned above, the business processes and the
architecture of the problem domain "as is" were analyzed (Fig.1). The following "bottlenecks"
were defined:
• The inability to control major operational production process due to the lack of a proper
information exchange between core and supporting processes on the one hand and
management processes – on the other;
• Duplication of functions of data transfer from the core processes in the management
processes;
• The functional information systems designed to provide information support to “Provision

and distribution of compressed air” process is not used for information support of the process;
• There are no services and the corresponding interfaces of the data exchange between
information systems supporting production and distribution of compressed air, consumption
of resources, maintenance and repair of equipment.
772
Analysis of the business compressed air provision process "as is", its optimization and
reengineering carried out in the following aspects:
1. Interaction of subprocesses of business process “Provision and distribution of compressed

air”;
2. Automation of processes, information exchange and integration of information systems;
3. Formation of the cost of production, distribution and consumption of compressed air.
For effective implementation of the activity of production, distribution and consumption of

compressed air it is necessary to provide not only the organization of the technological process,
but also the management and support (supporting processes) of the basic process. The analysis of
the business process “Provision and distribution of compressed air” in the condition "as is"
revealed the absence of well-timed and full exchange of information between the main
technological processes and accounting, planning and control processes. Thus, currently,
accounting process receives the information on the production of compressed air and consumed
resources and time once in a month (at the beginning of the next month), but does not receive data
from the processes of distribution and consumption of the compressed air. As a result, the control
and analysis of deviations of actual indicators from planned ones is not operational (monthly), yet
the accounting and control of the distribution and consumption is carried out by indirect (rated)
methods. In addition, the accounting process operates not the actual data on the volume of the
produced compressed air, but the data calculated using the operating time of the compressor.
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Figure 1: Architecture model of the problem domain "as is".
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The consequence of non-operational accounting of data on the compressed air production is the
inability of operational control and analysis. This makes the production control process less
flexible and less effective, and may have a negative impact on the safety of the activity.
Planning is carried out mostly by the boiler method (rather than by individual objects), which
operates aggregate indicators and it is conducted in the monthly section, i.e., operational
scheduling is not realized. There were adequately developed processes of planning of maintenance
and repair of equipment as part of planning, but because they are not fully automated, it makes
such plan less effective.
In order to eliminate the identified "bottlenecks" and to be able to provide services according to
the requirements of consumer units, it was proposed to implement a system of operating control of
the process. In particular, there were formulated and elaborated following necessary changes:
• To carry out not only the accounting of the produced, but also the accounting of distributed
and consumed compressed air in order to ensure monitoring and control of the actual data on
the volume of compressed air on the whole resource transmission chain from producer to
consumer.
• To implement a system of operating scheduling, operating monitoring and analysis of the

compressed air production and distribution process. Efficiency means getting current data by
management processes from the core processes in real-time.
• To implement the system of operational data accounting about process. This will provide the
accuracy of pricing for different consumers and will create preconditions for better planning.
• To introduce a mechanism of monitoring the effectiveness of the process –a system of key

performance indicators (KPI).
Reengineered processes put new requirements on the information systems services:
• It is necessary to provide integration of production equipment, SCADA and ERP class

information systems to ensure effective information exchange;
• It is necessary to develop services and corresponding interfaces for the transfer, storage and
processing of process information.
Thus, the use of service-oriented analysis for business process reengineering allows us to trace the
entire chain of enterprise architecture changes, caused by the proposed reengineering. (Fig. 2) This
will make the process of implementing changes more controllable and will allow to avoid
unintended consequences of individual reorganization decisions.
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Figure 2: Architecture model of the problem domain "to be".
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As a part of the proposals for the process reengineering, the system KPI was developed. To assess
the implementation of the business process “Provision and distribution of compressed air” it seems
appropriate to use the following KPI for top-level processes:
• Management of compressed air provision:
o KPI1 – minimum deviation of the planned cost of the compressed air from the actual
values for the period
Calculation method: KPI = С − С , where
С – planned (calculated) sale price of compressed air to domestic consumers for the
planning period;
С –actual sale price of compressed air to internal consumers at the end of the planning
period.
• Provision of compressed air production, distribution and consumption:
o KPI2 – direct costs on production of 1 m3compressed air (rub./ m3) for the period
Calculation method: KPI = , where
E – energy costs;
S – wage costs of the compressor room employees;
R – costsof technical servicing and repair (materials, salary, outsourcing company
services)
V – amount of the produced compressed air.
o KPI3 – energy costs on production of 1 m3compressed air (kw/ m3) for the period
Calculation method: KPI = , where
W – amount of electricity consumed;
V– amount of the produced compressed air.
• Service maintenance of compressed air provision:
o KPI4 – total cost of ownership (for compressors)

Calculation method: KPI = С + С + С + С + С h , where
С – value of the asset;
С – cost of installation and commissioning works;
С – cost of spare parts during the service period;
СТ! – costs of technical servicing and repair during the service period;
С h – overhaul cost, if it is provided during the service period.
Proposed KPI characterize the effectiveness of the implementation of the whole process. If
necessary, there can be developed KPIs for each sub-process up to the operational level. KPI
examples for core processes of production, distribution and consumption of compressed air can
be: air pressure at the outlet of the compressor (kg / cm2), air pressure at the consumer (kg / cm2),
air pressure difference between the pressure at the outlet of the compressor and the pressure at the
entrance to the consumer (kg / cm2), and others.
The effect of the process reengineering was assessed from different viewpoints:
1. From the point of energy efficiency:
• Compressed air as an energy source for consumers:
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Energy efficiency involves the rational use of energy resources. For consumers, the
compressed air is an important energy source that allows to perform a certain work.
Accounting and control of energy consumption, as well as the detection and elimination
of unproductive losses of energy are an essential precondition. The proposed
reengineering assumes to keep track, control, analysis and planning of not only
compressed air, but also its distribution and consumption that will provide a more rational
approach to the production and use of energy resources.
• Electricity for compressed air production:
Since the produced compressed air is used for different purposes, consumers putdifferent
requirements for the technical parameters of the compressed air: depending on the
purpose of use, compressed air pressure requirements range from 4 kg/cm2 to 7.2
kg/cm2. Currently, consumers receive compressed air from a single distribution network,
that’s why the air is pressed according to maximum required level – 7.2 kg/cm2. It is not
effective operation mode of the compressor in terms of power consumption and energy
costs.
Proposed process reengineering will enable the operative control of the compressor according
to the current needs, which will allow to differentiate characteristics of compressed air (in
particular pressure) for different users. It will reduce energy consumption by 7-12%.
2. From the point of process control:
Currently the calculation of the produced compressed air is based on the time of actual work
of compressors and the estimated capacity of the compressors. The result is used for the
calculation of compressed air amount for each customer as well as for calculation of the air
price for the next period. New information systems architecture, according to reengineered
processes, will enable more precise calculations of these indicators. Now it can be stated a
significant error in the calculation of compressed air consumption and price due to lack of
actual correct data about the production: the volume of compressed air, produced and
distributed to consumers, is overstated by 10-15% versus the real figures. Operating account
of the actual production data will allow to obtain accurate data on the produced and consumed
compressed air, and therefore, to perform more accurate predictions based on them.
3. From the point of technology:
To provide an effective flow of the process (in terms of consumption of resources –

electricity, oil, etc.), it is necessary to maintain optimum operating mode of equipment, when
the resource consumption level is minimal. Achieving and maintaining such conditions is only
possible in the terms of prompt and proper monitoring of technological process indicators.
4. From the point of supporting processes:
The proposed reengineering involves increasing the degree of automation of the process,
which will enable precise registration of compressor operations. This in turn will change
compressor maintenance schedule. Now maintenance of the compressor takes place when the
threshold values reached during the operating time (operating hours) without taking into
account the mode of operation of equipment during this period. Obviously, consumption of
equipment resource differs depending on its load rate, which is determined by pressure
produced by the compressor. The introduction of automated setting and controlling of
compressors operating parameters allows to differentiate periods of work in different modes
and take them into account in determining the period of the next technical maintenance. Thus,
planned technical maintenance of the compressor will be performed less often, which can
reduce the total cost of ownership for compressors.
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To sum up, the proposed process reengineering will allow a company to monitor, analyze, and
flexibly control the process, which will ensure continuity, efficiency and safety of the process
thanks to the rapid response on the actual and potential deviation from the required process
parameters (pressure, volume, compressed air, etc.). The introduction of an operative control
system creates the preconditions for the successful implementation of related projects.
Conclusions and Discussions

The company as a system requires a systematic approach in the implementation of the
reorganization projects. Each project must be considered in the context of and in conjunction with
related projects. A systematic approach to the reorganization of certain components of the
enterprise architecture is to use a service-oriented project analysis. The paper presents a stepwise
algorithm of the service-oriented analysis on business process reengineering projects and
demonstrates its use in a real project. Such kind of analysis allows to trace the influence of
individual changes to the entire enterprise architecture, to take into account these changes as a part
of restructuring proposals, thereby to ensure the implementation of a comprehensive, balanced
enterprise architecture solution.
Since any change, implemented by means of the project, is accompanied by a change of

requirements to the environment of the project results, service-oriented approach to the analysis of
architectural solutions can be used to analyze the mutual influence of a number of related projects,
as well as for the formation of strategic project portfolio. This issue is the subject of a separate
investigation and can become a logical continuation of this work.
The quantitive estimation of the effectiveness of service-oriented approach to business process

reengineering comparing with the traditional approaches is beyond the scope of this paper as it
requires a specific research and a wide experimental database. It could be the subject of further
development of the topic arisen in the paper.
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Analysis of the Dependence of the Czech Stock Market on the main

European and G-20 Stock Markets
Elena Kuchina, University of Economics, Prague, Department of Econometrics, W Churchill Sq.
1938/4, Czech Republic, xkuce10@vse.cz
Pavel Pikola, University of Life Sciences, Prague, faculty of economics and management, Kamýcká
129 165 21 Prague 6 – Suchdol, Czech Republic, pikola@pef.czu.cz
Abstract
This paper focused on the analyzing the impact of the different stock market indices up to 7 delay on
the increasing or decreasing in the Czech stock market (describing by PX Index) between two trading
days. Firstly, the influence of the stock market indices of the European region is analyzed, then the
data set was enriched by stock markets representing the G-20 Economies. The model building step
was applied separately for two data sets: for simple and logarithmic returns. The impact of the differ-
ent stock market indices on the direction of PX Index's changes was analyzed by applying Stochastic
Gradient Boosting approach. In case of the European region analysis only, the changes of PX Index
(increasing or decreasing) are most influenced by CAC 40, DAX, AEX Amsterdam, IBEX 35. By
enlarging the data set by the stock markets of G-20 Economies the list of the most important variables
has been changed and the models' quality measured by the area under the ROC curve has been im-
proved. By considering more global market the direction of PX Index changes in time t+1 is most
influenced by the changes in time t of the following stock market indices: S&P 500 Index, NASDAQ
Composite Index, Russell 1000 Index, Dow Jones Industrial Average. For both steps: before and after
the data set enlarging, one of the similar features is that the top four most important variables come
from time t, i.e. without lagging.
Keywords: stock market indices, simple and logarithmic returns, stochastic gradient boosting, tuning
parameters, ROC
JEL Classification: G15
Introduction
There are numerous approaches which have been conducted to analyze, understand and predict the
future behavior of the stock market. With the advent of the growing computer power and technology
the data mining technologies using in the stock market analysis become to be widely applied as well.
In (Huang W., Nakamori Y., Wang Sh., 2005) the stock market movement direction was forecasted
by applying the support vector machine (SVM), in (Qiu M, Song Y., 2016) the direction of the stock
market index movement was predicted by using the artificial neural network (ANN) model optimized
by using the genetic algorithms. Adaboost algorithm was applied in (Rodríguez P.N., Sosvilla-Rivero
S., 2006) to find direction-of-change patterns for the S&P 500 Index.
The current paper examines the dependence of the Czech stock market on the main European stock
market indices, then the analysis is extended by including the main indices of G-20 Economies. The
main research question is to examine, which stock market indices of the European and G-20 region
and at which delay have the impact on the Czech stock market index. The purpose of the current
paper does not consist in the finding the key factors of the Czech stock market's changes and not in
the market prediction but in the attempt to understand how the Czech stock market depend on the
European region's indices and then on the European region enriching by the stock market indices of
the major economies.
The dependency relations between the international stock market indices were analyzed in (Junior L.
S., Mullokandov A., Kenett D. Y., 2015), where the correlation and the flow of information between
international market indices were examined. In (Schich S. T., 2002) the dependencies between Euro-
pean stock markets when returns are unusually large were analyzed by using the approach from mul-
tivariate extreme value theory. The relationship between the Czech and European developed stock
782
markets was studied in (Princ, M., 2010) by using DCC MV GARCH model, where the data sample
covered besides the returns of Prague Stock Exchange other 11 major stock indices.
The purpose of the current research is to determine whether the higher or lower value of the Czech
market index is influenced by some previous values of the market indices of the European region and
then extending by the G-20 Economies. The impact of the different stock markets at the appropriate
delay on the increasing or decreasing in the Czech stock market between two trading days has been
examined by Stochastic Gradient Boosting technique.
The paper is structured into three parts. Firstly, the data set used in this research is described. Second-
ly, the methodology, determining the continuity of the steps in the empirical part, is introduced. The
final chapter is focused on the empirical analyzing and modeling. The paper is finalized by the main
conclusions.
Data Set
This section discusses the input data used in the analysis. The data set consists of the daily stock
market indices values for Europe region and G-20 Economies. For the European region the following
stock market indices have been chosen: ATX (Austria), BEL-20 (Belgium), CROBEX (Croatia),
OMXC20 (Denmark), OMXTGI (Estonia), OMXH25 (Finland), CAC 40 (France), DAX (Germany),
Athens Index Compos (Greece), BUX (Hungary), OMXIGI (Iceland), OMXRGI (Latvia), OMXVGI
(Lithuania), AEX Amsterdam Index (Netherlands), BELEX15 (Serbia), IBEX 35 (Spain), OMXS30
(Sweden). The stock market indices for G-20 Economies are represented by: S&P 500 (USA),
NASDAQ Composite Index (USA), Dow Jones Industrial Average (USA), Russell 1000 (USA),
Shanghai Composite Index (China), Hang Seng Index (China), Nikkei 225 (Japan), Bovespa Index
(Brazil), RTSI (Russia), BSE 30 Sensitivity Index (India), S&P TSX Composite Index (Canada), All
Ordinaries Index (Australia), IPC Index (Mexico), KOSPI Composite Index (South Korea), Jakarta
Composite Index (Indonesia), MERVAL Index (Argentina). DAX, CAC 40 and IBEX 35 indices
belong to both regions: European and G-20 Economies, but have been analyzed under the European
region. Due to availability of the daily prices of all indices mentioned above the whole data set has
been dated from 05.01.2009 to 22.07.2016. The Czech stock market is described by PX Index, which
is price index of blue chip issues traded on the Prague Stock Exchange1. All time series data have
been retrieved from Quandl Dataset with the help of Quandl (McTaggart R., Daroczi G., Leung C.,
2016) package in R Studio.
Due to the differences in holidays between countries the observations for all indices are not available
at some dates for the analyzed period. Following (Schich S. T., 2002) the missing observations were
replaced by the data from the last trading day before the bank holiday, according to (Junior L. S.,
Franca I., 2011) if the number of closed markets was more than 30% at a certain day, then the days
were removed from the data and if this number was below 30%, then the last computed index was
repeated. In the current paper the days, in which more than 60% of the indices' values have been not
available, were removed, in other cases the previous trading day's value of index was repeated.
Due to the interest in the indices' changes and their impact on the change of PX Index the data set
involves the indices' daily returns. Focusing on returns rather than on prices ensures the comparability
between the different indices and more attractive statistical properties (Campbell J. Y., Lo A. W.,
MacKinlay A. C., 1997). There are two most common approaches: simple and log returns. Following
(Campbell J. Y., Lo A. W., MacKinlay A. C., 1997) the simple net return on the asset between dates
t-1 and t is defined as
Pt
Rt = −1
Pt −1 .
And the log return of an asset as defined as the natural logarithm of its gross return (1+Rt)
Pt
rt = log
Pt −1 .
1
https://www.pse.cz/dokument.aspx?k=Burzovni-Indexy&language=english
783
There are several arguments substantiating the use of the logarithmic returns. One of the advantage of
using the logarithmic returns is evidenced in considering the multi-period returns, when the relation-
ship between the single and multi-period returns are additive, whereas in case of simple returns this
relation is multiplicative for single returns. By using the continuously compound (logarithmic) re-
turns which are time additive, there is a simplification in the statistical behavior of asset returns over
time, as it is easier to derive the time series properties of additive processes than multiplicative
(Campbell J. Y., Lo A. W., MacKinlay A. C., 1997). The comparison between logarithmic and sim-
ple returns, summarizing the desirable and undesirable properties of the logarithmic returns can be
found in (Hudson R. S., Gregoriou A., 2010).
Both approaches in returns' calculation were applied in the current analysis. Figure 1 shows the dis-
tribution of the daily PX Index returns in the simple and logarithmic forms with displaying their den-
sity plot and fitted normal distribution line over the mean. Figure 2 enables to graphically compare
the simple and logarithmic returns on PX Index. It can be noticed that the logarithmic returns (in grey
color) are smaller than the simple returns (in black color) but in case of the daily period return this
different is not dramatically significant in the graphical analysis. In the empirical part both approach-
es of returns' calculating are analyzed.
Figure 1: Distribution of the daily simple and logarithmic PX Index returns with displaying
the density plot and a fitted normal distribution line. Own calculation in R Studio, ggplot2,
PerformanceAnalytics packages.
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Figure 2: Daily simple (black) and logarithmic (gray) PX Index returns. Own calculation in
R Studio, ggplot2 package.
The research question in the current paper is to understand which stock markets of the European
region and G-20 Economies have the impact on the Czech stock market changes. As it was men-
tioned above the Czech stock market is described by PX Index. The dependent variable (y) takes 1
when the value of PX Index goes up in time t comparing with the value in time t-1, in case of going
down the value of the dependent variable is 0. Under the current research the 7 lags of each predictor
variable are analyzed. For each row in the final data corresponding to the time period t the outcome
variable takes 1 if the index value goes up in time t+1 and 0 otherwise, all predictors are for the peri-
od [t; t-7]. The days, for which there are no available data of the outcome variable or the lagged ex-
planatory variables, were removed from the data set. The proportion of the outcome variable in the
final data set is: PX Index increased in 50.1% and decreased in 49.9% of cases during the analyzed
period. The analyzed data set can be considered as balanced with respect to almost equal representa-
tion of both classes of the outcome variable.
Methodology
Boosting is powerful machine learning technique for classification and regression problems.
The algorithms of Gradient Boosting and Stochastic Gradient Boosting can be found in (Friedman J.,
1999) and (Friedman J., 2001).
Following (Friedman J., 1999) let y is a response variable and x = {x1 ,..., xn } is vector of explanato-
ry variables. { yi , x i }1N is training sample of known (y, x) values. The aim is to find a function F*(x)
that maps x to y, so that over the join distribution of all (y, x) values, the expected value of some
specified loss function Ψ ( y, F ( x )) is minimized (Friedman J., 1999)
F * ( x ) = arg min E y , x Ψ ( y , F ( x )).

F (x)
Boosting approximates F*( x ) by the “additive” expansion of the form
785
M
F ( x ) = ∑ β m h(x; a m ),
m =0
where the functions h(x;a) (“base learner”) are usually chosen to be simple function of x with pa-
rameters a. For m = 1, 2, …,M
N
( β m , a m ) = arg min ∑ Ψ( yi , Fm −1 ( x i ) + β h( x i , a))
β ,a
i =1
and
Fm ( x ) = Fm−1 ( x)
+ β m h( x; a m ).
The function h(x;a) is fit by least-squares

N ~
a m = arg min ∑ [ y im − ρ h(x i ; a)] 2
a, ρ i =1
to the current "pseudo" - residuals

~  ∂Ψ( yi , F (xi )) 
y im = −  
 ∂F (xi )  F ( x )= Fm−1 ( x ).
Given h(x;am), the optimal value of the coefficient βm is determined (Friedman J., 1999)
N
β m = arg min ∑ Ψ ( yi , Fm −1 ( xi ) + β h( xi ; a m )).
β i =1
In (Friedman J., 1999) was shown that incorporating randomization into this procedure can improve
the approximation accuracy and speed of gradient boosting. Following (Friedman J., 1999) at each
iteration a subsample of the training data is drawn at random from the full training data set, which is
then used to fit the base learner and compute the model update for the current iteration.
The specification of the loss function depends on the distribution of the response variable. The loss-
functions can be classified based on the type of the response variable. Following (Natekin A., Knoll
A., 2013) the most frequently used loss-functions for continues response: Gaussian L2 loss function,
Laplace L1 loss function, Huber loss function specified, Quantile loss function α specified; for the
categorical response: Binominal loss function and Adaboost loss function; there are also loss func-
tions for other families of response variable: loss functions for survival models, loss functions counts
data, custom loss functions.
Boosting has the following tuning parameters:
• the number of trees (n.trees)
• the shrinkage parameter (λ)
• interaction depth - the number of splits at each tree
• the number of observations in leaves (n.minobsinnode) - the minimum number of obser-

vations in trees' terminal nodes.
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In many practical applications it is useful to identify the variable importance. More details of deter-
mining the relative importance of input variables can be found in (Friedman J., 2001).
Considering that the tree has L splits, the influence of the variable j in a single tree T can be defined
as (Natekin A., Knoll A., 2013)
L −1
Influence j (T ) = ∑ I i21( Si = j ).
i =1
The measure is based on the number of times a variable is selected for splitting (Si is a current split-
ting variable, and it is the same as a queried variable j). I2i - empirical squared improvement assigned
to the model as result of the split. The overall influence of the variable j in the ensemble can be calcu-
lated as (Natekin A., Knoll A., 2013)
1 M
Influence j =
M
∑ Influence (T ).
i =1
j i
Empirical Modeling
In the empirical part the impact of the different stock market indices up to 7 delays on the increasing
or decreasing in the Czech stock market (describing by PX Index) between two trading days is exam-
ined by Stochastic Gradient Boosting technique. Firstly, the influence of the stock markets of the
European region is analyzed, then the data set is enriched by the stock markets representing the G-20
Economies. As it was mentioned in the data set description chapter DAX, CAC 40 and IBEX 35
indices belong to both regions: European and G-20 Economies but are analyzed under the European
region. These two steps are done for the data set consisting of the simple and logarithmic returns
separately.
All calculations were done in R Studio. Stochastic Gradient Boosting approach was performed by
using caret (Kuhn M. et al., 2016) and gbm (Ridgeway G. et al, 2015) packages. All predictors using
in the final data set are numeric and the dependent variable can take two values: increase or decrease
in the following trading day, so there is a classification type of model. Firstly, the stratified random
split of the data was performed, where for all models 75% of data were allocated to the training set
and the rest 25% create the testing set. To ensure the reproducible structure and avoiding the over-
fitting the resample techniques were used: 5 repeats of 10 cross-validation were applied and tuning
parameter grid was specified as:
• n.trees from 200 to 1000, step is 200
• interaction depth - (1, 3, 5, 7, 9)
• shrinkage (λ) was set equal to 0,001
• n.minobsinnodewas set equal to 10.
The optimal model has been chosen based on the value of the area under the ROC curve (AUC).
European region
Under this section the final data set contains 137 variables: the outcome variable, 17 stock indices'
returns up to 7 delays.
As it was stated above the optimal model was used based on the ROC metric using the largest value.
The tuning parameters' values of the final model determining using the ROC metric are the same for
the simple and logarithmic returns data sets and have the following values: n.trees = 200, interaction
depth = 1, shrinkage= 0,001 and n.minobsinnode= 10. The model's evaluating was performed us-
ing the data allocating in the testing set based on the AUC value. In case of logarithmic returns AUC
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is equal to 0.555 and in case of the simple returns the AUC is 0.565. The AUC value is low but the
purpose of the current analysis does not consist in prediction of the Czech stock market but in analyz-
ing the dependence of changes in the direction of the PX on other international indices, as it is fare to
expect that the direction of PX index's changes depends greatly on the changes in the main issues,
which PX Index is comprised of. There are also other macrocosmic factors that may have
a significant impact on the stock market index such as: the commodity prices, the exchange rates and
etc. Figure 3 and Figure 4 show the most important variables (indices in the European region) based
on the stochastic gradient boosting model's results. Figure 3 shows the results of the model applied on
the logarithmic returns and Figure 4 summarizes the results of the simple returns' analysis. It can be
noticed that for both approaches the variables CAC 40 Index (FCHI) was determined as the most
important in the differentiating between the increase and decrease patterns of PX Index. Other three
variables belonging to most important based on the model results are the same for both data set and
are the following: DAX Index (GDAXI), AEX Amsterdam Index (AEX) and IBEX 35 Index (IBEX).
It can be noticed that for the logarithmic and for the simple returns the order of these variables in the
measure of the variable importance's scale is different. For the logarithmic returns the importance of
CAC 40 Index is apparent greater than others, then IBEX 35 and AEX Amsterdam Indices follow,
which importance do not differ much and DAX Index closes top four most important variables based
on the model results. Comparing to the logarithmic returns, in case of the simple returns the im-
portance of CAC 40 Index is not such visibly differ from other most important variables, the second
most important variable was determined as DAX Index and then AEX Amsterdam and IBEX 35
Indices. The interesting finding is also the fact that under the analyzing the European region only, the
direction of PX Index changes in time t+1 is mostly influenced by the values of indices: CAC 40
(France), DAX (Germany), AEX Amsterdam (Netherlands), IBEX 35 (Spain) at time t i.e. without
lagging.
Figure 3: Variable importance based on the Stochastic Gradient Boosting model (Logarithmic
Returns, European Region). Own calculation in R Studio, caret, gbm packages.
788
Figure 4: Variable importance based on the Stochastic Gradient Boosting model (Simple Re-
turns, European Region). Own calculation in R Studio, caret, gbm packages.
European region and G-20 Economies
Comparing to the previous models where the stock markets were analyzed only in the Europe region,
the data set in this section is enriched by the main stock indices of G-20 Economies. The final data
set contains 268 variables: the outcome variable, 17 stock indices up to 7 lags from the previous sec-
tion (European region) and 16 stock indices up to 7 delay of the G-20 Economies region, the data set
has been also enlarged by the information of the particular day: the day of the week, day of the month
and the month of the year. The tuning parameters' values of the final models in this case have differ-
ent values for the simple and logarithmic returns data sets; for the simple returns the tuning parame-
ters are: n.trees = 200, interaction depth = 1, shrinkage = 0,001 and n.minobsinnode = 10, which
are the same as for the previous models, and in case of the logarithmic returns the parameters' values
are: n.trees = 400, interaction depth = 3, shrinkage = 0,001 and n.minobsinnode = 10. The AUC
of the testing set in case of the simple returns is equal to 0.642 and for the logarithmic returns the
AUC value is 0.645. It can be noticed that enlarging the data set by the stock market indices of G-20
Economies improved the models' quality measured by AUC under the ROC curve. Figure 5 and Fig-
ure 6 show the most important variables based on the applying the stochastic gradient boosting ap-
proach to enlarging data set. It can be also noticed that again as in the previous section the set of top
four most important variables contain the same variables for logarithmic and simple returns, but these
variables are arranged in a different order for two data sets. The list of other variables may differ for
simple and logarithmic returns. By enlarging the data set the list of the most important variables has
been changed. By considering more global market the direction of PX Index changes in time t+1 is
most influenced by the changes in time t the following stock market indices: S&P 500 Index (GSPC),
NASDAQ Composite Index (COMP), Russell 1000 Index (RUI), Dow Jones Industrial Average
(UDJIAD1). Similarly to the previous case the top four most important variables come from time t,
i.e. without lagging.
789
Figure 5: Variable importance based on the Stochastic Gradient Boosting model (Logarithmic
Returns, European Region and G -20 Economies). Own calculation in R Studio, caret, gbm
packages.
Figure 6: Variable importance based on the Stochastic Gradient Boosting model (Simple Re-
turns, European Region and G -20 Economies). Own calculation in R Studio, caret, gbm pack-
ages.
790
Conclusion
The current paper examined the impact of the different stock market indices up to 7 delays on the
increasing or decreasing in the Czech stock market (describing by PX Index) between two trading
days. The analysis was conducted by applying the Stochastic Gradient Boosting technique. Firstly,
the influence of the stock market indices of the European region is analyzed, then the data set was
enriched by stock markets representing the G-20 Economies. The model building step was applied
separately for two data sets: for simple and logarithmic returns. In case of the European region analy-
sis only, the changes in PX Index (increasing or decreasing) are most influenced by CAC 40, DAX,
AEX Amsterdam, IBEX 35. By enlarging the data set by the stock markets of G-20 Economies the
list of the most important variables has been changed and the models' quality measured by the area
under the ROC curve has been improved. By considering more global market the direction of PX
Index changes in time t+1 is most influenced by the changes in time t in the following stock market
indices: S&P 500 Index, NASDAQ Composite Index, Russell 1000 Index, Dow Jones Industrial
Average. For both steps: before and after the data set enlarging, one of the similar features is that the
top four most important variables come from time t, i.e. without lagging. For simple and logarithmic
returns in each step (before and after enlarging) the order of top four most important variables in the
measure of the variable importance's scale is different.
The present study examined which stock market indices in the European region and then European
region enriching by the stock market indices of the G-20 Economies influence the direction of chang-
es in Czech stock market index (measured by PX Index). The purpose of the current paper did not
consist in the finding the key factors of the Czech stock market's changes and not in the market pre-
diction, so the current study can be considered as a preliminary analysis. For the PX Index's predic-
tion and better understanding its behavior in the global market the more factors should be taken into
account, e.g. such as: the changes in the main issues, which PX Index is comprised of, the impact of
different macroeconomic factors.
Acknowledgements
The research was supported by the research grant VŠE IGA F4/73/2016, Faculty of Informatics and
Statistics, University of Economics, Prague.
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14, 2016]. http://www.svms.org/finance/HuangNakamoriWang2005.pdf.
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792
The Influence of Slovak Pension Reform on the Second Pillar

during the Financial Crisis
Mário Papík and Jana Kajanová
Faculty of Management, Comenius University, Bratislava, Slovakia

,
mario.papik@gmail.com
jana.kajanova@fm.uniba.sk
Abstract
Pension system reforms in Central and Eastern Europe started at the end of 90s, at the beginning of new
millennium. These changes transformed one-pillar scheme - pension system with set PAYG contributions
managed by state - into more-pillar scheme with an individual pension saving. In majority of countries,
this scheme has been undergoing continuous changes influenced by financial and economic crisis, which
in several countries (e.g. Czech Republic) led to its abolition or to its nationalization (e.g. Hungary). The
research in the underlying article is focused on the second pillar in the Slovak pension system and on the
influence of reforms intended to protect savings during the financial crisis.
Keywords: pension funds, Slovak pension system, assets structure
Introduction
In developed countries, the pension system reforms are conditioned by demographic changes. Since the
beginning of 90s, countries in Central and Eastern Europe have started undergoing such changes. (Égert,
2012) They were created by an adverse ratio between productive population and retired population. As a
result, the number of productive population has been decreasing which causes a greater number of retired
population. The birth rate in Slovakia which decreased from 2.1 child in 1990 to 1.3 child in 2000 along
with life expectancy rising from 68 years in 1990 to 73 years in 2000 indicated that sometimes between
2030 and 2060, pension systems in Central and Eastern European countries might have problems with
paying pensions guaranteed by state. (Chovancová et al. 2005)
The number of population aged 60 and more will grow from approximately 19% in 2005 to 36% in 2050.
To be more precise, by 2050 the percentage of old-age group will reach 38% in Central Europe, 34%t in
South-Eastern Europe and 36% in the Baltic States. (Cerami, 2011) Because of that, more than thirty
countries - predominantly in Central and Eastern Europe (CEE) and in Latin America - partly replaced
their public pension systems with mandatory private retirement accounts managed by the financial
industry between the mid-1990s and early 2000s. (Guardiancich, 2013; Madrid, 2003)
Slovak Republic was not an exception. On 1 January 2005, pension reform with fundamental influence on
the function of the pension system came into force and resulted in transformation of one-pillar pension
system with set PAYG contributions into a system of three individual pillars. (Orenstein, 2011)
The first pillar continues to represent obligatory pension insurance contributions continuously financed
and managed by social insurance company called Sociálna poisťovňa which is guaranteed by state. It
includes all productive-age population and their employers who are obliged to contribute. (Thomay,
2002)
793
The reform helped to form the second and third pension pillars. The second pillar represents old-age
pension saving financed from capitalization and managed by pension management companies. Whole
productive-age population is part of it, since one half of levies (9% at that time) paid to the social
insurance company while having one-pillar system, will now be paid into their pension account in a
management company. (Act 43/2004)
The third pillar represents an optional supplementary pension saving financed from capitalization and
managed by pension management companies. At their own discretion, any citizen can contribute by a part
of their income to this complementary retirement saving. (Act 650/2004)
Reforms of the Second Pillar during Crisis

During the global economic crisis caused by the collapse of Lehman Brothers in 2008 the whole financial
world found itself in uncertainty. The severity of the crisis also had the effect of convincing many people
that the fundamental model of free market capitalism was flawed. Rather than being a path towards
higher productivity and efficiency, more people now see free market capitalism as crisis-prone and
potentially dysfunctional. (Birdsall and Fukuyama, 2011; Stiglitz, 2010)
As far as free market capitalism is concerned, there arose many voices questioning the hypothesis that a
market is always more effective than a government, that the wealth can be better distributed by market,
failures of market are less frequent than those of governments and that market can be regulated by itself
reaching balance without any governmental intervention. (Orenstein, 2011)
Rising doubts about financial markets functionality stopped the reform and privatization of pension
scheme in many countries. Already privatized pension scheme was renationalized in several countries
such as Argentina, Kazakhstan or Hungary. (Naczyk and Domonkos, 2016) It is the doubt about market
functionality and the need of governments to guarantee certain pensions which lead them to conduct
pension system reforms.
The Slovak pension system has been amended several times since the economic crisis outbreak. Even
though the second pillar had never been planned to be nationalized by the Slovak government, by
abolishing the obligation for the young entering the labour market to enter the second pillar, lowering the
amount of levy from 9% to 4%, extending the saving period from 10 to 15 years and by the pillar
reopening with the option to enter it or not, the government aimed to attract savers back to pensions in the
first pillar managed by it. (Goliaš, 2011)
On 1 July 2009 an amendment regulating guarantees in all types of pension funds came into force. Since
then, pension management companies were obliged to secure the clients at least such value of savings by
which they contributed. (Act 137/2009) These losses and a lack of pension management companies’
resources were compensated from a special guarantee account. The risk of paying up for possible losses
rising from investing into volatile securities significantly increased for pension management companies
and led to securities sale. The number of equity investments decreased to zero after first half of year.
(Goliaš, 2011)
794
2500 S&P500
2000
1500
1000
500
0
10/1/2007
4/1/2008
10/1/2008
4/1/2009
10/1/2009
4/1/2010
10/1/2010
4/1/2011
10/1/2011
4/1/2012
10/1/2012
4/1/2013
10/1/2013
4/1/2014
10/1/2014
Figure 1: S&P500 equity-index development
The amendment to the act regulating guarantees in pension funds was adopted at the beginning of
financial markets’ slow revival which can be clearly seen in the S&P500 equity-index development graph
reaching its bottom in March 2009. At the time when the amendment No. 137/2009 was in force, it was
obvious that financial markets became gradually reviving and their darkest time were gone.
Pension management companies were obliged to guarantee the value of assets in pension fund since 2012
after the amendment No. 252/2012 came into force. The obligation to guarantee a nominal depreciation of
assets was abolished for mixed and equity pension fund, but these guarantees have been maintained in
bond pension fund. Resulting from the amendment, the pension funds’ assets had been gradually
changing.
The Aim of the Article

Pension funds’ guarantees valid since 2009 had influenced investment decision-making before they
actually came into force. That time, pension funds already started massive selling of more volatile
securities such as shares and units from all funds. As it is obvious from Fig. 1, the last quarter of 2008
and the first quarter of 2009 was the time when the global financial crisis was approaching its climax and
when the selling resulted in considerable losses.
The aim of this article is to point out that the composition of all three pension fund types did not differ
from each other under the influence of the reform resembling ultraconservative funds. The composition of
these funds had a significant impact on their profitability what became evident at the time of rising stock
market all around the world in lower profit of growth and balanced funds in Slovakia compared to
surrounding countries.
Methodology
For purpose of the article, information about pension funds’ assets was collected from Slovak pension
funds from 2009 to 2014. This data were gathered from six equity funds (called growth funds in the past),
six bond funds (conservative funds) and six mixed (balanced) pension funds which did not exist that time.
During this period, three mixed funds ceased to exist. They were managed by companies called Allianz
and Axa which stopped their activities in 2013 and a company called AEGON that ceased to exist in
2014.
Information on pension funds assets’ composition was gained from individual financial statements of all
studied funds. Individual entries were then assigned to one of the following groups: bonds, equities or
deposits. To category “bonds” belong all debt securities including government bonds, corporate bonds or
795
treasury notes owned and measured at fair value or at amortized cost by pension funds. Category
“equities” includes all equities, units and other equity securities making their owner entitled to the
company’s profit. Under “deposits” are placed all term deposits and receivables of banks from pension
fund. An individual analysed category is pension funds’ profit representing total complex profit. All these
components of assets are expressed as ratio to total assets.
Comparisons of portfolio composition have been conducted in statistical software R. The hypothesis
saying that mean values for representation of equities, bonds, deposits and pension funds’ profit is the
same across individual pension funds’ types, have been tested using built-in function for one way analysis
of variance. For the aim of the research, the time period from 2009 to 2014 was analysed, since the
amendment to pension reform No. 137/2009 on guarantees in pension funds was being in force that time.
The goal of the hypothesis was to point out that during certain period, there was no significant difference
between equity, bond and mixed funds as far as composition of assets is concerned. Resulting statistics
were verified by Tukey's honest significance test.
Analysis
Analysis of variance was used to compare mean values for equity, bond and mixed pension funds. As a
measurement basis, bond pension fund was set for each type of assets (bonds, equities and bank deposits)
and profit which was then compared with mixed and equity pension funds. Means and changes among
individual groups, standard errors and p-values are noted in Table 1.
It is obvious, during 2009-2014 there was no significant difference between bond, mixed and equity funds
as far as the amount of bonds, equities or bank deposits is concerned. More than 70% of total assets was
composed by debt securities supplemented by pension funds along with bank deposits ranging from 20%-
25%. Regarding the same composition of all three pension funds’ types, there was no significant
difference between profits they generated. Bond funds’ and mixed pension funds’ profit was around 1%
while equity pension funds were doing a bit worse.
796
2009 2010 2011 2012 2013 (2014)
Mean Mean Mean Mean Mean Mean
Assets Fund type
Standard Standard Standard Standard Standard Standard
Error Error Error Error Error Error
0.71521 0.72873 0.73425 0.68962 0.68372 0.76792
Bond
0.10847 0.06767 0.04119 0.03324 0.06000 0.06367
-0.14492 -0.04526 -0.01094 0.03553 -0.16440 -0.24933
Bond Bond vs. Mixed
0.15340 0.09570 0.05825 0.04701 0.09487 0.11028*
-0.01027 -0.03718 -0.02614 0.00208 -0.28152 -0.37613
Bond vs. Equity
0.15340 0.09570 0.05825 0.04701 0.08485** 0.09004**
0.00409 0.00000 0.00000 0.01179 0.05459 0.04258

Bond
0.00618 0.00127 0.00004 0.01753 0.04671 0.04584
0.00657 0.00162 0.00005 0.02909 0.26586 0.36607
Equity Bond vs. Mixed
0.00874 0.00129 0.00006 0.02480 0.07385** 0.07939***
0.00864 0.00167 0.00005 0.03979 0.41414 0.50373
Bond vs. Equity
0.00874 0.00179 0.00006 0.02480 0.06605*** 0.06482***
797
0.19395 0.24058 0.21884 0.25619 0.20617 0.17113
Bond
0.09513 0.07311 0.06041 0.03532 0.04497* 0.03819*
0.01342 0.02740 0.00344 -0.04529 -0.16275 -0.14579
Deposit Bond vs. Mixed
0.13453 0.10339 0.08543 0.04995 0.07111 0.06616*
0.01737 0.02584 0.01856 -0.02794 -0.12005 -0.15391
Bond vs. Equity
0.13453 0.10339 0.08543 0.04995 0.06360 0.05402
0.01331 0.00948 0.01117 0.01677 0.00372 0.02887
Bond
0.00269 0.00606 0.00120 0.00340 0.00908 0.00617
Table 1: Analysis of variance of pension funds during 2009-2014
-0.00576 0.00019 0.00026 0.01259 0.07781 0.02668

Profit Bond vs. Mixed
0.00381 0.00857 0.00169 0.00481* 0.01436*** 0.01069*
-0.00623 -0.01013 -0.00172 0.01111 0.08041 0.04478
Bond vs. Equity
0.00381 0.00857 0.00169 0.00481* 0.01284*** 0.00873***

Significance. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 ' ' 1
After the amendment abolishing guarantees in mixed and equity funds came into force in mid-2012, it
was possible to see the first considerable difference in their profits. Funds started benefiting from
acquired securities, following the trend in increasing their value. Equity funds owning 5% and mixed
funds owning 4% of equities consequently generated profit of more than 2.5%.
At the end of 2013, the difference between pension funds’ owned assets became evident. 45% of equities
were owned by equity funds and 30% by mixed funds. In comparison, bond pension funds owned that
year only 5% of equities what reflected in their profit, significantly higher than that of bond funds.
The trend in individual pension funds’ specialization can also be witnessed in 2014, as there is a
noticeable difference between analysed parameters. Consequently, the funds started differentiating by
their productivity, and became much easier for savers to get familiar with.
Table 2: Actual pension funds profits in selected OECD member countries
(2008) 2009 2010 2011 2012 2013 2014

Slovak Republic -8.9 1.0 0.0 -3.8 0.4 1.1 3.9
Czech Republic -1.5 -0.6 0.7 0.5 0.2 0.2 1.2
Estonia -32.4 14.8 2.1 -8.0 5.2 0.9 4.7
Hungary -21.7 12.8 4.2 -0.5 6.8 7.0 9.6
Poland -17.3 8.9 7.2 -9.1 1.6 2.7 NA
Slovenia -5.4 4.2 1.8 -1.8 4.5 2.5 6.7
OECD Average -11.2 6.1 2.9 -1.7 5.0 4.7 6.8
According to OECD data in table 2, as the financial crisis started, pension funds in Central and Eastern
Europe generated considerable losses reaching 32% in some countries. Losses of the Slovak pension
system reached 8.9% which is 2% more than the OECD average. Shortcomings of the reform became
apparent shortly after its adoption when pension systems’ real profits in surrounding countries
significantly increased as they started being viable. It was not the case of Slovak pension funds. Based on
the obligation to guarantee pension funds’ value, they sold majority of units. Consequently, the loss
generated in 2008 was decreased only of 1% during the next two years, while in other OECD member
countries it was 2.2%.
The fall that followed in 2011 was the third biggest in analysed countries and tenth in OECD member
countries, proving that the amendment could not guarantee safety in pension funds. Even the most careful
savers are still exposed to risks on the market which are, in case of financial crisis outbreak, impossible to
be utterly protected from even with strict state regulation. In some cases there is nothing else to do but
accept this crisis, trying to establish a pension fund flexible enough to be able to decrease losses or even
profit shortly after the end of crisis.
Conclusion
After the financial crisis outbreak, there arose more and more voices questioning the effectiveness and
reliability of the financial markets and financial system. Central and Eastern European countries
privatized their pension system in the late 1990s and it is nowadays still being reformed and re-privatized.
The World Bank praised the pension system privatization in Slovakia for a long time. (World Bank,
2004) After the financial crisis outbreak, the new government decided to guarantee the savers, saving in
798
the second pillar, the refund of nominal amount of their deposit. Losses caused by potential falls in
financial markets having impact on assets in the second pillar should have been compensated by pension
management companies from guarantee account or from their own resources.
Resulting from the reform, pension management companies became more careful, investing from the
second pillar. After the sale of equity and riskier bond investments, the composition of assets in
individual funds became basically uniformed. In the analysis we have shown that equity and mixed funds’
assets and profit did not differ from that of bond funds. Since the equity investments sale took place in the
first half of 2009, neither growth nor balanced funds profited from latter growth of equities on the world
market. Even though the fall in 2008 was not as noticeable in Slovak pension funds as in those of
surrounding countries, their loss deepened, based on non-profiting from latter growth on world markets.
It is very important for governments in all countries to make only inevitable legislative changes of the
pension system in the future. The second pillar functionality can be guaranteed only if it is stable and its
rules are comprehensible in the longer term horizon. Unreasonable intervention into the system can
become very counter-productive eventually. Despite low confidence in market after the global financial
crisis and European debt crisis, the Dow Jones Industrial Average index or S&P 500 index are currently
reaching new maximum. This state proves that in spite of all doubts, the financial markets are still able to
grow after the financial crisis, which is a good signal for the second pillar and pension funds based on
that.
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Act 137/2009 ktorým sa mení a dopĺňa zákon č. 43/2004 Z. z. o starobnom dôchodkovom sporení a o
zmene a doplnení niektorých zákonov v znení neskorších predpisov. [Online], [Retrieved August 29,
2016], http://www.socpoist.sk/ext_dok-137-2009-z-zp-32911/54480c
Act 252/2012 ktorým sa mení a dopĺňa zákon č. 461/2003 Z. z. o sociálnom poistení v znení neskorších
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Big Data Security using Fragmentation in Mongo Data Store

Houyem Heni and Faiez Gargouri
Miracl Laboratory, Sfax University, Sfax, Tunisia
houyem.heni@gmail.com
faiez.gargouri@isims.rnu.tn
Abstract
One of the key security issues involved with big data aggregation and analysis is that organisations
collect and process a great deal of sensitive information. In fact, we do not cease to transmit our
identifiable information via the MongoDB nodes. Big data becomes widely spread because of the
increasing number of its sources and people who use them. Thus, Due to big data proliferation and
the various information resources, our personal data will be shared and published by all people;
that is why our privacy will be increasingly accessed, and thus threatened by hackers. Through this
paper, we want to dig into the big data context while implementing a methodological approach to
protect the sensitive data in the big data storage. These massive data sets have lead to the
emergence of some distributed data processing and storage technologies like Mongo data stores. In
this paper, we propose a method which combines fragmentation and encryption to ensure security
in Mongo database. It allows sensitive data security in NoSQL context.
Keywords: Big Data, Security, NoSQL, MongoDB, Fragmentation
Introduction
In a research study by IBM (2014), we generate daily about 2.5 trillion bytes of data. So much so
that 90% of the data in the world were created only in the last two years. These data come from
many resources: sensors used to gather climate information; posts on social media sites; digital
pictures and videos posted online as well as transaction records of online purchases and phones
GPS signals mobile. This massive information is called big data or massive data volumes. The
latter cover three dimensions: Volume, Variety and Velocity.
Recent advances in computing, networking, storage, and information technology have enabled the
collection and distribution of great deal of sensitive big information as well as social number,
medical and financial information in a variety of applications, such as E-commerce, social
networks and cloud computer. The presence of big data and its rich application have created the
need for advanced techniques ensuring in-depth security to guarantee our privacy. Actually, big
data are the vault of the enterprise sensitive business information. Unfortunately, this makes
sensitive data an appealing target for malicious inside and outside attackers. Knowing that big data
is a heterogeneous combination of structured, semi-structured and unstructured data, the overall
objective of data providers will be first to classify the information and control it. In fact, big data
is divided into data at rest and data in motion. According Ricardo et al (2010), the handling of data
at rest requires preventive security techniques to protect it before being attacked, such as
implementing referential integrity and concurrency constraints, data access policies, data masking;
and encryption techniques for changing original data values.
In fact, big information suppliers, having massive data storage needs, are seriously interested in
NoSQL. As mentioned in ABM et al (2013), NoSQL Database experts are highly demanded for
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most of the developing organizations. With the networks revolution which often includes the
security of sensitive and personally-identifiable information, how we can ensure our privacy
becomes an important challenge. To guarantee this challenge we must, on the one hand, improve
the security of big data frameworks which ensure the data circulation (e.g.HDFS, NoSQL data
stores …). On the other hand, there are many challenges related to data management security, such
as domain-specific restrictions, proper implementation of suitable security mechanisms, efficient
data manipulation and service level security issues. Besides, other surveys have also demonstrated
that efficiently securing sensitive data has become an imperative concern. Following a study on
enterprise data security, conducted by Independent Oracle Users Group (IOUG) in 2012, has
shown that only 50% of the inquired companies increased their investment in IT security such as
IBM2 which could enlarge these perspectives on security while implementing 6,000 IBM Security
experts worldwide, 3,000 IBM security patents, and 4,000 IBM managed security client services
worldwide. There are many factors to improve security in frameworks which process a huge
volume of personal identifiable information. In a research study by big data working group CSA
(2010), these factors include variables, such as large-scale cloud infrastructures, diversity of data
sources and formats as well as streaming nature of data acquisition. Consequently, traditional
security solutions are tailored to secure small-scale static .There are different types of
vulnerabilities related to big data security like the inconsistent use of encryption keys, lack of
security in big data storage frameworks and unauthorized modifications. These vulnerabilities may
result in a multitude of consequences to our privacy. Currently, there are no adequate technical
solutions for handling data fragmentation and encryption in the MongoDB.
The remainder of this paper is organized as follows: Section 2 depicts data security solutions. In
Section 3, we discuss the related works that have dealt with different security techniques. Section
4 is devoted to a study The Massive Security Challenges of Big Data Frameworks. Section 5 is an
overview of mongodb. Finally, we end up this paper with a conclusion.
Background on Big Data Security

In a research study by Bhavya Daya (2013) we mentioned that with the advent of the internet and
cloud applications, big data security became a major concern and the history of security allows a
better understanding of the emergence of security technology However, due to the differences in
data domains, attacks and vulnerabilities are very context sensitive.
Sensitive data security is the aspect of security that allows client’s data to be transformed into
hidden data for transmission. Even if this hidden data is intercepted, a key is needed to decode the
message. This method of security is effective to a certain degree. Strong cryptography in the past
can be easily broken today. Cryptographic methods have to continue to advance due to the
advancement of the hackers as well. Also as encryption, the role-based access control (RBAC)
policies are based on users or roles with privileges on the databases stored objects. As mentioned
in Francisco (2008) Each object could have a security level assigned and if the user or role owns
that security level then he will be able to access the data contained in the object and comply with
Data masking As the term itself indicates, is the process of obscuring data, either by replacing true
values with false values or by hiding a part of its values, in specific data elements. In databases,
the main goal of data masking is to replace stored true data with realistic but unreal data, so the
true data is unavailable to unauthorized users. Data Encryption is used to secure the data, but only
while the encryption keys are safe. If the encryption key is discovered, it can unlock everything.
Unlike, Data Encryption with most data masking strategies, there is no master key in
cryptography. As Vaudenay (2006) Encryption is defined that is an algorithm is a procedure or
function that handles a given input, performs a series of rounds composed by mixing and
transformation actions with that input or part(s) of it, depending on a given encryption key or set
of keys, and generates a given output from those mixes and transformations. The Oracle Database
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provides a PL/SQL package that encrypts and decrypts stored data, and there are many encryption
algorithms supported by Oracle such as RC4 DES (Oracle 8 and 9) 3DES (Oracle 10) AES
(Oracle 11) encrypts data using a set of master and secondary keys, which can be applied on
column and table space encryption. If we talk about big data security we must meet three criteria,
confidentiality, integrity and availability. Big data poses extra challenges to the CIA paradigm
because of the huge volume of identifiable data that needs to be safe guarded, the multiplicity of
sources it comes from and the variety of formats in which it exists. Duplicate data sets and disaster
recovery plans can multiply the already high costs. Furthermore, because the main concern of big
data is collecting and making some kind of useful interpretation of all this information, responsible
data oversight is often lacking. Privacy and security of transactions cannot be guaranteed by usage
of the standard methods only, such as HTTP. Therefore, the Application Programming Interface
(API) level is used for this purpose. However, APIs introduce additional complexities that can
create security vulnerabilities in the API stack itself or in the technology responsible for handling
the API calls. Therefore, secure channels and the reliability of the API-handling transactions are
necessary for data integrity. Confidentiality also depends on how data is stored. The security of
storage depends not only on the application responsible for storing the data but also on the
operating system and other applications that run on the same system. The physical location of the
stored data is a factor as well, as it is in the customers' interest to know where the data actually
resides and whether the records are adequately secured. Data backups should be created regularly
for fast recovery in case of a system or hardware failure. Finally, these backups need to be
protected as well. There are different types of threats related to big data such as inconsistent use of
encryption and software keys, operational failures, authentication and authorization failures, or
lack of security in big data storage areas. In the next section we draw some of research which
involves the same topics of us.
Related Works
Privacy and security of big data is gaining momentum in the research community thanks to some
emerging technologies like Cloud Computing, analytics engines and social networks. In response
to this novel research challenge, several methods, techniques and algorithms have been proposed
to ensure the privacy and security of big data. In this section, we provide an overview of state of
the art research issues and achievements related to privacy and security of big data by highlighting
open problems and actual research trends, and drawing novel research directions in this context.
This section firstly presents the security techniques in big data and its frameworks. Then, other
works related to data fragmentation are briefly depicted.
Security techniques for big data and its frameworks
In the actual state of the art, there exist several approaches dealing with the privacy and security of
big data. Here, we review some of the most important ones.
Wu et al (2013) the author has proposed a new model for supporting user data privacy, this
approach is very relevant for the social network context, particularly in mobile application
scenarios. It consists in explicitly showing the usage of personal data directly within the
application, and controlling the possible privacy (and security) breaches via explicit authentication
mechanisms. Jensen (2013) focuses the attention on privacy aspects of analytics over big data.
Here, several interesting challenges are highlighted. For instance, the problem of correlation
attacks, which consists in discovering data distributions (of the data sets on which the analytics
run on) via linking the most uniform data sets of the target data with other uniform (known) data
sources as to reveal the nature of the former. Also, consent grant and revocation are discussed, as
other critical challenges for a Cloud-enabled data provider which may decide or not to “feed” the
analytics, while this decision can also vary over time.
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With the same goals in mind, Li et al (2013) the authors has introduced a novel Cloud architecture
which process big data , called “My Cloud”, to solve privacy concerns in Cloud environments
when processing big data. It removes the virtual machine controlling the Cloud software in the
host client (which is the main reason of user privacy violations in public Clouds), and keeps
security and performance-oriented components in an ad-hoc trust computing module. Thanks to
this software architecture approach, user’s privacy constraints can be configured accordingly
without suffering the authority of the virtual machines.
Ishibuchi et al (2013) authors consider a typical machine learning setting in distributed

environments with privacy and security concerns. As a further constraint, authors assumed that no
information of each candidate classifier running on top of each node of the target distributed
environment is available, which complicates the model. Authors have provided an innovative
technique where candidate classifiers could be used as “black-boxes”, yet no decreasing the
accuracy of the final mining results, in order to satisfy the privacy and security requirement.
Data Fragmentation
Ciriani et al (2010) has proposed a model which improves the data security of relational databases
by combining fragmentations as a way to break sensitive data relations and encryption for making
rendering data content unintelligible. Fragmentation is conducted to isolate attributes that must not
be identifiable as being linked together, while encryption is executed on a whole-tuple basis. In
addition, they attach unencrypted attributes subject to confidentiality constraints in order to allow
efficient selection operations without searchable encryption techniques. Depending on the actual
queries, different attribute combinations need to be revealed, resulting in data redundancies.
Sandeep K. Sood (2012) has suggested a combined approach which provided a way to protect data
and check the integrity and authentication by following the best possible industry mechanisms.
This technique introduced the fragmentation of data into different sections: Index builder, 128-bit
SSL encryption, message authenticate code as well as a double authentication of user - one by the
owner and the other by the cloud- and verification of the owner’s digital signature. It also provides
availability of data by surpassing many issues as data leakage, data tampering and data encryption.
In fact, data fragmentation has been applied as a perfect solution to ensure more security in
databases. Rekatsinas et al (2013) introduced the problem of privacy aware data partitioning;
namely the problem of splitting a sensitive dataset amongst untrusted parties. In their work, the
authors presented SPARSI, a theoretical framework that allows us to formally define the problem
as an optimization of the tradeoff between the utility derived by publishing the data and the
maximum information disclosure incurred to any single adversary.
The problem of fragmenting has been addressed by others in the literature and some approaches
have been proposed Navathe et al. (1984); Navathe et al (1989). However, these approaches are
not applicable to our problem since they are only aimed at performance optimization and do not
take into consideration protection requirements and confidentiality of sensitive information.
However, even state of the art technologies sometimes fail to provide an adequate level of privacy
and security as service providers may be tempted to exploit the trust of costomers and profit from
passing private data to other parties.
The Massive Security Challenges of Big Data Frameworks

To ensure security in big data era, executives and big information suppliers, such as Facebook,
Tweeter and Amazon have to address the following issues:
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Big Data Source
To fully exploit the advantages of big data, big information suppliers leverage various forms of
data including both unstructured data, stored in a great number of file types, and structured data
gathered in a range of heterogeneous applications and databases. These big data comes from many
sources like social media sites, sensors, digital photos, business transactions, location-based data,
etc... Furthermore, data sources are unceasingly increasing. Nowadays, they include personally
identifiable information, payment card data, intellectual property, health records, etc....
Consequently, the data sources, being compiled, need to be secured in order to address security
policies and compliance mandates.
Big Data Frameworks
The big data environment is powered by Hadoop, Teradata and NoSQL databases, which represent
popular technologies used to manage large volumes of data with a distributed way, or by another
system that is able to treat a huge volume of sensitive data may be managed at any given time.
Sensitive information do not just reside on big data nodes, but they can be in form of system logs,
configuration files, error logs, etc. In this paper, we will focus on NoSQL databases. In
Moniruzzaman et al (2013) the authors cited four NoSQL data stores mentioned below:
─ Key/value stores: store items as alpha-numeric identifiers (keys). They associate values in
simple standalone tables. Requests can be performed only against keys, and not against values.
─ Column stores: do not store data in tables, but in massively-distributed architectures. In column
stores, each key is associated with one or more attributes (columns). The data stored is based on
the sort order of the column family.
─ Document databases: are designed to manage and store documents encoded in a standard data
exchange format, such as XML. Unlike the simple key-value stores, the value column contains
semi-structured data, specifically attribute/value pairs. The number and type of recorded attributes
can vary from one row to another. Both keys and values are searchable. Document databases are
good for storing and managing Big Data-size collections of literal documents like text documents,
email messages, and XML documents.
─ Graph databases: replace relational tables with structured relational graphs of inter-connected
key value pairings. These graphs are represented as an object-oriented network of conceptual
objects (nodes), relationships (edges) and properties (object attributes expressed as key-value
pairs).
We frame our work in the context of NoSQL databases. They are by far the most common
solution for managing data privacy subject. We are also convinced that document-oriented
databases, especially Mongo DB, are the suitable ones because they are scalable, schema-less and
very flexible. Besides, these databases are intended to store structured, semi-structured and
unstructured data. According to LinkedIn4 profile mentions, MongoDB growth means that this
data store has cemented its place as the most popular NoSQL database As shown in the chart
below, it accounts now for 45% of all mentions of NoSQL technologies in LinkedIn profiles.
MongoDB: Overal Presentation

As MongoDB team5, MongoDB is the database for today's applications because it is enabling to
leverage data and technology in order to maximize competitive advantage, reduce risk for mission-
critical deployments, accelerate time-to-value, and dramatically lower the ownership total cost.
MongoDB is a cross-platform, document-oriented database that provides high performance and
availability as well as easy scalability. MongoDB works on the concepts of collection and
document.
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Mongo data model
MongoDB is a database management system oriented document. It is partitionable on some

number of computers and does not require a predefined schema by the data. The structure of data
in mongo DB has a flexible schema; the documents in MongoDB are stored as collections. These
collections are not necessarily uniform. Collection is a group of MongoDB documents. It is the
equivalent of an RDBMS table. A collection exists within a single database. Collections do not
enforce a schema. Documents within a collection can have different fields. Typically, all
documents in a collection are of similar or related purpose.
In the literature there are three types of mongo model embedding, referencing and hybrid model
type .these data model will be detailed in the next subsections.
Mongo data Type
Embedding model
Embedding model enables de-normalization of data which means that two or more related pieces
of data will be stored in a single document. Generally, embedding provides better read operation
performance since data can be retrieved in a single database operation. In other words, embedding
supports locality. If your application frequently accesses related data objects the best performance
can be achieved by putting them in a single document which is supported by the embedding
model. In this case, Mongo DB provides atomic operations on a single document only. If fields of
a document have to be modified together, all of them have to be embedded in a single document in
order to guarantee atomicity. MongoDB does not support multi-document transactions. For this
reason, distributed transactions and distributed join operations are two main challenges associated
with distributed database design. By not supporting these features, Mongo DB has been able to
implement highly scalable and efficient atomic sharding solution. On the other hand, embedding
has disadvantages as well. If we keep embedding related data in documents or constantly updating
this data, it may cause the document size to grow after the document creation. This can lead to
data fragmentation. At the same time, the size limit for documents in Mongo DB is determined by
the maximum BSON document size which is 16 MB. For larger documents, you have to consider
using GridFS. However, if documents are large, the fewer documents can fit in the server will
more likely have to page fault to retrieve documents.
Referencing Model
Referencing model enables normalization of data by storing references between two documents to
indicate a relationship between the data stored in each document. Generally, referencing models
should be used when embedding would result in extensive data duplication and/or data
fragmentation (for increased data storage usage that can also lead to reach maximum document
size) with minimal performance advantages or with even negative performance implications; to
increase flexibility in performing queries if your application queries data in many different ways,
or if you do not know in advance the patterns in which data may be queried; to enable many-to-
many relationships, to model large hierarchical data sets (e.g., tree structures) by using referencing
requires more roundtrips to the server.
Hybrid model
Hybrid model is a combination of embedding and referencing model. It is usually used when
either embedding or referencing model is the best choice. But, their combination results in the
most balanced model.
In our approach, we will follow the first model type, the database normalization process which is
critical for ensuring independency and unlinkability of the collection. Normalization is used to
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control data redundancies. Thereby, it reduces data anomalies.

In the next we define our proposed approach and all its algorithms
Proposed Approach
As we have mentioned above, one of the most important challenges of big data security is first the
protection of sensitive data management, and second how to deter-mine appropriate methods and
algorithms to ensure data security. In fact, information in big data frameworks has to go through
different processing levels. Thus, the security mechanism, provided at each step, should be
efficient. Besides, data should not succumb to the attackers trying to retrieve or tamper with. Seen
that big data suppliers cannot be trusted with data of high sensitivity, even big data providers
should not be able to harm the data anyhow. For this reason, it is obvious that the proposed
approach has been designed by considering all these conditions.
by creating our fragmentation algorithm we are inspired by the algorithm used in Hudic et (2012)
relational databases while respecting the specificities of our base NoSQL .Our approach is applied
to MongoDB, and consists of two global phases:
• sensitive data identification

• Fragmentation of Sensitive collection
Sensitive Data Identification
In the literature, there are many techniques used to classify sensitive data. As mentioned in IBM
research, there are two methods of classification:
─ Deterministically on specific keywords or patterns in the actual data or the Meta data.
─ Algorithmically use document clustering with taxonomic or other classification methods,
natural language analysis, Bayesian inference and neural networks.
In our security approach we will use the deterministically algorithm which based on regular
expressions which represent the sensitive attributes. After browsing the howl MongoDB we will
look for sensitive data from the common one in order to select the data that have a critical value.
This data classification will be done with a text file called find.txt containing a list of the different
regular expressions to look for. In the following example we present some patterns of regular
expressions
"_id":*(.*?),
"Age":(.*?),
"Nom":(.*?),
"Cin|ID":(.*?),
"Address" :(.*?),
"email|e-mail|mail":(.*?),
"City":(.*?),
"State":(.*?),
"Ssn|credit card number ":(.*?),
"Secret code":(.*?),
After having brows the collections and document of the data base, we will assign a confidentiality
level to each collection .For example, for the collection that contains more sensitive data it affects
a highest level of confidentiality. The algorithm allowing to identifying sensitive attributes in
collection:
Browse the whole database

For each collection C do
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For each document D do

Extract its sensitive attributes based on regular expressions defines in find.txt
End For
End For
End
The algorithm allowing to assign the confidentiality level for each collection:
Browse the whole database

For each document D
Calculate the sensitive data rate
End For
End For
For each document D
Assign confidentiality level to collection ci
Set CL (fi)
End For
End For
End
Sensitive collection fragmentation
In Big Data process, data comes mainly in two forms increasing the variety and heterogeneity of
data: structured and unstructured data. Velocity refers to the speed at which new data are
generated and must be treated and the speed at which data moves around. This increases autonomy
of data sources and independent evolution of each data source. Volume refers to the vast amounts
of data generated every second which increases the quantity of data in every data source. This
makes most data sets too large to store and analyze using traditional database management
systems. Thus, our corpus presented in Heni et al (2015) as the first step in our security scenario
(pretreatment phase) is formed by autonomic and evolutionary data sources (in terms of number
and of quantity of data) with very big volumes of data. Dealing with huge volumes of data that are
much diversified, complex and with high speed is not easy at all. Traditional tools of data
management do not have required performances to deal with these data. In contrast, NoSQL
databases group together heterogeneous data. They permit to store large volumes of structured,
semi-structured, and unstructured data. Moreover, they provide high speed access to semi-
structured and unstructured data and are very flexible. Thus, NoSQL databases solve partially the
problems of volume, variety and velocity but don't address security. Analogously to protect
sensitive data using fragmentation mechanisms from relational databases, the idea applying
fragmentation to sensitive data in MongoDB motivates our thoughts. Our approach provides all
the previously-mentioned measures to protect data in a very efficient and organized manner. It is
applied to MongoDB, and consists of two global phases
Fragmentation model
Manipulating large amounts of data are a process that requires lots of computational resources.
Facilitating efficient and fast data transport over the mongodb shards is commonly ensured
through one or several connections at the same time. We distinguish two types of data in mongodb
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collections: collections that define relationships and (DBRef) collections that contain actual
payload data (DBlist). The collections of the first type define relationships between payload data
collections containing only foreign or ID objected linking payload collections. Regardless of the
possibility that in some cases these collections can be connected to each other, they are stored on
the same Mongodb shard, since in case of an exposure, only an insufficient amount of data will be
exposed. Collection of the second type contains the actual payload data. To decrease and optimize
processing costs, data in Mongodb is split up into smaller pieces, which we address as fragments
[8].Our approach exploits fragmentation techniques for the purpose of ensuring data privacy and
confidentiality, where fragmented data has to satisfy three essential requirements before being
distributed to different storage areas:
• The database has to be in referencing model before any kind of process is applied, so each
collection can be treated as independent fragment
• Confidentiality levels define the importance of the data contained in a fragment
• User Requirements provide a set of additional demands concerning the distribution of the
fragments that can be chosen by the user.
The first essential requirement, the database referencing model for mongodb is critical for
ensuring independency and unlinkability of the collections.
In our approach we use a second essential requirement, the definition of the Confidentiality Level
for each collection, which is depending on the data that the respective tables contain. In our
approach, we use three different confidentiality levels: High Confidentiality collections; Medium
Confidentiality collections and Low Confidentiality Tables. High Confidentiality collections
contain highly sensitive data, such as social security numbers, personal identification numbers or
credit card numbers, which must be appropriately protected. In order to minimize the application
of encryption, we consider the following approaches: We either store the data in the trusted local
mongodb node without encryption, or outsource the data while apply partial encryption. We
consider the approach of applying the encryption on whole fields, even including the object ID, in
order to hide the server of stored data and to add some additional complexity regarding correlation
attacks: For example, a user could store different types of data marked as highly confidential and
encrypt them. In this case attacker cannot know if the data set holds credit card numbers or just
some different, less sensitive, information. When using encryption, the encryption keys must be
stored on local server and be accessible to appropriate users only. The problem of the encryption
approach is that it increases computational cost, because each time data has to be decrypted before
query processing. Medium Confidentiality collections contain collection that have to be treated
carefully in case of dependencies with other collections and to distribute them accordingly. Low
Confidentiality is usually stored in a manner to provide efficient manipulation rather than to
provide security because for this level, confidentiality is not a priority. These fragments have to be
distributed to several nodes, to preserve unlinkability. The last essential requirement, User
requirements, is a set of specially defined demands set by the user, that allow for some additional
tailoring of the distribution process. The user may define additional detailed confidentiality
demands for each collection such as: Increasing or decreasing level of confidentiality, demanding
partial encryption of designated field, storing the fragments inside the local node or even
additional fragments splitting .The data fragments as defined by the three essential requirements
are distributed to different MongoDB nodes.
The algorithme allowing fragmenting collections
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We let F = {fi, i = 1, n} be the set of all fragments.

For i: = 1 to n
Deploy fragment fi as independent fragment.
End For
The following algorithm targets at constructing an assignment that distributes the fragments with
respect to the user’s requirements. Additionally, collections and where at least one of them posses
a classification level higher than 1 are not allowed to be distributed to the same mongo node
Lets N: = (N1….. Ni): the number of mongodb nodes

Fc: = {f • F|CF (f) > 1}
Fn: = F \ Fc
For f • Fc
For j: = 1 to n
If (((f ∩ fs = •) • ((f, fs) •/ U)), •fs • Nj) then
Nj: = Nj • F
End if
End For
End for
For f• Fn
For j: = 1 to n
If ((f∩ Fs = •, •fs • Nj: CL (fs) > 1) • ((f, fs) •/ U, •fs • Fj)) then
Fj: = Fj • F
End if
End for
End for
Separate storage of collections after fragmentation: Fragments distribution
To enforce data security in mongodb regardless its locality and facilitates data distribution by
using fragmentation concepts. The emphasis of this model lies on providing simple and secure
data distribution to distinct Shard storage that possesses high computational and storage resources.
In general, the distribution model distinguishes two locations, the trusted master node (server)
where the data originates from and the semi-trusted Nodes where the data are distributed to. The
fact that the master node is considered trustworthy is used to solve the issue with collections that
contain highly sensitive data without applying encryption. The other shard is considered non-
confidential and thus the distributed data needs to be protected appropriately during the
distribution process, both, at the distribution point and during use.
The following algorithm distributes the fragments to the appropriate node. In this step, encryption
of fragments with classification level 3 is applied. Encrypting an attribute means encrypting all its
values.
For Ni ∈ N
For F ∈ Ni
If CL (f) = 3 then
Encrypt (f) → Node
Else
F → Node fi
End else
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End if
End For
End For
Conclusion
Big data offers attractive and cost effective solutions to customers and big information suppliers.
But, it also imposes many challenges regarding confidentiality, privacy, control and security. Most
of the security solutions are based on trust reliance where the customer relies strongly on the
providers' trustworthiness. This paper focuses on secure and confidential data outsourcing to big
data environments by using fragmentation techniques and applying only minimal encryption to
prevent data exposure. It relies on Mongo database, user’s requirements and confidentiality levels
in order to enforce privacy before distribution and processing. Our approach is essentially based
on the non-relational databases (MongoDB) as the most common database paradigm of data
persistence. Each collection is analyzed to determine data sensitivity and designate appropriate
confidentiality levels as the basis for the fragmentation process to exploit collections as
independent fragments. To distinguish the real contribution of the NoSQL’s features, to make a
decent thorough evaluation and to perform simulation of performance, we will run experiments
over a longer period of time. Because of the exibility of Mongo DB, it is relatively easy to make
tests concerning data distribution. But, running the complex test, that will include Scalability of a
few parallel systems along with data distribution between them, takes a lot of effort and a long
period of time. Thus, we have reserved this task for future works where we will also discuss the
generation of decent test environment limitations.
References
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812
The CSR Mechanism in the International Banking Design

Georgiana-Loredana Frecea, The Bucharest University of Economic Studies, Doctoral School of
Economics and International Affairs, Bucharest, Romania, frecealoredana@gmail.com
Abstract
The global banking system has many facets in the CSR sphere, starting from the causes that lead to the
macroeconomic imbalances and continuing with the power of the largest banking systems implanted in
countries with the most diverse economies. Due to the major influence of the “parent-bank” in the CSR
strategy of its subsidiaries and the main features of the multinationals in the former socialist states of
Central and Eastern Europe, the question that arises is if the CSR strategies of the banks which are
present in the Romanian market and belong to the international financial groups are dominated by the
CSR parent-model or they were adjusted to the local environment. Assuming that the responsible banking
strategies are different in the Romanian banks compared to the international banking groups to which
they belong, the paper highlights the main trends of the Romanian banking system by identifying both the
similarity and the contradictions in the analyzed CSR policies. The methodologically approach is based
on the appropriate use of the case study, outlining the most important aspects that differentiates the
domestic banking environment and the international one, in order to validate the research hypothesis. It
will be considered a rigorous selection of the research variables, depending on the theoretical CSR
approach, the CSR e-communication results or other relevant criteria. The comparative analysis
strengthen the asymmetry in the CSR decision making process between the bank and the correspondent
financial group, providing some links between the Romanian CSR and the international banking practice
reality.
Keywords: corporate social responsibility, bank, international financial groups
Introduction
The disputes around the concept of corporate social responsibility were extensively shaped by the global
economic context, being constantly adjusted by corporate governance and ethical concerns. Moreover, the
gradual change in business mentality through the multinationals influence and the development of new
forms of e-communication directly related to the consumer behavior, lead to a lack of homogeneity in the
CSR vision that can not be easily standardized.
Starting from the assumption that corporate social responsibility has its main resource in the concept of
sustainability, it can be easily associated with the globalizing phenomenon. CSR is closely related to the
corporate governance concerns, defined in the OECD vision as „a set of relationships between a
company’s management, its board, its shareholders and other stakeholders” (OECD, 2004, p. 11). The
growing literature in this field suggest an evolving interrelationship between these two concepts, stressing
their long-run process to achieve similar goals.
This paper aims to identify how the financial multinationals implement their CSR strategies in the global
arena, posing the main question related to the research purpose. Are the CSR strategies of the banks
which are present in the Romanian market and belong to the international financial groups dominated by
the CSR parent-model or are these strategies adjusted to the local environment? In the global CSR
approach, the multinationals „tend to establish universal guidelines or codes of conduct and apply them to
every cultural context in which they operate” (Filatotchev and Stahl, 2015, p. 122). Even if such an
approach can lead to establish trust in the MNEs management through the „headquarter leadership”, the
use of universal norms can also neglect the needs of local stakeholders by the force of cultural
imperialism.
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At the opposite perspective, there is the local CSR approach that emphasize a large cooperation between
the top management of the subsidiary and the local stakeholders. At this stage, the flexibility of the CSR
strategy is influenced by the local regulations and can lead to unethically decisions. The third category of
CSR approach represented by Filatotchev and Stahl is the transnational CSR approach which „adopts a
hybrid strategy, based on the assumption that global and local approaches to CSR are not mutually
exclusive” (2015, p. 123). The issue in this case is if it can be established a good balance between local
and global and if so, what are the reasons that facilitate the transition to the local CSR approach?
The paper will bring a valuable contribution to the Romanian CSR study, creating the basis for the CSR
investigation of a particular sector, both in the national context and in the international one. The CSR
activity in the banking sector was seen by Birindelli et al. as “the basis to consolidate its own long-term
presence on the market” (2015, p. 305), the banks being considered linked with the stakeholder’s
perceptions through the reputational risk and the transparency disclosure. For the banking institutions, the
CSR e-communication has become an integral part of the external communication, being based on the
CSR reporting as a key means of strengthening the reputational value of a bank. Prior studies examined
the CSR reporting practices, being perceived the increasing use of the official websites and reports in the
CSR disclosure.
Literature Review
In its initial stage, the complexity of the concept was firm orientated under the vision of Bowen as „the
obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of
action which are desirable in terms of the objectives and values of our society” (1953, p. 6). The CSR
conceptualization continues with the CSR model developed by Carroll, which integrates four main groups
of responsibilies in the CSR construction: economic, legal, ethical and discretionary (1979, p. 499), while
Lantos (2001) highlights three types of CSR: ethical, altruistic and strategic.
While it is still in the early period of development, the Romanian CSR is characterized by a strong
philanthropical influence (Zaharia and Grundey, 2011), being activated by the MNEs and the NGOs
emergence on the national market in the late '90s. In this context, for the countries form Central and
Eastern Europe it was identified a hybrid form of CSR which represents a mixture of traditional mentality
and inclusion of MNEs insight. In the European vision the corporate social responsibility is defined as „a
concept whereby companies integrate social and environmental concerns in their business operations and
in their interaction with their stakeholders on a voluntary basis” (Commission of the European
Communities, 2001, p. 6), also stengthening the benefits for companies that incorporates the CSR
concerns as new opportunities for the local communities.
Many definitions have tried to conceptualize this notion over time, but the CSR term has experienced a
significant downturn in the neoclassical theories that focus on the entrepreneurial logic and the primary
obligation of a company, the profitability of a business. In response to a growing literature that emphasize
the moral obligation of a company to achieve responsible outputs, Friedman strengthen the profit as the
center of business obligations and the unique goal of a company. Considering the relationship between
corporate social performance and the financial performance as a challenging task, the opinions have
plonged from those that have identified a positive or a negative link and those which have strongly denied
such a relationship.
Even if there are a large number of studies that examines the corporate social responsibility sphere, it can
be noticed a lack of consesus in the literature regarding the essence of the CSR concept. Due to the
contradictions in the CSR evolution, Okoye has demonstrated that corporate social responsibility is an
essentially contested concept (2009), under the ECC framework. The ECC theory developed by Gallie
sustain the idea that certain concepts are by their very nature contested and suppose endless disputes
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(1956), generating a base which can not be attached to a single definition. In this extent, the concept has
suffered various interpretations according to the considered economic sectors, summarizing the ethical
behavior of a company, in a voluntary manner.
Furthermore, in the global economic crisis context, the financial ethics approach relates to more
transparent transactions between banks and customers in the lending policy, in order to regain the
reputation. Considering that the core values of a bank sustain both the CSR and the code of ethics,
Birindelli et al. (2015) has attached a score of ethics as a common material for the CSR analysis to a
sample of 30 European banks. In order to assess the ethical degree of the analized banks, the author
developed a multidimensional ethical rating based on 48 relevant items from four fields of discussion.
The ethical conduct of a company has a direct link with the corporate social responsibility definition,
relating to the moral justifications of the business behavior.
In our days, CSR has become more a competitive advantage, being related to the corporate image and the
reputational values of a company. According to Meyer and Rowan, the increase of the organizational
legitimacy lead to the survival on the market (1977) and, in this respect, it can be perceived as an efficient
tool for the customer’s purchase decisions process to identify the most valuable corporations. The
banking sector relies on reputation and the customer sensitivity to the services provided by the banks
depends on both social and economic reasons. Some scholars have tried to support the CSR idea through
the customer-company identification perspective (Fatma et al., 2015), while others emphasize the
stakeholder theory (Clarkson, 1995; Birindelli et al., 2015) in the CSR design. For the international
banking system, after the global crisis that has led to the stakeholders’ skepticism, the main strategy of
the banking institutions was to regain their legitimacy to operate on the market, which is closely related to
a stronger and a more positive image.
Methodology
This paper will focus on the Romanian banking sector, as an important driver in the present economy,
which can suffer various changes in the CSR structure in accordance with the reputational values
attached. Considering the National Bank of Romania data, there were extracted ten credit institutions with
majority foreign capital. Basically, the net assets indicator was taken into account for all the banks
included in the sample, completed by a in-depth analysis for the corresponding financial groups. This
qualitative research has used the net assets indicator as a major selecton criteria due to the fact that the
most visible CSR actions are taken by the most powerful banks and starts from a series of disagreements
in the CSR policies of the banks from the Romanian market and those of the financial groups. In an
attempt to establish the CSR activity for these banks, an simplified index was created, based on: CSR
sections in the official websites, CSR reports, CSR awards, code of ethics and corporate governance. For
each item, the score was either 0 or 1, resulting from the existence of such a section/document/award. If
the banks does not report some items, we are assuming that there is not a CSR related activity and we
attached 0 for the scoring.
The top 5 banking institutions by this scoring process will be included in a comparative CSR strategy
analysis between the credit institution from the Romanian market and the correspondent financial group.
In order to complete this step, we heavily relied on the official websites, the last CSR reports or other
relevant documents, such as: code of ethics, annual reports or corporate governance codes. The
comparative analysis was designed to identify the CSR dimensional structure and to explore the current
mainstream of influence related to the particular local context, taking into accont the representative
stakeholders. The content analysis highlights the asymmetry in the CSR decision making process between
the bank and „the parent institution”, including a rigorous selection of the research variables.
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The CSR Magnitude in the Romanian Banking Sector

Considering the Romanian market, the structural evolution of the banking sector in 2015 was expressed
by mergers, portfolio sales and two market exits of foreign branches. As a result, the number of credit
institutions in the Romanian market has decreased in 2015. With four credit institutions less compared
with the same period in 2014, the banking sector has suffered a continuous reduction between 2008-2015,
from 43 credit institutions before the crisis to 36 credit institutions mentioned in the NBR Annual Report
2015.
The analysis is based on ten credit institutions with majority foreign capital, Romanian juridical persons,
included in the Table 1: Romanian Commercial Bank, BRD - Groupe Société Générale, Raiffeisen Bank,
UniCredit Bank, Alpha Bank, Bancpost, Garanti Bank, OTP Bank, Piraeus Bank and Romanian Bank.
Considering that the international activity of Transilvania Bank consists of only one branch in Italy and
two agencies in the same country, adding the group profile and our assumed reseach objectives to
compare the national and the international context, Transilvania Bank was excluded from this analysis.
Table 1: The analyzed banks – key figures, 2015
Credit institutions with Net assets

No. Group Country
majority foreign capital mil. lei %
The Romanian Commercial
1 59461 15.8 Erste Group Bank AG Austria
Bank
BRD - Groupe Société
2 49193 13.0 Société Générale France
Générale
Raiffeisen Bank International
3 Raiffeisen Bank 31443 8.4 Austria
AG
UniCredit Bank
4 30612 8.1 UniCredit S.p.A. Italy
Alpha Bank
5 15006 4.0 Alpha Bank A.E. Greece
Bancpost
6 11387 3.0 Eurobank Ergasias SA Greece
Garanti Bank
7 9581 2.5 Garanti Group Turkey
OTP Bank
8 8588 2.3 OTP Group Hungary
Piraeus Bank
9 7093 1.9 Piraeus Bank SA Greece
Romanian Bank
10 6659 1.8 National Bank of Greece SA Greece
Source: National Bank of Romania
Ten credit institutions were selected based on the net assets indicator, in order to give an appropriate
image of the CSR activity in the Romanian banking environment. The choice of this selection indicator
was motivated by the increasing CSR activity and the CSR reporting of large companies, mostly
multinationals, compared with small firms. In the same time, there was noticed the ability of these
companies to express the whole market trend, offering the necessary data for the research process. On the
other hand, this paper aims to provide a comparative analysis between the CSR strategies at the group
level and the CSR strategies characteristics in Romania. In order to achieve this goal, the analyzed banks
can be easily correlated with the financial groups to which they belong according to Table 1, being
observed ten financial groups coming from six different countries. From this point of view, it can be seen
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a diversified structure of the generated ranking, giving new insights on the Romanian market evolution in
terms of financial, social or environmental concerns.
Given the interrelationships between corporate social responsibility - code of ethics - corporate
governance, these three concepts were included in the overall score calculation. If the official website of
the analyzed banks contains special CSR sections, ethics code or corporate governance code, the result
was 1. Conversely, if websites do not contain such sections it was considered they are not existing and it
was assigned the final score 0. According to Figure 1, it was found the existence of CSR sections for the
most of the analyzed banks. Only Piraeus Bank has not such a section, achieving the lowest CSR score,
the same as Alpha Bank. While for Piraeus Bank the only mentions related to the CSR activity are
included in the Annual Report 2014, for Alpha Bank Romania the CSR projects were summarized in the
official website.
For the items CSR reports and CSR Awards, it was considered the bank’s activity in the last four years.
Following the same methodological approach, if in the last four years the bank has won at least one award
at the Romanian CSR Awards, the scoring was 1, otherwise 0. The Romanian CSR Awards is a project
that aims to recognize the CSR initiatives in the field of environment, community, education, health or
staff support. The first edition of the Romanian CSR Awards was in 2013, proposing to award the CSR
projects and the CSR campaigns that improved the quality of life for employees, community or
customers. A number of 116 CSR projects were submitted at the Romanian CSR Awards 2016,
corresponding to a total budget of 5 million euro. The competition is open for all the companies from the
Romanian market, regardless their field of activity or number of employees and aims to highlight the
projects with long-term results.
Figure 1: The CSR scoring for the analyzed sample
Four banks have obtained the same two-points score: OTP Bank, Garanti Bank, Bancpost and UniCredit
Bank. In order to differentiate them and create a top 5 of the most CSR active banks, it was considered
the most recent activity. According to this criteria, Garanti Bank was included in this ranking, due to the
fact that the bank was awarded in 2016 for the WWF Bonus Card at the environmental category. WWF
Bonus Card is the first card in Romania that aims to support the WWF nature conservation actions. The
card was launched by Garanti Bank and WWF Romania, having an eco-friendly mechanism. For any
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purchase made with WWF Bonus Card, Garanti Bank donates 0.5% of the purchase. This amount was
directed for WWF projects, such as the campaign "Save the Virgin Forests", sustainable management and
certification for forests with a high value of conservation. It can be noticed one of the Romanian CSR
practices, namely the partnership between Garanti Bank and WWF Romania which belongs to one of the
most respected international non-governmental organizations working for environmental causes.
In order to complete the analysis at the international level, we extracted the five most active banks
depending on the scoring and we proceeded to a content analysis of the official websites and other
relevant documents. According to Figure 1, among the most active credit institutions with majority
foreign capital are: Raiffeisen Bank, Romanian Commercial Bank, Romanian Bank, BRD - Groupe
Société Générale and Garanti Bank. It can be noticed that in this ranking are also included the top three
banks based on the net assets. The only bank that has achieved the highest score after the data processing
is Raiffeisen Bank. Moreover, Raiffeisen Bank is the only bank that proceeded to a CSR disclosure
following the Global Reporting Initiative standards in 2016. The GRI framework is considered one of the
most complete CSR disclosure standard used by organizations around the world to report their most
critical impacts on the economy, society or environment.
The data from Figure 2 suggest that the CSR activity focus on community issues, representing 26,31% of
the total efforts of the most five active credit institutions with majority foreign capital. Besides the fact
that all the five banks integrate actions related to the community in their CSR strategies, it can be also
noticed the partnerships with the non-governmental organizations. Thus, solving social problems is done
in many cases through the bank – NGO cooperation, allowing banks to maintain a close relationship with
this category of stakeholders. It can be mentioned the BRD - Groupe Société Générale case, which has
signed a partnership with UNICEF and has carried out some CSR initiatives with Habitat for Humanity. It
is also the case of Garanti Bank, which collaborated with Concordia Humanitarian Organization or SOS
Children's Villages Association. Moreover, the employees of Raiffeisen Bank represent the largest group
of volunteers of United Way.
Figure 2: The CSR fields of the top 5 most active banks in Romania
Thus, the second characteristics of the Romanian CSR banking environment is based on the employee
engagement in CSR actions. The donations made by employees were doubled by Raiffeisen Bank, the
same strategy being used by BRD - Groupe Société Générale within the project „Together we can help
flood victims”. In the same direction are falling the actions of the Romanian Commercial Bank to
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encourage its employees to redirect 2% of the income tax for NGOs and the bank’s approach to promote
the concept of responsible citizen among its employees. The Romanian Commercial Bank motivates its
employees with one day per year for individual voluntary initiatives, encouraging them to get involved in
volunteering activities.
At the second place, there were the environmental actions and those concerning the culture and arts, with
21,05% each. The initiatives from the field of culture and arts are those related to the sponsorship
programs for cultural events, while the environmental concerns are directed towards reducing the carbon
emissions, resource saving or ecological actions. Approx. 10,53% of the sample focused on sports, the
same percentage being noted for education and responsible financing. In the educational field, the credit
institutions pay a significant attention to financial education, as a consequence of the financial crisis
impact on credit management.
The Influence of Financial Groups in the Romanian CSR Development

This paper reveals that the Romanian Commercial Bank (BCR) involves in projects that sustain the
commitment to society through the civic leadership development and the support for leaders. The access
to educational services and the financial education are other initiatives that create value for society. In
accordance with the Erste Group model, the Romanian Commercial Bank encourages corporate
volunteering, promoting the „Volunteering Year” and „The Bakery of Good Deeds”. In addition, Erste
Group extended its core activities to include financial literacy programs, but also supporting arts and
culture, sports or social projects for vulnerable groups. Putting the customers in the center of the
operational activity, Erste Group has achieved the customers expectations by a continuous service
improvement, implementing bank cards printed in braille or cash dispenser with audio instructions. Even
if the Erste Group has a clear environmental strategy and an assessment policy for his suppliers, the CSR
disclosure of BCR has no mentions regarding these aspects.
Even if the CSR action areas of the Romanian Bank are in direct link with those of the National Bank of
Greece Group, reflecting the NBG’s CSR values, there are still gaps in the CSR strategy structure. The
CSR actions are implemented in three major areas: community, culture and environment. Even if there is
a time discontinuity in the CSR reporting, in Romania and at the group level, it can be noticed a series of
differences in the CSR approach. The CSR initiatives of the Romanian Bank are directed to the children
education, the environment or cultural events: “Christmas Tree Festival”, “Santa Claus gathers presents
for the children”, “A day for reading in the park”, “Financial Education” or paper recycling actions.
Despite the NBG strategic goals of many levels of responsibility (to the economy, to the market, to the
employees, to the environment and to the society), the Romanian Bank has supported only small-scale
projects, emphasizing the community support. Although the NGB Group is seeking to provide a wide
range of responsible products or services (like NBG Children, Student Life or ESTIA Green Home), the
Romanian Bank promotes safe and philanthropic CSR actions, more exposed to the public perception.
Moreover, the responsibility to the employees is less frequent in Romania, although the NGB Group
encourage scholarship programs, social benefits, staff training and development or volunteering programs
for the employees.
Following the Turkiye Garanti Bankasi approach, Garanti Bank focuses on the environmental and cultural
activities and on those with a social scope. But the Garanti’s initiatives are also ranging from education to
sponsorship programs, from disabled-friendly banking to women entrepreneurship. In Turkey, the
applicants cand submitt their project in order to obtain a grant, filling out a form according to the bank’s
terms and conditions. Garanti Bank has also introduced a special package for Romanian women
entrepreneurs as a responsible product, while in Turkey this support was completed by the Women
Entrepreneur Research’ program.
819
Supporting disabled individuals is also seen as a key CSR mission, the Group introducing „the disabled-
friendly banking” into their CSR strategy. The main difference in the CSR strategy is the lack of a long-
lasting relationship with all categories of stakeholders in Romania, including the customers. In Turkey,
Garanti Group has introduced the disabled-friendly ATMs, disabled-friendly branches or Internet branch
and credit card transactions for the visually-impaired customers. The adapted machines with lower
screens and audio guidance or the „agricultural banking” products are respresenting the most visible
different vision in the CSR strategy, following a sustainable change in Turkey. The two analyzed
strategies are related by the traditional partnership with WWF, the cultural interest and the community
investment goals, proceeding in the same time to a responsible climate change management.
The CSR policy of BRD - Groupe Société Générale in Romania is more orientated to the philanthropic
approach, although there is also an interest for responsible financing. In France, the bank offers solidarity
savings services, charity bank cards or other responsible products/services, that are not yet on the
Romanian market. Following the Group model, BRD supports the green financing and analyzes all the
projects valued at more than 10 million USD in accordance with the Equator Principles. Other common
elements for these two strategies are the environmental policy and the employee’s volunteering. In
Romania, other areas of reference are: arts and music, sports and community investments. The mentioned
initiatives are often realized in cooperation with non-governmental organizations. The strong partnership
with the NGOs is aligned to the Group efforts to maintain the dialogue with the civil society. The
commitment of BRD - Groupe Société Générale to reduce the energy consumption and the emissions of
CO2 are also attached to the Group engagement for climate change. As a responsible employer, Société
Générale and its subsidiaries support the staff and encourage them to volunteer more.
Even if the CSR section of the Raiffeisen Bank website summarizes five main CSR pillars and the most
visible projects, the CSR report complete the data in a more structured way. RZB Group Sustainability
Report 2015 strengthen the Group sustainable commitment as a responsible partner, engaged citizen and
fair partner, while Raiffeisen Bank (Romania) mentioned the same pillars in the Annual Report of
Corporate Responsibility 2015. These reports offer more possiblilities of comparison because they are in
accordance with the GRI framework, version G4. In Romania, the report measures the economic and the
environmental impact, taking into account the responsibility to employees and to society. At the Group
level, there are also references about the RZB Group business strategy related to the economic
sustainability, the human resources policy and the responsible products. The comparative analysis
strengthen the clear correspondence between these two CSR strategies, at the Romanian and at the Group
level, being the best exemple of CSR Group vision that is integrated at a subsidiary level.
Conclusions
This paper was focused on the CSR mechanism in the international banking system in order to validate
the CSR attitudes correspondence between the local banking environment and the international one.
Although there were a lot of common features between the CSR strategies of the banks from the
Romanian banking market and those of the correspondent financial groups, it was noticed the strong
influence of the national context. The comparative analysis strengthen the current trend in the Romanian
banking sector, the „CSR parent model” being adjusted according to the specific needs of the local
community and their practical use of the concept.
In Romania, the balance between local and global was almost completely ignored, the banks
strengthening their reputational value through philanthropy. The results confirm the Romanian CSR
approach on social and environmental issues, highlighting the new forms of CSR disclosure, including e-
communication. At the Goup level, the responsible products development and the domination of various
stakeholders in the CSR strategy through the long-term partnerships was rapidly integrated in the CSR
agenda. These initiatives were replaced in the Romanian market by more „safe” fields, providing a
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positive image on the market and creating more specific current results. Consequently, in response to the
structural changes in the global arena, the financial groups have proceeded to a flexible CSR approach in
the Romanian banking market, promoting a hybrid CSR strategy for their subsidiaries, with a strong
emphasis on community and environmental concerns.
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The Break-Even Estimative Analysis for the Medicinal Plants

Cultivated in Romania in the Conventional and Organic
Agriculture Systems
Rozi Liliana Berevoianu, Research Institute for Agricultural Economics and Rural Development,
Bucharest, Romania, E-mail:berevoianu.rozi@iceadr.ro
Cristina Mihaela Vlad, Research Institute for Agricultural Economics and Rural Development,
Bucharest, Romania, E-mail: cristina.vlad@iceadr.ro
Diana Maria Necula, Research Institute for Agricultural Economics and Rural Development,
Bucharest, Romania, E-mail:necula.diana@iceadr.ro
Raluca Necula, University of Agronomical Sciences and Veterinary Medicine from Bucharest,
Bucharest, Romania, e-mail:raluca_nec@yahoo.com
Abstract
Knowing the current position of the medicinal plants market in Romania and the possibilities for
increasing this sector’s competitiveness can provide scientific basis to adopt the best policies and
strategies to support the cultivation of medicinal plants. This paper presents a scientific approach to
the necessary methods and techniques for the economic efficiency analysis of the medicinal plants
cultivation in Romania for conventional farming and organic farming. To this purpose, is used a
computing informational system in order to realize some simulations regarding the break-even
analysis at the culture level as a tool for planning the agricultural production. By knowing the
information on estimating and assessing the production’s estimated costs and capitalization prices,
farmers can adapt their existing resources and capabilities at the farm level to achieve high and
effective yields of medicinal plants.
Key words: economic efficiency, break-even, informational computing system
Introduction
In Romania, the interest for the medicinal and aromatic plants capitalization was manifested under
the scientific aspect only in the early 20th century. It is worth recalling that the first experimental
station in the world with a specialty in studying medicinal plants, was founded in Cluj in 1904 (B.
Pater, 1926, E. Coiciu și G. Racz, 1962,1967).
Since its establishment, it has had two major objectives, "the study and the experimentation of the
medicinal plants that can be cultivated" and "finding the means to be able to use and exploit
medicinal plants that grow wild in our area" (B. Pater, 1927).
Because of the spontaneous flora it cannot be ensured the necessary in the continuing growth of raw
material, it began a gradual cultivation process of many species of plants of this kind (B. Pater, 1926,
A.S. Potlog, 1939, 1942, 1985, E. Păun and others., 1983, L.S. Muntean, 1990,2001.2008.). The raw
material so obtained has biological uniformity and a high percentage of active principles.
Currently, in Romania has increased the interest for cultivating the medicinal plants. The immediate
motivation is that medicinal plants can assure significant revenues due to the possibilities of being
cultivated on small surfaces or on lands less productive, being an important material for export. In the
field of medicinal plans cultivation in Romania, promoting and amplifying the undertaken activities
and their results can be done by continuous intensification of resources capitalization at which is
added the procedures and means of knowledge of cultivation rational techniques.
Nowadays, in our country the medical flora comprises about 800 species of medicinal and aromatic
plants, and of these more than 280 shows real therapeutically qualities. Regarding the
pharmacodynamic effects, studies were made on a total of 180 species, while for about 50 species it
have been developed basic technological elements (Robu T., Milica C. 2004).
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In perspective, it is envisaged to increase this number, increasing the cultivated surfaces and the
production of raw materials. Although medicinal and aromatic plants have much lower surfaces
compared to other categories of plants, their importance is very high, and they cannot be filled due to
specific products contained.

For the scenarios realization regarding the estimative analysis of the break-even, two crops of
medicinal plants have been studied, both in conventional and organic agriculture systems: the
marigold culture and the thyme culture.
The informational system of calculation used in the break-even estimated analysis for the medicinal
crops taken under study is a system that allows:
- the data introduction through manual processes or by automatic collection made by the
system;
- the data storage and processing;
- the information extraction (results) in the reports form.
The calculation algorithms were defined as a set of rules that establish the order of operations.
The data model was built considering the operation scheme of the informational system (Fig 1). It is
composed of several tables that were structured as follows:
Nomenclatures tables containing primary information that will be used in calculations

performing. These were classified as follows:
a. Nomenclature- mechanical works;

b. Nomenclature- manual works;
c. Nomenclature- payments rates;
d. Nomenclature- cultures and production levels (list of technology crops framework);
e. Nomenclature- raw materials (seeds, seedlings, various materials etc.);
f. Nomenclature- plant protection products.
Layouts tables or matrices of calculation model type that have a temporary character and will
be used at algorithms calculation runtime or for the information import.
a. The Layout Framework Technology
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Figure 1: The information system operating scheme
The tables of the data model defined as follows (Table 1):
1. mechanical actions list LMEC

2. manual action list LMAN
3. payment rates TRFP
4. standard agricultural crop technology list CULT
5. material list MAMA
6. phytosanitary action list PFIT
7. standard agricultural crop technology THNC
Table 1: Data structures of the information system
LMEC
Name Data type Column name
Work code integer cod_luc (pk)
Work name text den_luc
Agricultural equipment (CP) text utl_agr
Aggregate text agregat
Group integer grp_trf
MU text unt_mas
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Production Norma (Np) MU / day) numerical nrm_prod

Diesel consumption Norma (l / MU) numerical nrm_csm
LMAN
Work code integer cod_luc (pk)
Work name text den_luc
The framing group of work integer grp_trf
MU text unt_mas
The work group numerical frm_mnc
The work norm numerical nrm_mnc
ZO / MU numerical zxo_ums
TRFP
Work type integer tip_luc
Group integer grp_trf
Tariff numerical trf_plt
CULT
Technology ID integer cod_thn
Material code integer cod_mat0
Version text den_ver
Crop’s name text den_clt
Staple numerical prd_prn
Secondary production 1 numerical prd_sec1
Material code 1 integer cod_mat1
Secondary production 2 numerical prd_sec2
MAMA
Material code integer cod_mat (pk)
Material name text den_mat
MU text unt_mas
Price numerical prt_mat
Index (type of material) integer tip_mat
PFIT
Product code integer cod_mat (pk)
Product name text den_pft
Concentration numerical con_pft
MU text unt_mas
Price numerical prt_pft
THNC
Technology ID integer cod_thn
Production’s year integer an_prd
Production’s month integer lun_prd
Activity type (work type) integer tip_luc
Work code integer cod_luc
Volume numerical vol_luc
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Quantity of material 1 numerical cnt_mat1

Detailed diagram of connections is shown in Figure 2.
Figure 2: Diagram of connections between the information system’s tables
Results and Discussions

I. The framework production technologies description for the marigold crop in the open field and
the thyme crop in the open field both in conventional and organic agriculture system.
For the production technologies framework establishment regarding the medicinal plants taken under
study it was took into account that the average production estimated can be achieved by resorting to
more technological options. These framework technologies will adapt to climatic conditions from
each cultivator unit.
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Must be noted that, in farms that cultivate medicinal plants may occur unforeseen situations in which
the technological links included in the technological sheets are no longer valid. For example: if we
have a year rich in precipitation, it will significantly reduce the costs of irrigation, while a dry year
may require the application of a greater number of watering, larger volumes of water, a longer season
of irrigation, therefore higher expenditures involved in the irrigation activities. In other
circumstances, it may be changed some phytotechnical parameters shedding material and financial
resources - the time of sowing, density, depth of work, number of works, etc.
Every agricultural year there are technical elements (precursory plants, amounts of fertilizer, varieties
and hybrids used etc.) and economic factors (financial availabilities, prices of materials, etc.) that
require the crop technologies optimization. To this purpose, we recommend to managers / farmers
from the medicinal plants farms to be permanently informed of the results of research institutes with
economic and technical profile on the new technical and economic elements, in order to foresee the
direction of prices change, to build more technological options then to determine the most appropriate
to the purpose and to the specific conditions from that unit.
The cultivation technology for the marigold crop in open field - conventional and organic
system
A. Location and rotating, previous cropping

CONVENTIONAL system ORGANIC system
- good results after plant species that leave the land free of weeds and well supplied with nutrients
- good previous plants: Row crops, mash, grain - plants are not demanding to previous
legumes plants
- Good precedents to other cultures
- It is contraindicated the monoculture to avoid pests and diseases
- may return the same soil at least 4-5 years
B. The fertilizers application
Mineral and organic fertilizers increase the The effect of applying organic fertilizers:
inflorescences production per unit of area, increasing the inflorescences production,
improving their quality by increasing the content in increasing the content in active substances
active principles; and carotene
- Organic fertilizers: 30-40 t / ha manure - Organic fertilizers: 20-40 t / ha of
(administered in autumn) manure
- The mineral fertilizers: 60-80 kg phosphorus /
ha and 45 kg potassium / ha (administered in
autumn) and 45 kg nitrogen / ha (administered
in the spring)
Fertilizing with organic fertilizer / chemical is made with a 55-75 horsepower tractor in aggregate
with the fertilizer machine
C. Soil works
Work performed in autumn
- Destruction of plant residues from the previous crop: is made with a 55 – 75 HP tractor in
aggregate with the disc harrow
- Plowing at 20 to 25 cm: is made with a 55 – 75 HP tractor in aggregate with the starry harrow
- Plowing maintenance through repeated works: is made with a 55 – 75 HP tractor in aggregate
with the disc harrow and adjustable harrows
Work performed in spring
- Seedbed preparation: is made with a 55-75 HP tractor and combiner
D. The crop’s establishment
The required 6-12 kg / ha, depending on the 5-6 kg / ha, ensuring the emergence 40-
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amount of seed cultural value 50 plants / m;

Sowing depth 2-3 cm
Row spacing 50 cm
Optimal seeding March at a soil temperature of 5-8 degrees C;
era
- Sowing can be staggered at intervals to 7 - 10 days
- It can be done by seedling, which smooth the crop and reduces the seed consumption
- The seed must be healthy, natural purity of 80% and 70% minimum germination
E. Maintenance works
Preventive - After emergence: weeding, manual hoeing and mechanical hoeing between the
measures rows
- Mechanical and manual hoeing are repeated at two weeks after the first work of
hoeing or whenever necessary, especially after 3-4 successive harvests
Weeds - Herbicide is applied with tractor of 55-75
control HP and sprayer
- Are used plant protection products
approved and in doses recommended by
specialists - If the preventive measures
Pest and - It is made with a 55-75 HP tractor and the (rotation, hygiene cultural) are
disease machine for diseases and pests followed, there are no pests or
control - Are used plant protection products diseases affecting the
approved and in doses recommended by production;
specialists
- Are recommended to respect the cultural
hygiene and phytosanitary measures,
through crop rotation, deep plowing,
optimal age sowing, etc.)
F. Harvesting
- Requires a high consumption of force labor
- It is done in several stages, from June to October at the opening of the first flowers (usually
from 60-70 days after emergence)
- In the first period - the period between harvests is 3-4 days
- Harvest the whole flowers or the ligulate flowers, in nice weather, after the dew;
- After harvesting, the product is placed in baskets and transported to the place of conditioning
and drying;
- Obtained productions:
- Fresh inflorescences: 4-9 t / ha;
- Fresh ligulate flowers 1,5 - 3 t / ha;
- Dried inflorescences: 0.6 to 1.1 t / ha;
- Dried ligulate flowers: from 0.2 to 0.3 t / ha
The cultivation technology for the thyme crop in open filed - conventional and organic system
A. Location and rotating, previous cropping

- Thyme is a semi-shrub (perennial): is not grown in crop rotation
- Has good results after plant species that leave the land free of weeds and plant debris, plant
species that have a short growing season
- Very good previous plants: legumes, mash
- Good previous plants: autumn cereals, weeding plants fertilized with manure (ex. sugar beet,
potato)
- Contraindicated: thyme and plants of the same botanical family
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- The crop can be maintained between 3-6 years depending on the plant resistance to freezing
B. The fertilizers application
- Organic fertilizers: 20-40 t / ha manure (administered in - Organic fertilizers: 20-40 t
autumn) / ha manure (administered
- The mineral fertilizers: 60-80 kg phosphorus / ha and 40-50 in autumn)
kg potassium / ha (administered in autumn) and 80-100 kg
nitrogen / ha (administered in the spring)
Fertilizing with organic / chemical fertilizer are made with a 55-75 HP tractor in aggregate with the
fertilizer machine
C. Soil works
Works performed in autumn
- Destruction of plant residues from the previous crop: is made with a 55 – 75 HP tractor in
aggregate with the disc harrow
- Plowing at 20 to 25 cm: is made with a 55 – 75 HP tractor in aggregate with the starry harrow
- Until planting, the soil is worked through repeated disking, to be free of weeds
Works performed in spring
- Seedbed preparation: 55-75 HP tractor and combiner
D. The crop’s establishment
Sowing - At the generative way multiplying (the crop’s establishment made by seed directly
type in the field or by seedling);
- For the vegetative multiplying - the material resulting from the separation of the
bushes in the old plantations that are disbanded;
Seed - certified, originate from the previous year’s crop, with physical purity minimum
75% and germination minimum 65%
The
amount of 4.3 kg / ha
seed
Sowing 0.5 to 1 cm
depth - Drilling work is done with universal grain seeders, 50 cm between rows
Seeding
- late autumn (November) or in the first quarter of spring (March);
age
Planting can be done also by seedling: 50 cm between rows and 20 cm between nests per row (2
seedlings / nest);
E. Maintenance works
Manual /
mechanical whenever needed;
hoeing
weeding especially for climbing weeds removal (seriously affecting the quality of the
harvest obtained);
Weeds - Herbicide is applied with a 55-75 HP
control tractor and sprayer
- Use plant protection products approved In the vegetation hoeing and weeding
and in doses recommended by are recommended for wherever
specialists needed to control weeds and
Pest and - This crop pests and diseases do not loosening the soil;
disease cause serious damage requiring the
control application of a large number of works
to combat
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- Use plant protection products approved

and in doses recommended by
specialists
F. Harvesting
Is performed when the plants are flowering at a rate of 25-100% and record a maximum of
volatile oil
Is done manually by cutting the annual branches, avoiding the lignified portions of plants
Production: 13 t / ha of fresh grass Production: 10 t / ha fresh grass
II. Structure and analysis of production costs - estimates for the year 2016-2017 (table 2)
Table no 2: Structure of production costs for marigold and thyme crops in the open field -
estimates for the year 2016-2017
Total Mechanical Manual

Materials
Production expenses works works
Crop Crop system
(kg / ha) EUR / EUR / EUR / EUR /
% % % %
ha ha ha ha
conventional 7,000 7,352 100 221 3 5,822 79 1,309 18
marigold
organic 5,000 5,711 100 200 3 4,330 76 1,181 21
conventional 13,000 12,718 100 253 2 1,654 13 10,812 85
thyme
organic 10,000 16,729 100 244 1 3,589 21 12,897 78
Source: Own calculations
The data presented in table no. 2 highlights that the estimated production of marigold crop in Organic
system is about 29% lower than the estimated production in the conventional system. To obtain these
productions were necessary agro phytotechnical expenses which totaled 7,352 euro/ ha in the
conventional system and lower by 22.3% in the organic system. The expenditures with mechanization
have an insignificant share of 3% in both culture systems, those with raw materials accounting about
18% in the conventional culture system and 21% for the organic culture system. The manual works
expenditures are at a share of 79% (in the conventional system) and 76% (organic system) of the total
expenses. At the thyme crop in field, the average production expected is of 13t/ ha of fresh grass in
the conventional system, being lower by 23.1% in the organic system. Costs incurred to perform all
technological links totaled 12,718 euro/ ha in conventional system, being exceeded by 31.5% in the
organic system. The highest share is the expense of materials by 85% and 78% respectively, followed
by the manuals works of 13% and 21%, costs of mechanization of only 2% in the conventional
system and 1% in the ecological system.
III. The comparative analysis (conventional and organic) of the revenue and expenditure budgets for
the medicinal plants studied.
The analysis of income and expenditure budgets is based on the production technologies used, prices
for unfinished production inputs and the year plan production. The incomes and expenditures budget
is a factor in assessing the economic activity by the final indicators: cost, profit, profitability.
The structure of incomes and expenditures budget by crops captures in detail all elements related to:
production value, intermediate consumption, cost of production, net income, and gross product and
subsidies.
III.1. - The incomes and expenditures budget for the marigold crop in field, harvest 2016/2017 –
forecasts (Table no. 3)
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Table 3: Budget of revenues and expenditures for the marigold crop in field, harvest 2016/2017
- forecasts), conventional and ecological system
Differences (Eco-
Indicators Mu Conventional Ecological Conventional)
Abs %
A. Production per hectare t / ha 7 5 (-2to) 71.4
B. Production value euro 9,894 8,633 -1,261 87.3
C. (+). subsidies euro 80 80 0 100.0
D (=) Gross product euro 9,974 8,713 -1,261 87.4
E (-) Total expenses euro 7,915 6,166 -1,749 77.9
I. Variable expenses euro 1,797 1,601 -196 89.1
II. Fixed expenses euro 6,118 4,565 -1,553 74.6
F (=) Taxable income euro 1,979 2,466 487 124.6
G (=) Net income + subsidy euro 1,742 2,152 410 123.5
H. Taxable income rate % 25 40 15 160.0
I. Net income + subsidy rate % 22 35 13 159.1
Euro /
Cost of production 1,131 1,233 102 109.0
t
Predictable price- internal Euro /
1,413 1,727 314 122.2
market t
The marigold crop - conventional system

For an average production of 7 tons/ ha of fresh flowers is achieved a production value of 9,894 euro,
and by earmarking subsidies of 80 euros / ha, we have a gross product of 9,974 euro/ ha.
Of the total expenditures on culture, a share of 22.7% is represented by variable expenses, with a
share of expenses for materials by 65.4%. Within the fixed expenses, representing 77.3% of total, the
consumptions with the permanently labor occupy a very large share i.e. 95.1%.
Subtracting the total expenses from the production’s value it is obtained the taxable income of 1,979
euros/ ha, and finally a net income of 1,742 euro / ha. Reporting the net income to total expenses, it
results a net income rate of 21%.
The production cost of 1,131 euro/ t obtained by dividing the total expenses to the average estimated
production , is a synthetic indicator expressing the economic efficiency wherewith is produced the
marigold crop in field in the conventional system.
To ensure the profitability of the crop , at the production cost was applied a coefficient of 1.25,
resulting the predictable price on the internal market of 1, 413 euros / ton.
The marigold crop – Organic system

In terms of achieving an average production of 5 t / ha fresh flowers, it is achieved a production value
of 8,633 euro / ha. Assigning a subsidies of 80 euros / ha, we have a gross product of 8,713 euro / ha.
With a total expenditure of 6,166 euro/ ha, a share of 26% is occupied by the variable expenditures of
which the value consumption of materials is of 65.4%.
Fixed expenses, which occupies 74% of the total, are made up overwhelmingly of 94.9% of the value
of the permanent labor force consumption. By deducting the total expenditures of the production’s
value, results a taxable income of 2,466 euros / ha, and finally a net income of 2,072 euro / ha.
The net income rate of 33.6% is obtained by dividing the net income to total expenditures. The
economic efficiency of producing the marigold crop in organic system is represented mainly by the
synthetic indicator of production cost of 1,233 euro/ t, resulting from reporting the total expenditures
to the estimated average production.
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The crop’s profitability derives from predictable price ( internal market) of 1727 euro / t calculated by
applying a coefficient of 1.40 to the cost of production.
III.2. - The incomes and expenditures budget for the thyme crop in field, harvest 2016/2017 –
forecasts (Table no. 4)
Table 4: Budget of revenues and expenditures for the thyme crop in field, harvest 2016/2017 -
forecasts), conventional and ecological system
Differences (Eco-
Indicators
MU Conventional Ecological Conventional)
Abs %
A. Production per hectare t / ha 13 10 (-3to) 76.9
B. Production value euro 18,412 24,983 6,571 135.7
C. (+). subsidies euro 80 80 0 100.0
D (=) Gross product euro 18,492 25,063 6,571 135.5
E (-) Total expenses euro 14,730 19,218 4,488 130.5
I. Variable expenses euro 12,358 14,719 2,361 119.1
II. Fixed expenses euro 2,372 4,499 2,127 189.7
F (=) Taxable income euro 3,682 5,765 2,083 156.6
G (=) Net income + subsidy euro 3,173 4,923 1,750 155.2
H. Taxable income rate % 25 30 5 120.0
I. Net income + subsidy rate % 21 26 5 123.8
Euro /
Cost of production 1,133 1,922
t 789 169.6
Predictable price- internal Euro /
1,416 2,498
market t 1,082 176.4
The thyme crop - conventional system

In terms of achieving an average production of 13 tons / ha fresh grass, it is achieved a production
value of 18,412 euro / ha, and by adding the subsidy of 80 euros, we have a gross product of 18,492
euro / ha.
Of the total expenditure on culture, a share of 83.9% is represented by the variable costs, and from
this, the expenditures with the materials occupies a share of 82.5%.
The fixed expenses have a share of 16.1% of total expenditures being made in proportion of 69.7%
by the value of the permanent labor force consumption. By deducting the total expenses of the
production value is obtained a taxable income of 3,682 euros / ha, finally resulting a net income of
3,093 euros and a net income rate of 21%.
A suggestive expression of the economic efficiency for thyme crop in the conventional system is
accomplished by the synthetic indicator of production cost of 1,133 euro / t, calculated by dividing
total expenses to estimated average production. In order to obtain profitability for culture, an internal
market price was calculated, applying at the production cost factor a coefficient of 1.25.
The thyme crop – Organic system

Corresponding to an average production of 10 t / ha fresh grass is achieved a production value of
24,983 euro / ha, and by adding the subsidy of 80 euros / ha, we have a gross product of 25,063 euro/
ha. From the total expenses, 76.6% are the variable costs and of these materials value is by 82.8%.
Fixed expenses have a share of 23.4% of total expenditure being made in proportion of 79.8% by the
value of the permanent labor force consumption. By subtracting total expenses of the production
value results a taxable income of 5,765 euros / ha, and finally a net income rate of 25.2%.
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The Economic efficiency of thyme crop in organic system is of 1922 euro / t, as a result of dividing
total production costs to the to expected average production.
To ensure the crop’s profitability was calculated a predictable internal market price of 2,498 euro / t
by multiplying the production cost with a coefficient of 1.30.
IV. The estimated analysis of the break-even based on technical and economic indicators
IV.1. – The economic synthesis indicators for marigold crop in the field- conventional and organic
farming system, 2016/2017 harvest - forecasts (Table no. 5)
The data in Table 5 reveals that at the marigold crop in the field, the growth rate of revenues is
greater than the growth rate of expenditures with 1.25% in conventional system and 1.40% in organic
system.
Table 5: The economic synthesis indicators for marigold crop in the field- forecasts 2016/2017
No. Economic synthesis MU conventional Ecological Differences (Eco-

indicators system system Conventional)
(+/-) %
1 The average t / ha 7.0 5.0 -2.0 71.4
production per hectare
2 Production value per € / ha 9,894 8,633 -1,261.0 87.3
hectare
3 Production expenses € / ha 7,915 6,166 -1,749.0 77.9
per ha
4 Variable expenses € 1,797 1,601 -196.0 89.1
5 Raw materials € 1,176 1,047 -129.0 89.0
6 Permanent workforce € 5,822 4,330 -1,492.0 74.4
expenditures
7 Fixed expenses € 6,118 4,565 -1,553.0 74.6
8 Unitary production € / kg 1.13 1.22 0.1 108.0
cost
9 The price €/t 1,413 1,727 314.0 122.2
10 Work productivity h/t 556 580 24.0 104.3
11 Profit or loss € / ha 1,979 2,466 487.0 124.6
12 Profit or loss per unit €/t 283 493 210.0 174.2
of product
13 Profitability rate % 25 40 15.0 160.0
14 Breakeven in value € 7,476 5,604 -1,872.0 75.0
units
15 Breakeven in physical to 5.3 3.2 -2.1 60.4
units
16 Operating risk rate % 76 65 -11.0 85.5
17 Security Index (Is) 0.2 0.4 0.2 200.0
The share of variable costs in total production costs is of 22.7% and 26% respectively, the difference
being represented by the fixed costs. Regarding the costs of raw materials in the total consumed
resources, they have a share of 65.4% in both culture systems.
The average price per unit of product is 1,413 euro / t in the conventional system, being with 22.1%
higher in the organic system. Regarding the labor productivity, it is highlighted that a ton of product
in the conventional system was achieved with the consumption of 556.2 hours of work, of which 2.9
833
hours / mechanical works and 553.3 hours / manuals works, while in the organic system to produce a
ton 579.7 hours were needed, of which 3.6 hours / mechanical works and to 576.1 hours / manuals
works.
The profitability rate recorded rates of 25% and 40% respectively, noting the economic efficiency of
production of marigold crop in field. The breakeven refers to the physical or value level of
production from that production revenues by capitalizing cover all expenses incurred, i.e. the level
that manifests the profitability of the crop. Thus, in the conventional system, the marigold crop is
cost-effective from an average of 5.3 t / ha equivalent of a value of 7, 476 euro, and for the ecological
system the breakeven to be achieved at an average production expressed physically or value reduced
by 39.6% and 25% respectively.
The operating risk rate is a synthetic indicator which refers to the possible risk of unfulfilment of the
expected production. In case of the marigold crop, this indicator is of 76% in the conventional system
and 65% in the organic system.
In general, if the breakeven level value is lower, the operating risk is lower. Safety index refers to the
safety margin representing the realization of the crop, this margin is higher as the index is higher. At
the marigold crop in the field, the security indices obtained are 0.20 and 0.40 respectively.
It can be appreciated as favorable the marigold crop production in both systems, because the turnover
value exceeds the threshold of profitability with 32.3% in the conventional system and 54% in the
organic system.
IV.2. - The economic synthesis indicators for thyme crop in the field- conventional and organic
farming system, 2016/2017 harvest - forecasts (Table no. 6)
Table 6: The economic synthesis indicators for thyme crop in the field- forecasts 2016/2017
No. Economic synthesis MU Conventional Organic Differences (Eco-

crt. indicators system system Conventional)
(+/-) %
1 The average production t / ha 13 10 -3.0 76.9
per hectare
2 Production value per € / ha 18412 24 983 6571.0 135.7
hectare
3 Production expenses per € / ha 14730 19 218 4488.0 130.5
ha
4 Variable expenses € 12358 14719 2361.0 119.1
5 Raw materials € 10194 12196 2002.0 119.6
6 Permanent workforce € 1654 3589 1935.0 217.0
expenditures
7 Fixed expenses € 2372 4499 2127.0 189.7
8 Unitary production cost € / kg 1.13 1.91 0.8 169.0
9 The price €/t 1416 2498 1082.0 176.4
10 Work productivity h/t 87 241 154.0 277.0
11 Profit or loss € / ha 3682 5765 2083.0 156.6
12 Profit or loss per unit of €/t 283 577 294.0 203.9
product
13 Profitability rate % 25 30 5.0 120.0
14 Breakeven in value units € 7213 10951 3738.0 151.8
15 Breakeven in physical to 5.1 4.4 -0.7 86.3
units
16 Operating risk rate % 39 44 5.0 112.8
17 Security Index (Is) 0.6 0.6 0.0 100.0
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The data presented in Table 6 emerges that the output value obtained is higher by 25% and 30%
compared with the production expenditures. Of the total expenditure, the variable expenditures
represents a rate of 83.9% and 76.6% respectively, and the difference is made up of fixed expenses.
Of the total resources consumed, materials have a share of 82.5% in the conventional system and
82.9% in the organic system.
The average price has values of 1, 416 euro / t in the conventional system and with 76.4% higher in
the ecological system. Regarding the labor productivity, we note that for a ton of product were
consumed in the conventional system 86.8 hours, of which 2.2 hours / mechanical works and 84.6
hours / manual works, while in the ecological system there was a need to 241.4 hours, of which 2.7
hours/ t for mechanical works and 238.7 hours / t for manual works.
Mentioning that the profitability rate for thyme crop was 25% and 30% respectively, which means an
economic efficiency culture. The breakeven express the physical or value level of production at
which the revenues fully cover the expenses incurred, i.e., the level at which we can speak of crop
profitability.
We can mention that in the conventional system the thyme crop proved profitable starting from an
average of 5.1 tons / ha which corresponds to the sum of 7,213 euro / ha and in the ecological system
the break-even point is at 4.4 t / ha for the amount of 10,951 euro / ha.
The synthetic indicator, the exploitation risk rate , meaning that risk is to be taken into account when
expected production failure, being of 39% in the conventional system and 44% in the organic
system. The safety index, which is the safety margin which is provided by the crop accomplishment ,
which is 0.6 in both production systems.
Conclusions
By the approached issues, the paper can constitute a starting point in achieving some operational
objectives, namely an approach to issues of identifying the profitability key indicators per unit area.
We believe that the computing system is a tool for recording and the evaluation of the agricultural
production economic performance at the level of medicinal plants cultivation.
By using the economic and mathematical methods underlying this system of calculation, there is a
high possibility of optimizing the size and farms profile and also the optimization of the medicinal
plants technology cultivation .
The research results will have an important role in promoting the medicinal plants cultivation and to
encourage further expansion of land by increasing the farms size for these crops.
Also, through the knowledge and appreciation of the medicinal plants economic and technical
potential for conventional and organic farming, prerequisites are created for accessing the programs
and using the EU community funds.
Acknowledgment
The computing system is developed under the program ADER program, contract No. 1311/2015:
"Technical and economical substantiation of production costs and estimates regarding the
capitalization prices for tomatoes in field and in protected spaces, cucumber in field and in protected
spaces , cornichon, carrots, bell peppers, cabbage, cauliflower, flowers in field and in greenhouse,
medicinal plants for conventional and organic agriculture", a project funded by the Ministry of
Agriculture and Rural Development from Romania, project coordinator: Berevoianu Rozi Liliana.
835
References
Berevoianu, Rozi, Liliana., (2007) “Research on the application of computer technology in crop
monitoring and optimization technologies in crop production”, University Publishing House,
Bucharest
Berevoianu, Rozi, Liliana., Necula, Diana., Maria., (2015), ”Conventional and ecological agriculture
in farming, floriculture and medicinal plants cultivation – Conceptual approaches”, ISBN 978-606-
34-0042-1, Publishing ASE, Bucharest,
Coiciu E. and Racz G. , (1962), “ Medicinal and aromatic plants”, Romanian Academic Publishing,
Bucharest.
Coiciu E., (1967) “Medicinal and aromatic plants perspective”, Publishing C.D.A., Bucharest
Laza A., G. Rácz, (1975), “Medicinal and aromatic plants”, Publishing Ceres, Bucharest
Muntean L.S., (1990),” Medicinal and aromatic plants grown in Romania”, Publishing Dacia, Cluj-
Napoca.
Muntean L.S., (2001), (2003), “Medicinal and aromatic plants in Crop”, Publishing Ion Ionescu de la
Brad, Iaşi.
Muntean L.S., (2008), “Medicinal and aromatic plants in Crop”, Publishing Academic Pres, Cluj-
Napoca
Pater B., (1926), “Medicinal plant cultivation”, Publishing Bucovina, Bucharest.
Pater B., (1927), Resort activity herb of Cluj in 1926, Agriculture bulletin, vol. VIII, nr. 7-9/1927
Păun E. and colab., (1983), “Guide - medicinal and aromatic plants cultivation”, Agricultural
propaganda newsroom , Bucharest
Potlog A.S., (1939), Organization of production and exploitation of medicinal plants, New
agriculture, no. 10, 11 and 12. 40.
Potlog A.S., (1942), Medicinal and aromatic plants cultivation, Morning Star Institute of Graphic
Arts, Timisoara. 41.
Potlog A.S., Vinţan A.Gh., (1985), Herbs, Publishing Scientific and encyclopedic, Bucharest
Rácz G. (editor) et al., (1985), “Herbs today”, Korunk, Cluj Napoca.
Robu T., Milica C.- Indigenous medicinal plants, European Institute, 2004
836
Vertical Specialization and the Dynamic Effects of Financial

Frictions
Selma Chaker (Tunis Business School and WTO-TBS Chair, Tunisia); selma.chaker@tbs.rnu.tn
Research in Progress
In this paper we quantify the scope of the distortion due to financial frictions in international trade;
precisely for products and services that are Made in the World or produced through a process which
is coordinated across geographies more commonly known as Global Value Chains (GVCs), Vertical
Specialization (VS) or Intermediate Goods.
Our motivation is twofold. From the real economy perspective, over 70% of global trade is in
intermediate goods, services and in capital goods. The income created within GVCs has doubled over
the last 15 years (OECD, World Trade Organization and World Bank 2014). Moreover, 60 million
people all over the world work in 3 500 processing zones located in 130 mostly developing countries
(International Labor Organization).
From the financial perspective, globally a flow of some USD 6.58 trillion of bank-intermediated trade
finance was provided during 2011, of which around USD 2.8 trillion was letters of credit (L/Cs).
Trade finance directly supports about one-third of global trade, with L/Cs covering about one-sixth of
total trade. The Asia-Pacific region accounts for more than half of the L/Cs related as well as overall
trade finance exposures, while Europe accounts for one quarter, and North America, Latin America,
Africa and the Middle East each for around 5-10%.
In the literature, exports are usually considered as an engine of economic growth in developing
countries. However, high-quality production is impeded by the lack of skilled workers, the
technology gap and the low quality inputs. As a consequence, developing countries will engage into
vertical specialization: only some particular stages of the good’s production are performed within
these countries (Manova 2015). Hummels et al. (2001) constructed a measure of the VS which
consists on estimating the value of imported inputs that are part of exported goods. Using data on 10
OECD and 4 emerging countries, they find that about one third of the growth in their exports is due
to the increase in the VS. Yi (2003) used the latter to explain the non-linearity of trade response to
tariffs as trade barriers. Furthermore, Manova (2013) demonstrates that only 20%-25% of the effect
of credit constraints on aggregate trade is explained by a decrease in the production. Manova et al.
(2015) argue that credit constraints have the following effects on firms: they reduce their total
exports, restrict their export product range and impede entry into other markets.
Chaney (2016) explains the little reaction of exports to exchange rate fluctuations by the existence of
two contradictory effects: in the case of an appreciation, existing exporters will decrease the export
volume but at the same time new exporters who are facing liquidity constraints start exporting.
Manova (2015) emphasized the following points: domestic firms face more financial constraints than
multinationals; financial frictions prevent firms from performing high value added GVC stages and
the production organization (across firms and countries) is impacted by the financial constraints.
Given the gap in the literature regarding Dynamic General Equilibrium Models (DGEM) with
financial frictions and VS, we first propose a theoretical model to analyze the dynamic effect of
liquidity / credit constraints for exporters in the context of GVCs. To our knowledge, this is the first
paper to address the problem of financial frictions in a dynamic (as opposed to static) trade model
with vertical specialization. The analysis will be useful for policy recommendation regarding the size
of the trade distortion due to financial frictions. We expect that financial frictions raise the cost of
vertical specialization.
837
Our methodology starts with a theoretical model that we aim to calibrate and test based on real data.
We use a DGEM with liquidity constraints for exporting to explain trade patterns between developed
countries and the rest of the world in the context of GVCs. We divide the world in two parts: the G20
countries and the rest of the world. Estimating the DGEM using data for the G20 countries versus the
rest of the world, would allow quantifying the size and the dynamics of the financial frictions’ effect
and making policy recommendations. The questions addressed in this paper are the following: How
much growth in developing countries are the liquidity constraints impeding? How liquidity
constraints impact value added? Do the differences in financial development explain the value added
differences between developed and developing countries? Why do developing countries have
difficulty in moving into higher value added GVC stages? By how much should the liquidity
constraint weaken in order to achieve upgrading in the GVC? How much time does it take in this
model to move into more profitable GVC stages? If a country upgrades, where the low value added
stages would take place?
The model derivation as well as the empirical results are still a work in progress.
JEL classification: F1, F4, F6, G2.
Keywords: International Trade, Global Value Chains, Liquidity Constraints, Dynamic General
Equilibrium Model.
References
Chaney, T. (2016), Liquidity Constrained Exporters, Journal of Economic Dynamics and Control
(forthcoming).
Hummels, D., Ishii, J., and Yi, KM. (2001), “The Nature and Growth of Vertical Specialization in
World Trade”, Journal of International Economics, 54, 75-96.
Manova, K. (2013), “Credit Constraints, Heterogeneous Firms, and International Trade”, Review of
Economic Studies, 80, 711-744.
Manova, K. (2015), “Global Value Chains and Multinational Activity with Financial Frictions” In J.
Amador and F. di Mauro ed., The Age of Global Value Chains: Maps and Policy Issues, CEPR E-
book.
Manova, K., Wei, SJ and Zhang, Z. (2015), “Firm Exports and Multinational Activity Under Credit
Constraints”, The Review of Economics and Statistics, 97(3), 574–588.
Yi, KM. (2003), “Can Vertical Specialization Explain the Growth of World Trade?” Journal of
Political Economy, Vol. 111 (1), 52-102.
838
Online Marketing - Communication Strategy for

Managers Aquaponics Farms
Maria Magdalena Turek Rahoveanu, “Dunărea de Jos” University of Galaţi, Domnească Street 800201,
Galaţi, Romania, mturek2003@yahoo.com
Adrian Gh. Zugravu “Dunărea de Jos” University of Galaţi, Domnească Street 800201, Galaţi, Romania,
zugravuadrian@yahoo.com
Corresponding author email: mturek2003@yahoo.com
Abstract
It is widely known that marketing needs of society turns into profitable business opportunities and a good
marketing communication is based on people's needs and desires, and sell the benefits of a product or
service that encompasses them. This paper aims to help promote acuaponic type farms in Romania to
encourage doing business and to identify new market niches through online marketing. This research
conducted a questionnaire study at 50 farms AquaPonics producers to assess their willingness and ability
to communicate with customers via the Internet.
Keywords: marketing on line, marketing communications, aquaponics, business model.
Introduction
Today, a website can be an incredible tool to communicate information or to commercialize the product to
a global audience. Like all other methods of mass communication, websites can be an effective
promotional tool considerably. However, once the initial investment is made and the site is running, the
ideal is that sections to be updated and maintained.
Sites behaves like the human body, if not well maintained, gets sick and healing the costs are much higher
than those maintaining a healthy framework. The same is true for websites. Despite the investment began
to design and hosting, if you neglect your old, it will be considered uninteresting and devoid of useful
information. In today's society, the Internet and social networks (Facebook, Twiter) have changed the way
producers and consumers have begun to communicate. The Internet has the ability to store low-cost vast
amounts of information in different locations virtual; the availability of powerful and inexpensive search,
organization and dissemination of information; interactivity and the ability to provide information on the
application; the ability to serve as a means of transaction; the ability to serve as a medium for physical
distribution to certain products (Peterson et al., 1997).
One of the advantages of the internet is that it allows companies to reach a global customer population so
that customers select, procure goods and services from businesses around the world (Al Kailani & Kumar,
2011). Online marketing, brand creates a community, a structure of relationships in which the focus is the
customer. It creates relationships between client and brand, between the customer and the company,
between the customer and the product in use, and among them fellow customers.
In our assessment the starting point it was kind of online marketing, as follows:
• (SEM) search engine marketing- marketing on search engines (very related to SEO, SEO is part of SEM)
• (SEO) search engine optimization for search engines optimization-
• (EMS) social media marketing- actions on social media (blog, twitter, facebook, forums etc) to connect
and build a relationship with your target audience (customers and potential customers), and the effect that
they perform producers doing business in AquaPonics farms.
839
Also another tool of our research was the number of users of Google AdWords and the effects it has on
sales generated as a result of various posts announcements in the field.
I started marketing activity that can be measurable, accountable and flexible through Google AdWords,
which shows how many users have noted the announcement and how many they've clicked to access the
website or call you. With it you can even see the actual sales from the site as a direct effect of showing
ads.
Materials and Methods

Online marketing began in 1994 when it sold the first banner ads (Hotwired, October 1994) and created
the first commercially available Web browser, Netscape Navigator 1.0 (November 1994).
Now it is widely known that online marketing is the art of making money measured, controlled and
checked. It examines, tests and measures the Small / Large:
• How many guests?
• While in the?
• From what source they come from?
840
• How much does a tender?
• What and how much they bought?
This paper aims to answer this question, namely how to conduct aa online activities of the 50 farmers in
the acuaponiei, users of social media to examine how the sites social networks have a positive impact on
their customers actual and potential. The answer may help discover how to attract different consumers in
order to maximize the online marketing strategy.
Acvaponica farm is a concept implemented in several places in Romania, so we will locate in an area of
potential for a more objective assessment of the prospects of this business. The data set includes the
number of producers of organic farming as well as future entrepreneurs who want to practice it could turn
to innovative solutions; a profile of consumers of such products.
The methodology suggested is based on a socio-economic analysis, by a caracaterizare profiles

socioeconomic farms AquaPonics present in Romania, but also in terms of future economic activity
(agricultural production, aquaculture and Social Services) (Zugravu, et all ). Finally, policy
recommendations are provided based on the results of evaluation of the impact on consumers.
For areas with low water resources, aquaponics is a miracle savior. Can produce and fish, using the same
system to produce vegetables using only a tenth of the usual amount of irrigation agriculture.
The statistics in the production AquaPonics not yet exist in Romania, because we are talking of a new task,
a new market for organic agriculture and fisheries, and potential investors can develop ecological tourism
infrastructure anywhere even deficient tourists. It would be interesting if they follow these tourist
destinations effect they have on categories of tourists arrivals due to these infrastructures in terms of
economic, social, environmental.
Another set of data in our evaluation refers to the ability producărorilor in making investments for the
construction and operation of such a system can influence climatic conditions in the plant varieties grown.
According to a cost-benefit analysis (23) a greenhouse acvaponica small 1,000 liters (1 m3), which can
grow on average 22 perches, would cost only $ 2,300. this, plus the cost of running that would reach
around 320 dollars for each production cycle (approximately 6 months).
In order to measure, quantify marketing activity through google adwords account in terms of manufacturer
we have developed the following set of questions:
• What are the interests online?
• Who is the target audience?
• What types of ads will capture the attention?
• I want to select sites that will come I can rely on ads or google adwords?
• geographical area forms part of what? what language you speak?
• announcements have already created or start at 0?
• what we budget for the campaign?
• how to use effectively (at maximum) this budget?
• What is the ultimate objective of the campaign and how you measure it?
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Given the methodology described we can present some of our findings and conclusions.
1. The effect of Facebook on economic activity in the aquaponic producers.
Social networking sites can be described as a network of friends for social or professional relationships,
online interactions that have profoundly changed the propagation of information, making it incredibly easy
to share and digest information on the Internet. 2016, Facebook is said to have more than a 1.4 billion
active users.
Statistically speaking, in Romania are 8.5 million Facebook members, of which 40.2% checked daily
personal account, 96.96% have set their city of residence. Given this tremendous growth from 2004 until
now, Facebook can be a dominant source shopping due to the strategy to keep you captive and platform
requiring you to form your community or join an existing one.
For the target group we are talking about 60% of the producers of aquaponiei users, aged between 34-50
years, 10% of these companies acquire customers on Facebook.
2. Segmentation of users of Social Media
Following the general idea that segmentation can leverage a better understanding of the behavior of
producers, therefore, better guidance, to achieve the desired effect of any marketing activity, several
studies have been employed to carry out a segmentation of producers, farms AquaPonics interacting
online, in particular to examine the behavior of online marketing.
We investigated producers opinion on online advertising, marketing communications online, you can play,
as follows:
"Control and convenience, ''
'' Trust and security, ''
'Affordability', 'user' and 'effort / responsiveness''
Using these dimensions as a basis for segmentation seven segments follow:
'' Consumer unconvinced '', '' security conscious '', '' undecided '', '' believes '' '' complex '', '' consuption
with a conscious shift '' and '' cautious consumer ''.
Starting from the motivations of consumers to use the Internet, the Internet audience I split it into
'Adventurers'' '' collectors actually '', '' applicants entertainment '' and '' social shoppers. ''
Also A.Turek et al (2009) followed and another factor, such as "commodity Internet" in making purchases.
We conclude here that the online marketing needs of the company turns profitable business opportunities
is based on people's needs and desires, sell benefits or services that a product contains.
We present below the benefits they have google adwords users in our study:
• Visibility and instant positioning on search engines Google;
• broad audience: millions of users worldwide;
• Flexibility - display ads almost immediately after activation;
• Full control over advertising budget through daily budget; campaign can be stopped and changed at any
time;
• Relevance: users actively seeking products or services;
• You pay only when the customer clicked on your ad;
842
• ROI - return on reports which identify words, ad, ad group and campaign in general;
• Why do PPC if I first position in organic?
• In the paid, you have total control over the message offered (ad text) for a search made by users,
following a CR (conversion rate) high.
With Google AdWords you can make a series of monitoring and reporting on comparison charts, which
displays all traffic and traffic from social sources, based on calculations such as the number of clicks on
the ad / impressions * 100 , the system will display ads that have the best CTR and CR (conversion rate),
how well you know the process by which a potential customer make a buying decision?
We propose a model campaign to promote farms acuaponice for a target: 100 vegetable producers,
with the following:
1. Newsletter
- One text sent by e-mail each producer with a weekly frequency

- Newsletter created for the purpose of information on new farming system acuaponică
- Information Period - 4 weeks
- 1 new text, all in the form of newsletter in order to inform the organization of training seminars to
increase the functionality of the new system
- Information Period - 4 weeks
2. Format print materials (banners, posters, roll-ups, user guide)
- Banners A3 and A4 in every institution, every floor of the building at the main entrances, near counters
payments, bulletin board or table with notes on the door managers / inspectors
- Circulation - 10 pcs 10 pcs A3 + A4 - each institution
- Roll up each floor of the building, with the title and contact information where you can inquire about
details
- Date display - the date of dispatch of the first newsletter 12 - 18 months
- User of the new soft - 100 pieces in each institution
2. Meetings basis for discussion of new trends in the payment system
- Employees of the institutions by way of leadership required to organize, planned 1-2 campaign debate
sessions.
- At these meetings will determine the groups of employees for participation in seminars
- It will set a target of employees to be trained in detail, especially those who will take care of informing
citizens
- Another point of discussion will be the determination of the seminars, dedicated to educating employees.
3. Seminars - 3 sessions
- In each institution will organize training sessions for employees

- The first session is devoted to general information, benefits and conditions of using this new online
payment system
- The following two training sessions are devoted to practical training of employees
- Trainers experienced and founders of this project will explain in detail how this employee groups new
software.
- One training session - 4h (15 min break after the first 2h)
- Those selected to attend have the right to ask questions and also receive a guide in electronic format
(provided by trainer) and printed (from 100 pcs. Above)
Target: citizens
1. billboards
843
- In the nearby proximity of the institutions will rent spaces outdoor (billboards) to communicate the
introduction of new software
- It is recommended 10 boards / sector over a period of 3 months
- Each panel will include the title, date when he will be released, locations where citizens can find
information and contact information (website, call info)
2. Materials in printed format
- A0 posters at each entrance to the institution and counters where they work with the public (10 - 15
pieces in each institution)
- A4 Poster - visible on the doors of the institutions - 10 pcs / institution
- Roll up - the circulation area of the institutions - preferably next to desks or offices of interest of citizens
- Circulation - 1-2 pcs / institution
- It is recommended that materials in printed format to be stowed out of sight over a period of 12 months
3. Spot TV
- Making a cardboard TV with voice over with a delivery period of 30 days - two weeks before the release
date of the program and 2 weeks after launch
- The spot must be simplistic, more than 30 sec, broadcast in prime time slots 6:00 p.m. to 9:00 p.m. (2
broadcasts) and 7:00 am -09: 00 during newscasts (2 broadcasts)
- Total spots - 120 spots / TV station
- TV stations desirable are the news and those with big audience, type: Antena 1 Pro TV, Prima TV, Kanal
D, etc.
4. Newsletter
- Mail dedicated citizens, with the purpose of information on new payment methods
- One newsletter / week over a period of 6 months
- They will be sent to all NAFA database (for example)
5. Information Flyer
- It will carry out a flyer with visual project and will be introduced in the envelope with your payment
information monthly / biannual sent to taxpayers
- Circulation in the number of citizens
- Duration of work: 3 months
6. Facebook
- Will achieve a Facebook page project

- On the wall, will update information about operation of the project
- Updates daily for 3 - 6 months about the progress of the project and notes about how taxpayers react
produce
A website can be an incredible tool to communicate information or to commercialize the product to a
global audience. Like all other methods of mass communication, websites can be an effective promotional
tool considerably. However, once the initial investment is made and the site is running, the ideal is that
sections to be updated and maintained.
Sites behaves like the human body, if not well maintained, gets sick and healing the costs are much higher
than those maintaining a sănătos.Acelaşi framework applies to websites. Despite the investment began to
design and hosting, if you neglect your old, it will be considered uninteresting and devoid of useful
information.
844
Conclusions
Sites have revolutionized social media marketing practices, such as advertising and promotion, which
influenced the behavior of producers, managers in different fields. We speak here of a series of behaviors
to diversify production, purchasing, attitudes, different perceptions in an online environment, such as
reactions thanksgiving dissatisfaction.
Much higher level of efficiency of social media compared to other traditional communication channels has
led industry leaders to assert that companies must participate in Facebook, Twitter, MySpace, and others.
Websites social media provides an opportunity for companies to engage and interact with potential and
current customers, to encourage a greater sense of intimacy customer relationships, and build the all
important meaningful relationships with consumers especially business nowadays, when loyalty can
disappear at the slightest mistake, which may have extra online propagation of their meeting unhappy with
a product, service, brand or company.
The study reveals the following perspectives: first, expanding the definition of a community of brand
research entities and relationships previously neglected. Second, treat the vital characteristics of brand
communities, such as concentrations of wealth geotemporal and social context, rather than static dynamic
phenomena. Third, it demonstrates that marketing brand can strengthen communities by facilitating joint
customer experiences in a way that changes the dynamic characteristics. Fourth, it produces a new
conceptualization and richer customer loyalty that integration into a community brand.
Acknowledgment
Project H2020-MSCA-RISE-2014 No. 645691: Researches on the potential conversion of conventional
fish farms into organic by establishing a model and good practice guide.
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847
Economic Evaluation in the Structure of Production of an

Agricultural Holding - Case Study
Adrian Turek Rahoveanu, University of Agronomic Sciences and Veterinary Medicine of
Bucharest, 59 Marasti Blvd, District 1, Bucharest, Romania, aditurek@yahoo.com
Abstract
The performance of production structures in agriculture is determined by a complex of factors,
the most important are: the natural potential of agricultural holdings, financial resources
necessary to purchase inputs, ensuring balance in the allocation of factors of production,
technical and technological potential, the existing workforce and the readiness of the farm
manager. Based on these considerations we want in this paper to analyze the aspects defining
application of performance management in order to develop sustainable production structures,
increase competitiveness of farms, farmers' income stabilization and Romanian rural
development.
Keywords: production structure, management, efficiency, competitiveness
Introduction
Romania, as it presents illustrates the geographical structure and potential agrarian harmony -
since landforms; river, soil, vegetation, how land use, land improvement and ending with
ways of communication, network of settlements and economic activities, reflecting their
natural and economic integrated into a continuous process of development, recovery,
restructuring, development and harmonious organization.
With a total area of 238 000 km2 and a population of 20 million inhabitants (55% established
in urban and 45% rural), Romania represents 6% of the total European Union and 4% of its
population. Investment and competitiveness in Romania are elements that need to be
improved in order to achieve accelerated economic growth and to ensure convergence with
EU income.
In this context, Romanian agriculture has been and remains the general attention by potential
land resources, employment and production that conditions achievable food security, farmers'
welfare and existence of all its inhabitants.
The current state of Romanian agriculture, the countryside, largely agrarian structure is
determined by Romania - social and economic problem of the utmost importance and actuality
for Romania.
Material and Method

To capture best the opportunities for developing and enhancing the performance of
agricultural activities, it was conducted a research at farm level from the plain area.
The research objectives were to identify the ways to use the land, human, material and
financial resources in agricultural units and economic performance of their work.
The research methodology consisted of a documentation study conducted using a

questionnaire survey. The sources of information have been domestic farm records.
The method of data collection is the survey. As investigation technique, was used structured
questionnaire-based investigation by direct interview. The questionnaire included questions on
different aspects of the farm business: agricultural area, its structure by use; level of technical
848
equipment of the holding; human resources used and structure; structure of agricultural
production of vegetable origin; livestock; average and total yields; commodity production and
market policy; costs, prices and profitability of products sold; costs per hectare and per
animal; income and economic outcomes.

When selecting the participants for study documentation was considered both farm profiles:
cereal, vegetable, wine, livestock and so on as well as their territorial spread and the legal
status of holdings (individual husbandries, family associations, agricultural societies).
The analysis of data collected from the survey was their critical analysis: analyze, evaluate,
explain, inference and interpretation. In addition, temporal comparison was used to capture the
changes in economic performance in 2013-2015, due to the market (price changes) and to
management decisions on crop structure, human resources utilization, allocation of production
factors, market policy, etc.
For example we have chosen a case study of a farm type family agricultural association.
Family Association has a mixed profile, in the revenue predominantly oilseed crops, although
in the area cultivated the shares held by them and cereals are close.
The land use mode
Total of which: % Arable from

Specification
hectares Property Lease agricultural
Agricultural area, of which: 250 250 - x
- Arable 250 250 - 100.0
Source: Processing of accounting documents of the association, 2013-2015
Conclusions:
- Association has a significant agricultural area, if we consider the excessive

fragmentation of land holdings in Romanian agriculture;
- Entire area is found in the form of arable land (one category of use);
- Crop structure mentioned above is natural, being recognized arable land suitability
for cereals, oilseeds and other field crops
Technical facilities owned by the association
Type 2013 2014 2015

- Tractor U650 3 3 3
- Plows 3 3 3
- Disc harrows 2 2 2
- Seeders for straw cereals 1 1 1
- Seeders for row plants 1 1 1
- Transport trailers 2 2 2
Conclusions:
- Existing technical means are formed mainly of those necessary for the soil basic
works and for crop sowing;
849
- Load on the tractor is 80 hectares, which exceeds its level found in countries with
developed agriculture, and the one in our country;
- The combines for harvesting grain and oilseeds are not found among technical
means, which, in case of failure in relationships with service providers, delays may
occur in carrying out this work.
Crop structure
2013 2014 2015
Specification
ha % ha % ha %
Wheat 40 16,00 60 24,00 80 32,00
Barley 80 32,00 60 24,00 40 16,00
Rape 60 24,00 50 20,00 40 16,00
Maize 50 20,00 60 24,00 70 28,00
Vegetables for industrialization 20 8,00 20 8,00 20 8,00
TOTAL 250 100,00 250 100,00 250 100,00
Conclusions:
- The production structure has a profile cereal (wheat and barley) and oilseeds
(rapeseed), industrialization vegetables (green beans, peas, gherkins, etc.);
- Almost half the cultivated area remain of cereal crops; two cultures share is
determined by market demand towards them;
- Having regard to the holding area which has 250 ha have been set up sole, so apply
crop rotation every year and in this way to achieve a good fight against diseases,
pests and weeds.
The average yield determines, according to its level and to correlation with the size of
production costs per hectare, the production and economic results of farm. Therefore, there is
interest to give it an ascending trend.
Evolution of average productions
Years %
Culture U.M.
2013 2014 2015 015/2013 2015/2014
Wheat Kg/ha 4100 3500 3400 85 97
Barley Kg/ha 5200 4700 5600 90 119
Rape Kg/ha 2900 3100 2700 107 87
Maize Kg/ha 7200 7800 8000 108 103
Vegetables for
Kg/ha 8050 9120 8900 113 98
industrialization
Conclusions:
- Average yields of all crops are above the regional and national average. The wheat
crop, which even in 2013 was not a favourable year for agriculture, average
production was 20% above the average for the county. Barley crop, the average
stands at twice the average county level. The same positive trend was also reflected
in maize;
850
- In the circumstances, the average crop production can be considered as satisfactory;
- The size of the average production depends heavily on natural rainfall;
- Compliance with all technological links is, as is known, a condition that determines
the size of the average production.
Evolution of total and commodity production (tonnes)
2013 2014 2015

Specification
TP CP TP CP TP CP
Wheat 164 164 210 210 272 272
Barley 416 416 282 282 224 224
Rape 174 174 155 155 108 108
Maize 360 360 468 468 560 560
Vegetables for industrialization 161,0 161,0 182,4 182,4 178,0 178,0
TP - total production
CP - commodity production
Conclusions:
- Total production follows the trend of the average production per hectare of each
crop;
- Trend of increasing total productions is accompanied by annual variations of their

levels, with consequences on the size of income;
- In the analysed period 2013-2015, the agricultural unit sold all production obtained
from all cultures
- Observed that for commercial production has a high volume, which shows a level of
quality corresponding market standards.
Dynamics of costs, prices and profitability of products
Specification UM 2009 2010 2011

Wheat
- Quantity of commodity t 164 210 272
- Cost per t lei 512 590 618
- Price per t lei 450 600 650
- Profit / loss lei / t -62 10 32
pppierderepierdere
- Subsidies lei / t -13,8 1,7 4,9
Barley
- Cost per t lei 404 447 412
- Profit / loss lei / t -84 3 88
851
- Subsidies lei / t -26,3 0,7 17,6

Rape
- Cost per t lei 517 540 480
- Price per t lei 1100 1250 1300
- Profit / loss lei / t 583 710 820
- Subsidies lei / t 53,0 56,8 63,1
Maize
- Cost per t lei 375 347 338
- Subsidies lei / t 37,5 50,4 62,4
Vegetables for industrialization
- Quantity of commodity t 161,0 182,4 178,0
- Cost per t lei 385 414 460
- Subsidies lei / t 35,8 40,9 38,7
Conclusions:
- Obtained agricultural production, prices and production costs per ton of product emit
different signals in the three years of analysis
- Even if the sales price in period, all products increased by types of products, these
prices have resulted in positive values of the degree of profitability or losses (wheat
and barley in 2013)
- Sales prices determined and the volume of production of goods, some variation of
incomes;
- In 2015 to 2014 cost per ton of product have a slight downward trend, which is
positive, which can be determined that there was a better management of inputs
allocated;
- Measures are needed to modernize the agricultural society, establishing a production

structure to prevent any market fluctuations of agricultural products.
852
The relationship commodity production - price - total revenue
Specification 2013 2014 2015

to lei/to lei to lei/to lei to lei/to lei
Wheat 164 450 73800 210 600 126000 272 650 176800
Barley 416 320 133120 282 450 126900 224 500 112000
Rape 174 1100 191400 155 1250 193750 108 1300 140400
Maize 360 600 216000 468 700 327600 560 900 504000
Vegetables for 161,0 600 96600 182,4 700 127680 178 750 133500
industrialization
Total revenues x x 710920 x x 901930 x x 1066700
Conclusions:
- Association induce economic flows products they get. Here comes with an important
role, marketing policy, compliance with the quality requirements etc. This step
concludes the cycle of activity, putting its mark on the final results or if we think
only in the prices at which products are marketed.
- Having regard to the business, association aims to integrate agricultural market

agricultural products that are obtained. In this regard, efforts are oriented towards
production structure and how it can meet the demand, so as to reduce the influence of
competition from holdings which may contrast with similar activity by volume,
quality production and economic profitability.
Workforce structure
Age
Year 2013 Number
18-49 years > 50 years
Total employees, including: 9 7 2
Employees with agricultural profile
5 3 2
studies
Employees with higher education 2 1 1
Age
Year 2014 Number
5 3 2
studies
Age
Year 2015 Number
5 3 2
studies
853
Conclusions:
- In the agricultural workforce association with specialist training in agriculture is

55%, and hence the level of training is high.
- As regards the balance between employees' ages note that there is a proper ratio
between labour power and experience.
- During the farming company uses seasonal workers to cope with the volumes of
work to be done.
Conclusions
Future business development opportunities:
- From the data is observed as main crops totalling an annual production of about
1,300 tons. This production can be considered a good production, compatible with
the agricultural potential of the area.
- To work in good conditions leased land, in addition to existing equipment, which are
already largely written off, are needed equipment performance, high productivity,
with which to execute quality works in optimal time. Also required high capacity
vehicles to allow timely delivery of finished products produced in the company,
reducing production losses and economic efficiency of the agricultural company.
- Following the results of the study analysis and market characteristics, agricultural
association manager concluded that the need for good quality agricultural works,
executed by qualified and new cars and modern, is very high. Even though in recent
year’s agricultural production had relatively good results for the reasons given above,
there is need for the acquisition of new equipment and performance to assure the
application of technology to optimize costs, leading to increased competitiveness of
the agricultural company.
- For better exploitation of the 250 hectares of arable land leased to the company wants
to purchase the following independent equipment: two tractors; car sprayer; water
tank for herbicides; Cereals truck.
- Contribute to the modernization of society achieve the following objectives:

providing a base for agricultural machinery and equipment performance to maximize
the efficiency of mechanized; reducing production losses and increased farm
efficiency; revenue growth in the sector of the company.
- Investments foreseen for this equipment will allow improved cultivation

technologies, including those performing work under conditions that would ensure
the growth of production and preserve and improve soil fertility status and eliminate
the risk of pollution of soil and water.
In this sense, the family association aims at developing and upgrading the base's own
mechanization to increase the profitability of the European funds with the help of the National
Programme for Rural Development, Measure 4 - Investments in physical assets, sub 4.1 -
investment in agricultural holdings.
Given the amount of economic size of the farm in the period under review, according to the
applicant's guidelines for sub-measure 4.1 support grant that farming company can benefit is a
maximum of 50% of eligible expenditure will not exceed 500,000 EUR / project simple
purchases or 1,000,000 Euros / project providing for construction and assembly projects.
854
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855
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856
Leadership Styles and Presenteeism:

A Study on Health-Care Professionals in Karachi
Syeda Nadia Bokhari, Nawaz Ahmad and Syed Irfan Hyder
Institute of Business Management, Karachi, Pakistan,
s.nadiabokhari@gmail.com
nawaz.ahmad@iobm.edu.pk
irfan.hyder@iobm.edu.pk
Abstract
The aim of this study was to identify the impact of three leadership styles; the transactional leadership
style, the transformational leadership style and laissez faire on employee presenteeism among the
Pakistani healthcare professionals in Karachi. For this study, data was obtained from 128 healthcare
employees with the aid of a structured questionnaire while using social media and email services. The
data was coded and entered into the statistical package for social sciences (SPSS) version 21. The
responses obtained through the questionnaire were analyzed using descriptive and inferential statistics.
The three leadership styles; the transactional leadership style, the transformational leadership style and
laissez faire the focus of the study were observed to have no impact on employee presenteeism.
Presenteeism among employees was seen to be independent of the leadership style being followed among
the healthcare professionals. A further study into the factors causing presenteeism among healthcare
professionals can lead to a better understanding of this phenomenon in order to help reduce presenteeism
among them.
Keywords: leadership styles, transactional, transformational, laissez faire, presenteeism, Pakistan
Introduction
Presenteeism is a phenomenon that has evolved with time. Traditionally, the term presenteeism was used
as an antonym of absenteeism (Johns, 2010). It was used to indicate full attendance. With the passage of
time, the subject caught the attention of scholars especially in occupational medicine who referred to it as
‘employees attending work while being ill’ (Aronsson et al., 2000). Johns (2010) identifies two schools of
thoughts on the subject, one being that of the European scholars in management and occupational health
and the other being that of the American medical scholars and consultants. The European scholars were
more interested in determining the frequency of the ‘act’ of presenteeism due to job insecurity and other
occupational factors where as their American counterparts focused on the consequences to productivity of
857
presenteeism as a function of various illnesses while not taking into consideration the causes that forced
them to show up at work ill.
The beginning of the current millennium saw scholars from various fields take more interest in the
subject. Presenteeism was defined by Hemp (2004) as ‘the problem of workers being on the job but,
because of illness or other medical conditions, not fully functioning’. The American Heritage Dictionary
of the English Language (2006) defines presenteeism as ‘the practice of coming to work despite illness,
injury, anxiety, etc., often resulting in reduced productivity’. Gilbreath & Karimi, (2012) further state that
‘presenteeism occurs when employees are physically present at their work place but are mentally absent,
that is, their cognitive energy at work is compromised’.
Literature on presenteeism observes that presenteeism has mostly been measured as an outcome of
sickness, thus limiting the full conceptualization of the complexity of the term. Just like absenteeism,
presenteeism too may come with a number of underlying causes other than illness (Gilbreath & Karimi,
2012; Prater & Smith, 2011). Some causes identified by Prater & Smith include stress, anxiety and
financial status which effect employee health and work productivity. Whitehouse (2005) associated office
politics as one of the causes that may lead employees to encounter presenteeism. Johns attributes
organizational policies regarding pay, sickness pay, employee permanency; job design and presenteeism
culture as factors leading employees to indulge in presenteeism. According to Cooper (1994),
presenteeism is defined as ‘people turning up to work, who are so distressed by their jobs or some aspect
of organizational climate that they contribute little, if anything, to their work’. Employees suffering from
presenteeism are prone to making more mistakes, are less innovative and show signs of reduced
productivity (Gilbreath & Karimi, 2012).
When employees choose to be present at work while ill, they put their colleagues at health risk. The
newly effected employees deal with illness either through presenteeism or absenteeism, thus effecting
productivity and profit loss for the organization (Prater & Smith, 2011). Presenteeism alone is responsible
for loss of billions of dollars(Hemp, 2004; Weaver, 2010).With organizational structures becoming
leaner, lesser number of employees are available to offset the loss of productivity that is caused due to
presenteeism (Gilbreath & Karimi, 2012). Managing presenteeism effectively could result in a
competitive advantage for firms (Hemp, 2004; Johns, 2010).
Supervisor behavior plays a key role on employee productivity which is defined by the leadership style
followed by a supervisor. It has been defined in various ways. Leadership can be ‘a behavior enacted
through communication’ (Holladay and Combs, 1993). It may be ‘a form of influence’ (Hersey, 1984),
858
‘the ability to guide followers toward shared goals’ (Bryman, 1992) or ‘simply something a leader does’
(Fleishman, 1973). As times have progressed, organizations have moved towards a knowledge economy
and new leadership theories too have emerged giving more attention to the relationship of a leader with
their members. The leadership style helps to understand leadership behavior which in turn helps to
understand how circumstances at work influence employee presenteeism and productivity.
Transactional leadership is referred to ‘the exchange relationship among leaders and followers in order to
meet their own self-interest’ (Bass, 1999). It may be in the form of contingent reward where through
direction and participation, the transactional leader clarifies for the follower as to what needs to be done
to be rewarded for their efforts. It may take the form of either active or passive management- by-
exception whereby in active management- by –exception the leader monitors the performance of the
follower and takes corrective action if the follower fails to meet the desired standards, and passive
management- by- exception the leader takes action only when a problem arises. Some studies have
observed a positive relationship between transactional leadership style and job performance (Shah &
Hamid 2015; Skakon et al., 2010).
Transformational leadership refers to a leader encouraging its members and making them look and act
beyond their own interest through idealized influence (charisma), inspiration, intellectual stimulation or
individualized consideration. Research on transformational leadership reveals that this leadership style is
positively correlated to satisfaction at job (Neilsen et al., 2008; Skakon et al., 2010) and less burnout
(Hetland, et al., 2007).
A laissez faire leader avoids any communication with the group members in decision making and
supervisory responsibility. He believes in giving the employees the freedom to make their decisions, set
their goals and do problem solving independently. Results concerning laissez faire leadership style have
been mixed regarding stress and job satisfaction. Some studies found it to have an association with
increased psychological distress and job strain (Nyberg, et al., 2009) while Skakon et al. found no such
association.
Johns, 2010 states that ‘presenteeism may cause more loss than absenteeism’. It is important that
management and employees work together to reduce its repercussions. Leadership behavior plays a
significant role to influence employee’s health, productivity and other job related outcomes which may
influence employee presenteeism within the firm (Gilbreath & Karimi, 2012; Madlock, 2008; Nielsen et
al., 2008; Pourbarkhordari et al., 2016; Shah & Hamid, 2015). Interpersonal relationships among
employees and supervisors have great psychological job outcomes. Work stress and dissatisfaction
859
usually emanate from the nature of work and deteriorating relationship between workers and supervisors.
Psychosocial factors such as job demands and control differ among genders and policies need to be
developed on workplace environment and psychosocial factors (Gimeno et al., 2004).
The quality of work life can be improved through healthy work environments (Gilbreath & Karimi, 2012;
Gimeno et al., 2004; Pourbarkhordari et al., 2016). The organizational leadership is responsible for
creating and maintaining a psychologically healthy work environment. The management can only be
convinced to make efforts in this direction when they are made to realize the effect of illness on
workforce productivity (Hemp, 2004). Similarly, investment in employee screening, treatment, education
may help offset the issue of presenteeism and reap significant productivity gains. Thus this expense
should not be taken as a cost, rather it should be considered as an investment into the organization’s
future employee wellbeing (Hemp 2004; Weaver 2010).
A number of studies have been conducted worldwide on presenteeism and leadership styles, however in
Pakistan limited work has been done to understand the impact of leadership style and presenteeism
among local healthcare professionals. Exploring this area may help supervisors to understand the
influence of different leadership styles on employees and how healthier teams and work environments
could be built to avoid presenteeism thus maximizing their team’s potential and productivity. The
objective of this study is to determine the relationship of leadership style (transactional, transformational
and laissez faire) with employee presenteeism among the Pakistani health care professionals.
Hypotheses
H1: Transactional leadership style has no impact on employee presenteeism.
H2: Transformational leadership style has no impact on employee presenteeism.
H3: Laissez faire leadership style has no impact on employee presenteeism.
Methodology
Primary data was collected using a structured close ended questionnaire which was adopted by a study on
employee presenteeism. The survey questionnaire briefly explained the study objective and was divided
into three sections consisting of close-ended questions. The first section consisted of demographic data
such as gender, age, size of the organization and frequency of meeting with supervisor. The second
section was based on the three leadership styles with 12 questions for transformational leadership style, 6
questions on transactional leadership style and 3 questions on laissez faire style. The third section
consisted of 8 questions pertaining to employee presenteeism. The second and third sections of the survey
were designed to gauge respondent’s agreement using a five point likert scale of agreement. Points
allocated to the responses were -2= strongly disagree, -1= disagree, 0= neutral, 1= agree, 2= strongly
860
agree. The research focused on two variables, leadership styles (transactional, transformational, laissez
faire) as the independent variable and employee presenteeism as the dependent variable. Convenience
sampling was used for the collection of primary data. The respondents consisted of doctors, hospital
management and pharmaceutical professionals. The survey was conducted after taking the consent of the
respondents and took approximately 7-10 minutes to complete.
Responses were coded and were entered into SPSS Version 21. The descriptive statistics were carried out
to analyze the demographic data in frequency and percentage. Linear regression was used to test each
hypothesis. Descriptive analysis was carried out and data was expressed in frequency and percentage.
Results
The demographics of the sample reveal that the questionnaire was answered by 65 males and 63 females,
which constitutes about 51% and 49% respectively. Five age ranges were defined; 20-25, 26- 30, 31-35,
36-40, 41-45 years. 24 % respondents fell in the age bracket of 20—25, 36% in 26- 30, 18% in 31-35,
15% in 36-40 and 7% in 41-45 years. 16 Respondents belonged to organizations with less than 50
employees and 84 from more than 50 employees in an organization. In order to have a variety in data and
to gauge three leadership styles under the current study, the frequency of interaction of the respondents
with the manager in a week was also gauged. 25% of the respondents met their managers once a week,
65% met with their managers more than once a week and 10% hardly met with their managers.
Table 1: Demographic Data of Study
Variable Response in %
Gender
Male 51
Female 49
Age
20-25 24
26-30 36
31-35 18
36-40 15
41-45 7
Organization size
861
Less than 50 employees 16
More than 50 employees 84

Frequency of interaction with manager
Once 25
More than once 65
Not applicable 10
The data indicates diversity and variety among the respondents. Table 1 summarizes the results of the
survey demographics.
Table: 2: Cronbach Alpha: Test for Reliability
Factor Cronbach's Alpha N of Items

Transformational .924 12
Transactional .857 6
Laissez Faire .726 3
Presenteeism .920 8
The data for every section in the questionnaire regarding leadership styles and presenteeism among
employees was checked for inter-item consistency and reliability. The Cronbach value for each was more
than the benchmark value of 0.7 for Cronbach Alpha. This shows that the reliability test values variables
is excellent.
Table 3: Correlations
Transformational Transactional Laissez faire Presenteeism

Pearson 1 .789** .719** -.094
Correlation
Transformational
Sig. (2-tailed) .000 .000 .290
N 128 128 128 128
Pearson .789** 1 .833** -.088
Correlation
Transactional
Sig. (2-tailed) .000 .000 .321
N 128 128 128 128
Pearson .719** .833** 1 -.033
Correlation
Laissez Faire
Sig. (2-tailed) .000 .000 .710
N 128 128 128 128
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Pearson -.094 -.088 -.033 1

Correlation
Presenteeism
Sig. (2-tailed) .290 .321 .710
N 128 128 128 128
**. Correlation is significant at the 0.01 level (2-tailed).
The table reveals that correlation is statistically significant at 1% significance level (p<0.05). The
correlation indicated through the Pearson r statistics among all three leadership styles; transformational,
transactional and laissez faire is positive and significant, thus indicating a significant relationship among
the variables. On the other hand, r statistics for presenteeism with all the three leadership styles is
statistically insignificant at significance level (p<0.05). This indicates that there is no relation among the
dependent variable presenteeism and independent variables, the three leadership styles.
Regression for transformational leadership style
Table 4: Model Summary
Model Summary
MModel R R Square Adjusted R Std. Error of the Estimate
Square
1 .109a .012 .004 .99000
a. Predictors: (Constant), transformational
The model summary explains the amount of variability in the dependent variable as explained by the
independent variable. The value of adjusted R is of 0.004. This means that approximately 0.4% of the
variability of the dependent variable ‘presenteeism’ is explained by the independent variable
‘transformational leadership style. The remaining variance is unexplained.
Table 5: ANOVAa
Model Sum of Squares df Mean Square F Sig.

Regression 1.395 1 1.395 1.424 235b
1 Residual 115.651 118 .980
Total 117.047 119
a. Dependent Variable: Presenteeism
b. Predictors: (Constant), transformational
The ANOVA table shows the overall fitness of the model. It is prominent from the sig. value 0.235 which
is more than p<0.05 that overall model is insignificant.
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Table 6: Coefficients
Model Unstandardized Coefficients Standardized t Sig.

Coefficients
B Std. Error Beta
(Constant) -.058 .095 -.611 .542
1
transformational -.125 .105 -.109 -1.193 .235
Dependent Variable: Presenteeism
The Coefficients’ table shows the significance of each individual independent variable in explaining the
dependent variable. The un-standardized coefficient (B) value shows the relationship and magnitude
between dependent variable ‘presenteeism’ and independent variable ‘transformational leadership styles’.
The negative value of beta -0.125 means that there is a negative relationship between the predictor and
dependent variable. The sig value of 0.235 is greater than p<0.05 indicating that the predictor is making
insignificant contribution in the model.
Regression for transactional leadership style
Model R R Square Adjusted R Square Std. Error of the

Estimate
1 .088a .008 -.001 .99070

a. Predictors: (Constant), transactional
The value of adjusted R is of -0.001 which explains the variability of the dependent variable presenteeism
with independent variable transactional leadership style.
Table 8: ANOVA

Regression .914 1 .914 .931 .336b
1 Residual 116.797 119 .981
Total 117.712 120
b. Predictors: (Constant), transactional
The ANOVA table shows the overall fitness of the model. It is prominent from the sig. value 0.336 which
is more than p<0.05 that overall model is insignificant.
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Model Unstandardized Coefficients Standardized T Sig.

Coefficients
B Std. Error Beta
(Constant) -.065 .094 -.690 .492
1
transactional -.097 .101 -.088 -.965 .336
The beta value shows the magnitude and relationship between presenteeism and transformational
leadership styles. The negative value of beta -0.097 means that a negative relationship between the
predictor i.e. transactional leadership and presenteeism which is the dependent variable. Sig value of
0.336 is greater than p<0.05 indicating that the predictor is making insignificant contribution in the
model.
Regression for laissez faire leadership style
Model R R Square Adjusted R Square Std. Error of the

Estimate
1 .040a .002 -.007 .98987

a. Predictors: (Constant), Laissez Faire
The value of adjusted R is of -0.007 which explains the variability of the dependent variable presenteeism
with independent variable laissez faire leadership style.
Table 11: ANOVA

Regression .191 1 .191 .195 .660b
1 Residual 118.560 121 .980
Total 118.751 122
b. Predictors: (Constant), Laissez Faire
The overall fitness of the model is seen by the ANOVA table. Sig. value of 0.660 which is more than
p<0.05 shows that overall model is insignificant.
Model Unstandardized Coefficients Standardized t Sig.

Coefficients
B Std. Error Beta
(Constant) -.090 .094 -.960 .339
1
LaissezFaire -.046 .104 -.040 -.442 .660
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The negative value of beta -0.046 means that a negative relationship exists between the predictor and
dependent variable. The sig value of 0.660 is greater than p<0.05 which indicates that the predictor is
making insignificant contribution in the model.
Backward Method
Using the backward method, the insignificant variables were removed. The result confirms that all the
three leadership styles were insignificant.
Discussion
The internal consistency reliability and validity for the measures of leadership styles and presenteeism
were acceptable. Statistics revealed that all three leadership styles were correlated but none of these styles
had a correlation with job stress presenteeism. Regression analysis further revealed that the three
leadership styles have no impact on employee presenteeism. Backward regression confirmed that all the
three leadership styles, the transformational, the transactional and laissez faire leadership style have no
impact on presenteeism. Most literature supports the relationship between leadership styles and
presenteeism (Gilbreath & Karimi, 2012; Johns, 2010; Madlock, 2008; Nielsen et al, 2008). In previous
studies, the relation between transformational leadership style and presenteeism was seen to exist
significantly (Gilbreath & Karimi, 2012). The relationship between transactional leadership has been seen
to have an inverse relationship with presenteeism (Munir et al., 2010). In the case of the current study,
there is no impact of transactional leadership style on presenteeism. Results for laissez faire style and
presenteeism have been mixed. Some studies show a relationship between the two (Nyberg, 2009) while
some indicate that there is no relationship between laissez faire and presenteeism (Skakon et al., 2010).
This study reveals that laissez faire leadership style has no impact on presenteeism.
Conclusion and Limitations

The outcome of the study revealed that none of the leadership styles (transactional, transformational and
laissez faire) have an impact on employee presenteeism. All the variables proved to be insignificant
predictors of employee presenteeism thus concluding that there is no impact of leadership style with
presenteeism among the Pakistani health care professionals.
This study had its own limitations. Respondents were unaware of the leadership style that was being
followed at their organization. This created the occurrence of content non-responsivity where respondents
respond without regard to item content by carelessly and randomly responding (Nichols, Greene,
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Shmolck, 1989). Furthermore some responses were influenced by respondent falsification due to peer
pressure and office politics.
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Determinants of Dividend Payout: An Empirical Study
of Pharmaceutical Companies of Pakistan Stock
Exchange (PSE)
Farman Ali Khan and Nawaz Ahmad
IoBM, Karachi, Pakistan
std_18145@iobm.edu.pk
nawaz.ahmad@iobm.edu.pk
Abstract
Objective of this research is to determine the impact of profitability, growth opportunities, risk,
liquidity, firm size, leverage, taxation and audit type on dividend payout in order to increase
understanding of the determinants of dividend payout within Pakistani corporate environment. To
meet the objective of this research, five year financial data from 2009-2014 of listed pharmaceutical
companies is used and analyzed to determine the impact of selected variables on dividend payout of
companies. Correlation analysis and backward multiple linear regression is applied on the data to
determine the association between variables and the impact of selected independent variables on
dividend payout. Findings reveal that liquidity, growth opportunities & profitability are the key
determinants of dividend payout of pharmaceutical companies of PSE. 31.90% variation in dividend
payout is caused by these variables. Other independent variables including taxation, risk, firm size,
and leverage insignificantly influence dividend payout decisions of pharmaceutical companies of
PSE.
Keywords: Dividend Payout, profitability, growth opportunities, risk, liquidity, firm size, leverage,
taxation and audit type.
Introduction
Dividend policy is one of the sizzling topic that always gain attention of organizations, financial
analyst, researchers, investors and other stakeholders. There exit extensive literature on the variables
that managers should consider while having dividend declaration. These decisions are not only
important for investors rather companies themselves pay a lot of attention while announcing or
declaring dividend.
Dividend payout decision tends to focus on the distribution of the corporate profits as a whole or
holding some part of it. While arriving any consensus, the company considers various opportunities.
If the opportunities weigh heavy then the company retains its earning otherwise shareholders enjoy it
as a reward of their ownership in a company.
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Within the context of traditional approach of dividend policy, paying dividend is more important than
holding it. The pioneers of this approach believes that prompt dividend payment may not
significantly affect the corporate risk scores rather it strives to adjust the stakeholders perception
related to it.
Despite traditional approach related to the centrality of dividends in investor’s perception another
approach quite contrary to the former also gained a lot of attention. This approach is known as
Modigliani and miller model (MM model) .frenco Modigliani together with co-researcher Merton
Miller stated ‘irrelevance of dividends’ with in corporate valuation criteria of investors. According to
them companies dividend policy is irrelevant in perfect capital market and investors are more
interested in investment policy of the company rather than the dividend policy.
Scope of the Study

A number of researchers found that various real world factor influence company’s dividend payout
policy, it is worthwhile for stakeholders of a company to understand factors that influence company’s
dividend payout decisions. This research is expected to increase understanding of the determinants of
dividend payout within Pakistani corporate environment.
Objective of the Study

Objective of this research is to examine the impact of selected factors including profitability, growth
opportunities, risk, liquidity, firm size, leverage, taxation and audit type on dividend payout decision
of Pharmaceutical companies listed on Pakistan Stock Exchange.
Research Problem and knowledge gap

Dividend payout policy is the most controversial topic within the context of corporate finance.
According to Brealy et.al, (2008) dividend policy controversy is one of the ten major unsolved
problems of corporate finance which deserves more research in order to increase understanding of the
subject. A number of researches are conducted in this area globally however there is no general
consensus is found among them.
Researchers conducted within the same country incorporating almost the same variables but different
industries have come up with somewhat different results. Gill, Biger, & Tibrewala (2010) studies
taking into account manufacturing and service industry of America has concluded different
significant factors for both industries. Therefore this research has chosen pharmaceutical industry, a
major industry within Pakistan’s corporate environment in order to find industrial specific factor
influencing dividend payout.
Despite above considerations it is also found that some variables effecting dividend payout are
perceived to be effecting it in similar direction. Such as if there is increase in profitability of a firm it
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would be assumed and proved to increase dividend payout ratio of any corporation (Mehta,2012,
Nuhu, 2014, Gill, Biger, & Tibrewala 2010, Zameer et al 2013) but this relationship is being rejected
by Jozwiak (2014) studies. Same is the case with liquidity. Some researchers have concluded positive
relationship (Ahmed and Javaid 2009) while some have come up with negative relationship (Zamer et
al 2013). These conflicting results demands more researches that could clarify such relationships.
Hypotheses
The followings are the hypothesis of this research:
H1: Profitability has no impact on dividend payout.
H2: Growth opportunities have no impact on dividend payout.
H3: Risk has no impact on dividend payout.
H4: Liquidity has no impact on dividend payout.
H5: Firm size has no impact on dividend payout.
H6: Leverage has no impact on dividend payout.
H7: Taxation has no impact on dividend payout.
H8: Audit type has no impact on dividend payout.
Literature Review
Mehta (2012) examined the impact of risk, size, profitability, liquidity and leverage of firm on
dividend payout. The industries investigated include construction, real estate, energy, health care and
telecommunication sector industries listed in Abu Dhabi Stock Exchange for five years period
starting from 2005 to 2009. Findings reveal that profitability and size are the key factors in
significantly changing dividend payout decision.
Nuhu (2014) investigated the impact of profitability, investment opportunity sets, taxation, leverage,
firm size, board size, board independence and audit type on dividend payout ratio. It was concluded
that profitability, leverage, board independence, audit type, and board size are the key factors that
significantly influence dividend payout in Ghana.
Maladjian & Khoury (2014) explored the impact of profitability, growth, liquidity and size of firm,
leverage, risk, and previous year’s dividends on dividend policy of Lebanese banks registered on
Beirut Stock Exchange. They concluded that out of seven variables studied, five variables are
statistically significant whereas profitability and liquidity are statistically insignificant.
Rafique (2012) examined the influence of size of firm, earnings, leverage, growth, profitability and
corporate tax on dividend policy of Non-Financial firms listed in KSE100 index. She concluded that
871
out of six variables examined, only two variables including corporate tax and firm size are found to
be significant. The rest are insignificant in the context of Pakistani markets.
Gill, Biger, & Tibrewala (2010) studied the influence of profitability, growth, taxes, cash flow, risk
and leverage on dividend payout ratio in the context service and manufacturing firms of America.
They concluded that for service firms dividend policy is the influenced by growth, profitability and
leverage. For manufacturing firms, dividend policy is the influenced by taxes, profitability, and risk.
Jozwiak (2014) investigated the factors influencing dividend policy of nonfinancial listed companies
of Warsaw Stock Exchange of Poland. The factors studied include leverage, liquidity, profitability,
size and risk. Findings reveal negative impact of leverage and profitability on dividend payout i.e.
firms with high profitability pay low dividend to retain capital for future investment. Firm with high
leverage pay low dividend due to high interest payments.
Alzomaia & AlKhadhiri (2013) examine the factors influencing dividend policy of nonfinancial listed
companies of Saudi Arabia Stock Exchange (TASI). The factors studied include past dividend,
earning per share, growth, leverage and size of firm. They found positive relationship of profitability
and last year dividend with dividend payout decision. Companies pay more dividend when they
experience increase in their profitability. Last year dividend payment is also considered important in
deciding dividend payout.
Zameer et al (2013) examined the influence of selected variables on dividend policy of foreign and
domestic banks listed at various stock exchanges of Pakistan. The factors studied include
profitability, firm size, leverage, growth, and liquidity, agency cost, past dividend, risk, and
ownership structure of the banks. Only four factors are found to have significant impact on dividend
policy of banks. Profitability, past dividend and ownership structure have positive relationship with
dividend payout whereas liquidity has negative relationship with dividend payout of banking sector.
The rest of the factors studied are found be insignificant and have no impact on dividend decision.
Arif& Akbar (2013) studied the impact of five factors including profitability, size, tax, growth and
lifecycle stage on dividend payout of nonfinancial firms of Pakistan. They found that all factors
significantly influence dividend payout. Profitability, size and investment opportunities positively
influence dividend payout whereas tax negatively influences dividend payment decisions.
Kania& Bacon (2005) investigated the influence of selected variables on dividend policy of 543 firms
using ordinary least square regression. They found that growth, expansion, risk, organizational and
insider ownership are negatively associated with dividend policy. Positive relationship is found
between debt to total asset ratio and dividend payout.
872
Khan, Burton & Power (2011) examined view of different managers on dividend policy in Pakistan.
Semi structured interview of 23 officials of Pakistani organization is conducted for the study.
Findings reveal that dividend payout decisions in Pakistan are similar to developed countries like
USA in many respects. However past years dividends do not alter current year dividend decision in
Pakistan. The key determinants of dividend decision are liquidity and current year earning in
Pakistani organizations.
Hauser (2013) conducted research to examine whether dividend policy of a firm changes during the
financial crises. Panel logistic regression model is applies to industrial firms of USA during the
period 2006 to 2009. Analysis show that probability of dividend cut increases significantly during
financial crises due to sales growth rate, capital ratio and profitability of the firm.
Najjar & Belghiter (2011) explored simultaneous relationship between dividend policy and cash
holding of 400 nonfinancial firm of UK. Single equation model, simultaneous equation model and
dynamic behavior model is applied to determine influence of cash holding on dividend policy.
Findings reveal that determinants of cash holding are dividends, leverage, growth, size, risk,
profitability and working capital. Whereas determinants of dividend payout are cash, leverage,
growth, size, risk, profit. Although cash holding and dividend policy share the same determinants,
they do not affect one another.
Li & Twite (2009) investigated the probability of dividend payout, various dividend forms and
market reaction to different dividend announcements in Chinese capital market. They use sample of
5153 firm-year dividend announcements by listed Chinese companies during 2003 to 2007. They
found that firms with higher profit, higher cash holding, lower leverage, stronger governance,
shareholders’ protection and subsequent equity offerings are more likely to pay cash dividends. Firms
with high level of retained earnings and higher investment in fixed assets are more likely to pay stock
dividends. Firms paying stock dividends experience positive market reaction and increased analysts
following.
Ahmed and Javid (2009) studied the determinants and dynamics of dividend policy of nonfinancial
listed firms of Karachi Stock Exchange for the period 2001 to 2006. For dynamics of dividend
payout, the extended model of Linter, Babiak, Fama and proposed model in dynamic setting are
applied. The results reveal that nonfinancial listed firms of Pakistan rely on both past dividends and
current earnings. However current earnings affect dividend payout more than past dividend payouts.
For determinants of dividend policy panel regression is conducted using independent variables
dividend yield, earning per share, major number of shareholders, net earnings, corporate tax,
leverage, slack, sales growth, size, market capitalization, market liquidity, return on asset and market
to book value. They concluded that firms with stable earnings and profitability pay higher dividends
because they can afford higher free cash flows. Ownership concentration and liquidity positively
873
influence dividend decision. Slack, leverage, market capitalization and size have negative influence
on dividend decision.
Collins, Saxena & Wansley (1996) studied the role of insiders in determining dividend payout of
unregulated firms, utilities firms and financial services firms. It was assumed that insiders of
regulated firms such as utilities and financial service firms play low role in determining dividend
policy as compared to unregulated firms. Regression model is developed to determine whether
regulation and insiders’ role are substitute or complement for financial and utilities firms. Results
reveal that regulatory environment enhances the role of insider while determining dividend decision
of a utility company. For financial service firm insiders’ role do not influence dividend payout.
Zaman (2013) studied the impact of profitability, growth and size of 30 listed commercial bank of
Dhaka Stock Exchange on dividend payout for the period 2006 to 2012. Multiple regression analysis
is applied to gauge the influence of selected factors on dividend payout. Findings reveal that
profitability is the stronger determinant of dividend payout as compared to growth and size of the
firm. However growth opportunity and size of the firm also significantly predict dividend payout.
Musiega et.al (2013) studied the influence of selected variables on dividend payout of 30
nonfinancial companies listed at Nairobi Securities Exchange for the 2007 to 2011. Independent
variables include growth, profitability, liquidity, current earning, size and business risk. Multiple
regression analysis is applied to determine the impact of selected variables on dividend payout
decision. Findings show that profitability, growth opportunities, firm size and business risk are the
key determinants of dividend policy
Abdullah, Ismial&Sadique (2005) studied the influence of selected factors on dividend payout of 174
firms listed on the Malaysian Main Board of Busra for the period 1999 to 2004. The variables
selected for the study include leverage, profitability, tangibility, size, growth and liquidity.
Regression analysis is applied to measure the influence of selected variables on dividend payout. Size
and growth are found to have significant positive impact on dividend payout whereas leverage
inversely affects dividend payout.
Gupta and Banga (2010) examined dividend payout of 150 companies from 16 different industries of
Bombay Stock Exchange (BSE) 500 index for seven years period from 2001 to 2007. Factor analysis
is conducted to determine the key predictors of dividend policy. Leverage, liquidity, profitability,
growth and ownership structure are found to be the key factors affecting dividend payout. Regression
analysis is conducted to determine the influence of these variables on dividend policy. Leverage and
liquidity are found to be the stronger predictors of dividend policy of Indian companies. Leverage has
negative association whereas liquidity is positively associated with dividend decisions.
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This section shades light over the data collection method, dependent & independent variables of the
study, measurement scale of dependent and independent variable and statistical model of the study.
Data
Five year data is be used from published annual reports of pharmaceutical companies listed on
Pakistan Stock Exchange.
Variables
The following are the variables of this study:
Dependent Variable
Dividend Payout: is the portion of income distributed among ordinary shareholders which is
measured as under:
Dividend Payout Ratio = Cash dividend / Net Income * 100
Independent Variables
Followings are the independent variables of this research:
Profitability
Profitability of firm influence dividend payout decision but different view is found in existing
literature. Packing order theory states that firm tends to finance NPV project through retained
earnings and hence pay out low and retain more earnings. In contrary, several researchers found that
firms with consistent earning pay more as dividend. Profitability is measure as under:
Return on Equity = Net Income / Total Equity
Growth Opportunities
The more a firm has positive NPV projects to finance, the more company retains income and pay less
as dividend. It can be measure in two ways:
Growth Opportunity = Market Value of equity / Book Value of Equity (i.e. PPS / NAVPS)
Risk
The risk of future cash flows to shareholders reduces when company pay out more as dividend from
current income. It is measured by price earning ration:
Risk = Price of Share / Earning per share
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Leverage
The higher the firm is finance with debts, the lower the dividend payout due to debt covenants. It is
measured by Debt to equity ratio:
Leverage = Total Debts / Total Shareholders’ Equity
Liquidity
The more a firm has current assets available to meet its short term obligations, the more company can
pay as dividend. Liquidity is measured by current ratio:
Liquidity = Current Assets / Current Liabilities
Firm Size
Large firms pay more dividends as they have easy access to capital market to raise funds and low
dependence on internal funds. According to Joseph, (2001) firm size can be determined by natural
logarithm of book value of the firm’s total assets.
Firm size = Natural log of TA
Audit Type
Researchers found those firms that are audited by one of the four big audit firms pay more as
dividend. Audit type will be represented by dummy variable 1 if audited by big firm and 0 if audited
by other audit firms.
Taxation
Researchers found that when firm’s tax liability increases, the dividend payout decreases whereas
retained earnings increases. Tax effect can be measured as under:
Tax = Corporate tax / EBT
Statistical Model
The following statistical model is developed to measure the impact of selected independent variables
on dividend payout. The model is analyzed through bivariate correlation and multiple regression
analysis. The following statistical model is used for data analysis:
DP = β0 + β1prof + β2GO + β3Risk + β4Liverage + β5Liquidity + β6FS+ β7AT+ β8Taxation + E
Where,
β1prof: represents profitability of firm
β2GO: represents growth opportunities of firm
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β3Risk:: represents risk of future cash flows to shareholders
β4Liverage:: represents leverage of the firm
β5Liquidity:: shows the liquidity of the firm
β6FS: shows the size of firm
β7AT:: represents audit type of the firm
β8Taxation:: represents taxation of the firm
Data Analysis
Data analysis section includes the findings of empirical study. Initially, descriptive statistic of
dependent and independent variables is given. Then correlation and regression analysis is discussed
followed by discussion of results of these analyses.
Table 1: Descriptive Statistics
According to Table 1average dividend payout of listed pharmaceutical companies of PSA is 11.05
per share with average deviation of 21.46 rupee per share. Since deviation of dividend payout from
mean is high, which suggest that dividend payout of all listed pharmaceutical companies of PSA have
much variation. Furthermore, skewness and kurtosis of all independent variables is within acceptable
limit of +1.5
1.5 (except growth opportunity, leverage and taxation), therefore it can be said that the data
is normal.
Bivariate Correlation Test
Bivariate correlation is applied to check association between dependent & independent variables and
multicollinearity among independent variables. The summarized results of this test are given in Table
2:
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Table 2: Bivariate Correlation
Correlation matrix in Table 2 indicates that dividend payout has highest correlation of 0.271 and
0.209 with audit type and profitability of the firm respectively. This analysis also reveals that positive
relationship exists between taxation & dividend payout, audit type & dividend payout and
profitability & dividend payout however only results of audit type are statistically significant. The
rest of the variables have not association with dividend payout as per correlation analysis. It can als
also
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be observed from Table-2

2 that some independent variables are also associated with each other i.e.
data set has multicollinearity problem.
Breusch-Pagan Test
Breusch-Pagan
Pagan test is applied to check Heteroscedasticity i.e. to check whether variance of err
error term
of each observation is equal or not. The following Table-3
Table 3 shows the summarized results of Breusch
Pagan Test:
Table 3: Breusch-Pagan Test
The above table shows that F-Statistic

Statistic value is 3.762 and the sig value is 0.00189. Since the Sig value
is below 0.05 we can conclude that error term of each observation is not equal and data set has
problem of Heteroscedasticity.
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Durbin Watson Test
Durbin
rbin Watson test is applied to checkAutocollinearityi.e. To check whether correlation of error term
of observations is zero or not. The following table 4 depicts the summarized result of panel least
square regression:
Table 4: Panel Least Square Regression
The above table shows that Durbin

Durbin-Watson
Watson stats is 0.356. The lower and upper limit of d is 1.253 &
2.747 respectively, determined through DW stats table using n=55, k=8 and α = 0.05. Since the
calculated DW stats lie between 0 to lower limit of D, we conclude that positive autocorrelation
exists in dataset.
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Backward Multiple Regression
The following tables from 3 to 5 shows the results of backward multiple linear regressions applied in
this research:
a. Predictors: (Constant), Audit Type, Taxation, Liquidity, Risk, Firm Size, Growth Opportunity,
Leverage, Profitability
b. Predictors: (Constant), Audit
it Type, Liquidity, Risk, Firm Size, Growth Oppor
Opportunity,
tunity, Leverage,
Profitability
c. Predictors: (Constant), Audit Type, Liquidity, Risk, Growth Opportunity,
Opportunity, Leverage, Profitability
d. Predictors: (Constant), Audit Type, Liquidity, Growth Opportu

Opportunity, Leverage, Profitability
e. Predictors: (Constant), Audit Type, Liquidity, Growth Opportunity, Profitability
Table 3 shows that total explanatory power of the model is 29.20% in the presence of all independent
variables of the model. Backward linear rregression
egression step by step removes the most insignificant
independent variables from the model. Equations b to e shows that the variables taxation, firm size,
risk and leverage are respectively removed from the model. Total variation in dividend payout
explained
ed by the remaining variables (i.e. audit type, liquidity, growth opportunities & profitability)
is 31.90%. Explanatory power of the model has been risen from 29.20% to 31.90% after removing
insignificant variables which shows that they cause very little oorr no change in dependent variable. F
value of 7.213 at significance level 0.000 in equation e of Table 4 shows that these results are highly
significant.
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Table 4 shows that F value of the model in the presence of all selected independent variables is 3.7
3.738
at a significance level of 0.002. Backward linear regression removes insignificant variables taxation,
firm size, risk & leverage from equation b to e respectively. Rise in F value due to step by step
removal of insignificant independent variables is ev
evident
ident of their insignificance. F value of 7.213 at
significance level of 0.000 in equation e shows that audit type, liquidity, growth opportunity and
profitability are the key determinants of dividend payout in selected model.
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Table 5 reveals that in the absence of all independent variables, dividend payout of pharmaceutical
companies of Pakistan stock exchange is 8.29 rupees per share at 96% confidence interval, as shown
in equation 5. Slope coefficient of profitability shows that
that with 1 rupee increase in Net income of
pharmaceutical companies, dividend payout increases by 0.60 rupees at 95% confidence interval.
Slope coefficient of growth opportunities shows that 1 rupee increase in growth opportunity reduces
dividend payout by 4.33 per share with 3% error chances. Slope coefficient of liquidity shows that
with the increase in current ratio by 1 unit, dividend payout reduces by 6.05 rupee per share at 99%
confidence interval. Slope coefficient of audit type shows positive relati
relationship
onship of dividend payout
and audit type i.e. the firm which is audit by big 4 audit companies pays more dividend than the ones
which are not audited by big 4 audit firms.
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Discussion and Analysis

Regression results in equation e of table 3 indicate that audit type, liquidity, growth opportunities &
profitability are the key determinants of dividend payout which cause 31.90% variation in dividend
payout decisions of pharmaceutical companies of PSA. Other variables including taxation, risk, firm
size, and leverage are insignificant in impacting dividend payout policy of pharmaceutical companies
of PSA.
The findings of this research highlight the following:
Hypothesis 1
Profitability of firm is significant in influencing dividend payout with t value above 2 and sig value
below 0.05, as shown in equation 5 of table 5. This rejects null hypothesis 1 and addresses question 1
of this research that profitability of a firm positively and significantly impact dividend payout of a
firm. This research finding is in conformity with number of studies such as Abor and Bokpin, 2010,
Mehta, 2012, Zamer et al, 2013, Hauser, 2013, Najjar & Belghiter 2011, Ahmed and Javid, 2009.
Hypothesis 2
Growth opportunity of firm is significant in influencing dividend payout with t value above 2 and sig
value below 0.05, as shown in equation 5 of table 5. This rejects null hypothesis2 and addresses
question2 of this research that growth opportunity of a firm negatively and significantly impact
dividend payout of a firm. Since in order to finance expected growth a company needs to hold -on its
profit rather distributing it as whole. These findings are in conformity with Ehsan, Khalid and Akhter
(2011) study on Pakistan stock exchange taking in to consideration 100 non-financial listed
companies.
Hypothesis 3
Risk of future cash flows to shareholders of firm is insignificant in influencing dividend payout with t
value above 2 but also sig value above 0.05, as shown in equation 3 of table 5. This retains null
hypothesis3 and addresses question3 of this research that risk of future cash flows to shareholders of
a firm is insignificant in influencing dividend payout of a firm. These findings are in conformity with
Mehta, (2011) and Jozwiak (2014) researches on Abu Dhabi and Warsaw stock exchanges
respectively.
Hypothesis 4
Liquidity of firm is significant in influencing dividend payout with t value above 2 and sig value
below 0.05, as shown in equation 5 of table 5. This rejects null hypothesis 4 and addresses question 4
of this research that liquidity of a firm significantly impact dividend payout of a firm. This finding is
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consistent with veit and powell (2001) study conducted on Nasdaq firms they stated ,that if the firm
wanted to maintain high liquidity then they tends to lower payout ratio and on contrary increase
retention of corporate profit.
Hypothesis 5
Size of firm is insignificant in influencing dividend payout with t value below 2 and sig value above
0.05, as shown in equation 2 of table 5. This retains null hypothesis5 and addresses question5 of this
research that risk of future cash flows to shareholders of a firm is insignificant in influencing
dividend payout of a firm .Moradi, Salehi and Honarmand (2010) investigation in to all companies
listed in Tehran Stock Exchange also revealed the same findings.
Hypothesis 6
Leverage of firm is insignificant in influencing dividend payout with t value below 2 and sig value
above 0.05, as shown in equation 4 of table 5. This retains null hypothesis6 and addresses question6
of this research that leverage of a firm is insignificant in influencing dividend payout of a firm. This
finding is also consistent with Mehta (2012) investigation in to companies listed in Abu Dhabi stock
exchange.
Hypothesis 7
Taxation of firm is insignificant in influencing dividend payout with t value below 2 and sig value
above 0.05, as shown in equation 1 of table 5. This retains null hypothesis7 and addresses question7
of this research that taxation of a firm is insignificant in influencing dividend payout of a firm.
Hypothesis 8
Audit type of firm is highly significant in influencing dividend payout with t value above 2 and sig
value below 0.05, as shown in equation 5 of table 5. This rejects null hypothesis 8 and addresses
question 8 of this research that audit type (i.e. firm audited by big 4 audit firms or other firms)
positively and significantly impact dividend payout of a firm. Significant relation in between type of
audit and dividend policy of the firm has also previously been verified with a study conducted on 30
listed company in Ghana stock exchange (Nuhu, 2014)
Recommendations & Policy Implications

In the light of the research, the following recommendations can be made to stakeholders of
pharmaceutical companies in Pakistan:
1. Pharmaceutical companies’ management is recommended to get their audit conducted by

one of big five audit firms to ensure maximum dividend to their investors.
885
2. Investors in pharmaceutical sector, are recommended to invest in companies that

consistently maintaining high profits in order to earn high dividends.
3. Pharmaceutical companies’ management is recommended to maintain low liquidity ratio to

ensure maximum returns to investors.
4. Brokerage houses are recommend to advise their clients to invest in pharmaceutical

companies that have low growth opportunities to earn high dividends.
Conclusion
This research investigated the determinants of the dividend payout of listed pharmaceutical
companies of Pakistan Stock Exchange. Five years data is studied from published annual reports of
nine pharmaceutical companies of PSA from period 2009 to 2014.Dividend payout is dependent
variable of this research and profitability, growth opportunity, risk, leverage, liquidity, firm size,
taxation and audit type are independent variables. Correlation analysis is applied to measure
association between dependent and independent variables. Backward Multiple Regression is applied
to measure the impact of selected independent variables on dividend payout decisions of
pharmaceutical companies of PSA.
Findings of this research can be summed up as audit type, liquidity, growth opportunities &
profitability are the key determinants of dividend payout of pharmaceutical companies of PSA.
31.90% variation in dividend payout is caused by these variables. Other independent variables
including taxation, risk, firm size, and leverage are insignificant in predicting dividend payout
decisions of pharmaceutical companies of PSA.
In the light of these findings, it can be concluded that firms audited by big 4 audit firms are most
likely to pay more dividends. Firms with high growth opportunities pay fewer dividends. Firms
earning high profits pay more dividends. It is also observed that firms with low liquidity ratio are also
paying more dividends which are inconsistent with the common practice of dividend payout policy. It
is worthwhile for investors in pharmaceutical companies of PSA to take into account these four
factors.
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The Relationship between Entrepreneurial Intention, the Big Five

Personality Traits and Emotional Intelligence
M. Botha, W. Fourie and D.W. Wasserman

University of Pretoria, Pretoria, South Africa, melodi.botha@up.ac.za
Abstract
The interest in entrepreneurial intention has escalated drastically over the last decades. Gaining a better
understanding of the minds, behavior and personality profile of individuals who become entrepreneurs can
be beneficial to the growth of the economy of a country. The literature provides numerous theories that link
entrepreneurial intention and personality and at the same time there is a link between emotional intelligence
and entrepreneurial intention. However, limited evidence was found where personality, emotional
intelligence and entrepreneurial intention were investigated in the same study. Furthermore, some studies
focus on the link between personality, as one construct, and entrepreneurial intention. The purpose of this
paper is to determine the relationship between entrepreneurial intention and the Big Five individual
personality traits as well as the relationship between entrepreneurial intention and emotional intelligence.
To investigate these relationships, 177 nascent entrepreneurs, who indicated strong entrepreneurial
intentions to start a business, completed a self-completion questionnaire. The findings suggest that two of
the Big Five personality traits (i.e., conscientiousness and openness to experience) have positive
relationships with entrepreneurial intention while one trait (i.e., neuroticism) has a negative relationship
with entrepreneurial intention. Openness to experience seems to be the personality trait most strongly
correlated with entrepreneurial intention compared to the other four traits. Furthermore, a positive
relationship between entrepreneurial intention and emotional intelligence exists. A better understanding of
individuals who possess entrepreneurial intention and which personality traits can enhance entrepreneurial
intention may assist government programs, career councillors and business schools to identify, develop and
support individuals who aspire to start their own businesses.
Keywords: Entrepreneurship, entrepreneurial intention, the Big Five personality traits, emotional
intelligence
Introduction
Entrepreneurship is believed to unlock the economic potential of people, allowing them to actively
participate in the economy. This creates employment opportunities, thereby reducing poverty, increasing
sustainability and therefore also facilitating economic development (Arogundade, 2011:26; Maina,
2014:87). It is clear that entrepreneurship should be encouraged and supported if any economy wishes to
survive trying times. However, in order to encourage and support entrepreneurship, it is of critical value to
correctly identify, develop and support the individuals most likely to consider a career in entrepreneurship.
This calls for a deeper understanding of the behaviour and profile of the entrepreneur and the factors that
might influence entrepreneurial intention.
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In the late 1980s multiple reviews made the conclusion that personality traits had no correlation with
entrepreneurial intention and that further research should be abandoned (Gartner, 1988:48; Llewellyn &
Wilson, 2003:341). However, after more than twenty years, the matter has re-emerged. Enough studies
contradicted earlier conclusions to enable researchers to conduct multiple meta-analyses. These statistical
comparative studies confirmed that entrepreneurs do indeed differ from other populations with regards to
personality traits (Zhao & Seibert, 2006:265; Zhao, Seibert & Lumpkin, 2010:394). In the same breath,
Cross and Travaglione (2003:228) suggest that a high level of others’ emotional appraisal is an extremely
important factor for any entrepreneur. Zampetakis, Kafetsios, Bouranta, Dewett and Moustakis (2009:614)
conducted a study on undergraduate students to determine the correlation between emotional intelligence,
proactivity, creativity, attitudes towards entrepreneurship and entrepreneurial intention. Their results
suggest that students are more likely to formulate the intentions of starting their own business, when they
have a high level of emotional intelligence. To build on this theory, this particular paper will focus on the
three constructs of entrepreneurial intentions, personality traits, with five sub-constructs, and emotional
intelligence.
Numerous studies exist in which the relationship between personality traits, emotional intelligence and
entrepreneurial intention was studied (Cavazotte, Moreno & Hickmann, 2012:443-455; Gelard &
EmamiSaleh, 2011:352-361; Mortan, Ripoll, Carvalho & Bernal, 2014:97-104; Rhee & White, 2007:409-
423). However, these constructs were studied in isolation and it is not clear whether the results are
generalisable. At the same time, most of the studies conducted on personality were done where personality
is treated as one constructs and not where the five personality traits are treated individually. Therefore, the
problem remains that there are very few studies that combined all three of these constructs to provide more
insight into the relationship between all three of them. Furthermore no evidence was found in the literature
to suggest that these three constructs were studied in a South African context.
In this empirical study we included respondents that are nascent entrepreneurs who indicated strong
entrepreneurial intentions to start a business. Individuals are therefore considered nascent entrepreneurs
based on their self-reported intention to become self-employed (Mueller, 2006:47). Hence the purpose of
this quantitative study is to determine the relationship between the Big five personality traits, emotional
intelligence and entrepreneurial intention for nascent entrepreneurs in South Africa. More specifically, the
research objectives of the study are:
• To determine the significance of the relationship between the Big Five personality traits (known as
conscientiousness, openness to experience, neuroticism, extraversion and agreeableness) and
entrepreneurial intention.
• To determine the significance of the relationship between emotional intelligence (i.e. self
emotional appraisal, others’ emotional appraisal, regulation of emotions and utilisation of
emotion) and entrepreneurial intention.
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The results make important contributions. Firstly, it will improve the theoretical understanding in terms of
the relationship between personality, emotional intelligence and entrepreneurial intention. Secondly, the
findings of this study will enable potential entrepreneurs to identify the personality characteristics and traits
required to be more entrepreneurial. Thirdly, the findings may assist incubation programs, business schools,
potential investors and career coucillors to identify, develop and support the individuals most likely to
pursue entrepreneurship opportunities and grow the economy. Finally, the findings can assist in the
development of training and education material for potential and upcoming nascent entrepreneurs.
The paper commences with a literature review whereafter the methodology section which will include the
sampling design, data collection methods and a description of the measures used are explained. The results
of this study will then be revealed, followed by a discussion on the findings and the implications these
findings may have. The researchers will then conclude the study by acknowledging some limitations and
making recommendations for future research.
Literature Review
Entrepreneurial Intention
Entrepreneurial intention has been a popular construct for many years in entrepreneurship literature
(Antoncic, Bratkovic Kregar, Singh & DeNoble, 2014:1; Bird, 1988:443; Katz & Gartner, 1988:230;
Krueger, Reilly & Carsrud, 2000:411; Pihie, Bagheri & Sani, 2013:174; Zhao et al., 2010:394). As a
crucial element of entrepreneurship, intention drives entrepreneurs to pursue opportunities and converts
ideas into profitable ventures (Antoncic et al., 2014:3). Llewellyn and Wilson (2003:343) describe
entrepreneurial intention as the desire to start a business. Entrepreneurial intentions serve as an initiator of
actions focused on identifying opportunities and start-ups (Edwards-Schachter et al., 2015:32).
Furthermore it is suggested that intentions are strong predictors of actual behaviour (Davis & Peake,
2014:21; Krueger et al., 2000:412). It has also been found that the subjective standards with regards to
specific behaviour, attitudes toward the behaviour and perceived control over the behaviour are regularly
found to predict the actual behaviour (Ajzen, 1991:206).
The extent to which individuals have the support of those important to them and expect something of
significant value from a given behaviour, together with the belief that they have the required skills to be
prosperous entrepreneurs, influence the outcome level of entrepreneurial intention (Engle et al., 2010:52).
For the purpose of this study, entrepreneurial intention is viewed as a self-acknowledged conviction by an
individual to start a new venture and to intentionally plan to do so at some stage in the future (Thompson,
2009:674).
The Big Five Personality Traits
Personality traits can be defined as predictable characteristics of individual behaviour that describe
differences in individual actions in comparable circumstances (Rauch & Frese, 2000:135). The intention to
establish a business is linked to a whole range of personality traits and not just to one (Leutner, Ahmetoglu,
Akhtar & Chamorro-Premuzic, 2014:61). The literature shows that the Big Five personality traits are well-
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known for guiding the role of personality in entrepreneurship (Marsh, Lüdtke, Muthén, Asparouhov,
Morin, Trautwein & Nagengast, 2010:471; Obschonka, Silbereisen & Schmitt-Rodermund, 2010:69; Zhao
& Seibert, 2006:259; Zhao et al., 2010:394). The Big Five allows researchers to arrange a wide variety of
personality traits into a coherent structure (Costa, McCrae & Holland, 1984:397; Digman, 1990:418;
Goldberg, 1990:1216). The Big Five proposes that most personality traits can be categorised into five
constructs known as conscientiousness, openness to experience, neuroticism, extraversion and
agreeableness (Costa et al., 1984:397). Each of the traits will be explained in the next section of the paper.
The Big Five facilitates collaboration and harmonisation between constructs (Marsh et al., 2010:471). This
allows researchers to predict meaningful and consistent relationships between concepts related to
personality. Multiple entrepreneurship studies have generated sufficient evidence, enabling researchers to
conduct a meta-analysis on personality differences using the Big Five factors. They found differences
between entrepreneurs and managers in terms of conscientiousness, openness to experience, neuroticism
and agreeableness (Zhao & Seibert, 2006:259-265).
The Link between Entrepreneurial Intention and Personality Traits
It is possible to make a clear distinction between individuals who do and do not have entrepreneurial
intention with regards to personality traits (Thompson, 2009:674). Leutner et al. (2014:62) indicate that
personality is a strong predictor of multiple entrepreneurial outcomes. The literature provides numerous
theories that link entrepreneurial intention and personality (Altinay, Madanoglu, Daniele & Lashley,
2012:490; Engle et al., 2010:37; Zhao et al., 2010:394). Sesen (2013:636) suggests that the relationship
between personality traits and entrepreneurial intention is stronger than the relationship between
environmental factors and entrepreneurial intention. It has also been suggested that entrepreneurs can
typically be characterised by high levels conscientiousness, openness to experience and extraversion; and
low levels of and neuroticism and agreeableness (Obschonka et al., 2010:69; Schmitt-Rodermund,
2004:506). The Big Five personality traits are thus significant for the appearance of entrepreneurial
intention (Antoncic et al., 2014:13). It can thus be concluded from the literature that there is indeed a
relationship between some of the personality traits and entrepreneurial intention. In the subsequent section,
a discussion on each of the Big Five personality traits, their relationship with entrepreneurial intention and
hypotheses are formulated.
Conscientiousness
Conscientiousness is a construct that refers to characteristics of being highly reliable and preferring to
conform to rulebooks and procedures (Llewellyn & Wilson, 2003:342). McCrae and Costa (2003:4)
describe individuals with high levels of conscientiousness as punctual, well-organised and ambitious.
Conscientious individuals have high levels of motivation, hard work and perseverance in terms of
accomplishing goals. Conscientiousness should thus have a strong relationship with entrepreneurial
intention (Zhao & Seibert, 2006:261). It has also been suggested that individuals with high levels of
conscientiousness might develop entrepreneurial intention (Rauch, 2014:167). Thus the following
hypothesis is stated:
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H1: There is a positive relationship between conscientiousness and entrepreneurial intention.
Openness to experience
Openness to experience is a trait that can be identified in individuals who are creative, original and
innovative (Costa et al., 1984:397). Individuals who are open to experience are always looking for new
experiences and new ways of solving problems (Llewellyn & Wilson, 2003:342). They are unconventional,
curious and prefer variety over routine (McCrae & Costa, 2003:4). Entrepreneurship is an unconventional
approach to employment that is likely to attract individuals who are willing to experiment (Zhao et al.,
2010:385). Openness to experience may be the most important of the Big Five personality factors in terms
of differentiating entrepreneurs from non-entrepreneurs (Antoncic et al., 2014:13). High levels of openness
to experience increase the possibility of an individual to start a business, which means that the individual
possesses entrepreneurial intention (Hamilton et al., 2014:24). The following hypothesis is stated:
H2: There is a positive relationship between openness to experience and entrepreneurial intention.
Neuroticism
Neuroticism represents the emotional stability of individuals. Individuals with a low level of neuroticism
are willing and able to take on emotional and physical burdens. These individuals can be regarded as
confident, composed, even-tempered and stress-free (Zhao & Seibert, 2006:260). These attributes are
typically associated with entrepreneurs whereas highly neurotic individuals have little emotional stability,
often worry, have low self-esteem and often experience depression (Llewellyn & Wilson, 2003:342;
McCrae & Costa, 2003:4). Individuals with high levels of neuroticism are generally not willing to take on
the responsibilities and burdens of the entrepreneur and therefore, they do not possess a high degree of
entrepreneurial intention (Zhao et al., 2010:387). Entrepreneurial intention is thus commonly found among
individuals with low levels of neuroticism (Antoncic et al., 2014:4). The following hypothesis is therefore
stated:
H3: There is a negative relationship between neuroticism and entrepreneurial intention.
Extraversion
Extraversion is the extent to which an individual tends to like large groups and seek stimulation through
excitement (Llewellyn & Wilson, 2003:342). Introverts refer to those who can be characterised as quiet,
independent, reserved and also tend to appreciate alone time rather than spending time in large groups
(Zhao & Seibert, 2006:260). The career of an entrepreneur may appear to be more exciting than traditional
jobs. The stimulation found in entrepreneurial activity may attract extraverts and therefore extraverts tend
to possess a higher degree of entrepreneurial intention than introverts (Costa et al., 1984:397). Indeed
communicating directly with partners, investors, employees, consultants and clients is particularly common
in the life of an entrepreneur and therefore, entrepreneurial participation is more common among
individuals that show high levels of extraversion (Zhao & Seibert, 2006:261). It has been suggested that
individuals with no intention of starting up their own businesses tend to score lower in extraversion
(Antoncic et al., 2014:13). On the other hand, extraverted individuals are more likely to participate in a
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range of entrepreneurial actions such as starting new businesses (Hamilton et al., 2014:23; Leutner et al.,
2014:62). The following hypothesis is stated:
H4: There is a positive relationship between extraversion and entrepreneurial intention.
Agreeableness
Highly agreeable individuals are usually widely liked and easy to get along with (Llewellyn & Wilson,
2003:342). Since agreeable people are usually unselfish, soft-hearted and lenient they may struggle to look
out for their own interests (McCrae & Costa, 2003:4). Entrepreneurs are often required to look out for their
own interests especially in circumstances where negotiation is involved. Low levels of agreeableness are
therefore associated with entrepreneurship (Zhao & Seibert, 2006:261). Individuals with high levels of
agreeableness are less likely to become entrepreneurs or possess a higher degree of entrepreneurial
intention when compared to individuals with low levels of agreeableness (Antoncic et al., 2014:13).
Therefore, the following hypothesis is stated:
H5: There is a negative relationship between agreeableness and entrepreneurial intention.
Emotional Intelligence
The concept of emotional intelligence has been around for decades, yet a debate in the literature regarding
its relevance is still often found (Cavazotte et al., 2012:445). On the one side of the academic debate,
strong views have been expressed against emotional intelligence as a concept - questioning the
meaningfulness and also the validity of its measurements (Antonakis, Ashkanasy & Dasborough, 2009:247;
Locke, 2005:425). However, this view is contrasted by various studies testing and confirming the validity
of popular measurements - the MSCEIT-model is an example of this (Mayer, Salovey, Caruso &
Sitarenios, 2001:239; Schutte, Malouff, Hall, Haggerty, Cooper, Golden & Dornheim, 1998:175-176).
It is hard to find a definition for emotional intelligence that is widely accepted. Bar-On (2010:57); Bar‐On,
Tranel, Denburg and Bechara (2003:1790) defined emotional intelligence as “a range of social and
emotional abilities, competencies and skills that will assist individuals to deal effectively with daily
demands, challenges and pressures and therefore be more effective in their personal and social lives”.
Salovey and Mayer (1990:189) defined emotional intelligence as “the ability to monitor one’s own and
other’s emotions, to discriminate among them and to use the information to guide one’s thinking and
actions”. However, for the purpose of this paper the revised definition of Mayer and Salovey (1997:10) is
used. This definition describes emotional intelligence as “the ability to perceive accurately, appraise and
express emotion; the ability to access and/or generate feelings when they facilitate thought; the ability to
understand emotion and emotional knowledge and the ability to regulate emotions to promote emotional
and intellectual growth” (Mayer & Salovey, 1997:10).
Along with the number of different definitions, various models seeking to conceptualise and accurately test
emotional intelligence were found. For the purpose of this paper, we will focus on the very popular and
widely used four component conceptual model of emotional intelligence developed by Mayer and Salovey
894
(1997). This model aims to highlight the cognitive components of emotional intelligence and
conceptualises the construct in terms of potential for intellectual development and emotional growth
(Schutte et al., 1998:168). The model views emotional intelligence as a number of skills and abilities
relating to four dimensions: self-emotional appraisal, the appraisal of emotions of others, regulation of
emotion and utilisation of emotion (Wong & Law, 2002:246).
The link between emotional intelligence and entrepreneurial intention
Previously, authors such as Shepherd (2004:274-285) and Zampetakis et al. (2009:598) mentioned that the
regulation of stress is a possible way to link emotional intelligence and entrepreneurial intention. However,
there is so much more to these two constructs than just the mere regulation of stress and it will be
interesting to see how the relationship extends to the other factors of emotional intelligence and
entrepreneurial intention (Shepherd, 2004:284). Mortan et al. (2014:102) suggested that emotional
intelligence is a strong predictor of entrepreneurial processes and confirmed the link between emotional
intelligence dimensions and entrepreneurial intention. The ability to control and utilise emotions properly
impacts the perception of self-efficacy which, in turn, can motivate individuals to pursue entrepreneurial
careers (Mortan et al., 2014:102). The results of a study done by Ahmetoglu, Leutner and Chamorro-
Premuzic (2011:1031) suggest that there is a greater possibility for more emotionally intelligent individuals
to engage in innovative entrepreneurial activities than those with a lower level of emotional intelligence.
This would further suggest that there is a direct link between emotional intelligence and entrepreneurial
intention. Dehkordi, Sasani, Fathi and Khanmohammadi (2012:294) conducted a study on undergraduate
students aiming to identify the factors of both personality and emotional intelligence that correlate with
entrepreneurial intention. They also aimed to rank these factors in order of significance, finding the need-
for-achievement component to be the most important. Cross and Travaglione (2003:221-228) and Gelard
and EmamiSaleh (2011:358) found similar results in that there is a positive relationship between each of
the four emotional intelligence dimensions and entrepreneurial intention. Their findings also showed that
self-control is highly evident in the entrepreneur’s ability to focus on what is critical regardless of the
difficulties, chaos or uncertainty faced (Cross & Travaglione, 2003:225-226). Thus, based on the above
findings, the following hypothesis is stated:
H6: There is a positive relationship between emotional intelligence and entrepreneurial intention.
Methodology
Sampling
The target population consisted of nascent entrepreneurs in South Africa and the units of analysis for all the
research objectives were the individual respondents. A non-probability sampling method is employed, more
specifically, this study made use of snowball sampling. Snowball sampling was especially well-suited and
the only feasible option given the unique circumstance for this study as the population of nascent
entrepreneurs is fairly hidden and hard to reach (Cooper & Schindler, 2014:260). This study aimed to
achieve the target sample size of 200 respondents. A questionnaire was distributed to 230 respondents and
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the final realised sample included a total of 177 usable questionnaires. This represents a response rate of
77%.
Data Collection
The initial questionnaire was pre-tested with a convenience sample of 12 respondents using the
collaborative participant pre-testing method described by Cooper and Schindler (2014:85). The researchers
made use of a self-administered questionnaire that was available both online and in hard copy. Other well-
known researchers in similar studies also made use of this survey method which substantiates the
researchers’ choice of survey method (Davis & Peake, 2014:25; Dehkordi et al., 2012:289; Zampetakis et
al., 2009:601).
Measures
Entrepreneurial intention was measured using the model developed by Thompson (2009:680). The 10
items were five-point Likert scale statements. The Cronbach alpha coefficient for the scale was 0.76, which
indicates acceptable internal consistency reliability. This Cronbach alpha value is however lower than the
value of 0.83 originally reported by Thompson (2009:683).
The Big Five personality traits were measured using the Big Five Inventory model developed by John and
Srivastava (1999:132). This 44 item, five-point Likert scale measures each of the five personality traits
namely conscientiousness, openness to experience, neuroticism, extraversion and agreeableness. A
reliability analysis of the scale indicated that items had to be removed as it reported a low item-to-total
correlation compared to the other items and therefore decreased the Cronbach value of the scale. The
Cronbach alpha coefficient for conscientiousness, openness to experience, neuroticism, extraversion and
agreeableness of the scale is 0.79, 0.71, 0.81, 0.84 and 0.71 respectively. These Cronbach alphas are lower
than the 0.85, 0.81, 0.84, 0.88, 0.79, respectively, reported by John and Srivastava (1999:117), but still
indicate acceptable internal consistency reliability.
Emotional intelligence was measured through the model developed by Wong and Law (2002:261). The 16-
item, seven-point Likert scale was adapted to a 16-item, five-point Likert scale which measures the four
components; namely self-emotional appraisal, utilisation of emotion, regulation of emotion and other’s
emotional appraisal. A reliability analysis of the scale indicated that items had to be removed as it had a
low item-to-total correlation compared to the other scale items and therefore decreased the Cronbach alpha
value of the scale. After removing the items the Cronbach alpha values for self-emotional appraisal,
utilisation of emotion, regulation of emotion and other’s emotional appraisal were 0.62, 0.69, 0.79 and 0.8,
respectively. Wong and Law (2002:261) reported the Cronbach’s alpha of 0.89, 0.88, 0.76 and 0.85
respectively, for this scale. In this study the emotional intelligence construct was used as a composite score.
The analysis on the total scale reported a Cronbach alpha value of 0.83, which indicates acceptable internal
consistency reliability.
896
Results
A bit more than half (53.71%) of respondents were male. Most of the respondents were aged 21 (27.33%)
followed by respondents aged 22 (19.19%). At the time of this study the majority (66.29%) of respondents
had attained grade twelve as their highest level of education completed, followed by respondents that
attained a bachelor’s degree (18.86%). The majority (28.82%) of respondents intend on starting businesses
in the wholesale, retail and motor trade, catering and accommodation industries.
As indicated previously, the five personality traits were measured individually and emotional intelligence
and entrepreneurial intention were measured as two complete constructs. Table 1 below contains the
descriptive statistics of the constructs used to determine correlations in this study.
Table 1: Descriptive statistics on composite scores used to test hypotheses 1 to 6
Variable n M SD
Conscientiousness 177 3.88 0.52
Openness to experience 177 4.11 0.51
Neuroticism 177 2.60 0.65
Extraversion 177 3.56 0.63
Agreeableness 177 3.75 0.57
Emotional Intelligence 176 4.12 0.40
Entrepreneurial Intention 177 3.77 0.58
Notes: M = mean, SD = standard deviation
The standard deviations in the fourth column indicate that there was a fairly narrow spread in all of the
responses. This means that the majority of respondents answered the questions in a similar way.
Conscientiousness had a mean of 3.88 (SD=0.52). This indicates that the respondents, on average, agreed
with the statements measuring conscientiousness and can therefore be regarded as fairly high in
conscientiousness. Openness to experience had a mean of 4.11 (SD=0.51) which indicates that the average
respondent strongly agreed with the statements indicating that they are open to new experiences.
Neuroticism had a mean of 2.60 (SD=0.65). This mean score indicates that the average respondent tended
to either feel impartial or disagree with the statements indicating that they may be neurotic. The average
respondent can therefore be regarded to be less neurotic. Extraversion had a mean of 3.56 (SD=0.63). This
indicates that the average respondent was fairly extraverted. Agreeableness had a mean of 3.75 (SD=0.57).
This mean score indicates that the average respondent agreed with the statements measuring a person’s
agreeableness. Emotional intelligence had a mean of 4.12 (SD=0.40) which suggests that the average
respondent’s level of emotional intelligence is fairly high. Entrepreneurial intention had a mean of 3.77
(SD=0.58). This indicates that the average respondent showed a reasonable level of entrepreneurial
intention.
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Hypothesis Tests
Figure 1 below illustrates the hypothesized relationships between entrepreneurial intention and personality
traits as well as the relationship between entrepreneurial intention and emotional intelligence.
Figure 1: The relationship between personality traits, emotional intelligence and entrepreneurial
intention
All the variables were measured at an interval level of measurement and therefore the parametric
significance test namely Pearson’s product moment correlation was considered. Cooper and Schindler
(2014:473) indicate that there are however two assumptions that have to be met by the data before this
measure may be used. The first assumption that had to be met is that the data of each variable had to have a
bivariate normal distribution. The assumption of normality was assessed through the Kolmogorov-Smirnov
test of normality, as well as through visual inspections of histograms and normal probability plots. These
investigations indicated that the assumption of normality was violated. The data thus violated the first
assumption which ruled out Pearson’s product correlation as the most appropriate measure for the variables
mentioned above.
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Table 2 below reports the results of the Kolmogorov-Smirnov test for normality of the following variables:
entrepreneurial intention, conscientiousness, openness to experience, neuroticism, extraversion,
agreeableness and emotional intelligence.
Table 2: Kolmogorov-Smirnov test of the assumption of normality
Kolmogorov-Smirnova
Variable
Statistic Degrees of freedom p-value
Entrepreneurial Intention 0.13 176 0.001
Conscientiousness 0.07 176 0.061
Openness to experience 0.08 176 0.196
Neuroticism 0.06 176 0.266
Extraversion 0.06 176 0.005
Agreeableness 0.09 176 0.018
Emotional Intelligence 0.06 176 0.139
The first assumption that has to be met in order to use Pearson’s product moment correlation is that the data
of each variable has to have a bivariate normal distribution. The last column in Table 2 above indicates that
the p-value for entrepreneurial intention is 0.001. This shows that the entrepreneurial intention variable has
a non-normal distribution and, therefore, the assumption of normality was violated by at least one of the
variables in all of the relationships that were tested.
According to Pallant (2011:128) the nonparametric significance test, namely Spearman’s rank order
correlation, can be considered as an alternative measure if the assumption of normality cannot be met by
the data. The assumption Spearman’s rank order correlation makes is that there is a linear or straight-line
relationship between the two variables that needs to be correlated (Diamantopoulos & Schlegelmilch,
2000:203-205). This assumption was investigated by creating and assessing scatterplots for each pair of
variables that the researchers wanted to correlate. Regression lines with either positive or negative slopes
were found in all of the scatterplots. This suggested a linear relationship for each pair of variables and thus
the data met the required assumption. It was therefore appropriate to use the nonparametric alternative
measure, Spearman’s rank order correlation, to test hypotheses H1 to H6.
Hypotheses H1 to H6
Table 3 below shows the results of the correlation analysis of hypotheses H1 to H6.
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Table 3: The correlation between the Big Five personality traits and entrepreneurial intention as well
as the correlation between emotional intelligence and entrepreneurial intention
Entrepreneurial Coefficient of
Variables Statistics
Intention determination, r²
Correlation Coefficient 0.17*
Conscientiousness Sig. (1-tailed) 0.012 2.89%
N 177
Correlation Coefficient 0.40**
Openness to experience Sig. (1-tailed) 0.000 15.84%
N 177
Correlation Coefficient -0.14*
Neuroticism Sig. (1-tailed) 0.034 1.9%
N 177
Correlation Coefficient 0.07
Extraversion Sig. (1-tailed) 0.193 0.44%
N 177
Correlation Coefficient 0.02
Agreeableness Sig. (1-tailed) 0.379 0.05%
N 177
Correlation Coefficient 0.30**
Emotional Intelligence Sig. (1-tailed) 0.000 9.00%
N 176
*. Correlation is significant at the 0.05 level (1-tailed).
Hypothesis 1
Table 3 indicates that a statistically significant positive relationship between conscientiousness and
entrepreneurial intention was found, rs (177) = 0.17, p = 0.012 (one-tailed), which means that H1 was
accepted, as the p-value was smaller than the significance level of 0.05. Pallant (2011:134) describes this as
a small strength correlation. The coefficient of determination, r², indicates that the two variables share
2.89% common variance.
Hypothesis 2
H2 was accepted, as the p-value was smaller than the significance level of 0.05. As seen in Table 3, a
statistically significant, positive relationship between openness to experience and entrepreneurial intention
was found, rs (177) = 0.4, p < 0.0005 (one-tailed). Pallant (2011:134) classifies this as a medium strength
correlation. The coefficient of determination, r², indicates that a common variance of 15.84% is shared by
the two variables.
900
Hypothesis 3
The p-value was 0.034 (one-tailed), and therefore H3 was accepted, as the p-value was smaller than the
significance level of 0.05. However, a statistically significant negative relationship between neuroticism
and entrepreneurial intention was found with rs (177) = -0.14. Pallant (2011:134) describes this as a small
strength correlation. The coefficient of determination, r², indicates that the two variables share 1.9%
common variance.
Hypothesis 4
Interestingly, there was no statistically significant relationship found between extraversion and
entrepreneurial intention. The one-tailed p-value of 0.193 was larger than the significance level of 0.05. H4
can therefore not be accepted. The findings thus suggest that there is no relationship between extraversion
and entrepreneurial intention.
Hypothesis 5
In contradiction to what was expected, no statistically significant relationship between agreeableness and
entrepreneurial intention was found. The one-tailed p-value of 0.379 was larger than the significance level
of 0.05. H5 can therefore not be rejected in favour of the alternative hypothesis. The findings thus suggest
that there is no relationship between agreeableness and entrepreneurial intention.
Hypothesis 6
There is a statistically significant positive relationship between emotional intelligence and entrepreneurial
intention, rs (176) = 0.3, p < 0.0005 (one-tailed). Pallant (2011:134) describes this as a medium strength
correlation. The coefficient of determination, r², indicates that a common variance of 9% is shared by the
two variables. In summary, H6, was accepted because of the acceptable p-value.
Discussion and Conclusion
This paper provides evidence that suggests that conscientiousness and openness to experience have positive
relationships with entrepreneurial intention, and neuroticism has a negative relationship with
entrepreneurial intention. Openness to experience seems to be the personality trait most strongly correlated
with entrepreneurial intention compared to the other four traits. This is in line with the findings of Zhao et
al. (2010) and Antoncic et al. (2014:13). A potential explanation might be that individuals who are open to
experience are always looking for new experiences and new ways of solving problems (Llewellyn &
Wilson, 2003:342). These individuals might therefore possess entrepreneurial intention because of their
eagerness to look for new business ideas because of their desire for new experiences. This paper further
found that there is a positive, yet fairly weak relationship between conscientiousness and entrepreneurial
901
intention. The indication of a positive relationship might be due to the high levels of motivation and hard
work found in both entrepreneurs and conscientious individuals (Zhao & Seibert, 2006:261).
Conscientiousness is also found in individuals who are highly reliable as well as preferring to conform to
rule books and procedures (Llewellyn & Wilson, 2003:342). A possible explanation for the rather weak
relationship might be due to the idea that entrepreneurs are not necessarily known for conforming to rule
books.
The findings suggest that there is a negative relationship between neuroticism and entrepreneurial intention.
This is in line with the results that Antoncic et al. (2014:4) found among entrepreneurs in Slovenia. The
negative relationship between neuroticism and entrepreneurial intention might be because of the stressful
nature of the entrepreneurs’ work. Highly neurotic individuals often worry, experience anxiety and have a
low self-esteem (Llewellyn & Wilson, 2003:342; McCrae & Costa, 2003:4). Since entrepreneurs are often
involved in stressful situations it seems unlikely for a neurotic individual to have the desire to start a
business.
There is no relationship between extraversion and entrepreneurial intention. Communicating directly with
partners, investors, employees, consultants and clients is very common in the life of an entrepreneur.
Therefore, traditionally, entrepreneurial participation is more common in individuals that show high levels
of extraversion (Zhao & Seibert, 2006:261). However, it might be argued that in the modern day business
environment an entrepreneur can do most forms of communications, if not all, via the internet. It is
therefore not necessarily required to communicate directly with the stakeholders of the business anymore.
Therefore it can be argued that an entrepreneur can be an extravert or an introvert, explaining the lack of a
relationship between extraversion and entrepreneurial intention. Although a negative relationship between
agreeableness and entrepreneurial intention was expected, the results in this paper suggest that this cannot
be confirmed in a South African context as no relationship was found. McCrae and Costa (2003:4) suggest
that since agreeable people are usually unselfish, soft-hearted and lenient they may struggle to look out for
their own interests. However, it might be argued that an entrepreneur’s ability to network and build
relationships is amplified by being unselfish, soft-hearted and lenient towards others. Since the expected
outcomes with regards to agreeableness and extraversion were not found, this study agrees with Antoncic et
al. (2014:4) in suggesting that the entrepreneur must be seen as a highly complex individual.
The paper also confirms that there is a positive relationship between emotional intelligence and
entrepreneurial intention. This result is in line with the findings of Gelard and EmamiSaleh (2011:358) and
Cross and Travaglione (2003:225). It is therefore suggested that the entrepreneur might be an individual
with the ability to make sense of his or her own emotions. It is an individual who understands, relates to,
and shows empathy towards the emotions of another individual. It implies an individual with the ability to
control one’s emotions in different experiences and situations and to utilise these emotions effectively in
order to guide them towards productive activities and increased performance.
In summary, the results of this paper suggest that individuals with the personality traits of openness to
experience and conscientiousness, who are emotional intelligent, should be more entrepreneurial inclined
than individuals with other personality traits with low levels of emotional intelligence. Which in turn might
902
mean that the individuals with high levels of emotional intelligence and the openness to experience
personality traits have a greater chance of becoming entrepreneurs.
Limitations
No study is without limitations. Firstly, the study made use of a non-probability sampling method which
means that the probability of choosing a specific element in the population is unknown and there is a
greater chance for bias to enter the sample selection process (Cooper & Schindler, 2014:358). Secondly,
this study made use of a snowball sampling method. Using this sampling method that is based on referrals
entails the risk of bias (Saunders, Lewis, Thornhill & Wilson, 2009:240). Thirdly, the number of
respondents in the sample is relatively low and should be increased in furture research.
Recommendations for Future Research
A number of interesting future research avenues were identified. Although the four dimensions of
emotional intelligence was treated as one construct in this paper, future research should aim to delve deeper
into the sub-dimensions. The correlation between emotional intelligence and the personality traits in an
entrepreneurial context should be explored as there might be some interesting contributions in studying the
relationship between each of the sub-dimensions of emotional intelligence and each of the personality
traits. Furthermore, future studies should focus on studying emotional intelligence as a mediating variable
between the personality traits and entrepreneurial intention. Although this study focussed solely on nascent
entrepreneurs, future studies should also consider conducting a comparative study among entrepreneurs and
non-entrepreneurs to determine whether they differ significantly in personality traits and emotional
intelligence. Another avenue for future research might be to determine whether or not males and females,
and other demographic variables, differ with regards to the correlations found in this paper.
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Challenges Faced By Brand Managers in the Luxury Industry:

Attitudes and Motivations of Luxury Clothing Consumers
Valentina Iuliana Diaconu and Mădălin Lucian Cerceloiu
University of Economic Studies, Bucharest, Romania,
valentina.iuliana.diaconu@gmail.com
lucian.cerceloiu@gmail.com
Abstract
The luxury fashion industry is going through a continuous development at an international level. The
growth that was registered by the industry after the recession was determined by the urbanization degree,
the internationalization of luxury brands, the decline of the wholesale market, the different consumption
type that millennials have, the growth within the market segment that addresses consumers through the
development of products that target their needs, the development of new retailers, the growth in existing
store chains, but also technological development. The beauty industry will double itself in years to come
and the main players within this market will be China, the US, Brazil, India and Japan (Bain &
Company, 2014). The online medium represents the perfect space to promote high end products and this
can be seen observed to the fact that consumers upload dozens of selfies with their favorite products on a
daily basis, or watch videos that offer them advice on style matters. With these aspects in mind, the
article is based on a qualitative research regarding attitudes and motivations of luxury clothing
consumers with the purpose of understanding the behavior of the luxury clothing consumer and the
attributes that determine the purchase or the non-purchase of such products.
Keywords: motivation, attitude, consumer behavior, brand, luxury market.
Introduction
The luxury clothing industry is an industry that is characterized by a high level of competitiveness and
dynamism, where brand managers are faced with numerous decisions and challenges.
Surely, one of the biggest challenges that brand managers face in the luxury clothing industry is
accessing and deciphering the information from within the consumer’s so-called “black box”, in order to
gain a perspective into the consumer’s behavior. Investigating the consumer’s attitudes and motivations
can prove to be an important challenge for the brand manager to face. The article tries to offer insight
regarding consumer attitude and motivation and the way they influence the consumer’s behavior.
Consumer Behavior through Attitude and Motivation

Along with the development of the field that studies consumer behavior, the majority of specialists agree
that both attitude and motivation represent two intrinsic elements of consumer behavior, elements that
require continuous study in order for marketers to unlock the consumer’s “black box”. The notion of
consumer behavior, a concept that emerged in the 40’s within a background of a shift from a philosophy
geared toward sales to one that is focused on the concept of marketing, has become a field that is
intensely studied in present time, due to a rise in competitiveness within the market (Kardes, Cronley &
Cline, 2008).
Characterized by specialists as being a multidimensional concept, consumer behavior is the result of a

system of dynamic relations between the processes of perception, information, attitude, motivation and
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effective manifestation (Cătoiu & Teodorescu, 2004). In an effort to study consumer behavior, marketers
can approach each one of these processes in order to have a better perspective on consumer behavior.
The two processes that are broached by this article are attitude and motivation. Although attitude was a
concept initially defined through a psycho-sociological approach as being a mental or neural state of
promptitude, organized through experience and exerting a dynamic influence on an individual’s response
regarding all objects and situations in regards to said individual (Allport, 1935), it has been integrated
within consumer behavior and within marketing. The link between attitude and consumer behavior has
been theorized and illustrated through a series of cognitive models by consumer behavior specialists
(Howard, Sheth, 1969). According to Hawkins (2001), attitude places itself among the internal
psychological factors that influence consumer behavior. A classification of the functions that attitude has
is propposed by Solomon (2012), namely – utilitarian function, value expressing function, ego defensive
function and knowledge function. The utilitarian function deals with the attitudes that were formed as a
response to using a certain product, as a reward/punishment type of response. The value expressing
function has to do with the way in which the consumer percieves his or herself and the need the express
themselves. The ego defensive function deals with the defensive attitude due to the consumer’s needs to
defend himself from external or internal factors. The knowledge function appears when the consumer
needs structure and order.
Hawkins and Mothersbaugh (2010) offer three basic components of attitude: the cognitive component,
the affective component and the behavioral component. According to the model propposed by the same
specialists, the cognitive component deals with the product’s attributes or the product as a whole, the
affective component is linked with the feelings and emotions towards the product’s attributes and the
behavioral component deals with de behavioral intentions in relation to the attributes or the product. The
same notions can be found at Solomon (2012) structured within the ABC model (acronym for Affective,
Behavioral, Cognitive), where he states that the model is based on three core notions – to feel, to act, to
know.
Motivation, from a marketing standpoint, is a key-element within consumer behavior. Motivation can be
found within the psychological factors that influence consumer behavior (Kotler, 2014). Motives reside
at the base of buying behavior , representing a resulting element of a biological, physical or social nature
(Cătoiu & Teodorescu, 2004). Motivation appears, like attitude, within cognitive models as being an
essential building block of consumer behaviour (Nicosia, 1966).
Specialists in the field consider that motivation is closely linked with needs and the state of tension that
needs create. Furthermore, needs can be hedonistic or utilitarian (Solomon, 2012).
Motivation can be characterized through the strength that it exerts on the consumer but also through their
direction, specifically the way in which the consumer acts. Motivation can also have a positive or a
negative valence, each of the two contributing and influencing the consumer’s behavior (Solomon,
Russel-Bennett & Previte, 2013).The article tries to offer a study regarding consumer behaviour through
attitudes and motivations that determin the purchase or non-purchase of luxury clothing products.
Challenges that Brand Managers face within the Luxury Industry

According to studies, marketing specialists tend to invest approximately 80% of their budget on existing
clients and 20% on gaining new customers. Depending on the campaigns they conduct, brand managers
can analyze what the loyalty rate within consumers is and how the consumers react to loyalization
programs or the rewards offered at a certain purchase amount (Emarketer, 2015). Loyalization campaigns
based on gifts or price drops are not always the best ways of increasing profitability or growing a brand,
but a clean image, spot-on merchandising, an impeccable store ambience or the professionalism of brand
ambassadors or frontline employees can bring the highly sought after results from investments in
marketing. Following all these elements, the brand manager’s challenge is to attract consumers to luxury
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brands in a way in which they return to the store after they have purchased out of curiosity or
experimentally purchased and become loyal users. How should luxury industry companies face such
situations? Firstly, improvements can be made to the relationship that they have with their clients through
a superior consumption experience, a feat that can be achieved through the creation of a campaign that
promotes a clear message, a message that is correctly targeted through innovation at a marketing level
but also through the omnichannel strategy (itespresso, 2016). From a commercial and a brand
management point of view, the omnichannel is an evolution of the multichannel, due to the fact that it
requires the simultaneous use of a number of channels that are well optimized, being at the same time an
answer to the expectations and changes of consumers that become omniconsumers. Here we can note the
fusion of brick-to-click practices (the technologization of offline stores) with the click-and-collect
practices and content marketing through the influencing of the purchase decision by campaigns created
by marketers (IGD, 2015). Secondly, the image and retail policy must respect the highest standards and
develop a culture of hospitality, offering the best assortment of products so that the client’s needs be
satisfied and surpassed, because a luxury consumer is always expecting a purchase experience that
surpasses his or her expectations. On the other hand, people’s excellence is essential in developing a
luxury brand, thus one must ensure talent management, a good engagement from the team that interacts
directly with the clients, but also a better orientation toward clients (Bain & Company, 2014).
Furthermore, the excellence of the people from the first line can be improved through a mystery shopper
program that can be organized annually or semesterly so that it permits the removal of obstacles that
prevent people from overcoming their limits in regards to the relationship with the client. Evaluation and
control make for a superior quality of purchasing services or post-sale services not only in companies
within the luxury industry, but also in companies that deal with general consumer goods. A study by
Luxury Institute reveals that brands like Burberry or Bottega Veneta grow, unlike other brands, because
they invest heavily in personnel and frequently use mystery shopper programs that help employees
develop, becoming more enthusiastic with the experiences that they have with their customers within
brand stores (Luxury Institute, 2011). Along all the previously stated elements, a strong degree of
visibility must be maintained within the online medium, but also keeping a close relationship with users
through social media. Socializing sites can be a real support in taking marketing decisions, because
consumers often talk about luxury brands on social media when they are content but especially if they are
discontent with a respective brand (KurtSalmon, 2016). Beside the classic website, brands should be as
active as possible on platforms such as Instagram, Youtube, Twitter or Snapchat. Based on opinions of
social media users one can build an analysis of the feelings and emotions the consumers have in order to
measure the impact that they have on a luxury brand, but also construct a specifically tailored strategy to
fit the newly-discovered needs of consumers. Listening to the consumers and correctly analyzing the
statistical information resulting from social media can determine the elements that the brand can
improve. These can be applied to the product policy, in deciding product range, in setting correct
competitive prices, aligned to the superior quality of luxury products. All of these things can lead to
image improvement and help maintain a desired image on a long term basis so that any negative
perception be eliminated from the consumer’s mind.
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Conceptual Model and Hypotheses

The qualitative study that was conducted revealed a series of aspects regarding the behavior of luxury
clothing behavior that can be analyzed by brand managers through attitudes and motivations. The
objective of this exploratory research was the identification of variables that influence the purchase or
non-purchase of luxury clothing items, variables for which a cognitive model has been constructed in
order to show a series of functional and causal relations.
Source: Made by the authors
Figure 1: Cognitive analysis model of consumer behavior through attitudinal and motivational
variables that influence purchase or non-purchase of luxury clothing products
The cognitive model that can be seen in Figure 1 is composed of four blocks: inputs, central unit,
decisional block and outputs. The inputs block contains a series of factors that influence the behavioral
variables, attitude and motivation, directly or indirectly. These factors are determined by demographic
factors, economic factors, marketing mix factors, family, social groups, social class and culture and
subculture. Consumers are heavily influenced by factors of an exogenous nature, that once passed
through the thought filter correlated with endogenous factors (memories, personal experience) converge
on either a purchasing or a non-purchasing behavior (Kotler & Keller, 2006). The central unit is
determined by attitude and motivation, followed by the decisional block that determines the purchase or
the non-purchase of luxury clothing articles. In the case of luxury products, attitude towards them plays
an important part because this type of goods are characterized by exclusivism, superior quality and high
prices, fact that can determine a positive image for existing users or a negative image for people that
wouldn’t desire to wear such items (Silverstein, 2003). The last block contains the options that the
individuals can have in mind, whether they are on the first purchase, or they are postponing the purchase
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or end up recommending the purchased product or the luxury brand to others. The article also broaches
two types of motivation: hedonist motivation, determined by excitement, fun, emotion, pleasant
memories; and utilitarian motivation, characterized by the functionality of luxury clothing products. The
relations that are established between attitude, motivation and the rest of the variables within the
discussed cognitive model are of two types: functional or causal. The functional relations are represented
by the group of independent variables y=f(x), that satisfy the same conditions for the discussed
problematic. For example, functional relationships can be established between the variables from block A
– Inputs. On the other hand, causal relationships are exerted by the influence of an X characteristic on
another Y characteristic, x1 + x2 Y. Such a relation can be established between the positive attitude
towards a luxury clothing product, the desire for prestige or the effective purchase. All of these relations
can be synchronous or asynchronous (Yule & Kendall, 1969). Following the relations that can be
established between the variables within the cognitive model that was elaborated, it can be concluded
that brand managers, in an effort to reach their objectives, can follow the elements that are the most
profitable and advantageous on the long term.
Research Results
The qualitative research on which the article is based was conducted through a number of 32 in-depth
interviews with both male and female respondents, ages between 21 and 60, that work in fashion or
fashion-related industries. The individual discussions presented a series of variables that can influence
the buying behavior or non-buying of luxury clothing products. The results of the qualitative study
revealed a generally positive attitude toward luxury clothing articles, considered by respondents as being
modern, inspirational, exclusivist, expensive and being of high quality. Among the respondents that had a
negative attitude were the ones that can not afford these type of goods, the ones that do not have a
defined fashion style, the ones that don’t consider that the events they attend are important, the ones that
don’t consider their personal image as being of importance and the ones that don’t consider fashion as
being indispensible. A positive attitude determines a positive motivation that further on influences the
buying behavior and the recommendation to other users. On the other hand, a negative attitude is caused
by experiences, bad personal memories or are transmitted by other individuals, fact that causes a non
purchase behavior, the return of the product or reevaluating the purchase. The content analysis of the
qualitative research revealed a series of motivations that are more or less visible, but can influence the
purchase behavior of luxury clothing products: the desire for uniqueness and exclusivism, the desire for
power and status, the durability of materials and colors, innovation and product design, the desire to wear
high quality clothing, admiration for famous brands, pleasant memories and the existence of an
inspirational role-model within the family or outside of it, the desire to set trends, education and chosen
culture, the desire to learn and find the right style, curiosity and the desire to impress others, the desire
for fun or the desire for a luxurious lifestyle, the workplace and the activities that impose the utilization
of luxury products. In the same time, non-purchase motivations were shown through elements such as:
high price, snobbism, the disgust toward the people that wear luxury clothing, inaccessibility, the reduced
or exclusive distribution, the lack of events that require wearing high-end articles, bad experiences
regarding a visit to a luxury boutique, the lack of utility of a luxury textile product, the lack of knowledge
regarding luxury brands, the sub appreciation of the luxury industry, but also an inferior degree of
education or culture.
Furthermore, along with in-depth interviews, two new instruments have been tested, instruments that
analyze voice tone and the emotions belonging to respondents. The participants’ voice tonality during the
in-depth interviews has been analyzed with the help of a computer-based instrument, IBM Watson
Developer Cloud – Tone Analyzer. This instrument helped in the identification of a series of motivations
and attitude that were hidden within the participants’ non-verbal communication. The second computer-
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based instrument that was used for the analysis was AlchemyAPI, a program that uses the processing of
natural language, artificial intelligence, deep learning, being capable of analyzing written text, from
which unstructured data has been extracted. The investigated answers from the study analysis at hand
revealed a series of attitudes and motivations that determine the purchase or non-purchase of luxury
clothing. If attitude can be easily detected within a non-verbal language, in the case of motivation, the
visibility is slightly reduced. Nonetheless, motivations have been established through a series of
projective exercises meant to determine the respondents to freely express their opinions without feeling
constrained, as would be the case of a statistical survey that has a standardized and unfriendly structure.
The projective techniques that were used were then accompanied by the utilization of digital instruments
that analyzed the emotions that were conveyed through the respondents’ answers. The exercises and case
studies that were created to be used during the in-depth interviews revealed a generally positive attitude
toward luxury and luxury clothing articles. Both positive and negative attitudes manifested themselves
from three different perspectives: affective, cognitive and behavioral (Rosenberg & Hovland, 1960;
Krech, 1962). The affect was observed either when it came to the adoration of a luxury clothing product
or brand, or from the love or attachment regarding a close person. On the other hand, the affective
component also manifested itself in the opposite direction, along with feelings like hate, pride,
discrimination, prejudice, fear, uncertainty, disgust, guilt toward people that can not afford expensive
clothes, addiction, shame, vulgarity, poverty, loneliness, disappointment, indifference or the feeling that
they don’t deserve the good. The cognitive attitude based itself on a logical rationale through which the
individual that judges both the functional attributes and the aesthetic attributes that the luxury article
offers. The conative, or behavioral attitude was determined by a series of actions that the respondents
listed during the interviews: gathering information regarding trends or luxury locations, planning and
organizing the visit to a store, trying on luxury clothing, interacting with store personnel, the search for
information online – information provided by specialists or by influencers, experimental purchase, non-
purchasing, reevaluation, returning and changing of products, postponing the decision or recommending
to users (LaPiere, 1934). Regarding the motivational aspect that was addressed in the article, its
manifestation was different during the utilization of the computerized instruments. Thus, among the
most mentioned motives during the discussions were: the seeking of refinement, the display of elegance
and the strive for personal prestige, which means that when individuals choose to utilize a luxury
clothing product they are influenced by a certain style, by a feeling of prestige and renown, respectively
the display of refinement that is cultivated in time through a superior education or experiences that were
accumulated through the decision making process.
The IBM Watson Developer Cloud – Tone Analyzer application permitted the analysis of the impact that
the respondents’ tone of voice had when they were allowed to express their perception and ideas in
regards to the consumption of luxury clothing products. The analysis of the impact of voice tonality can
constitute an emotional factor of influence in identifying hidden motivations related to the utilization of
luxury clothing products. Although an individual can transmit a positive statement, the tone that is used
can indicate a state of nervousness, passiveness or uncertainty; the same thing can be true in the case of a
negative statement, fact that helps in identifying or discovering attributes that are less visible in consumer
behavior. An example of transmitted message by one of the respondents during individual discussions
and the analysis that resulted after the use of the cloud:
“Fashion is something indispensible, o woman or a man must find her or his own style through which
they can stand out and gain recognition from others.
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Source: Results conducted by the authors in IBM Watson software
Figure 2: Identifying the type of emotion that influence the motivation for luxury clothing products
consumption depending on voice tonality
According to the above chart it can be deduced that the respondent’s predominant feeling when talking
about luxury fashion is that of anger, with a low to medium intensity. The respondent has an awareness
of this feeling, which can suggest the fact that this respondent is discontent with the social pressure
caused by fashion, pressure that constrains through social recognition of the individual style. In a world
characterized by continual change, personality and individual pride can be affected if they are not
sustained by a certain financial condition or a certain education. Furthermore, another type of consumer
that uses luxury clothing can be identified only because of the influence of social tension and the desire
to fit into a certain social group. At a careful analysis of the transcription of the participants’ responses to
the study, the term fashion appears to be a keyword, being frequently used, which can translate into a
positive feeling related to this field, having a score of 0.66 and with a 0.93 relevance indicator, measured
with the AlchemyAPI application.
With this information in mind, it can be deduced that the attitude and the motivation that can influence
buying or non-buying behavior of luxury clothing products are not dependent only on the variables that
belong to income, education or influence from others, but rather they are correlated with memories and
experiences had during one or more previous decision processes, lifestyle, perception, degree of
implication, desire to stand out or the desire to learn and grow. Furthermore, when it comes to luxury,
attitudes can be treated through the perspective of affect, cognition and conation, while motivations of a
hedonist nature are responsible for happiness, pleasure, general euphoria, fun or pleasant memories.
Thus, consumers can be influenced by a series of endogenous or exogenous factors, the purchase or non-
purchase decision belonging only to them. The marketer’s challenge resides in finding the most
profitable mode in which to attract individuals toward the chosen brand, a brand to which they remain
loyal consumers.
Behavioral Differences between Men and Women Consumers
Even in ancient times, fashion was not a foreign concept to people’s daily lives. Fashion was a mean in
which people could express their personality and individuality, their cultural origins and social status.
Even though these type of products was limited, their utility as simple garments were to cover the human
body and shield them of external factors, nowadays the concept is at a whole new level.
915
Respondents that took part in individual discussions were both female and male, each of them having
their own personal vision on luxury and fashion due to their personally achieved degree of culture, their
income, the social environment in which they live, their own history of consumption when it comes to
exclusive goods, their place of work and the influence from their friends, but also the influence from
marketing. Some respondents are predisposed to change, to trying on a brand that is new to the market,
while others are not willing to inform themselves or to try something different than what they’re
currently using. At the same time, a certain degree of knowledge or education regarding fashion, art or
other adjacent fields have delimited three categories of individuals that consume luxury products:
connoisseurs, amateurs and inexperienced. From the participants, women turned out to be more
knowledgeable when it comes to luxury brands, trends or social events, aspect that indicates the fact that
they are preoccupied with their image and their development. Women know the concept of luxury, have
high expectations when it comes to quality, usually have a role model and are brave through their
inclination for modernity and extravagance. The men that took part in the study stated that they focus on
a brand or two when choosing to buy clothes. They are much more conservative and prefer styles that are
strongly masculine and elegant.
Source: Made by the authors
Figure 3: The scale of motivation for the purchase of luxury clothing for women and men
According to the above graph 5 main attributes have been established as a result of the analysis of the in-
depth interviews. These 5 main attributes can constitute motivations that determine the purchase or non-
purchase of luxury clothing objects. For women the 5 most important motivations were: Femininity,
Modernity, Refinement, Extravagance and Exclusivity – elements that reiterate what was previously
presented. The motivations for men were: Masculinity, Conservativeness, Prestige, Elegance, Loyalty;
unlike in the case of women, men turned out to be pragmatic users, because the things that they have in
mind are attributes such as efficiency and practical utility when it comes to luxury articles. Thus, starting
from the two categories, women and men, two visions can be deduced, visions that delimit the universe
of luxury: modernity together with extravagance and tradition coupled with prestige.
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Conclusions
The challenges that brand managers face in the luxury industry are strongly influenced by the ever-
changing consumer behavior. Individuals’ attitude and motivation directly influence the purchase or non-
purchase behavior for luxury clothing products, and this thing was determined through the functional and
causal relations shown in the created cognitive model and demonstrated through the 32 in-depth
interviews that were conducted with specialists in the field of fashion or other adjacent fields. The
qualitative research that was conducted identified a generally positive attitude toward luxury fashion but
also motivations such as: the desire for uniqueness and exclusivism, the desire for power and status,
memories and pleasant experiences, the desire to learn and find one’s own style, curiosity, fun and the
desire to have a luxurious life, the fear of embarrassment and so on. Visible differences between women
and men resulted in two visions regarding the consumption of luxury clothing products: one is a
modernist vision and refers to the courage to try on brands that are new to the market, clothes with an
innovative design, lacking a practical utility; the other vision is oriented toward tradition, loyalty to one
or two brands that produce clothes that are always “in fashion”. In conclusion, starting from these results
the barriers that prevent the luxury brand to become more visible and prevent marketing budgets to be
redirected to campaigns that have a bigger return on investment rate can be overcome. Furthermore, the
results that have been obtained can help in offering a base for the better understanding of the consumer
behavior when it comes to luxury clothing, a better understanding of the motivations behind the purchase
of such goods and of the attitudes toward luxury fashion and the ways in which the relationship between
customer and the luxury brand can be improved.
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918
The Effect of Honey Production on Beekeepers Income. A Study Case in

South Muntenia Development Region of Romania
Agatha Popescu, University of Agricultural Sciences and Veterinary Medicine, Bucharest,

Romania
agatha_popescu@yahoo.com
Abstract
The paper analyzed the influence of honey production on beekeepers' income in the South
Muntenia Region of Development of Romania. In this purpose, it was made a field survey on a
sample of 140 apiculturists from the seven counties belonging to the region. The data were
collected based on structured questionnaires and the answers were statistically processed using the
descriptive statistics, Pearson correlation coefficients and linear regression. The study presents the
socio-economic characteristics of the respondents, as well as the number of bee families, honey
production and yield, income from marketed honey by apiary size and honey price. The results
pointed out that honey production is the key factor with a deep impact on income, and also honey
yield and price. The high potential of the region for beekeeping compiles with the increased honey
demand and stimulate beekeepers to have more than 100 bee families/apiary, good bee queens, a
corresponding feeding and maintenance for their bee colonies, to improve farm inputs and
marketing, to be more oriented to organic honey and export on the international market.
Keywords: honey production, beekeepers' income, South West Development Region, Romania
Introduction
Honey is natural product produced by bees based on flower nectar. It is a high nutritive value
food, as in 100 g of honey there are 82.4 g carbohydrates (mainly glucose and fructose), but also
0.3 g protein, 17.1 g water, acids, B and C vitamins, minerals (calcium, phosphorus, potassium
etc), enzymes, polyphenols, antibiotics, hormones etc. (Eteraf-Oskouei et al., 2013).
Honey quality depends of the variety of plant species where the bee families picked up the nectar
from. Honey is utilized in human consumption, in food industry, medicine, pharmaceutical
industry, cosmetics etc. (Dugalić-Vrndić et al., 2011).
Beekeeping is one of the oldest traditional activities mainly in the small private apiaries of
Romania, a country with a high meliferous potential and an important honey producer and
exporter for the EU (Beldescu et al., 2012).
In the period 2011-2015, in Romania, the number of bee colonies increased by 28.8 %, reaching
1,585,531 in 2015 and honey production increased by 45 %, accounting for 34,999 tonnes in the
same year. Honey yield was 22.07 kg/bee colony, by 14.3 % higher than in 2011.( MARD, 2015).
About 70 % of honey production is exported grace to the high quality of the product and increased
demand in the Western European market and low domestic consumption.
Honey quality is given by its chemical composition determined by the flora where the bees
collected the nectar, soil and climate conditions, honey extraction and processing. Color, flavor
and density are the main aspects characterizing honey quality. Since 2007, Romania must produce
and export a high quality honey which must meet the EU quality standards.(Stihi et al., 2013).
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The geographical conditions are suitable to practice apiculture in the 8 development regions of the
country. South Muntenia Region has a special importance in Romania's apiculture, due to its
natural resources and socio-cultural capital (Balteanu et al., 2005).
In this context, the objectives of the study were to set up a field survey on a sample of beekeepers
and analyze the socio-economic aspects of beekeeping practiced in the small semisubsistence
apiaries in the South Muntenia Development Region of Romania, to evaluate the impact of various
economic factors, mainly honey production, on beekeepers's income and to identify the constraints
faced by respondents and their opinion on the development of their business in the future.

Description of the study area. The study was conducted in the South Muntenia Development
Region, located in the South part of the country where agriculture, and beekeeping are well
developed. The region keeps 14.5 % of Romania's territory, coming on the 3rd position among
the development regions and consists of 7 counties: Arges (AG), Calarasi (CL), Dambovita (DB),
Giurgiu (GR), Ialomita (IL), Prahova (PH) and Teleorman (TR). (ARD, 2013)
The various relief includes a part of the Eastern and Southern Carpathians, the Sub-Carpathian
hills, Romania's Plain, the net of rivers most of them floating into the Danube River. The large
range of soil types and the temperate continental climate are suitable for field crops (cereals,
technical plants, forages etc), orchards, vineyards, pastures and meadows and wild spontaneous
flora providing a high honey production. (MARD, 2013).
Of the 3,243,268 inhabitants in the region, 58.6 % are living in the 38 communes, rural population
being higher in DB (64.4%) and GR (69.8%) (Busega, 2014).
Employed people accounts for 1,154.5 thousand persons, of which 37.2 % are employed in
agriculture, agricultural land represents 2,432 thousand ha, 16.67 % of Romania's surface and 25
% of its arable land (Gheorghe et al., 2014).
In South Muntenia Development Region, there are over 800 thousand agricultural holdings,
representing 20.75 % of Romania's farms. More than 7,000 apiaries are situated in the region,
keeping more than 224 thousand bee colonies in 2015. Honey production reached 7,864 tonnes, 2
times more than in 2011. Therefore, South Muntenia Region keeps 14.16 % of the total number of
bee families in the country and contributes by 22.46 % to the national honey production.(NIS,
2016)
Beekeeping is running in small semi-subsistence apiaries, whose average size accounts for 25-30
bee colonies/apiary. Beekeepers develop their business as authorized physical persons, most of
them being members of Beekeepers Association.
Data collection. The study is based on the data collected in the period September-October 2015
from a sample of beekeepers from the 7 counties of the South Muntenia Region.
Methodology. The study is based on a Questionnaire Field Survey (Tull et al.,1976). The
questionnaire was set up in advance and included 11 questions regarding socio-economic aspects
of the respondents, and also about the number of bee families, honey production and producer's
price and income coming from marketed honey. The questionnaires were distributed to the
beekeepers who wanted to participate to and support this study. The responses given by
respondents were statistically processed and interpreted, pointing out the frequencies and
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percentages for each type of answer, both at county and region level and commenting the
differences among counties.
The main aspects included in the questions have been the following ones: (a) social
characteristics: beekeepers age, gender, education level, length of experience in apiculture,
reasons to practice beekeeping, and (b) economic characteristics: number of bee colonies, honey
production, honey yield, honey average selling price, income coming from marketed honey, the
main restraining factors in beekeeping development in the area.
The sample size for N<10,000, as in the Region there are about 7,000 beekeepers, it was
established based on the formula nf= n/(1+n), where n=sample size and N = target beekeepers.
Because n= z2pq/d2, (Kothari, 2004), where z= standard deviate at a specific confidence level, in
this case for 93 %, p=0.5 ( 50 % of the target population, N=850 beekeepers), q=1-p=0.5, z = 1.81
and the desired significance level is 0.07. Therefore, the sample size was given by the formula, fn
= n/( 1+ n/N), whose result was n = 140. The sample calculated at the region level was equally
distributed by county, meaning 20 respondents (16.7 %).
The main indicators used to characterize beekeeping sector in the South Muntenia Development
Region were the following ones: (i) number of bee families/beekeeper and beekeepers' distribution
according to the number of bee colonies; (ii) distribution of bee families by apiary size class: less
than 50 bee families, 50-100 bee families and over 100 bee families; (iii)distribution of honey
production by apiary size class; (iv)distribution of honey yield by apiary size class; (v)
distribution of honey selling price by county; (vi) income coming from sold honey and
beekeepers distribution by income class ( less than Euro 2,000, Euro 2,001-4,000, Euro 4,001-
6,000, Euro 6,001-8,000, Euro 8,001-10,000, Euro 10,001-12,000, Euro 12,001-15,000, Euro over
15,000); (vii) income from sold honey by apiary size class; (viii) beekeeping efficiency in terms of
apiary income per bee family and beekeeper.
Descriptive statistics: mean, standard deviation, and variation coefficient were used to empirically
characterize the number of bee families, honey production, honey yield, and income from
marketed honey at region level.
The Pearson correlation coefficient as well as the linear regression function, Y= bx + a, were used
to analyze the link between various economic indicators, mainly honey production and income.

Beekeepers status by age. At Region level, the 140 respondents belonged to all the age
categories. 34.28 % respondents belong to the category 41-50 years, 22.86 % are between 51-60
years old and 20.72 % are older than 60. The beekeepers older than 40 are in IL County (85 %), in
PH County (80 %) and in TR County (75 %). The beekeepers younger than 40 are in GR County
(30%) and CL County (25%).(Table 1).
Table 1: Beekeepers' dispersion by age class, South Muntenia Region, Romania, 2015
Total MU 20-30 31-40 41-50 years 51-60 years Over 60

region Years Years years
140 Frequency 6 25 48 32 29
100.0 % 4.28 17.85 34.28 22.86 20.72
Source: Field Survey, Own calculation.
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This reflect that beekeeping is a more attractive activity for the older people than for the young
people, as long as just 4.28 % of the respondents belonged to the age category 20-30 years and
17.85 % to the 31-40 years. The average age in the Region is 49 years.
Beekeepers status by gender. In the South Muntenia Region, 85 % of the beekeepers included in
the sample were males and just 15 % were females. In AG and IL Counties, the male beekeepers
are dominant ( 90%), while in CL County 75 % are males and 25 % females.(Table 2).
Table 2: Beekeepers' dispersion by gender, South Muntenia Region, Romania, 2015
Total region MU Male Female

140 Frequency 119 21
100.0 % 85 15
An explain could be that women have duties in the house (cleaning, cooking, washing, taking care
of grandchildren and have not enough time to work in the apiary). Men, apparently, have not so
many tasks in the house, and they prefer to work in the apiary. However, at the moment of the
honey extraction or in other moments of hard work, the whole family gives a help in hand.
Beekeepers status by education level. At the region level, most of the respondents, more exactly
60.71 % are high school leavers, 24.28 % graduated a faculty and just 15.01 % leaved a
professional school. (Table 3).
Table 3: Beekeepers' dispersion by education level, South Muntenia Region, Romania, 2015
Total region MU High school Higher education Professional

school
140 Frequency 85 34 21
100.0 % 60.71 24.28 15.01
About 40 % of the high school leavers attended an apicultural high school where they had the first
contact with beekeeping theoretically and practically in the school farm. The beekeepers from the
2nd category graduated faculties of various profiles (agriculture, animal science, land reclamation,
mechanics, economics, informatics, constructions, transportation etc). The respondents who
attended 10 classes at a professional school are mainly technicians in agriculture, veterinary
medicine, food industry, animal science, electro-techniques etc). Therefore, even thou in many
cases the profile of their education has nothing in connection with beekeeping, the respondents
developed a hobby for this sort of activity, at the suggestion of their relatives and friends who are
involved in this business too.
Beekeepers' reasons to practice apiculture. The main reasons which determined the respondents
to become beekeepers have been the following ones: (i) to get additional income besides the actual
income source (pension, salary); (ii) the lack of a job, in case of the young apiculturists; (iii)
beekeeping is a hobby for many respondents who graduated agricultural faculties or high schools,
but also for some of the ones who had contact with beekeepers as friends or relatives; (iv) the wish
to stay in fresh air, in the middle of nature to practice an interesting, relaxing, useful, sustainable
and environmentally friendly activity, which requires just a small land surface and allows natural
resource conservation and in addition could bring a benefit for health and savings; (v) other
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reasons (to escape from fulfilling duties in the household, fascination to watch the perfect
organization of the bee family etc).
At the region level, 77.86 % respondents justified that they practice beekeeping to get an
additional income besides the present one, 8.58 % respondents could not find a job yet, 6.43 % of
respondents have a hobby for apiculture, 4.28 % respondents prefer living and working outdoor
and 2.85 % had other reasons. (Table 4).
Table 4: Beekeepers' reasons to practice beekeeping, South Muntenia Region, Romania,

2015
Total MU To get The lack Hobby for Love for Other

region additional of a job beekeeping living and reasons
income working
outside
140 Frequency 109 12 9 6 4
100.0 % 77.86 8.58 6.43 3.28 2.85
Respondents' experience in beekeeping. To practice beekeeping in Romania it requires a

certificate which must attest that you attended a course in order to get knowledge and skills in this
area. Even fulfilled this obligation, many years are needed to become an experienced apiculturist.
For this reason, at the beginning, it is recommended as the young beekeepers to learn from an old
beekeeper working next to him in the apiary or to consult the experienced beekeepers every time is
needed.
In the South Muntenia Region there are many experienced apiculturists, a guarantee to teach the
others who would like to be more effective and their business to grow.
At the region level, 33.57 % respondents are dealing with beekeeping for 6-10 years, 28.57 % for
11-15 years, 14.28 % for 16-20 years and 8.57 % have the longest experience, more than 20 years
in apiculture. About 15 % are " young" beekeepers with an experience of 1-5 years. The longest
experienced beekeepers with over 15 years in this business are in GR County (35 %) and in TR
County (30%), and the counties with a short experience (less than 5 years) in the field are: CL and
TR (20% each county).(Table 5).
Table 5: Beekeepers' dispersion by experience in beekeeping, South Muntenia Region,

Romania, 2015
Total MU 1-5 years 6-10 11-15 years 16-20 years Over 20

region years years
140 Frequency 21 47 40 20 12
100.0 % 15.00 33.57 28.57 14.28 8.57
Beekeepers' dispersion by the number of bee families. At the region level, 67.85 % respondents
mentioned that they have between 51-100 bee families, 20.71 % have apiaries with less than 50
bee colonies and 11.42 % have more than 100 bee families. The county with the highest share of
apiaries with more than 100 bee families is DB County (20 %) and the counties with the lowest
number of bee families are DB and TR, each one with 10 %. The AG County has no apiaries with
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less than 50 bee families, reflecting a higher apiary size., while PH County has no apiaries over
100 bee families (Table 6).
Table 6: Beekeepers' distribution by number of bee families, South Muntenia Region,

Romania, 2015
County MU Less than 50 51-100 bee Over 100 bee Total

bee families families families
AG Frequency 0 16 4 20
% 0 80 20 100.0
CL Frequency 5 13 2 20
% 25 65 10 100.0
DB Frequency 2 14 4 20
% 10 70 20 100.0
GR Frequency 7 11 2 20
% 35 55 10 100.0
IL Frequency 5 13 2 20
% 25 65 10 100.0
PH Frequency 8 9 0 20
% 40 12 0 100.0
TR Frequency 2 60 2 20
% 10 80 10 100.0
Total Region Frequency 29 95 16 140
% 20.71 67.85 11.42 100.0
The distribution of bee families by county in the chosen sample, in the decreasing order was
the following one: 17.4 % AG, 14.9 % TR, 13.7 % CL and IL, 12.9 % GR and 10.9 % PH. (Table
7).
Table 7: Bee families' distribution by county, South Muntenia Region, Romania, 2015
AG CL DB GR IL PH TR Total
Frequency 1,846 1,446 1,746 1,370 1,443 1,155 1,576 10,582
% 17.4 13.6 16.5 12.9 13.7 10.9 14.9 100.0
Distribution of the bee families by apiary size. At the region level, 71.02 % apiaries belonging
to the respondents have a size ranging between 51-100 bee colonies, 18.02 % apiaries have more
than 100 bee families and 10.96 % apiaries have less than 50 bee colonies. The county with the
highest number of bee families in the category more than 100 bee colonies is DB County which
has 606 apiaries (34.7%) of the total number in the region. The county with the lowest number of
apiaries with more than 100 bee families is TR County (9.6 %).
The highest number of bee families in the category 51-100 was found in AG County and the
lowest number of bee families was found in PH County (54%). The beekeepers with the lowest
number of bee families in the category less than 50 bee colonies/apiary represent 2.8 % in DB
County and 4.4 % in TR County (Table 8).
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Table 8: Bee families' distribution by apiary size, South Muntenia Region, Romania, 2015
County MU < 50 bee 50-100 bee > 100 bee Total

families families families
AG No. 0 1,391 455 1,846
% 0 75.3 24.7 100.0
CL No. 250 956 240 1,446
% 17.3 66.1 16.6 100.0
DB No. 48 1,092 606 1,746
% 2.8 62.5 34.7 100.0
GR No. 250 890 230 1,370
% 18.3 64.9 16.8 100.0
IL No. 132 1,086 225 1,443
% 9.2 75.2 15.6 100.0
PH No. 410 745 0 1,155
% 35.5 64.5 0 100.0
TR No. 70 1,356 150 1,576
% 4.4 86.0 9.6 100.0
Total Region No. 1,160 7,516 1,906 10,582
% 10.91 71.02 18.02 100.0
Distribution of honey production by apiary size. At the region level, the highest honey
production was obtained by the apiaries with 50-100 bee families, 68.81 %, followed by the
apiaries with over 100 bee colonies, 23.21 % and finally, the apiaries with less than 50 bee
colonies with a share of 7.98 %. The county with the highest honey production was DB County
whose production represented 26.25 % of the region output. The increased number of bee families
has favored honey production compared to other counties. The lowest honey production was
recorded in CL County ( 7.6 % of the region production). By farm size, the beekeepers with apiary
size 50-100 bee families recorded the highest production, 218,554 kg ( 68.8 % of region output,
317,592 kg). In the category with less than 50 bee families, DB County recorded the lowest
production (1,776 kg) and PH County the highest one (9,342 kg). Of course, every year honey
production depends on various factors such as: the number of the bee families, the picking
opportunities in close relationship with the weather conditions, beekeeper managerial experience
etc.(Table 9).
Table 9: Honey production distribution by apiary size, South Muntenia Region, Romania,
2015

AG Kg 0 42,967 17,215 60,182
% 0 71.5 28.5 100.0
CL Kg 4,425 15,740 4,000 24,165
% 18.3 65.1 16.6 100.0
DB Kg 1,776 51,517 30,080 83,373
% 2.1 61.7 36.2 100.0
GR Kg 4,860 15,990 5,750 26,600
% 18.3 60.0 21.7 100.0
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IL Kg 3,140 30,294 10,800 44,234

% 7.1 68.4 24.5 100.0
PH Kg 9,342 27,420 0 36,762
% 25.4 74.6 0 100.0
TR Kg 1,800 34,626 5,850 42,276
% 4.2 81.9 13.9 100.0
Total Region Kg 25,343 218,554 73,695 317,592
% 7.98 68.81 23.21 100.0
Distribution of honey yield by apiary size. Honey yield is a result of honey production divided
by the number of bee families and it is an indicator reflecting economic efficiency in an apiary,
among other indicators. At the region level, the average honey output in the selected sample was
30.01 kg/bee family. In the apiaries with less than 50 bee families, the honey yield was 21.8
kg/bee family, in the apiaries with 50-100 bee colonies, the yield accounted for 29.1 kg/bee
colony, and in the largest apiaries with more than 100 bee families, the yield was 38.6 kg/ bee
family.(Table 10).
Table 10: Honey yield distribution by apiary size, South Muntenia Region, Romania, 2015

AG Kg/bee family 0 30.9 37.8 32.6
% diff. 0 94.7 115.9 100.0
CL Kg/bee family 17.7 16.5 16.6 16.7
% diff. 105.9 98.8 99.4 100.0
DB Kg/bee family 37.0 47.1 49.6 47.7
% diff. 77.5 98.7 103.9 100.0
GR Kg/bee family 19.4 17.9 25.0 19.4
% diff. 100.0 92.2 128.8 100.0
IL Kg/bee family 23.7 27.8 48 30.6
% diff. 77.4 90.8 156.8 100.0
PH Kg/bee family 22.7 36.8 0 31.8
% diff. 71.3 115.7 0 100.0
TR Kg/bee family 25.7 25.5 39 26.8
% diff. 95.8 95.1 145.5 100.0
Total Kg/bee family 21.8 29.1 38.06 30.01
Region
% diff. 72.6 96.9 128.6 100.0
Source: Field Survey, Own calculation. Note: % diff. compared to honey yield at county level.
Analyzing the situation by county, in the apiaries with over 100 bee families, it was noticed that
the highest yield was registered in DB County ( 49.6 kg/bee family) and IL County (48 kg/bee
colony) and the lowest yield was recorded in CL County (16.6 kg/bee colony).
These differences are explained by the weather conditions which had a deep influence on pickings.
While in DB and IL the weather was fine assuring a good picking, in CL County, the pickings
were affected by powerful droughts, and from time to time by rainfalls and storms. A similar
926
situation was noticed in GR County. Also, in DB County there are large surfaces covered by
orchards and wild flora compared to the other counties, honey production was good.
In the apiaries whose size was 50-100 bee families, the highest yield was recorded in DB (47.1
kg/bee colony), and the lowest yield in CL (16.5 kg/bee family), due to the same causes. In the
apiaries with less than 50 bee colonies, the highest yield was found in DB County ( 37 kg/bee
family) and the lowest yield in CL County (17.7 kg/bee family) for the same reason.
Honey average selling price. Producers' gate price accounted for Euro 3.14/honey kg in average
at the region level, and it ranged between Euro 3.02/kg in DB County, where the high output
determined a lower price than in the other counties, and Euro 3.24/kg in PH County.(Table 11).
Table 11: Honey average selling price, South Muntenia Region, Romania, 2015
AG CL DB GR IL PH TR Total
region
Euro/kg 3.17 3.21 3.02 3.12 3.14 3.24 3.13 3.14
honey
% Diff. 100.9 102.2 96.1 99.3 100.0 103.8 99.7 100.0
Source: Field Survey, Own calculation. Note: % diff. compared to the average region price.
Honey price is influenced by honey sort (acacia, lime, sunflower, rape, polyfloral, etc), honey
demand/offer ratio, honey quality. Acacia honey has the highest price, but production usually
represents about 23-25 % of the total honey production. In the descending order, the other types
of honey according to honey price are: sunflower, polyfloral, lime etc. Usually in Romania, honey
consumption is small, despite that in the last decades it increased and at present it is about 0.5
kg/inhabitant/year. Under these conditions, when honey production is high, producer's price is
small on the domestic market, and beekeepers are interested to sell their production mainly to
export to get a better price.
Beekeepers' distribution by income class. In the chosen sample, 24.2 % respondents mentioned
that they got between Euro 2,001-4,000 income from marketed honey, 18.5 % registered an
income between Euro 4,001-6,000, 15 % respondents received between Euro 6,001-8,000, and 10
% obtained the lowest income, less than Euro 2,000. (Table 12).
However, the share of these beekeepers mentioned above totalizes 67.7 %. The remaining of 32.3
% represent the respondents with an income higher than Euro 8,000. The respondents with the
highest income, Euro over 15,000, represent 5 % of the 140 selected apiarists. The county with
the highest number of "rich" beekeepers is DB County, where 15 respondents recorded over Euro
10,000/apiary. (Table 12)
Income is determined by the amount of honey sold in the market, by the chosen marketing channel
(direct sale to clients is better preferred, assuring the highest price compared to the delivery to
various processing units or Beekeepers Association).
Also, income is influenced by honey price in close relationship with honey type, quality and sale
season. Each beekeeper is interested to get a better price, and for this reason, almost every
apiculturist has a permanent panel of clients assuring him the highest sales. Also, new clients are
welcome, and usually, the present clients recommend their friends the beekeeper where they used
to buy honey.
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Table 12: Beekeepers' distribution by income class, South Muntenia Region, Romania, 2015
Income class MU AG CL DB GR IL PH TR Total % of

total
sample
<2,000 No. 0 4 0 2 5 2 1 14 10.0
2,001-4,000 No. 0 9 1 11 6 6 1 34 24.2
4,001-6,000 No. 1 5 1 3 2 5 9 26 18.5
6,001-8,000 No. 5 1 3 4 1 2 5 21 15.0
8,001-10,000 No. 7 1 0 0 2 1 2 13 9.2
10,000-12,000 No. 3 0 3 0 3 2 1 12 8.5
12,001-15,000 No. 4 0 7 0 0 2 0 13 9.2
>15,000 No. 0 0 5 0 1 0 1 7 5.0
Total 140 100.0
Income from marketed honey by apiary size. At the region level, in this sample, this income
accounted for Euro 950,897 of which 69.3 % came from the beekeepers with 50-100 bee families,
22.57 % from the ones with over 100 bee families and 8.12 % from the ones with less than 50 bee
families per apiary. (Table 13).
Table 13: Income from marketed honey by apiary size, South Muntenia Region, Romania,
2015
County MU < 50 bee 50-100 bee > 100 bee Total % of total
families families families County region
AG Euro 0 137,467 53,596 191,063 20.1
% 0 71.9 28.1 100.0 -
CL Euro 12,134 47,851 10,500 70,485 7.4
% 17.2 67.8 15.0 100.0 -
DB Euro 5,861 149,469 88,094 243,424 25.5
% 2.4 61.3 36.3 100.0 -
GR Euro 15,476 49,606 18,075 83,157 8.8
% 18.6 59.6 21.8 100.0 -
IL Euro 8,005 76,195 26,970 111,170 11.8
% 7.2 68.4 24.4 100.0 -
PH Euro 30,185 89,502 0 119,687 12.5
% 25.2 74.8 0 100.0 -
TR Euro 5,580 109,016 17,315 131,911 13.9
% 4.2 82.6 13.2 100.0
Total Euro 77,241 659,106 214,550 950,897 100.0
% 8.12 69.31 22.57 100.0 -
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In the apiaries with over 100 bee colonies, the highest income was recorded by the respondents
from DB, and the lowest income was obtained by the respondents from CL. The respondents from
PH County had no income from this category of apiaries.
In case of the apiaries with 50-100 bee families, the highest income was recorded by the
beekeepers from DB and AG, and the lowest income by the respondents from CL.
In case of the apiaries with less than 50 bee families, the highest income was registered by the
beekeepers from PH County, and the lowest one by the ones from TR. Also, the apiculturists from
AG County had no income from this category of apiaries.(Table 13).
Efficiency in beekeeping in terms of average income per bee family and per beekeeper. At
the region level, the income per bee family accounted for Euro 89.8/bee family and Euro 6,792.12
per beekeeper/year.
The highest income per bee family was recorded by the respondents from DB County (Euro
139.4), by 55 % higher than the average income at the region level. Also, the beekeepers from PH
and AG Counties recorded Euro 103.5/bee family. The lowest income per bee colony was
registered by the apiculturists from CL County (Euro 48.7).
The beekeepers from DB received Euro 12,171 income from delivered honey, by 79 % more than
the average income at the region level. In AG County, the beekeepers got Euro 9,553.15, being
followed by the ones from TR County, Euro 6,595.55. In IL and GR Counties, the income per
beekeeper was Euro 5,558, and, respectively, Euro 4,157.8, enough satisfactory, while in CL
County it was recorded the lowest income per beekeeper, just Euro 3,524.2.(Table 14).
Table 14: Average income per bee family and per beekeeper, South Muntenia Region,
Romania, 2015
County Total income No. of bee Average No. of Average

(Euro) families income/ beekeepers income per
bee family beekeeper
(Euro/bee (Euro/apiarist)
family)
AG 191,063 1,846 103.5 20 9,553.15
CL 70,485 1,446 48.7 20 3,524.25
DB 243,424 1,746 139.4 20 12,171.20
GR 83,157 1,370 60.6 20 4,157.85
IL 111,170 1,1443 77.0 20 5,558.50
PH 119,687 1,155 103.6 20 5,984.35
TR 131,911 1,576 83.7 20 6,595.55
Total region 950,897 10,582 89.8 140 6,792.12
Source: Own calculation based on Field Survey.
The main problems in beekeeping mentioned by respondents have been:

(i)High price for apiary inputs (equipment, mainly for honey extraction, storage and hives
transportation, rent in pastoral);
(ii) the delayed announcement of crop spraying, which caused damages to the number of bee
families and honey quality;
(iii)climate change with extreme phenomena (high temperatures, droughts, rainfalls, storms)
affecting pickings, honey production and quality;
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(iv) more hybrids of the field crops with self pollination, which do not allow the bee families to
pick up the nectar from lowers;
(v) low subsidies and usually not paid in time;
(vi) the appearance of the loss of bee families in the last years ( Colony Collapse Disorder);
(vii) bureaucracy for getting subsidies.
Descriptive statistics for Number of bee families by apiary size is presented in Table 15. It
shows that in the chosen sample, the average number of bee families was 75.58/apiary, more than
double compared to the 30 bee families/apiary in the South Muntenia Region.
The 29 beekeepers with less than 50 bee colonies/apiary are keeping 40 bee families in average.
The ones with 50-100 bee colonies/apiary have 79.11 bee families/apiary, while the beekeepers
with the largest apiaries keep 119.12 bee families in average.
The minimum number of bee families/apiary was 20 and the maximum number was 150.(Table
15).
Table 15: Descriptive statistics for the number of bee families by apiary size, South
Muntenia Region
Statistics <50 bee 50-100 bee >100 bee Total sample

families/apiary families/apiary families/apiary
Mean 40.00 79.11 119.72 75.58
Stand. Deviation 6,813 14,905 12,473 25,832
Minimum 20 50 105 20
Maximum 48 100 150 150
Var. Coef.(%) 17.03 78.84 10.47 34.17
Sum 1,160 7,516 1,906 10,582
N 29 95 16 140
Source: Own calculation based on Field survey.
Descriptive statistics for Honey production by apiary size is presented in Table 16. the 29
beekeepers with apiaries less than 50 bee families registered 873.89 kg honey in average. The 95
beekeepers with 50-100 bee families/apiary recorded 2,300.56 kg honey, while the ones with the
largest apiaries achieved 4,605.93 kg/apiary. The mean of the sample was 2,268.51 kg honey.
The variation of honey production according to the apiary size is very high and even inside the
same category of apiary size. (Table 16).
Table 16: Descriptive statistics for honey production by apiary size, South Muntenia Region

Mean 873.89 2,300.56 4,605.93 2,268.51
Stand. Deviation 392.428 1,087.577 1,644.355 1,469.09
Minimum 200 500 1,200 200
Maximum 1,776 4,840 7,000 7,000
Var. Coef.(%) 45.02 47.27 35.70 64.75
Sum 25,343 218,554 73,695 317,592
N 29 95 16 140
930
Descriptive statistics for Honey yield by apiary size. At the sample level, the honey yield was
28.57 kg/bee family in average. Honey yield is higher in the largest apiaries, the mean increases
from 21.62 kg in the smallest apiaries to 38.62 kg in the largest ones. Honey yield varies very
much in connection with apiary size as confirmed by the variation coefficients (Table 17).
Table 17: Descriptive statistics for honey yield by apiary size, South Muntenia Region

Mean 21.62 29.00 38.62 28.57
Stand. Deviation 8,574 12.557 12.701 12.677
Minimum 7 10 10 7
Maximum 42 55 55 55
Var. Coef.(%) 39.65 43.30 32.88 44.37
Sum 627 2,755 618 4,000
N 29 95 16 140
Descriptive statistics for Income by apiary size. At the sample level, the average income was
Euro 6,792.12/apiary. The higher the apiary size, the higher income. It increases from Euro
2,663.48/apiary in the smallest apiaries to Euro 13,409.37 in the largest apiaries. The variation of
income from an apiary to another is high and closely connected to apiary size.(Table 18).
Table 18: Descriptive statistics for Income by apiary size, South Muntenia Region

Mean 2,663.48 6,937.95 13,409.37 6,792.12
Stand. Deviation 1,363.62 3,377.965 4,506.633 4,346.723
Minimum 450 1,200 4,200 450
Maximum 5,861 14,850 19,600 19,600
Var. Coef.(%) 51.19 48.68 33.60 63.99
Sum 77,241 659,106 214,550 950,897
N 29 95 16 140
The Pearson correlation coefficients reflect a strong positive and significant relationship
between honey production and income ( r= 0.973) and between honey yield and income ( r=
0.837). Also, the number of bee families is an important determinant for honey production ( r=
0.730) and for income (r=0.725). It was found a positive and low correlation between the number
of bee families and honey yield (r=0.339). (Table 19).
Table 19: Correlation coefficients between various economic indicators, South Muntenia
Region
Specification r=Correlation coefficient Significance

No. of bee families x Honey Production 0.730 **
No. of bee families x Honey Yield 0.339 *
No. of bee families x Income from sold honey 0.725 **
931
Honey production x Income 0.937 ***

Honey yield x Income 0.837 ***
The linear regression function calculated for various pairs of economic indicators is presented in
Table 20. The values of the determinants confirm that honey production and honey yield are the
key factors which have a strong positive influence on beekeepers' income (R2 =0.948, and,
respectively, 0.702). The number of bee families has about 50 % influence on honey production
and income, but it has a lower impact on honey yield (R2 = 0.115).
Table 20: Linear regression function reflecting the relationship between various economic
indicators in beekeeping, South Muntenia
Specification Intercept A X Variable 1 Linear regression Coefficient of

function determination
Y= bx + a R2
No. of bee families x 46.430 0.0128 Y=0.0128 X +46.430 0.534
Honey Production
No. of bee families x 55.810 0.6921 Y=0.0128X +55.810 0.115
Honey yield
No. of bee families x 46.3816 0.00431 Y=0.00431 X +46.2816 0.527
Income
Honey production x 33.354 0.32908 Y=0.32908 X +33.354 0.948
Income
Honey yield x Income 11.972 0.00244 Y=0.00244 X +11.972 0.702
Conclusions
The study pointed out that the key factor influencing beekeepers' income is honey production. The
number of bee families is also important, because an apiarist with more bee colonies could get a
higher production.
The analysis in the chosen sample of 140 apiarists proved a high potential for producing honey in
the South Muntenia Region, the average honey production/apiary being double than the actual
mean at the region level.
Income is higher in the largest apiaries, proving that the largest apiaries, mainly with over 100 bee
families, are more effective than the apiaries with less than 50 bee colonies.
For increasing their income, beekeepers should grow honey production and also to practice
production diversification in order to obtain and sell more bee products.
To grow honey production, beekeepers should consider the following recommendations: (i)to
increase the number of bee families and hives per apiary, either buying or producing their own
swarms if they have powerful bee colonies; (ii) to assure high value bee queens; (iii) to assure a
corresponding feeding to their bee families, first, by good and diversified pickings both in
stationary and in pastoral, and secondly, to assure supplements of bio-stimulators in the period of
weak or lack of pickings; (iv) to produce a large variety of honey sorts, because honey price
depends of the type of honey; this means the hives transportation in pastoral in various regions
with a diversified flora; (v) to pay attention to honey quality, also closely related to price; (vi) to
932
think more to organic honey which is better paid, but this imposes the official recognition and
certification of their apiaries as practicing organic beekeeping; (vii) to avoid pickings in the areas
where crops were sprayed, as the intoxications with pesticides and other chemicals could diminish
the number of bee families, and implicitly honey production and income; (viii) to assure a good
maintenance of the bee families along the year and mainly in winter season when temperatures are
very low; (ix) to make the corresponding treatments if it is needed; (x) to apply for National Bee
Programme and EU Bee Programme for getting financial support to modernize their apiaries ( new
bee families, modern bee hives, equipment for honey extraction, storage and transportation etc);
(xi) to improve their knowledge and skills asking for advice from the experts of National Research
and Development Institute for Apiculture and exchanging ideas with the old experienced
apiculturists; (xii) to create "Honey Houses" in each county, where honey to be collected, bottled,
labeled and marketed under the local brands; (xiii) to intensify the promotion of honey by various
means: mass media, brochures, flyers, fears of bee or agricultural products or on other occasions;
(xiv) to look for a higher honey price by extending their panel of clients and export more honey on
the international market.
Acknowledgements
The author thanks all the beekeepers who were interested to take part to this research, to put at the
disposal the required data by filling the questionnaires. All their support to set up this paper is
gratefully acknowledged.
References
Apiculture Statistics, National Institute of Statistics, Romania, (2016), http//:www.insse.ro,
Retrieved on August 5, 2016.
Balteanu, D., Badea, L., (2005), 'Romania-space, society and environment', Academy Press House
Beldescu, A., Dumitrescu Marie-Jeanne, (2012), 'Honey', Romania Trade and Invest, CRPCIS,
pp.4-12
Busega, I., (2014), 'Demo-economic restructuring in South-Muntenia development region. Causes

and effects on the regional economy', Theoretical and Applied Economics, Volume XXI (2014),
No. 9(598), pp. 83-92.
Dugalić-Vrndić, N., Kečkeš, J., Mladenović, M., (2011), 'The authencity of honey in relation to
quality parameters', Biotechnology in Animal Husbandry, Vol. 27, no. 4, pp. 1771-1778.
Eteraf-Oskouei, T.,, Najafi, M., (2013), 'Traditional and Modern Uses of Natural Honey in Human
Diseases: A Review', Iran J. Basic Med.Sci, 2013, June, Vol.16(6):731-742.
Gheorghe, I., G., Sima, V., (2014), 'Labour market analyze in the South Muntenia Region in the
context of sustainable development', Annals of the „Constantin Brâncuşi” University of Târgu Jiu,
Economy Series, Special Issue /2014- Information society and sustainable development, pp.124-
130.
Kothari, C.R, (2004), 'Research Methodology, Methods and Techniques', 2nd revised edition,
New Age International Publishers, New Delhi India, pp.172-180.
Report on Apiculture Status (2015), Ministry of Agriculture and Rural Development,

http//:www.madr.ro, Retrieved on August 1, 2016
933
Socio economic analysis of South Muntenia Region, MARD, (2013), http//:www.madr.ro,

Retrieved on August 1, 2016
South Muntenia, Agency for Regional Development, (2016)

http://www.adrmuntenia.ro/static/10/detalii-despre-regiunea-sud-muntenia-si-harti.html, Retrieved
August 10, 2016
Stihi, C., Radulescu, C., Chelarescu, E.D., Chilian, A., Toma, L.G., (2013), Characterization of
Nectar Honeys According to Their Physicochemical Parameters and Mineral Content, Rev. Chim.,
Vol.64 (9):1000-1003
Tull, D.S., Hawkins, D.I., (1976), 'Marketing research, Measurement and method'. Macmillan
Publishing Company, 4th edition, p.207-2014.
934
Regression and Elasticity of the Average Delivery Price and

Production of Honey in Romania
Agatha Popescu, University of Agricultural Sciences and Veterinary Medicine, Bucharest,

Romania
agatha_popescu@yahoo.com
Abstract
The paper aimed to analyze the average delivery price of honey and its relationship with honey
production in Romania, an important honey producer and exporter of the EU. In this purpose, the
empirical data provided by the National Institute of Statistics for the period 2000-2015 were used
to calculate the statistical parameters, correlation, regression as well as the elasticity coefficients.
The Pearson correlation coefficient was r=0.848, reflecting that honey price at beekeepers' gate is
positively and strongly correlated with honey production. The determined price-production
regression model is Y = 0.432624113 - 1,317.253546 X, and Fisher's test proved its validity. In
the two variants, V1 and V2, the price elasticity coefficients varied from a year to another, being
higher when the year 2000 was considered term of reference. In case of V1, honey had a more
elastic price than an inelastic one, while in case of V2, honey had a more inelastic than an elastic
one. Price-production regression is helps to better identify the relationships between these
economic indicators. The three scenarios for different growth rates for honey production pointed
out that the scenario S2, where production growth rate will be 8 %, the average growth rate
recorded in the period 2011-2015, in the year 2020, honey price could reach Lei 13,916/Ton, by
7.04 % more than in 2015.The price volatility could affect beekeeping efficiency, honey
production and offer, consumption and trade. But, the positive relationship between honey
production and its selling price encourage the beekeepers to keep more bee families and produce
more honey.
Keywords: honey, average delivery price, production, regression, elasticity, Romania
Introduction
Honey is an important and healthy food for humans, a raw material for industry and the main
income source for beekeepers (Magdici et al., 2015).
The world honey market is continuously growing, being influenced both by positive and negative
factors such as: honey consumption, production, weather conditions, financial stress, international
trade barriers (Phipps, 2012).
In 2013, honey production reached 1.7 million tonnes, being by 13.6 % higher than in 2007 (Baloi
et al., 2012). Asia is on the top contributing by 45 % the world honey production, and Europe
comes on the 2nd position 22 % market share. The world export accounted for 583 thousand
tonnes by 42 % more than in 2007 and Europe's contribution was 28.8 %. Also, honey import
increased reaching 574 tonnes in 2013, by 36.5 % more than in 2007. Europe is the main honey
importer (53 % of the world import)(FAOSTAT, 2016).
Romania carried out 26,678 tonnes honey (13.09%), coming on the 2nd position in the EU-28
after Spain and it is on the 4th postion concerning the number of bee families, and on the 6th
position for honey export (54,316 thousand tonnes, 7.8 %) after Germany, Spain, Hungary,
Belgium and Italy (Mierlita et al.,2014).
935
Romania has a positive honey trade balance (+ USD 48,800 thousand), export value exceeding 9.8
times import value (FAOSTAT, 2016).
Honey price registered a substantial growth, but is is still lower in the domestic market compared
to the international markets. As domestic consumption is low, about 0.5 kg honey/inhabitant,
compared to the Western European countries, more than 70 % of honey production is exported.
The relashionship between honey production and demand is closely related to honey price. For
beekeepers, the price of honey at delivery is very important as they need a corresponding income
to cover production cost and get profit.
For this reason, the relationship between honey production and price at delivery has to be studied
in terms of elasticity. Price elasticity is the relative feed-back of production to honey price change.
The estimation of the production-price elasticity coefficients is more precise using regression
production on price (Scott, 2013).
In this context, the objective of the paper was to analyze the dynamics of average price of honey
(price at beekeepers's gate) and honey marketed production in Romania using the empirical data
for the period 2000-2015 and to characterize the link between honey price and production based
on regression statistics and elasticity coefficients.

Data collection. The empirical data were collected from Romania's Statistical Yearbook, for the
period 2000-2015. The data regard the average acquisition price of honey ( beekeeper's gate
price) in Lei/kg and honey production ( tons).
Note. Lei = Romanian currency, 1 USD = Lei 3.98, 1 Euro = 4.53, (National Bank of Romania,
Sept.2016).
Methodology
The descriptive statistics for the two economic indicators mentioned above included: average,
median, standard error, standard deviation, variance, kurtosis and skewness and variation
coefficient
(Iosifescu et al., 1985).
The Pearson correlation coefficient was determined using the formula:
r=
∑ (x − x )(y − y )
∑ (x − x ) ∑ (y − y )
2 2
(1)
The regression statistics and analysis were achieved to characterize the connection between
average honey price at delivery (Lei/Ton) and honey production (Tons). The relationship between
the dependent variable Y and the independent variable X was reflected by Multiple R-Regression,
R2 quantifying how much of the correlation R is determined by Y or X, and the Adjusted R
squared was needed to make the corresponding corrections to R2 in close connection with the
number of X and Y variables.
The Regression Analysis required to determine the Standard Error of the estimate, the parameters
a and b of the linear regression, and ANOVA.
936
The result of the R significance test was interpreted as follows: If the Sig. value will be > 0.05, the
null hypothesis will be accepted, therefore the hypothesis that, between the dependent variable Y
and the independent variable X it is a significant relationship, must be accepted. The null
hypothesis will be rejected and the hypothesis that between the dependent variable Y and the
independent variable X is a significant relationship will be not accepted, if Sig. value < or = to
Fisher's critical value from tables for P=0.05. (Anghelache et al., 2013).
The price elasticity coefficient (E) was determined in two variants:
V1- E- The term of reference was considered the value of the variable in the year 2000, both
for the variable X and the variable Y.
Considering the general formula of the elasticity coefficient as E=∆Y%/∆X%, reflecting the
percentage change of the variable Y when the variable X changes 1 %, in case of V1, the elasticity
coefficient (E) was determined based on the formula:
E=((yi - yo)/ yo)/ ((xi - xo)/ xo) (2)
where
yo = the variable for average acquisition price of honey in the year 2000, yi =the variables for
average acquisition price of honey in the year i of the chronological series, xo= the variable for
honey production in the year 2000, xi= the variables for honey production in the year i.
V2- E' - The term of reference was represented by each variable of the chronological series. The
elasticity coefficient (E) was determined using the formula:
E' = ((yi - yi-1)/ yi-1)/ ((xi - xi-1)/ xi-1) (3)
where yi-1 is the previous term of the series for average purchasing price of honey and xi-1 is the
previous term of the series for honey production.(Cook, 2009).
Forecast for honey production and price for the period 2016-2020 was set up in three
scenarios (S) based on three growth rates for honey production: S1- 20 %, the average growth rate
registered in the period 2000-2015, S2 - 8 % growth rate, the average increase rate in the period of
the last five years, 2011-2015 of the analysis and S3- 10 % growth rate. In this purpose, it was
used the regression function determined in the study.

The average price of honey at delivery increased 4.48 times in the analyzed period from Lei
2,900/Ton in the year 2000 to Lei 13,000/Ton in the year 2015. In general, it recorded an
increasing trend, except the inflexion of the trend curve in the year 2005, when the price declined
from Lei 6,710 in the year 2004 to Lei 4,100 (- 39 %). Since 2006, the average price of honey at
the beekeepers' gate has continuously increased ( Fig.1).
937
Figure 1: The evolution of average price of honey at delivery in Romania, 2000-2015

(Lei/Ton)
Source: Own design based on the empirical data, National Institute of Statistics, Romania.
In the period 2000-2015, the average honey price was Lei 7,451.875, with a standard deviation
3,069.328, and a median 7,095. The variation coefficient was 41.18 % reflecting a large difference
in price level from a year to another (Table 1).
Table 1: Statistical parameters of average price of honey at delivery, 2000-2015
Statistical parameter Value Statistical parameter Value

Mean 7,451.875 Kurtosis - 1.01587
Standard Error 767.3321 Skewness 0.35294
Median 7,095 Minimum 2,900
Standard Deviation 3,069.328 Maximum 13,000
Variance 9,420,776.25 Variation Coefficient 41.18
Source: Own calculations based on the empirical data, National Institute of Statistics, Romania.
The honey production has recorder a sinuous trend during the analyzed period. In general, it was
noticed an increasing trend, from 11,746 tons in the year 2000 to 24,000 tons in the year 2015.
The maximum production accounted for 34,999 tons being recorded in the year 2014.
However, the evolution of honey production was marked by a decline of production in the year
2005 (-8 %, compared to the production in 2004), in 2007 (-8 %, compared to the production in
2006), in 2009 ( -1 % compared to the production in 2008), in 2012 ( - 4.5 % compared to the
production in 2011), in 2015 ( -32 % compared to the production in 2014). The main causes of
these declines were the higher and higher temperatures and strong droughts and other extreme
meteorological phenomena such as strong rainfalls and storms recorded during the last decade in
connection with global climate change. Also, in the last years, it was noticed the loss of bee
families (Colony collapse disorder) due to stress and polluted crops. All these factors have
negatively affected honey output in some measure. (Fig.2).
938
Figure 2: The evolution of honey production, Romania, 2000-2015 (Tons)

Table 2: Statistical parameters of honey production, 2000-2015
Statistical parameter Value Statistical parameter Value

Mean 20,269.625 Kurtosis 1.180
Standard Error 1,504.572 Skewness 0.873
Median 19,543.5 Minimum 11,746
Standard Deviation 6,018.288 Maximum 34,999
Variance 36219796.65 Variation Coefficient 29.69
The mean of honey production in the analyzed period accounted for 20,269.625 tonnes, with a
standard error 1,504.572, a standard deviation 6,018.288 and a variation coefficient 29.69 %. The
variation coefficient is not as high as in case of average acquisition price. (Table 2).
The Pearson correlation coefficient reflected a strong positive relationship between the average
purchasing price and honey production, r = 0.848. It is obvious that beekeepers are stimulated to
keep more bee families and grow honey production.
The results and interpretation of Regression statistics and analysis for the pair of economic
indicators taken into consideration: average price of honey at delivery and honey production are
presented in Table 3. Also, the linear regression is illustrated in Fig.3.
Table 3: Regression statistics and analysis for average price of honey at delivery (Y, Lei/Ton)
and Honey production (X, Tons)
Specification Value
Regression Statistics
Multiple R 0.848282254
R Square 0.719582782
Adjusted R Square 0.699552981
Standard Error 1,682.392386
Regression Analysis
939
ANOVA Df SS MS F Sig.F
Regression 1 101685425.8 101685425.8 39.9256077 3.29968
Residual 14 39626217.96 2830444.14
Total 15 141311643.8
F Stat < F The null hypothesis is accepted and it is accepted the hypothesis that between Y
critical value and X it is a significant relationship. This confirms the validity of the regression
model.
Intercept a= - 1,317.253546 with the lower and upper threshold for 95 %:
-4,582.243< a < 1,947.736
X variable 1 b= 0.432624113 with the lower and upper threshold for 95 %
0.27781634< b <0.587431
Linear Regression Function Y = 0.432624113 X- 1,317.253546
Figure 3: Linear regression function for honey price depending on honey production
The average acquisition price elasticity of honey depending on production.

In case of V1, the year 2000 being considered the term of reference, the elasticity coefficient
registered various values from 0.81, the lowest one, in the year 2005, to 11.25, the highest one, in
the year 2001. The elasticity coefficient in the years 2005 and 2006 ranged between 0 an 1,
0<E<1, reflecting a relatively inelastic price, as the percentage increase of honey price was
smaller than honey production growth. The elasticity coefficient E > 1 was found in all the other
years of the study. Therefore, in this case it is about a perfect elastic price, responsive to
production changes. The elasticity coefficient E = 0 reflects a perfect inelastic price in the year
2002 (Table 4).
Table 4: The elasticity coefficient of average price of honey depending on honey production,
E- V1
Year Honey Price (yi - yo)/ yo Honey (xi - xo)/ xo E

(Lei/kg) (y) Production
(Tons) (x)
2000 2.90 0 11,746 0 0
2001 5.25 0.810 12,598 0.072 11.25
940
2002 5.25 0 13434 0.143 5.66

2003 7.48 1.579 17,409 0.482 3.27
2004 6.71 1.313 19,150 0.630 2.08
2005 4.10 0.413 17,704 0.507 0.81
2006 4.30 0.482 18,195 0.549 0.88
2007 4.55 0.568 16,767 0.427 1.33
2008 6.15 1.120 20,037 0.705 1.59
2009 7.72 1.662 19,937 0.697 2.38
2010 8.79 2.031 22,222 0.891 2.27
2011 9.99 2.444 24,127 1.054 2.31
2012 10.04 2.462 23,062 0.963 2.55
2013 11.00 2.793 28,927 1.462 1.91
2014 12.00 3.137 34,999 1.979 1.58
2015 13.00 3.482 24,000 1.043 3.33
In case of V2, the term of reference being each variable of the chronological series, the
elasticity coefficient registered different values from a year to another.
The elasticity coefficient between zero and one, 0 < E' < 1, reflected a relatively inelastic price
compared to honey production changes in the years 2013 and 2014. The elasticity coefficient E' =
0 reflects a perfect inelastic price in the year 2002. In case of E' > 1, it is about a perfect elastic
price in the years 2001, 2003, 2008, 2010 and 2011, meaning that the percentage price change was
higher than the percentage production change. It was also noticed an inverse price elasticity, in the
years 2004, 2005, 2007, 2009, 2012 and 2015, reflecting that the percentage change of price was
in the opposite direction compared to the percentage change of honey production (Table 5).
Honey price forecast depending on production. Taking into account the regression function Y =
0.432 X- 1,317.253, it was set up the forecast of honey price, Y, for the period 2017-2020, in
three scenarios with the following growth rate of honey production, X: S1- 20 % growth rate, the
average growth rate in the period 2000-2015, S2- 8 % growth rate, the average growth rate for the
last five years of the analysis, 2011-2015, and S3- 10 % growth rate. The results for honey
production and price for the three scenarios are presented in Table 6.
Table 5: The elasticity coefficient of average price of honey depending on honey production,
E- V2
Year Honey Price (yi - yo)/ yo Honey (xi - xo)/ xo E'

(Lei/kg) (y) Production
(Tons) (x)
2000 2.9 0 11,746 0 0
2001 5.25 0.810 12,598 0.072 11.25
2002 5.25 0 13434 0.066 0
2003 7.48 0.424 17,409 0.295 1.43
2004 6.71 -0.102 19,150 0.100 -1.02
2005 4.10 -0.388 17,704 0.075 -5.17
2006 4.30 0.048 18,195 0.027 1.77
2007 4.55 0.058 16,767 -0.078 -0.74
2008 6.15 0.351 20,037 0.195 1.80
2009 7.72 0.255 19,937 -0.005 -51.00
941
2010 8.79 0.138 22,222 0.114 1.21

2011 9.99 0.136 24,127 0.085 1.60
2012 10.04 0.005 23,062 -0.044 -0.11
2013 11.00 0.095 28,927 0.254 0.37
2014 12.00 0.090 34,999 0.209 0.43
2015 13.00 0.083 24,000 -0.314 -0.26
Table 6. Forecast for honey price depending on honey production for the period 2017-2020
Year S1- 20 % growth rate of X S2-8 % growth rate of X S3- 10 % growth rate of X
X-Honey Y-Honey X-Honey Y-Honey X-Honey Y-Honey
production price production price production price
(Tons) (Lei/Ton) (Tons) (Lei/Ton) (Tons) (Lei/Ton)
2016 28,800 11,124 25,920 9,880 26,400 10,088
2017 34,576 13,620 27,993 10,775 29,040 11,228
2018 41,491 16,607 30,232 11,743 31,944 12,482
2019 49,782 20,191 32,650 12,788 35,138 13,862
2020 59,738 24,492 35,262 13,916 38,652 15,380
Source: Own calculation.
Regarding the 1st scenario, S1, if the growth rate of honey production will be 20 %, the mean of
increase rate in the whole analyzed period, 2000-2015, in the year 2020, honey production will be
2.48 times higher than in 2015. In 2017, honey price will be lower than in 2015, but in the next
years it will be higher and higher so that in 2020, it could reach Lei 24,492/Ton, meaning USD
6,200/Ton or USD 6.2/kg.
However, this scenario has a reduced chance to be believable, because if we look at the
distribution of honey production across the time in the analyzed period, the most important
increases took place in the years 2001, 2003, 2004, 2008 and 2009. After that, the growth rate
declined to 0.5 % in 2012, when it was a serious drought in the country, and then it increased
again varying between 8.33 % in 2015 and 9.56 % in 2013.
Regarding the 2nd scenario, if the growth rate of honey production will be 8 % like the average
growth rate achieved in the last five years of the analysis, 2011-2015, which it is likely to happen,
in 2020, honey production will be 35,262 tons and honey price will account for Lei 13,916/Ton,
meaning USD 3,523/Ton or USD 3.52/kg.
Regarding the 2nd scenario, if the growth rate of honey production will be 10 %, then in 2020,
honey production will become 38,652 tons and honey price will be Lei 15,380/Ton or USD
3,893/Ton or USD 3.8/kg.
Conclusions
The average honey price at delivery and honey production recorded an ascending trend in general
in the period 2000-2015. However, there are some inflexions in the trend line of the both analyzed
market factors.
In the analysis for the whole period, honey registered a perfect elastic price, meaning that both
the average acquisition price of honey and honey production grow in the same direction. But for a
942
short term analysis, i.e. from a year to another, honey proved either a perfect elastic price, or an
inverse elastic price, meaning that honey production increased and honey price remained constant
or even declined like in the years 2005, 2006, 2007.
Therefore, honey price volatility in close relationship with honey production is a sensitive
problem, deeply influenced by many factors such as demand/offer ratio, consumer preference and
income, honey type and quality, and export opportunities.
The regression function and correlation coefficient proved the existence of a strong link between
these two important factors in beekeeping and honey market.
From the three scenarios set up in this study, it is likely to happen the S2 scenario, meaning that in
the coming years honey production could record a similar growth rate 8% like in the last period,
2011-2015. In this case, in 2020, honey price could account for Lei 13,916/Ton, being by 7.04 %
higher than in 2015.
The evolution of this relationship is of high interest for apiculturists, traders and policy makers.
For beekeepers, the positive relationship between honey production and its purchasing price is a
real incentive to encourage them to keep more bee families and produce more honey. This is
highly stimulated by the EU premiums and government subsidies to help beekeepers to carry out
more honey as the international and mainly the EU market requires Romanian honey due to its
high quality.
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Anghelache, C., Pagliacci, M.G.R., Prodan, L., (2013), 'A model of macro-economic analysis
based on regression function', The Romanian Review of Statistics, No.1, pp.5-17
Baloi, A.C., Csosz, I., Martin, C.S., Ianosevici, O., Boglut, A., (2012), 'The international honey
market of Romania', Scientific Papers, Series I, Vol.XV(2), pp.249-256.
Cook, S.J., (2009), 'The Intellectual Foundations of Alfred Marshall's Economic Science. A
Rounded Globe of Knowledge'.
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943
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www.ptscott.com/papers/indirect_estimation.pdf, Retrieved July 28, 2016.
944
Comparative Analysis of Typical Features of the Economies of the

States in around the Crisis Period 2005-2011
Tatiana O. Dyukina, Sergey I. Shanygin and Ekaterina I. Zuga
Saint-Petersburg State University, Saint-Petersburg, Russia
t.dukina@spbu.ru
s.shanygin@spbu.ru
e.zuga@spbu.ru
Abstract
In this paper the method of comparative analysis of macroeconomic indicators of States, based on
different ratios of inflation of the national currencies and their exchange rates against the Russian
ruble, were proposed. Using this method a statistical study of the dynamics of these indicators in the
period around the crisis in several States was conducted. Partially hidden changes in indicators were
disclosed, and typical groups of states were formed. It was concluded that in fact the global crisis in
2007-2008 had a ‘financial and cross-currency’ character rather than an economic one.
Keywords: types of economies, world crisis, grouping of States, macroeconomic indicators
Introduction
Modern global economy is characterized by a complex and relatively strong interaction of the
economies of many states and significant levels of resource allocation and labor. It was historically
identified that there are core ‘underlying denominated’ types of economies of the States in the world,
and each of them has an objective of relatively stable positive and negative economic features. Today
the true identification of sets of similar properties by grouping states according to various criteria
based on official statistical reporting information, the subsequent mapping of such groups, and
searching on this basis the most appropriate mechanisms of management, development of scientific
approaches to the evaluation of the results are relevant. The objective of the present study was to
determine implicit similarities of the economies of the states based on statistical analysis of the
dynamics of selected macroeconomic indicators for the period of the global financial crisis in 2007-
2008 and the immediate years with correlation properties of national currencies and peculiarities of
mechanisms of state regulation of economies. The main data sources for this research were official
websites of the Central Bank and the Federal Service of State Statistics of the Russian Federation,
information and reference systems ‘Bloomberg’ and ‘World Atlas of Data’, Aleksashenko and et al.
(2011).
A very small number of well-known scientific works were dedicated to the scientific research of the
designated problem. In particular, I. A. Korgun and K. Kumo (2015) examined the impact of foreign
trade on the economic development of Russian regions using the gross regional product per capita in
2000-2012 as the evaluation index. Authors confirmed the impact of success of trade on the quality of
life of the population and the correctness of the basic theoretical positions of the so-called ‘New
economic geography’. In addition, it was noted the weakness of the influence of other factors, such as
public and private investment.
R. Crescenzi, D. Luca and S. Milio (2016) analyzed the relationship between the overall development
of EU States during pre-crisis period and depth of the impact of the global crisis on their economies.
It is concluded that only a limited number of factors are indeed negatively and significantly affect
economic processes. It was found that in States with high public debt impact of the crisis on the living
standards of the population emerged to a lesser extent. In the paper by S. Thirumalai (2015)
945
considered manifestations of the world financial crisis in the global economy. Author highlighted key
elements in the management of national economies, analyzed the depth of impact of crisis on different
categories of States. Based on the research results he proposed to review existing approaches to the
assessment of achievements in promoting economic growth, especially for international comparisons.
S. Aleksashenko, D. Miroshnichenko, S. Smirnov and A. Cherniavsky (2011) compared anti-crisis

measures of the United States, China and the UK, and assessed their general performance and related
implications, analyzed stages and peculiarities of their implementation. The authors concluded that up
to now there is no solution to the problem of inference on a sustainable development trajectory for the
U.S. economy; however, the experience of overcoming of the crisis phenomena in the UK may be
useful to other States. M. Simionescu (2016) examined the influence of FDI on the economic growth
of EU members. As the result, it was found that for most EU States there is a direct correlation, and
linear. But there are States that stand out from the general trend, despite the normative and actual
proximity of the EU States. There is a decrease of the differences between these States in the post-
crisis period according to the level of attraction of these investments.
In the paper of M. Simionescu (2015) the actual inflation in the EU States between 2002 and 2013, as
well as the process of their convergence were examined. Author concluded that overall the process is
quite successful, but the global crisis has led to a significant decrease in the speed of convergence of
inflation, and it is necessary to develop a set of appropriate corrective actions for the successful
implementation of the ‘Maastricht criteria’. The work by K. Skorupińska (2016) was devoted to the
similar problems, but in terms of convergence of industrial relations in the States of Central and
Eastern Europe in the post-crisis period. Author analyzed the development process of the Eurozone
from the EU-15 to EU-28, and the impact of the global financial crisis on the formation and
convergence of industrial relations of historically significantly different States, based on extensive
statistical data. Nölke (2015) attempted to explain the origin and manifestation of the world crisis in
the EU States by disorders in the structural elements of a single economic mechanism of the EU and,
in particular, the compensation of the increasing negative trends in the pre-crisis period with the
increase in the level of public and private debts by certain States. According to the authors’ opinion,
one of the main reasons of such negative phenomena is the difficulty to use a single currency by
significantly different States.
V. A. Chereshnev, D. N. Verzilin, T. G. Maximova and S. D. Verzilin (2013) proposed a system of

indicators to characterize the socio-economic development of the regions of the state, their
classification and ranking. On the basis of official statistical data authors analyzed the economic and
demographic potential of Russian regions, and proposed approaches to the extraction of the data
latent factors partially explaining regional differentiation. In the scientific work of A. V. Babkin, S.
V. Muraveva and V. A. Plotnikov (2015) the approaches to the analysis of organizational forms and
types of the production capacity of Russia in the framework of globalization processes and their
integration in industrial clusters and their impact on the economy of the state in modern conditions
were studied. It should be noted that these works are dedicated to the economic mechanisms typical
for Russia, and are of interest primarily to tools that were applied.
However, despite the proposed scientific approaches to the solution of many local manifestations of
these problems, a general and relatively universal for many States solutions have not been developed.
The authors of the present study carried out to develop an approach to identify implicit features of
economic development of states in terms of their interaction with each other on the basis of statistical
methods (analytical grouping) for the period around the crisis – the years of the global financial crisis
(2007-2008) and directly adjacent to them.
The Substance and Results of Research

In accordance with the intended research objective the statistical analysis of empirical official data of
the selected States were made in 6 stages for the following macroeconomic indicators: average
monthly wage, GDP per capita, reserve assets of the monetary authorities (without monetary gold) per
946
capita, monetary gold reserves of the monetary authorities per capita, the refinancing rate. The sample
included States that had free access to official statistical data in necessary extent to the present study.
At the first stage, authors carried out the analysis of the dynamics of the indicator ‘average monthly
wage’ in 9 States for the period from 2005 to 2011 in three ways. The application of three approaches
is necessary due to the fact that when you exclude the impact of inflation and consider the currency
exchange rates, the problems of double-counting (inflation is present in currency exchange rates) and
the possible impact of non-market mechanisms of formation of these currency exchange rates and
public reserves are appeared. It is impossible to say that there is an absolute precision and accuracy of
even one of the three approaches. Authors also revealed that correlation between exchange rate and
inflation in different states can’t be clearly described mathematically. The suggested approach
allowed to identify in some cases partially hidden internal properties of the financial aspects of the
economies of some states and to determine the nature of the crisis impact on them. Due to the fact that
the objective of this study was the analysis of the separate financial sides of economies of selected
states, and not the living standards of population, the currency conversion was done using official
currency exchange rates. In addition, the purchasing power parities of national currencies were not
applied, and price levels were not considered.
The first approach
1. The effect of inflation exclude from data on average monthly wages in the national
currency of the states using the national consumer price indices (put in fixed prices of 2005).
2. Eliminated data on average monthly wages of all states convert into rubles at the average
exchange rates for the respective years.
3. Absolute values of average monthly wages in rubles graphically represent on the same
coordinate axes for all states and draw conclusions.
The second approach
1. Data on average monthly wages for all states convert into rubles at the average exchange
rates for the respective years.
2. Exclude the effect of inflation using the consumer price indices in Russia for the
respective years from the data on average monthly wages (in rubles) (put in fixed prices of 2005).
3. Graphically represent on the same coordinate axes the absolute values of average monthly
wages in rubles for all states and draw conclusions.
A third approach
1. The effect of inflation eliminate from data on average monthly wages in the national
currency of the states using the national consumer price index (put in fixed prices 2005).
2. Data on average monthly wages in all states convert into rubles for all years using average
annual exchange rates of 2005 only.
3. Absolute values of average monthly wages in rubles graphically represent on the same
coordinate axes for all states and draw conclusions.
The first approach allows eliminating the effect of inflation in a natural way, but the subsequent
application of currency exchange rates is not quite correct, as these exchange rates generated for the
current prices.
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First approach
120000
100000
80000
60000
40000
20000
0
2005 2006 2007 2008 2009 2010 2011
Second approach
120000
100000
80000
60000
40000
20000
0
2005 2006 2007 2008 2009 2010 2011
Third approach
120000
100000
80000
60000
40000
20000
0
2005 2006 2007 2008 2009 2010 2011
Russia Kazakhstan USA Tajikistan Hungary
Poland China Japan UK
Figure 1: Dynamics of monthly average wages in the selected States at fixed prices of 2005 -
three approaches, rubles
948
The second approach, on the contrary, provides the opportunity to convert the indicators from one
currency to another, but then it confronts the need to exclude inflation according to data related to
only one currency. This technique would be correct if all currency exchange rates were formed
exclusively by the market mechanism. The third approach is the most correct, in our opinion, but it
has also a disadvantage because data on currency exchange rates do not contain information on the
correlations between currencies in the next (crisis) years. As a result of applying the three approaches
for analysis the graphs of the dynamics of the average monthly wages were obtained (Fig. 1).
Applying first approach allowed identifying the significant difference between three groups of States:
1) Russia, Kazakhstan, Tajikistan, China; 2) Hungary, Poland; 3) UK,
USA, Japan. Throughout the period the average monthly wages in the States of the first group is little
less than in the States of the second group, and significantly less than in the States of the third group.
However in the first group of States the values of considered indicator increases slowly and uniformly
(at fixed prices 2005), in the second group - almost unchanged, and in the third group - fluctuates
around rising trends in the United States and Japan, and around the downside trend in the UK. During
the crisis in 2007–2008 the indicator is almost unchanged in States of the first group, in the second
group it increased slightly with subsequent return to pre-crisis trend, in the third group it significantly
decreased with the return to the previous trend. Additional analysis of the dynamics of chain indices
of wages did not reveal any stable country groupings and consistent patterns: throughout the research
period, the indices changed from 0.84 to 1.47.
Using second approach the same groups of States were allocated. The nature of the dynamics of
considered indicator in Kazakhstan, China, Russia and Tajikistan appeared to be similar to its
dynamics, identified in the first approach. In addition, the dynamics of the studied indicator in the
first group of States had a weak increasing trend, in Hungary and Poland the trend had been slowly
decreasing, and in the UK, USA and Japan – was rapidly decreasing. This change of trends in
comparison with the results of the first approach can be explained by the fact that during the period
under review the rate of inflation in Russia was higher than in the second and third groups of States.
Using the CPI of the Russian Federation in order to bring the data on the States of these two groups to
fixed prices of 2005 is not quite correct, but for economically similar States of the first group is quite
acceptable. During crisis in 2007-2008 visible changes of the analyzed indicator were characterized
only for the States of the third group. The shapes of the graphs of chain indices of wage, obtained in
the second approach, are essentially similar to those obtained in the first method. The indices were
changed in the range of 0.78 to 1.34, which is slightly less in comparison with the indices obtained by
the previous method.
The dynamics of the indicator ‘average monthly wage’, obtained according to the third method, in the
States of the first and second groups coincided with the results obtained using the first method, and in
the States of the third group essentially differed from them - in 2007-2008 the vibrations of the
indicator were absent, and the trend for Japan was weakly downward and for the UK – horizontal.
The analysis of the dynamics of the chain indices of wage on the basis of the third approach also did
not reveal any stable groups of states and consistent patterns, but the shapes of the graphs were
fundamentally different from the same graphs obtained in two previous approaches: the variation of
the indices was much less (from about 0.92 to 1.24). The application of all three approaches allowed
the authors to establish that the difference in the changes of the studied indicator in time is negligible
between first and second groups of states.
The second stage of the analysis is similar to the above - the dynamics of macroeconomic indicator
‘GDP per capita’ in the same States was analyzed using the same three approaches. In the description
of the approaches the name of the indicator ‘average monthly wage’ was replaced with ‘GDP per
capita’ and ‘consumer price index’ to ‘GDP deflator’. As the result, authors obtained graphs of the
dynamics of GDP per capita (Fig. 2).
949
First approach
1400000
1200000
1000000
800000
600000
400000
200000
0
2005 2006 2007 2008 2009 2010 2011
Second approach
1200000
1000000
800000
600000
400000
200000
0
2005 2006 2007 2008 2009 2010 2011
Third approach
1200000
1000000
800000
600000
400000
200000
0
2005 2006 2007 2008 2009 2010 2011
Russia Kazakhstan USA Tajikistan Hungary

Poland China Japan UK
Figure 2: Dynamics of GDP per capita in selected States at fixed prices of 2005 - three
approaches, rubles
950
Analysis of the results showed that the groups of States on the indicator ‘GDP per capita’ were the
same as groups of States on ‘average monthly wage’. Conclusions on the changes of the indicator
‘GDP per capita’ obtained in different approaches are generally similar to the results for the indicator
‘average monthly wage’. The difference in time changes of the studied indicator was even less
between first and second groups of states.
At the third stage of research authors performed analysis of the dynamics of ‘reserve assets of the
monetary authorities (without monetary gold) per capita’ and ‘monetary gold reserves of the
monetary authorities per capita’ in the same states (except for Tajikistan, because the necessary data
were not available) for in-depth consideration of the crisis and the regulatory activities of the state
bodies. Three groups of States were identified according to the analysis of the dynamics of the first
indicator at fixed prices of 2005: 1) Japan, where the value of the indicator has increased over the
period from $6,500 to $8,700 with a slight slowdown at the exit from the crisis in 2008-2009; 2)
Hungary, where there was an increase from $1,800 to $4,300 with the greatest rate of increase
occurred in 2007-2008; 3) the rest of other States with values up to $3,000 with minor changes
throughout the period of study.
The minimum value of ‘reserve assets of the monetary authorities (without monetary gold) per capita’
was typical for the United States ($182-388). In terms of ‘monetary gold reserves of the monetary
authorities per capita’ groups of States were as follows: 1) the United States, where in the period
under review, the value of the indicator uniformly decreased from 0.88 to 0.84 troy ounce regardless
of the crisis phenomena; 2) Russia, where the indicator increased from 0.09 to 0.20 troy ounce,
moreover, a sharp increase began in 2007 and continued until the end of the crisis period; 3) the rest
of the States with almost unchanged values to 0.20 troy ounce.
At the fourth stage the dynamics of the indicator ‘refinancing rate’ was analyzed in the same States.
According to the results of the analysis the two groups of States were identified: 1) Hungary,
Kazakhstan, Poland, Tajikistan and Russia, where the value of the indicator varied in the range from
3.5 to 15.0% and temporarily increased from the beginning of the crisis; 2) UK, China, USA and
Japan with values ranging from 0.10 to 6.25%, which decreased with the beginning of the crisis. This
grouping of States was quite similar to the grouping of states obtained at first and second stages of
analysis, with the exception of China.
At the fifth stage of the analysis correlations between the indicators ‘GDP per capita’ and ‘average
monthly wage’ in each of the states at fixed prices 2005 in national currency and, separately, in rubles
after processing the above three approaches were discussed. The authors identified three groups of
States when considering the indicators in national currency: 1) Russia, Kazakhstan, China, Poland,
and Tajikistan with a strong direct correlation of these indicators (correlation coefficients above 0.9);
2) Hungary and the UK with the average direct correlation (0.56 – 0.60); 3) the United States and
Japan do not have such a correlation (less than 0.3 in absolute value). Analysis of the results for all
the selected States according to the first approach allowed to detect a strong direct (> 0.84) correlation
between the variation of the studied indicators, with the exception of Tajikistan (≈ 0.11). According to
the second approach there is also a strong direct correlation between the variation of the indicators (>
0.73) in all States with the exception of Kazakhstan, which was characterized by a strong inverse
correlation (≈ -0.83). Grouping States according to the third approach was absolutely identical to the
grouping in the national currency.
At the sixth stage of analysis authors evaluated the correlation between the chain indices of the
indicators ‘GDP per capita’ and ‘average monthly wage’ at fixed prices 2005 in national currency and
in rubles with application of the three approaches. When analyzing the correlation in national
currency three groups of States were formed: 1) Russia, Hungary, Kazakhstan and China with strong
direct correlation (correlation coefficients more than 0.69); 2) the UK with an average direct
correlation (≈ 0.47); 3) the USA, Poland, Tajikistan and Japan do not have such a correlation
(correlation coefficients in absolute value less than 0.25). When evaluating the outcomes obtained
using the first approach all states were characterized by strong direct correlation (≥ 0.75); the second
951
– the same results (≥ 0.82), with the exception of Kazakhstan (≈ 0.53) and Poland (≈ 0.34); the third -
the results coincided with those in the national currency of the states. In general, the correlation
between the variation of indices was slightly weaker than between the variation of absolute values of
indicators, which seems natural because of the different conditions and mechanisms of management
of economic development of States.
Checking the statistical significance of the correlation coefficients between these parameters was
performed on the V and VI of the research stages and showed the importance of relations, starting
with the value modulo ≈ 0,755 and above. However, according to the authors’ opinion, the presence
of significance of the relations is not mandatory since the objective of this research was not the actual
assessment of the correlation but the identification of similarities in the economy of different states
and the subsequent grouping of them on this basis. The obtained results seem to be interesting, the
authors plan to continue studies and to significantly increase the list of considered states and
indicators, carry out a similar analysis for them and ultimately make more profound conclusions.
Conclusion
As a result of conducted research we can make the following general conclusions:
– examined States are clearly divided into three groups, because of their historical and economic
background: 1) Russia, Kazakhstan and Tajikistan – the former parts of the Soviet Union, previously
non-market and had the same type of economy; 2) Hungary, China and Poland – the states that
formerly had administrative economy in the history of their development, but were not part of the
Soviet Union, and at present rapidly implementing the market-oriented economic mechanisms; 3) the
USA, the UK and Japan - States with a sufficiently long history of market economy;
– in all States the manifestations of the global crisis in 2007-2008 were observed, and after 2009 -
successful restoration of economic and managerial processes, aimed at overcoming its consequences;
– hypothetically non-market mechanisms of state regulation of economic processes, in particular, the
exchange rates of national currencies existed and were applied in all these states in the time period
under review;
– states with administrative economy were much less subjected to volatile of wages of the population
during the crisis (and partly quality of life for a short period of time), presumably due to the
regulatory actions of national Central banks, States with market economies, on the contrary, were
subjected to a greater extent;
– the proposed approach consisting in applying of three approaches of the analysis of indicators
allowed to identify the partially hidden changes in the values of macroeconomic indicators in 2007-
2009 and around the crisis period due to the global economic crisis, but different for states with
historically different types of economies;
– in fact, the global crisis in 2007-2008 had the ‘financial and cross-currency’ character rather than an
economic one.
In summary, it can be assumed that in the modern world objectively there are a limited number of
types of economies, and each of them is characterized by stable sets of positive features that allow to
operate successfully to these states over a long historical period, despite the opposition of the existing
sets of negative qualities. It is possible to apply pre-defined sets of positive features (while
minimizing negative) that were previously tested on the experience of other States with regard to their
objective historical conditions and the compatibility between them for developing economic policy of
the state and adjustment of macroeconomic reforms. One of the ways of practical implementation can
be targeted precision dosed state intervention in the natural functioning of market mechanisms and the
management of such intervention in the dynamics.
References
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‘Experience in other countries: there is a lot to learn,’ Economic policy, 1, 23-54
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Babkin, A.V., Muraveva, S.V. and Plotnikov, V.A. (2015), ‘Integrated Industrial Structures in the
Economy of Russia: Organizational Forms and Typology,’ Proceedings of the 25th International
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May 2015, Amsterdam; Netherlands, 1286-1293
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and economic development of regions: assessment of regional differentiation,’ The economy of
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national macroeconomic conditions, regional structural factors and short-term economic
performance,’ Cambridge Journal of Regions, Economy and Society, 9, 13–32
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during 2000-2012,’ Bulletin of St. Petersburg State University. A series 5: Economics, 2, 47-71
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Research, 10 (2), 65-72
953
Lack of Trust and Loss of Money – Challenges in Online Financial

Trade
Tove Engvall
Mid Sweden University, Department of Archives and Computer Science, Härnösand, Sweden
tove.engvall@miun.se
Abstract
This research addresses challenges of trust in online financial trade. That is a pivotal factor both to
clients and the business domain, and the understanding of trust is important to the realization of
Europe 2020 vision to create a sustainable, smart and inclusive growth. Self-ethnography has been
used to get an in-depth understanding of challenges in a real life setting, where observations,
conversations and interviews have been done. Results indicate that there are severe challenges in
regards to trust. Misbehavior of companies and brokers, along with patterns of fear and greed, and
high risks in the way technology is used, has made many people lose big amounts of money and
created a notion of distrust. A framework for trustworthiness in the business domain is required,
which includes individuals, business relations as well as the technological and societal context. In this
framework records management play an important role.
Keywords: trust, online trust, online trade, digital records management
Introduction
The growth strategy Europe 2020, was developed in the aftermath of the financial crisis 2008, with
the aim to deliver smart, sustainable and inclusive growth (European Commission, 2010a) in which
the digital development is emphasized (European Commission, 2010b). In regards to financial crises,
an understanding of trust and confidence can give insights for recovery, risk management and prevent
future occurrences (Earle, 2009). In a digital context, in online trade, there is also specific trust
challenges to consider. Beldad, de Jong & Steehouder (2010) means that trust is a precondition for
people´s adoption of electronic services, why determinants for online trust is important to consider in
design, implementation and management of infrastructures for online services. Perceived trust, is an
important preceding factor for customers´ intentions to use online trade services, which is also
substantiated by perceived security and privacy (Roca, García & de la Vega, 2008). Lack of trust is
seen as one of the main reasons for consumers to not make transactions or purchases online (Grabner-
Kräuter & Kaluscha, 2003; Urbana, Amyxb & Lorenzon, 2009; Wang & Emurian, 2004; Gefen,
2002; Shankar, Urban & Sultan, 2002). Trust is seen as a driver in consumer loyalty (Hemphill,
2002) and are used in marketing strategies (Urbana, Amyxb & Lorenzon, 2009). Trust is a theme that
is explored in different fields and from different perspectives. Beldad, de Jong & Steehouder (2010)
means that using an inclusive framework with both sociological, socio-psychological, socio-cultural
and technical perspectives would be helpful and Wang & Emurian (2004) are asking for an
identification of crucial elements for the formation of online trust. From a societal perspective, a
relevant area for examination, would be to ask whether we can trust that the system actually delivers
in accordance with democratically agreed visions, and if not what are the problems that ought to be
addressed.
Objectives
With the digital development, information acquires another meaning, wherein records are not just by-
products of transactions, they also represent them (Lemieux & Limonad, 2011). In a digital financial
954
context, money and transactions are basically represented by information, why records management
becomes crucial, and also plays an important role in trust. The objective of this study is to explore the
aspect of trust in online financial trade and identify areas for research in the field of archives and
information science.
Online Trade
Online trade can be defined as “the act of placing buy or sell orders for financial securities and/or
currencies with the use of a brokerage’s internet-based proprietary trading platforms.” (Roca, García
& de la Vega, 2008, p. 97; Investopedia, 2016) The client works with a personal broker, whose role is
to provide analysis of the market and assist the client (interviewee 4). The Foreign Exchange (Forex)
Market is an online system trading in currencies, and is one of the biggest financial markets globally,
with over $4 trillion traded daily. Trades are made on the fluctuations on the market, thus one can
earn (or lose) money both when the market goes up and when it goes down. Through the use of
leverage, the amount won or lost can be increased. Leverage means utilizing, for example, 200 times
more than the investments in the trades (FXGM, 2016). At many online brokerage platforms it is
possible to trade in Forex, shares, indexes and commodities.
Methodology
The study is a self-ethnographic study, based on one year of fieldwork in online trade. The paper has
an inductive approach and is discussed from an archives and information science perspective, why it
is also presented that way. The initiative Responsible Research and Innovation expresses the need for
improvements in addressing current societal challenges in research (European Commission, 2016).
One aspect of that is to get a clear understanding of a problem in a real life setting, why the method
was considered appropriate. An ethnographic study provides the means for “exploring, in-depth,
people´s beliefs, values and behaviors” (Williamson, 2013a, p. 288) and an understanding of how
reality is constructed (Williamson, 2013b). Self-ethnography is when the researcher, as an active
participant, uses experiences and empirical material for research purposes (Alvesson, 2003).
Systematic reflexivity were used during the research process and content analysis (Elo & Kyngäs,
2007) were used in the analysis of research data. The study includes experiences from online trade
with six different brokerage companies, where three of them are presented due to clear differences; an
estimation of 75-100 oral conversations with brokers by phone or skype; additional written
conversations mainly by Skype; an educational course in online trade; unstructured interviews with:
seven brokers, an educator in trading (respondent 8), and a Digitization Minister in a European
country. An ethical consideration about the method is how to relate to participants in the field
(Bryman, 2002). The research is based on the experiences of the researcher, rather than being a study
on an “other”. Interviewees who were interested read the notes and/or draft of the paper.
Online Trade Experiences

Initially, the researcher had no experience of trading, no knowledge about how it works, about
regulations or how to assess different companies offering their services.
First example – an unregulated company

Money that was transferred could not be traced for over a month; the company did not do what they
had promised; it was impossible to withdraw money; it was impossible to reach the broker and no one
else assisted. For companies regulated by CySEC (Cyprus Security and Exchange Commission),
there is a process for complaints and an ombudsman to whom a client can apply for compensation.
The European Consumer Centre’s network can assist in mediating with companies, but they need a
physical address to the company, which many unregulated companies don´t have. When reported to
the police, it was considered to be under civil law and therefore the client has to pursue the matter for
oneself. The insurance company could cover for identity theft, but not fraud. There doesn´t seem to
be a working procedure to back up citizens in these situations and national jurisdiction make it
complicated for the police to act. The financial supervisor has a warning list of suspected companies,
but clients first of all need to know that the list exists.
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Second example - Regulated unstructured company
This was a regulated company, but trading was performed in a very unplanned and “ad hoc” way.
There was pressure to make large and frequent investments, no advice provided about risk or
strategies, nothing was explained properly but rather just said what to do. When money was lost,
other companies called and offered “recoveries” or juridical assistance. Withdrawal of money
worked, there were people at the company to communicate with when communication with the
broker failed and they had a process for complaints. Information was later received that the broker
was in jail for fraud.
Third example – Regulated professional company
The third example worked very differently. The broker did not give advice about what to do, but
assisted by explaining things, calculating the risk and did not ask for big or further investments. Daily
phone calls, fast replies on e-mail, invitations to weekly lectures on webinars and an attitude where it
is the client who is making the choices. In the beginning, by applying what was learned in the trading
course, it went well. But when not paying full attention, a couple of mistakes were made and the
money was lost.
The first two examples gave the impression that no one is to be trusted, and the client is dependent on
the broker. It was the broker who decided whether money could be withdrawn in the first example. In
the second example, if one did not follow the broker’s instructions, one was left to perform alone. In
the third example, the relationship was very professional and the broker showed engagement in the
results, but it is easy to lose everything anyway. Interviewee (8) commented in a lecture, that there
are brokers who work for you and brokers who do what they can to make the client lose money.
Observations
Below are observations about the field, and some patterns that could be recognized from
conversations with brokers from different companies.
The corporate structure can be difficult to understand from a client perspective. There seems to be
different constellations involving various actors, and functions of the company can be localized in
different countries. According to interviewee 4, the diffuse structure may be set up to avoid being
accountable.
Communication is crucial. Since everything is performed online, control of communication channels

allows companies to control client relationships. In some cases the client could only leave a message
and wait for someone to call back, or communicate by e-mail or Skype. Then it is up to the broker if
he/she replies. Often several people from the same company call. Internal communication seems to
vary greatly from company to company.
Information about clients is sold among companies, especially if a client has lost money. In that way
people become like a trading asset. Accuracy and authenticity of the information, as well as timing, is
very crucial for actual results in the trade. In order to start trading, the client must submit records for
proof of identity, address, credit card details and a signed record of the amount deposited. Phone calls
are recorded, for supervisory purposes. In most cases the client does not receive any signed records,
but terms and conditions can be found on the company’s website.
Technological development moves fast and as the minister with responsibility for digitization
expressed; “technology beats politics”, but politics can set some restrictions, show direction and bring
issues to public debate (interviewee 9). It is important to continuously improve means for
supervision, transparency on the internet and also to consider the values dominating the financial
sector. Values are built into the design and conduct of technological, recordkeeping and
communication processes. Information and communication technologies provide possibilities for
empowerment since they circumvent traditional hierarchies, but also risk instituting new patterns of
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domination. Technology makes things happen faster and also expands both gains and losses, which
raises the level of risk.
Manipulation and trust seem to be occurring themes. According to interviewee 4, some people have
the capacity to deliver the energy that will manipulate people in the direction they want.
Manipulation could, for example, be identified in the way of speaking, giving compliments, lying,
and talking about the value of trust, but acting differently. In that way, creating a feeling of trust can
put the client in a vulnerable position and effectively give control to the broker and company.
Trust has to include both trust in oneself and trust in the relationship between the broker and client.
Trust has been mentioned as a prerequisite for a client to choose to invest money, thus many brokers
try to create that feeling by proving that they are reliable. What is required, however, is to create a
trustworthy system with mechanisms that apply when things don´t work.
Various strategies are used to make a client invest money. For example the use of bonuses, boosting
excitement about money and stressing opportunities, which boosts fear of losing opportunities as well
as amplifying greed. Interviewee 4 said that some companies take advantage of people’s fear and
greed. Companies and brokers taking advantage of people are themselves motivated by greed and the
idea that you have to use others to get what you want instead of having trust in themselves.
Although there seem to be some companies and brokers who act unscrupulously, there are also those
who care about and want to help their clients. Being a broker in an environment of fear, greed and
high level of competition is probably not easy and requires a level of personal strength to handle
clients, as well as requirements from the company, regulations, and other brokers. In such a setting a
framework for trustworthiness would be helpful.
Interviews
Conversations with brokers revealed that a major problem is that people lack trust because of
experiences of losing money and bad manners of people and companies encountered.
Trust between brokers and clients
All interviewees highlighted the problem caused by the brokers that make clients lose money, which
ruins their trust in the business and brokers. Consequently their job becomes harder. Brokers who
press for big investments, give misleading information, merely tell the client what to do without
taking time to explain properly and the use of bonuses attached with conditions for withdrawals.
They stressed the importance of empowering clients to make their own decisions, and building
confidence and trust in themselves (interviewees 2, 4, 5 and 8). All the interviewed brokers stressed
that their interest is to assist the clients to make profit, and their intention is to build a long-term
relationship.
Important to creating trust is that the client can see results (interviewees 1, 6), the way the broker
treats the client and if the signals are good (interviewee 1). Interviewee 5 stressed that a success
factor is that he truly cares about his clients. Speaking the same language, compatibility and
developing a personal relationship (interviewee 2, 8) was also highlighted. Trust is built over time
(interviewee 4) and when the client recognizes that there is someone who is concerned about the
account, the trust will increase (interviewee 8). Knowing the reputation of the company helps clients
to decide whether to entrust their money to the company. According to interviewee 6, the company
he works for has been in the market for a long time and that in itself creates trust. They have
experience, are professional and have knowledge and credibility. His advice to clients is to see if the
company is regulated, if it provides education, if sufficient information is provided, if they develop a
trading plan, if they explain things properly so the client knows what is happening.
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Risk management
According to the interviewees, the main reason for clients losing money is when they make decisions
based on fear or greed and not knowing what they are doing. It is important to talk about and
calculate risk, and education and continuous learning is important (interviewee 3, 4, 6, 7, 8).
Volatility, volume and leverage are some of the things to consider in regards to risk. Having enough
margin in the account in order to have space for movements on the market, making a trading plan,
open positions you believe in after having done calculations and analysis, and being patient are
success factors (interviewee 8). The psychological challenge is the biggest, as well as too high
expectations of how much it is possible to make with the amount invested. The greatest challenge is
when people start trading, before they have confidence and ability to really understand how it works,
which makes them take too high risk. Everything can be lost with just one trade if it goes wrong
(interviewee 8).
Regulatory environment
MiFID (Markets in Financial Instruments Directive), is a European law regulating trade (interviewee
1, 6). There are also regulations that govern licenses to conduct business, and it is common to have a
license from CySEC (Cyprus Security and Exchange Coalition) (interviewee 4). Each country has its
own regulations and financial supervisors (interviewee 4). According to interviewee 3, London has
the highest regulation, and is also most prestigious. Having a license makes it safe for the client, since
it shows that it is legal. The regulations were seen to be too weak, but are becoming stronger
(interviewee 3, 4, 8), and brokers who are discovered to act in a bad manner are suspended
immediately. It was suggested that financial supervisors should have more mandatory rights and
conduct more audits, which would make the companies act more carefully (interviewee 6).
Transparency of information provided to clients (interviewee 6) and research about the regulatory
environment (interviewee 3) was requested. Interviewee 4 suggested that it should be mandatory for
companies to have a physical office in the country in which they are operating, that they deposit a
certain amount of money in a bank in that country and that the national financial supervisor should
have the authority to control it. According to interviewee 6, unregulated companies can do almost
anything they want with clients´ money and there are ongoing conversations about what can be done
to handle that (interviewee 6).
Information management
Online trade is an information intensive and sensitive domain, dependent on good information, which
is also expensive (interviewee 1) and timing is crucial to success (interviewee 6). Interviewee 5 noted
that that the quality of the information as well as the business processes and how the information is
managed create trust. If the company is managed well, it also makes him trust the information.
Interviewee 6 stressed that providing information to the client is very vital in building trust.
According to interviewee 8, the critical issue in terms of management of personal data is not when
the client has an account with a brokerage, because this is regulated. However, there is a market for
trading information about people. Apps on mobile phones collect a lot of information: where you are,
what you buy, where you spend your money, your age, what apps you use, your fingerprints, face
recognition and more. Information compilations are sold to companies looking for targeted groups of
potential clients. Therefore trust in your phone provider is also an important consideration.
Virtual markets
According to one of the interviewees, 95% of clients lose money. Many times, their money doesn´t
get to the real market, but rather a virtual one. In that way, if a trade is lost, the money goes to the
company. The use of CFD (contracts for difference) is one way of creating a virtual market, and
implies a high risk of losing big amounts of money. Why for example it will be prohibited in USA.
He means that first the brokerage company decides whether the client can be on the real market, then
the bank make decisions and they are manipulating the market a lot. He means that the entire market
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is a fraud. It is manipulated to make regular people lose money which goes to the big banks. It is a
closed system where someone has to lose money for someone to make profit.
Sustainability
Sustainability can be addressed from different perspectives. What was stressed in the interviews, was
that all companies must “put everything on the table and do fair play” (interviewee 6), and they have
to manage and talk about risk, not just profit. Honesty, transparency (interviewee 6), as well as
building knowledge, confidence and trust will be more sustainable in the long run. About the question
of what effect the financial market has on a more or less sustainable development, interviewee (3)
meant that he didn´t think trade has a direct effect. But you can invest the money you make in
companies so they can develop and invest in new technologies for example, and there are a lot of
people who donate money to charity. Interviewee 1 works at a company which donates a percentage
of their profit to various NGOs around the world. Interviewee (4) asserted that online trade will never
be sustainable, because of the virtual “bubbles” in which people lose money. 95% risk of losing
money is not sustainable.
Records and Financial Stability, Transparency and Accountability

Records are information that has certain values, and can be in different medium and formats. Records
are created in the course of activities and transactions and function as evidence, if they are managed
in a way that maintains their authenticity and reliability. A reliable record means that its contents are
accurate, and authenticity means that the record is what it claims to be. Trustworthy records
management implies procedures that ensure these qualities (Swedish Standards Institute, 2016). The
value of records as evidence serves many purposes. They are a tool enabling accountability of
peoples´ actions; for “honest, responsible, upright and transparent conduct of human affairs” (Hurley,
2005, p. 226). Records are also a means for control and power and shaping people´s behaviors
(Ketelaar, 2005). Ensuring the quality of records in an online environment is complex and the
international InterPARES Trust Project (Trust in Digital Records in an Increasingly Networked
World) (InterPARES Trust, 2016) researches in this field. As to the financial domain, records and
records management has a crucial role in enabling transparency and accountability, managing risk
and external supervision, as well as ensuring financial stability (Lemieux, 2010; Coleman, Lemieux
& Yeo (eds.), 2011). It makes it possible to “effectively monitor financial risks, make good risk
decisions, and hold individuals and institutions accountable when rules on risk tolerance levels are
breached” (Lemieux, 2011, p. 4). Financial crisis not only depends on risks at the financial markets,
but are also an effect of organizational problems, resulting from how financial technologies are
applied and financial records are managed (Lemieux, 2011). Poor recordkeeping on the other hand,
contributes to a build-up of risk in the financial system (Lemieux & Limonad, 2011). Research on the
bank collapse in Jamaica 2008 shows that poor recordkeeping led to a lack of accountability, and as a
result of that, weak internal control and inability to make effective decisions. Which led to
operational inefficiencies – which together with external factors led to the bank collapse. Absence of
good records also complicated supervision and rehabilitation efforts (Lemieux, 2001). Management
of risk is often closely related to recordkeeping and sometimes seen as almost the same (Lemieux,
2010b). Deficiencies in information control increases risk of failure in compliance with regulations,
financial loss and damage of reputation (Adams, 2011). Market conditions 2008-2009 that
highlighted weaknesses in control systems of financial institutions, also raised the need for increased
transparency and sharing of information (Cunningham-Day & Didizian, 2011).
Discussion
Results from the study indicate that there are severe challenges in online trade in regard to trust.
Misbehavior of companies and brokers, fear, greed and lack of awareness characterizing peoples´
decisions, and high risks in the way technology is used, has made many people lose big amounts of
money. There is a lack of trust, not only between people, but also in oneself and the entire system,
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which also makes it difficult for serious brokers to work. Clients are placed in a vulnerable position
in a complex context, where the management of information and communication is crucial, and also
how the technology is used.
What is required is to create a framework for trustworthiness in the business domain which includes
individuals, business relations as well as the technological and societal context. Instead of being a
possibility, it tends to create the opposite now. The idea of using money to make money and using
information and technology in that process, could provide a way to create smart, sustainable and
inclusive growth - theoretically. But if 95% are losing money, people are being manipulated, the
system are being manipulated, and technology is used to strengthen the power and control of
financial institutions, then it is neither sustainable, smart nor inclusive. There is a need for greater
transparency and accountability to shed light on practice in the online financial markets, as well as
mechanisms for making actors responsible for their actions. Recordkeeping plays an important role in
that, and also functions as a control instrument in managing risks, both on an individual level, in
business relationships, and on a societal level.
Suggestions for Further Research

Accountable systems contribute to creating trust and also reduce the impact of fear and greed. Fear
and greed not only cause individuals to lose money, they are also used to take advantage of people. A
more sincere analysis of deficiencies in trust can provide clues about where improved accountability
measures are needed, as well as improving the means for control and transparency. Re-evaluating
records requirements in different processes in regards to trust, accountability, transparency and
management of risk is recommended. How technology, as well as records management and
communication strategies are designed and performed ought to be considered from a power
perspective. A clearer direction of peoples´ intention and purpose in making money – to create a
sustainable growth for the future, both on an individual and societal level - might also contribute to
reduce greed and replace it with other more constructive values.
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@Risk Software as a Decision Support Tool
Martin Januška and Marek Čech
University of West Bohemia in Pilsen, Faculty of Economics, Department of Business Administration

and Management, Pilsen, Czech Republic
mjanuska@kpm.zcu.cz
marekc@kpm.zcu.cz
Abstract
Presented paper deals with description of @Risk software usage as a managerial support tool. @Risk
software is used for risk simulations. Decision about investment in to the innovation, new machinery,
equipment or continuing with maintenance of old equipment with high chance of fatal failure is typical
example which is further described in paper. Presented mathematic model deals with comparison of
investment cost of innovation and potential savings from innovation with actual operating costs and
potential loss due to technical failure. Conventional economic indicators calculated by @Risk are used
to determine the effectiveness of investment. The advantage of @Risk compared to conventional
economic indicators is that @Risk is able to calculate with uncertainty of multiple factors in long term
horizon. @Risk software usage is introduced at a simple case study from manufacturing company in 8
years horizon.
Keywords: @Risk, investment decision support tool, risk modeling, risk simulation, innovation
effectiveness, innovation uncertainty simulation
Introduction
Common problem managers are forced to solve is ageing of production equipment. @Risk software
presented in this paper is an interesting tool for more reliable support of decision making process in
comparison with classically used methods. Standard question for managers is when is economically
worthy to invest in to the innovation or renewing of production equipment rather than continue with
maintenance. @Risk software allows to simulate scenarios with number of uncertain factors
calculating their costs and support decision making process with more precise information. @Risk
software uses Monte Carlo simulation and can be used to gain more precise answers to number of
questions regarding risks like: “The likelihood that your project will finish on time and within budget.”
“The chances of making money or taking a loss on next contract.” “Probability of technical failure and
its costs.”
In presented paper @Risk software will be introduced at case study regarding the innovation of heavy
machine-tool. The Net Present Value (NPV) will be the base (observed value) of the model value
chain. For the investments the Net Present Value (NPV) approach seems appropriate for such
simulation. It allows comparison of different scenarios based on the expected return. Also the NPV is
one of the formulas which take into consideration the factor of time, meaning the future cash flows are
discounted to current date.
In comparison with classical NPV calculation @Risk allows to take in consideration the probabilities
of numerous inputs since the inputs can be defined as various probability distributions. Than the result
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is of course also probability distribution which gives the more valuable information than classical
average value.
Example presented in this paper is based on real data from industrial company who wishes to remain
anonymous. The example deals with decision regarding replacement of a specialized metal machining
device.
@Risk Software Introduction

@Risk software is a product of Palisade company which deals with decision making support more than
30 years. The software is described and available for trial testing at http://www.palisade.com/risk/.
Basically @Risk is MS Excel add-in integrating completely with spreadsheet. @Risk performs risk
analysis using Monte Carlo simulation (Thomopoulos, 2012) to show many possible outcomes in
spreadsheet model and how likely they are to occur.
Basically program works in three single steps:
1. Set upping the model
2. Running the simulation
3. Analyzing the results
First of all is necessary to create mathematical model of value chain. For example the NPV.
In first step all uncertain values in spreadsheet are replaced by @Risk probability distribution
functions, like Normal, Uniform, etc. These @RISK functions simply represent a range of different
possible values that a cell could take instead of limiting it to just one case.
In second step @Risk performs selected number of simulations (thousands). Each time, @Risk
samples random values in all cells from the entered @Risk functions and records the resulting
outcome.
The result of a simulation is a look at a whole range of possible outcomes, including the probabilities
they will occur. Results are graphically represented with histograms, Scatter Plots, cumulative curves,
Box Plots, and more. Critical factors are identified with Tornado charts and sensitivity analysis.
Other options for running Monte Carlo simulation might be the Matlab software as proposed by
(Suhobokov, 2007). This application requires advanced user skills in algorithm creation, therefore the
@RISK software with user friendly outputs and controls is recommend by authors for use in company
investment decision process. Similar functionalities as @RISK are offered by Crystal ball software as
described by (Meredith and Mantel, 2012). Right decision making process increase the value of
company intellectual capital (Prochazkova and Jelinkova, 2014).
Assesing the Risks

The risk catalog is widely recommended for the investment projects as a risk assessment tool. Such
catalog must include all the risks associated with the project. It´s usually electronic document
(preferably Excel spreadsheet) where the risks, their description and contingency plans are filled. It´s
necessary to keep it up to date and fill additional risks which might appear as the project progress.
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(Korecky, 2011; Meyer and Reniers, 2016) In detail the risk catalog includes those items for every
risk:
- risk ID –unique identifier for easier reference
- group of risks – category to which the risk belongs (technical, financial, …)
- description – situation in which the risk appear
- impact – semi-quantitative evaluation of the impact of the risk on company assets, eg. scale 1
– 16
- probability – semi-quantitative evaluation of probability that the risk happened during the
project realization, eg. scale 1 – 10
- risk priority number – impact times probability, shows significance of the risk
- contingency plan – strategy and action which takes place preventively or when risk appear to
minimize its impact or probability
- cost of the plan – amount allocated on the contingency plan
Based on the risk catalogue the risk map, or Impact Probability Table is constructed. The seriousness
of risk is easily visible at the map. The red line (max. value of risk priority number) represent the risk
appetite of the company, meaning the company willingness to risk. (Merna, 2007; Korecky, 2011;
Meyer and Reniers, 2016)
Figure 1: Impact - Probability table, Risk map
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Investment Scenarios
Based on this risk assessment and the general overview about the investment project the key scenarios
might be stated. Those will be later used as an input for the model to run the simulation.
Scenarios identified for the example project (based on real data) where as follows. To understand those
scenarios you must know that the main risk identified in the investment was current machinery, which
is years over its lifetime. Each scenario represents possible failure and estimate outsourcing, transport
and penalty costs which come with such situation. Those steps should be taken to ensure the current
contracts delivery. Table also contains probability estimates based on the failure rates in history.
Table 1: Scenario comparison
Scenario comparison mil. CZK

Keep current machinery – repairable failure prob. 5%
ship transportation 141,9
air freight 156,6
Keep current machinery – critical failure prob. 9%
air freight 275,7
Keep current machinery – indexer failure, spare part bought in advance prob. 15%
air freight 126,2
Keep current machinery – indexer failure, spare part wasn´t bought in advance prob. 15%
air freight 718,6
Investment in new machinery 170,0
Scenarios cost estimation will later be used to compare the model results for each of them, or their
combination using the principles of what if analysis. What if analysis represents the combination of
risks identified and possible impact of such a situation, which can be simulated in the model. (Korecky
2011)
Creation of Value Chain

The base of model is value chain. Simply it can be understood as mathematical formula which is later
translated into eg. Excel formula. For the investments the Net Present Value (NPV) approach seems
appropriate for such a simulation. It allows comparison of different scenarios based on the expected
return of investment. Also the NPV is one of the formulas which take into consideration the factor of
time, meaning the future cash flows are discounted to current date. Formula used as value chain for
example in this study is as follows (Smejkal, 2013):
n
NPVi
NPV = ∑ −K (1)
i =1 (1 + r ) i
where: NPV … net cashflow in i-year

r … discount rate
K … capital investment at the beginning
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Taking into consideration the inflation, correction of the discount rate might be appropriate. The
following formula might be used (Smejkal, 2013):
 1+ r 
rkor =  − 1 ⋅100 (2)
1+ m 
where: r … expected return (eg. discount factor)
m … inflation rate
Other economic indicators are implemented to the model. The payback period (PP) and return of
investment (ROI) are often used also as indicators and should be mentioned (Scholleova, 2012)
1
payback period = (3)
Ør
where: Ør… average investment return per year (average year cash flow divided by capital
investment)
ROI formula used (Kleinova, 2005):

Z
ROI = ⋅ 100% (4)
I
where: Z … average year profit from investment eg. average year cash flow
I … capital investment
Internal rate of return (similar formula like 1, NPV)

n
NPVi
∑ (1 + IRR)
i =1
i
−K =0 (5)
Having the formulas the model creation might start. In this paper only one example of the software
usage is showed, its possibilities are limitless and the detailed User Guide by Palisade Corporation
(2015) is provided from the company.
As the every company and investment is specific, also the one used for this paper was. Therefore the
cash flow creation was adjusted to reflect the reality in company and the possible data which could be
used as input. This must be taken into consideration when using this approach. It is ideal when model
is prepared or consulted by group of people to avoid the possible subjectivity issues. Step-by-step
description of the model (for model see table 1) follows. Units used are millions CZK.
Model Creation
The cash flow is divided in two periods: the construction, or investment period, and operation period.
The former can be understood as year 0 and the latter is considered due to the machine nature for 8
years, which could be understood as economic lifetime. (Fotr, 2005) The model does not include
liquidation of the machinery as (Sulak, 2012) recommends, because real lifetime of equipment is
counted in decades.
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Costs are based on the previous machinery lowered by expected savings. Those come from 3D
simulations and other company materials.
The first on the list are the maintenance costs due to the guarantee terms they are 0 in first 2 years. For
the next years triangular probability distribution was used. Three parameters are need for triangular
distribution: min value (0), most likely value (0,02), max value (0,4). (Palisade Corporation, 2015).
The exact formula written in the appropriate cell is as follows:
= RiskTriang (0;0,02;0,4; RiskStatic (0,02)) (6)
In the program interface distribution is immediately plotted as a graph to provide precise information.
Figure 2: Maintenance costs based on triangular distribution
In later years of investment the rise in the maintenance costs is simulated by shift in distribution to:
min 0,1, most likely 0,3, max 0,5.
Tool consumption is the next cost which must be included in this model. Due to the historical data
availability the software function distribution fitting could be used. It returns the best probability
distribution for dataset. The result was triangular distribution: min 1,8, most likely 2,6 ,max 4 (formula
6) and based on the expected savings in tool consumption was lowered by 20%.
= RiskTriang (1,8;2,6;4; RiskStatic ( 2,6)) (7)
Similar approach was used for energy consumption, where triangular distribution: min: 0,5, most likely
0,7, max 1,1 is used as shown below.
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= RiskTriang (0,5;0,7;1,1; RiskStatic (0,7 )) (8)
As for the salaries those can be calculated based on the number of operators. It’s also necessary to
include the annual salaries growth. The formula which solves this problem and keeps also the dynamic
in the model is that salaries for specific years are calculated as previous years times 1 plus triangular
distribution: min: 0,02, most likely 0,03, max 0,05. This can be interpreted as annual growth 2 – 5 %.
In formula the D14 means the cell where previous year salaries are calculated in Excel.
= D14 ⋅ (1 + RiskTriang (0,02;0,03;0,05; RiskStatic (0,02)) (9)
Due to the fact that cash flow in full-scale is not created in this example the tax must be calculated
directly from the value added: value added times current income tax rate. It’s based on the current rate
in Czech Republic and is stable for the operation period. If necessary the rate can be simply adjusted in
specific years if political situation suggest that.
As the company run on the basis of custom production every workpiece is unique. Due to this fact in
projection of future revenues we must stick with the average value added by this machine per
workpiece. It’s calculated based on the contract from past ten years and in general says how much
value added is created on this specific machine. The calculation was created by controlling department
and reflects the reality in the company. Different companies will have different sources and procedure
for such a data.
To make the model more realistic the value added between years is same as the salaries calculated
from previous year times 1 plus normal distribution with mean 0 and standard deviation 0,05. This is
interpreted as deviation in contract prices, material prices and company margin.
Figure 3: Value added distribution formula
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= D19 ⋅ (1 + RiskNormal (0;0,005)) (10)
Formula 10 represents the calculation of value added.
In addition, value added per workpiece is then multiplied by the projected number of workpieces. For
the first years of operation is based on realistic contract schedule for the next years there is growth
from 1 to 4, limited to total capacity of machine. The total capacity is expected to be achieved around
5th year.
Model Simulation
Now the Net Present Value can be calculated together with other economic indicators which are
expected results of the model (PP, ROI etc.) The next table 2 shows one of the possible solutions. One
because there was 1000 iteration done in this simulation and the results must be interpreted as intervals
with specific probability, this procedure is described in next chapter.
Table 2: One possible model result
1. CASH FLOW (mil.

construction operation (8 years)
CZK)
201 202 202
Year 2016 2017 2019 2020 2021 2022
8 3 4
20,
COSTS 170,9 20,2 21,8 22,9 23,7 24,3 25,4 26,0
9
Investment 170,0
Maintenance 0,0 0,0
0,0 0,1 0,1 0,3 0,3 0,3 0,3
tools consumption 0,3 2,6
2,8 3,0 3,5 3,5 3,5 4,0 4,0
energy consumption 0,1 0,7
0,7 0,7 0,7 0,7 0,7 0,7 0,7
Salaries 0,5 3,0
3,1 3,1 3,2 3,2 3,3 3,4 3,4
14,
Tax 0,0 13,8 14,9 15,4 16,0 16,5 17,0 17,6
4
70,
REVENUES 0,0 67,6 72,8 75,4 78,0 80,6 83,2 85,8
2
number of workpiece 27,
26,0 28,0 29,0 30,0 31,0 32,0 33,0
units 0
value added per unit 2,6 2,6 2,6 2,6 2,6 2,6 2,6 2,6
70,
total value added 67,6 72,8 75,4 78,0 80,6 83,2 85,8
2
50,
Net Cash flow -170,9 48,4 52,0 53,6 55,4 57,5 59,0 61,1
3
41,
Net Present Value -170,9 44,1 39,3 36,9 34,7 32,8 30,7 28,9
7
-
Cumulative Net - - 118,
-170,9 85, -8,9 25,8 58,6 89,3
Present Value 126,8 45,8 2
1
2. ECONOMIC EVALUATION
970
Discount (expected return) 9,8 % Internal Rate of Return 14,7 %

mil.
Net Present Value 118,2 Payback Period 5,74 Years
CZK
mil. Average investment
Average year cash flow 29,6 0,17
CZK return per
17,4
ROI %
1
Interpretation of Results
The first indicator which is there to interpret is the IRR. The expected value after correction is at least
9,8 %. This value will be achieved almost with 100% probability, as is visible from the output graph
below. On top of the graph there is the cumulative probability on the chosen interval (9,8 till infinity).
Figure 4: Cumulative Internal Rate of Return
As the NPV formula was the core of the model, let´s examine its predicted results. NPV with 90%
probability will be on interval 86,6 till 165,3 mil CZK. The key here is that the value is positive in
whole interval.
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Figure 5: NPV expected results
As we use dynamic model it became in later years less accurate. Therefore a standard deviation must
be expected as predicted on the graph which follows.
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Figure 6: Standard deviation growth in later years of investment
From the manager perspective usually the thinking “when I get my money back” can be spotted. For
this the Paypack Period might be reported. In this case with 90% probability the company will get
money back in 3,8 till 6,1 years. It can be interpreted as best and worst case scenario for the
investment. It is possible to set bounds anywhere in the interval for example to determine the
probability of payback period lesser or equal 5 years.
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Figure 7: Payback Period expected values
Last but not least indicator used for this model is ROI. With 90% probability is between 16,33 till
25,71 %.
Figure 8: ROI expected values
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When running a stochastic simulation in Monte Carlo the question in place is sensitivity for change in
input parameters. For this the @RISK software has inbuilt functionality, which is able to demonstrate
this in tornado graph (figure 9).
The example investment is mostly sensible to value added by machine to the finale product and then to
the maintenance costs. Those might be great inputs for controlling and monitoring activities.
Figure 9: NPV Tornado sensitivity graph
What If Analysis
To represent the variability of such a model and other possible application, the approach of scenario
analysis might be used. Simply the addition or change of the input parameters of the model is taken.
After the simulation the result comparison as in the table below might be done to support the
managerial decision.
Tabe 3: What-if analysis of scenarios
Scenario A Scenario B Mean NPV

New machinery investment - 124,69
New machinery investment Repairable failure -2,72
New machinery investment Critical failure -130,11
New machinery investment Indexer failure – bought in advance 21,35
New machinery investment Indexer failure -512,13
Message sent to the manager based on this simulation would be: there is a great urgency to invest into
the new machinery, if the current machinery will fail the projected investment benefits will not cover
in most cases the repair costs.
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Also the what-if approach (Harbour, 2013) might help to answer question such as: what if there will be
less contracts or the estimated costs will grow.
Table 4: Additional what-if scenarios
Scenario A Scenario B Mean NPV

New machinery investment - 124,69
New machinery investment Lack of contracts (- 25 %) 67,26
New machinery investment Increase in estimated costs (+ 20 120,88
%)
New machinery investment Combination of both previous 63,36
Again the conclusion, which might be presented to appropriated places, is that in case of those
scenarios the NPV will stay positive but largely reduced.
Other questions just suggest itself and may differ based on the industry or investment considered. The
power of model is that it’s able to simulate them quite easily.
Investment Decision
As for the project presented those outputs were included into the feasibility study of the project. The
main recommendation was to approve the investment with budget 170 mil. CZK. Together with other
benefits and synergy effect (strategical importance, implementation of new technology, leap in
technology, technical benefits) the managerial decision was to undergo the investment. Mostly the
controlling department evaluated such a model and its output as relevant for the investment decision
making process.
There was also possibility to avoid the investment and keep the current machinery; negative impacts
(technical and financial see. table 1) were huge disadvantages of such a decision, which were also
confirmed by the model, that this option was rejected.
Conclusion
Main outcome of this paper is recommendation of using stochastic simulation as a support tool for
decision making process about investments instead of classical methods based on estimations of
average values. It might look complicated but following the steps below might be good rule of a thumb
for most of the investment:
- based on company investment policy prepare the investment inputs (investment plan,
feasibility study)
- state the investment budget
- asses the investment risks in preparation, implementation and operational stage
- use the risk catalogue to monitor the risks
- plot the risks to I-P table
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- create scenarios of investment
- construct the value chain (NPV recommended)
- prepare the input data
- create the model using Excel and @RISK
- run the simulation
- interpret results
- make appropriate investment decision and start with implementation
Key added value when using the probability distribution and simulation is that sometimes the
deterministic approach might provide misleading inputs for investment decision. Based on the authors
experience even the bigger companies do not capitalize on the usage of such tools and stick with the
conventional deterministic approach based on average values and estimations which are not able to
include uncertainty of factors.
It’s worth mentioning that Investment decision process depends on the company directive and might
take from months to years. Usually it’s based on specific planning period. Due to long preparation of
the investment project the risks and uncertainty of future results or costs is always the question.
Simulation using @RISK will make the outputs more precise and when interpreted properly in the
context better decisions can be made.
References
Fotr, J. and Soucek, I. (2005). Podnikatelský záměr a investiční rozhodování. 1. ed. Grada, Praha
Harbour J.L. (2013) The performance mapping and measurement handbook. Taylor & Francis, Boca
Raton.
Kleinova, J. (2005) Ekonomické hodnocení výrobních procesů. 1. ed. Západočeská univerzita, Plzeň
Korecky, M. a Trkovsky, V. (2011). Management rizik projektů: se zaměřením na projekty v

průmyslových podnicích. 1. ed. Grada Publishing, Praha
Meredith, J.R. and Mantel, S.J. (2012) Project management: a managerial approach. 8th ed. Wiley,
Hoboken, NJ.
Merna, T. and Al-Thani, F. F. (2007) Risk management: řízení rizika ve firmě. 1. ed. Computer Press,
Brno.
Meyer, T. and Reniers, G.L.L. (2016) Engineering risk management. 2nd edition. De Gruyter, Boston.
Palisade Corporation. (2015) @RISK User´s Guide – Risk Analysis and Simulation Add-In for
Microsoft Excel, version 7, August 2015. [Online]. Palisade Corporation.[ retrieved 5.5.2016].
Available from http://www.palisade.com/downloads/documentation/7/EN/RISK7_EN.pdf
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Palisade Corporation. (2016) @RISK. [Online]. Palisade Corporation.[ retrieved 5.5.2016]. Available
from http://www.palisade.com/risk/
Prochazkova, P. T. and Jelinkova, E. The Importance of Intellectual Capital in Entrepreneurial

Companies. 6th European Conference on Intellectual Capital (ECIC). PROCEEDINGS OF THE 6TH
EUROPEAN CONFERENCE ON INTELLECTUAL CAPITAL (ECIC 2014). Bratislava, Slovak
Republic: Academic Conferences and Publishing International Limited Reading, 2014, pp.264-269.
ISBN 978-1-909507-24-1
Scholleova, H. (2012) Ekonomické a finanční řízení pro neekonomy. 2. ed. Grada, Praha.
Smejkal, V. a Rais, K. (2013) Řízení rizik ve firmách a jiných organizacích. 4. ed. Grada Publishing,
Praha.
Suhobokov, A. (2007, Sep) Application of Monte Carlo Simulation Methods in Risk Management.
[Online]. Journal Of Business Economics & Management. [cited May 9, 2016]; 8(3): 165-168.
Available from: Business Source Complete.
Sulak, M., Vacik, E. and Ircingova, J. (2012) Teze k přednáškám předmětu Řízení podnikatelských
projektů. 2. ed., Západočeská univerzita, Plzen.
Thomopoulos, N. T. (2012) Essentials of Monte Carlo Simulation, Springer, USA.
978
Reducing Products Costs by Prescribing Geometric Precision based

on Size - Dependent Tolerances
Cătălin Ionescu, University POLITEHNICA of Bucharest, Bucharest, Romania,

catalin.ionescu24@gmail.com
Paulina Spânu, University POLITEHNICA of Bucharest, Bucharest, Romania, pauspa16@yahoo.com
Aurelian Vișan,University POLITEHNICA of Bucharest, Bucharest, Romania,

aurelianvisan20003@yahoo.com
Abstract
Starting from the idea that prescribing larger tolerances for product design leads to reduced development
and recycling costs, this paper presents a virtual tool made in LabVIEW that can be used by designers
and technologists to interpret and implement precision prescriptions of the macro-geometric form based
on size - dependent tolerances, respectively based on the principle of maximum material and the
envelope requirement. For completing the programming algorithm there were estabished the dependence
relationships between straightness size-dependent tolerances, straightness tolerances inscribed in
drawings and the actual dimension of the tolerated surface. The work will continue with the making of
other applications regarding prescribing precision to the relative position based on size-dependent
tolerances.
Keywords: LabView, prescribed precision, tolerance, cost, principle of maximum material
Introduction
In the design process for making the assembly drawings and the execution ones, one of the most
important issues is prescribing the geometric precision of products, respectively precision of the shape
and relative position precision.
Based on analysis of the functional role of the assembly, parts and surfaces, the designer must decide
when to use individual tolerances and when to use general tolerances. For this, the first issue that must
be known is cost - tolerance dependency. In the book by Ionescu (2016), the dependency referring, to
the manufacturing cost - tolerance characteristic (Figure 1) is specific to the product in terms of
technical and economic characteristics.
Figure1 : Dependency manufacturing cost – characteristic tolerance
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Space 1 is the space of either low tolerances or upper limit precisions, resulting in very high costs
(figure 1). Even a small tolerance variation could have as a result a big increase of the manufacturing
costs. The tolerances from this space should only be used in those situations when product functioning
requires it expressly.
Space 2 is the space of either moderate or normal precisions, resulting in average or normal costs. In the
space 2 interval, a medium tolerance variation results in a normal cost variation. This space is
recommended for very frequent usage any time the functional role of product characteristics allows it.
Space 3 is the space of high and very high tolerances or of small precisions, namely the space of very
low costs. In the book by Ionescu (2016), in this space, a broad and very broad variation of tolerances,
results in a small cost change.
An important issue from the point of view of cost reduction by reducing tolerances, but relatively
complex in terms of knowledge, interpretation and use, is the prescription of geometric precision on the
size-dependent tolerances respectively based on the principle of the maximum material, the envelope
requirement, the principle of minimum material and the condition of reciprocity. This issue raises some
difficulties both due to the complexity and the large number of cases, especially the relative position
case, but also due to the frequent changes in standards and relatively difficult access to such standards,
including financial difficulties. This paper presents a virtual instrument developed in LabVIEW that
comes both in support of the designer - who is forced to prescribe size-dependent tolerances and in
support of the technologist that has to interpret these prescriptions in the design process of
manufacturing technologies.
The paper is a part of a more complex project that aims to provide applications for a larger number of
situations that the designer or the technologist could come across. It also aims the design of indicators
that will be used in a general methodology for assessing the product recyclability.
Current state
Currently in Romania and in many countries is repealed the standad (SR) ISO 2692: 1996, Technical
drawings. Geometrical tolerancing. Maximum material principle. and the standard (SR) ISO 2692 / A1:
1996, Techincal drawings. Geometrical tolerancing. Maximum material principle. Amendment 1: Least
material requiremets. They have been replaced with standard (SR EN) ISO 2692/2015, Geometrical
product specificatios (GPS) – Geometrical Tolerancing – Maximum material requirement (MMR), least
material requirement (LMR) and reciprocity requirement (RPR). It introduces in addition the reciprocity
requirement that allows, under certain conditions, not only the transfer from size tolerance to form
tolerance but also vice versa, even with the risk that the actual dimensions will not fit in the prescribed
size tolerance, if it is considered that it is more advantageous in terms of functionality.
Prescribing the precision to straightness based on size - dependent tolerances
Prescribing precision of shafts according to the maximum material principle
In case this principle the symbol M is used after the value of the form tolerance. According to this
principle, when the tolerance reaches straightness, the form tolerance could increase from the prescribed
tolerance - when the surface reaches the maximum material size to a value equal to the sum between the
prescribed tolerance and the difference, in absolute value, between actual size and the maximum
material one.
In Figure 2 it is presented a significant example for precision inclusion at straightness (Ionescu, 2016).
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Figure 2: Example of prescribing precision based on maximum material principle

(Ionescu, 2016)
The prescription in Figure 2 can be interpreted as:

- When the shaft has the actual diameter at the maximum material dMML, namely 10,000 mm,
straightness tolerance T- is the prescribed one, namely 0.01 mm.
- If the actual diameter dac is less than the maximum, the difference between the actual diameter and
the maximum material diameter dMML is transferred to straightness. So when the shaft has a
minimum actual diameter of 9.95 mm, that is the minimum size of the material, the straightness
tolerance is equal to the sum between the prescribed form tolerance Tinscr and the size tolerance
which means that the dependent tolerance is 0.01 + 0.05 = 0.06 mm.
Table 1 shows the variation of straightness tolerance depending on different values of the actual
diameter within the tolerance field.
Table 1: The variation of straightness tolerance
9,950 ≤ dac ≤ 10,000 0,010 ≤ T- ≤ 0,060

10,000 (MML) 0,010
9,990 0,020
9,980 0,030
9,970 0,040
9,960 0,050
9,950 (LML) 0,060
Based on what was stated it could be shown that:
T- = Tinscr + dMML – dac (1)

or
Tinscr ≤ T- ≤ Tinscr + dMML – dac (2)
Prescribing precision of hole according to the maximum material principle
If the prescription from Figure 2 would apply to holes the interpretation would be similar with the only
mention that the diameter at the maximum material DMML is the minimum diameter Dmin and the
diameter at the minimum material is the maximum diameter Dmax. In this case it could be written:
T- = Tinscr + Dac – DMML (3)

or
Tinscr ≤ T- ≤ Tinscr + Dac – DMML (4)
where Dac is the actual diameter of the hole.
For modeling in LabVIEW the equations (1) and (3) can be generalized as
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T- = Tinscr + |∆ac – ∆MML| (5)

where ∆ can be d in case of the shafts or D in the case of the hole.
Prescribing precision of shafts and holes according to the envelope requirement
When applying the envelope requirement the symbol E is used, placed after the tolerated size.
According to (SR EN) ISO 2692/2015 "the ideal-form envelope, which has maximum material size,
must not be exceeded, which means that the profile or surface, be they real or actual ones, are to be
found between the lower and upper limits size, namely they have a macro-geometric form tolerance that
is equal to the size tolerance”. Basically this is a particular situation of the maximum material case in
which it starts with the straightness tolerance at zero when the actual diameter is at the maximum
material and the other elements contained in paragraphs 3.1 and 3.2 remain valid. So the equations
(1),…,(5) become:
T- = dMML – dac (6)
0 ≤ T- ≤ dMML – dac (7)
T- = Dac – DMML (8)
0 ≤ T- ≤ Dac – DMML (9)
T- = |∆ac – ∆MML| (10)
The example in Figure 3 may be adjusted for prescribing precision based on the envelope requirement,
as shown in Figure 2.
Figure3: Example of prescribing precision based on envelope requirement (Ionescu, 2016)
Interpreting the application of the envelope requirement for figure 3 is as follows:
The cylindrical surface must not exceed of the ideal form envelope at the maximum material Ø
10 (Figure 4).
The actual diameters must be between Ø 9.95 and Ø 10.
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Figure 4: Interpreting the application of the envelope requirement (Ionescu, 2016)
Table 2 shows the variation of straightness tolerance depending on different values of the actual
diameter.
Table 2: The variation of straightness tolerance
9,950 ≤ dac ≤ 10,000 T-

10,000 0,000
9,990 0,010
9,980 0,020
9,970 0,030
9,960 0,040
If the prescription from Figure 3 applied to hole the interpretation would be similar with the only
mention that the diameter at the maximum material D MML is the minimum diameter Dmin and the
diameter at the minimum material is the maximum diameter D max. In this case the variation of the
straightness tolerance is shown in Table 3.
Table 3:case the variation of the straightness tolerance
9,950 ≤ Dac ≤ 10,000 T-

9,960 0,000
9,970 0,010
9,980 0,020
9,990 0,030
10,000 0,040
Modeling the precision prescription at the straightness of the tolerances dependent on

size in LabVIEW
Description of the virtual instrument functioning
The virtual instrument developed by the authors in LabView allows the user to specify, using numeric
control elements, the following values for both shafts and holes: the nominal diameter, the actual
diameter, the length, the lower limit deviation, the upper limit deviation, the prescribed tolerance. Also,
to simplify the interface, the user has a Tab Control element available in order to introduce the data for
either shafts or holes by selecting the corresponding tab. Depending on the input data specified by the
user, when running the virtual instrument there will be displayed through indicators the values computed
for: the diameter at the maximum and at the minimum material, the straightness tolerance value and
there will be drawn the graphs for the dependency between the actual diameter and the straightness
tolerance for shafts or for holes, depending on the tab selected. If the entered tolerance value is
different from zero, in the front panel an indicator becomes visible, one that allows the display of the
prescribed deviation. The virtual tool will run until the user presses the button STOP.
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User interface design
In the front pannel of the virtual instrumet there were arranged the following types of control elements
necessary for specifying input data:
- A Tab Control element with two tabs available, allowing the display of control elements and of
indicator elements for shaft or hole depending on the tab selected.
- Two numeric control elements of Horizontal Pointer Slide type, a control element of Vertical
Pointer Slide type having the digital display visible and three scalar numerical controls. The control
elements were configured to allow the introduction of numerical values with two decimals.
- A boolean control element configured for the mechanical behavior Latch When Released.
- Three numerical indicator elements configured to display the numerical values to three decimals.
- Two XY Graph type indicator elements used for graphical represenations, with the option of auto-
ranging active and cursors attached to display numerical values representing the computed
dimensions.
- A string indicator for displaying the prescribed deviation.
Interface design with the designer
The mathematical modeling of the data was made by developing the programming algorithm from the
Block Diagram window. To simplify the interface with the programmer, a Case structure was used,
controlled at the terminal for selecting the value received from the Tab Control element (figura. 5 a and
b). Both for the shaft and for the hole, inside the Case structure were used basic arithmetic functions
necessary for computing the stated tolerance, the diameter at the maximum and minimum material,
according to 1-10 equations. For the graphic representations there were used Build Array and Bundle
functions. For each graph, the cursor was configured using Nodes Properties with the options Cursor
Position and Cursor Name set. The transformation of numeric values to text values was performed using
the Number to Fractional String function. The display of the maximum value respectively of the
minimum value for the actual diameter scale was achieved through nodes property set with Scale
maximum respectively Scale minimum.
How to use the application
To use the virtual instrument, the designer or the technologist has a friendly and simple interface. To
obtain the values of the geometrical tolerances dependent on the size the following steps must be
followed:
STEP 1: Select the tab SHAFT / HOLE.

STEP 2: Specify the nominal size of the diameter dnom/Dnom.
STEP 3: Specify the length of the shaft / hole.
STEP 4: Specify the actual diameter dac/Dac.
STEP 5: Introduce the lower limit deviation ei/EI and the upper limit deviation es/ES.
STEP 6: Specify the straightness tolerance on the execution drawing.
STEP 7: Run the program to display the computed values, the graphical representation of the
tolerance dependency on the actual dimension and the drawing of the shaft or hole.
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Figure 5a. Block Diagram window for shaft
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Figure 5b: Block Diagram window for hole
Figure 6 shows an example of a panel with the numerical values presented in Figure 2, resulting in this
case, the maximum of material, dac = 10,000, straightness tolerance on the maximum material principle
is the one from the drawing, namely 0.01 mm.
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Figure 6: Example for d = dMML and M
Figure 7: Example for d = dLML and M
At minimum material, respectively for dac = 9,95 mm the straightness tolerance is 0.01 + 0.05 = 0.06
mm (Figure 7) and an intermediate position, for example 9.982 (Figure 8) the straightness tolerance is
supplemented by the difference between dMML and dac, that is 0.01 + 10.000 - 9.982 = 0.028 mm,
displayed in T-.
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Figure 8: Example for d = 9.982 and M
Figure 9: Example for d = 9.982 and E
The area below the line graph shown in all the figures between the two limit dimensions is the set of all
possible deviations from straightness. The case in which the precision is prescribed based on the
envelope requirement is a particular case where the maximum material straightness tolerance is zero. If
the entered tolerance value is zero, the indicator for displaying the deviation prescribed becomes
invisible and the symbol of the maximum material E is placed in a circle next to the size tolerated, as
can be observed in Figure 9, all other indicator elements remaining available in the frontal panel of the
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virtual instrument. The program allows computing these elements similarly for the case of holes by
selecting tab HOLE (fig. 10-13).
Figure 10. Example for D = DMML and M
Figure11:Example for D = DLML and M
When it comes to holes, the description and functioning of the virtual instrument is similar except that
the diameter of the maximum material is the minimum diameter (figure 10-13). In this case the
prescription of the straightness tolerance according to the envelope requirement is a particular case
(figure 13) of the maximum material principle and the program displays the letter E inside a circle next
to the tolerated size (figure 13).
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Figure 12: Example for D = 9.981 and M
Figure 13: Example for D = 9.988 and E
In Figures 6, ..., 13 the trapezoidal surface delimited by the blue line, the horizontal axis and the vertical
lines that pass through the minimum diameter and the maximum diameter represent the straightness
tolerance dependent on size. If the straightness size-independent tolerance were prescribed, this surface
would be much smaller, since they have a rectangular shape delimited by the horizontal axis, the straight
vertical lines corresponding to the minimum diameter respectively the maximum one and right
horizontal line taken by the stated value of the tolerance (S1> S2, figure 14). According to Figure 1 a
larger area of tolerance for straightness means lower running costs for manufactured products. At the
same time, larger tolerances means an easier removal of the product and, therefore, reduced expenses, at
its end of life for recycling. The ease of disassembly can be quantified using an indicator that can be
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called disassembly indicator or dissemblance. It is an important indicator that is part of a general

assessment methodology for the recyclability of products that is being developed by the authors.
Figure 14:Tolerance zones. T-1 – value of size-independent straightness tolerance; T-2 – maximum
value of size-dependent straightness tolerance
Conclusions
Based on what was presented in this paper, the following conclusions can be summarized:
- Prescribing geometric precision based on size-dependent tolerances allows design using larger
tolerances, leading to reduced manufacturing and product recycling costs.
- The application developed using LabVIEW contributes significantly to improving the work of
designers and technologists to interpret the precision prescriptions of macro-geometric form
based on size-dependent tolerances, namely based on the maximum material and the envelope
requirement.
- The virtual instrument described in this article answers the design requirements necessary for
the tolerances prescription for shafts and holes and will be successfully integrated into other
computer aided design applications;
- The paper is part of a bigger project that aims to provide applications for a larger number of
situations that may occur for the designer or the technologist so that research and development
activity using Labview will be continued with making other applications for prescribing
precision of relative position based on the tolerances dependent on size.
- Regarding the product recycling, it is necessary to create indicators for a general methodology
for assessing the recyclability of products.
Acknowledgement
The research work was performed under project entitled " Eco-innovation virtual hub for recycling
electrical and electronic equipment waste - EcoInnEWaste ", Project no. 320/2014, Cod PN-II-PT-
PCCA-2013-4-1400, financed by the Romanian Ministry of Education and Scientific Research, through
its dedicated body (MEN-UEFISCDI), in the “Partnership in priority domains - PN II” programme.
References
Abaza B., Savu T., Spânu P., (2014), Algoritmi – îndrumar de laborator, Editura PRINTEH, Bucureşti.
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Ionescu N., Visan A., (2016) Tolerances Design, Editura PRINTECH, Bucureşti.
Savu T., Abaza B., Spânu P., (2014), Reprezentări grafice – îndrumar de laborator, Editura PRINTEH,
Bucureşti.
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Efficient Manageability and Intelligent Classification of Web Browsing History Using

Machine Learning
Suraj G. Sumantha Udupa U.

PES Institute of Technology PES Institute of Technology
Bangalore, India Bangalore, India
Suraj.gururaj@gmail.com Sumanth0223@gmail.com
Abstract— Browsing the Web has emerged as the de facto tracked in a rather vague manner, and Users have to spend
activity performed on the Internet. Although Browsing gets considerable amount of time to retrieve webpages already
tracked, the manageability aspect of Web browsing history visited. Therefore, the approach of intelligent classification
is very poor. In this paper, we have a workable solution discussed in this paper is the need of the hour.
implemented by using machine learning and natural
language processing techniques for efficient manageability In this work, we have successfully implemented and tested
of User’s browsing history. The significance of adding such Javascript and Jquery code written as chrome extension for
a capability to a Web browser is that it ensures efficient efficient manageability of web browsing history. This
and quick information retrieval from browsing history, encourages Users to start using History Option which is an
which currently is very challenging. Our solution important component for a web browser.
guarantees that any important websites visited in the past
can be easily accessible because of the intelligent and II. WEB BROWSER HISTORY OVERVIEW
automatic classification.
History is textually organized into a list that includes titles
In a nutshell, our solution-based paper provides an (if any,) of the web pages visited and the URL addresses of
implementation as a browser extension by intelligently those pages. To access a web page, the User must locate the
classifying the browsing history into most relevant desired page by name or address, and select it.
category automatically without any user’s intervention.
This guarantees no information is lost and increases 2.1 Key Terms
productivity by saving time spent revisiting websites that
were of much importance. o Tile: It is a placeholder for all the web browsing history
that acts as a main folder. It also contains a sub-folder
within a main folder to indicate all correctly classified
I. INTRODUCTION URLs into the parent folder.
This paper deals with ways of improving browser capability o Web Personalization: Matching the User's preferences and
by efficiently managing browsing history. The endeavour is to presenting the website content. This custom tailoring is
accomplished by tracking behaviour of the user over a
provide technology solutions that enable, extend, and
period of time.
differentiate the transformation of a browser in maintaining
websites visited by users[2]. This historical information is an
o Adhoc Retrieval: Retrival system will give results of all
essential part of our everyday operations, but its huge quantity
potentially useful documents for a User's query. This is a
and very poor organizing capability makes it difficult and time
specific information retrieval task.
consumi4ng to retrieve it according to User’s preferences.
Web Page Browsing is one of the most important ways for
o Supervised Learning: It is a machine learning technique
people to obtain information. Every visit has some visiting
where we infer a function from known set of buckets or
motivation, and contains a certain interest of the Users.
labeled training samples.
Managing the browsing history also helps in developing a web
personalization.
o Vector Space Model: The documents and queries given by
Users are represented as vectors of features indicating the
In the current scenario, managability aspects of browsing
terms (words) that occur within the collection.
history information within Opera, IE, and several other
existing browsers is quite challenging. All the history
o Chrome Extension: A browser extension compatible with
information is sorted by date and time alone. Also, no
chrome. It is a light weight application that adds
intelligence is involved in this classification, owing to which
additional features to web browser as desired by the User
Users rarely make use of this option. Each browsing session is
for their convenience and comfort.
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III. MAIN CONTRIBUTION at what time the User visits a page and gives a very poor
display of this information. There is zero intelligence involved
In this paper, we discuss a novel approach for automating in classifying any history information that a User had used.
the process of intelligently classifying the browser history So, the end result and impact of such a poor manageability
based on machine learning/natural language processing approach is that Users are very rarely using the option of
techniques. “History” in Web Browser. This has a huge impact, as people
are losing what they had considered important in the activity
A variety of already existing tools to manage history of of browsing and end up searching for the same information all
Web has been suggested by different authors from time to over again.
time, whereas, with this paper we intend to define an approach
which does the classification so efficiently that the User has Another major negative impact with what is most affected is
no intervention in doing it. The process is completely the capability of building personalized searches which are a
automated and tested. very trending utility for any web browser. Historical
information serves as a major input for building personalized
In specific, the following has been achieved: web searches, and losing what Users have already searched is
a huge deal breaker.
o An automated browser extension (tested for Chrome)
which organizes all the web browsing history into 4.2. Our Approach for Better Managebility
specific category based on keyword extraction.
In this Section, we present our approach for providing
o Intelligently Clustering the web pages into specific
capability in a web browser to intelligently classify
category with no User intervention. information of web browsing history. We discuss the main
components of the approach and their functionalities as
o Information reterival using cosine similarity from
follows:
User’s browsing history based on specific date range
or on any interested date.
4.2.1. Supervised Learning
IV. RELATED CONCEPTS In supervised learning, output datasets are provided which
are used to train the machine and get the desired outputs [13].
The following are the concepts that govern the History
When categories are known and classification has to happen,
mechanism in a web browser.
cosine similarity and Naïve Bayes are used to classify
keywords based on probability model.
4.1. Current Scenario
4.1.1. BrowsingHistoryView:
BrowsingHistoryView is a utility that reads the history data

across different Web browsers and displays the result of all
these Web browsers in one table. It provides an option to
watch the browsing history of all User profiles in a running
system, as well as retrieve the history from hard disk. The main
issue here is the incapability of intelligently classifying the data
into categories and difficulty in information retrieval.
4.1.2. History Viewer: .
History Viewer is an extension that can be added to any Fig 1: Supervised Learning
browser. It gives the history of User’s visited websites based on
time. Logging of history based on timestamp is the main The mathematical approach to the supervised learning by
functionality of this extension. There is no classification or incorporation of cosine similarity has been proven multiple
category creation involved, and manageability aspect of getting times.
what the User wants is challenging.
4.1.3 Limitations of History Tracking approach
The limitations of History tracking approach used currently

in existing browsers or any utility for tracking is poor
manageability. The current approaches only take into account
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4.2.2. Workflow of Supervised Learning for Classification 4.2.4. Cosine Similarity for Keyword Extraction
This paper explores the use of ad hoc retrieval with cosine

similarity as the basis for personalized classification of web
browsing history.
In vector-based information retrieval, the usage of cosine

metric plays a major role in giving the parametric results
based on keywords.
The measure of distance between the trained dataset and the

keyword contained in the URL or title(metdata) of webpage
by the cosine angle between their vectors is calculated. When
these two are identical, they will receive a cosine of one and
Fig.2: Workflow for Supervised Learner when they are orthogonal they receive a cosine of zero.[14]
4.2.3. Workflow for classification Equation for cosine is as follows:
Here, we present the overall methodology on how we have
modeled the classification using machine learning technique.
Step 1: Keyword extraction from URL and title of a webpage

using supervised learning algorithm.
Step 2: Training the system with extracted keywords. cosine is also a normalized dot product. That is, the cosine is
the dot product between the two vectors divided by the lengths
Step 3: Finding the probability of best fit for trained samples of each of the two vectors. This is because the numerator of
and classifying it to respective buckets/tiles. the cosine is the dot product,
Step 4: Predicting and classifying the new data to those
buckets already the system has learnt from supervised
learning.
Step 5: Generalization step which gives users an option to add and the denominator of dot product is length of two vectors
keyword which when encountered next time would result in
direct classification to respective tile.
To summarize the entire process—The only thing the User

needs to do is load the browser extension (tested with
Chrome), and webpages will be automatically classified. This
is because the extension developed by us will start
This characterization of keywords and trained datasets as
intelligently recognizing all the keywords in URL that the
vectors provides all the basic parts for an ad hoc retrieval
User has already visited. Keyword extraction is done using
system.[14]
Naïve Bayes Technique. Chrome Extension will automatically
create tiles, and in all subsequent visits, if a related keyword is
The webpages that correspond to the matching keyword
matched the Web page will be classified to already existing
from cosine similarity can: accept a User’s query, create a
main tile.
vector representation for it, compare it against the vectors
representing all known samples, and sort the results. This
In case the User wants to add any keyword of their interest,
result displays the list of webpages rank ordered by their
there is an intelligent built-in functionality with a text box.
similarity to the query. These webpages that are ranked
This allows to enter desired keyword which when submitted
highest will appear first in sub-folder.
creates a tile of that keyword. In future, any keyword similar
to it would be classified accordingly.
All that the cosine simarity does is it helps in identifying
which are keywords to be extracted from a given webpage for
classification into suitable tile and how to rank webpages
retrieved.
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In keyword classification applications, we use : o Supporting this browser extension across multiple
browsers and also enabling it to be used as a mobile
application.
o Provide a suggestion mechanism to Users for

browsing websites that are of the closest match based
By using the above equation, classification of a keyword is on search query. This ensures fast and relevant
done. Initially, probability calculation for each keyword is a searches which also increases overall productivity.
slow process. But the probability of estimated keywords get
updated as and when number of iterations passes.
VI. SCREENSHOTS OF CHROME
V. PERFORMANCE EVALUATION EXTENSION IMPLEMENTED
In evaluation, we compare the performance of our approach

with two different mechanisms in selecting Keyword: o Main Page
o Keyword Recall
o Keyword Precision
o Sub folders in respective tiles after

classification
Fig.3 Keyword classification on training and actual model
Precision = |R| / |T| where R = Related Keywords and

T = Total trained datasets.
Recall = |R|/|U| where U=Related to one request
VI. FUTURE CONTRIBUTION AND IMPROVEMENTS

o Keyword addition capability
Using the proposed solution, we will attempt the following
in future:
o Keywords that are extracted and categorized are to be

collected and help build a personalized search
engine, that can semantically provide webpages
based on User’s specific interest.
o Providing the statistical information on how much of

keywords were correctly classified and thus training
it using neural networks for better results in further
searches.
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VIII. CONCLUSION [5] Cao Yi, Zhang Ning :Study of the Users’ Interests Based On the Internet
Browsing History Proceedings at Natural Science foundation of the
P.R.China 2011
In this work, we have implemented and shown that the Web
browsing manageability aspect is greatly improved by testing [6] Rakesh Kumar and Aditi Sharan:Personalized web search using browsing
it on Chrome Browser as an extension. We have also shown history and domain knowledge2014 Internationai Conference on Issues and
Challenges in Intelligent Computing Techniques (ICICT)
through graphs that our approach is feasible.
[7] Wenjuan Li, Weizhi Meng, Zhiyuan Tan, Yang Xiang:Towards Designing
When a User has spent a good amount of time browsing and an Email Classification System Using Multi-view Based Semi-supervised
Learning: 2014 IEEE 13th International Conference on Trust, Security and
the next time he/she cannot retrive what was browsed, due to Privacy in Computing and Communications
poor manageability of history mechanism, the User will have
to reinvest same or more time to visit the webpages again. [8] Kapil Kumar, Joy Bose:Segregating User Data by Tabs in Web Browsers
This amounts to a huge loss in productivity, especially in Samsung R&D Institute India IEEE 2014 APWiMobi at Bali.
research related fields.
[9] Tamer Nadeem and Bill Killman:A Study of Three Browser History
Mechanisms for Web Navigation in IEEE 2001 International proceedings.
History option in web browser is very sparsely used because
of poor management. Our approach to designing a practical [10] Sebastian Raschka: Naive Bayes and Text Classification – Introduction
and Theory.
solution oriented browser extension enables users to use
history option that aids faster content retrieval with no [11] Fatemeh Ghofrani,Azizollah Jamshidi,Alireza Keshavarz-Haddad:Internet
information loss. traffic classification using Hidden Naive Bayes model:Electrical Engineering
(ICEE), 2015 23rd Iranian Conference
In comparison to the existing history mechanisms, our [12] Zigang Xiao: Maximum Likelihood, Maximum a Posteriori and Naive
solution based approach enables browsers to be more Bayes Machine learning
intelligent in classification of all the information that a User [13] Tom M Mitchell. Machine Learning, India edition.
searches over Internet.
[14] Speech and Language Processing , An introduction to natural language
processing, computational linguistics, and speech recognition. Daniel Jurafsky
The solution proposed will ensure that there is zero & James H. Martin.
information loss as historical information can be retrieved
from any date specifying the range.
We have greatly progressed to release the above mentioned

approach to Chrome WebStore as a chrome extension. We
also plan to investigate the effectiveness and robustness of our
classification model in a real network deployment.
IX. ACKNOWLEDGEMENTS
We would like to express our gratitude to Mr.Krupesha, Sr.

Lecturer, Dept. of CSE at PESIT, and Mr.Nitin V Pujari, HOD
of CSE at PESIT.
X. REFERENCES
[1] Xiantong Zhen, Zhijie Wang, Mengyang Yu, Shuo Li:Supervised

descriptor learning for multi-output regression: 2015 IEEE Conference on
Computer Vision and Pattern Recognition (CVPR)
[2] Tomoharu Iwata,James Robert Lloyd and Zoubin Ghahramani

:Unsupervised Many-to-Many Object Matching for Relational Data:IEEE
Transactions on Pattern Analysis and Machine Intelligence(PAMI)
[3] Wanqing You, Kai Qian, Dan Lo, Prabir Bhattacharya, Minzhe Guo, Ying
Qian:Web Service-Enabled Spam Filtering with Naïve Bayes Classification
:2015 IEEE First International Conference on Big Data Computing Service
and Applications
[4]Anoj Kumar Mohd Ashraf : Efficient Technique for personalized web

search using users browsing history:International Conference on Computing,
Communication and Automation (ICCCA2015)
997
Implication of the new EU Directive for disclosing non-financial

information on sustainability, environment and social aspects
Singer Klaus, Bußian Aykut and Kopia Jan
The Bucharest University of Economic Studies
Klaus.Singer@mazars.de; Aykut.Bussian@t-online.de;
J.Kopia@gmail.com
Abstract
Published financial statements and information are since a long time subject to strict regulations. The
disclosing of non-financial information, like sustainability and social responsibility, was flexible and not
regulated for a long period as no standards in the European Union (EU) existed. Entities reported on
sustainability, economics, environment and social aspects without obligation or specific rules to follow.
The lack of conformity of such reports and missing binding character was recognized by the EU and
resulted in the EU Directive 2014/95/EU. This Directive includes rules to make non-financial information
more harmonized and obligatory within public available reports. Like international accounting standards
the new Directive is helpful to harmonize and compare reports to each other. The undertakings concerned
by the Directive, in line with EU aims to reduce the burden on SME`s, are the public interest entities with
more than 500 employees. Nevertheless the Directive will have an impact on SME´s non-financial
reports. EU member States will have to enforce the Directive until December 2016 and the undertakings
concerned by the regulation will have to report non-financial information in compliance with the
Directive starting from 1 January, 2017.
Keywords: Sustainability; Corporate Social Responsibility, Key Performance Indicators.
JEL Classification: M42 Auditing
Introduction
Company’s published information and management reports has lacked for long time information in
respect to sustainability and social responsibility. Large listed companies were the first mover and
included in there management reports or in separate reports chosen information regarding sustainability
and “corporate social responsibility” (CSR). The EU Parliament adopted on 22 October 2014 the
Directive 2014/695/EU on disclosure of non-financial information. EU member States will have to
enforce the Directive until 6 December 2016 and PIEs concerned by the regulation will have to report
starting the 1 January 2017. The directive is binding for “Public Interest Entities” (PIE) exceeding in
average 500 employees during the reporting year (2014/95/EU 2014). Public Interest Entities should at
least report on environmental topics, social and employees matters, respect for human rights, anti-
corruption and bribery. This is a step forward in the development of sustainability and corporate social
responsibility reporting as for the first time the disclosing of non-financial information is standardized
and becomes a regulatory requirement for undertakings within the EU (2014/95/EU 2014). The new EU
998
Directive will also influence the reporting of undertakings not in the scope of the Directive as Small-and
Medium Entities (SME).
At first sight, the Directive seems to burden companies, as they will have to provide additional
information to their financial reports and therefore have to amend their reporting processes. But large
companies are already providing information about sustainability and CSR. Also have major European
companies given their support in the development of the Directive like IKEA, Unilever or Carrefour.
Thus, the Directive turns a current practice into a regulatory more harmonized reporting requirement. The
new reporting should not been seen as an upcoming obligation. It can also create value for undertakings,
such as an increase in shareholder confidence or increased attractiveness for employees.
Before analysing scope, content, impacts of the new Directive especially on KPIs and the actual situation
of the reporting, we present an overview on the development of disclosing non-financial information in
the last years.
Development of the EU Directive for non-financial information
Reports including sustainability and corporate social responsibilities has been used since years and was
broadly interpreted and discussed, but had the flaw of being a purely voluntary reporting (Bowen, 1953).
Thus, as an effort beyond legal requirements it was for a long time never been subjected to any
regulations (Szabó, Sørensen 2015).
A first step toward non-financial disclosure had been made with the Accounts Modernisation Directive
2003/51/EC (2003/51/EC 2003). “To the extent necessary for an understanding of the company's
development, performance or position, the analysis shall include both financial and, where appropriate,
non-financial key performance indicators relevant to the particular business, including information
relating to environmental and employee matters”(2003/51/EC 2003). The requirement is put into force in
section 289 (3) and section 315 (1) sentence 4 of the German Commercial Law and was also transformed
in local laws of other EU member states (Lanfermann 2015).
Beside the mentioned Directive 2003/51/EC various different approaches could be recognized in the EU
for reporting on sustainability and corporate social responsibility. Depending on country the reporting
was either voluntary or mandatory, the scope of items to be reported was limited or broad or either only
state-owned companies were concerned or publicly-traded are also included (Szabó, Sørensen 2015).
For example the United Kingdom focused on a limited aspect of CSR with mandatory greenhouse gas
emission reporting for quoted undertakings (Szabó, Sørensen 2015). France was the most progressive
country regarding the CSR reporting as since 2001 France companies have to disclose a list of over 60
non-financial items. Since 2010 with the Grenelle II Act the reporting requirement has been extended to
all French limited companies based on a phase-in process until 2014 (Institut RSE 2012).
The adoption of the Directive 2014/95/EU can be seen as turning point: “disclosure of non- financial
information is vital for managing change towards a sustainable global economy by combining long-term
profitability with social justice and environmental protection […] Thus, the European Parliament called
on the Commission to bring forward a legislative proposal on the disclosure of non-financial information
by undertakings” (2014/95/EU 2014). Disclosing non-financial information is not anymore a voluntary
initiative as the Directive turns it into a regulatory requirement.
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The efforts to harmonize the reporting are due to various reasons. Firstly, the E.U Commission’s assumes
that investors beside pure financial information have “interested in social and environmental
information”. Secondly, non-financial information that is published by companies may not be balanced,
as they may provide only the positive aspects and thus mandatory and standard reports may force
companies to give a more objective view or insight. Thirdly, there is a need for comparability of
information. Also harmonized regulation across EU Member States has a smaller cost impact on entities
than several different regulations (Szabó, Sørensen 2015).
Scope of the EU Directive
According to the EU Directive, “large undertakings which are PIEs” with more than an average of 500
employees during the financial year are concerned by the new regulations (2014/95/EU 2014). PIEs
include listed companies traded on a regulated market within the European Union, credit institutions,
insurance firms and also other entities defined as PIE by EU member states.
In the case of consolidated statements, if the parent PIE operates in an EU member State, it has to report
for the activity of the entire group (2014/95/EU 2014). Subsidies included in the group reporting are
exempted to report. On the contrary, if the parent PIE operates outside the EU but with subsidies in
Member States the logic of the Directive would suggest that each subsidy should provide a report.
Base on the given scope around 6.000 companies should be concerned by the Directive (Voland 2014).
However when we take into account the companies in relation to the ones that have to provide non-
financial statements, like suppliers or subsidiaries which may also have to provide non-financial
information in order to prepare the ultimate CSR corporate report, a lot more companies are finally
concerned by the Directive (Howitt 2014).
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Content of the report and its impact on companies’ processes
The companies in scope will have to provide at least information about the topics “environmental, social
and employee matters, respect for human rights, anti-corruption and bribery matters” (2014/95/EU
2014). According to the Directive the undertakings in scope should provide the following information on
these reporting topics to comply (2014/95/EU 2014):
• A brief description of the company business model

• A description of the policies pursued by the company in relation to those matters, including due
diligence processes implemented;
• The outcome of those policies
• The principal risks related to those matters linked to the company's operations including, where
relevant and proportionate, its business relationships, products or services which are likely to
cause adverse impacts in those areas, and how these risks are managed
• Non-financial key performance indicators (KPIs).
The Directive gives additional indications and interpretation on the reporting topics. Regarding
environmental issues, details of the current and foreseeable impacts of the operations and, if
“appropriate”, on health and safety, the use of renewable and/or non-renewable energy, greenhouse gas
emissions, water use and air pollution should be disclosed. The information about social and employee-
related issues may concern the actions taken to ensure gender equality, implementation of fundamental
conventions of the International Labour Organisation, working conditions, social dialogue, respect for the
right of workers to be informed and consulted, respect for trade union rights, health and safety at work
and the dialogue with local communities, and/or the actions taken to ensure the protection and the
development of those communities. Statement regarding human rights, anti-corruption and bribery could
include information on the prevention of human rights abuses and/or on instruments in place to fight
corruption and bribery. A description of the diversity policy applied in relation to the company's
administrative, management and supervisory bodies with regard to aspects such as, for instance, age,
gender, or educational and professional backgrounds, the objectives of that diversity policy, how it has
been implemented and the results in the reporting period can be also included (2014/95/EU 2014).
All of the topics have to be explained by the undertaking, so that in the case that one of the mandatory
topics is not relevant the undertaking has to explain reasoned the fact that not information is provided.
This comply-or-explain principle allows the undertaking to customize the reporting in the set scope and
assures that the set standard topics are respected (Lanfermann 2015; Voland 2014).
Also in the case of a separate report corresponding to the same financial year whether or not relying on
national, EU-based or international frameworks (such as UN-Global Compact, OECD, ISO 26000, GRI,
ILO, DNK, IIRC) and covering the information required for the non-financial statement, Member States
may also exempt companies from providing the non-financial statement, as long as it fulfils the
requirements of the Directive and is published no later than six months after the balance sheet date
(Directive 2014/95/EU). In exceptional cases, if the disclosure of information may be prejudicial to the
1001
commercial position of a company, Member States may allow the omitting of information (2014/95/EU
2014). Thus, by risk on the commercial position of the undertaking the entity can be exempted of a
reporting or is allowed to omit information (Lanfermann 2015).
The disclosure of non-financial information seems to have a noticeable impact on the companies’
reporting processes as the field of topics to report is broad and covers actually a wide range of
sustainability and corporate social responsibility aspects. This should increase the level of connection
between non-financial and financial statements (Szabó, Sørensen 2015).
In consequence, the impact of the Directive on companies’ processes is not as prejudicial as it could be
expected. The scope of information to disclose is broad but companies have flexibility in the information
to disclose as the Directive does not request to report on precise issues but jut requests a general overview
of companies’ non-financial information in relation to their business. The Directive gives a lot of
flexibility to companies in the information to disclose as they can choose what to report as long as they
cover the obligatory topics (2014/95/EU 2014). Beside most of large companies already provide
information about CSR, either on their webpage or in specific reports (Dr. Martin Stawinoga, Prof. Dr.
Patrick Velte 2016). As the Directive concerns mostly large companies the requirement confirms from a
regulatory perspective a current practice.
Finally, the noticeable change is the role of statutory auditors who will have to ensure the existence of the
non-financial statement even if the examination of the report’s content is actually not obliged by the
Directive (2014/95/EU 2014). The role of the statutory auditors is therefore limited (Lanfermann 2015).
On the one hand it is surprising that they should not review the content of the non-financial reports, but
on the other hand statutory auditors are qualified for certifying and giving an opinion on financial
statements and not non-financial as these last ones are more related to qualitative rather than quantitative
information (Szabó, Sørensen 2015). The Directive leaves the decision of mandatory review and
certification of the content to the Member States. Article 225 of Grenelle II Act, 2010, in France already
makes the certification by a third independent party compulsory for instance (Institut RSE 2012).
Examples of non-financial key performance indicators to be reported
The Directive requires non-financial KPIs to be disclosed in relation to the topics required by the
Directive. The Directive did not mention any KPIs as they certainly differ from company to company
(2014/95/EU 2014). KPIs are specific to country, operation and business. Nevertheless a couple of non-
financial KPIs may concern all size of companies without being too specific. Below some possible
indicators are displayed (DANONE 14 Sustainable report 2015; BMW 2014 Sustainable report 2015).
1002
Table 1: Examples of general KPI´s used in sustainable reports
General Performance Indicators for • Primary energy consumption

Environment • Share of renewable energies compared to
total energy consumption
• Material consumption and recycling quota
• Water used and air bound emissions
• Environmental costs
General Performance Indicators for Social and • Percentage of employees satisfied with
employee concerns their work
• Number of nonfatal injuries and illnesses
• Women as percentage of employees
• Women in top-management
• Number of hours volunteered by
employees
• Significant collaborations with corporate
partners, nonprofits, and NGOs
General Performance Indicators for Respect • Percentage of staff with access to staff
for human rights forum, grievance procedure or other
support
• Number of human rights policy
assessments among workers
• Number and breakdown of code violations
( e.g., unrespectful treatment,
discrimination, collective bargaining,
employee relations, employee privacy,
right to organize, working hours)
• Percentage of staff that experienced
harassment, discrimination, etc. as
expressed in employee surveyor channeled
through external party (e.g. unions)
General Performance Indicators for Anti- • Number of complaints received
corruption and bribery matters • Nature of the received complaints (based
on an established and applied rating)
• Number of disciplinary actions for
corruption and bribery
For instance listed companies like the French DANONE, which is part of the CAC 40 and operates in the
food industry, discloses information related to sustainability and social responsibility with selected KPIs.
In its 2014 Sustainability report, DANONE uses the following indicators (DANONE 14 Sustainable
report 2015).
1003
Table 2: Examples of industry specific KPI´s used in sustainable reports
Industry specific Performance Indicators for • Total water withdrawn from the
Environment surrounding area
• Water consumption in the production
processes
• Final discharge of Chemical Oxygen
Demand (COD)
• Net COD ratios (kg/metric ton of
products)
• Total quantity of waste generated
• Total quantity of waste eliminated
Industry specific Performance Indicators for • Total managers Female/Male of which
Social and employee concerns directors and executives
• Average age Female/Male
• Total workforce of which international
staff
• Total workforce of which local staff
Industry specific Performance Indicators for • Number of subsidies included in the mid-
Anti-corruption and bribery matters yearly reporting on internal fraud
KPIs disclosed are mainly extracted out of the CSR reporting of DANONE and are therefore driven by
the business of DANONE. Not all mandatory topics are included in the actual CSR reporting of
DANONE as no KPIs are used to describe the Human Rights actions. Thus, changes to the disclosed
information are expected not only for DANONE once the directive is enforced (DANAONE 14
Sustainable report 2015).
For SME´s the following KPI´s might be relevant depending on business and organization. Environment:
Cost of energy in percentage of total turnover. A rate above 4% qualifies for a production with high use
of energy (IDW PS 971 2013). Social and employee concerns: Number of days without any accident.
Every accident at work should be avoided. Anti-corruption and bribery matters: Number of trainings
given for employees to strengthen the awareness.
Actual situation and impact on companies in Germany
Companies general agree since a few years about the importance of providing non-financial information
to increase the transparency regarding the social and environmental impact of corporate activities (Voland
2014). In practice disclosers differ from company to company. In a study on Corporate Sustainability
authors from the Institute for Futures Studies and Technology Assessment already showed that in their
sample of German companies, 80% said that sustainable development was relevant for them (Hahn,
Scheermesser 2006). Since the study was conducted the awareness to these topics increased. More
companies understood the need of information by stakeholders and integrated non-financial information
in their perpetual reports. A very appropriate classification of companies in respect to the attitude for
sustainability and corporate social responsibility is to divide between “Sustainability Leaders”,
“Environmentalists” and “Traditionalists” (Hahn, Scheermesser 2006).
1004
Sustainability Leaders are strongly committed into CSR topics, mainly motivated by ethical and moral
factors and have already integrated CSR measures. The Environmentalists, the majority of companies, the
non-financial reporting are not ethical motivation. CSR policies are pursued because of ecological
responsibility, image or cost savings. Traditionalists acknowledge little relevance of CSR for their
operations and thus implement few measures. They would commit to CSR for traditional business
reasons, like opportunity of growth. Most of the traditionalists are SMEs. The study of Hahn and
Scheermesser points out that a significant difference between the traditionalists and environmentalists is
that the environmentalists are larger companies and have therefore more standardized management
systems like EFQM system, EMAS and ISO standards 14000 and 9000 which enable a better control over
the companies’ operations on its environment and thus makes the challenge of CSR easier to tackle.
Public-listed companies
Large public listed companies like the DAX 30 companies are the most advanced in the field of CSR as
“almost all of the DAX 30 companies are providing sustainability reporting” (Mazars 2015). For example
the CSR Report of BMW, a DAX listed company, already disclose information about environment, social
issue, human rights and anti-corruption topics (BMW Sustainable report 2015). Smaller public-listed
companies do not always publish CSR information as only 42% of the SDAX companies and only 33%
of the TecDAX companies release information on CSR (Mazars 2015).
The consequences out of the new Directive differ from company to company. For the companies which
already publish a CSR or comparable report, some adjustments may have to be done in order to comply
with the format of the reporting – like adding KPIs or developing topics especially human rights and anti-
bribery or anti-corruption. For the other companies, which do not publish a report yet and are in the direct
or indirect scope of the Directive, they will have to establish processes to collect necessary information
and have to define relevant KPIs to provide a report starting 2017.
Small and Medium Entities (SME)
The Directive clearly indicates that “SMEs should be exempted from additional requirements, and the
obligation to disclose a non-financial statement should apply only to those large undertakings which are
public-interest entities and to those public-interest entities which are parent undertakings of a large
group”(2014/95/EU 2014). However, “this should not prevent Member States from requiring disclosure
of non-financial information from undertakings and groups other than undertakings which are subject to
this Directive” (2014/95/EU 2014). Member States may require information from SMEs. SMEs related to
PIEs may report CSR information as this information is needed to be included in the consolidated report
of the parent company. Indeed as it can be seen in CSR reports, the chain value can be mentioned and
suppliers have thus to provide information (DANAONE 14 Sustainable report 2015).
Conclusion
The new EU directive 2014/95/EU develops sustainability and corporate social responsibility reporting as
it turns, what has been so far voluntary and not harmonized, into a standardized obligation. The impact of
the new Directive on undertakings differs. For large and public listed PIEs the change will not be
revolutionary as they are already disclosing such information, but the information provided will be
harmonized and therefore better comparable. Smaller listed PIEs which do not publish such reports in the
past have to comply and amend their reporting processes to get the necessary information on non-
1005
financials. SMEs, even if they are not the in the scope of the directive, might be included in the reporting
processes as they have to provide CSR information to PIEs in the scope of the Directive. SMEs as part of
larger groups will align their reporting to the standards used by large PIEs. The Directive is accused for
not going far enough in terms of requirement. Especially the missing audit obligation for the additional
information provided is seen as a weakness. Auditors are only obliged to confirm the existence of the
non-financial reporting (Lanfermann 2015). Finding the right balance between giving enough flexibility
to companies to provide relevant information, cost aspects, and at the same time having enough
comparable information between companies is difficult. Thus, the effort of the Directive in harmonizing
sustainability and social responsibility information within the E.U. should be acknowledged.
References
BMW Sustainable Value report 2014 (2015); https://www.bmwgroup.com/content/dam/bmw-group-

websites/bmwgroup_com/responsibility/downloads/en/2014/BMW_Group_SVR2014_EN.pdf
Bowen, H.R. (1953), Social responsibilities of the businessman, Harper.
Danone 14 Sustainable report, Strategy and performance, Bringing health through food to as many people
as possible, (2015);
http://www.danone.com/uploads/tx_bidanonepublications/Danone_Sustainability_Report_2014_light.pdf
Directive 2014/95/EU of the European Parliament and the Council of 22 October 2014 amending
Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large
undertakings and groups (2014).
Directive 2013/34/EU of the European Parliament and the Council of 26 June 2013 on the annual
financial statements, consolidated financial statements and related reports of certain types of
undertakings, amending Directive 2006/43/EC of the European Parliament and of the Council and
repealing Council Directives 78/660/EEC and 83/349/EEC (2013).
Directive 2003/51/EC of the European Parliament and of the Council of 18 June 2003 amending
Directives 78/660/EEC 83/349/EEC and 86/635/EEC and 91/674/EEC and other financial institutions and
insurance undertakings (2003).
Hahn, T., Scheermesser M. (2006), Institute for Futures Studies and Technology Assessment (IZT),
Approaches to Corporate Sustainability among German Companies, Berlin, John Wiley & Sons, Ltd.,
Corporate Social Responsibility and Environmental Management page 150-165.
Howitt R, (2014), The time is now for company non-financial reporting, Euractiv.com.
Insitut der Wirtschaftsprüfer (2013), IDW Prüfungstandard: Prüfung nach dem Kraft-Wärme-
Kopplungsgesetz page 1- 62.
Institut RSE Management (2012), Survey No. 7, The Grenelle II Act in France: a milestone towards
integrated reporting.
1006
Lanfermann G. (2015), EU-Richtlinie zur Angabe von nichtfinanziellen Informationen, WPg 7/2015,
page 323-326.
Mazars, (2015), How public companies are dealing with the upcoming CSR reporting requirements,
mazars.de, http://eng.mazars.de/Home/Our-expertise/Impulse/Content/CSR-Reporting
Prof. Dr. Müller, S. Dr. Stawinoga, M.; Prof. Dr. Velte, P. (2015), Mögliche Einbettung der neuen
nichtfinanziellen Erklärung in die handelsrechtliche Unternehmenspublizität und –prüfung, Erkenntnisse
aus den Stellungnahmen zum Konzeptpapier des BMJV zur nationalen Umsetzung der CSR-Richtlinie,
Der Betrieb, 25.09.2015, page 2217-2223.
Rauschenberg, F. (2014), Die Prüfung nichtfinanzieller Informationen im Konzernlagebericht vor dem

Hintergrund der regulatorischen Änderungen und der Haftung des Wirtschaftsprüfer, Der Konzern,
9/2014, Frankfurt am Main, page 319-323.
Spangenberg, J. H. (2007), Second Order Governance: Learning Processes to Identify Indicators, John
Wiley & Sons.
Dr. Stawinoga, M., Prof. Dr. Velte, P. (2016), Der Referentenentwurf für ein CSR-Richtlinie-
Umsetzungsgesetz, Der Betrieb, 15.04.2016, page 841-847.
Szabó, D.G., Sørensen K.E. (2015), New EU directive on the Disclosure of Non-Financial Information
(CSR), ECFR, page 307–340.
Dr. Voland, T (2014) Erweiterung der Berichtspflichten für Unternehmen nach der CSR-Richtlinie, Der
Betrieb No. 49, page 2815-2818.
1007
Special Economic Zones as an instrument of Industrial Policy

Pharmaceutical Clusters in Russia
Tatyana Kudryavtseva, Peter the Great Sp. Petersburg Polytechnic University, St.Petersburg,
Russia, tankud@mail.ru
Dmitry Rodionov, Peter the Great Sp. Petersburg Polytechnic University, St.Petersburg,
Russia, rodionov_dm@mail.ru
Valentina Kravchenko, Peter the Great Sp. Petersburg Polytechnic University, St.Petersburg,
Russia, kravchenkovalentina13@gmail.com
Vladislav Maryta, St. Petersburg National Research University of Information Technologies,
mechanics and optics, St. Petersburg, Russia, marutavlad@mail.ru
Abstract
Special economic zones as new tool of industry policy should positive influence on the number of
employees and wages of employees, foreign investments and production. This article estimates the
effect from special economic zones on the development of main indicators of region using one of the
statistical method difference in difference analyze. The results suggest that foreign investments and
production develop are faster in the regions with special economic zones. However, growth of
number of employees and their salaries are higher in the regions that were not under treatment of this
economic tool.
Keywords: Industry policy, clusters, special economic zone, difference in difference analysis.
Introduction
July 22, 2005 the Federal law was signed by President of the Russian Federation number 116 of the
Federal Law “Special Economic Zones in the Russian Federation.” The establishment of Special
Economic Zones (SEZ) is determined by the decision of the government of the state and customs
territory of the Russian Federation on which a special regime of entrepreneurial activities in the area
of taxation, customs and activities of the regulatory authorities. It creates special economic zone of
two types: industrial production for the purpose of placing production facilities with a total area no
more than 20 square meters, for a maximum of 20 years, and technology development in order to
create and commercialize scientific Technological development special economic zones with a total
area of not more than 2 square km, for a period not exceeding 20 years also supposed to be created.
Special economic zone (SEZ) is a tool for reaching various socio-economic goals. The zones can
serve as policy aiming to promote trade and financial liberalization, more efficient use of resources or
promotion of economic growth and structural changes (Ge, 1999).
Special economic zones can be different types, depending on the type of preferences and main
purposes of making them. They can be foreign trade zone, which are created for stimulating the
production and export of high-level redistribution, improving product competitiveness, or
Freetrade/Free economic zone, they are for development of international trade, making a profit from
the logistics and services. They can be export processing zone, or trade-industrial zone, for attracting
foreign investment for infrastructure development and job creation, export promotion. The purpose
for freeport is attracting foreign investment, create the image of the territory. Also they can be like
industrial zone/park/estate for Job creation, development and production concentration or special
economic zone for the development of strategic directions of development, the creation /
strengthening of specialization.
The purpose of special economic zones in Russia is not so different. They are created for the
development of manufacturing and high-tech industries, production of new products and the
development of special economic zones. One more reason is to develop import substation industries,
1008
transport, logistic system, and tourism and sanatorium sphere.
Creating special economic zones should implement the several tasks. It is transition from export-raw
material economy to high-tech manufacturing inherent in the innovation economy. Also they should
develop industries with high degree of processing and create of favourable conditions for doing
business in the development and production of competitive high technology products and services.
Improving the investment climate is in this list of its tasks. Moreover, one of their aims is to ensure
the competitiveness of Russia in the world community and its equitable integration into the global
economy.
Some key studies of the effects of special economic zones are discussed in Section 2. The aim of this
research is to quantify the effectiveness of developing special economic zones in different regions of
Russia and compare its productivity in different countries.
The rest of the paper is organized as follow: Section 2 is about literature review of studies, which
have already made the estimation of special economic zones’ effect to the development of other
countries, practice of China as an example. Section 3 is the representation of methodology, which is
used in this study to count the effect in Russia. Section 4 is the descriptive statistics of used economic
and social-economic indicators. Section 4 is the results of the difference in difference analysis.
Section 5 is Conclusion.
Literature Review
The phenomenon of Chinese special economic zones was unique and interesting to many economists,
sociologists and politicians. A substantial number of studies have been produced which proves the
effectiveness of the implementation of special economic zones and their impact on economic factors
such as the level of foreign investment, employment, and exports.
The first (Wei, 1993) included used the information of the city to calculate the effect of the special
economic zones. He determined that the coastal cities, where a special policy was introduced in 1984,
had significantly higher average growth rate at the beginning of the reform period. However, the
difference in the development of the regions impacted in the shortcomings of this study and the
results are not accurate (Wei, 1993).
Special economic zones were also examined at the level of the firm (Schminke and Van
Bayzerbrokem, 2013). They evaluate the effectiveness of the company are located in a special
economic zone on its export performance and behaviour. Their results show that firms in the SEZ
have a higher output per worker a higher level of capital intensity compared to firms located outside
the SEZ. Moreover, the firms in the zone also export more and there was a difference in the volume
of exports between the types of special economic zones.
In a recent study, Wang (2013) uses data for China is to assess the effect of special economic zones
for foreign investment, exports, the presence of foreign companies, domestic investment result. The
results showed that the strong positive effect of regions with special economic zones have on foreign
direct investment, the value of exports and the presence of foreign companies on the market. In
addition, the program of creation of special economic zones poses a major agglomeration that has a
positive effect on technological progress in the region. The average salary of the population is higher
in regions with special economic zones than in other but otherwise comparable areas.
Methodology to evaluate the impact of special economic zones on the development of

pharmaceutical clusters
It is expected that the introduction of special economic zones in the pharmaceutical clusters has
positive impact on many areas of the region's development. In this connection, the following
methodology to assess the impact of special economic zones on the development of pharmaceutical
clusters can be used.
1009
For the purposes of creation of special economic zones, it can be assumed that their appearance
should have a positive impact on the economic and socio-economic factors. That is why such
indicators as average number of employees (without external part-time workers and not of payroll) on
the activities a person; the average monthly nominal wage of employees on a full range of
organizations, rubbles; received investment from foreign investors - total (in dollars), taking into
account the conversion of the rubble equivalent of one thousand dollars; production index (complete
information), percentage, are used in this paper. Data from 2000 till 2015 is used.
Additionally, to assess the impact of special economic zones on the development of the
pharmaceutical cluster in Russia with the help of difference in difference method, which is widely
used in such type of paper, for example Chinese researches by Wang in 2013, two groups of
pharmaceutical clusters were formed.
The first group consists of pharmaceutical clusters in the territory of which, after the approval of the
law on the establishment of special economic zones in 2005, Special zones have been created with
the privileges and preferences, the purpose of which was the increase of foreign investments: A
cluster of medical, pharmaceutical, radiological technologies St. Petersburg, Pharmaceuticals,
medical technology and information technology of Tomsk region, Biotechnical innovative territorial
clusters Pushchino (Moscow region).
The second group consists of pharmaceutical clusters, the development of which was supported by
the regional and federal budgets, but not a special program for the development of special economic
zones: pharmaceutical cluster, biotechnology and biomedicine (Obninsk, Kaluga region); Innovation
Cluster of information and biopharmaceutical technologies Novosibirsk region; Altai
biopharmaceutical cluster.
It is necessary to make a preliminary analysis of the available indicators to determine the overall
dynamics of the individual trends. Also it will eliminate the influence of macroeconomic factors,
changes in economic cycles, unemployment, the general price level, the level of interest rates,
inflation, etc.
Following hypothesis should be proved to estimate the effectiveness of SEZ:

H1: The number of pharmaceutical production workers in regions with special economic zones is
increasing at a faster pace compared to regions without any special economic zones.
H2: The average monthly nominal wage of employees of the pharmaceutical cluster with special
economic zones exceeds the wages of employees of pharmaceutical clusters without any special
economic zones.
H3: The creation of special economic zones in the pharmaceutical cluster has a better positive effect
on foreign investment in the development of clusters than clusters without special economic zones..
H4: Special economic zones as an instrument of industrial policy of the state contribute to the
increase of pharmaceutical industrial production.
It is possible to evaluate the effect of creating special economic zones at different times on the
territory of different regions and to analyse the results from the introduction of new tool of industry
policy in some regions with Difference in difference method.
Dif-in-dif analysis, or evaluation of the difference in differences, is one of the most popular tools for
applied research in to assess the impact of government intervention the economy that are of interest
to some of the relevant outcome variables (Abadie, 2005).
Difference in differences is a statistical technique used in econometrics and quantitative research in

the social sciences that attempts to mimic an experimental research design using observational study
data, by studying the differential effect of a treatment on a 'treatment group' versus a 'control group'
in a natural experiment (Angrist and Pischke, 2008).
1010
In this research it calculates the effect of a special economic zones’ formation on number of
employees and their salaries, on foreign investment and pharmaceutical production index by
comparing the average change before and after 2005 year in these variables of the first group of
research compared to the same average change over time for the second group of pharmaceutical
clusters without developing special economic zones in their territory. In this case the equivalent
regression model would be:
= + + + ∗ + β+ (3.1)
Where is the dependent variable, such as number of employees, salaries, foreign investment or
production index, for each group before and after treatment in 2005. is an error term. is
dummy variable for treatment status which is equal to 1 if the observation is from clusters of the first
group, which are situated in St. Petersburg, Moscow region or Tomsk. is dummy variable
which is equal to 1 if the observation is from 2005 year (post-treatment). ∗ is
interaction term that gets value one for all individuals in treatment region in after period. is
difference-in-difference estimate, which is equal to difference between difference of dependent
variables in the first group after 2005 period and before 2005 year and difference of the same factors
in the second group, control group, after and before 2005 year.
Descriptive statistics
The average number of employees
Figure 1 shows the number of staff employed in the pharmaceutical industry in the two groups, the
group of special economic zones and the control group without special economic zones. Overall, the
dynamics and direction of the development of the six regions is similar. Even Moscow region has the
same direction just the absolute value is much higher. However, the value did not change cardinally
after creation of special economic zones in both groups of regions. It continued to grow slow pace.
25,000
20,000
Tomsk
15,000
Moskow region
St. Petersburg
10,000 Altai region
Kaluga region
Novosibirsk
5,000
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Figure 1: Dynamic of the number of staff employed in the pharmaceutical industry, people
1011
The average monthly nominal wage
The dynamics of growth of average nominal wages is shown in Figure 2. Based on the visual
representation of dynamic of average wages of employees of the two groups it can be seen that, after
2005 year the temp of growth got faster in both groups in comparison with years before created
special economic zones.
70000
60000
50000
Tomsk
40000 Moskow region

St. Petersburg
30000
Altai region
20000 Kaluga region
Novosibirsk
10000
Figure 2: The average nominal monthly salary of staff in the pharmaceutical industry, rubles
Foreign investment
The growth of foreign investment in the two groups of pharmaceutical clusters is shown in Figure 3.
In Figure 4 it is growth for Moscow region and St. Petersburg.
300,000
250,000
200,000
Tomsk
150,000 Altai region
Kaluga region
100,000
Novosibirsk
50,000
Figure 3: The foreign investment in the pharmaceutical clusters, thousand dollars
1012
25,000,000
20,000,000
15,000,000
Moscow
10,000,000 St. Petersburg
5,000,000
Figure 4: The amount of foreign investment for St. Petersburg and Moscow, thousand rubbles
Foreign investment is an indicator of the dynamics of which almost always has a very large variation
in all of the six pharmaceutical clusters.
Trends in the development of foreign investment are similar in all regions. It is easy to see their
growth after development of special economic zones in the regions. However, based only on the
schedule, it is impossible to conclude that there was a greater inflow of investments, as, for example,
for four years after the adoption of the law on special economic zones, foreign investment in the Altai
region was equal to zero, which consequently affects the overall picture of the development of
pharmaceutical clusters without any special economic zones.
Dynamics of the index is shown in Figure 5. The figure shows that the dynamics of the index of
production of pharmaceutical products is not stable in all investigated clusters, which means that
during the development of the pharmaceutical industry in the Russian Federation, the index of
dependence on the base year, data provided by the enterprises and of the state orders.
1013
1200
1000
800 Tomsk
Moskow region
600 St. Petersburg
Altai region
400
Kaluga region
200 Novosibirsk
Figure 5: The dynamics of the index of pharmaceutical production, %
Guided only by trends in the development of four key economic and socio-economic indicators, it is
impossible to draw a conclusion about the effectiveness of the establishment of special economic
zones in the pharmaceutical cluster. As mainly the dynamics of development is similar, that may be
due to the general economic situation in the country, the world economic situation, 2008 crisis,
inflation and other macroeconomic factors.
Results of analysis
The effect of creation special economic zones on the territory of pharmaceutical clusters in different
regions with difference in difference analyse was estimated. The results from this analyse, done in
software EViews, are presented in Table 1. All presented results in the table 1 are statistically
significant, as t-Statistic should be more than 1.3502 in 80% of truth.
Table 1: Results from difference in difference analyze.
Indicator Changes in group 1 with Changes in group 2

special economic zones without special economic
zones
Average number of 12.61% 31.39%
employees (t-Statistic 1.4244) (t-Statistic 4.2942)
The average monthly 20.58% 125.43%
nominal wage of (t-Statistic 1.4308) (t-Statistic 8.7197)
employees
Received investment from 3,8 mlrd dollars 71 million dollars
foreign investors (t-Statistic 3.1378) (t-Statistic 0.0815)
On the territory of a pharmaceutical cluster in the Altai region, the Kaluga Region and the
Novosibirsk region after 2005, despite the lack of special economic zones, the average number of
pharmaceutical production workers increased by 31%. This can be associated with a good
educational foundation that prepares highly qualified specialists. In clusters with special economic
zones is only increased by 12.6% since 2005, the number of employees. It can mean that special
economic zones do not meet their objectives, creation of new jobs for highly qualified personnel. Or
on the contrary increasingly perform such functions as the attraction of advanced technologies for the
production of goods and services that affect the innovation process, which leads to no such rapid
1014
growth in the number of personnel.

personnel
The growth of nominal gross wages and salaries of employees in areas not exposed to the
introduction of special economic zones amounted to 125% in 9 years. Wages of workers in areas such
as St. Petersburg, Moscow and Tomsk increased an average only 20% after the introduction on their
territory zones with tax privileges and preferences.
Based on the results of the values of foreign investments it can be concluded that the special
economic zones successfullylly perform their function of attracting foreign direct investment. Since the
change after 2005 averaged round 4 milliard dollars when in areas without a special economic zone
just 71 million of dollars for 9 years. It should be taken into account that the average value foreign
investments of the clusters without the special economic zones includes data from three regions, Altai
Territory, Novosibirsk and Kaluga region. Accordingly, the evidence of the Altai Territory with zero
investment for four years, adversely
dversely affect the reliability of the diff-in-diff analysis and on the overall
picture. However, the trend of development is still notable.. Therefore, it is worth noting that, for
example, favorable investment environment in the Kaluga region will attract infrastructure perimeter
of the cluster leading world and Russian pharmaceutical companies, such as "AstraZeneca",
"Hemofarm" (German),, "Berlin-Chemie
"Berlin Chemie / Menarini (Italy), "NovoNordisk" (Denmark),
"NEARMEDIC" (Russia), "Galenika" (Serbia) and others. The total total volume of investments is $ 220
million. The volume
ume of foreign investment in this industry exceeded over 25 billion rubbles in St.
Petersburg just in 2010. What it proves the great attraction of pharmaceutical clusters of special
economic zones.
One off the most significant indicators for economic development is the production index. This
indicator has a large variation, and therefore the studied model by difference in difference is not
significant at all.
The figure 6 shows the dynamic of production index in pharmaceutical clusters of special economic
zones. The average index of industrial production prior to the introduction of special economic zones
in the pharmaceutical cluster was 116.66%. After implementation
implementation of the project it is 138.3%.
1200
1000
800
600
400
116,66% 138,3%
200
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Томск Московская область Санкт-Петербург
Figure 6: Indices of industrial production in Tomsk, Moscow region and St. Petersburg
As seen in Figure 7, until 2005 the index of industrial production of pharmaceutical products in the
clusters of the Altai Territory, Novosibirsk and Kaluga region had an average value of 146.94%,
which is directly connected with a very high value of production index in Novosibirsk in 2000. After
2005, the average industrial production index was the make up 110.62%. Hence it iss clear that this
figure is not only decreased in alignment with the previous years, but around 28% less than in the
regions with the existing special economic zones after 2005.
1015
600
500
400
146,94% 110,62%
300
200
100
0
Алтайский край Калужская область Новосибирск
Figure 7: Indices of industrial production in the Altai region, the Kaluga

region and Novosibirsk
Conclusion
Of the four hypotheses only two were confirmed: there was a larger increase in investments in the
pharmaceutical clusters in the special economic zones than in the other areas and the same applies to
the industrial production.
Hypotheses about the salary and the number of personnel working in the production were based on
the experience of China, which has become an example to be emulated around the world in the
creation of special economic zones. The Russian practic
practice has taken very many of the features of the
functioning of special economic zones of China.
China. However the social effects such as growing number
of employees of pharmaceutical production and their salaries have been not reached.
Based on the results obtained
ed during the analysis of the difference in difference, we can draw the
following conclusions about the influence of special economic zones on the development of
pharmaceutical clusters and performance of the main goals of the state set when creating these same
areas.
The objectives of the creation of a state point of view: they are Attraction of direct foreign capital,
technology, goods and services, Testing of new methods of management and organization of labo labour.
This may indicate the superiority of the amount of foreign investment in the development of clusters
of special economic zones, rather than without them. The result of attracting advanced technologies is
less growth in employment of qualified personnel and therefore the nominal wages of the staff
staff. What
can be confirmed by the fact that today, companies increasingly invest in intangible
intangible assets than in
human capital (Rudskoy, 2016).. Speaking of producing pharmaceutical, biomedical, biotechnology, it
is not surprising that the demand for high-tech
high innovative
novative equipment more than a large number of
highly qualified personnel.
Accordingly,
ngly, the function of creating new work places for highly qualified personnel is carried out to
a greater extent in areas not prone to the creation of special economic zones with the privileges and
preferences. In addition, some pharmaceutical clusters without any special economic zones have state
support,
port, which positively affects the development of the region. For example, eeffective
pharmaceutical cluster development mechanism in favour
favo of public-private
private partnership (PPP), which
allows to overcome the limited capacity of the state and municipal authorities
authorities for the implementation
and financing social and infrastructure projects, the use of high management skills and experience of
private companies professionals to improve service quality and management efficiency infrastructure
facilities (Rodionov. D., Guzikova, L.and Rudskaya, I.; 2014).2014) As any large-scale
scale infrastructure
project, the cluster is the optimal platform for cooperation between the state and business, as
production enterprises and commercial organizations can productively interact with scien scientific and
1016
educational institutions, as well as with regional and municipal authorities (Babkin.A. and
Kudryavtseva T.; 2015)
It should be recalled that such instruments of industrial policy as the industrial parks, technology
parks, which in turn are also an attractive element for investors and an important link in the chain of
socio-economic development. For example, in 2007 in the Kaluga region OAO "Kaluga Region
Development Corporation" (KRKO) was created, a regional development institution, the state
operator of industrial parks in the Kaluga region. For several years the Corporation has attracted
many foreign investors. Investments in works created by the KRKO industrial parks, exceeded 152.7
billion rubbles. In the field, it was created more than 17.500 jobs.
It is the development of the export base, import substitution. The analysis of the index of
pharmaceutical production data shows that the increase in production of pharmaceutical products in
particular on the territory of clusters of special economic zones is partly due to the implementation of
the import substitution policy. In addition, with an increase in the production index of the previous
year is significantly affected by the so-called "base effect", growth takes place against the backdrop
of a low starting point.
Besides, one of the fundamental problems of development of the pharmaceutical cluster is irrational
plans area of the creation of the cluster. Successful examples of areas in which the clustering is
successfully implemented, inspire other government entities in the creation of innovation clusters in
an attempt to boost competitiveness. However, maintaining such clusters, regions, governments often
ignore the question of whether real conditions for their education. Companies are often combined into
pharmaceutical clusters on a territorial basis, without clear objectives, without understanding what
benefits they will receive in the merger. When deciding on the pharmaceutical clusters, regions
sometimes simply compete for investments, not having a clear idea of what and how much new
capacity will be loaded. The result of operations is extremely low efficiency of the joint venture
companies. This once again confirmed the presence of high rank only four of the six regions.
To sum everything up it is clear that special economic zones make just the half of their purpose and
tasks. It is possible to assume that the effect of the special economic zones in the pharmaceutical
clusters overlap effect on the creation of business incubators, technology parks and a regional support
in other pharmaceutical clusters and to achieve all these goals require a greater amount of time, which
is a feature of the pharmaceutical industry.
Acknowledgments
References
Angrist, J. D. and Pischke, J. S. (2008) ‘Mostly Harmless Econometrics: An Empiricist's

Companion,’ Princeton University Press.
Babkin, A. and Kudryavtseva, T. (2015) ‘Identification and analysis of instrument industry cluster
on the territory of the Russian Federation,’ Modern Applied Science 9(1), 109-118.
Busso M., Gregory J. and Kline P. (2013) ‘Assessing the incidence and efficiency of a prominent
place based policy,’ American Economic Review 103 (2), 897-947.
Ge, W. (1999) ‘Special economic zones and the opening of the Chinese economy:Some lessons for
economic liberalization,’ World Development 27 (7), 1267-1285.
Rodionov, D., Guzikova, L. and Rudskaya, I. (2014) ‘Innovation potential of regions as a factor of
1017
national economy competitiveness,’ Actual Problems of Economy 158 (8), 2150223.
Rudskoy, A. and Akayev, A. (2016) ‘Economic potential of major technologies in the 6th rising
Kondratiev Economic Cycle (2018-2050) and its social consequences.’
Russian Statistic Order #301 08.05.2014 (2014) Official statistical methodology for calculating the
industrial production index.
Schminke, A. and Van Biesebroeck, J. (2011) ’Using export market performance to evaluate regional
preferential policies in China,’ Review of World Economics. 1-25.
Wang, J. (2013) ‘The economic impact of special economic zones: Evidence from Chinese
municipalities,’ Journal of Development Economics 101, 133-147.
Wei,S. (1993) ‘The open door policy and china's rapid growth: Evidence from city-level data,’
NBER Working Paper No. 4602, National Bureau of Economic Research.
1018
Evaluation Software Applications Using Royalty Savings Method
Paula-Angela Vidrașcu
Academy of Economic Studies, Bucharest, Romania vidrascupaulaangela@yahoo.com
Cristina Burghelea
Hyperion University, 169 Calea Calarasi, Bucharest, Romania, crystachy@yahoo.com
Oana Camelia Iacob

Hyperion University, 169 Calea Calarasi, Bucharest, Romania oanacamelia.i@gmail.com
Ana-Maria Volintiru
Amma Print SRL, Bucharest, Romania anavolintiru@gmail.com
Abstract
From an economic perspective, the asset may be evident from a company owned and controlled
resources generated at the time of trading or investment past from which permanently are expected to
obtain economic benefits. They are considered some of the most important resources of an economic
entity. This is because through them we can study the evolution of the technical, material and
financial developments caused by temporal and permanent capacity development.Along with the
intellectual capital and knowledge creation, intangible assets are conceptual elements that are
strongly correlated with the phenomenon of knowledge management. Evaluation work is a necessity.
That expression means using standard monetary means, processes and sources entities. Through it we
can identify the correct value of existing structures in the annual financial statements, which are
identified in both the balance sheet and the statement of profit and loss.
Software is evaluated using the following methods: updating profits, market comparison method and
dimensional evaluation method. In this case we chose to study illustration royalty savings method.
Keywords: Intangible assets, evaluation, evaluation methods, computer programs/software, royalty

savings method
JEL Codes: M40, D04, C80, C89.
Definition and representation of intangible assets
According to Order no. 3.055/2009, updated by Order no. 1.802/2014, the intangible assets are the property
which meet all the following characteristics: they are components identifiable non-monetary without holding
a support material, are supervised and is in possession of the entity in order to be used in production or
supply of goods or services to be leased to third parties or used for administrative purposes (Finance
Ministry, 2009). They are also used for more than one year (IASB, 2013), (Finance Ministry, 2014).
The simplest representation of these elements property can be highlighted in Figure 1.
1019
Figure 1: Diagram of the representation of the intangible

int assets
Source: Data processed by author
According to the literature it is noted that assets are those that contribute to income throughout their lifetime,
providing the safety of a base material of the business entity, which is why some authors believe that
intangible assets represent some investments
investments intangible very efficient, with a true economic potential,
supporting the development and diversification of specific activities undertaken (Dumitrana et al, 2011)
2011).
Looking at the benchmarks between FASB (Standards Board Financial Accounting), IASB (Council for
International Accounting Standards, together with IAS 38) and PGC 2007 (Plan General Accounting
Spanish),, I realized Figure 2., which highlights the schematic definition of intangible assets.
Figure 2: Defining the intangible assets according to IASB, FASB and PGC 2007
Source: Data processed by author, adapted by Córcoles, 2010, page 187 (Corcoles, 2010)
As a concluding point, I have to indicate that intangible assets include all amounts that economic investment
without having a physical
sical form of material goods used in their own enterprise or entrusted to third parties, the
idea of using by them (Ristea et al, 2009)
2009).
Evaluation concept
Evaluation work is a necessity that expression means using standard monetary means, processes and
sources entities (Stan, 2010).. Through it can identify the correct value of existing structures in the
annual financial statements, which are identified in both
both the balance sheet and the statement of profit
and loss.
1020
The concept of evaluation can be represented by the following categories of identity: the identity of
the material, the homogeneous formal identity (through monetary standard, universal means of
measurement), efficient identity(objective involving facilities), the final identity (where the purpose
and means satisfy the identification value of truth), measurement, quantification monetary relations
or the relations of exchange balance and stability situation at a time, which ends with the evolution
of a given period of any commitment made (Grigorescu, 2004).
Evaluation can be defined in terms of accounting; accounting process that determines the value of
specific items recognized in the financial statements and accounting are recorded in the balance sheet
and profit and loss (Jianu et al, 2010).
Therefore, we indicate that intangible assets means an activity carried out only based on international
valuation standards and international accounting, which share the objective of defining and
identifying the correct and complete value of such asset components.
Intangible assets that are common in evaluation
Before presenting the case study and discussion related to this article, I will enunciate tabular form
intangible assets commonly found in the assessment (see tables no. 1.1, 1.1.a, 1.1.b, 1.1.c.).
Table 1.1: Intangible assets commonly found in evaluation
The name of the The name of the The name of the

No. No. No.
intangible asset intangible asset intangible asset
Advertising campaigns Folders with
1 40 Goodwill 79
and programs prescriptions
2 Agreements 41 Government contracts 80 Awards
Airport gates and
3 42 Government programs 81 Procedure manuals
openings
Portfolio
4 Assessments plants 43 Government records 82
competition
5 Rulings and judgments 44 Historical documents 83 Product Design
Customer bank-deposit,
Usage rights to
6 loan, bond and credit 45 HMO promotion lists 84
property
card
Insurance policies Outstanding
7 Projects 46 85
expired proposals
Insurance policies in Proprietary
8 Libraries 47 86
force software
9 Trademarks 48 Combinations 87 Patented processes
Claims broadcasting
10 49 Know-how 88 Patented products
RTV
Source: Faighenov, 1998, pp. 29-33
1021
Table 1.1.a: Intangible assets commonly found in evaluation

No. No. No.
Laboratory Patented
11 Agreements of sale 50 89
Notebooks technology
12 References 51 Landing rights 90 Publications
13 Chemical formulas 52 Leased properties 91 Purchase order
Claims Interest in rented Approvals
14 53 92
properties regulated
15 Computer programs 54 Literary works 93 Reputation
Bonuses and
16 Computerized database 55 94 Retail space
compensation dispute
17 Contracts 56 Portfolio loans 95 License agreements
Charts and
18 Collaboration agreements 57 Location value 96
diagrams
Management
19 Copyright 58 97 Equity portfolios
contracts
Interests in
20 File information officer 59 Databases textbooks 98
shareholdings
Source: Faighenov, 1998, Pp. 29-33
Table 1.1.b: Intangible assets commonly found in evaluation

No. No. No.
Agreements
Contracts with
21 60 Manuscripts 99 between
customers
shareholders
Promotional and
22 Lists of customers 61 100 Legal rights
marketing
23 Client relations 62 Masks and molds 101 Shares and bonds
Medical charts and
24 Designs 63 102 Petitions
files
25 Development rights 64 Mineral resource rights 103 Supply contracts
Technical and
26 Distribution networks 65 Musical compositions 104 specialized
libraries
Technical
27 Distribution rights 66 Natural resources 105
documentation
28 Drilling rights 67 Newspaper archives 106 Technology
Non-compete Technology
29 Facility 68 107
agreements sharing agreements
Contracts of
30 69 Agreements unabated 108 Pure plant varieties
employment
1022
Table 1.1.c: Intangible assets commonly found in evaluation

No. No. No.
Technical
31 70 Orders open 109 Trade secrets
documentation
Options, guarantees, Trained and
32 Environmental rights 71 110
grants, rights organized labor
Brand name and
33 Patent radio transmitting 72 Ore deposits 111
trademark
34 Favorable financing 73 Patent applications 112 Training manuals
Patents, both for
Unpatented
35 Favorable leases 74 product and for 113
technology
technology
Usage rights - air,
36 Food flavors and recipes 75 Models 114
water, earth
Unfinished
37 Francis agreements 76 Authorizations 115
business
Contracts with
38 Order of francis 77
personalities
39 Business viability 78 Tenure rights
Case study on the assessment of software applications through royalty savings method
Software is evaluated using the following methods: updating profits, market comparison method and
dimensional evaluation method. As a practical example we will choose Lactovaris SRL company
aiming to develop an own software, so as not to be dependent compulsory license payable annually,
i.e. 12% of turnover. The payback period is 5 years’ application. The initial turnover is 200,000
euros, which is projected an annual growth of 10% over the next 5 years and the costs of making and
implementation of the application are 23% of the economy fee to establish the value of application
software developed by the company.
The entire process of calculation is done according to Table no. 2.
Table 2: Analysis on the five-year study of the indicators necessary for evaluation software
No. Indicators Year 1 Year 2 Year 3 Year 4 Year 5 TOTAL

(euros)
1 Turnover 200.000 240.000 264.000 290.400 319.440 1.313.840
2 Royalty 24.000 28.800 31.680 34.848 38.333 157.661
economy
12%*Turnover
3 Revenues due to 224.000 268.800 295.680 325.248 357.773 1.471.501
royalty savings
(r1+r2)
4 General costs 5.520 6.624 7.286 8.015 8.817 36.262
for achieving
23% of the
economy
software royalty
(23%*r2)
5 Gross cash flow 18.480 22.176 24.394 26.833 29.516 121.399
due to savings
1023
No. Indicators Year 1 Year 2 Year 3 Year 4 Year 5 TOTAL

(euros)
(r2-r4)
6 Income tax 16% 2.957 3.548 3.903 4.293 4.723 19.424
(16%*r5)
7 The net cash 15.523 18.628 20.491 22.540 24.793 101.975
flow (r5-r6)
8 Discount factor 0,8772 0,7695 0,6750 0,5921 0,5194
14%1
9 Discounted net 13.617 14.334 13.831 13.346 12.878 68.006
cash flow
(r7*r8)
10 Value software 68.006
Source: Data processed by author
In compliance of the indicators listed in Table no. 2, we note that the value of the software, obtained
by royalty savings method is 68 006 euro.
Conclusions
The characteristic features of distinct intangible assets that are considered to be responsible for the
existence of uncertainty in trying to invest in such items, but also for derecognizing their balance
sheets of companies can be stated as follows: lack of physical substance, uncertainties intangible
assets due to the nature of innovative activities and possible changes in technology and demand, the
ability to be partially excluded and not least, the inseparability.
Intangible asset valuation process involves finding effective solutions for their appreciation by
applying one or more methods of assessment. Choosing the right valuation method is based on
quantifying the economic benefit associated with overall assets of an entity.
Also, choose the most suitable approach or method of assessment should consider the following
issues: the type of the value adopted which is determined by motivation evaluation; availability of
necessary input data and evaluation; approaches or methods used by well-established market
participants.
Therefore, to achieve optimal value assessment can be described with one, two or all three known
approaches, especially if you do not have enough data to perform evaluation so that by applying a
single approach we can achieve significant value. In case the application of several approaches or
methods of assessment, information on identified value should always be close.
In order to obtain a favorable opinion on the final value, the assessor will review and reconcile data
held permanent or disseminated.
Through research conducted in this article, you must remember that intangible assets have a
significant impact on corporate performance, the management (department management) that
requires access to viable models so as to enable measuring and evaluating the effectiveness of
investments such patrimonial items.
Along with the three factors of production (nature, labor and capital), intangible assets continue to
„reshape” the economic architecture.
References
Còrcoles, Y. R. (2010), Towards the convergence of accounting treatment for intangible assets,
published in Intangible Capital, 2010 – 6(2): 185-201 – ISSN: 1697-9818, 185-201.
Dumitrana, M., & Chirața, C. (2011), Bazele contabilității. Ediția a V-a, Editura Universitară,
București.
Faighenov, M. (1998), Criterii şi metode de evaluare, publicat în Inventică şi economie, anul II, nr.
6(18), București, 29-33.
1
For each year in part: [1/(1+0,14)]; [1/(1+0,14)2]; [1/(1+0,14)3]; [1/(1+0,14)4]; [1/(1+0,14)5].
1024
Gheorghiu, A. (2010), Analiză-diagnostic și evaluarea întreprinderii, Editura Victor, București.

Grigorescu, Ș. I. (2004), Bazele contabilității în administrația publică, Editura InfoMega, ISBN: 973-
86658-8-4.
IASB (2013), Standardul Internațional de Contabilitate - IAS 38: Imobilizări necorporale.
Jianu, Iulia, Geambașu, V. C., & Jianu, Ionel (2010), Evaluarea stocurilor - între prudență și
nonprudență, Analele Universității „Constantin Brâncuși” din Târgu Jiu, Seria Economie, Nr. 4/2010.
Ministerul Finanțelor (2009), OMFP nr. 3.055/2009 pentru aprobarea Reglementărilor contabile
conforme cu Directivele europene.
Ministerul Finanțelor (2014), OMFP nr. 1.802/2014 pentru aprobarea Reglementărilor contabile
privind situațiile financiare anuale individuale şi situațiile financiare anuale consolidate.
Ristea, M., et al. (2009), Contabilitatea societăților comerciale – Volumul 1, Editura Universitară,
București.
Stan, V. S. (2010), Active necorporale: definire și clasificare, publicat în Buletin Informatic nr. 2
(69), ANEVAR, Editura Iroval, București, 17-38.
1025
Comparison of the Minimum Wage in the Czech Republic and

Selected Central European Countries
Karel Šrédl
Czech University of Life Sciences in Prague, Kamýcká 129, Prague, 165 00
sredl@pef.czu.cz
Roman Svoboda
svobodar@pef.czu.cz
Lucie Severová
severova@pef.czu.cz
Abstract
States like the Czech Republic, Slovakia and Germany have instituted the minimum wage and at present
use it to influence the functioning of the national labour market. The process of increasing the minimum
wage in the Czech Republic will have clearer rules and it will no longer be entirely in the hands of
politicians. In the future, the minimum wage should be determined by economic indicators, for example
the average wage. Commercial representatives, the government and even the unions agree with the
change of rules. The aim of the paper is to explain the function of minimum wages in Czech economy
and express the causes of these indicator development deviations in chosen Central European countries.
From the methods of scientific research, the method of comparative analysis was the one most used to
elaborate this paper, while the whole work is based in particular on statistical studies of the national
economy of the Czech Republic and other central European countries. The conducted analysis shows
that the central European countries see the importance of the introduction of the minimum wage as one
of the tools for the effective regulation of the economy.
Keywords: minimum wage, average wage, labour market, Central European countries
Introduction
To reflect the role of the minimum wage on the labour market, articles by leading European economists
were used, alongside other materials. Gianni De Fraja (1999) assumes in his study “Minimum Wage
Legislation, Productivity and Employment“ that workers who are more productive will receive higher
wage and that companies can change working conditions of their employees – and will usually do so in
a reaction to changes in external conditions (more specifically to higher level of minimum wage). This
essay refutes the model of competitive labour markets, in which every employee is remunerated with the
marginal value of the product they created by their own work and in which the only reaction of a
company to an increase in the minimum wage is to dismiss all employees whose marginal product is
lower than this minimum (De Fraja, 1999).
One of the representatives of Austrian school Murray N. Rothbard also commented the issue of wage
regulation in a book called “Basics of economy.“ He gives his opinion on the influence of minimum
wage on unemployment and introducing minimum wage by volunteer labour unions. “If no labour
unions were active in a sector, then expansion of the sector and employment of more workers as a result
of new market conditions would likely happen… If, however, labour unions enforce higher wage rates
from the beginning, development of the sector will not occur“ (Rothbard, 2005).
Some economists deny positive effects of minimum wage and point to negative influences and
inefficiency caused by minimum wage on the sides of both employers and employees. Unfortunately,
neither empirical research nor economic theory, give unambiguous answer to the question of beneficial
effect of minimum wage (Severová et al, 2014).
1026
The aim is to explain the institution of a minimum wage and to describe the causes of differences in the
development of a minimum wage in the selected Central European countries and its impact on
employment in companies.
2. Material and methods
From the methods of scientific research, the method of comparative analysis was the one most used to
elaborate this paper, while the whole work is based in particular on statistical studies of the national
economy of the Czech Republic and other central European countries.
2.1 Comparison of Minimum Wage Rates in the Czech Republic And The Eu
Data from the European statistical office - Eurostat shows that even after increasing minimum wage to
CZK 9,900, Czech minimum wage remained the second lowest in the post-communist Central European
region. Minimum wage in the Czech Republic in 2016 was equivalent to EUR 366. In neighbouring
Poland it was EUR 431, in Slovakia EUR 405 and in Hungary EUR 353. To give an idea what the rates
of the minimum wage are in the western countries with more developed economies, the highest
minimum wage is in Luxembourg – EUR 1,923, i.e. approximately CZK 52,000. Ireland is second with
EUR 1,546 (approx. 41,750) and United Kingdom is third - there, the people on minimum wage find
EUR 1,529 on their payroll, an equivalent of CZK 41,300 (Eurostat, 2016; Severová et al, 2014).
Table 1: The Comparison of Minimum Wage in Selected Countries of EU (January 2016)
EUR CZK
Bulgaria 215 5805
Romania 233 6291
Lithuania 350 9450
Hungary 353 9531
Czech Republic 366 9900
Latvia 370 9990
Slovakia 405 10935
Croatia 408 11016
Estonia 430 11610
Poland 431 11637
Portugal 618 16686
Greece 684 18468
Malta 728 19656
Spain 764 20628
Slovenia 791* 21357
France 1467 39609
Germany 1473 39771
Belgium 1502 40554
Netherlands 1508 40716
United Kingdom 1529 41283
Ireland 1546 41742
Luxembourg 1923 51921
* Data from July 2015
Source: Eurostat, 2016
1027
3. Results and Discussion

3.1 Minimum Wage In The Czech Republic And Proposals For A Change In Its
Determination
The minimum wage represents the lowest level of wage an employer is obliged to provide for work
performed or as fulfilment of a contract of employment. This obligation is set by legislation or by
collective agreement concluded between the employer and the employees, who are usually represented
by the Unions (Baštýř, 2005).
The process of increasing the minimum wage in the Czech Republic will have clearer rules and it will
no longer be entirely in the hands of politicians. The last time, in 2015, the government decided on an
increase of the minimum wage by CZK 700 to the level of CZK 9,900 a month. In the future, the
minimum wage should be determined by economic indicators, for example the average wage.
Commercial representatives, the government and even the unions agree with the change of rules.
The confederation of Employer and Entrepreneur Associations disagrees with the current abrupt
increase in the minimum wage by political governmental decision, but they are interested in discussions
about the minimum wage rate being dependent on economic performance. The Chamber of Commerce
also considers it important to change the way in which the minimum wage rate is determined; by
modelling it on Great Britain, for example, where the decisive parameter is the median wage, which is a
value slightly lower than the average wage (Kučera, 2015).
Representatives of business and government officials are still unable to agree on a date from which the
new system should run. While businesses would like to use the new system from January 2017, the
Ministry of Labour and Social Affairs of the Czech Republic believes that this should not happen until
the minimum wage in the Czech Republic reaches 40% of the average wage. At the moment it reaches
37 %, which means that the change would be applicable in 2018 at the earliest. The union also suggests
that the changes should apply only when the minimum wage reaches 40 % of the average wage. They
find the indexing system a logical way of adjusting the minimum wage.
3.2 Minimum Wage in Slovakia and Purchasing Power of Population

In 2016, the minimum wage in Slovakia grew to EUR 405 (CZK 10,980) and it is higher than in the
Czech Republic. However, in the Czech Republic employees earn more on average than the employees
of their eastern neighbour. According to the Slovak Prime Minister, Robert Fico, who signed the
regulation on the adjustment of the minimum wage, this change should motivate people in Slovakia to
work.
• Comparison of the average wage in the Czech Republic and Slovakia
For the first time in 25 years, the Czech Republic dropped significantly behind Slovakia in the
purchasing power of its population; the Slovaks are already 6 % ahead. According to statistics, the
current average wage in the Bratislava region, which is a few places ahead of Prague in the EU rankings,
equals the equivalent of over CZK 36,000 per month. Thus Bratislava is wealthier than Prague; the
Bratislava region is the fifth wealthiest region of the EU, while Prague is only the seventh.
However, the comparison does not apply only to Bratislava, as far as the purchasing power of the
population goes. According to a representative sample survey of GfK, Slovakia is for the first time in
history significantly ahead of the Czech Republic. The average Slovak can spend about EUR 456 (about
twelve thousand CZK) more annually than the average Czech. Overall, with EUR 7,769 of annual
disposable income, Slovakia achieved 26th place in Europe, while the Czech Republic, with EUR 7,313,
is one place behind. The comparison with the Germans is even starker; their purchasing power is three
times higher than that of Czechs. Compared to the European average, which is EUR 13,636 per year,
Czechs have a mere 54 % (GfK, 2016).
Although the artificial reduction in the value of the Czech crown, which is prevented by the intervention
of the Czech National Bank from rising above 27 CZK per EUR, also contributes to the bad position of
the Czech Republic, it is true that the Slovakian economy has been growing in past 25 years compared
to the Czech one. This is also manifested in the income of the population, which in the 1990s was a third
1028
lower than that of the Czech population and which is continuously rising. This is also why the Czech
Republic is no longer attractive for workers from Slovakia in terms of wages (Palata, 2015).
• Comparison of the minimum wage in the Czech Republic and Slovakia
In the past two years, Slovaks have been better off also thanks to the social “packages” of Fico’s
government. Besides benefits like free train tickets for students and senior citizens or state contributions
for skiing courses, the Slovakian government also increased the minimum wage in 2015. Nowadays it
stands at EUR 405, corresponding to CZK 11,000, which is again above the level of the Czech Republic
(CZK 9,900 in 2016) (Palata, 2015).
However, in some areas Slovakia remains behind the Czech Republic, in particular in education and
health care, where reality significantly lags behind expectations of positive changes. Slovakian doctors,
nurses and university students who came to the Czech Republic in search of better conditions offer
eloquent proof of this.
3.3 Introduction of the Minimum Wage in Germany
German trade unions and left-wing politicians have been demanding the introduction of blanket
minimum hourly wages across sectors for years. The bill introducing this was passed by the Bundestag
by a large majority in July 2014. The SPD chairman, Sigmar Gabriel, described the adoption of the law
as a “historic day for Germany”; in retrospect, this decision will be seen as great social progress", he
stated. Since 2015, employees have received a minimum of EUR 8.5 per hour, i.e. approximately CZK
230.
The law affected 3.7 million working people who previously received a wage lower than the set
minimum. Exemption applies to minors under 18 and the long-term unemployed, to whom the minimum
wage does not apply during the first six months of new employment. From 2016 on, the amount of the
minimum wage should be reviewed every two years by a special commission (ČTK, 2015).
Although the legislation on the minimum wage has been in place in Germany for only two years now,
the conservative CDU/CSU headed by Chancellor Angela Merkel wants to change it already, as
apparently it represents an excessive bureaucratic burden, especially for small companies.
According to the German trade unions, small-scale companies struggle to cope with new duties brought
about by the introduction of the minimum wage. They must provide the authorities with worksheets of
their employees to demonstrate clearly that the monthly wage set out in the employment contract
corresponds to the amount of at least EUR 8.50. While in large companies this obligation is taken care
of by large accounting departments, small firms usually do not have employees to spare for this task
(ČTK 2015).
The new German law is also criticized by Czech and Polish shipping and transport companies, who are
obliged under this legislation to pay their drivers the local minimum wage for the time spent on German
territory (ČTK, 2015).
3.4 Refusal Of Minimum Wage In Switzerland
In a referendum in 2014, Swiss citizens rejected the introduction of a minimum wage corresponding to
CZK 500 per hour, or 4,000 Swiss francs (CZK 90,000) per month. Although we could certainly discuss
the actual amount, the basic question is whether to introduce a minimum wage at all. Only then does it
make sense to examine the cost of living in the country, compare it to the minimum wage, and possibly
conduct an international comparison.
The introduction of a minimum wage has many pros and cons and both arguments have a rational basis.
The Swiss trade unions, who initiated the said draft, argued that the wages are two low. The opponents
of the proposal, which proved to be the majority, used the argument that the minimum wage would lead
to a rise in unemployment. Economic theory really does state that the increase in the minimum wage
might bring higher unemployment, but not under all circumstances.
Argumentation about low wages is speculative. In every society some workers will earn the lowest
wage, and in the case of Switzerland these make up only 10% of the employed. Other working people
earn over four thousand franks a month. This can probably explain why the proposal was rejected.
1029
A higher minimum wage should theoretically lead to the dismissal of those employees whose
productivity and performance simply do not correspond to the minimum wage. A minimum wage might
even lead to the closure of companies that are already on the edge of profitability. Another negative is
the possible arrival of foreign workers who would like to work illegally for less than the statutory wage.
However, a higher minimum wage might motivate someone who has not been willing to enter
employment until now. This might counterbalance the effect of the possible dismissal of less productive
workers. There can be no doubt about the social effect of the increase in the minimum wage. A higher
minimum wage will always lead to the greater security of working people (Menčík, 2014).
In Switzerland, only 3% of working-age people are unemployed. The local social system could certainly
withstand an increase in unemployment by a few percent, so it is a question of a principle whether such
a rich country should support further measures for strengthening social security. Switzerland has
probably made the right decision. With the introduction of the minimum wage, they would probably
have had to tighten immigration law as a barrier to the inflow of cheap labour.
Conclusion
The conducted analysis shows that the central European countries see the importance of the introduction
of the minimum wage as one of the tools for the effective regulation of the economy. States like the
Czech Republic, Slovakia and Germany have instituted the minimum wage and at present use it to
influence the functioning of the national labour market.
The amount of the minimum wage guaranteed by the state rose in January 2016 by CZK 700 to CZK
9,900. This might undermine the still fragile condition of small companies and encourage the grey
economy. However, the government stated that the work must pay, when the increase in the minimum
wage was announced.
References
Baštýř, I., (2005), 'Vybrané aktuální problémy uplatňování minimální mzdy v ČR'. [Online], [Retrieved
June 22, 2016], http://www.vupsv.cz/an165.html
ČTK. 'Merkelová už chce měnit zákon o minimální mzdě,' E15, 22.1.2015, 11.
Eurostat, (2016), 'Statistika minimálních mezd'. [Online], [Retrieved July 7, 2016],

http://ec.europa.eu/eurostat/statistics-explained/index.php/Minimum_wage_statistics/cs
De Fraja, G. (1999) ‘Minimum Wage Legislation, Productivity and Employment,’ Econommica, New
Series, 66(264), 437-466.
GfK, (2016), 'Minimální mzda'. [Online]. [Retrieved July 12, 2016],

http://www.gfk.com/cz/search/search-
results/?tx_solr%5Bfilter%5D%5B0%5D=contentType%253ATiskov%25C3%25A1%2Bzpr%25C3%2
5A1va&q=minim%C3%A1ln%C3%AD%20mzda
Kučera, P. 'Minimální mzda – už bez politiků, ' Hospodářské noviny, 26.8.2015, 1.
Menčík, T. 'Minimální mzda – pro a proti,' E15, 28.5.2014, VI.
Palata, L. 'Slováci předehnali Čechy. Za své platy si toho koupí víc.' MF DNES, 11.11.2015, 8.
Rothbard, M. N. (2005) Zásady ekonomie, Liberální institut, Praha.
Severová, L., Svoboda, R., Šrédl, K. and Mikhalkina, E. (2014), ‘Minimum Wage in the Czech Republic
and Its Impact on Employment in Companies.’ Proceedings of the Opportunities and Threats to Current
Business Management in Cross-Border Comparison 2014, ISBN: 978-3-86367-007-8, 15-16 May 2014,
Mariánské Lázně, Czech Republic, 129-138.
1030
Dynamics of agricultural land usage, production and agricultural

potential, and prospects of economic development in Trascău
Mountains, Romania
Elena Bogan, University of Bucharest, Faculty of Geography, Romania, elena.bogan@yahoo.com;
Dana Maria (Oprea) Constantin, University of Bucharest, Faculty of Geography, Romania,
danamartines@yahoo.com;
Irina-Adriana Chiurciu, University of Agronomic Sciences and Veterinary Medicine of Bucharest,
Romania, irina.chiurciu@yahoo.ro;
Elena Soare, University of Agronomic Sciences and Veterinary Medicine of Bucharest, Romania
soare.elenausamv@gmail.com
Sebastian Gabor, University of Bucharest, Faculty of Geography, Romania,
pr.sebastiangabor@yahoo.com
Abstract
The aim of this study is to analyse the evolution of agricultural holdings in Trascău Mountains, as
major factor in rural economy development. We started from the need to know in detail the realities
in the area, and the way the area evolved, in order to grasp the essence about how land is used, and
about agricultural production, difficulties, shortages in terms of territory, current phenomena and
prospective trends. The analysis has been completed with the calculation of the hydrometric index
and Péguy and Walter-Lieth climographs, in order to assess the agro-climatic resources of the studies
area.The main purpose of this research is to know the particularities, the potential, restrictions and
future development directions in agriculture and human communities in Trascău Mountains. The
outcome of the research reflects the need for cooperation among inhabitants, authorities and
economic agents in the area for the stability and development of agricultural economy, and human
communities in this area.
Keywords: agriculture, land usage, potential, climograph, economic development, Trascău

Mountains, Romania.
Introduction
Agriculture has always been a major sector of global economy as it ensures the planet’s food. Despite
its importance, it is currently dependent on industrial activities, whose role is to transform production,
and on big companies that sell the production (Mérenne-Schoumaker, 1999). Agriculture is
considered an industry in EU advanced countries after being supported with public funds to acquire
high levels of performance and stability. However, there are preoccupations regarding the variation of
agricultural production according to climate changes, volatility of prices in agriculture under the
pressure of alternative energy resources (Von Braun, 2008) and speculative actions (Zawojska, 2010).
Biological, chemical and physical processes that determine the growth and the development of
agricultural crops are adjusted according to climate and specific bio-climate requirements, and any
deviation may determine huge variability in the agricultural production (Sandu et al., 2010).
Synchronic business cycles among the EU member states is a necessary requirement for efficient
application off joint policies, but significant differences between the new member states and the old
member states, given by the specifics of agriculture, diminish the synchronization rate (Da-Rocha,
2006).
Before 1990, the entire Romanian economy was planned (integrated) and it was developing within a
unified system of operational bonds (in many cases, only apparently operational) among all activities
across the country. 1990 is the year of the decline of the Romanian agriculture from all points of
view: cereal production, tree farming, viticulture and animal husbandry. A rapid destruction of the
former Agricultural Production Co-operatives - CAP took place, without judgement or protection and
conservation of the livestock, of the equipment and tools, of the tangible and intangible assets.
1031
The Law no 18/1991 (Land Law), completed with Law no 1/2000 („Lupu law”) created the
legislative framework that allowed the restitution of land to former owners and their descendants. The
major aim of this law, however, remained just a wish, as no other legislative measures have been
taken to facilitate the new owners’ access to resources in order to perform normal agricultural
activities. At the same time, given the deficient economic environment, subsistence agriculture
became the only professional niche for large categories of rural population affected by processes of
economic contraction, typical of transition (Davidova et al., 2009; Fraser & Stinger, 2009; Giurcă,
2008).
The objectives of the Common Agricultural Policy are to: ensure long term food security; to support
agricultural holdings so that they could provide high quality products and diversification, to cater for
the consumers’ demand; to create viable rural communities in which agriculture should play a major
role in providing jobs and in ensuring economic, social and environmental development, balanced
across areas.
In the context of the Common Agricultural Policy oriented toward natural, eco-agriculture, we can
say that the area studied is good for such agriculture, described by Doherty & collab. (2000) as a set
of ecological technical solutions with minimal impact upon ecosystems, so that nature and human
society can benefit most.
Trascău Mountains are located in the South East of Apuseni Mountains (unit of Western Carpathians,
branch of Romanian Carpathians), located in Central East Romania. The area occupies approx. 1.200
sqkm along 75 km on the direction NNE-SSW (Fig 1).
Figure 1: Study area
Trascău Mountains have a major potential of production, especially animal products: milk, meat,
skin, wool (animal husbandry is represented especially by bovine and ovine). The entire mountain
agriculture is based on natural fertilizers, so agriculture is ecological.
Despite the natural richness of this area, there are some negative phenomena:
The mountain area is characterized by serious depopulation, aged population and

negative demographics;
Increasing poverty and lack of prospects for the young population, due to the lack of
jobs in the area;
Technology in agricultural holdings is poor, automation is low, hay harvesting,
drying and storage speed are low and have a negative effect upon the nutritive value,
incurring loss through depreciation, especially during rainy years (Bogan, 2008).
1032
Methodology
The research has taken into account 37 years (1977 - 2014), and statistical data of the years 1977,
1992 and 2014, provided by the National Statistics Institute, Alba and Cluj Statistics County
Directorates, Agricultural General Censures (1977, 1992 and 2014) for each administrative unit.
The research methodology for the agricultural holding in the area of Trascău Mountains consisted of:
analysis, processing and interpretation of relevant statistical data, drawing maps, reading specialized
literature for this area of interest, reading public documents and field research. The interdisciplinary
nature of this topic imposed interdisciplinary methods, ranging from geographical to economical and
statistical, in order to perform an accurate analysis based on appropriate data needed to investigate
these processes and phenomena.
We have used agro-climatic data from Alba Iulia and Băişoara meteorological stations from 1990 –
2013 in order to perform the agro-climatic analysis of the area. Alba Iulia station is located at 246 m
in the South East of Trascău Mountains, and Băişoara station at 1,360 m. These stations are
representative for this area due to their geographic location and altitude difference. Based on agro-
climatic data from the two stations, we calculated the hydrothermal index and Péguy and Walter-
Lieth climographs, that show the presence, the frequency and the intensity of dryness and drought
(Lebourgeois et al., 2005).
The field observations were done to correlate the existing cartographic material and the statistical
data obtained with the realities in the field, and to get to know in detail the phenomena investigated.
Results and discussions
Agricultural specifics
The mountain areas are different from other areas because of natural disadvantages: altitude, climate,
slopes, lower soil fertility, isolation from means of communication and markets, aged active
population, exodus propensity, insufficient infrastructure etc., which makes the mountain area
unfavoured, and extremely vulnerable from economic, social and ecological points of view.
Trascău Mountains have an annual temperature range between 10.2°C in Alba Iulia and 5.1°C in
Băişoara and annual precipitations between 520.9 mm in Alba Iulia and 954.1 mm in Băişoara. The
temperature and rain differences between the two meteorological stations are natural consequences of
the altitude difference of 1,114 m between the stations.
The hydrothermal index (units) is an index resulted from the product of annual average temperature
of the air and the annual amount of precipitations, divided with 1,000, based on the mathematical
formula Iht = T·P/1,000. This index has values between 4.9 in Băişoara and 5.3 in Alba Iulia, for
1990 - 2013. The index gives info about the water supply from precipitations, and the need to
supplement through irrigations when the water is not enough for the optimal needs of the agricultural
crops, depending on the limitative thermal conditions.
Péguy and Walter-Lieth climographs reveal clearly the climatic characteristics of Trascău Mountains,
analysing the air temperature and the precipitations for all the months of the year (Ionac et al., 2015).
Analysing the Péguy climographs, we can see there are no arid months in neither meteorological
station (Fig 2). The same for the hot and humid months. In Alba Iulia station, most months are
temperate months, only December, January and February are cold, humid months. In Băişoara
station, temperate months are June, July and August, September and October, and the rest of the
months are cold and humid. The small number of cold, humid months in Alba Iulia station is
explained by the frequency of foehn winds.
1033
The Walter-Lieth climograph reveals presence or absence of times of dryness and drought. For both
meteorological stations, the Walter-Lieth climograph reveals absence of drought times (Fig 2). In
Alba Iulia station, we can notice the presence of a dryness period, corresponding to August. The lack
of drought in both stations and the short period of dryness in Alba Iulia station is the consequence of
the geographic location of Trascău Mountains, in Western Romania where oceanic influences are felt.
Source: own determination, 2016
Figure 2: The Péguy climograph (left) and Walter-Lieth climograph (right) at Alba-Iulia and
Băişoara meteorological stations (1990 - 2013)
Depending on the relief, altitude and bioclimatic requirements, cereals and technical plants are
cultivated in floodplains, on less steep slopes of the hills and plateaus and in areas of contact with
peripheral units of relief, while animal husbandry is done across the entire mountain area. Generally,
agriculture is an activity both inside and outside localities, and the agricultural land inside localities is
used for gardens, vineyards and orchards.
The plateaus areas are the most favourable for agricultural activities, especially for agricultural crops
(potatoes, maize, rye, oats), and pastures and grazing fields. The valleys most favourable for
1034
agriculture are those at confluences or at lithological contact, where the widened sectors are, which
are at the same time the locations of human settlements and communications. Due to the steepness,
fragmentation, impossibility to retain water in the soil for a long time, skeletal structure of the soil,
the slopes provide the least possibilities to develop agricultural crops, and they are covered with
pastures and grazing fields.
While the specific, natural factors give certain particularities, in terms of agricultural economy,
social-economic factors determine expanded or restrained branches of agriculture, depending on local
demands and on the existing human potential.
The income of the population in the mountains is usually lower due to the characteristics of these
areas determined by geographic location, frequency of steep slopes, climate, isolation etc., and
resulting from agricultural activities, animal husbandry, wood industry and other activities. Mountain
farming has other roles too, such as keeping the population in the area, especially the old population.
Agriculture in this area should be seen at least from 2 perspectives: as main source to ensure the
population and as activity that partly absorbs the available labour force.
Land structure and usage
The area studied is an intricate geographic space whose structure varies and it is illustrated by the
diversity of the ways to use land. The area of the agricultural land was expanded mainly by
deforestation (the proof is in the toponyms), due to the population’s increasing need of agricultural
space. The apparition of agricultural terraces (agro-terraces), typical of areas in the mountains,
imposing themselves in the landscape as positive element of the long-term anthropic activity. In the
Depression of Trascău Mountains we find tidy fields that climb high enough on the rim of the
depression, where we find the most developed and typical agro-terraces in Trascău Mountains, dating
back most probably to the times of the Dacians.
The current structure of the land has to do with the natural components, especially the relief, and with
the land improvement and land reclamation works that have been done.
Detailed knowledge about the structure of agricultural usage can be, for decision-makers, a major
instrument in implementing economico-social measures, to lead to full and efficient usage of land
resources (the location decided for economic units, concentration and specialization of the production
etc.).
In 2014, in this area, the agricultural areas summed up to 98,941 ha (48.5% of total area), and they
had a non-uniform distribution; the non-agricultural space had 104,826 ha (51.5% of the total) and
the forestry area was 73,812 ha. The structure of the agricultural area in 2014 reveals the following
distribution of the land usage: grazing field – 38,313 ha, arable – 34,180 ha, pasture – 25,321 ha,
vineyard – 657 ha, orchard – 470 ha (Fig 3) (INS, 2016).
The dynamics of the land usage between 1977 – 2014 shows that, due to the reduction of agricultural
land (13,253 ha less), obvious changes occurred in its structure. Arable areas decreased with 29.6%,
vineyards deceased with 50.8%, and orchards with 81.4%; however, pastures and hayfields increased
with 11.1%, and 0.6% respectively.
In the structure of agricultural land (2014), arable land covers significant areas (34.5%), being
superseded only by natural pastures. Regarding the administrative units, most arable areas are in the
communes of: Mihai Viteazu (72.2%), Aiud (66.1%), Mirăslău (55.5%), the administrative areas
covering also the Alba Iulia-Turda corridor, and the smallest areas were in Sălciua (4.3%), Poşaga
(7,8%) and Râmeţ (8.9% each), situated on the West side of the mountain, with a fragmented relief,
unfavourable to agriculture (Fig 4).
1035
Natural pastures and hayfields have the highest percentage (64.3%) in the total agricultural area, with
various values for each type of usage. Highest percentages are found in high areas with pastures,
where natural conditions (especially relief and climate) did not allow agricultural crops. Pastures
occupy large areas in Râmeţ (62.2%), Sălciua (57.0%), Ocoliş (56.9%) and Poşaga (56.8%); the
smallest areas are found in Cricău (21.1%), Mihai Viteazu (21.2) and Aiud (22.5%). Hayfields, 3rd
category of usage of agricultural land, with an area of 25,321 ha (25.5% of the total agricultural land),
increased with 454 ha as against 1992. The hayfield areas have between 3.3% (Sănduleşti) and 82.1%
(Ighiu). Generally, hayfields, with few exceptions, have a situation similar to the pastures.
Due to their nutritive value and their large coverage, pastures and hayfields have a major role in
ensuring the forage for animals, especially bovine and ovine. Pastures allow a cheap forage system
for animals, providing fresh ecologic and complete food in terms of nutritive value.
2014
Land use in Trascău Mountains’ area

2014 2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
arable
orchards
vineyards
2014
pastures 2014
meadows
2014
2014
2014
2014
Figure 3: Evolution of the usage of agricultural areas in Trascău Mountains (1977 – 2014)
Vineyards and orchards have 1.13% of the agricultural area, namely 1,127 ha, with 2,743 ha less than
at the end of 1977. 657 ha are covered with vineyard, the largest vineyards being on the East of the
1036
mountain, which is sunnier (Ighiu – 5.5%, Aiud – 4.0%, Cricău – 3.5%). Orchards cover 470 ha, the
largest areas being in Stremț and Aiud (Fig 4). The development of viticulture depended on the
influence of the foehn wind, climbing down along the Eastern slopes of the mountain. This makes
that autumns are longer and relatively dry, which causes full maturation of the grapes from which
superior wine brands are made such as: Riesling, Pinot gri, Fetească albă, Sauvignon, Traminer,
Muscat Otonel. The localities of Ighiu, Ighiel, Ţelna, Bucerdea Vinoasă, Craiva, Cricău, Gârbova,
Aiud are situated on the Wine Road (Drumul Vinului), a touristic brand whose aim is to develop
partnerships with the wine producers at the foot of Apuseni Mountains.
Land use in Trascău Mountains’ area
over 25. 000 ha

8.000 – 11.999 ha
5.000 - 7.999 ha
under 4.999 ha
arable
orchards
vineyards
pastures and meadows
forests
other
0 5 10 km
Figure 4: The land usage in Trascău Mountains (2014)
In the vegetal sector, part of the lands of the former agricultural cooperatives of production,
retroceded to the owners, were still cultivated with cereals, vegetables, forage plants or industrial
plants, while others were left uncultivated for some years. In general, the percentage of cultivated
areas decreased but production increased for the maize, potato and vegetables, due to the improved
sorts with enhanced productivity per hectare and to the stagnation of wheat and fruit. Consequently,
we can say that 2 types of agriculture are done: one modern, intensive agriculture in the area of the
1037
contact with neighbouring depressions and one traditional, subsistence agriculture, inside the
mountain.
Plant cultivation
Being one of the two sectors in agriculture, plant cultivation has not been so much present in the
economy of this area, especially if we take into account the natural conditions, partly unfavourable.
In many localities in this area, especially due to the low productivity of the soil and the fragmented
relief, which does not allow the use of high productivity agricultural equipment, and the land
cultivation is still done with traditional methods, and productivity is therefore low.
Following the improvement measures and mechanization of agricultural activities on small areas, the
arable land has a complex structure, being cultivated with: cereals, potatoes, vegetables, industrial
plants (sugar beetroot, sunflower) and on insignificant areas, forage plants.
Cereal cultivation is predominant in localities situated in areas of contact of the mountains with
neighbouring units. In the total of administrative units, the areas cultivated with wheat and rye
decreased from 9,380 ha to 5,998 ha, representing in 2014 about 17.5% of the arable land. Production
has remained around 0.5 t/ha (National Statistics Institute-INS, 2016).
For maize, the area cultivated increased from 8,710 ha to 10,743 ha, representing in 2014 31.4% of
the arable land. Production doubled from 0.6 t/ha in 1992, to 1.3 t/ha, in 2014. Out of the total arable
area, maize crop is most significant at present.
The area cultivated with potatoes increased from 1,753 ha to 2,203 ha, covering in 2014, a percentage
of 6.4% of the arable land. Production almost doubled from 0.6 t/ha to 1.1 t/ha in 2014.
The area cultivated with vegetables increased from 1,069 ha (2.8% of the arable land) in 1992 to
1,856 ha (5.4% of the arable land) in 2014, and the average production increased from 0.4 t/ha, to 0.8
t/ha. The area of orchards decreased from 1,347 ha (3.5%) to 470 ha (1.3%), and production
maintained at 0.3 t/ha, on the average (INS, 2016) (Fig 5).
The changes occurred are due to several causes: adjustment of the crops to the needs of the
households, lack of young labour force, lack of actual financial aid from the state etc.
The size of the area cultivated with wheat is due partly to the state policy, which is not protectionist,
in the sector of agriculture during these years. In countries with advanced economies, agricultural
products are subsidized. Also, the low prices on the market, which in many cases do not cover the
expenses generated by production, is another cause that resulted into less areas cultivated with wheat,
which hardly ensure the producers’ subsistence.
The maize production is first of all meant as animal food, especially porcine, and also for processing,
to make spirits, or for sale, and in small amounts, for the consumption of the population. To note also
the barter performed by a part of the inhabitants in areas with surplus of maize who take it to areas
with maize deficit and exchange it for other products.
In 2014, maize holds the first place among cultivated plants, with percentages between 45.3%
(Moldoveneşti) and 1.3% (Întregalde). Highest percentages have the administrative units in South
East, East and North of the mountain, and in South, Centre and West the percentages are lower due to
the climate and fragmented relief. The maximum of production was in Moldoveneşti (2.4 t/ha), and
the minimum in Râmeţ and Întregalde (0.03 t/ha each).
The wheat and rye crops, in 2014, covered more the South East with more favourable climate
particularities, and varied between 30.1% (Ighiu) and 0.3% (Întregalde), and in 1992, between 35.7%
(Galda de Jos) and 3.6% (Sănduleşti). There was a decreasing trend in surface and average
1038
production per hectare. In 2014, the maximal production was 0.6 t/ha (Moldoveneşti), as against 1.4
t/ha (Mihai Viteazu) in 1992 (INS, 2016).
The arable land in this area covers small percentages and has low quality. However, the needs impose
cultivation of this land with a limited range of agricultural crops and in a different manner, depending
on the temperatures. Cereals are cultivated especially at the periphery of the mountain (especially in
the East), where agricultural land overlaps hills. In the mountain area - up to certain altitudes – only
the potato is cultivated. Maize goes behind the hill area, but altitudes are lower than for potato.
Potato is a traditional crop, less demanding in pedoclimatic conditions, that prefers a chilly, humid
climate, and less evolved soil. And it develops well on slightly acid soils. The introduction of the
potato led to diversification of plant crops, increased independence of the food for the population and
of the livestock, a sector that, before the apparition of the potato, had been based on maize. At
present, potato is one of the major components of the population’s food and has found most
favourable conditions to develop.
1992
Production
Productionofvegetal
crops (t)
(t)
1992
1992
2014
Production of crops (t)
2014
wheat/oat crops
maize
potatoes
vegetables
fruits
Arable area
over 3. 000 ha
1.000 – 2.999 ha
under 999 ha
Figure 5: Production of crops in the area of Trascău Mountains (t) (1992, 2014)
Potato expanded in the Centre and West of the mountain. The largest area cultivated in 2014, of 262
ha (9.1% of the arable land) was in the commune of Iara, and the smallest area cultivated was in the
communes of Cricău (1.5% of the arable land) and Stremţ (1.3% of the arable land). The maximal
1039
productions per hectare reached, in 2014, 1.5 t/ha (Moldoveneşti), 1.4 t/ha in 1992 (Mihai Viteazu).
The potato needs less maintenance and it is more productive, it can be easily transported and sold,
and that is why it spread.
The areas cultivated with vegetables, in 2014, covered between 17.1% (Moldoveneşti) and 1.3%
(Întregalde). Maximal production was 2.4 t/ha (Moldoveneşti) and minimal production was 0.2 t/ha
(Poşaga). The vegetable production is one of the most fluctuating, influenced by the heterogeneity of
the sorts of vegetables cultivated, climate conditions and the sale possibilities. To note the area in
North and North East of the mountain, with significant percentages of vegetable crops. Vegetables
are meant for household consumption and sales on market in neighbouring towns (Turda, Aiud, Alba
Iulia).
The areas with orchards were reduced to half between 1992-2014, from 3.5% of the arable land
(1,347 ha) to 1.3% (470 ha), but production remained at 0.2 t/ha on the average. Many orchards have
been replaced with pastures and hayfields.
Generally, fruit trees are not pruned for better crops, but only trimmed for shape (young trees) and
their crowns are cleaned. Low temperatures during winter cause the crop branches get frozen (in
young trees), and late spring freezing reduce the fruit crops, so out of 10 years, only 4-5 years have
an acceptable fruit crop.
The agricultural land having low quality, and the climate being hard, the area provides good
conditions to develop only for non-thermophile plants with shorter vegetation periods. Natural
pasture is the vegetation that finds best conditions, which stimulated the development of animal
husbandry.
In this area, agricultural resources have lower quality than in the plain areas, which causes low
productivity. At the same time, the agricultural surface is not entirely cultivated, and temperatures
limit the variety of agricultural crops.
Prospects of economic development
This context causes several categories of problems and needs in this area and across Romania:
The local needs refer to problems that characterize in detail the rural localities in Romania and
implicitly in the studied area:
administrative-territorial reorganization according to the new demographic and economic

trends, to put to best use the local resources;
turning about 30 % of the current holdings into agricultural farms, by direct management or
lease, in order to increase the agricultural productivity;
new investment regulations in agriculture, through management of the Loan Fund made
available to commercial banks (10,000-75,000 euro), with reimbursement within 10 years,
depending on the project and its efficiency;
completion of the real estate assets retrocession in the rural area and stimulation of the real
estate market by eliminating the tax for the removal of the reference to land as agricultural
use;
fair fiscal policy in the rural areas, according to the surface of the land, to the real value of
land, and to the production made on each category of usage for each type of land etc.
Needs in agriculture in case of interventions in the field – focused on the need to find new
possibilities to add value to the agricultural land:
1040
conservation of sites and premises that have preserved undestroyed and can be used in the
public and private sector;
decision on the main agricultural crops and animals that can be obtained, depending on the
quality of the soils, to avoid excessive fertilizers;
introduction of new technical crops (flax, hemp, tobacco soya, medical plants, spices) and
new occupations in animal husbandry sector (silk worms, snails, crabs, fish farming,
leeches, fur animals, birds with ornamental feathers, etc.), flowers;
support for the minorities’ handicrafts of the past decades (Hungarians, Germans, Gypsies
etc.);
expansion of the non-agricultural services, that is repairing, reconditioning of agricultural

equipment, bookkeeping services, financial and banking services, insurance, etc.;
development of SMEs in agriculture for pre-industrialization and industrialization of raw

materials and agricultural products.
These goals raise the issue of valorization of the agricultural land depending of their appropriateness
for agriculture, to avoid high production costs and the sales risk due to non-compliance with the
quality standards or sanitary norms.
The new rural development policy has the following principles:
multifunctionality in agriculture, that is, its multiple role, beyond the food production. This
implies recognition and encouragement of the services provided by farmers;
multisectorial and integrated approach of the rural economy, in order to diversify the
activities, creation of new income sources and jobs, and conservation of the rural heritage;
flexibility of the aid for rural development, based on the principle of subsidiarity and
promotion of decentralization, regional and local consultations and partnerships;
transparency in writing and managing the programs, based on simplified and accessible
legislation.
This policy is supported through a mechanism of rural development focused on:
improved production structures in the agricultural holdings and improved structures to

process and sell the agricultural products;
conversion and reorientation of agricultural production, by introduction of new technologies

and improved quality of products.
encouragement of non-food production;
sustainable development of forests;
diversification of economic activities in the rural area;
preservation and strengthening of viable social structures in the rural area, etc.
1041
Conclusions
There is potential for agriculture development in Trascău Mountains, but it should be dubbed by
improved productivity, both in vegetal production and in animal production, gradual reduction of the
rudimentary technologies used, increased knowledge in this field and higher professionalization of
agriculturists.
The agro-climatic analysis of an area is a major criterion in choosing the location for agricultural
crops and technical appropriate solutions, by using the interference of climatic factors that influence
the quality and quantity of production, especially in the current context of climatic changes.
Trascău Mountains can be an area with high productivity if the climate corresponds to the optimal
physiologic conditions for agricultural plants if appropriate sorts, hybrids and technologies are used.
Agricultural products should be also put to superior use. Because of isolation, the products obtained
in households are mainly consumed in households, even milk is used, in many isolated areas, to feed
pigs.
Although natural resources are less favourable in this area, there is a need to encourage agricultural
production that can bring additional income by selling products locally for tourists, or by attracting
processing industries in the low, marginal area.
The development of agriculture could keep the population and stop migration to town, develop agro-
tourism and preserve the landscape. Both mountain agriculture and tourism are 2 major directions for
economic recovery of the area.
To re-launch agricultural activities, the following measures can be taken:
Improvement of land that is subject to natural degradation and its re-introduction into
agricultural use;
Improvement of soil quality to increase land productivity;
Improvement of animal breeds;
Modern methods of cultivation and harvesting of the agricultural production and of animal
husbandry;
Superior usage for the agricultural production in order to increase the income of the
inhabitants in the area, etc.
The efficient usage of these lands can be done in a coordinated manner, based on unified principle
that aims at the protection and improvement of the production capacity of the soil, and by
implementation of measures to prevent and counteract the degradation factors, and the unproductive
usage of all kinds of land.
References
Bogan, E., 2008, Munţii Trascău. Studiu de geografie umană, Editura Ars Docendi, Bucureşti.
Da-Rocha, J.M., Restuccia, D., 2006, The role of agriculture in aggregate business cycles. Review of
Economic Dynamics, 9 (3): 455-482.
Davidova, S., Fredriksson, L., Bailey, A., 2009, Subsistence and semi, subsistence farming in
selected EU new member states. Agricultural Economics, 40: 733–744.
1042
Fraser, E., Stinger, L, 2009, Explaining agricultural collapse: Macro,forces, micro,crises and the
emergence of land use vulnerability in southern Romania. Global Environmental Change, 19: 45–53.
Giurcă, D., 2008, Semi, Subsistance Farming – Prospects for the Small Romanian Farmer to Choose
between a “Way of Living” or Efficiency. Agricultural Economics and Rural Development, V, 3–4,
215–230.
Ionac, N., Grigore, E., Constantin (Oprea), D.M., 2015, Évaluation des phénomènes de dessèchement
et de sécheresse dans la zone continentale du Plateau de la Dobroudja du Sud. Actes du 28ème
Colloque de l’Association Internationale de Climatologie, 269 – 274.
Lebourgeois, F., Piedallu, C., 2005, Appréhender le niveau de sécheresse dans le cadre des études
stationnelles et de la gestion forestière à partir d’indices bioclimatiques. Revue forestière française,
LVII, 4, 331-356.
Mérenne-Schoumaker, B. (1999), La localisation des productions agricoles, Nathan, Coll.

Géographie d’Aujourd’hui, Paris.
Sandu I., Mateescu E., Vătămanu V.V., 2010, Schimbări climatice în România şi efectele asupra
agriculturii, Editura Sitech, Craiova.
Von Davier, Z., Heyder, M., Theuvsen, L., 2010, Media Analysis on Volatile Markets ́ Dynamics and
Adaptive Behavior for the Agri-Food System. International Journal on Food System Dynamics, 1(3):
212-223.
Zawojska, Aldona, 2010, „Speculative drivers of agricultural price volatility and food insecurity”,
The 119th Seminar of EAAE “Sustainability in the Food Sector: Rethinking the Relationship between
the Agro-Food System and the Natural, Social, Economic and Institutional Environments”, Capri,
Italia.
1043
A Study Of The Impact Of Corporate Governance Of The Upper

Echelon On The Value Of The Firm - A Focus On The Gender Of
The Board And Supervisory Board
Jochen Schmid, Vanessa Just, Bastian Heinemann and Melanie Buchmüller
Bucharest University of Economic Studies, Romania,
vanessa-just@web.de
bastian.heinemann@ghk-management.com
melaniebuchmueller@web.de
Abstract
This paper highlights the results of a research in the subject of sustainability and gender discussion in
Germany and is addressed to human resource managers. The paper focuses on the aspect of ‘social’
in the specific field of gender of the members of the board and the members of the supervisory board.
In the study, we analysed the DAX30 companies of Germany in the timeline 2006 to 2014. We found
that there are measurable criteria and an effect of gender on the firm’s value. In the initial result, we
observed a correlation between women in the upper echelon and the firm’s value. We found a
positive effect. In a second research, we found that there was a gap between men and women, which
we referred to as the ‘gender gap’. This gap is shrinking but it is still quite huge.
Keywords: Value of the firm, gender gap, social, CSR
Introduction
Companies are now increasingly dependent on the views of shareholders and stakeholders, and
therefore are of high public interest. It is no longer just a matter of achieving planned goals. The
question of how the goals will be achieved seems to have become much more important (Sarbutts,
2003). For this, soft factors like CSR increasingly become a strategic instrument of the companies in
Germany and other countries (Bhattacharya & Moffitt, 2013; Kaufmann, 2012). Focusing on the
DAX30 companies in Germany leads to new requirements to achieve the given economic goals.
There are new effects on the achievement of objectives. One of these actions in the area of CSR that
is much discussed in Germany is the percentage of women in management levels (Katz, kein Datum;
Perrini, 2006). On a voluntary basis, a company should fulfil a ratio of 30% (Klug, 2012). But most
companies are still far away from this ratio.
This raises the fundamental question of whether gender in leadership positions has an effect on the
economic value of a company or whether it is only a case of CSR and a purely non-economic matter.
There is no given approach showing these effects for german companies what causes a novelty in this
scientific area.
The analysis below shows the present theoretical influences of top management teams and
demonstrates by empirical data the effect of women on a company’s value.
Literature Review
In the wide field of organizational theory, the ‘Upper Echelons Theory’ (Hambrick & Mason, 1984)
is applied as one of the elementary explanations to examine the context between the composition and
1044
diversity of the top management team (TMT) and corporate performance. Since the introduction of
this theory by Hambrick and Mason, numerous interdisciplinary studies have analysed the
performance and effects of TMT on different objects (Nielsen, 2012). Various Asian and Anglo-
Saxon studies have shown that besides the fundamentals of a company, the socio-demographic
characteristics of the top management team have a decisive impact on the company’s success
(Erikksson, et al., 2001; Xiaowei, 2012).
Grant (1996) particularly identifies ‘tactic knowledge’ as a unique feature of a company due to the
difficulty of it being imitated by other companies. He called this the knowledge-based view and
referred to it as a strategic part of the TMT. It shall continue to identify which aspects influence the
‘tactic knowledge’ that are directly connected to the TMT, and therefore are not reproducible for
other companies. These include skills and experience, which can be exchanged within the TMT by an
existing heterogeneity within the group (Grant, 1996). This interaction can lead to new strategic
decision approaches by TMT and thus has a direct impact on corporate performance (Kogut &
Zander, 1992).
Companies therefore base their personnel selection for top management on successes, and especially
on the personal characteristics of the potential candidates (Smith & White, 1987). It is shown that
there is a significant correlation between the variables MBA qualification, length of employment, and
management membership on the one hand, and the performance of the company on the other hand
(Friis & Smith, 2004). Another analysis has shown associations among the duration of corporate
membership, the level of education and the international experience of TMT members, and the
company’s success (Ibarra & Hansen, 2010; Piercy, 1991). Hamori (2011) examined criteria such as
international experience, academic degree, duration of administration, rates of return and industry
rankings, and demonstrated that these could also affect performance. In a gender study conducted by
Kenneth and Amy (Kenneth & Amy, 2012), a detectable influence of the characteristics of
experience and age on the returns of a company was found. Analyses relating to TMT and
performance impact on a company can be found in a variety of studies based on the Upper Echelon
Theory (Stubbart, 1989; Finkelstein & Hambrick, 1996; Child, 1972; Acedo & Florin, 2006).
Hambrick and Finkelstein (1987) point out that a company always depends on the people in the TMT.
This reflects the strategic orientation of the company (Friis & Smith, 2004), and consequently its
economic success. In their analysis, Capelli and Hamori (Capelli & Hamori, 2009) point out the
significant effects of the personality traits of CEOs. However, there is a given effect of gender to the
firm performance (Vieito & Khan, 2013; Faccio, et al., 2016). Vieito et. Al. (2013) showed, that
companies managed by females have a smaller risk level. Bute the effect to the firm performance is
different (Zhang, et al., 2014) and it is dependent of the cultural peripherals in each country (Low, et
al., 2015).
Lau and Murnighan (1998) demonstrate in their analysis the concept of ‘fault lines’, and therefore the
immediate context of the characteristics of the top management team or the corresponding groups to
the economic performance. But the results of the different studies show differences in terms of
positive and negative effects (Olsen, et al., 2006; Priem, 1990; Carpenter & Sanders, 2002).
Sometimes this is the heterogeneity within small groups based on personality characteristics (Olsen,
et al., 2006). To evaluate the CEOs, not only economic success, but also academic achievements
(Withauer, 2011)—temporarily referred to as ‘hard skills’—are also used sometimes. Various studies
have also analysed ‘soft skills’, but the results appearing in the review are usually subjective (Bennett
& Miles, 2009).
Cor (2003) examined TMT and showed the differences within the group, as well as the influences of
individuals on the entire group. The analysis deals with the individual characteristics or personality
traits of leaders. In this context, the top management team affects both the company’s success
(Westphal & Fredrickson, 2001) and the inter-organizational relationships (Kim & Higgins, 2007).
The context of these relations on performance was shown by Olsen (2006). Thus, the Upper Echelon
Theory basically confirmed the relationship of personality traits and impact on performance. In 1970,
15% of CEOs were outside a particular industry sector. In 1980, it was around 17% and in 1990,
1045
27%. It is believed that the success (corporate earnings) of CEOs can be transferred to other
companies—thus success adheres to the person (Basulto, 2006). For the top management, the board,
in accordance with § 76 AktG, is responsible for the company’s management.
In the following, the hypotheses of the Upper Echelon Theory (Hambrick & Mason, 1984) is applied
to the listed companies in Germany. To date, there has been no specific analysis on the relationship
between personality traits and socio-demographic data (qualitative and quantitative) of the TMT of
these listed companies in Germany and their economic performances. Thus, the question remains
unanswered as to whether the characteristics of the top management teams in Germany have a
significant impact on the success of companies. Only in the area of German biotech companies has
there been a study regarding the Upper Echelon Theory (Patzelt, et al., 2008). However, the listed
companies in other industries in Germany remain unconsidered. Therefore, the ratings in the
economic and the human sense are imperfect information.
Other theoretical foundations for the analysis of TMT are in terms of group behaviour, composition
of the group, and group size (Haleblian & Finkelstein, 1993). A recent research by the German
economic magazine Wirtschaftswoche has shown that at present, 23 of the 30 DAX30 companies
have an international cast of TMT (Lemmer, 2012). McKinsey boss Frank Mattern sees the
heterogeneity of TMT—in particular, the origin—as a necessary aspect for the sustainable
development of a company and thus directly linked to its long-term success (Lemmer, 2012). This is
because the effect on performance is dependent on not only the personal characteristics of the
individuals but also the TMT’s composition (Cohn & Moran, 2011; Datta, et al., 2001). It is in the
company’s interest to analyse these TMT compositions in order to achieve competitive advantages in
the area of human resources and in the field of corporate strategy (Lemmer, 2012). Additional there
are different approaches focussed to the access of female to the CEO level (Fitzsimmons, et al.,
2014). This framework, which had earlier investigated the underlying theory exclusively in the
context of the English-speaking world, will now be transferred to the listed companies in Germany.
In connection with the analysis in the field of CSR, the impact of the women’s quota is always
discussed. Mostly we found the discussion about a gender pay gap which is focussed on monetary
difference. But this gender pay gap in CEO level is not finally confirmed (Bugeja, 2012). Here,
equality and the quota should be ensured in higher management levels (e.g. board and supervisory
board). Companies are therefore inclined to meet this current voluntary quota, but this can also have
effects on both the economic values and the reputation of the company. This analysis shows the
economic effects that women in TMT have on the company’s value.
We used public reports of the German DAX30 companies from 2006 to 2014. The DAX30 is the
most imp9ortant index and is represented by the 30 biggest German companies (based on market
value) and was established in 1988. A company’s performance is generally determined by the
published fundamental data (§§ 325 ff. HGB). This enables calculation of the profitability ratios (e.g.
dividend profitability and return on assets) as well as specific indicators such as ‘Tobin’s q’, which is
given by the difference of market value and book value (Gerke, 1994). These free-of-charge and fully
available data represent the company to all interested parties (§325 HGB, disclosure paragraph). The
annual reports are available on the websites of the listed companies.
We analysed more than 350 reports to get an overview and specific economic data of each company.
Our database is based on table calculations using statistic formula and mathematical designs. For this,
we developed our own program based on Excel sheets to find the statistical correlations and create
figures.
Results
Gender gap is a globally recognized indicator for assessing the differences between men and women,
and is preferably used in the economy. However, gender gap is not a clearly defined code, but more
1046
of a physical description that is calculated differently by different institutions for analyses. In this
study, gender gap refers to the difference in the absolute number of men and women in management
with a specific focus on TMT. The gender gap indicator is stated in per cent and shows the relation of
both sexes to each other. Therefore, a gender gap of 0% means that both sexes are equally distributed.
A gender gap of 100% corresponds to a unilateral distribution. Owing to the fact that in the test
object, the TMT, the male sex dominates in terms of absolute numbers in all companies, a gender gap
higher than 0% should always be assessed as a surplus of males.
Top Management Team: The Board
The executive board in joint-stock companies is the highest decision-making level. For this reason,
we have examined and analysed this management level separately. In external communication,
usually only the name of the CEO is mentioned as a representative of an entire company and not the
complete TMT. Nevertheless, the board consists of a heterogeneous group of several people, who
substantially define the strategic decisions and strategic direction of a company. As a characteristic
number, the gender gap is defined by the percentage difference between the absolute number of men
and women in the considered management level. With focus on the gender gap, it is to be noted that
none of the investigated companies is represented by a woman CEO. Therefore, we have made no
specific weighting for this position, as it does not change or affect the result.
Since 2006, the absolute number of men on the board has been decreasing almost continuously.
Between the years 2006 and 2014, the number of men has decreased by slightly more than 20%.
During the same period, it should be noted that the proportion of women on the board has increased.
However, the increase of women is not continuous, but in a similar proportion. As a result, it can be
clearly stated that the gender gap until the year 2008 was less, because no women were represented at
the board level prior to that.
Figure 1: Gender Gap: Member of Board

Source: Own source
The gender gap in the last observation year shows a high level of 93.39%. From a statistical point of
view, the gender gap will decrease continuously after 2014; while the proportion of women will
increase, the proportion of men will decrease. However, it cannot be interpreted from this analysis
that the gender gap will reach 0% or another specific point at a certain time. Here, it should be noted
that the percentage of women has barely changed in the years between 2012 and 2014, and it is noted
1047
more as a kind of stagnation. In the timeline observed, the reduction in the gender gap is mainly the
reduction of the absolute number of men on the board.
Top Management Team: The Supervisory Board
After considering the executive board as the top-level management of a company, the supervisory
board too is a relevant influencer. The supervisory board monitors and determines the board and
directly influences the composition of the board. Thus, the supervisory board also applies to the TMT
and should be treated as statistically equal. In the observed period from 2006 to 2014, the proportion
of men has decreased by around 22%. This is a similar development analogous to the board level.
Over the same period, the proportion of women has more than doubled. This development is highly
disproportionate to the development of the absolute number of women on the executive board. When
looking at the absolute number of women on the supervisory board, it is also apparent that the
number of women represented in this management level has been continuously increasing since the
first year of the analysis in 2006.
Figure 2: Gender Gap: Members of Supervisory Board

Source: Own source
The gender gap in 2014 is only 78.03%, which is a clear contrast to the gender gap of 93.39% in the
executive board. Thus, the gender gap in the supervisory board is not only much lower, but the rate to
minimize the gender gap and the absolute and percentage shares of women is significantly higher.
However, it cannot be clearly interpreted from this consideration if and when a gender gap will
achieve a parity of 0%. The differences in the present analysis are too high for a meaningful
extrapolation.
The Statistical Trend of Gender in Board and Supervisory Board
In the two individual analyses above, it can be clearly seen that the gender gap becomes smaller.
However, it could also be noted that the dynamics of the individual curves vary greatly. So, the
1048
momentum is very low at the executive board level, and there is stagnation in the years 2006 to 2009
and 2011 to 2014. This is owed by the relatively small absolute number of members on the board. At
the supervisory board level, the development of the gender gap is quite dynamic and particularly
continuous. Since the supervisory board essentially includes more members, the course is softer and
resembles a curve.
Figure 3: Trends of Gender Gap: Board and Supervisory Board

Source: Own source
Both trends indicate a clear orientation of minimizing the gender gap in the medium-term. At the
supervisory board level, the statistical analysis indicates that a mark of 50% could be achieved by
2009, provided there is a linear trend. The formal objective of the German government, which is the
attainment of a quota of 30% in management levels, is far away as per this analysis. As organizations
represent economic units with economic goals, such a development on economic indicators or
relationships must be examined. This analysis will be discussed in the next paragraph.
Discussion
In our fourth step, and in accordance to the above results, we figured out the value of the firm. For
this purpose, the relevant indicators of the company were extracted from all public reports: sales,
profit (EBIT), market value, book value, number of shares, value per share of the reporting date, and
status and development of the supervisory and management boards. The chairmanship of the
executive boards and supervisory boards is exclusively occupied by males. The only exception is the
company ‘Henkel’, which has a woman chairing the supervisory board chair from 2009. We have no
differences in the evaluation of the calculation of quotas regarding chairmanship or regular members.
Given the aforementioned quota for female chairmanship, no statistical relevance is given here and
the results would proportionally be the same. In the internal view, we used turnover as the indicator
for the evaluation of the companies. This is because the turnover (increase or attitude of the given
turnover) was defined as the goal for all the companies. In the external view, we used the code
Tobin’s Q, which represents the relation between book value (sum of all the investment and working
capital) and market value (sum of all shares at period end). In all companies, a positive Tobin’s Q can
be seen. This suggests that the shareholder value of the companies is higher and thus defines
‘goodwill’. The analysis in terms of turnover and the gender gap shows a correlation to what was
calculated with an overall average of 36.81%. So this correlation indicates a relationship between
1049
sales and the development of the gender gap. As illustrated in Figure 3, the gender gap clearly
developed towards lower values. Therefore, it can be interpreted that there is a relation of sales to the
development of the gender gap of 36.81%. In further contemplation of Tobin's Q as an external
perspective, an average correlation of 37.44% will be charged. This almost identical correlation also
indicates an average relationship between the two values. This shows that even the prospect of
shareholder reacts very similarly. At this point, it should be noted that there is no correlation between
the ratios of revenue and Tobin’s Q. Both the ratios react differently and have no static context. This
can be interpreted to mean that the shareholders evaluate these companies as being basically higher,
if the management level of the supervisory and executive boards has higher gender diversification.
The reduction of gender gap is therefore proved to have an effect on the assessment by investors.
Conclusions of the Analysis
The analyses include the sub-regions of the supervisory board and the executive board, and show the
relationships to the defined code of the gender gap. Gender gap has been adequately investigated in
the study. There seems to be a positive trend in terms of gender parity in the context of future
development. This trend, as well as women moving into the board level, was observed from 2008
onwards. The supervisory board is the driver of this unique development, which is intensive and long
term as well. However, the issue of chairmanship is a clear drawback. With the exception of the
company Henkel, the chairmanship has not yet been occupied by a woman. Thus, the company
Henkel represents an exception in this study as well as a pioneer in terms of gender equality in the
distribution of positions in the top management team. However, the study does not allow any clear
conclusion on when we can expect a possible parity. To put it clearly, this was not the target of the
analysis. As a further result also demonstrated clearly, the companies analysed from 2006 to 2014
have a positive development for the key figures of sales and Tobin’s Q. Both show clear correlation
metrics for the continuous reduction of gender gap. It is noticeable in this context that both indicators
have almost identical correlation. Therefore, it can be concluded that there may be a connection
between the two, and it can be summarily stated that the smaller the gender gap in an enterprise, the
higher is sales and consequently the higher the value for Tobin’s Q. This is explained by an increase
of the market value. In other words, a low gender gap can lead to a higher market value.
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Study of the Effects of ESG Analysis

on the Economic Value of a Firm
Jochen Schmid, Bucharest University of Economic Studies, Bucharest, Romania,
jochen.schmid@tdwk.de
Marieta Olaru, Bucharest University of Economic Studies, Bucharest, Romania,

olaru.marieta@gmail.com
Aykut Bussian, Bucharest University of Economic Studies, Bucharest, Romania,

aykut.Bussian@bakertilly.de
Tobias Stiegler, Bucharest University of Economic Studies, Bucharest, Romania,

tobias.stiegler@gmx.net
Andreas Bartels, Bucharest University of Economic Studies, Bucharest, Romania,

andie.bartels@gmail.com
Abstract
This paper highlights the results of research in the subject of sustainability as part of a doctoral thesis.
Social, environment, and governance are the three essential pillars of the ESG model and the focus of
this research. These three criteria are placed in connection to economic indicators in a relationship and
the paper examines their impact on each other. The research is represented by the German DAX30
companies and focused on their characteristic numbers of EBIT, Tobin`s Q and sales. As a result, the
individual effects are highlighted as defining the explicit action. The results bridge a research gap and
support the companies to control measures in the field of sustainability and generate competitive
advantages.
.
Keywords: ESG model, value of the firm, sustainability
Introduction
Sustainable business, responsibility towards society and the environment, fair conditions for
employees and suppliers, equality, and social commitment are some of the many tags for daily media
communication, when it comes to the non-economic objectives of companies (Bhattacharya & Moffitt,
2013; Kaufmann, 2012; Schumpeter, 1943). The purely capitalist perspective and basic teaching of
economics, that profit maximization is the primary objective of any enterprise, is more frequently
accompanied by the question ‘how and by what means does a company achieve the goals’ (Katz, 2013).
Stakeholders and shareholders increasingly pay attention to how companies conduct their business
(Sarbutts, 2003). Politics has also constituted a relevant basis for these questions; for example, in the
context of gender equality, the German government in 2014 had demanded a voluntary fulfilment of a
30% quota for women at the management level of German listed companies (Klug, 2012).
The topic of sustainable business is clearly gaining high importance among German and most
European citizens who are now sensitized to it (Katz, 2013). Sustainability is not just a trend like in
fashion, but a way of living and a way of doing business. Furthermore, sustainability is part of business
behaviour. Companies are thus politically and socially responsible to implement specific criteria as
well as provide detailed and transparent reports to shareholders, stakeholders, politicians, and the
media (Perrini, 2006). The companies in Germany create sustainability reports and communicate them
yearly along with their business reports. These companies set up a separate CSR and long-term
commitment, as well as appropriate bodies up to the board level (Klug, 2012).
Automotive companies are investing heavily in research and development of electric vehicles and
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hybrid/plug-in models. They are adopting increased measures to minimize CO2 emissions as required
by law. Companies across all industries are introducing policies to enforce the voluntary quota for
women and make payments to employees in accordance with the legal minimum wage. More
importantly, with regard to a winning reconciliation of work and family, the ‘work-life balance’,
companies are investing in flexible and socially acceptable working time models, opening their own
nurseries, and occasionally also provide the possibility of a home office (Bhattacharya & Moffitt, 2013;
Friedman, 1970; Wise, 2012).
Due to the various styles, the overall social sensitivity and the wide awareness of the subject among the
public, sustainable businesses represent current megatrends in the economy and in daily business. It has
become part of their mid- and long-term strategy. However, it remains unclear whether this megatrend
has also adduced a significant effect on the success of a company, or whether this is a socially and
politically related influence without any economic effect (Klug, 2012; Kantzenbach, 1966; Hughes,
2013). The following report examines this aspect empirically by a meaningful analysis and shows the
theoretical point of view in international literature. This subsequent work is part of a thesis, which
sometimes focuses precisely on this aspect and discusses it in detail, and scientifically investigates and
substantiates it. This report, however, still lays no claim to completeness of content, but outlines the
preliminary findings in the literature.
Literature View
The concept of sustainability is translated differently in the German language and therefore is difficult
to define. Moreover, there are many synonyms used in literature. A common name for this is the
concept of sustainability (Lison, 2002). As a result, the concept’s definition can be based ‘on the finite
or limited reproductive capacity of natural resources, the regenerative capacity of ecosystems and
biodiversity protection oriented’ (Lison, 2002).
Sustainable business is a combination of the environment, social aspects and economic goals of a
company (Verjel, et al, 2015; Konrad, 2011). The discussions in the literature provide the image of a
corporate concept of large enterprises and their philanthropic orientation (Fitzgerald, et al, 2010):
‘Social responsibility represents commitment to and support for the community’ or ‘of functioning of a
sustainable economy to meet the current needs of human society’ (Conrad, 2011). In another approach,
the literature indicates that sustainable businesses are characterized above all by the fact that
cooperative behaviour is achieved between the corporate partners and society (Hughes, 2013).
However, this argument also assumes that companies know what is good for society and what the
actual will of society is (Fitzgerald et al., 2010).
Management Dimensions
All business enterprises in Germany, particularly large companies, have an organizational structure.
This structure comprises individual areas within the company, which are usually organized as
departments or cost centres. These structures must fulfil all the particular challenges of sustainable
businesses (Lison, 2002; Conrad, 2011). The following areas with the specific requirements are
essentially found in a company:
• Finances and controlling

• Sales and marketing
• Production (if manufacturing industry)
• Personnel
Thus, it results in an extensive coordinative activity in order to achieve goals and generate no
opportunity losses. To this end, the structure and the control is anchored within the corporate
management and guided by specific ministries (Bhattacharya & Moffitt, 2013). In addition to the
requirements of sustainable business, the quality management processes and implementing processes
ensure an effective and efficient running (Lison, 2002).
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Economic Values
The literature does not define ‘economic value’ clearly or with specific characteristics. There are
several dimensions of economic value, which are mostly a conclusion of different items (Friedman,
1970; Gerke, 1994; Kantzenbach, 1966; Martin, 2002). The online dictionary gives the following
definition: ‘The amount (of money or goods or services) that is considered to be a fair equivalent for
something else.’ This means that there are different ways of measurement and different ways of
interpretation. Therefore, we decided to use the public database in our analysis and use the main values
of a company:
• EBIT
• Turnover
• Turnover Relation to EBIT
• Tobin`s Q
With these four main characteristics, we are able to show an effect, and have a good and valid overview
of economic value.
General Settings of Business Development: The ESG Model
The literature describes a sustainability gap between different claims. In accordance with this, we can
close the gap by defining the three main criteria that constitute the ESG model. The ESG model is
based on three essential elements: environment, social, and governance. These three pillars form the
foundation for sustainable action: the ESG approach. Each of these three pillars is divided into more,
differently defined sub-criteria, which are defined in detail in the following paragraphs.
This approach is used for both sustainability ranking of companies as well as for states and their
political decisions. In the context of sustainability ranking of companies, the approach is mainly used
by the organization ‘Sustainalytics’, which regularly defines and reports their analyses (Klug, 2012).
Due to the profound and comprehensive studies conducted by Sustainalytics, the organization’s
database is integrated in the assessments in this report.
Environment
The criterion of environment in particular considers the aspects of and impacts on the environment
(Konrad, 2011). This encompasses the legally required procedures, as well as further voluntary
commitment of the companies and all the involved stakeholders (Hughes, 2013). The criterion
considers the unity of economy and ecology, and calls for a sustainable and environmentally friendly
performance. Among others, the relevant factors are (Klug, 2012):
• CO2 emissions
• Primary energy demand and consumption
• Produced quantity and type of waste
• Commitment and use of alternative and sustainable energy technologies such as solar or wind power
• Use and implementation of environmental management systems
• Investments in environmentally friendly technologies.
These measures do not function for a specific section of an industry, but across the complete industry.
Furthermore, the criterion considers the transferability of the environmental objectives to precursors
such as suppliers. An extension to the entire supply chain is presumed here.
Social
The criterion social follows the economically defined stakeholders’ value approach. Accordingly, the
focus is not on the capitalist-dominated corporate goals, but soft factors that should be useful for the
1055
achievement of objectives (Klug, 2012). Due to the presence of different sectors, one can also find
significant differences in its implementation. Furthermore, there is an increasing influence of politics
as seen by the legal requirement for a quota for women as well as an increasing influence of employees
and potential employees (Katz, 2013) - for instance, to ensure that candidates and new professionals
benefit much more clearly from work-life balance and flexible working hours (Klug, 2012). The
implementation of the criterion social is not only influenced through compliance with the ESG
approach, but also through the compelling need to correspond to market conditions to gain a high
reputation and to maintain competitiveness. The sub-criteria are thus:
• Participation of workers in decision-making

• Work-life balance
• Equality and equity
• Integration of socially disadvantaged people
• Compliance with the interests of the public
• Provide fair, adequate, and transparent pay, particularly at the management level
• Attention to social values and ethics, especially in marketing
• Privacy and handling of customer data
• Safety for the products’ users
Thereby, the criterion of social gains more influence and companies involved in this case constantly
invest in media attention (Fitzgerald, et al., 2010). This can be found in social but not industry-specific
characteristics in relation to the differentiated configuration (Klug, 2012).
Governance
The criterion of governance is regarded within the meaning of the accompanying corporate governance
approach and its common codex or the behaviours of the top management levels. For the purposes of
the Companies Act, the management board is considered as the senior management of a limited
company (Bain, 1959). However, the governance approach also looks at the other levels, such as the
supervisory board and the various levels of management of departments and faculties. The approach is
therefore specific and embedded much deeper in the corporate structure. Among others, the individual
criteria include (Klug, 2012):
• Remuneration of management levels
• Incentive systems and associated control mechanisms
• Prevention of corruption and bribery within the context of business ethics
• Relationship with policy makers
• Relation to other companies
• Relationship with investors
• Consideration of the individual interests of the management levels
• Lobbying.
So far, there has not been enough evidence to show whether the corporate governance approach can
have an effect on the company’s goals. Nevertheless, companies in Germany follow this approach and
incorporate it in their different industry-specific designs. To this end, extensive reports can be found
both in the annual reports as well as in specially established bodies and their communication resources
(Barney, 1991).
Research Method
For the research, we analysed the public reports of the German DAX30 companies for the research year
2011 and compared it with the results of the given database of the ESG approach. The extensive
database of business reports was evaluated by means of correlations and other key figures of statistics
to find correlations and statistically significant features. Our focus is the characteristic number Tobin`s
Q as a clear indicator of the evaluation of stakeholders, the EBIT as an absolute characteristic of the
value of the firm and the sales as a process indicated and dynamic characteristic number of the firm.
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Economic value
The turnover corresponds to the specifications in the annual report values of the whole company and is
shown in euros. Revenue or its increase is one of the most mentioned business objectives in the
economy and hence an indicator for the economic success of a company (Barney, 1991). Furthermore,
the turnover in the annual reports is to be represented accurately. The turnover is therefore an absolute
measure.
The profit margin is a relative measure, and is derived by dividing profit (EBIT here) shown by the
sales. The return on sales thus indicates the ratio of these two ratios for sales and EBIT and gives an
indication of whether it is, for example, in increasing sales, profit proportional or non-proportional
(Bain, 1959).
The Tobin's Q is a metric showing the relation between the book value and the market value (Gerke,
1994). This difference is also referred to as an impact of a shareholder who is willing to pay more for a
company due to its superior market position. The higher the value for Tobin’s Q, the higher is the
company’s prize in the future, and thus constitutes a clear and significant value for the economic value
of a company (Gerke, 1994).
The market value is the evaluation of shareholders (sum of all shares) and the book value is the sum of
reproduction costs. Since reproduction costs are hard to measure, the literature shows the values of all
assets as the book value (Brealey & Myers, 1988). The formula is:
q = VM / VB
where:
q – Tobin’s Q
VM – Equity market value
VB – Equity book value
In this approach, we use Tobin’s Q for evaluation if there is a benefit for shareholders, and mark this as
an economic value. We assume ceteris paribus situations, as in some other studies there are other
variable factors such as the gross domestic product, global environment or critical political situations
like war (Gerke, 1994). Other additional effects of entrepreneurship, for example, include marketing
actions, diversification of product portfolios, interests and taxes, and the form of organization. The
average of Tobin’s Q for German industrial companies starting from 1968 has been always higher than
one, which means that the equity market value is higher than the equity book value (Gerke, 1994;
Stevens, 1986). The situation seems clear: These companies have a monopolistic situation with a high
market share. Another explanation for Tobin’s Q > 1 is an advantage for a company in the technology
area and therefore an opportunity to obtain higher market prices (Stevens, 1986).
EBIT is an internationally recognized figure that represents the absolute success of a company.
However, since the EBIT is also the basis for the taxation of companies and otherwise is a clear
statement to shareholders, it remains unclear whether giving companies the balance sheet date with the
possibilities of approved accounting rules is transparent. The number is considered as a benchmark and
is thus used here as an indicator of economic success.
Results
The first indicator of the investigation is the turnover related to the results of researches by
Sustainalytics. Here, the ESG criteria of environment, social and governance are each correlated to
sales. The figure below illustrates the results:
1057
Figure 1: ESG and correlation to turnover

Source: Own source
The X-axis shows the ESG scoring. Since no company was under a value of 45 points, the X-axis has
been adjusted accordingly in the scaling. On the Y-axis, conversion is endorsed in million euros. Since
the companies of the DAX30 vary greatly, they consequently also show strong vertical deflections and
a few very high-revenue companies in the peaks.
Furthermore, the trend lines (linear) have been depicted in the figure. The trend lines are calculated by
the linear values of the individual criteria and their relations between the two axes, and are represented
as R2, indicating polynomial calculation. It results in the following values:
Environment sales: 0.1034

Social sales: 0.2909
Governance sales: 0.0742
The data shows a significant trend regarding turnover. The higher the conversion of a company, the
higher is the scoring values for the criterion social. It is therefore to be interpreted that companies with
high volume either are more engaged in social or sales are high, especially thanks to the commitment to
social goals. Here, however, the latter interpretation appears to be one-sided, because companies are
complex economic structures and there are always several factors that must be considered. However,
since this trend considerably fails in the criteria of governance and environment, it is not to be
considered as significant. The criterion of social in terms of turnover is therefore to be interpreted as a
statistically low correlation (29.09%).
In addition to sales as an absolute measurement number with the economic relationship between price
and quantity is in particular the economic result, the EBIT, a relevant target of an enterprise. The EBIT
therefore clearly shows the success and can be read out unequivocally in the mandatory annual reports.
There is therefore the need to drive corporate earnings EBIT and the three specific criteria of the ESG
in this connection:
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Figure 2: ESG and correlation to EBIT

Source: Own source
The illustration shows a statistically mixed picture. The polynomial trend lines of the individual criteria
differ within the display visible from each other. The absolute data of the trend line are listed below.
The trend line is described by the value of R2, polynomial:

Environment EBIT: 0.2545
Social EBIT: 0.1708
Governance EBIT: 0.0639
It is clearly the differentiated relationship that is recognized. Only the criterion of environment shows a
low EBIT polynomial relation in connection with the feature. The criteria of social and governance are
much lower. Therefore, it is interpreted that the exposure to the criterion of environment can minimally
affect the EBIT (25.45%), and involvement in governance is achieved with 6.39%, a statistically
non-significant effect.
The logical connection of the above analysis of sales and EBIT is the economic index of sales
(hereafter called the ‘turnover rent’). The determination is made by dividing EBIT by the sales. The
specified percentage is calculated by multiplying it by a factor of 100.
Figure 3: ESG and correlation to turnover ratio

Source: Own source
1059

Environment sales rent: 0.0056
Social sales rent: 0.0422
Governance sales rent: 0.0043
The values of all three criteria in conjunction with the features to be tested are very low. Merely the
criterion environment has a value of 5.6%, but this is not statistically relevant. Therefore, it seems
clear, from a statistical point of view, that there is no or a very minimal effect of the three criteria to
measure the return on sales. Because of that, I do not focus on a deeper consideration on this point. In
addition to the return on turnover as a relative indicator can be applied to the valuation of the enterprise
value remains the Tobin`s Q. The following figure shows the data analysis:
Figure 4: ESG correlation to Tobin's Q

Source: Own source

Environment Tobin’s Q: 0.0952
Social Tobin’s Q: 0.1054
Governance Tobin’s Q: 0.3836
The criterion of governance stands out in the analysis. With a value of 38.36% in the overall analysis of
all the features, it reaches the peak. In conjunction with Tobin’s Q, it can be interpreted that
shareholders specially focus on the criterion of governance. Companies with clear and precise rules for
corporate governance and management positions enjoy extra confidence and a high priority among the
shareholders. In particular, this aspect means that shareholders can then witness sustainable
development, even in the economic sphere, and see if companies comply with the criterion of
governance and communicate it to the outside world and the stakeholders. Only in this way can a
company achieve a higher difference between market value and book value. No other criterion has such
a high value. Social with 10.54% and environment with 9.52% are here significantly and are therefore
less relevant or their individual assessment does not appear significant.
Conclusions of the analysis
The summary of the analysis shows the criteria examined (ESG) and the characteristics (turnover,
return on sales, EBIT, and Tobin's Q) as significant indicators on their effects.
1060
In the criterion of social can be found the highest correspondence with the characteristic reaction with
an R2 of 0.2909 and relative value of 29.09%. The criterion of environment is the closest match to EBIT
(25.45%), rather than the criterion of governance with 38.36% in relation to the feature Tobin’s Q. All
three individual values show significant deviations from the other two criteria examined in the above
partial analyses. So a clear and unambiguous interpretation can be made here:
Social sales: 0.2909

Governance Tobin’s Q: 0.3836
Environment EBIT: 0.2545
Thus, it could be seen in the above analysis that the three criteria are isolated, showing a significant
effect. Now considering the result in connection with the analysis with respect to the applications or the
requirements in the exemplary segment of the dental area, thus losing the requirements of importance.
The dental field queries the criteria by not running attributes such as sustainability - respectively
Ecology plays no significant role in product and purchasing decisions. Nevertheless, the individual
criteria lead to a significant effect. To this end, an information asymmetry is interpreted. Users are
economic entities with commercial objectives and generally seek to align their own economic
behaviour so that business objectives are achieved efficiently and effectively. Irrationality can be
assumed due to the proven result in the criteria for achievement and so with respect to the operational
behaviour of the actors. However, this interpretation requires further analysis, and therefore cannot be
stated as being universal or generally applicable.
These further analyses represent a relevant part of the thesis. Parallel to this, examination of the
elements of economic competition and associations with the knowledge are gained here.
1061
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Manufacturing SMEs and the Implications for CSR. Journal of Business Ethics, Issue 67, pp. 317–330.
1064
Analysis of Regional Expansion Effect toward People Welfare in South

Sorong-Papua
Suwandi
Universitas Cenderawasih Jayapura Papua
(wandi1212@gmail.com)*
Abstract
The objective of this study is determining and analysing the effect of regional expansion,
infrastructure development and productive economic activities toward people welfare in South
Sorong. It is also conducted in order to know and analyze the dominant program on the people
welfare in South Sorong.This research was conducted in South Sorong with quantitative and
qualitative data applying multiple regression analysis.Regression analysis result showed that there is
a significant relationship on variable regional expansion with people welfare in South Sorong-Papua.
The development of infrastructure has a significant influence on people welfare in South Sorong-
Papua. Productive economic activities also have an influence on people welfare in South Sorong-
PapuaPartial analysis testing result discovers that infrastructure development factor has dominant
effects on people welfare compared to the factors of regional expansion program and productive
economic business.
Keywords: regional expansion, productive economic business
Background of the Study
Kaloh (2007) states that Regional Autonomy is a political and instrument administration/management
instruments used to optimize local resources so that it can be utilized as much as possible for the
better society.
The impact of reforms taking place in Indonesia, in terms of politics and public administration, is a
paradigm and government system friction with pattern of centralized monolithic in the central
government towards a system of decentralized governance (local democracy) in local government
(Koswara, 1998). Regional autonomy as a form of implementation of the decentralization principle in
governance initiated by the government in response to the society requirement, is essentially an
application of the division of power concept that divides the state authority vertically (Utomo, 1997).
In this context, the authority will be divided into central government and local government, which are
legal constitutionally remain within the framework of Unitary State of the Republic of Indonesia.
The study on the content of legislation ever used to organize regional administration is still attract the
attention of various circles and it opens up opportunities for debate (Yudhoyono, 2001). Based on
existing data, up until now the total regions of counties and cities in Indonesia are 410, consisting of
324 districts and 86 cities (Yudhoyono, 2001).
Major problems that hinder the formation of South Sorong as an autonomous region is a matter of
local financial independence, lack of urban infrastructure to the resources of local government
officials. The strong aspiration of South Sorong people to change South Sorong as an autonomous
region was the main reason for the government to realize the South Sorong district.
Based on the background that has been stated above, the problem of this study raised as follows:
What are the effects of infrastructure development and productive economic business toward people
welfare in South Sorong? What is the dominant program on the people welfare in South Sorong?
1065
Theoritical Framework
Decentralization
Decentralization is a means to achieve one state purpose providing better public services and creating
more democratic decision-making process. The primary issue of decentralization is the success or
failure of government to improve the efficiency and responsiveness of the public levels toward
political and social interests of their community. The failure to implement the decentralization is
primarily indicated from economic decline, political instability and public services decline (Sidik,
2001).
Decentralization according to Rondinelli (Sidik, 2001) can be divided into four types: political
decentralization, granting rights to citizens through elected representatives by a strong authority to
make public decision. Administrative Decentralization, delegation of authority is intended to
redistribute authority, responsibility and financial resources for providing public services.
Administrative decentralization can basically be grouped into three forms, United Nations gives the
notion of decentralization as "the transfer of authority away from the national capital Wether by
deconcentration to field offices or by Devolution to local authorities or local bodies. These limit
outlines how the authority was transferred from central to local government agencies, either through
deconcentration and devolution (Koswara, 1998).
Fesler defines decentralization as a power distribution switch or give a decision or policy-making to

the local level so that the region has the autonomy to make its own policy (Utomo, 1997). According
to Keban, Yeremias T (2005) decentralization in fact takes two forms, the administrative and political
nature. Administrative decentralization is usually called as deconcentration which means delegation
of implementation authority to local levels.
Thus it can be said that the main significance of decentralization lies in the local authorities to set
their own policies in accordance with the conditions and aspirations of the local community. The
implementation of regional autonomy puts a lot of hope for the resolution of various problems that
hinder the development and progress of the region. Policy formation of South Sorong is one
manifestation of the regional autonomy development. Therefore, in order to achieve regional
planning in Indonesia, there are a few things that want to be achieved (Rashid, 1998): formation
policy of South Sorong as an autonomous region would include a certain jurisdictions. Region in
Indonesian governance is work environmentof general government (Rashid, 1998). Administratively,
the working environment governance with regard to the limits of the jurisdiction of a region or also
referred to regonal household. In the framework of these new regions, granting the status of a specific
region implies as their provinces, districts and city as the divisions of the main region. Theoretically,
in order to run the functions optimally, there are at least seven main elements that make up an
autonomous regional government (Kelvin, 2002), they are: Existence of governmental affairs
delegated to the regions. The occasions are the content of the regional autonomy as their basic
authority to regulate and manage their own household. The existence of a lug of institutional
autonomy delegated to the regions. The staffs are the employees who have a duty to run the
autonomy occasioons that become household contents. The financial resource is used to finance the
implementation of regional autonomy. The element of representation is the embodiment of the
people's representatives who have gained the legitimacy to lead the regional administration. It is also
expected to run efficient, effective, economic and accountable public services management.
Supervision, monitoring and evaluation which are effectively and efficiently done are also needed.
According to Sumodiningrat (1999), dealing with the granting of regional autonomy, it needs to pay
attention to the elements as follows, (1) the stability of the institution, (2) the availability of
inadequate human resources, especially regional government staffs, (3) the economic potential of the
region to dig their own sources of income.
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Research Method
This study is an explanatory reseach aimed to test the hypothesis that there is a relationship
between the regional expansion, development of infrastructure and productive economic
activities for people welfare in the district of South Sorong-Papua. The research variables were
four, namely: the regional growth, infrastructure development, productive economic business
and social welfare. The data used is quantitative data. The data analysis used is multiple linear
regression analysis with SPSS software version 20.
Research Findings
The regression analysis describes the effect of regional expansion, infrastructure development,
productive economic business and people welfare in South Sorong-Papua
Table 1: Regression analysis
Unstandardized Standardized
Coefficients Coefficients
Model B Std. Error Beta T P
1 (Constant) 4.878 1.985 3.041 0.066
X1. Regional 0.132 0.095 0.751 3.732 0.000
expansion
X2. Infrastructure 0.679 0.078 0.782 3.921 0.004
development
X3. Productive 0.452 0.098 0.634 3.660 0.020
economic business
R2 = 0.654, Adj-R2 = 0.430 ; F = 32.244 (p=0.000)
Regression analysis shows that there were a significant influence on the relationships of the
three independent variables on the level of people welfare. Regression coefficients generated
entirely positive sign, so that it can be interpreted that the regional expansions, infrastructure
development and productive economic business will increase people welfare. Partial test
results for each independent variable also gives the conclusion that all variables are significant
on the level of welfare (p <0.05). Based on the standardized coefficients (beta), infrastructure
development has the greatest coefficient compared to the others, 0.679. The results of this
study are also consistent with the research that has been done by simanjuntak (2012) that the
regional expansion had a positive impact on the people welfare. Similarly, the result of the
research conducted by Darmawan (2008) and Kurniawati (2012) discovers that there is a close
relationship between the expansions and people welfare. The results of this study are also
consistent with the reseach that has been done by Novitasari F (20132) that there is a close
relationship of infrastructure development to the welfare. It is also similar to the research done
by Prasetyo RB and Firdaus M (2009) and Hapsari T (2011) that there is a close relationship
between infrastructure development and people welfare.
1067
Conclusion
Results of testing regression analysis shows that each increase of variable input is in a ceteris
paribus conditions, it can automatically improve the people welfare. The simultaneous test
results are there is a close relationship on the regional expansions, infrastructure development
and productive economic business to the people welfar. Similarly, the analysis of the partial
testing results, the Infrastructure Development (X3) factor has a more dominant effect on the
people welfare (Y) when compared to the regional expansions factor (X1), and Productive
Economic Business (X2).
Suggestions
Involvement of the village and district officials in the regional expansion program at least can
be a material evaluation of the program performance. The role of the society helped the
regional expansion program well. However, the people who work should be rewarded in any
work that the role is limited to carrying out the work. Supports from the society also helped the
regional expansions program but they also need incentives to become involved in programs
related to regional expansion. The involved people to the program shoul be confirmed since
there is only several people who works well.
Refferences
Darmawan. 2008. Jurnal penelitian : Studi Evaluasi Dampak Pemekaran Daerah 2001- 2007.
BAPPENAS
Hapsari T. 2011. Pengaruh Infrastruktur Terhadap Pertumbuhan Ekonomi Indonesia. Skripsi.

Universitas Hidayatullah. Jakarta.
Kaloh, 2007 Mencari bentuk otonomi daerah . Jakarta: Rineka cipta karya.
Keban, Yeremias T, 2005, Teknik Forcasting Dalam Analisis Kebijaksanaan, Makalah disampaikan
pada Pelatihan Analisis Kebijakan Sosial, Pusat Penelitian Kependudukan UGM Yogyakarta.
Koswara, E, 2008, Kebijaksanaan Desentralisasi Dalam Rangka Menunjang Pembangunan Daerah,

dalam Pembangunan Administrasi Indonesia, LP3ES, Jakarta.
Kurniawati S 2012. Pengaruh Pemekaran Provinsi Terhadap Pengembangan Wilayah Di

Indonesia. Jurnal Perencanaan Wilayah dan Kota A SAPPK V1N1. Bandung.
Novitasari F, 2013. Maryati. S. Pengaruh Pembangunan Infrastruktur Terhadap Perkembangan

Wilayah di Indonesia Jurnal Perencanaan Wilayah dan Kota A SAPPK V1N1. Bandung.
Prasetyo, R B. Firdaus M. 2009 Pengaruh Infrastruktur Pada Pertumbuhan Ekonomi Wilayah Di
Indonesia. Jurnal Ekonomi dan Kebijakan Pembangunan. Bogor.
Rasyid, Ryaas, 1998, Desentralisasi Dalam Rangka Menunjang Pembangunan Daerah dalam
Pembangunan Administrasi Indonesia, LP3ES, Jakarta.
Sidik, 2001, Decentralization : The Territorial Dimension of The State, London George Allen &
Unwin, Boston Sydney
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Simanjuntak D.Y. 2012. Analisis Pengaruh Pemekaran Wilayah Terhadap Tingkat Kesejahteraan
Masyarakat Di Kabupaten Humbang Hasundutan. Skripsi.
Sumodiningrat G. (1999). Pemberdayaan Masyarakat dan jaring Pengaman Sosial. Jakarta: Gramedia
1068
Suwandi, Made, 2002, Otonomi Daerah dan Revisi Undang-undang Nomor 22 Tahun 1999, Makalah
disampaikan pada Forum Kebijakan MAP UGM, Yogyakarta
.Utomo, W. 1997, Analisis Kebijaksanaan: Dari Formulasi ke Implementasi Kebijaksanaan Negara,

Bumi Aksara, Jakarta.
Yudoyono, Bambang, 2001, Otonomi Daerah : Desentralisasi dan Pengembangan SDM Aparatur
Pemerintah Daerah dan Anggota DPRD, Pustaka Sinar Harapan, Jakarta.
1069
Bottom-Up Policies for Rural Development Evidence from the

LEADER Experience
Andreea Emanuela Drăgoi
Institute for World Economy,Romanian Academy,Bucharest, Romania
andre.emanuela@gmail.com
Otilia Manta
The School of Advanced Studies of the Romanian Academy
Department of Economics, Sociology and Law,Bucharest,Romania
otilia.manta@ince.ro; otilia.manta@rgic.ro
Abstract
In the European Union, rural development represents a major component of the financial support
allocated to the Member States through the Common Agricultural Policy. Taking into account this reality,
the analysis undertaken in the present paper aims to assess the benefits of these bottom-up policies for
financing rural development through the central element of the local communities (most specific, through
local action groups – LAGs and operational groups). In order to achieve this objective, our analysis will
base its assumptions on a series of case studies taking into account the LEADER experience during 2007-
2013 and the available European statistics regarding LEADER. We will also emphasize some of the pros
and cons related to the LEADER experience in Romania, through a qualitative analysis based on the
national MADR (Romanian Minister for Agriculture and Rural Development) data, including those
referring to the members of National Federation of LAGs (FNGAL). In the final part of our research, we
will highlight some conclusions that might be helpful for designing the future rural development
strategies of the Member States during the current financial framework (2014-2020), taking into account
the most important challenges regarding global poverty and sustainable development at the European
level.
Keywords: rural development, bottom-up policies, LEADER programmes
JEL Classification: R51, R58, R59
1. Introduction
While Common Agricultural Policy was constructed as a centralized common policy especially regarding
its financial toolsi and the rural development objectives of the Member States were circumscribed to the
strategic European framework, the LEADERii programmes have emerged as a necessary initiative for
encouraging the bottom-up policies in the rural areas and also for stimulating multi-level cooperation
between the local authorities, and farmers associations. This cooperation was designed taking into
considerations the local needs, but also respecting the national objectives regarding rural development,
their major goal being the creation of some good practices “lessons” at national but also at European
level.
Concerning the LEADER contribution to boosting bottom-up rural development in the European Union,
some analyses (Ray, 2000) have shown that the success of the programmes implemented through this
type of financial support was generated by the fact that their major driver was the flexibility that allowed
1070
to national and local authorities to adapt the initiated measures according to the diversity of challenges
existing in the European rural space. Ray (2000) also point out that the LEADER programmes may be
considered some true “laboratories” for stimulating local rural development, while their objectives are
continuously evolving in accordance with the diversity of local resources and their immense potential for
preserving environment and natural landscapes.
2. Materials and Methods
Regarding the research methodology used by this paper in order to assess the benefits of LEADER
bottom-up policies for financing rural development it should be noted that the complexity and diversity of
the issues addressed have required the use of various methods, techniques and tools to which we attached
particular importance:
• Documentation, namely accessing and studying domestic and foreign specialized bibliography,
especially regarding state approach regarding the rural microfinance;
• The rational method, used as a tool of knowledge, analysis and organization of the scientific
research approach;
• Integration of methods and logic operations carried out through the use of synthesis, comparison
and systematization;
• Statistical methods, through the use of descriptive statistics and statistical analysis;
• Discussions with experts from national institutions, but also with the beneficiaries of the
microfinance products and services;
• Data analysis using graphs, charts and figures.
Using the classic instruments of scientific research, based on the qualitative analysis of the most
important contributions from the literature in the field, but also on statistical analysis, we have achieved
our own synthesis regarding rural microfinance through the LEADER programmes, both at European and
national level (in Romania). Our own contributions on the investigated issue are highlighted in the
conclusions and proposals section of the present article. In this part of our paper we have formulated and
promoted some conclusions that might be helpful for designing the future rural development strategies of
the Member States taking into account the global context with its main challenges for the rural policies
field: poverty and the need for sustainable development.
3. Bottom-up policy for financing rural areas in the European Union
Up until present there were implemented three LEADER autonomous initiatives (LEADER I between
1991-1993; LEADER II between 1994-1999 and LEADER+ between 2000-2006) and an integrated
generation (during 2007-2013 the LEADER programmes have been integrated in the Common
Agricultural Policy as the fourth financing axis). Starting with the year 2007, LEADER programmes were
financed from the global contributions granted to each Member State according with the CAP regulations
and budgetary allowances.
Although LEADER started as an experimental project, some authors (Dargan and Shucksmith, 2008)
show that it was converted into a true “engine” for generating projects and ideas, hence becoming an
instrument for testing how to expand development opportunities for rural areas. LEADER programs have
contributed to consolidating and creating jobs, to encouraging the creation and development of SMEs in
rural areas through bottom-up funding focused on regions particularities and on needs of local
communities. So far, the autonomous LEADER programs gathered an impressive number of Local
Action Groups (LAGs), managing to "cover" vast geographical areas from the Member States (See Table
1).
1071
Table 1: Financial support during the autonomous LEADER programmes
The Number of involved EU financial support

Geographical area
Programme LAGs (EUR millions)
LEADER I 217 367 000 km² 442
LEADER II 906 1 375 144 km² 1 755
LEADER + 893 1 577 386 km² 2 105.1
Source: Authors based on DG Agriculture and Rural Development statistics.
What all LEADER programmes have in common is the fact that they all were designed taking into
consideration local and regional interests and they were implemented in a homogeneous territory
characterized by common traditions and shared needs and expectations. Some authors (Ploeg et al., 2000)
believe that the important success of LEADER programs was due to their practical nature that was the
main reason for which they were adopted with enthusiasm by all Member States. It should be noted that
another advantage of the LEADER programs it was their ability to adapt to the needs of rural
development schemes and their ability to speculate the local competitive advantage. Also, the LEADER
programs have contributed to the interregional development if the areas where they have been
implemented were homogeneous in terms of human, financial and economic resources, hence creating
strategies to support viable local development (See Box 1).
Box 1: LEADER contribution to finance interregional development strategies
Transnational and interregional project for education and management of museums

Auerbergland regions (Germany), Ausserfern (Austria) and Ostallgäu (Germany) have developed a cross
border training project, which included 104 participants, 25 lecturers and 47 workshops covering 20
different modules. The total project value was EUR 30,000 of which 15,000 from European funds and
15,000 from private contributions. Developed under LEADER +, the project created a link between tourism
and culture, and also boost the development of new jobs. The project capitalized the common culture and
history of these three European regions, which are located in the Bavarian-Austrian alpine area.
Interregional project in Finland
This project implemented in the Kymi and Sepra regions from Finland has promoted self-employment
among locals and amounted to a total value of EUR 59,436, of which 22,968 from LEADER, 22,968 from
other public funds and 15,000 from private funds. The project supported many small development
initiatives based on the business ideas of local people. Focusing on promoting information technology and
environmental protection among young people, the project has targeted a number of specific actions:
developing tourist and other services; promoting, marketing and developing new or existing local products;
supporting new small businesses; capitalizing neighbourhood with Russia and Estonia, as well as
developing other international contacts.
Source: Authors synthesis based on European Commission – LEADER Approach, 2012
4. Characteristics of rural financing through LEADER programmes

Implemented during 1991-2006 LEADER I, LEADER II and LEADER + programmes were designed to
stimulate and to test the creation of new methods regarding integrated and sustainable rural development.
Gaining the experience of previous financial framework, currently the LEADER Axis allows Member
States to implement such integrated projects in a much larger proportion into their national rural
1072
development plans. Rural development funding through LEADER differs from other axes funding
through the implementation and correlation of actions in rural communities (See Figure 1). The most
commonly used financing tool is represented by Local Action Groups that are bringing together groups of
partners from the public and private sectors in a given geographical area.
Strategies based on
local needs Bottom-up approach Small farms projects
LEADER Public-Private
Networking effect Partnership
Multisectoral
Cooperation Innovation approach
Figure 1: The principles of rural development funding under the LEADER programmes
Regarding the success of LEADER programs some analyzes (Saraceno, 1999) are stressing out that the
ex-post evaluation of these programs indicates that through the funds granted they supported a number of
pilot experiences in the rural development field while established principles of implementation adapted to
local goals, rather than to individual actors objectives. Saraceno (1999) also argues that the popularity of
the LEADER programs was based on the fact that they propose an integrated territorial approach that is
based on goals, strategies and actions requiring the active participation of Member States' authorities at
all levels of governance. The LEADER programmes have also encouraged the complementary approach
in order to develop strategies for the rural communities in order to obtain additional financial support (See
Figure 2).
LEADER Pre-development
ACTIONS projects are supported,
such as diagnostic
MOBILIZES AND studies and feasibility
STIMULATES studies
THE LOCAL
RESOURCES They allow the access
to other national or
European funds
Figure 2: The complementarities of objectives and measures in the LEADER financed

programmes
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It is also important to note that the LEADER Axis allows to be funded sectors or categories of
beneficiaries, which in many cases are not supported or cannot receive funding through other programs or
projects implemented in the rural areas in the Member States.
Such projects may concern: cultural activities in rural areas, enhancement of the rural environment,
rehabilitation of architecture and heritage buildings, rural tourism, improving communication within the
global value chain (between producers and consumers). In addition the projects funded within the
LEADER framework stimulates the collaboration between diverse rural economic actors (farmers,
associations of producers or other local businesses) in order to produce goods and services of high quality
(see Box 2).
Box 2: Case studies regarding LEADER projects financed during 2007-2013
LEADER contribution to delivering quality goods in the Montiferru region -Sardinia, Italy
Through a LEADER project worth EUR 8080, of which European funding was EUR 4096, while other
funds were provided from public funding (EUR 2619) and private (EUR 1365), the group of local action
Montiferru has taken a number of actions in order to increase the value and the market share for a specific
type of cheese, called Casizolu, product made with milk from a specific breed of cattle - Modicano Sarda.
Investments in the project were designated to improve the production process of Casizolu cheese. The
implemented actions were: food safety planning, training courses for producers, marketing assistance in
order to establish connections with other local quality products (honey, olive oil extra virgin, Malvasia
wine).
LEADER contribution to the rejuvenation of the workforce in the reed and sedge harvesting in the
region Norforlk Broads, UK
This project had a total value of EUR 172,425, of which 58,820 granted by the LEADER program and
113,605 from public funds, its main goal being to finance training courses on crop management for reed
and sedge. These courses were needed because a previous study indicated that of the 20 commercial cutters
in the area, very few were aged up to 30 years, and most of them were approaching retirement age. The
project succeeded in halting the decline of local industry in the reed and sedge harvesting, while attracting
and supporting new workforce, increasing efficiency and promoting existing good practices businesses in
the Broads region.
Source: Authors synthesis based on European Commission – LEADER Approach, 2012
5. The role and importance of Local Action Groups (LAGs) in the LEADER programmes
Local Action Gropus (LAGs) are the key element of funding through the LEADER programmes. Due to
their specific organization, LAGs may assume a large proportion of the management responsibilities (e.g.
project selection, payment, monitoring, control and evaluation tasks). However, some analyzes
(Shucksmith, 2010) indicates that the degree of autonomy of the LAGs may vary considerably, depending
on the specific organization of the Member States and on the institutional context. Global grants (from
combined national and European sources) are the most common form for financing projects involving
LAGs, and for the success of these projects, the LAGs must be formed around specific organizational
principles (see Figure 3).
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COMMON
TRADITIONS
Between 10,000 and

100,000 members
LAGs
Without geographic
boundaries, but with
a common cultural
identity SHARED NEEDS AND
EXPECTATIONS
Figure 3: The most important principles of LAGs creation
A key element of the LAGs functioning is related to their contribution in encouraging public-private
partnerships. This type of cooperation may foster sustainable rural development as is combining human
and financial resources available in the public and private sector projects while involving local actors in
collective and multisectoral actions. The public-private partnerships created in order to implement a
LEADER project may contribute, as demonstrated by the previous financial frameworks, on improving
economic competitiveness of the areas where these projects were implemented by strengthening
cooperation between different rural actors while facilitating negotiated solutions within the framework of
consultation meetings. In this context, we consider that the LAGs are a true catalyst for such partnerships
whose main achievement was the facilitation of the processes of adaptation and change in the agricultural
sector (e.g. by encouraging the production of quality goods and the development of integrated food
chains). LAGs may also play a significant role in the initiation of rural development projects with
horizontal objectives such as: environmental protection, the diversification of the rural economy and a
better quality of life in rural areas. Moreover, it should be noted that improving the quality of life in rural
areas was a priority of LEADER projects and one of the main reasons of their popularity in the Member
States (See Box 3).
1075
Box 3: LEADER projects contribution on improving the quality of life in the EU rural areas
Honey manufacturer from UK creates an integrated system for its business

In UK, during 2007-2013, a Scottish manufacturer of honey held a LEADER project which supported the
establishment of a new company that will sell honey, but also created a communication network for
attracting visitors, explaining the benefits of the existence of beekeepers and of pollination to the
environment. The project, totalling EUR 209,301 with a total contribution of EUR 74,727 from the
European funds, has shown that benefits of achieving sustainability, while increasing incomes and quality
of life in rural areas.
Young farmers project from Romania for organic farming
In Romania, a group of young farmers from Transylvania organized into Topa Association, decided to
develop a model of organic family farm whose products were then distributed to new markets. The project
had a budget of EUR 25,000 of which the European contribution was of EUR 9357. This project was
included in the DG AGRI study concerning a guide for successful young farmer exchange schemes which
focuses on tips for design and structure, objectives and effectiveness, management and efficiency as well as
how to develop them to be sustainable and long lasting.
Source: DG Agriculture and Rural Development (2015), Country Fact Sheets
As the latest statistics are showing (EC, 2015), during 2007-2013, the LEADER programs have boost
horizontal rural development while involving through LAGs a large majority of the population in rural
areas (55.5% of EU-28). It should be noted that the Member State with the largest share of rural
population involved in the LEADER projects was Sweden (92.3%), followed by Ireland (89.6%) and
Denmark (76.1%), while the lowest share of the population involved in LEADER projects was registered
in Slovakia (14.3%) (See Chart 1). The Member States that were not involved in the LEADER projects
are Bulgaria, Estonia and Malta.
2007-2013
100
90
80
70
60
50
40
30
20
10
0
D enm ark
R om ania
Portugal
Cz ec h R epublic
G erm any
EU
UK
Ireland
G reec e
F ranc e
Cipru
Lux em bourg
Poland
Slov ak ia
F inland
Belgium
Italy
H ungary
N etherlands
Spain
Latv ia
Lithuania
Slov enia
Suedia
Aus tria
Chart 1: Rural population involved in LEADER projects during 2007 – 2013 (%)
Source: Authors based on DG Agriculture and Rural Development statistics.
According to a report from the European Network for Rural Development (ENRD, 2015), 87% of the
LAGs involved in the LEADER programs have legal personality. These LAGs were typically organized
as non-profit associations or organizations. Countries where this type of LAGs is common are: Belgium
1076
(Flanders), Germany (in Rheinland-Pfalz and Sachsen-Anhalt regions), the Netherlands (most of LAGs),
Portugal (14 of the 47 existing LAGs) France, Slovenia (50% from existing LAGs) and the UK
(especially in Scotland).
Other types of LAGs, which does not have legal personality, are supported by official public structures
(generally, an authority responsible for rural development). The report indicates that during 2007-2013, in
many Member States have continued to operate LAGs established in the previous financial framework. In
some Member States this was the case for all existing LAGs (Finland, Greece, Ireland, Portugal, Estonia,
respectively in the regions of Navarra, País Vasco, Islas Baleares, Cantabria, Murcia, Comunidad
Valenciana), while in other Member States the new established LAGs accounted for more than 25% of
total LAGs (the Czech Republic, Denmark and Germany). The same report estimates that during 2014-
2020, many of the already established LAGs will continue to operate and implement rural development
projects.
6. Pros and Cons Related To the LEADER Experience in Romania
In Romania all the LAGs are members of the National Federation of Local Action Groups (FNGAL).
FNGAL role is to represent the legitimate interests of LAGs in Romania in order to create and improve
the necessary framework for the sustainable development of rural territories. Most of the Romanian
LAGs are based on public - private partnerships aimed at developing various microfinance projects under
LEADER Axis. Romanian LAGs are operating with the help of some associate members with special
status (private companies, community associations, individuals with work experience in economic and
social development, representatives of public authorities, etc.). The FNGAL members have the direct
responsibility for implementing various strategies for the micro-regions development with the funding
provided by the National Rural Development Plan. Under such initiatives the successful implementation
is conditioned by the quality of the selected projects and in particular by the possibility of the final
beneficiaries to further be involved in other rural development projects selected by LAGs. In Romania
there are currently operating 163 LAGs, covering an area of 141 391 km2 and a population of 6,766,377
inhabitants. The existing LAGs are associated with about 4,100 public entities – most of them key actors
in the development of micro-regions. Through the existing financing lines LAGs may promote and select
projects with a maximum value of EUR 200,000. However the average value of financed projects is
between EUR 50,000 and 60,000, placing the Romanian LEADER projects into the small and very small
projects category.
The implementation of LEADER projects in Romania is carried out through the reimbursement of
expenses incurred - hence the result is that the final beneficiaries need to ensure the pre-financing of their
activities to implement activities stipulated in the grant application. Given that the final beneficiaries
generally come in the category of micro firms and because many of them represent start-up companies,
their proposed projects are usually not qualifying for the "traditional" banking system, hence, in our
opinion, would be necessary to develop a micro-financing alternative solution at national level.
The difficult access to classical methods of business financing is one of the main threats for boosting
bottom-up rural development through LEADER projects in Romania. Because in Romania most of the
existing farms are in fact family farms and the land ownership is greatly divided, the Romanian farmers
are not able to fully exploit the LEADER opportunities due to the lack of experience in terms of
associative cooperation, based on mutual interests. It should be noted that such of rural cooperation of the
local communities represent the main driver for the successful implementation of the LEADER projects.
In Romania, the LAGs are perceived as an alternative to the rigid structure of other EU Funds that did not
allowed the developing of local creative ideas, especially in small rural communities. Hence, we consider
that Romania should encourage the further development of rural projects through LAGs as a specific
model of micro-regional development.
1077
In order to assure the success of LAGs driven initiatives several conditions must be met:
1. The territorial characteristics: a certain countryside area, a certain number of people, a maximum
density of population in the selected area;
2. The existence of a specific coherence of interests of the involved rural communities (a specific form of
relief - communities located on the Danube region, or in southern Mehedinti County; a predominant crop
– vineyard regions);
3. The mixed associative structure (more than 50% private companies and less than 50% public
institutions) in order to carry out a balanced development strategy adapted to the regional specific
challenges.
In Romania, if all these conditions are met, the new LAG will have an operational office which will act as
a financier that may propose funding rounds on various development themes set out in the national rural
strategy, while also supporting the development of those projects.
In Romania the previous experience shows that most of the LEADER financed projects helped to boost
sustainable rural development providing a growing importance for the strategic planning while preserving
the local specificity (unlike other thematic axes, LEADER Axis retain a good anchorage in local
traditions). LEADER has also increased the possibility of developing original projects since the local
associative structure generates the possibility for such creative projects to be implemented at local and
micro-regional level. Another positive aspect is that LEADER had encouraged the good practices
exchanges with other LAGs from the EU, hence generating new cooperation networks.
7. Conclusions and Proposals
Previous experience has shown that the bottom-up policies implemented through LEADER programs
may play a key role in boosting sustainable rural development, especially if the involved LAGs are based
on existing public-private partnerships. With decision-making powers, LAGs are a model of organization
that can positively affect rural development strategies of Member States. The DG Agriculture&Rural
Development statistics indicates that most LAGs were developed based on common interests and
characteristics as a result of various forms of institutional organization at regional and national level, but
with varying degrees of autonomy regarding project approval and financial management. The role and
responsibilities of LAGs have also evolved in some Member States, along with the increasing number of
LEADER projects funded. As a LEADER implementation report (ENRD, 2010) show several Member
States, including Malta, Portugal, Belgium and Italy (with the regions Abruzzo, Basilicata, Calabria,
Emilia Romagna, Friuli Venezia Giulia, Lazio, Liguria, Piemonte, Puglia, Sardinia, Sicily, Tuscany,
Trento, Campania, Lombardy and Molise Aosta Valley) have implemented a number of projects with
direct payment for initiating LAGs. ENRD report also show that the majority of LAGs have shared the
administrative burden with national authorities in the Member States, their degree of interdependence
varying by national regulation, expertise and know-how. According to the ENRD report, in most Member
States, LAGs are responsible for the direction and content of the local rural development strategy.
Throughout its entire existence, the LEADER programmme has shown it can play a significant role in
stimulating new and innovative approaches on rural development. Some analyzes (Grieve, Weinspach,
2011) are showing that innovation that may improve the quality of life in rural areas is encouraged by the
great freedom and flexibility available to LAGs in making decisions. In our opinion, the “innovation”
encouraged through LEADER projects must be understood broadly. It may mean the introduction of a
new product, a new process, a new organization or the penetration on a new market. This definition of
innovation is valid for rural and urban areas. However, rural areas, due to low population density and
relatively poor level of human and physical resources, have reduced connections with research and
development centres and perhaps it is more difficult to produce radical innovations.
1078
Therefore, in rural areas, innovation may involve the transfer and adaptation of innovations developed
elsewhere, the modernization of traditional knowledge or finding new solutions to persistent rural
problems that have not been resolved in a satisfactory manner and sustainable by other policy actions.
This is why LEADER projects may provide some solutions to the specific problems of rural areas.
Some authors (Katona et al., 2006) considered that the introduction of the LEADER approach may be
itself an innovation in setting public policy for rural development. For example, bottom-up approach
described above may stimulate the emergence of new project ideas that can be supported by the LAGs
because this type of action for rural development is not constrained by a fixed set of measures. The
adoption of information and communication technologies in rural areas may become an important
channel through which rural populations have greater access to innovations. Also, through its entire
operation structure LEADER Axis encourages networking programs, establishing contacts which
facilitates the exchange of experiences and knowledge between action groups, rural areas, administrations
and organizations involved EU rural development, whether or not they are direct LEADER beneficiaries.
Establishing networking is a means of transferring good practice, of disseminating innovation and
building on lessons learned from local rural development. Establishing networking may also lead to the
strengthening of relations between people, projects and rural areas, thus overcoming the isolation faced
by some rural regions. It should be noted that if initially this type of networking activities were rare,
starting with 2014, they may encompass a much broader range of rural development issues. Within this
type of initiatives rural actors can benefit from expert advice for practical activities such as preparing
publications on different aspects of rural development, organizing seminars, analyzing rural development
measures to identify good practice, identifying development trends in rural areas creation of websites and
support in making the identification of potential partners to launch cooperation projects. Operation carried
out under the LEADER programs indicated that the rural population dynamism and willingness to be
involved as active players in the areas covered by the project are decisive factors in the success of such
bottom-up initiatives. Moreover, it may be concluded that, in the post-project period, all programs that
were funded by LEADER have encouraged integrated approach to rural development, which will
influence or complement other pilot strategies in those areas. Given the previous financing experience
(2007-2013) and taking into account the best practices lessons offered by some Member States in our
opinion, for increasing the success of LEADER projects the Member States should encourage the
constituted LAGs to further implement local development strategies based on innovative initiatives
tailored to local development needs and challenges. To this end, the Member States National Rural
Development Plans should be constructed through the establishment of more specific eligibility rules,
along with the simplification of procedures for financing rural development programs under the LEADER
axis.
i
The various approaches regarding Common Agricultural Policy, initiated before the ’90, were most of
them focused on supporting production and sustaining the development of different sectors (crop
production, animal breading). This type of top-down approach was applied through the national plans for
agriculture and rural development that were specifying, but not detailing, any first-level subsystems
measures. Each subsystem was then refined in yet greater detail, sometimes in many additional subsystem
levels, until the entire specification was reduced to its base elements. In this context the local authorities
(and even the farmers themselves) were not encouraged to be involved in creating adapted rural
development initiatives or projects in order to fully exploit their regional advantages and particularities.
ii
The LEADER programme is named after the abbreviation for the French denomination (Liaison entre
Actions de Développement de l'Economie Rurale).
1079
References
Dargan, L., Shucksmith, M. (2008), “LEADER and innovation”, in Sociologia Ruralis, Wiley Online
Library
DG Agriculture&Rural Development (2015), “Country Fact Sheets”, http://ec.europa.eu/agriculture/cap-

in-your-country/index_en.htm
European Commission (2012), “LEADER Approach”, Evaluation Report, http://enrd.ec.europa.eu/enrd-

static/leader/leader/leader-tool-kit/the-leader-approach/en/the-leader-approach_en.html
European Commission (2015), “Rural Development in the EU – Statistical and Economic Report”,
http://ec.europa.eu/agriculture/statistics/rural-development/en.htm
ENRD (2010), “Summary of the Extended Report on the Implementation of Leader Approach”,
https://enrd.ec.europa.eu/sites/enrd/files/fms/pdf/7CAA2A66-951D-8791-688A-9FE9B0BC3687.pdf
ENRD (2015), “LEADER subcommittee Focus Group on the Implementation of the bottom-up
Approach”, http://enrd.ec.europa.eu/enrd-static/fms/pdf/7CAA2A66-951D-8791-688A-9FE9B0BC36.pdf
Grieve, J., Weinspach, U. (2011), “Capturing Impacts of LEADER on Measures to Improve Quality of
Life in Rural Areas”, in Agricultural&Rural Policy, www. literature.ti.bund.de
Katona, J, Fieldsend, A. F., Alderson, M. (2006), “Human and social factors as endogenous factors
stimulating the LEADER Programme in Hungary”, in Rural Areas, www. ageconsearch.umn.edu
Ploeg, J.D. Van, Renting, H., Brunori, G. (2000), “Rural development: from practices and policies
towards theory”, Sociologia Ruralis, Wiley Online Library
Ray, C. (2000), “The EU LEADER programme: rural development laboratory”, in Sociologia Ruralis,
Wiley Online Library
Saraceno, E. (1999), “The Evaluation of Local Policy Making in Europe, Learning from the LEADER
Community Initiative”, in Ricerche Economico-Sociali (CRES), Italy
Schuksmith, M. (2010), “Disintegrated Rural Development? Neo – endogenous Rural Development.

Planning and Place – Shaping in Diffused Power Context”, in Sociologia Ruralis, Wiley Online Library
1080
Influence of Different Tillage Systems on Soybean Grain Yield,

(Glycine Max L. (Merrill), Under the Conditions of
South East Romania
Nicoleta Căpățână, Horia Nicolae Ciocan
1
University of Agronomic Sciences and Veterinary Medicine of Bucharest,
59 Marasti Blvd, District 1, Bucharest, Romania
Corresponding author email: nicoleta.capatana@agro-bucuresti.ro, horia_cn@yahoo
Abstract
Tillage systems represent a major factor contributing directly to create favorable conditions for plant
growth and development, in order to obtain grain yield performance. This paper aims to present the
influence of tillage systems on soybean crop grain yield Glycine max L. (Merrill), in Southeastern
Romania conditions (Moara Domneasca, Ilfov County). The research conducted in 2015 was aimed
to assess the influence of tillage systems on some soybean varieties’ grain yield. Soybean varieties
used in this research were from different maturity groups: Carla 000 and PR92B63 0. The experiment
had been placed on a chromic luvisoil that was previously cultivated with autumn wheat. Research
was based on a split plot experiment where the following factors were analyzed: Factor A - tillage
system with six graduations: Ploughing at 20 cm (control, A20), Chisel plow at 20 cm (C20), Chisel
plow at 40 cm (C40), Disking at 10 cm (D10), Disking / Ploughing at 20 cm (D/A20) and Disking/
Chisel at 40 cm (D/C40); Factor B – soybeans varieties, with two graduations: Carla (group 000) and
PR92B63 (group 0). Average grain yield recorded by Carla variety was 2283.73 kg/ha, and for
PR92B63 the averege grain yield was 2425.44 kg/ha. Under the influence of tillage systems soybean
average grain yield varied from 2065.45 kg/ha to 2511.95 kg/ha.
Keywords: soybean, minimum tillage, conventional tillage, bulk density, yield
Introduction
Soybean Glycine Max L. (Merrill) is one of the most important crops in the world, having multiple
uses in human food, animal feed and key industrial sectors (Cheţan et al 2014). Soybean contributes
directly to all the amelioration processes of the soil’s physical attributes due to the symbiosis installed
between plant root and nitrogen-fixing bacteria, Bradyrhizobium japonicum (Cheţan et al 2014).
Biological nitrogen fixation process has both economic and ecological importance in maintaining soil
organic fertility (Somasegaran and Heinz 1994) having direct implications in all the agricultural
processes (Peoples et al 1995).
To obtain an profitable soybean yield is required a full compliance with all the technological links,
starting with soil and ending with the harvesting process (Onofraş et al 2011). Soybean is one of the
most studied crops in the world, cultivated under different tillage systems: conventional tillage (CS),
minimum tillage (MT) or no-till (NT) (Cheţan et al 2014; Moraru 2013; Rusu et al 2013). Soil
properties degradation are based on a numerous causes, and among them is the intense and irrational
usage of soil tillage systems with plowing, which is a major factor in reducing the biological diversity
and productivity of the agroecosystem (Marin et al 2007).
To achieve an sustainable agriculture system, minimum tillage (MT) with other elements such as:
crop rotation, diversity of cultivated species, use of legumes in crop rotation and use of organic
matter, are strategic components of the system. Minimum tillage (MT) influences directly all the
physical, chemical and biological soil properties (Cociu and Alionte 2011). Applied on long term
1081
minimum tillage (MT) enriches soil organic carbon content (Heard et al 1988, Cociu and Alionte
2011), influences the stability of structural aggregates (Cociu and Alionte 2011; Marin 2007; Hatfield
and Stewart 1994) and helps preserving the soil humidity (Rusu et al 2013; Hatfield and Stewart
1994).
The conventional systems (CS) usually achieves an increased grain yields, but in the same time
contributes significantly to the degradation and depletion of the natural resources (Rusu et al 2013;
Ungureanu et al 2015) leading in the end to higher costs (Ignea et al 2012). This work includes
research results for soybean crop grain yield in conventional soil tillage systems (CS) and minimum
soil tillage systems (MT).
The research was conducted at the Experimental Field of Moara Domneasca Didactic Farm (Ilfov
County), located in South-Eastern of Romania, belonging to the University of Agronomic Sciences
and Veterinary Medicine of Bucharest.
The experimental design was based on a split plot method and the soil was chromic luvisoil.
Factor A - Tillage systems with six graduations: 1. Ploughing at 20 cm (Control – Ct.); 2. Chisel
plow at 20 cm (C20); 3. Chisel plow at 40 cm (C40), 4. Disking at 10 cm (D10), 5. Disking /
Ploughing at 20 cm (D/A20); 6. Disking / Chisel at 40 cm (D/C40).
Factor B - Soybeans varieties, with two graduations: 1. Carla (group 000) and 2. PR92B63 (group 0);
For the conventional systems worked alternative, respectively D/A20 and D/C40, tillage was applied
alternately, as follows: disking (D10) for the previous crop and Ploughing at 20 cm (A20) and Chisel
at 40 cm (C40) for soybean crop. Wheat (Triticum aestivum L.) was the previous crop grown before
soybean (Glycine max L. (Merrill)).
Conventional tillage systems (CS) and minimum tillage (MT) systems were carried out in autumn of
2014. Seedbed preparation was made one day before sowing at 5-6 cm depth, using a pre-sowing
combinator. Fertilizers N45P60K45 were applied at seedbed preparation. Soybean varieties were
sown on the 16th of April. Harvesting date for soybean varieties used in the research was different
due to each variety maturity growth: Carla, 000, harvest date was 7th of September, 144 days after
showing, and for PR92B63, 0, harvest date was October 19th of October, 186 days after sowing.
Before sowing the seeds of soybean varieties were treated using the biofertilizer Nitragin in dose of
300 g/ha. The sowing-machine SPC 7 was used for sowing soybean varieties at 50 cm distance
between rows. Weeds were controlled in pre-emergence using the herbicide Dual Gold (1.5 l/ha) and
after emergence using Basagran (2 l/ha) and Pantera (1.2 l/ha). The control of Tetranychus urticae
was done using the insecticide Envidor 240 SC in a dose of 0.3 l / ha.
Due to the fact that the research was made on different soil tillage systems, mobilization of the soil
was different, and therefore were analysed the values of dry bulk density indicator, DBD. In spring
before sowing and in autumn after harvesting the dynamic of dry bulk density (DBD) indicator was
followed. In order to determine the dry bulk density (DBD) indicator values, soil samples were
harvested using metallic cylinders with constant volume from depth: 0-10 cm, 10-20 cm, 20-30 cm
and 30-40 cm.

Climatic conditions, Moara Domneasca, 2015
Climatic conditions of the agricultural year 2014 - 2015 (Table 1) varied significantly compared to
the normal climatic conditions of the area, exerting a major influence on soybean varieties growth,
1082
and grain yield. During the growing season (April – September 2015) the average temperature was
19.97°C comparing with 18.10°C which are the normal values for this area.
The amount of rainfall recorded in April 2015 represented 4.15 % (Table 1) from the normal amount
of the area, having direct implications on both soybean varieties sowing. In July 2015 the rainfall
amount registered again a critical value and represented 88.24
.24 % (Table 1) from the standard values of
the area. The total amount of rainfall recorded during the growing (April – September 2015) season
was 232 mm which was not satisfying to the needs of the crop. The low level of rainfall recorded in
July had a negative
gative impact on soybean varieties productivity, these being in the reproductive period,
in stages R3 - R5.
Table 1: Climatic conditions, Moara Domneasca, Ilfov County in 2014 – 2015
Month Temperature (oC) Rainfall (mm)

2014 2014
Normal Normal
-2015 -2015
October 11.76 11.00 64.20 35.80
November 5.98 5.30 49.10 40.60
December 1.35 0.40 84.60 36.70
January -1.46 -3.00 33.40 30.00
February 2.03 -0.90 21.40 32.10
March 6.16 4.40 65.00 31.60
April 11.75 11.20 2.00 48.10
May 18.62 16.50 33.60 67.70
June 20.97 20.20 56.80 86.30
July 25.28 22.10 5.20 63.10
August 24.34 21.10 48.40 50.50
September 18.86 17.50 86 33.60
Avg/Sum Oct. – Sept. 12.14 10.48 549.70 556.10
Avg/Sum Apr. – Sept. 19.97 18.10 232.00 349.30
Figure 1: Climatic conditions between April and September 2015, Moara Domneasca
Influence of tillage systems on dry bulk density (DBD), Moara Domneasca 2015
Dry bulk density (DBD) values were modified by performing tillage soil systems, depending on the
unit used, Table 2, Table 3.
1083
Before sowing in layer of 0 - 10 cm DBD values recorded were between 1.03 - 1.06 g/cm3 in variants
which was been applied the following soil tillage systems: A20 (CS), C40 (MT), D/A20 cm (CS
aleternative), Table 2. The lowest value of DBD in March was recorded in A20 (CS) of 1.03 g/cm3
and the biggest one was recorded in D10 (MT) of 1.52 g/cm3, Table 2.
Tabelul 2: Bulk density evolution depending on the soil system tillage, March 2015
DBD - March 2015 – Before Sowing

Soil Depth (cm)
Avg. (g/cm³)
Till 0-10 (cm) 10-20 (cm) 20-30 (cm) 30-40 (cm)
A20 1.03 1.30 1.43 1.46 1.31
C20 1.11 1.29 1.47 1.47 1.34
C40 1.06 1.22 1.40 1.49 1.29
D10 1.22 1.40 1.49 1.52 1.41
*D/A20 1.06 1.32 1.45 1.50 1.33
*D/C40 1.10 1.26 1.35 1.47 1.30
* Disking for the previous crop; Avg= average
In deeper layers of 20 – 40 cm DBD values varied depending on the depth of the soil tillage system
applied, with values of 1.30 g/cm3 for A20 (CS) and 1.52 g/cm3 for D10 (MT), Table 2.
Table 3: Bulk density change depending on the soil system tillage, October 2015
DBD - October 2015 – Harvesting

Depth (cm)
Soil Till Avg. g/cm³
0-10 (cm) 10-20 (cm) 20-30 (cm) 30-40 (cm)
A20 1.06 1.33 1.45 1.50 1.34
C20 1.14 1.30 1.51 1.51 1.37
C40 1.16 1.22 1.49 1.53 1.35
D10 1.20 1.46 1.50 1.53 1.42
*D/A20 1.12 1.37 1.45 1.48 1.36
*D/C40 1.16 1.48 1.51 1.46 1.40
* Disking for the previous crop; Avg= average
In autumn, October 2015, after harvesting, DBD (Table 3) values were higher for all the soil tillage
systems applied, compared with those obtained in the March 2015. The minimum value of DBD
recorded in October 2015, was 1.06 g/cm3 in A20 (CS) and the maximum value was 1.53 g/cm3 in
D10 (CS). The average values of DBD were 1.34 g/cm3 for A20 (CS) and 1.36 for D/A20 (CS
alternative). For variants were MT was applied the average of DBD values were between 1.35 g/cm3
and 1.42 g/cm3, Table 3.
DBD values varied between sowing and harvesting, depending on tillage system applied.
Yield of Soybean Production

Soil tillage systems influence on soybean grain yield, Moara Domneasca, 2015
The average value of soybean varieties grain yields under the influence soil systems was 2354.59
kg/ha, as shown in Table 4. In the Control tillage system (A20, CS) the average grain yield was
2348.24 kg/ha, varying from 2291.98 kg/ha for Carla to 2404.50 kg/ha for PR92B63.
On average varieties recorded grain yield increases from 132.23 kg/ha in C40 (MT) to 163.70 kg/ha
D/C40 (MT), statistically assured for both tillage systems. The highest grain yield (2511.94 kg/ha)
1084
was recorded in the minimum tillage system (D/C40), Table 4. The lowest average grain yields were
obtained in D10, MT, lower with -282.79 kg/ha, than Control, Table 4. The differences in grain yield
recorded by both varieties Carla and PR92B63 were significantly stronger negative in D10 (MT)
compared to control A20 (CS), Table 4.
Variety influence on soybean grain yield, Moara Domneasca 2015
Under variety’s influence the average grain yield ranged from a minimum of 2065.45 kg/ha to a
maximum of 2511.94 kg/ha. The highest grain yield was recorded by PR92B63 in MT (D/C40),
2566.08 kg/ha, with an increase of 54.14 kg/ha compared with the average grain yield of varieties,
Table 5. For PR92B63 variety the lowest grain yield of 2169.47 kg/ha, was recorded in MT, in
variants where the soil tillage system D10 was applied. PR92B63 obtained the highest grain yield in
MT, being of 2566.08 kg/ha for variants which were worked with D/C40, Table 5.
Grain yield obtained by Carla variety in MT varied between 1961.42 kg/ha in D10 and 2457.80 kg/ha
in D/C40, Table 5. In MT variants (D10), and in CS alternative (D/A20), Carla recorded grain yields
differences of -104.02 kg/ha and -114.67 kg/ha, being significantly negative. The highest grain yield
recorded by Carla was of 2457.80 kg/ha (MT).
Table 4: Soil till influence on Soybean yield (kg/ha), Moara Domneasca 2015
CARLA PR92B63 Average – Variety

GY Diff. GY Diff. GY
Soil Till % % Diff. kg/ha %
kg/ha kg/ha kg/ha kg/ha kg/ha
A20 2291.98 Ct 100.0 2404.50 Ct 100.0 2348.24 Ct 100.0

ns ns
C20 2216.93 -75.06 96.7 2333.67 -70.83 97.1 2275.30 -72.94 96.9
* ns
C40 2442.80 150.82 106.6 2518.14 113.64 104.7 2480.47 132.23 105.6 *
D 1961.42 -330.56000 85.6 2169.47 -235.03000 90.2 2065.45 -282.79 88.0000

*
D/A20 2331.46 39.48 ns 101.7 2560.79 156.29 106.5 2446.13 97.88 104.2
* *
D/C40 2457.80 165.82 107.2 2566.08 161.58 106.7 2511.94 163.70 107.0*
Avg. LS 2283.73 -8.25 99.6 2425.44 20.94 100.9 2354.59 6.35 100.3
LSD 5% 131.42 kg/ha, LSD 1% 176.96 kg/ha, LSD 0.1% 234.61 kg/ha
Note: Ct – control, ns – not significant, * positive significance, 0 negative significance
Table 5: Variety influence on Soybean yield (kg/ha) at Moara Domneasca 2015
CARLA PR92B63 Average – Variety

Diff.
Soil Till GY (kg/ha) % GY (kg/ha) % GY (kg/ha) %
(kg/ha)
A20 2291.98ns 97.6 2404.50ns 102.4 2348.24 Ct 100.0
ns
C20 2216.93 97.4 2333.67 ns 102.6 2275.30 Ct 100.0
ns ns
C40 2442.80 98.5 2518.14 101.5 2480.47 Ct 100.0
D 1961.420 95.0 2169.47 ns 105.0 2065.45 Ct 100.0
0 ns
D/A20 2331.46 95.3 2560.79 104.7 2446.13 Ct 100.0
ns ns
D/C40 2457.80 97.8 2566.08 102.2 2511.94 Ct 100.0
Avg. LS 2283.73 97.0 2425.44 103.0 2354.59 Ct 100.0
LSD 5% 94.83 kg/ha, LSD 1% 144.51 kg/ha, LSD 0.1% 263.40 kg/ha
Note: Ct – control, ns – not significant, * positive significance, 0 negative significanc
1085
Correlation between dry bulk density on soybean grain yield
Results obtain in the research conducted in 2015 shows that between soil DBD and soybean grain
yield a strong correlation is established, supported by the correlation coefficient r = 0.90305 (Fig. 2).
The correlation coefficient equations and the regression equation, show that between grain yield
values and DBD values is an inverseinverse correlation, thus generally grain yield decreases with the
increase of soil compaction (Fig. 2).
Figure 2: Correlation between DBD and soybean grain yield
Soil till influence on soybean thousand seeds weight (TSW), Moara Domneasca, 2015
For each experimental variant the variation of TSW indicator under the influence of tillage systems
was analysed. Compared to Control, A20, the average value of TSW for both varieties analysed
varied between -3.14
3.14 g and +6.93 g, Table 6. For PR92B63 variety TSW differences varied between -
7.34 g and +9.47 g, compared with A20, Control, Table 6. Carla TSW recorded differences that
varied between -9.55
9.55 g and 6.90 g, compared to A20, Table 6. TSW values increased
increased for both
varieties in D/A20, with 6.90 g, Carla, and with 6.35 g for PR92B63, being distinct significant
positive compared to A20, Control.
The highest value of TSW for Carla was 159.75 g in CS alternative (D/A20), and for PR92B63 the
highest value was 174.80 g in MT (D/C40) compared to A20, Control.
In MT, (D10) both varieties were recording values of 143.30 g and 157.98 g, being significan
significantly
negative compared with A20, Control. The average value of TSW compared with A20, Control, was
160.32 g
Table 6: Soil till influence on Soybean varieties thousand seeds weight (TSW, gr), Moara
Domneasca 2015
CARLA PR92B63 Average - Varieties
Soil TSW Diff. Diff TSW Diff. Diff TSW Diff. Diff
Signf. Signf. Signf.
Till gr. gr. % gr. gr. % gr. gr. %
A20 152.85 Ct 100.0 ns 165.32 Ct 100.0 ns 159.09 Ct 100.00 ns
C20 148.75 -4.10 97.3 ns 163.14 -2.19 98.7 ns 155.94 -3.14 98.02 ns
C40 159.03 6.18 104.0 ** 170.04 4.72 102.9 * 164.54 5.45 103.43 *
D 143.30 -9.55 93.8 ooo 157.98 -7.34 95.6 ooo 150.64 -8.45 94.69 ooo
D/A20 159.75 6.90 104.5 ** 171.68 6.35 103.8 ** 165.71 6.62 104.16 **
D/C40 157.24 4.39 102.9 * 174.80 9.47 105.7 *** 166.02 6.93 104.36 **
Medie
l.s
153.49 0.64 100.4 - 167.16 1.84 101.1 - 160.32 1.24 100.78 -
DL 5% 4.111 g, DL 1% 5.49 g, DL 0.1% 7.21g,
Note: Ct – control, ns – not significant, * positive significance, 0 negative significance, TSW = 1,000 seeds
weight, Ct= control
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Soil till influence on soybean Hectolitre Mass (HM), Moara Domneasca, 2015
In variants in which was applied MT, respectively in C40 and D/C40 both varities recorded increased
values of HM, compared with A20, Control. The lowest value of HM obtained by soybean varieties
was 68.38 kg/hl, Carla, and 70.50 kg/hl for PR92B63 in D10, MT, being significantly negative
compared with A20, Control.
The highest values for HM were in C40 (MT) of 74.66 kg/hl for Carla, and 76.06 kg/hl for
PR92B63. In variants in which was applied C20 ( MT) both soybean varieties showed values of HM
lower than A20 ( Control) with -3.78 kg/hl, Carla, and -2.51 kg/hl, PR92B63.
For PR92B63 the HM indicator values varied from -3.31 kg/hl to +2.39 kg/hl compared to A20,
Control.
The average value of HM varied between -3.54 kg/hl and +1.35 kg/hl, compared with A20, Control.
For Carla variety the average value for HM was 71.78 kg/hl for Carla and for PR92B63 was 72.54
kg/hl, lower with -0.37 kg/hl, compared to A20, Control.
The average value of HM indicator for both varietyes was 72.54 kg/hl.
Table 7:Soil till influence on Soybean hectolitre mass (HM kg/hl), Moara Domneasca 2015
CARLA PR92B63 MEDIE - HIBRIZI

HM Diff. HM Diff. HM Diff.
Soil Till Diff % Diff % Diff %
kg/hl kg/hl kg/hl kg/hl kg/hl kg/hl
A20 72.15 Ct 100.0 73.67 Ct 100.0 72.91 Ct 100.00
C20 69.11 -3.040 95.8 71.17 -2.51 ns 96.6 70.14 -2.78 ns 96.19
C40 74.66 2.51ns 103.5 76.06 2.39 ns 103.2 75.36 2.45 ns 103.36
0 0
D 68.38 -3.78 94.8 70.37 -3.31 95.5 69.37 -3.540 95.14
D/A20 72.91 0.76 ns 101.0 73.50 -0.18 ns 99.8 73.20 0.29 ns 100.40
ns ns
D/C40 73.47 1.32 101.8 75.06 1.39 101.9 74.27 1.35 ns 101.85
Avg. L.S 71.78 -0.37 99.5 73.30 -0.37 99.5 72.54 -0.37 99.49
DL 5% 2.88 kg/hl, DL 1% 3.88 kg/hl, DL 0.1% 5.14 kg/hl, Ct= control; HM= hectolitre mass;
Note: Ct – control, ns – not significant, * positive significance, 0 negative significance
Conclusions
The research conducted in 2015 in the South - East of Romania at Moara Domneasca, Ilfov County,
Didactic Farm shows that MT is an effective alternative compared with the CS mainly because of the
grain yields obtained.
Under the climatic conditions of 2014 – 2015 agricultural year, crop’s grain yield was significantly
affected. Drought periods were manifested when plants were having the maximum requirements for
water: sprouting, flowering and formation phase reproductive organs. Soybean grain yields obtained
in MT was higher with 7.2% for Carla and with 6.5% for PR92B63, both in D/C40 compared to A20,
Control. PR92B63 variety recorded the highest grain yield in MT, of 2566.08 kg/ha.
Grain yield recorded by soybean varieties in South East of Romania in MT show that this represents
an efficient alternative to CS.
Before sowing DBD indicator recorded average values of 1.34 g/cm3 in MT, and values of 1.32 g/cm3
in CS. In autumn the average values of DBD were 1.39 g/cm3 in MT and 1.35 g/cm3 for CS. Values
recorder by DBD showed differences between MT and CS.
1087
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1089
Selected Development Factors of Small and Medium Enterprises
Anna Lemańska-Majdzik, Czestochowa University of Technology, Poland, lemanska@zim.pcz.pl
Małgorzata Okręglicka, Czestochowa University of Technology, Poland, m.okreglicka@wp.pl
Iwona Gorzeń-Mitka, Czestochowa University of Technology, Poland, iwona.mitka@wp.pl
Abstract
Development of enterprises is widely discussed in literature, which addresses in particular
development determinants and conditions. The division of determinants impacting the development
of enterprises, especially from the SME sector, is extensive, and analysis of these factors is conducted
practically at every level of an organisation. The aim of the paper is to review selected publications
describing conditions and determinants of the development of enterprises and, based on the Authors’
own research, to evaluate selected factors connected with carrying out business activity that
determine the development of micro-, small and medium enterprises operating in Poland.
Considering the main aim of the paper, research hypotheses have been formulated in which it has
been assumed that selected factors impact the development of SMEs. The paper has used basic
statistics and Gamma correlation coefficient showing relationships between variables. Statistical
analysis of the survey results has enabled full or partial verification of the hypotheses put forward.
Keywords: development, development factors, SME sector
Introduction
The sector of small and medium enterprises represents the most numerous group of enterprises and
accounts for over 99% of all companies in the European Union economies (Annual Report, 2015).
This sector, due to its size and profile, impacts economic development of individual countries
(Ivanová, 2011). High degree of flexibility and ability to adapt to new markets allows micro-, small
and medium enterprises to develop as a result of their ability to effectively use resources in the
economy. However, high level of competition on the SME sector market makes the development of
such enterprises dependent on a large number of determinants, whose proper combination may lead
to market success. The development of entrepreneurship of the SME sector can be achieved by
precisely adjusting the strategy of action to external business conditions and changeability of the
environment (Tang et al., 2010). Currently, the factors determining the development of an
organisation are very varied - they depend on a large number of variables connected with an
organisation itself and its owner (manager), and result from the turbulent character of the
environment, uncertainty and risk. Given that the SME sector provides around 90 million jobs and
hugely contributes to the development of entrepreneurship and innovations of every country, it is
important to find out the conditions and factors of its development.
The aim of the paper is to review literature on selected factors in the development of enterprises,
especially from the SME sector, and, based on the Author's own research, to evaluate selected factors
connected with carrying out business activity that determine the development of micro-, small and
medium enterprises (SME sector). Inference is based on the results of the Author's own survey
conducted on a group of 250 enterprises from the SME sector operating in Poland. During the
analysis of the survey findings, basic statistics and Gamma correlation coefficient have been used
showing relationships between variables.
Factors Determining the Development of Enterprises - Selected Aspects
In order to achieve the aim of the paper, quantitative and qualitative analysis of selected reviewed
scientific papers on the subject in question, accessible through electronic management databases, has
1090
been conducted. The process of literature review has been performed in the following, successive
stages: defining the aim of the research, verifying the research aim, searching through literature in
library catalogues and databases using key words, analysing the material gathered for implementation
of the research aim, and comparison, verification, typology and interpretation of the content of
individual sources taking into account the aims of the paper and formulated research hypotheses.
The development of enterprises, in particular factors impacting this development, is widely discussed
in literature. Division of the factors determining the development of enterprises from the SMB sector
is extensive, and analysis of the factors is conducted practically at every level of an organisation. For
instance, factors impacting the development of enterprises include those depending on the owner of a
company, its environment and those depending on an enterprise itself (Bieńkowska, 2004). Analysing
the process of conducting business activity, one can distinguish factors that are connected with
adopted strategy of action, company's policy towards its employees and customers (Taylor, LaBarre,
2006) as well as introduced innovations (Lee et al., 2012; Pervan et al., 2015). Moreover, factors that
impact the development include, among other things, specialist skills of a company's employees and
control in an organisation in the broad sense (Ashkenas et al., 1998). There is however no doubt that
the development of an enterprise, and often its success as well, depends on proper management of a
company by its owner, or manager. Whether an enterprise adopts an appropriate strategy of action,
plans its activity, adapts itself to a changing environment, employs the right people (Sipa et al.,
2016), as they make a real contribution to fulfilment of an organisation's objectives and tasks (Latifi,
Shooshtarian, 2014) and creates a good climate at the workplace, etc. will have an impact on how an
organisation is functioning on the market. The paper is an attempt to analyse selected factors
impacting the development of enterprises from the SME sector. For the purpose of this paper, review
of literature on the subject has been shortened.
An important element impacting the success of enterprises is their functioning in formal and informal
networks, which underlie economic cooperation between organisations. One of the main factors
influencing the development of organisations in a network is trust, which has a strongly positive
direct connection with success of organisations. The bigger the networks, the more opportunities for
their members, i.e. enterprises functioning as part of networks, which may impact success of a
company (Besser, Miller, 2011). Social networks created by an entrepreneur or company manager are
a main factor in identification of market opportunities (Ozgen, Baron, 2007), which in turn have a
positive impact on the survival and development of a company (Watson, 2007). Thus, these ties can
be classified as informal forms of cooperation between entrepreneurs from the SME sector. P.
Tomski (2011) stresses that the motivation behind participation in cross-organisational cooperation in
any of the available forms is the possibility to achieve objectives that are beyond the reach of a single
enterprise. Moreover, studies on a group of small enterprises show that adoption of a strategy of
cooperation (joint operation on the market in the same industry) in the process of enterprises' activity
contributes to increased competitiveness of enterprises on the market (Lemańska-Majdzik, Tomski,
2014). Cooperation of small and medium enterprises with partners allows them to be competitive not
only individually but also as a team, not only on domestic market but also international one (Adamik,
2011; Gołębiowski, 2010). Moreover, cooperation between smaller companies enables them to
compete on the market with large enterprises and allows cooperating companies to more effectively
use possessed resources, have an easier access to new, previously unattainable resources as well as
easier entry into new markets (Chen, 2008).
Every organisation functions in a certain environment, and at the same time impacts it and survives
thanks to it. On the other hand, an organisation’s environment creates certain chances and threats for
it. This environment is characterised by uniqueness, which is connected with the fact that every
organisation identifies its environment independently, dynamic nature, complexity of interrelated
factors and different levels of control (Lisiński, 2004). However, as stressed by Dutt (2011), an
enterprise functioning in a specific environment, characterised by a high level of uncertainty,
changeability and turbulence, is to a large extent dependent on it. Factors impacting effectiveness of
an organisation are macroeconomic and microeconomic in character. From the perspective of an
organisation management, especially an enterprise from the SME sector, it is important to
appropriately analyse an organisation’s environment and adapt to changing conditions. This is
1091
because the characteristics of the modern environment can become growth barriers but also a chance
for creating "occasional" strategies of an enterprise. It results from increasing complexity of an
organisational system, the complexity of economic entities, technological progress, increased
awareness of societies comprising the world of consumers and increased level of their education
(Nowodziński, 2013). Wiklund et al. (2009) based on a study of Swedish enterprises from the SME
sector stated that changeability of the environment has a directly negative impact on growth of small
enterprises (increase in sales and the number of employees). These findings show that enterprises
functioning in a dynamic environment grow more slowly than enterprises functioning in a stable
environment. However, if high changeability of the environment is associated with high level of
entrepreneurial orientation (inclination for risk taking, proactive approach and innovativeness), a
positive correlation of environment changeability with growth of enterprises is observed.
How the managerial function, i.e. planning, organising, motivating and controlling, is fulfilled affects
the existence and development of SMEs in an increasingly competitive environment. Russu and Sima
(2015) stress that quality of management is one of the factors impacting competitiveness and
development of companies. However, for entrepreneurs (managers) to appropriately manage a
company, it is necessary for them to monitor and assess effectiveness of an enterprise on the market.
According to Drucker (1994), effectiveness is a key factor in the development of an enterprise, self-
fulfilment and its ability to survive. An organisation functioning in a specific changeable
environment should achieve both economic and non-economic effectiveness. According to
Borowiecki (2009), a characteristic of successful enterprises is ability to use changes for survival and
growth. An enterprise that reacts to changes in its environment, noticing them thanks to an analysis
on a continuous basis, is characterised by flexibility of organisation, i.e. properties of an enterprise
connected with its susceptibility to changes. According to Ansoff (1965), flexibility allows an
organisation to cope with changes in its environment. Capability of easy and fast adaptation to
changes can be an important factor of competitiveness (Kelliher, Riley, 2003; Wang et al., 2013).
Success of an organisation is undoubtedly affected by effective management of an enterprise, and

measurement and assessment of an enterprise's effectiveness requires the use of various measures of
effectiveness. Thus, the basic aim of management in an enterprise is to achieve higher effectiveness
of activities, with particular reference to customers' preferences and needs (Zeng, 2003). A customer
turns out to be one of the most important links in the process of functioning of an organisation, as an
increase in the number of customers may indicate the development of a company. Adjustment of the
offer, of both products and services, as a result of enterprises’ flexibility, reaction to continuous
changes in the environment, adaptation process to business conditions and a proper way of
management allow SMEs to develop (Philip, 2011).
Research Methodology and Sample
In order to achieve the aim of the paper, analysis of the results of the Author's own research was
conducted. The aim of the research was to evaluate selected factors connected with the way of
conducting business activity that determine the development of micro, small and medium enterprises
(SME sector) operating in southern Poland.
The research used a purposive sampling. It was conducted at the beginning of 2016 on a group of 250
enterprises and was addressed to enterprises' owners or managers, who were completing survey
questionnaires in a paper form in the presence of an interviewer. The evaluation of the conditions of
the development of enterprises covered the last (past) 3-year period of operation on the market.
The research tool was a questionnaire survey prepared by the Author, which consisted of 24 closed
and semi-open questions and demographic information. The survey questionnaire was addressed to
production, trade and services companies. The questionnaire was anonymous, which encouraged
respondents to express their opinions about the development of their enterprises.
When constructing questions concerning the assessment of the impact of selected factors on the
development of an enterprise, a 4-point Likert scale was used (a scale of forced choice) to receive
1092
more detailed opinions of respondents. From the material collected, questions connected with the
subject analysed that formed a coherent whole were selected. The relationships between the variable
of the declared development of an enterprise over the last 3 years and the responses to the
questionnaire questions on rank (gradable) scales regarding the conditions of the development of
enterprises were analysed by estimating Gamma rank correlation coefficient. Test probability p<0.05
was assumed to be relevant. During the analysis of correlations, the statistical software Statistica 12.5
was used. Statistical analysis of survey results allowed the above-formulated hypotheses to be
verified.
In view of the main aim of the paper, the following research hypotheses have been formulated:
H1 - economic cooperation with other players on the market contributes to the development of
enterprises from the SME sector;
H2 - continuous assessment of the effectiveness of the functioning of enterprises leads to the
development of the SME sector.
The enterprises surveyed included 164 micro companies, employing from 0 to 9 employees, which
accounted for almost 66% of the enterprises surveyed, 67 small companies, employing from 10 to 49
employees, (27% of indications) and 19 medium enterprises, employing from 50 to 249 employees.
In terms of the size, the enterprises surveyed belong to the SME sector which accounts for 99.9% of
enterprises in Poland. The structure of the group is comparable with the overall structure of Polish
economic entities. Bigger differences are visible within the group of small enterprises, where despite
the dominant role of micro companies, which account for 65.4% of SMEs, there is a significant share
of companies employing 10-49 employees (Table 1).
Table 11: Structure of the Research Sample and the Economic Entities SME Sector in Poland
Number of employees
0-9 10-49 50-249 Total SME sector

Poland 95.6% 3.6% 0.73% 99.9%
Research group (n=250) 65.4% 27% 7.6% 100.0%
Source: Own work based on: (Bank danych lokalnych, 2016).
Services companies constituted the biggest group in the survey (83 indications), followed by trade
companies (70 indications), production companies (only 27 companies) with 70 surveyed enterprises
from the SME sector declaring the mixed profile of activity. The most companies have been
functioning over 20 years, accounting for 57% of all those surveyed. The second biggest group
included companies operating from 5 to 10 years, which accounted for almost 21% of all the
companies. Young companies that were entering the market or have been operating for up to 5 years
constituted 22% of those surveyed. 54% of all the companies analysed are family run businesses.
Research Findings and Discussion
Survey of enterprises from the SME sector made it possible to find out the number of companies
cooperating as part of their activity. It was found out that cooperation was formal and informal and
between both a bigger number of enterprises and single entities. Formal cooperation was declared by
162 enterprises, i.e. almost 65% of those surveyed. Informal cooperation was indicated by 36.4% of
respondents (91 companies). It is worth noting that 1/5 of companies do not plan formal cooperation
with almost 121 not planning informal cooperation (Figure 1).
1093
140
120 121
100 99
80
60
38 51
40 43 23
25 15
20 35
21 16
0 13
with a few with one with companies no cooperation, no cooperation, no cooperation
companies from company from from other but the company but it is a good and no plans for
the same the same industries is considering it idea it
industry industry
Formal cooperation Informal cooperation
Figure 1: Formal and informal cooperation of enterprises from the SME sector (n=250)
Source: Own work.
These findings show that enterprises that have not cooperated earlier are cautious in this respect and
find it difficult to decide to cooperate as part of their activity. This may also be due to the fact that
66% of all the companies surveyed are the smallest enterprises, whose owners have little knowledge
about strategy of action or management of an enterprise.
When analysing economic cooperation of companies from the SME sector, it's worth paying attention
to the profile of the business. It has been found out that formal cooperation is declared by over 68%
of enterprises indicating a mixed profile of activity and 65% of services companies.
companies. Similar results
during data analysis were received in the case of informal cooperation: 45.7% and almost 41%
respectively (Table 2).
Table 2: Formal and informal cooperation of enterprises from the SME sector
and business profile (n=250)
Type of
Number of Formal % of Informal % of
conducted
enterprises cooperation responses cooperation responses
business activity
services 83 54 65.06 34 40.96
trade 70 43 61.42 16 22.86
manufacturing 27 17 62.96 9 33.33
mixed activity 70 48 68.57 32 45.71
In total 250 162 64.80 91 36.4
Source: Own work.
In 59 surveyed enterprises from the SME sector, i.e. in 23.6% of the companies surveyed, there is a
system for evaluation of the effectiveness of functioning in place. No such system
system exists in 35
companies (Figure 2). What's interesting, 156 enterprises have not sufficient knowledge about
effectiveness of an organisation and its evaluation, therefore in practice they cannot state whether
such a system exists or not. These results once again confirm quite a low low level of knowledge of
management presented by enterprises' owners or managers. Among the 59 enterprises declaring the
existence of an internal system for evaluation of the effectiveness and quality of functioning, trade
companies dominate (37% of indications).
indica
1094
Is 59 80
Lack 35 76
0 20 40 60 80 100 120 140 160
Definitely Rather
Figure 2: An internal system for evaluation of effectiveness/quality of functioning of enterprises

from the SME sector (n=250)
Source: Own work.
Analysis of the external environment of a company is an important aspect when conducting a

business activity. It has been found out that 181 enterprises from the SME sector declare conducting
analysis of their environment on a continuous basis. What's more, the companies surveyed draw
conclusions from the analysis and make changes during management of the the company on an ongoing
basis. Such analysis is conducted by almost half, i.e. 121,
121 the companies surveyed (Figure 3).
Analysis of the enterprise’s environment is never

conducted
15
59 Analysis of the enterprise’s environment is rather
54 never conducted
Analysis of the enterprise’s environment is rather

always conducted and changes are made during its
functioning
122 Analysis of the enterprise’s environment is always
conducted and changes are made on an ongoing
basis during the functioning of the company
Figure 3: Analysis of an enterprise's environment and making changes on an ongoing basis

during the functioning of enterprises from the SME sector (n=250)
Source: Own work.
The survey has shown that development of enterprises from the SME sector operating in southern
Poland took place in the case of over 80% of companies over the last 3 years of activity, according to
respondents. Such situation
ituation is described by companies' owners or managers, who define the
development as noticeable. No development of an enterprise took place in the case of 20% of the
surveyed enterprises from the SME sector.
The development of the companies surveyed over the last 3 years involved, for the purposes of the
research: increased profit, increased investments, increased employment, increase in the number of
customers and expanding the area of activity of an enterprise. It has been assumed that the above
above-
mentioned
ed factors are economic measures of the development of an organisation.
Enterprises from the SME sector declared similar development over the period of the last 3 years
compared with earlier period of conducting economic activity. This refers to development
developme in
comparison to the main competitors on the market, the whole industry and owners' expectations. The
survey shows however that in comparison to the main competitors the declared development of
enterprises is slightly higher than in the case of expectations
expectat of company owners.
1095
The research analysed relationships between development of enterprises (declaration of companies'

owners or managers) and cooperation as part of conducted business activity, ongoing evaluation of an
organisation's effectiveness and evaluation of the company's environment and introduction of
changes based on such ongoing evaluation.
Table 3:Selected factors determining the development of enterprises from the SME sector
(n=250)
Factors determining the development of entrepreneurship of the Declared development

SME sector of an enterprise*
Gamma rank correlation
formal cooperation as part of the business activity conducted 0.208**
informal cooperation as part of the business activity conducted 0.126
internal system for evaluation of the effectiveness/quality of 0.301**
functioning
analysis of collected information about the company's environment 0.175**
and making changes on a current basis
*subjective evaluation by enterprises' owners or managers
**p-value < 0.05
Source: Own work.
The survey shows that 3 out of 4 selected development-determining factors connected with the way
of running business are statistically relevant (p<0.05) and positively correlated with the declared
development of enterprises. The survey shows that formal cooperation as part of conducted business
activity (gamma=0.208), an internal system for evaluation of the effectiveness of functioning of an
organisation (gamma=0.301) and analysis of a company's environment on an ongoing basis and
making changes (gamma=0.175) have an impact on the development of enterprises from the SME
sector operating in southern Poland in the past (3-year) period, which is manifested in increased
profit, increased investments, increased employment, increase in the number of customers and
expansion of the area of an enterprise's activity (Table 3).
Summary
The research was designed to evaluate selected factors determining the development of micro, small
and medium enterprises (from the SME sector) operating in southern Poland and enabled verification
of research hypotheses formulated for the purpose of the paper, namely:
− Hypothesis H1 has been partially confirmed, as it has been found out that only formal cooperation
as part of conducted business activity is statistically relevant, positively correlated
(gamma=0.208; p<0.05) with the development of enterprises; formal cooperation is declared by
almost 65% of the companies surveyed out of 80% of those declaring noticeable development;
− Hypothesis H2 has been generally confirmed, as an internal system for evaluation of
effectiveness/quality of functioning in enterprises (gamma=0.301) as well as analysis of collected
information about a company's environment and making changes on an ongoing basis
(gamma=0.175) are statistically relevant (p<0.05) and positively correlated with declared
development of enterprises from the SME sector, reflected in increased profit, increased
investments, increased employment, increase in the number of customers and expansion of the
area of activity of an enterprise.
The findings concerning selected factors connected with the way of conducting economic activity
that impact the development of enterprises from the SME sector are confirmed by research results
available in literature of the subject and can, according to the Authors, be a basis for further analysis
of the conditions of the development of SME sector. The findings presented in the paper are only a
fragment of empirical studies conducted. The analysis conducted in this paper is part of research into
1096
development and competitiveness of enterprises from the sector of small and medium companies.
The survey is complemented, among other things, by analysis which distinguishes eight determinants
(Lemańska-Majdzik, Okręglicka, 2016) that can impact the current competitive position of
enterprises, i.e. quality of offered products/services, company policy, company location, customer
service and relations, flexibility of adapting the offer to customers' expectations, fast pace of order
delivery, intensification of advertising/promotional activities or obtaining external sources of
financing.
The research sample was not fully representative, therefore the research should be treated as pilot
research that can be used to further explore the problem in the future by conducting representative
research. However, the size of the research sample allows to draw preliminary conclusions and
identify regularities that can be verified during proper research. At the same time, it should be
stressed that the data obtained is a subjective evaluation by respondents, i.e. owners or managers of
enterprises.
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The Information Literacy Level of Slovak Managers

Vladimír Bolek
Department of Information Management, Faculty of Business Management, University of

Economics in Bratislava, Bratislava, Slovak Republic, vladimir.bolek@euba.sk
Mojmír Kokles
Department of Information Management, Faculty of Business Management, University of Economics

in Bratislava, Bratislava, Slovak Republic, mojmir.kokles@euba.sk
František Korček
Department of Information Management, Faculty of Business Management, University of Economics

in Bratislava, Bratislava, Slovak Republic, frantisek.korcek@euba.sk
Abstract
In the knowledge-based society, it is not possible to take decisions effectively without being able to
search, access and process information. Information literacy is crucial for many management
positions. Therefore, current requirements on the information literacy represent an integral part of
managers' qualifications at various levels of management. The information literacy, among other
things, reduces the level of risk and other negative phenomena because proper evaluation of
information leads to their early elimination. This paper presents partial results of a survey aimed at
the managers' information literacy in the Slovak Republic and the effect of the levels of management
on the quantified aggregate index of managers' information literacy.
Keywords: Information literacy, digital literacy, managers, levels of management
Introduction
Business economics is characterised by a large proportion of managers and other employees using
information and comunication technologies (ICT) to perform their job tasks. This is confirmed by the
fact that there is huge interest in ICT literate graduates in the labour market. According to the most
recent surveys, they are classified as the most desirable employees for employers. Each organisation
strives to achieve progress, development and prosperity. These aimes are effective when meeting
organisations' conditions that the managers with knowledge and technical literacy will control the
organisations and make decisions. Regarding complexity and increasing acceleration of changes in
the information society, a demand for managers with high quality skills and effective use of
knowledge is growing. The organisations are demanding people who handle changing situations,
unexpected changes and know how to cope with them quickly.
This paper is a partial output of an extensive survey focused on managers' information literacy in the
Slovak Republic. It shows the genesis of the information literacy concept, its components, the
information literacy level of Slovak managers and highlights significant differences in the level of
information literacy, digital literacy in relation to levels of management.
Literature Review
Information literacy deals with a human capability to work effectively in the information society. For
the first time in professional literature, this term was used in 1974 by Paul Zurkowski, a former
president of Information Industry Association. According to Zurkowski, informationally literate
people are considered as „individuals prepared to use information resources at work, who benefit
from a wide range of techniques, information tools and primary sources while solving problems“
1100
(Dombrovská, Landová, & Tichá, 2004). The term was gradually forming while a term of computer
literacy, which was considered as a subordinate concept to information literacy, appeared in the mid
70s. Subsequently, William Demo developed a definition in 1986 that was expressed by Martin
Tessmer a year later: „Information literacy is the ability to effectively search and evaluate
information related to the particular need“ (Behrens, 1994). William Demo also specified individual
components of information literacy. These represented the extension of basic information searching
into a higher level, such as understanding and assessment of information and accurate identification
of searching strategy. Unusually at that time, William Demo did not consider a library as a single
source of information. He emphasized the need for being aware of personal information needs. At the
same time, the status of information literacy was being formed. In that period, no author who dealt
with information literacy defined specific ICT skills. Specification of these skills first appeared with
development of new information technologies. Meanwhile, information literacy was seen only as „a
gap that separates informationally educated people, who knew how to find and use information that
make their work easier, from those so-called informationally naive, who do not know or are unable to
use information technology and have considerably limited access to knowledge“ (Behrens, 1994).
The view of Jan Olsen and Bill Coons on information literacy already includes the term of
information technology: „Information literacy means understanding of a role and power of
information, the ability to search and use information to make decisions, the ability to produce and
work with information while using information technologies. Information literacy is an overhang of a
traditional literacy approach. It is a response to a revolutionary period in which we live“ (Behrens,
1994).
The term of information literacy is now related to skills and competences in the field of information
technology. However, a characteristic of the term is often limited to the ability to work on a computer
and with the internet. Information literacy must be understood in a broader range. There are several
important aspects that are necessary for understanding a relationship between information literacy,
computer literacy and the width of technological competencies (Šušol , Hrdináková, & Rankov,
2005):
Competencies of computer literacy determine the ability to use technologies;
a computer, software applications, databases and other information technologies applied in
a workplace and in a personal environment. The computer literacy consists of routine and mechanical
hardware and software skills.
Technological literacy has developed from the computer literacy, when the term became
insufficient due to the extension of ICT, technical equipment and dissemination of manager
competencies. The technological literacy is presented as the penetration of ECDL (European
Computer Driving License) definitions that formulate competencies of the computer literacy
(information technology basics, use of computer technology and data management, text processing,
use of spreadsheets and calculators, databases, presentations, information and communication) and
the ISTE standard (International Socienty for Technology in Education), which defines competency
indicators (basic operations and ICT concepts; social, ethical and human use of ICT; technological
means and tools for production; technological means and tools for searching; technological means
and tools for communication). The technological literacy is not just about mastering technological
tools, but understanding concepts and using technologies to solve problems as well.
The computer and technological literacy is a prerequisite for information literacy that
developes technological skills and represents a wider field of competencies. It represents an
intellectual framework for understanding, searching, evaluating and using information activities and
information tools which may be implemented due to information technology, logical and critical
thinking.
Efforts to introduce a general, accurate and conceptual definition of the information literacy are
subjected to extensive academic and research discussions. The following comments are examples of
concepts in various social contexts. Molnár (2001) with his team of authors associates the concept of
information literacy with computer literacy in the book „Enterprise Information System.“ He defines
the term as „the unconditional part of competencies of each manager, who wants to promote and
achieve success. It is not just computer skills, but mainly the ability to constantly require valuable
1101
information and realise its value. The manager must be able to choose from a large number of
information technology and decide which technology is an asset for an enterprise.“„Information
literacy is the ability to recognise the need for information, to identify and to locate appropriate
information sources, to access information contained in the sources, to evaluate the quality of data, to
identify data and to use information effectively“ (Doyle, 1994). „Information literacy is the ability of
a human to locate, evaluate and use information in order to become stand-alone, independent and a
longlife learning individual“ (Ranaweera, 2000). Moreover, „information literacy involves
knowledge in the field of information needs and interests. It is the ability to identify, search, assess,
organise and effectively create information. It is one of the conditions for effective inclusion in the
information society“ (Baradol & Gopakumar, 2000). Results of the analysis of the different authors'
definitions show that information literacy is perceived as the ability to work with information, when
the awareness phase of the need, identification and obtaining information is preceded.
The Institute for Public Affairs (Velšic, 2013) does not perceive „the ability to understand
information and to use it in a variety of formats from various sources presented by modern
information and communication technologies„ as the information literacy, but as the digital literacy.
This concept is used when interpreting results of the institute.
The most frequently presented definition was published by the Association of College & Research
Libraries (2000): „Information literacy is a set of abilities requiring individuals to recognise when
information is needed and has the ability to locate, evaluate, and use effectively the needed
information.“
The Czech authors Dombrovská, Landová a Tichá (2004) define information literacy as an equation:
„Information literacy = Functional literacy + ICT literacy“. The functional literacy consists of
literary, documentary, numerical and linguistic literacy.
After introduction of the individual views, the term of information literacy is defined as follows:
Information literacy is the ability to identify the need for information; to search, access and
process information by available and suitable tools of information and communication
technology; to evaluate information; and to use information in the most effective way.
Generally, the information literacy includes the ability to understand information and to use it in a
variety of formats from various sources presented by modern ICT. The information literacy is related
to the entire population. We agree with a statement in the Prague Declaration of 2003 (2004) and the
Dombrovská's (2004) appendix that „the information literacy is a process that applies to all. It does
not involve a dichotomy of literacy versus illiteracy, but a question of the extent within the
continuum.“
Research Objectives and Methodology
The main objective is to identify the information literacy level of Slovak managers. The main
objective is fulfilled by several partial objectives, such as to define the information literacy concept,
conduct a survey, analyse the managers' information literacy level in the Slovak Republic and
identify significant differences between the levels of management. The following partial hypothesis is
stated in the survey:
The level of management (operational, tactical and top management) has a significant effect on the
aggregate index of managers' information literacy at the significance level of α = 0.05. The tested
hypothesis may be written as follows:
H0: There is no significant effect between the level of management and the aggregate index of
managers' information literacy.
H1: There is a significant effect between the level of management and the aggregate index of
managers' information literacy.
1102
In the literature review, the paper is based on knowledge excerption of domestic and foreign
theoretical literature sources, internal materials of various institutions that operate in the field of
education, information management and management. The research part of the paper is accomplished
by the evaluation of a questionnaire survey, esp. a partial empirical observation method. A target
group of the survey were Slovak managers at different levels and sectors: public, cooperative and
private sector, manufacturing and non-manufacturing sectors; without dividing organisations
according to legal forms. The questionnaires were distributed to 200 managers using electronic
communication.
The process of designing the questionnaire was based on the analysis of individual problem areas and
the justified construct, content and criteria validity. Reliability and accuracy of the questionnaire was
determined by the following factors: frequency of items, homogeneity and complexity of the tasks. In
the accompanying letter, the addressed managers were assured of compliance with ethical principles:
confidentiality of information and anonymity. The questionnaires were distributed in September 2013
to the managers at all levels of management covering the entire Slovak Republic. The data collection
was completed in June 2014. The return of the questionnaires amounted to 180 respondents, which
formed a base for the partial quantitative analysis. The respondents replied to listed questions and
recorded the literacy rate at each of the analysed instruments. The structure of the respondents'
sample is presented in the following tables.
Table 1: Structure of respondents by legal forms and business activities
Business activity
Legal form ∑
Non manufacture Manufacture
Cooperative 1.11% 1.11% 2.22%
Commercial enterprise 53.33% 26.67% 80.00%
Trade license 1.11% 0.00% 1.11%
Others 10.56% 6.11% 16.67%
∑ 66.11% 33.89% 100.00%
Source: Authors' calculations
The survey covered the managers of enterprises and organisations. 66.11% were the managers of the
non-manufacturing and 33.89% of the manufacturing enterprises and organisations. The businesses of
the commercial enterprises were represented the most – 80.00%.
Table 2: Structure of respondents by job and the level of education
The highest level of education

Job position Secondary with ∑
Bachelor's Master's Doctoral
a school-leaving
degree degree degree
exam
1 - Operational
10.00% 2.78% 19.44% 0.00% 32.22%
managers
2 - Tactical
6.11% 1.11% 33.33% 2.22% 42.78%
managers
3 - Top
5.56% 1.11% 16.67% 1.67% 25.00%
managers
∑ 21.67% 5.00% 69.44% 3.89% 100.00%
The managers of individual enterprises were segmented into three groups according to their job
position: 1 – Operational managers – 32.22%; 2 – Tactical managers – 42.78%; 3 – Top managers –
25.00%. This criterion was often used in various statistical analyses. The managers most often
achieved the Master's degree – 69.44%.
1103
Table 3: Structure of respondents by age and the field of education
Degree
Age
Economics, Natural ∑
Group Informatics Health service Other
management Science
1. 1.67% 1.67% 0.00% 0.00% 2.22% 5.56%
2. 20.00% 7.22% 0.56% 0.00% 9.44% 37.22%
3. 14.44% 3.89% 2.78% 0.00% 6.11% 27.22%
4. 9.44% 3.33% 4.44% 1.11% 7.78% 26.11%
5. 2.78% 0.00% 0.00% 0.00% 1.11% 3.89%
∑ 48.33% 16.11% 7.78% 1.11% 26.67% 100.00%
The managers were divided into five age groups. The first group: 18 – 25 years – 5.56%; the second
group: 26 – 35 years – 37.22%; the third group: 36 – 45 years – 27.22%; the fourth group: 46 – 55
years – 26.11%; and the fifth group: 56 – 65 years – 3.89%. The age group was compared with the
field of education. The managers' most common field of education was economics, management and
business – 48.33%.
Based on the data segmented into several groups, the analysis of 70 variables presented in logical
successive subheadings was carried out. The individual, partial variables (indicators) were
categorised into four groups for specific purposes of the analysis: A: Hardware; B: Software; C:
Working with information; and D: Communication (Table 4).
The normal distribution of data was tested using the Levene' test. For further analysis of normally
distributed data the T-tests and the Anova with the Bonferoniho Correction were used. Data that did
not meet the condition of the normal distribution were tested by the Mann-Whitney test and the
Kruskal-Wallis test. The methods of the statistical system were used to test the hypothesis. The
quantitative analysis was carried out using the SPSS Statistics software.
Results And Discussion
ICT increases interactivity, flexibility and productivity, which leads to sustainability of business
competitiveness. Satisfactory results are achieved by those organisations, whose management does
not only insist on information systems' development, but also on their correct and effective
implementation and constant data maintenance. The use of ICT is directly related to education in this
area. Filanová (2012) emphasizes the need for a wide spectrum of experience, and above all,
qualified knowledge and skills in the field of ICT obtained by targeted trainings.
Manager's digital literacy and the use of individual ICT tools are analysed in the following
aggregated groups. Values of each group's partial indicators are shown in the following table. The
surveyed managers recorded their own level of digital literacy on a scale from 0 to 100 points.
Table 4: Managerial literacy by the analysed indicators

A. Hardware
Indicator
Index levels of hardware literacy - IH 66.58 22.14
A1 Working with a personal computer 85.93 15.33
A2 Working with notebooks, laptops 85.17 16.32
A3 Works with tablets 69.35 29.95
A4 Working with a personal digital assistant 38.86 41.39
A5 Working with a smartphone 76.29 25.62
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A6 Working with a printer - printing documents, toner replacement 87.47 17.01

A7 Operating a scanner - scanning, copying, 86.17 18.05
A8 Working with a camera 82.01 22.27
Working with a data storage device (USB flash drives, memory cards,
A9 88.34 16.26
CD)
A10 Working with network devices - Wi-Fi router, modem, switch 64.62 28.95
B. Software
Indicator
Index levels of software literacy - IS 51.04 14.65
Index levels of operating software literacy - IOS 58.33 17.59
B1 Windows 80.40 16.43
B2 Linux 28.70 36.95
B3 Unix 15.00 30.70
B4 Working with a smartphone operating system Android, iOS, etc. 62.93 28.53
Index levels of application software literacy - IAS 43.75 15.86
Other enterprise
B5 MS Word 82.37 15.61 B25 management information 55.24 35.09
systems
Other management decision
B6 MS Excel 77.12 19.13 B26 31.57 36.93
support systems
Other executive information
B7 MS PowerPoint 71.64 23.85 B27 29.45 39.05
systems
Editors processing and
B8 MS Outlook 78.47 21.82 B28 51.71 33.05
editing images
B9 MS Access 46.53 32.31 B29 Music application programs 32.62 33.87
MS Picture Video application programs
B10 34.46 35.61 B30 38.58 36.00
Manager
B11 MS Publisher 15.82 27.84 B31 Backups, data compression 69.95 27.51
Storage, writing (burning)
B12 MS InfoPath 10.25 24.91 B32 73.64 28.20
files
Installation of application
B13 CAD 23.83 32.92 B33 69.67 31.02
programs
Installation of operating
B14 GIS 12.96 25.49 B34 57.56 38.49
systems
ALFA (Slovak Working with antivirus
B15 accounting 22.57 34.01 B35 programs and techniques 60.78 29.66
software)
OMEGA (Slovak Web browsers
B16 accounting 29.59 36.20 B36 82.26 18.49
software)
OLYMP (Slovak Skype
B17 23.32 34.72 B37 74.49 26.21
payroll software)
Pohoda (Slovak Network - networking,
B18 accounting 23.41 36.17 B38 configuration, sharing data 59.19 29.96
software)
B19 MRP 13.08 28.49 B39 Creating macros 36.60 33.67
B20 Navision 5.84 18.88 B40 Programming applications 33.28 38.02
B21 Cognos 11.55 28.21 B41 Using smartphone apps 62.48 28.23
B22 SAP 43.90 39.70 B42 Open-source programs 43.62 38.67
B23 Business 35.86 36.36 B43 Data transferring - 61.75 34.84
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intelligence Bluetooth
B24 ERP systems 48.65 34.73 B44 Web development 36.00 37.02
C. Working With Information

Indicator
Index levels of working with information literacy - II 54.99 23.44
C1 Searching for information on the Internet 86.56 15.46
C2 Data mining, data warehousing 50.07 37.81
C3 Working with Internet Banking 82.48 24.40
C4 EDI 25.27 34.32
C5 Downloading and uploading files 72.32 28.51
C6 Purchases using e-shops 75.68 27.02
C7 E-Classifieds 59.45 37.09
C8 Working with electronic documents, forms 77.46 23.55
C9 Knowledge of laws - Copyright Act 69.80 24.96
D. Communication
Indicator
Index levels of communication literacy - IC 57.82 22.39
D1 E -mail communication 93.03 10.97
D2 Video calls 69.95 30.84
D3 Chat 74.14 33.74
D4 Newsgroups 54.00 38.05
D5 Social networking 61.75 35.74
D6 SMS, MMS 85.94 20.42
D7 Videoconferencing 63.02 34.83
Testing The Hypothesis
When testing the managers' responses segmented into the three groups according to the management
level: operational, tactical and top management; we used the test of data homogeneity (Levene's test)
and the One-way Anova parametric test with the Bonferroni correction, as the data were normally
distributed. The aim of this method was to test significant differences between several groups
(samples).
The aggregate index of managers' infromation literacy in the Slovak Republic, which consists of
several partial indexes, reaches 0.58 points. The partial survey's results show that the average level of
the aggregated index for operational managers is 54.21 points, SD = 17.36 points. Tactical managers
achieve the best results, 60.44 points, SD = 17.20 points. The information literacy level of top
management reaches 57.15 points, SD = 17.84 points.
1106
Table 5: Testing differences between means depending on the job position and the indicators of
digital literacy of managers
Indicator Levene Statistic df1 df2 Sig.
IH 1.656 2 177 .194

IS .750 2 177 .474
IOS .130 2 177 .879
IAS 1.442 2 177 .239
II .099 2 177 .905
IC .627 2 177 .535
Robust Tests of Equality of Means
Statistica df1 df2 Sig.
IH Brown-Forsythe 2.511 2 155.051 .084
IS Brown-Forsythe 2.221 2 142.410 .112
IOS Brown-Forsythe 1.442 2 150.550 .240
IAS Brown-Forsythe 2.140 2 140.349 .121
II Brown-Forsythe 1.616 2 154.712 .202
IC Brown-Forsythe 1.384 2 157.291 .254
a. Asymptotically F distributed.
The hypothesis verification's results of equality of variances between the groups are listed in the table
above. In case of data did not meet the condition of data normality, Anova analysis' results could be
distorted (Gavurová, Šoltés, & Balloni, 2014). Because the Levene's test results were not significant,
we applied the Anova analysis. Based on the results, the null hypothesis of equality of variances is
accepted.
The manager' type depending on its position does not have a significant effect on the aggregate index
of digital literacy. The managers are not significantly different in the digital literacy level depending
on the position. Subsequently, the partial indicators are analysed. Not all of the data are normally
distributed. In the table below, there are only the results of the testing, which are normally distributed
(Levene's statistic p > 0.05) and where the results of the parametric One-way Anova test with the
Bonferroniho correction are significant (p < 0.05).
Table 6: Testing differences of digital literacy for indicators B5 and C8 by the job position
Levene's test Anova

Indicator Levene Sum of Mean
Sig. df F Sig.
Statistic Squares Square
Between
2023.601 2 1011.800 4.310 .015
Groups
B5: MS Within
Word 40847.789 174 234.757
Groups
Total 1.913 0.151 42871.390 176
C8: Between
4261.240 2 2130.620 4.001 .020
Working Groups
with Within
75620.718 142 532.540
electronic Groups
documents Total .580 .561 79881.959 144
1107
The effect of the manager's position has a significant impact on the digital literacy level of working
with application software: B5 – Microsoft Office Word. The best results of working with the software
is achieved by the tactical managers – 85.13 points, followed by the operational managers – 83.04
points. The top managers achieve the literacy level of 76.70 points. According to the indicator C8 –
Working with electronic documents, the most literate managers are the operative managers (the level
of 84.83 points), the tactical managers reach 76.97 points. The least literate managers are the top
managers – 69.97 points.
100.00
83.04 85.13 84.83
76.70 76.97
80.00 69.97
60.00
40.00
20.00
0.00
MS Word Working with electronic documents
Operational managers Tactical managers Top managers
Figure 1: Digital literacy of indicators B5 and C8 by the job position in points

The indicators that were not normally distributed (Levene' statistic p > 0.05): B6; B7; B8; B12; B14;
B17; B18; B19; B20; B21; B23 were being tested using the non-parametric K Independent Kruskal-
Wallis H test. The statistical analysis results are presented in the table below.
Table 7: Testing differences of digital literacy for individual indicators by the job position
Indicator Chi-Square df Asymp. Sig.
B6 MS Excel 15.990 2 .000
B7 MS PowerPoint 6.633 2 .036
B8 MS Outlook .876 2 .645
B12 MS InfoPath 1.835 2 .400
B14 GIS 2.224 2 .329
B17 OLYMP 2.879 2 .237
B18 Pohoda 5.792 2 .055
B19 MRP 1.090 2 .580
B20 Navision 4.861 2 .088
B21 Cognos 1.179 2 .555
B23 BI software .684 2 .710

There are significant differences in the digital literacy level of the indicators: B6 – MS Excel (p <
0.000); B7 – MS PowerPoint (p = 0.036); and B18 – Pohoda accounting software (tha value
approaches 0.05) between the managers' groups depending on the position. The best results in the
1108
digital literacy level of working with MS Excel (82.95 points) and MS PowerPoint (76.28 points) are
achieved by the tactical managers. The digital literacy level of the operational managers working with
MS Excel reaches 76.14 points and working with MS PowerPoint reaches 72.84 points. The top
managers represent the least literate position in working with the programs: MS Excel – 68.18 points
and MS PowerPoint – 60.43 points. On the other hand, the digital literacy level of working with the
Pohoda software achieves the best values for the top managers – 42.65 points, while the tactical
managers reach 17.00 points and the operational managers only 11.50 points.
100.00
82.95
80.00
76.14 72.84 76.28
68.18
60.43
60.00
42.65
40.00
17.00
20.00 11.50
0.00
MS Excel MS PowerPoint Pohoda
Operational managers Tactical managers Top managers
Figure2: Digital literacy of indicators B6, B7 and B18 by the job position in points
According to the European Commission's "Agenda for new skils and jobs" document published in
2008, it is necessary to foresee labour market needs and skills requirements and their alignment as the
highest EU's priority. In the "Strategic framework – Education & Training 2020", the attention was
mainly focused on lifelong learning and skills development of citizens of all ages. It is estimated that
by 2020 the number of highly qualified jobs will increase by 16 million and the number of low-
skilled jobs will decrease by 12 million. By the end of 2015, the Europe will be missing from 384 000
to 700 000 experts in the field of ICT, which will endanger not just the field itself, but also the ICT
dissemination in all other economy sectors. Too many people do not have qualifications required by
the current labour market. Therefore, their employment opportunities are reduced as most jobs
already require e-skills (Commission, 2010).
We can conclude that not only Europe, but also Slovakia suffer from a lack of professional ICT skills
and a digital literacy deficit. As a result, a lot of people are excluded from the digital society and the
economy.
It is undeniable that educating citizens and employees are significant in terms of professional
application, tasks and objectives' fulfillment arising from strategy and society needs. A strategy for
human resources is derived from a business strategy. Some authors (Bartoňková, 2008) refer to it as
"a personal strategy." Employees' development and education are essential tools that can manage
business performance. We agree with Hroník (2007) that the aim of educating employees and
managers is to achieve permanent, sustainable changes, particularly in skills, knowledge and attitudes
that reinforce power to fulfill their tasks. "Education and vocational trainings belong among the
highest political priorities of all the Member States in the European Union, not just the Slovak
Republic. Obtaining the new knowledge, skills and abilities as well as their continuing updating is
considered to be the assumption of personal development of all citizens and their active participation
in all aspects of society through integration into the labor market" (Hudoková, Schultzová, &
Rabatinová, 2014).
1109
Conclusion
The results of the statistical anaylsis show that the level of managers' digital literacy of the Slovak
enterprises in working with hardware is 0.67 points. In this area, the managers achieve the best results
among the monitored indicators. Consequently, the managers reach the best results in the digital
literacy index of communication – 0.58 points. The digital literacy level in working with information
is 0.55 points. The lowest results are achieved by the managers in skills and knowledge of software
(operating software – 0.58 points and application software – 0.44 points). Finally, the aggregate
information literacy index of Slovak managers achieves 0.58 points.
It is important to note that the individual results are not comparable from the point of view of the
synthesizing indicator of digital literacy. Eurostat conducted the survey of all population of the
Slovak Republic by six skills graded according to difficulty. The Institute for Public Affairs analysed
digital literacy of the white-collar workers by 27 – 28 skills (questions). Our conducted survey was
characterised by the frequency of the items for the purpose of validity and reliability of this research
tool. In the survey, we questioned 180 managers of various enterprises and organisations operating in
the territory of the SR. We quantified their level of digital literacy from their skills and knowledge
measured by 70 indicators segmented into the four groups as applicable. The results of the survey are
not directly comparable with the results of the other institutions. The reason is that up to now, there
has not been conducted any survey on managers' digital literacy in the SR. After the digital literacy
analysis, we tested the significance of differences of managers' digital literacy in the segmented
groups. Subsequently, we verified the hypothesis by testing the responses of the managers segmented
into the three groups according to the level of management: operational; tactical; and top
management. We used the parametric One-way Anova test with the Bonferroniho correction and the
data homogeneity test (Levene's test) because the data were normally distributed. The aim of this
method was to test the significant differences between the mean values of several groups. After
having done the quantitative statistical analysis, we accepted the null hypothesis of equality of
variances, so the use of the Anova model became permissible. The manager's type depending on the
position does not have the significant effect on the aggregate index of digital literacy. The managers
do not significantly differ by their digital literacy depending on the position.
Acknowledgments
The research and the paper are supported by the Scientific Agency VEGA through financial support
of the Project No. 1/0336/14 at the University of Economics in Bratislava.
The research described in the paper was financially supported by the Project of Young Researchers
and Full-time PhD Students at the University of Economics in Bratislava No. I-16-107-00.
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Baradol, A. and Gopakumar, V. (2000). Role of Librarians as presented in the Information Literacy
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1110
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komunikačných technológií v systéme zdravotníctva. Ekonomický časopis, 64 (1), 83-104.
Hroník, F. (2007). Rozvoj a vzdělávaní pracovníku, Grada Publishing, Praha.
Hudoková, K., Schultzová, A., and Rabatinová, M. (2014). Selected determinants of lifelong learning
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vzdelávaní, Stimul, Bratislava.
Velšic, M. (2013). Digitálna gramotnosť na Slovensku 2013, IVO, Bratislava.
1111
Qualitative Marketing Research on the Mures County Managers’

Opinions and Perceptions Regarding the Causal Relationship between
The Performance on a Model of Decision and Strategic Action and the
Economic Performances of a Company
Alina-Maria Fărcaș
Bucharest University of Economic Studies, Bucharest, Romania,

e-mail: alina.farcas90@yahoo.com
Constantin Nicolaescu
National Defense University „Carol I”, Bucharest, Romania,

e-mail: conic0905@yahoo.com
Abstract
Nowadays, most companies activate in unstable environments, fact that increasingly lead managers to
look ahead and implement strategies to prevent and eliminate potential problems that might face the
company. This study meets these issues and aims to identify the causes that affect the Mures County
companies’ activity. By the conclusions offered at the end of the article we can go on an ampler research
in order to offer concrete solutions.
Keywords: strategic management, qualitative marketing research, managers, horizontal analysis, vertical
analysis, decision.
Introduction
In order of a detailed analysis of views, perceptions and behaviors of decision makers in senior
management of companies regarding the performance impact of a managerial model of decision and
strategic action on the economic performance of a company, in the period March-April 2016 was
conducted a qualitative marketing research. It was based on the semi directive depth interview method,
being applied to an effective of 10 managers from Mures County.
Assumptions and qualitative marketing research objectives
In the development of this qualitative marketing research were considered the following:
• General assumptions:
− Establishment by companies the policies and strategies that are realized in full
accordance with the threats and opportunities on acting market;
− Most managers from Mures County are concerned by assembly groups, individuals,
organizations and so on, which their firms interact with;
− A main concern of managers from Mures County is the creation of an organizational
structure that allows an effective control of results;
− Decision makers of Mures County companies are concerned about implementing a
performance managerial model of decision and strategic action, it having direct
consequences on the performance of the organizations they represent.
1112
• Objectives:
− Identifying the level of importance given to the economic dimension of strategic

management applied at the companies' level;
− Strategic management evaluation of companies in terms of human dimension;
− Assessing the role of organizational dimension in the strategic management of
companies;
− Analysis of opinions regarding the impact of a managerial model of decision and
strategic action applied to the companies on their performance against the competition.
For applying the semi directive depth interview method was imposed the development of a selection
questionnaire (Appendix 1), that lead to the selection of representative potential respondents for the
research objectives. Thus, they were selected among the managers of Mures County companies, taking
into account a series of predetermined criteria, namely: participation in the last 6 months to an individual
/ group discussion, field of activity of the company they represent, the number of employees, respectively
the period since the firm is on the market.
Identification data of the companies included in the sample are shown in Table 1, specifying that the
interviewed managers' name was not mentioned in order to maintain the confidentiality of their personal
data.
Table 1: Identification data of interviewed managers
Number of Year of entry on

Company name Field of activity employees the Romanian
market
S.C. VIPANDRE IMPEX Woodworking

Manager 1 25 2003
S.R.L., Pietriș, Mureș County industry
Internal and
S.C. NICANDRE S.R.L., Târgu
Manager 2 international 9 2013
Mureș, Mureș County
transportation services
S.C. CIS ENERGY S.R.L.,

Production and sale of
Manager 3 Sântana de Mureș, Mureș 20 2011
electricity
County
S.C. BDK CATINA BIO

Manager 4 S.R.L., Senereuș, Bălăușeri, Agriculture 15 2015
Mureș County
S.C. OCASSIOSOFT S.R.L.,

Manager 5 IT services 8 2014
Brădești, Mureș County
Manager 6 S.C. GEODON RICHTER 600 1998

Pharmaceutical
ROMANIA S.A., Târgu Mureș,
1113
Mureș County industry
S.C. OVIRAM S.R.L., Reghin, Accommodation

Manager 7 21 2001
Mureș County services
S.C. MFC CENADI Residential and

Manager 8 CONSTRUCT S.R.L., Târgu nonresidential 58 2013
Mureș, Mureș County construction
S.C. CLINICA DENTARĂ

Manager 9 S.R.L., Târgu Mureș, Mureș Medical services 25 2008
County
S.C. CIS GAZ S.A., Santana de Natural gas industry

Manager 10 72 1990
Mureș, Mureș County and electricity
For interviewing selected managers, was developed a guide that comprises four main themes that, in turn,
were structured on three sub-themes each. Interviews were conducted based on the user guide in
Appendix 2; they were scrolling down at the headquarters of the companies included in the sample. Data
collection provided by managers was performed with an audio device; after the transcription, the dates
were being processed and interpreted using the method of content analysis.
Analysis and Interpretation of Results
Interviewed managers’ responses imposed an analysis of two aspects, namely:
• Vertical analysis, this approach consisting of the individual interview, thus highlighting the
attention paid by each respondent to the subthemes issues approached by the interview guide;
• Horizontal analysis, it involves the synthetic approach of each theme and sub-themes subjected
to analysis by all 10 managers.
Vertical analysis of semi directive depth interviews
The vertical analysis of interviews conducted among managers of Mures County firms highlights their
views on the importance of addressing and evaluating the strategic management from an economic,
human and organizational perspective, the performance of the managerial model applied in companies
having direct consequences on its results. This analysis consisted of an approach issues of the within the
same interview, offering the possibility of knowing how each respondent treated the themes and sub-
themes included in the interview guide.
Starting from quantitative determinations of the overall grid, vertical analysis reveals several differences
in how Mures County managers perceive the importance of strategic management dimensions and its
impact on the economic performance of a company (Figure 1.)
1114
Manager 10 7.06% 1.46% 3.65% 1.22%
Manager 9 4.62% 0.97%1.70%0.73%
Manager 8 4.87% 0.73%

1.22%
0.97%
Manager 7 4.14% 0.97% 2.19% 0.97%
Manager 6 5.35% 0.97% 3.89% 2.19%
Manager 5 5.11% 1.22% 1.95% 0.97%
Manager 4 5.11% 1.22% 1.95% 0.97%
Manager 3 4.14% 1.46% 2.92% 0.97%
Manager 2 5.11% 1.22% 3.41% 0.97%
Manager 1 5.35% 1.46% 3.41% 1.22%
0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00%
Economic dimension
Dimensiunea economicof strategic
economică management strategic
a managementului applied toaplicat
the company
la nivelul
firmei
Human dimension of the strategic management applied at company level
Dimensiunea umană a managementului strategic aplicat la nivelul
Organizational size of strategic management applied at company level
firmei
Figure 1: The importance given

iven to the semi directive depth interview themes by sampled managers
Figure 1 shows that the volume of information obtained by interviewing the last manager is much higher
than for the other 9, the biggest difference being recorded in relation to respond
respondents
ents 8 and 9, which
provided less than half of the responses volume of the last interviewed topic. It also noted that all
respondents have focused mainly on the economic dimension of management applied to the firm (first
issue). Addressing issues 2 and 4 rresulted
esulted in achieving a lower volume of information, indicating that
most respondents (except managers 6 and 8) have provided more details on the subject 2, by which
attempted to highlight some aspects related to the categories of "stakeholders" with which firms interact,
respectively actions and decisions taken in relation to them
them.
In the context of the above, it can be concluded that the information collected and stored by analyzed
managers is both quantitatively and structurally different.
Horizontal analysis of semi directive depth interviews
The horizontal analysis of interviews conducted among managers in Mures County has been realized
through synthetic approach of each under discussion theme / sub
sub-themes.
1115
A. Economic dimension of strategic management applied at company level
According to the surveyed managers, the firms operate on markets with strong competition, knowing and
proper handling of threats, and opportunities too may be a real competitive advantage.
Most managers intend to develop their business either by expanding current activity, either by entering
into other areas.
The main objective is to increase customer satisfaction by providing them solutions tailored to their
particular needs and requirements.
A particular attention is given to:
• firm resources evaluation , this being achieved at the level of department, monthly or yearly;
• promoting a flexible and responsive style in interacting with partners and customers;
• creation of new activities in the exploration and production area;
• product and service portfolio expansion;
• costs optimization;
Most of the companies included in the sample practice a differentiated market strategy, adapting its offer
to the needs and requirements of customers.
Most of the managers indicated as qualitative objectives: customer loyalty and attracting new ones, and
from the category of quantity objectives, there are: increasing turnover and number of employees,
respectively expanding production or performance capacity, depending on case.
Generally, the targets are made by the general manager, together with its employees, the structural
organization being based on the product or company market and less on its functions.
B. Human dimension of strategic management applied at company level
Most managers are concerned about identifying and knowing all of the groups, individuals and
organizations with which the company interacts. Many of the companies selected in the sample already
concluded a series of partnerships that contribute significantly to the promotion of their bid. Also, they
are always looking for new customers as well as collaborators, the impact of the influence of different
categories of stakeholders being closely monitored by the general manager.
Most of the questioned subjects said that the companies that they represent depend heavily by
stakeholders both in terms of business development, as well as growth of the customer portfolio.
C. Organizational dimension of strategic management applied at company level
Analysis of companies from organizational perspective revealed the following:
• the degree of centralization is very high;

• coordination of activities is done using well established rules by the company management;
• informational system is based on internal notes and decisions issued by the general manager,
which are formalized;
• planning horizon is short, no more than medium;
• participation rate of company personnel in decision-making is relatively high;
• decision-making is made at management level;
• staff is assessed at regular points, monthly or yearly;
1116
• Reward system is varied, consisting of premiums, meal vouchers and other allowances paid to
personnel depending on performance;
• Control is concentrated at the highest level, trying to be preventative, although most is often post
factum;
Another essential element is the checkpoints that are spread throughout the entire organization, starting
from employee timesheet for check in and out until daily activity reports drawn up at departments’ level.
D. The Impact Of A Managerial Model Of Decision And Strategic Action Applied To The
Firm On Its Performance In Relation To Competition
Most companies analyzed did not implemented a managerial system of decision and strategic action, but
appreciate this as being one essential for the market success and indicates the material, financial, human
resources, respectively the legislation as the main restrictive factors of carrying out such an endeavor.
At the same time, managers consider that between consequences of implementing a managerial model of
decision and strategic action at the level of a firm on its performance, the most important are:
• accurate knowledge of current state of market and its requirements, respectively of the external
environment;
• the ability to anticipate various actions which may have decisional character;
• improving company activity;
• improve quality standards;
• employees’ motivation in achieving performance.
Horizontal analysis can be approached also from the perspective of the amount of information provided
by managers in Mures County, in Table 3, noticing the interventions share of respondents who returns to
each topic from all interventions:
Table 2: Share of respondents interventions that returns to each topic from all interventions
Share in total
Approached issues
interventions (%)
Theme no 1. Economic dimension of strategic management applied at

50,85%
company level
Theme no 2. Human dimension of strategic management applied at company

11,68%
level
Theme no 3. Organizational dimension of strategic management applied at

26,28%
company level
Theme no 4. The impact of a managerial model of decision and strategic action

applied to the firm on its performance in relation to 11,19%
competition
TOTAL INTERVENTIONS 100,00%
1117
Table no 2 reveals that respondents have paid more attention to the first theme (50.85%) related to the
economic dimension of strategic management applied to the company level, followed by the third theme
(26.28%) related to organizational dimension. The lowest percentages incumbent upon themes 2 and 4
(11.68% and 11.19%).
Qualitative Research Limits and Conclusions
The analysis regarding the achievement of the objectives set at the start of the study:
• According to the analyzed data in this study, it can be seen that most managers have given more
importance to the economic dimension of the strategic management, this element playing an
important role in the development and success of the companies. This is due to the fact that most
managers intend to develop their business and depend very much on this segment.
• Relating to the evaluation of strategic management from the perspective of the human dimension
is observed that most managers are concerned by identifying and knowing all of the groups,
individuals and organizations with which the company interacts. Also, the managers consider
that partnerships contribute significantly to the promotion of their products and services resulting
that the companies depend heavily on stakeholders both in terms of business development, and
increasing customer portfolio.
• It has noticed that organizational size plays an significant role in strategic management of the
companies. After analyzing the answers given by managers, on this subject, it was observed that
most companies want to implement a modern management style, the personnel participating
frequently in decision-making within the company, and the company putting more emphasis on
staff training and also on its control.
• Regarding the objective related to analyzing the views on the impact of a managerial model of
decision and strategic action applied to the companies over their performance in relation to
competition, most analyzed companies have not implemented such a system, but considers this
as one essential for market success and indicates the material, financial, human resources, and as
the legislation as the main restrictive factors of carrying out such an approach. Implementing
such a system requires market analysis and internal analysis, but its benefits worth the effort for
implementation
At the level of this qualitative marketing research can highlight a number of disadvantages, namely:
• the relatively small number of interviews, a situation due to the relatively high cost generated by
this research method;
• quite frequent interruptions during the interviews, caused by the interventions of other persons in
the context in which the discussions were conducted at the headquarters of the companies where
the respondents managers operate;
• non representativeness of the results of qualitative research among the population studied, and
therefore the impossibility of extrapolation the results to all managers in Romania.
The results obtained in this qualitative research provides important information for senior management of
Romanian companies being also a landmark in designing a questionnaire that can be used in a further
quantitative marketing research.
1118
References
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Florescu C., Mâlcomete P., Pop Al. N. (coordinators), (2003), Marketing. Explanatory Dictionary.
Economica Publishing House, Bucharest.
Constantin C., (2006), Marketing informatics systems. Analysis and processing of marketing data. SPSS
applications. Infomarket Publishing House , Braşov.
Dătculescu P., (2006), Marketing research. Brandbuilders Grup Publishing House, Bucharest.
Lefter C., (2004), Marketing research. Theory and applications. Infomarket Publishing House, Braşov.
Lefter C., (2006), Marketing, vol. I. Transilvania University Publishing House, Braşov.
Zhang Y., Wildemuth B. M., Unstructered Interviews, in Wildemuth B. (Ed.), Applications of Social
Research Methods to Questions in Information and Library Science. Westport, CT: Libraries Unlimited,
pag. 222, available at:
https://www.ischool.utexas.edu/~yanz/Unstructured_interviews.pdf [accessed on: 24th of May, 2016]
***The American Marketing Association Board of Directors, Marketing Research, 2004, available on:
http://www.marketingpower.com/AboutAMA/Pages/DefinitionofMarketing.aspx [accessed on: 24th of
May, 2016].
1119
APPENDIX 1
Recruitment / Selection questionnaire
My name is Alina - Maria Farcas and please give me a few minutes to address you several questions in
order to achieve a survey.
1. What function do you hold in the company you represent?

Manager / Firm Director (to be continued).
Another function (is being closed).
2. Have you ever participated in an individual or group discussion, regardless of its subject?
Yes
How long ago?
Less than six months (is being closed).
More than six months (to be continued).
What was the topic of that conversation?
Strategic management of the company (is being closed).
Another theme (to be continued with the question no. 3).
No (to be continued with the question no. 3).
3. What is the full name of the company?
...................................................................................................................................
4. Since when the company operates on the Romanian market?

...................................................................................................................................
5. In what area carries out its activity the company you represent?
...................................................................................................................................
6. Currently, how many employees does the company has?

...................................................................................................................................
7. Headquarters (including phone number):

...................................................................................................................................
8. How long have you work in this company?
1120
Less than 5 years.

5 – 10 years.
11 – 15 years.
Over 15 years.
9. Your name and surname:
...................................................................................................................................
In order to centralize the dates it was used the following response sheet:
RESPONSE SHEET NO. ...
Name and surname ..............................................................................................................................
Company name ……............................................................................................................................
Since when is the company on the Romanian market .........................................................................
Field of activity ...................................................................................................................................
Number of employees .........................................................................................................................
Manager seniority within the company ...............................................................................................
Headquarters ........................................................................................................................................
Telephone number ...............................................................................................................................
→ Recruitment criteria:
To be manager within a company in Mures County.
Not have participated in the last 6 months to an individual / group discussion.
Seniority of the company on the Romanian market.
Field of activity.
Number of employees.
Manager seniority within the company.
The agreement to answer questions contained in the interview guide.
1121
APPENDIX 2
Interview guide
The following guide was used for the moment when the managers were interviewed.
1. Economic dimension of strategic management applied at company level.

1.1. Current firm situation:
• Strategic diagnostics regarding the external environment
• Resource assessment
• Determining the strategic planning ecart
• Business portfolio analysis
1.2. Issues covered by firm:

• Market segmentation
• Company mission
• Qualitative and quantitative objectives
• Choosing business portfolio
1.3. The actions to be undertaken by the company:

• Formulating strategies and policies, evaluation and selection of the optimal ones
• Establish programs and action plans
• Determine the financial resources required for the implementation the plans and programs
for action
• Establishing management system appropriate for achieving the chosen strategies and
policies
2. Human dimension of strategic management applied at company level

2.1. ”Stakeholders” and the framework relationship of them
2.2. Actions that can be taken with or against various categories of stakeholders
2.3. Decisions taken by the Company in relation to the various categories of stakeholders
1122
3. Organizational dimension of strategic management applied at company level

3.1. The organizational form of the company and making decisions
3.2. Motivation style of the employees
3.3. Control Process
4. The impact of a managerial model of decision and strategic action applied to the firm on its
performance in relation to competition.
4.1. Opinions regarding the importance of implementing a managerial model of decision and strategic
action at a the level of a company.
4.2. Factors influencing implementing efforts of a managerial model of decision and strategic action at a
the level of a company.
4.3. The consequences of implementing a managerial model of decision and strategic action at a
company level on its performance against the competition.
1123
Approach to Information Support and Ensure the Implementation

of PR-activities of the State Industrial Policy
Vladimir Plotnikov
Saint-Petersburg State University of Economics, Saint-Petersburg, Russia;

South-West State University, Kursk, Russia, plotnikov_2000@mail.ru
Valeria Rodina
Saint-Petersburg State University, Saint-Petersburg, Russia, velnews@mail.ru
Abstract
In modern conditions there is the growing importance of industrial development. This gives a new
impetus to the state industrial policy. One of its priorities is to conduct a reindustrialization. To be
effective, reindustrialization requires special PR-campaigns. The success of these campaigns is
determined by the effectiveness of the impact on the target audience. The authors, based on experimental
studies, conducted an analysis of the perception of the concept "Russian industry." Its characteristics were
identified. Differences in perception of the concept in various target audiences were shown. On the basis
of the results obtained in the paper offers recommendations to improve the effectiveness of information
support of industrial policy measures.
Keywords: economic development; state industrial policy; reindustrialization; information support of the
authorities; PR-campaign; perception of the information, the concept of "Russian industry".
1. Introduction
Analysis of current economic trends (especially after the 2008-2009 crisis) shows that the idea of the
sequential nature of the economic structure is not always correct. We have in mind the theory of
economic development of Colin Clark (Clark, 1940). According to its tenets, the economy has
consistently generated a primary, secondary, tertiary, etc. sectors. These sectors are developing under the
standard scheme of the life cycle (nucleation – growth – stabilization – recession). They follow each other
sequentially in the economic structure. The predominance of one or another sector determines the type of
economic model (agricultural, industrial, postindustrial economy).
The most studied (for historical reasons) is an industrial stage of economic development. It is considered
that the share of industry (secondary economic activity) in GDP at first increases and then decreases. This
is shown in Figure 1. That is, in the economy observed first industrialization stage, and then going on
deindustrialization. After the stage of deindustrialization is formed postindustrial society, that is
dominated tertiary economic activity. It is realized in service activities. It is believed that the
economically developed countries (Stern and Arbor, 2001, Buera and Kaboski, 2009, etc.) moved to the
postindustrial stage of development. Judging by the official economic statistics, this transition has
occurred in Russia too (Plotnikov and Volkova, 2014).
However, this does not mean that the industrial sector has become obsolete. In our view, the dynamics of
the industrial sector is more complicated. It is more correctly described by a function with a harmonic
(oscillating) component. This is shown in Figure 2. Deindustrialization stage may be replaced by
reindustrialization stage. Moreover, these cycles may be several. Of course, reindustrialization is no
simple issue of increasing the volume of traditional industries (secondary sector). In industry, the
qualitative changes occur. They are associated with the emergence of new technologies and innovations.
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Employment and other relative share of economic resources increases on reindustrialization stage in the
secondary sector. Also increasing the share of the secondary sector in GDP.
Many authors have declared the presence of these structural changes in the industry and the economy as a
whole (Lower, 1982, Diaz Bautista, 2003, Ocampo, 2005, Timmer and Gaaitzen, 2009, Hall, 2010,
Tregenna, 2011, Szirmai, Naudé and Alcorta, 2013, Plotnikov and Vertakova, 2014, Androsova and
Simonenko, 2016, etc.). However, their findings apply not only to emerging economies (Russia, China,
India, Brazil, etc.), but also in developed countries (USA, France, UK, etc.). Thus, carrying out the "new
industrialization" or reindustrialization is one of the key problems of modern economic policy in many
countries.
deindustrialization
share
of GDP
time
Figure 1: The secondary sector of economic activity dynamics (by Clark et al.)
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deindustrialization
share
of GDP reindustrialization
time
Figure 2: The secondary sector of economic activity dynamics (by authors)

2. Purpose of the Study
Implementation of the government's economic policy aimed at reindustrialization is an important issue in
many countries. But this policy is contrary to the ideas, formed at a part of the population. These views
are largely based on the model of Colin Clark and other similar developments. For this reason, a special
PR-support of the state industrial policy realization is necessary. To improve the efficiency PR-actions
(and increase the efficiency of reindustrialization policy) requires the study of the perception of the
concept of "industry" by people.
By virtue of the presence of linguistic and cultural differences, such a study would take into account the
country-specific. We spent it on the materials of the Russian Federation. Knowledge of the characteristics
of the target audience and understanding of its relationship to the subject of the communication campaign
will form the desired content. This content will be most accurately meet the goals and objectives of the
promotion of industrial policy. The specific problem that we solve the study, is to determine the key
parameters of the "Russian industry" concept, which is necessary to identify the target audience. This
allows you to choose the communication codes, that will create a positive Russian industry and to
increase public confidence in the sold industrial policy.
3. Materials and Methods
An experimental study was conducted in the spring of 2016 in Russia. We used questionnaires and a
special online program for questioning (https://anketolog.ru/primvox). The study was organized in three
stages.
The 1st stage. Each participant of the experiment filled out the profile (and we checked this data). They
responded to questions regarding general information about respondents (gender, age, education, etc.).
This is necessary for the diagnosis of the relationship to the concept of "Russian industry".
The 2d stage. Then associative series were created for the "Russian industry" concept. Association
experiment method was used. As a result, a set of descriptors (overlapping associations) have been
identified. We have compiled a semantic pair for exploring ideas about the concept of "Russian industry"
1126
from these descriptors. Selected lists of descriptors have been processed, some were supplemented
antonyms and combined in the form of semantic differential (Table 1).
The 3d stage. Respondents consistently expressed their attitude to the concept of "Russian industry". We
used 15 signs and 30 parameters (see Table 1).
Table 1: Estimated range of the concept "Russian industry"
Number Positive assessment Scale Negative assessment

1 Good 2 1 0 -1 -2 Bad
2 Advanced 2 1 0 -1 -2 Underdeveloped
3 Strong 2 1 0 -1 -2 Weak
4 Major 2 1 0 -1 -2 Small
5 Complex 2 1 0 -1 -2 Simple
6 Safest 2 1 0 -1 -2 Emergency
7 Rich 2 1 0 -1 -2 Poor
8 Eco-friendly 2 1 0 -1 -2 Harmful
9 Military 2 1 0 -1 -2 Civil
10 Independent 2 1 0 -1 -2 Dependent
11 Qualitative 2 1 0 -1 -2 Doubtful
12 Russian 2 1 0 -1 -2 Soviet
13 Domestic 2 1 0 -1 -2 Foreign
14 Raw 2 1 0 -1 -2 Processing
15 State 2 1 0 -1 -2 Private
In the pilot study was attended by 773 people. The sample structure of respondents:
• Women - 397, men - 396.
• Have belonging to the industrial sector - 310, do not have this accessory - 463.
• Have a vocational education - 218, a higher education - 522, an academic degree - 33.
• Get in the younger age group (mean age, 27.98 years) - 565, in the older age group (mean age,
52.68 years) - 199.
When the concept of "Russian industry" studied, we used the experimental method of psycholinguistics -
semantic differential - to build semantic space given concept (Klimova, 2012). This method allows you to
identify the mathematical precision is not only semantic patterns, but also the way in which value is
endowed with a particular concept in the perceived image of a man of peace. Building a semantic space is
a heuristic method for studying individual perceiver system. Building a semantic space represents a shift
from the language that contains a larger set of descriptions of symptoms, to a simpler and receptive
language formalization, containing a smaller number of categories of factors and advocates a kind of
meta-language to the first.
Using the semantic differential method allows to reveal underlying, unconscious consciousness
characteristics of the respondents. This method also provides a quantitative measure of their assessment
(Rodina, 2016). The method allows to reveal what a person really feels about a particular concept. And it
is not that he spoke about them experienced emotions. This method provides a projective relevance. It is
achieved by overcoming the inner self of the respondent. neutralize aspiration method respondent to
answer "how to". Semantic differential method allows for a concept study to identify emotional attitude to
it, not burdened rationalized motives. Identify audience affective component allows to predict its real
behavior.
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Semantic differential method is a combination of scaling procedures and controlled associations. The
inclusion of a comprehensive study of free association experiment is a logical step, the purpose of which
the adequacy of the experimental tasks. In addition, the development of the semantic differential in
conjunction with the association experiment to determine not only the content and features of stereotyped
image enshrined in a language picture of the world, but also to determine the relation of the subject to the
social environment.
As a result of the pilot study was to determine the average understanding of "Russian industry" as the
average index of perception of this concept. Further in-depth analysis of the results. The data were
analyzed for the entire sample to the following general plan:
• Has a factor analysis of the maximum likelihood method, followed by varimax rotation with
Kaiser normalization.
• Calculated factorial assessment of both new variables for the entire sample.
• Sub-samples were compared by factorial scores calculated using the parametric Student's T-test
and / or nonparametric (rank) analogues.
Processing of the results was carried out by methods of mathematical-statistical analysis of data using the
statistical package SPSS.
4. Results and Its Discussion
The authors obtained an averaged characteristic ideas about the concept of "Russian industry." It is not
distorted by individual preferences (Table 2).
Into consideration the perception of the concept contains both positive and negative evaluation. They also
contain varying degrees of intensity. Thus, we can conclude that the primacy of the formation of the
stereotypical image of the Russian industry have prevailing in society representation. They consist in the
fact that Russian industry: «Military», «Raw», «Major», «Harmful» and «State».
Table 2: Average indices for the concept of "Russian industry"
Descriptors Average indices

Military 1,07
Raw 0,89
Major 0,82
Harmful 0,75
State 0,62
Complex 0,55
Dependent 0,46
Domestic 0,46
Soviet 0,43
Emergency 0,22
Good 0,22
Underdeveloped 0,17
Poor 0,05
Weak 0,03
Doubtful 0,008
Next, we analyzed the perception of the "Russian industry", depending on the characteristics of the
audience. The results of the factor analysis are presented in Table 3. For each factor listed names of
variables with maximum modulo factor loadings. Factors assigned name, in the sense of combining the
1128
variables included in them. For each factor we also indicated (see Table 3) the percentage of the total
variance.
Table 3: Factor analysis of the concept "Russian industry"
Factor Variance, % Variables of factors The factor loadings

F1: Factor Power 20,979 Advanced 0,775
Strong 0,760
Good 0,745
Major 0,562
Rich 0,506
Complex 0,456
F2: Factor Processability 14,008 Safest 0,715
Eco-friendly 0,660
Independent 0,545
Qualitative 0,516
F3: Factor State 6,764 Soviet 0,482
Military 0,481
Raw 0,474
State 0,382
For the convenience of the organization study the authors used a structural approach to the interpretation
of the results. This approach is based on the fact that for all groups of respondents highlighted the
common semantic universals. But the degree of severity varies, depending on the audience. The
mathematical processing of the results made it possible to reduce the number of variables in such a way
that revealed the most informative and important for the differentiation of data scales. As a result, the
quotient of input data dimension of the space (the number of factors) was 3: (F1: Factor Power, F2:
Factor Processability, F3: Factor State). The maximum percentage of the variance observed for the first
factor.
The study showed that semantic fields for the "industry" concept have their own characteristics depending
on changes in the sampling parameters, such as gender and age, education and participation in the
industrial sector.
In particular, as shown by the analysis, gender differences in the perception of the concept of "Russian
industry" is statistically significant only for the F1 (Power). Thus, for women the severity of this factor is
significantly higher than for men. More in-depth analysis confirmed statistically significant differences of
perception "Russian industry" concept for men and women only in F1 (Power). We found that for F2
(Processability) and F3 (State) statistical differences are not reliable.
In addition, we analyzed the dependence of the effect on the audience factors belonging to the industry
sector. The analysis showed that the statistical differences on the basis of unreliable.
Intensity factors also analyzed for different age groups. Depending on the age characteristics of the
audience revealed a statistically significant result only F1 (Power). In-depth analysis confirmed
statistically significant differences of perception, "Russian industry" concept in different age groups at F1
(Power) and showed that the factor F2 (Processability) just a little does not reach statistical significance.
It was found that younger age group appreciates F1, and the older age group, on the other hand, in the
negative.
We continue to identify links between factors and educated audience, using univariate analysis of
variance. This method has shown that the dependence of the level of education of the respondent is
present in each factor. The relationship factor assessments and education is statistically significant for
1129
each of the factors. We made multiple (pairwise) comparisons of means. It is possible to determine
whether the differences are statistically significant for each pair averages. The respondents with
secondary education, positively evaluate F1 (Power) and F2 (Processability). But they expressed a
negative attitude to the F3 (State). Respondents with higher education and a degree, on the contrary,
expressed a negative assessment for F1 (Power) and F2 (Processability). F3 (State) in the perception of
this group of respondents has a positive connotation.
For the preparation of the information campaign in support of the state industrial policy taking into
account the perception of the "industry" target audience, you need to evaluate how the transformed
understanding of concept of "Russian industry" when combined in a sample of different target groups.
Therefore, multivariate analysis was carried out by us. In particular, comparing men younger and older
age groups, with secondary education.
The analysis showed that the differences were statistically significant. Furthermore, an additional type of
analysis has been added, which confirmed the statistical differences. The comparison showed that men
over age group negatively perceive F1 (Force) the concept of "Russian industry." The younger audience
is inclined to its positive assessment. Comparison of estimates of women younger and older age groups,
with secondary education, was also satisfied. Statistically significant differences were not found for these
groups.
The results of the final study in this sample have shown that there are differences in the perception of
only F1 (Power), while negative values are only found in men older age group. A similar comparison was
made for men older and younger age groups, with a higher education. Statistically significant differences
were not detected in these groups. A similar result was obtained for women older and younger age
groups, with a higher education.
When generalizing the parameters for the "Russian industry" noticeable variability and intensity of
expression of selected factors. The semantic structure of Russian industry representations have been
allocated three factors: power factor, the factor of technology, factor state. In this case the power factor
has the leading role. This factor has the greatest influence on the categorization of "Russian industry"
concept. On the basis of the weight factors dispersions can conclude that the power factor is the basis of
this concept nucleus. The variables of this factor it is necessary to use "Russian industry" concept to
verbalization. Effect of other factors less. They have weak impelling force and exercise less influence on
the concept.
We have shown that the perception of the industry have different audiences has both similarities and
significant differences. In particular, there are leveled differences between samples, differing in age,
gender and level of education. We found that the gender and age characteristics of the audience are
differentiated with respect to only the factor F1. For other factors, no statistically significant differences
were observed. This indicates that the content of the concept of image matrix "Russian industry" must
first of all take place on the first factor - Power factor. This factor has a maximum variance and a
difference in the perception of virtually every sample.
Men's audience is more pessimistic about the concept of "Russian industry" by a factor of F1 than
women. The audience of the older age group negatively assesses semantic universals, included in the
power factor of this concept. The survey showed that the younger generation tends to a more positive
view of the characteristics of the Russian industry, integrated in the power factor.
The study found that participation in the industrial sector has no influence on the perception of factors.
This indicates that the information policy on the formation of the "Russian industry" concept may be
universal for these audiences.
We found different content semantic spaces for subjects depending on the level of education. Power
Factor appreciates the only audience with secondary education. Negative characteristics increase
depending on the level of education. The audience, which has an advanced degree, shows a high
proportion of negative. A similar situation exists with respect to the technological factor. Thus, the results
1130
showed that the differentiation of the relationship to the industry takes place, first and foremost, by level
of education audience. It is divided essentially into two categories: secondary vocational and higher
education. Sampling for scientific degree demonstrates similar results, but with a higher degree of
intensity.
5. Conclusions
The study results allow a better idea of "portrait" of the Russian industry, which was formed at the
intersection of the factors that characterize it, and characteristics of audiences. (We made the survey
estimated Russian industry as a whole. It ignores the fact that the assessment results can vary by sectors,
sub-sectors and regions of Russia.) Most biased assessment to the concept of "Russian industry" found
among respondents with a higher education. In general, men are much more critical about the concept of
"Russian industry" by a factor of Power, and with the age of negative assessments of data increases.
Dispersion is the maximum at the Factor of Power and the Factor of Processability. Therefore, an
information campaign aimed at the support of the state industrial policy in Russia, first of all, must take
into account the formation of the content based on semantic universals of the first two factors. The
negative performance of these two factors occur in men older and younger age groups, with a higher
education and a degree. We came to the conclusion that the content of information, aimed at creating a
positive image of the national industry, first of all, should be aimed at this audience.
Content that forms the image must contain the information that is categorized as a national industry: the
Advanced, Strong, Good, Major, Rich, Complex, Safest, Eco-friendly, Independent, Qualitative.
The research allowed to determine the priority target groups, which require correction of attitude to the
Russian industry. This target audience determines not only the content of information disseminated,
forming the image, as well as communication channels. In addition, they should be selected
corresponding to the reference group are opinion leaders and having the weight information is in the
audience.
Application of our results demanded in practice. They can be used during the PR-actions and
informational events. Public authorities, in accordance with our data, will be better able to understand
what kind of information strategy and to what audience should be used. This requires differentiation of
methods, tools and content, depending on the characteristics of the audience. The results are crucial for
the formation of the information activities to ensure the development and implementation of industrial
policy in the Russian Federation, which is focused on carrying out re-industrialization. It is also possible
to use our results in the industrial policies of other countries.
6. Acknowledgments
This paper was carried out within the Grant for State Support of Leading Scientific Schools NSH-
9726.2016.6 "The implementation of state economic policy through the development of tools of strategic
and indicative planning".
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1132
Are Migrant Entrepreneurs An Opportunity For The Export

Industry? An Analysis of the Austrian Region of Burgenland
Doris Maria Granabetter

University of Applied Sciences Burgenland (UAS), Eisenstadt, Austria
University of Sopron, Hungary
doris.granabetter@wkbgld.at
Abstract
In times of globalisation, immigration is a key factor which effects the economies of countries on all
continents. The specialised knowledge and international connections of immigrants can be a stimulus
for the host country’s market. This study focuses on the Austrian province Burgenland because this
region of Austria was the one most affected by the improved access to Eastern Europe due to its
geographical location. During the last five years, exports from Burgenland rose the most among all
Austrian provinces (+ 35.7 percent). In comparison, the average of all Austria’s federal states was
20.2 percent. During this period, more than16,500 people from abroad settled in the region. The
number of companies grew during the same period by a third to 20,000 businesses. This study
addresses the question of whether companies founded by migrants created impetus in the export
sector. The proportion of foreign entrepreneurs in Burgenland increased from 3.9 percent in 2005 to
38.3 percent in 2015. An analysis of trade data of the year 2015 indicates that migrants’ companies
mainly focus on the market and its niches in the host country, particularly in the area of service.
Migrant entrepreneurs are less focused on using contacts in their country of origin to start
economically important changes in the export sector. Between 4 and 5 percent of migrant businesses
are engaged in foreign trade, they show the same export orientation as the domestic entrepreneurs of
the observed region.
Keywords: Burgenland, migration, export, self-employed, entrepreneur
JEL-Codes: F20, F22, J15, R11
1. Introduction
In times of globalisation, migration is a key factor which affects the economies of countries on all
continents. People who migrate to another country, usually for permanent residence, bring more than
their skills to their host country (Peri & Requena-Silvente, 2010). Their experience, their knowledge
of and their connections to the country of origin can be a stimulus for the market in the host country.
In the following, migrant enterprises are defined as commercial companies that are fully owned by a
person (or persons) with an immigrant background. They represent an important potential for the
development of trade relations between their countries of origin and the host country, especially since
migrants are often active as dealers or sales agents (BMZ, 2013).
In the last twenty years many empirical studies have been conducted on the impact of international
migration on international trade. This study focuses on changes in the corporate structure of the
economy concerning exports. As an example, the development of the economy of Burgenland, the
eastern region in Austria, from 2005 to 2015 with a focus on the current status is examined. This
federal state had Objective 1 area status in the European Union.
This study focuses on the Austrian province Burgenland because this region was the one that was
most affected by the improved access to eastern Europe due to its geographical location. During the
last five years, exports rose most in Burgenland among all Austrian provinces (+ 35.7 percent). In
comparison, the average of all Austria’s federal states was 20.2 percent. During this period, more
than 16,500 people from abroad settled in the observed region (Burgenland.at/Statistik Austria 2016).
1133
According to the Austrian Economic Chambers, the institution represents more than 450,000 member
companies, more than 20,000 are based in Burgenland. For operators in the industrial economy
membership is compulsory. The rules on how to obtain a trade business license are set out in the
Trade Act (Gewerbeordnung – GewO). Austria has benefited in recent years by regional political
changes and the economy particularly profited from the fall of the Iron Curtain in the northern and
eastern part of the country in 1989. In the same year, the Austrian Government formally applied for
accession to the European Union. After five years of successful negotiations, Austria joined the EU
on January 1st 1995. The internationalisation initiative (Internationalisierungsoffensive) of the
Federal Ministry of Science, Research and Economy in cooperation with the Austrian Economic
Chamber helps Austrian exporters and investors to remain competitive in the international
environment. It was launched in 2003 and a follow-on program is ongoing. The Minister of Trade
and Economy announced that 31 million Euros had been invested in the scheme by 2015.
Furthermore, the access to self-employment was relaxed by the Trade Act, Gewerbeordnung 2007
(Schmid et al., 2006).
Austria was dominated by the so-called Foreign Migration Model in the decades of the 1960s and
1970s and by refugee migration during the breakup of the former Yugoslavia. A majority of people
with an immigrant background are employed. Only a small percentage is self-employed and thus
ethnic entrepreneurs (Aigner, 2012). The decision for self-employment is a long-term basis.
Therefore, the study also gives an insight on the development in the past 10 years
The OECD Migration Outlook 2009 cautions that many migrants start businesses in vulnerable
sectors, for example in tourism, gastronomy, wholesale and construction. This paper will focus on the
sectors in Austria where migrants establish companies and export.
In Austria, two thirds of all employees with a migrant background work in companies which have
foreign operations (Schmid, 2010). This paper also addresses the question of whether this situation is
exploited by the firms.
2. Theoretical framework and related literature
Scientists from countries all over the world have investigated the impact of migration on self-
employment and the international flow of goods from various perspectives and focusing on different
nations.
Vandor and Franke (2016) found in their study “convergent evidence that cross-cultural experience
increases a person’s capabilities to recognize particularly profitable types of opportunities by
facilitation the application of cross-cultural knowledge for the discovery of arbitrage opportunities
and creative recombination.”
Scientists from New Zealand and the Netherlands focused on the international economy. In a meta-
analysis Genc focused on 48 studies that yielded 300 observations. Their results show “that
immigration complements rather than substitutes for trade flows between host and origin countries.
Correcting for heterogeneity and publication bias, an increase in the number of immigrants by 10
percent may be expected to increase the volume trade on average by about 1.5 percent” (Genc et al.,
2015).
What makes a migrant become an entrepreneur? The OECD (2010) turned examined this question
and distinguished different types of migrant entrepreneurship. “Some migrants – especially lower
skilled – start a business because they lack other employment options while, at the other end of the
spectrum, often highly skilled migrants start very successful job-creating firms.” According to
O’Reilly (2014), the majority of global migration is driven by poverty, political instability,
environmental hazards and lack of job opportunities, but there are also numerous other migrant types,
like lifestyle migrants. The term lifestyle migration is used when relatively affluent people move to
places which open up the possibility of self-realization or of which they expect a higher quality of
life.
1134
A study for the Spanish market found that doubling the number of immigrants leads to a 10 percent
increase in export to their country of origin (Peri & Requena-Silvente 2010). They analysed the
period 1995 to 2008. Immigrants increased from 1 percent of the Spanish population at the start of
the study to 10 percent in the year 2008. The number of exporting firms grew from 58,000 to
100,000. The new citizens mainly came from several different countries in Latin America, Eastern
Europe and North Africa. Peri and Requena-Silvente found that the 80 to 100 percent increase in
exports was due to new exporting firms rather than to larger volumes exported by existing firms. Peri
and Requena-Silvente make two interesting observations: first, “The effect of immigrants in
promoting exports from Spain was the strongest towards those countries that are culturally more
different from Spain and with lowest levels of development.” Second, “Immigration networks make
more a difference for export to those countries that present more severe information and language
barriers for the exporters.”
Hettlage (2009) assumes that immigrants who open a business mobilize transnational networks of
resources and thus have a market advantage. She analysed 30 self-employed migrants from Italy,
Turkey, Sri Lanka and Ex-Yugoslavia who settled in Switzerland. A network analysis showed that
transnational relations play a subordinate role which would preclude a high level of export
participation by immigrant businesses.
Hout and Rosen (1999) came to the same conclusion: Having a father who owned a business
significantly increases the probability of being self-employed, except among immigrants. They
conclude that “the migrant effect is stronger than the parent effect.” With regard to the export
industry, this would mean that migrants become entrepreneurs because of their economic situation
and their business idea. The family at home and connection to the country of origin are of secondary
importance.
A study by the Friedrich-Ebert-Stiftung in Germany (Leicht 2014) came to the conclusion that most
of the companies of migrant entrepreneurs have a customer base that is not dependent on demand
from their compatriots.
In recent years more and more new social and economic networks across borders have been created
and there are improved effective and low cost communication and transportation links (Leicht,
Langhauser 2014). Both these factors can be interpreted as stimuli for exports.
3. Methodology
Secondary data from the Austria Economic Chamber and Statistics Austria are used for this analysis.
These data are used as they are objective, reliable and up to date and are available for to the author as
a staff member of the Economic Chamber Burgenland, although some are publicly available. The
focus is on the number of entrepreneurs, the distribution of firms in different sectors, the nationality
of the entrepreneurs and the number of immigrated and emigrated people in Burgenland. The analysis
was performed in Excel and SSPS. The focus of interest is the relationship between established
migrant businesses and exports in Burgenland.
To test the research question ”Is there an influence of companies founded by migrants on the export
economy of the host country?” 2 hypotheses were formulated:
H1. The export share in the respective target country is higher, if more people with this nationality
live in the export country.
H2. Migrants are mainly self-employed in sectors which are focused on customers and the market in
the host country.
The aim of this study is to investigate the impact of migrants’ companies on the export sector of the
Burgenland economy.
1135
4. Study Results
The proportion of foreign entrepreneurs in Burgenland in 2005 was 3.9 percent, in 2010 it was 24.6
percent and five years later in 2015 foreigners represented 38.3 percent of all commercial
entrepreneurs. In 2005 the migrant entrepreneurs came from 38 countries, from 48 countries in 2010
and from 67 countries five years later.
Compared to 2005, entrepreneurs from the newly-represented countries Afghanistan, Bangladesh,

Chile, Japan, Latvia, Niger, Nigeria, Portugal, Taiwan, Tunisia, USA, Venezuela and Vietnam
founded a company in the year 2010.
In 2015 entrepreneurs came from the countries Armenia, Australia, Belarus, Belgium, Colombia,
from the Dominican Republic, Ecuador, Finland, Georgia, Iran, Iraq, Island, Kosovo, Kyrgyzstan,
Lithuania, Moldova, Nepal, the Philippines, Samoa, Syria and Thailand for the first time.
Entrepreneurs from Afghanistan, Chile, Congo, Lebanon, Niger, Spain, Taiwan and Vietnam that set
up businesses in 2005 or 2010 had disappeared from the market by 2015. The highest increases in
immigrant entrepreneurs since 2005 were of Romanian citizens followed by (in descending order)
people from Slovakia, Croatia, Hungary, Tajikistan, the former Yugoslavia, Slovenia and the Czech
Republic.
H1. The share of exports to the respective target country is higher, if more people with this
nationality live in the exporting country, i.e., in Burgenland.
Looking at the main export destination countries, a different pattern is evident. The most important
business partner is Germany, followed by Hungary, Italy, Switzerland, China, United Kingdom,
Slovakia, Sweden, Poland and France in descending order (Figure 1).
Others
Germany
France Hungary
Poland
Sweden
Slovakia UK
Italy
Italy
China Switzerland
Figure 1: The top 10 export destinations of Burgenland by value in 2015
Source: Statistic Austria 2016
But who are the foreign entrepreneurs in Burgenland? How many migrants of each nation are self-
employed in the federal state? Nations with a great growth of migrant companies in Burgenland from
2005 to 2015 are according to WKO Statistics: Romania (+15,732%), ahead of Slovakia (+3,953%),
Croatia (+2,833%), Hungary (+1,174%).
1136
To rate the employment of migrants, it is necessary to make a comparison of the various nations as
Figure 2 shows. The phenomenon that there are more entrepreneurs than citizens from Romania (self-
employment rate 125%) in Burgenland can be explained by a change in the trade regulation act
(Gewerbeordung) in 2007, affecting the legal conditions for the personal care sector. The official
name of the sector is “people advice and support” (Wirtschaftskammer Wien, 2016) and in this sector
immigrants work in Austria only for some weeks or months. If they are in Austria more than a half
year in total or they come back the following year, they are counted as an entrepreneur, and their
business license remains valid. The proportion of Romanian entrepreneurs is especially high in this
sector. In Burgenland 4% of the local population are entrepreneurs. They have the same self-
employment rate as the citizens of France, Slovenia and Switzerland in Burgenland. The citizens of
Romania, Croatia, Hungary, Slovakia, Bulgaria, Poland, the United Kingdom, the Czech Republic,
Italy and Germany show a higher self-employment rate than local people (Figure 2).
125%
31% 30%
19%
12% 7% 5% 5% 4% 3% 2% 1%
Figure 2: The percentage of entrepreneurs among citizens of foreign origin in Burgenland 2015
Source: Wirtschaftskammer Burgenland 2016
Testing the database (Wirtschaftskammer Burgenland, 2016) shows that all three data sets are non-
normal. Entrepreneurs have a distribution that is furthest from normal. It has the lowest value of the
test statistic, W, as indicated in table 1.
Table 1: Shapiro-Wilk normality test – Exports/Immigrants/Entrepreneurs 2015
W p-value
0.52 <0.001
Exports
Immigrants 0.77 <0.001
0.46 <0.001
Entrepreneurs
0.92 0.13
Norm
Source: Wirtschaftskammer Burgenland, own calculation
1137
Table 2: Pearson product-moment correlation, R with significance levels 2015
Exports Immigrants Entrepreneurs
Exports 1 0.6514** 0.0851
Immigrants 0.6514** 1 0.5988**
Entrepreneurs 0.0851 0.5988** 1
No asterisks, NS; *, p<0.05; **, p<0.01; ***, p<0.001.
Table 2 shows that the number of immigrants is correlated with both, the level of exports to the
source country and to the number of entrepreneurs from that country present in Burgenland. This
correlation gives good results for normal data, but as shown in table 1 the data here have been shown
to be non-normal.
Table 3: Spearman’s rank correlation with significance levels 2015
Exports Immigrants Entrepreneurs
Exports 1 -0.0072 -0.0320
Immigrants -0.0072 1 0.8786***
Entrepreneurs -0.0320 0.8786*** 1
No asterisks, NS; *, p<0.05; **, p<0.01; ***, p<0.001.
The correlation between immigrants and exports to the source country disappears when one uses a
correlation statistic used for non-normal data. The Pearson correlation for this pair of variables is
likely affected by outliers in the data, particularly Germany and Hungary. Using the Spearman
statistic shows that there is however a significant correlation between immigrants and entrepreneurs.
It is difficult to know how important this finding is, because one might expect such a correlation if
the number of entrepreneurs from a country are drawn from a pool of immigrants from that country,
i.e. if the one variable is a subset of the other. A complementary view of the sector data gives specific
insight.
H1. The export share in the respective target country is higher, if more people with this nationality
live in the export country. The first hypothesis must be discarded.
Table 4 shows which sectors of the Economic Chamber of Burgenland have more than 10 percent of
entrepreneurs from a nationality other than Austrian. Sectors that can be considered international are
highlighted in gray.
To answer hypothesis 2 – Migrants are mainly self-employed in sectors which are focused on
customers and the market in the host country, it is necessary to analyse in which sectors the foreign
entrepreneurs are active.
The percentage of foreign entrepreneurs is the highest in the sector of people advice and support. The
legal framework for this branch of commerce was only created in 2007. Almost half of entrepreneurs
in the chemical industry and cleaning sectors are migrants. Only the businesses freight transport
industry 30.0%), print (21.2%), foreign trade (18.8%), mail order, internet trade and general
1138
distribution (14.5%), car trade (14.2%) and trade in fashion and leisure time products (10.2%) are
related to exports.
Migrants are mainly self-employed in sectors which are focused on customers and the market in the
host country. Hypothesis 2 is confirmed. This finding is similar to that of earlier work (Hettlage
2009).
Table 4: Sectors with percentage of foreign entrepreneurs in % 2015
Section Percentage
People advice and support 92.5%
Chemical industry, monuments, facades and building cleaners 45.9%
Freight transport industry 30.0%
Construction ancillary trade 29.2%
Market trade 26.7%
Advertising and market communication 25.0%
Disposal and resource management 25.0%
Commercial service provider 22.1%
Print 21.2%
Telecommunication 20.0%
Foreign trade 18.8%
Petrol stations, garages and service stations 18.0%
Pedicurists, cosmeticians and masseurs 17.4%
Cinema, culture and amusement business 17.1%
Painters and decorators 17.0%
Commercial agent 14.7%
Mail order, internet trade and general distribution 14.5%
Car trade 14.2%
Jewellery, watch, art, antiques and stamp trade 13.4%
Gastronomy 12.7%
Building materials, iron, hardware and wood trade 12.2%
Private service providers 12.1%
Leisure and sports institutions 11.1%
Trade in fashion and leisure time products 10.2%
Source: Wirtschaftskammer Burgenland 2016
Comparing the Export Orientation of native and foreign entrepreneurs in Burgenland shows, between
4 and 5 percent of the businesses are engaged in exports – in both groups.
The answer oft he research question ”Is there an influence of companies founded by migrants on the
export economy of the host country?” is: Migration companies deal mainly with sectors that are less
relevant for export.
5. Discussion
This study is a status quo of 2015 and a broad view of changes over the past decade.
Research limitations:
1139
An important influence on assessments and forecasting is the political situation and the level of
economic development in the countries of origin of the migrants. On the one hand there are peaceful
home countries, for example as in Romania and Hungary, where the majority of migrant
entrepreneurs in Burgenland come from, and on the other hands there are countries with armed
conflicts like Syria and Afghanistan. In the observation period 1946-2006, empirical analysis shows
that armed conflicts last 7 years on average. It takes 22 years for a nation to overcome the
consequences of a war (Berger et al., 2016). Another aspect is the legal and economic conditions in
the host country. Is it possible for migrants to integrate into the economy of a country? Are there
facilities for access to professions? Are there businesses where entrepreneurs with a migrant
background can and will succeed? An example is the increased influx of Romanian nursing assistants
after legalization of their profession by an amendment of the Industrial Code in 2007.
Migrants often start their firms alone or as “networks of trust” with their family. In the next
generation some of them will be employer establishments (Wahlbeck, 2007), therefore long-term
studies are necessary to make scientific statements with forecasting ability concerning start-up
intensity and export duties.
There is another argument for continuing observations over a longer period: foreign operations
fluctuate over the years. Another aspect should be considered: The OECD (2010) considers fictitious
self-employment. People are classified as self-employed, but they are often only hired occasionally,
part-time, or they act as seasonal entrepreneurs.
It is interesting to look at the population of working age, the export quota and the self-employment
rate in the country of origin of the various migrants of interest.
A comparison of the percentage of population at working age, the self-employment rate and the
export rate of the 10 nations whose immigrants are numerically most important in Austria shows that
an approximately similar level can be seen between the first two values, population and self-
employment rate. In contrast, the export ratio varies greatly (Figure 3). The export orientation is
obviously a factor which is influenced by the conditions in the host country.
90
80
70
60 Population 15 to
50 60 years, % of
total population
40
30 Export ratio in %
of GDP
20
10
Self-employment
0 rate %
Figure3: the percentage of the population of working age, export activity and self-employment
rate in the countries with the highest immigrant representation in Austria, 2015
Source: Wirtschaftskammer Österreich 2016
1140
6. Conclusion
The country of origin of migrants has become more heterogeneous in recent years. The largest
increases are of migrants of Eastern European countries, particularly from the new EU member states.
This should apply to the German-speaking countries in general, as a study by the Federal Ministry of
Economics comes to the same conclusion in Germany (Jung et al., 2011). The study shows that the
service sector is increasingly important for migrant businesses. In comparison, the export sector is
less affected by migration.
An analysis of the database of the Economic Chamber of Burgenland shows that over the last decade
there is a correlation between exports and migrants and between migrants and starting a business. But
migrants’ companies mainly focus on the market and its niches in the host country and are less
focused on using contacts in their country of origin to start economically important changes in the
export sector. Between 4 and 5 percent of migrant start-ups are engaged in foreign trade as the
entrepreneurs of the observed region. Migrants orientate their attitude and business activity according
to the conditions in the host country.
The factors influencing internationalization are numerous. According to Loisch (2006) these include
environmental characteristics, organizational conditions, attitudes and personality traits of the
management, business objectives and corporate strategies. It would also be interesting to learn more
about the trade barriers that migrant companies face in their activities. Results from such studies
would offer approaches for management consulting in the source countries (BMZ, 2013).
Research on the link between export orientation and export performance shows the strategic
importance of investing in entrepreneurial orientation (Martins Marques de Lima Rua et al., 2016).
The Austrian Federal Economic Chamber with its partners offers mentoring for migrant
entrepreneurs. In the present author’s opinion, this project would be a possible object of study
concerning the impetus of the export sector, not only to collect data, but to develop a vision.
Requirements for future studies:

Further studies will be necessary to extend the results to other regions and to investigate other
aspects, like the sizes of exporting companies, the duration of business activities, the flow of
commodities and the qualification of the operators, to get a more comprehensive picture of the
migrants on the economy of their host country, for example, in Austria or other Objective 1 regions
of the European Union.
The experts of the Max Planck Institute for Demographic Research recommend a regular global
survey of migration (World Migration Survey), where data of the countries of origin, the countries of
destination and transit countries are collected (Willekens et al., 2016). The impact of migration on the
flow of goods and other economic effects would be an important related question.
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1143
Ethical Leadership in the Context of CSR

Zuzana Kirchmayer, Faculty of Management, Comenius University in Bratislava, Slovakia,
zuzana.kirchmayer@fm.uniba.sk
Anna Remišová, Faculty of Management, Comenius University in Bratislava, Slovakia,
anna.remisova@fm.uniba.sk
Anna Lašáková, Faculty of Management, Comenius University in Bratislava, Slovakia,
anna.lasakova@fm.uniba.sk
Abstract
Corporate social responsibility (CSR) is a complex structured system of relations between an

organization and different groups in its internal and external environment that co-exist in the same social
system. In Europe, CSR is studied by scholars in context of business ethics and stakeholder theory.
However, in reality we can find organizations declaring CSR based on a very narrow scope of
philanthropic activities they are engaged in. The article derives from the assumption that if business
ethics is incorporated in CSR, it might have positive impact on the quality of leadership and managerial
decision-making process. In this article, the authors discuss CSR in Slovak business environment and its
link to ethical leadership. Using the Ethical Leadership Scale (ELS) (Brown et al. 2005), perceived
ethical leadership was measured on the sample of 790 Slovak managers, and the differences related to
engagement in CSR were examined. The results indicate that engagement in CSR has a positive impact
on the perceived ethical leadership
Keywords: ethical leadership, ethical decision-making, Ethical Leadership Scale (ELS), corporate
social responsibility (CSR), Slovakia.
Introduction
There are many reasons why corporations engage in corporate social responsibility (CSR). Running
business in a socially responsible way minimizes the threat of various devastating scandals. CSR is
considered to be an effective tool for corporations’ long-term development, responsible organizations
are supposed to be economically more effective in the long run, more attractive to investors, customers
and employees. CSR as a tool is often used for building corporate identity, fair reputation, trust, and
brand awareness (Búciová 2010). There are different notions of what being “socially responsible”
means. In Europe, CSR is studied by scholars in the context of business ethics and stakeholder theory.
However, in reality we can find organizations declaring CSR based on a narrow scope of philanthropic
activates they are engaged in.
In this article, we research CSR in Slovak business environment and its link to ethical leadership. As
Slovakia is geographically part of Europe, where CSR should have strong ethical basis, we wanted to
know whether CSR in Slovak organizations has a positive impact on the quality of ethical leadership.
1 The Nature of Corporate Social Responsibility
Corporate social responsibility is a complex structured system of relations between an organization and
different groups in its internal and external environment that co-exist in the same social system.
Corporate social responsibility debate occurred in mid-twentieth century, when American businessman,
Frank W. Abrams (1951) expressed the idea that business organizations must behave responsibly and
their conduct should be under control of society. Since then, a broad debate has developed about the
nature and extent of responsibilities business organizations should have. The debate, that started first in
the USA, and then spread to Europe and other parts of the world, has resulted in numerous theories,
1144
definitions and conceptual frameworks for understanding CSR. Though many authors accepted Carroll´s
early definition of CSR, according to which “the social responsibility of business encompasses the
economic, legal, ethical, and discretionary expectations that society has of organisations at a given point
of time" (Carroll 1979, p. 500), its understanding was strongly influenced by different subject fields of
scholars discussing the issues, as well as, different cultural, historical, political, legal and social
conditions of their countries.
The main differences were in understanding: (a) who the real subject of responsibility is, (b) the
importance and extent of different types of responsibility organizations have, (c) the obligation to reflect
expectations of different stakeholders, (d) the time horizon in which CSR should be perceived, and (e)
the reasons for engaging in CSR.
In their study, Garriga and Melé (2004) concluded, that CSR theories could be divided into four groups:
instrumental theories (CSR is seen as a means of wealth creation, i.e. the reason for adopting CSR is to
maximize of shareholder value through competitive advantage), political theories (based on social
contract theory saying that those, who do not use their social power responsibly and effectively, will
lose it; in this context, CSR is seen in terms of social and political obligations that result from the social
power organizations have), integrative theories (these theories explore the alignment of business and
society and how business should respond to society´s needs, standards and pressures), and ethical
theories (business ethics is seen as an integral part of CSR; ethical theories deal with the nature of
ethical values, perspectives, decisions, and responsibilities that must be taken into account in the
business – society interaction). Ethical theories include some of the prevalent concepts in today´s
understanding of CSR - sustainable development, stakeholder normative theory, human rights, or
common good approach.
As mentioned above, CSR debate originated in the USA. In Europe, the concept of CSR has never been
quite as influential (Crane & Matten 2004, p. 46). However, the opposite can be said about business
ethics. Raising the question of corporate ethical responsibilities in 1980s, caused that European scholars
got interested in the issues and joined the discussion on core principles of CSR (Remišová & Búciová
2011, p. 275).
It is important to point out that there is a noticeable difference in understanding the origin and
relationship between CSR and business ethics in the USA and Europe. American authors usually see
CSR as broader concept, in which business ethics is one of the complimentary topics that started to arise
in the 1980s, and might or might not be integrated in CSR strategies. For European scholars, who have
been much more intensely engaged in business ethics issues, business ethics is a broader concept. CSR
is viewed as one of the issues that arise from the ethical-economic interaction on the corporate level
(mid-level) of business ethics and therefore there is a strong ethical component in understanding CSR.
CSR in Europe is seen as economic, legal and ethical responsibility towards all stakeholders as the re-
evaluation of the role of corporations in the society is more evident (Remišová & Búciová 2011, p.
275). It resulted from interdisciplinary critical reflection of the role of economic entities in a global
society. Numerous studies analyzing the effects of economic activities of business organizations on
society and environment showed that corporations interfere, in different ways, with the legitimate
interests of various social groups, including the society in general. Naturally, the focus in understanding
CSR has shifted to considering short-, medium-, and long-term consequences of the corporate activities
in respect to society and environment (Remišová 2015). The philanthropic responsibility is seen as a
complementary issue. To be socially responsible a corporation does not have to “pay a part of its profit
back to the society” but to make certain that the profit is being achieved in a socially responsible way
(Remišová & Búciová 2011, p. 275) and that no stakeholder is harmed during that process.
From the perspective of business ethics, the CSR concept is interlinked with many important
organizational outcomes. For instance, it has the potential to serve as a basic building block for an
ethical organization culture. Still, the prevalent character of organizational culture derives primarily
from the quality of leadership and managerial decision-making. Hence, high level of ethical leadership
1145
and ethical decision-making is inevitable to incorporate ethics in CSR practices and make it part of
everyday business reality.
In this article, we understand ethical leadership as a process that “is realized by an individual, who bases
both his/her personal and professional life on intentional and long-term respect for universal ethical
principles” (Lašáková et al. 2015, p. 351). Ethical leadership integrates two components: individual and
professional, i.e. a personality of a manager with ethical integrity, and manager´s professional
behaviour. It can be understood as personal integrity applied to managerial activity (Lašáková et al.
2015).
Ethical leadership is closely related to ethical decision-making (EDM), that can be defined as “a process
constituted by all the stages an individual has to go through from the moment a moral problem arises
until he or she engages in a given behavior” (Morales-Sánchez & Cabello-Medina 2013, p. 717).
Treviño et al. refer to EDM as “behavioral ethics” that is “being primarily concerned with explaining
individual behaviour that occurs in the context of larger social prescriptions” (2006, p. 952). It is
important to understand that not all decisions taken in organizations are rational and deliberate; some
might be more automatic, affected by different types of factors. Apart from individual, societal and
situational factors, ethical decision-making is strongly influenced by organizational factors, such as
organizational culture, values, leadership style, compensation system, work context, and organizational
policies and practices (including CSR practices).
2 Research Methodology
The study presented in this paper is a part of a comprehensive research on ethical leadership and ethical
decision-making in Slovakia (see Remišová et al. 2015). In this article, we focused on CSR in the
Slovak business environment and its link to ethical leadership.
Our sample consisted of 790 Slovak managers working at different levels of management in
organizations operating in Slovakia. The data collection was conducted in 2014 through a questionnaire
in printed and electronic form. The respondents assessed their current leaders using the Ethical
Leadership Scale (ELS) (Brown et al. 2005, p. 125) that uses ten items describing behavioural patterns
of ethical leadership and personality characteristics of an ethical leader to assesses overall ethical
leadership level, mainly: Listens to what employees have to say; Disciplines employees who violate
ethical standards; Conducts his/her personal life in an ethical manner; Has the best interests of
employees in mind; Makes fair and balanced decisions; Can be trusted; Discusses business ethics or
values with employees; Sets an example of how to do things the right way in terms of ethics; Defines
success not just by results but also the way that they are obtained; When making decisions, asks “what is
the right thing to do?”. The respondents were asked to decide to which extent each of the ten ELS items
described the behaviour of their current manager on a seven-point scale where 1 meant “strongly
disagree” and 7 meant “strongly agree”. The final ethical leadership score represents the mean value of
respondents’ answers on the scale. In our research, the item “Conducts his/her personal life in an ethical
manner” was put at the end of the questionnaire. This resulted from the pre-testing of our questionnaire
as respondents stated their hesitation about the third item that would have caused they would not be
willing to continue filling in the questionnaire.
Subsequently, the respondents were asked to state, whether the organization they are currently working
for is engaged in CSR. Possible answers were: “yes” (we will call these organisations “CSR-active”),
“no” (we will call these organisations “CSR-passive”), and “I don´t know”. The data had been
transcribed into an Excel file, which was subsequently scored in SPSS program for further statistical
analysis. In assessing the data we used frequency tables, and t-test for equality of means.
Our research questions were:
1. Is there any statistically significant difference in the overall level of ethical leadership
based on whether organizations are engaged in CSR or not?
1146
2. Is there any statistically significant difference between CSR-active and CSR-passive

organizations in any of the ten ELS items?
3 Research Results and Discussion
The results depicted in Table 1 show that Slovak managers are not fully aware of CSR activities of their
companies. 36,8% of our respondents stated their organization was engaged in CSR; 32,4% knew it was
not; and 30,8% did not know at all. There is quite high percentage of those managers, who were not able
to decide whether their organization is or is not engaged in CSR. The results indicate that a high number
of Slovak managers either do not know about CSR, or are not able to assess whether the activities of
their company could be understood as “engaging in CSR”. As all our respondents were holding a
managerial position, the results indicate there is a communication problem related to CSR in the Slovak
business environment. Managers might be confused about the CSR concept or not aware of it at all.
Table 1: Overall frequency results for CSR
Frequency Valid Percent

Engagement in CSR Yes (CSR-active) 291 36,8
I don´t know 243 30,8
No (CSR-
256 32,4
passive)
Source: Research
In comparison, the results of Remišová et al. (2015) on the existence of codes of ethics in the Slovak
business environment (working with the same sample of respondents) were completely different. There
were only 7,8% of respondents who did not know whether their organization had one or not. 65,9%
agreed there is a formal code of ethics in their organization, and 26,3% stated they did not have one
(Remišová et al. 2015). This finding is in accordance with results of a research done by Kachaňáková et
al. (2013, p. 22) in Slovak business organizations in the years 2010, 2011, and 2012. In all three years,
the number of formal codes of ethics was much higher than the number of documents referring to CSR.
All these results suggest business ethics is embedded in the Slovak business environment more that
CSR, as Slovak organizations are more likely to have formal codes of ethics than to be engaged in CSR.
The next step in our analysis was to find out if there exists any significant difference in the level of
ethical leadership based on engagement in CSR. We conducted comparative analysis that differentiated
the results on ELS items according to commitment to be socially responsible. In this analysis, we
narrowed our sample to 547 respondents who knew, whether their organization is engaged in CSR or
not, i.e. those answering “yes” (CSR-active) or “no” (CSR-passive). Respondents, who chose “I don´t
know” as an answer, were left out.
In all observed items, the mean value of responses was higher in organizations engaged in CSR than in
organizations that are not. The t-test of differences between the mean scores revealed there are
statistically significant differences in eight out of ten ELS items, as well as the overall level of ethical
leadership (Table 2). The quality of ethical leadership is significantly higher in CSR-active
organizations (p < 0,01). Managers in CSR-active organizations score higher in disciplining employees
who violate ethical standards (item 2), having the best interests of employees in mind (item 3), setting
an example of how to do things the right way in terms of ethics (item 7), and asking “what is the right
thing to do?” when making a decision (item 9). Statistical differences (p < 0,05) were also found in
items 4,5,6, and 8. Managers from organizations engaged in CSR are perceived more trustworthy (item
5). They also scored higher in making fair and balanced decisions (item 4), discussing business ethics or
values with employees (item 6), and defining success not just by results but also the way that they are
obtained (item 8).
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Table 2: T test results for significant differences in the level of ethical leadership in
Regard to CSR
Sig.
Ethical Leadership Scale Items CSR Mean F t Df (2-
tailed)
Active 5,78 10,492 1,879 528 0,061
1. Listens to what employees have to say
Passive 5,53
2. Disciplines employees who violate ethical Active 4,85 0,456 3,346 524 0,001**
standards Passive 4,30
3. Has the best interests of employees in Active 5,50 17,376 2,945 528 0,003**
mind Passive 5,12
Active 5,51 9,466 2,231 527 0,026*
4. Makes fair and balanced decisions
Passive 5,21
Active 5,81 21,758 1,993 526 0,047*
5. Can be trusted
Passive 5,52
6. Discusses business ethics or values with Active 5,00 4,502 1,976 527 0,049*
employees Passive 4,67
7. Sets an example of how to do things the Active 5,30 7,693 2,635 525 0,009**
right way in terms of ethics Passive 4,90
8. Defines success not just by results but Active 5,35 8,017 2,448 528 0,015*
also the way that they are obtained Passive 4,99
9. When making decisions, asks “what is the Active 4,95 16,885 3,129 527 0,002**
right thing to do?” Passive 4,47
10. Conducts his/her personal life in an Active 5,36 2,840 0,793 520 0,428
ethical manner Passive 5,25
Active 5,34 7,424 2,955 528 0,003**
Overall level of ethical leadership
Passive 5,00
Source: Reserach. Notes: Mean values of responses on the scale one to seven, where one means “strongly
disagree” and seven means “strongly agree”; * t-test is significant at the 0.05 level (2-tailed), ** t-test is
significant at the 0.01 level (2-tailed).
It seems that the quality of ethical leadership is significantly higher in organisations engaged in CSR
activities. Managers working for CSR-active organisations perceive their immediate superiors as more
trustworthy, considerate, and fair. Moreover, they also perceive their superiors significantly more
successful in implementing and promoting ethical behaviour, being an ethical role model, and clearly
denouncing unethical behaviour within the organisation.
We can also look separately at those two ELS items that explicitly deal with ethical decision-making:
Makes fair and balanced decisions (item 4) and When making decisions, asks “what is the right thing to
do?” (item 9). Managers from CSR-active organizations are believed to be more ethical decision-
makers. They are believed to make more fair and balanced decisions, as well as, have higher level of
ethical reasoning when making a decision than managers from CSR-passive organisations.
It is interesting to compare our results to the overall level of ethical leadership in Slovakia, which
reaches a value of 5,07 (Remišová et al., 2015). Apparently the level of ethical leadership in CSR-active
organizations is considerably higher (5,34) and in CSR-passive organizations is moderately lower (5,00)
than the overall level of ethical leadership in Slovakia. The overall ethical leadership score presented by
Remišová et al. (2015) was calculated of the mean values of answers of all respondents (regardless their
assessment of CSR). As shown in Table 1, there is a substantial group (32,4%) of respondents who
were confused about their organization´s engagement in CSR. Proceeding from the overall ethical
leadership score in Slovakia (5,07) it is obvious that ethical leadership score in the group of respondents
with either insufficient or confusing communication regarding CSR (i.e. those answering “I don´t
know”), would be considerably lower than in the remaining groups.
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Our findings indicate there is an ethical basis in understanding CSR in Slovakia, as engagement in CSR
has a positive impact on the perceived ethical leadership and ethical decision-making in organizations.
Conclusion
The results of our study suggest CSR is not thoroughly embedded in the Slovak business environment.
The results indicate that a high percentage of Slovak managers either do not know about CSR, or are not
able to assess whether the activities of their company could be understood as “engaging in CSR”. This is
an important finding as it reveals the lack of clear communication about CSR issues in many
organisations. The mismatch between stated and real heading of an organisation in terms of social
responsibility might be the reason why managers of such organisations perceive their leaders less ethical
compared to leaders working for organisations with clear communication about CSR.
Our results also indicate that compared to CSR-passive organisations, managers working for
organizations active in CSR perceive their superiors as more ethical, trustworthy, considerate, and more
ethical and fair in the decision-making process. They are viewed more effective in the process of
implementing ethics in everyday business situations as they score higher in willingness to discuss ethical
issues, setting an ethical example, sanctioning violations of ethical rules, and emphasising the process
(not only results) when defining success.
It seems that engagement in CSR activities in the Slovak business environment goes hand in hand with
more ethical leadership. However, it does not explicitly mean, that engagement in CSR activities
increases the level of ethical leadership. It might also mean that organisations led by more ethical
leaders are more interested in CSR issues than those, where the level of ethical leadership is lower.
Our study has a certain limitations, too. First, we investigated perceptions of unethical leadership, not
the actual unethical behaviour per se. Second, our sample consisted entirely of respondents working on
managerial positions. The perception of ethical leadership might differ if the assessment was made by
employees working on non-managerial positions. However, we were more interested in the differences
between CSR-active and CSR-passive organisations, than in the exact levels of ethical leadership. We
supposed managers should be informed about the CSR activities of their organisation and therefore
could better assess whether their organisation is or is not engaged in CSR activities. And last, we only
distinguished between being engaged in CSR activities regardless of their character, and being not
engaged in such activities at all. A more in-depth study considering the extent, depth and character of
CSR activities would be appropriate to reveal more links between ethical leadership and CSR.
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Mediating Effect of Psychological Capital between Transformational

Leadership and Innovative Work Behavior:
An investigation within Omani context
Rabia Imran
Department of Management and Marketing, CCBA, Dhofar University, Salalah Oman,

Email: rabiaimran@yahoo.com; rimran@du.edu.om
Khayar Hassan Salim Al-Ansi
Department of Management and Marketing, CCBA, Dhofar University, Salalah Oman, Email:
k_alansi@du.edu.om
Afsheen Fatima
UIMS, PMAS-AAUR & Management Science Department SZABIST Islamabad, Pakistan,

Email: Afsheen.uaar@gmail.com
Abstract
The research is aimed at examining the mediating role played by psychological capital in the relationship
between five dimensions of transformational leadership (i.e. Attributive Charisma, Idealized influence,
Inspirational Motivation, Intellectual stimulation and Individualized consideration) and innovative work
behavior. A purposive sample of 115 respondents from the service sector of Oman was chosen for the
research. The instruments developed by Bass and Avolio (1995), Janssen (2000) by Luthans, Avolio,
Avey, and Norman (2007) were used to measure Transformational Leadership, Innovative work Behavior
and Psychological Capital respectively. All the instruments were adapted according to the Omani culture.
The hypothesized mediated role of psychological capital was fully supported in the relationship between
only three dimensions of transformational leadership (i.e. Idealized influence, Intellectual stimulation and
Individualized consideration) and innovative work behavior. Limitations and direction of future research
were also discussed.
Keywords: Transformational Leadership, Innovative Work Behavior, Psychological Capital
Introduction
The competitive business environment prevailing these days compels the organizations in service sector
to update their services in order to meet fast changing demands of customers. Innovation in products and
services has become an essential element for gaining competitive advantage. Regardless of the type of
industry innovation has become vital for the sustainable survival of the organizations (Hon, 2012). In this
regards, much significance is given to the innovative behavior of the employees as they are the one
initiating it (West, Hirst, Richter, &Shipton, 2004). As the global competition is getting intense,
innovative behavior of employees become an essential factor which helps to generate and maintain
sustainable competitive advantage (Jaiswal& Srivastava, 2015). Innovative work behavior is composed of
a range of behaviors at work including initiation, adaptation and implementation of new ideas (De Jong &
Den Hartog, 2010).
Organizations in this regards are making maximum utilization of the available contextual factors.
Leadership being one of the most important contextual factor has been studied and analyzed in numerous
1151
ways (Chen, 2002;Qu, Janssen, & Shi, 2015; Reuvers, Van Engen, Vinkenburg, & Wilson Evered,
2008). Many researchers have studied it in different ways depending upon their preferences and research
requirements. A few researchers have tried to justify and incorporate various existing approaches of
leadership to formulate a new form of leadership known as transformational leadership (Banerji&
Krishnan, 2000; Yukl, 1999). Transformational leaders are identified as leaders who look for potential
motives in the followers, make them more engaged in order to accomplish the task (Cronin, Arthur,
Hardy, & Callow, 2015). Such leaders communicate high expectations to the followers and encourage
them to carry out their work in optimistic, positive and eager environment (Hamstra, Van Yperen, Wisse,
&Sassenberg, 2015).
Transformational leader is found to play a significant role in enhancing innovative ability of the
employees (Imran, Fatima, Zaheer, Yousaf, &Batool, 2012; Qu, Janssen, & Shi, 2015). In order to
exhibit innovative work behavior employees need to have a high sense of achievement that is facilitated
by transformational leaders. Transformational leaders are risk takers and try innovative ways while
fulfilling their tasks. Such leaders bring change in existing traditions and procedures so that their
followers are able to exploit available opportunities effectively (Pearce & Ensley, 2004). However, the
specific relationship between transformational leadership and innovative work behavior needs to be
explored in detail. The available literature lacks the logical attention of the impact that transformational
leadership has on innovative work behavior along with the need to understand the psychological
processes to translate that help translate leader’s behavior into follower’s action (Afsar, Badir, & Bin
Saeed, 2014).
The relationship between transformational leadership and innovative work behavior does not exist in
isolation. There are numerous factors are present between this relationship and psychological capital is
identified as an important one (Walumbwa, Luthans, Avey, &Oke, 2011). Psychological capital refers
individual’s optimistic psychological state that is categorized by the psychologically owned resources
such as hopefulness, strength, positivity and self efficacy (Cascio&Luthans, 2014). While exploring the
relationship between leadership and psychological capital transformational leaders are believed to have a
positive effect on the employee’s psychological capital (McMurray, Pirola-Merlo, Sarros, & Islam, 2010).
Psychological capital also helps employees to demonstrate their innovative work behavior (Mishra,
Bhatnagar, & Gupta, 2013; Sweetman et al., 2010). There is lack of empirical evidence exploring the
extent to which psychological capital facilitated transformational leaders to boost innovative work
behavior of the employees. The current research is among the pioneer researches that explore the
mediating role played by psychological capital in the association among transformational leadership and
innovative work behavior.
Omani context
The past literature reveals that service sector is one of the most important factors contributing to the GDP
of any country. It contributes up to 70% to GDP of any developing country however, for the developing
countries also largely depend upon the service sector (Ostrom et al., 2010; Thakur & Hale, 2013). Oman
is a developing country positioned in the South East of the Arabian Peninsula. Its population is around
five million whose GDP largely depends upon oil products however in the current turbulent economic
conditions there is an effort to build the service sector over the past few years. Now the situation is so that
the service sector is the largest sector (39.7% share) after oil that is contributing to the GDP ( Kutty,
2014). The success in service sector largely depends upon the innovative service ideas and these ideas are
important for value creation and increasing the market shares (Chapman et al., 2003; Moller et al., 2008;
Ostrom et al., 2010).
A number of researchers has tried to explore the relationship between transformational leadership and
innovative work behavior but majority of them remained focused in western culture (Pearce and Ensley,
2004; Qu, Janssen, & Shi, 2015; Whittington et al., 2004 ). There is still dearth of research exploring
1152
this relationship in the context of Middle Eastern countries especially Oman (AlKindy, Shah, & Jusoh,
2016). Oman is an emerging economy and after the oil crisis it has scarcity of resources. There is a
challenge for Oman to cope to the changing demands of the business world thus, it becomes important to
identify and develop leaders that can exploit the existing resources and lead them to innovative
performance. Keeping in mind the above argument the current research is aimed at finding the impact of
transformational leadership on innovative work behavior. More over the research also explores the
mediating role played by transformational leadership on innovative work behavior in service sector of
sultanate of Oman.
Literature Review
Innovation work behavior
Current instable and ambiguous economic environment emphasizes employee innovativeness as an

important factor for organizational success. Innovation has been considered by organizations as an aspect
that is necessary for survival in competitive and dynamic business environment (Kheng, Y.Mahmood,
&Beris, 2013). In this regards employees are considered as an important source as organizations are
dependent on them for the innovations. As the global competition is getting intense, innovative behavior
of employees became an essential factor which helps to generate and maintain sustainable competitive
advantage (Jaiswal& Srivastava, 2015). The idea of employee innovative behavior has gained the
attention of researchers as well and there is an enthusiastic effort to investigate this concept (Montani,
Odoardi, &Battistelli, 2014).
Innovation work behavior is described as a broad range of innovative behaviors at work which include
both the initiation, and implementation of ideas (De Jong & Den Hartog, 2010). Innovations are an
outcome of social interaction and innovative actions that employees are willingly engaging in to make
their job better (Mulder, 2015). Innovative behaviors are displayed by the employees when they come up
with new ideas that are planned, created, introduced and applied within a work role, group, or
organization in order to enhance performance (Agarwal, Datta, Blake-Beard, & Bhargava, 2012). In
addition, it can be defined as a set of complex actions that are positioned for creating, promoting, and
comprehending innovative ideas at work (Madrid et. al., 2014).
Innovation work behavior is affected by certain factors at such as organizational commitment,

psychological capital, organizational Innovation Atmosphere, leadership, social capital and work
characteristics. (Li & Zheng, 2014). Justice in the organization and job autonomy also affecr innovative
work behavior of any employee (Ramamoorthy, Flood, Slattery, &Sardessai, 2005). Mulder (2015) stated
that leadership is a key factor that can play essential role in creating innovation.
Transformational leadership
Transformational leaders have the ability to influence followers and stimulate their creativity by
enhancing their interactive identification with the organization and leadership (Qu, Janssen, & Shi, 2015;
Reuvers, Van Engen, Vinkenburg, & Wilson Evered, 2008). In addition, it been identified that
compared with others leadership styles, transformational leadership can be helpful to achieve
organizational goals (Imran, Fatima, Zaheer, Yousaf, &Batool, 2012). Transformational leadership
theories are considered aspopular and most widely used approach of leadership (Paulsen, Callan, Ayoko,
& Saunders, 2013).
The concept of transformational leadership in a number of researches has been used as a uni-dimensional
measure (Moynihan, Pandey, & Wright, (2012). However, it is typically theorized as a multidimensional
variable having four dimensions of leader behavior: individualized consideration, idealized influence,
1153
intellectual stimulation, and inspirational motivation (Ahmad, Abbas, Latif, & Rasheed, 2014; Afshari,
Bakar, Luan, &Siraj, 2012; Grant, 2012).
Transformational leadership is known to have a strong impact on a number of outcomes at individual as

well as organizational level. Transformational leadership has found to be a strong predictor of
performance within organization (García-Morales, Jiménez-Barrionuevo, & Gutiérrez-Gutiérrez, 2012;
Grant, 2012). It has also found to have a strong impact on employee functioning mechanisms (Fernet,
Trépanier, Austin, Gagné, & Forest, 2015) and employee motivation (Ahmad, Abbas, Latif, & Rasheed,
2014). Employees are witnessed to exhibit more citizenship behavior within the organization if
perceptions of transformational leadership are there (Carter, Mossholder, Feild, &Armenakis, 2014).
Moreover, Transformational leaders enhance the creative process within the teams and organization itself
(To, Herman, &Ashkanasy, 2015). Transformational leadership is considered to be an important factor in
forcing employees to think out of the box. Researches exploring the impact of transformational leadership
on innovative work behavior of the employees found a significantly strong impact (Imran &Anis-ul-
Haque, 2011; Imran, Zaheer, Noreen, 2011; Paulsen, Callan, Ayoko, & Saunders, 2013).
Transformational leader play an important role in enhancing innovative ability of the employees. (Imran,
Fatima, Zaheer, Yousaf, &Batool, 2012; Qu, Janssen, & Shi, 2015). By creating high sense of
achievement transformational leaders are able to develop problem solving skills thus achieving
performance beyond expectation (Pearce & Ensley, 2004; Sosik, 1997).
Psychological capital
Psychological capital indicates to optimistic psychological state of an individual. It is categorized by the

psychologically owned resources such as hopefulness, strength, positivity and self efficacy
(Cascio&Luthans, 2014; Luthans, Youssef, &Avolio, 2007). Psychological capital is found to effect a
range of employee work attitudes (Cascio&Luthans 2014; Youssef &Luthans, 2012). It isfound to focus
on individual’s strengths rather than weaknesses and is very important to boost the employees
satisfaction, performance (Paek, Schuckert, Kim, & Lee, 2015), organizational effectiveness (Hwang &
Lee, 2015) and organizational commitment (Daspit, Mims, & Zavattaro, 2015).
Many researches focusing on the relationship between leadership and psychological capital support the
belief that transformational leaders have a positive effect on the employee’s psychological capital. The
reason found behind this effect is that such readers help increase the self-efficacy among employees, and
are able to connect work values of the organization to follower’s values (McMurray, Pirola-Merlo,
Sarros, & Islam, 2010).Transformational leaders are keen to increase the psychological capital within the
organization by generating innovativeness among employees that contribute positively towards achieving
organizational performance. In addition, such leaders help employees to think critically, be able to take
risk, work independently and remain committed to their job objectives (Şahin, Çubuk, &Uslu, 2014;
Walumbwa, Peterson, Avolio, &Hartnell, 2010).If there is psychological capital, then there would be
intentional efforts to find innovative ways for achieving work goals. Individuals having psychological
capital are able to cope with problems arising while implementing innovative ideas (Avey, Wernsing,
&Luthans, 2008; Luthans et al., 2007).
Psychological capital helps employees to demonstrate their innovative work behavior (Sweetman et al.,
2010; Zhou & George, 2003). It is found directly related to the innovative work behavior of the
employees (Mishra, Bhatnagar, & Gupta, 2013). However, the literature stated that employee’s are ready
psychologically to contribute vigorously in innovation and take risk of failures associated with innovation
as well. They are extremely connected to their own psychological characteristics therefore, employees
who have more psychological capital would result in enhanced innovative behavior (Li, & Zheng, 2014).
Moreover; it has been confirmed that the psychological capital and its dimensions have a significant
effect on improving innovative behavior at individual as well as organizational level (Ziyae, Mobaraki,
1154
&Saeediyoun, 2015).
The role played by psychological capital is not limited to being a predictor or outcome. It has also been
found as a mediator in numerous relationships. It was found to mediate the relationship between
leadership and the desired group outcomes (Walumbwa, Luthans, Avey, & Oke, 2011).Psychological
capital was also recognized as a mediator in the relationship between employees’ performance and
supportive organizational climate (Wang, Chang, & Wang, 2012). This it is hypothesized that;
H1: Psychological capital mediates the relationship between Attributive Charisma and innovative work
behavior.
H2: Psychological capital mediates the relationship between Individualized consideration and innovative
work behavior.
H3: Psychological capital mediates the relationship between Idealized Influence and innovative work
behavior.
H4: Psychological capital mediates the relationship between Intellectual stimulation and innovative work
behavior.
H5: Psychological capital mediates the relationship between Inspirational motivation and innovative
work behavior.
Methodology
Sample and Data Collection
The population chosen for the research was of employees working in the service sector of Oman. In order
to test the study framework a questionnaire was designed. Items of the questionnaire were adapted using
items from existing scales. Then it was validated before data collection. A few modifications were made
to match the items within the Omani context.
Data collection process was started by distributing 300 questionnaires using purposive sampling. The
respondents were contacted in their work place. Their participation was on voluntary basis. They were
explained about the nature of the variables and purpose of the research. They were also ensured about the
confidentiality of the data. Out of 300 questionnaires 150 were obtained and 115 were found correct in all
aspect to be used as a sample in this research. The sample constituted 63% percent males and 37%
percent females. Majority of respondents were had a bachelors degree and work in middle level of
management.
Measures
Transformational Leadership:
20 item scale developed by Bass and Avolio (1995) was adapted to measure the concept of
transformational leadership. It was anchored at five point Likert-type scale where1 = never, 2 = seldom, 3
= sometimes agree, 4 = often, and 5 = always.
Innovative work Behavior:
This variable was measured by a scale developed by Janssen (2000). The scale consisted of 9 items. It
was anchored at five point Likert-type scale where1 = never, 2 = seldom, 3 = sometimes agree, 4 = often,
and 5 = always.
Psychological Capital:
1155
It was measured by using a 24 item scale developed by Luthans, Avolio, Avey, and Norman (2007).It is
anchored at five point Likert-type scalewhere;1 = strongly disagree, 2 = disagree, 3 = neither agree nor
disagree agree, 4 = agree, and 5 = strongly agree.
Results
The results of the current study are described below

Table 1: Descriptive statistics and Correlation Matrix of study Variables (N=115)
Ite Mea S.D. I II III IV V VI VII

ms n
I Innovative Work 9 3.73 .463 -

Behavior
II Attributive 4 4.10 .404 .041 -

Charisma
III Idealized Influence 4 4.05 .488 .389 .303 -

* *
IV Inspirational 4 3.85 .494 .113 .260 .385 -

Motivation * *
V Intellectual 4 3.48 .606 .497 .293 .430 - -

Stimulation * * * .033
VI Individualized 4 4.02 .648 .605 .120 .330 .784 .632 -

Consideration * * * *
VII Psychological 24 4.00 .276 .731 .222 .571 .168 .564 .70 -
Capital * * * * 2*
*p<.001
The table above reveals that Innovative Work Behavior is found to have a positive and significant
relationship with Idealized Influence (r= .389, p < .001), Intellectual Stimulation (r= .497, p < .001) ,
Individualized Consideration(r= .605, p < .001), and Psychological Capital (r= .731, p < .001) whereas,
Innovative Work Behavior was not significantly related with Attributive Charisma (r= .041, p > .05) and
Inspirational motivation (r= .113, p > .05).
The table further shows that Psychological capital was positively and significantly related with
Attributive Charisma (r= .222, p < .001), Idealized Influence (r= .571, p < .001), Intellectual Stimulation
(r= .564 , p < .001) , Individualized Consideration (r= .702, p < .001) whereas no significant
relationship was found between Psychological capital and Inspirational motivation (r= .168, p > .05).
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Table 2: Regression Analysis for Mediation (N = 115)
Variable R² R ²Change F Β t
Step 1 .432 16.549*
Constant 4.007*
Idealized Influence .278* 2.667*
Intellectual Stimulation .212* 2.876*
Individualized Consideration .446 4.733*
Step 2 .575 .144 24.372*
Constant .747
Idealized Influence .019 .225
Intellectual Stimulation .127 1.408
Individualized Consideration .119 1.219
Psychological Capital .593 6.043*
*p<.001
Table 2 shows the results of regression analysis of psychological capital mediation in the relationship
between dimensions of Transformational Leadership and Innovative Work Behavior. The results reveal
that after the inclusion of psychological capital the beta weight of Idealized Influence, Intellectual
Stimulation and Individualized Consideration substantially reduced (.278 to .019; .212 to .127 and .446 to
.119 respectively) and turned insignificant. This is a case of full mediation (Baron and Kenny, 1986). The
value of R ²change=.144 explain variance of 14.4 % by additional effect in Innovative Work Behavior
due to psychological capital. The mediating effect of Psychological capital could not be found between
the relationship of Attributive Charisma, Inspirational Motivation and Innovative Work Behavior because
of the assumption that the independent variables were not found to be related by the dependent variables
(Baron and Kenny, 1986).
Discussion
Leader’s behavior and innovation within organization is a topic that is researched over years. Past decade
is evident of the importance of transformational leadership in enhancing innovative behaviors of the
employees (Imran and Anis-ul-Haque, 2011). The main aim of the current research was to explore the
mediating role of psychological capital in the relationship between transformational leadership and
innovative work behavior. Findings based on 115 respondents from the service sector of Oman support
the preposition that transformational leadership boost innovative work behavior. The findings also
confirm that this relationship is not direct i.e. transformational leadership enhances psychological capital
which in turn results in innovative work behavior of the employees.
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Transformational leadership is widely recognized to strongly affect various outcomes at individual and
organizational level. It enhances the creative process within the teams (To, Herman, &Ashkanasy, 2015).
This leadership style is also considered to be an important factor in forcing employees to think out of the
box. Researches exploring the impact of transformational leadership on innovative work behavior of the
employees found a significantly strong impact (Imran &Anis-ul-Haque, 2011; Paulsen, Callan, Ayoko, &
Saunders, 2013).
The relationship between transformational leadership and innovative work behavior does not exit in
isolation. There are various variables that play their role between the said relationship. Psychological
capital is one such variable. It was found to mediate the relationship between leadership and the desired
group outcomes (Walumbwa, Luthans, Avey, &Oke, 2011). Psychological capital was also recognized as
a mediator in the relationship between employees’ performance and supportive organizational climate
(Wang, Chang, & Wang, 2012). Researches focusing on the relationship between leadership and
psychological capital support the belief that transformational leaders have a positive effect on the
employee’s psychological capital (McMurray, Pirola-Merlo, Sarros, & Islam, 2010) and psychological
capital results in intentional efforts to find innovative ways of achieving work goals (Avey, Wernsing,
&Luthans, 2008; Luthans et al., 2007). Psychological capital helps employees to demonstrate their
innovative work behavior (Mishra, Bhatnagar and Gupta, 2013; Sweetman et al., 2010; Zhou & George,
2003). Thus, Transformational leaders are found to be keen to increase the psychological capital within
the organization that results in innovative performance of employees (Şahin, Çubuk, &Uslu, 2014;
Walumbwa, Peterson, Avolio, &Hartnell, 2010).
Limitations and Direction for Future Research
The current research successfully explored the hypothesized relationships however, there were a few
limitations. Firstly, the research has examined constructs of innovative behavior and psychological capital
as uni-dimensional. The future researches should also explore the effects of their multi-dimensions.
Secondly, the study is limited due to small sample size. The research is done in the service sector of
Oman. Keeping in mind the current research scenario of Oman it was very difficult to gather the data.
Future researches should replicate this study across different sectors. Thirdly, it was a cross sectional
study. Future researches should explore this relationship in longitudinal studies.
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The Role of Information Technology in Enhancing SMEs
Capabilities through Knowledge Management
Naief G Azyabi, Jazan University, Jazan, Saudi Arabia, ngazyabi@gmail.com
Abstract
This research aims to investigate the influence of managing internal and external knowledge on
enhancement of the dynamic capabilities in small and medium-sized enterprises (SMEs), in
Saudi Arabia. Moreover, it examines the role of information technologies (IT) applications in
moderating this influence. Based on a conceptual framework, derived from the literature, a
questionnaire was developed and distributed among Saudi SMEs. The results from 126 SMEs
confirmed that managing internal and external knowledge positively affects SMEs dynamic
capabilities. However Saudi SMEs, to some extents, lack the IT infrastructure and applications
to effectively manage knowledge assets. The IT applications were found to be controlling the
relationship between internal and external knowledge management and dynamic capability.
The study reveals that the lack of IT support in businesses of SMEs lead to high cost of
production, waste, delay and other challenges to organizational renewal and adaptation. Hence,
the use of IT applications will reduce lead time, reduce operating cost and enhance product
differentiation.
Keywords: internal knowledge, external knowledge, dynamic capabilities, IT applications,

SMEs.
Introduction
One of the biggest challenges facing the organisations nowadays is the turbulent environment in
which they operate. Due to this, a new view of strategic management has arisen emphasizing
the significance of managing dynamic capabilities (Teece and Pisano, 1994; Teece and Pisano,
1997). The dynamic capabilities can be defined as “the firm’s ability to alter the resource base
by creating, integrating, recombining and releasing resources in turbulence and quick changing
environment” (Arifin, 2015). Knowledge is the most significant resources that can assist the
organisations in such response and changes. As mentioned by Argyris (1997), the rationale of
the firm’s growth depends on knowledge and how it can be managed more than other resources,
and he argued that knowledge is the most crucial factor for organizations’ competitiveness. This
can be reflected in the increase in interest on knowledge management (KM) conferences and
journals, which have seen an unprecedented ascendance since the 90’s (Sher and Lee, 2004).
Knowledge management can be defined as the processes of creating, capturing, sharing, storing
and exploiting structure and unstructured knowledge (Bajaria, 2000). The ability of
organisations to exploit their internal knowledge and explore the external is claimed to be of
value in improving the organisations dynamic capabilities (Helfat, 1997). The notion of KM
importance is associated with the massive advance in information technology (IT), which
introduced more methods and application to explore and exploit organisation knowledge. These
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methods and applications have participated in delivering better products and services and
assisted organisations to achieve competitive advantages (Hendriks and Vriens, 1999;
Holsapple and Joshi, 2002).
There has been an increased attention to both theoretical and empirical research as regards to
the contribution of KM in strategic management of dynamic capabilities. Furthermore, the
influence of IT in this contribution was examined (McDermott, 1999). This research is
concerned with investigating the influence of managing internal and external knowledge on
enhancing the dynamic capabilities of small and medium-sized enterprises (SMEs). Moreover,
it examines the role of IT applications in moderating this influence. Thus, the research question
is:
To what extend managing internal and external knowledge can enhance the SMEs’ dynamic
capabilities, as moderated by IT applications?
This research is aiming to contribute theoretically to the literature of KM in the context of
SMEs and practically to the context of Saudi Arabia, in which there is an obvious lack of
research on both SMEs and KM issues.
The research started by reviewing the relevant literature on the research constructs, i. e., KM,
dynamic capability and IT; followed by discussing the research method applied including the
development and administration of the survey; and then presenting and discussing the research
findings.
Literature Review
Dynamic Capabilities
Sustainable competitive advantage and success in the 21st century can be achieved through a
considerable and sustained investment in upbringing of dynamic capabilities in any
organization. It does not necessarily ensure the increased performance of organization;
however, it is being considered an essential part of strategic management as well as
performance enhancement practices. With the continuously changing external environment, it
has become vital for firms and enterprise to quickly adapt changes and show response to the fast
moving outer environment (Fujimoto, 2001). According to Schulz, (2001), the strategic
application of this concept highlights two terms, i. e., capabilities and dynamic. “Dynamic”
implies to the concurrency of a firm or company’s renewal according to the changing external
environment. On the other hand, “capabilities” is the reconfiguration, adoption and integration
of internal and external organizational resources, skills and function in order to meet the
changes in the external and volatile world (Griffith, 2001).
The dynamic capabilities of an organisation lie in its managerial and organisational processes
(Sher and Lee, 2004), the nature of dynamic capabilities though being distinctive both in terms
of their path dependence and details of emergence. These capabilities have common grounds,
links and best practices across firms and organizations. Such organizational knowledge is
typically related to the business functions and management process. These process repositories
and business functions are consisted of the knowledge of involved products, lessons learned
during projects, knowledge of sales, customers, markets and knowledge of product development
efforts. Furthermore, it includes knowledge of information system implementation, planning
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functions, records of experience with new approaches or corporate directions, learning histories
and competitive intelligence (Grover, 2001). Hence, it can be stated that all these factors are
needed to establish a foundation for the implementation of knowledge management in the
strategic direction of organization as well as dynamic capabilities (Helfat, 1997).
Many studies have linked the dynamic capability of organisation to their innovation capability
such as Lawson and Samson (2001), Ellonen, Wikström and Jantunen (2009) and Liao, Kickul
and Ma (2009). Lawson and Samson (2001) proposed that the organisations to be more
innovative need to invest in seven aspects of capability: vision and strategy, organisational
intelligence, harnessing the competence base, creativity, organisational structure, culture, and
technology management.
Dynamic capabilities can be studied and categorized according to the business situations and a
variety of dimensions where they could be applied. Research done on a Japanese automobile
company found that dynamic capabilities were the primary and most effective source of
competitive advantage. Moreover, it was said in the study that dynamic capabilities were likely
to enhance competitive forces among a small number of suppliers in the same industry. On the
other hand, it has been realized by researcher that strategic alignment and quick response to the
market forces and demands is more difficult than it can be predicted because of the fluctuations
in more than one market forces at the same time (Grover, 2001). Process of business resources
which is a form of dynamic capabilities tends to enhance competition. It has been found that
deployment of process of business resources intensively demands the adapting and learning of
the procedures of strategic planning and execution. Dynamic capabilities also helps organization
in the decision making process about the new processes and new products according to the
market needs. In international business environment, power structures are greatly defined by the
market knowledge gaps, predictability and asset specificity (Hendriks, 1999).
To sum up, due to the dynamic capability identified and influenced by the organisational
processes, it should be laid in the core of strategic management planning and implementation. It
is also known that well-articulated and well-managed procedures of enhancing, accumulating
and breeding dynamic capabilities are proved to bring significant improvement in KM to ensure
competitive advantage and business excellence. It is very often SMEs lack of resources that
allow them to respond quickly and effectively; however their small size can be considered as an
advantage to have better dynamic capability.
Internal Knowledge Management
KM aims to build competitive advantage through shortening lead-time, reducing operating cost
and enabling product differentiation. Firstly, KM helps the firms in shortening of lead time by
quickly sensing and responding to the changing market by analysing current condition and
integrating them with the previous knowledge to identify the solutions for the current problem
(Duffy, 2000). Secondly, it tries to reduce cost for the firms by enhancing the product quality
which ultimately benefits the customers (Ofek and Sarvary, (2001). Thirdly, KM can be
regarded as the main enabler for organisational innovation, better decision making, and product
improvement (Earl, 2001). Efficiency and affectivity of knowledge uprooted within
organization are critical to the establishment and maintenance of dynamic capabilities (Grant,
2001).
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Based on this, KM systems are developed and implemented to fulfil the above three mentioned
goals. According to Sher and Lee, (2004), previous research on KM systems have been
concerned with three issues: the extent to which IT construction is comprehensive, the extent to
which the organisational knowledge is constructed and maintained and the extent to which
knowledge search, creation and diffusion is facilitated. In SMEs context, IT construction and
formal KM initiatives could not be the usual case, as they suffer from limited resources.
One of the basic functions of KM is the knowledge creation. The spiral framework focuses on
knowledge creation by converting knowledge from one form (tacit or explicit) to another form
through four processes: combination, articulation, socialization and internationalization
(Nonaka and Takeuchi, 1995). In this framework of KM, the creation of knowledge
incorporates the managerial and organization routines. These routines are related to the
innovation mostly. For instance, KM can be taken as central to the process innovation, product
improvement, organizational renewal and adaptation and the execution of strategic management
as well as decision making. In a situation of continuous and rapid change, KM acts to reduce the
response time significantly to experiment and implement the newly acquired information while
this process is being aided by information technology applications. Hence, knowledge
innovation or creation can be attributed to the enhancement of dynamic capabilities, making
firms more responsive and flexible in an unsure and unpredictable environment (Duffy, 2000).
The second function of KM relates to the accumulation of large amounts of knowledge and
information. Three patterns are known for the flow of knowledge within firms including:
collection of new information and knowledge, codification of information with both vertical and
horizontal flows and combination of old and new knowledge which mainly affects the
horizontal flow of knowledge. In addition to this, uncertainties are resolved through the vertical
flows of knowledge where vertical flow attributes to the exposition of newly acquired
knowledge to the wider, diverse and remote knowledge which facilitates the comprehensive and
faster discovery of its reliance and results (Sher and Lee, 2004).
The third function of KM is sharing, acquisition and diffusion of internal experiences, skills and
knowledge across the firms, provides the employees with solutions and enhance their learning
about the firms’ processes. Thus, it tends to make employees capable of responding to the
external changes with speed as well as with reduced cost. It can be said that dynamic
capabilities greatly contribute in enhancement of a firms’ performance and in its response to the
changing world (Bajaria, 2005).
External Knowledge Management
IT plays a crucial role in the accumulation and acquisition of core knowledge regardless of
whether a firm selects the personal KM strategy or a systematic KM strategy. KM tends to
emphasize the integration of organizational core knowledge and its pertinence within the firm,
both explicit and tacit. KM takes the external dimension into account besides the management
and accounting of internal knowledge as a critical factor of KM system (Drucker, 1999).
Internal management function must be incorporated with the external knowledge by KM system
to ensure the integration of supply chain function and knowledge advantages. The following
information technology attributes have been identified through a study of KM: facilitation of
supply chain knowledge, processing and acquisition of supply chain knowledge, processing of
1165
marketing knowledge, acquisition of marketing knowledge and congruence with the company
strategy (McDermott, 2000).
Literature is evident on the importance of external knowledge management as a particular issue

in order to get sustainable competitive advantage over others in grasping market knowledge
more quickly and accurately than others (Valkokari and Helander, 2007). Firstly, it can be
argued that information technology is indispensable in the management of external knowledge.
Secondly, management of external knowledge plays a crucial role in getting business excellence
and formulation of strategic direction for the company. It involves in collecting all pieces of
information and covering all underlying issues, which are needed to be considered to devise the
activities congruent with the corporate strategy of companies. Thirdly, the management of
external knowledge must be integrated, absorbed and internalized in the databases for internal
use and strategy formulation.
The management of external knowledge ultimately impacts the enhancement of dynamic

capabilities through the effective and efficient utilization of information acquired from external
sources and IT applications. This information includes the knowledge of consumer behaviour,
information of customers, competitors and suppliers. First of all, surveillance of markets is an
essential part of business excellence with respect to the information collection about customers.
It leads to the competitive advantage which is a powerful tool for companies to increase their
market share, capabilities and profit margins in the end. The importance of managing external
knowledge becomes more significant when the organisation is working closely and
collaboratively with innovative organisations. It tends to increase the responsiveness and
evolutionary characteristics of an organization which finally serve as a rich source of
knowledge to stay ahead of the customers.
Research Method and Hypotheses
This research has adapted Sher and Lee’s (2004) conceptual framework to investigate the
relationship between the research constructs. As illustrated in Figure 1, the framework suggests
that the enhancement of dynamic capabilities is a dependent variable that is directly influenced
by management of external and internal knowledge (as independent variables). Moreover, the
framework also considers IT applications to play a moderate role in influencing both external
and internal knowledge.
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Figure 1: Research Model
The hypotheses of this research are listed below:
• H1: Management of internal knowledge positively affects SMEs’ dynamic capabilities.

• H2: Management of external knowledge positively affects SMEs’ dynamic capabilities.
• H3: IT applications moderate the effect of the management of internal knowledge on dynamic
capabilities.
• H4: IT applications moderate the effect of the management of external knowledge on dynamic
capabilities.
The research follows a quantitative research method where the research has adopted designing a
questionnaire as an instrument for data collection. The elements of each construct are adopted from Sher
and Lee (2004), who conducted a wide review of the literature to develop their research survey
questionnaire. The questionnaire items were translated into simple Arabic by the researcher to allow the
target participants to fully understand and respond to the survey. Before distributing the survey
questionnaire, it was sent to three academicians in business colleges at Jazan University, who spoke both
English and Arabic. They were requested to check out the translation’s accuracy and provide feedback on
the questionnaire. Their feedback was collected and reflected upon. The target SMEs were asked to show
their agreements with statements on: internal knowledge management, external knowledge management,
construction of IT applications and dynamic capabilities on a five-point Likert scale, where 1 represents
‘strongly disagree’ and 5 represent ‘strongly agree’.
The target participants were SMEs managers and decision makers. Due to the absence of official
directory for SMEs, and a poor postal service, the distribution of the survey has been carried out hand-by-
hand, and the filled questionnaires were collected lately. 350 SMEs were contacted, and only 126
responded, representing a response rate of 36%.
Participants’ Industry Sector
As shown in Table 1, the respondents were from different sectors. Wholesale/ retail was the most
responsive sector, representing 25% of the total respondents, followed by consulting and business service
(20%) and real estate (17%). Petrochemicals/ Oil and Gas represent the lowest sector in terms of collected
responses (2.5%).
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Table 1 : SMEs Industry Sectors
Industry Sector Frequency Percent

Petrochemicals/ Oil and Gas 3 2.4
Banking and Insurance 9 7.1
Information and Communication 12 9.5
Consulting and Business Service 25 19.8
Construction and Engineering 9 7.1
Real Estate 21 16.7
Wholesale/Retail 32 25.4
Service Industry 15 11.9
Total 126 100.0
The above table shows that a good mix of respondents participated in this study as they belong to
different sectors, which will help in coherent and accurate results. Study participants belonged to different
departments, as shown in Table 2.
Table 2: Respondent’s departments
Department in the company Observations Percentage

CEO 3 2%
Accounting and Finance 3 2%
Production 3 2%
Marketing 0 0%
System 12 10 %
Personal Management/ Training 12 10 %
Research and Development 24 19 %
General Affairs 9 7%
Planning 18 14 %
Management Information 29 23 %
Others 16 13 %
Information technology infrastructure has been studied for this purpose, some of the IT typologies are
used to get responses from the company employees. Descriptive statistics is used to analyse the responses
of IT applications. The following table summarizes the responses about the implementation of IT
applications which are being used in the companies.
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Table 3: IT applications construction in SMEs
Information Technology Applications Constructed Not Constructed

Customer Relationship Management Systems 60 48 % 66 52 %
(CRMS)
HR Management Systems (HRMS) 72 57 % 54 43 %
E-Mail 123 98 % 3 2%
Documents Management Systems (DMS) 63 50 % 63 50 %
Search Engine 49 39 % 77 61 %
Information Portal 33 26 % 93 74 %
ERP 40 32 % 86 68 %
Decision Support Systems (DSS) 28 22 % 98 78 %
Workflow Systems 37 29 % 89 71 %
E-Learning Systems 43 34 % 83 66 %
Groupware Systems 42 33 % 84 67 %
Tele-Conference 9 7% 117 93 %
Reliability Analysis
According to Zikmund et al. (2009), the most common method to measure the internal consistency is by
Cronbach’s alpha. It is between 0 and 1, where between 0.8 and 0.95 refers to very good reliability,
between 0.7 and 0.8 refers to good reliability, between 0.6 and 0.7 refers to fair reliability and below 0.6
refers to poor reliability of the scale. Table 4 summarises the results of Cronbach’s alpha, and shows that
the internal reliability for the variables/ dimensions is acceptable as they are greater than 0.65. Based on
these scores, all the internal reliability of all scales was acceptable and the internal consistency of
homogeneity of the measures was confirmed.
Table 4 : Reliability Analysis
Variable # of Items Cronbach's Alpha

Internal Knowledge 7 0.814
External Knowledge 5 0.697
IT Applications 11 0.713
Dynamic Capabilities 10 0.664
Factor Analysis
Factor analysis was used to reduce and extract two variables (management of internal knowledge (KMin)
and management of external knowledge (KMex)) from 12 measurements of knowledge management
constructed for the questionnaire instrument. The factor loadings are represented in the table below.
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Table 5: Knowledge Management Factor Analysis
Measurements of knowledge management KMin KMex

KMin1 IT reduces uncertainties of knowledge loss 0.718 0.352
KMin2 IT reduces dependence on specific personnel 0.405 0.588
KMin3 IT is comprehensively utilized by members in organization 0.876 0.064
KMin4 IT is comprehensively constructed in organization 0.839 0.121
KMin5 Top management is capable of applying IT 0.631 -0.101
KMin6 Members in organization apply IT to search and use current organizational knowledge 0.641 0.079
KMin7 Members in organization apply IT to create new knowledge 0.392 0.514
KMex1 IT facilitates acquisition of supply chain knowledge -0.063 0.802
KMex2 IT facilitates acquisition of marketing knowledge 0.017 0.669
KMex3 IT facilitates processing of supply chain knowledge 0.219 0.438
KMex4 IT facilitates processing of marketing knowledge -0.113 0.614
KMex5 IT infrastructure is congruent with corporate strategy 0.162 0.719
Eigen value 4.027 2.125
Variance 33.56% 17.70%
Cumulative variance 33.56% 51.26%
A factor analysis with principal components was also applied to extract a factor of dynamic capabilities.
Its 10 measurements were reduced to one factor (dynamic capabilities) accounting for 26% of cumulative
variance (see Table below).
Table 6: Dynamic Capabilities Factor Analysis
Factor analysis of dynamic capabilities Factor loadings

Measurements of dynamic capabilities
Enhanced learning effectiveness of new knowledge 0.607
Enhanced quality of decisions 0.321
Enhanced capabilities of communication and coordination 0.609
Enhanced responsiveness 0.641
Enhanced integration in new product development 0.599
Enhanced accumulation of knowledge 0.417
Enhanced capabilities of resource deployment 0.387
Enhanced customer relationships 0.423
Enhanced trust with vendors 0.348
Enhanced inimitability of strategic assets 0.586
Eigen value 2.581
Variance 25.8%
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Factor analysis of dynamic capabilities Factor loadings

Measurements of dynamic capabilities
Cumulative variance 25.8%
Regression Analysis
Linear regression was then applied to test the research hypotheses. Dynamic capabilities were analysed
with both management of internal knowledge (KMin) and management of external knowledge (KMex),
controlled by typology of IT applications.
Table 7: Linear regression models for KMin and KMex
Model Constant R value R2 value F value Degrees of Freedom KMin KMex

1 -0.017 0.613 0.376 37.07 125 0.486 0.374
Sign. at p<0.05
Table 7 above shows R = 0.613 indicating a strong and positive relationship between management of
knowledge (external and internal) and dynamic capabilities of SMEs. Management of internal knowledge
positively affects SMEs dynamic capabilities by accounting for almost 50% of variance in the model.
Thus both H1 and H2 hypothesis remain valid. This is also confirmed by previous literature reviewed on
the importance of KM in ensuring greater and sustained advantage in business.
The relationship between KMin or KMex and dynamic capabilities was further controlled by IT
applications resulting in 12 models, as shown in the table. In all the models, results indicated strong and
positive relationship between management of knowledge and dynamic capabilities of SMEs when
controlled by IT applications as indicated in the table below. Thus, both H3 and H4 hypothesis remain
valid and accepted. This further confirms Demarest's literature on effective IT infrastructure and
knowledge management (Demarest, 2000).
Table 8: Linear regression models for KMin and KMex and IT applications
Model R R2 F Degrees of Freedom KMin KMex

value value value
CRMS 0.647 0.418 29.230 125 0.391 0.422
HRMS 0.630 0.397 26.816 125 0.400 0.460
Email 0.613 0.376 24.524 125 0.373 0.485
DMS 0.613 0.376 24.517 125 0.375 0.485
Search Engine 0.623 0.388 25.830 125 0.425 0.436
Information 0.646 0.417 29.082 125 0.375 0.525
portal
ERP 0.617 0.380 24.949 125 0.378 0.454
DDS 0.615 0.378 24.688 125 0.371 0.476
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Model R R2 F Degrees of Freedom KMin KMex

value value value
Workflow 0.627 0.394 24.408 125 0.389 0.486
systems
E-learning 0.625 0.391 26.069 125 0.364 0.492
systems
Groupware 0.617 0.381 25.038 125 0.367 0.476
systems
Tele Conference 0.625 0.390 26.019 125 0.387 0.474
Research Findings
Knowledge management has become crucial to the survival, growth and maintenance of small and
medium sized enterprises (SMEs) particularly in the management of knowledge assets (Omerzel and
Antoncic, 2008). The objective of this study was to investigate the influence of managing internal and
external knowledge on enhancement of the dynamic capabilities of small and medium-sized enterprises
(SMEs). A further intention was to assess these influences (if any) when controlled by a third variable in
terms of IT applications. Results in all regression analysis indicated a significant influence of managing
internal and external knowledge on enhancement of the dynamic capabilities of SMEs. These results led
to the acceptance of all four hypothesis formulated by the researcher. This state is true in previous
literature and lends support to the view of dynamic capabilities theorists who maintain that a firm’s
current position can be determined by paths and processes of knowledge acquisition, storage and
dissemination. The change in this position shall be significantly influenced by the management of both
internal and external knowledge. The results obtained also are in alignment with the perspective on the
evolution of the firm. The evolution perspective maintains that the nature of knowledge management
remains the central issue in tracking a firm’s knowledge assets.
Unlike Sher and Lee’s work on information technology and dynamic capabilities through KM (Sher and
Lee, 2003) all control variables (IT applications) did not significantly affect the explanatory power of the
independent variables (KMin and KMex) on the dependent variable (dynamic capabilities). However,
results obtained confirms the study by Pillania (2006 and 2008) on the potential of KM which seems not
fully exploited by small firms reflecting a (the) great lapse and inability of SMEs to fully utilize IT for
knowledge management (Pillania, 2006 and 2008).
IT infrastructure of SMEs as indicated in the results of this study remains a challenge and hence its usage
in knowledge management very insignificant. Referring to Table 8 above, more than 50% of IT
applications investigated were not constructed with E-mail systems being the most constructed and used
application at 98%.
Although E-mail remains the most used applications, its effect on the explanatory power of KMin and
KMex was negative (-0.010) and insignificant. The next most used IT application was HR Management
Systems with over 55% constructed and this accounted for 15% of the explanatory power of the
independent variables. The use of HRMS involves a complex and reliable network infrastructure where
users could collaborate efficiently, however the expenditure to setup these makes the usage of HRMS in
managing knowledge assets of the firm elusive. Our findings suggest that more attention is given to
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building IT infrastructure and funding for SMEs to be to fully access knowledge management tools to
facilitate KM in businesses.
Conclusion
The study confirmed that KM (internal and external) positively affects SMEs dynamic capabilities;
however SMEs lack the IT infrastructure and applications to effectively manage knowledge assets. The
former is also consistent with previous literature. Currently SMEs continue to trail behind large
companies and international conglomerates in the practice and benefits of KM. The reasons for this state
of affairs lie on a number of factors that influence the KM adoption by SMEs (Finkl and Ploder, 2009).
The implications are:
SMEs must expand their IT infrastructure and expertise to take advantage of business applications such as
office automation systems, CRM, ERP HRMS, etc. This will greatly affect the management of
knowledge resources and dynamic capability of the firm.
SMEs must develop and realize the need to use KMin and KMex to ensure dynamic strategic planning
and overall competitive advantage. A flexible firm has capability to dynamically respond to competition
and ensures strategic flexibility. In short, it can be said that dynamic capabilities must be laid in the core
of strategic management planning and implementation because it provides a set of identifiable and
specific processes such as strategic alliance, decision making and product development.
The study reveals the lack of IT support in businesses of SMEs which leads to high cost of production,
waste, and delay presenting challenges for organizational renewal and adaptation. Hence, the use of IT
applications will reduce lead time, reduce operating cost and enhance product differentiation. Other
studies have revealed an increasing call for further investigating the influence exerted by KM practices on
the dynamic capabilities of networked SMEs (Valkokari, 2007)
The study however is limited by its scope and sampling methodology and may not be generalized. It must
also be noted that IT applications were not delineated in accordance to level of application and usage; this
was not the focus this work. However, IT infrastructures that had the ability of influencing KM were
considered.
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Research on Current Global Market Trends in

the Business Process Outsourcing Industry
Alexandra Mateiu (Sârbu), University of Economic Studies, Bucharest, Romania,
E-mail:alexandra_mateiu@yahoo.com
Elisa Gotesman(Bercovici),University of Economic Studies, Bucharest , Romania,

E-mail:elisagotes@gmail.com
Irmer-Sven Joachim,University of Economic Studies, Bucharest , Romania,

E-mail:Sven.Irmer@kas.de
Mihaela Maftei, University of Economic Studies, Bucharest, Romania,

E-mail:mmaftei1276@gmail.com
Abstract
This study highlights a part of the results of a doctoral research regarding business process outsourcing
models, conducted by authors in the Research Centre of Business Administration, Bucharest University
of Economic Studies, Romania. The goal of this paper is to explain the overall notion of business process
outsourcing model and to analyze the current global market trends, by giving examples of companies that
use this model as a successful long term business strategy. Another objective is to assess the advantages
and disadvantages of an outsourcing model in the context of globalization and the importance of defining
the core competencies of a company in order to externalize the right processes. The study presented can
be used by companies in order to identify the key factors before deciding to outsource part of the in-house
processes and to help structure the decision making model by defining from the early stages the
competitive advantage of a company.
Keywords: business process outsourcing, core competencies, competitive advantage, external partner.
Introduction
Outsourcing first appeared during the 1980’s as a way of externalizing non-core transactions to a third
party supplier. The purpose of this process is to create value add for the company and to consolidate a
competitive advantage. There are two main categories of outsourcing: Information Technology
Outsourcing (ITO) and Business Process Outsourcing (BPO). Through Information Technology
Outsourcing (ITO) a company is outsourcing computer, internet, network and other information
technology systems to an external supplier. Business Process Outsourcing (BPO) involves the
externalization of internal business processes of a company like for example: finance department,
accounting, acquisitions, human resources (Babin, 2012; Nicholson, 2012). If we look at the type of
outsourcing implementation we can have following categories: on-shoring and off-shoring. On-shoring is
the externalization towards a supplier from the same home country. Off –shoring is the externalization
towards a supplier that is outside the country. Taking into account the geographical distance of the service
provider we can have also two additional sub-categories like near-shoring or far-shoring.
Even if the concept of outsourcing started being used during the 1980’s like a business strategy which
permitted the companies to concentrate on their core competencies, this concept appeared long time ago.
For example the company ,,Automatic Data Processing, Inc.( ADP) ’’ started offering payroll services to
other companies in the 1950’s. Today, ADP is one of the largest BPO providers in the world. Top
companies from the mobile industry use different production systems. While Samsung Electronics
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produces all the phones internally, Apple chose to externalize the production of the phones. (Kambara,
2013). The two companies use different production strategies, however both have good performance on
the mobile phone market. This makes us question whether there exists a certain optimum degree of
outsourcing which can help the companies have a competitive advantage on long term and at the same
time to have sustainable performance. Outsourcing towards developing countries like India and China,
brought not only considerable cost savings but also the stimulation of international collaboration and the
transfer of global know-how (Dibbern,2004; Goles,2004; Hirschheim,2004; Jayatilaka,2004). The
efficiency of the outsourcing business relationships is given by the cultural impact and by the structure of
the organization.
This paper illustrates the fact that there is no perfect solution or formula for outsourcing that applies to all
the companies. There are however, several factors that need to be considered before deciding to
outsource. Considering these facts, the authors proposed the following research objectives:
• to clarify the concept of business process outsourcing and to present the current global trends;
• to analyze the advantages and disadvantages of a BPO model in the context of globalization
and the importance of defining the core competencies of a company in order to externalize the
correct processes.
To achieve the objectives, several business process outsourcing models were studied, by using the main
factors that characterize business processes outsourcing industry, such as: organizational strategy,
business sector, operational costs, the size of a company, outsourcing locations, cultural aspects,
organization communication ability, the number of internal processes. Comparing these outsourcing
models by tracking the mentioned indicators, it can be identified factors that encourage and recommend
outsourcing, on a hand, and the most outsourced processes, on another hand can be identified. Once
identified the key factors that facilitate the success of the outsourcing process, companies can focus on
these indicators to increase the favoring odds in order to gain a sustainable outsourcing.
Current Global Trends in the Business Processes Outsourcing Industry
There are two parts of an outsourcing arrangement, the company who buys the services and the service
provider. Every company can at one point decide to externalize parts of specific processes. Examples of
companies that have decided to outsource parts of their business processes are: Verizon,
Procter&Gamble, Catholic Health Partners, Barclays, Thames Water. The first reason why companies
choose this outsourcing model is to reduce the operational costs. A study conducted by the AMR
Research, states that 78% of the inquired companies confirmed as primary strategic goal the cost
reduction (Hyatt, 2009). The size of a company is also a driver for this model, especially for the large
global companies that look for processes automation and innovation. The medium sized companies see in
outsourcing an opportunity of having access to advanced technologies and to gain know how. Other
reasons for outsourcing are: improvement in the quality of services, financial flexibility, gaining new
competencies, eliminating several legal and economic risks.
The most frequent outsourced functions are: information technology, human resources, finance,
acquisitions, accounting, and production systems. As preferred outsourcing locations we have India for
voice operations and information technology, and China mainly for BPO. Other countries that are
considered for business process outsourcing are: Egypt, Mexico, Philippines,Vietnam.
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The International Outsourcing Association (IAOP) consolidates annually a list with all the top services
providers. On this list we can find top global outsourcing companies that provide services in different
areas. The companies are analyzed based on four critical factors: size and growth; delivery excellence;
innovation; and CSR. Table 1 presents the top 5 companies that are considered as 2015’s best outsourcing
providers: Accenture, CBRE, ISS, Jones Lang La Salle and Colliers International.
Table 1: The 2015 Global Outsourcing 100
Company Size and Delivery Programs for CSR

growth excellence innovation
Accenture X X X X
CBRE X X X X
ISS X X X X
Jones Lang LaSalle X X X X
Colliers International X X X X
Source: https://www.iaop.org/Content/19/165/4129
The relationship between a company and its outsourcing partner is governed by contracts and service
level agreements. The service level agreement (SLA) is a mutual understanding between the two parties
related to the quality and the timing of the provided services. The contract has a high importance and
needs to be very clear and detailed in order not to leave room for any interpretations. The contract should
specify different termination clauses or penalties in case of breach of terms if the service is not delivered
with quality and within the predefined service level agreements. An outsourcing contract ends in general,
on an average of five years (three years is the minimum period), during which the beneficiary will realize
the success or failure of the business model.
Another important factor that needs to be considered in a business process model is the conflict of interest
with the employees, especially in some countries. It is up to the company to clarify to the employees the
benefits and risks of such a partnership. Part of the collaboration agreement consists of ensuring the
continuity of human resources departments to be transferred. It is important that before starting such a
partnership to explore the cultural differences and the values of the company with which you will start
working. Although at first glance these issues are of no major importance, they can heavily influence the
quality of collaboration and communication between the two partners. Poor communication and
collaboration will result in lower product quality and this will influence on long term the sustainability of
the model.
The Results of the Analysis of the Business Process Outsourcing Models by Assessing the
Advantages and the Risks In The Context of Globalization
Identification of outsourcing phases in the process of externalization of non –core functions
It is very important for a company to clearly define the core business processes from the support
processes. If a function or process is critical for the business success and it is a competitive advantage it
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should not be outsourced. The reasons for which a company decides to seek the outsourcing model are
tactical and strategic. This model does not justify the reason to outsource a process that the company does
not understand and cannot easily manage. Prior to outsourcing some processes, the company must get to
know very well the costs, problems, advantages and disadvantages. The incorrect mapping of the internal
processes can lead to loss of information at operational level. Toyota Motor Corp. outsourced the
electrical system for its cars and in this way lost the ability to understand the necessary work in this type
of production. Toyota could no longer use the technological advantage that she had before (Nieto &
Rodriguez, 2011). These cases occur when processes are not well understood. According to some authors
there are 7 steps in the process of outsourcing that every company can take into account (Power &
Desouza & Bonifazi , 2006):
• Step 1: The Strategic Evaluation - a) identify the skills and processes of the company,
establish the outsourcing team in order to analyze the need for outsourcing on medium and
long term; b) analyze the processes, standards and business needs; c) financial analysis to
determine the benefits of such a model, some of the fixed costs will be transformed into
variable costs; d) risk analysis at the strategic, operational, financial and technological level.
• Step 2: Analysis of the actual need of the company - defining the processes to be outsourced
and send a request for offer to potential candidates. The project team defines the scope and
the detailed requirements to supplier.
• Step 3: Defined criteria for evaluating suppliers - category by size, experience and resources
available. This step is critical to the success of the model.
• Step 4: Negotiation and agreement-contract must be clear on how the two parties will share
the risks and benefits and also the terms of the collaboration.
• Step 5: Project initiation and transfer of processes and accountability to the supplier. Creating
a contingency plan in case things do not go according to plan.
• Step 6: Relationship Management - requires ongoing communication, transfer of information
to the provider and regular financial control.
• Step 7: The decision to continue or stop the collaboration with the external supplier.
Outsourcing relationships are dynamic throughout the years of the contract, and need to adapt
to the customer needs.
Analyzing few companies from the outsourcing industry, the authors could find a pattern in the process of
selecting and developing a business relationship with an outsourcing partner by following similar steps to
the ones mentioned above by Power&Desouza&Bonifazi (2006). Looking at below Table 2 we can see
that Virgin Media, Diversey and Procter&Gamble started from similar business needs like reducing the
operational costs and bringing more value to their customers while focusing on core competencies. All
outsourcing partners were selected based on size, global experience, market knowledge, resources
availability and financial stability. The contract agreements were closed as a starting point for a period of
5 years and they included clear split of roles and responsibilities from both parties by concentrating on
specific financial and organizational targets. Each outsourcing project had a planned strategy and the
execution approach was aligned by both partners in order to have a smooth and successful
implementation for both organizations. The ongoing relationship management between the companies
was defined by a win-win mindset and by a flexible and at the same time strong governance structure.
Due to successful results of the implemented outsourcing business models and to very good collaboration
with their external partners, Virgin Media, Diversey and Procter & Gamble have renewed their
outsourcing agreements on long term.
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Table 2: Analysis of the outsourcing steps followed by global companies

Company Industry Outsourcing Strategic Need of the Evaluation of Contract Project Relationship Evaluation of
partner Evaluation company suppliers agreement implementation Management outsourcing
agreement
Virgin Entertainment Accenture Deliver high To outsource -Accenture has a The services Before closing Ongoing 2006- 5 year
Media and quality order strong record of offered by the outsourcing communication BPO
Communication products management transformational Accenture are agreement in and investment agreement.
while services, success. supported by 2006, Virgin in best in class
reducing customer -Deep more than Media started tools and 2011- the
operational care and operational 60,000 the collaboration technologies in contract was
costs collections. expertise. outsourcing with Accenture order to have a renewed for
-Knowledge of professionals back in 1999 win-win another 5
Indian and and carefully that built for strategy for years.
Philippines executed and them the digital both
markets. supervised. television companies.
platform. The
project turned
out to be a
success.
Diversey Commercial Wipro Cost Centralizing -Wipro has deep A 100$ ,, Lift and shift” -Collaborative, 2006- 5 year
cleaning, reduction by the IT technology million approach. Wipro trusting and outsourcing
sanitation and outsourcing organization expertise. contract managed to vested agreement.
hygiene non-core and - Very good agreement organize 170 outsourcing
services consolidating networking and focused on locations relationship. 2010- Early
data centers trustworthy aggressive supporting 800 -strong renewal of the
equity. financial and IT systems in governance contract.
-End to end organizational one year. In 2 structure.
analytics targets. Wipro years Wipro -flexible
capabilities. was managed to framework
-Client in 6 accountable deliver the environment.
continents. for managing financial targets -focus on
assets and the set up initially. business
aligned results.
service level
agreements.
Procter Consumer Jones Lang -Concentrate To transform -JLL has Contract JLL was -Strong vested 2003- 5 year
& goods LaSalle more on the its facilities competitive agreement on recognized by business outsourcing
Gamble core management position in facilities P&G as relationship agreement.
competencies services in important real management, ,,Supplier of the and win-win
and product 60 countries. estate and project Year” in 2008 approach in 2008- Lease
development. capital markets development, and 2009 due to order to obtain administration
-lower costs. around the Construction project success best solutions contract.
-higher globe. management implementation for both
service - Very good and strategic and lower cost companies. 2012- 5 year
levels. internal planning results. renewal
governance and services. contract.
enterprise risk
management.
Source: authors, based on the case studies of the companies’ financial reports
Defining the advantages and the risks associated with outsourcing implementation activities
The study "IDG Enterprise Outsourcing & Service Providers" conducted in 2011 on a sample of 1,176 IT
managers showed that only 18% of respondents believed that their company outsourcing strategy is truly
effective, 59% consider it partially effective, while only 22% believe that it really achieves its objectives.
An outsourcing model can bring following advantages:
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• Better control of the processes and reduction of operating costs;

• Shared business risk with the external supplier;
• Specialized knowledge transfer from the external company;
• Complete management of human resources;
• Improved technology performance;
• Access to best practices;
• Reduction of infrastructure costs;
• More focus on the core processes and competencies of the company;
• Opportunity for automation and innovation ;
• Increased efficiency;
• Time zone advantage;
• Access to new markets.
An outsourcing model can bring the following risks:
• Uncertainty of service quality;

• Hidden costs;
• Focusing more on figures and numbers and losing sight of the business;
• Security of the data that is being transferred to the external supplier;
• Legal and economic environment;
• Cultural differences between the two companies;
• Poor or lack of communication between the companies;
• Negative impact on the employees if not addressed properly and timely.
Most failures in the field of outsourcing are due to lack of trust between the client and the service
provider. Trust is a critical factor in developing a successful collaboration. The quality of the business
relationship between the partners is often more important than the bonus or the penalty system. Therefore
one of the most important processes in outsourcing is first transforming the mentality of the organization.
The values that the employees of the two companies share must be similar. Also adapting the company to
the new model of outsourcing is very important. Change management process needs to be planned from
the early stages of the project. Issues related to the transfer of information, communication and
implementation need to be mitigated through a solid project management plan. In most cases the external
partner has a very aggressive transition plan. For quality training and effective information transfer it is
sometimes needed more time. Speeding up these processes involves a high risk of errors, resulting
ultimately in poor quality service.
From strategy to execution is a long way and the challenge is mostly in the initiation phase, on mapping
the desired processes to be outsourced. A company must first understand which processes are core and
which are supporting. There is also additional global complexity, where each process is specific to a
certain region and in many cases the outsourced ,,package" might have several versions.
What is also important to note is that the results of an outsourcing model are not visible on short term.
Most organizations had a drop up to 20% in labor productivity in the first year of an outsourcing contract,
mainly because of the time involved for the knowledge transfer to the outsourcing provider"(Troaca &
Bodislav). The outsourcing partner needs time to build the knowledge and understand the processes,
being able to generate cost savings at a later stage. Therefore outsourcing contracts are generally set for at
least 3 years.
If we look at the 3 companies we analyzed in Table 2, Virgin Media, Diversey and Procter& Gamble they
all closed the initial outsourcing agreement for 5 years and the targeted results appeared after the first or
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second year of collaboration. The relationship management was based on trust and constant
communication between the companies. Through solid governance systems these companies managed to
mitigate the risks that appeared along the transitions and moreover being flexible and agile on both sides
resulted in the contract renewals on longer term.
Conclusions
The study conducted by the authors presents the concept of outsourcing, particularly business process
outsourcing and the stages that each company should consider before externalizing to another supplier.
The business processes services market is extremely dynamic and the main objective of a company
besides reducing costs should be providing services faster, more efficient and sustainable over time. The
decision to outsource part of the internal processes is not very easy, and it involves a lot of research,
balancing the advantages and the risks and thinking on long term. Most times companies previously
assessed the success of an outsourcing model through reduction of operating costs. Today the customer
expectations have changed, they aim also sustainable value add and technological capabilities such as
automation, advanced analytical and reporting systems or cloud technology.
Companies like Virgin Media, Diversey and Procter&Gamble have entered outsourcing agreements
gaining competitive advantage and being able to focus more on their core competencies while benefiting
from the external partners knowledge. They managed to mitigate the outsourcing risks through robust
governance systems and efficient relationship management.
Several advantages can be mentioned by transitioning to such a model like: shared business risk with the
external supplier; complete management of human resources; improved technology performance; access
to best practices and to new markets; reduction of infrastructure costs; more focus on the core processes
and competencies of the company; opportunity for automation and innovation; increased efficiencies and
synergies. Also the risks to be considered are: uncertainty of service quality; possible hidden costs;
focusing more on figures and numbers and losing sight of the business; security of the data that is being
transferred to the external supplier; legal and economic environment; cultural difference between the two
companies; poor or lack of communication between the two companies; negative impact on the
employees if not addressed properly and timely.
The results of this study can be used by organizations in order to identify the key factors before deciding
to outsource some of the in-house processes and to help structure the decision making by defining from
the beginning the advantages and the risks of such a transition.
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Development Model of An Integrated Aquaponics with Social

Services Activities in Romania
Gheorghe Adrian Zugravu, “Dunărea de Jos” University of Galaţi, Romania,

zugravuadrian@yahoo.com
Maria Magdalena Turek Rahoveanu, “Dunărea de Jos” University of Galaţi, Romania,

mturek2003@yahoo.com
Adrian Turek Rahoveanu, University of Agronomic Sciences and Veterinary Medicine of Bucharest,
Romania, aditurek@yahoo.com
Nistor Costel, “Dunărea de Jos” University of Galaţi, Romania, COSTEL NISTOR@selir.com
Marian Tiberiu Coada, “Dunărea de Jos” University of Galaţi, Romania, marian.coada@ugal.ro
Stefan Mihai Petrea, “Dunărea de Jos” University of Galaţi, Romania, stefan.petrea@ugal.ro
Alexandru Cristian Bandi, “Dunărea de Jos” University of Galaţi, Romania, quendehuo@gmail.com
Mirela Cretu, “Dunărea de Jos” University of Galaţi, Romania, mirela.cretu@ugal.ro
Ira Adeline Chihaia, “Dunărea de Jos” University of Galaţi, Romania, ira.simionov@gmail.com
Abstract
The present paper contributes to the modeling aquaculture business domain. The aims of this study is
to integrate a business model in both aquaculture and agricultural production systems (including
aquaponics) and also, in social services. The paper main objectives are to identify an analysis model
for development of integrated aquaponics, together with social services, in Romania. The conceptual
orientations are focused on target product with the purpose of enhancing the reputation of social
farming, with impact on rural development. The purpose is to add more value to end aquaponics
products.
Keywords:aquaculture, aquaponics, integrated systems, business model, rural development.
I. Introduction
Global aquaculture production reflecting increased production by over 50 % since the beginning of
the millennium and an average annual growth of 5% in last decade. Aquaculture will continue to play
an important role in world production over to meet the growing global demand for products based on
fish.
The conversion of conventional aquaculture farms in sustainable and ecologically aquaculture farms
help aquaculture businesses to achieve economic viability and competitiveness. Green aquaculture is
undoubtedly the management technique that has most contributed to support aquaculture businesses
to adopt aqua-environmental measures for protection of the environment, natural resources and
landscape.
The success of land-based aquaculture in improving fishery production and the quality of product has
caused this practice to rapidly grow. There are good tendencies shown by aquaculture practices in
many countries. Integrated Multi-Trophic Aquaculture (IMTA) is one solution that encourages
greater environmental stewardship while increasing economic benefits for growers and communities.
IMTA is a different way of thinking about aquatic food production that is based on the concept of
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recycling. Integrated aquaculture with social services has tho principle objectives: to reduce pollution
and to increase productivity, to increase value of the aquaculture products.
This approach is based on Ecosystem-Based Management (EBM) that expects people to maintain
environment quality while utilizing the resources on it. IMTA uses bio filters, specific species such as
seaweed and oyster, that have the ability to recycle nutrient or load produced by the main species
grown (1).
Studies on integrated systems have primarily focused on inland freshwater systems, and only a few
have investigated the possibilities of integrated farming in marine systems. In the past two decades,
integration of seaweeds with marine fish culture has been examined and studied in Canada, Japan,
Chile, New Zealand, and USA (2, 3, 4, 5, 6, 7). The FAO Technical Paper “Integrated mariculture: a
global review” (8, 9, 10) reviewed integrated systems in the latter areas, but there almost no
information on Chinese systems was probably due to limited availability of accurate information
(11). In China, integration of cultures is a common practice for inland production systems, while
integrated mariculture is a recent development expanding at a fast rate.
Parallel to aquaculture industry development, knowledge of its effects on the surrounding

environment is increasing. Several studies have been conducted to assess the environmental impact
(12, 13) due to aquaculture. Organic enrichment is recognized as the most important problem
associated to aquaculture (14, 3) as a direct result of the release of dissolved and particulate nutrient
loads, especially organic phosphorous and nitrogen in the form of ammonia that might easily induce
eutrophication (15). Uneaten pellet and fresh food supplied at fish cages, together with the excretion
products from cultured fishes are the source of the nutrient loads released (16).
The growing concern on aquaculture’s environmental impact has led to an increasing research into
feed formulations and digestibility, better conversion efficiency and improved management (17, 3).
Since the last decade, the emphasis has been placed on the practice of integrated multi-trophic
aquaculture (IMTA), with a potential to mitigate some of the environmental problems associated with
mono-specific aquaculture (10). Originally used in freshwater practices, it involves the culture of two
or more species from different trophic level; generally finfish being simultaneously cultured with
both organic and inorganic extractive species, such as shellfish and seaweeds, respectively; in which
by-products from one species are recycled to become inputs for another. Thus, the organic matter
released in aquaculture systems might represent a source of available food for filter-feeding
organisms, such as bivalves, reducing its impact on the environment (18) and can represent a
potential economic income.
Filter feeders bivalves are essentially generalist consumers, and it has been demonstrated that they
can exploit organic matter from several sources, as a function of its availability (19). In a conceptual
open water integrated aquaculture, filter feeder bivalves are cultured adjacent to fish floating cages,
reducing nutrient loadings by filtering and assimilating particulate wastes (uneaten food and faeces)
as well as phytoplankton. In this way, bivalves would perform as biological filters. Previous studies
have determined that bivalves can be successfully incorporated into integrated multitrophic
aquaculture systems, based on the increased growth displayed and the feeding efficiency on pellet
feed and fecal products (20, 21).
IMTA has been proposed for mitigating aquaculture waste release, and has advantages that may
include a reduced ecological footprint, economic diversification and increased social acceptability of
culturing systems. IMTA has the promise to contribute to the sustainability of aquaculture. However,
most studies have focused on land-based systems, and only a few have to-date investigated the
possibilities of IMTA farming in open water. In the past fifteen years, the integration of seaweeds
with marine fish culturing has been examined and studied in Canada, Japan, Chile, New Zealand, and
USA (2, 3, 4, 5, 6, 7). IMTA have been commercially successful at industrial scales in China for
many years.
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The integration of social services with aquaponics includes all agricultural and aquaculture activities
using resources both from plants and fish, in order to promote tourism or generate therapy,
rehabilitation, social inclusion, education and social services in rural areas. However, strictly linked
to agriculture where groups of people can stand to work together for social family farms.
Social farming can also be regarded as a service provided by subsistence agriculture. This does not
mean a reduction in quality of services in poorer areas, but rather serve as a way to improve their
effectiveness by linking formal and informal professional services with more than one non-
professional (23).
Social farming is an emerging concept in Europe that includes various participants interested in its
development: farmers, farmer organizations, users of services provided by farms social welfare
service providers and other health stakeholders in social and health and local, regional and national.
This is an innovative approach located within two concepts based multifunctional agriculture and
social community. Social agriculture includes all agricultural activities using resources both from
plants and animals, in order to promote (or generate) social services in rural areas. Examples of
services are tourism, rehabilitation, therapy, job protected, lifelong education and other activities that
contribute to social inclusion.
Social farming is a new concept and also traditional. It comes from traditional rural systems before
modernizing agriculture and increasing civil service system. In today's concept was substantially
reformed in an innovative way in evolution.
The main products of social agriculture, in addition to marketable products are health and
employment, education or therapy. Agriculture provides opportunities for people to participate in
various rhythms of day and year, either in aquaculture. Social agriculture includes agricultural
enterprises which integrate people with physical, mental or emotional, firm, providing openings for
the socially disadvantaged, for young offenders or those with learning difficulties, people with drug
addictions, senior long-term unemployed and actively citizens, strong schools and kindergartens, and
more. Disease prevention, inclusion and a better quality of life are features of social farming.
The added value of social farming enables disadvantaged people to be integrated in a living context.
The presence of farmers, contact and relationship with people, animals and vegetable crops, specific
responsibilities of the person using the service are some of the key features of the social practices of
agriculture (24).
II. Materials and Methods
The methodology for assessment of the opportunity analysis model for development of multi-use
aquaponics production platforms entails the following general steps:
- The socio-economic characterization of the model of multi-use aquaponics production

platforms in terms of agriculture, aquaculture and social services.
- The production and demand structures of the proposed model of multi-use aquaponics
production platforms are investigated. This is done by the identification and quantification
of costs and benefits of suggested multi-use aquaponics production platforms by using
market and non-market methods in order to capture private, social and ecological effects.
- Policy recommendations are based on economic tools such as Cost-Effectiveness Analysis,
Cost-Benefit Analysis and other approaches to socioeconomic analysis such as Multi-
Criteria Decision Analysis.
The suggested methodology for socio-economic analysis consists of a baseline profiling of case and
socio-economic characterization with regard to future economic activities (agriculture production,
aquaculture and social services). Then, production and demand functions of the model of multi-use
aquaponics production platforms are identified. A decision on whether full or limited data should be
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collected for an impact assessment is taken. Thereafter data on the site is collected and costs and
benefits are quantified. The assessment of impacts and evaluation of the assessment based on limited
data approach, integrating results on Impact Assessment Analysis are conducted. Finally, policy
recommendations based on impact assessment results and sensitivity analysis are provided.
This part of the framework focuses on gathering information about the socio-economic environment
and context of the proposed development with regard to aquaponic production, aquaculture and social
services. Hence, before achieving the evaluation of the socioeconomic impact it is necessary to start
with the baseline profiling of the case study areas in order to identify who is going to be impacted.
Thus, this approach is expected to enable the identification of the production and demand functions
of the model of multi-use aquaponics production platforms.
In order to assess indirect and induced impacts a regional profiling is necessary. The information
typically gathered as part of a regional profile includes the natural resources, the population
characteristics, the political and social resources, a description of historical factors, identification of
the relationships with the biophysical environment, culture, attitudes and social-psychological
conditions, the current status of operations (aquaculture, aquaponic production, social services) and
the identification of the people who will be impacted by the project (22). The initial assessment must
include economic and social analysis of the use of waste waters under current use and future
autonomous developments. This assessment should include both market and non-market costs and
benefits. The scope is the profiling of all current uses and identifying businesses, households and
individuals that may be impacted by the future installation of the model of multi-use aquaponics
production platforms. Furthermore, broader social and environmental issues related to current and
future operations should be highlighted.
The following subsections identify economic issues, environmental issues and social issues
concerning level of employment, regional development and overall attitude of the population towards
the technologies and specific options proposed. The production and demand analysis is based on
economic data, environmental valuation surveys and Benefit Transfer techniques.
This analysis is based on proposed financial costs of the model of multi-use aquaponics production
platforms structures as well as social and environmental costs. The identification of the private costs
of the suggested model of multi-use aquaponics production platforms structures with regard to
aquaculture and social services is the first step of the production-side analysis. Training costs are
expected to cover the training of people who will run the platforms with regard to the safety, financial
and environmental implications.
Since the scope of the developed methodology is to integrate private, social environmental costs of
the suggested model of multi-use aquaponics production platforms it is equally important to consider
the latter in the suggested framework of analysis.
The analysis here is focused on proposed financial, social and environment benefits of the platform
structures.
III. Results and Discussions
In order to fulfill EU strategies for Sustainable Development of Smart and Green Aquaculture, this
analysis model aims to address the following key-questions:
• What are the best practices to develop an aquaponics project on multi-use platforms?
• What are the accumulated social, economic and environmental effects of aquaponics
production system?
• What are the best strategies for installation, maintenance and operation of a multi-purpose
aquaponics production system?
• What is the economic and environmental feasibility of multi-use aquaponics production
platforms?
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It is essential that all work under this project contributes directly towards real design concepts for
multi-purpose aquaponics production system in terms of the new emerging sectors in aquaculture
areas:
- Tourism (including pesca tourism);
- “Green” products and services (including environmental protection, waste management,
energy saving and alternative energy)
- “White” or social services and jobs (including child care and old peoples care, working
with schools, health)
- “Smart” products and services (including uses of IT, creative and cultural industries,
design and research).
For this reason test sites will be studied to develop innovative plans and designs for harvesting
agricultural, aquaculture and logistic support.
The questionnaire survey gained a total of 16 valid samples and 8 with intention to develop social
farming activities.
The education level is correlated positively to the image of social farming. The higher the education
level increases, the farmer sees the social farming.
The absence of image of the social farming sector is still seen as a risk by some managers. Indeed, the
image can then still be developed and hence be hijacked. To fill this gap in terms of image should
therefore be considered as a strategic priority for the social farming sector. Farmers have a confused
and slightly negative image of the social services sector. The image of social farming sector derives
from the image of the social services sector.
If a specific promotion of social farming were to be preferred, it should base itself on the positive but
often unknown attributes of these types of activities. Indeed, improving the image of social farming
sector should be a priority of the public service sector, as it will contribute to improving acceptance
of this type of services, on the long term.
IMTA involves cultivating organisms in a way that allows the uneaten feed, wastes, nutrients and by-
products of one species to be recaptured and converted into fertilizer, feed and energy for the growth
of the other species. IMTA farmers combine species that need supplemental feed such as fish, with
“extractive” species.
Essentially, extractive species act as living filters. The natural ability of these species to recycle the
nutrients (or wastes) that are present in and around fish farms can help growers improve the
environmental performance of their aquaculture sites. In addition to their recycling abilities, the
extractive species chosen for an IMTA site are also selected for their value as marketable products,
providing extra economic benefits to farmers.
Sustainability of aquaculture not only requires that it has a neutral effect on the environment but also
that it be economically feasible. A further condition is that of social acceptability; that attitudes
towards the sector are at least neutral.
Economic analyses will have to recognize and account for the values of the environmental/societal
services of extractive crops to estimate the true value of these IMTA components. They will have to
include the impacts of organic and other ecolabelings, the value of biomitigating services for
enhanced ecosystem resilience, the savings due to multi-trophic conversion of feed and energy that
would otherwise be lost, and the reduction of risks through crop diversification and increased societal
acceptability. This would create economic incentives to encourage aquaculturists to further develop
and implement sustainable marine agronomy practices such as IMTA.
The future development of Integrated Multi Trophic Aquaculture (IMTA) will depend on both how
financially profitable it is for farmers and how it is regulated. From the perspective of farmers, IMTA
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offers a number of potential economic advantages in comparison with non IMTA, including
increased physical production from a given site, greater diversity of production, and more intensive
use of facilities, labor and sites. These must be balanced against potential economics disadvantages
such as greater complexity, more risks, and greater challenges in site selection. From a public
perspective, IMTA offers significant potential public benefits in comparison with non IMTA,
including reduced negative environmental impacts and positive ecosystem services. Although
methodologies exist to estimate the economic value of these benefits, they can be expensive and
imprecise.
The synergistic cultivation and rearing of plants and animals is an ancient practice and continues to
be used for extensive food production in many parts of the world. However, the intensification of
terrestrial and aquatic food production—the so-called green and blue revolution, respectively—has
been characterized by a monocultural approach along with the partitioning of feed, fertilizer, and
food production components. The recognition of significant and deleterious environmental effects of
this intensive and industrialized food production approach has led to a more recent reexamination and
application of traditional practices of integrating multiple trophic levels in terrestrial and aquatic
systems.
There was strong concurrence on five factors listed under this topic (that is, factors with value sums
of mid-range or higher). In the area of strengths, the respondents agreed strongly on the importance
of a benefit or service to the environment that could be provided by IMTA (nutrient recycling
especially in closed systems). Strong concurrence on one weakness qualified the enthusiasm for the
environmental service that had been seen as a strength, by pointing to the lack of thorough
understanding of environmental impacts of IMTA. The threats upon which the respondent group
agreed most strongly were not directly in the area of ecology, but rather expressed concern about the
economic feasibility of IMTA, and the impact that environmental issues could have on the necessary
social license to operate (potentially lower profitability compared to existing aquaculture systems; not
enough public funding for developing a network of demonstration and research sites to examine the
feasibility of IMTA; and larger scale applications may have greater environmental impact and thus
less social license).
The weaknesses have to do most importantly with the complexity of IMTA (complexity: marketing,
operations, juveniles, business planning; and regulatory complexity), and that the economic threats
would be lack of social acceptance/public perception; susceptibility to natural hazards (disease,
parasites, storms), and greater regulatory requirements for IMTA.
Strengths of IMTA that could help move aquaculture forward appear to be that it is a new approach
that could be more acceptable to the general public and to local communities because it can supply
environmental services to clean up environmental contaminants where it is practiced in open systems,
and can in closed, recirculation systems isolate cultured species and potential contaminants, diseases,
etc., from the natural environment. There is a positive perception of the sustainability of IMTA
systems, and of its ability to use alternative feeds rather than those made entirely from fish. Further,
there would be economic advantages from the multiple products that can be sold in new market areas,
including niche markets, and IMTA would open many opportunities for research, innovation,
partnerships, and education.
Strengths and opportunities are manifold. Concerns seem to center on IMTA’s complexity at various
levels—for example, conceptual, including the difficulty of explaining it to the public and to
regulators; and operational, including extra costs for setup, construction, and maintenance; and
regulatory, such as in policy, funding, and licensing issues. There is a concern that there is not
adequate funding to expand current demonstration efforts, or to expand to new demonstration sites to
carry research results forward into practical, commercial-scale application.
Even if aquaculture in the form of IMTA is technically, environmentally, and economically viable, it
will not be successful unless it is accepted by society in general, and by the local community and
other stakeholders in particular, based on their beliefs, perceptions, and opinions. They must be
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convinced that IMTA has value and a positive role to play, and that the business is a part of the
community, rather than an intruder or burden to it.
Ecosystem approach to aquaculture is a strategy for the integration of the farming activity within the
wider ecosystem in such a way that it promotes sustainable development, equity and resilience of
interlinked social and ecological systems (10). Integrated farming is one of the best paradigms of
ecosystem approach to aquaculture with advantages of increment of carrying capacity,
bioremediation, diversified products, and prevention of diseases.
Aquaculture developments raise issues of concern in terms of environmental impacts and ecosystem
health. For aquaculture systems to be sustainable, they should not cause damage to natural systems by
critically increasing (e.g. nutrients) or decreasing the concentrations of natural substances (e.g.
chlorophyll). Other potential impacts relate to increasing concentration of man-made substances, such
as persistent chemicals and through physical disturbance leading to habitat changes.
Aquaponics is a food production system that combines soil-less vegetable growing (hydroponics) and
fish farming (aquaculture) within a closed re-circulating system. This combination of food production
methods (hydroponics and aquaculture) removes the problems associated with the individual
production methods.
For aquaculture, the main problem with Recirculating Aquaculture Systems is the production of
Nitrate rich waste water that must be treated or dumped, creating major environmental problems. For
hydroponics, the main problem is the complete reliance on chemical fertilizers to grow the
vegetables.
When both methods are combined in an aquaponic unit, the nutrient-rich wastewater from the fish
tanks, which would normally need to be treated or dumped, is used as an organic fertilizer for plant
production. In turn, this removes the need for chemical fertilizers for plant growth using hydroponics.
The main benefices of aquaponics:
1. Two agricultural products can be produced from only one input (fish food)
2. High density crop production is possible as no real competition for nutrients among the plants
3. Aquaponic food production is very water-efficient (units use less than 20% of the water needed for
normal soil farming) and units can be installed in urban or peri-urban environments
4. Aquaponic food production creates zero waste and no chemical fertilizers or pesticides are used
making it a very environmentally friendly method of producing food
Advantages for aquaponic food production:
• Uses organic waste as the plant fertilizer

• Uses natural pest controls
• Tends to produce better tasting and at times more nutritional crops
• Potential for year-round production if growing environment can
be controlled (i.e. greenhouse)
• Imitates a natural eco-system thus making it a highly sustainable
food production method
• Increasing population & Urbanization
• Declining land agricultural productivity
• Increasing demand for healthy, pesticide free produce
It is considered that the model multi-use aquaponics production platforms have socio-economic and
environmental impacts on aquaculture, recreational fishing, yachting and boating and other water-
based activities. They also have an impact on land-based activities, agricultural tourism, water waste
management, regional employment (direct and indirect) and training opportunities.
1191
The ecosystem services approach can be employed in order to perform the socioeconomic analysis
and integrate environmental impacts. Ecosystem services are defined as services provided by
ecosystem services approach the natural environment that benefits human welfare.
The ecosystem services approach establishes an environmental baseline, identifies and provides a
qualitative assessment of the potential impacts of policy options on ecosystem services and quantifies
the impacts of policy options on specific ecosystem services. Finally, the ecosystem services
approach assesses the effects on human welfare and values the changes in ecosystem services. When
assessing the impact of ecosystem services on human welfare, it is critical to focus on the benefits
generated by these services, as this is what affects human welfare directly. It is, therefore, the benefits
rather than the services per se that are valued.
Due to the multidimensional character of the impacts leading to welfare gains and sometimes losses,
a range of different information is needed in order to assess them. Thus, market data, secondary data
for the performance of simulations, survey based primary data, data provided from literature review,
consultation with experts and stakeholders and information coming from environmental impact
assessments is all deemed as very important in the framework of integrated environmental and socio-
economic assessment.
The tremendous impact of aquaponic in aquaculture has been particularly obvious in recent years.
However, aquaponic needs to overcome a lack in standardization of methodologies and procedures.
IV. Conclusions
The conversion of conventional aquaculture farms in sustainable and ecologically aquaculture farms
help aquaculture businesses to achieve economic viability and competitiveness. Green aquaculture is
undoubtedly the management technique that has most contributed to support aquaculture businesses
to adopt aqua-environmental measures for protection of the environment, natural resources and
landscape. Private and financial benefits of suggested model of multi-use aquaponics production
platforms could result from the sale of vegetable, aquaculture products and services. Additional
benefits could be derived from saving of fuel consumption and reduction of energy expenditure or by
product sales (or displaced costs), greater productivity (macro scale) and higher real disposable
income (macro scale). Environmental benefits include: mitigated global warming, avoided emissions
compared, improved water quality.
Social farming adopts a multifunctional view of agriculture. The main products, in addition to
marketable products are health care, education or therapy. Agriculture provides opportunities for
people to participate in the activities of the plant or animal. Social agriculture includes agricultural
enterprises that integrate people with physical, mental or emotional, firm, providing openings for the
socially disadvantaged, for young offenders or those with learning difficulties, people with drug
addictions, long-term unemployed, people the old active engagement with schools and kindergartens,
and more. Disease prevention, inclusion and a better quality of life are features of social farming.
Acknowledgment
Project H2020-MSCA-RISE-2014 No. 645691: Researches on the potential conversion of

conventional fish farms into organic by establishing a model and good practice guide.
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1194
Optimization of Distribution Routes through

The Clark-Wright Method
Čejka Jiří and Smetanová Dana
The Institute of Technology and Business, České Budějovice, Czech Republic
cejka@vstecb.cz
smetanová@vstecb.cz
Abstract
The transportation has experienced a considerable development in the past. At present, it
represents a vast and very segmented sector. In ranks among the most developing industries
of the national economy. It can be concluded that the transportation nowadays is understood
as a multi-sector field. The transportation continues to undergo many changes some of which have
both the positive and the negative effect. Thanks to high competitiveness, the profits
of the companies drop, however, the costs continue to rise. This paper is aimed to apply, upon the
status quo analysis of the transport and logistics processes, the optimization measures in Milktrans
a.s. towards making the selected processes more effective and their economic evaluation.
Specifically, it is the application of the Clark-Wright method as one of the method in solving the
travelling salesman problem. The problem of the circular travels is defined on the transport
network consisting of the group of nodes and edges connecting the nodes. In case of transportation
through a few service points, which is effected by the means of transport, the travelling salesman
problem method is the best solution.
Key words: operation research, decision theory, travelling salesman.
Introduction
The Clarke-Wright´s Method (hereinafter referred to as "C-W Method") is one of many operations
research methods primarily focused on solving the travelling salesman problem. The calculation
of the practical example using this method is more labour-intensive than using other similar
methods, but the result is more complex from the viewpoint of the whole optimized problem.
The method procedure is as follows: Two possible routes (V0-Vi-V0) and (V0-Vj-V0) are selected
according to the criterion and these routes are put together into the combined route (V0-Vi-Vj-V0).
The routes may be put together only where the combined route meets the conditions
of the acceptable solution, i.e. that the sum of combined routes does not exceed the capacity of
the vehicle K.
In this procedure we can easily check meeting of other conditions as well, such as the travel
duration, route length, number of nodes or the maximum route length. Benefits of the route
combining are determined by the savings arising from such combining of routes. These savings
are measured by the benefit coefficient zij, which arises from the relation zij = (d0i + d0j – dij),
where d0i, d0jand dij are the lengths of edges (V0, Vi), (V0, Vj) and (Vi, Vj). Here, the value zij is the
difference between the total of route lengths (V0-Vi-V0) and (V0-Vj-V0) and the length of the
combined route (V0-Vi-Vj-V0). In each procedure iteration, the method combines the two nodes
which have a higher benefit coefficient zij. The main advantage of this approach is that the
1195
coefficient zij depends only on the distances of the nodes Vi, Vj and V0 and does not change if these
nodes can be combined together. For more details you can see Clark, G. and Wright, J. W. (1964).
The C-W method is thus carried out in a few steps. By gradual implementing the steps we can
monitor and watch the limiting conditions. The whole task is defined using the transport network
S = (V; H), where V is the vertex and H are the edges connecting the vertices.
The vertex V0 is the initial point and V1 to Vn represent individual collection points. The route
always ends and starts in the centre V0 the capacity of which is limited. The goal is to compile a
set of routes in such a way that each collection point is visited only once and the vehicle capacity
is not exceeded.
The task will be thus solved by individual iteration steps. In each iteration, the possible routes
(V0-Vi-V0) and (V0-Vj-V0) are always combined in one route. Such a route must comply with
the above limiting conditions (see for example: Brozova, H. et al. (2003) Clark, G. and Wright, J.
W. (1964), Fedorko, G. et al. (2010), Fiala, P. (2002), Friedman, D. (1986 and 1990), Hindls,
Richard, et al. (2006), Jablonsky, J. and Dlouhy, M. (2004), Majercakova, E. and Majercak, P.
(2015)).
The procedure consists of the following steps:
1) The matrix of distances D ={d(i; j)} is compiled for the transport network (firstly
in Clark, G. and Wright, J. W. (1964)).
2) Also, we need to know the limiting parameters:

c – average speed of the vehicle in the network
t – time necessary to unload and load the vehicle
T – maximum time where the vehicle is outside the initial node V0
K – vehicle capacity
qi … quantity of elements transported from the vertex V0 to the vertex Vi (for i = 1, …, n)
We draw-up the initial solution which is a set of elementary routes (V0-Vi-V0) for all
nodes i = 1, …, n with the given quantity of transported elements and the time of
transportation.
3) Using the matrix H, we compile the matrices of benefit coefficients Z = {zij}, where i, j =
1, …, n according to the relation zij = di0 + d0j – dij (see Clark, G. and Wright, J. W.
(1964)).
4) Now we find the biggest positive element Zij in the matrix Z and, unless the given
conditions are exceeded, we will combine (V0 – Vi – V0) and (V0 – Vj – V0) into the
combined route (V0 – Vi – Vj – V0).
5) We check the route combination in step No. 4 and, if the capacity is exceeded, we repeat
the step No. 4. If the capacity is not exceeded, we can continue with the following step.
6) By combining the routes, the vertices i and j are no longer marginal vertices and the set of
vertices needs to be updated, i.e. it is necessary to determine zij = 0. In doing so, it is
necessary to consider the other limiting conditions which must be met.
1196
If the steps No. 4 and No. 5 cannot be done, it is necessary to find the closest smaller or the same
big element which will combine the routes containing other vertices, which can be both the
elementary routes and the routes created by the previous combination.
The whole procedure is repeated until the Z matrix or the maximum vehicle capacities are
depleted.
For deeper understanding of application of the Clark-Wright method we recommend the following
articles and books: : Brozova, H. et al. (2003), Brumercik, F. and Krzywonos, L. (2013) , Clark,
G. and Wright, J. W. (1964), Emrouznejad, A. (2011), Fedorko, G. et al. (2010), Fiala, P. (2002),
Friedman, D. (1986 and 1990), Hindls, Richard, et al. (2006), Jablonsky, J. and Dlouhy, M.
(2004), Majercakova, E. and Majercak, P. (2015).
Results
The above method was used within the optimization plan of Milktrans a.s. in designing new
transport routes for collection and distribution. Milk is sometimes collected from/transported into
two processing plants České Budějovice and Český Krumlov.
The vehicle capacity is limited by the size of a cistern truck, i.e. 13,800 litres. The calculated costs
per one travelled kilometre amount to CZK 23.80. Table No. 1 shows the names of existing
places.
Table 1: Names of existing places
M1 České Budějovice M20 Velešín
M2 Zborov M21 Čížkrajice
M3 Ledenice M22 Horní Stropnice
M4 Zvíkov M23 Dolní Třebonín
M5 Libín M24 Mojné
M6 Olešnice M25 Srnín
M7 Otěvěk M26 Plav
M8 Český Krumlov M27 Bukovec
M9 Chodeč M28 Nová Ves
M10 Zubčice M29 Brloh
M11 Hořice na Šumavě M30 Chlum
M12 Ločenice M31 Bohdalovice
1197
M13 Mokrý Lom M32 Malšín
M14 Černý Dub M33 Kyselov
M15 Mříč M34 Horní Dvořiště
M16 Krásetín M35 Rychnov
M17 Přísečná M36 Soběnov
M18 Horní Třebonín M37 Smrhov
M19 Dolní Svince M38 Pořešín
M39 Žaltice
Table No. 2 shows the current routes for the milk collection into the dairy factory in Český
Krumlov and České Budějovice.
Table 2: Existing routes
Vehicle No. 1
Time of
Route Travel Filling Total
Volume disconnection
Route length time time time
[l] and connection
[km] [hour] [l/hour] [hours]
[hour]
M1-M2-M3-M5-M6-M7-
M8 12050 89 1,48 0,33 0,70 2,51
M8-M9-M10-M1 13800 52 0,87 0,38 0,23 1,48
M1-M11-M12-M13-M1 9460 102 1,70 0,26 0,35 2,31
Vehicle No. 2
M1-M14-M15-M16-
M22-M8 13800 112 1,87 0,38 0,47 2,72
M8-M19-M17-M23-
M20-M21-M22-M1 13800 117 1,95 0,38 0,70 3,03
M1-M18-M24-M22-
M25-M1 4480 103 1,72 0,12 0,47 2,31
1198
Vehicle No. 3
M1-M26-M24-M27-
M28-M29-M30-M8 13800 108 1,80 0,38 0,70 2,88
M8-M29-M31-M32-
M33-M34-M35-M36-
M37-M38-M4-M10-
M39-M12-M8 13800 162 2,70 0,38 1,51 4,59
TOTAL 94990 845 14,09 2,62 5,13 21,84
The total length of the current route is 845 km and 94,990 litres of milk are transported.
The transportation costs currently amounts to CZK 20,111 a day. For implementation of this link,
the optimization of the route with a vertex in Český Krumlov was carried out.
The basis for the solution is the matrix of distances which can be found in Annex No. 1. Individual
values characterize the distances from individual vertices. The Table No. 3 shows the initial points
and their names upon which the matrix of distances were compiled. For each collection point the
number of collected litres of milk is provided.
Table 3: Designation of places for the matrix
Place Place
Town Volume [l] Town Volume [l]
No. No.
V0 Český Krumlov V19 Čížkrajice 2500
V1 Zborov 2600 V20 Horní Stropnice 8370
V2 Ledenice 2950 V21 Dolní Třebonín 5150
V3 Zvíkov 230 V22 Mojné 5550
V4 Libín 4050 V23 Srnín 1050
V5 Olešnice 1900 V24 Plav 3400
V6 Otěvěk 550 V25 Bukovec 160
V7 Chodeč 7500 V26 Nová Ves 1600
V8 Zubčice 6300 V27 Brloh 5050
V9 Hořice na Šumavě 380 V28 Chlum 1350
1199
V10 Ločenice 5200 V29 Bohdalovice 1850
V11 Mokrý Lom 7450 V30 Malšín 700
V12 Černý Dub 3100 V31 Kyselov 460
V13 Mříč 4650 V32 Horní Dvořiště 890
V14 Krasetín 3650 V33 Rychnov 1150
V15 Přísečná 340 V34 Soběnov 950
V16 Horní Třebonín 410 V35 Smrhov 1300
V17 Dolní Svince 580 V36 Pořešín 650
V18 Velešín 220 V37 Žaltice 800
After compiling the distance matrix in accordance with the above formula, we will compile the
benefit matrix shown in Annex No. 1. The benefit matrix (Figure No. 1) is a result of the
relationship Zij = d0i+d0j-dij.
1200
Figure 1: Benefit matrix - initial point Český Krumlov
1201
During the collection of milk, the cistern truck capacity is important. The Table No. 5 shows
the lists of basic partial elementary routes. The length of routes is led from the initial point (V0) to
the target point (VX) and back to the initial vertex (V0). The distances are given in kilometres, the
transported volumes in litres and the time in hours. Before compiling the Table No. 5, it is
necessary to make a table of limiting parameters (see Table No. 4) which characterizes the limiting
values and parameters for the particular calculation. The parameters are set by the company´s
management and the vehicle and the integrated pump capacity.
Table 4: Limiting parameters
Number of vehicles 3
Volume [litres] 13800
Average speed [kmph] 60
Filling time [l per min] 600
Time of disconnection and connection [min] 7
Table 5: Elementary routes - initial state of the solution of the travelling salesman problem
Time of
Filling
connection Travel
Elementary routes qi Length time T
and time
[l/hour]
disconnection
V0-V1-V0 2600 60 0.12 0.12 1.00 1.24
V0-V2-V0 2950 58 0.12 0.12 0.97 1.21
V0-V3-V0 230 72 0.12 0.12 1.20 1.44
V0-V4-V0 4050 74 0.12 0.12 1.23 1.47
V0-V5-V0 1900 70 0.12 0.12 1.17 1.41
V0-V6-V0 550 60 0.12 0.12 1.00 1.24
V0-V7-V0 7500 30 0.12 0.12 0.50 0.74
V0-V8-V0 6300 20 0.12 0.12 0.33 0.57
V0-V9-V0 380 28 0.12 0.12 0.47 0.71
V0-V10-V0 5200 40 0.12 0.12 0.67 0.91
1202
V0-V11-V0 7450 44 0.12 0.12 0.73 0.97
V0-V12-V0 3100 44 0.12 0.12 0.73 0.97
V0-V13-V0 4650 28 0.12 0.12 0.47 0.71
V0-V14-V0 3650 26 0.12 0.12 0.43 0.67
V0-V15-V0 340 8 0.12 0.12 0.13 0.37
V0-V16-V0 410 18 0.12 0.12 0.30 0.54
V0-V17-V0 580 22 0.12 0.12 0.37 0.61
V0-V18-V0 220 28 0.12 0.12 0.47 0.71
V0-V19-V0 2500 66 0.12 0.12 1.10 1.34
V0-V20-V0 8370 80 0.12 0.12 1.33 1.57
V0-V21-V0 5150 18 0.12 0.12 0.30 0.54
V0-V22-V0 5550 22 0.12 0.12 0.37 0.61
V0-V23-V0 1050 10 0.12 0.12 0.17 0.41
V0-V24-V0 3400 44 0.12 0.12 0.73 0.97
V0-V25-V0 160 28 0.12 0.12 0.47 0.71
V0-V26-V0 1600 32 0.12 0.12 0.53 0.77
V0-V27-V0 5050 46 0.12 0.12 0.77 1.01
V0-V28-V0 1350 30 0.12 0.12 0.77 1.01
V0-V29-V0 1850 24 0.12 0.12 0.50 0.74
V0-V30-V0 700 46 0.12 0.12 0.40 0.64
V0-V31-V0 460 54 0.12 0.12 0.77 1.01
V0-V32-V0 890 72 0.12 0.12 0.90 1.14
V0-V33-V0 1150 62 0.12 0.12 1.03 1.27
V0-V34-V0 950 46 0.12 0.12 0.77 1.01
V0-V35-V0 1300 42 0.12 0.12 0.70 0.94
1203
V0-V36-V0 650 38 0.12 0.12 0.63 0.87
V0-V37-V0 800 18 0.12 0.12 0.30 0.54
The compilation of the distance matrix and the benefit matrix is followed by the calculations of
partial routes. In the benefit matrix we search for the highest value and continue to the lowest one.
The highest position is, therefore, formed by the vertices V3 and V4 and, therefore, the first partial
route can be compiled (see Majercakova, E. and Majercak, P. (2015)).
Iteration: Zij= Z3,4= 68. The resulting route will be V0-V3-V4-V0, which in the matrix of
distances corresponds to 78 km (36 + 0 + 5 + 37), see next table
Table 6: Routes (iteration)
Time of
Route Travel disconnection Total
Volume Filling time
Route length time and time
[l] [l/hour]
[km] [hour] connection [hours]
[hour]
V0-V3-V4-V0 4280 78 1.3 0.118 0.23 1.648
After each step, the routes will be updated and recorded in the same table. The other steps will be
repeated in the same way until all vertices of the matrix are depleted. (as an illustration, the
calculation was demonstrated for the first iteration) (c.f. Brozova, H. et al. (2003)).
Table 7: Optimized routes - vertex Český Krumlov
Time of
Route Travel Filling Total
Route Volume disconnection
Route length time time time
No. [l] and connection
[km] [hour] [l/hour] [hours]
[hour]
1.
V0-V1-V2-V3-V4-V30-
V31-V32-V33-V36-V0 13680 186 3.1 0.38 1.04 4.52
V0-V5-V6-V18-V19-
2. V20- V0 13540 140 2.3 0.38 0.58 3.26
V0-V14-V22-V29-V34-
3. V35 -V0 13300 109 1.82 0.37 0.58 2.77
V0-V9-V10- V11-V15-
4. V0 13370 72 1.2 0.37 0.47 2.04
1204
V0-V13-V23-V26-V27-
5. V28-V0 13700 66 1.1 0.38 0.58 2.06
V0-V12-V16-V17-V21-
6. V24-V25-V37-V0 13600 78 1.3 0.38 0.82 2.5
7. V0-V7-V8-V0 13800 31 0.52 0.38 0.23 1.13
Total 94990 682 11.34 2.64 4.3 18.28
It is clear that the results of the implementation using the C-W method were optimal as not only
the number of travelled kilometres was reduced, but even one collection could be cancelled.
Conclusion
After applying the C-W method, it was found out that if the dairy factory in Český Krumlov is the
initial point, the route will be reduced by 163 km as compared to the original state and the number
of travels will drop from 8 to 7. Not only that the kilometres will be saved, but the total time will
be reduced to 18.28 hours.
Using the C-W method applied to the initial point in Český Krumlov, significant savings were
discovered. The total costs a day will be reduced by CZK 3879.4. In the all-year operation, the
savings amounting to CZK 1,415,981 can be achieved. The optimization was implemented to new
transport links of Milkrans factory’s vehicles.
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1205
Hindls, Richard, et al. (2006) Statistics for Economists, Professional Publishing, Prague.
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1206
Annex No. 1: Matrix of distances
1207
Social Economy and Corporate Social Responsibility the Joint Venture

between Democracy and Capitalism
Violeta Stanciu (CHIRILOAIE)
University of Agronomic Sciences and Veterinary Medicine of Bucharest, Romania,

violeta.chiriloaie@yahoo.com
Gabriela Marchis
Danubius University of Galati, Romania, gabrielamarchis@univ-danubius.ro
Abstract
Europe 2020, “a strategy for smart, sustainable and inclusive growth” aims to reduce unemployment rate
and the number of European citizens facing poverty and social exclusion. Social Economy (SE) and
Corporate Social Responsibility (CSR) are two democratic approaches on economy that could bring their
contribution in achieving these goals. The objective of the present article is to explain the two concepts
from the European Union perspective and to compare them. In our attempt we will use EU official
documents and studies published by European research networks. The conclusion of our research is that
there are both differences and similitude between these two concepts that place them in different
economic sectors but also create meeting points, contributing to the social good. Both of them attempt to
help the capitalism becoming more democratic and the democracy to win a better economic efficiency,
addressing a broader understanding of capital and profit. Apart the two concepts' inner advantages and
imperfections, we should not forget that SE and CSR policies involve actions that some social groups can
do for others but also (and mainly) about what social groups at risk can do for themselves.
Keywords: social enterprise, sustainability, third sector, social innovation, social entrepreneurship
JEL Classification: L31, L13, O17, D71, E26, A13
Introduction
Democracy is not perfect but it is the best political regime we know. As Sir W. Churchill said: “no one
pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form
of government except all those other forms that have been tried from time to time.” (DEMOCRACY-
BUILDING.INFO, 2004). In our opinion, the same assertion may apply for capitalism as an economic
system.
The two concepts are related and their existence in Europe today, seems granted by their joint venture.
Although they have deeper roots, especially in the European history, their modern existence started in the
18th century. The word capitalism was first used by James Steuart in Inquiry into the Principles of
Political Economy (1767) and explained by Adam Smith in his work The Wealth of Nations (1776). It is
generally defined as an economic system where private owners of the production means aim to use them
in order to obtain profit. Modern democracy rises in the same historical period, together with the first
Parliament (1707, Great Britain) and The Declaration of Human Rights (France 1789). It is mainly seen
as a government by people and a rule of law, protecting the human rights, both negative (that the
government should not disturb) and positive (that the government should grant by its actions). By the 19th
century it was already clear that democracy alone cannot eradicate social problems and capitalism
developed a profit maximization behavior seldom found guilty for poverty and social exclusion.
1208
Nevertheless, by the end of the 20th century, it was generally accepted in Europe that the attempts of
replacing capitalism with alternative systems had proved to be economically inefficient and dangerous for
the democracy. Nowadays, both in the Eastern and the Western Europe, democracy and capitalism
became a couple in which the first one, more sensitive to social needs was called to “tame” the
pragmatism of the capitalist economy, in seek for financial profits.
New social and economic models attempt to create a more democratic capitalism by adding social
purposes to for-profit companies. Profit is still considered a proof of good administration that allows
organizations to last, but the management of the business becomes more democratic and the sharing of
the over-plus is made with different stakeholders, not only with the capital owners. A new economic
sector was born. Its challenge is to satisfy needs that the other sectors cannot meet by offering products
and services to different social groups outside the market. Nevertheless, it is important to admit that, even
if it uses unpaid work and material donations, the Third sector still depends on the financial contribution
of the private sector and on favorable government transfers and policies. The Third sector cannot replace
capitalism or the interventions of the government, it can only enrich economy and politics by offering a
new vision on the redistribution of the wealth.
Europe tries to build a more “sustainable, smart and inclusive economy” reflected also in the rise of two
relatively new concepts: The (Neo) Social Economy* and The Corporate Social Responsibility. Although
the Europe 2020 Strategy does not mention them explicitly, the Council's conclusions about a new global
partnership for poverty eradication and sustainable development after 2015, clearly indicates SE and CSR
among the guiding principles proposed in order to recover the delays in achieving the strategy's goals.
“We underline the importance of micro, small and medium-sized enterprises and enterprises of the social
economy to job creation and sustainable development...Corporate Social Responsibility (CSR), including
its environmental dimension, should be a central element of private sector investments.” (General
Secretariat of the Council, 2015, p. 16)
SE vs. CSR – the mystery of acronyms
Social Economy (SE)
Social Economy is mainly seen as a sum of organizations producing goods or services, having a social
purpose and a democratic management. According to the European Parliament Resolution
2008/2250(INI), “the social economy is comprised of cooperatives, mutual societies, associations,
foundations and other enterprises and organizations that share the founding characteristics of the social
economy.” (European Parliament, 2008, p. 8). EU policies mainly operate with a definition proposed by
The International Center of Research and Information on the Public, Social and Cooperative Economy
(CIRIEC) in 2012, explaining the SE as a “set of private, formally-organized enterprises, with autonomy
of decision and freedom of membership, created to meet their members’ needs through the market by
producing goods and providing services, insurance and finance, where decision-making and any
distribution of profits or surpluses among the members are not directly linked to the capital or fees
contributed by each member, each of whom has one vote, or at all events take place through democratic
and participate decision-making processes.” (Campos & Ávi, 2012, p. 22) Another study carried by the
EMES International Research Network shows a set of criteria fallowed by the Social Enterprises such as:
“a continuous activity producing goods and/or selling services, a significant level of economic risk and a
minimum amount of paid work; an explicit aim to benefit the community, an initiative launched by a
group of citizens or civil society organizations and a limited profit distribution; a high degree of
autonomy, a decision-making power not based on capital ownership and a participatory nature, which
involves various parties affected by the activity”. (Defourny & Nyssens, 2012, pp. 12-15)
The first criteria was traditionally connected to the capitalist sector, active on the market, aiming to obtain
profit through commercial exchanges. Traditionally co-operatives and mutual organizations are part of
1209
this sector and target profit through their commercial activities. They add a social purpose to their aims, a
democratic management and a more equitable profit sharing with the stakeholders. The charity
associations and foundations are usually nonprofit organizations and traditionally were not considered as
economic actors. But, a modern broader understanding of economy, not only through welfare expressed
in money but also as a “human behavior” connecting goals with “scarce means which have alternative
uses” (Robbins, 1923, p. 15) along with their obvious contribution to the fight against poverty and social
exclusion allowed the recognition of associations and foundations as members of the SE. They mainly
produce “merit goods”, explained by CIRIEC as “those for which there is broad social and political
consensus that they are essential to a decent life and must therefore be made available to the entire
population, irrespective of income or purchasing power.” (Campos & Ávi, 2012, p. 32)
“The minimum amount of paid work” criteria is not in line with Europe 2020 first objective of
“ensuring 75% employment of 20–64-year-old.” (European Commission, Directorate-General for
Communication, 2013) The European Parliament Report on Social Entrepreneurship and Social
Innovation in combating unemployment (2014/2236(INI) clearly explains in its explanatory statement:
“The social economy helps to fulfill the four main aims of EU employment policy: improving the
‘employability’ of the active population; promoting the entrepreneurial spirit, [...] improving the ability
of enterprises and their workers to adapt [...].” (European Parliament, 2008, p. 8) It also proudly
acknowledge that “social support and health service providers, many of which are social enterprises,
represent one of the key job growth areas in the EU, having created 1.3 million jobs between 2009 and
2013; whereas this demonstrates the sector's dual ability both to create new jobs, even in times of crisis.”
(European Parliament, 2008, p. 4)
“The significant level of economic risk” is also not in line with the return of the European economy
towards efficiency and profitability. “Promoting a return to growth and competitiveness of European
economies has been the central focus of the European Commission’s work since the onset of the crisis.”
(European Commission, Directorate-General for Communication, 2013, p. 6) Should not be forgotten that
the measure of economic efficiency (the only one able to encourage growth on a competitive market) is in
fact the profit. For a sustainable, smart and inclusive growth, the economic activity, including the SE
sector has to reduce risk and increase efficiency, “combining profitability with solidarity.” (European
Parliament, 2008, p. 5) But, contrary to the Marxist paradigm, today “profit” is not only about money. It
is also seen as an immaterial benefit (social, cultural, moral), an over plus that is not always expressed in
currency. The CIRIEC definition of the SE illustrate this idea by adding the following paragraph “The
social economy also includes private, formally organized organizations with autonomy of decision and
freedom of membership that produce non-market services for households and whose surpluses, if any,
cannot be appropriated by the economic agents that create, control or finance them”. (Campos & Ávi,
2012, p. 22) Producing competitive goods and services together with a better legal national and European
frame and an easier access of the SE organizations to financing could reduce the economic risk and are
essential for the SE future. Social Economy is not about rejecting the profit aim but about a more
democratic management and distribution of the left over and about seeing profit in different ways, not
only as a financial winning.
Corporate Social Responsibility (CSR)
In 2001, the Commission presented a Green paper promoting a European framework for Corporate
Social Responsibility. The document considers that the raise of CSR practices are in line with the Lisbon
strategy, contributing to a sustainable growth by creating “more and better jobs” and improving the social
cohesion. The Green Document defines the CSR as “social and environmental concerns” integrated
within companies’ business approach and within their relations with the stakeholders “on a voluntary
basis”. (The Commission of the European Communities, 2001, p. 8) “Being socially responsible means
not only fulfilling legal expectations, but also going beyond compliance and investing “more” into human
capital, the environment and the relations with stakeholders.” (The Commission of the European
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Communities, 2001, p. 5) According to ISO 26000 standard (2010), CSR is the “responsibility of an
organization for the impacts of its decisions and activities on society and the environment through
transparent and ethical behavior.” (ISO/TMBG, 2010)
CSR policies have two dimensions: the internal one, focused mainly on employees and sustainable
internal procedures and the external one, oriented towards other stockholders and the protection of the
environment. The CSR policies related to employees concern fair rules for recruiting (equal payment for
equal work, fair access to jobs for different social categories, etc.) and restructuring (assisting employees
in finding new jobs or acquiring new skills), life-long learning (training), but also principles characteristic
for the SE economy: “profit sharing and share ownership schemes”. (The Commission of the European
Communities, 2001, p. 10) It also concerns the preoccupation for employees’ wellbeing, creating a safe
and healthy work environment. A second orientation of the internal CSR policies relates to sustainable
ways of carrying daily activities such as a responsible consumption of resources, producing goods and
services in a responsible way, managing correctly its impact over the environment. The external
dimensions of the CSR aim to support the local communities by even setting up their own foundations,
which can become part of the SE. They help companies accumulate social capital and integrate in the
local communities. “Some large companies demonstrate corporate social responsibility by promoting
entrepreneurial initiatives in the region of their location. Examples for such practices include mentoring
schemes offered by large companies to start-ups and local SMEs, or assistance to smaller firms on social
reporting and communication of their corporate social responsibility activities.” This principle was also
promoted by traditional co-operatives that created special funds in order to support other similar
organizations and offered consulting services for them. The external CSR dimension also concerns the
relationship with authorities, suppliers, distributors, based on the respect for the human rights and ethical
business practices. It includes anti-corruption policies and honest trade. The document also recommends
the elaboration of internal “codes of conduct” and tools for supervising the compliance of the internal
activity with the CSR policies assumed by the organization. The environment issue is also one of the mile
stone of the CSR external approaches, in the attempt of driving business towards a sustainable ecologic
development.
In 2010, among the list of key initiatives in building an European Platform against Poverty and Social
Exclusion, the Commission considered CSR as an ally in fighting poverty and social exclusion asking for
“a Social Business Initiative in order to support and accompany the development of socially innovative
corporate projects” but also a legal frame that imposes CSR reporting mainly on “business and human
rights, the international aspects of CSR, and especially the employment and enterprise aspects of Europe
2020” (European Commission, 2010, pp. 9-10)
Similarities and Differences between SE and the CSR
Back in 2001, The Commission considered that CSR, mainly practiced by large companies can be also
found “in all types of enterprises, public and private, including SMEs and cooperatives”, participation
schemes, mutual and associative enterprises “structurally integrating other stakeholder interests and
taking up spontaneous social and civil responsibilities.” (The Commission of the European Communities,
2001, pp. 4-8)
On contrary, by 2012, in its study “The EMES Approach of Social Enterprise in a comparative
perspective” the European Research Network reminds a “mission-driven business approach” school of
thoughts including in the SE field all organizations “that trade for a social purpose, including for-profit
companies”. Some authors even considered various activities carried by for-profit firms to assert their
corporate social responsibility as “part of the whole range of initiatives forming the wide spectrum of
social entrepreneurship” [(Austin, 2000), (Boschee, 1995), (Defourny & Nyssens, 2012)].
1211
Nowadays, CSR and SE are wildly recognized as different approaches. By 2015, The Committee's on
Employment and Social Affairs Report “warmly welcomes the increase in the number of conventional
enterprises which apply corporate social responsibility strategies as part of their business plans” but also
highlight the importance of making “a clear distinction between the social economy and corporate social
responsibility”. (European Parliament, 2008, p. 7).
Similarities
Both SE and CSR are connecting social goals to economic activities. In the “Green Paper, Promoting a
European framework for Corporate Social Responsibility” (2001), the Commission of the European
Communities reminds that “corporate social responsibility is essentially a concept whereby companies
decide voluntarily to contribute to a better society and a cleaner environment” (The Commission of the
European Communities, 2001, p. 5). In the report from 2012, CIRIEC demonstrates the SE contribution
to “solving new social problems”, building a “stable and sustainable economic growth, fairer income and
wealth distribution [...] increasing the value of economic activity serving social needs, correcting labor
market imbalances and, in short, deepening and strengthening economic democracy.” (Campos & Ávi,
2012, p. 18)
Both SE and CSR involve a profit oriented approach and a new approach on sharing the profit. The Green
Paper reminds that “a number of companies with good social and environmental records indicate that
these activities can result in better performance and can generate more profits and growth.” (The
Commission of the European Communities, 2001, p. 9). The Green Paper reminds that “a number of
companies with good social and environmental records indicate that these activities can result in better
performance and can generate more profits and growth.” (The Commission of the European
Communities, 2001, p. 9). Being both connected to the practice of the economics, they have to deal with
means of production, capital, economic efficiency, profit. Only that in the modern paradigm, the
production factors are not limited to labor, capital and nature but also include entrepreneurship, know-
how, technologies. Capital does not only refer to material investments but also human, symbolic, cultural
capitals. Regarding The Social Economy, The Report of the Committee on Employment and Social
Affairs published in 2015 asserts that “social and solidarity-based economy enterprises do not necessarily
have to be non-profit organizations” (European Parliament, 2008, p. 6). Moreover, joining efforts,
building a climate of trust, social bounds and entrepreneurial skills can also bring moral, social and
financial profits, along with financial incomes replacing poverty and social exclusion.
SE and CSR are based on a multi-stakeholder approach. They are concerned by all those affected by the
organization's activity. They ask for the support and the opinions of the communities around them and
support them in return. They produce responsible products for their clients and even reword clients for
their contribution in the development of the organization. They have a responsible attitude towards state
institutions, may join common projects and may contribute in elaborating lows and social policies.
Both CSR and SE consider the human resources one of their greatest concerns. Both invest in life-long
training programs and education of their employees and families. Cooperatives, associations and
foundations develop schools and universities, responsible companies invest in educational projects. Both
are trying to avoid unemployment. Companies are called to apply a responsible policy of recruiting and
restructuring. SE is encouraging associative forms of entrepreneurship in which people help themselves
by developing economic activities together, creating jobs, avoiding poverty and social exclusion.
SE and CSR are both related to a moral approach on economics. CSR imposes ethical codes inside the
organization, respect human rights, including the interests of employees, clients, partners, neighbors.
Charles Dunoyer, the first economist who used the term of Social Economy, was defining it as a moral
approach on liberty and industry. Same approach was addressed by Le Play, Owen and the first
1212
cooperatives. The SE fight poverty and social exclusion by building communities of responsible people,
trusting each other and managing their activities together.
Differences
The Committee on Employment and Social Affairs Report on the Social Economy from 2015 points out
that Social economy enterprises' first objective is “to have a social impact rather than generating profits
for their owners or partners, whilst CSR refers to the voluntary integration of social and environmental
objectives into the business plans of traditional enterprises.” (European Parliament, 2015, p. 14)
So it is considered that CSR is practiced by companies whose main goal is profit while for SE the profit is
not the main concern. From our point of view, profitable activities are a must for all organizations that
practice economy. The reasons are mentioned above.
The main difference we identified between the two concepts is the management of the organizations that
practice CSR or SE. In case of social enterprises, decision making is characterized by the rule: one man is
one vote. No matter how strong and nuanced is the CSR approach of a for-profit private company beside
the Social enterprises, the decision power of owners is mainly directly related to their contribution to the
organization's capital. The SE concept is based on employees that are in the same time owners, managers
and entrepreneurs. No matter how many democratic rules are imposed by the low or the internal CSR
practices, a classic company ends by being an oligarchy with a strict hierarchy in which the investor, the
entrepreneur, the manager and the employee are different categories, obeying different rules. There are
countries, such as Romania that impose to SE not to distribute more than 10% of the profit in dividends,
not to exceed a 1:8 ratio between the minimum and maximum salary inside the organization, to pass their
actives to similar companies after the organization's closure. This kind of rules are hard to accept inside
classic companies mainly because of the differences between a democratic and an oligarchic management
systems.
JS Mill was a supporter of a more democratic economy, supporting worker's associations. He identified
three models of such association. One concerned the sharing of a part of the profit with the employees
based on their performances, a second was illustrated by a joint venture between the capital owners and
association of workers and the third belonged to associative forms in which workers were also owners of
the production factors and entrepreneurs. Today we could say that CSR addresses mainly to the first form
while SE is characterized by the third one, the second being practiced by both CSR and SE. Mill thought
that “the form of association, however, which if mankind continue to improve, must be expected in the end
to predominate, is not that which can exist between a capitalist as chief, and work-people without a voice
in the management, but the association of the laborers themselves on terms of equality, collectively
owning the capital with which they carry on their operations, and working under managers elected and
removable by themselves” (Mill, 1909). His prediction is not yet accomplished. The report mentions “that
there are 2 million social and solidarity-based economy enterprises in the EU, representing 10 % of
undertakings in the Union” (European Parliament, 2015, p. 4). The private sector based on a classic
capitalism employs most of the EU labor force. It is the main source of financial supply for the
government social policies and for budgetary wages. It is the most long-live form of capitalism and the
bigger producer of profit that can be redistributed to society through investments and taxes. For this
reason, CSR is very important in creating a sustainable, smart and inclusive growth, a tool in fighting
unemployment and an opportunity for decreasing poverty and social exclusion. At those moment, a more
democratic capitalism cannot be achieved without promoting CSR policies among the private for profit
classic sector.
CSR has also internal and external dimensions that are not yet strongly associated to SE. Among them,
the environment issue. Although the Committee on Employment and Social Affairs’ report considered
that “the social and solidarity based economy...contributes to achieving a number of key EU goals, such
1213
as...environmental protection” (European Parliament, 2015, p. 4), green policies are not a main subject
of the SE field. There are, of course associations and foundations concerned by ecology but protecting
environment beyond legal rules is not a traditional SE topic. Also, the anti-corruption concern was not yet
included in the SE definitions and concepts. In exchange, The Directive 2014/95/EU (Article 19a) obliges
public-interest entities exceeding 500 employees to submit a yearly non-financial statement “relating to,
as a minimum, environmental, social and employee matters, respect for human rights, anti-corruption
and bribery matters” (European Parliament, 2014).
Table 1 Differences and similarities between SE and CSR related to SE definition and
characteristics
SE CSR
private formally-organized
Yes No. CSR is not an enterprise but a part of it.
enterprises
autonomy of decision Yes No. It depends on owner's decision
No. Joining a CSR department or activity is
freedom of membership Yes
restricted by a company's rules
created to meet their members’
No. Created to meet the stakeholders’ needs
needs through the market by producing
Yes either members or non-members of an
goods and providing services, insurance
organization.
and finance,
where decision-making and any
distribution of profits or surpluses No. Decision making belongs to shareholders
among the members are not directly Yes and on their contribution to the capital.
linked to the capital or fees contributed Surpluses belong to owners.
by each member
produce non-market services for
households and whose surpluses, if any, No. CSR policies can concern the production of
cannot be appropriated by the economic Yes non-market services but if surpluses arises, it
agents that create, control or finance belongs to the owners of the company.
them
a continuous activity producing
Yes Yes
goods and/or services,
an explicit aim to benefit the
Yes Yes
community
an initiative launched by a group of
Yes No. It's the initiative of a private organization.
citizens or civil society organizations
No, CSR does not distribute profit but invest a
a limited profit distribution (social
Yes part of company's over plus in social programs,
dimensions)
limiting its distribution towards owners.
No, CSR departments depend on upper
a high degree of autonomy Yes
management and owners.
No. CSR policies are decided by capital owners
a decision-making power not based
Yes whose power is based on their contribution to
on capital ownership
the capital.
which involves various parties
Yes Yes
affected by the activity
each of whom has one vote, or at all No. There is no democratic management
events take place through democratic although CSR policies can involve a more
Yes
and participative decision-making democratic decision making inside private
processes owned companies
Source: Authors’ contribution
1214
Conclusions
Today in Europe social exclusion and poverty are still a reality we need to fight with. Europe 2020
Strategy launched in 2010 aims to reduce unemployment, to invest more in innovation and research, to
decrease the pollution, to reduce school dropouts and to decrease the risk of poverty and social exclusion
(European Commission, Directorate-General for Communication, 2013). Unfortunately, by the mid of the
period targeted, the poverty ratio in the EU increased to nearly a quarter of the population (24.4% in 2014
compared to 23.7% in 2010). A total percentage for 2015 was not calculated yet but according to the data
already reported, by the end of the last year poverty increased with almost 8% in Greece, 2.5% in Spain,
1.7% in Netherlands, 1.3% in Portugal compared to 2010. (Eurostat, 2016)
Social Economy and Corporate Social Responsibility are innovative social and economic concepts,
including strategies oriented towards the same goals as Europe 2020 Strategy. They have common
features such as the blending of social and economic goals. But, while the SE European concept considers
that Social Enterprises can have only social goals, without targeting profit, CSR policies are developed by
companies that add a social goal to their main aim that is profit.
Both involve a more democratic distribution of the profit achieved (if the case occurs), targeting different
types of stakeholders not just the capital owners. But while the SE keeps the biggest part of the profit for
social goals and has a limited distribution of dividends towards members, CSR is the beneficiary of a
limited part of the profit redirected towards social goals while the biggest part of the over plus goes to the
capital owners.
Both express a high respect for the organizations' human capital, but while the SE encourages the
members of the organization to become their own employers, the CSR addresses to its human resources
mainly as employees.
Both SE and CSR promote moral rules and are committed to educational projects. The environmental
issue is part of all CSR policies, while SE addresses this aspect occasionally.
In our opinion, the biggest difference between the two concepts consists in the principles of the
management model they promote. While the SE is based on a democratic and participative decision
making process, not influenced by the capital contribution of each member, CSR policies obey the rules
of an oligarchic management where the decision power depends on the capital contributions of the
owners.
At this moment, SE and CSR policies' impact at the EU level cannot be exactly calculated because not all
companies declare their CSR policies and SE still hasn't a sole definition recognized by all national
legislation in the EU. Europe society and economy face new and unexpected challenges such as terrorism,
emigration, Brexit, changes in the external and internal politics of neighbors such as Russia and Turkey.
Capitalism and Democracy have to answer these challenges through adaptation and innovation, a
pragmatic but also a sensitive social and economic approach. In our opinion, organizational forms and
policies that support a participative attitude of the vulnerable groups, the investments in education and an
ethic approach, together with economic efficiency are key elements able to help both democracy and
capitalism going further. SE and CSR will continue to promote social values and sustainable development
rules we all have to respect, no matter the company we work for, the business we develop, the community
we are a part of. A smarter and more inclusive economic growth can be achieved only by making the
European economy more democratic and the European democracy more profitable. In this attempt, each
European citizen's personal involvement and the commitment of each of us to ethic rules regarding our
social behavior and the practice of economy are crucial.
1215
Endnote
*
The (Neo) Social Economy concept includes also charity non-profit organization such as associations
and foundation, supplying vulnerable categories with goods and services outside the market (“merit
goods”).
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1217
Assessment of the Housing Stock Condition as an Element for

Estimating the Conditions for Human Capital Development
in the Regions of the Russian Federation
Olga V. Zaborovskaia, Professor of The State Institute of Economics, Finance, Law and Technologies,
Gatchina, Russian Federation, ozabor@mail.ru
Ekaterina V. Plotnikova, Assistant of Peter the Great St. Petersburg Polytechnic University,
St. Petersburg, Russian Federation, e-plotnikova@fido-polytech.ru
Abstract
The paper puts forward an improved method for evaluating the conditions for human capital development
in the regions of the Russian Federation given the estimation of the housing facilities. Such estimation
includes 22 individual indicators reflecting various abilities of man which appear during continuous
improvement of health, housing, education and culture capital. The indicators measure deviations of the
existing conditions for human capital formation and development in the RF regions from the best ones
achieved in some other Russian region. The official statistics presented by the government bodies over
the period of 2009-2013 serves as the information data-base for calculations. The research ends up
defining the regions having the most and least favorable conditions in terms of human capital. A fact has
also been revealed that if the quality of housing facilities is considered, the final values of an indicator
worsen, on average, by 10-12 per cent. Based on the values of the assessed conditions for human capital
development for the year 2013, the territorial units have been typologically grouped and five types of
regions have been identified. Dynamic analysis of estimations has shown their growth in most regions in
the period of 2009-2012 and a slight decline in 2013. The level of estimation of the regions is diverse and,
hence, when taking managerial decisions, it is necessary to consider not only the regions’ individual
features but also focus on common development objectives of the country.
Keywords: region, socioeconomic system, human capital, condition of the housing stock.
Introduction
Today the ways to ensure stable and balanced development of the national and regional socio-economic
systems are actively searched for. In the conditions when the adverse trends in the external environment
are growing, it is becoming more and more important to use internal resources, intensify economic
growth, and rely on innovations. This, in turn, means a growing interest in human capital on the part of
researchers and experts. It is human capital which directly affects the competitiveness of the country at
different levels of the economy and is a paramount factor of economic growth and industrial efficiency. It
should be noted that socioeconomic development of the regions in the Russian Federation is noticeably
differentiated and their territory is vast. There are basic socioeconomic institutions in the regions and they
form health, education and culture capital as inter-related elements of human capital. Human capital finds
its application at enterprises of a region, human capital develops (grows) in response to the demands of
the regional economy. Renovation of human capital also occurs at the level of a region (Sharafanova,
Kotov, 2011). Thus, it is reasonable to pinpoint the regional level as a basic one for researching the issues
of providing conditions for human capital formation and development. In managerial decisions
concerning development and implementation of complex social programs, the measures affecting
socioeconomic processes must be differentiated depending on the specific features of the region. An
integral estimation of the conditions for human capital formation and development in the region serves
this purpose.
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Data and Method

An approach to devising an integral estimation of the conditions for human capital formation and
development in a region is based on the fundamental postulates of the theory of human capital (in
particular, the works by Becker (1964), Schultz (1961), Ben-Porath (1967), Nelson (1966), Kiker (1966),
Gennaioli (2013), Dyatlov S.A. (1994), Kapelyushnikov R.I. (2012), Kritsky M.M. (1991), Gratsinkaya
G.V. (2012), Nureev R.M. (2009), Kurgansky S.A. (2011), Ivanov O.I. (2011), Pliskevich N.M. (2012)
should be noted).
Human capital of the region is interpreted as functional manpower, supplied on the regional labor market,
which cost has been estimated by the employers and which is productively used in the interests of the
regional economy. Human capital is forming and developing in the process of continuous improvement of
health, education and culture capital under the influence of organizations producing relevant social
services. A lot of papers (Averbukh, Lukin, 2009; Guzikova, Plotnikova, 2014; Mottayeva, Mottayeva,
2015; Rodionov, Rudskaia, Kushneva, 2014; Rodionov, Yaluner, Kushneva, 2015; Syvorotkina, 2006)
are dedicated to researching the processes in education, health care and culture. In this respect, one can
say that the conditions for human capital formation and development in a region are shaped under the
influence of the organizations and governmental bodies responsible for certain life spheres of the
population.
In order to select the estimation indicators it is rational to refer to the methodology of research of the
quality of life (Belyaeva, 2009; Degtereva, 2007). Summarizing the position of the scientific papers, one
can conclude that it is appropriate to use the quality of life indicators given their demonstration at the
regional level, namely, the indicators defining such life spheres as: demographic aspect, educational
system, healthy diet, level of cultural education, environmental conditions, productivity, state of health.
On the basis of these factors, earlier the authors proposed a method to evaluate the conditions for human
capital formation and development in the region. It can be presented in its general view as follows:
21 1
Cij = (∏ k ijl ) 21 , (1)
l =1
where Cij - estimation of the conditions for human capital formation and development in j -th region in
i -th period of time;
k ijl
- value of l -th irregularity coefficient ( l = (1,21) ) in j -th region in i -th period of time.
The algorithm for calculating irregularity coefficients is based on the system approach and presented in
the papers previously published by the authors (2014, 2015). Irregularity coefficients have been
calculated based on the “perfect region” concept and on normative and positive approaches.
In order to estimate the conditions for human capital formation and development in the region, the source
data must meet some requirements:
1) it must contain information about the quality of life of the population;
2) it must be currently accessible;
3) it must implement federalism principles;
4) it must be based on statistics (Federal State Statistics Service, 2013).
These requirements ensure continuous monitoring and comparability of the data in the regions of Russia.
The following data of the state statistics has been used as source data to assess the conditions for human
capital formation and development: gross regional product per capita, unemployment rate, overall birth
1219
rate, overall death rate, morbidity per 1000 people, relative estimate of air pollution, rationality of diet,
sustainability of family, crime rate, theatre attendance, museum attendance, number of pre-school
institutions per 100,000 people, number of state and municipal daytime general education institutions per
100,000 people, number of non-state specialized secondary institutions per 100,000 people, number of
basic vocational education institution per 100,000 people, number of state and municipal specialized
secondary education institutions per 100,000 people, number of non-state daytime general education
institutions per 100,000 people, number of non-state higher education institutions per 100,000 people,
number of state and municipal higher education institutions per 100,000 people, number of organizations
involved in training PhD students per 100,000 people, number of organizations involved in training
doctoral students per 100,000 people.
The results of the used method have shown an extreme inequality in the conditions for human capital
formation and development in the regions of the Russian Federation and suggest that the federal center
should participate in ensuring such conditions. They also make it possible to evaluate the trends in
estimating the dynamics in the federal districts over 10 years. The main conclusions are published in
papers (2014, 2015).
Despite practical applicability of the method, the list of indicators can be expanded. Thus, the calculations
virtually fully ignore the human environment, which includes housing facilities. Location of housing
facilities, their conveniences and sizes directly affect health and well-being of the population (How the
Interior Affects Health, 2016). Those living in unsatisfactory or confined housing conditions experience
discomfort, stresses, neuroses, which negatively affect their physical and psychological health.
Consequently, people lose their skills, abilities, assets, which in future would be able to generate income.
In some research papers, they point out a close interconnection between the housing facilities and the
quality of life of the population (Simakov, A.A., 2005).
Thus, there are grounds for proposing modernization of the method for estimating the conditions and
formation of human capital in the regions of the Russian Federation by introducing an integral indicator
such as “housing stock quality”. This indicator will reflect a number of structural, technical, consumer
and quantitative characteristics of the housing stock, which define whether the housing facilities are
usable to satisfy the needs of the region’s population.
Estimation of the quality of housing facilities is based on the information of the state statistics and meets
the requirements set for the source data of the used method.
Estimation of the quality of housing facilities is the arithmetic mean of the aggregate of housing stock
convenience coefficients:
HQ = , (2)
HQij – estimation of housing stock quality in j-th region in i-period of time;
Cij (HS) – coefficient of housing stock convenience, reflecting the housing facilities structure in j-th
region in i-period of time;
Cij (HC) – coefficient of housing stock convenience, reflecting the housing characteristics in j-th region
in i-period of time;
Cij (PN) - coefficient of housing stock convenience, reflecting the population’s needs in j-th region in i-
period of time.
The coefficient of housing stock convenience, which reflects the structure of housing facilities, contains
information regarding the form of ownership of the housing stock in the region (state, municipal, private
housing).
The coefficient of housing stock convenience, which reflects the characteristics of housing facilities,
includes qualitative and quantitative constituents of the housing facilities: ramshackle and dangerous to
use housing stock, total living floor area, equipped with running water, sewage, heating, bathtubs
1220
(shower), gas, electric cookers, hot water supply, total floor area of the living space per one inhabitant on
the average.
The coefficient of housing stock convenience, which reflects the needs of the population, gives evidence
about the degree of satisfaction of the population and households in the region. According to the statistic
survey conducted in Russia 16% of the country’s population are not satisfied with the quality of the
housing space (Public Opinion Fund, 2016). Given the set standards, to create accommodation for this
group of the population, 412.704 mln square meters have to be constructed. The coefficient contains the
following information: families registered as those in need of living space, families who have obtained
living space, households which are dissatisfied with their housing conditions.
The estimation of the quality of housing facilities is measured in the limit of [0;1]. Its growth shows that
the housing conditions in the region have improved. Bigger values correspond to the regions where
housing conditions are most favorable.
The authors suggest the following interpretation of the estimation of the quality of the housing facilities:
[0; 0.25] – housing conditions in the region are unsatisfactory, profound changes and interference on the
part of the government bodies are required;
[0.26; 0.50] – housing conditions in the region are unsatisfactory, housing stock management must be
modernized at the regional level;
[0.51; 0.80] – housing conditions in the region are unsatisfactory, a program must be developed aimed at
improvement of the housing conditions in the region;
[0.81; 1] – housing conditions in the region are good, programs need to be developed to maintain the
achieved results.
As a result of the introduced estimation of the housing stock quality in the method for assessing the
conditions for human capital formation and development in the regions of Russia the formula will acquire
the following form:
21 1
C ij = (∏ k ijl * HQij ) 22 (3)
l =1
The used indicators consider, on the one hand, interregional differentiation and independency of the
regions, and, on the other hand, objectives urgent for the entire country. The indicators shown as perfect
are attainable in reality.
Analysis and Results

The table presents the results of calculations of the conditions for human capital formation and
development in the RF regions given the estimated quality of housing facilities in the regions.
Table 1: Estimation of the Conditions for Human Capital Formation and Development in the RF
regions
Value 2009 2010 2011 2012 2013

Maximum value of
0.385 0.381 0.389 0.404 0.493
estimation
Region where St.
St. St. St.
maximum value of the Peters- Moscow
Petersburg Petersburg Petersburg
coefficient is achieved burg
1221
Share of population
living in the regions
where the value of 43.3% 38.6% 42.9% 43.4% 46.0%
estimation is above
average
Mean value of
0.270 0.258 0.275 0.275 0.253
estimation
Share of population
living in the regions
where the value of 56.7% 61.4% 57.1% 56.4% 54.0%
estimation is below
average
Minimum value of
0.166 0.168 0.183 0.202 0.179
estimation
Region where Chechen Chechen Chechen Chechen Chechen
minimum value of the Republic Republic Republic Republic Republic
coefficient is achieved
Composed by the authors.
The table maps the tendency for convergence of the minimum and maximum values of the estimated
condition for human capital formation and development in the RF regions.
Based on the values of the estimated condition for human capital formation and development in the RF
regions calculated by the authors, a typological grouping of the regions of Russia has been done, which is
represented below (fig).
With the consideration of the housing stock quality, the final values of the indicator have worsened on the
average by 10-12%. Without accounting for the housing stock quality, the estimations of human capital
formation and development in the regions were overoptimistic.
Composed by the authors.

Figure 1: Typological Grouping of the Regions of Russia according to the Estimated Conditions for
Human Capital Formation and Development in the Regions of Russia.
1222
In 42 regions of Russia the conditions for human capital formation and development can be evaluated as
extremely unfavorable (in this aspect, the regions are depressive). When forming the policy of human
capital development in such a region federal and regional authorities must be involved. In 38 regions of
Russia the conditions for human capital formation and development are satisfactory. However, a program
for improving the conditions for human capital formation and development should be worked on.
Maximum estimation of the conditions is attained in Moscow (0.495), the minimum one in Chechen
Republic (0.179). It should be also noted that over 50% of the population live in the regions where the
value of the estimated conditions is below average. However, dynamic analysis of the estimations has
shown their growth in the majority of the regions and gradual approximation to favorable ones. Improved
conditions are going to contribute to sustainable development of the regions.
Discussion
The obtained results can be used as tools for regional management. Introduction of the indicators that
determine the conditions of formation and development of the human capital in the region, an additional
indicator that reflects the housing stock quality increases the accuracy of an integrated assessment. This
increases the efficiency of the use of integrated assessment in the regional government, as it provides a
complexity in the formation of regional development programs for human capital. At the same time the
proposed additional measure has independent value, because it allows to identify areas in need of
additional support from the federal government in solving housing problems.
The estimations obtained in this research refer not to the value of human capital as it is, but rather to the
conditions for human capital formation and development, which can be affected by government bodies at
the level of the subject of the Federation, federal districts and federal center. Thus, the results may be
used as a quantitative management tool.
Summary
Improvement of the method for estimating the conditions for human capital formation and development
will contribute to integrity of the addressed assets, which in future may be able to generate cash flows, to
balanced development of the country’s regions; growth in investment attraction of the regions and higher
competitiveness of the national and regional economies.
Further research may be aimed at integral estimation of the conditions for human capital formation and
development given the additional indicator, analysis of distinctions between basic and modified
estimation.
The obtained results may be applied in the practice of regional management. The proposed integral
estimation, examined in dynamics, may serve as a criterion for effectiveness of regional social policy,
since it covers the key factors for improvement of the conditions for human capital formation and
development. It gives an opportunity to set the areas of responsibility (including personal one) of the
regional government bodies for increase of the estimation. It also facilitates development of specific and
targeted measures in the given sphere from system perspectives.
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1223
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1224
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1225
Predictive Factors of the Exceptionally High Number of Industrial

Accidents at Work in Greece:
A Statistical Analysis of Sample Survey Results
Christos C. Frangos
Technological Educational Institution of Athens,Tepeleniou 7,Athens,Greece,

cfragos@teiath.gr
Vaios Skordas
Hellenic Post Office Service, Athens, Greece,

vskords2013@gmail.com
Stavros Chaniotis
Technological Educational Institution of Athens, Athens, Greece,

chaniotis96@yahoo.com
Constantinos Kyritsis
Technological Educational Institution of Epirus, Preveza, Greece,

ckiritsi@teiep.gr
Konstantinos C. Fragkos
University College London,, London,,U.K.

Constantinos.Frangos.09@ucl.ac.uk
Abstract
In this paper we investigate by a sample survey in a sample of 763 workers who work in heavy industries
in Greece the factors which contribute to the occurrence of accidence at work. An exploratory factor
analysis, Reliability Analysis and Multinomial Logistic Regression revealed the following factors which
increase the frequency of occurrence of accidents at work: Exposure of the workers to physical or
technical dangerous conditions at work, lack of inspections by the Government’s Safety Inspectors, lack
of training programs designed by the company in order to protect the workers from harmful machinery
and to show to them the proper use of tools, lack of proper maintenance of machinery and negligence in
the part of the company in following the recommendations of safety inspectors. A Multinomial Logistic
Regression was carried out and revealed that the variables: lack of inspection of the company’s
machinery, lack of proper training procedures for the workers of the company, inadequate work
experience of the workers, lack of proper supervision and nature of work, were statistically significant.
The sample survey shows that the Safety Inspectors, which are public employees, should make every
effort to keep, with their efficient inspection visits, the industrial base of Greece functioning properly in
order to decrease the unemployment level in times of deep financial , social and political crisis in
Greece.
Keywords: accidents at work, safety inspectors, Logistic Regression, Factor Analysis
1226
Introduction
Literature Review
The aim of the present paper is to identify and study predictors of work related injuries (WRI) in a
sample of 737 workers in Greece.
In a research study by The Health and Safety Executive ,(2014) of the British Statistical Service, it is
estimated that Greece has the lowest percentage of businesses with a health and safety policy in place
and that 39% of Greek workers have answered in a sample survey, that their health or safety is at risk
because of their work. However ,the fatal injury rate from accidents at work, excluding road traffic
accidents, is 0,9 ( per 100,000 workers) in Greece ,whereas the European mean rate is 1,5, EUROSTAT
(2012).
In the United States and elsewhere, several researchers have recently attempted to estimate the
magnitude and the related costs of occupationally-related mortality as Nurminen and Karjalainen (2001)
mention. In a research paper by Leigh et al (1997), it is estimated that 65800 deaths per year can be
attributed to occupational injury or illness with a total cost to society of over $23 bilion. Hence , it is very
important to examine the causes of work related injuries (WRI) and to discuss measures preventing
accidents at work. Despite the high rates of work related accidents , research is limited in this area which
aims at identifying the likely causes of WRI.
Steenland et al.(2003) discuss the magnitude of United States Mortality from selected causes of death
associated with occupation. They conclude that occupational deaths are the 8th leading cause of death in
the United States after diabetes(64751) but ahead of suicide(30575) and greater than the annual number
of road traffic accidents.
Bull et al (2002) identify the significant health, environmental and safety(HES) factors in small
enterprises as follows: personal protection devices and safety equipment on machines . They conclude
that safety inspection of machinery is the most effective means of attaining the desired result of reducing
work related injuries.
Salminen et al (2013) compared organizational and individual factors as predictors of workplace

accidents frequency. They conclude that the influence of organizational factors is stronger than that of
individual factors. Individual factors were gender, age, education , marital status and job tenure. The
injury risk of males was 3.3 times higher than that of females. Salminen , Saari , Saarela and Rasanen
(1992) mention that men had more serious injuries than women as the risk of fatal injuries is 13 times
higher for males than for females. Locke (1976) stresses that organizational factors were job satisfaction.
Perceived Organizational Support (POS) refers to the impression of workers about their managements’ or
organizations’ contributions and concern for their well being, according to Aselage and Eisenberger
(2003). Michael et al (2005) and Gyekye and Salminen (2007) advocate that there is a positive
association between supportive perceptions and workers’ level of job satisfaction, safety performance,
organizational involvement and affective commitment. Perceived Organizational Support (POS) refers to
the support of supervisor and co-workers and it is an important factor of accident frequency, according to
Rhoades and Eisenberger (2002). In a paper by Salminen et al (2013) a theoretical model is developed
about the relationships between organizational and individual factors related to occupational accidents.
DeJoy et al.(2003) identify three factors of safety climate: environmental conditions, safety-related
policies and programs and general organizational climate. They conclude that safety climate is a leading
indicator of the safety level of the organization or the workplace,according to Mearns and Flin (1999).
Zolnierczyk-Zreda et al (2014) support by a large cross-sectional study the view that mental ill health is
the most frequent cause of long-term sickness absence and disability retirement in Denmark and long
1227
working hours are the cause of mental ill health. They advocate that even ‘moderate overtime’(41-48
workhours/week) are the source of both anxiety and depression.
Gimeno et al (2004) investigate the relation between occupational and organizational factors and work
related injuries (WRI) among Hospital employees in Costa Rica. They find that workers exposed to
chemical and physical hazards have higher WRI rate than non-exposed workers.
Dembe,et al (2004) consider the association of the factors :overtime and long work hours and WRI. They
support the view that long hours and shift work are increasing the likelihood of a WRI.
Roelofs et al (2011) report that Hispanic workers in construction projects have higher rates of injury than
workers of other ethnicities. They conclude that the key to fewer Work Related Injuries (WRI ) is better
training of supervisors and workers and better enforcement of workplace standards.
Structure and Findings of This Paper
In this paper, we find two new variables that contribute significantly to the increase of WRI in Greece:
Few and not properly organized safety inspections of workplaces by the Government Inspectorate and no
compliance of the companies concerned with the recommendations of the safety inspectors because of the
high costs for keeping a safety environment. These conclusions are the results of detailed statistical
analysis of a sumple survey among 763 workers in Greece during January 2013. We should point out that
the Greece is in the middle of a deep financial ,social ,political crisis which has a further result of a health
and workplace safety crisis. In the following Chapters, we describe the method of research through a
questionnaire, we present the statistical analysis of the results of the sample survey and ,finally, we
present the conclusions of the sample survey.
Sample and Procedure
We have carried out a sample survey among 763 workers in Greece, trying to identify the predictors of
Work Related Injuries(WRI). 259 respondents were women and 498 were men. 6 respondents did not
answer the question referring to Gender. Their age was as follows: 261 were 17-29 years of age,221 were
30-39 years of age ,178 were 40-49 years ,86 were 50-59 years of age and the rest of the workers were
either less than 17 years of age or more than 59 years of age.Most of the workers(670) were Greek,49
workers were from Albania ,14 from Roumania,7 from Boulgaria and the rest from African Countries.
The statistical analysis of the questionnaires has been carried out with the help of SPSS 21.0,Pallant
(2007).
Statistical Analysis
χ2 tests of independence
We perform χ2 tests of independence in order to test the hypothesis:

H0 : The variable : did you have in the past a Work Related Injury(WRI)
Is independent of the variable VK
H1 : The variable V :did you have in the past a Work Related Injury(WRI)
Is dependent of the variable VK ,
1228
where
VK (K=1,…..n) is a demographic variable or a variable related to the characteristics of the organization, or the
personality of the worker or the safety conditions of the environment or the regulations of the government
concerning WRI’s.
The following table shows the results of the χ2 tests :
Table 1: χ2 tests of Independence and their results. Level of significance=0.05.
Variable VK, K=1,…,6 Variable V Result of Test of
significance
K=1 Demographic Did you have in the past a WRI?
K=2 Employment related Significant
K=3 Personality Related Significant
K=4 Drink Consumption Significant

related
K=5 Safety Regulation related Significant
K=6 Market Classification Significant
It is interesting to note that when there was 1 inspection per 2 months from the safety inspectors ,the
percentage of workers who did not have a WRI in the past, in a private company which is a gymnasium,
was found 80%.
Nonparametric Spearman Correlations
The following table shows the Spearman Correlation Coefficients between each one of the 6 variables of
the previous Section and the variable: Did you have in the past a WRI?
Table 2: Intercorrelations between the variable: Did you have in the past a WRI and Demographc,
Employment, Safety and personality related variables. Level of significance: 0.05
Variable VK, K=1,…,6 Variable V Result of Test of

Intercorrelation significance
K=1, Demographic Did you have in the past a WRI?
K=2, Employment related Significant
K=3 ,Personality Related Significant
K=4 ,Drink Consumption Significant
related
K=5 ,Safety Regulation Significant
related
K=6 ,Market Classification Significant
1229
Factor Analysis
The 25 items of the Questionnaire for identifying the predictors of WRI, which are shown in
Table 1 were subjected in Principal Component Analysis (PCA) using SPSS Version 21. Prior
to performing PCA , the suitability of data for Factor Analysis was assessed. Inspection of the
Correlation matrix revealed the presence of many coefficients of .5 and above. The test statistic
of Kaiser-Meyer-Olkin had a value= 0.77, exceeding the recommended value of o.6 according
to Kaiser(1970,1974) and Bartlett’s Test of Sphericity, according to Bartlett (1954) reached
statistical significance, supporting the factorability of the correlation matrix.
Principal Components Analysis revealed the presence of five components with eigennvalues
exceeding 1, explaining 17.14%,9.03%,7.14%,5.79% and 5.23% of the variance respectively.
We name the five components as follows: Personality Characteristics, Workload-age, Job
conditions of Organization, Communication of Workers, Safety Inspections-Alcohol
Consumption of workers.
Table 3 contains the factors, the variables which belong to each factor and all the dimension
coefficients:
Table 3: Pattern Matrix for PCA with Oblimin Rotation Method of five Factor solution of
the Questionnaire variables, with factor loadings for each of the variables.
Variable Factor 1 Factor 2 Factor 3 Factor 4 Factor 5

Personality Workload- Job Safety Market
Age conditions Regulations Classification
of Organ. of Organ.
Personality 0.735
Characteristics
Feeling of 0.640
unworthy
person
Feeling helpless 0.574
Boring job 0.723
Depression 0.563
Lack of sleep 0.697
Job satisfaction -0.531
Workload-Age
Work 0.855
experience
age 0.829
Workload 0.556
Job conditions
of Organization
1230
Unhealthy -0.738
work
Exposure to -0.714
hazards
Communication
Supervisor 9.730
conflict
Coworkers 0.593
conflict
supervision 0.581
Safety
Inspections and
measures
Safety -0.556
inspections
Alcohol -0.517
consumption
Logistic Binary Regression
Logistic Regression was performed to assess the impact of a number of factors on the likelihood that
respondents would report that they had a Work Related Injury(WRI). The model contained nine
independent variables as follows : few and unorganized safety inspections, safety environment, exposure
to physical or technical hazards, heavy workload, supervision, supervisor conflict, coworkers conflict, no
worth feeling and working in shifts . The dependent variable was: Did you have in the past a WRI?. The
full model containing all predictors was statistically significant, χ2(32, Ν=640)=154,88,
p<0,0001,indicating that the model was able to distinguish between respondents who reported and did not
report that they had a WRI. The model as a whole explained between 21.5% (Cox and Snell R Squared)
and 30.7% (Nagelkerke R Squared) of the variance in frequency of WRI , and correctly classified 76.4%
of cases. As shown in the following Tables 4 and 5, all nine independent variables made a unique
statistically significant contribution to the model (existence of WRI or not in the past )The strongest three
predictors of reporting a WRI were : insufficient supervision, with Odds Ratio (3.08), small number of
safety inspections by the government appointed inspectors, with Odds Ratio (3.61) and coworkers
conflict, with Odds Ratio (2.74). As regards safety inspections, the Odds Ratio (3.61) means that
respondents who were working in a environment with few and not organized safety inspections were over
three times more likely to report a WRI than those who were working in a workplace with sufficient
safety inspections and follow up of the inspectors’ advices, controlling for all other factors in the model.
1231
Table 4: Hosmer and Lemeshow test for Logistic Model
Step 1 Chi—Squared Statistic Significance
5.425 0.711
Table 5: Logistic Regression Predicting Likelihood of Reporting a WRI
INDEPENDENT B S.E. WALD DF p EXP(B) 95% C.I.

VARIABLE TEST Odds For Odds Ratio
Ratio Lower Upper
Few Safety 1,286 ,441 8,497 1 ,004 3,61 1,52 8,59
Inspections
Safety ,815 1,050 ,603 1 ,437 2,260 ,289 17,682
Equipment
Exposure to 1,012 ,229 19,600 1 ,000 2,751 1,758 4,306
physical or
technical
hazards
Heavy ,576 ,230 6,266 1 ,012 1,779 1,133 2,792
Workload
Supervision 1,125 ,393 8,196 1 ,004 3,080 1,426 6,652
Supervision 1,125 ,393 8,196 1 ,004 3,080 1,426 6,652
Conflict
Coworkers 1,010 ,419 5,801 1 ,016 2,746 1,207 6,247
conflict
Feeling of no 1,397 ,586 5,682 1 ,017 4,042 1,282 12,746
worth
Work schedule 2,502 1,076 5,408 1 ,020 ,082 ,010 ,675
in shifts
Results
The results of this paper add to the growing body of evidence indicating that the causes of work related
injuries(WRI) are both due to Organization characteristics and to Worker peculiarities. The most
important organizational characteristics which can be a cause for an accident in the workplace are: Small
number of safety inspections, Safety equipment creating a safety environment ,Overtime work, Exposure
to physical or technical hazards, Insufficient supervision and peculiar work schedule due to long working
hours in shifts. The causes of WRI due to worker characteristics are: Supervisor conflict, Coworkers
conflict, Feeling that the work is of no value. Two causes have the greatest Odds Ratio : Lack of safety
inspections(OR: 3,61) and feeling that the work of employees is of no value(OR:4,04) and subsequently
that the workers themselves are melancholic because of the prevailing impression that their work is no
worthy. Many authors have indicated that overtime work is a cause for accidents as it is mentioned in
Dembe,et al (2006), Spurgeon et al (1997).
1232
The new finding of this paper is that the lack of safety inspections is an important cause of WRI. Possible
explanations for this situation are the following: Today, in Greece, there is a considerable shortage of
staff in many public organizations because of the Economic Crisis of the country. The number of
employees in many public organizations has been reduced considerably. The same happens in the Public
Service of the Inspectorate of the workplace in the Ministry of Employment. On the other hand, because
of widespread corruption , the recommendations resulting from the few safety inspections are not
followed by the employers, who manage not to get or to pay any fine from the State.
It is a striking result that in a steel- works factory in the district of Elefsina, Athens, when there is one
visit per month from the safety inspectors , there are no WRI at all, whereas the percentage of WRI when
there is one visit from the safety inspectors per two months is 4,3% and the percentage of WRI when
there are rarely visits of safety inspectors climbs to 65,2%.
Another result of the economic crisis is that the companies ,because of high costs, do not install safety
equipment and do not organize any systematic training programs for their workers in the use of safety
equipment. The following table 6 indicates that there is a statistically significant association between the
nature of work in different companies and the likelihood of a WRI.
Table 6: χ2 test between Market category of company and likelihood of having a WRI
COMPANY Did you have in the past a WRI? Total

CATEGORY No Yes
Steel Factory 4.8% 3.2% 8%
Gymnassium 3.8% 18.3% 22.1%
Textiles company 0.8% 8% 8.8%
Taxi company 2.3% 4.6% 6.9%
Fast food company 1.9% 1.9% 3.8%
Public Hospital 3.8% 5% 8.8%
Import of Medicines 1.5% 2.3% 3.8%
Company
Construction 1.5% 8% 9.5%
Company
A finding of this paper is that many companies prefer not to declare the WRI to the Ministry of
Employment because of suspicion of imposition of fines or of visits by the safety inspectors.
We found that males are more likely to have an WRI (34% of male workers had a WRI) than females
(17,5% of females had an WRI).
Policy Implications
Important policy measures which must be taken in order to reduce the number of WRI are the following:
a. Increase of frequency of visits by the safety inspectors.

b. On-the-job-training of the workers.
c. Installation of safety equipment.
d. Psychological support to the workers.
e. Training of the supervisors.
1233
f. Meritocracy in the system of distribution of wages.
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1235
Smart Technologies in the Process

Of Adaptation of Newly Recruited Employees
At Industrial Enterprises
Tatiana V. Kalashnikova
Department of Engineering Entrepreneurship, National Research Tomsk Polytechnic University,

Tomsk, Russia, tvkalash@tpu.ru
Natalia V. Frolova
Head of Civil Law and Process Department, Nizhnevartovsk Institute of Economics & Law
(branch of) Tyumen State University, Nizhnevartovsk, Russia, nat68366847@yandex.ru
Sergei V. Sorokin
Director of the Exhibition Centre of Penza State University, Penza State University, Penza, Russia,
ssergej@rambler.ru
Anna S. Shumakova
Department of Engineering Entrepreneurship, National Research Tomsk Polytechnic University,

Tomsk, Russia anie.shumakova@gmail.com
Abstract
The article analyzes the new technique of representing adaptation process in a comprehensive form
and also in systematic and visual (graphic) forms. Also the article substantiates the need to find the
ways to improve an adaptation system of newly recruited employees. A non-standard means of
identification have been approved and are available now for using in the adaptation process by
method of mind maps.
Keywords: adaptation, employees, mind map, cards of mind;
Introduction
Very trained are qualified staff is a base on which any organization could be created. This
organization would be successful with a high probability. Because just professional staff could
provide the most efficient usage of any kind of resources, which are at the company’s disposal,
thereby defining its main economic indicators and the level of competitiveness.
Currently, many enterprises are facing the problem of adaptation of staff. As practice shows, a
significant amount of dismissals occur during the initial period of work (in the first few months).
(Sidorenkov, Koval, 2015). During this period of time a recruit should join the team to feel himself
comfortable in a new place. It’s also required to retain already working staff. In this way, to maintain
the human resource capacity it’s necessary to retain experienced workers and to attract a new blood
(fresh strength). As can be seen from the practice, 90% of people, who quit the job in the first year,
took this decision on the first day in the new organization. (Krinitcyna, Menshikova, 2015). A recruit
usually encountered many difficulties, a great deal of which happened because of the lack of
information about operating procedure, location, colleagues' habits etc. Staff adaptation procedures
are designed to facilitate subsequent entry of recruits in the relationships within the organization. It
means that the special procedure of adaptation of recruits in the organization could help to reduce the
1236
large number of problems, which appeared at the beginning of their work. Employee’s personal
potential as a complex of specific quality traits is closely linked to adaptation. Personal potential
characterizes the internal physical and human spiritual energy, his activity position.
Psychophysiological and labor potential of employee, his education and experience actively influence
the level and degree of adaptation.
The goal
The goal of this research is the development of application models of the technology based on a
method of mind maps to improve the quality and to reduce the adaptation period of recruits (young
inexperienced and highly qualified specialists). In order to achieve the objectives of the study it is
necessary to solve the following tasks:
1. New employees are necessary issued with a lot of different subjects and documents as soon as
possible.
2. It is necessary to develop the skills of independent decision-making and project management skills.
3. An employer should develop the instruments support to improve production activities.
Research Experience
The process of adaptation of recruits and specialists is a complete large-scale business process, in
which a structure should be extremely simple and understandable to get the maximum efficiency as
well as being modern and technologically advanced. To adapt a recruit to the company mode a
system for adaptation measures should be established. This system should also be developed to show
the obtaining of results in their work. This system is a set of measures aimed at providing the
organizational, social, psychological and professional adaptation of recruits in the new conditions and
provides the course "Introduction to the company", training system, mentoring etc. Adaptation of
personnel is an unavoidable procedure performed by employees during the integration into the
organization.
During the study, were analyzed the statistics for several industrial companies, which showed a
decrease in the level of knowledge of basic introductory documents, production of documents and
communication skills (Negrul, Trubchenko, Lemeshko, 2016). This is caused the fact that during the
process of applying for a job employees have to familiarize with the very large amount of
information, which is mostly represented on paper or on the resources available only from fixed
workstation. Due to the fact that during production activities employees had no opportunity to apply
early studied material, the level of knowledge in some period of time begins to decrease. All of this
lead to the fact that hard-working employee forgets a large amount of learned information in a short
period of time and uses only a small part the total material. As a result, we can notice a reducing of
individual and collective efficiency. We also can notice the reducing of quality of tasks fulfillment
and as a consequence decrease in the efficiency of accomplished adaptation activities.
(Savaneviciene, Stankeviciute, 2013). Nowadays intelligence cards consist of scientists,
entrepreneurs, designers, teachers, engineers, as well as people of many other professions.
Organization of intelligence cards help us to solve problems more effectively. Moreover it is
possible to use intelligence cards in different spheres of our life. In Western countries intelligence
cards have been used for a long period of time among many groups of successful people.
The main feature of such approach is a system of representation of the main components of the
training material. This is allow new employees to realize the following. First, it is a general problem
of acquaintance with activity of the enterprise. Second, we must be able to see private ways of its
decision. Third, we should be able to define the sequence of its performance.
1237
Solutions, a Positive Effect
To solve mentioned problems of industrial workers we have analysed the adaptation process. During
this analysis we notice the necessity of the development of modern innovative solution, which allows
to continue the process of adaptation regardless of the location. We had the following questions. How
to cope successfully with the flow of incoming information? How to spend minimum of time and
effort for data processing, analysis and decision-making? How to turn on the ability to handle
incoming information quickly and efficiently (and to make the right decisions based on it) in its main
competitive advantage in an age of aggressive offensive information?
The answer to this question is provided by the modern Mind-management technology, which began
to gain popularity in the modern world in the 70-ies of XX century. To solve this problem we used
the method of intelligence-cards, based on the basic principles of the human brain. Using these mind-
maps it would be possible to create a new method of data processing, which allows us to provide
business processes in the form of a tree-structure. As a result, we can get the following:
• the improving of process of staff adaptation;
• the reducing of load on teachers during a teaching process (and also improving its own production
efficiency in a new fields of knowledge and work specifics);
• the providing a quicker bringing the necessary information to the employees;
• the improving the quality of enterprise technological culture by changing the way of studying
technical regulations, standards and norms;
• the providing a modern constantly available tools of supporting productive activities for employees.
(Kalasnikova T.V., Selevich T.S., Danilova N.E., Sorokin M.A.,2016)
In the beginning, mind-map technology was based on the principle that the right hemisphere receives
the information in another way than the left. Tony Buzan, often called the educational consultant,
fairly noted that most information which presented in the form of numbers and letters is comfortable
for the left hemisphere. The principle of thinking is very complex and our brains process the
information associatively rather than linearly. Herewith our brain creates many visual imagery in
your head and through these imagery we can understand the information. On the basis of this
principle, Tony Buzan proposed that the record of information is not a linear process. It could be
reasonably assumed that the using mind-map technology we can better represent important
information, because the brain accomplishes minimum operations to create the image. As a result we
can clear understand our problems. Therefore we can find the perfect solution to all of our problems.
The information presented in the form of intellect-cards perceived faster, more efficiently, quickly
and stored for a longer period of time. Because it better corresponds to the natural associative nature
of our thinking. (Dockalikova, Kashi, 2013; Kiseleva, 2015; Zagorsek, Szarkova, 2015)
Conclusion
Using of Intellect-cards an employee can achieve individual effectiveness by changing an attitude to

their work in the period of recruitment and during following industrial activity. During research a
particular attention was paid to the quality of the adaptation processes, because the foundation of any
organization is the entire staff, who uses resources efficiently and who also influence on economic
indicators and competitiveness. Throughout the working with Intellect-cards a right hemisphere of
out brain is more activated; it is responsible for perception of visual and color imagery and creative
activities. The information in our brain perceives and works on it associatively, trying to create an
image based on the received information. Almost all the information stored in the brain in the form of
imagery. This will allow us to use human resources more efficiently.
1238
A study was conducted of the current state of affairs in enterprises; surveys were conducted among
newly hired employees. We can notice the decreasing of the level of knowledge of basic introductory
documents. We can also expect a further decline of quality during the production of documents and
communication among the newly hired employees. This is due to the fact that during the process of
applying for a job employees need to quickly get acquainted with a very large amount of information
which is mostly presented on paper or on the resources that are available only with desktop
computers.
Using of mind maps allow to improve the individual efficiency of an employee, thereby increasing
the efficiency of the organization as a whole. This is achieved by changing the relationship of the
employee to approach his work during the period of employment and subsequent production
activities. On the basis of the sampling the actual effectiveness of using of smart cards was identified.
Timing of adaptation decreased 1.2 times in 6 months, and 1.7 times in 1 year. Using the results of
this study it can be noticed that the implementation of IR can lead to the effectiveness of whole work
during the adaptation period.
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1239
The Analysis of Investment Incentives in the Slovak Republic

Ľubomír Darmo
University of Economics in Bratislava, Faculty of National Economy, Department of Economics,

Bratislava, Slovak Republic
lubomir.darmo@euba.sk
Abstract
Investment incentive is any form of subsidy that is provided to investor, usually to attract the inflow of
foreign direct investment. This measure becomes important particularly in competition for investment
with regions or countries with similar conditions. There is another function of investment incentives.
Favouring of the less developed regions by different conditions of incentives providing might lead to
reduction in regional disparity. The providing of investment incentives in the Slovak Republic started in
2002. Since that time, until the first quarter of 2016, 175 investment incentives were provided. However,
the volume of investments, the average investment, the number of incentives, the volume of incentives,
the average incentive or the share of incentives on investments differs among the Slovak regions. Alike,
the planned created jobs or incentive per job is different. The paper deals with the analysing of available
data on investment incentives in the Slovak Republic. The most developed Slovak districts received
higher investments, higher incentives and has created higher number of jobs. However, the share of
incentives on the investment cost is the highest in the less developed districts.
Keywords: FDI inflow, regional GDP, investment incentive
Introduction
The investment incentive represents a measure to attract foreign direct investment to flow into the
country. This measure encourages foreign investment that benefits economic growth, decreases the
unemployment rate, etc. On the other side, incentive has to be paid from central or regional budgets. This
is the cost of its providing. There would not be any incentive to be provided without the interest of
foreign investors to allocate the investment in the Slovak Republic. Investment incentive is not a
fundamental determinant of FDI inflow. It is just the subsidiary measure. However, the similar conditions
for FDI in neighbouring countries or regions induce the incentives to have higher weight in decision
making. In this case, providing of investment incentives play an important role and might be crucial in
decision making process of foreign companies. However, the providing of investment incentives is the
intervention to market economy. Due to this, their providing is regulated by legislative. As a result, the
providing of incentives should not distort the market mechanism and affect competitiveness. The
providing of investment incentives is also a measure to attract the FDI inflow to less developed regions
and moderate the regional disparities. An appropriate policy of their providing might create new jobs and
increase the employment in disadvantages regions. The analysis of investment incentives in the Slovak
Republic consists of the analysis of FDI inflow, investment cost in the Slovak districts, regional GDP,
legislation of providing of investment incentives and ends with the regional distribution of incentives,
number and volume of provided incentives, the share of incentives on investment cost, as well as with
jobs created by investment subsidized by incentives and calculation of the incentive per created job.
The paper is organized as follows. The first part of the paper introduces the topic. Second part describes
the method and methodology that was used in analysis, as well as the source of data used. The crucial part
of the paper analyses investment incentives from different points of view and the last part concludes.
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Data and Methodology

The main method of the paper is the graphical analysis of data with the intimate description. Firstly, the
analysis of FDI inflow to the Slovak Republic was made. The dataset consist of time period 2002 – 2014.
The source of data is UNCTADstat (2016). In the same part, the analysis of investment cost of FDI that
gain the investment incentive was made. Regional approach was used at the NUTS 3 level of division of
the Slovak Republic. It is important to mention that investment cost (actually, it is the realized
investment) is the sum of the investment to fixed assets as well as labour cost. So, the total investment
includes overall cost of investor. The available data for this analysis is from 1st quarter 2002 until 1st
quarter 2016. The source of data is the Ministry of Economy of the Slovak Republic (2016).
There are two contrary views associated with investment allocation. First one, the investors seek the
location in order to award the sale or enter to potential markets. These places are usually well developed
with high demand, developed infrastructure, etc. This means that the investment is realized in regions
with high GDP or produced output. On the other side, governments have usually effort to encourage those
regions, which are less developed. The goal is to increase the local output and raise the standard of the
living. Therefore, providing of investment incentives is a common measure to attract investors to less
developed regions. As a result, appropriate policy of providing investment incentives will reduce regional
disparities. However, investment incentive is an intervention to market economy and inappropriate policy
of its providing might interfere to market relations and causes structural imbalances. Due to mentioned
situation, second part of the analysis is dedicated to the regional performance and development of
regional GDP. Due to the lack of regional data, regional GDP is available only in period 2002 - 2014. The
source of data is the Slovak Statistical Office (2016).
The core analysis is dedicated to the providing of investment incentives in the Slovak Republic. This part
starts with the legislation associated with the investment incentives and continues with the analysis of
investment incentives themselves. The wide analysis consist of regional distribution, average incentive,
incentive per capita or the share of incentives on investment cost. At the end, the incentive for one created
job is calculated. The assumption is that the less developed Slovak districts should have the highest
incentive for one created job. To the contrary, the per job incentive should be the lowest in the most
developed – Bratislava district. Also, the share of the provided incentives on total investment should be
the highest in the less developed districts. These assumptions origin in the role of investment incentives
as the measure of reduction the regional disparities. At the end of the analysis, these assumptions are
confronted with the results of data analysis. The dataset of investment incentive analysis captures 8
Slovak regions in period 1st quarter 2002 – 1st quarter 2016, thus the same dataset as in analysis of
investment cost.
Inflow of the Foreign Direct Investment to the Slovak Republic

The FDI inflow to the Slovak Republic has the substantial impact on its economic performance. Since the
FDI started to flow into the country, together with the taken measures and realized reforms, the Slovak
economy starts to accelerate and breaks the former stagnation associated with fiscal and monetary
problems (government deficits and public debt, high yields on government bonds, high interest rates, high
inflation, etc.). We might date the beginning of substantial FDI inflow to the Slovakia to the year 2002.
This is also the year, when the SARIO – The Slovak Agency for Managing Investment and Trade – has
been established. At the same time, the first investment incentive has been provided (at least, there is no
former data on investment incentive to be provided).
To analyze the investment incentives in the Slovak Republic, we have firstly analysed the FDI inflow into
the Slovak Republic with its peculiarities during the analysed period. Until the 1998, investors had no
interest to invest in the Slovakia. Only few investors have made it, e.g. Volkswagen. The change in the
inflow was induced by the election in 1998 and the new attitude to foreign investors. Within the 4 years
of new governance, many structural reforms were made. These have included the reform of tax system,
pension funds, social insurance and improvement of the business environment. The main part of the FDI
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inflow was the privatization of state-owned companies and privatization in financial sector (privatization
of banks and insurance companies).The noticeable increase in the FDI inflow has started as the taken
measures have evinced in the economy with the peak in the inflow in 2002. Up to the moment, the
highest inflow was achieved. The main investment in 2002 was the privatization of the Slovak Gas
Industry. The next two years, the form of FDI inflow has changed. The privatization was almost finished
and the government has to take measures in order to encourage additional FDI inflow that would
compensate or substitute the privatization sources. The car manufacturers PSA Peugeot Citroen and
Hyundai/Kia have announced the investments in the Slovak Republic in 2003 and 2004. Together with
the following-up investment of Gertrag Ford and former investment of Volkswagen, automotive industry
plays an important role in the Slovak economy. Car manufacturing has created the area for other
companies to invest. Such examples are the companies Hella or Johnson Controls. In 2006, the Slovak
government has decided to privatize the Slovak Power Energy by the ENEL. As a result, the second
highest FDI inflow was recorded. The financial crisis has hit the Slovakia also by the decrease in FDI
inflow. For a first time (actually also the last), there was a disinvestment. The financial crisis has shown
off the problem of the Slovak economy – unidirectional orientation of the industry. The structure of the
Slovak economy is determined by the FDI inflow, thus foreign investments. One of the consequences of
the crisis was the lower FDI inflow after 2008. The inflow has never achieved the volumes of pre-crisis
period. The important investment in post-crisis period is only the expansion of Volkswagen by enlarging
or building new production facilities. Currently, the Slovakia gains the investment of Jaguar/Land Rover.
The important determinant of its allocation in the Slovakia was the providing of investment incentive.
However, mentioned investment is outside of the analysed period. The more detailed analyses of the FDI
inflow into the Slovak Republic might be found in Darmo (2015), Ferenčíková and Vážan (2007, 2008)
or Šustr (2007). The development of FDI inflow to the Slovak Republic is shown in Graph 1.
Graph 1: FDI inflow to the Slovak Republic (mil. $, current prices)

Source: UNCTADstat
To be more precise, the Graph 2 shows the FDI inflow as the percentage of GDP. It is obvious that this
share has decreasing trend. This is due to the two facts. Firstly, the decreasing volume of FDI, and
secondly, the growth of produced output. Currently, the FDI inflow is only small part of the GDP. After
the former privatization, the Slovakia has only small number, almost none state-owned companies that
might be privatized in the future. The only form of FDI inflow is greenfield or brownfield investment.
However, this is often conditioned by the providing of investment incentives. The privatization is the
reason of relatively high FDI inflow to the Slovakia and its high share on produced output. As the
privatization has moderated and gradually finished, the compensation in the form of greenfield and
brownfield investment is not sufficient to keep the inflow at the level in time of privatization.
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Graph 2: FDI inflow to the Slovak Republic (% of GDP)

Source: UNCTADstat
In previous text, we have described the FDI inflow to the Slovak Republic. This represents the overall
FDI inflow, including also investment that has not gained or applied for incentives. The following graphs
show the investment cost of investments that has approved to be provided with the incentives. As seen,
the graph almost copies the overall FDI inflow. It means that almost all FDI has applied for some form of
subsidy.
Graph 3: Investment cost of investments provided by incentives (in €)

Source: Ministry of Economy of the Slovak Republic
Regional distribution of investment cost is shown in Graph 4. The highest investment are PSA Peugeot
Citroen in 2003 in Trnava district and Hyundai/Kia in Žilina district the very next year. The very low
investment cost has two less developed districts – Prešov and Banská Bystrica. On the other side, there
are Trnava and Žilina, followed by Trenčín district. As we will see later, investments almost copy the
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economic performance of the Slovak districts. The most developed districts (except for the most
developed Bratislava district) has attracted higher level of investments as the less developed districts.
Evidently, the less developed districts are also less attractive.
Graph 4: Investment cost of investments provided by incentives (in €, NUTS 3 level)

To accomplish the analysis, the average value of investment cost for total period was calculated. The
result confirms that the less developed districts have the lowest average investment cost. To consider the
role of investment incentives to support less developed districts, result is in contrast with this aim.
Providing of investment incentives have not brought a higher volume of investments to disadvantages and
less developed districts. The expansion of automotive industry affects the average investment is in Žilina
and Trnava districts, which are the highest.
Graph 5: The average value of investment cost (in €)

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Economic Performance of the Slovak Regions – Development of Regional GDP

The Slovak Republic is administratively divided into 8 districts (NUTS 3 level). The most developed is
the west part of the Slovakia, the less developed is the east part and south of the middle Slovakia. As
mentioned in Liptáková (2016), the Bratislava district is the 6th richest region among the EU regions. On
the other side, the less developed is the Prešov district, Banská Bystrica district and Košice district.
Assuming the role of investment incentives, the most subsidizing districts should be these three. The
incentive or any other form of subsidy would encourage investors to allocate investments in these regions.
Obviously, investment incentive became the determinant of FDI inflow only when investors have the
interest and want to invest in particular country or region and at the same time, country or region has
similar conditions as neighbouring regions or countries. As seen, the Bratislava district had about 2.75
higher GDP in 2002 as the less developed Prešov district. Moreover, it was approximately 3.08 in 2014
(Graph 6). Thus, the regional disparity in the Slovakia is not decreasing, but rather enlarging. Analysing
regional GDP per capita, situation does not change. The ratio of the most and less developed district goes
from 3.57 in 2002 to 4.05 in 2014 (Graph 7). To assess the successfulness of providing investment
incentives for foreign investors according to the reduction of GDP gap between the Slovak districts, the
policy of providing investment incentive has failed. However, such function is just secondary. Primary,
the investment incentives have to encourage the FDI inflow resulting in job creation and increase in
production.
Graph 6: Regional GDP (mil. €; current prices)
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Source: Statistical Office of the Slovak Republic
Graph 7: Regional GDP per capita (in €; current prices)

Investment Incentives in the Slovak Republic

The following part of the paper deals with the providing of investment incentives. The topic of incentives
is also in interest of world institutions as OECD (2002) or UNCTAD (2004). In the Slovak Republic, the
detailed analysis still absents. This gives us the opportunity to analyse various data on the providing of
investment incentives with the focus on regional analysis. Introduction to the analysis is the legislation of
incentives providing, followed by the core analysis of data on investment incentives.
Legislation of Providing of Investment Incentives

The providing of investment incentives represents the intervention to the market economy. Each
providing of investment incentive has to comply with the principles of market economy. Mainly, it has
not advantage the recipient and disadvantage other competitors. For that reason, the level and conditions
for providing of investment incentives is regulated by laws and other legislative acts. Exactly, in the
Slovak Republic, these are Act. No. 565/2001 (2001) and Act No. 561/2007 (2007) that has repealed the
previous Act. According to the Act No. 561/2007 (2007), the total investment incentive cannot exceed the
maximum permitted intensity of aid given by the law. The incentive is provided by a contract between
provider and recipient of the aid. The providers of incentive in the Slovak Republic are: Ministry of
Economy of the Slovak Republic, Ministry of Transport, Construction and Regional Development of the
Slovak Republic, Ministry of Finance of the Slovak Republic, Ministry of Labour, Social Affairs and
Family of the Slovak Republic, Slovak Land Resources, municipality, districts, and owner or manager of
real estate belonging to public administration. Moreover, each providing of incentive has to be ratified by
the Slovak Government or by European Commission (up to the moment, only providing of investment
incentive for one company in the area of chemistry industry has been ratified by European Commission).
The Slovak Republic provides investment incentives in the areas of industry (a), tourism (b),
technological centres (c), and centres of strategic services (d) as given in SARIO documents (2010,
2015). According to SARIO (2015), the forms of provided investment incentives are subsidies to
purchase long-term tangible and intangible assets (a), reduction on income tax (b), subsidy for job
creation (c), and remittance of immovable property (real estate) or its exchange for price below the real
accounting value of property (d). Intensity of the investment incentives is different for particular regions.
Intensity is the share of the investment incentive on the total cost of investment or the volume of the
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incentive that might be provided. The maximum intensity is usually given by the Decree of the
government of the Slovak Republic (2014) and might be easily changed. The ratio or the volume of
maximum intensity depends on the features of particular county, mostly on the unemployment rate.
According to this characteristic, the Slovak Republic is divided to three zones (A, B and C) with different
maximum intensity of the incentive.
Providing of Investment Incentives – Regional Distribution

As mentioned in previous text, investment incentives should be provided to encourage allocation of
foreign direct investment in a country, most importantly in disadvantaged or less developed regions. In
accordance with regional GDP development, the fair-sized incentives would be used for Prešov, Banská
Bystrica and Košice district. However, as seen in Graph 8, Prešov district had the lowest volume of
incentives as the total sum of all provided incentives in analysed period. The Prešov district is followed
by Bratislava district and Banská Bystrica district. From the less developed districts, only Košice district
is the third in volume of provided incentives, behind the Trnava and Žilina district. These two positions
are not surprising due to the investments to automotive industry and sub-contracting industries in these
districts. The position of less developed districts might be caused by non-attractiveness of these Slovak
regions. Investors have no motivation to invest because of the bad geographical location, underdeveloped
infrastructure, low demand or uneducated labour.
Graph 8: Investment incentives in the Slovak regions (in €; current prices)

To analyze only the total sum of provided investment is insufficient. Another important feature is the
number of investment incentives. Košice, Trenčín and Nitra districts are the region with the highest
number of provided investment incentives. An opposite position have Bratislava, Prešov and Trnava
districts.
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Graph 9: Number of investment incentives

Since we know the total sum of investment incentives and the number of provisions, we get another
important information, which is the average incentive that was provided in particular district. The three
less developed districts have the lowest average of the incentive. According to this statistics, we would
assume that the government does not support the less developed districts. The two districts – Žilina and
Trnava markedly exceed the other districts, as well as the average incentive for the Slovak Republic. This
situation is the result of huge support of automotive industry in these two districts and the effort of
government to create new jobs by employment in assembly halls and supported industries and services.
Graph 10: The average value of investment incentive (in €)

Include the investment cost (analysed in previous text) into the analysis, we might figure the share of
investment incentive on the total investment cost. This is an important information. It shows the
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participation of the country on the investments allocated in the Slovak Republic. In other words, the part
of investment granted by the country. Although have the three less developed Slovak districts the lowest
volume of average investment and the lowest average incentive, the share of incentive on investment is
the highest. This implies that the investments in the less developed regions are the most subsidized. As
we mentioned above, we would not make the conclusion only by analysing data for incentives and
investment cost separately. Only this comparison shows that there is an effort of central and local
authorities to support the less developed districts to be more attractive for foreign investors by the use of
investment incentives.
Graph 11: The share of investment incentive on the total investment

Investment Incentives and Job Creation

The most popular method of governments to rationalize the providing of investment incentives is the job
creation. The public often excuses the use of “their money”, if this is compensated by the new jobs and
increasing employment. Except for the Bratislava district with the lowest unemployment rate, the less
developed Prešov and Banská Bystrica districts are regions with the smallest number of jobs to be
planned created by the investors that have received investment incentive. The highest number of planned
jobs is in Trenčín district. This district lies in the west of the country with good connection to the main
trade partners in EU (Czech Republic, Germany, Austria) and neighbours with the Žilina and Trnava
districts – the centres of automotive industry producing cars, primary for export.
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Graph 12: Planned jobs

To complete the analysis, investment incentive per one planned crated job was figured. The highest
incentive per job has the Žilina and Trnava districts. The incentive per job for the whole country is higher
than the per job incentive in the less developed districts. Investments of PSA Peugeot Citroen and
Hyundai/Kia were crucial for the Slovak economy. For that reason, government was determined to
subsidize one planned job by the sum about 50 000 €. The less developed districts had the per job
incentive in the middle of the rank among the Slovak districts. The reason might be in the non-
attractiveness of these districts for foreign investors. The investments in these districts are smaller
creating less jobs as higher investments. Also, the new production has lower impact on the entire
economy. For that reason, the subsidizing of these jobs has lower priority as the subsidizing jobs of
strategic investments.
Graph 13: Investment incentive per planned created job (in €)
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Conclusion
The providing of investment incentives plays an important role in attracting foreign direct investment.
Properly set policy of investment incentives might lead to reduction of regional disparities and encourage
the economic growth, job creation and decrease in unemployment rate. As a result, the advantage of their
providing is higher than the disadvantage of this measure caused by intervention to market relations. The
Slovak Republic started to provide investment incentives since 2002. Together with other taken measures
and reforms, FDI inflow has immediately increased. Unfortunately, foreign investors were interested to
allocate investments in more developed regions. The prime investments were followed by subsequent
investments, both, in location and industry. Actually, the structure of the Slovak economy was formed by
the FDI inflow.
The analysis of the investment incentives has shown that the average volume of investment incentive and
investments are the highest in districts with automotive industry – Žilina and Trnava districts. On the
other side, the lowest in the less developed districts of Prešov, Banská Bystrica and Košice. The same
situation occurs when analysing the investment incentive per planned created job. However, the share of
investment incentive on investment cost is the highest in less developed districts. Thus, these are the
regions that have received the highest subsidy in comparison to realized investments. This is the only
indicator that might prove the effort of the public authorities to support less developed regions.
Nevertheless, the providing of investment incentives is not a fundamental determinant of FDI inflow.
This is only additional subvention in FDI attracting. It becomes significant under some conditions. First
of all, investor must have interest to allocate investment in the region or the country and secondly,
neighbouring regions or countries have very similar economic, social or political characteristics. The
future analysis and research questions associated with the providing of investment incentives are the
positives and negatives of their providing as well as the policy of investment incentives in order to reduce
regional disparities.
Acknowledgment
This article was supported by the Grant Agency VEGA, under project No. 1/0409/14 „Development
trends of comparative economic systems“.
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Regional Development of Small and Medium Enterprise

In Correlation of the Life Cycle
Pavla Matulova
University of Hradec Kralove, Faculty of Informatics and Management,

Hradec Kralove, Czech republic, pavla.matulova@gmail.com
Ruzena Stemberkova

Hradec Kralove, Czech republic, rstemberkova@seznam.cz
Petr Zdralek
Hradec Kralove, Czech republic, pzdralek@varroclighting.com
Petra Maresova
Hradec Kralove, Czech republic, Petra.maresova@uhk.cz
Kamil Kuca

Hradec Kralove, Czech Republic
kamil.kuca@uhk.cz
Abstract
The paper is focused on monitoring the main needs of small and medium size entrepreneur SME according
the life cycle stage of SME. The implications and trends that underpin open innovation are actively
discussed in terms of strategic, organizational, behavioral, knowledge, legal and business perspectives.
Aim of the paper is introduce research and measure the results of regional support in correlation of the
SME life cycle including coaching scheme.
Keywords: Regional innovation strategy, regional development, open innovation phenomenon, small and
medium size entrepreneur SME, the SME life cycle, high-tech industries, coaching program
1. Introduction
Regional economies are keys to innovation and growth. There is a wealth of evidence and practical
examples, which confirms that regions and cities play an important role in developing innovation by being
the home of industrial clusters, competence centers, incubators, technology parks and many other types of
formal and informal innovation spaces. The Regional Innovation Strategy of the Moravian region in Czech
Republic represents a set of measures, sub measures and tools that should be implemented to ensure the
development of innovations. The first version of the Regional Innovation Strategy was created in 2002 and
it came into being in the context of that time and the environment. Regional development of small and
medium enterprise process requires a set of instruments. Those tools, for example, enable customers to
create or configure their own product with tools kits or enable companies to integrate external problem
solvers or idea creators and also must be complementary in life cycle of particular company. Also national
and regional government are focusing on support of open innovation in SME with specific tools respecting
stage of life cycle of companies. The aim of the paper is introduce research of correlation of the SME life
cycle and the results of open innovation.
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2. Regional innovation strategy in monitoring region
South Moravia has got a traditional strong and expanding basis in the research and development area
formed by college students and scientists. The structure of these students and scientists is also favorable
because it is focused on disciplines of biology and engineering. The key approach how to improve the
situation is to support innovative small and medium enterprises with a high added value that direct their
attention to the introduction of novel and better products and services and also to the introduction of new
approaches. A political consensus of all parties involved represent a cardinal advantage in a process of
introducing the system supporting the innovative business. Universities, the regional political
representation and representatives of the City of Brno have managed to find a common ground and came
to an agreement regarding goals that are mentioned the Regional Innovation Strategy. In the years 2014–
2020, the South Moravian region will formulate the fourth generation of innovation strategy. It will place
even greater emphasis on investments in education, increase support for rural and suburban areas of South
Moravian region and will increase focus on encouraging the growth of already established companies. A
big commitment is to ensure the greatest possible benefits of investing in research centers for the regional
economy.
Regional economies are keys to innovation and growth. There is a wealth of evidence and practical
examples, which confirms that regions and cities play an important role in developing innovation by being
the home of industrial clusters, competence centers, incubators, technology parks and many other types of
formal and informal innovation spaces. Successful regions and cities become European or global nodes of
innovation, technology networks and value chains. Regions have an insight into their own innovation
systems, as well as the capacities to mobilize regional innovation stakeholders through specific policy
instruments. On the other hand, regional stakeholders have a good understanding of regional
environmental performances, as well as the capacities and competences to take local action to promote
environmental sustainability. Regional authorities, national government EU have both the expertise and
the capacity to effectively address both innovation and sustainability challenges. In many instances,
connecting these expertise, creating collective capacities to act and coming up with innovative solutions is
place specific. Eco-innovation, like any other innovation, should be understood as occurring because of
what are often geographically proximate concentrations and interactions amongst small, fast-moving
systems of innovators and their networks. The Regional Innovation Strategy of the Moravian region
represents a set of measures, sub measures and tools that should be implemented to ensure the
development of innovations. Since 2002 substantial changes happened in the environment, in priorities of
the Czech Republic and in the economic area of South Moravia as well as in possibilities to obtain external
financial means for innovations (in particular owing to the admission of the Czech Republic to the
European Union). The sectors of business enterprises, universities and colleges as well as supporting
organizations in South Moravia are undergoing a dynamic development and because of this an obvious
need to update the innovation support strategy appeared. One of the very important tool, which was
implemented into regional innovation strategy is model of regional coaching program support open
innovation in correlation of the SME life cycle as an efficient tool of regional development.
3. Methods
Study of life cycle model of companies help to focused regional innovation strategy more effectively. And
we can predict developments of coaching program depending on the stage of the company. Also for
development of community of experts is useful to know the correlation of life cycle model coaching
scheme implementation. It is very important to focused regional policy on innovation in wider connotation
and support innovation concept according life cycle model of company. This statement is result of large
survey among the companies.
The scientific method is based on the assumption that the criterion of the truth of a scientific hypothesis
consent predictions with the results of research for monitoring were used the tool: The Business-
Innovation-Roadmap Tool by smE-MPOWER (is made available under a Creative Commons Attribution-
ShareAlike 3.0 Unported License). This analysis went through around ninety companies. The proposed
1254
methodological approach entails the following analytical steps: context analysis and target setting,
business innovation analysis, roadmap definition and initiation of strategic project setup.
4. Results
4.1. Market failure arguments in frame of regional support by coaching scheme
Orientation in an increasingly interconnected and technologically complex environment for entrepreneurs

are constantly demanding. Small and medium size entrepreneurs (SMEs) have not yet adequate internal
capacity to evaluate the external environment (markets, technologies, etc.), increasing the likelihood of
wrong business decisions. It reduces the ability to evaluate leadership and the willingness of SMEs to take
significant risks.
On the market already exist special expertise; which SMEs can not keep inside; but this market shows
following failures (inefficiencies):
• Providers of special expertise prefer sized enterprises and corporation (because sized enterprises and
corporation know what they want very well and how much it actually costs – and how much they are
willing and able to pay)
• Managers of SMEs often do not know what they can get on the expert´s market and exactly what they
want
• Managers of SMEs are not able to evaluate the services cost of the special expertise (and usually they do
consider this costs as strongly exaggerated.
• Consulting firms have been actively offered to managers of SMEs and mostly its quality are not enforce
on the market for large sized companies. Experience with poor quality of consulting firms reinforce the
impact of the previous two points.
A national network of support services for SMEs and helping to create a market for the services of highly
specialized expertise.
Market failure is proven by the existence of a national network of support services for SMEs in countries
such as USA, UK, and Canada, which places great emphasis on the smooth functioning of markets.
Similar service network also has a number of other OECD countries.
Examples abroad:
• Manufacturing Extension Partnership (USA)
• Manufacturing Advisory Service (UK)
• Enterprise Connect (AUS)
4.2. Example of EU coaching scheme support:
Small and Medium-sized Enterprises that are EU-based or established in a country associated to Horizon
2020 can now get EU funding and support for innovation projects that will help them grow and expand
their activities into other countries – in Europe and beyond.
Horizon 2020 funds high-potential innovation through a dedicated SME instrument, which offers seamless
business innovation support under the section Societal Challenges and the specific part Leadership in
Enabling and Industrial Technologies (LEITs).
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Provided with about € 3 billion in funding over the period 2014-2020, the SME Instrument helps high-
potential SMEs to develop groundbreaking innovative ideas for products, services or processes that are
ready to face global market competition. Available to SMEs only, which can however organize a project in
the way that best fits their business needs – meaning that subcontracting is not excluded – the new scheme
has opened a new highway to innovation through phased, progressive and complimentary support.
The SME Instrument offers small and medium-sized businesses the following:
Business innovation grants for feasibility assessment purposes (optional phase I): EUR 50,000 (lump sum)
per project (70% of total cost of the project);
Business innovation grants for innovation development & demonstration purposes (possible phase II): an
amount in the indicative range of EUR 500,000 and 2,5 million (70% of total cost of the project as a
general rule);
Free-of-charge business coaching in order to support and enhance the firm’s innovation capacity and help
align the project to strategic business needs;
o Access to a wide range of innovation support services and facilitated access to risk finance, to
facilitate the commercial exploitation of the innovation.
o Optional Innovation and Business Development Coaching is offered to help SMEs:
o enhance the company's innovation capacity
o align the project to the identified business development strategy
o develop the commercial/economic impact and long term sustainability.
o Coaching is provided by experienced business coaches, selected through the Enterprise Europe
Network (EEN).
4.3. Life cycle stage of the SMEs involved into coaching program
And according the scheme of regional innovation strategy the program of regional support in correlation
of the SME life cycle included work with experts and coaches. Coaches help the beneficiaries to progress
over the life cycle of their innovation, from idea to proof of concept, to first pilot application and finally
upscaling and expansion. They empower the SME to cope with challenges such as developing their
strategy and organization, identifying their market and improving ability to attract finance.
Following graphs shows life cycle stage of the SMEs involved into program structure of SME and their
need solving in regional development coaching scheme. Program is running in frame of regional
development support since 2013.
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Figure 1: Life cycle stage of the SMEs involved into program
Based on many hundreds of companies coached over the last years, the platform of innovation in Western
Switzerland platinn applies its lifecycle model with ongoing success in industry. The smE
smE-MPOWER
Business Innovation
Roadmap methodology: A methodological

methodological approach for establishing in a participative way a roadmap for
business innovation in SMEs publish by Dr George Tsekouras, Dr Christoph Meier, Dr Arvydas Sutkus,
Andreas Wolf, M.A.
6% 3% Seed stage
6%
28%
Project
Project-to-
project stage
32% Upscaling
stage
Expansion
24% stage
Life cycle stage of the SMEs
Figure 2: Visualization of number SMEs involved into program according life cycle stage
There are visible that the main interest in coaching scheme has been seen in the group of companies in
upscaling stage or expansion stage.
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50 Needs analysis
39
40 35 Phase 1
coaching
30 25 Project
22
20 implementation
10 6 4
3 2
0
0
2013 2014 2015
Number of cases - initiated
Figure 3: Number of initiated cases since loading program
Ration of need analysis and participating in the coaching scheme is 2:1.
50
39 Needs analysis
40 35
30 Phase 1 coaching
20 14 17
10 6 5 Project
0 0 0 implementation
0
2013 2014 2015
Number of cases - finished
Figure 4: Number of finished cases since loading program
One of crucial point of all coaching scheme is successful finish of the program, in the research project we
made analysis in 39 companies and 17 of them successfully finished first phase. And five of thethem started
long term project.
60% 56%
50%
40%
30% 26%
18%
20%
10%
0%
Micro (<10) Small (<50) Middle (<250)
Structure of the SMEs by size
Figure 5 :Structure of the SMEs by size
Coaching scheme attract mostly the companies sized till 50 employees more than 50%.
1258
5. Conclusion
Enterprises and business units undergo systemic changes when they move from one stage of their life
cycle to the next. Based on its interaction with numerous companies over many years has developed a life
cycle model highlighting the typical business challenges and priorities of each stage. It differentiates
between two principal contexts (pre-industrial companies and industrialized firms) and six stages of
development (seed stage, project-to-project, upscaling, expansion, renewal, consolidation). It is worth
emphasizing that the six stages of development are not necessarily sequential; for instance firms can move
from the seed to upscaling stage).
Identify new collaboration opportunities; knowledge of regional, as well as Czech national ecosystem will
allow companies to tap into the pool of expertise and talent of start-ups, SMEs, as well as academic
institutions in South Moravia, or across the Czech Republic. Regional strategy is partnership of South
Moravian companies, local scientists, public authorities and other parties connected to development in the
region. Working together innovation strategy has managed to create hundreds of skilled jobs in dozens of
new high - tech companies. One of the target is to reach successful cooperation between industry and
universities. To help company with business development: focused on the identification, analysis and
evaluation of potential business opportunities, the definition of business segments and the development of
an effective marketing mix and organization: aimed at mobilizing the resources of the SME to ensure the
efficiency and performance of the company’s organization; and cooperation: to support SMEs in planning
and implementing innovation partnerships and project consortia.
Critical vectors related to the current life-cycle stage: Seed stage company were focused in their
innovation mostly on new strategy with customers communication and internal processes. In the group of
project to project stage (each project is unique and according to specific customer requirements) is the
main topic distribution and new approach to distribution in general point of view (Fig. 7). Critical vectors
related to the upscaling life-cycle stage are innovation concerning customers and distribution. Interesting
phenomenon, which were observed are the group of companies in consolidation stage. And its critical
vectors are evenly distributed.
70% 68% 68%
58% 60%
60% 55%
52% 52%
50%50% 50%50% 50%
48%
50% 43% 41% 40%40%
40%
33%
30% 24%
22% 21%
20%
10%
0% 0% 0%
0%
Seed stage Project-to-project Upscaling stage Expansion stage Renewal stage Consolidation
-10% (2 SMEs) stage (22 SMEs) (19 SMEs) (25 SMEs) (5 SMEs) stage (5
SMEs)
Offering Customers Processes Distribution
Figure 6: Critical vectors related to the current life-cycle stage
One of the very important tool, which was implemented is model of the program innovation supported
targeted to the current life-cycle stage is specific coaching program. The tool perspective: specific
coaching program. requires a set of instruments. Those tools, for example, enable customers to create or
1259
configure their own product with tools kits or enable companies to integrate external problem solvers or
idea creators. Especially the low degree of interconnection of the corporate and academic sectors, which
prevents the full use of the knowledge base of the region to create the foundations of the long-term
prosperity of the local economy.
6. Acknowledgements
This work was supported by internal research of University of Hradec Kralove: Economic and managerial
aspects of Biomedicine and Excellence 2016.
7. References
- Kline, S. and Rosenberg, N. (1986): An Overview of Innovation, in: Landau R. and Rosenberg N.
(ed.) (1986): The Positive Sum Strategy. Harnessing Technology for Economic Growth, Washington DC.
- Beck, K. (2000) Extreme Programming Explained:Embrace Change. Amsterdam: Addison-
Wesley Longman.
- Schumpeter, J.A. (1961): Konjunkturzyklen, Eine theoretische, historische und statistische
Analyse des kapitalistischen Prozesses, Bd. I, Göttingen, engl.: Idem (1939): Business Cycles. A
Theoretical, Historical, and Statistical Analysis of the Capitalist Process, New York.
- Boutellier, R., Gassmann, O., Macho, H. and Roux,M. (1998) Management of dispersed R&D
teams. R&D Management, 28, 1, 13–25.
- Boutellier, R., Gassmann, O. and von Zedtwitz, M. (2008) Managing Global Innovation,
Uncovering the Secrets of Future Competitiveness, 3rd revised edn. Berlin: Springer.
- Csank P., Interim Evaluation Results, 2013, South Moravian Centre
- Weiss J., Interim Evaluation Results, 2010, South Moravian Centre
- Chesbrough, H.W. (2003) Open Innovation: The New Imperative for Creating and Profiting from
Technology.Cambridge, MA: Harvard Business School Publishing.
- Arundel A. and Hollanders H. (2006): Searching the forest for the trees: “Missing” indicators of
innovation.
- Trend Chart Methodology Report, European Commission.
- Chesbrough, H.W. (2006) Open Business Models: How to Thrive in the New Innovation
Landscape. Cambridge
- Cornet, M., B. Vroomen and M. van der Steeg (2006), “Do Innovation Vouchers Help SMEs to
Cross the Bridge towards Science” in CBP Discussion Paper No. 58, Netherlands Bureau for Economic
Policy Analysis, The Hague. www.cpb.nl/eng/pub/cpbreeksen/discussie/58/ OECD (2008), A Review of
Local Economic and Employment Development Policy Approaches in OECD countries, OECD
- Roper, S., J.H. Love, P. Cooke and N. Clifton (2005), The Scottish Innovation Systems: Actors,
Roles and Actions: Report for the Scottish Executive.
- Dutch Index Vouchers Scheme: www.senternovem.nl/innovatievouchers
- Irish Innovation Vouchers Scheme: www.enterprise-ireland.com/innovationvouchers
- West Midlands Innovation Vouchers Scheme: www.indexvouchers.org/new/
- http://www.inovacnivouchery.cz/
- www.oecd.org/document/17/0,3343,en_2649_34417_42750737_1_1_1_1,00.html
- www.platin.ch
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- Matulova P., Innovation Voucher Programme: Effective Tools of Transfer Technology and Open
Innovation 24th IBIMA Conference
- Weiss J., 2015, Presentation of JIC Programs , South Moravian Centre
- Milan, Italy 6-7 November 2014 ISBN: 978-0-9860419-3-8
- Cooke (2011) Transition regions: Regional-national eco-innovation systems and strategies,
Progress in Planning, 76 (2011) 105-146
- MATULOVÁ, Pavla, ŠTEMBERKOVÁ, Růžena, ZDŘÁLEK, Petr, MAREŠOVÁ, Petra,
KUČA, Kamil. Effective Way of Transfer Technology Between Universities and the Sector of Commerce.
IDIMT. In: 2015, s. 459-466. ISBN 978-3-99033-395-2
- Connecting Smart and Sustainable Growth through Smart Specialisation. A practical guide for
ERDF managing authorities; ISBN: 978-92-79-27345-2
- MAREŠOVÁ, Petra. Economic and Technological Aspects of Social Networks in European
Business Sector. In: Advanced multimedia and ubiquitous engineering: future information technology.
Heidelberg: Springer, 2015, s. 85-91. ISBN 978-3-662-47486-0
- MATULOVÁ, Pavla, ŠTEMBERKOVÁ, Růžena, ZDŘÁLEK, Petr, MAREŠOVÁ, Petra,
KUČA, Kamil. Open Innovation as a Tool of Technology Transfer. WCBEM. In: Procedia economics and
finance. New York: Elsevier, 2015
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Implications of Regulations and Taxes on Inbound Investments in

Alternative Asset Classes in Germany
Aykut Bussian
Bucharest University of Economic Studies, Bucharest, Romania, aykut.Bussian@bakertilly.de
Tobias Stiegler
Bucharest University of Economic Studies, Bucharest, Romania, tobias.stiegler@gmx.net
Jochen Schmid
Bucharest University of Economic Studies, Bucharest, Romania, jochen.schmid@tdwk.de
Abstract
German domestic investments in alternative asset classes by international investors (Inbound

Investments) are subject to a supervisory and regulatory framework that has changed significantly in
recent years. Alternative investments are characterized by their specific targets (such as non-listed
companies or special properties) and by their pursued investment strategy (hedge funds). Hedge
funds, have been especially focused on by the European Union, which passed Directive 2011/61/EU
(AIFM-Directive) in July 2011 in order to regulate their intensive use of options and other highly
leveraged financial instruments, generally believed to have aggravated the last financial market crisis.
Pursuant to this Directive, initiators of hedge funds and other alternative investment funds are subject
to a uniform schedule of licensing and operations requirements to market their funds across the
European Union (European Passport). Along with this EU-wide regulation, which is expected to
facilitate German inbound investments in alternative forms, a tax-efficient structuring of those
investments is crucial, especially for real estate transfer taxes and definitive withholding taxes. Tax
burdens arising from national taxation regimes not compliant with the AIFM-Directive can lead to
investment hurdles resulting in low after-tax yields. The goal of this article is to elaborate on the
consequences of regulatory mechanisms and taxes for German inbound investments in alternative
entities and to identify other essential aspects concerning the ongoing development of regulatory
mechanisms in this field.
Keywords: AIFM-Directive, Alternative Asset Class, German Inbound Investments
1. Introduction: Overview on the Regulatory Framework of Alternative Asset Classes
Investment funds are asset pools that enable investors purchase or redeem shares. By pooling savings
from a large number of investors, investment funds offer a number of advantages, particularly in
terms of risk diversification and lowered costs by economizing on scale (Bengtsson, Belbegcque,
2011).
In response to the 2008 financial crisis, the European Commission published a draft directive for
dealing with alternative investment fund managers (AIFMD) on 30 April 2009 (European
Commission, 2009). This directive deals with the comprehensive authorization and supervision
requirements for fund managers not covered by UCITS. While UCITS regulates funds primarily
invested in securities, the AIFMD targets funds that invest in real assets (e.g. real estate, ships etc.)
and commodities or which follow private equity or hedge fund strategies. As alternative investments
fund managers (AIFMs) have become significant actors in the European financial system by
managing large volumes of assets, they contributed, in the eye of the commission, to the build-up of
leverage accentuating the financial crisis (European Commission, 2010). However, whether hedge
funds especially contributed to the crisis is a highly contested question in the academic literature. But
1262
it is generally recognized that private pools of capital can be a source of risk because of their market
size and linkages with other parts of the financial system (Johnston, 2015).
As a result of the imposed harmonization of conditions and requirements of the structure and
operations of AIFMs by the AIFMD, it, for the first time, became necessary to get clearance for the
introduction of Alternative Investment Funds (AIFs) and their marketing to private and professional
investors domiciled in the EU, and to manage the AIFs operating in the EU or in third countries. The
recent adoption of the AIFMD is the result of lengthy negotiations. The main issues dealt with at the
AIFMD negotiations included the provisions that might apply to non-EU AIFMs or non-EU AIFs
(i.e., access to the EU market for non-EU AIFMs a non EU AIFs); matters concerning delegation and
valuation; leverage rules; requirements of depository functions; and remuneration rules. Each of these
aspects has been made part of the directive framework to make it comprehensive, leading to a
threefold regulation hierarchy shown at the end of this chapter.
The German Capital Investment Code (CIC) came into force on 22 July 2013 (CIC, 2013). The CIC
incorporated the European AIFMD into the German national law, creating a level playing field for
both UCITS and AIFs. An AIFM is defined as an entity managing an AIF. An AIF is a collective
investment undertaking, including investment components, that raises capital from a number of
investors with a view to investing it in accordance with a defined investment policy for the benefit of
those investors, and is not qualified as an UCITS-fund (CIC, § 1 par. 1 No. 19).
An AIF can be self-managed (CIC, § 17 par. 2). The legal form must then allow for self-management,
and the management must not appoint external managers (CIC, § 17 par. 2). A self-managed AIF has
to be licensed or registered by the Federal Financial Supervisory Authority.
An AIF can be also managed by an external manager, which is often the case (CIC, § 18 par. 1). The
legal form must be a public limited company, private limited company, or a limited partnership with
a private limited company as its general partner (CIC, § 18 par. 1). The management of the AIF then
needs to appoint an external manager licensed or registered by the Federal Financial Supervisory
Authority.
In the following, the main regulatory requirements are explained briefly.
Authorisation
An initial authorization from their member state regulators is needed for every AIFM with assets
under management (AUM) over the thresholds of €100 million (or €500 million for closed-ended
unleveraged funds) to operate in the EU by giving information about them and their AIFs. AIFMs,
whose AUM do not exceed these values, can also opt for the full regime. Under normal
circumstances, member state regulators take three months to give approval. Under certain conditions,
they may take up to six months. AIFM below this threshold are only required to register with the
local state regulator.
Delegation
It is possible for an AIFM to delegate certain management functions to a third party or service
provider. The delegation of specific portfolio or risk management activities to a third party, or to any
further sub-delegation, does not affect the AIFM’s liability towards the AIF and its investors
(AIFMD 2011, Art. 20 No. 1).
The AIFM’s home regulator must be informed before any delegation or sub-delegation becomes
effective. This also applies to the planned delegation of business functions (administration and
marketing) or activities related to AIF assets for which the AIFM is responsible (AIFMD 2011, Art.
20). Further, the AIFM’s prior consent is needed for any future sub-delegation arrangements. It
enables existing portfolio and risk management delegation models for AIF to work if regulatory
notification and other terms are met. There is no limit to the sub-delegation chain, thus allowing for
the heterogeneous nature of AIF structures (AIFMD 2011, Art. 20).
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Depositories
Each AIFM has to appoint a depository to perform certain functions (AIFMD 2011, Art. 21). These
include in particular:
• the monitoring of AIF cash flow;

• holding in custody financial instruments belonging to the AIF;
• examining in respect of all other AIF assets whether the AIF (or AIFM on behalf of the
active AIF) has a stake in them on the basis of internal and external evidence of ownership;
• ensuring the sale, issue, redemption and cancellation of AIF shares, and that the income of
the AIF is applied in accordance with the applicable national law and AIF rules (AIFMD
2011, Art. 21).
Leverage
The AIFM must demonstrate the maximum and an appropriate level of leverage for the competent
authority (AIFMD 2011, Art. 15 No. 4). The competent authority may impose additional limits.
Loans may be generally taken only to the extent of 60 % of the value under management for retail
funds. Borrowings must be at the market rates and should be compatible with the conditions of the
retail funds (CIC, § 263 par. 1). The leverage provisions aim to increase transparency and security as
well as ensure better monitoring by supervisors.
Valuation
Provisions of the AIFMD require the appointment of an independent body or a functionally separate
unit for evaluation work (Valuation, AIFMD 2011, Art. 19 Nr. 4). In cases where the assessment is
done internally, an external verifier must check the methods used (Valuation, AIFMD 2011, Art. 19
Nr. 4).
According to the Capital Investment Code, a retail fund can invest in the following property:
• Real estate
• Ships
• Aircraft
• Rail vehicle
• Container and
• Infrastructure.
Investment can be made in an asset only after its evaluation by an external evaluator (appr. asset
value<50 million) or two external evaluators (appr. asset value> 50 million) (CIC 2013, § 261 par. 5).
For initial investments, an external evaluator is mandatory in case of retail funds.
Risk Management
Alternative asset managers have traditional tasks of risk management as part of their portfolio
management function. The processes and procedures should be documented accordingly.
The AIFMD requires a functionally and hierarchically independent risk management function. In
addition, the risk management process must be documented (AIFMD 2011, Art. 15 Nr. 1). To ensure
independent risk management, protective measures must be taken (AIFMD 2011, Art. 15 Nr. 5). The
AIF manger is required to set up appropriate rules regarding the composition of the Executive Board,
remuneration, and the management of conflict of interests. For example, risk management oversight
cannot be performed by the head of portfolio management. Likewise, control functions must be
separated from the operating units.
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Liquidity Management
With the exception of unleveraged closed-ended funds, an appropriate liquidity management system
should be established for the AIFM (AIFMD 2011, Art. 16 Nr. 1). It should have procedures ensuring
the AIF investment liquidity profile complies with its underlying investment conditions consistent
with the liquidity risk monitoring of each AIF. An AIFM must also perform regular stress tests of the
AIF (AIFMD 2011, Art. 16 Nr. 1).
Capital Requirements
Capital requirements depend on the AUM. For an external AIFM, the minimum amount of own funds
is € 125,000 (CIC, § 25 par. 1). If the AUM exceeds 250m, additional own funds are necessary to the
tune of at least 0.02 % of the amount exceeding 250m (CIC, Art.25 par. 1). Here, the amount of EUR
10 million may not be exceeded (Capital Investment Code 2013, Art.25 par. 1). Internal AIFM must
hold own funds of 300,000 € (Capital Investment Code 2013, Art.25 par. 1). In addition, potential
liability risks arising from professional negligence must be adequately covered (Capital Investment
Code 2013, Art.25 par. 6).
In summary, the regulative AIF rules are quite complex, and can be represented as a multi-level
hierarchy, as follows:
Fig. 1: Regulatory Rules in a multi-level-hierarchy (own figure)
The AIFM Directive has to be implemented in national legislature in order to be effective. Level 2
acts of ESMA however, are immediately effective in all EU member countries without further
implementation. The BaFin (German Supervisory Authority Agency) is authorized to issue
interpretative standards.
The general structure of an AIFMD-regulated fund would be:
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Fig. 2: General Structure of AIFMD (own figure)
Both the AIFM and AIF are subject to regular audits by the year-end-auditor, reporting his results to
the supervisory authority. As shown, the attached point of regulation is the qualification of an AIF
company.
2. Basic Structure of Inbound Investments
2.1 Typical Private Equity Structure
Capital investments in shares and bonds are particularly unattractive for both private and institutional
investors because a long phase of low-interest-rate that is especially foreseen within the European
Union. Therefore, all investor groups are looking for alternative investments (Maftei et al.).
Institutional investors, in particular, regularly need adequate returns on their participation to fulfil
their obligations related to the statutes of the articles. In this context, these investor groups are forced
more than others to invest in alternative entities that are expected to provide adequate after-tax yields.
The following table (Table No. 3) illustrates a typical private equity investment structure in German
inbound investment.
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Fig. 3: The Limited Partnership as a Typical Investment Vehicle
Source: derived from Wassermeyer et al. 2015.
From a German perspective, institutional investors can be categorized into three groups: (i) tax
privileged investors like pension funds or non-profit foundations, (ii) taxable investors like life and
health insurances, which can reduce their taxable income considerably by establishing provisions for
their future obligations, and (iii) taxable investors like banks, property insurances and family offices
(Beckmann et al. 2016). The tax burden of the third group generally depends on the investor’s
residence and the possible tax obligations in Germany based on national rules concerning double
taxation.
2.2 Typical Real Estate Structure with RETT-Blocker
Investments in German real estate become more attractive to international investors, who represent
more than the half the real estate investors (Schwaldt 2015). The demand in commercial (especially
shopping centres and office buildings) and residential rental properties has sharply risen in urban
centres such as Berlin, Düsseldorf, Frankfurt, Hamburg, Cologne, Munich, and Stuttgart (Schwaldt
2015). Under these circumstances, it is expected that Germany will remain an attractive market for
international real estate investments. Other reasons for that are Germany provides a stable political
conditions and economically strong regions, which are advantageous for a successful investment with
moderate risks (Verband Deutscher Pfandbriefbanken 2013).
Generally, there is no clear view on whether it preferable for an international investor to participate
by way of a direct investment, an indirect investment through a partnership or a corporation. There
could also be more reasons than regulatory or tax purposes (e.g. asset protection aspects). Relevant
capital refluxes are needed for institutional international investors. The tax-efficient structuring of an
inbound real estate investment results in higher profits, depending on profitability. However, there is
an increasing complexity regarding the general legal conditions. Thus, a successful real estate
1267
investment largely depends on the proper structuring of the investment in a tax-efficient way,
especially with regard to German Real Estate Tax (RETT) and German Trade Tax (TT).
For German RETT purposes, the purchase of shares in a company owning properties located in
Germany will be treated as a direct purchase of real estate in case at least 95% of the shares in such a
company are purchased directly or indirectly by a purchaser. It is an economical approach to see if at
least 95% of the shares in a partnership or a corporate body are held by one and the same party (see
Tables No 4) (in detail Behrens 2013). Thus, it is necessary to find a third party, for example a bank,
which holds 5.1% of the shares in a property-holding target company in order to avoid German RETT
(see Table No. 4-2). In practice, structures in which investors offer a silent partnership to a third party
holder in order to get economic returns on the real estate investments are discussed. The RETT rate
depends on the location of the real estate. Each of the German federal states can fix a different rate.
Currently, the applicable RETT rates vary from 3.5 % to 6.5 % (e.g. Berlin: 6 %). In transactions of
real estate companies, the RETT can be an obstacle to investments.
Fig. 4-1: RETT-Event by holding of effectively 99.74% of the shares in the PropCo
Source: derived from Behrens 2013.
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Fig. 4-2: No RETT-Event by holding of effectively 94.9% of the shares in the PropCo
Source: derived from Behrens 2013.
2.3 Tax Liability and Withholding Taxes
Investors who are tax-resident in Germany are subject to unlimited German tax liability for their
worldwide income, e.g. dividend and interest income from loans and capital gains (capital income).
Investors, who are not German tax-residents, can be subjected to limited German tax liability with
German sourced income such as capital income, depending on the type of financial instrument and
other circumstances.
With respect to international investors, who are not tax-resident in Germany, German withholding tax
can only apply to income that is subject to limited tax liability in Germany. It also depends on the
classification of the financial instrument, which represents the substantial involvement in the asset.
Income from equity investments in a company located in Germany (e.g. such as dividends) are
subject to a limited tax liability in Germany. The tax is levied by withholding at the rate of 25% plus
solidarity surcharge of 5.5% thereon (total tax rate 26.375%).
In contrast, interest payments made by a German borrower to foreign lenders are subject to limited
tax liability only in certain cases: (i) interest payments under debt that is directly or indirectly
collateralized by German real estate or ships registered in a German maritime register, (ii) interest
payments under debt-type profit participating loans or (iii) interest payments under securitized debt or
bonds effected ‘over-the-counter’. In case of the first issue, German tax is levied by way of tax
assessment, tax returns filed by a German investment vehicle (like in Table No. 1), and, thus, taxed at
individual tax rates. In the second and third scenario, tax is levied by the German withholding tax at a
rate of 25% plus solidarity surcharge of 5.5% thereon (total tax rate 26.375%).
Capital gains from the disposal of shares in a German company can be subject to a limited tax
liability in some special cases, if, in particular, capital gains are made by selling at least 1% of the
shares. In general, international investors would not be taxed in Germany because of treaties against
double taxation (Article 13 para. 5 OECD-MA).
In case of refund of German withholding taxes, national legislation has enacted strict requirements
for international investors (Gosch 2015). In particular, it will not be possible for tax privileged
investors (see group one in Section 2.1) and for tax insensitive investors (see group one in Section
2.2) to fulfil these requirements. The same also applies to international investment funds as investors
in German target companies. In practice, these are pertinent problems for international investors
because these tax liabilities that double taxation burdens have a direct impact on the performance of
the target investments. As a result, it is recommended that international investors structure capital
contributions in German targets with shareholder loans in order to get capital refund by way of
interest. Owing to restrictions relating to the German Holding Companies Act (Gesetz ueber
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Unternehmensbeteiligungsgesellschaften—UBGG), the investment vehicle may only grant

shareholder loans to a subsidiary in an amount equalling the equity participation in such subsidiary
multiplied by factor 3. Further special restrictions and requirements laid down in UBGG.
3. Legal Qualification of Inbound Investment Structures
3.1 Regulatory Considerations
The regulatory qualifications of parties stated under AIFMD would be as follows:
Fig. 5: Classification of Parties under AIFMD
Source: derived from Wassermeyer et al. 2015.
Regardless of the retail or professional nature of a fund´s investors, it will be necessary to appoint an
AIF-Manager as a Limited Partnership invests in less liquid assets and, therefore, qualifies as an AIF.
It is also irrelevant whether the AIF invests directly in (shell) companies or via holding structures that
can be domiciled or outbound.
The AIF-Manager has to be licensed or registered with the local supervisory authorities before the
structuring and marketing of the AIF. For the structure presented, it is both possible to establish an
external or an internal manager for the AIF, using resources of both the GP and investment advisors.
It is crucial to point out that, after the external management contract between the AIF and AIF-
Manager, both the legal representation and the AIF management authority shift completely to the
AIF-Manager. This concerns all asset management functions in front office (Asset Allocation,
Trading), middle office (Research, Risk Management) and Back Office (Administration, Transaction
Processing). Management fees paid from AIF to its (external) manager are currently subject to
German VAT, which is likely to be repealed due to a European Court of Justice ruling (Frank, 2016).
To avoid the AIFM regulation, it would be necessary to rearrange the limited partnership itself as an
operating company or a stock-listed holding company within the meaning of Art. 3 (a) AIFMD. To
1270
qualify as an operating company, the partnership has to follow a general or industrial purpose that
includes predominantly commercial or industrial activities (ESMA, 2013).
To sum up, irrespective of the number and type of target investors or the legal form of the structure
(partnership or corporation), the pooling of capital for the purpose of investing in several assets under
the authority of an appointed fund manager generally leads to the creation of an AIF with the
consequences explained.
3.2 Tax Considerations
As a consequence of the AIF Directive 2011 and CIC 2013, the German Investment Tax Act has been
adapted as well (GITA 2013). Since then, AIFs fall within the scope of the German Investment Tax
Act. In accordance with the legal provisions, AIFs can be classified as tax-privileged investment
funds or as Investment Corporations. In order to qualify as a privileged investment fund, all
requirements regarding to Art. 1 (1b) GITA such as annual right to returns, investment restrictions,
catalogue of permitted assets, need to be fulfilled. Hence, AIFs do not usually meet the demands of
privileged investment funds (Kind and Haag 2010, p. 1526). Typically, an AIF is established as a
closed-end investment fund with no right to return the shares (Wassermeyer et al. 2015, p. 482). Thus
AIFs, in general, qualify as Investment Corporations.
For German tax purposes, an Investment Corporation is a non-transparent vehicle and a taxable
entity. That means, income at the level of the Investment Corporation will not be automatically added
to the income of the investor. Thus, the typical transparent tax regime for investment funds is not
valid for AIFs in the form of Investment Corporations. For these investment vehicles an independent
tax regime has been created (Beckmann et al. 2016). As a result of the legal provision, Investment
Corporations qualify for German taxation as a taxable entity under Corporate Income Taxes (Art. 1
par. 1 No. 5 CITA) and German Trade Taxes (Art. 2 par. 3 TTA). For tax aspects, Investment
Corporations are taxed as ‘normal’ corporation with some specialties (e.g. German Foreign Tax Act
to be applied).
German tax regime will apply to foreign closed-end funds constituted under the law of contracts such
as the Luxembourg FCP or French FCPR. That means, domestic income (e.g. rental income from
property located in Germany) will be taxed in Germany as mentioned, although these investment
structures are classified as transparent investment funds, according to Luxembourg and French
legislations (Kleutgents and Geissler 2014).
4. Conclusion and further Research
The scope of application to AIFs was extensively broadened for regulatory and tax purposes in the
past years. Based on new definitions, AIFs should fall in the scope of the proposed regulations. In
addition, further investment vehicles and structures like master holding company structures, feed
fund structures, (interposed) securitisation vehicles or debt securities can also qualify as AIFs with
regard to the new regulations. The legal design of these structures need to be checked in order to
maintain the tax status. Moreover, all AIFs or vehicles qualifying as AIFs are subject to new taxation
rules in the special tax regime.
In practice, these new regulations have brought more insecurity for initiators and investors in AIF
vehicles. Insofar, the investments in AIF were affected by a deep slump for years in 2013 till 2015
(Scope 2015). The expected prolonged low-interest-rate phase within the European Union will
continue. All investor groups, especially those, which regularly need adequate returns to fulfil their
obligations (like pension funds, health insurance funds and foundations) intend to participate in AIF
investments (Maftei et. al 2016). It remains to been seen, whether these codified restrictions for AIF
structures will develop more investment decisions in alternative assets classes.
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Additionally, a new German Investment Tax Act will come into force on 1 January 2018,
significantly changing the tax regime. AIFs will remain within the scope of the new tax legislation,
establishing a completely new and intransparent tax regime.
For future – starting 2018 – AIFs—independent of its local residence—will be German tax subject (i)
for dividends from German corporations, (ii) rental income from properties in Germany, and (iii)
other income earned in Germany. The rate for these incomes will be at level of 15%, generally
without trade tax deductions. That means, an AIF can improve its position by saving German Trade
Tax by approximately 14–16%. In contrast, the tax exemption regime for (i) dividends declared by a
German company, despite an AIF holding at least 10% and (ii) capital gains from the disposal of
shares in a German company will be abolished.
At the level of investors, additional aspects need to be considered. In practice, these lead to a
situation where investors need to check and plan their future investments because investment
decisions have to be made by increasingly taking into account tax effects. The new German
investment taxation is complex and will distort economic decision to a large extent. Hence, direct
investments or investments outside the scope of the new tax act (e.g. securitizations) will get more
attractive form an investor’s point of view, as fund investments will not be that privileged in future.
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The Problems of Innovation Development in Russia

Egorova Maria
National Research Tomsk Polytechnic University, Lenin Avenue 30,

Tomsk, 634050, Russian Federation, angelochec82@mail.ru
Shatova Maria
National Research Tomsk Polytechnic University, Lenin Avenue 30, Tomsk, 634050, Russian
Federation, m.shatte@yandex.ru
Kashapova Elmira
Federation, elmira6280@ya.ru
Zhavoronok Anastasiya
Federation, avs1@tpu.ru
Abstract
Russia's share on the high technology market was determined. It represents from 0.3 to 0.5 percent
that is tens and hundreds of times less than the share of developed countries. It was revealed that the
number of small innovative enterprises and the number of researchers decreased. The position of
innovation infrastructure in the national innovation system (NIS) and its role were considered to
determine the causes of the current situation and innovation problems. The main problems of
innovation development in Russia were analysed. Their causes were identified. The solutions to
existing problems were proposed.
Keywords: innovation, competitiveness, innovative industrial enterprises, problems, innovation

infrastructure
Introduction
The world is changing and developing in the 21st century faster than in the 20th century, and the
market economy is no exception. Therefore, enterprise should improve both technology and
management to keep position in the market. That is why today innovation activity is the primary
factor affecting the competitiveness and position in the enterprise market. The causes of changes
could be varied. For example, there is a decline in demand for some specific types of products or
services. The retail trade companies merge, which could lead to monopolization and price increase.
The activity of retail trade companies decreased that may be related to the change of currency
exchange rates. Consumer preferences are changed, for instance, a significant increase in public
health care; the emergence of new technologies, new types of goods and services (such as home PCs
and related accessories). One more reason is a change of the local or national leadership.
Unfortunately, reasons for the improvement of enterprises are enough in Russia. Innovative
investments of Russian companies accounted for less than 1% in comparison with foreign (up to
10%). This considerable discrepancy is due to the fact that the Russian market is monopolized, and
small enterprises do not have favourable conditions for successful business activity.
Literature Review
Both Russian and foreign researchers study problems of innovation development. It should be
represented the views of some researchers. Safronov N.A. (Safronov, 1998) analyses the role of
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innovation in the enterprise development in his research paper "Ekonomika predpriyatiya"

(“Enterprise economics”). The study explores the following aspects:
- Non-production aspects for competitiveness providing by companies are insignificant, the basis is
quality and price.
- Innovation activity implies a whole range of scientific, technical, organizational, financial and
commercial activities.
- Choice of enterprise innovation ways and directions depends on the resource, scientific and
technological enterprise potential, market requirements, technology life cycle stages, industry sector
features.
Despite the aspects of the problem were analysed enough objectively by N.A. Safronov, problems in
relation to Russia are insufficiently described, so there is a need to study the problem of moral
technological aging more detailed. Today the moral aging of products and technology is the main
prerequisite for development of innovative strategies in Russia. In this regard, enterprises should
certificate products, technologies, equipment and workplaces, analyse the market and product
distribution channels every three years.
Kushlin V.I. (Kushlin, Folomyeva, 2008) in his paper “Innovatsionny tip razvitiya ekonomiki” ("The
innovation-oriented type of economic development") justifies the need for new approaches to
organize state management of transition to innovation-oriented type of economic development in
Russia, taking into account the constraints imposed by the global crisis. Corporations focus on
measures to enhance innovation demand (for R&D, scientific and technological innovation), as well
as on the development of modern organizational technologies, including project management
methods at the state institution level. This research paper introduced the classification of factors
influencing the enterprise innovation activity in the sphere of enterprise functioning in market
conditions. Despite the wide coverage of the author's research, aspects that determine the innovation
factors are insufficient disclosed.
Fetisov G.G. in his research paper “Mirovaya ekomomicheskaya mysl”("World economic thought")
(Fetisov, Khudorkomov, 2004) proposed to classify the innovation factors of enterprise as follows:
organizational factors are management; capacity to innovate, change, rebuild; internal organizational
structure; technological factors focus on development of modern technologies and increase in
demand for new products; economic factors are capital adequacy, quality of assets and liabilities,
profitability and liquidity. Despite the proposed classification, the author insufficiently describes each
factor, so fair an offer to specify factors on various grounds (economic, time, etc.).
Diyametta B.D. in the paper “Building Systems of Innovation in an African Setting” (Diyamett 2009)
demonstrates that information and communication technologies allow some enterprise to not only
attract customers to your potential market, but also successfully collaborate with research institutions
for having their own researchers. Authors D. Audretsch and M. Feldman, (Audretsch, Feldman,
1992) in the scientific publication “Real Effect of Academic Research: Comment”, The American
Economic Review introduced the concept of "technological capital", which depends on expenses.
Such division in authorized capital allows to reduce amortization expenses.
Author C. Freeman (Freeman, 1998) in the publication «The Economics of Technical Change»
asserts that the innovation growth is not enough open to all. This is especially true for Russian
enterprises because regions are far from the centre, and the geographical region location is particular
important. Shepelev G.V. (Shepelev, 2014) and Blanc I.V. (Blank, 2011) proved in their works that
the main source of funding for development of innovative industrial enterprises is their own funds.
The problems and various aspects of investment activity were considered by foreign researchers in
different ways (Herz, 2013), (Fagerberg, 2010), (Arora, 2004), (Bell, 1993), (Criscuolo, 2008).
1275
The study used theoretical and empirical methods such as analysis of the literature, the works of
Russian and foreign experts, monographs and scientific articles of the authors representing different
schools and directions of economic science in the research field of theoretical provisions under the
problems of investment activity development.
The study is based on a systematic analysis of investment activity development. Methodology of

unity of history and logic was applied to study the problems of investment activity development
development.
Research methods included the comparative,
comparative structural and functional analysis, graphical methods.
methods
Research question
Result
It now seems rather obvious that improvement of industry competitiveness in Russia is only possible
through innovation development.
development One of the main directions of innovation development and
stimulation is creation of innovation
ion infrastructure. Among the key challenges of national innovation
system is development of innovation infrastructure according to Basic Policy Principles for the
promotion of science and technology for the period until 2020 and the future perspective ((Chernova,
2011).
In late 1990s and early 2000s a network of innovation technology centres (ITC) was established with
the participation of the Ministry of Industry, Science and Technologies. ITC and technology parks
mainly have converging challenges.
challenges The key feature of ITC is that it is a structure for support to small
innovation enterprises which have already passed the most difficult creation stage. Therefore, unlike
the technology parks that should be at universities and incubate small companies, the ITC provide
more sustainable connection between small business and industry, so they should be created in the
frame of enterprises or research and production complexes (Gudkova, Turko, 2015)
Although a quite extensive network of infrastructural enterprises was created, the results of
innovation development leave much to be desired. Russia in market for science-intensive
intensive products
has a small share of 0.3-0.5%, which on tens and sometimes hundreds of times less than the
developed countries’ share. At the same time the number of small innovation enterprises has fallen
(Fig. 1), and the number of researchers decreased (Fig. 2). (Shepelev, 2014).
Figure1: Increase in the number of small innovative enterprises, in units, the value of the index
is presented for the year (Federal State Statistics Service, 2015)
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Figure 2: Number of enterprises in the “Science and scientific services” sector, 2000
2000-2016,
(billion rubles, at current and constant prices) (News
News bulletin HSE Institute for Statistical
Studies and Economics of Knowledge, 2016)
At current prices
At constant prices (the base year is 2000)
The position of infrastructure in national innovation system (NIS) and infrastructure role must be
considered to investigate causes of the situation and innovation problems. Government plays the
main role in NIS functioning. Government determines rules of functioning and interaction between
innovation stakeholders through providing a regulatory environment. NIS includes innovation
subjects such as organizations and individuals, which participate in creation and promotion of
innovation product, and infrastructure objects presented organizations contributing implementation of
innovation activity (Shepelev, 2014). With reference to the definition of NIC, main result of its
functioning is increase of high technology production output. Achievement of nearly every last
Government’s goal, for instance, doubling of GDP, and increase in the standard of living of the
population depends on how effectively production will be organized. Therefore, the main purpose of
analysis of NIS functioning and innovation infrastructure is determination of measures, which
stimulate growth in selling volumes of Russian companies’ high technology products (Gokhberg,
2011).
Enterprises must be provided access to modern equipment and technologies to ensure the output of
up-to-date products. This problem is especially relevant for small and medium-sized enterprises,
which are unable to buy modern equipment due to the weak financial capabilities and small
production volumes. At the same time, small innovation enterprises are considered as one of the main
sources of industry innovation. As a result of such situation in industry, fundamental science creates a
product which could not be used rationally within the country by Russian enterprises
enterprises. Instead,
perspective scientific and technological results are often transferred to the industrialized countries
where the results are commercialized.
commercialized When the transferred results are funded by the state budget, the
current situation is the sponsorship of foreign countries through public funds, and costs of the
Russian research sector are often not adequately compensated. The global information infrastructure
is developed, so public information about results of the work almost instantly becomes available to
any interested person. The possibility of "informal" contacts with designers allows foreign companies
to buy inventions for a small part of the real cost.
Limited access of industrial companies to financial resources is another serious problem for the high
technology sector. Enterprises are developed mainly by own funds. There is practically no flow of
borrowed funds at the stage of product development. Venture financing scheme does not currently
work, and elementary analysis shows that it will not widely used in the near future because of
1277
underdevelopment of the stock market. Seed funding system, which began to develop in recent years,
is also unlikely to solve the problem of large-scale development due to the insignificance of targeted
economy-wide resources. Development of high technology products marketing system is another
important resource. Most enterprises of high technology sector do not have it. Some positive
examples do not become a model for investigation and reproduction. As a result, marketing of high
technology products is not well organized in most enterprises. Consequently, there is unreasonably
low share of Russian companies on the world market. Russian companies are not able to successfully
compete with foreign ones for markets because of the lack of trading experience in global markets
and skilled workers (Freeman, 1998).
It is obvious that the providing of all small enterprises with advanced production equipment is
impossible due to the fact that relatively low levels of output do not allow for efficient use of
advanced production equipment. The cost of innovative machine is estimated at a few hundred
thousands of dollars. And only large enterprises could buy and effectively use it to produce own
products. The issue of credit availability and its cost of equipment purchasing for small and medium-
sized enterprises is not considered. Only its cost-effective operation is under consideration. Thus, a
lot of small and medium-sized enterprises could not use new technologies in the production for this
reason. Impossible solution is collective use of equipment in service centres. This approach is
widespread in the West. For example, up to 20% of laser production equipment is installed in the so-
called job shops (centres providing services for laser material processing). It should be noted that not
only small and medium-sized, but also large enterprises are clients of such centres.
As previously stated, equipment stock is ageing, so the appropriate use of modern technologies is
relevant not only for small and medium-sized enterprises. At present most enterprises do not have the
necessary resources for re-equipment of production in Russia. This approach allows almost all
interested enterprises to ensure access to advanced technologies at a relatively low cost. Table 1
illustrates comparative data on two options of laser equipment availability (Blank, 2011).
Table 1: Indicators of Laser Equipment Usage in Individual Enterprises and As a Part of

Regional Centre (At Prices 2016)
Indicator Enterprise equipment Regional centre equipment

Number of enterprise 100 100
Amount of equipment units 100 2...4
Equipment expenses $30 million $1…2 million
Number of specialists 100…150 10…20
Project implementation period 5 years 1 year
Small enterprises Do not have access Have access
Equipment usage rate 1 shift 2…3 shifts
Tax recoupment of expenses 3 years Less than 1 year
In traditional approach, when equipment is installed at each enterprise, equipment costs are 10-20
times higher than in the case of serving the same number of companies by centres for collective use
of equipment. Qualified service staff is an important factor for comparison. Equipping through the
centres requires much less specialists. Finally, the start date for the equipment can be considerably
shorter in the centre because equipment installation and debugging processes could be done by
specialists with the highest level of their qualification. First of all, centres for collective use of
equipment will make high technologies available for small and medium-sized enterprises, which
primarily could not buy their own expensive process equipment. If budgetary funds are partially used
for equipping of regional centres, the return on investment by increase of production in enterprises,
using the centre services, and resultant growth in tax payments could be extremely fast. This example
shows major potential benefits of the proposed approaches. Of course, the example with laser centres
is only an illustration and similar approaches could be used in other areas. For instance, projects of
similar production organization are in the biotechnology. Here are the additional positive effects of
1278
regional centres for collective use: generating of additional production volumes; generating of tax
revenues from increase of production volumes; improving competitiveness – increase in sales of
industrial products through the use of advanced production technologies, improving the export
capacity of Russian industrial enterprises by enhancing the quality of products; the creation of new
jobs for highly qualified personnel and the expansion of training for qualified personnel; maintaining
the productive capacity of Russian enterprises.
As demonstrated by the discussed above list of advantages, organization of collective use centres
allows a large number of regional industrial enterprises to cost-effectively provide access to advanced
technologies and gives a lot of positive spillover effects, which are conducive to the transfer of
regional industry to the innovation way (Shepelev, 2014).
The main objective of the innovation infrastructure is to promote the solution to the above problems.
At present there is a quite extensive network of organizations that contribute to the innovation
development (Table 2). It should be noted that the objects of innovation infrastructure could solve
just a part of the problems. The successful innovation development could not be dependent on the
presence or quantity of infrastructure objects. Innovation system for the successful functioning should
also have appropriate regulatory framework and an effective system to introduce products of
innovation enterprises.
Table 2: Innovation infrastructure framework
Engineering Consulting Finance Personnel Information Marketing

and
manufacturing
Innovative- Technology Budgetary Personnel State system of Foreign trade
technological transfer funds developmen scientific and organizations
centres and centres t in the area technical
technology of information
parks innovation
Innovative- Consulting Budgetary and The training Resources of Specialized
industrial in the fields extra-budgetary of small business mediation
complexes of economics funds of specialists support entities organizations
and finance technology in the field
development of
technology
and science
managemen
t
Technology Technology Venture funds Regional Internet
clusters consulting information
networks
Technology Marketing Seed funds Internet Exhibitions
and innovation consulting
zones
Centres for Consulting Guarantee
collective use in the field entities and
of high of funds
technology international
equipment economic
activity
Technological infrastructure intended to provide the conditions of enterprise access to productive

resources. These include technology parks (TP) and innovative – technological centres (ITC), which
mainly provide access to production areas, and innovation and technological complexes additionally
ensure access to production facilities.
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One of the problems of technology infrastructure is the fact that there is virtually no rotation of small
enterprises (SE) in the technology parks and the ITC, in other words, small enterprise, involved in
TP, remains there indefinitely. This is due to the absence of production area in most market regions,
and the SE has to use the area of technology park as long as possible. Subsequently, on the one hand,
production growth stops after a time in SE located in technology park, and, on the other hand, a
number of SE stops to increase. Therefore, in many cases TP and ITC are nominally objects of
innovation infrastructure as commercial apartment buildings bringing their owners income from
renting areas to small enterprises. The proposed solution of this problem is limitation for staying SE
as part of the TP. However, if there are no opportunities for placing them in other areas, in fact, it will
mean the closure of some SE after specified period of time. Most likely the situation will quickly
return to the initial state because of the formal "rotation" through the formation of juridical persons
with permanent founders.
As a valid alternative for solving the problem it should be considered the construction of industrial
park, a set of standard modules, equipped with the necessary communications and industrial
infrastructure, where SE could rent and then buy production area. Another option for access to the
production area is the organization of industrial parks on the base of vacant or idle enterprises, which
are many in almost all regions. Such projects are already beginning to be implemented in some
regions.
The next issue should be addressed to technology infrastructure. That is ensuring access for small
enterprises to production capacities. When areas for SE are created, it is necessary to ensure the
manufacturing capacity of its industrial products. The innovative-industrial complexes (IIC) and
technology clusters are set up to solve this problem. As a rule, IIC created on the base of unused
production capacity of large enterprises. Until now, large companies allow SE orders to be placed on
their area. The conundrum obtained when SE work with large companies by subcontract, while in
developed countries the situation is mostly reversed. With the growth of the economy, this possibility
becomes smaller, as large companies increase production volumes and primarily carry out its own
orders on its base.
In recent years, the organization of "clusters" has become relevant. They actually perform the role of
innovative-industrial parks. Cluster, as a rule, is the set of enterprises located in a limited area (on a
large enterprise or within a city), and more or less share close production links. Basically, such
definition of the cluster is almost completely identical to the concept of innovative technology
complex. For the avoidance of misunderstanding, the notion of competitiveness clusters, introduced
by M.Porter, is not related to above-mentioned concepts (Freeman, 1998).
The entities that financial resources make available for innovation enterprises (both large and small
enterprises) are the most highly discussed. Currently, there are a lot of financial instruments, but the
statistical studies show that the main source of funding for the development of innovation industrial
enterprises is their own funds. Bank credit is still too expensive, and too short loans for the
innovation development (Blank, 2011).
State budget resources are available mainly to large enterprises. However, budget financial resources
are not more than 5-10% of the required financial resources. The development of the small innovative
enterprise (SIE) is mainly financed by the founders, their relatives and friends. The limitation of such
sources leads to a shift in growth of SIE.
Seed financing programmes, conducted by the Foundation for Assistance to Small Innovative
Enterprises in Science and Technology and local programmes to support small businesses, are unable
to reverse the negative trends and could compensate in the best case a small part of "natural decrease"
of SIE. There is no available summary data on small innovative business support by local budgets,
but we can assume that their influence on the SIE dynamics is also small, perhaps with the exception
of the capitals and some major cities.
1280
Venture investment, which actively discussed in recent times, is still exotic. Progress in this direction
is not significant. Apparently, this is due to the fact that Russian industry has not yet formed needs
for the venture development. Unlike developed countries, where venture business attends the need of
large enterprises in future developments, the majority of Russian companies prefer to make such
developments themselves. In the west, this function is more often imposed externally, companies
prefer to buy the development, rather than make it on their own. It becomes the basis for venture
capital approaches. In Russia, the majority of enterprises have a significant amount of their own
designers, and above all enterprises, not third-party organization, work with them. A few venture
projects that end with the sale of established enterprises show that the buyers, as a rule, are foreign
companies or investors. So the creation of venture enterprises is the working for the foreign markets
with all the attendant difficulties. Another important factor is the currently existing problem of the
"withdrawal" of investor from created venture enterprise. It is also not conducive to the venture
business development. As the foreign venture capital schemes do not work in Russian conditions,
there is a good reason to think about modifications of venture capital financing schemes. They allow
attracting venture funds in conditions of an underdeveloped stock market, an excess of suggestions
for R&D, weak system of "withdrawal" from established venture enterprises (Blank, 2011).
It should also be mentioned that regional venture funds are recently created in many regions. In most
such cases, the word "venture" in the name highlights only a modern trend. In fact, most of these
entities are the funds for support of innovation. The aim is R&D financing. These funds do not
involve the creation of new enterprises. A major contribution to solving the problem of financing
could be fund raising from large industrial enterprises to innovative business. Most of industrial
enterprises are not interested in paying (or are unable to pay) R&D. Major customers of innovations
from natural resources sector could get things moving. Such companies launch several projects for
financing advanced developments, but the range activity is negligible.
Another way of fund rising in the innovation enterprises is accelerating the innovation cycle in the
part of enterprise output in the finished products market. It will allow existing innovation enterprises
to obtain additional resources for introducing their new developments in the markets. Recently, in
some regions, the guarantee institutions and foundations are created. They should solve the problem
of providing loans to small enterprises in the banking system. Leasing schemes for high-tech
equipment purchase are successful. As part of the work undertaken by the Ministry of Industry,
Science and Technology of the Russian Federation development of model documents is expected for
the organization of regional guarantee funds, methodological materials for the organization of their
work. The appropriate legal framework must be amended. It should be noted the system of
innovation financing by business - angels is emerging. Several associations of private investors are
created in the Russian regions. SIE financing under this scheme is not significant. Another source of
innovation financing is the participation of enterprises in international projects. Increase of financing
from this source is possible, if a network of technology transfer centres will be developed with
foreign partners (Shepelev, 2014).
Conclusion
Innovation means some changes in the economy, industry, society and in the behaviour of customers,
producers, employees. Therefore, it will always market-driven and be guided by its needs. The
innovation process is defined as a positive, a qualitatively new change aimed at significant
improvement the performance in the results of a process, could bring a certain positive effect
adequately to the taken efforts and costs for introducing innovations, that affects the setting of goals,
determination of objectives, conditions, content, methods and forms of new activities. The innovation
process is represented as a complex, multi-component system, and has a certain structure. Innovation
has become a key success factor, and, perhaps, the only means of enterprise survival.
Enterprise should be structured and motivated to help create the favourable environment for
entrepreneurship, conditions for new opportunities. Unfortunately, Russia's share on the market of
high technology products is an extremely small that tens and hundreds of times less than the share of
developed countries, and only government regulation and initiative of large enterprises are able to
1281
improve the situation. Innovative activity is very important in the enterprise, as in the present
conditions the success of enterprises is not possible without innovations.
Based on these facts, it may be concluded that some strategic advantages of the Russian innovation
system are not funded and gradually losing importance. The solution of the existing problems is
possible due to the development of innovation infrastructure. The analysis of innovation
infrastructure problems demonstrates that there are serious gaps in the creation of infrastructure
organizations in Russia. A major challenge for the near future is to create an infrastructure of
innovation, which allows providing the necessary resource balance (investment, government support)
of innovative enterprises.
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Problems of the Investment Climate Formation in Russia
Egorova Maria
Federation, angelochec82@mail.ru
Yilmaz Ilkay
Mersin University, Economics Department,
33342, Yenisehir, Mersin, Turkey , ilkayyilmaz@mersin.edu.tr
Shatova Maria
Federation, m.shatte@yandex.ru
Varlacheva Natalia
Federation, varlacheva@bk.ru
Abstract
The theoretical foundations of the investment climate formation were systemized in the study.
Russian investment climate was analysed in the context of modern market economy. The industry
directions were proposed for investment. The dynamics of the investment flow changes was
presented. Development of enterprise investment was predicted on the domestic market of the
country. Trends in the investment activity of the enterprises were determined. Investment problems
were identified and solutions to existing problems were proposed.
Keywords: investments, investment climate, investment problems, solving investment problems
Introduction
A large number of industrial enterprises need investments in modern Russia. Present investment
processes should be analysed and developed to determine investment problems existing in industrial
enterprises of the country.
Understanding of the investment category must be related to the transformation of investment to the
costs, taking into account existing investor purposes (they could be different). Investment activity as
an economic category is a specific type of activity associated with the formation and regulation of the
organizational - economic mechanism, and its content is multidimensional.
The purpose of the study is to analyse the investment climate in Russia in the context of modern
market economic development, to determine the dynamics of change in the investment flow and
predict the investment development of enterprises on the internal market of Russia. The study
produced Russian investment climate analysis in the present conditions of economic development.
Investment tendencies of the enterprises are specified.
The practical relevance of the study is the systematization of the theoretical framework and analysis
Russian investment climate in the conditions of modern market economy. Industry directions, which
are worth invest in, were proposed.
1284
Literature Review
The study issue is represented in the papers of Russian and foreign scientists. Sharinovoya G.A.
(Sharinova, 2013), Saliev R.N. (Salieva, 2016) and Arkhipova A.D. (Arkhipova, 2013) in their
research papers describe the problems facing potential investors in Russian companies. The papers
written by Ayupova L.K. (Ayupova, 2010) and Lapshina Z.V. (Lapshina, 2015) are also noticeable.
Investment principles for enterprises were stated.
U.F.Sharpa, GD Alexander, D. Bailey (Sharp, Aleksander, Beyli, 2011) are the most remarkable from
foreign authors. They fully explored the concept of the term "investment" and introduced a list of the
theoretical foundations required for the research. Also, the papers of Thompson A.A, A.J Strickland
(Thompson, Strickland, 1998) Begyuli F.(Baguley, 2004) and G. Mensch (Mensch, 2001) should be
mentioned. The common feature of their research papers is to find ways to solve the investment
problems of Russian enterprises. Aubert J.-E. (Aubert, 2015) in his paper writes about the prospects
of investing in the Russian economy in the context of crisis.
Research question
Result
The dynamics of foreign direct investment in Russia
Foreign direct investment (FDI) has a significant impact on the economy of any country, and Russia
is no exception. FDI contributes to the innovative projects, an increase of production and revenue, the
replenishment of the state budget and high economic growth (Russia Investment. I quarter 2016.
Colliers International). Therefore, it is necessary to pay special attention to attracting foreign
investments into the Russian Federation and solve the problems in the way of their distribution.
First of all, the overall picture of the investment climate is represented during the period 2007 - 2013.
Figure 1: Foreign Direct Investment Net Inflows to Russia from Major Source Counries,
In billion U.S. dollars
1285
This research examines FDI distribution in the Russian Federation by types of economic activity in
2010-2014, analysed the flow of direct investment by foreign investors in the country, the analysis of
FDI in Russia, as well as identified the main problems impeding the flow of foreign investments into
the Russian economy.
Research has shown that foreign investors are more interested in certain types of economic activity.
In 2014 FDI declined, despite the positive dynamics of the process in 2010. Inadequate regulation
between the state and foreign investor, contradictions of the customs legislation, abuse of authority
and corruption of public officials, unstable foreign political and economic situation, and
imperfections in the system of tax incentives discourage foreign investors from the Russian economy.
Thus, it is necessary to solve the above-mentioned problems for foreign investment in the Russian
market. Infrastructure improvement measures must be effectively implemented to improve
investment climate in Russia. Besides, the business must be continued to develop. Thus, the
investment climate will be more favourable, which subsequently will result in foreign investment in
the country.
Consider the FDI distribution by economic activities in the Russian Federation in 2010 - 2014 (Table
1).
Table 1 : FDI by economic activities in the Russian Federation in 2010 – 2014
(Central Bank of Russia)
Economic activity US$ million

2010 2011 2012 2013 2014
Total 44604 55084 50588 69219 20958
of which
Financial and insurance
7661 9338 14983 14456 8329
activities
Mining 3759 4549 4808 7101 5939
Trade 5480 18098 13241 20542 3720
Construction 394 3771 3928 2895 2716
Electricity, gas and water:
1410 2207 1869 1768 618
production and distribution
Manufacturing 9843 8348 6385 16494 331
Health care and social
6 182 448 348 156
assistance
Recreational, cultural and
341 10 385 30 142
sporting activities
Hotels and restaurants 266 - 140 150 187 92
Renting and leasing 390 - 357 - 579 - 422 89
Scientific and technical
3611 155 115 75 79
activities
Water: collection, treatment
16 15 17 26 13
and distribution
Education - 12 4 6 -1 4
Agriculture, forestry and
318 236 231 619 - 30
fishing
Transport and storage - 176 1153 - 281 349 - 457
Real estate 3197 2478 1984 1728 - 638
The Central Bank data demonstrate that investors are more interested in certain types of economic
activity. For 4 years, from 2010 to 2013, the leaders in terms of FDI were: financial and insurance
activities; wholesale and retail trade; manufacturing. However, in the period from 2013 to 2014 the
flow of investments was sharply declining in the manufacturing, from US$ 16494 billion to US$ 331
million respectively. Considering the dynamics of direct investment from foreign investors in 2010 -
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2014 years, it may be summarized: FDI inflows declined in 2014, despite the positive dynamics of
the process in 2010.
After analysis of the FDI in the Russian Federation from 2007 to 2014, it should be noted that the
largest FDI was US$ 74783 billion in 2008. In 2009, the situation has changed, and the sharp decline
was followed that led to decrease of FDI. So, FDI amounted to US $ 36.583 billion in 2009, that is
48.9% less compared to 2008. However, FDI is gradually increased in subsequent years. In 2010 –
2011 the scope of foreign direct investment increased by 50.6% as opposed to 2009. In 2013 FDI
increased by 36.8% as compared to the previous year and amounted to US$ 69219 billion. The sharp
decline of FDI was followed in 2014. The volume of direct investments amounted to only US$ 20958
billion, which is 30.3% less compared to the previous year.
In 2013 Russia was the third after the United States and China in the FDI ranking of countries.
However, Western sanctions, Ukrainian conflict, as well as the downturn in the Russian economy
discourage foreign investors. And in 2014, according to UNSTAD, Russian Federation was not even
in the top ten in the FDI ranking of countries. Despite abundant natural resources, highly qualified
workforce, the large-scale consumer market, Russia was not included in the list of most attractive
countries for investors in 2014, while it was ranked 11th in 2013. (Skripnikova, Postanogova, 2015)
FDI is an important source of capital and vital at the present stage of Russian economy. The
dimension of foreign capital infusion depends on the investment climate in the country. Some
projects aimed at improving the investment climate are implemented in Russia. Nevertheless, foreign
investors face a number of problems when entering the Russian market. The main problem is the
inadequacy of the legal framework between the state and a foreign investor with respect to guarantee
of the profit security. Contradictions in the customs legislation also discourage foreign investors from
the Russian economy. It is necessary to form a transparent system and create simple, clear
regulations. A major problem affecting the value of foreign investment flow is the excess of authority
and corruption of public officials. Russia was ranked 136th out of 174 countries in the Transparency
International Corruption Perception Index (Transparency International). Another problem is the
instability of the political and economic situation. Introduction of Western sanctions, the war with
Ukraine and distinct crisis in the Russian economy discourage foreign investors. Another significant
problem is the imperfection of the tax incentive system. Tax rates and exemptions must be such that
Russia could compete with leading in the market of investment capital.
In order to attract foreign investors in the Russian Federation it is necessary to solve the above-
described problems and create the favourable investment climate. The most important step towards
improving the investment climate is business development. The World Bank conducts a study and
represents an annual ranking which is based on the business environment in these countries. Russia is
ranked 62nd out of 189 countries according this ranking. In 2012, the presidential decree was
approved to improve the business environment in our country, and go up to the 20th position in 2018.
Another step towards improvement of the investment climate is the reducing bureaucratic red tape.
Business registration was simplified in Russia for the period from 2012 to 2015. For this indicator the
country has risen from 111th to 34th position. The number of procedures required for registration has
been reduced from 9 to 4, the time expenditures decreased from 30 to 13 days. The cost of business
registration diminished (Lederman, 2009)
Well-developed infrastructure is an important indicator of a favourable investment climate. Some

measures aimed at removing infrastructure limitations are conducted in Russia. The result of this
activity for the period from 2012 to 2015 was halving of procedures required for access to the grid
network; Connection period decreased by 102 days down to 179 days; connection price is also
declined.
Fixed capital investments in Russia (2010 - 2015)
Traditionally, the Russian investments come mainly from domestic sources. It could be assumed that
in the future they will play a crucial role, despite the intensification of attracting foreign capital. The
amount of savings in the country directly affects the amount of investment in the country. When
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society saves part of their current yield, which means that part of the production could be focused not
on consumption, but on investment.
Table 2 presents data on fixed capital investments in Russia by economic activity.
Table 2: Fixed capital investments in Russia by economic activity (billion roubles) (Federal
State Statistics Service)
2010 2011 2012 2013 2014 2015

Total 9152,1 11035,7 12586,1 13450,2 13902,6 14555,9
Agriculture, hunting
303,8 11035,7 12586,1 13450,2 13902,6 14555,9
and forestry
Agriculture, hunting
and related service 292,6 446,9 476,4 516,6 510,3 538,1
activities
Forestry, logging and
related service 11,2 416,6 446,0 497,0 493,7 515,5
activities
Fishing, operation of
fish hatcheries and fish 5,4 30,3 30,4 19,6 16,6 22,6
farms
Fishing, operation of
fish hatcheries and fish
5,4 8,5 12,2 14,3 15,2 12,0
farms; service activities
incidental to fishing
Mining and quarrying 1264,0 8,5 12,2 14,3 15,2 12,0
Extraction of fossil
1157,9 1534,3 1858,4 2004,0 2144,8 2694,4
fuels
Mining of coal and
lignite; extraction of 64,5 1390,5 1651,0 1788,4 1957,1 2463,4
peat
Extraction of crude
petroleum and natural
gas; service activities
1088,7 95,5 132,1 108,7 83,5 85,9
incidental to oil and gas
extraction excluding
surveying
Mining of uranium
4,7 1290,0 1512,9 1673,1 1870,3 2373,7
and thorium ores
Mining (excluding
106,1 5,0 6,0 6,6 3,3 3,8
fuels)
Mining of metal ores 68,5 143,8 207,4 215,6 187,8 231,0
Other mining and
37,6 95,5 135,7 135,3 115,8 162,2
quarrying
Manufacturing 1207,6 48,3 71,7 80,3 71,9 68,8
Manufacture of food
165,7 186,8 218,5 233,4 251,4 271,6
products and beverages
Manufacture of
10,8 178,2 206,6 220,9 238,6 257,1
tobacco products
Manufacture of
textiles and wearing 11,3 8,6 11,9 12,5 12,8 14,5
apparel
Manufacture of textiles 9,0 11,0 12,1 16,6 21,0 14,2
Dressing and dyeing of 2,3 8,1 7,4 11,1 13,1 9,3
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fur
Tanning and dressing
of leather; manufacture 4,2 2,9 4,7 5,5 7,9 4,9
of footwear
Manufacture of wood
and of products of 27,7 6,1 5,1 5,7 7,8 6,5
wood
Manufacture of wood
and of products of
27,7 51,9 56,4 53,8 49,4 56,1
wood and cork, except
furniture
Manufacture of paper
and paper products, 43,0 51,9 56,4 53,8 49,4 56,1
printing and publishing
Manufacture of
cellulose, mechanical
33,3 54,1 58,7 57,1 49,8 55,3
pulp, paper, cardboard
and paper products
Publishing, printing
and reproduction of 9,7 41,5 50,2 45,7 40,5 42,4
recorded media
Manufacture of coke
and refined petroleum 201,3 12,6 8,5 11,4 9,3 12,9
products
Manufacture of
chemicals and chemical 112,9 237,3 310,9 441,7 486,5 509,6
products
Производство
резиновых и
27,5 162,6 212,3 238,8 261,5 362,8
пластмассовых
изделий
Manufacture of other
non-metallic mineral 122,7 33,1 36,5 44,6 43,9 54,6
products
Manufacture of basic
metals and fabricated 216,2 135,8 146,8 146,6 136,5 100,4
metal products
Manufacture of basic
185,8 240,2 258,6 250,2 247,5 285,8
metals
Manufacture of
fabricated metal 30,4 208,9 220,0 207,0 205,1 240,3
products
Manufacture of
machinery and
equipment (excluding 62,0 31,3 38,6 43,2 42,3 45,5
weapons and
ammunition)
Manufacture of
electrical, electronic 35,1 60,5 76,2 92,9 103,2 121,8
and optical equipment
Manufacture of office,
accounting and 1,4 45,1 59,2 73,2 75,3 102,3
computing machinery
Manufacture of
10,8 2,0 3,1 4,5 5,4 9,6
electrical machinery
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and apparatus
Manufacture of
electronic products,
radio, television and
9,6 19,2 26,6 26,6 25,2 23,5
communication
equipment and
apparatus
Manufacture of
medical, precision and
13,3 9,2 10,0 20,1 18,0 33,4
optical instruments,
watches and clocks
Manufacture of
101,0 14,7 19,5 22,0 26,8 35,8
transport equipment
of which:
Manufacture of motor
vehicles, trailers and 57,3 115,0 143,9 185,1 228,4 225,5
semi-trailers
Manufacture of other
43,7 55,3 64,9 97,8 120,6 125,0
transport equipment
Other manufacturing 20,0 59,7 79,0 87,3 107,8 100,5
Manufacture of
furniture; 16,9 21,0 26,9 36,1 39,1 20,7
manufacturing n.e.c.
Recycling 3,1 17,1 23,2 31,5 35,9 17,3
Electricity, gas and
818,8 3,9 3,7 4,6 3,2 3,4
water supply
Electricity, gas, steam
747,7 1016,5 1166,0 1187,6 1186,2 990,5
and hot water supply
Collection,
purification and 71,1 945,7 1090,7 1106,2 1093,8 925,3
distribution of water
Construction 342,1 70,8 75,3 81,4 92,4 65,2
Wholesale and retail
trade; repair of motor
vehicles, motorcycles 336,9 336,8 348,6 438,1 469,3 448,7
and personal and
household goods
Sale, maintenance and
repair of motor vehicles 49,8 347,4 456,0 517,9 554,6 679,1
and motorcycles
Wholesale trade and
commission trade,
except of motor 143,3 55,5 72,2 78,2 84,7 76,0
vehicles and
motorcycles
Retail trade, except of
motor vehicles and
motorcycles; repair of 143,8 149,3 158,7 174,0 184,9 293,8
personal and household
goods
Hotels and restaurants 46,9 142,6 225,1 265,7 285,0 309,3
Transport and
2336,8 55,6 45,1 89,3 105,5 47,3
communication
Land transport 1497,6 3107,7 3330,7 3288,6 2981,0 3120,3
1290
Water transport 13,4 2104,5 2167,9 2093,4 1698,6 1666,4

Air transport 114,4 38,8 22,8 18,7 20,1 8,8
Supporting and
auxiliary transport 445,7 105,7 155,6 197,3 260,6 420,4
activities
Communication 265,7 542,1 632,6 669,3 649,1 657,0
Financial activity 119,7 316,6 351,8 309,9 352,5 367,7
Financial
114,9 159,2 204,2 186,7 170,5 168,2
intermediation
Insurance 3,1 154,1 199,2 181,0 163,9 153,0
Activities auxiliary to
financial
1,7 2,4 2,4 2,5 3,4 5,1
intermediation and
insurance
Real estate activities,
renting and service 1638,0 2,7 2,6 3,2 3,2 10,1
acttivities
Real estate activities 1352,6 1669,9 1968,0 2195,7 2701,4 2614,7
Renting of machinery
and equipment without
operator and of 38,4 1324,1 1571,0 1734,4 2229,6 2118,1
personal and household
goods
Computer and related
25,7 57,1 72,1 79,1 104,2 40,5
activities
Research and
68,9 24,7 24,0 36,5 35,1 51,9
development
Other business
152,4 84,4 94,0 133,8 137,3 158,6
activities
Public administration
and defence;
125,9 179,6 206,9 211,9 195,3 245,6
compulsory social
security
Education 163,7 211,6 214,5 228,5 241,0 240,1
Health and social work 196,2 198,3 213,3 228,9 242,7 239,8
Community, social
and personal service 246,3 216,3 255,8 222,5 197,8 188,1
activities
Sewage and refuse
disposal, sanitation and 76,7 307,6 348,2 386,2 297,6 289,4
similar activities
Activities of
membership 1,7 78,3 76,7 92,4 77,5 77,0
organizations
Recreational, cultural
151,9 2,1 2,3 2,1 8,2 4,2
and sporting activities
Personal and
16 213,9 250,7 273,4 203,3 199,5
household Services
The highest increase in investments was observed in light industry and wood processing sector
(furniture makers were the main players in this market) in the past 2-3 years. It allows being
optimistic about the future of this business. Analysis of the structure of industrial production
demonstrate the high share of fuel and energy complex (FEC) in the industrial production and the low
1291
share of metal fabrication industries, that ensure the modernization and renovation of fixed capital, as
well as improving the competitiveness of Russian enterprises.
Fixed capital investments after two years of relative stability decreased by 8.4% in 2015. The analysis
of the structural investment features shows that the bottom of the economic downturn was passed in
2015. However, it could be only slow and weak correction without significant positive changes in the
economic and institutional environment. Borrowed financing must be significantly increased to return
to the trend of sustained growth in fixed capital investment., In In 2016 the investment activity on the
Russian market is determined by the macroeconomic situation in the country. According to estimates
of economists, the total volume of investments in commercial real estate in Russia will amount to
about US$ 4 billion. Market development as increase in the number of transactions and the
resumption of negotiations on the assets’ sale could be expected in case of the stabilization of
exchange rates and oil prices. Investors will focus on high-quality and liquid assets with stable
income and clear long-term lease contracts. End users will also be interested in the acquisition of
office buildings. Russian capital will continue to dominate the investment market against a
background of cautious behaviour of foreign investors.
Conclusion
The study examined the theoretical foundations of the enterprise investment from Russian and
foreign authors. The Russian business climate was analysed in the context of the modern market
economy. Statistical data on investment flows, their main directions were presented.
Against the background of growing competition for investment, in recent years Russia has
demonstrated a comparative deterioration of the business environment, governance and investment
attractiveness in comparison to other leading countries in the catching up phase. Strategy for the
improvement of the business environment (institutional strategy) and strategy of increasing
investment attractiveness (investment strategy) are key elements in creating conditions for a new
model of economic growth. They are necessary to progress in solving the major problems of the
present stage of Russian economy development. These problems include excessive dependence on
external markets, a lack of "long" money and the quality of investment, rapid growth in domestic
prices, and low competitiveness of Russian goods. All these problems are not solved without
improving the quality of the business environment and investment climate. Therefore, for foreign
investment in the Russian market, it is necessary to address all the problems: corruption in the public
sector, to improve the legal framework and customs procedures, to establish the optimal tax rates.
Measures aimed at improving infrastructure must be effectively implemented. And business must
continue to develop to improve Russia's investment climate. Thus, the investment climate will be
more favourable, which subsequently will result in inflow of foreign investments in the country.
In order to solve certain problems the pragmatic approach should be applied to the problem of the
institutions: do not engage in a wide range of simultaneous institutional reforms, but successive
removal of the most significant institutional constraints and distortions that impede economic growth;
in case of decrease in the number of reforms, the government have to take greater responsibility for
their effectiveness. As part of improving the business climate and increasing investment
attractiveness it is necessary to reform the Criminal Code and the law enforcement practice in respect
of business, legislative measures to protect competition, motivation measures to the government,
lower market access barriers, reducing regulatory functions of the state and its presence in the
economy.
Some measures are proposed to solve existing problems: the reform of the Criminal Code;
clarification and separation of functions and powers of the various law enforcement agencies in
relation to the control of economic and business activity and suppression of crimes in this area; sharp
decline in the government functions in business control, decrease of the appropriate authority, to
make progress with regard to the introduction of an effective contract; strengthened principle of
common but differentiated responsibilities (the severity of the punishment) for attempts to corrupt
and acceptance of bribe; development of a system that would stimulate the improvement of
investment climate in the regions.
1292
References
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109 p.
Ayupova L.K. (2010) Organizational and economic aspects of investment management of
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Aubert J.-E. (2015) Promoting Innovation in Developing Countries: a Conceptual Framework. -
World Bank Institute. World Bank Policy Research Working Paper 3554. 39 p.
Baguley Ph. (2004) Project management. Moscow: FAIR-PRESS Publ., 208 p.
Central Bank of Russia [Online], [Retrieved August 30, 2016] http:// www.cbr.ru/statistics
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/statistics/enterprise/investment/nonfinancial/
Khazanovich E.S. (2011) Investment: textbook. Moscow: KNORUS, 278 p.
Lapshina Z.V. (2015) Investment management of enterprise. Economy and society, No. 15, pp. 102-
123
Lederman D. (2009) The Business of Product Innovation: International Empirical Evidence. The
World Bank Development Research Group Trade Team & Latin America and the Caribbean Region
Office of the Chief Economics, 26 p.
Lee Ch.F., Finnerty J.E.(2000) Corporate Finance: Theory, Method, and Applications . Moscow:
INFRA-M, 95 p.
Mensch G.(2001) Stalemate in technology: innovations overcome the depression. [Online],
[Retrieved August 30, 2016] http:/www/russtrategy.ru/ training/lecturers/mensch/
Oslo Manual. Guidelines for collecting and interpreting innovation data. Third edition. Moscow:
OECD. Centre of research and statistics of science, 2010, 153 p.
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http://www.colliers.com/-/media/files/emea/russia/research/2016 /2016_q1
_investment_russia_ru.pdf?la=ru-ru
Sharinova G.A., Dembilov O.E. (2013) The Russian investment climate: Current state, challenges,
and development. Young Scientist, No.11, pp. 503-505
Salieva R. N. Legal regulation of investment activity in Russia: condition and perspectives of

development. Bussiness, Management and Law [Online], [Retrieved August 30, 2016]
http://bmpravo.ru/show_stat.php?stat=319
Sharp U.F. Aleksander G.D. Beyli D.V.(2011) Investments. Moscow: Infa-M Publ., 1028 p.
Skripnikova G.V. Postanogova M.S.(2015) Foreign direct investment in Russia: trends and problems
of their attraction. Internet-journal Naukovedenie, Vol.7, No. 4
Thompson A.A. Strickland A. J.(1998) Strategic management. The art of strategy projecting and
implementation. Textbook for universities. Moscow: YuNITI, 258 p.
Transparency International. [Online], [Retrieved August 30, 2016]
http://ww35.transparencyinternational.com
1293
The Implementation Of Risk Management In A Medium Sized

Company
Bastian Heinemann, bastian.heinemann@ghk-management.com

Melanie Buchmüller, melaniebuchmueller@web.de
Steffen Lange, steffen.s.lange@googlemail.com
Jochen Schmid, jochen.schmid@sonte-germany.de
The Bucharest University of Economic Studies, Romania
Abstract
The subject of risk management has been gaining more and more importance in recent years. Where
former priority was controlling individual risks, today’s priority is the risk profile control of entire
businesses and companies by discontinuities in the business environment, legislation and capital
market.Correspondingly, risk management aligns with the business objectives and integration of
corporate management into strategy and controlling. This paper provides an overview of state-of-the-art
risk management, showing the necessity to implement a risk management system in medium-sized
companies, and follows the introduction of such a system.The basis of this paper is a theoretical
framework and an optimization project for a medium-sized company (121 employees and revenues of
300 million euros), which was followed by the authors during a period of six months.
Value: The aim of the project was to explain the necessity of a risk management system and to implement
effective risk management on a theoretical basis.
Keywords:Risk management, medium-sized company, risk management restructuring process.
JEL Classification:M11, M21
Introduction
Risk management is of increasing importance for companies in all sectors as it helps identify risks,
allowing damage to be averted. Moreover, according to the Law on Control and Transparency in
Business (KonTraG) a risk management system is obligatory to timely recognize jeopardizing
developments. Apart from the operational necessity for a company to identify and avoid risks, there are
also legal restrictions and requirements (Hölscher et al. 2006, pp. 150-151). There exist numerous
German regulations which were partly influenced and/or initiated by EU law. In general, the traditional
laws Stock Corporation Act, Companies Act and Commercial Code are valid, but tightened requirements
were implemented periodically (Krystek and Müller 1999, p 178). In addition, sector-specific standards
are possibly observed, which can often exert their effect on the respective branch through contractual
relationships.
In context to the aforementioned legal framework and the operational necessity, the authors have
conducted a study which was carried out in the time frame of 6 months.
1 Current Approaches / Scientific Context
1.1 Principles of Risk Management
Risk management is the systematic analysis, evaluation, handling and steering of risks within a company.
The target is to recognize critical situations in business activities at an early stage, to avoid those risks as
1294
well as to reduce or minimize the effect of the risks. A business can be successful in handling
unpredictable risks by avoiding and reducing critical situations as well as by planning and
and steering those
situations. A well-wrought
wrought and fully operative risk management can act as an early warning system for
the top management (Baetge and Jerschenksky, 1999, p. 175). Hereby appropriate countermeasures can
be taken when potential risks are arising.
arising. Those countermeasures can develop respective and desired
(counter)-effects. Risk management is often referred to as a component or a synonym for the internal
control system (IKS) in literature as well as in practice. The authors
author consider risk managem
management an
important part of the IKS.
Figure 1: Risk Management Procedure
1.2 Elements and Structure
Traditional systematic as well as unsystematic methods of how to manage a company are quite often past
oriented. This means that they work according to „rules of thumb“ thumb (often
often also described as
“entrepreneurial intuition” [also “gut feeling”]). They are – like reactive control systems (cost
accounting, performance calculation as well as operative controlling) – not related to potent
potential risks and
handling risks proactively and adequately is therefore not possible.. Those risks need to be captured,
analyzed, assessed and categorized as well as minimized or eliminated (Kromschröder and Lück, 1998, p.
1577).
A complete, systematic and str structured

uctured analysis, compilation, approach and observation of several
potential risks is in reality normally not done. More often will single risks be considered one by another
another,
especially as far as investment decisions are concerned. In comparison is risk management
nagement performed
systematically and sustainably in order to assess all current and potential future risks and, furthermore, to
monitor and handle them. The structure of the workflow is given in the figure below.
For every identified and significant economic risk,, a plan to monitor and manage these risks will be
made. This is done when developing the risk management system. For all potential risks and known risks
indicators, monitoring cycles and contents as well as reporting channels will be determined
determined in accordance
with alert thresholds and responsibilities. Reporting risks, in particular the illustration of target values to
avoid risks that were predefined and possibly not reached, is of great significance for the viability and
reliability of the whole
ole system (Friedrich, 2000, p. 2625).
1295
Figure 2:
2 Elements of the risk management process
(Source: Based on Brauweiler and Brauweiler, J., 2014, p. 4)
The acquisition of existing risks and their depiction is done systematically and to do so the risks are
allocated into classifications. The first step is to prepare a list in order to get an initial overview of the
identified risks. The portfolio allows us to get a clear overview of the risks, which are illustrated bby their
urgency (Gleißner and Romeike, 2005).
Figure 3:: Example of a risk matrix (Source: Representation by the authors)
The elicitation and analysis of the possibilities of bearing individual risks asa well as the total of the risks
(analysis of the risk coverage potential),
potential) is important in order to check whether the entrepreneurial
situation (e.g. equity, possibly plus reserve liabilities of shareholders, contractual liabilities, benefits, etc.)
is satisfactoryy for bearing the whole amount of potential risks or not (Gleißner, 2001, p. 129). Only then
can the continued existence of the company be assured. If the determined extent of the risks, as measured
by the risk coverage potential of the company, is too high, hig other measures such as risk elimination,
reducing risks or risk transfer need to be taken. As a last resort the business environment has to be
checked (product segment, geographical markets, etc.).
1296
Thus, risk control includes all mechanisms and activities of influencing the risk situation in a way that the
risk strategy is guaranteed. This is done by influencing the probability of occurrence and/or the severity
of the risks.
2 Research Objectives and Methodology
The company in which the optimization project was carried out, is an international engineering company
that has grown strongly over the last years. In 2015 it was taken over by a new investor who works on
hedging the company against future market- and statutory risks. In order to analyze the risks which may
occur in a company, we held 10 interviews with top management, department heads and employees in
key positions. The interviews were used to answer the following questions:
- What are the potential risks within the company?
- How should these risks be assessed - with regards to the potential loss and probability of
occurrence?
- How can the risks be managed in the future?
- How can the risk management system be anchored in the corporate culture?
- How can the risks of the company be continuously monitored?
The results of these interviews were analyzed and discussed with company management. Necessary steps
for remodeling and supplementing the existing risk management system were derived from the analysis
and on the basis of the theoretical principles, before the decided-upon measures were implemented in the
company. After this, the process of restructuring and partial introduction of the risk management system
should be carried out:
Throughout the whole process, measures to develop a risk culture were implemented. Furthermore, risk
management should be embedded in the corporate culture in order to safeguard a long-term operation of
the risk management system.
3 Research Results
Subsequently, the results of the project are listed and thus answer the project’s key questions.
1297
Figure 4: Process of restructuring a risk management system

(Source: Representation of the authors)
3.1 Risk inventory
The interviews with employees regarding risk inventory resulted in a diversified risk situation with urgent
and latent risks. Those risks could crop up in all areas as well as hierarchical levels of a company. The
mentioned potential and existing risks were listed in tabular form and described in detail. Afterwards, the
risks were allocated to different categories.
1298
Risk Class 0 1 2 3 4 5
Area Sum
W.1 Environmental alterations
W.2 Finances and Financial Markets
W.3 Shareholders
W.4 Management and Organization
W.5 Personnel
W.6 Products and Production
W.7 IT
W.8 Sales and Revenues
W.9 Legal risks
W.10 Data Protection risks
W.11 Compliance risks
W.12 Fraud
W.13 Environmental protection risks
W.14 Particular risks to reputation
Figure 5: Types of risk (Source: Representation of the authors)
3.2 Risk assessment
In the next step, the risks were analyzed and assessed in order to give guidance and to implement them.
The evaluation was conducted in the following risk levels.
Level Definition of the levels of "Extent of Loss"

0% No risk is present, or the risk will not occure.
25% Risk is present, but it is more likely that the risk does not occur, than that it does.
50% Risk is present, and the probability of the risk occuring is the same as of it not occuring.
Risk is present, and it is more likely that the risk does occur, than that it does not.
75%
100% Risk is present and will certainly occur.
Level Definition of the levels of "Probability of Occurence"

No, or rather insignificant loss:
•The occurence of these risks would not be able to significantly affect the result, liquidity or company
0% value.
Medium loss:
•The occurence of these risks could affect the result, liquidity and company value.
25%
Significant loss:
•The occurence of these risks could strongly affect the result, liquidity and company value.
50%
Great loss:
•The occurence of these risks, would lead to a net loss and significantly reduce company value.
75%
Extreme loss:
100% •The occurence of these risks, would endanger the continued existence of the company.
Figure 6: Definition of probability of occurrence and amount of damage

(Source: Representation of the authors)
The risks were assessed according to the following criteria:
1299
Degree of
Definition Action Reporting
Risk
0 No risk No need for action No reporting needed
Insignificant risks that will not affect the end-of-year

1 No urgent need for action Divisional management
results, nor the company value.
Medium risks that can have an impact on the end-of- No urgent need for action, but
2 Divisional management
year results. monitoring the risks is necessary
Significant risks that can strongly affect the end-of-year
3 results, or lead to a noticable reduction in company No need for action Divisional management
value
Serious risks that can lead to a net loss and Divisional management and management
4 Urgen need for action
significantly reduce the company value board
Severe risks that is highly likely to endanger the

5 Immedate need for action Management board and the advisory board
continued existence of the company
Figure 7: Degree of Risk (Source: Representation of the authors)

The assessment is performed by trusted people within the company. The Delphi-method turned out to be
advantageous, as assessing risks is based on subjective perception of the person. Furthermore, the
assessment is subsequently discussed by a set of experts and is assessed according to consent of these
experts. This can reduce errors from lack of know-how by single experts in different areas.
When applying the Delphi-method each expert were to assess each risk in a single evaluation sheet. If the
risk could not be expressed in a monetary value, it was quantified by one of the experts in accordance
with a uniform scale. The statements made by the employees were checked for plausibility by the
authors. Afterwards it was all summarized according to a weighted average assessment. In the next step
the overview was presented in front of a panel of experts and the experts discussed the information until a
uniform assessment was reached. The basis for the evaluation was carried out by the classification in the
following risk levels.
0% 25% 50% 75% 100%

100%
100
0 2 4 5 5
75%
75
0 2 4 5 5
Extent of Loss
50%
50
0 2 3 3 4
25%
25
0 1 2 2 3
0%
0 0 0 0 0
0
0 25 50 75 100
Probability of Occurence
Figure 8: Grading into risk classes (Source: Representation of the authors)

Afterwards, the risks that were identified through interviews were classified within a risk matrix in order
to get a clear picture of the situation.
1300
Risk Class 0 1 2 3 4 5
Area Sum 17 54 83 41 14 9
W.1 Environmental alterations 2 7 8 1 1 -
W.2 Finances and Financial Markets - 1 2 - - -
W.3 Shareholders - - - - - -
W.4 Management and Organization 1 - 9 6 2 1
W.5 Personnel 2 4 4 7 2 2
W.6 Products and Production 1 15 26 17 5 4
W.7 IT - 1 7 7 2 -
W.8 Sales and Revenues 8 9 14 2 - 1
W.9 Legal risks 1 5 6 1 2 -
W.10 Data Protection risks - - - - - -
W.11 Compliance risks 2 11 3 - - 1
W.12 Fraud - 1 4 - - -
W.13 Environmental protection risks - - - - - -
W.14 Particular risks to reputation - - - - - -
Figure 9: Result of the risk analysis (Source: Representation of the authors)

23 risks showed urgent need for action (risk-classes four and five), as they had a proportional high
probability of occurrence coupled with relatively high expected damage. Because individual risks can
reinforce or offset each other, or one risk could be evoked by another, a risk aggregation was executed in
order to determine the overall risk.
3.3 Detecting risks at an early stage and managing risks
Following this assessment, an early warning system was developed based on the identified risks. This
system includes a group of measures to help manage these risks. The following figure shows an excerpt
of the defined measures:
Description Risk Countermeasures

•Project "Optimation of the Monday processes"
Production Bottlenecks in capacity must be finalized.
•If necessary, start looking for software again.
•Implementation of software for PM
Production False / inaccurate time management
•Detailed planning with Monitoring
•Move production abroad
Production Too high costs •Development of new standards/processes
•Implementation of Quality management
Personnel Employment contracts until 2010 •Review legal steps / Engage a mediator
•Recruitment from abroad
Personnel Recruition of qualified employees
•Further education of own employees
•Implementation of / Updating Key Figures and
Organization Internal control system
their anchoring in the company culture
•Implementation of a Quality Management Unit
/QM
Sales Product quality
•Implementation of clearer processes /
documenting specifications
Figure 10: examples of the defined measures (Source: Representation of the authors)
In order to implement this system several ratios were determined for the analyzed risks and the panel of
experts decided upon a set of limiting values to determine the tolerance limit for risks within the
company. Furthermore, in order to be able to monitor the development of the risks, the actual state of
those ratios was determined. These values were collected quantitatively if possible, and if not, the actual
state was described qualitatively. Based on this, a catalogue of measures was developed for each risk, to
be used if limiting values are exceeded. The catalogue consists of measures to aid in handling risks,
meaning avoiding or minimizing risks, risk transfer and compensation, and the advantage is that
measures can be immediately applied in case of the set limits being exceeded. Furthermore the efficacy
of these measures is most often higher, as they are planned in advance and not in a quick manner in case
of an urgent problem. For the ten urgent risks respective measures were taken immediately and
intermediate as well as final goals were stipulated.
1301
After developing the risk management system, a risk report was compiled for the purpose of depicting a
clear overview of the risks stemming from external as well as internal stakeholders.
3.4 Embedding of the RMS within the company culture
Throughout the whole process, management kept an open line of communication with their employees
about the development of the project in order to be able to embed risk awareness in the company culture.
Additionally, a kick-off event kindled the attention for the new risk management system that would be
implemented. It was also undeniably positive that the panel of experts consisted of members from
varying departments within the company, as they set a good example for their respective departments by
communicating risk awareness. Risk awareness is highly important in avoiding making the wrong
decisions, as identified by the controlling, as it is very difficult to impossible to undo them once they
have been made. By restructuring the responsibilities for risk detection, as well as introducing measures
for managing risks, there is no uncertainty as to the responsibilities anymore. Furthermore, an incentive
and penalties system was established in order to provide incentives for staying by the requirements of the
risk management system.
3.5 Regular maintenance of the risk management system
The implementation of the so-called “risk coordinator” fosters a structured realization of the risk
management process. The task is to monitor risks within different business portfolios and to initiate the
processes of the risk analysis, the risk assessment as well as the risk management. A detailed description
was developed for the regular repetition of these processes, which contains exact working instructions for
the risk inventory, risk assessment, early warning system of risks and the preparation of the risk report. In
order to guarantee a uniform and standard procedure throughout the whole corporation, the guidelines
were presented in workshops in each business unit. According to the processes description, the respective
steps of the risk management system should be carried out biannually.
The company is now able to actively control their risks and react in time by utilization of the already
identified risks and the implemented risk management system. In addition, previously unidentified risks
which could endanger the company's continued existence, were uncovered: The company had high end-
of-year results and liquidity and had therefore not recognized these risks. The consequence of these risks
going undiscovered would have been bankruptcy in the coming years. In this strategy the company was
only sustainable for the foreseeable future of each project.
4 Discussion and conclusion
A functioning risk management system is not only useful for treating unexpected ad-hoc risks at short
notice and for minimizing or balancing the efficiacy, it also guarantees continuous monitoring and
assessment of the identified spheres of risks (e.g. foreign exchange risks in the main trading currencies,
political situation and development of unstable trading partners, for example in the Middle East).
As an example will the system enable monitoring of political situations and the development of unstable
trading partners, which allows the treatment of risks related to high fluctuations of the oil price, or other
risks which are due to the monitored happenings.
A sustainable existence as well as strategic success are dependent on how well prepared the company
management is for risks. It is also dependent on how the company handles these risks with sufficient
resources as well as an adequate impact potential without delay. Regardless of whether it is a discussion
about turnover, the company value or other ratios, or if other success factors are taken into consideration
– risks and chances are intertwined. The aim is to possess a balanced relation between the increase of
chances and the reduction or hedging of risks.
1302
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interner und externer Revision zu einer effektiven Corporate Governance. Bamberg: Difo.
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Unternehmensweites Risikomanagement. Wien: Linde.
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1304
Analysis of The Physical Organic Food Availability at Retail Stores

in The Czech Republic
Eva Lukášková
Department of Environmental Security, Faculty of Logistics and Crisis Management, Tomas Bata
University in Zlín, Nám T. G. Masaryka 5555, 760 01 Zlín, lukaskova@flkr.utb.cz
Kateřina Pitrová
University in Zlín, Nám T. G. Masaryka 5555, 760 01 Zlín, pitrova@flkr.utb.cz
Jakub Trojan
University in Zlín, Nám. T. G. Masaryka 5555, 760 01 Zlín, trojan@flkr.utb.cz
Nikola Hasníková
University in Zlín, Nám. T. G. Masaryka 5555, 760 01 Zlín, hasnikova.nikola@seznam.cz
Abstract
The article focuses on the analysis of the physical availability of organic food within the business
network of the Czech Republic. Organic foods are products that are manufactured in accordance with
the principles of sustainable development, and their offer in individual retail chains is very different.
The article firstly introduces retail network in the Czech Republic, there is also introduced a range of
organic food available at various retail locations and presented a case study of regional availability of
organic food.
Keywords: organic food, physical food availability, retail stores
Introduction
Organic foods are generally considered as a phenomenon of healthy diet that is increasingly growing
on awareness in society. Buying organic food benefits not only our health but also the environment
because organic farming is friendly to all environmental components. However, organic food and
related healthy lifestyle became the victim of excessive media coverage and commerce causing
distrust in organic foods among some consumers.
Food is an essential component of human needs and it is necessary to ensure availability, access and
use. Organic food as wholesome products relate with food security relate. The necessary attention
will be paid to the definition of terms related to organic farming, constantly mentioned advantages
and disadvantages and also the current situation of the organic food market in the country.
The availability of food in the Czech Republic is at a very high level. In each village, there is at least
one grocery store or a convenience store. Not to mention larger territorial units, where several retail
chains are located in one territory.
According to the statistics from 2010, Czech consumers frequently buy organic food in retail stores
(67.2%), followed by health food stores (19.4%), pharmacies (5%) and drugstores.
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Organic Food In Czech Retail Stores

Concerning legislative issue, organic food is a product produced in agreement with the requirements
of the Act no. 242/2000 Coll. on organic farming, Regulation (EC) no. 834/2007 and Commission
Regulation (EC) no. 889/2008 (Annex to Commission Regulation (EC) 889/2008). (EAGRI, 2009)
For organic products are considered any material of plant or animal origin derived from an organic
farm on which it is issued
a valid certificate. Not only raw materials for the production of organic food can be certified as
organic, but also animals prepared for sale, breeding animals or unprocessed raw materials for food
use. (Ministry of Agriculture, 2015)
Organic food is food produced without the aid of chemicals with the assistance of so-called
"traditional agriculture" that is environmentally friendly and also careful for their products. Nitrate
fertilizer composting is not used for fighting against weeds or insect pests do not utilize pesticides.
Traditional agriculture does not use additives for organic food production; organic food does not
contain emulsifiers, raising agents or preservatives (except additives allowed in organic production)
and they are not genetically modified. (Foršt, 2011) No antibiotics or growth hormones are served to
animals in organic farming.
Organic food consumption reached 1.8 billion crowns in the Czech Republic in 2008, which is a
growth of 40% compared to 2007 (+ 510 million CZK). Since 2005, the turnover of organic food in
the Czech Republic has increased by more than 3.5 times. The average per capita consumption was
176 crowns in 2008, and organic food participated in 0.75% (+ 36% compared to 2007) on the total
consumption of food and beverages. In 2008, the share of organic food halts of imports in total
consumption, this share decreased by 5 % to 57 %. The growth of organic food produced in the
Czech Republic increased in 2006 and 2007 by 42% and 47%, already by 58 % in 2008. (Ministry of
Agriculture, 2010)
The important role on the market with organic food plays distributors, particularly importers, regional
and national distributors and wholesalers. The recovery happened in 2011 when the number of
registered distributors increased to 226 establishments (resp. 201 entities). (Department of
Agricultural Economics and Information, 2012)
A relatively large number of organic foods are sold through retail stores, which may not be counted
in the registry of distributors of organic foods. There are around 2000 of these stores in the Czech
Republic.
Dm drugstore has the richest assortment of organic foods with the total number of 603 types of
organic food. The lowest quantity is recorded at stores COOP, where the number of organic food is
less than 10. Relatively well-represented are also stores Globus and Interspar (see the table below).
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Table 1: Summary of retail chains operating in the Czech Republic with a range
of organic food in 2010 (Department of Agricultural Economics and Information, 2012)
The name The number Own brand

Entry into Country Number
of retail Format of organic of organic
the CR of origin of stores
store food range products
Supermarket Netherland 279

Albert 1991 140 / 252 Albert bio
Hypermarket (224 / 55)
Ja!Natürlich
Billa Supermarket 1990 Germany 200 174
/ Our Bio
Globus Hypermarket 1996 Germany 14 495
Alnatura
Hypermarket 37
Interspar 2004 303 NaturPur
Supermarket Austria (33 and 4)
Germany
Kaufland Hypermarket 1998 94 231 -
Discount
Penny 1997 Germany 328 15 Bio Style
shop
Hypermarket
Great
Supermarket 157 (72 / 56 Tesco
Tesco 1996 Britain 243
Express shop / 23 / 6) Organic
Store
Supermarket
Czech
COOP Smaller 420 Less than 10 -
(1994) Republic
stores
Babylove
and
Dm Drugstore
1992 Austria 192 603 Alnatura,
Drugstore chain
Averde
cosmetics
Drugstore EnerBio,
Rossmann 1994 Netherlands 113 102
chain BabyDream
Ironical fact is that stores which have low representation in some businesses in our country offer the
widest range of organic food. It is obvious that miscellaneous possibilities of buying organic food in
the network of retail stores come from Austria and Germany.
Today, most people prefer buying food in the retail stores. The map shows the location of an
individual retail network across the Czech Republic. The greatest concentration of stores is in the
capital city Prague followed by Brno in South Moravian Region. In other regions, stores are
distributed fairly equally, with some exceptions such as South Bohemian Region. This region has a
significantly smaller number of stores due to the size of the region in opposite to South Moravian
Region.
In the mentioned South Moravia Region, a higher concentration of one type of stores and a retail
network Enapo can be seen. These stores are also typical for Zlín Region.
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Fig. 1: Retail chain network in the Czech Republic [own creation]
The Capital City Prague

Prague as a separate region has a rich network of various retail chains due to a relatively small area.
The retail stores Tesco, Lidl, Billa and Albert Supermarket dominate.
Central Bohemian Region
In Central Bohemian Region is a relatively compact network of stores. Popular stores are Enapo,
especially in the district of Prague-East; there is a high concentration of this type of market. On the
contrary, there are not any Globus and Makro stores.
Karlovy Vary Region
Karlovy Vary Region has a rich layout of stores (mainly in the northwest district of Karlovy Vary)
due to its smaller area. There are all types of stores available.
Plzeň Region
The greatest concentration of stores in Plzeň Region is in major district towns Plzeň, Tachov,
Domažlice, Klatovy, and Rokycany. As in Karlovy Vary Region, there are all kinds of stores.
Liberec Region
In Liberec Region, all these retail chains can be found. The most occurring are Enapo stores and
Penny Market. In the capital district of Liberec are superstores such as Globus and Makro.
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Ústí Region
The deployment of chains is concentrated in the most populous areas of the region, in major district
towns. Due to the size of the districts, Most District has the highest density of stores. On the other
hand, the districts of Ústí nad Labem and Louny have the smallest number of stores.
Hradec Králové Region
Retailers are allocated relatively equally among the region. Penny Market and Tesco often occur.
Enapo store is also popular, especially in the district of Trutnov. The branch of the retail chain
Globus misses there.
Pardubice Region
In Pardubice Region all chains are available except Makro store. Most of the stores can be found in
the district of Ústí nad Orlicí, the least in Pardubice District.
Vysočina Region
In the district towns Brod and Třebíč the sale network Enapo dominates. On the contrary, there are
Tesco and Albert Supermarket in Jihlava District. In the city Jihlava is possible to find Makro
superstore, but there is not the store Globus.
South Bohemian Region
Retail chains are equally allocated to all the districts, the highest concentration of markets is in major
district towns České Budějovice, Jindřichův Hradec, Tábor, Písek, Strakonice, Prachatice and Český
Krumlov. Penny, Lidl, and Tesco most commonly occur. There are all kinds of shops, including
Globus and Makro in České Budějovice.
South Moravian Region
In South Moravian Region stores are densely distributed throughout the region. The dominating store
is Enapo. Even several stores of the branch occur in one city. For example in Brno, there are seven
stores and five stores can be found in Vyškov.
In the South Moravian Region are also stores Globus and Makro with the residence in Brno.
Zlín Region
Due to its size, Zlín Region has a large number of retail chains. Most of them are in the major district
towns such as Zlín, Kroměříž, Uherské Hradiště, Vsetín and their surroundings. Similarly to South
Moravian Region, there is a great prevalence of stores Enapo, followed by Albert Supermarket and
Tesco. In this region it is possible to find all of these stores except Globus.
Moravian-Silesian Region
In this region, stores are located distinctly unevenly. The highest density of markets is concentrated in
the district of Opava and Ostrava-City. In the district of Karviná the predominant network is Enapo.
The high concentration of retail chains is also in the district of Frýdek-Místek and Jablunkov in
Frýdek-Místek District.
Olomouc Region
The largest amount of retail network is concentrated in major district towns such as Olomouc,
Prostějov, Přerov, Šumperk, and Jeseník. In Olomouc, Globus and Makro are available. There is not
distinctively predominant pattern of some of the retail chain network, different types of retail stores
are concentrated equally.
2 Organic Food Market in the Czech Republic
Interest in organic products is growing slowly annually and with this offer of the organic market
grows as well. Consumers buy most of the organic foods in the Czech retail networks, followed by
health food and organic food stores. At the end of the year 2014, there was available in total 2,893
organic food items in selected retail chains. Average annual consumption per capita remains below
200 CZK.
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At the end of 2014, there were registered 352 distributors of organic foods (an increase of 15%).
Organic food imports reach up to 60% of the turnover of the Czech market, with the inclusion of the
final organic food imports amounted to 46% of the retail turnover (data from 2012). Most of the
buyers of organic food are middle-aged women. On the other hand, older men present the least
number. The main reason for buying organic food is the fact that it is healthier and tastier. In
opposite, the biggest barrier purchasing organic products are their price and followed by the range of
the products.
In the Czech Republic, organic farming has been developing since 1990. While this year first three
organic farms were registered, in 2014 it was already 4,023 certified organic farms that manage area
of nearly 500,000 hectares of farmland which represents a share almost of 12% of the total
agricultural land in the country.
Year after year, also the number of organic food producers is increasing. We are now producing in
539 establishments. (BIO, 2016)
2. 1 Availability of Organic Food in Retail Networks in the Czech Republic
As it was noted above, most people buy organic food in retail chains. Some chains even offer a
relatively wide range of organic food. The retail chains Tesco and Globus have the biggest
assortment.
Table 2: The assortment of organic food offered by retail chains in 2010 (BIO, 2016)
The type
Globus Tesco Albert H Kaufland Billa Albert S Penny
of product
Tee 5 9 9 10 3 8 2
Fresh fruit
31 14 12 11 12 12 1
and vegetables
Chilled food
4 3 2 1 1 2 0
and delicacies
Confectionery
8 5 9 2 2 4 0
and chocolate
Jams
8 0 4 0 3 0 2
and marmalades
Coffee and cereal

3 5 1 10 3 1 0
coffee
Baby food 60 57 43 77 9 5 0
Canned and pickled

5 0 5 2 0 3 1
food
Spices
10 4 7 10 0 5 0
and condiments
Legumes 5 9 9 3 4 7 0
Meat and meat

12 12 10 4 27 9 2
products
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Milk and dairy

53 37 30 17 48 16 21
products
Flour, semoline,
4 10 9 7 4 8 0
groats
Frozen products 5 0 8 0 0 2 2
Alcoholic drinks 10 6 5 0 2 0 0
Nealcoholic drinks 17 16 30 30 6 12 4
Cereal and legume
mixture,
13 11 4 9 0 1 0
semi-finished
products
Cereals 8 15 9 6 7 5 1
Oils and fats 2 1 4 2 1 1 1
Buts and seeds 10 7 0 3 9 0 0
Others 18 8 13 6 4 5 1
Fresh bakery 0 4 2 0 3 0 0
Durable pastry
and bakery 30 16 26 22 12 15 4
products
Spreads, pastes,
6 1 2 0 0 2 0
creams
Sweeteners, sugar,
5 7 9 9 3 5 0
honey, syrups
Breakfast cereals 9 9 7 3 4 7 3
Dry fruits 6 6 0 1 11 0 0
Pasta 9 10 9 4 5 6 0
Eggs 1 1 1 1 2 1 1
Flakes, germ, bran,

3 4 3 4 1 5 0
fiber, husks
The total amount

360 287 282 254 186 147 46
of products
Most of the retail chains have their own organic food brand, whose products are in the range with
other brands of organic food.
Retail Chain Globus
Globus retail network offers the widest selection of organic products from all the retail chains. The
assortment of organic food in 2013 grown to more than 530 kinds of products and continues to grow.
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Globus has not its brand of organic foods. Therefore, it purchases most of the organic products from
suppliers or the brand Alnatura Alnavit.
Retail Chain Tesco
Tesco retail network has its own brand of organic food Tesco Organic. The brand was introduced in
the Czech retail networks in 2007 and now offers more than 100 products for customers.
Retail Chain Albert Hypermarket and Albert Supermarket
The size of organic food range differs according to the type of store. Albert Hypermarket offers more
products as well as organic products than Albert Supermarket. At the moment, Albert is offering 160
types of organic products.
In addition, the retail chain Albert has its brand of organic foods Albert Bio where a range of more
than 80 types of organic products can be bought. Considering future, Albert is going to continue to
expand the size of the organic food network.
Retail Chain Kaufland
In Kaufland store, more than 200 types of organic products of different brands currently observe
because sales network has not introduced its brand in the Czech Republic. Own brand of Kaufland -
Kaufland Bio is only available in Germany. In Czech stores, the organic brand has not been
registered.
Retail Chain Billa
Billa retail network has its Czech brand of organic food Naše Bio. The brand was introduced in 2009
and is intended only for the Czech and Slovak markets. By this, the company Billa wants to give
space for domestic producers and local specialties. (BIO, 2015)
Retail Chain Penny Market
The company Penny has introduced its own brand Bio Style in 2009. At that time, the assortment
received 11 organic products of the brand and was planned to rise further. Except the brand products
Bio Style, Penny offered more than 80 other organic products.
Although Penny Market is only discount chain selling organic food, this privilege does not work
among customers. Penny customers are not interested in store´s organic food offer, and the company
is reducing the range of organic products from year to year. Currently, it is possible to find only 5
kinds of organic food in Penny Market, including 3 products of Bio Style.
Conclusion
Food availability is commonplace for Czech citizens. Surfeit of urban retail chains dominates not
only in our country but practically in all developed countries. People have an option to buy plenty
and abundance of food any day, often at any hour and not only on weekdays but also on weekends or
holiday.
It is similar with the availability of organic products because they are now a part of a range of almost
every retail chain, to a greater or lesser extent.
The results of the analysis may be seen surprising but they perfectly express the reality. The interest
in buying organic food is increasing slowly; sometimes people do not buy organic food only because
they are not economically accessible.
High price always cannot be the only reason for disinterest. A significant role is also played by the
inadequate awareness of people in the very essence of organic farming. The wave of exaggerated
mediatisation inflated the importance of organic food to such proportions that captured rather distrust
among people. People do not trust organic product brands what is understandable for many scandals
with fake organic producers. On the other hand, it is necessary to mention the fact that customers do
not control what they buy. They do not care about the labelling of real organic food which
authenticity is guaranteed by the Ministry of Agriculture of the Czech Republic and European Union.
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Whether organic food from the range of some retail chains will disappear completely is a question
not only of the social security of the state but also of the access of consumers to food purchasing and
responsibility for their health.
References
Potraviny: Biopotraviny. eAgri [online]. 2009 [cit. 2015-12-23]. Dostupné z:
http://eagri.cz/public/web/mze/potraviny/znacky-kvality-potravin/biopotraviny/
Právní předpisy: Pro ekologické zemědělství a produkci biopotravin. Praha: Ministerstvo
zemědělství, 2015. ISBN 978-80-7434-240-0.
FORŠT, Jaroslav. Bio & dítě. 2. vydání. IFP Publishing s.r.o., 2011. ISBN 978-80-87383-08-7.
Akční plán ekologického zemědělství: v letech 2011-2015. Praha: Ministerstvo zemědělství, 2010.
ISBN 978-80-7434-007-9.
Statistická šetření ekologického zemědělství - Zpráva o trhu s biopotravinami v ČR. Praha: Ústav
zemědělské ekonomiky a informací - Department of Agricultural Economics and Information, 2012.
Aktuální stav českého trhu s biopotravinami. In: Bio-info [online]. 2015 [cit. 2016-04-17]. Dostupné
z: http://www.bio-info.cz/zpravy/aktualni-stav-ceskeho-trhu-s-biopotravinami
Biopotraviny v řetězcích. Bio-info: Seznamy [online]. [cit. 2016-04-15]. Dostupné z: http://www.bio-
info.cz/modules/bio-produkt/biopotraviny-v-retezcich.php
Billa uvádí vlastní bioznačku Naše bio. In: Bio-info [online]. [cit. 2016-04-17]. Dostupné z:
http://www.bio-info.cz/zpravy/billa-uvadi-vlastni-bioznacku-nase-bio
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“What I ate” Videos on YouTube
Muna Sultan Al Abri, Muscat, Oman, alabri.mona@gmail.com
Abstract
YouTube has been used extensively as a strategic marketing tool lately. Food diary videos or “What I
ate” videos it has been getting a wider attention in YouTube community. Healthy eating promotion is not
a new concept but filming everything a person eats in a day and share that with the rest of the world is a
new concept. This study has evaluated “What I ate” videos and it’s potentials in motivating people to
change their eating habits by distributing a questionnaire. The study found that the concept of “What I
ate” videos is promising and could be an effective tool in health campaigns.
Keywords: YouTube, Healthy, behavior, Eating.
Introduction
Video sharing has been growing exponentially ever since YouTube joined the game. YouTube has been
attracting a variety of “content creators” as youtubers like to refer to themselves on the Internet. YouTube
allows users to upload videos that serve different purposes such as: distribution, entertainment, education
and advertisement as Ahern et al (2015) discuss. The easiness, convenience and profit of video uploading
in YouTube have made YouTube a powerful social marketing tool.
Healthy eating has been promoted on traditional media such as Televisions, newspapers and radio. The
widespread usage of social media in marketing made healthy eating promotion more reachable and
affordable. ‘What I ate’ videos in YouTube has been trending for the past two years. These videos are
similar to food diary in a single day, week or in a diet. The content may include recipes of meals, snacks
and nutrition facts. ‘What I ate’ videos have been targeting particular groups such as vegans and
vegetarians.
This study will investigate the trend of ‘What I ate’ videos in YouTube by analyzing the content on these
videos and user’s perceptions about healthy eating promotion in YouTube. The paper will discuss the
following sections. First, YouTube evolution and power in the social network platform and healthy eating
promotion followed by the study methodology. Next, Questionnaire results and discussion. Finally, study
conclusions followed by recommendations.
Background Literature
YouTube has more than 1 billion users, localized content in 88 countries and covering 76 languages
according to Youtube.com (2016). Uploading videos in YouTube may be serving different purposes such
as: Entertainment, advertisement, spreading false information, exposing the truth or just to gain
propaganda as Naím (2007) and Ahern et al (2015) agrees. Although YouTube is a remarkable
accomplishment in the media industry, Soukup (2014) argues that YouTube lacks for the instant reaction
between the content creator and the viewer. Soukup (2014) believes that YouTube is substituting the
power of traditional media especially on highly commercialized economies.
YouTube created a platform for professionals and amateurs by empowering users to share ideas and
knowledge in the Internet Soukup (2014). According to Youtube.com (2016), YouTube launched space
production facilities in several cities such as: London, Tokyo and New York. These facilities are
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equipped and prepared to invest in creators. YouTubers have been earning income for their content by
advertisements and usage of social media. Lots of content creators have quitted their jobs and considered
YouTube as a full-time job. Youtube.com, 2016 indicated that channels that have been earning six figures
per year increased by 50%.
Views in social media effect have been contradicting, but in both ways no one can argue it has a powerful
effect. Actually, Naím (2007) described YouTube effect as the CNN effect back in the nineties but more
globally thanks to the Internet. The YouTube effect by Naím (2007) discussed the honesty of the videos
uploaded and how YouTube made it extremely difficult to believe anything posted. On the other hand,
promotion of disturbing behaviors such as: Tobaccos, E-Cigarettes and Alcohol have been targeted in
YouTube to normalize such behaviors among the youth as Ahern (2015) concludes. Ball et al (2010)
investigated the relationship between social norms and physical activity and healthy eating. The study
defined social norms as the perception of the survey respondent to other people in terms of their physical
activity and healthy eating habits. The investigation concluded the importance of using social norms
when predicting someone’s physical activity or healthy eating habits. Also, answered the question: Is
healthy behavior contagious with Yes. According to the author’s best knowledge there is no literature
about “What I ate” videos on YouTube or healthy eating promotion on YouTube.
Methodology
Studying people’s perceptions about healthy eating promotion in YouTube, more specifically “What I
ate” videos. A questionnaire was the best method to reach a wider audience on the Internet. The
questionnaire investigated “What I ate” videos impact on people’s eating habits. The questionnaire was
designed using Google Forms. Firstly, the questionnaire elicited demographic information. Secondly, the
questionnaire included open and closed question to answer the research questions. Closed questions
where aimed at gathering people’s perceptions. Whereas open questions where aimed at investigating the
changes people encountered in their eating lifestyle.
Results
The sample of the questionnaire is from the author’s personal network and where reached via social
media (Twitter, Facebook and LinkedIn). Although, the questionnaire has been shared in social media,
only 33 participants responded. The questionnaire has been distributed for the period August 24, 2016
and August 28, 2016. Google Analytics where used to analyze the questionnaire results.
Majority of the participants (60%) were between the age of 25 and 33 while, 24% of the participants were
between 19 and 24. Almost 90% of the participants where females while, only 3 males responded to the
questionnaire out of 33 participants. Participants responded to the frequency they watch YouTube as the
following: 67% daily, 27% weekly, 3% monthly, 6% occasionally and none of the participants indicated
that they never watch YouTube. Moving to “What I ate” videos, 36% indicated that they are familiar with
such videos while half of the participants denied their familiarity with such videos. Participants where
given a link to “What I ate” video to understand the concept more. Participants where asked if they have
noticed a healthy eating promotion in YouTube, 49% of them agreed while 42% disagreed. Majority of
the participants (58%) agreed that “What I ate” videos would be helpful in gaining healthy eating habits.
On the other hand, 33% disagreed with that statement.
Almost 26% of the participants indicated that they felt bad after watching “What I ate” videos, while
more than half of the participants felt nothing. Participants gave examples of changes they have
encountered in their eating habits since they have watched “What I ate” videos such as: drunk more
water, replaced fast food with vegetables, become vegetarian and cared more about nutrition value.
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Using the keyword “What I ate” in YouTube search bar a number of conclusions where made. First,
1,170,000 is the number of total videos uploaded that used “What I ate” term for the year 2016 until the
first of August. Second, the highest watched video was uploaded by Blogilates one year ago and gained
1,675,976 views. Third, Most of content creators of such videos are females. Fourth, number of words
where repeated in the title of “What I ate” videos such as: Raw, Vegan, Healthy, Weight loss, Plant-
based, Easy and vegetarian. Finally, thumbnails used where mostly of slim bodies, girls in bikinis, before
and after images and colorful food.
Discussion
Those who watch YouTube videos in a daily bases are much familiar with “What I ate” and the healthy
eating promotion wave than those who watch YouTube in a weekly or monthly bases. YouTube
recommended videos policy and trending videos on the area might explain this. Familiarity with “What I
ate” videos didn’t influence the belief that such videos are helpful in gaining healthy eating habits. There
is a general agreement that watching other people eat healthy motivate them to persuade the same
behavior. On the other hand, most participants indicated that after watching such videos makes them feel
nothing. This finding is contradicting their belief that such videos might be helpful in self-motivation.
Such videos has the ability to motivate people encounter huge changes in their eating lifestyle such as
becoming vegetarian to small changes such as staying hydrated.
Conclusion
The objective of this study was to investigate “What I ate” videos on YouTube and evaluate it’s potential
in promoting a healthy eating lifestyle. The study proved that “What I ate” videos in YouTube have good
potentials in motivating people persuade a healthier eating habits. Watching other people’s eating habits
motivate people to encounter changes in their eating habits which is consistent with Ball et al (2010)
findings. It is recommended to utilize YouTube and specially food diary videos in healthy eating
promotion campaigns. Collaborations between YouTube creators and companies producing healthy
product in healthy eating promotion campaigns should be made.
References
Ahern, N., Sauer, P. and Thacker, P. (2015). ‘Risky behaviors and social networking sites how is
YouTube influencing our youth?’. Journal of Psychosocial Nursing, 53(10), 25-29.
Ball, K., Jeffery, R., Abbott, G., McNaughton, S. and Crawford, D. (2010). ‘Is healthy behavior
contagious: associations of social norms with physical activity and healthy eating’. International Journal
of Behavioral Nutrition and Physical Activity, 7(86), 1-9.
Carins, J. and Rundle-Thiele, S. (2013). ‘Eating for the better: a social marketing review (2000–2012)’.
Public Health Nutrition, 17(7), 1628–1639.
Naím, M. (2007). ‘The YouTube effect’. Foreign Policy, 158, 103-104.
Soukup, P. (2014). ‘Looking at, with, and through YouTube’. Communication Research Trends, 33(3), 3-
34.
Youtube.com. (2016). ‘Statistics – YouTube,’ YouTube. [online], [Retrieved August 25, 2016],
https://www.youtube.com/yt/press/ar/statistics.html
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Simulation Model for the Firms’ Financial Resource Management

Orlova Ekaterina Vladimirovna, Ufa State Aviation Technical University, Ufa, Russia
ekorl@mail.ru
Abstract
Today one of the high development priorities in Russia is transition to an innovative way of economic
development. This is directly related both to the preservation and development of scientific and
technological capacity, and involvement into the industry high efficient investment. To attract investment
the firm should provide a sufficient level of competitiveness, financial stability and liquidity. This paper
presents the simulation model that is able to coordinate of income and expenditure of the firm and
provide a more efficient use of financial resources. The process of model development consist of two
stages: development a scheme of financial management to attract debt financing of innovative projects
based on simulation, development of algorithms for the cash distribution saving the balance of income
and expenditure and determining the amount of short-term loan to ensure the maintenance of liquidity
level.
Keywords: simulation model, financial resource, firms’ management, information technologies,

econometric model.
Introduction
One of the major challenges of effective business management is to increase the impact of its activities in
the sphere of financial management. For the firm is extremely important to accurately assess the
maximum possible revenues into the budget and be able to calculate a set of alternative scenarios of
budget funds, which allows to choose options that best meet the needs of the current financial situation.
The main content of the operational management of financial resources in the company amounts to a
redistribution of financial resources based on operational analysis of the current situation and pursuing
the goal with minimal cost [1]. For this its necessary to formulate and solve the problem of financial
forecasting, which will assess the financial situation of the company in the future, identify the volume of
financial resources.
1. Firms’ resource management: functional model
Detailed operational plan for income and expenditure of financial resources is reflected in the payment
calendar, which interconnect all sources of revenue and expenses over a certain period of time. It
completely covers the cash turnover, makes it possible to reconcile cash receipts and payments both in
cash and non-cash, helps to ensure that solvency and liquidity. Payment calendar, a monthly detailed
indicators of positive and negative cash flows broken down by day (five days, ten days) of the budget
cash flow.
The main purpose of the payment calendar is to achieve a maximum balance of positive and negative
cash flows at each point of the planned period of time, as well as ensuring the solvency of the enterprise.
The income and expenditure system of financial resources is stochastic, since cash flows are uncertain as
to timing and in terms of resources. Therefore, planning the inflow and outflow of financial resources by
traditional methods based on deterministic prediction scheme is not effective and not in the nature of the
system. In the condition of uncertainty of the cash flow needed a model that will allow, firstly, to take
into account the stochastic nature of the system parameters, and secondly, to reflect complex causal
relationships and factors to model multiplicative effects due to the interactions of these factors, and
thirdly, to plan spending financial resources with a view to ensuring adequate levels of liquidity and
solvency. The problem can be solved with using the simulation tools movement of financial resources
[2].
1317
A simulation model should be the basis for management of financial resources, ensuring timely adoption
of administrative solutions that help maintain a sufficient level of competitiveness indicators and
financial stability and solvency of the enterprise. Basis for building a simulation model of cash flow
management, which is shown in Fig. 1, is a diagram of causal factors, management of financial resources
the company is presented, which highlighted the positive and negative dependences on the factors and
shows the system interaction factors at different hierarchy levels.
Figure 1: Functional model for the firms’ resources management
System structure of the firm, its subsystems is essentially determined a general operation, economic
mechanism, requirements and principles of economical management. For an efficient management of a
firm activity it is necessary to analyze its’ functional structure, reflecting internal processes in the firm.
The functional structure allows to forecast a possible responses of the system on control actions,
improving management quality. With usage of the system simulation standard IDEF0 the generalized
functional model of business operation is designed. In the given model there are the following
subsystems: planning and prediction; research management; material flows management; resource
management; production management; finance management; human resource management; marketing
and pricing; sales management. For its production activity implementation a firm use the following kinds
of resources: material, information, financial and human resource [3]. In the paper we consider the
module of costs management as a subsystem of the overall management system.
1318
2. Financial resource management: system-dynamic model
There is a set of simulation software products ensuring managerial decision support of the production
system. To the dynamic modelling programs concern the following software: Powersim, Vensim, Stella,
AnyLogic etc. [4]. A features of these programs is the capability of representation the objects and the
processes in economical systems in dynamics of their development. The simulation modelling is a
method of systems analysis, providing both precise analysis, and visual representation of alternate
versions of system development with detailed study of systems' transient states and parameters. The
simulation model construction process within the framework of the dynamic computer system allows to
present an objects and interconnections using in studied reengineering processes.
A simulation model developed as part of a system-dynamic approach and includes the following main
components [5, 6, 7, 8, 9]: 1) modeling of payment calendar, 2) assess of the creditworthiness in the
enterprise unit; 3) estimation of the influence of operating-level factors to the strategic-level factors. The
model solves the following tasks (fig. 2): 1) planning the distribution of payments on the timing and
amounts, and 2) providing the greatest timing of financial flows in terms of their income and expenditure;
3) determination the necessary amount of short-term loan.
Figure 2: Simulation model for the firm financial flows
1319
Storages in the model are represented by differential equations of the model - cash, short-term loans,
accounts payable, accounts receivable, short-term investments, revenue from product sales, long-term
loan. The main variables in the model: T – profit rate tax; loan - loan funds; loan_end - the value of loans
at period end; R_product - total revenue from product sales; LTL_receive - received long-term loans.
In the study conducted the following experiments on the factors, which vary due to changes in the
behavior of the state, financial sector, the competition in terms of price and quantity: assessment of the
impact of changes of each of the input variables on output indicators; estimation of the overall impact of
changes in variables on output indicators; assessment of the elasticity of output indicators on the input
variables (table 1).
Table 1: Results of experiments with simulation model
Exper. T interest loan_end LTL_receive R_product cash EVA ROE

1 0,20 0,17 9,00 13,00 80,00 730,93 857,84 0,12
2 0,10 0,17 9,00 13,00 80,00 730,93 968,03 0,13
3 0,23 0,17 9,00 13,00 80,00 730,93 814,71 0,11
4 0,35 0,17 9,00 13,00 80,00 730,93 676,33 0,09
5 0,20 0,05 9,00 13,00 80,00 730,93 1515,35 0,14
6 0,20 0,13 9,00 13,00 80,00 730,93 935,97 0,12
7 0,20 0,35 9,00 13,00 80,00 730,93 591,93 0,08
8 0,20 0,17 0,00 13,00 80,00 532,93 877,75 0,11
9 0,20 0,17 25,00 13,00 80,00 3073,12 813,41 0,11
10 0,20 0,17 50,00 13,00 80,00 4123,12 739,49 0,11
11 0,20 0,17 9,00 0,00 80,00 444,93 885,15 0,11
12 0,20 0,17 9,00 25,00 80,00 2905,12 820,57 0,11
13 0,20 0,17 9,00 50,00 80,00 3965,12 739,79 0,11
14 0,20 0,17 9,00 13,00 50,00 70,93 355,47 0,06
15 0,20 0,17 9,00 13,00 100,00 3241,12 1195,88 0,15
16 0,20 0,17 9,00 13,00 150,00 5341,12 2032,45 0,25
17 0,10 0,05 9,00 13,00 80,00 730,93 1254,28 0,16
18 0,10 0,13 9,00 13,00 80,00 730,93 1071,63 0,14
19 0,10 0,35 9,00 13,00 80,00 730,93 559,37 0,08
20 0,10 0,05 10,00 13,00 80,00 752,93 1253,12 0,16
21 0,10 0,05 15,00 13,00 80,00 2653,12 1249,31 0,16
22 0,10 0,05 20,00 13,00 80,00 2863,12 1244,14 0,17
23 0,10 0,05 25,00 13,00 80,00 3073,12 1238,89 0,17
24 0,10 0,05 50,00 13,00 80,00 4081,12 1216,67 0,18
25 0,10 0,05 0,00 0,00 80,00 246,93 1275,91 0,16
26 0,10 0,05 50,00 0,00 80,00 3577,12 1225,19 0,17
27 0,10 0,05 0,00 50,00 80,00 3577,12 1225,19 0,17
28 0,10 0,05 9,00 13,00 100,00 3241,12 1635,66 0,20
29 0,10 0,05 9,00 13,00 150,00 5341,12 2576,53 0,32
30 0,10 0,17 9,00 13,00 100,00 3241,12 1357,49 0,17
1320
31 0,10 0,17 9,00 13,00 150,00 5341,12 2296,96 0,29

32 0,20 0,05 9,00 13,00 100,00 3241,12 1439,99 0,18
33 0,20 0,05 9,00 13,00 150,00 5341,12 2276,26 0,29
34 0,10 0,20 9,00 13,00 100,00 3241,12 1300,01 0,17
35 0,20 0,10 9,00 13,00 100,00 3241,12 1332,92 0,17
36 0,35 0,35 9,00 13,00 80,00 730,93 361,54 0,06
37 0,00 0,17 9,00 13,00 80,00 730,93 1100,18 0,14
Based on the results of simulation experiments there were constructed econometrical models that allow to
assess the financial performance of the firm [9], such as economic value added (EVA), cash flow,
financial leverage (LR) depending on different financial decisions:
EVA = 180,09 − 1201,92 ⋅ T − 2271,68 ⋅ interest + 17,30 ⋅ R _ product , R 2 = 0,97;

adj
st.error 78,69 203,81 176,62 0,6
2 = 0,89;
cash = −4763,94 + 73,43 ⋅ loan _ end + 4,30 ⋅ LTL _ receive + 59,82 ⋅ R _ product , Radj
st.error 549,0 8,22 10,14 4,22
LR = 1,22 + 0,0036 ⋅ loan _ end + 0,0038 ⋅ LTL _ receive, R 2 = 0,98.
adj
st.error 0,006 0,00009 0,0001
The significance of the constructed econometric models is high also the parameters are significant.
Conclusion
The models for firms’ financial resource dynamic simulation and management on the basis of modern
information systems for decision support are designed. The developed simulation model of the financial
flows allows to form effective operational decisions on the allocation of funds for cost items and ensures
the maintenance of an adequate level of liquidity and solvency. This provides efficiency growth of the
firm as a whole, increasing its sustainability and competitiveness.
References
[1] Blank, I. A. (2010) Financial resource management, Publishing House "Omega-L" LLC "Elga",
Moscow.
[2] Kleiner, G.B. (2008) Business strategy, Publishing House of Academy of National Economy,
Moscow.
[3] Orlova, E.V. (2007) ‘System Dynamic Modeling of Enterprise Costs’ Proceedings of the 9th
International Workshop on Computer Science and Information Technologies CSIT’2007, Russia.
[4] Bakhtizin, A.R. (2008), Agent-oriented economic model, Economics, Moscow.
[5] Orlova, E. V. (2013) ‘Synthesis of optimal management system for the stochastic financial flows
distribution of the production-economic system,’ Audit and financial analysis, 6, 149-153.
[6] Orlova, E.V. (2012) ‘Simulation of stochastic financial flows in enterprise,’ St. Petersburg state
polytechnical university journal. Economics, 5, 185-189.
[7] Orlova, E.V. (2012) ‘Forming the rational cost structure using balanced management concept,’
Vestnic INGECONa, 4, 160-166.
[8] Stachurski, D. (2009) Economic dynamics: theory and computation, MIT Press, Cambridge.
[9] Ferguson, B. S. and Lim, G.C. (2005) Dynamic economic models in discrete time: theory
and empirical applications, Taylor & Francis e-Library.
[10] Orlova, E. V. (2016) Computer modeling of the economy: econometric approach, USATU, Ufa,
Russia.
1321
The Role of Trust & Business Relationships in Successful Management

of Project Contracts: A Case of Construction Sector of Middle East
Mohammad Ahmed
COMSATS Institute of Information Technology, Islamabad, Pakistan, iAhmed1320@gmail.com
Umara Noreen
Finance Department, College of Business Administration, Prince Sultan University, Riyadh, Saudi Arabia
unoreen@psu.edu.sa
Abstract
The purpose of study is to suggest an integrated framework that investigates the impact of business-to-
business trust and formal business relationship on formal contract management under the moderation
effect of length of business relationship. Data were collected from key stake holders associated with
construction projects (client, owner, project manager, architect and supplier) in the Middle-Eastern
countries via self-administered questionnaire developed from previous studies. Correlation and regression
analysis along with inter-item correlation matrix confirmed all hypotheses however with varying
significance considering the outcomes of previous studies. The results revealed that (1) the relation
between relational governance and management of formal contracts is positive though insignificant, (2)
the relationship of B2B trust is positive with management of formal contracts and the association is
relatively stronger as compared to relational governance, and (3) the influence of moderator, length of
relationship, is stronger on the relationship between trust and contract management’s effectiveness as
compare to the relationship between relational governance and contract management’s effectiveness. The
current study and its findings will greatly help the project management related professionals and related
stakeholders in understanding the complex relationship of formal contract management to business-to-
business trust and business relationship under the moderation effect of length of business relationship.
The study is unique in term of developing and using an integrated framework that investigates
relationships between business-to-business trust, business relationship, length of business relationship,
and the formal contract management in the Middle Eastern construction industry environment. The study
also identified the areas for future research with managerial implications.
Keywords: Middle East, business trust, relationship management, longevity
Introduction
The importance of projects is increasing with time and even traditional organizations are using project
management approach to deal with issues requiring attention on priority basis. More and more
organizations are becoming project-driven. Under these circumstances, the successful management of
projects is important to address the ever-increasing challenges of corporate work. However, it has been
observed that many projects overran the deadlines due to the lack of coordination or poor management of
project related communication. Unfortunately, despite increase in number of projects in the Middle East,
no serious effort has been put to study the role of relational governance, previous business relations and
trust on project contract management. The key variables involved in the study are business trust,
relational governance, longevity of relationship and project contract management.
In the management of inter-organizational relationships, the participating firms should employ multiple
mechanisms (Arranz & Arroyabe, 2011). It is the obligation of project managers to expedite the exchange
between partners in order to achieve project objectives. Amongst transactional instruments, a contract is
the legitimate pledge which indicates the parts, schedules, rights and commitments of partners with point
1322
by point and formal operating methods. Overseeing contracts is an intricate procedure, regularly
aggravated by high transaction costs innate in arranging, executing, and observing contract associations
with merchants (Brown & Potoski, 2003). Regardless of the tremendous groundswell of enthusiasm for
partnering and alliancing lately, there has been relatively insignificant research that has embarked to
examine methodically the nature, plausibility, benefits and impediments of types of client–contractor
coordinated effort (Bresnen & Marshall, 2000). In this study, following Poppo & Zenger (2002),
relational governance is considered compound factor with the following essential characteristics: open
communication and sharing of information, trust, dependence, and cooperation.
Though present studies have shown that formal contracts and relational
governance play a crucial role in inter-organizational interactions, the mechanism of their interchange is
still vague (Cao, & Lumineau, 2015). The work adds to the discussion on the connection among trust,
business relationship and contracts management in the management of relations between contract parties.
All the more particularly, we concentrate on the inquiry how trust and formal contract are connected.
While there have been studies on whether trust & contract are surrogates or supplements, they bid trivial
understanding into the dynamic collaboration between the two (Woolthuis et al., 2005). They neglect to
reply, in the first place, whether contract goes before trust or tails it, as such, what underlying connection
exists between the ideas; second, how and why trust and contract can supplement one another; and third,
how the different blends of trust and contract influence an association's development and result
(Woolthuis et al., 2005). The outcomes of the study will increase the comprehension of the contribution
of trust and business relations in project contract management in the Middle Eastern construction industry
environment.
Literature Review
This section incudes review of various studies on the topic in light of research questions and with view of
hypotheses development.
Construction Industry of the Middle East

The Middle Eastern construction sector has gone about as a driver of development for the Arab economy
in the course of recent decades and turning into an essential hub for the financial development of the
states of the region. Construction is the second biggest economic activity after oil exports in the region
(Issawi, 2013). Some principle sources are the association and execution of gatherings, contractual
relations, natural and site conditions, assets accessibility and so forth. It is extremely uncommon to see
that a construction project is finished on time due to improper management of contracts and
communications (Haseeb et al., 2011) not only in the Middle East but across the developing world. The
Middle Eastern construction sector is unique. The Middle East is seeing an uncommon boom in
construction activities at all levels with the governments' objective of enhancing its income far from oil
reliance to tourism, business and modern exercises. There is great deal of new mega projects that are in
progress and others are in the pipeline. The number, size and multifaceted nature of new construction
projects has made an additional weight on construction members and brought about heaps of dangers (El-
Sayegh, 2008). In this way, it is vital to distinguish and survey the critical dangers in the Middle Eastern
construction industry with a specific end goal to help nearby organizations and global organizations who
do or plan to work in the Middle East to pay consideration on these noteworthy dangers (Issawi, 2013).
Hazard recognizable proof and allotment are compelling elements in danger taking care of choices.
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Project Contract Management

One of the earliest treaties (contracts, agreements) are found to exist in ancient China. Much to our
surprise, these ancient contract management principles, as propound by Tao Zhugong, also cover
“practical advice relating to trust, honesty & integrity” in successful management of business units, as
revealed by Low (2004). There is no doubt that all businesses in their business relationships have to
negotiate different sorts of problems. With shareholders, suppliers, customers, regulators and staff, there
is a balance to be struck between presentation and manipulation, between trying to engage stakeholders in
the substance of the issues they face and making space for corrective action unimpeded by unhelpful
investigation (Ward & Smith, 2003).
A contract for construction project is of incredible importance to the entire project as it identifies with the
designing quality, project length of time, project cost and all other project attributes. Thus, the
construction contract management cannot just keep away from superfluous issues during the time spent in
engineering construction, additionally it can also promise legal rights and interests of contract parties,
more helpful for the smooth execution of the project (Liu, 2015). From the present status of the
construction projects contract management, the significance of contract management has pulled in more
consideration, however the attention is insufficient as the technical content of contract management is
moderately low. Albeit numerous organizations issued various management archive to institutionalize the
management of the contract (Liu & Zhao, 2013; Liu, 2015), yet the genuine execution is not palatable, at
present as there are accompanying issues in the construction project contract management. Following
these studies, some of the issues in successful management of contracts in construction sector are
Fig. 1: Issues in Project Contract Management in Construction Sector
Although many organizations issued a number of management documents to standardize the management
of the contract, but the actual implementation is not satisfactory, at present, these problems in the
construction project contract management are still prevalent (Liu, 2015). However, through fostering the
trust-based business relations between the contract parties, these issues can be addressed leading to
effective contract management not only in construction sector of Middle East but in any region of the
world where projects are routine of the economic life of the nation.
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Business Trust
In this thesis, ‘business trust’ or ‘trust’ implies trust within business entities or organizations. Muller et
al., (2013) defined trust as “inclination of a party to be exposed to the actions of another party based on
the prospect that the other will execute a particular action imperative to the trustor, regardless of the
aptitude to monitor or control that other party.” The effect of the interaction of trust and contract is
different for different societies. For instance, Wang et al. (2014) revealed that, though an interrelating
influence amid trust and contract governs long-run positioning among Western managers, no such
moderating influence is obvious among Chinese managers. Thus how one people trust other people vary
from society to society.
Trust helps us to develop active individual, intergroup, and cross-group contacts and offers the foundation
for a minded set which may result in superior performance, as well as collaboration (Botwe et al., 2016).
Goussevskaia & Kidd (2004) debate that trust building involves an intimate amount of inter-
organizational learning processes, and is decisive for coalition evolution. They argue that the role of trust
become acute when organizations are from different geographical locations. The austere rise in various
forms of inter-organizational cooperation in the current economic environment has stirred a wealth of
research (Hatak et al., 2014). ‘Today when the word trust is on everyone’s lips there is little or no
systematic discussion of its importance for today’s business decisions’ (Ward & Smith, 2003). Absence
of trust can be disastrous for an organization. ‘When managers rebuff the significance of trust, when
some of their business relations become skeptical and exploitative, then a cycle is formed: lack of trust
leads to skeptical actions and skeptical actions lead to a further loss of trust’ (Ward & Smith, 2003). In a
number of recent cases – for instance, Enron, Worldcom, Xerox and Railtrack – we have seen the public
face of business drift well away from its underlying state (Ward & Smith, 2003). Studies also found trust
between partners to be linked with the stability within organizations. Many distant countries were
involved in global trade for centuries, and their sailors and representatives and spies were supposed to
advance trust-based means to participate in trade with their distant partners because of the absence of no
fully ‘negotiable’ lawful instruments that were acknowledged in foreign regions (Kidd & Richter, 2004:
p.4). Even in today’s environment when it becomes known to one business partner that the legal
instrument or the contract lags something, trust is the only thing that fills the gap and retains confidence
on each other among the business partners. DeMaio (2001) in his work on Business-to-Business (B2B)
trust explains the key dimensions enabling trust between two business entities.
Fig. 2: B2B Trust Diagram (adapted from DeMaio, 2001)
1325
Besides trust in the other party, the negotiating party's attitude depends on strategic considerations, i.e.,
aims of greater significance that guides the negotiating party to diverge from a response that can be
suitable to the extent of trust in the other party (Waichhofer et al., 2015).
Relational Governance & Longevity of Relationship

In this paper, ‘relational governance’ means management of formal relationships, following Poppo &
Zenger (2002). According to Solomon and Flores (2001) “trust is not merely reliability, predictability, or
what is sometimes understood as trustworthiness as it is always the relationship within which trust is
based and which trust itself helps create.” Poppo & Zenger (2002) call attention that the administration of
these connections infers that directors discover components to manage and encourage the trade among
accomplices with a specific end goal to accomplish project destinations. Such systems have a financial
and lawful starting point (formal contracts) or a social cause (social standards and trust) (Arranz &
Arroyabe, 2011). From a sociology point of view, numerous individuals take the perspective that trust is
reasonable and that it might be a vital component in the alleviation of relational risk (Woolthuis et al.,
2005). This indicated the significance of trust and healthy business relations in mitigation of risk free
partnership through the successful implementation of contracts. Management of formal business relations
is governed by strategic decisions or choices. Strategic choices in management of relationship between
enterprises, are located anyplace between different strategy interpretations as these choices underwrite
meaningfully to the quest of several possibilities concerning competitive strategy (Geiger, 2014).
In this paper, ‘longevity of relationship’ means Previous Business Relations, following Poppo & Zenger
(2002) and Dovaliene & Virvilaite (2008). Longevity of relationship and trust are social capital i.e.,
investment in social relations with expected yields in market’ (Lin, 2001). Zhu et al (2006) also realizes
corporate business relationships as integral constituent of social capital and relates it to communication
strategies executed in companies to build relationships with business partners. They divide relationship
building in two phases: the initiation phase and the maintenance phase. Understanding longevity of
relationship and relational governance is extremely crucial in comprehending the role of trust and
relations in management of treaties or contracts.
Conceptual Framework
Building upon review of literature, in general, and on the work of Arranz & Arroyabe (2011) and Poppo
& Zenger (2002), in particular, the conceptual framework of this study has been developed. Following
theoretical framework is proposed for the study that illustrate exploration of relational governance and
trust between partners on performance of project contract management in the Middle Eastern construction
industry under the moderation effect of previous business relations.
Longevity of Relationship
(Previous Business Relations)
Relational Governance
(Formal Business Relations) Effectiveness of

Project Contract
Trust
Fig 3: The Theoretical Framework
1326
Hypotheses
The problem statement, aforementioned framework and the research questions lead to the formation of
following hypotheses:
H1: There exists a positive connection between RG and FC.

H2: There exists a positive connection between T and FC.
H3: LoR moderates the relationship between RG and FC.
H4: LoR moderates the association between T and FC.
Survey was done through an online questionnaire. The questionnaire was distributed among around 200
individuals associated with 10-15 different construction firms operating in different regions of the Middle
East, either as employees or as clients. The data of construction firms was taken from the yellow pages of
the firms. 122 questionnaires were completely filled and were analyzed through IBM SPSS software. The
response rate was appropriate thus confirmed the validity of the questionnaire. The independent variable,
Relational governance (α=0.78), was measured using 3 items adapted from Poppo & Zenger (2002). The
second independent variable, B2B trust (α=0.80), and the dependent variable, management of formal
contracts (α=0.72), were measured through 3 and 2 items, respectively, taken from Arranz & Arroyabe
(2011). The moderating variable, longevity of relationship, has been measured through a single item as
used in Poppo & Zenger (2002). Each of the variables was recorded on the 5-point likert scale. Overall,
there are nine research items to gauge the four variables, in the questionnaire. Since it is a small
questionnaire, though built upon previous studies, thus it encouraged the respondents to fill questions
after reading it thus reduced the possibility of fake responses.
Results
This section elaborates analysis and interpretation of data that was studied over SPSS for the sample of
122 respondents.
The demographics revealed that in respondents, the largest population (40.2%) was working in Kingdom
of Saudi Arabia, followed by UAE (23.8%), Kuwait (13.1%), Bahrain (8.2%) and others (14.7%). Most
of them were project managers (46.7%), followed by contract managers (27%), architects & designers
(18%), owners of the projects (4.9%) and suppliers (3.3 %). Almost fifty percent of the population
(51.6%) were early career professionals of below 30 years of age. 38.5% respondents were of less than 40
years and 9.8% people were over 40 but less than 60 years old. Cronbach’s Alpha was 0.783 which is
acceptable for a reliable instrument.
Hypotheses Testing
Following table presents the correlation analysis between the two independent variables (RG & T) and a
dependent variable (FC) under the effect of moderation (LoR).
RG T FC LOR
** **
RG Pearson Correlation 1 .312 .297 .513**
Sig. (2-tailed) .000 .001 .000
N 122 122 122 122
1327
T Pearson Correlation .312** 1 .523** .357**

Sig. (2-tailed) .000 .000 .000
N 122 122 122 122
** **
FC Pearson Correlation .297 .523 1 .509**
Sig. (2-tailed) .001 .000 .000
N 122 122 122 122
** ** **
LOR Pearson Correlation .513 .357 .509 1
Sig. (2-tailed) .000 .000 .000
N 122 122 122 122
The above table shows that the relation between relational governance and management of formal
contracts is positive though insignificant. This shows there could be another variable (moderator) that
may increase its effect on management of formal contracts in order to keep itself aligned with the
relations discussed in literature review. The table shows that the relationship between B2B trust is
positive with management of formal contracts and the association is relatively stronger as compared to
relational governance. The table also reveals strong association between length of relationship and
management of formal contracts thus considering it as moderating variable, it is assumed that the variable
would definitely moderate the relationships with management of formal contracts in project management
environment of the Middle East. This will be confirmed (disconfirmed) in following sections through
appropriate tests.
Testing of H1 and H2
In order to confirm (or disapprove) the validity of the first two hypotheses (in which we are assessing the
connection between the two independent variables and the management of formal contracts), multiple
regression analysis was performed. The results of the analysis are shown in following tables

Std. Error of the
Model R R Square Adjusted R Square Estimate
1 .542a .293 .281 1.85663
a. Predictors: (Constant), T, RG
The above table shows that the value of R is 0.542 and Adjusted R2 value is 0.281. The decrease in the
latter value is signifying that the independent variables, trust and relational governance, are improving the
model by less than expected by chance. Hence, the model’s fitness of goodness of use is satisfactory.
Table 3: Coefficientsa
Standardized
Model B Std. Error Beta T Sig.
1 (Constant) 5.927 .895 6.626 .000
RG .134 .073 .148 1.830 .070
T .582 .099 .476 5.874 .000
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Standardized
Model B Std. Error Beta T Sig.
1 (Constant) 5.927 .895 6.626 .000
RG .134 .073 .148 1.830 .070
T .582 .099 .476 5.874 .000
a. Dependent Variable: FC
In the above table, the standardized regression coefficient (Beta) gives the strength of relationship
between RG and FC and then between T and FC. The result (0.476) is showing that the relationship is
stronger in the latter case. However, the unstandardized regression coefficient (B) indicates the average
change in the management of formal contacts (DV) due to one-unit change in IV. For instance, as per the
table, one-unit change in trust will bring 0.582 unit (58.2%) change in the management of formal
contracts and one-unit change in relational governance will result in 0.134 unit (13.4%) change in the
management of formal contracts. Thus we get following equation.
FC = 5.927 + (0.134) RG + (0.582) T
RG T FC
Pearson
1 .312** .297**
Correlation
RG
Sig. (2-tailed) 0 0.001
N 122 122 122
Pearson
.312** 1 .523**
Correlation
T
Sig. (2-tailed) 0 0
N 122 122 122
Pearson
.297** .523** 1
Correlation
FC
Sig. (2-tailed) 0.001 0
N 122 122 122
In the above tables, the F value (24.691) is confirming the goodness of fit of the model. Beta values are
showing that both relational governance and trust are positively influencing the management of formal
contracts but the relation is stronger in case of trust (0.582) as compare to relational governance (B =
0.134). Hence both H1 and H2 are confirmed. i.e.
H1: There exists a positive association between RG and FC.

H2: There exists a positive association between T and FC.
1329
Testing of H3 and H4
In order to confirm (or disapprove) the validity of the last two hypotheses (in which we are accessing the
effect of moderator on the two relationships governed by the first two hypotheses), moderated
multivariate regression analysis (MMRA) was performed using SPSS. The results of the analysis are
shown in subsequent tables.
Table 5: Variables Entered/Removedb
Variables
Model Variables Entered Removed Method
a
1 RG . Enter
2 Ta . Enter
3 LOR_RGa . Enter
4 LOR_Ta . Enter
a. All requested variables entered.
b. Dependent Variable: FC
The above table reveals that all variables were successfully entered in the SPSS software without
exceptions with management of formal contracts as dependent variable and all others as predictors and
moderators.
Table 6: Model Summarye
Change Statistics
Mode Adjusted R Std. Error of R Square Sig. F
l R R Square Square the Estimate Change F Change df1 df2 Change
1 .297a .088 .081 2.09986 .088 11.634 1 120 .001
2 .542b
.293 .281 1.85663 .205 34.501 1 119 .000
3 .645c
.416 .397 1.70142 .037 7.426 1 117 .007
a. Predictors: (Constant), RG
b. Predictors: (Constant), RG, T
c. Predictors: (Constant), RG, T, LOR_RG, LOR_T
d. Dependent Variable: FC
The above table shows that when moderator plays its role, the value of R is 0.645 and Adjusted R2 value
is 0.397. The decrease in the latter value is signifying that the moderator, length of relationship, is
improving the model by less than expected by chance. Another thing, one can see that in the third model
in the aforementioned table, in which we are considering the moderating affect, once can see that the
value of Adjusted R2 has been increased (.397) relative to its previous value (.281) in the absence of
moderation affect. This increasing value is demonstrating that the significant moderation effect of length
of service. Hence the model’s fitness of goodness of use is satisfactory.
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Standardiz
ed
Unstandardized Coefficient Collinearity
Coefficients s Correlations Statistics
Zero- Toleran
Model B Std. Error Beta t Sig. order Partial Part ce VIF
1 (Constant) 7.822 .923 8.478 .000
RG -.804 .228 -.891 -3.521 .001 .297 -.310 -.249 .078 12.830
T 1.333 .312 1.092 4.278 .000 .523 .368 .302 .077 13.067
LOR_RG .205 .052 1.606 3.928 .000 .445 .341 .277 .030 33.525
LOR_T -.212 .078 -1.062 -2.725 .007 .569 -.244 -.192 .033 30.428
a. Dependent Variable: FC
In the above table, the standardized regression coefficient (Beta) gives the strength of relationship
between FC and independent variables (RG and T) in the presence of the moderator (LOR). The result
(1.606) is showing that the relationship is stronger when LOR moderates the relationship between RG
and FC. However, the unstandardized regression coefficient (B) indicates the average change in the
management of formal contacts (DV) due to one-unit change in IV. For instance, as per the table, one-
unit change in trust will bring 0.582 unit (58.2%) change in the management of formal contracts and one-
unit change in relational governance will result in 0.134 unit (13.4%) change in the management of
formal contracts. Thus, we get following equation.
FC = 7.82 – 0.804(RG) + 1.333(T) + 0.205(LOR_RG) – 0.212(LOR_T)
Correlations results associated with the variables are shown below.
FC RG T LOR-RG LOR-T
Pearson Correlation FC 1.000 .297 .523 .445 .569
RG .297 1.000 .312 .843 .477
T .523 .312 1.000 .344 .794
LOR_RG .445 .843 .344 1.000 .740
LOR_T .569 .477 .794 .740 1.000
Sig. (1-tailed) FC . .000 .000 .000 .000
RG .000 . .000 .000 .000
T .000 .000 . .000 .000
LOR_RG .000 .000 .000 . .000
LOR_T .000 .000 .000 .000 .
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N FC 122 122 122 122 122

RG 122 122 122 122 122
T 122 122 122 122 122
LOR_RG 122 122 122 122 122
LOR_T 122 122 122 122 122
In the above tables, the F value (20.876) is confirming the goodness of fit of the model. Moreover,
Adjusted R Square value (0.397) after moderation as compared to the value of 0.081 before moderation
which reveals that the role of moderation is very significant and positive. This implies, as the length of
relationship or the number of years of business increases the relationship between the relational
governance and B2B trust is most likely to be strengthened. Here it is worth noting that, as per the
correlation table, the influence of moderator, length of relationship, is stronger on the relationship
between trust (0.569) and contract management’s effectiveness as compare to the relationship between
relational governance (0.445) and contract management’s effectiveness. Therefore, considering both
cases, it can be conveniently concluded that both H3 and H4 are confirmed. i.e.
H3: LoR moderates the association between RG and FC

H4: LoR moderates the association between T and FC
Conclusion
Project management is a new field as compared to other traditional fields within management and thus
human resource related issues are usually of secondary importance with prime importance to cost, quality
and time and this scenario is more visible in developing countries or newly industrialized countries as
compared to developed countries like US or Germany. However, it is very unfortunate that despite
increase in number of projects in the Middle East, no serious effort has been put to study the role of
relational governance, previous business relations and trust on project contract management. The
literature review of the study not only exposed this fact but the findings also revealed that considering
such issues are very important for attainment of the project deliverables as mentioned in contacts by
excising the relational governance between the parties involved. For instance, as mentioned in the above
sections, the correlation analysis revealed on us that the relation between relational governance and
management of formal contracts is positive though insignificant, confirming Carson et al. (2006) as well.
However, in Carson et al. (2006) this relation is significantly positive thus slightly contradicting our
finding pertaining to this particular hypothesis. These results also show there could be another variable
(moderator) that may increase its effect on management of formal contracts in order to keep itself aligned
with the relations discussed in literature review. The table showed that the relationship of B2B trust is
positive with management of formal contracts and the association is relatively stronger as compared to
relational governance. The results confirm the findings of Brown et al. (2007) in term of connectivity
between business trust and contract management. The table also revealed strong association between
length of relationship and management of formal contracts thus considering it as moderating variable, it is
assumed that the variable would definitely moderate the relationships with management of formal
contracts in project management environment of the Middle East. The result confirms the findings by
Ratnasingam (2005) who revealed the strong association between trust and longevity. After correlation,
Inter-item correlation matrix (Table 5.4) was developed to provide us with the detail of association
between all items in the research instrument (questionnaire). This matrix is very useful in measuring the
relationships that are not directly covered in hypotheses thus it gives brighter insight of the relational
mechanisms that lead to approval (or disapproval) of hypotheses. In order to confirm (or disapprove) the
validity of the first two hypotheses (in which we are accessing the connection between the two
independent variables and the management of formal contracts), multiple regression analysis was
performed (Table 5.5 – 5.9). The F value confirmed the goodness of fit of the model. Beta values were
1332
showing that both relational governance and trust are positively influencing the management of formal
contracts but the relation is stronger in case of trust as compare to relational governance. In order to
confirm (or disapprove) the validity of the third and fourth hypotheses (in which we are accessing the
effect of moderator on the two relationships governed by the first two hypotheses), moderated
multivariate regression analysis was performed, as shown in Tables 5.11 – 5.15. The F value confirmed
the goodness of fit of the model. Moreover, Adjusted R Square value after moderation as compared to the
value before moderation reveals that the role of moderation is very significant and positive (see, Table
5.11). This implies, as the length of relationship or the number of years of business increases the
relationship between the relational governance and B2B trust is most likely to be strengthened. Here it is
worth noting that, as per the correlation table, the influence of moderator, length of relationship, is
stronger on the relationship between trust and contract management’s effectiveness as compare to the
relationship between relational governance and contract management’s effectiveness (see, Table 5.13).
The results confirmed the findings of Lazzarini et al. (2008).
Therefore, it can be concluded that although many organizations issued a number of management
document to standardize the management of the contract, but the actual implementation is not
satisfactory, at present, these problems in the construction project contract management are still prevalent
(Liu, 2015). However, through fostering the trust-based business relations between the contract parties
these issues can be addressed leading to effective contract management not only in construction sector of
Middle East but any region of the world were projects are routine of the economic life of the nations.
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Application of Selected Statistical Methods in the Issue

Of Enterprise Financial Performance
Beata Sofrankova
University of Presov in Presov, Slovakia, beata.sofrankova@unipo.sk
Jarmila Horvathova
University of Presov in Presov, Slovakia, jarmila.horvathova@unipo.sk
Dana Kiselakova
University of Presov in Presov, Slovakia, dana.kiselakova@unipo.sk
Svetlana Matkova
University of Presov in Presov, Slovakia, svetlana.matkova@unipo.sk
Abstract
Each management discipline presents its own view on performance measurement. Financial management
prefers a set of financial indicators, economic analysis and accounting in turn, controlling, strategic
management implements strategic system of performance measurement and quality management assesses
the performance of the system with the help of precisely defined indicators and areas of evaluation.
Measuring the performance of enterprises has undergone in its historical evolution from the current
reporting profit margins through profit maximization, various types of profitability indicators and the
criteria for achieving value for owners. During the last period there have been many significant changes
not only in performance measurement approaches, but also changes in the use of methods and tools
of performance. The aim of our paper is to analyze and identify key indicators of enterprise performance
through the selected statistical methods. The basis for the elaborating the paper were secondary data from
the financial statements of the 200 selected food enterprises. There were selected indicator EVA as the
one of modern performance indicator and 41 financial indicators which were grouped into seven groups
and to detect interrelations correlation analysis and Principal Component Analysis (PCA) were used.
Using the method of PCA, we identified two principal components, on which the performance of the
enterprise depends. In terms of indicators, the performance depends mainly on the cost, efficiency and
profitability, but what was not confirmed by us is high relationship on liquidity and property
commitment, which could be due to the methodology for calculating the price for the equity using model
CAPM.
Keywords: performance, financial indicators, indicator EVA, PCA, food enterprises
Introduction
Performance as an economic category is a complex issue with a differentiated approach to its

measurement and evaluation. Measurement and performance evaluation of a business is nowadays a very
topical issue, but at the same time considerably extensive and complex process. According to Wagner
(2009), in general, the performance can be defined as a characteristics describing the method or process
by which the observed body carries out that activity, on the basis of similarity with the recommended
implementing way of this activity. The performance concept should be seen as an attempt of the company
for achieving the best possible value of the investments put in business activities (Frost, 2005). European
1336
Foundation for Quality Management (EFQM - European Foundation for Quality Management) defines
"performance" as "moderate results achieved by individuals, groups, organizations and processes"
(EFQM, 1999).
In its historical development, measuring the performance of an enterprise has passed from the normal
reporting of profit margins through profit maximization, various types of profitability indicators and up to
the criteria for achieving value for owners. The traditional way of tracking the performance of enterprises
based on assessment of their ability to achieve desired financial indicators - profits, turnover or market
share. The enterprise is ranked as powerful when it reaches the planned financial results.
During the last period there have been many significant changes not only in performance measurement
approaches, but also changes in the use of methods and performance appraisal tools. Business
performance measuring beginning dates back to the second half of the 20th century, in Western Europe
and the USA, where the emphasis was to provide operational and tactical performance, and a key
indicator of the performance was the result of management and profitability indicators, which began to be
used later. As far as for the seventies and eighties of the 20th century it is significant that the attention
when measuring the performance of an enterprise was focused on innovations that resulted in the so-
called advanced performance indicators that take into account the consequences of current actions and
decisions for the future development of business performance and value of economic profit (they are
indicators, such as MVA - Market Value Added, EVA - Economic Value Added). In the same period
there is a harmonization of indicators, based on the harmonization of accounting data and methods for
their detection. In the nineties of the 20th century there is a change in the assessment of performance when
the assessment of business performance using indicators of profitability goes to the performance
evaluation, which is expressed by changing the market value of the company and the value of free
financial funds. In this period there is also criticism of synthetic indicators, mainly because of lack of
understanding of the causes that affect their achievement and because they are mainly financial
indicators.
According to CIMA (Chartered Association of Certified Accountants) financial ratio indicators can be
divided according to the main areas in which these indicators are used in international practice while
evaluating performance into (Petrik 2009) performance indicators that focus on the measurement of
financial performance regarding profit, profitability and capital turnover; the indicators that assess the
financial structure and solvency of the company; investment indicators while the group of indicators
which measure the attractiveness of the enterprise for investors.
By Kislingerova (2011), the performance evaluation is traditionally carried out in three ways: evaluation
by a set of indicators usually of five evaluation areas, namely liquidity, activity, capital structure,
profitability and market value; evaluation by a set of indicators that are arranged in a pyramidal
breakdown products; evaluation using a single aggregate indicator that is the synthesis of partial
indicators and other statistical data into one unit, which is one of prediction models.
The latest approaches to performance are aimed at assessing the level of the production system
functioning, where it is necessary to measure the effectiveness of the transformation process and to
implement for the measure except for financial indicators also the indicators of effectiveness and severity
(Hyranek et al., 2014).
To quantify the performance it is appropriate to use one of the most advanced performance indicators and
indicator EVA - Economic Value Added. Stewart (1991) defines the economic value added (EVA) by a
simple wording "EVA is a residual income that remains after, when the operating profit covers the full
cost of capital."
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Methods for the calculation of EVA indicator have a few modifications: the method of entity (ie. the gross
method, the method of Capital Charge), the equity method (ie. the net method, the Value Spread) and the
method APV - the present value (Adjusted Present Value Approach). Although the method of Capital
Charge is considered the most accurate method of calculating the economic value added in the Slovak
legislation more appropriate seems to be Value Spread method (Kiselakova et al. 2015). The essence of
this method is to compare the return of equity (ROE) with the expenses on equity (re). The difference
between these two values is called value spread (Value Spread). By Marik and Marikova (2005, p. 365),
in spite of the declared, generally most used method is entity method.
Recently, when evaluating enterprise performance relative indicators EVA are coming to the fore that
are gaining higher information value compared to the absolute indicator.
Table 1: Relative indicators of EVA
Indicator, calculation Description

Value spread = EVA / NOA Using this indicator, it is possible to compare enterprises
of different sizes, with different equipment, capital size,
capital structure and the amount of risk (Marik a
Marikova 2005).
Relative EVA = Certain difficulties in using value spread arises when
EVA/ (personal costs + WACC x NOA) comparing companies that are based on the high share
of physical labor, as well as businesses with intensive
deployment of capital. Specialists of the London Business
School, therefore, proposed an adjustment which should
resolve the issue. It is about the introduction and
application of the relative indicator of EVA. Following
Marik and Marikova, the use of relative EVA is also
preferred by some German authors. (Hostettler 1998, pp.
254-257; Rottger 1994, pp. 80-81).
EVA ROS = EVA / Sales It represents the operating profit margin, which is more
meaningful than the classic return on sales. Investors
may, according to the value of the indicator EVA ROS,
assess how much added value has been created in the
company for shareholders (Hostettler 1998, pp. 257-
258).
Source: Hostettler 1998; Marik and Marikova 2005; Rottger 1994
Materials and methods
The aim of the paper was to identify the key performance indicators of selected Slovak food enterprises
and their use in drawing up the Enterprise Performance Model. Elaborating the Paper was based on
secondary data from the financial statements of selected food enterprises, we have obtained from publicly
available data of Commercial Bulletin and enterprises database accounts registered by company CRIF -
Slovak Credit Bureau, ltd.
The sample consists of 200 food enterprises in Slovakia. In terms of the structure in the sample there are
56.5 % (113 enterprises) represented by medium-sized enterprises (25 - 249 employees) and 43.5 %
represented by small enterprises (87 enterprises).
The sample of small and medium-sized food enterprises is divided into two groups of companies. The
first group of food enterprises (80 enterprises) represent companies with positive value of indicator EVA
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and the second group of enterprises (120 enterprises) consists of companies with negative value of the
indicator EVA. Basic statistical values are given in the table below.
Table 2: Descriptive Statistics of indicator EVA
Descriptive Statistics (enterprises EVA in PS1.stw)

Valid Mean Median Minimum Maximum Lower Upper Std.
Variable N Quartile Quartile Dev.
EVA 80 95 285 33 986 608 1 659 713 8 047 88 572 219 003
EVA 120 -122 434 -50 699 -1 021 225 -617 -153 794 -16 431 178 208
EVA 200 -35 346 -12 312 -1 021 225 1 659 713 -77 227 15 751 222 407
Source: own processing
The performance of analyzed food enterprises was evaluated by EVA indicator, which has several
modifications and for our realized analysis we chose the indicator EVA - equity and applied the following
relationship:
EVA equity = (ROE - re) x E
where ROE - Return on Equity, E - Equity, re - alternative costs of Equity.
Indicator re - alternative costs of Equity was determined using the CAPM model by prof. Damodaran
(2014, 2015) and applied the following relationship:
re = rf + β x ERP + CRP
where rf – Risk Free Rate of Return, β – coefficient of systematic risk, ERP – Equity Risk Premium, CRP
– Country Risk Premium.
We have chosen top indicator EVA as the synthetic indicator, in the design of the ratio indicator EVAROS.
This choice can be justified by the fact that all the indicators entering correlation analysis are
proportional, so the top synthetic indicator is ratio indicator.
As other analyzed parameters there were selected financial indicators, which were divided into 7 groups:
the group of liquidity ratios (LIQUIDITY) - Quick Ratio (L1), Current Ratio (L2), Total Ratio (L3),
Security Indicator (L4),
the group of activity and stability indicators (ACTIVITIES & STABILITY) - Turnover of
Receivables (AS1), the Turnover of Short-term Liabilities (AS2), Stock Turnover (AS3), Debt Ratios
(AS4), the Stability of the Enterprise (AS5),
the group of profitability indicators (PROFITABILITY) – Return on Assets ROA (P1), Return on
Equity ROE (P2), Return on Revenues ROR (P3), Return on Sales ROS (P4), Return on Costs (P5),
Return on Investment ROI (P6), Return on Long-term Assets (P7) Return on Value Added (P8),
Return on Personnel Costs (P9), Share of Total Revenue to Total Capital P(10),
the group of cost indicators (INTENSITY) - Total Cost Ratio (I1), Manufacturing - consumer Cost
Ratio (I2), Personnel Cost Ratio (I3), Depreciation Cost Ratio (I4), Material Cost Ratio (I5), the
Economic Cost Ratio (I6),
the group of efficiency indicators (EFFECTIVENESS) – Cost Effectiveness (E1), the Effectiveness
of Operating Expenses (E2), the Efficiency of Assets (E3), the Effectiveness of Long-term Assets
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(E4), the Efficiency of Inventory (E5), the Effectiveness of Debt Capital (E6), the Effectiveness of
Equity (E7), Material Efficiency (E8),
the group of commitment indicators (COMMITMENT) - Committed Assets (C1), Committed
Long-term Assets (C2), Commitment of Stocks (C3), Committed the Debt Capital (C4), Committed
Equity (C5),
the group of value added indicators (VALUE ADDED) – the Share of Value Added in Sales (VA1),
the Share of Value Added in Total Revenues (VA2), Financial Productivity through Added Value
(VA3).
Correlation analysis was the tool to reveal the interrelations between indicators for assessing the
performance of food enterprises EVAROS and the selected financial indicators and from the statistical
tools there was Pearson's test used. MS Excel 2007 and program STATISTICS was used for processing
the interrelations. We applied the Principal Component Analysis (PCA), which is a mathematical
statistical method. This method uses orthogonal transformation for transferring elements of the set of
observations, which can be shown to be correlated, towards the elements of such a set of values that are
linearly uncorrelated.

To meet the objective, which was to identify the key performance indicators, it was necessary to construct
a correlation matrix. Performance in this matrix was quantified by ratios EVAROS, which is more
meaningful than absolute EVA indicator. This indicator provides the new perspective to measure
enterprise performance, while identifying key indicators that determine the creation of added value for
shareholders.
In the next part of the paper we deliver the results of correlation analysis, into which 41 selected financial
ratios were included to confirm statistically significant dependencies on the indicator EVAROS. The
analysis was performed for the three selected groups of food enterprises:
the first group (80 enterprises) - companies with positive value of indicator EVAROS,
the second group (120 enterprises) - companies with negative value of the indicator EVAROS,
the third group (200 enterprises) - all the companies analyzed together (positive and negative
indicator EVAROS.
The first group of the analyzed enterprises was represented by the enterprises that showed positive value
of the indicator EVAROS. For these enterprises, from a total of 41 indicators analyzed above, it was
confirmed statistically significant relationship on the indicator EVAROS, in 20 indicators. Proportional
relationship to the indicator EVAROS was confirmed in 15 indicators. Inversely proportional relationship
to the indicator EVAROS was confirmed at 5 indicators.
The highest proportional statistically significant relationship has been confirmed between the indicators
EVAROS and ROS (P4), on the other hand, the highest inversely proportional relationship has been
established between the indicator of EVAROS and Total cost ratio (I1). A surprising result was the finding
that EVAROS did not show statistically significant relationship to indicator ROE (P2) (it is valid only for
the enterprises that have a positive value of the indicator EVA and EVAROS), despite the fact that this
indicator participates in the calculation of EVA indicator. There was not confirmed statistically
significant relationship between EVAROS indicator and the company's liquidity – Current Ratio (L2),
Total Ratio (L3), as well as its indebtedness – Debt Ratio (AS4). Based on these results, we can conclude
that the indicator EVAROS recognizes directly proportional relationship particularly to the indicators of
profitability, namely Return on Sales ROS (P4), Return on Revenue (P3), Return on Costs (P5), Return
on Investment ROI (P6), Return on Assets ROA (P1), but also by Cost Effectiveness (E1), in less extent
to the Stability of the enterprise (AS6) and the Commitment Assets indicator (C1). The strongest
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inversely proportional relationship was confirmed between the indicator EVAROS and the Total Costs
Ratio of enterprise (I1).
The strongest proportional relationship has been confirmed, as mentioned above, between the indicator
EVAROS and the indicator ROS (P4). This result is logical, since these indicators are identical and the
difference between them is only in the output parameter. The strongest inversely proportional relationship
has been confirmed between EVAROS and Total Cost Ratio (I1), which can be regarded again as a logical
consequence, since it is given the lower the cost, the higher the profit and profitability output.
The absence of statistically significant relationship between EVAROS indicator and an enterprise´s
liquidity – Current Ratio (L2) a Total Ratio (L3) is due to the fact that in the case of powerful enterprises
with a positive value of the indicator EVA addressing liquidity is meaningless. This is evidenced by
average levels of current liquidity of these enterprises, which are an average of 1.23, with the median
value is 0.74. The average value of the overall liquidity of the companies is of 1.6, the median of 0.92.
These values of the enterprises liquidity suggest that the optimal solution for performance are
insignificant. At the same time it should be noted that for calculating the cost of equity the CAPM
methodology was used, which does not accept the impact of liquidity on the amount of the cost of equity.
However, even after incorporation binding financial risk to the company's liquidity in capital costs, the
value of enterprise performance would not change, therefore we do support the conclusion that the
solution to liquidity for the enterprises with positive values of EVA indicator is irrelevant.
The opposite is the case with solutions to enterprises with the negative value of the indicator EVAROS. In
this case, the correlation coefficient of the variable with enterprise liquidity is statistically significant. The
correlation coefficient is placed on the 11th position, which may be considered less important location as
it is the last statistically significant position in the correlation analysis. Based on the above it can be
concluded that in the case of negative value of the indicator EVA an enterprise liquidity is an important
factor affecting the performance of the enterprise. It is confirmed that in dealing with the poor
performance of an enterprise it must be a priority to solve the liquidity of the enterprise.
If we look at the analysis of the enterprises which have the negative indicator EVAROS in details, we can
say that in their case not only statistically significant relationship indicator EVAROS with liquidity ratio
has changed, but the number of indicators increased, on which the indicator EVAROS is dependent,
especially in the area of inversely proportional dependencies. Total amount of correlation dependencies
was 24, including 14 positive and 10 negative.
In this correlation analysis, compared to the analysis of the enterprises with positive value of EVAROS,
there were the indicators added with which the indicator EVAROS has a statistically significant
relationships, especially in inversely proportional relationship, for example: mentioned Current Ratio
(L2) liquidity (average 0.76, median 0.59). In the case of the value of liquidity we can conclude that it is
not optimal, therefore, it is necessary for the increase of performance, to increase the value of liquidity.
For the dependent variables that were added in inversely proportional correlation relationship, we can
mention for example: Debt Ratio (AS4), Committed Assets (C1), Committed Long-term Assets (C2) and
in positive correlation with EVAROS there has been added the above-mentioned indicator of Return on
Equity ROE (P2). The value of this indicator in that group of enterprises is negative, therefore an
important area that needs to be addressed, particularly in those enterprises where the aim is to increase
efficiency.
In the case of enterprises with a negative value of the indicator EVAROS, the strongest proportional
relationship with this indicator there was confirmed with a Cost Effectiveness (E1). The indicator for the
enterprises with a positive value of the indicator EVAROS was placed in 5th position. The indicator of ROS
occurs at the second position. This is followed by profitability indicators like, in the case of enterprises
with a positive value of the indicator EVAROS.
1341
If we compare both analyses the accordance arises in the Return on Costs (P5), that occurs on the third
position in the group of indicators with directly proportional relationship with EVAROS indicator namely
in the two groups of enterprises. The same accordance is in the case of Return on Investment ROI (P6) at
the 7th position of Return on Assets ROA (P1) the 8th position. In the case of inversely proportional
dependencies between the selected indicators and EVAROS the match was found for the variables of Total
Cost Ratio (I1) and Economic Cost Ratio (I6). The Total Cost Ratio (I1) (the enterprises with positive
value indicator EVAROS achieve cost ratio of 0.95 and the enterprises with negative equity value of
EVAROS achieve total expense ratio of 1.02) showed the strongest inverse correlation with relationship
with indicators EVAROS, regardless of its value. Therefore, the cost reduction is the right way of leading
to performance improvement.
Larger shifts in positions occurred in the case of Cost Effectiveness indicators (E1), or/and the
Committed the Debt Capital (C4) that occurs in direct proportion according to the indicator EVAROS for
the enterprises with a positive value and inversely proportional relationship according to the indicator
EVAROS in case of its negative value. It is similar in the liquidity ratio.
Finally, correlation analysis of all analyzed enterprises was elaborated, namely those with positive but
also the negative value of the indicator EVAROS. The total number of the indicators for which statistically
significant relationship with the indicator EVAROS was confirmed is 29. Of these indicators are the
directly proportional relationship was confirmed in the case of 19 indicators and at 10 there was
confirmed inversely proportional relationship with EVAROS. The increase in the number of correlated
variables occurred over previous correlation analyses especially in the area of directly proportional
dependencies.
From the complex correlation analysis is evident that the most important indicator, with a high correlation
coefficient with respect to EVAROS indicator, is the indicator of ROS (P4). From other indicators are
significant the following: Return on Revenues (P3), Return on Costs (P5). Equally important is the
indicator of Cost Effectiveness (E1). The group of major indicators that affect enterprise performance, we
have included the indicators of ROI (P6), ROA (P1) and ROE (P2). The indicators affecting enterprise
performance, we have included the indicator of Current Ratio (L2) despite its specific results within the
analyses. Within inversely proportional correlations it would be appropriate to pay more attention to the
variables with the highest correlation coefficient, it means the Total Cost Ratio (I1), the Economic Cost
Ratio (I6), each partial cost, but also Committed Assets (C1) and Debt Ratio (AS4).
On the basis of mentioned above we select the group of indicators that will be significant in terms of their
statistically significant interdependencies with the indicator EVAROS:
Table 3: Correlations among EVAROS and selected financial indicators
Correlations EVAros in PSW.stw Marked correlations are significant at p < 0.05 N=200
Variable P5 E1 P1 P6 AS5 P2 L2 AS4 C1 I6 I1
EVAROS 0.878 0.859 0.682 0.682 0.319 0.224 0.169 -0.183 -0.203 -.869 -.881
p value .000 .000 .000 .000 .000 .001 .016 .009 .004 .000 .000
Legend:
P5 – Return on Costs, E1 – Cost Effectiveness, P1 – ROA, P6 – ROI, AS5 – Stability of the Company, P2 – ROE, L2 –
Current Ratio, AS4 – Debt Ratio, C1 – Committed Assets, I6 – The Economic Cost Ratios, I1 – Total Cost Ratio
Source: own processing
This selection is represented by indicators of liquidity, activity, capital structure, profitability, efficiency
and commitment. We can say that when dealing with poor performance it is needed to give the priority to
1342
decrease the costs and increase profitability. However, this applies only to enterprises which are of
optimal value liquidity ratio. If it is not so, then the primary solution for the enterprise performance is to
increase the liquidity of the enterprises.
The analysis
sis of principal components we applied in order to find such a set of linear combinations of the
original indicators that preserves as much information on these indicators as possible, while its
dimensions will be smaller or at most equal to the dimension of the initial set of indicators. This
procedure is achieved that it is possible to study the problem in a research subspace of smaller dimension,
which is of great importance for the further analysis of the statistical type (hypothesis testing, confidence
search areas, graphs observation, and the like).
To determine the principal components can be used Kaiser - Guttman criterion may be used according to
which all the eigenvalues whose values are greater than 1 are taken into account. The second criterion for
f
the selection of the principal components is variability, % of respectively the total variance, which should
be at 70 – 90 %.
Based on the results of the correlation analysis, we decided to apply the method of multidimensional
analysis (PCA Principal Component
mponent Analysis). For the input variables for analysis PCA were 11
indicators - Return on Costs (P5), Cost Effectiveness (E1), ROA (P1), Stability of the Company (AS5),
ROE (P2), ROI (P6), Current Ratio (L2), Debt Ratio (AS4), Committed Assets (C1), The Economic Cost
Ratios (I6), Total Cost Ratio (I1) and EVAROS.
Fig
Figure 1: Index graph of eigenvalues
Source: own processing in STATISTICA
Of the scree plot (Figure 1 Index graph of eigenvalues) by Kaiser - Guttman criterion based on the
orthogonal transformation was possible to create a set of two principal components. The two principal
components comprise 71.516 % of the variance (71.516 % maintaining information of the original file),
thus fulfilling the criteria for determining the principal components. In what follows, therefore, we are
working with two components.
1343
Figure 2:Projection
Projection of the variables on the factor – plane
Source: own processing in STATISTICA
We constructed the chart of component scales for the two principal components. The graph shows that in
the case of component 1 is the strong relationship of the Return on Costs (P5), Cost Effectiveness (E1),
ROI (P6), ROA (P1), EVAROS indicators, weaker direct relationships is to the Stability of the Company
(AS5), the weakest proportional relationship is in the case of Current Ratio (L2). On the other hand, a
strong inversely proportional relationship is to the indicators Total Cost Ratio (I1) and Economic Cost
ratio (I6). Weakk relationship is inversely proportional to the indicator Debt Ratio (AS4). In the case of
component 2 it is a strong direct relationship to the indicator ROE (P2) and a strong inverse dependency
correlation with indicator Debt Ratio (AS4). Weak inversely proportional relationship is to the indicator
Committed Assets (C1).
The above analysis shows that we have managed, from the large set of analyzed performance indicators
to create a set of two principal components. While 71.516 % information was retained ffrom rom the original
file. It was confirmed that the performance of the industry is primarily dependent on cost, efficiency and
profitability of inputs. Although the financial models to optimize performance underline the importance
of liquidity for the enterprises
ises we analyzed it was completely confirmed. Attention is drawn to nonnon
standard location of current liquidity and asset commitment made in the correlation analysis. This result
can be partially justified by selecting the CAPM for calculating the cost of eequity
quity capital, which does not
accept the financial risk, expressed by the enterprise´s liquidity.
Conclusion
In this paper we addressed the analysis and identification of key performance indicators of the selected
Slovak food enterprises through selected sstatistical methods - correlation analysis and multivariate
analysis PCA.
From the 41 selected financial indicators applying correlation analysis we have identified the following
11 key financial performance indicators of the food enterprises: Return on Costs
ts (P5), Cost Effectiveness
(E1), ROA (P1), Stability of the Company (AS5), ROE (P2), Current Ratio (L2), Debt Ratio (AS4),
Committed Assets (C1), The Economic Cost Ratios (I6), Total Cost Ratio (I1), that positively or
1344
negatively affect the indicator EVAROS belonging to modern tools for assessing enterprises
performance.
Based on PCA analysis, we created a set of 41 analyzed indicators to assess the performance of the
enterprise with a set of two principal components with 71.516 % variability. For further research of the
relationships and effects on certain financial areas of the enterprise on the financial performance it would
be appropriate to repeat the analysis with the new selection of indicators, or/and with the full set of input
indicators. Equally it would be useful to focus the analysis on the liquidity research of the given industry
area.
Acknowledgements
This article is one of outputs of project VEGA 1/0791/16 “Modern approaches to improving enterprise
performance and competitiveness using the innovative model - Enterprise Performance Model to
streamline Management Decision-Making Processes” and project APPV-15-0322 “Competitiveness,
economic growth and firm survival”.
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1345
Social Factors and Women Technology Entrepreneurs in Saudi Arabia

Asma I. Aleidi
School of Systems, Management and Leadership, Faculty of Engineering and Information Technology,
University of Technology Sydney, Australia, Asma.I.Aleidi@student.uts.edu.au
Daniel Chandran
School of Systems, Management and Leadership, Faculty of Engineering and Information Technology,
University of Technology Sydney, Australia, Daniel.Chandran@uts.edu.au
Abstract
The importance of entrepreneurship has been increasingly acknowledged as a source of growth, and
national economic development. Recently, women entrepreneurship has been a topic of concern and
interest for scholars and researchers. Also, it has been a considerable matter for public policies and
government strategies. There are many entrepreneurship initiatives that have been made by the
government of Saudi Arabia to enhance contributions of women to the workforce and economic sector, as
their role has been non-existent for a long period of time. However, women involvement in these
initiatives is nascent with a limited entrepreneurship rate. This study focuses on identifying social factors
that have influenced women entrepreneurship. Saudi women to become entrepreneurs from within the
context of technology in the literature of entrepreneurship have not existed. Therefore, the present study
aims to fill that gap of knowledge and contribute substantially to understand technology- based
entrepreneurship within the context of Saudi women.
Keywords: Women Entrepreneurship. Saudi Arabia. Social Norms. Technology- Based Entrepreneurship
Introduction
The Kingdom of Saudi Arabia is one of the most conservative countries that have maintained religious
and traditional values. Typically, the role of Saudi women is expected to be surrounded by domestic
duties as wives and mothers, while men are supposed to dominate and protect the family members.
Women participation in the economic field has been limited for a long time. However, women
entrepreneurship has recently become a topic of interest in the Kingdom. Saudi’s government has
launched numerous entrepreneurship initiatives, such as Aramco Entrepreneurship Center, Badir Program
from the scientific organization of King Abdulaziz City for Science and Technology (KACST), and Al-
Sayedah Khadijah Bint Khuwailid Businesswomen Center, in an effort to support the entrepreneurial
culture and develop entrepreneurial leadership among Saudi youth.
Women business owners in the Kingdom have started increasing. It is worth noting that women’s
participation through entrepreneurship would affect significantly the national economy, which becomes a
considerable matter of Saudi government's priority (AlMunajjed, 2006, Almobaireek and Manolova,
2013). Despite widespread acknowledgment that the significance of women entrepreneurship in the
Kingdom, there has been little research on women entrepreneurs, especially in the technology sector, as
traditionally male-dominated fields (McGowan et al., 2011). A Saudi woman to become entrepreneurs
from within the context of technology is still nascent. Issues that would impact Saudi women to become
technology entrepreneurs are many, and consist of various combinations of internal and external factors.
This includes social, cultural, and technical factors. The aim of the present study is to identify and
1346
analyze social factors that are affecting entrepreneurship among women, particularly with regards to
technology-based entrepreneurship.
Problem Statement
Due to considerable restrictions on the interaction and integration between men and women in Saudi
society, women have faced difficulties to join appropriately in the labor force and the business sector
(Almunajjed, 2010). Women unemployment rates always exceed men in the Kingdom. Saudi laws and
regulations are based on the Sharia, which is Islamic law. According to Sharia, the woman right to work
is guaranteed and there is no rule against participation in the economic and political system. Despite the
fact, Saudi laws stipulate that women occupations should be in appropriate environments (Almobaireek
and Manolova, 2013).
Women-owned businesses are accepted by other Muslim societies, and there are no limitations that affect
their participation in the entrepreneurship area. Recently, there is a noticeable improvement of women
status in the economic field, driven largely by changing the direction of Saudi’s government to support
women’s empowerment and gender equality. For instance, the Ninth Development Plan of the Kingdom
(2010–2014) marks a new phase in the development by providing greater employment opportunities for
women and encouraging them to join the workforce (Kingdom, 2010-2014). Also, the government has
launched many entrepreneurship initiatives in an effort to enhance women role in the labor force and
economic sector through entrepreneurship leadership. However, women’s participation in these initiatives
is nascent with limited entrepreneurship rate. Additionally, the level of awareness of the economic
aspects of business women is still declining (Yousuf Danish and Lawton Smith, 2012). Despite this fact,
there have been few studies of women entrepreneurial intention to identify factors that are affecting
intentions towards entrepreneurship. Such an approach is likely to offer an opportunity to predict
entrepreneurial behavior among Saudi women and understanding probability of them (Ismail et al., 2012).
The research problem is to answer the following questions:
RQ1- How to strengthen women involvement in entrepreneurship in the Kingdom of Saudi Arabia?
RQ2- What are the main social factors that are affecting Saudi women entrepreneurial intention,
particularly with regards to technology-based entrepreneurship?
Aims and Objectives

Aims
• To critically analyze the current status of entrepreneurship within the Saudi women context.
• To identify factors to promote women engagement in the entrepreneurial activity.
Objectives
The research is expected to achieve the following objectives:
• To discuss the current status of women entrepreneurship in Saudi Arabia;
• To identify social factors that impact technology- based entrepreneurship within Saudi women
context; and
• To contribute knowledge to the research area of technology- based entrepreneurship within the
Saudi women context.
Literature Review
Entrepreneurship is acknowledged as a driver of growth, and economic development. Women

entrepreneurship is not only essential for empowering women, but it is also significant for national
economic growth. However, studies show that the rate of male business owners has continued to be
significantly higher than female business owners (Kennedy and Drennan, 2002). From this point of view,
1347
identifying factors that influence women to start their businesses has been an important area for
researchers, economists and governments’ agendas in most countries.
Brush, (1992) has commented on the relative lack of quantity and the quality of research on women
entrepreneurs in academic entrepreneurship publications. According to Brush (1992), most studies of
women entrepreneurship have focused on personal factors, including psychological characteristics,
demographic background, motivations, and business background. On the other hand, recent studies have
examined factors of the organization such as issues, strategy, management, acquisition, networking
behaviors. Only limited studies have investigated the environmental factors, which affect women’s
entrepreneurship (Brush, 1992).
Though the literature shows the need of research, there has been limited studies in this area (Farr-
Wharton and Brunetto, 2007). Based on their study, women-owned business is one in ten in the
worldwide. On the other hand, women- owned businesses in the developed world account one-third.
Ismail et al. (2012) examined the factors motivating women’s entrepreneurship were examined. The
result strongly indicates that women are significantly influenced by their cultures more than individual
factors to choose entrepreneurship as a career (Ismail et al., 2012). In line with this finding, Arasti et al.
(2012) have indicated that environmental factors including social, cultural, economic, and legal factors
have a high impact on the growth orientation of Iranian women entrepreneurs (Arasti et al., 2012).
Identifying factors that might influence Saudi women is needed for this study. Based on the literature,
there are different factors that would affect women to choose entrepreneurship as a career. Numerous
combinations of internal and external factors are acknowledged by researchers. This includes social
factors, which seems to be particularly important antecedents for women to become entrepreneurs in the
Saudi context. In this study, social norms would probably show one of the greatest levels of
entrepreneurial intention on Saudi women, and the researcher takes a broader perspective on this factor.
This study uses the theory of planned behavior (Ajzen, 1991, Ajzen, 1987) to examine how the social
norms’ dimension affects the entrepreneurial intention of Saudi women.
A recent recognition by researchers show that the social context has impacted significantly women’s
entrepreneurship (Ozgen, 2012, Arasti et al., 2012, Morris et al., 2006, Ismail et al., 2012, Díaz-García
and Jiménez-Moreno, 2010, Langowitz and Minniti, 2007, Liñán-Alcalde and Rodríguez-Cohard, 2004,
Gakure, 1995, Basaffar, 2012, Yousuf Danish and Lawton Smith, 2012). Society and environment might
play a significant role in perspective and experience of women entrepreneurs. According to Gakure
(1995), having a negative attitude of the community may be one of the different obstacles that limit the
entrepreneurial activity rate of women (Gakure, 1995). A similar result was found by Fielden & Dawe
(2004) in an interesting study entitled Entrepreneurship and Social Inclusion that shows that social
obstacles inhibit women’s developments in entrepreneurship (Fielden and Dawe, 2004). Also, Ceedr
(2000) suggested that social factors may explain the reasons for women as they are less likely to be
successful entrepreneurs than men and lacking the same levels of funding, experience, self-confidence
and abilities even if they have the same stage in starting up businesses (CEEDR, 2000).
Furthermore, there has been an agreement of that women attitude and perceptions towards the
entrepreneurial environment is tend to be in a less favorable than men do (Langowitz and Minniti, 2007).
Additionally, (Díaz-García and Jiménez-Moreno, 2010) have stated that women are strongly influenced
by social context and the assigned role in societies. Consequently, the decision of whether or not to start
up business will be affected by their perception of the subjective norms related to entrepreneurship.
1348
Significance of the Study

Women are an integral part of every society, and their involvement in improving the economy of their
countries is not only essential to improve the women role, but also critical from the perspective of human
resources. Generally, Saudi women have experienced difficulties to be involved appropriately in the labor
force, though, a considerable amount of wealth could be a major growth driver for local economic
investment. AlMunajjed (2006) has stated interesting facts on the women’s wealth in the Kingdom. This
includes 40 percent of the national private wealth, 70 percent of fluid capital, 40 percent of real estate,
more than 20 percent in investment funds and portfolios, and more than $13 billion in bank accounts with
deposits (AlMunajjed, 2006).
Recently, the Saudi government has made a significant effort to support women economic empowerment.
Women have joined the business sector in recent years. A recent result that was obtained by the Monitor
Group on women business owners in the Kingdom shows that art related activities including fashion,
jewelry, and interior design are the most popular businesses to start. Also, these businesses are among the
major businesses in the Middle East and North Africa (MENA) countries (Alturki and Braswell, 2010).
However, women in technology-based entrepreneurship face an extreme isolation. Rapid advancement in

technology and innovation has impacted the economy, and it has encouraged entrepreneurs to exploit
opportunities to create and increase their businesses (Jusoh and Halim). Technology- Based
Entrepreneurship is a vital area and a key factor for social progress and economy. This is because over
recent decades, organizations have become dependent on information technology advancement powered
by the internet revolution. Furthermore, the business environment has been impacted by technology-
based entrepreneurship and innovation, supported by rapid technological advancement capabilities
(Agarwal et al., 2007). Hence, that importance of technology advancements should be utilized by women
as entrepreneurs to create and support their businesses.
Current Status of Entrepreneurship in Saudi Arabia
While discussing factors that are influencing women entrepreneurship in Saudi Arabia, it is appropriate to
describe background information about the country and the new government’s strategy and initiatives
toward entrepreneurship.
Entrepreneurship refers to a person's capability to convert ideas into reality and business. It can support
individual self-empowerment and contribute to societies and economy. The government of Saudi Arabia
is working to build a culture of entrepreneurship, which becomes an essential priority for the national
public issue to shift the Saudi’s economy from its dependence on oil into a knowledge-based economy
(KBE) (Almobaireek et al.).
Entrepreneurship initiatives are relatively new in the Kingdom. However, understanding the importance
of entrepreneurship has driven the government to develop numerous mechanisms to enhance the
entrepreneurial activity and entrepreneurial mindset (Rahatullah Khan, 2013, Nieva, 2015). For instance,
the scientific organization of King Abdulaziz City for Science and Technology (KACST) is committed to
supporting encouraging technology entrepreneurship, innovation, and technology-based incubators to
support the growth of small and medium enterprises. The strategic technology plan in (KACST)
supervises research, education, training and knowledge transfer in the diversity of technological areas to
the public and private sector (Rahatullah Khan, 2013). Al-Sayedah Khadijah Bint Khuwailid
Businesswomen Center (AKBK) was established in 2004 by the Jeddah Chamber of Commerce and
Industry and collaborate with the private sector and Saudi government to encourage Saudi women to
become active participants in the national development by assisting to eliminate difficulties that are
facing women (Alturki and Braswell, 2010).
1349
Furthermore, a few academic institutions, such as King Saud University, King Abdullah University of
Science and Technology, and Effat University have recognized the role of entrepreneurship and they
assigned research centers and initiatives. For instance, a mechanism for training and mentorship for
entrepreneurs have been developed by King Abdullah University of Science and Technology to support
businesses in technical fields. Also, Effat University has allocated a chair to encourage and train young
entrepreneurs (Rahatullah Khan, 2013).
Moreover, companies and the private sector in the Kingdom have initiated numerous of steps to create
and support of entrepreneurial culture. For example, Saudi Aramco has launched Aramco
Entrepreneurship Center, which is formerly known as Wa’ed. It is committed to encouraging
entrepreneurs to discover their ideas and abilities by offering tools and professional guidance to expand
their business. Also, In 2003, the Bab Rizq Jameel project was launched to assist creating job
opportunities for Saudi men and women by providing appropriate training programs as well as grants and
loans for the purpose of starting small businesses (Nieva, 2015).
The Role of Social Norms on Saudi Women
Social norms have taken a broader perspective in this study through considering more generally at the
legal, cultural, educational, occupational constraints that are associated with starting- up a new business.
The Kingdom of Saudi Arabia is one of the most conservative countries that have maintained religious
and traditional values. Typically, the role of women is surrounded by domestic duties as wives and
mothers, while men are expected to dominate and protect the family members. The male power is not
only embedded religiously; rather, it is cultural, socially, and politically established (Yousuf Danish and
Lawton Smith, 2012, Almobaireek and Manolova, 2013).
Saudi culture is strongly affected by Islamic values. Saudi policies, family values, social norms,
educational systems, are based on the religious law. Cultural values have impacted women’s rights,
especially in terms of protecting women (Basaffar, 2012). For example, one of the norms that are
prevalent in Saudi society is sex segregation by occupation; women remain in less distinguished positions
than men, and they are limited in specific careers that are an appropriate environment and considered as
feminine (Almunajjed, 2010). However, there has been growing debate about women's role in Saudi
society and their contribution to the economic life. Based on the Islamic law, which is Sharia, woman’s
right to work is guaranteed, and there is no rule against her participation in the political and economic
system. Even though, Saudi laws and the legal system based on Sharia, they require that women's
occupations should be in appropriate environments (Almobaireek and Manolova, 2013).
In Saudi society, women do not have the full right to join appropriately in the labor force and the business
sector (Almunajjed, 2010). Also, they don’t have the right to contribute to the political sector (Alturki and
Braswell, 2010). While women's role in the society has improved more rapidly in the educational sector,
they still have limited right of work. Currently, women account for 57 percent of all university graduates;
on the other hand, they account for less than 15 percent of employment, among the lowest labor
participation rates in the world, which has led to prevent the Kingdom from achieving its full economic
potential especially from women (Almunajjed, 2010).
Women’s entrepreneurship is a relatively recent phenomenon where significant obstacles to

entrepreneurship existed. A group of women in the Kingdom has complained about challenges they have
faced and feelings of failure they experience with a new career (Almunajjed, 2010). Also, researchers
have suggested that women entrepreneurship phenomenon in the Kingdom has lacked role models of
successful women entrepreneurs, which may consider an obstacle for strengthening the women
entrepreneurial intention (Yousuf Danish and Lawton Smith, 2012, Almobaireek and Manolova, 2012).
1350
Based on the results, women may consider entrepreneurship as an inappropriate career, which may affect
their engagement in entrepreneurship. Furthermore, they may have a negative perception and less
confidence in their abilities to participate in entrepreneurship as a career regardless of their real
capabilities, which can instill a fear of failure. Unlike traditional business entrepreneurs, technology
entrepreneurs have different skills to interact with technology that includes knowledge of technology,
innovation, risk-taking, and leadership. Also, it requires more confidence and managing risk- taking
(Chen, 2013). Hence, Saudi women could be affected by social norms as they may have less confidence
in their abilities toward technology- based entrepreneurship, and subsequently their entrepreneurial
intentions towards a new business would be negatively affected.
Findings
In this study, it was found that Saudi’s government has launched numerous entrepreneurship initiatives in
an effort to promote the women contribution to the workforce and economic sector. However, women
influence in these initiatives is still limited with a low rate of entrepreneurial activity. Hence, this study
has attempted to investigate the social factors that are influencing entrepreneurial intention among Saudi
women. It attempts to provide evidence regarding the entrepreneurial intentions is correlated with social
factors within Saudi women context. This will help for strengthening women participation in addressing
barriers to starting a technological business.
Notably, it was found that Saudi women could be affected by values and norms as they may have less
confidence in their abilities, which can instill fear of failure. Furthermore, they may consider technology-
based entrepreneurship as an inappropriate career as it requires more professional skills, including
confidence and managing risk- taking. Hence, these factors must be taken into consideration in this study
as they may affect women decision toward entrepreneurship.
The target population in this study will be female students and businesswomen in the Kingdom. The
surveys and questionnaire will be designed to measure women entrepreneurial intentions, attitudes, social
norms and self-efficacy variables.
Finally, it can be concluded that efforts are needed to improve Saudi women entrepreneurship. There are
initial recommendations that can be carried out by government, associations, and women entrepreneurs
that include:
• Formulate support strategies for women entrepreneurship;

• Minimize requirements and restrictions for women to start up business;
• Develop entrepreneurship training programs, workshops, and practical courses to foster
entrepreneurial culture among women and enhance their self-confidence;
• Assist the nascent women entrepreneurs to manage their businesses in a professional manner;
and
• Increase the level of awareness among women entrepreneurs.
Conclusion
Saudi women have experienced difficulties to be involved appropriately in the labor force and the
business sector. However, the Saudi government has developed considerable initiatives to encourage
women to join the workforce as business owners and participate fully in the economic life. Saudi women
entrepreneurs from within the context of technology in the literature of entrepreneurship have not existed.
Therefore, the study aims to fill the gap of research and contribute substantially to understand
entrepreneurship of Saudi women. Also, the present study highlights the current status of women
entrepreneurship and identifies the main social factors that are affecting entrepreneurship among women,
1351
particularly with regards to technology-based entrepreneurship. However, a further exploration in this

area is highly needed, which lead the researcher to explore other factors. This includes the family context,
financing, education, and social networks.
References
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among new entrants in IT. ACM SIGMIS Database, 38, 8-28.
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social psychology. Advances in experimental social psychology, 20, 1-63.
AJZEN, I. 1991. The theory of planned behavior. Organizational behavior and human decision
processes, 50, 179-211.
ALMOBAIREEK, W. N., ALSHUMAIMERI, A. A. & MANOLOVA, T. S. Entrepreneurial Intentions
among Saudi University Students.
ALMOBAIREEK, W. N. & MANOLOVA, T. S. 2012. Who wants to be an entrepreneur?
Entrepreneurial intentions among Saudi university students. African Journal of Business Management, 6,
4029-4040.
ALMOBAIREEK, W. N. & MANOLOVA, T. S. 2013. Entrepreneurial motivations among female
university youth in Saudi Arabia. Journal of Business Economics and Management, 14, S56-S75.
ALMUNAJJED, M. 2006. Saudi women speak: 24 remarkable women tell their success stories, Arab
Institute for Research and Publishing.
ALMUNAJJED, M. 2010. Women’s employment in Saudi Arabia: A major challenge. Booz & CO, 2-13.
ALTURKI, N. & BRASWELL, R. 2010. Businesswomen in Saudi Arabia: Characteristics, challenges,
and aspirations in a regional context. Monitor Group. Retrieved on, 11, 12.
ARASTI, Z., REZAYEE, S. O., ZAREI, B. & PANAHI, S. M. S. 2012. A qualitative study on
environmental factors affecting Iranian women entrepreneurs' growth orientation. Journal of Management
and strategy, 3, 39.
BASAFFAR, A. A. 2012. Understanding the entrepreneurial potential of female Saudi Arabian family
and consumer sciences students and businesswomen.
BRUSH, C. G. 1992. Research on women business owners: Past trends, a new perspective and future
directions. Small Business: Critical Perspectives on Business and Management, 1038-70.
CEEDR 2000. Young, women, ethnic minority and co-entrepreneurs.
CHEN, L. 2013. IT entrepreneurial intention among college students: An empirical study. Journal of
Information Systems Education, 24, 233.
DÍAZ-GARCÍA, M. C. & JIMÉNEZ-MORENO, J. 2010. Entrepreneurial intention: the role of gender.
International Entrepreneurship and Management Journal, 6, 261-283.
FARR-WHARTON, R. & BRUNETTO, Y. 2007. Women entrepreneurs, opportunity recognition and
government-sponsored business networks: A social capital perspective. Women in Management Review,
22, 187-207.
FIELDEN, S. L. & DAWE, A. 2004. Entrepreneurship and social inclusion. Women in Management
Review, 19, 139-142.
GAKURE, R. W. 1995. Factors affecting job creating and low job creating firms owned by women in
Kenya. University of Illinois at Urbana-Champaign.
ISMAIL, K., AHMAD, A. R., GADAR, K. & YUNUS, N. 2012. Stimulating factors on women
entrepreneurial intention. Business Management Dynamics, 2, 20-28.
JUSOH, M. A. & HALIM, H. A. Role of Technopreneurs in Malaysian Economic.
KENNEDY, J. & DRENNAN, J. 2002. Entrepreneurial intentions of women. Small Enterprise Research,
10, 75-87.
KINGDOM, K. O. S. A. M. O. E. A. P. 2010-2014. Brief Report on the Ninth Develoment Plan
LANGOWITZ, N. & MINNITI, M. 2007. The entrepreneurial propensity of women. Entrepreneurship
theory and practice, 31, 341-364.
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LIÑÁN-ALCALDE, F. & RODRÍGUEZ-COHARD, J. Entrepreneurial attitudes of andalisian university

students. ERSA Conference paper, 2004. 04-p161.
MCGOWAN, P., COOPER, S., VAN DER SIJDE, P., HAMPTON, A., MCGOWAN, P. & COOPER, S.
2011. Developing quality in female high-technology entrepreneurs' networks. International Journal of
Entrepreneurial Behavior & Research, 17, 588-606.
MORRIS, M. H., MIYASAKI, N. N., WATTERS, C. E. & COOMBES, S. M. 2006. The dilemma of
growth: Understanding venture size choices of women entrepreneurs. Journal of Small Business
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of Entrepreneurship, Management and Sustainable Development, 9, 28-54.
YOUSUF DANISH, A. & LAWTON SMITH, H. 2012. Female entrepreneurship in Saudi Arabia:
Opportunities and challenges. International Journal of Gender and Entrepreneurship, 4, 216-235.
1353
Study upon Applying Multi-Criteria Analysis to the Selection

of Building Materials
Andreea-Terezia Mircea
Department of Architecture, Technical University of Cluj-Napoca, Romania
andreea.mircea@bmt.utcluj.ro, amircea@mail.utcluj.ro
Abstract
The continuous evolution of traditional building materials, the demand of a greater environmental
compatibility along with the fast development of innovative high performance products, lead to a huge
market offer, suitable for any specific application required to be carried out on a construction project. An
important strategy in building design represents the sustainable material selection. The Paper presents a
study upon the selection process of the most appropriate building materials by using the Multi-Criteria
Analysis as a decision-making tool, recommended to be applied very early in the life of a new project.
Being based on a set of options and a number of decisive factors involved, it can help to evaluate the
relative importance of the different aspects, as well as to guide the search for further information.
Keywords: Building materials, construction project, environmental compatibility, selection process,

multi-criteria analysis, decision-making tool.
Introduction
Due to the vast market offer, the selection of the most appropriate construction materials (as for example
finishes, in Figure 1), is a complex task determined by various factors which have to be considered by the
designers when evaluating the specific applications required to be carried out for a building project.
Figure 1: Huge market offer on various types of finishes
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According to Europe 2020 Strategy, a sustainable economic growth will be achieved through the
initiatives of resource efficiency. In this aim, the continuous evolution of traditional building materials,
the demand of a greater environmental compatibility along with the fast development of innovative high
performance products lead to the fact that designers have to take into account from the earliest stage of
design a large number of selection factors. During the decision making processes the available
information on building materials and products must be constantly evaluated in order to make justified
choices and identifying the best options across different categories, as presented in the research study by
Ogunkah, I. and Yang, J. (2012). For that reason, an important strategy in building design represents the
sustainable material selection process which requires the assessment of social, economic, technical,
aesthetic and environmental consequences of the potential selected material. By undertaking the study, it
highlights the possibility of using Multi-Criteria Analysis as a decision-making tool in the selection
process of proper materials for a specific building project.
An Overview of Using Multi-Criteria Analysis

The Multi-Criteria Analysis is a decision-making tool developed for complex problems – in this study the
plan was to find a system which would be able to prioritize the relevant criteria in order to effectively and
accurately evaluate the balance between technical, environmental, economic and other performance
issues during the material selection processes. Being based on a set of options and a number of decisive
factors involved, it helps to evaluate the relative importance of the different aspects, some in favour and
some against a certain consideration, guiding the search for further information. The decision process
involves evaluating consequences with respect to several conflicting objectives. It allows the decision-
maker to evaluate alternative strategies having an accurate estimation of the probabilities prior to making
any decision. As mentioned by Johnson, J.G., Busemeyer, J.R. (2010), most theories of decision making
assume that any of these decisions can be abstracted and represented as the selection of a single course of
action described by the value of the possible outcomes that could result from selecting the action and the
associated probability that each outcome would occur if the action were selected. The simplest rule,
mathematically, is then to select the option that has the highest expected value.
Risk implies a degree of uncertainty and an inability to fully control the outcomes or the consequences of
an action (Taghavifard, M.T. et al, 2009). For that reason, effective handling of risk requires its
assessment and its subsequent impact on the decision process. Risk and uncertainty are, however,
important issues for most types of decision-making tasks. The main role of the Multi-Criteria Analysis
techniques is to deal with the difficulties that human decision-makers have been shown to have in
handling large amounts of complex information in a consistent way. It can be used to identify a single
most preferred option, to rank options, to short-list a limited number of options for subsequent detailed
appraisal, or simply to distinguish acceptable from unacceptable possibilities.
One of the major advantages is that the choice of objectives and criteria are open to analysis and to
change if they are felt to be inappropriate, as well, the scores and weights are also explicit and are
developed according to established techniques. In view of that, decision-making should mainly follow the
sequence below, as presented in the book “Multi-criteria analysis: a manual” (2009);
- Identifying objectives – which should be specific, measurable, agreed, realistic and time-dependent
(sometimes is useful to classify objectives according to their level);
- Identifying options for achieving the objectives – potentially sensible options need to be developed in
detail;
- Identifying the criteria to be used to compare the options – to decide on how to compare different
options’ contribution in order to meet the objectives (this requires the selection of criteria to reflect
performance in meeting the objectives);
- Analysis of the options – the analyst requires to provide good distributional judgement skills;
- Making choices – this is the actual choice of option, but even at this stage it may be decided that a
further option or options should be considered and the analysis revisited;
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- Feedback – good decision-making involve continuous reassessment of choices made in the past, as well
as communication to others, so that they can be informed for future decisions.
In this particular case of selecting materials for a building project, primarily it has to identify a generic set
of factors or variables that may be used to evaluate which of a range of material or product option offers
the greatest contribution in achieving the settled objectives. According to this technique, it develops a
toolkit that measures the user-based assessment of building materials or products performance, and
validates the decision-makers’ perceptions in order to evaluate the positive impacts of both objective and
subjective factors or variables in their selection process. By providing a framework to enable handling
large amounts of complex information in a consistent way, the analysis offers an overall ordering of
options, from the most preferred to the least preferred option, and may also incorporate diverse range of
information, like: choice of options, criteria, weighting, and scoring (Argyrous, G., 2010). Then, the
results can be used to set rank potions, to identify a single, most-preferred option, or a limited number of
options, as well as to distinguish proper from inappropriate options.
Case Study: Selection of Thermal Insulation Materials

Insulation materials retard the flow of heat energy, therefore the performance of thermal insulation
materials is key to any low energy housing approach, either for designing a new building, or for
renovating an existing one. In order to decide on an appropriate solution of thermal insulation materials
for a construction project, the selection process has to be based on a set of options and a number of
factors involved, with reference on relevant aspects regarding technical, economical and environmental
parameters, as presented in the research study by Mircea, A.T. (2015).
A generic classification of thermal insulation materials can be made by indicating their composition,
internal structure (Figure 2), overall shape and specific application:
- Fibrous insulation – Consists of small diameter fibers (e.g. silica, rock wool, slag wool and alumina
silica fibers) bonded or not together, aimed to divide the air space, being positioned perpendicular or
parallel to the surface that must be insulated. Glass fiber and mineral wool products usually have their
fibers bonded together with organic binders that supply their limited structural integrity. If the fibrous
insulation material is fabricated in form of batts, some of them may have facing on one side (made of
impregnated paper, foil-coated paper, or vinyl), some may be fully encased in plastic to prevent fiber-
shedding, and again some batts may be produced unfaced.
- Cellular insulation – Consists of small individual cells separated from each other (e.g. glass, closed cell
polystyrene, polyisocyanurate, and elastomeric cellular materials).
- Granular insulation – Consists of small granules containing hollow spaces (e.g. calcium silicate,
expanded vermiculite, perlite, cellulose, and expanded polystyrene). It may be fabricate as a loose or
pourable material, combined with binder and fibers, or else, by undergoing chemical reactions to result a
rigid insulation where gas can be transferred between the individual spaces.
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Figure 2: The most widely used insulations according to their type
Insulations are produced in a variety of forms suitable for specific functions and applications:
- Rigid boards, blocks, sheets, segments and pre-formed shapes (fibrous, cellular, and granular insulations
are produced in these forms);
- Flexible sheets, and pre-formed flexible shapes (fibrous and cellular insulations are produced in these
forms);
- Flexible batts and blankets (fibrous insulations are produced in these forms);
- Loose fill (fibrous, cellular, and granular insulations);
- Foams – poured or froth foam used to fill irregular areas and voids, or spray used for flat surfaces.
Alternative options for thermal insulation products are offered by organic/ bio-based insulation materials
which are derived from natural or similar renewable sources, like: cellulose, cork, wood fibre, cotton,
sheep wool, straw bale etc. They tend to require a low energy use during the whole fabrication and
installation process, to meet the heightened thermal requirements of national building regulation, while
also being non-toxic, recyclable and price-affordable. The amount of energy required for heating, in order
to achieve a comfortable ambience depends largely on the thermal insulation of the building. The
selection of the thermal insulation type is of significant importance. Beside high resistance to heat flow, a
good insulation should have low water absorption and permeability, durability, resistance to fire and
micro organism attack, a reasonable cost, together with a low environmental impact and a safe and easy
placing possibility, as mentioned in the book “Environmental Concepts and Technologies in Housing” by
Mircea, A.T. (2001).
The thermal insulation products considered for the study have approximately similar thermal conductance
(which depends on the material, its area and thickness). Thus, the following insulations have been
purposed:
- Expanded polystyrene board,
- Polyurethane board,
- Mineral wool,
- Cork,
- Cellulose.
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The theoretical analysis and the case study will reflect on following Multi-Criteria Analysis items (see
Table 1):
- Breathability,
- Moisture absorbing ability,
- Possibility to be cut to fit,
- Installation health safety,
- In-use health safety,
- Environmental impact: embodied energy, recyclability, renewable source;
- Price affordability,
- Market availability.
Table 1: Insulation materials and criteria considered for the analysis
In-
Moistur
use
e Possibil Installatio Env. Market
Breath- healt
absorbi ity to be n health impac Price availabili
ability h
ng cut to fit safety t ty
safet
ability
y
Expanded HIG LO
LOW NO HIGH HIGH HIGH HIGH
polystyrene H W
HIG LO
Polyurethane LOW NO HIGH LOW HIGH HIGH
H W
Mediu HIG LO
Mineral wool HIGH HIGH Medium Med. HIGH
m H W
Mediu HIG
Cork HIGH HIGH HIGH LOW Med. Medium
m H
HIG LO
Cellulose HIGH HIGH HIGH HIGH LOW Medium
H W
The resulted decision matrix (which evaluates and prioritizes the list of options) may be used. In this
sense, first it is established a list of weighted criteria and then follows the evaluation of each option
against those criteria. Each option is scored and weight by indicating which factors/ criteria are
considered to be of more importance. A final score is then tallied to reveal which option would be the
best. In this study, each handled criterion will be awarded with 0 to 100 points, and will be appreciated as
having a certain amount in promoting the solution (Table 2, and Figure 3). Therefore despite the fact that
each criterion will get a fair share, it may weight differently according to the investor’s interests. Then,
the most suitable options may be obtained by corroborating data from Tables 1 and 2.
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Table 2: Appreciation score in promoting the solution
Moisture Possibil Installati Env. Market

Breath- In-use
absorbin ity to be on health impac Price availabili
ability safety
g ability cut to fit safety t ty
Score:
10 10 5 15 15 15 20 10
Total = 100
Market availability,
10 Breathability, 10
Moisture absorbing Breathability

ability, 10 Moisture absorbing ability
Possibility to be cut & fit
Price, 20
Possibility to be cut
Installation health safety
& fit, 5
In use safety
Environmental impact
Price
Installation health
safety, 15 Market availability
Environmental
impact, 15
In use safety, 15
Figure 3: Appreciation score in promoting the solution
Each criterion must be measurable, in the sense that it must be possible to assess, at least in a qualitative
sense, how well a particular option is expected to perform in relation to the criterion. After data
processing, the best results, according to the considered criteria were obtained for: expanded polystyrene,
mineral wool and cellulose insulation materials, as presented in Figure 4.
Cellulose Cellulose
Cork
Cork
Mineral wool
Mineral wool Polyurethane
Polyurethane Expanded polystyrene
Expanded polystyrene
0 20 40 60 80 100
Figure 4: Results of the insulation materials selection
Conclusions and Recommendations

With so many choices of construction materials available nowadays, the challenge is to determine which
are the most appropriate for a specific building or remodelling project. Along with Europe 2020 Strategy,
according to the study of Sommer, T. (2011), a sustainable economic growth will be achieved through the
initiatives of resource efficiency by: decoupling economic growth from the use of resources, supporting
1359
the shift towards a low carbon economy, increasing the use of renewable energy sources, and promoting
energy efficiency.
The selection process of the materials has to be based on a set of options and a number of factors
involved, with reference on most relevant aspects regarding technical, economical and environmental
parameters. At the same time, a complex evaluation of social, cultural and tradition-related custom
requirements has to be considered, and to find a good balance between the environmental and economic
advantages.
The criteria which may be taken into account are quasi unlimited. So, the aim is to develop a systematic
selection system which should be able to prioritize the relevant criteria to effectively and accurately
evaluate the balance between technical, environmental, economic and other performance issues during
the material selection processes. As a decision-making tool, the Multi-Criteria Analysis is recommended
to be applied very early in the life of a new project in order to assist the evaluation of the different aspects
and their relative importance.
References
Argyrous, G. (2010) Cost-benefit analysis and multi-criteria analysis: competing or complementary
approaches?, UNSW Sydney, Australia.
Johnson, J.G., Busemeyer, J.R. (2010) Decision making under risk and uncertainty, Volume 1,
September/October 2010, WIREs Cognitive Science, John Wiley & Sons, Ltd.
Mircea, A.T. (2001) Environmental Concepts and Technologies in Housing, Ed. UTPress, Cluj-Napoca,
p. 206, ISBN 973-8335-08-06.
Mircea, A.T. (2015) Selection of thermal insulation materials based on a multiple criteria analysis,
Proceedings of the IASS WG 12&18 International Colloquium 2015: “Bio-based and Bio-inspired
Environmentally Compatible Structures”, Tokyo, Japan.
Ogunkah, I. and Yang, J. (2012) Investigating Factors Affecting Material Selection: The Impacts on Green
Vernacular Building Materials in the Design-Decision Making Process, Journal Buildings 2012, 2, 1-32;
doi:10.3390/buildings2010001, ISSN 2075-5309.
Sommer, T. (2011) Micro and Small Business in the EU, European Small Business Alliance - ESBA,
Bruxelles, Belgium.
Taghavifard, M.T., Khalili Damghani, K., Tavakkoli Moghaddam, R. (2009) Decision Making Under
Uncertain and Risky Situations, Society of Actuaries, https://www.soa.org/library.
*** (2009) Multi-criteria analysis: a manual, Department for Communities and Local Government:
London, UK, ISBN: 978-1-4098-1023-0.
*** (2013) Europe 2020: Europe’s growth strategy – Growing to a sustainable and job-rich future,
Luxembourg: Publications Office of the European Union 2013, ISBN 978-92-79-23972-4.
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The Determinants of Youth Unemployment:

A Microeconomic Approach
Maria Denisa Vasilescu and Amalia Cristescu
National Scientific Research Institute for Labour and Social Protection, and The Bucharest Academy of
Economic Studies, Bucharest, Romania,
mariadenisa.vasilescu@gmail.com
cristescuamalia@gmail.com
Abstract
The aim of this paper is to analyse the youth labour market in Romania compared to the EU, and to
identify the factors (personal and environmental characteristics) that determine the youth status in the
labour market: employed versus unemployed. The results indicate that the most vulnerable youth are
adolescents (15 to 19 years) with a low level of education and coming from poor families.
Keywords: youth unemployment, labour market, logistic regression, Romania
Introduction
Young people are the ones who can significantly influence the direction that the workforce in Europe will
follow in the next years. The European Union supports the professional development of young people and
believes in their power to generate change and contribute to the smart, sustainable growth, favourable to
the inclusion that the Europe 2020 Strategy proposes. Young people hold the key to the prosperity and
dynamism of the European Union. Their skills, energy and creativity will help the European Union to
develop and become more competitive, as it will overcome the economic and financial crisis.
Nevertheless, young people have been particularly affected by the crisis.
Currently, the youth unemployment rate in the European Union is higher than 20% - twice more than the
unemployment rate associated with all age groups together and almost 3 times higher than for those over
the age of 25. Also, in the European Union, nearly 6 million people under the age of 25 do not have a job
and about 7.5 million do not have a profession and are not enrolled in any educational or training
programme (Eurostat, 2015). These young people are both a huge unexploited resource, that the European
Union cannot afford to waste, and a social problem that the European Union must end. Unemployment
among young people has a powerful impact on individuals but also on society and the economy. If current
trends are not reversed quickly, the present levels of youth unemployment are likely to damage the young
people employment prospects in the longer term, with serious implications for the economic growth and
for the future social cohesion.
In the larger framework of the European strategy for economic growth and creating jobs, the premise of
helping young people to enter and remain on the labour market and to acquire and develop the skills that
will enable them to apply to a job, is therefore an absolute priority for any European Union Member State.
Throughout the economic crisis, the European Commission has worked with the Member States to combat
the economic and social consequences of the continuously growing high unemployment rate. The effects
of some of these efforts will only be seen in time (European Comission, 2015).
Youth unemployment is a highly debated issue among economists and researchers, and literature on the
subject is vast (Blannchflower and Freeman, 2007; Bell and Blanchflower 2011a,b; Caliendo et al, 2011;
1361
O’Higgins, 2001 and 2015). Two approaches have distinguished, depending on the point of view from
which the situation of young people on the labour market was analysed: a macroeconomic and a
microeconomic perspective.
From the macroeconomic point of view, the main causes of youth unemployment are the aggregate
demand, the size of the youth workforce, the youth wages, as well as labour market specific institutional
factors, such as the minimum wage or employment protection legislation. The factors that influence youth
unemployment are generally the same that influence unemployment in general. But there are also a
number of specific elements that influence the number of young people unemployed. Thus, we can
identify the lack of qualification, young people with no practical experience or those who obtained
qualifications with no demand on the labour market are difficult to employ. Most companies want to
invest as little as possible in the primary training of a new employee, especially in times of economic
crisis. Another factor is the economic cyclicality. At present, many young people are unemployed because
of the economic crisis. Firms prefer, because of the lack of money, to hire people with experience if they
really need to increase their workforce. The geographical, cultural and social influences also have an
important role in increasing the number of young people unemployed. Usually, some areas/regions of a
country (regions subject to economic restructuring, isolated regions, small regions with low employment
opportunities, etc.) are more affected than others. Also, the underground economy is an important factor,
as it can lead to a distortion of the official number of unemployed people in areas where the black labour
market is well developed (Alexandru, 2014).
The microeconomic approach is focusing on personal characteristics that influence young people's
participation in the labour market. The variables most often used to explain the success of young people in
finding a job are gender, age, residency, and education. In general, very young people, young men and
young people living in rural areas are less likely to find a job (Marks and Fleming, 1998).
Regarding the link between age and youth success in the labour market, there is an inverse correlation
between unemployment rate and the young individuals’ age (Wooden, 1996; Borland, 1997), the
explanation for this being simple and intuitive: as a person gets older, she/he becomes more qualified and
more experienced, thus increasing the chances of employment. In a more recent study, Escudero and
Mourelo (2013) found that age is an important factor influencing the youth labour market status: young
people aged 15 to 24 years have a 22.4% greater chance of being in inactivity than adults (individuals over
35 years old). This difference is not explained by the fact that young people are still studying, this factor
being controlled for in the research.
The most recent ILO report, World Employment and Social Outlook 2016, Trends for Youth, shows
important disparities between young men and women, the labour market participation rate being 53.9%
for young men, and only 37.3% for young women in 2016. In the European Union, young men are more
likely to be unemployed: in 2015 the unemployment rate for young men was 21.1% and 19.5% for young
women.
The residence area also influences youth unemployment. The big cities offer more opportunities on the
labour market while many rural areas are facing a decline in employment. Chapman and Smith (1992)
concluded that in rural areas the average unemployment time for a young individual was of 56 weeks
compared to only 24 weeks for young people living in urban areas. Cartmel and Furlong (2000) state that
youth unemployment in rural areas may be higher because rural youth face a narrower range of
opportunities, and a more limited access to education and training.
Education is one of the most important drivers of individual success in the labour market, both in terms of
employment as well as wages. For young people with higher levels of education is easier to find a job
because employers believe that they can adapt more easily to the job requirements and the cost of specific
training is smaller. Vocational training and higher education significantly increases the chances of a young
person to find work (Escudero and Mourelo, 2013).
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However, Carmeci and Mauro (2003) argue that knowledge gained in formal education is not sufficient to
ensure success in the labour market because employers believe that this knowledge is not directly
applicable to the workplace and does not guarantee the productivity and efficiency of a young individual.
In these circumstances, any experience young people acquire outside formal education, such as
volunteering activities or internships in companies, organizations, or NGOs, is highly valued by
employers.
Another aspect that was investigated by researchers in connection to youth integration on the labour
market is family background. Recent studies have focused on the relationship between youth
unemployment and their family situation. The main conclusion was that the family members’ occupation
and status influence the employability of young individuals, because the family can create a professional
network through their colleagues and acquaintances (Verhaeghe et al, 2012, Zhang and Zhao, 2011).
Also, the way youth extend their social network matters a lot for getting a job. Increased use of the
Internet in recent years is noticed especially among young people. There is a positive impact of the
internet on youth labour market success by increasing the level of knowledge (the internet is used in the
learning process), by connecting the youth with the economic and political environment (young people
read news mostly online) and by expanding social and professional networks (Joorabchi et al, 2013).
The current situation of young Europeans on the labour market
The unemployment rate among young Europeans has increased in the years following the economic crisis,
reflecting the difficulties that the young people face in finding a job, especially young people with low
skill levels. However, this does not necessarily mean that the group of unemployed people with ages
between 15 and 24 is as large as the group of people older than 25. Most young people are enrolled in the
education process and therefore are neither employed nor looking for a job (thus they are not part of the
workforce which is used as the denominator in calculating the unemployment rate).
In the EU-28, the highest unemployment rates among young people under the age of 25 are found in
Greece (49.8%), Spain (48.3%), Croatia (43%) and Italy (40.3%). Basically, in these states about 4 in 10
young people do not have a job. In Romania the youth unemployment rate is close to the European
average (21.7%).
Data source: Eurostat

Figure 1: Unemployment rate among young people under 25 in EU countries – 2015
Long-term unemployment is a major concern for policy makers. Besides its financial and social effects on
personal life, long-term unemployment negatively affects social cohesion and, ultimately, it may hinder
1363
the economic growth. In EU-28 the percentage of young people who are long-term unemployed has
increased steadily after the financial and economic crisis. Long-term unemployment has varied
considerably between the Member States of the EU. In 2015, Greece registered the highest unemployment
rates in the long term, as 28% of the active young people with ages between 15 and 24 were in this
situation. Higher rates of long-term unemployment for the 15-29 age group, were also recorded in Italy
(22%) and Croatia (20.2%). At the other end of the top, the lowest long-term unemployment rates were
registered among young people in Austria, Finland, Sweden, Denmark and Germany with values below
2%. In Romania, the percentage of long-term unemployed young people was 8.1% in 2015, with 1.6
percentage points above the European Union average.
The level of education is an important differentiating factor when assessing the extent of unemployment
rates. In all EU countries, except Romania, it seems that the higher the level of education, the lower the
unemployment rate. Regarding the EU 28, the unemployment rate among people with primary or no
education (ISCED 0-2) is 28%, the unemployment rate of young people with secondary education (ISCED
3-4) is 18.2% and the unemployment rate among higher education youth (ISCED 5-8) is 15.4% (see
Figure 2). It can be noted that in Slovakia, Spain and Greece, the unemployment rate among people with
poor or no education exceeds 50%. In Romania, the situation is slightly atypical compared to the
European trend in terms of youth unemployment by level of education. One explanation could be that
many of the uneducated or low educated people do not declare themselves unemployed, and most of the
time they work on the black market as seasonal or day labourers.
60
50
40
30
20
10
00
ISCED 0-2 ISCED 3-4 ISCED 5-8

Figure 2: Unemployment rate in relation to the level of education among young people under 25 in
EU countries – 2015
For many young people, part-time employment contracts are a good way to combine education and
employment, but they can also be influenced by family or other personal reasons. Part-time contracts are
most popular among the 15-24 age group. At the EU level, the part-time employment rate among people
with ages between 15 and 24 was 32.2% in 2015. The highest rates of part-time employment were
registered in the Netherlands (80%) and Denmark (67%) and the lowest in Bulgaria (5.7%) and Hungary
(6.9). In Romania, the percentage of part-time employed young people was 19.2%, which is 13 percentage
points lower than the European average (see Figure 3).
The predominance of part-time employment contracts is significantly different between men and women.
In 2015, the share of young women who worked part-time (40.6%) was almost twice higher than the share
of men (24.9%) in the EU-28. The biggest difference between men and women was observed in Sweden
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(24 pp) and Slovenia (22 pp). Romania is the only EU country where the share of part-time employed
young men (19.7%) was higher than that of women (18.4%). The differences between women and men
with regard to part-time employment could be linked to the fact that women devote more time to family
responsibilities.

Figure 3: The share of young part-time employees under 25 in EU countries – 2015
Regarding the reasons that have led young people to get part-time jobs, we notice that at the EU level, the
main reason is, somehow obvious, the fact that young people are enrolled in the education or training
process (56.9%). Another reason is the impossibility of finding a full-time job (28.1%), especially since
young people face problems on the labour market because of the lack of experience, insufficient training
etc. (see Figure 4). In Romania the situation is slightly different from that of the EU. The main reason why
most young Romanians work part-time (74%) is the impossibility of finding a job. A percentage of 10.3%
said that there are other reasons why they were employed part-time, only 8% mentioned education or
training, and 6.2% said they were taking care of children and adults in the family and this did not allow
them to have a full time job.

Figure 4: Reasons for young people to work part-time – 2015
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Data and Methodology

The data used in the econometric analysis come from a survey of Romanian youth (Sandu et al, 2016),
covering topics like employment; education; leisure, tourism and sport; social conditions; religion and
values; political behaviour, attitudes and opinion; family life and marriage; concerns and aspirations;
demographic information. The survey was addressed to Romanian young people, aged 15 to 29 years, in
July 2014. The selection method consisted in a probability sample – multistage sample, the data being
collected through face-to-face interviews by Center for Urban and Regional Sociology, Bucharest. The
entire dataset contains 1302 units, with 257 variables.
In order to analyse the differences between employed and unemployed youth, we constructed a binary
variable (employment), taking the following values: 1 – if the young respondent is either employed (full-
time or part-time) or freelancer and 0 – if the respondent declared to be unemployed. Under these
circumstances, our database contains 580 individuals, out of which 15.7% are unemployed.
The explanatory variables describe the youth’s profile: socio-demographic indicators (age, gender,
residence), human capital (level of education, internet use), family background (parents’ characteristics),
social networks (volunteering activity). Age is a categorical variable taking 3 possible values: 1 if the
respondent is 15 to 19 years old, 2 if the interviewed person’s age is in the 20-24 years interval and 3 for
young adults, aged 25 to 29 years. Gender is a classical binary variable: 1 for males and 0 for females.
Residence indicates if the young respondent lives in an urban area (value 1) or in a rural area (value 0). In
order to quantify the level of education, we constructed a categorical variable based on the highest
educational qualification of the respondent: 1 - stands for ISCED 0-2 (primary education or lower
secondary education), 2 - represents ISCED 3-4 (upper secondary education or post-secondary non tertiary
education) and 3 - indicates ISCED 5-8 (short-cycle tertiary education, bachelor level, master or doctoral
studies). As the Internet became an important part of youth’s life, we investigated its influence on the
individual’s participation on the labour market. The variable included in the study (internet use) refers to
the amount of time young people spend online daily: more than 6 hours (1), between 2 and 6 hours (2), or
less than 2 hours daily (3). We also considered the volunteering activity of young respondents: a binary
variable that takes the value 1 if the interviewed person was engaged in voluntary work in the past 12
months and the value 0 otherwise. Since this analysis is targeting young people, it is important to illustrate
their family characteristics. For this, we used the parents’ social class, as defined by the respondent, with 4
possible values: upper class (1), middle class (2), working class (3) and lower class (4).
Taking into account the nature of our variables and the purpose of the study, we used a logistic regression
model as econometric method. The logistic regression is used when the dependent variable is binary,
taking only two values (0/1), 1 indicating the realization of an event. The logit model is:
|
= 1| = or ln |
= +
|
with = , commonly known as odds ratio. The model becomes = + (Freedman,
|
2009).
When there are k explanatory variables, the logit model can be written:
= + + + ⋯+ " "
The multiplicative form of the logit model facilitates the interpretation:
= exp ∙ exp ∙ exp ∙ … ∙ exp " "
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If ) = 0 then the corresponding factor (xi) has no effect, if ) > 0 then the factor increases the probability
of the event to occur and if ) < 0, the corresponding factor reduces this probability.
Econometric Results
The aim of this analysis was to identify the most important personal and environmental factors that
contribute to the employability of young people in Romania. We performed a logistic regression using
SPSS software, the results being displayed in table 1. We chose the command for multinomial regression
in order to easily interpret our categorical explanatory variables.
The results indicated that age is an important factor in explaining young people’s success in finding a job
than being unemployed (see table 1). It can be seen that with age increases the probability of being
employed. Young people aged between 20 and 24 years are 2.8 times more likely to be unemployed than
young adults (25-29 years). Teenagers are the most vulnerable group, their chance of being unemployed is
three times higher compared with young people aged 25 to 29 years. In general, a younger person has a
lower level of specific knowledge and experience in the labour market so the chances of finding work are
smaller.
In our analysis, gender and area of residence were not statistically significant indicating that the
differences between young men and women, and rural versus urban youth are not very high in terms of
unemployment.
As expected, young people's level of education is very important in the Romanian labour market, the
econometric results indicating a positive correlation between education and employability of young
people. Compared to young university or post-university graduates (ISCED 5-8), for those who have
completed high school or post-secondary non tertiary education (ISCED 3-4) the chances to be
unemployed are twice higher. The situation is even more concerning for young people with primary or
lower secondary education (ISCED 0-2), as the probability of being unemployed is 3.3 times higher than
for those with tertiary education. These results are consistent with the literature and with the youth
situation in most EU countries. Thus, given that the official data from Eurostat reports for Romania an
unemployment rate surprisingly smaller for young people with lower educational level, these results are an
indication that these young people often do not declare themselves unemployed, usually working in the
informal economy.
Regarding Internet use, young people who stay online for more than 2 hours a day are more likely to be
unemployed. This occupation increases the chances of unemployment by 1.65 times for those who spend
between 2 and 6 hours a day on the internet and by 1.74 times for those staying online over 6 hours daily,
compared to young people who use the internet less than 2 hours a day. An interesting aspect is this little
difference between the two groups (2 to 6 hours a day versus more than 6 hours): it seems that in terms of
success in the labour market, an optimal duration of Internet use would be under 2 hours a day. One
explanation for these results is that young people who use the Internet very much become addicted to it,
thereby decreasing their interest in other activities, including work.
Another interesting aspect of this study is that young people who have not participated in volunteering
activities in the past 12 months are 4.2 times more likely to be unemployed compared to those who were
involved in such activities. Two aspects can explain this result. On one hand, the volunteer work
resembles to a paid job in many ways, therefore young individuals learn teamwork, learn to meet
deadlines, to be organized and punctual, they develop communication skills, and they learn how to
develop the relationships with clients, colleagues and superiors. These skills cannot be learned in formal
education and are highly valued by employers. On the other hand, volunteering involves extending social
and professional network and can often be the source of a job recommendation.
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Table 1: The logistic regression estimation results – employed versus unemployed

Parameter Estimates
95% Confidence
Interval for Exp(B)
Employmenta B Std. Error Wald df Sig. Exp(B)
Lower Upper
Bound Bound
Intercept Intercept -3,597 ,673 28,607 1 ,000

15 - 19 1,143 ,452 6,404 1 ,011 3,137 1,294 7,606
Age 20 - 24 1,057 ,280 14,248 1 ,000 2,879 1,662 4,985
25 - 29 0b . . 0 . . . .
No 1,434 ,489 8,605 1 ,003 4,194 1,609 10,932

Volunteering
Yes 0b . . 0 . . . .
more than 6 hours ,554 ,371 2,225 1 ,136 1,740 ,840 3,601
Internet use 2 to 6 hours ,502 ,278 3,255 1 ,071 1,652 ,958 2,849
Unemployed
less than 2 hours 0b . . 0 . . . .
ISCED 0-2 1,180 ,490 5,789 1 ,016 3,253 1,244 8,503
Education ISCED 3-4 ,685 ,346 3,924 1 ,048 1,984 1,007 3,909
b
ISCED 5-8 0 . . 0 . . . .
Upper class -1,490 ,829 3,227 1 ,072 ,225 ,044 1,145
Parents' social Middle class -1,019 ,392 6,751 1 ,009 ,361 ,167 ,779
class Working class -,974 ,378 6,628 1 ,010 ,378 ,180 ,793
Lower class 0b . . 0 . . . .
a. The reference category is: Employee or freelancer
b. This parameter is set to zero because it is redundant.
The social class of the respondent’s parents has proved important for the employability of a young
individual. Compared with young people whose families are in the lower class, all others are less likely to
be unemployed. Again, there may be several explanations for these results. Poorer families do not always
have the financial possibilities to support the young in completing their studies to a higher level.
Moreover, even parents sometimes have difficulties in the labour market: they are unemployed, are
working in the informal economy or as day labourers. The higher chances of being employed obtained for
young people in mid and high social classes is due to the fact that their parents can help them find work
through colleagues and acquaintances, therefore creating a social network for the young individuals. Also
the parents can financially support them until finding a job that suits their qualification, thus reducing the
risk of fluctuations between periods of unemployment and employment.
Conclusions
Young people entering the labour market are a vulnerable group, facing a higher risk of unemployment
and an increased probability of working part-time or with fixed-term labour contract. Romania, as well as
the European Union, faces the challenge of integrating young people into the labour market.
We saw that in Romania the youth unemployment rate in 2015 was close to the European average, but the
percentage of long-term unemployed for young people was with 1.6 percentage points above the UE-28
average. Romania is the only EU country where the share of part-time employed young men was higher
than that of women in 2015. The young Romanians work part-time mostly because they cannot find a full-
time job, only 8% choosing this form of employment for educational reasons, compared to the majority of
European youth who use part-time employment while still studying.
The econometric results of our study indicated that age, education, internet use, volunteering activity and
parents’ social class are important factors in defining Romanian youth labour market success. The profile
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of the most likely to be unemployed young Romanian is the following: 15 to 19 years old; primary or
lower secondary education graduate; internet user for more than 2 hours a day; not involved in voluntary
work; and coming from a lower class family.
The existing problems on the youth labour market cannot be solved only by a single policy, but requires a
mix of policies and initiatives that lead to the achievement of the European objectives. Young people
deserve equal opportunities on the labour market, but this requires long-term investments. In its areas of
competence, the EU and, therefore, the Member States must act through all policies available that can help
improve the situation of young people.
Jobs are important, but they are not always sufficient to ensure full inclusion. Education and training can
give young people the necessary skills to enter the labour market. Appropriately designed policies raising
the educational levels of young people are likely to raise economic growth, and clearly do, at the
individual level, increase the chances of finding work and the earnings of those in employment.
Most young people think the education system is inadequate and unsuited to the real dynamic needs of the
labour market. The formal education programs are often too theoretical and that is why young people feel
unprepared and without the necessary practical skills for the labour market. For this reason some young
people delay to enter the labour market and prefer to continue their studies or look for low qualified jobs.
Therefore there should be a better connection between the educational system and the labour market
requirements. Sometimes young people turn to non-formal education as well, because it can complement
formal education with distinct skills and it can also serve as an important resource for young people who
do not have access to formal education. In addition, internships and volunteering can provide
opportunities to develop life skills and improve employment prospects, including entrepreneurship.
Unemployment, especially among young people, is the greatest obstacle to the economic recovery in the
European Union and one of the consequences of this is that a whole generation of young people is
confused. The European Union needs a profound structural reform to become more competitive, and this
cannot be done immediately. Thus, the essential reforms must be accompanied by measures with rapid
effects aimed at stimulating the economic growth and supporting young people in finding a job and
gaining essential skills. These measures will enhance confidence and will demonstrate to young people
that they have a future.
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The Main Barriers of Accessing EU Structural Funds in Romania
Corcodel Ștefan-Florin
Bucharest University of Economic Studies, Bucharest, Romania, stefan.florin.corcodel@gmail.com
Tănase Ion Alexandru
Bucharest University of Economic Studies, Bucharest, Romania, ialexandru.tanase@gmail.com
Urîtu Daniel
Bucharest University of Economic Studies, Bucharest, Romania, uritu.daniel@gmail.com
Abstract
Romania’s adherence to the European Union is considered by many to be a great opportunity for the
development of this country. One major benefit of this process is the availability of significant financial
resources for different measures and actions aimed at developing the country economically and socially.
Based on the partnership agreement with the European Commission, these funds are available for both the
private and the public sector. In this context, the current paper focused on the most important barriers that
Romanian entrepreneurs are faced with in the process of writing, implementing and reporting an EU-
funded project. The research included the evolution of perspectives on this topic from 2012 to 2016 and
also included an analysis of the impact on these accession barriers on the general interest of Romanian
entrepreneurs to use this form of financing. The results highlight the need of a significantly better
management of these funds from a bureaucratic point of view as some barriers have had an increasing rate
of occurrence and significantly affect the general interest of entrepreneurs in this financing form.
Keywords: Entrepreneurship, European funds, Small and medium sized enterprises.
1. Introduction
The research presented within this article aims to highlight and analyse the most important barriers that
Romanian entrepreneurs face in the process of accessing and using funds offered through the financing
mechanism of the European Union (EU). The research is based on a dynamic approach, taking into
account the perspective of Romanian entrepreneurs on this issue between 2012 and 2016, focusing on
small and medium-sized enterprises. Complementary to this objective, the research has also analysed the
status of Romanian enterprises in terms of this area of research, in a static approach, only based on the
situation in 2016, taking into account multiple criteria of classifying these enterprises. Finally, the impact
of these barriers is analysed in terms of interest from the entrepreneurs to access funds for their
development.
We believe that the selected topic is of interest due to the high number of perspectives and discussions in
regards of the efficiency and effectiveness of structural funds available in Romania. The low rate of
absorption compared to other EU member states in the 2007-2013 programing period is arguably the best
indicator that can be used in order to assess the general performance of the system of accessing funds. By
the 31st of July, Romanian authorities have requested reimbursements from the European Commission
equivalent to 76.69% of the total budget that was allocated for Romania between 2007 and 2013 (Ministry
of European Funds from Romania, 2016). By comparison, according to the website of the European
Commission (2016, a), by the date of accessing this source of information, Greece has had a rate of
absorption of approximately 99.5%, followed by Latvia, Poland and Ireland, each with a rate of absorption
of approximately 95%. The difference between these results and the result attained by Romania has
attracted multiple critics from direct beneficiaries and from European authorities.
The focus of the research, in terms of the population that was analysed, refers to entrepreneurs that
activate within Romanian small and medium-sized enterprises. The role of these entrepreneurs is clearly
1371
decisive in the Romanian economic environment and they can act as beneficiaries of EU structural funds
in multiple operational programs. Thus, their perspectives and feedback on the subject of this research is
invaluable for any research on this topic, but also for the process of implementing any measures that might
be taken by public authorities in order to create a more effective and efficient system of managing the
absorption of EU funds in Romania.
2. Theoretical and contextual background of the research
The creation of the European Union was based on the will and need of European countries to overpass the
events and the casualties that the Second World War determined, in order to assure a better, common
future. The moment that can be considered the actual stepping stone of the European Union took place on
the 9th of May 1950, when the French ministry of external affairs, Robert Schuman, presented a plan that
aimed to create an European Union that would manage two important resources in that period: coal and
steel. Schuman’s vision became a reality the following year, when Germany, France, Italy, Belgium,
Luxembourg and the Netherlands willingly created the European Coal and Steel Community. The latter
history of the European Union saw the signing of multiple other treaties. These actions resulted in the
creation of a partial monetary union at European level, the development of the single European market and
the enlargement of the Union to a maximum number of 28 member states.
In terms of the history and evolution of non-refundable financial assistance funds, the first historical
reference dates back to medieval times when certain states offered support for the development of other,
less developed states (Droj, 2013). The first formal act that instated a management system for this type of
financial assistance was promulgated in the United Kingdom, in 1929, as the Colonial Development Law
(Droj, 2013).
The basic mechanism under which these funds function involves a transfer of resources (in most cases,
financial resources) from donor states or donor organizations to receiver states or other forms of
organizations, based on a series of responsibilities assumed by the receiver. Since the coagulation of this
financing model, multiple national and international bodies have offered support of this type in order to
assure the achievement of specific objectives. An important moment of this financing mechanism was the
moment in which the European Union started implementing its strategies through structural and cohesion
funds, as a measure to rise the development level of different regions within the European Union
(European Commission, 2016, b).
The Romanian experience in terms of European non-refundable funds started with the implementation of
multiple pre-adhesion funds: Poland Hungary Aid for Reconstruction of the Economy (PHARE), Special
pre-Accession Program for Agriculture and Rural Development (SAPARD) and Instrument for Pre-
Accession Structural Policies (ISPA). After the adherence to the European Union on the 1st of January
2007, Romania would benefit from almost 20 billion Euros within the 2007-2013 programming period
(Ministry of European Funds from Romania, 2016) directly from the major European Funds (Cohesion
Fund, European Social Fund, European Regional Development Fund and European Fisheries Fund). In the
2014-2020 programming period, the budget allocation for Romania has been significantly raised to almost
31 billion Euros directly from ESI Funds (European Structural and Investment Funds), ranking Romania
fourth among European states from this perspective (European Commission, 2016, c).
From the Romanian entrepreneur’s part, European funds can be used in the 2014-2020 programming
period for both initiating and developing businesses through multiple measures within different
operational programmes (Ministry of European Funds from Romania, 2015). Multiple financing measures
sustain the acquisition of tangible and intangible assets for the development of experienced SMEs. A
series of other financing actions act as seed capital providers for start-ups, alongside actions aimed at
developing entrepreneurial skills within the general population of Romania. However, obtaining a finance
measure implies the existence of a series of limitations in terms of the eligibility of the beneficiary and of
the costs that can be financed. In the current programming period, one of the major restrictions refers to
the limited budget allocation for the Bucharest-Ilfov region (Ministry of European Funds from Romania,
2015). Concluding, the variety of financing measures is high and can serve numerous entrepreneurs from
Romania (new and experienced) to achieve their business goals. The following research will aim to
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highlight the most important barriers they have to overpass in order to successfully access and use this
type of financing.
3. Research objectives, methodology and hypotheses
The scope of this research was to illustrate the main barriers that Romanian entrepreneurs have to overpass
in order to access and take advantage of the structural funds that are available. The research, as mentioned
before, has taken into account the evolution of perspectives on the matter at hand between the years 2012
and 2016. In order to allow further research, the current paper will also highlight the most significant
information in regards of the status of Romanian small and medium-sized enterprises interested in
accessing EU structural funds.
The methodology of the research mainly implies the usage of a secondary research on the data from the
White Charter of Romanian SMEs. The method and data collection tool of research used in the primary
research is the questionnaire. The data involved in the current research was gathered from five editions of
the White Charter of Romanian SMEs. The research sample in each of those editions was significant and
overpassed one thousand entrepreneurs. The exact number of entrepreneurs involved in the research is:
1.716 entrepreneurs in 2012, 1.858 entrepreneurs in 2013, 1.569 entrepreneurs in 2014, 1.375
entrepreneurs in 2015 and 1.096 entrepreneurs in 2016. We thus consider that the significance of the
research is assured and that the responses and conclusions that are generated within the current paper are
relevant for the whole population of entrepreneurs in Romania.
Finally, in order to attain the scope of the research, a series of hypothesis have been assumed in regards of
the research topic. The first hypothesis refers to the fact that bureaucracy is the main barrier in the process
of accessing and using EU structural funds in Romania, as this barrier generally affects every process in
which public authorities are involved in. The second hypothesis of research refers to the fact that the lack
of information in regards of available funds is less and less a barrier for Romanian SMEs, as public
authorities have taken measures in order to assure a greater transparency on this subject. The third
hypothesis of research assumes the general fact that certain types of enterprises are affected by some
barriers in a higher intensity than other enterprises defined by the same criteria of classification. The
fourth and final hypothesis refers to the effects of these barriers, as we assume that fewer entrepreneurs are
actually interested in accessing funds for their businesses’ development.
4. Results
4.1. The main barriers of accessing EU structural funds – evolutions between 2012 and 2016
We begin the analysis of the first results of the research by defining the main barriers that were considered
to be most frequent among Romanian entrepreneurs in the processes related to accessing and using EU
structural funds. This first step is important for the research in order to assure a common understanding of
the results that were attained within the current paper.
Bureaucracy can be defined as understanding and applying laws and regulations just as they have been
written and not in their common sense or spirit (Romanian Academy, 1998). This usually implies a greater
amount of time spent on carrying out administrative work that does not usually have a justification. From
the perspective of the research topic at hand, bureaucracy involves using more beneficiary resources to
report activities than the resources actually used in implementing those activities within the EU-funded
project. Complementary to this barrier, the stability of regulations in the EU funds system refers to the
increased number of the regulatory changes that projects funded within this system encounter over their
period of life. Concretely, the legal and regulatory background of a project might change several times
during the life span of that project, each change determining a new approach in which the project team
handles the project (usually, with more resources involved). The final effect of this lack of predictability is
a low efficiency of the action (project) and a reduced impact on the business.
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The lack of information regarding available funds refers to a lack of transparency in terms of offering
every entrepreneur the same access to information on the subject at hand. Complementary to this barrier,
the lack of trust in consulting firms implies a lower quality of the projects that are submitted for financing
and, again, a lower level of information among entrepreneur in terms of financing opportunities.
In the Romanian system of EU funds, most projects imply the usage of a certain amount of financial
resources from the beneficiary’s part, amount defined as co-financing. The percentage of co-financing for
a project highly varies and depends on the type of beneficiary that accesses funds, the operational
programme the project is written within, the region in which the beneficiary activates and other similar
criteria. The lack of co-financing is a common problem among Romanian enterprises due to their reduced
financial capabilities. Linked to this barrier, some entrepreneurs might use credits in order to assure
financing from their part (as co-financing). A high cost of these credits and the need to provide certain
guarantees might also be a barrier that entrepreneur encounter in accessing EU funds.
In addition to the requirement to assure a certain co-financing, enterprises must attain certain eligibility
criteria in order to be eligible for financing. Again, eligibility criteria vary on the type of beneficiary that
accesses funds, the field of activity of the beneficiary, the achievement of certain financial performances
(usually, in terms of profit or turnover) and other criteria.
Finally, once the project is submitted and selected for financing, the implementation phase of the project
starts. In this phase, the enterprise must use its managerial and technical knowledge in order to assure a
smooth and correct implementation of the EU-funded project. This type of knowledge is required in order
to achieve the project objectives and to prevent mistakes within implementation that might imply financial
corrections for the beneficiary.
The table below (table 1) presents the results in terms of the main barriers encountered by Romanian
entrepreneurs in accessing EU structural funds, as they were evaluated between 2012 and 2016. Each
entrepreneur could select any number of barriers as an answer, as each respondent could encounter every
barrier in their intentions to access this type of funds. The figure associated to this table (figure 1)
graphically highlights the evolution of the intensity in which each barrier was selected by entrepreneurs
over the 2012-2016 period of time.
Table 1: The dynamic analysis of barriers in accessing EU structural funds
Main barriers 2012 2013 2014 2015 2016

Excessive bureaucracy and the lack
59.50% 67.12% 76.55% 72.44% 77.46%
of document and regulation stability
Lack of information regarding
64.74% 46.88% 44.81% 50.84% 44.25%
available funds
Lack of funds for sustaining co-
21.45% 47.36% 41.56% 47.93% 38.23%
financing
Non-permissive eligibility criteria
31.88% 44.51% 43.53% 39.64% 36.77%
(NACE code, profits, etc.)
High cost of credits and lack of
28.44% 36.87% 37.48% 34.11% 34.40%
guarantees for co-financing
Lack of trust in consulting firms 19.76% 32.35% 24.41% 16.73% 17.06%
Low managerial and technical
8.86% 12.22% 11.03% 14.33% 11.41%
capacity to implement a project
Other responses 0.00% 0.48% 0.45% 0.80% 1.09%
Source: own analysis, based on data from the White Charter of Romanian SMEs 2012-2016.
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Figure 1: The dynamic analysis of barriers in accessing EU structural funds

Two trends are clearly visible in this area of the research and refer to the top two barriers that Romanian
entrepreneurs encountered in accessing EU funds. The first that we wish to analyse refers to the evolution
of the percentage of entrepreneurs that selected the lack of information regarding available funds as a
barrier. In 2012, this barrier had the highest percentage in whole list of considered barriers, as 64.74% of
entrepreneurs considered it to be an impediment in the process of accessing EU funds. From that moment,
this indicator has registered a negative trend as more and more entrepreneurs could obtain needed
information in regards of the available funds. In 2016, this barrier was selected by 44.25% of the
questioned entrepreneurs – the improvement is significant (over twenty percent in absolute terms), but
further improvement is clearly needed as almost half of Romanian entrepreneurs report the lack of
information as an important barrier in accessing funds for their development.
The evolution highlighted above can be justified, from our perspective, by two major general actions. The
first refers to the increasing actions of Romanian public authorities to promote the availability of these
funds, especially through their websites and, occasionally, through social media. However, as mentioned
before, further actions must be taken within these authorities in order to assure an even better promotion of
available funds. As a simple example, one recommendation we would like to make in this area is linked to
an important financing opportunity for Romanian enterprises, the Regional Operational Program 2014-
2020 – a better organisation of the website (www.inforegio.ro) would highly help beneficiaries and the
first step in this action, from our perspective, refers to simply creating different webpages for private
beneficiaries and public beneficiaries. Currently, all of the guidelines (for both private and public
beneficiaries) are published on the same webpage, creating a significant barrier in obtaining the
information that each type of beneficiary requires. The second general action carried out that affected this
negative trend refers to, from our perspective, the activity of consulting companies that have specialised in
accessing this type of financing for enterprises and contact Romanian entrepreneurs to present them with
the most important financing opportunities in this area.
The second trend highlighted within this area of research refers to the evolution of the percentage of
entrepreneurs that selected excessive bureaucracy and the lack of regulation stability as a barrier in
accessing EU funds. In 2012 this percentage was at an alarming high rate (of 59.50%) and continued to
increase from year to year: 67.12% in 2013, 76.55% in 2014, 72.44% in 2015 and 77.46% in 2016 (the
highest value registered in the analysed period of time). The rate in which this indicator increases is
extremely alarming and is mainly justified by the actions of public authorities. However, one must
acknowledge the fact that the increasing bureaucracy and the multiple changes in regulations were also
caused, according to Romanian public authorities, by the frauds of different beneficiaries. In order to
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analyse this statement, we have studied the 2015 report of the Romanian National Anticorruption
Directorate (2016). Within this report, the public authority responsible states that the total amount of
financing that has to be recuperated from beneficiaries that accessed EU funds overpasses 110 million lei,
the Romanian national currency (equivalent to approximately 24 million Euro). Comparing this sum to the
total used allocation in the 2007-2013 period (approximately 19 billion Euro), we conclude that the trend
of increasing bureaucracy is not justified as the fraudulent actions of a small number of beneficiaries affect
the projects and activities of the vast majority of beneficiaries.
Another effect of the high bureaucracy that characterizes the accession of EU structural funds is the
influence that this phenomenon has on the quality of the evaluations carried out by managing public
authorities and their subordinates. Due to misinterpretations of the applicable regulations, by March of
2016, a number of 309 projects have been involved in judiciary procedures in which the beneficiaries of
those project won the cause in opposition with public authorities (Romanian Government, 2016). The total
amount that was cited within the memorandum reaches a level of 264 million lei, out of which 225 million
lei are a direct contribution from the European Union (equivalent to approximately 50 million Euro).
Taking into account the results presented above, the first two hypothesis of the current paper are
confirmed. Thus, the main current barrier in accessing EU funds has been confirmed to be the high
bureaucracy and the lack of regulation stability. As a positive evolution, the lack of information in regards
of EU funds has been constantly diminished, but requires further attention in the future.
4.2. Static analysis of the main barriers in accessing EU structural funds
The current subsection will analyse whether certain types of SMEs have different perspectives in terms of
the barriers they encounter in accessing EU structural funds. The criteria used to classify SMEs are the age
of the enterprise (as a measure of their experience), the size of the enterprise and the field of activity in
which the enterprise activates. The analysis begins with the classification of SMEs by their age (table 2).
Table 2: Main barriers of accessing EU structural funds by age of enterprises
Age of enterprises
Main barriers
Under 5 10 - 15 Over 15
5 - 10 years
years years years
Excessive bureaucracy and the lack of
78.62% 78.85% 77.22% 75.17%
document and regulation stability
Lack of information regarding available
46.21% 44.09% 43.46% 43.10%
funds
40.69% 37.99% 39.66% 34.83%
financing
34.14% 30.82% 40.93% 41.72%
35.52% 36.92% 33.33% 31.72%
Lack of trust in consulting firms 17.24% 20.07% 18.14% 13.10%
Low managerial and technical capacity
14.14% 9.68% 12.66% 9.31%
to implement a project
Other responses 0.34% 0.72% 1.69% 1.72%
Source: 2016 White Charter of Romanian SMEs.
Out of all of the data presented in the above table, we would like to highlight that the less experienced
enterprises (that have an age of under 5 years) are associated with the highest percentage of enterprises
that considered as main barriers the lack of information in regards of available funds (46.21%), the lack of
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funds for sustaining co-financing (40.69%) and the low managerial and technical capacity to implement
the project (14.14%). Each of these barriers is, by nature, from our perspective, associated to young
enterprises that have not yet gained a certain level of economic power, stability and quality in terms of its
human resource.
Table 3: Main barriers of accessing EU structural funds by size of enterprises
Size of enterprises
Main barriers
Small Medium
Microenterprises
enterprises enterprises
Excessive bureaucracy and the lack
78.25% 77.52% 66.67%
of document and regulation stability
Lack of information regarding
45.62% 43.41% 27.27%
available funds
38.73% 39.53% 28.79%
financing
35.29% 44.96% 40.91%
34.30% 34.88% 34.85%
Lack of trust in consulting firms 17.20% 15.50% 18.18%
Low managerial and technical
11.43% 12.40% 9.09%
capacity to implement a project
Other responses 0.67% 0.78% 7.58%
The table presented above (table 3) includes the data required in order to carry out the analysis of the main
barriers by the size of the enterprises included in the research. The interesting result within this analysis
refers to the general lower percentages registered by medium-sized enterprises. These enterprises have
registered the lowest percentage of SMEs to consider as barriers the excessive bureaucracy and lack of
regulation stability (66.67%), the lack of information (27.27%), the lack of funds needed for co-financing
(28.79%) and the low managerial and technical capacity to implement a project (9.09%). This comes to
prove the fact the barriers in accessing EU structural funds are generally lower for bigger and financial
stronger enterprises.
Table 4: Main barriers of accessing EU structural funds by field of activity
Field of activity
Main barriers
Industry Constructions Trade Transportation Tourism Services
Excessive
bureaucracy and
the lack of 69.29% 71.43% 81.91% 74.42% 76.67% 80.63%
document and
regulation stability
Lack of
information
38.59% 51.65% 48.40% 37.21% 56.67% 41.27%
regarding available
funds
Lack of funds for
40.25% 43.96% 38.56% 41.86% 20.00% 35.87%
sustaining co-
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financing
Non-permissive
eligibility criteria
38.59% 36.26% 34.04% 44.19% 36.67% 37.78%
(NACE code,
profits, etc.)
High cost of credits
and lack of
33.61% 29.67% 32.45% 39.53% 50.00% 36.51%
guarantees for co-
financing
Lack of trust in
15.35% 19.78% 16.49% 13.95% 13.33% 19.05%
consulting firms
Low managerial
and technical
capacity to 9.13% 10.99% 10.90% 6.98% 16.67% 13.97%
implement a
project
Other responses 3.32% 0.00% 0.27% 0.00% 0.00% 0.95%
Finally, table 4 presents the analysis of barriers in accessing EU funds by the field in which the enterprises
included in research activate. In terms of the high bureaucracy and the lack of document and regulation
stability, enterprises from the trade sector (81.91%) and the services sector (80.63%) reported the highest
percentage of enterprises to select this barrier as a real one. Another result that we wish to highlight refers
to the non-permissive eligibility criteria, a barrier that registered the highest selection percentage among
enterprises from the transport sector (44.19%). This result can be justified by the fact that this sector is
usually excluded from financing opportunities or has limited access to financing due to the general
European regulations in this domain, as in European Commission Regulation 1407/2013 (European
Commission, 2016, d).
Based on the results presented above, we consider that the third hypothesis of research is only partially
confirmed as only a reduced part of certain types of enterprises are influenced significantly more by some
barriers. As a general remark, younger and smaller enterprises are more affected by the considered barriers
in accessing EU funds, due to their reduced experience, human capabilities and financial resources.
4.3. The analysis of the impact of barriers in accessing EU funds
The analysis carried out within this subsection refers to the intention of entrepreneurs to access structural
funds in the immediate future, as a direct effect of the barriers analysed in the previous sections. The
analysis will be carried out taking into account the data in table 5, data that was graphically illustrated in
figure 2.
Table 5: Intention of entrepreneurs to access structural funds in the following year
Intends to access structural Does not intend to access

Year
funds structural funds
2012 20.93% 79.07%
2013 19.49% 80.51%
2014 18.16% 81.84%
2015 18.39% 81.61%
2016 18.34% 81.66%
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Figure 2: Evolution of the intention to access structural funds – 2012-2016 analysis

The evolution of this indicator highlights a generally low level that is complemented by a downfall of the
interest of entrepreneurs in accessing EU structural funds in the near future. In 2012, 20.93% of the
questioned entrepreneurs were interested in accessing funds. Two years later this indicator dropped to
18.16%, being thereafter relatively constant (18.39% in 2015 and 18.34% in 2016). This evolution
confirms the impact of the barriers that were analysed in the previous subsections and also an interesting
correlation: as the level of information on the available funds rises, the interest in accessing them
decreases. This correlation can be justified by the fact that information about available funds also includes
the responsibilities that must be met in order to access these funds – these responsibilities might be too
many and too hindering for enterprises to continue to maintain an interest in accessing this form of
financing their development. Thus, the final hypothesis of the research is confirmed as the analysed
barriers have clearly diminished the interest of Romanian entrepreneurs in using these funds.
5. Conclusions
Small and medium-sized enterprises are essential within any economic system, including the one in
Romania. A deciding moment for Romanian SMEs was the adherence of Romania to the European Union
in 2007 and the opportunities associated to this adherence. Every aspect of running a business in Romania
was influenced by this decision, one of the most important benefits being associated with the availability
of EU structural funds.
The current research aimed at highlighting the most significant barriers that Romanian entrepreneurs
encounter in the process of writing, implementing and reporting an EU-funded project for the initiation or
the development of their business. Four research hypothesis were set in order to better achieve the
objective mentioned above:
- The first: bureaucracy is the main barrier in the process of accessing and using EU structural
funds in Romania;
- The second: the lack of information in regards of available funds is less and less a barrier for
Romanian SMEs;
- The third: certain types of enterprises are affected by some barriers in a higher intensity than
other enterprises defined by the same criteria of classification;
- The fourth: from year to year, fewer entrepreneurs are actually interested in accessing funds for
their businesses’ development.
Bureaucracy and the lack of stability in terms of regulations have had over the 2012-2016 period of
analysis an alarming rate of increase in selection and is currently the most important barrier seen by
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Romanian entrepreneurs in accessing EU funds. Thus, the first hypothesis is confirmed. The obvious
recommendation implies the reduction of this phenomenon – a start in this field would imply taking into
account one simple principle: no state authority can ask a beneficiary for a document provided by another
state authority. Effectively implementing this measure would aid beneficiaries in being more time efficient
and focusing more on the implementation of their project.
As proven in the previous chapter, the lack of information is considered a barrier by fewer entrepreneurs
from year to year and, thus, the second hypothesis is confirmed. However, a constant improvement is still
needed in order to assure equal opportunities for every entrepreneur.
The third hypothesis assumed the fact that each type of enterprise is more commonly affected by a series
of specific barriers. This hypothesis was only partially confirmed as only a reduced number of such
associations were revealed within our analysis - as a conclusion of this subsection: younger and smaller
enterprises are more affected by the analysed barriers due to their reduced experience, human capabilities
and financial resources.
The final impact of these barriers was evaluated by measuring the intentions of Romanian entrepreneurs to
access this type of financing in the near future. The results confirmed a significant decrease of interest in
accessing EU funds. The barriers analysed within this paper have had a clear effect of this trend, but other
justifications might be also available. For example, the economic growth registered in the recent past
periods (Focus Economics, 2016) might be a good indicator of the fact that enterprises have capital for
development and rely less on other forms of financing these actions.
Finally, we consider that the perspective of Romanian entrepreneurs on this topic must be rapidly taken
into account by the managing authorities of EU structural funds in order to assure a better usage and,
finally, absorption of these funds. Assuring financing sources for the acquisition of assets, for R&D, for
developing the people within an organization are decisive actions for the present and future of SMEs and,
indirectly, for the general situation of the public sector. This is justified by the fact that the state budget
would highly benefit from the EU-funded projects, as the Romanian government co-financing is lower
than the amount of taxes generated by these projects.
References
Droj, L. (2013). Bancabilitatea proiectelor de investiții finanțate din fonduri structurale europene,
Bucharest: Economic Publishing House.
European Commission (2016, a). European Structural and Investment Funds – Absorption rates 2007-
2013, [Online], [Retrieved August 15, 2016], https://cohesiondata.ec.europa.eu/dataset/2007-2013-Funds-
Absoption-Rate/kk86-ceun.
European Commission (2016, b). History of the Structural Funds, [Online], [Retrieved August 15, 2016],
http://ec.europa.eu/regional_policy/archive/funds/prord/prords/history_en.htm.
European Commission (2016, c). Available budget 2014-2020, [Online], [Retrieved August 16, 2016],
http://ec.europa.eu/regional_policy/en/funding/available-budget/.
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107 and 108 of the Treaty on the Functioning of the European Union to de Minimis aid, [Online],
[Retrieved August 18, 2016], http://eur-lex.europa.eu/legal-
content/EN/TXT/HTML/?uri=CELEX:32013R1407&from=RO.
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[Retrieved August 12, 2016], http://www.fonduri-ue.ro/files/documente-
relevante/acord/Acord_de_Parteneriat_2014-2020_RO.pdf.
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Ministry of European Funds from Romania (2016). Stadiul absorbției pentru Programele Operaționale
2007-2013 la data de 31 iulie 2016, [Online], [Retrieved August 12, 2016], http://www.fonduri-
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Value Management Impact and Economic Policy

Of State on Stakeholders
Tatiana Potkanová, Alžbeta Kucharčíková
a
University of Žilina, Univerzitná 8215/1, 010 01 Žilina, Slovakia
Abstract
Nowadays, it is possible in business to study interconnection of various kinds of management and

state economy. One type of management which starts to experience in business its importance is
management focused on value for stakeholders – value management. State interventions and even
some foreign interventions influence company in significant way, both positively and in some cases
negatively. The article includes essential theoretical base focused on value management, economic
policy and analysis of economic policy milestones as well as interconnection of these two fields of
business itself. Economic policy will be divided according to possible used tools for monetary and
fiscal policy and foreign economic policy. On the basis of previous there was defined article aim to
compile structure of value management creation with economic policy of state and abroad taking into
account which companies encounter.
Keywords: value management, economic policy, monetary policy
Introduction
Value management is part of top management for many companies. Company exists in specific
defined environment, where companies´ stakeholders are part of this environment, company
management can perceive impact of state interventions. Not all interventions are related to company,
but in indirect way they influence every company through impacts on stakeholders. Value
management should solve offered value for all stakeholders and so help to decrease of negative
impacts of state interventions. Value increase which helps to improve stakeholders´ loyalty improves
company position and increases its competitiveness.
Companies of market economy should insist on creating higher value for consumers whereby
competitiveness of company is increased. Value management deals with these activities, which
maximize value. Value management according to Kubina and Lendel (2007, p. 29) is possible to
define as “management style, where central motive and aim of whole methodological effort is
maximizing of value for customer. Value management as methodologically compact, managerial tool
is oriented on company competitiveness increase through motivation of people and improvement of
their abilities.” According to European standard ČSN EN 12 973, value management is defined “as
style of management focused mainly on people motivation, knowledge development, cooperation
encouragement and innovations with aim to maximize whole organisation productivity.” (Dostál,
Loubal, Bartes, 2009, p. 22) It is necessary for business that value management would be
concentrated on all stakeholders. Such perception of value management will bring maximization of
market value significantly easier than it is in case of one-way effort to increase perceived value solely
by one stakeholder, most frequently only by final customer. According to such understanding, value
management can be defined as management style where aim is effort to maximize value for
stakeholdersat which activities are oriented on increasing of company competitiveness.
Value management has got its theories which are possible to be defined as general and constructive.
When we use tools and methods there is significant role for application theories of value
management. General theory is focused on value and function. It consists of own terms and methods
concentrated on determining of value level. General theory is subdivided into function theory and
functional approach and value theory and value approach.
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Function theory is based on relation between need and object like its characteristics. This theory is
based on stakeholder´s representative and determining his needs. From the need it is possible to
deduce clear function which the representative requires. This function is necessary to satisfy what
will bring loyalty increase. Function comprises creating such object structure which with relations to
required output of individual function taking into account it has perspective to transform outer
impulses into required elements of behaviour. Theory of functional approach is base for value
approach realisation and on this basis value management is established. This theory perceives objects
as ground for determining of characteristics for needs fulfilment. Theory extracts from side impacts
which influence behaviour of stakeholder. Functional approach takes into account optimisation of
need satisfaction in the lowest possible expenses. Functional modelling is component of functional
approach, too. It depicts operations with functions. (Vlček, 2008) Value theory is based mainly on
general benefit of object. This theory gives opportunity to measure benefit level. Centre of value for
concrete stakeholder is material or nonmaterial object which is carrier of function of needs
satisfaction. From general point of view of value management and value for stakeholder there is
specific combination where inputs are expressed in costs and outputs in performance or in individual
benefit. Value approach ground is on principle of change of performance technical quantity into
economical. (Vlček, 2008) Value approach theory is way of value realisation for stakeholder. One of
this theory´s tools are innovations. According to Vlček value approach is ”methodological concept
searching for answer on question: How else to ensure functions file of innovated object which with
its useful impact can satisfy needs.” (2008, p. 77) Activities connected with value management can
run official way or by permanent intuitive optimization of everyday company behaviour. On this
principle are based all four application fields of value management. Value approach has got
significant place both in analytical (functional analysis) and synthetic phase (functional synthesis) of
application of value management fields.
Application disciplines introduce system of methods and tools defined by value management
theories. To such disciplines belong four essential:
- value analysis,
- inverse value analysis,
- value projecting,
- value product strategy.
Value analyses consist of principles which are necessary for organisations to be aware in application.
One of them is fact that product as such represents package of functions serving to needs fulfilment.
There exists essential function of product through which it is assessed. It assesses especially its
importance, invested costs or for example level of need fulfilment. Inverse value analysis is
procedure which searches usage of existing product or determines functions on needs satisfactions.
This way of analysis doesn’t have such use as it is in case of value analysis, but some fields of
companies´ work use only this way of value analysis. Value projecting consists of using value
approach in object creation. It concentrates on innovations in different spheres. Value projecting
perceives new product as new function creation which fulfil needs of stakeholders. Value product
strategy focuses on production program. Such way of company operating helps to development of
sustainable competitive strength of products. This method monitors production program of
organisation and market needs as a whole. This way gains necessary functions by selection between
actual object functions and needed functions which market requires.
Economy consists of two basic elements and they are macroeconomics which examines economic
subjects´ behaviour as a whole and microeconomics which examines economic subjects´ behaviour
individually. Main macroeconomics problems is keeping of macroeconomic balance and as well its
productivity. Economic policy comes mainly from economic macroeconomics and looks for tools
how to solve, already mentioned, its problems. Its tools are at the core tools of individual partial
policies like fiscal, monetary, foreign business policy and other. Economic policy is possible to
define as “state attitude (government) to economics of its country.”It is concentrated on analysis of
running phenomena and problems after which there follow proceeding proposals on their solving.
(Kliková, Kotlán, p. 11)
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Government within the scope of economic policy realisation uses public sources to achieving of
stated economic (both wider coherence and social) aims with help of combination of different tools.
Into economic policy are integrated its holders that can be state but even independent institutions or
formalized group or individual that plays important active role in creation, realisation and controlling
of economic policy. According to Šulc (2007, p. 44) complex of economic policy institutions was
long-term formed and it was mainly by method trial and error. Author divided economic policy
institutions into:
- legislative institutions (parliament),
- government institutions (government, ministry),
- issuing bank,
- institutions creating market environment,
- court institutions,
- influence holders that don’t belong to economic policy forming, but they influence
it directly or indirectly.
According to Vincúr et al. “economic policy represents ordered complex of scientific, theoretical and
practical knowledge about forms and ways how to increase economic efficiency.” In order to
accomplish this task, it creates economical political system, which is focused on achieving of
potential economic efficiency, removing error causes in economy and negative market
consequences.” (2007, p. 7) Different conception of notion economic policy offers Baránik as
“complex of decisions, laws, regulations and orders of different level, different forms and
effectiveness and system of institutions which directly regulate and influence behaviour of economic
subjects and this way process of economic activities, too. Practical economic policy is result of
impact of political power of country, household, companies and business subjects in state.” (2002, p.
16)
Economic policy has got its conceptions, which were derived already during economy development.
They are liberal conception and interventionistic conception. Liberal conception promotes mainly
free hand and freedom for companies and so state and its representatives interfere in economic
system performance only minimally. On the other hand interventionistic conception concentrates on
market by its significant interventions and so it influences all economic subjects. Through economic
policy state objectives are set up (primary, secondary) and it searches for tools (according to
character they are direct or indirect tools) on their reaching.
European Union is affected by economic policy impacts, too. Nowadays, it is bond in strategy Europe
2020 from which National program of reforms is derived. Its steps are laid down in Action plan and
programmatic government declaration. European Union represents economic union which
coordinates economic policies of individual member states and creates mutual economic policy,
concrete business, agricultural and transport policy.
As it was mentioned, economic policy tools can be divided, according to character, on direct and
indirect. Laws and state proceedings belong to direct ones which violation can lead to sanctions apply
or fines. Indirect tools are tools of partial policies and there belong fiscal and monetary policy and
even foreign business policy, currency policy, structural policy, social policy and other.
Monetary policy is possible to be defined as complex of decisions, laws and proceedings by which
central bank regulates amount of money in circulation as well as its price which is expressed by
interest rate. “Monetary policy is operated by official institutions called central banks, which have the
privilege of creating what is called base money or sometimes high-powered money.” (Bénassy-
Quéré, Coueré, Jacquet, Pisani-Ferry, 2010, p. 241) This base money is created by money in
circulation, hence cash money created by central bank and bank reserves.
Base money is part of calculation of money multiplier which represents number expressing how
many times money supply will be increased if BM is increased by one. This relation is expressed in
following formula:
Mm = (1)
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where:
Mm is Money multiplier,
Cr is Money in circulation rate,
Rr is Bank Reserve rate
Monetary policy has got significant influence on creation and fulfilment of goals which are
concentrated on money as such. To main goals belong economic growth, employment, price and
monetary stability. Their fulfilment can be influenced both by central bank and commercial banks.
Elemental tools division of monetary policy is on direct which perform selectively and indirect ergo
globally affecting tools. Individual ways of such regulation are depicted in figure 1.
Figure 1: Tools of monetary policy [own processing]
As a figure 1 demonstrates, there are two types of monetary policy – restrictive and expansive.
Restrictive policy is characterised for decreasing of amount money in circulation or for increasing of
interest rates. Central bank implements monetary policy by using of increasing discount rates,
increasing of obligatory required reserves or by purchasing of public securities. From short term point
of view it will lead to decreasing of investment supply and consecutively to decreasing of economic
output and employment. In long term, these steps will present inflation increasing and paradoxically
to unaffected economic output and employment. Expansive policy represents exact contrast to
restrictive, so when introducing such type of monetary policy there will be increasing of money
demand and decreasing of interest rates.
Fiscal policy includes proceedings concentrated on macroeconomic regulation which is realized by

government as well as by individual ministries, higher territorial units or cities and villages through
public budget. Public budget can be surplus, balanced and deficit. “One specificity of fiscal policy is
that it may provide benefits in short run while reducing the room for maneuver of future government,
or even future generations, who will have to face an inflated public debt.” (Bénassy-Quéré, Coeuré,
Jacquet, Pisani-Ferry, 2010, p. 206) Fiscal policy goals should be achieving of higher economy
output and with it related higher employment, achieving of price stability at which intermediary goal
is specific level of aggregate demand of concrete state or bloc of states. To achieve mentioned goals
serve individual tools of fiscal policy which are divided into two basic groups. They are automatic
stabilisers which affect solely in stable price level and intentional proceedings which represent one-
off decisions of government. Individual proceedings are depicted in following figure 2:
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Figure 2: Tools of fiscal policy [own processing]
Fiscal policy has got two basic types – expansive and restrictive. In expansive are mainly used higher
government expenses, transfer payments are increasing and tax rates are decreasing. Government
expenses and taxes have got multiplication impact on aggregate supply and on height of economy
output, too. Higher effect on aggregate supply have got government expenses, effect of taxes is lower
(Kucharčíková, 2009, p. 107). From short term point of view, consequence is increase of aggregate
supply, economy output and employment, too. In long term horizon such proceedings will bring
inflation increase. Restrictive fiscal policy is again diametrically different and its effects are exactly
opposite. Fiscal policy is significant factor also in international bloc, for example European Union. In
case of such unions there is necessary tax harmonization which ground is to synchronize tax systems
of member states and to create such rules which wouldn’t create barriers in international business.
Foreign Economy policy is closely connected with international business. It is sum of proceedings
and also institutions by which state government can regulate amount of imported and exported goods
and services (Šíbl, Šaková, 2002). Its main goals are balanced balance of payment, higher
employment and economy output and stable price level, too. With foreign economic policy is closely
connected exchange rate which is possible to define as exchange ratio of two different currencies. In
practice is used fixed which is useful only in case that citizens trust their currency and flexible
exchange rate. This type of economic policy has got its types of tools which are economic and
noneconomic. Individual ways of influencing of foreign economic policy are shown in figure 3.
Figure 3: Tools of foreign economic policy [own processing]
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„Foreign economic policy can be divided into a free trade policy and a protectionist policy.
Between these two extreme approaches a number of intermediate solutions can exist, with a larger or
smaller dose of liberalism and protectionism.“ (Bozyk, 2006, p. 15) Through liberal foreign economic
policy state creates conditions for development of international distribution of labour. On the other
side, Protectionist supports export and restricts country´s import.
Structural policy belongs among another policies belonged to economic policy. Through its tools
holders of structural policy can influence economic subjects’ behaviour as well as individual structure
of branches and sectors of state (Kliková, Kotlán, 2013, p. 207). Its goals are economic growth and
growth of competitiveness. Its individual tools are shown in figure 4.
Figure 4: Tools of structural policy [own processing]
Tax advantages of specific fields, sectors´ subsidies, tax reliefs, duties or licence exuding belong to
often concrete proceedings. We differentiate accelerating and decelerating structural policy.
Accelerating one is characteristic by concentration on speeding up of accelerating process through
financial supports. Problem is possible to be seen in choosing suitable companies on support as well
as possible emergence of alternative costs. In decelerating structural policy it is mainly about
financial assistance to concrete company at temporary financial problems. As far as foreign countries
and groupings of states, their structural policy holders are organs of European Union, European
central bank and European monetary union.
Economic policy doesn’t consist only from mentioned partial types of policies. It is complex of more
aspects by which it is possible to influence economy running of state through tools influencing other
economic subjects, in particular companies. Part of companies should be effort to build values and so
value management. Since value management of individual companies further influence economic
subjects which are stakeholders for it, there is evident value impact for economy as such.
1. Analysis of Economic Policy Condition and Value Management
An origin of economic policy is possible to see already during Great Depression (1929 - 1933) when
individual policies types were differentiated in dependence on specific country. For example
expansive fiscal policy was supported in the USA by defining of minimum wages or by introducing
unemployment benefit. During oil shocks influence of expansive fiscal policy was strengthened. It
was caused mainly by high prices on markets. (Tomeš et al., 2008, p. 40)
After hypothecary crisis (2007) demonstrations of individual policies started to emphasize. For the
USA it meant radical tax decreasing what was act of fiscal policy. For majority of Europe countries
they were increasing of government expenses and transfer payments. Monetary policy expressed
itself by decreasing of interest rates. Economic policy functioning from 2009 is influenced by debt
crisis and its impact is considerable even today.
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Many companies ignore value management and many of them doesn’t consider influence of
economic policy or concrete stakeholders as important. If companies implement value management
into their top management, they orient it solely on consumers. At this dynamic time it is necessary to
be aware of importance of other stakeholders, too. Suppliers with their activity can positively or
negatively influence functioning of production process and correspondingly it is with customers.
Influence of employees is significant, but only few of customers try to increase value which is offered
for them. The last but not least state itself is important stakeholder in which company runs. Here it is
possible to see mutual value influence which can be offered to state and value which is received by
state.
Value as such can constitute competitive advantage for company. If this is indeed the case, company
can increase economic growth of state by its activity and so help to improve country´s status to
foreign countries, for example by level of economy output. It is clear that value management impact
which is focused on all stakeholders and economic policy of state and foreign countries creates
uniform set of interconnected and influencing elements which should mutually cooperate.
2. Mutual Influence of Economic Policies of States and Value Management of

Companies
In economic policy decision holders try to influence other economic subjects in positive way. By
choosing different types of partial policies state representatives or states grouping are able to
influence running of companies as well as consumers and their consumption of goods and services.
Companies should place greater or lesser emphasis on value even though function itself of offered
goods and services. Companies shouldn’t forget value analysis and functional analysis, which reveals
positives and shortcomings of goods and services. These positives or negatives are reflected in
perceived value, which that stakeholder feels.
Some stakeholders are part of internal environment of company (owners, employees) other are part of
interactive environment which can influence running of the business (suppliers, customers,
consumers). The essence of article is revealing of impacts of state proceedings on company and value
management as its part. Choice of direct proceedings of monetary policies state can influence mainly
business, thus in case of value management there are influenced suppliers, customers and the last but
not least even company itself a its owners/shareholders. For concrete companies, which are favoured,
perceived value radically rises. By choosing of indirect there are influenced by its very nature mainly
households, which creates stakeholders of employees as well as customers through offered credits by
commercial banks. In the context of monetary policy it is only on decision holders which type of
policy they choose. However, it is necessary to be aware of long term impacts, too and it is necessary
to perceive value even for companies´ stakeholders. Fiscal policy by its proceedings influences all
stakeholders, since there can be influenced income tax. Also transfer payments regulation and
unemployment insurance influence employees and consumers. Foreign economic policy has got
significant influence on companies and their stakeholders, since import and export are derived from
it. In can influence amount and also structure of goods and services which are in offer of specific
state. State with its proceedings influences competitive strength of companies and so it influences
suppliers, customers and company itself. Foreign economic policy can influence consumers and they
can, but they don’t need, see added value in domestic products. Finally, structural policy has got
influence on value management, which influences mainly business. By choosing of concrete type of
this policy it is possible to achieve required value. Interconnection of company value management
and economic policy is shown in figure 5.
In case that companies try to impact by its activity on value of individual stakeholders, they should
place emphasis even on state proceedings which have got impact on them. In many cases state tries to
improve economy output and it can result in situation where in some way one of stakeholders is
negatively affected. It should be in best interest of company to increase offered value by choosing of
appropriate elements of value management. Such way there is increased competitiveness as well as
overall position of company on market.
1388
Figure 5: Influence of value management and economic policy of state [own processing]
1389
References
1. Baránik, M. (2002), Základy makroekonómie. IRIS, 2002, p. 236. ISBN 80-8901-845-9

2. Baránik, M. - Farkašovská, M. (2005), Národohospodárska politika – Teória a prax. Trenčín:
TC TECH, 2005. ISBN 80-8075-063-7
3. Bénassy-Quéré, A., Coeuré, B., Jacquet, P., Pisani-Ferry, J. (2010), Economic Policy: Theory
and Practice. New York: Oxforduniversity press, p. 696. ISBN 978-0-19-532273-6
4. Bozyk, P. (2006). Globalization and the Transformation of Foreign Economic Policy. USA:
Ashgate Publishing Company, 2006, p. 257. ISBN 0-7546-4638-6
5. Dostál, V., Loubal, J., Bartes, F. (2009), Hodnotové inženýrství – Cesta k dosažení komerčně
úspěšného výrobku. Ostrava: KEY Publishing, 2009, p. 374. ISBN 978-80-7418-003-3
6. European standard EN 12973 – Value Management
7. Kliková, CH., Kotlán, I. (2013), Hospodářská politika. Institut vzdělávání SOKRATES, 2013,
p. 294, ISBN 9788086572765
8. Kubina, M., Lendel, V. In: Manažment v teórií a praxi/on-line odborný časopis o nových
trendoch v manažmente. 4/2007. year 3. ISSN 1336-7137
9. Kucharčíková, A. (2009), Makroekonómia. EDIS Žilina, 2009, p.236, ISBN 978-80-8070-978-5
10. Miles, L.D.: Techniques of Value Analysis and Engineering. New York, McGraw-Hill, 1961, p.
351. ISBN 978-00704-1926-1
11. Šibl, D. (2002), Veľká ekonomická encyklopédia. Bratislava: Sprint, 2002, p. 967, ISBN 80-
8908-50-40
12. Šíbl, D., Šaková, B.(2002), Svetová ekonomika, SPRINT Bratislava, 2002, p. 418, ISBN 80-
88848-98-9
13. Šulc, Z. (1993), Hospodářská politika. Praha: Consus, 1993, ISBN 80-901004-7-3
14. Tomeš, Z. a kol. (2008), Hospodářská politika 1900-2007. C. H. Beck, Praha, 2008, p. 262,
ISBN 978-80-7400-002-7
15. Vincúr, P. a kol. (2007), Teória a prax hospodárskej politiky.4. vyd. SPRINT, 2007, p. 432,
ISBN: 8089085804
16. Vlček, R. (2008), Management hodnotových inovací. Praha: Management Press, 2008, p. 239.
ISBN 978-80-7261-164-5
17. Vlček, R. (1992), Hodnotový management. Praha: Managemebt Press, 1992, p. 102. ISBN 80-
85603-09-8
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Methods of Assessment the Effectiveness of Small Business

Management in the Telecommunications Industry
Yulia Vertakova
Southwest State University, Kursk, Russia, vertakova7@yandex.ru
Vladimir Plotnikov
Saint-Petersburg State University of Economics, Saint-Petersburg, Russia;

South-West State University, Kursk, Russia, plotnikov_2000@mail.ru
Evgeniy Leontyev
Southwest State University, Kursk, Russia, leojin076@gmail.com

Abstract
The relevance of the research topic is determined by the fact that in modern conditions problems of
enterprises survival are exacerbated. This is due to the substantial increase in competition, especially
in those areas where there is a high variability of technological and organizational business
conditions, particularly in telecommunications. Effective management of the telecommunication
companies requires the system of performance indicators. The composition of these indicators is
determined by the criterion of efficiency, specificity of activity of the company and features of its
external and internal environment. The authors developed a balanced scorecard to evaluate the
efficiency of enterprise management for small business in the telecommunications industry. It is
adapted to the specificities of small communications companies. Testing of the system at the Russian
enterprises reaffirmed its adequacy. There is recommendation on the use of the developed system of
indicators in the practice of management. On the basis of the proposed model there were calculations
of the performance indicators on the basis of revenue and costs of operators. The model allows
identifying inefficient segments of operator’s network and excluding them. The proposed model is
universal and can be used by different countries and companies under influence of internal and
external factors, allows evaluation and prediction the situation for the future period, allowing the
managers of the small telecommunication companies to act proactively in dynamic conditions of
business environment.
Keywords: balanced scorecard, small telecommunication companies, performance indicators,

revenues and costs, internal and external environment, effectiveness of management.
1. Introduction
The relevance of the research is determined by the fact, that in modern conditions problems of
enterprises survival are exacerbated. This is due to the substantial increase in competition, especially
in those areas where there is a high variability of technological and organizational business
conditions, particularly in telecommunications. The magnitude of the problem is illustrated, for
example, by the fact that in the period 2002-2014 years the number of telecommunication enterprises
in the world has increased in 10 times. This requires the development of methods and technologies
for the management of telecommunication enterprises in dynamic environment and conditions of
strengthening competitive pressures.
It should be borne in mind that telecommunications companies, like business in general, are
differentiated by size. The greater part of enterprises in Russian economy are small enterprises (at the
end of the 2014 - 2.1 million units), but they account for a small portion of produced goods and
services (the contribution of small and medium-sized businesses in the country's GDP is around 20%
at the end of 2014) (Russian Federal State Statistics Service). This means that competitive pressure
on small businesses is more serious and risks of their activities is more significant. Small business in
all countries needs the government support.Existing methods of evaluating the effectiveness of
1391
enterprises are useful rather for big business and, often, the introduction of such systems involves
large financial and time costs. Therefore, the problem of management tools development, ensuring
development effectiveness is the most relevant for small telecommunication businesses. The
relevance of the research topic also explains the specifics of small enterprises, which is in the local
scale of their activities, significant resource constraints, which is why scientific recommendations on
such management must take into account these properties, and present models and methods for the
evaluation of the management effectiveness require adapting to their circumstances.
Evaluation of effectiveness is one of the key tasks of management. Business competitiveness,
sustainability of its development depends on the success of this task. Of particular importance is the
assessment of the effectiveness in the crisis period. Modern Russian economy is in crisis. In this
regard, the development of methods for assessing the effectiveness of management is of great
importance. Systems of effectiveness's evaluation should be adapted to the specifics of a particular
company or industry.
Telecommunication companies are grouped into clusters for the best use of their competitive
advantage, taking into account the factors of external and internal environment. In small
telecommunication company clusters are the segments of its network.
The relevance of the research is the specificity of small telecommunications operators that consists of
local scale, significant resource constraints, so the scientific recommendations on management
measures must take into account these properties, and known models and methods to ensure the
effectiveness of management require adapting to their circumstances.
Works of many scientists devoted to the improvement of management systems in organizations.
There are studies of I. Ansoff, R. Kaplan, D. Norton, D. Hicks, P. Druker, M. Meyer, etc. This
problem also occurs in earlier studies of authors Chow, C.W.,Y.V. Vertakova, V.A. Plotnikov.
Definition of basic concepts that characterize the information society in general, devoted to works of
foreign authors: D. Bell, K. Werbach, R. Kahn, Y. Masuda, E. Robinson. In the Russian literature
various methodological aspects of the development of communication and information technologies
presented in the works of G.T. Artamonov, G.V. Belov, V.B. Bulgak, O.N. Vershinskaya, G.R.
Gromov, V.N. Kostyuk, I.N. Kurnosov, A.N. Lavrukhin, G.L. Smolyan, A.A. Chernov, A.M.
Potapenko. Among the works, reflecting the current level of development of management in
infocommunications, it is possible to note works of V.B. Bulgak, L.E. Varakin, E.V. Dyomina, N.P.
Reznikova, V.P. Shuvalov. The problem of the development of the information society in Russia and
its regions is considered in the works of G.T. Artamonov, D.N. Peskov. Infocommunication services
market research and marketing solutions in infocommunication are presented in works of P. Kotler,
N.P. Reznikova, T.A. Kuzovkova, L.A. Stryi, E.V. Pesotskaya.
Analysis of the research shows that they contain a great deal of discussion and disputes, which
confirms the lack of problem functioning telecommunication sphere in modern Russia. Global
competition in the field of telecommunication puts new theoretical and practical research of its
specificity and effectiveness in today's economy and the development of the information society.
In the analysis of the effectiveness of management is an important task the correct definition of
criteria and indicators, on the basis of the objectives of the study. If you select performance criteria,
the following requirements should be met: fitness for purpose; the fullness of the reflection of the
implications for the functioning of this criterion; measurable components of the criterion; the clarity
of the physical, economic, social and/or other reason; minimum set of components; highly sensitive
to managed properties (Ansoff, H.I., 2007).
The main aim of the research is to develop methodic for assessing the effectiveness of small
telecommunication business management, taking into account their size and characteristics of the
telecommunications industry, focused on ensuring the competitiveness and sustainability of the
business.
2. Background and hypothesis
Analysis has shown that the assessment of the effectiveness of management of small
telecommunication business, taking account of their specific features, should be based on the
construction of system of indicators characterizing all significant sides of activity of the company in a
1392
specific relationship with each other and provides necessary and sufficient information for
management decision. Comparative studies have shown that these requirements meet the balanced
scorecard (BSC) (Chow, C.W., K.M. Haddad, and J.E. Williamson, 1997; Kaplan, R.S., Norton, D.P.,
1996).
The study was formed the system of indicators (Figure 1), which reflect the result of small
telecommunication business and are influenced by various factors, its external and internal
environment. BSC consists of four groups of indicators: “Finance”, “Clients”, “Processes”, and
“Development” (Kaplan, R.S., Norton, D.P., 1996).
For each of the group there are targets and performance indicators (Table 1).
Figure 1: Strategy Map of Small Telecommunication Operator
Source: developed by the authors using the results of Norton D., Kaplan R.
Table 1: Performance indicators of small telecommunication operators
1. Indicators of the efficiency of the use of certain types 1.1. Labour productivity
of resource and cost 1.2. Fixed-Asset Turnover
1.3. Cost of revenues
2. Indicators of the efficiency of the use of certain types 2.1. The number of lines per one employee
of resources and capacities 2.2. Revenue per line
2.3. Costs of ordinary activities on one line
2.4. Turnover from staff
2.5. The average cost per 1 employee
2.6. Intensive using of the telephone network
3. Indicators of the effectiveness of promising market 3.1. Share of income from innovative services
segments in total sales revenue
3.2. Revenue growth from innovative services
3.3. User’s loyalty index
3.4. Average revenue per user (ARPU)
4. General performance indicators 4.1. Gross margin
4.2. Earnings before interest, taxes,
depreciation and amortization (EBITDA)
4.3. Profitability of production costs
4.4. Profitability of segments
4.5. Return on investment (ROI)
Source: Compiled by the authors using the results of researches of Russian and foreign scientists
The indicators of four groups of BSC are:

• Finance: Gross margin, Profitability of production costs, Profitability of segments, Return on
investment;
1393
• Clients: Average revenue per user, User’s loyalty index;

• Processes: Revenue per line, Fixed-Asset
Fixed Asset Turnover, Labour productivity, Intensive using of
the telephone network;
• Development: Share of income from innovative services in total sales revenue, Revenue
growth from innovative services.
It is clear that the broader the range of settings in which performance indicators remains within
acceptable limits is, the higher "margin of safety", and the better protection against fluctuations of the
different parameters (factors) that have influence on it. In this regard, to enhance the quality of
assessment of effectiveness, we propose measures for the analysis of sensitivity of parameters of the
BSC to the influence
uence of factors of external and internal environment.
3. Methodology
The proposed BSC is sufficient (corresponding to its objectives), it takes into account the specificities
of the telecommunications industry and small businesses, not overloaded with indicators that
positively affect the efficiency of decision
decision-making-relevant
relevant aspect in the management of a small
business and ensuring its competitiveness. On its basis we offer a generalized model of effectiveness
evaluation (Figure 2). The model takes into account: the composition and extent of communication
services, preferences and the level of preparedness of the consumer market to some services, the
competitive environment of the market, regulatory environment, development of sectorial
organizational and technological infrastructure, etc.
Figure 2: The General Model of Performance Evaluation of the Operator
Source: developed by the authors
Taking into account the characteristics of small telecommunication business, the developed model to
assess the impact on the efficiency of the management of not only summarized the characteristics of
its internal and external business environment, but also elements of his techno-economic
economic structure
(services, areas, base stations, subscribers) (Kaplan, R.S., Norton, D.P., 1996).
Generalized mathematical model of evaluation of small business communication appears functional

type, which is correlated with
ith indicators, because it takes into account the revenues and costs in
monetary or natural form:
E(t) = Y[Revenues(t),Costs(t),X(t),Z(t)] | G (1)
1394
where E – performance indicator, Y – the dependence of the input parameters of the indicator,
Revenues – operator revenues, Costs – operator costs, X – the parameters of the external
environment, Z – the parameters of the internal environment, G – performance assessment criteria, t –
period of analysis.
Telecommunication network of operator is a set of unified single technological process equipment
(fixed assets) is used for routing, switching or transmission of information between network end
points. The main production funds for the industry and the nature of the product (service) hold a
dominant share of the total resources of the operator. Therefore their volume, composition, status and
largely determine the end results of the operators, the number and quality of services, the degree of
customer satisfaction.
Telecommunication network infrastructure consists of segments, as which understand logically or
physically separated part of a telecommunications network (for example, area, district, house, host
switching, subscriber's terminal equipment, etc.).
The specificity of the small telecommunication companies is substantial heterogeneity between
segments of infrastructure, which leads to a differentiated assessment of their effectiveness, for which
the thesis developed a special model. General view of the performance indicator for each segment is
represented in the following form:
Eijkh…(t) = f(Revenuesijkh…(t), Costsijkh…(t)), (2)
where i – index of service, j – index of area, k – index of the network segment, h – index of the
subscriber. It should also be noted:
N1 N 2 N 3 N 4 m
Revenues = ∑∑∑ ∑ (∑ c
i =1 j=1 k =1 h =1 q =1
q q
⋅ Vijkl + c0 q ijkl ) (3)
where N1, N2, N3, N4 – the number of segments of each type; c – subscription fee, q – fixed rate, V –
number of services (or number of subscribers), m – the number of tariffs for the segment, c0 – one-
time activation fee;
N1 N 2 N3 N 4
Costs = ∑∑∑∑(Costs
i =1 j=1 k =1 h =1
m
+ Costsz + Costss + Costsa + Costso + Costsp ) (4)
whereCostsm – cost of materials, Costsz – labor costs, Costss – social contributions, Costsa –
depreciation charges, Costso – calculations with network operators, Costsp – other costs.
The unified structure and simplicity are the distinctive features of the developed model. And it
adequately describes the characteristics of small operators. This allows you to use it not only in
theoretical studies of effectiveness, but in practice management. It is also important to note that it
uses the original data is available from the registers of managerial and financial accounting business.
4. Results
In our research we used Key Performance Indicators (KPI) of four groups of BSC (Table 2), and for
example, in this article, we present the results of the analysis only on two of the selected indicators.
The proposed model was evaluated the effectiveness of telecommunications network segments of
small operators of Kursk region. (This region was chosen as an example, to check the adequacy of the
model. Proposed by the authors of the approach to assessing the effectiveness is universal. It can also
be used in other countries and regions.)
As an indicator of the efficiency coefficient were used: intensive using of the telephone network, the
profits from the services of telephony, the gross margin from telephone communication services,
fixed-asset turnover from the telephone network, the payback period of investment in
1395
telecommunication network operator, the profitability of telephone services. Consideration of such a

wide range of indicators allowed a comprehensive evaluation of the effectiveness of the management
of the infrastructure of the small communications companies.
As an example, figure 3 shows the profitability is one of the indicators of the effectiveness of small
business communication for small telecommunication operator "KurskTelecom". Profitability across
the entire network amounted to 0.24. The profit margins for 14 of 44 segments were negative.
Table 2: KPI of Small Telecommunication Operators
Indicator
Gross profit, GP = Revenues – Costs, where Revenues – operator’s revenue, Costs– operator’s
costs.
P
Profitability of the services, E = , where P – operator’s profit.
Costs
Revenues − Costs
Gross margin, GM = .
Revenues
Capital productivity, F = Revenues , where C F – long term assets
F
C
 CF

Payback period of fixed assets, T = P , P > 0;
T → ∞, P ≤ 0
V V Vmax –
Indicator of intensive using, Kint = ⋅100 , where – real volume of services,
Vmax
maximum possible volume of services.
Loyalty index, NPS = % supporters – % critics
Average revenue per user, ARPU = Revenues , where k – number of users.
k
Revenues inn
Share of income from innovative services, d inn = , where Revenuesinn – revenue
Revenues
from innovative telecommunication services.
n
Growth rate of innovative services, t inn = Revenuesinn
n +1
Revenuesinn
Source: obtained by the authors in the research using the results of researches of Russian and foreign scientists.
Figure 3: Profitability of Segments
Source: obtained by the authors
1396
You can also see that, in working condition, telephone network segments are not used with maximum
of their technical and operating characteristics. Indicator of intensive using throughout the network as
a whole indicates that the telephone network was loaded on 54% of its capacity (Figure 4).
1.00 1.00 1.00

0.94 0.94 0.94 0.92
0.90 0.84
0.80
0.80 0.75
0.720.74 0.71 0.70
0.70 0.72
0.68 0.66
0.70
0.60 0.53 0.55 0.54 0.53
0.51 0.52
0.50 0.46
0.41
0.40 0.34 0.37
0.33 0.33 0.31 0.34
0.29 0.26 0.27
0.30 0.25 0.26
0.22 0.21 0.23
0.19 0.19
0.20
0.12 0.11
0.10 0.07
0.00
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43
Figure 4: Indicator of intensive using of segments
Source: obtained by the authors
Analysis of the data revealed the inefficiently managed network segments and develops
recommendations to improve the management considered a small telecommunication companies.
Found that the existing system of telephone services is such that the loss of some segments offset by
some highly profitable. While the loss-making and inefficient segments do not in all cases, the
strategically important for business, so it is a good idea to get rid of them, in this case, the
profitability of a telephone network will increase by 67% (Profitability across the entire network
amounted from 0.24 to 0.4).
This method of calculating is aimed at the possibility of spot optimization of operator network
infrastructure to maximize economic benefits from operator telecommunications network, since it
cannot be obtained without management of all network resources. Operation of the network can be
considered effective when each segment is used as much as possible, but not overloaded. This means
that the intensive using indicator of this segment should come close to the maximum value, but not
enough to be queued to it caused delays and losses.
Scientific results of this research is the development of theoretical and methodological foundations of
development tools integrated dynamic estimation of economic efficiency of small telecommunication
companies, based on the use of an adapted balanced scorecard.
5. Conclusions
We offer to management of small telecommunication operators organizing activities for the
development and implementation of methodologies to analyze management efficiency in external and
internal environment conditions, the results of which it is advisable to take into account on making
management decisions, and the implementation of the proposed activities will achieve the necessary
sustainability indicators of enterprises. In our view, the method of analysis of management efficiency
of small enterprise telecommunications industry should be developed in the context of the impact of
1397
significant factors of internal and external environment, to take into account all peculiarities of the
enterprises of such class (specifics of the industry sector, dynamic business environment, the need for
a detailed decomposition of enterprise infrastructure, etc.) to give the company forecast for rational
decision-making.
This approach is implemented on the base of integrated using of the offered methods that also
emphasizes the importance of research and allows us to make relevant conclusions:
• The combination of affecting parameters and sensitivity to it indicators of this class operator
allows management of these businesses take these key elements when they make
management decisions. Experience of foreign and Russian scientists allow us to consider the
balanced scorecard for small operators in a variety of external and internal environment as
the main tools of management activities.
• The balanced scorecard has been developed for small telecommunication companies, which
took into account their specificities and allows leaders to make effective management
decisions.
• Systematization of indicators for assessing management effectiveness of enterprises of this
class allows varying the set of indicators in accordance with specific tactical tasks and
strategic goals of the small enterprise and developing strategy of behavior in every situation.
The ability to change the level of itemization in the analysis of the efficiency will allow the
company to respond quickly to the prevailing conditions.On the BSC's basis we offered
mathematical model of evaluation, that contains intensive using of the telephone network,
profit from the services of telephony, gross margin from telephone communication services,
fixed-asset turnover from the telephone network, payback period of investment in
telecommunication network operator, profitability of telephone services.
• On the basis of the proposed model there were calculations of the performance indicators on
the basis of revenue and costs of operators. The model allows identifying inefficient
segments and excluding them.
• The proposed model is universal and can be used by different countries and companies
under influence of internal and external factors, allows evaluation and prediction the
situation for the future period, allowing the managers of the small telecommunication
companies to act proactively in dynamic conditions of business environment.
6. Acknowledgments
This paper was carried out within the Grant for State Support of Leading Scientific Schools NSH-
9726.2016.6 "The implementation of state economic policy through the development of tools of
strategic and indicative planning".
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companies, Management Accounting, August, 21-27.
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(Harper business Essentials), Harper Business, Revised edition.
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Government and Business, World Applied Sciences Journal, 28 (3), 411-415.
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Paperback.
1399
A Snapshot over Dynamics of Innovation in Romanian SMEs
Ion Verboncu
The Academy of Economic Studies, Bucharest, Romania, iverboncu@yahoo.com
Sabina Irimie
The University of Petrosani, Petrosani, Romania, sabina.irimie@gmail.com
Luise Zeininger
The Academy of Economic Studies, Bucharest, Romania, luise.zeininger@gmail.com
Mircea Mihai
The Academy of Economic Studies, Bucharest, Romania, mircea.mihai.ro@gmail.com
Abstract
In a fast paced world with colossal overnight political and social changes we could witness over the last
few month, there still are people more preoccupied with paying taxes and salaries in due time than
looking after major changes the economy is due to take. Most of them are busy with running day-to-day a
small business and would not see the danger right above them nor would they recognise an opportunity
when would occur. It is their world, of SMEs business owners and managers that we aim to investigate in
search of strategies to resist adapt and develop. Our present paper will just briefly present the first
findings of a larger undergoing statistical research on Romanian SMEs over 5 years: 2012-2016 in an
attempt to determine how oriented they are toward innovation, what are, if any, the main perceived
barriers and how their experience, geographical location, size or line of business would influence their
performance.
Keywords: SMEs, innovation, dynamic, human resources
Introduction
Worldwide SMEs are seen as the backbone of the economy. Given the specifics of the European Union,
SMEs are not only seen as the backbone of the economies of each of the member countries but of the
EU28 as a whole. According to the Annual report on European SMEs 2014/2015 in 2014 a little "over 22
million SMEs were active in the non-financial business sector across the EU28" whereas the non-
financial business sector consists of all sectors of the economies of the EU28 or Member States, except
for financial services, government services, education, health, arts and culture, agriculture, forestry, and
fishing, generating more than EUR 3.7 trillion of value added (58% of the sector’s total value added), and
employed almost 90 million people (67% of the sector’s total employment)" (Annual report on European
SMEs 2014/2015).
With such impact on the economies that translates also on a dramatic impact over a large share of
population, it comes as no surprise that their activities and interests, opportunities and barriers are closely
scrutinised, especially after the 2008 economic crisis that stroked hard this sector. Ever since, recovery is
looked and efforts are made toward innovation with results monitored on a yearly basis.
1400
Management specialists consider that SMEs through their owner’s entrepreneurial visions are at the
forefront of driving forward toward economy recovery, leading the path of using innovative products,
technologies, embracing new and modern management and marketing methods. In a previous article
Verboncu and Zeininger (2015) were mentioning that "implementing decisions of adequate quality
implies effective use of three critical variables: information, management tools and people", hence
present work pursuing data on information and people within SMEs.
This special status of the SMEs captured our interest of looking closer to the efforts toward innovation
made over the last 5 years by the Romanian SMEs following especially the barriers ahead of them with a
detailed snapshot over the impact of the lack of adequate human resources. The data used in our statistical
research study, as indicated by the sources, Romanian SMEs White Charter, was gathered through
questionnaire-based enquiries, as research methodologies, applied on a significant sample of Romanian
small, medium and micro enterprises; for a higher degree of relevance it was used a stratified - optimal
survey.
Businesses, Innovation and Human Resources
We witness nowadays the evolution from technological innovation to a culture of innovation as a

complex system that ensures businesses' competitiveness (Hamilton, 2001) and sustainability (Irimie,
2014). Moreover, innovation is the source of changes in the society as predicted by Serge Mallett (1975)
who, as early as mid-seventies, was speaking about "a new working class, characterized not only by the
best traditions of militancy but by the best innovations in values" something we live and experience today
through globalisation, migration, corporatism, and intercultural climate, idea reiterated discussed in 2008
at the Netxplorateur Forum, a high level Conference in Paris on the social and business impacts of Web
2.0 (Burgmann, 2016, p.70).
The last Research report: Business and Human Capital Challenges Today and in the Future (SHRM,
2015, p.21) makes a point in stating that “Globalization and innovation affect all employers—large and
small, non- and for-profit, multinational and local; however, globalization and innovation stall without
the cross-border movement of human capital."
Innovation is defined as "something, such as a method or a product newly introduced" by the American
Heritage Dictionary and similar by authors like Stamatis (2011) and Parashar (2007).
According to the EIU (2013) study results human resources and innovation are ranking number one and
respectively two in top challenges facing organizations. How businesses, innovation and human resources
or human capital link together, in authors vision, is presented in Figure 1 below:
1401
Figure1: the link between Human resources capability, innovation and business – a virtuous circle
Source: authors
Businesses are created by human resources/human capital innovative actions; along the way the balance
shifts from tangible to intangible through stages of value creation, work, adoption and standardization. As
an idea, innovation is intangible and shifts to tangible during work and adoption and standardization.
Technological progress, internet era, networking allow also human resources and businesses to shift from
tangible to intangible, as virtual team work
work,, clustering, IT specifics are more in the intangible. It is the
intangible area that grows larger and larger as a “pool of available knowledge…. Culturally diverse
virtual teams also stimulate innovation and creativity” (SHRM, 2014, p.38).
Dynamics of the innovation activities within Romanian SMEs
With innovation as starting point of our empirical research, first we looked at the dynamics of the
activities considered innovative such as developing new products, using new technologies, new
managerial and marketing
rketing approaches, newer IT solutions and last but not least human resources
development. The results for the period 2010
2010-2015 are presented in Figure 2.
1402
The nature of innovative activities of Romanian SMEs -

50.00% over the last 4 years
40.00%
30.00%
20.00%
10.00%
0.00%
new products new new marketing IT HR dev. not applicable
technologies & manag modernisation
approaches
2012 2013 2014 2015
Figure 2: Dynamics of the nature of innovative activities of Romanian SMEs

over the 2012-2015 period
Source: adapted from Nicolescu et al. (2014, 2015, 2016)
Despite the slight higher percentage in 2016, IT modernisation and development of the human resources
still have the lowest numbers over the four years considered mostly under 5% except the partial figures
for 2016 indicating a little over 7%.
Further on, we have analyzed data regarding the dynamics of the nature of innovative activities of the
SMEs, by looking at the number of years since establishment, considering following categories: less than
5 years since registration, between 5-10 years, 10-15 years and over 15 years. Below, Figure 3, shows the
result for the less than 5 years since establishment category.
Raking the lowest are, again, IT modernisation and HR development, consistent with the general results
for SMEs presented in Figure 2, with the highest efforts concentrated on new products and new
technologies. The trend for the other categories considered are similar, all with under 10% with just one
exception a 10.39% for SMEs with 5-10 years since registration form IT modernisation. The same SMEs
category has the higher percentage for HR development slightly under 8%. With our study focusing on
the links between businesses, human resources and innovation we looked at various ways that create the
interdependencies and one that is obvious is related to the barriers that SMEs ought to surpass in running
innovative activities.
1403
The nature of innovative activities - Romanian SMES's

with less than 5 years since settlement
41.54%
41.50%
33.79%
29.68%
27.18%
26.21%
50.00%
23.85%
22.76%
21.38%
19.23%
17.29%
40.00%
12.39%
30.00%
5.64%
5.19%
5.17%
3.85%
3.75%
3.10%
20.00%
10.00%
0.00%
new products new new marketing IT HR dev. not applicable
technologies & mng modernisation
approaches
2014 2015 2016
Figure 3: Dynamics of the nature of innovative activities of Romanian SMEs with less than 5 years
since settlement
The original study is looking at 9 barriers, one of which is the lack of adequate human resources. We
have gathered data to analyse the dynamic of this particular barrier for 3 consecutive years, as presented
in Table 1:
Table 1: Dynamics for lack of adequate human resources as barrier for innovative activities during
2014-2016 for Romanian SMEs
Year 2013 2014 2015 2016

Barrier: lack of adequate 8.49% 11.03% 14.98% 10.58%
human resources
Out of the nine barriers considered, the lack of adequate human resources is ranking last, possibly a proof
of higher availability of qualified personnel or of a better use of training and consultancy services. We
have therefore investigated trends for this particular barrier, lack of adequate human resources, as it is of
major impact both for the business and innovation, in relation to the number of years since the SME was
established - presented below in Figure 4 - the nature of the capital and type of associated legal
responsibility, the region of the country (one of the 8 Romania is divided) and the main type of activities.
1404
Lack of adequate human resources/ personnel - SMEs
18.58%
no of years since settlement
15.10%
14.22%
11.72%
11.53%
11.54%
11.38%
11.34%
10.77%
10.55%
20.00%
9.96%
8.60%
10.00%
0.00%
0-5 years 5-10 years 10-15 years over 15 years
2014 2015 2016
Figure 4: Dynamics of the lack of adequate human resources in Romanian SMEs no of years
since settlement
Study limitations and conclusions on the work
The paper presents the results of an ongoing statistical research of Romanian SMEs. The larger study
aims also to define trends regarding SMEs use of training and consultancy, of managerial tools and
methods as well as to help SMEs and authorities develop strategies and prioritise. Some of the result
present overlook 3 years some 4. We aim to finalise collection of data for 2012 and also consider full
2016 data for our final work.
References
American Heritage Dictionary (1994), 3rd edition, Dell Publishing, New York, USA.
Burgmann, V. (2016) Globalization and Labour in the Twenty-First Century, Taylor & Francis,
http://www.tandfebooks.com/action/showBook?doi=10.4324/9781315624044
Hamilton, D. (2001) "Competitiveness." Reader's Guide to The Social Sciences, First Edition, Editor:
Jonathan Michie, Fitzroy Dearborn Publishers, Routledge Sociology Online, Taylor & Francis, 30 August
2016 http://routledgeonline.com:80/Sociology/Book.aspx?id=w065_w065258a&searchterm=innovation
Irimie, S.I. (2014) Managementul dezvoltării durabile al unui sistem energetic comunitar – cu referire la
Valea Jiului, Politehnica Publishing, Timişoara, Romania.
Mallett, S. (1975) The New Working Class, Spokesman Books, Nottingham, UK.
Nicolescu, O., Maniu, A.I., Dragan, I.M., Nicolescu, C., Bâră O. M., Borcoş M.L. et al. (2014) White
Charter of Romanian SMEs 2014, Sigma Publishing House, Bucharest, Romania.
Nicolescu, O., Nicolescu, C., Truica, A.P., Uritu, D., Corcodel, St. F., (2015) White Charter of Romanian
SMEs 2015, Sigma Publishing House, Bucharest, Romania.
Nicolescu, O., Nicolescu, C., Truica, A.P., Uritu, D., Corcodel, St. F., (2016) White Charter of Romanian
SMEs 2016, Sigma Publishing House, Bucharest, Romania.
1405
Parashar, M. (2007) 8 Steps To Building Innovating Organizations, SAGE Publications Pvt. Ltd, USA.
Society for Human Resource Management, SHRM (2015) Research report: Business and Human Capital
Challenges Today and in the Future, New York,
https://store.shrm.org/books-resources/hr-topics/business-management/business-and-human-capital-
challenges-now-and-in-the-future-a-research-report-by-the-society-for-human-resource-management.html
Society for Human Resource Management, SHRM (2014) What's Next: Future Global HR Trends
Evolution of Work and the Worker, New York, http://whitepaper-admin.eiu.com/futurehrtrends/wp-
content/uploads/sites/2/2015/03/6-14-EIU-Report-Web.pdf
Stamatis, D. H. (2011) 10 Essentials for High Performance Quality in the 21st Century: chapter 4
„Innovation”, pp.145–170, Productivity Press, DOI: 10.1201/b11369-5
http://www.crcnetbase.com/doi/pdfplus/10.1201/b11369-5
The Economist Intelligence Unit, EIU (2013), Managing Human Resources in a Changing World, SHRM
Foundation survey, New York, http://futurehrtrends.eiu.com/report-2014/challenges-human-resource-
management/
The European Commission (2015) Annual report on European SMEs 2014/2015, Editor: Karen Hope,
http://ec.europa.eu/DocsRoom/documents/16341
Verboncu, I and Zeininger, L. (2015), 'The Manager and the Managerial Tools: Job Description', Review
of International Comparative Management, 16(5), 603-614 http://www.rmci.ase.ro/no16vol5/05.pdf
1406
Regulation Effects in the Swiss Property Market
Roman Eduard Kocher
Cyprus International University, Nicosia

Study Doctor of Business Administration (DBA)
roman.kocher@sunrise.ch,
Enselweg 2, 2556 Schwadernau, Switzerland
Mobile: 0041 79 769 44 12
Abstract
The Swiss property market is an imperfect consisted market which is regulated by the state. For
stakeholders, the state’s impact is decisive and significantly influences their action. Unfortunately, the
regulation does not always produce the desired effect which unsettles or even deters market participants.
Further, the various laws of Switzerland are implemented differently, depending on the canton, which
makes work difficult, especially for market participants who operate nationwide.
The aim of this study is to compare and analyze government failure with market failure. It should be
shown under which circumstances a competitive pricing is possible and how much regulation does make
sense. As a contribution to research it is the aim to illustrate the influence of certain circumstances and
their actual impact and to create a basis of discussion for the regulation in the field of Swiss residential
properties.
Keywords: Property market, control, regulation, free market economy, legislature
Introduction
The focus of this research lies on regulatory changes in the property market which are created by the
state. Due to the extent of the topic, only the field of residential properties is subject of this study.
Depending on the different regions of Switzerland this market varies significantly. The main purpose of
the enactment of legislation shall be compared to the actual effect after implementation.
Initial situation
In Switzerland, legislature of real estate lies within the responsibility of the state. Cantons and
communities then implement the law. Due to their scope of action and the different local strategies, the
implementation varies significantly. In extreme cases, the enactment of legislation may produce chances,
such as the conversion of real estate, in some regions, whilst in other regions conversions are completely
prevented by the severity of the law. In addition, there is the market that varies significantly depending on
the region and also has an impact on the outcome of a law. Often, the enactment of legislation aiming for
a certain effect provokes something different and creates a negative impact for certain market
participants.
Research Question
The research question here is what is aspired by the law, what the implementation accomplishes and the
reason why. The aim is to analyze how much regulation makes sense in the property market and under
which circumstances a market-friendly pricing can take place. In addition, it shall illustrate how accurate
1407
the law on government level has to be formulated in order to achieve a consistent and anticipated effect
nationwide.
Methodology
In a first phase, the analysis shall present the requirements for a neoclassical complete market. Then, the
characteristics of the property market need to be investigated. Further, it is the aim to illustrate why
potential investors hold back in the property market while they participate in other segments.
In a second phase, the study presents the characteristics of the legislation on canton level and displays
regional differences. This is done by evaluation of existing statistics. In concrete terms, the object is to
compare what was achieved per region with which law. Based on a metastudy, the cantons shall be
compared among each other. In addition, the validity of the results will be tested by expert questioning.
Expected Contribution of Research
The purpose of the study is to demonstrate what direct impact certain measures have on the property
market and in what way the market differs regionally. Subsequently, the aim is to illuminate the
perspective and the goals of the state as regulator as well as the viewpoint of the market participants
(developer, investor, renter).
Topicality
• Property Market Risks Have Increased Again

German: Risiken auf dem Immobilienmarkt haben wieder zugenommen (Immobilienreport
ETH ZH, 26.08.2015)
• BR Sommaruga Wants To Aggravate Lex Koller
German: Bundesrätin Sommaruga will Lex Koller verschärfen (NZZ, 08.06.2015)
• Worries About Too Much Regulation In the Property Market
German : Sorgen über zu viel Regulierung im Immobilienmarkt (INVESTOR-X, 26.06.2014,
Monica Hegglin)
• Property Market Grows in Switzerland – In Spite of Regulations
German: Wachstum im Immobilienmarkt Schweiz – trotz Regulierung? (WINCASA, Zürich
03.02.2015, Oliver Hofmann, CEO)
Bibliography (not exhaustive)
• Canonica, F. (2009): Die Immobilienbewertung

• Stocker, F. (2014): Moderne Volkswirtschaftslehre,
7. Auflage
• Faschingbauer, C. (2004): Marktversagen als Grund staatlicher Eingriffe in die Wirtschaft
• Lachat, et al. (2014): Mietrecht für die Praxis, 8. Auflage
• Diverse Swiss Legislation
The definitive bibliography will be constructed and submitted using this framework.
1408
Is it Document? Or is it Record?
Ap-Azli Bunawan
Faculty of Computer and Mathematical Sciences, Universiti Teknologi MARA, 40450 Shah Alam,
Selangor Darul Ehsan, Malaysia.
E-mail: ap-azli@salam.uitm.edu.my
Safawi Abdul Rahman, Mohd Razilan Abdul Kadir, Mohd Zailan Endin,
Mohd Kamil Mohamed Nor
Faculty of Information Management, Universiti Teknologi MARA, 40150 Shah Alam, Selangor Darul
Ehsan. Malaysia.
E-mail: safawi@salam.uitm.edu.my, mrazilan@salam.uitm.edu.my, zailan_endin@salam.uitm.edu.my,
kamil@salam.uitm.edu.my
Abstract
Document and record are used interchangeably in the literature. Practically, these two subjects have
significant differences. The inappropriate use of term may lead to the issues of inappropriate management
of document and record. Consecutively, the confusion and inappropriate management can lead to the
issues of document and records integrity in handling daily organizational document and record’s
transactions. This paper discusses the concepts of both document and record with aim at offering a better
and clearer understanding the differences between document and record conceptually and practically. In
presenting this subject of interest, the related literatures on definitions and elements of document and
record are reviewed, analyzed and visualized in a schematic view for ease of the understanding on the
differences between document and record.
Keywords: Confusion, differences, document, record
Introduction
The use of right terms in conveying a concept is critical in avoiding the misleading and in letting the
readers fully understands the context and content of the communicated subjects. Supposedly, an author
“should carefully choose the word that best conveys the intended message” (Hayakawa 1994)in order to
achieve specific communicative goals that include conveying the right information, evoking and
expressing the right feelings, and avoiding unwanted implications(Edmonds 1996).
The term document and record are two terms often used interchangeably in the literature of record
management domain when discussing the daily transactional materials that the organizations generate,
gather, keep and preserve. In the study of records management practices in Central Banks in Canada,
Fioscarini (2009) stated that the typical distinction between document and record did not show up in any
of the discussions [with the respondents]. Dawson (2015), Savic (1995) and Evans et al. (1974)
acknowledged that the terms document and record often are used interchangeably, but they are, in fact
distinctly different. The interchangeability as in these excerpts reflected the similarity as perceived in the
two terms.
Despite the interchangeability in use and the similarity, the difference between the two terms is prevalent
mainly in the conception of both subjects. A large number of literatures show that the definition of
document and record are differentiated endlessly until to date (United Nations Archives and Records
1409
Management Section (UNARMS), (n.d.); Asma’Mokhtar at el. 2016; Yeo, 2008; Duranti, 1997; Nunley,
1983). By relying on this practice, this paper progresses to discuss the core elements or processes of
identifying the document or record materials as stated in the conceptual definitions of both two subjects.
By identification the core elements and/or processes, it is expected that the issues of confusion in
selecting the appropriate terms with respect to document and record’s management and integrity can be
addressed satisfactorily.
Document vs. Record
A various number of conceptions on both document and record are easily available in the literature. To
gather a few, Lewellen (2015) in his doctoral thesis citing the ISO 15489.1 (2002, p. 3) that a document is
any “recorded information or object which can be treated as a unit”. This definition is also referred to by
the UNARMS (n.d). According to Gavin (2014), documents consist of information or data that can be
structured or unstructured and accessed by people. Cramer at el. (2014) stated that the term “document”
is defined broadly and includes any type of content, data or information contained in computer files and
websites. Based on those definitions, it is learnt that document is generally represented in the form of data
or information.
The term record is also vastly and easily found in the literature as it come side-by-side with document.
Lewellen (2015) defined record as information created, received, and maintained as evidence and
information by an organization or person, in pursuance of legal obligations or in the transaction of
business. In computer sciences perspective, the term “record” has been defined as a collection of related
data items or fields (Finnell, 2011). In the archival science perspective, it is defined as document created
(i.e., made or received and set aside for further action or reference) by a physical or juridical person in
the course of a practical activity as an instrument or by product of such activity (Duranti & Rogers2012;
Duranti & Thibodeau 2006). These conceptual definitions of record reflect the records is created
document that provide evidence of actions or decisions. In this way, a document is a record but a record is
not necessarily a document.
Despite this reflection explains the similarity between and record, their differences is more prevalent.
Generally, the difference between document and record has been described by Lang et al. (2014) who
compared the characteristics and roles of both document and record in discussing food safety system in
Alberta. The differences are depicted in Table 1 below.
Table 1: Differences between Document and Record

Documents Records
• Permanent • Filled in as activity occurs
(Level 4)
• Describe facility policies and • Provide proof that policies are
work instructions (Level 1, 2, followed or activities
and 3) performed
• Define systems, processes and • Demonstrate processes and
procedures procedures are conducted as
required
Methodology
This short concept paper adopts the scoping review technique. This technique has been chosen because of
its ability to evaluate research activity within an area of study and identify gaps within the literature
(Phillips at el. 2016). By scoping review technique, this paper mapped the relevant literatures (Lucassen
1410
at el. 2016; Arksey & O'Malley2005; Landa, 2011) in the record management where several study aims
and designs are referred, evaluated and represented. As a consequence, this short paper highlights
highlight the
differences between document and record in the form of their core elements.
Result
The definitions of “document” and “record” have been adequately examined. The examination has
resulted in the segregation of the two terms into core elements. Figure 1 visualizes the differences with
respect to the element based on the collective review.
DOCUMENT RECORD
Raw Data Entire aspect of Document
Basic Information Collective Related Data
Structured or Unstructured Businesses Transaction
Object or Unit Evidence for Legal Obligations
Figure 1:: The Differences between Document and Record
As in Figure 1,, the “document” contains four core elements described as found in the literatures. They are
“raw data”, “basic information”, “structured or unstructured” and “object or unit”. Buy these
the elements, it
is learnt that document is about primary source of information that organization use and handle on the
daily basis. The “Entire aspects of Document”, “Collective Related Data”, “Businesses Transactions” and
“Evidence for Legal Obligations” are the core elements of “record”. This implies that the “record” is
originated from the “document”. This paper concludes the discussion by narrating Bwalya at el. (2015),
Barry (1993), Livelton 1996 and Peterson’s (1991) quote that “all records are docume
documents,
nts, but not all
documents are records.
Conclusion
As a conclusion, the term “document” or “record” contained different elements that need to be clearly
understood. By having corrective understanding in terms of the definitions and elements on both terms,
the confusion issues on the terms used can be elimi
eliminated
nated wisely. Thus, this has also can solve the issues
on inappropriate management towards an organizational materials as well as losing the information on the
document and record. At last, through this comparative explanation on the differences of the terms ter
“document” and “record”, it could help the people or information society to demolish the confusion on
the terms used in handling organizational business transaction activity.
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Ahmad, K., & Jambari, D. I. (2016), ‘Development off Function-Based
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Classification Model for Electronic Records,’ International Journal of Information Management,
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Bwalya, K. J., Zulu, S. F., & Sebina, P. M., (2015), Knowledge Management and Electronic Records
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Innovation And Sustainability At The Swiss Building Industry Due To

Digital Business Transformation
Simon C. Vlachos
Cyprus International University, St. Gallen, Schweiz,

s.vlachos@lake-group-holding.ch,
Käserenstrasse 7, 9404 Rorschacherberg
Abstract
The Digital Business Transformation and the corresponding fast and permanent changes also affect the
Swiss building industry, thereby opening manifold new opportunities, while also bearing certain
complication and risks. One has to face these challenges, consider them as chances and turn them into a
positive. Also one has been to open to change conventional process patterns; ergo following the
philosophy of Change Management. In addition the theme of sustainability has to be taken into account,
about which everybody speaks and thinks to understand it; mostly, however, opinions, definitions, and
conversion about this principle differ widely. The Lake Group Holding AG has integrated the philosophy
of sustainable building into its genetics and, through continuous innovative striving, has developed a very
high standard, which will set a new benchmark.
Keywords:Change Management / Challenge Management / Digital Business Transformation / Innovation

/ Sustainability in building industry
Introduction
The Swiss building industry is characterised by an increasing building boom since years. One reason for
this could be seen in an increased demand for residential property but rather due to the reason that real
estate would be seen as save and secure financial investment because of a higher interest yield. Also the
stock market volatility and due to this the uncertainty of investors favour the investement in residential
property. Especially large-scale investors as retirement insurance enterprises invest a large amount in
buying residential property to ensure their customers the current statutory level of the income return. The
Swiss building industry can be seen as consisted market and due to the digital business transformation
which made processes more transparent and more quickly, investors have to make fast decisions for
buying residential property. But also building constructors and craftsman get pressurised due to pricing
pressure but rather due to time pressure. Large housing complex were built at a record time. Sometimes
regardless of building quality. That means that because of short time construction the main problem
consist in formation of mould due to dampness causing of too short drying time. On the other hand we are
faced with the topic sustainability and all the new labels like "Minergie", "Minergie plus" or "Minergie
eco", which all promise sustainable and ecological building construction. But the question is how can this
be ensured due to a rising time- and pricing-pressure?
Research Question
Especially at newbuilds at the Swiss building industry it is current situation that everyone talk about
sustainabilty at building and promise sustainable and ecological building construction by using labels like
"Minergie", Minergie plus" or "Minergie eco".
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But it might be possible that building constructors use these labels only to rise their profit although they
are not able to build residential property in a short-time project because of time and pricing-pressure. So I
would like to discuss the question how it is possible to build residential property in a sustainable and
ecological way?
Methodology
These studies will be done by interviewing experts from the building industry. These interviews will be
done as face-to-face interviews to rise quality and to have the option to respond better to given answers.
Additionally a research on recent specialist literature will be done.
Expected Outcome
The aim is to clarify whether recent building of residential property at Swiss building market would be
done sustainable and ecological or if building of residential property only rises profits by using
sustainable labels.
Recent Literature
• Credit Suisse, (2015): Investment Strategy & Research

• Credit Suisse, (2016): Der Immobilienmarkt Schweiz 2016
• Credit Suisse, (2011): Megatrends – Chancen und Risiken für KMU (Innovation)
• Zürich Versicherung (2016): Viele Schweizer KMU fürchten um ihre Existenz
• Zürich Versicherung (2015): Grösste Chancen für KMU 2015 – Weltweiter Umfragebericht
• Zürich Versicherung (2015): Hauptrisiken für KMU 2015 – Weltweiter Umfragebericht
Preliminary List of Literature
• Schaule, Matthias/Zimmermann, Josef (2014): Anreize für nachhaltige Immobilienentwicklung

(Naturzufriedenheit und Zahlungsbereitschaft als Funktion von Gebäudeeigenschaften bei
Büroimmobilien). Dissertation an der Technischen Hochschule München
• Tilke, Carsten/Zimmermann, Josef (2014): Standardisierung der Anforderungen an die
Immobilienprojektentwicklung unter besonderer Berücksichtigung des Finanzierungsprozesses.
Dissertation an der Technischen Hochschule München
• Westermann, George/ Calméjane, Claire; Bonnet, Didier (2011) : Digitale Transformation: „a
raodmap for billion – dollar organization (report)“ Capgemini Consulting
• Fachartikel Riem Sarsam auf CIO, 23. März 2012
• Vahs, Dietmar/Weiand, Achim (2010): Workbook Change Management, Stuttgart, Schäffer
Poeschel
• Baumöl, Ulrike (2008): Change Management in Organisationen, Wiesbaden, Gabler Edition
Wissenschaft
• Berger, Michael/ Chalupsky, Jutta/Hartmann Frank (2013): Change Management – (Über-)
Leben in Ogranisationen. 7. Auflage, Giessen, Verlag Dr. Götz Schmidt
• Bürgermeister, Markus (2009): Change und Planung zu einem Balanced-Change-Management,
Mering, Reiner Hampp Verlag
• Frey, Wolfgang (2010): Das Fünf-Finger-Prinzip : Strategien für eine nachhaltige Architektur,
Herder Verlag in München
• Glücklich, Detlef (2005): Ökologisches Bauen – Von Grundlagen zu Gesamtkonzepten, Original
von der University of Virgina (USA), Deutsche Verlagsanstalt
• Tomm, Arwed (2000): Ökologisch planen und bauen, Vieweg Verlag
• Canonica, Francesco (2009): Die Immobilienbewertung, SIV Verlag St. Gallen
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• Stocker, Ferry (2014): Moderne Volkswirtschaftslehre, 7. Auflage, De Gruyter Oldenburg

• Faschingbauer, Claudia (2004): Marktversagen als Grund staatlicher Eingriffe in die Wirtschaft,
Grin Verlag
The definitive bibliography will be constructed and submitted using this framework.
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Organizational Culture Role in Operational Risk Management
Violeta Mihaela Grecu (married Simedre), Management Faculty, Bucharest University of Economic
Studies, Bucharest, Romania, violeta_grecu@yahoo.com
Abstract
Developing a performant company, must have as a main preoccupation the employee. Integrating the
employees in a proper work environment, where each person is feeling motivated and inspired to do all
effort to fulfill all working tasks, to demonstrate abilities and capacity to evolve in the same time with the
company, must be key elements for executive management. These are connected to the scope of
developing a solid organizational culture.. Although, in every company occur the inherent risks related to
the activity and in this paper we shall refer to operational risks having in the middle the human factor.
Therefore, the management must do all effort to prevent and control these risks, by using in the first line,
the instruments situated in the proximity, which could lead to a normal activity course for the company.
Organizational culture is an important support element for risk management in every company. Using the
rules that could be settled through organizational culture, the company is reducing significantly the
possibility of occurring of operational risk related to human factor.
Key words: Employee, management, operational risk, organizational culture, organizational culture
model, risk management
Introduction
The intense evolution during last years has given a new rhythm including to our economic environment.
Nowadays, everything is taking place in an alert rhythm, the offers must be sent immediately to the
clients, the products must be delivered in the same day, the companies need an ascendant trend for sales
as the competition gets higher and higher, the employees must work harder for a bigger profit. The
companies themselves appear and disappear in the same alert rhythm, the activity domains are changing,
people must be prepared and trained for new professions. But what sustains the success of a company on
the market, which is its motor for developing in actual context? What is an employee looking for when is
hiring in a company? How does an employee knows that he found the right company for him, with the
employees fitted to spend together almost the entire time of a day? What determines an employee to have
an adequate behaviour at the working place, to interact in a civilised manner with his colleagues?
How does the employer knows of what he needs in his company? How is the employer establishing the
set of informal rules? It could be all written in a procedure, that has to be red by a potential employee?
During the last years, the rapid evolution of the technology, the changings in economic and social climate,
are generating new threats, risk factors, associated with operational risk in a company. Therefore, the
company management must find and use efficient leverage for risk mitigation. ? One of basic elements is
organizational culture, which could be modelled as to become an instrument for risk management.
The scope of this paper is to reveal if, these risk factors could be controlled by adapting organizational
culture to actual context and thus, a well-structured organizational culture to become an element to
manage different categories of operational risks. We will look for answers to the following questions:
could a strong organizational culture to prevent the producing of such events associated with operational
risk? Is the risk management system able to settle new rules and to restructure the organizational culture
thus to serve better to its purposes?
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Reasearch Methodolgy
The present paper was realised by using applicative research, having as a base, the theoretical and
practical aspects identified in the study of organizational culture in companies, as the aspects generated
by the possibility of operational risk occurrence in a company. The principles highlighted during the
research were: the causality and correspondence principles.
Theoretical Aspects Regarding Organizational Culture Implications in Economic

Performance
Organizational culture is a key element in assembling all concepts of motivation, engagement, wellbeing,
loyalty and company performance. The internal culture of the company is the one that is determining the
people to go together in the same direction, the same with the company objectives. Managers must ensure
that, in the context of companies computerization, the organizational culture will remain constant or
become stronger. Clifford Geertz (1973) mentioned that, an internal culture for a company is like a
software that puts a machinery into operation.
Edgar Schein defines the organizational culture as a set of shared basic assumptions, that a group learned
while was resolving problems of external adaptation and integration within the company, that has been
functioned a long time, as to be considered valid and thus to be taught to the new members as the right
mode of perception, thinking and seeing the problems. From this definition it results that overall,
organizational culture contains a set of elements that could be anytime adapted, updated, according as the
problems faced by the company are changing.
In this light, the defining elements of culture are:
- External environment: mission and strategy, targets and modalities of developing a whole.
- Internal integration: common language, group boundaries (of inclusion or exclusion), distribution of
authority and status, rules of conduct group development, rewards and penalties system, ideology and
religion.
- Tacit assumptions: history, stories about the company's activity, perceptions of time, space, group
relations, human nature, human activity in relation to the external environment.
If the first element of culture can be changed with the change of management or ownership, the last two
elements are interacting are essential elements, assumptions supporting each other, hence the change of at
least one assumption, will be made taking into account correlations with other assumptions.
G. Hofstede identified six dimensions of organizational culture, namely:
- Process orientation compared to results orientation;
- Employees orientation versus labour orientation;
- Local versus professional;
- Open system - closed system;
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- Low control compared to intense control;
- Prescriptive in relation to pragmatic.
All these are reflecting the modality of how employees interact with each other within the company, how
are they treating the daily tasks and the manner in which they relate to the external environment,
compared to other organizations.
Peters and Waterman conducted a study in 1982, over 36 American companies that have outstanding
performance between 1961 and 1980. There were measured six performance indicators: growth of
aggregate assets, the average increase in turnover, average share market, average return on equity,
average return on assets and sales.
Some results of this empirical study are related to organizational culture and to the working practice at
work. The results of this study led to the idea that the following factors are the foundation of a successful
company:
- Pragmatism - the inclination to action
- Close customer collaboration
- Autonomy and entrepreneurship
- Increased productivity by motivating employees
- A strong organisational culture
Through this test, it wasn’t demonstrated that these attributes are not found in companies that do not
excel. In addition, it is not shown an interdependent relationship between organizational culture and
economic performance.
Caroline Fisher analysed in a study, the organizational culture impacting economic indicators such as
profitability, revenue growth, market share, innovation and product development, services and product
quality and social - employee satisfaction. The elements with the highest Impact, were determined as:
mission, involvement, adaptability and consistency.
Adapting Organizational Culture to the Company’s Operational Risk Strategy

In relation to operational risk should be weighed which of the components associated with operational
risk events could be prevented, managed and controlled, considering the organizational culture modelling
to elements associated to this risk category.
It must be considered if there is a correlation between a model of organizational culture and operational
risk categories. In this case, we shall use a causal model, cause and effect and measuring of results.
Obviously, given the fact that this paper addresses the relationship organizational culture, operational
risk, we will analyse those elements of operational risk having the human factor as a source.
We assume that an unwanted event associated to operational risk produces on the background of an
existing organizational culture. We take as a reference a basic model of organizational culture and we
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shall draw up a model following a series of criteria. There will be traced the evolution of a new entrance
in the system, how will interact with it how will the system respond and how will the system be changed.
First, we have new employees entering the system and they acknowledge organizational culture elements.
There are a series of internal elements to be taken into consideration.
- Colleagues and working environment: working team, internal conflicts, individualistic colleagues
- Working procedures, work instructions for execution, financial penalties in case of failure
- The company's strategy.
There are also the external elements that interact with the company and with the employees:
- Clients
- External environment: supervising authorities, state institutions.
Figure 1: The impact elements for a new employees in an organisational culture

Source: author
There must be analysed the reactions under a given situation and monitored the results:
- Critical situation to be solved related to a client
- Company strategy: directed by client
- Experienced / Beginner employee
- Does call on colleagues / Does not call
- Friendly colleagues who want/ don’t want to help
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- Client unsatisfied - will not use the company's services
- Satisfied customer - will recommend the company on future
- The employee receives rewards/penalties.
Fig. 2 Critical situation solving in a specific type of organisational culture

Source: author
To establish a correlational model, must be analysed in the first place, the organizational culture of the
company. Using diagnosis analysis method, there could be identified those elements that need to be
adapted in order to create a system that will be adequate to support operational risk management strat
strategy.
The major basic objectives for the analysis, are:
- Identification and analyse of the values, symbols, influence behaviours in the organization, which had
positive or negative impact on economic performance;
- Assessment of impact and intensity of culture elements on attitudes and behaviour of individual
employees;
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- Identification of trends in organisational culture;
- Establishing a correlation between cultural specificity and objectives for the proposed changes;
- Settlement of the elements to be changed and identification of modalities and effective levers for
change.
Conclusions
Organizational culture is at the same time, an internal protection mechanism of the company, against
external destructive factors. Employees know they come to a job where it is known and widely accepted
set of values, where is a throughout adopted conduct, what are the general reactions to certain types of
behaviour. The safety offered by these elements as a whole, is that one that generates a certain comfort at
work. The analysis should go further, examining whether potential employees of a company are fit with
existing cultural elements in that company.
References
1. Clifford Geertz, 1973, The interpretation of cultures, Basic Books
2. Lect.univ.dr. Marian Nastase, 2004, Organizational and managerial culture, Bucharest, ASE
Publishers.
3. Roland Calori, Philippe Sarnin, 1991, Corporate Culture and Economic Performance: A French Study,
article in Organization studies, p. 51, 52.
4. Schein, Edgar, 1985, Organizational Culture and Leadership, Jossey-Bas Publishers, San Francisco.
5. Ştefan Stanciu, Mihaela Alexandra Ionescu, 2010, Organizational culture, Wordpress Publishers.
6. www.bain.com/Images/BB_Building_winning_culture.pdf
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Partage des Connaissances et Capacité D’apprentissage

Organisationnel : Ebauche D’un Modèle D’évaluation
de la Performance Organisationnelle
Aloulou Olfa, Université de Sfax, Faculté des Sciences Economiques et de Gestion de SfaxRoute de
l’aéroport km 4,5.BP 1088, 3018 Sfax, Tunisie.
aloulou-olfa@hotmail.fr
Karima Bouzguenda, Université de Sfax, Faculté des Sciences Economiques et de Gestion de Sfax,.
ka.bouzguenda@gmail.com
Résumé
Compte tenu de l’évolution très rapide des ressources cognitives et intangibles de l’entreprise, le
présent écrit se propose d’étudier les déterminants de la performance organisationnelle dans un
contexte de gestion des connaissances (GC). Le choix de ce thème est motivé par le fait que les
travaux actuellement entrepris dans le domaine de la GC ne s’orientent pas explicitement vers la
réalisation de la performance organisationnelle en termes d’une meilleure allocation des ressources
immatérielles. Il en découle que l’apport de la gestion des connaissances à la performance
organisationnelle peut être méconnu en raison non seulement de la complexité d’une telle pratique
managériale mais aussi de l’absence d’un outil d’évaluation facile à manager. Le présent travail de
recherche tente d’apporter quelques éclaircissements à la question relative à la relation entre la GC et
la performance organisationnelle. A cet effet, un modèle conceptuel est proposé en se focalisant sur
un modèle intégrateur de relations causales s’articulant autour de deux aspects.D’une part, l’accent
est mis sur l’étude de l’infrastructure des ressources organisationnelles et humaines dans une
perspective d’évaluation de l’influence du partage des connaissances au processus d’apprentissage
organisationnel.D’autre part, l’hypothèse relative à la contribution de l’apprentissage organisationnel
à la performance organisationnelle est avancée. Un tel modèle sera mis à l’épreuve en adoptant une
démarche abductives’appuyant sur des allés-retours entre données intellectuelles et investigations
pratiques.Le cadre méthodologique à envisager pouvant aboutir à des résultats significatifs est
spécifié.
Mots clés : Gestion des connaissances, apprentissage organisationnel, performance organisationnelle.
Introduction
A travers l’accélération du progrès technologique et la révolution informationnelle que l’on assiste,
les entreprises s’orientent vers de nouveaux concepts et chemins pour leur gestion.Convaincues de la
nécessité de s’adapter aux mutations liées à l’évolution très rapide des économies et de tirer le
maximum de profit, la vraie richesse des entreprises se transforme du tangible à l'intangible
(Edvisson et Malone, 1997). Dans ce cadre, les ressources cognitives ont marqué le début d'une
nouvelle ère appelée selon Drucker (1993) « l’ère de la connaissance ». La ressource de base, selon
l’auteur, ne sera plus le capital, les ressources naturelles ou le travail mais la connaissance.
Un premier constat ressorti est relatif au fait que les entreprises qui misent sur les connaissances
intégrées dans leurs organisations seront propriétaires de l'avenir (Lee et Choi, 2003). Il en découle
que "la gestion des ressources internes en connaissances organisationnelles, appelée Gestion des
connaissances, est devenue un enjeu majeur pour les organisations " (Drucker, 1993). Cette approche
se focalise sur "l'organisation et la mise à disposition des connaissances importantes, où et quand cela
est nécessaire" (Sabherwal et Becerra-Fernandez, 2003, p. 227). La GC " n'est pas simplement une
mode passagère, mais est en train de s'imposer comme un nouvel aspect de la gestion et comme une
nouvelle forme d'expertise" (Hull 2000, p 49).
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Toutefois, le problème majeur qui s’impose à ce niveau est que de nombreuses organisations
engagent souvent des initiatives de GC sans avoir une idée claire de ce qu’elles peuvent s'attendre en
termes d’avantages et d’enjeux notamment en ce qui concernent la performance de l’organisation.
Cette réflexion peut être justifiée par le fait que la mesure de la GC n'est pas une mission simple en
raison de ses caractéristiques qui comprennent la subjectivité, la transférabilité, l'encastrement,
l’auto-renforcement, la spontanéité, et éphémère, qui sont tous immatériels (Kluge et al, 2001).
L’enjeu est donc crucial : "comment gérer un actif immatériel et intangible, qui ne respecte pas les
principes économiques traditionnels ? " (Prax, 2000).
En outre, compte tenu des potentialités qu’offre la GC, nous pouvons nous interroger sur les moyens
concrets qui permettent de mieux appréhender les effets engendrés sur la performance des
entreprises.Dans ce cadre, un nombre important d’études supporte la réalité relative à l’existence
d’une relation positive entre l’utilisation des pratiques de GC et la performance de l’entreprise. Quink
(2008) démontre l’impact de l'infrastructure et du processus de GC sur la performance des
organismes à but non lucratif.
La présente réflexion s’inscrit dans le cadre d’une étude à large envergure faisant l’objet d’une thèse
de doctorat. Son originalité réside dans le fait qu’elle examine le lien entre la théorie des
connaissances et les pratiques de partage et d’apprentissage ainsi que leurs effets sur la performance
organisationnelle. A cet égard, la revue de la littérature est orientée vers l’ébauche d’un modèle
opérationnalisant la problématique avancée et générant un ensemble d’hypothèses guidant la
recherche empirique.
Fondement Théorique et Question de la Recherche
Au cours des deux dernières décennies, la gestion des connaissances a progressé d'un concept
émergent à une fonction de plus en plus commune dans les organisations professionnelles (McKeen
et al. 2006). D’une telle affirmation, nous pouvons avancer, d’une part, que la gestion des
connaissances est devenue un axe stratégique prioritaire pour de nombreuses organisations, et d’autre
part, que la capacité à gérer la connaissance devient de plus en plus cruciale dans l'économie du
savoir d'aujourd'hui.
Sur le plan théorique, bien que l’hypothèse relative à l’existence d’une relation d’influence de nature
positive entre la GC et la performance organisationnelle soit confirmée empiriquement, certaines
interrogations quant la façon dont les concepts sont liés s’imposent (Brusoni, et al, 2001 ; Cabrera et
Cabrera, 2002 ; Chakravarthy, et al, 2003).
Selon une perspective d'intégration des variables de connaissances, Lee et Choi (2003) proposent un
cadre de recherche approprié pour l'étude de la GC s’articulant autour de certaines catégories de
variables notamment les facilitateurs de connaissances, le processus, les résultats intermédiaires et la
performance organisationnelle. En se penchant sur cette perspective de recherche, nous tenterons
d’étudier la corrélation entre la GC en termes d’infrastructures et de partage d’une part, et les
résultats organisationnels en termes d’apprentissage et de performance organisationnelle, d’autre part.
Par ailleurs, les aspects spécifiques de la GC tels que les dimensions humaines et organisationnelles
restent les moins explorés, ce qui limite non seulement la capacité d’intégration de tous les facteurs
de succès mais aussi la compréhension de l’effet de la GC sur la performance organisationnelle. Du
fait, nous mettrons l'accent sur la culture organisationnelle, le capital humain et la structure
organisationnelle comme socle pour le partage des connaissances.
De plus, cette recherche essaye de dépasser le manque d’intérêt relevé quant à la notion
d'apprentissage organisationnel pour la compréhension de la relation pouvant exister entre la GC et la
performance organisationnelle. La qualité de ce processus de transformation tient donc à
l’apprentissage qu’une organisation peut acquérir (Mallet, Rousseau, 2005). Dans le même ordre
d’idées, Kaplan et Norton (2004) préconisent « le tableau de bord équilibré » en tant qu’une méthode
de mesure du degré d’apprentissage organisationnel. Nous adopterons cette méthode pour évaluer le
1424
poids des différents facteurs nécessaires à la mesure de la performance de la GC d’un point de vue
équilibré.
Eu égard ce soubassement théorique, la question centrale à laquelle la présente recherche se propose

de répondre :Comment élaborer un modèle de performance organisationnelle qui est en mesure
d’orienter les initiatives des entreprises en matière de partage des connaissances tout en agissant sur
le niveau d’apprentissage organisationnel ?
Il en ressort que les questionnements spécifiques qui orientent la recherche sont les suivants:Quels
sont les préalables de la gestion des connaissances?Serait-il- important de partager ces connaissances
afin d’améliorer le niveau d’apprentissage organisationnel?A quel degré la question de
l’apprentissage organisationnel se pose-t-elle dans une finalité de la performance des entreprises
Tunisiennes?
L’ambition de cette étude est d’apporter des éléments de réponse à ces questionnements dans but est
de fournir une approche pour mieux, non seulement, appréhender, mais aussi réussir le futur de la
gestion des connaissances en Tunisie. Une telle idée est fondée sur le postulat qu’à la différence
d’autres domaines en gestion, la gestion des connaissances nécessite la mise en œuvre d’une
démarche d’analyse globale et compréhensive des facteurs nécessaires pour sa réussite.
Il s’ensuit que la finalité de ce travail de recherche est d'étudier et tester empiriquement les facteurs
qui influent le plus la GC en termes de partage, qui à son tour influence la performance
organisationnelle à travers le processus d’apprentissage organisationnel tout en mobilisant l’approche
systémique des relations causales largement utilisée dans la recherche en gestion.
Modèle Conceptuel et Hypothèses de la Recherche
Compte tenu des entrelacements entre les divers concepts abordés, le modèle se présente sous forme
d’un système composé de trois niveaux conceptuels "Entrées – Processus – Résultat". Le modèle
repose sur : un premier niveau qui englobe les déterminants de la GC, un deuxième niveau qui
concerne le processus de partage des connaissances et un troisième niveau qui considère les résultats
de l’apprentissage organisationnel sur la performance organisationnelle. Ces trois niveaux sont
conçus en se référant à une logique systémique comme le montre la figure 1 suivante:
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Niveau I : déterminants Niveau II : Gestion Niveau III :

de la gestion des des connaissances Résultat
connaissances
Culture Apprentissage
organisationnel
organisationnelle
Partage des
connaissances
Structure
Performance
organisationnelle organisationnelle
Capital
intellectuel
Causalités directes Causalités indirectes
Figure 1: Proposition du modèle de recherche
La présente étude s’est construite autour d’une hypothèse centrale selon laquelle les pratiques de GC
ont un effet positif sur la performance organisationnelle. Diverses sous-hypothèses sont avancées à
partir du modèle proposé :
Hypothèse 1 (H1) : La culture organisationnelle détermine les pratiques de partage des

connaissances.
Hypothèse 2 (H2) : La structure organisationnelle délimite les pratiques de partage des

connaissances.
Hypothèse 3 (H3) : Le capital intellectuel spécifie les pratiques de partage des

connaissances.
Hypothèse 4 (H4) : L’apprentissage organisationnel est positivement lié au degré de partage

des connaissances del’entreprise.
Hypothèse 5 (H5) : L’apprentissage organisationnel influence positivement la performance

de l’entreprise.
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Cadre Méthodologique et Implications de la Recherche

Le domaine de recherche auquel nous sommes intéressées appartient à un terrain récent quoique
fertile en Tunisie. L’étude repose sur deux constats: d’un côté, les entreprises investissent dans le
capital intellectuel et ne bénéficient pas d’un avantage concurrentiel et de l’autre côté, elles ont
tendance à être réticent pour s’engager dans le développement de ces capacités.
Par ailleurs et comme dans la plupart des pays en voie de développement, les entreprises tunisiennes
tardent à se diriger vers des sources modernes de réussite telle que les connaissances
organisationnelles. Ceci peut être dû à la prédominance des formes d’organisation et de travail
souvent traditionnelles qui favorisent une structure hiérarchique verticale représentant ainsi une
entrave à toute initiative du changement.
C’est ainsi que nous nous situons par rapport à une étude de nature exploratoire basée sur des allés-
retours entre les connaissances théoriques et les observations du terrain. L’attrait de la démarche
appelée « abductive » réside dans le fait qu’elle permet de « trianguler » les données pratiques
découlant du terrain avec des éléments théoriques. En d’autres termes, il s’agit de donner du sens aux
observations empiriques en se basant sur les soubassements théoriques.Triki (2010), suggère que la
démarche abductive se base sur la confrontation de la théorie à la réalité en permettant d’une part, de
s’appuyer sur des concepts bien établis et d’autre part, de les enrichir en fonction des données
émanant du terrain.
De plus, pour assurer une démarche pertinente en regard de nos objectifs, il est nécessaire de se
pencher sur la manière dont les études empiriques seront menées et dans la mesure du possible, d’en
mesurer les effets sur les résultats. Par conséquent, des convergences entre des pratiques d’évaluation
qualitatives et quantitatives permettent de construire un cadre d’analyse général et exhaustif de
l’efficacité de la GC.
Afin d’adopter cette logique, nous envisageons d’effectuer, dans un premier temps, une étude
empirique de nature qualitative basée sur l’analyse des cas afin d’ajuster le modèle de recherche.
Dans un deuxième temps, une étude quantitative à base d’enquête à partir de questionnaires auprès
des entreprises tunisiennes sera engagée.
L’analyse des données emprunteront au modèle des équations structurelles jugé approprié pour
l’étude des modèles complexes et multidimensionnels. Les résultats générés seront analysés et
triangulés par rapport à la théorie afin de juger la pertinence des liens de causalité structurant le
modèle opérationnel de la recherche dans le contexte tunisien. Il s’agit de prendre en considération
les objectifs de la recherche suivants :
• Développer un cadre théorique et méthodologique s’articulant autour des ressources de

connaissances, de son processus de gestion et de l’apprentissage organisationnel.
• Concevoir un modèle qui prend en considération les différents éléments de la gestion des
connaissances qui sont en interaction avec la performance des entreprises.
• Démontrer les liens significatifs entre les pratiques de la gestion des connaissances et la
performance organisationnelle aux entreprises concernées pour soutenir leurs décisions en la
matière.
Un tel cadre méthodologique, pris par rigueur, serait en mesure de contribuer à l’élucidation d’un
problème récurrent des entreprises relatif au développement de capacités organisationnelles centrées
sur le capital immatériel. Une telle élucidation n’est pas sans influence sur le processus de création
des connaissances dans un environnement propice à l’apprentissage organisationnel. Les implications
théoriques et pratiques seront dévoilées et cadrées par rapport aux spécificités des pays émergents
dans une phase postrévolutionnaire.
1427
En définitive, l’idée est de permettre aux décideurs ayant un manque en matière de gestion des
connaissances d’avoir une idée assez large sur les différents éléments déterminants de leurs pratiques
et de faire leurs choix.
Bibliographie
Brusoni, S., Prencipe A. and Pavitt, K. (2001), ‘Knowledge specialization and organizational
coupling, and the boundaries of the firm: Why do firms know more than they make?’ Administrative
Science Quarterly, 46(3), 597-625.
Cabrera, A. and Cabrera, E. (2002), ‘Knowledge sharing dilemmas’, Organizational Studies, 23 (4),
687-712.
Chakravarthy, B., McEvily, S., Doz, Y. and Rau, D. (2003), Knowledge management and
competitive advantage, The Blackwell handbook of organizational learning and knowledge
management, Blackwell Publishing, Oxford, UK.
Drucker, P.F. (1993) Au-delà du capitalisme : La métamorphose de cette fin de siècle, Dunod, Paris.
Edvinsson, L and Malone, M. (1997) Intellectual Capital, Realizing your Company true Value by
findings its hidden Brain power, Harper Business, New York.
Hull, R. (2000),Knowledge management and the conduct of expert labor, Managing Knowledge,
Pritchard,C. (ed), Macmillan,Basingstoke.
Kaplan, R. S and Norton, D. P. (2004)Strategy maps – Converting intangible assets into tangible
outcomes, Harvard Business School Press,Boston.
Kluge, J., Stein, W and Licht, T. (2001) Knowledge unplugged: the McKinsey & Company global
survey on knowledge management, Palgrave, New York.
Lee, H and Byounggu, C. (2003), ‘Knowledge management enablers, processes, and organizational
performance: An integrative view and empirical examination’,Journal of Management Information
Systems, 20(1), 179-228.
McKeen J.D., Zack M.H. and Singh S. (2006), ‘Knowledge Management and Organizational
Performance: An Exploratory Survey’ Proceedings of the Thirty-Ninth Annual Hawaii International
Conference on System Sciences, January 4-7, Computer Society Press, Hawaii.
Mallet, C and Rousseau, A. (2005), ‘Appropriation d’un groupware : Apprentissage individuel et

performance collective’,Actes du colloque Apprentissage et performance organisationnelle
(PESOR),Sceaux, 24-30.
Prax, J. Y. (2000)Le guide du knowledge management, Dunod, Paris.
Quink, U. (2008), ‘An Exploration of knowledge management and intellectual capital in a nonprofit
organization context’, master thesis, The Queensland University of Technology.
Sabherwal, R and Becerra Fernandez, I. (2003), ‘An empirical study of the effect of knowledge
management processes at individual, group, and organizational levels’, Decision Sciences, 34(2),
225-260.
Triki, A. (2010)Epistémologie et méthodologie de la recherche : Théorie et application en marketing

et en gestion, Centre de Publication Universitaire, Tunis.
1428
Simulation Optimizer used for Testing Optimization Methods

Department of Industrial Engineering - Faculty of Mechanical Engineering, University of West

Bohemia, Pilsen, Czech Republic,
praska@kpv.zcu.cz
ulrychz@kpv.zcu.cz
Abstract
The paper deals with the developed simulation optimizer used for testing different optimization
methods on discrete simulation models and testing functions. Various modified heuristic
(metaheuristic) optimization methods - Random Search, Downhill Simplex, Hill Climbing, Tabu
Search, Local Search, Simulated Annealing, Evolution Strategy; Differential Evolution and Self
Organizing Migrating Algorithm - are implemented in the proposed simulation optimizer. The
simulation optimizer can also be remotely controlled by an application using client - server
architecture. The architecture Client - Server was chosen to accelerate the testing of a large number of
different settings of the implemented heuristic optimization methods. Furthermore, we developed an
application that automatically evaluates the success of finding the optimum by the optimization
methods and other evaluation criteria.
Keywords: optimization methods, testing of optimization methods, discrete event simulation models,
testing functions
Introduction
The development of information and communication technologies enables us to replace almost any
system by a simulator (simulation model). Using this simulation model we can test different variants
of behaviour of a modelled system under specified conditions. This simulation can often provide
unexpected results that can reveal previously overlooked errors in the system. Another related area is
the area of simulation optimization. Problems encountered in the area of business process
optimization are very often nondeterministic polynomial (NP hard problem), where the simulation
(calculation) of all possible options to find the optimum is impossible. Simulation optimization aims
to test various solutions to find a suitable setting for the simulated system under specified conditions.
Much of today's simulation software for modelling company business and processes (e.g. Arena,
Witness, PlantSimulation, etc.) uses its own integrated simulation optimizers.
Unfortunately, these optimizers are often "Black boxes", trying to combine different optimization
methods to find suitable solutions ("global optimum" in the best case. This means the best solution
and no better solution can be found) and we cannot identify which optimization method was applied.
Some other common problems are: we cannot set the parameters of the optimization methods
(parameters of optimization methods are managed by the internal optimizer algorithm); we usually
cannot implement our own optimization methods; we cannot specify our own termination criteria of
the optimization run; the simulation model must be built using the supplied simulation software – we
cannot use a simulation model developed in different simulation software; some simulation
optimizers allow us to set only selected types of parameters for the simulation model (e.g.
OPTQUEST for ARENA simulation software (Rockwell Automation, 2016)), etc.
We defined objectives that could lead to more effective implementation of the optimization
experiments on simulation models regarding specified problems. Objectives also reflect academic and
1429
practical research needs. We have developed our own simulation optimizer considering specified
problems after detailed analyses and initial testing. This simulation optimizer allows us to optimize
the behaviour of the built discrete event simulation models.
Models that can be optimized can be built by Plant Simulation software. Another option is to specify
our own testing function using a designed environment that describes the behaviour of the model.
We have developed a number of software applications for testing various optimization methods.
These applications allow us to set the input parameters of discrete event simulation models built in
Plant Simulation tool (Siemens) and also effectively control and test different settings of optimization
methods using evaluation criteria expressing the success of the tested optimization methods
(including the effect of optimization methods settings).
Simulation Optimization Using Parallel Approach

We developed the "OptimPlant" simulation optimizer with regard to the specified problems. The
optimizer contains different heuristic (and also stochastic) optimization methods for finding the
optima of different objective functions (we used testing functions as a substitution of a simulation
model).
These methods had to be modified in such way that they were applicable for discrete event simulation
optimization purposes (Raska & Ulrych, 2015). Other modifications were performed regarding the
results of the analyses of the behaviour of optimization methods used for optimizing discrete
simulation models. A control module used to control the simulation experiments running on remote
computers was developed. We developed a module using a knowledge database that contains the
results of the simulation runs from different simulation models to speed up our testing. Considering
the number of simulation experiments, we can divide the number of simulation experiments as
follows:
• Simulation experiment – simulation run of simulation model
• Optimization experiment – performed with concrete optimization method setting to find optimum
of objective function
• Series – replication of optimization experiments with concrete optimization method setting
C # and framework WPF (Windows Presentation Foundation) were used as programming languages.
These programming languages were deliberately chosen because of their strong support from MS
Office applications. The results of the simulation experiments can be exported to an Excel file
(*.xlsx), database file (*.accdb) and to an image file (*.png). The user can then use the analysis tools
implemented in MS Office applications.
Parallel Realization of Optimization Experiments

Figure 1 shows the scheme of the principle of optimization realization. Control of remote computers
is based on Client - Server architecture. The client is a control computer that monitors and controls
the other connected computers (servers) that perform a simulation optimization. The optimization
experiment is performing of simulation experiments until the optimum is found or other conditions
are met (e.g. termination criterion - number of experiments; finding a solution for its objective
function value is close to the objective function value of the global optimum; there is no evident
continuous improvement of the objective function value; etc. This process can be divided into several
phases:
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1. “OptimPlant” simulation optimizer has to be started on the server to ensure communication

between server and client. The optimizer communicates with the client via the allocated port number.
The optimizer located on the server waits for the starting instruction from the client to perform the
simulation (optimization) experiments with the simulation model. If the version of the running
simulation optimizer is older than the current version, an automatic upgrade to the latest version is
performed.
2. “OptimControl” located on the client computer is started. A user loads a list of available IP
addresses of computers where the optimization experiments will be performed – see Figure 9.
The status of the server computer is displayed (if the computer is performing an optimization
experiment; if the computer is ready to launch optimization experiments; sending files; etc.). Each
server computer has its own IP address. Because the currently available computing capacity of
computers is comparatively high, the user can run multiple simulations optimizers on the servers. This
means that the server can perform multiple independent optimization experiments with different
simulation models in parallel (depending on the number of free licenses of the simulation tool) - each
running optimizer communicates with the Client using its allocated port.
Client Server 1. Starting simulation optimizers

running on 1 ÷ X servers
Client 2. Starting client - module for controlling remote
computers (servers) - loading enabled servers
1 ÷ X servers
(control of
4. Sending files - simulation model and
servers)
the setting of optimization methods
3.Selection of the 5. Starting optimization experiments (server reads and
optimization method , setting writes knowledge base records)
the optimization method
parameters and specification
Knowledge
of server with knowledge
base
base
7. Processing outputs from simulation experiments and

inserting into the database of simulation experiments
1 ÷ X servers
(running optimization
6. The results are sent to the client experiments)
after the completion of optimization
experiments
8. Output processing using PivotTables in MS Excel
Figure 1: Principle of Optimization Procedure
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3. Different settings of the parameters for the optimization methods can be tested using the module
for remote computers control (the series represents the unique values of the optimization method
parameters. Optimization experiments will be performed with this optimization method setting) - see
Figure 9. Another important factor in the search for optimal solutions is the surface of the objective
function. In order to achieve convincing results, we replicated the optimization experiments with the
same parameter optimization method setting. This condition ensures the reduction of the influence of
random implemented in the optimization methods. The initial setting of the simulation model
parameters is the same for each optimization experiment in the series. The same termination criterion
(or criteria) was specified for all optimization experiments.
4. The necessary files are sent from Client to Server after setting all the attributes series (simulation
model and setting the parameters of the series).
5. A simulation optimization using a simulation optimizer is performed after receiving and storing
these files - see Figure 7. The progress of the optimization experiment is continuously displayed
during the optimization, i.e. the value of the objective function of the proposed possible solution is
displayed in the chart; setting the parameters of the simulation model for the proposed solutions; the
value of the objective function of the best solution found by optimization methods; the number of the
simulation experiment where the best solution was found; the value of the objective function of the
current solution; the number of performed experiments; time required to perform the whole series;
time of performed simulation experiment; number of loaded / saved simulation experiments in a local
knowledge base; the number of simulation experiments loaded into the local knowledge database; the
number of simulation experiments loaded from the external knowledge database; etc.
6. “OptimPlant” simulation optimizer performs an evaluation in MS Excel files after the completion
of all the series. The evaluation is displayed as box plots. The box plot includes characteristics (the
smallest observation – sample minimum, lower quartile, median, upper quartile, and largest
observation - sample maximum) calculated for each series. The evaluation also includes – Best
objective function value; Range of provided function objective values during the simulation
experiments, and Number of experiments required to find global (local) optimum; Finding the
optimum speed.
7. “OptimControl” application loads each evaluation of a series from connected servers.

“OptimPlantEvaluation” can convert these evaluations into MS Access database for subsequent
processing – see Figure 10.
8. MS Excel automatically generates PivotTables from data stored in the MS Access database. The
charts characterize the behaviour of individual optimization methods according to their settings – see
Figure 11. It is possible to evaluate the success of various optimization methods using aggregated data
in the charts. Aggregated data are also used to calculate the influence of each parameter of the method
used on the overall success of the chosen method.
Developed Software Tools

We developed the following software applications to test the effectiveness of different optimization
methods to find the optimal parameters settings for discrete simulation models:
• OptimPlant
• OptimControl
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• OptimPlantEvaluation
• Excel – Evaluation
OptimPlant Application
OptimPlant is a basic application that uses selected optimization methods to vary the value of input
parameters of the simulation model. The application controls the simulation run of discrete event
simulation models. Discrete simulation models are generally characterized by the abrupt change of
the input parameters and the objective function. Optimization methods have to adapt to the sudden
inputs and outputs of the model behaviour. To speed up the testing of optimization methods we also
use testing functions as a substitution for simulation models (e.g. Ackley (Tvrdik, 2010), De Jong,
Michalewicz, Rosenbrock (Pohlheim, 2006)).
It is necessary to define all the input parameters and properties of these input parameters of the new
model in the OptimPlant application. The following figure shows an example of defining ten input
parameters, where each parameter has a range of [-30,30]. Increment is set to 0.01.
Figure 2: OptimPlant – Input parameters of new testing function
The next picture shows an example of the input parameters of a discrete event simulation model
setting in Plant Simulation, where it is necessary to define the exact path of the input parameter of the
discrete event simulation model. OptimPlant application contains a COM interface for a Plant
Simulation tool. The connection to other simulation tools has to be solved in a similar manner.
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Figure 3: OptimPlant – Input parameters of new discrete event simulation model
The next figure shows the "Simulation calculation settings" tab which contains:
• The objective function minimization or maximization
• Path of simulation model
• Using SQL Server to store the settings of input parameters of the simulation model and the
objective function value
Using SQL Server is an interesting option. If the simulation run for the simulation model was
simulated before (even on another computer) with concrete input parameters, the application
automatically loads the value of the objective function of this performed simulation run from SQL
Server. Using Knowledge base records helps to accelerate the optimization when testing the
behaviour of the optimization methods.
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Figure 4: OptimPlant – Simulation settings
It is also necessary to define the type of termination criterion for the optimization. The following
figure shows the different types of termination criteria. We primarily used following termination
criteria for testing:
• Specified number of iterations
• Value to reach – optimization is terminated when a specified objective function value of the
optimum is reached
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Figure 5: OptimPlant – Termination criteria
The user can select a tested optimization method from the "Setting optimization methods" tab. We
implemented and tested the following optimization methods:
• Random Search (Majer, 2003)
• Downhill Simplex (Nelder & Mead, 1964), (Tvrdik, 2004), (Weise, 2009)
• Local Search (Majer, 2003)
• Hill Climbing (Weise, 2009)
• Tabu Search (Monticelli, et al., 2008)
• Simulated Annealing (Monticelli, et al., 2008), (Weise, 2009)
• Differential Evolution (Tvrdik, 2010), (Vincent & Ponnambalam, 2013)
• Evolution Strategy (Marik, et al., 2001), (Tvrdik, 2004), (Miranda, 2008)
• Soma (Zelinka, 2004)
A detailed description of the optimization methods which were implemented in the Simulation
Optimizer can be found in (Raska & Ulrych, 2015). The user can set the parameters of the
optimization method that is used for the optimization of the simulation model input parameters - see
Figure 6.
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Figure 6: OptimPlant – Selection of the optimization method and setting its parameters
The user can start the optimization of the selected model with the specific setting of the optimization
method at the "Running optimization" tab. The following figure shows a chart containing possible
solutions for Ackley´s testing function found by differential evolution where the dimension of the
search space is equal to ten parameters - see Figure 7. The quality of these solutions is represented by
the testing (objective) function values.
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Figure 7: OptimPlant - Optimization run
The last "Optimization series settings" tab is used to test different settings of the selected optimization
methods - see Figure 8. The user can set the range of the optimization methods parameters. The
application automatically varies the optimization methods parameters with defined steps. The
influence of random implemented in optimization methods is reduced by the replication of
optimization experiments with a concrete optimization method setting - series. The success of
different performed series can be compared.
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Figure 8: OptimPlant - Optimization series settings
OptimPlant automatically saves the success of individual settings of the selected optimization method
using these settings on this tab. Important outputs for subsequent statistical evaluation are saved to
MS Excel, e.g.:
• Optimization methods settings
• Termination criteria (e.g. Number of iterations is reached, Value to reach, etc.)
• Statistical calculations (minimum, maximum, median, 1st and 3rd quartile) of each replication of
optimization experiments with concrete optimization method setting:
o The speed of convergence

o Found optima
o The range of objective function values from simulation experiments
OptimControl Application
Testing different optimization methods is time consuming. This process requires great computing
power. Hence all testing is performed on multiple computers. The computer runs testing of a selected
optimization method with a concrete optimization method setting. The OptimControl application was
developed to distribute simulation models to different computers and enhance computing power.
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The user can distribute the settings (the OptimPlant application XML file + the simulation model built
by the simulation tool) built by OptimControl to multiple remote computers and perform testing using
OptimPlant. When all the series are finished, the OptimPlant application compresses all the generated
Excel files to a zip file. These files contain all the necessary statistics for subsequent evaluation of the
optimization experiments. The OptimControl application automatically downloads the zip file to the
selected default folder by the user.
The OptimControl application functionality:
• Select settings of the optimization method parameters used by OptimPlant application
• Set selected optimization method and its parameters
• Detect if a remote computer:
o Is active (each launched OptimPlant communicates through IP Address and generated port
number)
o Performs an optimization experiment (displays the time to the end of the optimization experiment
or the series, remaining time)
• Restart or shutdown a remote computer
• Close and launch the simulation optimizer on a remote computer
• Send all the necessary files to a remote computer
• Start and stop optimization experiment (series)
• Download all the results from the remote computer to control computer when the simulation
optimization is finished
• Informs about the performed actions
Figure 9 shows the GUI of the OptimControl application.
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Figure 9: OptimControl – Setting the remote computers (Servers) and optimization methods
OptimPlantEvaluation application
The OptimPlantEvaluation application is used for the initial processing of all the downloaded Excel
files – see Figure 10. These Excel files are generated by OptimPlant running on a remote computer
(server). Excel files contain the basic statistical data about the settings of the optimization methods
and the simulation model. All statistical data including individual settings of all the tested
optimization methods are processed and stored in an Access database.
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Figure 10: OptimPlantEvaluation - Processing outputs from optimization experiments
Excel evaluation
The last application is an application built by MS Excel. This application loads data from MS Access
database and a program (using VBA) stores the data in an MS Excel file. The application creates
pivot tables from the downloaded data. The analysis uses different settings of the pivot tables. The
data can be quickly filtered and the user can display the results of the analysis in the pivot charts.
The Excel output can be used to compare the efficiency of the optimization methods success of
searching the optimum and other different perspectives, e.g. the difference between the found local
optimum and global optimum, the speed of finding the optimum, etc. The success of different settings
of the optimization methods parameters can also be found in the Excel file.
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Figure 11: MS Excel - Evaluation of optimization experiments (series)
Advantages of Using the Developed Application
Many current simulation optimizers that optimize the behaviour of discrete event simulation models
are a “Black-Box”. These simulation optimizers are usually a part of simulation software and the user
cannot precisely determine which optimization methods were used during the optimization process.
Also, the user cannot analyse the efficiency of a setting used for the optimization methods parameters,
etc.
The software solution described in this paper has the following advantages:
• It is possible to implement one’s own optimization methods and their modifications
• The user can select the optimization method
• The user can select the termination criteria
• The user can test the efficiency of selected settings of the optimization methods parameters
• The testing of the optimization methods behaviour can be performed on the discrete event
simulation models or testing functions
• The setting of the optimization methods parameters can be performed automatically
• Different settings of the optimization methods parameters can be distributed to a number of

computers (servers) from one Client PC – central control of the testing the optimization parameters
settings by using more PCs
1443
• Standardized evaluation of the success of specific settings of the optimization methods
• Enhancing the speed of testing the optimization methods parameters on discrete event simulation
models – using the records containing the results (the objective function value and the discrete event
simulation model settings) from previous tests on discrete event simulation modelsThe developed
application can be used to compare the success of the different optimization methods used to optimize
different types of simulation models and testing functions
Conclusion
This paper focuses on a possible approach for solving simulation optimization and testing different
settings of optimization methods on discrete (event) simulation models and testing functions. We
have developed a simulation optimizer using various modified heuristic (metaheuristic) optimization
methods according to specified problems in simulation optimization. These problems include
nondeterministic polynomial problems (NP-hard) that cannot be solved in the classical way of
simulating all the possible variants for solving the problem. The simulation optimizer uses Client -
Server architecture to enhance computing power and to accelerate the testing of implemented
heuristic methods on discrete (event) simulation models and testing functions. The paper describes all
the developed applications that we use to test the behaviour of optimization methods. We also
developed an application for evaluating the acquired data in order to increase the efficiency of
optimization methods for finding the global optimum and their other properties.
Acknowledgment
The present contribution has been prepared under project LO1502 ‘Development of the Regional
Technological Institute’ under the auspices of the National Sustainability Programme I of the
Ministry of Education of the Czech Republic aimed at supporting research, experimental development
and innovation.
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1445
Energy Audit and Increase of Energy Efficiency in the Republic of

Kazakhstan
Arsen Tleppayev, German Kazakh University, Almaty, Kazakhstan, arsentlp@gmail.com
Nataliya Tovma, Kazakh National University, Almaty, Kazakhstan, natalivictor45@mail.ru
Abstract
In modern conditions of development the energy observation plays the key role because it is the
complex technical-economical inspection of organization which is being made to receive authentic
information on volume of energy resources used to identify the structure and effectiveness of energy
expenses of organization, to detect the possibilities of energy-saving and increase of energy
effectiveness. The aim of energy audit is to evaluate the effectiveness of fuel-energy usage and work
out effective measures to decrease company’s expenses. In article the steps of energy audit that
stimulate its effective conducting are improved.
Keywords: energy effectiveness, energy audit, energy savings, environmental management.
Introduction
Positive developments in the energy efficiency of the economy possibly in obtaining objective data
that can be obtained with the help of an energy audit, which to be conducted properly and in
accordance with international standards. Kazakhstan has implemented concrete steps to improve the
energy efficiency. Government adopted the Law "On energy saving and energy efficiency" (2014),
which establishes certain requirements for businesses such as mandatory energy audit, the
introduction of energy managers, development of strategies for energy efficiency. The main
instrument of state policy in the field of rational and efficient use of energy in the Republic of
Kazakhstan is a comprehensive plan to improve energy efficiency of Kazakhstan for 2012-2015.The
practical stage of implementation of energy saving policy in Kazakhstan started in 2013: more than
3000 standards of energy consumption, requirements for energy efficiency for buildings and design
documentation, transportation and electric motors, adopted by more than 200 technical standards for
energy efficiency.
Energy facilities and infrastructure in Kazakhstan require speedy modernization. It is estimated that
over 90% of the gas turbines, nearly 60% of the steam turbine and steam boiler 33% have worked at
least twenty years. Investments are needed not only for the producers of electricity, but also for its
end-users: the lion's share of Kazakhstan's industry consumes a great deal more energy to produce
(five times) than similar enterprises in European Union.
There are many studies worldwide identifying a wide variety of sector-specific and cross-cutting
energy efficiency improvement opportunities for industry. Significant numbers of energy efficiency
measures is discussed in various studies (DeCanio 1998; Golove and Eto 1996; de Groot et al. 2001;
Jaffe and Stavins 1994; Thollander and Ottosson 2008; Rohdin and Thollander 2006; Rohdin et al.
2007). Questions of energy management and energy audit is discussed in Kazakhstan (Zeinolla,
Tovma and Tleppayev 2015).
Rational and ecological responsible usage of energetic resources is one of the main priorities of
energy politics of most of countries, firstly members of EU. Republic of Kazakhstan is a competent
participant of world society, accepted the obligations on accomplishment of missions settled on
Agenda of XXI century (Rio de Janeiro, 1992) and declarations of Millennium Summit (New York,
2000) and World-wide summit on stable development (Johannesburg, 2002). Republic of Kazakhstan
accepted measures directed on achieving of stable development. Kazakhstan is member and active
participant of Development Committee of UN, “Environment for Europe” and “Environment and
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stable development for Asia” processes, regional Eurasian network of World-wide counsel
entrepreneurs for stable development. Being political, cultural and economic bridge between Europe
and Asia Kazakhstan performs the same connecting function in development of landscape and
ecological systems of continent.
As for the production of energy resources in Republic of Kazakhstan, in 2015 its total volume was
2169,4 million tones (equivalent to oil), that includes: production of coal 58,8 million tones
(equivalent to oil), comparing to 1991 the production of coal decreased to 12,2%, production of oil
increased on 209% and it was 82,4 million tones, production of natural gas increased on 169,5% that
was 17,3 million tones (equivalent to oil).
In Message of President of Kazakhstan Republic N. Nazarbayev “Strategy “Kazakhstan 2050: new

political direction of successful country” the following statement was announced: “Humanity is on
the threshold of Third Industrial Revolution that changes the meaning of production. Technological
inventions cardinally change the structure and needs of world markets. We live in totally different
technological reality than before”.
Requirements to “green jobs” (according to the UNEP): “green jobs” are those in production or
companies decreasing the impact on environment because of resources output increase, recycling and
utilization of waste, and also because of retention and regeneration of ecosystems and bio variety.
“Green jobs” should correspond criteria of deserving labor, means that it should be high-quality jobs,
guaranteeing good salary, safe working conditions, employment, adequate perspectives of
qualification increase and promotion, and also employees’ loyalty. Right after the summit “Rio+20”,
that took place in 2012 in Brazil, development of “green strategies” became one of the prior
directions of economical politics either in developed or in developing countries. Kazakhstan became
one of the first countries within the post-soviet space that switched to the “green development” way.
Kazakhstan, Russia and Belorussia are going to form electricity-energy market in terms of Eurasian
Economic Union (EEU) by 2019. Countries are already in process of discussion of project concept
creation program of this market, which in common production of energy is going to be largest in the
world. In nearest 4 years members of EEU have to take measures to harmonize legal-actual base in
spheres of energy, technological regulations and standards, to prepare base for working subject to
access the markets of other countries, and to create new common legal acts in sphere of energy.
According to power balance of Kazakhstan for the period till 2030, that was issued by Government
of Kazakhstan N724, June 28, 2014 “Concept of development of fuel and energy complex of the
Republic of Kazakhstan till 2030”, the power surplus in 2016 will be 1504 M. Watt, in 2020 – 1874
M. Watt, in 2025 – 1448 M. Watt.
The concept of Kazakhstan’s switch to “green economy” is going to be implemented in 3 steps:

2013-2020 – within this period the main priority of government will be the optimization of resources
usage, together with creation of “green” infrastructure. 2020-2030 - on the base of created “green”
infrastructure it is going to be started the transformation of national economy, oriented on careful
usage of water, stimulation of development and wide implementation energy regeneration
technologies, as well as construction of objects on the base of high standards of energy effectiveness.
2030-2050 – the switch of national economy to the principles of as it called “Third Industrial
Revolution”, that requires the usage of natural resources in conditions of its regeneration and
stability. Issues of transfer to “green economy” will be regulated with legislative acts of the Republic
of Kazakhstan on issues of transfer to “green” economy.
Results
Industry is a major consumer of electricity (70%) and thermal energy (50%), the population
consumes less than 25% of electricity and 30% heat. According to the forecast of the Energy
Research Institute of the Russian Academy of Sciences (ERI RAS), consumption of electricity and
heat in the world from 2010 to 2035 GG will increase due to the growth needs of the industry
(industry) and the public (HCS).
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If Kazakhstan save the old industry base and low rates of its modernization without the introduction
of energy-saving and energy-efficient technologies, then further development of Kazakhstan's
production will only be used to meet the needs of the industry. This will lead to reduced
competitiveness; reduce product quality and preservation of the status of "raw" appendage of the
developed countries of the world.
Today, energy efficiency in all sectors of the country (the company, the transport sector, housing, and
agriculture) is a priority issue in the development of Kazakhstan. In Kazakhstan, the energy saving
and energy efficiency of all sectors of the economy are now a priority, with the decision which will
be solved complex problems - energy, environmental, economic and social.
Kazakhstan’s government adopted a new Law “On energy saving and energy efficiency” № 541-IV
in January 13, 2012. The law was adopted to replace the pre-existing Law "On energy saving". [4]
The new law defines the concept State Energy Registry - a systematic set of information about
business entities, consuming more than 1,500 tons of fuel per year, or 2 MWatt of installed capacity.
The most effective solution to the reduction of natural resources is the practice of energy
conservation and introduction of energy efficient technologies. Improving energy efficiency is a very
important issue for the economy of Kazakhstan. Unit GDP energy intensity according to the IEA
Kazakhstan remain very high (1,8 USD / kg.o.e) compared with developed countries (5,5 USD /
kg.o.e).
During the period of reforming the economy from 1991 to 2001 energy intensity of GDP has
increased by 15 - 20%, which had a negative impact both on the economy as a whole, and on end
users. During the period 2001-2012 the energy intensity of GDP fell slightly, but still higher than the
average trend in the 5 times. According to expert data overrun fuel for electricity production is 10-
15% on heating - 15-20%. The costs of implementing power saving is about 5 times lower than on a
new energy production.
So, following the global socio-economic trends, Kazakhstan, as well as many countries of the West
and the East, he joined the international environmental movement and is now taking its first steps
along the road of sustainable development. This is confirmed by the Strategic Development Plan of
the Republic of Kazakhstan till 2020. According to this document, which generally does not change
the general trend, Kazakhstan aims to reduce the energy intensity of the economy (by Strategic plan
on 25%) and carbon emissions (in accordance with the obligations under the Kyoto Protocol - by
15% by 2025 and by 25% by 2050).
Speaking about the potential of energy saving in the CIS countries, it is worth noting that today, in a
number of companies are already elements of the energy used, for example, developed and
implemented programs, plans and energy saving projects carried out purchase more energy-efficient
equipment, analyzes the opportunities for improving the energy efficiency of certain production
facilities and / or processes.
After the adoption the law “On energy saving and energy efficiency”, the deadline for energy audit
for the companies was moved from July 2015 to July 2016. There are 79 companies was the
accredited license from Ministry of investments and development on Kazakhstan energy audits
market.
The audit from 3270 companies was conducted only by 7%. Energy auditors note that most of the
companies do it only “for reporting” trying to decrease the potential of energy effectiveness.
Auditing for energy purchases, use, conversion, and waste is the first step in managing your energy
consumption. For maximum effectiveness, it is essential to focus on the essentials. This is best done
through the Pareto Principle (80% of the effect is caused by 20% of the factors).
Currently, the existing national standards in the field of energy management systems are available in
almost all the developed and rapidly developing countries:
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- USA (ANSI / MSE 2000: 2008)
- United Europe (EN 16001: 2009)
- United Kingdom (BS EN 16001: 2009)
- China (GB / T 23331: 2009)
- South Korea (KS A 4000: 2007).
European Standard EN 16001: 2009 has been prepared by CEN / CLC BT / TF 189 "Energy
management and related services - general requirements and qualification procedures". Adopted by
the CEN (European Committee for Standardization) June 6, 2009 At the heart of EN 16001 are well-
proven national standards: Denmark (DS 2403: 2001), Sweden (SS 627750: 2003), Ireland (IS393:
2005) and Spain (UNE 216 301: 2007).
Also the European Union developed and adopted to the new standard IEC 60034-30, according to
which three energy efficiency class set (IE - International energy efficiency) of single-speed three-
phase asynchronous motors with squirrel-cage rotor:
- the IE1 - Standard energy efficiency class - roughly equivalent to the energy efficiency class EFF2,
used now in Europe;
- the IE2 - High energy efficiency class - roughly equivalent to the energy efficiency class EFF1,
- the IE3 - the highest energy efficiency class - the new class of energy for Europe.
The introduction of the new standard in Europe will take place in three stages:
- since January 2011, all engines must conform to class IE2,
- from January 2015 all engines from 7.5 to 375 kW must be no lower than class IE3; at the same
time allowed the class IE2 motor, but only when working with variable frequency drive,
- from January 2017 all motors with power from 0.75 to 375 kW must be no lower than class IE3; at
the same time it allowed the class IE2 motor and when working with variable frequency drive.
Some of the above-mentioned standards came out in the second and even a third version, which once
again demonstrates their relevance and development. International experience has shown that the
energy standards in the field of energy management systems are a viable instrument of policy and
market mechanism, which allows achieving a sustainable energy industry. As a result of the
implementation of programs in the US, UK and China can unequivocally say that the potential for
optimization of industrial systems and energy efficiency is not less than 20%. As an example, the
experience of two companies in one of them is the plant, owned by a large company, Dow
Chemicals.
In order to increase energy and reduce inventories of CO2 emissions, the European Union (EU) has
focused attention on the achievement of energy efficiency. In particular, the energy efficiency of the
housing funds of the EU's largest energy consumers will increase in more than 40%. Directive on
energy performance of buildings (DEEZ) and its updated revision (recast), adopted in 2002 and 2010
respectively, the EU contributes to achieve its ambitious goals in energy use and energy saving.
Although some EU Member States (such as Belgium, the Netherlands and Germany) have already
made considerable progress towards the achievement of high energy efficiency standards, other
countries (such as Poland, Spain, and Czech Republic) have faced great challenges in achieving these
figures.
1449
Germany has long been a world leader in the development of energy efficiency standards and
regulations at the national level ("Progress with Implementing Energy Efficiency Policies," OECD /
IEA, 2009). On the basis of the federal German law on Energy Savings 2002, the government has
been developed Regulation on Energy Conservation, where the detailed requirements with respect to
indicators of energy consumed were presented in new and existing buildings (Regulation on Energy
Conservation was modified in 2004, 2007 and 2009 according Schettler-Köhler (2008); Schettler-
Köhler & Kunkel (2010)). Through Decree on energy saving and other activities aimed at the
development of energy efficiency in the country, in Germany managed to implement many aspects of
energy performance of buildings (ECD).
Directive on energy performance of buildings (ECD) is the main legislative instrument which affects
the energy consumption and energy efficiency in the EU. This document regulates the construction of
buildings erected and controls existing buildings. The original directive was adopted in 2002
(Directive 2002/91/EC); updated edition – in 2010 and published in 2010, which were proposed
significant changes to the standards and energy efficiency standards (“Energy Efficiency of Buildings
Directive”, ECEEE, 2010).
The introduction of the international standard ISO 50001 energy management is defined as state
regulatory purposes. The standard is based on the common elements used in all of ISO management
system that provides a high level of compatibility with other management systems. The purpose of
the standard is to provide companies a structured and comprehensive management to optimize the
process of consumption of energy resources and systems management data process. The purpose of
the introduction of ISO 50001: 2011 is to provide companies with a structured and comprehensive
guide to the process optimization of consumption of energy resources and the system managing the
process.
ISO 50001: 2011 - Energy Management System is a fundamental basis for the creation of an efficient
and modern energy management in the industrial, commercial and other enterprises and
organizations. The international standard ISO 50001: 2011 has been prepared by Technical
Committee ISO / TC 242 "Energy Management" which adopted by ISO (International Organization
for Standardization) June 9, 2011. ISO 50001: 2011 is based on the European Standard EN 16001:
2009, the American ANSI / MSE 2000: 2008 and Korean KS A 4000: 2007.
Companies that have implemented ISO 50001 standard for energy management system, the ability to
get an objective data to reduce the costs of energy consumption and reduce carbon dioxide emissions
into the environment, as well as give a great number of benefits to users. With regard to the specifics
of the enterprise energy management, basic steps that should be provided for the effective
management of energy use in the enterprise:
- The adoption of the energy policy of the company;
- Planning of energy production and consumption;
- The introduction and operation of power plants;
- Monitoring and measuring energy use, including the result of the activities of the staff;
- Corrective and preventive actions to identify and predictable inconsistencies;
- internal audit;
- Management Analysis in energy use;
- Improving management.
1450
The standard is intended for independent use and for its use as a part of other quality management
systems, environmental impact, safe working conditions and social responsibility. ISO 50001
standards includes requirements for the development and implementation of energy policy,
objectives, targets and energy management action plans, taking into account the legislative regulatory
legal acts. The standard will be to organize any type of base, along with the standards for ISO 9001
quality management system and ISO 14001 environmental system management.
The main standard in this series is ISO 50001: 2011 “Energy Management Systems. Requirements
with guidance for use”. ISO 50001: 2011 is a new voluntary international standard that is applicable
to all organizations, including large and small industrial enterprises, commercial organizations,
institutions and government agencies wishing to demonstrate their compliance with the declared
energy policy by self-assessment and self-declaration of conformity or by passing the system of
certification procedures Energy.
ISO 50001: 2011 specifies requirements for designing, implementing, maintaining and improving an
energy management system in order to achieve continuous improvement in the field of energy
management, including energy efficiency, energy use and consumption in the framework of a
systematic approach based on the PDCA cycle.
In addition, as described in the standard requirements apply to measurement, documentation and

reporting, design and practice of procurement of equipment, systems, processes, selection and
training, which contribute to improving the energy efficiency of the organization.
Standards ISO 50000 have a several series. These include:
1) ISO / CD 50002 Energy audit;
2) ISO / CD 50003 energy management system audits and competence of the auditors;
3) ISO / CD 50004 Guidelines for the implementation, maintenance and improvement of the energy
management system;
4) ISO / CD 50006 Basic use of energy and energy efficiency - General Principles and Guidelines;
5) ISO / CD 50015 Monitoring, measurement, analysis and verification of the organizational level of
energy efficiency.
Standard ISO 50001:2011 is based on a model of continuous improvement management system, so it

can be used either alone or in conjunction with other well-known standards such as ISO 9001, ISO
14001, ISO 22000 and OHSAS 18001 standards. This enables organizations to integrate energy
management into their overall efforts to improve product quality and safety as well as environmental
management and the management of occupational safety and health personnel.
The main aim of energy audit is to find the ways and possibilities for energy saving and help to the
subjects of monitoring to identify the directions of effective usage of energy resources.
According rules of regulations, the energy audit consists of 4 main parts:
1. Preparation step. Aims of that step are to create a program of conducting the energy audit (pointing
all deadlines and the full list of objects that are on company’s balance sheet) and to form the list of
necessary documentation and information that have to be provided to customer.
2. Measuring (Trial) step. Aims of that step are to measure and register the characteristics of energy
resources consumption with the help of stationery or/and portable devices, to investigate oil-energy
streams on object in general or partially.
1451
3. Analyzing step. Aims of that step are to analyze information and records ( calculations of actual
figures of energy effectiveness of buildings and types of equipment with all the standards) received
from measuring step and to analyze the effectiveness of object’s oil-energy resources usage.
4. Conclusive step. Aims of that step are to summarize analysis of energy resources consumption by
building, objects, equipment by groups and types of energy sources and to give the conclusion on
energy saving and ways to increase energy effectiveness of the object in general and partially.
In order to make the energy investigation to be more effective it is necessary to operate the process of
energy inspection more efficient. The main instrument of energy management is an energy audit. We
think it is necessary to make the steps of energy audit detailed:
I step. Evaluation of actual effectiveness of innovations and measures implemented before.
II step. Evaluation of energy effectiveness of resources’ potential and determination of main

directions of rational energy consumption.
III step. Working out the energy passport.
IV step. Working out the program of energy effectiveness increase.
Energy audit is a necessary tool for the assessment of the actual state, identifying the main causes of
the loss and the development of recommendations aimed at reducing energy consumption.
Thus, an energy audit is necessary in the event that management of the company or institution has
taken a course to reduce energy costs, improve product quality and enhance the energy security of the
enterprise. As a result of the energy audit is compiled opinion on energy conservation and efficiency.
The main purpose of the energy audit is energy-saving recommendations and assistance to business
entities in determining the areas of energy efficiency. The main tasks of the energy audit:
- identification of reserves and potential energy savings;
- development of a program of energy saving measures, energy-saving technologies;
- determination of the economic effect of the introduction of energy-saving measures;
- definition of the payback period of energy-saving measures and the costs of their implementation;
- improving the system of control and metering of energy resources;
- energy passport of the enterprise.
We allow to clarify that an energy audit conducted to assess the effectiveness of the use of fuel and
energy resources (electric and thermal energy, natural and associated gas, solid fuel, oil and
processed products) to identify opportunities to conserve resources and to develop a set of energy
saving measures. This definition is more fully and clearly reflect the concept of energy audits.
Currently, there are many techniques for energy audits, which are designed for individual systems,
types of equipment, technological and power plants in various industries. They regulate the audit
process, and the need to prioritize those or other measurements.
In Kazakhstan the procedure of energy audit are determined by “Rules of the audit” (2012).
In our opinion, the main stages of the energy audit can be shows in figure 1.
In accordance with these Rules, an energy audit consists of 4 main steps:
I stage. Preparatory: a program of energy auditing, including a program of instrumental examination.
1452
Stage II. Measuring (Test).

Phase III. Analytical: a technical report on energy audit.
Stage IV. Final: an action plan for energy conservation and efficiency.
According to other researchers, energy audit consist from the following activities:
1. Analysis of the state of power supply systems, heating, water supply, the technical equipment of
the park industrial enterprise.
2. Assessment of the systems and measuring instruments.
3. Identification of unreasonable losses.
4. Assessment of the system of regulation of energy consumption and energy use.
5. Checking the energy balances of the enterprise.
6. Calculation of the specific energy consumption standards for manufactured products or types of
work.
7. The evaluation of the major energy-saving measures.
1453
Figure 1: Stages of energy audits in Kazakhstan
The result of the energy audit may be:
- conclusion about the quality of produced energy, particularly electricity;
- recommendations for an energy-saving measures and technologies;
- recommendations for the steps (including changes in technology), aimed at improving the energy
efficiency of products.
1454
Agreement in the field of energy saving and increase of energy efficiency shall be concluded on a
voluntary basis between the authorized body, local executive body of the oblast, city of republican
significance, the capital and subject of the State Energy Register consuming energy resources in the
volume of one hundred thousand and more tons of the equivalent fuel per year (hereinafter –
Agreement).
Ground for conclusion of the Agreement is the application of a subject of the State Energy Register
consuming energy resources in the volume of one hundred thousand and more tons of the equivalent
fuel per year, to the local executive body of the oblast, city of republican significance, the capital.
Subject of the Agreement is acceptance of obligations by a subject of the State Energy Register on
decreasing the energy intensity by it for a production unit in the volume no less than for fifteen
percent within five years on account of performance of the plan of measures on energy saving and
increase of energy efficiency. Agreement shall be concluded for the term no less than five years.
Termination of the validity of the Agreement shall be carried out in accordance with the rules of civil
legislation of the Republic of Kazakhstan.
Information support of activity on energy saving and increase of energy efficiency shall be carried
out by central and local executive bodies and subjects of a quasi-public sector on a regular basis by:
1) propaganda of effective use of energy resources
2) coordination of works on creation of demonstration projects of high level energy efficiency;
3) assistance in organizing the exhibitions of energy saving materials and equipment.
Thereby, energy inspection, in other words “energy audit” this is first of all an activity directed on
evaluation of energy resources consumption and working out the measures on its shortening in
company.
Conclusions
Energy is becoming an integral part of the modernization of the enterprise. An audit will show you
problems that may, when corrected, save you significant amounts of money over time. Audits also
determine the efficiency of your home’s heating and cooling systems. An audit may also show you
ways to conserve gas, hot water, and electricity.
Acknowledgment
This paper is results by funding Committee of science Ministry of education and science of the
Republic of Kazakhstan.
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Mapping Industry Dynamics: The Case of the Audiovisual Archiving

Sector
Chiara Bernardi and Giovanni Camponovo
University of Applied Sciences and Arts of Southern Switzerland (SUPSI), Manno, Switzerland
chiara.bernardi@supsi.ch
giovanni.camponovo@supsi.ch
Abstract
Complexity and interconnection of business environments are often difficult to study by existing and well
diffused strategic management tools. To fill this gap, we suggest a model that maps the industry
dynamics. Taking into account actors, their positions and their relations with a broad scope and a long
time horizon, we show through the suggested model a dual view about how the industry currently works
and how it can be transformed in the future. The application of this model to the case study reveals some
interesting insights and allows the discussion about the potentialities of the proposed framework.
Keywords: Industry analysis, strategic tools, environmental analysis, audiovisual archiving industry.
Introduction
The business environment in most industries has evolved towards increasingly higher levels of
dynamism, complexity, uncertainty and disruptiveness (Camponovo, Osterwalder, and Pigneur, 2003).
Many authors referred to that using terms such as hypercompetition (D'Aveni and Gunther, 1994). In such
environments, strategic analysis should make use of approaches and tools that are as dynamic and flexible
as the business environment they are applied to. This is even truer in technologically intensive industries
and industries where digitization is an important driver of change. One perfect example is the audiovisual
sector, where the transition to digital media in core activities such as content generation, distribution and
archiving, is bringing a state of turmoil and the emergence of different business models.
In truth, this paper stems from an applied research project in this industry where a broadcaster asked to
study the business opportunities and suitable business models for a possible spin-off of its internal
audiovisual digitization unit. The dynamicity of the sector of audiovisual archiving made the need for
more dynamic approaches and analysis tools apparent.
The goal of this paper is to present the industry dynamics analysis approach developed in this research
project and applied with satisfying results to the audiovisual archiving industry.
State Of The Art

With the ever increasing dynamism of business ecosystems, strategic management scholars recognized
more and more that the alignment between an organization and its environment is critical for its success.
The notion of strategy itself emerges as a means to maintain direction and sustain performance in such
environments (Ansoff, 1987; Bourgeois, 1980).
The two main strategic management approaches support the importance of assessing the environment: the
resource-based view claims that the competitive advantage of a firm arises from having unique resources
that fit well with the needs of its environment (Barney, 1991; Wernerfelt, 1984), while the industrial
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organization approach argues that the performance of a firm depends on its industry structure, its ability
to assess the competitive forces in its environment and exploit them to develop a favorable position (Bain,
1968; Porter, 1980).
Scanning the environment and analyzing its possible dynamics is then a critical phase to design strategies
that can be successful in the environment they will be implemented (Beal, 2000; Daft and Weick, 1984;
Hambrick, 1982). Firms that routinely scan their environment are able to assess the forces that might
affect their competitive position and develop timely responses to sustain their performance (Choo, 2001).
This becomes even more critical, but also much more difficult, in complex and dynamic environments
(Boyd and Fulk, 1996).
The management literature has developed some well-known tools for strategic purposes like the PEST,
SWOT, value chain and 5-forces models. Due to their simplicity, these models are widely used. The
diffusion of their use in practice does not prove their intellectual value but only how much their use is
routinized in organizations (Frost, 2003). SWOT is a good example of a poor tool (Hill and Westbrook,
1997) but with a great diffusion in practice.
Many available tools to assess the environment are fairly static and fail to consider a number of important
determinants of the long term evolution of a system. The use of tools is not neutral because they address
the attention and influence the way of reasoning and structuring the strategic analysis (Knott, 2006).
Some firms choose to avoid them to reduce the barriers created by the technicalities required for their
application (Grant, 2003). In addition, their use must be consistent with the context that should be
studied, taking into consideration the nature of the environment and the scope of the strategic problem
(Furrer and Thomas, 2000).
In particular, the interplay of the actions of the different actors that react or proactively try to shape their
environment and modify their competitive stance in search of a competitive advantage or a defendable
position seems to be not considered enough. The main reason is that the structure-conduct-performance
paradigm has influenced deeply the development of strategic management field (McWilliams and Smart,
1993). This paradigm assumes that the structure of an industry is given and not amendable by firms. Its
adoption has resulted in the development of a static perspective in contrast with the dynamic nature of the
environment (McWilliams and Smart, 1993).
The attention to the dynamics and change of the environment has become particularly critical in the last
few decades as globalization, enhanced logistics and digital communication has increased the dynamism
and diverse configurations in the value system. In particular, organizations move from linear supply
chains to multi-directional value constellations where actors collaborate to bring customers higher value
while containing production costs (Normann and Ramirez, 1993). “As the world becomes more complex,
the analytical task of managers is also becoming more complex as they can no longer just examine the
major competitor, but must examine the network of firms that relate to that competitor.” (Kothandaraman
and Wilson, 2001). To deal with this, several authors proposed a value network analysis, which focuses
on the activities that jointly create value, the actors performing them and the flow of resources (material,
information, money etc.) between them (Parolini, 1999).
Value networks evolve over time alongside competitors’ strategies, technologies, regulations, market
needs and other issues that may change the configuration of the environment and value networks
(Peppard and Rylander, 2006). Because of this, some authors added additional layers such as the i* model
that also considers actors’ intentions and beliefs (Yu, Liu, and Li, 2001) and the multi-actor-issues
models that consider the interplay of position, salience and clout of actors over issues and the inter-
influences between actors to assess potential coalitions and conflicts (Bendahan, Camponovo, Monzani,
and Pigneur, 2005).
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Scenario-planning is a complementary approach that can be used to cope with the high level of
uncertainty characterizing a very dynamic environment (Courtney, Kirkland, and Viguerie, 2001). Unlike
traditional forecasting methods that assume that the future can be predicted accurately enough to choose a
clear strategic direction, which is clearly not the case in dynamic environments, scenario-planning tries to
analyze weak signals, emerging trends and potential discontinuities that can lead to a number of different
alternative plausible or surprising futures (Schwartz, 1991). The utility of this approach is that it compels
managers to think about the consequences of several possible evolutions before committing to a strategy,
inducing them to devise more flexible and robust strategies as well as to prepare in advance several
options in case some scenario will realize.
Methodology
This paper employs an inductive case-oriented approach (Eisenhardt, 1989) grounded on an applied
research project where a broadcaster asked to study potential opportunities and suitable business model
for the spin-off of its internal audiovisual digitization unit. This project exposed the limits of applying
traditional frameworks in the strategic management literature for industry analysis in rapidly evolving
business contexts. The insights collected during the project allowed us to develop the model, described in
the next section, which is more suitable for complex and dynamic industries.
This project combined a business environment analysis with an Actor-Market-Issues approach

(Camponovo et al., 2003) and the ideation of potential business models with the spin-off and potential
partners in the industry following the Business Model Canvas (Osterwalder and Pigneur, 2010). For the
first part, which is the focus of this paper, information about the market, the actors and the issues of the
industry was gathered based on twenty six semi-structured interviews with representative actors of the
audiovisual digitization industry in Switzerland and Italy. The actors were chosen to combine the most
influential incumbent actors of the industry along with smaller and younger organizations that followed
more original approaches as well as to encompass the various steps of the digitization process from
preparation, digitization, storage, content management to valorization of audiovisual and related materials
as well as the associated metadata.
The Model
The traditional starting point to map and analyze is the identification of the supply chain and the actors
that operate in each phase. In doing this, the analyst faces three main issues that make existing tools
unideal for mapping and analyzing dynamic and complex industries and that we propose to tackle with
the model proposed here.
Firstly, the reality often resembles a complex and confused system rather than a straightforward and
linear supply chain. As a result, the traditional industry mapping and analysis tools (i.e. value chain, five
forces and value network) describing an industry focusing only on buying-seller relationships does not
capture the more complex structure of the environment. On the other hand, the more complex and
prospective tools (i.e. i* and multi-actor-issues models) consider too many variables like intentions,
positions and salience over issues which are difficult to assess as an external observer.
Secondly, the choice of the scope of the analysis (how the industry is defined and therefore which actors
and activities are included) is also important as it has a substantial impact on the insights emerging from
the study. If the scope is too narrow, for instance centered on the products and services offered or
demanded by today’s incumbents and customers, there is a risk of missing the complex interactions
between different actors, radical innovations or other environmental changes that could disrupt an
established industry (Christensen, 1997). On the other hand, a large scope reduces the possibility to
analyze it deeply or the study would become so complex that it would be easy to lose sight of the key
factors among all the information overload.
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Thirdly, the time horizon is another fundamental choice: should we have to consider how the system is
working or how the system could work in the near or more distant future? The traditional tools produce a
fairly static picture of the current situation without considering the dynamism that characterizes many
industries. On the other hand, the more prospective totools
ols try to account for many potential evolutions on
the long term, which make decision making much more difficult.
All these relevant questions are part of the researcher’s reflection process to discover, interpret and
represent the reality in a way which is not only effective but also efficient so as to be able to generate
interesting and actionable insights in a timely and understandable (for managers) manner.
To balance these needs, the model suggested here (which we will call industry dynamics analysis)
analys
proposes to extend the traditional industry analysis tools while maintaining a lower complexity than the
multi-actor
actor analysis tools as shown by the following table and discussed below (Table 1).
Table 1: industry dynamics analysis vs other industry an

analysis tools
Elements Value network analysis Industry dynamics analysis Actor-issues

issues analysis
Conceptual • Actors • Actors • Actors
elements • • Roles • Issues
• Activities • Business Rel.(A,A) • Influence(A,A)
• Resource flows(A,A) • Collaboration (A,A) •
• Positions(A,R) • Positions(A,I)
• Moves(A,R) • Saliences(A,I)
• Influence(A,I)
Scope • Narrow: actors from the • Medium: industry and • Large: all actors that can
current industry supply new entrants from other influence some issues
chain industries from the industry or PEST
environment
Time horizon • Current state • Current and short term • Long term evolution
evolution
With regards to the conceptual elements, our model is based on an analysis of the actors, the business and
collaborative relationships between them, the role the play in their network of relationships as well as the
potential moves between roles they may take if some conditions are satisfied. These elements may be
graphically illustratedd at two levels (roles and actors) depending on the desired level of detail (Fig 1)
Figure 1: role level
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Figure 2: actor level
This model shares with the traditional tools the same basic concepts of actors, business relationships
among actors and activities,
ctivities, even though the latter is the broader concept of roles played by an actor in his
networks as suggested by Allee (2008)
(2008).. However, to understand the dynamics of an industry it is crucial
to also consider collaborative relationsh
relationships
ips between actors as well as the possible moves of actors
between roles together with the relative circumstances that can allow actors to do so. On the other hand,
our model is simpler than the actor
actor-issues
issues model in that it does not require identifying issues
is that may
influence the long-term
term evolution of the environment and the position, salience and influence of actors on
each of them (information that is often only possible to speculate about as an external observer).
With regards to the scope of the ananalysis,

alysis, our model urges the analyst to expand the traditional industry
analysis scope so as to also include actors that are outside of the current industry structure, but they can
enter or influence it in the next future. In this, the proposed model is sim
similar,
ilar, though less pretentious, to
the actor-issues
issues and scenario planning analysis.
Finally, the time horizon needs to go beyond the traditional methods focused on the current status of the
industry in order to consider its possible evolution in the near ffuture
uture by looking at potential new actors,
new roles and moves by actors through the different roles and the relative conditions. If the industry
shows a high level of turbulence, the need to study its possible evolution becomes even more important.
To assist
st analysts in expanding the scope and time horizon of the analysis, as well as to consider the
moves of actors, we propose to include an analysis of the non non-customers
customers (as per the present situation).
This is important to find new opportunities, discovering potential new entrants and possibilities for actors
to develop blue ocean strategies (Kim and Mauborgne, 2015).. We also suggest dividing those nonnon
customers into different tiers according to the distance from the industry and the reasons why they are
non-customers.
Case Study
To show the applicability of the conceptual model to an environment characterized by a high level of
dynamism and complexity, we use as case study the audiovisual digitization industry.
During our exploration of the audiovisual industry, we have examined the potential market for
digitalization services. The customers
stomers are organizations or individuals that produced or collected
audiovisual materials on analogical devices like broadcasters, producers, national archives, libraries,
museums, cultural organizations and firms.
The potential demand for these services is large due to the large amount of audiovisual heritage stored on
1461
analog media (estimated at over 200 million hours) and the clear advantages offered by digitalization in
preserving audiovisual contents (videotapes degrade over time and playback equipmen
equipmentt is getting scarce)
and providing better opportunities to reuse, enhance and distribute the digital contents (Everts, 2013).
2013) In
addition, the market is rather concentrated, with a few large players (like national archives and
broadcasters) owning huge collections of audio
audio-visual material and numerous small
mall actors (like cultural
organizations and independent producers) with rather small, but still valuable due to their unicity, cultural
and historical significance, collections (Klijn and De Lusenet, 2008).
However, studying the demand in detail we have discovered that the addressable and served market is
much lower as there aree a number of factors that limit some organizations to being non-customers
non as
shown in figure 3.
Figure 3: non customers in the audiovsual archiving sector
Firstly, not all owners of analog audiovisual materials are really interested in digitizing th
their
eir archives (tier
IV): they may not be aware of preservation risks, uniqueness and cultural significance of their contents,
do not have property rights, or believe that their contents are not sufficiently interesting to be valorized to
enough audience through
ough events, internal reuse or digital distribution platforms to recoup the resources
spent for digitizing. Secondly, other non
non-customers
customers (tier III) may have an interest but they do not have
enough resources to buy the digitalization service. This is often the case of small cultural organizations.
Thirdly, other organizations (tier II) may have suitable competencies and equipment to digitize their
archive internally, either artisanally in the spare time (like independent producers) or via automatized
processes
ses (like broadcasters and national archives). Finally, some organizations are digitizing through
partnership agreements, often in exchange of sharing access or other rights over the digitized material.
Analysis of the various non-customer
customer categories is ususeful
eful to understand if and how they can be
transformed into customers. This allows the analyst to both discover new opportunities and envision
possible moves by existing actors in the value system that may pursue these opportunities. In addition, it
is also useful to analyze trends in the political, economic, social and technological environment. An
illustration of the possible movements that can be deduced from these analyses is depicted in figure 4
below.
As shown in the figure, the audiovisual digitizati

digitization
on services sector is expected to experience the entrance
of new actors from three directions.
• Suppliers that sell digitization solutions are confronting with an increasing saturation of their
traditional target market, that is large audiovisual collectio
collectionn holders such as broadcaster or national
archives willing to buy complete high high-end
end digitization solutions. With the digitization of the
audiovisual production process, the stock of analog material is fixed and their ongoing digitization
reduces the remaining
ing opportunities. While some suppliers are reacting by developing technologies
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that are cheaper (e.g. telecines, area sensor scanners), other are trying to reposition themselves as
digitization service providers or using a vertical integration strategy.
• Other audio-visual
visual enterprises, especially those offering post
post-production
production services, may be willing to
better exploit their existing digital audiovisual skills, equipment and contacts with potential
customers to extend their offering with digitization servi
services
ces as a complement to their core value
proposition (i.e. adopting a bundling strategy). These actors are typically small, focus on some
specific tape or film media types and may not offer some services like storage or media asset
management. Nonetheless, they can be a competitive threat because they are many - in Switzerland
alone 25 firms have been identified (Memoriav, 2016) - and tend to offer low prices to fill capacity or
subsidize their core services. On the other hand, these actors may also become collaboration partners
that can allow digitization service providers to focus on the most diffuse media typ
types
es (Betacam, VHS
etc.) with automated processes while the partner focus on older, niche or more delicate media types.
In addition they also allow service providers to extend the offering (e.g. with postproduction of
digitized contents) while increasing the volume of activity for partners. Sometimes, this type of
partnerships is even encouraged by local governments in order to build local industrial clusters and
promote economic development (our research project was actually co co-financed
financed by the government
withh the additional goal of studying potential partnership of the new digitization venture with the
local audiovisual industry).
• Finally the second tier of nonnon-customers,

customers, those that digitize internally, may be willing to better
occupy their digitization inve
investment
stment by offering unused capacity to other customers. This typically
happens once the digitization of their archive has been completed or is near completion and they
realize that the value of their investments can be extended by servicing other customers. While firms
with smaller investments may prefer selling their equipment, those that made larger investments like
large broadcasters or national archives may have more difficulty in doing so (due to its large capacity
and cost). They also have more potenti
potential
al to attract business thanks to their higher capacity from
automated process, accumulated experience, recognized brand, variety of supported media and
possible valorization opportunities for events or broadcasting.
Figure 4: probable moves by actors
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Besides these threats, analyzing non customers can also help discover interesting opportunities for
digitization service providers.
• Non customers of type 1 (digitizing via partnership) would be quite difficult to convert because
partnerships are usually hard to break and typically offer benefits for both parties (for that reasons
there are no arrows coming out of them). One of the few possibilities is to propose additional
partnerships for specific parts of the audiovisual collection not covered by existing agreements.
• Non customers of type 2 (digitizing internally) offer several possibilities for conversion and may be
either transformed as customers (or partners of type 1) by offering them a better cost-benefit ratio
through a more automated or a more complete solution (through complementary value-added
services like automated metadata extraction, media asset management, storage, distribution platforms
etc.) that would allow them to digitize faster, cheaper, at a higher quality, facilitate valorization of
digital contents and allow them to focus on their core business.
• Non-customers of type 3 (lacking resources) can be moved to customers in two ways. The first one is
to help them to raise funds - for instance from organization like IFTA, governments or cultural NGOs
- for specific digitization projects with a particular cultural or historical focus and significance. The
second one is to take advantage of technological advances, especially those regarding the automation
of the digitization process for most videotape types or the development of much cheaper scanners for
film media, to offer a service that is affordable with the limited resources of these organizations. A
lower offered price may also be compensated via partnership agreements granting some other
benefits such as shared access rights (move to type 1). Such players may also benefit from cheaper
and easier to use equipment to start digitizing internally in the spare time (move to type 2).
• Finally, non-customers of type 4 (uninterested) may be engaged by raising their awareness of the risk
of preserving their materials, making evident the possibility to reduce the costs of managing the
materials or by helping them find out some interesting opportunities to valorize their contents (e.g.
through events, documentaries, digital distribution platforms etc.).
Discussion
As every strategic analyst knows, the value of a framework emerges from the combination between its
ability to offer a new, different and interesting perspective of the reality but also its ability to be
accessible and understandable to others, including non-experts. A model should help us to deal with the
confused and seemingly contradictory reality, while avoiding the temptation to be as complex as the
reality is.
In term of efficiency and effectiveness, we believe that the proposed model sports a worthwhile
combination: the model extends traditional strategic management tools so as to capture the potential
dynamics of an industry, but does not require the analyst to gather as much information as the more
complex multi-actor-issue models.
The model could be used in the following contexts:

• analysis of industries with unclear or evolving structures, especially when some interesting insight
can emerge from studying the possible movements of the actors involved;
• studies focused in searching, discovering or evaluating potential business opportunities, because
opportunities often can be found in the interstices that are not currently occupied by actors and
therefore lie beyond the scope of traditional industry analyses;
• studies of markets which have a huge potential that is not currently exploited due the presence of
many obstacles or adverse conditions (when there are many non-customers).
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The industries that are strongly influenced by technological evolution or revolution usually show a great
complexity in term of analysis and the analyst often experiment the inability to summarize in an
understandable way what he discovered. This model, in fact, emerged to overcome these difficulties
during an applied research project in such an industry.
The double combination of the snapshot of actual structure and the motion picture of its possible
evolution that our model suggests allows to combine in mind, at the same time, the present and the future
(Abell, 1993). This is important at least at the analytical stage of the strategy process.
Finally, the simple visual context of this model allows the use of it during meetings (Eppler and
Hoffmann, 2013) where senior executives can discuss and confront about the possible evolutions of the
environment with a fresh perspective.
Conclusions
Similar to many other scholars, we have proposed here an analytical tool that can be used by decision
makers in their strategy process. As discussed by Jarzabkowski and Kaplan (2015), strategy tools should
be seen as lenses to analyze the reality and “as part of the process rather than purely as source of answer”.
All tools should allow increasing the relevance of the discussions needed during the strategy generation
process that is, at the end, a political and interpretative process.
The tool presented here is a result from the unsatisfactory application of traditional industry analysis tools
to a dynamic industry. This allowed us to understand the shortcomings of these tools and encouraged us
to extend them in two ways: 1) by including the analysis of potential movements of the various actors in
the industry and 2) by incorporating the analysis of non-customers to highlight business opportunities and
deduce potential movements of actors wanting to pursue them.
In order to balance the ability to capture industry dynamics and simplicity, we propose a tool that can be
used to analyze and visualize in a fairly simple way those dynamics at the role level while also allowing a
second more detailed, but also more complex, level of the analysis of the single actors.
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Entrepreneurial Intention’s Antecedents and Educational Level:

A Case of Indonesia’s State-Owned Higher
Education Institutions
Restu
Faculty of Social Science – Universitas Negeri Medan
restu.unimed@gmail.com
Ika Febrilia
Faculty of Economics – Universitas Negeri Jakarta
ika.febriliaunj@gmail.com
Ari Warokka
Centro Internacional “Carlos V” – Universidad Autonoma de Madrid
ari.warokka@gmail.com
Mohamad Rizan
Master of Management Program – Universitas Negeri Jakarta
mohamad.rizanunj@gmail.com
Abstract
This study examines the effects of entrepreneurial knowledge, the use of social media, and risk-taking
propensity on students’ entrepreneurial intention among undergraduate and graduate students at five Indonesian
state universities. The data was collected by using questionnaires and distributed to 400 respondents consisting
of 200 students of each program (i.e., undergraduate and graduate). Multivariate analysis was used to test the
hypotheses and independent sample t-test to examine the differences of students’ entrepreneurial intention and
its antecedents. The findings indicate that: 1) the antecedents positively and significantly affect both student
levels’ entrepreneurial intention, and 2) of the four determinants compared among both student levels, the use of
social media, risk-taking propensity and entrepreneurial intention show statistically significant differences.
Keywords: entrepreneurial knowledge, the use of social media, risk-taking propensity, entrepreneurial intention,
state university, Indonesia
Introduction
Unemployment is an issue that happens in the most of countries in the world, not only in country that
economically rich but also in poor or populous country like Indonesia. For comparison with several countries in
the Asia’s regions as provided by Statistics Indonesia (2015), Indonesia has significant rate which attains 6.2%
that much more than Malaysia (3.1%), South Korea (3.1%), or even China (4.1%). To overcome this problem,
government especially in Indonesia has been implementing several priority strategies to decrease the rates. For
example, it has opened many workforce development areas, developed unemployment tackling programs,
productive entrepreneur trainings, organized various job fairs either by public or private corporate, developed
collective-economic enterprises (referred as cooperative - Koperasi) and small-scale enterprises (referred as
small and medium enterprise - UKM, Usaha Kecil Menengah) (Ministry of Manpower and Transmigration,
2014).
One of the mentioned strategies, development of entrepreneurship is one sector that becomes the government’s
attention because it performs a vital role in economic development and job formation in one country (Chen,
2013), as well as in education and/or knowledge advancement. Nowadays, knowledge is also one of sources of
growth and economic development. This argument is supported by Kantis et al. (2002) who stated that in this
knowledge and information society area, education becomes the variable for the emergence of new ventures and
development prospects. Furthermore, to optimize the application of knowledge and support the entrepreneurship
growth, Indonesian government has collaborated with universities as higher education institution in developing
entrepreneurship curriculum, such as set entrepreneurship as subjects/courses or implement entrepreneurship as
a part of extracurricular to trigger enthusiasm and interest of students to establish a new business.
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However, surprisingly, this government program to improve the entrepreneurial knowledge is not positively
parallel with the intention rate of young people who already graduated from their school and/or university to be
an entrepreneur and start a business. Those students, either undergraduate or graduate, preferably concerned
with working as government’s officer or striving for private institutions. These considerations are possibility
caused by their characters which are not risk-taking to build their own career. Moreover, Statistics Indonesia
(2015) has released the data about the distribution of work categories by academic degree-holder (from bachelor
to graduate) in Indonesia, which shows working as government’s officer and/or private-sector employees as the
highest grade (7,084,184 people or about 85%) compared to data of self-employed which is only 351,307 people
or about 4.2%. This statistic is similar with the empirical data from Master of Management Program, State
University of Jakarta (2015) that describes the lower amount of students who major in entrepreneurship course,
which is only one person of 72 postgraduate students.
Besides knowledge, an entrepreneur should have high creativity, ready to keep thinking and finding many new
opportunities in solving problems and expanding the business. Related to it, most entrepreneurs realize that the
utilization of information technology, especially internet and social media are very important as communication
and marketing tools to significantly develop their business. As we known, social media becomes a phenomenon
that grows rapidly. Based on survey from Global Web Index (2014), Indonesia has 79.7% active users in social
media, which in percentage is much more than Philippines (78%), Malaysia (72%), and China (67%). Those
active users in average have spent two hours and 54 minutes per day to access social media, which 74% of them
use mobile or smartphone to check their social media account and to do daily social media activities.
At the same time, the support from government and the growth of social media have not much triggered other
studies to explore. To our knowledge, there are few studies discussing the effects of entrepreneurial knowledge
or social media on the intention of students to take self-employment as a serious career. Meanwhile, it is also
interesting to understand the characters of educated students whether they are risk-taker or not to build a new
business. Moreover, this study also will study the differences of entrepreneurial knowledge, social media
utilization, and propensity of taking risks between graduate and postgraduate students. The study estimates
undergraduate students, who are younger, more enthusiastic and more self-confidence, are more ready to enter
the entrepreneurial jobs than graduate ones, who are relatively stable in their career and less-intention to become
an entrepreneur. By using 400 students from five Indonesian state universities, the findings would give different
perspectives in terms of the antecedents of entrepreneurial intention besides personality or traits dimensions.
Conceptual Framework and Hypotheses Development

Entrepreneurial Knowledge
According to Jashapara (2013), knowledge is information that enables someone to give an effective input in
order to produce better organization’s judgment. Basically, knowledge is divided into three main categories
(Karlsson et al., 2004). Firstly, scientific knowledge is logical philosophies that become a center for the
development of technological knowledge. Secondly, technological knowledge is an implied and overt blueprints
in composing the invention, and thirdly, entrepreneurial knowledge is a business-interconnectedness knowledge
that consists of product, organization, market, or customer, and comprises particular knowledge related to the
market and economy functioning. Entrepreneurial knowledge describes the individuals’ or especially students’
ability to utilize or create an opportunity and then take some actions to attain innovative knowledge practice or
product (Senges, 2007). Through entrepreneurial knowledge, students would have intentions to be entrepreneurs
or desire to think and behave as businessmen. Therefore, entrepreneurial knowledge is not only about teaching
students to run a business, but also encourage them to have a creative consideration and strong sense of self-
empowerment; to have a certain belief, value and attitude to face the challenging market in the future.
The Use of Social Media
According to Safko and Brake (2009), social media are millennium technology platforms in which people in
various communities gather and share information, knowledge, and opinion through online communication of
all their activities and practices. Those communities behave and discuss by using conversational media. Similar
with it, Weinberg (2009) also proposed the statement about social media that relates to the way of people to
share information, experiences, and perspectives throughout online-based community. In addition, Weinberg
(2009) explained that social media is a process that enables individuals to disseminate information about their
products or services through online social channels, communicate, and tap into a larger scale of communities
that previously might not have been available via conventional marketing channels. The content of social media
is created by its audience (Comm, 2009). It is also facilitated by new web technologies in which allow everyone
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to create and distribute their own content (Zarrella, 2010). Through social media, individuals could access
people around the world in their networks and make interaction with them to discuss each aspect in building and
running their business, promote and facilitate the delivery of their products or services.
Risk-taking Propensity
Sexton and Bowman (1985) define risk-taking propensity as an individual’s preference toward taking chances,
whether he/she is risk lover, neutral, or risk averse, in a decision-making scenario. It is also defined as a
person’s perception on probability of receiving reward linked to his/her success in the certain situation as the
consequences of the failure of associated same one (Brockhaus, 1980). Research by Kihlstrom and Laffont
(1979) concluded that an entrepreneur who has propensity to take a risk usually use his/her instinct to build a
new business. In addition, there is a research by Rai (2008) that included age as an indicator of entrepreneurship
behavior. Young people with age below 30 years old are assumed as people who are always optimist, enthusiast,
passionate, excited and more self-confidence than the older ones (above 30 years old) when they start operating
a business.
Entrepreneurial Intention
Hilgard and Bowers (2004) defined intention as the possibility of an individual to pay attention of something
continuously, especially for something that matches with his/her skill. Meanwhile, the term “intention” also
describes as something interesting that makes people are anxiously engaged with it (Brown and Brooks, 1991).
In addition, Ajzen (1991) proposed intention is an indication that people try hard of something to perform
specific behavior. Related to entrepreneurship, entrepreneurial intention is defined as someone’s concern to start
and operate a business independently. Generally, entrepreneurial intention is not a gift that someone got since
he/she born, but it is developed by interaction with several factors, such as education, personality, and family
background (Hisrich et al., 2008); personal character and environment (Bygrave, 2003); self-factor, culture,
social condition, or combination of those three factors (Lambing and Kuehl, 2007).
Hypotheses Development
Entrepreneurial Knowledge and Entrepreneurial Intention
Prior studies revealed that education was one of important factors that differentiated entrepreneurs and non-
entrepreneurs (Lee et al., 2005; Arenius and Minniti, 2005). It found that highly-educated individuals are more
likely to pursue entrepreneurial opportunities. This statement is supported by Turker and Selcuk (2009) who
said that having a proper education may foster person’s entrepreneurial intention. Pruett et al. (2009) argued that
knowledge factor may become one of the main obstacles for nurturing the students’ entrepreneurial intention
and well-defined entrepreneurship education can close this lack. The Cho’s empirical finding (1998) showed
that students with a good entrepreneurship education have higher motivation, knowledge, and skill that are
needed to introduce a successful business. Cho (1998) also added that entrepreneurship-educated students would
have the creating-business intention due to those related-knowledge and skills may encourage an individual’s
motivation to form a new venture. Turker and Selcuk (2009) affirmed those findings by showing the university
students’ entrepreneurial intention was positively triggered by perceived educational support. In other research,
Henderson and Robertson (2000) also concluded that effective entrepreneurial education could be a factor that
drives people to choose entrepreneurship as their future career.
Moreover, the work of Veciana (2002) confirmed that formal education affected positively venture success,
meaning education would be needed when someone created of new venture/business. It also shows that low
level-educated individuals have a higher failure rate when they establish new firms than high-level educated
ones. The research of Ibrahim and Soufani (2002) supports this statement by showing that the systematic
schooling, education and training system have a decisive and remarkable role in determining individuals’
entrepreneurial traits. Education provides not only necessary knowledge to enhance individuals’ innovation skill
and entrepreneurial confidence but also to increase their intention to become entrepreneurs. That knowledge
would give positive impact for them to start a business. Therefore, based on those prior empirical findings, we
hypothesize that:
H1: Entrepreneurial knowledge has a positive influence on entrepreneurial intention.
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The Use of Social Media and Entrepreneurial Intention

Social media enables people to gather and share information, and also broaden their networks that are needed in
the business development process. The work of Shane (2003) revealed that the structure of someone’s social
network would influence the quality, quantity and speed of the information they received. As consequences of
social media’s utilizing, individuals could get access not only networks, either people around them who are also
doing business or may interest with their offering of products or services, but they also get knowledge access
that facilitates the discovery of business opportunities. Related with social networks, Linan and Santos (2007) in
their research proved the effect of social networks on individual’s intention to be an entrepreneur, and how the
structure of the network could encourage individual’s entrepreneurial intention (Klyver and Schøtt, 2011).
Those findings inspire to conduct a study that explores the connection between the use of social media and
entrepreneurial intention due to a very limited research that discussed about it, especially in Indonesia.
Furthermore, we argue that the easier the internet access, the more the information and networks which students
could get that finally it would drive the intention of those students to create a new business and become an
entrepreneur as their career in the future. Therefore, based on those arguments, the second hypothesis is:
H2: Social media has a positive influence on entrepreneurial intention.
Risk-taking Propensity and Entrepreneurial Intention
Generally, an individual who has a great propensity taking risks tends to have a higher intention to start a new
business and become an entrepreneur (Gurel et al., 2010). The work of Gürol and Atsan (2006) supported this
finding by demonstrating that basically entrepreneurship and intention to build a business are related to risk-
taking. It means that when someone wants to be self-employed, he/she is already well-prepared to face
everything related to time, effort, fund and social environment. Furthermore, Colton and Udell (1976) concluded
that risk-taking behavior was a better indicator to the possibility of starting a business. Therefore, based on those
arguments, the third hypothesis is:
H3: Risk-taking propensity has a positive influence on entrepreneurial intention.
The differences of entrepreneurial intention and its antecedents between undergraduate and graduate students
are also the interesting topics and become the subject of discussion in this research. Graduate students who
already got the course/subject “Entrepreneurship” when they were in undergraduate level should have much
more knowledge than graduate students. In contrast with the use of social media, postgraduate students assumed
have not owned enough time to access social media because of their working activity and family-taking care.
Meanwhile, undergraduate students are more brave and risk-taker than graduate ones who already have stable
career. Based on those three factors, this study argues that undergraduate students will have more intention to
become an entrepreneur than graduate ones.
Therefore, based on those arguments, the fourth to the seventh hypotheses are:
H4: there are differences of entrepreneurial knowledge between undergraduate and graduate students.
H5: there are differences of the use of social media between undergraduate and graduate students.
H6: there are differences of risk-taking propensity between undergraduate and graduate students.
H7: there are differences of entrepreneurial intention between undergraduate and graduate students.
Based on the explanation above, there are seven hypotheses that can be showed in the following figure.
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Figure 1: Research Framework
Research Method
This research utilized 400 students who divided into 200

2 students in each level (undergraduate
undergraduate and graduate).
They came from five state universities in Indonesia that have applied entrepreneurship as compulsory subject in
undergraduate level. Based on the respondents’ answers, the study analyzed the influence of the entrepreneurial
intention’s antecedents (entrepreneurial knowledge, the use of social media and risk-taking
risk taking propensity) on
students’ entrepreneurial intention, and examined the differences between undergraduate graduate and postgraduate
students in terms of their entrepreneurial knowledge, thee utilization of social media, the possibility to take risks
and the intention of students to become an entrepreneur.
Entrepreneurial knowledge was the first independent variable in this study and measured by 12 items adapted
from Sari (2013). For the second
econd and third variables (i.e. the use of social media and risk-taking
taking propensity)
propensity),
there were 18 items and 16 items respectively, adapted from Achmad (2013), and finally 22 items were used as
dimensions for describing the dependent variable
variab (entrepreneurial intention) and adapted from Franke and
Luthje (2004). Those four variables used five-point
five point Likert scales (from 1: strongly disagree to 5: strongly agree).
Findings and Discussion
Table 1: Inter-Correlation
Inter for Undergraduate Students
Constructs Mean Standard (1) (2) (3) (4)

Deviation
(1) EK 3.892 0.583306 1 - - -

(2) SM 4.237 0.598799 0.481** 1 - -
(3) RTP 3.778 0.544774 0.511** 0.476** 1 -
(4) EI 4.139 0.530624 0.608** 0.483** 0.581**
581** 1
Note: **p < 0,01; *p < 0,05; EK = Entrepreneurial Knowledge;
Knowledge SM = The Use of Social Media;; RTP = Risk-taking
Propensity; EI = Entrepreneurial Intention
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Table 2: Inter-Correlation for Graduate Students
Constructs Mean Standard (1) (2) (3) (4)

Deviation
(1) EK 3.974 0.574067 1 - - -

(2) SM 4.042 0.537725 0.514** 1 - -
(3) RTP 3.585 0.613347 0.394** 0.315** 1 -
(4) EI 3.934 0.540978 0.512** 0.454** 0.464** 1
Note: **p < 0,01; *p < 0,05; EK = Entrepreneurial Knowledge; SM = The Use of Social Media; RTP = Risk-
taking Propensity; EI = Entrepreneurial Intention
Those two tables (Table 1 and 2) show the same correlations between variables, not only for undergraduate but
also for graduate students. There are some decisive findings:
[1] The correlation of independent variables between entrepreneurial knowledge and the use of social media,
between entrepreneurial knowledge and risk-taking propensity, or between the use of social media and risk-
taking propensity indicates no multicollinearity problem due to all the values are still below 0.80 (Gujarati,
1995).
[2] The correlation between entrepreneurial knowledge and entrepreneurial intention is positive and significant
value, meaning that the more students gained knowledge on entrepreneurship, the bigger intention of those
students to start a business.
[3] There is significant and positive correlation between the use of social media and entrepreneurial intention,
implying that the higher frequency of students using social media, the more the information they got about
business opportunities and the higher influence on their intention to become an entrepreneur.
[4] The positive and significant correlation between risk-taking propensity and entrepreneurial intention means
that the higher students’ propensity to take risks, the higher their intention to create self-employed.
Table 3 proposes the test of construct’s validity and reliability for graduate and postgraduate students. For
validity, this study utilized factor analysis by applying the procedure of Tabachnick and Fidell (1996) which
resulted five invalid items for entrepreneurial knowledge’s construct, ten invalid items for the use of social
media’s construct, five invalid items for risk-taking propensity’s construct, and four invalid items for
entrepreneurial intention’s construct (the factor loading < 0.5). For reliability, the Cronbach Alpha revealed
values equal or bigger than 0.6, which showed that all the constructs were reliable.
To test the influence of entrepreneurial antecedents on entrepreneurial intention for undergraduate and graduate
students, the researchers employ a multivariate analysis as showed in Table 4 and 5. The results for the first
hypothesis show the significant and positive influence of entrepreneurial knowledge on entrepreneurial
intention, not only for undergraduate students (t-test = 5.931; p < 0.01) but also for graduate students (t-test =
4.220; p < 0.01). Those values support the statement that the more knowledge on entrepreneurship which
students had, the higher students’ intention to start a new business. This finding is inline with the previous
studies of Cho (1998), Henderson and Robertson (2000), Ibrahim and Soufani (2002), Veciana (2002), Lee et al.
(2005), Arenius and Minniti (2005), Turker and Selcuk (2009), and Pruett et al. (2009).
For the second hypothesis, the result reveals that there are significant and positive influences between the use of
social media and entrepreneurial intention for undergraduate students (t-test = 2.486; p < 0.05) and for graduate
students (t-test = 3.264; p < 0.01). Basically, the growth of the use of social media nowadays becomes one
factor that triggers many business opportunities in terms of selling and promoting products. That is why the
higher frequency of students in accessing the social media, the higher their intention to try creating a business by
using several forms of social media, such as Facebook, Twitter, Instagram, Path, etc. Furthermore, the results
are consistent with the previous studies of Linan and Santos (2007) and Klyver and Schott (2011).
Those findings are similar with the findings of the third hypothesis that describe the significant and positive
influence of risk-taking propensity on entrepreneurial intention for undergraduate students (t-test = 5.073; p <
0.01) and also for graduate students (t-test = 4.552; p < 0.01). Those results are in line with the previous studies
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of Gürol and Atsan (2006) and Gurel et al. (2010). It means that individuals who are risk-taker usually
enthusiast with any new challenges including build a business. They believe that the higher the risk they will
face during become an entrepreneur, the higher the return they will get.
Table 3: Test of Construct’s Validity and Reliability for Undergraduate and Graduate Students
Construct Item Cronbach Alpha Factor Loading

Graduate Post- Graduate Post-
graduate graduate
KG1 0.713 0.561
KG2 0.686 0.791
KG3 0.709 0.505
KG4 0.698 0.699
KG5 0.736 Invalid
Entrepreneurial PM1 0.642 0.777
0.865 0.843
Knowledge PM2 0.795 0.764
PM3 0.544 0.844
PD1 Invalid Invalid
PD2 0.509 Invalid
PD3 0.611 Invalid
PD4 0.584 0.603
TG1 Invalid 0.630
TG2 Invalid 0.633
TG3 Invalid Invalid
TG4 0.701 Invalid
TG5 0.722 0.596
KM1 0.768 0.790
KM2 0.820 0.712
KM3 0.804 0.745
The Use of Social KM4 0.754 0.607
0.907 0.901
Media KM5 0.716 0.673
JP1 0.735 0.659
JP2 0.698 0.730
JP3 0.657 0.771
JP4 Invalid 0.717
JP5 Invalid 0.626
WK1 Invalid Invalid
WK2 0.624 0.517
WK3 Invalid 0.531
RM1 0.787 0.657
RM2 0.830 0.685
RM3 0.729 0.743
RM4 0.630 0.758
RF1 0.716 0.786
RF2 0.618 0.771
RF3 0.602 0.688
Risk-taking
RF4 0.887 0.898 Invalid 0.752
Propensity
RS1 0.596 Invalid
RS2 0.543 0.524
RS3 0.669 0.702
RS4 0.525 0.559
RE1 Invalid Invalid
RE2 0.508 Invalid
RE3 0.545 0.523
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RE4 0.584 0.511

PI1 0.785 0.735
PI2 0.816 0.718
PI3 0.740 0.775
KB1 0.729 0.713
KB2 0.660 0.655
KB3 Invalid 0.612
KB4 0.695 0.758
KB5 0.744 0.792
PP1 0.717 0.719
PP2 0.751 0.779
Entrepreneurial PP3 0.557 0.723
0.927 0.949
Intention PP4 0.554 0.854
KP1 Invalid 0.552
KP2 0.682 0.726
KP3 Invalid 0.574
KP4 0.658 0.667
KP5 0.704 0.712
UK1 Invalid 0.516
UK2 0.540 0.697
UK3 0.548 0.698
UK4 0.519 0.669
UK5 0.641 0.767
Table 4: Regression Result for Undergraduate Students
Model Unstandardized Standardized t Sig.

Coefficients Coefficients
B Std. Error Beta
1 (Constant) 1.077 0.233 4.625 0.000
Entrepreneurial Knowledge 0.339 0.057 0.373 5.931 0.000
Social Media 0.135 0.054 0.153 2.486 0.014
Risk-taking Propensities 0.310 0.061 0.318 5.073 0.000
a. Dependent Variable: Entrepreneurial Intention
Table 5: Regression Result for Graduate Students
Unstandardized Standardized
Model Coefficients Coefficients t Sig.
B Std. Error Beta
1 (Constant) 1.078 0.269 4.006 0.000
Entrepreneurial Knowledge 0.273 0.065 0.298 4.220 0.000
Social Media 0.218 0.067 0.217 3.264 0.001
Risk-taking Propensities 0.249 0.055 0.282 4.552 0.000
b. Dependent Variable: Entrepreneurial Intention
Table 6: Independent Samples Test between Entrepreneurial Knowledge
N Mean Standard Mean t Sig.

Deviation Difference
Graduate 200 3.891818 0.5833060 -0.0819318 -1.416 0.158
Post-graduate 200 3.973750 0.5740666
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Table 7: Independent Samples Test between the Uses of Social Media
Standard Mean
N Mean t Sig.
Graduate 200 4.236818 0.5987998 0.1948182 3.423 0.001
Post-graduate 200 4.042000 0.5377252
Table 8: Independent Samples Test between Risk-taking Propensities
Standard Mean
N Mean t Sig.
Graduate 200 3.777857 0.5447745 0.1928571 3.325 0.001
Post-graduate 200 3.585000 0.6133469
Table 9: Independent Samples Test between Entrepreneurial Intentions
Standard Mean
N Mean t Sig.
Graduate 200 4.138611 0.5306242 0.2047475 3.821 0.000
Post-graduate 200 3.933864 0.5409782
To know the differences of variables between graduate and postgraduate students, this study applied
independent sample t-test using SPSS 20, as showed from Table 6 until Table 9. Table 6 illustrates the result of
the t-test for fourth hypothesis to provide whether there is difference of entrepreneurial knowledge between
those two levels of students or not. From data analysis, it indicates that the difference of knowledge about
entrepreneurship is not significant (t-test = -1.416; p > 0.1), so the hypothesis is rejected. Although graduate
students got the course about entrepreneurship previously in undergraduate level but it could not certainly be
assumed that the graduate students’ knowledge is much more than the undergraduate. They could get knowledge
from book, internet, news media or any sources to obtain a deep understanding about entrepreneurship.
The result was contrary with the finding from Table 7 which showed the significant difference of the use of
social media between undergraduate and graduate students (t-test = 3.423; p < 0.01), so the fifth hypotheses is
accepted. The higher mean for undergraduate students (4.24 > 4.04) shows that they have a higher frequency to
access social media than graduate ones who do not have enough time for it. The similar findings are found in
Table 8 and Table 9 which describe the significant differences between undergraduate and graduate students on
risk-taking propensity (t-test = 3.325; p < 0.01), and entrepreneurial intention (t-test = 3.821; p < 0.01), so the
hypotheses sixth and seventh are accepted. From Table 8, the mean for undergraduate students is also higher
than graduate students (3.78 > 3.59). It reveals that the younger ones are risk-taker. The intention of
undergraduate students to become an entrepreneur is also higher than graduate students (4.14 > 3.93). It implies
that graduate students have low intention to start their own business because they may have already stable
career.
Conclusion
This study examines the influence of entrepreneurial antecedents (entrepreneurial knowledge, the use of social
media and risk-taking propensity) on entrepreneurial intention, and also compares the intention and its
antecedents between undergraduate and graduate students at five state universities in Indonesia. By using 400
students and analyzing seven hypotheses, this study proposed some findings. The entrepreneurial antecedents
significantly and positively affect the students’ entrepreneurial intention, both for undergraduate and graduate
students. Moreover, the intention to become an entrepreneur is higher for undergraduate students than
postgraduate ones. They access social media more often and risk-taker than postgraduate students despite there
are no difference on entrepreneurial knowledge.
The study’s empirical findings give contributions in terms of adding reference to entrepreneurship and cyber
marketing, and also provide suggestions for educational institutions to reformulate “Entrepreneurship” as an
interesting course/subject that trigger students to become an entrepreneur and build their own career when they
finish and graduate from their university study.
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For further studies, it suggests to examine the moderating effect of demographic variables (e.g. gender, income
level, and age) and family background (i.e. entrepreneur-family and non-entrepreneur-family) to explore the
possibilities of new conceptual framework models and other influencing factors.
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FMEA Application to Improvement of Designed Technical Products

Michał Sąsiadek, Wojciech Babirecki and Waldemar Woźniak
Institute of Computer Science and Production Management

Faculty of Mechanical Engineering, University of Zielona Góra
ul. Prof. Szafrana 4, 65-516 zielona Góra, Poland
m.sasiadek@iizp.uz.zgora.pl
w.babirecki@iizp.uz.zgora.pl
w.wozniak@iizp.uz.zgora.pl
Abstract
The paper presents the practical application of the FMEA analysis in designing a new processing line
proposed for heat treatment. The FMEA process described in the paper was completed on the basis of a
distributed organisation of workgroups set up to make the analysis. The paper outlines the problem of
securing the reliability of the designed system. The effectiveness of the FMEA method in ensuring the
high quality and reliability of the designed mechanical systems during design is demonstrated on the
real example.
Keywords: FMEA, product design, improvement.
Introduction
The Failure Modes and Effects Analysis (FMEA) [Booker J. D., Raines M., Swift K. G. (2001), Sąsiadek
M. and Babirecki W. (2014), Srivastava N. K. and Mondal, S. (2014)] is a method known for a long time.
It is regarded as such efficient and useful that it is recommended that all engineering teams should
applied it to any new product design. Unfortunately, if one looks into engineering practice, it is not all
true. Actually, engineering designers are aware about this method, as well as many other modern
methods assisting the design process. There seems, however, a resistance to take steps towards this
matter. The designers explain it with their lack of the necessary knowledge, experience, or time, resulting
from their busy time schedules [Sąsiadek M., Babirecki W. and Miliszewski (2011), Sąsiadek M. and
Basl J. (2015), Basl J. and Sąsiadek M. (2014), Krolczyk G., Legutko S., Nieslony P.and Gajek M.
(2014), Erbıyık, Hikmet, Eray Can, and Şenol Kuşçu (2014), Woźniak W. and Wojnarowski T. (2015)].
They also claim that such methods are time consuming and benefits from application are doubtful. The
most important factor in this attitude seems to be the inability to see advantages of the implementation.
Hence, it is purposeful to show them real examples of benefits. This should result in a growing interest
in the application of such methods in practice.
In the presented case the need of resorting to the field of FMEA was imposed by the customer. Ordering
a large and complex system, the client requested that the design documentation include FMEA studies of
the whole. Due to the complexity of the design problem and costs of potential repairs, the client required
application of any each available measure in order to ensure highest possible quality and reliability of the
designed system. That was a difficult problem, since the personnel participating in the project had no
experience in this area whatsoever. The lack of experience, combined with the sceptical attitude towards
the issue called for the novel approach to the project.
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Description of the System for FMEA Implementation
A company manufacturing systems for heating processes was commissioned to deliver a large and
complex processing line for heat treatment. The company was obligated in the contract to ensure high
quality and reliability standards. One of the required operations was the implementation of FMEA at the
design stage to evaluate the system reliability. The ordering company put the stipulation that the system
production started only after carrying out the FMEA analysis and reliability calculation. Performing the
FMEA of the designed processing line by the manufacturer proved to be difficult due to the deep
engagement of human resources in the current duties [Sąsiadek M., Babirecki W. and Miliszewski
(2011), Sąsiadek M. and Babirecki W. (2014)]. Moreover, the experience from previous FMEA studies
carried out by the company itself was rather discouraging and suggested another approach to this
particular complex and important task. So, the management decided to set about a more effective plan. It
was concluded that the execution of FMEA analysis should not be delegated to engineers participating in
the design process of the ordered system. Their lack of practical knowledge in FMEA area would have
resulted in the necessity to devote a considerable amount of time to learn and proper execution of the
task. It would disturb the overall project schedule could result in prolongation of the deadline. Hence, an
executive group for FMEA task was set up from external experts. This team was entrusted with the
proper implementation of analyses and coordination of all related activities. Furthermore, a new way of
organising the participants (teams) and communication among them was accepted. The pattern and
structure of the work organisation is presented in fig. 1.
In the diagram presented above team 1 is directly responsible for the analysis and therefore the most
important. This team is in control of arranging meetings with inside experts (team 2), contacts with the
external experts (team 3) executing FMEA, for completed, ordered, and produced outside components
and systems, for FMEA studies of systems designed by the company, as well as for co-ordination of all
operations and, finaly, for compilation of a comprehensive final report. Team 2 consists of the executive
staff representing the company, which is directly involved in the project realisation. The team is formed
by constructors (mechanics, electricians, and computer scientists), process engineers, service workers,
supply department workers, and those working at the technological level who participate in the project.
Their main goal is to support team 1 during the evaluation process for particular FMEA indicators
pertaining to components and systems. Team 3 consists of external experts from subcontractor
companies whose job is to design device modules. This is team 3 which formulates FMEA for systems
manufactured outside. Team 1, which synchronises the actions related to FMEA, contacts this group to
obtain necessary information.
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Figure 1: Structure and organisation of teams implementing FMEA
FMEA process in question was divided into five main stages, presented in fig. 2. This figure also shows
how the three teams were engaged in the implementation of particular stages (indicator “x”). The
specified FMEA stages are:
- Stage 1 – FMEA initialisation
- Stage 2 – Creation of FMEA worksheets
- Stage 3 – FMEA inception report
- Stage 4 – FMEA updating through the preventive actions
- Stage 5 – Meeting closing FMEA.
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Figure 2: FMEA stages and teams engaged in their implementation
It was assumed that the first stage of the analysis (FMEA initialisation) would include steps related to the
meeting which initialises the analysis, creation of the teams implementing FMEA, and characterising the
analysis object. Each member responsible for FMEA implementation should take part in this stage.
The second stage, during which the FMEA worksheets were created, is divided into five steps. Individual
elements of this stage concern the development of the FMEA evaluation worksheet tailored to the needs
of the company, the implementation of FMEA in the determination of defect, cause and effect, verifying
and correcting the analysis by all team members (each member has got an individual access to the
analysis on-line (by website) and has the ability to comment on the application of FMEA), acceptance of
the resulted analysis, determination of RPN indicators (Severity, Detection, Occurrence). While
determining the RPN indicator every member evaluates the three constituents for specified failures. A
scale is adopted to evaluate the constituents; it is in accordance with the standard PN EN 60812:2009.
Determination of final values of the indicators is achieved through negotiations and averaging which the
executive team is responsible for.
Next stage of the analysis deals with the preparing of an initial report. In This stage a meeting of the
whole team to present the initial FMEA status together with calculated RPN indicators for each identified
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potential failure is hold. After discussion, the team determines the threshold RPN values which would
require certain preventive actions. If the RPN value for an action is too high, countermeasures are
formulated, including establishment of somebody’s responsibility for the control of the actions in
progress.
Object under Analysis: The Processing Line

The object of analysis was a processing line designed to heat treatment of pipes used in heat exchangers.
The line was unique and included features of remarkable innovative solutions. It was assumed that it had
to meet extraordinary requirements for reliability (at least 99%) and accessibility (at least 97).
Description of the water system
In the investigated processing line the water system function is to cool the furnace feeder after heat
treatment.
The original scheme of the water system project is shown in fig. 3. Two circuits can be distinguished
there. The first circuit allows the water flow through a heat exchanger, where it is cooled down and
brought into the cooling space of the processing line again. This circuit is marked in fig.3 by the numbers
from 1 to 13. The second circuit is used to cool the water. The coolant is a mixture of ethylene glycol and
water, in proportions 40% and 60%, respectively. It is depicted by the remaining elements on the scheme.
Figure 3: Initial scheme of water system project
The water system under examination consists of 9 interrelated subsystems. Details of subsystems were as
follows:
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1 – Water pumping subsystem (consists of two shut-off valves 1, 3, and water pump 2),
2 – Subsystem of water parameters control on the imlet to the exchanger 3 (consists of a shut-off valve 7
and measuring and control devices 4, 5, 6),
3 – Plate heat exchanger,
4 – Subsystem of water parameters control on the outlet from the exchanger 3 (consists of a shut-off
valve 8 and measuring and control devices 9, 10, 11, 12),
5 – Subsystem of coolant parameters control on the exit from the exchanger 3 (consists of a shut-off
valve 19 and pressure transducer 20),
6 – Coolant pumping subsystem (consists of two shut-off valves 21, 23, pump 22, and a tank refilling the
coolant 27),
7 – Subsystem of coolant parameters control on the entrance to the exchanger 8 (consists of measuring
and control devices 24, 25, 26),
8 – Heat exchanger (forced-draught cooling tower),
9 – Subsystem of coolant parameters control between the heat exchangers (consists of a shut-off valve 18
and measuring and control devices 14, 15, 16, 17).
Due to the limited volume of the paper only application of FMEA procedure to the water system is
presented below. Detailed FMEA, however, was executed to all constituent elements for each of the
above subsystems.
FMEA for the Water System

The analysis of this system was conducted in the stage of its designing. The emphasis during the analysis
was placed mostly on reliability of the system components. Certain fragments of FMEA for the water
system are presented in table 1. They were related to those components for which requirements for
necessary project corrections were formulated. It was assumed that the preventive actions had to be
applied in the case when the RPN indicator value excess 30.
Table 1: Part of FMEA worksheet for the water system
PART CHARACTERISTICS OF FAILURE 1st RATING

Undesirable
customer
Function /
Causes of effects, Effects Testing -
No Part / Failure mode Po S Pd RPN
failure of failure on Simulation
Operation
syst. / part /
operation
Water system
pump not Liquid
Water
working due no coolant temperature
1 pumping 3 8 2 48
to mechanical flow increase in the
subsystem
causes circuit
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Liquid
reduced pump limited temperature
2 5 4 40
efficiency coolant flow increase in the
circuit
pump not Liquid
3 8 2 48
to electrical flow increase in the
causes circuit
Liquid
seizure, no coolant
temperature
locking of the flow 2 5 2 20
increase in the
shut-off valve impossible
circuit
Possibility of
no protection
pressure installation
Coolant against
increase in unsealing,
pumping excessive 5 9 2 90
the coolant possibility of
subsystem pressure
system dangerous
increase
substance leak
pump not Liquid
3 8 2 48
to mechanical flow increase in the
6
causes circuit
Liquid
reduced pump limited temperature
2 5 4 40
efficiency coolant flow increase in the
circuit
pump not Liquid
3 8 2 48
to electrical flow increase in the
causes circuit
pressure
Possibility of
increase in
Subsystem Compensation installation
the
9 of coolant for increased unsealing,
installation 5 7 2 70
parameters coolant possibility of
between the
control volume dangerous
heat
substance leak
exchangers
Basing on the past experience in the first subsystem (water pumping) an occurrence of a damage (defect)
of the water pump (component 2), was predicted. Its level exceeded the acceptable RPN values. This
means that in the case of any pump failure a disturbance in the flow of water cooling the furnace feeder
will appear. It will result in an incorrect heat treatment process of the feeder, which will lead to
manufacture of defected batch and great financial losses.
In the sixth subsystem (coolant pumping), as in the first, a possibility of similarly severe damage to the
coolant force pump (component 25) was found. The damage or partial malfunction will influence the
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intensity of heat receiving from the coolant by the heat exchanger module (15). This can lead to incorrect
water cooling in the heat exchanger (8) and, as a consequence, to inappropriate parameters of water in the
furnace. The result will be a failure to meet the feeder cooling parameters, and also the manufacture of
failured batch.
Other defects in this subsystem could be the inability to remove the excess of coolant, which could be
caused by a sudden increase of its pressure, and lack of the system protection against an uncontrolled
pressure surge.
Furthermore, in the ninth subsystem, a possibility of coolant pressure disturbance between the heat
exchangers 3 and 8 was identified.
Remaining components of the analysed water subsystem did not pose any hazards that would need taking
preventive actions.
Introduction of Preventive Actions

On the basis of the FMEA studies a number of preventive actions towards decreasing the probability of
damage of components of the water system were formulated and introduced to the system design. In the
cases where there was no possibility of exchanging a component with an object of higher quality
(i.e.lesser probability of a defect), the decision to redundant the component (or the string of cooperating
components) was made. The changes and addenda to the water system project are indicated red and
presented in the fig. 4. In the first subsystem, because of lack of a pump of a higher quality, the system of
components 1, 2, and 3 was duplicated by a parallel system (components 27, 28, and 29). Apart from
that, the redundant water pumping systems were made to work in turn, according to the instructions
given in the manual. Consequently, in both cases of the components coupled in parallel, shut-off valves
were build in (30 and 31). This eliminated the possibility of water flowing back into the idle system.
Figure 4: Final scheme of water system project
In the sixth subsystem, similarly to the first one, components 21, 22, and 23 were duplicated by
components 35, 36, and 37 respectively, and shut-off valves were incorporated (34 and 38, one for each
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of the duplicated pumping systems). Protection of the coolant circuit against excessive pressure increase
was achieved by inserting two elements: a safety valve (32) linked to an additional coolant tank (33).
To ensure pressure adjustment in the section between the heat exchangers, an equalising tank (40) and
pressure transducer (39) were installed.
Evaluation of the Water System Final Project

The above analysis identified the vulnerable spots of the subsystems. The proposed alterations have
significantly contributed to the reduction of their original RPN rating. In the most of protected spots the
indicator was reduced to values below the allowable value, that is RPN<30. As it was mentioned in
section 3, another crucial indicator, whose value was determined by the client in the assumptions as a
required value, is the reliability of the designed furnace. According to the requirements, this indicator is
supposed to be higher than 99%. In order to decrease the dimensionality of the task of assessing the
reliability indicator it has been assumed that the smallest element of consideration in the reliability
analysis is the commercial element. Hence, each of the suppliers was required to determine the reliability
indicator for every supplied component, assuming it had two-year span of failure-free work. If the
supplied components did not possess such data, the reliability indicator was specified basing on the
general value of component damage probability given in FMEA guide. The positive change (increase) of
the reliability indicator is shown below, on the basis of the presented water system. Assessment of the
reliability indicator was achieved by means of the reduction of individual system components to entities
between which it is possible to define mutual dependencies: serial or parallel. Then, one has to follow the
correlations below, according to which:
- serial dependency reliability is:
n
RC = ∏ Ri
i =1
- parallel dependency reliability is:
n
RC = 1 − ∏ (1 − Ri )
i =1
According to the formulae above, it was calculated that the reliability indicator for the water system in
original condition (fig. 2) was equal to 0,998331. For the water system after the alterations (fig. 4)
resulting from FMEA, the indicator achieved 0,999329. The modifications of the most vulnerable spots
of the system caused required increase of the reliability indicator. It was accomplished by means of
modeling the system in form of the serial and parallel structure and applicaton of components’
redundancy were appropriate. Similar steps for the remaining furnace elements, which were carried out
according to FMEA procedure gave rise to increasing of the predicted value of the reliability indicator of
the whole furnace. It was changed from the original value 0,9754213 to the final 0,9964216. The final
value of the reliability indicator, expressed in % (99,64 %), met the customer requirement [Sąsiadek M.,
Babirecki W. and Miliszewski (2011)].
Conclusions
In the paper it was shown that application of FMEA in the design process is very powerful tool for
improvement of quality and increasing of reliability of being designed systems. The benefits depend on
the point of its application in the design process. Its implementation is recommended at the possibly early
stages of the new system development. In the example presented in the paper FMEA was applied at the
initial design stage of a heat treatment processing line. The conducted analysis allowed identification of
potential errors and introduction of preventive actions. It resulted in a much better quality of the
processing line design.
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The considered design problem required high levels of the system quality and reliability, which was
imposed be the customer. In order to implement FMEA a novel organization of the executing participants
was employed. Engaging the external experts, who were responsible for and coordinated the actions of
the executive teams, significantly contributed to improvement of cooperation and to performing
particular FMEA tasks. One of the advantages was that the designers, constructors, process engineers and
other people directly involved in the basic system development were not disturbed by activities that they
were not particularly competent with. It has been clearly proved that FMEA implementation can be
effective in increasing the reliability of designed systems, which is not an easy task.
The authors believe that the paper presents an interesting case of FMEA implementation to a complex
design problem. It contributes to the development of innovative design in the sense that such designs
usually bear weak points which may annihilate their general value. In this way the paper it is believed
that the paper makes a contribution to the innovative design reality.
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Heinemann.
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of geographic based engineering projects', Tehnički Vjesnik - Technical Gazette, 21, 1, pp. 9-15.
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product design', Toyotarity. Production factors, Dniepropetrovsk, Published by Yurii V. Makovetsky, pp.
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of austenitic stainless steel after turning', Tehnički Vjesnik - Technical Gazette, 21, 6, pp. 1307 – 1311
Sąsiadek M. and Babirecki W. (2014), 'Improving reliability of designed technical products using
FMEA', The 3rd International Conference on Design Engineering and Science, Pilsen, Czech Republic,
vol. 1, pp. 168-173.
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Development Sustainability to Global Economic Growth : proceedings of the 25th International Business
Information Management Association Conference, Amsterdam, Netherland, pp. 699-705.
Srivastava N. K. and Mondal, S. (2014), 'Development of a Predictive Maintenance Model Using

Modified FMEA Approach', IUP Journal of Operations Management, 13.2: 7.
Woźniak W. and Wojnarowski T. (2015), 'The method for a fast selection of the profitable transport
offers derived from the freight exchange market', Innovation Vision 2020: from Regional Development
Sustainability to Global Economic Growth : proceedings of the 25th International Business Information
Management Association Conference, Amsterdam, Netherland, pp. 2073-2085.
1489
An Algorithmic Concept for Optimising the Number of Handling

Operations in an Intermodal Terminal Node
Waldemar Woźniak
mail: w.wozniak@iizp.uz.zgora.pl
Michał Sąsiadek
mail: m.sasiadek@iizp.uz.zgora.pl
Roman Stryjski
ul. Prof. Szafrana 4, 65-516 Zielona Góra, Poland
mail: stryjski@post.pl
Janusz Mielniczuk
Rail Vehicles Institute « Tabor »
ul.Warszawska 181, 61-055 Poznań
mail : janusz.mielniczuk@put.poznan.pl
Tomasz Wojnarowski
Converse Ltd.
ul. Wyczółkowskiego 43, 65-231 Zielona Góra, Poland
mail: t.wojnarowski@converse.com.pl
Abstract
This article presents the concept of using algorithms in the optimisation of the number of cargo handling
operations for lifting equipment in a railroad intermodal node. The algorithms developed have been
implemented into an integrated IT system in support of the management of warehouse processes.
Keywords: algorithm, optimisation, intermodal railroad junction, container operations
Introduction
The specificity of intermodal transport has caused a major change in the position and tasks of shippers
forwarding goods to their customers. The main change in the use of intermodal transport has become a
combination of various types of transport each with their own logistics for handling and storage
processes; this makes searching for, and implementing, solutions to optimise the operation of lifting
1490
equipment for receiving, storing and re-distributing containers at intermodal terminal nodes, a pre-
requisite. The studies presented in this article are based on the experience gained in the largest Polish
nodes of intermodal transport, combining rail transport with road transport.
The solutions developed were implemented in the IT application, currently being tested by the
management of some selected intermodal nodes.
The Importance of Intermodal Transport in Poland

Intermodal transport, especially its development in Poland, has encountered many obstacles. In the
opinion of J. Stokłosa and T. Cisowski in a research study by Świeboda J. and Zając J. (2016), the slow
development of intermodal transport in Poland, in the period up to 2006, has resulted, primarily, from the
following factors:
• rail operators in Poland, both private and PKP Cargo S.A., did not have an adequate number of
specialised wagons or pocket-wagons to carry semi-trailers;
• transport companies, as was the case in Germany, did not, realistically speaking, have trailers adapted
for vertical handling.
Moreover, the authors pointed to other reasons for which combined transport could not develop in Poland
in a satisfactory manner. They included, among other things, in a research study by Świeboda J. and
Zając J. (2016):
• the shambolic nature of the distribution system at railroad terminals.;
• the insufficient length of the loading tracks in existing terminals which increases trainload idle time at
the terminal due to the requirement of additional manoeuvres in the marshalling yards or sidings, the
average length of the loading tracks being within the range of 300 m to 350 m;
• the poor service offered by rail operators manifested in:
too long journey times which are the result of too low speeds to be realistically of use commercially;
railway transport does not compete with road transport despite the lack of motorways and excessive
congestion on the main roads;
frequent train delays;
lack of regular train schedules due to the erratic flow of rolling stock at terminals;
too long downtime of trains at border stations due to over-complicated border control procedures;
inability to establish the precise location of an ITU.
The loss of customers was often a consequence of the poor quality of rail services in the intermodal
transport system. Uncompetitive pricing of combined transport, in comparison to road transport, as in
other European countries, constitutes another, strongly inhibiting barrier in Poland and the too high costs
of access to the rail infrastructure, as well as the excessively high costs of trans-shipment, unsubsidised
by the State, have certainly not furthered the interests of road hauliers in the combined transport field as
mentioned in a research study Świeboda J. and Zając J. (2016).
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It was as late as 2013, that the potential for intermodal transport was appreciated in Poland and for
several years now, various measures contributing to the continuous development and increasing share of
intermodal solutions for the transport market have been taken as mentioned Massel A. (2013).
These activities include, among other things, investing in terminals and suitable rolling stock. Moreover,
carriers can benefit from a 25% reduction in the rates of access to trains carrying intermodal transport on
the Polish railway network. The infrastructure has also been modernised on the north-south axis and in
the most important transport corridors. Investments on a smaller scale and scope are also under
implementation; these include, initially, an increase in the availability and handling capacity of seaports
as mentioned Massel A. (2013).
Table 1: The Increase in Goods Handling in Intermodal Transport 2014/2015 as UTK 2014
2014 2015 Change
Load weight [thous.t] 9 601 10 386 +8,2%
Transport work [mln tkm] 3 402 3 718 +9,3%
Number of units [thous.] 699 745 +6,6%
Number of TEU [mln] 1 114 1 152 +3,4%
Today, intermodal transport in the TSL sector (Transport-Shipping-Logistics) is one of the fastest
growing areas of transport. Table 1 shows an example of the increase in goods handling per weight,
quantity and carriage in 2015, as compared to 2014.
The Re-Configuration of Handling Processes at Intermodal Terminal Nodes

The Intermodal Terminal Node allows the synchronisation of various modes of transport in transport
services. The designing of terminal nodes, widely described in the literature in a research study
Watanabe, Itsuro (2001), does not provide clear guidance on how to manage them and how to predict
their development. It is much easier to organise and automate the work of the terminal if there is a well-
developed transport infrastructure, the so-called line and points' infrastructure also known as terminal
infrastructure as mentioned in a research study Zumerchik, John, Jean-Paul Rodrigue, and Jack Lanigan
Sr. (2012).
The present article focusses on container handling operations in railroad terminal nodes.
An analysis of the materials available and of the industry reports show that rail operators see the loss of
the competitiveness of rail transport as being attributable to the absence of an adequate terminal or points
infrastructure, the poor technical condition of terminals, the lack of proper handling equipment, as well
as the insufficient length of loading and unloading tracks. On the other hand, terminal operators see the
need for support from railway carriers in terms of an increase in the number of regular connections,
expansion of the rail network and flexible adaptation to changes in rail traffic resulting from customer
need.
Nevertheless, the growth in customer numbers and the resulting dynamics of container movement in
intermodal terminals, require continuous improvement and ongoing optimisation of the processes of
container storage and movement in light of the constraints imposed by the technical infrastructure.
1492
An example of the search for improvement and optimisation of these processes is the analysis of a train’s
entry and exit from/to the intermodal terminal node. In the case studied, the optimal solution for loading
and unloading a train, entering or leaving the terminal was sought. The criterion adopted for the
optimisation of the above process was a concept for deploying containers which would minimise lifting
operations. The solution of the task assumed that the loading and unloading of containers onto the means
of transport, be it a train or a car, cannot interfere with or increase the number of subsequent lifting
operations. This is apparent in such operations as the movement of containers which is to be understood
as unloading or loading from/to a train, changing the position of the container or removing it when it is
not required for loading and stacking containers, that is, putting containers atop one another in stacks or
in columns or singly, when the column is not adjacent to another column, in the limited storage yard of
the terminal node studied.
Therefore, the boundary conditions for the concept developed are as follows:
a) reducing storage space within the terminal node,
b) stacking containers, one atop another, with the stacking system assuming the following, additional
conditions:
• containers stacked one on top of the other must be of the same type, that is, sharing the same profile
in length, measured in feet, for example 40-feet
• the maximum number of containers stacked is 5 columns of containers standing next to each other,
or 3 when the column of containers is not protected by another column,
• full containers cannot be stored on top of empty containers
c) reducing the number of mobile cranes for unloading and loading containers,
d) limiting the unloading track, that is, reducing the need for marshalling operations where a train’s
composition has to be shortened because of the length of the unloading track in the railway sidings where
unloading takes place,
e) reducing the time available for locomotive operations in the marshalling yard,
f) prior notification of containers, viz. a list of containers, received from the principal or customer, for
loading or unloading onto the train.
Based on the present study, among other things, two algorithms were developed and implemented in the
computer application created, that is, in the advanced warehouse module. The first algorithm, presented
in Figure 1, supports the process of unloading containers from a notified train. The second, in Figure 2,
identifies containers in the terminal yard according to the order recognised in the notification and then
suggests which containers should be loaded onto the train’s payload and the order in which this should
take place.
1493
Figure 1: Algorithm for the optimisation of the process of unloading containers in the intermodal
terminal node (own development)
1494
The first algorithm, the unloading of containers from the notified train, shows the decision-making
process based on a clearly specified list of containers which should enter the yard of the intermodal node.
In practice, a certain non-compliance can be observed involving, for example, the number of containers
notified and any damage sustained thereto. However, due to the nature of intermodal transport and, above
all, the independent character of the operational activities of enterprises executing intermodal transport
orders - all containers must be accepted.
Verification of incorrectly advised documentation regarding the supply of containers, as well as any
returned containers and any complaints or demands for compensation for damage sustained during
transport, is carried out under administrative and operational activities but is subject to delay in
processing.
A train’s arrival at the intermodal container node begins with the downloading of a list of containers,
firstly, based on the advice docket which, in turn, is seconded by the bill of lading and /or a written
protocol for the train’s arrival into the terminal; this is all drawn up by the person responsible for the
whole operation. The list of containers is then received and sorted according to their earliest departure
dates. This is the first criterion in any reduction of the lifting equipment’s workload at the terminal in the
timeline, being the number of lifting operations related to a container’s entry, storage and departure from
the terminal. The image of the storage yard is then verified for compliance with the arrangement of the
containers according to correct procedure.
The location of the containers is then analysed for consistency according to the type of container deemed
acceptable for unloading, based on previously discussed documentation. In the absence of containers of
the same type, or where the departure date is earlier than for those containers which are subject to delay
and are to be held back, a search for a free bay in the storage yard is carried out. The search is also a
decision-making operation, since the lack of a free space in the square will generate an automatically
given order for the discharge of a container onto the so-called buffer space, the temporary operational
site. Otherwise, the location closest to the loading ramp will be sought in order to load a given container
in the quickest time for onward shipment. The order to move the container to the buffer is, therefore, an
action that in most cases, interferes with the optimisation algorithm. The too frequent storage of
containers in the buffer space increases cargo handling operations, in that the containers have to be re-
arranged for redistribution at a later stage. Therefore, the algorithm for minimising the allocation of
lifting tasks for the unloading and storage of containers is put in jeopardy and the cumulative operating
time of the machine park ceases to be the shortest. On the other hand, if information about containers
with a later departure date which, additionally, meet conformity requirements as to type, that is, the space
for the container being unloaded has already been selected, the research performed on the above-
described terminals suggests that one more condition be checked, namely, that a statistical analysis of
changes to the departure times of containers be undertaken. It turns out that on the basis of statistical
data, even on a simple XYZ analysis, it can be deduced which customers adhere to rigid deadlines for the
collection of containers and which customers simply make use of the terminal as a buffer storage space,
by frequently changing dates of receipt according to their own business needs. In the case of
unpredictable customers, the unloading of containers should be re-directed to that location having the
latest known receipt date for the containers stored there. On the other hand, in the case of those
customers who are able to supply definite dates for the receipt of their containers, the time for the
provision of stacked containers and their subsequent release for onward shipping could be limited to one
business day. Each of the above mentioned solutions, becomes a task for the lift operator. This task,
designed in the information system, is sent to the tablet, mounted on the lifting equipment and the
operator, after reading the container number and the unloading location, carries out the task and confirms
completion.
This procedure should be repeated until the whole train is unloaded. The algorithm analysed enables
reduction, to a minimum, of the unnecessary lifting operations associated with the unloading of
1495
containers from a train and reduces subsequent operations for the storage and preparation of containers,
for further shipment, in the warehousing area.
A much more difficult algorithm to develop is a method of loading containers onto a train or compiling
the train’s composition when leaving the terminal vis-à-vis the minimum number of lifting operations.
Figure 2 shows the complicated decision-making process in which the basic principle is to create a list of
full and empty containers loaded onto a scheduled train. In the algorithm described, the process of
planning a train’s composition has been omitted; focus is directed only onto the quantitative and temporal
optimisation of lifting operations.
The first part of the algorithm creates a list of empty and full containers for the planned shipment. This
division is important in the optimisation algorithm and results from the shippers' experience. The list of
full containers must be unambiguous and give specific container numbers for identification in the
terminal yard or their precisely defined storage site. However, in the case of empty containers, it is
enough to find a container type and its owner, such as the 40-foot container belonging to the Danish
company AP Møller-Mærsk A/S).
With this in mind, the algorithm may be generally presented in the following steps:
1) in the beginning, full containers are selected from the list which has been sorted for the planned, train
composition, that is, those containers are selected which are located in the first storage space, where no
lifting operations are required for the container to be loaded onto the train,
2) the containers which are then to be located in the next access space are selected, that is, the container
scheduled for the train which is blocked by another container,
3) if the container from the loading list is blocked by another, full container, the operation is put in place
to trans-ship or move to the buffer space, that full container which is not on the loading list and, where its
departure time is known, onto another container, subsequently, which has a later departure date, all the
while, keeping boundary conditions in mind.
4) if the container from the loading list is blocked by an empty container, it is to be checked as to
whether the empty container is not scheduled for shipment, on account of its type and owner,
5) if, in point 4, the answer is positive, the container is to be loaded onto the train and removed from the
list of empty containers; otherwise the lift operator is to be ordered to move the container to the buffer
space or, where its departure date is known, ordered to stack it onto a container with a later departure
date, keeping boundary conditions in mind.
1496
1497
1498
Choose a container at the ‘first

access’ site from the list of full
containers and send the task
for loading
Update list of containers

located at the ‘first access’ site
YES
NO
Are all containers
from the ‘first access’ site
loaded?
Choose an empty container

from the ‘next access’ site
Select a container located at

the ‘first access’ site above the
container selected
Move the container to the

buffer (task for Kalmar)
YES NO
Is the next
container a container
from the list?
Load container onto a train

(task for Kalmar)
NO YES
Is the container
the last one on the STOP
loading list ?
Figure 2: Algorithm for the optimisation of the container loading process, at the intermodal
terminal node, onto the scheduled train (own work)
1499
6) by adopting a cyclical approach and analysing the next access space, other full containers may be
loaded up, bearing in mind that if a full container, scheduled for loading, is blocked by an empty
container and if it satisfies the above-mentioned conditions, it will be automatically loaded onto the train
and removed from the list of empty containers, as prescribed,
7) having closed the list of full containers and having loaded them onto the train according to the plan,
the process of loading the empty containers can begin,
8) the loading of empty containers, as with the loading of full containers, begins with the search for
containers at the first site of access, that is, the search for those containers which will not require trans-
shipment. Where there are such containers in the yard, a lifting operation is performed, otherwise trans-
shipment, according to the principles provided for in points 3) and 5), is effected.
The process continues until the composition of the scheduled train is completed. The algorithm presented
reduces the number of lifting operations to a minimum. It can be assumed that its application will also
reduce the indirect costs associated with the operation of lifting equipment.
Conclusions
The algorithms presented have been implemented into the modules of the IT systems, in place in several
intermodal nodes of one of the main operators of distribution logistics for container shipments in Poland.
For this reason, each terminal node is configured in a different way and so differ in the storage space for
the containers, the distances between buffers, discharge ramps, loading ramps, communication paths and,
above all, in the distances between sectors where the containers are stored; the effect of optimisation
algorithms may also vary. This means that despite the reduction in lifting operations, labour costs for
lifting equipment may not decrease. The reason for this may be the length of transport roads and the cost
of direct materials in use, such as fuel for the mobile lifting equipment. Hence, the algorithms developed
and implemented in some selected intermodal nodes will be used as a research tool for the complex
optimisation concept, namely, lifting equipment for intermodal terminals.
Bibliography
Świeboda J.,, Zając J.: Analysis of container terminals preparation to current trends, case of Schavemaker
Invest, International Scientific Conference Transport of the 21th Century, Arłamów 2016,
„Massel: Będziemy wspierać rozwój transportu intermodalnego”, [w:] „Serwis Prasowy PKP Polskich
Linii Kolejowych S.A.” 2013, nr 62(3382), str. 1,
http://utk.gov.pl/pl/analizy-i-monitoring/statystyka-kwartalna/przewozy-towarowe/4595,Przewozy-
intermodalne-w-2014-roku.html
Watanabe, Itsuro: Container Terminal Planning—A Theoretical Approach. Leatherhead, UK: World
Cargo Publishing (2001),
Zumerchik, John, Jean-Paul Rodrigue, and Jack Lanigan Sr. "Automated transfer management systems
and the intermodal performance of North American freight distribution." Journal of the Transportation
Research Forum. Vol. 48. No. 3. 2012,
1500
An Analysis of the Evolution Of Romania’s Cereals Production and

Trade in the Period Of Post-Accession to the EU Community
Economic Space
Cristian Cristu, Mihaela Scurtu Cristu and Silvius Stanciu
“Dunărea de Jos” University of Galati, Romania,
cristucristian@yahoo.com
cristu.mihaela@yahoo.com
sstanciu @ugal.ro
Abstract
This paper proposes an analysis of the Romanian cereal output and trade after the accession to the
European Union. The cereal production is an important sector of domestic agriculture and represents a
traditional activity for Romanian farmers as well. The cereals outputs harvested on the national territory
have made important progress in these past years, concretized in the growth of quantities exported
especially to the extra-EU economic space and in enabling the exporters to earn substantial revenues. The
record outputs of cereal production obtained in the past years have led to a positive economic growth for
Romanian economy, which exhibits one of the highest GDP growth rates in the European Union.
Although there has been an increase in the quantity of agricultural products exported, this was done
mainly under the form of unprocessed vegetal produce, having a lower price compared to the finished
products. Romania depends on the fluctuations of grain prices on the international market, and
consequently it is necessary to construct a national strategy to ensure the integrated development of the
domestic food industry and to reduce the dependence on food imports. The results obtained from the
research are useful for academics, for the Romanian companies and for the national administration in
view of reducing Romania’s dependency of external food markets.
Keywords: cereals, production, export, trade balance, Romania
Introduction
Cereals occupy a core place in farming production and output, the international trade and the nourishment
of global population. According to the 2016 forecast of the United Nations’ Food and Agriculture
Organization (FAO), the global cereal production will reach 2.544 billion tons, with a growth of 15.3
million tons (0.6%), compared to the 2015 output. The forecasts regarding the harvested quantities may
be improved, mainly for what, rife and barley, whereas for the corn output one expects values smaller
than those initially forecast (FAO, 2016).
Romania is one of the most favored European economies in terms of farming land, water and human
resources. Agriculture plays an important role in relation with the total rural population of Romania
(45.7% of the total) and with the employment degree of the labour force (30% of the total). Agricultural
fields occupy almost 62% of Romania’s surface and almost two third of them are tillable. Despite this
considerable potential, the average Romanian agricultural yield is modest, which indicates that the use of
production factors is way below the optimum level. If operated properly, those production factors will
make the hiring of agricultural labour hand more productive, will generate great results in reducing rural
poverty, will eliminate income differences between the people that live in rural and urban areas, will
1501
effectively lead to economic growth by achieving higher savings when dealing with the public sector’s
financial resources, and ultimately, the establishment of a more sustainable trade balance (Ministry of
Agriculture and Rural Development MARD, 2014).
For Romania, agriculture and cereals production in particular represent an important sector, which has
assured in these past years the economic growth and the population’s stability. With its biological
functions, it is a main source of economic activity and of labour force use. It is an environmental
protection factor as well simply because it is an efficient enemy of desertification.
Romanian authorities decided to get involved in supporting the cereal production, mainly after the
accession to the EU economic space by launching a range of means designed to support autochthonous
agricultural producers. As a result, Romanian farmers can opt for various instruments such as direct
payment schemes (single payment for all the surface, redistributive payment, payments for beneficial
agricultural practices for the climate and natural environment, payments for young farmers, basically a
simplified scheme for small farmers), transitional national aids (NTA), state aid for fuel used in
agriculture or interest rate subsidies on production loans (MARD, 2016).
On the domestic scale, agriculture is one of the key branches of the Romanian economy. According to
MARD (2016), the contribution of agriculture, forestry, fishery in the Gross Domestic Product (GDP) is
around the average value of 6% of the total GDP, compared to the value of approximately 1.7% in the EU
Member States. The weight of agriculture in GDP has undergone a significant decline in the last 20 years,
falling from 18.1% in 1995 to almost 4.8% in 2015 (Razi, 2015a). Although Romania is one of the main
European countries when it comes to available tillable surfaces, the natural potential is insufficiently
exploited. Thus, agricultural productivity is calculated as gross value added per annual work unit, being
significantly lower in Romania than the European average. Even in the years considered favourable for
agricultural production, the national productivity level reached was below 50% of the average EU
community members (Dachin, 2011). Compared to the situation in our country, agriculture was
considered an industry in the developed European countries and is heavily supported by public funds until
achieving a high level of performance and stability threshold, fact which led to an ascension gap of the
newly accepted countries in the economic community.
According to the General Agricultural Census data (2010), of a total 23.8 million hectares representing
Romania, the agricultural surface used by agricultural exploitative locations is about 13.3 mil. ha
(55.9%), of which the arable land sums up 8.3 mil. ha, representing a 62.5% percentage. Local agriculture
is characterized by land fragmentations, by the large number of small farms and by the growing weight of
foreign capital investment in Romanian agricultural land (Stanciu, 2016).
A worrying agricultural phenomenon in the recent period is the decrease of arable land by up to 1.2
million ha during 2003-2010, based on agricultural censuses (Iacob, 2011). According to the research
conducted by Dincu at al. (2008), this decrease is taking place due to the existence of agricultural
uncultivated land, climate change, deforestation or expansion of settlements areas. The production
structure of the allocated vegetable crops is dominated by the production of cereals and oilseeds, grown
on about 80% of tillable land in Romania. Agricultural areas allocated to cereals growing represent about
66% of agricultural land cultivated annually. Wheat and corn are traditional crops for Romanian farmers,
regardless of households or farms size, having significant weights in the total area cultivated with cereals
nationally. In smaller quantities barley, oats, rye and rice are cultivated as well.

The information related to the areas cultivated with cereals, the total production and productivity per
hectare were taken from documents officially released by the Ministry of Agriculture and Rural
Development, the National Statistics Institute, Eurostat and FAOSTAT. The information was statistically
1502
analyzed, plotted and interpreted. The results obtained were compared with information from the
academic literature in order to obtain relevant scientific findings.
The Cereal Production of Romania

The wheat production
Wheat is a generic name under which various species of cereal plants are reunited in the Triticum genre,
the grass plants family (Poaceae). According to the Ministry of Agriculture and Rural Development
(MADR 2016), wheat has a significant weight in the total annual amount of vegetal crops, the average
area allocated to wheat cultivation is about 2 million ha / year. In our country, the wheat traditionally
grown is Triticum aestivum (the common kind), autumn variety, which adapts better to Romanian
moderate temperatures, which is the main source of flour for the population. In small quantities, Triticum
durum is grown as well in the favorable areas such as Danube's Plain, Dobrogea and southern Moldova.
The durum wheat flour is used as raw material for producing pasta. Although there is enough internal
market demand for it, the bulk of the production is for export, mainly because Romania does not have
enough specialized grinding mills for this type of wheat (there is only one specialized unit in Sibiu). Like
any other characteristic situations of the Romanian agricultural industry, Romanian wheat is exported as
raw material and returns back home as special flours (Ghiță, 2015).
According to Ittu (2009), for common wheat types destined to be sold on the domestic markets, the
following types of common wheat are recommended: Hope/Speranţa (registered in 1987) and Rubin
(1998). For the "durum" wheat, there are spring varieties (Durom - Romanian type, registered in 1976,
Ixos - French type, 1995) and autumn varieties (Rodur - Romanian type, 1984; Pandur - autumn variety,
1996). The main use of wheat, accounting for over 90% of the crop is human food (especially bakery
products), the surplus or the lower quality batches are intended for industrial processing (fabrication of
alcoholic beverages) or as livestock fodders (about 8%). Romania is characterized by a high percentage
of self-consumption, roughly 30% of the wheat crops are being used within the population's households,
forages and seeds or for processing for human consumption (National Commission for Prognosis, 2009).
Wheat is cultivated on large areas and it has a crucial role in the global nutrition and health due to the
high content of proteins and carbohydrates. It has a balanced ratio of proteins and carbohydrates for the
human consumption. It is hardly perishable and the transport and storage of the grains can be made with
ease. Furthermore, it has a high ecologic plasticity as well (it is being cultivated in zones with different
climate and different types of soils) and the possibility to mechanize and integrate the whole crop
production processes as well. Wheat is cultivated in more than 100 countries worldwide making it the
most widely spread plant and the 4th biggest crop worldwide after sugar cane, corn and rice.
Wheat grains are used mainly for the production of flour, used in the bread manufacturing process, which
is used by 35-40% of the global population and provides about 20% of total calories consumed by the
population worldwide. The areas allocated to wheat cultivation and the quantities produced by Romania
during 2007-2015 are presented in Table 1. According to official statistics, Romania has seen a steady
growth in wheat production in recent years, with slight fluctuations, mainly due to climatic conditions
(MADR, 2016).
Table 1: Surfaces cultivated with wheat, average and total Romanian yield
Specifications 2007 2008 2009 2010 2011 2012 2013 2014 2015
Surface (thousand ha) 1,975 2,110.3 2,148.8 2,162.4 1,947 1,997.6 2,104 2,112.9 2,043
Average Production (Kg/ha) 1,541 3,403 2,421 2,688 3,663 2,652 3,468 3,590 3,842
Total production (K tons) 3,044.5 7,181 5,202.5 5,811.8 7,131.6 5,297.7 7,296.4 7,584.8 7,851
Source Authors, by using MADR (2016)
1503
According to Nica (2016), who quotes FAOSTAT and EUROSTAT data, with an estimated wheat output
between 7.56 and 8.41 million tons for this year, Romania will come forward on the 18th or 19th position
worldwide, which makes it possible to exceed the previous thresholds (Raz(Razi, 2016a).
). In 2015/2016, wheat
production worldwide was estimated to be approximately 698 million metric tons (Statistics, 2016), but in
July 2016, the global wheat crop was estimated to be around 732 million tons, with a 1% growth. In the
worldwide statistics, thee first places are occupied by China, India, Russia and USA, countries that account
together for more than half of the global wheat production (figure 1).
The European Union, which is considered the biggest wheat producer, had a production level of 147.8
million metric tons in 2015 with a forecasted growth rate of 2% when comparing with previous year's
performance (Razi, 2016b).
Although some progress has been made, the domestic sector occupies the weakest position among
European economies present in the top of worldwide wheat producers.
Figure 1: Top of the worldwide wheat producers (2016)

Source: Authors, using data provided by United States Department of Agriculture USDA (2016)
Helped by the soil's fertility, rainfall's volume and the adaptation of the agricultural practices, Romanian
producers have achieved in the recent years a growth of the average output per ha, which reached more
than 4 tons this year, surpassing Ukraine, the USA and India (figure 2). Exceeding this level of
agricultural productivity
uctivity is a record for Romania in the last 10 years, with the highest average quantities
obtained last year, respectively 3.84 tons per hectare, 2011
2011-3.68
3.68 tons per hectare, in 2014 -3.58 tons per
hectare, and finally, in 2008 - 3.40 tons per hectare (MAR
(MARD, 2016).
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Figure 2: Worldwide average wheat productivity

Source: Authors, using
ng date provided by Razi (2016
(2016b)
Corn Production
Zea mays (L) corn plant of the Gramineae family is one of the most important crop plants in the world,
characterized by multiple uses
ses (human food, industry, and livestock fodder). Compared with other
cereals, corn has a high production capacity about 50% higher than other cereal plants, with other
advantages such as ecological plasticity, a higher multiplication factor and a better usage of soil
nutriments. Corn contains about
bout 72% starch, 10% protein, and 4% fat capable of supplying
supplyin an energy
density of 365 Kcal/100
100 g and a lower protein content when compared to rice and wheat. (Ranum et al,
2014).
he corn crop is fodder for live

The main use of the livestock, being the second plant
nt used for this purpose, after
grassy fodders. Therefore, on a global scale, about 75
75-80% of total corn
orn crops are used to feed livestock,
live
leading to their rapid increase in weight and muscle mass percentage. Corn is a high quality fodder,
containing 70-80 g of digestible protein with a high nutritional value. 1 kg of beans contains the
equivalent of 1.17 to 1.30 nutritional units.
About 15% of the global corn yield is used directly in human food supply. The energetic value of corn is
97 kcal / 100 g. Corn beans are rich in carbohydrates (starch, albumins), B vitamins, E vitamin, iron,
phosphorus, magnesium, zinc and potassium. The high content of magnesium present in corn plants
excellently completes the lack of this element in humans, due to diseased rela
related
ted to the organism ageing.
Compared to wheat, corn is characterized however by a lower level of essential nutrients necessary for
the human body. Thus, even though it has a relevant niacin content, the actual vitamin is in a bound form,
which makes it harder
der for the body to assimilate it and as a result, the tryptophan content, which is an
essential amino acid precursor of niacin, is reduced, problem that can lead to a high degree of pellagra
incidence in populations with feeding based exclusively on corn products. Romania has been hit by this
disease from the 18th century until after World War II, when it was eradicated (Asmarandei - Andreescu,
2014). The food treatment processes and food preparation technologies are differentiated from one region
to another,
er, depending on the local traditions. Although Romania is considered the main corn consuming
area in Europe, FAOSTAT statistics, quoted by Ranum et al (2014), the domestic consumption specified
is estimated at 85 g / capita / day, being exceeded by Bosnia and Herzegovina, where there is an average
avera
daily consumption of 181 g/capita,
capita, more than double the amount recorded in our country. In African
countries, the corn consumption of the population can exceed 250-300 g/capita/day.
1505
The food industry, where corn is turned into ethanol for household purposes, starch, oil or other food or
industrial products, processes about 25% of the national corn resources. Fresh plants are used to produce
bio fuels or all the crops are entirely used to create livestock fodders (Costache, 2006).
Romania is a leading corn producer, occupying the first position in terms of cultivated areas and the
second position regarding the crop production harvested on the European level. In 2014, Romania
obtained an output of 11.73 million tons of corn beans, harvested from a cultivated area of 2.43 million
hectares, with a yield of 4813 kg per hectare. Compared to our country, France obtained a production of
18.39 million tons harvested from an area of 1.77 million hectares and the yield of 10,383 kg / hectare.
The best yield of 11,238 kg / hectare was obtained by Spain which harvested a corn output of 4.69 million
tons from a cultivated area of 417,000 hectares. The maize yield obtained by Romania is the smallest
among all the other main corn-cultivating Member States (Marinescu, 2015).
Table 2: Surfaces cultivated with corn (average and total Romanian output) 2007-2015
Specifications 2007 2008 2009 2010 2011 2012 2013 2014 2015
Surface (thousand ha) 2,524.7 2,441.5 2,338.8 2,098.4 2,589.7 2,730.2 2,518.3 2,512.8 2,528
Average Production 526 3,215 3,409 4,309 4,525 2,180 4,488 4,770 3,509
(Kg/ha)
Total Production 853.9 7,849.1 7,973.3 9,042 11,717.6 5,953.4 11,305.1 11,988.6 8,871
(thousand tons)
Source Authors, by using MADR (2016)
Barley Output
Barley (Hordeum vulgare L.) is a species of cereal plant belonging to the Hordeum genre of cereals,
Poaceae family. The plant thrives especially in lowland moist areas, but it adapts to harsher conditions as
well such as salty cultivation soils. Due to the fact that is less cold resistant than wheat or rye, barley is
sown during early spring and it ripens in a short time, sometimes 100 days are more than enough for the
summer barley. The economic importance of barley is lower compared to that of wheat, corn, rice or rye
because it is mainly used as animal forages. Regarding human consumption, it is only used after it
maltifies in the brewing industry (mainly two-row barley), to obtain malt coffee or to manufacture malt
groats. In 2016, the global production quantity is estimated at 145.8 million metric tons, with the largest
producer of barley being the European Union accounting for 43% of the total barley production
worldwide (Statistics, 2016).
Romania is a major exporter of barley and two-row barley being with 1.334 million tons of barley,
288.179 tons of autumn two-row barley and 334,000 tons of spring barley. Almost 90% of national
production is exported, being used by external partners.
Table 3: Surfaces cultivated with barley, average and total Romanian production
Specifications 2007 2008 2009 2010 2011 2012 2013 2014 2015
Surface (thousand ha) 363.8 394 517.5 515.8 419.5 424.2 495.7 516 462
Average Production (Kg/ha) 1,461 3,069 2,284 2,542 3,170 2,325 3,250,5 3,319 3,424
Total Production 531.4 1,209.4 1,182.1 1,311 1,329.7 986.4 1,542.2 1,712.5 1,582
(thousand tons)
Source: Authors, by using MADR (2016)
1506
The quantities of triticale, oat or other cereals produced in Romania are reduced from a qualitative and
quantitative points of view when compared to wheat or corn crops. According to the data provided by
MARD (2016), the harvested quantities up to date are of 308,000 tons triticale and 314,000 tons of oats.
Romania's Transactions with Cereals

Romania exports mainly agricultu
agricultural
ral raw materials, cereals, tobacco or tobacco products. Although
between 2013 and 2014 Romania had a positive trade balance in the agro agro-food
food industry, due to a good
cereal crop and due to the products' high prices on the international market. In 2015, our country became
again an agro-food
food products net importing state, with imports up to 5.7 billion euros and exports up to 5.6
billion euros, therefore, a negative balance of 100 million euros (Gheorghe, 2016). MARD aims at
reducing the exports of agricultura
agriculturall raw materials, so that they are used in the domestic livestock
production, with the purpose of reducing Romania's dependency on imports regarding the meat industry.
Romanian cereal exports have shown an upward trend in the period 2007 2007-2015,
2015, increasing from
fr a value
of 151.4 million euros in 2007 to a historical maximum of over 2 billion in 2015. Combined with a
moderate growth of imports, this evolution led to a very good trade balance with a surplus and to
important benefits for the national economy (figu
(figure 3).
Figure 3: Romania’s foreign cereals trade (2007-2015)

Source Authors, using NIS data (2016)
After Romania's accession into the EU, the cereal transactions made with the EU member countries took
an interesting turn, therefore, in 2007 when grain exports to European partners represented approximately
62% of the total, in recent years, top companies from Romania have turned to extra EU partners as well,
which have reached a weight of 33.74%, with a historical minimum threshold of 25% in 2014.
The main recipients of agricultural products of vegetal origin made in Romania were Holland, Spain,
Italy and France in 2015, areas from which a good part of the capital invested in agriculture came back
(Stanciu, 2016). Foreign investors prefer to sell hhigh
igh quality Romanian products to traditional partners in
their countries of origin.
Apart from this drop, we witnessed a further increase in the total weight of cereal imports from the EU
countries, which rose from of 65% in 2007 to 90% last year (figure 4). Romania has become more and
more an agricultural market for the EU partners, in order to reduce exports towards Russian markets and
to reduce the accelerated growth of the supermarket retail stores that have common E European
uropean capital
(Stanciu, 2015).
1507
Figure 4: Percentage of EU community trade in Romania's foreign cereal trade

Source Authors, by using NIS data (2016)
The evolutions of the trading prices regarding the main crops grown in Romania is shown in figure 5.
From the graph, one can remark a sslight
light fluctuating trend in the level of domestic grain trade correlated
with the international stock trade evolution, given the fact that a large part of the cereals produced in
Romania are exported. Apart from the period of the global economic crisis, the general trend manifested
on the internal market shows a slight increase in the prices of wheat and oats, and a slight decrease of the
growth rate in corn.
Figure 5: Internal prices of cereals transactions (ex works)

Source Authors, by using NIS data (2016)
Romania's trade balance of wheat crop had a strong surplus because the exported quantity was nearly 6
times higher than the imported one in the years 2013
2013-2014,
2014, period when a maximum of wheat exports
1508
was reached (Figure 6). Compared to 2007, in 201 2014

4 the maximum quantity of wheat was exported,
Romania exported quantities 10 times higher than the amounts exported in the reference year. Imports
remained relatively constant regarding the value and quantity during the reference period.
The forecasted growth

owth of Romanian wheat exports has been moderate in the recent months, due to a
surplus production in Russia, which has recently become the largest exporter of wheat, exporting in July
2016 about 2 million tons and in August 2016 another 3.1 million, at a price of $ 170 / ton FOB, up to $ 3
/ ton lower than the export quote of Constanta harbour in late August 2016 (Razi, 2016b). In the first
quarter of 2016, Romania exported 1.59 million tons of wheat worth 279.7 million euros, almost 50%
more than in the same
ame period of the previous year, becoming the third largest exporter of wheat towards
"exotic" states, after France and Germany. The main destinations for the European wheat, including the
one from Romania, were Algeria (+ 31%), Egypt (+ 101%), Iran (+ 94% 94%),), Saudi Arabia (+ 189%) and
Morocco (+ 15%). Romanian wheat market ended the 2015/2016 season (July 2015 / June 2016) with
stocks of nearly 1 million tons, four times bigger than the ones at the end of the previous season and a
maximum point for the last four commercial years/periods, generated mostly by the slow export
campaign of this season. Instead, Romania can take advantage of the reduced wheat production in
Ukraine and France due to adverse meteorological conditions. Thus, the French production is 28.7
2 million
tons, by 30% smaller when compared to the last year's quantity, while its exports outside the EU will drop
by 60% to 5.1 million tons (Razi, 2016b).
Figure 6: Romania's intra

intra- and extra-EU community wheat trade (2007-2015)
2015)
Source Authors, using MADR data (2016)
Romanian corn exports have registered a strong upward trend in 2007

2007-2015
2015 when the exported quantity
grew over 6 times (Figure 7). Romania exported only during the first quarter 669,566.33 tons of corn this
year, amounting to 206.173 million euro, compared to 1.441 million tons in the same period of 2015 with
a final value of 320.875 million euro.
Corn export in the first quarter of 2016 had a share of 1.49% of the total exports, while in the same period
of the last year it had a share
re of 2.40%. As regards imports, Romania bought on the foreign markets
43397.51 tons of corn in the first quarter of this year worth 37.182 million euro, down by 47.74%
compared to the same period in 2015 when it imported 294,665.96 tons of corn worth 71.1 71.14343 million euro
(Nica, 2016).
1509
In 2015, Romania earned from corn exports (intra

(intra-EU
EU community trade as well as exports to third party
countries) 981.9 million euros for 5.1 million tons, with 57% of the national yield exported, mainly to the
EU community.
Figure 7: Romania’s intra

intra- and extra-EU community corn trade (2007-2015)
2015)
Source Authors, using MADR data (2016)
This year, between the 1st of January and the 2nd of June, 111,100 tons of maize were exported based on
granted licenses compared to 598 100 tons in the same period last year (decrease by 81.45%). The main
Romanian corn importing countries this year were Turkey with 46 450 tons, Lebanon - over 22,140
22, tons,
Tunisia - 16,700 tons or Israel - 15,200 tons (Stanciu, A., 2016).
Romania produces and exports significant quantities of barley, mainly for animal fodder production. In
the analyzed period there was a significant increase in the quantities of barley delivered to the foreign
markets that eventually became more than 10 times higher compared to the period before accession
(Figure 8). The Middle East, primarily represented by Saudi Arabia, Jordan and Kuwait, is the main
importer of Romanian barley, covering almost half of the national barley exports. Arab states demand
Romanian high-quality
quality barley at an affordable price, particularly to ensure that racing horses are properly
fed. For the horse farms in the region, barley is a key element in ensuring a proper nutrition for the
horses. Equine diet
iet combines several cereals and nutritional elements, of which barley is the majority,
representing over 85%. In most cases, Arab countries buy bulk quantities of barley from Romania and
process it in various forms of finished fodders. Shipments to Saudi Arabia reached 568,000 tons in
2015/2016 trade season, a 20% growth compared to the last year.
Important progress of this sector has been recorded especially in the past three years, during which the
export output volume almost doubled compared to the yea yearr 2012. Romania is the 8th largest exporter of
barley worldwide with nearly 90% of the local production of barley exported as a raw commodity. Barley
export is the only indicator of the national agriculture that placed Romania on the first place in a certain
certa
top in this sector. Most of the Romanian barley is exported because the domestic raw agricultural
materials market has corn, a cheaper alternative to feeding farm animals. Local Romanian traders send
barley to over 20 international destinations, but sev
seven
en regional destinations cover over 80% of volume.
The largest barley business is made with countries such as Saudi Arabia, Libya, Jordan, Tunisia, Algeria,
the UAE and Israel (Razi, 2015bb). ). Exports are made mainly during the harvesting period, followed by
1510
imports to ensure raw materials necessary for the beer industry, due to insufficient storing capacity.
During 2015, barley exports exceeded barley imports, regarding the value of imports; those are more
expensive and lead to an imbalance of Romania's fore
foreign
ign trade balance for this product (figure 8).
The year 2016 seems to be difficult for barley manufacturers and traders of Romania because of a
retention of national stocks of barley in the first months of the year due to lower export quantities, which
resulted in a negative trade balance in the past 6 months. Thus, firms specialized in the export of cereals
traded only 868 tons of barley in the first six months of 2016, 98.5% less than the same period of 2015.
The largest exported quantities were for trading partners in Canada and Israel. August 2016 led to a slight
revival of Romanian exports when about 334 000 tons of barley were sold, mainly to destinations
destinat outside
the EU Community. Extra EU community barley export business in 2016 are dominated by Romania and
France, in the context where the cumulative volumes cover 93% of the total exports of EU countries.
During August 2016, Romanian exporters had sma smaller
ller prices than the French ones, with price quotes for
fodder-type
type barley between 134 Euro / ton, 136 euros / to ton FOB, lower by at least 5 euro/ton
ton compared to
the supply in France (Razi 2016b).).
Figure 8: Romania’ intra

intra- and extra-EU community barley trade (2005-2015)
2015)
Source authors, by using MADR data (2016)
Beside the increased exports made mainly during the harvesting period of the last year in Romania, an
increase of imported quantities of barley followed, with the purpose of ensuring the prosperity of the
afferent livestock sector and brewing industry, the main consumer industrial. Most of the imported barley
is exported, Romania being also an intermediary in the cereals trade.
Conclusions
National production of cereals has undergone a ppositive
ositive development in the post accession period, based
on Romania's natural resources, skilled labour force and development of agricultural technologies.
Romania has the capacity to produce large quantities of wheat, corn, barley, ensuring the nutritional
needs of the population and significant incomes for the farmers by exporting harvested quantities on the
1511
international market. Lack of crop irrigation systems leads to dependence on climatic conditions.
Romania exports cereals mainly to extra-EU markets and imports cereals from European partners.
Exports of agricultural raw materials provide significant benefits to the national economy one short term,
but unfortunately this strategy is not sustainable in the long term because the domestic agricultural market
is dependent on imported finished products, which have a higher economic value and lead to the
downturn of the national trade balance. Better specialized negotiation teams in pre-accession negotiations
in the European space, additional experience or a position based on the availability of natural resources
could have been the basis of strategic advantages of the national economy and better economic conditions
for local farmers. It requires a superior usage of the vegetal domestic raw materials on a national scale.
This can be achieved by developing livestock production and by using industrial processing techniques,
in order to create some semi-finished or finished products to be used as exports with higher economic
value, in order to reduce the dependency on revenues obtained from the price fluctuations on international
market and to grow the national food safety standards.
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1514
The Economic Convergence – Empirical Analysis of

Balassa-Samuelson Effect in Romania in the Context of Monetary and
Macroeconomic Policy Mix
Petre Adrian
Academy of Economic Studies
Bucharest, Romania
adrian.petre21@gmail.com
Ionita Georgiana Alina

Academy of Economic Studies
Bucharest, Romania
georgiana.alina.ionita@gmail.com
Abstract
This paper presents certain results related to the Balassa-Samuelson effect in Romania, and some
estimates regarding the impact of this effect on inflation and real exchange rate appreciation. The
econometric techniques of cointegration revealed, in 2006 – 2014 period, that the average annual inflation
generated by the Balassa-Samuelson effect in Romania was 0.15%, while the real appreciation of the
average exchange rate during the same period, caused by this effect, it was 4.05%.
Keywords: Balassa-Samuelson effect, inflation, exchange rate, convergence
Introduction
One of the priorities of Romania in the coming period is the accession to the euro area. In that context, it
must be quantified the impact that future increases in productivity, necessary to achieve real convergence,
will have on the exchange rate appreciation and on the inflation rate. Thus, to determine this influence,
the present paper aims to estimate the Balassa-Samuelson effect in the case of the Romanian economy.
The B-S model is based on several fundamental assumptions: the economy is composed of tradable and
non-tradable sector; the relative and the absolute version of PPP is validated for the tradable sector; the
wages in the two sectors will equalize.
Testing Balassa-Samuelson effect, especially in less developed states of Europe, is a topic of current
research, and there are many studies that analyze this aspect. Doing a quick summary of the most
representative studies of the Balassa-Samuelson effect in Europe, we can say that the results are very
important and with strong impact, creating a clear picture of the economic situation of European
countries. The Balassa-Samuelson effect existence has a particular interest, especially in transition
countries that intend to enter into Eurozone.
Most economists, including Egert (2005), De Grauwe and Skudelni (2002) or Sonora and Tica (2007)
attempted to estimate this effect, but reached different conclusions.
1515
Also, Egert (2002, 2003) showed that the states of Central and Eastern Europe experienced rapid
productivity growth in industrial sectors, followed by rapid increases in relative prices of non-tradable
sector. LaFrance and Schembri (2000) suggest that the Balassa-Samuelson mechanism can be highlighted
in productivity levels and in the exchange rate changes between the United States and Canada during the
period 1979-1999.
Bahmani-Oskooe and Nasir (2004), using models of cointegration and error correction in a sample of 44
countries showed that the BS assumptions is check in 32 countries (developed and developing), while BS
assumption failed in 12 less developed economies, where there were restrictions on trade, capital controls
and other trade barriers.
Candelon, et al. (2007) used panel cointegration techniques to estimate the long-term determinants of real
exchange rates in eight new EU member states for 1993-2003. Their results are in favor of B-S
assumptions.
Choudhri and Khan (2005) examined B-S hypotheses to explain the variations in the real exchange rate
for 16 countries in the period 1976-1994 using the DOLS method. According to the study, the BS effect
check for developing countries.
The testing of the B-S effect in the Romanian economy is performed based on data from the 2006-2014
period. The statistical data are related to relative prices of nontradable goods, the the real exchange rate
and the labor productivity.
It aims to analyze several assumptions: the relationship between the productivity in the tradable sector
and the real wages; the tendency of nominal wages to equalize between the service sectors and the one
exposed to foreign competition; the analysis of the correlation between the developments of the relative
prices and the productivity within the economic sectors.
The euro area is used as reference in estimates, since most of the foreign trade is conducted by Romania
with the EU and euro area. To obtain the productivity series, the industrial sector is considered as tradable
sector and the service sector is considered as non-tradable sector. Most empirical studies that analyze the
Balassa-Samuelson effect uses this sectoral division of the economy. In the Romanian case, the non-
tradable prices are the prices of services and other administered prices, and the tradable prices are those
of the other CPI components. In the case of euro area, the non-tradable prices are the prices of services
and the tradable prices are the prices of other HICP components.
The importance of the model is also given by the vulnerabilities of the Central and Eastern Europe region
at the beginning and during the recent global economic and financial crisis. This led to an increased
interest to identify the models that can explain the main features of the Central and Eastern Europe
macroeconomic data and to put an eye on macroeconomic data that are necessary to measure uncertainty
that can take many different forms.
In terms of monetary and prudential macroeconomic policies, in setting instruments such as nominal
interest rate, the importance of price stabilization and measurement of inflation is even higher. This is due
to the fact that central banks have to put an eye on the importance of uncertainty in shaping monetary
policy and must act in setting the reference interest rate in anticipation of future conditions, which are
affected by shocks that are currently unknown.
1516
Inflation and price stabilization is also significant for the fiscal policy as a higher level of the public debt,
as a fiscal policy instrument, is of the nature to block the authority responsible with the monetary policy
to hold an independent monetary policy, given the fact that an increase of the interest rate as a result of
inflationary expectation would also lead to the increase of the public debt.
Empirical results
The testing of the theoretical hypothesis of Balassa-Samuelson model led to significant results, which will
be detailed in the following. In Fig. 1 is tested the hypothesis of faster growth of productivity in the
tradable sector, compared to non-tradable sector.
Figure 1: The labour productivity in Romania

Source: Author's calculations based on the National Statistics Institute data
The results illustrated in Figure 1 validates the hypothesis set forth above.
Further, it is studied the transmission mechanism between the productivity recorded in the tradable sector
and the non-tradable sector prices. In this respect, the first step is to analyze the relationship established
between the tradable sector productivity and real wages. The real wage is calculated based on the
consumer price index. As shown in Fig. 2, the productivity (W) and the real wages in industry were
different trends in the analyzed period.
1517
Figure 2 The evolution of productivity and real wages in industry (%)

Productivity gains compared to the previous year, achieved after a lower wage increases compared to
productivity, were recorded in the years 2008, 2010 and 2013. On the other hand, in the years 2009, 2011
and 2014 were recorded, in particular, a loss of competitiveness.
The next step is the analysis of how the tradable sector wages equalizes with the non-tradable sector
wages.
Figure 3: The evolution of the ratio between the non-tradable wages and the tradable wages
In Fig. 3 we highlighted how evolved the ratio between the non-tradable wages and the tradable wages, in
2006 - 2014.
1518
Thus, during the period 2008 - 2011 we see a cut of the difference between the net average earning in the
non-tradable sector and the net average earning in the tradable sector. Currently, there is a clear trend that
the salaries of the two sectors of the economy to equalize.
Another tested hypothesis is related to the relative price increases in services sector. In Figure 4 is
evidenced the dynamics of non-tradable relative prices compared to the tradable sector prices.
For the services sector prices we used as a proxy the consumer price index for services, and regarding the
tradable sector, we used as a proxy the consumer price index for non-services.
Figure 4: The evolution of relative prices in Romania

1519
From Fig. 4 we can see that the assumption of increasing the relative prices in the service sector is not
validated for the period 2006-2014. The relative prices of non-tradable sector decreased in the analyzed
period and the prices of tradable sector grew steadily, from 2011 surpassing those in the nontradable
sector.
The econometric testing of the Balassa-Samuelson model
The econometric estimates for analysis the Balassa-Samuelson effect in Romania have been made in
several stages. The data series used are logarithmic.
In the first stage it is studied the domestic transmission mechanism of the Balassa-Samuelson effect, ie
the existence of a cointegration relationship between the relative prices and the labor productivity
differential between the tradable and nontradable sector (Eq. 1).
Eq. 1.
There must be a positive relationship between these series, meaning that an increase in labor productivity
cause an increase in relative prices.
Given that total inflation can be written as:
Eq. 2. ,
the inflation rate in Romania and the inflation differential between Romania and the euro area, generated
by the Balassa-Samuelson effect, are:
Eq. 3.
Eq. 4.
– the inflation rate in Romania

– the inflation rate in euro area
- indicates the share of tradables in the consumption basket in Romania, respectively in the
euro area
– the relative prices of tradables in Romania, respectively in the euro area
– the productivity in tradable and non-tradable sector in Romania
( - the productivity in tradable and non-tradable sector in the euro area
The second stage consists in testing the external transmission mechanism of the Balassa-Samuelson
effect, ie verifying the existence of co-integration relationships between labor productivity differential,
relative prices differential and real exchange rate, meaning that a faster growth of productivity in
Romania against the euro area leads to an increased relative prices differential, and this will lead to the
currency appreciation in real terms.
1520
The first step is to estimate the relationship between the difference in productivity differential between
Romania and the euro zone and the difference in relative prices, according to Eq. 5:
Eq. 5.
The second step is to estimate the relationship between Romania and the euro area regarding the
difference in relative prices and the real exchange rate, according to Eq. 6:
Eq. 6.
- the real exchange rate

- the nominal exchange rate
( - the relative prices of non-tradables in Romania, respectively in the euro area
Before applying this methodology is tested the stationarity of the data (Augmented Dickey-Fuller test).
The Augmented Dickey-Fuller test (ADF) have indicated that the series are stationary in level1. After
applying the stationarity test, we used the Johansen test to see if there is a cointegration relationship
between the variables included in the analysis. Johansen test results show that during the 2006-2014
period, there is a co-integration relationship between the relative prices and the productivity differential
between the tradable and nontradable sector (Table 1).
1
ADF test results are available on request
1521
Table 1: The results of the Johansen test for the internal mechanism transmission of the Balassa-
Samuelson effect
Sam ple (adjus ted): 2008 2014

Included observations : 7 after adjus tm ents
Trend ass um ption: Linear determ inis tic trend
Series : DIF_WL_RO LOGRELATIVE_PRICES_NT_RO
Lags interval (in firs t differences ): 1 to 1
Unres tricted Cointegration Rank Tes t (Trace)
Hypothesized Trace 0.05

No. of CE(s ) Eigenvalue Statis tic Critical Value Prob.**
None * 0.929939 21.94845 15.49471 0.0046

At m os t 1 0.379422 3.339727 3.841466 0.0676
Trace tes t indicates 1 cointegrating eqn(s ) at the 0.05 level

* denotes rejection of the hypothes is at the 0.05 level
**MacKinnon-Haug-Michelis (1999) p-values
Unres tricted Cointegration Rank Tes t (Maxim um Eigenvalue)
Hypothesized Max-Eigen 0.05

No. of CE(s ) Eigenvalue Statis tic Critical Value Prob.**
None * 0.929939 18.60873 14.26460 0.0097

At m os t 1 0.379422 3.339727 3.841466 0.0676
Max-eigenvalue tes t indicates 1 cointegrating eqn(s) at the 0.05 level

* denotes rejection of the hypothes is at the 0.05 level
Source: Author's calculations based on the National Statistics Institute data (processed in Eviews software)
Regarding the external transmission mechanism of the B-S effect between Romania and the euro area in
the 2006-2014 period, Johansen test shows that there are two co-integrating equations between the
difference in productivity differential between Romania and the euro area and the relative prices
difference, and two co-integration equations between the relative price difference between Romania and
the euro area and the real exchange rate (Table 2).
1522
Table 2: The results of Johansen test for external transmission mechanism of the Balassa-
Samuelson effect
Date: 09/03/16 Tim e: 17:32

Sample (adjusted): 2008 2014
Trend as sum ption: Linear determ inis tic trend
Series: DIF_PRELATIVE_RO_ZE DIF_DIF_W_RO_ZE
Lags interval (in firs t differences): 1 to 1

No. of CE(s ) Eigenvalue Statistic Critical Value Prob.**
None * 0.999985 93.55905 15.49471 0.0000

At m os t 1 * 0.897927 15.97445 3.841466 0.0001
Trace tes t indicates 2 cointegrating eqn(s ) at the 0.05 level

* denotes rejection of the hypothesis at the 0.05 level
Date: 09/03/16 Tim e: 17:36
Sample (adjusted): 2008 2014
Trend as sum ption: Linear determ inis tic trend
Series: REAL_EXCHANGE_RATE DIF_PRELATIVE_RO_ZE
Lags interval (in firs t differences): 1 to 1

No. of CE(s ) Eigenvalue Statistic Critical Value Prob.**
None * 0.985792 42.24967 15.49471 0.0000

At m os t 1 * 0.831656 12.47224 3.841466 0.0004
Trace tes t indicates

Source: 2 calculations
Author's cointegrating
basedeqn(s
on the)National
at the 0.05 level
Statistics Institute and Eurostat data
* denotes rejection of the hypothesis at the 0.05 level
Source: Author's calculations based on the National Statistics Institute and Eurostat data (processed in Eviews
software)
1523
Estimating the Balassa-Samuelson effect in Romania
Based on the econometric cointegration techniques used in this scientific paper, supplemented by
applying the Hodrick-Prescott filter, we concluded that in the period 2006 - 2014 the average annual
inflation in Romania generated by the Balassa-Samuelson effect ranged from -0.2% in 2006 and 0.31% in
2014. As shown in Table 3, the average annual inflation in Romania generated by the Balassa-Samuelson
effect progressively increased during the analyzed period.
Table 3: The B-S effect on average annual inflation in Romania
Hodrick-Prescott
Year Effective
Trend
2006 -0.20 -0.10

2007 -0.06 -0.03
2008 0.07 0.04
2009 0.18 0.10
2010 0.28 0.16
2011 0.23 0.22
2012 0.27 0.27
2013 0.30 0.33
2014 0.31 0.38
Annual average 0.15 0.15
Source: Author's calculations
The Balassa-Samuelson effect on inflation in Romania increased almost continuously during the analyzed
period due to increased labor productivity, with the exception of 2011 when it can be seen a slowdown of
this effect against the background growth slows in labor productivity. Referring on the impact of the B-S
effect on the real exchange rate apreciation, in Table 4 we present the obtained results.
For 2013 and 2014, the share of non-tradables in the consumption basket in the euro area was forecasted
due to unavailability of data.
1524
Table 4: The B-S effect on the real exchange rate in Romania
The Balassa-
The Balassa-Samuelson Samuelson effect
Year
effect (%) (Hodrick-
Prescott filter)
2006 3.54 3.48
2007 3.33 3.63
2008 3.67 3.78
2009 4.24 3.93
2010 4.21 4.07
2011 4.23 4.21
2012 4.44 4.34
2013 4.40 4.46
2014 4.43 4.59
Annual average 4.05 4.05
Source: Author's calculations
During the 2006-2014 period, the exchange rate real appreciation due to the Balassa-Samuelson effect
ranged between 3.33% in 2007 and 4.44% in 2012.
In order to the Balassa-Samuelson effect fully explain the exchange rate real appreciation is necessary
that the exchange rate deflated by tradables prices to be stationary without trend. The results in Table 5
shows that the series is unsteady, hence that the BS effect can not explain the exchange rate real
appreciation completely.
Table 5: The Augmented Dickey-Fuller test for the real exchange rate based on tradable prices
Null Hypothesis: EXCHANGE_RATE_DEF_PT has a unit root
Exogenous: Constant
Lag Length: 0 (Automatic - based on SIC, maxlag=1)
t-Statistic Prob.*
Augmented Dickey-Fuller test statistic -2.756179 0.1063

Test critical values: 1% level -4.582648
5% level -3.320969
10% level -2.801384
*MacKinnon (1996) one-sided p-values.

Warning: Probabilities and critical values calculated for 20 observations
and may not be accurate for a sample size of 8
Source: Author's calculations based on the National Statistics Institute and Eurostat data (processed in
Eviews software)
1525
Conclusions
In this paper we estimated the Balassa-Samuelson effect in the case of Romania and the impact that this
effect has on inflation and real exchange rate appreciation. The basic assumptions of the model for
Romania are fulfilled in the analyzed period, except the hypothesis related to the relative price increase in
non-tradable sector. The econometric cointegration techniques used in this work showed that during
2006-2014 the average annual inflation influenced by the Balassa-Samuelson effect ranged between -
0.2% and 0.31%, averaging 0.15%.
The Balassa-Samuelson effect on inflation in Romania was situated on an upward trend during the
analyzed period, except for 2011 when it can be seen a slowdown in labor productivity.
On the other hand, related to the impact of the B-S effect on real exchange rate appreciation, the results
obtained in this research show that real exchange rate appreciation due to this effect was framed between
3.33% and 4.44%. There is a clear trend that the impact of the B-S effect will increase in the future
because the share of services in the CPI basket increase, as a result of the convergence process.
References
Egert, B., Drine, I., Lommatzsch, K., and Rault, C., (2003), ‘The Balassa–Samuelson effect in Central
and Eastern Europe: Myth or reality?’ Journal of Comparative Economics, 31: 552-572.
Egert, B., (2002), ‘Estimating the impact of the Balassa–Samuelson effect on inflation and the real
exchange rate during the transition’, Economic Systems, 26: 1-16.
Lafrance, R and Schembri, L L (2000), ‘The Exchange Rate, Productivity, and the Standard of Living’,
Bank of Canada Review, Winter, pp. 17–28.
Bahmani-Oskooee, M and Nasir, A B M (2004), ‘ARDL Approach to Test the Productivity Bias
Hypothesis’, Review of Development Economics, vol.8, no.3, pp.483-488.
Sonora, Robert J. and Josip T., (2009), ‘Harrod, Balassa and Samuelson Re-Visit Eastern Europe’, EFZG
Working Papers Series 0907, Faculty of Economics and Business, University of Zagreb.
Egert, B., (2005), ‘Balassa-Samuelson Meets South Eastern Europe, the CIS and Turkey: A Close
Encounter of the Third Kind?’, The European Journal of Comparative Economics, 2 (2), pp. 221-243.
De Grauwe, P., and Frauke S., (2002) Inflation and Productivity Differentials in EMU, in: Hairault, J.O.
and H. Kempf (eds.), Market Imperfections and Macroeconomic Dynamics, Boston et al.:
KluwerAcademic Publishers, pp. 77-104.
Choudhri, E. and Khan, M., (2005), ‘Real Exchange Rates in Developing Countries: Are Balassa-
Samuelson Effects Present’, IMF Staff Papers, 52, 3, pp.387-409.
Candelon, B., Kool, C., Raabe, K., and Veen, T., (2007), ‘Long-run Real Exchange Rate Determinants:
Evidence from Eight New EU Member States, 1993–2003’, Journal of Comparative Economics, 35,
pp.87–107.
1526
Real Business Cycles Analysis for Romanian Economy –

A Bayesian Approach of Macroeconomic Policy Mix in the
Context of Real Economic Convergence
Ionita Georgiana Alina and Petre Adrian
Academy of Economic Studies Bucharest, Romania
georgiana.alina.ionita@gmail.com
adrian.petre21@gmail.com
Abstract
The main object of the research is to analyze and identify the behavior of the macroeconomic
data, such as: GDP, consumption, investment and trade balance, in the context of a small open
economy RBC model for Romania. Given the vulnerabilities at the beginning and during the
recent global economic and financial crisis, there is an increased interest to identify models that
can explain the main features of the macroeconomic data. Moreover, due to the importance of the
uncertainty in modeling the macroeconomic policy and to the increasing attention that central
banks should pay to the anticipation of the future macroeconomic conditions, another objective of
the research is to identify and analyze the role of shocks in explaining the business cycles, such
as: preference shocks, country-premium shocks and government spending shock.
Keywords: monetary, fiscal, policy, shocks
Introduction
The research has the purpose to analyze whether the hypothesis that an RBC model driven by a
combination of permanent and transitory shocks to total factor productivity is suitable for the
macroeconomic context of Romania and accounts satisfactorily for observed aggregate dynamics
in emerging countries as Romania.
In this purpose I have performed an econometric estimation of the parameters of a small open
economy RBC model using quarterly data over the period 2000–2015.
In order to analyze and explain business cycles in Romania as an emerging country, it was
estimated a version of the baseline RBC model using Bayesian methods that incorporates also
preference shocks, country-premium shocks and a realistic debt elasticity of the country premium.
Based on the analysis I could conclude that this model quantifies well the observed business
cycles in Romania over the period 2000–2015.
The model also replicates the downward-sloping autocorrelation function of the trade balance–to-
output ratio, the volatility of consumption, the high volatility of investment, and a volatility of the
trade balance–to-output ratio comparable to that of output growth.
1527
Literature Review and General Framework

The model is a version of the analysis proposed by Javier García-Cicco, Roberto Pancrazi, and
Martín Uribe (2010), in the article Real Business Cycles in Emerging Countries?, in a study for
Argentina economy.
In case of Romania economy there are few studies based on Bayesian Approach, as a result the
current paper has to purpose to extend the knowledge in this area.
Authors such as Mark Aguiar and Gita Gopinath (2007) have suggested that an RBC model driven
primarily by permanent shocks to productivity can explain well business cycles in developing
countries. These authors acknowledge the fact that shocks that occur in emerging countries are
numerous but try to measure their effect as an aggregate shock to total factor productivity with a
large non-stationary component. The article published by Aguiar, Mark, and Gita Gopinath in
Journal of Political Economy in the frame of business cycles is Emerging Market Business Cycles:
The Cycle Is the Trend (2007).
In the last years it has developed a scientific literature that focuses on the degree of
synchronization of business cycles in the euro area and across the countries that joined the EU in
2004 and 2007 and the euro area countries, to analyze the appropriateness of extending the euro
area and to increase the economic convergence.
A detailed analysis of synchronization of business cycles between the euro area and new member
states was carried out by Darvas and Szapary (2004). The authors included in their study more
states, more variables and more ways to measure the degree of synchronization than most studies,
providing more relevant results.
On the other hand, authors, such as Finn Kydland and Carlos Zarazaga (2002) adopt a
acknowledge that RBC model can replicate satisfactorily the “lost decade” of the analyzed
economies (such as the case of 1980s in Argentina).
Research Goal, Methodology and Data
Research goal
The purpose of this paper is to undertake an investigation of RBC model performance driven by
permanent and transitory shocks to total factor productivity in Romania, as an emerging country.
Romania has a low degree of synchronization with the euro area, raising questions about their
convergence and accession to the euro area in the near future, as Romania has a weak correlation
with the business cycle in this area, being not very prepared to join the euro area.
The econometric estimation of the small open economy RBC model is performed using Romania
quarterly data over the period 2000–2015.
1528
Based on the analysis performed, I could conclude that the RBC model driven by permanent and
transitory productivity shocks analysed for Romania does a poor job at explaining observed
business cycles, especially in terms of the trade balance–to-output ratio.
Moreover, in order to explain the behaviour of business cycles, as the baseline RBC model is not
suitable for Romania, I have also performed an analysis based on an augmented version of the
baseline RBC model that incorporates preference shocks, country-premium shocks, a domestic
spending shock and a realistic debt elasticity of the country premium (which captures the presence
of financial frictions).
The conclusion is that the augmented model explains very well the observed business cycles in
Romania over the period 2000–2015. In particular, the model is stable, as resulted from
Blanchard-Kahn stability test and moreover, it replicates the downward-sloping autocorrelation
function of the trade balance–to-output ratio, the excess volatility of consumption, the high
volatility of investment, and a volatility of the trade balance–to-output ratio comparable to that of
output growth.
Methodology
I have chosen to estimate the DSGE model through a Bayesian approach, using Matlab and
Dynare tool. This approach is able to give estimates based on the a-priori distributions assumed
for the parameters and the information brought by the seven observed variables (extracted with the
Kalman filter maximization of the likelihood function).
Moreover, using the Bayesian approach I was able to include in the estimation the seven shocks of
the model (each one for each observed variable) and to estimate their standard deviation.
The DSGE is approximated around the steady-state by a first order or second order Taylor
approximation.
The estimation of a DSGE model is completed in many steps. As resulted from Dynare output, the
first part of the estimates a-posteriori are the mode, the values of the parameter that maximizes the
log posterior kernel.
The second part of the output are results from the Metropolis-Hasting algorithm. I have used for
the estimation of the model two million MCMC chain from which the first million were
eliminated.
According with the analysis of the MCMC multivariate diagnostics, based on the studies of
Brooks and Gelman (1998) the parameters converged along the chains and between the chains, for
the mean, variance and third moment, as resulted from the convergence graphs for 2 Monte Carlo
Chains.
The theoretical framework is represented by the small open economy model proposed by
Stephanie Schmitt- Grohé and Uribe (2003) augmented with permanent productivity shocks as in
Aguiar and Gopinath (2007). The production technology is described by the following equation:
1529
Yt = a t K tα ( X t ht )1−α (1), where Yt represents output in period t, K t represents the capital in
period t,
ht at
represents hours worked in period t, and
Xt and represent productivity shocks.
The productivity shock at is assumed to follow a first-order autoregressive process in logs:
ln a t +1 = ρ a ln a t + ε ta+1 , ε ta ~ N ( 0, σ a2 ) . The productivity shock X t is nonstationary. Let

X
gt = t
X t −1 Xt
denote the gross growth rate of .
The logarithm of
gt is assumed to follow a first-order autoregressive process of the
2
ln( g t +1 / g t ) = ρ g ln( g t / g ) + ε tg+1 ε tg ~ N (0,σ g ) .
form: , where
Xt
The parameter g measures the deterministic gross growth rate of the productivity factor . The
parameters
ρa , ρ g
∈[0, 1) represents the persistence of a t and
gt
respectively.
Households face the following period-by-period budget constraint:
2
Dt +1 φK 
= Dt − Yt + Ct + I t +  t +1 − g  K t
1 + rt 2  Kt  Dt +1
(2) , where represents the stock of debt
rt
acquired in period t, represents the domestic interest rate on bonds held between periods t and t
C I
+ 1, t represents consumption, t represents gross investment, and the parameter ϕ illustrates
the quadratic capital adjustment costs. The capital stock is described by the following equation:
(3):
K t +1 = (1 − δ ) K t + I t
, where δ ∈ [0, 1) denotes the depreciation rate of capital.
The independence of the deterministic steady state from initial conditions is cuantified through the
assumption that the country faces a debt-elastic interest-rate premium as in Schmitt-Grohé and
Uribe (2003). Domestic interest rate is assumed to be constant, r* > 0 and a country premium that
~
rt = r * + ϕ ( e Dt +1 / X t −d − 1)
is increasing in a de-trended measure of aggregate debt as follows: .
Dt
The variable represents the aggregate level of external debt per capita, which the household
~
considers exogenous. In equilibrium,
Dt = D t .
 j

lim j →∞ E t  Dt + j / / ∏ (1 + rs )  ≤ 0
Consumers are subject to a no–Ponzi scheme constraint:  s =0  .
1530
∞
[Ct − θω −1 X t −1htω ]1−γ − 1
E0 ∑ β t
The household seeks to maximize the utility function: t =0 1−γ
at X t rt
subject to (1)−(3) and the no–Ponzi game constraint, taking as given the processes , and
K0 D−1 .
and the initial conditions and
The time unit for the model is quarterly. The values of the structural parameters are established
using a combination of calibration and econometric estimation techniques.
One important step of estimation of a DSGE model consists of calibration of the model’s
parameters. As part of the strong econometric approach of estimation, as I used for the current
model, the Bayesian approach by using the likelihood function with prior distributions for the
parameters of the model, to form the posterior density function. This posterior is afterwards
optimized with respect to the model parameters either directly or through Monte-Carlo Markov-
Chain (MCMC) sampling methods.
For the calculation of the likelihood function of the observed data series, I have used the Kalman
filter, as in Sargent T.J. (1989). The likelihood function is then combined with a prior density for
the structural parameters to obtain the posterior distribution of the parameters. Regarding the
choice of the prior distribution, a number of parameters were kept fixed from the start of the
exercise. Most of these parameters can be directly related to the steady-state values of the state
variables and could therefore be estimated from the means of the observable variables (or linear
combinations of them).
The parameters α, δ, ψ, d , θ, ω, and γ are calibrated using long-run data relations from Romania
and parameter values common in business-cycle studies. The parameter d is set in order to
induce a small steady-state trade balance– to-output ratio of about 0.25 percent, as observed on
average in Romania over the period 2000–2015. Similarly as proposed by Schmitt-Grohé and
Uribe (2003) it was assigned a small value to the parameter ψ, to measure the sensitivity of the
country interest-rate premium to deviations of external debt from trend, leading to the
independence of the deterministic steady state from initial conditions without affecting the short-
run dynamics of the model.
The values assigned (as can be seen in table 1 below) to the depreciation rate δ of about 2.5%
percent is in line with the value established in recent reference articles for Romania. The value
assumed for the discount factor β=0.9963 implies a relatively is computed as 1/(1+the average
interest rate for the bonds issued by the state on primary market/4), as I took into consideration 3
months period bonds. There is no reliable data on factor income shares for Romania, so the
parameter α, which determines the average capital income share, was set at 0.2, a value commonly
used in the related literature. I set θ = 2.3, to ensure that in the steady state households allocate
about 30 percent of their time to market work. The parameter γ, that represents the curvature of the
period utility function, takes the value 2, which is standard in related business-cycle studies.
Finally, ω is calibrated at 7.4 as in, whch is in line with recent reference articles for Romania and
Lawrence J.Christiano et al. (2011). This implies a labor-supply elasticity of 1/(ω − 1) = 0.16. This
1531
value is generally used in calibrated versions of small open economy models. The remaining
parameters of the model are estimated using Bayesian methods and Romania quarterly data on
output growth, consumption growth, investment growth, and the trade balance–to-output ratio
over the period 2000–2015. Specifically, six structural parameters were estimated, more precisely,
σ g ρg σa
the five parameters defining the stochastic process of the productivity shocks, g, , , and
ρa , and the parameter for the degree of capital adjustment costs, ϕ. Were also estimated four
non-structural parameters representing the standard deviations of i.i.d. errors on the observable
σ σ σ σ
variables, y , c , i and tby . For all estimated parameters were established uniform prior
distributions. Table 2 presents key statistics of the prior and posterior distributions. The reported
posterior statistics are computed from a two-million MCMC chain from which the first one
million draws were discarded. The estimation delivers quite persistent processes for both
ρg ρa )
productivity shocks (i.e., high values of and and a relatively large value for the
adjustment-cost parameter ϕ.
Table 1: Parameters of the model
Parameter γ δ α ψ Ω θ β d
Value 2 0.025 0.2 0.003 7.40 2.3 0.9963 0.25
In addition to the prior distribution, the posterior distribution of parameters and standard deviation
of shocks, before and after the optimization using Metropolis-Hastings algorithm are very
important. These are structured in two sets of results regarding the parameter estimates: the first
set contains the estimated posterior mode of the parameters, which is obtained by directly
maximizing the log of the posterior distribution with respect to the parameters, and an
approximate standard error based on the corresponding Hessian and the second set reports the
results of the posterior distribution of the parameters obtained through the Metropolis- Hastings
sampling algorithm. The latter is based on 2 million draws. The graphs of the a-priori and a-
posteriori distribution summarizes this information visually by plotting the prior distribution, the
posterior distribution and the probability curve for a normal distribution with the posterior mode
as mean and the corresponding Hessian based estimate as standard error. In general, both
distributions seem to give similar messages. Overall, according with the a-priori and a-posteriori
distribution graphs and t-statistics all estimated parameters are significantly different from zero.
This is true for all the standard errors of all the shocks. The posterior distribution has the form of
uniform distribution, being close, but different from the a-priori distributions. This means that the
seven observed variables bring new information to the prior assumptions.
1532
Table 2: Statistics of prior and posterior distributions
Parameter prior mean mode s.d. prior Pstdev

distribution
g 1.015 1.0251 0.0045 Unif 0.0087
ρg 0 0.99 0.1271 Unif 0.5716
ρa 0 0.9592 0.0694 Unif 0.5716
ϕ 4 8 0.4205 Unif 2.3094

εg 0.1 0.0034 0.0095 Unif 0.0577
εa 0.1 0.0225 0.0031 Unif 0.0577
gY 0.185 0.01 0.0014 Unif 0.1012
gC 0.223 0.0187 0.0038 Unif 0.1229
gI 0.362 0.0633 0.0083 Unif 0.2033
Tby 0.185 0.01 0.0016 Unif 0.1012
The prior distributions of the parameters are illustrated graphically in figure 1 below.
Figure 1: A-priori distributions
On the other hand, the estimated model with financial frictions assumes a negligible role for the
permanent productivity shocks, which is not line with the hypothesis that the cycle is the trend.
1533
The augmented model households seek to maximize the utility function

∞ −1 ω 1−γ
[Ct − θω X t −1ht ] −1
E0 ∑ν t β t
t =0 1− γ , subject to the no-Ponzi game condition and to the
following resource constraint:
2
D t +1 φK 
= Dt − Y t + C t + S t + I t +  t +1 − g  K t
1 + rt 2  Kt  .
ν S
The variables t and t represent, respectively,an exogenous and stochastic preference shock
and a domestic spending shock following the AR(1) processes:
ln υ t +1 = ρ υ ln υ t + ε tυ+1 ; ε tυ ~iid N (0, σ υ2 ) and

ln( s t +1 / s ) = ρ s ln (s t ) / s ) + ε ts+1 ,
ε ts ~ N ( 0, σ s2 ) , where: st ≡ St / X t −1 .
rt = r * + ψ (e Dt +1 / X t − d − 1) + e µt −1 − 1
The country premium takes the form: ,
where
µt represents an exogenous stochastic country premium shock following the AR(1)
ln µ t +1 = ρ µ ln µ t + ε tµ+1 ; ε tµ N (0, σ µ2 )
process: ~iid .
Data
Given the lack of data for Romania, I could not perform an analysis from the beginning of the
capital and trade balance liberalization since 1989, but instead I could obtain quarterly data since
2000.
As a result, the series used in Dynare soft for the observable variables were: the log difference of
real GDP, the log difference of real consumption, the log difference of real investment, the log
difference of real wages and the log difference of real trade balance.
Once all the observed variables are seasonally adjusted and tested for stationarity in Eviews 7,
they are introduced in the Excel database to be imported in Matlab for a further processing with
Dynare 4.4.0 tool.
Empirical Results
In emerging countries such as Romania business cycles do not appear to moderate after the
communism period, once with trade balance liberalization.
This fact is clearly illustrated in Figure 2 and Figure 3, which depicts the evolution of output in
Romania over the period 2000–2015. The figure shows with solid lines the logarithm of GDP per
1534
capita and respectively the logarithm of total spending per capita, resulting from the graph analysis
that consumption is more volatile than GDP.
Figure 2: GDP evolution Figure 3: Total spending evolution
Table 3 describes the second moments implied by the RBC model, reproducing the empirical
counterparts and their associated standard errors. In the RBC model, consumption growth is
slightly more volatile than output growth. This is in line with the data analysed above but the RBC
model predicts the excess volatility of consumption in relation with output to be about half a
percentage point, whereas in the data it is more than 2 percentage points. In addition, consumption
is predicted to be too smooth, while output is predicted to be too volatile. In effect, the RBC model
overestimates the volatility of output growth in comparison with consumption.
Moreover, the RBC model predicts that the trade balance–to-output ratio is a near random walk,
with a flat autocorrelation function close to unity, which is not in line with the data.
In addition to the fact that RBC model does not capture the observed excess volatility in
consumption (which is more volatile than output) the model also performs poorly at matching the
correlation of the trade balance with the domestic components of aggregate absorption.
Table 3: Statistics of prior and posterior distributions
Statistic gY gC gI tby
Standard deviation
RBC model 6.2 6.7 11.8 99
Financial-frictions model 5.2 7.2 15.7 4.9
Data 4.2 6.4 18.3 4.1
Correlation with tby
RBC model -0.01 -0.02
Financial-frictions model -0.27 -0.22
Data -0.25 -0.17
Serial correlation
1535
RBC model 0.25 0.11 0.05 0.98

Financial-frictions model 0.03 -0.02 -0.1 0.43
Data 0.1 -0.01 0.2 0.46
The final analysis is based on the RBC model which includes a simple form of financial friction
and shocks to the country premium and to domestic absorption. More precisely, it is allowed the
parameter ψ (which represents the debt elasticity of the country premium) to be estimated
econometrically. The additional sources of uncertainty include a domestic preference shock, a
spending shock, representing a government purchases shock, and a country premium shock. Uribe
and Vivian Z. Yue (2006) find that this type of disturbance explains about two-thirds of
movements in country premium in emerging countries.
The analysis of smoothed shocks and variables, indicates that the posterior distribution of
smoothed variables and shocks, infers about the unobserved state variables using all available
xt /T = E[xt / IT ] .
information up to T:
As can be seen from the figure 4 and 5 below, shock realizations are around zero (being white
noises).
Figure 4: Smoothed variables Figure 5: Smoothed shocks
As likelihood (green line) is not flat (with one exception) in Figure 6 below, this indicates that the
data is informative, so the observed variables bringing data for these parameters identification.
The vertical line (the posterior mode obtained from the optimization routine) coincides with the
maximum of the blue curve. The change from the green to the blue line indicates the impact of the
prior distributions. The flat posterior indicates that after accounting for the data and the prior, the
parameter is still weakly identified.
1536
Figure 6: Log-lik kernel and log-post
The augmented model explains well the Romania business cycle. In particular, the model delivers
a downward-sloping autocorrelation function of the trade balance–to-output ratio, the excess
volatility of consumption in comparison with GDP, a high volatility of investment, and a volatility
of the trade balance–to-output ratio similar to that of output growth.
More importantly, the model predicts that permanent productivity shocks explain a negligible
fraction of aggregate fluctuations, giving little support to the hypothesis that the cycle is the trend.
In addition, as described in Figure 7 below the theoretical and empirical autocorrelation functions
are above 0.6, decreasing. Both empirical and theoretical autocorrelation functions are strictly
decreasing and converge relatively quickly to zero.
Figure 7: Autocorrelation function of the trade balance-to-output ratioLog-lik kernel and

log-post
1537
Conclusions
The present study ha the purpose to check if business cycles in Romania as an emerging economy
are driven by permanent or transitory exogenous shocks in total factor productivity and
transmitted through the mechanism of the frictionless RBC model.
In order to estimate the statistics that provide an accurate description of Romania business cycles
were used quarterly data. This is based on a standard RBC model of the small open economy
driven by permanent and transitory productivity shocks.
Comparing the predictions of the model with the data, RBC model weakly explains the business
cycles in Romania, based on macroeconomic data. One aspect that indicates this is the trade
balance–to-output ratio. In the model, the trade balance–to-output ratio follows a near random
walk, with a flat autocorrelation function that is close to one, while in the data, the autocorrelation
of the trade-balance share is far below unity and converges quickly to zero.
Other aspects in addition to the downward-sloping autocorrelation function of the trade balance–
to-output ratio is the excess volatility of consumption, the high volatility of investment, and a
volatility of the trade balance–to-output ratio comparable to that of output growth.
Based on it I can draw the conclusion that the RBC model driven by productivity shocks does not
represent a fair explanation of business cycles in Romania.
Afterwards I have also estimated using Bayesian methods and the Romania dataset an augmented
version of the RBC model which includes a realistic debt elasticity of the country premium (which
captures the presence of financial frictions) and three additional sources of uncertainty: country-
premium shocks, preference shocks, and domestic spending shocks.
The augmented model explains accurate the Romania business cycle. More precisely, the model
delivers a downward-sloping autocorrelation function of the trade balance–to-output ratio, excess
volatility of consumption compared with output volatility, a high volatility of investment, and a
volatility of the trade balance–to-output ratio similar to that of output growth.
More importantly, the model predicts that permanent productivity shocks explain a negligible
fraction of aggregate fluctuations, contrary to the hypothesis that the cycle is the trend.
References
Aguiar, M., and Gopinath, G. (2007), ‘Emerging Market Business Cycles: The Cycle Is the
Trend’, Journal of Political Economy, 115(1), 69–102.
Brooks, S. and Gelman, A., (1998), ‘Some issues in Monitoring Convergence of iterative
Simulations’, Journal of Computational and Graphical Statistics, Volume 7, Number 4, Pages
434–455
Darvas, Z., Szapáry, G. (2004), ‘Business Cycle Synchronisation in the Enlarged EU:
Comovements in the New and Old Members’, Magyar Nemzeti Bank Working Paper, No. 1, 1-47.
1538
Garcia-Cicco, J., Pancrazi, R. and Uribe M. (2010), ‘Real Business Cycles in Emerging
Countries?’, American Economic Review vol. 100, no.5 : 2510–2529.
Garcia-Cicco, J., Pancrazi, R. and Uribe M. (2010), ‘Appendix to Real Business Cycles in
Emerging Countries?’, American Economic Review vol. 100, no.5, 2529-2531.
Kydland, F. and Zarazaga, C. (2002), ‘Argentina's recovery and excess capital shallowing of the
1990s’, Estudios de Economia, University of Chile, 1-11.
Sargent, T.J. (1989), Two models of measurements and the Investment Accelerator, Journal of
Political Economy, 97:2, 251-287.
Schmitt-Grohe, S. and Uribe, M. (2003), Closing Small Open Economy Models, Journal of
International Economics, 61(1): 163–85, 1-23.
Uribe, M., and Zhanwei, V. Y., 2006, Country Spreads and Emerging Countries: Who Drives
Whom?, Journal of International Economics, 69(1): 6–36.
Lawrence J. C.,Trabandt, M. and Karl, W.,(2011), ‘DSGE Models for Monetary Policy
Analysis’,Handbook of Monetary Economics, Vol. 3A, Netherlands North-Holland, 285-367.
1539
Leadership Styles in Project Management
Michal Mičík
Faculty of Economics, University of West Bohemia in Pilsen, Czech Republic,

micikm@kmo.zcu.cz
Abstract
It is widely recognized by academics and the community of practice that the management of people plays
an important role in project management, because it takes more than technical skills to become a
successful project manager. Project managers need good and effective people skills to manage the people
in their projects. There has been a considerable discussion throughout the history about what makes a
good leader. Over the last 80 years there have been several main schools of leadership theory. A
considerable body of research has been conducted on leadership styles, with two styles getting more
interest than others. Those two leadership styles are transactional and transformational style, identified by
Bass (1990). Muller and Turner (2007) concluded, that the transformational leadership style is preferred
on complex change projects and a transactional style preferred on simple, engineering projects. To verify
their conclusion about the transactional leadership, a study investigating leadership styles in 2 Czech
engineering companies was conducted. In total, 72 completed questionnaires were obtained. The goal was
to discover what kind of a leadership style is used by leaders in engineering companies and if the chosen
style matches leader’s performance expectations.
Keywords: transactional leadership; transformational leadership; competency
Introduction
It is widely recognized by academics and the community of practice that the management of people plays
an important role in project management. Project management is common for many industries in different
ways, from large infrastructure projects to small-scale projects. A project is independent, unique and
phased, in which content, duration and costs are limited (Lock, 2013). Additionally, purpose of every
project must be clear and have a direct connection to the strategic purposes of the organization (Kenny,
2003).The Project Management Institute established two basic characteristics of a project, temporariness
and uniqueness. The first one refers to a clearly defined beginning and end in time, along with defined
scope and resources. The second one refers to achieving a singular goal by people who do not usually
work together (Project management institute, 2013).
Project Manager
It takes more than technical skills to become a successful project manager. Project managers need good
and effective people skills to manage the people in their projects (Edmonson et al, 2005). In today’s
globalized world there is a need to understand the values and beliefs of people from different cultures.
Managers have to understand, that what works well in one culture, does not necessarily work equally well
in another culture (Fisher, 2011). Kliem and Ludin (1992) add that project managers need to develop and
apply good interpersonal skills to be successful leaders and if they want to be also effective leaders, they
have to be able to inspire their people as well (Thamhain, 2004). Leadership, orientation on people and
communication are keys to victory here (Rosenau, 1998).
Project management, then, is the application of knowledge, skills, tools, and techniques to project
activities to meet the project requirements (Project management institute, 2013)
1540
Leadership in Project Management

Nowadays, the implementation of principles and techniques of project management has expanded rapidly
in many enterprises worldwide, implying the necessity for effective project leadership. It is a key factor
for success in any activity that involves collaboration in a group (or groups) of people (Liphadzi et al,
2015). Leadership can be defined as a style of behaviour designed to integrate both the organizational
requirements and personal interests in the pursuit of some objectives (Zulch, 2014). Manager’s leadership
style influences the performances of every organization, process, activity or project. In-depth research on
leadership styles was conducted by Muller and Turner (2005, 2007), Munns and Bjeirmi (1996), Turner,
Miller and Dulewicz (2009) and Lloyd-Walker and Walker (2011). All of them identically mention that
most of literature up to their date focus on efficiency of projects, but ignores project managers and their
leadership styles and competences as the project success factors.
There has been a considerable discussion throughout the history about what makes a good leader. Over
the last 80 years there have been six main schools of leadership theory (Dulewicz, Higgs, 2003):
1. The trait school
2. The behavioral or style school
3. The contingency school
4. The visionary or charismatic school
5. The emotional intelligence school
6. The competency school.
The latter forms the basis of this paper. The competency school is the most recently emerged school,
which puts emphasis on competencies that are believed to be key factors of effective leaders. According
to this school, competencies can be learned, so leaders can be made, not just born (Turner, Muller, 2005).
The competency school synthesizes all the preceding schools, since it considers traits, behaviors and
emotional intelligence as competencies, it suggests that certain competency profiles are appropriate in
different situations and it assigns competency profiles for transformational and transactional leaders
(Trivellas, Drimoussis, 2013). A number of studies based on the competency school have investigated
the competency profiles of effective leaders or managers (e.g. Muller, Turner, 2010; Geoghegan,
Dulewicz, 2008; Muller, Turner, 2007; Hawkins, Dulewicz, 2008). These studies conclude that different
leadership competency profiles are in fact related to leadership success in different contents. Moreover,
the soft factors of leadership often emerged as the most important attributes of successful managers in all
types of projects (Trivellas, Drimoussis, 2013).
Competency
In past years, many researchers all over the world have been investigating competencies (see for example
Muzio et al, 2007, O’Brochta, 2008, Thamhain, 2004). To be able to understand what a competency is, it
is important to clarify some concepts as a background. Hamel and Prahalad (1994) defined a competency
as a bundle of skills and technologies that enables companies to provide benefits for their customers.
Mirable (1997) defines competency as a knowledge, skill, ability, or characteristic associated with high
performance on a job, such as problem solving, analytical thinking, or leadership. Westera (2001)
provides definition of competency more accurately in two perspectives, theoretical and operative. From a
theoretical perspective, competency is conceived as a cognitive structure that facilitates
specified behaviours. From an operational perspective, competencies seem to cover a broad
range of higher-order skills and behaviours that represent the ability to cope with complex,
1541
unpredictable situations; this operational definition includes knowledge, skills, attitudes,

metacognition and strategic thinking, and presupposes conscious and intentional decision
making. Fig 1 offers a view on the definition of operational competency. Based on given
definitions, a project manager’s competency is a key factor that influences the eventual outcome
of a project.
Figure 1: A competence model, according to common definitions (Westera, 2001)
After extensive review of the literature on leadership competencies, Dulewicz and Higgs (2003)
identified fifteen competencies that influence leadership performance. They grouped the competencies
into three competence types, which they call intellectual (IQ), managerial (MQ) and emotional (EQ)
competences (cf. table 1)
Table 1: Fifteen leadership competencies as suggested by Dulewicz and Higgs (2003), and the
competence profiles of their three styles of leadership
1542
Table 1 also shows three leadership styles identified by Dulewicz and Higgs (2003), which they call Goal
Oriented, Involving and Engaging. The authors also assign competency profiles for transformational and
transactional leaders. The goal-oriented style is similar to the transactional style, and engaging style is
similar to the transformational style. In their study from 2003, they showed that different leadership styles
are correlated with success of different types of projects - goal oriented leaders are best on low
complexity projects, involving leaders are best on medium complexity projects and engaging leaders are
best on high complexity projects.
A considerable body of research has been conducted on leadership styles as mentioned before, with two
styles getting more interest than others. Those two leadership styles are transactional and transformational
style, identified by Bass (1990). Managers who focus on relationships and communicate their values are
called transformational leaders and managers who focus on process are called transactional leaders.
Transactional leadership and transformational leadership are often contrasted with each other.
Transactional leadership emphasizes contingent rewards, which means that the transactional leader would
reward subordinates for meeting performance objectives (Yang et al, 2011). Transactional leadership
focuses on the task-related exchange of actions and rewards between a follower and a leader (Tysen et al,
2014). In other words, is based on the contractual agreement between the leader and the subordinate on
expected performance in return for certain rewards (Thite, 2001). Wang (2005) adds that leader-follower
relationship exists only on the simple exchange of a certain quality of work for an adequate price. A
transactional leader only takes action when things do not go according to the plan, e.g. followers
encounter a problem, do not meet a deadline and so forth. On the other hand, the transformational leader
actively takes part in a project, inspires, motivates and challenges followers with new ideas and
approaches. Transformational leadership emphasizes person-orientation by aligning followers' needs with
the organization's (higher) tasks and goals (Bass, 1990).
Research
Muller and Turner (2007) concluded that the transformational leadership style is preferred on complex
change projects and a transactional style preferred on simple, engineering projects. The aim of this study
is to verify the second part of their conclusion. For that reason, engineering companies ETD
Transformátory and Brush SEM, which are located in Pilsen, were selected. ETD is a producer and
distributor of power transformers, auto transformers, furnace transformers, traction transformers and
chokes for use in the rail industry as well as special reactors. Brush SEM is a producer of turbo and hydro
generators.
To perform the study, a mixed method approach for the research was used, combining quantitative data
analysis with qualitative data. Electronic questionnaires were sent to 4 managers of both mentioned
companies. Afterwards, the managers distributed questionnaires to employees with leading power
(department heads and shift leaders). Interviews with managers completed and made the results more
accurate. The data presented in this paper is a part of a wider in-progress study concerning leadership,
especially transformational and transactional leadership. The data was collected in August and September
2016. In total, 72 completed questionnaires were obtained – 4 managers, 16 department heads and 52
shift leaders. The goal was to discover what kind of a leadership style is used by leaders in engineering
companies and if the chosen style matches leader’s performance expectations.
The respondents were asked to complete a questionnaire. The key questions for this study were:
Q1: What kind of leadership styles do you use to lead employees?
1543
Comment:
omment: Respondents were given 2 main and 3 supportive leadership styles – transactional,
transformational, autocratic, democrati
democratic and consultative. To be sure with leaders’ understanding of first
two mentioned, a brief explanation of transactional and transformational style was provided. The
respondents were asked to choose either transactional or transformati
transformational
onal style as their primary style,
only one choice was allowed. They were also asked to sort the 3 supportive styles by their use in
descending order.
oriented or people
Q2: Are you more task-oriented people-oriented?
Comment: Respondents were asked to indicate their answ answer in percent. In case they had difficulties to
decide between transactional and transformational style in the previous question, respondents could
divide their preference points between those styles (e.g. 60 % task
task-oriented, 40 % people-oriented).
oriented).
Q3: Are you satisfied with the results that your department/shift has been achieving?
Comment: The idea behind this question was to discover if the chosen leadership style produces desirable
results. Options were – Very satisfied, satisfied, neither satisfied nor dissatisfied, dissatisfied, very
dissatisfied.
Research Results
As fig 3 shows, transactional leadership style dominates transformational style. Number of leaders in
percent whose primary style is transactional style is almost the same in both companies, which shows
their resemblance.
Figure 2:: Transactional x Transformational leadership

Fig 4 shows what other styles leaders use. Most of them tend to use autocratic leadership, because as they
add, it is easier to give employees tasks to do and not discuss anything with them. Autocratic leadership is
most common at shift leaders. Managers and de department
partment heads choose mostly consultative style, which is
typical for two-way
way communication. However, the leader has a final word. Democratic style is the least
used style.
1544
Figure 3:: Autocratic x Democratic x Consultative style

Since only one choice was allowed in the first question, respondents were asked to divide their preference
points between task-oriented and people-oriented style. As fig 5 shows, leaders are more task-oriented,
task
which is a result of company orientation. There are deadlines that a company needs to meet and falling
behind schedule would result in penalties.
Figure 44: Task-oriented x people oriented leadership

To discover
cover if the chosen style produce
produces desirable results, respondents were asked to express
their satisfaction with achieved results. All leaders answered that they were either very satisfied
or satisfied with performance of their subordinates
subordinates.. This opinion is supported by both
companies’ profits.
1545
Figure 5: Satisfaction with achieved results

Limitations and Conclusion
Leadership styles have been and will be an important topic. To choose the right style for an organization
is a difficult matter. The purpose of this study was to verify the conclusion reached by Muller and Turner
(2007) that the transactional style is mostly used on simple, engineering projects. To perform the study,
study
the leadership style of two chosen engineering companies was analysed. First, main and supportive
leadership styles were discovered. Next, the connection between leadership styles and companies’
achieved results was discovered.. Based on collected data, leading employees in bot
bothh companies primarily
use transactional style, which supports assumption made by Miller and Turner (2007) that transactional
leadership style is suitable for engineering projects. However, this study had several limitations and one
must pay attention to themem when interpreting the findings. The research sample of 72 respondents was
gathered only in 2 Czech companies. If conducted in more organizations, different results might be
obtained. This fact provides an opportunity for future research in terms of cove
covering
ring more organizations as
well as focusing also on transformational style. Analysing companies for both styles would provide a
compact image of transactional and transformational leadership style use in engineering companies in the
Czech Republic.
References
Bass, B. M. (1990). From transactional to transformational leadership: Learning to share the vision.
Organizational Dynamics, 18(3), 19
19-31.
Dulewicz, V. and Higgs, M. J. (2003). Design of a new instrument to assess leadership dimensions and
styles. Henley
nley Working Paper Series HWP 0311. Henley
Henley-on-Thames,
Thames, UK: Henley Management College.
Edmondson, A., Bohmer, R. and Pisano, G., (2005). Harvard Business Review on managing projects.
Speeding Up Team Learning. Harvard Business School Press, 137
137–157.
Fisher, E. (2011). What practitioners consider to be the skills and behaviours of an effective people
project manager. International Journal of Project Management, 29, 994
994–1002.
Geoghegan, L., and Dulewicz, V. (2008). Do project managers’ leadership compet
competencies
encies contribute to
project success? Project Management J., 39(4), 58
58–67.
1546
Hamel, G. andPrahalad, C.K. (1994). Competing for the Future. Harward Business School Press, Boston.
Hawkins, J. and Dulewicz, V., (2007). The relationship between performance as a leader and emotional
intelligence, intellectual and managerial competences, J. General Management, 33(2), 57–78.
Kenny, J. (2003). Effective Project Management for Strategic Innovation and Change in an
Organisational Context. Project Management Journal, 3, 43-53.
Kliem, R.L. andLudin, I.S. (1992). The People Side of Project Management. Gower. The Project
Manager's Pocket Survival Guide. McGraw-Hill.
Lloyd-Walker, B., & Walker, D. (2011). Authentic leadership for 21st century project delivery.
International Journal of Project Management, 29(4), 383-395.
Liphadzi, M., Aigbavboa, C., and Thwala. W. (2015). Relationship between leadership styles and project
success in the South Africa construction industry. Creative Construction Conference 2015 (CCC2015)
Lock D. (2013). Project Management. Twelfth edition. Grower Publishing Limited, Hampshire, England.
Mirable, R., 1997. Everything you wanted to know about competency modeling. Training and
Development, 51(8), 73–99.
Muller, R. and Turner, J.R. (2007). Matching the project manager’s leadership style to project type. Int. J.
Project Management,25(1), 21–32.
Muller, R., and Turner, J.R. (2010). Leadership competency profiles of successful project managers,
Int.J.Project Management, 28,437–448.
Munns A.K. and Bjeirmi B.F. (1996). The role of project management in achieving project success, Int J
Project Management, 14(2),81–87.
Muzio, E., Fisher, D., Thomas, E. and Peters, V. (2007). Soft skills quantification (SSQ) for project
manager competencies. Project Management Journal 38(2), 30–38.
O’Brochta, M. (2008). Great project managers, PMI Global Congress Proceedings, Sao Paulo, Brazil.
Project Management Institute.(2013). A Guide to the Project Management Body of Knowledge:

PMBOK® Guide. Fifth Edition. Project Management Institute, Newtown Square.
Rosenau, M.D., 1998. Successful Project Management, Third Edition. John Wiley & Sons, Inc.
Thamhain,H.J., 2004. Linkages of project environment to performance: lessons for teamleadership.

International Journal of Project Management, 22(7), 533–544.
Thite, M., 2001. Leadership styles in information technology projects. International Journal of Project
Management, 18(4), 235–241.
1547
Trivellas, P. and Drimoussis, C. (2013) Investigating Leadership Styles, Behavioural and Managerial
Competency Profiles of Successful Project Managers in Greece. Procedia - Social and Behavioral
Sciences, 73, 692 – 700
Turner, J.R. and Muller R. (2005). The project manager’s leadership style as a success factor on projects:
a literature review. Project Management Journal, 2(36), 49–61.
Turner, J. R., Müller, R. and Dulewicz, V. (2009).Comparing the leadership styles of functional and
project managers. International Journal of Managing Projects in Business, 2(2), 198-216.
Tyssen, A.K., Wald, A. and Spieth, P. (2014). The challenge of transactional and transformational
leadership in projects. International Journal of Project Management, 32, 365–375.
Wang, E., Chou, H.W. and Jiang, J., 2005. The impacts of charismatic leadership style on team
cohesiveness and overall performance during ERP implementation. International Journal of Project
Management, 23(3), 173–180.
Westera, W. (2001). Competencies in education: a confusion of tongues. Journal of Curriculum studies,
33(1), 75–88.
Yang, L.R., Huang, C.F. and Wu, K.S. (2011). The association among project manager's leadership style,
teamwork and project success. International Journal of Project Management, 29, 258–267.
Zulch, B. (2014). Leadership communication in project management. Procedia - Social and Behavioral
Sciences 119, 172 – 181.
1548
A Structural Legal Rule for Goodwill: From Business Facts to

Case Law
Gary Lilienthal, LL.B
(Sydney University, Australia), Grad. Dip. Legal Pract. (College of Law, Sydney, Australia), M.
Psychoanalytic Studies (Deakin University, Australia), (Curtin University, Australia)
Symbiosis Law School, Symbiosis International University, Pune, India.
glilienthal@me.com
Nehaluddin Ahmad
MA, LL.B., LL.M. (Lucknow University, India), LL.M. (Strathclyde University, UK), LL.D.
(Meerut University, India).
Faculty of Shariah and Law, Sultan Sharif Ali Islamic University, Brunei
ahmadnehal@yahoo.com
Abstract
The significance of this article is that it places business goodwill firmly within legal rights based
on business facts. The object of the discussion is to move goodwill from the accounting to the
lawyer’s office. There appears to be no ready structural rule for goodwill, which could provide
useable elements of business goodwill, based on the relationship between business facts and legal
case outcomes. Therefore, the dual question naturally arises as to what might be a usable
structural rule for business goodwill, and when this rule is identified, how might it be susceptible
to damage by fraud. Argument tries to show a structure for business goodwill, and that this
structural rule is uniquely susceptible to damage by fraud, simply because its key elements could
not be defined per genus et differentiam. The primary methodology of the research isto identify a
structural legal rule for business goodwill, using Lord Diplock’s procedure for judicial reasoning
by analogy. Argument begins with a case law discussion of the relationship between deceit and
fraud. Following this, there is an exegesis of Lord Diplock’s procedure for applying judicial
reasoning by analogy. Then follows an analysis of the rights-based foundation of business
goodwill, then argument critically analyses the authoritative decided case law. The research will
suggest that the structural legal rule for business goodwillinfers inducing a certain state of mind
in the customers.This state results in capital value being added to the business, by individual
customer acts. Were this inducement to be of a false state of mind, the business’s goodwill would
be vitiated. Were the business’s nostrums fictional, and the customer relationships insincere,
goodwill also could well dissolve.
Keywords: business goodwill; structural legal rule; business facts; per genus et differentiam;
judicial reasoning by analogy; deceit and fraud; business nostrums.
Introduction
The significance of this article is that it takes business goodwill out of the realm of business
description, and economic theory, and places it firmly in the purview of legal rights, based on
business facts. (ValueAdder 2016) In day-to-day business, goodwill is said to be an intangible
asset that arises as a result of the acquisition of one company by another for a premium value.
(Investopedia 2016)The object of the discussion is to move goodwill from the accounting office
to the lawyer’s office, in such a way that it becomes useful to the business owner during
operations, instead of later on when it is too late for control, at the time of sale of the business.
1549
“Goodwill arises when a company acquires another entire business. The amount of goodwill is
the cost to purchase the business minus the fair market value of the tangible assets, the intangible
assets that can be identified, and the liabilities obtained in the purchase.” (Accounting Coach
2016)
Although this description of goodwill might be satisfactory during routine accounting

procedures, it fails to educate the business owner on how to arrange the business’s affairs to go
about constructing goodwill deliberately, right from the very beginning. Also, it does not explain
to the business person how goodwill could be lost, during unprotected operations, for reasons of
deceit manifesting into fraud. (In re London and Globe Finance Corpn, Limited [1903] 1 Ch 728,
732-733)There appears to be no ready structural rule, which explains the elements of business
goodwill, based on the relationship between business facts and legal case outcomes. (Kastellec,
p. 204)
Therefore, the question naturally arises as to what might be a usable structural rule for business
goodwill, and when this rule is identified, how might it be susceptible to damage by fraud.As
Bentham had shown the impossibility of defining legal fictions per genus et differentiam, (Ogden
2002), we try to show a structure forbusiness goodwill, and that this structural rule is uniquely
susceptible to such damage, simply because its key elementscould not be defined per genus et
differentiam. (Aristotle, Topics, 143b-145a)
The primary methodology of the research is, for the first time, to identify a structural legal rule
for business goodwill, using Lord Diplock’s procedure for judicial reasoning by analogy. This
methodology is appropriate and valid because there appear to be subsisting rules for business
goodwill based on business facts and historical case outcomes, however without any stated
unitary genus. Using Lord Diplock’s procedure, the argument will use analogic reasoning to
move froma rights-based description of business goodwill, with necessarily indirect reference to
businessfacts within the case law, to an extended structural form of business goodwill, now
grounded directly in the authoritative decided case law.
The article begins argument with a case law discussion of the relationship between deceit and
fraud, so that its findings can be applied during the course of argument. Following this initial link
in the chain of argument, the article’s stated methodology requires an exegesis of Lord Diplock’s
procedure for applying judicial reasoning by analogy, so that it can be applied to the research
question. With those a priori requirements concluded, argument analyses the rights-based
foundations of business goodwill in context, so to identify a subsisting structural rule for
goodwill.Finally, argument critically discusses the authoritative decided case law in order to limit
the analogy.
The research will likely suggest that the structural legal rule for business goodwill inferred
inducing aparticular state of mind in the customers.This state resulted in capital value being
added to the business, by acts of the customers. From the paper’s early discussion of commercial
fraud, it will be seen that were this inducement to be of a false state of mind, the business’s
goodwill would be vitiated. Arguably, as well, were the business’s nostrums entirely or partly
fictional, unable to be defined per genus et differentiam, and the customer relationships insincere,
goodwill also could well dissolve.
Commercial Fraud
Argument proceeds with the following exegesis on commercial fraud, so that later in the paper it
can be used as a critical context for the elements of business goodwill.
Lord Macnaghten characterized fraud as follows. Suggesting fraud’s policy basis, his
characterisation of fraud leads all the way to, but stops short of, honesty.
“Fraud is infinite in variety; sometimes it is audacious and unflushing; sometimes it pays a sort
of homage to virtue, and then it is modest and retiring; it would be honesty itself if it could only
1550
afford it. But fraud is fraud all the same, and it is the fraud, not the manner of it, which calls for
the interposition of the court.” ([1896] AC 199, p. 221)
Finally, equity was able to articulate fraud and deceit as distinct states of affairs. Thus, in the
1903 case of In re London and Globe Finance Corpn, Limited, ([1903] 1 Ch 728, pp. 732-
733)Buckley J defined “intent to defraud” as follows.
“To deceive is, to induce a man to believe that a thing is true which is false, and which the person
practicing the deceit knows or believes to be false. To defraud is to deprive by deceit; it is by
deceit to induce a man to act to his injury. More tersely it may be put, that to deceive is by
falsehood to induce a state of mind; to defraud is by deceit to induce a course of action.”([1903]
1 Ch 728, pp. 732-733)In this way, product or service misrepresentation could vitiate the
goodwill of the business.
It appears that fraud is not procedural, but begins with theinducing of a qualitatively false state of
mind. There are two chronological steps to fraud. The first is deception by person A directed at
person B, followed by a self-injurious action by person B. These steps were discussed and
confirmed in the 1950 case of Kat v Diment, ((1950) 67 RPC 158, p. 162)arising under the
Merchandise Marks Act 1887 (UK). This statute was one in a series of criminal statutes,
ultimately used and interpreted by Lord Diplock in the Advocaat Case. ([1979] AC 731, p. 743)
Judicial Reasoning by Analogy

Now that the process of deceit and fraud can be characterized as beginning with the inducing of a
qualitatively false state of mind, and ending with a consequent false action, argument may
proceed to work with the fictive elements of business goodwill. These are necessarily fictive,
because they are grounded in rights. (Lilienthal and Ahmad 2015)In this case, argument by
analogy uses business facts based on headings of legal rights – the more fictional these fact
patterns might be, the more the goodwill might be vitiated by fraud. The process of judicial
reasoning by analogy (Bartha 2013)could be exemplified (Farrar 1997)by examining Lord
Diplock’s speech on the duty of care in negligence in the 1970 House of Lords case of Home
Office v Dorset Yacht Co. ([1970] AC 1004, pp. 1004-1071)
Home Office v Dorset Yacht Co ([1970] AC 1004)was decided in 1970. In Home Office v Dorset
Yacht Co, ([1970] AC 1004)Lord Diplock began by discussing judicial reasoning by analogy to
extend common law tort liability in negligence. He suggested that the House of Lords would be
deciding whether the English law of civil wrongs should be extended to impose legal liability not
yet recognised by the courts. He stated that this function, which judges hesitated to acknowledge
as law making, played only a minor role in the decision of most cases. He added that little
conscious thought had been given to analyzing its correct methodology. ([1970] AC 1004, p.
1058)
His lordship disclosed his 5-step procedure for application of judicial reasoning by analogy. The
first step was to analyze all the previous cases looking for the common characteristics. Lord
Diplock put it this way.
“In all the decisions that have been analyzed a duty of care has been held to exist wherever the
conduct and the relationship possessed each of the characteristics A, B, C, D, etc. and has not so
far been found to exist when any of these characteristics were absent.” ([1970] AC 1004, p.
1058)
The second step was to convert the analysis into a statement of law, and that the doctrine applied
when all of the discovered characteristics were proved in evidence. Lord Diplock put it this way.
“For the second stage, which was deductive (Dosen, p. 642)and analytical, that proposition
would be converted to: In all cases where the conduct and relationship possess each of the
characteristics A, B, C, D, etc. a duty of care arises. The conduct and relationship involved in the
case for decision would then be analyzed to ascertain whether they possessed each of these
1551
characteristics. If they did the conclusion followed that a duty of care did arise in the case for
decision.” ([1970] AC 1004, p. 1058)
The third step was to analyze the conduct and relationships in the case at hand. This was to see if
it demonstrated the said characteristics. Lord Diplock put it this way:
“But since ex hypothesi the kind of case which we are now considering offers a choice whether
or not to extend the kinds of conduct or relationships which give rise to a duty of care, the
conduct or relationship which is involved in it will take at least one of the characteristics A, B, C
or D, etc. And the choice is exercised by making a policy decision (Kochis, p. 28)as to whether
or not a duty of care ought to exist if the characteristic which is lacking were absent or redefined
in terms broad enough to include the case under consideration.”([1970] AC 1004, p. 1059)
The fourth step was that if extending the law by analogy, then the conduct in the case must
possess at least one of the said characteristics. If so, a policy decision of a judge could be taken
by re-defining the characteristics in more general terms. Lord Diplock put it in the following
way.
“The policy decision will be influenced by the same general conception of what ought to give
rise to a duty of care as was used in approaching the analysis. The choice to extend is given
effect to by redefining the characteristics in more general terms so as to exclude the necessity to
conform to limitations imposed by the former definition, which are considered to be
inessential.([1970] AC 1004, p. 1059)
Many legal theorists have commented on the common law’s relative absence of precise
definitions and the courts’ preferences for mere descriptions. (Commissioners of Inland Revenue
v. Muller & Co Margarine (1901) AC 215, per Lord MacNaghten)However, for Bentham,
definition per genus etdifferentiam (Oxford reference 2015)was the proper and preferred form of
definition, (Ogden, p. lxxvi)and no other would suffice. Thus, if the process of redefining were
not via definition per genus etdifferentiam, this would suggest a false analogy.
“In all cases where the conduct and relationship possess each of the characteristics A, B, C, and
D, etc but do not possess any of the characteristics Z, Y, or X etc which were present in the cases
eliminated from the analysis, a duty of care arises.” ([1970] AC 1004, p. 1059)Thus, facts must
be real, not incapable of definition, or the policy decision would fail for being too fictional.
Step five was to prevent the law being stated in too general terms. For this, the judge should take
care to consider only reported cases where the actual decision alone carried authority, proper
weight, and was stated within the ambit of the dicta of the judges.
Stable Facets of Goodwill

This section begins the application of Lord Diplock’s schema for judicial reasoning by analogy,
by characterizing goodwill in terms of its structural legal elements. Lord Diplock devised,
revived and adapted this procedure, and used it in the 1979 Advocaat Case. ([1979] AC 731, pp.
739-748)
Bentham wrote of representing either the motion or rest of certain fictional bodies. He observed
that a fiction would be adopted by means of an innocent falsehood, which recalls the disposition
of deceit, as discussed above. He explained that the mind imagined imaginary beings and gave
them proper names, as if they existed in reality. He exemplified this with the imagining of an
automaton,(Automatones 2015)looking like a man, and playing an organ. The observing person
viewed this automaton from an imaginary distance, and through a kind of mistake, considered it
as the viewing of an organist. (Ogden, p. xlii)Bentham extended the explanation by showing how
this kind of fictitious entity could become a fraudulent proposition as one element of a legal
argument. Then, the lawyer only had to assess, with substantiating evidence, the probability of
the fictitious proposition’s truth. (Ogden, pp. xliv, xlv) Applying a balance of probability test, a
fiction ultimately might be judged as true, despite the fact it was false.
1552
In Allan’s narrative analysis on goodwill, he explained the absence of a unified definition of

goodwill by the fact that it was a thing incapable of a separate existence, suggesting it was a legal
fiction, susceptible to falsehood. This was because its nature varied with the nature of the
business to which it attached, and their genus could not readily be identified. It was also from the
fact that the word was a commercial term used by mercantile practitioners. He said that
frequently they had no clear appreciation of what they meant when they used it. (Allan, p. 4)In
1889 Allen described goodwill in the following terms.
Goodwill was both a legal fiction, and, a valuable form of property. It had no separate existence
of its own, apart from the business being run. It might be subject to sale, mortgage, or bequest.
Or it might be an asset available to a trustee in bankruptcy. (Allan, pp. 1, 2)Arguably, this meant
that it might be dealt with fraudulently, and subject to a sequestration order.
Allan said there were two classes of legal rights (Lilienthal and Ahmad 2015)allowing a person
to acquire the goodwill of a business, exclusive of any agreement with the previous trader. The
first was the possession of the premises and of the old stock. The second was the right to carry on
the old business and to represent that it was the old business that was carried on. (Allan, p.
13)The word “goodwill” usually meant the second of these classes of rights. It comprised the
following three specific rights. The first was the sole right to use the old trade name or firm
name. The second was the sole right to the trademarks connected with the business. The third
was a right to the benefit of contracts entered into by the assignor with third parties, for the
protection of the business. (Allan, pp. 18, 19)Arguably, these rights characterise the law of
goodwill.
This exclusive class of right was discussed in the 1879 case of Levy v Walker. ([1879] 10 Ch D
436)In that case, James LJ stated that the right to use the partnership name, as a description of the
articles sold in that trade, was an exclusive right against the whole world. This was so that no
other person could represent himself as carrying on the same business. From this, Allen stated
that the reason why a person using a firm name used by others could be restrained from so doing
was because the public might be or were deceived by this use. The consequence of the deception
would be that the person, whose business name had the reputation, suffered an injury to the
property in the business. (Allan, pp. 18, 19)For this, fraud was not a necessary requirement for
proof. Rather, it was assumed by pleading merely that the wrongful act was calculated to
deceive.
In 1922 Foreman noted that goodwill had been defined by economists as the reputation, business
standing or favor, which the entrepreneur enjoyed in the eyes of the public. Clearly, since it was
not definition per genus et differentiam, this was a description, rather than a cogent definition.
This added further substance to the proposition that goodwill was a legal fiction. He also
explained goodwill as the habit or custom, which led men to deal with a definite or particular
enterprise in preference to others of the same kind. He speculated that the legal definitions of
goodwill were not as cogent as the economics-based theories, and instead were clustered under
several sub headings. In respect of the early English cases, Foreman’s argument suggests that the
descriptions of those sub headings were per the following five heads. (Foreman, p. 638)
Foreman’s first head was the concept embodied or inherent in the grounds, buildings, productive
processes and stock of an enterprise. ((1810) 17 Ves Jr 334, p. 346)This was illustrated by Lord
Eldon’s definition in 1810 in Cruttwell v Lye ((1810) 17 Ves Jr 334, p. 346)as follows. “The
good-will, which has been the subject of sale is nothing more than the probability that the old
customers will resort to the old place.” In the later 1842 case of England v Downs, ((1842) 6
Beav 269, p. 276)Lord Langdale MR held the goodwill of a seller of victuals to be incident to the
stock and the license, but not to the premises on which the business was established.
Foreman’s second head was that goodwill of a business may be established and held permanently
through effort within the business. (Foreman, p. 642)This was illustrated in the following two
cases. In Cooper v Metropolitan Board of Works, ((1884) 25 Ch D 472, pp. 472-482)Cotton LJ
held that if goodwill depended on personal skill of the person who parted with it, it was not
1553
transferred to others merely through a sale of the premises. ((1842) 6 Beav 269, pp. 269-283)In
England v Downs, ((1842) 6 Beav 269, pp. 269-283)Lord Langdale MR held goodwill to be the
chance or probability that custom will be had at a certain place of business in consequence of the
way in which that business had been run previously. ((1842) 6 Beav 269, p. 276)
Foreman’s third head was that goodwill is simply nothing more than value. (Foreman, p.
645)This was illustrated by a supposition put forward by the members of the court in Cook v
Collingridge: ((1825) 27 Beav 456, pp. 458-459) goodwill might be defined as the value of the
chance that the customers of partners retiring altogether would deal with those who purchased
from such retiring partners and succeeded to their establishment. Lord Eldon agreed and drafted
this wordage into his order of the Court. ((1825) 27 Beav 456, pp. 458-459)
Foreman’s fourth head was that intangible connection between an enterprise and the public.
(Foreman, p. 646)It was explained by Sir John Romilly in Wedderburn v Wedderburn, ((1855) 22
Beav 84, p. 104)as, “it seems to be that species of connection in trade which induces customers
to deal with a particular firm”. ((1855) 22 Beav 84, p. 104)
Foreman’s fifth head was the form of fixed impressions or conceptions on the part of the
consuming public. (Foreman, p. 650)Sir W. Page Wood VC described this in the 1859 case of
Churton v Douglas, ((1859) 1 Johns. Eng Ch 174)as follows. It appears that Churton v Douglas
(1 Johns. Eng Ch 174, p. 188) reported the strength of the business name as an element of
goodwill. In this case there was a sale of a business, and the question for the court was whether
the person selling the business was entitled to set up in competition. The Vice-Chancellor, Sir W.
Page Wood, was prepared to grant a temporary injunction, and stated that, it was in the nature of
goodwill that the public had more regard for the name of the firm than they had for its trading
address. In support of this proposition, the Vice-Chancellor noted that the word “firm” was
derived from the Italian word, which simply meant “signature”, suggesting the authority in the
mark of the master of the business. His conclusion was that when one parts with the goodwill of
a business, one means to part with all of the good disposition which customers entertain towards
the house of business. The name or firm identifies this good disposition. It may induce customers
to continue giving their custom to it. (1 Johns. Eng Ch 174, p. 188)
Taking these five separate headings together, by way of a policy decision, goodwill can be
argued as having the common characteristics, expressed as the value in the probability of the
business continuing to maintain its connection to buyers to induce custom in the same way. This
statement of law serves as Lord Diplock’s stages one, two and three, discussed as above.
Limiting the General Statements of Law

In his 2008 paper on goodwill, Tregoning conducted a detailed survey of the keygoodwill
authoritative cases. (Tregoning 2008)The process of limiting the general rule for goodwill will
now be applied by reference to Tregoning’s survey of the operative case law, serving to represent
stages 4 and 5 in Lord Diplock’s approach to judicial reasoning by analogy. It limits the rule
derived merely from identified rights, as above, by reference directly to authoritative decided
case law. As such, Tregoning determined that the first case in which goodwill was expressly
mentioned by name was the 1743 matter of Gibblett v Read. ((1743) 9 Mod 459, pp. 459-461; 88
ER 573)Before this, he argued that goodwill appeared to have been referred to by the synonym of
“custom”, as habitual practice (Oxford English Dictionary (Clarendon Press, 2nd ed, 1989))For
example, in the 1859 case of Churton v Douglas, ((1859) 1 Johns Eng Ch 174, p. 188)Wood VC
emphasized that custom was what was meant by goodwill. He noted that references to custom, as
a synonym for goodwill, had appeared in the 1620 case of Broad v Jollyfe. ((1620) Cro Jac 596,
p. 597; 79 ER 509)
In this 1620 case of Broad v Jollyfe, ((1620) Cro Jac 596, p. 597; 79 ER 509)the defendant was
trading as a mercer. ((1620) Cro Jac 596, p. 597; 79 ER 509)He had a shop at Newport, selling
old and sullied wares. The plaintiff had a shop there selling new and fresh wares. The plaintiff
bought all of the defendant’s old wares for their original prices. He assumed that the defendant
1554
would no longer run the shop. The defendant then furnished his shop with new wares and
maintained his business in his shop. Houghton J held that this was a case of good
assumpsit.(Skyrne v ButolfYB Pas 11 Ric II (Ames series), p. 22; Encyclopaedic Australian Legal
Dictionary, LexisNexis, Sydney [2012], online)This was because one might restrain oneself not to
trade at a particular place, and the person who gave the consideration expected the benefit of the
customers. The judge referred to the local custom in London of letting his shop and wares to his
servant when he completed his apprenticeship and to covenant that he should not trade in the let
shop or in the same street. Thus, the court held that it was customary that a person might
voluntarily agree for valuable consideration not to use his trade, because volenti non fit injuria,
meaning there can be no injury to the willing. (Encyclopaedic Australian Legal Dictionary,
LexisNexis, Sydney [2012], online)Arguably, this was explainable as the selling of his custom and
leaving another person to gain it, having impliedly waived a right of action in tort to regain it.
The court held that a prescription, or private agreement, to restrain a person from using a trade in
a specified place was good. (Cro Jac 506, p. 597)
Tregoning argued that the following five passing-off style of cases were central to the
development of the law of goodwill. (Tregoning 2008)
The first case, the 1742 case of Blanchard v Hill ((1742) 2 Atk 484, pp. 484-487)contrasted local
custom with a crown grant as the source of goodwill. This suggested that, at common law, a
crown grant of monopoly was not a source of goodwill. In Blanchard v Hill, ((1742) 2 Atk 484,
pp. 484-487)the plaintiff sought to restrain the defendant from using the “Mogul” stamp on his
playing cards. He argued that he owned the sole right. He submitted had he had appropriated the
stamp for himself pursuant to the terms of the charter of King Charles I previously granted to the
Cardmakers’ Company. Lord Hardwicke held that the monopoly intention of the charter was
illegal, unless duly confirmed by an act of parliament. His Lordship added that, a court of equity
would never establish a right of such a kind claimed under a charter from the crown, unless there
had been first an action to try the right at law. There was an objection that the defendant, in using
the “Mogul” mark, had taken the plaintiff’s customers away. Lord Hardwicke held that there was
no more weight in this than if an innkeeper displayed the same sign as another innkeeper. ((1742)
2 Atk 484, p. 487)
In the second case of Gibblett v Read, ((1795) 9 Mod 459, pp. 459-461)the court considered
nostrums, meaning a means for accomplishing something, (Oxford English Dictionary 1989)as
an element of goodwill. In this 1795 case, Hardwicke LC considered that although it might be
difficult to define sufficiently the nature of property, that property could still be transmissible to
representatives of the testator’s estate. In this case, the deceased had purchased shares in a
newspaper from such representatives. The court held, a priori, that all things of this sort ought to
be taken according to the known nature of the dealing. ((1795) 9 Mod 459, p. 460)Thus, the case
was put in terms of physical secrets, or nostrums, where the nostrums could be part of the
personal estate of the testator. Were the business to have been one of great trade, the executor
would have to account for the value of what was called the goodwill of it, explained as follows.
If anyone had thought of the nostrums, in the absence of a patent, then any such discoverer might
have simply sold them. The court held that the value of these nostrums was that, since the
business was a partnership, there were kinds of secrets in the business between the partners. It
held that there was a certain expense in having procured the required intelligence to develop
these secrets.
The third case of Hogg v Kirby (8 Ves 215, pp. 215-228)considered trade comity, meaning
courtesy, (Oxford English Dictionary 1989)between traders as a possible element of goodwill. In
this 1803 case, there was an application to dissolve a restraining injunction. It was to restrain
Kirby’s magazine, which appeared to be a continuation of the plaintiff’s magazine. This was in
its volume and page numbers and which was published under a similar title. (8 Ves 215, p.
215)Mr Richards and Mr Wetherell argued, on behalf of Kirby, against dissolving the injunction
by noting that the injunction had been based on property at law, agreement and trust. They
argued, by analogy to newspapers, that it had been established that property existed in a
newspaper and that an action lay for another person publishing under the same title. They also
1555
argued that a court of equity had jurisdiction to apply the remedy of specific performance, under
the heads of agreement. This remedy gave the court jurisdiction to call upon a person not to do an
act, which he had covenanted not to do, or to compel a person according to his covenant to
forego the use of a legal right or privilege, such as in a restraint of trade. They also argued that an
author’s copyright, after the copyright expiry, might still become property by virtue of an
agreement. Lastly, they argued that under trust law a property arose in a publication according to
the usage of booksellers, on the ground that when a person contracted with another person in the
same trade they were bound to conform to the customs and usages of the trade. (8 Ves 215, pp.
217-221)
The Lord Chancellor, Lord Eldon, started his reasoning by seeking the genus for magazines and
newspapers. (8 Ves 215, p. 221)He apparently decided the genus was books. (8 Ves 215, p.
221)He held, in obiter, that by the usage of booksellers, which arose from comity between them,
if one worked on and produced a certain work, he would be considered as its proprietor.
However, their dealings consequently based on that comity, unless specifically sanctioned by the
law of England, were not of a species, which was very necessary to encourage. (8 Ves 215, p.
221)The Lord Chancellor directed that the parties apply to try the matter at law, and then use any
favourable outcome at law to dissolve the injunction. (8 Ves 215, p. 228)
The fourth case of Cook v Collingridge (27 Beav 456, pp. 456-459)dealt with the balance
between the business reputation and the reputation of the individual partners as an element of
goodwill. In this 1825 case, Lord Eldon provided a definition of goodwill as “ . . . the value of
the chance that the customers of partners retiring altogether will deal with those who purchase
from such retiring partners and succeed to their establishment . . . .” (27 Beav 456, pp. 458-
459)His Lordship held that the chance of a purchaser of the partnership property retaining the old
customers could not be treated as of no speculative value. (27 Beav 456, p. 458)He held that this
value could be determined by resort to the previous 3 or 4 years profits. (27 Beav 456, p. 459)
The fifth case was that of England v Downs. (6 Beav 269, pp. 269-283)It linked the custom of
past business behaviour with the likelihood of it continuing into the future. In this 1842 case,
Lord Langdale MR defined goodwill as follows: “It is the chance or probability that custom will
be had at a certain place of business in consequence of the way in which that business has been
previously carried on.” (6 Beav 269, pp. 276, 277)
A general principle for goodwill was argued, above, to be the value in the probability of the
business continuing to maintain its connection with buyers to induce custom in the same way.
This principle was necessarily general. However, it may now be limited by the following: issues
of local custom as opposed to a crown grant of monopoly, nostrums, trade comity, business
reputation, and, likelihood of continuing custom. The new genus appears to be similar to the
process of deceit, but instead, inducing a new and correct state of mind in the customers.
Aristotle might have characterised it as the ethical action of “admonishment”, or correctly
informing the customers. (Nichomachean Ethics, p. 67)
Arguably the general principle may now be limited to goodwill is the value in the probability of
the business continuing to maintain its connection with customers of good disposition to it, to
induce local custom by means of its own nostrums and reputation, in the same way as in the past.
Conclusion
This paper’s research question was what might be a usable structural rule for business goodwill,
and when this rule is identified, how might it be susceptible to damage by fraud. Argument tried
to show a structure for business goodwill, and that this structural rule was uniquely susceptible to
such damage, simply because it could not be defined per genus et differentiam.
Using the first phases of Lord Diplock’s procedure for judicial reasoning by analogy, argument
discovered a structural legal rule for business goodwill as the value in the probability of the
business continuing to maintain its connection to buyers to induce custom in the same way.
1556
Applying the final policy and inductive phases of Lord Diplock’s procedure, argument
analogized an extended structural rule for business goodwill. Under this new structure, goodwill
is the value in the probability of the business continuing to maintain its connection with
customers of good disposition to it, to induce local custom by means of its own nostrums and
reputation, in the same way as in the past. The business admonishes the customers.
In both cases, the business acts in some way to “induce” local custom. The first and subsisting
rule induced this custom by maintaining a connection with customers. The extended structural
rule exercised this inducement by a conjunctive combination of reputation and business
nostrums. Arguably, this extended structure de-emphasised the element of customer connection.
In any event, both rules would suggest inducing a state of mind in the customers, resulting in
capital value being added to the business. From the paper’s discussion of commercial fraud, it
will be seen that were this inducement to be of a false state of mind, the business’s goodwill
would be vitiated. Arguably, as well, were the business’s nostrums entirely or partly fictional,
and the customer relationships insincere, goodwill also could well dissolve.
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1558
Analysis of the Structural Components and Measurement of the

Effects of Cost Inflation in the Industry with the
Help of the Index Method
Tsatsulin, Aleksandr N.
North-West Institute of Administration of the Russian Presidential Academy of National Economy and
Public Administration, Saint Petersburg, Russia; vash_64@mail.ru
Babkin, Aleksandr V.
Peter the Great St. Petersburg Polytechnic University, St. Petersburg, Russia; babkin@spbstu.ru
Babkina, Nina I.
Peter the Great St. Petersburg Polytechnic University, St. Petersburg, Russia; babkina@mail.ru
Abstract
The paper describes the methodological aspect of constructing index schemes by the Varzar ideology for
two and three-factor multipliers. The index method is widely used by industry analysts; the price indices
group is traditionally used for measuring the dynamics of the physical volumes of industrial output, the
dynamics of wholesale, retail, purchasing and other prices and tariffs, calculation of the inflation rate, and
the method is well-developed theoretically, all of which allows, in the authors’ view, to measure the
structural component of the inflationary spiral. This article demonstrates a method of assessing the effect
of the costs inflation which forms the above-mentioned structural component, using as an example a
machine-building company. The authors present graphic illustrations of the planar and the spatial
procedures for factor increment analysis. These procedures are accompanied by an extended commentary
on the results of an analytical expansion of the production output costs related to its structure, unit costs
and prices for the raw materials used.
Keywords: process of inflation, inflation generated in industries, index-number method, analytical index,
two- and three-factors multiplicative models, scheme of the factor’s expand, graphic interpretation, the
index of the joint changes (IJC), cost-push inflation
If you think that someone allows himself

too much, maybe you just largely deny yourself.
From A. Finagle’s collection of folk wisdom
Essence of analytical indexes
Historians of science have long noticed that there is an isomorphism between quantum physics and
mathematical economics, which is based on their common relationship with mathematical statistics.
Matching the calculated various indicators and indexes becomes particularly relevant at the present time
in statistical methodology to assess the development of industrial sectors of the national economy. Special
place in this methodology is occupied by the group of factor analytic indexes that measure the price
dynamics, inflation, mobility, structural changes and other statistical aspects of economic processes.
1559
As you know, the nature of tasks, composite indexes are divided into simple and analytical. Simple index
assesses the quantitative change in one or another of the studied primary or secondary symptom as
separate from other related features, and these are analyzed, they are indexed, the signs are considered in
the analysis taken into account as the traits-factors, but aggregated for each of the covered periods.
Analytical index measures the change of resultant, which occurred due to the change of one of the
considered characteristics on the factors included in the analytical unit of the index. In this way the
analytical index is based on statistical concepts of rigidly deterministic relations. Change or influence of
others, taken into account in the analysis of index signs-factors, in this case, is repaid, eliminated or
eliminated by the fact that their level is fixed, or is fixed at a certain, predetermined period.
For example, consider the simplest two-factor multiplier that connects as direct characteristics of a
statistical connection, the size of the turnover by the j-th commodity item W ( j ) in the overall diversity of
the product range
j = 1, m , the physical volume of sales (bulk commodities in real terms) and the sales
price per unit

p( j)
. Their relationship is defined in the so-called reporting and reference periods by the
following multipliers
W1( j ) = Q1( j ) p1( j ) ; W0( j ) = Q0( j ) p0( j ) . (1)
While no theoretical or technical problems arise in respect of holding of the index analysis of resultant
W ( j ) , related to factor analysis the right part of the multiplier of two signs of the causal factors of the
expressions (1) this cannot be stated with confidence, even in such a trivial case as k = 2 (the number of
independent traits-factors).
In the statistical theory of index method there are two approaches to the solution of this difficult question.
The first approach (regulated) binds a variety of period scales with the character and nature of indexed
values. Namely: if the unit is indexed/analyzed the so-called initial symptom, the corresponding
"weights" are fixed at the level of the base period; if indexed/analyzed secondary symptom, then its
weighting is carried out on a reported basis weight characteristics.
This analytical index provides a very satisfactory correlation indices of resultant signs and factors,
ensures their circular reducibility in relative and absolute terms numerically evaluated factorial incre-
ments. The procedure considered for constructing the analytical factor indexes historically has generated
the widely known, quite versatile and relatively powerful method of economic analysis which is the
method of chain substitutions, using such a method of forming direct statistical characteristics of the
relationships between signs within the so-called index I and II systems. The analyzed relationship is
realized through canonical and understandable expression (2) in general, the considered product portfolio
of m positions
m m m m
∑ Q1( j ) p0( j )
j =1
∑ p1( j )Q1( j )
j =1
∑ Q1( j ) p1( j )
j =1
∑W
j =1
1
( j)
ℑW ( Q , p )1 0 = ℑW (Q )1 0 × ℑW ( p )1 0 = m
× m
= m
= m
.
∑Q
j =1
( j)
0 p ( j)
0 ∑p
j =1
( j)
0
( j)
Q
1 ∑Q
j =1
( j)
0 p ( j)
0 ∑W
j =1
0
( j)
(2)
1560
Approaches to definition of scales in analytical indexes
The first approach has its advantages and disadvantages, the detail considered by such researchers as
Kaufman A. A., and Kazinets L. S., Rothstein A. I. Ploshko B. G., Tornkvist L., Frenkel A. A., Edelhaus
G. E., Edgeworth F., Marshall A. and others. Shortcomings inherent in this approach were resolved in
1933 by the compound average geometric index of I. Fisher that the author called modest and unpreten-
tious, «perfect». But the procedure for determining the period of the scales is generally accepted in
Russian and international official statistics in economic and operational analysis, although the actual
shortcomings of the approach are rather obvious. So, fixing the weights in indexes of secondary signs,
constructed according to the regulations, at the level of the reporting period, artificially created obstacles
to the objective evaluation of a stand-alone account of the influence of each of the recorded of the traits-
factors.
For example, when analyzing the change of the price factor in the dynamics of 0
p( j) ⇒ p( j)
1 the index
that is built on reporting weight characteristics, in addition to taking into account changing the actual
indexed values also influence by changing the reporting period and the status of the attribute-weight
Q1( j ) , i.e., its structural and quantitative certainty, but the subsequent period of the dynamics. This may
simplistically be considered the main drawback of the classic scheme of the index analysis.
The second approach to the definition of the weights in the analytical indexes involves the construction of
any and all related indexes on the scales of exclusively the base period. Let us note that the permissible
analyst position fully meets the goals and objectives of any research, i.e. to obtain the most accurate
assessment of isolated effects (actions) of each of the recorded signs of causal factors on the productive
trait-factor, provided that the circular reducibility index obtained for all characteristics will be met.
Respectively, all of the signs of the factors taken into account are analyzed in turn by the index in a
sequence specified in any way and, of course, justified in terms of content and subject to the requirements
of consistency.
It is interesting to note the use of both approaches to the construction of the classical indexes of Paasche
prices (Paasche price index – P), proposed in 1874 and Laspeyres (Laspeyres price index – L), introduced
into scientific circulation even earlier, in 1864. Both the price indexes in statistical practice are even used
simultaneously to measure the cost of living, i.e., incurred costs for the maintenance of living standards in
the ideal index1. The canonical form of these indices are shown in expressions (3)
m m
∑ p1 Q1 ∑ p1 Q0
( j) ( j) ( j) ( j)
j =1 j =1
ℑ(pP1)/ 0 = m
; ℑ(pL1)/ 0 = m
.
∑ p0 Q1 ∑ p0 Q0
( j) ( j) ( j) ( j)
j =1 j =1
(3)
The Paasche price indices, i.e., with weights of the reporting period, are calculated on a wider range of
goods, works and services. Due to the fact that the weights of these indexes is not the structure of
consumer spending, and the structure of turnover or gross value added, or production in the current
period, they (weight) can be determined only at the end of the reporting period. Therefore, the Paasche
index takes into account the results of mutual replacement of products, but does not reflect what is
happening at the same time reducing the level of welfare of the population.
(F )
1
Index of I. Fisher in the presented expressions has a traditional look ℑ p1 / 0 = ℑ(pL1)/ 0 × ℑ(pP1 )/ 0 .
1561
ℑ( P )
p1 / 0
The index is used in the measurement of the dynamics of prices of components of GDP, input
prices in agriculture, estimated construction prices, export prices, etc. According to the algorithm of the
Paasche index such an important macroeconomic indicator as the deflator of the gross domestic product
index deflator or the GDP-deflator (Gross Domestic Product deflator), reflecting the ratio of the nominal
GDP to real GDP, is also calculated.
A. Gerschenkron, an American researcger (of Russian origin), used both indices in the formulas from (3)
in the mid-twentieth century to construct his own index, with which he studied the specific effects (effect
of Gerschenkron) in Soviet and American economies and thereby made a significant contribution to the
analysis of inflationary and structural processes. The index feature is often called the analytic index of
ℑ(pG1|)/ 0
prices by Gerschenkron ( ) in contrast to the price indexes of Paasche and Laspeyres, and it has the
following type and value:
m m
∑ p1 Q0 ∑ p1 Q1
( j) ( j) ( j) ( j)
(G )
ℑ = ℑ( L ) : ℑ( P ) = jm=1 : jm=1 > 1.
p1 0 p1 0 p1 0
∑ 0 0 ∑ 0 1
( j) ( j) ( j) ( j)
p Q p Q
j =1 j =1
(4)
( P) ( L)
ℑ ℑ
p1 0 p1 0
The systematic lagging of behind , fixed in the expression (4), allowed the index to
become the main inflation indicator. In connection with the detected circumstance, the Laspeyres index
was named Index of consumer prices and tariffs of CPI (Consumer Price Index) 2. For price indices is
due to the redistribution over time of demand with a relatively faster rising price of goods for goods, the
relative prices of which are correspondingly reduced.
( L)
ℑ
p1 0
The index does not take into account the possibility of replacing more expensive items less
expensive. The CPI is one of the approaches to measuring shifts in prices of a market basket of constant
set of goods and services. The CPI is a measure of the general price level, reflecting the change in the
price of many consumer goods and services and represents the ratio of the prices of the consumer basket
to its price in the base year. The composition of the consumption basket, as can be seen from this
definition, is fixed at the base period.
Even more problematic is the interpretation of the so-called spatial Edgeworth-Marshall index, whose
(E − M )
ℑ
p1 0
formula is also able to capture the shifts in the structure of production and sales. However,
the aggregate index is tied to the conditional structure of the scales, not typical for any of the real periods.
Moreover, the index calculation meets known obstacles in collecting statistical information, and the
interpretation of the direct economic sense are traditionally difficult.
2
The main purpose of the

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Proceedings of

9-10 November 2016

International Business Information Management Association (IBIMA)

Conference Advisory Committee

John F. Affisco, Hofstra University, USA

Ngozi Adeleye, Covenant University, Ota, Nigeria

Vladimir Bartosek, Brno University of Technology, Czech Republic

Nicoleta Enache-David, Transilvania University of Brasov, Romania

Nicolae Ionescu, Politehnica University of Bucharest, Romania

Eva Lukášková, CBHM Brno, Czech Republic

Ana-Maria Neagu, University Politehnica from Bucharest, Romania

Madalina Ecaterina Popescu, Bucharest University of Economic Studies, Romania

Ching Sock Lee, University Science Malaysia, Malaysia

Laura Vasilescu, University of Craiova, Romania

Copyright @ 2016 International Business Information Management Association

Study and Assessment of the Synergetic Effect in Integrated Industrial Structures………………………. 1

Neural Networks as a Tool of Forecasting of Socioeconomic Systems Strategic Development………….. 11

Sustainability of Family Businesses in Cameroon: An Empirical Study in Northwest and Southwest 24

Ontology of Video Game Virtual World…………………………………………………………………... 33

A New Perspective on Knowledge Management Processes: An Empirical Validation of the 5C KMLC

The Need for a Change in Roles of Universities as Participants in Innovation Systems………………….. 68

Empowering RMG workers: Towards a Conceptual Framework…………………………………...…….. 78

Mobile Phone Enabled SCM: The Bangladeshi RMG Sector………………………………………..…… 85

Human Resources Education: Approaches and Contents………………………………………………….. 92

Déterminants de l’Activité et du Chômage des Immigrants au Canada: Analyse Comparative entre le

Social Entrepreneurship: Definition and Specifics………………………………………………………… 164

Developing a New Paradigm for Discovering 21st Century Economics………………………………….. 173

Managing Natural Resources to Obtain Economic Growth in Emerging Countries……………………… 179

Change and Public Relations as Engine for Organizational Growth……………………………………… 187

The Solution Options of an E-shop Model Veronika Novotná……………………………………………. 201

Performance Based Funding at Malaysian Public Universities.................................................................... 232

Special Aspects of Risk Management in IT-Projects……………………………………………………... 241

Temporal Inference Mechanism…………………………………………………………………………… 270

Factors Influencing Alumni Donations at Malaysian Public Universities.................................................... 278

The Improvement of Operational Management in E-Administration……………………………………... 287

Impact of Managerial Ownership on Financial Decisions: Evidence from Non-Financial Listed

Customized Software Implementation of Dynamic Yield Curve Models in R as a Decision Support

Agricultural Output and Economic Growth in Nigeria (1981-2014)…………………………………………… 321

Critical Ethical Factors and Organizational Performance: A Proposed Model……………………………. 359

Measuring Innovation and Predicting Firm Performance (Part 2)………………………………………… 365

Examining the Factors of Social Commerce Effectiveness………………………………………………... 396

Use of Artificial Intelligence in Medical Sciences………………………………………………………… 415

The Managerial Prerogative: A Meta-Legal Policy Analysis…………………..………………………… 423

The Use of Management According to Activities……………………………………………..………….. 452

A Model of Work-Family Enrichment and Job Satisfaction………………………………………………. 464

Pricing Strategy and Efficiency Advertising Activity................................................................................... 492

The Impact of Innovation and Technical Progress on the Economy………………………………………. 497

Code of Ethics and Accountants’ and Auditors’ Activity…………………………………………………. 530

Basel Implementation and Performance of Pakistani Banking Sector…………………………………….. 548

Complex Logical Connectors in Unified Modeling Language……………………………………………. 562

Organizational Agility: Online Retailing at a Glance………………………………………………..…… 573

Process Framework of Information Modeling for BIM Execution Planning……………………………… 582

Negotiations and due Diligence in the Czech Legal System………………………………………………. 606

Consumers’ Buying Intention of Environmental Friendly Cosmetic Products: Perspective of Norm

Inventory and the Economic Cycle in the Czech Republic………………………………………………... 649

Developing Methodology of Monitoring Companies' Financial Stability: Abnormal Profitability

Competitive Strength of a Concession Integration Model of Labour Market to Education Market

Personnel Management on the Example of Selected National Parks in Germany………………………… 700

Knowledge Management in Quality Management System………………………………………………... 712

Satisfaction Profiles of Students in a University…………………………………………………………... 731

Perception of the Service Quality in the Senior Tourism Market…………………………………………. 741

Application of Service-Oriented Approach to Business Process Reengineering………………………….. 768

Big Data Security using Fragmentation in Mongo Data Store…………………………………………….. 801