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Volume 1 (15)  Issue 1  2010

Editorial
A new beginning

The first issue of this journal marks a new age for the academic activities of the
Valahia University from Targoviste, which for over than 15 years, was represented by Les
Annales de l’Université Valahia de Targoviste: section sciences economiques.
For the School of Economics and Management from Targoviste, the publication of
this important first number represents a great satisfaction. The feeling that I‘m proving
reminds me of what I felt when I published my first article in an economics journal. The
temerarious act of this new beginning will be made from a double perspective: on one side,
out of respect to the potential of my colleagues, who are attending the classes of the
Doctoral School, and without hiding it, it‘s my desire to make from this revue a brand. I
am glad that I can be part of this achievement.
Why a new journal? We anticipate that our journal will become a valuable
database from which the reader will be to obtain useful information.
Our desire is to be partners with authors from all over the world and insert in the
journal a variety of articles. Information society faces the risk of information overloading
phenomenon. This means, very briefly, too much information, too much supply over
demand. Information overloading is disturbing between information and its effects, the
abundance of information increases the feeling of powerlessness and also the adversity
regarding the obligation to receive and process new information. As far as the information
value, pragmatically speaking remains constant. Being aware of this reality we follow from
the start, that with our new media product to counteract the trend towards information
overload. Of course, everything will depend on how we communicate with the target
audience of the journal, a professional public, representing a restricted category of
specialized information beneficiaries. We would also like, as a transmitter on the
communication market, to provide quality information and to arouse interest.
We are trying in a less orthodox manner, to reach the heart of those that read our
journal: the cover will present the entire content, arguing and causing the reader to consult
the journal, not only to identify the expected article but also to learn it; the editing of the
journal will allow the extensive publication. Our desire is to bring an unexpected
contribution to improve the general state of the economy and of the society in which we
are living.
Back to the previous question: Why a new journal? Because this revue will be a
communication vector able to promote essentially the identification of appropriate
scenarios as tools and instruments of socio – economic development, and also the creation
of economic cultures based on ―open‖ change of enterprises environment placed under
turbulences, the "normal" state of the knowledge-based information economy.
The target audience consists of that segment of the scientific community, national
and international, that includes specialists - professors, researchers, Ph.D. students - trained
to understand the messages of the articles published in our journal, to appreciate them in a
critic way, and carry on if is necessary our knowledge attempt in this way to contribute to
the enrichment of the universal heritage.
We would like to promote multidisciplinary discussions that will enrich the
progress in this field. A new journal is desirable to reflect the vitality of this area;

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Valahian Journal of Economic Studies

launching in this way a revue that will answer to the necessities and directions of a world
situated in full crisis.
Our approach meets the efforts to place the Valahia University of Targoviste,
Faculty of Economic Sciences, on the background of our country transition in the global
context of the universal science simultaneously with the desire to increase the visibility and
the valorization of our research activity.
The journal is published in English and aims to offer to the specialists everything
that‘s relevant in economics and management.
We wish at the beginning of this road success, with confidence in our temerarious
approach.

Professor Ion Stegăroiu

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Volume 1 (15)  Issue 1  2010

Opportunities and Implications in Public Higher Education


The Case of Albania
Qefalia ARJAN
University of Tirana, Albania
arjan.qefalia@unitir.edu.al

Abstract
The research has shown that after the fall of communism in the 1990s in Albania
there have been many significant political, economic and social changes. Also, they have
been many changes in education. Education is one of strategic priorities for development,
which guarantees progress. Due to the importance which represents, it has become the
primary issue and occupies a central place in the Albanian government program. Its role
is related to all characteristics of a society. Education in general and higher education in
particular, undoubtedly constitutes one of the most important areas of life of a nation. It
has stable and long-term impact on all aspects of activities related to people and their
welfare. The challenge to be faced in the transition period to adopt the functioning of
economic and social life based on market mechanisms and institutions of Western
democracy requires that higher education in Albania to be developed, consolidated and
follow the trend of higher education in Western countries.
The focus of this paper is to analyze and evaluate the stakeholders of universities
and their role in the university strategies, because the key to the success of non-profit or
profit organizations is satisfaction of the stakeholders, the SWOT analyses for Albanian
public universities, and how they can survive and compete in these competitive
environment locally, regionally and internationally.

Keywords: higher education, SWOT analysis, stakeholders

JEL Classification: M10, A23

Introduction

In the great wave of globalization, the fragile Albanian economy, in addition to


other structural reforms undertaken in recent years, is trying to provide support to the
education sector considering the great value of this public good in the preparation of new
generation, generation who will lead the country in the future. A very important link of the
educational sector with direct impact on the establishment of expert opinion, the
preparation of cadres of the future and thus the development of the country, is higher
education. A well-educated workforce is a key element necessary for prosperity and
development.
Education forms the basis of civilization and culture of a country.
After 1990s, with the changing of economic, political and social conditions in Albania, not
only higher education, but the entire educational system in general, suffered a serious

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blow. It fell prey to the abandonment of educational institutions not only by students and
partly students, but also by the departure from the teaching process of many professors, for
whom was invested so much and the replacement of them will take time and investment.
It took many years of investment and rising demand of time to return trust in
educational institutions and their value. Now public higher education faces the new
philosophy of life and market economy as well as increasing requirements for a qualified
generation that will ensure sustainable development, thereby supporting European
integration of Albanian economy and society. In 2000, appeared the first trends for the
emergence of private higher education in Albania. In 2002 it was opened the first private
university, New York University.
Until November 2009 the number of public universities is 11 and for non public
universities 20 (according to MoES of Albania).

Table 1.
Public higher education institutions of Albania (full-time system) 2008-2009
Universities Students enrolled
University of Tirana 5,826
Polytechnic University 1,670
Agricultural University 1,470
University of Durrës 1,060
University of Shkodra 1,965
University of Elbasan 2,900
University of Korça 1,585
University of Gjirokastra 1,262
University of Vlora 1,000
Academy of Arts 230
Academy of Physical Training 120
Total of public education 19,088
(Source: MoES)

Higher education in Albania, while continuing development is faced with a variety


of problems. In a rapidly changing world, the existence of problems is acceptable; they are
considered part of the inevitable process of growth and development.
On the other hand, it‘s presumed that the application of Bologna process should
serve as an incentive to provide to higher education in Albania the full view of a priority
sector of the economy. Implementing the principles of the Bologna Declaration is a critical
issue and requires maximum attention in order of consolidation of higher education in
Albania.
To make more efficient higher education as in social and economic viewpoint,
higher education should be based on its effective strategy. The biggest challenge and most
secure basis to ensure development is strategy for higher education.
In this study, through the use of literature and interviews directed to the directors
of Albanian Public Universities, the emphasis is put on the stakeholders of the universities
and on SWOT analysis for public higher education in Albania. At the end of the material
are made suggestions regarding public higher education in Albania.

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Volume 1 (15)  Issue 1  2010

1. Interest groups (stakeholders) of universities

Stakeholders are those individuals or groups that affect or are affected by the
activity of the organization including investors, directors, managers, employees, unions,
customers, suppliers, government, public and perhaps even other entities who provide
resources for the organization.
Analysis of stakeholders is a process that should precede all other processes of strategic
planning. It serves as a prelude to the declaration of mission, SWOT analysis, formulation
of strategies, etc.
If the organization in the framework of the strategic planning process is capable to
make only one analysis, this should be analysis of stakeholders. Analysis of the
stakeholders is very critical, because the key to success of non-profit or profit organization
is satisfaction of the stakeholders. If an organization doesn‘t know its stakeholders and the
criteria by which it will assess the organization's activities, the organization will not know
what to do to satisfy the needs of its stakeholders.
Analysis of stakeholders is a means for providing a "picture" of all interest groups
(stakeholders), individuals, organizations and institutions that will be involved in
implementing the strategy, project or policy. It is a management tool used for inclusion of
all stakeholders in the management process of an organization.
Stakeholder‘s analysis aims to answer some questions: Whose is the problem?
Who will benefit? What are the possible sources? What are the difficulties that will face?
Figure 1.
Map of stakeholders of Universities
Scientific Community
Government Citizens

Political Parties Future Generations

Business Community Donors


Universities
Other private and public
universities
Media
Employees
Students Unions

1.1 The main objectives of the analysis of stakeholders

The main objectives of the analysis of stakeholders are:


 to address the appropriate social impacts of projects, policies and strategies
 to identify conflicts of interest and to draw up strategies to minimize them,
 to compile appropriate strategies for providing support in implementing the
project or policy.

1.2 Stakeholders of Universities in the context of Bologna Declaration, and


based in the matrix power-interest

In political life, it must be established a balance between concrete improvement of


living conditions and the investments for development in the future. Education is

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Valahian Journal of Economic Studies

experienced by teachers, students and their parents as daily school environment; while
from the perspective of the national economy, education is a long-term investment.
Considering that the education sector is so huge and so poor, any fundamental
improvement in educational infrastructure in Albania will require the lion's share of
national public resources; therefore, careful determination of priorities in the wide range of
education needs takes a primary importance.
Who would be those stakeholders that have crucial interests in the performance or
failure of universities in general?
Below we will explain the main stakeholders in the development of higher
education in Albania:
 in the context of Bologna Declaration, and
 main stakeholders based in the matrix power-interest; and will see the
difference.
Figure 2.
Student – Scientific Community - Business Community
Student

Bologna
Business Process Scientific
Community Community

1. 2. 1. Students
Among the main stakeholders to be taken into consideration are the students. In
conditions when in a business "the king is the customer", so and in education, the student is
the main customer of the service that this institution offers. It must be worked and insisted
on the element "student" because it would constitute national tradition, the first
presentation worldwide, is the epicenter around which other elements act. These elements
are left somewhat in the dark in terms of perception that greater part of us has.
In brief summary, "best professors" are those who practice this aphorism about
students: Students do not you care how much you know until they know how much you
care. [Randy Kudar, 2005]
Students Community seeks chances to be educated, in a system with high
standards equivalent in the regional market and broader. Other important elements are
content and concept of the Bologna Declaration. Questions which must be addressed by
universities as part of the market are: "Who we are?", "Who are our customers?", "What
are our products? and ""Which will be the future organizational issues and how they will
be resolved in the future"?

1. 2. 2. Business Community
We have to be convinced that organizations that employ graduates are special part
of the development of faculties. They are another type of customer of final product of the
faculties. If we want to survive or to develop successfully in an environment that is
becoming more competitive, we must better serve the business community. No institution
or faculty will succeed in the long term if it ignores the needs of customer "business

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community". The business community is a very important element. If this community is


not going to evaluate our product, this will lead to the creation of a gap between market
demand and supply of universities.
To be noted is the fact that in a market where there is no "competition", the market
will not be innovative. In an economy where are not recognized and not met the market
needs, we can‘t speak for competition. Education or special faculties do not operate in a
pure competitive environment because they do not currently take into account the needs of
businesses, for "output-student" they are looking for.
When competition among institutions of higher education will be a pure
competition, these institutions will be obliged to respond to the needs of the business
community. It is this community that would dictate the curricula of subjects to be
developed. By stimulating the cooperation between universities and "business
community", will have as a result achieving the expectations which will be conform to
market needs:
 growth and improvement of the standards of higher education while at the
same time in line with those objectives that higher education is charged by the
Bologna declaration,
 qualified and capable work force,
 increase of the number of students in priority sectors such as tourism, industry,
exports, exact sciences.
On the other hand, these expectations that come from the establishment of
relations "university-business community" have opportunities that business offers, the
powers it has to influence the universities by:
 increasing pressure for quality and standards in education,
 to provide opportunities in practicing the knowledges and for further training,
 to provide financial support for high scores,
 to provide financial support for research.

1.2. 3. Scientific Community


The third element of the most important factors is the position that "scientific
community" has. One of the main reasons why students choose the larger number of public
universities is the preparation and experience in this sector of the teaching staff. But the
teaching staff focused largely on public universities will not continue for long life and, in
conditions where they are:
 not satisfied by payments,
 when there is no incentive for universities to do research.
While academics have other expectations. They:
 aspire to have wider involvement in decision-making process and policy
formulation
 require financial and institutional support for the R&D programs
 require more academic autonomy
 aim at restructuring and affecting research-scientific system
 seek to be active actors and not simply subjects of the educational system.
These requirements are observed in many public debates that academics have
participated and are the results of requests that they identify in moments of conversations
with them as well as various studies. Scientific community has a basic function to make
possible the achievement of the objectives that higher education has related to the Bologna

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Valahian Journal of Economic Studies

Declaration. Scientific community constitutes the basis to put in life and to enable new
developments in higher education.
1. 2. 4. Government
It aims to achieve from this process the adopting of the standards of higher
education with the Bologna Declaration and raising awareness of the society regarding the
efforts and contribution of everyone to face the challenges of integration. In the framework
of the government, MoES aims at harmonizing all efforts and commitments of
stakeholders to achieve certain objectives in the government's program and the challenges
of the Bologna Declaration.
Public universities require administrative autonomy, structural, financial, well-
defined and flexible legal framework, and financial support from the government.
1. 2. 5. Other private and public Universities
Seek the development of a legal framework to ensure fair competition and
government support through the creation of fiscal facilities. Here in particular is pressure
from private universities which unfortunately in most cases are founded with the pure
purpose of doing business in a field that is not entirely like this. Currently these can‘t be
considered strong stakeholders. As mentioned above, public universities have some
priorities that have source in tradition and experience.
1. 2. 6. Donors
Seek effectiveness, efficiency and transparency in the management and use of their
funds. Therefore, assessment of the importance of the interests of stakeholders is an
important part of any strategic analysis. It consists in answering to the question: What is
the possibility that each group of stakeholders to impose its claims in the organization, so
to influence on its strategy? For this purpose several methods are used for determining the
power and interests of stakeholders. Among them we can mention, matrix power/interest.
Figure 3.
Matrix power/interest in Universities
Level of interest
Low High

-Academic Circles
P L Donors -Students
o o Private Sector -Other public and private
w universities
POWER

w
e H -Government
r I Unions -MoES
g Media -Rectorate
h -Lidership of Universities

Based on the matrix of interest groups, we can say that currently in the higher
education system in Albania the main stakeholders are the Government and the Ministry of
Education. In the context of Bologna Process and in terms of requirements for the
development of a modern higher education, the scheme should be changed. The
community of students, business community and the scientific community should be main
stakeholders in the development of higher education.

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2. SWOT analysis of Public Higher Education in Albania

SWOT analysis involves the systematic identification of strengths, weaknesses,


opportunities and threats to the company. It offers the best offset between them. SWOT
analysis is a technique that helps to create a stronger competitive position of our
organization. It is based on assumptions that an effective strategy maximizes strengths and
opportunities, and minimize weaknesses and threats.

2. 1. Strengths

 Rapid liberalization of the sector. Increased opportunities for admission to


universities.
 Opportunities for integration and increase of the quality of service.
 Rapid expansion of information technology in universities.
 Long experienced and successful in post graduate education. Near the
different faculties of the University of Tirana, Polytechnic University and
Agricultural University in Tirana, operate for years even master level studies
in several faculties and studies in distance education.
 Despite recent developments, public universities remain the most preferred
schools in Albania. This is because they offer:
1. reliability and are guaranteed from state
2. foresight and long-term vision.
3. idealism, commitment to professional passion.
 public university enjoys the variety in programs, branches and competition,
that may not have yet a private institute, and for a long time.
 talent in public schools will always find a majority, compared with private
universities.
 in terms of Albania, is only public university that has really a tradition.
Reviews makes the fact that public university tradition is evaluated by all students
as less important. Apparently the perception is pro embracing the contemporary modern
teaching methods.

2. 2. Weaknesses

 Lack of infrastructure, lack of facilities to accommodate the increasing number


of students, and lack of resources. Shortcoming in equipment with modern
technical and scientific literature to the students.
 Lack of flexibility in management. Financial autonomy of universities is not
complete. Non practicing of the theory.
 Lack of a long-term strategy, sustainable, for the development of higher
education.
 An indicator for the level of participation in higher education is the number of
students per 100,000 inhabitants, which in our country is not yet at levels
comparable with European countries.
 The findings show a genuine lack of the organizational structure of human
resources in all faculties of the country. Support staff is often untrained and

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Valahian Journal of Economic Studies

even become an obstacle to the daily processes and for the development of the
academic staff.
 Despite the satisfactory statistics nationwide, many faculties of Tirana have
congestion problems of the number of students for class, which frequently is a
worrying factor for the progress of learning in general, but also the process of
learning by students.
 Many of the academic staff in Albania has no title or other degrees and the fact
that this percentage does not change in years, is a very disturbing given that
shows a relatively low level of qualifications of teaching staff in public and
non-public education.
 On the other hand, neither universities, nor MoES have failed to establish
centers for counseling and career direction by improving labor market demand.
 As a result of low staff salaries, teaching staff of the faculties requires two
employment.
 Many new universities are opened and are expanding in different cities of the
country. In most cases this is done without a minimum of qualified teaching
staff. For this reason, the level of education that these universities offer is
doubtful.
 More and more has come increasing number of private universities that are
open not only in Tirana but also in some districts. Because of the problems
mentioned above, they often seriously affect the quality of teaching.
 Quality of academic staff within universities often (incorrectly) is analyzed
based on its qualifications, in particular, if they have received a PhD degree or
not - while their quality should be judged on the analysis of the competencies
and powers they possess to perform their work.
 A very important challenge that significantly affects the development of
qualification training for teaching staff of higher education is lack of funds for
training.

2.3. Opportunities

 Universities have the chance to become centers for developing expert


academic opinions and expertise.
 Bologna Proces and spaces that it creates to higher education, assist in the
integration of this sector to be part of the European space of higher education.
 Rapid development of technology globally.
 The desire to increase the population to be educated.
 Generation of young graduates in the West, are returning to their country.
 High interest in international organizations for development of education and
particularly intellectual development.

2.4. Threats

 Centralization of decision-making in the ministry and rectorates. Mentality of


the government for not giving autonomy to the universities.
 Uncontrolled demographic movements. Difficulties in recruiting skilled staff.

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 Phenomenon ‗Brain Drain‘. There are various reasons to explain why this
phenomenon occurs. Some of the most important and easier to understand are
certainly more lucrative financial incentives offered by social and developed
countries and lack of opportunities for career development in less developed
countries.
 The reduction of jobs. Many studies are based on data more or less accurate
the estimated losses that occur in poor countries, the so-called developing
countries, as a result of flow of qualified staff to the capitalist centers (mainly
U.S. and West Europe). It is also observed that one of the reasons for this
migration is shortening of working positions in the country of origin.
 Opening of non public universities, or private ones.

3. Objectives, strategic alternatives and instruments to achieve them

From the analysis made to external and internal environment to the higher
education sector, it was concluded that it has some perspective and at the same time it must
face several objectives:

3.1. Objectives of higher education

Objectives of higher education are:


 To enable the development of society and the establishment of standards of
democracy and citizenship;
 To help the country's economic development through the preparation of
qualified people;
 To meet the aspirations of young people by providing chances for all to be
educated;
 To influence in well educating of generations by building a healthy society
without social conflicts;
 To implement reforms in order to achieve European standards;
 To increase standards of teaching and learning through the application of
information technology in universities.
Achievement of European standards faces problems that require sensitive and
relatively rapid solution in order that higher education to gradually:
 Be integrated in European networks of higher education (Bologna process),
 Be adapted to labor market requirements;
 Have appropriate institutional autonomy;
 Achieve high level of admissions;
 Be diversified.

4. Conclusions & Recommendations

4.1. Conclusions about the main stakeholders of Albanian public Universities

Based on the matrix of interest groups, the main stakeholders of the public higher
education in Albania are the Government and the Ministry of Education. In the context of
Bologna Process and in terms of requirements for the development of a modern higher

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Valahian Journal of Economic Studies

education, the main stakeholders are: the students, business community and the scientific
community; so they should be main stakeholders in the development of higher education.
Stakeholders are concerned that in accordance with their objectives and interests,
to identify the most appropriate strategy to minimize their weaknesses and external
environmental threats.

4. 2. The strategic alternative for reforming higher education and how it can
be fulfilled

Considering the difficulties in this sector, as well as the challenges set by time and
development of the country, there‘s given the strategic alternative for reforming higher
education and how it can be fulfilled.
Creating a functional system to reach European standards by:
 society awareness of the challenges of higher education
 drafting an adequate legal framework,
 creating independent institutions for the evaluation of the education system,
 increasing academic autonomy, structural, financial and administrative,
 providing the necessary financial and human resources.
This alternative is comprehensive and provides multifaceted solutions to all
aspects related to higher education.
Instruments to achieve the objective and satisfying stakeholders by society
awareness of the challenges of higher education:
 awareness campaigns;
 seminars, workshops and round joint;
 preparation leaflets.
Developing a suitable legal framework:
 creating of advisory groups with all stakeholders
 allocating the necessary budget from donors or the state budget
 developing legislative package facing the Albanian reality with obligations;
 discussing with the wider community.
By consolidating independent institutions for evaluation of the education system:
 training of staff of evaluation institutions of higher education;
 allocating of funds to strengthen the University Accreditation Agency;
 taking the donor experience in terms of consolidation of the credit system in
Albania.
By increasing the academic autonomy, structural, financial and administrative:
 setting clear autonomy in the legal framework for higher education;
 allocating financial resources needed from the state budget
 approving of a memorandum of understanding between government and
universities for administrative decisions.
By providing the necessary financial and human resources:
 allocating financial resources progressively in years;
 developing bonuses schemes from the state to reward academics in cases of
excellent students
 involving academics in developing specific policies for education.

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Need that by teaching to develop skills to students such as analytical thinking and
creativity in solving problems requires a new approach in the style of teaching. This has to
be a new aspect and very important regarding quality in the future, although still not
widely known. Position to change this requires time and inclusive training of current
academic staff, for more such major changes are not welcome as long as incentives for
change are very powerful. This can be achieved with an internal management, performance
oriented, which would involve changing the criteria for academic promotion and getting a
feedback from students regarding teaching performance requirements despite criteria
established by external accreditation process. Something like this will certainly require
changes in internal management policies of universities.
At this stage of development of Albania, education and training of pedagogues is
one of the main issues in higher education because it reflects the quality of the whole
educationsystem.
To encourage elite intellectuals to return to Albania, certainly need to be
developed national policies with a clear goal and in the long stretch of time. On the other
hand, to implement a successful scientific policy are necessary and some macroeconomic
conditions: a stable market economy, a regulatory environment that allows development in
the long run, a long-term industrial policy, etc. Also the government should try to find
solutions for problems related to the financing of science and education, but also to
improve the minimum conditions of work; and to create better collaboration with
businesscommunity.
The above are the means by which higher education strategy will create a
functional system for achieving European standards.

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Oakland, California: The Independent Institute: p. 135-169.
World Bank, (1994) "Higher Education: The Lessons of Experience", Washington DC:
World Bank: p. 4-100.
Zgaga P., (2003) Bologna Process between Prague and Berlin, Follow-up Group of the
Bologna Process, p. 4-115.

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Volume 1 (15)  Issue 1  2010

The Role of Multidimensional Database in the Corporate


Information Factory
Marius COMAN
Mihaela-Denisa COMAN
Valahia University of Targoviste
cmnmarius@yahoo.com

Abstract
With access to critical performance indicators of business processes, executives,
business managers and staff members can play a crucial role in improving the speed and
effectiveness of an organization's business operations. The monitoring and analysis of
business processes are complicated by the variety of organizational units and information
systems involved in the execution of these processes. In this paper, we present a corporate
information factory (CIF) as a solution for managing performance data of business
processes. The purpose of the CIF is to provide a data foundation for a process-driven
decision support system to monitor and improve business processes continuously.

Keywords: corporate information factory, multidimensional database, OLAP,


Data warehouse, Business Intelligence, Operational Data Store

JEL Classification: Y10

1. Introduction

After years of developing IT systems to respond to the urgent operational needs,


many companies ended up with a set of applications that interact more or less with each
other. But a close analysis reveals overlaps in applications functionality or, even worse,
important business processes that are not covered by any of the existing applications.
As some of the old systems become functional or technological obsolete, the
companies are forced to replace them. And most of them are trying to apply an enterprise
view for the new systems, to avoid ending up in the same state as they started with.
This correlates with the growing trend of developing Business Intelligence
applications to better support the corporate strategic needs, over and above the operational
needs of their activity. This class of OLAP systems that includes Data Warehouses, Data
Marts, Decision Support Systems and so on require and enterprise view of the business
objectives, business processes, supporting data and enabling applications.

2. The Corporate Information Factory

This concept is organized based on the enterprise data flow, rather than on systems
type as in Bill Inmon's concept [Bill Inmon‘s, 2004]. The complete model shows all types
of potential combinations a company can implement, but based on specific business

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criteria parts of them can be easily eliminated without affecting the other components
architecture.
The basic architecture presented in Fig. 1 also displays an enterprise wide
metadata layer. We actively promote the global metadata repository for the increased
business data consistency that it provides, as opposed to locally managed metadata layers.
The practice proved that the cost increase in implementing an enterprise wide metadata
management system is usually not more than 10% over the cost of local metadata systems,
but the benefits for the strategic planning of the enterprise are incommensurable.
Moreover, the increased cost is paying back in terms of systems integration efforts, making
the global metadata much more cost-effective on long term then its alternative.

Fig. 1
Generic Corporate Information Factory

(Source: Inmon, W., 2003: 256)

The main components of the CIF model are:


1. Source Systems, mainly represented by the OLTP applications supporting the
operational business activities of the enterprise, but also by existing data archives or
external data feeds.
2. The Operational Data Store, represents the bridge between OLTP and OLAP
environments. The data structure is similar to the transactional systems, but basic cleansing
and integration processes are preformed on loaded data. For example master data objects
are loaded from the systems of reference (most credible source) and any additional data
element is appended to the structure defined by the system of reference.
3. The Enterprise Data Warehouse, is the most important concept in the CIF
architecture, is specially designed to contain integrated enterprise-wide detailed and
summarized data, including a long enough history to provide both strategic and executive
management perspectives of the enterprise.

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4. The Client Systems are represented by departmental Data Marts, enterprise wide
information systems (e.g. web portals) or local reporting systems, as well as other OLAP
components like Decision Support Systems or MOLAP cubes. The client systems can be
fed from the Operational Data Store, from the Data Warehouse or from both of them
simultaneously. The data source for the client systems is defined by the integration or
detail level required for that particular application.
5. The Metadata Management System is the logic and semantic layer of
understanding and interpreting the information stored by the various systems. The
complexity of information regarding the whole environment is usually structured as:
- business metadata, such as subject area definitions, business process
descriptions, definition of entities, attributes and relationships, technical implementations
of business information, enterprise wide aliases and their departmental equivalents of
business data elements, and so forth.
- technical metadata, describing the physical implementation of the business
metadata. It is, at its turn, organized in:
- static metadata, describing the objects with very rare changes over time, such as
tables descriptions and structure, attributes description and physical definition, unique
identifiers of data elements, indexes defined for faster data access, entities relationships
and the corresponding foreign keys, and so on.
- dynamic metadata, known also as data metrics, concerning data load volume and
quality quantifiers, overall data statistics, data flows, data usage patterns and other
information about the usage of the static structures.

3. OLAP in the Corporate Information Factory

Enterprises today (Inmon W. H. et al, 1998) are facing tough competitive markets,
and their respective management cycles are constantly driving the need for information at
every level. This cycle requires companies to:
 Report on information.
 Analyze information for patterns and trends.
 Model data using the analysis patterns and trends.
 Plan future activities based on the modeled trends.
The timeliness of reporting on business activities has evolved as technologies have
improved and competitive pressures have grown over time. Where using monthly, weekly
or daily information was once considered acceptable, today's businesses require near real-
time information because the possible gains or losses of the previous hour can have a
significant impact on a company's bottom line.
The ability to take current information and determine why certain trends or
patterns are continuing gives a company a significant advantage. Indeed, historical data is
used to identify trends. Current information is used to determine if those trends are
occurring or changing. If a company extends this capability to permit the use of these
patterns and trends to model future market and company behaviors, its ability to use its
information is maximized, and the enterprise is able to move from making short-term
tactical decisions to making significant strategic long-term plans.
Tools that allow users to become autonomous in a very short period of time and
that require minimal training are the key to unlocking the information contained in an
enterprise's storehouse of data. Users must be able to gather information quickly in a
variety of different ways to satisfy diverse business requirements.

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By deploying tools that minimize the need for end users to understand underlying
data structures and minimize the risk of creating runaway queries, an enterprise can safely
allow end users access to the information they need with a minimum involvement of
expensive information technology resources. Because end users only need to understand
how to ask for the information (the access methodologies are masked from their view),
they can concentrate on what information they need, rather than where and how to access
the information. In addition, because everyone is accessing the same data sources within an
enterprise, everyone is using a common data set to make decisions.
One of the most powerful components of a CIF platform is its OLAP tool suite.
Users equipped with the proper access methods and powerful OLAP tools will become
self-sufficient and provide an enterprise's management team with all of the information
required to make intelligent business decisions.
OLAP tools provide an important and complementary function to the other
reporting and analytical tools found in the corporate information factory. Best-of-breed
OLAP tools provide users the ability to align business dimensionality such as customer and
product hierarchies into organized rollup structures that provide meaningful drill-down
capability through a dimension as it interacts with other dimensions. In addition, as the
integration between the OLAP and relational DSS environments becomes tightly coupled,
detailed transaction-level information becomes seamlessly available. End users have the
ability to perform detailed data analysis and retrieve transactional detail when anomalies in
business operations occur. Users select analysis tools of choice and are no longer burdened
with having to understand "where" the data resides. Users become self-sufficient and
retrieve information on their own timetable.

4. MOLAP, ROLAP, HOLAP it’s all OLAP

The value that an OLAP component provides within the CIF architecture is clear.
The decision in today's market is not whether to employ an OLAP solution, but rather
which OLAP architecture to embrace and implement within the overarching CIF
architecture. The two current OLAP architectures are MOLAP (multidimensional online
analytical processing) and ROLAP (relational online analytical processing).
All OLAP solutions provide the same basic capability: the ability to view a metric
by multiple dimensions. The goal of any OLAP solution is to allow the end user to access
the available information looking for trends and exceptions. In almost all cases, once the
"pearls" are uncovered, the user needs to look through the detail to determine the makeup
of the data in an effort to answer the "why or what" questions that are causing the data
anomaly. The main differences between MOLAP and ROLAP products lie with the data
storage and access mechanisms.
Multidimensional OLAP products provide their own multidimensional database
(MDB). All OLAP data is stored in the MDB; and the underlying detailed information is
stored in a relational repository, such as a data mart, and can be accessed on demand.
Relational OLAP products sit directly on the relational data store and build
multidimensional views of the relational data. Both architectures allow for the twisting and
turning of the data in the OLAP "cube," but the MDB is designed to directly support the
OLAP data access methods and will provide better performance for limited amounts of
data than the ROLAP architecture.
This performance benefit is derived from the way the data is stored in a MDB. The
purpose of OLAP is to quickly look at points of numerical data from multiple dimensions,
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Volume 1 (15)  Issue 1  2010

(i.e., cost by time, by state, by product; or counts of responses by cell, by outlet, by


promotion). The data value (cost) is stored once in a "measures" dimension in the MDB.
The other dimensions in the first example (time, state and product) are intersection access
measures. The point in the cube, or matrix, where these dimensions intersect identifies a
storage location for a data element. This matrix storage methodology greatly reduces the
size of the OLAP cube by eliminating the need for redundant data storage within the cube.
Because the MOLAP approach utilizes this optimized multidimensional database,
a MOLAP application may be developed, put into production and made available to the
users very quickly without the need to have a dedicated relational schema from which the
OLAP engine pulls its data. There is a price to be paid, however. Once you build the
MOLAP structure, you cannot drill through to the detail. A side benefit of the MOLAP
architecture is that it allows the data warehouse/data mart developers to create "rapid
prototypes" for new data marts and/or enhancements to existing data warehouses. New
data planned for the data mart or data warehouse can be quickly added to a new or existing
MOLAP cube and released to the user community. The users' feedback as to the data
quality and suitability for analysis can be gathered and used to validate or improve the data
mart design. Once the data mart design is improved, the prototype is thrown away. The
detailed data is placed in the data warehouse and then delivered to the data mart cube.
Occasionally it is useful to use MOLAP technology in a nonpermanent prototype
mode. In this mode, structures are quickly built, results are obtained and the MOLAP
structure is either discarded or the results are woven into a permanent data warehouse. It is
improper to build a permanent MOLAP structure in the guise of an impermanent
architecture.
The impermanent mode of MOLAP design – the prototype mode – allows for
significantly reduced time to market for the end-user business applications when compared
to the time necessary to develop and deploy a data mart and then design and develop the
ROLAP multidimensional views. A typical MOLAP used in a prototype mode can be
developed and deployed in a matter of weeks, taking data feeds directly from the source
systems. These sources could be ERP, CRM, legacy or desktop applications. Compare this
to the three to six or more months required to design and build a data mart, create the ETL
processes to populate the relational store and complete the ROLAP implementation.
Figure 2 is a simple architecture diagram for typical impermanent and temporary
prototype MOLAP and ROLAP implementations.
Figure 2.
Temporary Prototype MOLAP and ROLAP Architecture

(Source: Inmon, W., 2003: 123)

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In both the ROLAP and MOLAP architectures, the data warehouse is an integral
part of the overall permanent solution. In the case of ROLAP, the data warehouse is
deployed first, with the OLAP cubes being placed on top of the warehouse relational data
tables. With MOLAP, the data warehouse can be deployed before or after the OLAP cubes.
Temporary MOLAP cubes can be created before the data warehouse is created or after the
data warehouse is deployed. When both the OLAP cubes are designed and the data
warehouse is in place, then the MOLAP cubes can be populated directly from the data
warehouse via an integration layer. This integration layer should also facilitate real-time
drill through from the MOLAP cube to the underlying detail data in the data warehouse or
data marts.
While ROLAP and MOLAP continue to come closer together, there still remain
some basic differences in their approach. ROLAP solutions reside in a relational
environment and create aggregated tables and multiple indices that often reside in the same
relational spaces as the data marts and warehouse structures that serve as the sources for
the ROLAP cubes. As the user community increases and the demands for additional data
manipulation grow, the relational space suffers from resource contention.
In contrast, by using a MOLAP solution, the data is pre-aggregated in a separate
database environment that replaces the relational aggregation tables of the ROLAP
solution. Because the data is organized and indexed for near speed-of-thought retrieval,
users are spending the majority of their time accesses the MOLAP databases and only
return to the relational world when investigation of anomalies requires access to the
transactional level detail constituting the aggregations.

5. Evolving OLAP into an Analytic Platform

The lines between OLAP and relational data storage and access are blurring with
the deployment of the enterprise-wide business intelligence (BI) platform. This enterprise
BI platform is a centralized, unified environment that the user community employs to
request information from the analytic environment without regard for query technologies
or data location (DW, DM, ODS, MOLAP, etc).
The underlying technology employed by a BI platform is commonly referred to as
HOLAP, or hybrid online analytical processing. HOLAP allows for the seamless retrieval
of data from an OLAP cube and related information from a relational data store with a
single OLAP query.
When fully deployed, the BI platform is one of the more important access layers to
information contained in the corporate information factory. The BI platform satisfies data
requests via a common meta data repository that contains the necessary data mappings and
required data presentation descriptors. Based on the presentation information in the meta
data catalog, the data will be presented to the user in the most appropriate format: cross-tab
report, OLAP access method (twist-and-turn), graphical, etc. Figure 3 shows a basic
architecture for the CIF with a BI platform.

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Volume 1 (15)  Issue 1  2010

Figure 3.
CIF Implementation with
an Enterprise Business Intelligence Platform

(Source: Inmon, W., 2003: 259)

In the future, access to all information in the CIF will be brokered by the BI
platform. The end users will select the data required and decide on the most appropriate
access tool for their particular needs – OLAP, Q&R, custom-developed application or
standard query language. These tools will issue all requests for information to the data
access layer of the BI platform. The BI platform will employ its meta data repository and
security layer to identify the location of the data and presentation method to be used, and to
validate the access rights the user has to the data. The data access layer will then issue the
appropriate data requests to one or more data repositories in the CIF. The data access layer
of the BI platform will then pass the resulting information back to the users.
In addition, the BI platform can implement a standard security layer (such as
LDAP, Windows NT authentication or a third-party authentication server) for security
purposes and to provide a central login to many disparate applications. The BI platform
then ensures that users are only given access to data for which their security level is
appropriate. Depending on the method of implementation, the BI platform could reject the
data request outright or process the data request omitting the data elements that the user is
not authorized to receive.

Conclusion

Careful consideration should be given to insure that any CIF implementation


contains a strong BI platform capable of providing an integrated set of query and reporting
tools and tools that enable analysis, modeling and planning. These powerful tools make
end users self sufficient and productive, empowering them to provide management with
the data necessary to make good tactical decisions to implement their strategic goals and
objectives.
More and more, companies are recognizing this need and are looking to deploy a
business intelligence platform that can provide these near real-time data reporting
capabilities with the analysis and modeling capabilities. With declining profit margins and
stiff competition, companies are quickly moving toward BI platforms that contain

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integrated suites of tools that are flexible, extensible, provide relatively easy and consistent
access methods and can span the enterprise's disparate data sources.
When selecting a BI platform, users should give careful consideration to the suite
of tools contained within the platform. The tool will determine end-user capabilities and
will have far-reaching impact if the tool suite selected is not a good fit for the enterprise.
OLAP is certainly one of the many magic keys that unlock the power of the corporate
information factory and create useful information.

References

Inmon, W.H. (2003) ―Architecture of cif using the blueprint‖, available on line at
http://www.billinmon.com.
Laney, Doug (2001), "Stingy Data Warehousing Without the Sting," Application Delivery
Strategies. Delta 997.
Inmon, W.H. (2003) ―The government information factory and the Zachman framework‖,
Boston, Harvard Business School;
Radu, V. (2009), Globalizarea sistemelor informationale financiar-contabile, Bibliotheca,
ISBN 978-973-712-488-3, Targoviste.
Inmon W. H., Claudia Imhoff, and Ryan Sousa, (1998), ―Corporate Information Factory‖,
New York, NY: John Wiley & Sons, Pp. 2-3.

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Volume 1 (15)  Issue 1  2010

The Impact of the International Trade


Upon Developing Countries
Mihaela NECULIŢĂ
Dana MANEA
Mihaela-Carmen MUNTEAN
Dunarea de Jos University, Galati
neculitam@yahoo.fr

Abstract
Recently there has been an influx of literature which tries to find out relationship
between trade and poverty. Right is of the view that more international trade is good for
the poor whereas left is quite skeptical of pro poor effects of trade. The paper finds out that
though trade might carry positive affects for the poor in developing countries through
growth, such gains are not equally distributed among the rich and the poor. The paper
identifies some different effects of international trade which result in unequal outcomes
and thus defies Heckscher-Ohlin-Samuelson theorem in a developing country set up. Since
per decomposition, poverty is affected by growth or inequality, evidence of unequal gains
from trade does imply that the relationship between trade and poverty is not as simple as
the right seems to suggest.

Keywords: economic integration, welfare, poverty

JEL Classification: F1

Introduction

To date, most of the countries in our global village have embraced or initiated
processes of liberalization. The idea is to follow neo-classical paradigm of free markets in
order to achieve variety of economic as well as social objectives, as free markets are
assumed to be one of the key catalysts for growth and its determinants. This belief in the
efficacy of free markets has also been the basic guiding principle of contemporary
globalization.
The first relevant question arises how economists view the notion of ‗free trade‘?
Well at least there is a consensus among the bests of both left and right that openness to
international trade is imperative for economic development.
Many studies have shown that trade is not only the engine of growth but it also
sustains it. It is also believed by the proponents of ‗free markets‘ that the countries,
developing as well as developed ones, who have opened up their economies more, have
achieved better economic performance. In contrast with the general perception, there is
also some evidence that world poverty and inequality is declining.
All in all proponents of globalization are confident that free trade carries
significant pro poor growth effects. For example, trade might very well be good for poor

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because it is good for growth but if trade amplifies inequalities between regions, countries
or income groups, it cannot claim to be the harbinger of welfare generation because
income distribution is no less a vital determinant of poverty than growth itself.
To this effect, much recently, many single country case studies have been
undertaken on the subject and the evidence suggests that the distribution of the positive
effects of liberalization is some what skewed towards urban households rather than rural,
and wealthy households rather than poor. Such empirical evidence contradicts the basic
trade theory which suggests that trade liberalization would result in an increase in demand
for low-skilled in a developing country, thereby improving the relative earnings of this
group compared with the more skilled.

1. International trade and inequality: why the debate is important?

As mentioned earlier there is not much dispute among economists regarding the
benefits of increased international trade. No doubt increased trade leads to more efficient
economic outcomes through augmented market access and the followed processes of
learning by doing.
On the one hand international trade is one of the most important policy tools for
economic growth, whereas on the other hand growth is not only one of the most commonly
targeted macroeconomic phenomenon but also considered to be the barometer of economic
well-being.
Apparently, the end objective of any economic policy devised to date is to generate
welfare and wellbeing of the public and same is true for growth which must also fall in the
category of welfare generating strategies since the idea has always been that at the end of
the day growth should be good for poor. It makes sense because in economics poverty
decomposition identifies two channels through which poverty is affected. One is the
growth channel and the other is inequality.
Growth is good for poor whereas inequality is not good. Since growth sometimes
puts an upward pressure on inequality, the more relevant question here is how to align
growth with poverty alleviation? The simple answer is to sterilize any adverse
distributional effects of growth to make it a ‗chaste pro poor experience‘.
International trade is one of the key determinants of growth and thus it is
considered to be key policy tool for alleviating poverty.
Though poverty is decreasing in China and India, the rural and urban divide is
rising in these so-called success stories of globalization.
The persistent qualitative inequalities in the South are transformed into income
inequalities when only more affluent sector or group is benefited from the international
flow of goods and services. For example, prevalent educations inequalities cause rise in
wage inequality in the South, where rich or urban are more educated or skilled than poor or
rural, as it opens up.
It is crucial to understand the relationship between international trade and
inequality in a developing country context in much detail to understand why exposure to
foreign markets tends to benefit certain segments of the society which are more affluent
then the rest; or why trade creates disparities in factor incomes by favoring certain
economic activities (i.e., manufacturing) over others (i.e., agriculture) in a developing
economy?

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2. International trade and uneven development: a spiral


There can be several reasons why liberalized trade carries an asymmetrical effect.
The economic literature has long been contemplating over it by proposing models and
frameworks which incorporate the possibilities of uneven development within regions due
to international trade. Important point to note here is that this paper is primarily concerned
with intra state disparities as an out come of exposure to free trade and not inter state
disparities.
According to the above frame work, if trade liberalization leads to a greater
demand in human capital relative to unskilled labor, inequality shall increase further. With
increased openness, if the demand for skilled labor increases and if a developing country
fails to match this rise in demand, relative wages of skilled labor will swell and increased
inequality is a natural outcome. Where as, if trade leads to an increase in the wages of
unskilled labor a more equitable outcome is predicted. This means if human capital is
unequally distributed, then trade would contribute to increase in inequality if it favors
skilled or more educated.
3. Inequality as an outcome of education policy

In many countries a considerable proportion of public expenditures for education


goes to middle- and upper-income families, because richer groups are over-represented at
all levels of education, and particularly at the university level. Public expenditure per
student increases by each level of education.
One reason for the bias in education policies in these developing countries towards
higher education may lie in the belief that elementary education has a very limited direct
role in determining growth rates. The rate of economic growth responds more to secondary
or higher education levels rather than elementary schooling. For example, in developing
countries international trade, which is one of the key determinants of growth, favours
either highly qualified university graduates or those who have at least finished their high
school. So it is no surprise that in order to run the race to be competitive, many developing
countries have a tendency to invest in higher education at the cost of primary education to
achieve greater growth.
Here there is an important role for the government to reverse this situation. The
government, through investing in education sector and following a balance education
policy, can improve the human capital on a more equitable basis. Here a balance education
policy would be to give special attention to rural areas/shanty towns where human capital
is low as against urban areas/ affluent urban zones.

4. Trade inequality inter-linkages and the heterogenic south

The rationale for expecting an effect of trade on wage inequality is based on the
standard Heckscher-Ohlin-Samuelson (H-O-S) trade model. Free trade lowers the real
wage of the scarce factor and raises that of the abundant factor compared to autarky.
Assuming that developed countries are generally abundant in skilled labor, increasing trade
with developing countries, which are unskilled labor abundant, should raise the wages of
skilled workers relative to unskilled in developed countries. Where as, the returns to
unskilled labor should increase in developing countries with the opening up of trade with
developed countries. Since evidence does not support H-O-S theorem in case of
developing countries, what can account for this?

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4.1. Protection Effect

In the simple H-O-S theorem, contains just two equations for two sectors, and just
two factors of production. In this basic framework, an explanation for rising inequality
after liberalization can be that developing countries protect the unskilled intensive of the
two goods, and not the skill intensive prior to liberalization. So after liberalization the
producers of unskilled intensive good face increased costs amid more outside competition
in the absence of government subsidies. Thus an increased downward pressure is exerted
to the wages of the unskilled labor force employed in the production of that unskilled
good.

4.2. Endowment Effect

However, in the real world there are more than two countries, more than two
products and sufficiently dissimilar factor endowments across all the countries. A country
which is unskilled abundant in a global sense can still experience wage inequality from
opening up if that country is skill abundant in the regional sense.
There may be a sufficiently wide range of endowments across countries so that
different countries make different products – i.e., countries are in different ―cones‖.
Thus even if the developing countries produce in similar sectors say I among
themselves, they will have different comparative advantages because patterns of protection
might not only reflect they are unskilled abundant globally but also they are unskilled
abundant regionally.
A middle income developing country, which is unskilled abundant relative to
developed countries but skill abundant relative to low income developing countries, can
have a comparative disadvantage in unskilled labor vis-à-vis these low income countries
and protection of unskilled labor in these middle income developing economies is a natural
outcome.

4.3. Technology transfer Effect

In order to deal with the discrepancy between traditional theory and empirics in
low income developing countries (i.e., China and India), the trade and technology nexus
has been put to blame. The greater openness intrinsically brings with it a greater inflow of
technology that may be skill biased and thus act to increase the demand for skilled labor.
The line of argument is that South improves its technological base through learning from
the technology available in the North. Learning takes place through technology transfers
either through South‘s efforts to imitate technologies or through importing capital goods
available in the North. Where as, in both cases the demand of skill labor is increased.
Increasing trade between North and South opens up new opportunities for developing
countries‘ producers to learn Northern technologies. Liberalized trade, on the one hand,
allows easier imports of technology intensive capital goods from north while, on the other
hand, it allows Southern firms to export to Northern markets and thus, through competition
with Northern firms, learn and imitate this new technology. Since the introduction of new
technologies in the South requires skilled labor, demand for this skill group increases and
hence, skilled wages may rise.

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4.4. International outsourcing and technology catch-up effect

Outsourcing means that sometimes a skill labor intensive activity (component) is


outsourced to a lower wage economy whereas that low wage economy should be more
abundant in both skilled and unskilled labor in absolute terms when compared to other
lower wage economies.
It has been widely witnessed that multinational‘s international outsourcing is
increasingly taking place especially in developing countries where semi skilled labor is
available for cheaper prices. In the case of India and China, inequality might be partly due
to the fact that these countries are able to export skill and semi-skilled intensive goods as a
consequence of international outsourcing.
The reasons for the remarkable success of Indian software exports include the
rapidly growing demand for software in the countries of the clients, the cost difference
between India and the outsourcing countries in employing soft ware professionals.
Additionally, the factor intensity of the end product, which has been the focus of
traditional trade theory, is just the weighted average of the associated component factor
intensities. Evaluating comparative advantage at the level of components is not very
different from doing so for products.
From the factor–proportions point of view, a capital-rich, high wage country,
endowed with plenty of skilled workers, will tend to have comparative advantage in the
more capital and skill-intensive components of a product and comparative disadvantage in
components relatively heavy inputs of semi- skilled and unskilled labor. It is true that the
Indian software exports owe it to international outsourcing than any thing else since the
nature of Indian softwares remains to be of routine programming and maintenance
services, whereas the final product and package only constitute 3.16 percent share in the
total soft ware exports.
Since the last decade, China has also been identified as a heaven for international
outsourcing for the companies which are searching for semi skilled and skilled factors of
production at cheaper prices.
China has been taking advantage of its cheap and abundant labour to attract direct
investment by multinationals, thereby accelerating the pace of industrial development.
Processing trade, which represents roughly half the overall trade of China, has come to
play a more important role in the Chinese economy. With its share of the world's
manufactured exports rising,
China has been widely recognized as the "factory of the world‖, the impact of
Chinese option on Japanese companies: some doomsayers predict the decimation of
Japan's high-tech manufacturing base and sayonara to all those nice-paying engineering
and production jobs as cheaper labor, land, and utility costs in China prompt more and
more Japanese companies to shutter factories at home.
China could be a "win-win" proposition for Japanese companies. They would save
billions in production costs, keep at home high-end research-and-development, design, and
other critical jobs, plus plug into a vast consumer market for their goods.
The developing and newly industrialized countries that have experienced the
sharpest increases in wage inequalities are those whose export shares have shifted towards
more skill intensive goods.
They name it as ―technology catch-up‖. This observation, in addition to giving a
very convincing reasoning regarding the cause for inequality as a consequence of trade
liberalization, also challenges the core of H-O-S theorem. Along with importing skilled-

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Valahian Journal of Economic Studies

labor intensive goods, the developing countries also indulge in exporting skill intensive
intermediate goods.

4.5. Technology catch-up effect under factor endowment dynamics

China and India are the countries which are globally and locally less skill intensive
when compared to the medium to high income countries. However within China and India,
there are patterns of uneven development because of unequal factor intensities. There are
certain regions which are skilled labor intensive while others are low skilled intensive. As
we discussed above, the IT sector in India is concentrated in only three locations where
skilled labor is available in abundance.
These geographic locations are also considered to be relatively high income
regions. They are the same regions which also benefit mostly from post liberalization
technological change or catch-up, since they are endowed with relatively higher amounts
of skill intensive factors of production. Thus in developing countries, post liberalization
―technology catch up‖, which happens in an uneven manner, because of an uneven
domestic factor endowments across various regions, has implications for income
inequality.

4.6. Familiar factor endowments effect

As the developing country moves forward in technology, it naturally indulge in


more advanced production patterns and more and more of its trade, especially exports are
concentrated in products involving high skilled labor. As one developing country is
climbing the technology ladder, the other developing country at a lower stage starts taking
over the production activities, which are least skill-intensive in the former as part of its
own technology catch-up phenomenon.
For example, China has a higher pace of technology catch-up then many of less
developed countries in East Asia. China has built a sound technology base primarily
because of its low factor costs. Chinese exports are getting more and more skill intensive
as a result. As China advances in technology and produces goods and services involving
higher skill intensive labor, there is increasing chance for other developing countries, at
lower stage of technology ladder, to exploit this situation by taking-up the production of
goods and services which require relatively less skill intensities in factor inputs if produced
in China.

4.7. Price elasticity effect

In imperfectly competitive context, the elasticity of demand for labor is higher


with greater openness. The link between factor demand elasticities and product market
elasticities is directly established through fundamental law of factor demand which implies
that demand for anything is likely to be more elastic, the more elastic is the demand for
any further thing which it contributes to produce. Since product market elasticities are
likely to rise with trade liberalization, this implies that, with greater trade openness, we
should see an increase in labor demand elasticities as well.
Openness could put labor markets under greater pressure because rising elasticities
shift the wage or employment incidence of non wage labor costs towards labor and away
from employers. Secondly, higher elasticities trigger more volatile responses of wages and
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Volume 1 (15)  Issue 1  2010

employment to any exogenous shocks (arising from shocks to productivity or to output


demand) to labor demand. Also, increase in elasticities leads to the erosion of the
bargaining power of labor vis-à-vis capital in sharing abnormal profits.

4.8. Wage premium effect

Wage premiums represent the portion of worker wages that cannot be explained
through worker or firm characteristics, but are attributed to worker industry affiliation.
Wage premiums are also associated with higher productivity.
Moreover, worker industry affiliation plays a crucial role in explaining the impact
of trade reforms on worker wages especially in trade models with imperfect competition
and rent sharing. In developing countries as well as developed countries, there are
restrictions on labor movements, thus again calling for the inclusion of industry affiliation
wage- premiums in trade-inequality debate.
The effect of trade policy on industry wage premiums has important implications
for the wage inequality: since different industries employ different portions of educated
and skilled workers, changes in industry wage premiums translate to changes in the
relative incomes of skilled and unskilled workers. If tariff reductions are proportionately
larger in sectors employing less-skilled workers, and if these sectors experience a decline
in their relative incomes as a result of trade liberalization, these less-skilled workers will
experience a decline in their relative wages.
This effect is distinct from the potential effect of trade liberalization on the
economy-wide skill premium.
In Brazil trade liberalization has not lead to lower industry wages in the short run.
There is no evidence that the tariff declines worsened inequality through changes in the
structure of wage premiums, the industry wage premiums do vary widely across Brazilian
manufacturing sector.
The former are smallest in sectors with high shares of unskilled workers
suggesting that unskilled workers earn relatively low wages not only because of the
growing economy wide skill premium, but also because they are employed
disproportionately more in industries with low wage premiums. For Indian economy, the
impact of trade liberalizations on the inter-industry wage premia is substantial and more
protected industries tend to have higher relative wages; whereas, the industries that
undergo larger tariff reductions have lower wages relative to other industries.

Conclusions

The paper contributes towards our understanding of processes of globalization and


growth and how they are related with pro poor outcomes. Our discussion suggests that
though more trade might be good for the poor in the short term, there is welfare distorting
effects which might hamper the positive returns in the long run as international trade does
carry unequal effects.
Whether inequality matter or not in a pro poor pro growth debate is not an issue
for discussion anymore. Inequality certainly matters.
The inequality of opportunity, both within and among nations, sustains extreme
deprivation, results in wasted human potential and often weakens prospects for overall
prosperity and economic growth.
These inequalities have had negative consequences in many areas, including

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Valahian Journal of Economic Studies

employment, job security and wages.


However, both reports accept that there is still a debate concerning the specific role
of liberalization policies in these trends.

References

Berthelemy, Jean-Claude (2004), ‗To What Extent are African Education Policies Pro-
Poor,‘ Unpublished
Ravallion, Martin (2003), ―The Debate on Globalization, Poverty, and Inequality: Why
Measurement Matters‖ World Bank Policy Research Working Paper 3038,
Washington DC
World Development Report 2006, ‗Equity and Development’
United Nations Report on the World Social Situation, ‗The Inequality Predicament‘ 2005
http://les.man.ac.uk/ses/research/devpapers/Povertyconference
http://econ.claremontmckenna.edu/papers/2000

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Volume 1 (15)  Issue 1  2010

Social Accounting
Reporting on Corporate Social Responsibility
Valentin RADU
George Ciprian GÎJU
Valahia University of Târgovişte
valu_radu@yahoo.com

Abstract
Accounting, as a tool for information, should provide information to different users
of accurate information. Among these users we can have the company in general, which is
directly interested to know the repercussions of social activities. Ethic accounting -
accounting of social responsibility is one direct form of social accounting and has the
objective to provide information regarding the nature of ethics, the ethical values of the
organization. This article aims to demonstrate what is ethic accounting -accounting of
social responsibility and what would be its implications, which are its main objectives,
emphasizes the importance of publishing additional information on corporate social
responsibility other than traditional financial situations.

Keywords: intangible assets, accounting ethics, corporate social


responsibility, social accounting, SA 8000

Clasification JEL: M41

Introduction

Over the past few years the economic, political and social environment has gone
through profound changes which caused a higher level of globalization and a harsher
competition. The corporations have become stronger and stronger and one the issue of
taking responsibility was posed they have started to attach more and more importance to
the corporate social responsibility. The customers‘ expectations in terms of quality
products and environment protection by manufacturers have increased. The same
customers are now interested in both social responsibility and ethical values promoted by
the companies.
Social responsibility of the enterprise is a term that makes reference to the complex
of obligations and commitments, legal and ethical, both national and international, which
derive from the impact that the activity occurs in social organizations labor, the
environment and human rights . The same shape as a half-century ago when he developed
business enterprises without taking into account marketing or four decades ago when the
quality was not one of the primary goals of the enterprise, today enterprises are
increasingly aware of the need for incorporation social concerns, laboratory and human
rights as part of business strategy.

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Valahian Journal of Economic Studies

Social responsibility accounting as a main component of the social accounting

The traditional accounting needs to change and a consequence of these new


requirements. Each and every of these new information helps us identify other branches of
social accounting: social responsibility accounting, human resources accounting.
Social responsibility accounting includes environmental accounting and ethical
accounting.
Social
Responsibility Environmental
Accounting Accounting

Social
Accounting
Ethical
Accounting

Human
Resources
Accounting

(Source: own elaboration)

Environmental accounting targets to quantify all natural capital resources


destroyed or compromised in the production process or to assess the way good and
services are utilized.
The environmental accounting has the following major objectives:
 Acknowledge and discover the negative environmental effects in the
conservative accounting practice;
 Separately identify the costs and effects of the environment within the
conservative accounting systems;
 Develop new forms of measurement, development and assessment;
 Develop new financial accounting and accountability systems, informational
and controlling systems to allow taking advantages of the environmental benefits triggered
by administrative decisions;
 Be proactive in terms of acknowledging the environmental effects existing in
the conservative accounting practice.
Ethical accounting refers to ethical information, to the organization‘s ethical
values, and comprises data regarding behavior in terms of consumer and community
protection, monetary or service sponsorships granted to sports centers or non-profit
organizations, policies and public relations, charity activities and donations, events
granting equal chances, donations of equipment and know-how, etc.
Enterprises or organizations in general, no matter their size, must become more
sensitive and more involved in social issues. Benefits for the enterprise arising from
philanthropy, responsibility and citizenship that are the group least two categories:

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Volume 1 (15)  Issue 1  2010

1. Benefits to the staff:

 From the perspective of staff: for example, attracting qualified personnel


from among people with civic spirit, which will be of interest to the company, if its
avalues coincide with the personal ones, or access to previously unused resources (e.g.
programs developed for students or students);
 From the perspective of team cohesion: for example, work together in other
conditions than the office, communication between departments which have not very close
connections during everyday activities, results similar to the activities of team-building;
 From the perspective of the organizational climate and morale of employees:
for example, leaving the routine, providing emotional satisfaction in a stressful or difficult
for the company;
 From staff qualification: for example, to acquire other competent
interpersonal especially through volunteering, broadening the scope of experience in the
field of activity, by exposure to different situations etc.
To avoid any confusion on vacation primes it should be anticipated clarified for
the increase of them. You can even explain the usual procedures: how they‘re calling when
you‘re sick, how to use fax or copier; what to do in an emergency etc. Also, it should be
explained what is the company policy regarding awards, orders or promotion. Essentially,
these explanations reason is to adapt the new employee of the company.

2. Benefits to the financial-economic context

- Tax benefits: low taxes, deductions, facilities


- Keeping the step with the competition
- Improving the company image, with all its economic consequences
- Increasing the visibility of company: for example through media coverage, etc.
with street signs
- Increase product visibility, and sometimes its capacity of being sold: for example,
community marketing initiatives that enable it to provide the consumer an emotional
satisfaction, not only a good material
- Consumer preference for socially responsible products companies: the classical
example of preference for cosmetics that have not been tested on animals, or boycotted
firms shoes and clothing which, while respecting local law, exploited child labor and adult
workers in poor conditions.
One of the institutions researching the field of social accounting is ISEA (Institute
of Social and Ethical Accountability) founded in 1996 in Great Britain with the purpose
of consolidating the social accountability and the ethical behavior in the business and non-
profit organizations sector. ISEA issued standards on social accounting and introduced the
Accountability Standard 1000 (AA 1000) in 1999.
Nevertheless, the most relevant standard on social accounting is SA8000
developed by CEPAA (Council of Economic Priorities Accreditation Agency – USA)
currently known as Social Accountability International (SAI).
The SA 8000 standard is an internationally auditable performance standard relying
on International Labor Organization Conventions, on the Human Rights Declaration and
the UNO Convention on child‘s rights. The management system of social accounting can
be developed so as to integrate part of the other management systems: quality (ISO

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Valahian Journal of Economic Studies

9001:2000), environment (ISO 14001:2004), health and workforce security (OHSAS


18001:1999).
SA 8000:2001 can apply in all and any organizations which wants to:
 Measure the companies‘ performance in eight key areas: child‘s work, forced
work, occupational work and security, free association in collective
associations, discrimination, disciplinary practices, working hours,
remunerations;
 Investigate and solve the employees‘ or the parties‘ problems, as well as take
some actions with a with to correct them;
 Elaborate a health and occupational security management system to eliminate
or minimize the risks of employees or other parties who might be exposed to
health and occupational security-related risks associated with their activities;
 Implement, maintain and improve, on a permanent basis, a social
accountability management system;
 Make sure this system complies with the company‘s policy in terms of social
accountability;
 Prove this compliance to others;
 Try to get certification/confirmation of its social accountability management
system by an external organization.
Improvement of company image and efficient management of its personnel are
fundamental elements to cope with the competition on the market; due to this reason, the
European Union included on its agenda the distribution of Social Balance and the SA 8000
standard.
As ISO 9000 and ISO 14000, standards on management systems and
environmental quality that is based, the standard SA 8000 is designed for independent
evaluation and certification by a third party - certification organism.
SA 8000 is a consensual standard that specifies minimum requirements and
include definitions in the following areas:
 Child Labor: minimum age, youth workers, school attendance, child labor;
 Forced labor: not permitted;
 Health and Safety: work environment healthy and safe, prevent accidents and
injury, and refresher training;
 Freedom of association and right to collective bargaining: right respected
by management;
 Disciplinary Practices: corporal or mental punishment, physical coercion and
verbal abuse are not allowed;
 Work Program: In accordance with the law, no more than 60 hours per week,
overtime on a voluntary basis, at least one day off in seven;
 Compensation: fulfilling basic needs, benefits, deductions;
 Management systems: In the public management policies implemented in
accordance with applicable laws and other requirements provided by the
public, management review, the company, planning and implementation of
controls; concerns and corrective actions; external communications.
Grouping such data includes ethical, social, environmental and ecological
information and can take more names: company‘s social information, corporate social
responsibility accounting /information, social basis information, social accounting, etc.
In case of social accounting, we can identify the following principles:

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 Balance between the quality and quantity ratios;


 Multi-perspective: values all opinions expressed by people or groups
important to the organization;
 Comprehensive: must include all social activities of the organization;
 Credibility: records facts, keeps track of social events corroborated by the
audit;
 Comparability: can constitute a basis for comparison in time and with other
organizations within the same branch;
 Reporting: can be easily provided to the shareholders or other parties
involved;
 Transparency: accurately shows successes and failures;
 Continuity: on a yearly basis or at certain periods.
An organization may use social accounting owing to following reasons:
 To prove the benefits the man, the community and the environment have due
to the company‘s social activities;
 To accurately and honestly report on all successes of the company;
 To prove the capital suppliers that the organization has had successes other
than the one of surviving;
 To prove the positive effects of work and efforts made by the personnel;
 To offer information, other than financial ones, so as to prove that the
organization is different from others;
 To help an organization efficiently supervise and manage so as to improve its
performance;
 To acknowledge the quality standards;
To motivate a more opened and honest internal and external assessment.

Social accounting auditing system

Darlison (2007) establishes three steps to implement a system of social accounting


and auditing:
 Step One - Planning: Clarify the mission, objectives and activities and
outcomes of the social enterprise or organisation as well as its underpinning values.
Identify and analyse the stakeholders. These exercises are the foundations for the social
accounting framework and reveal the essence of the organisation – what it does, why and
how it does it and who it works with and for.
 Step Two - Accounting: Decide the scope of the social accounting process –
what the Social Accounts will focus on and when. Set up social bookkeeping systems that
collect relevant information (e.g. indicators) over a period of time that enables the social
enterprise or organisation to report on its performance against its values and its objectives.
The bookkeeping systems will collect quantitative data and qualitative information and will
involve consulting stakeholders using a number of consultative tools. The information will
be compiled and analysed and feed into the ongoing management of the organisation.
 Step Three - Reporting and Audit: Bring all the quantitative and qualitative
information together and interpret it in the draft Social Accounts. These are then audited by
a panel of impartial people who verify that the report is based on information which has
been properly gathered and interpreted and is therefore a fair and honest reflection of what
has happened in the organisation during the accounting period. The panel, when satisfied,
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Valahian Journal of Economic Studies

will issue a Social Audit Statement. The approved Social Report is then made publicly
available and the organisation may want to make a summary version to inform its
stakeholders.
Today, social responsibility facing organizations in Romania and throughout the
world claims the necessity of developing and presenting information on activities related to
social environment. We still have a minister of corporate social responsibility, as there are
in Britain, but this concept has started to head a very big importance among large
companies.

Conclusions

Accounting, as informational means, must offer information to different users of


accurate information. Amongst these users, we can think of the society, in general terms,
which is directly interested in knowing the social repercussions of the organization‘s
activities. The social accounting information are meant not only to meet the society‘s
requirements but also to make their contribute on to creation of value inside the
organization showing the extent to which the company is socially responsible and
contributing to creation of intangible assets. Accounting intangible assets is not an easy
process, due to both assessment difficulties and by viability in the accounting process,
given the current legislation. Going beyond this issue of accounting for intangible assets,
the organization must provide shareholders, customers, public administration
representatives and the society, in general, with information on corporate social
responsibility by its branches: the human resources, the environment and the social and
ethical actions taken by the organization.

References

Báidez, A., Tejada, A., Rojas, J.A. - Los estados financieros como portadores de
información medioambiental, Seminario de contabilidad – La Habana, 1999
Cucoli, C. - Responsabilitatea sociala a corporatiilor, 2004 in:
http://www.hr-romania.ro/comunitate/articole/cariera/responsabilitatea-sociala-a-
corporatiilor.html
Darlison, L. - Social Auditing & Accounting, National respite and social support
conference, 2007, in
http://www.interchangensw.com.au/conference2007/auditingaccounting.html
Inchicaqui, M. D. - La Contabilidad Social - Origen y Paradigmas, Colección digital de
revistas, 2003 in: http://sisbib.unmsm.edu.pe
Pay, C. - Social accounting: a method for assessing the impact of enterprise development
activities, EDIAIS/Traidcraft exchange, 2001
SAN Social Audit NetworK: Social Accounting and Audit: a framework for social,
environmental and economic (SEE) reporting in:
http://socialauditnetwork.org.uk/CD2%20for%20info%20sheet.pdf

42
Volume 1 (15)  Issue 1  2010

Credit Policy and the Management of the Banking System in the


EU Countries during the Financial Crisis
Magdalena RĂDULESCU
University of Piteşti
magdalenaradulescu@yahoo.com

Abstract
The sharp deceleration of credit growth to the private sector in the EU, after half a
decade of exuberance, will inevitably squeeze households and enterprises and can only
aggravate the worsening recession. The region experienced very rapid credit growth in
recent years, which was generally viewed positively as supporting rapid convergence to
the but at the same time it contributed to the emergence of sizable macroeconomic and
financial vulnerabilities. European Governments should use monetary and fiscal policy
and not only in order to stimulate domestic non-governmental credit growth because it is
crucial for the recovery of the European economies. Within emerging markets, eastern
European economies have been the hardest hit. The linkages between western Europe and
emerging European banking systems make the region particularly vulnerable. The paper
tries to present some financial policy measures regarding banking sector for stimulating
credit growth in the Europe and especially, in the Central and Eastern European
Countries.

Keywords: financial crisis, European emerging economies, credit policy,


banking sector

JEL Classification: E58, E61, G01, G12, G21, O23

1. Introduction

Within emerging markets, eastern European economies have been the hardest hit.
The linkages between western Europe and emerging European banking systems make the
region particularly vulnerable. Western European banks may reduce the funding of their
eastern European subsidiaries and losses from emerging Europe may damage western
European balance sheets. Fortunately, there are promising regional initiatives in which
some western banks have agreed to keep credit flowing to the subsidiaries.
The financial turmoil has undoubtedly reached Eastern Europe. As a result,
currently there is extreme uncertainty in the New Member States regarding the future
course of such fundamental things as financial intermediation, credit growth, the exchange
rate and real convergence in general. These are all very important factors that have to be
taken into account when making a decision on the euro strategy or indeed on ERM II entry
itself. It is therefore worth waiting with setting out very specific euro adoption plans for
Hungary until the dust settles at least a little bit [Debrun & Bikas, 2008]. In the meantime,
the Slovakian experience with the euro, starting next year but showing its implications

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Valahian Journal of Economic Studies

already in the recent unfolding of the crisis, will provide a good natural experiment for the
other New Member States, and will no doubt be closely watched.
The decline in bank lending activity may continue. On the demand side, there has
been a fall in debtors‘ willingness to borrow in response to the continued deterioration in
the outlook for business activity. On the supply side, banks‘ lower appetite to take risk has
led to a decline in lending activity. In addition, the domestic financial sector has been
forced to reduce its dependence on foreign funding, which may also lead to a curtailment
of lending. The tightening of credit standards has been another factor contributing to a
decline in lending. That, in turn, may result in reduced household consumption as well as
in lower corporate investment and production.
Section 2 shows some policy implications for European countries both developed
or emerging ones; Section 3 underline the crisis management in the banking sector and
Section 4 concludes the paper.

2. Policy implications for European countries. Which policy can help the
emerging countries?

A number of major banks in the United States and Europe were provided with
public support in the form of new capital and guarantees against losses from holdings of
problem assets. More broadly, authorities have followed multifaceted strategies involving
continued provision of liquidity and extended guarantees of bank liabilities to alleviate
funding pressures, making available public funds for bank recapitalization, and announcing
programs to deal with distressed assets. However, policy announcements have often been
short on detail and have not convinced markets; cross-border coordination of initiatives has
been lacking, resulting in undesirable spillovers; and progress in alleviating uncertainty
related to distressed assets has been limited [Frank & Hesse, 2009].
At the same time, with inflation concerns dwindling and risks to the outlook
deepening, central banks have used a range of conventional and unconventional policy
tools to support the economy and ease credit market conditions. Policy rates have been cut
sharply, bringing them to ½ percent or less in some countries (Canada, Japan, United
Kingdom, United States) and to unprecedented lows in other cases (including the euro
area and Sweden). However, the impact of rate cuts has been limited by credit market
disruptions, and the zero bound has constrained central bankers‘ ability to add further
stimulus. Some central banks (notably, in Japan, United Kingdom, United States) have
therefore increased purchases of long-term government securities and provided direct
support to illiquid credit markets by providing funding and guarantees to intermediaries in
targeted markets, with some success in bringing down spreads in specific market segments
such as the U.S. commercial paper and residential mortgage- backed securities markets. As
a result, central bank balance sheets have expanded rapidly as central banks have become
major intermediaries in the credit process. Nevertheless, overall credit growth to the
private sector has dropped sharply, reflecting a combination of tighter bank lending
standards, securities market disruptions, and lower credit demand as economic prospects
have darkened.
As concerns about the extent of the downturn and the limits to monetary policy
have mounted, governments have also turned to fiscal policy to support demand. Beyond
letting automatic stabilizers work, large discretionary stimulus packages have been
introduced in most advanced economies, notably Germany, Japan, Korea, the United
Kingdom, and the United States [Jickling, 2009].
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Volume 1 (15)  Issue 1  2010

Facing financing difficulties, a number of countries have undertaken adjustment


programs supported by financial assistance from the IMF (Belarus, Hungary, Iceland,
Latvia, Romania, Serbia, and Ukraine, as of April, 2009) and other bilateral and
multilateral sources, including the EU through its balance of payments facility for non-
euro-area EU members. Poland has requested access to the IMF‘s new Financial Credit
Line (FCL) to bolster international confidence. While the global financial crisis was a
common trigger, country-specific factors proved to be a key catalyst. Thus, the design of
adjustment programs had to focus on country specific circumstances. To varying degrees,
measures to shore up the financial system were a crucial element of all programs.
Similarly, constraints on available financing and the need to establish confidence in
policies made fiscal adjustment essential. In some cases it also helped curb demand to
underpin competitiveness-enhancing relative price changes. Advice on monetary and
exchange rate policy differed, reflecting authorities‘ preferences and the need to mitigate
contagion [IMF, 2009a].
Responding to pressure on capital flows, interest rates rose in most countries with
fixed exchange rates. Countries with flexible exchange rates initially tightened monetary
policy but with the intent to unwind such tightening as conditions improved (as, in
Hungary and Iceland). Even so, interest rate differentials widened following the sharp
reduction in policy rates in most advanced economies. Belarus devalued its currency and
switched the peg to a basket of currencies to improve competitiveness and reduce its
vulnerability to external shocks; Latvia, meanwhile, kept its peg in line with its preference
for retaining an exchange rate anchor, while improving competitiveness through
adjustments in wages and productivity instead [Cihák & Fonteyne, 2009].
In recent years developing economies have enjoyed their strongest and most
sustained growth in several decades. Developing country imports have risen to become two
thirds as large as those of OECD countries while their recent contribution to overall growth
in world trade has exceeded that of the OECD by a wide margin [IMF, 2009b]. Some
economies (including several in Europe and Central Asia) are experiencing large current
account deficits that have been financed by cross-border bank lending, rendering them
vulnerable to a sudden reversal in global private capital flows. Balance of payments
pressures have increased more generally in oil-importing economies. Fiscal pressures are
rising in economies that have tried to shield consumers through increases in energy and
food subsidies, or other fiscal means.
Although from an efficiency standpoint it is best to let higher world commodity
prices feed through to domestic prices, monetary policy should be on alert to prevent a rise
in underlying domestic inflation expectations (while protecting the most vulnerable social
groups, for example through cash transfer schemes). A number of economies have already
tightened monetary policy. The fall in the U.S. dollar has also put in question the exchange
rate peg in many economies and greater flexibility is clearly appropriate in a number.
However, some developing countries fear the potential for a disruptive upward surge in the
exchange rate just when export markets may be slowing or entering recession. Such a
shock, they fear, could temporarily stall growth in economies that are, at present, among
the only remaining dynamic segments of the world economy. Given that a significant
determinant of poverty is limited access to finance, public banking can thereby permit
financial inclusion.
In some countries, mandates for lending to underserved segments have played an
important role, and have, in the long term, even proven profitable. Apart from
implementing direct public banking, countries should encourage the availability of banking

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Valahian Journal of Economic Studies

services to the un-banked and insurance to the un-insured. This could include a direct
subsidy to offset the credit monitoring costs of dealing with small loans, or through
mandating lending to certain groups such as the US Community Reinvestment Act
requirements.
Lending to the real estate sector can have a number of social benefits, but it is also
a common source of excessive lending and asset market bubbles. Consequently, limits to
real-estate-related lending such as loan-to-value limits on mortgage lending should be
instituted. These limits should be time-variant, rising in a boom and falling in a crash.
Restricting lending, to the real estate sector, may also be an important instrument in
encouraging lending to other sectors. Such restrictions may both enhance stability and
development. Negative and positive ―priority‖ lending may be most effective when broad
based, leaving the private sector with the strongest incentives to find the best commercial
opportunities within those constraints.
Incentives may be an important part of helping direct lending to areas where social
returns might exceed private returns, such as micro-credit, small and medium enterprises
and rural-sector lending. Similarly, there should be measures to restrain socially damaging
activity. In some banking systems, a large proportion of bank investments are in
government paper. A number of reasons may be behind this, including the regulation of
deposit and lending rates or crowding out of private enterprise by large government
deficits rates.
Governments should be encouraged to explore various mechanisms by which the
banking system could be used to facilitate productive activity. One arrangement, for
example, may be to accept savings directly by the government through a network of post
offices to reduce the spread between the bank deposit rate and interest charged by banks to
government paper.

3. Crisis management in the banking sector

3.1. Deposit insurance/guarantees on new bank debt

The US, European and other developed country governments have provided
extensive assurances to bank depositors and creditors (and, in a few cases, non-bank
financial institutions such as mutual funds) prompted by systemic stability and (in a few
cases) competitive concerns. Some of these arrangements include blanket guarantees on
deposits and guarantees on new debt issues. The scale of these arrangements has no
historic parallel and constitutes a paradigm shift.
Some developed countries have announced that the guarantees on new debt issues
will be extended for 18-36 months, but these arrangements may have to be maintained
until financial stability is consolidated and credit flows resume on sustained basis, which
may take longer in some cases. Some emerging countries are matching these arrangements
in order to prevent capital outflows or a shift of deposits to state-owned banks, which are
perceived to be safer. The state guarantee backing these arrangements may not be credible
in countries where the state is already saddled with a large debt and the banking system is
large.
The introduction of special arrangements by emerging countries may be inevitable,
but policy-makers should be advised to proceed gradually. Thus, in addition to liquidity
support, policy-makers may consider raising ceilings and eliminating co-insurance, before
extending blanket guarantees on deposits and debt. For example, Hungary has introduced
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Volume 1 (15)  Issue 1  2010

blanket guarantees, but other neighboring countries (Czech Republic, Poland, Slovakia)
have not yet found it necessary to do so.

Table 1.
Banking deposits Insurance Scheme in EU

(Source: IMF, 2009a: 47.)

In order to address moral hazard and reduce the incentives for excessive
borrowing, it is important to ensure that any guarantees are properly priced. The UK
approach of charging 50 basis points for the new debt guarantees merits consideration. The
guarantees should be introduced in conjunction with credible policy measures to clean up
the banking system, and should be phased out as stability returns.
Some countries have also imposed deposit freezes in crises situations, but this
measure may have long lasting negative effects on the domestic banking system, if it is not
removed promptly and accompanied by a credible reform package. The freezing of
deposits in Argentina in 2001 was one of the factors contributing to the poor deposit
mobilization in the following years (as indicated by the declining ratio of bank deposits to
GDP).
Some of the recent changes to the design of deposit insurance may become
permanent. For example, regulators may find it hard to lower insurance ceilings to the
levels prevailing before the reform.
The coordination of crisis management measures has improved as time passed and
as the EU institutions sought to limit competitive distortions; however, further
improvements are needed. In October 2008, European finance ministers agreed that it
would be desirable to harmonize deposit protection to the €50,000–100,000 range, with a
€50,000 minimum. However, a number of countries remain above this range (see Table 1).
These differences create incentives for potentially destabilizing outflows.
Combined with the existing topping-up option, it allows banks with branches in several
countries to offer better deposit guarantees in some countries than in others (or than their

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Valahian Journal of Economic Studies

competitors). Improved coordination would require establishing not only a minimum, but
also a clearer agreement on a maximum level of deposit guarantee coverage, defined to
include both official schemes and de facto protection of creditors. A uniform coverage
level might in principle be even better. However, this may not be optimal if policymakers
in individual countries have different preferences regarding the profitability and stability of
the banking sector. In addition, individual countries‘ deposit guarantee schemes are still
very diverse with respect to other basic parameters, such as the type of financing and the
determination of premiums, and no clear consensus is in sight.

3.2. Bank restructuring and asset resolution schemes

The US, UK, Switzerland and other European countries have initiated programs
to address bank illiquidity and insolvency. These programs involve a combination of sales
of distressed and illiquid assets and equity injections by the government. There has been an
increasing preference for the latter measure, in many cases through the issue of preferential
shares [IMF, 2009b].
These measures will result in substantial state participation in many banks in these
countries. The impact on incentive structures, risk profiles, and performance will vary
across countries and institutions. Government exit plans are generally defined in only a
handful of programs. Governments will probably try to divest their shares as soon as the
conditions allow, but this may take several years in many cases.
Participation in these programs involves conditions on management compensation
and profit distribution. Some countries like the UK and the Netherlands have also
introduced special governance arrangements during this period, including board
representation, while others like the US intend to remain passive investors.
This reflects different responses to the dilemma of penalizing existing shareholders
and management versus avoiding political interference in bank operations. These
experiences will be closely scrutinized by other countries.
Emerging countries facing a similar situation may want to signal from the outset
that state participation in private banks would be transitory, and that state shares would be
divested as soon as the conditions allow. It would be important to stress the objectives of
the program, which are to restore not only stability but also efficiency in financial
intermediation. Policy-makers should be aware of the options for governing banks in the
transitional period. Sweden created an autonomous agency operating under transparent
rules (the Bank Support Authority). This is an attractive option, preferable to bank
restructuring units inside the Ministry of Finance or the Central Bank, as it isolates the unit
from political interference, and does not create a conflict with bank supervision.
Most large scale bank restructuring programs include two major components: asset
sales/bank recapitalization and the resolution of problem assets. There are different
approaches for resolving problem assets, independently of the approach adopted to restore
bank solvency and liquidity. In some countries the government carved out the bad loans
from balance sheets, but signed a management contract with the originating banks to
recover the loans. Other countries have adopted decentralized good bank/bad bank
approaches, which typically entail the transfer of bad assets to bank subsidiaries. In other
countries the resolution of problem assets is handled by a central agency, which typically
pools all the individual loans by type of debt, borrower, and sector, and re-sells them (or
the underlying collateral) to investors.

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Volume 1 (15)  Issue 1  2010

Many emerging countries had to face large scale restructurings and workouts in the
1990s and are familiar with these issues. However, a review of the current arrangements
and the experience of past crises resolutions could prove useful to several countries.

4. Conclusions

The current recessions are also highly synchronized, further dampening prospects
for a normal recovery. In particular, the rapid drop in consumption in the United States
represents a large decline in external demand for many other economies.
Hence, it is unlikely that overleveraged economies will be able to bounce back
quickly via strong growth in domestic private demand—fundamentally, a prolonged period
of above average saving is required. In many previous cases of banking system stress, net
exports led the recovery, facilitated by robust demand from the United States and by
exchange rate depreciations or devaluations. But that option will not be available to all
economies currently in recession, given the extent of the downturn.
Given the likely shortfalls in both domestic private demand and external demand,
policy must be used to arrest the cycle of falling demand, asset prices, and credit.
Monetary policy has been loosened quickly in most advanced economies, much more so
than in previous recessions, and extraordinary measures have been taken to provide
liquidity to markets. Further effective easing is possible, even as nominal interest rates
approach zero.
However, evidence from this paper indicates that interest rate cuts are likely to
have less of an impact during a financial crisis. In view of the continued distress in the
financial sector, authorities should not rely solely on standard policy measures.
The analysis in this paper shows that fiscal policy can make a significant
contribution to reducing the duration and effects of recessions associated with financial
crises. In effect, governments can break the negative feedback between the real economy
and financial conditions by acting as ―spender of last resort.‖ But this presupposes that
public stimulus can be delivered quickly.
Moreover, the sustainability of the eventual debt burden constrains the scope of
expansionary fiscal policy, and it will not be possible to support demand for an extended
period in economies that have entered recession with weak fiscal balances and large levels
of public debt. In the event of severe and prolonged recessions during which deflation is an
important risk, fiscal and monetary policies should be tightly coordinated to contain
downward demand pressures. Furthermore, given the globally synchronized nature of the
current recession, fiscal stimulus should be provided by a broad range of countries with
fiscal room to do so, so as to maximize the short-term impact on credit and so, on global
economic activity.
Restoring the health of the financial sector is an essential component of any policy
package. Experiences with previous financial crises—especially those involving
deleveraging, such as in Japan in the 1990s—strongly signal that coherent and
comprehensive action to restore financial institutions‘ balance sheets, and to remove
uncertainty about funding, is required before a recovery will be feasible. Even then,
recovery is likely to be slow and relatively weak. So, the governments should involve in
the financial sector management by granting guarantees, by applying banks capitalization
schemes and by enforcing micro and macro-regulation of this sector.
Since the beginning of this decade, external factors (a prolonged period of low
nominal and real interest rates driven by a global savings glut) and domestic factors

49
Valahian Journal of Economic Studies

(capital account liberalization, financial sector reforms and EU accession) combined to


spur large capital inflows into the EU10 countries. Home country regulators may create
further tensions by forcing parent banks to build liquidity and, via asymmetries in the
scope of regulation and supervision which are conducted largely nationally, the business
practice of integrated cross-border financial institutions. In light of ongoing uncertainty
about the size of the downturn and the quality of bank assets, markets are exerting pressure
on banks to improve their risk profile and build up capital buffers.

References

Cihák, M., Fonteyne W. (2009) ―Losing their halo‖, Finance & Development, June: p. 12-
14.
Debrun, X., Bikas J. (2008) ―Credibility Effects of Numerical Fiscal Rules: An Empirical
Investigation,‖ Hungary: Selected Issues, IMF Country Report, no. 314: p.125-130.
Frank N., Hesse H. (2009) “Financial Spillovers to Emerging Markets During the Global
Financial Crisis‖, IMF Working Paper, no.104: p.14-17.
IMF (2009a) ―Regional Economic Outlook – Europe addressing the crisis‖, May.
IMF (2009b) ―World Economic Outlook – Crisis and recovery‖, April.
Jickling, M. (2009) ―Causes of the Financial Crisis”, Congressional Research Service
Papers, January: p.34-36.

50
Volume 1 (15)  Issue 1  2010

Implementation of Total Quality Management: A Case Study


Yahia Berrouiguet ABDELKRIM
Mostefa BELMOKADEM
University of Tlemcen, Algeria
ab_berrouiguet@yahoo.fr

Abstract
Many firms in the world adopt Total Quality Management (TQM) in order to
achieve competitive advantage.
In Algeria, TQM is still a new issue for the organizations. This study clarifies the
requirements or factors to which TQM is being successfully implemented. It also examines
the presence of TQM success factors in the company of electronics industry (ENIE) in
order to identify wither this firm has the capability or ability to absorb TQM.
Results indicated that the firm’s current quality management practises showed that
the awareness and understanding of TQM was at a very low level and TQM success
factors were not well known and practiced. This Firm only uses some technical tools of
TQM. The weaknesses of the firm’s TQM implementation provide opportunities for the
firm to improve its quality management practises.

Keywords: Total quality management, Developing country, TQM critical factors,


TQM implementation, organisational change

JEL Classification : M14

Introduction

Today, total quality management (TQM) is recognized as one of the most


important innovations of modern management (Noronha, C, 2002).
Total quality management focuses on meeting the wants, needs and satisfaction of
customers through improved processes, products, services and employees in the entire
organization. Investments in TQM are acknowledged as a requisite to organizational
competitiveness and success. TQM is widely accepted as being essential to organisational
survival.
The TQM system, in spite of its advantages, remains not widely known for the
major developing countries including Algeria. There are radical change taking place in
Algeria, and TQM is considered to be the ideal way to bring out these changes. (Zairi,
1996) proposed it as a promising philosophy for organisations to adress the challenging
problems they face.
Despite the number of publications and amount of research into TQM, little studies
has been carried out in developing countries .This is particularly true in the African
countries and Algeria specifically. This study aims to examine the presence of TQM
success factors in the company of electronics industry (ENIE) in order to identify wither

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Valahian Journal of Economic Studies

this firm has the capability to implement TQM in order to recognise the problems faced
and to suggest a way forward.

Literature review and Methodology

Total Quality Management concept

Total quality management (TQM) has been the subject of discussion and interest
among management academics for many years (Sila, S, 2000). After a literature review on
TQM, we find that in spite of several attempts to define the TQM concept, no universally
accepted TQM definition exist, and we can observe that there are three tendencies in the
definition of TQM:
 The first tendency rests on the customer satisfaction (e.g., Foster,M and
Whittle, S, 1989; Drummond , H,1992; Spitzer,R.D , 1993; Corrigan ,J.P,1995).
 Second rests on the results like the increase in productivity, profitability,
market share ( e.g., Jablonski ,J.R,1991; Brocka,B and Broka ,M,S, 1992; Dobbins, R.
D,1995 ; Hines,W.H,1998).
 The last one rests on the use of scientific tools to improve company
performance ( e.g., Department of defense , Federal Quality Institute in Lam , K.D , Frank
,D.W, Stephen R.S, 1991; Ryan.B, 1995) .
We propose the following definition:
―Total Quality Management is an approach of management centred on the
satisfaction of the customers and all the personnel and the society, it implies the
participation of people at all levels of the organization to the continuous improvement of
its processes, products and services by using the scientist tools for the long-term success‖.
TQM has several aspects as shown in the figure 1:
Figure 1.
TQM aspects

Critical factors of TQM

TQM implementation history includes many success and failure stories of the
firms adopting TQM. Literature proposes lists of requirements to which TQM is being
successfully implemented. (Saraph, J., Benson , P and Schroeder , R, 1989; Flynn , B.,
Schoeder, R. and Sakibaba , S., 1994 ; Black , S and Porter , L 1996 ; Zeitz , G,
Johannesson, R. and Ritchie, J.E 1997 ) .

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Volume 1 (15)  Issue 1  2010

Table 1 provides a comparative analysis of TQM requirements:

Table 1.
Comparative list of TQM requirements
SARAPH ET AL FLYNN ET AL BLACK AND ZEITZ ET AL
PORTER
Top management Top management Strategic quality Top management
leadership. support. management and support.
corporate quality
culture.
Product / service Product design External interface Supplier relationship.
design. processes. management.
Use of data.
Supplier quality Supplier relationship. Supplier partnerships.
management.
Process management. Quality improvement Employee
Process management. measurement system. suggestions.
Communication of
Quality information. improvement
Quality data and information Employee
reporting. Workforce People and customer improvements.
management. management
Employee relations. Supervision
Training. Customer Customer satisfaction
relationship. orientation.
Role of quality Customers
department.

Through a judgment process of grouping similar TQM requirements, we propose


list of ten elements:
 Top management commitment to TQM program.
 Customer focus.
 Change in the work environment and the culture of the company.
 Measure of quality and productivity performance.
 Effective management of human resources.
 Continuous training.
 Effective leadership for the success of TQM.
 Participation of all the employees to the improvements efforts.
 Supplier partnerships.
 Establishment of an information system for total quality.

Methodology

TQM is still a new issue for the organizations in Algeria .The purpose of this study
is to identify in depth wither the Algerian firm has the capability to implement TQM in
order to recognise the problems faced and to suggest a way forward.
The case study method has its strength in its ability to deal with a full variety of
evidence such as artifacts, documents, interviews, and observations (Yin, 1989).Various
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Valahian Journal of Economic Studies

companies were approached and assessed for inclusion as a case study .It was decided to
choose ENIE for several reasons .First, ENIE is one of the most important industrial firms
in Algeria , its market share ranked first .Second , before the introduction of the market
economy in Algeria in the 1990‘s came increased competition and electronics
manufacturers came under pressure to improve quality .Based on the firm reports ,ENIE
had experienced a significant loss of competitiveness and the underlying ENIE‘s weak
competitiveness was the traditional management practises , TQM can improve its
competitiveness .Third , top managers of the firm were committed to providing support for
the researcher to conduct the case study in the firm , and trying to implement the
recommendations of the research . In this study, we used interviews with general
managers, functional managers and quality managers, we took into consideration
documents supplied by the company and direct observation through plants visits. The
purpose was to obtain qualitative data that could be used to analyze the case of ENIE.

Brief presentation of ENIE

ENIE was founded in October 23, 1982 after the reconstruction of the national
company of production and electronic assembly SONELEC.
In March 6, 1989, it became a national company by share ENIE – SPA. Its
headquarter is at Sidi Bel Abbes .It employs 3585 personnel and It is specialized in the
production of the electronic apparatuses and parts: television sets, DVD players, video tape
recorders, hi-fi systems, active and passive components, in addition the assembly of
microcomputers. Its market share ranked first in Algeria.

Results

We have investigated the presence of the ten requirements or factors of TQM


implementation cited above in ENIE, and we find the following results:
 First factor: top management commitment: for top managers TQM is hazy and
ambiguous system, so they do not take a risk to implement it; some leaders consider that
TQM is just a fashion; absence of a vision about the future of the company and how to face
competition; the reflexion of leaders is in short-term.
Taking into account what precedes the company does not meet this factor.
 Second factor: customer focus: the company lays out only of one unit of
marketing for electronics general public department and does not have the necessary
means to make satisfaction and market research of the customers; the relation which exists
between the company and the customer after the sale consists of it complaints; there is no
encouragement of the workers who have a direct contact with the customers to listen to
their concerns; the company loses a share of its market but neglects the causes; the
directors encourage independence between the departments of the company.
Taking into account what precedes the company does not meet this factor.
 Third factor: work environment and the culture of the company
The top management believes that the creation of a quality culture can be reached
by a slogans, and that creation will not exceed some months, and this what we have
noted through plants visits, we see large panels written to it below "quality is the
responsibility of the workers, drive out the bad quality".
Taking into account what precedes the company does not meet this factor.

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Volume 1 (15)  Issue 1  2010

 Fourth factor: performance measure: the signal directors do not perceive that
the performance measure is essential for the improvement; the output norms and quality
are rigid and slow down the improvement; the routine reigns on the measure process; the
goal of measure process is the development of the reports/ratios and not the improvement
of the results; the results of measurement are employed in the reward and the punishment
of the workers; many employees use some TQM tools.
Taking into account what precedes the company does not meet this factor.
 Fifth factor: effective management of human resources: incapacity to manage
the excessive numbers of staff; the workers are afraid of dismissal, therefore the absence of
the job security; the directors believe that the priority must be given to the investment in
the machines rather the human resource.
Taking into account what precedes the company does not meet this factor.
 Sixth factor: continuous training: the company has given up it training centre,
which ensured the training of all its employees; continuous training is not a concern for the
leaders; training is done in the short-term; there is no encouragement of the employees to
continue their education; the company library contains only old books; the budget of
training is very limited.
Taking into account what precedes the company does not meet this factor.
 Seventh factor: leadership: the leaders encourage the external motivations like
the wages, promotion…, and do not seek to develop the internal motivations like self-
realization, team spirit, etc.; the power of the directors comes from their hierarchical
position and they bind the others to adapt with the change.
Taking into account what precedes the company does not meet this factor.
 Eighth factor: participation of all the employees: the leaders ignored the total
capacity of the employees to propose improvements; existence of rigid procedures, which
slow down the proposals of the employees; the leaders do not diffuse their plans; The
subordinates cannot criticize their superiors because they are afraid of punishment.
Taking into account what precedes the company does not meet this factor.
 Ninth factor: Supplier partnerships: quality is not the main criterion for
choosing suppliers; suppliers are not involved in development of new products.
Taking into account what precedes the company does not meet this factor.
 Tenth factor: information system: absence of information system for total
quality; use of software‘s unsuited needs; negligence of data security and credibility;
chronic delay in reports; the company does not implement analytic accountancy and
therefore cannot evaluate the non-conformity related cost.
Taking into account what precedes the company does not meet this factor.

Conclusion and recommendations

The implementation of TQM strategy in ENIE can increase it competitiveness and


share in the market.
This study shows that TQM is not a widely known expression in ENIE and does
not fulfil the TQM requirements, so it not easy to implement it.
Applying a TQM program needs to be a gradual process. First, managers must find
a clear vision about the future of the firm and understand TQM .specifically, programs are
needed to train managers on TQM implementation in order to create strong commitment.
Second, ENIE can implement ISO 9001 system as a first step toward TQM.

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Valahian Journal of Economic Studies

Third, ENIE needs to develop requirements for TQM implementation; the main
difficulties lie in areas relating to human resource management.
In the area of human resources, ENIE must focus on job security, work
organisation, training and worker satisfaction and involvement.

References

Black, S and Porter, L.(1996)" Identification of the critical factors of TQM" , Decision
Sciences , Vol 27 N°1 , pp 1-21.
Brocka,B and Broka ,M,S.(1992), Quality management implementation the best ideas of
masters , Homewood, IL: Business One Irwin .
Corrigan ,J.P.(1995)" The art of TQM" ,Quality Progress,Vol 28 , N° 7 ,pp 61-4.
Costa, M.M & Lorente, A.R.M.(2004)" ISO as a tool for TQM: A Spanish case study",
Quality Management Journal, Vol 11, N°4, pp20-30.
Dobbins, R.D. (1995), "A failure of methods, not philosophy", Quality Progress, Vol. 28,
N° 7, pp 31-3.
Drummond, H.(1992), The Quality Movement, London: Kogan.
Federal Quality Institute in Lam, K.D, Frank, D.W, Stephen R.S.(1991),Total Quality,
Colorado Springs, Co: Air Academy Press.
Flynn, B., Schoeder, R. and Sakibaba, S. (1994) “A framework for quality management
research and associated measurement instrument”, Journal of Operations
Management, Vol. 11, pp 339-366.
Foster, M. and Whittle, S. (1989), "The Quality Management Maze", TQM Magazine, Vol.
1, N° 3 pp 143-8.
Hines,W.H.(1998), "The stops and starts of TQM", Quality Progress, Vol 31, N° 2, pp 61-
64.
Jablonski, J.R.(1991), Implementing TQM, Amsterdam, Preiffer.
Lakhe,P.R.& Mohanty, R.P.(1994)"Total quality management concepts: Evolution and
acceptability in developing economies", International Journal of Quality &
Reliability, Vol 11 N°9, pp 19-33.
Noronha, C.(2002)" Culture – specific TQM in china: case studies for the theoretical
consideration", Asian Business & Management, 1, pp 125-145.
Ryan.B.(1995)"Naval station mayport jump-start quality" , Quality Progress, Vol 28 , N°
7 , pp 95-100.
Saraph, J., Benson, P and Schroeder, R.(1989)"An instrument for measuring the critical
factors of quality management ", Decision Sciences, Vol 20,N°1, pp 810 – 829.
Sila, S.(2000)"An investigation of the total quality management survey based research
published between 1989 and 2000", International Journal of Quality &
Reliability, Vol 19 N°7, pp 902-970.
Spitzer,R.D.(1993)"TQM:The only source of sustainable competitive advantage" ,
Quality Progress, Vol 26, N° 6 ,pp 59-64.
Yin, R.K.(1989),Case study research: Research and methods, Revised edition, Sage
Publications, London.
Zairi, M.(1996), Economic development and global competitiveness: why should Arab
managers take not of total quality management, The Fourth Arab Management
Conference, 16-18 July, University of Bradford, UK, pp 408-23.

56
Volume 1 (15)  Issue 1  2010

Role of Organizational Culture in Contemporary Firm’s Survival


Ana Lucia RISTEA
Gabriel CROITORU
Vasile CUMPĂNAŞU
Valahia University of Târgovişte
risteaanalucia46@yahoo.com

Abstract
This article aims to analyze the role of organizational culture by restoring
confidence in the values organizations where employees work. Businesses will need to
allocate more intelligence benefits and rewards for different segments of the workforce
and will be more careful when they provide substantial salary for people in leadership.
After one year, 2009, in which companies have reduced costs and focused more on
survival than the employees motivation, follows the year 2010, in which will start to worry
again attracting valuable people.

Keywords: organizational culture, organizational values, human resource

JEL Classification: M14

Introduction

Only seeing organization‘s culture in terms of its cultural components we can


understand how organizations from the same industry, similar in size, technical equipment
and degree of centralization, are still very different. There is great diversity in describing
the elements that make up organizational culture.
Reputation and organizational culture are issues more important than salary and
benefits in the battle to attract talent. The quality and reputation of products and services,
organizational culture and working atmosphere are the most important aspects that must be
taken into account by an employer who wants to attract the best professionals. Another
aspect that plays a serious role in the recruiting equation is the company's ethical
reputation. Surprisingly, wage and benefit packages left at the end of the list.
Organizational culture is one of the important concepts that have relatively
recently argued in a significant manner influenced the thinking and action researchers,
teachers and students, managers and entrepreneurs, specialists from different organizations
all across the world. This interest has grown exponentially, due to pressure coming from
inside and outside organizations, pressures that call for a better knowledge and an
expansion of competitiveness of organizations and their constituents to be able to survive
and grow in new conditions.
To meet virtually all problems encountered managers of the organizations
formulate their objectives, through the work of production and management techniques
and an extensive equipment as structures [Morin P., Delavallée E., 2000]. Thus, they create

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Valahian Journal of Economic Studies

an organization that over time, it can produce its own culture. These essential elements
such as: objectives, structure, techniques and cultures form a real system and the
interactions between these components give rise to final assembly - the organization.
From a systematic perspective, this way of addressing an organization is
determined largely by management. First, the effectiveness of all this system can be
supported by the consistency that should be established between various components of the
system and also by the performance of each of them, from a personal perspective. Giving a
particular attention to organizations and systems analysis will try to highlight the
interactions between organizational culture and activities. To better understand these
components we need analytical methods that we can allow a full analysis of both structural
and cultural components. You should find useful items and verify their relevance in
relation to specific situations faced by businesses. To test the operability of these methods
will try applying several situations encountered in the company.
Trying an approach by the two fields of study, organization and culture, it can be
made an indication of the cultural dimension of organizations and organizational context in
which are born and develop cultures of these organizations. This approach allowed the
identification of convergence between the work of organization and organizational culture
which are likely to build a model for the interpretation of specific situations. Contextual
analysis of these business situations, the models actually oppose convergence few
differences, which allowed this time to identify some conditions and the differences could
be surmounted.
The first field of exploration, organization theory, provides sociological anchoring
points. These points support come from major contributions of contemporary sociology,
namely the contributions of Henry Mintzberg, Croizer M. and E. Friedberg. This approach
can be completed with organizations‘ analysis, highlighting the interplay of variables taken
into account by each of them, this synthesis being the work result of Jean Nizet - François
Pichault [Nizet J. Pichault F., 1995]. Organizations‘ theory, by a systemic treatment of
these relations that exist between variables, shows how they can combine in the middle of
organizations.
Analyzing the three authors Henry Mintzberg, Jean Nizet and François Pichault
can identify five configurations: entrepreneur, missionary, bureaucratic adhocratic and
professional. It can be added the one that Henry Mintzberg called a hybrid.
Addressing organizational cultures in its large meaning push us on a plot of micro-
cultures. Geert Hofstede himself says: "national and organizational cultures are phenomena
of different nature; use of the term - culture - for one or the other can be misleading"
[Hofstede G and all, 1990]. This identifies a difficult epistemological problem as stated
Renaud Sainsaulieu [Sainsaulieu R., 1987].
To avoid this transposition, two obstacles must be overcome. The first is to reduce
to a simple extension the cultural organization of society by hiding a specificity of each
organization, which will require total autonomy to respond to environmental constraints.
Regarding the second, it is to reduce the general concept of local culture as a spirit house,
to ignore the influence of social groups, local solidarities, professional values involved
permanently in the survival of each organization. The concept of micro-culture, distinct
from the general concept large enough linked to that of national culture, refers to a
particular group such as company or job. It defines a set of formal rules in the middle of a
group relation, mode of action and inventive thinking to tackle its specific problems. At
micro-cultures level should not interfere in the vision of the world and the existing
finalities forming the general concept of culture [Dupriez P., Simons S., 2000]. In the value
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Volume 1 (15)  Issue 1  2010

system exists a limited area, but it can be helpful a definition as the one proposed by Edgar
H. Schein: "Culture is the set of fundamental assumptions that a group has been given to
invent, discovered or developed taking into account the problems of adaptation to their
environment and internal integration, and noticed enough to be considered valid and
therefore to be important again like manners of thinking, to perceive and feel across these
problems "[Schein EH, 1985].
Exists, in the literature, several models of analysis for combining several
constituent dimensions of organizational culture. To remember only that of Jeffrey
Sonnenfeld and Robert E. Quinn. These two models were developed to respond to specific
concerns of Jeffrey Sonnenfeld on career management and retrieval efficiency criteria as in
the case of Robert E. Quinn. Both one and other use relevant dimensions to analyze
organizational culture and offer a reading of business culture to highlight the
organizational configurations. In this regard, Jeffrey Sonnenfeld is interested in its
analysis, by career‘s systems, proposing a typology of cultural organizations [Sonnenfeld
J. Peiperl MA, Kotter JP, 1992]. This typology is the base of forming two axes which
correspond to the external environment sensibility and to individual or collective
contributions expected by the members of the organization [J. Sonnenfeld, 1988].
 External environment may or may not be stable. An unstable external
environment is given to a context of uncertainty and need for an external
guidance. A stable external environment, leading to a context of certainty that
allows a better internal guideline.
 Expected contribution of the organization's members can be both collectively
support from others on loyalty, seniority or status, or individual when each
individual from organization is rewarded for his contribution to product value.
The four types of culture which Jeffrey Sonnenfeld propose are the culture: base-
ball, club, academy and fortress.

Figure No. 3
Jeffrey Sonnenfeld’s organizational culture typology

Instable
environment

FORTRESS BASE-BALL
Culture TEAM Culture

Collective Individual
contribution contribution
CLUB ACADEMY
Culture Culture

Stabile
environment
eeeeeeeeeeeeeee
Regarding the "value competition" model developed by Robert E. Quinn, was
eeeeeeeenviroenv
developed in order to describe the relationships that affect business efficiency criteria. In
ironment
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Valahian Journal of Economic Studies

his approach, Robert E. Quinn starts from the premise that to understand an organization or
to develop an organizational change must examine the relations of paradigm value -
organizational structure - the contribution of individuals. This way, he even adopted a
systemic vision of the organization and its development, saying that the values have a
fundamental role in the system‘s analysis and organizational structure [Denison DR,
Spreitzer GM, 1991].
The model of Robert E. Quinn focus on the inherent tensions and conflicts in
organizations‘ life, which can identify two major axes of tension: on one hand the tensions
between stability and change and on the other hand the tensions between the internal
organization and external environment. The configurations‘ model by combining
contributions of Henry Mintzberg's Croizer M. and E. Friedberg and also organizational
cultures typologies proposed by Robert E. Quinn and Jeffre Sonnenfeld proved relevant for
the analysis of concrete situations in organizational complexity and cultural evolution.

Table no.1.
Discriminatory values of Robert E. Quinn’s model
What Family Development Formalism Results
characterize us
What conduct An A manager An expert
us entrepreneur
What decide us Loyalty, Innovation, Rules, procedures Results
members creativity
hip
What motivate Social Permanence, Competitiveness,
us cohesion, stability measurable
morality results

In an attempt to build a model of interpretation we can provide them a central


place. Corporate culture has not fallen from heaven, it is not just a product of an approach
which mobilize company‘s members around divided values, its adopted perspective being
a contextual approach [Pettigrew A., 1987].
Indication of the links between these models can give the correspondence between
ideal types of organization and ideal types of organizational culture. To the extent that such
correspondence indicates an orientation towards common goals we can talk about
convergence, playing a central role in search for coherence between the components of the
organization because they involved the coordination mechanisms and power games present
in the organization in the creative cultural process. A review of this convergence permit us
to propos an interpretation model of relationships between organizational elements and
cultural elements.

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Volume 1 (15)  Issue 1  2010

Table no.2.
Organizational culture convergent configuration
ORGANIZATION ORGANIZATIONAL CULTURES
Mintzberg Quinn Sonnenfeld
Entrepreneur Team Fortress
Innovatively
Missionary Team Club
Bureaucratic Hierarchic Club
Academy
Adhocratic Innovatively Base-ball team
Professional Rational Academy

These links are not one-way, cultural types contributing equally to perfect a type of
organization.
The fight is far from being purely academic, the interactions identified shows that
whenever a company is threaten to change its strategy, it must first be careful to adapt the
organizational culture. This is a key factor in adjusting production personnel and ensures
coordination between the company members' personal values and values brought by a new
organizational culture.
Analysis of coherency in its organizational context sending us to a model of
interpretation which raised possible convergence between types of organization and types
of organizational culture. Intervention in the organization can not happen in a rational
understanding of the contexts in which it is known to operate. This research suggests the
retention of two tracks that allow and make the transition from an analytical approach to a
normative one.
In a systemic approach the system efficiency can analyze as a coherence between
the different components and also as the performances of each of them individually.
Adopting an organizational and cultural approach takes into account the
consistency of the organization and culture that enable companies to avoid certain
dissatisfactions. Thus, the enterprise may require a type of organization and values system
converged with it, and values are shared, each acceding to the management used in
business.
The proposed interpretation model for analysis is able to provide to the managers
additional information relative to the context in which decisions can be taken efficiently
and reach target audiences.

Conclusions

In recent years there have been major changes in contemporary society. As a result
of increased competition, it was necessary to reduce costs and organizations have been
restructured, leading most times to a reduction of staff number. Employees must work and
learn more than ever, facing an uncertain future. Unknowing the values and standards of
business behavior, the desire of employees of not accept these values, the discrepancy
between the actual values displayed and promoted by managers in modern organizations
often leading to various conflicts.
Research these issues is increasingly being addressed in the literature as
contributing to a better understanding of individual and group behaviors within an

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Valahian Journal of Economic Studies

organization. Practice shows that these culture influences on contemporary business are
used as important strategies to achieve a good result as detrimental to the progress of
others. Therefore, must be regarded as an element of organizational life, precisely because
of the differences between attitudes, goals, and ways of action or to a situation of leading
process.

References

Denison D. R., Spreitzer G. M., (1991) – „Organizational Culture and Organizational


Development: a Competing Values Approach”, Reserch in Organizational Change
and developement, Volume 5, pag. 1 - 21.
Dupriez P., Simons S. (2000) – „La resistance culturelle: Fondements, applications et
implications du management interculturel”, Bruxelles, De Boeck.
Hofstede G and others (1990) – „Measuring Organizational Cultures: a Qualitative and
Quantitative Study Accross Twenty Cases in: Administrative Science Quarterly”,
n02, pag. 286 - 316.
Morin P., Delavallée E. (2000) – „Le management à l’écoute des socioloques”, Paris,
Editions d‘Organisation.
Nizet J., Pichault F. (1995) – „Comprendre les organisations. Mintzberg à l’épreuve des
faits”, Paris, Gaétan Morin.
Pettigrew A. (1987) – „Context and Action in the Transformation of the Firm”, Journal of
Management Studies, vol. 24, no 6.
Sainsaulieu R., (1987) – „Sociologie de l’organisation et de l’entreprise”; Paris; Presses
de la Fondation Nationale de Sciences Politiques – Dalloz.
Schein E. H. (1985) – „Organizational Culture and Leadership”, San Francisco, Jossey –
Bass.
Sonnenfeld J. (1988) – „The Hero’s Farewell: What Happens When CEOs Retire”, New
York, Oxford University Press.
Sonnenfeld J., Peiperl M. A., Kotter J. P. (1992) – „Strategic determinants of managerial
labor markets: a career systems view” in Human Resource Strategies, edited by
SALAMAN Graeme et al., London Sage Publications, (reprinted 1999).

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Volume 1 (15)  Issue 1  2010

Arabian Countries Economy and Oil


Irina Olimpia SUSANU
Mihaela-Carmen MUNTEAN
Dana MANEA
Dunarea de Jos University, Galati
irisusanu@yahoo.com

Abstract
The Arabian Countries own 56% of the world petrol reserves and ensure 18,5% of
the international production. Although the importance of the Arab petrol, as reserve as
well as production, has a significant weight in the petrol processing industry, it does not
exceed 4 %of the world capacity of refining. This aspect shows the low importance of the
Arabian refining capacity as compared with the petrol extraction capacity.

Keywords: demographic evolution, petrol reserves, gross domestic product,


international crisis

JEL Classification: F1

Introduction

Middle East Countries as well as countries from North Africa have taken
advantage of the petrol‘s high prices over the last months to increase their income. Thus,
besides the income increase in the petrol sectors, all the other sectors have had something
to gain. Moreover the economies of the Middle East Countries as well as countries from
North Africa will take advantage of another important factor, namely the continuous
increase of the foreign investments.
The rapid economic increase and the economic policies stability have created a
welcoming business environment in few of the above mentioned countries and the region
has drowned on an impressive amount of foreign investments. Petrol‘s high price has
encouraged investments in the energetic sector.
These investments will lead to production expansion over the next years. However,
the massive income brought in by petrol had inflationist consequences, thus the inflation
annual average in the Middle East countries as well as in countries from North Africa
increased from 5,3% in 2006 to 6,2% in 2007. A lower price of petrol might have helped to
cut down inflation in many countries but the dollar continued to be weak in front of the
euro currency in 2007 as well.
Middle East Countries as well as countries from North Africa that keep a fix
exchange policy of the American dollar but have many relationships with Europe, will
notice import cost increases as a result of the depreciation of the American currency.

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Valahian Journal of Economic Studies

1. Arabian Countries

The Arabian Countries own 56% of the world petrol reserves and ensure 18,5% of
the international production Although the importance of the Arab petrol, as reserve as well
as production, has a significant weight in the petrol processing industry, it does not exceed
4 % of the world capacity of refining. Thus the Arabian states refine only 7% of the current
petrol production while USA refine 675 million tones/year, meaning 23 % of the world
refining capacity. This aspect shows only the relative importance of the Arab refining
capacity as compared with the petrol extraction capacity.
Regarding the demographic evolution, the population of the Middle East countries
as well as that from North African countries registers one of the highest increases in the
world. It has almost increased 4 times since 1950 and the number of population is expected
to double in this region within the next 50 years. However the number of work places has
not increased at the same rate. Since 1990, this region has recorded an increasingly higher
unemployment rate. This aspect has had social consequences and has encouraged
migration. The Arab totalizes 80% of the region population, excluding the petrol producing
countries from the Gulf Cooperation Council, which also faces other economic challenges.
According to the OPEC report on 2008, the Middle East and the North Africa had
a population of 779 million inhabitants in 2005, and in 2030 it is expected to reach 1 265
million inhabitants, the countries from this region registered the highest rate of
demographic increase (2,0%), as it can be seen in the figure below.
Table 1.
Middle East and North Africa - Population
LEVELS GROWTH
2005 2030 Millions % p.a.
North America 441 542 100 0,8
Western Europe 534 548 15 0,1
OECD Pacific 200 194 -6 -0,1
OECD 1175 1284 110 0,4
Latin America 423 535 112 0,9
Middle East & Africa 779 1265 486 2,0
South Asia 1482 2023 541 1,3
South East Asia 395 500 104 0,9
China 1322 1481 159 0,5
OPEC 560 803 242 1,4
DCS 4961 6606 1645 1,2
FSU 286 286 0 0,0
Other Europe 55 52 -3 -0,2
Transition Economies 341 338 -3 0,0
World 6477 8228 1751 1,0
(Source: global insight)

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In concordance with the demographic dynamics, the GDP increase rates have also
been taken into consideration and foreseen until 2030, as it can be noticed in the figure
below.
Table 2.
Middle East and North Africa - GDP
2006-10 2011-15 2016-20 2021-25 2026-30 2006-30
North America 2,8 2,6 2,5 2,4 2,3 2,5
Western Europe 2,2 2,0 1,9 1,7 1,5 1,9
OECD Pacific 2,4 1,9 1,7 1,6 1,4 1,8
OECD 3,5 2,2 2,1 2,0 1,9 2,1
Latin America 3,8 3,2 3,0 2,9 2,7 3,1
Middle East & Africa 4,3 3,5 3,4 3,2 3,1 3,5
South Asia 6,5 5,3 4,8 4.4 4,0 5,0
South East Asia 4,5 3,9 3,6 3,2 3,2 3,7
China 8,3 6,1 5,7 5,5 5,3 6,2
OPEC 4,8 3,6 3,4 3,3 3,3 3,7
DCS 6,3 5,0 4,7 4,5 4,4 5,0
FSU 5,4 3,2 2,7 2,5 2,5 3,3
Other Europe 4,3 3,1 2,8 2,4 2,4 3,0
Transition Economies 5,2 3,2 2,7 2,5 2,5 3,2
World 4,2 3,5 3,4 3,3 3,3 3,5
(Source: global insight)
In the next figure there can be noticed the main macroeconomic indicators and
their evolution up to 2008.
Table 3.
Middle East and North Africa – Annual Economic Indicators
(The percentage modifies a year early, unless is otherwise specified)
2004 2005 2006 2007 2008
Real GDP 6,1 5,6 5,6 4,9 5,4
Nominal GDP/inhabitant (American dollars) 3067 3599 4091 4442 4695
Industrial production 6,0 4,5 2,4 2,9 6,0
Exports (mld. $) 488 656 804 838 892
Imports (mld $) 338 408 466 505 542
Export of Goods (% of the world GDP 42,2 47,3 50,0 47,1 46,5
Index of commodity prices 4,5 5,3 6,2 4,5 3,5
Index of wholesale prices 6,0 6,6 4,0 3,5 3,4
Monetary emission, M1, end of the year 16,9 16,2 13,2 12,3 9,5
Interest Rate (%) 7,2 7,4 7,0 6,8 6,9
Short term interest rate (%) 3,9 4,8 5,7 5,7 5,7
Long term interest rate (%) 9,1 9,2 9,4 9,2 8,7
Fiscal Balance (% of GDP) 1,7 6,7 5,8 3,9 3,7
(Source: global insight)

It can be noticed that the GDP diminished slightly in 2007 up to 4,9% and in 2008
increased due to the petrol price increase up to 5,4%. In petrol exporting countries, the

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Valahian Journal of Economic Studies

petrol higher price leads to income increase, some of it being re-invested in the
infrastructure as it happens in Algeria and Iran. Countries with diversified exports like
Iordan, Marok and Tunisia, enjoy over 10% economic increase due to the increased
demand for commerce from the European side. Also there can be noticed that export holds
an important weight on the world GDP level and export increase in a higher rhythm than of
the imports is recorded.

Chart 1.
Middle East / N. Africa Average Economic Freedom

(Source: Tim Kane, Kim R. Holmes and Mary Anastasia O’Grady, 2007, Index of Economic
Freedom (Washington D.C.: The Heritage Foundation and Dow Jones & Company. Inc. 2007) at
www.heritage.org/index)

The next figure shows the degree of economic freedom of this region compared
with the world average. It can be noticed that Middle East Countries as well as countries
from North Africa have the smallest degree of economic freedom of the world.

Chart 2.
The Middle East and North Africa Ten Economic Freedoms

62,30%
Fdm fm Corruption 43,10%
40,00%
Financial Freedom 40,60%
41,08%
Monetary Freedom 76,00%
57,00%
Fiscal Freedom 90,40%
60,90%
Business Freedom 59,10%

0,00% 20,00% 40,00% 60,00% 80,00% 100,00


%
(Source: Tim Kane, Kim R. Holmes and Mary Anastasia O’Grady,2007, Index of Economic
Freedom (Washington D.C.: The Heritage Foundation and Dow Jones & Company. Inc. 2007) at
www.heritage.org/index)

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Volume 1 (15)  Issue 1  2010

Paradoxically it is estimated that this region is the only one which will be able to
increase the degree of economic freedom within the next years. Yemen and Marok started
off in this direction recording 3 and 4,4% respectively.
In the above figure it can be seen which are the domains with the highest economic
freedom of this region. It can be noticed that the fiscal, monetary and work field hold the
highest freedom.
The Middle East is the absolute leader concerning the fiscal freedom, with an average of
90,4%, exceeding the global average of 82,8%, due to an extremely low income tax,
specific to petrol regions.
USA financial crisis, whose effects on the Asian and European markets triggered
the entire world economy recession, has also some winners.
Besides China or India, which are enjoying the advantage of the size of the internal
markets and cheap work force, the most important beneficiaries of the current world
economic environment are the Persic Gulf petroleum monarchies that succeeded in using
incomes yielded from the petrol and natural gasses high price, to develop other sectors of
the economy. Besides the fact that they have taken advantage of the petrol‘s high price
over the last 5 years to pay in advance their foreign debts, following China or Singapore‘s
example, the Saudi Arabia, Kuwait, Emirates Dubai and Abu Dhabi or Qatar set up public
capital investment funds, also called „sovereign funds‖.
Another great advantage of the Arab states is represented by the maximum security
of their financial system to whom their Koran does not allow to charge interests or to be
involved in any speculative activities that led to the current international crisis. That is why
the Arab finances are immune to the western crisis expansion.
The Islamic finances reject the interest as well as institutions like speculative funds
or debt trading funds (like ―hedging‖ and ―private equity‖) which only limit their activity
to money multiplying, investing it in high level and high income investments. Money
represents only a means or an instrument of productivity as initially foreseen Adam Smith
and David Ricardo.
The new Islamic financial system relies on two principles of the associative
finances, namely: ―mudarab‖ (Associates Commercial Corporation) and ―musharaka‖
(association). Other instruments like ―murabaha‖ the bank has the role of commercial
intermediary buying goods that are necessary to customers and making profit from their re-
selling. These instruments have the transition role, to allow banks to make profits.
The first PNUD report on the Arab world, published in 2002, emphasizes the
discrepancy between the human development level and the regional riches. Important
progress recorded in the region over the last two decades, especially concerning the health
and education system and the economic increase led to the decrease of the absolute
poverty. However, after a short period of prosperity of the 70‘s, connected with the first
petrol impact in 1973, the income increase rate has been weak over the last 20 years. The
potential richest countries have also faced challenges.
Since the Gulf War from 1991, the average income of the inhabitants from the 7
countries of the Arabic peninsula remained the same. Work productivity decreased
compared with other regions of the world, especially regarding the significant discrepancy
between the supply of educative system formation and the labor market. Unemployment
reaches officially 13% of the active population and has a dramatic impact especially on
young people which are very numerous taking into account the demographic increase of
the last decades.

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Conclusions

In a region influenced by competitional productive systems and by an inter-zonal


exchange decrease, the regional integration processes and north-south association
agreements continue to exist and also to strengthen. Since 1997, the Arab League has re-
launched the project concerning a common Arabian market by constituting a great Arabian
area of free exchange (MZALS) which should be built. The member countries of the
Cooperation Council started off their customs union in January 2003, which should lead to
a common market and to monetary union up to 2010. Well-known for its conservatism on
political and economic level, CCG maintains close alliances with USA and shares the
Americans concerns regarding.
At the end of 2007, as a result of a summit between the Arab leaders of the Gulf
area, have already established 5 criteria for economic union, including a ceiling for
budgetary defficit under 3% of GDP, public debt under 6% of GDP and inflation set on a
average ceiling of CCG plus 2%.

References

Ştefan, D., (2008), The Arabian States from Golf, saving the mondial economy, Cronica
Română
http://www.undp.org
www.ppionline.org
http://www.wall-street.ro
http://www.worldbank.org
http://www.abudhabichamber.ae
www.opec.org, in World Oil Outlook 2007, p. 17.
http://www.imf.org
http://www.abudhabichamber.ae
http://www.imf.org
www.opec.org, în World Oil Outlook 2007, p. 17.
http://www.worldbank.org
http://www.undp.org
www.ppionline.org
http://www.wall-street.ro

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Volume 1 (15)  Issue 1  2010

The Romanian Accounting System Between the IASB Accounting


Conceptual Framework and the IVth European Directive
Marilena ZUCA
Romanian American University Bucharest
marilena_zuca@yahoo.com

Abstract
The examination regarding the compliance between IAS and the European
Accounting Directives has been completed as follows: "The Commission has concluded
that there are only minor conflicts between the International Accounting Standards and the
European accounting directives. This comparison addresses only global players on the
financial markets and consolidated accounts. The examination concerns only the
Accounting directives and the Member States’ national laws. The fact that there is no
conflict with the European Accounting Directives does not mean that there is no conflict
with the national legislation.”
The objectives provided in relation to the financial position appear to be the same
in both accounting frameworks, although accounts’ organizers are required to provide
information that appears to be different; while the Fourth European Directive concerns
specifically limited liability companies and joint stock companies, the IASB accounting
conceptual framework applies to all industrial, commercial companies, both in public and
private sectors.
Basically, there has been a transfer to an accounting system where the
professional accounting training is to be made based on professional judgment. This will
be the basis for substantiation of companies’ accounting policies options (for example,
managers will decide on the useful economic lifespan of property, the methods of
depreciation, so that the financial statements to reflect expenses that best matches the
consumption pace of future economic benefits).
It is a change in the categories of financial-accounting information’s users,
interested in financial statements. This category includes: current and potential investors,
employees, financial creditors, suppliers and other trade creditors, customers, Government
and its institutions, the general public.
Order no. 94/2001 gave certain signals regarding the disconnection of accounting
from taxation., a link strongly experienced in the previous Romanian legislation. .
For the first time, Orders OMF no. 94/2001 and OMF no. 306/2002 have merged
the two accounting cultures (the continental-European and the Anglo-Saxon) with respect
to the preparation and publication of financial statements.
The opening to the International Accounting Standards has provided the
opportunity to choose between the existing accounting treatments, goal accomplished by
addressing the professional judgment.
Even if there is a trend to harmonize the Romanian accounting system with the
Fourth EU Directive, there should also be considered the national component of the
Romanian accounting.

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Valahian Journal of Economic Studies

Keywords: financial statements, the Romanian accounting system, IASB


conceptual accounting framework, European Accounting Directives

JEL Classification: M 41 Accounting

Introduction

We may speak of a Anglo-Saxon ―scent‖ brought to the Romanian accounting law.


The result of this professional assistance was initially materialized by the enactment of
OMF no. 403/1999 for the approval of Accounting Regulations harmonized with the
Fourth EU Directive and with the International Accounting Standards, and most recently it
has been replaced by OMFP no. 3055/2009, which eliminates the International Accounting
Standards.
The main components of the IASB accounting conceptual framework are:
a) The objective of financial statements;
b) Qualitative characteristics that determine the usefulness of the information in
financial statements;
c) Elements of financial statements;
d) Recognition and measurement of financial statements‘ elements.
The objectives of the IASB's conceptual accounting framework are reflected
in:
 establishing theoretical concepts and principles that form the foundation
regarding the preparation and presentation of financial statements for external
users;
 It provides a guide for regulators likely to bring increased efficiency and
consistency in the process of normalization;
 It provides a reference framework for the organizers of accounts and auditors;
 It helps to ease the process of users‘ understanding of financial statements;
 It helps to increase the comparability degree in time and space.
The primary objective of the European Accounting Directives consists of the
efforts made to harmonize the accounting systems in order to achieve a common internal
market.
a) The objective of financial statements
For IASB, the objective of financial statements is pictured in the diagram below:

The objective of financial statements consists of:

Providing information regarding

A. Financial B. Performances C. Alteration of


position financial position

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Volume 1 (15)  Issue 1  2010

A.
The financial position is influenced by

Economic resources it Financing structure Cash and solvency


controls

Useful for

Anticipating the Anticipating future needs Anticipation of the


company's capacity for financing and the company's capacity
to generate future possibility to obtain such to meet due financial
loans, and the commitments
cash flows
distribution of profits
and future cash flows

B.
The company’s performances concern

Assessing potential changes in Laying down standpoints


economic resources that the regarding the efficiency of
company will be able to control using certain resources
in the future

C.
The adjustment of the financial position endorses

Analysis during the reporting period

Of the activity of Of the activity of


Of the activity of
exploitation financing investment

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Valahian Journal of Economic Studies

b) The IASB accounting conceptual framework specifies a set of main features


mandatory for the information from the annual financial statements in order to be useful
for decision making, namely: comprehensibility, significance, or relevance (as a
subsidiary characteristic: - materiality), reliability (with subsidiary qualities: fair
representation, the prevalence of the economic over the judiciary, neutrality, prudence,
completeness) and comparability.
The elements that define each qualitative characteristic of accounting information
are listed below:

Qualitative features – features determining the usefulness


of the information provided by financial statements

Reliability
Understandability The information is not corrupted
The users‘ easiness to by major errors; it is not biased,
understand accounting offering users a certain degree of
information reliability

Relevance Comparability
The information Comparability in time – the possibility to
influences the users‘ compare the same company‘s successive financial
economic decisions, statements and to extract the financial position‘s
giving them the tendencies and the performances of such entity.
necessary support to Comparability in space – users should be able to
assess past, present and compare the financial statements of their
future events or to company with those of similar companies in
correct previous order to assess the financial position and
evaluations. performances, such action being possible if the
similar events are equally presented.

If we take into account what these four qualitative features of the financial
statements involve in the Romanian environment, we will notice certain
imperfections:
• Understandability
Before the enactment of OMF no. 306/2002, the Romanian accounting
environment did not work with an array of cash flows as part of annual financial
statements. Perhaps, some users found difficult to understand such a document.
The initiative to introduce this document is particularly commendable given the
fact that for some users of accounting information, the information provided by the cash
flow charter is extremely important.

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However, it is a surprise that OMFP no. 3055/2009 does not require the
preparation of this component of the annual financial statements, classifying it as
"optional".
 Relevance
In some cases, laws impede and constrain the presentation of information by means
of their materiality. The information‘s materiality generates some threshold, rather than
being a feature in terms of information‘s usefulness.
 Reliability
It may be that in some cases the accounting information does not fully meet the
feature of reliability as a result of instability characterizing the Romanian legislation.
 Comparability
Also, comparability may be impaired given that the multitude of laws,
decisions, edicts, rulings leads to ambiguity when it comes to decide upon a certain
method.
Furthermore, the IASB accounting conceptual framework defines the limits of
reliable and credible information, which could narrow the quality of the accounting
information, namely:
 Opportunity;
 Cost-profit ratio;
 Balance between qualitative features.
The opportunity regarding the information‘s publication is highly significant
given that a piece of information considered "perfect", but which has an excessive delay
in reporting, may lose its relevance even if it is credible.
In the Romanian accounting environment, the opportunity of the information‘s
publication has not been observed in some cases given that legal provisions allow such
delays. Ideally, the benefits obtained from such information should be superior to the
cost of providing it.
The IASB accounting conceptual framework brings into question the necessity
of ensuring a balance between quality features, where the professional judgment plays
the most important role.
European Directives do not provide a separate section covering qualitative
features. However, they include some basic concepts and postulates. Thus, the first
report of the Fourth Directive issued in 1971 began by means of a series of principles
and basic concepts:
1. Annual financial statements consist of balance sheet, profit and loss
account and annex;
2. Annual financial statements should be drawn up in accordance with the
generally admitted accounting principles;
3. Annual financial statements will be drawn up clearly and concisely;
4. Each financial statement will be drawn up based on solid grounds;
5. The information from the balance sheet and the loss and profit account
should address two consecutive financial years: the end of the previous
financial year and the end of the recently completed financial year.
6. In line with the Directives‘ spirit of compromise, the exceptions to these rules
may be allowed only under certain unusual circumstances, but they must be
adequately presented in the annex.

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Relations between the aforementioned principles and postulates, and qualitative


features of the IASB accounting conceptual framework of, are set as follows:
 Postulate no. 3 highlights ―understandability‖ with respect to the clear and
concise presentation of the financial statements.
 Postulate no. 2 may include ―relevance‖ with respect to the general admitted
accounting principles. It is certainly includes ―fair representation‖.
 ―The prevalence of the economic over the judiciary‖ is highlighted by
postulate no. 6.
 "Neutrality" and "completeness" can be identified in postulate no. 3.
 "Comparability" is highlighted in postulates no. 4 and 5.
c) Elements of financial statements
The IASB accounting conceptual framework presents the definitions of assets,
liabilities, equity, revenue and expenditure. The Fourth European Directive is rather quiet
about their publication. A definition of fixed assets is provided by Article 15 and Article 17
describes what is meant by a participating interest. Other elements are not defined. The
Fourth European Directive stipulates schemes for balance sheet and profit and loss account,
however it does not define the elements that compose them.
d) Recognition and measurement of financial statements’ elements
The IASB accounting conceptual framework provides criteria for the recognition
of elements that are comprised in the financial statements, while the European Directives
do not include such criteria. The measurement of the financial statements‘ elements is
described in the IASB accounting conceptual framework as "the process of determining the
values according to which the financial statements‘ structures will be recognized in the
balance sheet and profit and loss account".
The IASB accounting conceptual framework highlights four bases of assessment
used in the financial statements: historical cost, current cost, realizable value, updated
value.
Section 7 of the Directive provides rules for assessment starting with some general
principles as the basis of assessment such as: continuity, operation, prudence. The main
basis of assessment is the historical cost.
We note that the objectives of financial statements, qualitative features of financial
statements and criteria for measuring the financial statements‘ elements encountered in the
IASB accounting conceptual framework and the Fourth European Directive are broadly
comparable. Regarding the definition of elements comprised by the financial statements
and the criteria for recognizing the financial statements‘ elements, the Fourth European
Directive presents obvious shortcomings.
European Accounting Directives can not be compared to a normative deductive
conceptual framework. While the IASB is focused on the needs of listed companies,
European Accounting Directives have a broader scope, focusing on the needs of many
different users.

Conclusion

The examination regarding the compliance between IAS and the European
Accounting Directives has been completed as follows: "The Commission has concluded
that there are only minor conflicts between the International Accounting Standards and the
European accounting directives. This comparison addresses only global players on the

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financial markets and consolidated accounts. The examination concerns only the
Accounting directives and the Member States‘ national laws. The fact that there is no
conflict with the European Accounting Directives does not mean that there is no conflict
with the national legislation.‖
The objectives provided in relation to the financial position appear to be the same
in both accounting frameworks, although accounts‘ organizers are required to provide
information that appears to be different; while the Fourth European Directive concerns
specifically limited liability companies and joint stock companies, the IASB accounting
conceptual framework applies to all industrial, commercial companies, both in public and
private sectors.
It is obvious that OMF no. 94/2001 has marked a significant turning point in the
process of normalization and improvement of the Romanian accounting system, directing it
towards an internationalized national accounting. OMF no. 94/2001 referred to the
"professional judgment" in order to produce and disseminate accounting information:
"Each company will use the professional judgment to assess the minimum level required
for an element to be included in the balance sheet or in the profit and loss account"; further
it states that "professional judgment should be used for decision-making when recording
assets in separate categories or in one common category.‖
Basically, there has been a transfer to an accounting system where the professional
accounting training is to be made based on professional judgment. This will be the basis for
substantiation of companies‘ accounting policies options (for example, managers will
decide on the useful economic lifespan of property, the methods of depreciation, so that the
financial statements to reflect expenses that best matches the consumption pace of future
economic benefits).
It is a change in the categories of financial-accounting information‘s users,
interested in financial statements. This category includes: current and potential investors,
employees, financial creditors, suppliers and other trade creditors, customers, Government
and its institutions, the general public. Given the design of the new accounting reform
program, the Government and its institutions will no longer represent privileged users of
financial-accounting information.
Order no. 94/2001 gave certain signals regarding the disconnection of accounting
from taxation, a link strongly experienced in the previous Romanian legislation. In the
Anglo-Saxon accounting practice, an expense can be deducted fiscally without being
accounted for, while in the French accounting practice, expenses are deductible fiscally
only if they have been recorded in the accounts and annual accounts are part of the annual
tax statement. There is no position for "provisions regulated" from the equity structure.
Overall, details on taxation were very brief: it was necessary to present the difference
between the expense for income tax and income tax paid for each fiscal year and the result
as presented in the tax statement. The concept of deferred taxes is a new element to the
Romanian accounting environment.
For the first time, Orders OMF no. 94/2001 and OMF no. 306/2002 have merged
the two accounting cultures (the continental-European and the Anglo-Saxon) with respect
to the preparation and publication of financial statements.
The opening to the International Accounting Standards has provided the
opportunity to choose between the existing accounting treatments, goal accomplished by
addressing the professional judgment. Only this way, coherent company accounting
policies may be drawn up and substantiated, which could provide qualitative information
by means of financial statements to a broader range of users. The projects of company

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accounting policies should be developed and substantiated in line with the provisions
stipulated by the European Directives and International Accounting Standards.
However, there are still doubts regarding the process of incorporating ad literam
the International Standards of Accounting in the Romanian accounting environment, as it is
well known that the international referential is possible in the developed countries‘ market
economies.
Even if there is a trend to harmonize the Romanian accounting system with the
Fourth EU Directive, there should also be considered the national component of the
Romanian accounting.

References

Calu D.A. (2005), “Istorie şi dezvoltare privind contabilitatea din România”, Economică
Publishing House, Bucharest;
Feleagă N., Feleagă L. (2005), “Contabilitate financiară – o abordare europeană şi
internaţională”, Infomega Publishing House, Bucharest;
Greuning H. (2005), “Standardele Internaţionale de Raportare Financiară. Ghid practic”,
traducere autorizată de Banca Mondială, IRECSON Publishing House, Bucharest;
Pântea I.P. şi Bodea Gh. (2006), “Contabilitatea financiară românească conformă cu
directivele europene”, Intelcredo Publishing House, Deva;
CCE – the Fourth, Seventh and Eight EU directives;
ASB (2007), Standardele Internaţionale de Raportare Financiară, traducere, Economică
Publishing House, Bucharest;
Ministry of Public Finance - Order 94/2001 for the approval of Accounting Regulations
harmonized with Fourth EU Directive and with the International Accounting
Standards; Order 306/2002 for the approval of the Accounting regulations
harmonized with the European Directives; Order 3055/2009 for the approval of the
Accounting regulations harmonized with the European Directives.

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Volume 1 (15)  Issue 1  2010

Development Strategies on the Romanian Printing Market, as a


Result of the Integration into the European Union

Irina Olimpia SUSANU


Nicoleta CRISTACHE
Viorel SUSANU
Ion STEGĂROIU
Dunarea de Jos University, Galati
irisusanu@yahoo.com

Abstract
Nowadays, the printing market in Romania means rotary and flat offset printing
press, surface printing and digital printing. In 2006 the biggest printing offices in Romania
invested tens of million of Euros for fighting back competition, under the conditions where,
as a result of the integration into the European Union, great players of the world market
have already announced their arrival on the local market. In spite of these investments, the
local market faces a series of problems concerning the lack of trained personnel and
transparency. All these aspects have an important impact on the development of this field
and make organizations adapt to the new conditions imposed by the market and apply
strategies specific to this period. This work proposes to highlight the current situation of
the printing market, to analyse and interpret the existing conditions and at the same time,
to emphasize the impact of strategies applied by organizations of this field.

Keywords: offset printing press, strategies, investments, fusions

JEL Classification: M3

Introduction

Currently, the Romanian printing market means rotary and flat offset printing,
flexo printing and digital printing. The biggest printing offices in Romania invested tens of
million of Euro to struggle against the competition in 2006, under the conditions where
after the integration into the European Union, the biggest players of the world market have
announced their arrival. The digital printing has a few advantages with very limited runs.
However, the disadvantage is that in comparison with the offset printing, each printed
sheet has the same price, while the quality of the digital printing has not reached the level
of the offset one yet. With the offset printing press, the bigger the number printed, the
lower the price, the offset printing being very advanced as productivity and quality. In this
segment, as far as big runs are concerned, there will not be competition for a long time,
and taking over digital data by the printing press has already become a reality to the
conventional offset. The flexo printing is a method of printing most commonly used for
labels in a rubber or polymer materials using a roll. The first printing houses in Romania
are in order Infopress, at great distance Megapress, G.Canale, Coprint and Monitorul

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Oficial. Like many sectors of the economy, the typographical industry do not benefit from
strict statistical data necessary for its evaluation. According to temporary data of the
National Institute of Statistics, in 2006 there were recorded 1,560 companies having an
activity linked to printing. The Association of Typographers from Transylvania estimates
however that the number of companies performing typographical works is about 4,000
country-wide, but what means actually printing office is about 400. A real printing office
has a full capacity of preparation, printing, and finishing. Some ensure also delivery
services by post, direct transport or mail. Printing houses share a market influenced by the
increase in the demand, especially of advertising materials used by retailers and other
companies. In the case of Infopress, part of Infopress Group, commercial printings are the
segment with the quickest growth and represent more than 50% of the company‘s rate of
turnover, which grew to 50.5 million Euros in 2006. The printing house has other orders on
the newspapers and magazines segments, having as customers Ringier or Burda. To RH
Printing also, a printing house with a turnover of 1.6 million Euros in 2006, advertising
materials have in average a weight of 45% from the total of returns. CoPrint records about
the same for the printing office in Bucharest, while at the level of the whole company
commercial materials and newspapers bring incomes almost equal (about 37%).
Newspapers earn important incomes to printing offices, too, due partially to large runs. Fed
Print, for example, recorded, a rate of turnover of about 15 million Euros in 2006, out of
which 70% represent returns from printing newspapers. Books (20%) and magazines, plus
advertising materials, complete the company‘s source of incomes. In the case of Ringier
Print also, newspapers are the most important source of profit (over 90%). Magazines
contribute significantly to the turnover of a printing office, in the context where, on the
whole, runs have slightly grown and the offer of titles in the market has extended. For
example, magazines and catalogues bring 77% of the returns to MegaPress Holding. The
printing house, whose turnover reached 14.5 million Euros, last year, works for Ringier,
Editura Intact and Billa. To Editura Paralela 45, the last three years, the orders of book
printing have doubled effectively, having among their products not only the company‘s
books, but also other printing offices‘. The increased demand for printing has led to
investments of over 800,000 Euros that have grown the capacity of production five times.
In spite of these investments, the local market faces the lack of specialized
personnel and transparency. It is also possible that the demand of newspapers to diminish,
while the one for packaging to explode, according to the Association of Employers from
the Printing Industry. Estimations for 2007 emphasize that the printing market will evolve
by recording sales of:
 150 million Euros for packaging, the market with the biggest potential, as
local printing offices of great capacity appear,
 150 million Euros for advertising materials, a value that will grow in the same
time with retailers and the extension of the units‘ number,
 65 million Euros for newspapers, a segment in danger to lower on an average
term, due to sales regress,
 47 million Euros for magazines, products still having success to the public, the
lowering of runs being compensated by the increase in the number of titles,
 25 million Euros for books, the orders increase, but the modest runs
discourage investments in this market segment.
 14 million Euros for labels, a developing market, as Romanian companies
choose local printing houses instead of foreign ones.

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One relies also on an increase of paper consumption, situated nowadays at about


60 kg/ inhabitant/ year, while in Western Europe it is of 250 kg [Wind, 2006].

1. Strategic movements on the european typographic market and their


impact on the development of the romanian market

The value of acquisitions and fusions in media business from the European space
reached about 50 billion Euros in 2007, with 16% more than in 2006, shows a report
realized by PricewaterhouseCoopers, quoted by the international press. According to the
report, only in 2000, media transactions were concluded with a higher value than that
recorded last year. Thus, if in 2007 the value of media acquisitions cumulated 50 billion
Euros, in 2000, this reached 52 billion Euros. On the whole, in Europe were signed 178
media transactions, more with 3% than in 2006, when were concluded 173 of this kind of
business. The year 2000 remains on top of this chapter too, with 186 acquisitions recorded
in Europe. The most prolific period for media transactions is considered to be represented
by the first six months of 2007. 67% of the entire value of acquisitions has been realized in
the first semester of the year. This may indicate a precaution of companies that carefully
watch the dynamics of the economy, where investments funds direct their attention to the
middle market, and corporations re-position for the digital era. The biggest European
transaction was the acquisition of the British group Reuters by Thomson, the value of the
transaction reaching 11.6 billion Euros. On the continent, the biggest transaction of 3.3
billion Euros is the acquisition of SBS Broadcasting by the Germans from
ProSiebenSat1.Media. Another important transaction on the media market last year was
carried out by a corporation managed by the Italians from Mediaset that presented an offer
of 3.1 billion Euros for Endemol Investments. The biggest Spanish group, Prisa, has
recently taken control of the local TV operator Sogecable, for 1.9 billion Euros. Also, the
German printing house H Bauer has taken over for 1.5 billion Euros, the newspapers and
radio divisions of the British group Emap. InterMedios Company has recently published
also a study about media transactions from 2007, the most important being carried out by
Thomson, Vivendi and ProSieben. Romania‘s biggest printing office, Infopress, has fused
with the biggest one in Bulgaria, Delta Plus, to form together Infopress Group, the biggest
group of printing offices from south-eastern Europe. Belonging to the Icelandic investment
company Kvos International, Infopress not only borrows its name to the new entity, but
also the unit of production from Odorheiu Secuiesc – having a turnover of 50 million
Euros last year – will be the pièce de résistance of the group. Much smaller than the
printing office from Odorheiu Secuiesc, Delta Plus had a turnover of 15 million Euros last
year. After Infopress and Delta Plus have fused, Infopress group has announced also two
Greenfield investments – actually two new units of production: one located in Bucharest,
which could become operational most probably at the middle of next year and another in
Budapest – operational a little earlier, even in the spring of next year. The value of
investment in the new unit of production that Infopress is going to build near Bucharest
will be somehow similar to that from the capital of Hungary, estimated at about 20 – 30
million Euros. There is a certainty: the unit of Odorhei that has a surface of about 2.5
hectares will remain the biggest of the group. In order that the unit of production from
Budapest should be operational the first months of 2008, the team is already prepared at
the printing establishment from Odorhei. Under these conditions the competition in the
printing market will become stronger. Especially after the German group Haendler&
Natermann has taken over 60% of the printing house Novis from Cluj, focused on label

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printing, the Icelandic investment company Kvos International has taken over the whole
Infopress, and other international groups of the kind are ready to penetrate the market, like
the Finnish group Hansa Print that will build a printing establishment in the industrial park
Nokia, near Cluj, in order to cover the necessary of the mobile phone producer.
EuroDruckService (EDS), one of the biggest groups of German printing offices, has
announced their intention of penetrating the Romanian market. EDS has belonged to the
group Verlagsgruppe Passau [operating in Germany, Poland, the Czech Republic and
Slovakia], has been externalized as a separate business and then sold [2006] to the British
investment company 3i. The first step in the strategy of development in Romania is
building a printing factory near Brasov, which will start producing in the autumn of 2008,
according to company‘s officials. The production at the unit in Brasov starts the autumn of
this year, and the first printing press that is about to be installed in the new location has
already been ordered to MAN, in December 2007. The organization applies a strategy that
suits very well the market of Romania, not only geographically, but also technologically.
EDS possesses more printing factories (flat and rotatory printing press) in Austria,
Germany, Hungary, Poland and the Czech Republic, and has a team of over 1,700
employees.

2. Strategies of development on Romania’s printing market

On a market estimated this year at about half of billion of Euros, the most
important printing offices in Romania invest massively in business development.
Competition becomes harder due to the arrival of multinational corporations, while local
organizations adapt themselves to new conditions and adopt a series of strategies so that to
keep the positions held in the market [Susanu & Cristache, 2008]. Presently the dominant
strategy in this field is that of major investments in typographical equipments and tools for
finishing, for increasing the capacity of production, for re-modernisation of technology or
completing the range of products and services offered by typographical organizations
ready to face foreign competition. Also, new equipments need wide spaces of production
and paper halls, materials and products to measure. This is a field where investments in
equipments mean huge amounts of money, spaces of production and warehousing are
large, and training the human resources constitutes a factor of constraint and a serious
barrier of penetrating the market. Most of the big printing offices have invested important
amounts of money for modernising the technology, increasing the capacity of production
and even extension. MegaPress benefited in 2006 from funds of six million Euros, while
this year 3.5 million Euros have been invested in equipments, other two million Euros
being destined for modernising the hall and the air conditioning installation.
Fed Print has almost doubled its capacity of production with an investment of five
million Euros, while CoPrint has allocated for the last ten years ten million Euros for
acquisitions and building a new printing house in Buftea. In addition, the company wants
to extend till the end of the year, to Timisoara. CoPrint printing office, part of the group
MediaPro, will increase its production capacity with about 20%, after acquiring a rotative
for magazines of type 16 pages MAN Rotoman, evaluated by industry players of about
1.5-2 million Euros. The rotary printing press MAN Rotoman, produced in 2000-2001, has
a capacity of about 55,000-60,000 copies per hour, being one of the few to use such
equipments with a large capacity. The system is destined for printing quality magazines, in
sections of 16 pages A4 format, with a cutting length of 630 mm. The rotary printing press
delivered by Normandia company is about to be installed and will be functional in March.
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This printing press will print not only PubliMedia products, the written press division of
MediaPro, but it will also be available to other customers of CoPrint. Intentions on 2008 of
Ringier company regarding investments in production and distribution area include a
partnership with Rautakirja, the sales division of Sanoma group and the accept of the board
from Switzerland concerning the construction of a printing house. Sanoma, the sales
division of the Finnish group, has signed an intention letter with Ringier for the creation of
an alliance, in English „creation of a joint venture for the Romanian press distribution
market‖. Rautakirja/Sanoma possesses Hiparion Distributie since July 2004, practically the
second important player after Rodipet, with whom Ringier has just argued. It is quite
improbable to create a society where Ringier should be partner with Sanoma, so probably
the strategy will be that Ringier should take over a part of the shares of Hiparion
Distributie, probably through a raise of capital.
Infopress takes also into consideration a new printing office and they will allocate
over 25 million Euros for the unit of Bucharest, that they want to launch at the beginning
of 2009. After investments of about 15 million Euros in the printing office of Odorheiu
Secuiesc, Infopress Group prepares another 25 million Euros for the growth of production
capacity of units from Odorhei and Bulgaria (Delta Plus) this year. Infopress Group will
adopt an aggressive strategy of development the following years, statement supported also
by the investment plan till 2009 – 2010: almost 50 million Euros for south-eastern Europe.
Out of this amount, the biggest investments will arrive in Romania. On a short term, the
group will focus on the increase of the production capacity. In Odorhei they produce now
about 4,000 tons of paper per month, and the next two years they will reach 8,000 tons/
month. On a medium and long term however, the Icelandic are aware that the markets of
south-eastern Europe on which their strategy focuses now will come to maturity, a moment
where big production capacity will not represent an advantage sufficient to keep their
position as leaders. The main objective of the company nowadays is doubling the
dimensions of the group. An extremely attractive market is Ukraine, with a huge potential,
towards which probably the investments of many organizations will direct. Infopress
Group is one of them, having as strategy an acquisition in that area, on a medium term.
The following years, the group‘s strategy of extension will concentrate exclusively on
south-eastern Europe, since here markets have a big potential of development, and the
competition is not so strong for the time being. Infopress is market leader, and the
competitor number two, MegaPress, with a turnover of 14.5 million Euros last year, is of
almost twice smaller than the first, while in other countries, even in the Czech Republic
and Poland, the competition is harsh, with powerful players, having strong positions.
Meanwhile, the group‘s strategy is also one of defence, prepared to prevent competition‘s
growth when very strong foreign companies will penetrate the market.
In 2006, Infopress had incomes of 50 million Euros, in 2007 they reached 65
million Euros, and if one takes also into account Delta Plus, the group‘s turnover has
reached 80 million Euros. In 2008, it is estimated that they will reach 100 million Euros.
The group‘s strategy of development has centred on the following landmarks:
 2001 the year where the investment company Baring Central Europe Bank
(BCEF) has become the majority share holder, possessing 80% of the shares
 2005-2006 the Icelandic investment company Kvos International takes over
Infopress from BCEF becoming the most important player in the printing
market of Romania. Kvos International is an investment company with
headquarters in Iceland, also including other printing offices such as Oddi,
OPM and Gutenberg.
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 15 million Euros invested by Infopress in 2006 for the acquisition of


typographical equipments destined to production, as well as the arranging of a
new production hall for the new machines
 60% the market share held in 2006 by Infopress on the local market of printed
matter
 4,000 tons the current production capacity/ month of Infopress; for
comparison, that of Delta Plus is of 1,000 tons of paper/ month in 2006, and
in two years, Infopress Group will reach 8,000 tons of paper/ month
 25% the share of production for export
 The total number of employees of the new group – 500 at Odorheiu Secuiesc,
and other 500 of Delta Plus
 10 million Euros investments in 2007 in printing presses and a line of stapling
destined to Infopress‘ department of finishing.
The group‘s strategy is the increase and extension of production capacity at a
regional level, so as not to allow competition to attack their market share. The strategy of
Infopress is thus justified, taking into consideration the investment plan of the most
important competitor, Megapress. The company has carried out investments that reached
14 million Euros in 2007, by acquiring a new printing press that has cost 8 million Euros
and replaced the old equipments from the bookbindery and pre-press, of about 3.8 million
Euros. So, another current dominant strategy is that of modernizing technology and re-
endowment in order to eliminate the old equipments. As a result of the barrier imposed by
the important values necessary for investments in the field the equipments they used were
more than often second-hand ones. Actually most of small and medium printing offices
possess equipments at second hand, but that are still able to perform quality works. The
printing office Megapress is about to invest till the end of 2008, 2.8 million Euros for the
paper warehouse that will have a surface of 5,000 square metres. In addition, the company
does not exclude the possibility of building a block of bachelor flats destined exclusively
for employees from abroad, whose value will reach 2.5 million Euros.
The printing office Real, one of the first 10 biggest ones in Romania, has also
announced an investment of 6 million Euros for this year. The investment will focus on the
acquisition of modern typographical presses, destined for commercial printings.
Differentiation between companies is visible also through financial results. If Infopress
developed in 2007 businesses representing more than a third of Kvos International‘s,
Megapress has recorded a turnover of about 27 million Euros, with a growth of 20% in
comparison with last year, respectively a net profit of 1.9 million Euros. Coprint aims at 16
million Euros turnover and a profit of 500,000 Euros, while those from Real recorded in
2007 businesses of 10 million Euros, with more than 66% in comparison with last year,
estimating their doubling till 2010. Profits on this market are relatively small, in general
limited at about 10% of turnover, but this depends very much on the customers for which
the printing is done and the attitude of the final buyer towards the finished products. The
fact that printing offices‘ businesses grow may be explained by the development of
commercial printings‘ market, namely the promotional brochures ordered by retailers like
Carrefour, Metro, Selgros, Billa, Tengelmann, Kaufland Media Galaxy, Domo, Flamingo,
Cora, Praktiker, Bricostore or Rewe that opened store after store. Currently, big retailers
have over 30 stores in Romania, and for each they must print permanently promotional
materials. Commercial printings have grown this year with 100%, this segment doubling
every year since 1996, since Metro has joined the market. The value of commercial

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promotions market reaches now 25-30 million Euros, catching up with book printing
market. There is even an explosion on this market, Mega Press prints promotional
materials for Metro, Carrefour, Cora, Altex, Billa and Media Gallaxy, a part of these
retailers doubling or even going beyond the double of orders of last year. For not refusing
orders anymore, MegaPress company has put into function another two lines of stapling to
the end of 2007, while in 2006 doubled its printing capacity after investments of 5 million
Euros. In addition, comparatively with the previous years, this year we notice in the market
a growth of small orders‘ number. The ascendant tendency of the turnover was put on the
account of the growth of orders for catalogues, commercial brochures, folders and posters.
As for profit, this has grown rather as a result of increasing the capacity to print
newspapers, magazines with small runs and covers. The general opinion is that a printing
office presupposes dirty and obsolete work, and this may be perceived in a rather lack of
new human resources in the field. Current printing establishments are however real
technological centres where there are invested tens of million Euros. And the wrong
opinions about printing houses do not stop here. For a long time, people have talked about
a considerable diminution of printing offices‘ businesses because of the Internet that
moves a part of the content (press and book) in the virtual world [Reevs, 2004]. A massive
migration from print to electronic has not happened so far, and specialists in the field
consider that the digital era will never remove completely the paper version of newspapers,
magazines, or books. However, there are also printing establishments that work at full
capacity. Their problem is not only the poor quality of printing, but also the quality of
services, the constancy in quality, the supply of the product in due time and price
transparency. For a while, printing houses that have not invested in the growth of printing
quality and have not improved services have enjoyed orders redirected by extremely busy
printing offices. This door has closed because powerful foreign investors have entered the
market, and they do not have problems with doubling the production capacity. Producers
consider that the demand of printed materials will continue to grow rapidly till 2008-2009,
when it will reach the level of that from Poland, the Czech Republic and Hungary, which
will allow the cost diminution and implicitly profit increase. But we must not forget that
for this year one has estimated that the paper price will considerably increase and at the
same time the companies of publishing and big retailers have enough power of negotiation
to maintain the pressure on the printing prices.

Conclusions

In the Romanian market strategies applied by big printing offices rely on


investments for increasing production capacities, product and service offer diversification,
and quality improvement. They have already invested in equipments and processes for the
maintenance of quality; they have international contacts and some of them already work
for export. The competition is bitter for the small and medium enterprises that are not
ready to face productivity and quality [Ries &Trout, 2007]. Cost management especially in
medium and small enterprises is one of the decisive factors for survival. The time of
preparation between works must be reduced, at the same time they must increase
productivity and quality at finish, the latter being still poor due to the significant
percentage of manual work. They invest in new equipments, modernize themselves or
smaller printing houses bring from abroad second hand utilities, but the percentage has
always been higher in favour of new equipments, while of second hand they prefer those
fabricated after 2000. One of the biggest problems of printing organizations is human

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resources. The training of personnel is a big problem, since it is done directly on the
equipments without a theoretical basis, because they is no education in the field. There are
however printing houses in Romania that have very talented people and perform works of
a very good quality. The corporation Heidelberg, one of the big producers of typographical
equipments has more institutions of professional formation in different countries like Print
Media Academy (Heidelberg, Moscow, Cairo, Kabul...). Heidelberger Druckmaschinen
AG represents the main engine in printing industry world-wide. Through Heidelberg
equipments the typographical reality from Romania has continuously developed. Their
classes include knowledge of printing office management, and also a series of courses
about pre-press operation, printing and finishing, collaborating with other institutions too,
like the professional school from Germany or services of Senior Expert Service. In
Romania they train operators directly on the printing press and offer theoretical materials
from Poligrafic High School from Bucharest and for the University of Timisoara specially
conceived by Heidelberg for all the institutions of typographical education in the world.
Unfortunately, there is no support from the government for this type of education in
Romania. The only solution is a very powerful lobby from typographers‘ association. The
first objective of the association should be the knowledge of professional capacity, of
human resources in the field, of production and spreading potential of specific material and
equipment endowment, informational transparency and a unitary integration of data.
Romania‘s typographical enterprises must implement a performing system of
internal organization, thus ensuring services and products better and better. In Germany
they introduce now a system of standardization of offset printing, standards that are very
difficult to control, that is why there are not yet many printing offices to apply them. A
successful organization in the typographical market must adopt a strategy through which to
offer a product or service to satisfy customers, a relation based on constant quality,
deadline correctly maintained and shorter, a motivated and well-organized team, that takes
permanently into account customers‘ demands.

References

Croitoru, G. (2006), „Economia întreprinderii‖, Bibliotheca Publishing House, Targoviste;


Reevs, R. (2004), “Reality in Advertising―, New York: Knopf;
Ries, A., Trout, J. (2007), “Positioning: The Battle for your Mind“, New York: Warner
Books;
Stegăroiu, I. (2008), “Industrial organization“, Bibliotheca Publishing House, Targoviste;
Susanu, I.O., Cristache, N. (2008), “Services marketing“, Denbridge Press NY, New
York;
Wind, Y.J. (2006), “Product Policy Concepts, Methods and Strategy“, Addison – Wesley.

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Volume 1 (15)  Issue 1  2010

The Presentation of the Additional Financial Situations


regarding the Intellectual Capital
George Ciprian GÎJU
Valahia University of Târgovişte
ciprian_giju@yahoo.com

Abstract
The accounting as an instrument of information must offer information to different
users of exact information. The information concerning the accounting for the intellectual
capital of the enterprise, not only that they can be useful for the inside public, but also to
the outside one, as well as contributing to the creation of value within the organization by
showing to what extent the organization is socially accountable and contributes to the
creation of intangible assets. The accounting of the intellectual capital is not quite easy to
achieve, because of the assessment difficulties and through the viability within the process
of accounting taking into consideration the current legislation. This article aims to show
what hidden intangible assets (intellectual capital) are, what their importance and
usability in the knowledge economy is, which are the advantages and disadvantages of
publishing information regarding them.

Keywords: intellectual capital, alternative accounting, hidden intangible assets,


assessment, knowledge economy.

JEL Classification: M41 Accounting

Introduction

The evolution from the agricultural age to the industrial age is now very easy to
understand. Instead, what is now happening in the new economy has an incredible impact
in the process of evolution. New Economy changes everything. Thus, according to a study
published recently it can be seen the growing importance of intangible assets:
 In 1978, intangible assets constituted 5% of assets.
 In 1998, intangible assets constituted 72% of assets.
 Today, 75-85% of assets are intangible.
The accounting exists from the beginning of the world while the data regarding the
transactions and the financial relations between different parts have been written down
from the babilonic civilization. However, the accounting had a long way to cross until it
reached the assembly of coordinated principles within a coherent system of accounting.
The system of accounting, 500 years old, which has not suffered massive changes within
the past years, is not sufficient in order to capture the economic reality of the organization.
The traditional financial situations do not provide enough information so that the
administrators or the investors could understand how come the resources- the majority of
them intangible- could create value for the future. The intellectual capital represents an

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important promoter for the value of organizations. Very important to mention is the fact
that this one affects all the sectors and it doesn‘t stop just to firms but also the state
institutions, universities, and governments and even to churches.

1. Intellectual capital

Nevado and López (2002: 25) talk about intellectual capital as total assets of a
firm, even if not reflected in traditional financial statements, generate or will generate
value for the company in the future, and consequence of the issues related to human capital
and the structural: the capacity of innovation, customer relations, quality of processes,
products and services, cultural and communicational capital, which allows a company or
organization to take better advantage of opportunities, giving birth to generation of future
benefits.
We also find many definitions of intellectual capital that is related to intellectual
capital defined as the sum of its components, and definitions that make reference only to
the human aspect.
Intellectual capital consists of:
 Human capital;
 Structural capital.
Human capital refers to the body of knowledge, skills and training, skills and
ingenuity, skill and attitude, learning ability and motivation of individuals who compose
the organization. Company values, culture and philosophy are also included in the human
capital.
Capital structure may be described as the infrastructure that incorporate, support
and qualify human capital and made possible the labor development in the company
(programs, databases, organizational structure, patents, trademarks). It also makes
reference to customers, the company-customer relationships, organizational processes,
management, production and marketing.

2. Intellectual capital reporting

The booking of the intellectual capital begins to be recognized as one of the


biggest challenges of the modern accounting. The current accounting is based on the
principles of the double match, guaranteeing equilibrium between active and passive. The
accounting of the intellectual capital is not based on the system of the double match and
does not guarantee the equilibrium between active and passive.
Mouritsen (2003: 5) asserts that this accounting of the intellectual capital is based
on the simple match, a unique system of accounting which makes for the actives to surpass
the passives.
The new economy asks for new forms of measurement of the actives of a firm,
taking into account that basically the future benefits will be obtain through the
capitalization of the intangible actives and not of the tangible ones. Already, some
companies have realized profound changes which took place within the new economy and
started to elaborate reports on the intellectual capital with the purpose of identifying new
values of the firms which are generated basically by their intangible actives.
In Europe, the interest in this phenomenon is increased realizing numerous studies
financed by the European Commission which include ―Mobilizing the intellectual capital

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in Europe‖ (2005) and Meritum Project (The Meritum Project - 2002): Guidelines for
managing and reporting on Intangibles - Intellectual Capital Report, European
Commission.
Thus, Skandia, the famous Swedish assurance company has opened the way
towards publishing the additional financial situations, by releasing in 1994 the Report
regarding the Audit of the Intellectual Capital. After that many other firms followed. As a
consequence of publishing this audit of the intellectual capital, the price of the stocks has
raised with over 40%, form which over 25% due to the intellectual capital (Sullivan, 2001:
423)
In Denmark, starting with 1st of January 2002, the companies are obliged to
elaborate reports regarding the intellectual capital if they own actives based on
acknowledgment and audiences, which certify this thing by virtue of general directives, “A
Guidelines for Intellectual Capital Statements” published by ―The Danish Agency for
Trade and Industry‖and written by Jan Mouritsen.
In Great Britain the recognition by the government of Great Britain of the
increasing importance of the intangible actives was accentuated for the first time within a
document from the year 1997 called ―The UK's Investment Performance: Fact and
Fallacy”. Within the National Report for the Competitiveness (UK Competitiveness White
Paper) published in December 1998, Building the Knowledge Driven Economy, there is a
chapter dedicated specially to the intangible actives. For its implementation, according to
the plan from the report of competitiveness, there are three projects which compose a sort
of Program dedicated to intangibles. Each project approaches different aspects of the
stocks presented within the report: The Project regarding the accounting and the right of
the enterprise; The MARIA Project; the Research Project; the Research in a long run
regarding the measurement and the assessment of the intangible actives.
In USA, starting with 1991, the big companies have started to invest more and
more in intangible actives than in the material ones. In Austria, starting with 2005, the
universities are obliged by law to elaborate reports regarding their intellectual capital.

3. Advantages of publishing information regarding the hidden intangible


immobilizations

The majority of the organizations fail in identifying the measurement and the
issuing of data regarding their most important intangible immobilizations. The non-
recognition of immobilizations internally generated will lead to an inefficient allocation of
resources, thus we won‘t be able to take advantage of the opportunities given by the
business environment, in this way losing in front of the competition. What has to be done
is to start generate and to present situations regarding the intellectual capital of the
organizations. Nowadays, the organizations do not include in their financial situations
information regarding the hidden intangible immobilizations which generate value, while
―the information given by the traditional financial situations do not fulfill the necessities of
the different interested parts‖ (Canibaño and Paloma, 2004: 102)
Skandia is not the only company which has obtained benefits after the publication
of information regarding the intellectual capital. Among that we enumerate:
- PLS Consult, a Danish audit company, has encountered a significant increase
due to the publication of information concerning the immobilizations;
- ABB Sverige, the biggest industrial enterprise from Sweden, has an internal and
external system of transaction of the intellectual capital. ABB has reached to the point in

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which it is more productive, with an increase of the volume of selling per employee from
65.000 SEK to 150.000 SEK.
Within the economy of knowledge, ―the information regarding the intellectual
capital of an enterprise is extremely useful to the internal level, facilitating the decision-
making process, but also at the external level for the investors.‖ (BearingPoint, 2004: 11)
Edvinsson and Malone (1999: 36-37) assert that this accounting of the intellectual
capital is the only one which recognizes what really matters within the modern economy of
the enterprises which pass through a continuous change and which apply the intensive
usage of the knowledge:
 Stronger and more durable business relations within the societies;
 The loyalty of the clients in a long run;
 The role of key- employees, on whose knowledge and competence the future
of the enterprise is based;
 The commitment of the enterprise and of the employees for knowledge and
innovation in a long run;
 And, more than anything else, the character and the values of the enterprise, as
a crucial instrument for investors and directors when they study the fusions,
the acquisitions, the alliances and the indenture of employees;
The intellectual capital constitutes the key element in the development of an
enterprise and because of it one could obtain competitive advantages among which:
1. Instead of register the intellectual capital as an investment, it is register as
expenses, leading to a contorted policy of prices. Nevado and Lopez (2002: 54-55) assert
that this fact could lead to over-estimated costs of production due to the fact that these
investments are not distributed on more exercises and thus to two types of observable
behaviors regarding the prices: the enterprise continues with higher costs during the
periods of investment and loses a part from the competitiveness over the price - or,
continues with lower prices during the periods of investments, but suffers problems of
profitableness, survival and places of employment.
If the enterprise would practice the recording of investments within intangible in
the same manner as the material ones, attenuating them on several exercises, it could
enhance the analysis of transaction through the financial situations and the development of
some commercial policies more relevant.
2. In the case of fusions and absorptions, where the real value of the acquired
enterprises are bigger than those exposed within the financial situations, a report regarding
the intangible immobilizations for all the users is required. Most of the time, these ones are
those which, together with material and financial actives, establish the real value of the
enterprise. Thus, to them, the difference between the value of the market and the value
from the financial situations has to be given.
3. Allows its usage as a marketing instrument and assures the vision in a long run
of the enterprise.
4. Enhances the transparency, leading to a decrease of the capital costs and thus,
higher prices of stocks (Canibaño and Sanchez, 2004: 266)
. This is the case of the famous Swedish company, Skandia, the first company
which has published a situation of the intellectual capital where the price of the stocks has
raised after a publication with 40%, from which 25% due exclusively to the intellectual
capital.
5. The publication of information regarding the intellectual capital allows the

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enhancement of relations with the customers, informing them over the efforts which the
firm makes in order to satisfy them, attracts and maintains new innovations, new products
and services. Canibaño and Sanchez also agree on that and affirm that ―the publication of
such information can help to the improvement- and not just describing- of the relation of
the enterprise with its clients, with the employees and with the owners, and generally, to
put a greater accent on the activities which allow the impartation of knowledge with thirds
which are interested, surpassing the limits of the organizations‖.
6. The balanced investments in intangible immobilizations helps to the increase of
competitiveness, of the efficacy and efficiency.
7. The presentation of information regarding the intellectual capital is important,
first of all, for the big companies, because within them the number of commercialized
brands is high. In this sense, one of the big Japanese companies (Misui, Mitsubishi,
Softbank, Toyota) were obliged to define and to elaborate the indicators concerning the
perspective of obtaining benefits from all of its brands, grouping them in terms of different
criteria. Thus, the simple assortment of all these indicators has offered to the managers a
mechanism of measurement of the monetary impact regarding the benefits of each brand,
which allowed the implantation of a more efficient TCM (Target Cost Management)
(Okano, 1999).
8. If the pursued objective is the enhancement of the competitiveness of the
enterprise, through the augmentation of efficacy and of quality, the investments in
intangible immobilizations imply, after Nevado and Lopez (2002: 58), two types of effects
and results:
 in the short run, immediate results, registered within the accounts of results of
the exercise, with the reduction of visible costs and/ or the augmentation of visible
incomes and with the reduction of secret costs;
 in the long run, due to the fact that the creation of the current human and
economic capital is recorded within the account of results of the following exercises, when
we talk about research and testing different products, about the negotiation on new markets
or the improvement of qualifications, given the fact that these strategic effects are
erroneously identified within the systems of accounting and the financial systems of the
enterprises.
9. Last but not least, it helps acquiring a psychological advantage by discouraging
the competition. Roos agrees also by asserting that this fact will make the competition
think that the enterprise dominates the market and that they won‘t be disposed to enter the
same market.
10. The information can influence in a great manner the majority of the decisions
of the financial analysts regarding the investments.

4. Limits and disadvantages of publishing the information regarding the


hidden intangible immobilizations

The incertitude, the subjectivity, the potential abuses, the lack of a generally
accepted rigorous model and the lack of comparison between the existing models
constitutes important limitations of the models of classification and measurement of the
intellectual capital. One of the main reticences is the strict appliance of the system of
prudence (Sullivan, 2001: 425-426), a situation in which, for the moment, it seems hard to
surpass. Thus, among the main limitations we can enumerate:
1. The character of property of the intangible investments. A major part of them
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Valahian Journal of Economic Studies

are not property of the enterprise and, in particular, those who refer to the human potential.
2. These investments are not difficult to demarcate, in the sense that they inflect
with the material investments and, in addition, it is quite complex the determination of the
level consigned by the found and by the specific profitableness.
3. The capacity of generating benefits in the future, namely the potential of the
active has to contribute directly or indirectly to the results of the enterprise.
4. The possibility of a control for the future usability‘s.
5. The possibility of assessment, which is the articulation of the value in monetary
terms. The opacity of the most of the elements within the framework of the intangible
capital is due, on the one hand, to the fact that there is no reference on the market for its
estimation and, on the other hand, to the eclecticism of these actives which carry one
different functions and activities.
The publication of reports regarding the intellectual capital of the enterprises has
for Backhuijis (1999: 7) some disadvantages such as:
1. It can provide important information to the competition, information which
could be of no interest to the public;
2. It leaves room to a possible manipulation of information, reaching the point in
which only information advantageous to the firm are published;
3. It creates risks through the medium of presenting information which can not be
justified;
4. The operative costs are increasing as a result of the new rules and of
bureaucracy.
What first and foremost the organizations must do is the internal reports regarding
the intellectual capital. The external users are asking for standardized, faithful and
objective information.

5. The usability of information regarding the intellectual capital

The reports regarding the intellectual capital have a utility for the internal public
(owners, managers, employees etc) as well as for the external public (creditors,
provisioners, clients and debtors, government and public administrations etc). For each of
these ones we will try to analyze which would be the utility to have access to those reports
concerning the intellectual capital.
The users at the internal level can be:
1. The owners. These ones are interested in knowing in what manner the obtained
results bring stability and profitableness for the organization, the prices of the stocks and
the strategic implications which are generated by the intellectual capital for the
organization. Sullivan (2001: 425-426) asserts that the interests of the owners in the case of
information regarding the intellectual capital could be:
 The degree of alignment of the resources of intellectual capital with the vision
and the strategy of the company;
 The assessment of the competitive position on two fronts:
a) Commercial: routine assessments of the competitiveness of the products, of the
processes and of the services of the company on the commercial market;
b) Technological: routine assessments of the competitive position of the company
 Provisions regarding the incomes based in innovation and development;
 The identification of the elements which generates value and reports

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regarding the activities and reserves which generate value.


2. The employees. These ones are preoccupied by the richness of the company in
present as well as in the future as a guarantee for the stability and for the salaries for their
work. Nevado and Lopez (2002: 66) assert that a report concerning the intellectual capital
can stimulate the employees and raise the esteem for the work place, enhancing their
competences and, the simple act of reporting this kind of information, will lead to the
growing of the qualitative level of the human resources.
3. The managers. The reports regarding the intellectual capital are essential in the
decision-making process. Nevado and Lopez (2002: 66) also agree in this respect,
affirming that the managers need a report which could offer them viable and relevant
information, concerning the intangible actives and their impact in the future performance
of the company with the purpose of taking efficient decisions.
The users at the external level can be:
1. The creditors are those who sustain the financing and who are interested by the
recapture of the credits, of the interests or the specific commissions. The intellectual
capital of the enterprise can attract the creditors, can decrease in their vision the risk and
can constitute a possible guarantee for them.
2. The providers use the reports regarding the intellectual capital for evaluating the
necessities and the capacity of production of the enterprise as well as the possibilities of
payment.
3. The clients and the debtors will be informed in what concerns the new
innovations and the new products, as well as the efforts made by the company for their
satisfaction, through pre-selling and post-selling services. Nevado and Lopez consider that
―the information regarding the intangible actives would be the key to identify which
enterprises can better guarantee the requisitions of each client‖.
4. The government and the public administrations in order to update the social,
economic, monetary and fiscal policies, with the intention of taking care of the protection,
the security, the rights and the work guarantees, the social and political competitive policy.

Conclusions

The lack of a accounting of the intellectual capital of the enterprises generates each
time big transaction errors. The big enterprises of the world, whose intellectual capital
increases in time, accuses the difficulties of measurement of the human quality, the
faithfulness of the clients and the efficacy of the organizational structure. This situation
significantly decreases the benefits of the enterprise, through the fact that a great part of its
intangible value can not be managed, precisely because of the measurement difficulties.
Until the adoption of a general recognized model of measurement and recording of the
intellectual capital, the modification of the current situation of accounting is not pursued,
but the publications o several complementary situations of the hidden intangible actives
(intellectual capital) of an organization which give competitive advantages and which are
very difficult to assess and appreciated by the current norms of accounting. It is necessary
to have a standard system which could allow the identification of the intellectual capital,
some measurement indicators for this one and a standard model of information.

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Valahian Journal of Economic Studies

References

Backhuijs, J.B; Holterman, W.G.M; Oudman, R.S,; Overgoor, R.P.M.; Zijlstra, S.M.
(1999): ―Reporting on Intangible Assets‖, OCDE International Symposium,
Measuring and Reporting Intellectual Capital: Experience, Issues and Prospects,
Amsterdam;
BearingPoint Business Consulting España.S.L (2004): Reputación corporativa y capital
intelectual. Como se gestiona en las empresas españolas in: www.bearingpoint.es;
Bontis, N. (2000): ―Assessing Knowledge Assets: A review of the models used to measure
Intellectual Capital‖, in:
http://business.queensu.ca/knowledge/frameworkpapers/framework/fp_00-01.pdf,
Canibaño, Leandro; Manuel Sanchez, Paloma (2004): Lecturas sobre Intangibles y
Capital Intelectual. AECA (Asociación Española de Contabilidad y
Administración de Empresas);
Edvinsson, Leif; Malone, M.S. (1999): „El capital intelectual. Como identificar y calcular
el valor de los recursos intangibles de su empresa”, Gestion 2000, Barcelona;
Mouritsen, Jan: ―Analysing Intellectual Capital Statements: Danish Ministry of Science,
Technology and Innovation‖
http://www.urjc.es/innotec/tools/Analysing%20Intellectual%20Capital%20Statem
ents.pdf, 2003, p.5
Nevado, Domingo y López, Víctor R. (2002): „El capital intelectual. Valoracion y
evaluacion”, Pearson Educacion, Madrid.
Nevado, Domingo y López, Víctor R. (2006): Gestione y controle: el valor integral de su
empresa, Diaz de Santos, Spania
Okano, H.; Okada, E.; Mori, N. (1999): „Implementing brand management in the japanese
companies: related with target cost management”, OECD, Symposium on
Intellectual Capital, Amsterdam
Sotomayor, Sebastián G. (2005): “La relevancia valorativa de los intangibles y los valores
tecnológicos europeos”, Servicio de Publicaciones de la Universidad de Cadíz,
Impresión Publidisa;
Sullivan, Patrick H. (2001), “Rentabilizar el Capital Intelectual”, Paidós Ibérica,
Barcelona;

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Volume 1 (15)  Issue 1  2010

Managerial Communication as Strategically Advantage of


Contemporary Enterprises

Gabriel CROITORU
Delia Mioara POPESCU
Daniel MIHAI
Valahia University of Târgovişte
croitoru_gabriel2005@yahoo.com

Abstract
This article aims to analyze the role of communication management in establishing
a mutual cooperation that can foster the development of the organization to accomplish its
goals and can also be created a human environment of efficiency and satisfaction.
Communication positioning through a mission, conferring a known personality and an
identity distinct from the competition are attempts to any organization. After one year,
2009, in which companies were increasingly alienated from much of human resource,
managerial communication role dropped significantly, many managers seeking solutions
only by their interest to shareholders but not towards employees. 2010 is the year in which
will be decided "who stays and who goes, managers will have to worry again attracting
valuable people.

Keywords: managerial communication, human resource, strategically advantage,


organization

JEL Classification: M51, M53, M54

Introduction

In an organization, ground increasingly more adverse global economic situation,


the communication has a crucial role. If we were to refer only to managerial decision and
would be a good enough emphasis as to its adoption and success of its execution are
inconceivable without a formal communication and sometimes even informal perfect
communication between management team members but also between them and the rest
employees. The result means to communicate, means, above all, to convey ideas, feelings,
decisions and subordinates can return the information.
Today, in 2010, the year of great economic and moral reconstruction, the role of
communication had become increasingly important in practice, employees are sometimes
faced with an excess of information, but also with the lack of communication, because
economic and financial problems more acute.
Managerial communication should develop closer relationships between human
resources at all hierarchical levels of organization. It is a priority in the communication
policy of the company. Contemporary Organization will not be able to create a positive

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Valahian Journal of Economic Studies

image on a market and even in front of its business partners as long as there is no attention
primarily for its own staff, to listen them, to solve their social and economical problems.
In this regard, we can remember a study conducted in several American
organizations in full economic and social transformations [DAWhetten, KSCameron,
1991], in connection with the management role in their success, we can conclude:
communication is the major problem encountered the implementation of change (through
strategy development or even survival) and the factor that explained the success in
managing change.
The basic idea we want to emphasize in this article is that of managerial
communication as a strategic advantage for the organization functioning in a competitive
environment increasingly stronger, in which the companies appear and disappear from the
market with astonishing speed. The statement remains valid in the case of a well-
established economies (as it was until 2008) and for a market economy in the increasingly
unstable (economic performance recorded by most areas is constantly decreasing,
Romanian economic engine - construction is in total collapse, even if the Government tries
a revival under the "first house" Program).
The condition of survival in 2010 and even 2011, of any organization is the ability
to adapt to new changes, which force them to make significant investments in the
environment domain, human resources, technology that are extremely expensive and those
that will not be able to cover from identifiable sources financing such projects will have to
close their doors because the Romanian economy is energy intensive structure.
Effective and efficient managerial communication is one of variables and also one
of the tools of adaptation strategies of the new organization, and also the resulting
strategies for human resources. Crisis, said Albert Einstein, "blessed is the situation that
may occur for countries and people, because it draws by itself progress," it may help to
adjust attitudes, the "way of looking at things‖ and change behaviors. Mission and
objectives of managerial communication are closely associated with organizational
changing and environmental characteristics in which the organization operates.
These days, the fluid nature of the environment, having basic parameters global
economic crisis, intense competition, technological progress and globalization, determine
new mission objectives of managerial communication and its new functions. Necessary
level of competence in managerial communication increases.
Close correlation between the effective and efficient communication and
organizational performance is due to the fact that today, inside the organizations, all that is
important for the performance (staff morale, job satisfaction, labor relations, ability to
change the image of the organization, exchange of information accurate, relevant and time
operating environment, etc..) is affected, directly or indirectly, by the communication
process.
In the context of what was said above, we mention only two of the current issues
in managerial communication: adapting the mission to organizational changes and new
elements that must take into account external managerial communication.

1. Managerial communication importance in conditions


of organizational changes

Changes of the climate in which the organization operates, draws after it the need
for new strategies and a redesign (reengineering) appropriate to internal processes,
organization structure with the appropriate set of relationships supported by a formal
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system of communication and, at the same time, imposes the need for a new organizational
culture.
In this context appears one of the specific characteristics of managerial
communication in the current conditions: orientation of the mission of management
communication towards the implementation of organizational strategy.
In many organizations there is currently performing economies trend of
decentralization of organizational structure and the transition from the vertically held to
horizontally hel; there is also the tendency to adopt the principles of TQM (Total Quality
Management), management type MBWA, the idea of empowerment and employee
involvement and teamwork. This requires communication management guidance to ensure
new relationships between departments, to encourage inter-service cooperation and to
develop new employee attitudes toward work.
Here is an example of communication mission that was made by Allstate
Insurance Company (USA): "Managerial communication effort must be directed towards
achieving the purpose of the organization by providing focused efforts on its employees
and the company's advantageous position in front of his audience Key "[K. Troy, 1993].
One of the most important objectives of managerial communication are:
- Make the employees understand and support the changes inside the organization.
- Training and managerial communication influence in the process of adapting to
the changes that have opportunities to communicate feedback and ideas; encouraging
behaviors and attitudes that increase the efficacy of the employees in achieving the
organization goals; facilitating the process of increasing the responsibilities assumed by
employees and their involvement and empowerment in order to identify their interests with
those of the organization.
Communication must ensure an effective information, education, training and
motivation by creating a climate that encourages the exchange of information, opinions,
ideas, provide job satisfaction and individual productivity. The employee must understand:
what organization is producing, organization‘s policy, its rules and standards and external
environment which the organization must face with. In parallel, by managerial
communication should be ensure the creation and maintenance of a positive image of the
organization's management to the organization's internal and external auditors.
Managerial communication has an important role in strengthening the team spirit,
feeling of belonging to the organization, in improving employee skills. Through proper
managerial communication can be identified and developed the talents of employees and
even entrepreneurship, can support self-improvement and development of the employees.
In conditions in which the redesign business process of the organization is taking
place, as defined by the concept of reengineering in the book of M. Hammer and SA
Stanton [M. Hammer and SA Stanton, 1995], managerial communication is the signal
instrument of redesign. Its essential characteristics are:
- Managerial communication has to take place without stopping by any means.
When it comes to redesign is not about "too much" communication. Redesign must be
announced, explained and implemented by communication by all members of the
organization.
- Communication management has to be simple and clear. Basic concepts and
motivation about the re-design should be explained in the manner to be understood by
everyone.

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- Managerial communication need to act on emotional level rather than intellectual


level, to be dramatic (appealing to the art of "selling" change), suggesting the urgency and
importance of the redesign process.
Therefore, a managerial communication becomes effective under the new
conditions of evolutionary or revolutionary changes, in a competitive environment, making
it a key element of strategy as the management of the organization seeks to mobilize the
workforce, to raise the moral state, to motivate and orientate on certain priorities, such as
quality and productivity, orientation to customer needs or change.
Managerial communication includes complex issues related to the change process
not only in internal communication with employees, but also in external communication,
national and international, with customers, suppliers, investors or any group that has any
interest in the organization. Managerial communication also includes relations with
government, community, public and media. The organization's interaction with these
interest groups, interaction achieved by efficient managerial communication, depends
largely on the image of the organization.
An essential characteristic of "the new organization - creativity born of necessity",
is the effort to develop managerial skills of managerial communication between different
national and international cultures (subcultures). It should also be noted that sometimes
organizations need fundamental changes in the behavior of the press and government
institutions, changes that the manager can not afford to ignore them when setting the
strategy of communication with outsiders.
Some of these changes are:
- Community journalism tends to focus more on the sensational of a fact than the
real fact, which encourages treatment of the events as "a news lead‖.
- The appearance of highly complex and ―spin‖ problems as are the organization
responsible towards the environment and other social responsibility (CSR concept ISO 26
000).
- The need for transparency in decision system, the need to communicate
everything immediately, both internal and external level of the organization.
- Increasing skepticism regarding the financial performance of organizations.
- Internal and external credibility of organizations‘ management more and more
shaky.
- The need of changing the perception of the investors concerning the company.
- The need of partnership with the unions.

2. Communication strategies on company’s level

On company‘s level, strategies of communicative acts must integrate into a unified


communications strategy to ensure implementation of organization's strategy, both through
direct action and indirectly, through generated communication climate. Depending on the
specific situation in which the organization is at a time and the direction in which it goes,
are useful different types of communication strategies.
Still remember, the desire to understand the importance and need for several of the
most common strategies adopted by organizations and where their adoption is
recommended.
Control strategy. The manager constrains and directs. It is a communication in one
direction using feedback especially for clarification. Often rely on individual styles of type
blaming, information-management.
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We can advise on: emergency situations, when time is critical element and the
manager needs uncontested authority over those involved. It is useful also in the training of
new employees, working with subordinates dependent, incompetent or not motivated to
work done.
If the control strategy is used incorrectly it can lead to negative feelings, resistance
to change or resistance from those who do not support direct control. Therefore control
strategy is not recommended for cases of implementation of change.
Egalitarian strategy. It is characterized by a bilateral transfer of information where
the influence is mutual; manifests elements of support. Decisions based on consensus. It
generates an atmosphere of mutual understanding. The predominantly individual
communication style is the one of solving the problems.
May be recommended in: training and welding groups in the implementation of
participatory management, in communication with small groups when time is not a
constraint, in the process of empowerment of employees.
It is a very important strategy to decrease resistance to change and to introduce
change but is not effective in communicating with incompetent people, lacking experience
and knowledge, with people lacking initiative, in emergency or crisis.
Structuring strategy. It is a strategy used successfully by managers in setting
policy, in restructuring the organization, the introduction of organization and planning in
complex situations that need clarification and continuous transmission of instructions. As a
predominantly individual style, the manager uses the information / guidance or belief by
reference to standards and procedures by establishing objectives, distribution and
explanation of tasks, encouraging of the employees to meet deadlines. Managers direct the
communication to support the structure.
Structuring strategy is not recommended in critical or emotional situations, in clear
and simple statements or when the organization operates in a stable environment.
Dynamic strategy. Communication is direct and to the point, content of messages
is pragmatic and action-oriented. It is based on individual styles of information-
management and persuasion. The communication is not a supportive type, is oriented to
immediate activities with whom the manager and the organization is confronting.
It is not applied in situations that involve distant future. It is recommended to
managers that are operating in rapidly changing environments. Control strategy differs in
that the manager, in his acts of communication, presents a brief declaration of position and
then delegates the authority to make decisions and act on that party that, at the same time,
stimulates and motivate him.
Acceptance strategy. It is characterized by accepting the point of view of the party
which can be, for example, a team of consultants, audit committee, etc. ..
It is applied when the communication purpose is, for example, to seek a
specialist‘s opinion regarding the internal processes of the organization or the market and
competition.
It is an inappropriate strategy for situations where is desired the transfer of
responsibility or lack of initiative to communicate with people as they would interpret this
mode of communication as a sign of weakness and incompetence.
Avoidance strategy. It is used to avoid communication about certain situations,
events, states. It solves generally few problems and is recommended only in situations
where the provision of information should be avoided or when emotional tension is very
high.

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3. Strategic thinking of management communication in new markets


conditions

Communication management, by content and form, must be subordinated to the


objectives of the organization and support its implementation strategy. Thinking of
managerial communication strategies ―viable‖, should be part of the strategic plan of each
company in the perspectives of 2010, and the manager must adopt a strategic thinking
about the communication process.
The competent manager must address an interpersonal, as a group, as an
organization but also outside the organization, based on defined strategies designed to
ensure communication climate necessary for the process to work, implement change and
high performance organization, to create a good image of the organization before its
partners by ways of transmission of its policy and established relationships with partners.
When we talk about strategic thinking in the context of communication managers
need to consider two major issues.
The first issue concerning the strategic thinking strategic approach to the
communicative act itself, at the individual level to an effective and efficient
communication, and includes all the strategic variables that the manager must take into
account in the formulation and its messaging. These are:
 The purpose, aims and credibility of the issuer communication;
 Characteristics and possible ways of motivation of the recipient
communication;
 Structuring and organizing the message to serve the purpose of
communication and compliance with the characteristics and needs of the
recipient, or the standard requirements;
 Characteristics of media and communication channels compared to the
purpose and specific recipient;
 The context in which communication occurs.
The second aspect of strategic thinking refers to managerial strategy and
organizational communication. The importance of this issue is that, along with
organizational culture, management processes and strategies relating to human resource
management, the strategic organizational management communication is intended to
support implementation of its strategy. It refers both to the external management
(examples, creating a certain image of the organization to the community, how to work
with external information, contact the partners of the organization, presentation of
organization policy etc.) and also the internal communication (examples, management
style and how decision-making, implementing changes to organization structure, influence
behavior, performance evaluation, motivation, conflict resolution etc.). The adopted
strategies in the external and internal communication to harmonize and ensure the
successful adaptation of the organization together in its operating environment
requirements.

Conclusions

The role of communication management in establishing a mutual cooperation that


can prefer the development of any type of organization, of any country on any continent
could create a human environment of efficiency and satisfaction. If interested managers

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would move more to the value of people within the organization, the role of
communication management should:
- create a sustainable strategic advantage in front of each client, by facilitating
growth for each strategic initiative for each market intermediation, integration of business
information, strategy development, and implementation.
- identify a direct communication, as close, with local, municipal, to identify
strategic needs at local, national and sometimes global.
- design by implementing government relations programs, the EU should not
forget that Romania loses significant amounts due to, sometimes, the lack of correct
awareness of managers and excessive bureaucracy.
So, the basic role of managers is to develop and maintain live communication
system designed to support implementation of the strategy of the organization, the
‖nervous system‖ of the organization‘s ―body‖ . He becomes an administrator of the
organization‘s strategic resources, knowledge and creativity information. In the conditions
of an effective communication it is a tool for competitiveness and efficiency of the
organization. The concrete forms of the communication process are linked to specific
management activities.
The companies should find optimal solutions that adapt to the specific strategic
and operational behavior of the market, taking into account their competitive potential. To
succeed in this demanding approach, we need a managerial communication centered on the
development of knowledge, the use of theories, principles and scientific management
methods that promote performance and competitive spirit, because it is a strategic asset
management business.
We need to reinforce the role of communicative competence of managers in
complex tasks that are coming upon business practice, insisting over the need to develop
communication skills through learning the best techniques.
The communication is essential in management, the quality of communication
depends on understanding the problems faced by any employee, from manager to
employee of the lowest hierarchical level, sustainable relationships, the ability of managers
to demonstrate their power, authority, to motivate and to lead the subordinates, but also
relations with the external environment of the organization of from whish there are taken
extremely useful information for its functioning. In fact, in management the problem is the
issue of circulation of ideas and communication solutions designed to achieve the
objectives of the organization, the organization through open channels and by those
outside. Today modern management provides a particularly important role of
communication management that is considered a vital component of the management
system of any organization or belonging to private management or belonging to public
management.
A positive labor relations program seeks to promote and maintain a positive labor
relations climate, which will ensure an effective, efficient, and productive organization.
Mutual cooperation between labor and management works. Management must take the
first step to share relevant information with labor. Honest communication, a willingness to
listen, a problem-solving orientation and a belief in the labor-management process are all
factors that must be present to develop mutual cooperation. Not every labor-management
interaction, however, involves mutual cooperation. The parties must be flexible enough to
move back and forth between mutual cooperation and peaceful co-existence, depending on
the circumstances.

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The results concern the analysis of communication in the situation of control our
aim was to identify the part played by multimodal resources in informal communication
mechanisms which could be modified or changed by the introduction of a new
technological environment. The results emphasize the impact of the verbal and non-verbal
resources, on the efficiency of the communication, especially with respect to the need to
reduce the risks of miscommunication. Some of the implications are discussed for a
general design method based on an assessment of the multimodal wealth of the working
environment.
We hope, finally, that this article will be an opening to shape and reconsideration
of opinions, ideas and attitudes about what is the importance of managerial
communication, today, and how it will evolve in the future economy.

References

D.A.Whetten, K.S.Cameron, (1991) „Developing management skills”, Harper Collins


Publishers, p.231.
K.Troy (1993) „Managing corporate communications in a competitive climate”, The
Conference Board, Inc., p.12.
M. Hammer, S.A. Stanton (1995), "The reengineering revolution", Harper Business, New
York.

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The Realities of the Integration – New Approaches about


Communication Problems for Romanian Organisations
Nicoleta CRISTACHE
Ion STEGĂROIU
Ioana LUPASC
Dunarea de Jos University, Galati
cristache.nicoleta@yahoo.de

Abstract
Organisations need new concepts concerning the way of organising their activities
and especially their communications for beeing able to adapt themselves at the significant
changes of the business environment that took place in recent years. The progress of
computer technology and of telecommunications, globalisation of markets, perpetual rise
of customer expectations are facts that made organisations reconsider their way of
organising activities and to reconsider their attitude concerning communications.

Keywords: integration, communication, Public Relation, social responsibility.

JEL Classification: M3

Introduction

The recent integration of Romania in EU will certainly have some influences on


Public Relations area. In the conditions in which ―the borders disappear‖, the companies
that have integrate, efficient and constant communication – with the help of their own
departments or the specialized agencies – will be the ones who will make the difference on
the market, manifesting a strategy which has transparency and information of the present
and possible clients.
In a time in which the Romanian firms make considerate efforts to raise their
performances at European standards and adapt their way of performing at international
practices, the PR services are as vital as a good relationship with the suppliers or the
deliverers. It‘s impossible to imagine a healthy business environment without the
involvement of communicational professionals, the only ones who can establish a correct
and fluent communication between the public and private areas, the economical circles and
The Power.

1. The new frame for communication by romanian organisations

In the public eye there are the communicational mechanisms and the marketing
politics the ones that have an important contribution at the establishment of a firm on the
market. The elements that will support this new tendency are:
 the rising number of companies which open new branches in Romania;

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 the necessity of promoting new products and brands on the Romanian large
market;
 the over requested advertising market;
 the necessity of establishing a long term relationship between the organization
and its public;
 the legislative frame which forbids the cigarettes producers to use advertising
means;
 the rising interest of private companies and institutions on communication;
 the apparition of new agencies of PR with different, creative and original
offers.
The profile of a PR organization is:
 Opened – the emission and the interception of messages is an interactive
process so as to communicate with the outside.
 Evaluative – to value the innovation not the routine;
 Flexible – this will allow an optimal dosage of formal and informal
communication;
 Oriented towards finality to create the most appropriate frame for the formal
communication;
 Responsible and dynamic – to create communicational opportunities and to
value the existent means.
In this context we practically speak about a communicational organization, in
which the involvement, the team spirit and the attending management is favored.
Starting with 2000, The European Commission and the U.E. countries are
interested more and more in the corporatist responsibility. Beyond the common European
speech the methods of social responsibility have a different evolution from country to
country, depending on the traditions and the economical and social features of every
region. In Communication for the revival of Lisbon Strategy, the European Commission
perceives the concept of social responsibility as being part of a competition. Thus the
voluntary initiatives of the enterprises, taking the form of some practices concerning the
social responsibility, can bring an essential contribution to the lasting development,
consolidating in the same time the innovative and competitive potential of Europe.
Now in Romania, besides multinationals and the ONG which are developing
projects in public-private partnerships, medium and big companies from the new
industries, as software, are developing and finding visible advantages in the social
responsibilities programs. In the last years there have been created a few environments
which promote the good practices of social responsibility, popularize this concept, do
research and maintain a public dialogue in which there are discussed the advantages broth
to the business environment by these management instruments.
Together with the admittance in the U.E. the actions of social responsibility won‘t
be just an option. The tendency is for the social responsibility programs to become
compulsory, and their extent to overcome the social. Now in Romania there aren‘t studies
about the budgets allocated to the social responsibility projects, and the legislation has no
strict foresights concerning this aspect, coming into operation just the law of patronage
[Susanu & Cristache, 2008].
In general, we cannot bring a real dimension of the social responsibility concept as
a guarantee of the organization‘s business success, but we have to be aware of the fact that
this isn‘t just an instrument of the value maximization through image construction, but an

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essential element of the long term success, which is strongly bounded by the social and
environmental performances of the community.
The corporatist social responsibility is strongly connected with the society
progress with the tendencies from the vital domains and with the evolution of the
individual and group necessities. The environmental, financial and social problems must be
carefully integrated in the business plan of a company, in the marketing and human
resources strategy. The corporatist social responsibility actions can bring competitive
advantages to a brand, can make the clients loyal, can cause the best way of keeping the
employees, and last but not least very important, they can save money.
For most companies in Romania the corporatist social responsibility domain is
reduced at social investment campaign – donations, patronage, philanthropic actions –
oriented towards problems considered to be of community interest. Some of these
programs are considered to be inefficient, don‘t have social and marketing clear objectives
and aren‘t professionally evaluated and promoted. For the wide public the news about the
companies‘ social programs have a lack of credibility, and for the journalists the official
statements to the press about such community actions aren‘t interesting.

2. Public relations – comparative analysis multinational companies area


SME’s area

In the last years the public relations has knew a sensible development in Romania,
first of all because of the active involvement of institutional actors and big multinational
companies in the area. Both the cases it‘s about very big companies with remarkable
economical force and corporatist cultures. That‘s why, when we talk about communication
and firm image involuntary we think of big companies with a lot of employees, which
carry on wide activities, at least at national level.
In the initial stage, for small and medium business area is not seen a great
development of PR investments from Romanian companies, these one being busy with
new competition challenges: important expensiveness in (re)technologisation, relocation in
industrial areas/logistic parks, personnel‘s (re)training etc.
In this harsher competitional context the small and medium size enterprises are
realizing more and more that image, reputation and notoriety are a necessary investment to
improve the business‘ long term survival [Reevs, 2004].
The beginning of 90‘s was for Romania, beside historical and social aspects, a new
period for the economical environment – the crystallization of the market economy with
very strict rules. Statistics show a lot of small firms, especially in the commercial area and,
claim services with the survival problem. For this first period the communicational steps of
small enterprises were almost none or were limited at advertising.
Shortly after the development of the controversy and so called ―market economy‖,
for most of the Romanian firm aspects about making and administrating an identity
system, making a communicational capital, notoriety and image were not on the priority
managers‘ list. They were practically still tributary to some past stereotypes about
promoting a system of connections, influences, authoritarian style, rigidity, lack of
transparency, over production, lack of public information, etc.
Now, after 17 years, looking back, the SME‘s area has changed a lot at a structural
level and at public image. Small and medium size companies from the large masses in the
commerce area have lost ground in front of those in the service area.

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Practice points out a category of companies for which even a marketing


department is a problem. These firms admit the communication problem, its importance
and role, and because they don‘t do anything about it the motive is the lack of budget. In
these cases the communication is reduce at making products and wrappers, prices, the
distribution network, without any important concerns to be distinguished on the market, to
create an image, a fame and especially to win the public‘s confidence.
A supervision of the business environment points out the fact that in the
communicational system of Romanian firms there are still the same defaults about social
communication, making events and crisis period communication [Ries &Trout, 2007].
There is seen a light improvement of financial communication about new technical
possibilities, like facilities offered by Telecommunication Ministry through Internet
network. The organization‘s incapacity to create and administrate a strong identity,
relevant inside and outside, the lack of Romanian managers‘ preoccupation to promote a
coherent image, the organization‘s impossibility to control the messages – all these lead to
the so called image crisis which can affect the credibility and the well going of a company,
even financially strong.
The practice of big international companies (Johnson & Johnson, Procter &
Gamble, Coca Cola, etc.) is the indisputable proof of the importance of systematization in
communication crisis. Like Susanne Westphal said in her work ―Unternemens
Kommunication in Krisenzeit‖, the crises should be seen as a ―jumping board‖, ―it‘s
dangerous to jump‖ but there are opportunities that can show in such situations and that
have to be exploited, like: exploiting the employees‘ creative potential, loyalty towards the
organization, showing some aspects or discouraging some prejudices about the large
public, the capacity of adopting innovative measures for a successful communication in
spite of small budgets, inside solidarity in cutting the costs, making a positive atmosphere
even in a cutting scheme.
Someone said that ―in marketing the only truth is the consumers‘ truth‖. To
paraphrase, we can say that in communication the only truth is the public‘s truth. The
image concept becomes more and more familiar to Romanian‘s firms and there are even
preoccupations in this sense, with image campaigns. This rends complicated the
specialists‘ work and generates the agencies differences of communication. In conditions
in which there is progress made concerning internal communication, Romanian firms
should be preoccupied in realizing campaigns in internal communication. The mass-
media‘s surveillance has to have some importance in communication.
If in 2003-2004 the aspects about marketing and communication were separately
dwelled, today the mass-media and the budgets allocated to different actions,
communication projects are underlining a satisfactory reality. In many cases the firms are
communicating, especially with clients, to get a maximum satisfaction by offering quality
products and services. These aspects are often seen in their advertising slogans. But, still,
the respondents said the number one objective is to raise the profit. This fact denotes that
for some firms the performance is only in digits.
It is strongly imprint the conviction that it‘s necessary a promoting on the Internet,
becoming in the future an opportunity.
Generically, the present Romanian organization is anchored in a complex business
environment, where the risk and the incertitude have raising quote. Thus we can define the
next frame:
 Realizing the necessity of defining our own identity, using a common language
in the market globalizing.
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 Making efforts to do communicational viable and efficient steps.


 The future raising budget allocated to communicational actions.
 Translating strategic objectives in communicational terms.
 It doesn‘t have major preoccupations about communication in crisis period.
 It doesn‘t have a communicational department in its organization.
 All firms express their desire of media and raising budget for communication.
 The non existence, for the moment, in the Romanian firms of a
communicational plan as a systematic strategy. This becomes a treat which
will affect the firm‘s image on the market.
 Underlining the necessity of a corporative communication.
 There is employee communication, fact which denotes preoccupations for a
good internal communication with effects on the external one. The Romanian
firms are becoming more interested in their employees.
 The Romanian manager is aware of the present state of communication in
Romanian firms and of the weak points of organizational management.
Generally for small and medium enterprisers the PR is considered to be a trifle
afforded by those who have too much money. This goes from the conviction that the PR
actions do not generate visible results as promoting and advertising do. The PR is seen in
the firm‘s good reputation of the market.
The analyses made at the SME‘s level shows a series of characteristic patterns:
 The distinction between the management and the auctioneers is vague.
 The employees have multiple roles.
 The first activities regard solving quotidian problems.
 Generally it prevail the informal relations and communication.
On this background the integration in the European space may be seen as a treat as
well as an opportunity for the SME. Communication could be in this case one of the
decisive criteria of who makes it on the market in the joining process, with the risk of the
new firm to overtake the market more quickly.
The European firm will establish new image standards on the Romanian market, to
which the SME will have to cope with so as to remain in competition. No matter how good
the services or products will be, in the market competition the promoting will turn out to be
real ace. The image strategies, the virtual promoting can be means by which the Romanian
firm can make the difference. The reality is that a lot of firms on the market don‘t have a
presentation site, an e-mail address, and business in made throw acquaintances and
recommendations, and specialized consultancy is made only in crisis.
At the opposite pole we can identify enough of small and medium firms on the
market which grow up and whose managers‘ have an open communication. Any company
needs an efficient communicational strategy with the final client, with the business
partners, etc. The agencies offers are more complex with the communicative needs of the
firms. Thus, besides the classical relation services with the media, the media analysis and
monitoring, corporative communication, internal communication, events management,
crisis administration, etc. more and more agencies have assistance for public apparitions,
financial communication or investor relations.
According to the best experts in PR, the SME need a visual identity so as to be
distinguished from others. The first step will be defining an identity for the firm, the
products or the services and its communication. There are essential building of a clear plan
and its respecting. The consistency in communication is a necessary condition for success.

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Thus the small and medium size firms need consultancy to promote their activity
and to widespread their communicational measures, like internal communication, internal
publications, events organization and even social responsibility.

References

Oprea, L. (2005), „Responsabilitatea socială corporatistă―, Tritonic Publishing House,


Bucharest;
Cristache, N. (2006) „Tehnici de comunicare prin relaţii publice‖, EDP Publishing House,
Bucharest;
Croitoru, G. (2006), „Economia întreprinderii‖, Bibliotheca Publishing House, Targoviste;
Cristache, N., Susanu, I.O. (2005), ―Comunicarea de marketing în activitatea
organizaţiei‖, EDP Publishing House;
Reevs, R. (2004), “Reality in Advertising―, New York: Knopf;
Ries, A., Trout, J. (2007), “Positioning: The Battle for your Mind“, New York: Warner
Books;
Susanu, I.O., Cristache, N. (2008), “Services marketing“, Denbridge Press NY, New
York;
Wind, Y.J. (2006), ―Product Policy Concepts, Methods and Strategy―, Addison – Wesley.

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Volume 1 (15)  Issue 1  2010

5S Method in Lean Manufacturing


Virgil POPA
Alina BIDIREANU
Mihai TOADER
Valahia University of Targoviste
virgilp51@yahoo.com

Abstract
LEAN MANUFACTURING is the production system the produces “more with
less”, being known also as “supple production” or “no loss production”, which means
“minimum COSTS production”.
Lean Manufacturing is “thinking and an involvement way for the complete
elimination of losses, oriented to the customers’ success, possible to obtain through the
simplification and the permanent improvement of all the processes and the relations in a
climate of mutual trust, respect and full implication of the employees”.
Added value: Any activity that increases the value or the utility of the product or
service requested by the market, namely the activities for which a customer is willing to
pay.
Loss (Non-added value): Any activity which don’t add value to the product or
service, meaning “what raises the COST of the product without adding VALUE” for the
customer.
The 5S method include5 phase:
1. SEIRI – Sorting and Filtering
Sorting is a method of freeing de space at the workplace and the elimination of all
the unnecessary objects, like programs, test pieces, drawings, old or defective tools,
accessories, unused materials, etc. The sorting process has an impact on the mentality at
the workplace and removes the syndrome “it works like this”.
2. SEITON – Stabilization (Systematization of objects location)
Stabilization means setting the locations (boundaries). The second step of 5S refers
to arranging in order the useful objects at the workplace, so these can be easily
find/identified and in a logical order to facilitate their use.
3. SEISO – Shining (Shining and cleanliness)
Shining means initial cleanliness and the cleanliness of everything represents the
workplace: floor, machines, cabinets, etc. It’s imperative to detect the sources of dirt, the
sources of leakage must be corrected and it must be provided enough material to perform
cleaning at any workplace. This is the only way to improve the products quality and the
people’s safety.
4. SEIKETSU – Standardization
Standardization means maintaining the status obtained by setting rules, habits and
standard procedures. Standardized work is obtained by finding the best working method
from different people, on the same machine or workbench; using the standard equipment
as recipients, various color files, etc.; displaying standard procedures on panels (visual
management); using check lists.

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5. SHITSUKE – Support for change. Support for change always requires that
specific procedures be followed (and standardized).

Keywords: Lean Manufacturing, 5S, Added value, Loss, Seiri, Seiton, Seiso,
Seiketsu, Shitsuke

JEL Classification: L600

Introduction

LEAN MANUFACTURING is the production system the produces ―more with


less‖, being known also as ―supple production‖ or ―no loss production‖, which means
―minimum COSTS production‖. Lean Manufacturing is a production philosophy which
determines the reducing of time since the customer order to the product delivery,
continuously minimizing the losses. There are many definitions, such:
- Lean manufacturing is ―a production philosophy that reduces the time elapsed
from the customer order to the product delivery, through reducing the losses (the activities
that don’t add value to the product)‖ [J. Womack & D.T. Jones, 1990]
- Lean Manufacturing is ―a thinking and an involvement way for the complete
elimination of losses, oriented to the customers’ success, possible to obtain through the
simplification and the permanent improvement of all the processes and the relations in a
climate of mutual trust, respect and full implication of the employees‖ [J. Womack & D.T.
Jones, 1996]
Here are few characteristics of the Lean manufacturing: working in continuous
flow (cells or flexible assembly lines), poly-qualified workers with a proactive attitude at
the workplace, large diversity of products made in any requested quantity, quality
incorporated in the processes of execution, reduced costs through substantial
improvements in the production process (without complicated systems or large
investment), clients and suppliers integrated in the production process.
So, the processes of realization of the products or services requested by the
customer must be analyzed on the basis of two fundamental concepts:
1) Added value: Any activity that increases the value or the utility of the product
or service requested by the market, namely the activities for which a customer is willing to
pay.
2) Loss (Non-added value): Any activity which don’t add value to the product or
service, meaning “what raises the COST of the product without adding VALUE” for the
customer. These activities must be eliminated, simplified, reduced or integrated.
The Value Stream includes all the component activities of a process, needed for the
realization of the product, from the concept to the launching and from the order to the
delivery. The value stream includes both the activities that processes the information
related to the realization of the product, and the actual processing activities of the materials
for the physical realization of that product. [C. Marchwinski & C. Shook, 2007]

1. Lean Manufacturing

The implementation of the Lean manufacturing process is made for a single


product or for a product line of similar products at the same time. It is not recommended to
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do the Lean change for all product lines and at the same time. The lessons learned from the
first attempt will be the basis for the second attempt and they will simplify the third one,
until the lean manufacturing techniques become well known. [J.Wincel, 2004]
The changes made are often similar with the changes from the suppliers. In the
development of the strategy of materials flow, the first discussed element in the lean
medium was the placing of the supplying market. In the implementation of the production,
there was introduced and applied concepts as the supply just-in-time and the availability of
the materials through the kanban system. The purpose of this approach was to eliminate the
―push‖ system of the materials supply and to create a ―pull‖ system. Although the MRP
system can be a ―pull‖-type system, it doesn‘t reflect so good the consumption needs
during production, like the kanban system. [Y. Monden, 1998]
The following picture reflects a resemblance between the implementation of the
lean manufacturing at his beginnings and the SCM steps. A similar comparison can be
made between the materials flow strategy and the continuous improvements.

Table 1.
The implementation of Lean Manufacturing
LEAN MANUFACTURING ACTIONS SCM IMPLEMENTATION ACTIONS
Tact time calculation JIT distribution versus Kanban system
Development of standardized work for all ―Dock to stock‖ - elimination of future
operations inspections
Implementation of the pull system between Systematic supply and reviewing the
the processes that use kanban suppliers‘ activity
Focus on developing relationships with
suppliers

In a SCM organization, the quality or the development of the activity of one of the
suppliers serve to assist the operational quality in the organization to permanently offering
corrective actions when the additional assistance in not enough. [J. Wincel, 2004]

2. Seiri, Seiton, Seiso, Seiketsu, Shitsuke – 5S – tool used in Lean


Manufacturing

2.1. SEIRI – Sorting and Filtering


If you doubt, throw!

Sorting is a method of freeing de space at the workplace and the elimination of all
the unnecessary objects, like programs, test pieces, drawings, old or defective tools,
accessories, unused materials, etc. The sorting process has an impact on the mentality at
the workplace and removes the syndrome ―it works like this‖.
The sorting implies the clear differentiation of the elements that are necessary and
must be kept from the elements that aren‘t necessary and have to be eliminated. [A.
Scotchmer, 2000]
Surprisingly, this concept is misunderstood. In the beginning can be difficult to
distinguish between the necessary and the unnecessary elements, therefore in such cases
the recommendation is: ―if you doubt, throw‖.
People tend to link to the parts having the impression that they will use them on a
future order, and if they see a dismantled machine they think that they will use it

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sometimes. Meantime, the stocks and the unused machines begin to get in the way of the
daily manufacturing activities. This leads to large losses for the entire plant.
The need of sorting and filtering is determined by the losses recorded by the
company that result in errors and defects. Between the losses that can be encounter we can
enumerate:
 useless stocks lead to additional costs of storage;
 unnecessary materials require additional spaces in warehouses and on the
workplace;
 there are used more cabinets and shelving to store unnecessary items;
 it is required more manpower to manage the growing stock;
 it is increasingly difficult to separate the necessary from the unnecessary
stocks because of their large volume;
 the quality of products decreases because of defects that occurs following the
stocks existing on the production line and the equipment failures;
 useless stocks and defective equipment requires financial resources to be
maintained.
For the easier identification of losses in the sorting is used the strategy of applying
red labels.
The strategy of applying red labels
The strategy of applying red labels is a method of implementation of the sorting by
marking the useless objects with highly visible red labels.
The criterion by which are assigned red labels differs from factory to factory. In
factories stricter in this regard, the period for which these objects are needed relates to the
production schedule of next week.
Stages of implementation of the strategy: [H. Hirano, 1990]
a) Launching of red labeling projects
- Members: employees in production, supply, management and accounting
departments.
- Period: 1-2 months.
- Key element for JIT consultant: the determination of the factory employees to
identify the useless objects.
b) Identification of the targets for the application of red labels
- Stocks: raw materials, parts, stocks on the production flow and products.
- Equipment: equipment, miscellaneous equipment, tools, transport vehicles,
desks, etc.
- Location: floor and shelves.
c) Setting the criteria for applying the red labels
- It is established the criteria for what is needed and what not.
- Example: We will not label the objects that are necessary for the next month
production program, otherwise will be labeled on all other objects.
d) Achievement of red labels
- To be easily observed, the red labels should be as large as a standard paper
sheet.
- For stocks, the labeling teams should write down the name, the quantity, the
retain period and the reason of retain.

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e) Assignment of red labels


- Related departments staff comes to workshop listen to the description of
current status and are objective in awarding red labels for useless objects.
- The search is made with a critical eye.
- The workshop workers won‘t be let to decide where to put the red tags. They
are too subjective.
- You must act without mercy when assigning the red labels.
- If you doubt, assign a red label!
- The red labeling must be done intensively for a short period.
f) Assessing targets for the implementation of red labels
- Stocks
 Dividing the labels into two types: "dead stocks" and "retained stocks".
 Creation and execution of the program to remove dead stocks; it should
include the quantity, the value, the period.
 Making a list of useless stocks for easier understanding and to be used in
accounting department.
- Equipment
 The basic principle: anything stands in the way during the improvement
activities would be or moved, or removed.
 Pursuit of the company's instructions regarding the abandonment
procedures of useless equipment.
 After applying the steps of this strategy you may move from sorting to the
stabilization strategy, which uses the information panels.

2.2. SEITON – Stabilization (Systematization of objects location)


Arranging the necessary objects so that everyone can use them easily!

Stabilization means setting the locations (boundaries). The second step of 5S refers
to arranging in order the useful objects at the workplace, so these can be easily
find/identified and in a logical order to facilitate their use. You must establish fixed
locations, like recipients, modular shelves, cabinets with transparent doors, panels,
markings on the floor for the access paths, containers or dumpsters for all the usual
materials and tools, their storage being according the frequency of their utilization. As long
as the location is easy to understand for everybody, abnormal situations will be seen
immediately.
Stabilization involves organizing the way how necessary items are kept, so that
anyone can use them easily.
Stabilization always accompanies sorting. Once all is organized and only the
necessary objects remains, their locations are determined.
Generally we could say that the stabilization is actually the standardization.
Stabilization in this context, as the basis for standardization, is arranging things so that
everyone can understand where there are held, can use them easily and then return them to
the place from which were taken.
There are three basic requirements for Stabilization: what, where and how much.
The signs and labels must clearly display all three elements, so that we can determine what
type of objects is held there, their exact location and the number of objects in that location.

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Valahian Journal of Economic Studies

In the stabilization phase there are used many strategies, such as the painting
strategy, which makes:
 Separation lines – mark travel routes within the factory and separate them
from the work areas.
 Demarcation lines for the sense of opening doors and corridors marking.
 Demarcation lines for the spaces reserved to stocks on the flow.
 Stabilization has destinations like:
- Warehouses:
 FIFO method for stock management – the last stored item is the one given
to consumption.
 Efficient use of domestic vehicles – stocks on the production flow must be
transported, in this respect is used the promptitude index of transport
means which compares the promptitude of transport means for different
types of objects using various storage methods.
 Setting storage spaces closer the production line.
- Tools and Devices: information panels,color codes.
Knowing the locations of objects (in one sight) lead us to the concept of visual
control. An important tool for the stabilization phase is the information panels strategy.
The information panels strategy
This is a method which clearly states where (location), what (object name) and
how much (quantity), is a particular object, as stabilization is achieved.
Stages of implementation of the strategy: [H. Hirano, 1990]
a) Determining locations: deciding the location of objects left behind sorting to be
as close to the place of performance of operations.
b) Preparation of the locations: organizing the shelves and cabinets.
c) Designation of the locations: creating and sticking the information plates that
clearly indicate where each object belongs.
d) Pointing the name of the objects
- Creating and sticking the information plates that clearly indicate the
name/number of the shelf or cabinet which will hold the objects.
- Indication of the quantities.
- Indication of the number of items of stock on each information plate.
e) Transforming the stabilization into a habit: transforming the stabilization into a
habit so the workplace doesn‘t become messy again.

2.3. SEISO – Shining (Shining and cleanliness)


Everything must be clean and swept!

Shining means initial cleanliness and the cleanliness of everything represents the
workplace: floor, machines, cabinets, etc. It‘s imperative to detect the sources of dirt, the
sources of leakage must be corrected and it must be provided enough material to perform
cleaning at any workplace. This is the only way to improve the products quality and the
people‘s safety.
Shining means sweeping the floors and keeping things in order.
Shining means inspection, and when we think of cleanliness and brightness we
should imagine someone who has a broom in a hand and a cleaning solution in the other.
Phases to achieve the cleanliness and shining: [H. Hirano, 1990]

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a) Daily cleaning – Things become clean


- Cleaning must become part of daily activities; cleaning and removing the dirt
from the floor, access paths, shelves, cabinets.
- Rubbing the surfaces so everything shines.
b) Cleaning inspections – Using the observations
- Once the cleanliness is implemented as daily practice, we can contribute at the
maintenance of the conditions by using the practical sense to see defects or
other abnormalities in the various equipment used.
c) Maintaining the cleanliness – Making improvements
- As soon as an employee sees a defect, the operator who works on that machine
must be the first who attempt to repair or improve the situation.
- If the operator can‘t do the repair, it must be called a maintenance technician.
- If the operator succeeds to fix the problem, this will be part of his activities for
―inspection of cleanliness‖.
In the stage of Daily Cleaning the following steps are distinguished:
- Determining the target points to achieve the cleanliness.
- Determining the tasks to achieve the cleanliness.
- Determining the methods to achieve the cleanliness.
- Preparing the tools to achieve the cleanliness.
- Implementing the cleaning.
Inspections in achieving the cleanliness involve:
- Determining the target points to achieve the cleanliness.
- Assigning takes to achieve the cleanliness.
- Determining the methods to achieve the cleanliness.
- Implementing the inspection.
- Implementing the maintenance of the cleanliness.

2.4. SEIKETSU – Standardization


The status resulted from the maintenance of the 3S.

Standardization means maintaining the status obtained by setting rules, habits and
standard procedures. Standardized work is obtained by finding the best working method
from different people, on the same machine or workbench; using the standard equipment
as recipients, various color files, etc.; displaying standard procedures on panels (visual
management); using check lists.
Standardization assumes that Sorting, Stabilization and Brightness are maintained.
1. Assigning the responsibilities for the 3S: it is essential to assign to the employees
tasks based on the activities they do at the workplace. It‘s imperative to set clear
instructions to not create confusion.
2. Integrating the tasks 3S in regular work tasks
- If people achieve 3S tasks only when these deviate form their normal course, it
is obvious that 3S system is not enough outlined. These tasks are learned
gradually, until they became automatisms.
- These can be obtained by visual 5S and 5S maintenance, as parts of current
activities.
3. Checking the level of maintenance of 3S: this can be done by using checklists
which evaluates the levels of implementing the 3S.

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For obtaining an impenetrable standardization system there are necessary measures


to:
a) Prevent the accumulation of useless objects.
b) Prevent the necessity to put things back to specific locations.

2.5. SHITSUKE – Support for change


Creating a habit of maintaining the correct procedures.

Support follows to ensure discipline and commitment of all to keep the obtained
results. Without the support for change everything can return quickly to a similar situation.
For the successful implementation of the 3S method, it is necessary not to start
simultaneously with all the improvements. First it must be developed an environment
where the culture of continuous improvement represents the standard. The initiatives must
be stimulated and rewarded. Time must be allocated for involving in improvement,
because this is possible only with the collaboration of all the employees involved in the
pilot project implementation.
Support for change always requires that specific procedures be followed (and
standardized).
The management must be committed, should encourage the training actions for the
participation of the employees in 5S and communicate all the actions and results of the 5S
audit. To do the audit is better to set up audit teams from different departments, which
conduct regular checks (the foreman makes daily checks, head of section makes weekly or
monthly checks and the top management makes quaterly checks).
To realise the Support for change must be used: [H. Hirano, 1990]
1. Visual 5S: there are many things to observe in a factory and anyone maust be
capable to do it.
2. Correcting the others: use positive criticism to make people understand where
they was wrong and to accept the advices.
3. Lessons to Build the Discipline: company managers should use their experience
to teach the subordinates to make things better.
4. Promotion in the whole company.
5. Use of Promotion Tools.

References

Hirano, Hiroyuki (1990) 5 Pillars of the Visual Workplace: The Sourcebook for 5S
Implementation, Productivity Press.
Marchwinski, C., Shook, J. (2007) Lean Lexicon – a graphical glossary for Lean Thinkers,
Third Edition.
Monden, Yasuhiro (1998) Toyota Production Systems, Productivity Press.
Scotchmer, Andrew (2000) 5S Kaizen in 90 minutes, Management Books.
Womack J., Jones D.T. (1990) The machine that changed the world, Ross.
Womack J., Jones D.T. (1996) Lean Thinking, New York: Simon&Schuster.
Wincel, Jeffrey (2004) Lean Supply Chain Management – A handbook for strategic
procurement, Productivity Press.

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