Pupavac, D., Draskovic, M.-Opatija, Maj 2015-IMR XI, G PDF

Opatija, 2014
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THE JOSIP JURAJ STROSSMAYER UNIVERSITY OF OSIJEK
Faculty of Economics in Osijek - croatia
HOCHSCHULE Pforzheim University
_____________________________________________________________
INTERDISCIPLINARY MANAGEMENT RESEARCH XI

INTERDISZIPLINÄRE MANAGEMENTFORSCHUNG XI
Under the auspices of the President of the

Republic of Croatia
Opatija, 2015
Published by:
Josip Juraj Strossmayer University of Osijek, Faculty of Economics in Osijek, Croatia,
Postgraduate Studies “Management”
Hochschule Pforzheim University
For the Publisher:

Ulrich Jautz, Ph.D., Dean, Germany
Vladimir Cini, Ph.D., Dean, Croatia
Editors:
Urban Bacher, Ph.D., Pforzheim University, Business School, Germany
Dražen Barković, Ph.D., Faculty of Economics in Osijek, Croatia
Karl – Heinz Dernoscheg, Ph.D., International Business School Styria, Austria
Maja Lamza - Maronić, Ph.D., Faculty of Economics in Osijek, Croatia
Branko Matić, Ph.D., Faculty of Economics in Osijek, Croatia
Norbert Pap, Ph.D., University of Pecs, Hungary
Bodo Runzheimer, Ph.D., Pforzheim University, Business School, Germany
Review Committee:
Ivana Barković Bojanić, Ph.D., Faculty of Law in Osijek, Croatia
Ivan Ferenčak, Ph.D., Faculty of Economics in Osijek, Croatia
Nino Grau, Ph.D. University of Applied Sciences, Fachhochschule Giesen-Friedberg, Germany
Mladen Jurišić, Ph.D., Faculty of Agriculture in Osijek, Croatia
Slavo Kukić, Ph.D., University of Mostar, Faculty of Economics in Mostar, Bosnia and Hercegovina
Hartmut Loffler, Ph.D., Pforzheim University, Business School, Germany
Brano Markić, Ph.D., University of Mostar, Faculty of Economics in Mostar, Bosnia and Hercegovina
Renata Perić, Ph.D., Faculty of Law in Osijek, Croatia
Bela Orosdy, Ph.D., University of Pécs, Faculty of Business and Economics, Hungary
Ivan Pavlović, Ph.D., University of Mostar, Faculty of Economics in Mostar, Bosnia and Hercegovina
Sunčica Oberman Peterka, Ph.D., Faculty of Economics in Osijek, Croatia
Jusuf Šehanović, Ph.D., Juraj Dobrila University of Pula, Croatia
Dirk Wentzel, Ph.D., Hochschule Pforzheim University, Germany
Technical editors:
Jerko Glavaš, Ph.D., Faculty of Economics in Osijek, Croatia
Hrvoje Serdarušić, Ph.D., Faculty of Economics in Osijek, Croatia
Language Editing and Proofreading:

Ljerka Radoš, Faculty of Economics in Osijek, Croatia
Design and print:

Krešimir Rezo, graf.ing.
Krešendo, Osijek
ISSN 1847-0408
Indexed in: Web of Science, EBSCOhost, RePEc, EconPapers, Socionet
Program committee:
Mate Babić, Ph.D., University of Zagreb, Faculty of Economics in Zagreb, Croatia
Heinrich Badura, Ph.D., President, Schlesischen Universität Katowice, Poland
Firouz Gahvari, Ph.D., University of Illinois at Urbana-Campaign, Department of Economics, USA
Gunther Gottlieb, Ph.D., University of Augsburg, Germany
Rupert Huth, Ph.D., Pforzheim University, Business School, Germany
Zoran Jašić, Ph.D., Former Ambassador of the Republic of Croatia to the Republic of Austria
Zlatko Kramarić, Ph.D., Ambassador of the Republic of Croatia to the Republic of Kosovo
Ulrich Jautz, Ph.D., Pforzheim University, Business School, Germany
Željko Turkalj, Ph.D., Rector, University of Osijek, Croatia
Mladen Vedriš, Ph.D., University of Zagreb, Faculty of Law, Croatia
Contents
Vorwort..........................................................................................................................................13
FOREWORD........................................................................................................................................14
Management
Lena Duspara, Dražen Holmik
COMPETITIVENESS INDICATORS IN THE MANUFACTURING
INDUSTRY IN THE REPUBLIC OF CROATIA ...................................................................... 17
Robert Obraz, Zlatko Rešetar, Nikolina Pavičić
EXAMPLE OF LEAN MANAGEMENT IN PRACTICAL USE
BASED ON REDUCTION “NVAT” ACTIVITIES IN THE
PRODUCT ASSEMBLY PROCESS .............................................................................................. 28
Igor Pureta
Lifelong Learning Process Using Digital Technology...................... 39
Romina Sinosich, Ivan Herak, Andreja Rudančić-Lugarić
Applicability of European development programmes
to touristic management of Istrian destination................................. 49
Ioana Beleiu, Emil Crisan, Razvan Nistor
MAIN FACTORS INFLUENCING PROJECT SUCCESS...................................................... 59
Martina Briš Alić, Mirko Cobović, Alen Alić
OPTIMISATION OF OPERATIONS USING A TRANSPORTATION MODEL ......... 73
Sonja Brlečić Valčić, Jana Katunar
Interdependence of business value components
in value creation and value capture concepts........................................ 84
Dominika Crnjac Milić
ECONOMETRIC APPROACH TO THE DEMAND FUNCTION .................................... 96
Maja Lamza - Maronić, Anđelko Lojpur, Jerko Glavaš
Knowledge management and scientific inclusion
on an international level Case Study: The bilateral
program Republic of Croatia - Republic of Montenegro
in the period 2015-2017......................................................................................................... 103
Jelena Legčević
Intelectual capital as a driving force of
economic development.................................................................................................. 112
Tanja Nedimović, Jelena Prtljaga, Predrag Prtljaga
Characteristics of Managerial Work – Chances and Risks......... 121
Ana Pap, Marija Ham, Ana Turalija
Product policy management as part of
sustainable marketing strategy ......................................................................... 131
Teufik Čočić, Velimir Lovrić
Management and leadership in cultural institutions ................ 141
Djurdja Solesa-Grijak, Dragan Solesa, Nedjo Kojic
STUDENTS’ POTENTIAL FOR AUTHENTIC LEADERSHIP........................................ 149
Ivan Miloloža
RELATION OF LEADERSHIP AND BUSINESS PERFORMANCE:
BALANCED SCORECARD PERSPECTIVE ........................................................................... 159
Sandra Herman
MANAGEMENT OF HUMAN RESOURCES IN TOURISM............................................ 180
Zorislav Kalazić, Jasna Horvat, Josipa Mijoč
The Stock Photography as a Part of Cultural
and Creative Industries of the Digital Age ............................................... 189
Lara Jelenc, Slavomir Vukmirović, Zvonko Čapko
FIRM’S STRATEGIC THINKING IN THE CONTEXT
OF BUSINESS INFORMATIZATION ...................................................................................... 204
Adel Ghodbane, Habib Affes
Relational network, absorption capacity and
access to external resources by Tunisian contractors.............. 217
Mato Pušeljić, Ana Skledar, Ivan Pokupec
DECISION-MAKING AS A MANAGEMENT FUNCTION.............................................. 234
General Economics
Jelena Franjković, Dario Šebalj, Ana Živković
YOUTH: DOES UNEMPLOYMENT LEAD TO SELF-EMPLOYMENT?...................... 247
Besim Aliti, Marko Markić, Boris Štulina
The impact of changes in prices of petroleum
products on the general price level ............................................................... 258
Goran Sučić, Željko Požega, Boris Crnković
Impact Analysis of Economic Parameters on Social
Development ............................................................................................................................ 274
Mladen Vedriš
THE NEW ECONOMIC POLICY OF THE EU AND ITS
APPLICATION IN THE REPUBLIC OF CROATIA.............................................................. 286
Microeconomics, Macroeconomics and Monetary Economics

Bodo Runzheimer
DER NEUE STANDARD IFRS 15 – IASB UND FASB VERABSCHIEDEN
EINEN WEITGEHEND EINHEITLICHEN STANDARD ZUR
UMSATZREALISIERUNG............................................................................................................. 313
International Economics
Larisa Nicoleta Pop
AN ANALYSIS OF THE ROMANIAN AGRICULTURAL MARKET
IN THE CONTEXT OF COMMON AGRICULTURAL POLICY .................................... 333
Thomas Cleff, Helen Loris, Nadine Walter
Shopping on to go – an analysis of consumers`
intention to use M-Commerce in Germany and Peru .......................... 344
Martin Vlcek
The Firm without Subordinations ..................................................................... 373
Financial Economics
Liviu Daniel Deceanu
SOVEREIGN DEBT UNDER SCRUTINY. WHAT TO DO? ............................................. 385
Melita Cita, Milan Stanić, Berislav Bolfek
RESTRUCTURING OF SMALL BUSINESS IN THE RERUBLIC OF CROATIA
DURING CRISIS .............................................................................................................................. 400
Ticijan Peruško, Tea Hasić
THE analysis of the financial possibilities on the life
insurance market after economic crisis – case of
Republic of Croatia............................................................................................................. 409
Urban Bacher, Julia Bacher
Nachhaltiges Investieren mit Fonds
– Auswahlstrategien und erste Hinweise
zur Erfolgsmessung ......................................................................................................... 421
Ozren Pilipović, Meta Ahtik, Nenad Rančić
FDI INFLOWS IN TIME OF CRISIS – PANEL DATA ANALYSIS
OF FDI INFLOWS TO THE SELECTED EU MEMBER STATES ................................... 433
Branko Matić; Hrvoje Serdarušić, Maja Vretenar Cobović
Managing personal finances: examples and
lessons from Croatian student population ........................................... 467
Helena Miloloža, Marina Šunjerga
IMPACT OF THE PUBLIC DEBT OF THE REPUBLIC OF CROATIA
ON THE CROATIAN EXPORT SETOR ................................................................................ 478
Ivan Lukić, Izabela Belić, Davor Vlaović
CONSOLIDATED (CENTRAL) PUBLIC PROCUREMENT AS
EFFECTIVE TOOL FOR THE COUNTY MANAGEMENT FOR
RATIONALIZATION OF COSTS OF REGIONAL UNITS ............................................. 491
Public Economics
Željko Turkalj, Dubravka Mahaček
EFFICIENCY OF COMPANIES OWNED BY LOCAL AND
REGIONAL SELF-GOVERNMENT UNITS ......................................................................... 509
Domagoj Pavić, Domagoj Karačić
NEWLY CREATED CONSEQUENCES CAUSED BY CHANGE
OF INCOME TAX .......................................................................................................................... 524
Health, Education and Welfare
Martina Dragija, Berislav Žmuk
IMPORTANCE OF MANAGEMENT REPORTS FOR DECISION
MAKING PROCESS IN HIGHER EDUCATION SYSTEM............................................... 537
Adrijana Nikić-Katić
EDUCATION AS AN INDICATOR OF DEVELOPMENT ON
THE ROAD TO THE KNOWLEDGE ECONOMY .............................................................. 549
Grozdanka Gojkov, Aleksandar Stojanović, Aleksandra Gojkov Rajić
Quo vadis univerzitas? (Organizational
concepts – imperatives of success and value) ......................................... 558
Dražen Barković, Nedeljko Kovačić
THE DEVELOPMENT OF QUALITY MANAGEMENT
SYSTEMS AT THE PRIMARY LEVEL OF HEALTH CARE ............................................. 569
Helena Štimac, Sendi Katić
QUALITY ASSURANCE IN HIGHER EDUCATION ......................................................... 581
Vladimir Masaryk, Eva Musilová, Marta Vaverčáková, Timo Keppler
HEALTH MANAGEMENT IN THE SLOVAK REPUBLIC................................................ 592
Monika Mačinková, Peter Slovák, Jana Keketiová, Thorsten Eidenmüller
PERSONAL MANAGEMENT IN SOCIAL CARE IN THE SLOVAK REPUBLIC...... 608
Klara Šćuka, Branka Martić, Miroslav Jarić
COUNTY MANAGEMENT – AN IMPORTANT FACTOR
OF AVALIABLE HEALTH CARE................................................................................................. 622
Ante Mihanović, Ante Sanader, Mate Krce
INFLUENCE OF VARIABLE COMPENSATION ON BUSINESS
PERFORMANCE OF THE SPLIT – DALMATIA COUNTY PHARMACIES ............... 633
Oliver Kesar, Renata Deželjin, Martina Bienenfeld
TOURISM GENTRIFICATION IN THE CITY OF ZAGREB:
TIME FOR A DEBATE? .................................................................................................................. 657
Agneza Aleksijević, Luka Stanić
ROLE OF INFORMATION SYSTEM IN VUKOVAR
GCH SYSTEM ON THE EXAMPLE OF NURSING E-RECORDS ............................ 669
Law and Economics

Emina Jerković
Importance of Tax Revenue Concerning
Budgets of Local and Regional Self-Government Units ............... 683
Corina Cristina Buzdugan, Elena Mihaela Fodor, Rodica Diana Apan
Doing business in Romania; Foreign direct
investments (FDI); Trading entities – investment
mechanisms; protection system; guarantees ........................................ 694
Pavao Gagro
OPPORTUNITIES FOR ICT USE IN THE NOTARY PUBLIC SERVICE ..................... 706
Željko Turkalj, Ante Orlović, Ivica Milković
PHENOMENOLOGY OF PUNISHABLE BEHAVIORS IN THE
ECONOMY AND THEIR IMPACT ON THE SUCCESS OF THE
ORGANIZATIONS......................................................................................................................... 727
Vjekoslav Puljko
REGULATION (EU) No 1215/2012 ON JURISDICTION AND
THE RECOGNITION AND ENFORCEMENT OF JUDGMENTS IN
CIVIL AND COMMERCIAL MATTERS WITH SPECIAL REFERENCE TO
THE RELATIONSHIP BETWEEN THE REGULATION AND ARBITRATION ...... 739
Igor Bojanić, Ivana Barković Bojanić
PLEA BARGAINING: A CHALLEGING ISSUE
IN THE LAW AND ECONOMICS ........................................................................................... 752
Economic Systems
Dunja Škalamera–Alilović, Mira Dimitrić
RESOLVING INSOLVENCY MANAGEMENT:
COMPETITIVENESS OF NATIONAL BUSINESS ENVIRONMENTS ....................... 769
Industrial Organization
Markus Hafele, Brigitte Mayer
Qualitätssicherung in der Wirtschaftsprüfung
– Ein System mit ständigem Reformbedarf? ................................................ 781
Business Administration and Bussines Economics

Marija Mihaljević, Ivana Tokić
ETHICS AND PHILANTHROPY IN THE FIELD OF
CORPORATE SOCIAL RESPONSIBILITY PYRAMID ...................................................... 799
Ajdanai Yuktanandana, Dissatat Prasertsakul
The Effects of Service Quality and Customer
Satisfaction on Customer Loyalty:
A Case of Thai Mobile Network Industry ....................................................... 808
Economic Development, Technological Change and Growth

Sofija Adžić
PROCESS OF REINDUSTRALIZATION IN THE CONTEXT
OF EUROPEAN INTEGRATION .............................................................................................. 827
Ljiljana Božić, Valerija Botrić
Innovators’ vs. Non-innovators’ perceptions on business
barriers in Southeastern Europe ........................................................................ 839
Drago Pupavac, Mimo Drašković
Employment in Transportation: Looking Backward and
Looking Forward ................................................................................................................. 850
Ivan Ambroš, Ivan Miškulin, Gabrijela Žalac
Applying Triple Helix concept to develop wood sector in
Vukovar-Srijem County .................................................................................................. 860
Cătălina Crișan-Mitra, Anca Borza
How measuring CSR performance impacts CSR results? ................... 869
Ioana Sorina Mihuţ
ECONOMIC GOVERNANCE AS TRIGGERING FACTOR FOR ECONOMIC
CONVERGENCE ACROSS EUROPEAN UNION MEMBER STATES ......................... 880
Marcel Pîrvu
Progress assessment on renewable energy across
the European Union. Potential and challenges of
reaching the targets of the 2020 Horizon .................................................. 891
José Guadalupe Vargas Hernández
THEORETICAL APPROACHES FOR THE ANALYSIS OF INNOVATION
CAPACITY AS A FACTOR THAT AFFECTS THE COMPETITIVENESS
OF SOFTWARE INDUSTRY OF JALISCO ............................................................................. 904
Branimir Dukić, Sanja Ćorić, Danijel Bara
INFORMATION SYSTEM REENGINEERING EFFECTS THROUGH THE
ESTABLISHMENT OF THE SPECIAL DEPARTMENT FOR BUSINESS
INTELLIGENCE IN BUSINESS ENTITIES ........................................................................... 936
Guy Fournier, René Seign, Véronique Goehlich, Klaus Bogenberger
Car-sharing with electric vehicles: A contribution
to sustainable mobility? .............................................................................................. 955
Josip Mesarić, Nenad Stanišić
PROBLEMS OF TRANSITION FROM CLASSICAL DEDICATED
ICT SYSTEM TO CLOUD COMPUTING .............................................................................. 976
Marija Šmit, Zorislav Šmit
Impact of digital devices and mobile applications
on child development .................................................................................................... 989
Nino Grau
Change Management – Voraussstzung für erfolgreiche
Einführung der Projectmanagementnorm ISO 21.500 ....................... 1003
Damir Lucović
PERSPECTIVES OF THE CLOUD COMPUTING FOR
FINANCIAL INSTITUTIONS ..................................................................................................1013
Morana Mesarić, Luka Burilović
MANAGEMENT OF ICT BASED ENTERPRISES – APPROACH THROUGH
FRAMES FOR BUSINESS ARCHITECTURE, IT GOVERNANCE AND IT
MANAGEMENT ............................................................................................................................ 1027
Urban, Rural and Regional Economics and Growth
Višnja Bartolović, Tomislav Kovačević
VALUATION OF ECONOMIC - SOCIAL DEVELOPMENT OF THE COUNTIES
BRODSKO-POSAVSKA AND POŽEŠKO-SLAVONSKA THROUGH EU FUNDS .....1041
Vladimir Cini, Nataša Drvenkar, Mario Banožić
HEALTH TOURISM DEVELOPMENT IN CONTINENTAL CROATIA ........................1052
Sanja Knežević, Anita Kulaš
THE IMPACT OF DEMOGRAPHIC TRENDS IN BROD-POSAVINA
COUNTY WITH REGARD TO THE LABOR MARKET .......................................................1066
Josip Britvić, Dejan Tubić, Božidar Jaković
TOURIST CLUSTER - HOLDER OF RURAL DEVELOPMENT OF CROATIA ............1077
Marcela Monica Stoica
YOUTH PERCEPTIONS ON THE POLITICAL AND ECONOMIC FUTURE OF
ROMANIA IN A GLOBAL WORLD. REASONS FOR MIGRATION .................................1089
Miscellaneous Categories
Iva Buljubašić
IMPACT OF UNCONVENTIONAL ADVERTISING ON
PERFORMANCE OF CULTURAL INSTITUTIONS IN CITY OF OSIJEK .................... 1097
Zdravko Tolušić, Sandra Odobašić, Marija Tolušić
VALUATING BRANDS OF WINE USING BRAND FINANCE
METHOD - A CASE STUDY........................................................................................................... 1106
Ulrich Föhl, Simon Elser
MEASURING BRAND PERSONALITY – CONSTRUCT VALIDITY
OF A SHORT VERSION OF A BRAND PERSONALITY SCALE....................................... 1116
Tihomir Zec, Vice Mihanović, Jerko Žunić
ACHIEVING COMPETITIVE ADVANTAGE OF A COMPANY THROUGH
EFFICIENT MANAGEMENT OF WAGES AND EMPLOYEE REWARDS ..................... 1133
Damir Butković
INTEGRATED PROJECT PLAN AS BASIS FOR
MULTI-PROJECT SYSTEMS MANAGEMENT ....................................................................... 1146
Gabriele Hildman, Urlich Vossebein
The Approach of Systems Thinking in Strategic
Marketing Controlling .................................................................................................. 1159
Wolfgang Gohout, Katja Specht
SOME INVESTIGATIONS OF THE SAMPLE MAXIMUM ................................................ 1173
Vorwort
Es ist uns ein Vergnügen, das Konferenzband „Interdisziplinäre Managementforschung

XI / Interdisciplinary Management Research XI“ vorstellen zu können. Ein Buch aus
dieser Reihe ist zum ersten Mal 2005 erschienen, als Resultat der Zusammenarbeit
zwischen der Wirtschaftsfakultät in Osijek, Kroatien und der Hochschule Pforzheim,
Deutschland, und insbesondere durch das Magisterstudium des Management. Die
Zusammenarbeit der zwei genannten Partnerinstitutionen ist unter anderem durch
jährliche wissenschaftliche Symposien gekennzeichnet, auf welchen interessante Themen
aus verschiedenen Bereichen der Wirtschaft und des Managements vorgestellt und folglich
in einem Band veröffentlicht werden. Jedes Jahr ziehen die wissenschaftlichen Symposien
Akadamiker anderer kroatischer, sowie ausländischer Universitäten, einschließlich
Australien, Deutschland, Ungarn, Polen, Rumänien, Slovenien, Montenegro, Bosnien und
Herzegovina, Serbien, Indien, Irland, Czechien, Israel, Italien, Sudafrica, Belgien, Schweiz,
USA, Slowakei, Dänemark, Mazedonien, Mexico, Zypern und Großbritannien an, die
ihren wissenschaftlichen und profesionellen Beitrag zur Diskussion über zeitgenössische
Fragen aus dem Bereich des Managements leisten. Die Aktualität der behandelten
Fragen, der internationale Charakter im Hinblick auf Themen und Autoren, die höchsten
Standards der Forschungsmethodologie sowie die Kontinuität dieser Konferenzreihe
wurden auch von der internationalen akademischen Gemeinde erkannt, weswegen sie auch
in internationalen Datenbanken, wie Web of Science, Thomson ISI, RePEc, EconPapers
und Socionet, zu finden ist.
Die neueste Ausgabe von „Interdisziplinäre Managementforschung XI / Interdisciplinary

Management Research XI“ umfasst 86 Arbeiten geschrieben von 186 Autoren. Der
Erfolg früherer Ausgaben ging über die Grenzen der Länder hinaus, deren Autoren
schon traditionell Teil der Reihe waren und zog neue Autoren aus Taiwan und Tunesien
an. Jedes der Autoren leistete einen bedeutenden Beitrag zu diesem fachübergreifenden
Managementforum.
Als Herausgeber dieses Bandes hoffen wir, dass diese Reihe auch weiterhin Akademiker
und Profesionelle dazu bewegen wird, in Forschung und Beruf die höchsten Standards zu
beanspruchen, und dass es weiterhin als Ansporn zu weiteren Formen von Zusammenarbeit
unter Teilnehmern dieses Projektes dienen wird.
Prof. Dr. Dražen Barković

Prof. Dr. Bodo Runzheimer
Foreword
It is our pleasure to introduce the book “Interdisziplinäre Managementforschung XI /

Interdisciplinary Management Research XI” to you. The first volume appeared in 2005 as a
result of co-operation between the Faculty of Economics in Osijek (Croatia) and Pforzheim
University (Germany), particularly through the postgraduate programme “Management”.
The co-operation between these partnering institutions has been nurtured, amongst
else, through annual scientific colloquiums at which interesting topics in various fields of
economics and management have been presented and later published in the proceedings.
Over the years, the scientific colloquiums have drawn the attention of academic scholars
from other Croatian universities, as well as from other countries including Australia,
Germany, Hungary, Poland, Romania, Slovenia, Montenegro, Bosnia and Herzegovina,
Serbia, India, Ireland, Czech Republic, Israel, Italy, South Africa, Belgium, Switzerland,
USA, Slovakia, Denmark, Macedonia, Mexico, Cyprus and the United Kingdom each
making a contribution in academic and professional discussion about contemporary
management issues. Actuality and importance of the issues discussed, the international
character of the book in terms of authors and topics, the highest standards of research
methodology and continuity in publishing have been recognized by the international
academic community, resulting in the book now being indexed in world-known data bases
such as Web of Science, Thomson ISI, RePEc, EconPapers, and Socionet.
The latest edition, i.e. “Interdisziplinäre Managementforschung XI / Interdisciplinary

Management Research XI” encompasses 86 papers written by 186 authors. The success
of former editions has echoed beyond the traditionally participative countries and authors
and now includes new authors from Taiwan and Tunisia, each providing a valuable
contribution to this interdisciplinary management forum.
As editors we hope that this book will continue to encourage academic scholars and
professionals to pursue excellence in their work and research, and to provide an incentive
for developing various forms of co-operation among all involved in this project.
Prof. Dr. Dražen Barković

Prof. Dr. Bodo Runzheimer
Management
COMPETITIVENESS INDICATORS
IN THE MANUFACTURING
INDUSTRY IN THE REPUBLIC OF
CROATIA
Lena DUSPARA, BSc

College of Slavonski Brod,
Slavonski Brod, Croatia
lena.duspara@vusb.hr
Dražen HOLMIK, M.Sc.

Croatian Chambor of Economy, Croatia
lena.duspara@vusb.hr
Abstract
Competitive advantage is what each enterprise stands out from the rest of the
competitors in the market. It is the reason why the enterprise operates main-
tains and achieves growth. For the majority of enterprise competitive advantage
is rarely unique and changes over a longer time period. Successful enterprises
are therefore constantly looking for new competitive advantages and spend a
lot of time for market research. When calculating the index of competitiveness
it should calculate indicators such as: allocation of public funds, trust in politi-
cians, judicial independence, ethical corporate behavior, GDP, the nature of
competitive advantage, control of international trade, capacity for innovation,
procurement of advanced technology products, the rate of inflation etc.
The aim of this paper is to research financial indicators of 20 small enterprises in
Croatian manufacturing industry and compare their results form 2011, 2012
and 2013. Indicators are base that shows success and development of enterprise.
The research is conducted through a survey. The goal is to present a current
state of the competitiveness of enterprises in manufacturing industry, and to
determine the indicators which improve the competitive position of enterprises.
Keywords: competitiveness, indicator, manufacturing, enterprise, advantage
JEL Classification: L16, L20, L52, L6
17
1. INTRODUCTION
The industry consists of a group of companies that produce very similar
products. Industries differ in economic characteristics, competitive charac-
teristics and profit prospects. Under the economic characteristics that should
be considered in identifying the dominant characteristics of the industry are
considered: size and growth rate of the market, the geographic boundaries of
the market, the number and size of competitors, production capacity, customer
needs, technological changes, differentiation, product innovation, economies
of scale etc. All industries have different characteristics and for them specific
Lena Duspara: COMPETITIVENESS INDICATORS IN THE MANUFACTURING INDUSTRY IN REPUBLIC OF CROATIA
competitive forces. Competitive advantage is unimaginable to reach without

successful business strategy. Competitive strategy enables the creation of better
competitiveness of enterprises, determines objectives that should be achieved,
and what elements should be satisfied in order to achieve the intended goals.
2. COMPETITIVE ADVANTAGE
Competitive advantage is what the company stands out from the rest of the
competitors in the market. “The biggest threat for entrepreneur or manager is to
lose customers. Competitive advantage is the reason why the customer decides
to purchase in a particular company. In the case of a reduction of profits com-
panies decide for lower prices, in order to compete in the market” (Porter, M.E.,
2004., p.25). In such conflict survive can only financially powerful enterprises.
Companies to its customers have to offer more than low prices. It needs to pro-
mote its competitive advantage or develop and implement new to achieve the
best possible position for the defense of competition. Key success factors are the
factors that affect every member of the industry. They include certain strategic
elements, characteristics of products, resources, expertise, etc.
There are two types of competitive advantage, which is divided into exter-
nal and internal. For external competitive advantage for company is the most
important reputation perceived by customers. Under external competitive ad-
vantages are considered: patented products or special services which the compe-
tition cannot be measured, better product quality, quick delivery, etc. “Internal
competitive advantages have influence on customers, but customers may not see
it. These are: purchasing power, substitute products or services, market posi-
tion, experience, production advantages, distribution advantages, links with the
authorities”( Smith, J.L., 2007., p. 163). In case the company does not have a
18
competitive advantage, then as soon as possible it should be created. Creating
competitive advantage not only helps the company, but redirects the way of do-
ing business and focus on new goals.
.. Porter’s five generic competitive forces

Five competitive forces affects more or less on all companies in the industry.
All five competitive forces have influence on intensity of the competitiveness
and profitability of the industry, and a major power or force becomes the most
important point for the determination of the company’s strategy. “The company
with a strong market position in the industry, where is a small possibility of en-
try of new competitors into the market, will reduce the prices of their products
if there are substitution product with low price. The structure of the industry
that affects the strength of the force should be visibly different from the many
short-term factors affecting the competitiveness and profitability. Fluctuations
in economic conditions in a business cycle influence the level of short-term prof-
itability of almost all companies in various industries” (Porter, M.E., 2004., p.3).
Fine competitive forces are shown in picture 1:

-The threat of new entrants. New companies that entering in the market cre-
ate new market capacity. Such companies often have substitution products that
cause lower price levels and reduce profitability. The threat of entry into the
industry depends on the existing barriers to entry, and the reaction of already
existing companies. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
-The rivalry within industry. The rivalry among existing competitors means
balancing between tender prices, advertising, introduction of products, con-
struction of commercial networks, the development of knowledge and skills.
The rivalry occurs when one or more competitors insights opportunity to im-
prove their position.
19
Picture 1. Five porter’s competitive forces
Source: http://www.tutor2u.net
-Threat of substitute products. Companies that compete in an industry are

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

Competitiveness of the country is characterized by numerous elements that
constitute a lack of Croatian competitiveness, such as: costs of agricultural pol-
icy, the ability to attract talented people, incentives to investment, cooperation
of employers and employees, employee education, sophistication of customers,
protecting investors, development cluster, to protect the interests of minority
shareholders, technology transfer, bias decisions of government officials, the
impact on the market, the independence of the system, strengthening of local
competition, the effectiveness of management boards, transparency of govern-
ment policies, the availability of credit, the representation of foreign ownership,
willingness to delegate responsibilities, balance the government budget.
20
Table 1. Problems of national competitiveness
2012. 2013. Change
Innovation capacity 72 110 -38
Manufacturing technology 104 103 1
Development of clusters 94 114 -20
Marketing 83 94 -11
Contorl of international distribution 96 97 -1
Credit availability 94 105 -11
Source: Izvješće o globalnoj konkurentnosti 2014-2015
Table 1. presents biggest problems are innovation, which has negative change
-38 in comparison form 2012 to 2013 year, other problems are development of
clusters with negative change of -20, marketing and credit availability with -20,
and only technology development doesn’t have negative change, it is almost the
same in 2012. and 2013.
Table 2. shows positive indicators for business competitiveness in Republic
of Croatia. Contrary to negative indicators positive indicators are development
of research and development (R&D), comparison of wages and labor produc-
tivity, customer orientation, business ethics and its implementation, efficiency
of CEO and supervisory boards.
Table 2. Positive indicators of business competitiveness in Republic of Croatia

2012. 2013. Change
Investments in R & D 76 65 11
Wages and productivity 101 82 19 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Customers orientation 107 84 23
Business ethics 94 76 18
Efficiency of CEO boards 127 106 21
Source: Nacionalno vijeće za konkurentnost, 2014
Positive indicators have growth form 2012 to 2013. The bigesst positive
change is customer orientation, than growth of efficiency of CEO boards.
Croatia chould support development od indicators shown it table, and create
new indicators which would be leaders of national competitivness. Technolgy
should is one of most important indicators that should become strong positive
indicator.
21
3. COMPETITIVENESS OF REPUBLIC OF
CROATIA
Comparing competitiveness on global level, it is clear that Republic Croa-
tia is not competitive. Croatia is one of lowest ranging competitive country in
European Union, and not very well positioned in the world. Indicators as rate
of unemployment, rate of growth of GDP is low, ratio of export and import is
unfavorable, there are not enough investments, and profits are low and so on.
Table 3. shows data on the competitiveness ranking list and competitiveness
index, between top fifteen most competitive countries in the world and Repub-
lic Croatia in 2013/2014. Table shows that Croatia is currently on 75th place in
terms of competitiveness in the world with an index of competitiveness of 4.13.
Before the global economic crisis 2006-2007 was the 56th place. Very similar
are rated countries in region Bosna and Herzegovina and Slovenia.
Table 3. Range of competitiveness in period from 2008-2013

2013- Index 2012- Index 2011- Index 2008- Index
2014 2013-2014 2013 2013-2014 2012 2011-2012 2009 2008-2009
Switzerland 1 5,67 1 5,72 1 5,74 2 5,61
Singapur 2 5,61 2 5,67 2 63 5 5,53
Finland 3 5,54 3 5,55 4 5,47 6 5.50
Germany 4 5,51 6 5,48 6 5,41 7 5,46
USA 5 5,48 7 5,47 5 5,43 1 5,74
Sweeden 6 5,48 4 5,53 3 5,61 4 5,53
Hong Kong 7 5,47 9 5,41 11 5,36 11 5,33
Netherland 8 5,42 5 5,50 7 5,41 8 5,41
Japan 9 5,40 10 5,40 9 5,40 9 5,38
UK 10 5,37 8 5,45 10 5,39 12 5,30
Norway 11 5,33 15 5,27 16 5,18 15 5,22
Taiwan 12 5,29 13 5,28 13 5,26 17 5,22
Qatar 13 5,24 11 5,38 14 5,24 26 4,83
Canada 14 5,20 14 5,27 12 5,33 10 5,37
Denmark 15 5,18 12 5,29 8 5,40 3 5,58
Slovenia 62 4,25 39 5,05 39 5,12 42 4,50
Croatia 75 4,13 81 4,04 52 4,76 61 4,22
BiH 87 4,02 88 3,93 92 4,25 107 3,56
Serbia 101 3,77 95 3,87 88 4,28 85 3,90
Source: made by author according to World Economic Forum
22
Compared to previous period for example 2008 or 2011 Croatia had better
rank, it was on 52nd and 61st position. Croatia is far away from average of most
developed countries. It should make effort to improve Croatian position in fu-
ture period and to improve its indicators that effect on it. Republic of Croatia as
a member of EU should reach similar position as a developed western countries.
One of most important factor shown in table that presents competitiveness
is GDP (GDP in HRK, GDP in EUR, GDP per capita, GDP rate of growth,
% of GDP in foreign debt). Table 4. shows data form 2007 to 2013.year.
Table 4. Value of GDP in Republic of Croatia on period form 2007-2013.

godine
2007. 2008. 2009. 2010. 2011. 2012. 2013.
GDP (mil.HRK,) 322.310 347.685 330.966 328.041 332.587 330.456 330.135
GDP (Mil. EUR,) 49.935 48.135 45.093 45.022 44.737 43.959 43.591
GDP per capita(EUR) 9.904 10.856 10.181 10.191 10.453 10.300 10.213
GDP (real rate of growth (%) 5,2 2,1 -7,4 -1,7 -0,3 -2,2 -0,9
Foreign debt (% of GDP) 76,8 84,3 100,4 103,3 102,6 102,1 104,7
Source: made by author according to HNB (www.hnb.hr)
Sum of GDP is becoming every year less and less. It is not good trend and
it lasts for very long period of time. Expectations for future are not optimistic.
Real rate of growth is negative since 2009. with negative value of -7,4. It is time
of beginning of global economic crisis, which lasts in Croatia till now.

4. MANUFACTURING INDUSTRY
“Industrial production in Croatia is occupied by a recession has significant
place in the overall production. Some companies off are in transition or died
during the war. Above all this applies to textile, leather, metal and wood indus-
try. The value of sales of industrial products in 2011 amounted to 17.4 billion
euros. To the total income of the leading industries are food processing, bever-
ages and tobacco, followed by the chemical and oil industries. The exports were
the most common processing of petroleum products (11.8%), motor vehicles
(11.2%), chemical products (8.3%), food products (8.1%), electrical equipment
(7.8%), machines (6.3%), fabricated metal products (6.1%), pharmaceutical
products (4.8%), clothing (2.9%), wood and wood products (3.4%)” (http://
23
www.croatia.eu ). Manufacturing industry was developed at the end of 18th
century after the invention of steam engine in Britain. Manufacturing accounts
for a relatively large part of the total world production of goods and services. In
Croatia it was about “223.000 employed in manufacturing industry” (http://
www.poslovni.hr)
5. RESEARCH
In this paper, the primary research by survey was conducted on 20 enterpris-
es: 16 small, 3 medium and 1 big manufacturing enterprises in Republic of Cro-

atia. The analysis was conducted on one enterprise from Varaždinska County,
Koprivničko-križevačka County, Sisačko-moslavačka County, two from Zagreb
and 15 companies with headquarters in Brodsko-posavska County. The results
are based on business activity in 2014. Table 5. show number of employees in
enterprises from research.
Table 5. Number of employees in each enterprise

Number of employees Number of enterprises
0-10 0
10-20 4
20-30 9
30-50 5
50-100 2
100 < 1
Source: made by author
Table 5. shows that most enterprises are small: 4 have 10-20 employees, 9
with 20-30, 5 with 35-50; two medium sized enterprises with 50-100 and 1 big
with more than 100. The most enterprises in manufacturing industry are small.
Table 6. shows total revenues and total expenses of researched enterprises.
Many enterprises have acceptable and high revenuers, but problem is because
they also have high expenses. Revenues should be higher than expenses as much
as it can. Low expenses and high revenues show that enterprise is competitive.
Enterprise should know how to manage with expenses and costs and how to
make reduction of costs especially in production process.
24
Table 6. Total revenue and total expenses of enterprises
Total revenue in HRK Number of enterprises Total expenses in HRK Number of enterprises
0-100.000 kn 0 0-100.000 2
100.000-500.000 2 100.000-500.000 4
500.000-1.000.000 4 500.000-1.000.000 2
1.000.0000 < 14 1.000.0000 < 12
In table 6. are presented revenues, 2 enterprises have revenues in interval

form 100.000 till 500.000 HRK, 4 have in interval from 500.000 to 1 million
HRK, and 14 have profit higher than 1 million. Expenses are not significant-
ly lower than revenues. Many enterprises, 12 of 20 have expenses higher that
1 million. The revenue-expenses ration is not satisfied. Enterprises have very
high total expenses in comparison with revenue. Total result of their business is
shown in table 7 that presents profit or loss in 2014.
Table 7. Profit/loss
Total profit/loss in HRK Number of enterprises
Loss 2
0-50.000 0
50.000-100.000 9
100.000-1.000.000 5
1.000.000 < 4
Table 7. shows that even enterprises have high total revenues, they don’t
achieve profit. Two enterprises don’t have positive business and they had loss at
the end of 2014. The most of them, 9 enterprises have profits in interval from
50- 100.000 HRK, and only 4 enterprises have profit higher than 1.000.000
HRK. In table 8. below are presented data about amount of import and export
of enterprises.
Table 8. Value of import and export
Amount of import Number of enterprises Amount of export Number of enterprises
0-100.000 1 0-100.000 9
100.000-1.000.000 3 100.000-1.000.000 9
1.000.000 < 16 1.000.000 < 2
25
Value of export and import has reciprocal results. Most enterprises import
products and inputs, but doesn’t export any. The result is lack of competitive-
ness of domestic enterprises, and un-development of manufacturing industry.
Enterprises are not competitive with their product, methodology of produc-
tion, technology and so on. One of result is lack of investments, just 11 enter-
prises had investments in 2014 till 100.000 HRK, and only two enterprises
have investments higher that 1 million HRK. It is important to invest in tech-
nology, new production methods, in IT technology, in robots in production and
marketing activities. Most technology is out of date and can’t produce products
which are competitive on European market. According to research enterprises

mostly don’t have or have few high educated employees. Without educated hu-
man resource it is impossible to develop competitive advantage. “Competitive-
ness is the basis that determines the success or failure of the company. It also
determines the suitability of the company’s activities that contribute to its per-
formance, such as innovation, cohesion organizational culture or good imple-
mentation” (Porter, M.E., 2008, p.20)
6. CONCLUSION
In order to achieve competitiveness of manufacturing industry, it is neces-
sary to achieve the strategic goals of growth. One of the goals is to increase
GDP, reduction of unemployment in the industry, increasing the quality of life
and increase the investment climate. Manufacturing industry should be a pil-
lar of the economy, but the production is very low quoted. It is necessary to
encourage the development and investments to modernize production suited,
procure new technology which makes it possible to produce products that will
be at the price and quality will be able to compete on the international market.
It is important to invest in the development of human resources and employee
education. All these changes will allow companies tempt not only high operat-
ing income, but to reduce expenses and that is earned higher profits. Research
has shown that a small number of companies were able to realize significant
profits that would enable further development and not just their survival in the
market, but also the achievement of sustainable competitive advantage.
26
References
Porter, M.E., (2004.) Competitive Strategy, Free press, str. 24-27
Smith, J.L. (2007.) Kako stvoriti konkurentsku prednost, Naklada Ljevak, Zagreb,
str.163-166
Porter, M.E., (2004.) Competitive Strategy, Free press, str. 3-7
http://www.tutor2u.net/business/strategy/porter_five_forces.htm
Izvješće o globalnoj konkurentnosti 2014-2015, dostupno online na Nacionalno vijeće za
konkurentnost www.konkurentnost.hr
Nacionalno vijeće za konkurentnost, 2014, www.konkurentnost.hr
World Economic Forum http://gcr.weforum.org/ 08.07.2014.
HNB www.hnb.hr, 15.02.2015
http://www.croatia.eu/article.php?lang=1&id=32
http://www.poslovni.hr/hrvatska/najvise-poduzetnika-u-trgovini-a-zaposlenih-u-prerai-
vackoj-industriji-271894
Porter, M. E. (2008). Konkurentska prednost: postizanje i održavanje vrhunskog poslovanja,
Masmedia, Zagreb, str. 20
27
EXAMPLE OF LEAN MANAGEMENT
IN PRACTICAL USE BASED ON
Robert Obraz • Zlatko Rešetar • Nikolina Pavičić: EXAMPLE OF LEAN MANAGEMENT IN PRACTICAL USE BASED ON REDUCTION “NVAT” ...
REDUCTION “NVAT” ACTIVITIES

IN THE PRODUCT ASSEMBLY
PROCESS
Robert OBRAZ, univ.spec.oec.

Klimaoprema d.d.
robert.obraz@zg.t-com.hr
Zlatko REŠETAR, univ.spec.oec.

Veleučilište „Baltazar Zaprešić“
zlatko.resetar@bak.hr
Nikolina PAVIČIĆ, univ.spec.oec.

Veleučilište „Baltazar Zaprešić“
nikolina.pavicic@bak.hr
Abstract
The long recession and the need to maintain competitive advantages have trig-
gered businesses in manufacturing sectors to question the efficiency of their
business processes. Cost reduction has become the dominant orientation of
business strategies in domestic enterprises because, while reducing operating
income, costs should also be kept under control if we want to ensure the survival
of the company. Cost reduction can be achieved by improvements and enhance-
ments of existing manufacturing processes, using methods of quality improve-
ment such as Six Sigma, introduction of Lean concept to eliminate unnecessary
business activities or implementation of new technologies thereby increasing
technological equipment of the company to the next level and thus provides an
advantage in relation to other competitors in the market.
Western business practices, in the past four decades, shows that the application
of methods and techniques of Lean Management can help businesses to opti-
28
mize their business processes and eliminate unnecessary activities in a business
system that only increase costs, and do not generate additional value.
The aim of this paper is to examine the applicability of Lean concept in real
business environment in the domestic enterprises to identify business activities
that do not bring value to the product (NVAT activities) and try to reduce any
NVAT activities with Lean management techniques and thus speed up the
process of making products.
Results of the study show that the Lean concept is useful tool to speed up the
existing production processes as well as to increase the efficiency of the process.
Keywords: Lean Management, Lean Manufacturing, production improve-
ment, business excellence.
JEL Classification: M11, O32
1. INTRODUCTION
Looking at the global economy, we see that at the present time in the market
to be “good is not good enough” and business organizations must aspire to busi-
ness excellence if they want to survive in the market. In order to retain exist-
ing and win new competitive position in the market, many businesses realize
that the traditional ways of managing business systems and other historical ap-
proaches are no longer sufficient. View today’s business practices draws atten-
tion to one business philosophy used by Western businesses, and whose roots
are in Japanese thinking organization of production. It is Lean Manufacturing
or Lean concept. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
The hypothesis of the paper assumes that the application of Lean concepts
is possible, in the real production process, identify and reduce activities that
do not bring value to the product (NVAT activities) and expedite the process
of making products. As a testing ground for hypotheses was selected domestic
business subject that is engaged in producing parts for the automotive industry.
2. CONCEPT OF LEAN MANAGEMENT

Lean management is also known as lean manufacturing, lean enterprise, or
simply Lean. The term refers to a system of methods and techniques that em-
phasize the identification and removal of all business activities that do not add
29
value to the product and/or service. These activities are called “waste” and seek
to eliminate them from the process of production.
Lean Business Systems is characterized by rapid development of business
cycles, “Just-In-Time” method, pull systems, few or no supplies, a continuous

flow of production, levelling production and reliable quality. Business organiza-
tion that applies Lean concept in this manner is called the Lean enterprise. Lean
companies are efficient, flexible and understanding of consumer needs (Paul;
1999, 21). Karlson and Ahlstorm believe that Lean concept should be included
in all business functions of enterprises; in the procurement of raw materials,
production and distribution of products. Furthermore, Lean concept should be
seen as a way in which to navigate through and not as a state to be achieved after
a certain time (Karlson & Ahlstorm; 1996, 2, 11)
.. Historical Overview of the Lean Management

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

According to Womack and Jones function Lean management is easiest to
describe through the five basic principles, namely (Womack & Jones; 1996, 26):
30
1. Elimination of waste / losses (jap. muda).
2. Determining the flow value - includes all activities necessary to de-
liver product to the consumer.
3. To achieve flow through the process - allow easy movement through
the business process.
4. Determining the speed of work to pull signals - the achievement of
system in which the final consumer is helping to create a new product.
5. Continuous quest for perfection - create a business system without
errors, or actual defects.
According to these principles, it is evident that Lean management emphasiz-
es the production of small series products and the progress of individual pieces
through the production process. The term pull implies that nothing is being
produced until it is ordered by buyers. The main goal of Lean Production is to
eliminate waste in a way that all business ongoing value activities create value,
which is the object of pursuit for perfection. (Womack & Jones; 1996, 31)
.. Activities according to Lean management

The main objective of Lean system is to increase the speed of the process
through the relentless elimination of waste in business processes. Organiza-
tions that apply this system implanted it in full flow values, i.e. In all activities
undertaken since receiving consumers request throe the delivery of the final
product and / or services (Meisll et al.; 2007, 2) According to the Lean meth-
odology, business enterprises, may appear three types of activities that affect INTERDISCIPLINARY MANAGEMENT RESEARCH XI
production costs, and thus directly on the price of products or services. These
activities are (Womack & Jones; 1996, 45):
1. Activities that add value to the product or service (VAT)
2. Activities that do not add value to the product or service (NVAT)
3. Other activities that do not add value to the product or service (WT).
VAT activities (Value Added Time) – are activities where resources are
transformed from one form to another. These activities include the processes of
transformation of raw materials, processes of exchange of necessary informa-
tion or production workflows. It is important that these activities consumers
perceive as desirable and that they are willing to pay for them. Also, it is impor-
31
tant to VAT activities are carried out without errors, otherwise occurs waste
and losses.
NVAT activities (Non Value Added Time) – are activities that are a neces-
sary loss, it is impossible to eliminate them from the process, and do they do not
create added value to the product or service. The most common consequence
of the existing level of technology, prescribed working rules or business policy.
These activities included the procedures of intermediate and final control of
products, measurements and similar activities.
WT or other activities (Waste Time) – these are activities that represent
a loss and need to be removed from the production process. These activities
consume resources, extend the production process of products or services, and
consumers are not willing to pay for them. This group includes a variety of ac-
tivities waiting (waiting for transport, raw materials waiting, waiting in interme-
diate stages of production), excess inventories, stock manipulation and the like.
3. THE CONCEPT OF LEAN PRODUCTION IN

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

The manufacturing assembly process of products included three assem-
bly line handrail schematically shown in Figure 1. The lines are operated in
two shifts, and three operators had the task to manually take all components
(parts) from the tank, set bookmarks “S”, and them stacked them according to a
specified schedule in semi-automatic device for product assembly. After correct
positioning of parts, the operator’s hand closes assembly device, visually check
the signal display and with activation of two-handed switch start the assembly
32
process of product in 5 steps. At the end of the assembly process of product
operator opens the protective cover, takes product and visually checks out the
finished product he examines the function of the product. Upon control prod-
ucts completion correct products are dumped in cardboard boxes, and defective
products go to recycling.
Figure 1. Scheme of semi-automatic assembly handrail
Source: created by authors
Measurement of the labour time required to perform the operations accord-

ing to the scheme first showed that for product assembly is required 26 working
operations. Work operations are performed in a time between 1 and 6 seconds,
and a total time assembly cycle of products is 51 seconds. It is also the working
stroke of this process.
.. Process analysis according to Lean activities

If we analyse the sequence of the operations according to the figure 1, using
the previously explained Lean activities, we observe that only 5 working opera-
tions can be classified into group activities that add value to the product or ser-
vice (VAT). A close analysis of the remaining 21 working operations has shown
that they do not add value to the product, but also that they are not activities
that represent the loss in production (WT). These are manual work activities
necessary to ensure that all needed parts of handrail are positioned in the device
for product assembly and final inspection activities of the product. Specified
activities must be carried out due to the limitations of technological process of
the product and as such can be classified into group activities NVAT. The ratio
33
of the observed process of the product and the total operating time is shown in
the first diagram.
Diagram 1. Display VAT and NVAT activities in the work process
According to first diagram 22% of working activities in the process make

VAT activities, and 78% are NVAT activities. This display shows that the prov-
ing process of the product there are many NVAT activities that do not add
value to the product, the process can be improved to carry out the smoothing
process of the product and thus speed up the workflow observed.
.. Processes improving by applying the methodology of

Lean Six Sigma
After conducted analysis of the current product assembly processes shown
in first figure it was decided to try to speed up the process of creating one auto-
mated workstations for product assembly. When designing new workstations
DMAIC methodology was used with simultaneous applied Lean management
principles whose aim was to speed up the product preparation process and
eliminate NVAT activities in the production process. The project lasted a year,
and in the development of new automated workstations participated experts
and engineers form company Sinel Ltd. from Labin. The experience synergy,
knowledge and use of modern information technology made the automated
process of preparation of the product for which work is one operator sufficient,
and the product has undergone structural changes so that the number of com-
ponents increased from 7 to 11. New design products with more parts have
enabled easier and faster installation in the car’s interior.
34
.. Automated preparation process
Improvement of product assembly process was carried out in a manner that
in an automated work stations for product assembly reduced NVAT activi-
ties, a new, fully automated product preparation process, is shown in the second
figure.
Figure 2. Automated handrail assembly process
On the second figure it is noticeable that the new assembly process is more
complex compared to the previous process is shown in Figure 1. The main rea-
son of this fact lies in the methods of automated addition of parts to assemble.
Parts are in the assembly process introduced via elevator and rotational-vibra-
tional conveyor thus speeding up the process, the operator adds body handrail INTERDISCIPLINARY MANAGEMENT RESEARCH XI
in the machine and if necessary fills a tank with parts.
.. Analysis of the new process according to Lean activities

The new product assembly process is shown in the second diagram consists
of nine working operations whose unscrewing 11 parts installed in the products
assembly. The sequence of the operations and results of new process time mea-
suring are shown in the second diagram.
35
Diagram 2. Display of activities in the new assembly process
In the central part of the second diagram shown in red are VAT activities
and those occur in the time period of one to three seconds. In the bottom of
the chart, marked in orange, are shown NVAT activities, and in the upper part
of the diagram shown in green are WT activities. In this case VAT activities
are working operations product assembly from 11 parts, and NVAT activities
related to taking parts from the feeder and positioning the movable desk. WT
activities are waiting activities for automated feeder to complete the previous
work operations. In the new process all work operations are performed simulta-
neously without barriers, and the working stroke of the process is reduced from
51 seconds to 9 seconds.
4. RESULTS OF IMPROVING
Verification of project advancement can be carried out by comparing the
production parameters before and after improvements. The comparison process
is shown in Table 1.
Table 1. Comparison of manual and automated product assembly.

Observed parameters Manual process Automated process %
Number of workers 6 3 -50
Number of machines 3 1 -67
Number of shifts 2 3 +50
Coefficient of the process 0,72 0,99 +38
Working stroke [s] 51 9 -82
Productivity [pcs/day] 2280 9500 +417
Source: author’s calculations
36
According to first table, it is evident that in the new product assembly pro-
cess are 50% less operators and only on one machine, the number of shifts in-
creased by 50% and the quality of the process (includes the amount of compli-
ant products and the daily utilization of machines) grew by 38%. The working
stroke of the production process is reduced from 51 seconds to 9 seconds which
is an acceleration cycle by 82%, and productivity, observed on a daily basis, in-
creased from 2280 to 9500 pieces of products, an increase of 417%.
4. CONCLUSION
The example from the real business environment proves the initial hypoth-
esis of work that by applying methods and techniques of Lean management
can improve and speed up production processes. Processes improvement in
this particular case was conducted by eliminating activities that did not bring
value to the product (NVAT activities), which were necessary because of the
semi-automated product forming method. Technological advancement and ap-
plication of automation process product is integrated into a single workstation
with automated final product control, and the working stroke of the process is
shortened by 82%.
The measurement results of the process after several improvements indicate
that the project has fully complied with the quality management principles as it
is removed subjective evaluation of the product by the operator at the stage of
final inspection and is assured and implemented effective components control
at the entrance to the assembler. Herewith are the variations of the produc-
tion process, increased productivity and the number of compliant products (less
scrap), and increased efficiency and daily work units work in three shifts.
By improving the products preparation process, there are significant changes
in the process because variability is reduced by implementing levelling produc-
tion as the main objective of the Lean system. Levelling production is directly
related to the flow of product through the production process, levelling a new
process enables conduct of the adding operations and assembling parts simul-
taneously without obstacles.
37
references
Karlson, C. & Ahlstorm, P. (1996). Assessing changes towards lean production, Interna-
tional Journal of Operation & Production Management, Vol. 16, p. 2-11.
Lazibat, T. (2009). Upravljanje kvalitetom, Znanstvena knjiga d.o.o., ISBN 978-953-95902-

1-3, Zagreb.
Meisll, R. M. et al. (2007). The Executive Guide to Understanding and Implementing Lean
Six Sigma: The Financial Impact, ASQ Quality Press, Milwaukee, WI, p 2.
Paul, L. (1999). Practice makes perfect, CIO Enterprise, Vol. 12, No. 7.
Womack, J. P. & Jones, D. T. (1996). Lean Thinking, Simon and Schuster, ISBN
9780743231640, New York.
38
LIFELONG LEARNING PROCESS
USING DIGITAL TECHNOLOGY
Igor PURETA, Ph.D. Candidate

Grawe Hrvatska JSC, Republic of Croatia
igor.pureta@grawe.hr
Abstract
Over the last few decades, the education system has gone through significant
changes. Formal education, as the basis of a complete education, was rebuilt
over the centuries in order to meet the demands of time. In today’s fast-growing
world filled with constant changes, formal education appears to be insufficient
and inappropriate for the needs of modern society. The amount of available
knowledge is increasing, and the ways in which it is transmitted show some
weaknesses. Today’s society seeks to remove these shortcomings by introducing
lifelong learning through formal, non-formal, and informal education. Lifelong
learning should enable access of knowledge and competency development to
people of all ages. This allows the acquisition of knowledge to persons whose
age exceeds that of formal education and where informal knowledge is not close
at hand. Digital technology is having a stronger and stronger influence on all
aspects of education through mobile devices that make the world of knowledge
accessible in places and times that suit students. The adaptation of existing
knowledge for easier distribution through digital technology, and the presen-
tation of knowledge and its easier adoption is affected. We should avoid the
pitfalls that technology offers, and always keep in mind, in the first place, the
students and the way that knowledge is most likely to be accepted. Lifelong
learning, with the help of digital technology, has the ability to give each indi-
vidual the knowledge that they need if andragogy principles and the needs of
students have an advantage over the technology.
Keywords: Lifelong learning, competence, digital technology, e-learning
JEL Classification: D8, D83, L86
39
1. INTRODUCTION
Today’s education system is based on the needs of a society from 250 years
ago; a staple of knowledge that in such a way could have been sufficient for
lifelong professional work. Today, the knowledge gained in formal education be-
comes insufficient for modern business needs, as well as for society as a whole.
In order to bridge these challenges, the importance of lifelong learning is grow-
ing, and improved digital devices provide prerequisites for easy access, quality,
and structured learning based on a multimedia approach. Thus, prepared tools
allow people access to the content, which should be adopted at a time when it
suits them, and the place where they currently are, without the need for addi-
tional resource organization.
.. Learning as a result of the knowledge, tools, activities

and contexts
According to Engeström (1987), learning is a cultural-historical system of
activities and tools for learning. These activities and tools are helping students,
but also limit the transformation of their own knowledge and skills. As a part
Igor Pureta: LIFELONG LEARNING PROCESS USING DIGITAL TECHNOLOGY
of learning, students interact among themselves and with teachers, creating a

shared knowledge framed by cultural constraints and historical practices (Shar-
ples et al., 2006).
Cole (1996) makes an important distinction between the context as “that
which surrounds us” and context as “what we create together.” The context is
never static, because the common denominator of learning is constantly chang-
ing, as we move from one place to another, we gain new funds, or enter into new
conversations (Lonsdale et al., 2003).
.. Adult education

Adult education is a highly developed sub-discipline of education within
which adults go through a systematic and continuous activity of learning in
order to change their “knowledge, attitudes, values, and skills” (Darkenwald &
Merriam, 1982).
Despite the increased number of formal educational institutions, they can
not cover the needs of all who wish to improve their knowledge or skills. In ad-
40
dition, these institutions are neither trained for certain types of education, nor
are specific training needs even known to them. Therefore, adult education is
organized in the workplace, mainly through the courses organized with the help
of experts in adult education (Kumar).
Participants of adult education have great expectations from the convenience
of the learning content, and ‘practical’ can have different meanings for different
groups of students (Keskin & Metcalf, 2011). With regard to the requirement
of practicality, it is good to organize education in the workplace, because people
will be immediately able to examine the possibilities and limitations that a new
tool or skill offers.
2. LIFELONG LEARNING
Lifelong learning is widely accepted as a process of continuous upgrading
of knowledge, skills, and competencies of people around the world, used for
promoting their social life (Koper & Tattersall, 2004).
In a broader sense, lifelong learning applies to all kinds of experiences that
help people to become wiser, more enlightened, and full members of society.
Lifelong learning is an educational philosophy that is changing rapidly and
modernizes the entire society. It is an educational movement that says it is never
too early nor too late to learn. Lifelong learning involves changing attitudes and
beliefs, keeping in mind that anyone can and should be open to new ideas, deci-
sions, skills and behaviors (Kumar).
.. Different aspects of lifelong learning

Education, not only a lifelong one, is present in different forms, so the work-
ing paper of the European Commission (CEC, 2010) reported the following:
• Formal learning takes place in education and training institutions, leading
to recognized diplomas and qualifications.
• Non-formal learning takes place alongside the formal education system
and does not typically lead to formalized certificates. It may be organized
in the workplace and through the activities of civil society organizations,
such as youth organizations, trade unions, or political parties. Education
that someone can get through organizations that serve as a supplement to
41
the formal education system include music and sports classes, or private
lessons, as preparation for examinations.
• Informal learning is a natural accompaniment to everyday life. Unlike
formal and non-formal education, informal learning does not have to be
done consciously. Even individuals themselves do not necessarily need to
identify it as a contribution to the improvement of their knowledge and
skills.
The continuum of lifelong learning brings more non-formal and informal
learning. Non-formal learning, by definition, stands outside schools, colleges,
or official training centers. It is not usually seen as ‘real’ learning, nor do its out-
comes have much value in the labor market. Non-formal learning is therefore
typically undervalued.
However, it seems that informal learning is the most neglected, even though
it is the oldest form of learning, and is still one of the main ways of learning in
early childhood.
. Lifelong learning as a supplement to formal schooling

As an inseparable part of daily life, lifelong learning helps us to solve imme-

diate problems, gain an understanding, or practice some specific skills wherever
the need arises (Fischer & Konomi, 2007). So, to make use of the natural ben-
efits of lifelong learning, it is important to devise a practical content that is easily
applied in practice. The fastest growth in demand for education has modern,
ambitious business people who are looking for education that will help advance
their career, accelerate their personal development, and/or increase their profits
(Wall, 2012).
Necessary knowledge is not always in the curriculum of professions and dis-
ciplines that are adopted through a formal system of education. The purpose
of lifelong learning is to complement existing formal system failures, and until
societies come up with a better learning system, it is very important for further
professional development of almost all professions.
Wall (2012) also believes that educational institutions are in a better position
than most others to systematically respond to these requests. These answers
should come through formal quality assurance systems that are in place in edu-
42
cation systems and in its individual institutions. Higher education institutions
can achieve this through already developed graduate programs that can meet
the criteria of various professional bodies, and thus meet the needs of modern
industry.
.. Lifelong learning as a key factor for economic

development and progress
Education is the key factor in maintaining and further improving competi-
tiveness and growth. It is the basic capital of modern society and a key for eco-
nomic development. Numerous changes in the economy and technology, such
as the increased involvement of all participants in the global economy, demands
that individuals and organizations have to fulfill demands in order to survive in
a market that is constantly changing. The individual is expected to participate
in the creation and development of new values in the organization where they
work, and in society where they belong, and also to have a positive attitude
towards ethnic, cultural, and religious diversity with which they encounter in
everyday life and work.
For these new, unpredictable, and demanding changes, the best possible an-
swer for challenges and opportunities is widespread and intense education for
people directly involved in the economy and its development, but also for those
on which economic growth depends.
A corollary of such a situation is that the existing and future workforce must
be engaged, either independently or with the help of organizations in which INTERDISCIPLINARY MANAGEMENT RESEARCH XI
they work, on continuous expansion and deepening of their own knowledge.
This leads to the necessity of creating the preconditions for learning through-
out life, even after the termination of a work contract and the acceptance of the
concept of learning, which we know as lifelong learning.
.. Lifelong learning for a higher quality of life

In a recent study conducted from 2011 to 2014 (Bell Project, 2014) on a
sample of nine countries of the European Union and Serbia on the benefits that
adults have from organized, but non-formal education, interesting results have
been observed. Research has focused on proving the existence of the benefits of
lifelong learning in the perception of respondents, rather than through objective
43
indicators that could be seen in the behavior change. The data shows that adults
pointed out numerous benefits of non-formal education. They felt healthier,
and to them, they seemed to live more active lives, they established new friend-
ships, and increased life satisfaction. They were also more motivated for further
involvement in lifelong learning and viewed it as an opportunity to improve
their quality of life. These benefits were observed in all the countries that par-
ticipated in the survey and was unrelated to the type of learning in which they
took part: learning foreign languages, art, sports activities, or activities related
to civil society.
3. DIGITAL TECHNOLOGY IN THE SERVICE OF

EDUCATION
Digital technology can be seen as a challenge to formal schooling, the au-
tonomy of the classroom and the curriculum as a means of teaching the knowl-
edge and skills needed for adulthood. But, it can also be an opportunity, be-
cause technology can bridge the gap between formal and experiential education
(Sharples, Taylor & Vavoula, 2006).
Because technology allows us to be mobile, irrespective of place, time, and

context (Vavoula & Sharples, 2009), mobile technologies have the potential
to give people access to education anytime and anywhere in a world of rapid
change (Waycott, Jones & Scanlon, 2005).
Mobile education, at least for now, does not replace formal education: it of-
fers support in learning outside the classroom, in conversations and interactions
that characterize daily life (Sharples, Taylor & Vavoula, 2006).
.. The challenges that digital technology has in the

learning process
Berge (1998) suggests that teachers have been increasingly sought to use
technology to support existing educational programs, so they should be given
the possibility to acquire appropriate skills or support in preparation of the
program based on the more complex technology (Wall, 2012).
Bearing in mind the ever-increasing variety of digital technology that can be
used in the learning process, awareness is growing stronger and stronger that it
44
is necessary to find the optimal combination of supplies to ensure that their use
is well-designed and adapted in order to attract, retain, and motivate students,
as well as lecturers.
Factors to be taken into account when using technology for the development
of learning materials are: (i) the attitude of students towards learning a spe-
cific topic, (ii) the advantages and disadvantages of existing technologies, (iii)
the skills of instructors in the use of technology, (iv) the structure of content
that needs to be adopted, (v) the quality of existing learning materials, and (vi)
the interaction that occurs between students and teachers, as well as among
students (Martinez et al., 2007). In order to promote the use of e-learning,
emphasis should be less on technology and more on “experience while using,”
“inclusion,” and other general important factors for the successful acquisition of
knowledge (Hamid, 2002).
.. E-learning and its benefits

Learning with the help of electronic aids or e-learning concepts, which is
most commonly used to describe learning by systems based on computers, and
is occasionally associated with the use of advanced technologies for distance
learning. It can be seen as a virtual act or process used to collect data, informa-
tion, or create knowledge (Bennett & Bennett, 2008).
A world where students of all ages, including those outside the formal insti-
tutions of education, have strong multimedia communicators, file sharing, and
text communication skills that significantly shatters the traditional classroom INTERDISCIPLINARY MANAGEMENT RESEARCH XI
education. (Sharples et al., 2006).
.. Mobile learning

In recent years, a new form of learning has appeared as a result of constant
development of technological infrastructure. This form of learning is complete-
ly away from the classroom or other preset and stationary space for teaching,
and learning only takes place virtually.
In order for this tool to be successful, the content must be useful, interesting,
and adapted to everyday needs for new information, as well as the needs for the
sake of the learning and communication. The conclusion has been made that it
45
is important to divide the contents into very small units that the user can easily
insert in her own busy schedule. Thus, conceived content is easier to adopt even
in situations where users are exposed to the interference in their daily opera-
tional work (York, 2004).
In a Vavoula (2005) study about the daily adult education for the MO-
BIlearn project, which is based on personal diaries of students, it was found that
almost half (49 percent) reported learning situations occurred away from the
home or office, or the student’s usual surroundings. Mobile networked technol-
ogy allows people to acquire and share information in all the places where they
have this need, which is more often than just when they are at fixed locations,
such as classrooms (Sharples et al., 2006).
Therefore, the technology can display ideas or offer advice on the descriptive
level, as does the Internet, online help system, or special tools that are offered as
an aid for the finishing of contracts, which are based on conceptual maps and
systems for visualization. In addition, technology enables an environment in
which classic learning is used. Also, the technology provides the tools for data
collection and for the construction and testing of various response models. It
can through games and simulations extend the range of activities that help in
easier adoption of content and can significantly increase the scope of discussion
of participants from various fields, as well as from different parts of our world
via cell phone or e-mail. The technology enables a common interactive learning
space, which can be used for individual students and the entire group (Sharples
et al., 2006).
4. DISCUSSION
Given the availability of mobile devices and the development of digital tech-
nology, it is reasonable to assume that mobile learning can be a key solution for
lifelong learning. Mobile devices are very widespread, and already more readily
available, and their ability to connect and interact with the users offer great po-
tential to support lifelong learning outside formal learning contexts (Ultralab,
2003; Fischer & Konomi, 2007; Clough et al., 2008). Mobile devices can ap-
pear in different forms and shapes and are therefore acceptable to a wide range
of users, as they can easily adapt them to their own habits and daily rhythm.
Supporters of lifelong learning, thanks to technology, can easily access content
that allows them to learn new knowledge on the theoretical and increasingly,
46
on a practical level. With content directly related to their particular interests,
because of their connectivity with various data sources (e.g. Wikipedia.org,
YouTube.com, or Academia.edu), their knowledge can easily be extended be-
yond the scope of the selected program of lifelong learning. The fact that mobile
devices are constantly with users enables the users to choose the place, time, and
even specific pieces of knowledge that they want to adopt. Therefore, mobile
learning has all the prerequisites to become one of the fundamental platforms
for enabling lifelong learning as an essential need of each individual, which al-
lows them to successfully live and work in a modern society, which is increas-
ingly and rapidly changing.
References
BeLL project. Available for download at: http://www.bell-project.eu/cms/ [accessed 23. 02.
2015]
Berge, Z. L. (1998). Barriers to online teaching in post-secondary institutions: can policy
changes fix it?. Online Journal of Distance Learning Administration. 2 (1). Available for
download at: http://www.westga.edu/~distance/Berge12.html [accessed 3. 11. 2004]
Bennett, A., Bennett D., (2008). E-learning as energetic learning. Vine. 38(2) pp 206 – 220.
Clough, G., Jones, A., McAndrew, P., Scanlon, E. (2008) Informal learning with PDAs and
smartphones. Journal of Computer Assisted Learning 24, pp 359–37
Cole, M. (1996). Cultural psychology: A once and future discipline.Cambridge, MA: Har-
vard University Press.
Commission of the European Communities (2000). A Memorandum on Lifelong Learning.
Available for download at: http://tvu.acs.si/dokumenti/LLLmemorandum_Oct2000.pdf
[accessed 19. 01. 2015]
Darkenwald, G., Merriam, S. B. (1982). Adult education: foundations of practice. New York: INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Harper & Row. ISBN 9780690015416
Engeström, Y. (1987). Learning by expanding: An activity-theoretical approach to develop-
mental research. Helsinki: Orienta-Konsultit.
Fischer, G., Konomi, S. (2007) Innovative socio-technical environments in support of dis-
tributed intelligence and lifelong learning. Journal of Computer Assisted Learning 23, pp
338–350.
Hamid, A. A., (2002) e-learning Is it the “e” or the Learning that matters?, The Internet and
Higher Education, 4, pp 311 – 316.
Keskin, N. O., Metcalf, D. (2011). The Current Perspectives, Theories and Practices of Mo-
bile Learning. The Turkish Online Journal of Educational Technology. 10(2) pp 202-208.
Koper, R., Tattersall, C. (2004). New directions for lifelong learning using network technolo-
gies. British Journal of Educational Technology 35, pp 689–700
47
Kumar, A., Philosophical Background of Adult and Lifelong Learning, Available for down-
load at: http://www.unesco.org/education/aladin/paldin/pdf/course01/unit_03.pdf [ac-
cessed 25. 01. 2015.]
Martinez, R. A., del Bosch M., Herrero M., Nuno A. (2007). Psychopedagogical compo-
nents and processes in e-learning. Lessons from an unsuccessful on-line course Computers
in Human Behavior, Vol. 23, pp 146 – 161.
Sharples, M., Taylor, J., Vavoula, G. (2006) A Theory of Learning for the Mobile Age.
Ultralab (2003) M-Learn Project. Available for download at: http://www.mlearning.org/
[accessed: 31. siječnja 2010].
Vavoula, G., Sharples, M. (2009). Lifelong learning organisers: requirements for tools for
supporting episodic and semantic learning. Educational Technology & Society 12, pp 82.
Wall, J., (2012). Strategically Integrating Blended Learning to Deliver Lifelong Learning,
International Perspectives of Distance Learning in Higher Education, Dr. Joi L. Moore (ur.),
ISBN: 978-953-51-0330-1.
Waycott, J., Jones, A., Scanlon E. (2005) PDAs as lifelong learning tools: an activity theory
based analysis. Learning, Media, & Technology 30, pp 107–130.
48
APPLICABILITY OF EUROPEAN
DEVELOPMENT PROGRAMMES
TO TOURISTIC MANAGEMENT OF
ISTRIAN DESTINATION
Romina SINOSICH, PH.D. Candidate

Postgraduate Ph.D. study „Management“
romina.sinosich@gmail.com
Ivan HERAK, Ph.D.

High Business Touristic School Višnjan
i.herak@yahoo.com
Andreja RUDANČIĆLUGARIĆ, B.Sc.

Doctoral candidate, Postgraduate Ph.D. study „Management“
alugaric@hotmail.com
Abstract
The authors wonted to demonstrated the management of Istrian touristic
management resources emphasizing current conditions and development pros- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
pects. The main idea was an hypothesis: if the touristic management and the
resources management is organized and strategicly planned, positive synergy
effects can be expected in each level of touristic management, and through the
years,the positive impact to all destination will be a fact. That is also truth
for Istrian undeveloped areas, such as middle istrian villages. Although Istria
boasts reputation of a region with positive potentials, one must emphasize there
are still undeveloped areas, a high number of uneducated population, shortage
of staff in educational institutions, all which requires a more professional ap-
proach to the issue of management. Middle istrian villages can also become an
interesting touristic micro – destinations. This research, first of its kind int he
County of Istria, has attempted to gain a realistic insight into the condition oft
he Istrian County territory. The research has been conducted by means oft he
49
Delphy method in two intervals, the theory analysis method, observation and
intervju on a sample consisting of 34 local self – government units (municipali-
ties and cities). Questions were replied by heads and municipal prefects of local
Romina Sinosich • Ivan Herak • Andreja Rudančić-Lugarić: APPLICABILITY OF EUROPEAN DEVELOPMENT PROGRAMMES TO TOURISTIC ...
self – government units and others in charge of management. The research

objective was to determine the type of help and who provided it as well as the
type of management required for a more quality development and touristic
management. Though the Istrian region has been recognized as a quality tour-
ist destination for years, its possibility for a bigger and better step forward must
be pointed out in terms of managing the destination itself. To achieve optimal
solutions, professional management modules and innovative guidelines set by
tourism trends and new european programmes must be followed in order to
adjust them to destination needs and requirements.
Keywords: tourism, management, resources, development, Istria.
JEL Classification: L83, O1,R11
1. INTRODUCTION
Starting from the basic definition of a manamement being a process of shaping
and maintaining the environment in which individuals, working together in groups,
efficiently achieve selected goals (Werhrich, Koontz, 1998.), we have reached the
conclusion that quality management rources depends on many factors. Istrian
territory has long been characterized by various issues which have resulted in
its delayed development , including the loss of human resources, insufficient
staff education and unsystematic touristic management, various natural, cul-
tural and historic resources which has had a direct impact on the development
oft he tourism and the economy itself. This paper was written as a guideline for
achieving a basic goal of presenting new solutions and answers to questions of
managing Istria as a quality tourist destination. Having observed an increasing
need for a more efficient tourism management, based on a balanced develop-
ment and the use of potentials i.e. resources, this dissertation explores actual
assertions and possibilities of new perspectives. Tourism destination manage-
ment is a complex challenge requiring a multidisciplinary and interdisciplinary
approach, synergy and coordination of all tourism entities, leading to the same
result. The authors provided detailed information on the existing management
style as well as findings resulting from the multi-month long field work based
on the future of managing Istria as a tourist destination.
50
2. DEVELOPMENT MODEL OF TOURISTIC
DESTINATION THROUGH IMPROVING
EDUCATION AND NEW PRODUCTS
Resource management are general an extremely important link int he entire
touristic development of a destination or region. The professional knoweledge
and not the politics is the only possible champion of management and develop-
ment oft his or any other touristic region. The research has given insight into
the presence of management in the delivery of the Istrian rural area develop-
ment touristic programme, and the findings have shown the insufficient num-
ber of elementary expert staff. Due to insufficient founds, unresolved property
issues and weak motivation as well as insufficient state incentives, most raw
materials are imported and of questionable quality. In view of agriculture as the
main business activity in rural areas of Istria, until few years ago, farmers have
not been permitted to sell their products to their guests legally and on their own
prices, but they were forced to transport their products to larger touristic towns
to be sold. However, the situation today is a little bit different, but the problems
of touristic development in rural Istrian areas (int he middle villages), are still
an issue to resolve. Rural tourism development associations are still emerging
in Croatia lacking professional employees. Schools in many villages are rela-
tively badly equipped. We belive that a large chain of this process has been de-
termined by human resources as a carrier of Istrian development towards a
rich and respectable region. Furthermore, based on obtained research results,
methods of tourism destination quality management have been offered. If tour-
ism destination management is organized and synergistically conducted under INTERDISCIPLINARY MANAGEMENT RESEARCH XI
agreed guidelines, more quality tourism results in line with those achieved by
top destinations in our competitive regions can be expected.
Though the Istrian region has been recognized as a quality tourist desti-
nation for years, its possibility for a bigger and better step forward must be
pointed out in terms of managing the destination itself. To achieve optimal
solutions, professional management modules and innovative guidelines set by
world tourism trends must be followed in order to adjust them to our needs and
requirements. A certain reorganization of some management branches as well
as permanent staff education is essential for tourism in Istria and Croatia as a
whole. Cooperation between individual administrative bodies in the County is
not satisfactory nor systematically organized. It depends on affinities of individ-
51
ual heads and other employees in administrative bodies. In terms of education,
there is an insufficient number of employees with university degrees in regional
self-government bodies as well as a very low number of the employed with the
master’s degree (M.sc/M.A.) and a doctorate (Ph.D./D.Sc). One of the key

tasks of the new development model must be evaluation and recognition of
products and services for each micro-level. In this light, such programme de-
velopment must include all interested parties, local development carriers from
private, public or civil sectors in the County of Istria. Local and regional pro-
gramming is of extreme importance because it is the only way for determining
real local needs and rural touristic development. It is also important to propose
a compromise when faced with choosing between local needs and available re-
sources. As this paper has been focused on the issue of management as the basis
for the very process of tourism destination development, it has been necessary
to obtain opinions, experiences and suggestion from local tourism institutions
and players to reach correct solutions based on obtained research information.
The existing condition of Istrian tourism management as well as the condi-
tion of the destination itself is certainly not unsatisfactory. However, available
resources and rather broad experience in tourism should contribute to the in-
creased quality of the Istrian region as a tourist destination.
3. IMPLEMENTATION OF LEADER PROGRAMME

PRINCIPLES IN RURAL AREA DEVELOPMENT
“Rural development is a new developmental model of the agricultural sec-
tor” (Plog et al., 2000., p. 392). “Apart from the increase in agricultural pro-
duction competitiveness, it also includes protection of the environment, land
management, diversification, improvement of life in rural areas and LEADER
approach (Liaison Entre Actions de Développement de l’Economie rurale),
which means that all the initiatives for starting of activities should come from
the local community” (Moehler, 2006, p. 56). “One of the basic characteristics of
rural development implementation in rural communities is putting an accent on
local population, by which it is validated as a main factor of the overall rural area
development. It is this particularity of trust in people who live in rural areas and
in their abilities to discover what suits best their environment, culture, work
traditions and skills itself that makes the LEADER Project special”. (Štifanić,
Debelić, 2009, p. 8). Connecting at the local level brings people together in or-
52
der for them to exchange their experiences and knowledge, inform themselves
and promote rural development activities, find project partners, as well as create
a feeling of belonging to a larger entity, such as the local action group.
During recent years in Croatia, there have been intensive talks about rural
development. Plans and programmes are being produced, development strate-
gies and laws are being proposed, legislation is being coordinated with the EU
and the means/funds from the EU programmes, intended for those purposes,
are being used (CARDS, INTERREG, SAPARD and other). However, in or-
der to implement the rural development plans and programmes, Croatia needs
expert consulting assistance from the EU, as well as a greater self-initiative. Giv-
en that Croatia is a candidate for accession to the European Union, it should
dedicate itself more to familiarising with the experiences of the other EU mem-
ber countries in the process of rural development in order to avoid other coun-
tries’ mistakes. The first analyses and evaluations of the EU rural development
policy show that the means from the EU funds were mostly spent on structural
measures, namely approximately 34%, which includes the increase in competi-
tiveness, i.e. investment in companies and food production, assistance to young
farmers and earlier retirement. Approximately 38% of means were spent on
environmental protection, soil quality improvement, afforestation and natural
resource protection. “A large part of the means was also spent on the preserva-
tion of old, traditional crafts, village reconstruction, improvement of life quality
in rural areas, as well as the preservation of tradition for the purposes of the
development of tourism in rural areas” (Montelone, Storti, 2004, p. 139).
Equally, rural tourism also, “as a growing business in the tourist industry INTERDISCIPLINARY MANAGEMENT RESEARCH XI
offers many benefits to the local community development. It can be developed
locally, in partnership with small businesses, local government, other agencies in
the area and its development is not dependent on external or large companies’
decisions” (Kumrić, Franić, 2007, p. 135). The Leader approach supports inno-
vative approaches and stimulation of unexploited resource development, or, just
a different view on existing issues; the problem of rural areas, its preservation
and sustainable development had been recognised in Europe much earlier than
in Croatia. One more principle by which this programme is recognisable is lo-
cal financing and management, which gives big powers to the LAGs in decision
making and financing of specific programmes.
53
.. Leader Programme principles
Fundamental principles of the LEADER Programme in the rural commu-
nities sustainable development are based on the characteristics of the areas to

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

ER approach are:
• Sustainable rural development which is based on preservation and develop-
ment of environmental, human, social and creative/productive capital.
• Approach based on area characteristics, as they form a foundation for quality
development.
54
• Starting up the community, as it lags behind in inclusion in developmen-
tal processes and needs support in order to get involved in developmental
processes.
• Bottom-up approach – today’s development is not possible without involve-
ment of the public. This is why all available forces in local communities
should be involved in order to, by richness of ideas and possible solutions, as
high a quality as possible development could be achieved.
• Development of local partnerships in approaches and actions – presently,
fragmented initiatives are often condemned to failure beforehand, they lack
power and trust.
• Networking and cooperation, as well as connecting, synergistic acting in de-
velopmental processes, exchange of knowledge and experiences, both in to-
day’s modern Europe and here, in Croatia.
• Innovative quality and tradition, together with sustainable rural develop-
ment, but innovations are essential in order for traditional values to be repre-
sented in a new and market competitive way.
• Integral approach – sector division is a frequent cause of problems in devel-
opment. Horizontally, inter-sector linking, as well as the vertical one, linking
of local, regional and national institutions, is of great importance in realisa-
tion of sustainable rural development.
• Local financing and project management – it is extremely important that lo-
cal level activities should also be financed from local budgets.
4. LEADER PROGRAMME FUNCTION AND ITS

ROLE IN RURAL DEVELOPMENT
Member countries of the European Union apply the rural development pro-
gramme Leader in strengthening the local development as a counter-balance for
europisation. In the period between the years 1991 and 2006, Leader I, Leader
II and Leader+ Programmes demonstrated a new approach for integral and
sustainable rural area development, strengthening local communities’ develop-
mental policies.
In the solution of the problem of a less favourable position of rural Europe
in comparison to the urban, the Leader programme represents a new social
55
and economic model (Ray, 2001, p. 280). In analysing rural development pro-
grammes in the European Union and in Croatia, an attempt was made to con-
centrate on the Leader Programme as a new and innovative approach to the
development of rural community, village and agriculture. In the period when

Croatia is negotiating its accession to the European Union we can observe the
results of the Leader Programme and principles and give recommendations for
its application in Croatia. The main advantage of the Leader Programme was
the bottom-up approach, which helped activate local resources for the purposes
of local community development. Additionally, it involves the local population
who has the closest insight into the developmental opportunities and who is
deemed partly responsible for and more dedicated to the project than the exter-
nal active participants. Such an approach is not in opposition to the top-down
approach in the sense of the influence coming from the top of the state, regional
authorities or through relevant ministries. For Croatia, the Leader Programme
is considered to be positive for the purposes of rural development and we ex-
pect fast adjustment of local active participants in the creation of LAGs, as well
as strengthening of their role as developmental factors. For example, we find
the first institutional initiative of that kind in the Istrian County’s attempts to
include the Leader Programme in their rural development (Laginja and Čorić,
2000). One of the non-government organisations using the Leader Programme
principles is the Croatian Rural Development Network. After the years of in-
formal work, in January 2006, it was formally registered with the task of gather-
ing and representing civil society organisations which deal with the sustainable
rural development of Croatia (www.odraz.hr, of 23. 10. 2011).
5. CONCLUSION
The research provide a good direction and a base for forming a single man-
agement and development strategy emphasizing the education of a new man-
agement staff, focused on individual growth as well as comprehensive develop-
ment. Although oriented on the Istrian Region, conclusions can be transferred
to other Croatian territories. The main advantage of the Leader Programme
was the bottom-up approach, which helped activate local resources for the
purposes of local community development. Additionally, it involves the local
population who has the closest insight into the developmental opportunities
and who is deemed partly responsible for and more dedicated to the project
56
than the external active participants. Such an approach is not in opposition to
the top-down approach in the sense of the influence coming from the top of the
state, regional authorities or through relevant ministries. Only by managerial
approach, respecting all managerial fuctions, is it possible to realise the concept
of management and development as, objectively speaking, the situation in rural
areas is stagnant and advancement cannot be felt. Regardless of the fact that it
concerns the investment in the economic and non-economic sectors, it is pos-
sible to realise such an approach. If one wishes to have efficient management in
the Istrian Region, one should also establish a system of quality communica-
tion, systematic monitoring and provide as much financial support to the entire
development as well as to educate new people and work on increased education
of the entire population. Equally, a team of people with managerial competenc-
es, with knowledge about the matter of rural area management, can and ought
to conduct rural development actions and stimulate the implementation of the
EU programmes for rural part development.
Cooperation alone in that area goes further than the networking itself. It
involves Local Action Groups which carry out a mutual project with another
LEADER group, or with a group which has a similar approach in another region,
member-country, or even in some third country. “Cooperation can help LEADER
groups to bring into focus their local activities. This can enable them to solve par-
ticular problems or to add value to local resources”. (Štifanić, Debelić, 2009, p.27).
The cooperation projects are not only a simple exchange of experiences; they have
to include specific mutual projects, ideally conducted within a common struc-
ture. This system implies the establishment of institutions which come with costs,
which can be non-profits ones, while founds needed for their operation can be
found in various incentives and other self-governing measures. Correct solutions
require pursuing professional management modules, which will demand certain
reorganization as well as modern education in the management area.
Literature:
1. Brenner, A. November 1, 1993. Environmental Protection Agency. Re: GIS as a Sci-
ence [Discussion]. Geographic Information Systems Discussion List [Online]. Available
e-mail: GIS-L@UBVM.CC.BUFFALO.EDU
2. Bocher M. Regional Governance and Rural Development in Germany the implementa-
tion of Leader+ , 2008.
57
3. Buller H.: Re-creating Rural Territories: Leader in France. Sociologia Ruralis, 2000.,40(2),
str.190-199.
4. EC Directorate-General for Agriculture: Leader+ best practices, Rue de la Loi 200, B-
104 Brussels, 2008.

5. EC Office for official Publications of the European Communities: The Leader approach:
A basic guide, Brussels, 2006.
6. Kumrić, O., Franić, R.: Politika ruralnog razvitka – iskustvo Italije, Agronomski fakultet
Sveučilišta u Zagrebu, Zbornik radova 2. međunarodnog simpozija Agronoma,Opatija,
str. 134.-137., 13.-16. veljače 2007.
7. Laginja I., Ćorić G. : Europski opservatorij LEADER/AEIDL, Rural, 2000.
8. LEADER od inicijative do metode, ZOE – centar za održivi razvoj ruralnih krajeva,
Zagreb, travanj 2004.
9. Moehler, R.:Rural Development-The Second Pillar of the Common Agricultural Policy,
2006.
10. Montelone, A., Storti, D.: Rural development policy in Italy after Agenda 2000: First
results for the period 2000-2003, 87th seminar of the European Association of Agricul-
tural Economists Viena, 21-24 April, 2004.
11. Osti G.: Leader and Partnerships: The case of Italy, Sociologia Ruralis 40(2), str. 173-
180, 2000
12. Perez J.E.: The Leader Programme and the Rise of Rural Development in Spain, Socio-
logia Ruralis 40(2), str. 200-207., 2000.
13. Ploeg, J. D., Renting, H., Brunori, G., Knickel, K., Mannion, J., Marsden, T., De Ro-
est, K., Sevilla-Guzman, E., Flaminia Ventura: Rural Development: From Practises and
Policies towards Theory. Sociologia Ruralis 40 (4), str. 392-408., 2000.
14. Program vlade republike hrvatske za mandat 2008. – 2011., dostupno na http://
www.vlada.hr/hr/content/download/37519/516157/file/Program%20Vlade%20
Republike%20Hrvatske%20u%20mandatnom
15. Ray, C.: Transnational Co-operation Between Rural Areas: Elements of a Political
Economy of EU Rural Development. Sociologia Ruralis 41(3), 2001., str. 279-295.
16. Štifanić, I., Debelić, B.,: Europskom praksom do vlastitih prilika, 2009.
16. http://www.hrvatski-farmer
17. www.odraz.hr
18. Weihrich, H., Koontz, H: Menadžment, deseto izdanje, Mate, Zagreb, 1998.
58
MAIN FACTORS INFLUENCING
PROJECT SUCCESS
Ioana BELEIU, Ph.D.

Babeș-Bolyai University, Romania
ioana.beleiu@econ.ubbcluj.ro
Emil CRISAN, Ph.D.

emil.crisan@econ.ubbcluj.ro
Razvan NISTOR, Ph.D.

razvan.nistor@econ.ubbcluj.ro
Abstract
The high frequency of using projects in all fields determined the increasing im-
portance of adequate project management. Considering the direct relationship
between reaching projects’ objectives and the long term development of an or-
ganization, aspects regarding projects’ success and the success factors of projects
are topics of great interest in project management literature. Reaching projects’ INTERDISCIPLINARY MANAGEMENT RESEARCH XI
objectives in compliance with constraints of cost, time and performance is usu-

ally not sufficient to determine whether the project was successful or not. While
literature provides different perspectives regarding this topic, in practice things
get sometimes even more complicated, project success being often vaguely de-
fined. This article aims to present an overview on the topic of project success
and identify main success factors when dealing with projects using a quantita-
tive research.
Keywords: project, management, success, criteria
JEL Classification: M00, O22
59
1. INTRODUCTION
Projects are used in all economic and non-economic fields as mean of organiz-
ing the activity, aiming the achievement of desired objectives. There is a direct re-
lationship between projects, projects portfolio, programs and the organisational
strategy. Projects, as the main way of creating and dealing with change (Cleland,
Gareis, 2006), are used to implement strategies. Meskendahl (2010) refers to
projects as the central building block used in implementing strategies, therefore
business success is determined by the success of the projects. According to PMI
(2013), aligning projects with strategic objectives brings value to an organiza-
tion. Implementing successful projects generates positives effects on the organ-
isation, influencing not just short and medium, but also long term development.
The topic of business success is related to aspects of profitability and com-
petitive advantage. Several studies have been made in this field due to the im-
portance of finding what success is and how it is measured. In this paper we
Ioana Beleiu • Emil Crisan • Razvan Nistor: MAIN FACTORS INFLUENCING PROJECT SUCCESS
focus on projects’ success, a topic of great interest in project management litera-

ture. Success approached in relationship with projects is even more important
since the number of failing projects is extremely high, more than one third of
projects failing to reach their objectives (PMI, 2013).
Initially, project success was referred to as reaching the objectives and
the planned results in compliance with predetermined conditions of time, cost
and performance. As knowledge in project management field developed, the
“golden triangle” was considered not enough to define project success. Project
success was recognised to be a complex, multi-dimensional concept encom-
passing many attributes (Mir, Pinnington, 2014). Projects are unique, reason
why project success criteria differ from one project to another (Müller, Turner,
2007). To increase complexity even more, within the last decades the concept
of project success is approached in relationship with stakeholders’ perception
(Davis, 2014), being accepted that success means different things to different
people (Shenhar et al, 2001). What determines project success, referred to as
success factors, is also approached and considered to be of great interest.
Base on the importance of the topic and the challenge of reaching project
success, in this paper we analyse the main aspects related to project success
based on a literature review: success criteria and success factors. Furthermore,
we complement the study with an empirical research focused on the main fac-
tors of project success.
60
2. THEORETICAL BACKGROUND
.. Projects’ success criteria
A differentiation should be made between the two related concepts: success
criteria and success factors. First, relevant success criteria have to be identified
and then, success factors should be determined in order to increase the chances
of project success (Müller, Turner, 2007). Although, in this article, we focus our
attention mostly on success factors, success criteria cannot be neglected.
Success criteria are defined by Muller and Turner (2007) as variables that
measure project success. Since project success might be perceived differently
by stakeholders, there is a need for comprehensive criteria that reflect their in-
terests and views (Dvir et al., 1998). Westerveld (2003) emphasises the im-
portance of stakeholders’ satisfaction as a main success criteria, complementary
to the golden triangle of time, budget and quality, and adds that different time
lags should be considered. Establishing a set of criteria applicable to any type of
project is unrealistic (Mir, Pinnington, 2014). Although certain criteria might
be relevant in measuring the success of most projects, they should be adapted to
size, complexity, duration, type and stakeholders’ requirements.
This increased level of complexity when approaching aspects of projects’
success is normal and determined by the dynamic environment where projects
are implemented. While in project management literature the list of success
criteria is supplemented constantly with measurable or non-measurable items,
in practice the situation becomes confusing, project managers having to deal
with situations of implementing projects that don’t have clearly defined success INTERDISCIPLINARY MANAGEMENT RESEARCH XI
criteria. One of the success conditions mentioned by Davis (2004), based on a
comprehensive literature study, is that “success criteria should be agreed on with
stakeholders before the start of the project, and repeatedly at configuration re-
view points throughout the project”.
.. Projects’ success factors

Success factors can be perceived as main variables that contribute to projects’
success (Dvir, 1998), as levers that can be operated by project managers to in-
crease chances of obtaining the desired outcomes (Westerveld, 2003). A com-
bination of factors determine the success or failure of a project and influencing
these factors at the right time makes success more probable (Savolainen, 2012).
In earlier project management literature the main focus was on identifying ge-
61
neric factors that contribute to projects’ success. Within the last years, authors
emphasised on the existence of different success factors depending on project
type. The struggle to identify the critical success factors is an ongoing topic,
approached by many researchers especially due to the pressure of implement-
ing successful projects in a dynamic global market and ever changing business
world (Crisan, Borza, 2014), where continuous innovation is a must in order to
achieve competitive advantage (Salanta, Popa, 2014).
Davis (2014) studies project management success in literature from 1970s
to present, classifying the evolution of success factors into decades. According to
this study, approaches of success factors evolved from focusing on the operation
level of a project in 1970s to embracing a stakeholder focused approached after
2000s (Davis, 2014). As a result of the numerous studies that approached the
topic of project success, several lists of success factors exist. Pinto and Slevin’s
paper from 1987 represents a reference point by establishing a list of ten suc-
cess factors, recognised by other authors as accurate (Turner, Müller, 2005):

project mission, top management support, schedule and plans, client consul-
tation, personnel, technical tasks, client acceptance, monitoring and feedback,
communication, trouble-shooting (Pinto, Slevin, 1987). Davis (2014) adopted
in her paper a set of nine themes in order to describe success factors of proj-
ects: cooperation and communication, timing, identifying/ agreeing objectives,
stakeholder satisfaction, acceptance and use of final products, cost/ budget as-
pects, competencies of the project manager, strategic benefits of the project and
top management support. These lists of factors mentioned above, completed by
inputs from practitioners, are the basis of the empirical research presented in
this paper.
Yu et al. (2005) discussed the timing of project evaluations which aim analys-
ing the success, concluding that the process is useful at any time between the first
milestone until the completion of the project. The results of these evaluations
might indicate inconsistencies that can have negative influence on the final out-
comes. Whenever these situations occur, project managers should act in order to
increase success chances by influencing the previously identified success factors.
3. METHODOLOGY
The article complements the literature review with an empirical study on
success factors. The objectives of the study are to identify the main factors of
62
projects’ success. By conducting the research we aim to answer the following
research questions:
RQ1: What are the top five factors that have the highest influence on proj-
ects’ success?
RQ2: What is the correlation between the factor considered to have the
highest influence on projects’ success and the other factors?
The study is based on a quantitative research. Quantitative research involves
studies that make use of statistical analyses to obtain their findings (Marczyk
et al, 2005). The method of data collection used is a questionnaire addressed
to project managers, project team members, owners, sponsors, contractors, cli-
ents or other interested parties involved in projects’ implementation. The several
roles targeted aimed capturing a comprehensive overview of the approached
topics.
The structure of the questionnaire includes a first section where respond-
ents are asked to choose from a list of success factors five factors that have the
highest influence on projects’ success. The list of nineteen success factors pre-
sented in the questionnaire is based on previous studies of Pinto, Slevin (1987)
and Davis (2014) and on inputs received from project managers. Thus, it was
elaborated a comprehensive list of success factors that approaches operational
and strategic aspects, and also considers both internal and external projects’ en-
vironment. The second section of the questionnaire requests respondents to the
rank the statements on a Likert scale from 1 to 5 (1- strongly disagree, 2- disa-
gree, 3- uncertain, 4- agree, 5- strongly agree), based on their experience and
reflecting the situation within a project that they are currently working on. The
last part of the questionnaire includes general identification data as: the role of
respondents in the project, their experience in dealing with projects, the country
where they are located, and the type of the project they referred to.
The phases of the analysis are in accordance with the structure of the ques-
tionnaire. Thus, in the first phase we analyse the factors having the highest
impact on projects’ success. The second phase of the analysis refers to specific
projects that respondents currently work on. In this phase, for the top five fac-
tors that received the highest number of votes previously, an in-depth analysis
is made. Since it is generally accepted that success factors relate to each other,
statistical tests are applied in order to analyse the correlation between the suc-
cess factor that received the highest number of votes and all the other factors.
63
The number of responses received within a month of applying the question-
naire is 47. Although this number might be seen as a limit of the quantitative
research, a higher number of responses being needed for accurate generalisation
of the results, the study can be perceived as a pilot study that provides useful
information and directions for future research.
The respondents answering the questionnaire are mostly project manag-
ers (51%) and project team members (38%), with an experience in managing
projects of 2 to 5 years (47%) and of 6 to 10 years (28%), working in Roma-
nia (80,9%), Austria (8,5%), China (4,3%), France (2,1%), Israel (2,1%) and
United Arab Emirates (2,1%). The types of analysed projects are: IT projects
(38%), engineering and construction projects (19%), organizational change
projects (15%) and others (human resource development projects, research and
development project, social projects).
4. DATA ANALYSIS AND RESULTS

INTERPRETATION
As mentioned before, respondents were asked to choose from the list of fac-
tors presented in the table below (Table 1) five factors that have the highest im-
pact on projects’ success. Since all these factors are relevant to projects’ success,
it can be observed that each of them received votes. However, there are certain
factors that were chosen by more respondents. Thereby, it can be stated that
the factors that were chosen by most of the respondents have higher impact
on projects’ success that the others. Based on the results of the questionnaire,
the five factors with highest impact on projects’ success are: clearly defined goal
and directions (70.2%), competent project team members (53.2%), clearly de-
fined roles and responsibilities (53.2%), communication and consultation with
stakeholders (40.4%) and compliance with the planned budget, time frame and
performance criteria (40.4%). Owner’s and sponsor’s involvement within the
project, and the provision of timely data to key players are considered to have
the lowest impact on projects’ success, since they received the smallest number
of votes.
64
Table 1. Ranking of success factors
Number Percentage of
Success factors of respondents
choices choosing the factor
Compliance with the planned budget, time frame and performance
19 40.4 %
criteria
Clearly defined goals and directions 33 70.2 %
Accurate schedule and plan 17 36.2 %
Timely and comprehensive control 10 21.3 %
Adequate use of project management techniques 10 21.3 %
Adequate use of technical skills 5 10.6 %
Competent project team members 25 53.2 %
Clearly defined roles and responsibilities 25 53.2 %
Synergy of the team 15 31.9 %
Experience and expertise of the project manager 7 14.9 %
Adequate risk management 5 10.6 %
Ability to handle unexpected problems 15 31.9 %
Communication and consultation with stakeholders 19 40.4 %
Provision of timely data to key players 2 4.3 %
Client acceptance of the results 11 23.4 %
Stakeholders satisfaction 6 12.8 %
Owner involvement within the project 1 2.1 %
Sponsor involvement within the project 3 6.4 %
Top management support 7 14.9 %
Source: Author’s calculations

On the second phase of the analysis we focused on projects where respon-
dents are currently involved. An analysis was made in order to see whether the
top five success factors are given adequate importance in practice. Thus, studied
aspects were, whether:
• Projects have clearly defined goals and directions;
• Projects’ team members have the necessary competences;
• Roles and responsibilities are clearly defined;
• The communication and consultation with stakeholders take place when-
ever necessary;
• Projects respect the planned budget, time frame and performance criteria.
65
Most of the analysed projects have clearly defined goals and directions, more
than 44% of respondents agreeing with the first analysed statement and more
than 36% strongly agreeing with it (Figure 1). Though, 6.38% of the respon-
dents consider that projects they are involved in, do not have clearly defined
goals and directions.
Figure 1. Analysis on the clarity of defined goals and directions

Concerning the competence level of team members, the majority of respon-

dents consider that it is adequate (40.4% of respondents agree with the state-
ment and 31.8% strongly agree). It can also be observed in the figure below
(Figure 2) that several respondents face situations where project team members
do not have the necessary competences.
66
Figure 2. Analysis on the competence level of team members
Clearly defined roles and responsibilities are a must when dealing with proj-
ects in order to ensure a successful implementation. By knowing what they have
to do and when they have to do it, team’s efficiency is increased. A useful tool
that clarifies roles and responsibilities is the Responsibility Matrix. Despite the
importance of this factor, a percentage of more than 19% respondents consider
that roles and responsibilities are not clearly defined in the projects they re-
ferred to. On the other hand, a percentage of 34% respondents agree and 34%
strongly agree with the statement (Figure 3).
Figure 3. Analysis on the clear definition of roles and responsibilities
67
A percentage of 21% respondents strongly agree and 44% agree that the
communication and consultation with stakeholders is adequate in the case of
the studied projects. However, the percentage of undecided respondents is quite
high (27%). Most of the respondents consider that projects respect the planned
budget, time frame and performance criteria. Whereas the percentage of those
agreeing with the statement is the same as in the case above, only 12% strongly
agree and the percentage of those who disagree or are undecided is higher com-
paring to the situation analysed previously.
In order to verify the correlation between the success factor “clearly defined
goals and directions” and the other success factors applied in the context of the
analysed projects, the statistical test Pearson was used (Table 2).
The value of Sig. lower than 0.05 confirms that there is a statistically signifi-
cant correlation between the statements “The project has clearly defined goals
and directions” and:
• The project respects the planned budget, time frame and performance
criteria;
• The project has accurate schedules and plans;
• During project’s implementation a timely and comprehensive control
takes place;
• Project team members have the necessary competences;
• Roles and responsibilities are clearly defined;
• Project team has a high level of effectiveness and efficiency;
• The project manager is empowered with flexibility to deal with unforeseen
circumstances;
• The project manager and the team members have the ability to handle
unexpected problems;
• The communication and consultation with stakeholders takes place when-
ever necessary;
• Clients accept the results of the project;
• The level of stakeholders’ satisfaction is adequate;
• The owner takes an interest in the performance of the project and provides
guidance whenever necessary.
These results indicate that changes within one variable imply changes within
the other variable that is related. Pearson coefficient provides additional infor-
mation regarding the correlation of the analysed variables. The positive values
68
of the Pearson coefficient indicate a positive correlation: if values of one variable
increase, the values of the other variable also increase and vice versa. In all the
cases presented in the table below, where significant correlation was identified,
the values of Pearson coefficient are positive.
The results obtained through the application of these statistical tests show
that more clear goals and directions have positive influences as:
• project are more likely to respects the planned budget, time frame and
performance criteria;
• the level of accuracy of projects’ plans and schedules increases;
• control becomes more adequate and is made on time;
• projects’ team members are more competent, since they can be selected or
trained according to the requirements, goals and directions of the projects;
• roles and responsibilities are more likely to be clearly defined;
• projects team’s level of effectiveness and efficiency increases;
• project managers become more empowered to deal with unforeseen
circumstances;
• project managers and team members have better abilities to handle unex-
pected problems;
• communication and consultation with stakeholders improves;
• chances of clients to accept the results of the project increase;
• the level of stakeholders’ satisfaction increases;
• the owner takes more interest in the performance of the project and pro-
vides more guidance.
These results highlight the importance of identifying the main success fac- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
tors. Through a positive influence on the factors that have the highest influence
on project’s success, other factors that are related will also be influenced, in-
creasing the chances of fulfilling success criteria.
69
Table 2. Correlations between success factors
The project has clearly defined goals and
Correlations
directions.
The project respects the planned budget, time frame and Pearson Correlation 0.576**
Significant correlation
performance criteria. Sig. 0.000
Pearson Correlation 0.490**
The project has accurate schedules and plans. Significant correlation
Sig. 0.000
During project’s implementation a timely and Pearson Correlation 0.321*
comprehensive control takes place. Sig. 0.028
There is an adequate use of project management Pearson Correlation 0.271
No correlation
techniques. Sig. 0.066
Pearson Correlation 0.227
The project team is able to adequately use technical skills. No correlation
Sig. 0.125
Pearson Correlation 0.348*
Project team members have the necessary competences. Significant correlation
Sig. 0.017
Roles and responsibilities are clearly defined. Significant correlation

Sig. 0.008
Project team has a high level of effectiveness and Pearson Correlation 0.407**
efficiency. Sig. 0.005
The project manager has the necessary level of Pearson Correlation 0.171
No correlation
experience and expertise. Sig. 0.251
The project manager is empowered with flexibility to deal Pearson Correlation 0.412**
with unforeseen circumstances. Sig. 0.004
The project manager and the team members have the Pearson Correlation 0.420**
ability to handle unexpected problems. Sig. 0.003
The communication and consultation with stakeholders Pearson Correlation 0.334*
takes place whenever necessary. Sig. 0.022
Relevant data is provided to key players on time. No correlation
Sig. 0.193
Pearson Correlation 0.302*
Clients accept the results of the project. Significant correlation
Sig. 0.039
The level of stakeholders’ satisfaction is adequate. Significant correlation
Sig. 0.003
The owner takes an interest in the performance of the Pearson Correlation 0.385**
project and provides guidance whenever necessary. Sig. 0.007
The sponsor’s involvement within the project is adequate. No correlation
Sig. 0.167
The project receives top management support. No correlation
Sig. 0.121
70
5. CONCLUSIONS
Success is desired in everyday life, in business activities and in projects. Given
the high rate of projects that fail reaching their objectives or creating the wanted
effects, researches that approach the topic of success bring positive inputs both
to literature and to practice. Relating literature reviews with studies that cap-
ture the realities of business environments increase the usefulness of the results.
Success factors determine the positive outcomes of implementing projects.
They have to be identified before projects’ implementation, from the conception
phase. But projects environments are dynamic, so success factors might change
their level of influence in time. Thus, a permanent monitoring of these factors
is needed and whenever necessary the project manager should influence certain
factors in order to increase chances of accomplishing success criteria.
The research presented in this article is relevant because it aims to identify
the main success factors from a very comprehensive list of factors. Since factors
are usually related to each other, knowing the factors that have higher influence
on projects’ success supports the management process and increases its efficien-
cy. Future research should be done in order to continue the study on a higher
sample, by testing the correlation between rankings of success factors and the
roles or the experience of respondents.
references
Cleland, D., Gareis, R. (2006). Global Project Management Handbook, 2nd Edition, Mc-
Graw-Hill Print INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Crisan C. S., Borza A. (2014). Strategic entrepreneurship, Managerial Challenges of the
Contemporary Society, Ed. Risoprint, 170-174
Davis, K. (2014). Different stakeholder groups and their perceptions of project success, In-
ternational Journal of Project Management 32, 189–201
Dvir D., Lipovetsky S., Shenhar A., Tishler A. (1998). In search of project classification: a
non-universal approach to project success factors, Research Policy 27, 915–935
Marczyk, G., DeMatteo, D., Festinger, D. (2005). Essentials of Research Design and Meth-
odology, Ed. New Jersey: John Wiley & Sons.
Meskendahl, S. (2010), The influence of business strategy on project portfolio management
and its success — A conceptual framework, International Journal of Project Management
28, 807–817
Mir, F.A., Pinnington, A.H. (2014). Exploring the value of project management: Linking
Project Management Performance and Project Success, International Journal of Project
Management 32, 202–217
71
Müller, R., Turner, R. (2007). The influence of project managers on project success criteria
and project success by type of project. European Management Journal 25 (4), 298–309
Pinto, J.K., Slevin, D.P., (1987). Critical factors in successful project implementation, IEEE
Transactions on Engineering Management 34 (1), 22–28
PMI (2013). Pulse of the Profession In-Depth Report: The Impact of PMOs on Strategy
Implementation
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tract, Proceedings Of The 8th International Management Conference “Management Chal-
lenges for Sustainable Development”, Bucharest, Romania, 350-357
Savolainen P., Ahonen, J.J., Richardson, I. (2012). Software development project success and
failure from the supplier’s perspective: A systematic literature review, International Journal
of Project Management 30, 458–469
Shenhar, A. J., Dvir, D., Levy, O., Maltz, A. C. (2001). Project Success: A Multidimensional
Strategic Concept, Long Range Planning 34, 699–725
Turner, J.R., Müller, R. (2005). The project manager’s leadership style as a success factor on
projects: a review, Project Management Journal 36 (2), 49–61
Westerveld E. (2003). The Project Excellence Model: linking success criteria and critical suc-
cess factors, International Journal of Project Management 21, 411–418

Yu, A. G., Flett, P. D., Bowers, J. A. (2005). Developing a value-centred proposal for assessing
project success, International Journal of Project Management 23, 428–436
Acknowledgments:
* This work was co-financed from the European Social Fund through Sectoral Op-
erational Programme Human Resources Development 2007-2013, project number
POSDRU/159/1.5/S/134197 „Performance and excellence in doctoral and postdoctoral
research in Romanian economics science domain”
72
OPTIMISATION OF OPERATIONS
USING A TRANSPORTATION
MODEL
Martina BRIŠ ALIĆ, Ph.D.

J.J. Strossmayer University of Osijek,
Faculty of Economics in Osijek, Republic of Croatia
mbris@efos.hr
Mirko COBOVIĆ, Ph.D. Candidate

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

Aurea Grupa d.d., Republic of Croatia
uprava@aurea-grupa.hr
Abstract
Hrvatske šume d.o.o. (limited liability company) is a state-owned enterprise
for forest and woodland management in the Republic of Croatia. The area
under its governance provides for annual increment of 9.6 million m3 of gross INTERDISCIPLINARY MANAGEMENT RESEARCH XI
wood mass, whereas 5.4 million m3 is on a yearly basis. This cut wood mass
needs to be transported to designated destinations. Wood mass transport has
continuously increased, with 4.8 million m3 transported in 2013. Out of this
quantity, the company Hrvatske šume d.o.o. transported 12.8% of wood mass
using its own facilities, and the rest was transported by subcontractors. For
these reasons, a transportation model can be an important part of operations.
The paper aims to analyze transport-related issues in the company Hrvatske
šume d.o.o. The insight into the current situation in wood mass transport will
provide a basis for the proposed optimization of operations. Key factors of
transport will be considered in devising an optimization proposal.
73
Keywords: optimization, transportation model, Hrvatske šume d.o.o., Croa-
tian wood industry
JEL Classification: C4, C44, C49
INTRODUCTION
Influenced by the minimization of the tied-up capital volume, transport is an
important area for optimization of business processes within a company. Efforts
invested in rationalization of business operations in the company Hrvatske
šume d.o.o. over years have resulted in changes in the transport of wood mass.
Martina Briš Alić • Mirko Cobović • Alen Alić: OPTIMISATION OF OPERATIONS USING A TRANSPORTATION MODEL
There are two types of transport of wood mass- primaryand secondary. Pri-
mary transport involves transport of processed wood mass from a production
site to a storage yard, whereas secondary transport involves transport of wood
mass from the storage yard to the site where it will be further processed. Sec-
ondary transportby using own facilities in the company Hrvatske šume d.o.o.
has been reduced over years and transferred to subcontractors.
The paper provides further analysis of secondary or distance transport of
wood mass by truck units owned by Hrvatske šume d.o.o toward large and
mediumsized companies involved in wood processing. The analysis was used as
a basis for operations optimization by using a transportation model.
HRVATSKE ŠUME D.O.O.

Hrvatske šume d.o.o. is a state-owned enterprise for forest and woodland
management in the Republic of Croatia. The company is organized in three
tiers, consisting of Headquarters in Zagreb, 16Forest Administrations and 171
Forrest Offices.Wood and woodlands account for 37% of the total country area,
with annual increment of 9.6 millionm3of wood mass, whereas 5.4 million m3
is cut over one year1.
The cut wood mass is transported from the cutting area toa storage yard,
from where it is transported to processors.
Total wood mass transported in 2013 amounted to 4.8 millionm3. Hrvatske
šume d.o.o. transported 12.8% of wood mass using its own facilities, whereas
1
http://portal.hrsume.hr/index.php/hr/tvrtka/onama
74
the remaining 77.1% of wood mass was transported by subcontractors.A more
detailed overview is provided in Table 1.
Table 1.Transport of wood mass by m3

Total Percentage
Own facilities 611,839 12.76%
Subcontractors 3,696,294 77.10%
Self-production 486,168 10.14%
Total 4,794,301 100.00%
Source: Kuric et al., 2014: 31
The share of own facilities and subcontractors has reduced over years – in
the total wood transport by means of truck units in Croatia in 2006, Hrvatske
šume d.o.o. participated with 21%, whereas the remaining 79% of wood was
transported by private entrepreneurs (Beuk et al., 2007: 72); in contrast to2012,
when Hrvatske šume d.o.o. participated with 13% (Tomašić, 2012: 63).
Transportation capacity of Hrvatske šume d.o.o. consists of 101 truck units
distributed among Forest Administrations as shown in Table 2. According to
the table, 3 out of total 16 Forest Administrations do not have their own facili-
ties, i.e. available trucks.
Table 2. Capacity distribution among Forest Administrations

Forest Administration Trucks Forest Administration Trucks INTERDISCIPLINARY MANAGEMENT RESEARCH XI
1 Bjelovar 11 9 Ogulin 12
2 Buzet 0 10 Osijek 5
3 Delnice 11 11 Požega 4
4 Gospić 6 12 Senj 15
5 Karlovac 4 13 Sisak 0
6 Koprivnica 6 14 Split 0
7 Našice 9 15 Vinkovci 7
8 Nova Gradiška 4 16 Zagreb 7
Source: web site Hrvatske šume d.o.o.
75
TRANSPORTATION PROBLEM
Transportation problem or transportation model is a special case of linear
programming. Transportation problem refers to a situation where some ho-
mogenous2 good in the ai amount is transported from the Ii supply point (for
i=1,...,m) to the Oj demand point (for j=1,...,n) at minimal costs. The starting
point is that transportation costs per unit are constant (they do not vary with
the quantity being transported) from the i point to the j point and they are
equal to cij. The quantity being transported from the i point to the j point is
marked with xij (Barković, 2002: 117).
The basic terms are as follows:

Supply point I (source) → supply (a total mof supply points),
Demand point O(destination) → demand (a total nof demand points)
ai– Capacity of a particular supply point(supply),
bi– Demand of a particular demand point(demand),
ci – Transportation costs per unit or transportation prices,
xij– Transported quantities – quantities transported from the i supply point
to the j demand point.
Transportation model can be formulated as a problem in linear program-
ming (Hillier&Lieberman, 2010: 310-311):
m n
Minimize Z ¦¦ c
i 1 j 1
x
ij ij
n
subject to ¦x
j 1
ij si , for i 1, , m
m
¦x
i 1
ij dj, for j 1, , n
and xij t 0 ( i 1,, m; j 1,, n )
When:
m n
1. ¦s ¦d
i 1
i
j 1
j → supply = demand → closed transportation problem
m n
2. ¦s ˂¦
i 1j 1
idj → supply ˂ demand → open transportation problem
2
Goods are homogenous in the sense that it is possible to transport goods together in such a way that
a particular good will not affect the quality of another good, or that a particular good will not damage
another good; but also in such a way that each unit of the good from one source can be freely substi-
tuted for a unit of the good from any other source.
76
m n
1. ¦s ¦d
i 1
i
j 1
j → supply = demand → closed transportation problem
m n
2. ¦s ˂¦
i 1
i
j 1
dj → supply ˂ demand → open transportation problem
a) All supply constraints will contain the equals sign, whereas demand constraints
will contain the ≤ sign, as some destinations will receive less than they requested.
b) An open transportation problem can be turned into a closed transportation
problem by introducing the so-called fictional source I m1 whose capacity equals
n m
to ¦d ¦s
j 1
j
i 1
i , and transportation prices are equal to zero, i.e. cm1, j 0 . In this
way, the fictional source I m1 does not affect the costs with its “shipped”
quantities.
The fictional source is interpreted in the following way: demand of destinations
that would be supplied from the fictional source will not be satisfied.
m n
3. ¦ s ˃ ¦d
i 1
i
j 1
j → supply ˃ demand → open transportation problem
a) All demand constraints will contain the equals sign, whereas supply constraints
will contain the ≤ sign, as the surplus (the difference between supply and
demand) will stay at some supply points.
b) It can be turned into a closed transportation problem by introducing the so-called
m n
fictional destination On1 whose demand equals to ¦s ¦d
i 1
i
j 1
j , and
transportation prices are equal to zero, i.e. ci ,n1 0 . In this way, the fictional
destination On1 does not affect the cost with its “received” quantities.
The fictional destination is interpreted in the following way: in the sources that
should supply fictional destinations, there will remain capacity units that will not be
transported. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
APPLICATION OF THE TRANSPORTATION MODEL

ON DISTANCE TRANSPORTATION OF WOOD
MASS
For the purpose of this paper, secondary data on total annual turnover, as-
sets and average number of employees in the field of wood processing were
analyzed. For the purpose of this analysis, the data from the Financial Agency
(FINA) of the Republic of Croatia were used, which are based on the Na-
tional Classification of Economic Activities (Regulations on the Classification
of Business Entities according to the National Classification of Economic Ac-
77
tivities 2007 (NKD2007), Official Gazette 58/2007). According to the NKD
2007, researched business entities belong to SectionC – Manufacturing, divi-
sion 16 – Manufacture of wood and of products of wood and cork, except fur-
niture; manufacture of articles of straw and plaiting materials. Furthermore, the
observed units were companies.
According to the Croatian law, companies are categorized as small, medium
sized or large companies according to three criteria: total assets, total revenue
and the average number of employees (Table 3).
Table 3. Criteria for determining company size

Company size Criteria Amount in HRK
Total assets <32,500,000.00
Small companies (shall meet two of the stated three
Total revenue < 65,000,000.00
requirements)
Number of employees <50
Total assets <130,000,000.00
Medium-sized companies(shall meet two of the stated
Total revenue <260,000,000.00
three requirements)
Number of employees < 250
Large companies (shall exceed at least two criteria for medium-sized companies)
Source: Ramljak, 2009:22
Taking into account the above classification as well as higher demand for
wood mass which also requires increased transport volumes of wood mass, the
analysis in this paper was aimed at large and mediumsized companies (Figure
1).
78
Figure 1. Locations of Forest Administrations and wood processors
Wood mass is transported by 101 trucks distributed among 13 Forest Ad-

ministrations. From there it can be further distributed to 33 destinations –
large and mediumsized wood processors.
The distances between certain sources and destinations are shown in Table
4. The data were calculated by means of Google Earth and the HAK interactive
map.
79
Table 4. Distances between Forest Administrations and wood processors
Forest Administrations

1 2 3 4 5 6 7 8 9 10 11 12 13 D
1 105 223 300 154 195 128 50 206 187 78 262 176 104 2
2 253 55 212 122 286 390 312 97 450 340 74 439 171 8
3 3 206 282 137 40 143 147 188 284 121 245 273 85 1
4 213 332 409 263 304 68 77 315 86 64 371 72 212 4
5 31 179 256 110 62 195 116 161 254 144 218 243 59 1
6 31 179 256 110 62 195 116 161 254 144 218 243 59 1
7 78 272 228 82 111 229 150 133 287 178 190 277 25 1
8 106 184 261 115 67 280 202 167 339 230 223 328 82 5
9 121 97 17 173 154 259 181 78 318 209 135 307 39 1
10 86 123 200 53 120 224 146 105 284 175 161 272 5 7
11 276 395 471 325 367 115 140 377 61 144 433 22 275 1
12 31 232 308 162 28 115 178 214 163 128 270 199 111 3
13 69 212 288 142 30 170 211 194 248 240 250 337 91 3
14 62 147 223 77 99 223 146 129 282 173 185 272 22 3
15 3 206 282 137 40 143 147 188 284 121 245 273 85 8
16 252 55 211 122 286 390 312 97 450 340 74 439 170 2
17 92 188 264 118 61 264 186 170 324 214 226 313 67 2
18 67 231 308 161 106 135 57 213 195 85 270 184 111 1
19 210 10 169 80 244 350 270 54 406 297 86 396 128 1
20 127 223 299 154 52 192 222 205 359 250 261 348 102 3
21 76 225 301 155 197 129 51 207 188 79 264 178 104 2
22 117 346 423 278 114 26 92 329 79 51 385 97 227 2
23 127 223 299 154 52 192 222 205 359 250 261 348 102 2
24 63 228 304 159 25 164 227 210 364 254 266 353 107 1
25 63 228 304 159 25 164 227 210 364 254 266 353 107 2
26 117 211 287 141 208 175 98 192 235 125 249 223 93 2
27 191 310 387 241 282 54 56 292 94 42 349 83 190 3
28 86 123 200 53 120 224 146 105 284 175 161 272 5 1
29 98 178 255 108 160 199 121 160 258 149 217 248 60 2
30 273 392 469 323 364 75 137 374 42 142 431 3 272 7
Wood processors
31 235 354 431 285 186 48 99 336 62 104 393 34 234 5

32 86 123 200 53 120 224 146 105 284 175 161 272 5 4
33 86 123 200 53 120 224 146 105 284 175 161 272 5 10
S 11 11 6 4 6 9 4 12 5 4 15 7 7
Source: Authors
80
An optimal schedule of truck movement, i.e. transportation shipments
among particular destinations should be created, taking into account the needs
of large and medium sized wood processors, as well as the number of available
trucks at a particular source, i.e. Forest Administration, with the aim of reduc-
ing mileage.
Data analysis was carried out by applying MS Excel and POM-QM for Win-
dows program. Table 5 provides the optimal solution to the observed problem.
Table 5. Optimal solution for transportation shipments

Forest Administrations

1 2 3 4 5 6 7 8 9 10 11 12 13
1 2
2 8
3 1
4 4
5 1
6 1
7 1
8 5
9 1
10 7
11 1
12 2 1
13 0 3
14 3
15 8
16 2
17 2
18 1
19 1
20 2 1
21 1 1
22 2
23 2
24 1
25 2
26 1 1
27 1 2
28 1
29 1 1
Wood processors
30 1 6
31 1 4
32 0 4
33 4 1 5
Source: Authors
81
Table 6 shows the combined data for all the observed sources, i.e. Forest
Administrations, the destinations for which the transportation model yielded
that a certain quantity of wood mass should be transported by means of truck
units, distances between particular sources and destinations where truck units
should be stationed, the number of truck units between a particular source and
a particular destination, as well as total kilometres driven.
Table 6. Shipping list (FA = Forest Administration, WP = Wood Processor, S
= Shipment, D/U = Distance per Unit, SD = Shipment Distance)
FA WP S D/U SD FA WP S D/U SD
1 3 1 3 3 7 18 1 57 57
1 12 2 31 62 7 21 1 51 51
1 15 8 3 24 8 5 1 161 161
2 8 5 184 920 8 6 1 161 161
2 19 1 10 10 8 10 7 105 735
2 29 1 178 178 8 26 1 192 192
2 32 0 123 0 8 28 1 105 105
2 33 4 123 492 8 29 1 160 160
3 9 1 17 17 9 30 1 42 42
3 13 0 288 0 9 31 4 62 248
3 17 2 264 528 10 21 1 79 79
3 20 2 299 598 10 26 1 125 125
3 33 1 200 200 10 27 2 42 84
4 32 4 53 212 11 2 8 74 592
5 13 3 30 90 11 16 2 74 148
5 24 1 25 25 11 33 5 161 805
5 25 2 25 50 12 11 1 22 22
6 4 4 68 272 12 30 6 3 18
6 12 1 115 115 13 7 1 25 25
6 22 2 26 52 13 14 3 22 66
6 27 1 54 54 13 20 1 102 102
6 31 1 48 48 13 23 2 102 204
7 1 2 50 100
Source: Authors
82
CONCLUSION
Due to globalization, today’s business environment is governed by uncer-
tainty and a high degree of turbulence. In such conditions, Hrvatske šume d.o.o.
can secure its future and achieve competitive advantages by continuous opti-
mization of operations. This paper has presented one optimization method,
namely, the transportation model.
Taking into account the number of trucks available to Hrvatske šume d.o.o.,
the revenue of particular large and medium-sized wood processors – and relat-
ed to this, the need/demand of a processor for wood mass, an optimal schedule
of truck movement has been devised, i.e. the number of transportation ship-
ments among particular destinations has been determined, all with the aim of
reducing mileage.
This paper can be a starting point for further optimization of operations and
decrease of operating costs for the company Hrvatske šume d.o.o.
REFERENCES
Barković, D. (2002).Operacijska istraživanja, Ekonomski fakultet u Osijeku, Osijek.
Beuk, D.,Tomašić, Ž., Horvat, D. (2007).Status and development of forest harvesting mech-
anisation in Croatian state forestry, Croatian Journal Of Forest Engineering, Vol. 28 Issue 1,
Zagreb, 63-82.
Hillier F., Lieberman G. (2010). Introduction to Operations Research, Holden-Day Inc,
Oakland, California.
Kuric, D., Stankić, M., Juričić Musa, A., Rupčić, J., Paunović, I. (2014). Godišnje izvješće
2013, Hrvatske šume d.o.o., Zagreb. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
http://portal.hrsume.hr/index.php/hr/tvrtka/onama (Accessed 15-01-2015)
Ramljak, B. (2009). Stanje i perspektive razvoja financijskog izvještavanja za mala i sred-
nja poduzeća, Računovodstveno izvještavanje u RH i harmonizacija sa zahtjevima EU,
Sveučilište u Splitu, Ekonomski fakultet, Split, 21-46.
Tomašić, Ž. (2012). Razvoj tehnologije i tehničkih sredstava u pridobivanju drva s obzi-
rom na posebnosti šuma i šumarstva u Republici Hrvatskoj, Nova mehanizacija šumarstva,
Vol.33 No.1, Zagreb, 53-67.
83
INTERDEPENDENCE OF BUSINESS
Sonja Brlečić Valčić • Jana Katunar: INTERDEPENDENCE OF BUSINESS VALUE COMPONENTS IN VALUE CREATION AND VALUE CAPTURE CONCEPTS
VALUE COMPONENTS IN VALUE

CREATION AND VALUE CAPTURE
CONCEPTS1
Sonja BRLEČIĆ VALČIĆ, Ph.D.

Saipem SpA Croatian Branch, Rijeka, Croatia
sonja.brlecic@gmail.com
Jana KATUNAR, univ. spec. oec.

University of Rijeka, Faculty of Economics, Rijeka, Croatia
jana@efri.hr
Abstract
Modern economic concepts are focused on sustainable business models where
key processes and resources contribute to a company’s value creation and cap-
ture. It is important to notice the existence and the interdependence of the three
value categories in this process: value in use, shareholder value and shared
value. This process is manifested with the ability to create future cash flows
based on strategy and business excellence, capital structure, optimal sharehold-
er value, as well as competitiveness of a company in advancing the economic
and social conditions in the communities in which it operates. Such a sustain-
able system of value creation and capture is based on trust, cooperation and
responsibility.
The value in use category is presented in this paper through combination of the
return on existing assets and new investments evaluation. Shareholder value
category implies the increase of equity market value, dividends paid during the
year, other payments to shareholders and outlays for capital increases. Connec-
tion of social needs, business opportunities together with corporate assets and
expertise form the basis for the shared value component.
1
This work has been supported by the Croatian Science Foundation under the project 6558 Business
and Personal Insolvency - the Ways to Overcome Excessive Indebtedness.
84
Based on the essential parts of the aforementioned value categories, the au-
thors propose a conceptual model for value creation and value capture. This
approach emphasizes the connectivity of company success with social progress.
Keywords: value creation, value capture, value in use, shareholder value,
shared value
JEL Classification: G32, L21, M10
1. INTRODUCTION
The company that creates value can be defined as one in which the manage-
ment manages to integrate the interests and actions of all participants interested
in the company’s business processes. These are primarily the owners, managers
and employees, as internal creators of business processes, and customers, sup-
pliers, creditors, as well as the entire community in which the company operates
as external participants.
Creating value for the company is achieved by optimizing the system of busi-
ness performance and business models which are aimed at achieving sustainable
competitive advantages and operational objectives with the support of optimal
capital structures.
Capital is the input entering the system of value creation, which, through
assets and business activities and interactions, is transformed into output busi-
ness results. The business results, in short, medium and long term, either create
or destroy value for the company, the business process stakeholders, community
and the environment (EY, 2013).
The goal of optimization within the process of value creation is to provide
consistency between operating, investing and financing activities. Such a system
should result in a positive sustainable cash flow that exceeds the cost of capital.
The essence of the strategy in the value creation process is to harmonize a se-
ries of activities, from procuring raw materials to satisfying the end consumer,
which will allow the creation of a new product or service in the future. The value
is captured by retaining part of the benefits derived from these activities for the
means of further development and operation (Chesbrough, 2007).
Value capture is primarily related to the allocation of business profit, which
should ensure conditions for future production or provision of services, ensur-
85
ing thus sustainable operations and meeting the expectations of all participants
in the business process.

Therefore, the control points in the process of value capture are related to the
organization’s focus on new technologies, intellectual capital, ownership, brand
creation and so on. The ability to develop implies a balance between the key
potentials of existing resources and processes (Bowman & Ambrosini, 2000).
According to Hamel (2000), modern era requires business models in which
value creation and values capture occur in business networks that include sup-
pliers, partners, distribution channels, as well as associations that expand access
to resources (Zott et al., 2011).
Resulting from the above mentioned, there is a need for the analysis, re-
search and appropriate defining of value creation factors and their interdepen-
dence. Therefore, within this paper, the authors define the basic value concepts
and propose a conceptual model with the purpose of identifying the elements
that contribute to value creation. The proposed model is based on value preser-
vation and business sustainability.
2. BASIC VALUE CONCEPTS IN VALUE CREATION

AND VALUE CAPTURE
A company as an asset for itself has no value, unless it can generate profit for
the owner. Therefore, in simplest terms, the theory which surrounds value inter-
ests in business operations depends on the future benefits for its owner (Brlečić
Valčić & Crnković-Stumpf, 2013). In this context, the value of a company can
be observed as an estimate of the future benefits that a company, as an asset, can
produce for its stakeholders and the needed rate of return at which this future
benefits are discounted to present value (Brlečić Valčić & Crnković-Stumpf,
2013). Creating and capturing a company’s value can be seen through several
value concepts depending on the stakeholders in the value process.
The first value concept refers to the stakeholders who are directly involved
in the business process and the achievement of business results i.e. value in use.
Value in use represents the possibility of creating future cash flows. It re-
flects the value for employees, customers, suppliers and owners, recognizing the
extent to which assets contribute to the company in terms of achieving positive
86
business results. However, the essence of this concept are not only the assets
contributing to positive business processes, but also the value of each individ-
ual factor in these processes that contribute to value creation, as well as their
interaction.
For example, a company’s collaborative relation with its buyers and suppliers
can lead to value creation and excellent business performance of all participants
in the business process. Increasing the total relational value created in such a
relationship, results in a share of value capture for all participants (Miguel et
al., 2014). The specificity of these relations in the context of value creation is
mainly reflected in the mutual access to resources, since value is created through
the integration of resources, and affects the mere nature of the system by de-
fining the course of changes in the context in which value creation will create
processes that will occur in the future (Corsaro, 2014). The complexity of this
process affects and is affected by social and economic exchange (Corsaro, 2014).
Value creation can be seen as the ability of companies to understand and
meet the needs of consumers by developing superior solutions. In this aspect,
suppliers participate in value creation as value facilitator, value advisor, value
organizer, value amplifier, and/or value experience supporter, while customers
as co-diagnosers, co-designers, co-producers, and co-implementers (Aarikka-
Stenroos & Jaakkola, 2012).
Value capture can be conceived as the outcome of managing customer as
assets. Risks and assets, according to some authors, are the key aspects of value
capture (Nenonen & Storbacka, 2014).
On the other hand, the way in which employees are treated results in value
creation through their business performance. Allocation of a part of retained
value for creating better working conditions, further training and new intellec-
tual capital provides the creation of value in the future.
The value of the company’s management is viewed in set business strategies,
achievement of set objectives, management of business processes, resources and
employees management, as well as the management’s liability in these actions.
Therefore, the essence of creating and capturing value in use is the survival
and continuity of business operations i.e. the ability to create future business
results. In this context, the objective value, as a real independent interpretive
value, can be formed based on the value of the substance or the reproductive
87
value. A company’s value is long-term when average operating expenses become
commercially justified and determine the value effect (Koletnik, 1991).

The second value concept is shareholder value i.e. the value from the capital
(equity) market value aspect.
The current market value is closely related to the concept of value in use, and
in the context of value creation depends on:
• strategy and business excellence created through internal improvements;
• conclusion and termination of partnership (acquisitions and sales) that
create improvements caused by external action;
• capital structure;
• optimal shareholder value that contributes to the positioning on the finan-
cial markets;
• ability to create greater value for shareholders.
However, shareholder value is not the same as the market value of equity.
Shareholder value is created by increasing the market value of equity, dividends
paid during the year and other payments to shareholders and it is decreased
by increasing company’s investment in capital expenditure and the conversion
of convertible bonds (Fernandez, 2002). If shareholders decide that that they
did not achieve sufficient value or return on invested money, they can decide to
withdraw their invested capital. However, if the money which is not fully paid
through the dividend is reinvested and thus creates new value, the relationship
between the management and shareholders can improve. Added shareholder
value that the shareholders gained can also be reinvested in the purchase of new
shares of the company.
According to the shared value concept, value is created and accumulated in
a joint system made up of companies and communities in whom the companies
operate. Such system of creating and preserving value requires development of
new skills and knowledge by the company’s management, but also the ability
to act within profit and non-profit boundaries. The creation and preservation
of value within such a concept brings benefits to all participants in this pro-
cess through the improvement in terms of: living standard, community self-
sustainment, resource conservation, work/life balance, economic contribution,
stakeholder trust, reduced business risk and enhanced business opportunities,
obtaining and maintaining licences for operation and growth, operational per-
formance and efficiency, attraction and retention of workforce, maintained se-
88
curity of operations, ability to strategically make long term plans and brand
recognition and reputation.
The social value in the shared value concept refers to the dialogue between
economic organizations and companies in the context of creating a modern
economy (Santos, 2012). This concept emphasizes that there is no duality be-
tween the economic and social component of value.
3. CONCEPTUAL MODEL OF VALUE CREATION

BASED ON VALUE CAPTURE AND BUSINESS
SUSTAINABILITY
The central focus in value analysis is put on the manner in which the com-
pany shares the created value between interested participants in the value chain.
The basic idea on how to divide the value among the various users in the val-
ue system is presented by authors in (Garcia-Castro et al., 2013), where value
creation is represented as a system on a scale between willingness to pay and
opportunity costs. The subsystems include price categories in view of the re-
maining profits and interests of the owners who finance the capital i.e. the costs
which are made up of taxes, top management salaries, labour costs and costs of
materials and services. On the other hand, value users are defined as consumers,
providers of capital, government, management, employees and suppliers. When
talking about the concept of value creation, authors emphasize that value is not
only that positioned towards capital providers, but towards all participants in
the value process. Therefore, in order to create, but also capture value, it is neces- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
sary to define all users of value in the value process and their relationship with
the value. In this context, business results are efficient if there is a maximum
possible realization of all value chain users in created value. Added value, or the
total amount of created value, will be lost if a group of value creators does not
participate in its further creation (Chatain & Zemsky, 2009). Therefore, there
is a need for an optimal allocation of created value in the value chain as well as
for the understanding of all stakeholders of the level of value accumulation per
group, in order to enable its further creation.
The proposed conceptual model of value creation based on value capture
and business sustainability is shown in Figure 1. The inputs within the model
are strategies, governance and engagement (Two Tomorrows, 2011). It is im-
89
portant to emphasize the mutual interactions in these relations. Namely, strat-
egies, in the context of alignment between sustainability and core business

strategy focused on managing major sustainability impacts, opportunities and
risks, affects governance, which represents the quality of top-level governance of
sustainability issues and vice versa. Governance is, on the other hand, directly
related to engagement which refers to the understanding and acting on process
participants’ concerns and vice versa. These processes directly affect the most
important subsystem in value creation - the value chain. Business policies man-
age the value chain, from suppliers to distributors, including the product’s life
cycle. They are developed to enable business process participants to efficiently
use assets and capital to create sufficient positive cash flows in the context of
value creation.
Value can be created by a single participant or through collaboration of more
participants in the value process. The sources of value in the collaborative pro-
cess refer to (Austin & Seitanidi, 2012):
• complementarity of resource through the access to necessary resources for
value creation, which is not possible or is difficult for a single participant
and as such requires cooperation between several participants in order to
create value for all stakeholders in the value process;
• nature of resources through cooperation between partners in the process
of value creation that may contribute to generic resources i.e. those that
each participant in the cooperative process possesses e.g. money, or com-
mon intangible resources, such as creating a positive reputation, knowl-
edge, skills, infrastructure;
• use and direction of resources through the flow of resources that can be
unilateral or bilateral, and can come from multiple sources within the
partnership;
• linked interests through the achievement of equal frameworks of value cre-
ation so that different perceptions of value lead to an unfair value-exchange.
90
Figure 1. Simplified conceptual model of value creation based on value capture
and business sustainability
STRATEGIES GOVERNANCE ENGAGEMENT
MANAGEMENT EMPLOYEES CUSTOMERS
DISTRIBUTORS SUPPLIERS CAPITAL OWNERS
VALUE CHAIN
ASSETS CAPITAL
YES SUFFICIENT NO
CASH FLOW
?
YES
STATE TAXES INCOME NET INCOME DIVIDENDS
VALUE INTERDISCIPLINARY MANAGEMENT RESEARCH XI

CAPTURE
MEASURES FOR IMPROVING

BUSINESS SUSTAINABILITY
Source: Prepared by the authors
In this way efficient positive business results are achieved, which after set-
tling the obligations towards the state, are distributed to owners of capital or
are retained.
The concept of value creation in the context of a sustainable business re-
quires measures for the retention of the remaining profit and its allocation to
91
funds for achieving procedures that improve business sustainability. Such al-
locations are necessarily linked to the strategies of those companies that start
over with all value creation processes in a new business cycle. The strategy has
to be changed when it is found that the achieved positive effects on the creation
of cash flows in the system of value creation are not sufficient. Therefore, it is
very important to constantly assess the value chains in order to determine the
degree of each element’s effect, but also their relation in the value chain, on the
creation of positive cash flows.
The characteristics that drive the selection of mechanisms for capturing val-
ue include the definition of the mechanism, institutional frameworks, industrial
characteristics, the characteristics of the company and technological character-
istics ( James et al., 2013).
The mechanisms that create value capture are: patents, secrecy, lead time,
complementary assets, combination of patents and secrecy, and the combina-
tion of patents and complementary assets ( James et al., 2013).
Institutional frameworks must ensure strength of intellectual property
rights i.e. a concentrated ownership over intellectual property.
Competitive intensity, number of rivals, barriers to imitators, fragmentation
of suppliers, rivals and buyers, signalization, technological standards, horizontal
differentiation (differences in product features) versus vertical differentiation
(differences in the quality and efficiency) are factors that constitute the indus-
trial characteristics in the value creation mechanisms. The characteristics of the
company within the mechanisms of value capture relate to the scale and scope
of R&D, innovation activities, the ability to manage the patenting process, but
also the scope of R&D technological specialization, in relation to the company’s
size, absorptive capacity, as well as the ability to acquire and use information.
In technological terms, value capture is related to investments in innovation
processes and product innovations, rapid or radical technological changes, com-
plexity in generating intellectual capital and the utilization of processes.
The higher the created value of the company, the higher is the value for the
state and society and therefore, the state, in the shared value concept, should
create preconditions which will help the company to create value. This refers
mainly to the interaction between state institutions and companies in realizing
those activities which include measures for improving business efficiency. The
measures by which the state can impact value creation and value capture relate
92
primarily to satisfactory legal solutions for patenting innovations, obtaining li-
cences for new investments, investment into universities in order for them to be
able to effectively contribute to the business community, the formation of effec-
tive technological parks to enable open innovation (Gassmann et al., 2010), co-
operation between universities and companies in finding and testing new tech-
nologies and business processes, better education of future employees tailored
to meet company requirements, further training or retraining of employees, tax
relief for investment in new value creation etc.
The model of the value creation system based on value capture in the context
of business sustainability is a constant dynamic process in a company’s life cycle.
This is reflected in the constant connection between all elements of the system.
4. CONCLUDING REMARKS AND GUIDELINES

FOR FUTURE RESEARCH
Creating and maintaining value in the context of sustainable
business depends on strategies, governance, engagement, value chain
and innovation. Strategies and business policies that are aligned with
the operational purpose and capacity of companies in a competitive
environment ensure safe returns to shareholders, awards for managers
and employees, but also provide for quality and excellence in the
relationships with customers, suppliers and creditors. This, in turn,
provides for expected future cash flow patterns. Value chains and
relations within them are a central part of the value creation process.
Competitiveness between the value users in the value chain is always pres-
ent. Value users are organized into certain subgroups and each group is trying
to take advantage of and create the largest part of the value. The result of this
competition is limited value capture by individual interest groups. Therefore, in
a collaborative process requires organizational compatibility and focus on same
goals.
By observing cash flows, as well as other operating results over a period of
several years, and on this basis, projection of future results, conclusions are
drawn about the benefits a particular company, through its business activities,
brings to the stakeholders in the value process, based on which it is possible to
determine the quality of business operations.
93
This paper presents a conceptual model of value creation based on value
capture and business sustainability, as well as the factors participating in this

system.
In order to further this research, the interdependence of participants in val-
ue creation should be analysed, as well as the impact of selected strategies and
business policies on the value chain.
It is also important to further develop the shared value concept and acknowl-
edge the importance of value creation and business sustainability for the state
in which the company operates. It is only by investing into systems that help
transform companies’ retained value into new value creation that new value for
the society is created.
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ing Management, vol. 41, no. 1, p. 15-26, ISSN: 0019-8501.
Austin, J.E. & Seitanidi, M.M. (2012). Collaborative Value Creation: A Review of Partner-
ing Between Nonprofits and Businesses: Part I. Value Creation Spectrum and Collabora-
tion Stages, Nonprofit and Voluntary Sector Quarterly, vol. 41, no. 5, p. 726-758, ISSN:
0899-7640.
Bowman, C. & Ambrosini, V. (2000). Value Creation Versus Value Capture: Towards a Co-
herent Definition of Value in Strategy, British Journal of Management, vol. 11, p. 1-15, On-
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tržišne vrijednosti poduzeća u suvremenom pristupu vrednovanju poduzeća, Ekonomska
misao i praksa, vol. 22, no. 2, p. 379-396, ISSN: 1330-1039.
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INSEAD, France. Available at: http://www.insead.edu/facultyresearch/research/doc.
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Garcia-Castro, R., Balasubramanian, N. & Lieberman M.B. (2013). Measuring value crea-
tion and appropriation in firms: application of the VCA model. Available at: http://papers.
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računovodstvenih i financijskih radnika hrvatske, Zagreb.
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95
ECONOMETRIC APPROACH TO
THE DEMAND FUNCTION
Dominika CRNJAC MILIĆ, Ph.D.

Associate Professor
Faculty of Electrical Engineering,
J.J. Strossmayer University of Osijek,
Osijek , Croatia
dominika.crnjac@etfos.hr
Abstract
Econometric methods are applied in the analysis of many phenomena in the
economic reality, such as production, costs, and supply search.
Valuable results are found in certain limits and under certain conditions by
using functions.
Synergy of statistical data and the application of mathematical methods will be
Dominika Crnjac Milić: CONOMETRIC APPROACH TO THE DEMAND FUNCTION
used to analyze the demand function.

Key words: demand function, econometric methods, market, supply function
JEL Classification: C4, C5, C54
96
1. INTRODUCTION
Research into the forms of the demand function enables us to deal with and
solve complex economic problems. This paper investigates the demand function
without highlighting aspects of demand or differentiating demand for certain
products on the market or certain groups of consumers.
The demand for a product depends on many variables, such as the price of
the observed product, its substitutes, as well as other products on the market.
Furthermore, the demand depends on the purchasing power, consumer
tastes, the time factor, but also on many other factors that directly and indirectly
affect the demand for products.
The demand for a product can be expressed by the following mathematical
expression (Chiang A.C.;1994, p.64): q T ( p, p1,..., pn , x1, x2 ,..., xm , k , t ) , where q is
the quantity of the desired product, p is the price of the desired product, p1 ,..., pn are
prices of other products on the market, x1 ,..., xm are other factors affecting the market,
k is consumer income, and t is time.
Let the function of the quantity of the product q be a first derivative with respect
to the variable p (the price of the desired product) in the time interval c, d in which
wT
the demand is observed; then the condition 0 must be satisfied in the time
wp
interval c, d .
Knowing that the first derivative refers to the change in the speed, we may conclude
that the demand decreases if the price rises in free market conditions.
In applications, the results are satisfactory if, under certain conditions, the
demand is considered only as a function of price, i.e., q T p .
wT
If T p is a derivative of the interval c, d , then 0 , knowing that the partial
wp
derivative and the differential for functions of one variable are equivalent.
Furthermore, the demand function q must also satisfy the following conditions:
Interval c, d must be finite and approximately equal to the interval of empirical
values, q must be a positive function of the price p . Hence, it must be p ! 0 and
q ! 0 in the interval c, d .
Indeed, the analytical form of the function q T p often varies and depends on
empirical values of p and q .
97
The forms of demand functions are usually simple because of the amount of
empirical data and due to the complexity of determining the parameters of the
function itself.
The most common forms of demand models are as follows:
a) q ap b ,
b) q ap 2 b ,
1
c) q ,
ap b
d) q ap b ,
e) q a p b ,
a
f) q b , and
pn
g) q aebp ,
where a and b are positive constants for a certain time interval.
Parameters a and b are found from the empirical demand values, provided that the
sum of the squared deviations of empirical demand values from the corresponding
values on the selected curve is minimal, i.e., by the least squares method (Scitovski R.
et al;1995, p.102).
Mathematical analogy yields an economic supply function.

Since mathematics is an approximate science, we can ignore all variables except the
price of a product, and the supply function becomes P q p .
In the interval c, d , which corresponds to the empirical data, p ! 0 and q ! 0 .

wP
The supply function is an increasing function, so !0.
wp
Supply and demand for a product on the free market determine its price.
Market price is determined by equalizing demand and supply functions cijenu
(Kmenta J.;1997, p.722).
Hence, T p P p is the condition of equilibrium.
A realistic solution p* in the interval c, d in which the functions are analyzed is
unique, since one function is decreasing and the other one is increasing in the interval
c, d .
Note that outside the interval c, d there may be more sections that have no
economic significance and thus they are not taken into consideration.
According to the aforementioned, we may conclude that a product market
model is given by the demand function, the supply function and the balance equation.
98
2. DEMAND WITH MULTIPLE VARIABLES
Consider multiple products on the market, e.g., n products Q1, Q2 ,..., Qs ,..., Qn ,
and let us pay attention to the product Qs .
Demand for the product Qs is actually a function of the prices of all products, if we
consider the dependence of demand on prices and not on other factors.
Denote by qs and p1, p2 ,..., pn the amount of demand for the product Qs and the prices
of products Q1, Q2 ,..., Qn , respectively.
The demand function for the product Qs can be taken as an unambiguous function of
prices ps .
The system of interdependence between prices and the corresponding amount of
demand for s 1,2,..., n , can be written as (Gruić B. et al; 2006, p.76)
q1 T1 p1 , p2 ,..., pn
q2 T2 p1 , p2 ,..., pn
qn Tn p1 , p2 ,..., pn
Similarly to the previous system, we can observe the system of demand functions in
inverse form if there is a solution with respect to ps , s 1,2,...,n , i.e.,
p1 T11 q1 , q2 ,..., qn
p2 T21 q1 , q2 ,..., qn
pn Tn1 q1 , q2 ,..., qn
Example 1.
Consider a system of affine demand functions INTERDISCIPLINARY MANAGEMENT RESEARCH XI

q1 a11 p1 a12 p2 ... a1n pn b1
q2 a21 p1 a22 p2 ... a2 n pn b2
,
qn an1 p1 an 2 p2 ... ann pn bn

where ass d 0, s 1,2,..., n , that can be written in matrix form
ª q1 º ª a11 a12 a1n º ª p1 º ª b1 º
«q » «a a22 a2 n » « p2 » «b2 »
« 2 » « 21 »« » « » ,
« » « »« » « »
« » « »« » « »
¬ qn ¼ ¬ an1 an 2 ann ¼ ¬ pn ¼ ¬bn ¼
i.e., q Ap b , where q, p and b are n dimensional vectors of demand, prices and
free members, respectively, and the square matrix A is the coefficient matrix of the
system of n th order.
99
From the previous matrix equation, for a given demand vector, we find
p A1 x b , where A1 is the inverse demand coefficient matrix and A z 0 .
The expression q Ap b gives a relationship between market prices and the
corresponding demand for the products under consideration.
3. DETERMINATION OF DEMAND FUNCTION

PARAMETERS
Let the demand function be given in form of a polynomial:
q a1 p k 1 a2 p k 2 ... ak 1 p ak , where k parameters should be defined.
Suppose an empirical demand function is given in an affine form q ap b , where
parameters a and b are unknown.
According to the least squares method (Scitovski R. et al; 1994, p.182) (looking
vertically), the sum of the squared deviations of empirical demand values from the
n
¦ q qˆ
2
corresponding values on the line tends to minimality, i.e., i i o min .
i 1
Since by assumption points pi , qi , i 1,2,..., n lie on the line, they satisfy the
equation q ap b .
¦ q qˆ o min , we have T a, b ¦ q ap b
2 2
After the substitution in i i i i .
i 1
Partial derivatives of the previous function are as follows:

wT n
wT n
2¦ qi api b pi , 2¦ qi api b 1 .
wa i 1 wb i 1
wT wT
By putting 0 , and after summing, we get the following normal equations:
wa wb
¦ qi a¦ pi nb ,
¦ qi pi a¦ pi2 b¦ pi
such that solving with respect to a and b yields
n¦ pi qi ¦ pi ¦ qi
a
n¦ pi2 ¦ pi
2
,
b ¦ q a¦ p
i i
n
where n is the number of data.
Function T a, b has a minimum value if the following condition is satisfied (Barnett
et al.; 2006, p.379)
100
2
w 2T w 2T § w 2T · w 2T w 2T
! 0, ! 0, ¨ ¸ 2 2 0.
wa 2 wb2 © wawb ¹ wa wb
w 2T w 2T
We have 2¦ pi2 ! 0, 2n ! 0
wa 2 wb2
w 2T
2¦ pi , and
wawb
4 ª ¦ pi º
2
w 2T w 2T w 2T
4 ¦ pi 4n¦ pi2 4 ª n¦ pi2 ¦ pi º
2 2
« p2 »
wawb wa 2 wb2 ¬ ¼ 2
n ¬ n ¼
2
4 2 § 2 ·
2
V p ¨ V p ¸ 0, where V p2 is price variance.
n ©n ¹
Let us note the symmetry in forming the normal equations that can be used for other
forms of demand.
By summing equations qi api b with respect to i , we have
¦q i a¦ pi nb .
Then by multiplying by pi and summing with respect to i , we obtain

¦q p i i a¦ pi2 b¦ pi ,
which leads to finding parameters a and b .
The previous procedure can be carried out for the formation of normal demand
equations
qˆ a1 p k 1 a2 p k 2 ... ak 1 p ak ,
bearing in mind
wT
2¦ qi qî pik s 0, s 1,2,..., k INTERDISCIPLINARY MANAGEMENT RESEARCH XI
was
¦p k s
i i q ¦ qˆ pi
k s
i , i.e.,
¦p k s
i iq ¦ ª¬a p 1
k 1
i a2 pik 2 ... ak º¼ p k s , i.e.,
¦p k s
i q i ¦ ª¬a p 1
2 k s 1
i a2 pi2 k s2 ... ak pik s º¼, s 1,2,..., k .
101
CONCLUSION
It can be said that mathematical methods have been used in economics for
a long time. One of the reasons lies in the difference that exists between depen-
dence in economics and dependence in natural sciences where mathematics has
been largely used.
Today, the application of mathematical methods in economic research is
characterized by the emergence of mathematical models.
The very selection of models and their interpretation are studied by opera-
tions research, linear and nonlinear programming, econometric analysis, etc.
Today, significant solutions in optimization of many economic phenomena
are found thanks to mathematics.
References
Barnett R. A., Ziegler M. R. & Byleen K. E. (2006). Primjenjena matematika za poslovanje,
ekonomiju, znanost o živom svijetu i humanističke znanosti, Biblioteka Gospodarska misao,
ISBN: 953-246-013-6, Zagreb
Chiang A. C. (1994). Osnovne metode matematičke ekonomije, 3. izdanje, Mate Zagreb,

ISBN: 953-6070-05-7, Zagreb
Kmenta J. (1997). Počela ekonometrije, Mate Zagreb, ISBN: 953-6070-20-0, Zagreb
Gruić B., Jermić I., Šutalo I. & Volarević H. (2006). Matematika za ekonomiste i managere,
Mate Zagreb, ISBN: 953-6070-94-4, Zagreb
Scitovski R., Galić R., Marošević T. (1994). Primjena pomične metode najmanjih kvadrata
za rješavanje problema identifikacije parametara u matematičkom modelu, Zbornik radova
4. Konferencije iz operacijskih istraživanja, 181-191, Zagreb
Scitovski R., Jukić D. & Crnjac M. (1995). Primjena metode potpunih najmanjih kvadrata
za procjenu parametara u matematičkom modelu, Zbornik radova 5. Konferencije iz oper-
acijskih istraživanja, 99-110, Zagreb
102
KNOWLEDGE MANAGEMENT AND
SCIENTIFIC INCLUSION ON AN
INTERNATIONAL LEVEL
CASE STUDY: THE BILATERAL
PROGRAM REPUBLIC OF CROATIA 
REPUBLIC OF MONTENEGRO IN THE
PERIOD 20152017
Maja LAMZA  MARONIĆ, Ph.D., Full Professor

maja@efos.hr
Anđelko LOJPUR, Ph.D.,Full Professor

Faculty of Economics in Podgorica, Republic of Montenegro
andjelko@ac.me
Jerko GLAVAŠ, Ph.D., Assistant Professor

jglavas@efos.hr
Abstract
Every national economy and its competitive advantage depend on the quality
of their own human resources. The use of these resources and investment into
their quality are the main factors of development.
The project presented in this paper is important for further development of the
Republic of Croatia and the Republic of Montenegro as knowledge societies
through different segments of national and international cooperation among
scientists.
Keywords: knowledge, management, inclusion, project, bilateral program
JEL Classification: D8, D83, J53, M15, O32
103
1. KNOWLEDGE  A DRIVER OF CHANGE
Quality education system, more precisely education itself, is an important
Maja Lamza – Maronić • Anđelko Lojpur • Jerko Glavaš: KNOWLEDGE MANAGEMENT AND SCIENTIFIC INCLUSION ON AN INTERNATIONAL LEVEL
participant when it comes to enhancing the competitiveness of the national

economy through the provision of the necessary quality and quantity of human
capital, as the main resource of progress. Education is essential in all this because
it enables the acquisition of knowledge, skills, attitudes and values necessary for
an individual to fulfil his job and social role in all segments of everyday life.
Over the last decades, intangible assets such as knowledge, patents and
innovations have been identified as the key sources of wealth and prosperity.
(García-Ayuso, 2003)
Since knowledge promotes national economic growth and has a significant
impact on future national value and innovations, both learning and gross do-
mestic product (GDP) represent the fount of a nation´s competence and capa-
bilities that are deemed essential for economic growth, competitive advantage,
human resource development and quality of life. (Malhotra, 2003)
Consequently, countries rich in intangible assets are the leaders in the na-
tional wealth more than those countries whose assets are limited to land, labour
and capital. (Malhotra, 2003)
The development of information and communication technologies has sig-
nificantly reduced operating costs and also facilitated interaction for knowledge
exchange, which has become a fundamental factor in the production of goods
and services. For material productivity, to produce something old (already per-
fected) is no longer relevant. Instead of that, something new has become more
important and for that, knowledge is necessary. (Sundać, Švast, 2009)
Knowledge brings profit to the business system and provides prosperity of
the national economy. Short-term goals of the business systems are still based
on making a bigger income by minimizing expenses, i.e. to achieve the greatest
possible profit. It is no longer possible to achieve that in the classical way, but
through the creation of added value using intellectual capital, retaining loyal
customers (20% of the customers create 80% of the income), increasing the val-
ue of brand names, as well as introducing the collective knowledge management
in the business systems and collecting data. That way, a competitive advantage
at the national and global level would be achieved and maintained. The share of
intangible assets (knowledge in its various manifestations) in the final products
104
or the companies´ and corporations´ total market value frequently indicates a
higher growth rate.
2. PERCEIVING THE IMPORTANCE OF

KNOWLEDGE AS A PREREQUISITE FOR THE
DEVELOPMENT OF A KNOWLEDGE SOCIETY
Nowadays literature accompanied by neoclassical economic theories for
the most part is actually focused on the knowledge-based economy, while the
knowledge society itself is viewed as a by-product of the knowledge-based
economy because it is very difficult to define some of the aspects, such as: poli-
tological aspects, sociological, cultural and others, whereas in the knowledge-
based economy the share of knowledge-based sectors in the national economy
it can be measured. (Švarc, 2009:43).
In the knowledge society, the human intellect, cognition and knowledge have
intrinsic values that arise from their uniqueness and rarity. Even though no ex-
plicit price is set for the knowledge in the market, knowledge has a value in itself
and that value only keeps growing.
Having that in mind, Professor Velimir Srića emphasizes two basic types of
learning that not only affect the business strategy, but are also the result of the
latter: (Knežević, 2007:159)
1. Learning to survive - based on their own and others’ mistakes, following
the relevant sources of commercial, scientific, financial and other information,
an individual or an organization creates the presumption of survival by remov- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
ing errors and making behaviour adjustments in the environment.

2. Learning to create (it is also called the generic learning) - it is the higher
phase of learning that aims at creating something new or at further improve-
ment of the already existing solutions, it results in the active participation of
individuals and organizations in changing their environment.
In today’s business conditions, in terms of knowledge-based society, it is ex-
actly the creation of new knowledge and the use of existing ones, in addition to
continuous innovation, that have become an imperative in order to achieve a
competitive advantage in the market. Nonaka and Takeuchi introduce a simple
model that shows the components on which the competitive advantage of to-
day’s operating system is based on. The model is also focused on knowledge.
105
Figure 1: The source of competitive advantage
Knowledge Continuous
Competitive
creation innovation
advantage
Source: Adapted from Nonaka, I., Takeuchi, H., The Knowledge Creating Company, Oxford
University Press, 1995, p. 6
A few changes have been made from 1995 until today, but the initial setting
has remained constant (Figure 1).
Case Study: The bilateral program Republic of Croatia -

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

of Science, Education and Sports and the Ministry of
Education of Montenegro
Based on bilateral programmes and in accordance with common interests
and priority fields, the Ministry usually supports two-year international scien-
tific research projects with the following countries: Albania, Austria, France,
India, China, Hungary, Macedonia, Germany, the USA and Slovenia.
Currently there are around 200 active bilateral scientific research projects in
all scientific fields. The Ministry of Science, Education and Sports covers only
travel costs of Croatian scientists abroad and costs of stay of foreign partners
106
(mobility) in Croatia according to the criteria determined by implementation
programmes. The most represented fields are the fields of natural, biomedical,
technical and biotechnical sciences. This paper analyses the observed project
and its goals.
Cooperation with many countries and foreign partners with whom the Gov-
ernment of Croatia, i.e. the Ministry of Science, Education and Sports, has not
signed any international legal acts is implemented solely based on direct agree-
ments between institutions.
Theoretical ground of the project “Knowledge management

in the function of development strategy”
The habit of concluding agreements at the government level is being aban-
doned in the light of globalisation processes; therefore, mainly highly developed
countries support direct cooperation of institutions in the field of education,
higher education, science and technology.
With the aim of accelerating integration of the Republic of Croatia in the
European Higher Education Area (EHEA) and the European Research and
Innovation Area (ERIA), the task of the Ministry is to create prerequisites for
free movement of students, teaching staff, scientists and researchers in the field
of higher education and science, which is in accordance with the European pol-
icy aimed at creating the common educational and scientific area.
Overall, international cooperation of educational, academic and scientific
institutions implies the exchange of various forms of scholarships in all catego- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
ries, implementation of common (scientific research) projects and organization

of international conferences and seminars (Ministry of Science, Education and
Sports, 2015).
Exponential and continuous growth of total human knowledge opens new
opportunities for its creative application and it countinues to generate new
needs. The EU accession process has accelerated changes in economic develop-
ment in both the Republic of Croatia and the Republic of Montenegro. The
process of harmonisation with the European Union in the field of science and
education started with the Bologna process. Being a full member of the Euro-
pean Union, the Republic of Croatia continues to strengthen regional and glob-
al recognisability of its higher education system, with neighbouring countries
107
playing a significant role. New educational environment is partially placed in
the field of information and communication technologies. Successful teaching
in such an environment is ensured through mastering parts of the knowledge

and learning management systems.
Knowlege and learning management systems rely on at least three different,
but necessary aspects of knowledge and learning, and these are:
: Learning content management system
: Course management; and
: User rights management.
Being a component of the scientific and technological cooperation, the re-
search itself has a certain applicative character related to the teaching process
and development of cooperation with associates in the Republic of Montenegro.
The project can further be applied to projects co-financed by the European
Union. It is certainly also applicable in practice and it can contribute to knowl-
edge-based development of business entities and encourage entrepreneurs to ex-
change tacit knowledge, which is today’s driving force leading to better business
performance, particularly important in today’s global economy hit by recession.
Reasons for cooperation (with special emphasis on the

complementary character of partner institutions)
• The emergence and development of blended learning, along with Web 2.0
tools, present a modern solution for the development and acquisition of
key competences that are in the function of business development.
• The goal is to present the role and application of management in institu-
tions of higher education through integration of the e-learning system in
the existing infrastructure to adapt education programmes to the needs of
business entities and the labour market.
• Based on the conducted analysis, the methods for implementing educa-
tional measures, i.e. educational activities will be defined and the model
of e-learning system will be proposed that will be implemented in the
existing programmes for the development of education, thus contributing
to the development of higher education institutions and business entities.
108
As a result and respecting the characteristics and potentials of both the
Croatian and Montenegrin economy and their complementary character, it is
concluded that the areas of significant potential for cooperation, which require
intensive focused activity, are processes of higher education, lifelong education
and blended learning.
Project Objectives
One of the main objectives of the project is to create a model of knowledge
management (theoretical and/or applicative) through the process of lifelong
learning with the aim of improving knowledge, skills and competences aimed
at the development strategy through scientific and technological cooperation
between the Republic of Croatia and the Republic of Montenegro. Knowledge
management today means explicit and systematic management of vital knowl-
edge and related processes of creation, collection, organization, diffusion, use
and exploitation. Knowledge management requires transformation of personal
knowledge into corporate knowledge that may and must be shared in the pro-
cess of searching for adequate application aimed at an applicative development
strategy. Knowledge management is a growing management discipline that in-
cludes locating, organization, transfer and use of knowledge and expertise with-
in an organisation with the aim of carrying out business operations. Knowledge
management means application of the processes of creation, maintenance, ap-
plication, sharing and renewal of knowledge to improve organizational perfor-
mance and create value. Accordingly, the objective of the project is:
Improvement of knowledge and skills in the field of management as well
as potential building of a new LMS system (Learning Management System)
that will integrate both theoretical and practical experience through an inter-
disciplinary approach to issues recognised in the environment by using efficient
evaluation and monitoring techniques.
A special module for making comments in the form of public discussion is
also envisaged. It will be further developed with the aim of encouraging new
opportunities for cooperation between the two parties, and potentially third
parties, such as business entities, non-profit organizations, etc. Information
gathered in this way would provide an excellent foundation for further learning,
development and new projects.
109
Expected advantages of the cooperation for both the
Republic of Croatia and the Republic of Montenegro –
instead of conclusion
Expected advantages of mutual cooperation are linking and network-
ing processes during cooperation in the field of higher education and science,
through a common system for distance learning and exchange of knowledge
and experience.
The project will additionally achieve the following benefits:
• Increased mobility of scientists between the two countries;
• Participation of young researchers in the project as a guarantee for future
cooperation on similar projects;
• Improved knowledge and skills of scientific and teaching staff and students
in the field of human resource management and project management;
• Cross-evaluation of the current curriculum by using efficient monitoring
and evaluation techniques on partner institutions.
• Cooperation on the project between equal partners creates conditions for
all other forms of international cooperation, whereas the national pro-
gramme is linked to the research throughout Europe and the world.
REFERENCES
1. García-Ayuso, M., Factors explaining the inefficient valuation of intangibles, Accounting,
Auditing & Accountability Journal, Vol. 16 Iss: 1, 2003.
2. Knežević, B., Utjecaj znanja na stvaranje vrijednosti u trgovini, Doktorska disertacija,
Sveučilište u Zagrebu, Ekonomski fakultet Zagreb, Zagreb, 2007.
3. Lamza-Maronić, M., Glavaš, J., Horvatin, T., Promoting Knowledge Society through
Quality Assurance Model // 35th international convention MIPRO 2012 / Biljanović,
P. (ur.). Rijeka: Croatian Society for Information and Communication Technology, Elec-
tronics and Microelectronics - MIPRO, 2012.
4. Lojpur, A., Lalević-Filipović, A., Road ‘paved’ with Knowledge – is there a shortcut to
the European Union?, Strategic management and Decision Support Systems in Strate-
gic Management, SM2014; Book of Abstracts, ISBN 978-86-7233-344-2; Ekonmski
fakultet Subotice p.62; May 2014.
5. Malhotra, Y., Measuring national knowledge assets of a nation: knowledge systems for
development (expert background paper), Expanding Public Space for the Development
of the Knowledge Society: Report of the Ad Hoc Expert Group Meeting on Knowledge
Systems for Development, 4-5 September, Department of Economic and Social Affairs
110
Division for Public Administration and Development Management, United Nations,
New York, 2003.
6. Matić, B., Serdarušić, H., Vretenar Cobović, M., Economic Circumstances and Personal
Finance Management // Interdisciplinary Management Research X / Bacher, Urban ;
Barković, Dražen, Dernoscheg, Karl – Heinz ; Lamza - Maronić, Maja ; Matić, Branko
; Pap Norbert ; Runzheimer, Bodo (ur.). Osijek : Josip Juraj Strossmayer University in
Osijek, Faculty of Economics in Osijek, Croatia Postgraduate Studies “Management” ;
Hochschule Pforzheim University, 2014.
7. Ministry of Science, Education and Sports, 2015, http://public.mzos.hr/Default.
aspx?sec=3211 (12.02.2015.)
8. Nonaka, I., Takeuchi, H., The Knowledge Creating Company, Oxford University Press,
1995.
9. Sundać, D., Švast, N., Intelektualni kapital – temeljni čimbenik konkurentnosti podu-
zeća, Ministarstvo gospodarstva, rada i poduzetništva Republike Hrvatske, Zagreb, 2009.
10. Švarc, J., Hrvatska u društvu znanja – prijepori i perspektive inovacijske politike, Školska
knjiga Zagreb, Institut društvenih znanosti „Ivo Pilar“, Zagreb, 2009.
Acknowledgement: The paper was written within the bilateral research project entitled
“Knowledge management in the function of development strategy” co-financed pursuant to
the Protocol on Scientific and Technological Cooperation between the Republic of Croatia and
the Republic of Montenegro for the years 2015/2016.
111
INTELECTUAL CAPITAL AS A
DRIVING FORCE OF ECONOMIC
DEVELOPMENT
Jelena LEGČEVIĆ, PhD., Assistant Professor

Faculty of Law University of J. J. Strossmayer in Osijek
legcevic@pravos.hr
Abstract
Intellectual capital is a collaboration and mutual learning within and between
undertakings which ensures their long-term successful business association. In-
Jelena Legčević: INTELECTUAL CAPITAL AS A DRIVING FORCE OF ECONOMIC DEVELOPMENT
tellectual capital is an attempt at assigning financial value to knowledge within

a particular economic entity. This paper will present ways of measuring intel-
lectual capital, i.e. valorization techniques of intangible assets. The increased
interest in the measurement of intangible assets is the result of increasing en-
terprise value which is not shown in the accounting statements and therefore
creates the wrong information. The biggest difference between market and
book value is recorded in high-tech enterprises and industries where intensive
knowledge is invested in intangible assets such as research and development
and brand. Therefore, one of the main challenges for management is creating
conditions for successful generation of intangible value (knowledge, services,
experience, benefits, speed, quality and reputation) and its transformation into
tangible forms (income, profits, value added, stocks, market value).
Keywords: intellectual capital, knowledge, economic development
JEL Classification: O3, O34, Q32
112
1. INTRODUCTION
We live in a time when knowledge is the largest and most powerful capital.
In modern companies from 70 to 80 percent of the work is performed by people
using the intellect. In the period of the corporation and control by the powerful
elite who orchestrate monetary policy, market and all social spheres, the only
thing over which they have no control is our brain, which is managed by an
individual. The human brain overrides the traditional means of production-raw
materials, heavy physical work and capital.
Value is no longer in the tangible elements, since moved to the invisible. To-
day is therefore a decisive factor in person, by itself, that is, his knowledge. It is
a new battlefield for countries, corporations and individuals.
Today the road to riches tiled repeatedly to fill an imaginative use of infor-
mation, because that information means cash. In a world built on the strength
of mind we need to change our definition of education and training. In a world
where competitive advantage can be found anywhere, education must be contin-
uous and last for our entire life. Education is the weapon both for the individual
and for the company. It must be directed towards the acquisition of practical
work and skills required to perform duties in accordance with the profession
and occupation.
2. RESEARCH THE BEGINNINGS OF

INTELLECTUAL CAPITAL VALORIZATION
The study of legality, conditions and processes of employment or unemploy-
ment is extremely complex problem because the category of human potential is
dynamic category of each production system.
Also, human capital as an input in the production of a dynamic category that
can be different regularities work in different national economies.
However, in all this emphasizes the legality of action: production function,
marginal product and the law of diminishing returns, because that principle
directly resting on the success of enterprises and national economies.
If we start from the production function representing the relationship be-
tween the maximum quantity of product that can be produced with the help of
the available inputs on the basis of the achieved level of technology in the given
113
time, on the one hand, and also: the boundary of the product which is the feed-
stock produced quantity of a product, and as a result of one filler unit specific
inputs, provided ceteris paribus; and the law of diminishing returns, which says
that each incremental amount of production caused by the successive increase
in one of the inputs finally after a while begin to decline, again provided ceteris
paribus, on the other hand, you can get to the concept of the marginal revenue
for a factor (Pulić, Sundać, 2008.)
. Measuring of intellectual capital

The world today is mainly applied 12 methods of measuring intellectual
capital of the company. They are also known techniques valorization of intan-
gible assets (Edvinsson, Malone, 1997.)
Relative values - Proponents of this approach are Bob Buckman (Buckman
Laboratories) and Leif Edvinsson (Skandia Insurance). The ultimate goal is the
improvement of access. Example: to have 80% of employees associated with the
client in a significant way.
Balanced goals map - replacement for traditional financial measurements
with three additional perspective - customers, internal business processes and
learning / growth. They created the professors from Harvard Business School,
and is used in Skandia Insurance.
Models of competitiveness’ observations and classification of behavior “suc-
cessful” employee (“a competitive model”) and calculating the market value of
their output, it is possible to allocate the value of 1 for the intellectual capital
that create and use at work.
Systematic performance - Sometimes it is relatively easy to quantify success or
progress of one’s intellectual capital. For example, Dow Chemical could quan-
tify the growth in license revenue due to better control their patent assets
Crisis period - include the identification of companies that are leading in pro-
curement of intellectual property for their own needs, determining how suc-
cessfully meet certain criteria and then comparing the results with the com-
pany’s own achievements leading. An example of the relevant criteria: leading
systematically identify gaps in knowledge and use well-defined processes to fill
these gaps.
114
Business Value- This approach focuses on three questions. What would hap-
pen if the information that you currently use completely disappeared? What
would happen if you doubled the key information that is available? As the value
of this information changes daily, weekly, yearly? The evaluation focuses on the
cost of the lack of or insufficient use of business opportunities, avoiding or min-
imizing risk.
Business process inspection- Measures the way that information to enrich the
value of the business process, such as accounting, manufacturing, marketing or
order.
Knowledge bank - Treats use of capital as an expense (rather than as an as-
set), a part of the salary (usually 100% of the cost) as an asset, because they
create the future cash flow.
Assessment of “brand equity” - methodology that measures the economic im-
pact of “labels” (or other intangible assets) to phenomena such as power pricing,
distribution reach, the ability of getting new products as a “supplement lines”.
Calculated intangible asset- compares the company’s return on assets (Return
on Assets) with the published average return on assets for the industry.
Micro-borrowing - new type of borrowing that replaces the non-guarantee
(partner support group, training and personal qualities of entrepreneurs) for
tangible assets. It is primarily used to stimulate economic development in poor
areas.
Colored reports - This method replaces the traditional financial statements
(which give black - white picture) with additional information (by adding “col- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
or”). Examples of “colors” include the value of the label (brand), measuring cus-
tomer satisfaction, value-trained workforce.
3. A NEW WAY TO CREATE VALUE AND THE OLD

WAY OF MEASURING
The vast majority of companies today is torn between new ways of creating
value and the old ways of monitoring operations. The cause of this condition in
the opinion of many analysts is the emergence of new business criteria seeking
new indicators based on which order to make business decisions.
115
There are three essential elements that make up this difference in business
(Ross, Pike, Fernstrom, 2005):
The first is that there is no more scarcity, and it is precisely in such circum-
stances for centuries operated an average company. Today’s situation is best ex-
plained by well known American economist L.Thurow: “Take any conceivable
product and let’s calculate then around the whole world how much could be
produced if all the factories operating at full capacity. Then assess how gener-
ous than this world can buy. The result reads 30 % overcapacity, and for some
products such as cars, airplanes or computers it is 50 %”.
The second is that of changing the structure of work required in the in-
dustrial economy dominated by manufacturing, routine work. This applies to
both the production and the administrative work. In today’s new, information
economy is dominated by an entirely different kind of work, and that is intel-
lectual work.
The third is completely changed cost structure. In the classical relationship

between the production company and all other expenses was average compared
80:20. In today’s enterprise this relationship is almost reversed. Production
costs are accounted for the bulk of industrial economics for today’s enterprise
almost irrelevant, as well as the production itself in the overall activities of the
company. The criterion of the company’s size was considered (even today is con-
sidered) total revenue. However, the modern company is fighting for its market
primarily quality and innovation. For modern enterprise core resources are in-
formation and knowledge A for these resources is still no adequate information
models. This is why the lack of necessary information on business operations,
the Achilles heel of the modern enterprise. There is no doubt that the main task
of today’s managers in business enterprises to enter knowledge.
The organization of the company must be set so that all individuals have to
work a day in acquiring knowledge. Leif Edvinsson of Skandia has three prin-
ciples for understanding intellectual capital (Edvinsson, 2000.):
1) The value of intellectual property several times greater than the value of
the assets shown on the balance sheet carrying. What does it mean when the
market price of a company 3-5 times higher than the book value of the com-
pany. It is clear that in this company intellectual capital created this new market
value of more than book value.
116
2) Intellectual capital is a material that formed the financial results.
3) Managers must distinguish between two types of intellectual capital: hu-
man and structural.
The increased interest in the measurement of intangible assets and intellec-
tual capital is the result of increasing enterprise value which is not shown in the
accounting statements and therefore creates the wrong information. The biggest
difference between market and book value recorded just high-tech enterprises
and industries intensive knowledge which is invested in intangible assets such as
research and development and brand. Professor Baruch Lev at the Stern School
of Business New York University estimates that American companies today are
investing in intangible assets as much invested in machinery and equipment,
and that many companies more than 75% of its market value had precisely in
intangible assets (Sundać, Švast, 2009). That is why experts in the field of in-
tellectual capital intensive work on developing new methods of measuring in-
tellectual capital that would complement the classic accounts and gave a more
realistic picture of the enterprise value. In practice, but there are a number of
methods to measure the intangible assets of the company, but none of these
methods is not exhaustive.
Karl-Erik Sveiby (2010) divides all known methods of measuring intellectu-
al capital into four categories. Categories represent an extension of the existing
classification proposed by Luthyja (1998) and Mc Pherson and Pike (2001):
1. Methods of direct intellectual capital (eng. Direct Intellectual Capital
Methods - DIC) - methods estimate the value of intangible assets by placing
its various components. Following the finding of these components, they can be
directly evaluated as an individual or aggregated coefficient.
2. Methods of market capitalization (eng. Market Capitalization Methods
- MCM) - method calculated the difference between the market capitalization
of the company and shareholder value as the value of intellectual capital and
intangible assets.
3. Methods of return on assets (eng. Return on Assets Methods - ROA)
- the average gross earnings of enterprises in a period divided by the average
tangible assets of enterprises. The result is ROA companies, which are then
compared with the industry average. The difference is multiplied by the average
assets of the company to obtain the average annual earnings of intangible prop-
117
erty. Sharing the above average earnings with average capital costs of companies
or interest rate, can be estimated value of intangible assets or intellectual capital
of the company.
4. Methods maps of goals (eng. Scorecard Methods - SC) - identify the dif-
ferent components of tangible assets or intellectual capital, and the indicators
and indications are created and displayed in a map of goals or to charts. Meth-
ods cards goals are similar to the methods of direct intellectual capital, finding
that estimates are not available on the monetary value of the intangible asset.
It is noteworthy that none of the methods can fully satisfy all the wishes and
needs of companies in the measurement of intangible assets, i.e. the intellectual
capital. It is important however to measure intellectual capital, because the only
way the company can be familiar with their inner strength, and based on that
manage to become a competitive advantage.
4. THE IMPACT OF EDUCATION ON ECONOMIC

AND SOCIAL DEVELOPMENT
Today, there is a prevailing awareness that education is an inescapable com-
ponent of socialization matrix of every society. It may structurally differ from
society to society, but is increasingly present intention to equalize the levels of
education in the widest possible number of countries to geographical mobility
of learners was that freer. Education is mainly assigned a positive contribution
to the development of any society, even it is determined at the time the “good
society”. Education, understood in a broad sense, includes learning and skills,
and its purpose is to develop people primarily as individuals. Thus understood,
education can be viewed as a potential path to freedom for every individual.
“The education of the actions which affect the adult generation has not suf-
ficiently mature for life in society. Its purpose is that the children excited and
develop certain physical, mental and moral qualities required by the society
as a whole, but the individual environment to which they belong.” (Šundalić,
Zmajić, Sudarić, 2013).
According to the conclusion of the OECD “The task of education is to de-
velop a variety of skills which are required by the modern economy, but by do-
ing so it becomes a powerful lever of social selection that will be acting opposite
of a stated objective of greater social equality, actually only deepen inequalities”.
118
Education would be in the knowledge society should be the path to equal-
ity of opportunity, exiting inequalities created education. Time that education
is a step closer to the interpersonal, time in the “alienation of social relations”
through the understanding of language equally educated, understanding the
needs of equally educated and understanding of diversity differently educated.
The result should be a true democratization of social relations that individual
open space of freedom of choice, starting with the choice of education, voca-
tional guidance and to build a career. Knowledge society is increasingly being
portrayed as a system that consists of the knowledge economy and knowledge
workers and symbolic capital ahead of all other capital. An uneducated person
in the concept of a knowledge society “outside the system” and it does not count
as a productive component.
5. CONCLUSION
Today the main problem of the knowledge economy is its lowest level of
development which is called corporate capitalism, based on the ideology of mar-
ket fundamentalism and neo-liberalism and thus purified of social, democratic
and humanitarian values and using the principles of economy of knowledge
solely for your benefit, changing the core values of social, economic and political
structures causing economic and social crisis in the world. The responsibility is
divided between the transition and developed countries, international financial
institutions and transnational corporations that have a military, economic and
political power and monopoly of technology, communications and cultures and
aim to reproduce the capital and increase profits rich transnational elite with INTERDISCIPLINARY MANAGEMENT RESEARCH XI
the cost of destroying the overall economic, social and natural structures.
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8. Sveiby, K-E 2010, ‘The First Leadership? Shared Leadership in Indigenous Hunter-Gath-
erer Bands’. in S Lowe (ed.), Managing in changing times: a guide for the perplexed man-
ager. SAGE Publications, London.
9. Šundalić, Antun; Zmaić, Krunoslav; Sudarić, Tihana, Zbornik radova sa znanstvenog
skupa: Globalizacija i regionalni identitet 2013., Uloga obrazovanja u identitetu društva
i ekonomiji znanja, Ekonomski fakultet; Poljoprivredni fakultet, Osijek, 2013., str. 14.
120
CHARACTERISTICS OF
MANAGERIAL WORK  CHANCES
AND RISKS
Tanja NEDIMOVIĆ, Ph.D.

Preschool Teacher Training College “Mihailo Palov“ Vršac,
Republic of Serbia
nedimovic.tanja@gmail.com
Jelena PRTLJAGA, Ph.D.

Teacher Training Faculty – Belgrade and Preschool Teacher
Training College “Mihailo Palov” Vršac, Republic of Serbia
vsvasdirektor@hemo.net
Predrag PRTLJAGA, M.A.

Preschool Teacher Training College “Mihailo Palov” Vršac,
Republic of Serbia
jpivan@hemo.net
Abstract INTERDISCIPLINARY MANAGEMENT RESEARCH XI
The paper discusses important characteristics related to working tasks and

personality features of a manager. In order to do his/her job successfully, it
is crucial for a manager to have efficient management of resources. Resource
management has to correspond with the increasingly complex and demanding
market both the organization and the management are part of. Such a dynam-
ics requires continuous life-long development of professional skills and personal-
ity features of a manager. The paper deals with the opportunities and benefits
arising out of professional development and improvement of the existing mana-
gerial skills and acquisition of new ones, as well as the risks typical for this job,
with the most significant factor being stress caused at working place, i.e. the job
related stress. In other words, the paper aims to identify what job related stress
is, its causes and symptoms, and how to manage it.
121
Keywords: managerial work, self-development management, job related
stress.
JEL Classification: M1, G32, D81
1. INTRODUCTION
“Most important characteristics of leadership are visions, ideas and determi-
nation of direction; it has more to do with inspiring people through guidance
Tanja Nedimović • Jelena Prtljaga • Predrag Prtljaga: CHARACTERISTICS OF MANAGERIAL WORK – CHANCES AND RISKS
and aims than with day to day management” (Bennis, 1989).

One of the key tasks of manager is to manage resources encompassing a
whole range of managerial work, like e.g. finances management, human resources
management, knowledge management, equipment and infrastructure manage-
ment… The nature of all these tasks is versatile, complicated and elaborate, while
the changes occurring in organizational structures, dictated by the pace and dy-
namics of the market, as well as aspiration to reach a vision and the desired aim
and make profit are all the more complex and demanding. Successful manager is
expected to make the organization more flexible and have higher market com-
petitiveness. Apart from professional competencies, a successful manager should
own and develop a variety of other business skills. They refer to resource man-
agement skills, business communication skills, management styles, all signifi-
cantly influencing stimulating corporative working climate and success of func-
tioning of an organization as a whole. On the one hand, the work of a manager
is closely related to risks and responsibilities, on the other, it involves a feeling of
great satisfaction when success is achieved. For managers to be able to adequately
respond to constant demands for change of strategies and ways of functioning
of an organization (in accordance with complex, dynamic and changing market
conditions) it is necessary to continually plan their own self-development as well
as the development of an organization (enterprise) as a whole.
2. CHANCES  SELF DEVELOPMENT

MANAGEMENT
Any manager who wants to promote his/her style of management and work
with other people (with both those who are at the same hierarchical level in an
organization and those are their subordinates and/or their superiors) should
122
permanently improve one’s own management skills and aspire for one’s own
self-development. Only when a person is ready and successful in establishing
one’s own inner harmony and balance can he or she make purposeful and de-
cisive steps in successful creation of a balance with other people and with the
environment he or she lives and works in. The benefits of this process have at
least twofold effect – both for the manager him/herself and for his/her (private
as well as working) environment. In other words, management processes start
in the manager himself to be subsequently directed and transferred to others
implied in the organization. In accordance to such a standpoint, the way ac-
cording to which a manager fulfils his/her managerial role is based on the style
and way of his/her own self-development management (Oljača, 2004, 225).
Self-development management is a dynamic process of changes occurring in a
man (manager) him/herself, opening up possibilities for him or her to estab-
lish contact with the outer world, turning back to personality and along the
way changing both the personality and the environment. Individuals who are
successful in self-development management are characterized by the following
features: they assess themselves in a positive way; they evaluate themselves as
more realistic and more accurate; they are more ready to accept both themselves
and others in the way they really are; the express readiness to identify with other
people at a higher level; the have more developed empathy and more objective
perception of reality; the own more expressed independence and self-reliance;
they have more meaningful and highly qualitative interpersonal relations with
other people at a higher level of connectedness and closeness; they have demo-
cratically structured characters and show readiness to cooperate with others;
and, last but not least, they have good sense of humour. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
In his search for specific personality features of leaders, Mann has found 7
personality features typical for leaders (managers) correlating with successful
organization management (Mann, 1957, 253). These are the following: supe-
riority of intelligence (not higher than 30 IQ units as compared to the aver-
age), having in mind that such a difference would produce great differences in
interests and aspirations between leaders (managers and other members of an
organization); highly developed self-confidence and expressed feature of being
sure of oneself and self-reliant; dominance – manifested in a desire for prestige
and power encouraging him or her to aspire for the position of a leader; adapt-
ability (flexibility) guarantying that a leader will not get confused in new situ-
ations; emphasized extraversion – manifested through more expressed open-
123
ness for new experiences and easily establishing of contacts with other people;
interpersonal sensitivity – highly developed ability to accurately assess motives,
intentions and standpoints of others; poorly expressed conservativeness of at-
titudes and viewpoints.
How to successfully manage one’s own self-development?

Identification of priorities – time management
According to Rogers, a scientist who is considered to be the founder of

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

Everyday life permeated by life problems not possible to easily overcome
condition inner tension caused by neuroendocrine systems. Long lasting expo-
124
sure of an organism to influence and effects of hormones (adrenaline and cor-
tisol) can manifest in changes in behaviour and disharmony in communication.
Cortisol and adrenaline are in natural conditions secreted when an organism
faces a new task or in circumstances of more intense physical efforts. In such
situations these biochemical substances increase neural and muscular activity
of an organism, intensify blood flow through organs, especially through central
nervous system, preparing an organism for a new response. If the mentioned
hormones are secreted at daily basis with increased intensity due to life situa-
tions an individual cannot subjectively or objectively overcome, their constant
presence can damage certain systems of an organism, leading to occurrence of
chronic disease (Nedimović & Stanojlović, 2012, 100).
Stress can be determined as an emotional or physiological process appearing
when people try to adjust or cope with circumstances which disrupt (or threat-
ening to disturb) their everyday functioning (Taylor, 1995). Various events im-
posing the need on people to adjust (e.g. job demands, examinations, personal
tragedies or annoying disturbing at daily basis) are called stressors. Body, psycho-
logical or behavioural reactions (like e.g. accelerated heartbeat, anger, impulsive-
ness) are called stress reactions.
It can be noticed that in the literature in the domain of psychology, as well
as in formal and informal communication in which experts are involved, stress
is most often understood in one of two ways. Within each of the two ways of
defining stress there are two different ways. The first way of defining stress de-
termines it as an event occurring in an external setting, i.e. (1) an event which
is a threat or a loss (or, less frequently a challenge) for majority of people; or (2) INTERDISCIPLINARY MANAGEMENT RESEARCH XI
an event which is a treat or a loss (or challenge) for an individual person. An-
other standpoint is that stress is a reaction to an event in an external setting, i.e.
(1) activation of intensive feelings (most often unpleasant ones); and/or (2) a
whole range of characteristic body reactions (Zotović, 2002, 4). A definition
suggestion by Aldwin (Aldwin, 1994) encompasses both the above mentioned
standpoints, while in the scope of the first stated determination of stress (as an
event), subjective evaluation of a person is emphasized, due to which certain
events are seen as threats, losses or challenges.
Burn out syndrome is a state of excessive stress, i.e. high level of stress and
a complex human reaction to long-lasting and continuous exposure to stress.
Signs are similar to those appearing in the case of stress, but burnout involves
125
emotional exhaustion and increasing negative attitude towards work, and even
life. Some of the symptoms of burnout are similar to psychosomatic diseases:
headaches, heart attacks, high blood pressure, fatigue. A person who is at the
edge of a burnout feels: weakness, lack of strength, hopelessness, frustration,
separation from people, i.e. lack of contact with people and things surrounding
him or her, little satisfaction with work, anger appearing due to the lack of time
for working tasks, irritation, anxiousness, uncertainty… Prevalence of this syn-
drome is highest in the case of ambitious people with high potentials (and these
are most common characteristics of successful managers).
.. Job related stress

Stresses experienced by people at work are classified within the category of
so called job related stresses. Some of the most common symptoms of job re-
lated stress (there are other expressions used in the English language referring
to the same phenomenon: organizational stress, occupational stress, job stress,
stress at work, work stress, work place stress…) are as follows: dissatisfaction
and being unadjusted to work, and they can also be related to the difficulty and
content, i.e. nature of work (Pajević, 2006).
Research carried out in the North America in the last decade have shown
that even up to 40% of those employed experience their job as highly stressful.
In the studies by Sonenntag and Frese (Sonnentag, & Frese, 2003) conducted
in Europe, the percentage is slightly lower, i.e. 30%. The approach to research
on job related stress has undergone a whole range of developmental phases,
just like the study and explanation of stress in general context (Popov & Popov,
2011, 180), based on stimulus-reaction approach according to which stressful
reaction has been understood as a consequence of a stressful event – stressor. It
is beyond dispute that various people do not react in the same way to the same
stressor ant this fact has imposed the need for further research on this relation,
as well as the introduction of different moderating variables in the examina-
tion of the relation between a stressor and a stressful reaction (Hart & Cooper,
2001).
Sources of work related stress are numerous and different authors have clas-
sified them into various categories Ivančević i Mejson (Ivancevich & Matteson,
1993) have classified sources of stress into three categories: a group of personal
ones, a group of interpersonal ones and a group of organizational stress sources.
126
The category of organizational, i.e. job generated stresses is dominant in the
case of managerial work; thus, it could be said that managerial jobs are profes-
sions which are more subject to stress as compared to other professions.
For an employed person job related stress is a whole range of harmful, physi-
ological, psychological and behavioural reactions to the situations in which job
demands are not in accordance with person’s abilities, skills and needs. Work
related stress is manifested through specific patterns of emotional, cognitive,
behavioural, physiological of organism occurring as a response to a variety of
harmful influences arising out of contents and organization of work and work-
ing environment. The notion of job related stress refers to the changes which
are consequences of accumulating influences of stressors appearing in a working
place for longer period of time.
The significant of research on stress in modern conditions and work related
demands is manifold. As a bio-psycho-social problem, stress can endanger psy-
cho-physical health and reduce working capability. The consequences in health
domain can lead to liability to various psychosomatic diseases and injuries at
work. Furthermore, consequences referring to working ability can lead to reduc-
tion of working performance, increase of fluctuation, absence from work, etc.
At emotional plan consequences can lead to apathy, anxiety, aggressiveness, and
at cognitive plan they can lead to a decrease in thinking capacity, memory and
problem solving.
Modern models of work related stress involve to various degrees elements
of transactional model of stress research, viewing stress as a dynamic relation
between a person and his/her environment, putting emphasis on the dynamics INTERDISCIPLINARY MANAGEMENT RESEARCH XI
of mechanism of cognitive evaluation of stressful events by the person (Lazarus

& Folkman, 1984) as well as copying mechanisms as strategies of overcoming
stress. Generally speaking, researchers have identified two clusters of factors
generating stressful reactions at work, one referring to characteristics of a job
and organization, another to individual characteristics of the employee. Having
in mind that stress indicators can be considered at individual (e.g. cognitive,
physiological and behavioural) and organizational level (e.g. low productivity,
absence from work, etc) there is in the research on work related stress a great
heterogeneity in the selection of variables according to which the phenomenon
is operationalized. Stress indicators, as well as stressors perception are more
often measured according to measures of self-evaluation (Cooper, et al, 2001).
127
Having all the above mentioned in mind, it could be concluded that con-
sequences of stress can be highly unfavourable both for an individual (man-
ager and other members of an organization) and for organization as a whole.
According to this standpoint it is rather significant to operationalize and de-
fine measures and programs of work related stress prevention (Stanojević &
Milošević, 2011). Two preventive approaches can be applied individually or
simultaneously: at the level of an individual (work on self-development of an
individual through education and trainings dealing with stress management)
and at the level of an organization as a whole (work on introduction of change

of work organization in order to create better working conditions and working
climate, leading to reduction of potential stressors).
4. CONCLUSIONS
Managerial job is rather demanding and complex. It implies dealing with
a broad spectrum of jobs: ranging from management of human resources to
achieving of a desired aim and making profit at the level of organization as a
whole. For a manager to successfully do his/her job he/she has to be prepared
for lifelong learning and permanent (self )development of his/her own profes-
sional abilities and skills. In other words, self-development is seen as a dynamic
process implying positive change.
Only when a manager develops these competencies to a satisfactory degree
and learns how to efficiently determine priorities and manage his/her own time
can he or she create successful cooperation with other people and maximally re-
alize his/her own potentials. Benefits of such (not always easy) work on oneself
belong not only to the manager him/herself, but also to other people he or she
works or cooperates with.
Studies have shown that successful managers, compared to those who are
not so successful, are characterized by the following: positive self-image (they
assess themselves as more realistic and more accurate than others), emphasized
manifestation of certain personality features (intelligence, self-confidence, flex-
ibility, interpersonal sensitivity, empathy), as well as certain abilities (to start
dealing with a work task immediately, to be always ready for cooperation, to ac-
cept themselves and those surrounding them as they really are, to easily identify
with other people).
128
It is beyond dispute that a job of a manager is conventional; on the contrary,
it can be rather exciting, it can be a source of great satisfaction; at the same time,
it can also be a source of anxiety and stress. Research conducted in individual-
istic cultures (like ours) have shown that between 30 and 40 percentages of the
employed population experience their job as highly stressful. Having in mind
that these data refer to all professions, it can be assumed that when the job of a
manager is in question, which is understood as extremely exciting and dynamic,
these percentages can only be significantly higher. The paper has pointed to
negative consequences of stress, especially working place generated stress, i.e.
job related or organizational stress. This type of stress can have negative conse-
quences for working efficacy, dissatisfaction and the lack of adjustment to work,
as well as increased level of absence from work. Even though there are great in-
dividual differences in the way one experiences stress (the same event will never
be equally stressful for two different persons), it is crucial for managers to learn
how to cope with stressful events through permanent and dedicated work on
self-development of their own stress management mechanisms and their own
perception of these events.
REFERENCES
Aldwin, C.M. (1994). Stress, coping, and development. New York: Guilford Press.
Benis, W. (1989). On becoming a leader. New York.
Cooper, C. L., Dewe, P. J., & O’Driscoll, M. P. (2001). Organizational Stress: A Review
and Critique of Theory, Research, and Applications. Thousand Oaks: Sage Publications.
Dostupno na http://cclp.mior.ca/Reference%20Shelf/PDF_OISE/Bennis.pdf. Pristup
(13-03-2015). INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Hart, P. M., & Cooper, C. L. (2001). Occupational stress: Toward a more integrated frame-
work. In N. Anderson, D. S. Ones, H. K. Sinangil, & C. Viswesvaran (Eds.), Handbook of
industrial, work, and organisational psychology, Vol.2:Personnel Psychology (93-114). Lon-
don: Sage.
Ivancevich, J., M. & Matteson, M., T. (1993). Organizational behavior, Irwin (Homewood,
IL).
Lazarus, R. S., & Folkman, S. (1984). Stress, appraisal, and coping. New York: Springer-Verlag.
Mann, R. D. (1959). A review of the relationship between personality and performance in
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Nedimović, T. & Stanojlović, D. (2012). Priručnik za vaspitače za rad sa decom sa simptom-
ima razvojnih poremećaja. Vršac: Visoka škola strukovnih studija za obrazovanje vaspitača.
Oljača, M. (2004). Menadžment vremena i samoaktualizacija. U Priručnik za polaznike Po-
slovne škole NSHC-a (Laura Fodor – Agošton….et al.) Novi Sad: Novosadski humanitarni
centar.
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Pajević, D. (2006) Psihologija rada. Beograd: Liber.
Popov, B. & Popov, S. (2011). Struktura polnih razlika u doživljaju stresa na radu. Primen-
jena psihologija. 2011/2 (179-195).
Rogers, C.R. (1961). On Becoming a Person. A Therapist s view of Psyhotherapy, Hougthon,
Mifflin Company, Boston.
Sonnentag, S., & Frese, M. (2003). Stress in organizations. In W. C. Borman, D. R. Ilgen,
& R. J. Klimoski (Eds.), Comprehensive handbook of psychology, Volume12: Industrial and
organizational psychology (pp. 453-491). New York: Wiley.
Stanojević, D. Z., & Milošević, B. N. (2011). Profesionalni stres. Zbornik radova Filozofskog
fakulteta u Prištini, (41), 621-637.
Taylor, S. (1995). Health Psychology. New York: McGraw-Hill.

Zotović, M. (2002). Stres i posledice stresa - prikaz transakcionističkog teorijskog modela.
Psihologija, 35(1-2), 3-23.
130
PRODUCT POLICY MANAGEMENT
AS PART OF SUSTAINABLE
MARKETING STRATEGY
Ana PAP, M. Sc. Econ., assistant

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

mham@efos.hr
Ana TURALIJA, student

ana.turky@gmail.com
Abstract
The product as an element of the marketing mix represents the primary mech-
anism through which value is provided to the consumer. If we add the fact
that it is precise decisions related to product design that determine the types
of resources, production processes, and the nature and type of future flows of INTERDISCIPLINARY MANAGEMENT RESEARCH XI
waste, it is clear that product policy management is a key issue in sustainable
marketing strategy.
The purpose of the present study is to analyse and discuss the key elements
and prerequisites of green products and the issues in green product policy man-
agement with the goal of contributing to sustainable marketing strategy effec-
tiveness. Marketing managers in the modern marketing environment must
consider all of these issues because in the near future embedding the elements
of sustainability into business processes will no longer represent the source of
competitive advantage, but the precondition of competitive parity on the global
market.
131
Keywords: green product, product policy management, marketing mix, sus-
tainable marketing strategy.
JEL Classification: E2, L23, M3
1. INTRODUCTION
The strengthening of consumers’ environmental awareness is often consid-
Ana Pap • Marija Ham • Ana Turalija: PRODUCT POLICY MANAGEMENT AS PART OF SUSTAINABLE MARKETING STRATEGY
ered the greatest opportunity, since the industrial revolution, for the rearrange-
ment of forces on the market, innovation and the introduction of new tech-
nologies. Actually, these are the changes which represent, at the same time, an
opportunity and a threat for economic entities. It is clear that those wishing to
capitalize on these changes must adjust all elements of their marketing pro-
gram. In addition, it is also necessary to adjust other business processes of an
economic entity which have been, so far, mostly outside the domain of consum-
ers’ interest. In this sense, a specific marketing mix can be identified within the
sustainable marketing strategy.
For the products on the contemporary market, acceptable price and con-
firmed quality are no longer an adequate prerequisite for finding their way to
the consumer. Increasingly growing ecological awareness has placed demands
before producers for making products that meet high ecological standards.
Therefore, we can say that the environmental acceptability has become “added
quality” to the product.
The product as an element of the marketing mix represents the primary
mechanism through which value is provided to the consumer. Decisions related
to product design determine the types of resources and production processes
which are going to be used. These decisions also determine the character and
the type of future waste flow. That is the main reason why product design and
product policy management represent the key point in sustainable marketing
strategy. (Fuller;1999,172).
2. GREEN PRODUCT CONCEPT AND ITS

CHARACTERISTICS
An environmentally friendly product is a type of product that balances three
dimensions: technical features, price acceptability and compatibility with envi-
132
ronmental protection. In other words, market entities are facing the challenge
of creating a product that will satisfy consumers’ needs and wants, including
environmental protection in a way that the product, its usage and the waste cre-
ated after its usage, do not cause pollution or that its environmental pollution is
minimal. (Grbac et al., 2008,115). For products that meet the above mentioned
conditions, in theory and practice, the conventional term is “green products”.
According to Ottman, the term green product usually implies a more du-
rable product which does not contain any, or a minimum of toxic substance,
is made of more types of recycled material and has less wrapping material.
(Ottman;1998,89). Green products have positive ecological features embed-
ded during decision making about the product design. These features represent
operationalized P2 (pollution prevention) and R2 (resource recovery) strate-
gies. These strategies affect production, the material from which the product
is made, how it works, how long it lasts, how it is distributed and how it is
disposed. (Fuller;1999,172).
The concept implied under the term of green marketing in marketing prac-
tices covers the range from green brands that include ecological characteristics
in all product life cycle phases to the conventional products that contain any
kind of improvement related to the ecological friendliness of the product itself
or some of its parts (e.g. packaging). Franjić et al. state that the green product is
green if it satisfies consumers’ needs, if it effectively uses energy and resources
and if it is socially acceptable due to the fact that neither the product or its pro-
ducer endanger flora, fauna and human habitat and its usage and disposal does
not harm human health and the environment. (Franjić et al.;2009,253) INTERDISCIPLINARY MANAGEMENT RESEARCH XI
When it comes to green marketing, it is not only necessary to consider prod-

uct features and its environmental influence before, during and after its usage.
It is also important to consider other processes and company policies which are
directly or indirectly related to that product. According to the previous state-
ment, green product characteristics can be classified in two general categories:
1. Characteristics related to the ecological and social influence of the mate-
rial product itself. The main challenge in product management is empha-
sizing the destiny of the product after its usage. Improving the ecological
performances of the product after its usage can be achieved through mod-
ular design approach, quality post-product services or product collecting
systems after its usage.
133
2. Characteristics related to production processes, policies and practices of
the producer, i.e. fair trade products, organic food products, recycled pa-
per and cruelty-free cosmetics.(Peattie;2008,577-578).
It is also necessary to point out the dynamics, i.e. variability as the attribute
of both of these characteristics. The development of a general level of awareness
about ecological issues and its representation in legal and other regulations led to
certain changes in the list of possible green characteristics. For example, what was
once considered as a green characteristic of a product (e.g. spray that doesn’t con-
tain CFC gas) now is considered only a compliance of legal regulations or indus-
try standards. On the other hand, using a specific synthetic material in the pro-
duction process, instead of a natural one that comes from endangered species, can
be considered a green characteristic of the production process. Ecological charac-
teristics mentioned above are in most cases intangible, invisible and of secondary
importance to the consumers. Those characteristics don’t reflect key benefits as a
primary reason for buying a product, they represent long-term eco system needs
that will be reflected to the consumers in the way of improving their life quality.
The need for short term oriented consumers education about long term benefits
that result from ecological characteristics, represents one of the main challenges
that sustainable marketing deals with. (Fuller;1999,131-132).
When it comes to green product characteristics, the importance of product
durability is growing. We can say that most products these days exist only as
partially durable products, and creating more durable product variants can be an
important part of green marketing strategy. For example, Agfa Geveart changed
its policy from selling photocopiers to renting them with full additional service.
This led to significant product redesign focused on durability and resulted with
extending the product life cycle from less than 3 million copies to more than
100 million copies. For marketing executives this represents a significant change
of previous strategies because it results in a significant product replacement rate
decrease. Thus it requires a change in strategic direction from sales to renting
and complementary product and services marketing. (Peattie;2008,576).
Green product failure can be the result of a mistake or marketing myopia in
product policy management or in any of the other marketing mix elements, but
it can also be the result of their inadequate combination. Definitions and green
product characteristics stated above indicate that product policy management
is an extremely complex process which is interdependent with other marketing
mix elements as well as with other company’s business departments.
134
3. GREEN PRODUCT POLICY MANAGEMENT
On average, about 70% of a product’s adverse environmental effects are em-
bedded in product design or production process. That is why companies must
integrate ecological characteristics in products and processes in the initial phase
of new product development along with a quality concept. (Polonsky;2001,23).
Efforts for developing new “clean” technologies and products have been more
present lately than efforts for reducing adverse ecological impacts of the existing
ones. Including ecological performances as factors in a new product develop-
ment process is known as the “Design for environment” concept, and it repre-
sents the process of integrating ecological criteria in the procedures of product
design and production process. These processes result in products that have
different levels of ecological performances. Peattie points out some of the issues
that should be considered: Which social and ecological issues are relevant for
this product? What is the weight of each individual influence? Should influ-
ences along a supply chain be considered and if so, how far into the supply
chain? Apart from the production process, should the usage and disposal of the
product also be considered? (Peattie;2001,133).
This shows that establishing relative ecological performance measures can
be extremely complicated. In other words, it is hard to differentiate and profes-
sionally claim that one product is greener than the other. It is also important
to point out that characteristics which determine whether the product is green
or not depend on the product category, on where, how, for what purpose, how
often it will be used and who will use it. For example, it can be said that fluores-
cent bulbs are green products because they save a significant amount of electric- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
ity. However, if eco-bulbs are used in lamps that are often turned on and off,
their lifetime will be reduced and by the end of their lifetime they will be able to
save less energy than it was used to produce them. This means that regular light
bulbs represent an ecologically acceptable alternative. A specific product can
influence different social and ecological issues, but changes in the product itself
and its production process don’t necessarily have the same influence on different
issues. In that case, it is often common to resort to an optimization approach
in a way that issues with greater weight (importance) receive greater priority.
Defining relevant issues as well as their relative significance is not even remotely
easy and it has to be continuously thought out and revised.
135
Environmental protection is present in all product lifecycle phases, and in-
cludes numerous sub-issues like preserving natural resources, energy efficiency,
natural habitat protection, endangered species protection etc. Companies that
decide to implement green marketing through all product lifecycle phases must
consider issues related to: supply and processing of raw materials, production and
distribution, packaging and product usage, issues related to the product after its
usage and issues related to its disposal. (Marušić;2003,45). Therefore, product
policy management in green marketing represents integration of ecological ac-
ceptability in each of the life cycle phases with a special emphasis on the phase of
creating an idea about a product where the most ecological influence is being re-
duced. As it has been stated, lately there have been tendencies to create completely
new products and technologies because in that way it is possible to achieve a sig-
nificantly larger positive influence on the environment than improving existing
products and adding ecological characteristics to existing product characteristics.
Ecological acceptance of the product can be estimated on the so called “cra-
dle-to-grave” analysis which accounts for energy, the amount and the type of
material spent on production and the packaging of the product; transportation
activities related to supply and distribution of the product; process of consump-
tion of the product and the process of its disposal. (Wagner;2003,24)
This kind of activity analysis in the whole product supply chain is also called
impact analysis and life cycle analysis. Life cycle analysis is an important and one
of the most used patterns or concepts for evaluating the total ecological impact
of the product on the environment. Thereby, one of the main challenges for the
marketers is estimating the analysis range inside of the supply chain, i.e. how
far forward or backward along the supply chain should they go and how many
branches of the supply chain these analyses should include.
In order to incorporate ecological characteristics compatible with needs,
wants and expectations of the consumer in the initial phase of product develop-
ment, companies can use the following product research methods: focus groups
who reveal problems/issues (they are a good base for planning further research-
es and planning the program), consumer research (reveals attitudes), opinion
researches (they establish awareness and perceptions), contingent analysis (es-
timates willingness to pay), conjoint analysis (discovers consumers’ preferences
and willingness to pay premium), market testing and simulations (they reveal
behaviour and are good for testing the packaging). (Holt & Holt;2004,66)
136
In the phase of creating an idea about a new product, besides establishing the
previously mentioned needs, wants and expectations of the consumer, it is also
necessary to perform a quality market analysis in order to gather information
about all types of ecological products present on the market; does the competi-
tion offer the same or similar products or services? Which are benchmarking
characteristics that should be considered while generating ideas? Which are po-
tential threats (fast developing technology, a sector that doesn’t provide enough
data, etc.)? When it comes to the consumers’ attitude, it is important to point
out that the approach of evaluating consumer satisfaction is being progressively
modified. Namely, the consumer can have either a negative or positive attitude
towards the product, which is the result of conditions and the way that prod-
uct was created. A negative or positive attitude towards the product can also
be formed during its consumption as well as after its consumption. (Grbac et
al.;2008,109)
The importance that consumers give to ecological characteristics of the
products and the producers is different in individual product categories. Food
products are usually the leaders in this list, which is expected considering they
have a significant effect on peoples’ health and well-being as well as the well-be-
ing of their families. This is confirmed in the research conducted by the authors
in 2011. (Ham;2012)
Table 1: Frequency of purchasing various green product categories
Source: Ham, M. (2012), Ekološka svjesnost potrošača kao čimbenik daljnjeg razvitka mar-
ketinga, Doctoral thesis, Faculty of Economics, Osijek
137
Table 1 shows that when buying green products, people mostly buy organic
food, while cosmetics, electronics and lighting products are less represented.
Detergents are right behind organic foods, which suggest health awareness,
given that both of these categories are related to their influence on health.
It is also important to mention product packaging as a specific problem
that requires great attention in product policy management. It is additionally
emphasized in green marketing for several reasons. The first reason lies in the
fact that product packaging has a large share in the total waste in industrial-
ized countries, and also that packaging represents a significant part of product
influence on the environment. The second reason is the relative simplicity of
adjusting packaging to ecological requirements. In other words, it is consider-
ably simpler (and less risky) to reduce the amount of products or changing the
type of packaging material than it is the case with other interventions related
to product that generally cause higher costs and demand a long-term approach.
For the above reasons, packaging represents a starting point from which the
product and its producer start their way towards satisfying the ecological de-
mands of the consumers.
The above mentioned is confirmed in Crane’s research, which showed that
packaging represents the first aim in going green for most of surveyed compa-
nies, both in terms of reducing the amount of packaging and re-using or re-
cycling transport packaging. In most cases this led (apart from environmental
benefits) to savings, i.e., companies treated these changes as a win-win situation.
(Crane;2000,123) Besides modifying packaging, it is possible to organize its
collection after the product is used. This could imply some larger investments
because it is necessary to ensure efficient infrastructure for collecting (so that
consumers’ efforts could be as small as possible). Besides that, it is necessary to
educate consumers and redesign the production system or its parts so that re-
usage or recycling of the packaging could be enabled.
There are numerous examples of successful re-use packaging systems. How-
ever, the example of Sony shows that caution should be exercised. Sony tried
to introduce the system of taking over TV packaging after delivery and its re-
usage. This caused a negative reaction in some consumers because they thought
that the product in this packaging is also being re-used. (Peattie;2008,578)
138
4. CONCLUSION
For all the strategic advantages of sustainable marketing strategy to be real-
ized, it is necessary for a company to question the very basis on which the mis-
sion, vision, strategy and goals of the company stand.
The product is the element of a marketing mix through which a company
provides value to its consumer. If we add the fact that it is precisely the decisions
related to product design that determine the types of resources, production pro-
cesses, and the nature and type of future flows of waste, it is clear that product
policy management is a key issue for sustainable marketing strategy. In order
to emphasize the fact that every product has a certain effect on the environ-
ment, it is often figuratively said that the only product that is completely green
is the one that does not exist. Namely, in production and during the transport
of every product, energy is used, by-products are created and after the disposal,
waste is generated. Hence, we can conclude that a green product represents a
relative category which consists of products with less environmental influence
then their alternatives.
Green products are strongly exposed to the dynamics of changes which re-
sult from recent scientific discoveries and changes in main environmental issues.
Thus, a product which is today considered green because it saves electricity can
tomorrow be considered ecologically unacceptable if it is discovered that a cer-
tain substance generated during its decomposition is toxic to people, animals or
plants. It is also possible for a company which invested in a new plant for pro-
ducing phosphate-free detergents ten years ago to get exposed to criticism today
for producing a large amount of carbon dioxide that causes greenhouse effect, INTERDISCIPLINARY MANAGEMENT RESEARCH XI
global warming or disastrous climate changes, which are some of the most im-
portant environmental issues today.
Marketing managers in the modern marketing environment must consider
all of these issues because soon embedding the elements of sustainability into
business processes will no longer represent the source of competitive advan-
tage, but the precondition of competitive parity (the prerequisite for a product
to even be considered for inclusion in distribution channels and in consumers’
decision making process).
139
References
Crane, A. (2000). Marketing, Morality and the Natural Environment (Routledge Advances
in Management and Business Studies), Taylor and Francis Group, ISBN 978-0415439619,
London
Franjić, Z., Paliaga, M. & Flego, M. (2009). Green Marketing in Croatia – Research of Expe-
rience and Effects on the Establishment of Environmentally and Socially Responsible Busi-
ness, Proceedings of the 34th Annual Macromarketing Conference - Rethinking Marketing
in a Global Economy, 247-259, ISBN 0-9795440-9-2, The Macromarketing Society, Inc.
and the University of Agder, Kristiansand
Fuller, D. A. (1999). Sustainable Marketing – Managerial – Ecological Issues, SAGE Publi-

cations, ISBN 978-0761912194, California
Grbac, B., Dlačić, J. & First, I. (2008). Trendovi marketinga, Faculty of Economics in Rijeka,
ISBN 978-953-7332-03-7, Rijeka.
Ham, M. (2012). Ekološka svjesnost potrošača kao čimbenik daljnjeg razvitka marketinga,
Doctoral thesis, Faculty of Economics in Osijek
Holt, E. A. & Holt, M. S. (2004). Green Pricing Resource Guide, second edition, Prepared
for American Wind Energy Association, Ed Holt & Associates, Inc., Maine
Marušić, A. (2003). Zeleni marketing u suvremenom gospodarstvu, Master’s thesis, Faculty
of Economics Zagreb, Zagreb.
Ottman, J. A. (1998). Green Marketing: Opportunity for Innovation, J. Ottman Consulting
Inc., ISBN 0-8442-32339-4, USA
Peattie, K. (2001). Towards Sustainability: The Third Age of Green Marketing, The Market-
ing Review, 2, 129-146, ISSN 1472-1384/2001/020129
Peattie, K. (2008). Green Marketing, in Baker, M. J. & Hart, S. J. (eds.), The Marketing
Book, 6th ed., Elsevier Ltd., ISBN 978-0750685665, USA
Polonsky, M. J. & Rosenberger, P. J. (2001). Reevaluating Green Marketing: A Strategic Ap-
proach, Business Horizons, September/October, 21-30, ISSN 0007-6813
Wagner, S. A. (2003). Understanding Green Consumer Behaviour – A Qualitative Cogni-
tive Approach, Routledge, Taylor and Francis Group, ISBN 978-0415316194, London and
New York
140
MANAGEMENT AND LEADERSHIP
IN CULTURAL INSTITUTIONS
Teufik ČOČIĆ, M.Sc.

Bajment d.o.o., Sarajevo, Bosnia and Herzegovina
cocic.teufik@gmail.com
Velimir LOVRIĆ, Ph.D.

HEP APO d.o.o. Zagreb, Croatia
velimir.lovric@hep.hr
Abstract
Management and leadership are necessary in cultural institutions just as much
as in any company. Management of cultural institutions in Croatia is a com-
plex task, since they mostly need to rely on funding from the founder, i.e. the
state, a county or a city.
This paper examines possible strategies for efficient management of cultural
institutions. Since cultural institutions are dependent on grants from public
founders, this is frequently a challenge. The paper studies the problems that
administration and management in cultural institutions are faced with, in INTERDISCIPLINARY MANAGEMENT RESEARCH XI
terms of market orientation and action, on their way to efficient management.
Today, efficient management requires a market-based approach because the
effort and work invested, as well as the implementation of all work activities
and business processes are aimed at creating income and achieving economic
efficiency through planning and implementing a strategy to achieve the set and
planned objectives.
Keywords: management, leadership, cultural institutions
JEL Classification: Z1, Z10, Z19
141
1. MANAGERS IN CULTURAL INSTITUTIONS
A manager is effective if he has a clear vision on what an effective institution
is, if he is able to determine personnel to share his vision, if he manages his time
as to see the mission deriving from this vision come to fruition.1 All economic,
social and political activities of the world we live in cannot be conceived in the
absence of a concern for performance, achievement and success. Performance,
achievement and success have become the priorities and the motivation of any
cultural institution that subscribes to the economic exigencies. Irrespective of
the field of activity, its legal form or size and the social and economic area in
which it operates, the cultural institution has to periodically review its eco-
nomic and financial achievements, to discover what lies beneath its positive or
negative aspects, to correctly assess its ability to adapt to the dynamics of the
environment in its field of activity as well as the development perspectives and
its position on the market.2
Teufik Čočić • Velimir Lovrić: MANAGEMENT AND LEADERSHIP IN CULTURAL INSTITUTIONS
Who are the managers in culture and what they are doing?
The real answer to this question can be found in only one way. When we
managers in culture considered only those who are due to its location destined
to perform some management functions, such as directors of cultural institu-
tions, leaders of the organizations dealing with cultural programs or the artists
who promote their works, we would not nearly have given the correct answer.
The managers in the culture we have considered all those persons responsible
for the implementation of certain cultural programs or activities, regardless of
where the formal position there.3
Managers in culture have the following tasks:
• Developed plans of cultural programs and activities.
• Available fundraising plan and organize its implementation.
• Investigated and win the confidence of sponsors, donors and financiers.
• They collect funds support the budget and other sources.
1
Ceauşu, Iulian, Cartea conducătorului, Editura Asociaţia de Terotehnicăşi Terotehnologie, Bucureşti,
1998, p. 27. (According to Cristina Andreescu)
2
Negoiţă, Octav, Managementul performanţei întreprinderii, Editura Ex Ponto, Constanţa, 2007, p.
10. (According to Cristina Andreescu)
3
Dragojević, S., Dragičević – Šešić, M. (2008). Menadžment umjetnosti u turbulentnim vremenima.
Zagreb: Jesenski i Turk, p. 22
142
• Examines the cultural market.
• Developed marketing plans.
• Promote relations with the public (public).
• Provide human resources, as well as the necessary equipment for the ex-
ecution of planned Affairs.
• They support and encourage the development of cultural creativity.
• Manage human resources, or employed or engaged people.
• Realize the role of leadership, especially the coordination and supervision.
• They create financial policies and manage financial resources.
• Prepare, monitor and, if necessary, revise the budget.
• Establish the necessary level of office, and administrative operations.
• Negotiates procurement of necessary goods and services, etc..4
For these tasks, it is evident that managers in culture have to act like any
other managers in the market and the economy. The manager at the cultural
institution must possess a range of management skills and the opportunity to
acquire a large number of tasks and obligations aggregate it all that could effec-
tively manage the institution.
In practice, the cultural manager intermediary between the market and art.
It is not necessary to be a top expert on art, history, museology and the like. It is
essential that the management of a professional support. The cultural activities
that are specifically some of the following types of experts in these areas:
• Arts,
• History of Art,
• Museology and
• Curators.
A manager in the cultural institutions of course has to have some kind of
sense of culture in a domain in which it operates or the primary task of man-
agers to ensure the smooth running of all business processes in the work and
activities of these institutions, so as to provide all the necessary conditions for
it. The current weather and the state in which the cultural institutions activity
is must provide:
• financial stability,
4
Antolović, J. (2009). Menadžment u kulturi. Zagreb: Hadrian d.o.o., p. 24
143
• excellent cooperation with the sources of funding,
• developed communication cultural institutions with the market,
• take care of the audience,
• take care of all the obstacles and opportunities for the institution he
manages,
• constantly monitor changes and trends in activities and
• adapt an institution run by the market conditions and activities.
Only by ensuring the above, we can create and implement effective manage-
ment strategies.
Professional and efficient staff is the most important factor for effective
management of a cultural institution. Management should lead management
and manager institutions with managerial skills to attract funding primarily,
and enable the implementation of program activities with the technical process-
es that are part of the accompanying program of action. With them an integral
part must be qualified personnel and artistic profession, curators, etc. Manage-
ment must connect, integrate, but also through the articulation and division of
tasks and responsibilities to lead to the same goal, which is the ultimate result
of managerial and artistic activities, as well as additional activities and services
that cultural institutions implemented.
2. PLANNING AND LEADERSHIP

Planning is a prerequisite thought out management that is capable of ad-
dressing needs and business decision-making process in cultural institutions.
Only quality planning allows the management of the institution of effective
decision-making aimed at achieving the set goals and mission. Planning is ex-
tremely challenging activity because it requires not only objectively outline the
mission and goals, but also clearly defined pathways and activities to the mission
and goals to achieve in real life. The planning process should be distinguished
numerous concepts including mission, goals, strategies, policies, rules and pro-
grams. Mission the reason of existence and to the social and economic aspects.
The objectives of the endpoint to which they are directed activities. Strategy
defines the way of achieving the goals or guidelines for management that will
accomplish these goals. Policies establish procedures for making decisions, and
express the attitudes, principles or criteria. The rules determine how to proceed
144
in a given situation. The programs represent a set of objectives, policies, proce-
dures and rules necessary to carry out the activities and their execution, as a rule
supported by the budget.5
Type of control must be established immediately in the planning, because
planning covers all segments, rules and forms of governance that factor thought
out management that may result in high-quality and efficient management of a
cultural institutions, which will result in specific business objectives.
Planning is a set of guidelines and factors, tools, plans, vision, mission, goals
and foundation for the launch of any discussion, and then the implementation
of cultural activities with all the parameters and characteristics of the possible
consequences and outcomes that are possible in the evaluation and completion
of certain processes and activities. Without planning it is almost impossible any
idea or business solution successfully implement and lead a cultural institution
in a desired state. Management of the implementation is characterized by three
important elements, namely the way of change management and risk manage-
ment and the method of monitoring the implementation.6 The planned activities
is a process of change in which the goal is to achieve the planned result. In order
to achieve true change in the expected goal it is necessary to manage the change.
3. STRATEGY PROGRAM  ORGANIZATIONAL

DEVELOPMENT
In addition to entrepreneurial energy director, organizational arrangements
and its program activities included with the resulting identity of the cultural INTERDISCIPLINARY MANAGEMENT RESEARCH XI
institution. The identity of the cultural institution uniqueness and recognition
of certain cultural institution by saying it stands out from the others and their
different characteristics and peculiarities of attracting audiences and visitors.
Means that the new cultural institution a reality today does not only involve
virtual preservation and presentation of the cultural institution but also more
than that - the same one way or the practice of visits to cultural institution. 7
5
Antolović, J. (2009). Menadžment u kulturi. Zagreb: Hadrian d.o.o., p. 69.
6
Ibidem, p. 100
7
Despotović, J. (2006). Sajber kultura - virtuelni muzej. U: Godišnjak grada Beograda. Jovović-
Prodanović, D. (ur.). Beograd: Muzej grada Beograda. p. 399. - 407.
145
The first step involves a discussion of strategic planning, analysis and se-
lection of development scenarios and the appropriate strategies. This is a key
job that requires the greatest creativity and synthetic, multidimensional thin-
king. Advantage of its benefits, find a solution for the weaknesses and threats,
requires a decision on a very precise strategic solutions that can sometimes be
painful or risky for the organization, whether in terms of policy change (which
can be understood as a waiver of tradition) or in terms of reducing the number
of employees. It may involve a variety of analysis, discussion, controversy, brain-
storming, monitoring of existing scenarios and strategies, or SWOT analyzes.
Strategic planning, as opposed to the classic plan, requires the development
scenario, a vision that can and should be determined on the already defined the
mission of the organization, but also to draw attention to the way that organi-
zations will move in the next five or ten years. The vision of their own future,
in terms of the development scenario, you should be realistic but ambitious,
should be a noticeable step forward from the daily, current routines and also
be a mobilizing and inspiring factor for the selection of a completely new, and
sometimes radical and risky strategy.8
The vision is a goal, a desire where the organization wants to be, literally.
The vision includes ambitions, desires, plans, meaning activities and all those
imaginary things, processes, activities and target condition that management
wants to achieve and accomplish. The vision is a guiding theme to the goal and
the success of the organization. Vision is an integral part of how the mission,
strategy and goals, because only together make a whole to define the institution
or organization.
4. MARKETING IN CULTURAL INSTITUTIONS

Marketing management is important managerial dimension which must be
continually evaluated to ensure profit.
Marketing has always been, and so in recent times of rapid change, glo-
balization and recession, each business entity is an expense that is neces-
8
Dragojević, S., Dragičević – Šešić, M. (2008). Menadžment umjetnosti u turbulentnim vremenima.
Zagreb: Jesenski i Turk, str. 137.
146
sary for promoting the convergence of products and services to end users. 9
Marketing is one of the primary business functions. The task is a marke-
ting tool that discovers and develops sources of demand. Marketing depar-
tment must demonstrate understanding of the nature of the transformation
process, how it affects the acquisition, which is produced can allocate speci-
fic groups of consumers, when they will be able to produce a new product. 10
Marketing is the art of finding, developing and generating a profit from various
opportunities. If the marketing department does not see any chance, it’s time
to dissolve. If managers for marketing cannot imagine new products, services,
programs and systems, which are then paid? 11
Since cultural institutions, in Croatia and the region still characterized by a
lack of financial resources, faced with the problem about attracting visitors as
users of their services.
All the world’s cultural institutions, and the Croatian one, have to set up
employee / s in charge of marketing. Marketing in cultural institutions is still
not enough clear, but without argument assumes that everyone understands the
nature of the cultural institutions. Cultural institutions and other industries in
the field of heritage, often in its mission and obligations only formally defined.
Most experts employed at the cultural institutions are unable to clearly define
the goals of the cultural institutions and role in society, by the usual formula of
concern for future generations, preserving the collective memory or the produc-
tion and presentation skills. On the other hand, often speaks about marketing,
and thoughts on propaganda. Marketing is much more than that.
A thorough understanding of marketing will put emphasis on the impor- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
tance of creating good, attractive products. If the marketing misunderstood,

which is not rare, attractiveness is identified with sensationalism.12 This is ex-
actly the reverse of each acceptable formulation mission of the cultural institu-
tions. Product cultural institutions regular ‘’input’’ incentive, effective pulses in
9
Mokhtar, M. F., & Azilah, K. (2011), Motivations for visiting and nost visiting museums among
young adults: a case study on UUM students. International Conference on Management (ICM 2011)
Proceeding, Conference Master Resources. No 2011-099-103
10
Barković, D. (1999). Uvod u operacijski management. Osijek: Ekonomski fakultet u Osijeku, p. 28
11
Kotler, P. (2006). Kotler o marketingu, Kako stvoriti, osvojiti i gospodariti tržištima. Zagreb: Masmedia,
p. 44
12
Šola, T. (2001). Marketing u muzejima ili o vrlini kako ju obznaniti. Zagreb: Hrvatsko muzejsko
društvo, p. 85
147
a community where there are and what should be served. The result of these
impulses is neat, complete, creative sublimated transfer of cultural experienc-
es, with the aim of continuation of identity regardless of the changes through
which the community and its members pass. The most widely established goal
of the cultural institutions, and its products, is the common good, as wisdom
generated from the past.
Bibliography:
Antolović, J. (2009). Menadžment u kulturi. Zagreb: Hadrian d.o.o.
Barković, D. (1999). Uvod u operacijski management. Osijek: Ekonomski fakultet u Osijeku
Ceauşu, Iulian, (1998) Cartea conducătorului, Editura Asociaţia de Terotehnicăşi Tero-
tehnologie, Bucureşti
Despotović, J. (2006). Sajber kultura - virtuelni muzej. U: Godišnjak grada Beograda. Jovović-
Prodanović, D. (ur.). Beograd: Muzej grada Beograda.
Dragojević, S., Dragičević – Šešić, M. (2008). Menadžment umjetnosti u turbulentnim vreme-
nima. Zagreb: Jesenski i Turk

Kotler, P. (2006). Kotler o marketingu, Kako stvoriti, osvojiti i gospodariti tržištima. Zagreb:
Masmedia d.o.o.
Negoiţă, Octav, (2007). Managementul performanţei întreprinderii, Editura Ex Ponto,
Constanţa
Mokhtar, M. F., & Azilah, K. (2011), Motivations for visiting and nost visiting museums among
young adults: a case study on UUM students. International Conference on Management (ICM
2011) Proceeding, Conference Master Resources. No 2011-099-103.
Šola, T. (2001). Marketing u muzejima ili o vrlini kako ju obznaniti. Zagreb, Hrvatsko muze-
jsko društvo
148
STUDENTS’ POTENTIAL FOR
AUTHENTIC LEADERSHIP
Djurdja SOLESAGRIJAK, Ph.D.

University of Novi Sad, Technical Faculty “
Mihajlo Pupin” Zrenjanin, Republic of Serbia
gdjurdja@gmail.com
Dragan SOLESA, Ph.D.

University of Business Academy of Novi Sad,
Faculty of Economics and Engineering Management, Serbia
solesadragan@gmail.com
Nedjo KOJIC
University of Business Academy of Novi Sad,
Faculty of Economics and Engineering Management, Serbia
Abstract
To know yourself and to act accordingly has been seen as a moral imperative
throughout history.
The aim of this research was to determine potential of students for authentic
leadership and relation between their authentic personality and potential for
authentic leadership. The sample consisted of students (N=133) from Serbia
(male – 59% and female – 41%). The average age of students was M=21.9.
Instruments used were Authenticity Scale (Wood et al., 2008) and Authentic
Leadership Self-Assessment Questionnaire (ALQ – Walumbwa et al., 2008).
Authenticity scale had three subscales – authentic living, accepting external
influence and self-alienation. Authentic Leadership Self-Assessment Question-
naire had four subscales – self-awareness, internalized moral perspective, bal-
anced processing and relational transparency.
Results showed that students are authentic persons - M=43.16 (with theoreti-
cal range of scores from 12 to 84) and have a potential for authentic leader-
ship – M=57.41 (with theoretical range of scores from 16 to 80). Authentic
149
personality in students is not a predictor of authentic leadership (R2=.001,
F(1,132)=.08, p<.05). Correlation analysis showed that individual’s au-
thentic living is positively correlated to leader’s self-awareness (r(131)=.360,
p<.01), internalized moral perspective (r(131)=.378, p<.01) and to relation-
al transparency (r(131)=.194, p<.05). Also, accepting external influence is
negatively correlated to internalized moral perspective (r(131)=-.178, p<.05).
This research has confirmed theoretical implications that if a person behaves
and expresses emotions in a way that is consistent with his/her physiological
states, emotions, beliefs and cognitions, then he/she will be perceived by others
as being aware of their own and others values, knowledge and strengths, of the
context in which they operate and capable of ethical and transparent decision
making. Furthermore, a person more susceptible to the influence of others and
Djurdja Solesa-Grijak • Dragan Solesa • Nedjo Kojic: STUDENTS’ POTENTIAL FOR AUTHENTIC LEADERSHIP
to the belief that one has to conform to others’ expectations is less capable for
authentic and sustained moral actions.
Keywords: authenticity, leadership, students
JEL Classification: L2, L31, L29
INTRODUCTION
When discussing authentic leadership, it is necessary to start from the con-
cept of authenticity itself.
Authenticity as a construct dates back to ancient Greeks, and the time it
was first recognized in their timeless piece of advice – Be honest to yourself
(Harter, 2002). Within the realm of positive psychology, authenticity is defined
as having personal experience, acting in accordance with one’s own thoughts,
emotions, needs, interests or beliefs, and stemming from the need for a person
to know oneself and act in accordance with one’s true SELF (Seligman, 2002).
Even though the very concept of authenticity is not new, in recent years,
we have witnessed a revival of interest for the elements of authentic leadership
in literature dealing with applied (Gardner & Schermerhorn, 2004; George et
al., 2007; George, 2003; May et al., 2003) and academic management (Avolio
et al., 2004; Avolio & Luthans, 2006; Avolio & Walumbwa, 2006; Gardner et
al., 2005; Luthans & Avolio, 2003). All these authors conclude that authentic
leadership is a multi-dimensional construct of a higher order, which further
reflects in the development of the theory of authentic leadership following the
150
interrelations occurring between leadership, ethics and positive organizational
behavior (Avolio et al., 2004; Cameron et al., 2003; Cooper & Nelson, 2006;
Luthans & Avolio, 2003).
One of the results of such an increased interest in this new construct is the
emergence of several new models of authentic leadership in literature. The first
one is the model (Avolio et al., 2004) which defines authentic leadership as a pro-
cess stemming from positive organizational behavior, trust, new achievements
in the field of leadership and emotions, identity theories developed to describe
the processes through which leaders transfer their influence on the attitudes
of their employees such as job satisfaction, and behaviors such as work results.
This model also includes the outcomes of the employees which reflect in their
performance, extra performance and their withdrawal behaviors such as ab-
sence and lateness. Further research brought authors to a better-focused model
of authentic leadership which also includes self-awareness, impartial processing
of information, authentic behavior, and authentic relational orientation (Ilies
et al., 2005). Gardner and associates (2005) tried to integrate these different
perspectives and definitions of authentic leadership and suggested the model of
processes which happen in authentic leadership and work. This model is based
on the idea that one of the key factors which contribute to the development of
authentic leadership is the leader’s self-awareness which includes their personal
values, emotions, identity and goals. The second factor is self-regulation which
involves internalized regulation, balanced processing of information related to
the persons themselves, authentic behavior and relational transparency, which
implies that the leader shows a high level of openness and trust in close relation-
ships. According to this model, the personal past of the leader (influences of
their family members, educational and professional experience) and key events
(personal crises and positive events such as promotions) are a pre-condition
for authentic leadership. Later, authors (Avolio & Gardner, 2005) came to con-
clude that authentic leadership also involves positive moral perspective which
is characterized by high ethical standards affecting the making of decisions and
behavior. Here, self-awareness and the process of self-control are reflected in
the internalized moral perspective, balanced processing of information and re-
lational transparency as the key components of authentic leadership.
This kind of definition shows that authentic leadership shares some char-
acteristics with other contemporary perspectives of positive leadership such as
transformational, spiritual and servant leadership. Authentic leadership justifies
151
its place among these forms of leadership with the fact that researchers started
to make difference between it and similar constructs by putting it in theoretical
frameworks and searching for its confirmation in empirical researches. Trans-
formational leaders are, the same as authentic leaders, described as people full
of optimism and hope, people of high moral character and oriented towards
development (Bass, 1998). Also, transformational leadership has opened up a
way towards a complex moral specter with which most leaders combine their
authentic and non-authentic behaviors, which leads to differentiating between
authentic transformational leader who expands the domain of freedom and
conscious acting and a pseudo or non-authentic transformational leader who
strives to justify their own narcissism, authoritarianism, and need for power.
Still, other authors (Avolio & Gardner, 2005) state that authentic leaders, un-
like transformational leaders, can but don’t have to be oriented towards devel-
oping their employees into leaders, even though they themselves have a positive
influence on their employees through the model of roles. On the other hand,
similar to authentic leaders, servant and spiritual leaders show explicit or im-
plicit self-awareness, and focus on integrity, trust, courage and hope (Bass &
Steidlmeier, 1999). However, these components of servant and spiritual leaders
still lack theoretical and empirical background. Therefore, authentic leadership
can encompass transformational, servant, spiritual, and many other forms of
positive leadership. Even though it is still necessary to define authentic leader-
ship, Avolio and associates (2004) state that the main element which differenti-
ates authentic from other forms of leadership is the fact that it lies at the base of
contemporary positive leadership regardless of the form it appears in.
Characteristics of an authentic leader as a person are discussed and ex-
plained by George (2003). In his view, authentic leaders strive to serve others
through their leading activities. They are more interested in how to encourage
their employees to make a change, than they are interested in power, money
or their personal status. They are driven by their personal desires and feelings
rather than by their sense. However, authentic leaders are not born that way.
Lots of people have natural qualities for leadership, but they need to develop all
their capacities in order to become excellent leaders. Authentic leaders use their
natural abilities, and they recognize their disadvantages and work hard on over-
coming them. Their leadership is purposeful, meaningful and based on values.
They are persistent and self-disciplined. When their principles are tested, they
make no compromises. Authentic leaders are committed to their personal de-
152
velopment, because they know very well that leadership implies lifelong growth
and development. The basic quality each leader needs to possess is being honest
to oneself in every situation. The best leaders are autonomous and indepen-
dent. Those who are over-sensitive to the needs of others are more prone to be
beaten by opposite interests, to stray from their chosen course or be reluctant to
make tough decisions in fear of offending others. In order to be effective leaders,
authentic leaders first need to discover the purpose of their leadership. If they
fail to do it, they will find themselves in the grip of their own ego and narcissis-
tic needs. Acquisition of these characteristics is not a sequential process, every
leader develops them throughout life.
George himself (2003) gave a description of the traits of an authentic leader,
thus touching on the story of an authentic personality, a construct which psy-
chologists of many different orientations (humanist, existentialist, positive psy-
chology) are trying to define more clearly.
In the person-directed concept, authenticity was defined as a three-part
construct by Barrett-Lennard (1998, p. 82) who emphasizes the balance be-
tween the three levels of a person – (a) personal experience (the real SELF,
including the current emotional state and beliefs), (b) symbolic consciousness
(experience represented in the cognitive sphere) and (c) external behaviors and
communication. The first aspect of authenticity (self-alienation) includes the in-
evitable inconsistency between the consciousness and the current experience.
Perfect harmonization between these types of experience is not possible and
the extent to which a person experiences self-alienation in the relation between
consciousness and the current experience (true SELF) by shaping the first as- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
pect of authenticity leads to psychopathology. The second aspect of authenticity
(authentic living) involves harmonization between one’s consciously perceived
experience and behavior. Authentic living implies behavior and expressing emo-
tions in a way consistent with the conscience of psychological states, emotions,
beliefs and thoughts. In other words, authentic living means being honest to
oneself in most situations and living in accordance with one’s own values and
beliefs. The third aspect of authenticity (accepting the external influence) involves
the extent to which one accepts the influence of others and the belief that one
needs to adjust to other people’s expectations. People are basically sociable be-
ings, and thus both self-alienation and authentic living fall under the influence
of the environment. Accepting other people’s perspectives and accepting exter-
nal influence affects both one’s feeling of self-alienation and the experience of
153
authentic living. Taking all of these together – self-alienation, authentic living
and the acceptance of external influence creates the three-part construct and a
person-oriented perspective of authenticity which offers the widest and clearest
explanation of authenticity.
In this article, the author describes the research aimed at determining the
potential of students for authentic leadership and the relation between their
authentic personality and their potential for authentic leadership.
METHODOLOGY
The aim of this research was to determine potential of students for authentic
leadership and relation between their authentic personality and potential for
authentic leadership.
The sample was consisted of students (N=133) from Serbia (male – 59%
and female – 41%). The average age of students was M=21.9.
Instruments used were Authenticity Scale (Wood et al., 2008) and Au-
thentic Leadership Self-Assessment Questionnaire (ALQ – Walumbwa et al.,
2008).
Authenticity scale had three subscales – authentic living, accepting external
influence and self-alienation.
Authentic Leadership Self-Assessment Questionnaire had four subscales
– self-awareness, internalized moral perspective, balanced processing and rela-
tional transparency.
Results shown in Table 1 show that students are authentic personalities –
M=43.16 (with theoretical range of scores from 12 to 84).
Table 1. Authenticity Scale

N Minimum Maximum AS SD
Scale Authentic personality 133 23 67 43,16 7,79
Authentic living 133 4 28 22,84 4,39
Subscales Accepting external influence 133 4 28 10,25 4,86
Self-alienation 133 4 28 10,07 5,15
154
Students achieved best scores on the subscale Authentic living, which im-
plies that they are honest to themselves in most situations and that they live in
accordance to their own values and beliefs.
Table 2. Authentic leadership Scale

N Minimum Maximum AS SD
Scale Authentic leadership 133 36 74 57,41 7,61
Self-awareness 133 8 20 14,91 2,73
Balanced processing of information 133 4 20 13,17 2,97
Subscales
Relational transparency 133 6 20 14,05 3,05
Internalized moral perspective 133 8 20 14,88 2,62
Results achieved on the scale of authentic leadership in Table 2 show that

students have the potential for authentic leadership – M=57.41 (with theoreti-
cal range of scores from 16 to 80). They achieved the highest score on the sub-
scale Self-awareness, which implies the existence of a continuous process dur-
ing which a student develops their conscience and understanding of their own
talents, strengths, purpose, values, beliefs and desires. Students also achieved a
high score on the subscale of Internalized moral perspective characterized by
highly ethical standards which affect their decision making and behavior.
Table 3. The results of linear regression with the criterion of authentic leadership
B SE b
Authentic personality -,037 .09 -,038 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
2
Note: R = .001, F(1, 132)=,168, p< .05
Linear regression analysis (Table 3) shows that the students’ authentic per-
sonality is not a predictor of authentic leadership. Even though authenticity is
a concept which stands at the foundation of both constructs, statistic analysis
shows that they do not necessarily have a causal connection.
155
Table 4. Pearson’s correlation coefficient
Balanced Internalized Accepting
Self- Relational Authentic Self-
processing of moral the external
awareness transparency living alienation
information perspective influence
Self-awareness 1 ,229** ,388** ,355** ,360** -,126 -,275**
Balanced
processing of ,229** 1 ,351** ,081 ,060 ,022 -,136
information
Relational
,388** ,351** 1 ,235** ,194* ,013 -,167
transparency
Internalized
moral ,355** ,081 ,235** 1 ,378** -,178* -,311**
perspective
Authentic living ,360** ,060 ,194* ,378** 1 -,251** -,40**
Accepting
the external -,126 ,022 ,013 -,178* -,251** 1 ,502**

influence
Self-alienation -,275** -,136 -,167 -,311** -,40** ,502** 1
*p< .05 **p< .01

Pearson’s correlation coefficient represented in Table 4 shows that there exist
statistically significant correlations between some (most) subscales of authentic
personality and authentic leadership.
It is interesting to notice that balanced processing of information which im-
plies making decisions based on personal beliefs is not connected to personal
ethical standards or any other indicator of authentic personality (authentic liv-
ing, accepting external influence, self-alienation). Also, relational transparency
is not statistically significantly connected to either accepting external influence
or the feeling of self-alienation as indicators of an authentic personality. There-
fore, the connection between balanced processing of information and relational
transparency is statistically significant (p< .01).
Based on these results, we can conclude that students as future authentic lead-
ers would rely on the following when making decisions: their personal beliefs (self-
awareness) and opinion of their close colleagues (relational transparency), where-
as they are still not ready for conformism, i.e. non-critical adjusting to common
norms (accepting external influence). It is important for them as authentic leaders
to maintain their creativity, leadership, activism, independence and self-respect
oriented towards change and progress (without the feeling of self-alienation).
This article describes a research aimed at determining the students’ potential
for authentic leadership and the relation between their authentic personality
156
and their potential for authentic leadership. The research sample consisted of
students from Serbia (N=133). Average age of respondents was M=21.
The results showed that students are authentic personalities, that they are
honest to themselves in most situations and that they live in accordance with
their own values, with the highest scores achieved on the subscales expressing
their clear self-awareness and moral perspective.
Even though the results show that an authentic personality is not a predictor
for authentic leadership, the analysis of Pearson’s correlation coefficient showed
that most subscales of authentic personality and authentic leadership are in a
statistically significant correlation. Furthermore, the results show that students
as future authentic leaders are not ready for conformism, i.e. non-critical ad-
justing to common group norms (accepting external influence). It is important
for them as authentic leaders to maintain their creativity, leadership, activism,
independence and self-respect oriented towards change and progress (without
the feeling of self-alienation).
All of these results can be viewed as a confirmation of the model of authentic
leadership suggested by Avolio and Gardner (2005) as well as the characteristics
of the person of authentic leadership suggested by George (2003). The research
described in the article confirms the model of authentic leadership suggested
by Avolio and Gardner (2005). According to that model, basic components of
authentic leadership are self-awareness and self-regulation which involves bal-
anced processing of information, relational transparency and internalized moral
perspective. Students achieved high scores on each of these subscales of the
scale of Authentic leadership (ALQ – Walumbwa et al., 2008), thus confirming INTERDISCIPLINARY MANAGEMENT RESEARCH XI
the suggested model of authentic leadership.

The research described also confirmed the characteristics of the personal-
ity of authentic leadership suggested by George (2003). In his view, authentic
leaders are committed to their personal development, since they know very well
that leadership demands lifelong growth and development. The basic quality
each leader needs to possess is to be honest to themselves in each situation. The
best leaders are autonomous and independent. This claim is used to point out
the authentic personality (self-alienation, authentic living and accepting exter-
nal influence) as an important segment of authentic leadership (self-awareness
and self-control). The students involved in the research showed that they are
authentic personalities and that they have the potential for authentic leadership.
157
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158
RELATION OF LEADERSHIP
AND BUSINESS PERFORMANCE:
BALANCED SCORECARD
PERSPECTIVE
mr. sc. Ivan MILOLOŽA

Munja d.d., Koledovčina 3, HR – 10000 Zagreb, Croatia
ivan.miloloza@munja.hr; ivan.miloloza1@gmail.com
Abstract
Leadership is a major factor of managing the companies during the
change, but also throughout the problem, because only a leader is capable
of creating an environment in which his co-workers are encouraged to
be leaders and to cooperate and develop, thus contributing to the de-
velopment of companies. Leadership obviously contributes to business
performance. The goal of this paper is to investigate the relationship of
leadership and performance of the companies measured by the Balanced
Scorecard Approach. In order to attain this goal, a survey has been con-
ducted on the sample of Croatian companies. The results of the research
indicate that authoritarian leadership style has in general a negative effect on
business performance of Croatian companies, while democratic leadership style INTERDISCIPLINARY MANAGEMENT RESEARCH XI
has in general a positive effect. The impact of laissez-faire leadership style was
mostly neutral. Further research should focus on the impact of leadership style
on business performance of companies with various characteristics, e.g. differ-
ent stages of their development.
Keywords: Leadership, SME, international business, business performance,
Balanced Scorecard
JEL Classification: M11, M12, M199
159
1. INTRODUCTION
Leadership is one of the functions of management, but also the most im-
portant, because the success of the entire top management depends on process
of leadership (Sikavica and Bahtijarević-Šiber, 2004). Management involves di-
recting others to the execution of the tasks, while leadership is the process of
influencing others who need to perform a specific task, but also includes their
willingness to follow the leader (Bahtijarević Siber et al, 2008). Leading and
following a leader are connected to each other, because leaders must achieve
a positive relationship with their followers in order to influence on them and
Ivan Miloloža: RELATION OF LEADERSHIP AND BUSINESS PERFORMANCE: BALANCED SCORECARD PERSPECTIVE
guide them towards the achievement of the objectives (Hollander, 1995; Sika-
vica et al, 2008).
In today’s business environment of rapid change and to adapting to interna-
tional markets, leadership is needed to change or adapt to new business situa-
tions (Bennis, 2007; Matic, 2004b; Matic and Vouk, 2005). Today, companies
are most focused on customers, employees and the constant innovations in or-
der to compete with their competitors and to be able to successfully respond to
requests from the environment (Verhoef, 2003; Matic, 2004a; Miloloža, 2013;
Carnall, 1990).
Previous studies have shown that leadership affects the success of the com-
pany, but it has not been sufficiently studied the impact of leadership on the
success of the company, if the same has been measured with the system of bal-
anced scorecard. Therefore, the subject of this paper is the impact of leadership
on the performance of companies measured by a system of balanced scorecard
in the Republic of Croatia.
2. LITERATURE REVIEW
The basic models of leadership
Leadership is a process of influence on people, and because each person is
different so there are more models of leadership (Stogdill, 1948; Gagné and
Deci, 2005). Depending on the industry in which the company is located, but
also on the characteristics of employees we can identify varies types based on
leadership qualities and the behavior of leaders, contingency approach to lead-
ership and some new approaches to leadership models (Korman, 1973; Podsa-
koff et al, 1995).
160
Leadership based on the characteristics of leaders accepts the theory that
leaders are born, or that the leadership is genetically predetermined. As desir-
able leadership qualities can be highlighted: an independent spirit, self-esteem
and respect for others, efficiently and effectively master new tasks and willing-
ness for rapid change, a willingness to learn new, pleasant private life, especially
the ability to communicate with new people (Levitsky, 1998; Palmer Wood-
ward, 2007).
Leadership based on the behavior of leaders involves several types: leader-
ship based on the use of authority, Likert systems of leadership, leadership -
oriented tasks, a continuum of leadership (Bahtijarević et al., 2008). Leadership
based on the use of authority includes three basic styles: autocratic and demo-
cratic leader and leader of the free hand (Mullins, 2005). Autocratic leader is
a person who manages other people with system of rewards and punishments,
communicates by ordering and command and asks submission of the associ-
ates. Democratic leaders cooperate closely with associates and encourage their
participation in the design and implementation of decisions. The leader of the
free hand (laissez faire) almost entirely left to the associates autonomy and in-
dependence in their work.
It is important to highlight Likert four degrees of leadership that are most-
ly based on motivation and communication between co-workers and leaders
(Yousef, 2000). Extremely - authoritative leaders used fear and punishment to
subordinates, as well as awards in certain situations and does not allow any
independent decision - making. Benevolently - authoritarian leader usually uses
with rewards to motivate associates, accepts the idea of co - workers as well as INTERDISCIPLINARY MANAGEMENT RESEARCH XI
decision - making. The consultative leader quite believes to its subordinates and
to some extent used their ideas and knowledge. Participatory joint - leaders fully
believes to its associates, accept their ideas and encourages a system of rewards
and communicate with each other. Research has shown that the most successful
companies are those in which the process of leadership involves participatory
- joint leader (Chen and Tjosvold, 2006; Huang et al, 2010). Given the com-
plexity of the company and the business it is impossible to use only one style of
leadership and a combination of several styles contributes most to the success of
teams and achieving targets (Ranganayakulu, 2005). Continuity of leadership
involves the application of a certain type of leadership, and selection of the best
leadership to a particular situation (Tannenbaum and Schmidt, 1973).
161
Contingency approach to leadership involves a leader who is heavily influ-
enced by the situation in which it is located and which must be adjusted. Such an
approach to leadership emphasizes that people do not become leaders because
of its characteristics, but because of the situation they are in and which requires
their actions (Buble, 2009). These models of leadership have their advantages
and disadvantages, which means that the leaders must adapt its characteristics,
the characteristics of its associates, but also a situation in which they are located
so that they can successfully lead a team toward achieving the strategic goals of
the company. In addition to the above models there are new approaches to the
leadership as transformational leadership, charismatic leadership, systematic
leadership, transactional leadership (Buble, 2009; Stewart, 2006).

An experienced leader who possesses the skills, knowledge and capabilities
needed to run a team is very important in very challenging international busi-
ness (Matic and Lazibat, 2001; Matic and others, 2010). The leaders are a key
factor in solving the problems and conflicts in international business thus con-
tributing to achieving the goals and a long-term success (Zorlu and Hacıoğlu,
2012). Multinational companies operating in different parts of the world are
facing problems because of cultural differences and business practices specific to
each country. It is the task of leaders to reduce those differences in international
business and align employees’ performance with respect to different business
cultures within the same company (Peterson and Hunt, 1997).
Measuring the performance of the company with a system of

balanced scorecard
Today’s business environment has been characterized by rapid change and
adaptation to market conditions, and the companies, unless they need to achieve
competitive advantage and success over the competition, should measure suc-
cess in achieving strategic goals. The system of balanced scorecard proved to be
a very effective instrument for the measurement and evaluation of performance
in order to improve the efficiency of company management (Sekso, 2011).
The system of balanced scorecard was developed by professors at Harvard
University in the 1990s of the last century (Kaplan and Norton, 1996). Their
intention was to establish a way of measuring the achieved results and their
comparison with the plan in order to monitor the success of the business. It is
important to point out that the system of balanced scorecard derived from the
162
company’s strategy and how it is used to synchronize the financial results ob-
tained with planned results in the future. Companies that have not developed a
business strategy, as well as those who have a strategy, but it is not implemented
or not exercising, cannot use the method of performance measurement with
system of balanced scorecard (Niven, 2007).
The system of balanced scorecard involves four perspectives that are studied
at the same time when measuring the performance of the company: custom-
ers, internal processes, finances and employee learning and growth (Lončarević,
2006). The financial perspective is a key factor contributing to the success of the
company and it is the result of activities of the other three non - financial per-
spectives. Clients represent a strategic orientation of the business management.
In addition to retaining existing customers it is important to constantly be look-
ing for new clients. Satisfied and loyal customers greatly contribute to the suc-
cess of the company. Internal processes represent the possibility of growth and
development of the business. Internal processes include improvement of exist-
ing business processes, but also the introduction of innovative ways of doing
business. Learning and growth of employees involves training skills and knowl-
edge of employees, encouraging their motivation, includes the possibility of the
information system, but also creates a work environment conducive to success.
The application of the system of balanced scorecards and achieve success within
all four perspectives greatly leads to changes in the structure and organizational
culture, as it moves from the present to the desired future of the organization
(Sikavica and Novak, 1999).
3. METHODOLOGY
Research unit is a company registered in Croatia, and the population is a set
of all such companies. The frame of choice is a database of the Croatian Cham-
ber of Commerce, from which it will randomly select a sample of companies.
Respondent is a president or member of the management of the company, in
which case the companies has been previously contacted by telephone in order
to establish contact and explain the purpose, but also the confidentiality of re-
search results, as well as their exclusive use for scientific purposes. The survey
was conducted on a stratified sample of Total 60 companies divided into six
sub-samples. Of that: (1) 10 small and medium-sized companies in the growth
phase (code subsamples: SME growth); (2) 10 small and medium-sized compa-
163
nies in the maturity stage (code subsamples: SME-maturity); (3) 10 small and
medium-sized enterprises in the phase of stagnation (Code sub-samples: SMEs
stagnation); (4) 10 large companies in the growth phase (code subsamples:
Large-growth); (5) 10 large companies in the maturity stage (code subsamples:
Large-growth) and (6) 10 large companies in the phase of stagnation (Code
sub-samples: Large-stagnation).
Styles of leadership in organizations from the sample were measured using a
questionnaire attached to this paper which are measured, using specific claims,
autocratic, democratic and laissez-faire leadership style. The Leadership Styles
Questionnaire was taken from Northouse (2012). Respondents expressed on a

scale of 1 to 5 the extent to which they agree with each statement.
Claims that measure the presence of an autocratic leadership style are:
• L 1. Employees need to be supervised closely, or they are not likely to do
their work.
• L 4. It is fair to say that most employees in the general population are lazy.
• L 7. As a rule, employees must be given rewards or punishments in order
to motivate them to achieve organizational objectives.
• L 10. Most employees feel insecure about their work and need direction.
• L 13. The leader is the chief judge of the achievements of the members of
the group.
• L 16. Effective leaders give orders and clarify procedures.
Claims that measure the presence of a democratic leadership style are:
• L 2. Employees want to be a part of the decision-making process.
• L 5. Providing guidance without pressure is the key to being a good leader.
• L 8. Most workers want frequent and supportive communication from
their leaders.
• L 11. Leaders need to help subordinates accept responsibility for complet-
ing their work.
• L 14. It is the leader’s job to help subordinates find their “passion.”
• L 17. People are basically competent and if given a task will do a good job.
Claims that measure the presence of laissez-faire leadership style are:
• L 3. In complex situations, leaders should let subordinates work problems
out on their own.
• L 6. Leadership requires staying out of the way of subordinates as they do
their work.
164
• L 9. As a rule, leaders should allow subordinates to appraise their own
work.
• L 12. Leaders should give subordinates complete freedom to solve prob-
lems on their own.
• L 15. In most situations, workers prefer little input from the leader.
• L 18. In general, it is best to leave subordinates alone.
Measuring the success of organizations in the sample:

Measuring the success of organizations in the sample was conducted using
a questionnaire which measures the performance of the company relative to its
competitors in the principal activity, with respect to financial, process, market
dimension to the success and the success of knowledge management. Respon-
dents expressed on a scale of 1 to 5 the extent to which they agree with the state-
ment that their company is better than the competition in the sector.
Dimensions of financial success are:
• F1. Profitability
• F2. Actual profit
• F3. Return on Investment
Dimensions of market success are:
• T1. Customer satisfaction
• T2. Market share
• T3. Quality of products / services
Dimensions process success are: INTERDISCIPLINARY MANAGEMENT RESEARCH XI
• P1. The efficiency of internal processes

• P2. Innovation of products / services
• P3. Innovating internal processes
Dimensions success of knowledge management are:
• Z1. Employee competence
• Z2. Application of new technologies
• Z 3. Organizational climate
Data collected by primary research has been analyzed by the correlation
analysis where examined the correlation between some variables which mea-
sure a certain style of leadership and individual variables that measure the
success of company with system of balanced scorecards.
165
4. RESEARCH RESULT
.. Description of the Sample
Table 1 shows the analyzed companies from the sample by the year of es-
tablishment. Approximately the same number of enterprises was established
before 1945 (8) and after 2000 (6). The largest number of companies was es-
tablished in the period of the 1991st to 2000th years (24).
Table 1. Companies in the sample by the year of establishment
Company was founded Number Structure in % Cumulative %
< 1945 8 13,3 13,3

1946-1990 22 36,7 50,0
1991-2000 24 40,0 90,0
2000 > 6 10,0 100,0
Total 60 100,0
Source: Research of the author, May, 2014
Table 2 shows the number of companies with respect to the number of em-
ployees. Of the total number of enterprises (60) half employs more than 250
people. Approximately the same number of companies that have 50 employees
(16) and 51-250 employees (14).
Table 2. Distribution of the frequency of the sample companies according to

the number of employees
Number of employees Number Structure in % Cumulative %
< 50 16 26,7 26,7
51-250 14 23,3 50,0
>250 30 50,0 100,0
Total 60 100,0
Source: Research of the author, May, 2014
Table 3 shows the number of companies by activity. The minimum num-

ber of companies (1) is represented in the following activities: C - Mining and
quarrying, E - supply an electric power, gas and water supply, and Q - Extra-
territorial organizations and bodies. A third of companies (20) is represented in
D – Processing Industry. In most activities, are represented by two companies:
I - Transport, storage and communication, J - Financial intermediation, M -
Education and N - Health and social care.
166
Table 3. Number of companies by activity
Industry Number Structure in % Cumulative %
A - Agriculture, hunting and forestry 9 15,0 15,0
C - Mining and quarrying 1 1,7 16,7
D - Processing Industry 20 33,3 50,0
E - Electricity, gas and water supply 1 1,7 51,7
F - Construction 4 6,7 58,3
G - Wholesale and retail trade; repair of motor vehicles and
3 5,0 63,3
motorcycles and personal and household goods
H - Hotels and restaurants 5 8,3 71,7
I - Transport, storage and communication 2 3,3 75,0
J - financial intermediation 2 3,3 78,3
K - Real estate, renting and business activities 4 6,7 85,0
M - Education 2 3,3 88,3
N - Health and social care 2 3,3 91,7
O - Other community, social and personal service activities 4 6,7 98,3
Q - Extra-territorial organizations and bodies 1 1,7 100,0
Total 60 100
Source: Research of an Author, May, 2014
Table 4 shows the number of companies by ownership. Most of the ana-

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

The majority ownership of companies Number Structure in % Cumulative %
Majority locally 47 78,3 78,3
Majority foreign 9 15,0 93,3
Majority state 4 6,7 100,0
Total 60 100,0
.. Analysis of leadership in all businesses together

Table 5 shows the answers of respondents, managers board members, ques-
tions which are evaluated to what extent you agree with the views that reflect
the autocratic style of leadership. It May be noted that the respondents largely
167
agree with particles L7. The rule is that employees should be rewarded or punished
in order to motivate them to achieve company goals (average score 4.12) and L13.
A superior is the one who should evaluate the extent to which employees achieve goals
(average score 4.10). Respondents are at least agreeing with particle L4. It is fair
to say that the majority of employees, generally in the population, is lazy (average
score 1.75). Standard deviations are in the range 0.77 to 1.40, based on which it
concludes that the average grades are representative.
Table 5. The presence of an autocratic style of leadership in all businesses

together
N Min Max Average St. dev.

L 1. Employees need to be supervised closely, or they are not likely to
60 1 5 2,65 1,23
do their work.
L 4. It is fair to say that most employees in the general population are
60 1 5 1,75 1,07
lazy.
L 7. As a rule, employees must be given rewards or punishments in
60 1 5 4,12 1,01
order to motivate them to achieve organizational objectives.
L 10. Most employees feel insecure about their work and need
60 1 5 2,62 1,11
direction.
L 13. The leader is the chief judge of the achievements of the
60 2 5 4,10 0,77
members of the group.
L 16. Effective leaders give orders and clarify procedures. 60 1 5 2,85 1,40

the democratic style of leadership. It May be noted that the respondents largely
agree with particles L 11. Superior should help their subordinates to accept respon-
sibility for the performance of their jobs (average score 4.32) and L8. Most em-
ployees want to frequent and friendly communication with their superiors (average
score 4.18). Respondents are at least agreeing with particle L 14. The task of
the superior is to assist employees’ favorite part of the job “(average score 3.65).
Standard deviations are in the range 0.72 to 1.01, based on which it concludes
that the average grade representative.
168
Table 6. The presence of a democratic style of leadership in all businesses
together
N Min Max Average St. dev.
L 2. Employees want to be a part of the decision-making process. 60 2 5 4,05 0,79
L 5. Providing guidance without pressure is the key to being a good
60 2 5 4,00 1,01
leader.
L 8. Most workers want frequent and supportive communication from
60 2 5 4,18 0,72
their leaders.
L 11. Leaders need to help subordinates accept responsibility for
60 2 5 4,32 0,77
completing their work.
L 14. It is the leader’s job to help subordinates find their “passion.” 60 1 5 3,23 0,89
L 17. People are basically competent and if given a task will do a
60 2 5 3,65 0,86
good job.

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

together
N Min Max Average St.dev.
L 3. In complex situations, leaders should let subordinates work
60 1 5 2,78 1,33
problems out on their own.
L 6. Leadership requires staying out of the way of subordinates as
60 1 5 3,02 1,03
they do their work.
L 9. As a rule, leaders should allow subordinates to appraise their own
60 1 5 2,77 1,05
work.
L 12. Leaders should give subordinates complete freedom to solve
60 1 5 2,90 1,15
problems on their own.
L 15. In most situations, workers prefer little input from the leader. 60 1 5 2,97 1,07
L 18. In general, it is best to leave subordinates alone. 60 1 5 3,17 1,12
169
.. The success of the company measured by a system of
balanced scorecard
Table 8 shows the answers of respondents, manager board members, ques-
tions which evaluated the performance of all companies along the measured
system of balanced scorecards while comparing the mean of answers from all
companies. It May be noted that respondents from all companies are considered
to be equally important particles F1. Profitability, F2. Realized gains and F3.
Return on investment within the dimensions of financial performance (average
score 3.50). Within the dimensions of market performance of participants of
all companies are most consistent with two particles (T1. Customer satisfaction
and T3. The quality of products / services; average score 4.20). Respondents
are most agree with particle P2. Innovation of products / services within the
dimensions of process performance (average score 4:00). Respondents from all
companies are considered to be equally important particles Z1. Staff competen-
cy, Z2. Application of new technologies and Z3. Organizational climate within
the dimensions of Knowledge and employees (average score 2.4).
Comparing these dimensions, it can be concluded that respondents largely
agree with particles T1. Customer satisfaction and T3. Quality of products
/ services (average score 4.20) within the dimensions of market performance
until at least agree with particle F3. Return on investment within the dimen-
sions of financial performance (average score 3.52). For particles in the all four
dimensions of the performance, the standard deviations are in the range from
0.62 to 1.03, based on which it is concluded that the average score is representa-
tive. For all groups of indicators by dimensions of success, Cronbach’s alpha is
greater than or approximately 0.7, indicating their consistency.
170
Table 8. The success of all businesses together measured with system of bal-
anced scorecard
N Min Max Average St.dev. Cronbach’s alpha
Financial success
F1. Profitability 60 2 5 3,533 0,833
F2. Actual Profit 60 2 5 3,500 0,893 0,825
F3. Return of the Investment 60 2 5 3,517 0,930
Market success
T1. Customer satisfaction 60 2 5 4,200 0,684
T2. Market Share 60 1 5 3,883 1,027 0,710
T3. Quality of the product / service 60 2 5 4,200 0,755
Process success
P1. The efficiency of internal processes 60 2 5 3,767 0,767
P2. Innovation of products / services 60 2 5 4,000 0,781 0,717
P3. Innovating internal processes 60 1 5 3,833 0,886
Success of knowledge management
Z1. Employee competence 60 3 5 4,017 0,624
Z2. Application of new technologies 60 2 5 4,017 0,854 0,679
Z3. Organizational climate 60 2 5 4,017 0,748
Table 9 shows the average value of the success measured with system of
balanced scorecard for all companies together. Highest average grade is for the
dimension Market (4.094), and dimension Finance (3.517) has the lowest av-
erage grade. Standard deviations are in the range 0.58 to 0.76, based on which
it concludes that the average grade representative. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Table 9. Average values by measuring the success with a system of balanced

scorecard for all companies together
N Min Max Average St.dev.
Financial average score 60 2,000 5,000 3,517 0,763
Market average score 60 2,333 5,000 4,094 0,664
Process average score 60 2,000 5,000 3,867 0,650
Knowledge average score 60 2,333 5,000 4,017 0,584
171
.. Correlations
Table 10 presents Spearman correlation analysis of the authoritarian leader-
ship style and BSC. Companies in which managers believe that „It is fair to say
that most employees in the general population are lazy” (L4) has lower results
in knowledge average score as well as in the indicator Z2. Implementation of
new technologies (as indicated by the negative correlation coefficient). Compa-
nies in which managers believe that „Most employees feel insecure about their
work and need direction.” (L10) has lower results in following indicators T2,
T3, Z1, Z2, and Z3, as well as market average score and knowledge average
score (as indicated by the negative correlation coefficient).
Table 10. Spearman correlation analysis of the Authoritarian leadership style

and BSC indicators
Spearman Authoritarian leadership style
BSC indicators
correlation analysis L1 L4 L7 L10 L13 L16
F1 Corr Coefficient -0,046 0,031 0,083 -0,096 0,205 0,144
Sig. (2-tailed) 0,725 0,816 0,530 0,467 0,116 0,272
F2 Corr Coefficient 0,013 0,002 0,111 -0,134 0,074 0,173
Sig. (2-tailed) 0,920 0,987 0,398 0,307 0,576 0,187
F3 Corr Coefficient 0,059 -0,043 0,059 -0,212 0,073 -0,058
Sig. (2-tailed) 0,656 0,746 0,657 0,104 0,582 0,661
T1 Corr Coefficient 0,140 -0,032 0,128 -0,224 0,228 -0,072
Sig. (2-tailed) 0,287 0,809 0,329 0,085 0,079 0,585
T2 Corr Coefficient -0,091 -0,199 -0,008 -0,319(*) 0,198 0,043
Sig. (2-tailed) 0,488 0,127 0,950 0,013 0,129 0,744
T3 Corr Coefficient 0,151 0,082 -0,179 -0,267(*) 0,152 -0,027
Sig. (2-tailed) 0,250 0,531 0,172 0,039 0,245 0,841
P1 Corr Coefficient 0,108 -0,056 0,159 0,046 0,023 0,113
Sig. (2-tailed) 0,412 0,671 0,225 0,729 0,859 0,391
P2 Corr Coefficient 0,077 -0,196 -0,099 -0,166 -0,032 -0,049
Sig. (2-tailed) 0,556 0,133 0,451 0,205 0,81 0,713
P3 Corr Coefficient -0,066 -0,169 0,088 -0,13 -0,07 -0,055
Sig. (2-tailed) 0,619 0,197 0,505 0,324 0,595 0,679
Z1 Corr Coefficient -0,209 -0,126 0,091 -0,306(*) -0,042 -0,097
Sig. (2-tailed) 0,110 0,337 0,490 0,017 0,752 0,459
Z2 Corr Coefficient -0,052 -0,499(**) -0,067 -0,302(*) 0,095 -0,07
Sig. (2-tailed) 0,693 0,000 0,613 0,019 0,469 0,597
172
Z3 Corr Coefficient -0,142 -0,124 0,048 -0,348(**) 0,105 0,079
Sig. (2-tailed) 0,278 0,346 0,714 0,006 0,427 0,548
Financial average Corr Coefficient 0,020 -0,011 0,115 -0,191 0,136 0,083
score Sig. (2-tailed) 0,877 0,935 0,381 0,144 0,299 0,528
Market average Corr Coefficient 0,022 -0,101 -0,050 -0,355(**) 0,262(*) -0,014
score Sig. (2-tailed) 0,867 0,442 0,705 0,005 0,044 0,914
Process average Corr Coefficient 0,049 -0,148 0,041 -0,102 -0,04 -0,006
score Sig. (2-tailed) 0,710 0,259 0,757 0,44 0,759 0,964
Knowledge Corr Coefficient -0,148 -0,327(*) 0,000 -0,410(**) 0,069 -0,031
average score Sig. (2-tailed) 0,259 0,011 0,998 0,001 0,602 0,812
Total number of positive and
-0/+0 -2/+0 -0/+0 -7/+0 -0/+0 -0/+0
negative correlations
Note: * statistically significant at 5%, ** statistically significant at 1%
Table 11. presents Spearman correlation analysis of the democratic leader-

ship style and BSC. Companies in which managers believe that Employees
want to be a part of the decision-making process (L2) also have higher score
of F2 (as indicated by the positive correlation coefficient). Companies in which
managers believe that Providing guidance without pressure is the key to being a
good leader (L5) also have higher score of Z2 (as indicated by the positive cor-
relation coefficient). Companies in which managers believe that Leaders need
to help subordinates accept responsibility for completing their work. (L11) also
have higher score of P2 (as indicated by the positive correlation coefficient).
Finally, companies in which managers believe that It is the leader’s job to help
subordinates find their “passion.” (L14) also have higher score of F1, F2, and
Financial average score (as indicated by the positive correlation coefficient). INTERDISCIPLINARY MANAGEMENT RESEARCH XI
173
Table 11. Spearman correlation analysis of the Democratic leadership style and
BSC indicators
BSC Spearman Democratic leadership style
indicators correlation analysis L2 L5 L8 L11 L14 L17
F1 Corr Coefficient 0,073 -0,081 0,119 0,126 0,305(*) -0,03
Sig. (2-tailed) 0,578 0,538 0,363 0,339 0,018 0,821
F2 Corr Coefficient 0,264(*) 0,155 0,183 0,051 0,374(**) 0,036
Sig. (2-tailed) 0,041 0,238 0,162 0,699 0,003 0,786
F3 Corr Coefficient 0,023 -0,02 0,016 0,091 0,075 -0,063
Sig. (2-tailed) 0,862 0,878 0,904 0,488 0,571 0,632

T1 Corr Coefficient 0,131 0,089 -0,001 0,182 0,066 -0,035
Sig. (2-tailed) 0,318 0,498 0,993 0,164 0,617 0,788
T2 Corr Coefficient 0,061 -0,119 0,015 0,205 -0,033 0,185
Sig. (2-tailed) 0,644 0,366 0,911 0,116 0,803 0,157
T3 Corr Coefficient 0,082 -0,106 -0,113 0,079 -0,067 0,004
Sig. (2-tailed) 0,532 0,419 0,391 0,548 0,611 0,976
P1 Corr Coefficient 0,166 -0,009 0,047 -0,034 0,253 -0,082
Sig. (2-tailed) 0,206 0,946 0,72 0,795 0,051 0,534
P2 Corr Coefficient 0,100 -0,134 -0,039 0,258(*) -0,012 -0,139
Sig. (2-tailed) 0,447 0,307 0,768 0,046 0,927 0,288
P3 Corr Coefficient 0,244 -0,006 0,089 -0,049 0,027 -0,192
Sig. (2-tailed) 0,060 0,963 0,497 0,708 0,837 0,141
Z1 Corr Coefficient 0,166 0,273(*) 0,048 0,043 -0,142 -0,098
Sig. (2-tailed) 0,206 0,035 0,718 0,742 0,28 0,458
Z2 Corr Coefficient 0,046 0,189 0,032 0,062 -0,143 0,12
Sig. (2-tailed) 0,728 0,149 0,811 0,641 0,277 0,359
Z3 Corr Coefficient 0,036 0,179 0,094 -0,117 -0,113 -0,117
Sig. (2-tailed) 0,787 0,170 0,474 0,372 0,388 0,372
Financial Corr Coefficient 0,149 0,015 0,094 0,106 0,278(*) 0,001
Market Corr Coefficient 0,103 -0,076 0,000 0,234 -0,022 0,087
Process Corr Coefficient 0,206 -0,126 0,034 0,047 0,098 -0,191
Knowledge Corr Coefficient 0,068 0,277(*) 0,053 -0,067 -0,177 0,023
Total number of positive and
+1/-0 +2/-0 -0/+0 +1/-0 +3/-0 -0/+0
negative correlations
174
Table 12. presents Spearman correlation analysis of the Laissez-faire lead-
ership style and BSC. Companies in which managers believe that Leadership
requires staying out of the way of subordinates as they do their work. (L6) also
have lower score of P2 (as indicated by the negative correlation coefficient), but
int he same time higher score of Z3 (as indicated by the positive correlation
coefficient). Companies in which managers believe that as a rule, leaders should
allow subordinates to appraise their own work (L9) also have higher score of
T1 (as indicated by the positive correlation coefficient). Finally, companies in
which managers believe that in most situations, workers prefer little input from
the leader (L25) also have higher score of F3 (as indicated by the positive cor-
relation coefficient).
Table 12. Spearman correlation analysis of the Laissez-faire leadership style
and BSC indicators
Spearman Laissez-faire leadership style
BSC indicators
correlation analysis L3 L6 L9 L12 L15 L18
F1 Corr Coefficient -0,166 0 -0,149 -0,183 0,136 -0,141
Sig. (2-tailed) 0,206 1 0,256 0,161 0,299 0,283
F2 Corr Coefficient -0,18 -0,016 -0,142 -0,097 0,066 -0,15
Sig. (2-tailed) 0,168 0,906 0,28 0,462 0,618 0,253
F3 Corr Coefficient 0,029 -0,011 0,018 -0,191 0,365(**) -0,083
Sig. (2-tailed) 0,824 0,932 0,889 0,144 0,004 0,529
T1 Corr Coefficient -0,027 0,075 0,278(*) -0,152 -0,094 0,104
Sig. (2-tailed) 0,836 0,571 0,031 0,246 0,476 0,43
T2 Corr Coefficient -0,112 -0,077 0,167 -0,139 -0,090 -0,173
Sig. (2-tailed) 0,393 0,561 0,201 0,288 0,493 0,186 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
T3 Corr Coefficient -0,119 -0,072 0,06 -0,253 -0,042 -0,098
Sig. (2-tailed) 0,367 0,584 0,651 0,051 0,748 0,455
P1 Corr Coefficient -0,043 -0,02 0,041 -0,147 0,093 -0,03
Sig. (2-tailed) 0,745 0,881 0,758 0,262 0,480 0,820
P2 Corr Coefficient -0,082 -0,257(*) 0,007 -0,074 0,021 -0,172
Sig. (2-tailed) 0,536 0,047 0,959 0,572 0,874 0,188
P3 Corr Coefficient -0,035 -0,101 0,137 -0,17 0,186 0,095
Sig. (2-tailed) 0,789 0,444 0,297 0,195 0,156 0,47
Z1 Corr Coefficient 0,17 0,17 0,116 -0,166 0,073 0,155
Sig. (2-tailed) 0,193 0,195 0,379 0,206 0,579 0,238
Z2 Corr Coefficient -0,114 -0,153 0,085 -0,164 0,072 -0,064
Sig. (2-tailed) 0,387 0,244 0,516 0,21 0,584 0,627
175
Z3 Corr Coefficient 0,121 0,298(*) -0,028 -0,245 0,081 0,1
Sig. (2-tailed) 0,358 0,021 0,829 0,059 0,538 0,448
Financial average Corr Coefficient -0,127 -0,012 -0,086 -0,183 0,229 -0,155
score Sig. (2-tailed) 0,334 0,925 0,511 0,161 0,079 0,238
Market average Corr Coefficient -0,138 -0,057 0,159 -0,229 -0,143 -0,118
score Sig. (2-tailed) 0,293 0,665 0,226 0,079 0,277 0,369
Process average Corr Coefficient -0,056 -0,152 0,045 -0,156 0,131 -0,046
score Sig. (2-tailed) 0,668 0,247 0,733 0,235 0,318 0,727
Knowledge Corr Coefficient 0,071 0,12 0,067 -0,215 0,109 0,091
Total number of positive and negative

-0/+0 +1/-1 +1/-0 -0/+0 +1/-0 -0/+0
correlations
Table 13 provides the information on total number of statistically significant

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

ficients according to leadership style
Leadership style Total number of positive and negative correlations
Authoritarian -9/+0
Democratic +6/-0
Laissez-faire +3/-1
5. CONCLUSION
Leaders contribute to the success of the organization on several levels: man-
age change, directing associates, leading to the resolution of the set goals, en-
courage others to fully use their skills and abilities (Locke and Latham, 1990;
Turkalj and Mujić, 2002). The aim of this study was to investigate the impact of
leadership on the performance of companies measured with system of balanced
scorecard in the Republic of Croatia.
176
In order to achieve the goal of the paper, empirical research on a sample of
Croatian companies was carried out. As a unit of study is defined as a company
registered in Croatia, where the population includes a collection of all such com-
panies. Companies are selected randomly using the database of the Croatian
Chamber of Commerce as the framework of choice. Respondent was president
or a board member of the company, and the interviews were conducted on a
stratified sample of 60 companies, which was divided into six sub-samples with
respect to the size of the company (SMEs vs. large companies) and the stage of
development of the companies (leaders vs. followers). As a research instrument
a Leadership Styles Questionnaire was used taken from Northouse (2012).
Also a questionnaire was used which measures the performance of companies
with respect to the four dimensions: financial, process, market performance and
the success of knowledge management.
The results showed that there is a correlation between leadership styles and
corporate performance measured with the method of balanced scorecard. It is
possible to conclude that authoritarian leadership style has in general negative
effect to the business performance of the Croatian companies, especially in the
field of knowledge management performance. On the other hand democratic
leadership style has in general positive effect to the business performance of the
Croatian companies, especially in the field of financial performance, but also in
the field of process and knowledge management performance. Impact of laissez-
faire leadership style was the weakest. It can be concluded that it is necessary in
future research papers further investigate the impact of leadership on the com-
pany due to their size, stage of growth and international orientation.
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179
MANAGEMENT OF HUMAN
RESOURCES IN TOURISM
Sandra HERMAN, univ.spec.oec.

hermansandra1@gmail.com
Abstract
Topic of this paper is human resources management in tourism with the aim of
increasing the quality of products and services and achieving greater economic
effects and competitiveness on the tourist market.
Whereas products and services in tourism highly depend on quality human
labor, the task of human resources management is to ensure high quality man
labor, and encourage it by motivation, education as well as with the possibility
of career advancement to maximal efficiency, and retention within the business
sector.
The SWOT analysis in the paper shows all weaknesses and threats, but also
Sandra Herman: MANAGEMENT OF HUMAN RESOURCES IN TOURISM
strengths and opportunities for improvement of characteristics and qualities of

job positions in Croatian tourism.
Quality human resources management in tourism contributes to increase of
economic performances and competitiveness on the tourist market.
Keywords: tourism, human resources, management, quality, competitiveness
JEL Classification: L83, O1, O15
180
1. INTRODUCTION
Socio-economic and technically-technological changes in the world also in-
fluence the changes in tourism and the development of modern tourism from
the mass tourism to specific interest tourism. Tourism is employing the increas-
ing number of people and is of great economic significance for many countries
including Croatia. Tourism, being highly work intensive activity, has results
which are, for the most part, dependent on the quality of human resources. In
order to achieve and sustain optimal quality of work of every person working in
tourism it is necessary to manage people and their relationships within a work
organization, motivate them to work, educate them and evaluate their results
and accomplishments. Therefore it is important to manage them properly and
the management of all the employees in a company or an organization the re-
sponsible factor is the management of human resources.
Management of human resources is a complete and integrated system of
complex and interconnected initiatives, activities and tasks of the management
for purposes of ensuring an appropriate number and structure of employees,
their knowledge, skills, competence, interest, motivation and form of behav-
ior necessary to achieve current developmental and strategies objectives of the
organization, to achieve sustainable competitive advantage and organizational
success (Bahtijarević-Šiber; 2014,5). Human resources in a certain company
don’t only apply to the number of employees on specific and foreseen positions,
but it also applies to a wide range of knowledge, abilities, skills, competencies
as well as personal characteristics of each and every employee which with all
the above mentioned factors contributes to overall success of the company. All INTERDISCIPLINARY MANAGEMENT RESEARCH XI
thise knowledge, skills but also characteristics of every single employee as well
as the interrelationships of employees are the subject of human resources man-
agement. Activities and tasks of human resources management are as follows:
ensuring human potentials (planning, attracting and recruitment, selection,
arrangement), maintenance of human resources (security and health, organi-
zational culture, retention of employees, services to employees), motivation and
rewarding of human resources (monitoring and evaluation of work efficiency,
motivation, rewarding, benefits), professional training and development (edu-
cation and training, development of human resources, career advancement, de-
velopment of managers) (Bahtijarević-Šiber;2014,24).
181
The main objective of the human resources management is to ensure qual-
ity work force and provide it with stimulating work environment, training and
advancement because employee satisfaction contributes to increase in success
and competitiveness of the entire company, especially in tourism, because the
tourism is a work intensive activity in which its products and services are highly
based on the quality of human labor.
2. CHARACTERISTICS OF EMPLOYMENT AND

QUALITY OF JOB POSITIONS IN TOURISM
Tourism is an economic activity which generates the largest number of jobs.
As the success and results of work in tourism, for the most part, depend on
human resources, it is necessary to take into account quality and professional
work force which will be motivated to work and will contribute to success and
competitiveness of the company. However, as it has been stated, optimization
of tourism development will take place in the environment of the constant
counterpoint between the necessary increase of competitiveness which, among
other things also means the cost reduction, and work costs, and the expect-
ed increase in the employment which is important for standard growth and
overall improvement of the life quality for Croatian citizens (Bartoluci et al;
2007,29). These are the shortcomings of employment and quality of job posi-
tions in Croatian tourism. The main problems are incompetence, low wages,
insufficient motivation of employees, inability to advance and the accentuated
seasonality in employment along with the inability to become employed for the
unspecified amount of time. All of this often results in seasonal employment
of incompetent workers who are ready to work in difficult conditions for low
wages. This brings into question the quality of service in tourism, an economic
branch whose success and competitiveness is, for the most part, based on hu-
man resource.
In the following tables there are basic indicators of development of Croatian
tourism and employment in tourism based on the data of the National institute
for statistics and Croatian employment service, processed by the Institute for
economics and the Ministry of tourism.
182
Table 1. Basic indicators of development of tourism in Croatia
2008. 2009. 2010. 2011. 2012.
Number of overnight stays
57,1 56,3 56,4 60,4 62,7
(in mil.)
Profit from tourism (in billions
7,5 6,4 6,2 6,6 6,8
of EUR)
Share of the activity in the
3,7 3,8 3,9 4,1 4,1
GDP (in %)
Share of employees (% of the
6,0 5,9 6,0 6,0 6,1
total number)
Unit labor cost (kn per 1.000
544,56 527,70 497,05 476,56 476,42
units of GVA)
Source: Institute for economy Zagreb (2013), Sectorial analysis; no.19, year.
Table 2. Employees in tourism (2013.)

Working on specified Working on unspecified
Total
amount of time amount of time - seasonal
Graduated economist for hotel industry 72 68 37
Economist for tourism and catering 161 155 91
Tourist animator 57 56 38
Economist for hotel industry 34 33 17
Hotel and tourism officer 929 876 480
Receptionist 581 571 420
Assistant chef 1.603 1.554 1.009
Chef 4.186 4.040 2.648
Master chef 113 110 68
Assistant waiter 885 842 447
Waiter 5.261 5.041 2.635 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Bartender 81 80 48
Head waiter 63 60 33
Maid 1.841 1.834 1.495
Kitchen worker 1.418 1.396 1.037
Laundry woman 181 180 153
Other occupations in tourism and catering 18.515 17.826 9.788
IN TOTAL 35.981 34.722 20.444
Source: HZZ (Ministry of Tourism,(2013),Tourism in numbers 2013.)
Based on the listed indicators we can conclude that the income from the
tourism hasn’t proportionally followed the growth of overnight stays. Tourism
is an activity which has generally increased its share in the economy, but the
183
share of tourism in Croatian GVA still isn’t at the level of other Mediterranean
destinations; in Spain and Greece tourism has 8% in the GVA (Institute for
economics;2013,5). The importance of tourism in the employment rate hasn’t
been changed for years and the share of the employees in this area in Croatia is
about 6%, whereas global trends show that the share of employment in tourism
in the total employment rate ranges from 10% (USA, Ireland, Netherlands) to
15% (Great Britain, Italy, Spain) which aligns with the share of tourism industry
in the GDP of these countries (Bartoluci et al;2007,29). The mentioned data
shows that real net and gross wages have fallen and are lesser than the national
average. An obstacle for this work intensive activity is the fact that wages are as
high as the 85% of the average Croatian wages, i.e. this activity sector is under-
paid and increased growth of wages is certainly a factor which could contribute
to the quality of the tourist service (Institute for economy Zagreb;2013,6).
Below in the paper the SWOT analysis will present weaknesses, strengths,
opportunities and threats of the work places in tourism.
Table 3. SWOT analysis of jobs in Croatian tourism
STRENGTH: OPPORTUNITIES:
- increase in the number of tourists -introduction of new programs and curriculum in
- increase in economic effects from the tourism educational system
- increased growth in demand of work force in tourism -encouraging professional staff for purposes of work in
tourism
-investments of domestic and foreign capital, new
investments in tourism -introduction of human resources potential management
into companies
-development of tourist economy
-enabling continuous professional training
-opening of new work places
-enabling employees to advance in their careers and to
-entry of the Republic of Croatia in the EU; incentives
create careers
through different programs and employment measures,
retraining and life-long learning, programs and support -creating of positive and motivating work environment
for development of new tourist product by various incentives and benefits
- evaluation of success, rewards
-introduction of a program before and after the tourist
season; decrease of seasonality, increase of the number
of jobs for the unspecified time of work
184
WEAKNESSES: THREATS:
-unqualified work labor -little chance of employment for the unspecified time of
-low wages work because of the distinct seasonality
-seasonality –employment on specified amount of time -low paycheck considering work conditions and
professional qualifications (unqualified work labor
-insecurity of employment
crashes the cost of labor)
-poor working conditions
-entrance in the EU has opened a market of goods and
-prolonged working hours services, but also a work market
-unmotivated employees -better paid positions in the EU
-insufficient possibilities of professional training and -decrease in the quality of the offer and services due to
career advancement employment of unqualified and low paid work labor
-outdated programs and methods of work in nurture
and education for purposes of employment in tourism
Source: individual work of the author
According to the analysis of strengths, weaknesses, opportunities and threats

listed in the SWOT analysis of jobs in Croatian tourism, one can draw the con-
clusion that for development of tourism and achievement of economic goals ex-
tra capital investment and new investments are much needed, but what is even
more important for gaining competitive advantage, the increase in productivity
and survival on the tourist market, is definitely the investment in high quality,
educated, professional and motivated human resources.
3. HUMAN RESOURCE MANAGEMENT

As it has already been established in the paper, the key factor to success,
competitiveness and survival on the tourist market is definitely a human factor. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Human resources with its knowledge, skills, abilities and motivation contribute
to creation of new values on the market. Therefore, it is necessary for each com-
pany to introduce a system for management with the operations regarding hu-
man resources i.e. human resources management because managing work and
human resources is becoming a more and more important task in the manage-
ment of modern business systems for all activities, especially for activities like
tourism in which it has a dominant role (Bartoluci; 2013, 343).
Human resources management in a certain business system includes all activ-
ities from planning, making choices, arrangement of human resources to certain
positions depending on the needs and the strategy of work and development in
the company, to influencing positive interrelationships between employees, cre-
185
ation of pleasant and motivating work environment, different incentives for in-
crease of efficiency and giving its workers the possibility of constant professional
training, advancement and making a career within the company. Each business
system, i.e. each company has to have a clear strategy of its development and a
clear vision of achieving certain results and competitiveness on the market. In
systems and companies who are engaged in tourism, this strategy should, for the
most part, be related to human resources as one of the key factors in achieving
economic effects and competitiveness on the market. By doing so their motto can
be the saying of a well-known American hotelier, E. Stalter (1863-1928) which
states that the one who gives a little bit more and provides guests with a bit better
service is the one who will go forward (Stalter,Holjevac;2002,110). In order to
be able to provide guests with a bit better service and offer them something more,
what is necessary, is constant professional training and tracking of new trends in
supply and demand on the tourist market.
This is the reason why, professional training plays very important role in
the process of human resources management. Already in planning of human
resources it is essential to make a good plan about what type of and what de-
gree of education, knowledge and skills are necessary for each position, and by
choosing employees the management should be guided by the above mentioned
criteria in order to reduce the fairly large amount of unqualified staff in tour-
ism. Business systems and companies engaged in tourism should in their plans
definitely have vocational and professional training for their employees in order
to enable them to constantly acquire new skills and knowledge, and by doing
so, the management would increase the productivity and competitiveness of the
company itself. The employers need to be aware that spending money on con-
stant professional training of their own employees doesn’t represent a cost but
and an investment into increase of performance and productivity.
Along with proper planning and possibility of training in the process of hu-
man resources management one very important role is also played by motiva-
tion and possibility of career advancement. There are different ways in which
employees can be motivated to reach better work efficiency and better goal
achievement. Motivation doesn’t necessarily have to be financial in terms of
salary increases, but it can also be related to other benefits like days off, paid
insurance, vacation trips etc. In order for an employee to be as efficient as he/
she can be, he/she has to work in a positive and pleasant environment, he/she
has to be aware of the meaning of his/her importance and the meaning of the
186
work he/she performs, as well as the consequences in case he/she doesn’t ful-
fill his/her obligations. The employee also needs to be able to express his/her
own ideas and visions and be able to make certain decisions on his/her own.
In order to achieve that, positive interrelationships between employees are very
important, especially the relationship between managers and employees. The
manager is a key figure in linking all of the above mentioned components im-
portant for successful human resources management with the aim of quality
and productive performance of business tasks, and in order to succeed the man-
ager has to possess the following features: leadership, determination, flexibility,
organization, initiative, creativity and has to be prepared to take consequences.
A person with such features is able to assess, plan, choose, allocate and man-
age human resources well and have in mind that the ultimate goal is to achieve
productivity and competitiveness. In order to achieve maximum productivity
and competitiveness, along with planning, motivation and professional train-
ing, one other factor which is important, is monitoring and work evaluation of
each individual within the rewarding system, as well as the possibility for career
advancement and development. This is the component which is usually lacking
in our business systems and companies that work in tourism, which to a large
extent discourages young and educated individuals to work in tourism and it
often leads them to search for jobs in other business sectors, while on the other
hand contributes to employment of incompetent or low-skilled staff on certain
positions which directly influences the product and service quality. In all ma-
jor tourism companies the development of motivation and rewarding system is
becoming the objective which enables the management to successfully manage
human resources. Management of human resources has the main objective to INTERDISCIPLINARY MANAGEMENT RESEARCH XI
win the people over and to ensure their development and stay within the orga-
nization (Bartoluci; 2011, 65-66). In other words the task of the management is
to ensure high quality and competent human resources and by proper manage-
ment influence their happiness and motivation to work, because only satisfied
and motivated human factor influences the increase of quality, contributes to
success and competitiveness of the company on the tourist market.
4. CONCLUSION
In order for business systems and companies engaged in tourism to be suc-
cessful, key factors have to be the product and service quality and competitive-
187
ness. By connecting different business operations in tourism one achieves in-
crease in the efficiency and quality level of products and services. Management
in companies is mainly focused on profit and control of expenses and less atten-
tion is given to human resources management which is the crucial for creation
of quality products and generating quality services, upon which the success and
competitiveness of a certain company on the tourist market depends.
In Croatia the tourism is underlined as a strategic system of the economy
which in order to be profitable has to be competitive. Human resources are the
factor which contributes the most to success and competitiveness of the com-
pany on the tourist market. As already established in the paper, content and
motivated work force contributes to customer’s perception about the quality of
tourist product and services and they create a positive image for an organiza-
tion. For achievement of company’s competitiveness the synergy between the
management and all employees is very important, as it serves to clarify business
goals and ways to achieve them, whereas the competence in the field of work of
every employee also plays an important role. Management needs the knowledge
to coordinate human resources, to use them effectively by creating positive en-
vironment, to motivate, to provide their employees with education and chance
to advance in their careers and it also needs to know how to maximize their
efficiency all with the aim to create better productivity and competitiveness of
the company.
References
Bahtijarević-Šiber,F.(2014), Strateški menadžment ljudskih potencijala, Školska knjiga, Zagreb
Bartoluci,M.(2013), Upravljanje razvojem turizma i poduzetništva, Školska knjiga, Zagreb
Bartoluci, M.,Čavlek,N.et al(2007),Turizam i sport-razvojni aspekti,Školska knjiga,Zagreb
Bartoluci,M.(2011), Acta Turistica Nova, Vol 5, No.1,pp.1-142
Stlater,E.,Holjevac,A.(2002.), Upravljanje kvalitetom u turizmu i hotelskoj industriji,
Opatija:Fakultet za turistički i hotelski menadžment
Ekonomski institut Zagreb(2013), Sektorske analize,br.19,god.2, Dostupno na:www.
eizg.hr/hr-HR/Sektorske-analize-993.aspx, (SA_turizam_ozujak-2013.pdf ), Preuzeto:
(02.04.2015.)
Ministarstvo turizma (2013), Turizam u brojkama 2013, Dostupno na: business.croatia.hr/
Documents/3256/Turizam-u-brojkama-2013.pdf , Preuzeto: (02.04.2015.)
188
THE STOCK PHOTOGRAPHY
AS A PART OF CULTURAL AND
CREATIVE INDUSTRIES OF THE
DIGITAL AGE
Zorislav KALAZIĆ, M.Sc.

Ph.D.Student, Faculty of Economics in Osijek, Croatia
zorislav.kalazic@gmail.com
Jasna HORVAT, Ph.D.

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

Faculty of Economics in Osijek, Croatia
jmijoc@efos.hr
Abstract
Photography of the digital age has lost the properties of a physically tangible
product and has become intellectual property. Simultaneously with this process, INTERDISCIPLINARY MANAGEMENT RESEARCH XI
the process of transition of photography into a mass-produced good has taken

place. Market demands towards photography as a product of mass consumption
often reduce the aesthetic and artistic standards that have been set by its develop-
ment period in the process of photography coming to life as a medium. Despite
the negative effects that accompany the transition of photography in its process of
transformation into a mass-produced good, even such photographic “products”
are able to encourage to a particular activity and ultimately generate revenue for
numerous industries standing in the background of the “photography-product”.
Production and distribution of stock photographs1 is one of the derivates of the
1
Stock photography derives from the word „stock“ and implies the sale/rent of an already existing pho-
tograph, which was not taken according to the customer’s order. On the other hand, the use of stock
189
digital age in which business in the domain of production of photographs is ex-
Zorislav Kalazić • Jasna Horvat • Josipa Mijoč: THE STOCK PHOTOGRAPHY AS A PART OF CULTURAL AND CREATIVE INDUSTRIES OF THE DIGITAL AGE
panded to their distribution to users of websites and/or digital communication

channels. In doing so, websites are at the same time used as distribution channels
for photography as a creative product. Such symbiosis of photography – means
of communication and network space – communication space – allows business
association of these communication subjects and their new perspectives in the
digital age. The Internet is becoming a bridge for photography, which allows it to
cross into a new dimension, thus expanding its production and sales capacities.
After the first 100 years of photography as a medium, its new forms of existence
are just being unfolded. It is important to point out that stock photography has
an important role in cultural and creative industry, which is currently in the
phase of being formally defined in the Republic of Croatia.
Keywords: stock photography, visual content industry, cultural and creative
industries, digital imagery
JEL Classification: Z1, Z19, L82
INTRODUCTION
Although 100 years have passed since the discovery of photography, the
communication power of photography as a medium gets new dimensions in
the digital age. The global age uses photography as an easily understandable
universal communication language without mediation of the textual message.
Photography is globally omnipresent today for several reasons:
1. For the same price, digital photo cameras today allow taking higher qual-
ity of photographs than ever before. Britton & Joinson (2012)
2. Minimal technical knowledge is required for photographic recording due
to sophisticated electronics built into the latest cameras Clark (2008)
3. Once taken, photographs are distributed via internet quickly, securely and
without financial demands.
4. Computer applications (Photoshop2 and related software) are important
and accessible tools for digital processing of the photographed content.
photographs is determined by the customer, but the stock photograph still remains the property of
the person (physical or legal) who holds the copyright of the photographs.
2
An image editing software developed and manufactured by Adobe Systems Inc. Photoshop is con-
sidered one of the leaders in photo editing software. The software allows users to manipulate, crop,
190
5. Human brain decodes visual content much faster than textual content
(Hand 2014).
This paper analyses the situation in the stock photography market and pos-
sible future photography trends.
1. STOCK PHOTOGRAPHY
Stock photography derives from the word „stock“ and implies the sale/rent
of an already existing photograph, which was not taken according to the cus-
tomer’s order. On the other hand, the use of stock photographs is determined
by the customer, but the stock photograph still remains the property of the per-
son (physical or legal) who holds the copyright of the photographs. Stock pho-
tography as an independent industry has emerged in the 70s of the last century,
and is based on the sale of the copyright to reproduce photographs. Relations
between the stakeholders in this industry are as follows:
- Agencies are intermediaries between photographers and customers
- Customers are:
• Journal editors
• Book editors
• magazine editors
• Graphic and web designers
•...
Before the appearance of the stock photography phenomenon, customers had INTERDISCIPLINARY MANAGEMENT RESEARCH XI
to order photographs and there was a long delivery period. The point of the
stock photography business is that it enables the client to select and immediately
buy the desired photograph, which was taken in advance and stored in agency
database. A customer can easily find the desired photograph using well-defined
keywords, since the photograph was already taken in advance and stored in the
database. Before, customer had to order the photograph, and a there was a long
period of waiting until the delivery. Photographs in the digital age are becoming
affordable due to mass production. However, photographers still manage to gen-
erate sufficient revenues because they can repeatedly sell the same photograph
resize, and correct color on digital photos. The software is particularly popular amongst professional
photographers and graphic designers.
191
to different customers who purchase them for different purposes. Therefore, in
addition to technical and aesthetic value of photographs, in the stock business it

is of utmost importance that the photographer successfully defines the keywords
that describe individual photographs. In this way photographer helps the cus-
tomer to search the content, i.e., with well-defined keywords, customer can easily
find the desired photographic content by using internet browsers.
The object of the sale is the photograph that the customer selects when he
has already defined the objectives in advance – in what way will they affect the
viewer.
„Commercial digital imagery consists of licensed photographs, illustrations
and video clips that companies use in their visual communications, such as web-
sites, digital and print marketing materials, corporate communications, books,
publications and video content.“ Shutterstock (2013:3)
Photographs in marketing systematically affect consumer awareness, influ-
encing their decisions and forming habits. Despite the negative effects that ac-
company the transition of photography in its process of transformation into a
mass-produced good, even such photographic „products“ (stock photographs)
are able to encourage to a particular activity and ultimately generate revenue for
numerous industries standing in the background of the „photography-product“.
According to Frosh (2001:3) „Stock photography is a global business that man-
ufactures, promotes and distributes photographic images primarily for use in
marketing promotions, packaging design, corporate communications and adver-
tising.“ While Glückler & Panitz (2013a:3) define the stock image market „As
the business of licensing pre-produced visual/ audio-visual content for specific
uses.“Still images (photos) account for 94 per cent of total image stock, while
moving images (video footage) and other images represent 3 per cent. Produc-
tion and distribution of stock photographs is one of the derivates of the digital
age in which business in the domain of production of photographs is expanded
to their distribution to users of websites and/or digital communication channels.
Retouching is a major use of digital imaging for stock. It’s easy to remove
a blemish that makes stock less saleable…Another common use of digital re-
touching is to add background to enhance the shape of a photo...But the most
exciting aspect of imaging is the ability to create new, unimagined photos.
The end users are often not aware of the origin of photographs that surround
them. Particularly surprising and worrying is the fact that the most scholars of
192
contemporary photography, visual culture, advertising and consumer culture
also ignore the theoretical study of the stock business, with rare exceptions be-
ing Miller (1999), Frosh (2003) and Glückler & Panitz (2013).
The stock photography market is based on the interaction of its three stake-
holders: photographers, intermediaries and users – mutually dependent on
each other (Sheme 1).
Sheme 1. Stakeholders in the stock photography market
Photographers
A
Agencies - in
ntermediate
image
suppliers
Image userrs - news media,

adveertising
and
pub
blishers

Source: Authors
2. PHOTOGRAPHERS AS CREATORS OF VISUAL

CONTENT OF CULTURAL AND CREATIVE
INDUSTRY
The task of the photographer is to capture a successful stock photograph
that conveys a direct message to the observer, which can be a thought or a con-
cept. So, whoever publishes that photograph communicates with the observer
through a concept. And that concept can be ideas or feelings. For example, if
we enter words „new ideas“ into a stock agency’s search engine, majority of the
photographs will show the household light bulb. Such visual communication
is appropriate for all cultures and the majority of observers will understand
the sent message, and thus Sontag (1977:48) has concluded that „The painter
constructs, the photographer discloses.“ Abbott (1989) has added that photog-
raphy helps people to see. The task of commercial stock photography is to af-
fect consumers’ awareness exclusively in the way desired by the sender of visual
193
content – the ultimate goal is the purchase of their product or service. That
is why Frosh (2001:635) concludes that „Photographers and agencies also are
themselves responsive to changes in cultural trends.“ Dijck (2008) continues by
stating that digital cameras, camera phones, photo blogs and other multipur-
pose devices are used to promote the use of images as the preferred idiom of a
new generation of users. Successful stock photo, then, is a term that authorizes
and executes the twin attributes of Adorno and Horkheimer’s (1979) culture
industry: standardization and pseudo-individuation.
Furthermore, Frosh (2003:59) published: “As contracted freelancers, pho-
tographers are only paid when their images are sold. Without the benefit of
an income unrelated to immediate sales, they are therefore discouraged from
undue experimentation, it being far less risky to produce technically competent
variations of an already successful formula.“
In the context of commercial use, photography is increasingly seen as a raw
material for some future image, which will be created by combining several dif-
ferent photographs and text. The success of a stock photograph can be very
simply tracked according to the number of sales it has generated, and thus also
the revenue it has brought to its author. The same photographs can be sold to
different users several thousand times. This data is publicly available on agency
websites, and therefore such photographs become success stories, i.e., become
the subject of detailed analyses through which photographers are trying to fig-
ure out the reason for their commercial success. The above is one of the most
common reasons for plagiarizing successful stock photographs, where because
of the lack of creativity and uniqueness, photographers plagiarize each other in
order to achieve quick profits.
The market set-up in this way, in which photography is more popular, acces-
sible and cheaper than ever, has resulted in the emergence of top amateur and
professional photographers and the reason for their excellence lies in the avail-
ability of quality cameras. it is also important to mention that technical support
has facilitated the learning process, which comes down to the „trial and error“
principle (taking the photograph – observing the image on the screen – deci-
sion – and the photograph is accepted, or taken again).
Most professional photographers are dissatisfied with the direction of the
development of the stock photography market that has occurred in the 21st cen-
tury. According to discussions of the stock photographers’ community on so-
194
cial networks, many excellent creative people ignore the whole business because
they do not want to sell their works at a price of only $0.25 and up.
Stock photography is only a minor activity for amateurs, where, e.g. on a trip
or an afternoon stroll, they take some dozen photographs, which they can mon-
etize, but the key is that they do not depend on that revenue. Therefore, image
prices can vary widely depending on criteria such as image size, file format, in-
tended use, download frequency and type of contributor. Based on the author’s
insight in the prices of photographs in microstock agencies, it can be concluded
that these prices usually do not exceed $10.
In relation to professional photographers, amateurs are in a more favourable
position, because their professional career does not depend on income from the
sale of photographs, and their interest is often satisfied with self-promotion in
photographic circles. Observed in this way, amateurs in the stock photography
business constitute unfair competition for professionals and directly endanger
their careers. Due to immense supply of photographs in the market, agencies
are in a position to constantly raise the quality criteria, which are hard for some
to follow. On the other hand, digital technology enables amateurs to take pho-
tographs of professional quality, and they are becoming a major threat for the
professionals. According to the Pareto principle, 20% of the highest quality
photographers create 80% of the best-selling visual content. Accordingly, the
Microstock agency (2013) has announced that out the total number of their
registered contributors, as much as 73% of photographers are amateurs, while
stock photography is the main source of income for 17% of photographers. The
levels of financial performance of these two groups would be an interesting top- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
ic for some future research.
3. AGENCIES
One of the first major stock photography agencies was founded in 1920 by
H. Roberts, which continues today under the name RobertStock. Over time,
agencies have become increasingly sophisticated, they are trying to monitor and
anticipate the needs of the advertising industry, and then obtain precisely de-
fined photographs from photographers, which will be ready for sale in advance.
The first wave of interest into stock photography by individual freelance ama-
teur and hobbyist photographers started in the 1980s, spurred on by the pub-
lication of a book series “Sell & Re-Sell your Photos” by Engh R. In the 1990s,
195
a period of consolidation followed, with Getty Images and Corbis becoming
the two largest companies as a result of acquisitions. But the real revolution of
stock photography began with the mass use of the internet and digitalization of
photography, when it lost the properties of a physically tangible product and be-
came intellectual property. Internet is becoming a bridge for photography, which
allows it to cross into a new dimension, thus expanding its production and sales
capacities. Today, it is a fact that stock photography could not exist in its pres-
ent form without internet, meaning that a symbiosis of photography – means
of communication and network space – communication space – allows business
association of these communication subjects and their new perspectives in the
digital age. In the year 2000, the iStockphoto agency began selling photographs
for only $1, which has irreversibly changed the market. There is a mass produc-
tion of cheap and quality photo cameras of high resolution, because of which
amateurs have offered large quantities of commercial photographs.
According to price range of photographs they offer in the market, there are
two groups of stock agencies:
a) Microstock agencies
that sell the rights to use of photographs for as low as $1-10, and they have
a large number of photographers with whom they collaborate, including ama-
teurs. Copyright licenses of those images are mostly royalty-free, which means
that the same photograph can be sold countless times to different users. The
first such agency was iStockphoto, and later established were Fotolia, Depos-
itphotos, 123RF.com, Can Stock Photo, Dreamstime, Shutterstock, etc. Testi-
fying to the scope of this business is the fact that in December of 2014 global
software giant Adobe purchased the Fotolia agency for dizzying $800 million.
If it is known that agencies own mainly intangible assets (database of photo-
graphs, contracts with customers and contributors and company’s goodwill),
it is evident what kind of business potential does the stock photography have.
Frosh (2003:58) states that „One of the fundamental commercial premises
of stock photography, allowing photographers and agencies to make money
while charging lower prices than for assignment photographs.“
b) Macrostock agencies
They operate in the traditional way; they offer quality personalized service
and meet the customers’ strict specific requirements. The two largest macros-
tock agencies are Corbis and Getty Images.
196
They are used by customers that can afford to do so financially, or do not
have the time to personally search databases. These agencies exclusively sell
copyrights for the exclusive use of the content, rights-managed. For example,
it would be insulting for a pharmaceutical company if they would find out they
are using the same photograph as a competitor. The prices of photographs range
from $100 to $10,000. These agencies mediate exclusively with top artists of or
photographers specialized for strictly specific or scientific motives, e.g., taking
photographs of rare animal species.
Thinking about such creative people, (Frosh 2002:7) concludes that „Artists
have that rare ability to think visually and communicate visually.”
According to research by Glückler & Panitz (2013b) 4 types of agencies
have been segmented according to their specialities, and the Sheme 2. shows
modes of operation of stock photography agencies:
a) Classic agencies receive the relative majority of their images from original
creators and generate more than 50 per cent of their revenues with final
image users.
b) Collector agencies also receive the relative majority of their images from
original creators but realize the majority of revenues through sales part-
nerships with other agencies.
c) Distributor agencies receive the relative majority of their images from
partner agencies and generate more than 50% of their revenues with final
image users.
d) Go-between agencies that receive and sell the majority of images from
and through partner agencies. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Sheme 2. Modes of operation of 4 types of stock photography agencies
Source: Glückler & Panitz (2013c)
Glückler & Panitz (2013a) furthermore conclude that, looking geographi-

cally, 68% of all agencies are concentrated in Germany (31%), United Kingdom
197
(19%) and the U.S. (18%). If these countries are joined by Switzerland (6%),
France (4%) and China (2%), these countries make up the list of the 6 most sig-
nificant countries in the stock business. Approximately 1.5 million photographs
is the average portfolio of an agency, but as much as 50% of agencies are small
and have only about 100,000 photographs. This shows a strong concentration
in the market. Eleven of the largest agencies (5%) offer as many as 189 mil-
lion photographs, which accounts for over 50% of the total supply. In terms of
license models, rights-managed photography (RM) takes share of (62%), while
royalty-free photography (RF) contributes 22 per cent to total sales. Out of the
total revenue, the largest expenses for the agencies are the payments to photog-
raphers, which amount to about 24 % of total revenues. According to agencies’
annual reports, it can be assumed that European and U.S. agencies today offer
about 600 million photographs. 20% of those agencies create 80% of total rev-
enues. An interesting assumption is that only 18% of total annual image growth
represents original content and the rest are duplicates because photographers
usually offer the same content for sale in 4-5 different agencies.
Technological development of digital photography has enabled end users to
purchase photographs at prices that are lower than ever before in history, and
the market is growing dramatically each year. Published financial statements of
the Shutterstock agency (2013) at the Grafics 1.show the trends in demand for
visual content:
Grafics 1. Shutterstock annual revenue 2009-2013
250
200
150
100 Million $
50
0
2009. 2010. 2011. 2012. 2013.

Source: Shutterstock Annual report (2013:10)
Sheme 3. shows that agency has 50,000 contributors-photographers, and as

many as 900,000 customers who annually buy 100 million downloads, which
they pay $ 236 million, which represents an annual revenue growth of 39%.
198
Sheme 3. Key data on operations of the Shutterstock agency in 2013.
50,000
approved
contributors
39% 900,000
annual revenue active, paying
growth users
$236 million 100 million

revenue downloads
Source: Shutterstock Annual report (2013:6)
4. BUYERS OF PHOTOGRAPHS
Demand for commercial digital imagery comes primarily from:
a) Businesses: Large corporations, small and medium-sized businesses and
sole proprietorships that have marketing, communications and design
needs.
b) Marketing Agencies: Creative service providers such as advertising agen-
cies, media agencies, graphic design firms, web design firms.
c) Media Organizations: Creators of print and digital content, from large
publishers and broadcast companies to professional bloggers.
Modern agencies can accurately adjust their offer to the wishes of a particu-
lar customer. New smart technology records searches and purchase history, and
leaves a digital footprint in the agency’s system. Suppliers systematically analyse
the history of internet searches, and through special algorithms are able to de-
tect customers’ future preferences and offer personalized results according to
the expected needs of each customer. According to Glückler & Panitz (2013b),
only 21% of agencies are using such mechanisms so far.
The use of language is crucial for the search and selection of visual content.
English is dominant and the vast majority, as much as 85% of agencies, accord-
ing to Glückler & Panitz (2013b), offer their photographs in English. Due to
high demand for photographs in Germany, it is not surprising that 40% of agen-
cies also offer their photographs in German, while only 13% do it in French. It
is interesting that 74% of agencies from non-English speaking countries offer
199
their content also in English, while only 10% of Anglophone agencies offer con-
tent to customers in other languages. This fact confirms English as the domi-
nant language in the industry of visual content.
5. STOCK PHOTOGRAPHY MARKET

The first global research on stock industry was conducted in 2012 at the
Heidelberg University. Glückler & Panitz (2013a) conclude that today in the
world there is a total of 2,439 for-profit image suppliers. Furthermore, it is evi-
dent that Europe is the global hub for the collection of original content from
creators around the world.
Majority of photographers in the stock business are located in Europe, they
record mainly for European and U.S. agencies, and they create 80% of the vi-
sual content. U.S. agencies buy 8 times more (31,400 photographs) in Europe
than Europeans do in the U.S. (4,000 photographs). But Asian, Latin Ameri-
can, African and Australian creators do produce their images basically for Eu-
ropean image agencies. Europe is the only region that delivers content to all
world regions and at the same time is the most important regional partner for
the other regions. As a result of this composite estimation approach, it can be
spoken of $2.88 billion gross global revenues in the stock image market in 2012.
Glückler&Panitz (2013a).
The Shutterstock agency has collected even more ambitious data, so that
they estimate that the market for pre-shot commercial digital imagery will grow
from approximately $4 billion in 2011 to approximately $6 billion in 2016,
based on a study conducted on our behalf by L.E.K. Consulting LLC. (Shut-
terstock 2013).
„In the last five years to 2015, the number of public websites has grown
an average rate of 43% annually to more than 785 million“, according to news.
netcraft.com (2015). It is expected, therefore, that the sales of photographs will
also grow, because communication and creativity are cheaper than ever before.
According to BIA/Kelsey Company (2015), „More than 32% of small and
medium-sized U.S. businesses, or SMBs, surveyed do not yet have a website.
Therefore, they estimate that SMB advertising spending on online digital media
will increase from $5.4 billion in 2010 to $16.6 billion in 2015, representing a
compound annual growth rate of 25%.“
200
Interesting is the emergence of web portals that offer download of visual con-
tent completely free of charge: e.g. Freeimages was launched in February 2001
as an alternative for expensive stock photography, there are over 2,500,000 reg-
istered users and around 400,000 high quality and high resolution photographs.
Stock photography also successfully exists as a part of the cultural and cre-
ative industry in the Republic of Croatia. According to the UNCTD report
(2013), this is important because countries with a high concentration of cul-
tural and creative industry have the highest rate of growth of the economy, their
stakeholders are the biggest drivers of innovation, and as such they start new
cycles of growth of mature industries, they are a valuable tool for the devel-
opment of identity and attractiveness of each country, they are accelerators of
development of cities. According to the characteristics of the market, Glückler
& Panitz (2013c) classify Croatia as part of the group of Eastern Europe and
Asian countries. Categories of customers are the same as in foreign markets,
and photographers are selling their photographs through European and U.S.
agencies, because domestic agencies do not yet exist.
SWOT analysis of the stock photography market

Sheme 4. SWOT analysis of the stock photography market
WEAKNESSES
STRENGTHS Agencies are lowering photographers'
commissions, but it is necessary to set the lower
Constant growth of the stock photography market.
limit, since otherwise the system could collapse.
Quick, easy and inexpensive distribution of digital
Plagiarism of others' content leads to
content over the internet.
impersonality.
Thousands of photographers as agency INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Constant demands for raising the criteria of quality
contributors are eager for additional earnings and
of photographs.
affirmation.
Danger of filling up the database to the point when
Cameras are of very high quality and affordable.
new photographs will no longer be necessary in
such numbers.
THREATS
OPPORTUNITIES
The offer of free photographs is increasing.
The demand for aternative visual content is
There are businesses without web pages. increasing (vector drawings and stock video
Increasing quality of photographic equipment of content).
the future will enable recruiting of new Possibility of a sudden drop in the market after
generations of photographers in the stock several years of continuous growth.
business.
Theft and unauthorised use of photographs.
Creation of specific niches that will be accessible
to a narrow circle of specialized photographers. Establishment of photographic associations in
order to avoid agencies as intermediaries.
Source: Authors
201
7. DISCUSSION
Since the beginning of the 21st century, the stock photography market has
been in constant growth, and hundreds of thousands of photographers are ac-
tive contributors to stock agencies. Technological advances in the production of
photographic equipment have enabled amateurs to catch up with professionals,
and this phenomenon is going to continue as it is expected that the quality of
photographic equipment will continue to increase in the future. High demand
for visual content is predicted in the coming years, since according to research,
e.g. more that 32% of small businesses in the U.S. still do not have webpages
and that market niche represents a business opportunity for further growth.
Also, agencies require strictly specific motives, where there is still a lack of qual-
ity photographs, which expands possible activity of photographers who offer
their stock photographs.
In their desire for the highest possible profit, stock agencies systematically
lower the share of commissions that they pay to photographers, while on the
other hand, due to high influx of stock photographs, the level of quality that is
required from the providers of stock photographs is increasing.
Also, it is just a question of time when some of databases will become filled
up to such an extent that out of the content offered, only exceptionally high-
quality work will be received and accepted for (re)sale. Each new stock pho-
tograph will be competing with millions of already stored photographs. In the
end, it is evident that only after its first 100 hundred years photography has en-
tered its golden age. But the real significance of the impact of stock photography
on cultural and creative industry of the digital age still has to be explored, and
open questions of copyright protection, fair and healthy market competition,
and possibilities for future networking – both of professional businesses and
professionals and the stock photography content.
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203
FIRM’S STRATEGIC THINKING
IN THE CONTEXT OF BUSINESS
INFORMATIZATION
Lara Jelenc • Slavomir Vukmirović • Zvonko Čapko: FIRM’S STRATEGIC THINKING IN THE CONTEXT OF BUSINESS INFORMATIZATION
Lara JELENC, Ph.D., Assistant professor

ljelenc@efri.hr
Slavomir VUKMIROVIĆ, Ph.D., Full professor

vukmirovics@gmail.com
Zvonko ČAPKO, Ph.D., Associate professor

zvonko.capko@efri.hr
Faculty of Economics in Rijeka

University of Rijeka
Abstract
This paper discusses the factors of business change management in the context
of transition from traditional to computerized business systems. The factors
of change management are presented as a firm’s strategic characteristics in
the context of the relationship between traditional and computerized business
management. The purpose of the research is the systematization of strategic
characteristics of business informatization, and ranking and positioning of
strategic characteristics in the context of competitive relationship between tra-
ditional and computerized business management. The aim of the research is
to select and systematize strategic elements of business informatization into a
small number of features that can be grouped as common factors according to
certain criteria.
The interdependence of strategic characteristics was established based on a fac-
tor analysis. This method was applied to real data obtained through business
204
informatization questionnaires. During our study on strategic characteristics
of business informatization, we collected data from 41 large and medium-sized
companies in Croatia in the period from 2011 to 2014.
The study included 15 strategic characteristics of business systems that were
considered in the context of the factors of change management. Factor analysis
of the data was performed using SPSS 21.0, and systematized into five steps:
1. The first step was the reduction of the number of attributes and determining
the initial results to extract factors.
2. The second step was defining the factor matrix after rotation of the factors.
3. The third step was the interpretation of the extracted factors.
4. The fourth step included testing for significance of results by determining the
values of Cronbach’s alpha coefficient.
5. The final, fifth step was the post-optimal analysis.
By arranging the factors into groups we have focused on key areas of activ-
ity. We have also discussed various approaches to strategic thinking in the
context of business informatization when combined with different levels of
competitiveness.
Keywords: strategic thinking, change management factors, factor analy-
sis of features of computerized business management, business systems,
competitiveness
JEL Classification: L1, D8, M15
1. INTRODUCTION
The goal of enterprise informatization is to achieve higher level of fit, align-
ment and efficiency producing better, higher level of quality and profitable re-
sults. ICT management and strategy activities are and should be developed hand
in hand- as natural synergy (Whittington, 2014). The sign of collaboration is
synergy reflected as the competitive advantage in relation to direct competitor.
IT solutions mirror the complex structure of reality and therefore its im-
plementation is demanding. The cost of maintaining such solutions within the
company can be justified only with the continuous proof of value added to cur-
rent market, competitor and customer expectations. Therefore it is in a continu-
205
al push of improvement, adjustment with fewer costs. The perceived value of IT
solution depends on the organizational structure for accepting change, accept-
ing new technological solutions and accepting new ways of business models.
The aim of this paper is to denote the strategic thinking within the context
of level of IT development within the companies. The strategic thinking rep-
resents the way companies treat strategic factors known for contributing to the
enterprise information system. The strategic factors are recognized as the main
factors of change and can be grouped depending on the relevance. Additionally,
we analyze strategic level of informatization, as a sign of development, on spe-
cific strategic factors in the context of IT processes in the Croatian companies.
With this article we contribute to the literature of strategic thinking in IT
sectors in two ways. Firstly, we define strategic thinking by grouping the stra-
tegic factors of similar IT development characteristics. Therefore we offer new
insights for initial stage of implementing any of the suggested framework for
enterprise informatization on strategic level. Secondly, we presented the results
of research in Croatian firms.
The aim of the research is to identify, systematize and analyze strategic fa-
ctors, and define basic business strategy features from the perspective of the
transition from traditional to computerized business systems, using empirical
methods and strategic thinking approach. Pursuant to the research problem
and purpose, the following hypothesis has been proposed: identification, sys-
tematization and analysis of strategic factors, and identification of the main
strategic features of business process informatization to manage the transition
from traditional to computerized business systems and achieve a higher level of
strategic IT development in companies.
The paper is structured in six interrelated parts. In the first section, the intro-
duction, we elaborate the purpose, objectives and methodology of research. The
second part discusses the significance of strategic development of business pro-
cess informatization. In the third section, we define and describe strategic factors
of business process informatization that affect the effect of moving from tradi-
tional to computerized operations. The fourth part presents and analyzes the
results of the analysis of strategic factors from the perspective of the relationship
between traditional and computerized operations. In the fifth part, we systema-
tize strategic factors and identify strategic characteristics of business process in-
formatization. The conclusion summarizes the main ideas of our work.
206
2. THE MEANING OF STRATEGIC
INFORMATIZATION DEVELOPMENT OF
BUSINESS SYSTEM
Strategy is an organizational process-oriented task of gathering resources,
focusing on priorities and delivering results. Strategic thinking denotes the ac-
tivity of gathering insights which represent the core of the future strategy. It
is recognized that idea created outside existing mental model represents the
core of competitive advantage if developed and implemented in the proper way.
Strategic thinking can be understood as seeing, a combination of numerous per-
spectives, which perceive the problem from different points of views Mintzberg
(Mintzberg, Ahlstrand, Lampel, 1998, p.128):
• Seeing ahead- see the future of the firm,
• Seeing behind- understands the roots of today in the past,
• Seeing down- perceive the big picture of the problem,
• Seeing below- inductive thinking from close relations,
• Seeing beside- lateral thinking, challenging conventional wisdom,
• Seeing beyond- inventing the world by putting the ideas into the context, and
• Seeing it through- understanding things deeper as presented.
This article follows the strategic thinking as seeing below and seeing it through.
Strategic thinking is depicted as the gathering of certain factors, their grouping
and looking closer at their mutual interactions.
The marriage of strategic planning and information systems was set in the
two books in mid 70-ties, Strategic Planning of Management Information Sys- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
tem by Siegal (1975) and Strategic Planninng for MIS by McLean et al. (1977).
Information systems qualified for the source of competitive advantage of the
companies (Peppard, Galliers, Thorogood, 2014) and it is recognized for hav-
ing the ability to shape the strategy of a business. Clemens and Row rose the
contribution of IT to sustainability of competitive advantage; it does need orga-
nizational infrastructure (Kettinger et. al, 1994), an IS strategic platform (Ross
et. al. 1996) while IT alone is not enough (Powell, Dent-Micallef, 1997).
Information technology qualified for the source of added value and it is rec-
ognized for being a key factor for contributing to sustainable business perfor-
mance in Croatian companies. In order to become a strategic factor for business
success, IT should be intensely involved in business processes and gradually
207
grow into a business technology, whose main goal is not only to support the
business, but also allow that it exists.
A change from information technology (IT) to business technology (BT) is
certainly a lot more than just a change of acronyms. At its core it is a change in com-
pany culture which involves not only the IT department and its employees, but
the entire organization, from the board of directors over the senior management
to the lowest level employees (Sesvećan; 2008). Managers are becoming aware
that information system activities are not separate and unrelated to other enter-
prise activities. Incorporating IT investment in business development budget, be-
ing well-informed and closely cooperating in implementing projects through proj-
ect methodology is guarantor of success. This leads to easier understanding and
communicating management ideas and company goals such as: optimizing costs,
increasing productivity, improving business processes. The strategic integration
of business systems and information systems based on sophisticated information
and communication technologies (ICT) as a function of the synergistic develop-
ment and use of business applications is becoming a necessity (Evello; 2012).
The development and use of new technologies in business allows us to leave
the cooperative form of cooperation (division of labor, where each person is
responsible for a certain part of the job) and is increasingly being replaced by
collaboration (joint work with a view to resolving any problems).
There has never been a bigger need for changing quickly in executing busi-
ness processes with respect to the period of traditional business systems where
it was enough to plan changes for one, three or five years to come. Lengthy time
interval is contrary to the rapid changes in the business environment and fo-
cused processes become less critical, and replaced with new (Hammer, Champy;
1993). As conditions of business informatization development change, more
flexibility and adaptivity is required in linking with potential and active
partners in business environment. Ability of reconfiguring relevant business
processes on organizational level as well as inter-organisational processes and
activities in a changing business environment is critica (Vukmirović, Čapko;
2009). Strategic computerized business system based on the sinergy of iterative
and incremental approach is focused on anticipating the changes in business
environment and proactive functioning.
Companies that are able to adapt their information systems to new paradi-
gms of strategy-oriented computerized business processes that rest on infor-
208
mation and knowledge, through a series of generally simple applications enable
rapid sharing of knowledge both among employees and between the organiza-
tion and its environment. In fact, this type of applications is based on coope-
ration and dynamism, the ability to easily connect and transfer information in
new contexts, which contributes to the openness of the enterprise and its better
perception of customer needs. Changing from a complex technical system to a
user-oriented system that offers business applications which are synergistically
linked and integrated into business is likely to be reflected in a flexible and adap-
tive organization that will allow rapid knowledge exchange and dissemination
among managers and employees. At the same time, computerized operations
would not completely replace traditional business; information systems should
be able to provide greater flexibility and faster restructuring depending on the
changes in the environment.
Concepts of traditional and computerized enterprise are not independent,
but rather complementary to each other. This means that the concepts of com-
puterized enterprises to a lesser extent replace, and more complement the con-
cepts of traditional enterprises.
3. STRATEGIC FACTORS OF BUSINESS SYSTEMS

INFORMATIZATION
Factors affecting change management from traditional to computerized
business have been systematized according to research findings presented with-
in E2 Conference on innovation management using business apps. Strategic
factors of business systems informatization were analyzed from the perspective
of traditional and computerized business using rating scale method.
Table 1 presents comparative features of traditional and computerized busi-
ness, mutually opposing or complementary to each other (can also be used in
combination and synergy). Directions and intensities of strategic factor orien-
tation towards computerized or traditional business can be determined on the
rating scale (5- 0 - 5). High numbers mean a strong focus on the features of the
left or right side, while scores in the middle or going down to zero mean more
moderate orientation with the possibility of combining the opposite features.
It should be noted that the concepts and technologies of traditional and com-
puterized business are not mutually exclusive but can build on and complement
209
each other, and they can operate simultaneously. For example, when speaking
of resource, information and knowledge do not exclude the use of capital, la-
bor, material and financial resources, but they build on and complement them.
Or, in terms of relationship between people and technology, technology can be
alternately encouraged and driven by users and IT experts. Indeed, closer coop-
eration between users and IT experts is likely to be reflected in a higher level of

business development.
Table 1: Strategic factors of business systems informatization

Computerized business
No. Main features Traditional business
(e-business)
1 Purpose Growth, Size Development, Quality
2 Resource Capital, Labor, Material Resources Information, Knowledge
3 Motive Short-Term, Profit Long-Term, Success
4 Environmental relation Competition Cooperation
Objectives and manner of
5 Efficiency, Execution of Tasks Success, Actions, Results
functioning
6 Functioning in an environment Procedural, relatively fast Flexible, Adaptive, Momentary (Prompt)
7 Strategy Production Planning Production in line with market needs
8 Business perspective Business function Business process
9 Organizational unit Department Cross-functional team
10 Focus for employees Supremacy, Competitiveness Participation, Cooperation
11 Business tasks Closely defined Flexible, Comprehensive
12 Information systems Complex technical system Business apps
Relationship between people
13 Technology driven by IT experts Technology driven by users
and technology
14 Openness of enterprise Departments and clear boundaries Unmarked boundaries
15 Value chain Supplier and consumer oriented Business oriented
Source: As modified by the authors acc. to: Enterprise 2.0 Conference, May 2009, http://
www.e2conf.com/about/what-is-enterprise2.0.php
4. RESEARCH METHODOLOGY AND RESULTS

This chapter presents and analyzes the results of the study of the strategic
factors that influence enterprise informatization. In the study data were collect-
ed by a questionnaire on strategic factors affecting IT development in Croatian
companies. Data from 50 large and medium-sized companies in Croatia were
collected in the period from 2011 to 2014, of which a total of 41 companies
210
responded to all questions. Based on the findings we were able to analyze the
strategic factors determining the level of IT development from the perspective
of the transition from traditional to computerized business systems. The stra-
tegic factors were systematized, using a factor analysis method, enabling us to
identify key strategic features of enterprise informatization.
.. Analysis of strategic factors from aspect of

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

developement in companies
No Factors AS STDEV Med Mod Percent Interval Sig.
1 Purpose 2,05 2,27 2,00 0,00 22% 1,3 - 2,8 .000
2 Resource 1,56 1,90 1,00 0,00 39% 1,0 - 2,2 .000
3 Motive 2,70 2,40 3,00 5,00 36% 1,9 - 3,5 .000
4 Environmental relation 0,30 2,70 0,00 0,00 17% -0,5 - 1,2 .459
5 Objectives of functioning 1,40 2,30 1,00 0,00 27% 0,7 - 2,2 .000
6 Functioning in an envinronment 1,70 2,40 2,00 0,00 29% 1,0 - 2,5 .000
7 Strategy 1,80 2,60 2,00 5,00 22% 1,0 - 2,7 .000
8 Business perspective 1,60 1,90 1,00 0,00 17% 1,0 - 2,2 .000 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
9 Organizational unit -0,70 2,90 0,00 0,00 29% -1,6 - 0,2 .151
10 Focus for employees 1,50 2,80 2,00 4,00 18% 0,7 - 2,4 .001
11 Business tasks 0,44 3,10 1,00 4,00 18% -0,5 - 1,4 .373
12 Information system 2,40 2,10 3,00 4,00 24% 1,7 - 3,0 .000
Relationship between people
13 0,80 3,10 0,00 0,00 20% -0,1 - 1,8 .093
and technology
14 Openness of enterprise -0,50 2,70 0,00 0,00 22% -0,9 - 0,8 .908
15 Value chain -0,80 2,80 0,00 0,00 22% -1,7 - 0,2 .100
The table reveals that most of the strategic factors that affect enterprise in-
formatization incline us in a varying extent to computerized operations. As in-
dicated by all calculated statistical indicators, strategic factors that fully incline
us to computerized operations are motive (3) and information systems (12).
Also, we have been able to identify strategic factors that incline us to a lesser
211
extent to traditional business such as organizational unit (9), openness of en-
terprise (14) and value chain (15).
As Table 2 shows, there are two categories of change management factors that
can be denoted as dichotomous factors and synergy factors. In dichotomous fac-
tors, two directions of orientation are expressed: a) towards traditional business
and b) towards computerized business. Synergy factors reveal a synergy of tra-

ditional and computerized operations that can be recognized in those features
where arithmetic mean equals to or is close to the mean value of 0. In other words,
arithmetic mean value may not be a sure indication that the assessment tends to-
wards zero. For example, company A can evaluate one factor by score of +5, and
company B by score of -5, where the arithmetic mean would produce a neutral
value of 0, with the factors being assessed by end values. It is therefore an impor-
tant indicator of the number of companies that marked the 0 value. Accordingly,
strategic factors that are affecting business systems informatization can be sys-
tematized into two categories: 1) shift factors, and 2) synergy factors.
Shift factors indicate hierarchical relationship between variables of tradi-
tional and computerized business being identified as different levels of strate-
gic IT development. This means that variables of enterprise informatization
are at higher levels of the hierarchy with respect to the variables of traditional
business.
Information system is an example of shift factor. From the viewpoint of tra-
ditional enterprise information system functions as a complex technical system,
while from the viewpoint of computerized enterprise it is recognised as a sys-
tem of integrated business applications, as can be seen from the table, revealing
a hierarchical relationship between traditional and computerized business. The
goal is to achieve a shift from complex technical system to integrated business
applications.
When speaking of synergy, both traditional and computerized business
strategies are complementary to each other and interdependent. This means
that variables of traditional and computerized business function synergically at
the same level. An example of synergy feature is resource. From the viewpoint of
traditional enterprise main resources are capital, labor and material resources,
while computerized enterprises focus on information and knowledge. A key
factor for the optimal and efficient use of resources is their mutual compatibil-
ity and synergy.
212
.. Identifying basic strategic attributes of business
systems informatization by using factor analysis
Systematizing strategic factors and identifying basic strategic attributes of
business systems informatization was done by using factor analysis. Data from
41 large and medium-sized companies in Croatia were collected in the period
from 2011 to 2014. In the survey questionnaire respondents were invited to
assess features of the enterprise in terms of relationship between traditional
and computerized business processes by bolding or underlining the appropriate
response. Based on the analyzed data, factors were complementary and compa-
ratively systematized and analyzed.Table 3 presents the results of factor analysis
after performing all methodological optimization steps.
Table 3 shows that attributes within factors have a satisfactory measure of
correlation, that confirms the reliability of research. Value of coefficient Cron-
bach a> 0.6010 represents an acceptable level of reliability in research (Fulgosi;
1988).The high value of total coefficient Cronbach a (0,803) which is calculat-
ed and shown in the table 3. confirms the reliability of the questionnaire used.
We applied oblimin rotation as oblique rotation method wherein factors are
interrelated (angles between axes may be different than 90 degrees). A satura-
tion of the two strategic factors was observed such as environmental relation
and business perspective, split into two components which reduce the internal
reliability. Therefore, they were excluded from further analysis. Systematization
of factors based on post optimal analysis is as follows: the first component is
strategic value declaration, the second is operations, the third is attitude and the
fourth is the velocity. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
The first component does not correspond to classical strategic issues, rather
to the declaration of values on which they founding their business. It implies
wheather they base their operation on quality, knowledge, long-run business
or fast growth, capital, short-run and profit. This findings are similar to the
classical notion of strategic management literature. The second component- op-
erations- is about ways how to implement the strategic declaration. It implies
the ways how to bring value to the customer and be pertained for the market.
It consist of the decision how to organize the flow of work, the relation toward
technology and value chain producion for maximizing customers satisfaction.
This component is related to the never ending problem of high rate the failure
of strategy implementation that is usually overlooked in practice. - attitude
213
toward the strategic declaration and the way the operations are set in place. It
consists of the way people collaborate and how is the information system set
for the information to flow within the organization. This result is important
focus of organizational behavior literature. The last, forth component is about
velocity of perceived changes and the way it reacts on changes within the firm
or in the relation with the environment The dynamic environment is setting

the scenary for all the competitive firms that would like to compete and survive
on the market. Change management is the crucial moment in leading the firm.
Table 3: Factor analysis of strategic factors

Strategic factors* Component
Component 1 Component 2 Component 3 Component 4
Mission ,882
Motivation ,872
Resource ,769
Business tasks ,757
Organizational unit ,734
Value chain ,663
People-technology relation ,551 ,423
Firm openeness ,349 -,324 ,675
Information system ,849
Employee focus ,783
Goal and way of operating ,380 ,454
Mode of operating ,751
Production policy -,428 ,671
Cronbach alpha
,801 ,720 ,728 ,621
(for all 0.803)
Sum 258 -11 160 205
Number 3 5 2 3
Mean 6,29 -,275 3,904 5
Std. Deviation 5,631 10,07 4,369 5,834
Variance 31,712 101,487 19,090 34,05
N=41. Extraction Method: Principal Component Analysis. Rotation Method:
Oblimin with Kaiser Normalization. Rotation converged in 11 iterations. Su-
pressed values less than 0.30. Bartlett’s Test of Sphericity sig. 0.000. Kaiser-
Meyer-Olkin Measure of sampling adequacy: 0.639. Variance explained 37,717
percent.
Source: Empirical analysis
214
Based on a postoptimal analysis, the strategic factors have been systematized
as follows: I) Strategic Value Declaration, II) Operations, III) Attitude, and
IV) Velocity. The table shows that the strategic factors are grouped in stra-
tegic features as follows: 1) Strategic Value Declaration (Mission, Motivation,
Resource), 2) Attitude (Business tasks, Organization, Value chain, Relation-
ship between people and technology, Openness of enterprise), 3) Operations
(Objectives and manner of functioning, Functioning in an environment, Strat-
egy) and 4) Velocity (Information systems, Focus for employees).
5. CONCLUSION
This paper presents methodology of empirical research on strategic develop-
ment and management of enterprise informatization. Identifying main strategic
features of business systems informatization can be useful from the perspective
of managing the transition from traditional to computerized business processes
and achieving a higher level of strategic IT development.
Research conducted on the basis of data collected on a sample of 50 com-
panies and using the multivariate analysis method enabled us to reduce a large
number of original attributes to a small number of attributes of common featu-
res, which lead to the shaping of factors. Based on the factor matrix made after
completion of the oblimin rotation, we were able to establish that attributes
indicated five immeasurable groups of attributes grouped into factors. Four fa-
ctors have been extracted from the perspective of strategic business features: 1)
Value, 2) Attiude, 3) Operation and 4) Velocity.
The findings will be used in further research which is aimed at recognizing
and using strategic business features as the function of strategic IT develop-
ment and the transition from traditional to computerized enterprise.
On the base of research, presented in this paper, we proposed the four com-
ponents of strategic factors that influence the business level informatization.
The following components are the component of strategic declaration of value,
component of operations, component of attitude and component of velocity,
depicted by Croatian firms interviewed in our research project. The compo-
nents of the strategic factors partially correspond to the classical approaches in
building enterprise architecture (Zachman, 1996) by answering the question
of what, how, where and when. The research could be directed toward deeper
215
insight of wheather this way of grouping factors is the path toward competi-
tiveness and successful long-run business operations by comparing financial
and non financial data from firms in the region. The paper suggested hints for
setting the strategic thinking priorities like strategic declaration of values, op-
erations, attitude and velocity issues that should be taken into account when
managing business informatization in the firm.
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87-91
216
RELATIONAL NETWORK,
ABSORPTION CAPACITY AND
ACCESS TO EXTERNAL RESOURCES
BY TUNISIAN CONTRACTORS
Adel GHODHBANE
Faculty of Economics and Management,
University of Sfax, Tunisia
adelghodbane@gmail.com
Habib AFFES
Faculty of Economics and Management,
University of Sfax, Tunisia
habib.affes@yahoo.fr
Abstract
This paper will try to analyze the impact of relational network characteristics
on the absorption capacity and the external resources of contractors. The origi-
nality of our approach lies in the choice of the context in which our empirical
analysis is applied, and relative to the Tunisian context. In addition, a range INTERDISCIPLINARY MANAGEMENT RESEARCH XI
of theoretical approaches are integrated that have examined the links between
absorption capacity and relational network.
Keywords: Relational network, absorption capacity, external resources,
Tunisia.
JEL Classification: M12; M14.
217
1. INTRODUCTION
Many studies have shown the essential role played by personal networks of
contractors in the elimination of informational and institutional gaps and in the
mobilization of external resources (Lallement and Bevort 2006; Mercklé 2004;
Lazega, 1999).
Furthermore, the literature clearly indicates that the social capital or the
resources that contractors can access through their personal networks (Adler
and Kwon, 2002) allows contractors to identify opportunities (Bhagavatula and
al. 2010), mobilize resources (Batjargal, 2003). A branch of this literature has
Adel Ghodhbane • Habib Affes: RELATIONAL NETWORK, ABSORPTION CAPACITY AND ACCESS TO EXTERNAL ...
highlighted the network structure (Stam, 2010), while other branches have fo-
cused instead on the strength of network ties of contractors (McEvily and Za-
heer, 1999) or resources from the various synergies characterizing the network
(Batjargal, 2003).
However, in order to realize the gains from “learning feed-forward” (Dutta
and Crossan 2005), the knowledge must be successfully transferred from peo-
ple who possess to the organization as a whole. In addition, knowledge alone is
not enough, the company should be able to use and act on the knowledge gained
from its environment (Dutta and Crossan, 2005). Information and knowledge
held in functional silos do not contribute to the success of the company, because
the company in this example lacks the capacity to exploit.
2. CONCEPTUAL FRAMEWORK OF THE

ABSORPTION CAPACITY
Zahra and George (2002) characterize the absorption capacity as a dynamic
capacity, it is a process at the organization which enables to change and evolve as
required by reconfiguring its resources in a way that best meets the current and
projected needs. The absorption capacity meets this criterion, since it involves
in part the acquisition and assimilation of knowledge. Thus, knowledge enables
the organization to adapt and evolve (Forsgren and al 2005, Gunawan and
Rose, 2014 ,Zahra and George, 2002).
Some researchers, however, argue that “... the absorption capacity still lacks
a solid foundation in the theory ...” (Camisón and Forés 2010, p. 708). To this
end, Cohen and Levinthal (1990) offer perhaps the most widely cited defini-
tion of absorption capacity, seeing it as the company’s ability to develop, acquire
218
and apply new knowledge. In addition, Mowery and Oxley (1995) define the
absorption capacity as a broad set of skills to deal with the tacit component
of transferring knowledge and the need to change this imported knowledge.
It is agreed that the absorption capacity is a multidimensional concept involv-
ing the ability to assess, assimilate and apply knowledge (Cohen and Levinthal,
1990) or a combination of bases of effort and knowledge (Mowery and Oxley
(1995). With respect to absorption capacity in the transfer of knowledge within
the company, Liu (2012) found a relationship between absorption capacity and
learning, while Yao, Yang, Fisher, Ma and Fang (2013) found a relationship be-
tween effective absorption of knowledge and creation of new products. Szulan-
ski (1996) identifie the lack of absorptive capacity as the main obstacle to the
transfer of best practices within the company.
Based on a review of the relevant literature, the absorption capacity can be
defined as a set of processes by which firms acquire, assimilate, transform and
exploit knowledge to produce a dynamic organizational capacity of four dimen-
sions. Each dimension appears to play a different but complementary role in the
relevant organizational results (Zahra and George, 2002). The main interest of
this research is the extent to which the absorption capacity helps to produce a
significant and valuable advantage for the company.
Many studies published to date agree that the absorption capacity is a mul-
tidimensional concept (Cohen and Levinthal, 1990; Lane and Lubatkin 1998;
Todorova and Durisin 2007; Xia and Roper, 2008 and Zahra and George,
2002), but set a different number of dimensions with different content. There is
no consensus among researchers to determine the number of phases that make INTERDISCIPLINARY MANAGEMENT RESEARCH XI
up the building to investigate.
Cohen and Levinthal (1990, p. 128) define absorption capacity as “the ability
to recognize the value of new information, assimilate it and apply it to com-
mercial use.”
The authors establish three dimensions, corresponding to the three capabili-
ties that arise from this definition. The first is the ability to recognize the value
of new external knowledge. For effective and creative use of new knowledge by
learning business, factors that facilitate the recognition of the value of external
knowledge must have both common knowledge bases prior to new knowledge
and a part of the knowledge of the company that is completely different.
219
Second, the company must be able to assimilate new external knowledge.
Once the company has identified the useful external knowledge, it must de-
termine how to internalize. It will be easier for a company to assimilate the
knowledge of another if processing systems of knowledge of both companies are
similar. Third, the company must be able to market the new external knowledge.
The subsequent study of Lane and al. (2001) expands and improves con-
siderably the components of the three dimensions, in the framework of inter-
national joint ventures. The first dimension, qualified the ability to understand
the knowledge, depends on the trust between the parties, cultural compatibility,
basic knowledge, and the relationship between the activities of both parties.
The second dimension, the ability to assimilate new knowledge, depends on

the flexibility and adaptability, management support, training and official tar-
gets and specialization of parties involved in the exchange of knowledge. Finally,
the third dimension is the ability to apply external knowledge.
After empirical refinements, Lane and al. (2001) leave open the possibility
that the absorption capacity is composed of only two different dimensions. This
is the case because their findings lead them to say that the first two compo-
nents of the ability to understand and ability to assimilate external knowledge
are independent and different from the third component, the ability to apply
that knowledge. Therefore, the absorption capacity might have two dimensions.
These results are supported by Heeley (1997), which take into account only
two components, the acquisition of external knowledge and its dissemination
to the company.
Zahra and George (2002, p. 198), however, distinguish four dimensions,
which coincide with the phases of the absorption capacity. These authors sug-
gest that the absorption capacity “is a set of organizational routines and strategic
processes by which firms acquire, assimilate, transform and exploit knowledge
for a value creation.” Thus, the first dimension is the acquisition. This dimen-
sion was initially identified by Cohen and Levinthal (1990) as recognition of
the value. Zahra and George (2002) redefined the term, focusing not only on
the evaluation of the use of knowledge, but also their transfer from one com-
pany to another.
The second dimension is the assimilation. In this phase, the goal of the com-
pany is to understand the external knowledge through its own specific routines.
220
To assimilate knowledge and obtain benefits, members of the organization
must interpret and understand this knowledge to finally learn.
The third dimension is the transformation. To this end, capacity of trans-
formation is the internalization and conversion of new knowledge acquired and
assimilated. It seeks to combine existing knowledge with newly acquired ones.
This ability is related to the recognition of entrepreneurial opportunities.
The fourth and final dimension is exploitation. This dimension is strategic
for a company because it generates results after the effort to acquire, assimilate
and transform knowledge. The exploitation is the development of routines to
implement and use the knowledge and thus create new products, systems and
processes (for example, new forms of organization) and improve existing skills,
or even create new skills.
Each dimension plays a different but complementary role to explain how the
absorption capacity may influence the results of the organization.
Jansen and al. (2005) took over the dimensions proposed by Zahra and
George (2002) and conclude that the absorption capacity has two different com-
ponents which correspond to the potential and the actual absorption capacity.
Todorova and Durisin (2007) propose to reconceptualize the absorption
capacity of long-term by making some changes in the definition proposed by
Zahra and George (2002) and therefore in its dimensions. They show that the
recognition of the value as a critical first step in the acquisition of new exter-
nal knowledge is a term much clearer, because it is based on the idea initially
proposed by Cohen and Levinthal (1990) that if there is no prior knowledge, INTERDISCIPLINARY MANAGEMENT RESEARCH XI
organizations will not be able to evaluate the new information and thus, will not
be able to absorb it.
Moreover, the authors argue that the transformation is an alternative and
not a later stage of assimilation. The transformation occurs only with the
knowledge that is too recent to be considered in its raw state.
Finally, Lichtenthaler (2009) distinguished between three learning processes
that are complementary to the absorption capacity: First, exploratory learning
which comprises the steps of recognizing external knowledge and assimilation.
Next, learning processing which includes the steps of maintaining assimilated
knowledge and its reactivation. Finally, the operational learning that includes
the steps of transmutation and application of assimilated knowledge. Although
221
these steps were analyzed in previous research (eg the research of Lane and al.,
2006; Todorova and Durisin 2007; Zahra and George, 2002), how to group
them is differently analyzed.
3. RELATIONAL NETWORK AND ABSORPTION

CAPACITY: FORMULATION OF HYPOTHESES
In what follows, we will examine some ways in which each of the four di-
mensions of relational network acts on the access of the contractor on external
resources and its absorption capacity.
Greve (1995) argues that a higher number of contacts in the relational net-
work of the contractor increases the possibilities to receive diverse informa-
tion. The author admits that the intentional search for information is difficult
and that luck is needed to obtain useful information. However, the diversity
of information within a broad network increases the chances of the existence
of a similarity between the stock of knowledge held by the contractor and the
knowledge that it can be obtained from the outside. This similarity is necessary
for the absorption of external knowledge in that it facilitates its acquisition, as-
similation, transformation and exploitation (Cohen and Levinthal, 1990; Lane
and Lubatkin, 1998). However, if a minimum of diversity is valued for improv-
ing the absorption capacity of the contractor, a wide variety of links leads to
fragmentation of knowledge that prevents the development of heuristics for its
treatment. Then, it would be legitimate to think that beyond a certain limit,
the diversity of the relational network of the contractor hinders his absorption
capacity. Hence, the following assumptions:
H.1: The network size determines the capacity to absorb external knowledge of
contractors.
Furthermore, based on the argument of redundancy, Burt (2001) argues
that network density improves communication between members who are best
placed to recognize the value of resources held by the partners. In this same line
of thought, (Reagans R. & E. Zuckerman, 2001) argue that the importance of
the amount of information that a dense network creates helps members to value
the knowledge circulating in the network. Also, Eriksson and Sharma (2003)
find a positive relationship between redundant links and assimilation of knowl-
edge by the contractors.
222
The authors propose a redundant link is useful for understanding and as-
similation of knowledge acquired in another relationship. However, studies
by Granovetter (1982) and Rogers, Everett M (1983) show that low-density
networks are more favorable to the spread of new ideas and the diffusion of
innovation. Thus, the network members would be more likely to find new solu-
tions to their problems from the experiences of other members and new ideas
generated by them. Finally, the increased communication between partners in a
dense network increases the chance that the knowledge gained to better target
the receptor partner objectives and therefore, leads to a good exploitation of
knowledge. In addition, redundant links within the network increases the cir-
culation of skills that members need to achieve their goals. Hypothesis about
the impact of the network density on the absorption capacity of contractors are
formulated as follows.
H.2: The network density is positively related to the capacity to absorb of external
knowledge of contractors.
Furthermore, the repeated interaction between the members of a network
induces a similarity of their knowledge of stocks (Coleman, 1988; McFadyen,
Cannella and Albert, 2004).
This similarity is important for the development of new knowledge. In ad-
dition, by increasing the activities and knowledge sharing routines, social in-
teractions enhance the ability for an individual to value and assimilate external
knowledge provided by his network members (Yli-Renko and al, 2001). Then,
when the actor maintains the same partners exchange over time, the number of
shared experiences increases (Bouty, 2000). Now, more partners have experi-
ence in solving problems of similar types, will be easier for the leader to find
commercial applications for knowledge he has acquired and assimilated (Lane
and Lubatkin, 1998).
However, more the stronger links between partners increase, more the di-
versity of knowledge exchanged decreases. As noted above, although Cohen
and Levinthal (1990) emphasize the importance of the similarity of knowledge
bases between the partners for the development of the absorption capacity, they
also highlight the need for the existence of a minimum of different knowledge
ensuring complementarity between partners. So while we expect a positive ini-
tial effect of the intensity of ties on the various components of the absorptive
223
capacity of the contractor, it is also contemplated that such effects fade over
time. Hence, the following hypothesis:
H.3: The intensity of ties significantly affects the capacity to absorb external knowl-
edge of the contractors.
Furthermore, the heterogeneity of information and knowledge increases the
chances of discovery of new opportunities. This is for example to be aware of
the emergence of a new resource. Similarly, network heterogeneity exposes indi-
viduals to different points of view. Therefore, these people will be more inclined
to try the different opportunities and by comparing the different points of view.
Also, network heterogeneity increases the possibilities of interpretation and

analysis of knowledge gained and thereby, increases the degree of assimilation
of knowledge. However, the diversity of knowledge areas should not exclude
the sharing of a common language between them, necessary for the assimila-
tion of knowledge. In addition, access to heterogeneous knowledge increases
the potential for the creation of an individual. This potential revet of form of an
interconnection between ideas and different concepts in the mind of the indi-
vidual (Rodan and Galunic, 2004).
Then, the network diversity improves the ability of an individual to imple-
ment his ideas and execute complex tasks. Indeed, the heterogeneity of knowl-
edge enables the individual to establish causal links between the elements of a
complex system that characterizes some of the gained knowledge. Finally, the
variety of areas of expertise, offers a wide range of skills related to different fields
of expertise. The variety of available skills is especially important in situations of
high uncertainty, as is the case for innovation.
H.4: The scope of the network is positively related to the absorption capacity of ex-
ternal knowledge of contractors.
Although the effects of each dimension of relational network are examined
separately, we assume that the three dimensions are interrelated. For example,
previous studies simultaneously examining the effects of density and diversity
of the network. These studies suggest that despite the diversity and density are
separate, they are not mutually exclusive. Indeed, the redundancy of ties that
characterizes a dense network does not mean that the network is diverse, from
the time when its members belong to different fields of expertise (Greve, 1995;
Reagans and McEvily, 2003). In other words, the redundancy of information
224
is not only the number of relations between the partners, but also the degree
of homogeneity of network contacts in terms of occupations and experiences
(Greve, 1995). Similarly, previous research has shown the existence of a rela-
tionship between network density and intensity of ties within it. Thus, it is gen-
erally recognized that strong ties are developed further in the dense networks
(Granovetter, 1973). In addition, McEvily and Zaheer (2003) found that when
the density of the network is introduced into their model, the contingent effect
of the intensity of the ties on the ease of knowledge transfer decreases. Accord-
ing to the authors, this is due in part to the fact that the intensity of ties and
network density are interrelated.
4. RESULTS AND DISCUSSION

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

Items Contribution F.1
Access to basic knowledge related to the project 0.867
Access to other knowledge which are not related to the project 0.855
Description of situations, concepts or processes 0.922 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Use of terms you can understand 0.807
Adapt to external changes 0.92
Difficulties in sharing experiences 0.744
A greater understanding of the way in which you activity is accomplished 0.881
Similarly to solve problems 0.725
Eigenvalue 5.68
% Of the explained variance 71.09%
Moreover, we have condensed the variables initially adopted in reduced

number of composite variables in order to proceed to the validation of the
hypotheses. We synthesize the results of all the factor analyzes conducted on
the different variables. It should be recalled that in the study of validation of
225
hypotheses, we have established choice of analytical methods of the reference
sample. We used the nonparametric tests and simple regression tests. Indeed,
the division of the sample into two groups of samples results in a decrease in the
number of observations per group of individuals. Given this, it is necessary to
mobilize adequate statistical tests (parametric and nonparametric tests).
The analysis in this research is based on two components. In the first, it is to
check the change in the variables of our model for the two age categories (under
40 and over 40 years). In this phase of the analysis, the sample will be divided
into two groups (variable according to age). The goal is to study the quality of
cause and effect between the dependent variable and the explanatory variables
contained in the research hypotheses. We will focus on testing hypotheses re-

garding the change of variable age of contractors.
In order to test the relationships of variables affecting access to external re-
sources and the absorption capacity, we used multiple regression tests that are
done in three levels: The dependence intensity of each component of the rela-
tional network personnel (structure-type of network ties-attributes of alters)
on access to external resources and the absorption capacity which is calculated
using the correlation coefficient. The significance of the connection and the
quality of the fit of the model is assessed through the determination coefficient
R2 and the F test of Fischer, and finally, the examination of residues which re-
flect the accuracy of the model.
It should be noted that the linear coefficient of determination, R2 is the
main indicator of the quality of regression. In other words, it summarizes the
ability of the regression to represent all of the point cloud of the observed val-
ues. However, the interpretation of R2 must take into account also the number
of explanatory variables and observations included in the model. To this end,
the adjusted R2 provides a more realistic assessment of the results of the model.
226
Table 2: Results of multiple regression of the structure of the relational net-
work and access to external resources
Coefficient
(p-value)
Informational resource Financial resource Absorption capacity
0.48*** 0.569** -0.03ns
Scope of the network
(0.000) (0.013) (0.579)
-0.371** -0.416 ns 1.6**
Network density
( 0.022) (0.28) (0.046)
-0.0027ns 0.031** 0.066
Structural holes
(0.649) (0.045) (0.961)
3.902*** 4.096 *** 0.65***
Constant
(0.000) (0.001) (0.000)
N.obs 32 32 32
RMSE 0.43 1.078 3.859
Parms 4 4 4
2
R 54.04% 38.67% 18.4%
Value of F 10.976 5.884 3.106
p-value of F 0.0001 0.0030 0.072
The first relationship we wished to verify logically equivalent to the assump-

tion on the possible influence of the structure of the relational network of the
contractors on the access to external resources. Multiple regression tests in this
regard provided a significant result. Indeed, the F value is 10,976 with prob-
ability p-value = 0.0001 for the first regression, and the value of F is 5.884
with probability p-value = 0.003, for the second regression. It allows concluding
about the quality of the value in the two variables. At this stage, we have verified
three main relationships related to the extent of network, structural holes and
network density.
To check the first relationship, that is to say the effect of the extent of net-
work on the access to external resources, our empirical results indicate a coef-
ficient of 0.48 with a p-value = 0.000 for the relationship between the size of
the network and access to information resources and a coefficient of 0.569 with
a p-value = 0.013 for the relationship between size of network and access to
financial resources.
These results are consistent with our theoretical prediction and they have
been previously recommended by the work of Baron (2007) and Brown and
227
Dugrant (1992) who show that a large network of contractors improves the
chance to pick up useful information in one hand, and to access to external
information resources and recognition of the other opportunities. Thus, our
hypothesis which postulates that access to external resources depends on the
size of the network is accepted.
It is the same for the test on the relationship between network density and
access to strategic informational resources. The result shows a coefficient of
0.031 which significant (p-value = 0.045) and we then can conclude the accep-
tance of the hypothesis assuming that the density of the network apprehended
in the side of gestures and contacts roles significantly influences access to exter-
nal resources and in particular increases the likelihood that the contacts share
the same information.
However, by refining the research on the role that can play structural holes
in access to external resources, our empirical results show a non-significant co-
efficient (p-value = 0.28), and the hypothesis is rejected and that these non
Significant fallout do not allow the speed of information and a better quality of
information. In this sense, we can conclude that the hypothesis of the relation-
ship between the relational personal network structure and access to external
resources is partially validated.
Moreover, the first review of the relationship between the extent of the
network and the absorption capacity shows a non-significant test (p-value =
0.579). In this sense, we performed an analysis based on the results provided by
the non-parametric tests on the change of the absorption capacity by the age of
the contractor. Indeed, the structure of the relational network in the side of the
scope shows a significant difference between the two age groups. In the same
sense, we see a non-significant test.
In opposition, the test of the relation between the structural holes and the
absorption capacity indicates a significant coefficient. Indeed, the test shows
a coefficient of the order of 1.6 to 5% risk (p-value = 0.046). These results
strengthen those recommended by Granovetter (1982) and Royers (1983) who
argue that a high number of contacts increase the possibility of receiving a vari-
ety of information and the existence of a similarity between the stock of knowl-
edge and knowledge from outside.
Moreover, the results also reveal a significant relationship between network
density and absorptive capacity. The multiple regression tests show a significant
228
coefficient at the threshold of 1%. Thus, it is apparent that the gained knowl-
edge is better targeted to partner goals in a dense network, which supports the
dissemination of new ideas and therefore, the generalization of innovation. In
this regard, we conclude that hypothesis H.2 is validated.
The second relationship we have studied is the influence of the nature of the
ties on access to external resources. The analysis of the first simple regression
test revealed a non-significant test (F = 0.01 with p-value = 0.92). In this sense,
we conducted an analysis based on the results provided by the non-parametric
tests on changing of the nature of ties in the two age groups. Regression test still
not significant (F = 0.029 with p-value = 0.074). In opposition, the test of the
second regression indicates a significant value of F equals to 3.13 at the level of
10% (p-value = 0.086).
The share of the returned variance is equal to 9.4%. Thus, we conclude a
partial validation of the hypothesis of Mackle (2004) which shows that the ty-
pology of the existing strong ties between two distinct social groups provides
more access to financial resources to meet all business objectives.
However, the analysis of the relationship between the nature of the ties and
the absorption capacity indicates an insignificant test. The test shows a value
of F equal to 0.09 with a p-value = 0.77, and the share of explained variance is
2.3% with a coefficient of adjusted R2 almost 3%. Thus, H.3 hypothesis which
postulates that the absorption capacity depends on the nature of the ties is
rejected.
Table 3: Regression model of the nature of ties, access to external resources and INTERDISCIPLINARY MANAGEMENT RESEARCH XI
absorption capacity
ANOVA
DF Sum of squared Mean square R2 R2 ajusted Error Value of F p-value of F
Model 1 1 0.633 0.373 2.9% 7.4% 11.22 0.01 0.92
Model 2 1 1.27 1.71 9.4% 6.4% 45.22 3.13 0.086
Model 3 1 1.45 4.12 2.3% 3.04% 16.99 0.09 0.77
Coefficient
(p-value)
-0.027ns 1.027* 0.55 ns
Nature of social ties
(0.924) (0.087) (0.772)
4.19*** 4.43 *** 4.38***
Constant
(0.000) (0.001) (0.003)
229
In order to check third the effect of attributes of alters on the access to ex-
ternal resources, we conducted a regression test between the two variables. Our
empirical results indicate a null value of F with a p-value of 96.9%. In addition,
the simple regression test is significant for either the first regression (F = 0.22;
p-value = 0.8) or for access to external resources (F = 0.08; p-value = 0.92).
Table 4: Regression model between the attributes of alters and the access to
external resources
ANOVA
DF Sum of squared Mean square R2 R2 ajusted Error Value of F p-value of F
Model 1 1 11.39 0.37 15% 17% 0.8005 11.39 0.22

Model 2 1 1.81 0.14 5% 6.3% 0.925 52.81 0.08
Model 3 1 13.3 4.07 2.6% 3.4% 0.077 16.59 3.8
Coefficient
(p-value)
Attributes of -0.084ns 0.179
1.28*(0.082)
alters (0.969) (0.704)
4.201*** 4.63 *** 7.6**
Constant
(0.000) (0.000) (0.029)
The last relationship we wanted to check logically equivalent to the hypoth-

esis H.4 about the influence that can have the attributes of alters on the absorp-
tion capacity. The simple regression test provided a significant result. However,
the F value is 3.8 with probability p-value = 0.077 allowing comment on the
quality of the relationship between the two variables. This assessment is as-
signed by a correlation coefficient of 1.28 with a probability of p-value = 0.082.
Thus, our hypothesis H.4 is validated.
5 CONCLUDING REMARKS
Our results show that access to external resources is mainly dependent on
certain structural characteristics of the relational network of the contractor, to
know the size and density of the network, as opposed to structural holes, which
has no significant effect on access.
Moreover, our empirical result shows that the absorption capacity as a key
step in access to resources is strongly conditioned by the relational network of
the contractor. To this end, our analysis reveals that the number of structural
230
holes, besides the density of the network, significantly affect the absorption ca-
pacity. However, while non-parametric tests indicate a significant difference in
the absorption capacity between the two age groups of contractors, our econo-
metric results show that the extent of the network has no significant effect on
the absorption capacity.
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233
DECISIONMAKING AS A
MANAGEMENT FUNCTION
mr. sc. Mato PUŠELJIĆ

University of Applied Sciences Baltazar Zaprešić,
Republic of Croatia
mato.puseljic@bak.hr
Ana SKLEDAR, univ.spec.oec.

Republic of Croatia
ana.skledar@bak.hr
Mato Pušeljić • Ana Skledar • Ivan Pokupec: DECISION-MAKING AS A MANAGEMENT FUNCTION
Ivan POKUPEC, univ.spec.oec.

Republic of Croatia
ivan.pokupec@bak.hr
Abstract
Organizations survive or disappear primarily thanks to the quality of manage-
ment that leads them. Decision-making is not the only, but the basic function
of management that contributes most to the success or failure of the organiza-
tion. The manager is the one who makes decisions and decision-making is the
essence of planning. Planning is the first and most important function of man-
agement as a process that determines all other functions: organizing, managing
human resources, managing and control. Techniques of decision-making are
associated with levels of management and with types of decisions taken at each
level of management. Today, we do not have enough time to spend on decision
making process, but that does not mean that we can make decisions thoughtless.
Keywords: decision-making, management functions, decisions, organizing,
managing human resources, control, managers
JEL Classification: M5, M51, C44
234
1. INTRODUCTION
Management is a phenomenon of the 20th century and in his hundred years
of existence has in general transformed the economic and social content. The
largest contribution of management to humanity development lies in the fact
that management is omnipresent in our daily life and work. There is almost
no organization that does not have its management, and whether some orga-
nizations will succeed or will not succeed primarily depends on the quality of
management of an organization. Our study examined a convenience sample of
executives of Croatian Ministry of the Internal Affairs in all organizational lev-
els. The total number of respondents who participated in the study was 273, of
which 268 were males and 5 females. The average life expectancy is 42 years,
with on average 19 years of work in the Ministry.
Because of many years of crisis and recession high quality management in
general and quality managers are required by large and small organizations,
profit and non-profit organizations, real and public sector, government and
non-governmental organizations. Management is required at all levels of the
organization and is required in all organizational processes of work. The mana-
gerial job, unlike other jobs, is not easy, nor can be described or prescribed in
details. This situation is a chance for every manager to demonstrate its abil-
ity and quality of reasoning. However, if the organization’s success largely de-
pends on the quality of management, the question arises: what does a successful
manager know (have) and others are missing? Knowledge and skills necessary
for the performance of managerial work are not uncommon. These are simpli-
fied conceptual skills, knowledge of job (profession) and knowledge of people,
and all these skills are correlated with the level of management. It is interesting
to note and a study we conducted confirms it, that the majority of executives
(managers) thinks that they are competent to perform managerial jobs, and to
have qualified knowledge and skills. When asked: Do you consider yourself ad-
equately prepared for a managing position, respondents answered as follows:
Table 1. Preparedness of managers to perform managing tasks
number of respondents % of respondents
Yes, I am fully prepared 192 70,32
Partially prepared 74 27,10
Not enough prepared 7 2,56
Not at all prepared 0 0
Source: own study conducted at the Ministry of Internal Affairs in Republic of Croatia
235
Today, the management can be discussed as a: scientific discipline, skill,
profession, process. Since the beginning of the 20th century management has
been studied in almost all higher education institutions. Management is a skill,
which like any other skill is acquired by experience. Today, management is an
established profession in the labor market. The understanding of management
as a process or a process approach to management is the most important for un-
derstanding not only the term, but its actual content. Management as a process
consists of certain functions. In the contemporary theory and practice five basic
functions of management have been accepted. These are: planning, organizing,
human resource management, leadership and control.
On the other hand, classification of managerial functions consists of opinion
that the most important function of management is decision making. (Sika-
vica et.al; 2008, 22) The question is: which managers are competent to perform
the tasks that are result of certain managerial functions, how much knowledge
do they have about planning, organizing, managing human resources and con-
trol. Every larger organization consists of specialized organizational units and
competent employees who are professionally engaged in planning, organizing,
managing human resources and control. Therefore, it can be concluded that
the only content that no one else can perform as well as managers is leadership.
Decision-making is not the only, but it is the basic function of management, and
the need for decision-making is so widespread that the decision has become a
synonym for management. Decision making is imminent to any management
function as a way of achieving those functions. Each managerial function is
eventually determined by a particular decision.
The following paper deals with functions of management as a process cor-
related with time, the definition and importance of decision-making, decision-
making techniques, steps in decision-making and the decision-making under
conditions of high centralization or decentralization of individual organiza-
tions. The paper presents partial results of research of adequate training for the
performance of management tasks, autonomy in decision making, the impor-
tance of decisions made independently, and exposure of control. The paper ends
with a conclusion and a list of used references.
236
2. MANAGERIAL FUNCTIONS IN CORRELATION
WITH TIME
Each process, and management is a process, is a set of activities and / or op-
erations that transform certain inputs into outputs. The process can be recog-
nized by changes that occur during the performance of activities and operations.
Results of these changes are outputs. Management activities in the process are
called management functions. H. Fayol gave us the first well-known classifica-
tion of managerial functions in the early 20th century. With logical sequence he
lined up management functions such as planning, organizing, ordering, coordi-
nation and control. Half a century later, P. Drucker presented his conception
of management functions, namely: setting goals, organizing, motivating and
communicating, measuring and evaluating of achieved results and staff develop-
ment. Considering the time in which they occurred significant differences in the
concept of function are more than visible. (Buble; 2006, 12) Fayolle concept is
almost rigid, the terms are strictly defined, and partly borrowed from the mili-
tary terminology. According to him, all these functions are required not only
for the successful conduct of business, but also in politics, military, religion, and
elsewhere, which means that the management functions are universally appli-
cable. Drucker’s concept is characterized by mainly two new moments. Firstly,
a different attitude toward people (insists on communicating and motivating
instead of ordering and controlling). And secondly, emphasizes the qualitative
aspect of management, and measurement of achieved results.
According to some opinions management process consists of four functions:
organization, planning, control and influence. Therefore, influence includes mo- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
tivating, leading and directing. (Sikavica et al; 2008, 20) The concept of classi-
fication of managerial functions such as planning, organizing, human resources
management, managing and controlling dominates today. Such an approach is
dominant in the way of structuring managerial functions. (Weihrich & Koontz;
1994, 15) Managers do not differ according to whether they need to perform
some or all of these tasks or functions, but in that to what extent they will
devote to some of these activities or functions. (Sikavica et al; 2008, 23) So,
all managers, regardless of organizational level, perform all management tasks,
main difference is how much time they spend on each of the functions of man-
agement. Planning is the most important function for managers at the highest
levels of management, less important features are organization and control, and
the least important features are guiding and management. At the middle level
237
of management, all the managerial functions are equally important, while at the
lowest level of management the most important function is guiding or manag-
ing, less important is function of control, while the least important features are
planning and organizing. (Sikavica et.al; 2008, 24) It is evident that managing
is crucial important at the lowest level of management because they are the only
managers in direct contact with the executors. Other authors agree that man-
agement functions are generated by all managers in the organization, and they
devote more time to particular functions, as already been said, and function
like control takes the least amount of time at all levels of management. (Buble;
2006, 15) Not because it is the least important function in comparison to other
managerial functions, but because of constructed control systems which facili-
tate the work of managers and also because of self-control which is increasingly
important part of every business. The results of our research mostly support
this view. When asked to express daily time spent on individual managerial
process in percentages, respondents answered as follows:

Table 2. Percentage of daily time spent on individual managerial process
% of respondents
How much time do you spend planning your work? 24,80
How much time do you spend on organizing work? 22,60
How much time do you spend on guiding? 29,60
How much time do you spend on management
12,80
human resources?
How much time do you spend on control? 10,20
Nearly a third of the time managers spend on directing staff (guiding),

equally on planning and organizing work, and the least time on human resourc-
es management (quality of public and state organizations, executives are largely
limited in “staffing”) and control. When asked: How often are you controlled by
your superiors, respondents answered as follows:
Table 3. Frequency of control
Controls are frequent and constant 73 26,73
Controls are occasional and rare 192 70,32
Never controlled by superiors 8 2,93
238
While a quarter of managers are frequently controlled by their superiors,
more than seventy percent of managers are occasionally, almost rarely controlled.
3. CONCEPTUAL DEFINITION OF DECISION

MAKING
It has already been pointed out that some authors considered decision-
making, not the only, but certainly the primary function of management, which
in simple terms can be expressed by the sintagm “the manager is the one who
decides.” ( Jurina; 2011, 156) Decision-making is determined by each manager.
In our numerous, but also in foreign literature, decision-making is conceptually
very easily determined. “Decision-making is defined as a chosen way of conduct-
ing business among several alternatives; it is the essence of planning.” (Weihrich
& Koontz; 1994, 199) This kind of approach to defining the concepts is associ-
ated with planning because during various stages of planning process managers
make expert and managerial decisions. Decision-making is considered to be the
essence of planning and until a decision is made, we cannot tell that planning
document has the character of the plan. Decision-making can be defined as “a
process that allows decision-maker to select at least one option from a set of
possible alternative decisions”. (Barković; 2009, 119) Decision-making is a very
wide term , so we can talk about decision-making in various areas of life and
work, for example there is decision-making in our personal lives, decision-mak-
ing in business entities, and decision making in the state and in related institu-
tions. “Decision-making is a process that takes a (longer or shorter) time, and
it ends with decision making, and its implementation and control. The process INTERDISCIPLINARY MANAGEMENT RESEARCH XI
of decision-making depends on the type of decision; it lasts from fractions of a

second to several hours and days, months even year.” (Bahtijarević-Šiber; 2008,
336) In conceptual determination decision-making can proceed with a number
of different aspects of which two are important. (Buble; 2006, 143) First is the
one which starts with the procedural aspect, so in that case, decision-making is
defined as a process of identifying problems and possibilities of their solution.
Second is the one that starts with condition terms in defining decision, so in
that case, deciding is defined as the act of choosing between several potential
opportunities. No matter how it is defined, decision-making is a creative pro-
cess that is realized rationally, with the following three assumptions:
239
1. there is a clear understanding of the alternative directions through which
stated goals with existing opportunities and limitations are possible to achieve;
2. there are information and the ability of decision makers to analyze and
evaluate alternatives within the set objectives;
3. there is a will of decision makers in finding the best alternative solution
which must be effective In order to achieve settled goals.
From all of the above it follows that making decision on the occasion of solv-
ing a problem, or the decision-making process, is primarily determined by the
number of alternatives that appear as possible solutions to problems. If there are
no alternatives to solve the problem, then we cannot speak about the decision-
making process. How will managers, from a number of alternatives, choose the
best one, how to conduct selection and narrow down the best alternatives that
are complementary with restrictive resources that can be used to achieve the
objective? In response to a question usually they use different techniques of

decision-making, depending on the type of decision, or whether it is a routine,
adaptive or innovative decision. (Buble; 2006, 158) Many authors point out
the connection between types of decisions with the level of decision-making.
( Jurina; 2011, 157) For making routine or operational decisions, related to well
known and well defined problems, rules and standard operating procedures
(SOPs) and artificial intelligence are applicable. This type of decision is usu-
ally brought by managers at lower organizational levels, immediate manag-
ers, and even non-managers or the executors themselves. For the adoption of
adaptive decision, referring to moderately unspecified problems and alternative
solutions, analysis of critical points and techniques of matrix payment are ap-
plicable. Decisions are mostly taken by functional managers at the middle man-
agement level. And finally, for the adoption of innovative or strategic decisions,
referring to unusual and unspecified problems, techniques of decision trees and
Osborne’s model creativity are applicable. Decisions are made by managing au-
thorities and managers at higher organizational levels. Of course there are other
techniques of decision-making; these are techniques that are commonly used in
practice. (Buble; 2006, 160) Rules and standard (operational) procedures are
the simplest techniques of making routine decisions. These are pre-written pro-
cedures (steps) when making routine, programmed decisions. Artificial intelli-
gence is the ability of programmed computer systems to perform the functions
that usually remind us of human intelligence. The essence of analysis is to de-
termine the relationship between costs and profits in relation to the movement
240
of the level of activity or the volume effect. Matrix of payment (decision) is a
technique that is primarily used in the case of risk; it shows the consequences
of choices of some alternatives depending on the situation. A decision tree is a
special technique of decision making, based on the relationship between strat-
egy and conditions, and is used to solve complex problems. Osborne’s model
of creativity indicates to a special technique that is used in the process of mak-
ing innovative decisions, and is focused on stimulating the creation, developing
cooperation and innovative group decision-making. It consists of three main
phases: researching problems, detecting ideas and searching for solutions.
. Stages of decision-making

No matter which technique of decision making is used, in the process of de-
ciding, on the way from detecting problem to making a decision, it is important
to apply certain stages (phases, steps). In the literature, there are different clas-
sifications of decision-making process from the simplest that talks about two
phases, to complex that talks about four, five or more steps in decision-making
process. The decision making process can be divided into the preparation phase
and the phase of making a decision. Most authors say that the decision-making
process consists of five stages (phases) ( Jurina; 2011, 160):
1. problem identification,
2. diagnosing problems (problem formulation),
3. generalization of alternatives (variants),
4. selection of alternatives (variants), INTERDISCIPLINARY MANAGEMENT RESEARCH XI
5. making decision on the best alternatives (variants).
Although some authors cite different numbers of stages in decision-making
process, all authors without exceptions, cite phases that are essential and with-
out which it would not be possible to carry out the decision making process. A
complete decision-making process can be parsed at eight phases. (Bahtijarević-
Šiber; 2008, 370) The first phase in decision-making process is to identify
problems which need to be solved. Misdiagnosing the situation unavoidably
leads to wrong therapy. Therefore, the first stage of the decision making process
is crucial for all other phases. Defining the tasks is the second stage of decision-
making process which follows when we know what needs to be solved. The third
stage in decision-making process is to record and analyze current situation. It
241
can be determinate which resources (human, material, financial) managers can
use to salve problems. Searching varies problem solutions as the fourth stage
in decision-making process is actually the first “real” phases in decision-making
process, and all the previous stages are preconditions for deciding. At this stage,
the process of developing ideas is carried out as possible solutions for problems.
The fifth stage of the decision making process is the evaluation of different ver-
sions for solving problems. After assessment, versions are accepted or rejected.
After five steps that can be considered as a preparation for making decision,
follows the sixth phase of the decision making process or the selection phase of
the best versions. Making a decision is choosing the most appropriate version,
respecting the present circumstances. The seventh phase of decision-making
process is the reason why the whole process of decision making and decision
implementation even starts. By monitoring the flow of implementation we en-
sure proper implementation of the decision. And at the end of the decision
making process (last eighth stage) follows the control of implemented decisions.
Control enables verification through all decision-making process.
4. DEGREE OF CENTRALIZATION AND

DECISIONMAKING
The paper pointed out that many authors indicate the relation of organi-
zational levels of management with the types of decisions that are made and
the importance of these decisions for the organization in general. How many
decisions will managers bring at each level of management and the importance
of these decisions, largely determines the degree of centralization or the de-
centralization of the organization itself. When senior management makes all
important decisions, we talk about the centralization of decision making, and
the decentralized organizations are the ones in which decisions are deployed at
lower levels in the organization. (Sikavica; 2011, 364) The range of decentral-
ization in decision-making can be revised by answering to several questions.
1. What is the number of decisions made at lower levels of management?
2. What is the importance of the decisions made at lower levels of
management?
3. What is the impact of decisions made at lower levels of management?
4. How often does senior management check subordinate levels of
management?
242
If lower levels of management brings a large number of decisions, which are
important and significant, and controls of senior management are occasional or
rare, then one can speak of a high degree of decentralization in decision-mak-
ing process. Of course, the reverse is also true. Results of our research suggest
the following. When asked: How many decisions associated with functioning
of the organizational unit, or the use of potential of organizational units are
made independently, without consultation with the supervisor. Respondents
answered as follows:
Table 4. Degree of autonomy in decision-making
None decisions can be made independently 2 0,73
I make a small number of independent decisions 90 32,96
I decide alone, and only in rare cases I consult
176 64,46
with a supervisor
I decide independently 5 1,83
Most of respondent’s decisions are made largely independently, while one

third of respondents are unable to make decisions without consulting superiors
managers. When asked: What is the importance of the decisions that are made
independently in the strategic, tactical and operational terms, respondents an-
swered as follows:
Table 5. Importance of decisions made independently
number of respondents % of respondents INTERDISCIPLINARY MANAGEMENT RESEARCH XI
These are mostly unimportant decisions 2 0,73
These are decisions of minor importance, which
63 23,07
are operational nature
These are decisions whose importance are
188 68,86
tactical and operational nature
These decisions have extensive strategic
20 7,32
significance
Managers who decide independently or mostly independently make exclu-

sively decisions that are operational and tactical nature. Only a small number of
decisions have strategic significance. Strategic decisions are made at the political
level by the Government, the Minister and his associates.
243
5. CONCLUSION
How competent, educated, qualified are managers (executives) to perform
the tasks? How many knowledge of the planning, organizing, managing human
resource and control do they have? The question is of subjective nature. This is
the knowledge that requires education throughout their entire life. However,
management is decision-making, being a manager means to make decisions and
take responsibility for the effects of decision implementation. Regardless of the
many techniques that are used in decision-making, the task of choosing a spe-
cific version (alternative) for solving a specific problem lies on the managers. We
live in a time of great uncertainty, rapid and frequent change and turbulence.
Long-term planning becomes an utopia, dynamic planning is evident more than
ever, plans on a daily basis must be corrected, and the decision-making is the
essence of planning. The decision process shortens, decision-making cannot
last indefinitely, but it does not mean that decisions can be taken recklessly,
without fundamental preparations. Despite constant environmental demands

for changes the use of approximate methods in decision-making process cannot
be useful. From presented answers it can be concluded, that it is an organi-
zation with appropriate decentralization in decision-making. Great autonomy
in decision-making comes primarily from clearly defined tasks, powers and re-
sponsibilities of each employee, including managers in system of the Ministry
of Internal Affairs. And finally, one author wrote that smart managers make
decisions only when they are sure of the outcome, and they delegate everything
else to close associates.
. Literature
Barković, D. (2009), Menadžersko odlučivanje, Ekonomski fakultet u Osijeku, 978-953-
253-069-8, Osijek
Buble, M. (2006), Osnove menadžmenta, Sinergija nakladništvo d.o.o., ISBN 953-6895-
35-8, Zagreb
Jurina, M. (2011), Organizacija i menadžment, Visoka škola za poslovanje i upravljanje s
pravom javnosti „Baltazar Adam Krčelić“, ISBN: 978-953-96539-7-0, Zaprešić
Sikavica, P. (2011), Organizacija, Školska knjiga, ISBN 978-953-0-30394-2, Zagreb
Sikavica, P., Bahtijarević-Šiber, F., Pološki Vokić N. (2008), Temelji menadžmenta, Školska
knjiga, ISBN: 978-953-0-30346-1, Zagreb
Weihrich, H., Koontz, H. (1994), Menadžment, Mate d.o.o., ISBN: 953-6070-08-1, Zagreb
244
General
Economics
YOUTH: DOES UNEMPLOYMENT
LEAD TO SELFEMPLOYMENT?
Jelena FRANJKOVIĆ, mag.oec., Assistant

Josip Juraj Strossmayer University of Osijek,
jelenaf@efos.hr
Dario ŠEBALJ, mag.oec., Assistant

dsebalj@efos.hr
Ana ŽIVKOVIĆ, mag.oec., Assistant

azivkovi@efos.hr
Abstract
Crisis on the labour market is widely dispersed all over European Union. A
great boost for employment increase could be self-employment, although young
people are not prone to engage in such activities. This paper focuses on youth
interest in self-employment within EU countries, with special emphasis on
Croatia. The main issue studies the youth unemployment impact on youth self-
employment. It is examined the extent of self-employment of all EU members
paying attention on differences between Nordic and Eastern European coun-
tries. Accordingly, push and pull factors are mentioned in a term of motivation
aspects.
Keywords: youth unemployment, youth self-employment, push and pull fac-
tors, EU member states, Croatia
JEL Classification: J1, J13, J21
247
INTRODUCTION
Even though testing own limits and exploring wastelands of passionate work
seems to be challenging, courage for the self-employment among young people
is more the exception than the rule. However, when there are no free vacancies
in the public, neither the private sectors, and when youth does not see perspec-
tive future careers, self-employment could be a great solution.
Theoretically, from macro view it is expected that self-employment repre-
sents economic growth. Obviously, the higher level of self-employment increas-
es a total employment level, but the question is whether youth self-employment
Jelena Franjković • Dario Šebalj • Ana Živković: YOUTH: DOES UNEMPLOYMENT LEAD TO SELF-EMPLOYMENT?
is encouraged by high youth unemployment. This study should provide the an-
swer for observed EU countries putting emphasis on Croatian labour market.
If there is any significant correlation between those two variables, it would
be interesting to find out a source of motivation: do young people have strong
intrinsic desire for self-employment or is it only a way out due to economic
crisis. According to Williams (2004, p. 330), young individuals who choose self-
employment might be those who are already less likely to complete schooling
and who have lower earnings potential. Therefore, micro view observes push
and pull factors which are explaining aforementioned correlation: if the correla-
tion is stronger, the push factors are dominant.
The expectations lead us to assumptions that Western European countries
have the highest rate of youth self-employment among European Union mem-
ber states by virtue of better conditions, and that increase in youth unemploy-
ment affects increase in youth self-employment.
LITERATURE REVIEW
Self-employment is mostly result of two opposing sides – push and pull
factors. Pull factors are represented by entrepreneurs who are credited with
stimulating job growth and encouraging innovation, while push factors are rep-
resented by entrepreneurs who choose self-employment as a consequence of
limited opportunities in the wage sector or become self-employed as an alterna-
tive to unemployment (Rissman, 2006, p. 14).
According to Baumol (1990, p. 909), entrepreneurship can be productive,
unproductive and destructive, which leads to the idea that entrepreneurship out
248
of necessity due to unemployment is destructive and destined to fail while op-
portunity-motivated and innovative entrepreneurship is productive and leads
to job creation and economic growth (Constant & Zimmermann, 2014, p. 52).
Santarelli and Vivarelli (2007) recognize macro and micro determinants to self-
employment entry and non-economic factors as well, while among macro deter-
minants both “progressive” (promising economic perspectives) and “regressive”
(fear of unemployment) factors are important. Constant and Zimmermann
(2014, p. 53) identify two types of entrepreneurship – individuals who freely
choose an independent profession and individuals who are forced to go into
self-employment. First ones are the productive innovators who materialize their
visions, pulled by the lucrative aspects of self-employment. The next mentioned
are the ones who are pushed in self-employment at their own risk because no-
body else wants to take the risk to employ them (Constant & Zimmermann,
2014, p. 53).
Unemployment is rarely the main driver of new firm formation, but it often
plays a role, which for certain countries has proved to be very significant during
economic downturns (Santarelli & Vivarelli, 2007, p. 461). In 2001, the analy-
sis (Global Entrepreneurship Monitor, 2001, p. 4-5) indicated that developing
countries generally have a higher prevalence rate of necessity entrepreneurship
and that it may have a strong macro-economic function. The only European
country among the countries which were the highest ranked in the group of
necessity entrepreneurship was Poland, which had become democratic country
a few years before Croatia. At the beginning of transition of Croatian economy,
the self-employed were exploring the possibilities of new institutional set up,
but the reflection upon that period shows that although many new businesses
opened, many subsequently failed (Botrić, 2012).
According to Blanchflower (2000, p. 502), for most countries there is a nega-
tive relationship between the self-employment rate and the unemployment rate,
and from the time series regressions, evidence of positive effects is found only
in Iceland and Italy. In the last few years in Spain, large growth in number of
self-employed has been registered, and it is well known that Spain has one of
the highest youth unemployment rates in Europe, which may have forced many
young people to try their hand at self-employment (Hatfield, 2015, p. 15).
The unemployed could use the self-employment option for bypassing the
unemployment and, in that case, one would expect self-employment rates to
249
increase during the downturn and individuals to be pushed into forced self-
employment or self-employment out of necessity. However, the success and lon-
gevity of a business is rather low during the downturn, which in turn, can also
act as a deterrent to self-employment start-ups (Constant & Zimmermann,
2014, pp. 62-63). One of the major problems for self-employers during the
downturn are their consumers. They meet the great challenges in creating their
loyal and constant market, regardless of whether they offer products or services
to industrial or final consumers, because both are reducing their costs, or do not
have any budget at all. When it comes to youth employment, Williams (2004,
p. 326) finds that most self-employed youth are not “long-term” self-employed,
more precisely during only one year.

Some of the individuals who report being self-employed are unpaid fam-
ily workers (Blanchflower, 2000, p. 478) and the similar situation is in Croatia
where the registered youth self-employment is rare, but very often is unpaid
work in family business (Matković, 2008, p. 495). Also, people with greater
family assets are more likely to be self-employed (Blanchflower, 2004, p. 32).
In the analyse of youth self-employment in the United States, self-employ-
ment is quite rare (from 1 to 4 percent) among young workers and these young
tend to have lower levels of educational attainment, but they are much more
likely to be self-employed in early adulthood (Williams, 2004, p. 334).
METHODOLOGY
For the purpose of this paper Eurostat database has been used in order to
gather information about youth employment. The data about youth employ-
ment, self-employment and unemployment have been collected, from the year
2005 to 2013. Although the youth category can be observed from different as-
pects, the ones from 15 to 29 years, both sex and all levels of education have
been selected. Data were available for all 28 EU member states.
By using of these collected data, it was possible to calculate the rate of youth
self-employment as a relation between the number of self-employed and the
number of employed.
With this paper the following hypotheses have been tried to prove:
1. Western European countries have the highest rates of youth self-employment
among EU member states.
250
2. Youth unemployment increase affects youth self-employment increase.
To prove the first hypothesis, descriptive statistics has been used and in or-
der to prove the second hypothesis simple linear regression analysis has been
used. This analysis has been made for Croatia first. Then it has been researched
is there any difference between Nordic and Eastern European countries. In
Nordic countries Finland, Denmark, Sweden, Estonia, Latvia and Lithuania
were included. In Eastern European countries group were Croatia, Hungary,
Greece, Romania and Bulgaria.
RESULTS
Based on information about youth employment and self-employment, the
rate of youth self-employment of each EU member state was calculated (see
Table 1).
Table 1 The rate of youth self-employment in EU member states
Country 2005 2006 2007 2008 2009 2010 2011 2012 2013
Belgium 6.1 6.6 6.5 6.3 6.6 6.4 6.5 6.9 7.7
Bulgaria 5.2 4.9 4.7 4.5 4.7 5.1 5.0 5.0 5.3
Czech Republic 9.0 8.7 8.6 8.7 9.3 10.2 10.8 10.8 9.9
Denmark 2.2 2.4 2.8 2.6 2.6 2.5 2.3 2.3 2.5
Germany 3.7 3.6 3.5 3.2 3.3 3.1 3.2 3.3 2.9
Estonia 4.2 4.9 4.7 4.7 4.7 4.4 4.5 4.6 4.3
Ireland 4.1 3.8 4.3 4.4 4.0 3.6 3.6 3.2 3.6
Greece 12.9 12.8 12.1 12.2 12.5 13.4 13.6 14.7 15.7 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Spain 7.4 6.9 7.0 7.0 6.4 6.2 6.3 7.3 7.8
France 2.6 3.3 3.5 3.7 3.6 4.3 4.3 4.3 4.5
Croatia 10.2 10.3 7.9 6.5 6.5 8.1 8.6 7.8 7.8
Italy 15.5 15.9 15.7 14.6 14.2 15.1 14.3 15.0 15.5
Cyprus 7.2 8.1 9.6 8.9 7.9 6.8 6.5 6.0 7.0
Latvia 3.3 3.4 4.3 4.5 4.7 5.1 5.8 5.0 6.0
Lithuania 7.5 7.3 7.3 5.0 4.2 3.5 4.5 5.3 5.3
Luxembourg 2.2 2.2 3.5 3.0 3.9 2.5 4.5 4.8 4.2
Hungary 7.0 5.7 5.1 4.5 5.0 4.7 4.2 4.7 3.9
Malta 5.7 5.7 7.0 7.1 7.2 5.4 4.9 6.0 7.2
Netherlands 4.1 4.1 4.4 4.6 4.9 5.5 5.5 5.6 6.5
Austria 3.1 3.2 3.2 3.2 3.4 3.6 2.8 3.2 3.2
251
Poland 9.2 8.9 8.3 8.4 8.7 8.6 8.8 8.7 8.7
Portugal 7.0 6.4 6.4 6.1 6.1 5.7 5.4 5.3 5.4
Romania 11.6 11.4 11.3 11.4 11.5 12.9 10.8 10.7 10.0
Slovenia 2.7 3.1 3.3 2.9 3.8 4.5 4.9 4.9 5.0
Slovakia 8.4 8.7 9.1 9.8 11.9 12.5 11.7 12.3 11.0
Finland 4.7 4.3 4.0 4.7 5.1 4.7 5.1 5.0 4.9
Sweden 2.9 3.1 3.2 3.2 3.6 3.8 3.3 3.6 3.9
United Kingdom 5.3 5.5 5.6 5.8 5.9 6.0 6.7 6.8 6.7
Source: Authors’ calculations
The initial assumption was that Western European countries (especially

Germany, France, Ireland, UK) have the highest rates of youth self-employment
because those countries have better conditions (business incubators, encour-
aging of self-employment, less bureaucracy, imposts and taxes etc.) for self-
employment. Table 1 shows the opposite. The highest youth self-employment
rates, in 2013, have the following countries: Greece, Italy, Slovakia, Romania
and Czech Republic (between 10 and 16 percent). On the bottom of the list are
more developed countries: Denmark, Germany, Austria, Ireland and Sweden
(between 2.5 and 4 percent). Croatia has been placed above average on the 8th
place (7.8 percent). The main reason of high percent of youth self-employment
rate could be in high youth unemployment rate which forces young people into
entrepreneurial activity (push factor).
Until recent few years, Croatia has not got quality program to encourage
youth to run their own enterprise. According to Williams (2004, p. 323), indi-
vidual governments have developed programs to assist youth in the formation
of new enterprises, through financial assistance or specialized training, in both
developed and developing countries such as Germany, Great Britain, Italy, In-
dia, Bangladesh, Botswana, Zambia and others, but according to Blanchflower
(2004, p.61) and research across the OECD, the probability of being self-em-
ployed is higher for men and for older workers compared to youth.
This conclusion opens another question: does youth unemployment increase
affects youth self-employment increase?
252
Graph 1 Scatterplot of „Youth unemployment“ variable against „Youth self-em-
ployment“ for Croatia
Graph 1 shows scatterplot of independent variable “Youth unemployment”

against dependent variable “Youth self-employment” for Croatia. It suggests a
negative, very weak correlation. Though, in reality, there are several factors that
may affect youth self-employment (such as economic conditions), however, this
research is concerned only about the relationship between youth unemployment
and youth self-employment. Equation of the regression line can be shown as:
y = 37.0961-0.1212x
Table 2 Regression summary for dependent variable “Youth self-employment”
(Croatia) INTERDISCIPLINARY MANAGEMENT RESEARCH XI
r R2 Adjusted R2
.55820668 .31159470 .21325108
According to this data, it can be concluded that there is no strong correlation

between those two variables in Croatian example. The increase of youth unem-
ployment does not affect increase of youth self-employment. This conclusion
can be explained by the fact that young people in Croatia are afraid of possible
failure of business activity. Croatia has a large number of imposts and taxes
that increase costs of running a business. In the public, the private sector has a
bad reputation due to lower wages than in public sector, inability of charging
the invoices, big responsibility of owners etc. Therefore, youth will rather stay
253
unemployed then try to become self-employed. “The notion that self-employ-
ment could alleviate the unemployment problems was also incorporated in the
Croatian national employment policies, starting from year 1998, and staying,
although modified, within the employment promotion policies throughout the
period (Croatian Employment Service, 2010). However, even early evidence
has shown that the measures did not encourage a large share of unemployed
into self-employment. The most probable reason behind this relative unsuccess-
fulness of the measure is that starting your own business requires the financial
means as well as specific skills, which the unemployment population for the
most part lacks (Botrić, 2012).”
Also, the results of croatian regional analysis (Botrić, 2012, p. 1240) show
that high regional unemployment is not related to self-employment. Croatian
regions where the unemployment is high are not able to stimulate more inten-
sive job creation through self-employment on average, even though there are
certain financing programmes available for the unemployed to initiate self-em-
ployment projects through the Croatian Employment Service. In order to see
do mentality and state regulations affect the possibility of stronger correlation
between two mentioned variables, several countries have been grouped in Nor-
dic and Eastern European group. Then, the same analysis has been conducted.
ployment“ for Nordic countries

254
against dependent variable “Youth self-employment” for Nordic countries. It
shows a negative, very weak correlation. Equation of the regression line can be
shown as:
y = 112.9105-0.0243x

(Nordic countries)
r R2 Adjusted R2
.48260829 .23291076 .12332658

ployment“ for eastern European countries

against dependent variable “Youth self-employment” for Eastern European
countries. It shows a medium strong correlation. Equation of the regression line
can be shown as:
y = 699.1812-0.3532x
255
(Eastern European countries)
r R2 Adjusted R2
.77589031 .60200577 .54514946
There are big differences in correlation between those two groups of coun-
tries. The Nordic countries are more developed and more focused on innova-
tions. Their public and state sector play a major role in the economic prosperity.
They have a high-skilled labour and a higher rate of employment. Also, the
Nordic countries are very well connected with each other. The reason of the
youth self-employment in those countries might be found in their tendency to
innovations (pull factors) or because of the financial reasons (push factors). The
other key factor is their willingness to accept risks. According to Nordic Entre-
preneurship Survey 2015 (2015), the majority of the Nordic entrepreneurs, 62
% of them, consider themselves to be risk-neutral.
On the other side, in the Eastern European countries the push factors affect
youth self-employment. The medium strong correlation, which is shown in Ta-
ble 4, indicates that youth unemployment does affect youth self-employment.
Because of the high unemployment rate and often long term unemployment,
they are discouraged and usually have only two possibilities: going abroad or
taking risk and self-employed themselves.
CONCLUSION
Both proposed hypothesis are rejected: Western European countries do not
have the highest rate of youth self-employment among European Union mem-
ber states; youth unemployment increase does not affect youth self-employ-
ment increase. Later assertion is also true for Nordic countries, unlike East-
ern European countries, where correlation between youth unemployment and
youth self-employment is stronger. This proves that many conditions such as a
big role of public and state sector, but also influence of mentality and culture,
could be significant for self-employment increase. Nordic self-employed young
people are motivated by strong need to express creativity and innovation which
represents pull factors. On the other hand, in the Eastern European countries,
where unemployment level is higher, push factors are dominant.
256
Self-employed people are more likely to be satisfied by their job owing to
flexible work time, creativity freedom, high organizational discretion, strong
motivation due to personal risk and strong enthusiasm which is especially im-
portant for young people. Although experience and researches show that young
people in generally are not “long-term” self-employed, one thing is certain – if
there is any opportunity, it is better even to fail than charge the percentage of
unemployment by own passivity. Until Croatian economy expands, any way of
youth employment is welcomed.
References
Baumol, W. J. (1990). Entrepreneurship: Productive, unproductive and destructive. Journal
of Political Economy, 98(5), 893–921.
Blanchflower, D.G. (2000). Self-employment in OECD countries. Labour Economics 7
2000 471–505.
Botrić, V. (2012). Regional differences in self-employment: evidence from Croatia. Ekonom-
ska istraživanja, 25(0), 243-266.
Blanchflower, D.G. (2004). Self-employment: more may not be better. Swedish Economic
Policy Review 11, 15-73.
Constant, A.F. & Zimmermann, K.F. (2014). Self-employment against employment
or unemployment: Markov transitions across the business cycle. Eurasian Bus Rev 4, 51–87.
Hatfield, I. (2015). Self-employment in Europe. Institute for Public Policy Research, Lon-
don. Available at: http://www.ippr.org/assets/media/publications/pdf/self-employment-
Europe_Jan2015.pdf (Accesed on: April 10, 2015).
Matković, T. (2008). Tko što radi? Dob i rod kao odrednice položaja na tržištu rada u
Hrvatskoj. Revija za socijalnu politiku, 15(3), 479-502.
Nordic Entrepreneurship Survey 2015 (2015). Available at: http://www.ey.com/Publica-
tion/vwLUAssets/EY-Entrepreneurship-Barometer-2015/$FILE/EY-Entrepreneurship-
Barometer-2015.pdf (Accessed on: April 10, 2015).
Reynolds, P.D., Camp, S.M., Bygrave, W.D., Autio, E. and Hay, M. Global Entrepreneurship
Monitor (2001). Executive Report. Available at: http://www.gemconsortium.org/docs/
download/255 (Accessed on: April 9, 2015).
Rissman, E.R. (2006). The self-employment duration of younger men over the business
cycle. Economic Perspectives, 3Q. Federal Reserve Bank of Chicago.
Santarelli, E. & Vivarelli, M. (2007). Entrepreneurship and the process of firms’ entry, sur-
vival and growth. Industrial and Corporate Change, 16(3), 455–488.
Vukšić, G. (2014). Employment and employment conditions in the current economic crisis
in Croatia. Financial Theory and Practice. EconLit, 38(2), 103-38.
Williams, D.R. (2004). Youth Self Employment: Its Nature and Consequences. Small Busi-
ness Economics 23, 323–336.
257
THE IMPACT OF CHANGES IN
PRICES OF PETROLEUM PRODUCTS
ON THE GENERAL PRICE LEVEL
Besim Aliti • Marko Markić • Boris Štulina: THE IMPACT OF CHANGES IN PRICES OF PETROLEUM PRODUCTS ON THE GENERAL PRICE LEVEL
Besim ALITI, M.A.

(Kinesiology), BEGOC, Baku; Azerbaijan
besim.aliti@hotmail.com
Marko MARKIĆ, B.Sc.

Oil AC Ltd., Bosnia and Herzegovina
marko.markic@oilac.com
Boris ŠTULINA, B.Sc.

Doctoral Candidate, Postgraduate Ph.D. study “Management”,
Republic of Croatia
boris.stulina@gmail.com
Abstract
Market is a complex mechanism; a regulator which, using the logic of competi-
tion and price, balances the supply and demand for products and services. In
quantitative terms, the price is an expression of a seller’s willingness to trade
goods or services for their cash equivalent, and at the same time a customer’s
willingness to pay this amount of money in exchange for acceptable goods or
services.
The economic importance of the price of a product is not the same for all prod-
ucts. The prices of some products are more important for the functioning of the
entire economy than the prices of other products. Such are the prices of crude
oil and petroleum products because they have a strong and direct impact on the
pricing of other products and services, because petroleum products are inputs
in almost every manufacturing process.
This paper attempts to establish the correlation between changes in the prices of
oil and petroleum products and the prices of consumer goods.
258
The main hypothesis is that an increase, or a decrease, in crude oil and pe-
troleum product prices directly and automatically increases, or decreases, the
prices of consumer goods.
The paper explores the regularity and patterns that appear between changes
in the prices of petroleum products and the prices of consumer goods in Bosnia
and Herzegovina for the period from 2008 to 2014.
Keywords: general price level, correlation, regression, time series, prices of
petroleum products.
JEL Classification: R11, E3, E31
INTRODUCTION
In this paper is written about topic which is always current, impact of oil
price changes on general price movement. It has been analyzed situation and
movement of consumer products prices as oil prices changes in same period of
time. It has been analyzed market of Bosnia and Herzegovina.
Main hypothesis, which is center of research, is: “Changes of oil prices in
analyzed time period have positive correlation with consumer prices change for
the same period. “
Today when all business activities are made throughout advanced informa-
tion technologies, which accelerated process of globalization, local market is
impacted with global market as well. Specific impact of globalization could be
seen on oil market. Oil prices on any local market is reflection of crude oil price INTERDISCIPLINARY MANAGEMENT RESEARCH XI
changes on global market. Market of Bosnia and Herzegovina, which is ana-
lyzed, is not an exception.
Economic growth and social development are very strongly linked and are
impossible without using different aspects of energy. Significance of oil in global
economy as well as in EU members, is of essential importance. Crude oil and
it´s price volatility is a key indicator for various market participants such as
investors, producers and most important for consumers. It is a major factor for
international and national economic growth. Increasing dynamics of oil prices
has provoked many researchers to study it´s instability. Global increase in crude
oil prices is causing a sustained increase in prices of petroleum products in the
world as well as in Bosnia and Herzegovina. In 2013 the EU consumed about
259
4 billion barrels. At an average price of $100 this translated into $400 billion of
EU final oil consumer spending or 2, 2% of EU GDP (Zachman, 2015). Recent
studies have tried to explain this dynamics by taking into account the role of
various market participants many of whom have increasingly used crude oil for
portfolio diversification (DÉcclesia et al, 2014, vol. 46).
Keun-Young Lee concluded that a rise in oil prices reduces the GDP and in-
creases the CPI (consumer price index). After analyzing the asymmetric effect
of oil prices on the GDP and CPI, it is shown that a rise in oil prices affect the
GDP and inflation more significantly than a decline in oil prices. In particular,
the asymmetric effect is more attuned to the CPI rather than to GDP (Keun-
Young, 2002, 103).
1. OIL AS A KEY ENERGY SOURCE FOR EVERY

ECONOMY
Oil is one of the most important and strategic energy resource in world
economy. On the global level, still more than 40% of energy needs is completed
with oil, and in USA (as the biggest oil consumer) more than that. Therefore it
can be reasonable that crude oil pricing, consumption and demand analysis are
in main focus of many researches and energy analysis.
Strategic role of oil and its whole meaning for every economy can be ana-
lyzed throughout whole last century, starting from world war one. Oil prices,
beside politics and diplomatic affairs are affected by increase of demand and by
insufficient producers’ reserves in situation of offer decrease (Dekanić, 2011, str.
360). Oil is very important strategic part of energy system and it has significant
impact on economy of every country. Today, oil sector is characterized by trend
of constant increase of demand, especially in developing countries where aver-
age yearly growth rate is 2.5%.
Developed countries increase their consumption as well but with slower
pace, because of their rationalizations programs and high technologic improve-
ments. Oil market is still very sensitive of global political changes, whereas by
every new crisis, price of oil increases. That implicates on fact that every country
needs to have its own energy policy with long-term vision of this energetic sec-
tor development.
260
In world oil market analysis, in economic terms, it can be supply domina-
tion or demand domination. Although, political relations in the world can be
characterized as dominant bipolar or dominant multipolar political relations.
At the dominant bipolar relations, as for example in time of cold war or in time
of détente, key political relations were between two most powerful countries. In
the stage of dominant multipolar structure (time before world war two for ex-
ample or postindustrial development in second part of 80’s last century) is pres-
ent higher complexity in political relations and multiple dependency in global
relations (Dekanić, 2011, str. 360).
Those relations result with four possible situations on oil market:
• Stability at the lower price level (demand domination and bipolar political
stage);
• Stability at the higher price level (supply domination and bipolar political
stage);
• Price oscillation with supply domination and multipolar global political
structures (oil shocks);
• Price oscillation with demand domination and multipolar global political
structures.
In stage of stability there are these tendencies:
• Demand domination which develops technology of oil refining;
• Supply domination (high oil prices) which forces development of technol-
ogy of saving energy, as well as technology of exploring oil and gas fields
(Dekanić, 2001, str.360).
In stage of market oscillation, technology of exploring resources has priority
with:
• Domination of supply which develops technologies which are base for ex-
ploring of oil and gas fields, as well as technology for energy save;
• Domination of demand with technologies of exploring new resources and
new ways of oil refining.
261
Chart 1: Brent Crude oil price in US dollars per barrel (2000-2015)
Note: The chart is taken from http://blogs.lse.ac.uk/europpblog/2015/01/21/falling-oil-

prices-should-help-europes-ailing-economies-but-the-wider-implications-of-the-price-
drop-remain-to-be-seen/
Chart 1 shows crude oil Brent movements expressed in American dollars for
period from 2000 till 2015.
With the increase in oil prices, rises costs, particularly in the production and
transport, wherein grows prices even on products that are not directly related to
oil. The so called winners of the decrease in prices of oil are countries that im-
port more than they produce, countries most dependent on agriculture, because
agriculture is more energy-intensive than manufacturing.
The so called losers are EU, trying to reduce dependence on Russia and to
cut carbon emissions by turning away from fossil fuels, cheaper oil makes these
aims slightly harder to achieve, Saudi Arabia – at $115 a barrel makes $360
billion in net export a year, at $85 it is $270 billion (The Economist, Winners
and losers, 2014).
262
Chart 2. Oil consumption
p
Note: Author calculation

As shown in chart 2. in 1980 world annual consumption of petroleum prod-
ucts amounted 63, 1 million barrels per day, in 2000 it was around 76, 9 million
and in 2013 it was around 91, 2 million barrels per day. Since 1980 till 2013, the
growth of annual consumption has increased by 44, 47 %. The IMF projected
the volume of world oil demand in 2020 to be around 115 million barrels per
day (WEO, 2000, 115). North America and Europe rely on oil for about 40%
of their energy needs, and this share has been relatively stable over the past sev-
eral decades (Barrell & Pomerantz, 2004, 154).
2. MARKET OF OIL AND OIL DERIVATIVES IN

BOSNIA AND HERZEGOVINA INTERDISCIPLINARY MANAGEMENT RESEARCH XI
The oil market in Bosnia and Herzegovina is almost fully dependent on im-
port which was one of the important aspects for analysis. According to available
data, petroleum products consumption in Bosnia and Herzegovina ranged from
about 800 000 tons by 2000. to 1.3 million tons in 2005. Imports of petroleum
products were mostly from Croatia, Serbia, Montenegro and Hungary. Accord-
ing to the structure of the final consumption the largest share in final consump-
tion of petroleum products takes traffic (almost 70%) followed by industry with
12%, households with 10%, agriculture with 8% and services with only 2%.
In Bosnia and Herzegovina operates more than 800 gas stations, of which a
large number are built after enactment of law on independent economic activity
in Bosnia and Herzegovina in 1990. In terms of competitiveness that may be
263
perceived as acceptable, but in terms of economically certainly is an irrational
investments however, even now management of certain number of gas stations
takes place on the verge of profitability, and some are closing. It is important
to emphasize that in Bosnia and Herzegovina there is so-called free pricing

respectively prices defines market. In comparison with EU countries, the re-
tail price of derivatives are in Bosnia and Herzegovina significantly lower, but
it is exclusively due to lower excise duties and taxes. If one compares the net
price, then they are in Bosnia and Herzegovina something higher than in EU
countries.
In the pre-war period the needs of Bosnia and Herzegovina for petroleum
products were between 1.5 and 1.7 million tons annually. For example, in 1990.
on the market of Bosnia and Herzegovina was sold 1.68 million tons of vari-
ous derivatives. During the design and construction of a new line of processing
3 million tons per year in the oil refinery in Bosanski Brod it was calculated
that the needs of Bosnia and Herzegovina will be around 2.3 million tons of
petroleum products a year. According to available data from 2004. till 2009.
consumption of petroleum derivatives in Bosnia and Herzegovina ranged from
about 800 000 tons to 1.3 million tons per year.
3. CPI CONSUMER PRICE INDEX

The CPI (consumer price index) is a measurement of change in prices of con-
sumer goods tracked from month to month. Consumer goods covers all sorts of
products and services (food, clothes, education, transport...) and is considered
to be the true “cost of living” concept. CPI is the most common and closely ob-
served price statistics and indicator of efficiency of the economic policy of the
state itself.
The Consumer Price Index is a measure of change in prices of goods and ser-
vices which consumers buy for their personal needs on the economic territory
of Bosnia and Herzegovina. The Consumer Price index is a measure of infla-
tion in the county. CPI in Bosnia and Herzegovina is calculated on the basis of
the representative list of products. Every month is collected over 21.000 prices
in advance defined sample of outlets in twelve major cities in Bosnia and Her-
zegovina. Prices are collected in twelve locations (cities) in the county (Banja
Luka, Bihać, Bijeljina, Brčko, Doboj, East Sarajevo, Mostar, Prijedor, Sarajevo,
264
Tuzla i Zenica) chosen by the criteria of population and their role in the geo-
graphical areas.
For classification of the products from statistics in the CPI it is used clas-
sification of individual consumption by purpose which divides expenditure on
twelve primary groups of products and services for which are calculated index-
es, as follows:
• food and non-alcoholic drinks;
• alcoholic beverages and tobacco;
• clothing and footwear;
• housing, water, electricity, gas and other fuels;
• furniture, household equipment and routine household maintenance;
• health;
• transport;
• communications;
• recreation and culture;
• education;
• restaurants and hotels;
• other goods and services.
4. ANALYSIS OF OIL PRICE CHANGES IMPACT OF

CONSUMER PRICE CHANGE
In this chapter will be analyzed consumer product price change and oil price
change and its correlation on the market of Bosnia and Herzegovina. Main
goal of this analysis is show how consumer products price change due oil price
changes on market of Bosnia and Herzegovina in time period from 2008 until
2014.
Analysis of correlation between consumer product price change and oil price
change in past 7 years will be done by appliance of programming language R
and its packages. All commands in R language are intuitive and there is no need
of higher level computer programming knowledge to its understanding. All data
for analysis, consumer product price change and oil price change in percentage
are prepared in dataset form and stored in Excel worksheet.
Below is shown part of data (only for two years) in Excel worksheet. Data
about average oil prices, oil price changes in percentage and consumer products
265
price changes in percentage for time period from 2008 till 2014. These data are
collected throughout conducted research with help of Ministry of trade of BiH
and Agency for statistics of BiH.
Table 1. Oil price and consumer prices change data

Consumer Products Price
Year Months Average Oil Price Oil Price Change in %
Change in %
1. 2,040 - -
2. 2,092 2,55 1,80
3. 2,164 3,44 0,10
4. 2,242 3,60 -0,40
5. 2,405 7,27 0,90
6. 2,523 4,91 0,90
2008
7. 2,533 0,40 0,10

8. 2,447 -3,40 0,10
9. 2,336 -4,54 0,10
10. 2,182 -6,59 0,70
11. 1,996 -8,52 -0,60
12. 1,79 -10,32 -0,60
13. 1,667 -6,87 -0,10
14. 1,624 -2,58 -0,10
15. 1,559 -4,00 -0,10
16. 1,534 -1,60 -1,20
17. 1,582 3,13 -0,10
18. 1,656 4,68 0,10
2009
19. 1,777 7,31 0,70

20. 1,855 4,39 -0,20
21. 1,844 -0,59 0,10
22. 1,812 -1,74 0,70
23. 1,869 3,15 0,10
24. 1,847 -1,18 0,10
Command conn = odbcConnectExcel(“C:\\DataOilPrice.xls”) connects

with data stored in Excel file named DataOilPrice. In business intelligence sys-
tem is usuall to interpret data using three-dimensional visualization (in data
cube form). In our example data cube is formed by data of consumer products
prices changes, and oil price changes in Bosnia and Herzegovina of time period
266
for 84 months, from 2008 until 2014. Lines of commands in programming lan-
guage R to create three-dimensional data cube:
> library(RODBC)
> conn = odbcConnectExcel(“C:\\DataOilPrice.xls”)
> korel = sqlFetch(conn, “List1”)
> X=korel$Time
> Y=korel$OPCP
> Z=korel$CCPP
> scatterplot3d (X, Y, Z, pch=16, type=”h”, main=”Data cube:Consumr products
price change and oil price change”, xlab=”Time”, ylab=” Consumer Products Price
Change”, zlab = “ Oil Price Change “)
Chart 4. Consumer products price change and oil price change
Picture above shows the correlation between consumer products price

change and oil price change for the period from 2008 until 2014. Z-axis repre-
sents the percentage of oil price change, Y-axis percentage of consumer prod-
ucts price change and axis-X represents time (84 months).
267
Graph 5. Regression line
Graph 5 shows regression line which presents correlation between consumer

products price change and oil price change in time period from 2008 till 2014.
Polynomial sixth grade (regression function), best adapts to the original data
(best approximates them).
CPPC = -1E-11OPC6 - 4E-09OPC 5
+ 2E-06OPC4 - 0,0002OPC3 +
0,0099OPC2 - 0,1707OPC + 0, 9264
CPPC is the change consumer products price and OPC is oil price change
in Bosnia and Herzegovina for the period from 2008 till 2014.
.. Regression analysis in programming language R

First, data are load from file DataOilPrices.xls Then connection string to
that file is set:
After that data from sheet in Excel are imported with this commands:
>korel = sqlFetch(conn, “List1”)
With command korel data are loaded and shown (as below).
> korel
268
Time AOP OPCP CCPP
1 2.040 0.00000000 0.0
2 2.092 2.54901961 1.8
3 2.164 3.44168260 0.1
4 2.242 3.60443623 -0.4
5 2.405 7.27029438 0.9
6 2.523 4.90644491 0.9
7 2.533 0.39635355 0.1
8 2.447 -3.39518358 0.1
9 2.336 -4.53616673 0.1
10 2.182 -6.59246575 0.7
11 1.996 -8.52428964 -0.6
12 1.791 -10.27054108 -0.6
.....................................................................
.....................................................................
78 2.359 -0.42211904 -0.2
79 2.345 -0.59347181 -0.3
80 2.369 1.02345416 0.0
81 2.378 0.37990713 0.5
82 2.336 -1.76619008 0.4
83 2.279 -2.44006849 -0.2
After data are loaded, significant model of regression is calculated using

function lm() in R language.
Commands in R language to call function lm():
> regresija<-lm(korel$CCPP~korel$OPCP,data=korel)
> summary(regresija)
After input of commands in R language for regression analysis, result is:

Call:
lm(formula = korel$CCPP ~ korel$OPCP, data = korel)
Residuals:
Min 1Q Median 3Q Max
269
-1.22544 -0.22108 -0.04201 0.24179 1.53383
Coefficients:
Estimate Std. Error t value Pr(>|t|)
(Intercept) 0.11840 0.05240 2.260 0.02653 *

korel$OPCP 0.05797 0.01702 3.407 0.00103 **
---
Signif. codes: 0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1
Residual standard error: 0.4765 on 81 degrees of freedom
Multiple R-squared: 0.1253, Adjusted R-squared: 0.1145
F-statistic: 11.61 on 1 and 81 DF, p-value: 0.001025
From this calculation result it is possible to form model of regression:

CCPP = b0 + b1* OPCP
Where CCPP is change of consumer products price, OPCP is oil price
change and coefficient b0 is part on Y axis and its value is b0= 0.11840 and
coefficient b1 is incline of regression line and it value is b1= 0.05797.
From analysis is clear that part on Y axis (coefficient b0) is not 0, as well as
incline of regression line (b1).
CCPP = b0 + b1* OPCP
CCPP = 0.11840 + 0.05797 * OPCP
Probability is labeled as p-value. That value is probability that coefficient by
variable is not significant. Smaller values are better in that case. Bigger p-value
indicates bigger probability of insignificance coefficient in regression. In this
analysis for coefficient beside variable OPCP, p-value is 0.001025. That value
is small (lower from most common value 0.05), which indicates that value of
coefficient beside variable OPCP cannot be considered as equal zero.
R language uses appropriate marks to visualize quick identification of vari-
ables. In last column are special marks *. One mark signify value between 0.01
and 0.05 (p-value). (Markić, 2014, 92).
270
Table 2. P-value marks
*** p-value između 0 i 0.001

** p-value između 0.001 i 0.01
* p-value između 0.01 i 0.05
. p-value između 0.05 i 0.1
(blank) p-value između 0.1 i 1.0
Source: Markić, Brano; Sustavi za otporu odlučivanju, 2014, str 92
Column marked with Std. Error is standard error estimated coefficients.

Column marked as t value is t-statistics from which is probability is calculated
(p-value). Row: “Residual standard error: 0.4765 on 81 degrees of freedom is stan-
dard deviation errors e.
Coefficient determination R2 is measure of model quality. Higher value is
better.
In this analysis Multiple R-squared is 0.1253.
Row: F-statistic: 11.61 on 1 and 81 DF, p-value: 0.001025 indicates model
significance or it insignificance. Model is significant if one of coefficients is not
equal zero. Model is insignificant if all its coefficients are equal zero (b1 = b2 =
… = bn = 0).
If p-value is lower than 0.05 that indicates that model is significant. In pre-
sented analysis probability (p-value) is 0.001025 which is less than 0.05. That
indicates that presented regression model is significant.
Also using R language is calculated coefficient of correlation between two
variables, consumer products price change and oil price change to measure
strength of correlation between those two variables.
Commands in R language to calculate coefficient of correlation between two
variables:
> library(RODBC)
> korel = sqlFetch(conn, “List1”)
> X=korel$OPCP
> Y=korel$CCPP
271
> cor(X,Y)
[1] 0.3540327
As a result of calculation in R language is correlation value which is
0.3540327. That correlation value show that although impact of oil price
changes on changes of consumer products prices exists, what is proven by mod-
el of regression which is significant, that correlation is not so strong.
5. CONCLUSION
The aim of whole paper is, trough analysis, to show connection/correlation
between two variables, change of oil prices as independent variable and change
of consumer products prices as dependent variable.
Regression analysis showed that it is possible to describe that correlation
with model:
CCPP = 0.11840 + 0.05797 * OPCP.
In this model dependent variable is CCPP – consumer products price
change is with positive correlation with oil price change. Percentage change of
oil prices implicates percentage price change of consumer products in same di-
rection. By shown model above if oil prices rise by 1% of consumer prices will
rise by 1.11840%.
But, although it is shown that assumed model is significant, with calculation
of coefficient of correlation (correlation value = 0, 3540327) it was concluded
that the relationship between the assumed variables is not so strong.
Based on that analysis it can be concluded that although there is a connec-
tion/correlation between the variables it is not so dominant. In another words,
oil price change in the short time period, does not implicates strong reaction of
consumer products price change.
Based on presented facts it can be concluded that on the Bosnia and Herze-
govina market at consumer products pricing doesn’t dominate cost principle of
price determination.
It is natural to assume that process of pricing is mostly affected with value
principle, whereas consumers associate to certain product value based on the
purchase or after purchase experience and with market competition.
272
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syid=1980&eyid=2013&unit=TBPD (20.03.2015)
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273
IMPACT ANALYSIS OF ECONOMIC
PARAMETERS ON SOCIAL
DEVELOPMENT
Goran SUČIĆ, Ph.D., Assistant professor

Faculty of Humanities and social sciences University in Split
Goran Sučić • Željko Požega • Boris Crnković: IMPACT ANALYSIS OF ECONOMIC PARAMETERS ON SOCIAL DEVELOPMENT
gsucic@ffst.hr
Željko POŽEGA, Ph.D., Associated professor

zpozega@efos.hr
Boris CRNKOVIĆ, Ph.D., Associated professor

bcrnko@efos.hr
JEL Classification: H12, O 52, C8
274
1. INTRODUCTION
Research in this paper is conducted on a sample of 177 countries and 74
variables for each of the observed countries in the world that have available
and collected data.1 Change in variable value was observed and analyzed in the
time period 1975th – 2015th, projected values of the variables for 2015th, chi-
square test and level of significance of observed variables. Hypothesis of this
paper is: economic parameters that determine level of development of human
capital have the highest level of significance to social development.
2. ANALYSIS OF CHANGE OF VARIABLE VALUES

USED IN THE PAPER IN TIME PERIOD
1975TH  2015TH.
Considering the values obtained with descriptive statistics analysis of vari-
ables of countries in the period 1975th – 2015th (projection), we can see that
the average value is growing at high rates in variables: population (from 22,7
million to 35,8 million, the projected value for 2015 is 40,2 million), urban
population (from 42,3 percent to 54,3 percent, the projected value for 2015 is
59,1%), number of subscribers of mobile devices (3,2 subscribers per thousand
inhabitants to 314,6 subscribers per thousand inhabitants), number of Internet
users (from 0,3 users per thousand inhabitants to 155,4 users per thousand
inhabitants), GDP per capita (from 4.012,1 dollars to 9.552,9 dollars), external
debt (from $16.732,4 million to $71.122,9 million), GDP (from 181,4 billion
dollars to 309,2 billion dollars), GDP (purchasing power parity) (from 277,9 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
billion dollars to 311,1 billion dollars) and number of working-age population
(from 1,7 million to 17,4 million).
The average value grows at low rates at variables: Human Development In-
dex (from 0,59 to 0,71), life expectancy (from 58,5 years to 66,1 years), invest-
ment in education (from 4,4 percent to 4,9 percent), investment of government
funds in education (from 14,7 percent to 15,8 percent), the rate of adults in
education (from 73,1 percent to 81,7 percent), enrollment rates in primary edu-
cation (from 78,8 percent to 85,6 percent), enrollment rates in secondary edu-
cation (from 58,8 percent to 63,5 percent), the number of telephone lines (from
1
Data are part of United Nations (UN) database, published on the web site: http://hdr.undp.org/ and
http://unstats.un.org/unsd/
275
126,4 lines per thousand inhabitants to 200,4 lines per thousand inhabitants),
imports ( from 40,5 percent to 45,9 percent), exports (from 33,9 percent to
40,1 percent), foreign direct investment (from 1,7 percent to 4 percent), invest-
ment in health (from 3,1 percent to 3,5 percent), the growth rate of GDP (from
2,4 percent to 4,6 percent), the combined proportion of primary, secondary and
tertiary education (from 67,8 percent to 71,1 percent), GDP per capita ( pur-
chasing power parity) (from $8.661,4 million to $9.566.3 million), the index of
life expectancy (from 0,67 to 0,68), education index (from 0,76 to 0,78), long-
term unemployment rate (from 2,6 percent to 2,7 percent) and the number of
population over age of 65 (from 5,9 percent to the projected value for 2015. of
8,3 percent).
The average value decreases at low rates at variables: total debt (from 6,2
percent to 5,7 percent), investment in the army (from 3,8 percent to 2,5 per-
cent), investment in research and development (from 1,04 percent to 1,01 per-
cent), Human Poverty Index (from 25,5 percent to 25 percent), the rate of il-
literacy of adults (from 25,6 percent to 25,4 percent), annual growth rate of the
population (from 1,8 percent to the projected value for 2015 of 1,3 percent) and
population under age of 15 (from 31,5 per cent of the projected value for 2015
of 27,9 percent).
The average value decreases at high rates only at the variable rate of inflation
(from 101,9 percent to 6,4 percent).
The average value fluctuates at variables: investment in pre-primary and pri-
mary education (from 40,4 percent to 41,9 percent), investment in secondary
education (from 33,1 percent to 36,4 percent), investment in tertiary education
(16,1 percent to 19,3 percent), the number of students who reach the fifth grade
in education (from 80,3 percent to 82,6 percent), the rate of education of not
adults (from 83,1 percent to 87,8 percent) and unemployment rate (from 7,1
percent to 14,7 percent).
If we look at changes in the standard deviation of variables, we can see that
the standard deviation is growing at high rates at variables: population (from
86,9 million to 132,4 million, the projected value for 2015. is 145,8 million), the
number of subscribers of mobile devices (8,9 subscribers per thousand inhabit-
ants to 323,2 subscribers per thousand inhabitants), the number of Internet
users (from 1,2 users per thousand inhabitants to 178,4 users per thousand in-
habitants), GDP per capita (from $5.385,7 to $10.559,9), external debt (from
276
$51 .826,9 million to $390.754,5 million), GDP (from 866,8 billion dollars to
1.141,1 billion), GDP (purchasing power parity) (from 961,9 billion dollars to
1.086,5 billion) and the number of working-age population (from 69,1 million
to 72 million).
Standard deviation is growing at low rates at variables: investment in edu-
cation (from 1,9 percent to 2,3 percent), enrollment rates in secondary educa-
tion (from 27,2 percent to 27,5 percent), the number of telephone lines (161,2
lines per thousand inhabitants at 203,2 lines per thousand inhabitants), exports
(from 21,6 percent to 24 percent), foreign direct investment (from 3,6 percent
to 6,9 percent), the growth rate of GDP (from 3,4 percent to 4 percent), invest-
ment in research and development (from 0,94 percent to 1,03 percent), GDP
per capita (purchasing power parity) (9,081,6 dollars to 10,247.6 US dollars),
Human Poverty Index (from 16,03 percent to 16,07 percent), the rate of il-
literacy adults (from 20,2 percent to 20,8 percent), long-term unemployment
rate (from 2,4 percent to 2,7 percent) and population over age of 65 (from 4,3
percent to the projected value for 2015 of 6,8 percent).
Standard deviation is stagnating at a specified index in life expectancy (0,2)
and education index (0,19).
Standard deviation decreases at low rates at variables: Human Development
Index (from 0,19 to 0,17), the urban population (from 23,7 percent to 23,3 per-
cent, the projected value for 2015. of 22,3 per cent), investment in pre-primary
and primary education (from 16,7 percent to 10,9 percent), investment in sec-
ondary education (from 13,8 percent to 9,9 percent), the rate of adults in educa-
tion (from 22,9 percent to 19,9 percent ), enrollment rates in primary education INTERDISCIPLINARY MANAGEMENT RESEARCH XI
(from 21,5 percent to 15,5 percent), imports (from 23,2 percent to 23 percent),
total debt (from 7,8 percent to 5,1 percent), investment in the army (from 5,1
percent to 2,5 percent), investment in health care (from 1,94 percent to 1,9
percent), the combined proportion of primary, secondary and tertiary education
(from 19,8 percent to 19,6 percent), annual growth rate of the population (from
1,2 percent to the projected value for 2015. of 1 percent) and population under
age of 15 (from 10,6 percent to the projected value for 2015. of 10,5 percent).
Standard deviation decreases at high rates only variable inflation rate (from
523,8 percent to 11,7 percent).
Standard deviation oscillates at variables: life expectancy (from 10 years to
12,4 years), the investment of government funds in education (from 5,2 per-
277
cent to 5,7 percent), investment in tertiary education (from 7,8 percent to 9,4
percent), the number of students who reach grade fifth grade in education
(from 15,6 percent to 18,8 percent), the rate of education of not adult person
(from 16,3 percent to 19,5 percent) and unemployment rate (3,9 percent to 13
percent).
If we look at changes in the minimum values of variables, we can see that the
minimum value is growing at high rates at variables: urban population (from
3,2 percent to 7,7 percent, the projected value for 2015. by 9,5 percent), invest-
ment in primary and pre-primary education (from 2,2 percent to 20 percent),
investment in secondary education (from 0,7 percent to 12 percent), enrollment
rates in primary education (from 16 percent to 36 percent) and the number of
working-age population (25 inhabitants per 18.170 inhabitants).
The minimum value is growing at low rates at variables: Human Develop-
ment Index (0,23 to 0,28), investment in tertiary education (from 0 percent to
2,4 percent), imports (from 5 percent to 10 percent), exports (from 3 percent to
7 percent), foreign direct investment (from 3,3 percent to 0,8 percent), invest-
ment in health (from 0 percent to 0,4 percent), the combined proportion of pri-
mary, secondary and tertiary education (from 17 percent to 21 percent), GDP
per capita (purchasing power parity) (from $470 to $548), Human Poverty
Index (from 2,5 percent to 3,6 percent), long-term unemployment rate (from
0,2 percent to 0,3 percent) and the number of population over age of 65 (from
0,8 per cent of the projected value for 2015 of 1,4 percent).
The minimum value is stagnant at variables: population (0,1 million, pro-
jected value for 2015. is also 0,1 million), the number enrolled in secondary ed-
ucation (5 percent), the number of telephone lines (2 lines per thousand inhab-
itants), the number of subscribers mobile devices (0 subscribers per thousand
inhabitants), the number of Internet users (0 users per thousand inhabitants),
investment in the army (0 percent), external debt ($0 million), investment in
research and development (0,1 percent), the rate illiteracy adults (0,3 percent)
and GDP (purchasing power parity) (0,4 billion dollars).
The minimum value decreases at low rates at variables: investment of gov-
ernment funds in education (from 2,8 percent to 1,6 percent), total debt (from
0,4 percent to 0,1 percent), the index of life expectancy (from 0,14 to 0,12),
education index (from 0,17 to 0,16), the annual growth rate of the population
(from 0,4 percent of the projected value for 2015. of 1,1 percent) and popula-
278
tion under age of 15 (from 14,1 per cent of the projected value for 2015. of 12,7
percent).
Minimum value fluctuates at variables: life expectancy (from 33 years to 38
years), investment in education (from 0,5 percent to 0,9 percent), the rate of
adults in education (from 11,4 percent to 17,6 percent), the number of students
who reach the fifth grade in education (from 22 percent to 38 percent), the rate
of education nepunoljetnih person (from 17 percent to 23,8 percent), GDP
per capita (from $83 to $600), inflation rate (from 6 percent to 0,5 percent),
unemployment rate (from 0 percent to 2,5 percent), the growth rate of GDP
(from 14.7 percent to 8,2 percent) and GDP (from 0,1 billion dollars to 0,214
billion dollars).
If we look at changes in maximum values of variables, we can see that the
maximum value is growing at high rates at variables: population (from 927,8
million to 1.306,3 million, the projected value for 2015. of 1.393 million), the
number of subscribers of mobile devices (from 54 subscribers per thousand
inhabitants to 1.194 subscribers per thousand inhabitants), the number of In-
ternet users (from 8 users per thousand inhabitants to 675 users per thousand
inhabitants), GDP per capita (21.082 US dollars to 58.900 US dollars), the
growth rate of GDP -a (from 15 percent to 38 percent), GDP (purchasing pow-
er parity) (9.792,5 billion to 10.923 billion) and the number of working-age
population (from 74 million to 760 million).
The maximum value is growing at low rates at variables: Human Develop-
ment Index (0,88 to 0,96), life expectancy (from 74,7 years to 81,6 years), the
investment of government funds in education (26,9 percent to 32,8 percent), INTERDISCIPLINARY MANAGEMENT RESEARCH XI
the rate of adults in education (from 99,8 percent to 100 percent), enrollment
rates in secondary education (from 97 percent to 104 percent), the number of
telephone lines (681 lines per thousand inhabitants in the 797 line on the thou-
sand inhabitants), imports (from 124 percent to 161 percent), exports (from
132 percent to 170 percent), foreign direct investment (from 30,7 percent to
49,1 percent), investment in health (from 9,5 percent to 9,7 percent), invest-
ment in research and development (from 3,8 percent to 5,1 percent), the com-
bined proportion of primary, secondary and tertiary education (from 114 per-
cent to 123 percent), GDP per capita (at purchasing power parity ) (53.780 US
dollars to 62.298 US dollars), the index of life expectancy (from 0,94 to 0,95),
Human Poverty Index (from 61,8 percent to 64,4 percent), the rate of illiteracy
279
adults (from 83,5 percent to 87,2 percent), long-term unemployment rate (from
9,3 percent to 10,7 percent), GDP (from 10.065,3 billion to 11.750 billion),
the population under age of 15 (50,4 percent of the projected value for 2015. of
50,8 percent) and the number of population over age of 65 (from 16,7 percent
to the projected value for 2015. of 26 percent).
The maximum value stagnates at variables: urban population (100 percent,
the projected value for 2015. is also 100 percent), the number of students who
reach the fifth grade in education (100 percent), the rate of education not adults
persons (99,9 percent) and education index (0,99).
The maximum value decreases at low rates with variables: total debt (from
74,5 percent to 36,4 percent) and annual growth rate of the population (of 7,2
per cent on the projected value for 2015 of 4,9 percent).
The maximum value decreases at high rates at variables: investment in pre-
primary and primary education (from 96,3 percent to 71,4 percent), investment
in secondary education (from 84,3 percent to 57,5 percent), investment in the
army (of 48,5 percent to 19,4 percent), inflation (from 4.925 percent to 133
percent) and foreign debt (from $532 billion to 4.710 million).
The maximum value fluctuates at variables: investment in education (from
10.4 percent to 18.7 percent), investment in tertiary education (from 34,3 per-
cent to 46,7 percent), enrollment rates in primary education (from 100 percent
to 109 percent) and unemployment rate (from 19,6 percent to 70 percent).
3. ANALYSIS OF PROJECTED VALUES OF

VARIABLES USED IN THE PAPER FOR 2015TH
By examining results of descriptive statistical analysis of variables countries
projected data for 2015. (see Table 1), we can see that the variable population
has an average value of 40,242 (variable number of residents expressed in mil-
lions), the median is 8,15, while mode is 0,1. Variance and standard deviation
amounted to 21.263,898, and 145,821. The minimum value is 0,1, the maxi-
mum value of 1.393, the range of variation is 1.392,9. Lower and upper quartile
values are 2,7 to 29,325.
Variable annual growth rate of population has an average value of 1,302
(variable annual growth rate of the population is expressed as a percentage), the
280
median is 1,3, while the mode is 0,3. Variance and standard deviation amount
to 1,051 or 1,025. The minimum value is – 1,1, the maximum value is 4,9, the
range of variation is 6. Lower and upper quartile values are 0,425, respectively 2.
The variable urban population has an average value of 59,107 (variable
urban population is expressed as a percentage), the median is 60,1, while the
mode is 44,2. Variance and standard deviation amounted to 496,603, ie 22,285.
The minimum value is 9,5, the maximum value of 100, the range of variation
was 90,5. The lower quartile has a value of 43,15, while the upper quartile has
value of 75,95.
Variable population under age of 15 has an average value of 27,977 (variable
population under 15 expressed as a percentage), the median is 27,1, while the
mode is 16,4. Variance and standard deviation amounted to 110,555, ie 10,515.
The minimum value is 12,7, the maximum value is 50,8, the range of variation
is 38,1. The lower quartile has a value of 17,6, while the upper quartile has value
of 36,225.
A variable number of population over age of 65 has an average value of 8,3
(variable number of population over age of 65, expressed as a percentage), the
median is 5,7, while the mode is 3,4. Variance and standard deviation amounted
to 34,098, ie 6,839. The minimum value is 1,4, the maximum value is 26, the
range of variation is 24,6. The lower quartile has a value of 3,7, while the upper
quartile has value of 13,3.
4. ANALYSIS OF THE CHISQUARE TEST AND INTERDISCIPLINARY MANAGEMENT RESEARCH XI

SIGNIFICANCE LEVEL OF VARIABLES USED IN
THE PAPER
By examining the results of the analysis chi-square test and significance level
variables countries (see Table 2), we can see that the high level of significance
from 0,5 to 1 at variables: Human Development Index (1), Human Poverty
Index (1), the probability of not surviving 40 (developing countries) or 60th
(OECD countries) years of age (1), the rate of illiteracy adults (1), the rate of
long-term unemployment (1), population (1), the urban population (1), popula-
tion under age of 15 (1), investment in health care (0.841), the mortality rate of
children (20 percent of the poorest segment of the population (1)), the mortality
rate of children (20 percent wealthiest segment of the population (1)), the num-
281
ber of adult men smokers (0,999), the number of adult women smokers (0,899),
life expectancy (1), the probability of survival of 65 years for men (1), the prob-
ability of surviving 65 years for women (1), investment in education (0,988),
the investment of government funds in education (1), investment in pre-primary
and primary education (1), investment in secondary education (1), investment
in tertiary education (1), rate of education of adults (1), the number enrolled
in secondary education (0,805), number of telephone lines (1), the number of
subscribers of mobile devices (1), the number of Internet users (1), the num-
ber of researchers (1), GDP per capita (1), the annual growth rate of GDP per
capita (0,838), the average annual change in the consumer price index (1), im-
ports (0,681), foreign direct investment (0,806), total debt (1), unemployment
rate (1), electricity consumption per capita (1), Gender - Related Development
Index (1 ), life expectancy for men (1), life expectancy for women (1), the rate of
adult education for men (1), the rate of adult education of women (1), predicted
earned income for men (1), predicted earned income for women (1), Gender
Empowerment Measure (1), the number of women in Parliament (1), the num-
ber of women according to the number of men enrolled in tertiary education
(1), women as contributing family workers (0,996), the population below the
poverty line (1), the index of press freedom (1), increased productivity (1), the
number of working-age population (1) and external debt (1).
Following variables have significance level from 0,1 to 0,5: GDP per capita
ranking - Human Development Index ranking (0,12), the population over age
of 65 (0,131), export (0,275) and inflation rate (0,205).
Following variables have low level of significance from 0 to 0,1: the com-
bined proportion of primary, secondary and tertiary education (0,02), the in-
dex of life expectancy (0,003), education index (0), the annual growth rate of
the population (0,004), the mortality rate of children (0), the mortality rate of
children under 5 years (0), the number enrolled in primary education (0), the
number of students who reach the fifth grade in Education (0), the number
of students of biology, mathematics and engineering sciences (0.021), number
of patents granted to residents (0), investment in research and development
(0,001), investment in the army (0,002), the import of weapons (0), the export
of weapons (0), the number of women in the legislature and in managerial posi-
tions (0,089), number women in government (0), the population with less than
$1 per day (0), the rate of education of not adult person (0.022), the number of
Olympic medals to GDP (0) and growth rate of GDP (0,001).
282
5. SYNTHESIS OF RESEARCH FINDINGS
Countries in the world generally don’t have clear policy or sufficiently under-
standing of investing importance in people and their potential. Today, human
factor is of too little importance, although thr country that invest in people,
raising their motivation, knowledge and teamwork, provide much higher rate of
return and more equitable growth structure than is the case with investments
in buildings, machinery and equipment. The process, therefore, in many coun-
tries of the world is going wrong and should be reversed, instead of current
priority investments in tangible assets, much more should be invest in human
resources, and less in physical capital, at the same time and without ignoring its
importance.
Annexes
Table 1. Analysis of the projected values of variables used in the paper for
2015th.
Statistics
broj broj
godisnja urbano stanovnika stanovnika
broj stopa rasta stanovn ispod 15 iznad 65
stanovnika stanovnika istvo godina godina
N Valid 176 172 177 172 172
Missing 1 5 0 5 5
Mean 40.242 1.302 59.107 27.977 8.300
Median 8.150 1.300 60.100 27.100 5.700
Mode .1 .3 44.2 a 16.4 3.4 a
Std. Deviation 145.821 1.025 22.285 10.515 5.839
Variance 21263.898 1.051 496.603 110.555 34.098
Range 1392.9 6.0 90.5 38.1 24.6
Minimum .1 -1.1 9.5 12.7 1.4
Maximum 1393.0 4.9 100.0 50.8 26.0
Percentiles 25 2.700 .425 43.150 17.600 3.700 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
50 8.150 1.300 60.100 27.100 5.700
75 29.325 2.000 75.950 36.225 13.300
a. Multiple modes exist. The smallest value is
h
(made by authors)
Legend: broj stanovnika – population; godisnja stopa rasta stanovnika - an-

nual growth rate of the population; urbano stanovnistvo - urban population;
broj stanovnika ispod 15 godina - population under age of 15; broj stanovnika
iznad 65 godina - population over age of 65.
283
Table 2. Results of analysis chi-square test and significance level of variables
used in the paper.
Chi- Asymp. Asymp.
variable df variable Chi-Square df
Square Sig. Sig.
human development index 34294 148 1000 investments in education 41333 64 0.988
the combined proportion investment of
of primary, secondary and 95266 69 0.02 government funds in 17947 73 1000
tertiary education education
life expectancy index 89322 56 0.003 investments in education 41333 64 0.988

investment of
education index 118508 54 0 government funds in 17947 73 1000
education
bdp per capita rank minus investments in pre-
human development index 89593 62 0.012 primary and primary 11691 96 1000
rank education
investments in secondary
human poverty index 10207 107 1000 12327 95 1000
education
probability of not surviving
investment in tertiary
more that 40 or 60 years 38326 132 1000 16704 90 1000
education
of life
the rate of illiteracy of rate of education of
13609 101 1000 25394 105 1000
adults adults
rate of long-term the number enrolled in
2333 23 1000 157159 40 0
unemployment primary education
the number enrolled in
population 72818 118 1000 61577 72 0.805
secondary education
the number of students
annual rate of population
71339 43 0.004 that reaches grade 5 in 84526 45 0
growth
education
number of students of
urban population 11785 162 1000 biology, mathematics and 46400 29 0.021
engineering sciences
population under age number of telephone
33500 136 1000 23534 118 1000
of 15 lines
number of subscribers to
population over age of 65 97581 83 0.131 21962 138 1000
mobile devices
investments in education 51839 63 0.841 33347 91 1000

Internet users
the mortality rate of number of patents
0 53 1000 918176 46 0
children granted to residents
the mortality rate of investment in research
0.963 52 1000 49143 23 0.001
children and development
number of adult male
11608 30 0.999 number of researchers 5583 91 1000
smokers
number of adult female
13275 21 0.899 bdp per capita 2893 164 1000
smokers
284
annual growth rate of
life expectancy 29860 139 1000 59278 71 0.838
GDP per capita
the mortality rate of Average annual change
131773 73 0 43550 117 1000
children in consumer price index
the mortality rate of
146000 87 0 import 63939 70 0.681
children under 5 years
the probability of surviving
24209 142 1000 export 70282 64 0.275
65 years for men
the probability of surviving
29442 141 1000 foreign direct investment 61529 72 0.806
65 years for women
gender empowerment
total debt 35076 83 1000 2775 76 1000
measure
number of women in
investments in army 78985 47 0.002 53310 129 1000
parliament
number of women in
unemployment rate 2933 25 1000 the legislature and in 45529 34 0.089
managerial positions
number of women vs
electricity consumption
3813 166 1000 number of men enrolled 50331 100 1000
per capita
in tertiary education
women as contributing
weapon import 3E+06 85 0 22188 43 0.996
family workers
number of women in
weapon export 731139 40 0 154306 76 0
government
rate of education of adult population with less than
56647 110 1000 135494 64 0
men 1 USD per day
rate of education of adult population below poverty
25768 112 1000 12640 87 1000
women line
predicted earned income rate of education of not
0 153 1000 114286 86 0.022
for men adults persons
predicted earned income
4844 150 1000 press freedom index 28234 98 1000
for women
olympics medal count
increase of productivity 0 26 1000 3E+06 50 0
to GDP
the number of working-
7462 149 1000 inflation rate 106121 95 0.205
age population
external debt 3805 159 1000 the growth rate of GDP 116897 75 0.001
(made by authors)
285
THE NEW ECONOMIC POLICY OF
THE EU AND ITS APPLICATION IN
THE REPUBLIC OF CROATIA
Mladen Vedriš, Ph.D., Full professor

Faculty of Law in Zagreb
University of Zagreb
Abstract
Mladen Vedriš: THE NEW ECONOMIC POLICY OF THE EU AND ITS APPLICATION IN THE REPUBLIC OF CROATIA
The global crisis has created new challenges and new ways of solving them
in different parts of the world. In the United States it has been characterized
primarily by powerful actions and financial stimuli from the central bank, the
Federal Reserve Bank, or the Fed, to stabilize the banking (financial) system,
and by further stimuli in the real sector. Within the EU the accent in the first
period was placed on implementing structural reforms in individual countries
and then on activities directed at significantly greater coordination and moni-
toring in achieving national goals of economic and development policy.
In this context a new control and corrective mechanism (the EU Semester) has
been created through which the European Commission analyses the fiscal and
structural reform policies of every member state, provides recommendations,
and monitors their implementation. Also, the presence, role and activities of
the European Central Bank have been enhanced to create a mechanism to
prevent possible future financial crises, but also one to provide the prerequisites
for stimulating economic growth.
As a full member of the EU since 1 July 2013, the Republic of Croatia is in a
position for opening new opportunities but also to take on new responsibilities.
The long, deep economic crisis can be resolved with the assistance of EU institu-
tions and EU structural funds, but at the same time it demands a considerably
greater degree of responsibility and effort by the executive authorities in achiev-
ing the necessary structural reforms. This work cites the causes of the economic
crisis in Croatia and it then analyzes the possibility for overcoming it by a series
of synchronized measures and actions: reforms that for one populist political
reason or another were ignored for a long time, or postponed, contrary to the
warnings from foreign and domestic professional institutions.
286
Keywords: crisis, new EU economic policy, EU Semester, programs for eco-
nomic adaptation, EDP procedure and Croatia, structural reforms, economic
growth.
JEL Classification: D04, E6, F68
1. INTRODUCTION
The position of the European Union today is not ambiguous. On one hand
it is a community of states with a high degree of social responsibility and that
also continuously identifies new instruments for stimulating development, not
only of its members as a whole but also for several of its regions in particular.
On the other hand, it is a collection of economies with various degrees of eco-
nomic development and various capacities for future growth, but also of with a
variety of conceptual views about how to achieve important goals, which have
been defined in a jointly adopted development document Europa 2020. How to
navigate the global crisis, how to make the EU economic area in general more
competitive, how to encourage new investment, and how to respond to a series
of challenges for sustainable development: from environmental protection to
demographic trends and the relations of the working and the supported popu-
lations - are open questions that the EU must address.
With two year of experience as the newest member of the EU, the Repub-
lic of Croatia is actively engaged in achieving a real convergence with the EU,
which is a long, demanding process after the political and normative one that
concluded successfully on 1 July 2013. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
This work has two goals. The first one is to describe the current situation
and the essential guidelines for creating a common EU economic policy under
the circumstances of an unfolding economic crisis. And that crisis was the basic
reason for the construction of joint mechanisms to create and monitor and to
correct individual national economic policies. The second goal is to analyze the
current economic position of Croatia, individually but also in comparison to
other EU members, to establish what must be done; which instruments and
mechanisms can encourage economic growth. What are the endogenous fac-
tors and responsibilities – first for implementing structural reforms – and what
are the possible contributions by the EU, beginning with the active cooperation
287
with the European Commission in creating and implementing the necessary
reforms to taking greater advantage of the resources of EU funds.
Based on these goals, the first part of the work will analyze the economic
position and performance of the EU, and in the second part the economic po-
sition and performance of Croatia in the context of the requirements that the
EU’s common economic policy sets before each of its members. The conclusion
with point to the possible positive synergies in achieving the development goals
of Croatia, but also to the important challenges, responsibilities and opportuni-
ties in several areas that have become accessible with the country’s membership
in the EU.
2. THE EUROPEAN UNION  A NEW ECONOMIC

POLICY
At the very beginning, a question is raised about the circumstances that are
demanding changes in the activities of the EU and the establishment of new
mechanisms, which are accepted by EU members and become obligations for
future individual behavior within national frameworks.1 The immediate con-
clusion would refer to the appearance of the economic crisis that moved from
the United States to Europe (2007-2008) and became a global crisis. However,
an awareness of the need for deep changes in the EU framework to raise the
level of competitiveness as a key tool for maintaining its own position, economi-
cally and socially, was created before this event in the 1990s and was formally
structured in the document of the Lisbon Strategy (2000-2010), which for
about half of its life span, was subject to revisions and additions for a stronger
focus on concrete goals with individual countries. Upon the expiration of the
Lisbon Strategy, the EU undertook an evaluation of the current situation (the
powerful shock of the 2009 crisis) and adopted a new development document:
Europa 2020.2
1
The European Semester is the first phase of the EU’s annual cycle of economic policy guidance
and surveillance. In the second phase, the National Semester, member states implement the
policies they have agreed.
2
Europe 2020 - Europe’s growth strategy: Growing to a sustainable and job-rich future, European
Commission, Brussels, 2010. This ten-year strategy for growth and jobs in the EU, began in
2010. Its goal was not just to overcome the crisis from which our economy is gradually recover-
ing, but to resolve the shortcomings of our model of growth and to create the conditions for
intelligent, sustainable and inclusive growth.
288
Table 1. EU 2020 strategic goals
Europe 2020 strategy headline indicators, EU28
Past situation Current situation 2020
Headline indicator
2008 2012 2013 Target
Employment rate, total
Employment 70.3 68.4 68.4 75.0
(% of the population aged 20-64)
Gross domestic expenditure on R&D
R&D 1.85 2.01 2.02e 3.00
(% of GDP)
Greenhouse gas emissions*
90.4 82.1 : 80.0
(index 1990=100)
Share of renewable energy in gross final
10.5 14.1 15.0 20.0
Climate change & energy consumption (%)
energy Primary energy consumption
1,689 1,584 1,566.5 1,483
(Million tons of oil equivalent)
Final energy consumption
1,175 1,103 1,104.6 1,086
(Million tons of oil equivalent)
Early leavers from education & training,
total 14.7 12.7 12.0 <10.0
Education (% of population aged 18-24)
Tertiary educational attainment, total
31.2 35.9 36.9 ≥40.0
(% of population aged 30-34)
People at risk of poverty or social
Poverty or social
exclusion 116.6 123.1 121.4e 96.6
exclusion**
(million)
Source: Eurostat; http://ec.europa.eu/eurostat/web/europe-2020-indicators/
europe-2020-strategy
However, in contrast to the previous document (the Lisbon Strategy), a con-

viction within the EU had matured that it was now necessary to move away
from popular declarative commitments and a rickety format for the general
monitoring of the achievement of an agreed upon development policy. It was
necessary to create specific control mechanisms for monitoring and measuring
results and also a powerful mechanism for concrete action in the event of a less-
er or greater failure to meet obligations. In other words, after the establishment
of common development goals and priorities, the EU created clear and effec-
tive mechanisms for monitoring the implementation of the goals of economic
policy at the national level for each member individually. For that purpose a new
framework was established for creating, monitoring, and also for the quick in-
tervention and correction of, the economic policies of individual member states
based on transparent and measurable instruments.
289
This framework is called the European Semester. It is a mechanism for eco-
nomic management that was introduced after the adoption of the Europa 2020
strategy. It has been in effect since 2011. The European Semester is not just
an instrument for fiscal oversight, but also for the overall coordination of the
policies of the member states with the development and economic policy of the
European Union. It is aimed at achieving intelligent, sustainable, and inclusive
growth. With that same goal, the member states of the European Semester co-
ordinate their budget and economic policies with the goals and rules that have
been agreed upon at the European Union level and they define and implement
a series of reforms that stimulate growth. The European Semester occurs in an-
nual cycles. Every EU member state is obligated to participate in it.
In the first phase the member states mutually coordinate budget, macroeco-
nomic and structural policies to achieve the goals of the Europe 2020 strategy
(employment, research and development, climate change, education, poverty).3
The European Semester starts when the Commission adopts its Annual Growth
Survey, usually toward the end of the year. This document sets out EU priorities
to boost growth and job creation. The Commission simultaneously publishes
its Alert Mechanism Report in the context of the Macroeconomic Imbalance
Procedure. Based on a scoreboard of indicators, the Alert Mechanism Report
identifies the member states that require further analysis, in the form of an in-
depth review, in order to conclude on the possible existence and the nature of
potential imbalances. Drawing on the experience from the first exercises of the
European Semester, the 2015 Annual Growth Survey contains proposals to
streamline the process, whose main steps are the following:
In October, member states submit their draft budgetary plans for the fol-
lowing year. The Commission issues an opinion on each of them in November.
The Commission assesses whether the draft budgetary plans comply with the
requirements under the Stability and Growth Pact.
The spring meeting of the European Council in March takes stock of the
overall macroeconomic situation and progress towards the Europe 2020 targets
and provides policy orientations covering fiscal, macroeconomic and structural
reforms.
3
The European Semester and the Procedure for an Excessive Deficit – Implications for indus-
trial relations in the Republic of Croatia, European Commission, 2014.
290
Also in March, the Commission publishes a single analytical economic as-
sessment per Member State analyzing their economic situation, their reform
agendas and whenever deemed relevant on the basis of the Alert Mechanism
Report, possible imbalances faced by the Member State.
In April, Member States present their plans for sound public finances (sta-
bility or convergence programmers) and their reforms and measures to make
progress towards smart, sustainable and inclusive growth in areas such as em-
ployment, education, research, innovation, energy or social inclusion (national
reform programmers).
In May, the Commission proposes country-specific recommendations as ap-
propriate. These recommendations provide tailor-made policy advice to Mem-
ber States in areas deemed as priorities for the next 12-18 months. The Council
discusses and the European Council endorses the recommendations. Policy
guidance is thus given to Member States before they start to finalize their draft
budgets for the following year.
Finally, end of June or in early July, the Council formally adopts the country-
specific recommendations.4
The need for this structuring and monitoring of economic policy within the
EU, and mutual coordination in general, has also been confirmed by experi-
ence to date. Thus, the European Commission has stated “the crisis has shown
that problems from one member state of the Euroarea can spread and have a
harmful effect on neighboring states.” Therefore, the enhanced supervision pro-
vided would not have prevented the spread of the problems before they became
systematic.
With a packet of two measures that went into effect on 30 May 2013, the
EU introduced a new cycle of monitoring, under which member states (except
those included in programs for macroeconomic adaptation) submit draft bud-
get plans to the European Commission in October of every year. The commis-
sion then publishes its opinion. This procedure ensures a more detailed moni-
toring of Euroarea member states with excessive deficits and closer supervision
of countries that are facing more serious difficulties.
4
Making it happen – The European Semester, European Commission, Brussels, http://
ec.europa.eu/europe2020/making-it-happen/index_en.htm
291
• Member states for which a procedure for excessive deficits has been ini-
tiated are obligated to submit not only their budget plans but also their
programs for economic partnerships with plans for broader fiscal-struc-
tural reforms (for example, in the areas of retirement, tax and healthcare
systems) that will reduce their deficits.
• Member states in financial difficulties or those include in preventive as-
sistance programs within the European Stabilization Mechanism are sub-
ject to “enhanced surveillance,” which means that which means they are
subject to regular review missions by the Commission and must provide
additional data on their financial sectors.”5
Member states that are facing these imbalances will be included in special,
enhanced mechanisms for monitoring their achievement of the recommended
corrections. “The first step of a possible EDP usually follows the identifica-
tion by the Commission of prima facie non-compliance with the deficit and/
or debt criterion. A Member State is prima facie non-compliant with the deficit
requirement if its general government deficit is above 3% of GDP. As regards
debt, the criterion for prima facie non-compliance is a general government debt
greater than 60% of GDP and not declining at a satisfactory pace. A satisfac-
tory pace is defined as a reduction of the gap between a country’s debt ratio and
the 60% of GDP reference value of the Treaty by 1/20th annually on average
over three years. In these cases, the Commission provides a report under Article
126(3) TFEU which considers all the relevant factors and on that basis con-
cludes whether or not the deficit and/or the debt criterion are complied with.”6
The degree of success of each member is measured concretely and directly
and it then becomes a ranking within individual groups of success. Here it may
be relevant and useful to show results of the Report of the European Commis-
sion on the Achievement of the Measures of the European Semester.
5
European Commission, MEMO 13/318, Press Release – Economic Management in the EU,
Brussels, 28 May 2014, p. 5.
6
European Semester 2015: country-specific updates, European Commission, Brussels,
26.02.2015., dostupno: http://europa.eu/rapid/press-release_MEMO-15-4511_hr.htm, p. 2
292
BOX. European Semester  – Country specific updates
The main findings can be summarised as follows:
• Croatia, Bulgaria, France, Italy and Portugal are considered to be in a
situation of excessive imbalance requiring decisive policy action and
specific monitoring, including regular reviews of progress by all Member
States in the relevant committees at EU level:
o For Croatia and France, risks of imbalances have significantly increased. For
France, this represents a stepping-up of the status under the procedure com-
pared to last year. The Commission will consider in May, taking into account
the level of ambition of National Reform Programmes and other commit-
ments presented by that date whether to recommend to the Council to launch
an Excessive Imbalance Procedure.
o For Italy, imbalances remain excessive, requiring decisive policy and specific
monitoring of the ongoing and planned reforms.
o For Bulgaria and Portugal the IDRs also point to excessive imbalances. In light
of this situation, the Commission will carry out specific monitoring of the
policies recommended by the Council.
• Ireland, Spain and Slovenia are considered to be in a situation of imbal-
ance requiring decisive policy action, with specific monitoring:
o For Ireland and Spain, this monitoring will rely on post-programme
surveillance.
o For Slovenia, the Commission considers that a significant adjustment has INTERDISCIPLINARY MANAGEMENT RESEARCH XI
taken place over the last year; while this is the basis to conclude that imbal-
ances are no longer excessive, the Commission stresses that important risks
are still present.
• Germany and Hungary are considered to be in a situation of imbalance
requiring decisive policy action and monitoring. For Germany, the Com-
mission considers that there is no tangible improvement in the trends of
imbalances identified last time and that the policy response has been in-
sufficient so far. For Hungary, the Commission considers that there is no
tangible improvement.
7
Ibidem, p. 3.
293
• Belgium, the Netherlands, Romania, Finland, Sweden and the United
Kingdom are considered to be in a situation of imbalance requiring poli-
cy action and monitoring.
The results of the IDRs will be taken into account in the next steps of the Euro-
pean Semester of economic policy coordination
3. THE REPUBLIC OF CROATIA  A NEW

ECONOMIC POLICY AS A FORMAL AND
SUBSTANTIVE EU CONDITION
Because of the war and political obstacles, the Republic of Croatia was not
able to join in the either of the two earlier waves of transition countries entering
the EU (2004 and 2007). With exceptional negotiating efforts, it achieved that
goal in 2013 and in doing so it closed the list of expanded membership for at
least another decade or longer.8 For almost the entire period Croatia’s economic
performances have not converged with those of the EU, neither with the group
of core countries (the EU 15) nor with the group of new members (the EU
10). These performances related both to the period of high conjuncture (2000-
2007) and to the period of crisis and the period of the search for mechanisms
that would ease the burden of the crisis and create the conditions to exit from
it (2008-present). What this means in a comparative context, and especially in
the period from the beginning of the global economic crisis, is apparent from a
comparison with referent countries in the EU and with the average values for
the EU as a whole.
8
This, of course, does not mean an absence of interest by the EU in the region and of possible
further expansion in the future because there are continuing efforts to achieve the so-called
para-membership, which means the adoption of EU practices and coordination of the legal
framework in several areas of life so that formal accession will be more efficient and simpler
for both side – the EU and the potential new members.
294
Graph 1. Deeper and longer recession than in most MSs
Change in real GDP
now vs 2007
25
20
15
10
5
0
-5
-10
-15
-20
-25
Slovakia
Estonia
Hungary
Portugal
Poland
Cyprus
Greece
Bulgaria
Lithuania
EU
Romania
Latvia
Croatia

Source: Croatia: Is this the end of the long recession?, EBRD presentation, Macroeconomic
Outlook Conference, Hypo Alpe Adria Bank, 27 March 2015, p. 2.
With the international comparison of the aggregate position of Croatia in

regard to the EU environment, it is important also to observe the more detailed
parameters of economic events and changes in the period of the crisis and of
immediate expectations.
Table 2. Selected economic forecast

Source: SEE Economic Research: Macroeconomic Outlook, Hypo Alpe Adria, Zagreb,
March 2015, p. 3.
Within these parameters, and in the context of the new EU economic policy
for the period to 2020 the position of industrial production in Croatia can be
analyzed in absolute and comparative terms.
295
Graph 2. Industrial production ( January 2007 = 100)
Source: Hrvoje Stojić, Economic Prospects 2015-2016 – Walking the tightrope, Macroeco-
nomic Outlook Conference, Hypo Alpe Adria, Zagreb, 31 March 2015, p. 6.
The crisis-induced decline in industrial production in Croatia up to 2014

has been drastic and it has been accompanied by a similarly drastic decline in
employment in that sector and by a subsequent stagnation of exports. At the
same time the sharp decline of activity in the construction sector and of overall
investment (private and public sectors) has made Croatia’s position the weakest
in the EU, with the exception of Greece.
The reasons for this situation can be sought primarily in the sphere of politi-
cal decision making and the (un)preparedness to change, which has character-
ized the behavior of the executive authority in the entire period being analyzed
regardless of political considerations or the party (or coalition) that formed a
government in individual time periods.9 Expert analyzes and evaluation (the
World Bank, the IMF) from individual periods speak clearly and exactly about
this issue. Thus, the document Assessment of the 2013 Economic Programme for
Croatia by the European Commission underlines the important structural mea-
sures that can promote economic growth and competitiveness. The inadequate
quality of the business environment and the lack of competition in key markets
weigh on the growth prospects for the Croatian economy. Despite recent im-
9
For this paper and analysis the focus is on measures and activities that were (not) undertaken
in Croatia after its entry into the EU and the beginning of the use of the mechanism of the
European Semester.
296
provements, administrative and regulatory obstacles are still a major hurdle for
investment activity and for setting up a business. There is also scope to improve
the efficiency of the judiciary, so that the legal framework supports a swift reso-
lution of insolvent firms. The markets for energy, transport and postal services
are dominated by single suppliers, which distorts competition and undermines
the cost-competitiveness of Croatian businesses. Looking forward, productivity
growth and a faster transition to a knowledge-based economy are hampered by
a low level of spending on research and development and by inefficiencies in the
policy framework.10
It further underlines the areas of activity for which the executive authority is
responsible and where changes are unavoidable – and urgent. It is especially im-
portant to emphasize the need to stimulate more adequately research and inno-
vation and the process of modernization of public administration, which is ap-
parent from the following statements: Croatia is a moderate innovator with the
research and innovation system showing a number of inefficiencies. Inefficien-
cies mainly concern cooperation between public research organisations and the
private sector, the commercialisation of research results and technology transfer
mechanisms. At the same time, the policy frameworks in the area of research,
innovation and industrial policy are not sufficiently developed. In addition, the
total level of R&D expenditure reached 0.75 % in 2010 and 2011, which is be-
low the EU average and too low to advance the transition to a knowledge-based
economy. In particular, public R&D investment spending in 2011 amounted to
0.41 % compared to the EU average of 0.74 %. Business expenditure on R&D
stood at 0.33 % in 2011, well below the EU-27 average (1.26 %). Croatia aims
to achieve a level of 1.4 % by 2020, which should be facilitated by the expected
contribution of EU Structural Funds.11
In regard to public administration, it means the following: While a Civil Ser-
vice Act is in place, the current performance evaluation system does not ensure
merit-based career progression which would attract and retain qualified staff.
Amendments to the Civil Service Act are currently under preparation with a
view to streamlining recruitment procedures and introducing performance ap-
praisal. A draft Act on Salaries in State Administration has been prepared but
10
Assessment of the 2013 Economic Programme for Croatia,“ European Commission, Commis-
sion Staff Working Document, Brussels, 29.5.2013, SWD (2013) 361 final p. 22.
11
Ibidem, p. 25.
297
there have been delays in finalising the overall legal framework for a transparent
and merit-based salary system in the whole public administration. On the other
hand, a new register of public sector employees has been established, which is
increasing the efficiency of processing, analysing and following up relevant civil
service data. The new State School for Public Administration has improved its
capacity to provide training for civil servants, local and regional self-government
officials and public officials.12
As a complement to this assessment, we can also point to an analysis of Cro-
atia’s economic position by the EBRD in the chapter Structural reform context,
which states, “In the Bank’s annual assessment of transition challenges across 16
sectors (see the EBRD Transition Report 2012), Croatia lags behind most other
countries in central Europe and the Baltic states – see Figure 2. The country
scores well in the corporate sectors, where the remaining transition gaps are
mostly assessed as small, and in some infrastructure sectors, reflecting the cu-
mulative progress over the years, notably in the road sector. Even here, however,
there are significant challenges ahead in promoting institutional reform and
enhancing private sector involvement. The water and wastewater and railways
sectors still present major challenges on the reform front. In the energy sector,
the biggest transition gap concerns the electric power sector, particularly when
it comes to market structure. In common with other advanced countries, the
transition gaps in the financial sector mostly lie in improving access to finance
for MSMEs and developing private equity markets.”13
12
Ibidem, p. 26.
13
Strategy for Croatia, As approved by the Board of Directors at its meeting on 25 June 2013,
Documentation of the European Bank for Reconstruction and Development. EBRD, p. 9
298
Graph 3. Croatia Sector Transition Scores14
Source: Strategy for Croatia, As approved by the Board of Directors at its meeting on 25 June
2013, Documentation of the European Bank for Reconstruction and Development. EBRD,
p. 9.
In the Bank’s annual assessment of transition challenges across 16 sectors

(see the EBRD Transition Report 2012), Croatia lags behind most other coun-
tries in central Europe and the Baltic states – see Figure 2. The country scores
well in the corporate sectors, where the remaining transition gaps are mostly
assessed as small, and in some infrastructure sectors, reflecting the cumulative
progress over the years, notably in the road sector. Even here, however, there are
significant challenges ahead in promoting institutional reform and enhancing
private sector involvement. The water and wastewater and railways sectors still
present major challenges on the reform front. In the energy sector, the biggest
transition gap concerns the electric power sector, particularly when it comes INTERDISCIPLINARY MANAGEMENT RESEARCH XI
to market structure. In common with other advanced countries, the transition

gaps in the financial sector mostly lie in improving access to finance for MSMEs
and developing private equity markets. No less important is the analysis in the
same report that points to the micro-aspects of Croatia’s economic position in
regard to the quality of its business environment. Although various reforms
have been introduced over the years to improve the quality of the business en-
vironment, Croatia continues to face significant challenges as shown on several
14
The transition indicators range from 1 to 4+, with 1 representing little or no change from
a rigid centrally planned economy and 4+ representing the standards of an industrialised
market economy. The scores range from 1 to 4+ and are based on a classification system that
was originally developed in the 1994 Transition Report, but has been refined and amended
in subsequent Reports.
299
cross-country surveys and analyses of competitiveness and ease of doing busi-
ness. In the latest World Bank’s annual Doing Business report, Croatia ranks
84th in the world (out of 185 countries) in overall ease of doing business, down
from 80th place the previous year. Indicators relating to construction permits
and protecting investors are particularly low. A similar picture emerges from the
World Economic Forum’s Global Competitiveness index 2012-13, where Croa-
tia ranks 81st out of 144 countries. In the 2008/09 EBRD/World Bank Busi-
ness Environment and Enterprise Performance Survey (BEEPS), enterprises
in Croatia singled out tax administration, the judiciary and lack of appropriate
skills in the workforce as the three most significant obstacles to doing business.15
The existing limitation were also analyzed in detail in a document of the

European Commission (2 June 2014)16 which cited the important structural
limitations in the public administration. “With the current regulatory frame-
work for business in a Croatian enterprise are faced with major burdens, includ-
ing a shortage of legal recourse, nontransparent decision making, especially at
the local level, and a series of para-fiscal taxes. Furthermore, because of the very
fragmented responsibilities of public administration at the regional and local
level and the complex division of responsibilities among ministries and agencies
at the central level, business decisions are complicated and legal procedures can
be very extended. A structured approach has been introduced at the level of the
central government to establish what the barriers to doing business are, but a
consistent methodology is not being applied to measured administrative bur-
dens, which reduce the effectiveness of measure already undertaken. It is neces-
sary to rationalize and improve the control of public subsidies and guarantees,
and a central register of enterprises and individuals that are receiving support
would be a first step in that regard. Croatia has initiated reforms of its public
administration with the goal of strengthening its administrative capacities and
improving its orientation to the needs of clients in public services for citizens
and enterprises. However, the quality of public administration continues to be
low with weak coordination among the various levels of administration, and
policies and evaluations are rarely or only formally based on evidence. Adopting
a strategy for the reform of public administration is a step in the right direction,
15
Ibidem, p. 10.
16
Recommendation to the Recommendation of the Commission on the National Reform Pro-
gram of Croatia, 2014 and Delivery of the Opinion of the Commission on the Convergence
Program of Croatia for 2014, European Commission, 2 June 2014, COM (2014) 412 final.
300
but the strategy must be implemented at all levels of administration. Experience
in the field of implementation of pre-accession funds points to shortcomings in
regard to strategic planning and institutional capacities and in regard to prepar-
ing and monitoring projects.”17
In addition to the trends already described and to their corresponding analy-
ses, and to the suggestions and recommendations about what to do to start to
exit from the now six-year old crisis, it is important to emphasize the evalua-
tions and recommendations from the European Commission document Results
of In-Depth Reviews under Regulation (EU) No. 1176/2011 on the Prevention
and Correction of Macroeconomic Imbalances, prepared as part of the implemen-
tation of the European Semester. Croatia is experiencing excessive macroeco-
nomic imbalances, which require specific monitoring and strong policy action. In
particular, policy action is required in view of the vulnerabilities arising from
sizeable external liabilities, declining export performance, highly leveraged firms
and fast-increasing general government debt, all within a context of low growth
and poor adjustment capacity. More specifically, after an expansionary phase, in
which imbalances accumulated, Croatia is now experiencing a prolonged bust,
in which a range of external and internal risks have come to the fore. External
rebalancing is beset by important risks pending the reduction of Croatia’s for-
eign liabilities to safer levels and is conditioned on improved competitiveness
and broadening exports beyond tourism to support growth. The deleveraging of
non-financial corporates is still at an early stage and non-performing loan devel-
opments in this segment need monitoring. State-owned enterprises, which in
some sectors still play a dominant role and which are often un-restructured, are
overall highly indebted and weakly profitable. Croatia has the lowest activity and
employment rates in the EU, which is partly related to underlying institutions
and policy settings. Better labour market functioning will be crucial to support
the growth and adjustment needed in view of external and internal vulnerabili-
ties. On nearly a range of standard indicators, Croatia’s business environment
ranks significantly below the average for central and eastern European Member
States. These factors combine to lower potential growth, which hinders private
sector balance sheet repair and increases the required fiscal consolidation effort.
17
Ibidem, p. 7.
301
There is a need for significant additional fiscal consolidation efforts to curtail
the deficit and prevent debt from rising unsustainably.18
This close and summary analysis points to the apparent problem of a deep-
ening of the economic crisis, which has also become a social one. But at the
same time there is the unpreparedness of the executive authority to initiate a
more dynamic and concrete use and implementation of a program for structural
reforms. As a commitment and as a response to the challenges, and the trends,
that have been cited, the Croatian government has adopted a document called
the National Program of Reforms,19 which states, or better to say, makes an ob-
ligation to initiate, the following essential reforms. The measures that it is un-
dertaking or is planning to undertake in the upcoming period are represented

by four key areas – public finance, the financial sector, the labor market, and
competitiveness, with 13 corresponding sub-categories.
The introductory chapter, “Macroeconomic Perspectives for the Period
Covered by the Program,” states that the negative economic trends in Croatia
continued in 2012. Based on an initial evaluation of gross domestic product
(GSP), economic activity in 2013 declined by one percent in comparison to
2012, which represents a cumulative reduction of 11.9% compared to 2008.
The most significant contribution to the decline of actual GDP was made by
consumption of households (-0.6%) and gross investment (-0.2%). In 2013, al-
most all components of GDP registered a decline. An increase was observed
only in government expenditure, which grew by 0.5% because of the payments
of debts in the healthcare sector. The document also states that a decline was
especially noticeable in the component for exports and imports. Since the de-
cline in exports was more expressed than the decline in imports, the component
for net exports was registered as a negative contribution to the growth of GDP.
The reduced export of goods at a time of greater foreign demand indicates a
continuation of the reduced share of Croatian companies on foreign markets.
In 2013, the deficit in the exchange of good increased by 1.9%. The continuing
decline in economic activity in 2013 was also reflected in the labor market. The
18
Results of In-Depth Reviews under Regulation (EU) No 1176/2011 on the Prevention and Correc-
tion of Macroeconomic Imbalances, European Commission, Brussels, 5 March 2014, pp. 15-16.
19
National Program of Reforms, Government of the Republic of Croatia, Zagreb, 24 April 2014. It
is also the first national program of reforms that the government has adopted as a member state
of the EU as part of the process for coordinating economic policy with the goals and regula-
tions of the European Semester.
302
average number of workers fell 2.7%, primarily because of reduced employment
in the processing industries, construction, trade and the handicraft and free
professions. The polled rate of unemployment was 17.2% in 2013, which was
1.4 percentage points higher than the previous year.20 Especially concerning is
the data on the trends in export, shown in the following graph, for the period
since the year 2000, and which depicts the low competitive capability of the
industrial sector compared to other economies.
Graph 4. Exports fall behind regional peers, reflecting poor competitiveness
Source: Servas Deroose: European Semester 2014, Policy Recommendations – CROATIA,

Zagreb, 3 June 2014, p. 11; available at: http://ec.eu/croatia/pdf/20140603_croatia-policy-
recommendations.pdf INTERDISCIPLINARY MANAGEMENT RESEARCH XI
The chapter “Recent Economic Developments” in the World Bank docu-

ment, Country Program Snapshot,21 published in the same period (April 2014),
stresses the importance of the preparation for and capability of a country ab-
sorb the resources of EU funds as an important factor in achieving the goals
of national economic policy: “Beyond ensuring macro stability and increas-
20
Ibidem, p. 3.
21
Country Program Snapshot, World Bank Group – Croatia Partnership, April 2014, available
at: http://www.worldbank.org/content/dam/Worldbank/document/Uzbekistan-Snapshot.
pdf
303
ing Croatia’s competitiveness, the government faces the strategic challenge of
maximizing the use of EU Structural and Cohesion Funds. With EU accession
Croatia’s access to EU funds increased sevenfold. Since joining the EU, Croatia
is expected to benefit from large net inflows of resources of an average size of
two percent of GDP in 2013–20. While the overall effect of EU-related trans-
fers on Croatia’s economic growth is expected to be positive, Croatia will need
to secure around one percent of GDP per year for pre- and co-financing. Suc-
cessfully combating the challenges to the efficient utilization of EU funds, while
also streamlining the budget, will ensure fiscal sustainability and foster income
convergence with the rest of the EU.”22
Graph 5. Allocations from EU funds (in millions of euros)
Source: Zvonimir Savić, European Structural and Investment Funds in Croatia, HGK, Za-
greb, 10 March 2015, p. 16.
Data on the degree of preparations for the use of the resources from EU
funds that has been achieved to date, followed by the actual use, point to the
need for a significant strengthening of institutional capacity so that the degree
of absorption will be raised to a significantly higher level.
After an extended period of warnings and highlighting problems by the
World Bank, the IMF, the EU Commission and other institutions and inter-
22
Ibidem, p. 3.
304
national agencies, and of the further tendencies and consequences of not doing
anything, achievement of full membership in the EU now meant not just the
adoption but also the full use of a new framework of monitoring EU policy with
special responsibilities in regard to individual national economies.
For example, a document of the EU Commission states: “In 2014, Croatia’s
economy contracted for its sixth year in a row and although the recession is
expected to come to an end in 2015, the economic outlook remains bleak. The
pace of the contraction abated over the course of 2014, bringing the overall fall
in GDP to -0.5 %. Growth is set to be just above zero in 2015 and to pick up
timidly to 1% in 2016. Against this background, the unemployment rate is not
expected to decline significantly from the current 17%. Internal demand should
progressively start contributing positively to growth on the back of investments
spurred by EU funds, while the export performance should remain strong as
the recovery progresses in the EU. Significant fiscal consolidation and delever-
aging needs nevertheless weigh on the growth perspectives.
In March 2014, the Commission concluded that Croatia was experiencing
excessive macroeconomic imbalances. More specifically the risks stemming from
high external liabilities, declining export performance, highly leveraged firms
and fast increasing general government debt, all in a context of low growth and
poor adjustment capacity, required specific monitoring and strong policy action.
The identified imbalances strongly informed the country-specific recommenda-
tions issued to Croatia by the Council in June 2014. This Country Report as-
sesses Croatia’s economy against the background of the Commission’s Annual
Growth Survey which recommends three main pillars for the EU’s economic INTERDISCIPLINARY MANAGEMENT RESEARCH XI
and social policy in 2015: investment, structural reforms, and fiscal responsibil-
ity. In line with the Investment Plan for Europe, it also explores ways to maxi-
mise the impact of public resources and unlock private investment. Finally, it
assesses Croatia in light of the findings of the 2015 Alert Mechanism Report,
in which the Commission found it useful to further examine the persistence of
imbalances or their unwinding.23
The main findings of the In-Depth Review contained in this Country Report
are: Croatia is experiencing excessive macroeconomic imbalances, which require
decisive policy action and specific monitoring. The Commission will take in May,
23
Country Report Croatia 2015 - Including an In-Depth Review on the prevention and cor-
rection of macroeconomic imbalances, European Commission, Brussels, 26 February 2015.
305
on the basis of the National Reform Programmes (NRPs) and other commit-
ments to structural reforms announced by that date, the decision to activate the
Excessive Imbalance Procedure (EIP). In a context of subdued growth, delayed
restructuring of firms and dismal performance of employment, risks related to
weak competitiveness, large external liabilities and rising public debt coupled
with weak public sector governance, have significantly increased.”24
The Croatian government is required to review and to provide a qualified
response by May 2015,25 and with the additional instruments at the disposal of
the EU Commission in communicating with individual members,26 this means
that a member’s failure to adhere to the Commission’s recommendations can
result in a warning. More concrete sanctions (blocking structural funds, a de-

posit in the amount of 0.2% of GDP, a fine in the amount of 0.2% of GDP) are
possible if entering the procedure for macroeconomic imbalance or the proce-
dure for an excessive deficit. The procedure for excessive deficit is a corrective
mechanism of the Stability and Growth Pact that is applied to member coun-
tries with a budget deficit greater than 3% and/or public debt greater than 60%
of GDP (only if there is not a clear trend of reducing the debt).
4. CONCLUSION
The European Union finds itself in the grip of an economic stagnation that
has now lasted for nearly a decade (2008-2014), with expectations or predic-
tions that it may last to 2017 and even beyond. Here it is worth comparing the
achieved and expected rates of growth to two global partners and competitors,
the United States and the Far East – especially the Republic of China. Weak-
ening economic power and strength leads to several other questions. Viewed
externally, it is a question of the EU’s relevance in decision making on issues
24
Ibidem, p. 1.
25
Croatia has officially bee in the procedure for excessive deficit since January 2014.
26
With the dialogue and search for a solution to the economic crisis in Greece, there has been
less dialogue and attention present on the monitoring in two other countries, Portugal and
Spain, where joint agreements and jointly prepared structural programs are being achieved,
not simply but step by step.
See more at:
Portugal: http://ec.europa.eu/europe2020/pdf/csr2015/cr2015_portugal_en.pdf
Španjolska:http://ec.europa.eu/economy_finance/publications/occasional_paper/2014/
op193_en.htm
306
at a global level, participation in international institutions, and geopolitical
positioning.
Viewed internally, it is a question of preserving social stability by preserv-
ing (well-paid) jobs because the EU, with less than one-tenth of the world’s
population, spends more than 50% of global resources for social purposes (re-
tirement, health, social responsibility – OECD). Such expenditures will not
be permanently sustainable without stable and strong economic growth. Thus,
the demand for structural reforms are becoming increasingly loud and urgent
and – more legitimate, as is the establishment and then control of jointly agreed
economic policies at the national level.
In this regard, the established control mechanisms of the economic perfor-
mances of individual national economies will receive additional significance,
instrumentation and authorities. It is apparent that the process that has been
initiated to create a coherent EU economic policy is accelerating and that it will
require more intensive and rapid adaptation and activity at the national level
because there is no question that the structuring of reforms and their imple-
mentation requires complete national orientation and responsibility.
The Republic of Croatia is faced with an ambivalent situation. Its member-
ship in the EU has brought several new requirements and criteria for achieving
(specific) reforms, which are demanding to articulate, but also to communicate
and achieve. On the other hand, the decade or more that was wasted in prepar-
ing to face the need to resolve the endogenous crisis even before the appearance
of the global crisis has created circumstances and conditions that do not permit
further postponement. It can be concluded that a kind of win-win situation has INTERDISCIPLINARY MANAGEMENT RESEARCH XI
been created. On one side is the possibility that the EU as a whole, and the Eu-
ropean Commission in particular, test the newly created concept of monitoring
the conduct of the common economic policy in an individual member state in
order to systematically monitor and manage an important reform process. On
the other side is the fact that Croatia, or the political elites who did not want,
or did not know how, to achieve reforms independently, do that now with the
support and control and also in alliance with, institutions of the EU. From the
aspect of the development and national interests of Croatia, there remains the
question also of how to ensure the understanding and support of the general
public in implementing such reforms, and then how to find the appropriate in-
307
stitutions and partners to strengthen institutional capacity necessary for imple-
menting the new economic policy.
LITERATURE
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with renowned professors from the world’s top business schools, Institute for Innovation,
Školska knjiga, Zagreb, April – September 2015.
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sion Staff Working Document, Brussels, 29 May 2013, SWD(2013) 361 final, p. 22.
Country Program Snapshot, World Bank Group – Croatia Partnership, April 2014, avail-
able at:
http://www.worldbank.org/content/dam/Worldbank/document/Uzbekistan-Snapshot.
pdf.
Country Report Croatia 2015 Including an In-Depth Review on the Prevention and Correction of
Macroeconomic Imbalances, Commission Staff Working Document, European Commission,
Brussels, 26.2.2015., SWD (2015) 30 final.
Croatia – Public Finance Review, Restructuring Spending for Stability and Growth, World
Bank, Report No 78320-HR, October 2014.
Croatia: Is this the end of the long recession?, EBRD presentation, Macroeconomic Outlook
Conference, Hypo Alpe Adria Bank, 27 March 2015.
Deroose, Servas: European Semester 2014, Policy Recommendations – CROATIA, Za-
greb, 3 June 2014, available at:
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Domazet, Tihomir: Ekonomika rasta i pune zaposlenosti u Hrvatskoj, Hrvatska gospodar-
ska komora, Zagreb, 2014.
Enderlein, Henrik, Pisani-Ferry, Jean: Reforms, Investment and Growth: An agenda for
France, Germany and Europe, 27 November 2014.
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ruary 2015, available at: http://europa.eu/rapid/press-release_MEMO-15-4511_hr.htm.
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Commission, Brussels, 2010.
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http://ec.europa.eu/europe2020/making-it-happen/index_en.htm.
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sels, 28 May 2014, p. 5.
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Eurostat; http://ec.europa.eu/eurostat/web/europe-2020-indicators/
europe-2020-strategy
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The Economic Adjustment Programme for Portugal – Eighth and Ninth Review; European
commission, June 2011;
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http://ec.europa.eu/economy_finance/assistance_eu_ms/portugal/index_en.htm
Spain – Post Programme Surveillance, Spring 2014 Report, European Commission, Oc-
casional Papers 193, May 2014, available at: http://ec.europa.eu/economy_finance/
publications/occasional_paper/2014/pdf/ocp193_en.pdf
HUP SKOR, Hrvatska udruga poslodavaca, Zagreb, 2013.
National Program of Reforms, Government of the Republic of Croatia, Zagreb, 24 April
2014.
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rection of Macroeconomic Imbalances, European Commission, Brussels, pp. 15-16.
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(working material), 10 March 2015.
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Bottom of Form
309
Microeconomics,
Macroeconomics
and Monetary
Economics
DER NEUE STANDARD IFRS 15 
IASB UND FASB VERABSCHIEDEN
EINEN WEITGEHEND
EINHEITLICHEN STANDARD ZUR
UMSATZREALISIERUNG
Wesentliche Eckpunkte und potentielle

Auswirkungen auf Unternehmen
Bodo Runzheimer, Ph.D.

University of Pforzheim
Abstract
The international accounting regulations regarding sales revenues have been
changed. In May 2014, the International Accounting Standards Board
(IASB) and the US regulator, the Financial Accounting Standards Board
(FASB), published together new revenue recording regulations, which will be
applied in IFRS (International Financial Reporting Standards) as well as in
US-GAAP (United States Generally Accepted Accounting Principles).
The core principle of the new IFRS 15 is that an entity will recognize revenue
to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in ex-
change for those goods or services. IFRS 15 (Revenue from Contracts with
Costumers) replaces fully all the existing US-GAAP and IFRS regulations on
revenue recording. The new standard IFRS 15 combines all the former regula-
tions on revenue recording in a single standard. Application of the standard is
mandatory for annual reporting periods beginning on or after 1 January 2017.
Since the changes are significant, it is essential for companies to prepare for the
application of new standards on time.
Keywords: International Financial Reporting Standard 15 (IFRS 15), In-
ternational Accounting Standards Board (IASB), Revenue from Contracts
with Customers, Five-step model framework for recording revenues
JEL classification: L15, M41, E6
313
EINLEITUNG
Am 28. Mai 2014 veröffentlichte das International Accounting Standards
Board (IASB) gemeinsam mit dem US-amerikanischen Financial Accounting
Standards Board (FASB) den neuen Standard zum Thema Umsatzrealisier-
Bodo Runzheimer: DER NEUE STANDARD IFRS 15 – IASB UND FASB VERABSCHIEDEN EINEN WEITGEHEND EINHEITLICHEN STANDARD ...
ung (Gewinnrealisierung, Erlöserfassung) IFRS 15 (Revenue from Con-

tracts with Customers).
Das erklärte Ziel des neuen Standards IFRS 15 ist es, die Regelungen
zur Umsatz-/Erlösrealisierung in einem einzigen Standard umfassend und
einheitlich zusammenzufassen. Der neue Standard IFRS 15 betrifft alle
Verträge mit Kunden über den Verkauf von Gütern oder die Erbringung von
Dienstleistungen. Obwohl grundsätzlich eine Anwendung des Standards auf
einzelne Verträge gefordert wird, kann auch die Zusammenfassung von Ver-
trägen zu Portfolios - als eine Anwendungserleichterung (vgl. IFRS 15.4) - er-
laubt sein. Der neue Standard IFRS 15 beinhaltet ein Modell (Fünf-Schritte-
Modell/“IFRS-Erfolgsrealisierungsmodell“), mit dessen Hilfe die Höhe des
Erlöses und der Zeitpunkt beziehungsweise der Zeitraum der Erlösrealisier-
ung zu ermitteln ist.
„Die Auswirkungen des neuen Standards werden in verschiedenen Branchen
in unterschiedlichem Ausmaß bemerkbar sein. Während sich die Änderungen
für einfache Verkaufstransaktionen auf ein Minimum beschränken, werden sich
für Unternehmen mit komplexen Transaktionen, wie sie beispielsweise bei Tele-
kommunikationsunternehmen mit vielfältigen Mehrkomponentenverträgen
vorzufinden sind, Änderungen ergeben“ (www.kpmg.com/DE/de.2014, S. 3).
Der neue Standard IFRS 15 ist prinzipienbasiert, die Umsatzrealisierung
(Erlösrealisierung) wird abstrakt geregelt. Dies erschwert die Umsetzung der
im Standard formulierten Grundsätze auf spezifische Sachverhalte. Deshalb ist
zu empfehlen, dass die Auseinandersetzung der Unternehmen mit den neuen
Regelungen deutlich vor dem Erstanwendungszeitpunkt einsetzen sollte,
„um die notwendige Anwendungs- und Prozesssicherheit zum Erstanwend-
ungsstichtag zu gewährleisten“ (www.kpmg.com/DE/de.2014, S. 3).
Da die Bedeutung der Kapitalmärkte für die Unternehmen zunimmt, wach-
sen damit auf Unternehmensebene die Anforderungen an die Informationsver-
sorgung von Investoren und gleichzeitig der Stellenwert der Internationalen
Rechnungslegung für die kapitalmarktorientierten Unternehmen. Internation-
al herrscht Einigkeit darüber, dass prinzipienbasierte Rechnungslegungsstan-
314
dards notwendig sind, um entsprechend des angestrebten „true and fair view“
-Prinzips vereinheitlichte Bewertungen vornehmen zu können. Die Interna-
tional Financial Reporting Standards (IFRS) stellen inzwischen das weltweit
dominierende Rechnungslegungssystem dar (vgl. Winkler, C., S. 354; Run-
zheimer, B., 2014, S. 590).
Die IFRS werden von einer internationalen Organisation erlassen, dem In-
ternational Accounting Standards Board (IASB) mit Sitz in London. Trägerver-
ein des IASB ist die International Accounting Standards Committee Foundation
(vgl. Grünberger, G., S. 1 ff.). „Der Rat der europäischen Union stimmte mit
großer Mehrheit 2002 einer Verordnung zu, mit der der Anwendung der In-
ternational Accounting Standards (IAS, neu: IFRS – International Financial
Reporting Standards) ab 2005 für die Konzernabschlüsse von kapitalmark-
torientierten Unternehmen verbindlich vorgeschrieben ist“ (www.ax-net.de).
Die Standards sind in den Amtsblättern in der jeweiligen Landessprache der
Mitgliedsstaaten der EU (Europäischen Union) veröffentlicht (vgl. Hoffmann,
W.-D./Lüdenbach, N.: IAS/IFRS-Texte; Runzheimer, B., 2014 S. 590). Die
IFRS „werden nun regelmäßig unter Berücksichtigung einer interessierten
Öffentlichkeit weiterentwickelt“ (www.ax-net.de).
Zum aktuellen Stand des von der EU vorgeschriebenen Endorsement- bzw.
Komitologieverfahrens – der Übernahme von IFRS in europäisches Gemein-
schaftsrecht - vgl. www.efrag.org. Der neue Standard IFRS 15 ist - die Über-
nahme in europäisches Gemeinschaftsrecht vorausgesetzt; diese ist für das
zweite Quartal 2015 geplant -verpflichtend für die Geschäftsjahre anzuwen-
den, die am oder nach dem 1. Januar 2017 beginnen. IFRS 15 ist grundsät- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
zlich retrospektiv anzuwenden, wobei eine Anwendung vor dem 1. Januar 2017
zulässig ist und empfohlen wird. Ein Unternehmen, das sich entscheidet, IFRS
15 vor dem 1. Januar 2017 anzuwenden, hat dies im Abschluss zu vermerken
(vgl. www.ifrs-portal.com; www.rbs-partner.de, S 2; IFRS 15:C1).
Im Einzelabschluss des einzelnen Mitgliedsunternehmens eines Konzerns
sowie für die Steuerbemessung sind die IFRS in Deutschland und Österreich
bisher nicht maßgeblich. Für die Konzernabschlüsse von kapitalmarktorien-
tierten Unternehmen, die nach IFRS Rechnung legen müssen, gilt daher für
diese beiden Länder, dass zusätzlich zum IFRS-Konzernabschluss auch Einz-
elabschlüsse nach nationalem Recht (HGB in Deutschland) zu erstellen sind
(vgl. Runzheimer, B., 2010, S. 825 ff.).
315
1. WESENTLICHE ECKPUNKTE UND
NEUERUNGEN DES NEUEN STANDARDS
IFRS 15
Der neue Standard IFRS 15 Umsatzerlöse aus Verträgen mit Kunden
(„Revenue from Contracts with Customers“) wurde vom IASB gemeinsam

mit dem US-amerikanischen FASB entwickelt und veröffentlicht. Der neue
Standard IFRS 15 ersetzt alle bisher auf verschiedene Standards und Inter-
pretationen verstreuten, einzelfallbezogenen Regelungen zur Umsatzerfassung
und Bewertung, nämlich konkret: International Accounting Standard/IAS
11 (Fertigungsaufträge), IAS 18 (Umsatzerlöse), International Financial Re-
porting Interpretations Committee/IFRIC 13 (Kundenbindungsprogramme),
IFRIC 15 (Verträge über die Errichtung von Immobilien), IFRIC 18 (Über-
tragung von Vermögenswerten durch einen Kunden) und Standing Interpre-
tations Committee (seit 2002: IFRIC; früher: SIC)/SIC-31 (Umsatzerlöse –
Tausch von Werbedienstleistungen) (vgl. www.kpmg.com/DE/de.2014, S. 2).
Künftig werden im Konzernjahresabschluss kapitalmarktorientierter Un-
ternehmen gemäß IFRS 15 neue qualitative und quantitative Angaben ge-
fordert, die es den Abschlussadressaten ermöglichen sollen, Art, Höhe, Zeit-
punkt (Zeitraum) und Unsicherheit der Umsatzerlöse sowie Cashflows aus
Verträgen mit Kunden zu verstehen (vgl. Hirschböck, G./Lehner, G./Ker-
schbaumer, H., S. 3 f.). Hierdurch soll ein robuster Rahmen für die Lösung
komplexer Umsatzerfassungsprobleme (insbesondere auch bei so genannten
Mehrkomponentenverträgen) geschaffen werden, der eine unternehmens-,
branchen-, rechtssystem- und kapitalmarktübergreifende Vergleichbarkeit
gewährleistet (vgl. IFRS 15.IN5 sowie Wüstemann, J./Wüstemann, S., S. 929).
Nach IFRS 15 sollen den Abschlussadressaten nützliche Informationen in Be-
zug auf Umsatzerlöse und Zahlungsströme aus Verträgen mit Kunden geliefert
werden. „Die Darstellung der Umsatzerlöse als `Top-Line´ einer jeden Ergeb-
nisrechnung genießt seit jeher eine besondere Aufmerksamkeit. Vielfach wird
ihnen eine große Bedeutung zur Beurteilung der wirtschaftlichen Leistung eines
Unternehmens (und nicht zuletzt auch dessen Managements) zugewiesen, sind
sie doch ein Maß für den Umfang und den Erfolg der am Markt abgesetzten
Produkte“ (Morich, S., S. 1).
Für die Konzernabschlüsse von kapitalmarktorientierten Unternehmen, die
nach IFRS Rechnung legen müssen, schreibt IFRS 15 verbindlich vor, anhand
316
eines Fünf-Schritte-Modells („IFRS-Erfolgsrealisierungsmodells“) zu bestim-
men, zu welchem Zeitpunkt (oder über welchem Zeitraum) und in welcher
Höhe sie Umsatzerlöse erfassen. Umsatzerlöse sind so zu bilanzieren, dass
sie den Übergang von vertraglich vereinbarten Gütern oder Dienstleistungen
an den Kunden in der Höhe abbilden, die der beanspruchten Gegenleistung
entspricht (IFRS 15.1 f.). IFRS 15 spezifiziert grundsätzlich die Bilanzierung
einzelner Verträge, räumt aber die Möglichkeit ein, gleichartige Verträge als
Portfolio zu betrachten (als eine Anwendungserleichterung), wenn diese ähn-
liche Charakteristika aufweisen und davon auszugehen ist, dass die Einzelfall-
betrachtung keine wesentlich abweichende Bilanzierung begründen würde (vgl.
IFRS 15.4).
Ausdrücklich aus dem Anwendungsbereich des IFRS 15 ausgenommen
sind folgende Vertragstypen (vgl. IFRS 15.4):
• Leasingverträge gemäß IAS 17 „Leases“
• Versicherungsverträge gemäß IFRS 4 „Insurance Contracts“
• Finanzinstrumente und andere vertragliche Rechte und Pflichten im
Anwendungsbereich von IFRS 9 „Financial Instruments“, IFRS 10 „Con-
solidated Financial Statements“, IFRS 11 „Joint Arrangements“, IAS 27
„Separate Financial Statements“ sowie IAS 28 „Investments in Associates
and Joint Ventures“
• Bartermingeschäfte bei gleichartiger Leistung und Gegenleistung.
Nach IFRS 15.6 gilt als Kunde im Sinne des neuen Standards ein Vertrag- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
spartner nur dann, wenn sich der Vertrag auf die Abnahme eines Produkts
(Güter oder Dienstleistungen) im Rahmen der gewöhnlichen Geschäfts-
tätigkeit des bilanzierenden Unternehmens bezieht (vgl. Morich, S., S. 3).
Der Schwebezustand wird nicht brutto in Leistung und Gegenleistung als
Vermögenswert und Schuld getrennt, sondern als ein Nettoposten bilanziert.
„In einer Nebenbuchhaltung mag man sich dazu gedanklich vorstellen, dass
Leistungsverpflichtungen passivisch und Gegenleistungen aktivisch erfasst und
fortgeschrieben werden und der Saldo entsprechend ins Hauptbuch übertragen
wird“ (Morich, S., S. 3).
Das in IFRS 15 vorgeschriebene Fünf-Schritte-Modell zur Erfassung von
Umsatzerlösen
317
Schritt 1: Identifizierung eines Vertrages mit einem Kunden
IFRS 15 definiert als Vertrag jegliche Vereinbarung - schriftlich, mündlich
oder auch faktischer Natur - zwischen mindestens zwei Parteien, die durch-
setzbare Rechte und Pflichten begründet. Die Durchsetzbarkeit wird durch
den individuellen Rechtsrahmen geprägt (vgl. IFRS 15.10). Ein Vertrag fällt
in den Anwendungsbereich von IFRS 15, wenn die in IFRS 15,9 aufgeführten
Kriterien kumulativ erfüllt sind, d.h.
a) alle Parteien dem Vertrag zugestimmt haben
b) die Rechte der Parteien hinsichtlich der zu übertragenden Güter oder zu
erbringenden Dienstleistungen identifiziert werden können
c) die Zahlungsbedingungen identifiziert werden können
d) der Vertrag wirtschaftliche Substanz hat und
e) es wahrscheinlich ist, dass die Gegenleistung vereinnahmt wird.
Gegebenenfalls sind mehrere Verträge als ein Gesamtvertrag zu behandeln

(vgl. www.rbs-partner.de/publikationen/iasb, S.1). Entsprechend dem oben
genannten Grundkonzept gilt der Standard für - und nur für - unabdingbar
schwebende Geschäfte (vgl. Morich, S., S. 4). Vertragsänderungen sind ggf.
als separater Vertrag zu behandeln, wenn diese zu einer zusätzlichen eigenstän-
digen Leistungsverpflichtung führen und unabhängige faire Bepreisungen der
zusätzlichen Güter oder Dienstleistungen vorsehen (vgl. IFRS 15.20).
Schritt 2: Identifizierung von eigenständigen Leistungsverpflichtungen
(performance obligations) aus dem Vertrag
Nach IFRS 15.22 ff. sind die Umsatzerlöse auf Ebene der einzelnen Leis-
tungsverpflichtungen zu erfassen. Güter oder Dienstleistungen sind dann ab-
grenzbar und somit als einzelne Leistungsverpflichtung anzusehen, wenn der
Kunde daraus – unabhängig von anderen im Vertrag geregelten Leistungszusa-
gen – einen Nutzen ziehen kann. Zudem müssen die Leistungszusagen vonein-
ander trennbar sein. „Keine separate Leistungszusage ist z.B. die Lieferung von
Fenstern, wenn vertraglich der Bau eines schlüsselfertigen Hauses vereinbart
wurde“ (www.rbs-partner.de/iasb, S. 1).
318
Schritt 3: Ermittlung des Transaktionspreises (transaction price), der sich
auf Basis der Vertragsinhalte und unter Berücksichtigung des üblichen Ge-
schäftsgebarens ergibt ( vgl. IFRS 15.47)
Der Transaktionspreis wird hierzu definiert als der Betrag, der für die ver-
sprochenen Güter und Dienstleistungen zu erwarten ist, jedoch ohne solche
Beträge, die für Dritte (Agentenrolle) eingesammelt werden. Art, Zeitpunkt
und Umfang der vereinbarten Gegenleistungen beeinflussen dabei die Ermit-
tlung des Transaktionspreises (vgl. Morich, S., S. 5). Auch wenn dieser Preis
häufig ein fixer Betrag sein wird, kann der Transaktionspreis auch variable
Komponenten, wie etwa Rabatte, Boni, Leistungsprämien, Strafzahlungen
etc., enthalten (vgl. IFRS 15.51). Die Höhe dieser variablen Bestandteile ist
zu schätzen und geht in den Transaktionspreis ein. Der damit einhergehenden
Unsicherheit wird dadurch Rechnung getragen, dass diese variablen Beträge
nur insofern berücksichtigt werden dürfen, als es hochwahrscheinlich ist, dass
sich bei Wegfall der Unsicherheit (wenn z.B. feststeht, dass eine angenommene
Absatzmenge in einer Periode erreicht/nicht erreicht wird) keine wesentlichen
Anpassungen der erfassten Umsatzerlöse ergeben. In den Transaktionspreis
gehen auch mögliche Finanzierungskomponenten oder non-cash-Leistungen -
bewertet zum Fair Value -ein (vgl. www.rbs-partner.de/iasb, S. 1).
Schritt 4: Zuordnung des so ermittelten Transaktionspreises zu den
einzelnen Leistungsverpflichtungen (vgl. IFRS 15.74 ff.)
Sobald der Vertrag mehr als eine Leistungsverpflichtung umfasst, ist eine
Zuordnung des zuvor ermittelten Transaktionspreises zu den einzelnen Leis-
tungen notwendig. Zielsetzung der Zuordnung des Transaktionspreises ist es, INTERDISCIPLINARY MANAGEMENT RESEARCH XI
für jede Leistungsverpflichtung denjenigen Betrag abzubilden, den das Unterne-

hmen für die jeweils zugesicherten Güter und Dienstleistungen im Rahmen des
Vertragsverhältnisses erwartet (vgl. IFRS 15,73). Dies ist insbesondere dann
relevant, wenn die Leistungen zu verschiedenen Zeitpunkten/Zeiträumen er-
füllt werden und damit das Muster der Umsatzerfassung von der Verteilung
abhängig ist (vgl. Morich, S., S. 2).
Auf Basis der relativen Einzelveräußerungspreise (relative stand-alone sell-
ing price) hat die Zuordnung zu erfolgen (vgl. IFRS 15,74). Dazu werden diese
Preise je Leistungsverpflichtung ermittelt und dann der Transaktionspreis pro-
portional zugeordnet (vgl. IFRS 15,76). Als Einzelveräußerungspreis wird der-
jenige Preis definiert, zu dem das Unternehmen die zugesicherte Ware oder die
319
zugesicherte Dienstleistung einzeln an den Kunden veräußern würde (vgl. IFRS
15.77). Der Einzelveräußerungspreis ist grundsätzlich ein unternehmensspezi-
fischer Maßstab (vgl. Morich, S., S. 2). Sind keine Preise direkt beobachtbar, ist
das Unternehmen gehalten, den Einzelveräußerungspreis unter Berücksichti-
gung der Markt-, Unternehmens- und Kundensituation zu schätzen (vgl. IFRS

15.78). Als mögliche Schätzmethoden, die dann auch konsistent anzuwenden
sind, kommen in Frage (vgl. IFRS 15.79:
- angepasster marktbasierter Ansatz: Schätzung eines Preises am relevanten
Markt, den ein gedachter Kunde bereit wäre zu zahlen
- retrogrades Verfahren: Hochrechnung der erwarteten Kosten zur Erfül-
lung der Leistungsverpflichtung und Hinzurechnung einer angemessenen
Marge
- Residualansatz: Ermittlung des Einzelveräußerungspreises als Re-
siduum zwischen Transaktionspreis und den bereits (nach vor-
genannten Methoden) ermittelten Einzelveräußerungspreisen anderer
Leistungsverpflichtungen.
Eine Kombination der vorgenannten Schätzmethoden innerhalb einer
Transaktion ist zulässig, ggf. notwendig, nämlich dann, wenn mindestens zwei
Leistungsverpflichtungen in den Residualansatz fallen (vgl. IFRS 15.81).
Schritt 5: Erfüllung von Leistungsverpflichtungen (vgl. IFRS 15.30 ff.)

Erlöse sind dann und genau dann zu bilanzieren, wenn das Unternehmen
eine Leistungsverpflichtung erfüllt, d.h. die vereinbarten Güter oder Dienstle-
istungen überträgt (Prinzip der Erfüllung durch Kontrollübergang). Unter
Kontrolle wird in diesem Zusammenhang die Möglichkeit verstanden, die Ver-
wendung des Vermögenswertes oder der Dienstleistung zu bestimmen und da-
bei den wesentlichen Nutzen selbst zu vereinnahmen, das beinhaltet die Fähig-
keit, andere von der Verwendung sowie Nutzenziehung auszuschließen (vgl.
IFRS 15.33). Der Nutzen kann hier in vielerlei Hinsicht erzielt werden. Denk-
bar ist beispielsweise der Zufluss von Cshflows oder auch die Vermeidung von
Ausgaben (vgl. www.kpmg.com/DE/de.2014, S. 21). Dienstleistungen werden
in diesem Zusammenhang als Vermögenswerte angesehen, wenngleich sie in
der Regel direkt „verbraucht“ werden.
Indikatoren für einen Übergang der Kontrolle sind, dass ein Kunde
320
- eine gegenwärtige Zahlungsverpflichtung hat
- den physischen Besitz des Gutes erlangt
- rechtliches Eigentum erlangt
- den Vermögenswert abgenommen hat (vgl. www.kpmg.com/DE/de.2014,
S. 23).
Es gibt spezifische Anwendungsregeln zur Beurteilung, ob Umsatzerlöse

aus einer unterscheidbaren Lizenz zur Nutzung geistigen Eigentums zu ei-
nem Zeitpunkt oder über einen Zeitraum zu erfassen sind. Ist die Lizenz von
anderen vertraglichen Zusagen nicht unterscheidbar, werden die allgemeinen
Kriterien (vgl. oben Schritt 5) angewendet. Ansonsten benutzt das Unterne-
hmen besondere Kriterien, um zu bestimmen, welches Recht die unters-
cheidbare Lizenz dem Kunden verschafft und mithin wann die Umsatzerlöse
zu erfassen sind:
- verschafft die Lizenz das Recht der Nutzung des geistigen Eigentums,
wie es zum Zeitpunkt der Lizenzgewährung zur Verfügung steht und bleibt
es während des Nutzungszeitraums unverändert, so sind die Umsatzerlöse zu
diesem Zeitpunkt zu erfassen
- verschafft die Lizenz dem Kunden das Recht des Zugangs zu geistigem
Eigentum so, wie es über den Lizenzierungszeitraum zur Verfügung steht, so
sind die Umsatzerlöse über einen Zeitraum zu erfassen (vgl.www.kpmg.com/
DE/de.2014, S. 23 f.).
Der Zeitpunkt der Erfassung von Umsatzerlösen aus Lizenzen kann sich
ändern. Die Notwendigkeit der Beurteilung, ob eine Lizenz ein Recht zur Nut-
zung des geistigen Eigentums oder Zugang zum geistigen Eigentum verschafft,
stellt eine Neuerung in dem neuen Standard dar. Für die Bilanzierung von
Lizenzen gibt IFRS 15 konkretere Regelungen vor als dies bisher der Fall war.
Dies bedingt die Notwendigkeit eines Umdenkens bei der Bestimmung des
Zeitpunktes der Realisierung der Umsatzerlöse aus Lizenzentgelten.
„Die Beurteilung der Kriterien könnte mit erheblichen Ermessensentscheid-
ungen verbunden sein, und das Ergebnis kann dazu führen, dass Umsatzerlöse,
die derzeit über einen Zeitraum erfasst werden, zu einem Zeitpunkt erfasst
werden oder umgekehrt“ (www.kpmg.com/DE/de.2014, S. 24).
321
Beispiel einer Umsatzrealisierung für das Recht auf Nutzung des geistigen
Eigentums zu einem Zeitpunkt:
Das Unternehmen hat in einem Vertrag mit einem Kunden über die
Gewährung einer Softwarelizenz für den Zeitraum von drei Jahren abgeschlos-
sen. Der Kunde verfügt über kein exklusives Nutzungsrecht an der Software
und erwartet nicht, dass das Unternehmen etwaige Maßnahmen durchführt,
die wesentliche Auswirkungen auf das geistige Eigentum haben, auf dessen
Nutzung der Kunde ein Recht hat. Durch die Softwarelizenz wird mithin ein
Recht gewährt, das geistige Eigentum des Unternehmens in der Form zu nut-
zen, in der es im Gewährleistungszeitpunkt besteht. Die Umsatzerlöse sind zu
diesem Zeitpunkt zu erfassen (vgl. www.kpmg.com/DE/de.2014, S. 24).
Die neuen spezifischen Anwendungsregeln zu Lizenzen machen es für
alle Unternehmen erforderlich, die vorhandenen Lizenzen daraufhin zu über-
prüfen, ob die Umsatzerlöse zeitpunkt- oder zeitraumbezogen zu erfassen sind.
„Unter Umständen können Änderungen an Systemen, Prozessen und Kontrol-
len notwendig sein, um den neuen Kriterien und gegebenenfalls den Änder-
ungen beim Zeitpunkt der Erfassung der Umsatzerlöse gerecht zu werden“
(www.kpmg.com/DE/de.2014, S. 25). Im FINANCE-Magazin befindet sich
am 26.04.2014 zum Beispiel folgende Headline: „Die Deutsche Telekom rüstet
sich für neue Bilanzierungsregeln: IFRS 15 kostet uns einen zweistelligen Mil-
lionenbetrag“ (Becker, J., in: www.finance-magazin.de/bilanzierung&controling,
24.06.2014).
2. WICHTIGE POTENTIELLE AUSWIRKUNGEN

DES NEUEN STANDARDS IFRS 15 AUF
UNTERNEHMEN
Der neue Standard IFRS 15 verlangt, dass bei Vertragsabschluss für jede
Leistungsverpflichtung festgestellt wird, ob diese zeitpunktbezogen (at a
point in time) oder zeitraumbezogen (over time) erfüllt wird (vgl. Morich,
S., S. 3).
Als zeitraumbezogen werden Leistungsverpflichtungen angesehen, wenn
322
- der Kunde zeitgleich und simultan zur Erfüllung durch das Unternehmen
den Nutzen erhält und konsumiert
- die Leistung des Unternehmens einen Vermögenswert schafft oder verbes-
sert, welchen der Kunde währenddessen bereits kontrolliert
- die Leistung des Unternehmens nicht einen Vermögenswert mit alterna-
tiver Nutzungsmöglichkeit schafft, aber einen durchsetzbaren Anspruch
auf die Gegenleistung für die bis dato erbrachte Leistung begründet (vgl.
Morich, S., S. 5).
Die zeitraumbezogene Erfüllung einer Leistungsverpflichtung begründet

eine entsprechende sukzessive, kontinuierliche und verteilte Bilanzierung der
Erlöse mit dem Ziel, den Leistungsfortschritt im Zeitablauf adäquat abzu-
bilden (vgl. IFRS 15.39). Verschiedene Methoden werden im neuen Standard
SFRS 15 zur Fortschrittsermittlung angeboten, wobei eine einmal gewählte
Methode im Zeitablauf beizubehalten und auch für gleichartige Leistungsver-
pflichtungen einheitlich anzuwenden ist (vgl. IFRS 15.40).
Voraussetzung für die bilanzielle Abbildung einer sukzessiven Leistungser-
füllung bei entsprechend anteiliger Bilanzierung der Erlöse ist stets, dass der
Fertigungsgrad der Leistungsverpflichtung verlässlich bestimmt werden kann
(vgl. IFRS 15.44). Kann das Unternehmen die sukzessive Erfüllung einer Leis-
tungsverpflichtung nicht verlässlich ermitteln (z.B. in der Anfangsphase eines
Vertrags), kann es jedoch davon ausgehen, dass zumindest die entstandenen
Kosten vergütet werden, so sind Erlöse in Höhe dieser Kosten (also ohne eine
Marge) zu erfassen (vgl. IFRS 15.45).
Alle Leistungsverpflichtungen, die nicht zeitraumbezogen sind, gelten
als zeitpunktbezogen (Umkehrschluss). Als Kriterium zur Ermittlung des
genauen Zeitpunkts der Erfüllung und damit des Realisationszeitpunkts von
Erlösen stellt IFRS 15 zusätzlich neben das Konzept der Kontrollerlangung
weitere Indikatoren, wann der Kunde üblicherweise die Fähigkeit erlangt ha-
ben könnte, andere von der Verwendung sowie Nutzenziehung auszuschließen
(vgl. IFRS 15.38):
- das Unternehmen hat ein gegenwärtiges Recht auf Gegenleistung
- der Kunde hat einen eigentumsähnlichen Rechtsanspruch auf den Ver-
mögenswert. Eigentumsvorbehalte hindern nicht die Erlangung von Kon-
trolle durch den Kunden
323
- der Kunde ist im physischen Besitz des Vermögenswertes. Gleichwohl
gibt es hierzu zahlreiche Ausnahmen
- der Kunde ist den wesentlichen Chancen und Risiken aus dem Eigentum
am Vermögenswert ausgesetzt
- der Kunde hat den Vermögenswert akzeptiert bzw. abgenommen.

Die Erfassung von Umsatzerlösen wird möglicherweise vorgezogen oder
aufgeschoben. Dies kann bei Mehrkomponentengeschäften, variablen Kauf-
preisbestandteilen und Lizenzen der Fall sein. Dieser Sachverhalt kann sich
auf wesentliche Finanzkennzahlen auswirken, die gegebenenfalls Einfluss auf
die Erwartungen von Analysten sowie auf Verträge mit Earn-out-Klauseln,
Vergütungsvereinbarungen und vereinbarte Klauseln in Kreditverträgen haben
(vgl. www.kpmg.com/DE/de.2014, S. 6).
IFRS 15 führt neue Schätzungen und Beurteilungsmaßstäbe für Ermes-
sensentscheidungen ein, die bemerkenswerte Auswirkungen auf die Höhe
und/oder den Zeitpunkt der Umsatzerlöserfassung haben können. „Schätzun-
gen und Ermessensentscheidungen müssen regelmäßig aktualisiert werden, was
möglicherweise vermehrt zu Anpassungen im Abschluss aufgrund von Schät-
zungsänderungen in Folgeperioden führt“ (www.kpmg.com/DE/de.2014, S. 6).
Der Zeitpunkt der Steuerzahlungen (abhängig von der jeweiligen Rechts-
ordnung), die Fähigkeit zur Zahlung von Gewinnausschüttungen und die
Einhaltung von vereinbarten Klauseln in Kreditverträgen können sich durch
die Neuregelungen des IFRS 15 ändern. Unter Umständen müssen Unterne-
hmen auch Erfolgsbeteiligungen für ihre Mitarbeiter und Prämiensysteme
überarbeiten, um sicherzustellen, dass sie weiterhin mit den Unternehmen-
szielen in Einklang stehen.
Einige Unternehmen werden ihre derzeitigen Verkaufs- und Vertragsproz-
esse (einschließlich Vertriebskanäle) überprüfen müssen, um eine bestimmte
Verteilung der Umsatzerlöse zu erreichen (vgl. www.kpmg.com/DE/de.2014,
S. 6).
Um die gemäß IFRS 15 notwendigen Daten, die für die Schätzungen oder
für die erforderlichen Nachweise im Anhang bereitstellen zu können, sind die
IT-Systeme eventuell zu aktualisieren.
„Unternehmen benötigen effiziente Prozesse, um neue Informationen an
ihrer Quelle – beispielsweise Unternehmensleitung, Vertrieb, Marketing und
Geschäftsentwicklung – zu erfassen und in angemessener Weise zu dokumen-
324
tieren, insbesondere wenn sie sich auf Schätzungen und Ermessensentscheid-
ungen beziehen“ (www.kpmg.com/DE/de.2014, S. 7). Die Rechnungslegung-
sprozesse und die internen Kontrollsysteme müssen mithin überarbeitet und
angepasst werden.
Der neue Standard IFRS 15 sieht zur Erlöserfassung tendenziell zunehm-
ende Angabepflichten im Anhang vor. Grundsätzlich ist hierbei der Nutzer
in die Lage zu versetzen, Art, Umfang, Zeitpunkt und Unsicherheit in Bezug
auf Erlöse und Zahlungsströme aus Verträgen mit Kunden zu verstehen (vgl.
IFRS 15.110). Gefordert werden hierzu sowohl qualitative als auch quanti-
tative Angaben. Der neue Standard IFRS 15 weist ausdrücklich darauf hin,
dass das Unternehmen das richtige Maß an Aggregation bzw. Disaggregation
hinsichtlich der Detailtiefe finden solle (vgl. IFRS 15.111). Das Bereitstellen
dieser Angaben kann aufwendig sein und auch Systemänderungen bedingen.
Ausnahmen für wirtschaftlich sensible Informationen sind in IFRS 15 nicht
vorgesehen.
Investoren und andere Stakeholder wollen die Auswirkungen des neuen
IFRS 15 auf die Finanzkennzahlen des operativen Geschäfts (auch schon vor
Inkrafttreten des neuen Standards) verstehen. Deshalb müssen die Unterne-
hmen rechtzeitig mit ihren Stakeholdern kommunizieren. Zu den gewün-
schten Informationen könnten darüber hinaus die zu erwartenden Kosten
für die Umsetzung des neuen Standards IFRS 15, gegebenenfalls vorhandene
Vorschläge zu Änderungen der Geschäftpraktiken, der gewählte Übergang-
sansatz und eventuell die Absicht in Bezug auf eine frühzeitige Anwendung
(vor dem 1. Januar 2017 ist dies zulässig und wird empfohlen) des IFRS 15 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
gehören (vgl. www.kpmg.com/DE/de.2014, S. 7).
3. DARSTELLUNG UND ANGABEPFLICHTEN DES

NEUEN STANDARDS IFRS 15
IFRS 15 führt die Posten „vertraglicher Vermögenswert“ und „vertragli-
che Verbindlichkeit“ neu ein. Das Recht eines Unternehmens auf Gegenleis-
tung, wenn es seine Leistung erbracht hat und die Erfüllung der Gegenleistung
noch von einer anderen Bedingung als der Fälligkeit abhängt, stellt einen „ver-
traglichen Vermögenswert“ dar.
325
Hat ein Unternehmen bereits Zahlungen – z.B. Anzahlungen – erhalten
für eine Verpflichtung gegenüber einem Kunden Güter zu liefern oder Dien-
stleistungen zu erbringen, so stellt dies eine „vertragliche Verbindlichkeit“ dar
(vgl. IFRS 15.105 ff.). Ein unbedingtes Recht auf Gegenleistung – d.h. die
Fälligkeit einer Geldleistung wird höchstens noch durch Zeitablauf gehemmt

– ist bei dem Unternehmen separat als Forderung (als Finanzinstrument) dar-
zustellen und entsprechend nicht als Teil des vertragsbasierten Nettopostens
zu bilanzieren (vgl. IFRS 15.108, sowie www.kpmg.com/DE/de.2014, S. 31).
Sowohl ein vertraglicher Vermögenswert als auch eine Forderung sind nach den
allgemeinen Regeln des IAS 39 bzw. IFRS 9 hinsichtlich Wertminderungen für
finanzielle Vermögenswerte zu behandeln (vgl. IFRS 15.107 f.).
Das generelle Ziel im neuen Standard IFRS 15 ist es, den Abschlussa-
dressaten des Unternehmens in die Lage zu versetzen, Art, Umfang, Zeitpunkt
und Unsicherheiten in Bezug auf Umsatzerlöse und Zahlungsströme (Cash-
flows) aus Verträgen mit Kunden zu verstehen (vgl. IFRS 15.110). Dies führt
zu tendenziell zunehmenden Angabepflichten. Quantitative und qualitative
Angaben sind in folgenden Bereichen erforderlich (vgl. www.kpmg.com/DE/
de.2014, S. 31 f.):
- Verträge mit Kunden (Aufgliederung von Umsatzerlösen, Änderungen
der vertraglichen Vermögenswerte und Verbindlichkeiten, Leistungs-
verpflichtungen, Aufteilung der Gegenleistung auf die verbleibenden
Leistungsverpflichtungen)
- Wesentliche Ermessensentscheidungen und Änderungen von Ermes-
sensentscheidungen bei der Anwendung der Anforderungen (Bestim-
mung des Erfüllungszeitpunkts von Leistungsverpflichtungen, Bestim-
mung der Gegenleistung und der auf die Leistungsverpflichtungen aufge-
teilten Beträge)
- Vermögenswerte aufgrund aktivierter Kosten für die Erlangung oder Er-
füllung eines Vertrages mit Kunden (Beschreibung der Ermessensents-
cheidungen hinsichtlich der Höhe der aktivierten Kosten, Aufgliederung
des Gesamtbetrags der aktivierten Kosten, zum Beispiel nach Vertragser-
langungskosten, Vorlaufkosten eines Vertrags oder Rüstkosten).
Bei den Angaben hat das Untenehmen das „richtige Maß“ hinsichtlich De-
tailtiefe zu finden. Einerseits sollen keine signifikant unterschiedlichen In-
formationen zusammengefasst werden, andererseits dürfen aber relevante In-
326
formationen nicht durch unwesentliche Einzelheiten verschleiert werden (vgl.
IFRS 15.111).
4. ZUSAMMENFASSUNG
Die Regelungen zur Realisierung von Umsatzerlösen ändern sich. Das In-
ternationale Accounting Standards Board (IASB) und der US-amerikanische
Standardsetter, das Financial Accounting Standards Board (FASB) haben
gemeinsam im Mai 2014 neue Vorschriften zur Realisierung von Umsatzer-
lösen publiziert, die sowohl in den IFRS (International Financial Reporting
Standards) als auch in den US-GAAP (United States Generally Accepted Ac-
counting Principles) Anwendung finden. Der neue Standard IFRS 15 ist das
Ergebnis von mehr als zehn Jahren Arbeit, zahlreichen Diskussionen und um-
fangreichen Beratungen der Boards.
Kernprinzip des neuen Standards IFRS 15 für die Bilanzierung von Um-
satzerlösen ist die Abbildung der Lieferung von Gütern oder der Erbringung
von Dienstleistungen an den Kunden mit einem Betrag, welcher der Gegenleis-
tung entspricht, die das Unternehmen im Tausch für diese Güter oder Dien-
stleistungen voraussichtlich (wahrscheinlich) erhalten wird
(vgl. www.ey.com/Publikationen. 2014). IFRS 15 (Revenue from Con-
tracts with Costumers) ersetzt alle bestehenden Regelungen von US-GAAP
und IFRS zur Bilanzierung von Umsatzerlösen vollständig. Der neue Stan-
dard IFRS 15 fasst alle Regelungen zur Umsatzerfassung in einem einzigen
Standard umfassend und einheitlich zusammen. Obwohl grundsätzlich eine INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Anwendung des Standards auf einzelne Verträge gefordert wird, kann auch
die Zusammenfassung von Verträgen zu Portfolios als Anwendungserleich-
terung erlaubt sein (vgl. www.kpmg/DE.de/2014, S 3). Der neue Standard
IFRS 15 ist erstmals für die Geschäftsjahre, die am oder nach dem 1. Januar
2017 beginnen, verpflichtend anzuwenden. Eine vorzeitige (vor dem 1. Januar
2017) Anwendung ist zulässig und wird empfohlen.
Eine frühzeitige Vorbereitung dürfte für eine erfolgreiche Umsetzung des
neuen Standards IFRS 15 unabdingbar sein. Die erstmalige Anwendung der
neuen Regelungen ist sicherlich für viele Unternehmen sehr aufwendig.
327
Auf alle Unternehmen – die nach IFRS Rechnung legen, dies trifft verbind-
lich für die Konzernabschlüsse von kapitalmarktorientierten Unternehmen zu
(vgl. www.ax-net.de). –
in allen Branchen hat der neue IFRS 15 Auswirkungen. Zur Umsetzung der
Umsatzrealisierung schreibt IFRS 15 ein Fünf-Schritte-Modell vor. IFRS 15

bietet zwar detaillierte Anwendungsleitlinien, jedoch müssen die Unternehmen
bei der Anwendung der Regelungen in hohem Maße auf Ermessensentschei-
dungen zurückgreifen, da häufig Schätzverfahren anzuwenden sind.
Für manche Unternehmen werden die potentiellen Änderungen in Bezug
auf die Umsatzrealisierung erheblich sein, so dass es wichtig ist, dass sich die
Unternehmen zeitnah mit den Auswirkungen auseinandersetzen (vgl. www.
ey.com/Publikationen. 2014).
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329
International
Economics
AN ANALYSIS OF THE ROMANIAN
AGRICULTURAL MARKET IN
THE CONTEXT OF COMMON
AGRICULTURAL POLICY
Larisa Nicoleta POP, Ph.D.

Faculty of Economics and Business Administration,
Babes-Bolyai University
Cluj-Napoca, ROMANIA
larisa.pop@econ.ubbcluj.ro
Abstract
The Romanian economy has experienced significant challenges after its Euro-
pean Union (EU) integration in January 2007. Considering the significance of
the agricultural sector in Romania’s economy, the implications for this activity
have been substantial, especially in the framework imposed by the Common
Agricultural Policy (CAP) and its recent reforms. The process of adapting the
internal agricultural markets to the requirements of the EU community deter-
mined Romania to completely reshape its internal supporting instruments. The
purpose of this paper is to analyze the effects of CAP mechanisms on Roma-
nian agriculture from the viewpoint of its market configurations, highlighting
the impact on price volatility. The results emphasize the need for investments INTERDISCIPLINARY MANAGEMENT RESEARCH XI
in this sector – through the absorption of EU and state funds, banking products
and other alternatives – investments that could contribute to increased produc-
tivity, better results and, in time, lower import levels.
Keywords: price volatility, price risk, agricultural markets, Romanian mar-
ket, Common Agricultural Policy.
JEL Classification: E30, E37, Q02.
Acknowledgement: This work was cofinanced from the European Social
Fund through Sectoral Operational Programme Human Resources Develop-
ment 2007-2013, project number POSDRU/159/1.5/S/134197 „Perfor-
mance and excellence in doctoral and postdoctoral research in Romanian eco-
nomics science domain”.
333
INTRODUCTION
When analysing the agricultural markets, the topic of price volatility be-
comes one of strategic importance, both at private and governmental level, as
concerns about food and energy security, combined with the latest commodity
market turmoil, in a context deeply marked by the recent economic crisis, have
brought agricultural markets again into the debates of both political and aca-
demic spheres worldwide.
Confronted with the structural imperfections of agricultural markets and
their profoundly strategic nature in assuring food security, governments for-
mulate and implement consistent regulatory policies whose international co-
ordination is a sine qua non condition for stabilizing these markets. However,
the turbulences on commodity markets often generate policy responses (export
restrictions, domestic price controls) that sometimes exacerbate rather than
mitigate the price instability. Due to the EU’s key role in the global economy,
the consequences of its decisions and the policies implemented are reflected
not only domestically but also on the world market. Therefore, the CAP plays
a crucial role in the transmission mechanism of price volatility of agricultural
products primarily inside the Member States’ markets. Accordingly, regarding
Romania, as a consequence of the transformation processes undergone in the
Larisa Nicoleta Pop : THE CONTEXT OF COMMON AGRICULTURAL POLICY
recent decades, its sensitivity to external shocks has increased, adding new pres-
sures to those caused by internal turmoil and deepening the context of risk to
which its economic actors are exposed. Moreover, the CAP and its relationship
with agricultural price volatility is an important topic, as for decades the mea-
sures taken by EU led to distortions on the international markets.
The purpose of this paper is to analyze the effects of CAP mechanisms on
Romanian agriculture, highlighting its impact on price volatility. The remainder
of this paper is structured as follows. Section two presents the CAP’s implica-
tions for price volatility, offering both a literature review and empirical support
for the aspects expressed. Section three analyzes the Romanian agricultural
market’s present outlook based on empirical researches previously conducted
and on relevant data. The last section offers the conclusions of the investigation,
aiming at formulating some policy implications and recommendations for the
participants at economic life exposed to an increasingly competitive environ-
ment after the EU integration.
334
THE COMMON AGRICULTURAL POLICY’S
IMPLICATIONS FOR PRICE VOLATILITY 
LITERATUREREVIEW AND EMPIRICAL SUPPORT
The turmoil from the first decade of the new millennium, culminating in
the recent economic crisis, has offered new connotations to the phenomenon of
price volatility. The significant increase in volatility sparked many debates (Bal-
combe, 2011; FAO, 2011; Huchet-Bourdon, 2011) about its generating factors,
the implications in terms of risk exposure of economic actors, but also the need
for reconfiguring regulatory policy frameworks. Although the main causes of
price fluctuations are complex and impossible to express exhaustively, the re-
searches in the field (Piot-Lepetit&M’Barek, 2011) mostly support the impact
of three factors: the specific characteristics of agricultural markets (low elasticity
of demand and supply), geopolitical tensions existing on international markets
and, last but not least, the reduced effectiveness of an international system of
governance in the management of this instability. The unstable global environ-
ment revealed an insufficient coordination necessary to prevent accumulation
of macroeconomic and fiscal imbalances in European countries. Agricultural
markets of the Member States have experienced significant price fluctuations.
Some studies have reported the role of CAP in the transmission mechanism
of price volatility (Bardarji et al., 2011), opening the context for analyzing the
good governance of this policy.
The CAP clusters the entire legislative framework regarding agriculture and
rural development in the EU, consisting of a system of agricultural subsidies
and programs. Its primary objectives are to increase agricultural productivity INTERDISCIPLINARY MANAGEMENT RESEARCH XI
and to ensure a fair standard of living for agricultural producers, while stabiliz-
ing markets and guaranteeing availability of food supplies at reasonable prices
to consumers (Ferrucci et al.; 2012, 188). Over the years, it operated with sever-
al types of intervention mechanisms influencing prices and the quantities of ag-
ricultural commodities within the EU: direct subsidy payments, price support
mechanisms, guaranteed minimum prices, tariffs and quotas on imports from
outside the EU, etc. These mechanisms influenced substantially the price stabil-
ity on the EU market over the decades. However, the reformatory waves that
the policy underwent over the years have reshaped its mechanisms and its im-
pact. Consequently, the shift towards a greater market orientation has exposed
European farmers to higher market volatility, making them more susceptible to
335
changes in the macroeconomic outlook. As a result of this trade openness, the
instability on world commodity markets is passing through more prominently
to the EU markets (Tothova& Velazquez; 2012). The empirical investigations
have shown that, historically, international commodity prices were generally
more volatile than EU internal prices. The graph in Figure 1, illustrating the
evolution of food commodity price indices on the EU and international market,
emphasizes the instability of the international prices compared to the EU ones.
Figure 1. Food Commodity Price Indices – EU and International Market
(2005=100)
Source: Ferrucci et al.; 2012, 191.
As shown in Figure 1, before 2005, international commodity prices were

generally below CAP intervention prices, supporting the idea that the relative
stability of EU prices could represent a side-effect of CAP. However, as inter-
national commodity prices gradually crossed EU intervention prices from 2006
onwards, due to the commodity price shock that troubled the world economy,
the two series commenced to move in synchrony, emphasizing that CAP pro-
vides a price stabilization mechanism mainly against price falls (Ferrucci et al.;
2012, 191).
The higher volatility context for internal EU markets opened significant
debates in the economic literature regarding causes, correlations and implica-
tions. Due to the high importance of the subject, several studies concentrated
upon the problem of policy implication for domestic price volatility. Tothova
and Velazquez (2012) analyzed the EU market and compared its price volatility
developments with the international markets, showing that as market environ-
ment is changing, policy is adjusting. They also presented instruments avail-
336
able to deal with volatility, indicating advantages and disadvantages based on
implementation experience. Cantore (2012) analyzed the effects of CAP (both
existing measures and proposed changes after 2013) on price volatility in devel-
oping countries, finding that existing protectionist measures may continue to
exacerbate price volatility at world level and arguing that the abolition of CAP
instruments will help stabilize prices in world commodity markets. The litera-
ture on the matter also concentrates on analyzing policy instruments designed
to deal with the volatility, as the CAP has always had the declared objective of
stabilizing agricultural markets, even though the policy mix in place has been
regularly adapted over the last decades in line with a changing economic, social
and political environment (Tothova& Velazquez; 2012, 9).Among the most
representative instruments, a special role has been played by the price support
mechanism. For decades, guaranteed institutional prices represented the most
important instrument of support for EU farmers, keeping domestic prices rela-
tively high and stable in comparison to those on the international market. Cor-
related with border protection, the price support offered shelter against compe-
tition from imports, ensuring market isolation and thus defence from external
shocks. As the high prices caused production increases, expensive public inter-
ventions for withdrawing excess quantities or substantial export subsidies were
necessary, eventually culminating in budgetary crises. Thus, the various reforms
undergone by CAP concentrated on emphasizing competitiveness and market
orientation, by shifting support from product to producer through decoupled
payments. Intervention prices were progressively reduced and aligned to world
prices, public intervention today representing a targeted product safety-net,
with institutional prices set at a level that ensures they are used only in times INTERDISCIPLINARY MANAGEMENT RESEARCH XI
of real crisis.
ANALYSIS OF THE ROMANIAN AGRICULTURAL

MARKET’S PRESENT OUTLOOK RELEVANT
DATA AND INTERPRETATIONS
When approaching the problem of agriculture’s role for domestic markets,
it is elemental to emphasize that a fundamental pre-condition for sustainable
development and growth resides in the capacity of a country to grow or to
buy food at affordable prices. Certainly, price volatility in domestic markets is
strongly dependent upon the policy environment. To stabilize internal markets
337
and to protect producers and consumers, governments tend to implement mea-
sures that cause the export of the internal instability to international markets.
This tendency acts as a vicious circle because as world markets become more
volatile, governments seek to stabilize domestic markets even more, thus aug-
menting the instability. International price trends are transmitted to domestic
markets depending on the relative share of domestic demand satisfied by im-
ports (Blein& Longo; 2009, 4).
Empirical analyses(Blein& Longo; 2009) comparing price volatility on do-
mestic and international markets for the previous decade generally show that
the volatility of domestic prices is greater if compared to the volatility of inter-
national prices, exception being 2004-2008, during which global price volatility
proved to be higher. This feature confirms the incomplete transmission of price
movements and a partial disconnection of domestic price trends from interna-
tional markets. These results are confirmed also for the Romanian market, by
empirical studies made recently by Pop et al. (2013) for some representative
crops and for sugar, and by Pop et al. (2014) for agricultural food commodities.
However, the domestic degree of volatility often appears to be highly influenced
by the internal context of an economy, by its policy coherence and the strength
of its internal market structures. This is mainly the case of Romania’s agricul-
tural price stability, highly determined by both its internal context and its posi-
tion as a new Member State of the EU.
Pop et al. (2013, 2014) conducted extensive empirical researches on the
Romanian agricultural market from the price volatility perspective, in order to
illustrate the price volatility recently experienced by some representative agri-
cultural commodities for the Romanian economy (an aggregate index of agri-
cultural food commodities, and price indexes for wheat, maize and sugar) and
to compare it with the situation registered on the international market. The
analyses were based on econometric modelling using the GARCH models to
estimate the models for each variable. Combined models ARIMA-EGARCH
with a GED distribution were selected. Based on the estimated equations, the
series of conditional volatility were generated, in order to compare the instabil-
ity for the Romanian and international market. The illustration of the results is
given in Figure 2, performed in Eviews 7.1, based on data released by the Ro-
manian National Institute of Statistics (RNIS) and the International Monetary
Fund (IMF).
338
Figure 2. Comparison between Domestic and International Price Volatility for
Some Representative Agricultural Commodities for Romania, Monthly Data
(2004=100)
(a) Food – Merged Graphs of Variances – Romanian and International Market
4
-1
-2
-3
-4
I II III IV I
II III
IV I II III IV I II III IV I II III IV I II III
IV
2006 2007 2008 2009 2010 2011
D L
N _ F O O D _ IN T S F D L N _ F O O D _ R O S F
(b) Wheat – Merged Graphs of Variances – Romanian and International

Market
10
-2 2004 2005 2006

2007 2009 2010 2011 2012
_ _ _ _

WHEAT _ RO WHEAT _INT

(c) Maize – Merged Graphs of Variances – Romanian and International Market

10
8
6
-2 2004 2005 2006 2007 2008 2009 2010 2011

2012
_ _ _ _

MAIZE_RO
MAIZE_INT

339
(d) Sugar – Merged Graphs of Variances – Romanian and International Market
4
-1
-2
Jan
-3 2001
Jan 2002
Jan 2003
Jan 2004
Jan 2005
Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011
Jan 2012
SUGAR_RO SUGAR_INT

Sources: Pop et al.; 2013 (a), Pop et al.; 2013 (b), Pop et al.; 2014.
Examining the results, there are some descriptions regarding price volatility
that can be made for the agricultural market in Romania. The analyzed price se-
ries experienced significant volatility in the last decade, but they experienced it
in a different manner. The wheat market has been characterized by a lower but
permanent volatility, combined with very acute spikes in moments of significant
turmoil at international level (e.g. in 2008 in the midst of the economic crisis or
in 2011 during the Euro Area turmoil). After 2007, these spikes appeared with
a lag of two-three months after the international wheat market experienced a
significant fluctuation. For maize, it can be noticed a permanent higher level

of volatility, but the spikes do not reach such soaring levels. For sugar, in the
two years prior to EU accession, the Romanian market experienced periods of
significant volatility, much more acute than the ones registered on the world
market. In 2008 and especially in 2009, there has been an increase in volatility
on the Romanian market. Though at the beginning of 2010 the volatility seems
more attenuated, the spring and summer of 2010 brought new volatility peaks
in correlation with the ones signalized on the world market. Therefore, for all
products it can be detected a mix of imported and domestic volatility. Analyz-
ing the equations for the Romanian market, it can be observed that the current
volatility depends more on passed shocks than on passed volatility. Thus, the
current volatility has its origins on the shocks and transformations Romanian
agricultural sector experienced in the recent period (Pop et al.; 2013, 2014).
Since 2007, when Romania has joined EU, both its government and its eco-
nomic actors are struggling to adapt to the new competitive environment. Ro-
mania’s entry into the EU changed the character of European agriculture, but
also the EU is in the process of changing the character of Romanian agriculture
340
(Knight; 2010, 6). In its rural area, Romania has approximately 14.7 million
hectares of agricultural land, incorporating over four million farms. Compared
to the other Member States, Romania represents the country most heavily reli-
ant on agriculture and the country with the largest number of farmers in the
union as a whole, the Romanian farmers representing 20% of the entire EU
labour force involved in agriculture (Alboiu; 2009). Contrasting with most EU
countries, Romanian farmers are divided into a peasant and an industrial class,
having 2.6 million farms which are under a hectare, and only 9,600 farms which
are more than 100 hectares. Until now, those 9,600 farms absorbed the most
significant portion of agricultural subsidies within the CAP (Luca &Ghinea;
2009). Also in terms of economic size of farms, Romanian family farms are
quite small compared to their Western equivalents, in Romania the average size
of the family farm is 2.2 hectares, much smaller than the Western European
ones. From the over 4 million family farms, only 1.24 million are at least 1 Eu-
ropean Standard Unit (ESU) and 98% of all Romanian farms are less than 8
ESU (Alexandri& Luca; 2008, 3). Consequently, when compared with the Ro-
manian situation, it can be observed that most Member States of the EU have
developed on completely different paths, and consequently the policies formu-
lated under the common framework often do not resonate with the Romanian
realities.
CONCLUSIONS, POLICY IMPLICATIONS AND

RECOMMENDATIONS
Due to the European Union’s decisive role in the global economy, the con- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
sequences of its decisions and the policies implemented are reflected not only
domestically but also on the world market. Therefore, the CAP plays a key role
in the transmission mechanism of price volatility of agricultural products. The
EU precedent experience of implementing mechanisms to stabilize the markets
using price controls has proved inadequate to today’s context, putting the EU
in the position of reshaping its common agricultural framework. However, the
recent troubled economic environment emphasized the need to maintain in-
come support and to reinforce instruments to better manage risks and respond
to crises. The current CAP offers viable mechanisms for price volatility, product
safety-nets and decoupled payments contributing to make farms less vulnerable
to fluctuations in prices and to provide an income safety net independent of the
341
market situation (Tothova& Velazquez, 2012). Still, these instruments need to
be adjusted to achieve market stability on the medium-term perspective, in the
most effective and efficient way.
With regard to Romania, its current volatility context is a mixture between
imported volatility, internal instability and lack of maturity of the market struc-
tures. Romania should concentrate on strengthening its internal potential of
production in order to reduce the level of imported volatility, while also deal-
ing with the problem through price risk management strategies. The Roma-
nian producers are adapting with high difficulty to a highly volatile market
environment. Investments in this sector – through the absorption of EU and
state funds, banking products and other alternatives– could contribute to in-
creased productivity, better internal results and, in time, lower import levels.
When comparing the Romanian situation with other Member States, it can be
observed that most Member States of the EU have developed on completely
different paths, and consequently the policies formulated under the common
agricultural framework often do not resonate with the Romanian realities. To
meet Romania’s perspectives, the CAP would need to undergo fundamental
changes or Romania’s agricultural outlook should transform dramatically. Dur-
ing the process of formulation of the latest CAP reform – the Ciolos reform
from 2013, when for the first time in the history of major CAP reforms Ro-
mania participated as a member, it supported the maintenance of CAP on its
present path. Still, Romania must proceed as a more dynamic player in the CAP
debates, in order to support its distinctive status and to negotiate regulations
that fit more its internal agricultural outlook.
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SHOPPING ON THE GO  AN
ANALYSIS OF CONSUMERS’
INTENTION TO USE MCOMMERCE
IN GERMANY AND PERU
Thomas CLEFF, Ph.D.

Professor of Quantitative Methods for Business & Economics,
Thomas Cleff • Helen Loris • Nadine Walter: SHOPPING ON THE GO – AN ANALYSIS OF CONSUMERS’ INTENTION TO USE ...
Dean of the Business School at Pforzheim University,

Germany, and Research Associate at the Centre for European
Economic Research (ZEW), Mannheim, Germany.
Helen LORIS
Bachelor of International Marketing graduate of Pforzheim
University.
Nadine WALTER, Ph.D.

Professor for International Marketing at Pforzheim University,
Germany.
Abstract
M-Commerce is steadily on the rise – mainly driven by increasing smartphone
usage. This so-called “Mobile Revolution” is even considered to be of similar
impact as the “Internet Revolution” in the 1990s. This study aims to analyse
the level of consumers’ intention to use M-Commerce – and the factors which
influence their intentions. Since the level of M-Commerce varies country by
country, a comparison of two countries, a developed market (Germany) and
a developing country (Peru), has been conducted. The following influencing
factors have been analysed: (1) sense of comfort (including perceived ease of
use, social influence, convenience, appreciation of consultative services and cash
preferences), (2) involvement into E-Business (including intention to pur-
chase online, trust in online shops and intention to use social commerce) and
(3) perception of safety (attitude towards data protection, attitudes towards
transaction security and safety precautions).
344
The study could identify the most important influencing factors (i.e. perceived
ease of use, social influence, convenience, trust in online stores, intention to use
social commerce and the general perception of safety). In addition, it showed
the major differences between Peru and Germany: Peruvians tend to be in-
fluenced by others to a larger extend than Germans, they value consultative
selling higher, they have a lower intention to purchase online (but a higher
social commerce usage) and data protection/transaction security plays a more
important role.
These findings should help corporations to better understand the still existing
boundaries for M-Commerce and to be able to implement measures to remove
them. It should also enable German firms to get a better understanding of the
M-Commerce behaviour in Peru – and vice versa.
Keywords: E-Business, E-Commerce, M-Commerce, Mobile Commerce, in-
fluencing factors, Germany, Peru
Jel Classification: D11, N3, L81
1 INTRODUCTION
The so-called “Internet Revolution” occurred in the late 90s when the web,
which was since then only an instrument to be used in research institutions,
became accessible for a broad user group.1 Today, more than 20 years later, the
term “Mobile Revolution” is frequently stressed and some authors claim that it
is expected to be even more impacting than the Internet Revolution2. Around
17% of all Internet traffic comes from smartphones.3 Smartphone users can INTERDISCIPLINARY MANAGEMENT RESEARCH XI
watch advertising (Mobile Marketing) or shop online (M-Commerce) while
on the go, and even use mobile payment techniques. Both phenomena, mobile
cellular subscription and smartphone usage, drive the potential of Mobile Mar-
keting (which includes Mobile Advertising and M-Commerce).
This study aims to analyse the level of consumers’ intention to use M-Com-
merce and the factors which influence their intentions. Since we assume that
this varies country by country, a comparison of two countries, a developed mar-
ket and a developing country, seems to be most suitable. Germany was selected
1
cf. Ryan and Jones (2012), pp. 7 et seq.
2
cf. Eckstein and Halbach (2012), p. 52
3
cf. Zolezzi (2013), p. 5
345
as an example of a developed country, and Peru as an example of a develop-
ing country. Both vary in mobile-cellular subscription (Peru has 98 of mobile-
cellular subscriptions per 100 inhabitants, versus Germany with 112)4 and in
smartphone/table share (Germany has 45% of smartphone/tablet users, i.e.
27.3 million people, versus 17% in Peru, i.e. 3.1. million people)5. However,
the consumption-based influencing factors will be most likely to influence M-
Commerce usage and therefore are the focus of this analysis.
2 CONCEPTUAL FRAMEWORK AND

HYPOTHESES
. Mobile Commerce

In the broadest sense, M-Commerce can be considered as an extension to
E-Commerce which “is the sale or purchase of goods or services, whether between
businesses, households, individuals, governments, and other public or private organi-
zations, conducted over computer-mediated networks.”6 M-Commerce in contrast
to E-commerce refers to transactions that only take place through mobile de-
vices, starting from the information search up to the monetary exchange: “M-
Commerce is the buying and selling of goods and services through wireless hand-held
devices such as cellular telephones, personal digital assistants (PDAs) and wireless
computers.“7 While the products and services are ordered online, the payment
and the delivery might be online or off-line. In this study the mobile devices
analysed will be smartphones and tablets. Due to their size, both are hand-held
and portable devices that furthermore contain the same features as PCs and the
ability to connect to the internet, enabling mobile transactions.
. Influencing factors on consumers’ intention to use

M-Commerce
When comparing the mobile usage in Germany and Peru, three main di-
mensions can be used to describe the influence on the use of M-commerce:
4
cf. ITU (URL)
5
Cf. Eckstein and Halbach (2012), p. 12 and Ipsos Peru (2013a and b)
6
OECD (URL)
7
Michael and Salter (2006), p. 79
346
Consumers’ sense of comfort, their involvement into E-business and their perception
of safety. These influencing factors will be explained in the following chapters:
.. Sense of comfort

The consumers’ sense of comfort consists of the
- Perceived ease of use
- Social influence
- Convenience
- Appreciation of consultative service
- Cash preference
... Perceived ease of use
Perceived ease of use is affected by application features and by “physical fea-

tures of mobile devices such as its small display screen”8. If the usage of M-Com-
merce is perceived as easy, consumers’ acceptance of using the service increases.
Considering the wider distribution of advanced mobile devices in Germany and
the resulting higher familiarity with M-Commerce applications than in Peru9,
it is expected that the ease of use is considered to be higher in Germany. We
therefore assume:
H1a: Perceived ease of use relates positive to consumer intention to use
M-Commerce.
H1b: Perceived ease of use is estimated to be greater in Germany than in
Peru. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
... Social influence
Social influences affect consumer acceptance of mobile technologies and

services. Kelman distinguished three categories of social influence: Compli-
ance, identification, and internalization.10 In all three cases though, an indi-
vidual strives to gain approval by a third party, independent on whether he
is denying himself or strengthening his own position. The third party may
involve family members, friends, social networks, public organizations and
8
Chong et al. (2012), p. 37
9
10
cf. Kelman (1958), p. 53
347
media, or the validation from trusted institutions. The level of individualism
influences consumers’ perceptions. Individualism according to Hofstede is “the
degree of interdependence a society maintains among its members”11 Accord-
ing to his empirical research, Germany scores a 67 on individualism (versus 16
for Peru) and thus follows an approach of self-actualization. The opinion of a
third party will not have the strong influence on an individualistic person as on
a group-oriented or collectivistic person. Contrarily, in a collectivistic society
as Peru, the opinion will strongly influence an individual’s usage behaviour: “In
order for consumers to fully embrace M-Commerce services, education and

validation from independent and trusted parties are key factors.”12 Therefore, it
seems reasonable to assume:
H2a: Social influence relates positive to consumer intention to use
M-Commerce.
H2b: Social influence tends to be lower in Germany than in Peru.
... Convenience
Talking about the consumer adaption to new technology trends, including

M-Commerce, the perceived convenience is considered a key element.13 Primar-
ily, convenience is “closely related to time-place flexibility”14 and the possibility to
make best use of one’s time when on the go. Besides that, the net reliability con-
tributes to consumer convenience in using M-Commerce. According to ECC15
a fast loading time of the single pages are important to mobile device users. That
is because the data transfer rate for mobile devices is slower than for laptops or
PCs. The fear that “M-Commerce transactions can be interrupted or disturbed
by an unreliable Internet connection”16 prevents users from using M-Commerce
applications. Due to the fact that the German culture values reliability, achieve-
ment and efficiency highly, it is expected that time-consuming inconvenience is
considered to be more negative than in Peru. Therefore we assume:
11
Hofstede (URL1)
12
Ericsson (2013), p. 3
13
cf. Kim et al. (2010), pp. 310 et seq.
14
Okazaki and Mendez (2013), p. 1234
15
16
348
H3a: Convenience relates positive to consumer intention to use
M-Commerce.
H3b: Convenience is estimated to be higher in Germany than in Peru.
... Appreciation of consultative service
The attitude towards sales advice is indispensable with a view to the chan-
nel decision. The mobile channel has the lowest media richness compared to an
in-store channel or even an E-commerce channel 17 and does not allow a direct
interaction with the product or service. It is apparent that the intention to use
M-Commerce contradicts the intention to consult a sales advisor in person.
In Latin America, the consumer apparently appreciates a high degree of
control, also with regard to his expenses18. Especially Peru scores high in the
dimension of “uncertainty avoidance” (87 versus 65 for Germany) according
to Hofstede’s framework.19 Uncertainty avoidance is the “extent to which the
members of a culture feel threatened by ambiguous or unknown situations”20.
M-Commerce as an arising technology is faced with these doubts, as it does not
rebuild the consumers’ control. Following the line of arguments, the following
is expected:
H4a: Appreciation of consultative selling relates negative to consumer in-
tention to use M-Commerce
H4b: Appreciation of consultative selling is estimated to be lower in Ger-
many than in Peru.
... Cash preference
Cash preference describes the usage of cash as the main payment method,
alternative to transaction via a bank account, online transactions, including
credit card use or PayPal, or even transaction via mobile device, for example per
SMS, QR Code or App. In a cashonomy, people usually prefer cash payments,
no matter their socioeconomic status.21 Cash is “a fast, convenient and transpar-
17
cf. Maity and Dass (2014), p. 35
18
cf. Ericsson (2013), p. 5
19
Cf. Hofstede (URL1)
20
Hofstede (URL1)
21
349
ent means of payment”22. In Peru, it is promoted by a high amount of informal
sales in the streets or in small shops and hence, the acceptance of cash only.
Contrarily, in Germany most jobs are formal, accordingly the payment. Taking
these findings into consideration, it is presumed:
H5a: Cash preference relates negative to consumer intention to use
M-Commerce
H5b: Cash preference is estimated to be lower in Germany than in Peru.
.. Involvement into e-business

The involvement into E-Business was determined as relevant for M-Com-
merce, because it is assumed that both the intention to purchase online as well
as the intention to use social commerce have potential to lead digital users to-
wards the use of M-Commerce. Further, the trust in online shops is defined as
an additional element, as it influences highly the choice of the purchasing chan-
nel. The consumers’ involvement into E-Business is therefore determined by the
- Intention to purchase online
- Trust in online shops
- Intention to use social commerce
... Intention to purchase online
E-commerce is a forerunner of M-Commerce. M-Commerce is therefore

predicted to evolve in a similar way23. E-commerce sales in both countries,
Germany and Peru, increased by approximately 50% from 2005 to 2011, and
are expected to grow further. Peru made US$ 611 million24 and Germany €
26.1 billion25 in E-commerce sales in 2011. With Germany being a more de-
veloped country than Peru, the recognition and distribution of E-commerce is
higher than in Peru. Therefore, it is expected:
H6a: Intention to purchase on-line relates positive to consumer intention to
use M-Commerce.
22
23
24
cf. Selman Carranza (2012), p. 5
25
cf. Statista (URL)
350
H6b: Intention to purchase on-line is estimated to be greater in Germany
than in Peru.
... Trust in online shops
Consumer trust in an online shop, thus a specific website, is the basic re-
quirement in order to engage into a purchase decision through this online shop,
irrespective of whether engaging into E-commerce or M-Commerce. Trust may
imply a minimum expectation of an individual, a subjective belief or probabil-
ity26 or the “willingness of an individual to be vulnerable, reliance on parties
other than oneself, or a person’s expectation“27. With regard to M-Commerce,
it means the presumption of the customer that the online shop will fulfil the
transactions on the previously agreed terms without any incident. The reputa-
tion of an online site and the familiarity of an individual with this website have a
positive impact on the consumer loyalty and preference over other online shops.
In Germany, a large number of recognized online shops exist: Amazon.de,
Ebay.de, and Otto.de are among the most popular ones, all of them have opti-
mized mobile websites and apps. In Peru, the online marketplace Mercadolibre
is “the largest e-commerce ecosystem in Latin America”28. Seven percent of its
sales already come from the mobile channel.29 The most popular are the online
shops which offer coupons, such as Groupon, Ofertop.pe and Descuentosperu.
com. However, the optimized mobile website versions are still veryg few in Pe-
ru.30 Therefore, we assume:
H7a: Trust in online shops relates positive to consumer intention to use
M-Commerce INTERDISCIPLINARY MANAGEMENT RESEARCH XI
H7b: Trust in online shops is estimated to be greater in Germany than in

Peru.
... Intention to use social commerce
26
cf. Kim et al. (2008), p. 545
27
Kim et al. (2008), pp. 545 et. seq.
28
29
30
351
Social commerce are all activities that involve social networks to assist on-
line buying and selling of products and services. Thus, all companies linked to
Facebook that either enable a direct purchase from a Facebook store or promote
their online stores on a Facebook app or fan page are regarded as social com-
merce sites.31 The usage of social commerce reinforces user-generated content,
for example user reviews and customer interaction and communication via so-
cial network sites. A large number of social network sites are nowadays con-
sumed additionally on a mobile device and generate even more users. The incre-
mental audience generated via mobile devices of Facebook is 23%32 for example.
When looking at Germany versus Peru, although in Peru a lot less people
have access to the internet (34%), 80% of them are Facebook subscribers. 33
In Germany, 83% of the population has access to the internet, but only 31%
use Facebook.34 As the awareness of social media is a lot higher in Peru, it is
assumed that the awareness for social commerce is also higher. Hence, the fol-
lowing is proposed:
H8a: Intention to use social commerce relates positive to consumer inten-
tion to use M-Commerce.
H8b: Intention to use social commerce is estimated to be lower in Germany
than in Peru.
... Perception of safety

The category perception of safety is based on the perceived risk from the
consumers’ point of view that negatively affects their acceptance of M-Com-
merce. The perception of safety is driven by
- Attitudes towards data protection
- Attitudes towards transaction security
- Safety precautions
31
cf. Ng (2013), p. 610
32
cf. ComScore (URL2)
33
cf. Worldbank (URL)
34
Internet World Stats (URL)
352
... Attitudes towards data protection
Mistrust about their privacy protection is rated one of the largest obstacle
of customers’ adaption to M-Commerce.35 In order to protect the customers’
sensitive personal information, a safe data transmission must be guaranteed.
Customer might fear identity theft or fraudulent credit card charges when be-
ing asked to disclose personal information such as name, email, and credit card
number.36 In general, the attitude towards privacy protection is different in Ger-
many and Peru. Whereas Peruvians are less concerned in giving away private in-
formation, German subscribers are more concerned and rather reluctant. When
purchasing a product or service through a mobile device, a safe encoding of data
is crucially important to German smartphone users.37 Hence, the following hy-
potheses are proposed:
H9a: Data protection relates positive to consumer intention to use
M-Commerce.
H9b: Data protection is considered to be more important in Germany than
in Peru.
... Attitudes towards transaction security
Transaction security refers to the conviction that the “Internet vendor will
fulfill security requirements such as authentication, integrity, encryption, and
non-repudiation”38 in order to generate a secure payment via a mobile device.
With respect to online and mobile payment methods, usage preferences dif-
fer between countries. In Germany, internet-specific payment methods such as
PayPal and “Sofortüberweisung.de” are most popular for mobile purchases, fol-
lowed by invoice payment , direct debit order, and credit card use.39
On the other hand, Peruvians seem to have a lack of trust in online transac-
tions40, which includes transactions through mobile devices. Still not all Peru-
vian credit cards carry a security chip, which makes frauds even easier.
35
36
cf. Kim et al. (2008), p. 550
37
38
Kim et al. (2008), p. 550
39
40
cf. Euromonitor International (URL)
353
Therefore it is assumed:
H10a: Transaction security relates positive to consumer intention to use
M-Commerce.
H10b: Transaction security is estimated to be greater in Germany than in
Peru.
... Safety precautions

In this context, safety precautions are referred to as measurements to avoid

the robbery of mobile devices. Safety precautions also include restricting the
usage of a device to avoid robbery. In Germany, this is hardly the case whereas
in Peru, the theft of mobile phones is part of everyday’s life: According to an
OSIPTEL study, the denounced thefts from January to March 2014 in Peru
were 1.1 millions.41. As the awareness of mobile thefts is high, it is assumed
that this fact restricts Peruvians in their intention to use their mobile device for
purchasing purposes.
H11a: Safety precautions relate negative to consumer intention to use
M-Commerce
H11b: Safety precautions are estimated to be lower in Germany than in
Peru.
. Summary
Based on the theory concerning the usage behaviour with respect to M-
Commerce in Germany and Peru, eleven factors were distinguished that are
determining for the consumer intention to use M-Commerce.
The factors perceived ease of use, social influence, convenience, appreciation
of consultative service and cash preference form part of the perceived sense of
comfort concerning their contents. It is assumed, that their extent of difference
is strongly influenced by cultural aspects, having either a positive or a negative
influence on the intention to use M-Commerce.
The involvement into E-business includes the factors intention to purchase
online, trust in online shops and intention to use social commerce. Comprehen-
41
cf. OSIPTEL (URL)
354
sibly, the more pronounced these factors are, the higher the consumer intention
will be to use M-Commerce.
Crucial for an analysis of M-Commerce is the perception of safety; this topic
is to be equated with risk avoidance. This article amplifies the three factors data
protection, transaction security and safety precautions. Figure 1 depicts the re-
search model. The positive (+) and negative (-) associations between the inde-
pendent variables on the left hand side and the dependent variable consumer in-
tention to use M-Commerce are highlighted. Additionally, the factor moderation
effect of culture is integrated that will help in the analysis of difference between
the countries Germany and Peru.
Figure 1: Research model
Facing the rapid development of mobile services and application, as well as

the expansion of advanced mobile devices, this article presumes a high potential
for M-Commerce worldwide. In a developing country such as Peru, several fac-
tors were assumed to be more relevant to mobile device users than in Germany,
promising success for M-Commerce: Social influence, appreciation of consul-
tative service, cash handling, intention to use social commerce, and safety pre-
355
cautions. On the other hand, the factors that were estimated to be greater in
Germany than in Peru include perceived ease of use, convenience, intention to
purchase online, trust in online shops, data protection, and transaction security.
These hypotheses are to be analysed in the empirical research.
3 RESEARCH DESIGN
The data report is based on respondents who went through all questions in
the questionnaire. Anyhow, the absence of single responses is not ensured.

The questionnaire did not include any open questions (see Appendix). To
each topic, one to five questions were asked, resulting into a total of 32. The
questions were mainly designed using the Likert scale with a list of choices rank-
ing from “totally disagree” (1) to “totally agree” (7). Only 4 out of 32 questions
were nominal-scaled (“Yes”, “No”, “I don’t know”).The answer “I don’t know”
was interpreted according to the specific question. This survey was performed
with the software package Soscisurvey, a free online-tool that supports online
questionnaires.
The survey period was from June 3rd to 16th, 2014 (two weeks) and targeted
exclusively Germans and Peruvians. Therefore, an online questionnaire was
send to inhabitants in the region Baden-Wuerttemberg, Germany and in Lima,
Peru. In order to ensure the comprehensibility of the questions, the survey was
made available in English, German and Spanish. As the respondents included
a broad audience of mobile device users, only quantitative primary data was
collected in the online interviews. With Germany as a developed country and
Peru representing a developing country, fundamental differences in the usage
behaviour concerning M-Commerce were assumed and made an analysis rea-
sonable. 56 respondents from Germany and 52 complete responses from Peru
were obtained, which include male and female from the age of 14 to 58. No
limitations based on demographic factors were made and data was randomly
sampled. Age, gender and occupation of the respondents were requested due to
their possible influence.
Out of 169 participants who started the survey, 111 finished it, while 21
cancelled it during the questionnaire. Three participants were excluded from
the analysis, because they did not form part of the target population.
356
Most respondents were female. Further, the survey was distributed mainly
among university students, which explains the greatest participation of respon-
dents between the age of 18 and 30, next to the fact that most mobile phone
users in Germany42 and Peru43 form part of this age group. The variable “age”
was coded from a metric scale into an ordinal-scaled variable in order to dem-
onstrate the concentrated distribution of age. The highest portion indicated as
their current occupation was either voted as “university“ or “working“.
Table 1 - Demographic profile
Demographic profile German Peruvian
Number Percentage Number Percentage
Sex Male 21 37,5% 21 40,0%
Female 35 62,5% 31 60,0%
Total 56 52 100,0%
Age Under 18 13 23,2% 10 19,2%
18 - 30 42 75,0% 39 75,0%
Above 30 1 1,8% 3 5,8%
Occupation Highschool 2 3,6% 2 3,8%
University 23 41,1% 24 46,2%
Professional training 3 5,4% 1 1,9%
Working 26 46,4% 22 42,3%
Unemployed 2 3,6% 3 5,8%
Total 56 100,0% 52 100,0%
Further, 7 out of 108 respondents indicated that they were no smartphone

or tablet user, nor had access to one of these mobile devices. The overwhelming
majority responded that they had access to a mobile device though. Neither INTERDISCIPLINARY MANAGEMENT RESEARCH XI
sex nor age was found as relevant for MC by conducting an independent t-
test or Pearson correlation. No direct correlation could be determined between
nationality and MC. Nevertheless, the relations of the independent variables,
together with the moderating effects of nationality, are examined in the further
analysis.
42
cf. ComScore (URL1), p. 12
43
Zolezzi (2013), p. 16
357
4 RESULTS
. Perceived ease of use: Hab
A Linear Regression Analysis was used in order to determine the causality
between the variables: MC and PE, all interval-scaled. Hereby, the variation of
relevant independent variables (PE) was expected to explain the variation in one
dependent variable “I like the idea of purchasing a product or service through my
mobile device” (MC). In order to analyse if the nationality has any impact on the
model, a dummy variable is created and coded as follows: 1= German, 0= Peruvian.

According to the p-value observation, only three variables have a significant
influence, namely “process online banking”, “download music”, and “buy a prod-
uct”. The variables “find information on products and services” and “browse a
search engine” with a p-value > 0.05 are not associated with MC. They were
deleted from the model for the further analysis.
According to the new model summary, R2=40.4% of the variation in the de-
pendent variable might be explained by the variation in the independent variables.
The variable “buy a product” has the highest standardized Beta-Coefficient. Un-
expected was the negative influence of the variable “download music” on MC. It
may be that the smartphone users who preferably download music perceive their
mobile device as an entertainment media and therefore, are less likely to use it for
other purposes or that the download of free music hampers them to engage in
commercial M-Commerce. Anyway, The H1a hypothesis thus is approved.
The B-value of “nationality” is -1.365 which means that the MC score for the
Germans knows a mean of 1.365 lower than for Peruvians. This leads to the re-
jection of the H1b hypothesis. Results are summarized in the following Table 2.
Table 2 – Coefficient table
358
. Social influence: Hab
In order to determine the relationship among the interval-scaled variables
MC and SI, their bivariate correlation was analysed. The meaningfulness of the
model was approved, as all variables are significant (p-value < 0.05). The Pear-
son correlation is continuously positive. The strongest positive correlation is
found between MC and “SI_Comments and Likes on FB influence my opinion
about a product or service”. With 0.4 it demonstrates a medium linear associa-
tion. In contrast, “SI_Mass media will influence my decision to use MC” has the
lowest linear association as the Pearson Correlation is below 0.3 (see table 3).
Thanks to the above-listed arguments, the H2a hypothesis is approved.
Table 3 - MC*SI Correlations
At this point, a nominal variable was introduced into the model: nationality.
The results of the Point-Biserial Correlation are shown in table 4. The model
is meaningful regarding the association between nationality and the variable
“SI_ Family members and friends influence me on using MC” has a signifi-
cance level of 0.033 < 0.05 and a negative low linear association (Correlation =
-0.209). “SI_ Comments and Likes on FB influence my opinion about a prod-
uct or service” has a significance level of 0 < 0.05 and a negative medium linear
relationship (Correlation = -0.351). There is a positive relation between these
two SI variables and the Peruvian nationality. This leads to the conclusion that
neither mass media nor the awareness of M-Commerce as a trend is important
359
for Peruvians, but social networks and personal contacts. For all other variables
results, that the H2b hypothesis is confirmed.
Table 4 - SI*nationality correlations

. Convenience: Hab

It is assumed that there is a positive correlation between the dependent vari-
able MC and the independent variables CON, all interval-scaled. A Pearson
correlation analysis is run. Table 5 demonstrates for all independent variables
a significant large and positive linear association (Pearson correlations > 0.5,
p-value < 0.05), except for the variable “CON_I am afraid that the internet
connection will be interrupted” (p-value 0.661 > 0.05). Therefore, the null hy-
pothesis is rejected and the H3a hypothesis is approved.
Table 5 - CON*MC Correlations
An independent samples t-test was performed to examine if Germans per-

ceive M-Commerce as more convenient than Peruvians. The scale CON in-
cluded items regarding convenience related topics: Mobile banking, flexibility,
360
work productivity, network reliability, and time saving. It was analysed, if the
grouping variable nationality makes a difference regarding the convenience.
The first assumption of equal variances applies for all items except for
“Adapting to M-Commerce applications helps to save time” (Sig 0.012 < 0.05).
Further, for these items the p-values for the t-values were smaller than 0.05. It
results, that a significant difference between Germans and Peruvians in their
estimation of convenience is assumed.
Peruvians have a higher mean than Germans for all items. Apparently, the
highest difference in the mean has “Mobile banking is more convenient than tra-
ditional banking” (Mean = 2.91 < 4.79), followed by “M-Commerce allows me
to improve my work productivity” (Mean = 3.36 < 4.87). The lowest differences
exists for “Regarding its flexibility, I find that M-Commerce is more convenient
than E-commerce” (Mean = 4 < 4.96). Resulting from this analysis, the H3b
hypothesis is rejected.
. Appreciation of consultative service: Hab

ACS was queried with just one interval-scaled variable. Thus, the associ-
ation with MC is measured with the Pearson correlation, leading to the fol-
lowing results: A correlation exists (p-value 0.001 < 0.05), but different to the
assumption, it is positive. Responding “I set a high value on the opinion of a
sales consultant when buying” and MC thus have a positive linear association.
Therefore, the H4a hypothesis is rejected.
In order to define the influence of nationality on ACS, an ANOVA was per- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
formed. In accordance with the Levene’s Test, the assumption of equal variances
is fulfilled (Sign. 0.891 > 0.05). Further, the differences in the mean (t-value)
are significant (Sign. 0 < 0.05). The group statistics has a higher mean for Peru
than for Germany, meaning that Peruvians put more value on the opinion of a
sales advisor. The H4b hypothesis therefore can be confirmed.
. Cash preference: Hab

In order to analyze if CH (interval-scaled independent items) has an influ-
ence on MC (interval-scaled dependent variable), a linear regression analysis
was conducted. The independent variables hereby are:
361
1. I prefer cash payments in comparison to any other payment method.
2. I trust in payment methods such as PayPal, bank collection, and credit card
use.
3. I would like to proceed with payment via my mobile device (e.g. per SMS,
QR Code, per App).
According to the R Square, 45.1% of the variation in MC can be explained
by the variation in the independent variables. Regarding the independent vari-
ables, only the variable “payments with my mobile device” has a p-value below
0.05. This variable has a moderate association with MC (B-value = 0.562). On
the other hand, “I prefer cash payments” and “I trust in payment methods” are
not significant; these variables are fundamental for the H5a hypothesis. There-
fore, a direct indication about the negative correlation between “I prefer cash
payments” and MC is not given, and the analysis is cancelled at this point. The
finding about the correlation between the variable “payment via mobile device”
and “MC” is taken into account later in this paper. The H5a hypothesis there-
fore is rejected.
The influence of nationality on the dependent variable CH was found as
statistically relevant by performing an ANOVA: A significant difference ex-
ists only for the variable “CH_proceed payments via a mobile device”. Differ-
ently than expected, this variable is quoted as higher for Peruvians (mean =
4.87) than for Germans (mean = 3.07), this leads to the rejection of the H5b
hypothesis.
. Intention to purchase online: Hab

It was assumed that a higher PO, leads to a higher MC. ANOVA was per-
formed with a PO as independent variable (“PO_Have you bought a product
or service online before?” Answers: “Yes”, “No”) and MC as dependent inter-
val-scaled variable. First, the Levene’s test of equal variances was checked. As
the significance is 0.662 (> 0.05), the variances are assumed to be equal . To
prove an association between PO and MC statistically, the effect of the factors
must be significant (p value smaller than 0.05), which is not the case (p=0.238).
Thus, the H6a hypothesis is rejected.
To examine the relation between nationality and PO, the binary scaled item
“Have you bought a product or service online before?” was examined in asso-
362
ciation to MC. 80.8% of Peruvians and 98.2% of Germans indicated that they
have purchased a product or service online before. According to the Chi-Square
test, this difference is statistically significant and meaningful, anyhow with a
small association (PHI = 0.288; p=0.003). Anyway, the H6b hypothesis can
be approved.
. Trust in online shops: Hab

The relation between MC, TO, and nationality was determined with OLS.
According to this output, 30.5% of the variation in the dependent variable
might be explained by the variation in the independent variables. All dependent
variables have a significant influence on MC (Sig. < 0.05). The coefficients dis-
played in table 6. The unstandardized coefficient for nationality is -.772 which
means that the MC score for the Germans knows a mean of 1.365 lower than
for Peruvians. This analysis leads to an approval of the H7a hypothesis and to
a rejection of the H7b hypothesis.
Table 6 - Coefficient Table
. Intention to use social commerce Hab

It is assumed that there is positive correlation between SC and MC. For
the variables “SC_ I have a strong intention to purchase a product online if the
product is recommended by my social network friends” and “MC_ I like the
idea of purchasing a product or service through my mobile device” the Pearson
correlation is almost 0.6, indicating a moderate to strong association between
the two variables. Therefore, the H8a hypothesis is confirmed.
The binary scale “I have ordered a product or service before through a social
network site (e.g. Facebook)” has a statistically significant moderate correla-
tion with nationality according to the Chi-Square test (Cramer’s V = 0.413;
363
p=0.000). Accordingly, 41.2% Peruvians indicated that they have purchased on
a social commerce site before, whereas only 5.4% Germans indicated the same.
Peruvians therefore are more likely to respond to social commerce. Thus, the
H8b hypothesis is confirmed.
. Data protection and transaction security H/ab

Considering DP, the general statement “I often refuse to provide my per-
sonal information such as name or email address in order to access informa-

tion in which I am interested” does not show any significant correlation to MC.
Anyhow, one significant relation (p-value < 0.05) is found between MC and
“DP_I think using M-Commerce puts my privacy at risk”. In compliance with
the formulation of the question, the association is negative. Anyhow, there is
only a small linear association (Pearson Correlation: -0.235 < 0.3). The sig-
nificant association (p-value < 0.05) between MC and TS is 0.526, a moderate
linear association. This leads to the approval of the H9a and H10a hypotheses.
In a following ANOVA, the dependency of nationality (nominal-scaled) on
DP and TS (interval-scaled) was examined. Table 9 proves that the model is
meaningful for all variables except for “TS_Online transactions are secured”
(p=0.105).
Table 7 - DP*TS*nationality ANOVA
For the three relevant variables, the mean plots showed clearly that the vari-
ables “DP_ I often refuse to provide my personal information such as name
or email address in order to access information in which I am interested” have
364
higher means for Germans than for Peruvians, while for the variable “TS_ Pay-
ments made through M-Commerce are processed securely” the contrary ap-
plies. This leads to the confirmation of the H9b and H10b hypotheses.
. Safety precautions Hab

In this analysis the interval-scaled variable MC “I like the idea of purchas-
ing a product or service through my mobile device” is explained by taking into
account the nominal-scaled variables regarding safety precaution. Therefore,
a two-way ANOVA was performed with “SP_ My own or one of my friend’s
mobile phone has been stolen before” and “SP_ Are you afraid to make a pur-
chase via a mobile device due to the fact that it could be stolen?” as categorical
variables. As the Levene’s test for equality of variances is Sig 0.162 > 0.05, re-
sults are considered as homoscedastic. The significance of the corrected model
is 0.010 < 0.05, which means that there is a significant effect of the variables on
MC, but only the variable “Are you afraid to make a purchase via a mobile device
due to the fact that it could be stolen?” is significant (p-value 0.047 < 0.05).
This variable explains 16.7% of the dependent variable. Therefore, the H11a
hypothesis is confirmed.
84.6% of Peruvians indicated that they know somebody whose mobile de-
vice has been stolen whereas only 46.6% of German could mention the same.
Further, 46.2% of Peruvians said that they were afraid to purchase via their
mobile device due to safety risks, but only 27.3% of Germans. Anyway, a cor-
relation between the item “Are you afraid to make a purchase via a mobile device
due to the fact that it could be stolen?” and nationality could not be statistically
proven, as the model performing a Chi-Square test was not found significant
(p-value is 0.085 > 0.05). Therefore, the null hypothesis does apply and the
H11b hypothesis is rejected.
5 DISCUSSION AND RECOMMENDATIONS

In this last chapter the findings of each hypothesis are discussed. Fourteen
hypotheses were confirmed and eight hypotheses were rejected. For Cash Pref-
erence no hypothesis was found as relevant. Five of the rejected hypotheses con-
cerned nationality, the other three referred to MC.
365
H1ab: Perceived ease of use
PE has a significant influence on M-Commerce, but only regarding activities
that are directly connected to M-Commerce transactions. Anyhow, activities
such as browsing a search engine or searching product information are not as-
sociated with M-Commerce. This might be a sign that most people use their
mobile device for browsing products and information gathering only and prefer
a laptop or PC for the purchasing activity. One reason according to this study
is that not a lot of knowledge exists regarding how to download music or buy
a product via a smartphone, or it is experienced as too complicated. In order to

optimize the buying decision process and to lead the mobile device user straight
to the purchasing via a smartphone or tablet, it is essential to facilitate the pro-
cess from information gathering up to integrating into a transaction via mobile.
There should be only a few steps between the product’s presentation and the
product’s ordering. The visualization must be in accordance with the smart-
phone’s or tablet’s smaller display.
Different to the assumptions made on the hypothesis, Peruvians more than
Germans, appreciate perceived ease of use. Anyway, according to further analy-
ses, this influence was not found as statistically relevant.
H2ab: Social influence

Two items were found to have an impact on the consumer intention to use
M-Commerce: “Comments and Likes on Facebook influence my opinion about
a product or service” and “Family members and friends influence me on using
M-Commerce”. The social influence for Peruvians should not be underestimat-
ed by German firms. Contrarily to Germans, Peruvians attach high value to
the attitudes in their personal environment, also when it comes to the usage of
M-Commerce. Comments and recommendations on social networks such as
Facebook will be decisive for their openness to the new technology. Thus, it is
recommended to promote on the firm’s Facebook site and other social network-
ing activities in order to be more personal to the Peruvian media user, and from
there on, advertise their products. As Facebook is popular among mobile devic-
es users, the firm’s site might pass on the user directly to a mobile version of the
firm’s website, including its mobile online shop. Vice versa, the mobile version
of the firm’s website is directly connected to Facebook, Twitter, and other social
network sites. The mobile online shop should give the opportunity to commu-
nicate between the users and to evaluate and comment on products.
366
H3ab: Convenience
Convenience was found to have a strong linear association with the inten-
tion to use M-Commerce. Different than expected, the fear that the internet
connection is interrupted when processing M-Commerce was not confirmed.
As an application, mobile banking has a high potential. Further, Peruvians per-
ceive M-Commerce as more productive than Germans. Thus, a success factor
might be the presentation of the benefits of M-Commerce, with focus on the
work productivity and flexibility. It must be highlighted, that the usage of M-
Commerce is easy for modern mobile device users, it helps them to save time
and to become more productive. By promoting applications that are connected
to M-Commerce, the interest about M-Commerce applications will automati-
cally rise.
H4ab: Appreciation of consultative services

Peruvians put a higher value on the consultation of a sales advisor. Anyway,
this does not have a significant influence on M-Commerce.
H5ab: Cash preference

The high usage of cash in Peru seems not to be an obstacle for M-Com-
merce, since Peruvians are open for new payment methods which are closely
linked to M-Commerce.
Though an influence of cash preference on M-Commerce could not be dem-
onstrated, another finding was made: The item “I would like to proceed pay-
ments via a mobile device” has a significant influence on M-Commerce and is
more relevant for Peruvians than for Germans. It is recommended, to invest
into new payment methods such as payment per SMS, QR code, or App and to
offer a variety of choices on the method of mobile payment.
H6ab: Intention to purchase online

It was found that the intention to purchase online influences the consumer
intention to use M-Commerce. The assumption that Peruvians use less E-com-
merce than Germans was proven, but has no significant influence on intention
to use M-Commerce.
H7ab: Trust in online shops
367
As expected, trust in online shops influences positively the intention to use
M-Commerce. Different than expected, trust is estimated to a larger extent in
Peru than in Germany. Therefore, trustful M-Commerce sites are essential.
Germans generally trust Peruvian online shops less, than Peruvian trust Ger-
man online shops. Foreign companies tend to have a better reputation in the
Peruvian population, which means that a German company might benefit from
this recognition.
H8ab: Intention to use social commerce

Social commerce was identified as a driver for M-Commerce. Peruvians are
much more likely to engage into social commerce, which should be integrated
into an overall strategic digital approach. A more personal relationship to the
consumers is a key element, taking place on a social media platform, such as
Facebook, Twitter, Stripe, etc. The distribution of videos, advertisements and an-
nouncements of new products on social platforms can be encouraged, as well as
the presentation of behind-the-scenes stories. Above all, personalized content is
expected to make the consumers interact and start buying from a social platform.
H9ab: Data protection

The influence of data protection on the intention to use M-Commerce is
very small, and affects Peruvian less than German mobile device users. As a
result, additional data protection methods like the ones in Germany are not
believed to be necessary in Peru.
H10ab: Transaction security

Transaction security is closely related to the intention to use M-Commerce
in the factor analysis and showed a high correlation. As presumed, transaction
security is even more important for Peruvians than for Germans, due to high
fraud rates. Therefore, as a first step, mentioning security standards as obvious
as possible will generate more trust in the specific online shop. As a second step,
it is crucial to use secure payment methods.
H11ab: Security precautions

It was found that the perception of a safe environment has an influence on
the intention to use M-Commerce. However, the nationality was not found as
statistically significant.
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6 CONCLUSION
Three major areas have been identified as most influencing for the usage
intention for M-Commerce in the German-Peruvian context: Sense of comfort,
involvement into E-business, and perception of safety. It was found, that by
implementing M-Commerce in a developing country such as Peru, other ele-
ments are meaningful to secure its success, in comparison to Germany.
First, the sense of comfort is generally more essential for Peruvians when
it comes to using M-Commerce. Convenience and a perceived ease of use, but
also social influences and consultative service play a more important part to
them than to German mobile device users. Second, social commerce contrarily
to traditional E-commerce, finds great acceptance, as personal contributes are
very popular among Peruvian mobile device users. Adaption to M-Commerce
in Peru will depend on the people’s trust in a specific mobile app or shop, its
image or recommendations by a user platform. Third, due to the insecure en-
vironment in Peru in contrast to Germany, people valuate highly transaction
security. All these aspects need to be taken into account by German firms that
want to make M-business in Peru; under these considerations, M-Commerce
will be successful.
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Appendix (Questionnaire)
Perceived Ease of Use
It is easy to use my mobile device to find information on products and services
It is easy to use my mobile device to process online banking
It is easy to use my mobile device to browse a search engine
It is easy to use my mobile device to download music
It is easy to use my mobile device to buy a product
Social Influence
It is a trend to use M-COMMERCE (such as mobile banking, purchase through mobile
devices, etc.)
Mass media, such as radio or TV, will influence my decision to use M-Commerce
Family members and friends influence me on using M-Commerce
Comments and “Likes” on facebook influence my opinion about a product or service
Convenience
Mobile banking is more convenient than traditional banking
Regarding its flexibility, I find that M-Commerce is more convenient than E-commerce
M-Commerce allows me to improve my work productivity
When processing orders via mobile devices, I am afraid that the internet connection will be
interrupted INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Adapting to M-Commerce applications helps to save time.

Appreciation of Consultative Service
I set a high value on the opinion of a sales consultant when buying
Cash Preference
I prefer cash payments in comparison to any other payment method
I trust in payment methods such as PayPal, bank collection, and credit card use
I would like to proceed with payment via my mobile device (e.g. per SMS, QR Code, per
App)
Intention to purchase online
Have you bought a product or service online before?
I am familiar with online transactions (online baking, online shopping, online services)?
Trust in online shops
I consider German online shops as trustworthy (e.g. otto.de, ebay, amazon.de)
371
I consider Peruvian online shops as trustworthy (e.g. mercadolibre, ofertop, descuentosperu)
Intention to use social commerce
I have a strong intention to purchase a product online if the product is recommended by my
social network friends (e.g. facebook)
I have ordered a product or service before through a social network site (e.g. facebook)
Data Protection
I often refuse to provide my personal information such as name or email address in order to
access information in which I am interested
I think using M-Commerce puts my privacy at risk
Transaction Security
Online transactions are secured
Payments made through M-Commerce are processed securely
Safe environment
My own or one of my friend’s mobile phone has been stolen before
Are you afraid to make a purchase via a mobile device due to the fact that it could be stolen?
Intention to use M-Commerce
Given that I had access to M-COMMERCE, I predict that I would use it
I like the idea of purchasing a product or service through my mobile device
372
THE FIRM WITHOUT
SUBORDINATIONS
Martin Vlcek
martin.vlcek@efunctionality.eu
Abstract
The firm is one of last totalitarian structures. On the other hand, the position of
an entrepreneur with its freedom and responsibility is the most productive one.
All known successful structures in the nature are by contrast established on
concurrence and relative freedom.
The presented paper devises on the basis of analogies a structure of a firm, what
will not be totalitarian and will respond to existing structures in the nature. At
the same time positions of employees are as close as possible to the position of
an entrepreneur.
Keywords: : firm, subordinations, entrepreneur, structure
JEL Classification: M5, M51
1. INTRODUCTION
The identification of existing structures started through a long-lasting study
on the level of macro-economy. By the help of a non-econometric model, the
controlling structures of the economy and of the whole society were successively
discovered. Termination of this work was made upon data from the New York
Stock Exchange. Thus it is possible to summarize that the proposed structure
into the firm corresponds to the relations among firms in USA.
2. CONTROL OF THE FIRM

.. New Quality
Today firm is not yet an object of a new quality, it is only a wrapped up
structure around the position of a director and his will and thus the unity of the
control is realized by a pyramid of totalitarian relations.
373
New quality originates only from the new structure of the control. It has
three new parts taking over their functions from the old management, what
persists in the firm but only with residual functions - coordination mainly.
All new controlling structures of a firm work with the satisfaction. The sat-
isfaction of employees solves the controlling part EM0. The satisfaction of the
firm as whole, its successfulness, but not only the profit – solves EM1. The
control of the old management ensures part ENE.
Besides the notion of satisfaction the notion of successfulness is also used.
The satisfaction concerns only one input, sometimes the notion of demand is
also used. The successfulness is a broader notion defined by a satisfaction of
all employees with one concrete employee, if they are consumers of one of his
outputs. Depending on circumstances this successfulness can be expressed as a
simple sum of all satisfactions or as an average over one consuming employee.
.. Followed up Quantities

The satisfaction of employees is detected depending on particular possibili-
ties in a firm. There is no one unique correct way, but the maximal fidelity is
important. Therefore more sources can be used together with the question-
naire as one of them. There are other more objective methods not burdening
an employee, but may be not so specific. In addition, they don’t respond to the
spirit of a new firm, where the maximum of freedom, the freedom of evalua-
tion and of the choice of inputs as a sequel is given to employees.
Martin Vlcek: THE FIRM WITHOUT SUBORDINATIONS
374
Fig. 1: Development of the Control of a Firm. The original management –
VED is transformed into TOT, what is controlling at time the input of goods
– ZBOD, the production – VÝR and the sale of goods – ZBOV. At the same
time it is deprived of part of competences and yet influenced by another control,
realised by ENE. EM0 evaluates the satisfaction of employees – SK0, EM1 the
satisfaction of the firm as whole – SK1. REK is a new position in the firm –
the advertisement and its goal is to intermediate information about activities of
employees throughout the firm.
.. Principles of the Control

The control goes on analogically in all controlling structures. Measured out
values of a followed up quantity are grouped into subsets, for example depend-
ing on the structure of the firm. The volatility and the average of subsets are
pursued. The intervention will occur on the basis of a subset with the highest
volatility and the highest average altogether. Weights of these two values, vola-
tility and average, change perhaps depending on the state of the firm. When the
value of one of them growths all over the firm, its weight will probably growth
together.
3. OLD MANAGEMENT
.. Old Management and the Coordination of the Work
The structure connected with the flow of energy, it means with the dynamics
of the firm, is a residue of the original totalitarian management. The engage-
ment of an employee into the productive process, this is its function. This is a
coordination of his activities with other employees, the control of intensity of
the work included. Hereafter it will be named as an old management, TOT. Its
architecture was submitted to substantial changes.
When a new employee wants to be engaged into the production, he must be-
come a consumer of a coordinative control from TOT. But for every employee
there is a possibility of the choice - there is a concurrence inside the TOT.
TOT has a special relation with the group of employees of the sale. It goes
not about the coordination but about the feedback there, describing how differ-
ent outputs – goods or services – are demanded.
375
.. Control of the Old Management
Beside TOT rises another structure called ENE, with a function of control-
ling TOT. ENE carries out the reconstruction of the structure of TOT and at
the same time, realizes the influence of other controlling structures.
.. Reconstruction of TOT

ENE stems from the knowledge of the structure of the firm and from the
satisfaction of consumers of services of TOT. For particular workrooms rise
subsets of successfulness (non-averaged out) and ENE makes the reconstruc-
tion on the basis of their volatility and average. The reconstruction consists in
establishing a new position with same relations beside the employee from TOT
with the highest successfulness, means a concurrence. After on TOT locates
into a new employee and the system expects an equalization of successfulness.
Besides the activity of employees from TOT with substantially lower suc-
cessfulness is weakened, until their positions are eventually totally cancelled.
.. Higher-level Influences over ENE

There are influences from the control connected with the satisfaction of
employees – EM0 and from the control connected with the satisfaction of the
firm as whole – EM1. Altogether, these influences are expressions of an equal-
ization of inputs. Through them, the intensity of the reconstruction and of the
activity of TOT itself is influenced.

Through these influences, the general philosophy of existence of an object
is realized. It means that the activity leading to a change is suppressed at a
state where relations with the environment become more stabilized and there-
fore the border smoother, and vice versa. EM1 traces the balance of relations
and the smoothness of the border of the firm, EM0 traces the balance of in-
puts of employees. Therefore it is necessary to realize their influence over ENE
and throughout over TOT.
.. Information and the Freedom of the Entrepreneurship

There rises a new department in the productive structure, what is devoted
to a certain advertisement into the firm. Its goal is to spread information con-
376
cerning activities of individual employees in a manner to be at disposal of oth-
er employees. This is a necessary supposition for the approach of their activity
to the activity of an entrepreneur, means to be maximally free on the basis of
information.
But the space for the freedom of the entrepreneurship of employees cannot
cross over certain limits and this is perhaps all concerning the activity of TOT,
it means the coordination of the work.
The main manifestation of the freedom of entrepreneurship of the em-
ployee is the possibility of influencing his working relations through their con-
stant evaluation, thus nearly by their purchase, and the freedom of a choice of
concurring inputs.
4. EM0
.. Principle of Activities
The task of EM0 – shortly „empathyzer 0“ – is to solve the reconstruction
of the firm in a manner to maximally equalize the satisfaction of employees
with their inputs and to get it on a highest level. At this activity, the satisfac-
tion can be understood as a demand for a particular input.
EM0 solves this task by establishing new positions near the most demand-
ed ones, and by offering the most demanded relations into other positions. It
means, throughout investments into new positions and new relations.
EM0 gets information about the satisfactions of all employees by the al- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
ready mentioned method of questionnaire. Besides this source, different values
obtained more objectively can be used, e.g. indicators of productivity, con-
sumption of energy etc.
.. Detection of Satisfaction

Information concerning satisfaction tells how an individual employee is sat-
isfied with particular working inputs, how they contribute to his overall work-
ing success. From the market point of view this contribution to the success is
possible to be understood as a demand of a concrete employee for individual
inputs – see fig. 2.
377
Fig. 2: The Basis for Satisfaction Monitoring. Working relations among em-
ployees – positions - are showed in a model structure – see graph. Every em-
ployee, in the frame of evaluation of satisfaction, fills in values for input rela-
tions. E.g. employee O2 will evaluate positions O4 and N1, himself is evaluated
by P1, P2 and O3. Every employee receives for evaluation 100 points. Sum of
evaluations is a value showed in the column sum and after a normalisation in
the column norm. This value represents the successfulness of every employee
in a given model structure. At the next evaluation – e.g. weekly – the employee
will receive for new 100 points or only the value received as result of the previ-
ous evaluation. Thus, the employee N2 would receive only 40 points, but the
employee N1 105 ones. For employees from P1 till P3 – these are outputs – a
technical calculation of successfulness is used, using their share on the profit of
the firm.
378
.. Investments into Positions and Relations
EM0 groups successfulness into particular subsets and searches critical
spots. These are subsets the most volatile and in the same time, with the highest
average value.
Then EM0 establishes a new position beside the highly demanded one and
the demand is thus weakened. In the same way, it reaches a weakening of the
demand by offering relations from a very demanded position to other positions
and thus forming presuppositions for new relations in the structure of the firm.
Here it is to note, that in the case of relations the normalised successfulness over
one relation is used.
Liquidation of positions with the lowest successfulness happens concur-
rently with the formation of new positions. The same holds for relations, too.
5. EM1
.. Shoppers and the Border
Specialised employees – later on named shoppers –influence supplies of
certain entities into the firm. It can concern the engagement of a position by
an appropriate employee – then the shopper is an employee of the personal de-
partment. It can concern the shopping of a material for the production, etc. The
majority of shoppers need for their work some financial resources, funds. The
personal department needs wages’-fund, the shopping department funds for the
provision of the production, etc. On the other side, they receive the feedback in
the form of information about the satisfaction of consumers.
As result of the activity of shoppers, there is a different concentration of
peoples, goods and services in the firm in comparison with the environment.
Shoppers thus form the border between the firm and the environment.
.. Satisfaction and Tension

Let two similar goods a supplied into the firm. But let the satisfaction with
them between two consumers or two groups of consumers is substantially dif-
ferent. Such a phenomenon is later on named as tension. It is a difference be-
tween similar inputs and dissimilar satisfaction, or demand. Throughout the
control of the border the task of EM1 is to remove such tensions.
379
At the same time, the total distribution of tensions over the border, its
smoothness, and the average satisfaction over the border define the satisfaction
or successfulness of the overall firm.
EM1 searches subsets with a high tension, it means with a volatile demand.
The subset in EM1 is defined as a group of shoppers of similar inputs. EM1
searches not only subsets with a high tension, but also with a high level of de-
mand and steps into the solution on their basis.
.. Investments and Distribution of Funds

The redistribution of funds through investments is an instrument of solu-
tion. Investments are directed to a position in the border, it means to a shopper,
where is a high demand and thus a new position is formed and also a concur-
rence for this shopper. The used part of the fund can be got from the spot with
a lower demand, conversely. Thanks to this redistribution of the fund the lower-
ing of the tension happens.
In general it is possible to say that the activity of EM1 is connected with the
distribution of funds for purpose of a lowering of the tension. It concerns the
wages’-fund, fund for shopping material inputs, etc. Finally, the redistribution
among funds is also on the principle of minimisation of the tension.
.. Investment as a Movement

EM1 by establishing another position of a shopper for a certain input makes

an elementary movement, a reconstruction of the border. It can be e.g. a forma-
tion of another input just in the area, where these inputs are of a better quality
or cheaper.
But what about the searching of a better quality or a better price, this is the
role of the shopper, not of EM1.
.. Wages
The task of HR is to ensure for every position an employee. They fulfil this
task by setting the level of the wage in a manner to be sufficiently attractive for
interested persons of the environment. When the amount of leaving persons is
the same as the amount of coming ones, the level of equilibrium happens.
380
Thus the basic, nominal wage is determined objectively, it means through the
comparison with the environment and on the basis of the tension on the border.
Besides this every wage has a part of a personal evaluation what is a function of
the successfulness of the employee in the firm. It is a result of a periodical evalu-
ation of satisfaction - see fig. 2 - and is perhaps already a task for EM0.
Fig. 3: Work of EM1. The satisfaction SK of employees in positions P.1 till P.x
is monitored through unequal values of different inputs V1 till Vx, and also
through unequal wages M. For every monitoring, a similar graph as is shown
at the right part for input Vy rises. Let for example input Vy for P.x is got from
a different shopper than P.2. There are near values but nevertheless there is a
high enough difference in the satisfaction, thus there is a tension. That is why
EM1 will form a new position “beside” P.x, it means a better input from the INTERDISCIPLINARY MANAGEMENT RESEARCH XI
environment and P.2 will be eventually canceled. The wage is solved by a similar
manner.
6. FOR CONCLUSION
.. Transfer to a New Quality
It is probable that the transfer of the firm to a new structure of organization
can be made gradually, without necessity of establishing quite a new firm. The
first step towards is a start of evaluation of satisfaction of employees.
The second step ought to be a partial transfer to the new principles of evalu-
ation of wages, namely of the personal part. Only a part of the wages’-fund can
381
be devoted to this new principle. After this step an evaluation of effectiveness
ought to happen. If the effectiveness of the firm is higher, the transformation
has to continue.
In other steps it is possible to gradually transfer to the control of parts of
other funds through EM1 and similarly for the EM0. After every step the ef-
fectiveness is evaluated and the transformation continues only in the case of an
amelioration of indices of the firm. The goal is not only the higher profit but a
profit sustainable, means an equally distributed profit among more consumers,
etc.
.. Profit
The new structure of the firm is not build only upon the satisfaction of em-
ployees and thus against the profit of the firm, as could be an impression. The
satisfaction has its beginning in the share on profit of employees of the sale, as
was mentioned in fig.2. The satisfaction, what is from another point of view a
demand for inputs, spreads over the structure of the firm. The role of the profit
is yet strengthened through the fact of a variation of point being to the disposal
of an employee for evaluation, depending on previous results. And this is its
successfulness in the firm, means the share on the created profit.
Because all interventions of EM0 and EM1 are oriented to the strengthen-
ing of satisfaction, they eventually strengthen the profit.
References
1. Vlcek, M.: Functioning of the Object, unpublished material, 2008
2. Vlcek, M.: Functioning of the Brain, in ISB2010 proceedings, Su Zhou, China, 2010
3. Vlcek, M.: Movers of the Economy - Model of Interactions, in Developments in Economic
Theory and Policy proceedings, Bilbao, Spain, 2010
4. Vlcek, M.: New Object Discovered through the Stock Market, in International Confer-
ence on Economics and Finance Research proceedings, Seoul, South Korea 2014
382
Financial
Economics
SOVEREIGN DEBT UNDER
SCRUTINY. WHAT TO DO?
Liviu-Daniel DECEANU1*, Ph.D.

Babeş-Bolyai University, Cluj-Napoca, Romania
liviu.deceanu@econ.ubbcluj.ro
Abstract
No one can deny that, nowadays, the different states of the world, developed
or developing ones, have reached record levels of indebtedness. In this context,
we can talk about a crisis or even some sovereign debt crises, and country risk
suffered important changes.
Many specialists have made and are making significant efforts in recent years,
trying to identify thresholds of indebtedness for the countries of the world, to
build reliable indicators of sovereign risk, in order to make possible a kind of
alert (so important in the current international context), or to show from what
level onwards public debt becomes toxic and affects growth.
Relative to the impact of sovereign debt, it is clear that we already find ourselves
in the field of uncertainty; of course, a high debt level is not synonymous with the
disappearance of sustainability. This may, in our opinion, be analyzed correctly
only on a case by case basis, taking into consideration the specificities of national
economies, their performance, and the quality of economic policy measures. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Therefore, can we achieve growth in the context of a significant debt? Default
risk can be controlled without resorting routinely to restructuring? What rel-
evant indicators of sovereign risk can be used by an investor or a bank? Here
are some interesting questions to which economists must answer.
Key words: sovereign debt, sovereign risk, default, economic growth, sustain-
ability, governance.
JEL Classification: F3 (F34), G01.
1
This work was co-financed from the European Social Fund through Sectoral Op-
erational Programme Human Resources Development 2007-2013, project number
POSDRU/159/1.5/S/134197 „Performance and excellence in doctoral and postdoctoral re-
search in Romanian economics science domain”.
385
1. SOVEREIGN DEBT  GENERAL ASPECTS
The current context, of excessive debt, often puts sovereign debt in a very
bad light. As a consequence, the concept is often considered to be extremely
negative. In our opinion, such a view is superficial and does not reflect reality.
Sovereign debt should exist, and its place and role are well established.
First of all, sovereign debt allows the funding of states, while a budgetary im-
balance is often recorded. Of course, it is essential in this context that the fund-
ing can provide economic growth, so that the debt repayment can be achieved
without major problems. Also, we emphasize here that the debt to GDP ratio
should remain stable over time, a fact unfortunately often contradicted by prac-
tice. The upward trend has been a very significant one; of course, sometimes this
evolution is fully justified, but many exceptions are recorded; as emphasized by
some authors (Landau; 2012, 214), it is normal for future generations to pay for
infrastructure or technology now requiring massive investment in research and
development, but it is at least incorrect for descendants to pay for the current
public consumption, for example.
Sovereign debt often takes the form of bonds issued by states. From this
point of view, we are dealing with assets, often very appreciated by investors.
Liviu-Daniel DECEANU : SOVEREIGN DEBT UNDER SCRUTINY. WHAT TO DO?
For many decades, these assets were considered as risk free. Currently, however,
sovereign risk can not be ignored, even if states maintain their ability to increase
taxation or to issue currency (the limits are increasingly apparent in this context
– for example, the situation of countries that are part of an economic and mon-
etary union). A function of sovereign debt associated to sovereign bonds is stor-
ing value – we can speak about a sovereign debt market, with often surprising
developments, with more or less liquid areas, depending on the characteristics
of states, their economic performance, or even rating.
States must always take into account the preferences of private actors in this
regard, the issues being related to public preferences for different maturities
(Turner; 2011, 74).
One thing appears to be obvious, however: the lack of financial assets with
high liquidity and low associated risk. And this, while the demand for such as-
sets is increasing. But, sovereign debt really represents a low risk asset, as seen
for a long time? And most importantly, how it will be in the future? Developed
countries are still characterized by a high solvency? What influence will have the
386
budgetary discipline, so necessary today, on sovereign bonds issues? Here are
some questions that will have to find clear answers in the near future.
2. SOVEREIGN DEBT  NEW MEANINGS AND

FACTS
Sovereign indebtedness and especially over indebtedness is certainly a scourge
of the modern world. The developed countries of the world have reached, from
this point of view, a level of sovereign debt to GDP of over 100%. Of course,
this relative expression has its limits, but seems to be the most heavily used by
analysts; by comparing sovereign debt to GDP, we compare it to the wealth created
within a State, wealth created by the state itself, but also by households and businesses
(Garello, Spassova; 2006, 3). This does not allow a perfect understanding of
governance quality, but better depicts the magnitude of the phenomenon.
For about seven years, the word crisis seems to have become very often used
in economic analysis and it actuality persists today. Undoubtedly, during all
these years we have witnessed not a single financial crisis, but a succession of cri-
ses following the direction financial crisis - economic crisis – sovereign debt crisis.
At the end of the first decade of the new millennium, the global financial
system crisis (especially the Western one) claimed a strong intervention from
the states. The reaction came, sooner or later, with more or less pro-cyclical ef-
fects. Among the measures that were taken, we can mention the support offered
to banks and to economic activity in general, in the context of the severe decline
in global demand. But policies that allow economic revival have also adverse INTERDISCIPLINARY MANAGEMENT RESEARCH XI
effects, such as recording significant budget deficits. From this point of view,
a trend has emerged in recent years – private indebtedness had a tendency to
stagnation, while the public debt has increased significantly.
Many authors argue that the developments of 2008-2009 represent the start
of the sovereign debt crisis; desiring to develop a little bit the subject, we think
that the onset of the financial crisis and its global manifestation favored the
development of the sovereign debt issues, but they are much older.
Moreover, sovereign risk was always present in the economy, being even one
of the oldest “components” of country risk. Country risk is often associated with
the political, sovereign, systemic, transfer or market risk.
387
The global financial and economic crisis has forced governments to react, to
adopt economic policies that stimulate economic growth and revival. On the
other hand, the governments went even further, taking over some risks from
the private area; an example is the transfer of risk from the banking sector. Un-
doubtedly, public finances had been degraded, public debt sustainability being
also seriously affected.
An interesting analysis of sovereign debt could be achieved not only by refer-
ence to GDP, but also to exports or state incomes. Of course, in such a logic...
we would assimilate the state to a private enterprise. The differences are how-
ever notable, one being that a state is sovereign and can tax its “subjects”.
The manner in which various investors began to perceive the state as a bor-
rower has changed dramatically in recent years. To this mutation has contrib-
uted significantly the attitude – sometimes pro-cyclical – of rating agencies,
which operated several degradation of sovereign ratings, having as an effect, ob-
viously, the explosion of interest rates levels required by investors.
As we pointed out above, we will not say, however, that the current sovereign
debt situation is a direct consequence of the global financial and economic crisis;
the public debt increase occurred almost constantly for more than five decades,
so the issue is not new at all. Of course, some explanations of the phenomenon
can be identified – the public sector development in recent decades, the state
maintaining an important role in the economy, the need for social policy, and
many others.
Several sources (Banque de France; 2012, 5) emphasize that the effects of
these phenomena have not been felt for some time, due to a still lower share of
the deficit / debt to GDP ratio. In other words, the indicators degradation oc-
curred in time, and was extremely difficult to identify for a while.
On the other hand, in the past, inflationary episodes could act as a coun-
terweight to the increase in size of debts, and real interest rates close to zero
or even negative were able to limit their development. But the last two decades
have brought a more rigorous inflation targeting and control, and, in the context
of weak economic growth, imbalances have emerged.
An overview of the performances of different states (EU and others) in re-
cent decades reveals that roughly governments have not obtained “profit” for a
long time; for example, in France, the “enterprise state” obtained a “profit” for the
388
last time in the early 1970s (Garello, Spassova; 2006, 6). Even in years when the
indicator sovereign debt / GDP declined in comparison to the previous year,
sovereign debt in absolute value continued to grow. In this context, many of the
commitments made in the traditional way by states, such as those in the field of
social protection, have become increasingly difficult to meet. In the early 2000s,
during the period preceding the crisis, some countries have managed to reduce
sovereign debt to GDP (for instance Spain, which also managed to achieve an
economic growth above the EU average), but in general the indicator exceeded
60% for most economies.
It is clear, therefore, that on the eve of the global financial crisis the differ-
ent countries of the world were largely indebted, the problem being one of a
structural nature, and the various commitments (Stability and Growth Pact
in the EU, the Maastricht Treaty, and others) had lost the initially established
significance.
In 2008, developed countries recorded a relatively high public debt – the
Euro area average was around 65-70% of GDP (Greece already exceeded 100%
of GDP, France was over 60% since 2003, Italy also exceeded 100%,) Japan was
situated around 170% of GDP and the US exceeded 60%.
Figure 1 – Sovereign debt evolution before the economic and financial crisis (%
of GDP) – selected states
Sovereign Debt - % of GDP
140
Canada
120 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Germany
100 Finland
France
80 Italy
60 Greece
Spain
40 US
UK
20
OECD average
0
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
19
19
19
19
19
19
19
19
20
20
20
20
20
20
20
20
Source : Author’s calculations, using data from IMF, World Economic Outlook, 2012, and
World Bank.
389
The period that preceded the global financial and economic crisis can thus
be characterized as one of increased indebtedness, or even over-indebtedness.
After 2008, however, governments were placed in an even more difficult situa-
tion. The collapse of private indebtedness and demand led to a significant deg-
radation of budget balances; already indebted, with uncertain growth prospects,
many countries have become, as emphasized several authors (Brender, Pisani,
Gagna; 2013, 3), unable to maintain a significant budget deficit without endan-
ger the solvency.
The collapse of private agents appetite for debt was proportional to the
propensity towards it before the crisis; in the EU, for example, it was significant
in Ireland and less evident in Germany. Lending was quasi-stopped, private sav-
ing exploded and deflationary effects became imminent.
Of course, avoiding borrowing in such a situation would have been harmful
to the stimulation of economic activity; therefore, governments have borrowed
even more, at least for a while. From this perspective, it becomes increasingly
important to discuss about the sovereign debt sustainability. The visions of gov-
ernments were slightly different in recent years – European officials have explic-
itly fixed as a target the return to budget balance, while the United States stayed
focused on growth; Japan took a similar approach, and the country continues to
have a huge public debt. However, since private savings surplus partially absorbs
this debt, and the Japanese economy remains extremely strong, the asian state
continues to benefit from relatively low interest rate loans.
For Europeans the situation is delicate, primarily due to the special architec-
ture of the European Union – we are not dealing with a state or a federation,
but with Member States that are sovereign and independent, but nevertheless
transferring significant powers from the national to the supranational level. So,
the problems of a member state (Greece, for example, although it is not the only
European country in a delicate situation) seriously put in discussion the oppor-
tunity of solidarity (especially financial one) between union member states. In
the same time, spillover effects have been there, and the sovereign debt crisis is a
European one, first of all; the PIIGS episode can also be evoked here.
Some voices repeatedly highlighted the idea of a Euro currency crisis; how-
ever, we believe that it is not a crisis of the Euro currency, but one generated
by the behavior of national governments. The European currency has proved
– during its existence – to be viable, well received by the international markets,
390
a stable currency, widely used internationally – in other words, all of the attri-
butes of a successful currency.
After 2008, supporting demand involved extensive budgetary measures, in
most countries of the world, as we outlined above. Even so, the recession could
not be avoided, and the 2007 activity level was reached only in 2012.
These measures, however, significantly affected the budget deficits; we can
talk here about the side effects of the economic recovery plans, the increased
public spending (for social purposes, for example), the significant reduction of
fiscal revenues, the lower gross domestic product.
Undoubtedly, the economic recovery measures taken have had considerable
effects, and succeeded in part to eliminate, at least in the short term, the nega-
tive effects of the crisis. In the medium and long term, consequences are how-
ever difficult to predict. Some analysts talk about some contradictory effects
(Banque de France; 2012, 12), for example in the case of households. If in a
crisis situation households face a shortness of credit, and therefore are unable to
modulate their consumption over time, they will tend to immediately consume
the additional revenues provided by the budgetary relaunch, thereby enhancing
their efficiency; at the same time, however, if a future tax increase is expected,
in order to finance deficits, households will save a substantial part of the addi-
tional revenue generated by the relaunching policy, reducing the magnitude of
the expected effects.
Another set of government interventions made in recent years aimed to as-
sist the banking sector, through state guarantees, capital injections, and other
actions.
All these developments have marked significant changes of sovereign risk
indicators, which we will summarize in the table below. For OECD countries,
the public debt problem turns out to be extremely serious; after the crisis, the
true extent of the developed countries indebtedness was highlighted by a drastic
decrease in budget revenues.
For some countries, this will be extremely difficult to manage politically and
socially, as it requires important decisions concerning the reallocation of na-
tional income, subject already delicate due to the effects of the crisis; and, as we
all know, the political element is strongly influenced by social reactions.
391
Figure 2 – Sovereign Debt evolution after the Crisis, selected states (percentage
of GDP)
Government Debt to GDP (% )
250.0
Canada
Germany
200.0 Finland
France
Italy
150.0
Greece
Portugal
Ireland
100.0
Japan
Spain
50.0 US
UK
OECD average
0.0
2008 2009 2010 2011 2012 2013 2014
Source: Author’s calculations, using data from BNP Paribas, World Bank, www.tradingeco-
nomics.com.
Table 1 – Governmental Debt evolution, selected states (% of GDP)

Country/year 2008 2009 2010 2011 2012 2013 2014
Canada 43.0 51.3 51.5 52.5 53.5 51.9 52.3
Germany 41.0 46.0 53.7 53.3 69.0 77.0 76.0
Finland 31.9 41.2 47.0 45.9 51.0 53.2 59.0
France 70.9 82.6 86.4 90.6 100.1 99.0 93.6
Italy 103.4 117.1 115.9 108.9 126.2 128.5 132.1
Greece 116.8 133.2 127.0 108.7 163.5 161.0 174.0
Portugal 75.9 87.9 91.4 90.2 122.8 124.1 129.0
Ireland 46.8 67.0 83.7 97.8 120.5 121.7 123.3
Japan 153.0 166.8 174.7 189.5 196.0 218.8 227.0
Spain 33.5 45.5 47.1 54.6 66.0 82.4 92.1
US 64.0 76.3 85.5 90.2 94.3 96.2 101.5
UK 54.3 68.6 81.2 94.6 97.2 97.5 98.2
OECD average 39.4 44.1 52.6 58.2 67.9 69.0 71.3
Source: Author’s calculations, using data from BNP Paribas, World Bank, www.tradingeco-
nomics.com.
392
3. SOME ASPECTS CONCERNING SOVEREIGN
DEBT SUSTAINABILITY
The evolution of sovereign debt is obvious, its increase during last years is
significant, both for developed and developing countries. Of course, the sover-
eign debt has evolved differently from country to country, from region to region,
but the remark can be considered as a general one. Anyway, it is not the debt
itself that we consider the most concerning, but rather debt sustainability.
We can also notice that the developed countries took advantage of the low
interest rates available for them, and this practice contributed to the accumula-
tion of debt. Of course, we will not say here that indebtedness is synonymous
with a total lack of government responsibility, but we believe that economic
theory recommending state intervention in order to stimulate growth was not
the only one behind these decisions. Several authors even talk about a political,
electoral connotation of indebtedness (Garello, Spassova; 2011, 25).
Analysts talk more and more about the bankruptcy of a state nowadays,
although technically this is relatively unlikely, given the sovereign status of
the debtor. What really interests us is the risk of default; is debt sustainable
or not, and will it be followed by default – or, in some cases, restructuring or
moratorium.
As stressed by many economists, such as Jean-Pierre Landau (Landau; 2012,
16), most often the economic literature is search for a categorical answer to the
question of sustainability – the debt is sustainable or not. In practice things are
much more complicated, and even influenced by political factors – the states INTERDISCIPLINARY MANAGEMENT RESEARCH XI
attitude towards markets (governments are “market friendly” or not / the “will-
ingness to pay” matter).
Often, debt indicators (most notably the total external debt / GDP) are
used to determine thresholds of indebtedness, thresholds above which default
becomes imminent. This practice is extremely useful, and we made such exer-
cises in other works, but we would like to point out here the limits of such an
analysis. World states behave very differently, and a given level of debt can be
perfectly sustainable in one state, and totally unsustainable in another. Econom-
ic history has recorded situations where states having a level of the sovereign
debt / GDP ratio of 200% continued to repay their debt, while others went into
default at 40-50% or even less.
393
Also, the he sovereign debtor myth must be regarded with skepticism – dur-
ing the 1998 Russian crisis, for example, private companies continued to repay,
while the state has refused to do it at a certain point.
Relative to the sustainability of sovereign debt, we can make several remarks:
• The point from which debt becomes unsustainable varies from borrower
to borrower;
• Sovereign debt sustainability is overwhelmingly influenced by the eco-
nomic policies; we can give some examples in this context – a state that
encourages exports and international trade in general will increase its
chances to repay smoothly, especially if indebted in foreign currency; also,
policies concerning the control public finances, in order to eliminate bud-
getary drifts and a clear expression of the desire for debt repayment will
positively influence credibility and sovereign rating;
• Growth prospects are essential when talking about sustainability – a state
with significant economic growth has all the prerequisites for a refund
without problems, but at the same time, indebtedness may affect growth,
as evidenced by several recent studies that converge towards stating that
the negative effects on economic growth increase when the sovereign debt
is approaching 100% of GDP (Reinhart, Rogoff; 2010, 23); as shown
in the table and graphs below, heavily indebted states and those that are
generally recording lower rates of growth:
394
Table 2 – Economic growth rate and Debt/GDP ratio (selected countries)
2014 Debt/GDP (%) Economic growth rate (%)
Canada 52.3 1.6
Germany 76.0 0.5
Finland 59.0 0.3
France 93.6 0.3
Italy 132.1 0.1
Romania 38.4 3.5
Greece 174.0 -3.8
China 22.4 7.4
Portugal 129.0 -1.8
Ireland 123.3 0.6
Japan 227.0 2.0
Spain 92.1 -1.3
US 101.5 1.6
UK 98.2 1.8
Singapore 105.5 4.1
UAE 16.7 4.0
Lithuania 39.4 3.4
Australia 28.6 2.5
Switzerland 35.4 2.0
Turkey 34.8 3.8
OECD average 71.3 0.8
Source: Author’s calculations, using data from Eurostat, World Bank, www.tradingeconom-
ics.com.
395
Figure 3 – Debt/GDP (%) (Selected countries)
Canada
250.0
Germany
Finland
France
200.0 Italy
Romania
Greece
China
150.0 Portugal
Ireland
Japan
Spain
100.0
US
UK
Singapore
50.0 UAE
Lithuania
Australia
Sw itzerland
0.0 Turkey
Debt/GDP (%)
OECD average
ics.com.
Figure 4 – Sovereign Debt and GDP Growth (2014), selected countries
Sovereign Debt and GDP Growth (2014)
8.0
6.0
4.0
GDP Growth (%)
2.0
0.0
0.0 50.0 100.0 150.0 200.0 250.0
-2.0
-4.0
-6.0
Debt/GDP (%)
ics.com.
396
• Debt sustainability is strongly influenced by the activity of rating agencies,
and the functioning of financial markets; in this context, we should high-
light the problems related to the pro-cyclical effects of rating, or to the
inefficiency of markets. If, for a relatively long period of time, fragilities
could not be identified, the reaction during the crisis was, in our opinion,
oversized, increasing eventually sovereign risk; the pro-cyclical influence
of evaluations caused partially the spectacular rise in the cost of funding
for states with difficulties, but also the emergence and maintenance of a
climate of mistrust regarding the solvency of these states.
4. CONCLUDING REMARKS, IDEAS FOR A

BETTER GOVERNANCE IN THE CONTEXT OF
SOVEREIGN OVER INDEBTEDNESS
The statistical data clearly show that the sovereign debt has now become
a real problem, given that it reached a record level for many countries of the
world. Much of it is owned by non-residents, and many countries are forced to
borrow in foreign currency.
• Also, in many cases, governments borrow only to repay old debts, and sus-
tainability, as well as the impact on future economic growth, are subject
to uncertainty.
• Surprisingly, the excess of debt seems to affect more developed countries.
Governance is, in this context – today more than ever – put under scru-
tiny. Sovereign debt sustainability depends largely on economic policies INTERDISCIPLINARY MANAGEMENT RESEARCH XI
and measures taken by the authorities. Of course, there are a number of
external factors, but their influence is not overwhelming.
• Regarding the outlook for sovereign debt, we will make the following
remarks, not without leaving room for further studies and developments:
• The will of authorities to repay must be well outlined, in order to restore
confidence;
• The purchase of securities by central banks (see the case of the ECB)
should not take away them from the traditional objectives; of course, such
practices are sometimes welcome, counteracting the liquidity crises, defla-
tion, or carrying out the monetization ensuring the solvency of the sovereign
issuer (Landau; 2012, 219);
397
• Ensuring economic growth on different channels, as well as the intensifi-
cation of international trade and exports in particular can have positive ef-
fects on the sustainability; recording some outstanding economic results
helps maintaining sustainability even in a context of massive debt;
• The use of ratings should be done with care, in order to avoid misinter-
pretations; the subjectivity, the conflict of interests or even the error can
be associated with the activity of rating agencies, despite their notoriety;
• The sovereignty of states still allows fighting liquidity crises through “in-
jections” of “fresh” money (although more and more countries lost this
lever, for example European countries that are part of economic and
monetary union – but they retain full sovereignty in matters of taxation);
however, the effects on inflation can be dangerous, and such practices
are not recommended; but what is clear is that monetary union member
states are more exposed to sovereign risk than others – a good example is
represented by the states on the periphery of the Eurozone;
• The need for a better control of public spending, which has exploded in
recent years, exceeding for many countries the growth rate of GDP; as we
have seen in recent years, the cost of financing sovereign debt is rapidly
increased by the degradation of the state public finances;

• Orienting a more significant fraction of debt towards investment, given that
very often states are borrowing in order to ensure current expenses or to
repay older debts; it is also obvious the need to increase public investment
profitability, and, why not, to question the role of the state in the economy.
What interests us particularly when addressing the issue of public debt sus-
tainability is its current level, but also the relationship between the interest rate
(and debt service in general) and growth prospects (growth rate of real GDP),
and the state tax income compared with the public expenditure.
We believe that the sustainability of sovereign debt is a concept that should
be viewed dynamically; what matters first is the ability of governments to en-
sure the future debt service. Quantifying this capacity is always a challenge be-
cause future state revenues and spending can not be predicted accurately.
When we intend to identify the level from which debt becomes toxic, dangerous,
we can be very creative, setting alert thresholds or introducing more or less complex
indicators (from the classic public debt / GDP ratio or Government debt / exports,
to the more elaborate indicators, aiming for instance institutional quality).
398
As highlighted in some recent books (Brender, Pisani, Gagna; 2013), studies
(Minea, Parent; 2012) and papers (Reinhart, Rogoff; 2010), the level of debt
from which onwards there is an imminent danger of default is difficult to iden-
tify and, on the other hand, impossible to generalize. More suitable is to set
thresholds above which sovereign debt implies adverse consequences of eco-
nomic life; from this point of view, most of the papers identify an alert threshold
around 90-95% of GDP. Above this value, growth seems to be difficult, if not
impossible, to achieve.
The current situation, the sovereign debt crisis, is not a disaster in itself.
Rather, it is a warning, a lesson to be learned and well understood, than can
definitely serve to improve governance.
References
Banque de France (2012). La crise de la dette souveraine, Documents et débats, may.
Brender, A., Pisani, F. & Gagna, E. (2013). La crise des dettes souveraines, Editions La Dé-
couverte, ISBN: 978-2-7071-7764-3, Paris.
Garello, P. & Spassova, V. (2006). L’endettement de l’Etat : stratégie de croissance ou myopie
insouciante ?, IREF : Studies on Debt and Growth, nr. 6, april.
Garello, P. & Spassova, V. (2011). La crise de la dette souveraine française, IREF : Studies on
Debt and Growth, nr. 26, october.
Landau, J.P. (2012). Quelle politique pour la dette souveraine ?, Banque de France (Dette
publique, politique monétaire et stabilité financière), Revue de la stabilité financière, nr. 16,
april.
Minea, A. & Parent, A. (2012). Is High Public Debt Always Harmful to Economic Growth ?
Reinhart and Rogoff and some complex nonlinearities, CERDI Clermont-Ferrand, Etudes
et documents, February. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Reinhart, C. & Rogoff, K. (2009). This time is different. Eight Centuries of Financial Folly,
Princeton Universitu Press, ISBN: 978-0-691-14216-6, Princeton, New Jersey.
Reinhart, C. & Rogoff, K. (2010). Growth in a Time of Debt, NBER Working Paper 15639,
Cambridge, January.
Turner, P. (2011). Fiscal dominance and the long term interest rate, Financial Market
Groups, Special Paper series 199, may.
399
RESTRUCTURING OF SMALL
BUSINESSES IN THE REPUBLIC OF
CROATIA DURING CRISIS
mr.sc. Melita CITA

Melita Cita • Milan Stanić • Berislav Bolfek: RESTRUCTURING OF SMALL BUSINESSES IN THE REPUBLIC OF CROATIA DURING CRISIS
University of Applied Sciences of VERN,

Zagreb
Milan STANIĆ, univ.spec.oec.

University of Applied Sciences of Slavonski Brod,
Slavonski Brod
Berislav BOLFEK, Ph.D.

University of Zadar,
Zadar
Abstract
Doing business in a modern environment exposes small companies to numer-
ous risks. Due to changes in economy, which are primarily dictated by the
global crisis, companies must adapt to changeable market conditions to con-
tinue their business operations. Therefore, their market survival depends on
the timely conduct of certain activities by the company management, resulting
in operational savings and ensuring their competitive advantage. This requires
changes in the business strategy as well as the market, organisational and fi-
nancial structure of these companies.
The paper will show an in-depth analysis of the market position taken up by
small businesses using three practical examples, and indicating the pros and
cons of restructuring which does not necessarily result in a desired effect.
Keywords: restructuring, small businesses, financial indicators
JEL Classification: F3 (F34), G01.
400
1 INTRODUCTION
Small businesses are a very dynamic part of the Croatian economy. They
are more flexible and innovative than bigger companies and play an important
role in the employment process. Fast changes occurring in the market, competi-
tion pressure and the recession force company management structures to adapt
to newly emerged market conditions. A company faces a decreased operating
volume, reduced liquidity, increased operating costs and employee surplus. It
is important to conduct certain activities on time so as to retain a company’s
competitiveness. Company restructuring is a strategic decision made by the
management, which leads to a change in the company’s strategic management
and operating policies.
This paper aims at exploring the restructuring process of small companies in
the Republic of Croatia during the crisis. The research methodology is based on
benchmarking financial data of observed companies in a three year period. The
paper starts with the introduction of the said issue, and continues with a theo-
retical part listing characteristics of small companies in the Republic of Croatia,
the restructuring process and types as well as various small company restruc-
turing models. This is followed by the analysis of small company restructurings
based on practical examples and ends with the final conclusion.
2 CHARACTERISTICS OF SMALL COMPANIES IN

THE REPUBLIC OF CROATIA
According to the Financial Agency (FINA) data on company operations INTERDISCIPLINARY MANAGEMENT RESEARCH XI
– corporate taxpayers, (http://rgfi.fina.hr), the number of operating busi-

nesses which submitted their 2013 annual financial statements in Croatia was
101,191, of which 99,573 or 98.4% were small and 1,618 or 1.6% middle-sized
and large enterprises.
In the period between the start of the crisis in 2009 until 2013, the share
of small businesses in a total number of the employed increased from 47.5% to
49.8%, accompanied by the increase of their share in pre-tax profit from 41.9%
to 43.9%. This rise in the number of small businesses might be explained in
light of the crisis during which many employees lost their jobs and subsequently
rather tried to launch their own business than look for work with some other
employer.
401
Pursuant to the Accountancy Act, small entrepreneurs are defined as those
who comply with two out of the following three conditions: total assets and an-
nual income not exceeding HRK 32.5 million and HRK 65 million, respectively,
and an average number of the employed during the year limited to 50. Medium-
sized businesses are those which numbers exceed two out of the previous three
conditions, but comply with two out of the following three: assets and total an-
nual income not exceeding HRK 130 million and HRK 260 million, respec-
tively, and an average number of the employed during the year limited to 250.
3 RESTRUCTURING
Restructuring is a process of implementing large changes in the organiza-
tional structure, which often includes streamlining management tiers and the
change of organizational components by transferring and outsourcing some
activities or functions as well as frequent employee downsizing. An integral
and essential part of the process is reducing the company depth and width
also known as downsizing. (Bahtijarević Šiber F.&Sikavica P. 2001, 498-499).
Worldwide companies opt for restructuring, primarily to improve their weak
financial results in time of the crisis, which might jeopardize its very operations
and lead the company into bankruptcy. Another reason for choosing restructur-
ing is a new business opportunity which requires the unbundling of business
parts or merging with other enterprises.
.. Types of restructuring

On principle, there are two types of restructuring in practice: defensive
and strategic. Defensive restructuring includes two activities: reducing the
number of employees and financial rehabilitation. This approach is conducted
when business operations are bad, it is done quickly, the restructuring process
is shorter and positive effects are maily short-term. Strategic restructuring is
more complex and based on the two activity groups: activities connected with
human resource management and activities connected with investments into
assets, knowledge, products and services, development of new markets. This ap-
proach is conducted in times of a company’s good operating result, accompanied
by indepth due dilligence, a longer restructuring process and positive long-term
effects, not immediately visible.
402
.. Restructuring phases
There are various restructuring phases which can, in general terms, be sum-
marized into three basic ones: financial, operational-organizational and strate-
gic restructuring. All of these should be preceded by a ‘zero phase’ i.e. an evalu-
ation phase which represents a foundation for a quality implementation of the
restructuring process (Benaković, 2012).
Financial restructuring includes the restructuring of the company’s balance
sheet i.e. the change in the structure of company’s assets and liabilities. The ba-
sic goal of such restructuring is to increase company liquidity.
Operational-organizational restructuring or business restructuring includes
changes in the company organization and management as well as operational
restructuring based on marketing, production process, technology, cost, man-
agement system and staff restructuring. Its basic goal is to improve profitability,
reduce costs and increase company liquidity.
The goal of strategic restructuring is to maintain long-term operating sus-
tainability. It includes range reduction, identification of additional profit areas,
innovative design for emerging markets, focusing on the most profitable value
chain elements along with unbundling non-core business activities and intro-
ducing new business models (Benaković, 2012, 114).
To carry out quality restructuring, small company management must pos-
sess certain knowledge and management skills. It has to develop a restructur-
ing plan including the analysis of company operations and the restructuring
programme. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
The operating analysis includes the legal status, financial statements (for the
previous three years), production programme, facility and equipment character-
istics, operational environmental impact, organizational structure, employment
(the employee structure), funding, state aid, market analysis (for the previous
three years), and the SWOT analysis before the restructuring.
The restructuring programme includes the restructuring period and the
2-year plan following the restructuring completion. It consists of the product
range sales plan, raw material procurement plan (products, the plan of produc-
tion and sales capacities, environmental protection programme, ownership and
organizational structure restructuring programme, planned number and struc-
ture of the employed, financial plans for the restructuring period as well as for
403
the two-year period after the completion of the said process, state aid, SWOT
analysis after the restructuring (estimate) and the restructuring phased plan.
(http:// www.mppr.hr/UserDocslmages/Prilog )
Results stemming from small business restructurings to-date have shown
that the small business restructuring is conducted without a plan i.e. with no
formal restructuring plans (http://europski- fondovi.eu/vijesti/).
.. Restructuring models

The restructuring of a company can be conducted by means of an outsourc-
ing, downsizing, company liquidation, merger or acquisition as well as internal
or in-house restructuring.
Outsourcing i.e. separating non-core activities as a restructuring model is
a process of transferring activities which had been carried out in-house onto
external partners, which will be entrusted to their conduct instead of the par-
ent company (Galetić, L., 2011, 287). The decision on the activities which will
be separated depends on the organizational strategic decision. A good business
model is such which focuses on the organizational key processes i.e. on those
which are most profitable and which represent the company’s core operation.
There are two outsourcing types: the one which separates core value chain
activities and the other which separates supporting ones (Galetić, L., 2011,
288). The most frequent examples of the first outsourcing type include the pro-
curement, production and distribution chains, while the second type mostly in-
cludes research and development, business maintenance, legal affairs and others.
A question as to the reason why companies opt for outsourcing might be put
forward. The implementation of outsourcing may improve business operations
in terms of employees, reduce costs and enhance organizational financial and
market aspects of its operation.
Downsizing often has various interpretations including enhanced productiv-
ity, reduced costs, restructuring, business process reengineering. It has been one
of the most popular measures in the last two decades. It is not limited only to
reducing the number of employees, despite it being its most frequent effect. For
some, it represents the loss of work, for others a company survival. As costs are
more easily planned than income, the focus on its decrease is the prevailing basis
for efficiency increase. Reactive and proactive downsizing represent two various
404
options in terms of employee reduction. Reactive downsizing is carried out as a
response to already implemented changes in terms of losing a market share and
weak business results while proactive downsizing occurs as soon as a first sign
of change emerges on the market resulting in the management passing decisions
for enhancing operations aimed at forestalling competition.
For achieving a successful downsizing process, it must be planned way in
advance, during and after its implementation and it must be an integral part of
the strategic business plan of all companies regardless whether they consider
its implementation or not. If necessary, company management will be prepared
to start dismissing employees. It must be emphasized that the initial phase re-
quires large direct costs, which must be planned, such as severances or incentive
programmes that should stimulate an employee to leave the company volun-
tarily. A disadvantage of such a programme is losing employees with key knowl-
edge, abilities and skills necessary for company development.
Company liquidiation means the termination of company operations. It
can be orderly as a result of the non-fulfillment of prescibed conditions for the
performance of a business activity or forced (bankruptcy). Forced liquidation
includes a court procedure over the assets of a debtor that is no longer in a pos-
sition to settle its obligations towards its creditors.
The Republic of Croatia has started paying large attention to the establish-
ment of new companies by means of the simpliest way possible (simple limited
liability companies), while on the other hand, there is a very expensive model
of voluntary market exit. The fastest procedure of voluntary liquidation exclud-
ing any disputes with creditors is 12-18 months long and incurs large costs. A INTERDISCIPLINARY MANAGEMENT RESEARCH XI
cheaper and faster process of a simple liquidation must be introduced for cases
not burdened by any owner – creditor disputes.
Internal restructuring includes those activities which facilitate company’s
successful competition based on company’s internal adjustability to its environ-
ment. The restructuring area is set on the basis of four underlying factors: en-
vironment, strategy, technology and company size. Restructuring might resolve
the crisis occuring in-house or externally. Internal or in-house restructuring
can be divided into physical, human resouce-related, IT and financial (Miletić,
2010, 59). Financial restructuring includes the optimal use of fixed assets nec-
essary for conducting business operations, while the restructuring of human
resources includes HR management. IT restructuring includes the optimal use
405
of information regarding in-house as well as external changes, while account-
ing restructuring represents an in-depth analysis of financial statements i.e. a
division of necessary and unnecessary company assets or income and expenses
which may ensure its market survival.
4 EXAMPLES OF SMALL BUSINESS

RESTRUCTURINGS
Restructuring models of three operating companies have been analysed in
this chapter. Documentation used herein is available on the Financial Agency
website (http://rgfi.fina.hr).
TROHA-DIL d.o.o. has been registered for the production of plastic prod-
ucts used in construction. The crisis which hit the construction sector affected
the operating results of this company as well. In the period between 2011-2013,
its operating income decreased by 21.4%, operating expenses by 22.9%, and the
number of employees by 20. A lower number of employees in 2013 resulted in
reduced staff costs by HRK 1.85 million compared to 2012, which, along with
a decrease of material cost of HRK 6.11 million, led to increased profit before
taxes. The 2013 current ratio was 1.6 compared to 0.85 in 2011. It should not
be lower than 2, although the minimal current ratio of 1.5 is seen in some cases
(Žager i Žager, 1999). The quick ratio also improved in 2013 to 1.6 compared
to 0.10 in 2011.
The management conducted financial restructuring and decreased material
and staff cost, in particular. As the staff cost decrease was conducted according
to the reactive downsizing model, it enabled the company the achievement of its
operating savings.
METALIND d.o.o. has been registered for the production and assembly
of fire doors and metal constructions. Its business results were affected by the
construction sector crisis as well. The 2011 income of HRK 76.5 million de-
creased to HRK 65.9 million in 2013. The 2011 expenses of HRK 57 million
decreased to HRK 52.6 million in 2013. The number of employees was re-
duced from 125 to 121. In view of its small number of customers and suppliers,
this company was facing another large risk in this operating segment. In line
with the decision to sell made by the company management i.e. its owner, in
406
2011 it was acquired by the new owner Assa Abloy East Europe AB with its
head office in Sweden.
This company was merged with the parent company and continued doing
business recording bad performance indicators. The current and quick ratios
decreased from 2.64 to 1.65 and 2.15 to 1.42, respectively, while the debt ratio
increased from 38.7% to 42%.
RIBA d.d. is a company engaged in fish and juvenile production and farm-
ing. Under the Commercial Court Decision, the company pre-bankruptcy set-
tlement was granted in 2013 (http://predstečajnenagodbe.fina.hr). In 2012,
the company had 26 employees, the number it retained in 2013.
Actually,whole plan goes around measures of operative restructuring and
calculation of their effects on positive business, which should lead to revitaliza-
tion of solvency. This measures should be sort of turnaround in business; while
old way of business have brought company into problems.
The 2012 income from sale of HRK 3.3 million decreased to HRK 2.49
million in 2013. Other operating income in 2013 included income from writing
a debt portion off under the pre-bankruptcy settlement i.e. the loan of HRK
1.23 million, and state and trade liabilities of HRK 348,000. The 2012 operat-
ing expenses amounted to HRK 16.76 million, compared to HRK 3.88 million
in 2013.
In line with the Operating and Financial Restructuring Plan, short-term li-
abilities of HRK 1.22 million out of total HRK 2.93 m liabilities were written
off. Liabilities to banks of 543,000 were converted into equity. In 2013, the INTERDISCIPLINARY MANAGEMENT RESEARCH XI
company recorded profit of 18,000 compared to the 2012 loss of HRK 12.9
million.
5 CONCLUSION
Small businesses differ from medium-sized and large ones by their mar-
ket presence and specific characteristics required for conducting such business
operations. Nevertheless, they have also been affected by the global economic
crisis and experienced problems with product placement and the collection of
receivables. Strategic restructuring of a company represents an important part
of the restructuring process, which is often neglected by small companies as
shown by concrete practical examples. This is caused by insufficient manage-
407
ment experience of a company owner and insufficient decisiveness for carrying
out radical operating changes. The first company example showed that the man-
agement had carried out financial restructuring and reduced costs. A staff cost
decrease was carried out under the reactive downsizing model, which provided
the company with its operating savings.
The crisis in the construction sector affected business results of the com-
pany, which restructuring model was described as example 2. Having changed
its owners and management, this company became a part of a new parent com-
pany. As such, it continued its operations recording weaker operating results.
The company management, described as example three, accepted the pre-bank-
ruptcy settlement as its restructuring model. According to the operational and
financial restructuring plan, 40% of the company’s short-term liabilities as well
as its liabilities towards banks of HRK 543,000 were written off. Following its
2012 losses of HRK 12.9 million, the company recorded profit of HRK 18,000
in 2013.
The basic shortcoming of small company management is its conduct of sole-
ly financial restructuring, followed by changes of its business organization with
no detailed restructuring and indepth change.
References
Bahtijarević Šiber, F.&Sikavica, P. Leksikon menadžmenta, Masmedia, Zagreb,2001.
Benaković, I. Plan restrukturiranja kao dio obvezne dokumentacije u postupku prestečajne
nagodbe, Računovodstvo i financije-časopis 12, 2012. str.113-117.
Galetić, L., Organizacija velikih poduzeća. Sinergija, Zagreb.2011.
Miletić, Ž. Restrukturiranje poduzeća u hrvatskom gospodarstvu s posebnim osvrtom na
hotelska poduzeća, Magistarski rad, Ekonomski fakultet Split.2010.
Zakon o financijskom poslovanju i predstečajnoj nagodbi, Narodne novine br. 108/12,
144/12, 81/13, 112/13.
Zakon o računovodstvu, Narodne novine br. 109/07, 54/13
Žager, K. et. Al. Analiza financijskih izvještaja. Masmedia., Zagreb.1999 http://europski-
fondovi.eu/vijesti/restrukturiranje-malih i srednjih europskih podze (pristup 2.2.2015)
http:// www.mppr.hr/UserDocslmages/Prilog (pristup 3.3.2015.)
http://predstecajnenagodbe.fina.hr (pristup 2.2.2015.)
http://rgfi.fina.hr/JavnaObjava-web/pSubjektTraži.do,(pristup 10.2.2015.)
408
THE ANALYSIS OF THE FINANCIAL
POSSIBILITIES ON THE LIFE
INSURANCE MARKET AFTER
ECONOMIC CRISIS  CASE OF
REPUBLIC OF CROATIA
Ticijan PERUŠKO Ph.D.,

Assistant Professor
Juraj Dobrila University of Pula,
Faculty of Economics and Tourism “Dr. Mijo Mirković” Pula
tperusko@unipu.hr
Tea HASIĆ, student

Juraj Dobrila University of Pula,
Faculty of Economics and Tourism “Dr. Mijo Mirković” Pula
ihasic@unipu.hr
Abstract
The global economic crisis has caused a series of changes in the markets around
the world. Following such an occurrence, the planning of future trends has be-
come essential in order to appropriately use more modest financial possibilities
available. The period after the global economic crisis has set different trends in
motion characterised by low growth rates. Such trends have also affected the
life insurance market.
New economic circumstances which swept through the life insurance market
require different analysis and forecasts. In planning the movements and finan-
cial possibilities in the life insurance market, it is necessary to identify specific
qualities which have been created in the market following the economic crisis.
Scientific statistical and mathematical methods were used in order to develop a
model which meets the said prerequisites.
The aim of this paper is to show the method of creation and implementation
of the model for the life insurance market for the period following the global
economic crisis. The implementation of the model is illustrated for the Republic
409
of Croatia life insurance market. The information obtained has multiple ap-
plication. It provides prognostic information about the future annual financial
Ticijan Peruško • Iva Hasić: THE ANALYSIS OF THE FINANCIAL POSSIBILITIES ON THE LIFE INSURANCE MARKET AFTER ECONOMIC CRISIS – CASE ...
values of the life insurance market. The course of future market trends is de-
termined by using the financial trend analysis in the forecast periods, as well
as by comparison with the values realised in previous years. The information
obtained by the model is useful for stakeholders in the life insurance market as
additional information for business strategy and income planning.
Keywords: life insurance, planning information, economic crisis, insurance
market, prognostic model.
JEL Classification: P33, G22, I13.
1. INTRODUCTION
The specific quality of life insurances lies in the possibility of negotiating an
unlimited number of life insurance policies by both legal and physical entities.
This enables each entity to be able to have an unlimited number of policies by
which they cover the occurrence of the insured event and provide compensation
for the damage from each policy and, if so agreed, return of the premium of
each negotiated life insurance policy, with addition of bonuses in the event that
the insured occurrence does not happen.
The life insurance market is not limited by the number of existing cases
which are the subject of the possibility to negotiate insurance and existence of
already agreed insurances, as is the case with property insurance.Insurance com-
panies, therefore, organise resources in attracting policyholders and in earning
their trust in order to realise benefits in their business. (Felicioa & Rodrigues;
2015, 7).
Global processes have led to the liberalisation and deregulation of the mar-
ket, which is evidenced in modern economies, including the insurance industry.
(Njegomira & Marković; 2012, 135). Insurance business has its special place
as a factor of every country’s economic development and life insurance is an
important factor in economic stability (Milosevic; 2012, 148).World economic
movements affect market movements and the world economic crisisdisturbe-
dall the markets, including the life insurance market.
410
The goal of the conducted research is to evaluate annual life insurance mar-
ket trends in the Republic of Croatia, thus determining the potential market
capacity. The evaluation of the planned annual capacity plays a considerable role
in the planning of business goals of all stakeholders in that market. The period
after the economic crises is characterised by market instability, which requires
a high flexibility of life insurance market stakeholders. The models which are
developed for evaluation in the post-crisis periods are important as they facili-
tate procurement of information which is of the utmost significance for good
business decision-making.
2. RESEARCH METHODS
Business planning and management require information for evaluation of
future movements. Evaluation of future movements and trends in the life insur-
ance market enables development of market presentation, depending on infor-
mation users. The economic crisis has led to disturbances in the life insurance
market in the way that, following the world economic crisis, the growth rates
considerably differ from the period before the crisis.
The evaluation of future movements in the life insurance market was made
by application of the statistical analysis of trend modelling.A trend can be de-
fined as a statistical regularity of movement of the analysed occurrence (Žužul,
J. atalt.; 2008, 139).Using a trend which indicates a dynamic mean value ex-
pressed by a mathematical function for illustration of the tendency of a time-
dependent change, the movement of a gross premium value in the Republic of
Croatia insurance market is forecast.
Starting from the fact that, after the year 2008, the growth rates of all
markets,thus the life insurance market too, have been considerably different, the
movements of the life insurance market in the periodbetween the years 2009
and 2014 have been included in the formation of the model.Applying those
periods for prognosis offuture market valuesthe previous growth rates, which
marked the period before the beginning of the economic crisis, are excluded.
In trend model testing, the polynomial trend proved to be most representative.
The kth degree polynomial trend is expressed as follows (Šošić; 2008, 604):
411
(1)
n
∑x y i i − nx y
b = i =1n , a = y −bx (2)
∑xi2 −nx 2
i =1
Whereytare time series frequencies, xis variable time, which acquires the
values of the first n natural numbers, i.e.xt=t=1,2…,n;a,bj, j=1,2,…, k are un-
known parameters; k is the degree of the polynom, k<n; etare unknown values
of the variable u (Šošić; 2008, 604).The regression representativeness indicator
is obtained using the coefficient of determination. The coefficient of determina-
tion is the proportion of the part of the sum of squares in the total number of
squares, interpreted by the model, and is expressed as (Šošić; 2008, 391):
n n n
∑( y i − y) 2 a ∑y i +b∑xi y i −ny 2
R2 = i =1
n
= i =1
n
i =1
, 0 ≤ R 2 ≤1. (3)
∑( yi − y )
i =1
2
∑y −ny
i =1
2
i
2
In testing of the polynomial trend model, the third degree polynomial ex-
pression showed the highest representativeness (Šošić; 2008, 607):
yt= a + b1xt + b2x2t + b3x3t + et (4)
Evaluations of the value of gross life insurance premiums in the Republic of
Croatia for the period of three years, i.e. the period between the years 2015 and
2017, were carried out by means of implementation of the obtained model.The
application of the obtained information facilitated the analysis of the life insur-
ance market movement, as well as the financial possibilities being offered to the
stakeholders in the market.
3. MOVEMENT OF LIFE INSURANCE MARKET IN

REPUBLIC OF CROATIA IN PERIODS BEFORE
AND AFTER THE ECONOMIC CRISIS
Movements in the life insurance market in the period between the years
2003 and 2014 can be divided into two parts. The first part is characterised by a
412
powerful growth in the total life insurance gross premiums throughout each of
those years. The disturbances which took place in 2008 affected the life insur-
ance market, followed by stagnation of market growth and then growth at very
low rates. A more detailed overview is provided by the table below, which shows
the movement of the life insurance gross premiums in the period between the
years 2003 and 2014.
Table 1. Calculated gross premiums in the life insurance market in the Repub-
lic of Croatia in the period betweenthe years 2003 and 2014
Calculated gross premium
Year Index
(in 000 kunas)
2003 1,349,981
2004 1,569,421 1.16
2005 1,895,769 1.21
2006 2,165,061 1.14
2007 2,482,743 1.15
2008 2,545,775 1.03
2009 2,488,675 0.98
2010 2,457,683 0.99
2011 2,431,268 0.99
2012 2,461,154 1.01
2013 2,538,414 1.03
2014 2,637,726 1.04
Source: Croatian Insurance Bureau, Retrieved from http://www.huo.hr/hrv/statisticka-

izvjesca/18/ (06.03.2015) INTERDISCIPLINARY MANAGEMENT RESEARCH XI
The annual growth rates were ranging from the lowest rate of14% in 2006,
to the highest market growth rate of 21% in 2005. After the year 2008, stagna-
tion, caused by economic movements, set in. Thus, in 2008 the life insurance
market records a low annual premium growth of 3% only to, in the following
three-year period, record a fall between the years 2009 and 2011. The annual
growth of the calculated gross premium was realised in the year 2011 to the
value of 1% and the trend of market growth continues until the year 2014.
The life insurance market in the Republic of Croatia encompasses standard
life insurances, annuity insurances, additional covers with life insurance, event
insurances, such as weddings or childbirth and life or annuity insurances where
413
the policyholder bears the investment risk (http://www.huo.hr/hrv/statistic-
ka-izvjesca/18/(06.03.2015)). The value structure in the total gross premium
of the overall life insurance market is such that a standard life insurance repre-
sents a significant share in the total calculated gross premium.
Table 2. Illustration of the standard life insurance gross premiums in the total
of life insurance premiums in the Republic of Croatia in the period
between the years 2003 and 2014
Calculated life insurance Calculated standard life % share of the standard life
Year market gross premiums insurance gross premiums insurance premiums in total life
(in 000kunas) (in 000 kunas) insurance market premium
2003 1,349,981 1,349,981 100%
2004 1,569,421 1,569,421 100%
2005 1,895,769 1,895,769 100%
2006 2,165,061 2,165,061 100%
2007 2,482,743 2,073,627 84%
2008 2,545,775 2,140,992 84%
2009 2,488,675 2,143,134 86%
2010 2,457,683 2,095,817 85%
2011 2,431,268 2,092,895 86%
2012 2,461,154 2,134,691 87%
2013 2,538,414 2,231,682 88%
2014 2,637,726 2,322,926 88%
Source: Croatian Insurance Bureau, Retrieved from http://www.huo.hr/hrv/statisticka-

izvjesca/18/ (06.03.2015)
The movement of the standard life insurance gross premiumsfollowed the

movement of the total of the insurance market. A high share of the gross stan-
dard life insurance premiums of 88% in the total premiums of the life insurance
group illustrates that the main market movement trends will be determined by
standard life insurances.
For that reason, the annual standard life insurance premium movements af-
fect the entire movement of the life insurance market in the Republic of Croatia.
By means of evaluation and prognosis of the movement of the annual gross
standard life insurance premiums will enable the consideration of market pos-
sibilities of all stakeholders in this insurance market segment.
414
4. EVALUATION OF THE MOVEMENTS OF THE
LIFE INSURANCE MARKET AND ANTICIPATED
FINANCIAL POSSIBILITIES
The evaluation of future insurance market movements is significant for sev-
eral reasons. The insurance market affects the economic results and economic
development of a country (Hou & Cheng; 2012, 126). Insurance has become
the main component in the economies of developed countries (Cristea et.al.;
2014, 227). The insurance market stakeholders create their business strategies
on the basis of evaluation of future market movements. Market expansion re-
quires a different strategy from the strategy of a stagnant market. Economic sub-
jects evaluate movements in order to determine the advantages which they can
achieve in the life insurance market. Evaluation of future market movements,
therefore, must be as realistic as possible, as wrong evaluation and prognosis af-
fect the decisions of all the subjects who base their undertakingson information
about movements in the life insurance market.
The evaluation of the movement of the life insurance premiums in the Re-
public of Croatia was carried out using the trend prognostic model. Using the
trend prognostic model, the values of future annual gross premiums for the
period between the years 2015 and 2017 have been evaluated.Two important
moments in the movement of annual premiums in the Republic of Croatia life
insurance market have been noticed. The trend of a constant life insurance pre-
mium growth was recorded in the market before the economic crisis began.A
constant life insurance premium growth before the economic crisis was also
recorded in other European countries, especially in the fast growing East Euro- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
pean economies (Fritescu; 2014, 354).After the year 2008 the market growth
was halted and the growth rates record a fall in the annual gross premium in the
period between the years 2009 and 2011.
In order to, as realistically as possible, predict the movement of the annual
gross premiums in the Republic of Croatia life insurance market, the year 2009
was taken as a starting point. By this approach, market movements during the
previous years, when markets were not affected by the world economic crisis,
were not taken into account.
Using the trend prognostic model, covariation of the change in the annual
gross premiums in the standard life insurance market over time was described.
In testing of the prognostic models, the polynomial trend model of the third
415
degree proved to be the most representative for the Republic of Croatia life in-
surance market. The data used for the formation of the prognostic trend model
is shown in the table below.

Table 3. Illustration of the data for formation of thepolynomial trend model
of the third degree for predicting the standard life insurance market
movements in the Republic of Croatia
Standard life insurance calculated Gross premiums annual
Year xt gross premiums growth/fall Index %
(in 000 kunas) (in 000 kunas)
2009 0 2,143,134 -
2010 1 2,095,817 -47,318 97.80
2011 2 2,092,895 -2,922 99.90
2012 3 2,134,691 41,796 102.00
2013 4 2,231,682 96,991 104.50
2014 5 2,322,926 91,244 104.10
Using the data from the table, the scatter diagram and the polynomial trend
model were produced. The representativeness, shown using the coefficient of
determination R2, must be very high due to a relatively low number of years, i.e.
the coefficient of determination must have values which include the compre-
hensiveness of the observed set.The coefficient of determination is expressed as
a percentage of the relationship between the observed variables, interpreted by
the model (Šošić; 2008, 391). The reason for this is the representativeness of
the model for calculation of the estimated values which reflect the evaluation of
the position, including the observed past periods.
Graph 1. Illustration of the scatter diagram for the Republic of Croatia life in-
surance market in the period between the years 2009 and 2014
Source: Prepared by the author
416
The polynomial trend model of the third degree for the prognosis of the
movement of the gross standard life insurance premiums in the Republic of
Croatiais expressed as follows:
y= 2.000.000-2030,4x3+34736x2-86833x
The coefficient of determination R2equals 0.966, which means that the

prognostic trend model has the representativeness of 0.996, i.e. that it encom-
passes 99.60% of all observed occurrences. Supposing that the movement of
the gross standard life insurance premiums in the Republic of Croatia market
will continue to progress in accordance with the obtained polynomial trend, the
values for the period between the years 2015 and 2017 have been predicted.The
calculated values are shown in the table below.
Table 4. Predicted values of the calculated gross premiums in the Republic

of Croatia standard life insurance market for the period between the
years 2015 and 2017
Standard life insurance planned Gross premiums planned
Year calculated gross premiums annual growth/fall Index %
(in 000 kunas) (in 000 kunas)
2015 2,290,931 -31,944 98.60
2016 2,397,805 106,974 104.70
2017 2,488,875 91,069 103.80
The standard life insurance market realised a fall in the calculated gross INTERDISCIPLINARY MANAGEMENT RESEARCH XI
insurance premiums following the economic crisis. The fall in premiums was
recorded in the period between the years 2009 and2011. After that, a slight
growth in the year 2012 was achieved, of 2%. The following two years saw gross
premium growth of 4.5% in 2013 and 4.1% in 2014. According to the values
obtained by application of the trend model, the fall in premiums by 31,944 mil-
lion kunas, i.e. by 1.4%, follows in 2015. The insurance companies, therefore,
face preparation of business goals in accordance with the anticipated trend in
the market. Given that standard life insurances have a share of 88% in the total
life insurance group, it is to be expected that, in 2015, a fall will follow in the
calculated gross premiums of the total life insurance market in the Republic of
Croatia.
417
After the fall in the gross premium value in 2015, a predicted market growth
will follow in 2016 of 4.7%, i.e. 106,974 million kunas. Considering the en-
tire period after the crisis started, value-wise and percentage-wise, this planned
market growth represents the highest market plunge in the Republic of Croatia
in the period after the economic crisis. The trend of the standard life insurance
market value growth is also expected in the year 2017. Although the anticipated
growth is lower than the previous year, namely 3.80%, i.e. 91,069million kunas,
it represents an additional indication of possible market recovery.
Provided the trend which is marked by the post-crisis period in the observed
and planned periods continues, the highest annual growth of the calculated
gross premiums of 5% in the life insurance market of the Republic of Croatia is
to be expected. Accordingly, powerful competition in attracting policyholders is
also expected. This still unstable market will not record large growths in annual
gross premiums, with possible market value falls. It is, therefore, to be expected
that all existing channels for attracting policyholders will be intensified in order
to achieve the planned financial goals in such market conditions.
5. CONCLUSION
The period after world economic crises requires different approaches and
changes in company business strategy. Evaluations are therefore very important
for the periods following market disturbances caused by the economic crisis.
The market characteristics after such events are annual falls in the market value,
followed by a multiannual period of market recovery. The stakeholders in the
market must be prepared to apply innovative strategies in order to realise their
planned business goals, as new conditions also require new approaches. Com-
panies which are not flexible, prepared for changes,or able to adapt their busi-
ness to the new conditions are susceptible to the risk of jeopardisingtheir own
businessexistence.
Predicting market movement in such conditions is extremely important, as
information is obtained about market potentials which require a specific ap-
proach in business. The models which predict annual market movements are
significant, as they indicate possible threats in business due to the market fall, as
well as the opportunities which arise due to market growth.Using the illustrat-
ed prognostic model, additional information is provided, which complements
418
the data base for business planning and decision-making in the life insurance
segment.
In income planning, a series of scenarios is used and, based on the analysis
of strengths and weaknesses, opportunities and threats, the most realistic are
chosen in the life insurance market. Adaptation to various business scenarios
in the planning of market representation is the propertyof the illustrated prog-
nostic model. Due to the planned values of market movements, the planning
of income from life insurance facilitates the realisation of the planned gross
premiums from life insurance and the number of insurances in insurance com-
panies in line with the changeable market possibilities. At the annual level as
well asduring monthly, quarterly and half-yearly checks of realised and planned
income, new scenarios can be created for prediction of the financial impacts on
stakeholders’ business in the life insurance market.
. Literature
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fect on insurance companies’ performance, in Press, Journal of Business Research available
online 10 February 2015, available at: http://www.sciencedirect.com/science/article/pii/
S0148296315000788#
Njegomira, V. &Marović, B. (2012). Contemporary Trends in the Global Insurance Indus-
try, XI International Conference, Service Sector in Terms of Changing Environment, 27-29
October 2011, Ohrid, available at:
http://www.sciencedirect.com/science/article/pii/S1877042812011342#
Milosevic, B. (2012) Global Financial Crisis – Determination for Development of Life In-
surance in the Republic of Macedonia, XI International Conference, Service Sector in Terms
of Changing Environment, 27-29 October 2011, Ohrid, available at: http://www.sciencedi-
rect.com/science/article/pii/S1877042812011354#
Ioncică, M., Petrescu, E., Ioncică, D., Constantinescu, M., (2012). The Role of Education on
Consumer Behavior on the Insurance Market, 4th WORLD CONFERENCE ON EDU-
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Beqiri, G. & Candidate, P. (2014). Innovative Business Models and Crisis Management, The
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420
NACHHALTIGES INVESTIEREN
MIT FONDS
 AUSWAHLSTRATEGIEN UND ERSTE
HINWEISE ZUR ERFOLGSMESSUNG
Urban BACHER, Ph.D. und Julia Bacher

Prof. Dr. Urban Bacher ist seit 1999 Professor für allgemeine
Betriebswirtschaftslehre und Bankmanagement an der Hochschule
Pforzheim. Julia Bacher studiert seit 2011 BWL an der Universität
Bayreuth.
Abstract
The issue of sustainability is becoming increasingly important, especially in
Germany. Besides the classical financial investment objectives such as return,
risk and liquidity, sustainability funds need to fulfill also ethical, social or en-
vironmental criteria. Sustainability funds perform at least no worse than tra-
ditional funds and have a reasonable risk-return ratio. Overall, sustainable
investing provides a good opportunity for citizens to make their own contribu-
tion to creating a more socially and environmentally responsible society.
Keywords: Risk Performance, Environ¬mental/Social/Governance, So-
cially Responsible Invest¬ment, Sharpe-Ratio, sector leader, sustainable leader
JEL Classification: O16, P33 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
421
1 PROBLEMSTELLUNG
Das nachhaltige Investieren erfreut sich immer größerer Beliebtheit. In-
sgesamt gesehen zeichnet sich hier ein Trend mit allmählich wachsendem ge-
sellschaftlichem Konsens ab.1 Demnach wollen immer mehr Investoren ihr
Geld nicht mehr nur nach den klassischen drei Zielen „Rentabilität, Liquidität
und Sicherheit“2 anlegen. Immer wichtiger werden ethische, soziale und ökolo-
gische Kriterien.3 Noch vor wenigen Jahren galt die Investition in die Nach-
haltigkeit als idealistische Verbindung von Finanz- und Ethikwelt, die wenig
gewinnbringend erschien. Dieser Beitrag erläutert, „wie“ man nachhaltig Inves-
tieren kann und gibt erste Hinweise – insbesondere auf Studien – für deren
Rendite- und Risiko-Performance.
2 DIE INVESTITION IN EINEN

NACHHALTIGKEITSFONDS
. Begriff „Nachhaltigkeit“

Der Nachhaltigkeitsbegriff fand seinen Ursprung in der Forstwirtschaft im
18. Jahrhundert. Nachhaltiges Handeln muss danach im Einklang mit der Na-
Urban Bacher • Julia Bacher: NACHHALTIGES INVESTIEREN MIT FONDS
tur erfolgen („Gebot, nicht mehr Holz zu schlagen als nachwächst“).4 Nach-
haltigkeit wird heute umfassender definiert und üblicherweise in drei Säulen
eingeteilt: ökologisches, soziales und ökonomisches Handeln. Bei einem nach-
haltigen Investment werden vor allem nicht monetäre Ziele verfolgt. Die Säule
der Ökologie beschreibt die Wechselbeziehungen zwischen den einzelnen
Lebewesen und deren Umwelt, die zweite Säule Soziales bezieht sich auf die
mitmenschlichen Verflechtungen und die Rücksichtnahme auf die Gesell-
schaft, wohingegen die dritte Säule Ökonomie die Ziele Rendite, Risiko und
Liquidität berücksichtigt.
1
Vgl. Ziermann, 2013, S. 237; Kempf/Osthoff, 2007, S. 908.
2
Allgemein als „Magisches Dreieck der Geldanlage“ bekannt, vgl. hierzu Bacher, 2012, S.
155/156.
3
Vgl. Reisch, 2001, S. 49.
4
Vgl. Schulz/Burschel/Weigert, 2001, S. 375 f.
422
. Nachhaltigkeitsfonds
Bei einer nachhaltigen Kapitalanlage reicht die Entscheidung über eine rein
monetäre Sichtweise hinaus. Soziale, ethische und ökologische Kriterien bestim-
men maßgebend die Anlageentscheidung, wobei als typische Anlageform der
Investmentfonds dient.5 Neben den klassischen (monetären) Anlagekriterien
„Rendite, Risiko und Liquidität“ steht die Nachhaltigkeit von Unternehmen bei
der Geldanlage in einem besonderen Fokus.6 Das „magische Dreieck“ der Vermö-
gensanlage bestehend aus den drei Dimensionen „Rendite, Risiko und Liquidität“
wird durch eine vierte Dimension der Mittelverwendung zum „magischen Vi-
ereck der nachhaltigen Vermögensanlage“ (siehe Abb. 1) erweitert.
Abbildung 1: Magisches Viereck der nachhaltigen Geldanlage
Rendite Liquidität
Magisches Viereck der

nachhaltigen
Geldanlage
Mittelverwendung
Risiko
(Ökologie, Ökonomie, Soziales)
Im Englischen wird die vierte Ebene als ESG (Environmental/Social/Gov-

ernance) oder SRI (Social Responsible Investment) bezeichnet. Historisch geht
das nachhaltige Investieren auf Kirchen, religiöse und caritative Bewegungen
der 1920er Jahre in den USA zurück. Diese Gruppen entwickelten Anlagephi-
losophien, die mit ihren Wertvorstellungen vereinbar waren und eine moralisch
vertretbare Investmentalternative darstellten. So investierten sie nicht in Un-
ternehmen, die Sklavenhandel betrieben. Sie erwarben auch keine Aktien der
Tabak-, Alkohol- und Glückspielindustrie. 1928 wurde der „Pioneer Fund“ in
5
Zum Investmentfonds grundlegend vgl. Bacher, 2012, S. 253 ff.
6
Vgl. Arnold, 2011, S. 81.
423
Boston aufgelegt. Dieser schloss Investments in die Tabak- und Alkoholindust-
rie aus und stellte so einen ersten Bezug zu ethischen Investieren dar.7 Bis in die
1980er Jahre hat sich das SRI jedoch nicht wirklich durchsetzen können. Die
eigentliche Bedeutung erlangten SRI-Fonds innerhalb der letzten 15 Jahre.8
. Auswahlstrategien von Nachhaltigkeitsfonds

Nachhaltigkeitsfonds müssen die Frage nach der Auswahl der Einzelwerte
für den Fonds klären. Konkret besteht die Aufgabe darin, relevante Einzelwerte
aufgrund sozialer, ethischer oder ökologischer Kriterien zu selektieren (Screen-
ing). Nach Schoenheit9 versteht man unter einem SRI-Screening die „Beobach-
tung, Untersuchung, Bewertung und Selektion von Unternehmen hinsichtlich
ihrer Eignung, den Anforderungen der jeweiligen Anlagepolitik eines SRI-
Fonds zu entsprechen.“
.. Negatives Screening

Beim Negativscreening werden Unternehmen aus dem Investmentuniver-
sum ausgeschlossen, an deren Produkte oder Firmenverhalten Zweifel beste-
hen. Als häufigstes Ausschlusskriterium gelten Unternehmen, die mit Tabak,
Alkohol, Glücksspiel, Pornografie, Militär, Verletzung der Menschenrechte
oder Arbeitsrechte sowie Rüstung und Waffen oder Atomenergie in Verbind-

ung gebracht werden können.10 Ein Problem dieses Auswahlverfahrens ist, dass
das Negativscreening keine eigenständige Anlagestrategie darstellt. Grund:
Diese Strategie führt nur zu einem möglichen Anlageuniversum, nicht zu einem
konkreten Portfolio. Dabei wird aufgezeigt, worin nicht investiert werden darf,
aber nicht, worin letztendlich investiert wird.11 Dennoch ist das Negativscreen-
ing ein weit verbreitetes Auswahlverfahren, weil es einfach und konkret in der
Handhabung ist.12
7
Vgl. Arnold, 2011, S. 82; Clinebell, 2013, S. 15 f.
8
Vgl. Berry/Junkus, 2013, S. 707.
9
Vgl. Schoenheit (2005): Markttransparenz im Socially Responsible Investment. Konsequen-
zen für eine nachhaltige Erwachsenenbildung, Frankfurt am Main, zitiert in: Arnold, 2011,
S. 86 f. Übersicht der Filter vgl. Bacher, 2012, S. 229.
10
Vgl. Kempf/Osthoff, 2007, S. 909; Berry/Junkus, 2013, S. 708; Schröder, 2004, S. 123.
11
Vgl. Schaefers, 2012, S. 345.
12
424
.. Positives Screening
Beim Positiven Screeningansatz wird in Unternehmen investiert, die bestim-
mte Nachhaltigkeitskriterien erfüllen, sich nachhaltig engagieren oder nach-
haltige Produkte und Serviceleistungen anbieten.13 So werden zweifelhafte Un-
ternehmen nicht von vornherein aus dem Investitionsuniversum ausgeschlos-
sen. Vielmehr werden Punkte bzw. Ratings für Positivmerkmale wie Chancen-
gleichheit für die Mitarbeiter, gute allgemeine Arbeitsbedingungen, Diversity,
Artenschutz, Umweltverträglichkeit etc. vergeben.14 Positiv fällt bei diesem
Auswahlverfahren auf, dass gezielt in Pionierunternehmen investiert wird, die
Vorreiter in einer Branche sind.15 Problematisch dabei ist, dass die Punktver-
gabe subjektiv ist. Jeder einzelnen Aktivität muss ein Urteil, eine Gewichtung
im Vergleich zu anderen Handlungen im Unternehmen und schließlich eine
Bewertung in Punkten gegeben werden.16
.. Best-in-Class Ansatz

Der Best-in-Class Ansatz ist eine weiterentwickelte Variante des Posi-
tivscreenings. 17 In jeder „class“ (= Branche) wird ein Unternehmen ausgewählt,
das den Positivkriterien am meisten entspricht. Innerhalb der Branche wird
nach Nachhaltigkeitskriterien sortiert. Ausgewählte Unternehmen nennt
man „sector leader“ (= Branchenführer) oder „sustainable leader“ (= Nach-
haltigkeitsführer). Die Branchenführer werden zu einem Best-in-Class-An-
lageuniversum zusammengefasst, wonach nach weiteren Investmentkriterien
ein Portfolio erstellt wird. Oft wird der erste Schritt bis zum Best-in-Class-
Anlageuniversum auch von Ratingagenturen übernommen. Insgesamt werden
die Unternehmen relativ zur jeweiligen Branche herausgefiltert und nicht die
absolut nachhaltigste Branche bzw. das absolut nachhaltigste Unternehmen
ausgemacht. Problematisch ist, dass es von Anbieter zu Anbieter im Detail un-
terschiedliche Bewertungsmethoden gibt. Zur Lösung dieses Problems hat sich
mittlerweile ein standardisierter Best-in-Class-Selektionsprozess durchgesetzt.
Kritisch anzumerken ist weiterhin, dass keine Branche von vornherein ausge-
schlossen wird und somit auch Branchen, die allgemein als „nicht“-nachhaltig
13
Vgl. Weber, 2012, S. 18.
14
Vgl. Kempf/Osthoff, 2007, S. 909.
15
Vgl. Seitz, 2010, S. 28.
16
17
Vgl. Schaefers 2012, S. 357 f.
425
gelten, ins nachhaltige Anlageuniversum aufgenommen werden, so z.B. die Öl-
oder Tabakindustrie.
3 DIE ERFOLGSMESSUNG VON

NACHHALTIGKEITSFONDS
Bei Nachhaltigkeitsfonds stehen zwei Ziele im Vordergrund: finanziellen
Ziele - und - Kriterien der Nachhaltigkeit. Letztgenanntes Ziel strebt nach
dem „guten Gewinn“. Dieser Gewinn kann nicht unmittelbar in Geld gemessen
werden. Die These, dass eine gute ökologische Performance mit guter finanzieller
Performance zusammenhängt, beschreiben ausführlich Delmas et al. wie folgt:18
• Begründung 1: Weniger Material und Energie bei der Verarbeitung bedeu-
tet umweltbewusstere und schlankere Produktion, was mit reduzierten
Produktionskosten und somit mit erhöhter Profitabilität einhergeht.
• Begründung 2: Weniger Abfall und Schadstoffemission erzeugen weniger
Kosten für die Abfallbeseitigung und kann Strafen verhindern, falls die
Richtlinien eingehalten wurden.
• Begründung 3: Die Reputation eines verantwortungsbewussten Un-
ternehmens verbessert sich. So kann die Beziehung zu Stakeholdern wie
Angestellten, Kunden, Zulieferern, Gemeinden und Investoren gestärkt

werden.
SRI-Fonds unterscheiden sich in zweierlei Hinsicht von konventionellen
Fonds. Erstens sortieren Investoren in SRI-Fonds neben finanziellen Kriterien
auch noch nach nicht-finanziellen Kriterien und bekommen so ein meist klei-
neres Anlageuniversum. Zweitens haben diese Investoren ein gesteigertes In-
teresse, dass die nachhaltigkeitsbezogenen Kriterien eingehalten werden. Inves-
toren, die z.B. in SRI-Aktien anlegen, verfolgen oft nachhaltige Shareholder-
aufgaben, um an dem Unternehmen bezüglich Corporate Social Responsibility
(CSR) teilzuhaben und CSR zu fördern.19 Außerdem investieren SRI-Fonds,
gerade in Europa, häufiger in kleine oder mittelgroße Unternehmen mit ger-
inger Marktkapitalisation.20
18
Vgl. Delmas/Etzion/Nairn-Birch, 2013, S. 257. Hierzu auch Siegel, 2009, S. 11.
19
Vgl. Crifo/Forget, 2013, S. 21.
20
Vgl. Schröder, 2004, S. 125; Seitz, 2010, S. 25.
426
. Performanceanalyse von Nachhaltigkeitsfonds
Die zentrale Kennziffer der Ertragskraft ist die Rendite. Damit können
verschiedene Anlageformen direkt vergleichen werden. Die Rendite ist der
„Gewinn“21 einer Investition bezogen auf das eingesetzte Kapital.22 Um ein aus-
sagekräftiges Urteil zur Wertentwicklung von SRI-Fonds abgeben zu können,
sollte eine langfristige Wertentwicklung, z. B. der letzten 15 Jahre betrachtet
werden. Nur so kann die Qualität des Fondsmanagers nachhaltig beurteilt wer-
den. Das Problem besteht darin, dass die wenigsten SRI-Fonds vor 2000 aufge-
legt wurden und sich somit nur ein eingeschränktes Urteil über eine langfristige
Wertentwicklung bilden lässt.23 Zudem ist die Wertentwicklung eines nach-
haltigen Fonds wenig aussagekräftig, ohne die genauen Umstände zu kennen.
So ist z. B. ein jährlicher Wertzuwachs von acht Prozent in guten Zeiten wenig,
in schlechten Zeiten wäre dies zufriedenstellend oder sogar gut. So sollte der
einzelne Fonds mit dem Gesamtmarkt verglichen werden, der am Index oder
am Durchschnitt der Fondskategorie gemessen wird.
Viele Studien kommen zu dem Ergebnis, dass Nachhaltigkeitsfonds gleich
gut performen wie konventionelle Fonds oder zumindest nicht schlechter bzw.
dass es keinen signifikanten Unterschied gebe.24 Schröder kommt beim Vergleich
der Literatur zu dem Schluss, dass SRI-Fonds mit konventionellen Fonds hin-
sichtlich ihrer Performance vergleichbar sind. Dieses Ergebnis sei aussagekräf-
tig, weil die verschiedenen Studien unterschiedliche Ansätze benutzt haben.
So wurden unterschiedliche Methoden vom einfachen Ein-Faktor-Modell bis
zum Vier-Faktor-Modell, verschiedene Zeithorizonte und Länder zur Analyse
herangezogen.25 Auch eine Zusammenfassung von 75 Studien mit 161 Expe- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
rimenten über die finanzielle Performance von SRI kommt zu dem Resümee,
dass Nachhaltigkeitsfonds und konventionelle Fonds ein ähnliches Ergebnis
aufweisen.26
21
Im Sinne eines jedweden Wertzuwachses unterschiedlicher Erfolgsquellen wie Zins, Divi-
dende, Kursgewinn, Subvention etc.
22
Vgl. Steiner/Bruns/Stöckl, 2012, S. 49 f.; Bacher, 2012, S. 159/160.
23
Vgl. Gerth, 2008, S. 102.
24
Vgl. Revelli/Viviani, 2013, S. 109; Chung/Lee/Tsai, 2012, S. 1.
25
Vgl. Schröder, 2004, S. 124.
26
Vgl. Revelli/Viviani, 2013, S. 113.
427
Andere Quellen äußern, dass Nachhaltigkeitsfonds besser als konventionel-
le Fonds performen, zumindest aber nicht schlechter.27 SRI können kurzfristig
zwar underperformen, auf mittlere Sicht gleicht sich die Performance von SRI
und Nicht-SRI an, in der Regel outperformen SRI-Fonds sogar langfristig. Er-
gebnis: Ein langfristiger Anlagehorizont ist der Erfolgsschlüssel für nachhalti-
ges Investieren.28
. Risiko und Volatilität von Nachhaltigkeitsfonds

Die Sicherheit einer Anlageform zielt auf den „Erhalt des Kapitalstamms“
ab und richtet sich nach den Risiken einer Anlageform. Das Sicherheitsziel ist
also ein Risikovermeidungsziel. Die Risikovermeidung ist schwer zu definieren
und wird in der Regel bei Wertpapieren durch die Volatilität, also die Schwan-
kungsbreite (Varianz/Standardabweichung) bzw. bei einem Portfolio durch die
Kennzahl Value-at-Risk beschrieben. Berechnet wird das Risiko gewöhnlicher-
weise durch die Standardabweichung, wo die Schwankung von Renditen eines
Wertpapieres oder Portfolios um ihren langfristigen Mittelwert gemessen wird.
Die Abweichungen werden quadriert und die Summe anschließend radiziert.29
Auch hinsichtlich des Risikos gibt es für Nachhaltigkeitsfonds wie schon
bei der Renditeperformanceanalyse zwei unterschiedliche Meinungen: weniger
riskant – oder – riskanter als konventionelle Fonds. Herrschende Meinung ist,

dass SRI-Fonds einem höheren Risiko und Schwankungsbreite ausgesetzt sind.
Begründet wird diese These damit, dass weniger Aktien aufgrund des Scree-
nings für das Anlageuniversum des Fonds zur Verfügung stehen.30 Durch das
Filterkriterium Nachhaltigkeit kann der Fonds nicht so breit gestreut werden
wie ein konventioneller Fonds, wodurch die Diversifikationseffekte sinken und
somit das Risiko steigt.31 SRI-Gegner begründen diesen Gedankengang mit
der modernen Portfoliotheorie, die durch die geringere Anlagemöglichkeit von
geringeren Diversifikationseffekten und damit einer schlechteren Performance
ausgeht. Dagegen spricht, dass auch ein konventioneller Durchschnittsfonds
aus 20 bis 30 Einzelwerten besteht und nur wenige aus über 100 Einzelwerten.
27
Vgl. Schröder, 2004, S. 124 ; Revelli/Viviani, 2013, S. 113.
28
Vgl. Revelli/Viviani, 2013, S. 107 ; Cummings, 2000, S. 88.
29
Vgl. Steiner/Bruns/Stöckl, 2012, S. 53 ; Bacher, 2012, S. 157/158; Pfeifer, 2009, S. 1370 f.
30
Vgl. Lundberg/Novak/Vikman, 2009, S. 2.
31
Vgl. Lundberg/Novak/Vikman, 2009, S. 14; Revelli/Viviani, 2013, S. 107.
428
Somit kann auch ein SRI-Fonds von der Anzahl der Einzelwerte mit einem
konventionellen Fonds mithalten.32 Der Vergleich von MSCI World SRI Series
– ein gängiger Index für SRI-Engagements – mit dem Standardindex weltwei-
ter Industrieunternehmen MSCI AC World Index zeigt auch, dass SRI-Fonds
weniger Risiko hinsichtlich Beta und Volatilität haben.33
. Rendite-Risiko-Verhältnis von Nachhaltigkeitsfonds

Sich über die Kriterien „Rendite“ und „Risiko“ von SRI-Investments Gedan-
ken zu machen ist gut, entscheidend ist jedoch die Frage, ob eine Rendite mit
viel oder wenig Risiko zustande kommt. Ziel eines Exposures sollte sein, die
Rendite eines Investments mit seinem jeweiligen Risiko in Bezug zu setzen.
Man spricht in diesem Zusammenhang von „risikobereinigter“ oder „risikoad-
justierter Rendite“. Hierzu gibt es spezielle Kennzahlen, z. B. das Sharpe-Ratio.
Für SRI-Fonds sollte also neben Rendite und Risiko ein angemessenes Ren-
dite-Risiko-Verhältnis im Fokus des Anlegerinteresses stehen. 34
Wie oben unten 3.1. dargestellt kommt es beim nachhaltigen Investie-
ren auf einen langfristigen Anlagehorizont an. Da viele Nachhaltigkeitsfonds
noch nicht allzu lange existieren und damit auch keine lange Erfolgsgeschichte
(so genannter Track Record) aufweisen können, wird der Fonds gewöhnlich
zurückgerechnet was Probleme bereiten kann. Grund: Die Rückrechnung ist
eine Hilfsrechnung, bei der man das jeweilige Portfolio in die Vergangenheit
versetzt und fiktive Wertentwicklungen misst.35 Die Gefahr besteht darin, dass
der Assetmanager das Portfolio solange variiert, bis rückwirkend die Ergebnisse
zufriedenstellend sind. Zudem kann es passieren, dass der Fondsmanager aus
Angst, schlechter als die Benchmark oder der Index zu performen, den Index
einfach kopiert oder sich an diesem orientiert. Der Fondsanleger zahlt in die-
sem Fall teuer für einen aktiv gemanagten Fonds, ohne dafür eine Extraleistung
zu erhalten.36
32
Vgl. Lundberg/Novak/Vikman, 2009, S. 14.
33
Vgl. Escrig-Olmedo/Muñoz-Torres/Fernández-Izquierdo, 2013, S. 419.
34
Vgl. Steiner/Bruns/Stöckl, 2012, S. 598 f.
35
Vgl. Gerth, 2008, S. 166 f.
36
Vgl. Gerth, 2008, S. 166.
429
4 NACHHALTIGES INVESTIEREN IST KEINE
MODEERSCHEINUNG
Das Thema Nachhaltigkeit gewinnt immer mehr an Bedeutung, gerade
auch in Deutschland. Neben den klassischen finanziellen Anlagezielen Ren-
dite, Risiko und Liquidität erfüllen Nachhaltigkeitsfonds zudem ethische, so-
ziale oder ökologische Kriterien. Nachhaltigkeitsfonds performen zumindest
nicht schlechter als herkömmliche Fonds und weisen ein angemessenes Ren-
dite-Risiko-Verhältnis auf. Insgesamt bietet das nachhaltige Investieren eine
gute Möglichkeit, einen eigenen Beitrag zu leisten, unsere Gesellschaft sozi-
aler und umweltfreundlicher zu gestalten. Nachhaltiges Investieren ist auch
keine Modeerscheinung, zumal Nachhaltigkeits-, Umwelt- und Sozialthemen
keinem Trend unterliegen und im Alltag und in Unternehmen aufgrund ihrer
hohen gesellschaftspolitischen Bedeutung nicht mehr wegzudenken sind. Dazu
äußerte sich Bergius treffend wie folgt: „Nachhaltigkeit bedeutet Zukunftsfähig-
keit - und die Einsicht, dass die Umwelt und soziale Lebensqualität wichtige
Voraussetzungen auch für ökonomische Zukunftsfähigkeit sind. Wer langfris-
tig am Markt bestehen will, muss ein Leitbild für seine ökonomischen Ziele
haben. Die Frage dabei lautet nicht mehr nur, „ob“ das Geld verdient, sondern
auch „wie“ das Geld verdient wird.“37 Den richtigen Nachhaltigkeitsfonds zu
finden, kann also in vielerlei Hinsicht gewinnbringend sein.
37
Vgl. Bergius, 2004.
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432
FDI INFLOWS IN TIME OF CRISIS
 PANEL DATA ANALYSIS OF FDI
INFLOWS TO THE SELECTED EU
MEMBER STATES
Ozren PILIPOVIĆ, Ph.D.

Assisant Professor, department of Economics Faculty of Law,
Zagreb
Meta AHTIK, Ph.D.

Assisant Professor, department of Economics Faculty of Law,
Ljubljana and economist at National Bank of Slovenia
Nenad RANČIĆ, Ph.D.

Assisant Professor department of Economics Faculty of Law,
Zagreb
Abstract
The purpose of his article is to examine the relationship between FDI and
national economic policy in the time of crisis. We will test this subject on the
following EU member states: Portugal, Italy, Ireland, Greece, Spain, Baltic
and CEE countries, Romania, Bulgaria and Croatia. They make the Euro-
pean Union periphery (with the exception of Italy) and all of them with the
exception of Italy (and Slovenia up to 2008) rely heavily on FDI attraction in
order to foster economic growth. We assume the existence of certain differences
between these groups of countries, which are caused by the possibility to accom-
modate the effects of international financial crisis through autonomously run
monetary and fiscal policy. In order to test this empirically we used panel data
econometric analysis. Analysis has shown that with adequate economic policy,
and membership in larger regional economic integrations, it is possible to ease
negative influences of financial crisis and increase share of FDI in GDP. GDP
growth rate (which in our model stood as a proxy for market demand) is also
433
one of the essential ingredients of FDI attraction. On the other hand, economic
crisis (manifested as negative GDP growth rate) negatively influences FDI
attraction.
Ozren Pilipović • Meta Ahtik • Nenad Rančić: FDI INFLOWS IN TIME OF CRISIS - PANEL DATA ANALYSIS OF FDI INFLOWS TO THE SELECTED EU ...
Key words: FDI, economic crisis, economic policy, PIIGS, Baltic States, CEE
Countries, Panel data analysis
JEL Classification: H12, O52, C8
INTRODUCTION
One of the usual ingredients of economic growth and indicators of open-
ness, as well as desirability of a country as a partner in the international trade
are FDI (foreign direct investment). Usually FDI are defined as a type of inter-
national investment by residents of one country with the aim of establishing
a lasting interest in enterprises within the economy of another country. Also,
FDI is viewed by many economists to be one of the main pillars of globalization
(de Soysa, 2003) and even John Stuart Mill once famously observed that “the
opening of foreign trade . . . sometimes works a sort of industrial revolution in a
country whose resources were previously underdeveloped” (quoted in de Soysa,
2003, p. 20).
Global FDI flows showed consistent and rapid growth between 2004 and
2007. During this period, the global FDI grew by 155%, from $717.7 billion
in 2004 to $1,833.3 billion in 2007. 68.1 % of the FDI went to the developed
economies such as United States and Canada, while EU region attracted al-
most two thirds of the total FDI inflows to the developed countries (UNC-
TAD, 2008) & (World Investment Report 2008.). In 2008 and 2009 the world
economy suffered the deepest global financial crisis since The Great Depres-
sion. Countries around the world were hit by major declines in the rate of BDP
growth and employment. In 2008 GDP in industrial countries fell by 4.5%, and
by the end of 2008 average real GDP growth in emerging economies dropped
from 8.8% in 2007 to 0.4%. The unemployment rate rose to 9 percent across
OECD economies, and reached double digit numbers in many industrial and
developing nations. The volume of international trade plummeted by more than
40% in the second half of 2008. In 2008, multinationals foreign affiliate sales
fell by 4.6%, in sharp contrast to the 24% growth rate the year before, after
global FDI flows reached a historic record of $1.9 trillion in 2007. (UNCTAD,
2009).
434
As Kumo points out: “In 2010, FDI flows into developed economies con-
tracted by 7% compared to 2009. The European Union was the worst hit with
FDI inflows contracting by 20% in 2010. Among the developed economies, Ja-
pan saw the biggest decline in FDI inflows in 2010 with FDI contracting by
a whopping 83.4% due to major disinvestments. With 66.3% contraction in
FDI, Ireland, whose economy was ravaged by the financial crisis, witnessed the
second highest FDI contraction among the developed economies due primary
to uncertainties about sovereign debt. FDI inflows to Germany and France de-
clined marginally. Unlike other major industrialized nations, the United States,
the world’s largest economy, enjoyed a robust expansion in FDI inflows in 2010.
FDI flows into United States increased by 43.4% in 2010”. (Kumo, 2011)
Eurostat, on the other hand, points out that in 2007, EU foreign direct in-
vestment flows to the countries outside the EU reached the record level of EUR
530.7 billion, mainly as a result of major cross-border mergers and acquisitions
and reinvestment of earnings. „In 2008, the reinvested earnings paid to extra-
EU investors dropped by 50% and continued to decline in 2009. Equity capital
— mainly mergers and acquisitions activity — showed a similar trend, dropping
by one third in 2008 and continuing to go down, resulting in EUR 263.3 billion
EU outward investments in total in 2009. Income from investments abroad has
also declined from the record level of 2007, meaning that the rate of return on
EU outward stocks fell to its lowest level since 2004 (Eurostat.com). The Eu-
ropean Union is the world’s largest investor abroad. Even if the importance of
the emerging markets is growing the EU remains the largest recipient of FDI.
“Within the EU, FDI flows are a crucial element for the consolidation of the
internal market, while investments to and from the rest of the world ensure
that the EU is well positioned in world markets and well integrated in world-
wide technology flows. ... Currently, within the EU, the inward FDI stock is still
largely concentrated in the EU-15 Member States. These offer good market
access, scope for linkages to strong industrial bases, and well-educated labour
forces. However, in the years before the crisis, the most dynamic part of FDI
flows within the EU was between the EU-15 and the new Member States. As
several of the new Members States have been hard hit by the crisis, this trend
has partly been reversed in the last two years.” (European Commission, 2011)
One of the first signs of economic crisis is lower levels of international trade
and FDI flows, so the aim of this paper is to examine the relationship between
FDI and national economic policy in the time of crisis. By joining the EU and
435
the Eurozone some participating countries gave up certain parts of their politi-
cal and economic sovereignty, while others for various reasons didn’t participate
in the Eurozone. We assume the existence of certain differences between those
groups of countries, which are caused by the possibility to accommodate the ef-
fects of international financial crisis through autonomously run monetary and
fiscal policy. We expect to find positive correlation between low inflation, low
public debt, higher trade openness, GDP growth rate, EU membership and FDI
inflows to our selected countries. We have selected countries in our study based
on the fact that all of them with the exception of Italy base their economic de-
velopment to a higher or lesser extent on FDI attraction since they lack domes-
tic capital to launch the virtuous cycle of economic growth and development.
The countries can broadly be divided in three groups; first among them being
PIIGS which is made of Portugal, Italy, Ireland and Spain. These are the “old”
member states of EU. Countries in this group have been selected on the criteria
that they have been the hardest hit by the economic crises. The second group,
CEE, is made of newcomers from the Central Europe and Baltic and includes
Slovenia, Hungary, Slovakia, Czech Republic, Poland, Lithuania and Latvia. All
of these countries base their economic development on FDI attraction. Among
them Baltic countries, Hungary and Slovenia were hardest hit by the economic
crisis. Finally, the third group is made by the recent arrivals to EU - Romania,
Bulgaria and Croatia (which has not experienced economic growth in 6 years).
Although all of SEE countries pursue strategies for FDI attraction they have
been less efficient in attracting FDI then countries from other two groups.
FDI IN ECONOMIC THEORY

FDI is usually defined as a type of international investment by residents of
one country with the aim of establishing a lasting interest in enterprises with-
in the economy of another country. Lasting interest implies the existence of
long-term relationship of direct influence on the management of investors’ di-
rect investments in selected companies. Direct investment includes the initial
transaction between the two entities and all subsequent transactions between
them and among affiliated enterprises, regardless of their formal status. Direct
investment is considered to be established when an investor acquires at least
10% of ordinary shares or voting rights to foreign companies. Precisely because
436
of the contribution to the process of economic growth and development1, par-
ticularly in job creation, transfer of technology, managerial skills, increasing ex-
ports, productivity, and competitiveness in the global market, it is important to
investigate those factors contributing to the choice of a country as a destination
for foreign direct investment. Therefore it is necessary to pay special attention
to institutional factors; legal system, justice system and domestic legislation (es-
pecially the part relating to the protection of property and taxes), as well as their
stability and efficiency, absence of corruption, the size and market development
and market mechanisms, quality of physical infrastructure, etc. They are largely
influenced by public authorities, concerned with the creators and holders of
economic policy, and their existence and quality often crucially influence the
perception of a country as a desirable destination for foreign direct investment.
There are many ways to classify the different forms of FDI. Here we will
describe some of them. The most obvious classification is by objectives of in-
ternational investors, multinational corporations (MNC) when they establish
foreign subsidiary;
1. Resource seeking FDI.
From the historic perspective, that was the first sustainable FDI that came
into being in the later part of the 19th century, and was dominant even dur-
ing the years after the World War II (to 1950s). The logic of FDI investment
was, and still is guided by location and climate. Investors usually want weak
labour laws, few regulation of protection of environment and minimal tax
burden (little or no corporate tax). Other factors in decisions on where to
extract natural resources may include the quality of the infrastructure (both INTERDISCIPLINARY MANAGEMENT RESEARCH XI
institutional and physical), abundance and accessibility of the raw materials,

and the extent to which political officials are ready to deal favourably with
foreign companies by providing good governance, favourable tax and regu-
latory policies, and the rule of law, not to mention low cost of labour and
environmental practices. Investors’ behaviour in this sector regarding the
host governments and the way by which they treated “native” workers are
infamous at best. United Fruit Company did much as it liked in El Salvador
1
For further details see Borensztein et al. (1998) that, based on empirical analysis of FDI flows
from 69 developed countries through the last two decades, emphasize the positive impact of
FDI on technology transfer, provided that the destination country has an adequate level of
human capital that enables its absorption.
437
(Chapman, 2007). This type of the FDI was very good for the outward FDI
country, since the operations in the host country did not outsource jobs,
did not compete with the investor country exports, and majority of raw
materials were imported to the headquarter countries thus further fuelling

their own economy. On the other hand, this type of FDI impact on the
host country economy left much to be desired for. There were net foreign
exchange earnings for the exports of raw materials, but what of the environ-
mental damage, human/labour rights and concession prices? Were they fair
or not? Mostly it depends on the local political elite motivation either for
economic development or personal wealth increase.
2. Market-seeking FDI.
One of the reasons for this kind of investment was the potential for reducing
the transportation costs, and making consumers feel more at ease with the
“domestic” products rather than the imported ones. These FDI are generally
made in rich countries, because these investors want customers for their
products. Cohen points out that market-seeking FDI have the potential to
provide more benefits to host countries than any other form of incoming
direct investment (Cohen, 2007). These types of investment usually bring
new employment, technologies, know-how, and business practices.
3. Efficiency seeking FDI.

The first reason for this type of FDI is the intention of investors to out-
source some of its production to countries where cost of production is low.
If these low wage countries have work ethic like say East Asian Tigers the
outsourcing is usually very cost efficient in rage of industrial and increas-
ingly service products. The other reason for this type of FDI is the wish of
investors to reap the benefits of economics of scale and by outsourcing to
minimise the costs of production. These kinds of FDI are not welcomed
by the labour union in the source countries since this type of FDI is widely
perceived as exporting jobs, while on the other hand the consumers are sup-
posedly benefiting from the cheaper price of imported goods. USA lead the
way in this kind of FDI, particularly to Mexico, China and East Asia, while
Japan followed suite with investments in East Asia, and Germany some-
what more shyly to the transitional countries of Central Europe. (More on
438
this in Cohen, 2007, p. 70: similar in: Agnew and Corbridge, 1995, p. 169,
Rupert, 2000, p. 48)
4. Strategic Assets- Seeking FDI.

The nature of this FDI is to bring more competitiveness to the multination-
al companies by acquiring assets of other companies in different countries.
This type of FDI allows company to broaden its product offer, to enhance
its existing products, to create new products or simply to swallow rival firms.
5. Objective of pleasing the host country government.
Countries such as USA, France and UK have actively encouraged their
companies to invest in the countries they view as important for their global
political, economic and military reach. French companies invested in North
African countries like Algeria and Tunis, once the tensions between France
and these countries cooled of, and British companies were always show-
ing a bit of a “colonial” preference by investing in the countries belonging
to British Commonwealth. USA is clearly the only global superpower left
with vested interest on every continent. After the end of the cold War in
1989 some “favoured” CEE countries received some of the FDI from USA,
leading among them is Poland, which in the view of the strategic planners
in Pentagon should become the leading American ally in the CEE Europe
(Bandelj, 2008).
The second way to classify the FDI is by its role in the parent company
global strategy. It is either horizontal or vertical. Horizontal FDI is when MNC
transfers a part of its activity overseas in order to strengthen its global (or local) INTERDISCIPLINARY MANAGEMENT RESEARCH XI
competitiveness. Vertical FDI has been growing since 1980s and the cause of its
growth was the increased advanced in production technology and communica-
tions. The version of vertical FDI that appears most often is the division of the
manufacturing process into segments in which various parts of a finished prod-
uct are made by two or more subsidiaries in two or more countries anywhere in
the world. By using vertical FDI companies minimize production costs, by tak-
ing advantage of international factor-price differentials, which is a core concept
of the law of comparative advantage. Capital-intensive goods and high-skilled
services will mainly be produced in capital abundant developed countries (this
is in accordance to Hekscher–Ohlin theory). Labor-intensive products, pro-
439
duced by using low-tech and simple assembly work, will be transferred to sub-
sidiaries in low wage countries.
The third type of FDI can be classified by the method of establishing a for-
eign subsidiary of multinational company. These are greenfield and brownfield

investments. Greenfield investment is done, when MNC establishes a totally
new company or part of itself in the host country and builds up service or man-
ufacturing industry virtually from the beginning (something that is being built
on the virgin, green land). This is a desirable type of FDI for the host countries
since it provides employment for the labour force and possible technological
spill-over for the similar industries. Brownfield investment happen through
merger and acquisition of the existing companies or by privatization of the state
owned enterprises. This kind of FDI does not necessarily provide new jobs and
economic growth, and it often involves period of restructuring, during which
jobs are lost. It can also lead to less completion since the companies targeted for
acquisitions are usually competitors of the investors. These forms of FDI are
only “good” in case if the domestic company faces bankruptcy and loss of jobs.
To this type of FDI certain non-equity forms of FDI such as: subcontracting,
licensing and franchising could be added as well. This type of FDI doesn`t
necessarily involve capital flows from abroad, but it can contribute to the devel-
opment of the host country’s business sector.
The fourth type of FDI can be classified by method of financing a new
subsidiary. It can either be financed from abroad or by financing it locally in
the host country. The first type of FDI is much favoured by the host countries
since it provides hard currency needed to finance trade deficits, and, indeed,
the money from privatization in majority of Central European countries goes
for this purpose (especially in Croatia). The later type of FDI by taking credit
locally does not have a beneficial effect on the economy of the host country as
whole. This is due to the fact that host country usually has a limited amount of
capital available for financing economic activity, and foreign investors with their
credit ratings that are superior to local firms, can easily crowed-out the market.
Intra-company loans are one of the types of this kind of FDI. Capital goes from
parent company to subsidiary. This is a kind of a loan, which must eventually
be repaid. The question of repatriating profits arises here as well. If profits are
reinvested in the subsidiaries production it allows for the addition of capital to
host country`s capital stock. If the profits are repatriated, and especially if they
440
are not taxed, these practices negatively influence the stock of capital in the host
country.
Finally, FDI can be classified by the extent of foreign ownership. IMF clas-
sifies as FDI a subsidiary that is in 10% or more in ownership of the foreign
company, anything less than that is classified as portfolio investment.
CUI BONO?
There are two opposing views of the FDI. One claims that FDI is beneficial
to source country, and the other view is that it actually is not that beneficial to
the source country.
Moody, for example, praises FDI because it brings: “scarce capital where cap-
ital is needed and productive. It stimulates the domestic market for corporate
control and hence serves to discipline managers. It is the bearer of knowledge
to enhance productivity, potentially to the levels of international best practice
(Mody, 2007, p. 1). Carković and Levine believe that foreign investment produc-
es: “externalities in the form of technology transfers and spill-overs” (Carković
and Levine in Moran, 2005(ed), p. 195) so government incentives for FDI at-
traction are more than justified.
On the other hand, as UNCTAD report puts it succinctly: ‘‘Not all FDI is
. . . always and automatically in the best interest of host countries” (UNCTAD,
1999, p.155). Since in capitalism firms are guided by the profit motif it should
not be taken for granted that investors will always act in the best interest of the
host country. If the interest of host country and investors are similar or the INTERDISCIPLINARY MANAGEMENT RESEARCH XI
same, well and good, but if they are different it is hard to make investors act
in the host country interest. Take for example the claim that more FDI means
more jobs for the host countries, especially the transitional countries. In recent
article by Kersan-Škabić and Zubić the authors analysed the impact of FDI
on the job growth in Croatia, a typical transitional country. The authors found
that there is negative correlation between FDI and job growth rate in Croatia
(Kersan-Škabić, Zubić, 2009). Why is it so? First of all the majority of FDI in
Croatia were the so called brownfield investments. Croatia was part of the for-
mer Socialist Federative Republic of Yugoslavia, which had a mixed system of
economy, that was partially planned economy and partially market economy. All
the firms had some problems with overemployment. When the foreign owners
441
came the first thing they did was to fire the workers that they no longer needed.
The same was true of all the socialist transition countries. The types of invest-
ments which are actually beneficial to the growth of jobs in the host country are
the so called greenfield investments. Greenfield investments mean that investors

build their business in the host country, rather than taking over the existing
business. They have to employ new workers, transfer the technology and build
some physical infrastructure if they were poor at negotiating terms with the
local authorities, and did not manage to bully them into providing land and
decent basic communal infrastructure. The other case against FDI is the in-
ternal tax pricing that takes place between subsidiary and the parent firm. The
internal accounting of firm can be made so that it will rob the host or source
country of their share of the taxes. Profits of a parent company can be made
better by simply charging higher prices for goods and services sent to subsidiar-
ies, which are located in relatively high tax countries. By these practices parent
firms minimize or eliminate the subsidiary’s profits and thus they reduce its tax
liabilities. As Cohen points out: “If a subsidiary is operating in a low tax country,
transfer price legerdemain would consist of charging it artificially low prices,
thereby maximizing profits where they will be taxed least. National tax agencies
are exercising increased vigilance to discourage manipulation of transfer prices,
but outsiders probably will never be able to completely penetrate the caliginous
haze that shrouds real costs within massive corporations conducting tens or
hundreds of thousands of transactions annually among their subsidiaries in
dozens of far-flung countries. This fact might explain why a private study found
that subsidiaries of U.S. corporations operating in four major tax havens (the
Netherlands, Ireland, Bermuda, and Luxembourg) had 46 % of their profits in
these four jurisdictions in 2001, but only 9 % of their employees and just fewer
than 13 %of their plant and equipment. Artificially low transfer prices can also
be applied to shipments to subsidiaries in high tariff countries, thereby depriv-
ing importing countries of another form of revenue. Artificially high transfer
prices invoiced by headquarters can also serve as a clandestine means of evading
host government restrictions on the amount of profits that foreign subsidiaries
can remit to their parents.” (Cohen, 2007, pp. 311-312).
The truth is that FDI is neither necessary a blessing, nor a curse. If a country
has a well-developed legal and institutional infrastructure related to its eco-
nomic and political system, it will probably attract the best FDI possible and it
will be able to have a stronger bargaining position towards the investors. On the
442
other hand, a country that is not on that level of societal development will make
it easier for investors to reap additional benefits for themselves. In other words
the efficiency of FDI depends on the skills of the government to provide best
conditions for economic development.
HOST COUNTRIES AND FDI ATTRACTION 

GENERAL APPROACH
We have already considered the push factors influencing the FDI. But it is
also important to analyse what source country has to do to attract FDI. If it was
all up to capital going from places where it is in abundance, to places where it is
scarce and where its marginal productivity would be much greater, the question
would be easily answered. Yet since this is not the case, and majority of FDI,
nearly 80 % of it, takes places between the developed countries, the question is
what can the developing and transitional countries (economies) do in order to
attract sufficient FDI and initiate the economic growth?
Dani Rodrik, one of leading development economists, in the introduction
to his book “One Economics Many Recipies” painted the following picture of
the government efforts to influence the economic growth through its measures:
“Trade barriers had been removed, price controls had been lifted, and all public
enterprises had been privatized. Fiscal policy was tight, public debt levels low,
and inflation non-existent. Labour markets were as flexible as they come. There
were no exchange or capital controls, and the economy was open to foreign in-
vestments of all kind. “We have done all the first-generation reforms, all the sec-
ond-generation reforms, and are now embarking on third generation reforms,”
he said proudly. Indeed the country and its finance minister had been excellent
students of the teaching on development policy emanating from international
financial institutions and North American academics. And if there were justice
in the world in matters of this kind, the country in question would have been
handsomely rewarded with rapid growth and poverty reduction. Alas, not so.
The economy was scarcely growing, private investment remained depressed,
and largely as a consequence, poverty and inequality were on the rise. What had
gone wrong? Meanwhile, there were a number of other countries—mostly but
not exclusively in Asia—that were undergoing more rapid economic develop-
ment than could have been predicted by even the most optimistic economists.
China has grown at rates that strain credulity, and India’s performance, while
443
not as stellar, has confounded those who thought that this country could never
progress beyond its “Hindu” rate of economic growth of 3 %. Clearly, globaliza-
tion held huge rewards for those who knew how to reap them. What was it that
these countries were doing right?” (Rodrik, 2007, p. 1) In a perfect World, this
country would be receiving more than its fair share of the FDI, which would
than almost certainly have a positive influence on its economic growth. Is this
example showing us that there is actually nothing a government could do in
order to promote FDI attraction and through it economic development? Or is
there something it can do in order to attract the FDI? Moran pointed out that
since 1991, 116 nations took proactive approach to attract FDI (Moran, 1998,
p.37).
Before explaining the host countries possibilities for attracting or discourag-
ing FDI, we have to define sovereign risk and country risk. Country risk is de-
fined as exposure to a loss in a cross country transactions, caused by the events
in a particular country, that are at least to some extent under the control of
the government, but definitely not under the control of private enterprise or
individual (Moosa, 2002, p. 132). Sovereign risk is a risk connected with perils
of lending money to the government. Generally speaking economic theory rec-
ognises that investment flows depend upon macro, micro, and institutional re-
forms, low inflation rates, realistic exchange rates, efficient legal and regulatory
systems which protect property, low levels of corruption that create favourable
conditions for business operations in general.
Moran emphasizes five main areas of interest for foreign investors when they
make their decisions whether to invest or not:
a) Cultural factors (worker motivation, absenteeism, alcoholism, cultural
preparation, etc.);
b) labour regulations (flexibility in hiring and laying off workers);
c) responsiveness of the surrounding economy in providing supporting
goods and services;
d) credibility of public-sector commitments about taxes, infrastructure, and
other regulatory issues (often extending beyond the probable duration of
any given government); and
e) Institutional base of commercial law (case law or common law) to provide
precedent when disputes arise (Moran, 1998, p. 89).
444
All countries included in this study have to a certain extent done necessary
reforms in those five areas to ease pressures caused by financial crisis and to at-
tract more quality FDI.
“OLD” EU MEMBER STATES PIIGS  FDI

ATTRACTION AND ECONOMIC CRISIS
Portugal, hit by the crisis, showed serious commitments to cut the bureau-
cratic red tape and foster investor friendly climate with following measures
which gave swift results:
-it takes just 46 minutes to set up a company;
-doing business in Portugal is easy and increasingly less expensive PIN sys-
tem expedites national interest projects;2
-wide array of possible investment incentives by the state are offered in num-
ber of key sectors such as manufacturing industry, trade, tourism, energy, trans-
portation and logistics and services.3 They take form of the tax breaks or state
aid for these projects.
FDI in Portugal peaked in 2007, slightly declined in 2008, and resumed
upward trend in the following years (see Table 1). Yet Portugal attracts FDI not
only in tertiary sector services, retail, banking and finances, telecommunications
etc but also in manufacturing sector as well. Most of the FDI in Portugal are
brown field investments.
Ireland has for a long time been seen as one of the most successful countries
with regard to FDI attraction. Due to its structural disballances and overheat-
ing of building and financial sectors, FDI crisis in Ireland happened in 2005.
2004 level of FDI was reached in 2009, which marks the end of recovery pro-
cess, helped by Irish government which decided to promote investment in the
following sectors: business services chemicals, clean technology, cloud comput-
ing, construction, consumer goods, emerging business, entertainment and me-
dia, financial services, industrial automation and control, industrial products
2
AICEP Portugal official site: http://www.portugalglobal.pt/EN/InvestInPortugal/investors-
guide2/whyportugal/Paginas/Costs.aspx, visited 11.11.2014.
3
AICEP Portugal official site: http://www.portugalglobal.pt/EN/InvestInPortugal/investors-
guide2/investmentincentives/Paginas/FinancialIncentivestoInvestment.aspx,
visited 11.11.2014
445
and services, information and communications technology (ICT), hardware &
software, medical technologies, pharmaceuticals and transportation.4 Govern-
ment offers a competitive corporate tax rate standing at 12, 5 % and access to
EU funds as well. Ireland is unique that most of its inward FDI are greenfield
investments and its investment promotion agency IDA is one of the most suc-
cessful in the World. Like in the years that followed after its accession to EEZ,
Ireland is again looking for FDI to boost its economy since a significant number
of multinational corporations has relocated their business from Ireland to CEE
countries such as Poland and Slovakia, due to the lower production costs.
Italy has been included in this group because it was hard hit by crisis and
because it is the only state here that is not counting on economic growth to
come from FDI but rather from investments by Italian companies. Italy is also
the largest outward FDI country in our study. The main pulls of FDI in Italy
are sophisticated market and a good business climate especially in the north-
ern regions of the country. Italy offers few incentives to invest in the form of
the government subsidies except for the investment in underdeveloped south
and it also offers access to EU funds for investment in these regions. The pre-
dominant form of FDI in Italy is brown field investment. Yet Italian outward
investment is present in most of the Central and Eastern European countries
we have discuses either in financial escorts, or automobile industry or in textiles,
footwear or food industry. Italy was especially hard hit by the financial crisis
in 2008. The public debt exploded and was hard to finance reaching 119 % of
GDP in 2010 while the GDP fell by 7 % (Eurostat). Italy as the third largest
economy in the Eurozone needed structural reforms in order to increase com-
petiveness and decrease public debt and spending. In November 2011 Italian
prime-minister Silvio Berlusconi had to resign and a new technocratic govern-
ment under Mario Montti was sworn in (Cencig, 2012, p. 3). Monti introduced
a sort of austerity program for Italy with increase of taxes, pension reforms and
measures to fight tax evasion while simultaneously trying to reform the labour
market (ibid). It remains to be seen if current Italian government under the
Prime Minister Renzzi will continue with the much needed structural reforms
emphasising labour market reforms and decrees in public spending in Southern
Italian regions.
4
Irish Development agency official site: http://www.idaireland.com/, visited 15.4.2014.
446
Regarding Greece the predominant type of FDI from 2007 onwards was
“FDI in services. This trend was dictated primarily by the development of the
country’s financial system, the liberalisation of telecommunications, and the
stimulation of trade. The proportion of the secondary sector is relatively low
compared with the potential of the country, a trend that suggests considerable
scope for investment.“ 5 There were few greenfield investments except in the
tourism and majority of the investments in Greece in this period can be classi-
fied as brown field investments. Since a good portion of FDI is in tourism this
can be categorized as resource seeking FDI since Greek coast and monuments
are unique in the World. In order to foster FDI attraction Greek government
passed the Investment Law of Greece 4146/2013, which should lead to de-
velopment of friendly environment for investments. The only problem that we
could notice is that this law has thusfar only been available in Greek language
and has not yet been translated into English which will increase transaction
costs for any potential investor. To further attract FDI inflows Greek govern-
ment offers the following incentives6:
a. Tax relief—Tax relief comprising exemption from payment of income tax
on pre-tax profits which result, according to tax law, from any and all of
the enterprise’s activities.
b. Subsidy—Gratis payment by the State of a sum of money to cover part
of the subsidised expenditure of the investment.
c. Leasing subsidy—Includes payment by the State of a portion of the in-
stallments paid under a leasing agreement executed to acquire new ma-
chinery and / or other equipment INTERDISCIPLINARY MANAGEMENT RESEARCH XI
d. Soft loans by ETEAN (National Fund for Entrepreneurship and Devel-

opment). The amount to be covered by a bank loan may be funded by soft
loans from credit institutions that cooperate with ETEAN enterprises.
But in spite of all these efforts Greece has not yet reached pre-crisis levels of
FDI and GDP growth, mainly because of high public debt and lack of consis-
tent economic policy. Such environment does not give much credibility in the
eyes of foreign and domestic investors.
5
Greek investment promotion agency official site: http://www.investingreece.gov.gr/default.
asp?pid=21, visited 10.11.2014.
6
Greek investment promotion agency official site: http://www.investingreece.gov.gr/default.
asp?pid=21, visited 10.11.2014.
447
The main interest of FDI in Spain, which did not fall during the crisis, has
traditionally been tourism and sectors such as telecommunications and finan-
cial services. Spanish government has tried to reverse this process by promoting
aerospace, automotive, biotechnology, pharmaceuticals, renewable energy, envi-

ronmental and ICT as key investment areas in which government incentives to
invest will be available.
Spanish government offers following incentives to invest in Spain:
-state incentives for training and employment,
-state incentives for specific industries,
-incentives for investments in certain regions,
-state incentives for SMEs,
-preferred financing from the Official Credit Institute (Instituto de Crédito
Oficial or ICO),
-incentives for internationalization.
By offering certain incentives and advantages Spain has been attracting more
FDI in manufacturing sector since 2008 than in services sector7 Spain was one
of the few countries in Europe that did not experience the sharp drop in FDI
in 2008 with the unemployment and especially youth unemployment being still
high FDI are seen as one of the few viable strategies of economic growth and
unemployment reduction.
7
OECD International Direct Investment Statistics 2013, Foreign direct investment flows by
industrial sector: Spain
http://www.keepeek.com/Digital-Asset-Management/oecd/finance-and-investment/oecd-
international-direct-investment-statistics-2013/foreign-direct-investment-flows-by-industrial-
sector-spain_idis-2013-table121-en#page1 visited 12.11.2014.
448
Table 1 FDI inflows - PIIGS 1995-2012 (source: eurostat)
FDI mil
1995 1996 1997 1998 1999 2000 2001 2002 2003
ECU/EUR
Portugal 13.816 16.473 20.476 25.788 26.787 34.437 40.875 42.564 47.969
Italy 48.283 58.001 73.506 90.305 105.249 121.492 122.556 120.608 143.223
Ireland : : : 89.226 90.254 129.703 152.120 174.403 176.435
Greece : : : 11.214 15.951 : 15.317 14.838 17.779
Spain 79.671 85.117 91.195 101.233 124.787 168.026 201.128 245.166 268.925
FDI mil
2004 2005 2006 2007 2008 2009 2010 2011 2012
ECU/EUR
Portugal 49.167 53.691 67.169 78.333 71.833 79.629 83.588 86.427 90.783
Italy 162.036 189.935 223.890 255.766 235.618 252.968 245.515 274.462 275.598
Ireland 152.446 138.620 118.824 138.362 135.294 173.610 213.722 224.511 257.513
Greece 20.985 24.788 30.126 35.380 27.141 28.131 30.235 22.486 18.799
Spain 290.715 325.963 350.438 397.974 423.152 438.877 470.245 476.903 475.767
THE BALTIC STATES  FDI ATTRACTION AND

ECONOMIC CRISIS
Estonia, Latvia, and Lithuania, were among the most liberal reformers and
they relied heavily on the FDI in order to boost their economic growth and
the balance of payments problems. Among the three Baltic States, Estonia ex-
hibits the best economic development with far above average growth rates and
strong capital accumulation. Its FDI as a percentage of GDP is even the high-
est among the transition countries. Estonia also holds the smallest fiscal deficit INTERDISCIPLINARY MANAGEMENT RESEARCH XI
and is among the three most open economies. Latvia experienced an economic
development similar to Estonia’s, albeit not quite as good. The domestic invest-
ment ratio is about three percentage points below Estonia’s. In addition, Latvia
is less open and ran on average a higher fiscal deficit. Lithuania stands apart
from Estonia and Latvia. It had slightly below average growth rates determined
by mainly negative economic indicators. Even FDI and trade openness, though
above average, are close to the median country. All of this changed in 2000s and
both Latvia and Lithuania pursue FDI attraction policies by offering incentives
to possible investor in form of state aid, tax breaks, and access to EU funds.8 Es-
8
On Latvian FDI attraction incentives see more on Investment and development agency of
Latvia: http://www.liaa.gov.lv/invest-in-latvia, visited 12.02.2015.
449
tonia is unique among the transition countries in Eastern and Central Europe
– it offers no tax incentives for attracting FDI because it would be in contrary
to the prevailing liberal market ideology in the country.
The most immediate consequence of financial crisis in 2008 was sudden

stop of capital flows to the Baltic States (Eurostat). Baltic States have high trade
openness and are mostly export orientated so they are susceptible to demand
shocks coming from their export markets. Due to the financial crisis “export
demand collapsed, which affected the Baltic States disproportionately, as their
economies are very open and have large export sectors integrated into Western
European supply chains. The crisis also impaired sentiment among households
and firms, leading to lower consumption and investment demand. The situation
was exacerbated by the disruption of financial markets, which spurred banks
to tighten credit standards and made stock markets illiquid, in turn making
it difficult for many enterprises to access working capital” (Staehr, 2013). The
monetary policy crisis was more or less the same in all three countries they
decided to keep fixed exchange rates vis-à-vis Euro. On fiscal side all of these
countries opted for austerity with Estonia implementing the severe austerity
measures immediately while Lithuania and Latvia adopted a more gradual ap-
proach to fiscal austerity. All of these countries increased taxes but as Staeher
points out: “The bulk of the adjustment came from the expenditure side and
comprised substantial cuts in employment and wages in the public sector, cuts
in social programmes, postponement of investment, and structural reforms, e.g.
mergers of hospitals and schools. In addition, a number of extraordinary rev-
enue measures were taken”. Thanks to these measures and to free movement of
their citizens which tried their luck with employment in other EU states these
countries managed to overcome crisis and return to economic growth.
450
Table 2 FDI inflows Baltic states 1995-2012 (source: eurostat)
FDI mil
1995 1996 1997 1998 1999 2000 2001 2002 2003
ECU/EUR
Estonia : : 1.033 1.580 2.454 2.843 3.573 4.035 5.553
Latvia : : 1.143 1.324 1.706 2.215 2.669 2.661 2.636
Lithuania : : 942 1.393 2.054 2.508 2.974 3.819 3.968
FDI mil
2004 2005 2006 2007 2008 2009 2010 2011 2012
ECU/EUR
Estonia 7.374 9.561 9.644 11.386 11.775 11.670 12.495 13.109 14.667
Latvia 3.349 4.199 5.747 7.534 8.063 7.998 8.108 9.404 10.333
Lithuania 4.690 6.921 8.377 10.283 9.191 9.206 10.031 11.029 12.101
CENTRAL EASTERN EUROPEAN COUNTRIES, FDI

ATTRACTION AND ECONOMIC CRISIS
For CEE countries, as a destination for FDI, we can identify several charac-
teristics ( Jude, Pop Silaghy, 2010):
„1. Relatively low labor costs, but low labor productivity. At the beginning of
the nineties this countries have experienced a dramatic decrease in productiv-
ity, which started to recover only during 1997-1998. There is a convergence
towards western productivity levels, but the differences are still present, even in-
side this group of countries. As an example, Romania and Bulgaria reach today
around 50% from the average European labor productivity. Even more, national
averages hide a high heterogeneity. A part of the low industrial productivity is INTERDISCIPLINARY MANAGEMENT RESEARCH XI
being compensated by the service sectors, which have productivity levels com-
parable with Western Europe.
2. High industry specialization, but low efficiency. The centralized economic
system and market dependence on the ISC (Independent States Community)
countries have led to an industrial specialization in industries like chemicals,
machinery and heavy metals’ industry. Once firms have lost these markets, they
also lost their scale production economies, accumulated high debts and even
reached the closing point.
3. Skilled Labor Force and at a low salaries compared to FDI origin countries.
Although the wage gap is narrowing, it remains important in investors’ deci-
sions about geographic locations, especially in labour intensive sectors.
451
4. A good absorption capacity. The general view is that CEE countries have a
sufficient level to integrate in a productive way the new technology brought by
FDI. The two components of the absorption capacity refer to the human capital
and to the technological capacities. … In particular the skilled labour is appreci-

ated as considered to facilitate the knowledge transfer and the mobility of the
workers among the foreign and domestic firms.“
FDI inflows plummeted across the region in 2009 and 2010, but in 2011
and 2012 they started to recover in the Czech Republic, Bulgaria, Hungary and
Slovakia.
Poland is the country which has profited the most from FDI attraction. It
has based its economic growth and development on successful FDI attraction.
In Poland the FDI was modest in the beginning, but then really took off. Ac-
cording to Financial times one of the best years for the Polish economy was
1999, because FDI in Poland hit a record $8 billion, taking the total to $39
billion, or 40 per cent of the ex-Soviet bloc total (FT, Survey, 17 April 2000,
p. i). Poland also set up a free enterprise zone. Euro Park Mielec was the first
of this free enterprise zones and was opened in 1995 with a twenty-year life
span. Investors enjoyed ten years of corporate tax relief (dependent on invest-
ment and exports) and a 50 per cent cut in corporate tax in the second decade.
In 1996 the government approved the setting up of a special enterprise zone in
Katowice (soon free economic zone in Suwalki was to follow). Today Poland
has 14 operational economic zones many more technological parks. Poland still
offers government grants for FDI attraction on basis of Program for the support
of investments of considerable importance for Polish economy for years 2011-2020.
Besides state aid Poland offers other incentives for foreign investors like tax
breaks and location selection9. Poland was the only EU economy not to experi-
ence the contraction of its GDP during the recent economic crisis. This was
mainly due to sound fiscal policy and manageable public debt and to a fact that
Poland allowed for depreciation of zloty vis a vis euro thus keeping its exports
competitive. It also could rely on a large internal market (38 million consumers)
and boost domestic consumption and government in Poland is considered to be
business friendly.
9
On Polish investing incentivess see more on Polish Information and Foreign Investment
Agency
http://www.paiz.gov.pl/en, visted:12.12.2014.
452
Slovakia has been far less successful than the Czech Republic in attracting
FDI in the 1990s, despite the fact that some tax and other incentives were of-
fered for a longer period of time than in the Czech Republic (which abolished
them in the 1993). Maybe this lack of FDI had something to do with the fact
that Slovakia was under the rule of Vladimir Meciar, whose regime was a semi-
democratic, semi-authoritarian dictatorship. Slovakia did not offer incentives
for foreign investment during the 1990s. Economic ministry was almost forced
to offer tax incentives have for foreign investors. Manufacturers were eligible
for tax reductions if certain investment and production targets were reached.
In 1998, when the Tesla semi-conductor plant was declared bankrupt, US
Company Motorola agreed to buy the firm. Americans managed to squeeze a
ten-year tax holiday out of the former Meciar government – the first ever such
incentive in Slovakia (it had something to do with the Olson`s rule that capi-
tal demands higher rates of return and more guarantees if it is invested in the
countries with non-democratic regimes). Djurinda`s government (coalition of
parties which managed to topple Meciar form power in 19998) hoped to build
on that success by offering similar incentives to anyone investing over $5 mil-
lion. It also set up free-trade zones and offered tax write-offs for research and
development. Today Slovakia is still pursuing active FDI attraction policies by
granting state aid and tax breaks to foreign investors in selected industrial sec-
tors10. The economic crisis hit Slovakia mostly in fall of foreign demand for in-
dustrial products produced in Slovakia. Thanks to the introduction of Euro in
2009 Slovakian public finances were in solid order since previous governments
had to adhere to strict Maastricht criteria regarding the fiscal policy in order to
join Eurozone. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Czech Republic stared its FDI attraction story by giving tax exemptions to
foreign investors, and abolished it in 1993, except in the special areas like elec-
tricity or consulting services. This was done in order not to put the domestic
firms at the disadvantage. Czechs could afford to do it like this, since they had
a strong industrial base, and a long tradition of industrial organisation. The
state established free economic zones. Enterprises which were more than 30 per
cent foreign-owned were exempt from customs duties for one year). The biggest
FDI in Czech Republic came into the guise of the privatization of the Skoda
10
On Slovakina incentivess for FDI attraction see more on Slovak investment and trade de-
velopment agency (SARIO): http://www.sario.sk/en/invest-slovakia/why-invest-slovakia, vis-
ited 12.02.2015.
453
automobile factory. It was bought by Volkswagen. Volkswagen–Skoda alone
accounted for amazing 10 per cent of Czech exports in the year 2000. Today
as every other CEE country Czech Republic is pursuing active FDI attraction
strategy by offering state aid and tax breaks to potential investors in selected in-
dustrial sectors11. Czech Republic opted for austerity in dealing with economic
crisis. Taxes were increased and public spending decreased. Yet unemployment
remains high in Czech Republic with the 8, 5 % unemployment rate12.
Hungary was the early transition champion in attracting FDI during the
1990s. The country has had a mixed performance during the 200s and especially
since 2008 after the new “strong” government headed by Viktor Orban came to
power. Hungarian problem was that during the initial FDI boom the majority
of FDI was in form of brownfield investments and fewer greenfield investments.
The Hungarian state has made a strategy of FDI attraction based on the follow-
ing industrial sectors: automotive sector, biotechnology and pharmaceuticals,
electronics, food, renewable energy, IT services, shared service centers, logistics
and medical technology. Hungary competes for FDI by providing government
incentives which can cover up to 50 % of the costs of investment depending on
the type and location of investment.13 Hungarian public finances were in quite a
bad shape prior to financial crisis. Hungarian government ran fiscal deficits and
accumulate large external debt14. Hungary also had its period of austerity with
public spending being put under control and taxes were increased (VAT rate in
Hungary is 27 % the highest one in EU).
Unlike the other of the observed countries from the central Europe during
the initial years of its transition Slovenia was actually hostile to FDI and was
rather quite keen to promote its outward FDI to former Yugoslavia countries,
Central and Eastern Europe. Slovenia was especially hostile to brownfield FDI
and was also keen to keep its banking sector out of foreign hands. All of that
11
On Czech FDI incentives see more on Chech Invest - Investment and bussines develop-
ment agency http://www.czechinvest.org/en/why-invest-in-the-czech-republic, visited:
23.02.2015.
12
Forbes: The Stunning Failure Of The Czech Republic’s Austerity Experiment: http://www.
forbes.com/sites/markadomanis/2013/05/30/the-stunning-failure-of-the-czech-republics-
austerity-experiment/, visited 12.02.2015.
13
Hungarian investment promotion agency: http://www.hipa.hu/en/Content.
aspx?ContentID=220482e5-5231-4d5f-bf8a-bbe11268d14a, visited 21.11.2014.
14
VOX CEPR’s policy portal: The Hungarian Crisis, http://www.voxeu.org/article/hungarian-
crisis, visited 21.02.2015.
454
changed with the Accession of Slovenia to EU in 2004 and especially with the
financial crisis in 2012 when Slovenian government announced privatization
of majority of state owned industries. Slovenia offers incentives for investment
with regards to the creation of new jobs, the transfer of new technologies and
know-how, and outsourcing opportunities where the local companies would get
new business partners.15 Financial crisis was a severe shock for the Slovenian
economy. The public debt rose above 60 % of GDP and Slovenian banks who
were partially or majority owned by the state faced bankruptcy or needed to
find additional capital16. Austerity was also practised by Slovenian governments
from 2009 onwards by lowering public spending and increasing the tax burden.
The government also pursued the limited structural reforms in labour market
making it more flexible. Slovenia will have to privatize its state owned banks
and companies in the near future. This means more revenue for the Slovenian
budget but also more brownfiled FDI for Slovenian economy.
Table 3. FDI inflows CEE 1995-2012 (source: eurostat)

FDI mil
1995 1996 1997 1998 1999 2000 2001 2002 2003
ECU/EUR
Poland : : 13.211 19.266 25.956 36.783 46.802 45.729 46.021
Hungary : : : : : : 31.187 34.518 33.205
Czech R : : 7.584 12.491 17.870 23.720 32.760 36.007 35.223
Slovenia : : : : : : 2.987 3.769 4.985
Slovakia : : 1.694 2.135 2.801 4.858 6.507 8.283 12.615
FDI mil INTERDISCIPLINARY MANAGEMENT RESEARCH XI

2004 2005 2006 2007 2008 2009 2010 2011 2012
ECU/EUR
Poland 63.428 76.673 95.417 120.726 116.914 128.948 160.781 155.699 178.878
Hungary 45.874 52.341 62.488 64.947 62.005 68.715 68.142 64.681 77.487
Czech R 42.036 51.433 60.643 76.315 81.468 87.304 96.149 93.231 103.078
Slovenia 5.582 6.132 6.822 9.765 11.326 10.625 10.925 11.715 11.724
Slovakia 16.089 19.951 25.564 29.075 36.226 36.469 37.665 40.173 42.304
15
Slovenian investment and trade agency official site: http://www.investslovenia.org/business-
environment/incentives. visited, 20.11.2014.
16
On financial crisis in Slovenia se more in Štiblar, F., Globalana kriza in Slovenija (http://
www.pf.uni-lj.si/media/stiblar.kriza.in.slovenija.pdf ), visited, 20.11.2014.
455
Bulgaria attracted a total of EUR 37 billion in foreign direct investment
in 2001-2011, according to estimates, which made 2001-2011 the most suc-
cessful decade in Bulgaria’s history ever in terms of attracting FDI. Final data
of the Bulgarian National Bank and the Invest Bulgaria Agency shows that in
2001-2010, Bulgaria’s total FDI reached EUR 35.7 billion. 2007 set a record
in Bulgarian history with a FDI peak of EUR 9.05 billion.17 Until 1997 FDI
inflows to Bulgaria have been low due to the unfavourable investment environ-
ment and absence of significant privatization activities. In the post-1997 period,
FDI inflows achieved robust growth as a result of the macroeconomic stabili-
zation, improved investment climate and accelerated privatization effort. Also
Bulgaria had a rather low GDP, that left significant room for growth and the
strengthening of the national economy coincided with Bulgaria’s accession to
the EU in 2007 which caused further FDI inflow. Thus, by the end of 2008
Bulgaria’s national economy had become one of the most FDI heavily reliant
countries in the CEE region. “However, shortly after this FDI growth period,
significant problems began to emerge. Ever since Bulgaria’s accession to the EU,
the country has been failing to meet EU economic regulation standards. It has
had issues with bureaucracy and corruption and, moreover, its cumbersome ad-
ministrative procedures have not made trading transactions easy. Nonetheless,
the most significant factor affecting FDI markets worldwide, the global financial
crisis of 2007-2008, saw Bulgaria somewhat less hit than other economies, due
mostly to the country’s relative ‘poorness’. Still, with the shortage of worldwide
market liquidity and the rise of private debt, Bulgaria’s economy did contract
and the flow of FDI significantly decreased. By 2010, Bulgaria had a negative
FDI inflow of 62.5 million euros for the April-January period followed by an-
other contraction of 26.9 million Euros for the same period so far in 2011 ac-
cording to data provided by the Bulgarian National Bank. For the most part, it
is considered that a significant volume of FDI for the period between 2008 and
2011 has failed to generate absorptive capacities and productivity growth. Fur-
thermore, during the time of a financial recession when global market liquidity
of funds is widely unavailable, the most stable FDI sectors are deemed to be the
processing industry, energy and telecommunications. As it happens, however, in
Bulgaria the major FDI sectors are finance, retail and real estate, with FDI being
70-80% spread among these sectors in 2008, and shrinking to 24% in 2010.”18
17
Expats.bg: http://www.expats.bg/wikis/9/FDI-in-Bulgaria, visited 22.02.2015.
18
Bulgaria: Overview of Foreign Direct Investment: http://goaleurope.com/2011/07/22/bul-
garia-overview-of-foreign-direct-investment/, visited 20.02.2015.
456
The dynamic of annual FDI flows in Romania can be divided into the fol-
lowing subcategories (Moraru, 2013, pp.130-131):
-2003-2006: the total flows of FDI achieved a steady growth from 9,059
million Euros to 1.946 billion Euros, increased by 78.51%, mainly due to large
privatizations registered in
Romania in banking and industrial sectors (oil and petrochemical, metal-
lurgy, machine building);
-2007-2008: marks the maximum amount of FDI attracted in Romania,
their value being 9,496 million Euros in 2008;
-2009-2013: FDI volume decreased dramatically, reaching 1,815 million
Euros at the end of 2011, due to the impact of economic and financial crisis.
But at the end of 2011, the balance of foreign direct investment reached
55.139 million Euros, 4.9% more than the balance of the previous year. “FDI
inflows were down to $2.24bn in 2012. Data from FDI Markets shows the
same trend in project numbers: in 2008, there were 309 projects recorded in the
country, this figure was down to 138 and 122 in 2012 and 2013, respectively.
The effect of the downturn is not surprising, of course. Growth before the crisis
was stimulated by foreign investment, which created employment, boosted con-
sumer confidence and increased consumption. With the global financial crisis
and then the Eurozone crisis, all that changed. Established foreign investment
in Romania has kept up the country’s exports, but recovery in the domestic
space has been sluggish.”19
According to the World Bank, Croatia`s FDI inflow have been 33, 9 bil- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
lion US$ from 1992 to 2013. FDI was rather low until 1995 due to the war.
The surge in FDI inflow to Croatia, especially after 2000, was driven largely by
the economic recovery, a better investment climate and the start of accession
negotiations with the European Union (EU) in 2005, until it peaked in 2008
with 4.22 billion euro, that is almost 40 times more than in 1993 (101 million
euro) Since the independence the main source of FDI has been privatization of
strategic government-owned assets, such as utilities and banks, resulting in high
inflow of FDI. Like the CEE countries, Romania and Bulgaria, Croatia was
affected by the financial crisis, resulting in the FDI fall in 2009 (World Bank,
19
FDI Intelligence, Is Romania back in the game?, http://www.fdiintelligence.com/Locations/
Europe/Romania/Is-Romania-back-in-the-game?ct=true, visited 20.02.2015.
457
2014). After sharp fall in 2010 (295.3 million euro, that was just 0.9% of GDP)
the amount of FDI has risen in 2011 to 1.05 billion Euros (European Commis-
sion 2011). Beside global recession, another reason for the fall is the emerging
structural problems within the economic sector. These structural problems are
mainly caused by corruption and complex bureaucracy. Some actions have been
made in order to change this, but the long-time results of the efforts are still
not visible (World Bank, 2014). In Croatia the lack of institutional infrastruc-
ture to attract foreign direct investment at the national level in which only in
2012 the Agency for Investment and Competitiveness (AIK) was (re) formed,
is an important limiting factor in ease of entry of new investors in the national
market. In 2013, the Croatian Parliament passed the law on strategic invest-
ment projects. By analysis of that act and its subsequent amendments it is pos-
sible to notice a certain incentives, but only partly effective solutions. Because of
these shortcomings, as well as the lack of coherent and harmonized framework
for economic development, stimulating investment climate and adequate insti-
tutional infrastructure in attracting FDI, Croatia is still left behind by other
“older” EU member states, as well as CEE and SEE EU member states, with
FDI below pre-crisis level.
Table 4. FDI inflows SEE 1995-2012 (source: eurostat)
FDI mil
1995 1996 1997 1998 1999 2000 2001 2002 2003
ECU/EUR
Bulgaria : : : 1.368 2.151 707 3.144 3.741 4.948
Romania : : 2.218 3.840 5.496 : : : 9.662
Croatia : : : : : 2.954 4.365 5.684 6.753
FDI mil
2004 2005 2006 2007 2008 2009 2010 2011 2012
ECU/EUR
Bulgaria 7.420 11.738 17.831 25.770 31.659 34.170 35.348 36.620 37.756
Romania 15.040 21.865 34.494 42.799 48.345 49.889 52.866 55.093 58.915
Croatia 9.046 12.242 20.766 30.354 21.740 25.366 26.164 23.824 23.917
ECONOMETRIC MODEL
As we have already stated, the purpose of this article is to examine the rela-
tionship between FDI inflows to our selected countries and national economic
policy that they have lead in good times and especially in the time of crisis. We
assume the existence of certain differences between these groups of countries,
458
which are caused by the possibility to accommodate the effects of internation-
al financial crisis through autonomously run monetary and fiscal policy. The
groups of countries which we selected for our analysis can roughly be divided
in to pigs (Portugal, Italy, Ireland, Greece and Spain), Central European and
Baltic countries (Slovenia, Hungary, Slovakia, Czech Republic, Poland, Lithu-
ania, Latvia and Estonia) and South East European group (Romania, Bulgaria,
Croatia20). The groups can also be divided into following groups: old member
of EU (pigs), member states since 2004 (CE and Baltic countries) and new ar-
rivals in 2007 and 2013 respectively (SEE countries). The panel data model has
been built and tested for the period from 1995 to 2012. We chose 1995 as the
start year for our analysis since it was the symbolic end of the economic transi-
tion in Central Europe.21
The proposed econometric model goes as follows:
FDI/GDP =a+bInfl+cEurzo+dReg+eDebt+fTrade+gGDPgowth+ з
FDI/GDP is dependent variable which stands for foreign direct invest-
ments inflows to specific country or groups of countries as part of their GDP;
Infl is the annual inflation rate in the host country at period t, to control for
macroeconomic stability. Sound macroeconomic policy should help the country
attract more FDI (Rodrik, 2007, Bandelj, 2008). Investors are more likely to
invest their resources or to locate their businesses in the countries where there
is low inflation combined with the prudent fiscal and monetary policy;
Reg is a dummy variable which captures the benefits of membership of re-
gional economic integration (REI) for host`s country FDI attraction. For the INTERDISCIPLINARY MANAGEMENT RESEARCH XI
years in which the observed individual countries are member states of EU its
value is 1 otherwise it is 0;
Euro is dummy variable which shows how the membership in Eurozone
influences FDI inflows. The value is 1 if the country is member of Eurozone
otherwise it is 0;
Debt_GDP is variable representing the level of public debt of individual
countries in GDP. This variable stands as proxy for a sound and responsible
20
Croatia was included in South East European countries group due to the fact of its late EU
acession date in 2013 and due to its less than optimum preforming economy, as well as FDI
attraction efforts.
21
Eg. Polish GDP reached its 1989, pre transition, level in 1995.
459
fiscal policy. The lower the public debt the more likely is that FDI will be at-
tracted. This variable also stands as proxy for financial crisis since the level of
public debt has substantially risen in times of economic crises in majority of
countries we have studied in this paper;

Trade_open_. This variable stands for the economic openness of the host
economy. The larger the openness the more FDI is likely to be attracted;
gGDP represents GDP growth rate of the selected countries and is used as
a proxy for market demand in them. Higher demand means more investment
opportunities and therefore it is likely to generate more FDI inflows;
Data were transformed into relative form as presented above in order to
eliminate non-stationarity of the series. Panel data analysis with two separate
equations was employed, first one including country fixed effects (Table 5) and
the other one groups of countries fixed effects (Table 6).
Table 5: Results of specification 1a.
Fixed-effects (within) regression Number of obs = 195
Group variable: year Number of groups = 16
R-sq: within = 0.0862 Obs per group: min = 7

between = 0.0000 avg = 12.2
overall = 0.0596 max = 16
F(6,173) = 2.72
corr(u_i, Xb) = -0.1508 Prob > F = 0.0150
fdi_gdp Coef. Std. Err. t P>|t| [95% Conf. Interval]
trade_open 1.227048 .4980558 2.46 0.015 .244 2.210096

debt_gdp .117809 .5948762 0.20 0.843 -1.056341 1.291959
g_gdp .975457 .3730796 2.61 0.010 .2390833 1.711831
infl -.000588 .0017123 -0.34 0.732 -.0039677 .0027916
reg .1021458 .0624997 1.63 0.104 -.0212143 .2255059
euro -.012707 .0504563 -0.25 0.801 -.1122963 .0868823
_cons .3546521 .0634453 5.59 0.000 .2294256 .4798787
sigma_u .11995647
sigma_e .26178917
rho .17352884 (fraction of variance due to u_i)
F test that all u_i=0: F(15, 173) = 1.23 Prob > F = 0.2560
Two variables were significant in the specification using country fixed effects:
trade_open and g_gdp. All others, except euro had signs in accordance with
economic theory presented above.
460
Results show that one percentage point increase in trade openness results
in 1.2 p.p. increase of FDI-to-GDP ratio, showing that FDI inflows increase
in parallel with the trade increase. Increase in the growth of GDP by one p.p.
results in almost one p.p. increase in FDI/GDP ratio.
An alternative specification with lagged dependent and explanatory vari-
ables was considered, although it is reasonable to assume that all the relevant
reactions of the economic subjects are performed in the same period.
Results show that the impact of the trade openness becomes statistically
significantly negative, similarly as the public debt to GDP ratio. The first result
would support the theory that trade and FDI inflows represent substitutes, the
other one is totally in accordance with economic theory, as explained before
(Table 2).
Table 6: Results of specification 1b.

Fixed-effects (within) regression Number of obs = 178
Group variable: STATE Number of groups = 16
R-sq: within = 0.8258 Obs per group: min = 2

between = 0.9818 avg = 11.1
overall = 0.9300 max = 15
F(7,155) = 104.98
corr(u_i, Xb) = 0.6867 Prob > F = 0.0000
fdi_gdp
L1. .8310966 .0436554 19.04 0.000 .7448603 .917333
trade_open
L1. -.2740201 .1483388 -1.85 0.067 -.5670466 .0190063
debt_gdp
L1. -.4581094 .1636205 -2.80 0.006 -.7813231 -.1348956
g_gdp
L1. -.0157901 .0854564 -0.18 0.854 -.1845995 .1530193
infl
L1. .0000457 .0004634 0.10 0.922 -.0008698 .0009611
reg .0307379 .0196078 1.57 0.119 -.0079951 .0694709

euro -.0023603 .0288514 -0.08 0.935 -.0593531 .0546324
_cons .0401072 .0217359 1.85 0.067 -.0028296 .083044
sigma_u .05845606
sigma_e .0660385
rho .43931932 (fraction of variance due to u_i)
F test that all u_i=0: F(15, 155) = 1.65 Prob > F = 0.0665
461
In the second specification (Table 7) four groups of countries were formed in
order to reflect common economic characteristics of certain groups of countries.
“pigs”, composed out of Portugal, Ireland, Italy, Greece and Spain; “cees”, com-
posed out of Czech Republic, Hungary, Poland, Slovakia and Slovenia; “baltic”,
composed out of Estonia, Latvia and Lithuania and “poor” with the most recent
EU members Bulgaria, Croatia and Romania. The resulting equation gives bet-
ter outcome than equation presented in Table 1, besides that it exhibits higher
statistical significance (see F-statistic).
Table 7: Results of specification 2.

Source SS df MS Number of obs = 195
F( 9, 185) = 4.04
Model 2.46929923 9 .274366581 Prob > F = 0.0001
Residual 12.5774495 185 .067986214 R-squared = 0.1641
Adj R-squared = 0.1234
Total 15.0467487 194 .07756056 Root MSE = .26074
trade_open 1.28966 .4415569 2.92 0.004 .4185258 2.160795

debt_gdp -.6116981 .5501251 -1.11 0.268 -1.697023 .4736271
g_gdp .5478112 .3045044 1.80 0.074 -.0529363 1.148559
infl -.0029825 .001616 -1.85 0.067 -.0061707 .0002058
reg .2480741 .0527994 4.70 0.000 .1439079 .3522404
euro -.04875 .0857127 -0.57 0.570 -.2178499 .12035
GROUP
cees .0433564 .0624474 0.69 0.488 -.0798441 .166557
pigs .0193594 .0970757 0.20 0.842 -.1721583 .2108771
poor .1822306 .0699297 2.61 0.010 .0442683 .3201929
_cons .223676 .0763622 2.93 0.004 .0730233 .3743287
All explanatory variables used in the equation (except euro area membership
and debt to GDP) are highly statistically significant and have expected sign
(even the statistically insignificant variables of euro and debt_gdp).
Similarly as in the specification with country fixed effects, trade-openness
positively affects the share of FDI in country’s GDP. The more the country is
integrated in regional or world economy the more FDI it is bound to attract.
For every percentage point of increase in trade openness the amount of FDI
inflows as share of FDI in GDP is going to increase by 1.28 percentage points.
The same sign is observed for the GDP growth. If GDP growth rate in-
creases by 1 percentage point, FDI inflows measured as their share of GDP will
increase by 0.54 percentage points. This shows us that GDP growth rate which
462
stands as a proxy for market demand positively influences FDI attraction. It
also means that if GDP of a country is growing there will simply be more in-
vestment opportunities.
Inflation has an expected negative sign, showing that macro-economic insta-
bility negatively affects the FDI inflow. Membership in the regional economic
association (i.e., membership in the European Union) has a positive impact
on the FDI-to-GDP ratio, which is not the case in the previous specification.
Anyhow, this result indicates that the abolition of tariff and non-tariff barriers,
approximation of legislation etc. lead also to increase in FDI inflow in member
countries. Common currency does not exhibit any impact on the FDI.
Share of public debt in GDP which we used as a proxy for sound fiscal
policy was not statistically significant in our model but it negatively influences
FDI which is in accordance with economic theory. Normally countries exhibit-
ing sound fiscal policies and sustainable public debt generate more FDI inflows
since investors will not be scared away by the possibility of increase of the level
of taxation or introduction of new taxes in order to service high public debt.
None of the explanatory variables was significant if the alternative specifica-
tion, using lagged dependant and explanatory variables was used; therefore its
results are not presented here.
CONCLUSION
Can economic policy really influence the FDI attraction? The answer is
luckily positive. Econometric analysis has shown that with adequate economic INTERDISCIPLINARY MANAGEMENT RESEARCH XI
policy, such as appropriate monetary policy which achieves low inflation and
trade policy which promotes trade openness and membership in larger regional
economic integrations, it is possible for countries to increase share of FDI in
their GDPs. This suggests that abolition of tariff and non-tariff barriers, har-
monization of legislation etc. leads to increase in FDI inflows. The econometric
analysis has also shown that GDP growth rate (which in our model stood as
a proxy for market demand) is also one of the essential ingredients of FDI at-
traction. If GDP growth rate is positive there will be more market demand and
therefore more investment opportunities.
On the other hand, economic crisis negatively influences FDI attraction. In
crisis trade openness is lower since countries tend to react with protectionist
463
measures to foster domestic industries, trade less with each other and national
investments are proffered over foreign ones. Economic crisis also causes macro-
economic instabilities in forms of higher inflation rates or higher share of debt
in GDP. These macroeconomic instabilities will in turn cause lower FDI in-
flows since investors are vary of potential higher tax burdens which are needed
to pay of rising government debts. Finally, economic crisis causes GDP growth
rate to fall down which will in turn lower domestic market demand and there
will be fewer profitable investment opportunities. Lower or even negative GDP
growth rate will also increase public debt.
FDI is neither a blessing nor a curse for the national economy. It is only one
component of economic development and growth which is not even the most
important one. The most important is having a good human capital and good
institutional infrastructure, public and private one, and FDI will then flow to
the country, even if there are no significant government incentives to attract
it, as in already developed “old” EU member states. It will flow outside of the
country if these two components are lacking, as we can see from the example of
Croatia and to certain extent in Bulgaria and Romania.
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466
MANAGING PERSONAL FINANCES:
EXAMPLES AND LESSONS
FROM CROATIAN STUDENT
POPULATION1
Branko MATIĆ, Ph.D.

matic@efos.hr
Hrvoje SERDARUŠIĆ, Ph.D.

hserdar@efos.hr
Maja VRETENAR COBOVIĆ, Ph.D.

Polytehnic of Slavonski Brod, Republic of Croatia
mvretenar@vusb.hr
Abstract
In this paper the authors present the results of their research related to financial
involvement and management of personal finances of the student population
on the territory of eastern Croatia. The research focused on the reasons for the
entrance of student population into the financial system, the amount of their
use of credit institutions’ services as well as their motives for choosing a certain
credit institution.
Keywords: financial education, personal finance, financial management
JEL Classification: D14, D31
1
Acknowledgement: The paper was written within the bilateral research project entitled
“Knowledge management in the function of development strategy” co-financed pursuant to
the Protocol on Scientific and Technological Cooperation between the Republic of Croatia
and the Republic of Montenegro for the years 2015/2016.
467
1. INTRODUCTION
The way in which a person behaves will have a significant impact on their
financial wellbeing (Atkinson&Messy;2012,7). Owning a bank account is the
Branko Matić, Hrvoje Serdarušić, Maja Vretenar Cobović: MANAGING PERSONAL FINANCES: EXAMPLES AND LESSONS FROM CROATIAN ...
basis for financial involvement. The right to a basic bank account, as one of the
fundamental rights for all individuals in the European Union, has been man-
aged and acknowledged by the Directive 2014/92/EU on the comparability of
fees related to payment accounts, payment account switching and access to pay-
ment accounts with basic features.
Despite of constant technological advancements and developments of new
technologies in the payment sectors, cash payments are still present. These are
the kinds of situations, where the individual takes no part in the financial sys-
tem or just peripherally participates in it. In this paper the authors present and
analyse the results of the research conducted by carrying out surveys of the
relationship between the student population and their personal finances on the
territory of eastern Croatia.
2. FINANCIAL EDUCATION OF STUDENT

POPULATION ON THE TERRITORY OF
EASTERN CROATIA AND ITS INFLUENCE ON
THE MANAGEMENT OF PERSONAL FINANCES
 RESEARCH RESULTS
Financial involvement is closely connected with financial education. Finan-
cial literacy is a combination of awareness, knowledge, skill, attitude and behav-
iour necessary to make sound financial decisions and ultimately achieve indi-
vidual financial wellbeing. (Atkinson&Messy;2012,14).
Reasons for complete, increased or partial financial involvement of student
population on the territory of eastern Croatia can be found due to the shortage
of personal incomes, i.e. incomes of their households, changed circumstances
of the incomes in a specific time period (decrease of total income due to a job
loss and similar), poor financial education, and lacking in knowledge of finan-
cial regulations, personal views regarding personal finances and similar. On
the other hand, it is possible to define financial exclusion as a gap between the
needs and demands for some basic financial services of certain social groups.
(Matić&Serdarušić&Vretenar-Cobović;2013,504).
468
Research was conducted with the aim of collecting information about the
financial potential and financial involvement of student population on the terri-
tory of eastern Croatia, their comprehension of their own status in the financial
system and their relation to personal finances, as well as the level of their finan-
cial education. The collected results were used to calculate correlative values
between financial education and personal finance management for certain vari-
ables from the conducted survey.
The research was conducted in January, 2015 on a representative sample of
505 examinees. The target group included student population, while the survey
itself consisted of four parts. The first part of the survey collected some basic
information about the sample (gender, age, year of study, student status and
residence); the second part dealt with the students’ participation in the financial
system; the third dealt with the state of current monthly incomes and current
and expected financial duties of students, whereas the fourth part dealt with
questions related to students’ points of view on their personal finances.
Gender and student status of student population are shown in Table 1.
Table 1: Gender and status of the studied sample

Gender & Status of study Frequency Percent Valid Percent Cumulative Percent
Male 142 28,1 28,1 28,1
Female 363 71,9 71,9 100,0

Gender
Total 505 100,0 100,0
Full-time Student 298 59,0 59,0 59,0 INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Student status
Part-time Student 207 41,0 41,0 100,0
Total 505 100,0 100,0
Source: authors
There were 71,9% of female student examinees and 28.1% male student ex-
aminees who were questioned in the total sample of 505 examined students.
According to their student status, there were 59% full-time students and 41%
part-time students questioned. The survey was conducted among students at
the Institutions of higher education in eastern Croatia. The biggest number
of survey participants was questioned in Osijek-Baranja County (44.4%), and
Brod– Posavina County (28.5%) (Table 1)
469
An important factor during the evaluation of the student population’s finan-
cial potential is the level of their financial involvement in the banking system.
Financial involvement of student population was monitored through their par-
ticipation and their use of banking services, which is shown in Table 2, Chart 1.
Table 2: Use of banking services

Used banking services Frequency Percent Valid Percent Cumulative Percent
Yes 458 90,7 90,7 90,7
No 47 9,3 9,3 100,0
Total 505 100,0 100,0
Description
One bank 345 68,3 73,2 73,2

Two bank 107 21,2 22,7 96,0
more than two banks 19 3,8 4,0 100,0
Total 471 93,3 100,0
Source: authors
Chart 1: Use of banking services
Source: authors
By analysing and comparing data collected from the students questioned in

the survey, it is possible to conclude that students (regardless of their student
status) participate significantly in the banking system by using banking servic-
es. Most of the questioned students use the services of just one bank (68.3%),
whereas 25% of them use the services of two or even more than two banks.
Banking services most commonly used by student population are: card business
(17,4%) and payment services (16,6%), whilst saving services (9%) and certain
loans (4%) are ranked third and fourth.
470
Despite a certain amount of participation within the banking system , there
is , however, still a significant amount of student population that does not use
any of the banking services (9,3%) as well as a part of the sample that has not
answered any of the given questions (6,7%). The students list shortage of infor-
mation on these types of services as the main reasons for non-participating in
the banking system. This proves a low level of their financial education. Another
part of the students list low interest rates on savings as the main reason for non-
participating in the banking system. (Table 2, Chart 1)
Amount of monthly income, which students have access to, is shown in Ta-
ble 3 and Chart 2
Table 3: Amount of monthly income
Amount of monthly income Frequency Percent Valid Percent Cumulative Percent
up to 500 kn 77 15,2 15,2 17,8
501-1000 kn 158 31,3 31,3 49,1
1001-3000 kn 189 37,4 37,4 86,7
3001-5000 kn 46 9,1 9,1 95,8
5001-7000 kn 9 1,8 1,8 97,8
over 7001 kn 11 2,2 2,2 100,0
unanswered 15 2,6 2,6 2,6
Total 505 100,0 100,0
Source: authors
Chart 2: Amount of monthly income

Source: authors
471
The highest amount of monthly income amongst students on the territory of
eastern Croatia is within the span of 1001,00 to 3000,00 kuna(37,4%),followed
by students with monthly incomes from 500,00 to1000,00 kuna (31,3%).
Only 1.8% of all students has a monthly income from 5001,00 to 7000,00
kn.
Their incomes usually come from their pocket money, apropos their house-
hold incomes (parental income 53,3%), and their salaries (part-time students),
as well as scholarships (13,1%). They usually receive their monthly incomes in
their bank account (33,7%) or they get paid in cash (32,5%). (Table 3, Chart 2).
A bank account enables us to receive different types of deposits and with-
drawals of money, and makes payments easier for us especially when we are
purchasing goods or services online. Owning a certain type of a bank account is
an important indicator of financial involvement.
Analysis shows that even after accounting for national income level, there is
a strong relationship between investment in education (as measured by spend-
ing per student on primary education) and account penetration. (Demirguc-
Kunt & Klapper; 2012,16) Transactional account types most commonly used
by students are shown in Table 4.
Table 4: Transactional account types

Valid Cumulative
Transactional account types Frequency Percent
Percent Percent
kuna current account 117 23,2 23,4 23,4
kuna and foreign currency current account 5 1,0 1,0 24,4
kuna giro account 88 17,4 17,6 41,9
kuna and foreign currency giro account 5 1,0 1,0 42,9
kuna current and giro account 230 45,5 45,9 88,8
kuna current, kuna giro account and foreign currency current
4 ,8 ,8 89,6
account
kuna and foreign currency current and giro account 3 ,6 ,6 90,2
foreign currency giro account 9 1,8 1,8 92,0
I do not own a transactional bank account 40 7,9 8,0 100,0
unanswered 4 ,8
Total 505 100,0 100,0
Source: authors
472
Based on the given table data, it is noticeable that students most commonly
use a kuna current account and a giro account (45,9% of students), as well as
kuna current account (23,4% of students) and a kuna giro account (17,6% of
students).
It is also very important to mention the influence the students had, when
they were opening their account. Some students (66,2%) were influenced by
members of their immediate family, who also own an account at that certain
bank. Students (20,4%) were influenced by marketing activities of the bank
(20,4%). These marketing activities include media such as television and radio
34,4%. (Table 4, Chart 3).
Time of opening a bank account is shown in Table 5 and charts 4 and 5.
Table 5: Time of opening a bank account

Student status
Gender
Full-time student Part-time student
When I turned 18 24 16
When I entered the university 32 26
Time of opening
As a student, when I started working
Male
a bank account 13 5
within the Student Job Center
When I got a job 4 10
Total 73 57
When I turned 18 73 36
When I entered the university 99 44
Female
Time of opening
a bank account As a student, when I started working
27 18
within the Student Job Center
When I got a job 9 27
Total 208 125
Source: authors
473
Chart 4: Time of opening a bank account Chart 5: Time of opening a bank
account
(male) (female)
Source: authors Source: authors
Based on the data in the table and charts, it is noticeable that students usu-
ally open their bank accounts when entering a university regardless of their
gender and student status. It is interesting to see that part-time students also
open a bank account when they enter university and not when they turn 18 and
become of age or when they get a job. This fact clearly indicates a somewhat
poorer participation of those students in the banking system. (Table 5, Chart
4, Chart 5).
The correlation or the degree measure of the linear connection between in-
dividual important variables for the conducted research is shown in table 6. The
Pearson correlation coefficient was used to calculate the correlation. The Pear-
son linear correlation coefficient is the direction measurement and the degree of
statistical connection which varies within the span of ±1.
If the correlation takes a value > 0, there is a positive linear correlation, and
if the correlation takes a value < 0, there is a negative linear correlation. If the
correlation value points to a 0, it is a clear indicator that there is no connection
between the testes variables.
When taking the span of the given values in consideration, the strength of
the correlation can be ranked in three degrees. The correlation value with a span
474
from 0 to 0, 25 signifies a poor correlation; a span from 0, 25 to 0, 64 signifies a
medium strong correlation of the variables, whilst a span from 0,64 to 1 signi-
fies a strong correlation between the tested variables.
Table 6: Correlation research variables

SP SS RE BS NBS RN MI FTA TOA Mean Std. Deviation
SP 1 1,72 ,450
SS -,043 1 1,41 ,492
RE ,082 -,074 1 2,36 2,083
** *
BS ,064 ,176 -,108 1 1,09 ,291
NBS ,027 -,021 ,029 ,024 1 1,31 ,543
RN -,003 ,137 ,069 ,140 ,103 1 3,15 1,635
MI -,100* ,157** ,084 -,148** ,152** ,045 1 2,50 1,126
FTA ,094* -,045 -,080 ,544** ,050 ,407** -,106* 1 2,698 1,5503
TOA -,011 ,185** -,113* -,006 -,062 -,063 ,216** -,147** 1 2,030 ,891
*Correlation is significant at the 0.05 level (2-tailed).

**Correlation is significant at the 0.01 level (2-tailed).
GE – Gender; SS – Status of study; RE – Residence; BS – Bank services ; NBS – Num-
ber of banking services; RN – Reasons for non-use; MI – Monthly income; FTA – Form of
transactional account; TOA – Time of opening a bank account
There is a significant connection between the forms of transactional bank ac-

counts and the use of banking services. There is also a noticeable medium strong
level of connection between the forms of transactional accounts and the reasons
for their nonuse. (Table 6) INTERDISCIPLINARY MANAGEMENT RESEARCH XI
CONCLUSION
The importance of awareness and quality of financial education directed to-
wards an increase of financial responsibility of all individuals is becoming more
and more significant. The reasons for this are the introduction and the expan-
sion of new banking and financial products and services, which are motivated by
the need for market development and contemporary technologies.
The survey results on financial involvement, financial education and person-
al finance management among student population on the territory of eastern
Croatia point out the following:
475
• most of the student population enters the financial system, or opens a
transactional account when they enter a university or while studying at
university;
• students were mostly influenced by members of their immediate family,
mostly by their parents, and by marketing activities of the bank such as

advertising media (usually television and radio) when they were choosing
a bank to open their bank account in;
• there is a noticeable diversification trend of banking activities directed
towards student population;
• there is a noticeable trend of using the services of several banks as well as
an increase in the use of different types of transactional accounts by the
student population;
• there is a greater concern for personal finance management which was
stimulated by a decrease of the level and source of financial incomes;
approximately 10% of the student population is financially excluded.
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IMPACT OF THE PUBLIC DEBT OF
THE REPUBLIC OF CROATIA ON
THE CROATIAN EXPORT SECTOR
Helena Miloloža • Marina Šunjerga: IMPACT OF THE PUBLIC DEBT OF THE REPUBLIC OF CROATIA ON THE CROATIAN EXPORT SECTOR
Helena MILOLOŽA, M.A.

Faculty of Economics & Business Zagreb, Republic of Croatia
hmiloloza@efzg.hr
Marina ŠUNJERGA, M.A.

Vecernji list, Zagreb, Republic of Croatia
marina.sunjerga@vecernji.net
Abstract
The competitiveness of the Croatian export must be observed in the context
of public and external debt of the Republic of Croatia. Increased government
spending generates public debt on domestic and foreign markets. State debt
on the domestic market limits the private sector’s access to capital. With high
amounts of debt on foreign markets, the state affects the increase in the risk
premium for Croatia at the national level, which increases the price of money
and reduces the return on investment. This in turn significantly affects the
export sector and limits the financial capacity for technological innovation. Ex-
posure of the state to the debt in foreign currencies causes a restrictive exchange
rate policy based on a fixed exchange rate. This prevents economic operators
from using exchange rate policy as leverage. For an EU economy outside the
euro zone, such as Croatian, this could play a key role in the battle for price
competition on the EU market.
Public debt has been growing fast since 1999, and rapidly since the crisis began
in 2009. Borrowing is financing public spending not covered by revenue bud-
get, which serves to maintain the current economic model based on state and
para-state sector, existing from the expansion phase of the economy up until
2008, which relied on large infrastructure projects financed with public money.
The decline in budget revenues during the crisis was tried to be replaced with
higher tax burden, which resulted in a drop of competitiveness of the private
sector and disturbances on the money markets. The high cost of government
478
borrowing has resulted in high interest costs that, in the medium term, will
amount to about 3 percent of GDP, which will adversely affect the competitive-
ness of the economy.
Keywords: public debt, export, competitiveness
JEL Classification: F34, H6, E6
1. INTRODUCTION
General government debt of Republic of Croatia and its rapid growth in the
years of the financial crisis, significantly affected the access to and cost of capital
for other sectors of the economy, especially for the sector of the economy abroad
and on the domestic market. Refinancing obligations at the beginning of the
crisis especially in 2009 and 2010 took place on the international and domestic
market at very unfavorable conditions with yields higher than the 6 percent as
in the medium term significantly increased expenditures for settling interest.
Consequence of government spending to pre - crisis level was the rapid growth
of general government debt and the growth of government debt part in external
debt, which by the end of 2014 exceeded the level of 100 percent of GDP.
External debt in the years of crisis stagnated as a result of deleveraging of
the private sector and monetary institutions, while the amount of external debt
is growing. On the domestic market government is borrowing more and faster
and the share of external debt in general government debt during the crisis fall
from more than 41 percent to a level of 37 percent. The fall in tax revenues,
which occurred due to the crisis and decline in business volume and lack of li- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
quidity, which is enhanced due to the crisis shock, the government attempted to
substitute with the reduced allocations for investment. After a decade of intense
government investment in infrastructure, savings in public spending are gener-
ated in the period from 2009th to 2014th mainly in the capital investment. The
public sector tried to compensate the drop in tax revenues, with higher tax rates
and new forms of para-fiscal levies.
In circumstances where the local economy is highly dependent on govern-
ment spending and public procurement which amounts to more than 40 billion,
it takes about 15 percent of GDP, and the high cost of capital, which is difficult
to access private companies, the competitiveness of export and investment in
the development of technologies is extremely volatile and dependent on exter-
479
nal shocks, and is further threatened by the fact that of the goverment taxes
increase the cost of the product and further lower its competitiveness in the
regional and European level. As a result, the dynamics and structure of public
debt is inseparable from the debate on the competitiveness of the export sector.
Correlation between public debt and economic growth is an issue that di-
vided economic policy at the two poles: first part of economic science advocated
the growth of the fiscal deficit in favor of boosting economic growth, while on
the opposite side advocated the view according to which growth in the debt
limit economy. The financial world crisis, especially Europian debt crisis has
given the right to economists who advocate fiscal balance and a moderate deficit.
Braeuninger (2002) used Romer-Lucas model of endogenous growth com-
ing to the conclusion that after a certain public debt to GDP ratio, the growth of
public debt negatively affects economic growth. Kumar and Woo (2010) explain
that based on empirical results, we can prove that the growth of public debt to
GDP ratio of 10 percentage points, slowing GDP growth at an annual rate of
0.2 percent even with the impact on the less developed economies somewhat
modest. Cost of interest also negatively affects the development of the economy,
and Clements, Bhattacharya and Nguyen (2005) argue that growth allocations
for the payment of interest by 1 percent of GDP reduces public investment by
0.2 percent of GDP. They stress, however, that borrowing on the international
market does not exclusively have negative consequences including the external
debt lower than 35 percent of GDP and the external capital generally leads to
increased competitiveness, however, if the external debt increased, as in the case
of Republic of Croatia and if exceeds choice for 170 percent, Pattillo, Poirson
and Ricci (IMF 02/69) show that rapid growth reduces the expansion of the
economy almost to a 1 percent of the gross national product.
In the first part of the paper, we process the structure and growth of public
and external debt from 1999 to 2014, while in the second part of the paper we
analyze the impact of debt on economic competitiveness, with an emphasis on
the export sector and the impact of excessive deficit procedures and procedures
of macroeconomic balance to the load of the export sector in the medium term.
480
2. THE GROWTH AND STRUCTURE OF PUBLIC
AND EXTERNAL DEBT
.. General government debt from th to th

Croatian Public Debt over 15 years has increased 5.5 times. Its growth
should be divided in two cycles: the cycle of borrowing to finance infrastructure
projects from 2000 to 2008, and the cycle of borrowing in times of economic
crisis of 2009th - 2014th
Most of the total public debt refers to central government while local units
participate with less than 5.5 billion of the total amount of debt, that at the
end of 2014 exceeded 265 billion. Intensive government borrowing begins with
undertaking major infrastructure projects in late 2000 and in the period before
the crisis, despite the relatively high rates of economic growth, general govern-
ment debt has doubled to 125.25 billion. Given the growth rates of more than
3 percent a year, public debt during this period was sustainable.
The global financial crisis and recession adversely affected the fiscal balance
in Croatia. In six years the debt has increased 212 percent, to 265.14 billions
kuna, with nearly 140 billion invested in the renovation of the deficit in the state
treasury caused by a fall in tax revenues, despite changes in tax policy during
which the tax rate increased as the general tax burden of the economy .
The dynamics of growth of public debt of Croatia, follows the economic
theory that investment in debt encouraging public investment brings a positive
effect in the short to medium term while in the long term has negative implica-
tions for economic growth and competitiveness of the economy.
481
Table 1. General government debt Republic of Croatia in the period 1999th
-2014th
General General Domestic warranty Foreign warranty of
Year government government Total of Central Central
domestic debt external debt Goverment Government
1999 18.647,1 29.211,8 47.858,9 26,2 10.095,7

2000 23.744,1 38.285,7 62.029,8 3.414,2 11.193,7
2001 27.407,6 40.852,6 68.260,2 6.016,8 11.234,5
2002 34.051,1 40.194,3 74.245,4 7.673,6 11.226,6
2003 38.663,0 45.811,1 84.474,1 6.933,5 11.892,7
2004 45.851,1 50.293,1 96.144,2 8.744,1 11.772,7
2005 57.119,4 47.217,8 104.337,2 9.989,1 12.422,2
2006 60.589,5 45.563,5 106.153,0 9.663,4 12.374,3
2007 61.877,8 49.083,4 110.961,2 10.035,7 13.631,0
2008 73.339,7 51.912,6 125.252,3 10.439,4 13.847,9
2009 86.218,3 60.936,2 147.154,5 9.238,5 16.239,9
2010 104.371,4 68.725,7 173.097,1 10.586,4 18.845,7
2011 125.756,8 73.601,9 199.358,7 5.490,2 16.174,7
2012 131.530,9 81.653,4 213.184,3 9.542,6 15.382,2
2013 152.532,0 98.449,9 250.981,9 7.933,9 15.940,3
2014 164.508,0 100.635,9 265.143,9 5.252,1 17.532,8
Source: Croatian National Bank
General government debt of Republic of Croatia grew faster than the ex-
pansion of the economy. Infrastructure investments were accelerated economic
growth in the short term in the mid-2000s, but the allocation of public funds,
financed by borrowing on domestic and foreign market in public investment,
took away funding the real sector, while the redistribution of public debt in fa-
vor of investments in infrastructure resulted directly in lower rate of economic
growth after the mid - term increase in GDP driven by personal consumption.
High growth rates of GDP in the period from late 2005 to 2007 can be
correlated with the increase in disposable income part of citizens, and which is
directly related to the money invested in public investment, but it is partly due
to the acceleration of foreign demand for goods and services from Croatian. The
period of high growth rates in Europe and other export markets of the Croatian
economy withdrew production in Croatia.
The public sector was unprepared for the financial crisis to customize per-
sonal consumption and for the reforms, so it is evident that the negative GDP
growth rates and increased need for financing the deficit resulting with rapid
growth of public debt.
482
Table 2. Croatian public debt to GDP movements
Growth of
GDP Growth
Year public debt
billion HRK %
2000 14,2 3,8
2001 6,2 3,4
2002 6,0 5,2
2003 10,2 5,6
2004 11,7 4,1
2005 8,2 4,2
2006 1,8 4,8
2007 4,8 5,2
2008 14,3 2,1
2009 21,9 -7,4
2010 25,9 -1,7
2011 26,3 -0,3
2012 13,8 -2,2
2013 37,8 -0,9
Source: Croatian National Bank and the Central Bureau of Statistics, author’s adaptation
.. External debt of the Republic of Croatia in the period

from th to th
The external debt of the Republic of Croatia at the end of 2014 reached the
level of 108.4 percent of GDP, according to the forecasts of international finan-
cial institutions by the end of 2016 will bring a level of 115 percent of GDP.
Since the beginning of the financial crisis, foreign debt has stagnated at about
46 billions of euros as a result of two opposing processes. The public sector,
with an emphasis on the central government, increased external debt intensively
while the real and financial sector during the crisis continuously discharged.
Government increased foreign borrowing during the entire period and as
from 2004, more faces to domestic money market, share of general government
in external debt was maintained at a moderate level until the beginning of the
financial crisis of 2008. In the period from 2009th to 2014th, the structure of
external debt was changed and the state was becoming a generator of foreign
debt. During the six years the government has increased the external part of the
debt for 5.4 billions of euros, and 2014 ended with a share in the external debt
of 29.23 percent.
483
Table 3. External debt in the period from 1999th to 2014th
Foreign
General Financial Other
Year Central Bank Direct Total
Goverment Institutions Sectors
Investment
1999 3.943,9 219,1 2.147,6 3.566,4 297,5 10.174,5
2000 5.171,9 216,4 2.250,8 4.045,6 578,8 12.263,5

2001 5.691,8 215,9 2.918,0 4.249,0 534,6 13.609,3
2002 5.540,9 23,2 4.180,4 4.727,4 672,0 15.143,9
2003 6.142,9 365,9 6.531,1 5.938,4 905,6 19.883,9
2004 6.728,6 2,4 8.047,3 7.058,8 1.096,3 22.933,4
2005 6.555,5 2,6 9.195,4 8.823,0 1.413,4 25.989,9
2006 6.345,8 2,6 10.405,8 11.187,8 1.783,0 29.725,0
2007 6.853,8 2,3 8.948,8 15.008,9 2.907,0 33.720,8
2008 7.208,5 2,3 10.307,0 19.205,8 3.866,5 40.590,1
2009 8.248,9 332,2 11.066,9 20.400,9 5.515,5 45.564,4
2010 9.126,0 357,3 11.212,4 20.076,3 6.136,5 46.908,5
2011 9.624,9 360,1 12.207,9 19.186,9 5.017,4 46.397,2
2012 10.938,9 351,0 9.885,8 18.735,4 5.386,2 45.297,3
2013 12.711,9 421,5 9.156,8 17.969,0 5.698,5 45.957,7
2014 13.654,4 444,9 8.160,1 18.070,0 6.380,1 46.709,5
Source: Croatian National Bank, the author’s adaptation
The real sector and financial institutions, after a cycle of intensive financing,
is gradually discharged. Domestic banks have stimulated economic growth with
intensive financing from the beginning of 2004, when they began to borrow
more on foreign markets. Debt of the financial institutions culminated in 2011,
when a strong deleveraging of the financial sector started. Foreign sources of
capital in total liabilities, climax had in 2006, when they amounted to 29% in
April 2006, but by 2012 the share of foreign capital began to decline. In the first
months of 2013 they fell to a level of less than 18% and in August 2014 reached
a historic low level of 15.1%. This was a result of the continued deleveraging of
domestic banks and reduced need to find resources to fund new loans, which
will continue throughout the medium-term period ahead. The real sector was
also in the process of deleveraging, and since the beginning of the financial cri-
sis has reduced the exposure to debt by 10 percent. The private sector is still in
the process of deleveraging, and the expectation of slow economic recovery and
further growth of unemployment, further discourage investment and consump-
tion, and the demand for credit Therefore, in the next year, we can expect weak
lending activity and continued deleveraging of credit institutions abroad.
484
Deleveraging companies may be due to the contraction of the economy and
reduced personal spending, which discourages the private sector from further
investment, but in Croatia is closely linked with the conservative policy of the
banking sector, caused by the degree of difficult collectible receivables, amount
of that in the last quarter of 2014 stopped at 30.3 percent of loans. Deleverag-
ing may be the result of government borrowing if the growth of public debt is
unsustainable.
If the private sector is financially limited, as it was the case because of prob-
lems in banks in developed countries in the last crisis, the government’s bor-
rowing and prudent fiscal adjustment that avoids expenditures cuts will have a
positive impact on the economic recovery (Baldacci, 2013). On the other hand,
if private financial constraints are not strong, sharper fiscal adjustment on the
expenditure side, can restore fiscal credibility and encourage the private sector
to increase demand. This will replace a government savings with new cycle of
private debt (Alesina and Ardagana, 2010). Croatia has a stable banking system
and high capitalization of banks, but to trigger a new cycle of indebtedness of
the real sector it is necessary fiscal adjustment of public finances, which is de-
ferred over four years.
3. THE IMPACT OF PUBLIC DEBT ON ECONOMIC

GROWTH AND EXPORT
Economic science has identified that public sector borrowing as a result of
the allocation of public funds in the investment, can have a positive impact on
the competitiveness of the economy in the circumstances of sustainable public
debt. Maastricht criteria suggest that the amount of public debt above 60% of
GDP and public sector deficit above 3.5%, require a response from the gover-
ment in the direction of consolidation of public finances. The Croatian govern-
ment in the current year is planning deficit at the level of more than 5.2 percent,
while the public debt will exceed 83.5 percent of GDP Croatian accession to
the excessive deficit procedure and the procedure of macroeconomic balance will
enhance the external pressure on the significant reduction in public spending,
which would in 2015 have to be reduced to a minimum of 0.5 percent of GDP
in order to regulate the deficit of the state treasury. The circumstances in which
the fiscal adjustment takes place, that are mostly affected by the parliamentary
elections, suggest that the government will another year keep public spending
485
at the same levels despite pressure from the European Commission. Paper on
the political and economic impacts on the state budget in the industrial democ-
racies (Roubini, Sachs 1989) says that the growth in the deficit has been caused
by a problem in the political management in coalition governments. The biggest
problems arise in governments where junior coalition partner has a veto power
over changes, said the researchers. The problem which was detected on the basis
of empirical research can be seen in Croatia. Continued government spending
without structural reforms will continue to have a negative impact on economic
growth and on investment.
The continued decline in private consumption and the expectation of con-
tinued consumption of the public sector at a level that is above the income –
capacity, strengthens the role of export activities in the context of economic
recovery and exit from the perennial crisis cycle.
Export characteristics of the Croatian economy are not satisfactory as illus-
trated by the continuing trade deficit.
Table 4. Foreign trade of the Republic of Croatia
FOREIGN The share of imports

YEAR EXCHANGE in GDP
millions of USD (%)

2007 -13.474,9 41,6
2008 -16.603,3 41,2
2009 -10.728,9 36,2
2010 -8.247,0 39,3
2011 -9.350,7 41,9
2012 -8.465,4 43,4
2013 -9.190,4 44,3
Source:
Croatian exporters are the healthiest segment of the Croatian economy. Yet,
only 13 percent of companies in Croatia are exporters, they employ half of all
employees in businesses, generate 65 percent of total sales revenue, and they
invest as much as 70 percent of total investment funds in development. The
last twenty years Croatia has witnessed a steady trade deficit, and the share of
Croatian exports of goods and services in GDP in ranged 36 - 44 percent. In
the countries of Central Europe, which are in direct competition to domestic
486
exporters, share of exports in GDP ranged 71 - 89 percent, in the Czech Re-
public 64 - 78 percent, and in Hungary 81 - 94 percent. Croatia is quite behind
in relation to the Baltic countries, which are in 2012 exported an average of 80
percent of GDP.
The dynamics of growth of Croatian exports is lowest of all EU countries.
Croatian products are mainly with low added value and can not be compared
with the products of technologically developed countries, that have had a lot
more knowledge and technology (Kovač, 2012).
Croatia is located on the 37th place according to the production complexity
among 124 countries, and only 6.4 percent of Croatian exports are in the first,
the most complex category of production, while 65 percent are categorized in
the lowest level of production complexity - the fourth, fifth and sixth stands in
the Action Plan for the promotion of exports adopted by the Croatian Govern-
ment in May 2014.
For comparison, the share of products of secondary and higher degree of
processing in 1987 amounted to 67 percent, and in 2010 only 28 percent of
total exports.
Domestic companies have failed to take a strong position on foreign export
markets. Croatia expressed extremely negative trends in exports of goods and
by the end of 2012 managed to return only at the level of merchandise exports
recorded before the global crisis, which points to the continuing problem of
competitiveness. Croatian share of merchandise exports in GDP was in 2012
just 22.8 percent, while the average of EU - 27 amounted to 33.8 percent.
In the structure of Croatian exports there is only a small proportion of high
complexity products and prevailing unfavorable ratio of the share of industrial
products and the share of primary products. The low level of processing in this
category leads to a lower contribution or participation in the gross domestic
product, which now stands at 19 percent - which is considerably less than the
average in Central Europe by 55 percent and South - Eastern Europe by 34
percent.
Weak industrial production, low level of technology and innovation and low
spending on research and development are the main causes of this situation.
The reasons for the weakness of the Croatian exports are manifold, and the
consequences of de - industrialization of the economy, lack of competitiveness
487
arising from higher cumulative increase in prices of domestic inputs, low rates
of investment in research and development work, a large number of smaller
companies that rarely associate in the appearance on the market, more difficult
access to capital and unfavorable cost of financing in credit institutions, and the
lack of infrastructure or the practice of alternative forms of financing invest-
ments, and in many ways it is derived from the high public debt, which results
in high cost of capital and squeezing out private sector credit activities. Despite
the historical period of low interest rates in the global capital markets, Croatia
is still paying a high price of a debt above 3 percent as a result of the high risk
premium for the whole country. In countries that compete with domestic ex-
ports, such as the Czech Republic, that risk premium is much lower and that
draws the interest of public debt below 1.5 percent. Thus the Czech economy,
only through the price of financing, gets precedence over the Croatian products,
and additional gap creates differences between the tax burden and the numer-
ous incentives that Croatia does not have the fiscal capacity.
Table 5. Movement of investments and tax revenue budget
TAX REVENUES INVESTMENTS

YEAR
billion HRK billion HRK

2004 47,14 56,46
2005 50,68 59,21
2006 58,47 71,04
2007 64,23 78,24
2008 69,57 83,73
2009 63,68 67,46
2010 62,95 48,33
2011 61,42 46,63
2012 64,69 44,17
2013 63,04 45,14
Source: Croatian Chamber of Economy, Ministry of Finance, the author’s adaptation
Investments of companies in fixed assets for the first time fell below the level
of tax revenue during 2010, after the state began to substitute the loss of rev-
enue with the new tax levies and thus reduce consumer spending and demand
for the products in times of intense financial crisis that affected the decrease
foreign demand.
488
Strengthening the revenue side of the budget continued throughout the cri-
sis, so that VAT increased twice, 2009 and 2012, with a final rate of 25 percent,
narrowing the tax brackets in the income tax, introduced and abolished the cri-
sis tax, telecommunication operators in more repeatedly paying additional lev-
ies as a contribution to the crisis, and companies are directly loaded with new
tax form - tax on dividend and payments of profit and rigorous control of the
collection of tax liabilities that marked 2012 and 2013.
CONCLUSION
Countries with high public debt – to - GDP ratio and the high rate of in-
terest payments in the medium term can stimulate the economy, but in the
long term such a model negatively affects the competitiveness of the domestic
economy, in particular, its export sector. Kumar and Woo (2010) demonstrated
that the growth of public debt to GDP ratio of 10 percentage points slowing
GDP growth on an annual basis by as much as 0.2 percent while the impact
on the less developed economies is somewhat modest. Interest rates also nega-
tively affects the development of the economy, and Clements, Bhattacharya and
Nguyen (2005) argue that growth allocations for the payment of interest by 1
percent of GDP reduces public investment by 0.2 percent of GDP, which is vis-
ible in Croatian example.
Increasing the tax burden in the short term leads to generous tax revenues,
but in the medium term and especially the long run, causes a reduction in the
tax base and the taxation of consumption is eroding domestic demand, as in
the case of Croatian resulted in continuous budget deficit above 5 percent and
recover about 3 percent of GDP for the interest payments.
The withdrawal of the public sector from infrastructure projects and re-
ducing public spending, frees up capital for the private sector, on the basis of
which the growth of investments in technological equipment which leads to the
growth of competitiveness and long - term economic growth.
The reduction of public spending in the short term can lead to restriction of
access to public services or smaller employee benefits in the public sector, but
in the medium term, sustainable economic growth increases the fiscal capacity
of the state.
489
Literature
Aizenman, J.; Kletzer, K.; Pinto, B. (2007), Economic Growth with Constraint on Tax Rev-
enues and Public Debt, University of California, Santa Cruz
Damir Novotny: Public and External Debt of Republic of Croatia... 368 EKONOMIJA /
ECONOMICS, 14 (2) pages 365 - 378 (2008)
Ivan Kovač: Analysis of International Trade in Goods of Republic of Croatia 2001 – 2010,
Economic review, Vol. 63, No 1, february the 2nd 2012
Braeuninger, M. (2002), The Budget Deficit, Public Debt and Endogenous Growth, Univer-
sitaet der Bundeswehr Hamburg.
Kumar and Woo July 2010 Public Debt and Growth, IMF
Clements, Bhattacharya i Nguyen Can Debt Relief Boost Growth in Poor Countries?, IMF
2005.
Pattillo, C.; Ricci, L.; Poirson, H. (2002), External Debt and Growth” Finance and Develop-
ment, A Quarterly Magazine of the IMF, Vol. 39, No 2.
Baldacci, Gupta, Mulas - Granados Fiscal Affairs Department Debt Reduction, Fiscal Ad-
justment, and Growth in Credit-Constrained Economies November 2013
Alesina, Ardagna, Large Changes in Fiscal Policy: Taxes Versus Spending, 2010.
Roubini, Sachs, Government Spending and Budget Deficits in the Industrial Countries,
Economic Policy, Vol. 4, No. 8 (Apr., 1989), pp. 100-132
490
CONSOLIDATED CENTRAL
PUBLIC PROCUREMENT AS
EFFECTIVE TOOL FOR THE
COUNTY MANAGEMENT FOR
RATIONALIZATION OF COSTS OF
REGIONAL UNITS
Ivan LUKIĆ,univ.spec.oec.
Izabela BELIĆ,univ.spec.oec.
Davor VLAOVIĆ, univ.spec.oec
Brod- Posavina County,

Slavonski Brod
Abstract
Public procurement (PP) is a very important segment of the economy of each
country, including the Republic of Croatia, especially if you take into account
the fact that its value on an annual basis is between 10 and 15% of GDP,
respectively 30 and 45 billion Croatian kuna. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Legal requirements for implementation of the procedure of unified or central

procurement is given in Article 8 of the Public Procurement Act, which stipu-
lates that entities may purchase goods, works and / or services from or through
a central body for public procurement. This includes the establishment of an
effective system of central procurement accountable to taxpayers and to all eco-
nomic operators involved and publicly-cost environment in order to achieve
savings in public spending, taking into account the optimal relation between
quality and price of the purchased goods, works and services, taking into con-
sideration ecological and socially acceptable solutions, sustainable (“green”)
public procurement and encouraging small and medium enterprises. Using the
positive effects, with the awareness of the shortcomings and possible abuses (cor-
491
ruption), the county management, using the financial management and unified
organization (central) Public Procurement (CPP) has a significant potential
for reductions of cost, significant expense savings and increased efficiency of
regional governments.
Ivan Lukić • Izabela Belić • Davor Vlaović: CONSOLIDATED (CENTRAL) PUBLIC PROCUREMENT AS EFFECTIVE TOOL FOR THE COUNTY ...
Keywords: unified public procurement, regional units, rationalization of costs,

the county management
JEL Classification: H57, H83, J58
1. INTRODUCTION ANALYSIS
Every year more than 250,000 public authorities in the EU spend from 18-
20% of GDP for the procurement of goods, works and services. Compared to
period before the recession, the volume of public procurement in Croatia is, as
is the GDP itself, constantly decreasing. In 2007 it amounted to 16% share in
GDP, and in 2012 it fell to 11.9%, which can be considered a negative trend
comparable with countries such as Greece. The total value of public procure-
ment in the Republic of Croatia in 2013 amounted HRK 39,485,757,2011, of
which the total value of the published contracts and framework agreements in
2013 amounted HRK 33,148,035,625, value of recorded bargain purchase is
HRK 6,335,248,494.1
According to Central Bureau of Statistics, GDP for the year 2013 amounted
328,252 million HRK and, consequently, the share of the total value of public
procurement in GDP for 2013 was 12.0%. (Graph 1).
Local and regional self-government units (hereinafter: LRSGU) concluded
in 2013, 3122 contracts worth a total of 3.2 billion. HRK, or 14.67% of the
total value of public procurement of all contracting authorities in the Republic
of Croatia in the year, without the bargain purchase (Table no. 1).
1
Statistic report on public procurement in Republic of Croatia for 2013, Ministry of Economy,
The Public Procurement Directorate, June 2014.
492
Table no. 1 Number and value of contracting authorities in 2013
Number of
CONTRACTING AUTHORITIES % Value %
contacts
Ministries and other government bodies 1694 9.50 2,343,625,633 10.77
Government agencies/officies 172 0.96 75,702,535 0.35
LRSGU 3122 17.51 3,191,300,232 14.67
Local and regional agencies/officies 41 0.23 54,721,614 0.25
Legal persons 12,800 71.79 16,091,552,440 73.96
Total contracting authorities 17,829 100.00 21,756,902,454 100.00
Source: Authors’ calculations based on data from the Statistical report on public
procurement in the Republic of Croatia for 2013.
As the total budget realization of LRSGU in 2013 ammounted 22.16 bil-
lion HRK, it is clearly seen what importance the public procurement has in the
financial management of local government units. Hence, the management im-
provement and organization of public procurement has a significant potential
for cost rationalization, cost reduction, and ultimately increase of efficiency of
local communities.
Grapph 1 Public procurement

p s
share (PP) Graph 2 Sha are of public procurement
p in
n
in GDP of RC in 20133 total realizattion of revenuees of LRSGU in
201 13 in billions HRK
12.0%
%
00 0 0
3.19
328,252
mil.kn
n
22.16
Vrijednost
ValueofPjP
avne nabave INTERDISCIPLINARY MANAGEMENT RESEARCH XI
BDP VrijednostJN
N
Ukupno ostv
varenje
Totalrealiz prihodda
zationofreve
enues
GDP ValueofPP
Source: author’s calculation Source: author’s calculation
The paper will describe the legislative and institutional framework for the
implementation of central procurement, requirements which must be realized,
as well as positive effects and drawbacks and challenges (corruption) in the im-
plementation process of central public procurement. Special emphasis is given
to the role of local management in the implementation of central procurement
procedures using the example of Brod Posavina County with reference to the
financial effects and reductions, as well as recommendations for the future.
493
2. THE LEGISLATIVE AND INSTITUTIONAL
FRAMEWORK FOR THE IMPLEMENTATION OF
CENTRAL PROCUREMENT
By joining as a full member of the EU, the Republic of Croatia has adopted
legislation that regulates the establishment of central or centralized public pro-

curement of the member states as provided in the Public Procurement Direc-
tives (2004/17 / EC and 2004/18 / EC) which contain specific provisions on
the bodies for central procurement. These directives allow member states the
adoption of public procurement regulations containing provisions relating to
the authority of the bodies for central procurement bodies (CPB). Basically, the
establishment of CPB is not mandatory, but is one of the possibilities that are
available to the member states.
Croatian Public Procurement Act (PPA) regulates public procurement pro-
cedures of all values in which the contracting authorities and tenderers sign
contracts for public works / goods / services, the responsibility of the Public
Procurement System of the Ministry of Economy, Labour and Entrepreneur-
ship and the State Commission for supervision of Public Procurement and le-
gal protection in relation to public procurement procedures. PPA regulates the
procedures for granting concessions for public works and procedures of conclu-
sion of public works carried out by concessionaires who are not contracting
authorities within the meaning of the Public Procurement Act. Besides the al-
ready mentioned PPA the legislative framework for public procurement makes
a number of other laws: the Law on Concessions, the Law on Public-Private
Partnerships and the Law on the State Commission for Supervision of Public
Procurement and other related laws (Law on Administrative Procedure, the
Law on Obligations, Law on Administrative Disputes) and regulations eg. Reg-
ulation on conditions for applying the Common procurement Vocabulary, the
Regulation on announcements and records of public procurement, etc.
Centralized or central public procurement in the EU countries in the past
has been organized on the principle of monopoly model, where the central
office of the Public Procurement procures goods and services, followed by
TSN state administration was obliged to purchase necessary goods and ser-
vices from the central office, which is often a warehouse function. This model
is now largely abandoned in favor of a more decentralized and flexible model.
494
Another approach to central or centralized public procurement is the use
of specialized agencies that are established for the procurement of specialized
goods and are able to offer better prices, quality and delivery times.
The third form of centralized procurement takes place at regional and local
level and will be given more attention below.
3. PRECONDITIONS FOR CENTRALIZING

UNIFICATION OF PUBLIC PROCUREMENT
SIGMA / OECD (OECD 2011, No.47) that centralized procurement im-
plies that the procurement for the needs of the client are not implemented indi-
vidually or every person for himself, but to the needs of the client to consolidate
and to conduct one public procurement procedure through which will specific
subject-matter be acquired hat will suit the needs of each client by the quality,
characteristics and quantity.
From the above results the first requirement for a successful and effective
unified public procurement, and that is that the needs of the client for a specific
subject of public procurement matched in terms of properties, quality, technical
and other characteristics, in addition to quantity. If one or more clients would
not get what they need, a key goal of a unified public procurement will not be
met.
Another essential prerequisite that should be filled so the integration of pub-
lic procurement was justified is that this method achieved better conditions and
benefits in relation to the individual conduct of public procurement, in particu-
lar with regard to the purchase price. The procurement of large quantities of the
same goods makes possible realization of economies of scale and meeting all the
requirements of the individual customer for lower cost than would be the case
of procurement from a large number of bidders. In this way the bidders are giv-
en the possibility of realization of the effect of “economies of scale”, which, what it
is in particular the case of procurement is more accented, increases the potential
for rationalization of costs and achieving savings through centralization.
In this context cases need to be determined when the unification or central-
ization of public procurement is justified and consider the relationship between
the homogeneity of demand and economies of scale offers.
495
In the authors’ Pranjic & Turuk (2013: 8) “If it is a standard goods (works,
services) which by description, properties, purpose and technical characteristics
do not differ and are the same or nearly the same for all clients, and if there is
more tenderers that such goods / works, services) can offer (to execute, deliver)
in the whole area where the purchasers are then the success of joint procure-
ment is inevitable “. In order to find cases where it is justified to implement the
PPA, it is necessary to analyze the relation of supply and demand that may oc-
cur in the market (Figure 1).
Figure . Economics of offer scalees

3 4
High
Hi h
Homogeneity of demand
Sttandardization
n of offer and
Standardization of deemand deemand
1 2
Low
Standaardization of off
ffer and
L
demand Standardizaation of offer

Low High
Source:Autthor'sadaptation nofOECD(2010)Publicprocurem
ment
TrainingforrIPAcontriesSig
gmaTrainingMa
anual,OECD
In the event that the clients have the same or very similar needs regarding the
characteristics and product quality, time and place of delivery and other condi-
tions or when they match high homogeneity on the demand and severe (high)
economies of scale on the supply side (Figure 1, quadrant 4), the unification
of public procurement for more clients is justified. Otherwise, if the needs of
the client are heterogeneous in terms of properties, quality or other conditions
(term, delivery, technical characteristics), the integration of public procurement
will not be able to meet their needs in the best way. Therefore, in a situation
(Quadrant 2) of nonstandardized demand, even if there is significant potential
for achieving economies of scale, there is no justification for the CPP.
If there is no economy of scale and in specific, small-scale products / Quad-
rant 3), there is no reason for the CPP, even if the client wants to get the same
goods.
496
And the last case, where there is no homogeneity in demand nor the pos-
sibility for the realization of economies of scale, there is no reason for the CPP
(quadrant 1), but clients should conduct themselves individual procurement
procedures.
By centralizing public procurement we take care of small bidders (SMEs)
who specialize in selling to the immediate area (county, city, municipality) and
which usually cannot compete in the cases of procurement in the wider area, are
without work and fail. On the other hand, those same bidders employ workers
with these core areas that pay taxes and thus on them and their salaries depend
the perspective of the local community. Additionally, they know best charac-
teristics of each individual client and are ready to adapt to their specific needs,
which is not characteristic of large bidders from other areas. A skilled and capa-
ble management will use Consolidated Public Procurement as an effective tool
to help small and medium-sized enterprises, and through it the development of
their local communities.
4. POSITIVE EFFECTS, DEFECTS AND

CHALLENGES IN THE IMPLEMENTATION
PROCESS OF CENTRAL PROCUREMENT.
In order to observe the positive effects, disadvantages and challenges in the
implementation of central procurement process we conducted a SWOT analy-
sis which is given below.
Table 2 SWOT analysis for integration of public procurement INTERDISCIPLINARY MANAGEMENT RESEARCH XI
S – STRENGHTS W – WEAKNESSES
Organizational units for public procurement Shortage in human resources with specialized
Acieving best value for invested money education
Sandardization and catalogization of goods and Specific subject matter of the individual client
services Difference of procurement items
Human resources Shortage in IT support and continuous education
Experience in implementation of public of those personnel
procurement procedure Large and complex procurement require lot of
Better coordination of procurement time to conduct and be subject to appeal
Local management role in realization of saving and
development of local comunity
497
O – OPPORTUNITIES T – THREATS
Rational use of assets and realization of saving Tracking of contract realization and frame
Economy of scales – larger quantities generate agreements
better prices Limitation of involvement of SMEs in public
Decrease in administration costs procurement procedures
Transparency of procedure Longer deadlines for submission of tenders

Anti-corruption effects Submission of legal remedies and retrials
Simplification of procedure PP Favoritism of certain tenderer
Encouraged of competition Only a small group of bidders or only one bidder
can meet the need of the client
Implementation of advanced technologies
manus manum lavat or increased exposure to the
Application of green and sustainable public
corruptive risks
procurement
Source: made by authors
From the above SWOT analysis in which sublimated strengths, weaknesses,

opportunities and threats of unified public procurement result in positive ef-
fects, disadvantages and challenges in the implementation of central procure-
ment processes which are given below.
According to the SIGMA / OECD (OECD, 2010) Advantages that can be
achieved by centralizing or CPP in the event of its legitimacy are multiple. The
most significant positive effects of centralization are:
1. greater purchasing power of the client, which puts it in a more favorable
relationship towards the bidders;
2. great potential for reducing the cost price which is based on “economies
of scale” (proportion);
3. reducing transaction costs, because more procedures are replaced with
one;
4. concentration and improvement of knowledge (expertise) of which the
benefit is divided among number of clients;
5. reducing the risks that the procedure fails;
6. better coordination and higher level of standardizing and
7. lower risk of favoritism for particular manufacturer.
498
In addition to the above positive effects of CPP in the SWOT analysis is
listed a number of advantages (strength) and opportunities whose purpose is
self explanatory and it is not necessary to elaborate it in more detail.
We will just give a brief review of sustainable and green UP.
Green public procurement means that the client orders products/services
that, compared with conventional products and services, during their lifetime
have a smaller impact on the environment and the same and/or better func-
tionality and positive social and economic effects. The overall objective of the
project “Promotion of green public procurement in support of achieving the
objectives of 2020” is to significantly increase the implementation of green pub-
lic procurement within the target countries in the short and long term, through
capacity building and implementation of the competition.
Specific objectives of the project are:
Capacity building within the public authorities for the implementation of
green public procurement for the purchase of energy efficient and environmen-
tally friendly products, works and services
• Capacity building at providers of educational programs in order to facilitate
integration criteria of green public procurement in regular training programs
• Reduction of CO2 emissions through the implementation of green public
procurement
• Promotion of the transfer of knowledge about the concepts of green public
procurement of innovative technologies and services between bodies conduct-
ing public procurement INTERDISCIPLINARY MANAGEMENT RESEARCH XI
• Improving the support structures in the system of green public procurement

Substance of sustainable procurement is to select those products that are
acceptable and have beneficial social and ecological effects. Sustainable public
procurement is an investment in a better world.
Disadvantages of CPP are shown in the SWOT analysis in the framework
of the weaknesses and threats, and special emphasis will be only to increased
exposure to the risk of corruption or phenomenon called manus manum lavage
(“one hand washes the other”). According to the author Ivanušec’s opinion et.al
(2008: 29) “One of the areas of public administration which is particularly
exposed to corruption risks is the area of public procurement. The public pro-
curement resulting in a contractual relationship in which the latter is acting
499
in the role of the customer, and private companies (and public) in the role of
the seller or bidder of goods, works and services. In this respect both sides are
certainly motivated enough to succumb to the challenges of corruption. It is a
game in two: on one side of the briber, who wants to buy something that he/she
does not have the right to and the other is a person who has some power and
that this power is illegally sold. The mercenary side has, therefore, a dual power:
the legal right to decide and illegal selling power. Therefore in the relationship
of briber and corrupted one the power of the latter is much greater. “
A feature of the public procurement interaction of the private sector, which
is led by profit interests, and the public sector that profit interests should not
have. As in the case of public procurement of often purchase of expensive works
and service the problem that often occurs is corruption.
Despite the implementation of anti-corruption program of the Ministry of
Justice, the publication of the tender on the Electronic Public Procurement Of-
ficial Gazette, the site of the commercial courts, regional and local governments,
etc., the publication database that exists on the website of the Association
Windmill and similar, corruption is still possible at all stages of public procure-
ment. Most often are problems that stand out in the first stage when already the
preparation of tender documentation is in favor of a specific bidder, then the
overestimation of the required amount, exactly certain technical characteristics,
cartel agreements ...
According to the “Draft of Anti-Corruption Strategy 2015 to 2020” (Min-
istry of Justice 2015) “Estimates are that because of corruption loses are 10% of
the total procurement value, therefore 3-4 billion of kunas per year. The open
procedure, in which each bidder may submit a bid, is the most commonly used
procurement process. Average number of tenders received in the public pro-
curement process in our country is 3.3, but the percentage of cases with only
one received bids is around 40%, and in 17% of cases in the process there are
two bidders indicating no competition or the fact that one cannot speak of an
efficient market competition before the negotiated economy.
500
5. A UNIFIED PUBLIC PROCUREMENT AS AN
EFFECTIVE INSTRUMENT OF COUNTY’S
MANAGEMENT IN THE RATIONALIZATION
OF COSTS AND ACHIEVING SAVINGS OF
REGIONAL UNITS
According to IFAC (2001) “By synthesizing many definitions we can con-
clude that managers are professional executives who perform management
functions: planning, organizing, leading and controlling and those who have
formal authority over the organization they manage. Responsibility for the suc-
cessful execution of the basic functions of the state, and which they perform
mostly in the public sector, bears the so-called public management “.
The function of the strategic objectives of regional governments such as
economic development, employment, because of their importance, as already
pointed out in the introduction, needs to be the public procurement too. It al-
lows achieving other strategic goals, such as: neutralizing the negative effects of
the economic crisis and recession, attracting foreign investments, development
of the local economy (SMEs), employment etc. The specific objectives of the
county management in improving the public procurement system should be: 1)
the services that are offered to citizens at the level of LRSGU are provided at
lower prices, and that the quality is better, 2) to create the conditions for greater
participation of SMEs in tenders in local government (LG) which would lead to
boosting economic development of the LG and strengthening of market com-
petition, 3) increase the effectiveness and efficiency of PP locally through CPP
wherever economically justified, 4) more efficient monitoring and verification INTERDISCIPLINARY MANAGEMENT RESEARCH XI
procedures of PPA to take advantage of the information technology and trained

personnel in PU, such as JN Portal etc.
From a review of the most important procedures and achieved savings of
the Office of the Central Procurement (OCP) it is evident that due to the large
volume of public-supply of certain categories (eg. Office supplies, furniture, IT
equipment, cars, etc.) in this segment great savings can be made (Table 3).
501
Table 3. Potential savings in united public procurement Of EC countries
Procurement category Potential savings (%)
Office supplies 14-22
Furniture 10-15
PC/Server 10-20
IT equipment 7-10
Automobiles 10-15
Source: The action plan for the establisment of the Central Public Procurementy Authority,
2009.
Bearing in mind the vision and mission of the Strategic Plan of the National
Office for Central Public Procurement 2013-2015 NOCPP (2012: 1-11) who
is determined to establish an efficient system of central procurement or to es-
tablish an effective system PPA accountable to taxpayers, County budget, tax-
payers of CPP (budget users and health care institutions) involved in the CPP
in order to achieve savings in public spending, taking into account the opti-
mal relation between quality and price of purchased goods, works and services,
taking into account the ecological and socially acceptable solutions and SME
top management of the County (BPC) issued the Decision on determining
the goods and services to be implemented in unified public procurement in
2015 and 2016, which was published in the official gazette of the county.
After that, the Decision on appointment of authorized representatives of
the Brodska Posavina County as a central body for public procurement and
the individual client in the open public procurement procedure for the pro-
curement of office supplies for budget users. In a further process between the
County as a central purchasing body and budget users (24 primary schools, 10
secondary schools, BP Museum, Gallery, 6 health facilities and two public insti-
tutions) that implemented CPP signed an Agreement on Consolidated Public
Procurement for 2015.
Before the start of the procedure for CPP the County was required to ob-
tain authorization (consent) of the said entities for which the procedure is per-
formed CPP. All individual clients as participants filed County procurement
plan (request for necessary goods), and the BPC as a central body of them is
incorporated in its comprehensive plan. Before starting the procedure for CPP
all budget users (total 44) received the text of tender documents as well as the
proposal of Framework Agreement that BPC will sign with the chosen bidder,
502
and that in due course be able to submit their observations. After the imple-
mentation of CPP procedure and the expiration of the appeal deadline, BPC,
as a central body, signed the Framework Agreement for 2 years and all budget
users signed individual contracts with the selected tenderer under the terms of
the Framework Agreement.
The total estimated value of public procurement was for two years
4,350,000.00 HRK (including VAT), and the price of the winning bid was
2,961,545.00 kuna, which indicates a significant realized savings of over 35%.
When calculating the savings, due to the impossibility of comparison with the
same specifications / contracts / framework agreements from previous years,
the estimates are determined based on:
• planned values of individual clients,
• unit prices realized in procedures of PP which individual clients imple-
mented individually for the goods,
• based on offered prices of other bidders from the tender.
Carrying out the CPP procedure for the office supplies, the strategic, tacti-
cal and operational management of BPC justified the largest part of the reason
that it wanted to achieve: savings, rationalization of costs (administrative and
transactional), simplification of procedures, inclusion of SMEs of the County,
and thus ultimately contributed to its the most important task: a more effective
management of public money and more efficient public needs of its residents.

6. INSTEAD THE CONCLUSION: FURTHER STEPS
AND RECOMMENDATIONS FOR THE FUTURE
Centralization of public procurement county management can significantly
increase the effectiveness, economy and efficiency of public procurement.
By bringing together public procurement of state and regional government,
its public management wants to manage the risks and costs associated with
spending taxpayers’ money, and the introduction of standardization, typifica-
tion and cataloging in the public procurement of goods, works and services,
most problems can be avoided.
Consolidation of public procurement has resulted in strict compliance with
the basic principles of PP: transparency, non-discrimination, market competi-
503
tion and equality of treatment and achieve best value for the invested money.
From the proceedings conducted of CPP it is clear that the clients received fa-
vorable prices and achieve significant budget savings. At the same time we must
not forget the challenges that these procedures can initiated, possible conflicts
of interest and corruption.

The conditions in which the integration of public procurement produces
positive effects are not sufficiently represented in the total value of public pro-
curement, even in EU countries, where the purchases through centralized body
with a total value of public procurement in 2010 amounted to about 5%, which
is still unsatisfactory given the effects that can it be achieved.
If the CPP is carried out in a manner and conditions that are not adequate,
the negative effects can be numerous: inadequate quality and value for money
for our clients and creation a small number of large bidders who each can easily
arrange and create a non-competitive conditions to the detriment of the client.
It is extremely important to properly assess the reasonableness of the procedure
for the CPP and the effects that this will cause the regional government.
LITERATURE
Annual Public Procurement Implementation Review,
www.http://ec.europa.eu/internal market/publicprocurement/docs/
implementation/20121011- staff-working-document_en.pdf
Raguž, G. et.al.,: Sustav javne nabave 2013/2014., Tim4Pin, Zagreb, 2013. Str 26-37
IFAC: Governance int he Public Sector – a governing body percpective, Research Report,
2001g., on line verzija:www.ifac.org
Ivanušec, D. et.al. : Osnove novog sustava javne nabave, HZRFD, Zagreb, 2008.
Ljubanović,B., Britvić-Vetma, B.: Hrvatsko pravo javne nabave-usklađenost s pravom EU,
Zbornik radova Pravnog fakulteta u Splitu, god.48, 2/2011, str. 407-417.
Ekonomski leksikon, Leksikografski zavod “Miroslav Krleža” i Masmedia, Zagreb, 1995.
Ministarstvo gospodarstva, rada i poduzetništva, Uprava za sustav javne nabave: Priručnik ja-
vne nabave, travanj 2009. godine, Priručnik o zelenoj javnoj nabavi, Drugo izdanje,Europska
komisija, rujan 2011.
Nacrt Strategije suzbijanja korupcije 2015.-2020., Ministarstvo pravosuđa, 2014.
Objedinjena javna nabava u zdravstvenom sustavu, www.hospital.in2.hr/.../Luka%20Von-
cina_Objedinjena%20nabava%20- HD2013.pdf
Pranjić,I.,Turuk, Z.: Praksa javne nabave: model nabave putem središnjeg tijela za javnu
nabavu i zajednička nabava, Zagreb, listopad 2013.
504
SIGMA/OECD, Centralized Purchasing Systems in the European Union, Sigma Papers,
No. 47, OECD, 2011;
SIGMA/OECD, Public Procurement Training for IPA Countries, Sigma Training Man-
ual, OECD, 2010
Statističko izvješće o javnoj nabavi u Republici Hrvatskoj za 2013. godinu, Ministarstvo gospo-
darstva, Uprava za sustav javne nabave, lipanj 2014, str 10-24.
Strateški plan razdjela Državnog ureda za središnju nabavu za razdoblje 2013.-2015. Zagreb,
travanj 2012, str. 1-11.
Zakon o javnoj nabavi ( Narodne novine br. 90/11, 83/13, 143/13 i 13/14);
Zakon o koncesijama (Narodne novine br. 143/12)
Zakon o javno-privatnom partnerstvu (Narodne novine br. 78/12 i 152/14)
Zakon o Državnoj komisiji za kontrolu postupaka javne nabave (Narodne novine
br. 18/13, 127/13 i 74/14)
505
Public
Economics
EFFICIENCY OF COMPANIES
OWNED BY LOCAL AND REGIONAL
SELFGOVERNMENT UNITS
Željko TURKALJ, Ph.D.

Faculty of Economics in Osijek, Josip Juraj Strossmayer
University of Osijek, Croatia
turkalj@efos.hr
Dubravka MAHAČEK, Ph.D.

State Audit Office, Regional Office Požega, Croatia
dmahacek@vup.hr
Faculty of Medicine in Osijek,

Josip Juraj Strossmayer University of Osijek, Croatia
Abstract
The subject matter of this paper are companies owned by local and regional
self-government units from five counties (Pozega-Slavonia, Vukovar-Srijem,
Osijek-Baranja, Brod-Posavina and Istria). The research was based on busi-
ness operations data from individual reports drafted in audits conducted by the
National Audit Office. An analysis has been performed and conclusions drawn
about business operations, sources of financing and efficiency of operations in
five counties. This paper confirms the assumption that companies owned by
local and regional self-government units differ significantly according to the
sources of financing and achieved business results. Businesses were analysed ac-
cording to the number of employees, total revenues, grants, total expenditures
and expenditures for employees in total achieved expenditures. Conclusions
have been made regarding setting business objectives, measurement of business
results and achieving planned purposes for which the companies were estab-
lished, and regarding the options for improving business results. This paper
confirms the importance of accounting information system as a basis for infor-
mation on business operations through an overview of revenues in accordance
with prescribed regulations.
509
Keywords: audit, efficiency, companies, business operations, grants.
JEL Classification: M42, D22
1. INTRODUCTION
The research was based on data from individual audit reports on companies
Željko Turkalj • Dubravka Mahaček: EFFICIENCY OF COMPANIES OWNED BY LOCAL AND REGIONAL SELF-GOVERNMENT UNITS
which were drafted for five counties, from which data for the area of five coun-
ties was collected and analysed. In addition to the financial audit, efficiency au-
dit is also performed. Financial audit is used for providing an opinion on busi-
ness operations [1], while efficiency audit is used for giving recommendations
for improving business operations. As much as 20 reports have been drafted on
results achieving efficiency audits and achieving business goals audits for com-
panies owned by local and regional self-governments units. Each report covered
entities owned by local and regional self-governments units in the area of a par-
ticular county, and selected subjects have different business operations. Reports
gave orders and recommendations, and evaluation of efficiency of achieving re-
sults and achieving business objectives, and they cover business operations for
years 2010, 2011 and 2012.
2. EFFICIENCY AUDIT
The jurisdiction of the State Audit Office is also conducting efficiency au-
dits, which is prescribed by the provisions of Article 7 of the State Audit Office
Act [2]. According to Akrap, V. et al. [3] some basic characteristics of efficiency
audit is that it is focused on the optimal use of resources, the organization,
programs and their effectiveness, it evaluates overall business operations or a
specific part of them, projects or activities of the audited entity, assesses cost-
effectiveness, efficiency and expediency, and the selection of assessment criteria
is different from audit to audit, audit methods are not standardized. European
Court of Auditors also carries out audits of operations in the framework of
such audits, “the Court examines the quality of revenue and expenditure of the
EU and checks the application of the principles of sound financial manage-
ment in practice” [4]. Performance audit is carried out within the framework of
internal audit work. Internal Audit Manual Version 4.0, [5] states that “in the
business performance audit the internal auditor must have clearly defined goals
and performance indicators for the revised process, project, activity or program
510
of the audited entity before the start of the audit.” The methods used in business
performance audits are methods of samples, questionnaires, observation and
documentation analysis. Business performance audits are becoming increas-
ingly important for reasons of affecting the use of resources of the public sector
in achieving greater value for money. Companies owned by local and regional
self-government units keep books and compile financial statements in accor-
dance with accounting for entrepreneurs. The importance of accounting is not
only to record business changes, but it serves as a starting point and a source
of information needed for management. Within total revenues of companies
grants by the founder are also given, or the budget, which was recorded as a part
of the revenue and deferred revenue. The purpose of grants is financing busi-
ness operations (employee expenditures, material expenditures and other ex-
penditures). The manner of grant accounting recording affects the presentation
of operating results. The above is specified by the Croatian Financial Report-
ing Standards [6]. In accordance with the provisions of the Croatian Financial
Reporting Standards prescribed recording ensures the matching of revenues
from state grants with the corresponding costs (employee salary), for which the
entrepreneur has received funds. The basic purpose of delaying income is that
deferred revenues are gradually confronted with the costs during the period of
use of funds, i.e. they are transferred to periods in the amount of costs that are
related to grants received. If the records were not performed that way, revenues
would cover the cost of that period in which they are received, and a loss would
be recorded in the following years. By conducting the manner of recording real-
ized revenues in accordance with prescribed, information needed for business
operations are ensured. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
3. LEGISLATION
Local government units own companies engaged in various activities, from
promoting regional development, project preparation, charging utility services,
publishing and printing activities and other. Here we are going to highlight
some of the acts regulating business operations.
The provisions of Article 61 of the Budget Act [7] provide that for the per-
formance of public services and activities in the public interest of the state lo-
cal government, i.e. local and regional self-government units, may use its assets
to establish institutions, companies and other legal entities. According to the
511
provisions of Article 35 of the Local and Regional Self-Government Act [8]
representative body establishes public institutions and other legal entities for
the performance of economic, social, communal and other activities of interest
for the local or regional self-government units in order to achieve certain objec-
tives that are of the interest to local or regional self-government. The Regional
Development Act [9], which is in force since January 2010, regulates the goals
and principles of regional development of the Republic of Croatia, planning

documents, bodies responsible for the management of regional development,
assessment of the degree of development of local and regional self-governments
and reporting on the implementation of regional development policy. The State
Grant Act [10] prescribes the policy for state grants. Revenues realized by com-
panies from their founders for the realization of economic activities with the
possible effect on the distortion of competition and trade between the Croatia
and EU Member States are subject to state grant rules. Entrepreneurship cen-
tres are established as companies (Ltd.) owned by local governments, i.e. the
cities. According to the Improvement of Business Infrastructure Act [11] from
July 2013, which is in force since August 2013, the issues of business infrastruc-
ture, enterprise zones and other issues are regulated. Among the founders and
managers of entrepreneurial infrastructure, which are also prescribed, are units
and bodies of local and regional self-government units. Companies are obliged
to respect the provisions of the Public Procurement Act [12] and other laws
covering the domain of their business operations.
4. ACHIEVING RESULTS AND ACHIEVEMENT OF

BUSINESS GOALS OF COMPANIES OWNED BY
LOCAL AND REGIONAL SELFGOVERNMENT
UNITS
The objectives of performed audits were: to check whether business objec-
tives were set in accordance with the plans and expectations of the founder, to
check whether companies managed to achieve planned business objectives, to
determine whether the proper measuring and monitoring of business perfor-
mance was established, to check whether companies achieved satisfactory oper-
ating results and to evaluate whether a planned purpose of their establishment
was achieved. The audit covered companies that perform various activities, and
all of the companies are owned by local self-government units. The importance
512
of accounting in addition to recording business events and preparing the finan-
cial statements is to provide information for decision making and information
focused towards future operations. Data from financial accounting was used
as a basis for making conclusion regarding the business of companies owned
by local and regional self-government units, i.e. regarding the determination of
achieving goals and achieving results and are given in the tables below. Account-
ing affects management through the analysis and control of the activities and
guidance in projects which are planned to achieve better business results. The
impact of management accounting is particularly significant for subjects that re-
ceive small grants from the founders because such subjects need to ensure fund-
ing sources for their operations. Achievement of planned purposes for which
the company was established is also monitored trough structure of the revenue
generated, as seen in Table 1. An evaluation of the effectiveness was used for giv-
ing recommendations for achieving higher efficiency results and achieving busi-
ness goals. Implementation of these recommendations should contribute to the
achievement of greater responsibility by focusing on strategic objectives in ac-
cordance with the plans of the founders and more successful and more effective
business operations of the companies. Application of recommendations elimi-
nates the weaknesses and has an influence on the management. Therefore, the
National Audit Office also performs verification of recommendation execution.
5. BUSINESS OPERATIONS ANALYSIS

Below is an overview of data on business operations of companies from the
areas of five counties. As a basis for conducted business analysis we used data INTERDISCIPLINARY MANAGEMENT RESEARCH XI
from reports on efficiency audit of companies owned by local and regional self-
government units. Table 1 provides an overview of companies in the area of five
examined counties with overall revenues, business operation results and grants
issued by the founder. Founder’s grants for companies in the area of each county
is different, and is also different for every company. Founder’s grants appear in
absolute terms and in relation to the overall realized revenue.
513
Table 1
Revenues from 2010 to 2012
in HRK without lp
Revenues Share
Num. Company name Year Overall Founder’s in % Profit or loss
revenues grants (5/4)
1 2 3 4 5 6 7
1. Pozega-Slavonia County 16,497,925 6,037,530 36.6 58,607
2010 2,294,238 318,000 13.9 7,146
Entrepreneurship Centre
1.1. 2011 2,330,198 220,000 9.4 19,473
Pakrac, Ltd. Pakrac
2012 2,621,191 132,400 5.1 16,377
Entrepreneurship Centre 2010th 1,927,430 1,023,926 53.1 12,807
1.2. Pleternica Ltd., 2011 1,682,328 974,439 57.9 8,437
Pleternica 2012 1,980,669 1,049,848 53.0 8,233
Pozega-Slavonia County 2010 162, 710 130,000 79.9 3,290
1.3. Regional Development 2011 795,527 705,750 88.7 20,588
Agency Ltd., Pozega 2012 971,363 875,000 90.1 2,954
2010 652,742 267,667 41.0 1,185
Pakrački list Ltd.,
1.4. 2011 573,897 172,000 30.0 -23,141
Pakrac
2012 505,632 168,500 33.3 -18,742
2. Vukovar-Srijem County 24,486,550 16,752,017 68.4 -72,642
Vukovar-Srijem County 2010 2,358,400 1,870,000 79.3 42,460
2.1. Development Agency Hrast 2011 4,267,967 2,140,388 50.2 171,149
Ltd, Vinkovci 2012 3,473,106 2,468,777 71.1 8,181
2010 792,399 705,950 89.1 46,058
Vukovar Development
2.2. 2011 890,786 598,168 67.2 36,503
Agency Ltd., Vukovar
2012 863,348 510,135 59.1 43,473
2010 482,228 431,000 89.4 -95,236
2.3. Periska Ltd., Vinkovci 2011 3,622,210 2,084,984 57.6 -312,626
2012 3,631,910 1,991,366 54.8 -115,560
2010 1,487,380 1,482,850 99.7 4,496
2.4. Eko-sustav Ltd., Vukovar 2011 1,288,387 1,288,300 99.9 41,361
2012 1,198,801 1,050,614 87.6 129,199
2010 6,024 6,000 99.6 573
Vinkovci Power Plant Ltd.,
2.5. 2011 3,024 3,000 99.2 666
Vinkovci
2012 120,580 120,485 99.9 -73,339
3. Osijek-Baranja County 14,385,852 10,272,064 71.4 78,873
514
2010 2,639,408 1,798,090 68.1 4,779
Entrepreneurship Incubator
3.1. 2011 3,094,534 2,203,754 71.2 10,322
BIOS Ltd., Osijek
2012 3,165,290 2,284,846 72.2 5,275
Miholjac Entrepreneurship 2010 520,720 391,612 75.2 4,160
Centre, Local Development 2011 546,681 410,087 75.0 23,240
3.2.
Agency
Ltd., Donji Miholjac 2012 1,002,825 903,163 90.1 9,969
2010 601,117 378,500 63.0 -40,131
Valpovo Entrepreneurship
3.3. 2011 665,722 396,983 59.6 48,434
Centre Ltd., Valpovo
2012 759,497 368,866 48.6 2,540
Erdut Municipality 2010 261,832 180,000 68.7 3,670
3.4. Entrepreneurship- 2011 273,614 200,000 73.1 36,610
Development Centre Ltd, Dalj 2012 442,036 354,428 80.2 5,509
Beli Manastir 2010 162,446 157,540 97.0 -9,066
3.5. Entrepreneurship Centre Ltd., 2011 123,105 118,170 96.0 3,680
Beli Manastir 2012 127,025 126,025 99.2 -30,118
4. Brod-Posavina County 19,395,360 4,509,067 23.3 661,231
2010 2,601,983 0 0.0 52,954
Nova Gradiska Industrial Park
4.1. 2011 3,263,666 0 0.0 63,765
Ltd., Nova Gradiska
2012 3,531,192 0 0.0 58,556
Technology Development 2010 2,090,194 750,000 35.9 39,899
Centre-Brod-Posavina 2011 1,899,906 846,400 44.5 169,088
4.2.
County Development Agency
Ltd., Slavonski Brod 2012 2,239,318 1,080,000 48.2 204,281
City of Slavonski Brod 2010 896,625 525,000 58.6 8,471
4.3. Development Agency 2011 873,332 528,000 60.5 7,574
Ltd., Slavonski Brod 2012 837,582 414 ,167 49.4 14,970
2010 413,155 130,000 31.5 14,143 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Brodin Entrepreneurship
4.4. Incubator Ltd., Slavonski 2011 382,845 117,500 30.7 7,906
Brod 2012 365,562 118,000 32.3 19,624
5. Istria County 78,434,671 15,823,504 20.2 1,228,562
2010 3,552,362 2,330,346 65.6 60,786
5.1. IDA Ltd., Pula 2011 4,277,420 2,914,883 68.1 46,019
2012 5,979,140 850,265 14.2 59,370
2010 518,397 513,000 99.0 187,174
5.2. IRENA Ltd., Labin 2011 761,789 450,000 59.1 150,113
2012 1,143,745 350,000 30.6 61,288
2010 4,953,611 2,553,162 51.5 79,141
5.3. AZRRI Ltd., Pazin 2011 6,069,664 2,678,265 44.1 56,337
2012 7,519,906 2,165,000 28.8 36,132
515
2010 17,667,979 0 - 503,432
5.4. MIH Ltd., Porec 2011 12,817,084 794,433 6.2 125,303
2012 12,245,878 194 ,150 1.6 50,904
2010 191,067 30,000 15.7 -158,170
5.5. Fish Market Ltd., Porec 2011 284,815 0 - -168,043
2012 451,814 0 - 138,776
TOTAL 153,200,358 53,394,182 34.9 1,954,631
Source: Table drafted by the authors on the basis of data from individual reports from the
Efficiency audit and achievement of business goals of companies owned by local and regional
self-government units in the county (five reports)

Table 2 provides an overview of companies in the area of five counties with
overall expenditures, employee expenditures and number of employees. Em-
ployee expenditures for companies in the area of these counties are different,
and also differ among companies. Employee expenditures are presented in ab-
solute terms and in relation to overall expenditures, and employee expenditures
per employee are also presented.

Table 2
Expenditures from 2010 to 2012
in HRK without lp
Expenditures Share Employee
Overall Employee expenditures/
Num. Name of company Employees Year (6/5) employees
expenditures expenditures in %
(6/3)
1 2 3 4 5 6 7 8
1. Pozega-Slavonia County 16,439,318 9,863,471 60.0
15 2010 2,287,092 1,169,248 51.1 77,950
Entrepreneurship Centre
1.1. 14 2011 2,310,725 1,186,598 51.4 84,757
Pakrac, Ltd. Pakrac
18 2012 2,604,814 1,366,976 52.5 75,943
Entrepreneurship Centre 32 2010 1,914,623 1,455,386 76.0 45,481
1.2. Pleternica Ltd., 32 2011 1,673,891 1,209,713 72.3 37,804
Pleternica 27 2012 1,972,436 1,146,176 58.1 42,451
Pozega-Slavonia County 4 2010 159,420 101,981 64.0 25,495
1.3. Regional Development 4 2011 774,939 536,273 69.2 134,068
Agency Ltd., Pozega 5 2012 968,409 712,262 73.5 142,452
516
4 2010 651,557 376,148 57.7 94,037
1.4. Pakrački list Ltd., Pakrac 3 2011 597,038 327,559 54.9 109,186
3 2012 524,374 275,151 52.5 91,717
2. Vukovar-Srijem County 24,559,192 13,395,191 54.5
Vukovar-Srijem County 11 2010 2,315,940 1,454,380 62.8 132,216
Development Agency
2.1. 13 2011 4,096,818 1,992,940 48.6 153,303
Hrast
Ltd, Vinkovci 15 2012 3,464,925 2,424,241 70.0 161,616
4 2010 746,341 540,701 72.4 135,175
Vukovar Development
2.2. 4 2011 854,283 650,602 76.2 162,651
Agency Ltd., Vukovar
4 2012 819,875 600,764 73.3 150,191
19 2010 577,464 267,044 46.2 14,055
2.3. Periska Ltd., Vinkovci 21 2011 3,934,836 1,664,307 42.3 79,253
21 2012 3,747,470 1,445,565 38.6 68,836
7 2010 1,482,884 569,621 38.4 81,374
Eko-sustav Ltd.,
2.4. 8 2011 1,247,026 824,878 66.1 103,110
Vukovar
8 2012 1,069,602 795,012 74.3 99,377
0 2010 5,451 0 - -
Vinkovci Power Plant
2.5. 0 2011 2,358 0 - -
Ltd., Vinkovci
1 2012 193, 919 165,136 85.2 165,136
3. Osijek-Baranja County 14,306,979 4,842,065 33.8
Entrepreneurship 5 2010 2,634,629 650,649 24.7 130,130
3.1. Incubator BIOS Ltd., 6 2011 3,084,212 521,959 16.9 86,993
Osijek 8 2012 3,160,015 590,368 18.7 73,796
Miholjac 4 2010 516,560 396,881 76.8 99,220
Entrepreneurship Centre,
4 2011 523,441 386,313 73.8 96,578
3.2. Local Development
Agency INTERDISCIPLINARY MANAGEMENT RESEARCH XI
4 2012 992,856 500,446 50.4 125,112
Ltd., Donji Miholjac
Valpovo 3 2010 641,248 349,062 54.4 116,354
3.3. Entrepreneurship Centre 3 2011 617,288 241,056 39.0 80,352
Ltd., Valpovo 3 2012 756,957 284,213 37.5 94,738
Erdut Municipality 1 2010 258,162 146,077 56.6 146,077
Entrepreneurship-
3.4. 1 2011 237,004 151,951 64.1 151,951
Development Centre
Ltd, Dalj 3 2012 436,527 320,939 73.5 106,980
Beli Manastir 1 2010 171,512 121,571 70.9 121 571
3.5. Entrepreneurship Centre 1 2011 119,425 62,239 52.1 62,239
Ltd., Beli Manastir 1 2012 157,143 118,341 75.3 118,341
4. Brod-Posavina County 18,734,129 8,436,647 45.0
517
Nova Gradiska Industrial 8 2010 2,549,029 1,001,225 39.3 125,153
4.1. Park Ltd., Nova 10 2011 3,199,901 1,141,482 35.7 114,148
Gradiska 18 2012 3,472,636 1,425,476 41.0 79,193
Technology 7 2010 2,050,295 911,917 44.5 130,274
Development Centre-
9 2011 1,730,818 1,020,689 59.0 113,410
4.2. Brod-Posavina County
Development Agency 9 2012 2,035,037 1,011,394 49.7 112,377
Ltd., Slavonski Brod
City of Slavonski Brod 3 2010 888,154 428,538 48.3 142,846

4.3. Development Agency 3 2011 865,758 476,290 55.0 158 763
Ltd., Slavonski Brod 3 2012 822,612 472,872 57.5 157,624
Brodin Entrepreneurship 1 2010 399,012 195,887 49.1 195,887
4.4. Incubator Ltd., Slavonski 1 2011 3,74 ,939 175,290 46.8 175,290
Brod 1 2012 345,938 175,587 50.8 175,587
5. Istria County 77,206,109 16,968,230 22.0
11 2010 3,491,576 1,784,843 51.1 162,259
5.1. IDA Ltd., Pula 12 2011 4,231,401 1,950,958 46.1 162,580
12 2012 5,919,770 1,819,929 30.7 151,661
1 2010 331,223 248,428 75.0 248,428
5.2. IRENA Ltd., Labin 1 2011 611,676 388,565 63.5 388,565
3 2012 1,082,457 555,321 51.3 185,107
15 2010 4,874,470 1,903,860 39.1 126,924
5.3. AZRRI Ltd., Pazin 14 2011 6,013,327 1,990,702 33.1 142,193
20 2012 7,483,774 2,349,461 31.4 117,473
9 2010 17,164,547 1,334,293 7.8 148,255
5.4. MIH Ltd., Porec 10 2011 12,691,781 1,358,888 10.7 135,889
9 2012 12,194,974 1,282,982 10.5 142,554
0 2010 349,237 0 - -
5.5. Fish Market Ltd., Porec 0 2011 452,858 0 - -
0 2012 313,038 0 - -
TOTAL 151,245,727 53,505,604 35.4
Source: Table drafted by the authors on the basis of data from individual reports from the
Efficiency audit and achievement of business goals of companies owned by local and regional
self-government units in the county (five reports)
This paper examines whether there is a correlation between the share of

founder’s grants in overall income (as presented in Table 1) and the share of
employee expenditures in companies (as presented in Table 2). To test the ex-
istence of correlations we used Spearman’s correlation test (sample size, n = 23
companies).
518
It was determined that:
- there is no correlation between the share of grants in the income and the
share of employee expenditures in companies in 2010 (Spearman r =
0.2932)
- there is no correlation between the share of grants in the income and the
0.4016)
- there is a correlation between the share of grants in the income and the
0.7004, p <0.05).
A test was performed to determine whether there is a significant difference
between the share of revenues between counties and share in expenditures be-
tween these counties, especially in 2010, 2011 and 2012. For that purpose we
used Kruskall-Wallis and ANOVA test with statistical significance between the
variables p <0.05 (if p value is lower than or equal to 0.05, the difference accord-
ing to county was significant).
It was found that:
a) share of grants in the revenues are significantly different according to
counties in 2010 (F (4, 18) = 4.3282, P = 01 257), which is presented in
Graph 1
b) shares of grants in revenues were significantly different according to
counties in 2011 (F (4, 18) = 2.9118, P = 05 084).
c) shares of grants in the revenues are significantly different according to
counties in 2012 (F (4, 18) = 7.0209, P = 00137).
519
Graph 1: Share of grants according to counties in 2010 (confidence interval
0.95)
Regarding the share in expenditures according to observed counties, espe-

cially in 2010, 2011 and 2012, the test showed that:
- share of employee expenditures in expenditures did not differ significantly
according to counties in 2010 (F (4, 18) = 1.0953, P = 38878)
- share of employee expenditures in expenditures did not differ significantly
according to counties in 2011 (F (4, 18) = 1.1684, P = 35760)
- share of employee expenditures in expenditures did differ significantly ac-
cording to counties in 2012 (F (4, 18) = 4.1801, P = 01443).
Conducted statistical correlation procedures and data processing through
Kruskall-Wallis and ANOVA with statistical significance between the vari-
ables amounting to p <0.05 allowed us to draw conclusions about the impact
of grants in income and share of employee expenditures as well as the impact of
employee expenses in overall expenditures according to counties.
6. CONCLUSION
The paper confirms the assumption that the companies owned by local and
regional self-government units in the area of five observed counties differ sig-
nificantly according to the source of funding in relation to founder’s grants, and
520
also vary according to business results. Those companies perform different busi-
ness operations, and the amount of financial grants from the founder, for most
companies, confirms their dependence on the local self-government unit bud-
get. Despite the significant grants from the founder, some companies recorded
operating losses, while other companies despite a drop in grants managed to
keep the share of employee expenditures in overall expenditure at the same
level, finding other sources of funding. Business improvement can be achieved
by implementing audit recommendations, achieving greater efficiency, as well as
by the removal of the irregularities and failures when setting business objectives
and business results. To calculate association between the two variables we have
carried out a statistical correlation procedures and used Kruskall-Wallis and
ANOVA test with statistical significance between the variables p < 0.05. It was
found that the share of grants in the overall revenues significantly differs ac-
cording to counties in all three years and that there is a correlation between the
share of grants in the overall revenues and the share of employee expenditures
in companies in 2012. It was also found that the share of employee expenditures
in overall expenditures significantly differed among the counties in 2012, and
thus it would be necessary to investigate the structure of overall expenditures.
WORKS CITED
[1] Details on the review of the opinions expressed on the operations and the application of
statistical analysis with the audited companies owned by local units: Mahaček, D.; Rad-
man- Funarić, M.: Application of statistical analysis and the audited companies owned
by local governments, p. 46
[2] State Audit Office Act, Official Gazette 80/11 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
[3] Akrap, V. et al. (2009). Državna revizija, Zagreb: MASMEDIA d. o. o., p. 154
[4] More details on the effectiveness audit of the European Court of Auditors,
http://www.eca.europa.eu/hr/Pages/AuditMethodology.aspx , (2014-05-28)
[5] Internal Auditors’ Manual Version 4.0, the Republic of Croatia, Ministry of Finance,
Internal Audit and Financial Control Directorate, Zagreb, November 2010, www.mfin.
hr/hr/pifc , http://www.samobor.hr/web/datoteke/2010/04/Priru%C4%8Dnik-za-
unutarnje-revizore-v-4-0-30-11- 2010.pdf, p. 28
[6] Croatian Financial Reporting Standards, the Decision on publishing Croatian Financial
Reporting Standards - 30/08, Decision on Amendments to the Decision on publishing
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Decision on publishing Croatian Financial Reporting Standards - NN 58 / 11)
[7] Budget Act, Official Gazette 87/08 and 136/12
[8] Local and Regional Self-Government Act, (OG 33/01, 60/01, 129/05, 109/07, 125/08,
36/09, 150/11, 25/12, 144/12 and 19 / 13)
521
[9] Regional Development Act, Official Gazette 153/09
[10] State Grant Act, Official Gazette 140/05 and 49/11 (terminated on June 30th 2013)
State Grant Act, Official Gazette 72/13 and 141/13 (entered into force on July 1st
2013) and the State Grant Act, Official Gazette 47/14 (entered into force in April
2014)
[11] Improvement of Business Infrastructure Act, Official Gazette 93/13 and 114/13
[12] Public Procurement Act, Official Gazette 90/11, 83/13 and 143/13
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523
NEWLY CREATED CONSEQUENCES
CAUSED BY THE CHANGE OF
INCOME TAX
Domagoj PAVIĆ, dipl.oec

Vodovod-Graditeljstvo d.o.o., Osijek, Hrvatska
domagoj.pavic@vodovod.com
Domagoj Pavić • Domagoj Karačić: NEWLY CREATED CONSEQUENCES CAUSED BY THE CHANGE OF INCOME TAX
Domagoj KARAČIĆ, Ph.D.

karacic@efos.hr
Abstract
Amendments of the Law on Income Tax and increase of the personal deduc-
tion will result in the decrease of liabilities and payments of employment in-
come tax.
Since income tax is a joint income of state and local governments, cities and
municipalities will get a smaller portion of the funds to finance their needs,
also many programs and activities of cities and municipalities will come into
question.
In order to achieve plans and forecasted activities, cities and municipalities
introduced an increase of surtax. With this increase of surtax local self-govern-
ment units tried to compensate for the decreased income and cash inflow from
employment income tax. This paper strives to explore the thesis that local self-
government units, through the increase or introduction of additional surtax,
attempt to collect the same amount of financing funds as in previous periods.
Keywords: income tax, personal deduction, surtax, cities and municipalities
JEL Classification: F65, G2, H2
524
1. INTRODUCTION
Provisions of the Constitution of Republic of Croatia (NN 05/14) regulate
that everyone is obliged to participate in the settlement of the public expenses,
in accordance with their own economic opportunities. In addition, it indicates
that the tax system is based on principles of equity and equality.
Equity in taxation ( Jelcic, 2001, 109) can be achieved by establishing the
obligation of payment of taxes to all citizens of the country, or it can be based
on equality in taxation, so that taxation is conducted according to the economic
capacity of taxpayers.
Main feature of the income tax is its social function, which undoubtedly
arises from the regulations on the income tax and numerous provisions de-
signed to reduce the tax liability for natural persons.
Income tax payer is always a natural person. When determining the amount
of income taxes, many personal facts have to be taken into account, which is
why this tax can be considered personal.
When determining the tax liability, taxpayer is entitled to use tax deduc-
tions or non-taxable income. Amount will depend on many factors and circum-
stances - whether taxpayer is employed or in pension, whether he lives alone or
supports a family, if he has health problems, where does he reside etc.
2. TYPES OF INCOME AND PERSONAL

DEDUCTION INTERDISCIPLINARY MANAGEMENT RESEARCH XI
According to the provisions of Law of income tax (NN 143/14), taxable

income based on the income source, is:
- employment income,
- self-employment income,
- income from property and property rights,
- capital income,
- insurance income,
- other sources of income.
The income tax base is total amount of income from employment. In case
of employment income, basis for income calculation is reduced in amount of
personal deduction for each month of tax period. Reason for reduction of the
525
employment income and reduction of tax base is the fact that taxpayers’ income
necessary for provisions for basic existential needs should not be taxed. Main
deductions under the existing law can be increased for:
- part of personal deduction for dependent children,
- part of personal deduction for dependent spouse,
- part of personal deduction for other dependent members of the family,
- part of personal deduction for invalidity.
According to the Law on income tax, personal deduction has been changed
many times since 1994, when it was first introduced.
Table 1: Overview of the changes of the primary personal deductions from

1994 to 2015
Period Primary personal deduction
1.1.-31.12.1994. 332,00
1.2.-30.6.1994. 400,00
1.7.-31.12.1994. 500,00
1.1.1995.-31.12.1996. 700,00
1.1.1997.-31.12.1998. 800,00
1.1.1999.-31.3.2000. 1.000,00
1.4.2000.-31.12.2002. 1.250,00
1.1.2003.-31.12.2004. 1.500,00
1.1.2005.-30.6.2008. 1.600,00
1.7.2008.-29.2.2012. 1.800,00
1.3.2012.-31.12.2014. 2.200,00
1.1.2015.- 2.600,00
Source: Bartolec, S., Uljanić, I. (2015.) „Osobni odbitak–značenje, povijesni pregled i izm-
jene“, Porezni vjesnik, 55
The personal deduction is used only in the disbursement of employment

income, while in other types of income personal deduction is not used.
2.3. SALARY CALCULATON  EMPLOYMENT

INCOME
Law concerning the financing of units of local and regional self-government
(Official Gazette of RC (NN 147/14)) determines the sources of funding and
526
financing of the municipality or city. Cities and municipalities can implement
following taxes:
1. Surtax on income tax
2. Consumption tax
3. Tax on holiday houses
4. Tax on trade name
5. Tax on use of public land
For income taxpayers, municipality or city can determine the amount of sur-
tax on income tax in following way:
- A municipality at the rate of up to 10%
- A city with a population below 30,000 at a rate of up to 12%
- A city with a population over 30,000 at a rate of up to 15%
- The city of Zagreb at a rate of up to 30%
The basis for the calculation of surtax is determined according to the amount
of income tax. By amendments of the Law on Income Tax, personal deduction
from 1 January 2015 has been increased and is up to 2,600.00 kn per month.
Until 31 December 2014, the basic personal deduction was up to 2,200.00 kn
per month.
Income tax rates applicable in 2014 and 2015 were 12%, 25% and 40%.
Following table shows the base for calculation of income:
Table 2: Changes of tax groups from 1.1.2015.
According to the Law on Income Tax until 31.12.2014. Changes of the Law from 1.1.2015.
Tax rate Monthly tax base Monthly tax base
12% Up to 2.200,00 kn Up to 2.200,00 kn
25% Above 2.200,00 kn up to 8.800,00 kn Above 2.200,00 up to 13.200,00 kn
40% Above 8.800,00 kn Above 13.200,00 kn
Source: Bartolec, S., Uljanić, I. (2015.) „Osobni odbitak–značenje, povijesni pregled i izm-
jene“, Porezni vjesnik, 59
Changes of the basic personal deductions and changes of the tax rate on
self-employment income resulted in higher net amounts when calculating in-
come, also influencing the amount of the income tax. Since majority of the lo-
cal self-government units collect funding mostly with income tax, this change
might lead to income reduction in general. In order for local self-government
527
units to easily and evenly collect income from tax, a large number of local self-
government units used the legal possibility and introduced surtax. From 1 Janu-
ary 2015, 26 local self-government units have introduced surtax and thereby
increased their income. Most of local self-government units introduced a maxi-
mum of 10% surtax. The example below shows how this reflected the income
from taxes and surtaxes and net earnings from employment income and other
types of income.
Example bellow elaborated employment income with the personal deduc-
tion without dependent members, with the gross income of 3017.61 kn in
2014 and 3029.55 kn in 2015 (minimum wage) and incomes of 5,000.00 kn,
10,000.00 kn 15,000.00 kn in 2014 when there was no surtax and in 2015
when surtax of 10% was introduced.
It is evident that in 2015 local self-government units will profit more in case
of 10.000 kn gross salary than in the year before.
Table 3: Comparison of income without dependent members (lower wages)
“ minimum” gross 5.000 kn gross
from 1.1.2015. + from 1.1.2015. +
Until 31.12.2014. Until 31.12.2014.
surtax surtax
GROSS 3.017,61 3.029,55 5.000,00 5.000,00
Retirement insurance 20% 603,52 605,91 1.000,00 1.000,00
Income 2.414,09 2.423,64 4.000,00 4.000,00
Personal deduction 2.200,00 2.423,64 2.200,00 2.600,00
Basis 214,09 0,00 1.800,00 1.400,00
Tax 12% 25,69 0,00 216,00 168,00
Tax total 25,69 0,00 216,00 168,00
Surtax 10% 0,00 0,00 0,00 16,80
Tax + surtax 25,69 0,00 216,00 184,80
NET 2.388,40 2.423,64 3.784,00 3.815,20
Source: Calculation from author
528
Table 4: Comparison of income without dependent members (higher wages)
10.000 kn gross 15.000 kn gross
from 1.1.2015. + from 1.1.2015.
Until 31.12.2014. Until 31.12.2014.
surtax + surtax
GROSS 10.000,00 10.000,00 15.000,00 15.000,00
Retirement insurance 20% 2.000,00 2.000,00 3.000,00 3.000,00
Income 8.000,00 8.000,00 12.000,00 12.000,00
Basis 5.800,00 5.400,00 9.800,00 9.400,00
Tax 12% 264,00 264,00 264,00 264,00
Tax 25% 900,00 800,00 1.650,00 1.800,00
Tax 40% 0,00 0,00 400,00 0,00
Tax total 1.164,00 1.064,00 2.314,00 2.064,00
Surtax 10% 0,00 106,40 0,00 206,40
Tax + surtax 1.164,00 1.170,40 2.314,00 2.270,40
NET 6.836,00 6.829,60 9.686,00 9.729,60
If the taxpayer has two children as dependent members, with gross income
of 3017.61 kn in 2014 and 3029.55 kn in 2015 (minimum wage) and gross
income from 5000.00 kn, 10,000, 00 kn and 15,000.00 kn, income of local self-
government units is reduced in cases where there is a tax liability, as shown in
Table 5 and 6.
Table 5: Comparison of income with two children (lower wages)
“minimum” gross 5.000 kn gross
from 1.1.2015. from 1.1.2015.
Until 31.12.2014. until 31.12.2014.
+surtax +surtax
GROSS 3.017,61 3.029,55 5.000,00 5.000,00
Retirement insurance
603,52 605,91 1.000,00 1.000,00
20%
Income 2.414,09 2.423,64 4.000,00 4.000,00
Basis 0,00 0,00 0,00 0,00
Tax total 0,00 0,00 0,00 0,00
Surtax 10% 0,00 0,00 0,00 0,00
Tax + surtax 0,00 0,00 0,00 0,00
NET 2.414,09 2.423,64 4.000,00 4.000,00
529
Table 6: Comparison of income with two children (higher wages)
10.000 kn gross 15.000 kn gross
from 1.1.2015. from 1.1.2015.
Until 31.12.2014. until 31.12.2014.
+surtax +surtax
GROSS 10.000,00 10.000,00 15.000,00 15.000,00
Retirement insurance
2.000,00 2.000,00 3.000,00 3.000,00
20%
Income 8.000,00 8.000,00 12.000,00 12.000,00
Basis 3.160,00 2.280,00 7.160,00 6.280,00
Tax12% 264,00 264,00 264,00 264,00

Tax 25% 240,00 20,00 1.240,00 1.020,00
Tax 40% 0,00 0,00 0,00 0,00
Tax total 504,00 284,00 1.504,00 1.284,00
Surtax 10% 0,00 28,40 0,00 128,40
Tax + surtax 504,00 312,40 1.504,00 1.412,40
NET 7.496,00 7.687,60 10.496,00 10.587,60
4. INCOME FROM INCOME TAX

In addition to employment income tax, income tax is calculated also for the
self-employment income, income from property and property rights, capital in-
come, insurance income and other sources of income. Income from property
and property rights is paid at the rate of 12% without the personal deduction,
with the prior deduction of the tax base by 30%. Advance on capital income is
calculated at the rate of 40% without the personal deduction. Advance on capi-
tal income in share option purchase is taxed at a rate of 25%, and advance of tax
on capital income from dividends and profit shares at the rate of 12% without
the personal deduction. Advance on insurance income is calculated at the rate
of 12% without the personal deduction. Advance on other sources of income is
calculated at the rate of 25% % without the personal deduction, and in the case
of remuneration, the tax base is reduced for 25%. Tax Administration brings
the decision on advance on income from self-employment in proportion to the
income of the preceding calendar year. In all these cases, the personal deduction
has no effect on the increase or decrease of income, regardless of the amount.
Meaning that tax liability of income tax in 2014 and 2015 remains the same
530
regardless of the increased personal deduction. By introducing or increasing of
the surtax, local self-government units realised increase of their income for the
amount of the surtax.
Table 7 analyses income of 4 municipalities in 2014, with visible correlation
of income tax and its influence on the personal deduction ( JLS A, B, C, D).
Table 7: Incomes influenced by personal deductions
JLS A JLS B JLS C JLS D
Employment income 5.182,98 31.339,28 57.856,60 14.266,37
Employment income 1.119.809,32 2.144.231,56 1.001.487,92 1.198.214,16
Pensions from abroad 20.779,00 29.374,41 16.823,66 9.012,03
Annual tax return -1.007.313,18 -946.227,36 -1.641.253,08 -1.039.839,45
TOTAL: 138.458,12 1.258.717,89 -565.084,90 181.653,11
Source: Tax Administration information system, calculation from author
Table 8: Incomes not influenced by personal deductions

Self-employment income 75.355,34 269.707,88 101.848,38 286.715,63
Self-employment income 2.927,18 13.383,26 7.841,16 8.837,80
Rental income 17.431,84 129.880,19 181.392,27 42.757,24
Income of rent - 533.245,29 43.444,69 450,00
Other income 4.321,62 9.119,14 15.825,03 422,60
Other income 78.397,76 95.539,86 231.063,48 102.121,89
Income from capital 241.056,00 25.409,40 435.099,60 1.413,28
Income from copyright works - - 6.422,71 381,82
TOTAL: 419.489,74 1.076.285,02 1.022.937,32 443.100,26

Table 7 and 8 are showing the income of 4 local self-government units from
employment where only unit B achieved significant income from income tax,
regardless of income during the calendar year.
In the other 3 local self-government units no significant income was re-
alised. Main reason for that is that most of the tax was returned to the taxpay-
ers through annual income tax return. Unit C even has a negative income from
employment income tax.
531
In 2014 all units achieved significantly higher income when it comes to other
sources of income than from employment income. ( JLS A in relation to other
sources of income and employment income - 419,489.74 kn and 138,458.12
kn; JLS D in relation to other sources of income and employment income -
443,100.26 kn and 181,653.11 kn). From this, it can be concluded that local
self-government units will achieve much higher income from all other sources
of income than from employment income, compared to 2014. In addition, it
can be concluded that compared incomes are in majority, in year under review,
at a similar level.
5. CONCLUSION
Income tax and real estate transfer tax, according the provisions of Law
concerning the financing of units of local government and regional self-govern-
ment, are joint taxes. In 2014, income tax was divided between state, municipal-
ity/city and county in following ratio:
- 56,5% - municipality/city,
- 16% - county,
- 12% - decentralized functions,
- 15,5% - share for adjustment for decentralized functions.
From 1.1.2015., ratio is changed and now is:

- 60% - municipality/city,
- 16,5% - county,
- 6% - decentralized functions,
- 16% - share for adjustment for decentralized functions.
Above-mentioned percentage of tax income (especially from employment
income and other income taxes) as well as shares in the income structure of lo-
cal self-government units, provide the following data:
532
Table 9: Expected income from local self-government units ( JLS) in 2015
Employment income in 2014 138.458,12 1.258.717,89 -565.084,90 181.653,11
Other income in 2014 419.489,74 1.076.285,02 1.022.937,32 443.100,26
TOTAL: 557.947,86 2.335.002,91 457.852,42 624.753,37
Total income of JLS in 2014 334.768,72 1.401.001,75 274.711,45 374.852,02
Expected increase in 2015 41.948,97 107.628,50 102.293,73 44.310,02
Total expected tax and surtax in 2015 376.717,69 1.508.630,25 377.005,18 419.162,05
In 2015 local self-government units will have 10% increased income with
introduced surtax in comparison to decrease of income when calculating the
increase of personal deductions in employment income.
Total income in 2015 for local self-government unit A should be increased
for 60% of income from 2014 of new surtax.
Literature
Bartolec, S., Uljanić, I. (2015.) „Personal deduction – definition, historical review and am-
mendemnts“, Porezni vjesnik, 46-72.
Jelčić, B. (2001.) „Public finances“, Rrif, 109-137.
Rulebook on income tax – NN 157/14
Law on income tax– NN 143/14
Law on contributions – NN 143/14
Law concerning the financing of units of local and regional self-government – NN 147/14
Constitution of Republic of Croatia – NN 05/14 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
533
Health,
Education
and
Welfare
IMPORTANCE OF MANAGEMENT
REPORTS IN THE DECISION
MAKING PROCESS IN THE HIGHER
EDUCATION SYSTEM
Martina DRAGIJA, Ph.D.

mdragija@efzg.hr
Berislav ŽMUK, Ph.D.

bzmuk@efzg.hr
Faculty of Economics and Business, University of Zagreb
Abstract
In the last fifty years the importance and scope of the higher education institutions
has changed drastically. Higher education institutions are faced with growing
demands both in teaching and research activities. Moreover, higher education
institutions have entered a wide range of financial and institutional reforms that
mostly relate to the process of internalization, strengthening of institutional au-
tonomy, increasing competitiveness and achieving financial sustainability. Quali-
ty implementation of mentioned reforms demands that managers use quality and
comprehensive information, not just from external reports but also from inter-
nal management reports. In the context of the aforementioned issues, this paper
explores the theoretical and practical importance of management reports in the
decision-making process in the higher education system. Authors have examined
the usage of management reports within higher education institutions in Croatia
through empirical research that was conducted in the year 2014. The question-
naire was sent to all HEIs in the Republic of Croatia, more precisely to the Deans
of HEIs. Appropriate statistical methods, including descriptive statistics, inferen-
tial statistics and regression analysis, were used for processing and interpreting
primary data. Moreover, the obtained results were also compared with the results
of similar previous research. The authors have confirmed the main hypothesis
that management reports are not sufficiently used in the decision-making process
at Croatian higher education institutions.
537
Keywords: higher education institution, management reports, Croatia,
statistics
JEL Classification: H52, H75, I2
1. INTRODUCTION
Today, higher education institutions are increasingly seen as the main “drivers
of the economy” and are the key for ensuring new knowledge through research
Martina Dragija • Berislav Žmuk: IMPORTANCE OF MANAGEMENT REPORTS IN THE DECISION-MAKING PROCESS IN ...
and innovation process as well as through continuous training of the workforce.

However, higher education institutions are also involved in a wide range of fi-
nancial and institutional reforms that are carrying many changes in the higher
education systems. These reforms are closely related to the internationalization
of the activities of higher education institutions, strengthening of institutional
autonomy, reduction of public sources of funding and the introduction of new
financing schemes as well as increasing of competitiveness in higher education
system (Kyvik, 2004; OECD, 2008a; OECD, 2008b; OECD, 2008c, Sursock
& Smidt, 2010).
Internationalization that is primarily measured by the number of foreign
students and teachers on exchange and the number of agreements with for-
eign universities is viewed as an important strategic element in the development
of higher education institutions. Furthermore, institutional autonomy implies
that the internal organization structure and management of the university do
not fall under the state regulations as well as internal management of financial
resources. Also, institutional autonomy assumes that they are autonomous in
the following: mode of generating revenues from various sources other than
the state budget, employment of staff, study conditions and the freedom of sci-
entific research and lectures (Estermann & Nokkala, 2009). In other words,
institutional autonomy allows higher education institutions self-management
without external interference of the government. However, in the practice any
higher education system is not completely autonomous of external control. But
with the increase in the autonomy increase also responsibility of higher edu-
cation institutions for management and achieved results. Moreover, there are
changes in the financing of higher education institutions since public resources
of funding are no longer sufficient to cover all costs (Estermann & Bennetot
Pruvot, 2011). Therefore, higher education institutions are forced to seek new
sources of funding in order to be competitive and to act on the financial sustain-
538
able level, and thereby financing models in higher education are also changing.
Leading European University has highlighted financial sustainability as a key
factor for the competitiveness of higher education in the 21st century (Ester-
mann & Claeys-Kulik, 2013).
A precondition for effective and responsible management as well as mainte-
nance of financial stability and autonomy of higher education institutions is a
high quality accounting information system that ensures and provides detailed,
accurate and timely information (Vašiček,V. & Dragija (ed.); 2011). Further-
more, only higher education institutions that have developed reporting systems,
external and internal, can see whether they manage on the financial sustain-
able basis and that allows them to follow the reform process in higher educa-
tion. Due to aforementioned, further in the paper we have examined account-
ing reporting systems of higher education institutions in Croatia. Especially we
have researched usage of internal or more precisely management reports within
higher education institutions in Croatia through empirical research that was
conducted in the year 2014.
2. ACCOUNTING REPORTING SYSTEMS OF

HIGHER EDUCATION INSTITUTIONS IN
CROATIA
Accounting information that are processed within the accounting informa-
tion system are presented in the certain standardize or non-standardize way in
the form of reports. Usually in the literature we can distinguish two main set of INTERDISCIPLINARY MANAGEMENT RESEARCH XI
reports (Vašiček, D.; 2007, 74):
• external financial reports - prescribed or standardized reports that in-
clude synthesized and comprehensive information which meet the needs
of most users in the environment of the reporting entity, and
• internal financial reports – non-standardize reports that are prepared
according to the requirements of internal users, most often management,
within the reporting entity.
External financial reports are the product of the financial accounting that is
prescribed by the normative framework of every country for certain business
entity. Main characteristic of financial accounting is processing information that
539
relates to past business events (Vašiček, V. & Dražić Lutilsky; 2007). Higher
education institutions are obligatory to prepare external financial reports but
the set of these reports depends on the type of higher education institutions.
Precisely, higher education institutions in Croatia can be registered as budget-
ary users, non-profit organizations or companies. Due to that they are obligato-
ry to apply different normative framework. In the table below it can be seen legal
framework for financial reporting of higher education institutions in Croatia as
well as set of external financial statements.
Table 1. Normative framework of Higher education institutions in Croatia and
set of external financial statements

Type of higher education institutions in Croatia
Budgetary users Non-profit organizations Companies
(public HEI’s) (private HEI’s) (private HEI’s)
Regulation on financial reporting in Regulation on accounting of
Accounting Act
budgetary accounting (Official Gazette, non-profit organizations
2011) (Official Gazette, 2007)
(Official Gazette, 2008)
External financial reports: External financial reports: External financial reports:
• Balance sheet • Balance sheet • Balance sheet
• Statement on revenues and • Statement on revenues and • Income statement
expenses, receipts and expenditures expenses • Cash flow statement
• Statement about changes in values • Notes to financial • Statement on changes in equity
and volumes of assets and liabilities statements
• Notes to financial statement
• Notes to financial statements
Source: Authors
Through analysis of external financial statements of different higher edu-

cation institutions in Croatia we have detected major differences in the form
and the content of financial statements of higher education institutions that
primary result from applied legal framework. Public higher education institu-
tions are applying modified accrual basis of accounting and because of that have
different elements of basic financial statements. In relation to the application of
full accrual basis this accounting model is marked with following adjustments
(Vašiček,D., et al.; 2009):
• Revenues of public sector entities are recognized when the cash is received
therefore revenues are based on cash basis.
• Expenses of current non-financial assets are recognized at the time of
purchase, therefore not at the time of actual consumption.
540
• The costs of procurement fixed asset with small value are not capitalized,
because they are entirely presented as expense at the time of purchase.
• The costs of procurement fixed asset are not capitalized and they are not
systematically apportioned on a time or functional basis as expenses dur-
ing the period of useful life.
• Increase in assets during the procurement fixed non-financial assets with-
out the costs (capital received donations) are not recognized as revenue
but directly increased the sources of ownership (public capital).
• Spending fixed non-financial assets during the administration estimated
life is expressed as the expense of the sources of ownership (public capi-
tal) using proportional method of value adjustment.
• Residual value of fixed non-financial asset that is sold or decommissioned
is not reported as an expense that arises from the fact that the total ex-
pense was recognized at the time of purchase.
• The changes in value and volume of assets and liabilities are not reflected
in the financial result but they directly reflect on the value of sources of
ownership (public capital).
While on the other side private higher education institutions, that are reg-
ister like non-profit organizations or companies, are using full accrual basis in
accounting that assures full and comprehensive information for external users.
It is important to highlight that external financial reports assure synthesized
information that are prescribed by the normative framework but those infor-
mation are insufficient for the purpose of management in the higher education
systems. Preparing of internal or in other words management reports is in the
domain of internal users, precisely management of higher education institu-
tions, and therefore those reports are non-standardize and cannot be prescribed
by the law (Vašiček, Dragija (ed.); 2011, 28). The methodological basis for pre-
paring of internal reports is known and developed in detail in the profit sec-
tor, and assumes instruments of cost accounting and management accounting
(Horngren, 2005). According to Vašiček, D. (2007, 92) methods, techniques,
instruments, cost concepts and detailed processes of cost accounting and man-
agement accounting, which are scientifically and professionally developed and
deeply embedded in the management process in the entrepreneurial sector, can
be to a large extent applied in the public sector as well to higher education insti-
541
tutions. In that context, management reports could be used for different areas
in decision making processes; such as:
• the process of planning and preparing financial plans and budgets;
• the control and cost reduction;
• the fixing of prices and charges;
• the program evaluation and performance measurement;
• the diversity of choice of economic decisions.
The goal of the existing accounting information systems of Croatian high-

er education institutions is primarily in completing the legal requirements in
terms of external reporting, and not in providing quality information to internal
users for efficient management (Budimir; 2010, 18). Therefore, it is common
that in addition to external reporting there is a need for the development of
quality management reports system. Those reports are prepared primarily for
management, containing the target and detailed information about costs, rev-
enues, assets, liabilities, and their structure. As well as the effects they have on
long-term sustainability of programs, projects, activities, processes, etc. (Minis-
tarstvo financija; 2012).
So far has not been given much attention to the issue of internal reporting
and the quality of accounting information in the higher education system in the
Republic of Croatia. Only author Dražić Lutilsky (2006, 159-229) has con-
ducted an empirical research that was focus on the application of cost account-
ing and management accounting in the public higher education institutions in
the Republic of Croatia. Specifically, the goal of the mentioned research was to
evaluate the level of use of cost accounting and management accounting as bases
for the providing information that are necessary to the management in the deci-
sion making process and as a prerequisite to improve the management process
in higher education institutions (Dražić Lutilsky; 2006, 163). The main con-
clusions of this research can be summarized as the following (Dražić Lutilsky;
2006, 201-229): there is a low use of cost accounting and management account-
ing instruments within HEI’s; accountants show a greater knowledge about el-
ements of cost accounting and management accounting for management pur-
poses in relation to the management of higher education institutions; internal
reporting system is not developed in detail, but still accountants are record-
ing some additional data in order to be able to prepare internal management
542
reports, mostly internal reports about the prices of higher education services
while they hardly draw up internal reports about the operations of the depart-
ment, internal reports of performance measurement of programs and service;
management of higher education institutions is not sufficiently informed about
the possibilities as well as importance of using instruments of cost accounting
and management accounting in the decision making process; internal reports
are usually made periodically, usually annually and/or semi-annually; informa-
tion requirements of public management and administration of higher educa-
tion institutions are not high.
3. EMPIRICAL RESEARCH OF MANAGEMENT

REPORTS USAGE WITHIN HIGHER
EDUCATION INSTITUTIONS IN CROATIA
In order to investigate the usage of management reports within higher ed-
ucation institutions in Croatia, authors have done statistical analysis of data
that were obtained through empirical research that was conducted in the year
2014 for the purpose of writing doctoral thesis named Internal reporting in the
function of managing Higher education institution in the Republic of Croatia,
author Martina Dragija. More precisely, empirical research was conducted in
the year 2014 among the all higher education institutions and questionnaire
was aimed to Deans of HEI’s (Dragija, 2014). From the total 135 HEI’s in
the Republic of Croatia, 40 HEI’s answered on questionnaire for the Deans
(responsive rate 29.63%). So, a response rate goes around 30% which is remark-
able high for such kind of research.
Distribution of respondents by type of higher education institution (bud-
getary user, a non-profit organization or a company) is shown in the Figure 1.
So, it is obvious that from the sample of HEI’s most of them are budgetary
users with 85%, followed by non-profit organizations with 12%, and just 3%
are companies. That was in a fact expected since most of HEI’s in Croatia is
budgetary users.
543
Figure 1: Surveyed HEI’s according to the type of organization
Source: Data from questionnaire (Dragija, 2014)
Further we have tested the hypothesis that the existing accounting informa-
tion system of the higher education institution in Croatia focused primarily on
meeting the legal requirements in terms of external reporting. For that purpose
we have used one-tail z test about a population proportion for the year 2014.
It is assumed that more than 75% of management believes that the existing
accounting information system of the higher education institution focused pri-
marily on meeting the legal requirements in terms of external reporting. Thus
the test hypotheses are: H0... p≤0.75, H1... p> 0.75. Conducted statistical test
confirmed that assumption. In other words we reject the null hypothesis at sig-
nificance level of 5% (test statistic = 1.826, p-value = 0.0339). Consequently, at
significance level of 5% we reject the assumption that 75% or less of managers
in higher education institutions agree that the existing accounting information
system of the higher education institution focused primarily on meeting the
legal requirements in terms of external reporting. Respectively, we can accept
the assumption that the percentage of managers who believe that the current
accounting information system of the higher education institution focused
primarily on meeting the legal requirements in terms of external reporting is
higher than 75%.
Moreover, we tested hypothesis that more than 55% of management of
HEI’s consider that the information presented in the external financial state-
ments are not sufficient to manage the reform processes in higher education.
Thus the test hypotheses are: H0... p≤0.55, H1... p> 0.55. Conducted statistical
test confirmed that assumption. Therefore, we rejected the null hypothesis at
significance level of 5% (test statistic = 1.907, p-value = 0.0283). At significance
544
level of 5% we rejected the assumption that 55% or less of higher education
institutions does not agree that the information presented in the external fi-
nancial statements are sufficient to manage the reform processes in higher edu-
cation (funding reform, reforms to increase competitiveness, reform related to
internationalization activities, etc.). So, we can accept the assumption that the
percentage of managers that does not agree that the information presented in
the financial statements are sufficient to manage the reform processes in higher
education (funding reform, reforms to increase competitiveness, reforms related
to internationalization activities, etc. .) is higher than 55%.
In the table below, we have presented obtained results about significance of
management reports for the different purposes according to the opinion of sur-
veyed managers.
Table 2: Assessment of the significance of management reports of HEI’s by the
surveyed management
Arithmetic Standard
Significance of management reports for the purpose of: Mode
mean deviation
cost planning 4.47 0.86 5
cost calculation 4.24 0.82 4
cost control 4.38 0.82 5
price determination 3.52 1.23 4
performance measurement 3.41 1.27 4
monitoring the performance of provided services 3.50 1.41 4
measurement of business results 4.30 1.02 5
internal audit 3.85 1.39 5
Source: Data from questionnaire (Dragija, 2014)
From the arithmetic means it is evident that the surveyed managers at

HEI’s give the highest grades to significance of internal reports for cost plan-
ning, cost calculation, cost control and measurement of business results. The
lowest grades they give for the significance of internal reports for the purposes
of price determination and performance measurement.
Further to above, appropriate correlation and regression analysis was con-
ducted in order to estimate impact of internal reports about performance indi-
cators of HEI’s (independent variable, X) on average significance of internal re-
ports for the purpose of performance measurement (dependent variable, Y). All
545
linear regression model assumptions were met (Žmuk; 2015) in the observed
simple linear regression model and are available upon a request.
Figure 2: Correlation matrix

Y X
Y 1.000
X 0.606* 1.000
* - correlation is significant at the 0.01 level (2-tailed)

Source: Research results.
According to the correlation matrix, given in Figure 2, it can be concluded

that the decision for using internal reports about performance measurement
will have positive statistical influence on the average significance of internal re-
ports for the purpose of performance measurement. From the above we can
inductively conclude that a decision on the use of internal reports positively
affect the significance of internal reports.
4. CONCLUSION
In the past fifty years higher education systems have experienced radical
changes. In fact, higher education institutions are now still faced with addition-
al demands and expectations both in an educational and research context. In
order to respond successfully to mentioned demands of its users higher educa-
tion institutions have been forced to move to the processes of institutional and
financial reforms as well to the process of implementation of entrepreneurial
business principles in the higher education system. Therefore, it is necessary to
change existing decision making process by introducing greater usage of inter-
nal management reports.
The results of conducted statistical analysis have shown that the current
accounting information system of higher education institutions in Croatia is
primarily focused on complying with legal requirements regarding the external
reporting. Moreover, it can be concluded that the opinion of management of
higher education institutions is that the existing accounting information system
is focused primarily on assembly of legally prescribed external reports. Inter-
nal reports at higher education institutions are generally a result of the cur-
rent claims of management, rather than a systematic and developed internal
546
reporting system. Further to aforementioned issues, it is necessary to highlight
that surveyed managers at HEI’s give the highest grades to significance of in-
ternal reports for cost planning, cost calculation, cost control and measurement
of business results and they are not familiar with the significance of internal
reports for the purposes of price determination and performance measurement.
Therefore, it can be concluded that management of higher education institu-
tions in Croatia need to put more focus on internal reporting system in order
to be able to follow trends in management of higher education institutions of
developed European countries. The authors have confirmed the main hypoth-
esis that management reports are not sufficiently used in the decision making
process in Croatian higher education institutions.
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548
EDUCATION AS AN INDICATOR OF
DEVELOPMENT ON THE ROAD TO
THE KNOWLEDGE ECONOMY
Adrijana NIKIĆKATIĆ, M.A.

postgraduate student at the Faculty of Economics in Osijek,
Business and Technical College in Doboj,
Bosnia and Herzegovina
Abstract
One of the basic indicators of the development of national economies is the de-
gree of education and knowledge of its society. Therefore, education, especially
higher education, is considered to be a national priority which contributes to
economic development as well as the development of society in general.
Highly-educated workforce is of special importance for the creation of a knowl-
edge-based economy. Most developed countries implement their development
strategies by investing in knowledge and human capital. Europe 2020 strategy
lists as its main goals the improvement of conditions and quality of education.
The United Nations and the World Bank consider education as one of the
foundations for the creation of a knowledge-based economy.
The knowledge economy can be defined as economy based on human knowl-
edge, competence and capability. The key factor in the development process is
knowledge embodied in people.
This paper shows basic indicators of the development of knowledge economy
with a special focus on education, and it also explores where Bosnia and Her-
zegovina is on the road to the knowledge economy.
Keywords: education, development, knowledge economy, Bosnia and
Herzegovina
JEL Classification: D83, I21, I24, O15
549
1. INTRODUCTION
According to the World Bank Institute, one of the basic pillars of knowl-
edge economy is education. Education as a process and highly educated work-
force, which is constantly learning are the basic indicators of development of a
specific country. All efforts towards a higher quality of education are justified
by the fact that today it is impossible to achieve economic growth, in terms of
greater manufacture, more employed work force and economic growth, in terms
of increase in production per worker, productivity, without educated workforce
Adrijana Nikić-Katić: EDUCATION AS AN INDICATOR OF DEVELOPMENT ON THE ROAD TO THE KNOWLEDGE ECONOMY
which is in a constant process of learning. New technologies and modern meth-

ods of production demand a quality workforce which can be quickly and suc-
cessfully adapted to the turbulent market. Highly educated workforce does not
only encompass persons who have acquired academic or professional qualifica-
tions from higher education institutions and that have therefore successfully
completed their educational path.
Economy grounded in knowledge does not acknowledge knowledge as a fi-
nal end product. Knowledge is treated as grounds for the emergence of new
knowledge, as an input for the future, more quality product or technology. That
is why the workforce is encouraged to learn throughout their entire life span,
first in higher education institutions and later in work place.
It is evident even without this research paper that Bosnia and Herzegovina
is falling behind the most developed economies of the world. Even though, the
aim of this work is to see how big these backlogs are and what is the future
perspective of Bosnia and Herzegovina in terms of future development on the
road towards the economy of knowledge. In order to achieve a better insight
into the state of Bosnia and Herzegovina a comparison between the develop-
ment of knowledge economy in Bosnia and Herzegovina and selected groups of
countries, regions, is shown. For the comparison of the development of knowl-
edge economy indexes and indicators of development of United Nations and
the World Bank are used.
2. EDUCATION AND ECONOMIC DEVELOPMENT

In more developed countries the main development recourse is the human
capital and its quality is also mostly determined by education (Cascio, 2002.).
Therefore, the most developed economies in the world consider education as a
550
national priority. Thus, the Document Europe 2020 (European Commission),
where the countries of the eurozone have determined five basic goals, lists im-
provement of conditions and quality of education as basic ones, at least 40% of
people between the age of 30 and 34 should have finished their higher educa-
tion. The remaining four goals are tightly connected to education and they refer
to the increase of employment where the educated workforce is the bearer of
the future development. Strategy of development by investing in knowledge and
human capital is applied by economically most developed countries. In their
research of human capital (Human Development Reports), United Nations use
human development indicator (HDI) which has the following components:
1. education (schooling)
2. life span
3. gross national income
According to this index, Bosnia and Herzegovina is in 86th place out of 187
observed countries in the world. The table 1. shows a comparison between Bos-
nia and Herzegovina, top 10 countries and selected countries and regions. Data
about countries with the highest human development indicator, data about sur-
rounding countries including Turkey, an EU candidate, and data about average
value of countries with high human development indicator and countries in
Europe and Central Asia are compared.
Table 1 Human Development Index, 2013.
Human Development Human Development
Rank Country Rank Country
Index Index INTERDISCIPLINARY MANAGEMENT RESEARCH XI
1. Norway 0,944 10. Denmark 0,900
2. Australia 0,933 47. Croatia 0,812
3. Switzerland 0,917 69. Turkey 0,759
4. Netherlands 0,915 77. Serbia 0,745
5. United States 0,914 84. Macedonia 0,732
6. Germany 0,911 86. Bosnia and Herzegovina 0,731
7. New Zeland 0,910 95. Albania 0,716
8. Canada 0,902 - High human development 0,735
9. Singapore 0,901 - Europe and Central Asia 0,738
The source: http://hdr.undp.org/en/content/table-1-human-development-index-and-its-

components (14.03.2015.)
551
According to the comparison from the Tabel 1. it can be concluded that Bos-
nia and Herzegovina is placed somewhere in the middle, 86th place out of 187
countries. However, if the accomplished values of the surrounding countries
are taken into consideration then the gathered data is worrying. Albania, EU
candidate from 2014, is the only country that in a worse position. It is evident
that there is a long and difficult journey ahead of Bosnia and Herzegovina so
that it could catch up with the more developed countries. A transition to the
knowledge economy is the final goal, and the current efforts are unfortunately
insufficient.
The Table 2. shows values of individual components of human development
indicator. The values of Bosnia and Herzegovina, average value of countries
with high human capital index (where Bosnia and Herzegovina belongs) and
average value of European and Central Asia countries are compared.
Table 2. Human Development Index and its components

Life Mean Expected
Gross national
Country/Region HDI 2013 exptentancy years of years of
income per capita
at birth schooling schooling
Bosnia and Herzegovina 0,731 76,4 8,3 13,6 9.431
High human development 0,735 74,5 8,1 13,4 13.231
Europe and Central Asia 0,738 71,3 9,6 13,6 12.415
The source: http://hdr.undp.org/en/content/table-1-human-development-index-and-its-
components (14.03.2015.)
From the Tabel 2. backlogs of Bosnia and Herzegovina for the indicator of
“expected years of schooling” are evident, and even greater backlog for indica-
tor of “gross national income per capita”. By strengthening the human capital
through larger efforts in higher education clear assumptions can be made for
a sustainable growth and development. By opening new work places through
direct domestic and foreign investments the growth of national income would
be noticeable.
In the next part of this paper a trend of human capital index for the period
between 2005 and 2013, as visible in the Graph 1, is shown. A comparison has
been made between the data of Bosnia and Herzegovina, average value of coun-
tries with high human capital index (where Bosnia and Herzegovina belongs)
and average value of European and Central Asian countries.
552
Graph 1 Human Development Index (HDI) trends, 2005 -2013
0,76
0,74
0,72
0,7 BosniaandHerzegowina
Highhumandevelopment
0,68
EuropeandCentralAsia
0,66
0,64
2005 2008 2010 2011 2012 2013
Source: http://hdr.undp.org/en/content/table-2-human-development-index-
trends-1980-2013 (14.03.2015.)
From the previous graph it is visible that in the period from 2005 up till
almost 2010 the value of human capital index for Bosnia and Herzegovina was
in front of the average value of countries with high human capital index and the
average value of European and Central Asian countries. From 2011 the value
for Bosnia and Herzegovina begins to stagnate while for the observed coun-
tries (regions) growth is noted. The consequence is that in 2013 Bosnia and
Herzegovina is falling behind the countries with high human capital index and
European and Central Asian countries. Thus, the average annual growth rate of
human capital index for Bosnia and Herzegovina in the period between 2005
and 2013 is 0.4%. For the same period the countries with high human capital
index have an annual growth rate of 1.5% and European and Central Asian
Countries have on average 1.06% annual growth rate of human capital index.
Therefore, the development of human capital has not been taken as a national INTERDISCIPLINARY MANAGEMENT RESEARCH XI
priority in Bosnia and Herzegovina unlike in the developed countries. The lack
of existence of clear-cut guideline and strategies and the postponement and
slow progress in the making of necessary reforms are the causes of the current
state. The human capital in Bosnia and Herzegovina is stagnating; the growth
of 0.4% is only widening the gap in relation to the developed countries.
If the gross national income is observed in the same period per capita for the
same countries, regions, the same conclusions will be drawn. In the following
part of the paper the growth rate for gross national income per capita in the
period between 2005 and 2013 is shown which is visible from the Graph 2.
The comparison between the data for Bosnia and Herzegovina, average value of
553
countries with higher middle income (where Bosnia and Herzegovina belongs)
and average value of European and Central Asian countries.
Graph 2 Gross National Income (GNI) per capita in US$, trends, 2005 – 2013
8000
6000
4000
BosniaandHerzegowina
2000 Uppermiddleincome
0
2005 2008 2010 2011 2012 2013
Source: http://data.worldbank.org/indicator/NY.GNP.PCAP.CD/countries/BA-7E-
XT?display=graph (14.03.2015.)
Countries with higher levels of human capital, in the form of education is

better competitiveness of the workforce harder and faster to develop and ad-
vance (Mervar, 2003).It is evident that economic development is in tight corre-
lation with knowledge and education of a worker. In the next part of this paper
a trend of gross domestic product per capita is shown in a period from 2005
until 2013 as is seen in Graph 3. A comparison of data for Bosnia and Herze-
govina, average value of countries with high human capital index and average
value for countries from Europe and Central Asia has been made.
Graph 3 Gross Domestic Product (GDP) per capita in US$, trends, 2005
– 2013
10000
8000
6000
4000 BosniaandHerzegowina
2000 Uppermiddleincome
0
2005 2008 2010 2011 2012 2013
Source: http://data.worldbank.org/indicator/NY.GDP.PCAP.CD/countries/BA-7E-
XT?display=graph (14.03.2015.)
This indicator also shows that economy of Bosnia and Herzegovina is stag-
nating from 2008. Gross domestic product was higher in 2008 that it was in
2013.
554
The World Bank Institute has developed a methodology for benchmarking
the progress according to the knowledge economy. From a total of 146 observed
countries Bosnia and Herzegovina is on 70th place. Also, according to this in-
dicator, the economic knowledge indicator, Bosnia and Herzegovina is falling
behind the other surrounding countries, except Albania.
Table 3 Knowledge Economic Index 2012
Knowledge Economic Knowledge Economic
Rank Country Rank Country
Index Index
1 Sweden 9,43 9. Australia 8,88
2. Finnland 9,33 10. Switzerland 8,87
3. Denmark 9,16 39. Croatia 7,29
4. Netherlands 9,11 49. Serbia 6,02
5. Norway 9,11 57. Macedonia 5,65
6. New Zeland 8,97 69. Turkey 5,16
7. Canada 8,92 70. Bosnia and Herzegovina 5,12
8. Germany 8,90 82. Albania 4,53
The source: //sitersources.worldbank.org/INTUNIKAM/Resources/2012pdf

(23.01.2015.)
3. EDUCATION AND WORKFORCE

The quality of human capital essentially defines education (Sundać,
Krmpotić, 2009). The education of Bosnian-Herzegovinian workers is mostly
on a low level. Almost every sixth worker (or to be more precise 17.3% of them)
has primary education or even less. The great majority of Bosnian-Herzegov- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
inian workers, 63.7% of them, have finished secondary education. The rest 19%
has acquired professional or academic title by attending a higher education fa-
cility, college, master or doctoral program as shown on the Graph 4.
555
Graph 4 Structure of empleyees by educational level in 2014
0%
primaryschoolandless
19% 17%
secondaryschool
college,university,masters, docto
64%
raldegrees
Source: developed by author according to data Agency for statistics of Bosnia and Herzegovina
If the data about education of the entire working population is observed the
level of education of Bosnian-Herzegovinian man is even lower. Two out of five
working population (or to be more precise 41.2% of them) have primary edu-
cation or even less. Half of the working population has secondary education,
and every tenth worker has higher education facility, college, master or doctoral
program as shown on the Graph 5.
Graf 5 Structure of working age population by educational level in 2014

10% 0%
primaryschoolandless
41%
secondaryschool
49%
college,university,masters, docto
raldegrees
Source: developed by author according to data Agency for statistics of Bosnia and Herzegovina
According to the EUROSTAT data the percentage of the workforce with

tertiary level of education in the EU countries (EU28) is 25.8%.
4. CONCLUSION
In developed economies the development of human capital is considered to
be a national priority. Economic development is tightly related to knowledge
and education of the workforce.
556
All the given indicators in this paper clearly show that Bosnia and Herzegovina
is on a difficult path if it wants to make clear steps towards a knowledge economy.
The indicators of development of United Nations and World Bank show
clear backwardness of Bosnia and Herzegovina when compared to the most
developed countries. Moreover, Bosnia and Herzegovina is also lagging behind
all countries from its surroundings, except Albania. According to the data from
United Nations and human development indicator Bosnia and Herzegovina is in
the 86th place out of 187 observed countries. According to the data of the World
Bank and economic knowledge index Bosnia and Herzegovina is in the 70th place
out of 146 observed countries. Gross national income per capita is stagnant since
2008. Gross domestic product was lower in 2013 than it was in 2008, while the
unemployment rate has grown annually for that period by 2.88%.
If the education of Bosnian-Herzegovinian workers is observed, respectively
the education of the workforce of Bosnia and Herzegovina, the backwardness is
also evident. Therefore, the percentage of workforce with tertiary education in
EU countries is 25.8% while in Bosnia and Herzegovina it is merely 10%.
The focus of this paper was especially on education as one of the basic de-
terminant of the knowledge economy. Bosnia and Herzegovina needs to give
priority in the strategy of development to investments in the education of work-
force. Investments in human capital can lead to increase in competitiveness by
increase in productivity. That will also mean increase in employment and eco-
nomic advancement.

Literature:
Agencija za statistiku Bosne i Hercegovine, ww.bhas.ba
Cascio, W.F. (2000.), Casting Human Resources: The Financial Impact of Behavior in Or-
ganizations. Cincinnati: South-Western College Publishing
Europa 2020, Europska komisija, http://ec.europa.eu/europe2020/index_hr.htm
Eurostat, European Commission, http://ec.europa.eu/eurostat/data
Mervar, A. (2003.), Esej o novijim doprinosima teoriji ekonomskog rasta, Ekonomski
pregled, (54), 3-4:369-392
Sundać, D., Krmpotić, I.,(2009.) Vrijednost ljudskog kapitala u Hrvatskoj – usporedba s
odabranim europskim zemljama, Ekonomski pregled, (60), 7-8:
315-331
The World Bank, Knowledge Economy Index, data.worldbankorg/data-catalog/KEI
United Nation Development Programme, Human Development Reports, hdr.undp.org/en/
content
557
QUO VADIS UNIVERSITAS?
ORGANIZATIONAL CONCEPTS 
IMPERATIVES FOR SUCCESS AND
VALUE
Grozdanka GOJKOV, Ph.D.
Aleksandar STOJANOVIĆ, Ph.D.
mr. Aleksandra GOJKOV RAJIĆ

Grozdanka Gojkov • Aleksandar Stojanović • Aleksandra Gojkov Rajić: QUO VADIS UNIVERSITAS?
Teacher Training Faculty, University in Belgrade

Preschool Teacher Training College “Mihailo Palov” in Vršac
Abstract
The paper considers the Bologna university reform in terms of organizational
concepts and their contribution to higher education quality. The contribution
to shedding light on these issues is considered from the standpoint of corporate
concept of organization and model of diffusion, primarily dealing with adop-
tion of change through social systems, complex organizational models studying
change as a function of variables such as centralization and change, as well as
conflicts of models directed at social conditions and type of changes. Arguments
supporting the evaluation of certain organizational concepts are considered by
means of empirical research on students’ competencies as indicators of higher
education quality.
Keywords: organizational concepts of higher education transformation, edu-
cation quality.
JEL Classification: I2, I23, I29
558
1. INTRODUCTION
Useful models which would guide decision making processes in higher edu-
cation, i.e. which would, on the one hand be in accordance with expectations of
the world of work in the conditions of highly competitive global market, and on
the other hand in the function of sustainable development, imply management
of change which does not stop at the level of adaptive responses to environment,
but rather lead to innovativeness of development. These models are directed
to forming of competencies among which special place belongs to readiness to
change and highly developed flexibility, creative and non-dogmatic thinking,
ability to accept pluralism of ideas, tolerance for uncertainty, in cognitive sense,
while in conative sense they refer to taking initiative, innovativeness and readi-
ness for risk-taking (Đurišić-Bojanović, M., 2008, 45). Changes in the field
of higher education introduced by the Bologna process should have contrib-
uted to realization of these tendencies. However, as it has already been stated
(Little, D., 2000) that the current approaches to the phenomenon of quality
are grounded on external control of outcomes (mechanicistic-technicistic ori-
entation and economic logics), leading to the appearance of an alternative ap-
proach advocated by the supporters of socio-cultural and critical movement in
pedagogy, insisting on respect of essential characteristics of the phenomenon of
education (uniqueness, comprehensiveness, development, complexity, dynam-
ics, context and unpredictability). Limitation regarding the length of the paper
does not allow broader explanation of the stated organizational concepts and
their contribution to higher education quality, but what should be emphasized
is the importance of dealing with these issues, having in mind that the choice
of a strategy, the way these changes are carried out, i.e. the attempts to trans-
form the system in a new “more productive” state implies organizational concept
which will take into consideration not only the structural level of changes, but
also complexity, broadness and far-reaching effects of a complex system, change
of life philosophy in the age of postmodernism and its influence of philoso-
phy of upbringing, as well as new pedagogic paradigm oriented to an individual
and his/her all-rounded development ( Jacobs, G.M. & Farrell, T.S., 2001). As
a consequence, what has also been emphasized as significant are demands for
life long learning, empowerment of responsibility ethics with increasingly more
expressed orientation towards self-aware, cooperative and creative individual
(humanistic models, emancipation upbringing, learning in freedom... ( Jaspers,
K., 2003).
559
2. MOVEMENTS AND MODELS OF CHANGES
WITHIN UNIVERSITY
Criticisms of the changes introduced in university in Serbia are in accor-
dance with those expressed by Liessman (2006). In other words, it is considered
that, in spite of the fact that the contrary has been advocated for, new approach-
es have been introduced without sufficient analysis of the system and necessary
involvement of academic community, professional and scientific associations…
as well as that the frequent changes of the law do not have in all their aspects
essential meaning (introduction of the short cycle of studies within the most
recent changes of the law on the higher education is not recognized by the world
of labour as a need, since labour market offers no possibilities of employment
even to academic studies graduates). Education strategy is not grounded on re-
search findings, research findings are not consulted when creating standards
understood by the commission for accreditation mechanicistically, suffocating
participatory approach to organization of the system of those participating in it

and who should be the main agents of changes, which would be moving from
within, i.e. from bottom to top, rather than vice versa, as it is now the case. In
spite of the fact that it has for long now been known that organizational dynam-
ics of these institutions differs significantly from the way the business world
functions, the state expresses strong determination, eventually boiled down to
calculation, to push university more and more towards to model of corporation,
disrespecting the conventional idea about university as an autonomous entity
(Kodelja,Z., 2005). What is especially irritating in the model of corporations
imposed to majority of university domains is the control of operational details,
standardization of what cannot be standardized… as a consequence, university
is not in the best position to defend its principles it strives for, having in mind
that autonomy, under the burden of standardization and accreditation, has be-
come meaningless, even though university has been trying to defend stand-
points according to which education is before all in the function of nurturing of
human aspirations for change and of his/her ability to cope with uncertainty
and unpredictability; what is now the situation is that learning society, i.e. uni-
versity, is seen as constant accumulation of capital for economic progress
(Štefanc, D., 2008). This is actually the essential determinant of the direction of
the changes university is striving for, and a critical point in which university and
business world clash. Can such an opposite relation be overcome – it is a ques-
tion for discussion. Some of the possibilities reflected upon in the world, and
560
more recently in Serbia, can be perceived in the above mentioned models. Nev-
ertheless, even though majority of universities in Europe considers nowadays
their own priorities and development strategies, it is not a rare case that we en-
counter statements according to which there are few useful models which would
guide real decision making processes in the time when higher education is char-
acterized by the trends like: competition in fund raising and attraction of stu-
dents, transformation of universities from “protected institutions” of premodern
world to public service providing organization in postmodern world, disre-
spectful attitude towards conventional idea of university as autonomous entity
by educational policy (Gojkov, G., 2003); thus, it can be said for the model of
university development, going on both in the world and in Serbia that it is not
in the function of support to the view on learning society, it is rather a support
to “constantly growing human capital” for economic progress. This is opposite to
the demands for higher education to nurture human aspirations for change and
possibility of an individual to cope with uncertainty and unpredictability. The
situation in Serbia, under the pressure to speed up the changes and burdened by
the fact that policy of education is not ready and able to financially support
changes in university, so that they can be harmonized with the general climate
and current time spirit, has shown that we are heading towards the models un-
derlined by “adaptive” learning or learning “for survival”; as a consequence,
changes within university are more the result of external and internal pressures,
even though they are not introduced by educational administration directly,
than the so called independent institutions (accreditation bodies…), so that
with the lack of a public discussion models “have been imported” which, accord-
ing to those importing them, are suitable for local conditions, losing the possi- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
bility to get insight into the ways of the so called “generative learning” through
which capacity of institutions or individuals is increased to create new solutions
for growing complex problems. Models of change in higher education must, ac-
cording to majority of leading names in the field (Luddeeke, R.G.,1999) must
take the importance of systematic approach into consideration, i.e. the assump-
tion that reforms have to focus on development and interactions between all the
main components of the system simultaneously and that they have to respond
to deeper problems of university culture (Ibid). There are various approaches to
organizational thought. One of them is the “openness concept” suggesting the
ways how professionals can be made accept new ideas. One of the models deal-
ing with this issue is Senge’s model of participative and reflexive openness (as
cited by Bok, D., 2001), implying their integration. Self exploration and readi-
561
ness to bring into question and challenge one’s own opinion and respect the at-
titude that any certainty we have ever had is, in the best case, only a hypothesis
on the world, having in mind that it is in the basis of reflexive openness. A step
further from reconsideration of one’s own ideas is at the same time questioning
opinions of others, providing more certain way towards reconstruction of uni-
versity while learning how to make a shift from the culture of “individualism” to
the culture relying on cooperation and critical judgement ( Jaspers, K., 2003).
Studies conducted by Newman and Bensimon (Ibid) point to the importance
of team leadership for guidance at university, in order to respect fluid sets of
beliefs, understanding and difference and focus on how team members think
and act together and take care of the efficient patterns of getting involved and
engaging team members. Generative organizational model of changes charac-
terized by being open/verbal, in other words, not predictive or with the features
of an algorithm, can evoke the process “organically”, rather than “mechanically”,
taking into consideration that changes at university are not initiated without
clear definition of the direction they are supposed to lead to. Divergent prob-
lems and conflicts of values demand systematic and creative approaches, intui-
tive and critical processes in order to develop new perspectives. This model of
change within university is different from other rationalistic approaches to
changes, having in mind that philosophical ideals permeating it are guided by
inner need of university not to loose respect of its basic underlying principles
along the way of change. Some of the principles will be mentioned, fundamental
ones, penetrating into the core of university, which could be preserved, along
with keeping a clear course of actions in a complex developmental activity im-
plied by university reform. This supposes that academic leaders develop and
make decisions while creating new findings during the real process of changes;
thus the principles are non-linear, and the amalgamation of attitudes and values
is complex. What is crucial here is the power of the group which is supposed to
define the problem and create knowledge, as well as collaborative groups which
can test their own standpoints, as well as viewpoints of others, which is an im-
portant mechanism for understanding problems and phenomena. It has been
confirmed by findings of numerous studies that an important feature of a team
is functionality and cognitive complexity, arising out of abilities of its members
to share power with other team members… Authors do not invoke common
aims and purposes connecting team members, but findings have confirmed the
hypotheses on teams relying on team “convergence” (connectedness) regarding
shared values, respects, care and appreciation (Ibid).
562
Adaptive-generative model of university development is characterised by a
twofold nature of the process of change. Apart from the need to adjust to ex-
ternal and internal circumstances, university today has the need to act in the
direction of generating solutions to problems, both pedagogic and others. The
main assumption of this model is that change results from share construction
of knowledge reached by truly interactive, inclusive team. Adaptive genera-
tive model consists of a circle diagram easily read, starting from need analysis
and ending in evaluation. It consists of 6 interrelated elements: needs assess-
ment, research and development, forming and developing of a strategy, resource
support, implementation and dissemination and evaluation. We cannot go in
detailed explanation of elements, which are actually stages of introduction of
changes into a system. Nevertheless, it is worth mentioning that seemingly
known procedures in the stated stages do not have the meanings we are used to
(Lalović, Z., et. al. 2011). Efficient management of the model could be managed
by questions (not stated in the present paper, due to the limitation of paper
length) which actually facilitate the development of phases in such a way that
team discussion is led in the right direction.
3. PRINCIPLES OF A NEW VISION OF

UNIVERSITY REFORM
A number of universities is developed according to generative model, so that
it remains to be seen to what an extent the model will help the course of chang-
es to lead in a desirable direction through insecure world, demanding explicit
knowledge on uncertainty in our educational strategies (Kruse, O., 2011). INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Looking back at the movement created in the academic year of 2007/2008

at French universities, spreading with the intention to empower the principles
of university and to reinvent university again so that it could endure in its strug-
gle for unconditional right to freedom of research and lecturing, Plinio Prado
(2009) states five principles which should be revitalised in order to bring the
current situation at university in a state in which it can fulfil its function: com-
plete independence as a fundamental principle of university, which refers to basic
principle of autonomy; free and public action thinking; critical thinking as responsi-
bility of the future; interconnectedness of lecturing and research and the principle of
resistance, according to which university, due to current attacks, creates a double line
of resistance; being critical in the search for new approaches to future universities.
563
The mentioned principles and the need for new vision of university in the
present moment point to the direction of changes which must not neglect ei-
ther basic function of university or the stated indicators. It is not easy to claim
with certainty what university in Serbia looks like nowadays, due to the fact
that there are no large-scale research findings to be found in the literature. The
impressions and outcomes of explorative research, with modest reaches of gen-
eralization, are in favour of insufficient attention paid to quality of studies, i.e.
the mentioned exhaustion of the steps previously taken through the Bologna
process regarding standardisation and thus staying at the level of structural re-
form (Gojkov, G., & A. Stojanović, 2011). Quality of studies stagnates or even
deteriorates. Arguments supporting such a statement and the need for more se-
cure organizational approaches to reform currents, are given through the find-
ings of a research carried out by the authors of the present text (It is possible
to find on the web site of the institution stated in the affiliation books of the
authors representing findings of other studies, as well as broader explanation of

principles, models and other issues, which are not more explicated here, due to
limited space).
4. FINDINGS OF THE RESEARCH ON META

COMPONENTS OF INTELLECTUAL
AUTONOMY AS INDICATORS OF QUALITY OF
STUDIES
Table 1.1 shows that the first canonical variable representing a set of vari-
ables regarding learning strategies of students is defined, before all, by being suc-
cessful in: interpretation of texts, making analogies, the level of success in giving
subtitles to parts of the text (see the list of variables in the footnote).1
1
VAR 2 – level of success in identifying the main notions in the given text; VAR 3 – level of
success in identifying the main ideas in the given text; VAR 4 – level of success in making
abstracts of the text; VAR 5 – level of success in text interpretation; VAR 6 – level of success
in content reconstruction; VAR 7 – level of success in giving subtitles to parts of the text; VAR
8 – level of success in making analogies; VAR 9 – level of success in application of ideas offered
in the given text; VAR 10 – level of success in making questions related to the text; VAR 11 –
level of success in making network of notions and ideas given in the text.
564
Table 1.1 Canonical loads for learning strategies
1 2 3 4 5 6 7
VAR00002 .499 -.347 .340 -.498 .350 -.344 -.083
VAR00003 .227 -.483 .278 -.258 .213 -.480 .365
VAR00004 .516 -.311 .302 -.142 -.147 -.369 .498
VAR00005 .852 -.085 .017 -.005 .033 -.304 .336
VAR00006 .678 -.488 .201 .344 .236 -.022 -.014
VAR00007 .667 .167 .171 -.261 .027 -.458 .134
VAR00008 .745 -.113 .432 -.180 -.094 .002 .108
VAR00009 .403 -.479 .238 .289 -.285 -.545 -.176
VAR00010 .417 -.537 -.117 -.510 -.163 -.012 .138
VAR00011 .478 -.486 .188 .025 -.236 .034 .063
It can be seen that students have different characteristics manifested in their

learning strategies and it seems that they are inclined to learning through mem-
orization (making notes and learning them), while the characteristics we could
classify within self-reflective critical thinking (manifestation of networked, com-
plex, or systematic thinking; manifestation of sceptical thinking; complex or sys-
tematic thinking, raising critical questions, making relations between ideas, etc)
are rarely present. A conclusion could be made that most often students have
expressed the style of learning characterised by reading until memorizing; they
repeat aloud what they have read from their notes, learn parts, some of them
even by heart. There is a small number of students whose learning styles charac-
teristics are: reading the text as a whole, raising questions after reading the text, INTERDISCIPLINARY MANAGEMENT RESEARCH XI
making syntheses, comparing with other ideas, positioning new knowledge in

the context – finding examples, search for the better ways of presenting contents,
regroupings of ideas, questions referring to the ways of easier ways to solve a
problem, acquire new knowledge, critically reconsider contents, evaluate one’s
own learning strategies, ideas in the text, discussing on the sense of the messages
the text carries, etc. This means that majority of students have poorly developed
metacognitive components, or that they do not pay sufficient attention to them
in learning, not being sufficiently aware of their learning process, understanding
and analysis of questions, problems, that they do not consider them as a whole,
searching for new relations and relationships between ideas, notions, etc (Halp-
ern, D. F., 1998).
565
In the text step canonical loads of critical thinking and metacognitive com-
ponents were considered, showing that there is poor manifestation of criti-
cal thinking (VAR00013-.891-level to which sceptical thinking is expressed and
VAR00017-.571- level to which networked, complex or systematic thinking is mani-
fested. In other words, according to Table 1.2 it is evident that the components
opposite to critical thinking are expressed, without scepticism, complex consid-
eration of relations between ideas and notions, etc.
Table 1.2 Canonical loads for critical thinking and metacognitive abilities2
1 2 3 4 5 6 7
VAR00012 -.017 .790 -.443 .100 .175 -.196 -.317
VAR00013 -.891 .172 .291 .106 -.039 -.175 .222
VAR00014 -.423 -.403 -.206 -.249 -.292 .350 -.588
VAR00015 -.107 -.195 .077 .295 .656 .653 .004
VAR00016 .059 -.160 -.436 -.660 .445 .103 .370

VAR00017 -.571 -.239 -.301 .382 .327 -.385 -.354
VAR00018 -.413 .114 -.546 .534 -.274 .126 .377
Table 1.2 shows that the first canonical variable including the set of vari-
ables referring to critical thinking and metacognitition is defined, before all, by
thinking which is opposite to skeptical and networked, complex thinking. In an
attempt to summarize the previous findings we could say that there is moder-
ately expressed tendency of interconnectedness of elements of learning strate-
gies and critical thinking (the greater success in text interpretation, the less skep-
tical, networked complex thinking is). What is also noticeable is that majority
of students have poorly developed metacognitive components, so that they are
insufficiently consciously immersed into problem understanding and question
analysis. Few students manifest ability to elaborate and dwell on the ways to use
prior knowledge, while the lack of resourcefulness is evident in contents struc-
turing, organizing, paying attention to main ideas, etc, which is an indicator of
inadequacy in monitoring and managing one’s own work, due to the lack of rais-
2
VAR 12 – the level of logical thinking; VAR 13 – the level of sceptical thinking; VAR 14 – the
level of independent thinking; VAR 15 – the level of natural-scientific thinking; VAR 16 – the
level of systematic, methodological thinking; VAR 17 – the level to which networked, complex
or systematic thinking is manifested; VAR 18 – the level of self-reflective and metacognitive
thinking.
566
ing new questions, meaningful organizing of material, reconsideration of other
possibilities, questions on the importance of revealing meaning and fitting what
has been noticed into existing knowledge.
5. CONCLUSION
In spite of the fact that the modest findings of a sole research on the topic
of higher education quality, i.e. up to date effects of the Bologna reform of uni-
versity, have shown that the previous steps, from the angle of organizational
concepts and their contribution to higher education quality, are insufficiently
efficient, so that structural changes are not functional to satisfactory degree,
since they have not managed to inaugurate a system which would be in har-
mony with the changed philosophy of life in postmodernism and its influence
on philosophy of upbringing and new pedagogic paradigms oriented to an in-
dividual and his/her comprehensive development (findings of other studies can
be found in Gojkov, G., A. Stojanović A. & Gojkov Rajić, 2014). This is implied
by the findings of research dealing with essential issues of purpose of learning,
which is characterized by acquisition of instrumentalized knowledge and util-
ity, while complex abilities, i.e. competencies, expected in quality of knowledge
proscribed by European qualification framework (European Council, 2008),
do not appear in indicators of quality, at least not at expected level. This im-
poses the need to think about different concepts of organization climate during
changes occurring at university, which would support its basic principles.

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Štefanc, D., (2008), Ideje neoliberalizma v procesih reconceptualizacije obaveznega splošnega
izobraževanja: nekatere poteze in praktične implikacije, „ Sodobna pedagogika“, br. 3.
www.jointquality.org Evropski Savet (2008)
568
THE DEVELOPMENT OF QUALITY
MANAGEMENT SYSTEMS AT THE
PRIMARY LEVEL OF HEALTHCARE
Dražen BARKOVIĆ, Ph.D.

Professor Emeritus, Josip Juraj Strossmayer
University of Osijek, Faculty of Economics,
Republic of Croatia
barkovic@efos.hr
Kovačić NEDELJKO, PhD

Community Health Centre, Donji Miholjac
ravnatelj@dz-donjimiholjac.hr
Abstract
The increased level of knowledge in medicine, as in other sciences that are in
some way associated with medical science, contributed to the change in quality
standards in the health systems. Health systems, medical personnel and other
employees in the health systems, especially during the last ten years have been
faced with the demands of society and individuals (healthcare users), for an
increased quality and elimination of the risk of adverse outcomes of individual
procedures, diagnosis and treatment. Although quality in a medical interven- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
tion means applying the principles of best professional practice, more and more
adverse outcomes of treatment have been recorded in the most technologically
advanced countries.
Conceptual models in healthcare began to develop in the early 1960s, with the
works of Donabedian in the field of assessing the quality of healthcare, which in
this model included elements of structure, process and outcomes (Donabedian,
2005). Following this model, there have been many efforts to analyze the indi-
vidual components of healthcare. The US Institute of Medicine developed and
defined healthcare as a framework to be used as a template for planning the
reform of primary healthcare and as a basis for the development of instruments
that are used in assessing the quality of healthcare. One of the basic human
rights is the right to quality healthcare. The goal of each health system is to im-
569
prove the quality of health, which also improves the quality of life. The quality
of healthcare encompasses a set of measures taken during a health procedure,
which results in a favourable outcome of treatment and also prevents unwanted
events that may cause a negative treatment outcome. At the heart of the quality
Dražen Barković • Kovačić Nedeljko: THE DEVELOPMENT OF QUALITY MANAGEMENT SYSTEMS AT THE PRIMARY LEVEL OF HEALTHCARE
system is the patient, and therefore health institutions must provide conditions
that guarantee their health and security.
The aim of this paper is to present health systems that apply management mod-
els for the overall quality of the mechanisms built in the structure of governance
at all levels to enable prediction of the results of the introduction of new policies
aimed at maintaining and improving the quality of the healthcare system.
Keywords: Primary healthcare, quality systems, development, patient safety,
management.
JEL Classification: L1, I1, I11
1. INTRODUCTION
In quality management, we use terms such as: quality assurance as planned
measurement and comparison of the treatment process certain criteria - quality
indicators; quality control means the introduction of process control in relation
to the prescribed norms, improvement or quality improvement is used as a term
for the improvement of work processes in order to prevent errors, and total
quality management (TQM) as a set of measures which combine systematically
all previous (Rukavina, 2012).
The emphasis today is directed from “quality control and assessment” and
focused on the definition of agreed and valid standards, systematic and reliable
measurement of work, all activities aimed at change and improvement, and re-
peated evaluationand continuous improvement in a cycle or upward spiral.
2. THE PURPOSE AND MEANING OF QUALITY

MANAGEMENT IN HEALTH CARE
The purpose and meaning of quality management in health care has evolved
from policy-making in health care to focus on use of quality management as a
tool for continuous development processes in the best way. Quality manage-
ment can be observed through the following aspects as (Varkey, 2009):
570
1) Means of accountability in the use of clinical and physical resources in
the treatment of patients;
2) Efforts to continuously develop and improve health care services for pa-
tients,health care teams, organizations and communities;
3) mechanism to improve clinical outcomes of patients who are defined
through the health care system.
Since the focus on quality management has expanded, it strives to focus to-
wards the clinical, as well as the organizational structure as the processes that
lead to improvements in the final outcome. Modern leaders in the field of quali-
ty management are systemic thinkers, who work at the operational and strategic
levels on issues relating to the quality (Wheatley, 1992). They place the patient
at the center of events, using data and information to investigate and respond
to these problems and rely on the participation of all employees in health care
organizations. They continually seek changes that will contribute to the impro-
vement in continuous cycles (Chassin, 1996).
3. IMPORTANCE OF QUALITY MANAGEMENT IN

HEALTHCARE
The word “quality” has several different meanings, but in the sense used in
this paper refers to the “excellence of certain things or activities” (Voury, 1982).
With regard to health care, it refers to the level at which funds for health care
included in the health care correspond to specific standards. Applying the stan-
dards in this way, we can expect achievement of desired results (Zalesnik, 1977). INTERDISCIPLINARY MANAGEMENT RESEARCH XI
The term “healthcare quality“, its assessment and security, primarily origi-
nated in the world in the area of clinical medicine. There is a large literature on
assessing and evaluating the quality of health care provided that this applies
to individual patients (Sanazaro, 1980). Most of the studies were conducted
in hospitals, mostly in industrialized countries (Donabedian, 1988). For the
most part, these works were focused on the health care of patients with specific
diagnoses, and the collected data wasprimarily related to the scoring diagnosis
or therapy, or as results of such activities.
In most parts of the program, which refer to the primary health care (World
Health Organization, 1978) in some countries, especially in developing coun-
tries, this type of information required in assessing quality, must be quite dif-
571
ferent. The objectives of assessing the quality and methods for using it should
be realistic (Van Weel, 1994). Very often we are satisfied with the estimates
made on the basis of simple observations or superficial records. Therefore, there
are difficulties in designing interventions, quantification of phenomena, in most
developing countries, where the information system is relatively deficient (Ro-

emer, Montoya-Aguilar, 1988). The level of quality that is expected as well as
the criteria to be applied is still insufficient in many areas. Because of this we
have to be very careful and selective in making conclusions.
4. ASSESSMENT OF QUALITY IN HEALTH CARE

Donabedian has in his early works found that the quality of health care can
be measured by the assessment of its structure, process and outcome (Shaw,
Kalo, 2002), applying the concept of input-process-output in industrial pro-
duction. He claimed that the corresponding structure increases the likelihood
of appropriate processes and appropriate process increases the likelihood of ap-
propriate outcomes (Donabedian, 1988).
Donabedian defined structure (the input for the process) as a property sys-
tem in which health care occurs, and the resources needed for its implementa-
tion. It isgenerally thought about material resources (buildings, capital, equip-
ment, drugs, etc.), intellectual resources (medical knowledge and skills, informa-
tion systems) and human resources (health care workers). The process means
the use of resources in terms of giving and receiving health services (Tatković,
2005). It can be divided into a process that applies to patients (intervention rate,
the rate of referral to treatment) and processes related to organizational aspects
(procurement of drugs, manage the list of waiting patients, payment of health
workers and raising the funds and the like). The outcomes can be described as a
consequence of health care and the health status of the patient population, and
compares it with the rate of mortality, morbidity and quality of life.
However, Donabedian also found that prior to assessing the quality of health
care in the first place has to decide (Donabedian, 1988):
• Do you adopt maximum and optimum quality traits;
• How we should define health and our responsibility for health;
• Did the assessment include the effect of work of the doctor, or are both
patients and the health system as a whole covered, and
572
• Is the behavior in managing interpersonal processes between patients and
providers also covered by health protection?
Shaw and Kalohave exploredDonabedian’s approach and determined the

dimensions of health care quality related to the above categories (Shaw, Kalo,
2002), and displayed them in the following table 1:
Table 1: Dimensions of quality health care
Dimensions of health care
How are resources allocated in terms of time, place and relevant needs of the
Structure (input system population (access)
components)
Fairness in sharing costs and benefits (value)
How to use the resources (management)
The use of funds at the right time (efficiency)
Avoiding losses (cost-effectiveness)
Process Avoiding risk (safety)
Appropriate evidence based practice (appropriateness)
Health care is directed towards patients (continuity)
Information targeted to patients and the public (transparent elections)
Population health (health improvement)
Outcomes Clinical outcomes (effectiveness)
The expectations of the public and education (utility)
Source: Shaw, C, Kalo, I (2002). A background for nationalqualitypoliciesinhealthsystems,
World Health Organization, Regional Office for Europe, Copenhagen.

However, in the literature there are many disagreements on how they can
assess relations processes and outcomes. Brook and his colleagues (Brook, Mc-
Glynn, Shekelle, 2000) agreed that very often the process data is sensitive in
relation to the data outcome, since the adverse outcome does not have to result
from a failure in providing health care (Brook., 2000). In addition, physicians
usually define the quality of health care as a process (Brook, McGlynn and
Cleary, 1996). Outcomes are generally considered weaker measure of the qual-
ity of health care, since they are partly considered as services in health care and
can be strongly influenced by other factors, such as diet, environment, lifestyle
and socio-economic circumstances (Williamson, 1977). Thus, the outcomes of
apatient’s treatment are reflected more as descriptive characteristics of the pa-
tients rather than as factors that are under the control of the provider of health
573
care. Accordingly, the time interval between treatment and its final outcome
may be considerably longer and cannot be attributed to the importance of pro-
viding a particular service (Saultz, Lochner, 2005).
.. Quality as specific resources and activities of health

care
As we mentioned earlier, limiting the concept of quality does not mean you
should exclude other elements and dimensions of the health system (Roemer,
Montoya-Aguilar, 1988). On the contrary, it only facilitates the concrete defi-
nition of each of them and explains the causal effect relationships within the
system, as it is shown in Figure 1:
Figure 1: Quality of health care
Source: Roemer, MI, Montoya-Aguilar, C., (1988), QualityAssessmentandAssuranceinPri-

mary Health Care, World Health Organization, Geneva, p. 5)
In relation to the health resources, quality can simply be described as the

appropriateness of conducting health services in a safe and reliable manner
(Sibhthorpe, 2004). This can primarily be displayed by knowledge, skills and
behavior of health care professionals, the level of cleanliness and safety of health
care facilities, as well as the adequacy of medical equipment and instruments.
For the activities of health care, a concept usually associated with technical
excellence, in connection with how to take action in accordance with the relevant
technological regulations in order to achieve efficiency and safety. However, it
should include other aspects related to quality, such as the human dimension
of health care professionals, social and cultural acceptability and compliance
574
with ethical standards (Roemer, Montoya-Aguilar, 1988). Activities to be im-
plemented in a manner to include attention to the significant physical and psy-
chological health needs, combined with aspects of prevention and treatment, as
well as an educational component. The balance of different levels of complexity
of the applicability of health care to individuals, families and the community is
also a very important aspect of quality, in terms of providing services to every-
one in continuity, in a safe manner (Rogers, 1995).
.. Quality and primary health care

The mere fact that primary health care includes providing many health ser-
vices that may be considered as “general”, increases the significance and impor-
tance of evaluation and quality assurance themselves. Thus, it can be assumed
that less need for advanced technology in primary health care means less need
for quality standards. In contrast, very simple activities in primary health care
mean that the subject of the possible errors and the level of protection measures
must be established to ensure a quality level of health service delivery.
A particular problem in an attempt to define the quality of primary health
care, especially at the level of meaning in the context of the overall health sys-
tem, should not mean that it has less importance compared to other forms of
health care (Eldar, 2007). Its provision may be in accordance with various forms
relating to the work force, facilities, organization, financing, but its main merit
depends on its relations with relevant standards and their ultimate effects.
Without a safe and effective primary health care, secondary and tertiary health INTERDISCIPLINARY MANAGEMENT RESEARCH XI
care would be probably ineffective and inefficient. Bypassing these facts is one of
the unavoidable consequences of lower quality. Health care using high technol-
ogy, on the other hand, is not necessary for high quality. It may be unacceptable,
or even unnecessary or unsafe. It can also affect the acceptable standards. In con-
trast, the quality of the management of health systems is not sufficient in itself; it
must be present in all other areas within the economic system of a state .
Because of this, the quality within the framework of primary health
care covers the various factors that contribute to its meaning, as well as the
conditions for the implementation of any programs and plans that are oriented
towards the achievement and realization of the program of the World Health
Organization, “Health for All”.
575
5. A SYSTEM OF QUALITY PRIMARY HEALTH
CARE
The World Health Organization has in 1978, at its meeting in Almaty, de-
fined the concept of primary health care strategy and set goals in the imple-
mentation of the program “Health for All by 2000”. Following its declaration
of Alma Ata was dominated by two schools in the definition of health care
(Grembowski et al., 2005). One advocated selective access to health care (se-
lective health care), and the other proponents of a comprehensive approach to
health care (primary care).
.. Elements of the quality system of primary health care

Discussions have spread to earlier claims, which is the best way of organiz-
ing health care, “vertical” or “horizontal”.
Basic factors of primary health care were:
a) The first access to health care;
b) Orientation towards patients, and
c) Comprehensiveness and coordination among the various forms of health
care.
Before a more detailed consideration and assessment of quality assurance in
primary health care, we should explain the requirements for the implementa-
tion of such health care. As stated in the report of the International Conference
on Primary Health Care at Alma Ata (World Health Organization, 1978), the
following elements must be considered, which are very essential for the imple-
mentation of health care:
1) Education and training associated with the prevailing health problems
and the methods of prevention and control;
2) The promotion of food supply and proper nutrition;
3) An adequate supply of healthy and sanitary water for the use of the
population;
4) Protection of maternity and children, including family planning;
5) Vaccination against major infectious diseases;
6) Prevention and control of endemic diseases at the local level;
7) An appropriate treatment of common diseases and injuries, and
8) Insurance of very important and essential drugs.
576
It is obvious that the provision of all these elements for the implementation
of health care may create certain risks and uncertainties, and therefore the
need for assessment and quality assurance is very important (Mandic et al.,
2012). The options for the provision of health services at primary health
care level create the need to implement strategies with highly complex
infrastructure. This means that we must consider a range of factors that affect
the nature of health problems, as well as the impact of the population and the
characteristics of the infrastructure in the health sector.
For this group of limiting factors, we will briefly later in this work, taking
into account the assessment and quality assurance in the delivery of health
services.
.. The environment of the primary healthcare system

A structured environment includes the organization and the environment,
which significantly affect the provision of health services (Eisenborg, 2002).
This area is further divided into three major components: a health system that
is defined as a policy, the participants (public institutions and associations),
and factors at the level of the system that may affect the provision of services
in primary health care (institutions and organizations). These structural
factors should be aligned withindividuals and communities to ensure the
provision of services.
Figure 2: The health system as a social determinant of health
(Source: Doherty, J., Gilson, L., (2006), ProposedareasofinvestigationfortheHealthSystem-

sKnowledgeNetwork.Johannesburg, CentreforHealthPolicy, UniversityofWitwatersrand.)
577
The above image depicts and analyzes the trends on:
• micro level (public policies of health and equal distribution of resources
for the functioning of the health system);
• Mezzo level (community level), implementing the policy of decentraliza-

tion of certain functions;
• Micro level (the interaction between the population (the population) and
the health care system) where the primary objective is to provide compre-
hensive health services and support the health care system.
It also shows us a comprehensive model that illustrates the different predis-
positions in the form of factors that simultaneously enable and determine how
at the level of individuals, as well as at the level of healthcare providers (Hag-
gerty et al., 2007). The model clearly shows that in addition to administrative,
geographical, physical, financial and organizational determinants of access to
health care, animportant impact on access to health care can have the skills,
knowledge and access to the patient by the health services providers.
.. The infrastructure of primary health care

The infrastructure of the health care system of any country is much wider
compared to that covered by the health ministry, for the mere fact that the ma-
jor part refers to the health care providers. The basic infrastructures in health-
care, mainly, make:
1) Resources and its products - each health system consists of a healthy
workforce, health facilities, goods and drugs, as well as knowledge and
application of appropriate technologies;
2) The organization - an organization of resources through programs is es-
sential for quality assurance in primary health care level;
3) Supporting the economy - is essential for the financing of the health sys-
tem through the fiscal revenues of the national economy;
4) Management - appropriate management must support the entire infra-
structure of the health system, and
5) Provision of health services - the last link in the chain of infrastructure
components of health care is the main cartwheel research and analysis in
terms of quality in primary care.
578
All of the above components are required for the implementation of
primary health care within the health system of any country. Changing one
component greatly influences the change in the other. It is necessary to study
and develop all five components, at any level of the health system infrastructure
- local, regional, national - since they are interrelated. The success results of
the development of any component on the local level, to a large extent, may
affect the regional and state level.
6. CONCLUSION
It may be noted that the quality of health care, largely depends on two im-
portant properties of the components and resources of its products, as well as
providing health services. The other three components, organizations, support
of the economy and management, constitute aid and determine the framework
of health care quality. However, their importance in these areas is very difficult
to predict (Roemer, Montoya-Aguilar, 1988). It is therefore necessary to have a
legislative framework and direction of health policy within the national borders
of individual countries.
Literature:
1) Donabedian, A. (2005), Evaluating the quality of medical care. Milbank Quaterly, Vol
83, str. 691–29.
2) Rukavina, A. (2010), Kvaliteta u zdravstvu, Liječnički vjesnik,Vol. 130, str. 306-10.
3) Varkey, P. (2009), Medical Quality Management, American College of Medical Quality,
ISBN: 978-0-7637-6034-2, Sudbury.
4) Wheatley, M., (1992), Leadership and the new science: learning about organization from
an orderly universe. San Francisco.
5) Chassin, M. R., Galvin, R.H., (1998), “The Urgent Need to Improve Health Care Qua-
lity. Institute of Medicine National Roundtable on Health Care Quality.” Journal of the
American Medical Association, Vol 280, str. 1000–05.
6) Zalesnik, A. (1977), “Managers and Leaders: Are They Different?” Harvard Business
Review, Vol. 15 (3), str. 68–78.
7) Vikell-Joanne, H. (1991), “The Process of Quality Management” Pediatric Nursing, Vol.
17, str. 618-622.
8) Donabedian, A. (1988), “The Quality of Care: How Can It Be Assessed?” Journal of the
American Medical Association, Vol. 260, str. 1743–48.
9) Van Weel, C. (1994), Teamwork. Primary Care tomorrow, Lancet, Vol. 344, str. 1276-79.
579
10) Roemer, C., A., M.I., Montoya-Aguilar, C., (1988), Quality Assessment and assurance
in Primary Health Care, World Health Organization, Geneva, str. 1-77.
11) Shaw, C, Kalo, I. (2002), A background for national quality policies in health systems,
World Health Organization, Regional Office for Europe, Copenhagen
12) Tatković, M. (2005), Quality management in women breast cancer diagnostic procedu-
res, Croatian Journal of Public Health, p. 1.
13) Sibthorpe, B. (2004), A Proposed Conceptual Framework for Performance Assessment
in Primary Health Care: a Tool for Policy and Practice. Canberra: Australian Primary
Health Care Research Institute; http://www.anu.edu.au/aphcri/Publications/con-
ceptual_- framework.pdf (Access 10.03.2015.godine).
14) Rogers, E.,M. (1995), “Lessons for Guidelines from the Diffusion of Innovations.” Jour-
nal on Quality Improvement, Vol. 21 (7), str. 324–28.
15) Eldar, R. (2005), Quality of Care. Medicinska naklada, Zagreb.
16) Grembowski, D., Paschane, D., Diehr, P. (2005), Managed care, physician job satisfacti-
on, and the quality of primary care. Journal General International Medicine; Vol. 20, str.
271–7. Preuzeto na: http://intqhc.oxfordjournals.org/, Access: 15.03. 2015.
17) Mandić, V., Erić, D., Adamović, D., Janjić, M., Jurković, Z., Babić, Ž., Ćosić, P. (2012),
Concurrent engineering based on virtual manufacturing, Tehnički vjesnik, p. 885-92.
18) Eisenberg, J.,M. (2002), Physician utilization: the state of research about physicians’
practice patterns. Medical Care; Vol. 40, str. 1016–35.
19) Doherty, J., Gilson, L., (2006), Proposedareas of investigation for the Health Systems
Knowledge Network.Johannesburg, CentreforHealthPolicy, UniversityofWitwatersrand
580
QUALITY ASSURANCE IN HIGHER
EDUCATION
Helena ŠTIMAC, Ph.D.

Faculty of Economics Osijek, Croatia
shelena@efos.hr
Sendi KATIĆ, univ.spec.oec

Baltazar Adam Krčelić College of Business and Management,
Zaprešić, Croatia
sendi.katic@bak.hr
Abstract
The topic of quality assurance has always been of exceptional importance to
the private sector. However, today it is very important in education and in
other areas of the public sector, also. Because the private sector was the first in
quality assurance, organizations and institutions in the public sector can learn
from the experience of the private sector. Quality assurance has become an
increasingly important topic at both local and international levels. The concept
of quality assurance is not new; however, the terminology and methodologies
that are now used to define, develop and implement quality assurance are rela-
tively new, mainly due to the impact of changes in quality assurance in higher
education. It has become an expected norm at European universities, an un-
questionable basic concept and the most frequently set political objective of the
Bologna process which directly affects and changes the balance of power within
the university.
The aim of this paper is to determine the methods used by three countries
(Croatia, Slovenia, and Hungary) to ensure quality in higher education and
give suggestions for improvement of education service quality.
Keywords: quality assurance, higher education, Croatia, Slovenia, Hungary
JEL Classification: L1, P36, I2
581
1. INTRODUCTION
The implementation of quality assurance in the area of higher education has
been made complicated by the important socio-economic role which education
has in the development of local, national and global society, with the same basic
goals of defining and acknowledging quality. Starting from the moment when ac-
complishing clear and transparent quality assurance systems and accreditation be-
came one of the goals of the Bologna process, integration and implementation of
the quality assurance system became essential in most of the European countries.
The development of quality assurance systems is an important lever for
achieving the strategic objective of improved educational quality and efficiency,
consequently, the quality of education is increasingly being evaluated across Eu-
rope. The focus of this evaluation may be the education system as a whole, or
it may be individual schools or teachers. Moreover, European countries have
adopted varied and contrasting policies related to school accountability based
on student performance (Eurydice;2012,11).
Helena Štimac • Marija Ham • Sendi Katić: QUALITY ASSURANCE IN HIGHER EDUCATION
2. QUALITY ASSURANCE IN HIGHER

EDUCATION
In the last ten years, various concepts have been used to describe the process
of quality assurance control in higher education (Lučin;2007,8): quality con-
trol, quality guarantee, quality management, quality assurance, quality culture.
The current goal is to develop quality culture which indicates the change of
attitudes and behaviour of all individuals included in the work of high educa-
tion institutions. Dolček-Alduk et al. (2008,39) consider that although quality
assurance was introduced before the Bologna process, nevertheless the Bologna
process assures better quality and its widening and implementation in the daily
university routine. “Quality assurance is a comprehensive term which generally
includes all the policies, processes, activities and mechanisms by which qual-
ity assurance of higher education is acknowledged, sustained and developed ”
(Glanville;2006). As it is considered in the European Higher Education Area
and wider, quality assurance system is based on the autonomy of each higher
education institution and its corporative responsibility for the quality of educa-
tion which provides to its students. In simpler terms, it is an ongoing process
which assures the fulfilment of the agreed standards.
582
Bogue and Saunders (1992,20) observe quality assurance in higher edu-
cation as a process which is primarily based on coordinating the mission and
achieving the goal within a framework of publicly accepted responsibility and
integrity. Such a definition makes certain assumptions: firstly, it assumes that
the institution should define the mission, secondly, that the goals of the institu-
tion are explicit and achievable, and thirdly, that there are public and accepted
standards which are advocated by the institutions. Still, Roberts (2001,426)
concludes that quality assurance does not include solely the efforts of the in-
stitution (internal quality assurance). It also includes external evaluations (ex-
ternal quality assurance). Additionally, quality assurance is a condition which
leads to achieving transparency. Institutional transparency insures academic
quality (lectures, curriculum, etc.), structural quality (buildings, computers,
premises, etc.), subject facility. It will also ensure an independent and objective
insight into their quality (Ivošević et al.;2006,12). By implementing the quality
assurance system the government keeps the supervision over the university’s au-
tonomy, for understandable reasons. Universities get their autonomy when the
government fulfils its obligation to sustain educational and scientific research
programmes. Therefore, autonomy is not solely the right of the universities, but
also the obligation towards the government, labour market, professional asso-
ciations, students and their parents (Mencer;2005,239).
.. QUALITY ASSURANCE IN EUROPEAN HIGHER

EDUCATION
The European Association for Quality Assurance in Higher Education INTERDISCIPLINARY MANAGEMENT RESEARCH XI
(ENQA) is an umbrella organisation which represents quality assurance organ-
isations from the European Higher Education Area (EHEA) member states.
It represents its members at the European level and internationally, especially
in political decision making processes and in co-operations with stakeholder
organisations. ENQA promotes European co-operation in the field of qual-
ity assurance in higher education and disseminates information and expertise
among its members and towards stakeholders in order to develop and share
good practice and to foster the European dimension of quality assurance1. The
Association aims to maintain and enhance the quality of European higher edu-
1
European Association for Quality Assurance in Higher Education, http://www.enqa.eu/
583
cation at a high level, and to act as a major driving force for the development of
quality assurance across all the Bologna signatory countries.
Every quality assurance system reflects the national system of higher educa-
tion, and also the local frame in which higher education institutions function.
Therefore, European higher education standards have been established and they
must be applied in all the Bologna signatory countries. The Standards and Guide-
lines for Quality Assurance in the European Higher Education Area (ESG)
have been produced by ENQA, in co-operation and consultation with its mem-
ber agencies and the E4 Group (ENQA, EUA2, EURASHE3 and ESU4)5. The
Standards and Guidelines for Quality Assurance in the European Higher Edu-
cation Area support, among others, the following principles (Glanville;2006):
1. the interest of the students as well as the labour market in quality higher
education,
2. the importance of autonomy of higher education institutions which bare
the greatest responsibility for quality assurance.
3. the need for external quality assurance must be fit for its purpose, that is,
the achievement of higher education objectives
4. the quality of the academic programmes needs to develop and improve in
favour of the students and other beneficiaries of higher education,
5. there need to be efficient and effective organisational structures within
which those academic programmes can be provided,
6. transparency and the use of external expertise in quality assurance pro-
cesses are of great importance,
7. it is necessary to encourage quality culture within higher education insti-
tutions, etc.
The establishment of criteria for quality evaluation and assurance in higher

education demands comprehension of different concepts of quality. Quality as-
surance system in higher education institutions is the main point of the Quality
Assurance in the European Higher Education Area. Namely, European coun-
2
European University Association
3
European Association of Institutions in Higher Education
4
European Students’ Union
5
European Association for Quality Assurance in Higher Education, http://www.enqa.eu/index.
php/home/esg/
584
tries have established their own agencies for quality assurance and have devel-
oped their own national solutions for quality evaluation. Beckford (2002) has
emphasized that, without compliance with the quality control system, no insti-
tution can be aware of its work and performance. Mizikaci (2006,50) states that
the evaluation programme should be considered as an approach to a system and
that an appropriate model should be integrated into quality planning. Further
improvement of quality in higher education and the efficiency of evaluation is a
priority of the overall educational policy demanded by the EU.
There are several examples associated to quality assurance and its formal
implementation into British higher education which started in the mid 1960’s.
External quality assurance, as a “world phenomenon”, started in the 1980’s and
1990’s (Woodhouse;2004). In 1985, Harvey (2005,264) recommended the
universities and the overall British system to work with clear goals, develop per-
formance indicators and offer real value for money. The same year, certain public
sector institutions were recommended by Lindop (1985,x) to take full respon-
sibility for their own quality assurance standards and also work on their image.
Stanley and Patrick (1998) have made their own comparison of the British and
the American higher education. In Great Britain, the emphasis is mostly put
on variety of systems connected to quality assurance: revision quality, teaching
quality, research quality and quality assurance based standards. In the USA, the
focus is on regional accreditations, specialized accreditations, system efficiency
indicators, student evaluation outcome and alumni.
.. PROBLEMS IN QUALITY ASSURANCE IN HIGHER INTERDISCIPLINARY MANAGEMENT RESEARCH XI

EDUCATION
Not all countries apply all the elements of quality assurance. There are five
key elements which all quality assurance systems should have, and they are all
implemented in the Berlin declaration (internal evaluation, external assessment,
student involvement, result publication and international participation). Most
European higher education institutions coincide in all the criteria. Of the five
above mentioned elements, two lacking the most are student involvement and
publication of evaluation reports from the higher education institutions. Result
publication is a key element for the exposure and transparency of quality assur-
ance system. In some countries higher education institutions publish their evalu-
ation reports, while in other countries the universities are still not open to public.
585
Transparency and the publication of evaluation reports are not unique prob-
lems in some countries. Depending on the country, additional problems may oc-
cur. For example, standards in Poland are more concentrated on the administra-
tive part of higher education institutions and not on actual student benefits. The
National Agency mostly verifies the work of academic and non-academic staff,
and does not include the relation and the ways of learning and teaching. And
although it is emphasised that students are the best source of information con-
nected to quality of educational service, there are no student representatives in
The National Agency. Therefore, if the higher education institutions aim to get
objective results, they should ask the students. Transparency and studies compa-
rability at different universities and at different academic centres is also a problem.
A significant number of small, private higher education institutions started to of-
fer a lower quality of educational services. Unfortunately, they are unjustly com-
pared to good institutions that provide educational services (ESIB;2005,9-20).
3. COMPARATIVE ANALYSIS OF THE QUALITY

ASSURANCE IN HIGHER EDUCATION IN
CROATIA, SLOVENIA AND HUNGARY
Given that all three countries (Croatia, Hungary and Slovenia) are EU mem-
bers, the educational system has many obstacles to overcome: achieving better
quality, adaptability, increase mobility and the ability to respond to the needs
and changes on Croatian and European level. Besides that, it is very important
for the educational system to equalize the quality of the overall educational sys-
tem and make it attainable for everyone. This challenge is especially emphasized
in the case of Croatia as a new EU member.
Higher education and science in Croatia are closely connected. It should be
pointed out that the responsibility for higher education quality and science is
primarily in the hands of higher education institutions and scientific institu-
tions. National Council for Higher Education, National Council for Science
and Agency for Science and Higher Education bear the responsibility for the
processes of external quality assurance and science. According to the Act on
Quality Assurance in Science and Higher Education (2009,čl.18), quality as-
surance and advancement system includes external and internal system. Ex-
ternal system of assurance is based on national, European and international
standards and as proscribed by the Act, The Agency for Science and Higher
586
education participates in it. Every institution in the system of science and higher
education regulates its own internal system and a part of a unique quality as-
surance and advancement system at universities. According to Bjeliš (2007,42),
Croatian higher education institutions will become even more exposed to inter-
national criteria and procedures which will require a higher level of acceptance
and compliance. Therefore, it would be important to continue to participate in
different academic procedures of quality assurance. It is a good preparation for
a full entry in the international evaluation and accreditation system which is
based on an active and professional partnership of those who evaluate and are
evaluated.
Quality assurance policy in higher education in Croatia is based on the Act
on Scientific Activity and Higher Education, as well as on the regulations of in-
dividual higher education institutions, and rules and recommendations of Min-
istry of Science, Education and Sports, National Council for higher education,
higher education institutions and universities themselves (Ivković;2009,21). By
signing the Bologna declaration, Croatia has taken over the commitment to car-
ry out the Standards and Guidelines for Quality Assurance in Higher Educa-
tion. One of the problems in Croatia is that higher education institutions firmly
hold on to set acts and are not trying to change them, not realizing that they
are the ones that need to establish and participate in the establishment of cer-
tain decisions concerning act changes. Besides establishing a university board
in charge of quality control, it is also necessary to establish boards in individual
branches of universities which would help develop institutional mechanisms
relevant for quality promotion. This step is in its initial phase.
In the 1980’s the quality of the educational system in Hungary, in comparison
to other countries, was ranged in the middle. Yet, universal reorganisation of all
sectors is being done under a motto “Quality, Approach, Efficiency” which makes
a coherent group of priorities. Therefore, all operations must be in concordance
with all three goals (Ministry of Education and Culture;2008,34). The priority
project named General quality development in public education within the Social
Renewal Operational Programme has two main goals (Eurydice;2008/09,37):
1. Ensuring the accountability of public education services and supporting
central and local education administration.
2. Supporting the improvement of educational institutions based on na-
tional assessments and examination results and the information from local and
587
national quality evaluation projects, with special emphasis on providing reliable
information to school operators (maintainers).
Quality development plan covers goals directed at programme development,
research, student evaluation, personal and infrastructural relations and condi-
tions, student service, as well as internal and external communications. Qual-
ity assurance apart from evaluation and accreditation includes internal quality
assessment system of the higher education institutions. The comparison of the
Hungarian quality assurance system to the ESG (the quality assurance require-
ments of the EHEA), the external evaluation on the operation of the Hungar-
ian Accreditation Committee has been carried out. The Hungarian higher edu-
cation institutions have defined their quality assurance system in their rules of
organization and operation since 2001 (Eurydice;2008/09,186). There are no
general standards of evaluation set in Hungary. This is the reason why internal
evaluations of certain institutions are not able to take their place in the unique
government system. Internal evaluation is generally connected to regular duty
fulfilment of the institutions. It got its full meaning in the mid-1990’s when
the institutions started to evaluate their own activity so that they could achieve
better profiles and programmes. Methodology and activities connected to in-
ternal evaluation have been framed and updated in 2006 in the Act on Public
Education. The importance of equalizing management systems has been espe-
cially emphasised. The evaluation should be conducted at least every two years.
An action plan is prepared based on the internal evaluation of the institution,
and with the goal of equalizing the aims and the work of the institution (Eu-
rydice;2008/09,338). Hungary is a good example on how internal evaluation of
quality assurance can be done badly, since the only form of internal evaluation is
student evaluation of the academic staff. The results are shown solely on paper
and are rarely published or taken into consideration when improving the qual-
ity. There are no other forms of evaluation (ESIB;2005,9-19). Besides internal
evaluation, external evaluation is also very important and it is being conducted
at least every four years.
In recent years, partial evaluations of the Slovenian higher education system
have been conducted each year in the form of a report on the implementation
of the Bologna process. They are conducted by the Ministry for Higher Educa-
tion in consultation with universities, student organisations and other stake-
holders in regards to the evaluation of relevant specific aspects of the system.
588
(Eurydice;2008/09a,202). Several universities have participated in internation-
al quality assurance projects (Tempus, PHARE, EUA).
Quality assurance in higher education institutions is regulated by the High-
er Education Act. Individual forms and standards of quality assurance are
specified by regulations passed by bodies responsible for quality at the national
level. Internal quality assurance in higher education institutions is regulated
by statutes and other governance documents of universities and independent
institutions. In higher education institutions (universities and their members,
faculties), independent higher education institutions quality assurance is the
responsibility of their executive officer (vice-chancellor, dean, director), whereas
for the conduct of individual tasks special committees for quality and expert or
administrative staff are in charge. In all bodies students are also represented. A
very much needed special agency for quality assurance has still not been found-
ed (Eurydice;2008/09a,197).
In recent years, a few external evaluations were carried out on the initia-
tive of higher education institutions themselves; they were conducted by intra-
university or international organisations. Since 2006, external evaluations of
higher education institutions have been conducted by the relevant government
body. Individual higher education institutions, for example, faculties and col-
leges can volunteer for evaluation or can be recommended by the university of
which they are members. External evaluation has been conducted by the Senate
for Evaluation at the Council for Higher Education of the Republic of Slove-
nia. It evaluates if the institution fulfils all the standards for an accreditation
(Eurydice;2008/09,200,201). External quality assurance includes accredita-
tions and external evaluations of the higher education institutions and study
programmes. According to the amendments to the Act on Higher Education
(October, 2009), recently formed government agencies for quality in higher ed-
ucation will take over accreditation procedures and occasional external quality
controls (Eurydice;2009/10:11).
4. CONCLUSION
Croatia, Slovenia and Hungary strive for quality improvement in higher
education. Programme quality is the first and the most important item on all
levels of educational system. Higher education institutions have mainly devel-
oped quality improvement programmes. At least once a year an internal eval-
589
uation is conducted, and on average every three years an external evaluation
which effects accreditation renewal. Universities have established councils for
quality assurance, while some stakeholders have not, and this would definitely
help institutional mechanisms function better in quality promotion. Due to this
problem, Hungary has poor internal evaluation caused by badly set evaluation
standards. This is so although the importance of adjusting the quality control
assurance is emphasised in the Act on Public Education. The only existing form
of internal evaluation is evaluation of the academic staff by the students. The
results are rarely taken into consideration in order to improve the educational
service quality.
Main demands for quality in educational service have been determined
by fierce competition and market changes. Quality assurance is not a concept
which can be qualified as good or bad. Every institution sets an individual qual-
ity assurance system based on its internal structure and the use of the standards
and concepts. However, the emphasis should be put on establishing and assur-
ing the standards, as well as evaluating them. Standards help enrich the quality
system and are the key point of improvement and better market positioning
of higher education institutions. Continuous quality assurance, firstly internal
(institutional level), and then external quality assurance, is of great importance.
Guidelines and standards for quality assurance are relevant only on paper,
which is a great mistake, and defined problems are rarely solved so the situation
in the educational system remains the same.
References
Act on Quality Assurance in Science and Higher Education (2009), Zagreb
Beckford, J. (2002). Quality, Routledge, London
Bjeliš, A. (2007). Osiguranje kvalitete u Europskom visokoobrazovnom prostoru, Kvaliteta
u visokom obrazovanju, Rijeka
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591
HEALTH MANAGEMENT IN THE
SLOVAK REPUBLIC
Vladimír MASARYK, PhD.

Central Military Hospital in Ružomberok
Ružomberok, Slovak Republic
bratislava2013@centrum.sk
Vladimír Masaryk • Eva Musilová • Marta Vaverčáková • Timo Keppler: HEALTH MANAGEMENT IN THE SLOVAK REPUBLIC
Eva MUSILOVÁ, PhD.

Faculty of Nursing and Health Professional Studies
Slovak Medical University in Bratislava, Slovak Republic
eva.musilova@szu.sk
Marta VAVERČÁKOVÁ, PhD.,

Trnava University in Trnava, Faculty of Health Care and
Social Work, Slovak Republic
marta.vavercakova@ gmail.com
Timo KEPPLER
PhD student at Bucharest University of Economic Studies
keppler@eu-edu.li
Abstract:
Lack of time is a prevailing problem in both private and working life. The
paper presents some principles that promote the best use of time, such as com-
munication, planning, and delegation. Time management is one of the key
managerial tasks, and health care management is no exception. The paper
outlines the framework of health care and health care education in the Slovak
Republic, as well as the range of professions in health care system. The sys-
tem of further education of health professionals is presented. Furthermore, the
paper discusses the structure, specific features and tasks of different levels of
management in health care.
592
JEL: I15, J81
Keywords: Health management, time management, health care, working
conditions
Employees today more than ever complain about the lack of time. What
is the reason behind? Our time and health are probably the most important
things we have, but are limited and it´s not possible to multiply them by any
used force. Who, however badly schedules time (unproductively), produces
precisely what he/she wanted to avoid and this is what is called lack of time.
To schedule our time precisely also requires investment into the time at least at
the beginning. But, has an individual the time to deal with this, when there is
so little time? After all, in the real life we do not have many free moments. We
are constantly swallowed by further and additional tasks which are not pos-
sible to refuse. And then, when additional tasks should be done immediately, we
think “I do hate this job!“. The constant rush and greater demands, who should
withstand this? But on the other hand, we can despair because we certainly can
consider ourselves. Our time is not planned.
I think that there is a reason, which causes the consumption of our time.
Simply, it could be an inability to distinguish between what is important and
what is unimportant (to that we should dedicate as least time as possible). We
must eliminate „time eaters“, which are responsible for loses of our valuable time.
These could be unproductive meetings, where we talk too much, but we resolve
only a little, or when we are using bad working procedures and therefore are
later occurring common mistakes and we need to go back to the original task,
also not defined competencies followed by document shifting or list of to do
work spread between each other, than perfectionism could be dangerous, too
- taking time into account, because with repeating control we are losing time.
What about not planned visits and problems, they require our time, too. Finally,
there are also tasks about which we know from the beginning that are pointless
and tasks about which we know that we will be no table to finish them. This is
the everyday reality that we don’t know how to cope with. Despite of this, this
phase of exhaustion is making our team leaders and managers happy, because it
could lead to new ideas, thoughts and solutions, which will nobody find at the
ministry. Must this be at our health expense? Is it not possible to prevent it?
If we are satisfied with our self, also our supervisors will be satisfied, so we
must work effectively and rationally. We must focus on things which are impor-
593
tant, separate them from those which are unimportant, be quick in decisions and
if it’s possible assign additional work to somebody else. We must exercise our
memory and forget all not important things, because we will start to do some-
thing unnecessary to fill the time. When we have tasks at one place or if they
are connected together somehow, accomplish them together. Let´s try to remove
distortions and do not interrupt the commencement of work, reduce stress and
nervous tension and do not panic when unpredictable situations occur. Let´s
keep order during situations, plan what in in which order we will do and be clear
what is expected from us by others during the tasks submission. Improve self-
control and attitude at the workplace, but more importantly is that we have joy
from our work and good feeling at the end of the day, which will motivate us to
further effort and we will higher our performance and better our personality, too.
PRINCIPLES AND TECHNIQUES WHICH

PROMOTE THE BEST USE OF TIME:
Communication
We need correct information that we can plan and decide about the work. I
tis very important to know about every new fact, that our decision will be the
best in concrete situation. Our communication mistakes could lead to wasted
time and unnecessary time expenditure. The right information are ensure the
following steps (9). In communication is also important feedback, which should
be used for improving and enhancement of our result.
Planning
If we want to effectively use the time, we need to plan our activities, while
the actual planning could last longer than the actual performance of activity.
Planning is sorting steps by the relevance. Every minutes spend with planning
is saving time on execution of activity. We want to achieve outstanding result
in short period of time and with the least exertion. If we plan the real time of
performance, we will lower the stress at work, which represents the negative
phenomenon for our work. Important is not to delay things, who we are not
satisfied with, because unpredictable situations could occur and we should be
prepared also for them.
594
Delegation
If we do not have time to do something, we could use delegation method,
which could seems to us as easiest and so we achieve the completion of work,
which is planned. Alignment of objectives with priority:
For every day we should identify the main objectives, their schedule and al-
locate the necessary energy. If we want sort the tasks, objectives and duties by
priority, we need to know characteristic of particular work, the exact procedure
and personnel provision. All the methods, procedures and strategies could help
us, but the most important word has our person, which is an individuality and
has its own experience. All depends on that how we cope with the problem, how
much energy we invest and what procedure we choose. Every human know his/
her time needs and lifestyle, which is based on personal habits and characteris-
tics. People oriented on negotiation have tendency to perceive the time in pres-
ence and organize activities gradually, that they can be executed immediately.
These people don’t like unpredictable tasks and have tendency not to manage
them by priority, because they perceive every task as important. People oriented
on ideas are creative and usually they don’t pay attention to the time. It’s hard
for them to manage dates and estimate the correct use of time. Logically mind-
ed are decent, rational and continuous working planners, who do manage time
good and they also like it. Individuals oriented on work with people are very
effective in building of team and they don’t need to see time as a priority. Many
times they are over-committed. They have tendency to underestimate the time,
which is necessary to finish of the task.
For sure, every person will find him/her self in this personality types. Which INTERDISCIPLINARY MANAGEMENT RESEARCH XI
one is the best is hard to say, as in every type is something good and less good for
the given profession and it also depends on the angle of view. Every person has
different experiences and knows what is for his/her team the most important.
For the purposes of management education in any field is important to
know and master its general principles, concepts and definitions, which are in
their base valid in every field and also in healthcare.
MANAGEMENT:
It’s an economical term (from English management from to manage“ drive,
handle“ < Italian maneggiare = „handle“ < Latin. manidiare = “handle” < lat.
595
manus „hand”), it characterise process management and leading of whole or
part of the organization, many times of a company, through deployment and
manipulation of resources (human, financial, material, intellectual or intangible
resources). I tis also possible to take into account management from functional
point of view as a activity of a routine measurement of amount and adjustment
of the original plan and as activities carried out for the purposes to achieve the
objectives. This is valid also for cases, when is planning not carried out. The
efficient management may be prevented and replaced with situational manage-
ment. The definitions of the various economists differ and often takes into ac-
count also other aspects of management. (1)
Definitions:
• Emphazing roles of leadership:
• “Management is the process of creating and maintaining a particu-
lar environment in which individuals work together in groups and
efficiently / effectively are reaching selected targets” (H. Koontz, H.
Weihrich)
• “Management is carrying out tasks through the work of others”
(American Management Association)
• “Management is doing things through other people” (E. Dale, J.
Hays)
• Highlighted specific functions performed by managers
• “Management is the process of planning, organizing, leading and
control of organizational activities aimed on achievement of orga-
nizational objectives” (K.H. Chung)
• “Management are typical activities carried by manager as decision
making, organizing, planning, controlling, leading, coordinating,
motivating etc.” (K. Muller)
• Highlighting the subject and its objectives:
• “Management is a field of study that deals with the determination
of procedures on how best to achieve the organization’s objectives”
(S.P. Robbins)
596
• “Management is the process of optimizing the use of human, ma-
terial and financial resources to the achievement of organizational
objectives ( J.A. Pearce, RB Robinson)
“• Management can be seen as the process of creating a further active
development of business-oriented behaviour of the organization”
(L. Vodáček)
• Overall view:
• “Management is a dynamic process in which managers in condi-
tions of constantly changing environment seek trough human po-
tential of the organization reach its goals in the economical and
efficient use of scarce resources” ( J. Papula)
• “Management must be understood not only as a control but also as
an art of drive. Expertise in management is given by the ability to
plan, organize, motivate and lead people to coordinate, communi-
cate and control, so that enterprises operate successfully” “Manage-
ment is the process of working through people to achieve organiza-
tional objectives in a changing environment “(R. Kreitner)
• “Management is a business-oriented and marketing based manage-
ment of company, ensuring its prosperity ( J. Stefanik)
• “Management is a set of approaches, views, experiences, recommen-
dations and methods that lead workers (managers) used to manage
specific activities (management functions), towards achieving the
goals of the organization system” (L. Vodáček) (1) INTERDISCIPLINARY MANAGEMENT RESEARCH XI
The concept:
• executors of management functions are people (managers)
• is applicable to a number of organizational units (industrial and non-
industrial enterprises, their organizational parts)
• is applicable to different levels of management (enterprise division, opera-
tion, parts, team)
• is applicable to a variety of activities (commercial, technical, production,
personnel)
mission is to achieve the objectives of (1)
597
Management functions are:
• planning (aim the objectives and procedures to achieve them)
• organization (as determined people have to perform scheduled tasks),
• formation of personnel (establishment of the necessary staff demands,
staff selection and deployment)
• Leadership (direct and indirect guidance of the staff so, that they timely
and efficiently perform the tasks assigned)
• Control (process monitoring, analysis, evaluation and drawing of conclu-

sions regarding the discrepancies between the plan and execution). (1)
Categories and implementation of management:

• Time Management
• Financial management
• Comparative management
• Crisis Management
• Operations Management
• Personal Management
• Enterprise Management
• Project Management
• Managerial Economics
• Management of IT
• Information Management
• Quality Management
• Human Resources Management
• Waste management
• Management of Public Administration
• Production Management
• Management of Education
• Change Management
• Environmental Management
• Marketing Management
• Strategic Management
598
• School management
• Health Care Management
• Knowledge management (1)
Manager:
• Head leading worker, supervisor, director, professional leading worker,
• organizational employee, agent of sporting, artistic or other transactions,
organizer
1. EDUCATION IN HEALTHCARE
In our healthcare, according to the results of various independent surveys and
studies is training,medical knowledge,as opposed to management,on excellent level.
Workers, who will perfectly control management of health facilities problems
are still desperately not many. In contrast to the huge amount of educational
activities aimed at medical issues, is to the management education of health
workers paid far less attention. However, the difference between managerial
and medical knowledge is abysmal and colossus, which generally the hospital is,
may tighten only coordinated team of managers who have economic thinking
and managerial skills. To understand the education system of managers in the
health care is important to know and be familiar with
. Healthcare education
Conditions for the exercise of the medical profession and the education of INTERDISCIPLINARY MANAGEMENT RESEARCH XI
health professionals provides the Slovak Act No. 578 of 21 October 2004 Laws
on healthcare providers, health workers and professional organizations in the
health and amending of certain acts. From this Act we selected key definitions
to describe concepts in medical education, which form the basis for specialized
managerial extension in the field of organization and management of health.
To better understand the education system of managers in the health care is
important to know and be familiar with the basics such as: what is the medical
profession, category of health workers, the conditions for the exercise of the
medical profession, expertise and so on. (2)
Medical profession:
599
(1) Medical profession is a set of work activities carried out by health care
professionals in
a) The provision of health care,
b) Protection of human health,
c) Medical assessment activities,
d) Control activities or
e) Exercise of supervision over the provision of health care.
(2) Part of the medical profession may be scientific activity and teaching
activities under special regulations and the management and organization of
health care (2).
Medical profession is carried out by health workers in these categories:

a) doctor if the profession is doctor,
b) a dentist if the profession is dentist,
c) the pharmacist when the profession a pharmacist,
d) nurse, where the profession is nurse,
e) a midwife if the profession is midwife,
f ) laboratory, in the case of occupational medicine laboratory technician,
medical-technical laboratory technician, medical laboratory and phar-
macy technician,
g) assist in the case of occupational community health, radiology assistant,
paramedic, dental hygienist, assistant hygiene and epidemiology, nutri-
tion assistant, masseur, sanitation and health care assistant,
h) techniques, in the case of occupational optometrists, dental technician,
optician, orthopaedic technician and electrical engineer,
i) other health professional, in the case of occupational physiotherapist,
speech therapist, psychologist, remedial teacher, special education teacher,
a biologist, physicist, chemist and geneticist
Conditions for the exercise of the medical profession:
(1) Conditions for the exercise of the medical profession are:
600
a) the capacity to act in its entirety,
b) medical fitness,
c) competence,
d) integrity under this Act or under special regulations
(2) The condition for the exercise of the medical profession’s is credibility
and, if required under this Act
(3) The conditions referred to in paragraph 1 shall be met at all times exer-
cise of the medical profession. (2)
Professional qualification:
(1) Professional qualifications for pursuing the medical profession under
this Act, the competence to exercise professional work activities com-
petence for specialized working activities and competence of the perfor-
mance of certified work activities.
(2) Professional capacity to exercise professional work activities have proof
of obtaining the desired degree in a relevant field of study of the cat-
egory of health workers.
(3) Professional capacity to exercise professional work activities is demon-
strated by obtaining a certificate of training to perform work in health
care, in the case of other categories of health workers.
(4) Professional capacity for specialized working activities have proof of
obtaining the desired degree in a relevant field of study of the catego-
ry of health workers and a diploma of specialization in the relevant
specialization. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
(5) Professional qualifications for the operations of a professional represen-
tative shall provide evidence of obtaining the desired degree in a relevant
category of health workers.
(6) Professional qualifications for the performance of certified work activi-
ties is demonstrated by
a) proof of obtaining the desired degree in a relevant field of study of the
category of health worker (§ 27) and a certificate for the performance of
certified work (the “Certificate”) or
b) evidence of obtaining the desired degree in a relevant field of study of
the category of health worker (§ 27), a diploma of specialization in the
respective specialization and certificate.
601
(7) Professional competence for specialized working activities can be ob-
tained only in accredited specialized study programs and professional
ability to perform certified work only accredited certification study pro-
grams (2).
. Further education of health care workers

On the method of further education of health professionals, the system of
specializations and system of certified work activities speaks Government Or-

dinance of the Slovak Republic no. 322/2006. For the purpose of obtaining
medical education in managerially direction for health care workers is needed
specialized accredited learning.
Further education of health care worker
(1) Further training of medical staff includes specialized training for special-
ized working activities, certification preparation for the performance of
certified work activities and continuing education. For other healthcare
professional it includes also preparation for the performance of work in
health care.
(2) Further training of medical staff is professionally and methodically car-
ried out by the Ministry of Health.
(3) The process of continuing education of health professionals, the con-
stitution of specializations and a set of certified activities will be estab-
lished by decree of the Government of the Slovak Republic. (2)
Specialized study
(1) Specialised study in an accredited specialized program of study is ex-
tended the knowledge and skills acquired through study and profes-
sional Health practice. Specialized study must confirm the personal
participation of the health professional in the activities specified in an
approved specialized program of study relevant to the specialized field.
(2) Specialised training consists of practical training and theoretical part of
the training, the practical part prevails.
(3) Practical undergo specialized training medical staff by a senior official of
the competent department of medical equipment or under the guidance
602
of a health care professional with appropriate professional qualifications
for specialized working activities. (3)§ 7
Health workers into specialized study ranks the Slovak Medical University,
Bratislava, in cooperation with educational institutions, chambers and relevant
central government authorities pursuant to special regulations. Proposal for in-
clusion in the specialized training of health workers who have employment in
health care facilities is the employer on the basis of application. Proposal for
inclusion in the specialized training of health workers, who holds a license or
permit to operate medical equipment by a doctor Autonomous Region, phar-
macist or nurse Autonomous Region Autonomous Region under the relevant
specialized field, at his request. (3)
Specialised training of health workers is broken down by category and listed
in Annex of the Government Ordinance no. 322/2006 on the method of fur-
ther education of health professionals, the system of specializations and system
of certified work activities.
Specialization units
a) Category doctor and category dentist
• Health management and financing,
• Social medicine and health organization,
• Organisation of Military Medicine.
b) Category pharmacist
• Social pharmacy and health organization.
c) Category nurse after obtaining a Master education
• Health management and financing,
• Social medicine and health organization, a higher education bachelor
education and advanced training
• Management in nursing.
d) Category midwife a higher education bachelor education and advanced
training
• Management of midwifery.
603
e) Category Technician, Assistant Technician after obtaining higher educa-
tion and advanced training
• Management in the relevant field.
f ) Category another health professional after obtaining higher education
• Management in the relevant field,
• Health management and financing.
Studying for all categories of health workers with a university degree

• Management specialists in public health Master of Public Health. (3)
2. HEALTHCARE MANAGEMENT
. Specification of healthcare management
Healthcare as a system interacts with the surrounding systems and is sensi-
tive to social and economic change. At present time, the healthcare at such a
high level of knowledge, that even in the most advanced economies, there is no
guarantee, that the latest technology will be available to the general public. This
paradox is called “medically possible - economically feasible” and requires new
approaches to health care management, especially in view of the economy. “The
health care is closely linked to the ethical standards of the society, therefore
conflicts between economic and health point of view at the system, could occur
‘(11).
In the healthcare does not need to be valid that activity is efficient, when the
result obtained is at the lowest cost and with the lowest expended resources.
Profit from the spend sources may appear after few years or within the next gen-
eration in the form of resources savings. However, it has an ethical dimension
- if it allows us to expend considerable resources to achieve the expected return
in the future. Whether the new generation will appreciate the costs incurred in
the past and how actually has to be intergenerational solidarity. (10)
In healthcare, most of the top managers have medical education and are
bound by professional medical ethics. This is based on other principles as man-
agement ethics. For health care workers are the most important by GŁADKA
(2003), the following principles:
604
• Seeking help (Beneficence);
• Try not to harm (non-maleficence);
• solidarity;
• subsidiarity;
• availability;
• Justice (Equity);
• the freedom of choice (autonomy);
• economic efficiency.
Manager by Bělohlávek et al. (2001) must follow different principles:
• finances,
• work,
• status safety,
• personal growth,
• personal status,
• friends and co-workers,
• company.
At first glance, after comparing the two sets of values, it is clear that ethical
behaviour of an individual physician is from philosophical and factual point of
view inconsistent with ethical behaviour and decision making of a physician
manager. The physician should first have in mind the good of the patient, while
the manager this value determines by the economic possibilities of the facility.
(4)
Healthcare is a specific market, as services that provides health care are a
specific commodity. Specific position is also apparent from the fact that:
• Health has no substitute, though usually there is more potential therapies
to achieve cure (although it is not certain that these treatments are equally
effective for all patients)
• loss of health will cause that the patient is unable to ensure income and
fully contribute to GDP. The longer the disease continues, the more takes
up resources from the health system and second, also reduces his/her
own savings.
605
• demand for health care is not dependent on the price of services. Demand
may be identified as necessary, because the patient usually does not act
on the basis of the market but on the subjective sense of his/her disease
• in most cases is not possible to plan or predict demand for health care, nor
is it possible to move respectively postpone the time of service.
. The structure of healthcare management

In healthcare, the development management process developed three basic

levels:
1) First line managers (upper management) carries on the business perfor-
mance of everyday tasks. The hospitals are typified by head nurse, head
section and the doctors.
2) Middle managers (middle management) are representatives of a balanced
connection between conceptual skills and skills of control. In healthcare
they represents top of professional skills. Thus, they are mid-level manag-
ers and senior professionals for their activities, such as primary or heads
of departments, and the upper nurses.
3) Top managers (top management) are top managers, whose main tasks
has conceptual nature, strategic management and change management.
In hospitals, this includes the director and his deputy or head nurse or
deputy for nursing. Their expertise from various disciplines of medicine
may not be high and predominant is their knowledge of management.
For healthcare managers are characterized two elements of their behaviour:
• Teamwork - typical for healthcare, this does not preclude the need for
autocratic decision-making in critical situations (for example decision of
head of the operating team).
• Strong opinion on an ethical approach – in healthcare particularly impor-
tant, because healthcare with its activities may affect the most important
values, life, the quality and health itself. (4)
606
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Skriptá. SZU. Bratislava , ISBN 978-80-89-702-04-6, 137 s. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
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In: Soziale Arbeit. - ISSN 0490-1606. - č.11. 2013. s. 438-444.
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ISBN 978-80-8095-056-9.
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číslo 1. Dostupné na: http://www.szu.sk/ine/verejnezdravotnictvo/
11. SLOVÁK, P. Vzdelávaním k zmene myslenia. Sociálny rozvoj sa začína zacho-
vávaním morálnych princípov. In: Sociálne investovanie [Zborník príspevkov z medz-
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encia III. sektora SR v Bratislave, 2014. - ISBN 978-80-971606-0-9. - S. 93-101.
607
PERSONAL MANAGEMENT IN
SOCIAL CARE IN THE SLOVAK
Monika Mačkinová • Peter Slovák • Jana Keketiová • Thorsten Eidenmüller: PERSONAL MANAGEMENT IN SOCIAL CARE IN THE SLOVAK REPUBLIC
REPUBLIC
Monika MAČKINOVÁ, PhD.

Faculty of Nursing and Professional Health Studies
Slovak Medical University in Bratislave, Slovakia
monika.mackinova@gmail.com
Peter SLOVÁK, PhD.

Faculty of Social Sciences UCM in Trnava, Slovakia
Department of Social Services and Counselling
dr.slovak@gmail.com,
Jana KEKETIOVÁ, PhD., MPH

Trnava University in Trnava, Slovakia ,
Faculty of Healthcare and Social Work
jana.keketiova@gmail.com
Thorsten EIDENMÜLLER, PhD.

Faculty of Law / American University Girne, Cyprus
eidenmueller@eu-edu.li
Abstract
The concept of management should portray that it´s not only the implementa-
tion of higher orders and to oversee the regulations, but that the criterion is
a relatively free management of activities with higher order. Management of
human resources is the most important part of the whole management, because
human resources determine and put into motion all other sources.
Keywords: Personal Management, Social care
608
1. INTRODUCTION
Personnel management is enriched by elements of management of person-
nel, e.g. the personality of the manager, effective communication, praise, criti-
cism, conflict resolution, change management, staff motivation and formation
of work teams is called human resource management.
The specific tasks of personnel management are:
• Personal marketing
• Personnel strategy and planning
• Staffing
• Social consensus
• Career advancement (Gladkij et al., 2003)
From the strategic management of human resources arise the staffing plan.
Human resources planning is a continuous and systematic search for conver-
gence between the vision, objectives and strategy of the organization. Is the pro-
cess of anticipation, objectives setting and implementation of measures on the
movement of people in the organization, from the organization and within the
organization, in joining the staff workloads at the right time and at the right
place, in the formation and use of professional skills of people, in shaping work
teams and in their personal and social development (Bajzíková et al., 2007).
At the same time human resources planning focuses on obtaining and main-
taining a required number of staff with the required skills and experience. The
planning process thus contribute to the organization’s ability to adapt to uncer-
tain and changing environment. In order to be effective in human resource plan-
ning, human resource managers need to understand and respect the strategy of
the organization, that all the considerations, assumptions and basis entering
into the plan are therewith consistent. Without planning of human resources
within the context of the organization, we could only barely speak about the
management of human resources.
Management of the work performance is one of the five functions of man-
agement of human resources, which is related to employees at the time when
they have a contract of employment with the organization. In addition to the
management of job performance among these features shall advice remunera-
tion, training and career development of employees. In order to talk about the
management of job performance and that the management of work perfor-
609
mance will be efficient, it is necessary that the evaluation of job performance of
these three functions is linked (Bajzíková et al., 2007).
Management of job performance is process by which managers can ensure

that the steps, procedures and performance of employees are in accordance with
the objectives of the organization. It becomes a key activity to ensure that hu-
man resources can create a competitive advantage for the organization and for
people to become a really valuable resource of the organization. Management of
job performance must be based on the organizational strategy and reflect both
the long and short term goals as well as organizational culture. It is also neces-
sary, it to be based on skills and abilities of the evaluated employees. Only the
data obtained from this process are valuable for the organization.
The process of the management of job performance consists of three parts:
• definition of performance,
• performance evaluation
• feedback providing (Bajzíková et al., 2007).
An integral part of management performance is ultimately informing of em-
ployees about the quality of their work and about the next steps which should
be taken.
2. CURRENT SITUATION IN THE SLOVAK

REPUBLIC IN SOCIAL CARE
Empathy, humanity, altruism, philanthropy are terms which are today the
most important in social care. They are treated as important support mecha-
nisms in the social services (Mačkinová, Musilová, E. 2013)
In order to ensure the useful, targeted and effective assistance was created
legal area based on the activation of recipients of social services and (with) ori-
entation to their needs. The new Law on Social Services provides sufficient vari-
ability of social services, regulates social services of the low-threshold type and
creates favourable conditions for the recipients of social services, which remain
in their natural social environment. It also describes the further legal coordina-
tion of social and health care systems and community planning system. It lays
down the conditions and criteria of quality of social services. For the first time
are in the law defined standards of social services. For instance, the obligation
610
on the provider of social services to develop and adhere the procedural, person-
nel and operating conditions of the provision of social services. The provider is
also required to prepare an individual development plan for recipients of social
services. Further, enhance the work professionalism through the developed and
viable program supervision. With determination of requirements for the quali-
fication of professional staff.
First time was solved the provision of health care within the range of nurs-
ing care provided by nurses. There is still lacking networking between social
and healthcare facilities. As social facilities are not a part of healthcare facilities
network, it is almost impossible collaboration with the insurance companies
(Masaryk, Musilova, 2014).
The aim of the whole system is more efficient access to social services, to
ensure especially the improvement of the quality of life of people, who are de-
pendent on the assistance (Mačkinová, Keketiová, Štiavnická, Masaryk, 2014).
This entire helped to that, that today at the social market either emerged
or have been organizations that can systematically and purposefully work with
their clients group and to get fast and efficiently service users from the social
crisis.
They have already understand that the social sphere has its own market,
which is occupied by more experienced, skilled and competent one (Mydlíková,
2004).
Graph 1 Number of Social Services Homes in regions
90 Bratislava
80
BanskáB.
70
Prešov
60
50 Trnava
40 Košice
30
Trenēín
20
Žilina
10
0 Nitra
611
Graf 2 – Use of Social Services Homes in regions
450
00 Braatislava
400
00
BaanskáB.
350
00
Pre
ešov
300
00
250
00 Trn
nava
200
00 Ko
ošice
150
00
Tre
enēín
100
00
Žilina
50
00
0 Nittra
As can be seen from the graph in the Slovak Republic are currently 448
Social Services Homes. From this are 265 public providers and 183 non-public
providers. In 345 is provided year-round residential form of care, 63 are ambu-
latory and in 40 is combined form of social care. In most of them, i.e. in 424,
is provided care for an indefinite period, in 1 for defined period and in 23 for
combined period of time. The target group in 369 facilities are adults and in 79
facilities minors. The total capacity of all Social Services Homes is 21,827 peo-
ple. To the greatest number of dependent people is able to provide emergency
assistance Nitra Region and to the smallest number Košice Region.
From the total number of Social Services Homes are:
349 Social Service Homes / SSH/,
99 Combined Social Services Homes, from them are
15 SSH and supportive housing facility,
14 SSH and specialized facility,
3 SSH, specialized facility and nursing service,
5 SSH and nursing service,
62 SSH and facility for seniors.
Graph 3 Number of Facilities for Seniors in regions
45 B
Bratislava
40
B
BanskáB.
35
P
Prešov
30
25 T
Trnava
20 K
Košice
15
T
Trenēín
10
Ž
Žilina
5
0 N
Nitra
612
Graf 4 Use of in Facilities for Seniors in regions
4500 Bra
atislava
4000
Ban
nskáB.
3500
Pre
ešov
3000
2500 Trn
nava
2000 Koššice
1500 Tre
enēín
1000
Žilina
500
Nittra
0
As can be seen from the graph in the Slovak Republic is currently 270 facili-
ties for the seniors. From that are 167 run by public providers and 103 by non-
public providers. In 268 is provided year-round residential form of care, in any
ambulatory form and in 2 combined form of social services. In most of the 263
is thus provided care for an indefinite period, in 2 for definite period and in 5 to
five for combined time. The target group of 269 facilities are adult people and in
1 minors. The total capacity of all facilities for seniors is 16 500 people. To the
greatest number of dependent people is able to provide emergency assistance
Nitra Region and to the smallest Banská Bystrica region.
From the total number of facilities for the seniors are:
160 facilities only for seniors,
80 facilities for the seniors and social services homes,
13 facilities for seniors, social services homes and specialized facility,
10 facilities for the seniors, social services homes, and nursing services,
6 facilities for the seniors and nursing services
1 is a facility for seniors and emergency housing facility.
3. PERSONAL MANAGEMENT IN SOCIAL CARE

Resources are limited commodities, that will allow the organization to com-
plete the work, but no source is as important as the staff. Especially in the social
sphere, where the law limits the number and composition. In this case, an ad-
equate number of staff in this area is as important as in the health sector. The
new structures with a new mission and with greater use of non-professional
staff are developing considerable pressure on social services.
613
Managers in the social sphere are faced with this situation every day. Lack of
professional staff in the social sphere constitutes a threat for present but also for
the future of nursing care. Mainly it reflects on the quality of the nursing care.
To prevent this situation, it is necessary, that each organization have a personnel
plan.
Personal plan is recommended composition of health workers needed to
ensure safe and responsible nursing care (Mačkinová, Musilová, Keketiová,
Vaverčáková, Masaryk, 2013). Their composition corresponds to the type and
number of staff, which is necessary for the implementation of the prescribed
work. This includes the optimal ratio of professional nurses to auxiliary certi-
fied personnel. The aim of the staffing plan is to ensure that nursing care is safe,
responsive to the needs of the client and to be scientifically and technologically
correct.
The role of management in dealing with personnel issues depends on the
level of the management. Senior management provides general guidelines for
the selection of personnel plan. Middle management are implementing personal
plan and giving information about its effectiveness. The challenge that this role
represents, is in regards to the uncertainty of the environment and professional
issues, big (Grohar-Murray, DiCroce, 2003).
Factors affecting the organization and specific personnel planning includes
economic and regulatory factors. Economics dictates how many staff can be
accepted. There are budgetary constraints, which assign percentages of the op-
erating budget for salary and social benefits of personnel. The number and type
of personnel and the economic viability is managed partially by the economic
policy of the government, but it also affect the regulations on safety, infections
control and the quality control measures. To be accredited organization, certain
level quality of the environment must be achieved. Some of these regulation
have more relation with the personal questions, than with the real environmen-
tal problems. The second factor is the database of organization, which forecasts
a personal model for the desired level of quality in nursing care. The basis for
the development of the staffing model are allocated money and available human
resources. To determine the proper ratio of different healthcare professionals is
vital philosophy of nursing care by the organization stands for. This philosophy
is the basis of standard nursing care, according to which the quality will be eval-
uated. Quality also includes information from the community, which receives
614
the care and resources from the state government. The third factor are the pro-
fessional issues related to labour issues. These includes the recruitment and re-
tention of staff. An important aspect is the salary requirements and salary scale,
reflecting the length of service. Important questions for motivated staff are the
growth opportunity and the ability of continuing education. Most expenses on
staff apart of the social benefits provision, represents for the organization staff
turnover and absenteeism, which requires the recruitment of new staff.
In the Social Service Facilities is provided to the healthcare professional’s
salary under the Act no. 553/2003 Coll. on the remuneration of employees
performing work in the public interest, as amended. The remuneration is main-
tained by the principle of remuneration according to the type, complexity, re-
sponsibility, degree of physical activity of performed work, while are required
the qualifying requirements. An employee is under the type of work and the
fulfilment of qualification requirements allocated to the appropriate grade in
which is also classified according to length of professional experience into the
salary step.
4. SURVEY
Although the new Law on Social Services provides sufficient variability of
social services, regulates social services, creates favourable conditions for the
provision of nursing care and describes the requirements for the qualifications
of professional staff, there is still remaining certain problem from the past. The
same problem has a negative impact at the present time on the quality of the
provided healthcare and threatens the future and social services viability in Slo-
vakia. This problem is acute shortage of health workers in this area.
The survey was based on this problem and we were interested in the reasons
and causes of the shortage of health workers in social services. The survey was
based on the belief, that the cause and reason is the overall dissatisfaction of
health workers in social services facilities, which leads to their large fluctuations.
The main motive was to highlight the subjective views of health workers on
their dissatisfaction in the social sphere.
At the beginning of empirical research, we precisely formulate and establish
goals, objectives, methods and means of obtaining information.
615
.. Identification of Problem
Acute shortage of health workers in social services facilities.
The implicit reason could be:

• The dissatisfaction of health workers in social services facilities.
• Fluctuation of health workers from social services facilities.
.. Objective
The main objective of the survey was to assess the satisfaction of health pro-
fessionals working in social services facilities, to identify the causes of dissat-
isfaction of health workers in social services facilities, compare dissatisfaction
of nurses / assistants and paramedical staff in social services and highlight the
problem, that health workers are inadequate assessed in social services facilities.
.. Sample selection

The sample of respondents were health workers in social services facilities,
which were selected in a deliberate manner. Health workers, who are working in
social services facilities are nurses, assistants, sanitary, who are working in three-
or two-shift operations. Respondents were divided into two groups – nurses
with assistants and paramedical staff.
The reason for the creation of two groups of respondents was, that could be
closer point on the subjective causes of dissatisfaction and to be able to compare
their overall dissatisfaction.
In the survey, we sought answers on acute problem in social sphere, which is
the shortage of health workers and turnover of healthcare workers.
Respondents who participated in the survey were employed in four separate
and independent social facilities. Overall, the survey was answered by 66 health
workers from selected facilities. Of those, 14 were workers in social services
facilities, 9 in senior facilities, 14 in senior facilities and 29 were employees in
social services facilities (Table 2).
616
.. Method
For survey, we chose the questionnaire method, which allows the respon-
dents to demonstrate themselves. Another reason was the acquisition of a larg-
er, but adequate amount of information in a short time. The total number of
distributed questionnaires was 80 units. From the total No. were 66 units of
questionnaires returned by respondents. Rate was 82.5% (Table 1).
Table 1 – Occupation as health professional
Nurse Health assistant Sanitary Together
23 2 41 66
Table 2 – The composition of respondents by employer

Employer No. Of respondents % of respondents
SSF 14 21
FFS 9 14
SSF 29 44
FFS 14 21
Total 66 100
.. Analysis of the results

In this part of paper we work with the results of the empirical analysis, that
we have acquired during the survey. Each question were statistically processed
and the results are shown in tables. Part of each question is the verbal interpre-
tation of tables. Each table includes the graphics processing.
Table 3 -Motivation
Answers Nurses, Assistants Paramedical staff
Finances 10 14
Work 15 18
Recognition from superiors 10 11
Recognition from clients 17 16
Promotion 1 4
Further education 3 6
Other: Well done work 1 0
Other: Help to people 0 2
617
We found out that 10 nurses / assistants and 14 paramedical staff are mo-
tivated at work by finances, 15 nurses / assistants and 18 sanitary motivates
the work itself, 10 nurses / assistants and 11 sanitary motivates recognition

from superiors, 17 nurses / assistants and 16 sanitary motivates recognition
from clients, 1 nurse / assistant and 4 sanitary motivates option on promotion,
3 nurses / assistants and 6 sanitary motivates further education, 1 nurse / as-
sistant is motivated by well done work and 2 sanitary are motivated by help to
people (Table 3).
Table 4 – Appreciation in work and interest of superiors

Answers Nurses, assistants Paramedical staff
Yes 14 17
No 1 4
Sometimes 7 18
I never feel it 2 3
We found out that 31 (46%) of respondents feel at work appreciation a gen-

uine interest of superiors, 5 (8%) doesn´t feel it, 25 (38%) only occasionally and
5 (8%) have never felt an appreciation and sincere interest of superiors (Table
4 ).
Table 5 –Satisfaction with the working environment
Yes 21 30
No 4 11
We found out that 51 (77%) of respondents are satisfied with the working
environment at the workplace, and 15 (23%) are not satisfied with the work
environment at the workplace (Table 5).
Table 6 – Satisfaction with financial evaluation of their work
Yes 7 4
No 5 13
It could be more 10 22
Sometimes, when bonus is obtained 3 2
618
We found out that 11 (17%) of respondents are satisfied and 18 (27%) are
not satisfied with the financial evaluation of work, 32 (48%) of respondents
wrote that it could be more, and 5 (8%) of respondents are satisfied only some-
times when receiving a bonus (Table 6).
Tabule 7 –Draft of financial evaulation of your profession
500 EUR 2 24
600 EUR 3 8
700 EUR 9 2
800 EUR 2 2
900 EUR 2 1
1000 EUR 3 0
Didn´t respond 4 4
We found out that 26 (38%) of respondents suggested that the real financial
rewards for their profession is 500 Euro, 11 (17%) of respondents suggest 600
Euro, 11 respondents (17%) 700 Euro, 4 (6%) respondents 800 Euro, 3 (5%)
900 Euro and 3 (5%) 1000 Euro. 8 (12%) respondents did not respond (Table
7).
Table 8 –Satisfaction with benefits from the employer
rehabilitation 3 0
Salary bonuses 12 11
hot meal 19 29
Gift vouchers 6 14 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Educational opportunities 6 6
other: we don´t have benefits 3 1
5 days of extra holidays 0 1
We found out that 3 respondents are satisfied with the rehabilitation grant-
ed by the employer, 23 are satisfied with the bonus pay-out, 48 is satisfied with
hot food at the workplace, 20 are satisfied with shopping vouchers, 12 respon-
dents considered as an advantage educational opportunities, in the event, that
it is paid by the employer, 4 wrote that the workplace have no benefits and one
respondent considered an advantage 5 extra days of holidays (Table 8).
619
Table 9 –Bettre possition than other workers (e.g. Social workers)

Yes 7 14
No 12 23
I cannot judge 6 4
We found that 21 (32%) of respondents think that they have better position,
35 (53%) that they do not have better position and 10 respondents (15%) can-
not judge this situation (Table 9).
5. CONCLUSION
Sedlák (2000) describes management as a practical activity, which is a type
of work or a series of activities that managers perform to achieve the objectives.
The role of enterprise management is to ensure the efficiency of this process,
which means to ensure that the price of output is higher than the price of in-
puts. Management is therefore acquire, manage and allocate resources so, that
they bring the most value by achieving the organization’s objectives. The subject
of human resources management is personnel, and therefore can be concluded
that human resources management is an integral part of enterprise manage-
ment, as well as financial management, production management and marketing
management. The organization is open and dynamic system which interacts
with the environment. From that follows that the management is carried out
under the influence different factors of the external and internal environment.
Among the external factors can be mentioned general environment - social, leg-
islative, economic, political, technical and specific environment such as competi-
tors, shareholders, trade unions, local government authorities, interest groups.
The internal environment is determined by the decisions of managers, strategy,
corporate culture and the size of the organization.
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621
COUNTY MANAGEMENT 
AN IMPORTANT FACTOR OF
AVAILABLE HEALTH CARE
Klara ŠĆUKA univ.spec.oec.

Klara Šćuka • Branka Martić • Miroslav Jarić: COUNTY MANAGEMENT - AN IMPORTANT FACTOR OF AVAILABLE HEALTH CARE
Branka MARTIĆ, univ.spec.oec.
Miroslav JARIĆ, univ.spec.oec.
Brod- Posavina County,

Slavonski Brod
Abstract
The Republic of Croatia during last 20 years of its existence goes through dif-
ferent forms of health care reforms whose effects are difficult to measure, and
often instead of the planned positive developments, reform results are mismatch
factors in the health system and reduced health care of citizens. The regional
authority, county, have the task to coordinate all subjects in the health system
without direct ability to make decisions on the scope of health care in their
area. Healthcare providers in the public and private sectors implement the
health care in the field of local self-government. Providers contract the financ-
ing of health care directly with the Croatian Institute for Health Insurance in
accordance with the Network of health care by the Minister. The main goal
of organized health system is accessible, continuous and comprehensive health
and protection, which can be organized and implemented by only a well coor-
dinated and organized health management consisting of service providers, or-
ganizers and health care legislator. One of the main prerequisites for achieving
this goal is a properly funded system.
Keywords: management, county, health care
JEL Classification: P36, I1, I11
622
INTRODUCTION
Health care is a basic need of every human being, and organized health sys-
tems provide access to health care. Health care in the Republic of Croatia is
organized through primary care, secondary care and tertiary care.
At the primary level health care a key role in the organization are counties
that founds
health institutions, Bureau of Emergency Medical Services and Public
Health Institute. County grant concessions for the public health services in
family medicine, dental medicine, health care for children, women’s health care,
occupational home health care services. The regional authority have the task to
finance the health care system in the part related to the financing and mainte-
nance, investment and loan repayment for establishments founded by and for
institutions that are under the Law on the rehabilitation of public institutions1
have transferred the founding rights to the Republic of Croatia. The role of the
county, as a unit of regional self-government is to provide services to citizens
in the areas of education, health, utility infrastructure, county line transport,
gasification, environmental and nature protection, planning and development
of a of educational, health, social and cultural institutions networks, issuing
construction and location permits, other acts related to construction and imple-
mentation of spatial planning documents within the county, outside of large
cities. In this paper the focus will be on the role of the county in the provision
of public services, with emphasis on the organization of health care which is
becoming increasingly demand in terms of organization. The expectation of
citizens to protect their health every day are growing, and the informations are INTERDISCIPLINARY MANAGEMENT RESEARCH XI
becoming available which is contributing to the changing lifestyles of the popu-

lation and as results in increased use of health services. To resolve the phenom-
enon of overfilling emergency departments with non emergency patients an
important role is played by the correct organization which is in charge of the re-
gional, local government and health management. Together they must organize
and connect all the teams in the Network of health care to the system which can
function without overload, and health care workers could be in the best possible
conditions to perform health activities. The last few years the public sector that
provides public services are facing the challenge of harmonizing the factors used
and those who provide health services. Increased expectations of citizens of the
1
Zakon o sanaciji javnih ustanova , Narodne novine br.136/12, 151/14.
623
providers of public services and the recessionary state of the economy which is
not able to increase allocations to finance public services are in contradiction.
In this paper, we will try to explain the situation described above and propose
the solutions.
1. REGIONAL SELFGOVERNMENT IN THE

FUNCTION OF THE ORGANIZATION OF

HEALTH CARE
Accessible health care at the primary level means the existence of doctor’s
office or the presence of a general practice doctors in all settlements of full and
part-time to ensure a comprehensive, continuous and accessible health care to
all residents.
Brod-Posavina County in the composition has 26 municipalities and 2 cities
inhabited in which lives 159.979 insured persons2 . They can get primary health
services in institutions at the primary level, namely Health institution Slavonski
Brod, Health institution “Dr. Andrija Štampar Nova Gradiska, “Public Health
Institute of the Brod-Posavina County, Department of immediate medical care
of Brod-Posavina County and Health institution Pharmacy. Health care at
the primary level in family medicine, dental medicine, health care for children,
women’s health care, occupational medicine, laboratory service and medical care
is carried out through concessions.
County, regional self-government, pursuant to the Law on Health Care3,
provide filling public health care services in their area, organize activities of the
institutions founded by, coordinate the work of all legal and natural persons in
the territory of a regional governments witch perform health activities, grant
all concessions for the provision of public health services in their area, adopt of
health care plans for the area of a regional self-government, organize and imple-
ment public health measures, organize the coroner service and other activities
within the jurisdiction of counties.
Health care must be accessible, effective, comprehensive, continuous which
makes the main tasks and challenges in health care management. Philip Kotler
2
HZZO www.hzzo.hr, Broj osiguranih osoba na dan 31.01.2014.
3
Zakon o zdravstvenoj zaštiti, Narodne novine br.150/08., 71/10., 139/10., 22/11., 84/11.,
12/12., 35/12., 70/12. i 144/12., 82/13., 159/13., 22/14.
624
in his work “Marketing in the public sector – way to the better performance”
talks about the expectations of the citizens of the administration units. Citizens
expect full service for their needs with require that these services are provided
effectively and efficiently. Of units of public administration are expected effec-
tiveness and efficiency level of private companies4, and according to the Rogić
Lugaric5, role of regional self-government must be developmental. Decentral-
ization of powers, which is clearly prescribed with legal framework, fully al-
lows that and are in some cases expressly provided by law. For county to be
fully functional in development, decentralization of authority must be accom-
panied by fiscal decentralization, and this wasn’t happened in Croatia. Counties
have no powers to introduce their own taxes which have strong influence in
the implementation of legal powers and implementation of development. For
this reason, counties become developmentally ineffective. According to Bovaird
and Loeffler6 makers and end-users of public services must be satisfied. Users
have to create a public service and to do not try only to carry out the maximum
exploitation of the same. The efficiency of the system can be seen as the result
of interaction between decision and policy makers and consumer in the system
i.e. citizens.
In the domain of health this effect is most obvious in the organization during
on-call days off and weekends with primary care physicians in the organization
of the coroner service. Management of regional governments and the medical
management creates health policy and makes decisions about the functioning
of the health system in units of regional self-government. The purpose is to
improve the health care system and greater public satisfaction which are final
beneficiaries (buyers of products produced by the management). Organization
of special duties on non-working days and weekends7 is a service that allows
citizens affordable and comprehensive health care and organized medical exam-
iner’s service allows a dignified process after death. Under the current legislative
framework in the Republic of Croatia both forms of care a priority by doctors,
4
P. Kotler & N. Lee; (2007.): Marketing u javnom sektoru, Mate doo, Zagreb, Zagrebačka
škola ekonomije i menadžmenta ,Grafotisak d.o.o , str.6.
5
Rogić Lugarić (2015) : Financijske mogućnosti hrvatskih lokalnih i područnih jedinica za
preuzimanje razvojne uloge, Institut za javnu upravu, str.179
6
http://www.birmingham.ac.uk/Documents/college-social-sciences/governmentsociety/in-
logo/publications/chapter-4-bovaird-loeffler.pdf (06.04.2015.)
7
Odluku o osnovama za sklapanje ugovora o provođenju zdravstvene zaštite iz obveznog
zdravstvenog osiguranja („Narodne novine 153/13)
625
medical doctors. None of the above services can’t function without additional
financial allocations, and the county fiscal capacity due to the tax reforms are
smaller or inversely proportional to the increasing of power. Counties, as well
as the regional authority units, in the Republic of Croatia have the foundation
rights of health facilities at the primary and secondary level health activities that
are in their area: health centers for emergency medicine, public health depart-
ments, pharmacies and general hospitals, except for those institutions which are
based on the Law on the rehabilitation of public institutions have transferred

the founding rights to the Republic of Croatia. County grants the concession for
the performance of health services at the primary level in family medicine, den-
tal medicine, women’s health care, children’s health care, occupational medicine,
laboratory services and home medical care. Counties coordinate the work of all
employees in these sectors, and the example of the County employees in num-
bers as in Table 1: health workers in a Brod-Posavina County, but counties do
not authorize the decisions and regulations that oblige all participants to provide
public services. County grants concessions and implement procedural actions of
their allotment in primary health care based on which doctors concession hold-
ers sign contracts for financing with HZZO and according to this contracts they
perform care from the compulsory health insurance, Chart 2: Revenue CIHI
according to sources of financing, but they do not have the ability to bring acts
that will ensure the implementation of health care from the compulsory health
insurance. The dominance of the health management) is visible in this segment-
they put doctor in the central focus, not an insured person.
Table 1: health workers in a Brod-Posavina County

Institution Health Non health Total
Health center Slavonski Brod 127 52 179
Health center “Dr. Andrija Štampar” Nova Gradiška 56 29 85
National Institute of Public health 49 17 66
Institute of emergency care 69 27 96
GH „Dr. Josip Benčević 1203 468 1671
Source: author’s calculations
Due to the adoption of amendments to the Law on health care and changes
in the way of contracting health care from the compulsory health insurance
provided by the Croatian Institute for Health Insurance it has been made a
626
difference that enabled the citizens, insured persons, the use and abuse of sec-
ondary health care. Primary health care (family doctors) should perform 70 to
80% of all admissions and treatment of patients. In Croatia, primary health care
solves an average <50% of health problems. In developed European countries
primary health care solves at least 75% of health problems, in the UK, this per-
centage reaches 84%. These changes in contracting health care in the Republic
of Croatia enables bypassing primary care by patients and a further reduction
in participation in primary health care in addressing health problems. Doctors
which perform activities of health care at the primary level has been provided
free choice to participate or not to participate in the performance of each seg-
ment of health service financed by compulsory health insurance for example
special duties or a medical examiner’s service. That resulted in not arranging
on-call doctor at the primary level of health care and as increased load on the
system at the secondary level. The result of the change is the enormous number
of arrivals in hospital emergency admissions and hospital doctors emancipa-
tion from their primary role, care for the sick in a regular hospital treatment.
There was no coordination of producers and consumers in system of public
values and public services. The importance of counties as units of regional self-
government in such a situation comes to the fore because together with health
management of health facilities takes coordination with interested parties.
Figure 1: Patient admission via OHBP- in county hospitals in REPUBLIC OF

CROATIA
Source: HZZO, http://www.hzzo.hr/05.03.2015.
627
2. THE FINANCING OF THE HEALTH SYSTEM
Health systems are complex systems that are more or less financed from the
state budget and the budgets of regional government by payment of citizens
for social security. The health system of the Republic of Croatia is not working
exclusively under one financing model. It is a combination of Bismarck’s model
(based on social insurance and contributions that people pays from salary) and
Beveridge’s model (based on budget revenues) because of deficiency of revenue

exclusively in Beveridge’s model of financing. Contributions for compulsory
health insurance mandatory for all employees and employers(which makes ba-
sic income CIHI). Dependent family members are covered by their household
members who exercise their rights from regular employment. Self-employed
citizens pay themselves contribution for compulsory health insurance. The Re-
public of Croatia is, under the Constitution, welfare state so that through the
budget provides funds for financing health insurance for vulnerable populations
such as the elderly, pensioners and people with low incomes who are exempt
from paying contributions8. This includes people under 18, students, military
war veterans, the unemployed, people with disabilities and blood donors (with
more than 35 donations for men and more than 25 donations for women dona-
tions). All of them are exempt from co-payments and CIHI is compensating
the value of these exemptions from the state budget. Key sources of income
CIHI are: compulsory contributions for health insurance, which makes up 76%
of total revenue CIHI with funding from the state budget (15%), and 9% are
covered by the Ministry of Health. It is estimated that only about a third of the
population (which are economically active) pays full health care9. It is estimated
that revenues from health insurance contributions makes up to 35% of the bud-
get of Republic of Croatia.
8
http://www.hzzo.hr/zdravstveni-sustav-Republika Hrvatska/financiranje-zdravstvene-zastite
(09.11.2014.)
9
http://www.hspm.org/searchandcompare.aspx (30.03.2015.)
628
Chart 2: Revenue CIHI according to the sources of financing
Source 1: WHO
Table 1: Composition of persons insured in the CHIF, 2012

Number of the insured % of all insured in the CHIF
Active workers 1 471 662 33.78
Active farmers 32 205 0.74
Pensioners 1 047 191 24.04
Insured family members 1 13 5 747 26.07
Other 669 681 15.37
Total 4 356 486 100%
Source: CHIF (2013).
The health system is financed and with decentralized funds and that is
the transferred funds from the state budget to lower levels (counties and cit-
ies) which are extracted from the additional share of income tax in the legal- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
ly prescribed percentage. According to some authors, decentralization is not
just a transfer of funds from the Croatian state budget provided for financ-
ing decentralized functions at lower levels, but also the transfer of responsi-
bility and the freedom to decide on the appropriateness and the rationaliza-
tion of expenditure of funds for the functions from the state level to the lo-
cal and regional self-government to which the functions are transferred10.
From the budgets of counties and the City of Zagreb are provided the funds
for investment maintenance of premises and equipment of health institutions
10
Maja Lukeš-Petrović(2002). Decentralizacija funkcija javnog sektora s državne razine na
jedinice lokalne i područne (regionalne) samouprave i fiskalna decentralizacija, Hrvatska
javna uprava,UDK 336.2.023, str.158
629
owned by counties or the City of Zagreb, capital investment and repayment
of loans for capital investments. The counties can be health centers, health
care at home centers, polyclinics, general hospitals that are not in the pro-
cess of rehabilitation, special hospitals, sanatoria, institutions for emergency
medical help, and over these institutions County may have founding rights.
Counties provides funds for decentralized functions of establishments they
founded and institutions for which they have transferred the founding rights to
the Republic of Croatia in the process of rehabilitation, which began in 2013

in accordance with Law for the rehabilitation of public institutions11. The share
of financing of decentralized funds is continuously decreasing due to changes in
the tax system which has reduced the budget of regional self-government in the
part related to revenues from income tax and for that reason there are reduced
allocation of funds for health care from the county budget.
3. HEALTH MANAGEMENT
Health management today is mainly consists of doctors who have achieved
significant results in the field, according to Gavran – Kapetanović12, are mem-
bers of certain organizational culture and those who have learned to make
decisions based on objective facts, science-based diagnosis during treatment.
In order to exercise his management functions with health resources, manage-
ment must have leadership skills, team managing, managing with information
processes, quality managing, must know allocate the resources, make business
decisions, plan objectives and manage with human resources.
Top of health management must be the in function to create the health
policies (public services for users), and middle management to conduct health
policies and to communicate with users of public services. Synergic action of
policies promoters, coordinators and users it can be achieved the satisfaction
of all actors in the public system. All factors in the system must be informed
about new policies, procedures, objectives, policies, benefits and plans within
the system in which they operate. Communication must be mutual: top-down
and bottom-up. In our health care system is an attempt to achieve both forms of
communication. Subsidiary health system, that we meet in the National Strat-
11
Zakon o sanaciji javnih ustanova NN 136/12, 151/14
12
Prof. dr. Faris Gavrankapetanović Klinički centar univerziteta u Sarajevu
630
egy for the Development of Health 2012th-2020th and the National Develop-
ment Plan clinical centers, clinical hospitals, clinics and general hospitals in the
Republic of Croatia 2014.- 2016 is an excellent proposal, but without the as-
sociated action of health management that will connect primary, secondary and
tertiary health care, is unenforceable. For the implementation of this principle
it is required the existence of situational management, management concept
which recognizes that there is no one best course of action in all situations.
Instead, managers should examine the facts in a given situation to choose the
means, method or process that will in the best possible way to resolve the situ-
ation. Effective management, therefore, depends on the correct assessment of a
number of situational variables13.
4. CONCLUSION
The main problems in the functioning of the health system are reflected in
the inflexibility and in separate activities of public services that are focused on
a narrow range of activities, and particular problem seems to be legislation of
healthcare system that does not effectively linking the levels of health care (pri-
mary, secondary and tertiary). Management of regional governments and health
management in units of regional self-government have the task to manage the
quality of local services which must be aimed at improving the quality of life.
County can become a development, effective and they can increase the quality
of their services. To fulfill this task, it is necessary to implement the decentral-
ization of assignments and fiscal decentralization as well as the adoption of
political programs of regional authorities which are planned to enhance the INTERDISCIPLINARY MANAGEMENT RESEARCH XI
quality of public services.
Literature
Dionne S. Kringos& Wienke G.W. Boerma&Allen Hutchinson& Richard B. (2015): Salt-
man Building primary care in a changing Europe, World Health Organization. ISBN 978
92 890 50 319, United Kingdom,
http://www.birmingham.ac.uk/Documents/college-social-sciences/government society/
inlogo/publications/chapter-4-bovaird-loeffler.pdf (06.04.2015.)
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Quible Zane K.: (2010.). Menadžment uredskog poslovanja, Mate d.o.o., ISBN: 978-953-
246-099-5, Zagreb
631
http://www.hzzo.hr/zdravstveni-sustav-Republika Hrvatska/financiranje-zdravstvene-
zastite (09.11.2014.)
HZZO www.hzzo.hr, Broj osiguranih osoba na dan 31.01.2014.,
Koprić. I., Škarica,M., Milošević, B. ( 2015): (2015) : Suradnja i razvoj u lokalnoj i region-
alnoj samoupravi, Rogić Lugarić, Financijske mogućnosti hrvatskih lokalnih i područnih
jedinica za preuzimanje razvojne uloge, str.161-209, Institut za javnu upravu, ISBN 978-
953-7935-03-0, Zagreb
Koprić. I., Škarica,M., Milošević, B. ( 2015): Suradnja i razvoj u lokalnoj i regionalnoj samo-
upravi, J.Džinić ,Kvaliteta lokalnih usluga: mogućnosti razvoja i stanje u Hravtskoj, str.211-
252, Institut za javnu upravu, ISBN 978-953-7935-03-0, Zagreb
Maja Lukeš-Petrović(2002). Decentralizacija funkcija javnog sektora s državne razine na
jedinice lokalne i područne (regionalne) samouprave i fiskalna decentralizacija, Hrvatska
javna uprava,UDK 336.2.023, str.158
Philipe Kotler i Nancy Lee; (2007.): Marketing u javnom sektoru, Mate doo, Zagreb,
Zagrebačka škola ekonomije i menadžmenta ,Grafotisak d.o.o , str.6.
Quible Zane K.: (2010.). Menadžment uredskog poslovanja, Mate d.o.o., ISBN: 978-953-
246-099-5, Zagreb
Tony Bovaird, Edited by Elke Loffler(2013): Public Management and Governance, ISBN
13: 9780415501866, London
632
INFLUENCE OF VARIABLE
COMPENSATION ON BUSINESS
PERFORMANCE OF THE SPLIT 
DALMATIA COUNTY PHARMACIES
Ante MIHANOVIĆ, Ph.D. student
Ante SANADER, Ph.D. student
Mate KRCE, Ph.D. student
Abstract - General
One of the basic prerequisites of effective human resource management is to
recognize the importance of motivational systems.A satisfied and motivated
worker will work effectively and creatively and with greater focus towards
goals.If motivation is absent, there is a danger of lowering the level of work of
the best workers to that of the average or even poor workers.
Employees are the most important resource of any company, and successful
achievement of a company’s objectives depends on their motivation and com-
mitment.The importance of the reward system is reflected in the motivation of
employees to do their job with as much quality and efficiency as possible.In most
successful companies, in addition to giving a basic salary that is the right of
every worker, management introduces a variable aspect of the salary knowing
that the basic salary is not enough to motivate employees.
The system of compensation consists of tangible and intangible rewards.Tan-
gible rewards are based on improving the financial status of individuals, while
the intangible rewards are directed towards the fulfillment of broader human
needs that are related to working behavior.Naturally, tangible rewards domi-
nate in practice, but intangible rewards are increasingly gaining in importance.
Keywords: variable compensation, stimulation, reward system, Split - Dal-
matia County Pharmacies
633
INTRODUCTION
Ante Mihanović • Ante Sanader • Mate Krce: INFLUENCE OF VARIABLE COMPENSATION ON BUSINESS PERFORMANCE OF THE SPLIT ...
The contemporary practice of human resources management recognizes

that the basic salary is not a sufficient motivator for individuals, and companies,
which have the possibility to do so, strive to introduce a variable portion of the
salary that individuals can, but need not, earn.The basic salary is the right of all
employees, and the variable part of the salary goes only to those individuals who
earned it with their work.
Different salary systems have different motivational potential.Pay-per-time
salary is calculated solely on the basis of time spent at work and typically implies
a fixed salary, which means that the motivational potential of this system is the
lowest.Since this salary system is the predominant one, it is obvious that by in-
troducing new elements of tangible rewards it is possible to affect the increase in
the level of employee motivation, which is already recognized by the instrument
ofstimulation bonuses.
THEORETICAL ELABORATION OF THE

COMPENSATION AND REWARDS SYSTEM  THE
TERM COMPENSATION
Compensation can be defined as the total compensation that employees re-
ceive for their work in a company.These compensations may appear in cash,
goods, and various forms of tangible and intangible assistance.
Compensations that employees receive, depending on the results of their
work, are divided into three categories:
- Compensations associated with the results of an individual’s work, which
represent the main category of these rewards,
- Compensations associated with the results of the working group to which
the particular individual belongs, and
- Compensations associated with the results of the company as a whole.
These types of compensations are generally paid in cash, and are treated as
an individual’s salary.Employee compensations related to the simple fact of be-
634
ing an employee of the company stem from the fact that the individual is an
employee of a particular company and thus they contribute to the individual
material standard, although employees are not receiving them in the form of
a salary but, rather, in the form of health insurance, pension insurance, meals,
scholarships and the like.
Total compensations are divided into three types, namely as (Buble, M .:
Principles of Management, Synergy Publishing, Zagreb, 2006, p. 288):
• salaries,
• rewards. and
• benefits
Salary as a complex value consists of five main components, namely:basic
salary, an incentive part of the salary, salary supplements, compensations and
profit sharing. .
Compensations for work performed
Of all the components, compensations are certainly the most important
ones and greatest attention is given to those relating to the work performed.
These are compensations to which employees are entitled to when working ef-
fectively, and they are (Buble, M .:Principles of Management, op. cit., p. 289.):
1) basic salary,
2) an incentive aspect part of the salary, and
3) salarysupplements.
These components of compensation for the work performed are not always
included due to the fact that there are companies that have no developed incen-
tive payment system.
OBJECTIVES OF SALARY MANAGEMENT

Salary management covers design, implementation and maintenance of a
payment system that helpsthe company meet its objectives.Therefore, manage-
ment is dealing with general and specific objectives of salary management.
General objectives
635
The primary objective of salary management is to increase the efficiency of
work and dedication of employees in order to improve the business processes
and enhance the business performance of a company.Achieving high productiv-
ity and efficiency depends a lot on the ability of companies to attract and retain
the right employees and to provide them with the financial and non-financial
incentives and rewards that will increase their motivation. (Galetic, L., Pavic, I .:
Salary Management, RRiF, Zagreb, 1996, p. 1)
Specific objectives of salary management
Specific objectives are divided according to areas that include:objectives of
the organization, individual objectives of the enterprise and collective objec-
tives, i.e. the objectives of trade unions as representatives of employees.
It is often thought that the employees’ only primary objective is - to be better
paid. High salaries are an important objective of employees and low salaries are
economically profitable for the company, but the level of salaries is not the only
factor affecting the attitude of employees and employers and the efficiency of
workers.
STIMULATIVE PART OF THE SALARY

Salary that also contains an enhancing component assumes that the compa-
ny has accepted and developed an appropriate system of incentive payments.In
this paradigm, the system of incentive payments means that the system where
the amount and/or method of calculating salariesencourages employees to at-
tain certain results.
Contemporary relevant literature on human resource management (Ma-
can, 2009, Robergo and Dick, 2010) in the basic functions of human resource
management ranks and processes rewarding and stimulating people.According
to Robergo and Dick (Robergo, ME, Dick, R. (2010) Recognizing the benefits
of diversity: When and how does diversity increase group performance?, Human
Resources Management Review, Vol. 20, Issue 4, pp. 295-308) in the compen-
sation of employees, or persons who are in a contractual relationship the basic
points and activities are:
• establishing work standards and linking incentives with performance
• developing a system for measuring and evaluating performance data
636
• developing a proposal for motivation
• developing proposals and forms of group rewards
• developing proposals and forms of individual remuneration and individ-
ual criteria
• developinga proposalofbenefits
• developing a proposal for the participation of employees in profits
• developing a proposal for the participation of employees in ownership
• analysis of the reward system
• control of the reward process .
There are various forms that an insurance company management has as the
possibility of rewarding employees who work in the classic sales arena.The most
common are:
a) an exclusively fixed salary
b) fully variable salary (commission)
c) different combinations of salaries and commissions
a) Anexlusivelyfixedsalary is the oldest form of remuneration that is main-

tained to this day.
Advantages of this form are:

• management of the company can relatively easily change the tasks and
plans without major resistance
• a system of pure net salaries is tangible and easier to understand
• payroll is faster and easier
• labor costs are easier to predict in business plans
• employees feel relatively satisfied with guaranteed income.
Disadvantages are:
• it disincentivizesemployees to do better work
• inflexible burdening of the labor costs creating work underperformance
637
• potential conflicts due to the relationships of different abilities of indi-
viduals and equal salaries
• suitable for employees with less abilities and interests for work.
b) Fully variable salary (commission) is a reward system that is most wide-

spread in insurance sales.
Advantages of commission are:
• encourages employees towards a maximumcommitment and to work at
full capacity
• develops competitive spirit among employees
• firmly connects the movement of marketing costs with the overall results
of the work
• enables a differentiated approach through various types and percentages
of commissions for different types of insurances.
Disadvantages are:
• employees are reluctant to carry out other activities that are not directly
related to the commission
• employees can often put pressure on the management of the company to,
for example, approve extraordinary discounts for a particular market or
segment of insurance holders under the pretext of market conditions (for
example, measures of competition), but with the real reason and motiva-
tion being to increase sales and earn greater commissions
• full commission has proved to be costly in practice because it is closely
correlated with the premium collected
• at a certain stage of sales growth, a commission allows forthe realization
of higher (undeserved) earnings because the sale is the result of invest-
ments inmarket development and promotion
On the other hand, when there is a stagnation in the market due to falling
demand, employees who work on a commission basis lose interest in work be-
cause they cannot significantly affect the size of their commission.
c) A combination of salaries and commissions is a method that uses the ad-
vantages and disadvantages of both the exclusively fixed salary system and the
variable salary system (commissions).It is somewhat a mix of the two systems
638
and in practice there are many different models (Rock, M. (1984) Handbook of
Wage and Salary Administration, McGraw-Hill, New York). This combination
has proven successful in practice in the case of incentive ratios between fixed
and variable portions.
THE SYSTEM OF COMPENSATION IN THE

EXAMPLE OF THE SPLIT DALMATIA COUNTY
PHARMACIES
Split-Dalmatia County Pharmacies is a public health institution performing
health activities in accordance with the Health Care Act and the Pharmacy Act.
Given that the activity is not primarily profit-motivated there was a challenge of
how to develop a reward system to motivate employees to meet the set business
objectives, but in a way that does not violate ethical standards defined by the law
and the internal regulations of the Chamber, and not to disturb the quality of
service provided to patients.
Collective Agreement for Health Care stipulates that the employer, the Split
Dalmatia County Pharmacies, shall pay the employees a salary consisting of the
following elements:
- basic salary for the position at which the employee works,
- salary supplements for years of service,
- salary supplements for special and difficult work conditions,
- salary increases based on work performance
- salary increases based on the profit of the institution,
- compensation for being on duty.
BASIC SALARY
The most important element of the compensation system in terms of the
employees is the basic salary.In Split-Dalmatia County Pharmacies, basic full-
time salary of workers for normal/average work performance in the workplace
is a product of the basic salary and the coefficient of the work’s complexity.
The basis for the calculation of the basic salary shall be determined in ac-
cordance with the Law on Salaries in Public Services.The coefficients of the
639
job complexity are determined in accordance with the Regulation on Job Titles
and Complexity Coefficients in Public Service appropriate to pharmacy activi-
ties.Salary supplements for difficult working conditions shall be determined
in accordance with the Regulation on Salary Supplements for Specific Jobs in
Health Care and the Basic Collective Agreement for Employees in Public Ser-
vice. Supplements and all other incomes of workers are more fully delineated in
the Regulations on Salaries.
The basic salary of the Split-Dalmatia County Pharmacies employees is
fixed and it is determined based on the time spent at work.Fixed basic salary
implies a monthly average of 176 hours of work.Employees salary is determined
by the workplace coefficient multiplied with the base in the accounting period.
Basic employee’s salary shall be increased:
I) For special working conditions
II) For demanding working conditions
III) Increase of salary based on the profit of the institution (an incentive)
IV) Compensation for being on duty.
EXISTING STIMULATION IN THE SPLIT

DALMATIA COUNTY PHARMACIES
Workers are entitled to a salary based on the realized profit that is the result
of above-average labor production of the workers, that is, in proportion to their
contribution to such results.
Possibility of payment of salary on the basis of profits depends on the:
- business results of the institution and reported profit,
- revenue of the institution acquired outside the contract with the Croatian
Health Insurance Institute(HZZO),
- orderly settlement of trade payables (within set time limits).
Salary increases on this basis can be up to 20%.
The part of the salary paid in this way - rewards – is not included in the base
salary for vacation, sick leave and similar benefits.
A decision to increase salaries on this basis is made by the Administrative
Council on the proposal of the Director.
640
This reward system has averaged about 10%
The key problems in the current system of incentive rewards can be sum-
marized in a few points:
• The largest proportion of the variable part of the salary is realized on
the basis of the performance of the financial results of the institution.
The result of the institution should be only one of the criteria for the dis-
tribution of the variable part of the salary, rather than the sole criterion.
This encourages teamwork and collaboration among individuals, but it
also diminishes the importance of the work of the organizational unit
because regardless of the efforts of individuals the reward is distributed
to all employees in the same proportion.
• Unclear (subjective) criteria for determining the variable part of the sal-
ary.It is important that the variable part of the salary is understandable
to employees, and there must be the possibility for employees to directly
affect the indicators for the calculation of the variable part of the salary
with their work.
• Encouraging mediocrity.Variable compensation does not encourage
above-average effort of employees because employees are aware that the
additional rewardcan only be obtained if the Institution is successful as
a whole.There is no incentive for an increase above the average personal
commitment of an employee.
INTRODUCTION OF THE NEW REWARD SYSTEM INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Pharmacy in Croatia is experiencing a crisis in recent years.The main reason

for the fall of income is the decrease of drug prices paid by the Croatian Health
Insurance Institute. Attached table
641
VALUE PRESCRIPTION +
January February March 1st quarter
ALLOTMENT
Avg. prescription value
and allotment for 2012 in 69.24 74.08 67.07 69.89
HRK

HRK
HRK
AVERAGE VALUE OF
PRESCRIPTIONS FOR 52.69 52.66 52.99 52.78
2015 IN HRK
Difference (14-13) HRK -7.70 -10.87 -11.80 -10.09
Difference (15-14) HRK -7.40 -2.77 -1.81 -4.04
Difference (15-13) HRK -15.11 -13.65 -13.61 -14.13
14/13 -11.36% -16.40% -17.72% -15.08%
15/14 -12.32% -5.00% -3.30% -7.11%
15/13 -22.28% -20.58% -20.43% -21.12%
15/12. -23.91% -28.91% -20.99% -24.48%
In such an unfavorable business environment, the primary focus of the

Board was directed at stopping falling revenues and profitability.They examined
several options, whether using punishments to prevent unwanted behavior or
stimulation to encourage desirable behavior that would result in stopping the
decrease of revenues and possibly bringing about its increase.It was concluded
that during the recession they should stimulate successful employees because
they create a favorable work environment.Due to the implementation of the
stimulation, it is necessary to define completely clear and understandable cri-
teria for everyone; first of all to define the same workload for each employee
during office hours in order to obtain the same work load in a fair and accessible
manner.The majority of employees in pharmacies are masters of pharmacy and
pharmaceutical technicians and it is determined that each unit gets as many
masters of pharmacy and pharmacy technicians as provided by the minimum
regulations, and the number of filled prescriptions for masters and the values of
so-calledimpromptu sales for technicians.
The starting point when creating a new system of remuneration was as
follows:
Material rewards have to be connected to those indicators of work efficiency
upon which a group or an individual can have an effect with their behavior
642
• There must be a clear link between work performance and rewards
• Material rewards must immediately follow the increased work results
• Fair and justifiable differences in material remuneration between good
and bad organizational units must be substantial enough to stimulate
good work
• Retention of the existing fixed stimulation that workers do not perceive as
stimulation but an integral part of the salary.
A reward system should be used to encourage employees of the Split – Dal-

matia CountyPharmaciesto actively participate in the realization of financial
plans.The mechanism of action is that the employer identifies desirable behav-
ior and rewards individuals who apply such behavior.The main determinants
of the new reward system should support the company’s strategic direction in
accordance with professional ethical standards.
Strategy and the reward systems are operationalized by reward policies
through defining the following areas:amount of salary, the part of the salary that
depends on the performance, the impact of market salary policy, equity in remu-
neration, the salary structure, salary control and communication of the reward
system.Various factors that influence the individual’s motivation are classified
into three groups:individual traits, characteristics of the work situation and job
characteristics, where the action is situated in the framework of a general envi-
ronment that can also affect motivation.
The new model of stimulation in the Split – Dalmatia CountyPharma-
cies should be designed in a way that enables the achievement of the following
objectives:
• raising the level of motivation of employees;
• increasing the quantity and quality of performance among employees;
• increasing employee satisfaction;
• achieving better financial results of the entire Institution.
In the first phase of system redesign the emphasis is on the removal of el-
ements affecting the poor performance of the existing model of stimulation.
Calculation of the stimulating part of the salary shall be based solely on the
643
performance of the organizational unit to which the employee belongs to or the
performance of the individual and not the performance of the unit on which the
individual has no direct impact.Introduction of the organization by centers of
responsibility eases the implementation of this model.
IMPLEMENTATION
Guided by these guidelines, a pilot project was initiated and the criteria were
defined for calculating the variable portion of salaries of employees of the orga-
nizational unit Sales and Galenic Laboratory to a maximum of 5% of the basic
salary.Scoring criteria:
1) Total purchase value of medicines and goods for sale, 20 points,
Since prescription drugs make up for approx. 65% of the structure of total
sales and the purchase value of prescription drugs has continuously declined,
more efforts are required to make in order to achieve the same or greater pur-
chase value of medicines.Since this criterion is the hardest achievable one, it is
scored with a maximum number of points.
2) Total purchase value in retail, 10 points,
In the structure of total sales the purchase value in retail makes constitutes
approximately 35% and it is scored with 10 points due to an increase in the
range of products and the price growth of a portion of items sold.
3) Number of realized prescriptions, 10 points,
Considering that pharmacies that sell prescription drugs havea difficult time
achieving the planned purchase value of drugs due to the constant decrease in
the price of prescription drugs, this criterion is used to stimulate additional
work in the form of growth in the number of prescriptions per unit.
4) Total purchase value of galenic preparations from own production, 20
points,
Encouraging the growth of sales of own products for which we achieve the
highest price difference.
5) Total purchase value of orthopedic devices, 10 points,
644
Due to competition in the market, it was concluded that it is necessary to
further stimulate this part of the range by bringing in patients who are consum-
ers of other medications (diabetes, incontinence and palliative care)
6) The total purchase value of “sales” is 20 points and
Taking into account the ethics and economics, we put products from the
program of food supplements, cosmetics, orthopedic footwear and BRX medi-
cines, which can also be sold specialized stores.
7) The price difference, 10 points,
The growth of the price difference in relation to the monitored period of last
year.
The total value of points is converted into additional percentages of the sal-
ary as follows:
1) 100 points - 5% over the basic salary
6) 50-0 points - 0% over the basic salary
A prerequisite for the realization of the right to total stimulation (fixed and
variable) is to meet the following two criteria:
- total purchase value at the level of the Institution is equal to or larger than
the value for the observed period, in this case the quarter,
- total earnings (price difference) are higher than in the observed period.
Since we divided the stimulation into a fixed stimulation (FS) and variable
stimulation (VS), we decided that the total value of stimulation is a maximum
of up to a 50% increase in the price difference for the observed period (FS + VS
= 1/2 TOTAL EARNINGS).
645
1) Total purchase value of medicines and goods for sale, 20 points
TOT. PURCH. VAL.
Branch TOT. PURCH. VAL. 15 15/14 MAINTENANCE 15 15-14 POINTS
14
1 955.488,62 957.393,17 0,2% 100,2% 1.904,55 20
2 802.225,01 750.495,38 -6,4% 93,6% -51.729,63
3 1.136.510,98 1.106.558,73 -2,6% 97,4% -29.952,25

4 1.093.487,82 1.572.357,03 43,8% 143,8% 478.869,21 20
5 1.284.476,48 1.184.854,70 -7,8% 92,2% -99.621,78
6 1.344.446,11 1.304.169,85 -3,0% 97,0% -40.276,26
7 287.763,23 312.935,56 8,7% 108,7% 25.172,33 20
8 2.252.350,95 2.452.693,46 8,9% 108,9% 200.342,51 20
9 1.189.163,07 1.244.257,20 4,6% 104,6% 55.094,13 20
10 2.455.956,67 2.444.738,41 -0,5% 99,5% -11.218,26
11 1.786.489,60 1.738.333,24 -2,7% 97,3% -48.156,36
12 2.185.294,84 2.220.577,62 1,6% 101,6% 35.282,78 20
13 2.004.477,52 1.959.503,22 -2,2% 97,8% -44.974,30
14 1.129.321,12 1.221.841,94 8,2% 108,2% 92.520,82 20
15 456.111,56 440.435,31 -3,4% 96,6% -15.676,25
16 736.613,84 731.795,20 -0,7% 99,3% -4.818,64
17 1.714.329,02 1.765.453,19 3,0% 103,0% 51.124,17 20
18 536.480,37 534.093,60 -0,4% 99,6% -2.386,77
19 678.646,90 631.142,77 -7,0% 93,0% -47.504,13
20 116.154,01 118.669,33 2,2% 102,2% 2.515,32 20
21 961.915,65 982.345,77 2,1% 102,1% 20.430,12 20
22 1.321.070,15 1.376.508,49 4,2% 104,2% 55.438,34 20
23 1.948.318,42 2.305.258,85 18,3% 118,3% 356.940,43 20
24 1.517.359,77 1.480.081,65 -2,5% 97,5% -37.278,12
25 370.351,02 351.742,42 -5,0% 95,0% -18.608,60
26 440.533,17 438.371,98 -0,5% 99,5% -2.161,19
27 187.578,00 170.054,50 -9,3% 90,7% -17.523,50
28 805.774,91 848.183,32 5,3% 105,3% 42.408,41 20
29 2.474.409,18 2.641.493,25 6,8% 106,8% 167.084,07 20
30 70.015,40 56.905,85 -18,7% 81,3% -13.109,55
31 132.052,15 134.188,55 1,6% 101,6% 2.136,40 20
32 150.296,92 143.160,90 -4,7% 95,3% -7.136,02
33 1.412.885,25 1.446.420,22 2,4% 102,4% 33.534,97 20
34 1.210.552,60 1.193.892,13 -1,4% 98,6% -16.660,47
35 612.436,17 587.812,93 -4,0% 96,0% -24.623,24
646
36 323.597,61 321.949,75 -0,5% 99,5% -1.647,86
37 303.262,40 303.262,40 20
TOTAL 38.084.934,09 39.473.931,87 3,6% 103,6% 1.388.997,78
The table shows that with respect to the total purchase value of medicines
and goods at the institutional level that there was an additional income in-
creaseof 3.6% or HRK 1,388,997.78
2) Total purchase value in retail, 10 points,
PURCH. VAL. IN PURCH. VAL. IN
Branch 15/14 MAINTENANCE 15 15-14 POINTS
RETAIL14 RETAIL15
1 441.371,61 379.026,45 -14,1% 85,9% -62.345,16
2 352.669,34 334.762,43 -5,1% 94,9% -17.906,91
3 334.762,53 360.397,55 7,7% 107,7% 25.635,02 10
4 753.313,81 1.095.274,77 45,4% 145,4% 341.960,96 10
5 616.210,19 576.817,13 -6,4% 93,6% -39.393,06
6 405.782,57 401.361,44 -1,1% 98,9% -4.421,13
7 287.234,26 312.487,64 8,8% 108,8% 25.253,38 10
8 1.023.966,75 1.211.150,79 18,3% 118,3% 187.184,04 10
9 375.071,28 427.635,92 14,0% 114,0% 52.564,64 10
10 829.980,49 857.690,81 3,3% 103,3% 27.710,32 10
11 475.914,81 500.148,04 5,1% 105,1% 24.233,23 10
12 464.266,44 515.909,39 11,1% 111,1% 51.642,95 10
13 514.541,02 567.020,48 10,2% 110,2% 52.479,46 10
14 462.878,82 506.794,97 9,5% 109,5% 43.916,15 10
15 245.072,49 254.309,35 3,8% 103,8% 9.236,86 10 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
16 160.064,41 153.537,57 -4,1% 95,9% -6.526,84

17 492.129,59 560.202,46 13,8% 113,8% 68.072,87 10
18 183.032,22 193.134,57 5,5% 105,5% 10.102,35 10
19 281.263,01 279.622,26 -0,6% 99,4% -1.640,75
20 28.729,97 29.506,24 2,7% 102,7% 776,27 10
21 305.232,59 333.656,61 9,3% 109,3% 28.424,02 10
22 347.971,87 398.404,09 14,5% 114,5% 50.432,22 10
23 397.369,15 426.263,96 7,3% 107,3% 28.894,81 10
24 261.207,73 294.135,08 12,6% 112,6% 32.927,35 10
25 102.028,69 115.608,17 13,3% 113,3% 13.579,48 10
26 70.625,29 79.352,46 12,4% 112,4% 8.727,17 10
27 33.603,84 33.352,42 -0,7% 99,3% -251,42
647
28 489.652,96 510.096,55 4,2% 104,2% 20.443,59 10
29 634.173,84 725.224,98 14,4% 114,4% 91.051,14 10
30 70.015,40 56.714,60 -19,0% 81,0% -13.300,80
31 48.122,58 54.954,50 14,2% 114,2% 6.831,92 10
32 24.665,12 32.174,98 30,4% 130,4% 7.509,86 10
33 528.166,14 581.015,22 10,0% 110,0% 52.849,08 10

34 226.864,93 263.919,31 16,3% 116,3% 37.054,38 10
35 89.187,19 110.556,43 24,0% 124,0% 21.369,24 10
36 71.339,83 73.562,60 3,1% 103,1% 2.222,77 10
37 156.330,77 156.330,77 10
TOTAL 12.428.482,76 13.762.112,99 10,7% 110,7% 1.333.630,23
The table shows that with respect to the total purchase value in retail at the
institutional level that there was an additional income increase of 7.36% or
HRK 1,388,997.78
3) Number of realized prescriptions, 10 points
NO. OF INVOICED NO. OF INVOICED MAINTENANCE

Branch 15/14 15-14 POINTS
PRESCRIPTIONS 14 PRESCRIPTIONS15 15
1 7.784 7.513 -3,5% 96,5% -271
2 7.490 7.286 -2,7% 97,3% -204
3 13.052 12.938 -0,9% 99,1% -114
4 5.853 8.942 52,8% 152,8% 3.089 10
5 12.564 12.405 -1,3% 98,7% -159
6 12.885 13.898 7,9% 107,9% 1.013 10
7 N/A N/A
8 23.140 24.726 6,9% 106,9% 1.586 10
9 13.082 14.013 7,1% 107,1% 931 10
10 28.521 30.273 6,1% 106,1% 1.752 10
11 21.290 22.129 3,9% 103,9% 839 10
12 30.848 33.180 7,6% 107,6% 2.332 10
13 25.141 26.311 4,7% 104,7% 1.170 10
14 10.432 11.380 9,1% 109,1% 948 10
15 3.822 3.830 0,2% 100,2% 8 10
16 7.357 7.251 -1,4% 98,6% -106
17 22.216 25.183 13,4% 113,4% 2.967 10
18 6.148 6.272 2,0% 102,0% 124 10
19 6.911 7.074 2,4% 102,4% 163 10
20 1.683 1.626 -3,4% 96,6% -57
648
21 11.330 11.888 4,9% 104,9% 558 10
22 17.605 18.933 7,5% 107,5% 1.328 10
23 25.801 32.419 25,7% 125,7% 6.618 10
24 21.476 21.804 1,5% 101,5% 328 10
25 4.851 4.965 2,4% 102,4% 114 10
26 6.628 7.109 7,3% 107,3% 481 10
27 2.917 2.876 -1,4% 98,6% -41
28 6.383 7.467 17,0% 117,0% 1.084 10
29 30.003 33.388 11,3% 111,3% 3.385 10
30 N/A N/A
31 1.532 1.772 15,7% 115,7% 240 10
32 2.314 2.365 2,2% 102,2% 51 10
33 17.363 17.816 2,6% 102,6% 453 10
34 17.232 18.615 8,0% 108,0% 1.383 10
35 9.884 9.559 -3,3% 96,7% -325
36 4.951 5.253 6,1% 106,1% 302 10
37 N/A N/A
TOTAL 440.489 472.459 7,3% 107,3% 31.970 260
The table shows that with respect to the number of prescriptions at the in-
stitutional level that there was an increase in prescriptions of 7.3% or 31,970.
4) Total purchase value of galenic preparations from own production, 20
points,
Branch GAL 14 GAL 15 14/13 MAINTENANCE 14 15-14 POINTS

1 19.808,88 20.316,58 2,6% 102,6% 507,70 0
2 17.059,37 20.146,49 18,1% 118,1% 3.087,12 20
3 19.266,40 26.875,33 39,5% 139,5% 7.608,93 20
4 33.917,61 71.066,94 109,5% 209,5% 37.149,33 20
5 31.699,66 37.053,13 16,9% 116,9% 5.353,47 20
6 21.194,83 26.862,82 26,7% 126,7% 5.667,99 20
7 13.125,43 17.236,86 31,3% 131,3% 4.111,43 20
8 68.989,46 87.847,63 27,3% 127,3% 18.858,17 20
9 23.851,32 28.049,49 17,6% 117,6% 4.198,17 20
10 45.309,59 53.298,14 17,6% 117,6% 7.988,55 20
11 22.286,36 28.168,44 26,4% 126,4% 5.882,08 20
12 30.611,27 38.030,88 24,2% 124,2% 7.419,61 20
13 26.121,45 35.737,82 36,8% 136,8% 9.616,37 20
649
14 23.772,91 34.491,81 45,1% 145,1% 10.718,90 20
15 11.914,17 17.263,32 44,9% 144,9% 5.349,15 20
16 4.654,37 4.786,19 2,8% 102,8% 131,82 0
17 27.235,29 32.642,06 19,9% 119,9% 5.406,77 20
18
11.148,40 12.660,74 13,6% 113,6% 1.512,34 20

19 16.198,65 19.589,46 20,9% 120,9% 3.390,81 20
20 1.364,68 2.156,19 58,0% 158,0% 791,51 20
21 15.568,24 21.844,68 40,3% 140,3% 6.276,44 20
22 18.986,48 22.873,25 20,5% 120,5% 3.886,77 20
23 20.903,86 29.872,22 42,9% 142,9% 8.968,36 20
24 12.706,32 17.277,35 36,0% 136,0% 4.571,03 20
25 5.730,33 7.034,50 22,8% 122,8% 1.304,17 20
26 2.898,44 3.873,78 33,7% 133,7% 975,34 20
27 1.154,69 1.487,60 28,8% 128,8% 332,91 20
28 17.828,70 23.416,73 31,3% 131,3% 5.588,03 20
29 20.819,06 33.067,20 58,8% 158,8% 12.248,14 20
30 N/A N/A
31 2.076,73 2.488,48 19,8% 119,8% 411,75 20
32 1.522,82 1.943,77 27,6% 127,6% 420,95 20
33 33.058,26 44.783,45 35,5% 135,5% 11.725,19 20
34 9.937,61 14.204,52 42,9% 142,9% 4.266,91 20
35 4.351,25 6.487,52 49,1% 149,1% 2.136,27 20
36 2.839,23 3.935,17 38,6% 138,6% 1.095,94 20
37 N/A 9.572,99 9.572,99 20
TOTAL 639.912,12 858.443,53 34,2% 134,2% 218.531,41
The table shows that with respect to the total purchase value of galenic prep-
arations from our own production at the institutional level that there was an
additional income increase of 34.2% or HRK 218,531.41.
5) Total purchase value of orthopedic devices, 10 points
PURCHASE VALUE PURCHASE VALUE OF

MAINTENANCE
Branch OF ORTHOPEDIC ORTHOPEDIC DEVICES 14/13 15-14 POINTS
14
DEVICES 14 15
1 76.886,67 74.671,57 -2,9% 97,1% -2.215,10
2 36.931,21 32.668,77 -11,5% 88,5% -4.262,44
3 63.433,84 59.017,22 -7,0% 93,0% -4.416,62
4 24.319,65 46.403,24 90,8% 190,8% 22.083,59 10
5 45.765,71 39.082,46 -14,6% 85,4% -6.683,25
650
6 92.256,97 92.075,38 -0,2% 99,8% -181,59
7 15,20 98,80 550,0% 650,0% 83,60 10
8 55.082,94 49.272,90 -10,5% 89,5% -5.810,04
9 59.589,75 66.440,96 11,5% 111,5% 6.851,21 10
10 83.584,36 112.123,86 34,1% 134,1% 28.539,50 10
11 149.329,99 135.729,63 -9,1% 90,9% -13.600,36
12 141.298,34 149.923,78 6,1% 106,1% 8.625,44 10
13 152.324,50 161.738,67 6,2% 106,2% 9.414,17 10
14 61.852,66 87.476,18 41,4% 141,4% 25.623,52 10
15 11.554,97 13.576,48 17,5% 117,5% 2.021,51 10
16 98.159,18 100.687,73 2,6% 102,6% 2.528,55 10
17 68.865,52 85.431,99 24,1% 124,1% 16.566,47 10
18 56.332,40 52.360,34 -7,1% 92,9% -3.972,06
19 25.207,53 37.103,84 47,2% 147,2% 11.896,31 10
20 8.603,34 14.969,09 74,0% 174,0% 6.365,75 10
21 36.230,15 43.167,64 19,1% 119,1% 6.937,49 10
22 78.715,40 95.041,55 20,7% 120,7% 16.326,15 10
23 162.093,90 203.078,58 25,3% 125,3% 40.984,68 10
24 134.148,50 119.073,63 -11,2% 88,8% -15.074,87
25 45.391,28 43.490,79 -4,2% 95,8% -1.900,49
26 38.246,96 41.700,66 9,0% 109,0% 3.453,70 10
27 15.265,78 20.594,37 34,9% 134,9% 5.328,59 10
28 17.084,62 19.847,29 16,2% 116,2% 2.762,67 10
29 233.829,03 255.452,99 9,2% 109,2% 21.623,96 10
30 200,94 408,48 103,3% 203,3%
31 1.457,90 470,20 -67,7% 32,3% -987,70 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
32 20.044,16 10.561,74 -47,3% 52,7% -9.482,42
33 72.410,12 91.164,78 25,9% 125,9% 18.754,66 10
34 112.702,95 118.477,02 5,1% 105,1% 5.774,07 10
35 54.183,91 36.130,15 -33,3% 66,7% -18.053,76
36 20.691,71 19.487,61 -5,8% 94,2% -1.204,10
37 N/A 154.433,23 154.433,23
TOTAL 2.354.092,04 2.683.433,60 14,0% 114,0% 329.341,56
The table shows that with respect to the total purchase value of orthopedic
devices at the institutional level that there was an additional income increase of
14% or HRK 329,341.56
651
6) Total purchase value of “sales”
SALE FIRST SALE FIRST
Branch 15/14 MAINTENANCE 15 15-14 POINTS
QUARTER QUARTER
1 10.206,90 10.672,57 4,6% 104,6% 465,67 20
2 9.790,21 11.409,02 16,5% 116,5% 1.618,81 20
3 13.301,50 15.188,18 14,2% 114,2% 1.886,68 20

4 24.681,72 26.538,84 7,5% 107,5% 1.857,12 20
5 18.206,38 21.338,60 17,2% 117,2% 3.132,22 20
6 9.930,55 12.574,14 26,6% 126,6% 2.643,59 20
7 3.673,03 4.394,62 19,6% 119,6% 721,59 20
8 34.466,44 36.879,04 7,0% 107,0% 2.412,60 20
9 15.210,92 18.000,65 18,3% 118,3% 2.789,73 20
10 28.648,05 34.624,42 20,9% 120,9% 5.976,37 20
11 13.062,54 16.590,34 27,0% 127,0% 3.527,80 20
12 17.336,07 19.746,12 13,9% 113,9% 2.410,05 20
13 17.878,80 22.413,80 25,4% 125,4% 4.535,00 20
14 15.534,85 16.364,86 5,3% 105,3% 830,01 20
15 6.492,40 7.663,50 18,0% 118,0% 1.171,10 20
16 2.984,83 3.085,42 3,4% 103,4% 100,59 20
17 18.271,16 22.724,70 24,4% 124,4% 4.453,54 20
18 7.920,54 8.926,37 12,7% 112,7% 1.005,83 20
19 8.747,74 10.800,19 23,5% 123,5% 2.052,45 20
20 1.128,35 1.386,73 22,9% -100,0% 258,38 20
21 9.580,92 11.400,76 19,0% 119,0% 1.819,84 20
22 12.374,82 14.947,15 20,8% 120,8% 2.572,33 20
23 12.178,62 13.411,16 10,1% 110,1% 1.232,54 20
24 9.333,17 10.614,68 13,7% 113,7% 1.281,51 20
25 4.337,53 4.887,21 12,7% 112,7% 549,68 20
26 2.840,85 3.123,02 9,9% 109,9% 282,17 20
27 1.290,40 1.618,73 25,4% 125,4% 328,33 20
28 10.848,79 13.319,34 22,8% 122,8% 2.470,55 20
29 17.897,84 20.699,85 15,7% 115,7% 2.802,01 20
30 N/A N/A
31 2.130,19 3.109,05 46,0% 146,0% 978,86 20
32 1.156,93 1.723,55 49,0% 149,0% 566,62 20
33 23.013,64 26.296,80 14,3% 114,3% 3.283,16 20
34 6.798,14 11.216,48 65,0% 165,0% 4.418,34 20
35 3.296,11 3.794,33 15,1% 115,1% 498,22 20
652
36 3.038,22 4.305,48 41,7% 141,7% 1.267,26 20
37 3.389,42 3.889,33 14,7% 114,7% 499,91 20
TOTAL 401.236,95 469.946,71 17,1% 117,1% 68.709,76
The table shows that with respect to the total purchase value of “sales” at
the institutional level that there was an additional income increase of 17.1% or
HRK 68,709.76
7) Price differences
PRICE PRICE MAINTENANCE

Branch 15/14. 15-14 POINTS
DIFFERENCE14 DIFFERENCE15 14
1 146.786,69 153.721,10 4,7% 104,7% 6.934,41 10
2 131.725,22 135.665,07 3,0% 103,0% 3.939,85 10
3 161.053,69 178.422,36 10,8% 110,8% 17.368,67 10
4 262.278,56 374.507,99 42,8% 142,8% 112.229,43 10
5 234.768,84 239.336,13 1,9% 101,9% 4.567,29 10
6 175.061,43 195.668,67 11,8% 111,8% 20.607,24 10
7 160.220,49 165.262,53 3,1% 103,1% 5.042,04 10
8 441.760,69 520.495,34 17,8% 117,8% 78.734,65 10
9 168.220,77 196.048,99 16,5% 116,5% 27.828,22 10
10 384.142,01 429.999,23 11,9% 111,9% 45.857,22 10
11 230.083,65 261.562,09 13,7% 113,7% 31.478,44 10
12 294.980,65 345.111,04 17,0% 117,0% 50.130,39 10
13 283.387,06 320.014,15 12,9% 112,9% 36.627,09 10
14 183.285,62 219.053,57 19,5% 119,5% 35.767,95 10
15 85.375,87 92.589,76 8,4% 108,4% 7.213,89 10
16 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
77.857,35 77.066,76 -1,0% 99,0% -790,59
17 246.618,31 296.168,37 20,1% 120,1% 49.550,06 10
18 88.523,67 98.304,60 11,0% 111,0% 9.780,93 10
19 107.956,29 117.579,97 8,9% 108,9% 9.623,68 10
20 15.694,01 18.389,95 17,2% 117,2% 2.695,94 10
21 140.302,90 162.813,48 16,0% 116,0% 22.510,58 10
22 191.657,66 220.462,89 15,0% 115,0% 28.805,23 10
23 235.652,92 306.726,07 30,2% 130,2% 71.073,15 10
24 178.590,12 208.438,21 16,7% 116,7% 29.848,09 10
25 55.296,13 63.905,71 15,6% 115,6% 8.609,58 10
26 52.300,27 62.640,32 19,8% 119,8% 10.340,05 10
27 21.099,28 24.960,37 18,3% 118,3% 3.861,09 10
28 163.855,22 186.959,37 14,1% 114,1% 23.104,15 10
653
29 325.238,36 392.919,98 20,8% 120,8% 67.681,62 10
30 22.957,52 18.244,56 -20,5% 79,5% -4.712,96
31 21.102,10 26.323,41 24,7% 124,7% 5.221,31 10
32 14.996,96 22.098,12 47,4% 147,4% 7.101,16 10
33 279.791,15
240.481,09 16,3% 116,3% 39.310,06 10

34 138.088,08 177.142,15 28,3% 128,3% 39.054,07 10
35 79.954,20 86.527,36 8,2% 108,2% 6.573,16 10
36 43.999,39 50.890,74 15,7% 115,7% 6.891,35 10
37 N/A 48.785,16 48.785,16
TOTAL 5.805.353,07 6.774.596,72 16,7% 116,7% 969.243,65
The table shows that due to the price difference at the institutional level that
there was an additional price difference achieved in the amount of 16.7% or
HRK 969,243.65
PURCHASE
TOTAL NUMBER PURCHASE
VALUES OF TOTAL TOTAL
Branch PURCHASE OF INVOICED VALUE CASH GALENIC SALES %
ORTHOPEDIC PROFIT POINTS
VALUE PRESCRIPTIONS REGISTER
DEVICES
1 20 10 0 20 50
2 10 20 20 50
3 10 10 20 20 60 1
4 20 10 10 10 10 20 20 100 5
5 10 20 20 50
6 10 10 20 20 60 1
7 20 10 10 10 20 20 90 4
8 20 10 10 10 20 20 90 4
9 20 10 10 10 10 20 20 100 5
10 10 10 10 10 20 20 80 3
11 10 10 10 20 20 70 2
12 20 10 10 10 10 20 20 100 5
13 10 10 10 10 20 20 80 3
14 20 10 10 10 10 20 20 100 5
15 10 10 10 10 20 20 80 3
16 10 0 20 30
17 20 10 10 10 10 20 20 100 5
18 10 10 10 20 20 70 2
19 10 10 10 20 20 70 2
20 20 10 10 10 20 20 90 4
21 20 10 10 10 10 20 20 100 5
654
22 20 10 10 10 10 20 20 100 5
23 20 10 10 10 10 20 20 100 5
24 10 10 10 20 20 70 2
25 10 10 10 20 20 70 2
26 10 10 10 10 20 20 80 3
27 10 10 20 20 60 2
28 20 10 10 10 10 20 20 100 4
29 20 10 10 10 10 20 20 100 5
30 0
31 20 10 10 10 20 20 90 4
32 10 10 10 20 20 70 2
33 20 10 10 10 10 20 20 100 5
34 10 10 10 10 20 20 80 3
35 10 10 20 20 60 1
36 10 10 10 20 20 70 2
37 20 10 20 20 70 2
TOTAL
Number of points per pharmacy unit with respect to the observed value
The table shows the achievement of individual pharmacies with respect to

the observed period and the proposed criteria, and the total number of points of
individual units, was converted to a percentage of additional incentives for each
employee of that unit.
CONCLUSION INTERDISCIPLINARY MANAGEMENT RESEARCH XI
As shown in the accompanying tables in the first quarter of 2015, pharma-

cies met the basic two criteria for achieving stimulation (increase of purchase
value in 2015 compared to 2014 and growth of the price difference in 2015
compared to 2014). Thus the first quarter of 2015 compared to 2014 shows an
increase in price difference of 16.7% or HRK 969,243.65, while the purchase
value increased by 3.6% or HRK 1,388,997.78.
By comparing all seven parameters which form the enhancement part of the
salary in the first quarter of 2015 compared to the same period of 2014, there is
an obvious increase in all seven parameters.
655
The cost of the variable part of the stimulation in the first quarter of 2015
amounted to HRK 47,823.77, i.e. 4.93% of the total increase in price difference,
which justifies the introduction of the variable part of the stimulation.
The net increase of the price difference after payment of the variable part of
the stimulation for the first quarter of 2015 is HRK 921,419.88.This proves
that the system of variable remuneration encourages employees to seek addi-
tional engagement that results in increased revenue and a price difference. By
comparing the old system’s fixed salary reward with the new variable system,
the new system encourages employees to heightened favorable behavior and in-
creases their motivation.
Due to the successful implementation of the variable part of the stimulation,
in the future the ratios of fixed stimulation should be gradually substituted with
variable ones.
Literature
Buble, M.: Osnove menadžmenta, Sinergija nakladništvo, Zagreb, 2006, p. 288..
Rock, M. (1984) Handbook of Wage and Salary Administration, McGraw-Hill, New York
Galetić, L., Pavić, I.: Upravljanjeplaćama, RRiF, Zagreb, 1996
Robergo, M. E., Dick, R. (2010) Recognizing the benefits of diversity:When and how does
diversity increase group performance?
T. Macan / Human Resource Management Review (2009)
Split – Dalmatia County Pharmacies, Ordinance on salaries, 2015
Split – Dalmatia County Pharmacies, Statute
Pharmacy Act Official Gazette No. 121/03, 35/08, 117/08
656
TOURISM GENTRIFICATION IN
THE CITY OF ZAGREB: TIME FOR A
DEBATE?
Oliver KESAR, Ph.D.

Faculty of Economics & Business, University of Zagreb
okesar@efzg.hr
Renata DEŽELJIN, M.SC.

Croatian National Tourist Board
renata.dezeljin@htz.hr
Martina BIENENFELD, M.Sc.

Zagreb Tourist Board
mbienenfeld@zagreb-touristinfo.hr
Abstract
With its strong opening to the tourist market and subsequent to becoming one of
the 28 capital cities in the European Union, Zagreb has become a fast growing
tourist destination according to the usual key standards applied to tourist growth.
With its rich heritage and attractive events, Zagreb has become a very interest-
ing destination for tourists whose consumption habits may present the local real
property owners and investors with an opportunity to invest in tourist accommo-
dation or other tourist facilities in the city. This process will also bring inevitable
societal changes to the inner city, the areas in Zagreb from which local residents
depart and their homes are transformed into tourist accommodation facilities.
This process is known as tourist gentrification and its consequences cannot be
reversed. The objective of this paper is to analyze the present status of tourist
development in the city of Zagreb as well as to try and anticipate the impact of
tourism on the spatial and social transformation of the inner city of Zagreb.
Key words: tourism, urban revitalization, tourism gentrification, accommo-
dation facilities, Zagreb
JEL Classification: L83, O1, O15
657
INTRODUCTION
In any region, tourist development irreversibly changes the space where it
has emerged, and brings a significant and radical transformation to the local
community. If we look at large urban communities, those in particular that are
just emerging as popular tourist destinations on the global tourist market, the
manifest degree of transformation is even more radical and made more complex
by the many intricate particularities of life in large urban settings. Some of the
Oliver Kesar • Renata Deželjin • Martina Bienenfeld: TOURISM GENTRIFICATION IN THE CITY OF ZAGREB: TIME FOR A DEBATE?
obvious evidence of this change is a fast-paced revitalization of urban areas pro-

pelled by tourist development that continues to transform the looks but also
the social structure of the city, and especially the inner city. In addition to trans-
forming the space in ways that are easy to spot and recognize as change, tourist
development has another subtle effect in that it inevitably alters the structure
of the population inhabiting those areas of the city where tourist venues tend
to concentrate. This is a two-tiered process of gentrification, or rather tourist
gentrification of the city, which may be explored as a series of positive and nega-
tive effects of tourist development on the transformation of city areas that are
brought about by an increasing number of tourists, tourist consumption and
business interest of investors who perceive tourism as an opportunity to make
profit. Zagreb seems to have become one of the most gentrified cities in Croatia
by virtue of its status, economy, a rapid growth of tourism and the many mani-
fest changes to the city that inevitably follow a rapid growth of tourist industry.
In this context, the objective of this paper is twofold. Firstly, our objective is to
examine and assess the impact of tourist development on the transformation
of the inner city space, which also includes the transformation of housing to
privately owned (commercial) accommodation for tourists visiting Zagreb. Sec-
ondly, we would attempt to construe the consequences this transformation may
imply for the local community, and in particular the cultural identity of Zagreb.
THEORETICAL BACKGROUND AND LITERATURE

REVIEW
The process of urban regeneration is generally part of a natural and continuing
evolution of cities connected with the growth of consumption and local public
sector, local economy and local community. On the other hand, urban regenera-
tion may occur rather suddenly in the aftermath of a natural disaster (such as
floods or earthquakes), or as a consequence of a changed sociopolitical system
658
(for example, the shift from socialism to capitalism) and sometimes as a result of
the sudden growth of certain vital industries (for instance, tourist development).
Čaldarović & Šarinić (2008: 372) describe the urban regeneration as a process of
deep structural and functional transformation of an urban area empowered by
individual (corporate) or government initiatives, or a combination of both. Dif-
ferent concepts of urban regeneration, urban restoration, urban rehabilitation,
urban reconstruction and other concepts denoting similar or identical ideas can
be found in research literature, but it is not the goal of this author to define the
meaning and scope of the processes identified by these various concepts but rather
to indicate the type of transformation that is involved in the process.
According to Svirčić Gotovac (2010: 198), the process of urban regenera-
tion primarily begins with a strategy of renovating certain neighbourhoods or
areas in the city (residential or not residential) that are old or derelict. Urban
regeneration is a broader concept than gentrification, which for the most part
implies a process of improving inner city areas in a way that would make them
look more beautiful and attractive. The intended renovation or reconstruction
of specific areas of a city however may often metamorphose into a process of
urban gentrification.
Historically, many scholars would agree (e.g. Phillips; 2005: 478) that Glass
was the first author to use the concept of gentrification (1964: 33). Over fif-
ty years ago, Glass examined and described spatial and demographic changes
that occurred in some areas of London in the sixties. The changes included a
displacement of low-income working class population from their humble run-
down Victorian homes (built in the second half of the nineteenth century), INTERDISCIPLINARY MANAGEMENT RESEARCH XI
followed by the demolition of their dwellings to accommodate for the con-
struction of upscale residential housing for the new middle class or upper class
residents. As early as fifty years ago, Glass recognized that gentrification was a
process that spread quickly and would not cease before every member of the
working class moved out and the city areas where they used to live were totally
transformed into attractive looking and high-priced areas (sometimes also ex-
clusive or elite) of the city.
In comparison, the process of tourist gentrification is a rather new concept.
The first studies that referred to an impact of tourist development as part of a
more general gentrification process on spatial and demographic changes in city
areas were published only twenty years ago (e.g. Sanford; 1987, Mullins; 1991).
659
However, it was only after 2000 that researchers began to focus their analysis
on the transformation of cities by a process of tourist gentrification. One of the
first authors to explore the interconnectedness of tourism and gentrification was
LeVine (2001: 254) who explored and analysed how Tel Aviv annexed Arab-
populated Jaffa, a historical town envisaged for restoration in the city planning
records that came to include an extensive construction of tourist venues, hotels
and elite residential areas. One of the early seminal works on the subject was
Gotham’s study (2005: 1099) of tourist gentrification of New Orleans’ Vieux

Carre or French quarter; Gotham described the process as a “transformation
of a middle-class neighbourhood into a relatively affluent and exclusive enclave
marked by a proliferation of corporate entertainment and tourism venues”. An-
other seminal study of the process can be found in Zhao et al. (2006), where
the authors described the concept, type and mechanism of tourist gentrification
using Shanghai as a case study and followed the process in other historical cities
in China. Since the publication of these papers, the dynamics of tourist gentri-
fication has become a subject of a world-wide scientific interest, with researches
examining the history of transformation of individual cities and describing the
ramifications of the gentrification process. In Garciá Herrera et al. (2007) the
process of tourist gentrification is explored in the town of Santa Cruz de Tener-
ife; in Lin (2008) in Los Angeles Chinatown; in Zhao et al. the study is based
on the development of Nanjing in China (2009); in Donaldson (2009) the case
study is Greyton in South Africa, in Vives Miró (2011) Palma de Majorca in
Spain; in Füller & Michel (2014) it was Berlin, etc.
In Croatia, few researchers have undertaken to examine the subject of gen-
trification or apply the concept in the context of Croatian cities. A limited num-
ber of papers are available in Croatian public libraries that refer to a concept of
gentrification in the context of the city of Zagreb (Svirčić, 2002; Svirčić Goto-
vac & Zlatar, 2008; Čaldarović & Šarinić, 2009; Svirčić Gotovac, 2009; Svirčić
Gotovac, 2010; Svirčić Gotovac, 2012; Poljanec-Borić, 2012), while Bjelajac
(2008) and Majetić (2014) discuss the gentrification itself. Reference to a pro-
cess of gentrification within the context of tourist development can be found
in Skorup Juračić (2010) and Kunst (2014) who refer to the concept as they
examine the case of Dubrovnik. It may be concluded therefore that no scien-
tific paper dealing directly with the subject of tourist gentrification is available
in electronic form from the public database of scientific research and study. In
that sense, this paper may be considered the first to explore the subject and is
therefore necessarily limited in the scope and results of the research involved.
660
RESEARCH METHODOLOGY AND DATA SOURCE
In keeping with the subject matter of this paper, the research methodology
is based on a descriptive approach attempting to describe the phenomena and
perceived trends that may be relevant to the topics examined. However, since
published scientific papers on the subject are scarce in Croatia, this research
may be considered explorative in the sense that it attempts to provide a wide in-
sight into the issue of tourist gentrification and an understanding of the trans-
formation that has already occurred, as well as anticipate future transformation.
Quantitative method has been used to interpret the research data, as well as
methods of compilation, analysis and synthesis. A simple descriptive statistical
method was used to process, analyse and present the data on trends perceived
in the tourist development of the city of Zagreb.
The research is based on secondary statistical data available from the official
websites of the Croatian Bureau of Statistics, the City of Zagreb and Zagreb
Tourist Board. The author has consulted research and other papers published
in scientific and other reviews, as well as other publications that helped the au-
thor define and present a number of conclusions pertinent for the future tourist
development in the city of Zagreb.
In terms of scope, this paper focuses on the administrative city of Zagreb
as a whole because the available statistics on tourist arrivals, accommodation
and other facilities, and other spatial, demographic and economic aspects of
tourism concerned the administrative city of Zagreb. As statistics on tourists
and accommodation did not discern among particular city areas in any way that
would be helpful for a more detailed analysis, this imposed a certain limitation INTERDISCIPLINARY MANAGEMENT RESEARCH XI
to the depth of this research. The time scope is defined as the period between
2001 and 2014, to encompass two population censuses. Some data series are
unfortunately of a more limited scope due to the availability of data.
RESEARCH RESULTS
With a view of establishing a statistical basis for the analysis of the potential
impact of tourism on the spatial and demographic changes in the city or rather
those areas of the city that represent a zone of interest for tourists, statistical
data on the population, households and dwellings registered during the two
population censuses were analysed (Table 1).
661
Table 1: Population households and dwellings in Zagreb, 2001 and 2011
Census 2001 Census 2011 Index 11/01
City of Zagreb
Total population 779,145 781,272 100.3
Total households 275,464 303,441 110.2
Total dwellings 312,902 384,333 122.8
Dwellings temporarily unoccupied 31,284 69,870 223.3
Dwellings for vacation and recreation 4,843 4,878 100.7

Private (tourist) accommodation units - 59 -
Dwellings for other business activities 3,795 5,624 148.2
Zagreb Inner City Area
Total population 81,492 66,100 80.1
Total households 32,262 29,520 91.5
Total dwellings 37,985 40,485 106.6
Dwellings temporarily unoccupied 4,126 8,460 205.0
Dwellings for vacation and recreation 15 4 26.7
Private (tourist) accommodation units - 22 -
Dwellings for other business activities 1,635 2,329 142.5
* Note: The entire City of Zagreb area consists of 17 municipalities.

** Note: Zagreb’s Inner City Area consists of 2 municipalities: 1) Donji Grad (Lower Town)
and 2) Gornji Grad – Medveščak (Upper Town- Medveščak).
Source: Adapted according to data from Croatian Bureau of Statistics (2001 &
2011), Census of Population, Households and Dwellings, CBS, Zagreb.
The analysis of data concerning all the 17 municipalities that make up the
administrative city of Zagreb shows growth in all represented groups of data,
and implies that as a whole, Zagreb is still an attractive and a pleasant town to
live in. Between the two censuses, the number of dwellings grew by as much
as 22.8%; of particular interest however are the data showing an increase in
the number of ‘temporarily unoccupied’ dwellings. It is these unoccupied (or
vacated) dwellings that their owners have begun to transform into business ven-
ues used for different business activities, including providing accommodation
to tourists as an interesting and lucrative form of business. As Zagreb is a large
and complex urban conglomerate, the control of the process of transforming
this space into tourist venues is difficult and may leave room for the growth of
grey economy. The case in point is the statistics referring to two municipalities,
662
the Lower Town and Upper Town – Medveščak, that make up the historical
city centre and the zone most frequented by tourists. If we look at the statis-
tics of the two municipalities, it shows a notable decrease in the number of
households from 2,742 or 8.5% during the period between the two censuses,
as well as a significant decrease in the number of residents of 18.9% or 15,392
residents. All of the remaining 15 municipalities showed a marked growth of
households, with only 7 showing an average decrease of 4.4% in the number
of residents per municipality. In contrast to the smaller number of households
and residents, the two municipalities showed a growing trend in the number of
dwellings, with 2,500 additional dwellings or 6.6% more dwellings included in
the period between 2001 and 2011. It is interesting to note that these two mu-
nicipalities had as many as 4,334 ‘temporarily unoccupied’ dwellings in 2011,
or 105% more ‘temporarily unoccupied’ dwellings than in 2001. On the basis of
this data, it may be concluded that during the ten years, a rather large and for
official purposes ‘unoccupied’ number of residential facilities have been created
for short-term or long-term renting purposes. Even though specific data are
not available, one may expect that part of these ‘unoccupied’ facilities are used
as tourist rentals as part of the lucrative grey economy that shows much better
returns than business space rentals.
According to the official statistics of the City of Zagreb (2004-2014), during
the period between 2003 and 2013, the registered commercial accommodation
grew from 30 rooms and 81 beds to 385 rooms and 1,160 beds, showing a mean
annual growth of 29.1% for rooms and 30.5% for beds. On the other hand, the
register of tourist tax payers maintained by the Tourist Board of the City of
Zagreb (2015) shows that in March 2015, Zagreb had 757 rental apartments,
rooms or houses (with a total of 2,593 beds) and 44 hostels (with a total of
2,129 beds). The disparity between the two groups of figures primarily results
from the methodology of maintaining a register of accommodation facilities,
and the time span involved. According to the information on accommodation
facilities available in Zagreb featured on Booking.com, in March 2015, Zagreb
had a total of 497 registered tourist accommodation facilities, including 420
apartments, rooms or houses in private accommodation, 41 hotel facilities, and
36 hostel facilities. Over 60% of all the registered accommodation facilities were
located in the two municipalities that make up the inner city of Zagreb.
663
Further research included an analysis of the registered tourist visits to Za-
greb that showed an almost continuing growth in tourist interest during the
period between 2001 and 2014 (Figure 1).
Figure1: Growth rates of tourist arrivals, overnights and beds in Zagreb,
2002-2014
35%
30%
25%
20%
15%
10%
5%
0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Ͳ5%
Ͳ10%
Ͳ15%
Touristarrivals Touristovernights Accommodationcapacity(beds)
Source: Croatian Bureau of Statistics (2002-2015), Statistical Reports – Tourism 2001-

2014, CBS, Zagreb and City of Zagreb (2004-2014), Statistical Yearbook of Zagreb, Avail-
able on-line: http://www.zagreb.hr/default.aspx?id=1044.
Tourist growth was stalled in 2009 with a 10% decrease in arrivals and a
11% in overnights compared to the previous year, but the overall growth trend
in tourism before and after 2009 showed impressive annual growth rates of
7.4% for arrivals and 7.2% for overnights, with significant oscillation in the
number of beds in tourist accommodation facilities (especially pronounced in
the year of Croatian accession to EU). Should one compare the large growth
rates in the registered tourist arrivals with a lack of similar growth in the com-
mercially available tourist accommodation facilities, the disparity may indicate
that the statistics failed to represent the totality of growth in tourism and sug-
gest that there may be room here for the development of a grey economy in the
area of providing tourist accommodation in Zagreb. It may also be noted here
that Croatia has a system whereby owners of private accommodation facilities
pay a flat rate for tourist tax, and that the purpose of this system is to reduce the
664
grey economy. Another point of interest is that in the statistics, individual visi-
tors represent 70% of all arrivals and overnights in registered accommodation
facilities in the city of Zagreb, while only 30% represent tourist packages that
mostly use registered hotels and hotels for tourist accommodation.
DISCUSSION
At a time of shortages in public funding earmarked for the building and
maintaining the public infrastructure, city authorities were compelled to look
for private investment and non-resident consumption to ensure the continua-
tion of the process of urban regeneration. The strategy of tourist development
has certainly been embraced as a way of alleviating the difficulties faced by the
community, especially the strategy of promoting specific forms of tourism that
recognize the important role of the cultural and historical heritage and the
many events featured in Croatian towns in shaping the country tourist identity
as an attractive and competitive tourist destination. The research mentioned
above and other scientific research have shown the strong impact of tourism on
the modified use of space, and real property in particular, and the change in the
demographics of the large cities that follow this transformation.
In the context of the city of Zagreb, the available statistical date show a
growth in the number of inhabitants, households and dwellings between the
two population censuses, as well as a manifest strong growth of tourist arriv-
als, overnights and accommodation facilities. The two municipalities that make
up the inner city and the main tourist area have shown a significant increase in
the number of inhabitants and households, and an increase in the number of
dwellings, in particular temporarily unoccupied dwellings and dwellings used
for business activities. The juxtaposition of these two factors may indicate that
tourism as an affluent industry slowly but steadily encourages local residents
to move out of the inner city areas, and that in turn causes a lasting shift in the
demographics of the two city areas examined in this paper. A reduction of the
number of local population in the two city areas examined makes question-
able the future existence of local public institutions such as schools or libraries
and other locally oriented activities, such as repair shops or services that cannot
focus on the unpredictable ebb and flow of tourist needs in terms of space and
finance.
665
As the City of Zagreb has not introduced a systemic control of the unoc-
cupied dwellings in the city, it may be expected that a minor part of the tour-
ism shall remain in the grey economy zone and encourage unfair competition
or animosity among the individuals providing tourist accommodation in the
city of Zagreb. Another potential threat is the sharing economy that implies
the creation of a parallel market (i.e. informal and untaxed) of accommoda-
tion, transportation, catering, and other services. In this sense, the public sector
and the industry will have to pay more attention to the uncontrolled growth of
the grey and sharing economy in tourist services to help mitigate the negative
consequences of tourist gentrification that may endanger the standards of ca-
tering to tourists and reflect negatively on the perception of Zagreb as a tourist
destination.
CONCLUSION
The city of Zagreb has become one of the most popular tourist destinations
in Croatia, which is an overall positive development that necessarily indicates
certain dangers that pertain to such a status. The inner city of Zagreb, the main
zone of tourist attraction in the city, has begun a process of general and also
tourist gentrification. This much may be ascertained on the basis of the statisti-
cal data available on the population, dwellings, accommodation facilities and
registered tourist arrivals in the city, as well as gathered from the perceived pro-
cesses that have manifestly transformed the inner city. At this point, it may be
difficult to gauge the scope of the change to the city or define the role tourism
has played in its transformation, but one should be aware of their ramifications.
The change of property ownership, the drift of population from the inner city, a
general growth in dwellings and the transformation of some of these dwellings
into tourist apartments or rooms will certainly change the demographics of the
inner city community and subsequently its values that initially motivated tour-
ists to visit the city of Zagreb. The danger implied in the undisclosed trends of
tourism growth in the city of Zagreb would make the introduction of an effi-
cient monitoring system of tourist growth a priority in order for the city to keep
in check the spatial, societal and economic transformation that usually follows
tourist growth. Finally, one should hope that this paper has met the research
goals set by its author in presenting relevant indications of tourist growth and
gentrification that justify its purpose.
666
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668
ROLE OF INFORMATION SYSTEM
IN VUKOVAR GCH SYSTEM ON THE
EXAMPLE OF NURSING ERECORDS
Agneza ALEKSIJEVIĆ, mag.med.techn.

General County Hospital Vukovar, Republic of Croatia
aaleksijevic @ gmail.com
Luka STANIĆ, mag.oec.

Regional manager, Merkur osiguranje d.d., Osijek,
Republic of Croatia
luka.stanic@merkur.hr
Abstract
The aim of this paper is to show the importance of computerization in health-
care system on the example of electronic records in nursing. Electronic record-
keeping system was implemented in Vukovar General County Hospital
(GCH) in 2011 with the aim of facilitating data entry. Today we can say
that the implementation of e-care has improved nursing care. Health workers
today have a common goal to raise the quality of the healthcare system, which
we have defined as the delivery of appropriate care in compliance with specific
laws, requirements and standards. One of the requirements is computeriza- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
tion, which is necessary because every day a lot of information is produced and
processed into data, which is then used for making informed decisions about
patient care and allows us to effectively manage the healthcare system. Modern
management is based on computerization.
Keywords: computerization, electronic record-keeping, Vukovar hospital
669
INTRODUCTION
In the last thirteen years a big step forward has been taken in the health care
system of the Republic of Croatia with regard to computerization. The growth
Agneza Aleksijević • Luka Stanić: ROLE OF INFORMATION SYSTEM IN VUKOVAR GCH SYSTEM ON THE EXAMPLE OF NURSING E-RECORDS
of health care costs prompted the reform of the healthcare system, seeking solu-
tions to reduce costs, quality proofs, good results and justification of investment.
The implementation of information and communication technologies in the
health care system creates a favourable business climate. Computerization aims
to rationalize health spending. It is estimated that at least 20-30% of the funds
spent in health could be used more rationally. Computerisation should produce
the data and indicators for this rationalization through the example of irratio-
nally prescribed medications and referrals to diagnostic and specialist examina-
tions, the total investment for primary health care information system can pay
off in less than two years. (Stevanović; Stanić, 2004: 131). Primary health care
computer system is a place of most effective spending control and the focus of
control should be set up in hospitals or diagnostic and therapeutic institutions,
because the system of the Croatian Health Insurance Fund (CHIF) does not
provide a prompt control and intervention, but usually only finds irrational con-
sumption that had occurred in the previous year. (Stevanović, Stanić, 2003: 1).
Central Croatian Health Information System (CCHIS) with more than
17,000 users and a large number of hospital information systems constitutes a
good basis for the computerization of the entire health system in the Republic
of Croatia. (National Health Development Strategy 2012-2020, 2012). The
author states that the organization and implementation of e-health care could
be described as follows:
• IT services for primary and outpatient specialist health care: family doc-
tors’ offices, outpatient clinics, clinics and joint practices (dental), labora-
tories, pharmacies (e-prescriptions).
• IT services for hospital health care: hospital information systems, medi-
cal specialties applications (transfusion), specialized diagnostic applica-
tions (laboratory), IT solutions related to medical instruments (intensive
care unit), supporting activities (hospital pharmacies).
• IT services for public health: public health insurance, public health insti-
tutes, specialized patient registers (tissue banks), IT support for special-
ized processes (accreditation).
670
• Central health care-IT services: central management of e-care system,
harmonized with health care system strategy, business IT subsystems
in health care, IT standardization including certification and compli-
ance with legal regulations, telemedicine, including the creation of virtual
healthcare teams and mHealth solutions, electronic health care records,
Internet portals for patients and health professionals, information secu-
rity, IT training, master data management (for example procedure cata-
logues, diagnosis ...), central technical base and network infrastructure.
(Mađarić, 2010).
Hospitals manage a budget amounting to HRK 11 billion, which is more
than 50% of total health care budget, i.e. 10% of the national budget, they em-
ploy 45 000 people, 200 of which are IT specialists. Hospital Information Sys-
tem is established in 42 public hospitals, while 20 hospitals have no central in-
formation system. (National Health Development Strategy 2012-2020, 2012:
250). Hospitals send daily invoices to CHIF, and take files for valid insured
parties from CCHIS, but there is no interconnection between hospitals nor is
there any unique set of data to be monitored and sent and there is no reporting
system which would include hospital data. E-waiting lists and e-appointments
in progress represent the first step in the integration between hospital systems
and their integration with central health care information system. (National
Health Development Strategy 2012-2020, 2012). The rapid expansion of in-
formation technologies and networks in medicine shows a strong interest in
telemedicine and the Internet. Today we can say that medicinal information
technology is highly developed and that its development is accelerating with the
acceptance of large quantity of data that we store and use in decision-making
process and foe effective health care system manage.
1. THE IMPORTANCE AND APPLICATION OF

INFORMATION TECHNOLOGIES IN HEALTH
CARE
We are witnessing the use of computers, computerization and internetization
of public health care, health care systems and medical procedures in all sectors of
their activities, this is our modern reality. (Tonković, 2004: 47). Health care in-
vestment depend on the quality of health services and the accuracy of diagnostics
and therapeutic procedures, thus government spending on health care is increas-
671
ing for the purposes of reviving efficiency and profitability of public health care
services and their reorganization. The reasons for that are the following:
• spending on public health and health care are extremely large, which
means that significant savings are possible
• biomedicine and biotechnology are among the most propulsive branches

with regard to technological development and innovation
• information and communication technologies threaten to introduce radi-
cal changes in possible approaches of organization of public health and
health care, and education of health workers
• doctors can hardly (but are not obliged) be profitably and rationally use
all the possibilities of new technologies, devices and equipment (“are not
obliged” because their primary duty is medical knowledge and health care
and taking care of patients)
• big changes and innovations can be expected in “home” care, caring for
the increasing number of elderly people, and health care for the individual
himself, integrated and multimedia (telemedicine) approach, multidis-
ciplinary team work, business knowledge, lifelong learning and further
education are the necessity of our future and the future of medicine, i.e.
health care systems. (Tonković, 2004; 47).
Computerized methods offer help in solving the problem in health care and
are one of the important features of health care development. Progress and rap-
id development of new technologies also provides a host of benefits to health
care institutions through electronic patient records. In the opinion of this au-
thor, the uses and benefits include:
• increased business and public health care and health institution
profitability,
• reduced „downtime” of health care professionals,
• increased patient circulation and comfort,
• increases safety and availability, and reduced probability of devices and
equipment failure,
• increased diagnosis accuracy and treatment efficiency, which in itself is a
type of advertisement for health care facility,
• enabled quality monitoring and maintenance costs monitoring for devices
and equipment.
(Tonković, 2004; 48).
672
A large amount of information produced in health care cannot be monitored
or analysed in paper for but with the use of information technology in health
care. The author presents the benefits of electronic health records in Table 1.
(Mavrinac et al., 2006: 6). With numerous advantages mentioned, disadvan-
tages are the initial investments, which are relatively high and demanding, both
monetary and in regard to health care workers’ training.
Table 1. Special features and differences between paper and electronic records,
2006
Special features Classic (paper) Health Record Electronic Health Record
• only one place (for example in a
family physician’s office) • in any networked medical institution that is a
Data availability • several places (some data remain part of electronic health records system
with the doctor, while patients take • complete (all the data is in one place)
some)
Time of data • immediately, whenever necessary (for example,
• during business hours only
availability during home visits using a handheld PC device)
• non-formal (possibly due to • formalized, regulated, standardized and
Data formalization
unreadable hand writing) transparent
• can easily be lost, damaged, • permanent, stored in multiple locations in case
Data stability
forgotten of an emergency
• incomplete (patients can lose test • automatic (the results of each test are directly
Data updating
results) updated)
• everyone with authorized access (a specialist,
• the most commonly only one (family laboratory manager, etc.)
Users
physician) • it is possible to simultaneously search multiple
data users
Data search and • sequential and manual search • direct and automatic (required data is obtained
classification directly) INTERDISCIPLINARY MANAGEMENT RESEARCH XI
• small, the data is searched among all • significant, entering keywords immediately
Data transparency
papers/test results leads to the desired data
• records are increasing (and become • a large quantity of data stored on a medium
Record size less clear) proportionally as large as a classical health care cards (image:
To data volume increase X-ray, ultrasound, CT, laboratory test results)
Source: Mavrinac et al (2006), http://www.medri.uniri.hr/katedre/Medicinska%20informa-

tika/assets/EZZ.pdf/, visited on January 4th 2015
IT allows faster and easier access to health care in order to overcome the
gap between space and time in which we live. E-health care benefits the indi-
vidual, society and economy. (Ostojic et al, 2012: 843). Through the example
of e-prescriptions in primary health care makes it easier for patients to come
to the necessary medicines, the number of visits to clinics is reduced, saving are
673
achieved on printing the prescriptions and paper use is reduced. The authors
list examples of the most common challenges facing the practice and further
development of e-health care as follows:
• insufficient awareness of public administrations and health authorities
about the potential benefits of the wider application of IT technology in

health and other sectors,
• lack of standardization,
• lack of consistency in the implementation of adopted plans and initiatives,
• lack of involvement of medical experts, as well as IT experts, patients and
other health care system stakeholders in the development of e-health care,
• lack of financial resources for the development of e-health care,
• complicated applications,
• lack of legal regulation and fragmentation of e-health care market,
• fear of misuse of private information, unequal access to e-health care for
all. (Stroetmann et al., 2011).
Encouraging e-health care has contributed to the creation of a new indus-
try called “e-health care industry”, which may become the third largest industry
in the health sector with revenues exceeding EUR 11 billion, or about 5% of
the total budget for health care. (Commission of the European Communities,
2007). The goal is to create a European area of e-health care as a framework of
joint actions and synergies in e-health care and provide a favourable environ-
ment for its development and expansion. (Ostojić et al, 2012: 846).
The efficiency of information flow was also vividly described by Pope John
Paul II who said “The Internet is a gift from God”. All this can be called a success
if we have acquired computer equipment and created a network, implemented
information system, trained medical staff and recruited qualified experts from
IT field.
2. ERECORDS FOR NURSING DOCUMENTATION

Nursing documentation is a collection of data that is used for controlling the
quality of planned and implemented health care and is an integral part of patients’
medical record (OG 57 / O7.11; Article 3). Nursing documentation consists of
mandatory forms and those forms that are used depending on the needs of pa-
674
tients (OG 79/11; Article 2). Nursing documentation, based on the consent of
the Croatian Nursing Council (CNC), can be kept in electronic form. Working
Group for IT Technologies in Nursing of International Medical Informatics As-
sociation has in 1998 defined nursing informatics as a solid link between nursing
and informatics via the management procedures and the use of IT as a contribu-
tion to raising the quality of human health. American Nurses Association has
amended the above definition by linking nursing informatics with computer sci-
ence, informatics and nursing with the purpose of administration, data collection,
data exchange, exchange of information and knowledge in nursing practice. From
nursing practice collected data are processed and returned to the practice-based
research. Today’s nursing documentation is internationally important topic of re-
search. The standardization of nursing practice and nursing terminology began
to develop in the seventies with the aim of describing nursing practice. In the US,
63% of nursing documentation is kept in written form, and since 2014 all health
institutions should have made a switch from written records to electronic records.
If the quality is meeting the needs and fulfilling the expectations of people who
use our services, we can perceive it through the conceptual framework of quality
based on Donabedian. Donabedian’s framework of quality tells us about the qual-
ity of the three constructs: structure - process - outcome. All this implies the ab-
sence of losses or wastage and continuous elimination of costs that have no value
for people who use our services. The most commonly quoted elements of a “good”
health care system relate to Donabedian’s concept of quality which includes:
1. The structure and organization of care - the availability of human, finan-
cial and technical resources (investment), fair distribution of costs and
benefits (equity).
2. The process - how the funds are used (control), use of time and resources
(efficiency), avoiding the loss, reduction in risk (safety), evidence-based
practice (appropriateness), care focused on patients (durability), public
information (transparency, accountability) .
3. Outcome - the results achieved (implementation), population health (im-
proved health), clinical outcomes (effectiveness), fulfilling the expecta-
tions of the public and employees (satisfaction), the value obtained for the
investment (cost-effectiveness). (Stavljenić, 2008: 307-8).
Since 2001, Norwegian nurse must document their work in the patient’s
file, and the purpose of that is to ensure continuity of care, demonstrate nurses’
675
independence and to provide administrative data. (Moen, 2003; 40-1). WIPS
model (well - being, integrity, prevention, safety)
was scientifically developed in Sweden, published in 1991, with a revised
version in 1996, in order to support the systematic documentation of nurs-

ing care and providing care tailored to the needs of the individual. (Ehrenberg,
1996; 853-67). Nurses in Norway find it difficult to use and understand those
templates because of underdeveloped computer skills. (Rykkje, 2009; 9-13).
Much effort has been invested into the development of nursing documentation,
systems of electronic documents brought new challenges since many nurses do
not have experience working with computers.
.. The Importance of Nursing E-records in Vukovar GCH

With the implementation of Hospital Information System (HIS) nursing
has received its place and importance in the hospital information system as an
important segment. Scientific methods in nursing computerization are based
on the preparation of nurses for the reception of computerization, analysing,
formalizing and shaping information practices and knowledge in all areas of
nursing - from nursing practice, clinical practice and management in nursing
through education and research factors, conditions, parts, models and proce-
dures that affect the effective and successful implementation of ICT in nursing
practice and studying the effects of nursing informatics when there is already
applied information and communication technology. (Kern, 2014; 3-5).The in-
troduction of IT in health care and in the daily work of health workers leads to
changes related to the organization of work, modernization and standardiza-
tion of processes in that work at all levels of health care. For the implementation
of IT an important prerequisite is the attitude of health workers and whether
they accept information technology. The authors of the study have obtained the
following results: health workers have positive attitudes but with an emphasis
on IT education that fosters the development of a positive attitude. (Brumini,
2004; 113-14). Education is an important step forward in order to dispel the
fear of new technologies and to stay up to date with new information insights.
Nursing documentation in management is the process of working through the
help of others in order to achieve the objectives of the organization and the
management team also includes management work. Coordination of human
resources promotes reaching strategic, tactical and operational goals of the or-
676
ganization with an aim of achieving a continuous balance of effectiveness and
efficiency. Successfully performed task is effective, and efficiency constitutes the
effective use of organizational resources. Management through its elements and
functions includes planning, organizing, leadership, human resources manage-
ment and control. Process control presupposes the definition and implementa-
tion of standards, measurement and elimination of deviations from the agreed
standards and plans. Control includes control of quality, finance and efficiency.
As a process of information gathering, interpretation, observation of perfor-
mance, taking corrective measures, comparing actual results with expected
results defines control as a cycle that allows input and output. Input as input
resources, nurses’ labour, energy, are ultimately transformed into the output,
quality service in health care through the management process. (Ljubičić, 2010:
10). Providing care through nursing documentation takes into account the in-
dividual characteristics of the patient and holistic approach, so that all clinical
decisions are guided by the patient’s values and attitudes.
.. Implementation of Nursing E-records in Vukovar GCH

Information system in nursing is special in its field of action, taking into ac-
count that as a whole it is independent in medical informatics. Collected infor-
mation, clinical data are the foundation on which we build nursing practice. The
authors note that the use of information systems in nursing should:
• Contribute to increasing the level of knowledge, including defining the
importance of data in nursing,
• Ensure systems for supporting decision-making in nursing,
• Inform patients about the care received,
• Ensure easier communication (access to patients’ database),
• Ensure to patients a health care based on scientific knowledge. (Kern,
Petrovečki, 2009: 335).
Nurses / technicians (N=190) in Vukovar GCH completed the training on
the application of the nursing documentation in electronic form. The system
was introduced in December 2011 with the aim of faster and easier data entry
compared to the written form of documentation. Research conducted in the
form of a questionnaire among 120 nurses revealed that nurses have accepted
changes in the system and have obtained satisfactory results, but the survey gave
677
rise to the consideration of how to animate other members of the health care
team about the appropriateness of documenting procedures. The head nurse
of the hospital by means of E-care has the ability to control health care quality,
and nurses and technicians received the opportunity of education and research
using databases offered by E-care. (Aleksijević, 2012: 132). Nurses use health
care informatics in practice, administration, education and research.
The authors emphasize the purpose of records in nursing through good
communication between all team members and terminology aimed at describ-
ing nursing practice, quick and easy flow and access to information, and serves
as legal protection, confirming the facts and claims in the event of a dispute,
enables tracking of costs in relation to effectiveness, is a source of information
for research and represents standard of nursing practice. (Ilić, Čukljak, 2013:
34). Good communication skills are of great importance in nursing.
Opportunities provided by nursing record in e-form were presented by Or-
thopaedics Department in Vukovar GCH for the specified period and the num-
ber of hospitalizations, average age, average length of hospitalization, the cat-
egorization of patients, the risk of decline, the need for continuous care – dis-
charge letter, and parameter of need for other health professions. (Aleksijević,
2013: 25). Nurses collect patient data from primary and secondary sources us-
ing interviews, observations, measurement and analysis of the documentation.
The data collected is use to identify a problem for planning health care with a
high degree of safety. After discharge from the hospital the patient receives a
discharge letter, in which should briefly and clearly be presented the received
health care during hospitalization with recommendations for follow-up care.
Nurses must continue to acquire new knowledge and skills to contribute to the
development of nursing profession. Using e-records in nursing and database
nurses are able to follow all the relevant health care data.
CONCLUSION
E-records give us a standardized approach to meet the individual needs of
the patient and provides practice enriched by the evidence which allows us to
improve the quality of overall health care with the presentation of expertise. The
purpose of IT in health care is that the data, methods, organizations, techni-
cal resources provide information via data collection, archiving, processing and
678
communication for decision making with the aim of better and more efficient
functioning of the health sector.
References
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elektroničkom obliku. NEUROZNANOST. 5 Kongres - Izazovi za sestrinstvo u
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medicinskih sestra – tehničara Hrvatske za neurologiju. p.132.
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delegations/un_geneva/eu_un_geneva/index_en.htm, [visited on: January 4th 2015]
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9. Kern, J. i Petrovečki, M. (2002). Medicinska informatika, Zagreb: Medicinska naklada.
Ilić, B. i Čukljak, S. (2013). Iskustva medicinskih sestara pri vođenju sestrinske doku-
mentacije. MEDICINSKA INFORMATIKA 2013. 11 simpozij Hrvatskog društva za
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Medicinska naklada, d.o.o. p.: 33 -36.
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veni sustav i utjecaj na kvalitetu zdravstvene njege. Zagreb: Zdravstveno veleučilište.
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http://www.pilar.hr/drustvena-istrazivanja/ visited on: January 4th 2015
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680
Law and
Economics
IMPORTANCE OF TAX REVENUE
CONCERNING BUDGETS OF
LOCAL AND REGIONAL SELF
GOVERNMENT UNITS
Emina JERKOVIĆ, PhD

Faculty of Law, Josip Juraj Strossmayer University in Osijek
Department of Financial Law and Financial Science
ekonjic@pravos.hr
Abstract
Since its independence the Republic of Croatia has commenced a thorough
reconstruction of its taxation system according to the market economy taxation
policy. Essential taxation reforms have brought the system closer to EU systems
i.e. it has been being harmonized with taxation systems of developed European
countries.
The tax systems of modern countries are using a large number of tax forms,
which differs from country to country. The Republic of Croatia has adopted
solutions that are used by the majority of European countries. Current tax
system of the Republic of Croatia can be viewed through three fiscal levels, but INTERDISCIPLINARY MANAGEMENT RESEARCH XI
this paper deals with revenue, especially tax revenue of local and regional self-
government units. The paper will present importance and a way of collecting
revenue, especially tax revenue and satisfying public needs in terms of counties,
cities and municipalities.
Keywords: tax system, local and regional self-government units, local taxes,
regional taxes, budget
JEL Classification: H2, H23, H29
683
1. INTRODUCTION
The goal of every state decentralization is to recognize and please the pub-
lic needs and to encourage local and regional development. Only by achieving
those goals of decentralization can the state create motivation and satisfaction
Emina Jerković: IMPORTANCE OF TAX REVENUE CONCERNING BUDGETS OF LOCAL AND REGIONAL SELF-GOVERNMENT UNITS
of its citizens for contributing to accomplishment of public affairs. In the Re-

public of Croatia decentralization presents itself through three levels of govern-
ment. We talk about the highest level, i.e. the state, the middle regional level, i.e.
counties (20 of them) and the third local level, i.e. cities and municipalities (556
of them). Each of the fiscal levels has its powers and responsibilities.
Certain values are specified by the legal regulation of every EU Member
State, and are also declared by the European Charter of Local Self-government
(hereinafter referred to as the Charter) accepted by the Council of Europe.
Article 9 – which includes eight sections – (Financial resources of local au-
thorities), the longest part of the Charter, regulates the finances of local govern-
ments. It provides detailed guidelines on local self-governments, and contains
the following financial and economic management principles:
• principle of income: the local authorities are entitled to their own financial
resources, of which they may dispose freely within the framework of their
powers;
• local authorities’ financial resources shall be commensurate with the re-
sponsibilities provided for by the constitution and the corresponding law
(the principle of entitlement to the financial resources adequate to the
responsibilities);
• the principle of local taxation powers (local taxation rights, and the right to in-
troduce other local payment obligations; part at least of the financial resources
of local authorities shall derive from local taxes and charges of which, within
the limits of statute, they have the power to determine the rate);
• reduction of financial disparities between the local self-government units
(so-called equalization principle);
• the use of funds as per the statutory limits (the principle of expenditure);
• as far as possible, grants to local authorities shall not be earmarked for the
financing of specific projects (the limitation of earmarked funds);
• the autonomy of management decisions within their own jurisdiction
(principle of discretionary powers);
684
• participation in the central decision-making concerning local self-govern-
ment finances (principle of participation).
The most important principle is the entitlement to appropriate financial re-
sources, which means, on one hand that the volume of municipal funds shall be
commensurate with the extent of local government responsibilities set forth in
the corresponding law in the legislation,1 and, on the other hand, the amount of
funds allocated at the local self-governments can be considered as appropriate,
if they keep pace with the cost of carrying out their tasks (Paragraph 4 of Article
9 of the Charter).
The current Croatian tax system can be examined through three fiscal levels.
This paper deals especially with tax revenue of local and regional self-govern-
ment units, by presenting the way of realizing tax revenue, levying and collecting
taxes, furthermore satisfying public needs on state, county and city levels.
Since the declaration of its independence, the Republic of Croatia has com-
menced thorough reconstruction of its tax system as well, since it had to meet
the requirements of the new political system terminating the war period, as
well as the challenges of market economy closing the socialist character. Essen-
tial tax reforms have brought the system closer to systems of the EU Member
States, through its harmonization with taxation systems of developed Euro-
pean countries.
2. SCOPE OF AUTHORITY OF LOCAL AND

REGIONAL SELFGOVERNMENT UNITS AND INTERDISCIPLINARY MANAGEMENT RESEARCH XI
THEIR REVENUE
Law on Local and Regional Self-Government2 regulates the scope of func-
tions of municipality and city separated from the scope of functions of county.
Pursuant to the provision of Article 19 of the Law, local and regional self-gov-
ernment units in their self-governing scope perform the tasks of local impor-
tance, and especially see to jobs that are not constitutionally or legally assigned
to government bodies, relating to the planning of settlements and housing, spa-
tial and urban planning, social welfare, primary health care, education, etc.
1
Paragraph 2 of Article 9 of the Charter
2
Law on Local and Regional Self-Government, Official Gazette 33/01, 60/01, 106/03, 129/05,
109/07, 125/08, 144/12
685
.. The powers and responsibilities of counties
County conducts services of a regional importance, and which are not as-
signed by the Constitution and laws to the national authorities. The incidence
of county can be original (self-governing) and entrusted to (services of state
administration).
County in its self-management scope performs services relating to:
• education
• health care system
• spatial and urban planning
• economic development
• transport and transport infrastructure
• maintenance of public roads
• planning and development of a network of educational, health, social and
cultural institutions
• issuing construction and location permits and other documents related to
construction and implementation of spatial planning documents for the
county outside the big city
• other activities in accordance with special laws.
By the decision of the representative body of local self-government unit in
accordance with its statute and the statute of the county, some jobs of self-gov-
ernment scope of the municipality or city can be transferred to the county.
Entrusted services relate to services of state administration which are carried
out by a county and are defined by law. The costs of these services shall be paid
from the state budget.
.. The powers and responsibilities of cities and

municipalities
Municipalities and cities in their self-governing domain (scope) perform the
services of local importance which directly actualize the needs of citizens, which
are not assigned by the Constitution and laws to the national authorities and in
particular services related to:
• planning of settlements and housing
• spatial and urban planning
686
• utility services
• childcare
• social care
• primary health care
• education and primary education
• culture, physical culture and sport
• consumer protection
• protection and enhancement of natural environment
• fire and civil protection
• traffic in their area
• other activities in accordance with special laws.
To meet its duties, counties, cities and municipalities have to find means of
finance- mostly deriving from public revenue. When we talk about financing
local and regional self-government units most often we talk about fiscal capac-
ity and its strenght. Fiscal strenght of these units varies a lot especially when it
comes to municipalities and cities.
3. REVENUE OF LOCAL AND REGIONAL SELF

GOVERNMENT UNITS
Financing of local and regional self-government units in decentralized coun-
tries is of great importance, both for the development of the overall economy, as INTERDISCIPLINARY MANAGEMENT RESEARCH XI
well as for the development of local and regional self-government units which
carry out the logic of polycentric development. To satisfy this postulate it is
necessary to find the optimal method of financing.
Local and regional self-government units in their budgets have to ensure
revenue which are proportional to expenditures, from its own sources, of shared
taxes and grants from state and county budgets.
Revenue of local and regional self-government units:
1. Income from movable and immovable objects in their possession
2. Income from companies and other entities owned and revenue from con-
cessions granted by local self-government units
687
3. Revenue from the sale of movable and immovable objects in their
possession
4. Gifts, inheritances and legacies
5. Municipal, town and county taxes and fees and duties, whose rates, with-
in the limits specified by law, are determined independently

6. Government assistance and grants provided by the state budget or a spe-
cial law
7. Compensation from the state budget for performing services of the state
administration, which were conveyed to them
8. Other revenue determined by law.(Srb & Perić, 2004:91)
Law on Financing of Local and Regional Self-Government Units deter-
mines the resources of funds and financing services from the scope of the coun-
ties, municipalities and cities.
.. County revenue3

1. Revenue from own property
a) Income from movable and immovable objects in the possession of the
county
b) Income from companies and other entities owned by the county
c) Revenue from the sale of movable and immovable objects in the pos-
session of the county
d) Gifts, inheritances and legacies
2. County taxes
a) Inheritance tax
b) Tax on motor vehicles
c) Tax on boats
d) Tax on gaming machines
3. Fines and confiscated assets for the offenses that are prescribed by the
county itself
4. Other revenue determined by special law.
3
Law on Financing of Local and Regional Self-Government Units, Official Gazette 117/93, 33/00,
73/00, 59/01, 107/01, 117/01-correction 150/02, 147/03, 132/06, 73/08, 25/12, 147/14
688
.. Municipal and city revenue4
1. Revenue from own property
a) Income from movable and immovable objects in the possession of the
municipality or town
b) Income from companies and other entities owned by the municipality
or town
c) Revenue from concessions granted by local self-government units
d) Revenue from the sale of movable and immovable objects in the pos-
session of the municipality or town
e) Gifts, inheritances and legacies
2. Municipal and city taxes
a) Surtax to income tax
b) Tax on consumption
c) Tax on holiday homes
d) Tax on corporate title
e) Tax on public land use
3. Fines and confiscated assets for the offenses that are prescribed by the
municipality or town themselves.
4. Administrative fees in accordance with a special law
5. Residence fees in accordance with a special law
6. Utility charges for the use of municipal or city facilities and institutions
7. Utility charges for the use of public or municipal urban areas
8. Other revenue determined by special law. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
.. Shared taxes

There is one very important cathegory of public revenue that we must em-
phasise- shared taxes.
Shared taxes are personal income tax and tax on sales of real estate. Most
important remark dealing with shared taxes is revenue belonging.
When it comes to tax on sales of real estate the division is as follows:
a) State- 40%
4
73/00, 59/01, 107/01, 117/01-correction 150/02, 147/03, 132/06, 73/08, 25/12, 147/14
689
b) City- 60%.5
But, personal income tax is the most significant revenue especially when it
come s to cities and municipalities.
Revenue from income tax is divided between:
a) municipality/city – 56,5%
b) county - 16%
c) part for decentralized functions - 12%
d) part for position for aid of accommodation for decentralized functions
- 15,5%.6
Decentralized functions are social care, education, health care and fire de-
partment. But it is very important to emphasize that the operational side of
these functions is financed through Personal income tax. When it comes to
personal income of people employed or taking care of these functions, their
income derives from state budget. Operational side includes mostly material
costs (buildings, equipment, furniture etc.) in connection to performing these
functions.
4. UNPAID REVENUE AND THE STATE OF LOCAL

FINANCES
On 31.12.2011. units of local self-government had 8,6 billion HRK of un-
paid debts. With 5,4 billion HRK dominant are debts for business transac-
tions revenue, and the other part of unpaid debt reffers to debts for sales of
nonfinancial asset. Biggest part of 5,4 billion HRK reffers to administrative fees
(about 60%) , followed by debt derived from revenue from own property (24%).
When it comes to revenue collected from taxes, the debt is the smallest-only
16%. (Bajo & Primorac, 2013)
Most fiscally aboundant revenue of local self-government units are tax rev-
enue. In year 2013. they were raised in the amount of 11,4 billion HRK, which
makes 72,1 % of total revenue that was raised that year. When we look at year
2012. tax revenue increased by 21.5%. When we look at the structure of col-
5
Tax on Sales of Real Estate, Official Gazette 69/97, 26/00, 127/00, 153/02, 22/11, 143/14
6
73/00, 59/01, 107/01, 117/01-correction 150/02, 147/03, 132/06, 73/08, 25/12, 147/14
690
lected tax reveue biggest share goes to revenue collected from personal income
tax and surtax to personal income tax (78,2%). They are followed by property
taxes in the amount of 16,5%.7
Problems concerning payment are related to weak cooperation regarding
information exchange between Tax office and units of local self-government.
Units of local self-government have empowered Tax office to collect revenue for
them and Tax office charges provision in the amount of 5% of collected revenue.
The problem is that Tax office delivers monthly reports about paid taxes but
does not deliver information about tax payers who have not paid their debt, is-
suing resolutions and measures of collecting revenue. This is because Tax office
is obliged to do so because of the Article 8 of Public Tax Law that concerns tax
secrecy.
Also data concerning public and local revenue are not as public and trans-
parent as it should be. Units of local self-government do not inform citizens
about efficiency of revenue collecting or its purpose and influence on economic
development and improvement of life conditions. These information should be
available to every citizen simply by publishing them on city or county web pages.
Big part of the self-government units have their debt written off, which is
not reasonable behaviour especially in these times of economic crisis. Also it has
been established that 49% of 556 local self-government units did not impose all
the revenue they could have by egzisting legal regulation and 29% of local self-
government units did not undertake all the measures of ensuring the payment
of egzisting debt. (Bajo & Primorac, 2013)The problem is more serious when
we look at the big picture. Dealing with the fact that many of the self-govern- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
ment units have had the debt written off, they come to the state and demand
help in the form of donations, financial support and grants and subventions.
5. CONCLUDING REMARKS
The autonomy of self-governments, from the conceptual point of view and
particularly from the practical approach is the assessment of the economic op-
portunities, the amount and structure of resources, and the freedom of use of
the resource. The actual operating conditions of each system depend not on the
7
Yearly Report of Ministry of Finances for the year of 2013.,
http://www.mfin.hr/adminmax/docs/Godisnjak%202013.pdf, p. 61 (access: 5-3-2015)
691
legal regulation, but instead on the the local economic circumstances of the self-
government and their involvement of local economic development, furthermore
on the economic and fiscal policy of the state.
As current tax systems of the European countries show many similarities
and much less differences, the principles of taxation and the trends are quite
similar. In recent decades, one of the most important European taxation ten-
dencies has been the increase of the role of local and regional taxation and the
Croatian legislation is in line with the EU efforts and regulatory trends. The
Croatian model, due to the important county and municipality taxes, is clos-
er to the welfare and economic development models8 of self-governments, in
which, besides the central dependence, a structure was established with more
active self-governments providing notable services.
It is a fundamental problem of the Croatian regional, and local taxation,
which is also a tendency all around the world, that despite the continually ex-
panding scope of central and local activities, new types of public revenue cannot
be found neither in the central, nor within local taxation, which could improve
the increasing revenue that covers the government services, therefore there is no
other option, but to tune these systems carefully, and to harmonize their opera-
tional reserves, furthermore to improve tax compliance.
Literature:
Bajo, A. and Primorac, T. (2013) Neučinkovitost naplate prihoda lokalnih jedinica, Aktualan
osvrt br. 52, Institut za javne financije, Zagreb
Srb, V. and Perić, R. (2004) Javne financije-knjiga I [Public Finance – Volume 1](2004) Uni-
versity J. J. Stossmayera, Faculty of Law in Osijek, ISBN: 953-6072-26-2, Osijek
Šimović, J., Arbutina, H., Mijatović, N., Rogić-Lugarić T. and Cindori, S. (2008) Financijsko
pravo i financijska znanost, Narodne novine d.d., ISBN: 978-953-234-107-2, Zagreb
Šimović, J., Arbutina, H., Mijatović, N., Rogić-Lugarić T. and Cindori, S. (2010) Hrvatski
fiskalni sustav, Narodne novine d.d., ISBN: 978-953-234-146-1, Zagreb
Yearly Report of Ministry of Finances for the year of 2013.,
http://www.mfin.hr/adminmax/docs/Godisnjak%202013.pdf, p. 61
(access: 5-3-2015)
8
In the welfare model, the self-government units fulfil their obligations within strong central depend-
ence, they focus on providing the services, and they deal less with the development of the local econo-
my, which is undertaken mostly by the central state. The self-governments act as undertakings in local
economy, their local need of resources is higher than the central one, therefore they establish a more
intense relationship with the local actors of the economy.
692
Pieces of legislation
European Charter of Local Self-government, Strasbourg, 15.X.1985
Income Tax Law, Official Gazette, 177/04, 73/08, 80/10, 114/11, 22/12, 144/12, 43/2013,
120/2013, 125/2013, 148/2013, 83/2014, 143/2014
Law on Financing of Local and Regional Self-Government Units, Official Gazette 117/93,
33/00, 73/00, 59/01, 107/01, 117/01-correction 150/02, 147/03, 132/06, 73/08, 25/12,
147/14
Law on Local and Regional Self-Government, Official Gazette 33/01, 60/01, 106/03,
129/05, 109/07, 125/08, 144/12
Public Tax Law, Official Gazette 147/08, 18/11, 78/12, 136/12, 73/13
Tax on Sales of Real Estate, Official Gazette 69/97, 26/00, 127/00, 153/02, 22/11, 143/14
693
DOING BUSINESS IN ROMANIA;
FOREIGN DIRECT INVESTMENTS
FDI;
Corina Cristina Buzdugan • Elena Mihaela Fodor • Rodica Diana Apan: DOING BUSINESS IN ROMANIA; FOREIGN DIRECT INVESTMENTS (FDI)
TRADING ENTITIES INVESTMENT

MECHANISMS; PROTECTION SYSTEM;
GUARANTEES 1
Corina Cristina BUZDUGAN, PhD,
Elena Mihaela FODOR, PhD,
Rodica Diana Apan, PhD

Christian University ”Dimitrie Cantemir” Bucharest,
Facultaty of Law, Cluj Napoca,Romania
Abstract
The present study focuses on a number of essential features of foreign direct
investments (FDI). The first part of the study indicates illo tempore the judicial
landmarks of the state’s policy on FDI, in the context of economic policy and in
connection to the landmark regulations in the field, from 1990 up to the pres-
ent. This part also explains the investment mechanisms now traditional in the
field of FDI, namely companies, subsidiaries or their branches. One of the most
relevant principles in setting up companies, expanding their activity at the Eu-
ropean Union level and developing FDIs is that of the freedom establishment
on the territory of another Member State, other than the state of the national.
In determining the law applicable to the organic statute of the company as
well as to subsidiaries and branches set up in Romania by the national from
another Member State, their nationality must be established, which relates to
their registered office. If the determination of their registered office is rigorously
1
The present article is part of the research project “Guide to the legal regime of foreign invest-
ments in Romania – Doing business in Romania” that is carried out during the university
year 2014-2015 within the “DimitrieCantemir” Christian University of Bucharest, Faculty
of Law, Cluj Napoca.
694
established through existing regulations at the national level, the determination
of the real office, whose landmarks for regulation are not clearly determined,
may attract uncertainty concerning the law applicable to the organic statute of
the company and its dismemberment.
The second part of the study elaborates the protection and guarantees, those
shared by foreign and Romanian investors as well as those of the foreign inves-
tors alone. This part casts a targeted look at the interdiction instituted ex lege
by the nationalisation, expropriation or other measures having an equivalent
effect on the FDI, excepting the cases where the requirements of the law are
met, as well as on the foreign investor’s right of choice regarding the entities and
procedures that may be applied for the resolution of potential disputes between
him and the Romanian state, concerning rights and obligations of parties in-
volved in an FDI relationship.
Keywords: foreign direct investments, investment mechanism, protection sys-
tem, guarantees
JEL Classification: L21, M2, E32
1. COMPTE RENDU OF THE REGULATIONS

IN THE FIELD OF FOREIGN
DIRECT INVESTMENTS FDI IN
ROMANIA;PERSPECTIVES ON THE
INVESTMENT MECHANISMS FOR TRADING
COMPANIES UNDER LAW 31 OF 1990 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
The investment attractiveness of Romania as host state and of its business

environment having in view the essential features regulated illo tempore in order
to facilitate and encourage foreign investments in Romania are revealed by the
doctrine(Ilie, 2012, p.349-354).
One first regulation in the field of foreign investments in Romania was de-
cree-law 96/1990 on certain measures to attract foreign investment in Romania
published in the Official Gazette no.37 of 20/03/1990. In order to carry out
foreign investments there needed to be set-up trading companies with foreign
participation either in association with Romanian legal or natural persons or
with full foreign capital. The trading company would gain legal personality on
its registration with the Minister of Finance. The regulation esteblished also the
695
facilities to be granted to foreign investors, which consist of exemption from cor-
porate tax for 2 years after first earning taxable revenues. Decree-law 96/1990
was abrogated once a new more extensive regulation in the field of FDI was
passed in the form of Law no.35/1991 on the regime of foreign investments,
published in the Official Gazette no.73 of 10 April 1991, republished in the

Official Gazette no.185 of 2 August 1993, hereinafter called Law no.35/1991.
In brief, Law no.35/1991 regulated certain signifiant components in relation
to FDI, which afterwards are to be traced as guidelines in following regulations
in the field, namely in GEO 31/1997 on the regime of foreign investments in
Romania, published in the Official Gazette no.125 of 19 June 1997, hereinafter
called GEO 31/1997, as well as in GEO 92/1997 concerning incentives for
foreign direct investments, published in the Official Gazette no. 386 of 30 De-
cember 1997, consolidated version on 1 January 2007, hereinafter called GEO
92/1997 in force at the moment.
Thus, the regulated guideline provided by art.4 of the GEO 92/1997 are
basically the following: - guarantees against nationalisation, expropriation, or
similar measures with equivalent effect; - customs and fiscal advantages; - as-
sistance with the administrative procedures; -right to conversion from Lei into
foreign currency of the revenue gained from the invested amount, as well as the
transfer of currency to their country of origin, in accordance with the provisions
on currency regime; - investors’ right to choose the competent law or arbitration
courts in case of disputes; - the possibility to report the loss registered during a
fiscal year on the profit to be registered in the following fiscal years; - the possi-
bility of accelerated amortisation; -the possibility of deducting the advertisment
and publicity expenses from taxable profit; - the possibility of hiring foreign
citizens in compliance with legal provisions in force. The doctrine (Căpățînă,
1991, pp.5-26 andPătulea, 1993, pp. 2-20) offers an extensive analysis of the
evolution of regulations in the field of foreign investments as well as those pro-
vided by Law 35/1991.
Under Law 35/1991 and as revealed by the doctrine (Capatana, 1991, p.13)
the legal investment mechanism for FDI is non-restrictively represented by the
setting-up or expanding trading entities through new branches and subsidiar-
ies having full foreign capital or in association with legal or natural Romanian
persons, their regime being regulated by the provisions of Law 31/1990 on
trading companies, published in the Official Gazette no.126 of 17 November
696
1990, consolidated version of 1 February 2014, hereinafter called Law 31/1990
and the formalities required to register a company, subsidiary or branch in order
to carry a FDI in Romania are provided by Law 31/1990 and by Law 26/1990
on the trade registry, published in the Official Gazette no.121 of 7 November
1990, consolidated version of 1 February 2014, hereinafter called Law 26/1990.
The traditional investment mechanisms in the field of FDI are companies
or their subsidiaries or branches which are regulated under GEO 31/1997 and
GEO 92/1997. GEO 31/1997 reinforces the role of companies stipulated by
Law 31/1990 as investment mechanisms, in that it non-restrictively provides
the means by which the foreign investment can be carried out in Romania, one
of the means being the participation of a foreign investor with consideration in
cash represented in freely convertible currency, as well as with in-kind capital, to
the formation of the share capital of a trading entity, Romanian legal person as
well as the participation to the expansion of the such trading entity or indirectly
to one of its subsidiaries.
GEO 92/1997 defines the concept of „foreign direct investment” as being the
participation to the formation or expansion of an enterprise under any of the forms
provided by the law, acquiring shares or capital of a trading company, except for
the portofolio investments, or set-up and expansion in Romania of a foreign com-
pany subsidiary by one of the following means: -consideration in cash represented
in the national currency or in a freely convertible currency, - in-kind capital in
the form of immovable and movable property, tangible and intangible; - partici-
pation to the growth of a company’s assets by any means of financing, and the
doctrine (Navasardyan, 2012, p41-58) undertakes a comparative analysis of the INTERDISCIPLINARY MANAGEMENT RESEARCH XI
way in which the concept of foreign investment is perceived by the legislation of
various different states amongst which Romania as well.
Companies, subsidiaries and branches that represent investment mecha-
nisms are regulated as indicated above, by Law 31/1990 even where these are
carried out by setting-up or expanding a company by the national of a Member
State other than Romania. Out of all the investment mechanisms stipulated by
GEO 92/1997, the investment mechanisms indicated ut supra are located and
determined by the moment of the set-up or expansion, considering that in the
present analysis the expansion comprises restrictively the set-up of a subsidiary
or branch.
697
In the field of company law one of the most relevant principles applicable
to the expansion of the activity of companies at European Union level and
the development of FDI is that of the freedom of establishment, provided by
art.49 of the TFEU (former art.43 TCE). The principle of the freedom of es-
tablishment provides this freedom for the nationals of a Member State acting
on the territory of another Member State, including the set-up and governance
of companies in accordance with the provisions laid down by the host State
for its own nationals – the host state also institutes restrictions with regard
to the establishment of agencies, branches or subsidiaries by the citizens of a
Member State. The principle of the freedom of establishment is developed in
the doctrine (Sandru, 2014, p.11-40) especially analyzing of the evolution of
the EUCJ case-law in the field, in cases: Centros C- 212/97; Uberseering C
208/00; Inspire Art C 167/01; Servic Sistem C 411/03; Cartesio C -210/06;
Vale C -378/10, analyzed also in Oprea (2011).
With the above principle as corollary, the foreign investor national of a
Member State, may choose the investment mechanism to be employed in order
to carry out economic activity on the territory of another Member State, Ro-
mania as host state in this case, from a number of possibilities amongst which
are the following: (i) setting-up a company in any of the types of doing business
restrictively regulated by Law 31/1990 namely: a) general partnership, b) lim-
ited partnership, c) limited partnership by shares, d) limited liability company,
e) joint-stock company; (ii) setting-up branches or subsidiaries by a company
operating on the territory of another Member State. Both hypothesis share a
noticeable aspect for the investment activity, which due to its relevance for the
accuracy of the investment environment and the protection of investors’ inter-
ests is represented by the law applicable to the company and to the subsidiaries
and branches set-up by the national of another Member State in another Mem-
ber State, in this case Romania.
Law 31/1990 provides in art.1 the principle of the freedom of associationin
view of carrying-out profit-making activities by legal and natural persons who
may set-up companies with legal personality, in accordance with its provisions,
and para.2 establishes the principle to apply when determining the citizenship
of a company in relation to its registered office.The consequence of this principle
is that the companies having the registered office in Romania acquire Romanian
citizenship, irrespective of the capacity of nationals of another Member State of
the persons setting it up, as the national law – Romanian is applicable for these
698
companies. The scope of the national law is determined by the provisions of art.
2581 of the NCCR,the new Civil Code in force since 01.10.2011,hereinafter
called NCCR, article which together with art.2581 cited below are part of the
regulations of Book II „International Private Law Regulations”.
In accordance with these provisions – art.2581 of the NCCR, the law of the
organic statute of the legal person rules mainly: a) the capacity; b) the means
of acquiring and losing the capacity of associate; c) the rights and obligations of
associate; d) method to be used for the election or appointment of the legal per-
son’s managing body, their competence and functioning; e) governing bodies of
the legal person; its representation through their own authorities; f ) the liabil-
ity of a legal person and her bodies towards a third party; g) the modification
of the constitutive acts; h) the dissolution of a legal person.( The statistical data
available on the site of the National Trade Register Office http://www.onrc.ro/
index.php/ro/statistici?id=254, accesed on 11.03.2015, p.22 table 21 and chart
no.9 reveal the number of registrations of companies with foreign share capital
and the evolution of the number of companies between 1991 and 2014, the
higer peaks being in 1994 – 11.053 registrations and 2007 -15.720 registra-
tions, while in 2014 were registered 6.619 companies. On the other hand, the
applicable law to the stage of the set-up of companies that represent investment
mechanisms for the FDI, named „foreign participation companies”, according
to art.286 of Law 31/1990, is precisely this law, also making reference to the
law regulating the regime of foreign investments, in so far as this law regulates
certain aspects concerning the set-up.
Regarding the subsidiaries and branches of the company, Law 31/1990 pro- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
vides in art.44 the freedom of the foreign companies to set-up in Romania,
complying with Romanian law, subsidiaries, branches, agencies, representa-
tivea or other secondary offices, as long as this right is recognized by the law
of their organic statute. Hence, the law regulating the set-up of subsidiaries,
branches, agencies, representatives and other secondary offices is enforced in
the form of Law 31/1990, however there isn’t enforced a law applicable to these
secondary offices following their set-up. The doctrine, (Bodu, 2014, pp. 82-83;
Sitaru,2013,pp.539-599 and Oprea, 2011) reveals the scope of art.2580 (2) (3)
of the NCCR in determinig the law of the organic statute of the subsidiary and
the branch set-up in Romania by the legal person national of another Member
State. While the organic statute of the legal person is governed by its national
law, in accordance with art.2580 (1) of the NCCR with reference to previously
699
cited provisions of art.2581 of the NCCR, the organic statute of the subsidiary
set-up in another country falls under the applicability of that country’s national
law, and respectively, the organic statute of the subsidiary falls under the law of
the state where it has its own registered office, irrespective of the law applicable
to the legal person that set it up.

But in determining the citizenship of the company there is also the regu-
lation on the principle of the real registered office, developed by the doctrine
(Bodu, 2014, p.84- 87), with special view on the risks posed by its enforcement
(in Sitaru, pp.163-169 and in Oprea, 2011 who reveals the complications that
may arise in practice, when applying this principle). Hence, in accordance with
the provisions of NCCR, art.2571 (2), where there are offices in several states,
the determining element in identifying the citizenship of the legal person is the
real office. This is defined, in accordance with art.2571 (3) of the NCCR, as
being the office where there is the main governing and managing center, even
if the decisions of the respective body are adopted according to the guidelines
transmited by shareholders or associates from other states.
Consequently, if the criterion for determining the citizenship and thus
the applicable law according to the registered office of the company, subsid-
iary, branch established by the regulations in force in Romania, has rigurously
mapped landmarks, the reference to the criterion of the real office, whose regu-
lated landmarks are not clearly mapped, may generate in certain cases ambigu-
ity in the investment environment in Romania, more as the EUCJ case-law ana-
lyzed in the doctrine (Sandru, 2014, p.11-40 and Oprea, 2011) did not adopt a
unitary direction on the criterion of the real office.
Therefore, taking in consideration the expansion of the companies and their
tendancy to seek means of benefiting from exemptions, especially of fiscal na-
ture, the determination of the real office, different from the registered office,
may in practice attract uncertainty regarding the law applicable to the organic
statute of the company and its dismemberments, a statute that comprises a se-
ries of defining elements for the foreign investor such as: the means of acquiring
and losing the capacity of associate; the rights and obligations of the associate;
the functioning of the governing body. This leads to the conclusion that one of
the primary landmarks regarding which foreign investors are to be „guided” at
the time of the investment in Romania, shall be the principle of the law appli-
700
cable in what concerns the registered office and the consequences of the bifurca-
tion between the registered office and the real office.
2. PERSPECTIVES ON THE PROTECTION OF

GUARANTEES GRANTED TO FOREIGN
INVESTORS IN ROMANIA
The guarantees offered by the Romanian legal framework for FDI cover the
key points of the case of any relationship between foreign investors and the host
state: protection against discrimination, protection against expropriation which
is not of public interest and which otherwise would not be fairly compensated,
protection against unfair treatment , protection of capital transfer. Regarding
the ownership right the law regulates the means of acquiring it, the stability of
the right and access to justice. The Constitution of Romania guarantees and
protects the ownership right irrespective of the holder of the right, through the
provisions of art.44 (1) (2), the content and limitations of the right are estab-
lished by the law.
The guarantees are strengthened by the provisions of art.136 (5) according
to which private ownership represents an intangible right under the organic law.
Special legislation in the field of FDI, respectively GEO 92/1997 on incentives
for the stimulation of direct investments, provides in art.6 that a trading com-
pany legal persons, resident or non-resident may acquire any real rights over real
estate, providing that the estate is necessary for carrying out the activity of the
legal entity and must comply with the social object set forth in the constitutive INTERDISCIPLINARY MANAGEMENT RESEARCH XI
documents and with the legal provisions on acquiring private ownership right
over land by foreign citizens and nationals as well as by foreign legal persons.
Presently, the conditions necessary for acquiring ownership right over land by
foreign citizens and foreign legal persons are regulated by Law no.3012/2005,
and GEO no. 184/2002 regulates the special right to use the land within incor-
porated area, purchased by foreign citizens and foreign legal persons as well as
the possibility to convert it in a ownership right.
Constituional guarantees offered to ownership right refer to nationalisation
and expropriation. The Constitution of Romania adopted in 1991 made refer-
ence only to expropriation, in the provisions of art. 41 (3). In this context, the
Constitutional Court of Romania, following a pre-promulgation control of the
701
law on the regime of free areas, through Decision no.4/1992 declared unconsti-
tutional the provision according to which investments carried out in free areas
could not be nationalised, but for cases of public interest, and in compliance
with the legal provisions and only providing the prompt, adequate and effec-
tive payment of compensation equivalent to the value of the investment. This

decision shows that in the absence of the constitutional provision that would
establish nationalisation as a means of forced transfer of goods from private
ownership into state’s public ownership, through the order of the competent
state authority, results the constitutent’s will to eliminate this means of own-
ership transfer on reason that it is interpretable and raises suspicion on the
cause why it is enforced and possibly leading to abuse from public authorities.
Subsequently however, GEO 92/1997 on the stimulation of direct investments
made reference again to nationalisation in art.4 (2) (c) providing that investors
in Romania benefit from guarantees against nationalisation, expropriation and
other such measures having equivalent effect. The provisions on nationalisation
can currently be considered as complying with the Constitution, as through the
revision of the supreme law in 2003 the content of art.41 that became art.44
after republishing, was completed with the provision of para.(4) which inter-
dicted nationalisation and any measures of forced transfer of goods into public
ownership on grounds of social class, ethnical, religious, political membership
of the holders.
The express mention of nationalisation as method of ownership transfer is
the result of a more complex understanding of this term. In the period close
to 1990 when there was a switch of political regime, Romania entering in the
group of democratic states, nationalisation was perceived as an abusive seizure
of property, without granting compensation, such as it was applied by the com-
munist regime. Afterwards the perception changed and nationalisation became
accepted in the way it is applied in democratic states (Kuisel, 1981, 272-279;
Einaudi, 1950, 177-191). Hence in nowdays nationalisation is by principle not
permitted and cannot be disposed but in exceptional cases and under the con-
ditions provided by art.8 (1) of GEO 92/1997 that is in cases where it is nece-
sary for public interest reasons and it is carried out in accordance with the ex-
press provisions of the law and only provided the previous payment of adequate
effective compensation.
Looking closer at this last guarantee, paragraph (2) of the same article men-
tions that compensation shall be equivalent with the real market value of the
702
expropriated investment assessed right before the expropriation or before the
iminent expropriation becomes publicaly known and affects the value of the
investment. Investor protection is complemented by access to judicial authority
or to any independent and competent authority in accordance to the interna-
tional treaties Romania adhered to, as far as the legal character of the measure is
concerned as well as regarding the assessment of the investment or payment of
compensation, possibility guaranteed by paragraph (4) of the same art.8.
Expropriation is regulated also as an exceptional possible means of owner-
ship transfer for public utility grounds. Regarding the specificity of FDI, case
Saluka Investments B.V. c. Czech Republic, FDIS Tribunal showed that in ac-
cordance with international law, a legal measure adopted on public grounds
and which amongst other affects also a foreign investment is not considered as
having the character of expropriation and is not offsetting, except for the case
where the government granted specific commitments to the potential foreign
investor, who at that time regarded making investment. Guarantees against un-
fair treatment from the state are similarly granted in the case of nationalisation,
in the same content of the Constitution and of GEO 92/1997. Expropriation
however benefits from more developed legal framework, the provisions of Law
33/1994 on expropriation for causes of public utility, provides detailed admin-
istrative procedures to be carried out previously to the declaration of public
utility, expropriation, compensation assessment and payment. The law provides
the possibility of retrocession of the expropriated good if within a year the ex-
propriated real estate have not been used for the purpose declared in view of
expropriation, or if the works have not begun. These provisions underline the
protection of the ownership right in accordance with the interpretation given by
the European Court of Human Rights art.1 of Protocol no.1 of the European
Human Rights Convention, which Romania ratified through Law 30/1994.
This case-law is thus applied directly by the national judge, granting protection
against certain expropriations.
In a case where the urban nature of an area was changed by the local city
council as a result of an investment plan for the contruction of a highway, a plan
that was suspended afterwards for economic reasons, the Court of Apeal of
Cluj –department for administrative, fiscal and commercial disputes, through
final Decision no. 420/2010 established that under the current conditions of
uncertainty regarding the future use of the land for public interest, the refuse to
allow the owner of a land that is affected by the respective local urban plan, to
703
raise a building on its land represents an infringement of the ownership right,
which does not make justice to the requirement of proportionality (Brumărescu
c. României, para. 78), and that the state did not fulfill its obligation to ensure
the effective exercise of the right of ownership conffered by art. 1 of Protocol
no.1 of the Convention, thus breaking the „fair balance” that must exist between
the requirements of public interest and the requirements for protection of the
owner’s rights (Păduraru c. Romania para. 112). The theoretical recognition of
the owner’s right to exercise thei right of use and dispose of its goods, without
practically existing the possibility to exercise these rights is the equivalent of an
actual infrigement of the ownership right (Sporrong si M. c. Suedia). The deci-
sion is not the only one of this kind in Romanian case-law.
The legal limitations over the ownership right are provided by the Civil
Code. They are established either for the protection of private interest relating
to the use of natural running waters, temporary works and distances required
for certain construction, works and plantations, view over the neighbouring
property, right of way, right of way for utilities (articles 602-630); The works
in the field of mining and petrol extraction or electrical energy are regulated
by special provisions (Diaconu, A.M., 2011, 65-75). The legal limitations for
public interest of administrative and economic nature are provided in art.586,
587 of the Civil Code.
Bibliography
Bodu, S. 2014, Tratat de drept societar, [Treatise on Company Law] Bucuresti: Rosetti, p
82-83, p.84- 87;
Diaconu, A.M. (2011). Consideraţii privind limitele legale ale dreptului de proprietate privată
reglementate de noul cod civil, [Considerations on the legal limitations of the private property
right according to the new Civil Code] Annals of University “Constantin Brâncuşi” Târgu Jiu,
Seria Ştiinţe Juridice 3,p. 65-78;
Einaudi, M. (1950). Nationalization of Industry in Western Europe: Recent Literature and De-
bates, The American Political Science Review 44 (1),p. 177-191;
Ilie,G.,2012, Investitiile straine directe, [Foreign direct investments] Bucuresti: ProUniversi-
taria, p.349-354
Kuisel, R.F. 1981,Capitalism & the state in modern France, Cambridge University Press;
Căpățînă, O.,Noul regim al investițiilor străine în România, [The new regime of foreign invest-
ments in Romania] Revista de drept comercial no.2/1991, Bucuresti: Lumina Lex, p.5-26;
Oprea, A., Observatii privind regimul persoanelor juridice in dreptul international privat ro-
man din perspectiva reglementarilor din noul cod civil, inStudia Universitatis, Iurisprudentia,
3/2011;http://studia.law.ubbcluj.ro/articole.php?an=2011, accessed on 10.03.2015;
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Pătulea, V., Regimul juridic al investiţiilor străine în România, [Legal regime of foreign invest-
ments in Romania] Revista Dreptul no. 1/1993, Bucuresti, p. 2-20;
Sandru,D-M, 2014,Libertatea de stabilire a societatilor in Uniunea Europeana, [Freedom of
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Navasardyan,L., 2012, Protectia si garantarea investitiilor straine in dreptul comertului interna-
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esti: Wolters Kluwer, p. 41-58;
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08.03.2015)
705
OPPORTUNITIES FOR ICT USE IN
THE NOTARY PUBLIC SERVICE
Pavao GAGRO, LLB

Acting Notary Public, Osijek, Republic of Croatia
pavao.gagro@os.t-com.hr
Abstract
This paper looks at the notary public service in general and its scope of activi-
ties. In addition, it deals with the Notarial Code of Conduct (Code of Ethics)
written by Vladimir Pappafava in 1896 and, in a certain way, provides a
historical overview and comparison of public notary service in respect of the
powers now and then. It is indicated that the notary public service, in terms
of powers, has not changed much to the present time. Nowadays, when the de-
velopment of computer science and technology has reached the point when it is
Pavao Gagro: OPPORTUNITIES FOR ICT USE IN THE NOTARY PUBLIC SERVICE
almost impossible to follow it, the question is how and to what extent the notary
public service should take advantage of such a wide range of technological ca-
pabilities. Along its development, information technology has been penetrating
more and more into every segment of human life - both business and private.
In addition to many benefits provided by information technology (acceleration
of business, communications, etc.), it has also brought some technical problems
that can lead to complete interruption of business. The contribution and role
of information technology in the notary public service in the European Union
Member States including the Republic of Croatia, as well as certain ideas re-
garding the use of opportunities afforded by information and communication
technologies are also discussed.
Keywords: the characteristics of a person of public trust, information and
communication technology, electronic registers, e-company, security of claims
JEL Classification: K1, K10, K2
706
1. INTRODUCTION
.. General information about notary public service
The very beginning of this paper presents the idea of authorities and mode
of work of notaries public, i.e. notaries public services. Anyone at least once in
his/her lifetime has a need to use a service of the notary public, and in such
situation the expression that a document should be “notarized” by the notary is
usually heard which leads to a wrong conclusion that the notary public “certifies
documents” and even that it is his/her only job and authority. For clarification
of the powers and mode of work of notaries public it is best to quote Article 2
of the Notaries Public Act reading as follows:
(1) Notary public service consists of official drawing up and issuing public
documents on legal transactions, statements and facts on which the rights are
based, official verification of private documents, receiving documents for keep-
ing, as well as money and items of value for their delivery to other persons or
authorities and carrying out the procedures established by law as ordered by
courts or other public authorities. The notary public service also involves per-
forming other duties stipulated by this Act.
(2) Notary public service is performed by notaries as autonomous and in-
dependent holders of the service who have the status of persons of public trust.
3) Notaries perform their service as a sole occupation during the period for
which they are appointed. “(Notaries Public Act, Official Gazette No. 78/93,
29/94, 162/98 and 75/09).
The above quoted legal provisions show that “verification documents” makes
only a small part of their work and that there is a series of powers of notaries in
the performance of their service.
It should be remembered, which will be important for the rest of this paper,
that the characteristic of a person of public trust has been given to the notary in
paragraph 2 of the quoted Article, as well as that the notaries the procedures es-
tablished by law as ordered by courts or other public authorities in paragraph 1.
In order to draw attention to tradition, contribution of current and future
notary public service in addressing and facilitating the issues encountered by a
natural or legal person in everyday life, a section from the preface of the No-
707
tarial Code of Conduct (Code of Ethics) written by the lawyer and historian
of public notary service Dr. Vladimir Pappafava from 1896 should be quoted:
“None of all legal institutions from old times, reaching us through centuries
and which in, a higher or lesser degree, have the same aim and grounds, found
today in all educated nations, cannot be, in importance, compared with notary
public service.
And it is because of the reputation and dignity of the notary profession,
their highly confidential character, and finally, because of authenticity by which
he/she supplies documents concluded in performing his/her activity.
The notary is a true family secretary, a mediator in disputes, a person of
public trust. A person hit with misery or sudden disaster also asks him/her
for a useful and reliable advice, friendly help and comfort. The notary also con-
nects forever the hearts in love and lays the foundation of marriage; and when
a person on death-bed declares the last will the notary is also invited to hear
his/her last memory, last thought, last greeting to beloved, and to pass it to
grandchildren.
Supplementing and supporting the judiciary by his/her activities, the notary
contributes by his/her work to regulation of various civil relations settlements,

conciliations and decisions of individual citizens with legal regulations and pro-
viding them the character of a public authority and firm authenticity; and so,
as De Falco says, while warranting the rights to living people, they also transfer
to future generations, along with rights, language, customs, aspirations, spirit,
faith, in one word, everything that is expressed in the life of a nation. “(Pappa-
fava; 1896, p. III).
After the notary public completed the official action and prepared a case
file, the file is archived and kept in the notary’s archives (some hold that word
archives originates from the Greek language, while some believe that its etymol-
ogy comes from the Latin word arca, archa = box coin box, cell ) pursuant to
the rules prescribed by the rules of Notary Public Ordinance (Javnobilježnički
poslovnik; Official Gazette No. 38/94, 82/94, 37/96, 151/05 and 115/12) and
thus archived material can be re-issued, if necessary. As long as the notary is
keeping a document, he/she may, at the request of the client and his/her suc-
cessors who participated in drafting and verification of document, issue an en-
grossment, copy of the document, an excerpt of the document or certificate of
708
the facts arising from the document as defined by the (Article 93- 108, Official
Gazette No. 78/93, 29/94, 162/98 and 75/09).
All nations in general, that acted upon laws, felt the need for an archive, to
store documents related to identity and the rights of citizens in their private and
public relations, as well as regarding monuments (memoriae) intended for social
and political history. So Judea had its holy ark, blessed tent, and the magnificent
temple of Jerusalem, Greece had the famous Delphi temple and Areopagus, etc.
The Romans placed archives in temples, under protection of pontifical choir,
which was entrusted with drawing up the key annals of the Republic.” (Pappa-
fava; 1896, p. 224).
“Notarial archives were also established and kept also in monasteries, and
considering the general rules of those periods, it seems that three reasons par-
ticularly contributed to set-up such institution then, and explained today. The
first refers to security, then provided by monasteries, which were hold by every-
one as sacred and inviolable places; the second reason was that priests at that
time were rare, not to say the only guardians of human knowledge and therefore
it was advisable that they were entrusted with those acts, which required an
education, and accordingly notary public service; and finally, the third reason
refers to those huge properties which were, step by step, flowing into monaster-
ies - from so many contributions of overzealous and simple-minded believers,
in the name of absolving from sins (and remedium animae), which required that
notarial documents, which testify to the source of a variety of properties are
kept in those monasteries.”(Pappafava; 1896, p. 226.).
It is important to note that the notary archives was founded in 1260 in Bolo-
gna, then in Modena in 1272, in Messina in 1400 and in Venice in 1453.
This introductory presentation, and quoting the Notarial Code of Conduct
of Vladimir Pappafava (1896) highlighted the tradition, opportunities and con-
tribution of the notary public service to the community. Giving delegating new
powers and activities to notaries it would certainly be in the public interest and
the notary public service could give greater contribution to the development
and emergence of modern electronic administrative and legal transactions.
709
2. INFORMATION COMMUNICATION
TECHNOLOGY IN THE SERVICE OF PUBLIC
NOTARIES IN SOME EU MEMBER STATES
Different solutions and methods of linking and use of electronic public reg-
isters in individual EU Member States to apply positive solutions and create
new ones in the Republic of Croatia are dealt with in this section. First of all,
when talking about the public notary service in European Union it is not meant
that there is a unique type of notarial services for the entire European Union.
Since 1 January 2000, public notaries in Austria have to store each certified
document in an electronic archive called CyberDOC. The system has contrib-
uted to the preservation, confidentiality and integrity of certified documents
and is important for the electronic transfer of verified documents because of its
link with public administrations, and it also simplifies the process of setting up
companies and transfer (sale/purchase) of real estate.
Since 1 July 2007 each Hungarian public notary also has to store any copy
of a notarized document to the Digital public notary archive whereby the elec-
tronic signature of a public notary warrants that digital documents are recog-
nized as electronic notarial deeds.

European notaries are involved in the anti-money laundering system by
verification of the clients’ identity transparency of a legal transaction. In 2007
the Spanish notary public service intensified cooperation with administrations
dealing with taxes and contributions and founded the Tax Cooperation Body,
which provides them with required information. Council of the Notariats of
the European Union – CNUE) has set the goal - gradual creation of the Eu-
ropean Network of Registers of Wills - ENRWA) that will interconnect the
national registers of wills. The register of wills in the Republic of Croatia was
established in 2003, and since 6 October 2004 it has been operating as an elec-
tronic register.
In the German province of Bavaria public notaries maintain the register of
lifetime partnerships in their professional Chamber which is responsible for
keeping “ the book of lifetime partnerships”.
In 2003 the German public notary service also established the register prox-
ies-custodians for adults without legal capacity which is kept in electronic form
(Central Register of Custody-Zentrale Vorsorgeregistar (ZVR)) which can be
710
used by custody courts in appointment of guardians for adults or in the manner
that a person in person grants a general power of attorney to a third party in
case of being without legal capacity.
Since 1997 the Hungarian National Chamber of Public Notaries has been
keeping the electronic register of movable property and securities which enables
granting of loans, checking the reliability of banking clients, strengthens the
position of creditors so that they can at any time exercise their rights in respect
of movable property and securities established in their favour.
3. INFORMATION COMMUNICATION
TECHNOLOGY IN THE SERVICE OF PUBLIC
NOTARIES IN THE REPUBLIC OF CROATIA
.. Electronic keeping of registers and directories
By amendments to the Notary Public Ordinance published in Official Ga-
zette No. 37/96 Article 18a was added wherein notaries are allowed to main-
tain the registers and directories by an electronic method using personal com-
puter in a uniform manner for all notaries. In addition to electronic keeping of
registers and directories notaries shall also keep them manually.
The approval from the Ministry of Justice was required for electronic man-
agement and each notary public and the Croatian Chamber of Notaries was re-
sponsible for the application of a uniform methodology of keeping the registers
and directories, and their maintenance. By the mentioned amendments to the INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Notary Public Ordinance in 1996 the possibility was opened for introducing
information technology in the notary public services in the form of computer-
ization in its full extent. By providing such opportunity to notaries public is of
historical importance for the notary public service in the Republic of Croatia
as it opened the way for the development of the service and the possibility of
expansion of the powers of notaries. The first notaries public (notaries) on the
territory of the Republic of Croatia appeared as early as in 11th century in Du-
brovnik and were operating until the 2nd World War when they were abolished
and then re-introduced 29 July 1993 by the Notaries Public Act. That whole
period of time - covering the emergence of the first notaries public (notary)
until Amendments to Notaries Public Act in 1996 can be considered as a pre-
technological period, and after amendments in 1996 the possibility opened to
711
maximum use of information technology in its full scope and on an unlimited
way (limited only be degree of technology development). It shall be noted that
the notaries also before amendments of the Ordinance 1996 used technology
in their work to make their work easier, using photocopiers, telefaxes, scanners
and own databases stored on computers in the form of templates for contracts;
however, it was only a small part in relation to the opportunities given by the
mentioned amendment of the Ordinance. Information and communication
technology primarily contributed to facilitating and accelerating affairs in the
notary public service and opened the way and possibility of expanding the ac-
tivities of notaries public activities.
Although the opportunity was given already in 1996, the first software
tested by the Croatian Notaries Chamber for the electronic management of
notarial registers and directories appeared in 2006 under the name Notaio 1.0.
(27 May 2006) produced by Omni Aspect d.o.o. Kutina. By introduction of
the programme in the notary public practice resulted in faster operation, data
security, reduced operating costs, and most importantly, the possibility of com-
patibility with other applications and Internet services. The Notaio programme
(software) is compatible with archival information system of the Croatian State
Archives, Electronic receipt book of the Croatian Post Office (e-PK), Fiscalisa-
tion of Tax Administration of the Republic of Croatia and with the Windows
operating system.
The Notaio programme contains several software modules that are comple-
mentary and enable automatic reading of information about clients, and con-
tains all the necessary types of verifications and certificates; in addition to the
automatic option there is also the option of independent editing the verification
and automatic invoicing, all registers and directories, the possibility of creating
and editing solemnization, monitoring of enforcement proceedings, support to
work in the inheritance proceeding, preparation of notarial acts with the tem-
plate base, support at establishment and amendments of the acts of companies,
calendar, news, mail, registration of promissory notes and blank promissory
notes, and also offers the possibility of remote access (Remote Access), daily
and weekly security data storage (backup), automatic scanning, reading and
checking identity cards and passports with storing photos and client’s personal
signature, cash-in-hand and working hours records.
712
Although the opportunity was given already in 1996, the first software
tested by the Croatian Notaries Chamber for the electronic management of
notarial registers and directories appeared in 2006 under the name Notaio 1.0.
(27 May 2006) produced by Omni Aspect d.o.o. Kutina. By introduction of
the programme in the notary public practice resulted in faster operation, data
security, reduced operating costs, and most importantly, the possibility of com-
patibility with other applications and Internet services. The Notaio programme
(software) is compatible with archival information system of the Croatian State
Archives, Electronic receipt book of the Croatian Post Office (e-PK), Fiscalisa-
tion of Tax Administration of the Republic of Croatia and with the Windows
operating system.
The Notaio programme contains several software modules that are comple-
mentary and enable automatic reading of information about clients, and con-
tains all the necessary types of verifications and certificates; in addition to the
automatic option there is also the option of independent editing the verification
and automatic invoicing, all registers and directories, the possibility of creating
and editing solemnization, monitoring of enforcement proceedings, support to
work in the inheritance proceeding, preparation of notarial acts with the tem-
plate base, support at establishment and amendments of the acts of companies,
calendar, news, mail, registration of promissory notes and blank promissory
notes, and also offers the possibility of remote access (Remote Access), daily
and weekly security data storage (backup), automatic scanning, reading and
checking identity cards and passports with storing photos and client’s personal
signature, cash-in-hand and working hours records.
The program was created in accordance with the specifications of the Croa-
tian Notaries Chamber and provides regular launching of new versions that
comply with amendments in laws, rules, needs and ideas of notaries. The pro-
gram provides protection against data erasure, unauthorized access, power fail-
ure, damage. The instant customer support is provided through secured inter-
net network (VPN), by telephone or intervention on the spot and there is a
possibility of integration with other online services and databases, which is very
important for the development of the notary public service and the allocation
of new entrusted tasks.
713
Figure 1 Operating scheme of electronic notaries public registers
Work
Protection
station
Work supply
station
Base
Work
station
Work Notiao system
station server
Backup
Firewall
VPN
Internet
Source: author according to

http://notaioportal.eu/Javnibilje%C5%BEniciNotari/NotaioHR.aspx)
Considering the above facts, it can be concluded that the current method
of keeping electronic registers and directories provides great opportunities and
greatly reduces the burden on public notaries but it should be remembered that
the possibilities of information technology are far from their full exploitation.
Namely, entrusting larger scope of operations to notaries would greatly speed
up the procedures that are now conducted by certain administrative bodies and
reduce the burden on the state budget, and in this field the information technol-
ogy capabilities would show their true capabilities/capacities. Naturally, the leg-
islative amendments have to precede the exploitation of information technology
to its full extent, because in this case the law is the key element of all future posi-
tive changes in the notary public service and society as a whole. The legislative
amendments refer primarily to the allocation of new tasks entrusted to notaries
public and giving more powers to the notaries for which there is already a sound
legal ground because the notaries are autonomous and independent holders of
office “which have the status of a person of public trust.”
714
.. E-company
Pursuant to the Companies Act, notaries in Croatia participate in the found-
ing and general assembly of a joint stock company, take minutes of these assem-
blies, and verify (certify) amendments to the articles of association.
In respect of a limited liability company and a simple limited liability com-
panies, notaries public draw up memorandum of associations on founding or
statements of incorporation if a company is founded by a sole person (natural
or legal) in the form of a notarial deed or a private document certified by the
notary public. In terms of amendments to the memorandum of association,
notaries draw up decisions of company in the form of a notarial record or a
notarial deed or a certified private document. Furthermore, notaries draw up
declarations on acceptance of the appointment of persons authorized to man-
age the company, draw up agreements on transfer and takeover of a business
share in the form of a notarial deed or private certified documents, and they are
authorized to issue excerpts from the court registry. Up to 2008 notaries sent all
these amendments in companies to a competent commercial court by mail and
it took some time until the court received the mail and to make changes.
In 2008, after start of the pilot project of the Ministry of Justice and the Cen-
tral State Office for e-Croatia in cooperation with the High Commercial Court,
Croatian Notaries Chamber, commercial courts, notaries, FINA and In-2 d.o.o.,
it was enabled to establish a limited liability company within 24 hours from re-
ceipt of the duly made application by the competent commercial court. The ap-
plication can be submitted from the notarial office or Hitro.HR office. Namely,
the procedure for registration in the court register is activated by a written ap- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
plication with a specific request for registration or change data at the commercial
court in writing or by electronic means (Article 9 of the Court Register Act:
Official Gazette No. 1/95, 57/96, 1/98 , 30/99, 45/99, 54/05, 40/07, 91/10,
90/11, 148/13). Notary public prepares an electronic application for entry, with
required attachments in electronic form, sign by electronic signature and sends it
to the commercial court. Electronic signature of the notary public replaces his/
her personal signature and seal. After the notary public signed the application by
electronic signature it is considered to be publicly verified. After receiving such
application, the court registry identifies the sender and delivers reference num-
ber under which it was received. The moment of receipt of the application is
recorded at the commercial court and is automatically assigned to a register judge
715
for processing. If the application is correct, the registration court will, within 24
hours, issue a decision on entry (registration), and if application is not correct, it
will issue a conclusion. If the application is correct, a newly founded company is
awarded OIB (personal identification number) and OIB together with OIB cer-
tificate is sent to HITRO system together with the registration number (MBS)
and the decision on registration of incorporation.
The introduction of E-businesses has speed up the process of establishing
a limited liability company (d.o.o./LLC) and a simple limited liability com-
pany (j.d.o.o./SLLC), notaries, HITRO HR offices, commercial courts and
tax administration were connected, the possibility of certifying documents by
advanced electronic signature was introduced, transcription of information in-
cluded in the application is avoided, and they are automatically entered into the
system and in this way the possibility of errors in transcription is eliminated,
the documents required for entry of d.o.o. and j.d.o.o. are automatically stored
in a digital collection of documents of the court registry, paper document are
replaced by electronic documents with the possibility to follow a matter.
Although this system of the establishment of companies (LLC and SLLC))
led to significant mentioned changes and simplifications, it should be noted that
the most significant change is reflected in the possibility remaining, i.e. the pos-
sibility of a further upgrade. These changes in the form of E-company has par-
tially automated and facilitated only a small segment which refers only to the
establishment of a limited liability / simple limited liability company while the
question of other forms of companies and all changes that happen in companies
have not been resolved. The present system of E-company could be schemati-
cally shown as follows
Figure 2 Scheme of the current functioning of E-company system

NOTARY
PUBLIC Electronic
application COURT
Setting up d.o.o./j.d.o.o.
REGISTER
HITRO HR
Source: Author
716
In order to fully facilitate and speed up the procedure for setting up compa-
nies and making changes related to companies it was necessary to go to a similar
but fundamentally different principle. The principle similarity is reflected in the
fact that only the technology basis that is currently used in E-company would
be used. The principle difference is reflected in the fact that only notaries pub-
lic participate in establishment of all forms of companies and changes related
to all companies so as they directly perform registration of a new company in
the court registry and make changes directly in the court registry relating to all
types of companies. Now we again should refer to the legal fact that the notary
public is person of public trust and that direct access, registration and carrying
out of changes in the register should not be questioned. Such registration and
change would not last 24 hours but it would be executed immediately and com-
mercial courts would be significantly relieved. This concept could be schemati-
cally shown as follows:
Figure 3 Scheme of possible and simpler functioning of the E-company system
All
NOTARY amendments
COURT
and setting
PUBLIC REGISTER
up
companies
Source: Author
The presented solution may seem impossible and impracticable, but it

should be noted that the law is the key element of all future changes. In this
manner, commercial courts and state budget would be relieved in an even
greater extent. The presented idea may be a bit extreme but it certainly gives
the space for thinking and possibilities of delegation of more tasks, related
to the entry into the court register, to notaries public.
.. Register of wills

In 2003 in the Republic of Croatia a register of wills was established and
since 6 October 2004 electronic register has been in use. The Croatian Registry
of Wills has been maintained by the Croatian Notaries Chamber (Article 1 of
the Ordinance on the Croatian Register of Wills, Official Gazette No. 153/03,
717
164/04). Data in HUO (Croatian Notaries Chamber) are stored by the IT sys-
tem at the Croatian Notaries Chamber and sent by the electronic data transfer.
“Notaries public, municipal courts and diplomatic- consular representations
are obliged to ensure all conditions necessary for electronic data transfer (net-
work connections, software, hardware).
Technical requirements for HUO maintenance will be determined by the
Minister of Justice, on the proposal of the Croatian Notaries Chamber.
Any authorized person shall identify himself/herself within the electron-
ic legal transactions, by own HUO user number, together with the security
pasword(code).
HUO user number is allocated by the Croatian Notaries Chamber taking
into account the criteria set out in Article 9 of this Ordinance in relation to giv-
ing authorizations.
Authorised person shall choose the security code/password by himself/her-
self. The security code shall be kept confidential and protected from abuse. The
loss of security code shall be immediately reported to the Croatian Chamber of
Notaries. “(Article 5 of the Ordinance on the Croatian Register of Wills, Of-
ficial Gazette No. 153/03, 164/04).

The register of wills contains the following information: name and surname
of the testator, date of birth, date of storing, will type and location of keeping
a will.
.. Register promissory notes and blank promissory notes

The register of promissory notes and blank promissory notes is an electronic
database that contains information on persons who issued promissory notes
and blank promissory notes, types of debentures, and person-beneficiary of the
debenture issued and whether someone and who has taken a guarantee from a
promissory note or blank promissory note, the amount of claim to which has
been issued, the data who certified the document with the date and reference
number of the certificate. The register of promissory notes and blank promis-
sory notes (the Register) is kept by the Croatian Chamber of Notaries. The
form, content and manner of keeping the Register are determined by the Ordi-
718
nance on the register of promissory notes and blank promissory notes (Official
Gazette No. 112/12). Notary public submits data into the Register.
The data is stored in the Register with the help of the IT system at the Croa-
tian Notary Public Chamber. When registering each authorized person shall
identify himself/herself by own user number and security code awarded by the
Croatian Chamber of Notaries. The Chamber keeps records of safety codes.
Only notaries and Financial Agency (FINA) have the access to information in
the register.
After confirming a promissory note blank promissory note the notary is
obliged to submit electronically the data from a promissory note immediately
to the Register. From the above it is evident that in reality there a promissory
note/blank promissory note written on paper and a promissory note in elec-
tronic form entered in the Register.
If a creditor fails to collect receivables from the debtor he /she can submit
the promissory note/blank promissory note to the Financial Agency for collec-
tion. In order FINA could collect the promissory note, the main precondition is
that it has been entered in the Register. The purpose of the Register is prevent-
ing abuse of promissory notes, falsifications and other manipulations.
However, the register of debentures could have a much wider purpose than
it currently has, and for example, a notary public could find out, when issuing a
debenture and at entry of the debtor’s OIB, whether he/she (debtor) is heavily
indebted or blocked and automatically disabled the issuance of new debentures
to him/her. A debenture loses its purpose if it is issued by a person who does
not have coverage or is over-indebted and that is certainly possible at this mo-
ment. In such a way, the creditors would get much higher security than having
with them a promissory note of a blocked or an over-indebted individual or
entity
4. PERSPECTIVE POSSIBILITIES OF NOTARY

PUBLIC SERVICE
.. Notary public and inheritance proceeding
Pursuant to Article 176 of the Inheritance Act (Official Gazette No. 48/03,
163/03, 35/05, 127/13) inheritance proceeding in the first instance is carried
719
out before a municipal court or a notary public as a court trustee. The Court
entrusts a notary public to conduct the inheritance proceeding and submit the
death certificate to him/her. In practice, the municipal court submits the file
containing the death certificate and the solution of the delegated task to notary
public. After the notary public conducted the inheritance proceeding and ren-
dered a decision on inheritance he/she returns the file to the Municipal Court
that archived it. From the above it is evident that the file is physically moving
on the relation court-notary-court because notaries do not have access to E-file,
and because the courts keep records and manually, too, despite the existence of
E-file
E-file is a unique information- communication judicial system which was
introduced for test in February 2007 at the Municipal Court in Pula and is
currently implemented in all courts in the Republic of Croatia. The accommo-
dation and maintenance of E e-file is at the central location of FINA and all
courts are connected by means of computer-communications network of state
administration bodies to the central location.
From the above it is evident that there is a possibility of connecting notaries
with E-file in the part relate to the tasks entrusted to them by the court in such
a way that the notary receives the entrusted file electronically and solve it and
archived in the shortest possible time and with as little paperwork as possible.
.. Notary public and land books

Land Registers show the legal status of real estate on the territory of the
Republic of Croatia which is used as applicable in the real estate transactions.
The land register is public and anyone can demand the access to the land reg-
ister. The application of the Ministry of Justice allows anyone to inspect the
experimental Central database of land registry offices of municipal courts in the
Republic of Croatia, and the data from that database, for now have an informa-
tive and corrective role. The data and excerpts in the EDP land registry for now
cannot serve as an official excerpt, and they are updated every 24 hours and the
date of the last update is highlighted in the header of an informal excerpt. In
the future, when the EDP land register is fully applied, it will enable the no-
tary public service to participate directly in a way in the changes of its contents
through entries, registrations, notes.
720
With the help of information technology, notaries public would have the op-
tion to make entries, registrations and notes in land registers, at conclusion of a
contract of sale of real estate, notarial lien insurance on the basis of the parties’
agreement, notarial insurance by transfer of ownership to the items and upon
transfer of such rights to enter, register and make notes in the land registers
without that it makes the party itself.
In the same way a notary public would, at conclusion of a sales contract,
which relates to the property, submit it electronically to the competent tax of-
fice, while the current obligation of the notary public is to certify the signature
of the seller (and buyer if necessary) at his/her demand. In order to realize such
an idea, the exclusive legal competence to conclude such contracts and agree-
ments shall be given to notaries public. Namely, fact, already in Brief notes to
the law of 25 July 1871 no. 76, it was stipulated that the validity of certain legal
matters and agreements was subject to drafting a notarial deed. Thus, it was
determined that the notary act is necessary when entering into:
“a) marriage contract;
b) agreements on purchase and sale, exchange, on income and loan as con-
cluded between spouses, as well as statement on debts mutually;
c) receipts of dowry, no matter if not issued to the wife but to other person;
d) all documents in a legal case between persons, blind and deaf-mute per-
sons who cannot read or persons who are illiterate or who are not able to enter
into transaction by their own intellect.” (Pappafava;1896, p. 233).
Today, Article 53 of the Notaries Public Act (Official Gazette No. 78/93, INTERDISCIPLINARY MANAGEMENT RESEARCH XI
29/94, 162/98 and 75/09) states that the notary act is required for validity
of: the contract on the disposal of assets of the minors, and persons who are
deprived of legal capacity, deed of gift without handing things in immediate
possession of the donee and all legal transactions among deaf persons who deaf
who cannot read or mute who cannot write. It is this last provision that runs
through the aforementioned Brief notes to Law of 25 July 1871 no.76 from it
can concluded that the notary public person, through history and even today,
was and is, a person who is legally given a special confidence of the parties who
need special protection when concluding important legal transactions. Com-
parison of the acquisition of title to real property on the basis of legal trans-
action in the Republic of Croatia and Bosnia and Herzegovina shows that in
721
Bosnia and Herzegovina Article 53 of Proprietary Rights Act (Official Gazette
of the Federation of BiH, No. 66/13), the right of ownership on the basis of
the legal transaction that shall be concluded in the form of a notarized docu-
ment, while in the Republic of Croatia s certification of the seller’s signature is
sufficient. Notaries public may conclude all other types of contracts only if the
clients require it from him/her.
For activities related to the disposal of real estate, purchase, lease, pledge, it
would be necessary to determine the legal form of a notarial deed thus to pro-
tect the interest of the parties, confidence in the land registry and proper collec-
tion of income tax. It means that the notary public will, after the sale contract of
a real property is signed, immediately entered in the land register and submit it
electronically to tax administration and stored it in his/her archives.
In this way, the issue of existence unregistered ownership of property would
be solved, and encumbrance and note would we entered. For the same reasons
stated above, the exclusive jurisdiction of notaries (which currently can also be
alternatively done by courts) should include drawing up of the lifelong main-
tenance contracts, contracts of lifetime maintenance contracts, contracts for
support until death, contracts of assignment and distribution of assets for life
and agreement on the waiver of inheritance. In such way smaller scale of tasks
would relieve courts. Prescribing the most stringent forms for legal transactions
by which the ownership and other real rights on real estate (actual encumbranc-
es, liens, easements, rights of construction ...) is either transferred or acquired
would result in reduction of possible future disputes because the interests of
both parties would be protected in a manner that notary public would control
the status in the land register before e conclusion of the legal transaction, and
after the conclusion notary public would conduct the registration of the new
owner and payment of the purchase price through its account created for other
persons.
Notary public would be required to submit electronically all such made
contracts and agreements to the competent authorities and to thereby re-
duce the time required for the implementation of such agreements, queues
in front of the land registry departments and offices of the tax administra-
tion would be shorter. An example of the sale of property shown sche-
matically, the route the buyer and seller shall pass currently and under the
outlined solution is presented.
722
Figure 4 Route of the seller and buy- Figure 5 Route of the seller and buy-
er at sale/purchase of a real property er at sale/purchase of a real property
(current) according to proposed solution
1.
LAND
REGISTRY:
Obtaining land
certificate
SELLER/BUYER
5. 2.
TAX ATTORNEY'S
ADMINISTRATION:
OFFICE:
Submission of
Drafting contract
contract
SELLER/BUYER NOTARY PUBLIC
IT
LAND REGISTRY;
TAX
4. 3. ADMINISTRATION
LAND NOTARY
REGISTRY: PUBLIC:
Contract execution Contract
certification
Source: author
.. Notary public and register of judicial and notary public

insurance of creditors’ claims over movable assets and
rights
Pursuant to the Register of judicial and notary public insurance of creditors’
claims over movable assets and rights (Official Gazette no.121/05), the rights
and measures are entered on the basis of a notary deed or a court decision en-
tered in any other public books, such as: lien on movables, right, share, stake and
business interest in a company which is, pursuant to law, acquired by enforce- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
ment or security, lien on the totality of things that belong to the opposing party
or the debtor or the totality of things of these persons that are in or on the cer-
tain area, whose contents can be changed by transfer of the ownership right to
movables or transfers of any other rights in order to ensure compliance with law.
The register of judicial and notaries public securities of the creditors’ claims is
kept by the Registration department within Financial Agency and in the electronic
form. The registering spots are located at existing business units of the Financial
Agency and are connected to a unique database with a registration system in real
time. The register is a public book and everyone has the right to ask to be allowed
access to the register, look for excerpts from the general ledger and copies from the
document collection. Search The register can be searched according to the criterion
723
of persons and items. Department of registration shall keep and store the informa-
tion so that they are protected from unauthorized use, alteration or loss and data
recorded on electronic media shall be kept permanently. The entry procedure is
initiated by the proposal of a party or by virtue of the office.
In relation to public notary service, registration of a lien on the movable prop-
erty and rights shall be made based on the agreement of the parties, and in this
sense it represents the establishment of a voluntary lien. The agreement is made
in the form of a notarial deed or solemnized private document which must con-
tain the debtor’s statement that he/she agrees that a lien can be created on some
of his/her object to secure a monetary claim of the creditor. After the parties
(debtor and creditor) draw up such a document at the notary’s office, it shall be,
together with the proposal submitted Department of registration of Financial
Agency. However, with the opportunities provided by information technology
in the notary public service and in general, such entry would be possible directly
from the notarial office where the agreement was made. All that is necessary is to
connect notarial software (Notaio) with the register of processing o of judicial
and notarial securities of claims of creditors of Financial Agency. In this way, the
notary who made or confirmed the agreement on insuring a monetary claim by
creation of a lien on movable property or debtor’s rights, the same right could
now be realized immediately in the register of securities without having the par-
ties submit it to the Financial Agency.
.. Notary public and enforcement procedure

Pursuant to the provisions of the Enforcement Act (Official Gazette No.
112/12, 25/13 and 93/14) notaries public decide on the proposal for enforce-
ment based on authentic documents (Article 278). Pursuant to the Enforce-
ment, valid document is: bill, bill of exchange and check with protest and return
invoices, public document, an excerpt from business books, a private document
authenticated according to the law and document that is considered a public doc-
ument under special regulations; the invoice also refers to calculation of interest.
At the time of writing this paper the Law on Amendments to the Enforce-
ment Act came into force on 1 September 2014 which changed Article 8 of
the Enforcement Act (Official Gazette No. 112/12, 25/13) which refers to the
delivery (delivery of the writ of execution) in a way that the court or a notary
public will, before sending the writ of execution obtain the exact address of the
724
enforcement debtor from the records of the Ministry of Interior. These changes
are shortened and simplified the procedure of dispatch the writ of execution to
the execution debtor as a significant part of the shipment returned marked with
“left” or “not known at the address”. After the above-mentioned changes of the
Enforcement Act service will be tried twice at the address obtained from the
records of the Ministry of Interior, and if it is unsuccessful, it is sent the notice
board of the competent court.
Currently, for every writ of execution obtains a certificate of residence for
each execution debtor is procured in writing from the relevant police station,
however, connecting notaries public with the electronic database of the Minis-
try of Interior is planned in near future as to those checks could be made in a
simpler and faster way. In order the whole process of dispatch a writ of execu-
tion is covered electronically, it is necessary to provided notaries public with the
possibility to access and send the writs of execution electronically to the notice
board of the court (e-bulletin board).
CONCLUSION
Information technology and current level of its development provide wide
possibilities of its application in notary public and other services. However, cur-
rent achievements and possibilities of information technology, referring to the
notary public service, exceed its usefulness, simply speaking, information tech-
nology provides opportunities that are used on a small scale, i.e. under-used.
The benefits of information technology, in a greater extent, are used by the no-
tary public service which can be explained by a longer tradition of use of infor-
mation technology in the service. Nevertheless, if one looks at the possibilities
of today’s information technology, it can be concluded that it is largely present
in the notary public services (hardware) but its capabilities are used on a small
scale. The cause of the problem is lack of willingness to connect and better in-
tegrate databases of other institutions (Ministry of Justice, Ministry of Finance,
Ministry of Interior…) with the notaries public databases.
Looking from other side, the question is how the benefits of information
technology can adversely affect the notary public service changing its tradition
and original purpose. The question is, whether notaries, by keeping the data-
bases in electronic form, in the future perhaps electronic archives as well, ques-
tion the status of a person of public trust. Namely, all data contained in elec-
725
tronic form are exposed to the possibility of unauthorized access (hacking) or
possibly destruction due to malfunction or failure of technology. Theoretically
and empirically speaking, technology can greatly accelerate and facilitate work
processes, but it also can also completely disable it if we fully rely on it.
If we take a simple example of writing, for example a notarial deed by hand
on paper fifty years ago and today on computer, it can be said that the com-
pletion of such act previously depended on the person who wrote it and now
depends on the good functioning of technology (a computer used for writing
and a printer which will print it). The presence of technology in work leads to
certain everyday unconscious uncertainty and this uncertainty also leads to un-
conscious stress that is just another added stress that each person experiences
in one day.
LITERATURE:
Book:
Pappafava Vladimir: (1896) Bilježnički obraznik sa izjašnjenjima Povjestnim, Bibliograf-
skim i Pravničkim, izdavatelj: ZADAR 1896, L. WODITZKA, pretisak: Digitalni tisak
Intergrafika ttž. d.o.o., Zagreb, ožujak 2014.
Legislation:
Ovršni zakon, Narodne novine broj: 112/12; 25/13 i 93/14
Zakon o javnom bilježništvu, Narodne novine broj: 78/93, 29/94, 162/98 i 75/09
Zakon o nasljeđivanju, Narodne novine broj: 48/03, 163/03, 35/05, 127/13
Zakon o sudskom registru: Narodne novine broj: 1/95, 57/96, 1/98, 30/99, 45/99, 54/05,
40/07, 91/10, 90/11, 148/13
Zakon o stvarnim pravima, Službene novine Federacije BiH broj 66/13
Zakon o trgovačkim društvima, Narodne novine broj: 111/93, 34/99, 121/99, 52/00,
118/03, 107/07, 146/08, 137/09, 125/11, 152/11, 111/12, 68/13
Zakon o Upisniku sudskih i javnobilježničkih osiguranja tražbina vjerovnika na pokretnim
stvarima i pravima, Narodne novine broj: 121/05
Pravilnik:
Pravilnik o Hrvatskom registru oporuka, Narodne novine broj:153/03, 164/04
Pravilnik o registru zadužnica i bjanko zadužnica, Narodne novine broj 112/12
Poslovnik:
Javnobilježnički poslovnik: Narodne novine broj: 38/94, 82/94, 37/96, 151/05 i 115/12
Internet sources:
http://www.vorsorgeregister.de/ZVR-Zentrales-Vorsorgeregister/Zentrales-Vorsorgereg-
ister-ZVR.php (pristupljeno 03. ožujka 2015.)
http://notaioportal.eu/Javnibilje%C5%BEniciNotari/NotaioHR.aspx (as of: 3 March
2015)
726
PHENOMENOLOGY OF
PUNISHABLE BEHAVIORS IN
THE ECONOMY AND THEIR
IMPACT ON THE SUCCESS OF THE
ORGANIZATIONS
Željko TURKALJ, Ph.D.
Ante ORLOVIĆ, Ph.D.
Ivica MILKOVIĆ, univ. spec. oec.
Abstract
In the economic sphere success is measured by the economic parameters. Busi-
ness profitability is utilitarian assumption of economic success. The success of
organizations depends on the management. Therefore, the economic responsi-
bility of management and business organizations is imperative. In addition to
economic, there are other types of responsibilities in business: social, ethical and
legal. Each of them carries their own relevance. Legal responsibility is an obliga-
tion to respect the legal regulations of a given country in conducting business.
Punishable behaviors are defined as behaviors contrary to the legal norms for
which sanctions are prescribed. The main motivation for committing punishable
behaviors in the field of economy lies in achieving illegal gain for oneself and/or
causing damage to the others. In market competition, freedom of participants is
granted, but it cannot be absolute. Their competitiveness is essential; however,
it must be regulated. The economic success of the organizations must be in cor-
relation with the legal perfection of their business. Economic behaviors in accor-
dance with the rules should be accepted and promoted while opposite behaviors
should be detected and sanctioned. Punishable behaviors are diverse. They can
be categorized according to several criteria, e.g. the object of protection, modus
operandi, the segment of the economy, characteristics of the perpetrator, and
types of injured parties. However, the basic criteria in categorizing punishable
behaviors are their substance and intensity of the consequences (danger, harm-
fulness) they cause. Punishable behaviors, in accordance with the above criteria,
727
are manifested through serious, less serious and mild forms of violation of oth-
ers’ rights and social values. Forms of punishable behaviors in the economy,
ranked according to their degree of hazard/harmfulness are economic criminal
offenses, economic misdemeanors and disciplinary acts. Punishable behaviors
are anomalies and deviations in economic behavior whose essential attributes
Željko Turkalj • Ante Orlović • Ivica Milković: PHENOMENOLOGY OF PUNISHABLE BEHAVIORS IN THE ECONOMY AND THEIR IMPACT ON ...
are complexity and limitlessness. These characteristics of punishable behaviors

in the economy stem from the identical characteristics of the economy, which
is the context of their presence and existence. Improved understanding of the
phenomenology of punishable behaviors in the economy is of paramount impor-
tance and represents a precondition for their more successful reduction and/or
elimination, either by business organizations (internal actions – controlling) or
by the competent institutions (external actions – prosecution).
Keywords: punishable behaviors, economic criminal offenses, economic misde-
meanors, disciplinary acts, success of the organizations
JEL Classification: F5, F49, L20
1. INTRODUCTION
Organizations are established for the specific purpose and generally exist as
long as they fulfill their purpose in a socially justified and economically logical
way. The purpose of existence or the mission of the organization is the creation of
new values which are placed on the market to the users in order to meet their
needs. The mission of the organization is socially justified if there is an adequate
level of demand of its products and is economically logical if it is realized in a
profitable way. Profitability enables business continuity and progression, result-
ing in multilateral positive effects related to the organization and the associated
interest groups.1 Business profitability is utilitarian assumption of economic suc-
cess and viability of the organizations on the market.
In the economic sphere success is measured by the economic parameters,
primarily by profit or gain. The Accounting Act prescribes the economic-finan-
cial parameters of business performance which are contained in the annual fi-
nancial statements (Article 15) and the annual report (Article 18). Profit or gain
1
Interest groups by their nature are divided into: primary or business (co-owners, managers,
employees, customers/consumers, suppliers, financiers, investors ...) and secondary or social
(local and national community, the media, professional organizations, political authorities,
institutions of areas of education, culture, sports, health, environmental protection ...).
728
is also contained in the legal definitions of the basic types of economic subjects
(companies, crafts) as their essential element. The success of organizations de-
pends primarily on the management. Therefore, the economic responsibility of
management is imperative.
In addition to economic, there are other types of responsibilities in business:
social, ethical and legal. Each of them carries their own relevance, but they are
not necessarily equivalent. They can be understood in a hierarchical or pyrami-
dal relation. For example, Carroll’s pyramid (Carroll and Buchholtz, 2003:40,
according to Srbljinović, 2012:164) contains economic responsibility in its
base, and upgrading to the top of the pyramid are respectively positioned statu-
tory/legal responsibility, then ethical responsibility and philanthropic/social
responsibility.
The European Commission defines Corporate social responsibility as “the re-
sponsibility of enterprises for their impact on society” (European Commission,
2011:6). Socially responsible companies, in addition to focusing on consumers,
competition and profit, harmonize their business with social needs and envi-
ronmental protection voluntarily and in interaction.
Ethical responsibility or business ethics ( Jurković et al., 1995:447) is the ap-
plication of ethical principles in business relationships and activities. Business
ethics implies the obligation to act in accordance with the principles of respon-
sibility, integrity, efficiency, transparency, quality, acting in good faith and re-
specting fair business practices towards business partners, business and social
environment, and your own employees (CCE, Code of Business Ethics, Article
4). Ethical responsibility is complementary to economic responsibility, and sub- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
stantially corresponds with social responsibility.

Legal responsibility implies an obligation to respect the legal regulations in
business. Management is generally responsible for conducting business in ac-
cordance with the law, but the consequences of illegal business apart from it are
also borne by the economic subjects.
Given dimensions of responsibility in business are not mutually indepen-
dent, autonomous and exclusive. Hypothetically speaking, the first two dimen-
sions are obligatory, and the other two are optional.
Legal responsibility in business implies refraining from unlawful or illegal
behavior. Punishable behaviors are defined as behaviors contrary to the legal
729
norms for which sanctions are prescribed. The main motivation for committing
punishable behaviors in the field of economy lies in achieving illegal gain for
oneself and/or causing damage to the others. In market competition, freedom
of participants is granted, but it cannot be absolute. Their competitiveness is
essential; however, it must be regulated. The economic success of the organiza-

tions must be in correlation with the legal perfection of their business. Eco-
nomic behaviors in accordance with the rules should be accepted and promoted,
while opposite behaviors should be detected and sanctioned.
2. PHENOMENOLOGY OF PUNISHABLE
BEHAVIORS IN THE ECONOMY
Punishable behaviors are diverse. They can be categorized according to sev-
eral criteria – for example the object of protection, modus operandi, the segment
of the economy, the characteristics of the perpetrator, the types of the injured par-
ties. However, the basic criteria in categorizing punishable behaviors are their
substance and intensity of the consequences they cause. Punishable behaviors,
in accordance with the above-mentioned criteria, are manifested through seri-
ous, less serious and mild forms of the violation of others’ rights and/or social
values. Forms of appearance of the punishable behaviors in the economy, ranked
according to their degree of hazard, therefore are: economic criminal offenses, eco-
nomic misdemeanors and disciplinary acts.
Punishable behaviors are anomalies and deviations in economic behavior
whose essential attributes are complexity and limitlessness. These characteris-
tics of punishable behaviors in the economy stem from the identical character-
istics of the economy, which is the context of their presence and existence.
.. Economic criminal offenses

Criminal offenses and criminal sanctions shall be prescribed only for acts threat-
ening or violating personal liberties and human rights, as well as other rights and
social values guaranteed and protected by the Constitution of the Republic of
Croatia and international law in such a manner that their protection could not
be realized without criminal law enforcement (the Criminal Code, Article 1).
A criminal offense can be committed by an act (delicta commisiva) or an omis-
sion to act (delicta ommisiva) (Article 20). Apart from principal (one person) and
730
co-principal (more persons jointly), other persons (accomplices) – instigators and
aiders can also participate in the perpetration of criminal offense (Article 36-38).
In the context of economy and management perpetrators with the status of
responsible persons in legal persons are particularly important. The Criminal
Code (Article 87) defines responsible person as a natural person who manages
business affairs of a legal person or is entrusted with particular tasks from the
field of activities of a legal person. In addition to the responsible person as the
perpetrator, the legal person also bears responsibility for criminal offense. The
Act on the Responsibility of Legal Persons for the Criminal Offences prescribes
that responsibility of legal person is based on the guilt of the responsible person
(Article 5).2
Criminal offenses, including economic, due to the property of perpetrators,
are divided into: specific criminal offenses (delicta propria) which provide that the
perpetrator may be a person with certain characteristics (responsible person,
official, etc.) and general criminal offenses (delicta communia) which provide that
the perpetrator can be any or every person.
Economic criminal offenses are specific types of offenses in the Criminal Code
whose manner/context of perpetrating stems from business operations or is essen-
tially connected with them. Coverage of criminal offenses that may be consid-
ered economic results from the combination of criminal law and crime criteria.
The criminal law criteria are related to the object of protection and characteristics
of the perpetrator, while crime criteria include manner, means and circumstances
of committing criminal offenses and methods for their detection and investigation.
Economic criminal offenses are often denoted as economic criminality. Both
terms are used almost interchangeably, but are different in that the first refers to
the criminal law aspect and therefore belongs to the criminal dogmatics, while
the economic criminality refers to a specific social phenomenon and therefore
has more criminological nature (Novoselec, 2009:1).
Economic criminality in a narrow sense (restrictively defined) encompasses the
totality of criminal offenses committed in the sphere of management, the ex-
ecutive and supervisory functions in the economic subjects in the pursuit of
2
The legal person shall be punished for a criminal offence of a responsible person if such offence
violates any of the duties of the legal person or if the legal person has derived or should have
derived illegal gain for itself or third person (Article 3).
731
economic activities. In a broader sense (extensively defined) economic criminal-
ity includes punishable actions (criminal offenses and misdemeanors) commit-
ted in non-economic subjects, if they are associated with asset management
(Orlović, Pajčić, 2007:697-698).
The Criminal Code has twenty six chapters (Chapter IX – XXXIV) in

its Special part. They essentially represent catalogs of incriminations related to
certain social values to which criminal law protection is secured. The economy
is one of those values explicitly protected by the Criminal Code. Chapter 24
(XXIV) contains the catalog of incriminations related to the economy.
In the phenomenological sense, criminal offenses in this chapter include differ-
ent manners of perpetrating (abuse, fraud, bribery, preference, evasion, deception),
various segments of the economy (capital market, public procurements, advertising,
production, trade), different objects of protection (business books, institute of bank-
ruptcy, the fiscal system, others’ company, trade secret), and can be sorted accord-
ing to various character categories (corruption, fiscal, stock, bankruptcy, delusional,
sabotage, secondary, prohibition). Economic criminal offenses, apart from Chap-
ter twenty four, are classified into other nine Chapters of the Criminal Code.3
In addition to the Criminal Code, economic criminal offenses are contained
in the provisions of secondary criminal legislation (the Companies Act, the For-
eign Exchange Act, the Act on Commodity Reserves and the Act on International
Restrictive Measures). There are seventy one economic criminal offenses in the
framework of Croatian criminal law (the Criminal Code and secondary criminal
legislation). Their quantitative extensiveness and phenomenological yield is vis-
ible, but it does not automatically imply their qualitative optimality/perfection.
Statistical indicators of the Ministry of the Interior4 show that the police
reported 2,177 perpetrators (2,026 natural persons and 151 legal persons) for
6,393 economic criminal offenses in 2014. The most frequent economic crimi-
nal offenses in that year were Forgery of official or business document (1,673),
Computer fraud (960), Abuse of position and authority (890), Illicit trade
(453), Abuse of trust in economic transactions (374).
3
Catalog of criminal offenses by the lines of work of Criminal Police, Number: 511-01-75 /
20-3-183-161 / 2-12, passed on 1 March 2013.
4
Ministry of Interior, Statistical review of safety indicators and operating results in 2014, Reg:
511-01 142-1001-1/15, Zagreb, January 2015; the Ministry of the Interior statistics http://
www.mup.hr/main.aspx ? id = 180991
732
.. Economic misdemeanors
Misdemeanors and misdemeanor sanctions shall be prescribed only for acts
threatening or violating public order, social discipline and social values guaran-
teed and protected by the Constitution of the Republic of Croatia, international
law and the laws whose protection is not possible without misdemeanor sanc-
tioning, and their protection cannot be realized through criminal law enforce-
ment (the Misdemeanor Act, Article 1).
This provision makes it clear that misdemeanors are punishable actions out-
side the scope of criminal offenses. Consequences of misdemeanors are usu-
ally less socially dangerous/harmful than the consequences of criminal offenses.
Misdemeanors and misdemeanor sanctions can be prescribed by law and the
decisions of local and regional government (Article 2).
In their statistical reports Central Bureau of Statistics (www.dsz.hr) classi-
fies misdemeanors in the following categories: public order and peace, safety of
road traffic, public safety, economy, financial activities, work and safety at work,
education, science, culture and information, health care and social welfare, health
insurance and environmental health, social self-protection, administration.
Table 1. shows the type and number of accused perpetrators in the domain
of economy and financial activities in 2013.
Table 1. Type and number of accused perpetrators in the domain of economy
and financial activities in 2013
type of person juvenille responsible
adult perpetrators legal persons total
domain of misdemanor perpetrators persons INTERDISCIPLINARY MANAGEMENT RESEARCH XI
21,842 55 9,688 9,635 41,220
economy
(8.7%) (1.0%) (33.1%) (32.5%) (13.1%)
9,168 2 5,722 6,117 21,009
financial activities
(3.7%) (0.0%) (19.6%) (20.7%) (6.7%)
total misdemeanors 250,516 5,866 29,236 29,609 315,227
Source: Central Bureau of Statistics – Misdemeanor perpetrators in 2013 (processed)5
5
Legal persons perpetrators are a domestic legal persons (such as companies, government bodies,
trade unions, etc.) and foreigners considered as legal persons under Croatian law ... Responsible
persons perpetrators are responsible persons (director, accountant, treasurer and others. ) in a
legal persons (company, government body etc.) ... (2014:8).
733
.. Disciplinary acts
Disciplinary acts are generally the least harmful types of criminal actions.
They refer to the violation of specific legal norms which regulate the function-
ing and code of conduct of certain groups of citizens in different organizations.
The relationships between employees and their organizations of employment

(rights and obligations) are regulated by laws, subordinate legislation and other
legal frameworks. In the private sector these are the Labor Act, collective agree-
ments, employment rules, contracts in operation, codes of conduct and alike. In
the state administration these are the Civil Servants Act, rules of the internal
order, collective agreements, codes of ethics.
Considering individual cases separately, disciplinary acts in principle do
not represent a significant disadvantage for the organization. The real danger,
however, stems from their number and frequency, i.e. from the totality of the
negative effects which have the cumulative impact on the organization and its
operations.
3. IMPACT OF PUNISHABLE BEHAVIORS ON THE

SUCCESS OF THE ORGANIZATIONS
The consequences of punishable behaviors in the economy result from the
motif of their perpetration. It is primarily concerned with achieving illegal gain
for oneself or the other, i.e. causing damage to the other. The gain achieved by
perpetration of criminal action is primarily a legal category, and then afterwards
economic category. Material gain achieved by criminal offenses or misdemeanor
is liable to confiscation in criminal and misdemeanor proceeding conducted by
the competent court. Unless revoked for any reason, the material gain is inte-
grated into economic flows, but in principle, its illegal character never stops.
The damage caused by punishable behavior is primarily an economic category
and then afterwards legal. An injured party suffers the economic consequences
of the misappropriation of its property promptly and truly. Legal proceedings
instituted in order to protect property rights of the injured party are uncertain
and lengthy, and often unsuccessful.
The consequences of punishable behaviors, according to the way of their
demonstration, can be divided into direct or individual – those to which directly
injured subjects are exposed and indirect or social - those that are realized as
734
negative impacts on the wider community, i.e. the general social situation. In
accordance with specified types of consequences, there are two groups/types
of injured parties: direct injured parties - natural persons, legal persons and the
state; and indirect ‘’ injured parties ‘’ - economic, social and political situation in
the society.
Direct damage is never solely and exclusively a result of punishable behavior;
it is automatic source of indirect consequences arising secondarily (by chain re-
action or domino effect). Direct and indirect damages are indivisible from each
other, they have a causal relationship; the second are multiplied from the first.
Economic relations are complex, they cannot always be unambiguously iden-
tified, analyzed and evaluated, and the same applies to the negative effects of
criminal actions in the economy. At least general analysis of direct and indirect
damage is possible and desirable, and we are presenting the one related to the
business organizations (private sector) and the state as an organization (public
sector) (Orlović, 2013:405-406).
Business organization as the injured party of the criminal actions: a) direct dam-
age (lower revenues or higher expenditures), b) indirect damage - b1) demolition
of a market economy (non-market criteria for the allocation of resources, the col-
lapse of the business climate, lower investment in excellence and development,
lower interest of foreign and domestic investors, decrease in the competitiveness
of the economy), b2) increased business risk (greater caution - lower economic
activity, lower GDP, lower budget revenues, lower budget expenditures, slow-
down in the development of state and society), b3) increased borrowing (higher
amounts of interest, higher operating costs, lower competitiveness of business INTERDISCIPLINARY MANAGEMENT RESEARCH XI
organization, loss of market share, lower economic activity, layoffs), b4) the initi-
ation of the procedure for legal protection (wasting energy and financial resources,
durability and uncertainty of procedures, costs of public administration and
courts, increase in number of public servants, inefficient and expensive public
administration).
State as the injured party of the criminal actions: a) direct damage (lower
budget revenues or higher expenditures), b) indirect damage - b1) fiscal deficit
(higher state borrowing, paying higher amounts of interests, over-indebtedness
of the state, weaker credit rating, the more expensive borrowing - the higher
interest rates, debt bondage - debt rescheduling, interest payments instead of
investing in the development, b2) higher taxes for the economy (higher operating
735
costs, lower competitiveness of the economy, lower income of business subjects,
reduction of business activities, less tax payments to the state - from business,
layoffs - lower taxes on wages, increase of underground economy, b3) higher
taxes for citizens (lower purchasing power, lower consumption, lower demand
for goods on the market, inferior standard of living, unemployment, poverty,

increased costs of state for social welfare), b4 ) lower budget expenditures (lower
expenses on social security, education, health, lower standard of living, depop-
ulation and lack of workforce, less infrastructure investment, lower economic
activity, lower budget revenues, slowing the development of state and society).
Besides negative, punishable actions in the economy, marginally and con-
ditionally, may as well have some positive consequences. The existence of two
opposing sides in punishable actions, the injured party and the perpetrator, lead
to the existence of reciprocity and equivalence in the consequences that arise
(damage/gain). Material gain achieved by punishable action cannot be kept by
the perpetrator, but must be seized in the judicial proceeding. However, in real-
ity there is a significant discrepancy between the numbers of suspects, accused
and convicted persons, and when one adds undiscovered crime (dark figure) – it
is shown that a significant number of perpetrators of criminal actions success-
fully maintain its illegal gain. This fact is devastating for the legal system and
the entire community.
What may possibly be considered positive in economic terms in such cir-
cumstances is the fact that this illegal gain is subsequently “injected” into legal
economic flows in the form of investments, savings or consumption, which are
desirable activities in usual economic circumstances. In legal terms, it is money
laundering, one of the most serious forms of crime and in fact it is very doubt-
ful, actually unacceptable, to consider any positive economic effects caused by
criminal behaviors in the economy.
Ideally, illegal material gain should not have positive effects for its acquirers
or holders on any basis. In this regard the state continuously invests certain ef-
forts in ensuring legal, organizational, material and institutional conditions as
well as in preventing and combating criminal actions from which such gain is
generated.
736
4. CONCLUSION
The success of the business organizations is measured by the economic pa-
rameters. Responsibility in business is therefore primarily economic, but also
legal, ethical and social. Apart from legal, criminal behaviors of the participants
in the economic processes may as well have effect on the economic parameters
of success.
Punishable behaviors in the economy are diverse, and their effects on the
success of the organizations are exclusively negative, to a greater or lesser extent.
The main motif of the perpetrator is obtaining illegal material gain for oneself,
i.e. doing damage to the other.
Phenomenology of punishable behaviors in the economy can be analyzed
and systematized according to various criteria; the most important of them to
be the level of hazard / harmfulness caused by underlying behavior.
Economic criminal offenses are the most dangerous forms of punishable be-
haviors prescribed in the Criminal Code and the secondary criminal legisla-
tion; they include different ways of perpetrating, segments of the economy, the
objects of protection, character substance. In addition to the responsible person
as the perpetrator, the legal person also bears legal responsibility for criminal
offenses. Economic misdemeanors are less dangerous forms of punishable behav-
iors, prescribed by the laws and decisions of local and regional authorities. Dis-
ciplinary acts are the mildest forms of punishable behaviors, related to the work-
ing responsibility, i.e. violation of labor discipline by workers at the expense of
the organizations or employers.
The consequences of punishable behaviors are direct (injured subjects) and
indirect (economic and other consequences for the injured party and society);
they are causally related and indivisible to each other. Main injured parties of
punishable behaviors are business organizations and state and through these
subjects negative consequences are dispersed to the entire community.
Improvement in understanding phenomenology of punishable behaviors in
the economy contributes to a more comprehensive understanding of their conse-
quences. Alongside with the etiology, that is the key determinant of the respective
socio-economic phenomena. The adequacy of systemic reaction against them
also depends on the level of cognition of aforementioned determinants. Key de-
terminants of the respective reaction are reciprocal to previous ones and those
737
are the prevention and repression of punishable behaviors offenses and sanation
of their consequences.
References
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Available at: www.dzs.hr , Access: (24 February 2014)
Croatian Chamber of Economy (2005). Kodeks etike u poslovanju, Zagreb
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European Commission (2011). A renewed EU strategy 2011-14 for Corporate Social Re-
sponsibility, Brussels
Available at: http://ec.europa.eu/enterprise/policies/sustainable-business/corporate-so-
cial-responsibility/index_en.htm , Access: (20 February 2014)
Jurković, P., Luković, F., Pribičević, Đ., Ravlić, S. (1995). Poslovni rječnik, Masmedia, Zagreb
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passed on 1 March 2013
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jediplomski studiji iz kaznenopravnih znanosti, Zagreb
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Hrvatski ljetopis za kazneno pravo i praksu, Vol. 14 – broj 2, Hrvatsko udruženje za kazne-
ne znanosti i praksu, Zagreb, pg. 695-738
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738
REGULATION EU NO
1215/2012 ON JURISDICTION
AND THE RECOGNITION
AND ENFORCEMENT OF
JUDGMENTS IN CIVIL AND
COMMERCIAL MATTERS WITH
SPECIAL REFERENCE TO THE
RELATIONSHIP BETWEEN THE
REGULATION AND ARBITRATION
Vjekoslav PULJKO, Ph.D.
Faculty of Law,
Josip Juraj Strossmayer University of Osijek, Croatia
vpuljko@pravos.hr
Abstract
The paper analyses the recent changes to the rules on jurisdiction and the rec-
ognition and enforcement of judgments in civil and commercial matters ad-
opted by Regulation (EU) No 1215/2012. The introductory part gives a brief
overview of the Regulation and analyses the most important changes, whereas
the second part deals with the segment of the Regulation regulating or “not
regulating” arbitration; the exclusion of arbitration from the scope of the Regu-
lation, the relationship of the courts (of Member States) and the arbitration
agreement, arbitration as an incidental question in a dispute, the relationship
between the Regulation and the 1958 New York Convention.
Keywords: Regulation (EU) No 1215/2012 of the European Parliament
and of the Council of 12 December 2012 on jurisdiction and the recognition
and enforcement of judgments in civil and commercial matters (recast), lis pen-
dens, exequatur, arbitration, arbitration as an incidental question, arbitration
agreement, the 1958 New York Convention.
JEL Classification: J5, J52, K2
739
1. INTRODUCTION
Since the 1970s, a system of uniform rules has been created in Europe gov-
erning the interstate judicial cooperation in the recognition and enforcement of
Vjekoslav Puljko: REGULATION (EU) NO 1215/2012 ON JURISDICTION AND THE RECOGNITION AND ENFORCEMENT OF JUDGMENTS IN CIVIL ...
judgments in civil and commercial matters as it is the foundation of integration

of the European judicial area. This process started much earlier, but the first
specific result was the Brussels Convention of 27 September 1968 on jurisdic-
tion and the enforcement of judgments in civil and commercial matters1. It was
signed by the then six Member States of the European Community. Most of the
content of the Brussels Convention was taken over by Council Regulation (EC)
No 44/2001 of 22 December 2000 on jurisdiction and the recognition and
enforcement of judgments in civil and commercial matters2 (Brussels I Regula-
tion), which has since then been the main source of civil procedural law in the
EU.
The meaning of the Brussels I Regulation is well known. It is the key instru-
ment for determining jurisdiction in both civil and commercial matters, as well
as the conditions under which the judgments of the courts of Member States
have to be recognised and enforced. The process of its revision started on the
date of its entry into force and has taken place along with its application as more
intense international judicial cooperation seeks to simplify common procedural
rules in order to achieve the ultimate goal of the process of European integra-
tion, i.e., “maintaining and developing an area of freedom, security and justice”3.
Pursuant to Article 73 of the Brussels I Regulation, the Commission was
obliged to submit a report on its application to the European Parliament, the
Council and the European Economic and Social Committee five years after its
entry into force. The debate over amendments to the Brussels I Regulation was
initiated by the judgments given by the Court of Justice of the European Union
and the Green Paper containing comments from the interested public.4 It has
been a long process, and the goal of this paper is to present the result.
1
Official Journal L 299 of 31 December 1972; the latest version of the text was published in
Official Journal C 27 of 26 January 1998.
2
OJ L 12, 16.1.2001, p. 1, Regulation as last amended by Commission Regulation (EC) No
2245/2004 (OJ L 381, 28.12.2004, p.10).
3
Recital 3 of Regulation No 1215/2012 of 12 December 2012 on jurisdiction and the recogni-
tion and enforcement of judgments in civil and commercial matters (recast).
4
COM (2009) 175, April 2009.
740
2. MAJOR CHANGES
We believe that there are four key changes; limited extension of jurisdiction
to the defendants not domiciled in a Member State,5 the relationship between
arbitration and the Regulation,6 reaching an agreement conferring jurisdiction
has been “empowered” by changing the rules on lis pendens because the solution
offered by the Brussels I Regulation was often criticised. In short, pursuant to
Article 27 of the Brussels I Regulation, it was determined that if any proceeding
involving the same cause of action between the same parties is first brought in a
court of a Member State and after that in another court of a different Member
State, any court other than the court first seised shall on its own motion stay its
proceedings. If the jurisdiction of the court first seised is established, any court
other than the court first seised shall decline jurisdiction in favour of that court.
It is clear why this rule was adopted, but it was often misused in such a way
that debtors, who entered into contracts of commercial nature in which they
also specified the court to have jurisdiction to resolve disputes, avoided fulfill-
ing their obligations such that they initiated proceedings before creditors did in
the courts of the Member States that had jurisdiction on some other ground.7
5
Although the Brussels I Regulation also provided for exceptions to the rule stating that if the
defendants are domiciled in a Member State, the courts of that Member State shall have ju-
risdiction, the recast Regulation extended jurisdiction on the basis of the so-called protective
jurisdiction provided for by Recital 18: “In relation to insurance, consumer and employment
contracts, the weaker party should be protected by rules of jurisdiction more favourable to his
interests than the general rules”, what was transformed into the rule stating that a consumer
may bring proceedings against the other party to a contract either in the courts of the Member
State in which that party is domiciled or, regardless of the domicile of the other party, before INTERDISCIPLINARY MANAGEMENT RESEARCH XI
the courts for the place where the consumer is domiciled (Article 18(1)). The solution for both
insurance and individual contracts of employment is similar since the insurers, the insured,
the injured parties and the employees are the weaker parties in the proceedings, and they need
special protection. Except for cases of protective jurisdiction and in one part of the recast
Regulation referring to agreements conferring jurisdiction, other jurisdiction is provided for
that shall be extended to persons who are not domiciled in a Member State but who have
agreed by the agreement conferring jurisdiction that a court of a Member State shall have
jurisdiction to settle their dispute (Article 25).
6
See: Carducci, G.: “The new EU Regulation 1215/2012 of 12 December 2012 on jurisdiction
and international arbitration with notes on parallel arbitration, court proceedings and the
EU Commission’s proposal”, Arbitration International, Vol. 29, No. 3, 2013, pp. 467-483,
Hartley, T. C.: “The Brussels I Regulation and arbitration”, International and Comparative
Law Quarterly, Vol. 63, No. 4, 2014, pp. 843-866.
7
Courts in Italy and Greece were most frequently the preferred choice so that this practice was
called the “Italian torpedo” because these courts used to delay the proceedings.
741
When the jurisdiction of the court first seised was established, the court having
jurisdiction under the contract should stay the proceeding and the case would
be resolved in the court before which the proceeding had been initiated first.8
The rules of lis pendens and related actions were changed because of that abuse.
The scope of lis pendens rules was expanded - a new rule was introduced that
regulates jurisdiction in proceedings initiated or pending before a court of a
third state (non-EU countries)9 - although limited, international lis pendens was
introduced and recognised. And finally, the fourth, but a very significant change,
concerns the recognition and enforcement of judgments in another Member
State, i.e., the abolition of exequatur.
The rules excluding arbitration have undergone significant changes which
we will elaborate on below.
Let us mention that jurisdiction rules for insurance and consumer contracts
and individual contracts of employment have also undergone some changes.
These are not dramatic changes, but rather small steps designed to further
strengthen the position of the weaker party.
3. A SHORT OVERVIEW
Regulation (EU) No 1215/2012 of the European Parliament and of the
Council of 12 December 2012 on jurisdiction and the recognition and enforce-
ment of judgments in civil and commercial matters (recast)10 (hereinafter re-
ferred to as: “the Regulation”) has been applied in the courts of all 28 Member
States since 10 January 201511 after a long period of almost two years of consid-
eration and judgment of novelties it introduces.
The Regulation took over the structure of the Brussels I Regulation – it is
divided into eight chapters. After 41 recitals in the Preamble, Chapter I outlines
the scope of the Regulation and definitions. There are no significant changes
8
See the case Gasser v MISAT C-116/02, the judgment of the Court of the European Union
of 9 December 2003.
9
Article 34 of the Regulation.
10
OJ L 351/1 of 20 December 2012.
11
742
in this part, except that, in relation to the Brussels I Regulation, definitions of
terms have been added12.
Chapter II, “Jurisdiction”, keeps a general tone of the Brussels I Regulation;
rules are set out so that a court or the courts before which an international dis-
pute is brought can be easily and quickly determined by virtue of a preset con-
nection. As in the Brussels I Regulation, an action is generally brought before
the court of the state the defendant is domiciled in. Special jurisdiction (Article
7) provides exceptions to general jurisdiction, mainly based on the principle of
a close connection, and has not undergone any significant changes. Particular
attention was paid to the protection of the weaker party so that jurisdiction in
relation to insurance and consumer contracts and individual contracts of em-
ployment is determined such to ensure easy access to the court with as little cost
as possible13.
An agreement conferring jurisdiction,14 if its form is valid, excludes all other
connections based on which jurisdiction may be determined. Basically, the rule
has not changed significantly. While the Brussels I Regulation lays down that
the agreement of the parties, of which at least one is domiciled in the territory
of a Member State, on the court that shall have jurisdiction, excludes jurisdic-
tion of any other court, the recast Regulation does not govern the condition that
the parties must be domiciled in a Member State.15 Apart from the agreement
conferring specific jurisdiction, the recast Regulation, just like the Brussels I
Regulation, also recognises tacit prorogation of jurisdiction16 that occurs if the
defendant enters an appearance before the court.
12
13
For example, pursuant to Article 21(1), “An employer domiciled in a Member State may
be sued: (a) in the courts of the Member State in which he is domiciled; or (b) in another
Member State: (i) in the courts for the place where or from where the employee habitually
carries out his work or in the courts for the last place where he did so; or (ii) if the employee
does not or did not habitually carry out his work in any one country, in the courts for the
place where the business which engaged the employee is or was situated.”. On the other hand,
“An employer may bring proceedings only in the courts of the Member State in which the
employee is domiciled.” - Article 22.
14
Section 7 of the Regulation – Prorogation of jurisdiction.
15
Pursuant to Article 25(1) of the Regulation, “If the parties, regardless of their domicile, have
agreed that a court or the courts of a Member State are to have jurisdiction to settle any dis-
putes which have arisen or which may arise in connection with a particular legal relationship,
that court or those courts shall have jurisdiction, ...“
16
Article 26(1) of the Regulation.
743
As far as lis pendens and related actions are concerned, we have already men-
tioned the abuse of the rules given in the Brussels I Regulation stating that the
court first seised shall continue to exercise jurisdiction even if another court has
exclusive jurisdiction. This rule has been changed so that if the proceedings are
brought in the court of the Member State on which an agreement on jurisdic-
tion confers exclusive jurisdiction, any other court in which the proceedings
involving the same cause of action and between the same parties are brought
shall stay the proceedings until such time as the court seised on the basis of
the agreement suspends the proceedings. If the court designated in the agree-
ment conferring jurisdiction has established jurisdiction in accordance with the
agreement, any other court shall decline jurisdiction in favour of that court.
In addition to the aforementioned exception, a provision (Article 29) still
remains in force which specifies that if proceedings involving the same cause
of action and between the same parties are brought in the courts of different
Member States, any court other than the court first seised shall on its own mo-
tion stay its proceedings until such time as the jurisdiction of the court first
seised is established.
A significant change has already been mentioned referring to the lis pendens
rule, which is provided for in Article 33 of the Regulation, that requires the
courts of the Member States to take account of parallel proceedings conducted
in third countries, to acknowledge the existence of such litigation, and to stay
the proceedings under certain conditions.17 This is a small but significant step
toward standardising international procedural rules beyond the EU borders.
Chapter III regulates the recognition and enforcement of judgments. We be-
lieve that changes in this chapter are the most important changes in the Regula-
tion because they will directly affect the acceleration of judicial processes, easier
enforcement of court judgments, and consequently create greater legal certainty.
They abolished exequatur. It is clearly stipulated that a judicial decision issued
in a Member State is recognised in other Member States without any special
procedure being required.18 It is sufficient for the creditor to supply the court
17
“(a) if it is expected that the court of the third State will give a judgment capable of recogni-
tion and, where applicable, of enforcement in that Member State; and
(b) the court of the Member State is satisfied that a stay is necessary for the proper adminis-
tration of justice.“
18
Article 36(1) of the Regulation.
744
in the Member State responsible for enforcement with the judgment to be en-
forced. It shall be accompanied by a certificate (using the standard form set out
in the Regulation),19 and eventually a translation of the judgment, or a transla-
tion of the certificate. Furthermore, a judgment can be enforced if it is enforce-
able in a Member State it was given in. Pursuant to the Brussels I Regulation
(Article 38(1), a judgment given in a Member State is enforceable in another
Member State if it has been declared as such at the request of the authorised
person. Such a definition practically called for another judicial process that not
only delayed the enforcement and made it uncertain, but it also cost a lot. Ac-
cording to the new Regulation, for the purposes of enforcement in a Member
State of a judgment given in another Member State, the applicant shall provide
only a copy of the judgment which satisfies the conditions necessary to establish
its authenticity,20 and the certificate (in the previously mentioned form set out
in Annex 1 to the Regulation).
The grounds to refuse enforcement remain unchanged; public order,21 giving
a judgment without the defendant’s participation if the judgment is irrecon-
cilable with a judgment given between the same parties in the Member State
addressed, if the judgment is irreconcilable with an earlier judgment given in
another Member State involving the same cause of action and between the same
parties, and if the judgment is irreconcilable with judgments given taking into
account the provisions set out in Chapter II (in relation to insurance and con-
sumer contracts and individual contracts of employment).
Chapter VI regulates authentic instruments and court settlements. It was
changed in that it takes into account the abolition of exequatur and confirms INTERDISCIPLINARY MANAGEMENT RESEARCH XI
that authentic instruments are those that are enforceable in the Member State
of origin without any declaration of enforceability being required. The same
also applies to court settlements.
Finally, let us just mention the last four chapters; i.e., Chapter V General
Provisions, Chapter VI Transitional Provisions, Chapter VII Relationship
with Other Instruments, and Chapter VIII Final Provisions. Article 79 stipu-
19
Provided for by Article 53 and set out in Annex 1 to the Regulation.
20
Article 42(a) of the Regulation.
21
Kecskes, L., Kovacs, K., Župan, M., “Public policy in national and European private inter-
national law procedural law“, in: Drinoczi, T. et.al.eds. «Contemporary legal challenges: EU
– Hungary - Croatia» Osijek- Pécs, 2012. p. 517-551.
745
lates that by 11 January 2022 the Commission shall present a report to the
European Parliament, to the Council and to the European Economic and Social
Committee on the application of this Regulation with an evaluation of the pos-
sible need for a further extension, especially in relation to the rules on jurisdic-
tion to defendants not domiciled in a Member State since the Regulation does
not include the changes proposed by the Commission, which would further
enhance judicial cooperation and facilitate the free circulation of judgments be-
tween EU Member States and “third countries”. However, caution and small
shifts prevailed.
4. A NEW REGIME FOR ARBITRATION

. . Arbitration agreement in the Brussels I Regulation (the
West Tankers Inc. case)
The Brussels I Regulation regulated arbitration by means of a very simple
rule. Article 1(2)(d) stated clearly: “This Regulation shall not apply to: [...] ar-
bitration;”. However, this simplicity and brevity implied in practice complete
deregulation; various questions arose as to whether an action on the merits of a
case can be brought before the court of a Member State if there is an arbitration
agreement stipulating that the contracting parties will resolve their disputes by
arbitration. If a party is banned by an arbitral tribunal before which arbitra-
tion is sought from addressing a court in a Member State22, should that court
respect that decision or may it reject it since it prohibits the court to decide
the matter it has jurisdiction over pursuant to the Brussels I Regulation? If the
arbitral tribunal renders an award in such proceedings, should the court of a
Member State refuse to recognise it as it restricts the right of the court to decide
the matter it had jurisdiction to decide? How will the courts of the Member
States determine which of them, for example, has jurisdiction over the validity
of the arbitration agreement? Does such arbitration exclusion from the Brussels
I Regulation refer to the issues to be addressed by the court prior to the begin-
ning of the arbitration proceedings?
22
Anti-suit injunction – an institute of English law that may order or ban a party participating
in the arbitration proceedings to take certain procedural steps before another court which
relate to the subject matter of the arbitration agreement.
746
These questions and problems occurred in practice. The answers were of-
fered by the Court of Justice of the European Union. Pervasive publicity was
given to a case brought before the court, which has become a paradigm of the
relationship between the Brussels I Regulation and arbitration. It is the case Al-
lianz SpA v West Tankers Inc.23 In short, the English court (the House of Lords
that was in charge of providing assistance to an arbitral tribunal headquartered
in London) asked the Court of Justice of the European Union to award the
company West Tankers Inc. an anti-suit injunction24 against Allianz, pursuant
to which no proceedings shall be initiated before any other court because there
was an arbitration agreement according to which any dispute between Allianz
and West Tankers Inc. shall be resolved by an English court, and since this was
an arbitration case, the application of the Brussels I Regulation was excluded. In
its decision of 10 February 2009, the Court of Justice of the European Union al-
lowed, in spite of the existence of the arbitration agreement, the initiation of the
proceedings before the Italian court because the subject matter of the dispute
was compensation for damage to which the Brussels I Regulation applies. Fur-
thermore, the Court held that the anti-suit injunction was incompatible with
the Brussels I Regulation because it violated the right of the Italian court to
decide matters over which it had jurisdiction pursuant to the Brussels I Regu-
lation, and that it prevented the prosecutor, who believed that the arbitration
agreement was null and void, inoperative or incapable of being performed, to
have access to the national court.25 At the discretion of the court, the aforemen-
tioned question whether the arbitration agreement is null and valid or not, falls
within the scope of the Brussels I Regulation.
This decision had far-reaching consequences because it encouraged malicious
avoidance of arbitration agreements brought before the courts of the Member
23
Case C-185/07.
24
The decision of the English court that the party the court has jurisdiction over is ordered to
take the necessary steps to stay or suspend the proceedings pending before the national or
arbitral tribunal established in a foreign country.
25
The court reasoned that the procedure as the one in the main case, which leads to the issu-
ance of an anti-suit injunction, does not fall within the scope of the Brussels I Regulation;
however, this procedure, despite the fact that it is not included in the scope of the Regulation,
can still have consequences that harm the beneficial impact of the Regulation, i.e., it may
hinder the attainment of the objectives of unification of rules on the conflict of jurisdiction
in civil and commercial matters as well as the free circulation of judgments in this area. The
same is particularly true when such procedure prevents the court of another Member State
from exercising the powers it has on the basis of the Brussels I Regulation.
747
States where disputes occurred (which should be settled by arbitration) whose
merit falls within the scope of the Brussels I Regulation, thus questioning the
validity of the arbitration agreement as well. In doing so, the party that relied
on the arbitration agreement and the court supposed to render a judgment in

the arbitration proceedings were powerless to do anything, and the court of the
Member State which actually rendered the judgment violated in some way the
arbitration agreement.
The decision in the West Tankers Inc. case caused harsh criticism and re-
quests for amendments to the Brussels I Regulation in order to avoid such cases
of undermining the arbitration agreements in the future. The debate was open,
proposals for improving poured from everywhere. The Commission itself had
its own team of experts dealing with the problem of arbitration.
There was a choice of three possible solutions; firstly, to maintain the status
quo, i.e., to exclude arbitration from the scope of the Regulation, which, in the
view of the Commission, did not rule out the risk of misuse, secondly, to extend
the exclusion of arbitration to all proceedings in relation to arbitration and in
particular to “any court proceedings which would challenge the validity of the
arbitration agreement”, and thirdly, to increase the effectiveness of arbitration
agreements, stipulating that the court of a Member State in which the proceed-
ing the arbitration agreement applies to is brought must dismiss that proceed-
ing where the proceeding was initiated before the arbitral tribunal or the court
located in the seat of the arbitration. The third proposal was adopted as follows:
Article 1(2)(d) reads: “This Regulation shall not apply to: [...] arbitration;”.
For more details, see the Preamble to the Regulation26!
. . New rules
“This Regulation should not apply to arbitration. Nothing in this Regula-
tion should prevent the courts of a Member State, when seised of an action in
a matter in respect of which the parties have entered into an arbitration agree-
ment, from referring the parties to arbitration, from staying or dismissing the
proceedings, or from examining whether the arbitration agreement is null and
26
Proposal for a Regulation of the European Parliament and of the Council on jurisdiction
and the recognition and enforcement of judgments on civil and commercial matters (recast),
Brussels 14.12.2010.COM (2010) 748 final.
748
void, inoperative or incapable of being performed, in accordance with their na-
tional law.”27
If this text is read out of context, it would be hard to conclude that it was
a binding rule. However, by reading other regulations, especially their pream-
bles28, we can see that they have been written in the same style that contains
seemingly non-binding formulations such as “should” or “should not”. Therefore,
the wider context and the intention of the legislator to anticipate different situ-
ations, describe them and make a judgment in the interest of legal certainty and
predictability should be taken into account. If we read and analyse this in that
way, knowing that the Regulation is a binding document, we can conclude that
this definition represents progress in relation to the Brussels I Regulation by
avoiding parallel procedures involving essentially the same subject matter, as
well as that it respects the arbitration agreement and provides greater protection.
The Regulation lets the courts of the Member States to decide, according to
their national law, “whether the arbitration agreement is null and void, inopera-
tive or incapable of being performed”.
Furthermore, the second paragraph of Recital 12 of the Preamble to the
Regulation sets out that a ruling given by a court of a Member State as to
whether or not an arbitration agreement is null and void, inoperative or inca-
pable of being performed should not be subject to the rules of recognition and
enforcement laid down in the Regulation. This paragraph and Article 73(2)29,
which provides that the Regulation does not affect the application of the 1958
New York Convention30 actually imply the exclusion from the scope of the Reg-
ulation of any proceedings in which the validity of an arbitration agreement was INTERDISCIPLINARY MANAGEMENT RESEARCH XI
examined, “regardless of whether the court decided on this as a principal issue

or as an incidental question.”
27
Recital 12 of the Preamble to the Regulation.
28
For example, the Rome I and II Regulation on the law applicable to contractual and to non-
contractual obligations. More in Lagarde, P., Tenenbaum, A., “De la Convention de Rome au
règlement Rome I”, Revue critique de droit international privé”, vol. 97/2008, p. 727 et.seq.
29
Recital 12 of the Preamble to the Regulation and Article 73(2) in Chapter VII “Relationship
with Other Instruments”.
30
Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June
1958. Croatia became a party to this Convention based upon the notification of succession
on 8 October 1991. (Official Gazette MU 4/1994).
749
Furthermore, where a court of a Member State, exercising jurisdiction under
the Regulation or under national law, has determined that an arbitration agree-
ment is null and void, inoperative or incapable of being performed, this should
not preclude that court’s judgment on the substance of the matter from being
recognised or, as the case may be, enforced in accordance with this Regulation.
This should be without prejudice to the competence of the courts of the Mem-
ber States to decide on the recognition and enforcement of arbitral awards in
accordance with the New York Convention, which takes precedence over this
Regulation31.
The concluding provision in Recital 12 of the Preamble mentions that the
Regulation does not apply to any action or ancillary proceedings relating to the
establishment of arbitral tribunals, the powers of arbitrators, the conduct of
an arbitration procedure, any action or judgment concerning the annulment,
review, appeal, recognition or enforcement of an arbitral award within the scope
of the Regulation.
If we analyse these changes in detail and apply them to the West Tankers
Inc. case, it will become clear that e.g. on the basis of new rules, the court could
not decide any more whether the incidental question referring to the applicabil-
ity of the arbitration agreement, including in particular the question of its va-
lidity, enters the scope of the Regulation or not as it is now explicitly stipulated
that these issues do not fall within the scope of its application. Furthermore,
pursuant to the Regulation, anti-suit injunctions would be allowed because this
procedure is an ancillary procedure relating to the conduct of an arbitration
procedure the Regulation does not apply to. Perhaps most importantly, if Al-
lianz brought proceedings before the Italian court, as there is an arbitration
agreement, the court should refer the parties to arbitration, stay or dismiss the
proceedings, and examine whether the arbitration agreement is null and void,
inoperative or incapable of being performed under national law.
In conclusion, we can say that the Regulation provides for instruments that
will prevent the courts from delivering future judgments as the one in the West
Tankers Inc. case, and that such regulation protects and enhances the effective-
ness of arbitration agreements. The possibility of avoiding the obligations set
out in the arbitration agreement has not been entirely ruled out (nor is it realis-
tic to expect), but the risk of manipulation and abuse has been reduced.
31
Recital 12, paragraph 3, of the Regulation.
750
5. CONCLUSION
From this brief overview of the most important changes in the Regulation it
can be concluded that they were made keeping in mind the main objective the
Commission set itself - the free circulation of judgments and the enhancement
of legal certainty and predictability. Maybe it has not been reached completely,
but this Regulation is a step in that direction.
The Commission itself gave up some of its radical proposals. Companies
operating in the European Union, which do not have the same access to justice
because they are based outside the EU, especially emphasised their dissatisfac-
tion with unavailability of European courts to defendants not domiciled in the
European Union. More radical solutions to these problems were searched for,
but the proposals have not been accepted. Perhaps this approach advocating
minor changes is better, maybe radical changes would have the opposite effect,
and thus cause chaos and reduce legal certainty and predictability.
However, these four sets of changes described briefly in this paper have intro-
duced changes for the better into areas that regulate. The abolition of exequatur
enables shortening the time needed to enforce judgments, costs are reduced, and
the outcome of the proceedings is more certain. The likelihood of conducting
parallel proceedings regarding the same subject matter between the same parties
is reduced, additional protection is provided by an agreement conferring jurisdic-
tion, and changes to arbitration rules represent a significant step forward in the
protection of arbitration agreements. Moreover, a traditional group of the weaker
parties, i.e., consumers, employees, insurers, is additionally protected. There were
no dramatic changes in any of these areas. The chosen solutions allow small shifts, INTERDISCIPLINARY MANAGEMENT RESEARCH XI
but these small shifts definitely provide movement in the right direction.
References:
Carducci, G.: “The new EU Regulation 1215/2012 of 12 December 2012 on jurisdiction
and international arbitration with notes on parallel arbitration, court proceedings and the
EU Commission’s proposal”, Arbitration International, Vol. 29, No. 3, 2013, pp. 467-483.
Hartley, T. C.: “The Brussels I Regulation and arbitration”, International and Comparative
Law Quarterly, Vol. 63, No. 4, 2014, pp. 843-866.
Kecskes, L., Kovacs, K., Župan, M., “Public policy in national and European private inter-
national law procedural law“, in: Drinoczi, T. et.al.eds. «Contemporary legal challenges: EU
– Hungary - Croatia» Osijek- Pécs, 2012. pp. 517-551.
Lagarde, P., Tenenbaum, A., “De la Convention de Rome au règlement Rome I”, Revue cri-
tique de droit international privé”, vol. 97/2008, pp. 727-780.
751
PLEA BARGAINING: A
CHALLENGING ISSUE IN THE LAW
AND ECONOMICS
Igor BOJANIĆ, Ph.D., Full Professor
Ivana BARKOVIĆ BOJANIĆ, Ph.D., Full Professor

Igor Bojanić • Ivana Barković Bojanić: PLEA BARGAINING: A CHALLENGING ISSUE IN THE LAW AND ECONOMICS
Faculty of Law, J.J. Strossmayer University of Osijek, Croatia
Abstract
Plea bargaining is defined as an agreement between the prosecutor and de-
fendant whereby the defendant pleads guilty in exchange for a more lenient
sentence. The literature on law and economics has been treating the plea bar-
gaining as a desirable way of accomplishing the maximum prevention with
minimum costs for criminal justice system. It is controversial issue for legal
scholars who find the plea bargaining a “necessary evil”, demanding its reform
or even abolishment. The main aim of the paper is to contribute to a better
understanding of the plea bargaining, not only by discussing some of economic
reasons affecting both parties when deciding to bargain, but also to provide
more in-depth understanding of the wider context in which bargaining is tak-
ing place (powerful role of the state attorney, complex relationships between
defendants and their attorneys-at-law, effects of bargains on third parties, de-
sirable role of the court and the issue of innocence). Particular attention is
given to the plea bargaining in the Republic of Croatia. Any further analysis
must take into consideration that the key question of the plea bargaining is not
only the interest of procedural economics and mitigated sentences, but also not
to jeopardize the defendant rights, particularly not to open the possibility of
wrongful conviction of innocent.
Keywords: plea bargaining, prosecutor, defendant, law and economics, crimi-
nal procedure, Croatia
JEL classification: C7, K2
752
I. INTRODUCTION
Despite numerous complaints regarding the fulfillment of the traditional
principles of the criminal procedure law of the continental type, today one can-
not disagree with the impact of plea bargaining - a dominant institution of the
American criminal procedure (Fisher, 2000, 1072) – on the appearance of vari-
ous consensual forms of proceeding which enable a prosecutor to settle with the
defendant in order to complete the criminal procedure. Even though there are
various forms of bargaining, the notion of plea bargaining usually refers to the
prosecutor offering some kind of concession when sentencing a defendant in
the exchange for a guilty plea. Out of all possible ways of summarized case solv-
ing which are necessary for every modern criminal justice system, the plea bar-
gaining is the most controversial and widely discussed (Whitman, 2014, 109).
Many legal scholars find the plea bargaining a “necessary evil” and demand its
reform or even abolishment, while economic scholars prefer it by considering
the prevention as the main goal of the criminal law (Gazal-Ayal & Riza, 2009,
150-151). Starting from the assumption that the parts of the criminal justice
system can compare with well-functioning market system, a significant amount
of economic literature consider the plea bargaining as a desirable way of ac-
complishing the maximum prevention with the minimum of allocative ineffi-
ciency (the minimum spending of budgetary means which are at disposal to the
prosecutors and courts). They are desirable because both parties obtain certain
gain: a defendant who has waive his trial rights is given a milder punishment,
while the prosecutor can engage saved means in some other (more complex,
important) cases (Easterbrook, 1983, 289). According to the one of first and
most influential economic models/analysis of plea bargaining (Landes, 1971,
61), a decision to plea bargain or going to the trial depends about the probabil-
ity of conviction, severity of criminal offence, availability and efficiency of means
which are at disposal to prosecutor and defendant, cost analysis of plea bargain-
ing versus trial as well as attitude towards risk (e.g. risk-averse or risk-seeking
person). Such a model has been later on improved by adding discount rates and
advocacy costs (Easterbrook, 1983, 309).
In the American criminal justice system the plea bargaining is applied in
more than 95% of all cases. Dominant theoretical justification of plea bargain-
ing is represented by the “trial shadow theory” according to which bargains are
mechanism of voluntary dispute resolution, as it is the settlement in the civil
litigation, which are happening in the “shadow” of trials, i.e. in the shadow of
753
expected trial outcomes. They are the products of parties’ prognosis of trial out-
comes despite which induce them to bargain. Parties forecast the expected sen-
tence after trial, discount it by the probability of acquittal, and offer some pro-
portional discount (Bibas, 2004, 2464). One should bear in mind that the pow-
er of evidence in the concrete case has important, even primary circumstance
for the prosecutor when determining the price of plea bargain (Alschuler, 1968,
50, 58). Together with the concession exchange which satisfied the interests of
both prosecutor and defendant, interests of process economics also represent
convincing justification for plea bargaining as non-trial way of overcoming a
regulated in detail, complex and expensive criminal procedure. It is necessary
to point out in the introductory part differences between the Anglo-American

and Continental type of plea bargaining. Those differences are evident in the
severity of criminal offenses to which a plea bargaining can be applied, subject
and effects of bargaining as well as in the role of the court in the bargaining.
(Damaška, 2004, 9-13). In the USA criminal justice system, bargains are ap-
plied even in the cases of most severe criminal offenses while the Continental
law limits its application mostly for minor and middle-weight criminal offens-
es. The subject of bargaining between parties in the Anglo-American system
comes in terms of different concessions granted to the accused who agrees to
self-incrimination, i.e. who pleads guilty of the charges in the indictment. Such
a confession is not related only to the factual description of committed offence
but also to its legal qualification. In the Continental law, the subject of bargain-
ing is concessions to defendant in the case when the confession of defendant
provides a court with incriminating evidence. This raises the question can such
evidence be treated as sufficient for the conviction. As far as bargaining effects
are concerned, it is typical for the American model that by using the bargaining
one avoids the jury trial and proceeds immediately to the sentencing (the court
ratifies mitigated sentence obtained through bargaining). Also, bargaining may
imply lesser legal qualification of the offense or the omission of some items in
the indictment. Contrary to that, the Continental law allows simplified trial,
and bargaining is usually allowed only in the cases of mitigating the sentence.
Finally, when it comes to court participation in the bargaining, one should point
out following – while in the American law the role of the court is reduced to
confirming/rejecting the parties’ bargaining since any earlier involvement of the
court would affect its impartiality, the Continental law provides an opportunity
for more active role of the courts in the criminal procedures (initiative for bar-
gaining, mitigating the sentence if the accused admits the offences committed
754
during the trial). The existence of stated differences is the result of differences
in the historical development of bargaining in the criminal procedure, differ-
ent criminal procedure models (accusatory and inquisitorial type), impact of
bargaining on traditional principles of criminal procedure as well as cultural
differences (including the role of market in the social life). All of these should be
taken into account when examining the impact of American law on Continen-
tal law, including an introduction of solutions such as plea bargaining (Langer,
2004, 3-7). After these introductory remarks, the paper provides the analysis
of the most important arguments pro et contra plea bargaining, including those
which stem from its economic analysis (section 2), review and discussion on
normative approach to the plea bargaining in the Croatian law (section 3) and
concluding remarks (section 4).
II. ARGUMENTS PRO ET CONTRA PLEA

BARGAINING
1. Typical reasons for justifying plea bargaining in the criminal procedure
should be looked for in the individualistic approach, which in case of bargaining,
resembles the rational behavior in the free market by using the economic rea-
soning applied to the legal problems (Damaška, 2004, 14). Bargaining, namely,
enhance interests of parties which had previously made a rational evaluation of
all relevant circumstances for conclusion regarding the usefulness of bargain in-
stead of going to the trial. Thus, a prosecutor will bargain in order to reduce
the cost of his activity and to (re)direct available means to other cases, while a
defendant will bargain in order to obtain more favorable conviction, usually in INTERDISCIPLINARY MANAGEMENT RESEARCH XI
terms of mitigated sentence. The stated approach, described in the introduction,

is subjected to criticism that relations in the criminal justice system cannot be
equalized with the market relations (Damaška, 2004, 14), i.e. it overly simplifies
the problem (Bibas, 2004, 2464). Bargaining cannot be justified by privileges in
sentencing and mutually useful dispute resolution (Alschuler, 1981, 652). This
is by far more complex problem which includes numerous important issues that
cannot be answered by simply using economic reasoning (Garoupa & Stephen,
2008, 42-43). Those questions are related to the role of the prosecutor in the
pre-trial procedure and unequal a position of defendant, complex relations be-
tween defendant and his attorney-at-law, possibility that innocent defendants
plead guilty and accept the offer of prosecutor, external effects of bargain (ex-
755
ternalities) and fulfillment of stated sentences’ purpose. The prosecutor is “the
master” of pretrial procedure (dominis litis) and he is in the position to signifi-
cantly dictate the terms of negotiations by using personal judgments in evaluat-
ing criminal responsibility and determining relevant punishment for defendant
(Gifford, 1983, 38). His personal and political interests often make the bargain-
ing system subjected to non-objectivity which in turns lead to excessive charges
(Alschuler, 1968, 50). Parties in the criminal procedure do not bargaining in
the shadow of trial but in the shadow of prosecutor’s preferences and political
trends (Stunz, 2004, 2548). Defendants are objectively in the uneven position
not only due to the absence of “equality of weapons” in the pre-trial procedure,
which is particularly evident in the American model in which a defendant in the

time of bargaining not only knows which evidences are at the prosecutor’s dis-
posal but also due to the psychological pressure. Due to the psychological pres-
sure to which the defendant is exposed, bargains are considered as one form of
(psychological) torture (Langbein, 1978, 20). In the criminal law systems which
have draconic sentences prescribed prosecutor’s attractive offers may have im-
pact on innocent defendants to plead guilty. The offer will be in any cases more
substantial and stimulative for defendant to plead guilty in the case when the
prosecutor does not have enough evidences. The possibility for convicting in-
nocent defendants, who are bargaining, is not treated as a significant problem
by proponents of individualistic approach because such a possibility exist in the
case of trial due to its imperfection (Easterbrook, 1983, 320). Bargains do not
minimize the risk of unjust convictions of innocent and thus do not improve
the public interest in effective law enforcement and adequate punishment of the
guilty perpetrators of offenses. Thus, some consider that plea bargaining should
be abolished (Schulhofer, 1992, 2009). Taking into consideration that the abol-
ishment of bargaining, particularly in the USA, is non-realistic to expect, more
justified are demands which target the limitation of prosecutor’s discretion. The
impact of prosecutor on the final bargaining results is not questionable, but in
any case it is not acceptable that he de facto marginalizes the role of the court,
which is not excludable taking into consideration that the practice shows that
many judges are prone to accept the result of plea bargaining without particu-
lar examination. Furthermore, differences in the interests of defendant and his
attorney-at-law are also possible which economists discuss in terms of agency
costs. This raises many questions of adequate representation of defendant in the
criminal procedure, particularly when it comes to financing attorney-at-law, due
to which some consider bargaining to have a destructive impact on the relation
756
between defendant and attorney-at-law (Alschuler, 1975, 1313). Proponents of
individualistic approach usually neglect the external effects of the bargaining, i.e.
to which degree it serves the public interest for transparency of bargaining as well
as interests of victims. Considering the nature of the bargaining those interests
will hardly be equal with the self-interest. Here is particularly sensitive the issue
of victim’s interest who, in particular case, should have the right to veto.
2. Starting from the assumption that the faith in the possibility to find out
the truth is the metaphysical mistake, proponents of the bargaining advocate
“pragmatic” notion of the truth as a version of event for which there is the con-
sent of both parties. This, naturally, does not have anything to do with the truth
and precise determination of facts because one gives the advantage to the com-
munication of parties through process forms which enable achieving of accept-
able decision for both parties (identification of truth with the consensual justi-
fication). Such consensual notion of truth is subjected to criticism because one
should differentiate truthful from agreed claim, as well as wrongful and correct
(accurate) court decisions; a decision based upon mutual concessions does not
have to be truthful because even an innocent defendant may conclude that to
plead guilty in order to mitigate the sentence may be the better solution than the
trial. Offered concession to the defendant by the prosecutor (no matter whether
he is guilty or not) always represent a reward which he could not expect in the
framework of pronounced sentence after the trial and conviction (Damaška,
2004, 15-16). The practice (policy) of sentencing clearly shows that there is an
objective difference between defendants who admitted the guilt within the bar-
gaining process compared to those who opted for trial because later are usually
are more severely punished. Such practice confirms that even courts, not only
prosecutors, can impose a psychological pressure on defendant to accept the
bargaining. Hence, this leads to the paradox conclusion that defendants who
have decided to use their trail rights are being punished for that, while guilty
plea and accepting prosecutor’s offer always leads to more favorable treatment.
3. One of the main arguments that speak in favor of bargaining is the turmoil
in the substantive criminal law related to the purposes of punishment which
justify the convergence of criminal and civil law which become more evident in
the bargaining (Damaška, 2004, 17). It has been already said in the introduc-
tory part that the economic literature on bargaining consider the prevention
to be the sole purpose of punishment. The main purpose here is the special
prevention, reparation (if the interest of restorative justice as well can be obtain
757
through bargaining), as well as resocializing effects which the catalogue of con-
temporary criminal law sanctions does not exclude (Krapac, 2014, 93). How-
ever, significant concessions to defendants must not always be in congruence
with the proclaimed purposes of punishment, including maximizing preventive
effects with minimal costs. The bargaining practice is often criticized for be-
ing overly lenient, which often scandalizes public and it is contrary to demands
(positive) of general prevention, while the retribution is unjustly pushed to the
background (Kipnis, 1979, 555). Fulfillment of punishment purposes is par-
ticularly emphasized when pressing charges against more defendants because
this is the case in which the most culpable defendant may be punished in the
most lenient way through bargaining process, particularly if this increases the
probability of convicting other defendants (Kobayashi, 1992, 507). In most ex-
treme case, the confession of such favored defendant may lead to the conviction
of other defendants against whom the evidence were weak and finally to the
conviction of innocent defendants who could not stand any chance for acquittal
or application of milder type of sentence due to the statements made by favored
defendant. Conviction of innocent defendant, who has decided to plead guilty in
such cases, neither has any relation to the purpose of punishment nor fair treat-
ment. This is the unfair bargain in which the prosecutor wrongfully acts from
the beginning because he favors the defendant with the most culpability with
the purpose to efficiently prosecute other for whom he does not have enough
evidence, including the possibility that some of co-defendants also confess even
though he is innocent. Such way of treatment seriously undermines the ba-
sic foundations of the criminal procedure because the goal of legal provisions
about criminal procedure is that no innocent person is convicted and that the
punishment or other measure prescribed by the law is imposed on the offender
based upon the legally conducted procedure in front of the court (Art. 1 § 1 of
the Criminal Procedure Act). The real problem lies in the fact that there is a
danger that bargaining which is conducted in the shadow of the trial underesti-
mate confessions made by innocent defendants. Thus, a new strand in literature
thrives to find ways to incorporate more adequately the defendant’s attitude
towards his own culpability or innocence, as signaling information, in the bar-
gaining mechanism by using the cost-benefit analysis (Covey, 2009, 130). In the
continental systems of bargaining, which as a rule foresee only the mitigation of
sentence or milder type of sanction as the possible concession to the defendant,
“invisible” gestures in terms of reducing the possible number of accounts by
applying the construction of extended criminal offence, which will later be the
758
justification for the mitigation of the sentence, may happen prior to actual offer
to significantly mitigate the sentence for the most culpable defendant.
III. BARGAINING OF PARTIES IN THE CROATIAN

LAW
Provisions on guilty plea of defendants and bargaining, as well as provisions
about adjudication based upon the bargaining are encompasses in the part of
the Criminal Procedure Act (further in the text: CPA) which refers to the phase
of conviction. Parties can negotiate about the terms of conditions of guilty plea
and bargaining about punishment and other measures, while a defendant dur-
ing negotiations must have an attorney-at-law (Art. 360 § 1 of the CPA). If
the state attorney, defendant and attorney-at-law before the session or during
the session of the Indictment Council signed a statement on conviction based
upon the bargaining, the statement must be submitted to the Council imme-
diately upon the beginning of the session (Art. 360 § 3 of the CPA). Such a
statement must contain following: (1) description of the criminal offence for
which the charges are pressed, (2) a statement of defendant about guilty plea for
that criminal offense, (3) agreement on the type and measure of the sentence,
court reprimand, suspended sentence, partially suspended sentence, special ob-
ligations, surveillance, seizure of object as well as costs of the procedure, (4)
a statement of the defendant on property claim filed, (5) a statement of the
defendant for accepting the state attorney’s imposition of security measure and
seizure of proceeds or the benefits gained from criminal offense (6) the signa-
ture of both parties and attorneys-at-law (Art. 360, § 4 of the CPA). After the INTERDISCIPLINARY MANAGEMENT RESEARCH XI
signing of the above statement, the state attorney informs the victim or injured
person about it (Art. 360 § 5 of the CPA), but in the cases of criminal offenses
against life and limb as well as against sexual freedom for which the sentence of
imprisonment of 5 and more yeas is prescribed, the state attorney must obtain
the consent of victim for bargaining. In the case that the victim has died or
is unable to give a consent, the approval will be asked from the spouse, living
partner, children, parents, adoptees, adoptive parents, brothers or sisters (Art.
360 § 6 of the CPA). After receiving the written statement of the parties and
attorneys-at-law about the conviction based upon bargaining, the Indictment
Council determines whether the parties agree on the content of the statement
and this enters the record after which the indictment is confirmed (Art. 361 §1
759
of the CPA). If the indictment is confirmed, the Indictment Council is making
a decision to accept the statement and adjudicate, i.e. pronounces the sentence
or other measure upon which the parties had agreed (Art. 361 § 2 of the CPA).
The statement for adjudication based upon the agreement of parties will not be
accepted by the Indictment Council, if given the circumstances, its acceptance
is not in accordance with the sentencing prescribed by the law or agreement
otherwise is illegal.
In such a case the Indictment Council passes the resolution for which no
appeal is allowed and it refuses the statement for adjudication based upon the
bargaining of the parties (Art. 361 §3 of the CPA). Besides the stated proce-
dural provisions, one should also point out the provision of the Criminal Code
(further in the text: CC) regarding the mitigation as well as the limits of the
mitigation of punishment. The punishment mitigated from prescribed for a cer-
tain criminal offense the Court can pronounce even in the case when the state
attorney and defendant had reached an agreement (Art. 48 § 3 of the CC). In
such a case, the punishment can be mitigated up to half of the lowest mitigated
punishment obtained according to the rules which are valid for other cases of
mitigating the punishment (Art. 49 § 2 of the CC). During the bargaining with
the defendant and his attorney-at-law, the state attorney still does not have the
full freedom because its discretion is limited by the provision in the Act on the
State’s Attorney Office (further in the text: ASAO). Namely, the state attorney
is obliged to check whether the defendant’s guilty plea: (1) enables avoidance of
the trial and enables faster solution of the other cases, (2) reduces the expected
time of conducting the criminal procedure from the point of indictment to the
final conviction of imprisonment, (3) significantly reduces the cost of procedure,
(4) spares the victims and other sensitive witness the negative effects of publicly
making statements during the trial, (5) allows the application of a cautionary
measures or replacement of imprisonment with community service, (6) enables
the revealing other criminal offenses or other criminal offenders (Art. 74 § 1 of
the ASAO). Evaluating the application of one of the stated circumstances must
be explained (Art. 74 § 2 of the ASAO). The circumstance, which goes in the
favor of the agreement, is also the full admission of the defendant given in the
short period after the offense is committed, independently of other extenuating
circumstances or protracted circumstances which should be taken into consid-
eration in front of the court for the concrete case (Art. 74 § 3 of the ASAO).
Way of negotiations, the form and content of the agreement, the method of
760
calculating the mitigated sanction that should be applied in the case of an agree-
ment and the cases in which state attorneys and their deputies cannot agree
about adjudication based upon the bargaining is prescribed by the Main State
Attorney in forms of the instructions (Art. 75 of the ASAO).
From the Guidelines on negotiation and bargaining with the defendant
about the guilty plea and sentencing as of 17 February 2010 one should particu-
larly point out the part which refers to cases in which the state attorney must
reject the bargaining. These include following: (1) cases of particularly serious
criminal offences in which the victims are severely traumatized or lost their
lives, or it is about children and juveniles in which cases one can conclude that
none of sanctions agreed through bargaining will not be accepted by the victim,
i.e. relatives of the victim as well as the public, (2) cases for which the public is
particularly interested in and in which the public expect the conviction of that
person as well as the bargaining would be considered as favoring the defendant
(e.g. the cases of enormous abuses, corruption at the highest level whereby one
has to show evidence in front of the court in order to convince the public about
the culpability and in which the public expect the court adjudication) and (3)
cases of criminal offences in which the state attorney has all the evidences, their
proving is extremely simple, and defendant requires significant mitigation of the
foreseen sentence.
What does emerge from the above legal provisions and instructions of the
Main State Attorney? From the provisions of the CPA one can conclude that
the Croatian model, although limited to a concession to the defendant in the
form of mitigation the punishment or application of milder sanction, is closer INTERDISCIPLINARY MANAGEMENT RESEARCH XI
to the American plea bargaining if we take into account that the court controls
the settlement of parties. There are no limitations regarding the severity of the
criminal offenses for which the bargains are allowed, except in the cases of seri-
ous offenses against the life and limb and sexual freedom whereby one needs to
ask for the consent of the victim. The provisions of the ASAO and the Guide-
lines of the Main State Attorney witness that the state attorneys do not have
absolute discretion when it comes to selecting cases because for each concrete
case they have to explain the relationship between defendant’s confession and
the benefits that should be obtained by bargaining: shortening of the proce-
dure and faster solving other cases, savings in terms of procedure cost (criminal
prosecution), considerate treatment of victims and witnesses for the purpose of
avoiding secondary victimization, fulfilling the interests of special prevention
761
and resocialization through application of alternatives of imprisonment, fulfill-
ment of general prevention in terms of strengthening the trust of citizens in the
functioning of the criminal justice system as well as increasing the efficiency of
the criminal prosecution of other criminal offenders.
Contrary to the American experience, Croatian practice shows that bargain-
ing is rarely applied. According to the Report of the State Attorney’s Office of
the Republic of Croatia for 2013, the convictions on the basis of bargaining in
cases against adults and younger adults in the reporting period were made in
450 cases or 2.5% out of which a significant part has been done within the ju-
risdiction of the Office for the Prevention of Corruption and Organized Crime
(Croatian abbreviation: USKOK). Namely, in this part of prosecutorial treat-

ment out of 286 cases of convictions 186 convictions were result of the bargain-
ing (58.74%). It is particularly interesting that in the aforementioned Report,
among other things, one states that “in some cases, without the bargaining with
the particular defendant, the procedure related to the other defendants could
not be successfully completed” (Report, 114). If by the successful completion
of the process from the standpoint of the prosecutorial interests one consid-
ers only a conviction, it is obvious that the above proclamation shows that the
guilty plea of one defendant becomes regina probationis (the queen of evidence)
also for those against whom the state attorney does not have enough evidence
and who can be an innocent. In such a context one should support the idea that
the state attorney in each concrete case and after obtaining the guilty plea must
explain what further evidence he has available (Damaška, 2004, 19). From such
a request logically arises the possibility of potential changes of the provisions
of the CPA de lege ferenda regarding the powers of the court (the Indictment
Council or the President of the Trial Council at the preliminary hearing) to rat-
ify the agreement. Hence, the court should be allowed to reject the agreement in
the cases whereby one can reasonably conclude from the existing state of facts
that the state attorney has no other evidence except the defendant’s confession
which may be false and as such it can be harmful not only to defendant’s own
interests but to the interests of other defendants as well.
IV. CONCLUSION
The contributions of the economic analysis of the plea bargaining are usually
focused on the bargain as the mutual exchange of concessions for the purpose
762
of most acceptable way of concluding the criminal procedure for both parties.
They, however, do not take into account to the sufficient degree new impulses
which try to make bargaining fit into the wider context which enables better
understanding of the powerful role of the state attorney, complex relationships
between defendants and their attorneys-at-law, effects of the bargains on third
parties (particularly victims) and desirable role of the court. The economic
analysis of law focuses often to the issue of limitations of the state attorney’s
discretion. The full freedom in the selection of cases has been mostly justified
with the optimally distributing the available means in order to achieve the maxi-
mum preventive effects, while its limitations have been justified by minimiz-
ing situations in which the interests of the state attorney does not match the
public interest or in which his emphasized role marginalizes the position of the
court. The public usually reacts with exaggerated leniency towards defendants,
while the problem of innocence worries most of the legal academic scholars.
This taken into consideration one should note that, despite the pragmatism of
process economics from the standpoint of judiciary overload and insufficiency
of budgetary means, as convincing justification of plea bargaining, as well as
satisfying party’s interests on the principle of do ut des (I give you, you give me),
bargaining must fit in the fundamental objective of criminal procedure: a clear
distinction between guilty and innocent ones. The truth must not be adjusted
to the desirable result of parties’ interests because in that case bargains would
be pure opposition to professional interest in establishing an unlawfulness and
culpability (Herzog, 2014, 688). Therefore, right are the authors who point out
that the key issue of the bargaining between the state attorney and defendant
is how to introduce them in the criminal procedure and keep their simplicity INTERDISCIPLINARY MANAGEMENT RESEARCH XI
and the possibility of shortening the proceedings, while at the same time not
to jeopardize the defendant’s rights and not to open the possibility of wrong-
ful conviction of the innocent person (Krapac, 2014, 94, fn 20). Regarding the
latter, a mentioned possibility justifies the restriction of prosecutorial discre-
tion, and strengthening the role of the court when confirming the settlement.
Judicial scrutiny is also important because of the possible complaint regard-
ing the excessive leniency towards the defendants for such control should not
be limited to technical check-up of compliance with the prescribed limits of
(mitigated) sentencing, but it must take into account the reasonable balance of
exercising the statutory purposes of punishment (retribution, special and gen-
eral prevention and social reintegration). All previously discussed issues indi-
cate the essential difference between the plea bargaining and settlements in the
763
civil procedure. The main motive of any future bargaining reform in criminal
procedure should be minimizing their potential adverse consequences while at
the same time strengthening the legitimacy of the criminal justice system in the
area in which the result of criminal procedure for the most part still depends
on the party interests. This could be in any case supported by the empirical re-
search results which could provide answers to many important questions about
the actual functioning of the bargaining: does the bargaining for the mitigated
sentence is preceded with dropping of some charges, to which extent are the in-
nocent defendants are pressured to bargain or how much courts pay attention
to achieving the purpose of punishment when confirming the settlement.
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in So Many Criminal Justice Systems: A New Framework for Assessment, Work-
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ing, 145-165, ISBN 9781847202758
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che Berufsethik, Goltdammer’s Archiv für Strafrecht (GA) 161, 688-700, ISSN
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ISBN 978-0-19-967359-9 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Laws and other documents:

Državno odvjetništvo Republike Hrvatske, Naputak o pregovaranju i sporazumi-
jevanju s okrivljenikom o priznanju krivnje i sankciji, Zagreb, veljača 2010.
Državno odvjetništvo Republike Hrvatske, Izvješće Državnog odvjetništva Repub-
like Hrvatske za 2013. godinu, Zagreb, travanj 2014.
Kazneni zakon, Narodne novine 125/11, 144/12
Zakon o državnom odvjetništvu, Narodne novine 76/09, 153/09, 116/10, 145/10,
57/11, 130/11, 72/13, 148/13, 33/15
Zakon o kaznenom postupku, Narodne novine 152/08, 76/09, 80/11, 121/11,
91/12, 143/12, 56/13, 145/13, 152/14
765
Economic
Systems
RESOLVING INSOLVENCY
MANAGEMENT:
COMPETITIVENESS OF NATIONAL
BUSINESS ENVIRONMENTS1
Dunja ŠKALAMERAALILOVIĆ, Ph.D.

Faculty of Economics, University of Rijeka, Croatia
skalamer@efri.hr
Mira DIMITRIĆ, Ph.D.

Faculty of Economics, University of Rijeka, Croatia
dimitric@efri.hr
Abstract
The problem of insolvency and over-indebtedness has long been present in most
of the world economies. Number of insolvent businesses, as well as the value
of unsettled obligations has been steadily rising in the past decade. On the
other hand legal business environment framework is considered to have an
important facilitating/limiting role in treating the problems, arising from the
situations of insolvency and over-indebtedness of businesses. The insolvency
legislation and monitoring as an essential part of such framework belongs to
the most dynamic fields of contemporary research interest.
The goal of this paper is to detect the most reformative national economies of
the European Union in business insolvency management dealing with speedi-
ness and cost management of the resolution process. That should reveal the
features of a business environment as a platform for finding better indebtedness
management possibilities.
The methodology entails using World Bank data on efficiency in resolving in-
solvency across all EU national economies in the period of 12 years. Scoring
system is developed and applied to the data.
1
This work has been supported by the Croatian Science Foundation under the project 6558 Business
and Personal Insolvency – the Ways to Overcome Excessive Indebtedness.
769
As a result, the countries are ranked according to the intensity of their reforma-
Dunja Škalamera–Alilović • Mira Dimitrić: RESOLVING INSOLVENCY MANAGEMENT: COMPETITIVENESS OF NATIONAL BUSINESS ENVIRONMENTS
tive efforts in the field of insolvency management in the researched period. The
features of the highest ranking countries will be analyzed, as the best practices
of facilitating role of such frameworks.
Keywords: insolvency, business environment, resolving insolvency indicators
JEL Classification: P47, P52, G33
1. INTRODUCTION
Economic and social outcomes in each national economy are largely influ-
enced by the conditions, which form the business environment within which
companies operate. Political-legal business environment sector concerns shifts
and changes in regulation and institutions that governments set as a framework
for a business activity. Today entrepreneurial economy is regarded as means of
solving both, growth and unemployment issues in modern societies. Therefore
an attractive political-legal business environment sector is the one that enhanc-
es and not constrains entrepreneurial activity. This research applies such busi-
ness environments approach to the part of its political legal segment concerning
ever-growing problem of insolvency and over indebtedness of business entities.
This is done by elaborating possible synergy of different government-driven re-
forms with resolving insolvency management improvements.
This paper focuses on the comparative analysis of the resolving insolvency
indicators of EU countries in last decade (2003-2014). The goal of the paper is
to investigate whether the resolving insolvency conditions in researched econo-
mies evolve from regulating to stimulating conditions. Methodology used in the
paper is based on interpretation of secondary data collected by World Bank in
their Doing Business project. The results for 28 EU countries are gathered, pre-
sented and reinterpreted in search of most reformative practices of insolvency
treatment in Europe.
2. BACKGROUND
The most important part of the aggregate indebtedness of the economy is that
of non-financial enterprises (Yankov; 2014, 40). At moderate levels debt improves
welfare and enhances growth. The levels of corporate debt above 90% of the GDP
are generally considered as the point when indebtedness impact to economic
770
growth turns from neutral to negative (Cecchetti et al.; 2001). Over-indebtedness
is not the only cause of insolvency but it is certainly the most important one. At
the same time, without an exception, over-indebtedness is permanent companion
phenomenon to insolvency. Dealing with insolvency and over-indebtedness has
become an important task of regulators for several reasons. There is evidence that
efficient national insolvency management solutions give incentive to entrepreneur-
ship (Cirmizi et al.; 2010). Further, evidence supports strong relationship between
insolvency framework that enables failing firms to efficiently exit with improved
business success of renascent entrepreneurs (Stam et al.; 2008, 502).
Different studies have shown positive effects of efficient insolvency treat-
ment to several growth boosting phenomena: credit market development, prob-
ability of timely repayment, lower cost of debt, reduction of the business failure
rate, better loan terms, higher bank recovery rates (Araujo et al.; 2012, Klapper;
2011, Cirmizi et al.; 2010, Visaria; 2009). The features of the well-functioning
public insolvency management framework are: speediness, low costs (differ-
ent fees: court, insolvency administrators, lawyers, assessors, auctioneers etc.),
higher recovery rate for creditors, and higher rate of the most favorable outcome
(continuation of operation). Gradual shift in the focus of national resolving in-
solvency methods from dealing with bankruptcy and liquidation proceedings
towards restructuring and reorganization proceedings is an attempt to save vi-
able businesses as going concerns (Vuković & Bodul; 2014b, 50). This shift
reflects social sensitivity of European regulators with preservation of jobs in
mind (Vuković & Bodul; 2014a, 34).
Many of the national insolvency regimes in the world including EU countries
are far from the described desired level of efficiency. The need to reform existing
insolvency practices can be further argued by the fact that in some of the EU
countries (Croatia) bankruptcy proceedings can last up to 10 years and can cost
up to 90% of the debtor’s estate value (Tomas Žiković et al.; 2014a, 318). Given
this, resolving insolvency management framework must be continuously molded
and reshaped in every aspect that affects the ease of solving over-indebtedness
problem in a modern economy which then in turn enhances economic growth
and employment creation as major goals of every national economy.
3. METHODOLOGY
Widely accepted measures of the outcomes of insolvency proceedings are
those developed by World Bank in their Doing Business reports. The project
771
started with the report in 2004 and is issued since then on a yearly basis. It ex-
panded in both number of indicators followed (from 24 in 2004 to 36 in 2015)

and number of economies covered (from 132 in 2004 to 189 in 2015). One of
the fields covered since its inception is Resolving insolvency, until 2011 named:
Closing a business. Change in name reflects the above mentioned transition in
focus that accentuates survival rather than piecemeal sale of business. Three
measures are present since 2005 and they represent three different desired fea-
tures of resolving insolvency outcomes. These are: time required to recover debt
measured in calendar years (speediness), cost required to recover debt measured
as percentage of debtor’s estate value, and recovery rate for creditors measured
as percentage of their claims recouped through reorganization, liquidation or
debt enforcement (foreclosure) proceedings. Methodological scope of the WB
indicators reaches out into various features of resolving the creditor/ debtor
regimes (including restructuring, bankruptcy, liquidations, and foreclosures)
(Tomas Žiković, et al.; 2014b, 569). For the purpose of this paper, which is to
study the dynamics of the reforms of resolving insolvency management in EU
countries, the mentioned three indicators will be taken into consideration.
Scoring methodology is developed which evaluates the rate and direction of
change in the studied indicators. Relative change is scored from 0-5, 0 meaning
no change in indicator in comparison to the previous year’s results. Scores from
1-5 are assigned as follows: 1– change in range from +0 – 20%; 2 – 21 – 40%;
3 – 41 – 60%; 4 – 61 – 80% and score 5 – for change in range from 81 –1 00%
and more. Positive or negative score denotes the direction of change, which can
be either in sense of more stimulating or more constraining resolving insolvency
management changes. Indicators are aggregated and final reform score is ob-
tained by adding up single indicator scores.
There are two main limitations of this approach. First, the scoring scale is
discrete and therefore does not allow for fine-tune differences, for example be-
tween results such as 20% change which has score 1 and 21% which has score 2.
Second, all single indicators are given the same importance that also limits the
in-depth understanding of the researched topic, especially bearing in mind that
the third indicator entails (to a certain extent) the effect of the second indicator.
4. RESULTS AND DISCUSSION

The results that follow try to capture both quantitative and qualitative di-
mension of reforms being implemented on resolving insolvency in EU coun-
772
tries. Quantitative measure takes in account number of years (times) a country
introduced reform(s) in field of national insolvency management in the period
of nine consecutive years (only those reforms making it easier to do business
are taken into account). Reformative efforts of EU countries are compared to
the total number of reformative efforts worldwide each year in question. The
countries that reformed in a particular year are listed.
Table 1 Reformative efforts in resolving insolvency

No.of No.of
reformed reformed Reformed countries
Year
countries countries (EU)
(world) (EU)
2006 12 5 France, Italy, Latvia, Romania, Slovak Republic
2007 10 5 Croatia, Denmark, Hungary, Italy, Portugal
Bulgaria, Czech Republic, Finland, Germany,
2008 16 8 Greece, Latvia, Poland, Portugal
2009 18 5 Estonia, France, Germany, Lithuania, Poland
Belgium, Czech Republic, Estonia, Hungary,
Latvia, Lithuania, Romania, Spain, United
2010 16 9 Kingdom
Austria, Bulgaria, Denmark, France, Italy, Latvia,
2011 29 10 Lithuania, Poland, Romania, Slovenia
Germany, Greece, Lithuania, Poland, Portugal,
2012 17 8 Slovak Republic, Slovenia, Spain
2013 13 2 Croatia, Italy
2014 10 2 Slovenia, Spain
Total 141 54
Source: Author’s calculations, based on World Bank (2007-2014)
The data presented in Table 1 indicates that reforms that take place in EU INTERDISCIPLINARY MANAGEMENT RESEARCH XI
countries are a significant share of all reforms in the world, ranging from 15%
(2013) to 56% (2010), in average 38%. The largest number of reformative ef-
forts both: worldwide (29) and EU (10) are detected in 2011. Common features
of solvency reforms in the past decade include passing new bankruptcy laws,
promoting reorganization proceedings, eliminating formalities and tightening
time limits of insolvency proceedings, regulating the qualifications of insolvency
administrators and strengthening the rights of secured creditors (WB; 2013,
94, WB; 2014, 114). In the past nine years four countries have introduced re-
forms four times (Italy, Latvia, Lithuania and Poland), six countries three times
(France, Romania, Slovenia, Germany, Portugal and Spain). Six EU countries
have not introduced any resolving insolvency reforms in this period: leaders in
resolving insolvency management with excellent starting values of indicators in
773
2003: Ireland, Netherlands and Sweden, and Luxembourg, Cyprus, and Malta
that were later included in data set (2008, 2010, and 2013 respectively). The
reforms typically work out. Recovery rates for bankruptcy claimants (credi-
tors, workers and government) are significantly higher for the reformers, even
controlling for country income levels. Rationale behind this relationship is that
reformed bankruptcy regimes allow viable businesses to solve a short-term li-
quidity crisis, and insolvent businesses are rapidly liquidated (WB; 2006, 67).
In the table that follows starting and ending values of indicators in the time
series are presented. Positive and negative changes are highlighted.
Table 2 Resolving insolvency indicators (time in years; cost and recovery in %)
Time Time Cost Cost Recovery Recovery
Country
first last first last first last
Austria 1,3 1,1 18 10 72,5 82,6
Belgium 0,9 0,9 4 4 86,2 89,1
Bulgaria 3,8 3,3 18 9 34,2 33,2
Croatia 3,1 3,1 18 15 26,1 30,5
Cyprus* 1,5 1,5 15 15 70,7 70,5
Czech Republic 9,2 2,1 38 17 16,8 65,6
Denmark 4,2 1 8 4 59,8 87,5
Estonia** 3 3 8 9 40 39,3
Finland 0,9 0,9 1 4 90,2 90,2
France 2,4 1,9 18 9 46,6 77,2
Germany 1,2 1,2 8 8 50,3 83,4
Greece 2,2 3,5 8 9 45,6 34,3
Hungary 2 2 38 15 30,8 40,2
Ireland 0,4 0,4 8 9 88,9 87,7
Italy 1,3 1,8 18 22 43,5 62,8
Latvia 1,2 1,5 4 10 85 48,2
Lithuania 1,2 2,3 18 10 52,4 43,6
Luxembourg*** 2 2 15 15 41,6 44
Malta**** 3 3 10 10 39,2 39,6
Netherlands 2,6 1,1 1 4 86,2 88,9
Poland 1,5 3 18 15 68,2 57
Portugal 2,6 2 8 9 69,9 72,2
Romania 3,2 3,3 8 11 6,9 30,7
Slovak Republic 4,8 4 18 18 39,6 54,4
Slovenia 3,7 2 18 4 23,6 50,1
Spain 1,5 1,5 8 11 83,4 71,3
Sweden 2 2 8 9 73,2 76,1
United Kingdom 1 1 8 6 85,8 88,6
Average 2,4 2,0 13,1 10,4 55,6 62,1
Last = 2015; First = 2004 (time, cost); 2005 (recovery) for all countries except *, **, ***, ****
First observation * 2010; ** 2005; *** 2008; **** 2013
Source: World Bank (2004-2014)
774
The data presented in previous table gives evidence that EU countries have
improved framework of resolving insolvency (time shortened from 2,4 to 2
years, cost lowered from 13,1% to 10,4% of debtor’s estate, and recovery rate
increased from 55,6% to 62,1% of creditor’s claims, in average). Significant dis-
crepancies are evident among countries. Seven countries have not improved any
of the indicators, and five have improved all of them. Looking at each indicator
separately, nine countries improved and six countries worsened in time required
to recover debt. Eleven countries lowered and the same number raised cost to
recover debt. The most number (18) of positive changes are evident in higher
recovery rate for creditors, where nine countries worsened in that indicator.
Scoring methodology was applied to data available in 12 years time series.
Therefore scores capture the dynamics of reformative outcomes in the observed
period (Table 3).
Table 3 Resolving insolvency reformative scores

Country Time Cost Recovery Total Country Time Cost Recovery Total
Czech Malta 0 0 1 1
Republic 7 2 11 20
Poland -4 1 4 1
Slovenia 4 6 7 17
Denmark 8 2 2 12 Estonia 0 -1 1 0
France 2 2 5 9 Netherlands 4 -5 1 0
Germany 0 0 9 9 United
Romania -1 -3 12 8 Kingdom 0 2 -2 0
Croatia 0 0 7 7 Italy -2 -2 3 -1
Austria 1 3 1 5 Cyprus 0 0 -2 -2
Bulgaria 1 2 1 4 Ireland 0 -1 -1 -2
Belgium 0 0 3 3 Lithuania -6 1 0 -5
Hungary 0 3 0 3 Finland 0 -6 0 -6
Luxembourg 0 0 3 3 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Greece -3 -1 -2 -6
Slovak
Republic 1 0 2 3 Latvia -1 -3 -2 -6
Portugal 2 -1 1 2 Spain -1 -4 -5 -10
Sweden 0 -1 3 2 Total 12 -4 63 71
Source: Author’s calculations, based on World Bank (2004-2014)
Czech Republic has the highest total reformative score. There are two reasons
for that. First, in 2004 Czech Republic bankruptcy procedures ranked among
ten slowest and most expensive in the world. Such low starting position made
it possible that two Czech reforms (2008, 2010) had an outcome of 20 score
points (all three indicators improved significantly). Second reflects the positive
effects of the two implemented, comprehensive reforms. In the beginning of
2008 the Czech Insolvency Act took effect. The law introduced reorganization
775
as the preferred method for resolving insolvency, mandated stricter deadlines,
established an electronic insolvency register and set new qualification standards

for trustees (WB; 2009, 55). In its second reform in 2010 the Czech Republic
made it easier to deal with insolvency by introducing further legal amendments
to restrict setoffs in insolvency cases and suspending for some insolvent debtors
the obligation to file for bankruptcy (WB; 2011, 136).
Second most reformative country is Slovenia with three implemented reforms
(2011, 2012, and 2014). In 2011 Slovenia simplified and streamlined the insol-
vency process and strengthened professional requirements for insolvency admin-
istrators. Next Slovenian reform involved strengthening its insolvency process
by: (1) requiring that the debtor offers creditors payment of at least 50% of the
claims within four years; (2) giving greater power to the creditors’ committee in a
bankruptcy proceeding; (3) prohibiting insolvency administrators from allowing
relatives to render services associated with the bankruptcy proceeding; and (4)
establishing fines for members of management that violate certain obligations or
prohibitions (WB; 2013, 142). In 2014 Slovenia introduced a simplified reorga-
nization procedure for small companies and preventive restructuring procedure
for medium-size and large ones. It also allowed creditors greater participation in
the management of the debtor. The last novelty was establishing provisions for
an increase in share capital through debt-equity swaps (WB; 2015, 163).
Denmark took the third position with its two implemented reforms (2007
and 2011). Through first reform Denmark granted the courts more power to
oversee trustees and make sure they act efficiently. This resulted in shortened
bankruptcy proceedings (WB; 2008, 56). In 2011 Denmark introduced new
rules on company reorganization which led to elimination of the suspension-
of-payments regime. (WB; 2012, 68).
At the other end of the reformative spectrum are those countries that ex-
perienced either moderate negative changes in the value of all three indicators
(Greece and Latvia), or countries with several stagnant indicators and several
worsened ones (Spain and Finland). Finland deserves special attention. Its in-
dicator of recovery (that did not change) has the highest value in EU (90,2%)
and its time value is second best (0,9 years) in the whole period. Only the cost
changed, but it changed from the lowest level (1%) at the beginning of observed
period to 4%, which is also the lowest level of indicator in the last observed year.
Therefore in case of Finland scoring results are not representative.
776
5. CONCLUSIONS
Efficiency in resolving insolvency as a feature of national business environ-
ments is observed by using three indicators: time to resolve insolvency proceed-
ing, cost to recover debt as percentage of debtor’s estate value, and recovery rate
for creditors as percentage of their claims. Observations of 28 EU countries
during the period from 2003 to 2014 are subjected to the scoring methodol-
ogy based on dynamics of change in order to form partial and total reformative
scores for particular countries and other derived insights.
Reformative efforts in resolving insolvency can be labeled as very strong be-
cause all observed indicators are improved at the EU level, the total reformative
score is also positive, the most of the countries have introduced some insolvency
reforms and the number of European reforms exceeds one third of the reforms
in the world. Still, all reformative scores do not record total positive outcome,
namely cost to recover debt records negative total result. Recovery rate records
the highest reformative score.
Belgium, Finland and Ireland are leaders in resolving insolvency indicators
and Czech Republic, Slovenia and, initially best positioned Denmark are de-
tected as the most reformative countries. Analysis of the practices in the most
reformative countries reveals the most important directions in improving insol-
vency proceedings: simplification of the procedure, introduction of provisions
to facilitate the restructuring of the company and to prevent abuse of the bank-
ruptcy proceedings, and encouraging the active role of creditors.

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778
Industrial
Organization
QUALITÄTSSICHERUNG IN
DER WIRTSCHAFTSPRÜFUNG
 EIN SYSTEM MIT STÄNDIGEM
REFORMBEDARF?
Markus HAFELE, Ph.D.
Brigitte MAYER
Abstract
Quality control and quality assurance gets more and more important against
the background for regeneration of the financial market crisis. According to
International Standard on Quality Control 1 (ISQC 1) audit firms “should
establish a system of quality control designed to provide it with reasonable as-
surance that the firm and its personnel comply with professional standards and
applicable regulatory and legal requirements, and that reports issued by the
firm or engagement partners are appropriate in the circumstances.”
Keywords: quality control, quality assurance, Peer Review, Public Company
Accounting Oversight Board (PCAOB)
781
1 EINFÜHRUNG UND ÜBERBLICK
Die aktuelle wirtschaftliche Lage zeigt uns sehr deutlich: Wirtschaftliches
Handeln ist geprägt von Chancen und Risiken. Wohingegen Chancen den Fort-
Markus Hafele • Brigitte Mayer: QUALITÄTSSICHERUNG IN DER WIRTSCHAFTSPRÜFUNG – EIN SYSTEM MIT STÄNDIGEM REFORMBEDARF?
bestand des Unternehmens fördern, können Risiken negative Auswirkungen

auf die Beständigkeit des Unternehmens haben. Aus diesem Grund wird jeder
Unternehmer von sich aus für bestehende wesentliche Risiken wirtschaftlicher
oder rechtlicher Natur jedenfalls teilweise Vorsorgemaßnahmen ergreifen,
selbst wenn ihn keine gesetzliche Vorschrift dazu verpflichtet.
Anders stellt sich die Situation für den Berufsstand der Wirtschaftsprüfer
(WP) dar, der seit dem Abschlussprüferaufsichtsgesetz im Jahr 2005 gesetzlich
mit § 55b WPO zur Einrichtung und Aufrechterhaltung eines Qualitätssicher-
ungssystems verpflichtet ist. Weshalb die Sicherung der Qualität für sämtliche
Berufsangehörige einen derart hohen Stellenwert verdient, wird im Folgenden
skizziert.
Das äußerst vielfältige Tätigkeitsgebiet des WP1 erstreckt sich auf betrieb-
swirtschaftliche Prüfungen, insbesondere Abschlussprüfungen, verbunden mit
der Erteilung von Bestätigungsvermerken, auf steuerliche Beratung, wie auch
auf gutachterliche Tätigkeiten und treuhänderische Verwaltung. Insbesondere
bei den vom Berufsstand der WP vorbehaltlich ausgeführten Tätigkeiten, den
Abschlussprüfungen, handelt der WP im öffentlichen Interesse. Dabei fällt
es der Öffentlichkeit schwer, die Qualität der Leistung hinreichend zu beur-
teilen, was den Bestätigungsvermerk zu einem Vertrauensgut macht, bei dem
die Adressaten auf die Erfüllung ihrer Erwartungen an den WP bauen.2 Da die
Adressaten des Bestätigungsvermerks wie auch die Öffentlichkeit auf die vom
Berufsstand der WP abgegebenen Urteile vertrauen, ist „die Abgabe eines ver-
trauenswürdigen Urteils […] ein konstitutives Element des Aufgabenbereichs“3
des WP.
Ein vertrauenswürdiges Urteil besteht aus den drei Komponenten der Ur-
teilsfähigkeit, der Urteilsfreiheit des Urteilenden und der sachgerechten Ur-
teilsbildung.4 Durch entsprechende Fachkenntnisse wird die Urteilsfähigkeit,
1
Im Folgenden wird übergreifend vom Berufsstand der WP gesprochen, wodurch aber die vBP
mit inbegriffen sind, soweit ihnen Befugnisse analog der WP zustehen.
2
Vgl. Leffson (1988), S. 99.
3
Leffson (1988), S. 8.
4
782
durch Einhaltung der Berufsgrundsätze, insbesondere durch Wahrung der
Unabhängigkeit und Vermeidung der Besorgnis der Befangenheit, die Urteils-
freiheit garantiert. An die sachgerechte Urteilsbildung werden die Forderungen
nach Vollständigkeit, Wesentlichkeit und Objektivität gestellt. Nur unter die-
sen Auflagen kann das Resultat ein vertrauenswürdiges Urteil sein.5
Die Sicherung der Urteilsfähigkeit wird durch gesetzlich definierte Zugang-
swege zum Berufsstand, in Gestalt des Absolvierens eines bundeseinheitlichen
Berufsexamens einschließlich nachweislicher praktischer Tätigkeit mit ab-
schließender Vereidigung gewährleistet. Dasselbe Ziel verfolgt die Pflicht zur
fachlichen Fortbildung des WP im Anschluss an dessen Bestellung. Urteils-
freiheit zu gewährleisten gestaltet sich indes schwieriger, was die zahlreichen
Vorschriften der WPO, der BS WP/vBP sowie des HGB wie auch deren Ent-
wicklung indizieren. In einem immerwährenden Prozess wird seit Begründung
des Berufsstandes versucht, durch Konkretisierungen und Erweiterung der
Ausschlussgründe das Ziel der Urteilsfreiheit zu erreichen bzw. zu wahren. Die
Durchsetzung dieser Vorschriften erfolgt durch Sanktionsmaßnahmen, d. h.
durch die Haftung des WP für vorsätzlich oder fahrlässig infolge Pflichtverlet-
zung entstandener Schäden sowie i. R. d. Selbstverwaltung des Berufsstands.
Die sachgerechte Urteilsbildung verlangt vom Prüfer eine vollständige Infor-
mationsbasis, soweit es sich nicht um unwesentliche Sachverhalte handelt, die
durch Sorgfalt und Aufmerksamkeit bei der Auftragsabwicklung entsteht. Die
Objektivität, als intersubjektive Nachprüfbarkeit des Urteils, fordert eine um-
fassende Berichterstattung über die Prüfungsdurchführung samt Beschreibung
der erfolgten Vorgehensweise mit Ableitung des Prüfungsurteils.6
Aus der Nichterfüllung der Abgabe eines vertrauenswürdigen Urteils kön-
nen sich erhebliche, mit Ausstrahlungswirkung auf den gesamten Berufsstand,7
schädigende Konsequenzen ergeben, was die Kritik am Berufsstand in der Ver-
gangenheit infolge von Unternehmenszusammenbrüchen zeigt. Gerade deshalb
werden nahezu ununterbrochen Anstrengungen unternommen, die Qualität,
bestehend aus der Gewährleistung der Urteilsfähigkeit, Urteilsfreiheit und
der sachgerechten Urteilsbildung zu sichern und damit das Vertrauen in den
Berufsstand zu erhöhen. Eine Maßnahme zu diesem Zweck für den gesamten
5
6
Vgl. Leffson (1988), S. 86 ff.
7
Vgl. Marten, Köhler, Paulitschek (2006), S. 24.
783
Berufsstand ist die Pflicht zur Einrichtung, Durchsetzung und Überwachung
eines angemessenen und wirksamen QSS nach § 55b WPO, das zudem seit
2001 für AP einem externen Qualitätskontrollverfahren zu unterwerfen ist.
Letztlich dient auch die Berufsaufsicht durch die WPK dem Ziel der Stärkung
des Vertrauens.
Dieses System steht vor einem erneuten Umbruch, eingeläutet durch die von
der EU im Grünbuch „Lehren aus der Krise“ angestoßenen Reformbestrebun-
gen. Ziel der Ausarbeitung ist es, einen Überblick über die Entwicklung des
Systems der berufsständischen Qualitätssicherung und –kontrolle zu geben.
2 QUALITÄTSSICHERUNGSSYSTEM
Neben der erwähnten berufspolitischen Relevanz tritt seit Jahren immer
mehr auch die betriebswirtschaftliche Komponente einer qualitativ hochwerti-
gen Berufsausübung in den Fokus. Insbesondere als Ausfluss der Globalisier-
ung und der Internationalisierung der Märkte ist eine Verstärkung des Wett-
bewerbs in der Branche der WP, vor allem bei der Abschlussprüfung, zu erken-
nen, dem die Konkurrenten durch Steigerung der Qualitätsansprüche begeg-
nen, um so eine Abgrenzung zu den Wettbewerbern zu erlangen. So beschreibt
Pfitzer Qualität als Entstehungsquelle des Kundenvertrauens, das wiederum
die Marktpositionierung bestimmt und damit einhergehend die Marktchancen
und das Wachstum der Praxis sowie den Preis der Dienstleistung wesentlich
beeinflusst.8 Die Existenz eines wirksamen Qualitätssicherungssystems ist
demnach neben berufsrechtlichem Zwang verstärkt als betriebswirtschaftliche
Chance zu sehen.9
Das Thema Qualitätssicherung beschäftigt den Berufsstand weitaus länger,
als es die ersten konkreten gesetzlichen Normierungen der QK bzw. des QSS
aus den Jahren 2001 und 2005 vermuten lassen. Es besteht seit jeher für alle
WP-Praxen nach § 43 Abs. 1 S. 1 WPO die Berufspflicht der Gewissenhaft-
igkeit und ihr innewohnend die Pflicht zur Einrichtung eines QSS durch den
WP bzw. die Praxisleitung. Mit der von der WPK und dem IDW gemeinsam
verabschiedeten Stellungnahme VO 1/1982 „Zur Gewährleistung der Prü-
fungsqualität“ wurde in den 1980er Jahren erstmals eine nähere Beschreibung
8
Vgl. Pfitzer (2006), S. 189.
9
Vgl. Krawitz, Leukel (1998), S. 1930.
784
des internen QSS vorgenommen bzw. die Berufsauffassung dargestellt. Diese
Ausführungen erstreckten sich ausschließlich auf die Prüfungstätigkeit, mit
Fokussierung auf die Bereiche interne Nachschau, Praxisorganisation sowie
fachgerechte Auftragsabwicklung. Schwerpunkt bildete daneben die Unabhän-
gigkeit des WP im Hinblick auf die Urteilsfreiheit. Bereits zu diesem Zeit-
punkt wurden Prüfungsdokumentation und Berichterstattung wie auch die
fachliche Qualifizierung der Mitarbeiter gefordert.10
Anlässlich der heterogenen Struktur des Berufsstands (der zu diesem Ze-
itpunkt beispielsweise zu etwa 30 %11 aus vBP sowie zahlreichen WP-Praxen
und Einzel-WP bestand) ergab sich in Anbetracht der funktionierenden Selb-
stverwaltung das Erfordernis zum Erlass der aktualisierten Stellungnahme VO
1/1995 „Zur Qualitätssicherung in der Wirtschaftsprüferpraxis“.12 Wesentli-
cher Unterschied zur Vorgängerversion VO 1/1982 war die Idee des „totalen
Qualitätsanspruchs“ für alle Tätigkeitsbereiche des WP. Daneben kam es mit
der Berichtskritik zur Einführung einer Maßnahme des Vier-Augen-Prinzips.13
Infolge diverser Firmeninsolvenzen Anfang der 1990er Jahre begannen im
Jahr 1995 die Beratungen zum KonTraG, die schließlich im Jahr 1998 Ge-
setz wurden.14 Ziel dessen war u. a. die Verbesserung der Qualität der Ab-
schlussprüfung durch die Stärkung der Unabhängigkeit des WP. Neben zahl-
reichen Änderungen, wie der Beauftragung des AP durch den Aufsichtsrat
sowie verschärfter Anforderungen an die Unabhängigkeit des WP nach § 319
HGB (Absenkung der Umsatzgrenze auf 30% und Einführung der internen
Rotationspflicht bei der Prüfung amtlich notierter AGs), kam es zur Anpas-
sung an internationale Maßstäbe.15 Ergänzend zu den gesetzlichen Regelungen INTERDISCIPLINARY MANAGEMENT RESEARCH XI
wird seit dem Inkrafttreten der von der WPK i. R. d. Selbstverwaltungsau-
tonomie eingeführten Berufssatzung zum 15.09.1996 der Katalog zusätzlicher
Regelungen von normativem Charakter zu Berufspflichten und dem QSS stetig
ergänzt.16
10
Vgl. WPK (Hrsg.) (2011a), S. 58.
11
Vgl. WPK (Hrsg.) (2005), S. 1.
12
Vgl. WPK (Hrsg.) (2011a), S. 60 f.
13
Vgl. Niehus (1996), S. 385 ff.
14
Vgl. WPK (Hrsg.) (2011a), S. 60 f.
15
Vgl. Deutscher Bundestag (URL1), S. 1, 27.
16
Vgl. IDW (Hrsg.) (2012a), A Rz. 19.
785
Mit dem APAG kam im Bereich der internen QSS die erstmalige gesetzli-
che Normierung der Pflicht zur Einrichtung und Dokumentation eines QSS
für sämtliche Tätigkeitsbereiche des WP.17 Daneben wurde im Jahr 2006 von
den Vorständen des IDW und der WPK unter Berücksichtigung der inter-
nationalen Anforderungen die gemeinsame Stellungnahme VO 1/1995 durch

die VO 1/2006 mit zusätzlichen, präzisierenden Details zur Ausgestaltung
des QSS bezüglich wesentlicher Berufspflichten, jedoch ohne Erwirkung einer
Rechtsverbindlichkeit, ersetzt.18
3 QUALITÄTSKONTROLLE NACH §§ 57A FF. WPO

Mit Beginn des neuen Jahrtausends setzten sich die Reformbewegungen
fort. Die 4. WPO-Novelle, das WPOÄG, brachte für Berufsangehörige mit
betriebswirtschaftlichen Prüfungen unter Siegelführung zum 01.01.2001 die
Einführung eines international bereits gebräuchlichen externen Qualitätskon-
trollverfahrens, den sog. Peer Review. Gegenstand der externen QK mit Rege-
lungen in §§ 57a ff. WPO sowie der Satzung für QK ist seither die Beurteilung
der in der Praxis vorzufindenden Regelungen zum QSS auf deren Angemes-
senheit und Wirksamkeit durch einen externen Berufskollegen mit speziellen
Eigenschaften, den Prüfern für Qualitätskontrolle (PfQK). Diese Maßnahme
des Berufsstands i. R. d. Selbstverwaltung mit präventiver Funktion zielte auf
eine Stärkung des Vertrauens in die Profession ab.19 Durch die Gestaltung in
Form des „Peer Review“ und nicht des als alternativ möglichen Monitoring-Ver-
fahrens wurde die praxisnahe Fachkompetenz des PfQK der Stellung Berufs-
fremder bevorzugt.20 In diesem Stadium der QK oblag dem Qualitätskontroll-
beirat die Aufsicht über Angemessenheit und Funktionsfähigkeit der Qual-
itätskontrolle sowie die Weiterentwicklung des Systems durch Empfehlungen
neben einer jährlichen Berichterstattung.21
Das APAG brachte (neben der Einführung der Abschlussprüferaufsichts-
kommission – APAK - durch Erhöhung der Unabhängigkeitsanforderungen
an den PfQK sowie Modifikation der Vorschriften zur Prüferauswahl) zusät-
17
Vgl. Hense/Ulrich/Clauß (2008), § 55b Rz. 8.
18
Vgl. VO 1/2006.1, VO 1/2006.177.
19
Vgl. Deutscher Bundestag (URL2), S. 16, S. 18.
20
Vgl. IDW (Hrsg.) (2007), Q Rz. 153, 157.
21
Vgl. Deutscher Bundestag (URL2), S. 10.
786
zliche Transparenz. Ziele waren die Anpassung der Strukturen an interna-
tionale Entwicklungen, sowie die Stärkung des Vertrauens der Öffentlichkeit
in die Tätigkeit des Berufsstandes.22 Seither muss der PfQK neben Mindest-
bestellungszeit, Kenntnissen im Bereich der QS und Wohlverhalten im berufs-
rechtlichen Sinne den Nachweis spezieller Fortbildungen vorweisen.
Wesentliche Änderung im Bereich des Auswahlverfahrens des PfQK war
das Widerspruchsrecht der KfQK. Soll eine externe QK durchgeführt werden,
kann die zu prüfende Praxis aus der Liste der bei der KfQK registrierten PfQK
bis zu drei Prüfer wählen, soweit diese grundsätzlich unter Einhaltung der
Berufspflichten zur Auftragsannahme befugt sind.23
Mit dem rund zwei Jahre später verabschiedeten BARefG kam es, bewegt
durch Kostenentlastungen für kleine und mittlere Praxen, zur Verlängerung des
Prüfungsturnus von generell drei Jahren mit Gültigkeit für alle AP auf sechs
Jahre für die AP mit siegelungspflichtigen bzw. gesiegelten betriebswirtschaftli-
chen Prüfungen, die keine Prüfungen bei kapitalmarktorientierten Unterne-
hmen i. S. d. § 319a HGB darstellen.24
Die externe QK, durch die beurteilt werden soll, ob zukünftige Prüfungen
mit hinreichender25 Sicherheit ordnungsgemäß abgewickelt werden können, 26
ist kein Teil der Berufsaufsicht, sodass auf i. R. d. externen QK aufgedeckte
Pflichtverletzungen seitens der KfQK Auflagen zur Beseitigung oder Sonder-
prüfungen angeordnet werden, die ggf. durch Zwangsgeld durchzusetzen sind.
Die Regelung des § 57e Abs. 5 WPO verhindert derzeit die berufsaufsich-
tsrechtliche Verfolgung solcher Pflichtverstöße, sog. „firewall“.27
Wie anhand dieser Zusammenfassung ersichtlich, sind das QSS und des-
sen Überwachungssystem einem stetigem Wandel ausgesetzt. Derzeit bestehen
erneut Pläne, die VO 1/2006 zu modernisieren und zukünftig Regelungen hi-
erzu in der Satzung zu treffen.28
22
Vgl. Böcking, Dutzi (2006), S. 9.
23
Vgl. Böcking, Dutzi (2006), S. 10.
24
Vgl. Heininger, Bertram (2006), S. 909.
25
Vgl. IDW PS 200.24 f.
26
Vgl. VG Berlin, VG 16 K 313.10, S. 5, 9.
27
Vgl. Heininger, Bertram (2006), S. 907, § 57e Abs. 5 WPO, Lenz (2004), S. 1953.
28
Vgl. Securs (2012), S. 8.
787
4 BERUFSAUFSICHT
Als Körperschaft des öffentlichen Rechts und Organ der mittelbaren Sta-
atsverwaltung obliegt der WPK die Kernaufgabe der Aufsicht über alle Pflich-
tmitglieder, damit über alle bestellten, WP und anerkannten WPG. Die Beruf-
saufsicht als Gesamtheit aller Maßnahmen, die zur Kontrolle der Normenerfül-
lung aller Berufsangehörigen bestehen und Abweichungen bzw. Missachtungen
ahnden, ist wie die vorher genannten Regelungen eine Besonderheit des freien
Berufsstandes der WP, der in Verantwortung für das Gemeinwohl tätig wird.29
Kernanliegen der Berufsaufsicht sind die Qualitätssicherung und -verbesser-
ung.30 Die berufsgerichtlichen Maßnahmen stellen keine strafrechtlichen Anor-
dnungen dar, stattdessen sollen diese die korrekte Erfüllung der Berufspflichten
sowie Ordnung und Integrität innerhalb des Berufsstandes bezwecken.31
In jüngster Vergangenheit wurden die i. R. d. Berufsaufsicht möglichen Maß-
nahmen mehrfach überarbeitet bzw. an internationale Standards angepasst, er-
weitert und verschärft. Durch die Neuordnung der Zuständigkeiten obliegen
nun Entscheidungen über leichte bis mittelschwere Pflichtverletzungen der
WPK, schwere Fälle liegen dagegen im Zuständigkeitsbereich der Berufsgeri-
chtsbarkeit, die von speziellen Organen der ordentlichen Gerichte ausgeführt
wird - zur Gewährleistung der nötigen Fachkunde jeweils ergänzt um zwei WP
als ehrenamtliche Vertreter mit Befähigung zum Richteramt.32 Der Instanzen-
zug erstreckt sich von der Kammer für WP-Sachen beim LG Berlin, über den
Senat für WP-Sachen beim Kammergericht Berlin bis zur dritten und letzten
Instanz, dem Senat für WP-Sachen beim BGH.
Die Aktivitäten der WPK mit ihrer Vorstandsabteilung erfolgen, soweit die
WPK i. R. d. Selbstverwaltung gegenüber AP agiert für Zwecke der Beruf-
saufsicht, unter Kontrolle der übergeordneten Fachaufsicht APAK.33 Die
Aufsicht der APAK bezieht sich auf den Kernbereich der Gewährleistung
der Urteilsfähigkeit, nämlich der Prüfung samt Eignungsprüfung, der Bestel-
lung und Anerkennung sowie deren Widerruf wie auch der Registrierung von
Wirtschaftsprüfern. Zusätzlich obliegt der APAK die Kontrolle über den Er-
29
Vgl. IDW (Hrsg.) (2012a), A Rz. 558.
30
Vgl. WPK (Hrsg.) (2012b), S. 3.
31
Vgl. WPK (Hrsg.) (2002), S. 5.
32
Vgl. Sommerschuh (2003), S. 1166.
33
Vgl. WPK (Hrsg.) (2012b), S. 3.
788
lass von Berufsausübungsregelungen in Berufssatzung und Satzung für Qual-
itätskontrolle, damit auch die Aufsicht über die Institutionen zur Sicherung
der Urteilsfreiheit. Die APAK, ausgerüstet mit Letztentscheidungsbefugnis
und -verantwortung sowie hierfür benötigten umfangreichen Informations-
und Auskunftsrechten gegenüber der WPK, entspricht im Wesentlichen einer
modifizierten und in ihrem Aufgabengebiet wesentlich erweiterten Variante
des Qualitätskontrollbeirats, der bereits mit der Einführung der externen QK
Teil des Aufsichtssystems wurde.34 Die aus derzeit zehn ehrenamtlich tätigen,
berufsstandsunabhängigen, im Bereich der Wirtschaft und Rechtswissen-
schaften Fachkundigen bestehende, weisungsungebundene Aufsicht wurde mit
dem APAG zu Beginn des Jahres 2005 installiert, wodurch das bestehende Sys-
tem zu einer sog. „Monitored Self-Regulation“ erweitert wurde.35 Das bisherige
Prinzip der mittelbaren Staatsverwaltung sollte ausdrücklich nicht durch eine
behördliche Lösung ersetzt werden.36
Auslöser hierfür war in erster Linie das in den USA als Konsequenz aus
weiteren Bilanzskandalen mit dem Sarbanes-Oxley-Act (SOX) eingeführte
Public Company Accounting Oversight Board (PCAOB), ein privatrechtlich
organisiertes Aufsichtsorgan über AP und dem damit verbundenen Wandel
vom System der Selbstregulierung zum sog. Monitoring.37 Dem PCAOB,
einer von der Börsenaufsicht SEC beaufsichtigten, unabhängigen Kontrollin-
stanz obliegen seither bedeutende Kompetenzen in Bezug auf Normgebung
und Kontrolle über AP und WP mit wesentlichen Funktionen i. Z. m. der
Erteilung von Bestätigungsvermerken von Unternehmen, die für Zwecke des
Wertpapierhandels an der NYSE gelistet sind, so auch AP von Tochterun-
ternehmen von US-Muttergesellschaften.38 Durch den Anknüpfungspunkt der
SEC-Registrierung der zu prüfenden Unternehmen entfaltete sich infolge der
Einführung des PCAOB eine starke Ausstrahlungswirkung auf den deutschen
Berufsstand der WP. Sobald der Bestätigungsvermerk eines deutschen AP zum
Jahresabschluss eines Unternehmens, dessen Anteile an der NYSE gehandelt
wurden, erteilt werden sollte, unterlag dieser WP grundsätzlich sowohl der
deutschen Berufsaufsicht als auch der des PCAOB. Folge für den WP war die
34
Vgl. Marten (2006), S. 1124.
35
Vgl. Marten (2006), S. 1124.
36
37
Vgl. Lanfermann, Maul (2002), S. 1725.
38
Vgl. Lenz (2002a), S. 2271.
789
Entscheidung zwischen Rückzug aus diesem Prüfungssegment bzw. der Reg-
istrierung beim PCAOB mit allen daraus folgenden Pflichten neben der dop-
pelten Kostenbelastung. Wirkung der zweifachen Berufsaufsicht waren zudem
widerstreitende Regelungen zur Verschwiegenheit.39 Die einzige allgemeine
Möglichkeit, ausländische Prüfer von den Vorschriften des SOX auszunehm-

en, sah Sec. 106 des SOX vor, der die SEC oder das PCAOB zur Erteilung von
Befreiungen befugte. Eine derartige Möglichkeit für Ausnahmegenehmigungen
bestand grundsätzlich für einzelne ausländische AP oder bestimmte Gruppen.
Das Bestehen dieser Option wurde für AP, die einem dem US-amerikanischen
Monitoring vergleichbaren System unterliegen, angenommen.40
Aus dieser Entwicklung heraus war offensichtlich, dass eine Modifikation
des deutschen, analog des „alten“ Peer Review eingeführten Aufsichtssystems
unumgänglich war, um die Anerkennung durch die US-amerikanischen Insti-
tutionen zu erlangen, wie auch das Vertrauen der Öffentlichkeit zu stärken und
drohende Reputationsschäden für den deutschen Berufsstand abzuwenden.41
Der deutsche Gesetzgeber reagierte hierauf mit dem APAG und der Einfüh-
rung der APAK, einer vom PCAOB anerkannten, effektiven nationalen Beruf-
saufsicht, um den Vorrang der „home country control“ sicherzustellen.42
Die präventiven und repressiven Maßnahmen der WPK i. R. d. Berufsauf-
sicht erstrecken sich über den Bereich der anlassbezogenen Berufsaufsicht
sowie den der anlassunabhängigen Sonderuntersuchungen. Daneben bestehen
Tätigkeiten im Bereich der Abschlussdurchsicht sowie im Rücknahme- und
Widerrufsverfahren. Die Ermittlungen der WPK zu rechtswidrigen und schul-
dhaften Pflichtverletzungen Berufsangehöriger erfolgen von Amts wegen auf
der Grundlage verschiedener Informationsquellen. Hierzu führt die WPK eine
Durchsicht des Bundesanzeigers durch, wertet Anzeigen Dritter sowie Mit-
teilungen nach Nr. 24 Abs. 4 Nr. 2 MiStra aus. Seit dem APAG hat die WPK
darüber hinaus auch Mitteilungen der Deutschen Prüfstelle für Rechnungsle-
gung (DPR) i. R. d. Enforcement-Verfahrens sowie der BaFin zu verfolgen.
Den Berufsangehörigen treffen in Aufsichts- und Beschwerdesachen erhöhte
Mitwirkungspflichten, die Pflicht bei Ladungen zur Anhörung zu befolgen,
39
Vgl. Wiesner (2002).
40
Vgl. Lanfermann, Maul (2002), S. 1728.
41
Vgl. Lenz (2002a), S. 2274, Lenz (2002), Keller, Schlüter (2003), S. 2173.
42
Vgl. Marten (2006), S. 1123, 1125.
790
Auskunftspflichten und die Pflicht zur Vorlage relevanter Unterlagen. Soweit
die Auskünfte i. Z. m. dem Grundsatz „nemo tenetur se ipsum accusare“ stehen,
steht dem WP verfassungsrechtlich ein Auskunftsverweigerungsrecht zu.
Zur Durchsetzung dieser Pflichten des Berufsangehörigen kann nach
vorheriger schriftlicher Androhung (ggf. auch mehrfach) Zwangsgeld fest-
gesetzt werden. Unter Berücksichtigung der Verhältnismäßigkeit und einer
vorhergehend erfolgten bzw. versuchten Anhörung kann die WPK von ihren
Nachschaubefugnissen Gebrauch machen, die von einer zielgerichteten und
zweckgerichteten Suche zu unterscheiden ist, die unter Richtervorbehalt steht.43
Da aber u. U. im Einzelfall auch bei Androhung bzw. Verhängung eines
Zwangsgeldes die notwendigen Auskünfte nicht erlangt werden können, wur-
den mit dem BARefG weitere Ermittlungskompetenzen der WPK eingeführt,
nämlich anlassunabhängige, stichprobenartige Ermittlungen bei AP von Un-
ternehmen von öffentlichem Interesse nach § 319a HGB. Inhalt dieser proak-
tiven Sonderuntersuchungen, ist die Einhaltung der bei diesen Prüfungen zu
beachtenden Berufspflichten, wobei bei Beanstandungen auch eine Erweiterung
auf sonstige vorgeschriebene Abschlussprüfungen erfolgen kann. Die Informa-
tionsgrundlage über den Anwenderkreis des § 62b WPO bilden die nach § 55c
WPO kalenderjährlich zu erstellenden und im Internet zu veröffentlichenden
Transparenzberichte, wenn mindestens eine Abschlussprüfung bei Unterne-
hmen von öffentlichem Interesse nach § 319a HGB durchgeführt wurde.
Bei festgestellten leichten bis mittelschweren Pflichtverstößen kann das
Rügerecht als Sanktionsmaßnahme angewandt werden. Hiervon abzugrenzen
sind etwaige Belehrungen der WPK, die keine Sanktionsmaßnahme darstellen. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Nach der Anhörung des Berufsangehörigen kann die Rüge seit dem WPRefG
bzw. BARefG auch in Verbindung mit Geldbußen erfolgen, was einer in der
freiberuflichen Selbstverwaltung bis dato unbekannten Sanktionsmaßnahme
entspricht.44 In Ausübung der Berufsaufsicht kann daneben die Aufrechterhal-
tung des pflichtwidrigen Verhaltens untersagt werden.45
Im berufsgerichtlichen Verfahren, das bei schwerer Schuld einzuleiten ist,
besteht seit der Änderung durch das WPRefG kein Vorrang mehr für das
43
Vgl. Deutscher Bundestag (URL5), S. 36 f.
44
Vgl. Sommerschuh (2003), S. 1167.
45
Vgl. §§ 63 Abs. 1 S. 1 i. V. m. § 68a WPO.
791
Strafverfahren, sodass nun berufsgerichtliche Verfahren wesentlich schneller
zum Abschluss gebracht werden und damit die Sanktionen auch präventive
Wirkung entfalten können. Der Katalog der Sanktionsmaßnahmen erstreckt
sich von der reinen Geldbuße, die bis zur Höhe von 500.000 Euro verhängt
werden kann, über zeitlich begrenzte Tätigkeits- oder Berufsverbote, die auch
mit einer Geldbuße kombiniert werden können, bis hin zum gänzlichen Aus-
schluss aus dem Beruf. Für den Fall, dass die geahndete Pflichtverletzung an-
dauert, kann hierauf mit einer Untersagungsverfügung reagiert und diese ggf.
mit Ordnungsgeld durchgesetzt werden.
Zur Erhöhung der Transparenz im berufsgerichtlichen Verfahren wurden
für die grundsätzlich nicht öffentliche Hauptverhandlung zwei Ausnahmetat-
bestände normiert. Zum einen kann das Verfahren auf Antrag der Staatsan-
waltschaft öffentlich gestaltet werden, zum anderen hat es zwingend öffentlich
zu erfolgen, wenn Inhalt der Verhandlungen Pflichtverletzungen i. Z. m. Prü-
fungen nach § 316 HGB sind. In Ausnahmefällen kann hiervon bei Schutz-
bedürftigkeit des Persönlichkeitsrechts nach den Vorschriften des GVG durch
Entscheidung des Gerichts abgewichen werden.46
5 AUSBLICK
Die oben dargestellte Konstellation spiegelt die nationale Umsetzung der
Abschlussprüferrichtlinie aus dem Jahr 2006 dar. Mit Beschluss und Billi-
gung der Änderungen der Richtlinie durch die Institutionen der EU obliegt es
dem deutschen Gesetzgeber bis Juni 2016, die nationalen Vorschriften nach
Maßgabe der Richtlinie zu modifizieren. Schwerpunkt der Änderungen ist die
Stärkung der öffentlichen Aufsicht.47 Unter Berücksichtigung der Erkenntnisse
der jüngsten Vergangenheit zeichnen sich nachstehende Änderungen ab:
Die APAK wird künftig durch Überleitung in eine Aufsichtsbehörde
die berufsstandsunabhängige Gesamt- bzw. Letztverantwortung über den
Berufsstand der WP und vBP übernehmen. Unabdingbar hierfür ist beispiels-
weise die Neuordnung der Rechtsform, Finanzierung wie auch die Ausweitung
des Kompetenzrahmens der Behörde wie beispielsweise die Einräumung von
Betretungsbefugnissen. Durch weitestgehende Ausnutzung der verfügbaren
46
47
Vgl. WPK (Hrsg.) (2014), S. 2.
792
Delegationsmöglichkeiten sollen der WPK betreffend Wirtschaftsprüfern, die
keine PIE48-Mandate prüfen, in möglichst großem Umfang Aufgaben zuge-
teilt werden, sodass das bisher bewährte System der Selbstverwaltung des
Berufsstands in weiten Teilen (unter Einhaltung der Richtlinie) fortgeführt
werden kann.49 Die AP von PIE-Mandaten bleiben zwingend unmittelbar der
neuen Behörde unterstellt.
Die bisher bereits bestehende zweigleisige präventive Berufsaufsicht soll
bestehen bleiben, wobei die Vernetzung zwischen der Qualitätskontrolle durch
den Peer Review mit der Inspektion durch die Behörde zur Vermeidung von
Ineffizienzen insbesondere bei PIE-Prüfern ausgebaut werden soll. Damit kann
die WPK durch Delegation weiterhin das Qualitätskontrollverfahren über nicht
PIE-AP verantworten, die Inspektionen samt operativer Abwicklung liegen im
unmittelbaren Zuständigkeitsbereich der Aufsichtsbehörde. Abweichend zur
derzeitigen Verfahrensweise soll zur Förderung der Entbürokratisierung die
Teilnahmebescheinigung bzw. Ausnahmegenehmigung entfallen, stattdessen
werden alle als AP tätigen Berufsangehörigen zur An- bzw. Abmeldung einer
Tätigkeit im Bereich der Abschlussprüfung verpflichtet. Die WPK entscheidet
künftig auf dieser Grundlage risikoorientiert unter Berücksichtigung von Ver-
hältnismäßigkeitsgrundsätzen über die Durchführung der externen Qualitäts-
kontrolle im einheitlichen Turnus von sechs Jahren.50
Zur Förderung der Einheitlichkeit des Berufsstands soll künftig ein iden-
tischer Sanktions- und Maßnahmenkatalog sowohl für die WPK, als von der
Behörde beauftragte Institution im Rahmen der Berufsaufsicht, als auch für die
Behörde mit unmittelbarer Zuständigkeit aller PIE-Prüfer gelten. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Zusammenfassend ist festzustellen, dass der Berufsstand vor einem

größeren Umbruch steht. In Abhängigkeit davon, in welcher Qualität die Auf-
gaben der Selbstverwaltung in der Vergangenheit bewältigt wurden und auch
in der Zukunft bewältigt werden und dies auch von der Öffentlichkeit wah-
rgenommen wird, kann die WPK zukünftig von der Delegationskompetenz
der Behörde profitieren und so in Zukunft weiterhin bisherige Tätigkeitsfelder
für sich reklamieren. Auf diesem Wege bleibt ein wesentlicher Teil der Selbst-
verwaltung des Berufsstands erhalten. Es wird aber auch sehr stark deutlich,
48
PIE: public interest entities bzw. börsennotierte Gesellschaften, Banken, Versicherungen.
49
Vgl. BMWi (Hrsg.) (2015), S. 2.
50
Vgl. WPK (Hrsg.) (2014), S. 7, BMWi (Hrsg.) (2015), S. 6.
793
welch große Aufgabe von der WPK als Vertretung des Berufsstandes zu be-
wältigen ist. Wird diese den ihr gestellten Anforderungen nur unzureichend
gerecht, können ihr delegierte Bereiche entzogen werden, was einem Verfall der
Mitgestaltungsmöglichkeiten entsprechen würde.
BMWi (Hrsg.) (2015): Eckpunkte zur Umsetzung der EU-Abschlussprüferreform Zur Re-
form der Wirtschaftsprüferaufsicht und des Berufsrechts der Wirtschaftsprüfer/vereidigten
Buchprüfer in der Wirtschaftsprüferordnung. URL: http://www.bmwi.de/BMWi/Redak-
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eich=bmwi2012,sprache=de,rwb=true.pdf (21.02.2015).
Böcking, Hans-Joachim, Dutzi, Andreas (2006): Neugestaltung der Berufsaufsicht für
Wirtschaftsprüfer. In: Betriebswirtschaftliche Forschung und Praxis, 58. Jg., 2006, S. 1-21.
Clauß, Carsten (2008): Kommentar zu § 55b WPO. In: Hense, Burkhard, Ulrich, Dieter
(Hrsg.), WPO-Kommentar: Kommentar zum Berufsrecht der Wirtschaftsprüfer und ver-
eidigten Buchprüfer - Wirtschaftsprüferordnung (WPO) -. IDW: Düsseldorf, S. 582-586.
Deutscher Bundestag (URL1): Gesetzentwurf der Bundesregierung Entwurf eines Gesetzes
zur Kontrolle und Transparenz im Unternehmensbereich (KonTraG). URL: http://dipbt.
bundestag.de/doc/btd/13/097/1309712.pdf (17. Februar 2013).
Deutscher Bundestag (URL2): Gesetzentwurf der Bundesregierung Entwurf eines Gesetz-
es zur Änderung von Vorschriften über die Tätigkeit der Wirtschaftsprüfer (Wirtschafts-
prüferordnungs-Änderungsgesetz – WPOÄG). URL: http://www.bmwi.de/BMWi/Re-
daktion/PDF/W/WPOAEG __Entwurf,property=pdf,bereich=bmwi2012,sprache=de,
rwb=true.pdf (17.02.2013).
es zur Reform des Zulassungs- und Prüfungsverfahrens des Wirtschaftsprüfungsexamens
(Wirtschaftsprüfungsexamens-Reformgesetz - WPRefG). URL: http://www.wpk.de/pdf/
wprefg_entwurf.pdf (17.02.2013).
es zur Fortentwicklung der Berufsaufsicht über Abschlussprüfer in der Wirtschaftsprüferor-
dnung (Abschlussprüferaufsichtsgesetz - APAG). http://www.wpk.de/pdf/apag-gesetzent-
wurf_20-10-2004.pdf (17.02.2013).
Deutscher Bundestag (URL5): Gesetzentwurf der Bundesregierung Entwurf eines Ge-
setzes zur Stärkung der Berufsaufsicht und zur Reform berufsrechtlicher Regelungen in der
Wirtschaftsprüferordnung (Berufsaufsichtsreformgesetz - BARefG). http://www.wpk.de/
pdf/BARefG _Gesetzentwurf_4-10-2006.pdf (17.02.2013).
Heininger, Klaus, Bertram, Klaus (2006): Der Referentenentwurf zur 7. WPO-Novelle
(BARefG). In: Der Betrieb, 59. Jg., S. 905-911.
IDW (Hrsg.) (2007): WP Handbuch 2008, 13. überarbeitete Auflage, IDW: Düsseldorf.
IDW (Hrsg.) (2012a): WP Handbuch 2012, 14. überarbeitete Auflage, IDW: Düsseldorf.
794
IDW PS 200 (2000): Ziele und allgemeine Grundsätze der Durchführung von Ab-
schlußprüfungen. Düsseldorf.
Keller, Gernot, Schlüter, Kai Grit (2003): Peer Review: Perspektiven nach dem Sarbanes-
Oxley Act of 2002. In: Betriebs Berater, 58. Jg., S. 2166-2174.
Krawitz, Norbert, Leukel, Stefan (1998): Qualitätssicherung in der Wirtschaftsprüferprax-
is – Anmerkungen zur gemeinsamen Stellungnahme VO 11995 von WPK und IDW vor
dem Hintergrund eines Qualitätsmanagementkonzepts -. In: Deutsches Steuerrecht, 36. Jg.,
S. 1930-1936.
Lanfermann, Georg, Maul, Silja (2002): Auswirkungen des Sarbanes-Oxley Acts in
Deutschland. In: Der Betrieb, 55. Jg., S. 1725-1732.
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Kreuzfeuer der Kritik. In: Betriebs Berater, 57. Jg. (10), S. I.
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Wirtschaftsprüfung, 59. Jg., S. 186-197.
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795
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796
Business
Administration
and Business
Economics
ETHICS AND PHILANTHROPY IN
THE FIELD OF CORPORATE SOCIAL
RESPONSIBILITY PYRAMID
Marija MIHALJEVIĆ, mag.oec.

Assistant, Department of Cultural Studies,
mmihalje1@unios.hr
Ivana TOKIĆ, mag.oec.

Assistant, Department of Cultural Studies,
Abstract
Corporate social responsibility (CSR) is a concept which is based on the orien-
tation of economic subjects for the benefit of the community. CSR has a long
and rich tradition of existence and activities but in the Republic of Croatia
CSR is still developing. In this article, CSR is seen through Carroll’s pyra-
mid of social responsibility which includes economic, legal, ethical and philan-
thropic responsibilities of business subjects. Economic and legal responsibilities
which are core responsibilities of each business subject are standardized and
prescribed/regulated, while the ethical and philanthropic activities are optional
and voluntary. The article focuses on the last two components that are lately
becoming increasingly important and represent a new philosophy in the mod-
ern business. Apart from the importance of applying these newer, less explored
responsibilities, the article points to the need of rearranging priorities within the
pyramid for the purpose of better implementation of CSR.
Keywords: ethics, philanthropy, corporate social responsibility, Carroll’s pyra-
mid of social responsibility
JEL Classification: A13, D71, G34
799
CORPORATE SOCIAL RESPONSIBILITY
Corporate social responsibility was developed by globalization and emer-
gence of multinational companies. It is a type of business in which economic
subjects integrate their concern about employees but also the environment in
which they work, on voluntary basis. Ekonomski leksikon (2011, 140) defines
social responsibility as an obligation of organization and manager to make deci-
sions which both promotes interests of an organization and improves interests
Marija Mihaljević • Ivana Tokić: ETHICS AND PHILANTHROPY IN THE FIELD OF CORPORATE SOCIAL RESPONSIBILITY PYRAMID
of the society as a whole. It is a concept of managing company which reflects the

balance between economic and social goals, in other words, activities that are
beyond making a profit.
Greater importance of corporate social responsibility highlights Žunić-
Kovačević, who states that there are reports about social responsibility in de-
veloped market economy. These reports are called social reports and they are
seen as part of modern corporate management. Thus, there is a so called Triple
Bottom Line Reporting, which is a reporting model that covers three reports
on: management, influence on society and influence on environment. Report
on management deals with indicators of economic effect (benefit to cost ratio).
Report on the influence of society deals with indicators of social effect, meaning
in which amount a company fulfills its obligations towards society. It involves
the following: human resources, science and education, care for the employees,
donations and sponsorships, responsibility for a product, as well as healthcare
and security. A report on environmental impact demonstrates the data such
as environmental protection, energent resource management, water resource
management, aerial emissions, and waste disposal management. This way of re-
porting is a proof of developed and modern management which should be even
more developed and promoted among companies in the Republic of Croatia.
Companies which work by the concept of corporate social responsibility,
achieve a number of benefits. Kotler and Lee (2009) state the following:
- increase in sale and market share
- strengthening the position of the brand
- strengthening the corporate image and influence
- strengthening the possibility of attracting, motivating and keeping
employees
- decrease operating costs
800
- increase the attractiveness for investors and financial analysts
“It is not enough for companies just to develop and implement social re-
sponsibility initiative, but to promote it efficiently and effectively” (Đurović &
Ranđić; 2011, 92).
First step in corporate social responsibility (CSR) promotion in the Repub-
lic of Croatia is Index CSR, award given to the companies who made corporate
social responsibility a part of their management and work according to these
principles. Criteria based on which the Index CSR is awarded are: economic
sustainability, CSR in business strategy, working environment, environmental
protection, market relations and community relations.
CARROLL’S PYRAMID
In order for a company to be socially responsible, four levels of responsibil-
ity must be met. These levels refer to economic, legal, ethical and philanthropic
responsibility. First two are general and the same for every company, these are
prescribed ways of how companies should work, while the other two refer to
voluntarism and are not prescribed as obligatory for the company. It is pos-
sible to say that first two are required minimums, while ethics and philanthropy
are responsibilities which are expected. This is known as Carroll’s pyramid of
corporate social responsibility which had a major influence on accepting and
spreading of corporate social responsibility.
Figure 1 Carroll’s CSR Pyramid

Source: Carroll, A. B., (1991: 45).
801
According to Carroll, the foundation on which all other levels are built is
economic because the profit is considered the most important and it is a basis
for all other responsibilities. Second level is legal responsibility which empha-
sizes legal and official minimum which is regulated through different laws and
regulations. Ethical responsibility refers to voluntary coordinating management
with moral and ethical principles of society and community. The company ful-
fills its philanthropic responsibility by contributing to community through in-
vestment of the company’s goods. In recent times, it is not enough to implement

just the first two levels. It is expected that the company behaves in ethically
and philanthropically responsible way. “To be socially responsible means not
only to fulfill legal obligations but to go one step further and invest ‘something
more’ in social development and protection of human environment” (Đurović
& Ranđić; 2011, 92).
Conducting these responsibilities, companies make competitive advantage
on the market. Most companies think that only by maximizing profit they could
be competitive. According to Figar & Figar (2011) modern firms can achieve
competitive position, not just through profit, but also through ethical and phil-
anthropic behaviour towards employees and environment. Responsibilities on
the top of the pyramid are based on the voluntarism of the company. Depend-
ing on the development of such voluntarism, companies can build their identity
which will be recognizable and have advantage in competitive environment. Af-
ter that, basic mission which is making a profit can be achieved.
Cerjan-Letica (2010) studies this same pyramid in the domain of dentist-
ry. According to her, corporate social responsibility levels in dentistry are not
ranked the same as in Carroll’s pyramid. Given that we talk about health domain
where the concern for people is the most important, Cerjan-Letica establish the
pyramid of social responsibility where ethical responsibility is on the first place
and presents fundamental level of responsibility. “…we firmly believe that the
basis of overall professional and social responsibility must be the imperative
“Be Ethical!”. Behaving in line with the written and unwritten ethical norms, ac-
cording to our beliefs, must be a precondition and the starting point for overall
behavior and for making all (professional) decisions by dentists” (Cerjan-Letica;
2010, 105). After that, there is legal, economic and philanthropic responsibility.
802
ETHICAL RESPONSIBILITY
In order for management to be successful, the company has to know what
employees, consumers, government, competition and society as a whole expect
from it. Trends and social values are changing rapidly so management has to ad-
just to the situation. Managers encounter a number of obstacles while making
decisions, but ethics should be part of every business decision. Carroll through
his pyramid shows the direction of management which is based on decision
making. According to the pyramid, ethics is on the third place. Company first
has to fulfill economic (profit) and legal (law) level and then comes the ethical
level. This span of values is not always good. Ethics is neglected in decision mak-
ing. Everyone who makes decisions has to bear in mind the responsibilities that
come along. John C. Maxwell (2003) in his book tried to give answers to why
ethics is in such bad position. He thinks that there are three reasons:
1. We do things we are comfortable with- e.g. we lie to conceal fear or weak-
ness. If we didn’t lie, we would have to face fear, which is not pleasant. The lie
will be discovered sooner or later, but at the moment of lying people don’t think
about long term consequences.
2. We do what we have to do to win - business people achieve victory through
success and improvement. Most of them still consider they have to choose be-
tween being ethical and winning. They don’t step out of their comfort zone
so they resort to bribe, corruption and financial fraud. Our society and recent
events are the best indicators of such cases. In the end, this current comfort
turns into public contempt and prison sentence because ethics was disregarded
in decision making and because of the attitude that it is impossible to be ethi- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
cal and win at the same time. Some consider that ethics is necessary but only
at a specific time and place. They agree with Harvard history professor Henry
Adams, who stated: “Morality is a private and costly luxury. Ironically, in today’s
culture of high debt and me-first living, ethics may be the only luxury some
people are choosing to live without” (Maxwell; 2003, 7).
3. We rationalize our choices with relativism- problem here is that every
individual makes their own ethical standards which can be completely different
from the standards of other people. Individual forms and adjusts them to the
situation in a way that best suits them in the situation. It all results in ethical
chaos.
803
Most people discuss ethics only when something unethical happens. But
then it is too late, because certain event turns into legal case. The court should
deal with it. Business ethics is a relatively young discipline. There are differ-
ent opinions of different authors about when it originated. Some say it started
to develop in theory and practice in 1970s in the USA and Western Europe
(Dujanić; 2003), others say it all started in Europe when the first department
for business ethics was opened in Netherlands in 1984 and when The Euro-
pean Business Ethics Network (EBEN) was established in 1987 (Krkač; 2007,
466). Later it was institutionalized, but until this day it was not established in
all companies. Main ethical guidelines in Croatian economy are provided by
Croatian chamber of economy in 2005 through Code of ethics: “Encouraging
ethical behaviour in an organization is achieved by defining and publishing the
rules of behaviour, manager’s positive example, detecting and solving potential
ethical problems in an early phase and sanctioning unethical behavior” (HGK
Official Website, 2015). Our society belongs to the group in which business
ethics is just starting to apply. In the beginning, business ethics serves as a way
of avoiding punishment, but with constant and systematical implementation
it will fulfill its purpose. Economy should acquire ethical behaviour through
different documents from the day the company is established, not only on theo-
retical level but practically conduct ethics on all levels of management in all
times. There is no wrong place or time for ethical management.
PHILANTHROPY IN CORPORATE SOCIAL

RESPONSIBILITY
Philanthropy (from Greek philos- friendship or phileo- the one I love and
anthropos- human; pfilanthropia - love of humanity) is a term connected with
American tradition of charitable giving. At first it was associated with a per-
son- philanthropist, while today the term corporate philanthropy is more de-
veloped, meaning business sector’s voluntary giving. In Croatian spoken setting
it is identified with social corporate business, which is not true. Corporate phi-
lanthropy is a part of social corporate business in which business subjects have
responsibility towards employees, shareholders, suppliers and environment in
which they work.
“By corporate philanthropy we talk about direct non-refundable providing
of money, goods or services, taking time of employees in order to support some
804
humanitarian action or to achieve some social aim” (Bruch & Walter; 2005,
51). According to this definition, corporate philanthropy deals with company’s
voluntary giving, but also voluntary work of the employees, their contribution
to achievement of social aim. Sometimes it is called positive or proactive social
responsibility which implies maximal engagement of the company in resolving
social problems.
“In an effort to contribute to the community in which they work, it is very
important for the company to join in resolving some social problems... and of-
fer suitable contribution through investment in the protection of the commu-
nity.... building socially needed objects, grant scholarships for individuals and
groups...” (Đurović & Ranđić; 2011, 9).
State has a very important role in stimulating philanthropy by business sec-
tor. Establishing stimulating tax measures, state can encourage the business
sector to invest more funds in general beneficial purpose. Two main forms of
business sector’s investment are donations and sponsorships. Bežovan (2002)
and Žunić-Kovačević (2008) observe these two forms of investment in the
framework of policy of socially responsible economy as crucial for solving prob-
lems in the community and society in which the company works. In order for
the practice of socially responsible economy to develop, it is necessary to have
stimulating tax policy.
Figar & Figar (2011) states that establishing philanthropy as company’s stra-
tegic activity in the framework of socially responsible economy gives valuable,
immaterial importance and contributes to competitive advantage. Every com-
pany should include philanthropy in their business policy as part of responsible INTERDISCIPLINARY MANAGEMENT RESEARCH XI
behaviour towards community. With these activities companies can built their
identity and image (McAlister & Ferrell; 2002, Hall; 2006, Fahy et. al.; 2004),
which insures competitive position (Porter & Kramer; 2002).
DISCUSSION
Ethics and philanthropy as parts of company’s social responsibility are still
in progress and insufficiently explored in the Republic of Croatia. It is recom-
mended to explore this field even more in order to promote this aspect of respon-
sibility and contribute to include ethics and philanthropy in company’s business
policy. World trends show that socially responsible economy indeed increases
805
profit. People buy product which is not tested on animals or they choose to buy
a product from company which operates in socially responsible way. Companies
with this policy become desirable place for employment. These are just some of
the reasons why ethics and philanthropy should be included in business. Still in
1991, Carroll made a conceptual framework of corporate social responsibility
to which every business subject should comply. In his pyramid, foundation of all
responsibilities is economic responsibility whose imperative is - to be profitable.
After that, there is legal, ethical and philanthropic responsibility.

Concerning specifics of work, Cerjan Letica (2010) ethical responsibility
presents basis for overall behaviour and making dentist’s professional decisions.
Accordingly, ethics in the pyramid of corporate social responsibility does not
always follow the fulfillment of economical and legal responsibility, but it be-
comes the basis for all other responsibilities. Most authors agree that ethics
in business should be on the first place (Ardichvili et. al., Paine) while philan-
thropy, as in original corporate social responsibility scheme, is on the top of the
pyramid as the last responsibility of the company.
Therefore, it is important to mention that Carroll’s pyramid is not univer-
sal hierarchy for all professions. Depending on profession and business aim,
responsibilities within the pyramid can be differently arranged. In any case, re-
gardless of ranking, it is necessary to cover all levels of corporate responsibility,
because by applying all levels we make business in socially responsible way.
Bibliography:
ardichvili, A. & Mitchell, A. J. & Jondle, D. (2008). Characteristics of Ethical Business Cul-
tures, Journal of Business Ethics 85, 445451.
Bežovan, G. (2002). Socijalna odgovornost gospodarstva i iskustva u Hrvatskoj, Revija za
sociologiju 1-2,17-32.
Bruch, H. & Walter, F. (2005). The Keys to Rethinking Corporate Philanthropy, MIT Sloan
Management Review 1, 49-55.
Carroll, A. B. (1991). The pyramid of corporate social responsibility: Toward the moral
management of organizational stakeholders, Business Horizons 34, 39-48.
Cerjan-Letica, G. (2010). Piramida profesionalne i poslovne odgovornosti u hrvatskoj sto-
matologiji, Acta Stomatologica Croatica 2, 101-109.
Dujanić, M. (2003). Poslovna etika u funkciji managementa, Zbornik radova Sveučilišta u
Rijeci, Ekonomski fakultet Rijeka, god.21, sv. 1, 53-63.
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poslovanje, 38. Nacionalna konferencija o kvalitetu, Arsovski, S. & Lazić, M. & Stefanović,
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M. (ur.), str. 91-96, ISBN: 978-86-86663-69-6, Kragujevac, 19-21. svibnja 2011, Mašinski
fakultet: Centar za kvalitet, Kragujevac.
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Fahy, J. et.al. (2004). Competitive advantage through sponsorship, European Journal of Mar-
keting 8, 1013-1030.
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theory, Facta Universitatis 1, 1-13.
Hall, M. R. (2006). Corporate philanthropy and corporate community relations: Measuring
relationship- building results, Journal of Public Relations Research 1, 1-21.
Kotler, P. & Lee, N. (2009). Korporativna društvena odgovornost, HESPERIAedu, Beograd
Krkač, K. (2007). Utjecaj europskih kultura na poslovnu etiku i korporacijsku društvenu
odgovornost, Uvod u poslovnu etiku i korporacijsku društvenu odgovornost, Krkač K. (ur),
Mate/ZŠEM, Zagreb.
Maxwell, J. C. (2003). There’s no such thing as „business“ ethics, Warner Books, ISBN
0-446-53229-0, USA.
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tives to Achieve Superior Performance, McGraw-Hill, New York
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Pravo i porezi 2, 15-21.
http://www.dop.hr/?p=1383 (5.2.2015.)
HGK Official Website, https://www.hgk.hr/zk/kodeks-etike-u-poslovanju, (12.1.2015.)
807
THE EFFECTS OF SERVICE
QUALITY AND CUSTOMER
Ajdanai Yuktanandana • Dissatat Prasertsakul: THE EFFECTS OF SERVICE QUALITY AND CUSTOMER SATISFACTION ON CUSTOMER LOYALTY...
SATISFACTION ON CUSTOMER
LOYALTY: A CASE OF THAI MOBILE
NETWORK INDUSTRY
Ajdanai YUKTANANDANA
Dissatat PRASERTSAKUL, PH.D.
Mahidol University International College,

Mahidol University, Thailand
dissatat.pra@mahidol.ac.th
Abstract
This research proposes a conceptual framework to examine the effects of ser-
vice quality and customer satisfaction on customer loyalty. In order to test and
prove the conceptual framework, field research was conducted. The question-
naire was designed based on existing constructs in relevant literature. The re-
search target sample consisted of 401 Bangkok-based customers of Thai major
mobile service providers, AIS, DTAC, and Truemove. Reliability tests and
statistical analyses were performed to confirm the validity and reliability of the
data. Besides, these tests and analyses answered the questions concerning this
research. The results of the research indicate that of all factors regarding service
quality dimension, only customer service factor is significant to customer satis-
faction. The other factors are insignificant to the satisfaction of the customers.
Meanwhile, customer satisfaction is positively significant to customer loyalty.
It is considered very important for mobile service providers operating in a very
competitive market such as in Thailand to learn and realize what the exact
drivers of customer loyalty are. The research produces useful and beneficial
findings which can be adapted by mobile service providers in an attempt to
build up and develop successful and sustainable customer loyalty strategies and
competitive advantages.
808
Keywords: Service Quality, Customer Satisfaction, Customer Loyalty, Mo-
bile Network.
1. INTRODUCTION
Can you imagine how one would live without having a mobile phone in
these days? Currently, we can simply say mobile phones are a critical part of
our daily life. Mobile phones are about everything. They are just everything one
would love to have. They can be your television, internet, social network, music,
camera, games, utilities, clock and etc. Above all, mobile phones connect people.
The importance of them has been long realized. Recent studies suggest that cell
phones have evolved into something more than a simple communication tool,
gaining its own place in various aspects of social interaction. For instance, a
qualitative study on Australian adolescents revealed that cell phones are a part
in young Australians’ life (Walsh, White, & Ross, 2008).
Other utilities can be perceived; for example, among the cell phone users
in romantic relationships, the more voice calls, the better positive relationship
qualities ( Jin & Pena, 2010). Other studies showed that the presence of cell
phones provide a higher sense of security in potentially harmful situations. This
means an increasing value of cell phones, leading cell phone users to perceive
cell phones as something they must have (Nasar, Hecth, &Wener, 2007; Walsh
et al., 2008). Block (2008), Pies (2009), Choliz (2010) stressed that many peo-
ple are dependent to new technological devices as they become more useful and INTERDISCIPLINARY MANAGEMENT RESEARCH XI
important to their daily lives.
Other than their importance in people’s life, the world nowadays is so ad-
vanced. There are way too many extremely advanced and from-the-future tech-
nologies existing already. Mobile phones have been developed to that of expec-
tations too. Nevertheless, all mobile phones need a mobile service provider to
provide its signal and other operations. Even the most advanced mobile phone
will be totally useless without helps and transmissions from a mobile service
provider. On the other side, mobile service providers also depend largely on
their customers. Without them, no mobile service providers would survive in
the industry. Mobile service providers are willing to do whatever it takes to at-
tract new customers. However, retaining the existing customers is utmost cru-
809
cial, probably more important than attracting new ones. Experimental studies
have shown that retaining customers makes more profits and benefits than ac-
quiring new ones (e.g. Hogan et al., 2003; Lee-Kelly et al., 2003). Reichheld and
Sasser (1990) pointed that only a 5 percent improvement of customer retention

leads to an increasing profits ranging between 25 percent and 85 percent.
Knowing so, the service providers compete fiercely among each other. Com-
petition is so high in order to win customers’ hearts. It is very challenging not
only to gain more new customers but also to try not to lose the existing cus-
tomers to other competitors. One thing able to help a mobile service provider
to differentiate itself from others is service quality. Many aspects in this factor
may help a firm win customers’ hearts, namely network, value-added services,
customer service, for example. How can this help? Customers will acknowledge
the benefits from being a subscriber of a particular service provider. It creates
satisfaction. Yet it also leads to loyalty in the end. From what is mentioned so
far, loyalty is what all mobile service providers seek from their customers. The
importance of loyalty is that loyal customers are not prone to switch to a new
provider because of price, meanwhile they are likely to suggest the business to
others (Reichheld and Sasser, 1990; Reichheld and Teal, 1996). This study in-
tends to investigate the impact of service quality and customer satisfaction on
customer loyalty in Thailand mobile service industry sector. To be more exact,
the study is to investigate 1. to investigate, from specific factors, what else can
be a significant factor in term of service quality dimension which is positively
significant to customer satisfaction and 2. to investigate how customer satisfac-
tion affects directly on customer loyalty
2. LITERATURE REVIEW AND HYPOTHESIS

DEVELOPMENT
Service Marketing
In term of service marketing, services can be generally characterized in to 4
main characteristics which are intangibility, inseparability of production and
consumption, heterogeneity, and perishability. The most basic difference wide-
ly cited by authors (e.g. Bateson 1977; Berry 1980; Lovelock 1981; Rathmell
1966, 1974; Shostack 1977) is intangibility. Services are simply performances.
They are not objects and they cannot be seen, felt, tasted, or touched in the
810
same way like goods can be. Bateson (1979) cited that intangibility is the criti-
cal goods-services distinction from which all other differences emerge. Perish-
ability means that services are unable to be saved (Bessom and Jackson 1975,
Thomas 1978). As services are performances that cannot be stored, it is so dif-
ficult to synchronize supply and demand. Sometimes demand exists too much
and sometimes it exists too little.
Regan (1963) described that inseparability of production and consumption
involves the simultaneous production and consumption which characterizes
most services. Meanwhile, goods are produced first, then sold and later con-
sumed. In term of services, they are first sold, then produced and consumed
simultaneously. Inseparability is also perceived that the producer and the seller
are the same entity; thus, this makes only direct distribution possible in most
cases (Upah 1980). Gronroos (1978) added that such situation causes market-
ing and production to be highly interactive. Heterogeneity concerns the po-
tential for high variety of performance of services. The quality and essence of a
service can be various fro producer to producer, customer to customer, and day
to day. Inconsistency of behavior is a problem when many employees have to
be in contact with an individual customer (Langeard et al. 1981, p. 16) Service
performance from the same individual can be different as well. Knisely (1979a,
p. 58) stated that people’s performance day in and day out fluctuates up and
down. It is not a certain thing and inconsistent.
Service Quality
Service quality has been a spotlight to be focused on by researchers and prac-
titioners for the past several decades. It has a strong effect on business perfor-
mance, customer satisfaction, customer loyalty and profitability. Services have
unique characteristics; intangibility, heterogeneity, perishability and simultane-
ously production and consumption (Zeithaml et al., 2009). Normally, it can be
seen how well the level of the delivered services matches customer’s expectations
by using service quality as a measurement (Santos, 2003). For example, Gron-
roos (1984) pinpointed perceived service quality as “the outcome of an evalua-
tion process, where the consumer compares his expectations with the service
he perceives he has received”. Moreover, Parasuraman et al. (1988) described
service quality as “the overall evaluation of a specific service firm that results
from comparing that firm’s performance with the customers’ general expecta-
811
tions of how firms in that industry should perform”. To survive and increase
market share in fiercely competitive market, service offerings which match with
customer preferences are in need (Verma et al., 1999). Kekre and Srinivasan
(1990) saw that variety of service offerings positively impacts the company’s
share and ROI while Bayus and Putsis (1999) and Gilbert and Matutes (1993)
discovered that high-variety strategy not only develop the company’s reputation
but it can also be an effective approach to expand sales as it can prevent losing a
company’s customers to competitors.
Consumers will have a hard time trying to visualize services because they
cannot be seen nor touched (Bateson, 1995). One of the service communication
strategies that was suggested by Berry and Clark to overcome service intangibil-
ity is documentation strategy (Stafford, 1996). Berry and Clark (1986 cited in
Stafford, 1996) clarified that facts or figures can be used to present the value of
the service. This strategy purposes to assist consumers’ evaluation through pro-
viding specific and concrete information or verbal tangible cue (Stafford, 1996).
Stafford (1996) stated further that the tangibility of service can be increased by
using documentation strategy; as a result, it increases advertising effectiveness
by raising purchase intention. The company that has high market share finds
variety of offerings important which implies that it has a diverse customer base
i.e. more heterogeneous customer base (Stavins, 1995). Different offerings were
described and considered as differences may be price sensitivity, different prod-
uct requirements, different supports needed or even different occasions (Porter,
1996).
Network
The clarity of voice and the area coverage are the items to be considered ac-
cording to Kim et al. (2004) and Lim et al. (2006). Signal strength and sharp-
ness, network stability, availability of the network in remote areas, and ease and
quickness of reaching other destinations (e.g. incoming and outgoing calls) are
considered in the term of network.
Value-added Services
As value-added services can be seen as intangible objects such as SMS and
MMS, WAP, GPRS, music, news, games, ring tones etc. Kim et al. (2004) used
812
the variety of the services, ease of use and how updated and advanced they are
to measure how good the services are. In addition to those mentioned services,
these days there are 3G, wifi, edge etc. available for consumers.
Mobile Devices
This category can be measured by the quality, the variety and the design of
the offered mobile devices, which were adopted from Kim et al. (2004). Avail-
ability of newly-launched mobile devices, availability and variety of each mobile
device model are included in the aspect of mobile devices.
Customer Service
The success of problem resolution, the courtesy of customer service repre-
sentatives, the help provided by call-centers and the provision of consistent ad-
vice are to be evaluated to judge this factor. All of these were utilized by Lim et
al. (2006).
Pricing Structure
Kim et al. (2004) took the reasonability of prices, the variety of pricing
schemes and the degree of freedom to choose pricing scheme to consider and
measure this factor. Speaking of price, customers can compare this issue among
other mobile service providers. This factor can also be measured by customer per-
ception in pricing structure of a mobile service provider compared with others.
Billing System
This dimension consists of the provision of accurate billing, the ease of
understanding and resolving billing issues and the billing problem resolution
speed, as advised by Lim et al. (2006). Nowadays, there are online service, coun-
ter service assistance, pay-via-ATM service etc. as choices for consumers in pay-
ing the service and telephone fees.
Place
Place is where a company tries to make its products/services available and
accessible for consumers (Kotler and Keller, 2005). Freire (2009) added that
813
places are given their own meanings by consumers. Easy and convenient access
to the branch, decoration and atmosphere, there can be measured concerning
quality dimension
Customer Satisfaction
Researchers had always paid large attention to the study of satisfaction. It
can be said that this is a subjective concept, as it can be inferred from a variety
of definitions found in literature. (Kotler, 2003, p. 36) determined that “satisfac-
tion is a person’s feeling of pleasure or disappointment resulting from compar-
ing a product’s perceived performance (or outcome) in relation to his or her ex-
pectations”. More specifically, the closer the gap between the expectation of the
consumers and the actual performance of the product or service, the higher de-
gree of consumer’s satisfaction level (Hutcheson and Moutinho, 1998). Various
offerings is a way which can help a company to create consumer’s satisfaction.
Bayus and Putsis (1999) mentioned that variety of offerings assists a company
to satisfy heterogeneous consumers’ needs and wants more precisely and broad-
er offerings create higher chance that at least one of the company’s offerings will
meet and match an individual need or individual preference. From Hui (2004)’s
perspective, variety of choices helps customers to have more chance to discover
the product that meets their preference. Kim et al. (2002) stated as consumer
preferences are heterogeneous, consumers demand for products where a variety
is available. Schutte and Ciarlante (1998) described about heterogeneity from
cultural perspective that in most of Asia countries, consumer needs become
more diversified and customers become more demanding with the high growth
in consumer buying power.
Customer loyalty
Customer loyalty is often examined from consumer’s behavior by measuring
items; for example, amount of repurchasing and purchase frequency. A widely-
used assumption is that loyalty leads to a number of repeat purchases from
the same supplier over a period of time (Egan, 2004). This links with Oliver
(1999)’s definition which loyalty is defined as a deep commitment to repeatedly
purchase a preferred product/service always in the future, thereby leading to re-
petitive purchasing same-brand products, despite strong influences and market-
ing efforts generated to cause switching behavior. Nevertheless, only the defini-
814
tion of loyalty based on repurchase behavior doesn’t provide a holistic view of
such complex concept. Hence, alternatives and more comprehensive definitions
were proposed by researchers. Dick and Basu (1994) suggested that loyalty con-
tains attitudinal and behavioral elements and debated that loyalty is determined
by how strong the relationship is between relative attitude and repeat patron-
age. Examining loyalty under the attitudinal factors, psychology, favoritism and
a sense of goodwill towards a particular product or service can be brought to
make a measurement (Oh, 1995 cited by Kim et al., 2004).
Due to the fact that there are many different approaches aiming at the defi-
nition and conceptualization of loyalty, there is a general convergence towards
the view that both behavioral and attitudinal features must be included. The
behavioral view is usually based on the monitoring of the frequency of repeated
purchases and brand switches, while the attitudinal approach assumes that loy-
alty is derived from psychological involvement and preference and focuses on
issues such as brand recommendations, resistance to superior products, repur-
chase intention and willingness to pay a price premium (Cronin and Taylor,
1992).
The purpose of the research is to examine critical factors which lead to cus-
tomer loyalty in the mobile telephone in Thailand. To be specific, they are ser-
vice quality and customer satisfaction. In addition to this, the mediation effect
of customer satisfaction on the service quality and customer loyalty relationship
could also be explored. The researcher adapts the model used by Ilias Santouri-
dis and Panagiotis Trivellas (2010). It is a study which provides knowledge of
two main factors, service quality and customer satisfaction, and their relation- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
ship with customer loyalty. In addition to the original model, place is further
added into service quality dimension. The two mentioned factors do link and
can lead to customer loyalty eventually. The model not only does provide such
knowledge, it also provides the mediation effect of customer satisfaction on
both the service quality and customer loyalty. To be exact, how service quality
does lead to satisfaction and satisfaction results in loyalty.
815
Conceptual Framework
Figure 1 Conceptual Framework
Source: Adapted from Ilias Santouridis and Panagiotis Trivellas (2010)
The causal relationship between service quality and customer satisfaction

has been verified by research in several business sectors. As well, this applies in
the mobile telephone sector, where a few studies confirmed the positive effect
of service quality on satisfaction (Kim et al., 2004; Lee et al., 2001; Lim et al.,
2006). From the statement, it can be concluded that service quality relates to
customer satisfaction. Impressive service quality may lead to high satisfaction
of a customer. In contrast, poor service quality may influence a customer to feel
dissatisfied resulting to bad consequences to the company. Therefore, the fol-
lowing hypothesis is proposed;
Hypothesis 1: Service quality affects and has an impact on customer
satisfaction.
Several authors have found a positive correlation between customer satisfac-
tion and loyalty (Anderson & Sullivan, 1993; Bolton & Drew, 1991; Fornell
1992). Numerous studies in the service sector have also empirically validated
the link between satisfaction and behavioral intentions such as customer reten-
tion and word of mouth (Anderson & Sullivan, 1993; Bansal & Taylor, 1999;
Cronin & Taylor, 2000) The relationship was further added by Hart and John-
son (1999) mentioning that one of the conditions of true customer loyalty is
total satisfaction. Given the fact mentioned above, customer satisfaction has
an amount of impacts on customer loyalty. Hence, the following hypothesis is
proposed;
Hypothesis 2: Customer satisfaction affects and has an impact on customer
loyalty.
816
3. METHODOLOGY
The study intends to examine the factors which lead to customer loyalty
in term of mobile service providers. The target samples will be normal mobile
telephone users who live in Bangkok. Business users are not included in the
sample because they are not the ones who decide to be a subscriber of a mo-
bile telecommunication service provider nor extend the contract further due to
satisfied service quality and his/her satisfaction. The respondents are expected
to be 18 years old and above. Using Yamane (1976)’s formular, the sample size
of this study is 400. The respondents will have enough experiences concerning
their current mobile service providers’ service and quality. 140 AIS users, 140
DTAC users, and 120 Truemove users are the amount of samplings wanted in
this study.
Measurement Model
Information regarding key constructs and their corresponding scales was
obtained by searching the relevant literature; therefore, all constructs were mea-
sured using existing scales drawn from literature with some adjustments to the
international context. Nework (2 items); value added services (3 items); mobile
devices (3 items); customer service (4 items); pricing structure (3 items); billing
system (3 items); place (2 items) are adapted from Lim at.al. (2006), while cus-
tomer satisfaction (18 items) and customer loyalty (5 items) are adapted from
Cronin and Taylor (1992) and Aydin and Ozer (2005) respectively.

4. RESULTS
From the result, it shows that the respondents are mostly female with 72.3%
out of total. 58.1% of the samples, they are in the age range of between 24 to 29
years old. In the aspect of educational background, 78.6% of all completed and
achieved a bachelor’s degree. Only 5% succeeded in achieving a level of educa-
tion above bachelor’s degree. The number of percentage of the samples who
work as a private officer is as high as 69.6%. 15.7% are students, 8.5% are state
officers, and 6.2% are entrepreneur respectively. Concerning mobile phone us-
age, the table above shows that 35.2% of the sample are a subscriber of DTAC,
34.9% AIS, and 29.9% Truemove. These amounts are with regard to the quota
sampling set prior to launching the questionnaires. Out of 100%, 60.6% of the
817
samples normally spend in the range of 501 - 1,000 Baht for their monthly mo-
bile phone fees. 76.8% of the samples have been subscribed to their respective
mobile service providers for 2-5 years. The remaining 23.2% have experienced
using the service of their respective mobile service providers for over 5 years.
Initial Analysis
Each of the items was first checked for skewness and kurtosis, and the pres-
ence of normality and outliers. In order to obtain a holistic picture of each of
the variables across a small range of scores (1-7), histograms and box plots were
deemed appropriate. The histograms and box plots were visually examined.
Furthermore, an examination of another regression assumption of independent
errors which requires no serial correlations between errors in regression model
was necessary. Regarding the assumption of independent errors, the residuals
should be uncorrelated for any two observations in regression (Field, 2005).
The Durbin-Watson test was used to assess this assumption. A test value close
to 2 indicates that the residuals are uncorrelated (Field, 2005). The results of
the regression analysis in Table 1 revealed that the Durbin-Watson statistics was
close to 2.0, therefore, the assumption of independent errors was not violated.
Hypothesis Testing Results

Other than using initial analysis to examine if the data is normally distrib-
uted, multiple regression assumption also needs to be met. Based on the as-
sumption of independent errors, the residuals should not be correlated in term
of any two observations in regression (Field, 2005). The Durbin-Watson test
is utilized to prove this assumption. A result close to 2 predicts that the residu-
als are not correlated (Field, 2005). Furthermore, the Durbin-Watson score in
table 4.4 is found to be close to 2.0. This means the assumption of independent
errors are not infringed.
In addition, multicollinearity is in need to be observed (Cavana et al., 2001).
Multicollinearity refers to a condition which two or more variables are tightly
related. It is indicated by Variance Inflation Factor (VIF). A common threshold
value of VIF is 10.0 (Hair et al., 1998; Field, 2005). According to Table 4.4, all
VIF values shown in the table are less than 10. Therefore, multicollinearity does
not occur. To conclude, the assumption of multiple regressions is not infringed.
818
Table 1 Multiple Regression Results of Hypothesis 1
Service Quality Durbin
Dimension Dependent
H: β t Sig VIF R2
-
(Independent Variable
Variable) Watson
1.1 Network 0.092 1.803 0.072
1.2 Value-added services 0.041 0.821 0.412
1.3 Mobile devices -0.044 -0.801 0.424
1.4 Customer Service Satisfaction 0.137 2.598 0.010 1.560 0.049 2.010
1.5 Pricing structure -0.009 -0.169 0.866
1.6 Billing system 0.050 0.937 0.349
1.7 Place 0.081 1.600 0.110
Based on the results of multiple regression analysis shown in Table 1, only

hypothesis 1.4, customer service has a positive correlation to satisfaction of the
customer (β = 0.137, t = 2.598 and p < 0.05). On the other hand, the other hy-
potheses do not have a positive correlation to satisfaction. Hypothesis 1.1, net-
work, does not influence satisfaction (β = 0.092, t = 1.803 and p > 0.05). Hy-
pothesis 1.2, value-added services, is not significant to satisfaction (β = 0.041,
t = 0.821 and p > 0.05). Hypothesis 1.3, mobile devices, does not significantly
predict satisfaction (β = -0.044, t = -0.801 and p > 0.05). The same way goes to
hypothesis 1.5, pricing structure, as it does not significantly predict satisfaction
(β = -0.009, t = -0.169 and p > 0.05). Hypothesis 1.6, billing system, is not
found to be a significant predictor of satisfaction (β = 0.050, t = 0.937 and p >
0.05). Lastly, hypothesis 1.7, place, does not influence satisfaction (β = 0.081,
t = 1.600 and p > 0.05). According to this analysis, service quality dimension,
network, value-added services, mobile devices, customer service, pricing struc-
ture, billing system, and place, explains only 4.9% of the variation in customer
satisfaction.
Table 2 Regression Results of Hypothesis 2

H: Independent variable Dependent variable β t Sig
2 Customer satisfaction Customer loyalty 0.274 5.692 0.000
Based on the result of bivariate regression analysis shown in Table 2, hypoth-

esis 2, customer satisfaction, significantly affects customer loyalty (β = 0.274,
819
t = 5.692 and p < 0.05). In conclusion, this chapter presents both significant
and insignificant results of the relationship between service quality, customer
satisfaction, and customer loyalty. The output shows results which prove ser-
vice quality does not have a significant impact on customer satisfaction. Mean-
while, customer satisfaction is significant to customer loyalty. As demonstrated
in Table 4.4 to Table 4.5, hypothesis 1 is statistically insignificant. On the other
hand, hypothesis 2 is significant statistically.
Discussion and Implications

From the results acquired, firstly it shows that most respondents’ ages are
in the range of 24 to 29 years old. The amount of female respondents is almost
three times more than male respondents. In term of educational and occupa-
tion background, majority of the respondents have obtained at least a bachelor’s
degree and are working for private companies. In the aspect of mobile phone us-
age, most respondents spend 501 to 1,000 Baht a month for their mobile phone
fees. Almost four fifth of the total samples have experienced being a member
their respective mobile service providers in the range of 2 to 5 years. The rest
have experiences more than 5 years. The results obtained from the used regres-
sion analysis show that service quality barely and insignificantly leads to cus-
tomer satisfaction. Of all factors gathered and included in this study’s service
quality dimension, only customer service factor is significant to customer satis-
faction with a significant level of 5%. Unexpectedly, the other factors do not af-
fect customer satisfaction at all. Some even have a negative correlation with. It is
very surprising that this kind of result is found. As it could be expected, service
quality should have an impact on and does lead to customer satisfaction. Any-
how, with a significant level of 5%, customer satisfaction impacts on customer
loyalty. It is quite a big curiosity why this outcome of the study is gained via
data gathered from Bangkok residences. What are the real factors and reasons
behind? These need to be found and discussed.
The main objective of this research is to examine the effect of service quality
and customer satisfaction on customer loyalty in mobile service provider industry
in Bangkok. The analysis of the research data shows that service quality is clearly
not a major predictor of customer satisfaction. Only one out of seven factors
included in service quality dimension has a positive effect on satisfaction of the
customers. Such factor is customer service. The other factors totally fail to have
an impact on customer satisfaction. One of the reasons which drive to seeing and
820
getting such result shall be that, currently, the mobile phone users can only see
a distinction in customer support offered by the mobile service providers. It can
also be perceived in a reverse logic that all mobile service providers offer about
the same things and quality in term of service quality. That is why only customer
support is distinctive in the customers’ point of view. In Bangkok, mobile phone
signal can easily be found anywhere. Speaking of value-added services, every
mobile service provider offers the very same things. Advanced technologies like
3G, internet, and smart phone utilities are commonly offered and available. So
are mobile devices, especially smart phones which are highly demanded by the
customers .In term of pricing structure, although there are some little differences
among the mobile service providers’, but the gap is not that of different. For bill-
ing system issue, it is definitely not a big deal. Every provider generates accurate
billings and relevant issues are always solved with the customer’s pleasures in
mind. Lastly, place or service centers aspect, good-atmosphere, well decorated
and organized service centers can be expected from all. The customers do not
perceive these factors as something which stands out from others.
Going in the same direction with other literatures, this study also finds cus-
tomer satisfaction positively and significantly affects customer loyalty. It can be
easily explained and realized that if one does not feel satisfied, how one would be
loyal to something which one is not pleased about. The results strongly and fur-
ther confirm a positive relationship between customer satisfaction and customer
loyalty. There are so many literatures which earlier found and strongly confirmed
this positive relationship (e.g. Aydin and Ozer, 2005; Gerpottet al., 2001; Kim
et al., 2004; Lee et al., 2001). Based on many literatures regarding this research
field, most agreed that customer loyalty is a very important factor for surviving
and getting the upper hand in services market sector, especially in a very com-
petitive mobile service provider market such as what it is currently in Thailand.
Therefore, it is of great importance for managers and concerned parties of mobile
service providers to understand what the drivers of customer loyalty exactly are.
The useful findings of this research can be used by mobile telecommunication
managers in an attempt to develop and implement practices that will lead to
the customers being loyal. Customer satisfaction strongly influences customer
loyalty. It should be taken under consideration in order to initiate satisfaction
enhancement. Customer satisfaction can be affected by some specific service
quality tactics. Most importantly, customer service is the factor which positively
affects customer satisfaction. It must be provided with utmost quality.
821
Future Research
According to the results, the samples are mostly skewed towards particular
profiles. Samples shall be aimed to be ones that would better represent Bang-
kok-resident mobile phone users. There is also a possibility to try adapting the
results to other areas with different characteristics. Main provinces from differ-
ent parts of Thailand shall be included. This would better represent the whole
country rather than having just the capital city area only. Similar research proj-
ects shall be progressed and executed. Additionally, future study shall add other
factors that influence loyalty such as trust and switching costs. Especially for
switching costs, a model used to explain customer loyalty would be better if this
factor is included. Many authors suggested that when such costs are high, the
customers can be influenced to stay with the current mobile service provider in
order to avoid these high costs. Therefore, there is a high chance that this factor
would play its part in affecting loyalty.
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823
Economic
Development,
Technological
Change and Growth
PROCESS OF
REINDUSTRALIZATION IN
THE CONTEXT OF EUROPEAN
INTEGRATION
Sofija ADŽIĆ, Ph.D.

Faculty of Economics, University of Novi Sad
sofija.adzic@gmail.com
Abstract
The paper analyzes the problem of introducing a new model of public regula-
tion of industry in Serbia within the frames that determines the development of
new global production system and the European response to this problem. The
starting thesis of this paper is that it is not possible within the existing structure
and functioning of the elements of national political, production-organization-
al, business, educational, innovational and administrative system to opera-
tionalize (scientifically and professionally) valid strategy of reindustrialization
of Serbia in accordance with the European concept of endogenous, and auto-
propulsive and self-sustainable development based on scientific knowledge. The
second thesis is that the institutional arrangement within which is organized
the existing system of public regulation of industry in Serbia substantially lim- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
iting its participation in the creation of future conditions for its implementa-
tion. The third thesis is that the reindustrialization of Serbia according to this
concept is not essentially determined as unrealizable. The basic condition is to
work continuously, persistently and parallel, to create each of necessary condi-
tions for development based on scientific knowledge on one hand, and on the
other hand, to eliminate alternatives for right and sustainable national devel-
opment. In this context, the public regulation would get a chance to open the
process of reindustrialization of Serbia in accordance with the model chosen by
the European Union. In an effort to elaborate the mentioned issues, author’s
view of the problem of determining the benchmark for defining a new concept
of industrial policy in Serbia is exposed. The problem of development of general
socio-economic framework for the coordination of individual and group initia-
827
tives and resources in the function of re-industrialization of Serbia towards the
European concept of endogenous, autopropulsive and sustainable development
was also acknowledged.
Keywords: Reindustrialization, European concept of endogenous, auto-pro-
pulsive and self-sustainable development, Investment policy
JEL Classification: J5, K23, L00
1. INTRODUCTION
The Republic of Serbia failed to constitute an adequate macro-economic and
institutional framework for the implementation of effective industrial policy in
terms of globalization. The main hypothesis of this paper is that the increase of
efficiency of the (national) industrial and investment policy depends more on
Sofija Adžić: PROCESS OF REINDUSTRALIZATION IN THE CONTEXT OF EUROPEAN INTEGRATION
internal factors rather than the external environment. This commitment stems
from the fact that the creators and actors of national development, economic
and investment policy were not adequately used the (empirical) experience of
other European economies. Operationalizing industrial policy on the structure
and performances of productive capital, requires that its main task in the next
twenty to thirty years is to create conditions to overcome the developmental
entropy, primarily by increasing exports and productive employment in accor-
dance with the exogenous standards which impose: (1) process of political and
economic preparations for European integration and (2) adaptation to (new)
structure of global production system.
In this methodological framework, the problem to determine a new model
of industrial development of Serbia is considered in terms of three contexts:
The first is based on the analysis of phenomena which follows the dynamics
of new global production system development. The process began around 1970,
with the de-industrialization of the developed (modern) market economies. The
process of de-industrialization has been marked by: (1) the withdrawal of old
industries, in particular, for the production and processing of textiles and leather
and raw-material intensive productions of basic metals and chemical products,
which in many ways were dislocated or left to so-called newly industrialized
countries (NIC), (2) strengthening the role of propulsive activities for the pro-
duction of sophisticated products of high technologies, especially in electro-
metal complex (semiconductors, electronic computers, communications equip-
ment and devices), or production of chemical and pharmaceutical products (new
828
materials, new drugs), and (3) emergence of the so-called innovative (creative)
industries and a variety of service industries in the service of other industries.
The second context is based on the view that the development of industry
in Serbia must be based on scientifically and empirically verified troubleshoot-
ing of development of socio-economic framework for re-industrialization, or
search for specific national solutions for the key challenges of global reconfigu-
ration of the current civilization on the principles of industrial organization.
The third context is a choice of theoretical basis for the formulation and
implementation of industrial policy. The liberalization and privatization of de-
velopment at the global level have had as a result also the destruction of the clas-
sical model of formulating the content of objectives and operations of industrial
policy, based on the concept of defining the priority activities and productions
and supporting their development through various forms of direct and indirect
subsidies to labour and capital.
2. THE STRATEGIC FRAMEWORK FOR NEW

MODEL OF INDUSTRIAL POLICY
The key reasons for the low development performance of industry in Serbia
should be sought in the fact that the initial restructuring of the national econo-
my, after the restoration of capitalism, in the first stage of transition (from 1990
until the end of 2000) was carried out in the framework of “gray” economy and
“brotherly” privatization. After the radical political change in late 2000, their
key protagonists legalized their business or property which resulted in closing INTERDISCIPLINARY MANAGEMENT RESEARCH XI
the markets for other participants of competition. Therefore, the spillover of the
global financial and economic crisis effects, among other things, show that am-
nestied protagonists of “gray” economy, “brotherly” privatization and small eco-
nomic freedom cultures cannot meet the basic mission of the entrepreneurial
class - moving the horizons of personal progress also move it to society. The key
implications are the low level of institutional capacities and investment myopia.
The result is a very slow and uneven: (1) improvement of real economy efficien-
cy (profitability), (2) increase of infrastructure comfort for private investment
in the export business, and (3) human capital performance degradation.
In the wider socio-economic level, the essence of this problem lies in the
fact that, although Serbia is undoubtedly a democratic country where more and
829
more dominate the private sector, cannot expect progress in structural reforms
in order to create conditions for an endogenous, self-propulsive and sustainable
development – if does not introduce the substantial control of executive power
in terms of providing greater public interest in the implementation of reforms
of economic institutions and micro, mezzo and macro-economic policies. The
basis is, of course, finding a rational and effective political solutions for the prac-
tical implementation of this key economic theory achievement from the last
decade of the last century - endogenization of technological development in the
institutional structure as the main factor in creating conditions for an endog-
enous, auto-propulsive and sustainable development of Serbia.
There is no doubt that defining the general socio-economic framework for
the coordination of individual and group initiatives and resources in the func-
tion of re-industrialization of Serbia according to the European concept of
endogenous, auto-propulsive and sustainable development – is a complex and

complicated problem. It is absolutely certain, without further elaboration that
the revitalization and improvement of the competitiveness of processes, prod-
ucts and companies in the industry ultimately comes down to the process of
global commercialization based on dynamic creation and development of: (1)
economically sustainable production companies and commercial agricultural
holdings (as the basis of industrial development for the food and drinks pro-
duction - note by author) according to the exogenous standards of the global
economy, (2) adequate market infrastructure and specialized circles of commer-
cial and financial capital interested to provide their profits by business activi-
ties in the export of goods, (3) adequate non-productive infrastructures and (4)
infrastructures for public regulation of business and development which will,
through education, research-development, production, transport and financial
activities provide a relatively stable and favourable conditions for smooth run-
ning of their reproduction process.
According to this thesis, the main role of industrial policy in initiating and
implementing the re-industrialization strategy of Serbia is to connect and di-
rect the various economic, technological and social (primarily political, social
and cultural) phenomena (Scheme 1).
In this context, the industrial policy in function of re-industrialization (of
Serbia) should represents a socially organized and institutionally regulated
process of cooperative coordination of decisions at the macro level, on the one
hand, and at the mezzo and micro level, on the other hand, in order to, by devel-
830
opment and implementation of business and technological innovation and new
forms of social and economic organization and division of labour, provide an
internationally competent level of quality and prices of material-goods.
So, the basic condition for the re-industrialization of Serbia is that the pro-
duction-organizational structure of the industry is constituted by businesses
and commercial agricultural holdings, which have: (1) macro, mezzo and micro
organizational structure and management system capable of much efficient pro-
duction and distribution of high quality material goods in sharp and unequal
international competition, (2) respond for the physical assets and personnel, (3)
healthy financial structure and (4) flexibility, which enables quick and efficient re-
sponse to changes in natural, internal and external socio-economic environment.
Scheme 1. The new model of industrial policy in Serbia INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Since the main intention of this work is to define the basic settings of Indus-
trial policy in accordance with the European concept of endogenous, auto-pro-
pulsive and sustainable development, the presentation will be concentrated on
my view of the answers to two questions. The first is - What forms (and how)
to use the basic production-organizational models in the implementation of re-
industrialization strategy of Serbia? and second - What combination of basic
development alternatives to use in the dynamic context of the implementation
of the re-industrialization strategy of Serbia?
In the context of my view on the answer to the first question, it can be con-
cluded that the main task of industrial policy is to create a macroeconomic
framework for the integration of each industrial enterprises and commercial
831
agricultural holding into one complex and hierarchically organized system with
four levels (layers) (Adzic 2007).
The first level should include the industrial enterprises and commercial agri-
cultural holdings integrated into macro-clusters organized by main lines of pro-
duction (e.g. sugar, oil, bio-diesel, milk, pork, poultry, beef, berry fruit, early vege-
tables, flowers, herbs, wholesome food, machines for metal processing machines,
construction machinery, agricultural machinery, electrical rotating machines,
parts for automotive industry, furniture, clothes, shoes, etc.) in a way that pro-
vides economically and technologically efficient operations in conditions of glob-
al competition and other rigidities imposed by protectionist oriented economic
policy (especially in agro-industrial complex) of developed market economies.
The second level should include the production companies and agricultural
farms integrated in macro reproduction wholes whose core is located within

Serbia, and which ensure an optimal national social division of labour and the
supply of physical inputs (in particular: energy, basic reproduction materials,
intermediate products, machines and equipment) and services (business ser-
vices, transport, storage and cross-border transfer services) under the most fa-
vourable economic and technical conditions. In a broader sense of this macro
reproduction whole should be included a large trading companies, on the side of
inputs supply, and even more on the side of marketing, storage, transportation,
cross-border transfers and placements to target segments of the global market.
The third level should include the individual production companies and
commercial agricultural holdings in institutionally regulated framework of the
national socio-economic environment. Its main task is a supply of human and
financial capital, public goods and public administration services, in a way which
will stimulate their behaviour in terms of meeting the broader socio-economic
objectives - based on the criteria of increasing the competitiveness of products,
processes, business entities, business and macro reproduction wholes. The con-
tent of institutional arrangement should provide to every business entity of the
real sector: (1) developmentally supportive environment, (2) business enabling
environment, (3) management improvement, (4) participation and decentral-
ization and (5) consistent, transparent and accurate vision of the economic, so-
cial and technological development.
The fourth level should include the industrial enterprises or large export trad-
ing companies within the selected segments of the global market. Its mission is
832
to provide to every industrial enterprise or commercial agricultural holding the
economies of scale and encourage the development of production that can on the
basis of available factors of production, as well as those that will develop in the
future, to achieve a level of efficiency and competitiveness in terms of price and
quality in the conditions of harsh and unfair international competition.
In the case of Serbia, three possible alternatives for the implementation of
the re-industrialization strategy can be identified (Matejic 2002, Matejic 2008).
These are: (1) completion of the fordistic industrialization process, (2) radi-
cal modernization of large production systems and development of new export
businesses and industries – engaging foreign factors, primarily international
macro-clusters, multinational enterprises (MNE) and transnational corpora-
tions (TNC) and (3) development of creative society and innovative economy
based on national, regional, sub-regional and local initiatives, cooperation and
interactive collaboration.
The first alternative is deeply embedded in existing national production,
business and institutional system and in the ongoing economic and develop-
ment policy. Its implementation is based on a policy of small wage and low
prices of basic (national) inputs (this aim to achieve some kinds of internal and
external competitiveness) and obtaining a capital and technologies from exter-
nal sources, primarily by borrowing economic entities abroad. Since its imple-
mentation does not require a larger national effort (in terms of greater sacrifice
of consumption in favour of greater investment), this alternative is in line with
the key parameters of the current political and business culture and economic
interests built into existing production systems. The biggest limitations to con- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
tinue its implementation are two factors.
The first and long-term is the current human capital and the new one that
creates a relatively developed system of higher education - which are already
surplus in the existing production system. The surplus of well-educated (the
growth dynamics indicates that Serbia will in the near future deal with unem-
ployment of about 100.000 people with higher education) and creative resort
to two options - external emigration or search for places within some interest
(political) group. The second, no less serious problem are the reflexes of internal
and external (global) financial and economic crisis and post-crisis stagflation,
which are reflected in the radical reduction of freedom of access to external
financial sources and target segments of the global labour market - for now,
833
with unforeseen development, economic and social consequences for Serbia. In
any case, it can be expected that the third option will also appear on the scene
by which the well-educated and creative will try to direct their frustrations to-
wards an active participation in the direction of leaving the first alternative and
transition to the implementation of the second and third alternatives.
The second alternative is realized by greenfield investments in to export busi-
ness and industry and by entry of major national production systems in the in-
ternational macro clusters, multinational enterprises (MNE) and transnational
corporations (TNC) and - with the aim to provide competitive access to global
market and rapid technological and business modernization. This alternative
allows the activation of what was left of the inherited resources (in short-term)
and the available human resources (in the medium term), and also that a larger
(national) production systems and affiliates of international companies and
transnational corporations (in the medium term) become the local points of
development and modernization of micro, small and medium-sized industrial
enterprises. On the other hand, their appearance in a greater extent will work
integrating on, today really separated and introverted sectors of production,
education, research, public administration, etc. This would create (new) devel-
opment structures in the industry of Serbia and provide a faster transfer of new
technologies and (partial) externalization of developmental risks. Otherwise, in
terms of increasing the efficiency of the national re-industrialization strategy,
the implementation of this alternative is (despite some risk) preferred, primar-
ily as a mechanism of transition from the current state to the third alternative.
As noted, for the implementation of the third (scientifically desirable) re-
industrialization alternative, are necessary radical social and political innova-
tions in terms of constitution of a democratic, but primarily responsible society
towards future generations and natural environment, non-parasitic system of
institutions, freedom of choice of any kind with preservation of basic ethnic and
spiritual values. In this context, the development (in terms of implementation
of re-industrialization strategy - note by author) is based on a national, regional,
sub-regional and local specifics, supported by STIEOT infrastructure, induced
by entrepreneurial or strategic cooperative initiative and formed by competi-
tion and cooperation which excludes the protection of monopolistic interests
of any kind. The main inputs in this development alternative are quality human
resources and innovative society, especially political institutions. This alterna-
tive is furthest from the current situation. But this does not mean that in Serbia
834
there are no pilot projects for the development of high technology industries
induced by the national research system. In the past twenty years in Serbia (pri-
marily in Belgrade, and to a lesser extent in Novi Sad) is, on the basis of pri-
vate initiative, formed a certain (for now sub critical) mass of micro and small
enterprises in the field of high technologies. My forecast is that in the coming
period, due to the effects of internal and external economic crisis, in the imple-
mentation of the re-industrialization strategy will be included this alternatives
on a wider scale, and the re-industrialization strategy will be implemented on
the basis of a combination of all three alternatives where at one time one will be
dominant, but over the time their order will change.
The industrial and commercial policy results measuring must contain also a
component that would aggregate the implementation results of: (1) empirical
models of functioning of the enterprises in the modern market economies, and
(2) common (legal) legacy of the European Union (Acquis communautaire) in
the domain of industry. On the one hand, these factors are the exact basis to
create a system of standards to determine the success of industrial and com-
mercial policy, in particular, measuring the quality of constructed facilities and
capacities and building institutions for public regulation of industry, as well as
creating an enabling environment for innovative behaviour of companies and
representatives of local, sub regional, regional and central public administra-
tion in terms of public, precise and transparent determination of individual and
group responsibility for taken business, development and investment activities.
On the other hand, their implementation is related to the high economic and
social costs, which directly affect the increase in public expenditures and op-
erating expenses of micro-economic subjects, which directly reduces the space INTERDISCIPLINARY MANAGEMENT RESEARCH XI
for the realization of others, at this point, the prioritized tasks of economic, in-
dustrial and commercial policy in the domain of revitalization, modernization
and new construction of physical, business and STIEOT infrastructure for the
industry, as well as the development and restructuring of companies, processes
and products in the industry.
3. FINDINGS
The current political and economic moment suggests several conclusions.
First, the reforms launched and implemented in the period from 2001 to
2013, failed to create a framework for implementation of effective re-industrial-
835
ization, primarily because of the failure to determine the role of the state in the
spheres of economic, social and cultural development.
Second, practically nothing has been done to promote phenomena, which are
the cultural basis of effective investment policy in modern market economies,
such as: public, transparency, accuracy, professionalism, responsibility and trust.
Third, the inefficient investment policy is just a statement of vague and ma-
nipulative transition. Its essence is the periodic occurrence of various structures
of change, which are partly performed, changed or abandoned, in a way that
without a deeper understanding of things does not allow the recognition of real
goals, directions and contents of the changes which are implemented. The re-
forms created a mixture of various quasi-market institutions and mechanisms,
pseudo-manipulative planning and administrative management in order to
maintain the specific distributional-oriented coalitions in power, as the main

source of their power in the (re)distribution of national income, social wealth
and foreign aid.
Fourth, the main goal of national investment policy should be putting the
available productive capital in production and economic function on the basis
of increasing export with a greater share of newly added value and productive
employment.
Fifth, the main causes of poor and inefficient investment activities are lo-
cated in the domain of so-called “x-inefficiency”, i.e. they are a result of poor de-
velopment, economic and technological performance of companies. To increase
the efficiency of business development and investment policies necessary are the
fundamental changes in strategy and redesign of business processes in order to
create conditions for maximum satisfaction to customers in the internal mar-
ket of the European Union or some other segments of the global market (CIS
countries, China and the United States). Only the need to ensure the existence
in the conditions of global competition and dynamic changes in the socio-eco-
nomic systems, will force companies on contrived development and investment
policy. At the same time everyone must find only for themselves the appropriate
solutions depending on the developmental vision, available internal and exter-
nal resources, specific situation and the nature of the adjustment process.
Sixth, creating conditions for higher and more efficient investment is a
complex, expensive and time-consuming process, which requires a faster and
efficiently completion of construction of integrated market system and restruc-
836
turing of infrastructure for public regulation of economy and development.
However, investing in improving the performances of (production) companies
cannot wait for completion of market institutions and structural adjustment of
infrastructure for public regulation of economy and development according to
the European Union standards. Development of market and public institutions
and improvement of investment conditions for improving the performances of
(production) companies need to be established in parallel, on the fly.
Seventh, the main task of the investment policy in the next twenty to thirty
years should be to create conditions for higher and more efficient investments
in order to improve the competitiveness of enterprises. To replace the macro-
economic and institutional disorder, the solutions for successful investment
policy, should be sought in determining the appropriate stimulating contents
in the complex, consisting of: (1) Fiscal policy, (2) Strategies for revitalization,
modernization and new building of physical and social infrastructure (3) Edu-
cational policy, (4) Technological policy, (5) Strategy for agro-industrial com-
plex development, (6) Industrial policy, (7) Entrepreneurship development pol-
icy, “small” businesses, small and medium-sized enterprises (8) Environmental
policy (9) Regional policy, (10) Rural policy and (11) Local politics. Since the
Republic of Serbia is located in the neo-liberal environment of solid monetary
restrictions, the basis for successful investment policy are the good fiscal system
and a good fiscal policy and an effective strategy for revitalization, moderniza-
tion and new building of physical and social infrastructure, supplemented with
goals and different, mainly non-economic, policy mechanisms under (3), (4),
(5), (6), (7), (8), (9), (10) and (11).
Eight, in order that the public intervention replace the macroeconomic and
institutional disorder in providing an enabling environment for the privatiza-
tion development, in the operation is necessary to implement the concept of
“reinventing government” based on the research of concrete solutions: How
with a similar or lower fiscal burden, i.e., lower prices of natural resources or
administrative monopoly and public administration services to provide a better
education, a better health care and quality social, physical and administrative
infrastructure which will enable the national economy to effectively face the
challenges of globalization and European integration?
Ninth, the last thirteen years indicate that the foreign direct investments
were, at best, irrelevant to the sustainable restoration of development propul-
837
sion in the Republic of Serbia. But that does not mean that they are unde-
sirable. On the contrary, we should be aware that foreign capital cannot solve
the problems of national development, nor to increase the investment in export
industries, companies and business and increasing of productive employment
to the extent that would allow the troubleshooting of national development
entropy. Due to institutional disorder, problematic macroeconomic and politi-
cal stability and generally low socio-economic development performances of the
Republic of Serbia, its current goal is profit in short-term, which does not have
to coincide with the growth of production, employment and the establishment
of balance in the foreign economic relations. The foreign capital can increase the
profits also by destructing the internal competition, reducing the production,
employment and substitution of domestic production and importing savings.
Finding good solutions for re-industrialization of Serbia is more a matter of
understand the problem than physical investment. In this sense, the listed tax-
onomy is an attempt of author to determine the key principles on which should
be based the formulation and implementation of a new model of industrial pol-
icy in the function of re-industrialization of Serbia in accordance with the Eu-
ropean concept of endogenous, auto-propulsive and sustainable development.
literature
1. Adžić S. (2007), Kako poboljšati izvozne performanse preduzeća u institucionalno neuređenom
okruženju?, in Proceedings: “Institucionalne promene kao determinanta privrednog raz-
voja Srbije”, Faculty of Economics, University in Kragujevac. pp. 118 – 131.
2. Adžić S, Popović D. (2006), Decentralizacija, koordinacija i efikasnost ekonomske politike
– Studija slučaja za Srbiju, “Ekonomija/Economics”, No. 1/2006, pp. 50-54, Rifin d. o. o.,
Zagreb (Republic of Croatia).
3. Matejić V. (2002), Prilozi istraživanju naučnog i tehnološkog razvoja, Federal Sercretariat for
Science and Development, Belgrade.
4. Matejić V. (2008), Razvoj Srbije zasnovan na znanju: Pomodna priča ili stvarnost, in Pro-
ceedings: “Tehnologija, kultura i razvoj 15”, Association “Tehnology and Society”, Faculty
of Economics Subotica and Institute “Mihajlo Pupin”, Belgrade, pp. 32-40.
5. Study (2010), Postkrizni model ekonomskog rasta i razvoja Srbije 2011-2020, USAID,
FREN-Faculty of Economics, Economics Institute, Belgrade
6. Study (2011), Strategija i politika razvoja industrije Republike Srbije 2010-2020, Ministry
of Economy and Regional Development, Republic Institute for Development, Belgrade.
7. Proceedings (2006), International Handbook on Industrial Policy, Edward Elgar.
838
INNOVATORS’ VS. NON
INNOVATORS’ PERCEPTIONS
ON BUSINESS BARRIERS IN
SOUTHEASTERN EUROPE
Ljiljana BOŽIĆ, PhD

The Institute of Economics, Zagreb, Republic of Croatia
ljbozic@eizg.hr
Valerija BOTRIĆ, PhD

The Institute of Economics, Zagreb, Republic of Croatia
vbotric@eizg.hr
Abstract
The aim of this paper is to analyse whether perceptions regarding obstacles
for doing business differ between innovative and non-innovative firms in post-
transition period. To that end, we use the latest EBRD Business Environ-
ment and Enterprise Performance Survey (BEEPS round V) and perform
the analysis for 9 countries in the Southeastern Europe: Albania, Bosnia and
Herzegovina, Bulgaria, Croatia, FYR Macedonia, Kosovo, Montenegro, Ro-
mania and Serbia. These countries have been chosen, since similar analysis is INTERDISCIPLINARY MANAGEMENT RESEARCH XI
not available in the literature. We classify enterprises into 3 groups, according
to their innovative performance: innovators (that have innovation output),
R&D firms (that have innovation input) and non-innovators. The analysis
reveals that in most countries and for most types of firms, tax rates and infor-
mal sector are perceived as the most important obstacles for business activity.
Keywords: business barriers, innovation performance, Southeastern Europe
JEL Classification: O3, O32, O39
839
1. INTRODUCTION
The main focus in this paper is to reveal perceptions on major obstacles to
Ljiljana Božić • Valerija Botrić INNOVATORS’ VS. NON-INNOVATORS’ PERCEPTIONS ON BUSINESS BARRIERS IN SOUTHEASTERN EUROPE
business in Southeastern Europe. We specifically focus on 9 countries - Albania,

Bosnia and Herzegovina, Bulgaria, Croatia, FYR Macedonia, Kosovo, Monte-
negro, Romania and Serbia – which have been frequently found in the literature
to lag behind more advanced transition economies (Tsanana & Katrakilidis,
2014). Furthermore, we distinguish 3 groups of enterprises, according to their
innovative performance: innovators (that have innovation output), R&D firms
(that have innovation input) and non-innovators. Since it has been frequently
emphasized that innovation promotion is important for sustainable growth in
these countries (Bartlett, 2014), we wanted to explore whether different groups
of enterprises have different perception on major obstacles for their businesses.
Empirical research on business obstacles reveals some interesting findings.
Many studies indicate, for instance, that innovators express more concern over
barriers to innovation than non-innovators (Galia & Legros, 2004). This is con-
firmed even in case of less innovative countries such as Croatia (Božić, 2011).
DÉste et al. (2012) point out the need to distinguish between revealed barri-
ers experienced by innovators and deterring barriers faced by non-innovators.
According to their findings, non-innovative and highly innovative firms report
the highest levels of barriers. The same pattern applies to ecological innovations
(Marin et al., 2014).
Furthermore, extant findings indicate differences in barriers perception
among countries. Hölzl and Janger (2012) show that perception of barriers to
innovation changes with technological development of country. They find that
in countries closer to technological frontier the lack of qualified personnel is
perceived as bigger issue than lack of finances, completely opposite than for
countries further from the frontier. Galia et al. (2012) argue that because of
different perception of barriers across countries, public policies should rely on
country specific measures for elimination of main obstacles. Innovation systems
in SEE countries primarily are at different level of development (e.g. Švarc,
2012). We can thus expect that innovators and innovating firms in these coun-
tries are likely to face different obstacles and perceive their level to different
extent.
Apart from the barriers to innovation, important issues concern barriers to
business in general. Previous studies are mostly concentrated on detailed analy-
840
sis in a single country. For example, the most pronounced problems of entre-
preneurs in Albania identified by Bitzenis and Nito (2005) are unfair competi-
tion, changes in taxation procedures, lack of financial resources and public or-
der issues. High costs of capital and high level of bureaucracy impede business
growth of SMEs in Slovenia (Bartlett & Bukvič, 2001). We adopt comparative
approach to enable discussion on relative position of entrepreneurs across the
countries in the region.
In this paper we focus on business barriers and aim to explore if principles
identified in case of innovation barriers apply for business barriers, as well. We
hope to contribute to the literature by identifying differences in perception of
business barriers among a) innovators, R&D firms and non-innovators and b)
South-eastern countries.
The paper is organized as follows: after the introduction, the next section
explains data. In section 3 we present results of the analysis while the last sec-
tion summarizes conclusions.
2. DATA SOURCES AND EMPIRICAL STRATEGY

We analyse the perception of obstacles by innovative, R&D performing and
non-innovative firms in different countries. We use the latest available Busi-
ness Environment Survey (BEEPS V), which relates to the 2012-2013 period.
BEEPS is conducted jointly by the European Bank for Reconstruction and De-
velopment (EBRD) and the World Bank. This round of survey includes data
for approximately 15,600 manufacturing and services firms in 30 EBRD coun- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
tries collected employing face-to-face interviews. The analysis in this paper is
performed relying on responses of 2,975 firms from nine countries and two
sections of questionnaire/ segments of data: data on business barriers and in-
novation activities. For more details on BEEPS V see http://ebrd-beeps.com/ .
As innovative firms we consider all of those that during the last 3 years
reported having one of the following: new products/services, new products/
services new to one of the establishment’s markets, new/significantly improved
production/supply, new organisational/management practices or structures,
new marketing methods and new or significantly improved logistical or busi-
ness process.
841
Firms that attempted innovations, but were not successful during the ana-
lysed period are those that had negative answers to previous questions, but at
the same time: spend on research activities, either in-house or contracted with
other companies and/or give employees time to develop or try out a new ap-
proach or new idea about products or services, business process, firm manage-
ment or marketing.
Non-innovative firms are all the rest. Since the categorisation of the indi-
vidual firms is important for our paper, we have excluded from the sample all
cases where the answer to one of the questions above was “I do not know”. We
assume that in those cases it would not be plausible to consider other answers
reliable (this has reduced the overall sample for all the countries for 60 entries).
The structure of the final sample used in the analysis is presented in Table 1.
Table 1 Firms’ share according to innovation activities, across countries

Country Innovators R&D firms Non-innovators Observations
Albania 14.08 8.91 66.67 348
B&H 53.91 7.26 36.03 358
Bulgaria 50.88 4.21 39.30 285
Croatia 60.17 10.03 26.46 359
Kosovo 70.11 14.67 12.50 184
FYR Macedonia 53.63 3.35 38.55 358
Montenegro 26.17 5.37 63.76 149
Romania 70.72 5.70 21.67 526
Serbia 51.96 5.03 38.55 358
Source: authors’ calculations based on BEEPS V.
Due to the relatively low innovation activities in the analysed countries, rela-
tively high share of the respondents reporting innovation activity in three-year
period might be somewhat surprising. We can assume that the sample is biased
towards those enterprises that are more actively engaged in the innovation ac-
tivities. Also, the high share of innovating firms is a consequence of rather broad
definition of innovators for the purpose of this analysis that includes develop-
ment of non-technological innovation as well. Consequently, the relative high
share of innovative firms in the sample provides enough data to proceed with
the analysis.
842
The data presented in previous table reveals that the shares of firms that
have devoted resources to R&D activities (either through financing or through
human capital) are relatively low in the sample. Nevertheless, it is highly impor-
tant to consider the perceived business obstacles by those firms in comparison
to other categories. The literature claims that, at least when it comes to inno-
vation barriers, those that have attempted innovation activities have different
perspectives on the obstacles they may face on the market in comparison to
those that never attempted innovative activity. Even though the barriers that we
consider in this paper have larger scope, differences between certain categories
of enterprises might persist.
In order to investigate the major business obstacles, we analyse which of the
15 categories (access to finance; access to land; business licencing and permits;
corruption; courts; crime, theft and disorder; customs and trade regulations;
electricity; inadequately educated workforce; labour regulations; political in-
stability; practices of competitors in the informal sector; tax administration;
tax rates; transport) the enterprises consider to be the most important impedi-
ment to their business operations. Since the questionnaire asks respondents
to precisely choose one of the listed impediments, their direct answers to this
question should reveal important differences. This is presented in more details
in following section.
3. RESULTS
Since the main concern of the analysis is on the obstacles to innovators, we
first present these results. The data in following tables refers to the percentage
of respondents that have listed specific obstacle as major impediment for their
current business operations.
843
Table 2 Innovators’ perceptions on major obstacles for business
Countries
Albania B&H Bulgaria Croatia Kosovo FYRM Montenegro Romania Serbia

1 12.07 14.80 6.32 16.16 12.50 18.72 8.05 11.03 14.53
2 5.46 0.56 1.05 0.28 2.72 1.40 1.34 1.71 0.56
3 0.57 2.79 2.11 0.56 1.63 1.12 1.34 1.14 1.68
4 4.89 9.22 7.71 4.46 7.61 1.68 2.01 4.18 6.14
5 0.57 3.35 2.81 4.18 1.63 3.91 1.34 0.38 5.03
6 1.44 3.35 3.51 2.23 2.17 1.12 2.68 1.14 3.35
7 1.44 5.87 0.70 2.23 7.61 2.79 4.70 0.38 3.91
8 12.93 0.84 3.16 0.56 10.33 6.42 5.37 1.71 0.84
9 1.44 2.79 4.56 2.79 4.89 1.68 1.34 8.17 1.96
10 0.29 0.84 4.91 5.29 0.54 0.56 2.01 0.95 1.68
11 6.90 32.40 12.98 8.91 4.35 12.01 2.68 9.70 19.27
12 18.39 6.42 18.60 8.91 21.20 23.46 14.09 7.60 10.89
13 11.49 1.68 2.81 4.74 2.17 3.35 4.03 3.61 4.75
14 10.63 9.50 8.07 23.68 7.61 3.35 19.46 41.83 16.48
15 1.72 1.95 - 0.56 1.09 1.68 0.67 2.66 0.56

Notes: 1-Access to finance; 2-Access to land; 3-Business licensing and permits; 4-Cor-
ruption; 5-Courts; 6-Crime, theft and disorder; 7-Customs and trade regulations; 8-Elec-
tricity; 9-Inadequately educated workforce; 10-Labor regulations; 11-Political instability;
12-Practices of competitors in the informal sector; 13-Tax administration; 14-Tax rates;
15-Transport.
Major business obstacles for innovative firms are different across countries.
It is interesting to note that political instability is perceived as the major ob-
stacle for Serbia and Bosnia and Herzegovina. This implies that, although the
questionnaire covers 2012-2013 period, political factor remains important is-
sue for some countries in the region. Another important impediment seems to
be flourishing shadow economy. Innovators in four countries – Albania, Bul-
garia, Kosovo and FYR Macedonia have stated that practices of competitors in
the informal sector present major obstacle for doing business. It is interesting to
note that one of those countries is Bulgaria, an EU member. Recently, Williams
(2015) offered explanation for cross countries differences in levels of informal
entrepreneurship, which can be associated with economic development and
844
state intervention to protect workers from poverty. However, full discussion for
our group of countries is beyond the scope of the present paper.
Similar analysis for the firms that have devoted some resources to research
and development, but have not realised them in the analysed period is presented
in Table 3.
Table 3 R&D firms’ perceptions on major obstacles for business

Countries
1 6.45 19.23 8.33 16.67 18.52 25.00 - 6.67 11.11
2 9.68 - 8.33 - - - - 3.33 -
3 3.23 3.85 - - - - 12.50 6.67 -
4 3.23 7.70 - 2.78 3.70 - 12.50 3.33 -
5 - 3.85 - - - - 12.50 - 5.56
6 3.23 - - - - 8.33 - - -
7 - 15.38 8.33 2.78 18.52 - 12.50 - 5.56
8 9.68 - - - 11.11 - - - -
9 6.45 - - - - - - 3.33 5.56
10 - - 16.67 8.33 - - - - -
11 9.68 7.69 8.33 5.56 7.41 33.33 - 10.00 16.67
12 25.81 3.85 8.33 2.78 22.22 25.00 12.50 - 11.11
13 9.68 - - 8.33 3.70 - - - -
14 6.45 26.92 - 44.44 - - - 56.67 33.33
15 3.23 11.53 - - - - - 3.33 - INTERDISCIPLINARY MANAGEMENT RESEARCH XI

15-Transport.
The data shows that for some countries, the major obstacle is rather differ-
ent for firms that have performed R&D activities but didn’t report innovation
in comparison to those that already having innovation output. In case of Bul-
garia, labour regulations seem to be important constraint and in case of FYR
845
Macedonia political instability. For those firms in Bosnia and Herzegovina, as
well as Serbia, tax rates are perceived as major threat. Although the number of
respondents in this group is significantly smaller than in case of innovators, we
may argue that they do perceive obstacles to business differently, at least in some
countries.
Finally, the Table 4 presents similar results for non-innovators.
Table 4 Non-innovators’ perceptions on major obstacles for business

Countries
1 12.50 17.05 4.46 11.58 30.43 18.12 7.37 11.40 13.77
2 5.17 - 1.79 1.05 8.70 2.90 2.11 0.88 0.72
3 4.31 3.10 1.78 2.11 - 2.17 - - 0.72
4 3.88 8.53 5.36 5.26 4.35 1.45 1.05 5.26 4.35
5 0.43 0.77 1.79 5.26 - 3.62 - 0.88 3.62
6 1.29 6.20 5.36 2.11 - 0.72 4.21 1.75 4.35
7 1.72 3.10 0.89 1.05 - 0.72 4.21 0.88 4.35
8 12.50 0.78 1.79 - 17.39 7.25 6.32 3.51 2.17
9 0.86 3.10 3.57 2.11 - - - 7.02 2.90
10 0.43 - 1.79 5.26 - - 1.05 - 2.17
11 6.90 30.23 14.29 13.68 4.35 9.42 3.16 8.77 19.57
12 14.66 7.75 17.86 9.47 8.70 25.36 14.74 6.14 9.42
13 14.22 1.55 2.68 4.21 - 5.07 3.16 1.75 5.80
14 11.64 10.08 12.50 18.95 13.04 1.45 24.21 42.98 18.84
15 2.16 2.33 - - - - 1.05 3.51 0.72

15-Transport.
Previous table reveals that there are some similarities between major obsta-
cles perceived by innovative and non-innovative firms in the analysed countries.
One of the differences to previous can be noted in case of Kosovo. Non-inno-
846
vative firms in Kosovo perceive access to finance as one of the major obstacles.
Actually, it ranks consistently high across the region, although is mostly over-
shadowed by other problems the firms face in their business activities.
Summary of previous findings is presented in Table 5. The summary clearly
shows that out of 15 possible obstacles, 6 were detected as most important by
either on sub-segment of the enterprise population. In general, it seems that
large shadow economy and fiscal pressures are recognized as major obstacles
most frequently.
Table 5 Major obstacles across types of enterprise in Southeastern Europe

Type of enterprise
Major obstacle
Innovator R&D firm Non-innovator
Access to finance Kosovo
Labour regulations Bulgaria
Political instability B&H, Serbia FYR Macedonia B&H, Serbia
Albania, Bulgaria, Kosovo, Albania, Bulgaria, FYR
Informal sector Albania, Kosovo
FYR Macedonia Macedonia
Tax administration Albania
Croatia, Montenegro, B&H, Croatia, Romania, Croatia, Montenegro,
Tax rates
Romania Serbia Romania
Source: authors’ systematization.
4. CONCLUSIONS INTERDISCIPLINARY MANAGEMENT RESEARCH XI
The main contribution of the paper is that it enables discussion on major

obstacle to business specifically distributed across innovative and non-innova-
tive firms. Although there are various ready available indicators – for example,
World Bank Doing business – they consider the whole economies, and not some
specific segments. Since innovation activity is frequently assessed as growth en-
hancing activity, exploring perceptions of business barriers for innovative firms
should have additional policy implications.
Although it might have been initially assumed that during the crisis the
firms might point to access to finance as one of the most important problems,
it is perceived as major barrier only for non-innovating firms in Kosovo. Find-
ings indicate that firms in other SEE countries perceive access to finance as a
847
barrier to their business operations, but other problems prevail. Furthermore,
except in case of Kosovo and Bosnia and Herzegovina, innovative firms report
this barrier more. It appears that firms in most of the analysed countries are able
to overcome access to finance as a barrier and continue the innovation activity

despite this obstacle.
Few points should be emphasized:
• Corruption often emphasized as major obstacle to business in SEE coun-
tries, is not ranked among top six obstacles in none of the countries. The
same is found by Bitzenis and Nito (2005) in their analysis on obstacles
to entrepreneurship in Albania.
• Analysis reveals that firms in SEE mostly struggle with different barriers
to their business operation. Some similarities include practices of com-
petitors in the informal sector as a barrier (in Albania, Bulgaria, Kosovo
and FYR Macedonia) and tax rates (in Croatia, Montenegro, Romania,
B&H, and Serbia).
• Interestingly, these two barriers are major barriers for both innovators and
non-innovators in respective countries.
References
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Economic Policy in Transitional Economies,11, 177-195
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‘Europe in Question’ Discussion paper series 84/2014, December 2014.
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ronment: the case of Albania, Journal of Small Business and Enterprise Development 12(4),
564 – 578.
Božić, Lj. (2011). Constraints to innovation activity in Croatian enterprises, Ekonomski
pregled 62, 177-189.
D’Estea, P., Iammarino, S., Savona, M. & von Tunzelmann, N. (2012). What hampers in-
novation? Revealed barriers versus deterring barriers, Research Policy 41 482– 488.
Galia, F. & Legros, D. (2004). Complementarities between obstacles to innovation: evidence
from France, Research Policy 33, 1185–1199.
Galia, F., Mancini, S. & Morandi, V. (2012). Obstacles to innovation: what hampers innova-
tion in France and Italy?, Paper presented at the DRUID 2012 on June 19 to June 21 at CBS,
Copenhagen, Denmark.
Hölzl, W. & Janger, J. (2012). Innovation Barriers across Firms and Countries, WIFO
Working Papers, No. 426 April 2012.
848
Marin, G., Marzucchi, A. & Zoboli, R. (2014). SMEs and Barriers to Eco-Innovation in
EU: A Diverse Palette of Greens, INGENIO (CSIC - UPV) Working Paper Series 2014
- 04.
Švarc, J. (2012). Comparative analysis of the innovation capacities in the WBC with empha-
sis on joint cooperation needs in the field of innovation, Proceedings of International Confer-
ence for Entrepreneurship, Innovation and Regional Development ICEIRD 2012
Tsanana, E. & Katrakilidis, C. (2014) Do Balkan economies catch up with EU: New evi-
dence from panel unit root analysis, Empirica, 41(4), 641-662.
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849
EMPLOYMENT IN
TRANSPORTATION: LOOKING
BACKWARD AND LOOKING
FORWARD
Drago Pupavac • Mimo Drašković: EMPLOYMENT IN TRANSPORTATION: LOOKING BACKWARD AND LOOKING FORWARD
Drago PUPAVAC, PhD

Polytechnic of Rijeka, Croatia
Mimo DRAŠKOVIĆ, PhD

Faculy of maritime studies-Kotor, Montenegro
Abstract
The basic objective of this research is to analyze the employment trend in trans-
portation over the past thirty years and to determine the possible contribu-
tion of transportation as an economic activity in solution of the unemployment
problem in Croatia. The methods of correlation and regression analyses are
used to prove the hypothesis concerning the limitations of transport sector in
new job creation. The applied scientific methodology has the task to prove that
transport sector in Croatia is becoming more capital intensive than labor inten-
sive economic activity. Accordingly, the trend of decreasing employment in the
transport sector will continue in the next period. Data analysis and numerical
calculations are performed using Statistica software.
Keywords: transport, employment, correlation and regression analyses
JEL Classification: E24, J2, J21
850
1. INTRODUCTION
The Global Financial Crisis indicates the end of industrial civilization with an
increasingly visible and ubiquitous consequence - increasing unemployment. Thus,
the increase of domestic production, competitiveness, employment and export, as
well as the growth of the real individual income become the basic elements of eco-
nomic policy. Industrial policy should employ all idle productive resources and all
the unused capacities to ensure the smooth transition to the new industry. ‘Indus-
try’ here comprises all activities from agriculture and metal and financial industry
to transport. In national economies oriented towards service section growth, there
is a growth with low or stagnant number of transport involved employees.
In periods of economic crisis transport reacts with greater sensitivity to mar-
ket events in a way of transport companies quickly reducing labor costs in order
to maximize profits or minimize losses, because that is the easiest way to make
cuts in the short term. The reduction of salaries and/or downsizing them seems
as an efficient solution so as to maintain market position of transport compa-
nies. When taken into account the fact that the transport is a capital, not labour
intensive activity, it is hardly likely that the transport industry would increase
their absolute and relative share in total employment. Accordingly, the purpose
of this paper is to evaluate the effects of the transport industry and solving
the unemployment problem in the new economy. To achieve the intended goal,
numerous scientific methods were used in various combinations, including sta-
tistical methods of regression and correlation analysis.

2. THEORETICAL FRAMEWORK AND PROBLEM
Transportation is a significant source of employment, namely since the op-
eration of vehicles such as trucks or buses is labor intensive. It employs between
3% and 8% of the total labor force of developed countries (cf. graph 1).
851
Graph 1. Transportation employment in developed countries
Source: http://people.hofstra.edu [access June 12, 2014]
In the European Union, transportation employed more than 10 million peo-

ple, or 4,5% of the EU workforce (cf. table 1).
Table 1. Employment by mode of transport, 2009. (in 000)

Postal
Road Road Inland Warehousing
Pipelines
Railways
Sea Air and

Total water and support
freight passenger transport transport courier
transport activities
transport transport (**) activities
EU27 10580,3 2951,8 2110,5 712,4 22,9 41,1 179,7 379,5 2379,3 1803,1
EU15 8508,4 2274,4 1689,9 437,1 10,2 33,8 163,2 349,3 2010,0 1540,4
EU12 2071,8 677,4 420,6 275,3 12,7 7,3 16,4 30,2 369,3 262,7
Source: Eurostat
Of the ten million people employed in the transport sector, almost half are
in road freight and passenger transport (see graph 2).
852
Graph 2. Employment in the transport sector in the EU 27 in 2009
Postaland
Warehousing courier
andsupport activities;17%
activities;
22,50%
Airtransport;
3,60%
Sea Inland
Road(freight);
transport;water Railways;
27,90%
1,70%transport; 6,70%
0,40%
Pipelines; Road
0,20% (passenger);
19,90%
Source: Prepared by Authors according to EC, 2012
There is approximately 76,000 people employed within Croatian transport

industry (of which 13 371 people are in crafts and trades and liberal profes-
sions) or 5.4% of total employment. From 1977 to 2012, the share of employees
in the Croatian transport sector in total employment decreased by 3.4 index
points, ie the share went from 8.8% to only 5.4%. Activities of land transport
and pipeline transport account for 41.5% in the total employment of the trans-
port sector, of storage business and related activities with 32.8%, while there is
18.8% in postal and courier activities. The least is employed in air and water
transport. Air transport has a 5% share, while water transport only has 2%,
where people are employed in transport and storage activities[6].
Negative economic trends and the reduction in real income and purchasing
power had a negative effect on the Croatian transport sector. Decrease in pas-
senger transportation in all forms of transport is a continuation of the negative
trend started in 2009. In 2012, there is 36.3% less passengers carried compared
to 2008.
In addition to passengers, in 2012 there was also a decrease in the amount
of goods carried (33%) compared to 2008. The amount of transported goods
has decreased in all types of transportation. The biggest drop of 40.9% was
registered in road transport, the most important mode of transport in goods
transportation, but also the most important when it comes to employment.
Reducing the volume of passenger and cargo transportation has had a nega-
tive impact on employment trends. The average number of employees in trans-
853
port and storage in 2013 has been reduced by 11,5% since 2008. In comparison,
overall employment in the same period decreased by 9,5% . This means that in
times of employment decline, the number of transport employees falls faster [3].
This trend resulted in reduction of the share of transport involved employees
in total employment of the country, from 5.47 percent in 2008 to 5.35 percent
in 2013. The highest decline in employment (cf. Table 2) has been recorded in
storage and transport supporting activities (26,3%) and in air transport (20%).
Table 2. The number of employed as legal entities

2008 2009 2010 2011 2012 2013
I-XII I-XII I-XII I-XII I-XII I-XII
Land and pipeline transport 26701 26353 25335 25185 25536 26656
Water transport 2851 3045 2991 2955 2956 2785
Air transport 1337 1346 1322 1320 1154 1069
Storage and transport supporting activities 24949 22802 21636 21295 20885 18405
Postal and courier activities 12652 11971 11327 11592 12044 11666
Total transport 68490 65517 62611 62347 62575 60581
Source: Croatian National Bureau of Statistics
3. RESEARCH RESULTS AND DISCUSSION

The period from 1977 to 1987 is marked by a constant increase in transport
related employment. After that, there has been a sharp decline in the number of
transport employed (cf. graph 3).
854
Graph 3: Employment trends in Croatian transport system from 1977 to 2012
140000
120000
100000
80000
60000
40000
20000
Source: Prepared by authors according to DZS, SLJH from various issues
In 1987, the transport system had a record 128,400 workers. The period af-
ter 1987 was characterized by a continuous decline in the number of employees
(cf. Figure 1). It was only in 1997 that an increase in the number of employees
in the Croatian transport system rised by 7.32% compared to the previous year.
The following period was characterized by a continuation of the negative trend,
and it is expected that this trend will continue despite significant investment
in the development of the transport system [5]. The traffic is an intense capital
activity that does not contribute much in new work force employment in the INTERDISCIPLINARY MANAGEMENT RESEARCH XI
new economy. The sector’s capital intensity is obvious in data on actual gross
investments. Gross investments made in transport and storage sector in 2011
accounted for 6.1% of the total gross investments in Croatia, which is more than
the share of the transport sector in GVA, but also more than the share in total
employment. The fact that traffic is a capital intensive sector is clearly illustrated
by the information that, for example, the Port of Rijeka in the mid eighties of
the last century had 7,000 people employed, and in early 2015 only 768. In the
transition period, the Port of Rijeka had a record in transport in 2008 with
about 6 million carried cargo, which was last achieved in 1987 when they had
seven times more workers. We could say with certainty that the era when the
percentages of gross domestic product and transport employment were in di-
rect functional dependence is long gone. This is also confirmed by the calculated
855
coefficient of correlation between gross domestic product and the number of
employees in the Croatian transport system for the period from 1983 to 2012
of only r = 0.21.
In the following, this research will explore the interdependence of the num-
ber of employees in the Croatian transportation system and dynamic natural
indicators of transport activity in order to examine the possibility of stopping
or at least slowing down the observed downward trend in transport related em-
ployment. Research results are based on the data on the number of employees
in the Croatian transport system, the number of passenger kilometers and the
number of net-tonne kilometers for the period from 1990 to 2012. Based on
statistical data from Table 3 Pearson’s correlation coefficient was calculated to
determine if there is a connection between dynamic indicators of transport ac-
tivity and the number of employees in the transport system. (cf. table 3).
Table 3. Correlation of natural indicators of transport activity and the number

of employees in the Croatian transport system
Correlations (Transport.sta)
Marked correlations are significant at p < ,05000
N=23 (Casewise deletion of missing data)
Variable Means Std.Dev. tkm pkm BZ
tkm 166889,0 23976,71 1,000000 -0,037403 0,450634
pkm 6585,4 1228,18 -0,037403 1,000000 0,374239
BZ 85389,5 11267,91 0,450634 0,374239 1,000000
Data from Table 3 shows the statistically weak positive correlation between
the movement of transport activity indicators and the number of employees
in the Croatian transport system. Linear relationship between the number of
passenger kilometers and the number of employees is lower (r = 0.37; p <0.05)
than the linear relationship between the number of realized tonne-kilometers
and the number of employees (r = 0.45; p <0.5) . The results suggest that the
number of employees in the Croatian transport system does not depend signifi-
cantly on natural indicators of work. This means that the number of employees
in the transport system is still above the required number of employees, or that
the trend of reducing the number of employees in the transport sector will con-
tinue, regardless of the increase in transport activity natural indicators.
856
To determine the appropriate regression model for prediction of the number
of employees in the Croatian transport system up to 2025, a scatterplot was
made based on logarithmic values of the variables (number of employees-NE
and time-T).
Graph 4. Scatterplot, 1987-2012

Scatterplot: T v s. NE
NE = 5,3170 - ,3081 * T
Correlation: r = -,9165
5,12
5,10
5,08
5,06
5,04
5,02
5,00
NE
4,98
4,96
4,94
4,92
4,90
4,88
4,86
0,6 0,7 0,8 0,9 1,0 1,1 1,2 1,3 1,4 1,5 1,6
T 95% conf idence
Based on the diagram of dissipation a two-dimensional non-linear math-

ematical regression model form yi = axibei was selected. The model is linearized
by logarithmic transformation and in the concrete example the equation is:
log y = 5,317 – 0,3081 log x uz R = 0,916, F (1,24) = 126 p < 0,01. (1)
Graph 5 shows the comparison between the actual values and model pre-
dicted values of number of employees. A satisfactory suitability of model values
and the actual values is fairly obvious.
Chart 5. The comparison between the results of the econometric model and the
actual data for the number of employees in Croatian traffic system
857
Line Plot of multiple variables
Spreadsheet3 2v*30c
5,12
5,10
5,08
5,06
5,04
5,02
5,00
4,98
4,96
4,94
4,92
4,90
4,88
4,86
4,84 Observed
C:1 C:7 C:13 C:19 C:25 Predicted
C:4 C:10 C:16 C:22 Maximum
Based on the given model (1), an estimate of number of employees in Croa-

tian traffic system by 2025 was made (cf. Table 6).
Table 4. Estimate the total number of employees in traffic system by 2025

Year Number of employees
NE2012 76085
NE2017 73512
NE2019 72017
NE2021 70643
NE2023 69373
NE2025 68196
4. CONCLUSION
Over the last three decades in Croatia there was more than 52,000 jobs lost
in the transport sector. This negative trend is strengthened further by the eco-
nomic crisis. But despite this, transport is still a significant source of employ-
ment. In the Philippines, about 76 000 people were employed within the trans-
port system, or 5.4% of the total workforce. Further investment in the transport
sector cannot and will not contribute to solving the unemployment problem in
Croatia. In this paper a weak correlation between natural indicators of trans-
858
port activity and the number of employees in transport was proven, as well as a
limitation of the transport sector in the creation of new jobs. The main reason
for this lies in the fact that the traffic is more capital and less labor intensive
activity. The presented model could serve as a basis for calculating an estimated
number of employees in the transport sector. Estimated number of employees
in the Croatian transport sector has an slightly decrease of 10,4% by 2025.
Literature
[1] Croatian National Bureau of Statistics
[2] EC, 2012 Emloyment in the EU transport sector, www.transport-research.info (last ac-
cessed: February 10,2015.)
[3] Eurostat
[4] http://people.hofstra.edu [last accessed: June 12, 2014]
[5] Pupavac, D.: Principles of Transport Economics, Polytehnic of Rijeka, Rijeka, 2009.
[6] Rašić-Bakarić, I. (2013). Sektorske analize, Ekonomski institut Zagreb, (Sector Analy-
ses, The Institute of Economy in Zagreb) Year 2, No. 25.
859
APPLYING TRIPLE HELIX CONCEPT
TO DEVELOP WOOD SECTOR IN
VUKOVARSRIJEM COUNTY
Ivan Ambroš • Ivan Miškulin • Gabrijela Žalac: APPLYING TRIPLE HELIX CONCEPT TO DEVELOP WOOD SECTOR IN VUKOVAR-SRIJEM COUNTY
Ivan AMBROŠ M.Eng.

Vukovar-Srijem County Development Agency Hrast Ltd.,
Republic of Croatia
iambros@ar-hrast.hr
Ivan MIŠKULIN M.Eng.

Hypo Alpe-Adria-Bank JSC, Republic of Croatia
ivan.miskulin@hypo-alpe-adria.hr
Gabrijela ŽALAC M.Econ.

Vukovar-Srijem County, Republic of Croatia
gabrijela.zalac@vusz.hr
Abstract
Wood sector is important development sector in Vukovar-Srijem County. Ex-
isting resources of high quality raw wood material, tradition of wood processing
and good geographic location have potential for attracting investment, raising
competitiveness and increasing employment. This paper accentuates the neces-
sity of establishing strong collaboration between public, private and academic
sector in order to develop new technologies and new products with high added
value. After brief analysis of wood sector on national and regional level, basic
indices for establishing Triple Helix institution are given.
Keywords: Triple Helix, regional development, wood sector, Vukovar-Srijem
County
860
INTRODUCTION
Wood industry is an important segment of Croatian economy, which has
proven comparative advantages: high potential of domestic raw materials, po-
tential locations and relatively low investment in individual business processes
and programs. All that can be targeted and used for acquisition of competitive
skills necessary for sustainability in the market, which is characterized by grow-
ing competition and high requirements for suppliers of goods and services.
Croatian wood processing sector has a long tradition too. The first water-
powered sawmill was founded in 1428 and the first furniture factory in 1884.
The most known products were oak planks from Slavonian sawmills, which
was the most attractive product on the market (Motik; 2013, 3). Forests and
forest land makes 48% of Croatian territory, which is around 2,5 mil ha. Wood
industry and forestry generate 3% of Croatian GDP (Kavran; 2014, 95). Fur-
thermore, global demand for wood and wood products is expected to rise 3%
per year (Radoš; 2014, 163). Evidently, wood industry in Croatia has growth
potential, but for competitiveness on world’s level, new technologies and new
products with high added value are needed.
Vukovar-Srijem County is the eastern most Croatian county, covering an
area of 2448 km2, accounting for 2,8% of Croatian territory (VSŽ; 2011, 16).
Although it has an excellent geographical position and great potential in natural
resources (i.e., unique oak forests), Vukovar-Srijem County is one of the least
developed counties in Croatia (Singer et al.; 2014, 23).
Entirely forest areas (including famous Spačva basin with well known Slavo-
nian oak) cover 69.383 ha, which makes 28,7% of the county area. At this area,
the total wood stock is approx. 19 mil m3 with average wood stock 344.000
m3 of gross wood mass, managed by „Hrvatske šume“, Administration Vinkovci
(VSŽ; 2014, 2). These are solid foundations for further development of wood
industry towards final wood products, including furniture.
861
Table 1. Comparison of primary and secondary wood products and furniture
import and export
Production (mil. euro) Import (mil. euro) Export (mil. euro)
Primary and secondary

624,2 147,4 537,5
wood products
Furniture 437,8 224,1 281,0
Source: Motik, 2014, 4.
Besides high export of primary and secondary wood products comparing to

export of furniture shown in Table 1., many weaknesses were identified in stud-
ies and analysis of Vukovar-Srijem County wood-processing sector. Combined
with strenghts, opportunities and threats they are showed in SWOT analysis
in Table 2.
Table 2. SWOT analysis
STRENGTHS WEAKNESSES
• Available high quality basic raw materials • Export of high quality raw material
• Favourable geographic location • Old technology
• Long industry tradition • Manufacturing of products with low added value
• Possession of FSC certificate • Poor work productivity and high cost of
manufacturing
• Low share of research, development and innovations
in SME’s
• Underdeveloped infrastructure for technology transfer
and commercialization of innovation
• Poor market positioning
• Inadequate investment in sector promotion
OPPORTUNITIES THREATS
• Trend of usage of wood as ecological and renewable • Globalisation of the world market
raw material • Global financial crisis
• Higher demand for eco products at the developed • Price competition of low quality products from Asia
global markets • ‘Grey’ market in manufacturing furniture
• Possibility to use EU funds • Rise of the energy cost at the global market
• Decrease of production costs through using the
renewable energy resources (bio mass) and effective
energy management
• Gaining skills and life-long education
• Utilisation of KET technologies
• Development of products in accordance with
customers’ needs, providing designing and furnishing
services
• Investing into the development and design
implementation in order to develop brand of wood
industry
Source: Authors analysis.
862
Significant influence on resolving outnumbered weaknesses is expected from
research, development and innovation projects, which should be prepared and
implemented by Triple Helix institution. In resolving these weaknesses, Triple
Helix institution should use and target:
- industry: small and medium enterprises from wood sector and large com-
panies with development potential,
- university: education, scientific and research institutions,
- government: regional and local government units.
COMPETENCE CENTRE AND TRIPLE HELIX

CONCEPT
Competence Centres are legal entities that conduct research projects for de-
velopment or production and develop competencies in certain areas. Further-
more, competence centers are focused on development and applied research
and its commercialization, as well as supporting and strengthening intellectual
property rights in specific subject areas and branches of competence (Fleis-
chhaker et al.; 2008, 8).
In last 20 years Triple Helix developed into a widely accepted conceptual
framework which brings together knowledge, consensus and innovations of
three (or four) major social actors: university - government - industry (and civil
society) (Etzkowitz & Leydesdorff; 2000, 3). Therefore, Competence centre is
positive example of Triple Helix concept application, showed in Figure 1. which
emphasizes importance of communication and collaboration of all three enti- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
ties involved: university, industry and government - not just two of them.
863
Figure 1. Negative and positive application of Triple Helix concept
Source: Lawton Smith & Leydesdorff; 2012, 3.
Competence Centres have recently been recognized as an important instru-

ment for resolving the so-called European paradox - European Union, as one of
the leaders in the R&I with proven quality of human resources, can’t succeed in
converting innovations in market value.
University-industry-government
Faculty of Forestry, University of Zagreb and Croatian Forest Research In-
stitute have knowledge and research capacities that are not used in wood indus-
try as they should be. One of the Competence centres demanding task will be
to link wood industry with these research and innovation capacities in order to
fulfil its goals. Faculty of Forestry is strengthening and developing part of the
formal education related to technical and technological wood processing topics
(Šumarski fakultet; 2015). Croatian Forest Research Institute’s principle ob-
jectives are conservation and preservation of stability, productivity, biodiversity
and genetic resources of forest ecosystems, using natural rejuvenation and the
achieved level of sustainable forest management (Hrvatski šumarski institut;
2015).
Wood industry of Vukovar-Srijem County consists of wood processing
companies, mostly small and medium-sized enterprises, gathered in Vukovar-
Srijem County Wood Cluster. It is an association registered with the State
Administration Office in Vukovar-Srijem County as a nonprofit legal entity.
The association was founded with the aim of promotion, development and
864
improvement of wood industry in Vukovar-Srijem County and its mission is
to create new jobs and business opportunities in the region by fostering en-
trepreneurship in wood industry and facilitating SME’s internationalisation
activities. There are 25 members, including supporting institutions: Vukovar-
Srijem County, VSC Development Agency Hrast Ltd. and Wood Technical
Secondary School Vinkovci. VSC WC acts in close partnership with local and
regional government, national cluster organisations (Croatian Wood Cluster),
other SME intermediaries, service providers, research and knowledge institutes.
Wood Cluster of VSC is a member of Croatian competitiveness cluster of
wood-processing sector, within Ministry of Economy, Agency for Investments
and Competitiveness. (Vukovar-Srijem County Wood Cluster; 2015)
Vukovar-Srijem County as a regional government unit, together with its in-
stitutions and agencies, cities and municipalities will form strong base of Triple
Helix alliance.
COMPETENCE CENTRE FOR SLAVONIAN OAK

The main idea of establishing Competence Centre for Slavonian oak is to
provide a platform for the research and development in wood sector and to
encourage constantly developing competencies in this field. As Triple Helix
concept is based on cooperation between public, scientific and private sec-
tors, so should Competence Centre conduct scientific research and encourage
their commercialization in order to enhance competitiveness of business sector
(Fleischhacker et al.; 2008, 6).
General aim of the Competence Centre for Slavonian oak is set on: Starting
the positive trends in the timber industry and establishing technology platform
that will serve as a development support for wood-processing industry whose
main activities are based on the processing and using oak tree.
Competence Centre should:
- encourage cooperation between scientific community and entrepreneurs,
and promote development and applied research, to improve the level of in-
novation and commercialization and intellectual property protection,
- create a foundation for continuous transfer of technology and knowledge,
necessary for an active competition and strengthen the competitiveness of
the entities involved,
865
- provide entrepreneurs with advanced business support services in order to
improve the level of added value of their products,
- offer an answer to the previously identified problems especially in the
area of product development, improvement of production processes, ap-

plication of standards, development of human and organizational capital,
building brand and market position as well as application of new techno-
logical solutions.
In order to function and to be able to offer services, Competence Centre
should ensure a strong and stable base of scientists to launch research and also
build relationships and trust with entrepreneurs to test and apply the research
results. Aggravating circumstance is absence of university centre in the narrow-
er and wider area of Centre. This will be resolved by cooperation with Faculty of
Forestry from Zagreb University and Croatian Forest Research Institute from
Jastrebarsko – two most significant scientific and research institutions in for-
estry and wood technology sector in Croatia. Since the operation of the Com-
petence Centre directly depend on public funding, significant support will come
from Vukovar-Srijem County, Republic of Croatia and European Union.
Research and development are the starting points for future Competence
Centre. In order to formal organization become a Centre of Competence it is
necessary to ensure the preconditions for research and transfer of research re-
sults to companies within the wood sector.
Important result of operational functioning of Competence Centre will be
establishment of spin-offs. Therefore, the Competence Centre in collaboration
with Vukovar-Srijem County Development Agency and Technology Park, will
be a support institution for startup companies that are planning to set up in
wood sector. With these activities, Competence Centre will be connected to a
common idea for strengthening the competitiveness of the wood sector entities.
Therefore, special attention should be on creating content of Competence Cen-
tre for the application of alternative and smart materials, new technological solu-
tions in production processes and product design, adopting advanced production
technology and supporting innovations at all levels. Using new ICT technologies
should increase efficiency in the consumption of raw material, improving com-
munication throughout the production chain from primary products to the end
customer and provide adequate monitoring system for forest management and
logistics. Significant impact could have application of nanotechnology, too.
866
CONCLUSION
Wood sector in Vukovar-Srijem County has proven comparative advantages
and therefore biggest potential to boost development of the region - in accor-
dance with smart specialisation strategy.
To do that, wood sector as private sector, needs to overcome existing weak-
nesses, by applying Triple Helix concept and meeting universities and govern-
ment - establishing a Competence Centre for Slavonian Oak. Research, devel-
opment and innovation projects of Competence Centre should result in new
technologies and new products with high added value – crucial for the develop-
ment of wood sector and the region itself.
References
Etzkowitz, H. & Leydesdorff, L. (2000.). The Dynamics of Innovation: From National Sys-
tems And Mode 2 To A Triple Helix of University-Industry-Government Relations, Re-
search Policy. Available at:
http://www.google.hr/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CB8
QFjAA&url=http%3A%2F%2Fwww.uni-klu.ac.at%2Fwiho%2Fdownloads%2FEtzk.
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Zagreb
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868
HOW MEASURING CSR
PERFORMANCE IMPACTS CSR
RESULTS?
Cătălina CRIȘANMITRA, Ph.d.

(ROMANIA)
catalina.crisan@econ.ubbcluj.ro
Anca BORZA, Ph.d.

(ROMANIA)
anca.borza@econ.ubbcluj.ro
Abstract
CSR is a global phenomenon, which draws the attention of a growing num-
ber of partisans, both business people and consumers. Managers can use this
trend to their company’s benefit, to achieve sustainable development and to gain
the community’s sympathy. More and more companies are investing heavily in
philanthropic and environmental initiatives, demonstrating that CSR can no
longer be perceived as a simple cost made randomly and without a clear strat-
egy. To support the theoretical approaches deduced from the existing literature,
the authors have conducted an empirical qualitative research, with the aid of a
questionnaire sent out to top managers, HR managers and heads of CSR de-
partments within large companies that operate on the Romanian market. The
research is based on the analysis of 87 questionnaires and aims to highlight the
impact of social responsibility policies on the company’s results by detailing the
causal relationship between the instruments used to measure social performance
and the benefits achieved through CSR policies. The conclusions drawn have a
great relevance both theoretically and especially practically because they allow
the creation of a reference model of CSR efforts in a developing country such as
Romania where there is no clear framework to sustain these type of initiatives.
Keywords: CSR, social performance, measurement instruments, Romania
JEL Classification: E00, H10, M1
869
1. INTRODUCTION
Corporate social responsibility (CSR) is a phenomenon that emphasis how
future generations will be shaped, making top management to reconsider busi-
ness priorities. More and more companies are investing in CSR, demonstrating
that CSR is no longer seen to be just an operational cost or a restriction im-
posed by the law, being a source of competitive advantage and a process through
which the company’s performance can be increased (Porter and Kramer, 2006).
CSR tends to be extremely complex once we refer to the range of elements
that must be taken into account, namely: economic, legal, ethical and social
responsibility (Connolly, 1983) being perceived differently based on the inter-
est of the actors involved - consultants, shareholders, employees, consumers,
state authorities, etc.- which makes even more difficult for companies to choose
Cătălina Crișan-Mitra • Anca Borza: HOW MEASURING CSR PERFORMANCE IMPACTS CSR RESULTS
their approach towards CSR. Multiplicity of CSR standards led to a series

of structures, rules, procedures, processes, etc., aimed to guarantee corporate
performance in areas such as human rights, environmental standards, anti-cor-
ruption efforts, social involvement of stakeholders, with a tremendous influence
on corporate governance (Albareda, 2013; Jamali, 2010; Rasche, 2010; Nistor
and Beleiu 2015). Social responsibility practices tend often to constrain a firm’s
actions, because the company must comply with ethical and moral principles –
that are not always in the company’s financial interest (Wickham, 2001).
Even if the purpose of implementing CSR policies is to obtain further ben-
efits, a firm is rarely criticized for social involvement, but the situation changes
once a company will remain eternally indifferent to such practices (Vander-
Werf and Brush, 1989). As long as the company’s actions have also a negative
impact on society and environment, CSR play a major advocacy role in this re-
lation with external environment, strengthening the relationship with external
stakeholders, sometimes finding their true allies in augmentation of company’s
legitimacy (Gray et al., 1996).
Social responsible policies are beyond business interests and requirements
imposed by law (McWilliams and Siegel, 2001, p. 117), but what becomes less
obvious, are economic and moral reasons that determine social and environ-
mental actions. Husted (2005, p. 177) notes that CSR is a form of investment
and a reaction beyond the rigors of economic, technical and legal restrictions,
which is meant to provide social and economic benefits.
870
Considering that responsible behaviour can no more be neglected by large
companies that want to achieve sustainable competitive advantage, we do con-
sider that providing insights of how companies should evaluate their respon-
sible activity and actions, provides useful recommendations to large companies
that want to use CSR not only in beneficiaries interest but also in companies
interest. Thus, this article wants to underline the relation between some indi-
cators used by large companies that operate on Romanian market, to measure
CSR and the benefits of this on their performance. In the next part we will how
CSR performance should be reflected with the purpose to present a perspective
about the implications of CSR measurement indicators used to evaluate social
performance.
2. IMPLICATIONS OF CSR MEASUREMENT

Social responsibility performance measurement represents an appealing
topic that captured numerous researchers and practitioners attention, willing to
provide answers about how CSR impacts company’s performance at economi-
cal, social and organizational level (Lindgreen & Swan, 2010).
It has been noted that long-term well consolidated CSR strategies, have a
beneficial impact on financial performance, strengthening company’s ability to
achieve competitive advantage, as a result of an increased interest on company’s
products and services (Mishra and Suar, 2010; Smith, 2010). Understanding
the importance of this phenomenon makes extremely important the implemen-
tation of social and environmental standards within company’s daily activity.
CSR leads to remarkable results not only in the benefits of the company,
but also in the society’s interest. Colle et al. (2014) identified numerous ben-
efits arising from the implementation of CSR standards such as (1) developing
frameworks for principles and values within the company, (2) reduce confusion
through an universal language, methodology and common practices, (3) facili-
tates stakeholders involvement, (4) provides the premises for change, (5) raise
companies’ awareness and (5) determine employees to become more respon-
sible. Nevertheless, in the absence of explicit models to quantify non-eco-
nomical results, there is a high risk that companies effort become overlooked
(Nelson, 2007).
A widely accepted opinion is given by the need for social responsible and
sustainable models (Visser, 2013; Egbeleke, 2014), to facilitate companies
871
struggle to achieve a performing management in a sustainable manner. Through
social performance measurement system, a large number of companies evaluate
CSR performance from a cost-benefit perspective (Barnett and Salomon 2006)
by establishing clear instruments and frameworks meant to ensure the trans-
parency with the major stakeholders (European Commission, 2011; Corpo-
rate Citizenship, 2012; Egbeleke 2013). CSR leads to programs development,
designed to raise operations carried out within the value chain (Porter and
Kramer, 2006), actively influencing companies involvement to find new frame-
works and reporting methods for the achieved results (Egbeleke, 2013) as well
as finding relevant models that can rise performance in the field (Katsoulakos
& Katsoulacos, 2007; Visser, 2013).
Over time there have been numerous proposals of how to measure sus-
tainable performance and Corporate Social Performance Model, Triple Bot-
tom Line, Bottom of the Pyramid, the Strategic Concept of CSR, CSR DNA
model are some of the most relevant and frequently named. Measuring CSR
performance, often becomes a challenge because of the lack of consistency of
social and environmental actions that are not always properly integrated into
the overall strategy of the company and do not take into account stakeholder
engagement in the process (Visser, 2013). Thus, Nelson, (2003) recognized the
need for an efficient knowledge management process, that would enable compa-
nies to develop rules and regulations, with the role of guiding them due to their
struggle for sustainable development. This can never occur without a coherent
strategy to sustain the information system that streamlines the procedure of
collecting, processing, storing and making knowledge available to the users.
The procedures used to measure CSR, underlines its role in overall compa-
nies’ values reinforcing the idea that those corporations that have a CSR based
strategy, use complex frameworks to benchmark social and environmental
practices, having a direct influence on companies’ performance. In the next sec-
tion we underline the results of our research that means to address this topic,
by observing how measuring CSR impacts the main benefits perceived by the
company.
3. RESEARCH METHODOLOGY
Researchers using various methodologies have reached different conclusions
about the influence of CSR on financial performance, identifying a positive rela-
872
tion (Lee, Leo and Sharma 2013), or no significant influence (Aguinis and Gla-
vas 2012; Margolis et al. 2009; Renneboog et al. 2008). This study is designed
to highlight the most important CSR benefit perceived by large companies that
operate in Romania, and to propose a model that comprises the most important
instruments that enable companies to reach high CSR performances. Also, we
will present the most relevant instrument, that should be considered to reflect
CSR performance and the type of relation established between these instru-
ments and benefits perceived by the company.
The research is based on the analysis of 87 questionnaires, and the re-
spondents were top managers, HR managers and heads of CSR departments
within large companies that operate on Romanian market. The implementa-
tion process took place from November to January 2015, and has reached 1146
large companies operating on Romanian market, via e-mails. We got 87 valid
answers and a response rate of 13.17%. Although this is a low percentage
due to the topic addressed, the results can be very well generalized and
clear strategies might be highlighted.
The hypotheses established were the following:
H1: There can be identified at least two different typologies of companies:
one that associate CSR with a complex phenomenon that has major influence
on companies activity, at different levels and another that strongly relates CSR
benefits with a financial results.
H2: There is a causality relation between the instruments used to measure
social performance and major benefits perceived by company.
The limits of this study is given by the small number of respondents, which
stems from the method used to disseminate the research instrument, the low
availability the respondents to fill in the questionnaire, the lack of readiness and
of social awareness, and the difficulty of finding suitable respondents to provide
reliable answers.
4. RESULTS INTERPRETATION
With the purpose of transforming descriptive results in groups of variables
that characterize the main dimension of CSR benefits, as well as understanding
the correlation between analyzed variables, we have performed factorial analy-
ses. The KMO indicator is 0,711, and the Total Variance Explained formed
873
three factors that explain 76,654% of the model variation (V1=55,571%;
V2=13,519%; V3=7,395%). The variables components of the three factors
describe three different typologies of CSR benefits. First factor emphasizes a
complex perspective on the CSR results on companies’ activities, and under-
lines the idea that CSR influences all major components of a business. If CSR
becomes a core value in companies’ strategy, it can become a major instrument
used to reach higher performances and sustainable competitive advantage. The
second factor obtained, describes CSR benefits from a financial perspective that
leads to efficiency in terms of costs and higher returns, meaning that between
CSR results and financial results is a causality relation. The third factor de-
scribes that CSR provides the perspective of a stable and secure company that
attracts new investors and facilitates the access to alternative sources of finance.
Benefits provided by CSR practices, depend on how each company manage and
develops them, and how big importance it is attributed to them. Following a fac-
tor analysis, we identified the most important variables that registered the high-
est value in each dimension. Thus, we have obtained three variables as follows:
Fact. 1: Expanding relations with civil society = 996; Fact. 2: Increase market
share = 0.991; Fact. 3: Attracting potential new shareholders in the company.
To identify the correlations between the instruments used to measure CSR
and the most important benefits provided by it, in company’s interest, at the
level at each factor, we chosen those variables that registered the highest value.
The reason for doing this was to explain how measuring CSR can influence the
most important benefits identified at the level of each typology. The instruments
considered as independent variables were: “return of socially responsible invest-
ments – SRI”, “companies’ contributions to local community”, “measurements
used to evaluate sustainable development (ex. GRI Standards)”, “procurement
practices used (ex.compliance of business partners/suppliers with company’s
code of ethics)”, “consumer education process promoted by the company” and
“litigation due to fraud and false advertising”.
After including the factors identified to create a linear regression model,
resulted that “expanding the relations with civil society”, increases as the com-
pany contributes to the development of the community, as measures used to
commensurate the sustainable development within the company intensifies, as
companies focuses more on customer education and pay attention to procure-
ment practices used (see table 1). Among the variables considered, sustainable
874
development (Xi2) has the highest contribution in establishing a good relation
with civil society.
The statistical formula of linear regression is: Y=1.188+0.446*Xi1
+0.615*Xi2 +363* Xi4+ 0.454* Xi5.
Table 1. Coefficients- Expanding the relation with civil society

Unstandardized Standardized
Model Coefficients Coefficients t Sig.
B Std. Error Beta
(Constant) 1.188 .297 4.000 .000
Return of Socially Responsible Investments - SRI -.021 .079 -.022 -.269 .788
Company contributions to local community, .446 .100 .488 4.444 .000
community rights, jobs creation etc.
Company sustainable development .615 .149 .551 4.133 .000
Procurement practices .363 .107 .336 3.388 .001
Consumer education process promoted by the .454 .090 .506 5.069 .000
company.
Litigation due to fraud and false advertising. .181 .109 .201 1.666 .100
Dependent Variable: Expanding the relation with civil society
It is noted that the variation model represents, approximately, the test value
F = 27.768 and the value of materiality is p = 0.000, where p <0.01, demon-
strating that the variation explained by the model is not random but is influ-
enced by the considered factors. The intensity of the bond established between
the model and the dependent variable, where R = 0.849, that indicates a linear
correlation between the values observed of high intensity.
The identified linear regression after variable analysis lead to underline
which of them contributes significantly to the growth of market share; we ob-
served that if company puts more focus on investments with social impact, con-
tributes directly to community development and thus is drawn into a process
of sustainable development, being focused on procurement practices but not
neglecting the correct information of consumers; the result is a growing mar-
ket share. Among variable taken into account, “company’s contribution to local
community development and respect of human rights”- (Xi2) and “procure-
ment practices” – (Xi3) had the greatest contribution in obtaining the analyzed
benefit in direct relation with the others identified factors.
875
+0.544*Xi2 +0.553* Xi3+0.441* Xi4.
We observe that the variation of the model represents, approximately, the
value of test F=22.696 and the value of the materiality is (p) = 0.000, where p
< 0.01; this demonstrates the fact that the variation explained by the model is
not random but determined by the factors taken into consideration. The bond
strength between the model and dependent variable is underline by the value
of R = 0.824, indicating a linear correlation of high intensity between observed
values and the ones predicted with the model.
The linear regression identified allowed us to observe the variable that con-
tribute most in attracting new potential shareholders in the company. We ob-
served that out of variables considered, only procurement practices, contribute
significantly to the company’s reputation.

It is noted that the variation model is approximately, test value F = 8.163
and materiality is p = 0.000, where p <0.01, demonstrating that the variation
explained by the model is determined by the factor considered. The inten-
sity correlation between the model and the dependent variable (where R =
0.658), indicates a linear correlation between the value observed and the
one projected using the model.
5. CONCLUSIONS
The company’s willingness to invest in CSR is influenced by values, princi-
ples that govern not only the future strategy of the company, but also its market
approach that provides the foundations for CSR practices. Through this article
we wanted to observe the causality relation between measuring CSR and major
benefits perceived. Companies might see in CSR a powerful instrument to in-
crease performance, by investing in new business practices that are less noxious
to society and environment. Therefore knowing how certain factors contribute
positively to the development and growth of the company, is essential as the
existing trends impose clear variations between factors and their power of in-
fluence. Any company aims to ensure its continuity on the market and to reach
profitability, that is why CSR gets to play a major role not only in the fulfilment
876
of this mission, but also in strengthening and developing the company’s organic
growth, making the research of this process to become eminently necessary.
This study highlights three different types of companies that assign different
contributions to CSR. A first typology confer to CSR a major role that impacts
companies key activities, a second that identifies a direct relationship amongst
CSR and costs and benefits involved and a third that underlines that CSR may
influence the decision of investors to place their capital in socially responsible
companies.
The article offers insight into how major companies operating in Romania
can use several tolls that address social responsible behaviour, in companies in-
terest, by providing the calculation methods that should be used to reach higher
benefits. Using instruments considered relevant for measuring the impact of
CSR requires an increased attention to those aspects which influence signifi-
cantly companies perception about the benefits provided by CSR, allowing
prioritization and focus on activities that contribute significantly to the devel-
opment of the company. Nevertheless, instability and uncertainty that charac-
terizes our economic times force companies to think twice when it comes to
investments, by prioritizing them. This article wants to sustain companies in
their struggle to reach efficiency and sustainable development.
Acknowledgment: This work was co-financed from the European Social
Fund through Sectorial Operational Programme Human Resources Devel-
opment 2007-2013, project number POSDRU/159/1.5/S/134197 „Perfor-
mance and excellence in doctoral and postdoctoral research in Romanian eco-
nomics science domain”. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
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ECONOMIC GOVERNANCE AS
A TRIGGERING FACTOR FOR
Ioana Sorina Mihuţ: ECONOMIC GOVERNANCE AS A TRIGGERING FACTOR FOR ECONOMIC CONVERGENCE ACROSS THE EUROPEAN UNION ...
ECONOMIC CONVERGENCE
ACROSS THE EUROPEAN UNION
MEMBER STATES
Ioana Sorina MIHUŢ, Ph.D.

Babes-Bolyai University, Faculty of Economics and Business
Administration, Cluj-Napoca, Romania
ioana.mihut@econ.ubbcluj.ro
Abstract
The primary objective of the this paper is to investigate the process of con-
vergence/divergence of the member states of the European Union taking into
consideration the high degree of heterogeneity that characterizes these econo-
mies. On the one hand, there are the western economies with a high level of
development and increased values associated with the GDP/capita variable,
and on the other hand, we have the Central and Eastern economies which
are emerging economies with markets that are characterized by a high level
of volatility. Moreover from the 28 member states of the European Union,
19 countries currently use the euro as their national currency, Denmark and
Great Britain benefit from the opt–out clause and the remaining seven coun-
tries are orientating their strategies towards achieving the euro zone member-
ship. This paper focuses upon some contemporary aspects regarding the evolu-
tion of economic governance indicators as triggering factors for the process of
convergence/divergence between the member states of the European Union. In
recent years, achieving a sustainable degree of convergence has constituted one
of the primary objectives of the national and the supra-national institutions in
the economic governance area.
Keywords: Economic and Monetary Union, economic governance indicators,
sustainable convergence, economic disparities, macroeconomic policies
JEL Classification: O12, O43
880
1. INTRODUCTION
Even though the process of convergence/divergence between the member
states of the European Union is a subject of high interest nowadays taking into
consideration the economic and political transformations that characterize this
structure, the gaps between countries not only continue to exist but even to accen-
tuate. The economic convergence may be considered one of the most important
instruments used by the community policies and the total funds orientated to-
wards reducing the disparities between the member states of the European Union
are situated at a total value of 47% of the funds within the 2014-2020 perspec-
tives. All these constitute important arguments in favour of the research area.
The process of convergence before the recent economic crisis was based upon
a strong liberalization of trade, capital flows and capital markets. The comple-
mentary element of this liberalization triggered an intensification of the degree
of openness; the final result of these actions may be quantified by an increase
of the GDP/capita. The performances of the member states of the European
Union during the recent financial crisis may constitute an alarm signal upon
the need to reconsider the economic governance models. In order to identify
the most efficient solutions there is a clear need for a strong interconnection
between the national and supra-national institutions. The measures developed
in order to reduce the values associated to the budget deficits and public debt
proved to be inefficient in that context; moreover generating negative effects
upon the GDP growth rates and the employment rates. Maintaining the fis-
cal policy within the optimum parameters represents one of the main objec-
tives of the Growth and Stability Pact. Furthermore the European Commission INTERDISCIPLINARY MANAGEMENT RESEARCH XI
(2000) argues in favour of a budgetary discipline: `Àssuring a stable position in
what concerns public finances is essential concerning the output growth but also the
population growth rate. Low rates associated to the budget deficit and public debt
allow maintaining some stable exchange rates and even more importantly constitute
an important pillar for controlling inflation rates``(European Commission Re-
port 2000).The measures regarding financial consolidation developed by the
national authorities of the member states required a cumulative effort from the
European institutions. These efforts were materialized by a series of structural
reforms aimed at improving the fiscal performances of the member states. An
example in this concern is the EU Directive upon the budgetary framework of
the member states that include a greater transparency in what concerns the gov-
ernment reports, the consistency of the budgetary discipline taking into con-
881
sideration the Maastricht treaty criteria and also budgetary frameworks that
includes the business cycles.
In what concerns the research question of this article it may be summarized

such as: Are the EU member states with high levels associated to the GDP/
capita register high values associated to the economic governance indicators?
The remainder of the paper is organized as follows: section 2 presents a
short review of the most relevant studies in the field, section 3 presents some
stylized facts concerning the evolution of the economic governance indicators
across EU member states, section 4 presents some general conclusions and pol-
icy implications.
2. STATE OF THE ART  CONTRIBUTIONS TO

THE AREA OF RESEARCH
A frequent question within the macroeconomic theories is the one refer-
ring to what triggers the interest of economists in the analysis of the process of
convergence between economies? The answer to this question may be argued
by a series of definitions developed in respect to this topic. One is developed
by Barro and states that: “The convergence property derives from the neoclassical
models of economic growth. The economies that register less volatile levels in what
concerns capital/worker tend to register high growth rates high return rates”.
The most relevant papers that investigated the aspects related to the process
of convergence between economies were the ones developed by Barro (1991),
Barro and Sala-I-Martin (1992) and Mankiw, Romer and Weil (1992) that
added the human capital as an important factor in modelling economic conver-
gence and growth. The models elaborated by these authors tested the existence
of convergence between economies using as a starting point the interconnection
between the dependent variable the level of GDP/capita and the initial GDP/
capita, the technological progress, population growth, human and physical capi-
tal as explicative variables. Although the process of convergence benefit from a
privileged approach within the recent years, there are a series of interpretations
and empirical results in respect to this concept. Therefore, different classifica-
tion may be used when referring to this process: a) Sigma and Beta convergence
(Quah 1993 and Friedman 1992); Absolute vs. conditional convergence (Barro
882
and Sala-I-Martin (1992), Islam (1995), Coulombe (2003); Global vs. regional
convergence studied by Baumal (1986), Chatterji (1992), Dowrick (2001).
The national along with the supra—national institutions aim at achieving
a sustainable degree of convergence across European Union member states in
what concerns the economic governance framework . All the fiscal restrictions
imposed by the authorities during the recent financial crisis deepened even
more the recovery process. Paul Krugman (2010) considered that the European
economic governance system during the recent financial crisis being based on
unrealistic methods of diagnosis provided unsustainable solutions. During the
French-German summit from 2012 were established the new pillars of the Eu-
ropean economic governance that include: surveillance, discipline and budget-
ary rigour. The new economic governance model incorporates some important
elements like: expanding the monitoring process in the area of macroeconomic
imbalances and the improvement of the early warning mechanism for the ex-
cessive budget procedure; enhancing surveillance in the euro area and financial
assistance programs; increasing responsibility in what concerns the budget de-
velopment and a new fiscal pact. Moreover the primary objective of the Euro-
pean Union Cohesion policy concentrates upon reducing differences between
the development levels of the member states.
Kaufmann, D. et al. identified in 2010 a set of indicators that allow the
analysis of the governance process between countries. These indicators include:
a. Voice and accountability; b. Political stability and the absence of Violence/
Terrorism ; c. Government effectiveness; d. Regulatory quality; e. Rule of law; f.
Control of corruption (Kaufmann, D. et al, 2010). INTERDISCIPLINARY MANAGEMENT RESEARCH XI
3. STYLIZED FACTS
In order to evaluate whether the member states with the highest GDP/
capita have also the highest values associated to the economic governance in-
dicators we will present an evolution of these main indicators. The sample of
data consists of the 28 European Union member states and the used variable is
GDP per capita (current US$). The data source is World Bank and the refer-
ence years are 2000 (as initial year) and 2012. In what concerns the economic
governance indicators we used voice and accountability, political stability and
absence of violence/terrorism, government effectiveness, regulatory quality, rule
of law and control of corruption. The data source is World Bank and the refer-
883
ence year is 2012. All indicators varies between -2,5 (weak) and 2,5 (strong)
regarding the government performance.
Table 1. Initial vs. current GDP growth rates

Rank in
GDP 2012
Country (EU28) Indicator 2000 2012 growth rate according to
2012/2000 the value of
GDP/capita
Austria GDP per capita (current US$) 24517,267 48348,232 1,972007369 6
Belgium GDP per capita (current US$) 23151,936 44827,663 1,936238217 8
Bulgaria GDP per capita (current US$) 1634,4247 7198,0456 4,404024141 28
Croatia GDP per capita (current US$) 4919,6281 13234,622 2,690167138 24
Cyprus GDP per capita (current US$) 13421,655 26352,271 1,963414378 14
Czech Republic GDP per capita (current US$) 5994,5283 19670,403 3,281392915 19
Denmark GDP per capita (current US$) 30743,559 57636,125 1,874738217 2
Finland GDP per capita (current US$) 24253,25 47243,738 1,947934272 7
France GDP per capita (current US$) 22466,173 40908,271 1,82088289 11
Germany GDP per capita (current US$) 23685,351 43931,692 1,854804355 9
Greece GDP per capita (current US$) 11960,673 22494,413 1,880697943 15
Hungary GDP per capita (current US$) 4613,7058 12784,296 2,770938618 26
Ireland GDP per capita (current US$) 26100,665 48391,326 1,854026509 5
Italy GDP per capita (current US$) 20059,214 35132,192 1,751424134 12
Latvia GDP per capita (current US$) 3308,5124 13946,966 4,215479464 23
Lithuania GDP per capita (current US$) 3267,3474 14172,281 4,337549488 22
Luxembourg GDP per capita (current US$) 48826,546 106022,8 2,171417154 1
Malta GDP per capita (current US$) 10377,037 21129,983 2,036224996 17
Netherlands GDP per capita (current US$) 25958,153 49128,087 1,892587933 4
Poland GDP per capita (current US$) 4488,0863 12876,463 2,869031973 25
Portugal GDP per capita (current US$) 11502,397 20732,614 1,802460321 18
Romania GDP per capita (current US$) 1662,2175 8437,4338 5,076010603 27
Slovak Republic GDP per capita (current US$) 5402,0375 17151,24 3,17495762 20
Slovenia GDP per capita (current US$) 10227,33 22488,444 2,198857837 16
Spain GDP per capita (current US$) 14787,756 28992,642 1,96058428 13
Sweden GDP per capita (current US$) 29283,005 57134,077 1,951100202 3
United Kingdom GDP per capita (current US$) 26296,448 41053,745 1,561189733 10
Estonia GDP per capita (current US$) 4069,8802 17102,249 4,202150587 21
EU 28 15606,39 32090,08 2,056214954
GDP per capita (current US$)
(AVERAGE)
Source: Author calculation based on Worldbankdata.org
884
Analyzing the evolution of the GDP/capita in 2000 and 2012 but also the
growth rates of this indicator we may conclude the fact that the countries with
the highest values are Luxemburg, Denmark, Sweden and Netherland at the
opposite pole being situated Poland, Hungary, Romania and Bulgaria. We may
notice the fact that taking into consideration this indicator the old member
states of the European Union form a homogenous group and converge one an-
other in terms of GDP/capita while the new member states of the European
Union diverge from the EU average in terms of GDP/capita. Moreover this
group of states diverge from the EU average considering the GDP/capita. Fur-
thermore we are interested to analyze whether the countries that register high
values of the GDP/capita register also high rates of associated to the economic
governance indicators? May the quality of institutions be considered a trigger-
ing factor for convergence or not?
Table 2. Evolution of the voice and accountability indicator in 2012 across Eu-
ropean Union (28) member states
Source: Author interpretation based on World Bank data.
Analyzing the evolution of the voice and accountability indicator in 2012 we

may conclude that countries like Denmark, Luxembourg or Netherlands reg-
ister high values while at the opposite pole are situated countries like Bulgaria
or Romania.
885
Table 3. Evolution of the political stability and the absence of violence/terror-
ism indicator in 2012 across European Union (28) member states
In what concerns the political stability this indicator is an important aspect

taken into consideration in countries like Austria, Luxembourg or Finland,
Greece being the only country in 2012 that registered a negative value for this
indicator.
Table 4. Evolution of the government effectiveness indicator in 2012 across

European Union (28) member states
The government effectiveness constitute one important objective taken into

consideration by the national authorities from Denmark, Netherlands or Fin-
land and at the same time Romania was the only country in 2012 that regis-
tered a negative value for this indicator.
886
Table 5. Evolution of the Regulatory quality in 2012 across European Union
(28) member states
The countries with the highest values associated to the regulatory quality in-
dicator are Denmark, Netherlands or Slovenia, this aspect being one important
component of the national strategies for assuring a stable political environment.
Table 6. Evolution of the rule of law in 2012 across European Union (28)
member states
The rule of law, component of the political criteria a state should fulfil before
becoming a European Union member, constitute a basic strategy in countries
like Sweden, Finland or Netherlands, Bulgaria being in this case the only coun-
try with negative values.
887
Table 7. Evolution of the control of corruption indicator in 2012 across Euro-
pean Union (28) member states
Regarding the control of corruption indicator, countries like Denmark, Fin-

land or Ireland may be considered reference countries in what concerns the
measures developed by the national authorities in order to align to the gen-
eral standards imposed by the European Union for assuring a stable political
framework.
4. CONCLUSIONS AND FUTURE PERSPECTIVES

The recent financial-economic crisis determined a series of challenges for the
decision makers across EU member states. The fiscal regulations, the separa-
tion of the monetary authority by the fiscal one constituted important topics
addressed during the international forums on economic topics but not only.
Highlighting the importance of assuring economic stability during the crisis
imposed to the European authorities some clear boundaries regarding the mac-
roeconomic stability and the distributive policies. A frequent question in the
context of the current architecture of European Union is related to the need
to develop a political union that would support the existing monetary union.
Despite all that, from a fiscal perspective this union implies besides a central
budget, the mutual participation of the states in the management of the activi-
ties required at this level. In the absence of a political union, the member states
rely on specific stabilizers that would automatically harmonize their interests.
The analysis of the economic governance indicators from the previous section
revealed the fact the quality of governance proves to be an important aspect for
countries like Denmark, Sweden or Netherlands counties that register at the
888
same time the highest values associated to the GDP/capita. On the other hand
the countries from the ex-communist block tends to register lower or in some
cases negative values for these indicators. Romania and Bulgaria, the countries
with the lowest values of GDP/capita in 2012, are confronting with massive
shortcoming in what concerns the government effectiveness corroborated with
the control of corruption, aspects that influence in a negative way the quality of
the economic governance process. From this point of view, we may conclude the
fact that the countries with a highest value of GDP/capita register also highest
value in what concerns the economic governance indicators and convergence
one another forming a homogenous group while the countries with lowest val-
ues of the GDP/capita register in some cases negative values of the economic
governance indicators diverging form the EU average.
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890
PROGRESS ASSESSMENT ON
RENEWABLE ENERGY ACROSS THE
EUROPEAN UNION: POTENTIAL
AND CHALLENGES OF REACHING
THE TARGETS OF THE 2020
HORIZON
Marcel PIRVU, Ph.D. candidate

Faculty of Economics Babes-Bolyai University,
Cluj-Napoca, Romania
marcel.pirvu@yahoo.com
Abstract
This paper is trying to offer an overview on EU member states’ efforts to
comply with the 2009/28/EC Directive and to reach the targets set for 2020.
We have discussed regulatory framework, support instruments and investment
incentives, and reviewed the development potential of renewable energy sources
across the EU and the challenges they have to face in order to be a sustainable
alternative to hydrocarbons. Conclusion is a balance sheet of problems spotted
and the potential that needs to be exploited for the strategic objectives to be met.
Abbreviations: SED – Sustainable Energy Development, RES – Renewable
Energy Sources, EU – European Union, NREAP - National Renewable En-
ergy Action Plan, EC – European Commission, UNDP - United Nations
Development Programme, REN21 – Renewable Energy policy Network for
the 21st century;
Keywords: renewable energy, sustainable development, energy strategy, en-
ergy security.
JEL Classification: O13, Q01, Q28, Q42
891
1. INTRODUCTION
Traditional energy resources are not sustainable for future development
of the global economy, this idea has turned into an axiom as countless stud-
ies have proven that we will eventually run out of fossil fuels if current energy
Marcel Pirvu: PROGRESS ASSESSMENT ON RENEWABLE ENERGY ACROSS THE EUROPEAN UNION: POTENTIAL AND CHALLENGES ...
consumption behaviours do not change. In order to save these resources, we

must address our needs to other sources that can be regenerated in a short pe-
riod of time, the renewable energy sources. By renewable energy, the European
Commission means, as stated in an official press release issued on January 31st
2011: “renewable sources include wind power (both onshore and offshore), so-
lar power (thermal, photovoltaic and concentrated), hydro-electric power, tidal
power, geothermal energy and biomass (including biofuels and bio liquids). As
alternatives to fossil fuels, their use aims at reducing pollution and greenhouse
gas emissions. Another role of renewable energy is the diversification of our
energy supply, with the potential to reduce the dependence on oil and gas.” (Eu-
ropean Commission, 2011).
2. LEGISLATION FRAMEWORK FOR

SUSTAINABLE ENERGY DEVELOPMENT
.. SED – a new emerging paradigm of the energy industry
According to (Davidsdottir et al.; 2015, p392), SED is a new emerging
paradigm of the energy industry that is aiming to reduce negative effects on
the environment and our health, whilst also ensuring or increasing access to
energy, affordability as well as energy security and efficiency of use. Although
it requires a much wider assessment, SED is primarily related to renewable en-
ergy resources. RES are a necessary but not a sufficient requirement for SED
(UNDP; 2002, p34).
.. Energy security provided by energy independence

Although SED is a very important strategic objective, the implementation
of a RES-based energy industry also comes as an imperative for assuring energy
security of EU member states. Energy security, as an important part of national
security (Băhnărean; 2010, p10) is a key geopolitical tool that ensures a coun-
try’s ability to supply a bigger share or even total energy needs from domestic
production, thus limiting dependence on imports and implying stable prices, es-
892
pecially with a fossil fuel market that has a very large price volatility. For the mo-
ment, the European Union uses mainly fossil fuels and has a high dependency
on imports, especially oil and gas from the Russian Federation, and still holds a
tendency of increasing its import dependence on the long run if no changes are
to be made (Colesca & Ciocoiu; 2013, p149). According to Eurostat, “energy
dependence shows the extent to which an economy relies upon imports in order
to meet its energy needs. The indicator is calculated as net imports divided by
the sum of gross inland energy consumption plus bunkers.” For 2013, energy
dependence figures for EU member states are pictured in Figure 1. EU28’s en-
ergy dependence for 2013 was 53,2, close to the average, but countries like Cy-
prus, Luxembourg and Malta have very high values (over 96). The most energy
independent EU member states seem to be Romania, Denmark and Estonia.
Figure 1 Energy dependency of EU member states in 2013
Source: Eurostat, Energy dependence (tsdcc310), 2015.
.. Legislation framework setting the  objectives

In order to ensure and enforce orientation towards SED, policy-makers have
to conceive regulations and set clear targets to be met: diversification of energy
sources by increasing investments for RES yielding and a tighter control on
consumption through energy efficiency (Zamfir; 2011, p36). The EU, through
893
the European Commission started its renewable energy policy in 1997 with the
adoption of the White Paper, and legislation framework was established by the
2001/77/EC and 2003/30/EC Directives with targets set for 2010 and later
on, Directive 2009/28/EC targeting 2020. The latter sets mandatory goals re-
garding energy efficiency and a EU overall share of renewable energy consump-
tion in total energy consumption of 20% by 2020 (Table 1). In reaching this
strategic objective, each member state has received a individual target, according
to the specifics of local energy markets, as well as a common target of 10% share
of renewable energy for the transport sector.
Table 1 Share of RE in gross final energy consumption - 2004-2013 evolution
and 2020 targets
GEO/TIME 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2020 Target
EU28 8,3 8,7 9,2 10,0 10,5 11,9 12,5 12,9 14,3 15,0 20
Belgium 1,9 2,3 2,7 3,4 3,8 5,2 5,7 6,1 7,4 7,9 13
Bulgaria 9,5 9,4 9,6 9,2 10,5 12,2 14,1 14,3 16,0 19,0 16
Czech Republic 5,9 6,0 6,4 7,4 7,6 8,5 9,5 9,5 11,4 12,4 13
Denmark 14,5 15,6 15,9 17,8 18,6 20,0 22,0 23,4 25,6 27,2 30
Germany 5,8 6,7 7,7 9,0 8,5 9,9 10,4 11,4 12,1 12,4 18
Estonia 18,4 17,5 16,1 17,1 18,9 23,0 24,6 25,5 25,8 25,6 25
Ireland 2,4 2,9 3,1 3,6 4,1 5,1 5,6 6,6 7,3 7,8 16
Greece 6,9 7,0 7,2 8,2 8,0 8,5 9,8 10,9 13,4 15,0 18
Spain 8,3 8,4 9,2 9,7 10,8 13,0 13,8 13,2 14,3 15,4 20
France 9,4 9,6 9,5 10,3 11,2 12,3 12,8 11,2 13,6 14,2 23
Croatia 13,2 12,8 12,8 12,1 12,1 13,1 14,3 15,4 16,8 18,0 20
Italy 5,6 5,8 6,4 6,4 7,3 9,1 10,5 12,1 15,4 16,7 17
Cyprus 3,1 3,1 3,3 4,0 5,1 5,6 6,0 6,0 6,8 8,1 13
Latvia 32,8 32,3 31,1 29,6 29,8 34,3 30,4 33,5 35,8 37,1 40
Lithuania 17,2 17,0 17,0 16,7 18,0 20,0 19,8 20,2 21,7 23,0 23
Luxembourg 0,9 1,4 1,5 2,7 2,8 2,9 2,9 2,9 3,1 3,6 11
Hungary 4,4 4,5 5,1 5,9 6,5 8,0 8,6 9,1 9,5 9,8 13
Malta 0,1 0,2 0,2 0,2 0,2 0,2 1,0 1,4 2,7 3,8 10
Netherlands 1,9 2,3 2,6 3,1 3,4 4,1 3,7 4,3 4,5 4,5 14
Austria 22,7 23,9 25,5 27,5 28,4 30,3 30,8 30,9 32,1 32,6 34
Poland 6,9 6,9 6,9 6,9 7,7 8,7 9,2 10,3 10,9 11,3 15
Portugal 19,2 19,5 20,8 21,9 23,0 24,4 24,2 24,7 25,0 25,7 31
Romania 17,0 17,6 17,1 18,3 20,5 22,7 23,4 21,4 22,8 23,9 24
Slovenia 16,1 16,0 15,6 15,6 15,0 19,0 19,3 19,4 20,2 21,5 25
894
Slovakia 5,7 5,9 6,3 7,6 7,7 9,3 9,0 10,3 10,4 9,8 14
Finland 29,2 28,8 30,0 29,6 31,4 31,5 32,5 32,9 34,5 36,8 38
Sweden 38,7 40,5 42,6 44,1 45,2 48,2 47,2 48,9 51,1 52,1 49
United Kingdom 1,2 1,4 1,6 1,8 2,4 3,0 3,3 3,8 4,2 5,1 15
Norway 58,1 59,8 60,3 60,2 61,8 64,8 61,2 64,7 65,9 65,5 67,5
Source: Eurostat, Share of renewable energy in gross final energy consumption (t2020_31),
2015.
By observing Table 1, we can see that some of the EU member states have
already reached or surpassed their 2020 targets in 2013 (Bulgaria, Estonia,
Lithuania and Sweden) and a few are relatively close to achieving them (Czech
Republic, Denmark, Italy, Latvia, Austria, Romania and Finland), but the wide
majority still have to build up efforts in this matter. From the evolution trend
point of view, overall EU and most of the individual member year-to-year evo-
lutions are positive, with a few exceptions (e.g. Netherlands 2009-2010 or Por-
tugal 2009-2010). These drawbacks can possibly be explained by incentive cuts
for solar energy in several European states in 2010 due to economic recession
(Lee & Zhong; 2014, p761).
. National Renewable Energy Action Plans

To achieve the 2020 goals, each member state has adopted an individual
National Renewable Energy Action Plan as a strategic policy framework for
promoting investments in RES that are directly linked to three basic principles
of energy security, environmental awareness and economic growth (Pîrvu &
Rovinaru, 2014; p36). These frameworks can contain regulatory policies such INTERDISCIPLINARY MANAGEMENT RESEARCH XI
as: feed-in tariffs, feed-in premiums, utility quota obligations, net metering,
obligation or mandate, tradable renewable energy certificates; fiscal incentives:
capital subsidy, grant or rebate, tax incentives or exemptions, energy produc-
tion payment; and public financing: public investment, loans, public competi-
tive bidding (REN21; 2014, p89-91). A more comprehensive overview of these
support instruments was made by (Gaigalis et al.; 2014, p424), as seen in Table
2. The analysis is based on the 6 main types of support instruments used in
the EU, from A to F: a) feed-in tariffs – “a fixed and guaranteed price paid to
the eligible producers of electricity from RES”; b) feed-in premiums – “guar-
anteed premiums paid in addition to the income producers receive for energy
being sold on the market”; c) quota obligations – an artificial demand created
by governments by forcing consumers or suppliers to obtain a certain amount of
895
their energy from renewable sources(Gaigalis et al.; 2014, p424); d) investment
grants – offered by governments for investments in RES; e) tax exemptions; f )
fiscal incentives – other fiscal tools of support for investors in the renewables
market.
From the provided Table 2 below we can observe that the most popular sup-
port instrument across the EU are the feed-in-tariffs; only a few members like
Germany, Netherlands, Poland, Romania, Finland and Sweden do not offer
this kind of incentive for RES-Electricity. The other stimulants are heteroge-
neously spread throughout EU member states, each one of them having the
freedom to choose its own support system. It is important to notice that none
of the countries uses all 6 instruments.
As for RES heating and cooling, the most popular support tools are invest-
ment grants, Germany and Romania along with Spain and Italy are the only
exceptions to the EU27 rule of implementing a investment grants system. Tax
exemptions and fiscal incentives are not so widely spread, and France is the only
member state to apply all 3 systems of support.
A more homogeneous spread of national support schemes exists for RES
biofuels, most of the countries studied offer both quota obligations and tax ex-
emptions to help investors in renewable biofuels.
Table 2 Overview of main RES support instruments in the EU27
RES heating and
Geo/Support RES Electricity RES biofuels
cooling
instruments
A B C D E F D E F C E
Belgium × × × × × × ×
Bulgaria × × × × ×
Czech Republic × × × × × ×
Denmark × × × × × ×
Germany × × × ×
Estonia × × × × × × ×
Ireland × × × ×
Greece × × × × × ×
Spain × × × × ×
France × × × × × ×
Italy × × × ×
Cyprus × × × × ×
Latvia × × × × × ×
896
Lithuania × × × × × ×
Luxembourg × × × × ×
Hungary × × × ×
Malta × × × × ×
Netherlands × × × × × ×
Austria × × × × ×
Poland × × × × × ×
Portugal × × × × ×
Romania × × ×
Slovenia × × × × × ×
Slovakia × × × × ×
Finland × × × ×
Sweden × × × × ×
United Kingdom × × × × × × ×
Support instruments: A – feed-in tariffs, B – feed-in premiums, C – quota obligation, D –

investment grants, E – tax exemptions, F – fiscal incentives.
Source: Gaigalis et al. (2014), p424
3. DEVELOPMENT POTENTIAL AND

CHALLENGES TO FACE
.. Development potential of RES in EU member states

Support instruments mentioned earlier, among with other auxiliary fac-
tors like ever-decreasing technology costs as it matures, have lead to a slight INTERDISCIPLINARY MANAGEMENT RESEARCH XI
change in the renewable energy consumption mix across the EU from 2009 to
2013 (Figure 2). Wind and solar energy have gained importance, as wind power
reached the 10% milestone in total renewable energy consumption, while So-
lar energy (thermal and photovoltaic) tripled its share from 1,71% in 2009 to
5,41% in 2013, also due to a drop in costs. In spite of small losses in percentage,
biofuels and hydro power still remain the most important renewable sources
in the EU in 2013, with a combined total of over ¾ of total consumption of
green energy. Overall consumption of renewable energy has evolved in the same
period from 150.474,8 thousand TOE (tonnes of oil equivalent) to 196.612,6
thousand TOE, revealing that support instruments were effective enough to
influence this 30,66% overall increase in the use of energy yielded from RES in
the EU (Eurostat, 2015; nrg_107a).
897
Figure 2 Shares of renewable sources in total renewable energy consumption.
2009-2013 comparison
Source: Eurostat, Supply, transformation and consumption of renewable energies - annual

data (nrg_107a), 2015
There is even more potential for the development of RES usage in the EU, as
pointed out by (Ernst&Young, 2015) in its latest analysis and RECAI -Renew-
able Energy Country Attractiveness Index- scoring. Methodology of the RE-
CAI relies on three major drivers: i) macro drivers (macro stability and investor
climate); ii) energy market drivers (prioritization and bankability of renew-
ables) and iii) technology-specific drivers (project attractiveness). 16 different
parameters and 53 datasets are converted into scores and weighted using their
own un-public methodology to generate these parameter scores (Ernst&Young,
2015; p35). In the top 40 global rankings we can find 16 EU member states,
with the highest ranked Germany on 3rd place and a RECAI score of 66,3. Top
ten also hosts France and the UK ranked 7th and 8th with scores of 58,9 and 58,5
respectively (Table 3).
The same paper also reveals that Germany is working on containing or even
improving its global rank by approving plans for a pilot program with a duration
of three years to award 1,2GW of new ground-mounted solar capacity to inves-
tors, with 500MW being awarded this year (Ernst&Young, 2015; p16). France
and the UK swapped places in the global ranking, partly due to France’s long
awaited Energy Transition Bill that will assure more certainty on the local market
and on the energy strategy, but also due to concerns in the UK regarding poten-
tially insufficient budget available for projects. Even the offshore sector, where the
UK is EU’s leader is facing project cancellations (Ernst&Young, 2015; p15).
898
Figure 3 RECAI scores and rankings of EU member states in top 40 (as of
March 2015)
Country RECAI score Global rank Previous rank
Germany 66,3 3 (3)
France 58,9 7 (8)
United Kingdom 58,5 8 (7)
Netherlands 54 13 (13)
Belgium 53,9 14 (14)
Italy 51,9 16 (15)
Denmark 51,8 17 (17)
Portugal 51,1 19 (18)
Sweden 51 20 (21)
Spain 49,1 24 (22)
Austria 48 25 (25)
Poland 46,9 28 (29)
Ireland 45,7 30 (31)
Greece 45,1 33 (33)
Romania 44,5 35 (32)
Finland 44,3 36 (37)
Source: Ernst&Young, 2015; p14
. Challenges for the development of RES in the EU

Countries listed in this global 40 ranking certainly have potential, and they
count for more than half of EU member states, but only just. Twelve of the
other members have yet to develop a proper pipeline for RES yielding, or will INTERDISCIPLINARY MANAGEMENT RESEARCH XI
probably never will (as in the case of Luxembourg or Malta) in order to be ac-
knowledged with significant potential by researchers and investors worldwide.
We believe that this will generate a new problem, that of growing gaps between
different members states regarding RES. Governments of countries that have
great potential will be very interested to make the best of this advantage by
developing the framework for research and investments in renewables, thus at-
tracting even more investors. A positive flow of capital will generate more rev-
enue to finance technological advances which eventually lead to cost reduction
by efficiency and also by scale economies. Reduced costs of investment will at-
tract more investors and so on.
899
By following this reasoning, Northern countries like the UK, Germany or
Denmark for example can specialize in wind energy, especially offshore, whereas
Southern countries like Greece or Spain will be able to focus on solar energy.
Geographical position is causing natural comparative advantages that eventual-
ly lead to a specific inter-EU members division of labour. In terms of efficiency,
it is a good thing, but it will generate extra costs with long distance transmis-
sion (Trainer, 2013; p846) for the less RES-developed EU member states that
won’t be able to source their own internal demand of energy. This phenomenon
will then contribute to the replacement of the dependence on fossil fuels from
the Russian Federation or the Middle East with dependence on renewable en-
ergy provided by fellow EU member states, with negative effects on national
energy security. Even if we consider this problem as being solved by the guar-
antee of EU membership and close cooperation between states, the problem of
costs still exists. Renewable energy is already more expensive than traditional
energy sources, mainly because renewable energy also embodies costs (with fos-
sil fuel-derived energy) for building infrastructure and other equipment needed
to operate the new facilities and plants, as mentioned by (Trainer, 2013; p846).
Of course, environmental awareness slightly reduces the actual sustainability
costs (Gaigalis et al., 2014; p423), narrowing the gap between traditional and
renewable energy in terms of expense.
In his rather sceptical paper, (Trainer, 2013) finds another argument that we
will refer to as a challenge to the development of a sustainable energy system in
the EU: the “intermittency problem” (Trainer, 2013; p847). Quoting (Oswald
et al., 2008), (MacKay, 2008) and ( Jefferson, 2008), the author gives examples
of periods of low wind or solar light in Europe. If something like this would
happen, renewable energy plants would not be able to be productive enough to
keep up with the demand and energy systems across Europe would have to rely
on other energy sources. Of course, these examples are extreme, but the energy
grids all over the world don’t operate only on average figures because we have
to bear in mind the fact that building plants that will be able to only sustain
average consumption will create serious problems in peak times, as the energy
consumption is highly cyclic.
900
4. CONCLUSIONS
Important progress has been made in the implementation of renewable en-
ergy strategies across EU28 member states, many of them being able to success-
fully pursue their positive trend needed in order to reach 2020 Horizon targets,
some of them already exceeded those objectives. More than half of the member
states have been acknowledged to have high potential for RES, the other ones
need to closely re-assess their NEAPs and try to give extra support in areas that
lack development. Support schemes are active in each member state; feed-in
tariffs, as well as grants or fiscal incentives are the main tools used to attract
capital inflows into local energy markets.
It is a worrying fact that only a handful of countries in the EU28 are rela-
tively energy independent, whilst EU average energy dependence is quite high.
We think this problem needs urgent solutions because energy independence
will have more and more significance in today’s and tomorrow’s geopolitical cli-
mate. By keeping the path of the 2009/28/EC Directive, EU member states can
resolve most of their energy dependence problems.
Legislation framework provided by the European Commission regulating
2020 targets is optimistic but not impossible to achieve, especially if structural
funds are also directed towards investments in RES for countries that struggle
to successfully implement the renewable energy strategy. Solar and wind en-
ergy have had a positive evolution in the last years, although biofuels and hydro
power continue to be the main renewable energy sources used across the EU.
There are a lot of challenges that EU member states have to face in order to
achieve or exceed goals set for the 2020 Horizon, like cutting costs of produc-
tion and transmission, the problem of intermittency or building capacity that
can withstand peak consumption. We will not adopt a sceptical approach, nor
a very optimistic one. We believe that periodical re-assessments of NEAPs and
EC Directives to correspond to a fast-changing market are needed in order to
have a better control on inputs and outputs. We also believe that investments in
research and development, supported by public grants will have a great impact
on speeding young technologies’ reach of maturity, eventually leading to growth
in efficiency and cost reductions.
901
Acknowledgement
This work was co-financed from the European Social Fund through Sec-
toral Operational Programme Human Resources Development 2007-2013,
project number POSDRU/159/1.5/S/134197 „Performance and excellence in
doctoral and postdoctoral research in Romanian economics science domain”.
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903
THEORETICAL APPROACHES FOR
THE ANALYSIS OF INNOVATION
José Guadalupe Vargas Hernández: THEORETICAL APPROACHES FOR THE ANALYSIS OF INNOVATION CAPACITY AS A FACTOR THAT AFFECTS ...
CAPACITY AS A FACTOR THAT

AFFECTS THE COMPETITIVENESS
OF SOFTWARE INDUSTRY OF
JALISCO
José Guadalupe VARGAS HERNÁNDEZ, Ph.D.

María José Calle Medrano
University Center for Economic and Managerial Sciences
University of Guadalajara
Zapopan, Jalisco, México
jvargas2006@gmail.com, jgvh0811@yahoo.com,josevargas@cucea.udg.mx
Abstract
The aim of this work is to review the theoretical approach to analyze the in-
novation capacity of enterprises in the software industry of Jalisco. Based on a
survey of the companies in the Software Center of the State, as well as evalu-
ating the influence that has the capacity for innovation on competitiveness,
seeking empirical evidence to answer the question. The main hypothesis for
this research is that the ability to innovate is a factor that positively affects the
performance of companies in the software industry, which is reflected in the
competitiveness of the sector. The methods used in this research are three: in-
novativeness index (ICI), Linear Regression Model with OLS and Soft Com-
puting using evolutionary algorithms: FUZZYCESAR, the latter something
very new which puts us in the forefront of knowledge in the methods it is still.
Keywords: Competitiveness, software industry, innovation.
JEL Classification: O3, O32, C88
904
1. INTRODUCTION
The economic outlook is forcing companies to rethink their business be-
cause the complexity of the environment causes a progressive decline of many
business models considered valid until recently. In some sectors, innovation has
become an essential survival factor. But still, for some companies, especially
smaller ones, innovation is synonymous with complexity and ignorance, lead-
ing to a sense that is exclusive to large companies. The ability to innovate is a
resource of the company like their financial, trade, and productive capacities and
should be managed in the same manner and with the same importance.
Moving toward a service economy with high added value and dynamics ori-
ented towards innovation requires an information and communication tech-
nologies (ICT) industry, more competitive and tightly integrated with other
national economic sectors. In a globalized economy built by information and
knowledge, these are the primary software solutions for the problems facing the
industry, academia, and government. This is how the software industry offers
new opportunities for economic and social development of countries (Secre-
taria de Economía, 2012).
The software industry in Mexico is relatively small and of little commercial de-
velopment, based mainly on the production of customized software or standard-
ized software adapts to the needs of users. This lack of development of production
of basic software, operating systems and applications, is expressed in the structure
of national accounts of Mexico, who has not a section that allows socially account
the magnitude of domestic production of such software (Mochi, 2006).
In this context, this research aims to analyze the competitiveness of the soft-
ware industry in Jalisco depending on the capacity for innovation. It is intended
to determine an index of innovation capacity to analyze and discuss the ap-
plication of this indicator to a sample of44 companies of the State of Jalisco as
part of the Center for Software (Centro de Software) and likewise interested in
evaluating whether firms with greater capacity to innovate have outperformed
the market, which is reflected in the sector’s competitiveness.
2. PROBLEM
The technological advances that have occurred in recent years, generated,
and promoted many events and a series of processes that have been defined as
905
a new productive industrial revolution (Dabat, 2002). These events, as men-
tioned by Mochi (2006), are related to the emergence of a new stage of capitalist
production, which is characterized by the increasing importance of technologi-

cal innovation and knowledge as a major factor in generating value in a context
of economic globalization. In this scenario, the information and communication
technologies (ICTs) have become very important. This is related to the devel-
opment and increased use of multifunctional technology: Software. This has
generated a major industry, whose key fields are software engineering and IT
services (ISSI) which have a complex structure and require a great capacity for
innovation.
The software industry in Mexico and Jalisco are going through a stage of
maturity which manifests itself in an increase in recent years. In addition to
the generation of active public policies that are aimed at encouraging entrepre-
neurship and development of existing business, the promotion of technology
and infrastructure (Secretaría de Economía, 2012). As Mochi (2006) argues,
opportunities and challenges to consolidate the software industry make clear
the need to convene, in order to exploit the advantages offered by this sector,
for participating into the international economy, and development of different
sectors of the national economy.
It is important to consider Jalisco as being the leading producer of embed-
ded software in the country. Then, it can be said that as noted by the OECD
to Mexico; it is still competing in niches with low value added (OECD 2006),
low innovation (Rodríguez, 2010) and little expertise. Hence, the issues that in-
tended to address this research begin from some work and international sourc-
es. It is possible to draw a number of elements to determine an index that allows
measuring the innovativeness of a representative group of the software industry
in Jalisco. In order to study this is considered as a factor affecting performance
companies in the sector, which it is reflected on competitiveness.
3. RESEARCH QUESTION
Does the ability to innovate is a factor affecting the performance of compa-
nies in the software industry Jalisco, making the sector more competitive?
906
4. THEORETICAL FRAMEWORK  CONCEPTUAL
COMPETITIVENESS
Studies on the competitiveness have been approached from two perspectives.
One of them considers that organizations are open systems that are influenced
by external factors over which the company has little or no control. From this
point of view, the external environment will determine the success or failure of
enterprises. However, Porter (1991) opined that the structural characteristics
of the sector are unstable and that the behavior of these influences decisively.
From another perspective, competitiveness is determined by the internal factors
of the company. One theory that has come to support this idea is the theory of
resources and capabilities of enterprises (Barney, 1991; Penrose, 1959) which
argues that competitive success is due to the set of resources and capabilities it
possesses and make it different from other competitors in the industry.
In this section, the focus of competitive forces of Porter is reviewed for
which it is important to consider that many countries, regions and industries
are experiencing an economic situation whose key factors are different from
those that were valid until a few years ago. In this new context, competitiveness
is expected to play a key role. It has become one of the most important develop-
ment concerns. However, this concept is still unclear, due to its generic nature
and the wide range of elements that converge around it.
Be aware that competitiveness is rather the product of a pattern of complex
and dynamic interaction between the state, enterprises, intermediary institu-
tions and organizational capacity of a society. The competitiveness of a sector
of economic activity is based on the organizational pattern of the society as a
whole, the parameters of competitive relevance and interaction between them,
leading to ultimately, interaction that generates benefits for the region. The fac-
tors identified as core are: innovation, knowledge and the close relationship be-
tween institutions, public, academic and private (Salazar, 2010).
A. Theoretical review
To clarify the concept of competitiveness as well as it is necessary to specify
in which field applies: countries (macro level), economic sectors at national and
regional level (meso level) and businesses (micro level). Romo (2005) classifies
these areas in what he called a hierarchical structure of concentric levels of com-
petitiveness, as shown in Figure 1.
907
Figure1: Economic levels
Source: Romo (2005).
Levels are represented graphically in the form of concentric rings to illus-

trate the idea that business competitiveness is influenced by conditions in the
industry and region, while the competitiveness of companies, industries and
regions is determined by national conditions.
) Business scope
The meaning of the competitiveness of a company derives from its competi-
tive advantage in production methods and organization (price and quality of
the final product) over its competitors (Romo, 2005). The ability to compete
in a business is the ability to stay in the market, providing goods and services
more effectively and efficiently than its competitors, generating returns on in-
vested long-term capital. From the design, production and marketing of pre-
mium products, where superiority can be evaluated based on factors such as
price and/or differentiation, quality and technological advancement and physi-
cal resources as company assets, capabilities, organizational culture, patents,
trademarks, strategies, information and knowledge etc.
One of the ways in which competitiveness is measured is by its financial
performance. Therefore, the existence of a good financial performance suggests
that a company increases its competitiveness. The competitive performance can
also be measured by the return on sales and assets and the value added per
employee. There are separate nonfinancial indicators such as market share, the
percentage of loyal customers, the percentage of loyal suppliers and staff turn-
over results. Costs, productivity and export capacity are also indicators of com-
petitiveness. It should be noted that a single factor is not an adequate indicator
of competitiveness.
908
Beyond the financial or market-based indicators, measures of competitive-
ness increasingly include other variables such as innovation, quality, manage-
ment enhancements, and social, and ethical duties and responsibility (Robeil,
2006). At the enterprise level among the factors contributing to competitive-
ness are: good management of production flows, raw materials and supplies, R
& D, design, engineering and industrial manufacturing, cooperation with uni-
versities and other companies, developing strategies in response to demand and
market developments and finally, the measures taken by companies to increase
employee skills through training and the establishment of a greater degree of
responsibility in production (Robeil, 2006; Romo, 2005).
In relation to the above Romo (2005) comments that apart from the relevant
internal factors in performance, competitiveness as the size of the business, la-
bor productivity, total factor productivity, performance in exports, investment
in R &D-in particular product, process and management capacity of innovation
and human capital-external variables with significant effects on competitive-
ness are related to the following levels described by Romo (2005). The ability
of firms to compete is conditioned upon the circumstances of the environment
in which they operate, and the search for a favorable position in an industrial
company (Porter, 1996).
) Industrial scope
In an industry, it is understood that a set of companies engaged in simi-
lar business activities, competitiveness derived from higher productivity, lower
costs facing either to their international rivals in the same activity or through
the ability to offer products with a higher value (Depperu, 2005; Estrada and
Heijs, 2005; Romo, 2005). The competition at this level is the result change
the word? of the competitiveness of individual firms, but also the competitive-
ness of enterprises increased by the competitive environment prevailing in the
industry.
Not all industries are the same, so their characteristics determine its com-
petitiveness, features such as the nature of the goods produced, market concen-
tration and entry barriers, capital intensity and technical complexity, maturity
of the technology used, export potential, foreign presence and strategy followed
by foreign investors (Romo, 2005). The competitive race between companies
909
stimulates innovation, lower costs and improves the quality of products in the
industry, causing demand increases.
) Regional level
For national and regional economic sectors and groups of companies (meso
level), competitiveness is the ability of companies to achieve sustainable success
against their competitors in other countries, regions or groups (Biggeri, 2007;
Siggel, 2007). In the view of Porter (2009), the paths of the evolution of a sector
depend, among other things, on strategic choices of the firms. Also the perfor-
mance and development of a company are determined largely by the prevailing
conditions in their environment, especially, those who are related to their im-
mediate geographical proximity (Romo, 2005).
According to Romo (2005) once the business climate improves, compa-
nies begin to concentrate on specific geographic regions and forming clusters
with the potential to positively affect competitiveness, especially through three
mechanisms:
a) Increasing the productivity of constituent firms or industries,
b) Raising the innovation capacity and hence the productivity growth, and
c) Encouraging the formation of new businesses that expand the conglomerate
Therefore, the importance is to give greater support to innovation. The im-
portance of geographical agglomeration is all this gives rise to the generation of
so-called “external economies”, which can be of two types: Technological and pe-
cuniary. The first involving transfer and spillover of knowledge between compa-
nies, which contributes to the receiving party for technological capabilities that
tend to, strengthen the competitive edge of the industry. The latter, includes
the creation of a market for skilled labor and suppliers, which again tends to
strengthen the advantage competitive industry (Romo, 2005).
) National level
Magda (2005) has commented that competition at national level is defined
in terms of trade performance of countries, according to their comparative ad-
vantage. Meanwhile, Romo (2005) points out that the competitiveness of a
country is defined as the share of its products in international markets, adding
910
diversification of the export basket, sustaining higher growth rates in these over
time, increased technological content and skills in export activities, and expand-
ing the base of local firms able to compete internationally.
Romo (2005) argues that countries in their competition to attract foreign
investment capital must ensure stability, good governance and opportunities for
profitable investment for investors. In this regard Robeil (2006) explains that
the factors affecting the competitiveness of a country are:
1) The overall performance of the country (GDP, investment, employment,
imports, exports and inflation).
2) Efficiency in government operations (public finance, fiscal policy, regula-
tory framework, institutional framework and social context).
3) The existence and quality of infrastructure (facilitation work, adequate
transportation of people, goods and information).
4) The business efficiency (productivity, labor market, finance, management
practices, values and attitudes).
Macroeconomic competitiveness from long-term perspective, is considered
as the ability of the economy of a nation to rapid and sustained increase employ-
ment rates, living standards of the population and the returns on investment, in
terms of growth productivity (Estrada and Heijs, 2005; Magda, 2005; Romo,
2005). The differences in values, culture, economic structure, institutions and
history of different countries contribute to their competitive success. Note that
any country can or will be competitive in all or even in most industries (Romo,
2005). The analysis of competitiveness goes beyond macroeconomic variables INTERDISCIPLINARY MANAGEMENT RESEARCH XI
that influence structural factors affecting economic performance in the medium

and long term, and are related to productivity and innovation. Technological
innovation is important to support the economic growth and social welfare (Es-
trada and Heijs, 2005; Robeil, 2006; Romo, 2005).
Finally, the competitiveness of a country is the result of both the competi-
tiveness of their companies, the legal, and the economic, and prevailing social
conditions, and public policy - monetary, exchange rate, fiscal, trade, finance,
infrastructure, etc., and should be considered a relative comparison or bench-
marking of performance to evaluate how well each participant has made in its
development capacity to innovate and grow (Robeil, 2006).
911
5. THEORETICAL FRAMEWORK  CONCEPTUAL
INNOVATION CAPACITY.
In the new competitive scheme have become important some issues such as
the ability of companies to adapt to the market environment, creating and or
effecting development and improvement of products and processes, and orga-
nizational changes for creating and sustaining competitive advantage. I.e. the
agents aim to increase, what is called in this paper the “Innovation Capacity”.
A. Theoretical review
The study of strategy advanced towards the paradigm based on the resources
and capabilities that a firm has (internal focus) or to be acquired to compete
strategy. It goes from an outside to inside approach when it comes to support
the creation of competitive advantage.
1) Theory of resources and capabilities (RBV)
The theory of resources and capabilities becomes the precursor of knowl-
edge management during the years 90s and closely linked to business practice
this theory has received significant contributions from the field of business
strategy over the past two decades. The determinants of success of the company
have been a topic of central importance in the field of research in strategic man-
agement. In particular, various scholars have placed particular emphasis on the
role played by the resources and capabilities that have these to achieve competi-
tive advantages (Wernerfelt, 1984; Itami & Roehl, 1987; Barney, 1991; Teece,
1997; Pisano & Shuen, 1997).
In fact, Edith Penrose (1959) pioneered the development of the theory
which states that a firm is more than an administrative unit; it is also a col-
lection of ready productive resources between different users and over time,
given an administrative decision. When looking at the business process of pri-
vate firms point of view, the size of the firm is better calibrated by measuring
the productive resources it employs. The traditional concept of strategy by An-
drews (1971) is formulated in terms of resources and position of the strengths
and weaknesses of the company, while most of the tools in the formal economy
operate on the side of the product market. While these are two perspectives,
they ultimately should lead to the same idea.
Werner felt, in his paper published in 1984 that resources and products rep-
resent two sides of the coin. He says that most products require the services of
912
several resources and more resources can be used in various products. To specify
the size of the company’s business in different product markets, it is possible to
infer the necessary minimum commitments of resources. The central discussion
focuses on determining the attributes that must have the provided resources
and capabilities in order to isolate the competition and enjoy special benefits for
longer. In this thesis Barney (1991) identifies key attributes that any resource
should underpin to become a factor for competitive advantage for the company
four main elements:
a) The resources must be valuable and allow implement strategies to exploit
opportunities or neutralize threats.
b) Must be scarce or rare, arising from the mix of several combinations of
physical and intangible resources, difficult to obtain in the factor market
resources.
c) Have inimitable components, based on the presence of unique historical
conditions, social complexity and causal ambiguity.
d) Difficult to substitute.
The only resources that are able to achieve these four attributes previously
described as the intangibles like a particular technology, accumulated consumer
information, brand name, reputation and organizational culture and corporate
culture. These assets are difficult to build and acquire because they require
unique and complex conditions to be achieved, are dependent even the environ-
ment in which they operate. Itamiand Roehl (1987) emphasize that intangible
resources, such as a particular technology, accumulated information of consum- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
ers, brand name, reputation, innovation and corporate culture are invaluable
assets to the comparative advantage of a signature. In fact, they claim that the
“invisible resources” are often the only real resources of a firm to competitive-
ness that can be sustained over time.
For its part Teece (1997), mentioned that since the resources are heteroge-
neous firms, the entry decision process suggested by this approach is as follows:
a) Identify the specific resources of the company.
b) Decide on which markets such resources can earn higher incomes.
c) Decide whether income assets are most effectively used by:
(a) Integration in the related market,
913
(b) The sale of the intermediate product to affiliates, or
(c) The sale of the assets themselves for a related companies.
Summarizing resources and capabilities essential guide strategies and con-

tribute to achieve the potential benefits of the company, as presented by Grant
(2006) in Figure 2:
Figure2: Relationship between resources, capabilities and competitive
advantage.
Source: Grant (2006)
It is important to distinguish the concept of capacity, which is also useful

to analyze the relationship between business objectives and use the resources
that the firm possesses. The capabilities are the ability that allows resources to
act jointly to achieve efficiently differentiate (Fong, 2005). The capabilities are
created by the everyday activity in the company, which has strong implications:
are cumulative and are in the process of internal collective organizational learn-
ing. Capabilities are embedded in organizational processes of the company and
are supported by the minds of the members of the organization. For this reason
are socially complex (Fong, 2005).
2) Theory of dynamic capabilities
In recent decades, the efficiency of the Theory of Resources and Capabilities
has been questioned because in turbulent environments its approach is static. In
this environment, there are key capabilities that enable rapid adaptation of com-
pany resources, allowing proper positioning and securing of unique resources
to cope with the dynamism of business today. This extension of the prospect of
914
Resources and Capabilities is what is known as the Dynamic Capabilities Ap-
proach (Teece, 1997). This view was proposed first by Teece, Pisano & Shuen
(1997) and was later developed by Teecein 1997. These authors defined the
dynamic capabilities as the ability of the company to generate new forms of
competitive advantage from their configuration of competencies or organiza-
tional resources.
In the environment of new businesses, time is considered a critical variable,
the rate of technological change is very high and changes in the competitive
environment and the markets are difficult to determine. The setting of such
companies is characterized by high turbulence. In this situation, their success
will be determined by the rapid adaptation of internal and external capabilities
to achieve consistency with the changes that occur in the business environment
capabilities.
The dynamic capabilities theory states that the company may increase its
generation of potential benefits, if achieved distinctive resources and capabili-
ties to develop forms, set strategies, accelerate the discontinuity of the same and
direct the strategies of a contingently form (Mintzberg, 1994; Peteraf, 1993;
Hamel and Prahalad, 1994; Teece, 1997; Grant, 2006).
B. Innovation
Innovation is the creation or modification of a product and its introduction
into a market. An essential aspect of innovation is its successful commercial ap-
plication. Do not just invent something, but, for example, introduce and spread
in the market so that people can enjoy it. Innovation requires awareness and
balance to carry the ideas, from the imaginary or fictitious field, to the field of
embodiments and implementations.
The concept of innovation that is used for this research derives from a
broader vision that includes the set of interconnected changes made in different
areas of a company and aimed at improving their competitiveness and economic
efficiency (Yoguel & Boscherini, 1996). Therefore, from this perspective, in-
novation not only reduces the isolated activities to develop new products and
processes but also involves the set of developments and incremental improve-
ments in various areas (organization, marketing, production, etc.) and activities
aimed at developing quality.
915
Beyond development activities planned ex-ante, innovations are also gener-
ated from various routine activities undertaken in the firm that are not neces-
sarily linked to the productive area (Ernst and Lundvall, 1997). The interaction
of staff of the company, the continuous exchange of views to solve problems or
to face new situations and responses that arise and are used for the company
to operate and improve economic efficiency, and considered as an important
source of inputs for development of innovative activities (Yoguel and Boscheri-
ni, 1996). Yoguel and Boscherini (1996) mention that the development of in-
novative activities is a necessary condition but not sufficient to ensure good eco-
nomic performance.
Early work on innovation dating back to the first half of last century, when
Schumpeter (1934) conceptualized the entrepreneur as an innovator, since
then, many authors have argued that innovation is a source of growth. Accord-
ing to Schumpter, innovation of enterprises is the driving force behind sustained
economic growth in the long term, although the road can destroy the value of
established companies. For this reason, the study of strategy advanced towards
the paradigm based on resources and capabilities that have (internal focus), or
to be acquired to compete strategy. In short, it goes from an outside to inside
approach when it comes to support the creation of competitive advantages.
The theory of resources and capabilities became the precursor of knowledge
management in the 90s, a concept much more closely linked to business prac-
tice. This theory has received significant contributions from the field of business
strategy over the past two decades. An alternative to face this reality is innova-
tion. The firm must seek new market niches, redefine the commercial horizons,
stop competing to win the same customers and work with no customers, who
are those who prefer competing products. Schumpeter defines innovation as
the time when a new product, process or service is introduced in a specific mar-
ket (Cardona Trevino, 2011).
1) Process innovation
According to Yoguel & Boscherini (1996), in the process of innovation, it
comes together different knowledge and skills that are present in different areas
of the company, whose use depends on the organizational culture of the firm.
The modalities and characteristics assumed by management and criteria that
guide the decision making process. Over time, the interaction between this set
916
of factors is generating a wealth of skills, often intangible and specific firms that
determine their capacity for innovation.
Innovations are also generated with daily activities in the company, so it is
very important the feedback that can be given to developing these activities that
promote innovation within the firm. From this perspective, there are strong in-
teractions and links between the decision process and innovative activities are
a prerequisite for any strategic decision related to the management of the firm
and have impacts and consequences on all activities in the company. However,
the full utilization of the results of innovative activities basically depends on
the capabilities of the company to develop and conduct (Yoguel & Boscherini,
1996) consistent competitive strategies.
In this direction, it is observed that the innovative process in companies is
multidimensional, being able to differentiate two levels that influence not only
the importance of innovative activities, but in different forms and responses
under which they occur. First, it emphasizes the set of elements located at the
micro level and, secondly, the environment, i.e. the socio-institutional environ-
ment and its influence on the process of building skills. Both planes are linked
from the set of interactions between the actors involved.
Finally, Yoguel & Boscherini (1996) conclude this review by saying that the
process of innovation in firms can be seen as the result of the dynamic interac-
tion of skills developed over time, learning that is generated and culture organi-
zational under a certain atmosphere. Innovation is a learning process aimed at
solving business problems and improves competitive positioning in the market.
It is influenced and affects the powers of the firms, which depend on the domi- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
nant organizational culture.

2) Capacity for innovation
As mentioned, for purposes of this research, the concept of Innovation Ca-
pacity is defined as: the potential of combining effectively the set of resources
and capabilities of the company to improve and create new knowledge. This sec-
tion will describe the theoretical foundations that support this definition and
underpinning the approach proposed to achieve the objectives.
In this context, the concept of innovation used, arises from a broad vision
that involves the interconnected changes made in different areas of a company
and aimed at improving its competitiveness and economic efficiency. Therefore,
917
it is important to emphasize that staff interaction between different areas that
make up the company, the exchange of views, and among others, constituting an
important source of inputs for the development of innovative activities (Yoguel

and Boscherini 1996).
In developing its “innovative capacity”, the production and development of
this knowledge into the firm is a dynamic, continuous and cumulative process,
amending and recreating the organizational and technological static skills.
Thus, learning-both individually and collectively- plays a central role and deter-
mines that the powers are moldable dynamic resources in accordance with the
strategic vision of the company. In sum, over time, the interaction between this
set of factors is generating a wealth of skills, often intangible and firm´s specific
(Hamel & Prahalad, 1994) that determine and condition their innovative ca-
pacity. Given the theoretical analysis guidelines that arise proposed concept in
this research on capacity to innovate concept is supported by three theories that
have already been described:
a) Theory of dynamic capabilities (Tecce, 1997).
b) Theory of intangible assets (Prahalad and Hamel1994).
c) Evolutionary theory (Nelsonand & Winter, 1982).
It is the existing studies on the subject there are several proposals on the vari-
ous factors that can be expected to contribute to the accumulation of innovation
capacity, same as most authors have grouped into internal factors and external
factors. As mentioned, internal factors occur mainly by the interaction of inter-
nal company resources in an effort to adapt to dynamic business which through
knowledge are developing innovations that are capitalized. According to evo-
lutionary theory (Nelson and Winter, 1982), interaction with external factors
provides a boost to survive and compete for improving organizational learning
and experience. As a result, technological innovation is essential for a company
to acquire and maintain competitive advantage and improve performance in a
dynamic environment.
918
Figure3: Innovation capacity: Internal and external factors
Source: Romijn, H.& Albaladejo, M. (2002)
3) Innovation capacity index

This research arises from determining an indicator of innovative capacity,
which was designated as the Innovation Capacity Index (ICI), same as it was
proposed by Yoguel and Boscherini (1996), who considered qualitative and
quantitative elements. The authors start from the idea that the generation and
dissemination of knowledge, both internal to the firm as that between firms is
a complex process positively associated with the need to solve problems under
uncertainty to the demand for solutions not easily codified to the degree of de-
velopment of skills of human resources of the firm, to how the work process and
the degree of importance to the firm’s interpretation and adaptation of external
codified knowledge is organized. This set of factors makes the tacit knowledge INTERDISCIPLINARY MANAGEMENT RESEARCH XI
in particular, specific, and non-appropriated elements by other agents which is
done through what is known as organizational learning.
Therefore, to increase the innovative and competitive capacity, it is needed
to transform the information into knowledge, whereby entities, large or small,
public or private, disseminate and exploit it. Within the perspective of orga-
nizational learning as change there are two streams. The first organizational
learning is understood as an entity to make changes in order to adapt to its
environment (Hedberg, 1981, March & Olsen, 1976, Duncan & Weiss, 1979).
The second, like stocks that institutions make to transform and change their
environment (Swieringa & Wierdsma, 1995, Kim, 1993).
919
The organizations of the first type are concerned about survival and their
greater efforts are aimed at solving the problems of everyday life, so that their
stay in the market is preserved. The second is interested in their surroundings

to intervene innovatively to position new products or new services, first that
competition (Castañeda, 2004). In this direction, Yoguel & Boscherini (1996)
mention that traditionally used indicators (research and development, patent
number and publication of scientific articles) have been criticized not because
explain the proper behavior of companies and countries with reduced expen-
diture on research and development (R&D) which led to have a significant in-
dustrial growth and improved their competitive position without making a long
formal attempt in innovative activities.
Neither the number of patented inventions is viewed as a suitable indica-
tor for measuring the intensity of innovative firms (Grilches 1990; Malerba &
Orsenigo 1993). Indeed, the weakness of this indicator is not necessarily an
invention results in an effective innovation, i.e. the introduction of any product,
process and /or service in the market. Furthermore, patents do not take into
account the knowledge that enterprises buy “privately” by other means (tacit
knowledge, learning, imitation, etc.), undervaluing innovation activities in for-
mal type, especially in SMEs play a significant role (Santarelli & Sterlacchini,
1990). In addition, it is important to mention that in Mexico, the software is
not patented.
Therefore, the indicator of innovation capacity of agents aims to assess: i)
the development of the skills of the agents ii) or Innovative Product Innovative
and iii) the degree of movement of knowledge from formal and informal links
developed with other agents and institutions in the territory in which they are
located.
Yoguel & Boscherini (1996) mention that the current configuration of the
innovation capacity index (ICI) is the result of a previous work. The old indi-
cator was a first attempt to evaluate the process of innovation in SMEs using
variables that do not necessarily reflect the inputs and outputs of the innova-
tion process. The indicator used in this study contains two important changes
that allow a closer approximation to the relevance of the innovative activities of
SMEs. The first difference comes from the replacement of some of the variables
considered and the inclusion of more appropriate for evaluating innovation
capacity. The second change involves introducing weights for the variables. In
920
the previous indicator variables were not given any weight because innovation
capacity from a simple average of the variables was estimated. Therefore, equal
influence was assigned to each variable in the innovation capacity of enterprises.
The introduction of a different weight for each variable differential reflects
the importance of acquiring the various elements in the formation of skills. In
this sense, the current structure of ICI is the result of simulations using differ-
ent weights. Innovation Capacity Index (ICI) attempts to measure and give a
synthetic approach of existing capacities in a company for innovation and the
characteristics of the innovation process. The ICI is an indicator that evaluates
the potential of innovative firms. Note that making the measurement is a mea-
surement ICI relative and not absolute. The innovation capacity of individual
firms cannot be compared directly with companies operating in different envi-
ronments economic and historical contexts.
Innovative capacity indicator or innovation proposed by Yoguel and
Boscherini (1996), which is used in this research, it is a weighted average of
6 factors: Quality assurance, training efforts, scope of development activities,
and participation of engineers and technicians in the development team, the
first four factors are associated with the development of skills of the agents are
estimated. Is also have been considered a factor which points to measure the
innovative product which it is estimated from the weight of new products intro-
duced by the firm in billing innovative product. Finally a proxy for the degree of
movement of knowledge is included.
Thus, the indicator of innovation capacity of the company is expressed as:
Where:
ICI=Innovation Capacity Index
ai=weighting assigned to each factor
Fij=Factors component of the ICI
In the table below, the weights assigned by the authors Yoguel and Boscheri-
ni are listed, for the calculation of the index of innovative capacity, which shows
that the high aggregated weight assigned to the 4 factors associated with the
development of the skills of the agents it follows directly from the theoretical
framework explicated by the author. It also mention by the author that it was
found that the ordering of the firms according to innovation capacity is not
921
significantly modified for changes in the weights assigned to the factors (Yoguel
and Boscherini, 1996).
In table 1, the authors explain how to construct each of the factors differ-
entiating between those associated with the development of skills (training
efforts, the degree of quality assurance, participation of engineers and techni-
cians in development teams, scope and degree of development activities), the
innovative product (weight of new products in turnover) and the circulation of
codified and tacit knowledge from various mechanisms of formal and informal
cooperation.
Table 1: Weighting factors of innovation capability index
Source: Yoguel & Boscherini, 1996.
C. Factors associated with the development of skills

The factor “staff training efforts” made by firms aimed at developing techni-
cal “competencies” assesses the proportion of staff involved in courses oriented
toward quality assurance and the search for new developments. All these are
reflected in the importance of training personnel according to the employer´s
criterion that was applied to the assessment of this factor in this research.
The degree of quality assurance factor achieved by the firms is evaluated
from a set of sequential elements that refer to the existence of quality control
over the production process, the use of quality control instruments in the devel-
opment of products, the use of forms of control checkpoints and complexity of
the estimated by “statistics”. Complementing this, it is achieved a set of control
questions that allow to check the degree of reliability of responses. For purposes
of this research, the analysis of this factor was limited to the fact of whether
or not the company has any certification on quality, which was considered it
includes the criteria originally defined by the author.
922
The degree of importance of engineers and technicians in the group dedi-
cated to developments, both formal and informal is an estimator of the quali-
fication of “team” of development and the complexity of the tasks that may be
involved. In that sense, a gradient of situations ranging from the absence of this
type of ratings to the cases that account for a significant proportion of the team
is built developments: In this direction is estimated ratio between the number
of engineers and technicians dedicated to quality work and developments in
total employment in the formal or informal teams dedicated to these tasks in
the firm.
1) Factor considering the innovative product
The weight of new products in billing is an approximation of what is called
in the literature the innovative product. This factor point to evaluate the impor-
tance achieved by the introduction of products containing technical improve-
ments and / or is new to the firm. For purposes of this research, three aspects
are evaluated: Development of new products and services, design modifications
of existing products and services and technological conversion products and
services.
2) Proxy Factor circulation of knowledge
Given that a significant part of the required knowledge to carry out develop-
ment activities has a significant tacit component, its movement and its inter-
nalization by the agents need a support of formal and informal linkages. The
development of these links which contribute to changing routines, movement
of informal knowledge and skills development can be seen as an evolutionary
process that requires a starting point the existence, the development of mutual
trust between agents to facilitate such dissemination?. In this direction, the in-
dicator of technological cooperation is a proxy that attempts to measure the
degree of development of the interactions of local agents aimed at generating
technological, business and learning skills.
In that sense, they are proxy indicators of environmental performance both
formal and informal links that organizations perform with other agents, such as
firms, consultants, public and private institutions, universities, etc., to:
i) Develop and improve products and processes.
ii) Changes in the organization in the management of the company,
iii) Modify the distribution channels, and
923
iv) Improving and developing quality management.
Since the confidence intervals are associated with each value of the 6 factors
described alternatives correspond to ex ante indicator results referred innova-

tive capacity can be compared in the various panels used and estimated panels
used in other investigations. Thus, each firm is assigned a level of innovative ca-
pacity that is an equivalent result to the weighted average of the scores assigned
to each of the six factors considered.
D. Empirical review for innovativeness and competitiveness
There is still little empirical evidence on how it can be determined the inno-
vativeness capacity of companies. It has not been reached to a consensus in the
scientific community about a method, being a relatively new concept and it is
very qualitative. Despite this, there has been a literature review so it was decided
to apply the proposed Yoguel and Boscherini (1996) to determine the rate of
innovation capacity of enterprises. It is the same that has already been already
implemented by some researchers. It follows is a brief summary of the methods
used, results and findings.
In 2001, Yoguel and Boscherini, after the proposal made in calculating the
rate of innovation capacity in 1996, years later (2001), they applied their model
into their work entitled “The Development of Innovative Capabilities of firms
and the role of territorial system”, where they raised as a central objective of their
work to present a proxy indicator of the agents potential to learn, and create
competencies, transform generic knowledge into specific and therefore inno-
vate, trying to analyze the wealth of knowledge of the business, and in particu-
lar the methods that they use to acquire, organize, process, store and transfer
information (technical, organizational, etc.), which contributes to increase their
knowledge base.
The authors applied this indicator into a panel of 245 Argentinian compa-
nies, including the ones dominated by small and medium business located in
areas with mixed generation of externalities. The authors note that their re-
search also aims to assess to what extent the size of the agents and the degree of
development of the territorial system, i.e. the socio-economic and institutional
environment in which companies operate constitute significant elements for un-
derstanding the differences in innovativeness capacity. Finally, the authors were
interested in assessing whether firms with greater capacity for innovation have
924
had a more dynamic performance in the market that the remaining from the
process of opening up the economy and structural reforms.
The conclusions reached by the authors are:
1) The existence of a positive association between the development of in-
novative capacity of firms and the size.
2) The work has shown that in environments where positive externalities
prevail, institutional development seems to be an important determinant
of the level of innovativeness achieved by agents.
3) The existence or not existence of an association between the size of the
agents and the development of innovative capacity could be thought of as
a proxy for development of the local environment.
In 2003, Velasco & López, Pontifical Catholic University of Peru, conducted
a study entitled “Innovative Capacity of Peruvian SMEs in APEC Universe”
which aimed to develop an Innovation Capacity Index (ICI) that allow to es-
tablish the degree of efficiency and finding new markets, factors which may af-
fect the export potential and level of profits of SMEs. Furthermore, the study
aimed to assess the impact of business development services (BDS) on the level
of profits and production. In the methodology of their work, the authors based
on the calculation of Innovation Capacity Index Innovative Capacity or as they
call it, on the proposed Yoguel and Boscherini (1996) model, beside using an
econometric model to evaluate the relationship between the ICI and the level of
utility and production, reaching the following results:
1) SMEs that export increased their level of earnings by about 1%; in addi- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
tion, for every percentage point increased an SME innovation in terms of

ICI, the level of profits grew by about 1.4%.
2) The elasticity of the utility on the number of workers is 1.2 approxi-
mately. The age of the company almost no has effect; assets of SMEs
increased by 2% profit if they grow by 10%; and in respect of industries,
SMEs belonging to the branches of electricity, gas and water (very few),
the business services and wholesale trading are those with more profits
respectively for the rest.
And reporting the following findings:
925
1) The ICI built it affects the ability to export, although the level of signifi-
cance is not entirely solid.
2) It is noted that there is a weak relationship between the ability to in-

novate and export, similar to Yoguel and Boscherini result (1996) to the
Argentine case.
3) The built ICI was also positively correlated with the levels of profits of
SMEs.
In 2009, Hernández, in his thesis presented at the University of Guadalajara
entitled “Capacity of innovation in software companies. A comparative study
between Guadalajara and Tijuana”took as a case study companies that are part
of the software industry in Tijuana and Guadalajara. The differences between
the two Mexican cities were analyzed, both in form and manner in which they
were born and in structure today. It was weighted and pondered the differences
between the detonators competitiveness factors and their relationship with eco-
nomic variables such as sales, size, and the fact that they are exporting or not.
The methodology proposed by the authors was to use the survey conducted
to Software companies in 2006, to calculate an index of innovativeness apply-
ing the model proposed by Yoguel and Boscherini in 1996, and then make a
linear regression with OLS to determine how they affect sales, size and state
Innovativeness.
The results were:
1) The companies have a skill level above the average considered ideal.
2) The relationship between sales and the Capacity for Innovation is nega-
tive which it explains the author may be due to the existence of a lin-
ear relationship between sales and company size and same that causes
the largest companies size having consolidated its market by reducing
their levels of innovation. In fact, the size variable was not significant and
dropped from the model.
A summary of the empirical studies that have been described and consid-
ered most relevant to take the focus of this research is:
926
Table 2: Summary table oftheempirical review.
AUTHOR Country OBJET of STUDY SAMPLE MHETOD
Yoguel y Argentina Argentinian companies 275 ICI calculus
Boscherini(2001), Multiple regression with OLS
Velasco & López (2003) Perú SMEs 379 ICI Cálculus
Probit regression
Hernández (2009) México Software firms of NA ICI calculus
Guadalajara and Tijuana. Multiple regression with OLS
Source: Own elaboration.
6. SOFTWARE INDUSTRY.
The main producer and consumer of software industry’s in the global scope
are the United State (US). Countries like Ireland, India and Israel have reached
a growth and integration into international markets. It can be mentioned a late
insertion as a result of the dynamism of the software industry, the entrant coun-
tries such as Taiwan, China, Singapore, Thailand, Korea, Malaysia, the Phil-
ippines and Vietnam. Moreover, these countries are also taking an interesting
development, although clearly much more limited than in the countries men-
tioned, some Latin American countries like Brazil, Argentina, Uruguay, Costa
Rica and Mexico (Mochi, 2006). It is complex to adopt a concept of software
due to the intangible nature of the products and in part to the constant tech-
nological changes, making it difficult to determine whether it is a product or a
service. Mochi (2006) mentions that it can be said generally, that the Software
is codified knowledge and information.
The most common definition proposed by the Organization for Econom-
ic Cooperation and Development (OECD) and similar to those used by the
International Standardization Organization (ISO) and the Word Intellectual
Property Organization (WIPO) says that software means production of a set
of instructions, procedures of a structured instructions, procedures, programs,
rules and documentation in different types of media (tapes, disks, electrical cir-
cuits, etc.) in order to make the use of equipment which might set electronic
data processing (EDP) (OECD, 1996). In terms of competitiveness, the World
Economic Forum (WEF) (2012) in its publication “Global competitiveness Re-
port 2012-2013” places Mexico in the position number 53 of 142 countries.
In one of its pillars, this index ranks “Efficiency enhancers” or boosters ef-
ficiency in which technological readiness, technological readiness, is one of the
927
sub-indices analyzed. Mexico ranks number 63 which puts the country in a po-
sition that almost reaches the average of the sample. The indicators mentioned
are merely the result of the countries of Latin America that have not had state
government policy made public in order to know their pronouncements on so-
cial information, except Mexico that is having a consistent work since the early
90s. But today is marked by numerous agreements and partnerships for the
development of new technologies on the continent.
It is also important to mention that Mexico has a backlog in the use of in-
formation and communication technologies. It ranks76 in the world list of
Information Technology 2012 which is given by an index composed of four
sub-indices measuring the environment for information technology and com-
munication (ICT), the willingness of society to use ICT, the actual use of all
the main actors. Finally, the impact that ICTs in the economy and society. These
four sub-indices are divided into 10 columns and 53 variables according to the
following structure (WEF, 2012).
The software industry in Latin America also has partnerships through dif-
ferent integration initiatives. These partnerships aim to promote policies, im-
proving markets and supply chains, to help its partners to improve their com-
petitive capabilities and seek alternatives for development of joint programs
based on mutual benefit. Mexico counts on the Mexicana Industry Association
of Information Technology (AMITI) created in 1997 which has more than 180
member companies. Another Mexican alternative is The Mexican Association
for Quality in Software Engineering (AMCIS), formally established in 1999 in
order to ensure the quality of IT processes generally that allows it to ensure its
international competitiveness and meet the international quality standards in
the software production.
Mexico also developed the Process Model for Software Industry in Mexico
(Prosoft) in 2003 which is the Mexican industry standard for developing and
maintaining software for small and medium enterprises. This model is compat-
ible with CMMI, ISO9000: 2000 and ISO15504. Moreover the ESI Center
Mexico, home of the European Software Institute (ESI) in Guadalajara and
Monterrey offers training, consulting and evaluation in CMMI, ISO 9000, and
ISO 15504 and offers a Diploma in Software Quality. Mexico´s intentions to
surfing on the wave have produced a wealth of ideas between the public sector
and producers of software. This makes possible the Program for the Develop-
928
ment of the Software Industry (Prosoft). The debate has been very intense, be-
cause many of the participants see in the reproduction of export model from
India, Ireland and Israel a development option, while others advocate a more
domestically oriented model.
This discussion of information technology for development is an update
made in the late eighties, when the outwards development was considered a
formula to solve the problems of growth. From this perspective, it is necessary
further to show that successful cases are just an entry point, in no way the only
valid for industry development option. Each follows a particular history of in-
dustrial, technological and business development that has driven its viability in
the global economy.
A.Software Industry in Jalisco
In the case of the software industry in Guadalajara, the origins of this indus-
try, date back to early 2000, when Jalisco began to resent the slowdown in the
electronics industry. This crisis affects negatively and twenty seven companies
closed operations in the period of 2000 to 2004. These external phenomena
were the incentive for the state government through the State Council of Sci-
ence and Technology (COECyJal) announced the promotion of the software
industry as a way to convert the industrial state economy. These objectives were
set out in the (PECyT-Jal) State Science and Technology Plan 2001-2007,
published in early 2003. Then, from the guidelines and strategies of Prosoft,
and derivative of the objectives of PECyT-Jal, it was promoted since 2003, the
State of Jalisco Software Program (PROSOFTJAL) with the support of the
National Chamber of the Electronics Industry, Telecommunications and Infor- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
mation Technology (CANIETI).

Since the late nineties, Jalisco accounts with favorable environment for the
development of the software industry. On the demand side, the company al-
ready had from the sixties to the cluster of electronics, a market dominated
by large subsidiary of transnational corporations and smaller companies op-
erating with domestic capital as suppliers of products and specialized system
components. On the supply side, Jalisco had more than ten universities, all with
programs related to information technology, electronics, microelectronics, me-
chatronics and telecommunications.
In 2001, 27 companies formed an integrative company known as Aportia,
which was intended to increase individual and collective entrepreneurial skills
929
based on CMM (Capability Maturity Model) and attract projects and resources
together ( Jaen & Hernandez, 2009) which formed an innovative and important
precedent association and organization for the state. In 2004, a group of entre-
preneurs along with COECyT began to develop a project that aimed to create
a Software Center? the first in the state. On September 28, 2006, by tripartite
initiative established a Software Center in the state of Jalisco.
1) Territorial delimitation
The research study is delimited Software companies of the state of Jalisco,
which are located in the Software Center State.
The Software Center of Jalisco was inaugurated on September 28, 2006
by President Vicente Fox Quesada. The Software Center is a joint project of
the federal government, through the Ministry of the Economy (2012) and the
Prosoft fund and the Government of Jalisco through COECYTJAL. The center
has the capacity to accommodate 52 software development companies, which
provide about 700 jobs with added value, 65 percent for developers (Software
Center, 2012).
Figure 4: Location of the Software Center in Guadalajara.
Source: Own elaboration.
930
The business focus of these software developers can be divided into the fol-
lowing categories:
a) Applications, Web and multimedia
b) Business applications, IT services and education
c) Specialized consultancy
d) Consulting for quality systems in information technology
e) Factories software outsourcing and offshore
f ) Software testing
g) Testing of embedded systems
The objectives of the Software Center are to host small and medium en-
terprises engaged in software development and provide them with a common
infrastructure to take advantage of working together, create a synergistic model
of high value, promote growth of the Technology Information Sector, Micro-
electronics and Multimedia, increase the competitiveness of strategic sectors
of the state through the adoption of information technology in their business
processes and promote the formation of specialized human resources in areas of
engineering. It is a collaborative effort between government, academia and the
private sector to enrich the area positioned to host the high technology sector
of the country.
Among the projects in which the Software Center is currently working,
there is an agreement with the IPv6Task Force for joint research and develop-
ment with another business center. This project aims at the promotion, dis-
semination and development of the second generation Internet, a necessary
migration for many companies worldwide. Agreements with RIM (Research
In Motion) are also developed for the development of applications compatible
with computers BlackBerry® through integrative Aportia with Intel to develop
joint applications.
Among the services for the developer companies the Software Center
include:
a) Support and guidance in connection with other companies with whom
they can exploit business opportunities together.
931
b) Crossed sales as a result of this constant interaction and references for
prospects.
c) Linking with the Academic sector in providing a competitive human capi-

tal formation
d) Interaction with larger companies in the electronics industry, informa-
tion and communications technology who serve as suppliers for different
projects.
e) Approximately 10 thousand square meters of facilities which include of-
fices, communication infrastructure, security, and common multipurpose
rooms.
Among the services for clients are included:
a) Integration of IT services and products.
b) Multidisciplinary integration to provide complete solutions that involve
the participation of multiple companies, skills and products, the Soft-
ware ecosystem tropicalisation.
c) Modifications, translations or certifications of various programs for the
Mexican market, in order to facilitate market entry; likewise to foray into
other regions of Latin America.
d) One Stop Shopping, a mixture of different products, solutions and ser-
vices companies in the Centre, in order to meet specific requirements.
Within the versatility and different twists to companies that integrate the
Software Center engaged government, educational, nutritional, pharmaceutical,
health, agriculture, construction, finance, footwear and care sectors.
B. Purpose of study
The research is focused on studying the capacity of innovation in the soft-
ware industry in Jalisco. Therefore, it can be defined the object of study, which
is composed of a significant sample of the software industry that consists of 44
of the 52 companies in the state Software Center
932
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935
INFORMATION SYSTEM
REENGINEERING EFFECTS
Branimir Dukić • Sanja Ćorić • Danijel Bara: INFORMATION SYSTEM REENGINEERING EFFECTS THROUGH THE ESTABLISHMENT OF THE SPECIAL...
THROUGH THE ESTABLISHMENT

OF THE SPECIAL DEPARTMENT
FOR BUSINESS INTELLIGENCE IN
BUSINESS ENTITIES
Branimir DUKIĆ, Ph.D.

bdukic@efos.hr
Sanja ĆORIĆ, M.Sc

Jadransko osiguranje JSC, Republic of Croatia
sanja.coric@jadransko.hr
Danijel BARA, MBA

Jadransko osiguranje JSC, Republic of Croatia
danijel.bara@jadransko.hr
Abstract
Faced with a daily market competition, modern businesses require agility in
business, willingness to changes within the environment and quality in business
decision making in order to respond to all requests placed in front of them, with
the aim of improving the quantitative and qualitative parameters of opera-
tions. Modern business intelligence systems provide the answer how to, in the
shortest possible time, ensure a sufficient amount of reliable, high-quality and
timely data which provide information strong enough to make a good business
decision. One of the issues that affect the performance of business intelligence
systems is its organizational aspect. Therefore, it is important to know how
businesses who apply business intelligence tools to a large extent have orga-
nized a separate department for business intelligence. These subjects are differ-
ent from others according to their bvusiness, and in practice are more successful
936
in the application of business intelligence tools. Practical research carried out on
Croatian territory has led to such conclusions.
Keywords: Business intelligence tools, business entity, information system re-
engineering, management, support, business decision-making
JEL Classification: D8, D83, G13
INTRODUCTION
In today’s global and highly competitive marketplace, business and the sur-
vival of businesses depends greatly on the effects of decisions taken by their
managers. The greatest responsibility thus belongs to management at the stra-
tegic level, having in mind that strategic decisions determined the long-term
activities to be implemented in order to achieve the basic goals of the business
entity. The process of strategic decision-making is therefore a fundamental man-
agement process in business entities, because strategic decisions determine the
stability of the operations of a business entity in the long term. Unpredictable
and increasingly complex business environment changes, caused by the turbu-
lent developments in the globalized society, which are particularly the result of
intense technological development, especially information and communication
technologies, make the strategic decision-making more difficult and demand-
ing, thus strategic decisions giving increasing importance for business entities
survival.
However, these terms and conditions, not only to raise the importance of
strategic decision-making, but make it significantly more complex activity, than INTERDISCIPLINARY MANAGEMENT RESEARCH XI
it was in the past.

Modern businesses are overloaded with a large number of data, which de-
tailed and accurate recording is often difficult, and can generally be detected
with the problem of quality data management. The existence of the problem of
quality data management can reflect on the efficiency and effectiveness of op-
erations in the narrow and broad sense. When it comes to its effectiveness and
efficiency in the narrow sense, then the efficiency and effectiveness of operations
are seen as the current business results.
Observation of efficiency and effectiveness in the broader sense implies not
only the outcome of current operations, but also the potential impact of strate-
gic decisions on the future outcomes of business. In this sense it is possible to
937
consider for example business entity interaction with the environment, which
in the short term does not have to have an impact on business results, but on
long term it is very likely that the specific activities of a business entity will
reflect in the results of operations. Such examples can be seen in the context of
the value chain, where for example the level of establishing relationships with
consumers-clients or establishing and developing relationships with suppliers
have a significant long-term impact on the level of efficiency and effectiveness of
the business entity.
The problem of quality of data management has a direct impact on the
quality of business decisions because by definition, information control is data
derivative. Therefore, if it is wanted to quickly and efficiently make decisions,
especially at the strategic level, it is necessary to build an efficient system of
managing data in an enterprise.
The problem of quality of data management has a direct impact on the qual-
ity of business decisions by its definition, information control is data derivative.
Therefore, if it is wanted to make decisions quickly and efficiently, especially at
the strategic level, it is necessary to build an efficient system of managing data in
an enterprise because strategic decisions are the most important in terms of the
existence of a business entity.
Data management is still in the domain of the concept of business intel-
ligence. The implementation of business intelligence systems in the economic
subject, whose task is to generate quality information necessary for making ef-
fective business decisions, is one of the imperatives of modern business. Al-
though today the wider business theory clearly points out the need and impor-
tance of the implementation of the concept of business intelligence, its practical
application in modern businesses is vaguely defined.
Very often, business intelligence is viewed as part of the management of a
business entity and is placed in managerial infrastructure of the organization-
al frameworks in company. On the other hand, business intelligence often is
viewed as part of the business information system, in which case its organiza-
tional position is within the management information systems.
However, as business intelligence ties between management information
which takes place within the framework of management information systems,
and management of a business entity, there is a need for separation of business
intelligence in a separate organizational unit which in turn establishes the infor-
938
mation management business system. The research results that are presented in
this paper provide answers to questions related to the effects of the information
system reengineering business entity through the establishment of a separate
department of business intelligence in the enterprise.
RESEARCH METODOLOGY
Modern business information systems are result of permanent attempts
of the theory and practice of formalization and normalization of information
flows in businesses. Although the emergence and theoretical shaping of mod-
ern information systems are associated with the application of information
and communication technologies in business, their existence is present since
the human society started in organized business ventures monitored systemati-
cally organized records of business events and business structure. Similar is the
situation with the concept of business intelligence. Although it is formally a
relatively recent concept that described the modern theory, this concept and its
doctrine basically took over from the military doctrine, in fact, it exists as long
as exists management efforts to ensure competitiveness in the market through
information superiority. Therefore, since the market exists, there is the need to
ensure competitiveness through activities that make monitoring data on con-
sumer behavior with one, competition with others, and the environment with
a third party. Based on these data the control information is formed, and com-
petitiveness is achieved by passing the respective rational business decisions.
However, information superiority is achieved not only with the collection of
data for the purpose of rational decision-making, but also with the distribution
of data to all who are interested in details, but in a manner and with content
that matches a business entity. In a dynamic and turbulent business conditions
that exist today in a globalized market, the importance of business information
systems with one and business intelligence, on the other hand is growing. From
that point of view the importance of business decision-making is also growing,
especially those at the strategic level. Therefore, in real operating conditions,
there is a need for well-organized subsystems in the enterprise which are able to
efficiently do their job in terms of information management and ensure infor-
mation superiority. In today’s circumstance it makes sense to allocate organiza-
tional subsystem business intelligence as a separate organizational unit which
function is creating point of information superiority of modern business sys-
939
tems. That kind of an approach is justified for the reason that modern systems
of business intelligence accompanied by appropriate software systems that can
colloquially be called business intelligence tools.

However, this logical assumptions, concerning the organization of subsys-
tems business intelligence, need to be proved through practical research. From
the perspective of the effective application of business intelligence tools, it
would be ideal if every business entity that applies the tools of business intelli-
gence had a separate department for business intelligence. It is logically justified
existence of the department for business intelligence in business entities is at
the same time one of the prerequisites for the successful use of business intel-
ligence tools.
In this context, the following hypotheses were set: H1: Businesses that im-
plement business intelligence tools to a large extent have organized a separate
department for business intelligence within the business entity; H2: Businesses
that have organized a separate department for business intelligence in an en-
terprise vary by business characteristics compared to those that do not have
organized a separate department for business intelligence in a business entity;
H3: Businesses that have organized a separate department for business intel-
ligence in a business entity are more successful in the application of business
intelligence tools.
Generally it can be stated that the aim of research is to confirm or reject the
proposed hypotheses. In this sense, the aim of the research carried out surveys
on an adequate sample of respondents to be able to prove or disprove the hy-
potheses identified. In order to realize the goal of the research and solve the
identified problem appropriate scientific methods were used. First of all, the
method of deduction, descriptive modeling methods, methods of analysis and
synthesis, methods of abstraction and generalization method, the method of
causal reasoning, methods of surveying, as well as the appropriate method of
statistical data processing. In addition to these, other scientific methods were
used.
Given the specific research conducted pragmatic, it was necessary to struc-
ture the sample of respondents in appropriate way and select those subjects
who are in their businesses use and are familiar with the capabilities of business
intelligence.
940
Considering the potential difficulties in finding and recruiting the relevant
subjects, method of on-line data collection questionnaire was chosen. In prepa-
ration of on-line questionnaire and the data collection on-line software Sur-
veyGizmo was used. The research was conducted in the second quarter of 2014.
The questionnaire was entirely filled by 113 respondents. Table 1 shows the list
of their demographic – business characteristics.
BUSINESS DECISION MAKING AND THE USE OF

BUSINESS INTELLIGENCE TOOLS
Growing competition, increasingly complex legislative framework, introduc-
tion of international standards, standardization, together with the consolida-
tion of businesses and other globalization trends impose the need for increased
research in the area of business intelligence, with goal to its greater and more
effective application in the field of business decision-making. Business intel-
ligence is part of a system of information businesses and firmly connects the
existence of business information systems.
Thus business intelligence is to be seen as a link between management infor-
mation systems whose task management and data management used the data
or information for the purpose of making business decisions. Generally speak-
ing, the essential role of business intelligence is to produce relevant information
from the mass of data that will enable the management of rational business
decisions. However, it should be remembered that business intelligence systems
not only create management information, they are also a kind of information
integrators to necessary knowledge for decision making. ‘’Usable business in-
formation must provide a valid and reliable picture of reality, be available at the
right time, be complete and consistent, and most importantly, be relevant to the
field of business decision-making.‘’
The information in the right place at the right time is one of the most important
resources that can bring the difference between survival or collapse of the business
entity. It is important to emphasize that business intelligence has a qualitatively
higher value of information, because it is the end product created by systematic
collecting, verifying and analyzing data or information in order to gain knowl-
edge of certain problems, or it is “everything you need to know to act effectively”.
Before the start of the information age, in the second half of the 20th century,
business entities have had to gather data from non – automated sources, and
941
did not possess adequate computing resources for data analysis. Therefore, the
business decisions were based mainly on intuition. With computerization of
more and more systems, the amount of data that has become available drasti-
cally increased.
In these conditions, analysis of the collected data and preparation of reports
are sometimes fixed. But already at that time, long-term strategic decisions
could be made on the basis of these reports, while the short-term tactical deci-
sions were still based on intuition.
Today, as before, timely and valid information is one of the most important
prerequisites for performing certain business activities. Business intelligence
systems must include external and internal data. Internal data are collected
in accordance with established rules and stored in data warehouses. External
data, which mainly refer to the data on the whole market, data from the activi-
ties, competition, etc., first are passing through the control mechanisms so it
could be taken with internal data in later analysis. In 2003, the typical organi-
zation analyzed only ten percent of the collected data, mainly internal, while in
2005 that number increased to twenty percent of internal data.
Today’s organizations besides internal use also external data sources, which
rapidly increased with the concept of Big Data, so some sources affirm that
today 45% of data that are business people using, comes from external sources.
With the introduction of business intelligence and management of business
information, business entity has the ability to use the remaining data collected
from various sources, transforming them using business intelligence systems to
quality information.
Looking at this problem through the issue of data about customers and sup-
pliers, and in particular their dispersion, in marketing, sales, service, finance and
procurement, it is clear organizational need for the introduction of an effective
system that will properly connect the data collection process, planning, analy-
sis and obtain high-quality new information key to successful management of
companies, and particularly complex business systems.
It is evident, therefore, that the acceptance of the concept of business intel-
ligence is the ability that a major number of business systems should accept and
adopt as soon as possible if they want to survive in the market.
942
Nowadays problem in business entities which use large amounts of data to
obtain the information needed to make good business decisions is certainly the
accuracy of their data.
A lot of business entities have doubt about the accuracy of their data
in a way, so average amount of inaccurate information increased by 22%,
from 12% to 17% of inaccurate data, in just a few months during 2014.
Companies in the United States believe they have even greater percentage of
incorrect data and assume that this is close to 25% of inaccurate data. The level
of inaccurate data is startling when one considers the company’s dependence on
information systems in business intelligence.
The main cause of incorrect data still is human error, which is a problem
at all levels and channels. Overall, 78% of companies have problems with the
quality of data collected from various sources. Globally, contact centers produce
the worst quality of the data, followed by inaccuracies following websites. As
shown in Figure 1 the time required to make decisions according to B. Liatud
can be divided into two phases: the phase of gathering information and phase
of making decisions.
Figure 1. Time required for a decision making
Time of gathering Decision
information making

¾ 80% ¾ 20 %
¾ oftenleft tostaffat ¾ relatively short
lowerhierarchical levels ¾ identification ofdecision-
¾ by personnelwithlower levels makingto the collectionof
ofmanagement
information
Source: Liautaud, B., Hammond, M.: e-Poslovna inteligencija, Prudens Consilium, Varaždin,
2006., pp. 95.
Željko Panian and Goran Klepac suggested four basic categories1 of data
quality that directly affect business decision making in a business entity:
1
Elaborated by: Panian, Ž., Klepac, G. (2003.), Poslovna inteligencija, Masmedia, Zagreb, pp.
31-34.
943
Standardization
Different interpretations of the same concepts can lead to non-recognition
of the same data, and of inconsistency within the database itself. In order to
avoid this, it is recommended the abstraction of data in standard uniform for-
mats and their consistent application to the implementation of standardization
of business documents.
Congruence
Minor variations in registering data may occur a problem copying of records
in the database, because the standard computer programs do not recognize
them as identical. The concept of business intelligence is based on the applica-
tion of modern software tools to detect similarities between similar data ab-
straction with relevant from irrelevant details.
Necessary verification
In order to ensure data accuracy in repositories of company, with the aim of
making good business decisions is conducted by the verification procedure, which
establishes a correspondence with known data source that represents the standard.
Expandability
Sophisticated information technology allows new data adding, and changing
the value of the existing ones, in order to make them as useful as possible and
to maximize their applicability. Technology Web service enables users direct
incorporation of external data in its own data store. According to Bernard Li-
autaud2, the value of certain information grows proportionally with the square
of the number of users who have access to that information multiplied by the
number of business areas in which these users are doing.
ORGANIZATION OF BUSINESS INTELLIGENCE IN

BUSINESS INTELLIGENCE DEPARTMENT
Business Intelligence is a business principle which became infallible in the
business of any modern business entity. If managers which make strategic busi-
2
Elaborated by: Liautaud, B., Hammond, M. (2006.): e-Poslovna inteligencija, Kako infor-
macije pretvoriti u znanje a znanje u profit, Prudens Consilium, Varaždin, pp. 30.
944
ness decisions have quality and reliable information, it is logical to conclude that
their decision in this case is better and more efficient.
In order to introduce business intelligence projects in company successfully
there is a need to meet certain assumptions. Assumptions of the successful busi-
ness intelligence project in any case are: clearly defined and achievable goals, the
willingness of a business entity to accept the changes and awareness of top man-
agement personnel, reliable staff which are ready to tackle the information coming
from the data warehouse and based on them to create reports and the consequent
knowledge needed to make business decisions. Business intelligence initiatives are
often characterized as projects. Businesses, however, are unable to reach a com-
prehensive uniform reporting through more isolated projects. In addition, many
businesses often fail to successfully retain the defined criteria after the implemen-
tation of business intelligence, because such projects were not incorporated in
their business structure. The process of introducing business intelligence in busi-
ness requires an extremely broad interaction between business and IT depart-
ments. In addition to these interactions, as well as due to the fact that intertwined
components undergo constant change3, it is clear that the organizational side of
business intelligence is another basis of success of business intelligence.4 By incor-
porating business intelligence into their organizational structures, businesses can
ensure long-term success of these initiatives. The current trend shows that more
and more companies establish a dedicated unit for business intelligence, so-called:
Business Intelligence Competency Centre - BICC.5
The main objectives of establishing competencies center include the creation
of an appropriate organizational form of business intelligence department with- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
in the existing corporate structure, as well as the integration of the respective
roles and responsibilities within the jurisdiction of the city, and in the most part
related to the link between IT and the business side.6
3
Elaborated by: Moss, L.T., Atre, S. (2003.), Business intelligence roadmap: the complete
project lifecycle for decision support applications, Addison Wesley, ISBN: 0-201-78420-3,
Boston, USA, pp. 129
4
Elaborated by: Wixom, B.H., Watson, H.J. (2001.), An empirical investigation of the factors
affecting data warehousing success, MIS Quarterly, 25, 1, 2001, pp. 17-41
5
Elaborated by: Miller, G.J., Bräutigam, D., Gerlach, S.V. (2006.), Business intelligence com-
petency centers: a team approach to maximizing competitive advantage, Wiley, Hoboken,
USA, pp. 2
6
Elaborated by: Baars H., Zimmer M., Kemper H.G. (2009.), The Business Intelligence Com-
petence Centre as an Interface between IT and User Departments in Maintenance and Release
945
Since the BICC is responsible for all business intelligence initiatives across
the business entity, there are often differences between choosing the best solu-
tions in accordance with corporate standards. Managing business intelligence

sets the framework for the selection of applications portfolio of business in-
telligence, as well as for the design of organizational structures, processes and
architecture.7
In order to implement existing standards and guidelines in an enterprise,
BICC necessarily needs suitable sponsors who can provide necessary financial
resources as well as the body with authority in business entity. Excluding this ef-
fect, the chances BICC will be able only to observe isolated activities of business
intelligence without taking measures and control of the situation. Although
there are no rules as to how it should look like, business intelligence department
basically to its structure should consist of three parts:
a) Executive team (business sponsors) - provide the resources and the au-
thority of the business entity, prioritize projects, approved guidelines
b) Business team (business-oriented team) - use analytics, coordinate de-
partments with key customers, defining best practices, define and document
metrics, collect requirements, monitor reports
c) Technical team (data developers) - developing and maintaining a data
warehouse, build semantic level of business intelligence tools, create complex
reports and dashboards, develop management model coordinate databases and
servers with IT department
In order to determine whether an organization of business intelligence sys-
tems has an impact on its effectiveness in the work, proper research was con-
ducted by surveying results of which are presented in the next section.
Development, Proceedings of the 17th European Conference on Information Systems (ECIS

2009), Verona pp. 2061-2072
7
Elaborated by: Guiterrez, N. (2006.), Business Intelligence (BI) Governance. Going beyond
project selection and prioritization to materialize the enterprise strategy, Building Tomorrow’s
Enterprise, Infosys Whitepaper, http://www.infosys.com/industries/consumer-packaged-
goods/white-papers/ Documents/bi-governance.pdf Approach (25-01-2015)
946
FINDINGS REGARDING THE IMPACT OF THE
ORGANIZATION ON THE EFFICIENCY OF WORK
OF BUSINESS INTELLIGENCE SUBSYSTEM
Table 1 lists the demographic characteristics-business respondents who par-
ticipated in the study.
Table 1. Demographic – business characteristics of the respondents
n % n %
Sex Ownership of a business entity
Male 95 84.1 State 13 11.5
Female 18 15.9 Private 94 83.2
Level of Education Ownership structure
Secondary education 6 5.3 Domestic business entity 61 54.0
Higher education 8 7.1 Multinational company 46 40.7
Bachelor degree 66 58.4 Size of business entity
Micro and small 35 31.0
Master’s and PhD 33 29.2 Middle 23 20.4
Large 55 48.7
A sample consists of predominantly male population (84.1%). Educational

structure of respondents shows mostly college-educated, (secondary education
5.3%), those with higher share of bachelor degree (58.4%), and those who have
completed a master’s degree and PhD (29.2%). The educational structure of the
respondents suggested high level of education of respondents who know and
use the tools of business intelligence in their business entity.
Looking at the form of ownership, in the sample are mostly represented
private businesses (83.2%). With regard to the ownership structure more even
with a higher number of domestic companies (domestic business entities 54%
vs. multinational companies 40%).
The classification of business entities by size is used the criterion of the num-
ber of employees in an enterprise. Micro businesses believe they are up to 10
employees, small businesses are those which counted 10 to 49 employees, me-
dium 50-249 employees and large businesses with more than 250 employees.
947
Operationalization of variables
With aim to test proposed hypothesis asked variable of research were ana-
lyzed and operationalized. As a dependent variable of this study, the decision

of a business entity (not) to establish a separate department for enterprise busi-
ness intelligence was set. It was stated in the questionnaire posed the question:
Is there in your business entity department for business intelligence? Answers
to the question about the possession of the department have been reported in
Table 2.
Table 2. Business Intelligence Department
The existence of the Department for BI Respondents % Good %
Yes 58 51.3 54.2
Ne 49 43.4 45.8
Missing values 9 5.3
Total 113 100.0
In this study, the independent variables are characteristic of a business entity

such as the size of a business entity, forms of ownership of a business entity and
ownership structure whose categories and values reported in Table 1 and the
successful application of business intelligence tools. Variable successful applica-
tion of business intelligence tools adapted to Herschel (2011) and measured
five graduated scale.
Although the business performance is often measured by financial indica-
tors, in the context of this paper it is measured by frequency of business intel-
ligence use as the basis of decision-making by management.
Successful businesses are considered to be those entities that do so to a
greater extent. Table 3 is written operationalization of business performance
variables.
Table 3. Operationalization of variables business performance
Using business intelligence tools Variable business success
Rarely, or not used at all
Limited use of business intelligence tools as a basis in decision-making -
Periodically
unsuccessful businesses
In one part of the business process
In most of the business processes The use of business intelligence tools as a basis in decision-making -
Continuously successful businesses
948
With successful use of business intelligence tools are marked those business
entities that in most parts of their business processes, continuously use business
intelligence tools as a basis for decision-making.
Table 3. Operationalization of variables business performance
Successful application of business intelligence tools n %
Yes 70 61.9
No 43 38.1
Total 113 100
Successful application of business intelligence tools was noticed in almost

62% business entities from a sample.
Statistical methods
For the purpose of testing surveys different statistical methods are used. In
testing of the hypotheses was used chi-square test in order to test dependen-
cies between business entities which have Department for Business Intelligence,
their size and form and structure of ownership.
Results
Detailed results are given in the tables below.
Table 4. Results of the application of business intelligence tools
Does your business entity use business intelligence tools? BI Department
Total
Yes No INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Yes n 58 49 107
More than half of the surveyed business entities (54.2%) have department
that deals with business intelligence. Data on the existence of the department of
business intelligence in the selected business entities was compared with their
size, structure and form of ownership. Mentioned dependences between vari-
ables were tested with chi-square test.
949
Table 5. Chi-square test shows the relationship between the existence of BI
departments and size of the business entity
BI Department
Size of the business entity Total Chi-square test
Yes No
Micro and small 10 (28.6%) 25 (71.4%) 35 (100%)
Midle 11 (55.0%) 9 (45.0%) 20 (100%) χ2 = 15.287, df = 2
Large 37 (71.2%) 15 (28.8%) 52 (100%) p < 0.001
Total 58 (54.2%) 49 (45.8%) 107 (100%)
When the size of a business entity and the presence of the department of
business intelligence are observed is in the same level of significance of 5% (χ2
= 15.287, df = 2, p = 0.000) it is possible to say that large business entities in
its organizational structure have separate department for business intelligence
(62.5%, compared to 31.2% of large businesses that do not have). On the other
hand there is a high proportion of small businesses that do not have a depart-
ment for business intelligence (52.1%, compared to the structure response
those who have the department 17.9%). It is possible to talk about dependence
of the size of a business entity and its existence of the separate department for
business intelligence.
departments in an enterprise and ownership structure of the business entity
Ownership structure of the BI Department
Total Chi – square test
business entity Yes No
Domestic 25 (42.4%) 34 (57.6%) 59 (100%)
χ2 = 7.513, df = 1
Multinational 30 (69.8%) 13 (30.2%) 43 (100%)
p < 0.01
Total 55 (53.9%) 47 (46.1%) 102 (100%)
It is evident that there is a link between ownership structure and the exis-
tence of the Department of business intelligence within the business entity. The
businesses in the predominantly domestic ownership, majority (57.6%) do not
have a special department, while multinational corporations in a large number
(69.8%) have special departments, which can be interpreted through their ex-
tensive experience in the treatment and positioning systems BI inside company.
This is certainly a trend that should follow domestic corporations.
950
department in a business entity and form of ownership of a business entity
BI department
Form of the ownership Total Chi – square test
Yes No
State 5 (41.7%) 7 (58.3%) 12 (100%)
χ2 = 0.822, df = 1
Private 50 (55.6%) 40 (44.4%) 90 (100%)
p = 0.539
Total 55 (53.9%) 47 (46.1%) 102 (100%)
Regarding the variable of ownership (private - state), not significant dif-

ferences were observed in the existence of a separate business intelligence
department.
departments in an enterprise and successful application of business intelligence
tools
BI department
Successful of the use Total Chi – square test
Yes No
Yes 44 (67.7%) 21 (32.3%) 65 (100%)
χ2 = 12.134, df = 1
No 14 (33.3%) 28 (66.7%) 42 (100%)
p < 0.001
Total 58 (54.2%) 49 (45.8%) 107 (100%)
Ultimately, it is necessary to test the existence of relationships between the

existence of the business intelligence department in businesses and the success-
ful application of business intelligence tools. In other words, attempts to test the
assumption whether businesses that have a separate department for business
intelligence are more successful in the application (exploitation) of business
intelligence tools than those business entities that failed to establish a sepa-
rate department to monitor the application of business intelligence tools. Since
both variables are measured at the nominal level of measurement mentioned
assumption is tested by chi-square test of independence.
Businesses that successfully and continuously use business intelligence tools
largely have organized department of business intelligence (67.7%). Results of
the chi-square test (χ2 = 12.134, df = 1, p <0.001) indicates the acceptance of
the assumption that businesses who have organized a separate department for
business intelligence are more successful in the application of business intel-
ligence tools (H3).
951
CONCLUSIONS
Because of the presence of globalization modern business takes place un-
der conditions that are extremely unstable, turbulent and highly competitive.
In such conditions average margins are falling, so it is increasingly difficult for
businesses to make a profit, and the results of bad business decisions can easily
jeopardize the viability of businesses. In the past, businesses with high margins
and with a relatively small number of business transactions ensured its survival,
and any errors are in business offset by the reserves that have formed successful
business deals. In such business conditions, rational component of a decision-
making was not crucial for business entities. Today’s situation is entirely differ-
ent. Small margins, risk jobs and the need for large volumes of business in order
to create a quantity of profit are putting rational decision-making in first place.
Rational decision making is based on timely information that are produced
from the vast amount of data that result from the recording of business pro-
cesses, or business events that change the business structure. But the amount of
data is the ore, which is yet to be processed in the management information that
is a key component of rational decision-making. Subsystem of business intelli-
gence is one of the essential subsystems that generate management information
as a product that is involved in rational decision-making. To ensure competi-
tiveness, businesses, in their daily business, increasingly have to rely on business
intelligence systems, and to ensure greater availability of current information,
resulting with available processing information. The users of information, par-
ticularly strategic management of business systems require analysis of data in
real time and availability at any time. Modern business intelligence systems are
facing new challenges related to the collection, submission and analysis of data,
and selecting quality of the data resulting from error of the human factor, and
with the purpose of creating the relevant information at the right time. The
business environment, in front of businesses, sets requirements which great-
er efficiency and effectiveness, with the same resources available in the same
timeframe.
The human factor, as one of the key resources cannot be bypassed in the con-
text of business decision-making, as well as the fact that in front of him is placed
large amount of information to be processed. Therefore it can be concluded that
the business decision is largely evaluated by one of the alternatives from analy-
sis of the information collected, which could mean that the quality of business
952
decisions is conditioned by the quality of the data, analyzes and information.
This again underlines the importance of business intelligence and its appropri-
ate treatment within a business entity. Given the importance of having systems
of business intelligence for business decision making, it is important to look at
the practical functioning of the business systems.
Therefore, the research was conducted to determine whether the organiza-
tion of business intelligence systems impact on the effectiveness of decision-
making, and the efficiency and effectiveness of business enterprise. Research
results indicate that businesses, which have organized a special department of
business intelligence, are more successful in the application of business intel-
ligence tools. They certainly allow greater and timely availability of quality in-
formation, and the ability to thereby increase their competitiveness, and thus
improving the quantitative and qualitative parameters of operations.
Besides the organizational aspect which was researched and presented in
this study, further research should be directed towards a model reengineering of
modern business information systems for the efficient allocation of business in-
telligence in a separate organizational unit. Research efforts should be directed
toward selecting the appropriate machine and software subsystems that ensure
the efficiency of business intelligence systems, as well as ways of collecting qual-
ity data as the basis for creation of management information.
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warehousing success, MIS Quarterly, 25, 1, pp. 17-41.
954
CARSHARING WITH ELECTRIC
VEHICLES:
A CONTRIBUTION TO
SUSTAINABLE MOBILITY?
Guy FOURNIER, Ph.D.

(Pforzheim University)
René SEIGN, Ph.D.

(Bundeswehr University Munich)
Véronique GOEHLICH, Ph.D.

(Pforzheim University)
Klaus BOGENBERGER, Ph.D.

(Bundeswehr University Munich)
Abstract
Combining car-sharing and electric mobility results in a “circulus virtuosis” or
in other words a profitable dynamic, because car-sharing and electric mobil-
ity are mutually beneficial. The operation of a car-sharing model with electric
vehicles makes sense given these considerations even though it is still facing
challenges. Apart from the costs, the integration of charging is the most critical
success factor for the realization of the concept and its economic success. This
paper discusses possible solutions for this problem which appear to be feasible
and promising.
Keywords: value chain, electromobility, mobility services sectors, electric ve-
hicles, sustainable mobility
JEL Classification: Q01, L9, L94
955
1. INTRODUCTION
On a long-term basis the international automotive industry is regarded as a
growth industry because individual mobility is considered a basic human need.
However, the industry faces enormous global challenges. Increasing urbanisa-
Guy Fournier • René Seign • Véronique Goehlich • Klaus Bogenberger: CAR-SHARING WITH ELECTRIC VEHICLES: A CONTRIBUTION TO...
tion, overloaded traffic infrastructures, global warming, pollution, scarcity of

raw materials and the foreseeable shortages of oil are only some of the expected
issues.2 Governments around the world influence these developments through
regulation at local, national and international levels.
Therefore, it is necessary for car manufacturers to adapt to these changing
conditions redefining their business strategies. Accordingly, the automotive val-
ue chain will fundamentally change. This creates business models within new
business areas, like the much discussed electromobility and mobility services
sectors. The union of both concepts is the deployment of electric vehicles in
car-sharing. Thus, the car manufacturers BMW and Daimler are considering
the electrification of their car-sharing offers DriveNow and car2go. This is
a promising mobility solution for many cities worldwide. This shows that the
automobile industry drives innovative mobility concepts. The objectives of this
article are to clarify how the connection of car-sharing and electromobility can
make sustainable contributions to our future mobility. This article will especially
analyse the economic side more in detail to explore whether it offers an interest-
ing new business model and what the critical success factors of the model might
be for industry and society. Lastly, approaches on how to face the economic
viability of the business model will be discussed. To do so methodologically,
secondary literature on global trends, electromobility, car-sharing, and electrical
car-sharing will be reviewed in order to combine findings and draw conclusions
whether this business model might be a promising strategic solution and how
challenges could be tackled.
2. CHANGED ECOLOGICAL, ECONOMIC AND

SOCIAL REQUIREMENTS
The international market changes require innovation across the board.
Essentially, these factors can be identified as ecological, economic, social chang-
es and technological innovations. The following figure shows a general idea of
these influences, in terms of the new mobility paradigm.
956
Figure 1: Drivers of the new mobility paradigm
Current Mobility Paradigm
(based on cheap fossil fuel energy, high CO2 exhausts, individual mobility)
“Peak Oil” Rising Urbanisation Acci- Global
Technological changes (Innovation in battery,

Depletion of oil reserves and (Congestions, Parking dents Warming
fuels, power train, light-weight, production and

growing demand in emerging Penury, Land use…)
distribution of energy, IT infrastructure etc.)

markets lead to rising prices
External Costs of Mobility
Social changes, changes in society
Dependency on oil
• Growing environmental • Legislative measures

awareness of the • Regulative intervention on local,
population national, regional or global Level
• Loosing significance in
image and status Symbol => “Low carbon economy” (similar to EU
of cars or in other regions)
• New customer requirements (Kuruma Banare • Change of

etc.) infrastructure:
• Energy
• New offer (OEM, Supplier, raw materials) • IT
• Change of
• New mobility business models (Car Sharing…) standardisation
New Mobility Paradigm

(low carbon oriented, energy efficient, new mobility services, Intermodality)
Source: own research
External costs can be identified as ecological drivers. This concerns not only
the output of gases, which contribute to global warming, contamination or
health issues, but also to emissions in the form of land-use or noise. Currently,
these are estimated on the European level at 1.1% of GDP (€100 billion) for
global warming, noise and air pollution and another 1.1% GDP (€100 billion)
for traffic congestion.
The limits of, and dependence on resources (oil or other raw materi-
als) also play an important role. This scarcity of resources logically affects
the price. Thus experts estimate that oil prices will continue to rise in the
future. For example, emerging countries will have an increasing demand.
Consequently, the shortage of crude oil will affect the price of the fossil fuel
based mobility.
External Costs and shortages of raw materials require governments to intervene.
Through regulating costs and/or creating industry policies governments will help
prepare businesses for a new mobility paradigm. For instance, the European Union
plans to substitute taxation of work, with the introduction of a CO2 and energy tax.
Thus, governments enforce current regulations and will continue to raise the
957
price of mobility for customers. In this way, the ecological drivers affect the eco-
nomic drivers directly.
Besides the ecological and economic drivers there are also changing so-
cial conditions. While there is a large demand for automobiles in develop-
ing and emerging countries, the meaning and the prestige value of vehicles
decreases while the needs of developed societies remain the same. The auto-
mobile as a solution for individual mobility is increasingly questioned. This
phenomenon was already observed in the 1990’s; for the first time in Ja-
pan under the keyword „Kuruma Banare“, in English „demotorisation“. A
comparison of statistics by the German Federal Motor Transport Author-
ity in 2009 showed that in Germany, the percentage of new vehicle buyers
between 18 and 29 years old has decreased by half over the last ten years.
The reason for the increasing lack of interest lies not only in the economic
and ecological arguments mentioned above, but also in changing values of
this generation in the triad markets (Europe, Japan and the USA). Col-
laborative consumption within “Peer to Peer Communities” is raising.
The need to possess products like cars is replaced by services which are offered
on the Internet. These services gain market shares and can be offered at an af-
fordable price. The financial advantages, and affiliation with developing „Internet
networks” (“Peer to Peer Communities) are increasingly important for today’s
young people. Smartphones, for instance, are more important status symbols
than cars for many people. Furthermore, the purchasing power of young con-
sumers will decline in the triad markets over the next twenty years. So it is ex-
pected that this generation will buy fewer cars. This is why future mobility needs
will be addressed by car-sharing concepts, as well as other innovative solutions.
For the manufacturers, it is crucial to consider these changes in international
market environments in the development of new vehicles (e.g. electric vehicles)
and mobility concepts (e.g. car-sharing).
3. CONTRIBUTION OF ELECTRIC VEHICLES TO

SUSTAINABLE MOBILITY
Electric vehicles make permanent emission-free mobility possible.
This is always true on a tank to wheel view. However, which energy source used
for the production of the electricity is important and requires particular eco-
logical considerations. The end result is represented by the CO2 emissions. It
958
is crucial that renewable sources such as solar or wind energy are used, because
this is the only way the electric option is reasonable. See the following figure.
Figure 2: Well-to-Wheel comparison of different drive systems: CO2 emis-
sions and energy consumption (source: Own calculation after Concawe, Eu-
ropean Council for automotive R&D, European Commission Joint Research
Center (2007), Daimler Optiresource).
BEV:BatteryElectricVehicle
FCV:FuelCellVehicle(H2)
EUͲMix: Electricity from EU power
Also, energy consumption is an important factor. The Well-to-Wheel

(WTW)1 energy consumption is smallest with electric vehicles which are oper-
ated with renewable energies. The energy consumption could furthermore be
seen as an indicator of price, due to the scarcity of crude oil and energy as a
whole. The wide use of electric vehicles could provide enormous ecological and
economic advantages in the long term due to lower emissions and high energy INTERDISCIPLINARY MANAGEMENT RESEARCH XI
efficiency on a WTW basis.
Accordingly, governments will promote electromobility by monetary and
regulatory incentives, for instance releasing bus lanes and priority parking
lots. In France, for instance, large state-owned organizations like EDF, SNCF,
RATP or La Poste are supporting the use of electric vehicles for professional
1
To have a better understanding on the technical point of view and to better evaluate the dif-
ferent possibilities to fuel mobility the best is to analyse the energy path from primary energy
to the wheel (Well-to-Wheel). First, you have to distinguish primary energy that can be fossil
fuels (crude oil, natural gas, coal), renewables (sun, wind, biomass) or Nuclear (uranium). Pri-
mary energy is than transformed in final Energy (Gasoline, Natural Gas, Ethanol, Biodiesel,
Biomass to Liquid, electricity, Hydrogen, compressed air etc.). This final energy is then trans-
formed by a powertrain into movement (cf. Fournier, G. & Seign, R., 2009, p. 48.)
959
services2. It is estimated that almost 90% of the buyers are organizations. Elec-
tromobility will be beneficial on a long-term basis as taxation of energy and
CO2 emissions will enhance the near zero emissions effect stated in figure 2. In
fact, the ecological advantages are converted by turning the external costs into
economic incentives.
Moreover, it is expected that in the future, due to predictably rising fuel

prices, electric vehicles will have lower operating costs than conventional au-
tomobiles, if they are operated with renewable energies. As consumer aware-
ness of social responsibility rises, it could result in greater acceptance of electric
vehicles, because of their lower noise, lower pollutants and cleaner operations.
With these advantages, electromobility will make a significant contribution
to the future of sustainable mobility.
4. CONTRIBUTION OF CARSHARING TO
SUSTAINABLE MOBILITY
As a result of the ecological, economic and social issues mentioned above,
some consumers will change their way of consumption and be unwilling to in-
vest money in a passenger car to satisfy his or her mobility needs. This was
first studied in the 70s with the introduction of the concept of “collaborative
consumption” using the example of car-sharing.3 Predictably, the readiness of
consumers to commit themselves over time to a product or to define themselves
through property will decrease.4 Nevertheless, the needs for advancement in
mobility, sustainability and innovation continue to rise. The customer expects
that his or her mobility needs will be fulfilled by new sustainable products of-
fered by flexible ownership models in combination with reliable services. The
needs of this growing customer base are only partially fulfilled by current busi-
ness models and the limited product portfolios of car manufacturers. Conse-
quently, few market players will be able to stay profitable with purely product-
related revenues, or in other words, by selling vehicles only.5
2
Lancement du plan national pour le développement des véhicules électriques et hybrides
rechargeables
3
cf. Felson/Spaeth 1978
4
cf. Arthur D. Little, 2009, p. 64.
5
cf. Arthur D. Little, 2009, pp. 2 ff.
960
The above mentioned challenges, combined with social and political pres-
sures assure that individual mobility will change. Consumers will no longer re-
quire their own private car, but will be motivated to search for new means of
mobility, that are fast, comfortable and environmentally friendly.6
Public transport is a part of this solution, but even an excellent public trans-
port network cannot solve all mobility needs. To bring the traveller not only ap-
proximately, but exactly to his or her desired destination, is a problem which can
hardly be solved economically. There are parameters which limit the effective-
ness of public transport, for instance service to remote areas, long distances, the
transport of handicapped persons, bad weather conditions and the transport of
heavy or bulky objects. 7
New mobility concepts will be necessary to meet future requirements and
car-sharing is one suitable solution. The car-sharing concept is intended to fill
the mobility gap between public transport, taxis, bicycles, car rental and private
cars8. It offers the advantage and flexibility of a privately owned car, but without
the associated fixed costs and obligations. This also makes the model attractive
to new customer groups. The ecological and economic advantages of the mobil-
ity concept are as follows: 9
- Less parking spaces or occupied areas are needed,10
- Parking search is simplified and traffic is minimized,
- Younger automotive fleets with less emissions,
- Vehicles are suited to the trip purpose,
- Reduction in private vehicle ownership, 11
6
cf. Beste, R. & Schwägerl, C., 2010, p. 31.
7
cf. Mitchell, W. J., 2007
8
cf. Millard-Ball, A.; Murray, G.; Schure, J. & Fox, C., 2005, p. 37.
9
cf. Glotz-Richter, M.; Loose, W. & Nobis, C., 2007, S. 333 & Loose, W., 2010, pp. 73-92.
10
This should deepen in the future as the Autolib car-sharing system in Paris shows after one
year of usage that 53,3% of the users see Autolib as a substitution to the private car. Never-
theless still 46,1% see Autolib as a substitute to public transports. A potential of improve-
ment is therefore still possible. Cf. CLCV 2012, p.
11
In the scientific literature it is considered that between three and thirty vehicles are replaced
by a car-sharing vehicle or rather will not be bought. The estimated CO2-reduction varies
correspondingly and is furthermore dependent on the size of the fleet.
961
- Less passenger car use because of cost transparency and changed, mobility
behaviour 12
- Improved connections to public transport by Park and Ride promotions as
well as intermodal 13 mobility concepts (e.g. RegioMobilCard in Freiburg
or Yélo in La Rochelle),
- Easier integration of initial expenses of alternative drives by spreading
fixed costs, and
- Possibility of decreased CO2 emissions as well as compensation by service
providers and users.
Additionally, the customer can always have access to current vehicles, has
smaller or no parking costs and might actually see time savings if there is a
high penetration of the service. 14 The stress level of the drivers is then reduced,
which can be particularly high in large metropolises, such as Mexico City, Shen-
zhen, Beijing and Bangalore. 15
To sum up, the volume of traffic and costs are reduced, without necessarily
declining the frequency of the automobile use. The ease of private mobility is
simpler and cheaper, since it requires no capital investment by the user. Finally,
car-sharing models satisfy the social need for intensified consideration of envi-
ronmental aspects. Thus car-sharing can be part of the solution to our future
mobility and the sustainability needs.
Car-sharing with or without electromobility, can be realized in three differ-
ent ways. The first, classical approach works with stations (e.g. public parking
lots), at which the vehicles must be picked up and returned. Examples for these
12
The high fix costs of the personnel vehicle owner motivate them even if it is actually un-
necessary and there are enough alternatives to use their car. The transparent calculation per
minute creates an strong incentive to reconsider his or her behavior and change (cf. Keegan,
P., 2009). The Niches-project shows that car-sharing participants reduced their driven kilo-
meters by 36% (cf. Niches+, 2010).
13
Intermodality is defined as a multi-link transport chain where customers are carried with at
least two various means of transport.
14
cf. Bannister, A., 2005, pp. 29-33.
15
cf. IBM, 2011-
962
are Quicar – Share a Volkswagen 16 and Flinkster, Deutsche Bahn, which use
partial electric vehicles. 17
The concept Autolib in Paris extends this approach. It provides stations
where vehicles can be picked up and returned at a different station. But this
approach requires high investment and a high critical mass of customers and
vehicles. In Paris, it is configured with 3,000 electric vehicles and 6,000 park-
ing lots at 1,000 stations. 18 However, even the operating company assumes the
model only pays off after seven years. 19
A third approach, which was selected by BMW and Daimler, differs from
earlier approaches in that the vehicles, which are mostly conventionally driven,
must be picked up and returned, not at stations but in a defined area. One
way trips are possible since the vehicle can be parked at any point in a defined
(central) area. The following figure shows the operational principle of such a
car-sharing model.
Figure 3: Operational principle of the modern station-free car-sharing (source:

Own representation following DriveNow, 2011 and Daimler, 2011).
Find & reserve

Register with car
provider Open & start the car
with customer card
Chariging (refueling), Drive & pay per

cleaning, service, etc. minute
through provider
Park in
defined area
16
cf. Volkswagen, 2011, p. 8.
17
cf. Flinkster, 2011
18
cf. Niches+, 2010
19
cf. Auto Motor und Sport, 2011
963
This principle combines the greatest possible customer benefits and flexibil-
ity with the smallest investment, but the provider must overcome great chal-
lenges in making the process work, which is described later.20
5. CONTRIBUTION OF CARSHARING WITH

ELECTRIC VEHICLES IN SUSTAINABLE
MOBILITY
Since car-sharing targets short term rentals and inner city traffic, electric ve-
hicles are actually very suitable for use in a car-sharing fleet. The battery range is
currently about 100-200 km and can be regarded as adequate. A car-sharing ve-
hicle can go several days without charging, depending on the usage. car-sharing
with electric vehicles can provide individual and emission-free mobility while
matching the individual needs of the customers.
There are further strategic reasons for choosing electric vehicles. Their in-
tegration into the car-sharing fleet makes sense, because the integration will
increase public awareness about the presence of electric vehicles as a new tech-
nology.21 Since there is no lasting obligation, like car ownership calls for, the “per
minute” fee structure allows the customers to gather experience with the electric
car.22 So, the acceptance will increase in the long run. But the still wide-spread
fear of too short a range („range anxiety“) will decrease. In addition, car-sharing
with electric vehicles will lead to increased production and sales of electric cars.
When the manufacturers benefit from large scale usage, it makes the vehicles
less expensive. car-sharing can become an advertisement for electric mobility.
Finally, conventional sales (for individual purposes) would benefit from wide
scale usage and decrease the costs of the technology. More electric vehicles could
be manufactured and their ecological, economic and social advantages would be
multiplied.
This is an important point for the industry. With CO2 reduction gained by
widespread use of electric cars, the industry would more easily comply with gov-
ernment regulations. In the next ten years, approximately 300 billion euros will
20
cf. DriveNow, 2011 und Daimler, 2011
21
for more details: Lanzendorf, M., 2010
22
cf. Rieckmann, T., 2010
964
be invested world-wide in CO2 reduction, about 50 billion euros of investment
will be in alternative powertrain engines, such as hybrid or electric drives.23
Another opportunity to consider is a concept called Vehicle-to-Grid. This is
the integration of electric vehicles into the electrical power grid to form a virtual
power storage station. In a grid with a high proportion of renewable energy
sources but fluctuating energy production, the load can be stabilised by the stor-
age, feeding and charging of electricity from electric vehicles. It is possible e.g.
to use surplus power from renewable energy systems to substitute peak- loads.
This electricity is normally provided by non-renewable power plants during
peak load times. This process works by feeding stored “green” electricity into
car accumulators that are docked into the grid. This is ecologically sensible. De-
pending on the country where it is implemented and on the business model, it
can also be economically advantageous.24 car-sharing operators could generate
revenue even when the cars are parked.
Car-sharing offers an alternative to conventional selling or leasing of electric
vehicles.25 The institution Cetelem has recently asked 6000 European drivers in
ten different countries how they view the future of the automotive industry in
Europe. 36% stated they were ready to switch from ownership to leasing a car.26
The electric vehicles are currently too expensive because of high research and
development as well as high production costs. The Total-Costs-of-Ownership
is still higher than that of a conventional vehicle despite lower operating costs.
27
Since electric car’s batteries have a short lifetime, the residual value decreases
rapidly. Car-sharing as a distribution form would be more attractive for custom-
ers. That makes strategic sense in order to increase production rates and finally INTERDISCIPLINARY MANAGEMENT RESEARCH XI
create a large scale market.28
To sum up, it can be said that car-sharing using electric vehicles makes sense
in many ways and is attractive for all parties involved. The contribution to the
three pillars of sustainability is summarized in the following table.
23
cf. Oliver Wyman, 2009
24
For more details see. Fournier, G.; Baumann, M.; Seign, R.:2010, , pp. 38-41
25
cf. Reinking, G., 2011
26
L’Observatoire Cetelem 2012, « La voiture électrique et les Européens », http://observatoi-
recetelm.com/medias/pdf/2012/obervatoire-cetelem-de-l-automobile-2012.pdf
27
cf. Oliver Wyman, 2010
28
cf. Reinking, G., 2011
965
Figure 4: The ecological, economic and sociological contributions of car-shar-
ing with electric vehicles (source: Own representation).
Environment Economic Social
Less pollution impact Fair use costs (internal + external costs) Comfort without sacrifice
Improved use of time, decrease

Smaller resources consumption (fuels, surface, time, human resources)
level of stress
Flexible ownership models, simple
New customer-oriented business models,
High (energy) efficiency entrance to mobility services with
development of new customer groups
small capital lock-up
Promotion of renewable Smaller expenditures for mobility, for Conscious, sustainable handling of
energies certain customer segments mobility
Promotion of community thinking
Product diversification for car (Peer-to-Peer Community,
manufacturers Collaborative Consumption) by new
technologies
Corporations would gain a competitive advantage through managing sus-

tainability.29 30 This shows that the « triple bottom line » from Elkington31 (3P
- People, Planet and Profit) integrating sustainability in all economic, social and
ecological dimensions, to generate more profit in the long term is possible. This
could be a way for the automotive industry to survive in the long run32 33.
6. CARSHARING WITH ELECTRIC VEHICLES: A

SUCCESSFUL BUSINESS MODEL?
Despite the multifarious advantages there are still challenges which have to
be addressed. First, the diffusion and acceptance of the idea of car-sharing is
crucial. Car-sharing is seen in a very critical light in many societies. A current
study with young adults in Germany showed that 73% of them are aware of the
current car-sharing service. However, only 6% are ready to use such a model.
29
Shrivastava, P., 1995 and Story, D. & Price, T., 2006
30
This goes also in hand with the concept of shared value with the focus on the connection
between social and economic progress (Porter & Kramer, 2011).
31
Elkington J. (1999), Cannibals with Forks. The Triple Bottom Line of 21st Century Business,
Capstone Publishing Ltd, Oxford.
32
D’Aveni R. (1995), Hypercompétition, Vuibert, Paris.
33
Reynaud E. (2006b), « Stratégie et développement durable », dans Reynaud E. (Ed.), Le
développement durable au cœur de l’entreprise, Dunod, Paris, pp. 203-228.
966
They are waiting for a better price-performance ratio and better service connec-
tions („No-Gaps Coverage“).34 If a high market penetration is reached, then the
advantages of usage will contribute positively to a sustainable future in mobility.
Nevertheless the many advantages of car-sharing combined with social accep-
tance will pave the way for the commercial success of such a service.
Moreover, the integration of electric vehicles into the car-sharing fleet will be-
come more difficult. First the availability of renewable energies must be secured,
which is an indispensable prerequisite for the efficient and ecological operation
of the vehicles. Furthermore electric vehicles must develop a technological ma-
turity and high reliability in order to find broad acceptance. Beyond that, they
must exhibit controllable initial costs and an acceptable level of Total-Cost-of-
Ownership. New business models must be developed which make car-sharing
service with electric vehicles economically feasible and comfortable. This is a
challenge, since charging the electric cars possibly leads to inconvenience and
flexibility losses for the customer in comparison to conventional vehicles. Cur-
rently, the provider is responsible for refuelling the cars. Whether this model
can work for electric vehicles, is questionable and will be examined in the next
section as it is essential to the creation of car-sharing with electric vehicles and
is identified as the most critical success factor for this business model.
Nevertheless, the political climate and regulations are very important fac-
tors for the success of such concepts. Predictably, success requires a charging
infrastructure or at least the governmental support for such. Monetary (e.g. tax
concessions, congestion charge or specific parking areas) as well as regulatory
(e.g. release of bus lanes) incentives, are needed in order to compensate ini- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
tial disadvantages of car-sharing compared to the private ownership of vehicles
and the electric mobility in comparison to combustion engines. Otherwise, this
innovation-bundle might perish. With the obvious advantages of car-sharing
using electric vehicles, governments worldwide should take an active interest in
promoting such concepts and create appropriate prerequisites for integrating
this innovation into transportation networks.
34
cf. Roland Berger Strategy Consultants GmbH, 2011, p. 22.
967
7. FACING THE MAIN CHALLENGE FOR
ECONOMIC VIABILITY: CHARGING
STRATEGIES FOR CARSHARING WITH
ELECTRIC VEHICLES
The charging process differs significantly from conventional refuelling. This

procedure takes several hours and requires a new infrastructure. The following
illustration shows possible solutions for car-sharing providers and compares the
pros and cons of the different alternatives for charging.
Figure 5: Solution options of the charging problem in the customer process

of car-sharing with electric vehicles as critical success factor (source: Own
representation).
Option1 Option2 Option3
Providerownscharging Publicchargingpoints, Providerownschargingpoints,
points,customercharges customercharges providercharges
highflexibility&comfortfor
easyprocessforprovider easyprocessforprovider
customer
+ reliableinfrastructure noinvestforprovider
synergieswithservice
processesforprovider
reducedflexibility&comfort reducedflexibility&comfort
highprocesscostsforprovider
forcustomer forcustomer
Ͳ highinvestforprovider
dependencyonpublic
infrastructure:noguaranteed
space&possiblytimelimitfor
highinvestforprovider
parking
Since current conventional car-sharing systems (such as Zipcar) are not yet
operating profitably, it cannot be expected that providers will be able to invest
in both – currently higher priced electric vehicles AND charging infrastructure.
Hence, option 1 and 3 will not be feasible in the near future.
For this reason, option two must be optimised so that providers do not have
to invest in complex charging processes or in expensive infrastructure them-
selves while providing comfort and availability to the customer. In general, there
are two different types of organizing charging infrastructure: centrally and de-
centrally. Following this typology, possible solutions how charging infrastruc-
ture might be organized to achieve this goal are discussed. In this discussion not
only the view of car-sharing providers is taken but also other stakeholders such
as the infrastructure operator and other electric vehicle owners are considered
to ensure a realistic and comprehensive overview:
968
Decentral Concepts
a. “on-street charging“
This refers to classic roadside parking and simultaneous charging at specially
marked parking spaces which are exclusively for electric vehicles. Here, a special
charging infrastructure will be built and operated similar to parking ticket ma-
chines. Problems faced by this solution are urban integration (aesthetics, trip
hazard) and the high likelihood that not more than one vehicle can be charged
per parking space, e.g. over night. One advantage of this approach is certainly
charging the visibility and the proximity to customers’ homes, but it cannot be
guaranteed that the parking space is available when needed. An example for this
concept is car2go in Amsterdam.35
b. “swap charging“
Private users who have a private parking space with charging infrastructure
(e.g. so called “wall boxes”) could make their infrastructure available to others.
This infrastructure could be rented out to overnight users. In addition to a pos-
sible permanent rent also dynamic models could emerge like booking platforms
on the internet. For parking spaces this is already reality, for example through
the service ParkatmyHouse36. For car-sharing however, this might lead to a
complex booking and billing process.
Central Concepts
Nowadays the refueling infrastructure for conventional gasoline powered
vehicles is centrally organized. Relatively big gas stations established themselves
with a successful “cross selling“ approach where not only gas but also many oth-
er products are sold.
It is expected that profit margins with selling electricity are far smaller than
nowadays with fuel. In order to get a return on a charging infrastructure invest-
ment, additional revenues from other services might be necessary.
The combination of a continuous operation (24/7) and a service business
(e.g., for a car park), the use of “free” resources (e.g. company car parks) or the
installation of charging infrastructure in areas where a longer parking duration
35
car2go (2012)
36
ParkatmyHouse (2012)
969
is admirable (e.g. Park&Ride or supermarkets) seem very promising. Following,
these concepts are briefly introduced.
a. E-Car Park (incl. service, “valet charging“)
Especially in a car park the installation of charging infrastructure seems very
interesting, because in combination with optimized logistics and a range of ser-

vices, such as for private customers and / or companies (as well as car-sharing)
a very high utilization appears possible. Electric vehicle owners without access
to charging infrastructure might be dependent on such a service as well as car-
sharing providers might consider such a solution (see for example DriveNow in
San Francisco37). This can be very interesting for realizing additional revenue
through vehicle-to-grid (V2G) solutions, where electric vehicles act as energy
storage systems, e.g. to store abundant renewable energies. For this, a high utili-
zation and hence a high availability of “the storage” is crucial.
The park operator may additionally offer so-called “valet charging” services,
e.g. a provider picks up an empty vehicle from a customer in the evening and
delivers it back fully charged in the morning. This could be interesting for car-
sharing fleet managers who wish to reallocate their fleet or ask for additional
services such as cleaning.
b. E-Company Car Parks (“overnight charging“)
Large companies often have parking garages for their employees. These are
usually very busy during the day, but in the evening or overnight, they are most-
ly empty. Charging capacity in these company car parks could therefore be used
at least twice a day, during the day by employees with e-vehicles and overnight
by private users or car-sharing fleets. For the company which owns the car park
this offers additional revenue since they might have to invest in charging infra-
structure for their employees, and for electric vehicle users this is an attractive
alternative. However, it will be necessary to enable access to the infrastructure
and to implement billing systems for this service.
c. E-Park&Ride (”park and ride charging“)
In addition to parking garages especially “park and ride” facilities seem to be
interesting locations for charging infrastructure. Here, cars usually park long
enough to be charged in the meantime. Similarly to the concepts above, this
37
DriveNow (2012)
970
concept appears interesting as mainly commuters use the parking and charg-
ing facilities during the day and utilization at night could be ensured through
charging services. Additional services such as the mentioned valet-parking
could bring in even more revenue to these parking operators.
d. eDepot (“depot charging“)
Of course, other concepts for organizing charging infrastructure are pos-
sible. Sufficiently long parking times are an important prerequisite for economic
operation. The above concepts are suitable for both AC load (duration approx.
7 h) as well as for DC loading (full charging time approximately 30min., how-
ever this is expensive and has complex technical requirements). Hence, further
possible eDepots are malls, supermarkets, cinemas, private garages or backyards
(e.g. operation through Property Management). These depots might be of in-
terest for car-sharing customers if they consider charging the car during a book-
ing to extend the range. Alternatively, companies could build up such a depot
independent from a possible additional consumer profit to simply fulfill the
operational requirement of charging (see car2go in Austin38).
A conclusion that can be drawn from this discussion is, that it is important
to consider other stakeholders and be flexible when choosing a charging strat-
egy. Conditions and offers might vary locally but overall, central concepts seem
to face the challenge best and might be able to combine the interest of custom-
ers and car-sharing providers.
7. CONCLUSION
Public Company Accounting Oversight Board (PCAOB)Electromobility
provides the advantage of emission-free and efficient mobility. It offers low op-
erating costs and high innovation potential and is thereby a fundamental basis
for sustainable mobility.
Car-sharing is one mobility form, which closes the gap between traditional
transportation service options. It is advantageous in terms of ecological, eco-
nomic and social concerns compared to other forms of individual transporta-
tion. In addition, the user does not necessarily have to forego any comforts.
38
Lee (2012)
971
Combining car-sharing and electric mobility results in a “circulus virtuosis”
or in other words a profitable dynamic, because car-sharing and electric mobil-
ity are mutually beneficial. The operation of a car-sharing model with electric
vehicles makes sense given these considerations even though it is still facing
challenges. Apart from the costs, the integration of charging is the most criti-
cal success factor for the realization of the concept and its economic success.
This paper discusses possible solutions for this problem which appear to be
feasible and promising. Especially centralized charging strategies seem promis-
ing as they might reconcile car-sharing providers’ and customers’ needs. Fur-
thermore, car-sharing providers must solve open challenges with suitable new
business models and appropriate consumer education. The doubts of the con-
sumers concerning product reliability, price performance ratio and intercon-
nectivity need to be overcome. Moreover, governments have to set appropriate
framework conditions for this innovation as a part of a local transportation
network. Without this support, the described “circulus virtuosis” turns into a
“circulus vitiosus” – a vicious circle of high costs and complex processes. The
Paris system is one example of a framework and set of conditions that seems
to work well. Cities worldwide can learn from this. Car-sharing with electric
vehicles could thus make an important contribution to our future mobility. Our
mobility would become more sustainable in the economic, ecological and social
aspects of daily life. It could also be a promising strategy for businesses and the
automotive industry to cope with global challenges. But this innovation-pack-
age appears economically viable once the right internal and external framework
conditions are given.
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975
PROBLEMS OF TRANSITION
FROM CLASSICAL DEDICATED ICT
SYSTEM TO CLOUD COMPUTING
Josip Mesarić, Ph.D., Full Professor

Josip Mesarić • Nenad Stanišić: PROBLEMS OF TRANSITION FROM CLASSICAL DEDICATED ICT SYSTEM TO CLOUD COMPUTING

mesaric@efos.hr
Mr. Sc. Nenad Stanišić, PH.D. student

Hrvatske šume Ltd, Našice, Croatia
nenad.stanisic@hrsume.hr
Abstract
Technological solutions, which most of ICT processes are still based on in busi-
ness systems, are classical desktop systems and client-server systems. Some typi-
cal characteristics of such systems are poor utilization of processing possibilities,
overcapacity of storage systems, data and application redundancy, relatively
high security as well as relatively low portability and scalability.
The paper deals with advantages and shortcomings of the conceptual model of
capital expenses and operational expenses of classical ICT systems compared
to the cloud computing with an emphasis on the problem of demands definition
and their valuation, as well as ICT capacity utilization. Also, the costs of clas-
sical and potential cloud computing options are investigated, especially in the
context of total costs of ownership. The paper has revealed a problem of precise
historical data availability for different kinds of ICT expenses. The model and
TCO have been analysed on the case of one big Croatian company.
Keywords: Cloud computing, classical computing, overcapacity, undercapac-
ity, TCO
JEL Classification: L63, M15, M19
976
INTRODUCTION
The emergence of new technological attainments or evolutionary upturns, as
is the case in the information and communication technologies, pose challenges
for all business systems, regardless of their industry, size, organizational struc-
ture or socio-economic environment in which they operate. Existing techno-
logical solutions are the foundation or the consequences of their organizational
solutions, methods of implementation, performance of business processes,
workflows, creation of value chains, managerial styles and methods, business
goals (from operational through tactical to strategic), economy and productivity
as well as relations with the environment.
A new technological paradigm which has emerged in recent years, consider-
ing collection, processing, storing, distributing and using of data and informa-
tion is cloud computing. Cloud computing is not a single technology but a set
of technological solutions which have evolved in the field of information and
communication technology based primarily on the development of computer
architecture, computer networks and protocols, new server and client operating
systems, virtualization, software and hardware solutions, scripting languages,
tools and databases. Listed technological solutions enable the fulfilment of the
new requirements for data and information regarding their shape, size, place of
occurrence, type of processing, storing, dissemination and presentation.
Technological solutions, on which most of ICT processes are still based on
in business systems, are classic desktop computers (which have also undergone
revolutionary changes in last two decades) and client-server systems. A typi-
cal characteristic of such systems are poor utilization of processing possibili- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
ties, overcapacity of storage systems, data and application redundancy, relatively

high security as well as relatively low portability and scalability.
The suitability assessments of, new technological paradigms, especially those
in the domain of information and communication technologies, usually are
based on the following sets of parameters:
• Businesses demands, strategic, tactical and operational objectives, key
business processes and their outcomes as well as business continuity;
• Financial requirements;
• Timing requirements in terms of estimates of the moment of introduc-
tion and the time required to introduce the new technological paradigm;
977
• Organizational ability for technology acceptance;
• Change management skills and abilities;
• Security aspects;
• Ability to manage technological development;
• Compliance with legal regulations.
For the assessment, development and implementation of new technological

paradigms, numerous models and methodological frameworks have been devel-
oped that are (or pretend to be) suitable for each aspect, phase or integration of
all aspects relevant to the development and implementation of new technologi-
cal solutions 1 (AGIMO, 2012).
The aim of this paper is to point out some of the problems and limitations of
the conceptual model used to justify transition from classic dedicated informa-
tion systems to cloud computing as well as the problems of calculating the total
cost of ownership of some technological variants.
CONCEPTUAL FRAMEWORK MODEL FOR

JUSTIFICATION OF TRANSITIONING TO CLOUD
COMPUTING
Cloud computing is considered as a set of computer services provided to the
user in the amount, time, how and when they are needed. It encompasses the
following types of services:
- Software as a Service (SaaS)
- Platform as a Service (PaaS)
- Infrastructure as a Service (IaaS)
Besides the criteria mentioned above, following arguments are used to justify
transition to the cloud computing:
- Cost savings of equipment and costs of personnel that are committed to
maintaining computers, servers, software and network architecture;
1
Examples of metodologies, metamodels or standards are: classical SWOT analysis and Capa-
bility-Maturity Model, Zachman framework and its variants, CobIT, ITIL, ISO/IEC 27002,
TOGAF and others.
978
- Continual software upgrade and depriving users from taking care of new
version of operating system, general purpose application (eg. office tools)
and miiddleware;
- Security concerns;
- Scalability etc.
The conceptual framework (model) which justifies the transition from on
premise systems to cloud computing is shown in Graph 1. Graph illustrates
how a technological change occurs in typical desktop and client-server IT sys-
tems (technological leaps) and how they change working capacity, storing ca-
pacity and consequently their ability to adapt to current customer requirements
(green line). Due to upturns in capital investments a problem of overcapacity of
IT resources occurs in the initial stages and after some time the problem of un-
dercapacity begins to occur due to the growing demands and new technological
changes which influence the needs for new capital investments.
The basic idea of CC providers is that the requirements (red line) for new
hardware and software solutions could be met by renting of these solutions as
a service in the amounts and time of how much a user need with addition of
a safety margin (blue line). In this way, the user is spared from higher capital
expenditures which are left to the provider of CC services. By using the new
technology solutions (processor architecture, storage capacity, operating sys-
tems, virtualization, Internet technology grid, development of platforms and
application solutions) service providers are able to offer individual or groups of
services that are now popularly called cloud computing.
979
Graph 1: Curve of capacity utilization in classic (dedicated) systems and in the
cloud Source: adapted according to : Rackspace Support,, Moving your Infra-
structure to the Cloud, San Antonio, 2011
However, even a superficial and in particular a systematic analysis reveals

multiple problems for the applicability of this concept in practice. The first
problem is how to clearly define requirements in their quality (nature), the
amount and (wherever possible) in value. It is important to assess those re-
quirements at a certain point of time on the one side and the foreseeable time
perspective on the other side.
Capacity is a hardware-software solution that has solved the task - meets
the users requirements. Whether it comes to capacity of processors to perform
(speed), software solutions, RAM capacity, disk capacity and connection speed?
If so then in a given architecture we can reach the configuration and cost re-
quired for such configurations and architectures. In the default settings usually
those capacities exceed the needs. Another issue is why and for how long is the
green line such as it is and whether it is a constant? When we talk about tech-
nological leaps, experience has shown that it can take a period of 5 years as it
is today a common cycle for changing the technological basis of computer sys-
tems. Why is the curve straight? It could mean the following: in the initial year
we have new technology (hardware, software, networks ...); next year we invest
in the value of amortization and we have capital investments that are constant.
980
According to the model, cloud computing would not require such invest-
ments on the user side. Instead the demand can be fulfilled in a way that the
user invests a minimum of the necessary funds and the rest would be bought
from the service providers in an amount that is necessary. Such explanations are
acceptable for systems that are faced with a dilemma of choice of one or other
variant at the beginning of its activity. However, for systems that are architec-
turally established in past, the analysis must take into account many other fac-
tors to which the existing system needs to adapt to as new solutions and whose
costs can significantly surpass the renovation of the existing system.
The usefulness and effectiveness of the model is studied by using an example
of a big business system in the Republic of Croatia.
REVIEW OF PREVIOUS RESEARCH

There are numerous studies about various aspects of the problem of transi-
tion from classical, on premise or dedicated systems and client-server system to
cloud computing. A short overview will be made on research that was more fo-
cused on the costs or cost-benefit analysis of the transition from classical com-
puting to cloud computing. Kondo et al (2010), have examined:
- What are the performance trade-offs in using one platform over the other
in terms of platform construction, application deployment, compute rates,
and completion times?
- What are the specific resource requirements and monetary costs of creat-
ing and deploying applications on each platform? INTERDISCIPLINARY MANAGEMENT RESEARCH XI
- Given those performance and monetary cost-benefits, how do VC plat-

forms compare with cloud platforms?
- Can cloud computing platforms be used in combination with VC systems
to improve cost-effectiveness even further?“
Kristekova & al (2012) started from „difficulties to determine the total costs
caused by offering own services in the cloud as well as to compare them with
the costs caused by an in-house datacenter. They proposed „ a simulation model
that covers such dynamic aspects and supports decision makers in analyzing
cost-benefits of cloud computing versus own datacenter“.
Chandra and Borah, 2012 have made a Cost-Benefit Analysis of Cloud
computing in Education in India, emphasizing the advantages of simple devices
981
that will be used by a growing body of student population on the one hand and
the use of such a concept as ‘in the cloud’ on the network of universities of India
on the other hand.
Alford, T., Morton (Alford, Morton, 2010), investigated “potential savings
of the federal plan, focusing on IT data centers and using a proprietary cost
model and extensive experience in cost and economic analysis of government
IT programs. Results generally confirm the government’s expectations of sig-

nificant cost savings.“
Rutland (2012) examined CAPEX TO OPEX problem emphasizing its
applicability to systems that are starting from scratch projects (startup) and
systems that have built their portfolio of requirements and services that are
far more complex. He pointed out that TCO analysis of both variants is more
appropriate.
M., Dias de Assunção, A.,di Costanzo, R., Buyya, 2010 (Dias, 2013) have
„showed that the cost of increasing the performance of application scheduling
is higher under a scenario where the site’s cluster is under-utilised. In addition,
request backfilling and redirection based on the expansion factors (i.e. selective
backfilling) showed a good ratio of slowdown improvement to the money spent
for using Cloud resources.”
At a time when cloud computing is becoming increasingly more acceptable
technology the number of service providers of CC is rapidly growing and ser-
vice users are faced with a dilemma of how to choose the best provider that will
today and in the foreseeable future of at least five years be able to fulfil all the
necessary requirements of the user, taking into account the technological prog-
ress (Perry, 2010).
Investigati ROI Kepes (Kepes, 2011) point out that “for companies it is im-
portant to find a way to increase the benefits while reducing the risks when mi-
grating to CC. Given the multitude of providers of these services on the market,
it is very important, even crucial, to the success of CC that the most competent
program is chosen that meets the specific needs of users”.
982
RESEARCH ON OVERPROVISIONING/UNDER
PROVISIONING OF INFORMATION RESOURCES 
THE PROBLEM OF IDENTIFYING THE COSTS AND
DEMANDS
Observed company, belongs to large business systems. It has over 8,000
employees, with about 3,000 different computers and about 30 different serv-
ers. Although software development it is not the core business of the company,
most of the business software has been developed by their own development
team. Largest numbers of applications are desktop applications, hierarhicaly
organized. Locally processed data are sent on the higher level as packages and
processed afterwards. The database and development tools are outdated and
manufacturers no longer support them. Some applications are carried out on
client server systems with new versions of (MS SQL) database being located
on separate servers. There are also web applications through which certain data
and programs are accessed or used in a web environment.
Beside their own applications there are applications from external manu-
facturers for whose use as well as use of platforms (OS, software for business
process management, database, GIS, etc.) licence fees are paid..
The problem of overcapacity can be considered on two levels. First is hard-
ware overcapacity – total provisionig of disk space that is explored in a sample
of one organizational unit and because of the similarity with other organiza-
tional units is approximated on the whole system. It has been determined that
the utilization of disk space is at a level between 18 and 20%.
Total under/over-capacity of hardware and software resources was observed
on the basis of investments in hardware and software solutions in the period
from 2008. to 2012. with the plan for 2013., as shown in Graph 2.
For creation of chart the starting point was set out on the realistic assump-
tion2 about equal value of software and hardware in 2007 at the amount of
2 million Kunas each. Starting from these values and that the technological
cycles change about every five years, a value correction is derived for adjustment
of equipment and software with 20% write-off yearly to which the investment
2
We gained this orientation data on the basis of data about the purchase value in the period
from 2008. to 2012. and the cumulative value of the equipment (separately for hardware and
software) in the period from 1989. to 2008.
983
value was added for each year and successively corrected until 2012. Under/
over-capacity can then be conditionally viewed as the ratio of the total value of
hardware and software compared to an average for the period. It may also be as-
sumed that good compliance of the hardware and software value probably lead
to overcapacity of resources in classical dedicated and client-server architecture.
Graph 2. Estimates of over/under provisioning of ICT capacities based on invest-
ments in hardware and software in period 2008-2012
Estimatesofover/underprovisioning
16.000.000
14.000.000
12.000.000
10.000.000
8.000.000
6.000.000
4.000.000
2.000.000
0
2007 2008 2009 2010 2011 2012 2013
Time
Hardware Software Totalhardware+software Average
CALCULATION FOR TOTAL COSTS OF

OWNERSHIP.
Problem with Graph 2. consists primarily that costs of creating and renova-
tion of their business applications are not included. These costs are included in
the salaries of the design and development team and what they really are can
only be approximated. The total costs of ownership of some ICT variants may
include the following:
TCO = Purchase + Financing + Maintenance + Upgrade + Enhancements
+ Deployment + Security + Depreciation + Decommissioning + Disposal +
Costn
For our research purposes, they are decomposed in to hardware costs, soft-
ware costs, the cost of human labour and the cost of communications.
984
TCO = Ch + Cs + Chr + Ck
Ch – costs of hardware
Cs - costs of software
Chr – costs of ICT staff
Ck – costs of communication
Given the way of bookkeeping, communication costs are not taken into
account.
Total costs of ICT ownership in the previous period is shown in Graph 3.
Graph 3. TCO of actual ICT paradigm (on premise, desktop and client-server
application)
TotalCostsofOwnership
35000000
30000000
25000000
20000000
15000000
10000000
5000000
0
2007 2008 2009 2010 2011 2012 2013
ICTHumanResources Hardw+Softw
Estimated total cost of ownership for the assumed future period from 2013. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
for option of existing ICT is derived by approximation based on data from the
period of 2008 to 2012 and the investment plan for 2013. TCO for CC is de-
rived from successive reduction in capital investments by 10-15% in all years
except in the initial year when, because of the cost of developing new business
solutions and costs of migration, should expect that the costs will be signifi-
cantly higher than those years with conventional technology solutions. The cost
of personnel employed in the ICT was equally successively reduced. The cost of
CC services was included as the cost for renting of EC2 integrated services of
Amazon cloud computing for large customers (Graph 4.)
985
Graph 4. Estimated TCO of current ICT, private and public cloud
EstimatedTCOforonpremiseandCCvariants
25000000
20000000
15000000
10000000
5000000
0
2013 2014 2015 2016 2017
ONpremise Privatecloud Publiccloud
h i d f i d bli l d
The largest share of the total cost of ownership of existing on premise ver-
sions of computer solutions are staff costs employed in maintenance, develop-
ment and management of ICT. Although at this point it is not known what the
costs will be in the future, it is realistic to assume that a part of these human re-
sources will remain surplus, especially at middle management levels as well as at
the levels of operations management and some administrator functions. Their
increased involvement can be expected, provided that they have the capacity,
in adapting existing and developing new applications for CC. Adjustment or
completely new development of business applications that can run in the cloud
can be cost-demanding.
It is reasonable to predict that, due to the costs of adapting existing business
applications, it will initially require significant investments In the future period
are excluded employee related costs at middle level management of IT from the
total cost of ownership of cloud computing which is why in the long run accord-
ing to TCO cloud computing stands as a more favourable option.
CONCLUSION AND RECOMMENDATIONS FOR

FURTHER RESEARCH
Most arguments for the transition to the new paradigm of information tech-
nology - cloud computing, favor its cost-effectiveness and the problem of over/
under provisioning of ICT resources or “gap” between conventional capital in-
vestments and the (increasing) demand for individual resources in the classic
desktop and client-server systems.
986
Assessment of “gap” between conventional capital investments and the in-
creasing demand for individual resources in the classic desktop and client-server
systems is derived through the analysis of capital investments in ICT and the
total cost of ownership in the period from 2008. to 2012. Important insights
about the “gap” of capital investments and the growing needs has been confirmed
through the analysis of investments in hardware and software solutions that are
assumed to sufficiently accurately reflect the ICT needs.
Although most of the arguments for the transition to the new information
technology paradigm emphasize its cost-effectiveness, it has been shown that
the cost estimates are not an easy task. It turned out the fact that the actual
accounting data are not sufficiently organized and it is necessary to introduce
additional calculations and estimates for the comparative analysis to be proven
effective for making the decision to transition from one technological paradigm
to the other. A particular problem with the cost of cloud computing providers is
that there is a need for a thorough analysis of everything that is included under
a particular kind of service and what kind of hidden costs of migration to a new
technological paradigm can occur.
Equality (model):
Th + Ts + To + Tk = TSaaS + TPaaS + TIaaS
TSaaS – expenses of software as a service,
TPaaS – expenses of platform as a service,
TIaaS – infrastructure expenses as a service
that connects the total cost of ownership and cost of services of cloud com-
puting is the basis for analysis and “altering” of cost variants. Thus, based on
well-defined requests for services, platform and infrastructure (which will, after
all, represent elements for forming of a service contract - SLA) for each mem-
ber of the right side of the equation a sufficiently reliable estimate of TCO or
certain categories of expenses can be carried out. Those estimates will be equally
possible for options of private, hybrid or public clouds, provided that the con-
tent of a particular service is fully or for the most part known.
987
REFERENCES
AGIMO, A Guide to implementing Cloud Services, Australian Government, 2012. available
at: http://www.finance.gov.au/files/2012/09/a-guide-to-implementing-cloud-services.pdf
Alford, T., Morton G., The Economics of Cloud Computing, Adressing the Benefits of In-
frastructure in the Cloud, Booz- Allen-Hamilton, 2010, available at: www.boozallen.com/
media/file/Economics-of-Cloud-Computing.pdf
Chandra, D.G., Borah, M.D., Cost-Benefit Analysis of Cloud com-
puting in Education, available at_ https://www.researchgate.net/

publication/233390019_Cost_benefit_analysis_of_cloud_computing_in_education,
Geva Perry, Evaluating cloud computing services: Criteria to consider, available at:
http://searchcloudcomputing.techtarget.com/feature/Evaluating-cloud-computing-
services-Criteria-to-consider,
ISACA: Calculating Cloud ROI: From the Customer Perspective, An ISACA Cloud Com-
puting Vision Series White Paper, July ,2012.
Kepes,Ben, Moving Your Infrastructure to the Cloud: How to Maximize Benefits and Avoid
Pitfalls available at http://diversity.net.nz/wp-content/uploads/2011/01/Moving-to-the-
Clouds.pdf,
Kristekova, Zuzana Brion, Jesica Schermann, Michael Krcmar, Helmut Simulation Model
for Cost-Benefit Analysis of Cloud Computing versus In-House Datacenters http://www.
digibib.tu-bs.de/?docid=00047421, Digitale Bibliothek Braunscweig available at http://di-
gisrv-1.biblio.etc.tu-bs.de:8080/docportal/servlets/MCRFileNodeServlet/DocPortal_de-
rivate_00027466/Beitrag253.pdf
Marcos Dias de Assunção, Alexandre di Costanzo, Rajkumar Buyya, A cost-benefit analysis
of using cloud computing to extend the capacity of clusters, Springer, Cluster computing,
(2010)13: pages 335-347.
Rackspace Support, Moving your Infrastructure to the Cloud, San Anto-
nio, available at: http://www.rackspace.com/knowledge_center/whitepaper/
moving-your-infrastructure-to-the-cloud-how-to-maximize-benefits-and-avoid-pitfalls
Rutland, D., Cloud: Economics, Rackspace Inc. 2012, available at: http://www.rackspace.
com/knowledge_center/sites/default/files/whitepaper_pdf/Cloud_Economics-%20
Final%2006%2011%20123.pdf
988
IMPACT OF DIGITAL DEVICES AND
MOBILE APPLICATIONS ON CHILD
DEVELOPMENT
Marija ŠMIT, Ph.D. student
Zorislav ŠMIT, Ph.D. student
Abstract
The presence of multimedia in the upbringing of children is an inexhaustible
subject for various debates and research, but regardless of the results that can
be reached, it is impossible to isolate today’s children from the screens it comes
across every day. In the modern-day world in which it is difficult to function
without digital devices, it is necessary to point the child towards such behaviour
that will bring out the best in them, and keep track of the time the child spends
interacting with such devices. The development of the child’s personality, men-
tal function and physical skills is affected by a number of actions that the child
performs when playing, without even being aware of that, and therefore it can-
not know how and to what extent its interaction with digital devices affects its
physical and mental development. This is where the role of adults, especially
parents, is important – they have to strive to form individuals who will have a
good upbringing in the digital era without becoming addicts. Mobile applica-
tions available on digital devices are designed to stimulate the child’s develop- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
ment in a certain way and to serve as an educational tool for the development
of specific skills, whereupon it is the parents’ task to guide the child and offer the
child the best possible content, because a child naturally accepts new things and
is open towards new and different games and ways to have fun.
Keywords: child, play, digital devices, mobile applications
JEL Classification: J1, J13, M15
989
1. INTRODUCTION
One of the basic human needs is the need for self-expression. A child ex-
presses itself through playing and thus improves its perception, observation of
spatial relationships and reasoning. As such, playing has a great impact on the
child’s development, cognition, feelings and growing up in general. Therefore, it
is very important with which items and how the child plays, and which process-
es are stimulated or set back by such activities. The awareness of the importance
of playing becomes increasingly pronounced, and therefore greater attention is
given to what the child uses in such activities. A toy is considered to be the
material item of a child’s play, but the question is what do modern-day children
Marija Šmit • Zorislav Šmit: IMPACT OF DIGITAL DEVICES AND MOBILE APPLICATIONS ON CHILD DEVELOPMENT
consider a toy? Since children usually behave in a way which is based on their
parents as a model and often role-play, it is not surprising that they spend ever
more time using some of the digital devices that adults find irreplaceable in their
everyday lives. This is why smartphones and tablets are increasingly becoming
children’s favourite toys. The aim of this paper is to show how such devices and
their content impact the child’s development.
2. ROLE OF DIGITAL DEVICES IN THE

UPBRINGING OF A CHILD
Children are a product of the society in which they grow and develop, so it
is impossible to isolate them from the digital devices that surround us. It is very
often discussed about how the frequent use of such devices in playing affects
the child, and, although results generally indicate a negative context, properly
selected and limited use can have an ultimately beneficial effect on the upbring-
ing of a child. It is necessary to monitor the contents the child is exposed to
when using such devices, whereupon they need to include educational elements
and in no way set back the child’s development or compromise its integrity. The
goal of using digital devices in one’s childhood age is also to develop the child’s
media literacy, which is nowadays considered to be the basis of the communica-
tion society.
In recent years, digital devices have evolved beyond all expectations. For ex-
ample, when mobile devices first appeared, they represented a possibility to stay
in touch when on the go, but then they became personal organisers, digital cam-
990
eras… Nowadays they are portable entertainment devices and they are increas-
ingly designed to be used by children as well.
There are several reasons why parents increasingly often choose a digital de-
vice instead of a classic toy. One reason is that not every toy suits every child,
which is something that can be observed only after the child has played with
it for a certain time, and there are not many toys that “grow” together with the
child. In addition, children can choose between a wide range of different toys
nowadays, so they often do not want to use the same toy for a long time and
soon want another one. Since it is almost impossible to fulfil such wishes and
buy new toys every day or every week, digital devices are the ideal choice. Al-
most every parent owns such a device and downloading applications for it is
simpler and more cost-effective than buying new toys that the child will use
only for a limited time, regardless whether it has lost interest in the toy or the
toy does not fit the child’s age anymore. Nowadays, children get to have their
own digital devices at a very early age, which can be seen in Chart 1.
Chart 1. Possession of a digital device in children under 8 years of age in the

USA in 2011 and 2013
Source: A Common Sense Media Research Study - Zero to Eight Children’s Media Use in
America, 2013
Still, a question often asked by parents but also by professionals, is the

question at which age a child can and should start using mobile applications,
but also digital devices in general. The American Academy of Paediatrics,
whose guidelines and recommendations are followed by paediatricians in many
developed countries, including Croatia, recommends that children of up to 2
years of age be completely isolated from screens of any digital device. Due to
the physical and not only mental development of the child up to 2 years of age,
it is almost impossible for the child not to hurt itself while using such a device
991
or not to damage the device. A child at that age explores play by touching the
item, observing it, turning it over, knocking object against object, putting it into
its mouth, pushing it over the floor or table etc. This is why activities on digital
devices do not support the sensorimotor and physical development of the child
that is crucial at that age. Despite the recommendations, children under 2 years
of age often use some sort of device, which can be seen in Table 1.
Table 1. Screen Media Activities Ever Engaged in by Children Under 2

America, 2013
For several years now, the organisation for family counselling Common
Sense Media has been conducting research on the impact of media and digital
devices on lives of children of up to two years of age in the USA. This year they
have noted a drastic increase in the use of smartphones and tablets in precisely
that age group. As much as 38 percent of children up to two years of age use
digital devices for playing, watching videos and for various other applications,
which represents an increase of 28 percent compared to the year 2011. This
data is reason for concern, taking into account the warning of psychologists
who claim that children under two years of age should be completely isolated
from any sort of digital devices, for several reasons, among which they mention
the fact that children of that age are not able to follow consecutive changing of
images on screens. The mentioned result can be interpreted by the widespread
use of gadgets among the population, but also by their increasing significance in
the lives of users, among which are also families with small children. As much
as 72 percent of children under the age of 8 use smartphones and tablets every
day, thus proving that the time of the digital generation has come.
992
For comparison, 66 percent of children younger than two years of age have
watched TV, ten percent of them have used a computer and 46 percent have
used DVD devices. These figures are large, but they are stagnating, which is
not the case with smartphones and mobile phones. Not only is the number of
children using mobile devices increasing, but also the time of usage - today it
averages 15 minutes a day, while two years ago it was only 5 minutes.1
3. PSYCHOPEDAGOGICAL POINT OF VIEW

ON THE INTERACTION OF CHILDREN AND
DIGITAL DEVICES
Various studies show that high quality content available on digital devices
have educational benefits for children who use them, provided that the child is
older than 2 years of age. A child who uses educational contents of such devices
can have improved social skills, acquire foreign languages more easily or be, to
a greater extent, more emotionally ready to start school. However, in order for
such educational materials to have a positive effect on the child’s development,
it has to fully understand the content it is using and the content has to be ap-
propriate for the child in terms of the child’s age and stage of development.
Educators and psychologists nevertheless point out that using digital devices
in the childhood can have negative effects as well, which is mainly related to
using those devices without any time limit. This way, a child who spends more
time than it should using digital devices consequently spends less time playing
creative games or interacting with its parents, siblings or peers, and certainly INTERDISCIPLINARY MANAGEMENT RESEARCH XI
spends less time playing in the outdoors. Unlimited use of new age devices can
often be associated with problems such as obesity, aggressive or destructive be-
haviour as well as attention deficit. Apart from the actual time the child spends
in front of the screen, the time of day this occurs in is also important. Although
there are many mobile applications that facilitate falling asleep, some have the
opposite effect and keep the child awake, delaying falling asleep at the foreseen
time, shortening the time of sleep and causing anxiety. Such poor sleeping hab-
its have a negative effect on the child’s mood, its behaviour and learning.
Except the aforementioned health effects that may lead to anxiety or de-
pression in a child, uncontrolled interaction with digital devices can also have
1
file:///C:/Users/Zorislav/Downloads/zerotoeightfinal2011%20(1).pdf
993
consequences on the child’s overall development and emotions. Some of them
are delayed speech development or pronounced language barriers, restrained
imagination or insensitivity towards people around it.
Nevertheless, there is one potential problem of the modern-day world that
receives special attention. This is the extreme form of unlimited use of digital
devices and addiction to them. A study was conducted in September 2014 in
Southeast Asia and its aim was to better understand such disorders and try to
treat them. The study pointed out the fact that this sort of behaviour is consid-
ered an addiction when the following elements are combined:
• Neglecting of one’s basic needs such as sleep or food
• Expressing anger or sadness when the digital device shuts down

• Having no limit in increasingly frequent and prolonged use of a digital
device
• Deliberate concealing of negative consequences (e.g. readiness to enter
into conflict with family members) 2
4. MOBILE APPLICATIONS FOR CHILDREN AND

THEIR POTENTIAL
Mobile applications have become tools without which we find it difficult to
function normally, relying on them completely when performing everyday rou-
tine tasks. Consequently, it is not surprising that children increasingly use them,
too. Older children who have their own smartphones or tablets are mostly able
to choose the applications they want to have and to use them unassisted, while
for smaller children it is the adults who decide for them by choosing the ap-
plications on one of their own digital devices. Children are in many ways a very
specific segment of the population, including the consumer society. One of the
reasons for this is the fact that the consumer and the end-user are not the same
person. Just as in any other purchase, the situation is the same in purchasing
i.e. choosing mobile applications. Taking into account the pace of technological
advancement and the availability of mobile applications, it is not surprising that
the “modern day toys” are precisely digital devices. Most parents do not catego-
rize such devices as classic toys, but many believe that they playing with them is
2
http://cmch.tv/are-kids-addicted-to-their-cell-phones-mp3-players-and-portable-videogames/
994
good. Still, there is a large number of children who mostly use musical or other
applications, which do not have an obvious educational value.
A team of media researchers in the USA has conducted a study on the play-
ing habits of children. The survey included 350 parents and the questions were
related to the playing habits of their children under the age of 12. Smartphones
and tablets were the most prevalent answer in the survey. As much as 60 percent
of the children of the surveyed parents often play using different applications,
while 38 percent of them play very often. According to the survey, digital de-
vices dominated the children’s interest when compared to classic toys.3 A study
conducted in Southeast Asia in 2014 showed that children most often use ap-
plications at home, while traveling or when in a public place such as a restaurant.
Speaking of mobile applications for children, it is necessary to point out
that they are not entirely what they are expected to be, so some of them collect
personal data about their users without them being aware of that, allow chil-
dren to spend real money or contain advertisements or links to social networks.
Therefore, it is important to fully read the description of the applications before
downloading them. Parents can also choose special security settings on their
devices, turn off Wi-Fi or put the phone in airplane mode so that the children
cannot access the Internet when the parents are not there.
5. MOBILE APPLICATIONS FOR CHILDREN

ACCORDING TO THEIR INDIVIDUAL
REQUIREMENTS INTERDISCIPLINARY MANAGEMENT RESEARCH XI
In the multitude of mobile applications, it is possible to find the appropriate

one for each child, based on various criteria. In this process, one can use existing
reviews of individual applications or one’s own, personal evaluation. One of the
first criteria is whether the application is free or not.
Regardless of that, one of the most important factors when selecting an ap-
plication is the age of the child who will use it and the purpose the application
is used for. Most frequently, gameplay applications and musical applications are
mentioned, but there are also applications that, for example, promote a healthy
lifestyle or religious values. Applications intended for parents that serve for a
3
http://www.klinfo.hr/izlog/aplikacije-za-djecu/pametni-telefoni-i-tableti-polagano-istiskuju-
klasicne-igracke-iz-djecjih-soba/
995
better understanding of their children or applications that the parents use, for
example when they are putting their child to sleep, regardless whether those are
lullabies or fairy tales that parents read, belong to a special group.
A very popular classification of applications among children is by characters
that appear in them. This criterion is mostly used by younger children who base
their choice on their favourite cartoon characters. Manufacturers of children’s
toys and production companies have made good use of this fact and offered
their branded applications. They offer interactions with the company or its
products through the game and this way create an emotional bond that moti-
vates the purchase of their products.
To make sure the application is accepted by as many users as possible, a large

number of applications are not limited to a particular language area or offer
several languages, while some are even used for learning foreign languages. Such
applications have an educational role and belong to the group of educational
applications that in preschool children enable the acquisition of various skills
and knowledge, mainly through games, while those meant for school children
mostly vary according to specific areas of the child’s interest or by school sub-
jects. Apart from their intended use to facilitate the child’s mastering of school
subjects more easily, such applications are also used as tools for easier dealing
with homework. There are also e-book applications intended for schoolchil-
dren, which allow them to read compulsory school reading materials on their
mobile phone or tablet. Applications that are quite often used by schoolchildren
and the youth are social networks. Their using of such applications requires
caution and a certain level of control by parents, because there are frequent vio-
lations of the rights and privacy of users, as well as increasingly frequent virtual
abuse of children on various levels.
The table below shows what kind of applications children use most often,
depending on their age.
996
Table 2. Types of Mobile Apps Used by Age (0 to 8 year old)
yp pp y g y
America, 2013
A special segment that needs to be emphasized are applications that have

a specific target group, children with special needs. Although, as already men-
tioned, some believe that using applications in childhood has negative effects on
the child’s development, experts believe that this is not the case and that using
digital devices may stimulate the child’s creativity and help children with special
needs. Educators, speech-language pathologists and therapists believe such ap-
plications to be ideal for facilitating communication in children with autism,
cerebral palsy and other disabilities. They allow the therapist to establish better
communication with the child and to achieve greater progress in a shorter time.
Although mobile applications are available every day to a large number of
children that use them, it is necessary to mention the so called “app gap”, i.e. the
gap between children which is based on their parents’ income. This pertains to
access to mobile applications, which means that children from families with
lower income have less or no access to applications, as opposed to children from
families with higher income. One of the first phenomena similar to this one is
the “digital divide”, which occurred back in the 1990s and was mainly related
to unequal internet access. Apart from the “app gap”, another gap was noted
as a phenomenon connected with mobile applications for children and young
adults, and this is the difference between what the parents want and think the
children to be using and what children actually use.
997
Chart 2. Comparison of parents’ expectations and actual usage of applications

Source: A Southeast Asia Study - Mobile Device Usage Among Young Kids, Commissioned
by Samsung Kidstime, November 2014
6. TREND OF MOBILE APPLICATIONS IN THE

REPUBLIC OF CROATIA
For the purpose of the author’s writing of her final paper at the postgraduate
specialist study, a primary research was conducted in 2014, the aim of which
was to compare the multimedia presence in children growing up in developed
countries across the world (for which data are available) with the situation in
the Republic of Croatia. The data obtained in the survey showed that children
in Croatia are no different from children in the aforementioned countries when
it comes to the habits and ways of using mobile applications. Data pertaining to
the use of mobile applications will be presented here in short. The research was
conducted on a sample of 200 subjects from a kindergarten and two elementary
schools in the area of Osijek. The questionnaire was composed of open-ended
and closed-ended questions for three different age groups. Those were children
of 3 to 4, 8 to 9 and 13 to 14 years of age. The youngest age group filled in the
questionnaires with the help of educators. As much as 76 percent of subjects
said that they use their parents’ mobile devices, while 71 percent said that they
use them to play games. Still, they were not able to name the applications but
they rather described them. In the 8-9 age group, as much as 91 percent of the
subjects said that they own a mobile device and 78 percent said that they use
different applications on them. The open-ended question “What kind of appli-
998
cations are they?” showed that some of the subjects cannot differentiate between
an application and the actual content of the mobile phone, but most of them
were still able to name some applications. Among the subjects of the oldest age
group, only 11 percent of them do not own a mobile device and as much as 78
percent of those who own a mobile device said that they have a smartphone.
They often use different applications but only 11 percent of the subjects actually
buy applications, while others download those that are free. This age group uses
social networks more than gameplay applications.
Not only do the trends among application users not differ from global
trends, but also the same applies to applications created in Croatia. A great
example of following of global trends is the project of the University of Zagreb,
in which the Faculty of Electrical Engineering and Computing, the Faculty of
Education and Rehabilitation, the Faculty of Graphic Arts and the Depart-
ment of Psychology of the Faculty of Humanities and Social Sciences created
three interesting and useful applications for iPad. Those are applications for
children with special needs that the parents and therapists working with those
children can download for free and use at the Faculty of Electrical Engineering
and Computing in Zagreb.4
A positive example of an educational application designed and created in
Croatia is “Baby Board”. The application is intended for children of very young
age and it is an excellent example of a high-quality didactic application cre-
ated by a team of child educators and psychologists, parents and by the chil-
dren themselves. Its aim is proper development of cognitive abilities of children
in carefully determined age groups. The application is designed so that in the INTERDISCIPLINARY MANAGEMENT RESEARCH XI
hands of a child it becomes a game for developing cognitive skills. It uses the
best combination of techniques that facilitate the child’s learning by playing, as
well as faster development of its abilities. It is designed as the first application
through which the child gets to know the world of colours and shapes at a very
early age, and it encourages the child’s curiosity and stimulates its creativity. By
playing with geometrical shapes, the child’s fine motor skills are developed and
coordination of movement is improved. 5
4
http://www.vecernji.hr/hrvatska/terapija-na-ipadu-djeca-mogu-vjezbati-matematiku-465295
5
http://markojovanovac.com/other/BabyBoard/
999
7. CONCLUSION
As is usually the case, novelties brought by new and advanced technologies
have both positive and negative sides and so does the “multimedialisation of
childhood”. Although the aim of the content available on digital devices, which
are a part of the children’s everyday life, is to have a positive effect on their psy-
chological, physical and social development, the situation becomes contradicto-
ry when the duration of the child’s interaction with such devices is not limited.
If a child spends more time using a digital device than it is recommended for its
age, the device is no longer an educational tool, but rather an instrument that
can cause health issues and problems in the child’s development. Children of up
to two years of age should be isolated from such devices entirely, while those a
bit older than that should be limited to the recommended time of daily use, i.e.
no longer than one or two hours. Schoolchildren and teenagers who also use
digital devices for school and not only leisure activities need to have clearly set
rules concerning the manner and time of usage of such devices. An increasingly
important issue today are the extremes caused by non-compliance with such
rules, those being addiction or social maladjustment.
In a time when children grow up faster, in which they are more direct and
more informed about the world around them, they have easy access to con-
tents obtained via digital devices, such as mobile applications. Just like with the
choice of classic toys, it is very important to choose an adequate application that
is appropriate for the child’s age, its level of development but also the potential
affinities of each individual child. In certain life stages, the child has different
needs, abilities, knowledge and skills. It is very important that the mobile ap-
plication is appropriate for the child’s age, for several reasons. A too complex
application, one that is beyond the child’s capabilities, will have a detrimental
effect on its confidence, whereas an application that is too simple will be boring
and useless for the child. Both situations will cause the child to be tense and
dissatisfied, which could potentially result in serious problems, the solving of
which will require professional help.
Taking into consideration the growing distribution and usage of mobile ap-
plications among children of all age groups, but also taking into account how
much children like them, the question is whether mobile applications will cause
traditional toys to fade into oblivion? When it comes to this relatively new trend
1000
among parents and children, time will show to which extent the ubiquitous
digital technology will affect children and their development.
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of Clildren Mobile Apps, Tuft University
Chiong, C. & Shuler, C. (2010). Learning: Is there an app for that, The Joan Ganz Cooney
Center, New York
Dushinski, K. (2009). The Mobile Marketing Handbook, Information Today. Inc., New
Yersey
Khan, M.A. (2010). Classic Guide to Mobile Advertising, Mobile marketer
Krum, C. (2010). Mobile Marketing, Finding Your Customers No Matter WhereThey Are,
Pearson Education, Inc. USA
Livingstone, S (2013). Children’s use of mobile phones, NTT Docomo
Lyris Inc. (2012). Email + Mobile + Tablets: Mastering The Device Revolution, United
States Corporate HQ, Emeryville
Martin, C. (2011). The Third Screen, Nicholas Brealey Publishing, London
Michael, A. & Salter, B. (2006). Mobile Marketing, Elsevier LTD., Butterworth-Heine-
mann, Burlington
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ce+Usage+A+Southeast+Asia+Study+November+2014.pdf (10-1-2015)
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pdf (28-2-2015)
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(10-1-2015)
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http://cmch.tv/are-kids-addicted-to-their-cell-phones-mp3-players-and-portable-video-
games/ (02-3-2015)
http://pediatrics.aappublications.org/content/early/2013/10/24/peds.2013-2656.full.
pdf+html (28-2-2015)
http://m.pediatrics.aappublications.org/content/126/5/e1011.full.pdf (28-2-2015)
http://www.pewinternet.org/files/old-media/Files/Reports/2013/PIP_TeensandTech-
nology2013.pdf (02-3-2015)
http://www.novilist.hr/Znanost-i-tehnologija/Tehnologija/Ekranitis-unistava-osjetila-
mastu-empatiju (02-2-2015)
https://www.ftc.gov/sites/default/files/documents/reports/mobile-apps-kids-disclosures-
still-not-making-grade/121210mobilekidsappreport.pdf (05-3-2015)
http://www.moomymusings.com/2014/11/raise-tech-responsible-kids-digital-age.html
(10-1-2015)
http://www.klinfo.hr/izlog/aplikacije-za-djecu/aplikacije-za-bebe-velika-i-opasna-obma-
na-ili-dobro-sredstvo-za-ucenje-od-najranije-dobi/ (10-2-2015)
1001
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ku-465295 (06-2-2015)
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tiskuju-klasicne-igracke-iz-djecjih-soba/ (06-2-2015)
file:///C:/Users/Zorislav/Downloads/zerotoeightfinal2011%20(1).pdf (10-2-2015)
1002
CHANGE MANAGEMENT
 VORAUSSETZUNG FÜR
ERFOLGREICHE EINFÜHRUNG DER
PROJEKTMANAGEMENTNORM
ISO 21.500
FALLSTUDIE AUS EINEM DEUTSCHEN
ZULIEFERER DER AUTOMOBILBRANCHE
Nino Grau, Ph.D.

THM Technische Hochschule Mittelhessen,
Friedberg, Germany
nino.grau@thm.de
Abstract:
Many organizations dealing with a variety of projects face the challenge of
improving their system of managing projects. In many cases organizations try
to implement a standard for project management such as the new global proj-
ect management standard ISO 21 500. Unfortunately many of these projects
to introduce a new project management standard fail. Organizations do not
realize that implementation of a new standard for such an important field of
business is not a single event. On the contrary, it is a change process that has to
be conducted according to rules of change management. Here we show the case INTERDISCIPLINARY MANAGEMENT RESEARCH XI
study of how a German supplier to the automotive industry managed to start
such a change process successfully implementing ISO 21 500.
Keywords: Project Management, ISO 21 500, Change Management, IPMA,
Standards
JEL Classification: M11, M19, O32
1003
1 EINLEITUNG
Die immer kürzer werdenden Produktlebenszyklen die Unternehmen zu im-
mer mehr und immer aufwändigeren Produktentwicklungsprozessen, die in im-
mer kürzeren Zeiten mit immer weniger Kosten immer bessere Qualität erzeu-
Nino Grau: CHANGE MANAGEMENT - VORAUSSETZUNG FÜR ERFOLGREICHE EINFÜHRUNG DER PROJEKTMANAGEMENTNORM ISO ...
gen sollen. Es laufen auch immer mehr Projekte parallel. Deswegen verwundert
es nicht, wenn die Unternehmen versuchen, ihre Projektarbeit zu optimieren und
dabei die Einführung eines Standards für das Projektmanagement in Erwägung
ziehen. Wenn das Unternehmen auch international tätig ist, liegt es natürlich
nahe, die Eignung eines internationalen Standards zu prüfen (Grau, 2010). In die-
sem Beitrag wird anhand einer Fallstudie aufgezeigt, wie ein innovatives deutsch-
es Unternehmen, das unter anderem auch Zulieferer der Branche Automotive
ist, einen solchen Change Prozess bei der Einführung des neuen internationalen
Standards für das Projektmanagement ISO 21 500 erfolgreich eingeleitet hat.
2 AUSGANGSLAGE
Grundsätzlich gibt es unterschiedliche Situationen in einer Organisation,
die dazu führen, einen Standard für das Projektmanagement einzuführen
(Grau, 2013a, S.11).
1. Der Anstoß kann von einem Kunden oder sonstigen Auftraggeber kom-
men, der durch die Vorgabe eines Projektmanagementstandards ähnlich
wie bei der Vorgabe, dass das Unternehmen nach einem Qualitätsstan-
dard wie zum Beispiel ISO 9000 zertifiziert sein muss, einen Mindest-
standard für die Qualität der gelieferten Leistung setzen möchte. Die
Befolgung eines Standards durch den Auftragnehmer erhöht auch die
Transparenz gegenüber dem Auftraggeber, insbesondere dann, wenn der
Auftragnehmer keinen eigenen Standard hat.
2. Der Anstoß kann auch aus der eigenen Organisation, die noch keinen
Standard benutzt, kommen. Meistens geht es hier darum, die Transpar-
enz für die Koordination der Aktivitäten in der eigenen Organisation zu
verbessern.
3. Eine deutlich komplexere Fragestellung ergibt sich, wenn die beiden oben
genannten Punkte dahingehend kombiniert werden, dass mehrere Or-
ganisationen, die ein Projekt gemeinsam abwickeln wollen, einen Konsens
suchen, um gemeinsame Arbeit transparenter zu machen und besser zu
koordinieren.
1004
4. Weitere Probleme treten auf, wenn das Unternehmen schon einen Stan-
dard anwendet und nun aus einem der oben genannten Gründe diesen
Standard durch einen neuen Standard ersetzen soll.
In dem hier betrachteten Fall handelt es sich um einen Zulieferer der Auto-
mobilindustrie, der bei Produktentwicklungsprojekten (PEP) sowohl mit dem
Automobilhersteller (Auftraggeber) als auch mit seinen eigenen Lieferanten
eng zusammenarbeiten muss. Das Unternehmen hat einen unternehmensin-
ternen „Standard“. Die Mitarbeiter, die in Projekten arbeiten, beklagen sich
darüber, dass nicht alle Gesichtspunkte, die sie für die Arbeit als wichtig finden,
in dem hauseigenen Standard berücksichtigt werden. Da die Produktentwick-
lung zunehmend auch international erfolgt, wünschen sie sich einen interna-
tional anerkannten Standard.
Andere Mitarbeiter haben Angst vor noch mehr Bürokratie und lehnen
die Ablösung des gewohnten Standards durch einen internationalen Standard
grundsätzlich ab. Dazu wird auch noch das Problem genannt, dass durch ein
neues System gegebenenfalls das Wissen, dass im „gewachsenen“ hauseigenen
System über viele Jahre gesammelt wurde, verloren gehen könnte. Bei einem so
sensiblen System wie dem PEP erscheint dieses Risiko als nicht hinnehmbar.
Das Project Management Office (PMO) schlägt vor, zu prüfen, wie man
nun im Konsens mit allen Stakeholdern vorgehen könnte, um die Projektarbeit
zu verbessern. Dabei soll darauf geachtet werden, dass kein unnötiger Mehrauf-
wand verursacht wird und das Risiko möglichst gering gehalten wird.

3 AUSWAHL EINES OPTIMALEN
INTERNATIONALEN STANDARDS FÜR DAS
PROJEKTMANAGEMENT
Ein Unternehmen, das beabsichtigt, einen neuen Standard für das Projek-
tmanagement einzuführen, steht zunächst einer großen Menge von Standards
gegenüber. Wieso gibt es eine solche Vielfalt an Standards, wo man einen Stan-
dard gerade in der Hoffnung sucht, damit das Chaos der Vielfalt zu überwin-
den? Wenn alle nach einem Standard agieren, gibt es doch keinen Raum für
Mehrdeutigkeiten und Missverständnisse. Dabei übersieht man, dass es Stan-
dards für verschiedene Bedürfnisse gibt – „different Standards for different pur-
poses“ (Rai, 2013, S.53 ff ). An einigen wenigen Beispielen sei kurz dargestellt,
welche Fragestellungen dabei im Fokus stehen können.
1005
. Primäres Ziel der Organisation bzw. des Projektes
(gewinnorientiert oder non vor profit), wo der
Standard zum Einsatz kommen soll
Ein Beispiel für einen solchen Standard ist der PM4 DEV (Project Man-
agement for Development) ein Standard der oft für Projekte in NGOs und
CBOs (Community Based Organizations) in Entwicklungsländern zum Ein-
satz kommt.
. Regionaler Bezug

Handelt es sich um die Norm einer offiziellen nationalen Normungsorgan-
isation wie zum Beispiel DIN in Deutschland oder um Gedankenaustausch
über nationale Standards in einer Region, wie dies zum Beispiel bei der AP-
FPM (The Asia Pacific Federation for PM) der Fall ist. Hierbei gibt es oft auch
Mischformen wie zum Beispiel die weltweite Verbreitung der Normen des BSI
(British Standards Institute) in den Ländern des Commonwealth. Darüber,
ob australische Normen nun als national oder kontinental zu bezeichnen sind,
lässt es sich sicherlich auch trefflich streiten. Eindeutig als global geltend sind
sicherlich die Normen der ISO zu bezeichnen.
. Der methodische Ansatz

Handelt es sich um ein BoK (Body of Knowledge), eine PMCB (Project
Management Competence Baseline) oder eine PMM (Project Management
Methodology)? Eine ausführliche Betrachtung solcher Fragen beachtet auch
solche Gesichtspunkte wie z.B. Projektmanagementkonzepte, Projektmanage-
mentprozesse, Zielgruppe und Training und Zertifizierung (Sadeanu et al,
2013, S.35 ff ).
. Entwickler des Standards

Handelt es sich um eine nationale Normierungsstelle, wie sie in vorherigen
Abschnitten genannt wurden oder um eine global agierende Institution (z.B.
PMI (Project Management Institut) oder IPMA (International Project Man-
agement Association))?
Nach einer entsprechenden Information hat man in unserem Beispielun-
ternehmen beschlossen, die ISO 21 500 in die engste Auswahl zu nehmen und
1006
mit dieser Norm zu prüfen, wie sie für das Unternehmen optimal eingesetzt
werden könnte.
4 WESENTLICHE MERKMALE DER ISO 21.500

Die 2012 veröffentlichte Norm ISO 21.500 – Guidance on Project Man-
agement ist eine sehr generische Norm (Grau, 2013b, S. 7). Sie stellt das Pro-
jektmanagement im großen Zusammenhang mit Programm- und Portfolio-
management dar. Es werden verschiedene Konzepte vorgestellt, die auch die
Zusammenarbeit mit der Linie, strategische Einordnung, Governance des Un-
ternehmens und die für das Projektmanagement wichtigen Rollen berücksich-
tigen. Den Hauptteil der Norm bilden aber Prozesse, die in “Process Groups“
und „Subject Groups“ eingeteilt werden (s. Tab. 1)
Tab. 1: Projektmanagementprozesse nach Prozessgruppen und Themen
Themen- Prozessgruppen
gruppen
Initiierung Planung Umsetzung Controlling Abschluss
Integrati Erstellen Erstellen der Koordinieren der Controlling Abschließen des P,
on des Projektpläne Projekt-arbeiten derProjektarbeite derP-phasen,
P-auftrags n, Lessons Learned
Stakehol Ermittelnd Stakeholder- Ä d
der er SH management
Inhalte Leistungsumfang Leistungscontrolli
P-strukturplan,AP ng
Ressour Zusammen Schätzen des Re- Weiterentwickeln Controlling
cen stellendes bedarfs, des Projektteams derRe,
P-teams Festlegen der Management des
Projektorganisation Projektteams
Termine Abfolge und Schätzen Termincontrolling
der Dauer vonAP und
A, Erstellen des INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Terminplans
Kosten Schätzen der Kosten Kostencontrolling
Erstellen des
P-budgets
Risiko Ermittelnder Ri, Risiko- Risikocontrolling
Ri-bewertung behandlung
Qualität Qualitätsplanung Q-sicherung Q-Kontrolle
Beschaff Planen der Beschaffung Auswählen von Steuernder

ung Lieferanten Beschaffungen
Kommu Planen der Bereitstellen von Kommunikations-
nikation Kommunikation Informationen Management
A=Aktivität, AP=Arbeitspaket, P=Projekt, Q=Qualität, Re=Ressource(n), Ri=Risiko, SH=Stakeholder
Quelle: (DIN, 2013, S.16)
1007
Alle Prozesse sind in der Norm nach dem Prinzip IPO (Input, Process,
Output) beschrieben. Das System ist insoweit in sich konsistent, dass die Out-
puts eines Prozesses (Dokumente, Informationen, Kommunikation) als Input
für die nachfolgenden Prozesse dienen (Wagner, 2013, S. 15). Die Norm ist
stärker darauf fokussiert, „WAS“ zu tun ist als darauf, vorzugeben „WIE“ es
zu geschehen hat. Dadurch eignet sie sich auf gut dazu, aus ihr Projektmod-
elle (Sjoholm, 2013, S. 23 ff ) und/oder Methodologie in für eine Organisation
(Polkovnikov, 2013, S. 73 ff ) zu entwickeln.
5 CHANGE MANAGEMENT
Nachdem die Entscheidung, sich auf ISO 21 500 zu konzentrieren, getrof-
fen war, hätte man annehmen können, dass die Implementierung des neuen
Standards als Projekt im Auftrag der Geschäftsleitung stattfinden könnte.
Kritische Stimmen wurden laut, dass ähnliche Projekte in der Vergangenheit
nicht erfolgreich waren. Das vorhandene PEP sei gewachsen und gehöre zur
Unternehmenskultur dazu. Der Wechsel eines für das Unternehmen so wich-
tigen Standards beinhaltet sowohl Verhaltensänderung der Menschen als auch
eine kulturelle Transformation des gesamten Unternehmens. Die Anregungen
für das Vorgehen basieren weitgehend auf den Theorien von Lewin (s. Abb. 1)
und Kotter. Ein Vorschlag, diese Theorien bei der Implementierung von ISO
21 500 anzuwenden, finden sich bei Zuchi (Zuchi, 2013, S. 87 ff ).
Abb. 1: Das 3-Schritt-Verfahren für Transformation von sozialen Systemen
(Lewin, 1951)
Dieses Verfahren wurde gewählt, da es wegen seiner Klarheit im Unterne-

hmen sehr gut kommuniziert werden konnte. Hier sei nur kurz darauf hingewi-
esen, dass dieses Modell nicht unumstritten ist, ohne näher darauf einzugehen.
Das Modell wurde von Kotter um 8 Erfolgsfaktoren ergänzt (s. Tab. 2).
1008
Tab. 2: Acht Erfolgsfaktoren für Change Management (vgl. Kotter, 1996)
1 Establish a sense of urgency
2 Form a powerful guiding coalition
3 Create a vision
4 Communicate the vision
5 Empower others to act on the vision
6 Plan for and create short-term wins
7 Consolidate improvements and produce more change
8 Institutionalize new approaches
6 IMPLEMENTIERUNG DER NORM IM

UNTERNEHMEN
Alle verantwortlichen Mitarbeiter, die über den jetzigen Zustand der Pro-
jektarbeit etwas sagen konnten (Arbeitspaket-, Teilaufgaben-, Teilprojekt- und
Projektverantwortliche) wurden aufgefordert, den bestehenden PEP daraufhin
zu untersuchen, ob und gegebenenfalls wie die von der ISO 21 500 vorgeschla-
genen Prozesse mit Ihnen Input/Output Berücksichtigung finden. Jeder Mi-
tarbeiter konnte dabei bei Prozessen, die im Unternehmen fehlen, vorschlagen,
sie in den PEP aufzunehmen. Bei vorhandenen Prozessen konnten Verbesse-
rungspotenziale aufgezeigt und Verbesserungsvorschläge unterbreitet werden.
Dazu konnte jeder Mitarbeiter für jeden Prozess eine Priorisierung aus seiner
Sicht vorschlagen. Daraus wurden die Prioritäten für die Themengruppen
möglichst im Konsens aggregiert.
Höchste Priorität hat die Themengruppe „Integration“ bekommen. Dabei
ging es um die Prozesse: Erstellen des Projektauftrags und der Projektpläne,
Koordination und Controlling der Projektarbeiten, Controlling der Änderun-
gen, abschließen von Projektphasen und Projekten, lessons learned.
Am Beispiel des Prozesses „Koordination der Projektarbeiten“ sei nun das
weitere Vorgehen beschrieben. Wesentliche Elemente dieses Prozesses sind:
1. primäre Inputs
• Projektpläne
• genehmigte Änderungen
1009
2. primäre Outputs
• Daten über den Projektfortschritt
• Themenspeicher
• Lessons Learned
Bei diesem Prozess sieht man die wesentliche Verantwortung beim Projek-
tleiter, der sowohl die fachlichen und die administrativen als auch die organ-
isatorischen Schnittstellen innerhalb des Projektes steuern muss. Bei dem hier
agierenden Unternehmen wurden Lessons Learned nur am Ende des Projektes
von den Mitgliedern des Projektteams eingesammelt.
Bei der Diskussion wurde festgestellt, dass Lessons Learned eigentlich bei
jedem Prozess als Output entstehen können. Es kommt also darauf an, nun ein
Verfahren zu entwickeln, mit dem bei allen Stakeholdern zu jeder Zeit Lessons
Learned gesammelt werden können.
Für alle Elemente (Prozessgruppen und Prozesse mit ihrem Input und Out-
put) wurde systematisch geprüft, wie man die Erfolgsfaktoren (s. Tab. 2) am
besten beachten kann. Bewusst wurde dabei das System nicht flächendeckend
übergestülpt, sondern es wurde immer geprüft, ob die Aktionen jeweils verhält-
nismäßig, d.h. auch wirtschaftlich vertretbar sind.
Bei dem Thema der Information und Kommunikation wurde beim Erzeu-
gen des Gefühls der Dringlichkeit folgendermaßen vorgegangen:
Es wurde geprüft, wo nachweisbare Schäden und Mehrkosten aufgrund von
Unzulänglichkeiten entstehen. Es konnte festgestellt werden, dass
• Vorgänge verspätet starten, weil im Unternehmen vorhandene Informa-
tion nicht an die richtigen Empfänger gelangt,
• Vorgänge verspätet starten, da Ressourcen nicht zu Verfügung stehen,
weil der Bedarf nicht rechtzeitig angemeldet wurde,
• Fehler entstehen, weil unvollständige Informationen weitergegeben
werden, um den eigenen Abgabetermin zu halten
• …
Solche Schäden und Mehrkosten wurden empfängergerecht aggregiert und
zielgerichtet statistisch untermauert. So konnte jeder Stakeholder erkennen,
wie seine Zielerreichung davon betroffen ist (zum Beispiel Überstunden als
1010
Nachteil für Mitarbeiter und Linienvorgesetzte, Verschrottungskosten in ihrer
Bedeutung für Produktion und Materialwirtschaft, verspätete Auslieferungen
und Kostensteigerungen für die Geschäftsleitung, …). Durch diese Maßnah-
men hatte man „alle im Boot“, um so schnell wie möglich zu starten.
7 ZUSAMMENFASSUNG
Die neue Projektmanagementnorm ISO 21 500 eignet sich hervorragend
für die Verbesserung des Projektmanagementsystems im Unternehmen auch
dann, wenn sie nicht mit einem Schlag alle alten Systeme ersetzt. Sie kann
sehr erfolgreich eingeführt werden, wenn sie als Change Management Prozess
gestartet wird. Die Schwerpunkte der ersten Aktionen nun sollen so gewählt
werden, dass sie schnelle Erfolge ermöglichen.
Der neue Standard kann dabei mit anderen Standards kombiniert bzw.
durch sie ergänzt werden. Wichtig ist es, dass Wissen über die ISO 21 500 und
die anderen in Frage kommenden Standards vorhanden ist. Dies kann durch
Trainings bzw. durch Einsatz externer Berater organisiert werden.
Es ist unerlässlich, dass alle Stakeholdern in diesen Changeprozess einge-
bunden sind einschließlich der obersten Managementebene.
Literatur
Barkovic, D. & Runzheimer, B. (Hrsg.)(2010): Interdisziplinary Management Research VI
Osijek - Porec
DIN (Hrsg.) (2013): DIN ISO 21 500 Entwurf
Grau, E. & Grau, N. (2010): Projektmanagementnormen in internationalen Projekten Be-
deutung, aktueller Stand und zukünftige Entwicklungen. In: Barkovic, D. & Runzheimer, B.
(Hrsg.), Interdisziplinary Management Research VI (S. 86-94) Osijek -Porec
Grau, N. (2013a): Standards and Excellence in Project Management – In Who Do We
Trust? In John-Paris Pantouvakis (Ed.) Procedia – Social and Behavioural Sciences Vol. 74
(page 10-20)
Grau, N. (2013b): ISO 21 500 – Good reasons to implement a new standard. In Grau, N.
& Bodea, C. (Ed.) (2013): ISO 21 500 Project Management Standard - Characteristics,
Comparison and Implementation, Shaker Verlag, Aachen
Grau, N. & Bodea, C. (Ed.) (2013): ISO 21 500 Project Management Standard - Charac-
teristics, Comparison and Implementation, Shaker Verlag, Aachen
Kotter, John P. (2007): Leading Change – Why Transformation Efforts Fail. In Harvard
Business Review, January 2007 (p.1-10)
1011
Lewin, K. (1951): Field Theory in social science
Polkovnikov, A. (2013): Developing organisation’s project management methodology based
on ISO 21 500. In Grau, N. & Bodea, C. (Ed.) (2013): ISO 21 500 Project Management
Standard - Characteristics, Comparison and Implementation, Shaker Verlag, Aachen
Rai, T. (2013): different standards for different purposes. In Grau, N. & Bodea, C. (Ed.)
(2013): ISO 21 500 Project Management Standard - Characteristics, Comparison and Im-
plementation, Shaker Verlag, Aachen
Sjoholm, H. (2013): ISO 21 500 as base for a project model. In Grau, N. & Bodea, C.
(Ed.) (2013): ISO 21 500 Project Management Standard - Characteristics, Comparison and
Implementation, Shaker Verlag, Aachen
Wagner, R. (2013): Processes of ISO 21 500. In Grau, N. & Bodea, C. (Ed.) (2013): ISO
21 500 Project Management Standard - Characteristics, Comparison and Implementation,
Shaker Verlag, Aachen
Zuchi, D. (2013): Change management - your way to words 21 500. In Grau, N. & Bodea,
C. (Ed.) (2013): ISO 21 500 Project Management Standard - Characteristics, Comparison
and Implementation, Shaker Verlag, Aachen
Sadeanu, M. et al (2013): ISO 21500:2012 vs other project management standards. In Grau,
N. & Bodea, C. (Ed.) (2013): ISO 21 500 Project Management Standard - Characteristics,
Comparison and Implementation, Shaker Verlag, Aachen
1012
PERSPECTIVES OF THE CLOUD
COMPUTING FOR FINANCIAL
INSTITUTIONS
Damir LUCOVIĆ
University of Mostar, Faculty of Economics
Mostar, BiH
damir.lucovic@sve-mo.ba
Abstract
From its beginnings, the Internet was shown in graphs in the form of clouds
and because of that the “cloud” term began to be used as a name for customer
service on the network. Computing in the cloud should be viewed as an overall
concept for the case when technology through the Internet offers the possibility
of renting a platform, infrastructure and services, while the user does not have
to know the technology, take care of maintenance, security and the like. Mod-
ern business banking environment requires more applicable and flexible alter-
native models of service delivery (eBanking, mBanking, ...). Cloud Computing
or computing in the cloud, although contested by some skeptics, is increasingly
on the list of topics discussed in IT departments of individual banks, or those
who, shaken by the crisis, began to lag behind the leaders. There are also those
who wish to provide acceleration for the future and who do not want to be the
last ones to use the model of exploitation of external resources to meet their INTERDISCIPLINARY MANAGEMENT RESEARCH XI
needs for IT support in their business.
The aim of this paper is to analyze the importance of the transition to cloud
computing technology and the application of appropriate design services from
an economic viewpoint. Considering the fact that the cloud is a relatively new
phenomenon in the market, clearly there are flaws and security risks which
must be given special attention. The paper includes an overview of the advan-
tages and disadvantages of user models in terms of providing services, imple-
mentation services, a method for saving and storing data within the cloud with
a special emphasis on the safety aspect of the use in the financial sector. The
paper will present and compare the indicators that influence the decision about
transition to services in the cloud.
1013
Keywords: cloud computing, services model (IaaS, SaaS, PaaS), service
delivery
JEL Classification: D81, L86
1. INTRODUCTION
Every day we can see more frequently supporters of a new approach although
this way of using IT model a complete departure from the classic ways of using
technology, especially when it comes to banking as a very sensitive area in terms
of data security.
Software as a Service or SaaS (Eng. Software as a Service) is application
support available to users via the Internet. Platform as a Service or PaaS (eng.
Platform as a Service) is a service server by which users are given on rent plat-
form that enables the development, testing and adjustment of own products.
Damir Lucović: PERSPECTIVES OF THE CLOUD COMPUTING FOR FINANCIAL INSTITUTIONS
Infrastructure as a Service, or IaaS (eng. Infrastructure as a Service) offering

users a server, a network organization, memory, processing power and other
resources for rent.
“In order to decisively and securely thinking about using the cloud in the
banking industry in the future, it is essential that the bank has a clear and con-
sistent strategy based on business and corporate objectives. Given the range
of variables that affect the decision of choice public or private cloud, IaaS or
BpaaS1, determination of this way is a complex, but still necessary task”2
The solutions referred to as Cloud are increasingly used because the place on
which to execute applications and store data are not strictly defined, or it is no
longer on computing infrastructure of the company. Any organization or com-
pany can choose the extent to which this is done: depending on the business
needs of the company, for example, can opt for a private solution or one of the
commercial, public services, paying attention to the extent to which their data
or applications will be migrated to the cloud.
1
Business Process as a Service
2
Lead IT Magazine, http://www.leaditmagazine.com/corporate/report-says-cloud-computing-
will-cecome-critical-for-the-financial-sector/ (pristupano: 20.8.2013.)
1014
2. CLOUD COMPUTING
Cloud computing is a big step towards the future for both users and ser-
vice providers. The main reason for switching to business through clouds is
flexibility in increasing their own capacities without of investment into infra-
structure, personnel education or software licensing. Since the service provider
locates servers in those parts of the world where it is most cost-effective, and
that they are accessed through the Internet or specialized applications, the user
becomes completely independent of their physical location. All data can be ac-
cessed through any device connected to the Internet.
Though many has fear, from the secure reasons, to move their business into
the cloud, everyday examples of successful migration of business in the cloud,
show that stability, efficiency, cost effectiveness and reduction of risks can still
be reached. Problems that are recently most common, indicates the standard-
ization of services, data security, and speed of Internet access which is directly
dependent on access to the cloud. When viewed from one or the other side
is very difficult to present organizations or professionals can guarantee such
protection to data in their own systems either are stored “locally” or the owners
providing the cloud-service providers, regard to more frequently proofs about
the possibilities of monitoring traffic in any form by a variety of institutions that
care about global security.
In either case, if the user decides to move its operations into the cloud, it is
essential to make a detailed analysis of the business and after that select the best
provider of cloud services since it is a long-term decision.
This table provides an example which shows improvement in each depart-
ment of the company that has moved on the business in the cloud.
1015
Table 1. How much do you agree with the above statements relating to the
question of how the use of cloud computing has improved business operations?
Owners / Executives
Human Resources
Customer service
Production
Marketing
Logistics
Finance
Total
IT
Cloud computing has reduced our IT costs 66 % 60 % 59 % 69 % 64 % 65 % 71 % 84 % 74 %
Cloud computing has enabled investing 62 % 55 % 56 % 65 % 50 % 65 % 71 % 74 % 63 %
more money in business
Cloud computing has reduced the costs of 60 % 57 % 56 % 61 % 57 % 76 % 62 % 63 % 63 %
infrastructure maintenance and more time to
focus on strategy and innovation
Cloud computing has improved response to 59 % 59 % 55 % 61 % 43 % 59 % 49 % 53 % 58 %
disturbances and increase business agility
Cloud computing is helping to increase 56 % 53 % 53 % 56 % 36 % 65 % 63 % 68 % 68 %
profits
Cloud computing has accelerated It projects 54 % 47 % 45 % 58 % 64 % 71 % 57 % 63 % 42 %
and the development and implementation of

new applications
Cloud computing has allowed competition 49 % 47 % 44 % 50 % 21 % 59 % 58 % 53 % 58 %
with large companies
Cloud computing is a key factor in the 49 % 43 % 41 % 50 % 79 % 59 % 63 % 68 % 58 %
growth of our business
Base of respondents 1300 387 64 715 14 17 65 19 19
Source: adapted by the author from Vanson Bourne3
Average cost reduction is 23% with the use of cloud computing, based on the
combined data of the analyzed of respondents from the United Kingdom and
the United States. Looking further 62% of companies invested the funds that
are saved by using a new business model into further development and improve-
ment of services.
It would be great if we can all expenses in life pay the way that we pay for
such services and applications located into cloud - according to use, exactly as
much as you need and when you need. The concept of cloud computing just
that allows you so significantly changes the way companies can build their IT
infrastructure and use business applications.
3
http://www.vansonbourne.com/news/news-recent/august-2014/platform-service-why-cloud-
platforms-hold-key-faster-business-success/ (accessed: 21.3.2014.)
1016
Most companies is not necessary to have their own infrastructure but their
application can be executed on the infrastructure that rent from provider of
such services. Not only in this way eliminate a number of operational costs as-
sociated with maintaining their own infrastructure and pay the hardware and
software, but also the administration, support and development of business ap-
plications something we will devote the company where they gave their trust by
placing their applications with it. On top of that, the company can then be more
closely focus on your core business, and less concern about hardware, software
and communications infrastructure, and the general availability of the whole
system. And it is clear that taking care of our own business results in competi-
tiveness and better business results.
The biggest changes in the business that brings cloud computing are:
• Very short period initial implementation
• The formation of costs according to the use of IT resources
• Excellent adaptability to changes due to growth and eventual reduction
of resources,
thereby creating a comprehensive rounded service that is available to users.
At its very beginning cloud computing implied is virtualization of IT resourc-
es (infrastructure, platforms, applications and services) based on the current
needs of business. The backbone of using makes the Internet as a global net-
work which itself by its concept intended to be a big cloud where communicate
with computers connected to various types of communication channels. The
specificity of this type of use is practical invisibility of the actual the procedure INTERDISCIPLINARY MANAGEMENT RESEARCH XI
of storage and data processing.
Existing survey of O’Reilly Media, shows the difference to the costs for
internally managing all IT operations, hybrid model or clear cloud infrastruc-
ture. It is important to notice, that if you select a service provider cloud that
is proven and reliable, gets is quality and availability far beyond the first two
approaches.
1017
Table 2. The estimated cost of the infrastructure for the standard business
model (two application servers and two database servers) between the three
business models
Internal IT Hibrid model Cloud
Capital investments 40000 0 0
Costs of implementing 10000 5000 1000
Monthly maintenance 0 4000 2400
Monthly work on the system 3200 0 1000
The cost of operation in three years 149000 129000 106000
Gross savings 0% 13% 29%
Source: O’Reilly Media, George Reese4
Most financial institutions faced with the problem of adjusting or setting

up the IT infrastructure according to the current volume of business, spending
large amounts of cash often unnecessarily, but still well-founded fear of under
scaling resources. Bearing in mind the large initial investment when it comes
to introducing new technologies related to the IT industry, financial institu-
tions are exploring the possibilities of using the strategic advantages of cloud
computing. On the other hand the users of their services are not interested in a
technology that is in the background, rather than just a current availability and
reliability.
.. Legal requirements and recommendations

The service provider is obliged to provide the security infrastructure so that
the user data and applications are protected. The user needs to be reviewed with
the service a few key points that pose potential risks to security.
When data is processed outside the company that carry the level of risk, as
leased services do not provide physical control or staff control i.e. who has ac-
cess to data and what are the procedures of access control.
Service providers in the cloud are subject to external monitoring and secu-
rity check and certification.
It is necessary to know the location of the data, ie. Whether the provider is
willing to abide by legal guidelines that apply to the location of data placement
4
http://broadcast.oreilly.com/2008/10/the-economics-of-cloud-c.html (accessed: 19.8.2013.)
1018
for the client. Some models have the ability to choose the location of the client
data storage.
Encryption is essential for safety when the user only uses software as a ser-
vice so that it does not control the storage of data which is why it is necessary to
define the access rights to data.
In cases where data access is necessary to determine the time limit for the
withdrawal of backup versions of data, which can provide by other specialized
companies.
In case of intrusion into the system for data storage provider is required
to provide assistance in the investigation and find the source of the attack as
defined according to eDiscovery. It is certainly necessary before concluding
the final contract with the provider to make a detailed assessment of the risks.
The system of cloud computing works without visible geographical boundaries
which is reflected in different interpretations in case of problems that may occur
while using the service. The main issue is who has jurisdiction in the event of
any dispute over the use of services.
In the US, legislation is a combination of by-laws, standards, and regulation
of relations with the signed contract (the laws relevant to this area are the Law
on data security data and the Law on Corruption of data).
States adopt acts which regulate this field, for example. Massacuses Agree-
ment of 2010, which provides regular reporting and review of logs and audit
trails. (used to process FedRAMP Eng. Federal Risk and Authorization Man-
agement Program which access and authenticate products and services in the INTERDISCIPLINARY MANAGEMENT RESEARCH XI
cloud).
Clients are used to decide on a hybrid or shared cloud, which are more ex-
pensive and provide limited benefits to align with the regulations. (An exam-
ple of the company RackspaceCloud or QuickCloud that met the PCI DSS
standard5, and Google cloud that meets the additional regulations for FISMA
standard6).
5
Keep your customers safe while they shop: http://www.rackspace.com/ecommerce-hosting/
pci/ (accessed: 19.8.2013.)
6
FISMA standards will calm cloud fears: http://fcw.com/articles/2012/03/22/dave-mcclure-
cloud-security-standards.aspx (accessed: 19.8.2013.)
1019
.. What does this mean for the sector of financial
institutions
The application of cloud computing greatly changes the nature of relation-
ships in the business attached to financial institutions. Recently considered as
the greatest shift in the use of technology, where at present the largest compa-
nies in the market that will compete to take the biggest piece of the pie and pro-
vide a service that will accept by most, the concept of cloud computing provides
a comprehensive set of services from email to web applications and processing
and storing large amounts of data.
At first glance, such a concept does not seem to be questionable when it
comes to financial service providers, but looking at one of the most important
factors of confidence by users, come to the realization that security compo-
nent still remains a critical point for the non-negotiable transition to this new
concept.
Using the cloud can rest on two concepts:

• Private
• Public
Examples show that for common banks the most appropriate first step in
cloud computing made through private clouds, where according to some stud-
ies 83% transitioning begins just with the private cloud and later to grow the of
business transferred to a public cloud, or in some cases remain in private form.
In Chart 1 are shown a view of the decision on the acceptance of the model of
using the cloud. Switching to a public cloud in most cases there is a limitation of
working data center capabilities in the private cloud when there is a exponential
growth of business, which is impossible to follow the further development of
private infrastructure, as well as in cases where it is necessary for the purpose of
spatial (technological obstacles) restrictions engage external service providers.
1020
Graph 1. Acceptance of the public, private or hybrid clouds (answer the ques-
tion which business model in the cloud companies are using in their own
business)
Hibrid planningtouse
iscurrentlyim
mplementing
Private
alreadyinusee
notused
Public
notyetdecided
0% 20% 40% 60% 80% 100%
Source: http://www.datamation.com/cloud-computing/what-is-private-cloud.html
Viewed from the level of infrastructure, financial institutions have a certain

level of development of computing resources - processing power, network band-
width and storage of data within any institution or through service providers
with the outside. It creates the impression that the transition, were only par-
tially or in full, mostly going to grow the company in a way that the missing
resources are supplied from the outside by creating a new cloudy space in which
to continuing operations and still connected with the system infrastructure.
Picture 1. Private versus public cloud

Private P
Public INTERDISCIPLINARY MANAGEMENT RESEARCH XI
• elaasticity • elasticityy
• sellfͲserviceon • selfͲserviceon
reqquest request
• meeasurableuse • measurableuse
• virrtualization • virtualizaation
oolingresources
• po • poolingrresources
• seccurity • security
• handling • handlingg
Source: http://www.ashoknare.com/2011/08/03/is-private-cloud-an-oxymoron/
As can be observed from the above comparison of the difference is insignifi-

cant if it is known that the security that is in the public model doubtful, and
in private clouds brought into question. Analyzing some cases when a break-
1021
through in the cloud and data leakage occurred with the private model leads
to the conclusion that the differences are such that over, but economies of scale
and savings in resources still more worth it to take the model public clouds.
The best examples of this sort of thing are called STARTUP companies in
cases of rapid growth very quickly be adapted depending on the situation with-
out restrictions. An example is a company mint.com who was over their busi-
ness in a public cloud (about 1.5 million users in 2009) using a model SaaS
Software as a Service. According to some research companies can achieve about
50% savings rolled applications in the cloud (Accenture, Bechtel, ...). A good
example is the Bank of America using Force.com service which bypasses the
limitations of local service providers placing applications on servers. Using the
cloud can also significantly reduce the time necessary for the development of
new applications and the distribution of the same within all branches if we talk
about banks. For this case it is a good example of Suntrust Bank which spent
instead of 6-12 months, just two months for the implementation of its new ap-
plications for CRM for more than 2,500 employees there. Decision makers do
not have to nor would it be expected of them to take for granted the benefits
and savings estimates, as indicators of cost-effectiveness using the cloud, rather
than should insist upon information illustrated by ROI studies. Hardware is
certainly only a small part of what comes under the data center costs of an
institution. It should be recognized hidden costs such as management, as well
as transition costs that occur only after you start using the service. Therefore, it
is necessary to take into account the different models that are offered when the
cloud chosen as option. 7
There are many factors that influence the determination of the extent of the
savings will be by using the cloud:
• Adoption of common standards which make it easier to share data
• The use of standards, adequate required level services adapted to current
needs
• Application security settings and privacy adequately standardizing the
level of protection given to the need
7
Cloud Application Architectures: Building Applications and Infrastructure in the Cloud,
George Reese, O’Reilly Media, 2009, page.125
1022
• Bypassing the problem of ownership of data related to individual de-
partments within an organization to work could float freely within the
organization in order to prompt problem solving
• Maintaining flexibility to avoid dependence on a specific vendor
.. WHAT ARE THE ADVANTAGES OF CLOUD OTHER

THAN BANK SAVINGS
Although the savings in money and perhaps most important is not negli-
gible, the other side that indicates after deeper analysis of costs reduction. No-
tably, a number of areas where it enhances business rolled on Clouds comput-
ing, ie. We turn on the new business models that are more focused on users,
allowing banks to quickly spread to new markets. It also creates is possibility
of shortening the time that the bank addresses to customers, as well as solv-
ing problems related to the user’s location. This provides the capability to have
always available expert bank regardless of its current location, which can solve a
specific problem occurred in communication with the bank. With the appear-
ance of many competitors to banks in the payment system like Paypal banks
are increasingly have to turn to new models as they did like: Twitpay, Zong i
Square8. A especially pointed out one example of British Zopa9 company that
proclaims itself as a company that provides service to connect people and lend
money to each other bypassing banks.
3. HIGHLIGHTED NEEDS FOR ANALYSIS  THE INTERDISCIPLINARY MANAGEMENT RESEARCH XI
NEED FOR CLOUDS

Lately more the emphasis has been analysis as a key component that sepa-
rates the companies that succeed from those that fail. Still most companies do
not have the capacity to carry out the analysis of the mass of available data, es-
pecially due to the fact that the data are scattered in different locations and that
considerable efforts are needed to get all the relevant data to draw conclusions
to the site where they will perform their processing and deeper analysis.
8
Wired magazine: issue 18.02.2010. http://www.wired.com/magazine/2010/02/ff_futureof-
money/ (accessed: 20.8.2013.)
9
http://uk.zopa.com/ (accessed: 20.8.2013.)
1023
Which brings us to Clouds computing because they:
• Cloud allows banks to store large amounts of data that are produced ev-
eryday by performing each transaction, as well as to the information that
is otherwise “hidden” in conventional operations brought into relation.
• Cloud provides a cost-effective platform for the development of analytical
models, reports and manage business intelligence.
• It allows and that the bank does not work just a with data from the past
but also to data from the so-called. “Realtime” businesses are used quickly
and at a very low processing costs and adjustments.
Taking it on the consideration we can say that the use of cloud we have avail-
able a realistic picture of all available data, which are the best possible view of
the actual situation. In this way it is possible for example rent computing power
possessed by big companies like Google, Microsoft or Amazon, in order to ana-
lyze the data which were collected for years with the ultimate goal of making de-
cisions about further action. For instance, in the case of portfolio risk budget or
forecasting future trends in demand for credit funds. As example of a successful,
Zions Bancorporation10, from Salt Lake City, a banking institution with a value
of $ 51 billion, which found itself in a dilemma as to curb the creation of dozens
of data warehouses inside the company. The bank ultimately decided to build
their own private cloud based on the platform of San Mateo, which has consoli-
dated all existing warehouses into one centralized, naturally reducing costs in all
aspects of maintenance to training new users on various platforms already used.
Visa, credit card company, currently experimenting with free software to
Hadoop, which enables the analysis of large amounts of data, and consists of
4000 linked server, with the goal of finding patterns in data fraud attempts in
the last two years (73 billion transactions) and 36 terabytes of data. By switch-
ing in cloud Visa is shortened processing time these volumes of data from one
month to about 13 minutes. Bank recently also use the cloud to predict cus-
tomer behavior and data mining in order to obtain answers as soon as possible,
thereby maximizing return on investment into infrastructure. For example,
Maybank Berhad11 recently conducted the survey where the advisory firm Fi-
10
http://www.banktech.com/management-strategies/john-itokazu-of-zions-bancorporation-
put/227001118 (accessed: 20.8.2013.)
11
http://www.maybank.com/en/about-us/who-we-are/awards-recognition.page
(accessed: 20.8.2013.)
1024
nancial Insights for Innovation and CRM allow the use of advanced data min-
ing tools to analyze, predict and influencing the behavior during the life cycle of
the customer.
4. CONCLUSION
Looking toward the future still visible is movement towards that user them-
selves improve application used by adding functions for which there is a need.
Of course the very essence of traditional banking will have a long life despite
all of the above, primarily because of legal issues in most countries still remain
unresolved, and for good risk of losing control over data despite all better ad-
dress some most urgent issues of safety aspects. Apparently we will have “cloudy
future”, but in a positive way in this segment of course with the use of parallel-
ism for some time in those parts that remain in the classic mode until they are
resolved dubiousness about legal regulations and the ever-present threat of spy-
ing by the world force. How may therefore look like the future of the banking
business in the cloud?
Hardly anyone dares to make estimates of what will happen with the ap-
plication of technology in the future. In this paper, have been explored what are
the current trends related to the use of cloud computing when it concerned the
banking business. The most important obstacle to the full transition to the new
business model is the issue of security. Today banks face specific challenges in
field of data protection against unauthorized access, as well as general manage-
ment of security across multiple platforms that are found in various locations.
In general the transition to the cloud brings more consistent approach to the
problem, and in any case should be considered as an option, of course with
the resolution which model is most appropriate for the specific situation in the
market. Most banks have worked out hierarchy of security access to certain
information from the lowest level to the highest just a where strategic decisions
makers have a look at some of the data from the history of operation of the
bank. A similar approach should be applied if a bank transfers to the cloud, at
least in part, whether in the private or public of cloud model. Thus, according to
all of the above was logical that the data are from the lower level can be in public
service providers only protected with a password, and if the data with a high
level can be used on private cloud servers inside the company available currently
protected by the most advanced technologies available to authenticate users.
1025
Therefore, “Life in the Cloud” is not just a play on words rather than recently
the reality of information and, consequently, every other social and economic.12
Reference
http://www.infotrend.hr/files/pdf/casopis/2011/186/InfoTrend186.pdf
http://www.rep.hr/vijesti/tvrtke-i-trzista/it-arena-o-problemima-i-perspektivama-it-sek-
tora/2670/
http://about.bloomberglaw.com/2013/01/08/are-financial-institutions-ready-for-cloud-
computing/
http://www.tportal.hr/scitech/tehno/222445/Racunalstvo-u-oblaku-raste-i-rast-ce.
html#.UPXtGUeDaqJ
http://www.gfmag.com/archives/108-december-2009/2610-technology-cloud-computing.
html
http://www.documentmanagementnews.com/the-news/software-news/38-software-as-a-
service/205-banks-look-to-private-cloud-computing-for-application-and-data-access.html
http://www.information-management.com/news/cloud_computing_financial_services_
bank-10015811-1.html
Cloud Application Architectures: Building Applications and Infrastructure in the Cloud,
George Reese, O’Reilly Media, 2009, str.125
CTO Roundtable: Cloud Computing, Communications of the ACM, Volume 52, Number
8 (2009), http://queue.acm.org; str. 50-56
Gray Hall, “Bechtel Harnesses the Cloud: Case Study of an Enterprise Cloud,” (2009);
Cloudstoragestrategy.com
12
http://www.infotrend.hr/files/pdf/casopis/2011/186/InfoTrend186.pdf (27.8.2013.) page 3.
1026
MANAGEMENT OF ICTBASED
ENTERPRISES  APPROACH
THROUGH FRAMEWORKS FOR
BUSINESS ARCHITECTURE,
IT GOVERNANCE AND IT
MANAGEMENT
Morana MESARIĆ
Deloitte d.o.o. Zagreb, Croatia
moraname@gmail.com
Luka BURILOVIĆ
Croatian Chamber of Economy, Croatia
predsjednik@hgk.hr
Abstract
Many organisational systems today rely heavily on well-developed information
and communication technology featured in more or less complex information
systems and their related systems with other specific purposes. Managing those
systems requires well-defined methodological frameworks in order to ensure the
realisation of strategic goals, planning and organization, delivery and support INTERDISCIPLINARY MANAGEMENT RESEARCH XI
of their services as well as monitoring and evaluation of their processes.
Frameworks, which are now widely accepted, began as a collection of best prac-
tices and “methodological frameworks” and sometimes as ontologies in specific
areas of enterprise, to become frameworks which profoundly decompose the
dynamics of an enterprise by enabling effective implementation and exploita-
tion of the IT.
This paper presents some of the current (meta)models and methodology frame-
works and their suitability for governance and managing business strategy,
process and operations, change, IT strategy, information and technology bal-
ance sheet, risk conformance and compliance. Frameworks and their models,
1027
methods and tools that are compared include CoBIT, ITIL, TOGAF, ISO
27002 and Deloitte framework.
Keywords: frameworks, model, ICT governance, ICT management
JEL Classification: D8, D83, G13
Morana Mesarić • Luka Burilović: MANAGEMENT OF ICT-BASED ENTERPRISES – APPROACH THROUGH FRAMEWORKS FOR BUSINESS ...
INTRODUCTION
Managers of all kinds of organizational systems are faced with different
challenges arising from current issues of functioning and tracing a future of the
systems in a way that they ensure survival, by alternating their opportunities for
growth, efficiency and flexibility
The functioning and development of any organizational system largely is
determined by the strategic objectives, clarity of vision - a purpose and strength
of ideas it contains and the mission that determines the key achievements and
distinctiveness in relation to other organizational systems. At different levels of
governance, they (vision, mission and strategy) will determine the frameworks
for providing the answers to the questions:
- Why, When, Who, What, How, Where.
Realization of organizational business processes will be supported by vari-
ous enablers such as:
- well-defined processes and flows,
- ICT,
- human resources and their competencies,
- motivation and measurement,
- business policies and
- physical infrastructure.
Their combination will determine different organizational (business) ar-
chitecture, dynamics, processes and project life cycles and other aspects of the
functioning and development of the system, in order to achieve outcomes that
will meet internal and external demands of their stakeholders.
Many organisational systems today rely heavily on well-developed informa-
tion and communication technology featured in more or less complex informa-
tion systems and their related systems of other specific purposes. Therefore,
1028
the development, implementation, operation, maintenance and organization of
ICT and is carried out on the ideas of managing complex business architectures.
The emergence of the first methodologies for the implementation of indi-
vidual stages of development and implementation of information systems dates
back to the late sixties. During the following decades, a series of individual con-
cepts and (meta) methodologies were developed. Their main disadvantage was
partial approach and view of development of information systems and ICT
outside of the context of strategic and often tactical system’s goals. Top-level
managers, business functions managers and IT managers also contributed to
this. Top-level managers did not recognized the importance of ICT for busi-
ness, middle management concentrating on business functions while IT man-
agers did not understand business, management and control processes and dy-
namics of enterprise systems (especially not in large business systems). Lack
of communication and inability of certain groups to understand all aspects of
the complexity of enterprise systems, often resulted in only partial solutions
to the identified problems or solutions which were not much better than the
existing, nor in terms of productivity and efficiency, nor in terms of the quality
of existing processes and services. A large number of poorly utilized solutions,
incomplete solutions as well as complete failures pointed to the necessity of
co-operative and co-facilitating relationships between top management, middle
management and IT management. That was the reason for emergence of nu-
merous integrative frames based on best practices in ICT and enterprise align-
ment, implementation, governance and management.
A particular problem was the number of public services in which the devel- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
opment happened (not by plan) but as result of the constant demands of the
public. No wonder then that the initiative for the development of methodologi-
cal framework for ICT governance and management often comes with a level of
state administration. Globally many positive results were achieved in informa-
tion services of public and state institutions, whose development was based on
conceptual fundamentals underlying the frames which are the subject of these
investigations. In Croatia, some solutions introduced so far are beginning to
show effects, but a large number is still unsettled. What is typical in such sys-
tems is their hierarchical and horizontal structure which is basically repeated
and well-placed for the system, can be applied, with minor modifications, to all
subsystems.
1029
This paper will present some of the current (meta)models and methodology
frameworks and their suitability for the development of business and, specifi-
cally, ICT architecture and processes.
The purpose of this paper is to determine how the model and methodologi-
cal frameworks can help the overall quality of IT solutions in support and ex-
ecution of complex business processes at different stages, including an analysis
of the current situation and readiness (maturity) of the enterprise system for
the introduction and implementation of ICT, to the development of system’s
capacity to govern and manage the implemented solutions in an optimal way.
BRIEF HISTORY AND CONTENT OF META

MODELS AND FRAMEWORKS FOR GOVERNANCE
AND MANAGEMENT OF INFORMATION
TECHNOLOGY
Requirements for computer processing on the one hand and the capabilities
of computers for more complex processing on the other hand, led to the pen-
etration of IT in all business processes. The problems, which began to emerge
in connection with the implementation of IT, in the beginning of mass exploi-
tation, related to setting-up of good sequence of procedures that enabled the
enterprise to achieve, in shortest time possible, the desired optimal performance
in terms of achieving acceleration of the execution of processes.
These requirements, especially in large enterprises, have caused or discov-
ered, other business issues pertaining to the functional and procedural orga-
nization of an enterprise, the organization and manipulation of data, data se-
curity, architectural solutions of IT and organization, an embodiment of IT
projects, management of technological development due to incredibly rapid
development of information and communication technologies, methods and
models of management and decision-making and more.
In the context of these changes, requirements began to emerge for clearer
methodological frameworks that would enable enterprises to avoid failures and
problems of autarchic development, which is why the IT companies began at
first to collect cases and categorize them by certain types of problems where the
solutions reached to be acceptable and successful.
1030
Conceptual bases, which sometimes cannot be strictly considered as meth-
odologies, began to be built in the conceptual frameworks of governance and
management of information technology in the context of management (plan-
ning, organization, coordination, controls, supervision, instructing and fore-
casting) of an enterprise and its development as a whole.
Frameworks, which are now widely accepted, began as a collection of best
practices and “methodological frameworks” and sometimes as ontologies in spe-
cific areas of enterprise, to become frameworks which profoundly decompose
the dynamics of an enterprise by enabling effective implementation and exploi-
tation of the IT. A number of analysis of frameworks considering their mutual
resemblance and differences are investigated. To mention a few (Sante, 2013),
(ITG, 2008), (Spremić, 207)
Through historical development, a multitude of such frameworks emerged,
evolved and disappeared and some of them have become de facto standards. A
brief historical overview and basic concepts of some of the currently well ac-
cepted framework follows.
COBIT
CoBIT is an acronym of “Control objectives for information and related
technology”. The first version emerged in 1996. It was published by ISACA
(Information Systems Audit and Control Association). ISACA was founded
in 1967 as an initiative of enterprise audit and control professionals. They ob-
served deficiencies and shortcomings in ICT solutions for business operations INTERDISCIPLINARY MANAGEMENT RESEARCH XI
and processes and consequently misinformation in reporting and data analytics.
In 1996 a numerous guides and models were proposed which were intended to
control, manage and governance of IT in enterprise. Few versions have been de-
veloped and the last published in 2012 is referenced as CoBIT5. According to
ISACA, “COBIT 5 brings together the five principles that allow the enterprise
to build an effective governance and management framework based on a holistic
set of seven enablers that optimises information and technology investment and
use for the benefit of stakeholders.” (ISACA, 2014)
The five COBIT 5 principles:
1. Meeting Stakeholder Needs
2. Covering the Enterprise End-to-end
1031
3. Applying a Single Integrated Framework
4. Enabling a Holistic Approach
5. Separating Governance From Management
COBIT 5 Enablers
1. Processes
2. Organisational structure
3. Culture, Ethic and Behaviour
4. Principles, Policies and Frameworks
5. Information
6. Infrastructure and Application
7. People, Skills and Competencies
Working frame is represented by three dimensions summarising every

aspect of each dimension. It is integral space, which connects goals (defined
through business requirements) information resources and processes are speci-
fied by domains and for each process is defined:
- general description of process in cascades,
- detailed verifications,
- recommendations and guides for measuring,
- maturity model .
ITIL
ITIL (Information Technology Infrastructure Library) was developed
in eighties last century, based on set of recommendations of CCTA (Central
Computer and Telecommunications Agency) of British government. Its occur-
rence corresponds with intensive ICT implementation in government institu-
tions and main goal of ITIL was to establish standards and recommendations
for ICT implementation, governance and management of ICT in government
institutions.
“ITIL v3 presents a lifecycle approach to managing IT services designed to
provide the most value possible to the business.“ (Array, 2013).
1032
“The five stages of the lifecycle can be represented as follows
• Service Strategy. How to transform IT service management into a strate-
gic business asset
• Service Design. How to design IT services, processes and functions to
realize the strategy
• Service Transition. How to move new and changed IT services and com-
ponents into a production environment safely and effectively
• Service Operations. How to efficiently and effectively deliver and support
IT services
• Continual Service Improvement. How to monitor and measure IT service
management and make adjustments to remain aligned with business and
strategy“
TOGAF
TOGAF is acronym of The Open Group Architecture Framework. It start-
ed as a framework for technical architecture of enterprise at the beginning of
nineteen’s. Last version TOGAF 9.1 comes into use in 2011. It is process ori-
ented meta model which describe steps in enterprise architecture development.
The architecture represents ‘formal description of system and detailed plan on
component level for system’s implementation. Architecture is also a structure of
components, their relationship, principles and guide for governance, design and
evolution’. (TOGAF as Enterprise Architecture, 2015). Four types of architec- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
ture are recognized in TOGAF: Business architecture, Data architecture, Ap-
plication architecture and Technological architecture. Key model of TOGAF
is Architecture Development Method (ADM). For Each phase the goals, prin-
ciples, frames, input, steps and output are described.(TOGAF, Components,
2014)
DELOITTE MODEL FRAME

Deloitte model is comprised of four types of services:
- IT strategy and alignment with business strategy
- Assessment of IT state
1033
- Building business architecture
- IT governance.
Models, methods, techniques and tools used in service delivery are (Deloite,
2008, 2014):
- CIO Management Framework Enterprise Value Map

- Value Analytics
- IT Strategy and Assessment Toolkit
- Programme Leadership Diagnostic
- Business Model Innovation.
ISO/IEC 27002 STANDARDS

ISO/IEC 27002 STANDARDS are derived from ISO/IEC 17799:2005
Information Technology—Code of Practice for Information Security Manage-
ment British Standards Institution (BSI) The ISO IEC 27002 standard con-
sists of recommended information security practices. It comprises measures
based on legal requirements for security, best practices in standards for infor-
mation security as well as critical success factors of IT management (The ISO
IEC 27002 standard, 2014).
TO WHOM AND WHAT FOR ARE NEEDED FRAMES

FOR ICT DEVELOPMENT, GOVERNANCE AND
MANAGEMENT
Frames, models and methods described in previous chapter deal with differ-
ent aspect of enterprise and IT. That is why interest for its use comes from all
managerial levels. Frames could be use in:
- Planning and organization
- Acceptance and implementation
- Delivery and support
- Monitoring and evaluation
1034
According to ITGI and OGC (ITGI and OGC, 2008) usage of frames is
stimulated by different kinds of factors like:
- claims of managers and boards for better ROI of IT
- regulation issues in data privacy and financial reporting
- selection of service providers
- increasing risks in IT usage
- necessity for IT governance in order to achieve business values and risk
reduction
- necessity for costs optimization
- resource management , knowledge and IT optimization
- accelerated maturity of IT and need for better prediction
- performance measurement and IT control.
All framework analysed in previous sections have much in common and all
are based on best practices. All strive to be integrative in IT implementing pro-
cedures, IT management and IT governance. Managers are faced with dilemma
which one to use to achieve best values of IT and its implementation in enter-
prise. Suitability of particular frame or their combination should be viewed
through a number of criteria: (ITGI, 20080)
- Tailoring (in sense of IT governance, request for services, project defini-
tion, continual improvement and audit and control)
- Prioritising (effective planning for requirements meeting where and how INTERDISCIPLINARY MANAGEMENT RESEARCH XI
to use standards)
- Planning (frame setting for goals and responsibilities, aligning of IT and
enterprise goals and objectives, risk understanding and definition, set-
ting the priorities, results measurement and control and improvement
definition)
- Pitfalls avoidance (poor project definition, neglecting business culture,
imprecise goals, unrealistic expectations, top management indifferences
for IT projects )
- Best practices adjustment (use those best practices that are best suited to
internal procedures and business requirements)
1035
According to our analysis and previous research made about frames usage,
appropriateness of models for business area and field of management is pre-
sented in Figure 1.
Figure 1. Appropriateness of models for business area and field of management
Information and Risk,

Business Processes and IT
Area
Change Technology Conformance

strategy operations strategy
Balance Sheet and Compliance
Human,
Field of management
Structural and Governance,

Business Readiness,
Business Model Information Market Capital, Conformance
Processes and Projects
Business Strategy, Organizational Compliance
operations Programmes
Environment Business/IT Data, Enterpr. Risk
IT Operations Methods,
Opt. Business Architecture, Applications, Mgmnt.,
IT Asset Mnmt. Alignments,
Strategies IT Principles Business and IT Contol
Security Benefits
Processes, Audit
Technologies
Framas /(Meta)Models
CoBIT TOGAF CoBIT,

PMBOK Zachman
ITIL Zachman COSO,
OPM3 Framework,
Strategis Plans, IGOE Framework, SOX,
PRINCE2 ISO38500,
Business Plans, ISO 27002 Balanced UCF,
MSP Balanced
Balanced PCI DSS Scorecard, ISO27001,
CAPM Scorecard,
Scorecards TCO/ROI Delloite CIO PCI DSS
CMM Delloite CIO
BCM Framwork Balanced
CoBIT Framwork
6Sigma Scorecards
CONCLUDING REMARKS
Frames and their operating units can be useful meta-models and models
that will assist the development and implementation of enterprise information
systems. In all the frames, which have a longer or a shorter history, it is pointed
out that they are based on the collections of best practices.
In one way or another, they stress the fact that in modern (especially large)
business, in which the system can deliver values through information technol-
ogy, it is important to manage this technology for a variety of IT related risks,
to avoid repetition of procedures already learned , to avoid mistakes in IT im-
plementation projects, excessive investment, security problems, frequent system
breakdowns or errors that might occur in delivery of IT services from third
parties that do not meet the requirements of the users.
As the analysis shows, in terms of process activities some models have ad-
vantages and/or disadvantages compared to other frameworks. Thus it can be
concluded that CoBIT has a well developed process and control objectives sys-
tem that can be used effectively especially in the acceptance and implementa-
1036
tion and monitoring of IT related activities. ITIL has proven to be superior
in audit of information systems that precede new investment decisions. ISO
27002 is a standard and a framework of best practices suitable for the research
and analysis of all security aspects of IT. TOGAF framework seeks to round up
key architectural issues of development of the enterprise and a harmonized IT
system. Deloitte methodology has a well-defined map through which business
system value are generated and together with the CIO framework provides an
opportunity for good preliminary analysis of the existing system and analysis of
strategic commitments of the enterprise in terms of information and communi-
cation technologies. In this context, very often one selected frame is mapped to
the other with the intention that all relevant aspects are run through analyses.
These analyses, despite their relatively high cost, enable the new system to be
planned, implemented, delivered and monitored with lower overall costs than
those that could be generated without these analyses.
As can be concluded from their content and processes, frames are complex
meta-models and are applicable primarily to large enterprise and government
institution. For small business systems and their IT management, simplified
versions of presented models are used.
Of what significance are the frames for top management? Analysis showed
that well-defined strategic objectives and commitment, clear vision and aware-
ness of the importance of ICT for their realization are the basis for implemen-
tation business and IT architecture. In this context, benefits for top manage-
ment come from gaining insight into the hierarchical architecture of the busi-
ness system, it’s processes, resources and performances. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
REFERENCES
2008 Survey on the IT-Business Balance, https://www.deloitte.com/assets/Dcom- Malay-
sia/Local%20Assets/Documents/2008%20Survey%20on%20the%20IT-Business%20Bal-
ance.pdf, accessed 24.01.2014.
Aligning CobiT 4.1, ITIL V3 and ISO/IEC 27002 for Business Benefit, 2008 IT Gov-
ernance Institute, http://www.best-management-practice.com/gempdf/Aligning_CO-
BITITILV3ISO27002_ Bus_Benefit_9Nov08_Research.pdf , pristupljeno, 17.02.2014
Arraj , V. ITIL: The Basics, 2013, https://www.axelos.com/case-studies-and-white-papers/
itil-the-basics-white-paper, accessed , 13.03.2015
Deloitte value map, http://public.deloitte.com/media/0268/Enterprise_Value_Map_2_0.
pdf, accessed 12.01.2014.
1037
ISACA, What is CoBIT5, https://cobitonline.isaca.org/?icid=1004934 &Appeal=Web
accessed, 13.01.2015
QUALITY MANAGEMENT SYSTEMS – NEW APP…
Security management standard — ISO 17799/BS 7799, http://www.tarrani.net/Attainin-
gISO17799.pdf, accessed 03.03.2015.
Spremić, M. Metode provedbe revizije informacijskih sustava, Zbornik Ekonomskog

fakulteta u Zagrebu, god.5, 2007, str. 301
The BS 7799 / ISO 17799 Standard For a better approach to information security
http://www.infodom.hr/calliosecura/materijali/White_Paper_ISO_17799_en[1].pdf
The ISO IEC 27002 standard translated in plain english, http://www.praxiom.com/iso-
27002.htm, pristupljeno 07.04.2014.
TOGAF as an Enterprise Architecture Framework, (http://pubs.opengroup.org/architec-
ture/togaf8-doc/arch/, accessed, 10.08.2014
TOGAF, Module 2 TOGAF 9 Components, The Open Group, 2011,
Van Sante, T., Ermers, J., ITIL® and TOGAF® 9.1: two frameworks, The Stationery Office
2013, White Paper, August, 2013., http://www.axelos.com/gempdf/ITIL_and_TOGAF_
White_Paper_v0_3.pdf, pristupljeno 12.02.2015.
1038
Urban, Rural
and Regional
Economics and
Growth
VALUATION OF ECONOMIC AND
SOCIAL DEVELOPMENT OF THE
COUNTIES BRODPOSAVINA AND
POŽEGASLAVONIA THROUGH EU
FUNDS
Višnja BARTOLOVIĆ, mag. oec.

College of Slavonski Brod, Republic of Croatia
visnja.bartolovic@vusb.hr
Tomislav KOVAČEVIĆ, mag.ing.agr.

PhD student of Management, Postgraduate University Study,
tomislav85@net.hr
Abstract
The best way to interpret the global economy of today is by using the concepts of
networking in the commodity and service trends, continuity of developmental
changes, development of information technology, and the complexity and dy-
namism of economic relations. The importance of adapting the local economies
to the global business trends is growing rapidly. In this context the support of
the government to the local community is becoming more and more important,
which is reflected in recognizing the needs of key stakeholders and the creation
of local development policies.
The key for regional development at the local level has become the networking
of stakeholders, identifying development priorities and drafting and implemen-
tation of key strategic development documents.
Public, private and civil sector are powerful levers in the development of local com-
munities through partnership in setting the priority development goals, which
are embedded in the County Development Strategy. This partnership and the
mutually supportive approach is the result, at the national level, of a relatively
new strategic thinking in which the importance of the local community is recog-
nized by contributing to the strengthening of the private, civil and public sectors.
1041
EU funds in this respect represent the support for achieving local development goals.
The aim of this paper is to evaluate the contribution of EU funds to the eco-
nomic and social development of the counties Brod-Posavina and Požega-
Slavonia in the period from 2011 to 2013 and to provide a look at the wider
Višnja Bartolović • Tomislav Kovačević: VALUATION OF ECONOMIC AND SOCIAL DEVELOPMENT OF THE COUNTIES BROD-POSAVINA AND ....
context of the current moment by analysing the key development indicators.

The intention of the above is to give a fuller picture of the current state and an
indication of future development needs.
Keywords: Economic-social development, European Union funds, the
County Development Strategy, the county of Brod-Posavina, the county of
Požega-Slavonia
JEL Classification: F63, I25, O1
1. INTRODUCTION
The life quality of the residents in a particular area make concerted efforts
of public, private and civil sector directed to the realization of outlined develop-
ment needs. For a longer period of time the steady and sustainable growth of
the counties Brod – Posavina and Požega-Slavonia have been located on the
front position of the index of development of these areas. The continuous de-
velopment of the local and regional governments is a subject of the regional
development policy of the Republic of Croatia. Networking of the participants
of this development: public, private and civil sector represents the historical
novelty which is in many ways significantly different from the previous, recently
centrally managed Republic of Croatia which was subject within the borders of
former Yugoslavia. (Puljiz; 2005, page 9). In this sense, it is about a new culture
of relations and ways of thinking and cooperation.
Strengthening of public-private partnerships and networking of all partici-
pants of the local area certainly contributes to local development. In this regard,
an important role is played by economic strength of the local community, the
capacity of local actors in creating partnerships for development and their inter-
ests and goals (Cernicova; 2005, page 127). Advantages of cooperation that de-
velops in this way are reflected in linking human and financial resources, actors
affected by globalization themselves improve their environment by providing
additional touch of the contemporary world and world events. Such an under-
stood cooperation then results in something new and current.
1042
Local problems are often not large enough and important so the state would
deal with it. (Cernicova; 2005, page 127) Therefore it is necessary to address the
problems on the local level.
2. POLICY OF REGIONAL DEVELOPMENT OF

THE REPUBLIC OF CROATIA AND REGIONAL
POLICY OF THE EUROPEAN UNION
The main problems which the Republic of Croatia has been facing for many
years are the different level of social-economic development of the domestic
territory, the aging of the population and the depopulation, lack of domestic
capital for significant investments within the development of the economy.
The goal of regional development policy of the Republic of Croatia is based
on the sustainable development of all parts of the country through the link be-
tween local and regional development needs with the development needs of the
central level and the objectives of EU cohesion policy. (Law on Regional Devel-
opment (2014).The main strategic objectives which are defined in the Strategy
of Regional Development of the Republic of Croatia are the development of
the counties and statistical regions as well as the development of supported
border areas.
The Regional Policy of the European Union aims to equalizing the level of
development of different parts of the European Union by increasing productiv-
ity and competitiveness of each region (Đulabić; 2007.page 100).The cohesion
policy itself contains a strong social dimension which aims to homogenize and INTERDISCIPLINARY MANAGEMENT RESEARCH XI
transform the European economy, with particular emphasis on the convergence,
regional competitiveness and employment as well as the European territorial
cooperation. (Đulabić; 2007, page 115).
The European Commission has signed a partnership agreement with the
Republic of Croatia by the amount of 10.423 billion Euros for the use of struc-
tural funds and investment funds in the period from 2014to 2020 and of which
is intended to invest 8.397 billion in growth and employment, and 2.026 billion
Euros for agriculture and rural development.
Partnership agreement is an agreement of five European funds: the Euro-
pean Regional Development Fund (ERDF), the European Social Fund (ESF),
the Cohesion Fund(CF), the European Fund for Maritime Affairs and Fisheries
1043
(EMFF) and the European Agricultural Fund for Rural Development (EA-
FRD). (source: The Ministry of Regional Development and EU Funds.
3. GENERAL CHARACTERISTICS OF THE

COUNTIES BRODPOSAVINA AND POŽEGA
SLAVONIA
Administrative-territorial structure of the counties Brod-Posavina and
Požega-Slavonia is shown in the table 1.The area of both observed counties
make up the number of settlements and lower population density.
Table 1. Administrative-territorial structure of the counties Brod-Posavina and
Požega-Slavonia
County Area Population Population Number of Number of Number of
in km² according to the per km² cities municipalities settlements
census in 2011
Brod-Posavina 2030 158 575 78,1 2 26 185
Požega-Slavonia 1823 78 034 42,8 5 5 277
Source: Croatian Bureau of Statistics 2014.
According to the decision of the Croatian Government on the classification

of local and regional governments, concerning to the level of development of
the counties Brod-Posavina and Požega- Slavonia are classified into the first
group of local (regional) government, whose development index value is less
than75% of the average of the Republic of Croatia: Counties Bjelovar-Bilogora,
Brod-Posavina, Karlovac, Koprivnica-Križevci, Krapina-Zagorje, Lika-Senj,
Međimurje, Osijek-Baranja, Požega-Slavonia, Sisak-Moslovina, Virovitica-Po-
dravina and Vukovar-Srijem. (The Decision of the Classification of the Local
and Regional Governments According to the Stage of Development (2013).
Development index is calculated based on the following indicators (Regulation
on Development Index, NN 63/10):
- Average income per capita
- Average original income per capita
- Average unemployment rate
- Population trends and
- Share of educated population in the population of 16-65 years.
1044
Table2 shows the state of the value of the development index of the analyzed
counties and it is noticed the unfavourable situation of both analyzed counties.
Table 2 Indexof development of local self-government in the counties Brod-
Posavina and Požega-Slavonia
County Number of local governments Group 1 Number of local governments
Index of development in 2013 Group 2
< 75% Index of development in 2013
75-100%
Brod-Posavina 5 22
Požega-Slavonia 0 9
Source: The Ministry of Regional Development and EU Fundshttp://www.mrrfeu.hr/

UserDocsImages/Regionalni%20razvoj/Vrijednosti%20indeksa%20razvijenosti%20i%20
pokazatelja%20za%20izra%C4%8Dun%20indeksa%20razvijenosti%20na%20lokalnoj%20
razini%202013..pdf
Figure 1 shows the geographic location of the selected counties of Brod-

Posavina and Požega-Slavonia. Both regions belong to the second level of
NUTS classification.
Figure 1. Location of the counties Brod-Posavina and Požega-Slavonia in the
continental Croatia
Source: The Ministry of Regional Development and EU Funds
1045
4. ANALYSIS OF COUNTY DEVELOPMENT
STRATEGIES OF THE COUNTIES BROD
POSAVINA AND POŽEGASLAVONIA
The legal framework for networking achieved through national strategic

documents and the county development strategies. The Institute of Econom-
ics in Zagreb supported by the Ministry of Regional Development and EU
funds as a client has developed a study assessment system of strategic plan-
ning and financing possibilities of counties and local units. (The rating system
of strategic planning and possibilities of financing the development of coun-
ties and the local government in the context of implementation of regional
Croatian development policy, 2012).A part of this study was the analysis of
the county development strategies and their compliance with the Regional
Development Strategy of the Republic of Croatia. According to the men-
tioned study it is concluded that all county development strategies coordi-
nate with the Strategy of Regional Development of the Republic of Croatia.
By examination of the main strategic documents of both counties such as
County Development Strategy for the period from 2011 to 2013 it can be ob-
tained an insight into the widespread coverage and target development direc-
tions through selected strategic objectives as shown in table 3 and 4.
1046
Table 3. Overview of the county strategic development priorities of the county
Brod-Posavina in the period from the year 2011 to 2013.
Strategic development objective: Priorities
1. Strengthening the economy in a manner leading to Development of institutions to support entrepreneurship
significant and continuous increase of employment and and attract investments
job quality Encouraging competitiveness and exports of existing
companies
Activities to attract investors from the Croatia and
abroad
Economy and transport infrastructure as a prerequisite
for the development of sector distribution and logistics
Encouraging the development of manufacturing industry,
agriculture and tourism
Encouraging the development of crafts
2. Protection of nature and environment as the basis of Municipal infrastructure
sustainable development and economic activity Renewable energy and energy efficiency
Rural development
Biodiversity conversation
3. Continued development of the education system in Monitoring of labour market needs
accordance to the needs of the economy Linking educational institutions with the economy
Implementing lifelong education which encourage the
creation of knowledge and skills
4. Improvement of life quality, development of social Support to health and social care
infrastructure and improvement of the position of Improving quality of life
socially vulnerable groups
Support the development of civil society
Source: The County Development Strategy Brod-Posavina County 2011.2013.

Table 4. Overview of the county strategic development priorities of the county
Požega-Slavonia in the period from the year 2011 to 2013.
Strategic development objective: Priorities
1. Increase the competitiveness of the county Supporting the competitiveness of industry and
Požega-Slavonia through better use of natural entrepreneurship
resources, supporting the introduction of Development of rural areas, agriculture and
modern technologies and methods of operation tourism
and securing the prerequisites for attracting
Strengthening Human Resources
investments
2. To enhance the physical, economic and social Improvement of social and physical infrastructure
infrastructure and reduce the negative effects of Efficient management of natural resources
population on the environment
Demining
Source: The County Development Strategy Požega-Slavonia County 2011- 2013
1047
5. CONTRIBUTION OF EU FUNDS FOR SOCIAL
ECONOMIC DEVELOPMENT FOR THE
COUNTIES BRODPOSAVINA AND POŽEGA
SLAVONIA
The adoption of the county development strategy marked by a process of
participation, in which the participants of the public, private and civil sector
decide on the further development of the local area. This approach of participa-
tory decision-making on future directions of development has many advantag-
es, but also disadvantages. Actors of the participatory process could be: (Đokić
et al; 2010, page 67):
- Local citizens
- Proponents and users in the decision making process
- Representatives of central and local authorities
- Central and local government agencies
-NGOs
- Sponsors
- Private sector
- Scientific(academic) institutions.
The money of the European Union, which in this sense are available and can
be used by different programs contribute significantly to the development of
local areas. In Table 5.
Table 5. Sources of funds of the European Union as a support to the financ-

ing of social-economic development of the county Brod-Posavina, years 2009
– 2013
County of Brod-Posavina Value of the project Donation of EU
Source of program EUR EUR
IPA II 1 017 101 394 684
IPA IIIb 29 652 030 15 344 925
IPA IIIc 2 647 267 2 141 785
Regional Competitiveness
TOTAL IPA IV 2 413 721 2 141 785
TOTAL IPARD 8 533 478 3 748 888
Source: Department of Development and European Integration of the county Brod-Posavi-

na, Brod-Posavina county (internal data)
1048
In table 5 it can be noticed that the structure of the EU funds which are
supported overall projects in the period from 2009 - 2013 accounting for 53%
of all funds involved.
In this regard, the EU funds make up a substantial base of financing activi-
ties on the social-economic development which is done by the county.
Table 6. Sources of EU funds to support the financing of social-economic de-
velopment of the county Brod-Posavina in the year 2010 – 2013
County of Požega-Slavonia Value of the project Donation of EU
Source of program EUR EUR
IPA IIIc 1 034 278 620 567
Regional Competitiveness
IPA IV 324 081 273 484
Source: Regional Development Agency of Pozega-Slavonia County Ltd. For business services
and project development (internal data)
According to the data in table 6 it is obvious that the projects which are
funded by the European Union are in the framework of IPA components III c
Regional Competitiveness and IPA IV. The total value of the project amounts
€ 1 358 359 and the funds of the European Union consists of € 894 051 which
represents 66% of the funds. Promotion of human resources in the planning
and implementation of programs that can be financed with EU funds will cer-
tainly contribute to a greater number of projects financed from EU funds to the
county Požega-Slavonia.

6. CONCLUSION
The Regional Policy of the Republic of Croatia aims the balanced develop-
ment of all its counties. On the selected example of the counties of Brod-Posav-
ina and Požega-Slavonia it is shown the current status of the administrative-
territorial organization, indices of development, the structure of the strategic
development priorities through an area analysis of the years 2011 - 2013 and
realization of various development projects in the period from 2009 to 2013.
The share of EU funds significantly participates in the support of development
projects and the development of the local area.
The challenge in the coming period is certainly the need to invest new ef-
fort to approach new strategic objectives which will be incorporated into fu-
1049
ture development strategies of these counties. In this regard it should be made
much more efforts in attracting EU funds specifically for the area of the county
Požega-Slavonia. In this process an important role plays the partner councils
and human resources who can be engaged within the local development agen-
cies, which have be strengthened in the next period, because the process of the
regional development is a durable effort of the local participants and that the
European Union funds which are available to the Republic of Croatia are al-
ready defined. The absorption capacity, regardless of the results so far, should be
upgraded because it is an area of lower levels of development, which emphasizes
the need for new ideas. The accelerating of development can be achieved only
with a high degree of cooperation and budgetary assistance, notably from the
European Union.
References
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ti%20i%20pokazatelja%20za%20izra%C4%8Dun%20indeksa%20razvijenosti%20
na%20lokalnoj%20razini%202013..pdf(12.03.2015)
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1051
HEALTH TOURISM DEVELOPMENT
IN CONTINENTAL CROATIA
Vladimir CINI, Ph.D.

natasad@efos.hr
Nataša DRVENKAR, Ph.D.

Vladimir Cini • Nataša Drvenkar • Mario Banožić: HEALTH TOURISM DEVELOPMENT IN CONTINENTAL CROATIA
natasad@efos.hr
Mario BANOŽIĆ, Ph.D.

City of Vinkovci
Vinkovci
mario.banozic@gmail.com
Abstract
Although the present position of the Republic of Croatia within European tour-
ist capacities is favourable, it is necessary to increase the quality of overall tour-
ism offer and overcome seasonal fluctuations. From a regional point of view,
tourism in the Republic of Croatia has achieved varied development levels.
More than 94% of tourism turnover in the Republic of Croatia is achieved
in the Adriatic region, which is mostly based on seasonal tourism products.
Geothermal potential of the Republic of Croatia can be one of the first steps in
expanding the existing tourism offer and attaining all-season tourism.
The analysis of previous research indicates that the biggest contribution in defin-
ing the geothermal tourism offer was provided by medical scholars (primarily
physicians) rather than tourism specialists or economists. For this reason, this
area has largely remained in the domain of medical tourism and development,
and failed to be seen as new tourism potential. Different statistics and indica-
tors show that there is growing investment in the health sector (mostly privately
owned) as well as growing demand for this selective form of tourism, which
should, in strategic terms, be linked to the trend of an increased dedication to
1052
the quality of life and European demographic trends. The analysis of this type
of tourism offer in the neighbouring countries and benchmarking will yield
conclusions about comparative advantages of these countries over Croatia. Al-
though these countries in general have lower tourism potentials than Croatia,
they are achieving remarkable results. A legal framework and mechanisms for
enabling synergies between medical and tourism services is a precondition for
the development of new tourism products in continental Croatia and their in-
clusion in the general development policy. Current legislation with a direct im-
pact on exploitation of geothermal energy will be studied in order to formulate
a model for eliminating the existing legal barriers, and to provide guidelines for
future activities, with the general aim of attracting new investments.
Keywords: geothermal energy, continental Croatia, medical tourism
JEL Classification: L83, Q26, Q56, R58
1. INTRODUCTION
Many European countries encourage the development of health tourism,
but there is a lack of serious research on the subject. However, the conclu-
sions of some statistical reports suggest there is a growing demand for those
services, and investments into the health sector confirm that there is a need
for the improvement of the current medical offer, e.g. thermal spas. Accord-
ing to the UNWTO (United Nations World Tourism Organization) data, the
number of international tourist arrivals has reached one billion in 2012, and
some projections suggest it will increase to 1.8 billion by 2030. Just to compare,
the number of arrivals was 25 million in 1950 (UNWTO, 2012). According
to ITC projects (2014), the increase in tourist arrivals in emerging economies
between 2010 and 2030 is double that of the traditional advanced economies
in Europe and North America (ITC, 2014). The MTA assessed that the 6 mil-
lion people currently travelling for medical purposes can contribute to the gross
world product with 45-90 billion US dollars, whereas previous research pre-
dicted that the total sum might even reach 100 billion USD (McKensey &
Company in: Herrick, 2007). If we consider the data from 2004, when medi-
cal tourism generated around 40 billion USD of income worldwide, we can
conclude it is definitely one of the most promising types of tourism within the
past 20 years. Ormon (2011) claims “the expansion of modern medicine, in cor-
relation with shifting conceptualisations and spatialisations of disease and ill-
1053
ness, health-motivated travel gradually extended beyond places endowed with
natural morphologies held as therapeutic to include medical facilities in which
the “specific geographical location (was thought to be) of less significance in its
therapeutic role than the physical, social and symbolic organisation of the space
itself ” (Smyth, 2005:488 in: Ormond, 2011:2).
This paper explores the theoretical and empirical aspects of health tourism
and the possibility of integrating this concept into the developmental strate-
gies for continental Croatia, as well as to encourage a more serious discussion
regarding the somewhat neglected and underdeveloped tourist offer of conti-
nental Croatia. This paper synthesises the existing literature on health tourism
and identifies some key prerequisites and restrictions that must be considered
during the development of future tourism strategies. Finally, the conclusion of
this paper provides a summary of key implications for future research.
2. HEALTH AND TOURISM

For years, tourism experts were kept out of the discussion regarding the de-
velopment of health resorts as part of the tourist offer of continental Croatia.
Also, health resorts were funded exclusively through health insurance. Nearly
all European countries are making an effort to increase the inflow of funds into
health resorts from other sources, like tourism. Medical / health tourism is one
of the oldest types of tourism (Smith and Kelly, 2006, see Appendix, Figure
1). The International Union of Tourism Organizations (IUTO, 1973:7) pro-
duced one of the first and the most popular definitions of medical tourism: “the
provision of health facilities utilizing the natural resources of the country, in
particular mineral water and climate”. Geić (1971:35) offers a broader perspec-
tive, considering the functional unity of economic and non-economic activi-
ties which increase tourism revenue and value natural healing factors through
therapy, therapeutic recreation and tourism. Goeldner (1989) provides one of
the first definitions linking health and tourism and relating to other elements
of health resort tourism (medical treatments, relaxation, enjoyment, health as
a motive) (see Appendix, Figure 2). Although the rapid development of health
and medical tourism began in the 1990s (Hall, 1992; Goodrich and Goodrich,
1987), the academic community has started discussing it more seriously since
the 2000s (Kušen, 2002; Connell, 2006; Carrera and Bridges, 2006; Herrick,
2007; Horowitz at al. 2007; Gray and Poland, 2008; Turner, 2008; Smith and
1054
Puczko, 2009; Lunt and Carrera, 2010; Rhodes and Schiano, 2010; Lunt at al.
2011; Hall, 2011; 2003; Bergmann, 2011; Ormond, 2011; Musa et al. 2012;
Schalber and Peters, 2012; Wong at al., 2014; Ormond at al., 2014; ITC, 2014;
and many others). Health tourism is any pleasure-oriented tourism which in-
volves an element of stress relief could be considered to be a form of health
tourism (Benner at al., 2004 in: Puczkó, 2010). Modern medicine has a new ap-
proach towards the patient, who is no longer treated as a combination of various
diagnoses and patho-anatomical analyses, but rather as a complex individual, a
member of society faced with a number of various challenges which can lead
to health issues (Geić at al., 2010). Although it may seem very simple at first,
a more serious consideration of medical tourism unveils numerous challenges.
It is very difficult to monitor this particular market, since the visitors/ patients
may have other reasons for visiting a wellness centre (see Appendix, Table 1).
ITC (2014:3) states “depending on whether one takes a narrow or broad defini-
tion of medical tourism, portions of tourists with other revealed purposes for
travel may or may not be counted as medical tourists”. In most cases, there is no
official data regarding health tourism indicators on a national level.
.. Who and why? – market demand

Connell (2006) lists a number of specific causes of this significant increase:
high costs and long waiting lists at home, new technology and skills in destina-
tion countries alongside reduced transport costs and Internet marketing have all
played a role. More than 27% of American “medical tourist” was previously in-
volved in similar tourist programs, most of them are women between 45 and 64
years of age, with a graduate or postgraduate education, and an average income
between 50 000 and 100 000 USD. It is interesting to point out that only 50 %
of them had health insurance, according to MTA data from 2013. Considering
the impending demographic deficit in developed Western countries, this specif-
ic branch of tourism is definitely worthy of consideration. For example, 20.6 %
of Germans are over 65 and the country’s age dependency ratio is 31.2. In Italy,
20.3 % are over 65, and the ratio is 30.9, in Greece it’s 19.3 % with a 29.0 age de-
pendency ratio, etc. The total number of medical check-ups in various Croatian
medical institutions was 17 % higher in 2010 than in 2000 (National healthcare
strategy 2012-2020). The Institute for Tourism (2014) states that this tourism
sector will achieve a 7 % increase with a total consumption of approximately 115
billion Euros and contribute to the European economy with approximately 328
1055
billion Euros. Austria has around 30 “spa” towns, and is considered a prestigious
destination, Slovenia has 15 health resort centres and around 90 wellness cen-
tres with special emphasis on orthopaedic and sports therapy, Hungary has 12
“spa” towns and is famous for their top-quality dentistry services, Poland is an
emerging market in plastic surgery, dentistry and orthopaedic services, Turkey
is rapidly developing in the field of JCI accredited organizations etc. (Institute
for Tourism, 2014). In 2013, there was a total of one million overnight stays
in health resorts, 63 % of which were by domestic patients (under the Croatian
Health Insurance Fund), 15% individual patients with health insurance and 22
% individual patients without health insurance. The most popular destinations
for medical tourists in Croatia were Varaždinske Toplice spa town, Krapinske
Toplice spa town, Stubičke Toplice and Naftalan, where most visitors / patients
had health insurance, whereas the spa centres in the Adriatic region mostly host
patients who personally cover their own medical expenses.
Different structures which can be found in the European tourist demand,
greatly influencing the development of an all-inclusive package which helps pre-
serve health and prevent illness, can be analyzed based on visitor demands/ needs:
• medical tourism relates to healing, operations and medications: 1) free
patient flow where patients are free to select another country for the pur-
poses of healing and medical treatment and 2) public or private medi-
cal institutions send their patients to other countries for various reasons
(cost of treatments etc.).
• centres for disease prevention (acting against bad health habits through
prevention)
• wellness tourism as a combination of travel and wellness, beauty treat-
ments etc., the goal is to feel good, relaxed, healthy and fit;
• dental tourism – travelling abroad for more affordable dental services and
oral surgery;
• “fitness and functional food” (3F) includes disease prevention, healing and
the improvement of general well-being;
• plastic surgery combines the traditional role of medicine for the function-
al improvement of the human body with the improvement of a person’s
self-esteem through aesthetic surgery;
• lifestyle medication intended for the treatment of non-medical conditions
(weight loss etc.);
• fertility treatments, in vitro fertilization etc.
1056
3. CONTINENTAL CROATIA AS A MEDICAL
TOURISM DESTINATION
Although Croatia is increasingly becoming a relevant tourist destination,
when it comes to medical tourism, it is still an emerging market. Reasons for
the existing situation include the rigidity of the legal framework, administrative
passivity, and the unwillingness to establish cooperation between the public and
the private medical sector. Kesar and Rimac (2011:112) point out: “as long as
financial resources of public health care systems are limited and in decline, the
management of public health care capacities is recognized as a complex task and
takes a lot of effort, time, and money to harmonize demand and supply in the
short-run. Such supply side constraints generate a surplus of demand for health
care services that needs to be offset by private health care systems”.
Ormond (2011) introduces the concept of “productive hospitality” through
the metaphorical space of the “hotel-fortress” – the nexus between “commercial”
and “political” hospitalities. Lunt at al. (2011) introduce numerous examples of
neighbouring countries which are a fierce competition to Croatian medical tour-
ism, but are much more advanced when it comes to development policies and
specific reforms. In Poland, a popular destination for dental tourists and cos-
metic tourists, medical tourism is facilitated through private companies; many
of the clinics are state-owned, serving Polish citizens alongside medical tour-
ism. Hungary (dental care and cosmetic oral surgeries, see: ITC, 2014) Turkey
(ophthalmology), Cyprus and Malta are in a similar situation. Hospitality and
tourism companies, as well as local governments and destination marketers, are
positioning themselves to capture a share in the global medical tourism market INTERDISCIPLINARY MANAGEMENT RESEARCH XI
(Wendt, 2012: Wong at al., 2014). However, if the commoditisation of indi-
vidual health is acceptable in some jurisdictions then new questions arise as to
where the limits of commodification should lie, and the ethical (and medical)
demands of the individual versus the ethical demands of groups (Widdows,
2011 in: Hall, 2011). Also, critics generally warn that medical tourism may
harm destinations by stimulating private health care development unresponsive
to locals’ needs and resources (Bookman and Bookman, 2007 in: Ormond at al.,
2014). Despite a number of countries offering relatively low cost treatments we
know very little about many of the numbers and key indicators on medical tour-
ism (Lunt and Carrera, 2010). Modern technology enables potential medical
tourists to investigate and arrange healthcare anywhere in the world from their
1057
home computer directly or with th4e advice and assistance of a medical tourism
agency (Horowitz at al., 2007).
.. Geothermal potential – a turning point for medical

tourism in continental Croatia
There are numerous examples of the exploitation of a country’s unique natu-
ral resources for tourism purposes. Geotourism is a new niche market of tour-
ism cantered on sustaining and enhancing the geographical character of place
(Stokes at al., 2003). Some of the most famous examples of this new market
include Iceland (Timčak, 2001), Greece, Japan, England, the Americas and
New Zealand natural hot springs are used by large numbers of people for their
beneficial mineral content, their relaxing and usually pleasant temperatures, and
their visual attraction (Erfurt and Cooper, 2010). Erfurt and Cooper (2010)
recognize four ranges of springs that may be used: geothermal springs or hot
springs (with therapeutic benefits), mineral springs (thermalism), saline springs
and extreme hot springs. If implemented correctly, geotourism can benefit all
aspects of the destination and become a term that is synonymous with truly
sustainable tourism because it enhances all aspects of the destination (Boley,
2009). Smith and Puczkó (2009) stated that, in historical terms, health and
wellness practices have been very much embedded in regional and local tradi-
tions and cultures, with available natural resources also determining the forms
of wellness that were developed. Croatia’s natural resources, geothermal poten-
tial and highly educated medical personnel make it a promising destination for
medical tourism. It is also important to note that thermalism in continental
Croatia dates back to ancient times (Roman baths, etc.). The first research on
the subject of geothermal springs conducted in Croatia were carried out in con-
tinental Croatia, and the beginning of the development of modern spas and
health resorts dates back to 1709. 1 Health tourism in continental Croatia takes
off in the early 20th century, when Varaždinske Toplice, Bizovačke Toplice,
1
A book on Varaždinske Toplice was published in 1709 by J. P. Mayer, which is the first publi-
cation on balneology in Croatia. From then on, there were attempts to establish a balneology
institute in the area of today’s Republic of Croatia, which was finally realized in 1939, under
the name Permanent Balneology Council of the Banovina Croatia. This was the foundation
for the later Balneological-Climatological Institute in Zagreb, established on 28 August 1949.
Since that time, there have been numerous changes, tasks and activities related to the Croatian
medical sector. Available at http://www.pearlsofcroatia.com/hr/varazdinske-toplice-savrseno-
mjesto-za-odmor-i-rekreaciju/ [24 March 2013]
1058
Stubičke Toplice and Krapinske Toplice opened. The spas and health resorts
mentioned above are far from optimal examples of medical tourism, and have
mostly transformed into special hospitals, with a tendency towards becoming
water parks (amusement parks) (Kušen, 2011:96). According to the research
conducted by the Hrvoje Požar Energy Institute (2013), there are over 120 hot
springs in Croatia. Croatia’s geothermal gradient is above the European average.
The Pannonian Basin has the highest thermal capacity, with a geothermal gradi-
ent of 0.049°C/m, while the European average is 0.03°C/m (Croatian Geologi-
cal Survey, 2013). Due to unique natural resources, continental Croatia has a lot
of potential for future development: spa and wellness tourism (leisure and rec-
reation), health and medical tourism (thermalism, balneology, hydrotherapy),
geotourism and ecotourism (geothermal features as visual attractions), adven-
ture tourism (extreme geothermal environments) and nature-based tourism.
Getliher and Horvat (2008) identify the following usages of geothermal energy
in Croatia: spas and health resorts (Bizovac, “Naftalan”, Ivanić Grad, Daruvar,
Lipik, Zagorske Toplice, Varaždinske Toplice, Krapinske Toplice, Stubičke
Toplice etc.), heating and recreation (Sports Centre “Mladost”, Zagreb, Clinical
hospital Novi Zagreb). Geothermal energy cannot be considered a universal
answer to all energy issues, but it can help improve the general energy balance
(Getliher and Horvat, 2008), and ensure price competitiveness by adopting an
appropriate resource management strategy.
4. FINAL CONSIDERATIONS
Continental Croatia could potentially attract investments into the medical INTERDISCIPLINARY MANAGEMENT RESEARCH XI
tourism sector, especially since health tourism can be combined with numer-
ous other branches of tourism. There is an increase in the number of wellness
centres, and hotel owners are becoming more aware of the importance of well-
ness as part of their offer. However, other aspects of medical tourism are still
underdeveloped and should be based on natural health resort factors, linked
with other forms of health tourism. The future development of health tourism
will be faced with a number of challenges, as shown in Table 1 below.
1059
Table 1. Assessment criteria for health tourism development
Intrinsic quality Potential for use Potential threats
Slow restructuring and modernization of existing
Rare natural Tourist attraction (water parks), spa facilities; low absorption of EU funds; lack of a
phenomenon potential, medical treatments long-term development strategy of tourism in
continental Croatia
The most efficient heating method
Energy potential Rigid legal framework, ownership issues
– price competitiveness
Keeping skilled professionals in
the country, knowledge transfer,
scientific networking, development
Qualified personnel, Slow inclusion into the system of international
of professional associations,
verification standardization, outdated educational system
introduction of ISO quality
standards, education programs

enter the market
Developing an all-inclusive
Tradition, geo- approach connected to cultural, Local communities resist change, the private
communication, politics, historical and gastronomic content
medical sector is stronger than the public one
historical background
Developing diverse packages of Lack of a clear plan to stand out among the
Demographic deficit in medical services for elderly patients competition, relying on the “sea & sunshine”
the EU
image
It is necessary to establish a clear distinction
Public-private partnerships,
between medical tourism based on “need” (illness)
Public vs. private health intensifying the activities of the
and that based on “care” (wellness, relaxation), in
sector health tourism cluster (legislative);
order to avoid ‘sensitive questions’ and ‘vulnerable
triple helix
patients’
Source: Authors based on criteria proposed by Bruschi and Cendrero (2005) and Serrano
and Gonzalez-Treuba (2005) in: Kubalikova (2013).
Bookman and Bookman (2007, in: Horowitz at al., 2007) emphasize that
the government of destination countries must implement and enforce appro-
priate macroeconomic redistributive policies to ensure that the local residents
of these nations actually realize the potential benefits of the medical tourism
industry. Empirical research proves that health care service providing, distribu-
tion of health care products, and the increase of demand for health care treat-
ments, serve as a catalyst for the globalization of health tourism movements,
which generates significant economic effects such as investments, income,
employment, tax revenues, and export earnings for host countries (Kesar and
Rimac, 2011). Local politicians and community activists often fight to protect
community hospitals from closure in the belief that communities cannot do
without them. However, lawmakers must take advantage of cost-saving tech-
niques in health care (Herrick, 2007:27). The benefits and risks attached to
1060
medical tourism both for individual and collective public health are a significant
area for future research (Hall, 2011). The rational usage of available energy,
a friendly entrepreneurial environment aimed towards the attraction of new
investments and public-private partnerships, together with the development of
specific packages in order to ensure a high quality of services, this special niche
of tourism has a bright future in continental Croatia, and can significantly con-
tribute to the region’s economic growth.
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Appendix
Figure 1. The development of health tourism
Using natural materials as a basis for medical treatments (health resorts, mud, clay, plants)
Introducing new medical devices
Source: Menevielle at al., 2010
Figure 2. Interrelatedness of health and medical tourism domains
Source: Hall, 2012
1064
Table 1. Data implications of various definitions of medical tourism
Definition Coverage Data implications
Only medical travel for
Fewer number of medical travellers; Number of medical tourists may
specific medical procedures,
Narrow still depend on whether based on admitted patients by hospital or
even excluding elective
number of procedures performed on medical tourists
cosmetic surgery
Higher number of medical tourists may be reported; Number may
Medical travellers as above, still vary depending on whether admitted patients or number of
plus those travelling for spa procedures is used to count the number of ‘medical tourists’; Count
Broad
and wellness, as well as may include expatriates living in the country as well as tourists who
cosmetic procedures fall ill while travelling in the country and are admitted in domestic
hospitals
Source: ITC, 2014 from various sources
1065
THE IMPACT OF DEMOGRAPHIC
TRENDS IN BRODPOSAVINA
Sanja Knežević • Anita Kulaš: THE IMPACT OF DEMOGRAPHIC TRENDS IN BROD-POSAVINA COUNTY WITH REGARD TO THE LABOUR MARKET
COUNTY WITH REGARD TO THE

LABOUR MARKET
Sanja KNEŽEVIĆ, BSc

College of Slavonski Brod, Croatia
sanja.knezevic@vusb.hr
Anita KULAŠ, BSc

College of Slavonski Brod, Croatia
anita.kulas@vusb.hr
Abstract
Globalization has led to the development of economies all around the world.
However, without people, there would not be globalization. Thus, people play
the most important role in any economy. Demography is a scientific discipline
that studies the number and development of human population, its structure
and trends. Changes in population are the result of natural population growth
and migrations. It is considered that natural population growth and migration
are the very determinants of the development of the population of any country.
Population structure is affected by other factors as well, such as fertility, mortal-
ity, natural disasters, wars and etc. Eastern Croatia was affected by the 1990s
war which has significantly changed its demography. The consequences of war
are still evident, primarily in the slow economic development.
The aim of this paper is to show how the demographic trends have influenced
the current position of Slavonski Brod-Posavina County, as a part of Eastern
Croatia, based on the analysis of the collected statistical data from the Census
and other publications. The paper will also analyze the number and popula-
tion structure with regard to education and employment.
Keywords: demographic trends, labour market, education
JEL Classification: E2, F16, F66
1066
1. INTRODUCTION
The impact of demographic trends is large in all countries around the world.
Croatia has already recorded a negative natural growth for past few years.
The purpose of this paper is to show how demographic trends influence
on the whole population, and primarily on the population of Slavonski Brod-
Posavina County. In this work it is conducted an analysis of natural change
of population, migration, the educational quality of population and the labour
market situation.
2. DEMOGRAPHY AS A DIMENSION OF THE

GLOBALIZATION
“Globalization is the expansion of the boundaries that allows free movement
of people, goods, information, norms and institutions, by the activities of inte-
grative power.” (Turek, F. (2000), p. 20) In economic terms, the globalization is
the process which completely abolishes or, at least, reduces obstacles to interna-
tional economic exchange and thus increases the economic cooperation among
states. Globalization represents a broadening and deepening of social relations
and institutions through the time and space, mainly when decision of the local
communities has a global echo. Globalization is a multi-dimensional processing
that makes up the economy, demography, society, culture and politics.
For the purpose of this paper it is analyzed a demography. Demography is
“an independent discipline as part of social sciences that studies the popula-
tion with the quantitative and qualitative aspects.” (Nejašmić, I. (2005), p. 9)
Demography observes number, structure and development of the population,
natural and mechanical movement of the population.
“The basic elements of the demographic dimension of globalization are con-
sidered unstoppable population growth (natality), depopulation of the popula-
tion (mortality) caused by poverty, hunger, wars and forced migration, global
migration as a result of deregulation of the labour market, deregulation of capi-
tal and open borders, changing cultural identities societies due to legal, illegal
and forced migration and an extended life expectancy in developed societies.”
(Bedeković, V. (2010), p. 22)
1067
3. DEMOGRAPHIC TRENDS IN SLAVONSKI
BRODPOSAVINA COUNTY
Area of the Eastern Croatia was affected by the Civil war which has sig-
nificantly changed the demographic picture. The consequences of war are still
feeling, primarily in the slow economic development. Slavonski Brod-Posavina
County is a part of Eastern Croatia. So, for the purpose of this paper is to ana-
lyze the number and structure of the population of Slavonski Brod-Posavina
County, with regard on the education and the labour market.
Slavonski Brod-Posavina County covers a total area of 2.034 km2, which
makes 3.61 % of the total area of the Croatia. According to the Regional Plan
for Slavonski Brod-Posavina County, Slavonski Brod-Posavina County record-
ed 2 cities, 26 municipalities and 185 settlements.
Slavonski Brod-Posavina County has 158.575 inhabitants according to
Census in 2011, which is 3.7 % of the total population of Croatia (52.14 %
female and 47.86 % male). Population decreased by 10.29% in relation to the
Census in 2001. The population density is 77.96 inhabitants per km2 in 2011.
The following graph shows how was the natural change in population (em-
phasis placed on live birth and death) in Slavonski Brod-Posavina County from
2011 to 2013 year.
A live birth is every child who exhibits signs of life at birth (breathing, beat-
ing of the heart, pulsation of the umbilical cord, or definite movements of vol-
untary muscles). A death „is every live-born person in which there is permanent
disappearance of all evidence of life“. (Croatian Bureau of Statistics, Statistical
Yearbook 2014)
1068
Graph 1 Natural change in population in Slavonski Brod-Posavina County
Source: Made by Authors according to Statistical Yearbooks
From the graph, it notes that the number of live births was falling during the
period, but the number of deaths fluctuated.
. Migration of population in Slavonski Brod-Posavina

County
Migration is one of the most important elements of the demographic di-
mension of globalization. “Migration represents the movement of people from
one place in the world to another.” (Knežević, S. at al. (2014), p. 1)
„Immigrated or emigrated population is the population who changed their
permanent residence on the territory of the Republic of Croatia (internal mi-
gration) or who changed their country of usual residence for a period that is, INTERDISCIPLINARY MANAGEMENT RESEARCH XI
or is expected to be, of at least one year (international migration).“ (Croatian
Bureau of Statistics, Statistical Yearbook 2014)
Net migration of population is the difference between the number of emi-
grants and immigrants of a particular area or country in a given period of time.
In Croatia in 2013 immigrated 40.337 people (from another county 29.959
and 10.378 person from abroad) while in the Slavonski Brod-Posavina County
immigrated 819 people (from another county 603 and 216 person from abroad).
Accordingly, in this County immigrated 2.03 % of total immigrant population
in Croatia.
In the same year, in Croatia emigrated 44.857 people (into another coun-
ty 29.959 and abroad 15.262 person) while in the Slavonski Brod-Posavina
1069
County emigrated 2.108 people (into another county 1.414 and abroad 695
person). Accordingly, in this County emigrated 4.7 % of total emigrant popula-
tion in Croatia.
Next graphs show the migration of population by area of immigration and

emigration in Slavonski Brod-Posavina County from 2011 to 2013.
Graph 2 notes that during the entire observed period more people came
from other counties, not from abroad. Approximately on one immigrant from
abroad go three immigrants from another county.
Graph 3 shows that during the observed period more people went to an-
other county, not abroad. At first two observed years, approximately on one
emigrant abroad go three emigrants into another county. But in 2013, on one
emigrant abroad go just two emigrants into another county.
Graph 2 Immigration in Slavonski Brod-Posavina County from 2011 to 2013
Graph 3 Emigrations in Slavonski Brod-Posavina County from 2011 to 2013
1070
. The education in Slavonski Brod-Posavina County
Education System of the Republic of Croatia includes pre-school (ISCED
0), basic (ISCED 1 & 2), secondary (ISCED 3) and tertiary (ISCED 5 & 6)
education.
Pre-school education includes children from three years of age to school age
and is not compulsory. Kindergartens are institutions that provide upbringing,
care and education for pre-school children.
Basic education is compulsory for all children between the age of six and
fifteen. It lasts for eight years. It gives basic general education.
Secondary education is not compulsory. It gives skills and education that are
necessary to continue with the education or to enter the labour market.
Institutions of higher education are university, polytechnic and school of
professional higher education. They are carried out a tertiary education.
In the 2013/2014 school year in the Slavonski Brod-Posavina County there
were 24 kindergartens, 114 schools of basic education, 15 schools of secondary
education and 3 institutions of higher education. In previous years there were
26 kindergarten and 115 schools of basic education. The number of schools of
secondary education and institutions of higher education stayed the same.
In the 2013/2014 school year there were 128 teachers of pre-school educa-
tion, 1244 teachers of basic education and 628 teachers of secondary school.
Below is analysis of the number of children and pupils who attended pre-
school, primary and secondary education in the period from 2011/2012 to
2013/2014 school year.
Graph 4 Number of children who attended pre-school, primary and secondary
education from 2011/2012 to 2013/2014 school year

1071
Graph 4 shows that the number of children who attended pre-school educa-
tion fell and grew in the observed period, while the number of pupils in primary
and secondary education fell during the entire period.
Next graphs show the number of students enrolled in winter semester from
2010/2011 to 2012/2013 academic year and those who graduated.
Graph 5 Number of students enrolled in winter semester from 2010/2011 to

2012/2013 academic year
Chart 5 shows that during the period the number of students who attended
university studies is higher than the number of students who attended profes-
sional studies. In fact, on one student of professional study goes 1.7 student of
university study. It is also interesting that the number of students who attended
university studies grow faster than the number of students who attended pro-
fessional study.
Graph 6 Number of graduated students
800
600
400
200
0
2011 2012 2013
Professionalstudy 358 420 380
Universitystudy 754 778 760
1072
Graph 6 shows that the number of graduated students fluctuated during the
observed period. Also there are more graduated students of university study
than students of professional study. In fact on one graduated student of profes-
sional study go two graduated students of university study.
. The labour market in Slavonski Brod-Posavina County

The changes and difficulties that have occurred in the past period in the
economic and political environment have influenced on the labour market in
Croatia. Additional weight for Croatia represented the adjustment to the Eu-
ropean Union.
Below is an analysis of employment and unemployment in Slavonski Brod-
Posavina County. However, at first should be explained who goes into the em-
ployed and who to the unemployed.
Persons in employment are persons who did any work for payment in cash
during the reference week. Those are employees, self-employed persons and
family members who are helping in a business entity owned by a family mem-
ber, persons who worked on contract for direct payment in cash or kind.
Unemployed persons are those who in the reference week didn’t work for
payment in cash or kind, were currently available to start work within the next
two weeks, were actively seeking job four weeks prior to the Survey and those
who have found a job starting in the future.
Graph 7 shows the number of persons in employment in business entities in
Slavonski Brod-Posavina County from 2011 to 2013.
1073
Graph 7 Number of persons in employment in business entities in Slavonski
Brod-Posavina County
30000
25000
20000
15000
10000
5000
0
2011 2012 2013
Personsinemploymentinlegal
26589 26167 25230
entities
Personsinemploymentin
craftsandtradesandfree 6816 6523 6347
lances
Insuredprivatefarmers 1334 1216 1081
Graph 7 shows that during the observed period the most employees worked
in legal entities (about 77 %), then in crafts and trades and free lances (about 19
%) and just about 3 % worked like insured private farmers.
Below is a table that shows the employment in the county in relation to
Croatia.
Table 1 Persons in employment in business entities, situation as on 31 March,

2013
Slavonski Brod-
Republic of Croatia
Posavina County
Total 1 347 636 32 658
Persons in employment in legal entities 1 122 885 25 230
Persons in employment in crafts and trades and free lances 198 415 6 347
Insured private farmers 26 336 1 081
Source: Made by Authors according to Statistical Yearbook 2014
Analysis of employment in County in relation to total employment in Croa-

tia has shown that employed in the Slavonski Brod-Posavina County represent
only 2.42 % of the total employed in Croatia (2.25 % in legal entities, 3.2 % in
crafts and trades and free lances and 4.1 % insured private farmers).
Next graph shows the unemployment in Slavonski Brod-Posavina County.
1074
Graph 8 Unemployment in Slavonski Brod-Posavina County
18000
17500
17000
16500
16000
2011 2012 2013
Averagenumberof
16906 17197 17912
unemployed
Source: Made by Authors according to Statistical Yearbook
Chart 8 shows that the average number of unemployed in the Slavonski

Brod-Posavina County grew during the observed period.
Analysis of unemployment in County in relation to total unemployment in
Croatia has shown that unemployed in the Slavonski Brod-Posavina County
represent about 5 % of the total unemployment in Croatia.
4. CONCLUSION
Analysis of number and structure of population of Slavonski Brod-Posavina
County is shown that the number of live births was falling and the number of
deaths fluctuated during the observed period. It is shown that during the ob-
served period in this County immigrated 2.03 % of total immigrant population
in Croatia and emigrated 4.7 % of total emigrant population in Croatia. The
number of children who attended pre-school education fell and grew during the
observed period, while the number of pupils in primary and secondary educa-
tion fell. It is also shown that the number of students grew during the observed
period and that on one student of professional study goes 1.7 student of univer-
sity study. Analysis also showed that employed in the Slavonski Brod-Posavina
County represent only 2.42 % of the total employed in Croatia and unemployed
represent about 5 % of the total unemployment in Croatia. It is concluded that
the county should be primarily increase the number of employed.
1075
References
Bedeković, V. (2010). Interkulturalni aspekti menadžmenta, 1. izdanje, Visoka škola za
menadžment u turizmu i informatici u Virovitici, Virovitica
Croatian Bureau of Statistics, Statistical Yearbook 2012, 2013, 2014

Knežević, S. at al. (2014). The impact of migration on Croatian cultural diversity, Proceed-
ings of Interdisciplinary Management Research X, The J.J. Strossmayer University of Osijek,
Pforzheim University of Applied Sciences, Postgraduate Study Management – Faculty of
Economics Osijek, Osijek, p.
Turek, F. (2000). Globalizacija i globalna sigurnost, Interland d.o.o., Varaždin
Nejašmić, I. (2005). Demogeografija: Stanovništvo u prostornim odnosima i procesima,
Školska knjiga, ISBN 953-0-30876-0, Zagreb
1076
TOURISM CLUSTER  PROMOTER
OF RURAL DEVELOPMENT IF
CROATIA
Dejan TUBIĆ, univ.spec.oec.

Ph.D. candidate, Postgraduate Doctoral Studies
in Management, Faculty of Economics in Osijek
dejan.tubic@vsmti.hr
Josip BRITVIĆ, univ.spec.oec.

Ph.D. candidate, Postgraduate Doctoral Studies
in Management, Faculty of Economics in Osijek
josip.britvic@vsmti.hr
Božidar JAKOVIĆ, mag.oec.

Virovitica College
bozidar.jakovic@vsmti.hr
Abstract
Tourism, as one of the greatest phenomena of the 21 century, is characterised
by an intense competition in the global tourist market, because of the growing INTERDISCIPLINARY MANAGEMENT RESEARCH XI
tourist demand in the last couple of decades. The competition between tour-
ist destinations, regardless of what kind of tourism products and services they
provide requires tourism product providers to adapt their offer to the pref-
erences and requirements of “modern” tourist consumers, which has resulted
in the development of new, selective forms of tourism. One of them is rural
tourism which has experienced continued growth in the global market. If one
takes an objective look at the actual position of rural tourism in the overall
tourism industry of Croatia, it is evident that it is not assigned an adequate
level of importance. The basic reason is certainly the focus of national tourism
policy exclusively on the development of the seaside tourism, which has lead to
a disorganized (random) development of rural tourism. Specifically, there was
no networking and cooperation between tourism stakeholders in rural areas.
1077
Clusters are one of the methods for structuring rural tourism, since they are
built on vertical and horizontal networking and strategic partnerships. The
existing knowledge on the issue will be presented in the theoretical part of this
paper by describing empirical evidence obtained by Croatian academic com-
munity in the field of clusters in rural tourism. The empirical part of the paper
is focused on the analysis of the benefits brought by clusters or common inter-
est groups. For this purpose, empirical research will be carried out on rural
tourism providers (TFF1 owners) in the selected counties of Continental and
Adriatic Croatia.
Dejan Tubić • Josip Britvić • Božidar Jaković: TOURISM CLUSTER - PROMOTER OF RURAL DEVELOPMENT IF CROATIA
Keywords: rural tourism, clustering, TFF owners, Continental and Adriatic

region
JEL Classification: O18, P25, L83
1. INTRODUCTION
Despite the more difficult world economy and the negative trend of downfall
in economic activity, tourism sector has proven to be extremely durable, which
is proven by the continuous growth of international tourist arrivals and tourist
spending, which according to predictions of world tourist organization (UN-
WTO) will grow till 2030 approximately 3,3% a year. Tourism as a activity al-
lows many countries maintenance of stability in economy and well-being of the
population, which justifies the further incentive and investment in his develop-
ment, considering it’s important and effective role in creating income and new
jobs (Sharpley, 2002), in the time when many countries suffer from great un-
employment (World economic forum, 2013). Because of own flexible character,
handling the tourist activity can’t be limited, which allows equal involvement
of all interested stakeholders. By the influence of global trends which mark the
tourist market “tourists of the third generation” occur which wanting to experi-
ence new, special tourist experiences influence the diversification of the tourist
offer, in which by basis comparative, competitive and other advantages, tourist
destinations are specified for a certain group of shown tourist interests. In this
circumstances business of economic subjects on the tourist market, is marked
with a strong imperative of profit, which automatically conditions investment of
great effort in creating new products or services, offer diversification, looking for
1
TFF – Tourist Family Farm
1078
a way to take position on the market of tourist niche for which there are inter-
ests of tourist spenders but also comparative and competitive forces for survival
on the that kind of market.
According to data of UNWTO (2013), Europe is still the most visited tour-
ist region, where the Mediterranean is especially highlighted, which represents
the challenge of strengthening competitiveness of Croatian maritime zone, but
also the opportunity to reduce seasonality, strengthening tourism on continen-
tal parts, especially rural areas. Adequate answer to this market challenge is
rural tourism, therefore every country that has a goal to increase competitive-
ness necessary needs to look on own potentials to develop this kind of tourism,
and to find ways of their quality valorisation (Krajnović et al., 2011). Encour-
aging further development of rural tourism in Croatia is extremely important
for achieving goals of tourist politics and general goals of national politics for
improvement of life on rural area. Take for a fact that rural areas in Croatia are
rich in natural and cultural goods, which is lagging behind in economic develop-
ment, perspective of recovery with primary activities is in tourism, in valorisa-
tion of existing resources. The break through struggle of rural tourism of con-
tinental Croatia on the level of tourist demand recognition is reflected through
a series of mutually tied factors, among which is a special need to strengthen
the competitiveness through the support system of those interested in starting
entrepreneurial undertakings (Komppula, 2014), networking offers of tour-
ist content into a unique product of small economies that operate separately,
but also the lack of coordination between providers of products and services
in the destination area which decreases the value and limits the visibility of
local products (Contini et al., 2009) and the absence of coordinated, innova-
tive marketing, as a way of creating competitive destinations in behalf of their
stakeholders (Buhalis, 2000) and other.
How the position of rural tourism in Croatia could be significantly improved
it is necessary that the economies realize that they don’t exist for themselves, but
they need to be a component of a wider organism which needs to represent a
organized offer based on cooperation and mutual replenishment, which is best
to accomplish through cluster (Meler, Horvat, 2007). This fact is confirmed in
the Recommendations of the Tourism Committee of the Croatian Parliament
(2015), which highlights the lack of cooperation between competent institu-
tions and their lack of coordination on the field. Therefore is recommended to
all stakeholders of tourism development on local and regional level to create
1079
and spread the awareness of tourist culture, promotion and conception of des-
tination development, and to encourage mergers on local, regional and national
level.
Based on indentified guidelines of rural tourism development, problem
of research actually the subject of researching work is focused on indentify-
ing potential factors of interest merging of agrotourism economy owners. The
purpose of the paper is to show the necessity of merging TFF into an interest
association into a cluster with relevant tourism stakeholders on geographically
rounded area of continental Croatia with consideration of available theoretical
and practical insights of authors which previously worked with this thematic.
2. TERMINOLOGICAL DEFINITION OF RURAL

TOURISM
Terminological definition of rural tourism should be approached very care-
fully. Dimitrovski, Todorović and Valjarević (2012) mention that the same ex-
pression is hard conceptually to determine. In accordance with the noted, the
conclusion is that there is no universal, and therefore generally accepted, defini-
tion of rural tourism. The reason to that surely lies in the fact that in the termi-
nological definition of rural tourism first you should define the rural area which
is different from country to country. For a more detail show of criterion defining
rural areas see more in publication OECD-a (1994) “Tourism strategies and
rural development”. Further below this work there will be shown the definitions
of rural tourism given by recent tourism authors.
One of the leading Croatian tourism theorists in the field of rural tourism
Pavlo Ružić (2009, 15) quotes a definition of rural tourism by Council of Eu-
rope from 1986 which says: “rural tourism is a tourism that includes all activi-
ties in rural area, and not just the ones that can be determined as farm or agro-
tourism”. Croatian chamber of economy (in further text HGK) in publication “
Tourism on rural family economies” defines rural tourism family economy as a
smaller economic whole centred in a tourism attractive area which provides a
original product or service of economy, in which in work is included every fam-
ily member (HGK; 2002, 5.).
It is important to note that the government of Republic of Croatia agreed
with Eurostat, in 2012 divides Croatia on two statistic regions: Continental
1080
and Adriatic region (Ministry of regional development and funds of European
Union; 2012). Relevant pointers of rural tourism development will be the data
of HGK from 2007 which are related on the real condition of agrotourism
economies.
According to the Ministry of regional development and funds of European
Union, it can be concluded that continental region is made of 13 counties and
Zagreb city, and the Adriatic region of 7 counties. By research of HGK – tour-
ism sector (2007), territorial fragmentation is visible. Therefore the tourist
development of continental region is in a great, even „enormous“ development
deficit. Corroborating the spoken there should be noted that of 352 registered
tourist country family economies (in further text TCFE) in continental region
are registered 35.5% economies, and in Adriatic 64,5%. It is good to note that in
7 continental counties there is less than 10 registered TCFE, and in 4 counties
there is none registered TCFE (HGK; 2007).
The main reason of the existing condition in the tourist sector of Croatia in
the area of rural tourism is because the recent focus of national tourist politics
was exclusively on the product „sun, sea and sand“. Adding to spoken, culture
of common cooperation between small economic subject does not exist.
3. CLUSTERS
„In entrepreneurial Economy, cluster is determined as a common coopera-
tion between related groups in some social activity. The term itself marks a pro-
cess in which something is gathered in a group, which from an economic point INTERDISCIPLINARY MANAGEMENT RESEARCH XI
of view means common economic business or other subject who seek to realize
common goals” (Škrtić, 2005, 113). So, they arise as a result of innovations
which are defined as groups of competitive, cooperating and mutual dependent
companies which are in the same industrial environment and are focused in one
geographical region.
The term cluster marks, inter alia crowd or mass, so from those things comes
out clustering, as a process in which comes accumulation of something on a
mass by the determined principles that are used in a organization form of a
cluster. Practical conduction of clustering is achieved by applying a system ap-
proach and its principles, while respecting a certain hierarchical procedure. Re-
1081
sult of that kind of system approach are clusters which represent decentralized
form of organization like the one described by Brezničar in 2006.
Clusters are actually concentrated, geographically, mutually connected eco-
nomic subject like specialized suppliers, service providers and connected insti-
tutions which in certain area, by creating a common product, represent region
or a state. Inside each cluster some organizational units can act, as an indepen-
dent profit centres, or independent business units. They have to bear responsi-
bility for every business success or failure, which can be applied very successfully
on small and medium company (Škrtić, 2005).
Besides that, Horvat (2004) notes how clusters can be described as pro-
duction arrangements between participants, which are on small or big ways
characterized by a strong cooperation between all subjects inside the grid, social
– culture identity, institutional weapon, industrial atmosphere, support of local
institutions, the existence of coordinating institutions, high index of survival,
dynamic weapon and industrial competition, suitable local factors ( natural and
human resources, logistic, infrastructure) and strong economic connection be-
tween all subjects that belong to clusters. Also notes that common areas to all
who are concluded in a cluster are promotion and marketing, procurement of
raw materials, distribution, maintenance, education and development of profes-
sional human potential, organized structure connection, development of tech-
niques and information about the competition.
In the practical act system of clusters has appliance in business systems
which in act form more different strategic market acts. That is how business
subjects are connected to merchants, raw material developers and all kind of
parts. It can all be copied to many small or medium companies and all kind of
entrepreneurship. Other form of a successful application of the mentioned sys-
tem refers to achieving important business and profit success, and greater ability
to compete on the market. Entrepreneurs inside clusters can plan more accurate
production processes, lower costs of production, computerize whole processes
and quickly response to environmental changes (Škrtić, 2005).
4. METHODOLOGY
With the goal of getting more relevant primary data and insights there was
a research purposed to explore, analyze development activities and business
1082
benefits which are encouraged by cluster association and to establish in which
measure national politics encourages cluster way of thinking. Primary reason
is in the fact that cluster networking in rural tourism is highly important tool
of competitiveness and sustainability on a more saturated tourist market, since
“rural” stakeholders are mostly small business units. Research was conducted
between February 9 and March 2 in 2015 on the area of Continental region
of Republic of Croatia,2or in selected counties. The focus of groups of this
empirical research is on TFF owners which are members of a tourism clus-
ter. It should be noted that the primary data was gathered with the phone
research method. Actually speaking, the gathering tool was a structured
question mark and in analysis of primary data standard scientific methods
were used.
In accordance with the defend goal basic research questions were set:
1. In which measure does the cluster way of thinking encourage mutual de-
velopment activity between associated interest stakeholders?
2. In which measure cluster promotes benefits, and business profit?
3. In which measure does the national politics encourage tourist cluster
development?
In accordance with set up research questions tasks of research are defined:
1. Research development activities which cluster association provides as-
sociated stakeholders?
2. Question in which measure cluster “products”, that is what business ben-
efits it develops?
3. Establish in which measure does national politics contributes with de-
velopment tools (advisory and financial activity) in the development of
cluster way of thinking and finally in connectivity?
2
It should be noted that the Croatian Government agreed with Eurostat, in 2012Croatiais
divided into two statistical regions: Continental and Adriatic region. The composition of the
continental region are13 counties (Zagreb, Krapina-Zagorje, Varazdin, Koprivnica-Krizev-
ci, Međimurje, Bjelovar-Bilogora, Virovitica-Podravina, Pozega-Slavonia, Slavonski Brod,
Osijek-Baranja, Srijem-Karlovac and Sisak-Moslavina) and the City of Zagreb, while the com-
position of the Adriatic region includes seven counties (Primorje-Gorski Kotar, Lika-Senj,
Zadar, Sibenik-Knin, Split-Dalmatia, Istria and Dubrovnik-Neretva) (Ministry of Regional
Development and EU Funds; 2012).
1083
5. RESEARCH RESULTS AND DISCUSSION
At the beginning of analysis of the primary data it should be point out that
the research was carried out on a sample of 16 TFF owners which are members
of a tourist cluster on the area of continental region of Croatia. How we can
question the mutual development activities which cluster networking provides
between stakeholders, respondents were offered the following question: In a
scale from 1 to 5 rate mutual development activities that tourist cluster provides
(1 - not at all, 5 – extremely strong) to interested stakeholders? By analysis of
given primary data it is visible that the TFF owners with the biggest average
grade of 3,81 or 3,50 evaluate activity of joint education and joint appearance
on the market. Contrary to that with the lowest average grade evaluate activity
of joint procurement (2,44) and research market (3,13). All expressed is con-
firmed on the chart 1.
Chart 1 joint development activities which cluster provides to interested groups

(1 – not at all, 5 extremely strong)
Source: calculation of authors according to conducted research
Detection of business benefits and profit which cluster association provides,

respondents were asked the following question: In a scale from 1 to 5 rate in
what measure tourist cluster encourages next business benefits, or profits (1
– not at all, 5 – extremely strong)? From table 1 (By the sum of column 1 and
5) it is visible that TFF owners consider that cluster networking contributes to
creating a new value of their tourist products and overcoming the shortcomings
1084
of each of these stakeholders. Summing column 1 and 2, from table 1 it can be
read how TFF owners think that cluster as a tool of competitiveness and sus-
tainability in smallest measure contributes to withdrawal of financial resources
from structured EU funds, creating profitability and opening new markets.
Table 1 Business benefits which cluster association provides to joint stakeholders

Business benefits 1 2 3 4 5 Amount
1 4 7 1 3 16
Profitability
6,25% 25% 43,75% 6,25% 18,75% 100%
The withdrawal of funding from the EU 2 4 5 1 4 16
Structural Funds 12,5% 25% 31,25% 6,25% 25% 100%
Competitiveness improvement (market 1 1 5 6 3 16
position) 6,25% 6,25% 31,25% 37,5% 18,75% 100%
0 0 5 8 3 16
Value of the new products
0% 0% 31,25 50% 18,75% 100%
0 2 6 5 3 16
Specialization
0% 12,25% 37,5% 31,25% 18,75% 100%
1 3 5 5 2 16
Entry into new markets
6,25% 18,75% 31,25% 31,25% 12,5% 100%
1 1 3 7 4 16
Overcoming deficiencies
6,25% 6,25% 18,75% 43,75 25% 100%
Previously expressed, it can surely be confirmed on shown average ratings in

chart 2. As it was expressed, average rating of 3,88 and 3,75 thoughts of TFF
owners are confirmed which claim that cluster form their point of view con-
tributes the most on development of new product value and overcoming single
deficiency and shortcomings.
1085
Chart 2 average grades tied business benefits of cluster networking
According to obtained data most of the TFF owners, 37.5 % of them con-
sider that national politics has not in entirely advisory or financial measures
and activities helped the development and work of tourist clusters (chart 3).
Contrary imposed, 12.5% of TFF owners consider that national politics helps
in educative, and in financial sense a sustainable cluster development.
Chart 3. Rating of previous state measures in cluster promotion from the TFF
owners perception
1086
4. CONCLUSION
Considering the cluster meaning from areas of rural tourism which is es-
tablished by domestic analysis, and especially international relevant literature,
authors of the paper conclude, also based on analyzed research results, how
necessary is associating TFF owners in to clusters. However, author research
has indicated in existence of a significant area for improvement of national poli-
tics which define area of promotion, organization, finance and operative work
of tourist clusters in Republic of Croatia. Analysis of obtained primary data
has showed that TFF owners recognize activity of joint education and joint ap-
pearance on the market, while on the other hand they don’t recognize activity
of joint procurement and market research as a benefit that is provided in cluster
association. Benefits provided by cluster networking are contribution to creat-
ing new values of tourist products and overcoming the shortcomings of each
single stakeholder. Significant area for improvement to creators of cluster devel-
opment politics is read out of research results that indicates how TFF owners
consider that cluster does not contribute to withdrawal of financial resources
from structured EU funds, creating profitability and opening new markets. Au-
thors based on research results conclude how national politics, by the use of
advisory and financial measures should help work and development of tourist
clusters.
References:
Buhalis, D. (2000): Marketing the competitive destination of the future. Tourism Manage-
ment, Vol. 21 str. 97-116. INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Contini, C., Scarpellini, P., Polidori, R (2009): Agri-tourism and rural development: the
Low-Valdelsa case, Italy. Tourism Review, Vol. 64, No 4, str. 27-36.
Horvat, Đ., Kovačević, V. (2004). Clusteri: put do konkurentnosti. Zagreb: Cera Prom d.o.o.
Hrvatski sabor, Odbor za turizam (2015): Mogućnosti razvoja ruralnog turizma u Republici
Hrvatskoj, Zaključci i preporuke.
Komppula, R. (2014): The role of individual entrepreneurs in the development of competi-
tiveness for a rural tourism destination - A case study. Tourism Management, Vol. 40, str.
361-371.
Krajnović, A., Čičin-Šain, D., Predovan, M. (2011): Strateško upravljanje razvojem ruralnog
turizma – problemi i smjernice. Oeconomica Jadertina Vol. 1, str. 30-45
Meler, M., Horvat, Đ. (2007): Strukturiranje ruralnog turizma procesom klasterizacije, Prvi
Hrvatski kongres ruralnog turizma, perspektive razvoja ruralnog turizma s međunarodnim
sudjelovanjem, Hvar.
1087
Ministarstvo regionalnoga razvoja i fondova Europske unije (2012): Nova statistička kla-
sifikacija prostornih jedinica RH - NUTS 2, available on: http://www.mrrfeu.hr/default.
aspx?id=1112 (19.2.2015).
Porter, M.E. (1998). Clusters and the New Economics of Competition. SAD: Harvard Busi-
ness Review.
Sharpley, R. (2002): Rural tourism and the challenge of tourism diversification: the case of
Cyprus. Tourism Management Vol. 23, str. 233–244
Škrtić, M. (2011). Poduzetništvo. Zagreb: Singerija nakladništvo
World economic forum (2013): The Travel & Tourism Competitiveness Report 2013, Re-
ducing Barriers to Economic Growth and Job Creation
World Tourism Organization, UNWTO (2013): UNWTO Annual Report 2013.
World Tourism Organization (2013): UNWTO Tourism Highlights, 2013 Edition
1088
YOUTH PERCEPTIONS ON THE
POLITICAL AND ECONOMIC
FUTURE OF ROMANIA IN A
GLOBAL WORLD. REASONS FOR
MIGRATION
Marcela Monica STOICA

PhD Lecturer, Christian Universiy “Dimitrie Cantemir”,
Bucharest, Romania
mms_stoica@yahoo.com
Abstract
This analysis aims at giving a coherent and synthetic view on the perceptions
of the Romanian youth about the political participation and the economic fu-
ture of Romania in the context of globalization and the increased migration.
Youth is a socio-demographic category with an essential impact on the future of
each country but also in Europe and in the world, who are, as many political,
economic and social actors claim, the main beneficiaries. And yet the young
Romanian males and females tend to migrate especially to the developed coun-
tries, where they are better remunerated. Thus, based on a primary research
done by the Center for Urban and Regional Sociology (CURS) from Romania,
it can be concluded that the Romanian youth are disappointed by the politi-
cal young leaders and migration outside the country is a strong option for the
present, even if only temporarily or definitively and become citizens of another
country where they could fulfill their aspirations, lifestyle and leisure time.
Keywords. Youth; economic development; migration; benefits of globalization.
JEL Classification: J1, O15, R23
1089
1. INTRODUCTION
Globalization is accompanied by a complex phenomena: the migration of
labor force but aside from this global effect, migration is also an effective, al-
though notably selective, means of increasing the possibilities of individuals to
better themselves: improving individual income, health, education and living
Marcela Monica Stoica: YOUTH PERCEPTIONS ON THE POLITICAL AND ECONOMIC FUTURE OF ROMANIA IN A GLOBAL WORLD. ...
conditions.
In these cases, young people plan their future in relation to the opportunities
of migration, rather than seeking work and professional promotion in their own
countries.
From the origin country perspective, as OECD note, the average age of mi-
grants that come from Asia, Latin America and Oceania is higher in 2010/11
than in 2000/01. In other words, the share of older persons is higher and the
share of younger persons is lower among migrants originating from these three
regions. European migrants living in the OECD area in 2010/11, particularly
those from former USSR countries such as Latvia, Lithuania, Estonia, Ukraine,
Belarus and the Republic of Moldova as well as those from Romania, Poland
and Bulgaria are, on average, younger than migrants from the same countries
residing in the OECD a decade ago. (OECD:2014).
But as we can read in a study developed in Oeconomica, the quantitative and
qualitative gaps that divide us translate EU, unequivocally, in and lower social
and economic performances (Vass:2007, p.87).
2. REASONS OF DECISION ON EMIGRATION OF

THE ROMANIAN YOUTH
A decision whether to emigrate or not is taken by young people in con-
nection with their perceptions regarding the family future but, especially his/
her own future. They will always be in position of comparison with the par-
ents’ life being bounded by the traditions, mentalities, values, and educational
background they shared. Of course, the accession to European Union, with the
guaranteed freedom of movement, bring more opportunities, but as we can see
in the table 1 below, the wish to accomplish in other country is variation upon
the age, gender and residential environment. Regarding the young people, espe-
cially those integrated in the labor market, one can remark that they fill more
accomplished in Romania. But what creates a great worry for Romania is the
1090
high percentage, over 30%, of those who embrace the idea of emigration. The
traditional culture is also reflected in the figures (64, 1% considering their ac-
complished in Romania) emphasizing the role of women.
Table 1- View on the Future, by residential environment, age and gender (Ro-
mania, n = 1302)
In 10 years’ time I see In 10 years’ time I see myself as DK/NA Total
myself as an accomplished an accomplished person in other
person in Romania country
Total sample 58,7% 30,2% 11,1% 100%
Male 53,2% 34,9% 11,9% 100%
Female 64,1% 25,5% 10,4% 100%
Urban 58,6% 30,8% 10,6% 100%
Rural 58,8 29,4% 11,9% 100%
Age: 15-19 years 55,1 35,3% 9,6% 100%
Age: 20-24 years 59,1 30,1% 10,9% 100%
Age: 25-29 years 62,6 24,1% 13,4% 100%
Source: Romanian Youth: worries, aspirations, values and life style, Friedrich Ebert Stiftung,
Bucharest, 2014, p.43.
An interesting aspect concern the motivation for leaving the country is the
aspiration to a better life (more than a half ). But is interesting to analyze the
difference in opportunities as we can observe in table 2.
The desire to live in a society with a larger cultural diversity occurs among
the young people from urban areas and another aspect is the desire to migrate in
relation with aspirations, with the plans for a better education and the possibil- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
ity to find a better job. So, those who look for emigration for economic reasons
have chances to be fulfilled.
1091
Table 2- Reasons of emigration by residential environment, age and gender (%
calculated only for those wishing to emigrate)
What is the main reason why you would like to leave Romania?
Better To be
A better A larger Better opportunities closer
Better
living cultural opportunities to start to the Other DN/NA Total
education
standard diversity to find a job my own beloved

business ones
Total sub-
55,1% 9,4% 5,1% 19,2% 3,9% 1,5% 3,4% 2,4% 100%
sample
Male 59,6% 9,1% 3,1% 18,2% 4,3% 1,0% 2,9% 1,9% 100%
Female 50,1% 9,8% 7,4% 20,3% 3,4% 2,1% 4,0% 2,9% 100%
Urban 55,7% 11,6% 6,9% 13,7% 3,4% 1,7% 4,1% 3,0% 100%
Rural 54,2% 6,4% 2,7% 27,0% 4,5% 1,2% 2,4% 1,5% 100%
Age: 15-
50, 5% 10,9% 7,9% 22,8% 4,3% 1,0% 1,3% 1,3% 100%
19 y.o.
Age: 20-
53,7% 10,0% 5,0% 19,0% 3,7% 1,7% 4,3% 2,7% 100%
24 y.o.
Age: 25-
64,4% 6,2% 1,0% 13,9% 3,6% 2,1% 5,2% 3,6% 100%
29 y.o.
Bucharest, 2014, p.45
Note: Bold figures show statistically significant differences
Looking in the table 2, we can see, again, differences between genders; wom-
en have lower intend to emigrate than men and the reasons also differed: almost
double of the women (7,4% women in comparison with 3,1% men) would like
to emigrate in order to get access to better education.
Table 3- Emigration destinations by residential environment, age and gender
(39% of total sample , those who want much or very much to emigrate, n= 519)
What country would you like to go to? (to work, permanently, to study, etc.) ?
England France Germany Italy Spain USA Other countries DN/ NA Total
Urban 21% 7% 15% 7% 9% 11% 21% 8,0% 100%
Rural 20% 5% 20% 18% 12% 3% 12% 8% 100%
Age: 15-19
21% 5% 14% 12% 13% 9% 15% 10% 100%
y.o.
Age: 20-24 y.o. 21% 8% 20% 11% 9% 8% 16% 6% 100%
Age: 25-29 y.o. 20% 5% 18% 11% 8% 6% 23% 9% 100%
Male 20% 5% 20% 10% 11% 8% 18% 9% 100%
Female 23% 8% 14% 13% 11% 7% 17% 7% 100%
1092
Bucharest, 2014, p.46
Note: Bold figures show statistically significant differences
Regarding the favorite destinations there are several countries that seem
more attractive to the young people and England is on the first place.
As we can see from table 3 most of the young people who want to migrate for
better education, especially from urban areas, chose England and USA.
Taking into account the above data, we can remark (infer) that the intention
to migrate from economic reasons is quite important. In particular, the young
people who feel they have no opportunities and no changes happen at national
level will try to put their plan into practice. Also, the deepening, or at least,
the lasting of the global economic crisis and of the deterioration of the eco-
nomic problems make put pressure on those who intend to leave the country. As
the respondents stated, a third of them see themselves accomplish in another
country and for them migration seems to be the only solution for a decent life.
A significant part is the group of the young people from the rural areas who
would leave Romania from economic reasons and this is in contradiction with
the young people from urban area. This aspect shows the gaps in the economic
and social development during the post-communist transition in Romania.
3. CONCLUSIONS
After 1990, Romania entered into a process of transition from a centrally
planned economy to a market one and from an undemocratic socio-political INTERDISCIPLINARY MANAGEMENT RESEARCH XI
system to a democratic one, in the Western meaning of the word. It was not
an easy process, as a number of impediments have hampered and delayed the
reform steps. However, after 25 years of major changes, the Romanian society
seems to be sufficiently changed not to resemble the country of the 1980s. But
this result involved sacrifices, failures, incoherencies and regrets. From all the
shortcomings, those that struck the citizens’ welfare had the highest impact.
Development inequalities between Romania and other countries and among
Romanian regions have generated an adjusting effect, manifested by strong mi-
gration flows.
One can noticed that the most mobile age segment of population was repre-
sented by the young people, especially those less than 19 years old, followed by
1093
those aged between 19 and 34. As some Romanian author consider “However,
it was not the freedom of movement that led to migration. It only facilitated it.
Economic, social and political factors underlay migration modeling”. (Pânzaru:
2013, p.143).
Bibliography
Arslan, C.et al.(2014), “A New Profile of Migrants in the Aftermath of the Recent Economic
Crisis”, OECD Social, Employment and Migration Working Papers , No. 160, Publishing.
http://dx.doi.org/10.1787/5jxt2t3nnjr5-en
Oeconomica available on http://oeconomica.org.ro/files/pdf/55.pdf (accessed on the10th
of April 2015).
Pânzaru, Ciprian. 2013. The Determinants of International Migration. A Panel Data Analy-
sis. Journal of Politics and Law, Vol. 6, No. 1; 2013, ISSN 1913-9047 E-ISSN 1913-9055,
Published by Canadian Center of Science and Education, pp.142-148.
Vass, Andreea. 2007. Romanian Brian Migration between risk and opportunities/ Migraţia
creierelor româneşti între risc şi oportunitate, Revista OEconomica, issue 03, pp. 81-87.
1094
Miscellaneous
Categories
IMPACT OF UNCONVENTIONAL
ADVERTISING ON PERFORMANCE
OF CULTURAL INSTITUTIONS IN
CITY OF OSIJEK
Iva BULJUBAŠIĆ
Ph.D. Candidate, Department of cultural studies in Osijek,
Croatia
buljubasic.unios@gmail.com
Abstract
In time of crises, some cultural institutions in city of Osijek are having difficul-
ties with attracting the audience, so they decided to go along with unconven-
tional advertising methods. Cultural institutions and unconventional advertis-
ing are compound of old and new ways of acting.
The main goal of this paper is to explain how unconventional advertising im-
pacts on performance of cultural institutions in city of Osijek. The question
is can cultural institutions in city of Osijek that for years used conventional
marketing, go along with new ways of innovative advertising, like unconven-
tional advertising. Since unconventional advertising is not yet widely spread
among cultural institutions in city of Osijek, the intention of this paper is to
analyze how audience reacts on new, creative and unconventional advertising INTERDISCIPLINARY MANAGEMENT RESEARCH XI
of cultural institutions.
In July 2014 the author carried out a research on wider audience of Croatian
national theatre who attended four performances included in a theatre’s project
of introducing unconventional advertising in promotional activities of the cur-
rent theater season. The aim of presented research was to gather information
about general attitude of the audience on the experience of unconventional ad-
vertising. The research covered the general questions about whether the viewers
were attracted to the national theatre program because they liked the new way
of advertising, how much they support unconventional advertising of theatre
program and what did they liked the most about the new way of advertising.
The results of the survey indicate that the opinions of the respondents are quite
positive about the new and unconventional way of theater program advertising.
1097
At the end of this paper, there will be a conclusion in which the experience and
knowledge acquired during the writing of this paper and during the conducted
research will be summed up.
Key words: advertising, guerrilla advertising, unconventional advertising,
cultural institution, theatre, marketing in culture
JEL Classification: M3, M37, Z1
Iva Buljubašić: IMPACT OF UNCONVENTIONAL ADVERTISING ON PERFORMANCE OF CULTURAL INSTITUTIONS IN CITY OF OSIJEK
1. INTRODUCTION
Since the early 1990s, the use of marketing in the institutions of culture and
art is becoming more and more important and there is a lot of examples of its
quality and systematic practical application. Marketing in culture in its basis
is concerned with identifying which products, services and ideas of culture are
offered or claimed on their application-specific market, on the basis of that,
there are specific measurable marketing goals. The latter goals will be achieved
if cultural institutions use the appropriate marketing strategy that is focused on
building loyalty, and long-term relations with the audience. This relationship
will be long-termed if the institution of culture has a good image, has a high
quality program and if the ratio between quality and price is reasonable. (Meler;
2006, 65) Marketing and advertising in culture cannot exist without strategy.
Some of the pioneers of marketing communications in the field of culture
and art is considered meritorious for the development of other areas in market-
ing. (Pavičić, et al; 2006, 151). An interesting fact is that marketing in culture is
for two centuries represented in the Republic of Croatia and that marketing in
culture encouraged development of other marketing practices.
Cultural and art institutions in Eastern Europe usually still do not have a
special marketing departments whose existence could assume its own audience
research and establishing many forms of connection with the audience. Adver-
tising is very important activity of cultural institutions but mostly overlooked.
There are two main reasons of advertising existence in cultural institutions:
• to increase market cultural products (economic objective) within the mar-
ket-oriented society, it becomes especially important after the great social
and political changes of the system;
• to help the development of cultural needs and habits of the population.
1098
Cultural institutions should not think only how to attract more audience
(selling tickets), but to think how to win over an audience that will be a real
cultural audience- that is able to react and interact with the artwork. (Šešić-
Dragičević, Stojković; 2013,184)
Especially cultural institutions in Croatia have no special marketing depart-
ments or marketing programs. Thru previous empirical experience, the authors
has already realized how directors of museums or theaters custodians have “fear
of marketing,” especially of unconventional marketing. To reduce the fear and
animosity towards unconventional marketing, the leading people of the cultural
institutions should be familiar with it and its good sides. The leading people of
Croatian national theatre were very open to new ideas of advertising, but also at
the same time they hesitate because they practice for many years conventional
advertising.
The author carried out a research with the aim of gathering the information
and drawing conclusions of advertising and marketing elements in culture in
city of Osijek, Croatia. The study was carried with the purpose of improvement
marketing in cultural in city of Osijek, and indirectly with the aim of strength-
ening the culture in general.
2. DEFINITION OF ADVERTISING
From the moment we wake up in the morning until we fall asleep at night we
are exposed to advertising messages that try to persuade us to buy. Newspapers,
magazines, television, internet, and even the streets outside, all of them are suf- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
focated by ads that are trying to get the customer’s attention. However, few of
them if any, are capable of driving us to the store just to buy the product they
advertised. The ads have become part of our live, influencing us in ways that we
are not always aware of. ( Jurca; 2010., 323)
Advertising has long been viewed as a method of mass promotion in that a
single message can reach a large number of people. But, this mass promotion
approach presents problems since many exposed to an advertising message may
not be within the marketer’s target market, and thus, may be an inefficient use
of promotional funds. However, this is changing as new advertising technolo-
gies and the emergence of new media outlets offer more options for targeted
advertising. Advertising also has a history of being considered a one-way form
1099
of marketing communication where the message receiver (i.e., target market) is
not in position to immediately respond to the message (e.g., seek more infor-
mation). This too is changing. For example, in the next few years technologies
will be readily available to enable a television viewer to click a button to request
more details on a product seen on their favorite TV program. In fact, it is ex-
pected that over the next 10-20 years advertising will move away from a one-
way communication model and become one that is highly interactive. Another
characteristic that may change as advertising evolves is the view that advertis-
ing does not stimulate immediate demand for the product advertised. That is,
customers cannot quickly purchase a product they see advertised. But as more
media outlets allow customers to interact with the messages being delivered the
ability of advertising to quickly stimulate demand will improve.1
To make the definition of advertising even more clearly, the author decided
to present some of the definitions from various sources.
Advertising might be defined as any device which first arrests the atten-
tion of the passer-by and then induces him to accept a mutually advantageous
exchange.2 When we are talking about the “exchange” it is important for the
passer-by to accept it and to interact with the ad, so the passer-by stay longer
influenced by the ad.
Advertising is a non-personal form of promotion that is delivered through
selected media outlets that, under most circumstances, require the marketer to
pay for message placement.3
Advertising is paid, non-personal form of sending the message to consumers
and the public about products or services through the media of mass commu-
nication or by mail to inform or sale. Advertising is a component of the promo-
tional mix. It is carried out in newspapers, catalogs, TV and radio commercials,
billboards, mail and other advertising means. The most expensive form of ad-
vertising is television4 advertising. (Ekonomski leksikon; 2011, 609)
1
http://muse.jhu.edu/journals/asr/v006/6.3unit01.html (17-02-2015)
2
3
http://www.knowthis.com/advertising/what-is-advertising (16-02-2015)
4
Television advertising is notoriously expensive. Ads on television signal your audience that
you are successful and making money. On the other hand, many young people are insensitive
and even hostile towards television ads. You may reach them more effectively through Internet
broadcasts of shows produced exclusively for an online audience. This kind of advertising costs
1100
According to American Marketing Association the term advertising is de-
fined as placement of announcements and persuasive messages in time or space
purchased in any of the mass media by business firms, nonprofit organizations,
government agencies, and individuals who seek to inform and/ or persuade
members of a particular target market or audience about their products, ser-
vices, organizations, or ideas.5
For advertising is important to have a pro-active communication with the
users of product or service, so that the advertising stays longer in users sub
consciousness.
3. UNCONVENTIONAL ADVERTISING
The term unconventional stands for curiosity, instability, inventiveness, orig-
inality, un-ordinariness, alternation and etc. With the release of the book on the
market called “Guerrilla marketing”, back in 1983 by the author and “father” of
guerrilla marketing Jay Conrad Levinson public was introduced to the new rev-
olution in marketing, revolution which presented two beliefs: marketing does
not have to be expensive to be successful and sales is the easiest job in the world.
Unconventional advertising is now the subject of interest of many scientists
(and people from practices such as entrepreneurs, managers, etc.). Guerrilla ad-
vertising is nowadays also called the art and it is not just focused on a great idea,
but also on the idea that is able to connect well-defined and the targeted audi-
ence. Typical guerrilla advertising campaigns are unexpected and unusual, in the
environment they causes surprise in unexpected situations and in unexpected INTERDISCIPLINARY MANAGEMENT RESEARCH XI
places to impressively create interest. Unconventional advertising wants to sur-
prise environment and seeks exceptional creativity and innovation but it gives a
great advantage and unsurpassed advantage to cultural institutions, security in
an uncertain market, speed and ease of communicating with the users of cul-
tural institutions. Wide open mouth caused by surprise will replace sarcastically
eye rolling. (Margolis, Garrigan; 2008, 16)
a fraction of what it costs to place a network ad, and the audience may be more receptive to
it, especially if it is not flashy and fits in with the theme of the online broadcast. Available on:
http://smallbusiness.chron.com/traditional-advertising-vs-unconventional-advertis-
ing-26379.html (16-02-2015)
5
https://www.ama.org/resources/Pages/Dictionary.aspx (16-02-2015)
1101
In world where consumer is suffocated by commercials that all sound and
look alike, unconventional advertising is the breath of fresh air, delivering mes-
sages in unexpected forms that most of time entertain the viewers. Unconven-
tional advertising is able to pass the protective shield that marketing literate
consumers nowadays have built as a protection against the commercial mes-
sages that bombard them every day.
This happens because unconventional advertising is unexpected and it catches

them in locations and situations where they aren’t expecting to be advertised at
and where they are off guarded. Also, unlike traditional advertising, the uncon-
ventional ads don’t use persuasive message trying to convince the audience to buy,
but rather they address to customer’s subconscious creating memorable images
of the promoted brands which last in the mind of consumers. ( Jurca; 2010., 331)
4. DESCRIPTION OF EXAMINEE IN THE SAMPLE

AND SURVEY
Research was carried out in eastern Croatia, in Osijek, on a sample of 508
various respondents. Data was collected by contacting respondents via e-mail
so as their responses. Examinees were mostly the students of Josip Juraj Stross-
mayer University of Osijek (mostly of them were from Department of cultural
studies), employees and unemployed and others. Structured questionnaire was
divided into two parts. The first part of the questionnaire contained four gen-
eral questions like gender, age, years of working experience etc. The second part
of the survey contained couple of questions about marketing and advertising of
Croatian national theatre.
Chart 1. Distribution of sample by age Chart 2. Distribution of sample by
education degree
degree

Source: By author Source: By author
1102
Chart 1 shows that the most of the examinees were between 21 and 30 years
old and least of them were 60 years and plus.
Chart 2 shows that the most of the respondents graduated from the uni-
versity, school or college (51%) and also large number of examinees have a sec-
ondary school or high school (34%). A small number of respondents have a
Master’s degree or PhD (15%).
5. REVIEW OF THE RESEARCH RESULTS

Chart 3. Through which advertising was the audience most attracted to the
performances
Wordofmouth(recommendationofafriend)
ElectronicWordofmouth(Facebook,Instagram,Official
12%
25% websiteetc.)
10%
Ambientguerrillaadvertising(Streetguerrilla)
18%
Waitadvertising(Waitingonabusstationetc.)
35%
Viraladvertising(Videosofthetheatre)
Source: By author
Chart 3 shows us that most of the respondents (35%) was most attracted
through electronic word of mouth advertising to attend the theatres perfor-
mances. Electronic word of mouth was most attractive because most of the re-
sponses were young audience and most of them use social media like Facebook,
Twitter and Instagram to find out new information’s. Second most attractive
advertising was word of mouth (25%) advertising, which means that respon-
dents got a recommendation from a friend or family to attend the performances.
No less important part of this unconventional advertising are street guerrilla
(18%), wait advertising (10%) and viral advertising (12%).
1103
Chart 4. Do the audience in the future support unconventional advertising in
Croatian National theatre
3%
Yes
No
97%
Source: by author
The audience was asked do they in the future support unconventional ad-
vertising in Croatian national theatre. From the chart 4 it can be seen that the
most of them answered with yes (97%) and minority answered with no (3%).
It is very important, that the audience recognize the new and creative way of
advertising in culture institutions and for cultural institutions it is important to
find a new way to communicate with the audience.
This research was carried out because the cultural institutions in city of
Osijek and also Croatia are having lack of financial resources so they have to
find low budget and creative way of advertising. Not only can those kind of ad-
vertising save lots of money but also it can help the cultural institutions to make
more visibility and increase the sale.
5. CONCLUSION
Cultural institutions, especially in Croatia are confronted with many chal-
lenges, like lack of financial and human resources, keeping up with rapid prog-
ress of information and communication technologies and therefore they are
having a hard time to make a good marketing strategy.
On the basis of this study, it can concluded that unconventional advertis-
ing can be a great solution for cultural institutions in city of Osijek, because of
several reasons:
1104
- most of cultural institutions have a lack of finance resources, so with un-
conventional advertising they can make cheap, memorable and creative
advertise;
- with unconventional advertising the cultural institutions can more get
more visibility on the market and in the environment;
- the audience in city of Osijek are supporting the unconventional advertis-
ing, so they will be more attracted in future to performances thru uncon-
ventional advertising.
Cultural institutions are the important represent of a one city, so it is im-
portant for them to keep sustainability and thru good marketing strategy, us-
ing unconventional advertising (mixed with conventional advertising), they can
achieve that.
REFERENCES
Ekonomski leksikon (2011.) Zagreb: Leksikografski zavod Miroslav Krleža, Masmedia, 609.
Jurca, A.M. (2010.) The forms of unconventional advertising – a theoretical approach, Man-
agement & Marketing Craiova, Broj 2, 323333, ISSN 1841-2416
Margolis, J., Garrigan, P. (2008.): Guerrilla marketing for dummies, WileyPublishing Inc,
ISBN 978-0-470-28967-9, Indianapolis
Meler, M. (2006.): Marketing u kulturi, Ekonomski fakultet u Osijeku, ISBN 953-253-016-
9, Osijek
Pavičić, J., Alfirević, N., Aleksić, LJ. (2006.): Marketing i menadžment u kulturi, Masmedia,
ISBN 953-157-487-1, Zagreb
Šešić-Dragičević, M., Stojković, B. (2013.): Kultura-menadžment, animacija-marketing,
KIC, ISBN 978-953-7356-40-8, Zagreb
http://www.knowthis.com/advertising/what-is-advertising (16-02-2015)
http://smallbusiness.chron.com/traditional-advertising-vs-unconventional-advertis-
ing-26379.html (16-02-2015)
https://www.ama.org/resources/Pages/Dictionary.aspx (16-02-2015)
1105
VALUATING WINE BRANDS USING
THE BRAND FINANCE METHOD  A
CASE STUDY
Zdravko TOLUŠIĆ, Ph.D., Full professor

Zdravko Tolušić, Sandra Odobašić, Marija Tolušić: VALUATING WINE BRANDS USING THE BRAND FINANCE METHOD - A CASE STUDY
Sandra ODOBAŠIĆ, Ph.D. candidate
Marija TOLUŠIĆ, mag.oec.
Abstract
Brand is a specific intangible asset which is nowadays in many companies one
of the most important assets, in particular because of the economic and finan-
cial effects that brands have. Brands influence not only consumer’s choice, the
employees and investors, but also public authorities and the general public. In
the world of endless possibilities, such an impact is of utmost importance for
market success and will provide added value to shareholders. This is the reason
why strategic decision-making of the management is increasingly focused on
value growth asset management. Moreover, brands are specific since in many
cases they outlive their companies and have a number of different owners dur-
ing their life-cycle. However, brands have to be not only identified, but also
valuated. Various methods are used to valuate brands, and the aim of this
paper is to present brand valuation by using brand finance valuation methodol-
ogy on a case study.
Keywords: valuating brands, intangible assets, market success, profitability of
business, company value.
JEL Classification: L6, L66,R51
1106
1. INTRODUCTION
All successful companies keep investing in their assets to increase profitabil-
ity. Types of property which appear in companies are very different and one of
those types are intangible (untouchable) assets. Although this type of asset has
investment costs which often cause losses rather than profits, it is not enough
to rely on its investment costs to determine its value. Therefore companies have
major problem with evaluating this type of property and this problem is not
completely solved yet. Intangible assets are truly hard to evaluate objectively,
even though they exist in companies. The subject matters are brands, goodwill,
patents, trademarks, licenses, human knowledge, special product names which
people trust and consume traditionally. Based on its special name, a company
can have even 50% higher prices on the market, in comparison to other com-
panies which produce the same or similar products, thanks to the trust they
have with their buyers. This price difference represents extra income, apropos
extra profit, just because of the trust of their buyers which are willing to pay the
difference. That, of course, has its value and represents intangible assets which
can even be amortized by accounting rules, but only after previous purchase, if
the value has been bought, emphasized in the contract and paid. The possibility
of determining extra income and discounting, then bringing to present value
will be shown using the example of evaluating the intangible assets of company
VINO. Timeliness of this problem in practice comes from financial reports of
observed company VINO, which show intangible assets of this company in
value of 298.452 HRK by the end of 2013, although the subject matter are
world known wines which have been consumed for centuries, have their loyal
customers, win prestige awards and first prizes on world exhibitions. Of course
the reasons to have a different approach to determining intangible asset values
of this company are objective. After having an insight of financial reports of this
company, brands of four types of wine with high financial value have been ex-
tracted: (1) Riesling, (2) Traminer, (3) white table wine and (4) Rhine Riesling.
2. METHODOLOGY OF VINO BRAND VALUE

CALCULATION
Brands do not have an active purchasing market as other types of asset, al-
though they are often bought and sold with other types of asset. Therefore,
several special and combined analytical models for brand evaluation have been
1107
developed. Marketing approach applies to commercial (market) functions
which contribute to business, while financial approach applies to expressing the
brand in financial amounts. The combined approach of brand evaluation refers
to combination of marketing and financial approach with weighting according
to market significance and results of both methods individually. Starting from
the fact that the brand is a specific type of asset which provides long term com-
petitive advantage and provides company’s profitability, it is expected that this

approach could give the best results. The VINO company’s main business has
market share of 21,14% and is number one by total profit in 01.21 business
which has 107 subjects (only subjects which give annual financial reports are
counted). The VINO company is ranked by size as medium-size enterprise.
Within business are 103 small enterprises and 4 medium-size enterprises. Fi-
nancial value of the brand can be determined using three approaches: market
approach, cost approach and profit approach. Using appropriate approach,
apropos methods characteristic for individual approaches depend on ways of
brand acquisition and purpose of measuring financial value. Previous researches
indicate methods: (1) financial brand value, (2) DCF method, (3) method for
the calculation and revision of goodwill, (4) Interbrand method and (5) Brand
Finance method. This paper presents Brand Finance method.
.. Brand Finance method

Brand Finance method has developed the procedure of brand evaluation
which takes into account market and financial information in last three years
and based on those information carries out brand forecast. From brand forecast
follows EVA (economic value added) which depends on demand and market
index, resulting with added value of the brand. Added value of the brand is
adjusted with risk factors and brand beta analysis, which results with discount
rate, bringing added value to present value and determines the brand value.
Each asset value, including brand value represents net present value (NPV)
of cash flows, in which the investment is represented as capital cost. (Brand
Finance, 2015).
1108
Figure 1. Brand Finance methodology
Source: Production of authors (Brand Finance, 2015)
To calculate discount rate, CAMP (Capital Asset Pricing Model) can be

applied, which describes the relation between systematic risk, expected return
and estimation of asset value. CAMP model is shown as (Vukičević, M., et al.;
2010: 165-176, 261- 272, 357- 365.).: Rj = Rf + β (Rm - Rf), where is:
Rj = expected yield – discount rate
Rf = risk-free interest rate on government bonds
β = measure of systematic risk – Brand Beta
Rm = market yield
Brand is intangible asset, so to calculate market yield, return on asset indica-

tor should be taken from top 10 enterprises which have 77% business share by
total income (later referred to as Top 10 index). Risk-free rate is taken as aver-
age interest rate on issued international Croatian government bonds in 2013
(Ministry of Finance RH, 2015), and Beta Brand, as a measure of systematic
risk, is calculated as relation between company income covariance and market
covariance and market variance.
where is:
cov(Rj,Rm) = company income covariance and market covariance
σ2(Rm) = market variance
Collecting data about business share by income first required enterprise
classification analysis, and data about agricultural cooperatives were collected
via e-mail request. Table no.1 shows top 10 business shares in business 01.21 by
total income, return on assets, systematic risk calculation and adjusted CAMP.
1109
Table no. 1. Business share by total income in 2013 and ROA of top 10 in the
industry (Top 10)
Rank Company name Share in top 10 Share in business ROA 2012 ROA 2013
1. VINO d.d. 27,42% 21,14% 9,44% 2,08%
2. SAINT HILLS d.o.o. 19,15% 14,76% 3,40% 34,36%
3. BLATO 1902 d.d. 13,56% 10,46% 2,65% 4,93%

4. PZ DINGAČ 9,47% 7,30% -2,65% 7,14%
5. ERDUTSKI VINOGRADI 8,72% 6,73% 9,95% -7,05%
6. VRGORKA VINARIJA d.d. 5,67% 4,37% 0,08% 1,02%
7. PZ SVETI KRIŽ ZAČRETJE 5,47% 4,22% 0,84% 2,48%
8. PZ POŠIP 4,06% 3,13%
9. AZRRI d.o.o. 3,57% 2,75% 1,36% 3,09%
10. GALIĆ d.o.o. 2,90% 2,24% 0,60% 1,15%
Total: 77,10%
Other enterprises in the business 22,90%
Average 2,85% 5,47%
Variance 0,000171
Covariance -0,00048
Beta -2,81682
Risk free rate 5,77%
CAPM 6,63%
Adjusted CAPM for Beta 0,5 6,20%
Source: Author’s calculations by public reports of FINA
Previous table shows that average return on asset has growth tendency,
but some companies have negative ROA, which means that their assets create
losses, while VINO has positive ROA with tendency to fall, and in 2013 is
2,08% (for comparison purposes of ROA as a performance measure between
different companies, ROA= EBIT/Assets was used). Following is the calcu-
lation of market risk in order to calculate systematic risk index of company
VINO. After the calculation of market variance (top 10 index) which amounts
0,000171, calculation of market covariance and observed company should be
made, which is easiest with MS Excel function COVAR. Following by calcula-
tion of covariance, beta, apropos company risk and expected CAMP, which will
represent discount rate, used to calculate the brand value. According to CAMP
model, discount rate amounts 6,63%, decreasing the values of NOPAT (net
operating profit after tax). It is known that higher the discount rate is, lower
1110
the brand value is. As the goal is to evaluate real brand value, CAMP should be
adjusted (Miller & Muir, 2004: 232). In CAMP model, β stands for company’s
risk, followed by logical question: what is with company’s strength? Company’s
strength should also be stated as index (Beta Brand) which will additionally
strengthen risk premium (Rm - Rf), plus company’s risk βr, apropos beta brand
must be multiplied with β (Rm - Rf), which give us: Rj = Rf + β (Rm - Rf)* βb.
Next problem is the determination of branding index which is used to adjust
the value of immaterial brand profit. Beta Brand (BSI score) is calculated with
known approach of score evaluation methodology by Brand Finance, where mar-
ket presence, distribution, market participation, market position, sales growth
rate, price, price elasticity, marketing costs, advertising and brand awareness are
evaluated with scores from 0 to 10, which sums up to total value of 0 to 100
(for calculation of components score, to check measures for price, market, dis-
tribution, etc., see Grbac & Meler; 2010). While evaluating, the most important
thing is to have precise market information to avoid disputing of brand value
or strength. Score of VINO is presented based on information from distri-
bution channel (local retail chain), which, by analysis of company GFK, takes
over 30% of domestic market (GFK analysis gives information from 2012, but
market chain share is even bigger today because of additional company’s acqui-
sition in period till 2014). Furthermore, information form market research of
consumer behaviour of company Median d.o.o. have been used, conducted on
sample of 4053 citizens of Republic of Croatia from all counties (information
available only through agreement with Market Research Institute and media
of Median) and information of author’s survey conducted in 2015 on sample
of 400 citizens from all counties (information available to Faculty of Econom- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
ics in Osijek, Marketing of special fields Cathedra). On the other hand, what
should be taken into account is, if, while evaluating, will be observed companies
in the same business, in this case 01.21 (grape cultivation) or total supply on the
market, with enterprises registered as 11.02 – manufacturing wine from grapes.
Given that the information of distribution channel includes information of all
enterprises, the score was calculated for both groups.
Branding index for enterprises in the business 01.21 amounts 75, and for
business 11.02 amounts 50. In calculations, the score of 75 was used, because
the whole analysis was made for business 01.21, but the score for the whole
market could also be used. In that case, the brand value is falling, so it is not
realistic to compare manufacturers of grapes and wine with companies which
1111
manufacture wine from grapes bought from different sources, without knowing
the origin of raw materials, as with importers which operate in completely dif-
ferent economic conditions than domestic manufacturers.
Figureg 1. Cumulative display of brand success indicators (total brand strength)

Source: Author’s calculation
Figure 2. Beta Brand display
Previous graphic shows score of 75, which means that the brand strength
is 0,5, so the CAMP should be adjusted for this brand strength, apropos Beta
Brand, which is shown in table 2. The use of Brand Finance method in calcula-
tion of brand value, where brand index of 72,85% was applied, shows the fol-
lowing results (Schultz, Don E., 2001):
1112
Table no. 2. The calculation of brand VINO with Brand Finance method
2014 2015 2016 2017 2018
I. BUSINESS INCOMES 80.143.335 82.747.422 85.436.122 88.212.187 91.078.454
II. BUSINESS COSTS 75.643.112 78.100.973 80.638.698 83.258.880 85.964.199
EBIT (Earnings Before
4.500.223 4.646.449 4.797.425 4.953.307 5.114.254
Interest & Tax)
Capital Expenditure
4.455.566 4.600.340 4.749.818 4.904.154 5.063.504
(CAPEX)
Economic
331.049 341.805 352.912 364.379 376.218
profit EP
Intangible assets
4.169.175 4.304.643 4.444.513 4.588.928 4.738.036
earnings
Brand index 3.037.244 3.135.933 3.237.828 3.343.034 3.451.659
Tax 607.449 627.187 647.566 668.607 690.332
Earnings after taxes 2.429.795 2.508.746 2.590.262 2.674.427 2.761.327
Discount factor
0,9416196 0,88664744 0,8348846 0,78614369 0,7402483
(adjusted CAPM)
Discounted Cash Flow
2.287.943 2.224.373 2.162.570 2.102.484 2.044.068
(DCF)
Total amount of DCF 10.821.438
Brand index -72,85% Adjusted
The residual value of the
56.626.204 CAPM – 6,20%
brand
Tax - 20%
Growth rate 0%
EP- 7,43%
Brand value NPV 43.790.274
Previous table shows company’s VINO considerably high brand value of

43.790.274 HRK. Even though this business has a relatively high strong com-
petition, those are not world conditions of wine manufacturing and selling, INTERDISCIPLINARY MANAGEMENT RESEARCH XI
capital market is deformed, branding index is estimated, etc. which results in

expected doubt in stated brand value.
Figure 3. Brad Value Added (BVA)
1113
Figure 3 shows components on which the Brand Value Added was calcu-
lated (BVA). In BVA calculation, authors often call for industry index, which is
here not applicable, because of characteristic falling trend in last five years in all
positions, as reported in statistical data of Republic of Croatia: from cultivation
number of grape wines, manufactured quantity, selling, consumption share with
consumers. If the BVA is observed from that position, then there’s no added
brand value. On the other hand, if you take into account that VINO achieves
average sale about 20% from their total production in this channel which rep-
resents more than 30% of Croatian market (in this channel are about 7 million
litres sold annually, achieved turnover around 180 million HRK, 100 suppliers
participate on average with total of about 1370 wine items) and achieves a pre-
mium price (calculation of premium price with key competitors is available at
Grbac & Meler; 2010:131.) in last three years, and the total quantity is higher
than 3% in the channel, leading to calculation of index of VINO of 1,72. Us-
ing Brand Finance methodology, brand value of four types of wine, which real-
ize 60% of company’s income, has been calculated: Riesling 20.318.687 HRK;
Coupage 4.803.793 HRK; Traminer 5.683.978 HRK and Rhine Riesling
2.005.595 HRK, which amounts in total 32.812.053 HRK.
3. CONCLUSION
Applying the Brand Finance method in brand value calculations of wines,
Riesling, Coupage of red and white wine, Traminer and Rhine Riesling, results
of the calculations show that the brands values considerably differ. The results
could be combined to determine specific weights for the individual results, but
those are not needed in this case, because of big difference in results. By apply-
ing the Brand Finance method, Riesling wine is shown as most valuable brand of
company VINO, which is logical because this brand brings one third of income.
But there is always the question: who would pay, especially in today’s economic
and financial situation, because fair value and market price must correspond not
only with profitability, but also with desirability, interest to buy, demand and
buyer’s ability to pay.
1114
Literature
- Brand Finance methodology, available on: http://brandirectory.com/methodology
(26-11-2014)
-Financial agency, available on: http://rgfi.fina.hr/JavnaObjava-web/jsp/prijavaKorisnika.
jsp (29-10-2014)
-Grbac, B., Meler, M., (2010). Metrika Marketinga, Rijeka: University in Rijeka, Faculty of
economics in Rijeka, ISBN 978-953-6148-91-2, Rijeka
- International Croatian Government Bonds, available on: http://www.mfin.hr/hr/ob-
veznice-medunarodne (1-11-2014)
-Miller, J., D. Muir (2004). The Business of Brands, John Wiley & Sons Ltd, ISBN: 978-0-
470-86259-9, England
-Schultz, Don E., Measuring & Managing Brand Value, agora-imc.com/images/cover_story.
pdf available on: https://www.google.hr/?gws_rd=ssl#q=cover+story+measuring+%26+
managong+brand+value (15-10-2014)
-Vukičević, M., Gregurek, M., Odobašić S. i Grgić, J. (2010). Financijski menadžment u MS
Excelu, Golden marketing – Tehnička knjiga, ISBN 978-953-212-390-6, Zagreb
1115
MEASURING BRAND PERSONALITY
 CONSTRUCT VALIDITY OF A
Ulrich Föhl • Simon Elser: MEASURING BRAND PERSONALITY – CONSTRUCT VALIDITY OF A SHORT VERSION OF A BRAND PERSONALITY SCALE
SHORT VERSION OF A BRAND

PERSONALITY SCALE
Ulrich FÖHL, Ph.D.
Simon ELSER
Pforzheim University
Hochschule Pforzheim,
Pforzheim, Deutschland
ulrich.foehl@hs-pforzheim.de
Abstract
Brand personality has gained a lot of attention in marketing research and
brand management. For measuring these „human characteristics associated
with a brand“ (Aaker, 1997, p. 347), several empirically validated question-
naires have been developed. Due to the high number of items of brand person-
ality scales, their use in studies evaluating many different brands and addition-
al constructs is limited. Therefore the question arises, how brand personality
could be measured reliably and validly using short questionnaire versions. This
paper evaluates construct validity of a short questionnaire version based on a
German brand personality scale (Mäder, 2005) comparing the short version
with the original version in an online study with 298 students at Pforzheim
University. Brand personality had to be rated for two German brands of the
food retailing market. Results indicate high construct validity of the short scale,
though the original version shows slightly higher stability when it comes to the
underlying dimensionality of the scale and the prediction of the overall attitude
towards the brands based on the different personality facets. Implications for
further research and a more extensive validation including additional aspects
of validity and reliability are discussed.
Keywords: brand, measure, scale, personality
JEL Classification: L6, L66, R51
1116
1 EINLEITUNG
Dem Konzept der Markenpersönlichkeit als Teil des Markenimages
kommt eine zunehmende Bedeutung für die Markenführung zu (Freling &
Forbes, 2005). In gesättigten Märkten, in denen es zunehmend schwieriger
wird, Produkte durch funktionale Aspekte voneinander abzugrenzen, ermögli-
cht eine an Markenpersönlichkeit und verwandten Konstrukten orientierte
Markenführung eine bessere Differenzierung zwischen Marken, indem ein
symbolischer und emotionaler Mehrwert geschaffen wird (Hieronimus & Bur-
mann, 2005; Weis & Huber, 2000).
Mittlerweile existiert eine Vielzahl unterschiedlicher standardisierter Mes-
sinstrumente für das Konstrukt der Markenpersönlichkeit (z. B. Aaker, 1997;
Aaker et al., 2001; Mäder, 2005). Da viele empirische Studien zur Erfassung der
Markenpersönlichkeit online durchgeführt werden, weil sich dadurch auf effi-
zientem Weg größere Stichproben erreichen lassen, stellt sich häufig die Frage,
wie sich verschiedene Dimensionen der Markenpersönlichkeit mit Hilfe eines
möglichst kurzen Messinstruments valide und reliabel erfassen lassen. Gerade
bei einem Vergleich mehrerer Marken oder der Erfassung weiterer Konstrukte
überschreitet der Einsatz der meist umfangreichen Markenpersönlichkeitss-
kalen schnell einen für Onlinestudien sinnvollen Zeitrahmen. In zahlreichen
Studien wird daher mit Kurzversionen der einzelnen Markenpersönlichkeitss-
kalen gearbeitet (z. B. Orth & Malkewitz, 2008), die aber meist vorher nicht
validiert wurden.
Im Rahmen dieser Studie soll daher eine Fragebogenkurzversion, die auf
einer der deutschsprachigen Skalen zur Messung der Markenpersönlichkeit INTERDISCIPLINARY MANAGEMENT RESEARCH XI
nach Mäder (2005) basiert, am Beispiel zweier Marken aus dem Bereich des
Lebensmitteleinzelhandels mit der zugehörigen Langversion der Skala vergli-
chen werden. Ziel dabei ist die Überprüfung verschiedener Aspekte der Kon-
struktvalidität der Kurzskala.
2 THEORETISCHE GRUNDLAGEN ZUR

MESSUNG DER MARKENPERSÖNLICHKEIT
Aaker definiert den Begriff der Markenpersönlichkeit als „the set of human
characteristics associated with a brand“ (Aaker, 1997, S. 347). Sie wird meist
als Teil des Markenimages betrachtet, stellt also einen Aspekt der Wahrneh-
1117
mung einer Marke aus Sicht der Konsumenten dar (Mäder, 2005). Modelle
zur Markenpersönlichkeit orientieren sich an dem Persönlichkeitskonstrukt
der differentiellen und Persönlichkeitspsychologie. So liegt auch dem Ansatz
von Aaker (1997) das Fünf-Faktoren-Modell der menschlichen Persönlichkeit

(McCrae & Costa, 1986) zugrunde, das Aaker auf Marken übertragen hat.
Aakers Modell geht von fünf Dimensionen aus, mit denen sich die Persönlich-
keit einer Marke beschreiben lasse: Sincerity (Aufrichtigkeit), Excitement (Erre-
gung/Spannung), Competence (Kompetenz), Sophistication (Kultiviertheit) und
Ruggedness (Robustheit).Der Fragebogen zur Messung dieser Dimensionen ist
mit 42 Items sehr umfangreich. Wie beim Fünf-Faktoren-Modell der menschli-
chen Persönlichkeit sowie weiteren persönlichkeitspsychologischen Ansätzen
(Church & Burke, 1994) wird auch bei Aakers Modell der Markenpersönlich-
keit jede Dimension noch in mehrere Facetten, also Teilbereiche, unterteilt, die
wiederum über mehrere Eigenschaftsbegriffe erfasst werden. So ist beispiels-
weise die Dimension Excitement in die Facetten Daring, Spirited, Imaginative
und Up-to-date unterteilt. Die Facette Daring wird dabei mit Hilfe der Items
Daring, Trendy und Exciting gemessen. Die einzelnen Items jeder Facette las-
sen sich durch Mittelwertsbildung zu Skalen zusammenfassen. Daraus re-
sultiert ein Skalenwert pro Facette über alle Dimensionen hinweg, was eine
differenzierte Beschreibung einer Marke ermöglicht.
Bei Aakers Ansatz handelt es sich um das bekannteste Modell zur Erfassung
der Markenpersönlichkeit, allerdings ließen sich die postulierten Dimensionen
gerade außerhalb der USA in vielen Studien nicht replizieren (Aaker et al.,
2001; Mäder, 2005). Deshalb entstanden in zahlreichen Ländern kulturspe-
zifische Messinstrumente zur Erfassung der Markenpersönlichkeit, die jeweils
anhand unterschiedlicher Marken entwickelt und validiert wurden.
Im deutschprachigen Raum entwickelte Hieronimus (2003) auf Basis von
Aakers Modell eine aus nur zwei Dimensionen (Vertrauen und Sicherheit sowie
Temperament und Leidenschaft) bestehende Markenpersönlichkeitsskala mit
nur zehn Items. Zwar ermöglicht die niedrige Itemzahl eine sehr effiziente
Messung der Markenpersönlichkeit, allerdings können Marken damit nur
wenig differenziert auf nur zwei nicht mehr weiter in Facetten unterteilten Di-
mensionen beschrieben werden.
Mäder (2005) entwickelte zwei differenziertere Messinstrumente, die sich
hinsichtlich der Datenbasis, die für ihre Validierung genutzt wurde, unters-
1118
cheiden. So lagen seiner aggregierten Skala zur Messung der Markenpersön-
lichkeit Bewertungen vieler unterschiedlicher Marken zugrunde, wobei jeweils
die Bewertungen aller Probanden zu einer Marke gemittelt wurden. Die sich
anschließenden Faktorenanalysen zur Ermittlung der Dimensionalität des
Konstrukts basierten folglich lediglich auf der Varianz zwischen den Bewer-
tungen verschiedener Marken, individuelle Unterschiede in den Bewertungen
verschiedener Personen gingen durch den Mittelungsvorgang verloren. Dieser
Ansatz entspricht dem Vorgehen von Aaker. Die daraus resultierende Skala
umfasst die Dimensionen Attraktivität, Verlässlichkeit, Temperament, Stabilität
sowie Natürlichkeit, welche über insgesamt 39 Items und neun Facetten gemes-
sen werden.
Für die Bewertung einzelner Marken auf individueller Personenebene ent-
wickelte Mäder eine weitere disaggregierte Skala mit den drei Dimensionen
Verlässlichkeit, Attraktivität und Kreativität, wobei die Dimensionen Verlässlich-
keit und Attraktivität noch in einzelne Facetten unterteilt sind (siehe Abbildung
1). Der Fragebogen besteht aus insgesamt 23 Items und sechs Facetten. Die
Dimensionalität wurde dabei im Rahmen von Faktorenanalysen auf Basis von
Individualdaten ermittelt; die Varianz der Datenmatrix ergibt sich somit aus
der Unterschiedlichkeit der Bewertungen verschiedener Personen, die jeweils
eine konstante Marke bewerteten. Im Gegensatz zu Aakers Messinstrument
handelt es sich bei den Faktoren in beiden Instrumenten von Mäder um unab-
hängige Dimensionen, die somit keine Interkorrelationen aufweisen.
Abbildung 1: Dimensionen und Facetten der disaggregierten Skala von Mäder

(2005) INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Eigene Darstellung.
Zwar enthalten die Instrumente von Mäder (2005) etwas weniger Items als
die Skala von Aaker (1997), dennoch stellt sich die Frage, inwieweit Marken-
1119
persönlichkeit auch mit Hilfe einer Fragebogenkurzform reliabel und valide
gemessen werden kann. Bei Studien, in denen das Inventar von Aaker zum
Einsatz kam, wurde eine Fragebogenkurzform häufig dadurch generiert, dass
lediglich ein Item pro Facette (z. B. Orth & Malkewitz, 2008) oder lediglich ein
Item pro Dimension (z. B. Chu, Cleff & Walter, 2013) erfasst wurde. Bei einer
Erfassung auf Facettenebene wurde dabei zum Beispiel von Orth und Malke-
witz (2008) das Item ausgewählt, welches auch zur Benennung der jeweiligen
Facette herangezogen wurde. Somit entfiel die Bildung eines Skalenwertes für
die einzelnen Facetten auf Basis der Einzelitems, die im Modell von Aaker eine
Facette bilden.
Zwar weist dieses Vorgehen eine hohe Plausibilität auf, allerdings fehlt
bislang für die einzelnen Markenpersönlichkeitsinstrumente ein Nachweis,
dass die resultierenden Kurzformen ebenso reliable und valide Ergebnisse er-
zielen wie die zugrundeliegenden Langversionen. Hierzu müsste ein Vergleich
zwischen der Lang- und Kurzform des jeweiligen Fragebogens im Hinblick auf
bestimmte Aspekte der Gütekriterien Reliabilität und Validität erfolgen.
Diese Arbeit konzentriert sich dabei insbesondere auf die Bewertung
bestimmter Merkmale der Konstruktvalidität.
3 ZIELSETZUNG UND FRAGESTELLUNGEN

Da lediglich einzelne Marken betrachtet werden sollten, wurde die disag-
gregierte Skala von Mäder (2005) genutzt, die auf Individualdaten, also Ein-
schätzungen einzelner Probanden, basiert, die auf individueller, nicht über die
gesamte Stichprobe aggregierter Ebene analysiert wurden. Als zu bewertende
Marken wurden in Deutschland bekannte Marken des Lebensmitteleinzelhan-
dels ausgewählt.
Die Langversion wurde hinsichtlich verschiedener Merkmale der Konstruk-
tvalidität mit einer gebildeten Kurzversion verglichen. Wie in anderen Arbeiten
(z. B. Orth & Malkewitz, 2008) wurde für die Kurzversion jeweils ein Item pro
Facette ausgewählt, wobei jeweils das Item verwendet wurde, das für die jew-
eilige Facette namensgebend war, also bei der Facette Vertrauenswürdigkeit das
Item vertrauenswürdig etc.
Da sich in zahlreichen Studien gezeigt hat, dass die Dimensionsstruktur
des Markenpersönlichkeitskonstrukts eine Abhängigkeit von den bewerteten
1120
Marken zeigt (Austin et al., 2003; Caprara et al., 2001), sollte in einem ersten
Schritt die Faktorstruktur der Langversion der Skala überprüft werden. Daher
wurde folgende Fragestellung untersucht:
(1.1) Inwiefern lassen sich die von Mäder (2005) postulierten Dimensionen
der Markenpersönlichkeit mit Marken des Einzelhandels bei Ver-
wendung seiner disaggregierten Skala re-plizieren?
Im Anschluss sollten die beiden Fragebogenversionen miteinander vergli-
chen werden, um Aussagen zur Konstruktvalidität machen zu können. So sollte
die Kurzversion bei gegebener Konstruktvalidität dieselbe Dimensionsstruktur
wie die Langversion aufweisen.
Des Weiteren sollten im Sinne einer nomologischen Validität die Marken-
persönlichkeitsdimensionen der Kurzversion die Einstellung gegenüber der
jeweiligen Marke insgesamt in ähnlicher Weise vorhersagen wie die Dimen-
sionen der Langversion. Ein ähnlicher Ansatz wurde beispielsweise von Cho
et al. (2015) genutzt, um nomologische Validität im Rahmen der Validierung
eines Instruments zur Erfassung des Markenimages zu prüfen.
Ein weiterer Hinweis auf gegebene Konstruktvalidität ergibt sich aus dem
Vergleich zweier Marken. So sollten sich bei Anwendung der Kurzversion ähn-
liche Unterschiede zwischen Marken ergeben wie bei der Langversion.
Im Einzelnen wurden folgende Fragestellungen empirisch geprüft:
(1.2) Inwieweit lassen sich die von Mäder postulierten Dimensionen auch
auf Basis einer Facetten-basierten Fragebogenkurzform replizieren?
(2) Welchen Einfluss haben die einzelnen Dimensionen der Markenpersön-
lichkeit auf die Einstellung zur jeweiligen Marke auf Basis des Origina-
linstruments von Mäder sowie auf Basis der verkürzten Version?
(3) Wie unterscheiden sich die Bewertungen zweier Marken aus dem
Einzelhandelsbereich auf Basis der Skalen des Originalinstruments
von Mäder sowie auf Basis der verkürzten Version?
4 METHODE
Die Fragestellungen wurden im Rahmen einer Onlinestudie untersucht, um
in effizienter Weise eine hinreichend große Stichprobe zu erreichen. Die Stich-
1121
probe wurde aus Studierenden der Hochschule Pforzheim rekrutiert, wobei
alle Studierenden der drei Fakultäten Wirtschaft und Recht, Technik und Ge-
staltung im Rahmen einer Mail über den Hochschulverteiler mit der Bitte um
Teilnahme angeschrieben wurden. Aufgrund der Freiwilligkeit der Teilnahme

ergab sich eine selbstselektierte Stichprobe.
. Untersuchungsdesign
Bei der Auswahl der zu bewertenden Marken spielten drei Kriterien eine
entscheidende Rolle. Zum einen sollten die Marken in Deutschland weit verb-
reitet und auch der in der Studie adressierten Zielgruppe sehr gut bekannt sein,
des Weiteren sollten sie vergleichbar sein, also zur selben Branche gehören und
sich schließlich hinreichend hinsichtlich ihrer Markenpersönlichkeiten unters-
cheiden, um die Differenzierungsfähigkeit der verwendeten Messinstrumente
überprüfen zu können.
Deshalb wurden zwei in Deutschland weit verbreitete und sehr bekannte
Marken aus dem Bereich des Lebensmitteleinzelhandels ausgewählt. Die
gewählten Marken unterscheiden sich jedoch klar hinsichtlich der angebotenen
Produktpalette. So wurde eine Marke ausgewählt, die sich insbesondere auf
den Verkauf hochwertiger Lebensmittel konzentriert, sowie eine zweite Marke,
die sich als Discountmarke positioniert.
Beide Marken wurden lediglich mit ihrem Namen präsentiert und im An-
schluss bewertet, weitere Informationen wurden im Rahmen der Befragung
aufgrund der hohen Markenbekanntheit nicht gegeben. Zur Vermeidung
von Reihenfolgeneffekten wurde die Reihenfolge der Präsentation der beiden
Marken unter Verwendung des Randomisierungsalgorithmus des Befragung-
stools Unipark (Unternehmen Questback) variiert. Somit bewertete die Hälfte
der Stichprobe zuerst Marke 1, die andere Hälfte zuerst Marke 2.
. Erhebungsinstrument
Die beiden Marken wurden mit Hilfe der disaggregierten Skala zur Messung
der Markenpersönlichkeit nach Mäder (2005) bewertet. Die Skala besteht aus
23 Eigenschaftsbegriffen, deren Vorliegen auf 5-stufigen endpunktbenannten
Likertskalen bewertet werden (trifft überhaupt nicht zu bis trifft voll und ganz
zu). Die 23 Items verteilen sich auf die Dimensionen Verlässlichkeit, Attrak-
1122
tivität und Kreativität. Die Dimension Verlässlichkeit besteht aus den Facetten
Vertrauenswürdigkeit (mit den Items vertrauenswürdig, kompetent, glaubwürdig,
überzeugend), Zuverlässigkeit (mit den Items zuverlässig, sicher, leistungsfähig)
und Professionalität (mit den Items professionell, erfahren, angesehen). Die Di-
mension Attraktivität teilt sich in die beiden Facetten Aufregung (mit den Items
aufregend, bezaubernd, reizvoll, unwiderstehlich) und Verführung (mit den Items
verführerisch, sinnlich, leidenschaftlich, erotisch) auf. Die Dimension Kreativität
weist keine Unterteilung in Facetten auf und umfasst die Items trendy, modern,
pfiffig, kreativ und einfallsreich.
Ergänzend zur Bewertung der Markenpersönlichkeit wurde auf einer 5-stu-
figen Likertskala die Einstellung gegenüber den beiden Marken abgefragt (Be-
wertung der Marke von sehr schlecht bis sehr gut).
Des Weiteren enthielt die Studie weitere Befragungsinhalte zu Bekanntheit
und Konsumverhalten im Zusammenhang mit verschiedenen Einzelhandels-
ketten, die allerdings im Rahmen dieser Arbeit nicht näher betrachtet werden.
Den Abschluss der Befragung bildeten soziodemografische Angaben zu Alter,
Geschlecht und Fakultätszugehörigkeit. Das Ausfüllen der Befragung dauerte
im Mittel 8,0 Minuten.
5 ERGEBNISSE
Aufgrund der vor den Weihnachtsferien beginnenden Datenerhebung blieb
die Studie insgesamt vier Wochen im Feld, um auch Interessenten, die durch
die zweiwöchige Vorlesungspause gegebenenfalls per Mail nur eingeschränkt INTERDISCIPLINARY MANAGEMENT RESEARCH XI
erreichbar waren, die Gelegenheit zur Teilnahme zu geben.
Nach dem Ausschluss unvollständiger Datensätze lagen Daten von 298
Personen vor, die in die Auswertung eingingen. Darunter waren 199 Frauen
(67 %) und 98 Männer (33 %), die sich auf die drei Fakultäten Wirtschaft und
Recht (n1=196; 66 %), Technik (n2=78; 26,3 %) und Gestaltung (n3=23; 7,7 %)
verteilten. Der Altersdurchschnitt betrug M = 22,8 Jahre.
Zunächst wurde die faktorielle Struktur der Markenpersönlichkeitsskala
von Mäder (2005) überprüft. Dazu wurden explorative Faktorenanalysen
nach der Hauptkomponentenmethode durchgeführt, wobei die gemäß Mäder
(2005) zu erwartende Faktorzahl von drei voreingestellt wurde. Für jede Marke
wurden zwei Faktorenanalysen durchgeführt. Bei einer Analyse gingen jeweils
1123
alle Items des Instruments von Mäder ein, bei der zweiten Analyse lediglich die
Items der gebildeten Fragebogenkurzform, die lediglich aus den Eigenschafts-
begriffen bestand, welche für die einzelnen Facetten namensgebend sind (ver-
trauenswürdig, zuverlässig, professionell, aufregend, verführerisch, kreativ).

Zusätzlich wurde die interne Konsistenz der zu den einzelnen Dimen-
sionen gehörenden Items der Langversion des Fragebogens durch Berechnung
von Cronbach’s Alpha-Werten analysiert. Eine hinreichende Homogenität der
einzelnen Skalen ist Voraussetzung für die Bildung von Skalenwerten für die
sich anschließenden Analysen.
Zur Prüfung des Einflusses der einzelnen Facetten auf die Gesamteinstel-
lung zur jeweiligen Marke wurden multiple lineare Regressionsanalysen mit der
Stepwise-Methode durchgeführt. Abhängige Variable war dabei das Item zur
Gesamtbewertung der betreffenden Marke (sehr schlecht bis sehr gut). Als unab-
hängige Variablen gingen bei einer der zwei Regressionsanalysen pro Marke die
Skalenwerte der einzelnen Facetten ein, bei der zweiten Regressionsanalyse die
Items der Kurzform, bei der jeweils ein Item eine Facette repräsentiert.
Um die Differenzierungsfähigkeit der Lang- und Kurzversion des Messin-
struments zu untersuchen, wurden die Marken jeweils auf Facettenebene mit
Hilfe von t-Tests für abhängige Stichproben miteinander verglichen. Zusät-
zlich wurde ein Effektstärkemaß nach Kline (2004) berechnet, das sich aus
dem Quotienten aus Mittelwertsdifferenz und Standardabweichung der Mit-
telwertsdifferenz ergibt. Allen inferenzstatistischen Tests wurde ein Signifikan-
zniveau von p = 0,05 zugrunde gelegt.
. Dimensionen der Markenpersönlichkeit

Tabellen 1 und 2 stellen für beide Marken die rotierten Faktorenladungs-
matrizen aus den Faktorenanalysen von Lang- und Kurzversion der Marken-
persönlichkeitsskala nach Mäder dar.
Alle durchgeführten Faktorenanalysen lieferten akzeptable Kaiser-Meyer-
Olkin-Measure of Sampling Adequacy-Werte größer als 0,69. Ebenso fielen alle
Bartlett-Sphärizitäts-Tests signifikant aus (p < 0,05), was die generelle Eignung
der Datensätze für eine Faktorenanalyse belegt.
Bei den Faktorenanalysen auf Basis der Langversion wiesen jeweils alle drei
extrahierten Faktoren im Sinne des Kaiser-Kriteriums Eigenwerte größer als 1
1124
auf. Die Faktorlösung der Langversion für Marke 1 entspricht bis auf das Item
Modern, das eine Doppelladung auf zwei Faktoren aufweist, exakt der Faktor-
struktur von Mäder (2005). Faktor 1 repräsentiert dabei die Dimension Ver-
lässlichkeit, Faktor 2 die Dimension Attraktivität sowie Faktor 3 die Dimension
Kreativität.
Die Faktorenanalyse der Langversion von Marke 2 zeigt dieselbe Faktor-
struktur. Auch hier liegt lediglich eine Doppelladung vor (Item Reizvoll).
Die Varianzaufklärung der Faktorenanalysen zur Kurzversion fällt in-
sgesamt deutlich höher aus als bei den Analysen auf Basis der Langversion. Für
Marke 1 konnte bei vorgegebener Extraktion von drei Faktoren eine Faktor-
lösung gefunden werden, die der von Mäder postulierten Struktur entspricht.
Allerdings liegt der Eigenwert des dritten Faktors mit 0,667 unter 1, so dass das
Kaiser-Kriterium nicht erfüllt ist. Auch die Lösung zu Marke 2 weist beim drit-
ten Faktor einen Eigenwert von lediglich 0,627 auf. Zudem zeigt sich hier eine
leicht abweichende Faktorstruktur. Faktor 1 verbindet die Facetten von Mäders
Dimensionen Attraktivität und Kreativität. Faktor 2 enthält zwei Facetten von
Mäders Dimension Verlässlichkeit, die dritte Facette bildet den dritten Faktor.
Tabelle 1: Rotierte Komponentenmatrizen auf Basis des Gesamtfragebogens

Marke 1 (59,3 % Varianz) Marke 2 (56,7 % Varianz)
Item Faktor 1 Faktor 2 Faktor 3 Faktor 1 Faktor 2 Faktor 3
Vertrauenswürdig 0,790 0,015 0,090 0,766 0,132 0,134
Kompetent 0,779 0,004 0,243 0,761 0,108 0,094
Glaubwürdig 0,759 0,108 0,023 0,747 0,108 0,184
Überzeugend 0,708 0,109 0,284 0,702 0,135 0,289
Zuverlässig 0,808 -0,027 0,095 0,759 -0,016 0,122
Sicher 0,764 0,037 0,074 0,632 0,058 0,089
Leistungsfähig 0,636 0,055 0,287 0,621 -0,131 0,280
Professionell 0,696 -0,024 0,364 0,676 -0,029 0,227
Erfahren 0,712 -0,020 0,023 0,627 -0,193 0,069
Angesehen 0,677 -0,011 0,307 0,601 0,187 0,057
Aufregend 0,099 0,652 0,414 0,091 0,600 0,448
Bezaubernd 0,057 0,799 0,137 0,026 0,785 0,230
Reizvoll 0,128 0,623 0,327 0,150 0,457 0,484
Unwiderstehlich 0,007 0,778 0,097 0,075 0,691 0,308
1125
Verführerisch 0,044 0,760 0,108 -0,016 0,766 0,204
Sinnlich -0,084 0,768 0,064 0,013 0,849 0,111
Leidenschaftlich 0,118 0,670 0,278 0,130 0,773 0,137

Erotisch -0,143 0,736 -0,128 -0,058 0,819 0,022
Trendy 0,288 0,405 0,548 0,183 0,350 0,672
Modern 0,522 0,143 0,504 0,363 0,055 0,578
Pfiffig 0,156 0,479 0,595 0,170 0,274 0,658
Kreativ 0,240 0,206 0,753 0,181 0,289 0,740
Einfallsreich 0,297 0,139 0,755 0,237 0,121 0,708
Fett markiert: Dominierende Faktorladungen; %-Werte: Durch die extrahierten

Faktoren aufgeklärte Varianz.
Tabelle 2: Rotierte Komponentenmatrizen auf Basis des Facettennamen
Marke 1 (78,9 % Varianz) Marke 2 (76,5 %)

Item Faktor 1 Faktor 2 Faktor 3 Faktor 1 Faktor 2 Faktor 3
Vertrauenswürdig 0,844 0,024 0,107 0,151 0,825 0,261
Zuverlässig 0,893 0,024 0,051 0,025 0,912 0,124
Professionell 0,733 0,075 0,408 0,085 0,297 0,929
Aufregend 0,057 0,785 0,341 0,835 0,008 0,202
Verführerisch 0,021 0,916 -0,015 0,817 -0,011 -0,142
Kreativ 0,219 0,192 0,917 0,704 0,274 0,138
Fett markiert: Dominierende Faktorladungen; %-Werte: Durch die extrahierten

Faktoren aufgeklärte Varianz.
Im Hinblick auf die für die weiteren Analysen benötigte Bildung von
Skalen zu den Facetten der Langversion wurden Cronbach’s Alpha-Werte für
alle Facetten der beiden Marken gebildet. Diese sind in Tabelle 3 dargestellt.
Mit zwei Ausnahmen bei Marke 2 weisen die Facetten akzeptable Cronbach’s
Alpha-Werte größer als 0,7 auf, was für eine hinreichende Homogenität der
jeweiligen Skalen spricht (Cortina, 1993).
1126
Tabelle 3: Cronbach’s Alpha-Werte der Skalen
Skala Marke 1 Marke 2
Vertrauenswürdigkeit 0,842 0,837
Zuverlässigkeit 0,762 0,694
Professionalität 0,767 0,666
Aufregung 0,821 0,796
Verführung 0,786 0,851
Kreativität 0,824 0,812
. Vorhersage der Einstellung

Mit Hilfe multipler linearer Regressionsanalysen wurde der Einfluss der
einzelnen Facetten der Markenpersönlichkeit auf die Gesamtbewertung der
jeweiligen Marke analysiert. Es erfolgte eine Analyse auf Basis der Skalenwerte
der einzelnen Facetten sowie eine zweite Analyse mit der gebildeten Kurzform.
Die zentralen Ergebnisse der beiden Regressionen zu Marke 1 sind in Ta-
belle 4 dargestellt. Die Skalenwerte wurden bei der Langversion als arithme-
tische Mittelwerte der zu jeweils einer Facette gehörenden Items berechnet, bei
der Kurzversion gingen alle sechs Einzelitems in die Regression ein. Bei beiden
Analysen haben dieselben drei Facetten einen signifikanten Einfluss auf die
Gesamtbewertung der Marke. Die Varianzaufklärung fällt bei der Analyse auf
Basis der Langversion des Fragebogens etwas höher aus als bei der Kurzform.
Tabelle 4: Regressionsanalysen zu Marke 1
Item R2 F p1 b t p2
Gesamtskala 0,365 55,968 <0,001*
Vertrauenswürdigkeit 0,307 3,982 <0,001*
Zuverlässigkeit 0,264 3,462 0,001*
Aufregung 0,186 3,902 <0,001*
Kurzskala 0,283 38,469 <0,001*
Vertrauenswürdig 0,258 4,124 <0,001*
Zuverlässig 0,243 3,901 <0,001*
Aufregend 0,234 4,684 <0,001*
2
Methode: Stepwise; durch das Modell erklärte Varianz (R ) sowie F-Wert (F) und
Signifikanz (p1) des Modelltests; Standardisierte b-Gewichte der Prädiktoren mit
zugehörigem t-Wert (t) und Signifikanz (p2); Signifikanzniveau jeweils 5 % (*).
1127
Tabelle 5 stellt die entsprechenden Ergebnisse der Analysen zu Marke 2 dar.
Zwei Prädiktoren (Vertrauenswürdigkeit sowie die Dimension Kreativität) bee-
influssen bei beiden Analysen signifikant die Gesamtbewertung der Marke. Bei
der Regressionsanalyse auf Basis der Kurzversion wird zusätzlich die Facette
Zuverlässigkeit signifikant. Die Varianzaufklärung liegt für beide Analysen auf
ähnlichem Niveau.
Tabelle 5: Regressionsanalysen zu Marke 2
Item R2 F p1 b t p2
Gesamtskala 0,336 72,806 <0,001*
Vertrauenswürdigkeit 0,430 7,737 <0,001*
Kreativität 0,227 4,089 <0,001*
Kurzskala 0,305 41,913 <0,001*
Vertrauenswürdig 0,345 5,431 <0,001*
Zuverlässig 0,166 2,631 0,009*
Kreativ 0,189 3,669 <0,001*
2
Methode: Stepwise; durch das Modell erklärte Varianz (R ) sowie F-Wert (F) und
Signifikanz (p1) des Modelltests; Standardisierte b-Gewichte der Prädiktoren mit
zugehörigem t-Wert (t) und Signifikanz (p2); Signifikanzniveau jeweils 5 % (*).
. Vergleich zwischen den Marken

Unterschiede in der Bewertung der einzelnen Facetten zwischen den
Marken wurden mit Hilfe von t-Tests für abhängige Stichproben untersucht.
Die zentralen Ergebnisse der Mittelwertsvergleiche für Lang- und Kurzform
des Markenpersönlichkeitsinventars stellt Tabelle 6 dar.
Bei beiden Fragebogenversionen unterscheiden sich die Marken jeweils auf
allen Facetten, wobei Marke 2 durchweg etwas niedrigere Werte erhält. Die
Discounter-Marke insgesamt wirkt also weniger vertrauenswürdig, zuverläs-
sig, professionell, aufregend, verführerisch und kreativ auf die Probanden. Die
Effektstärken fallen bei den auf der Langversion des Fragebogens basierenden
Tests etwas höher aus als bei der Kurzversion.
1128
Tabelle 6: t-Tests zum Vergleich der Marken
Item M Marke 1 M Marke 2 t p d

Gesamtskala
Vertrauenswürdigkeit 3,75 3,24 8,034 <0,001* 0,473
Zuverlässigkeit 3,70 3,44 4,506 <0,001* 0,265
Professionalität 3,97 3,36 10,192 <0,001* 0,600
Aufregung 2,34 1,88 8,784 <0,001* 0,517
Verführung 2,04 1,56 10,876 <0,001* 0,640
Kreativität 3,22 2,41 12,874 <0,001* 0,757
Kurzskala
Vertrauenswürdig 3,78 3,23 6,841 <0,001* 0,402
Zuverlässig 3,80 3,47 4,593 <0,001* 0,270
Professionell 3,96 3,40 7,357 <0,001* 0,433
Aufregend 2,47 1,94 7,168 <0,001* 0,422
Verführerisch 2,14 1,64 6,946 <0,001* 0,409
Kreativ 3,25 2,29 11,669 <0,001* 0,686
Mittelwerte (M) zu den einzelnen Skalen der beiden Marken sowie t-Werte (t)
des t-Tests für abhängige Stichproben, zugehörige Wahrscheinlichkeitswerte (p),
Signifikanz auf dem 5 %-Niveau (*) und Effektstärke (d) des Mittelwertsunterschiedes
6 DISKUSSION
In einem ersten Schritt wurde die Faktorstruktur der Langversion der dis-
aggregierten Markenpersönlichkeitsskala von Mäder (2005) mit Hilfe von ex-
plorativen Faktorenanalysen überprüft (Fragestellung 1.1). Für beide Marken INTERDISCIPLINARY MANAGEMENT RESEARCH XI
konnten dabei die von Mäder postulierten unabhängigen drei Dimensionen
Verlässlichkeit, Attraktivität und Kreativität extrahiert werden. Bei jeder Marke
wies lediglich ein Item (Modern bzw. Reizvoll) eine hohe Ladung auf einem
zweiten Faktor auf, was die generelle Dimensionalität nach Mäder nicht in
Frage stellt, sondern eher auf markenspezifische Besonderheiten der Itemin-
terkorrelationen hindeutet. Auch die Cronbach’s Alpha-Werte liegen für die
einzelnen Facetten überwiegend im akzeptablen Bereich und unterschreiten
lediglich bei zwei Facetten knapp den Wert 0,7. Durch die Kürze der einzelnen
Skalen ist das Erreichen besonders hoher Alphawerte allerdings auch erschw-
ert (Cortina, 1993), so dass insgesamt von einer befriedigenden internen Kon-
sistenz der einzelnen Facetten ausgegangen werden kann.
1129
Bei den Faktorenanalysen zur Kurzversion des Fragebogens (Fragestellung
1.2) ergibt sich für Marke 1 eine Faktorenlösung im Sinne des Modells von
Mäder. Bei Marke 2 fallen dagegen die Dimensionen Attraktivität und Kreativ-
ität zusammen auf einen Faktor, während sich die Dimension Verlässlichkeit auf
zwei Faktoren verteilt. Insgesamt scheint die gebildete Kurzskala somit anfäl-
liger für markenspezifische Unterschiede bezüglich der Korrelationen bestim-
mter Items zu sein.
Die durchgeführten Regressionsanalysen ergeben signifikante Vorhersagen
der Gesamteinstellung zu den beiden Marken auf Basis der einzelnen Marken-
persönlichkeitsfacetten (Fragestellung 2). So wird die Gesamtbewertung von
Marke 1 sowohl bei der Lang- als auch bei der Kurzversion des Fragebogens
durch dieselben drei Facetten (Vertrauenswürdigkeit, Zuverlässigkeit, Aufregung)
vorhergesagt. Bei Marke 2 ergeben sich bei der Langversion zwei signifikante
Prädiktoren (Vertrauenswürdigkeit, Kreativität), während bei der Kurzver-
sion noch ein dritter Prädiktor (Zuverlässigkeit) signifikant wurde. Für Marke
1 erweist sich die Kurzform somit als nomologisch hoch valide, während die
Ergebnisse der Kurzversion bei Marke 2 zumindest leicht von der Langversion
abweichen.
Beim Mittelwertsvergleich auf Facettenebene (Fragestellung 3) liefern Lang-
und Kurzversion jeweils für alle Facetten höhere Werte für Marke 1. Da es sich
bei Marke 2 um eine Discounter-Marke handelt, erscheint der leichte Nach-
teil auf den einzelnen Markenpersönlichkeitsfacetten gegenüber Marke 1 sehr
plausibel. Die Übereinstimmung beider Fragebogenversionen bezüglich dieser
Richtung der Bewertungsunterschiede spricht für die Konstruktvalidität der
Kurzversion. Lediglich bei den Effektstärken zeigen sich bei der Kurzversion
teilweise etwas niedrigere Werte, was für eine leicht schlechtere Differenzier-
ungsfähigkeit dieser Skala spricht.
Insgesamt ergeben sich für Marke 1 durchweg positive Befunde für die
Konstruktvalidität der untersuchten Kurzskala. Bei Marke 2 zeigen sich leichte
Einschränkungen hinsichtlich der Dimensionalität sowie der Vorhersage einer
Gesamteinstellungsvariablen. Dennoch kann aus den Ergebnissen abgeleitet
werden, dass eine Verwendung der Kurzskala zu keinen gravierend verzerrten
Markenbewertungen führt. Bei Studien, in denen viele Marken bewertet oder
zahlreiche weitere Konstrukte erfasst werden müssen und somit starke zeitli-
che Restriktionen bestehen, kann eine auf jeweils einem Item pro Facette beste-
1130
hende Fragebogenkurzform des Inventars von Mäder (2005) somit durchaus
genutzt werden, um valide Markenbewertungen zu erhalten.
7 LIMITATIONEN UND AUSBLICK

Die Ergebnisse legen leicht unterschiedliche Schlussfolgerungen für die
beiden untersuchten Marken aus dem Lebensmitteleinzelhandel nahe. Während
bei einer Marke eine perfekte Übereinstimmung zwischen den Ergebnissen aus
Lang- und Kurzversion bestand, ergaben sich bei der zweiten Marke leichte
Abweichungen. Deshalb sollte im Rahmen künftiger Studien geprüft werden,
inwieweit die Konstruktvalidität der Kurzversion abhängig von den jeweils be-
werteten Marken ist. Eine Replikation mit mehreren Marken anderer Branchen
erscheint daher zielführend, um diesen Effekt besser abschätzen zu können.
Des Weiteren wurden im Rahmen dieser Studie lediglich ausgewählte As-
pekte der Konstruktvalidität betrachtet. Künftige Studien sollten deshalb auch
weitere Gütekriterien mit einbeziehen. So ermittelte Aaker (1997) im Rahmen
der Validierung ihrer Markenpersönlichkeitsskala Retest-Reliabilitätswerte,
wofür die wiederholte Bewertung von Marken bei derselben Personengruppe
mit etwas zeitlichem Abstand erforderlich wäre. Ebenso sollten konvergente
und diskriminante Validität der gebildeten Kurzskala durch den Vergleich mit
anderen Konstrukten aus dem Bereich der Markenbewertung erfasst werden
(z. B. Cho et al., 2015).
Bei einer weiterführenden Validierung sollten somit insbesondere vielfältige
Gütekriterien bei einer möglichst großen Anzahl an unterschiedlichen Marken INTERDISCIPLINARY MANAGEMENT RESEARCH XI
untersucht werden, um ein noch umfassenderes Bild zur Anwendbarkeit von
Kurzskalen zur Messung der Markenpersönlichkeit zu erhalten.
Aaker, J. L. (1997). Dimensions of brand personality. Journal of Marketing Research, 34 (3),
347-356.
Aaker, J. L., Benet-Martinez, V. & Garolera, J. (2001). Consumption symbols as carriers of
culture: A study of Japanese and Spanish brand personality constructs. Journal of Personal-
ity and Social Psychology, 81(3), 492-508.
Austin, J. R., Siguaw, J. A. & Mattila, A. S. (2003). A re-examination of the generalizability
of the Aaker brand personality measurement framework. Journal of Strategic Marketing,
11(2), 77-92.
1131
Caprara, G. V., Barbaranelli, C. & Guido, G. (2001). Brand personality: How to make the
metaphor fit? Journal of Economic Psychology, 22, 377-395.
Cho, E., Fiore, A. M. & Russell, D. W. (2015). Validation of a fashion brand image scale
capturing cognitive, sensory, and affective associations: Testing its role in an extended brand
equity model. Psychology and Marketing, 32(1), 28-48.
Chu, G., Cleff, T. & Walter, N. (2013). Brand experience’s influence on customer satisfaction
and loyalty: a mirage in marketing research? International Journal of Management Research
and Business Strategy, 2(1), 130-144.
Church, T. A. & Burke, P. J. (1994). Exploratory and confirmatory tests of the big five and
Tellegen’s three- and four-dimensional models. Journal of Personality and Social Psychology,
66(1), 93-114.
Cortina, J. M. (1993). What is coefficient alpha? An examination of theory and applications.
Journal of Applied Psychology, 78, 98-104.
Freling, T. H. & Forbes, L. P. (2005). An empirical analysis of the brand personality effect.
Journal of Product & Brand Management, 14(7), 404-413.
Hieronimus, F. (2003). Persönlichkeitsorientiertes Markenmanagement. Eine empirische
Untersuchung zur Messung, Wahrnehmung und Wirkung der Markenpersönlichkeit. Lang,
Frankfurt.
Hieronimus, F. & Burmann, C. (2005). Persönlichkeitsorientiertes Markenmanagement. In
H. Meffert, C. Burmann & M. Koers (Hrsg.), Markenmanagement. (S. 365-386). Gabler,
Wiesbaden.
Kline, R. B. (2004). Beyond significance testing. American Psychological Association,
Washington.
Mäder, R. (2005). Messung und Steuerung von Markenpersönlichkeit – Entwicklung eines
Messinstruments und Anwendung in der Werbung mit prominenten Testimonials. Disser-
tationsschrift, Mannheim.
McCrae, R. R. & Costa, P. T. (1986). Clinical assessment can benefit from recent advances in
personality psychology. American Psychologist, 41, 1001-1003.
Orth, U. R. & Malkewitz, K. (2008). Holistic package design and consumer brand impres-
sions. Journal of Marketing, 72, 64-81.
Weis, M. & Huber, F. (2000). Der Wert der Markenpersönlichkeit. Gabler, Wiesbaden.
1132
ACHIEVING COMPETITIVE
ADVANTAGE OF A COMPANY
THROUGH EFFICIENT
MANAGEMENT OF WAGES AND
EMPLOYEE REWARDS
Tihomir ZEC
Vice MIHANOVIĆ
Jerko ŽUNIĆ
Postgraduate Doctoral Study of Management, Osijek
Abstract
This paper discusses the correlation between the model of remuneration of
employees and the competitive advantage of a company. Business performance
of each company is closely linked with the profile of staff represented in the
company and the properly planned and executed strategy and policy of wages
and rewards. In conditions of market economy, where the efficiency of work
and dedication of employees guarantees improvement of business processes and
business performance improvement of a company, great importance is given
to the selection of an appropriate system of rewards. By choosing a system of INTERDISCIPLINARY MANAGEMENT RESEARCH XI
rewards that meets the expectations of employees, the basic preconditions of a

successful business are created; since only a motivated and satisfied employee
guarantees the efficiency and competitiveness of a company.
In the highly competitive environment a company needs to focus on the
achievement of a specific, sustainable competitive advantage, because it is the
key to long-term profitability. A well-defined and transparent management
system of wages and rewards allows for an increase in business performance by
rewarding the extra effort of employees in achieving set objectives.
Keywords: competitiveness, intellectual capital, the wage system, reward,
wage as a form of compensation, human resources.
JEL Classification: H21, D61, G14
1133
1. INTRODUCTION
The majority of Croatian companies, especially those inherited from the
Tihomir Zec • Vice Mihanović • Jerko Žunić: ACHIEVING COMPETITIVE ADVANTAGE OF A COMPANY THROUGH EFFICIENT MANAGEMENT OF ...
socialist socio-economic system, are insufficiently effective in an increasingly

complex and competitive Croatian economic environment. In this regard, it
is important to emphasize the need for radical improvements in efficiency of
Croatian companies. In the most developed economies of the world, more than
half of gross domestic product is based on knowledge. Industries such as tele-
communication, computers and software, i.e. high technology industries, nearly
doubled their share of the output in the last twenty years, while the knowledge-
based services are growing even faster (Dragičević, 2002, 5 to 6).
Business performance of each company is closely linked with the profile of
staff represented in the company and the properly planned and executed strat-
egy and policy of wages and rewards. Policy and strategy of salary management
should be permanently implemented in order to improve the results of a com-
pany and raise the level of competitiveness.
The basic need of every ambitious worker is that his/her work is recognized
and rewarded, while the primary goal of every employer is to employ a satisfied
and motivated worker. The goal of a successful system of wages and rewards is
to meet the needs of employees and employers. It is important that wages are
dependent on the results of the work, of the individual and the company as
a whole. A characteristic of such a system is that, on the basis of achieved re-
sults, it encourages the spirit of competition between employees, but also has a
stimulating and motivating effect on their work. Creating a positive atmosphere
within the company will contribute to the retention of existing successful staff,
as well as attract new needed employees.
An important feature of the system of rewards should be its simplicity and
user-friendliness to all concerned. In the event that employees do not under-
stand the benefits that the system offers them, it is necessary to make changes
and adjust the system to the employees for which it is intended. Therefore, the
success of the system of rewards will depend on the availability and user-friend-
liness of the system towards the employees.
The fact is that intellectual capital is positioning itself as an important de-
terminant of competitiveness, or competitive advantage of modern enterpris-
es. Traditional resources are insufficient to maintain a competitive advantage,
which is why more attention is placed on to the components of intellectual capi-
1134
tal. What is intellectual capital? ‘Intellectual’ indicates that the source of this
capital is the intellect, i.e. knowledge in various forms: physical form (plans, de-
signs, patents, licenses, databases, computer programs...Æ explicit knowledge)
and immaterial form – in the minds of employees (knowledge, vision, ability to
function, problem solving, leadership, experience... Æ tacit knowledge).
The ‘management’ of intellectual capital refers to the fact that the activities
of the company should focus towards the future, i.e. to strengthen the abilities
of the company, and remove weaknesses. In other words, the business should
constantly improve. The goal of the management of intellectual capital is to turn
immaterial knowledge into material. Managing intellectual capital must not be
a purpose in itself, but it must always be focused on the creation of value.
Managing of intellectual capital is implemented due to competitive advan-
tages, rising of productivity, increase of market value, focusing of activities to-
wards the future, long-term improvement of skills, care and improvement of
invisible, but for the future performance, key factors. The approach to manage-
ment of intellectual capital, as a key resource of modern business, is interdisci-
plinary and systematic. We focus first of all on effective management of intan-
gible values, and factors within the company that improve intellectual property,
with the ultimate goal of reaching competitive advantage and excellence at the
world level. The value of a company does not only include physical and financial
capital, but also includes intellectual capital to a large extent.
Correlation of the wage system (remuneration) as a motivational resource/
tool to competitiveness of companies is not sufficiently explored in the broader
context of the competitiveness of companies, which was the main reason for the INTERDISCIPLINARY MANAGEMENT RESEARCH XI
formulation of these topics. Researchers in the field of defensive competitive ad-

vantages of companies came to the conclusion that what a company knows, the
way it uses its knowledge and the speed at which it can adopt new knowledge,
is the only thing which can provide a consistently defensible competitive advan-
tage. The main factor of competitive advantage and the ability of the company
in the market today are the employees. Their needs, motivations and satisfac-
tion are the focus of science and practice and have been the object of numerous
studies and analysis.
Numerous literature and business practices of larger companies to date have
established various forms of employee incentive schemes such as the possi-
bility of promotion and acquisition of attractive jobs, education and training,
1135
traveling, developing contacts, the use of a corporate car, sliding working hours,
etc., financial categories such as incentives, bonuses, royalties, business cards, in-
surances, loans, participation in profit gained or, ultimately, entering into a part-
nership with the employer. According to the findings from theory and practice,
there is no single good model of rewards. However, there are different solutions,
experiences and great opportunities to create systems and models. The funda-
mental purpose of the rewards system is that the system generates the desired
behaviour of employees in the function of creating competitive advantages of
the company.
The aim of employee rewards is to exactly match individual interests of em-
ployees and the strategic goals of the company. In order to ensure adequate qual-
ity of employees in the company, it is necessary to provide an adequate level of
earnings, but it is only one of the necessary conditions. Much-needed additional
motivation of employees is achieved by other, non-material forms of rewards.
Because of all this, we can say that today the money is indispensable, but
not a sufficient motivating factor, as well as not equally important to all employ-
ees in every situation. The requirement for employee satisfaction is, without a
doubt, the salary. It guarantees an adequate standard, although the atmosphere
in the workplace is often among the top priorities of many employees. The wage
model mainly consists of three basic goals: (1) strategic wage goals, (2) strategic
policy which forms the basis of wages and (3) techniques of wages (Milkovich,
Newman, 2005, 37).
In the wage system, as a strategic element of wage policy the wage model
should include: (a) internal order, (b) external competitiveness, (c) the employee
contributions and (d) wage system management. These are essentially the basic
elements for the construction of the wage system. In many companies the choice
of the wage system is market-driven, and that is mainly driven by competitive
salaries. External competitiveness refers to the relation of wages between com-
panies, and focuses on the competitive position that this relationship reflects
(Milkovich, Newman, 2005, 724).
The basic condition for ensuring the vitality of a company and the ability to
respond to the increasingly sophisticated demands is its capability of creating
and maintaining a competitive advantage based on value.
1136
2. DIVISION AND CHARACTERISTICS OF WAGE
SYSTEMS
Throughout the history the employee received a fee for his work, and through
the development of human society the forms of these fees were various. In the
earlier stages of development of human society the reward was food, housing
and other human needs that could be met at the lowest level. The development
of the entire society, including economic relations, money becomes the primary
means of payment, or a key form of remuneration for work done.
With the advent of the market economy the money became almost exclu-
sively the means of payment, i.e. means of payment in the relationship of the
employer and the employee. That is why, when we talk about wages, rewards
are usually expressed in money, although the term wage includes all, not just
monetary forms of giving. In sporadic cases bartering and natural exchanges
may exist in small part, be it material or immaterial.
In the concept of wages we start from money as a medium of exchange in
contemporary relationships that expresses the equivalent value of what the sub-
ject of the exchange was. It is an essential feature of all forms of administration
of wages that the rewards for work are defined by the duration (time payment),
or working results or performance (performance-related pay).
Wage as a form of compensation

The fee that the employer gives in cash, as well as any other non-monetary
form is compensation or reward for the appropriate employee’s work. Therefore,
the salary can be defined as a compensation category that is derived from the re-
lationship between the employer and the employee on the basis of engagement
which is expressed in some form of measurable results.
The term wage is differently defined depending on the purpose this defini-
tion is trying to achieve, and in the economic literature it is defined in several
different ways:
- The wage is a reward for work done.
- The wage is a tribute for the work.
- The wage is the price term of socially recognized labour costs.
- The wage is the reproductive value to the work used.
- The wage is the price of labour, i.e. value expressed in money.
1137
The first two definitions of wage have microeconomic character unlike the
other definitions that have a macroeconomic, i.e. a political-economic charac-
ter. From this we can extract a definition according to which the salary is an
“amount of money that the employer must pay an employee for work that he/
she had done for him/her for a certain period of time” (Enciklopedija leksiko-
grafskog zavoda, 1969, 149).
In addition to cash payments, there are non-cash payments by check, check-
ing accounts, savings, securities, stocks, and more recently in goods. Salary is re-
lated to employment. However, payments to individuals who are not employed
were once not treated as wages, and today such cases still exist.
The time for which salaries are paid is usually a month, and somewhere it
is the week, especially in developed countries where the weekly calculation and
payment is not paid in full, such as the share of the profits which is annual.
Salary is contained in several components, most often it is a wage for work
done, salary compensation and a share in the profits.
The salary for work performed is related to the execution of the assignment
of the individual and it is a complex term, which consists of the basic salary,
incentive part of the salary and the addition to the basic salary. These parts of
wages are not of uniform size, but the summation of various sizes.
The basic salary is the product of an hourly rate and realized working hours,
while the incentive part of the salary consists of two basic sources, accords and
premiums. Accords are different; there are individual and group accords, i.e.
the premiums from the standpoint of the number of participants. Accords can
be time, quantity and cash. Premiums are divided into those for the quantity,
quality, cost savings, time limits, utilization, diligence, and combined premium
systems (Baierl, 1965, 31).
Additions to base salaries differ whether individual or group; we have addi-
tions for length of service, additions for continuity in the company, food sup-
plements, and additions for transportation, and others with an economic and
social character.
The wage fee is the one part of the salary that the employee is entitled to in
certain cases when not working. These fees are determined by law and collec-
tive agreements, and in certain cases they are even introduced my companies
1138
themselves. The most important are those for sick leave, annual leave, holidays,
non-working days and paid leave (Buble, 1984, 255 to 265).
The share of profit, as a specific form of wage, is a result of the general busi-
ness success and not always paid in cash. The size of the wage is influenced by a
number of factors and is subject of debate between tariff partners (Hilf, 1963,
295). Key influences on the level of wages are the following factors:
- The value of the workforce
- The relationship between supply and demand
- The influence of unions
- The impact of state
- Performance
- Business success of the company
Connecting the salary with performance achieved over time directed the in-
terest of workers solely on their own or group work, and what was happening
with the overall business of the company was the worry of employers and man-
agers. Since it was not the optimal solution, it was concluded that all employees
should participate in the overall success of the company. Consequently different
forms of participation in management, as well as the realized profit of compa-
nies, were developed. Various models of profit sharing, both for managers and
for employees have been developed (Buble, Pavic, Goić, 1991, 1 to 3).
Characteristics and types of wage systems

It is important to emphasize that the wage systems are not uniform for all
companies, there are various payment systems. Wage policy should be consis-
tent with the situation in which the company does business and with plans for
the future development because it represents the base payment strategy that is
an integral part of the strategic plans of the company.
They differ in large, bureaucratically organized companies and smaller, more
freely organized companies. Large companies use highly formalized assessment
of tasks, graded pay structure, strictly controlled evaluation of performance and
compliance with the prescribed administrative procedures in the regulation of
wages due to the fact that they can provide security and reputation, and at the
same the salary of their staff usually does not exceed the average in the branch.
1139
On the other hand, smaller companies that grow faster and are more likely to
change are more inclined towards non-formal methods and flexibility in deter-
mining wages and are ready for specialized staff that they are willing to pay well
above the average to get.

Only a well-designed wage policy serves the purpose intended for it and
forms a framework within which decisions are made on wages and is a point of
stability in a changing economic, technological and market conditions. Its sharp
formulation gives the wage system credibility among employees. The company
must know what kind of behaviour and work contribution it wants to encour-
age with the wage system, taking into account features such as: performance,
quality, presence at work, commitment, responsibility and the like.
H. Hilf classifies all wage systems into two groups: wage systems by time
and by piece. The term of payment by time implies a wider range of payment
than usual. In payments by time, in his opinion, time is the relevant factor for
remuneration, i.e. wages remains the same regardless of the achieved perfor-
mance (Hilf, 1963, 295).
The conclusion is that the payment per piece, in the primary division, does
not take into account only a realized volume effect, but also all other forms that
include the effect achieved. The second conclusion is that payment by time in-
cludes other elements of engagement such as quantity, quality, cost savings, and
the like. Accordingly, the wage is determined by the time spent working, but
wage may be adjusted depending on the achievement of other objectives.
K. Pullig outlined three basic forms of payment: time wage, wage by piece
and premium wage. Time wage is determined on the basis of only time, and is
proportional to working hours. In some cases, it includes a performance evalu-
ation and is differentiated as time payment without evaluation of performance
and time payment with the evaluation of performance (Galetić, 1991, 22).
Time payment with the evaluation of performance by REFI (Payment of
Results, 1984, 9) is a system in which the wage is determined according to time
and performance. This payment system is different from the premium system of
payment for its basic features, but is also close to the systems of incentive pay-
ments as it connects effort and earnings of workers. ILO payment systems are
classified into two basic groups: performance-related pay and the time payment.
We differentiate clean time payment and payment on the basis of assessment.
1140
In the so-called clean payment systems the amount of profit is calculated by
measuring the time spent at work expressed in cash per hour. It is assumed that
the effect is on the level of normally assumed total work load.
Payment on the basis of daily assessment is, in practice, located in a very
wide range. Common to all is the establishment of norms of performance, and
the calculations of earnings, according to B. Niebel, are implemented in one of
two ways: they are paid according to time regardless of the achievement of per-
formance or according to time increased depending on the level of achievement
of the planned task. The first form of payment is different from the pure form
of time in that it establishes standards of performance. Others form enters the
order of systems of incentive payments.
It is important to assess the impact of external factors on wage levels, rela-
tions in the structure of wages between basic salary and stimulating part of sal-
ary, as well as all who participate in the formulation and execution of policy of
wage management in the company (Greenhill, 1990, 5).
3. INFLUENCE OF SALARY AND REWARDING OF

EMPLOYEES ON COMPETITIVE ADVANTAGES
Competition in fact indicates the total number of actors (competitors) on
a single market, i.e. the bidding entities that have the same or a similar goal
(economic or otherwise).He who wins the “competition” becomes competitive.
Competition is the key to success or failure of the company. Competitive strat-
egy is the search for a favourable competitive position in a given economic group INTERDISCIPLINARY MANAGEMENT RESEARCH XI
as the primary arena in which the competition occurs.
Each company and its competitive position in society depend primarily on
the quality of available human resources. Using these resources and investment
in their quality are the main factors of development. Education increases com-
petitiveness by providing quality human-resources. It is education which en-
ables the acquisition of knowledge, skills, attitudes and values that are needed
to meet the individual work and social roles. Competitive strategy aims to es-
tablish a sustainable profitable position in relation to the forces that determine
competition in the economic segment. Therefore, the ability to be competitive
means “competition”. The concept of competitiveness is extensive and covers a
wide range of qualitative and quantitative factors. In any case, the factors of
1141
competitiveness are very often specific to individual companies, industries and
individual countries.
The condition for achieving the vitality of enterprises and the ability to re-
spond to increasingly sophisticated consumer demands is competence to create

and maintain competitive advantage based on value. One of the most difficult
tasks for each company associated with product strategy is to answer two fun-
damental questions: how is the product to meet the wishes of consumers and
how to improve its market position in relation to the competition, in relation to
competitors’ products.
The changes are faster and bigger, so the advantage over the competition
cannot be achieved just as better positioning within the industry, particularly
because the industry is changing rapidly – some disappear, and some com-
pletely new arise. That is why some new approaches to company strategies have
emerged. The resource approach talks about the observations made on the key
resources of enterprises, job retention, and creation of future key competencies
by noticing existing ones. Since the best results are always given by the combina-
tion of more accepted models, so the competitive ability can be evaluated by a
combination of structuralist and resource access approaches formalizing it with
the model of “value chain” (Porter, 1985, 3).
In the past few decades, there have been three main hypotheses developed
about the sources of competitive advantages of a company: the hypothesis
of industrial organization, the hypothesis based on the resources and the one
based on the capabilities of the company.
This paper starts from the premise that, the company should accept as the
fourth fundamental hypothesis, the one that explains the source of competitive
advantage, the one based on a wage system and rewarding and motivating of
employees.
Sources of competitive advantage can be tested using two checks that de-
termine whether the strategy of the wages and rewarding is the source of com-
petitive advantage or not. The first check which should be answered is whether
it increased the value of the company. In this sense, the system of wages and
rewards increases the value if it helps attract and retain talented employees in
deficit, control costs, motivate employees to further learning and improve per-
formance, etc.
1142
The second test relates to the question of whether the strategy of wages and
rewarding is hard to emulate. Thus, competitive advantage arises from the way
in which the business strategy and system of wages and rewarding are harmo-
nized, the synchronization between the system of wages and rewarding and
other activities of human resources, as well as how the system is implemented.
The basic message is that the company can win in a competitive competition
only if it possesses more relevant knowledge than their competitors. Therefore,
competitive advantage finds its source in knowledge, and knowledge manage-
ment can be an effective source of its creation and development. Employees
now form the basis of competitive advantage of organizations, or are the main
resource of survival and a driver of growth and development of modern organi-
zations. Many contemporary authors in the field of business in their theoretical
and empirical research advocate and emphasize the employees as a base com-
petitive benefit of organizations and explain their crucial role in organizational
success. Employees are the potential of competitive advantages of companies
only when they are optimally managed, i.e. when the company’s human resource
management is good. Similarly, the value of human resources of an organization
can grow, stay the same or decrease depending on how it is managed. One of
the biggest influences on the growth trend of the value of human resources of a
company is the implementation of an appropriate system of wages and rewards.
4. CONCLUSION
Today the companies, in terms of global competitiveness, are forced to grow
and develop primarily on the basis of the continuous guidance of its intangible
assets, i.e. employees, to new trends and challenges. This is why the process of
work performance, in the coming years, will result in success in the work of all
employees, and also the company as a whole, in the function of competitive
advantage.
In the highly competitive environment the company needs to focus on the
achievement of a specific, sustainable competitive advantage, because it is the
key to long-term profitability. A well-defined and transparent performance
management system allows for an increase in business performance through
rewarding of the employee’s extra effort in achieving set objectives.
1143
Strategic human resource management is the linking of HR with corpo-
rate strategies for achieving these strategies. The strategy of wage and rewards
should be integrated with the business strategy and formulated in a way which
enables the achievement of long-term goals of the business policy and human
resources policy.
It is very important that the salary consists of a fixed and variable portion.
Since it is considered as an incentive, a payment system increases with increas-
ing the share of variable pay in total wages. Such a model of pay will contribute
to greater employee motivation and raising the competitiveness of enterprises.
Furthermore, remuneration includes not only direct payments in cash, but also
indirect payment in the form of employee benefits and incentives such as life
insurance, use of company cars, the possibility of acquiring new knowledge and
training, etc. It motivates employees to achieve higher levels of productivity. Ac-
cordingly, it is also a critical component that occurs in the relationship between
employers and employees.
World economic trends are going in the direction of re-industrialization based
on high technology and the integration of the world economy. Production growth
so far was primarily based on the exploitation of natural resources. Raw materials
are a limited resource, and human needs are unlimited (Sundać, 1992, 36).
Factors of development are moving from material to immaterial, specifically
the knowledge. Human resources management as a business function combines
the activities and tasks related to the people, their recruitment, selection, train-
ing and other activities aimed at the development of employees. People, their
needs, motivation and satisfaction are becoming the centre of attention of hu-
man resource management because it was realized that human capital is the
main tool of competitive capabilities and advantages in the global market. To-
day, intellectual capital is becoming the most important factor of production
that drives all the other factors of production (Sundać, Fatur, 2004, 85 to 96).
Intellectual capital marks a new knowledge-based economy. The synergy of
all the components of intellectual capital (human, structural and consumer) is
the base for creation of added value in the company and for building a com-
petitive advantage in the market. The needs of individuals and the factors that
are held to motivate them are the object of intense research and analysis from
which many motivational theories have risen. The complexity of the individual
excludes the acceptance of one of motivation theories as a unique way to mo-
1144
tivate people in all types and forms of organization as a universal, regardless of
the environment in which it is located. Man is a complex psychological system
that requires many instruments to raise motivation. It is necessary to know,
along with motivational theories, the complexity of employees as individuals
and the circumstances surrounding them. Management must design a system
of payment and prize packages whose structure depends on how complex or
simple the system we want to develop is, and whether we prefer the base system
based on collective or individual factors.
Reward strategy is based on continual judgment on what the company in-
tends to do, as well as the role that other parts of the strategy of human re-
sources management have in achieving these organizational goals. The limiting
factors are its existing human resources, management practices and financial
resources. Policy and strategy of wages and rewarding are a continuous process
that must be focused on achieving the best possible results of the organization.
Effective management of the system of wages and rewarding is important
to achieve the competitiveness of a company. We can develop and implement
the most modern system of wages and rewarding, and it will not contribute to
achieving the company’s competitiveness if we do not have adequate manage-
ment. As long as it is not possible to design a proper management system, the
system of wages and rewarding will not achieve your goals. The highest wages
and remuneration systems known so far in the world are useless and ineffective
without competent management.
References
BAIERL, E. (1965): Produktivitet durch Lohnanreizsysteme, Carl Hanser Verlag, München.
BUBLE, M. (1984): A system for the distribution of personal incomes in organizations of
associated labor, Informator, Zagreb.
BUBLE, M., PAVIĆ, I., GOIĆ, S. (1991): Fundamentals of incentive payment in the com-
pany, Faculty of Economics, Split.
DRAGIČEVIĆ, M. (2002): Knowledge as a key strategic resource of the 21st century (and
the Croatian case), Knowledge – the basic economic resource, Faculty of Economics Rijeka,
Rijeka.
GALETIĆ, I. (1991): Wages in the market economy, OG, Zagreb.
GREENHILL, T. (1990): Performance Related Pay for the 1990s, Fritzwilliam Publishing
Ltd., Cambridge.
HILF, H. (1963): The science of work, Otokar Keršovani, Rijeka.
PORTER, Michael E. (1985): Competitive Advantage, Free Press, New York.
SUNDAĆ, D. (1992): Contribution to New Science of Economics, Verzal, Rijeka.
1145
INTEGRATED PROJECT PLAN
AS BASIS FOR MULTIPROJECT
SYSTEMS MANAGEMENT
Damir BUTKOVIĆ, M.Eng.

Primakon d.o.o., Zagreb, Croatia
damir.butkovic@primakon.hr
Abstract
Organizations today are faced with the challenge of managing a bigger number
Damir Butković: INTEGRATED PROJECT PLAN AS BASIS FOR MULTI-PROJECT SYSTEMS MANAGEMENT
of projects in an efficient way. Public sector is a good example of a multi-project

system and each improvement in project management in this kind of envi-
ronment is a very interesting field for study. Assuming there is a well-defined
and organized project management system in place, the literature describes
and practical examples show that efficiency depends directly on quality of data
delivered from the lowest levels of management. Research into the theoretical
background of this phenomenon points to the necessity of a systematic approach
to planning: clearly defined demands and standardized forms for project plans
development create preconditions for a precise and transparent vertical flow
of information available to all project participants. The goal is to record and
keep all required pieces of information on the project, in the first place those
regarding time and finances, in one place in an integrated document called the
project plan.
Key words: integrated project plan, integrated time and financial plan, in-
tegral planning, project management system, public administration, project
management
JEL Classification: H43, O22, H49
1146
1. INTRODUCTION
Although the concepts of time and financial project plans are well-known,
in practice they are kept in separate places and recorded in different documents.
An integral plan version which unites all pieces of information on the project
is not well-represented in practice (Rastovski, 2011). Projects in public admin-
istration in the Republic of Croatia are initiated, planned and implemented
on different management levels (ministries, counties, cities, public enterprises,
agencies, etc.) and are different in size, type, financial sources and alike. Each
project, including public projects, can be divided into subprojects, and can at the
same time form part of a megaproject (Radujković, 2012). It can be concluded
from the above mentioned that there is a need to interconnect projects. A group
of projects can be interconnected through continuity, i.e. some projects start
once others are finished (e.g. a designing project is followed by a construction
project) or through single activities more projects have in common (e.g. pro-
curement procedure for design which is common for more contracts on more
projects). Since all of these projects are financed from public funds, the quality
of their management directly contributes to the goal of efficient state budget
management.
All of the above mentioned points to the need of establishing a system which
would create prerequisites for efficient project management on the lowest level
in a single project as well as on the level of all projects in the portfolio. In order
to achieve it, on the one hand, we have to start from the lowest level or the proj-
ect itself and set standards for defining and planning the project, so it contains
all relevant information. Also, it is necessary to define at the very beginning how INTERDISCIPLINARY MANAGEMENT RESEARCH XI
the realization of the planned values will be controlled during implementation
and how it will be reported on. On the other hand, at higher management levels,
it is necessary to define the enterprise project structure (Rastovski, 2011) which
will be used to group all projects in the portfolio and thus ensure the bottom-up
information flow (data summarization), which enables collection and transfer
of relevant information to higher management levels to make managing of a
group of interrelated projects (programmes) or the whole portfolio possible.
The basic idea is focused on integral project planning from the project’s earli-
est phase to its closure. This means that all available pieces of information on
deadlines, money, people on the project, potential risks, etc., are entered into
1147
the system and planned at the level required for reporting to competent institu-
tions. (Butković et al., 2011).
2. RELEVANT TERMS FOR PROJECT

MANAGEMENT IN THE CONTEXT OF MULTI
PROJECT SYSTEMS
Literature describes and available pieces of research and examples from prac-
tice show that efficiency depends directly on quality of data coming from the
lowest management levels in the project portfolio structure. In order to present
possibilities of improvement of project management systems in the public sec-
tor in the Republic of Croatia, the theoretical background of some important
terms relevant for project and portfolio management has been researched.
.. Project life cycle

Each project goes through a number of phases during its life cycle (PMBOK,
2008). After the initial phase comes the planning phase after which the project en-
ters the execution phase. The planning process, which is under continuous control,
stretches through the whole time of project duration up to the project activities
closure phase. Examples from practice show that in project management in public
administration planning is very often relatively rough, if we consider the applied
methodology and tools for project planning and control (Rastovski, 2011). It can
be concluded that the initialization phase moves to execution and execution con-
trol phase with planning which is not represented and detailed enough. A short-
coming of this approach in project management is lack of a good-quality, detailed
plan at the very beginning of realization which would cover all aspects relevant
for the project. It is thus not possible to compare the actual data from the realiza-
tion phase with those from the planning phase. On the other hand, in realization
phase the circumstances of the project are constantly changing and influencing
the outcome of the project. This is why the life cycle loop is reversible (Picture
1) and is continuously going back from the execution to the planning phase. This
means that planning is needed during the whole project because through updates
during realization we obtain real data about the project. If there is a need to bring
the project parameters back into the framework of the set deadlines and budget,
it is necessary to replan the remaining activities.
1148
Picture 1. Project life cycle
Source: PMBOK Guide 4th Edition p.71
Picture 2 shows how each phase is represented in the project life cycle. It is
evident that the planning phase lasts till the very closure of the execution phase.
The closure phase is also very important because it records project experi-
ences. It records all deviations, risks that have occurred and the way they were
handled, all changes on the project and how they influenced the overall perfor-
mances. All types of knowledge and experiences are systemized and document-
ed and serve for implementation and improvement of the processes in some
future projects.
Picture 2 - Process Groups Interact in a Phase or Project
Source: PMBOK Guide 4th Edition p. 72
1149
.. System definition – EPS, WBS, OBS
The planning process starts at the strategic level with a definition of the En-
terprise Project Structure – EPS (Rastovski et al., 2006) which corresponds
to the needs defined in advance, i.e. the way projects are grouped within an
organization or department. Project is at the lowest level in the EPS structure.
Each of the nodes of the EPS structure has an assigned responsible person from
the organization who is at the same time responsible for all projects in the hi-
erarchy structure below. (PMBOK Guide, 2008). Each organization can define
the EPS structure according to its own needs (according to regions, sectors or
departments, project types, etc.).
Picture 3 – Enterprise Project Structure (EPS) and Work Breakdown Struc-

ture (WBS)
Source: Rastovski et al., 2006
Picture number 3 shows an example in which EPS structure is defined ac-

cording to regions and project types. The first level shows all organization’s proj-
ects, the second level are regions with their departments where different project
types are sorted, and the third level are groups of different project types. The
fourth level is the project which is at the same time the lowest level of the EPS
structure. On the other hand, the project is the highest level of the Work Break-
down Structure – WBS (Radujković, 2012). WBS structure divides the project
into manageable units. Project Manager is responsible for the whole project
1150
and team members are responsible for single parts of the project or single WBS
nodes. Organizational Breakdown Structure (OBS) is a hierarchical structure,
i.e. it represents the line of responsibility within an organization from executive
top management to project managers and team members. Overlapping of the
EPS or WBS structure with the OBS structure results in a matrix of responsi-
bility in the portfolio or on the project (PMBOK Guide, 2008).
.. Project definition and planning

When project and its structure are defined, it is necessary to define activities,
i.e. tasks that need to be implemented in order to achieve project goals. Time
needed for realization of each activity is estimated separately and interdepen-
dence between the activities is established (Radujković, 2012). The level of plan
detailedness depends on demands of reporting to higher management levels,
since the quality of output information on reached goals on the project is in
direct correlation with the input data entered into the plan (Barković, 2011).
Costs and resources needed for project realization are estimated, project begin-
ning and end as well as key dates for realization of single phases are defined.
Project risks are defined and team members are assigned to activity groups or
nodes of the WBS structure they are responsible for.
Allocation of resources to activities results in distribution of costs in time
which forms the basis for control of time and financial aspects of the project
during execution (Baseline). The moment the baseline plan is created, all rel-
evant project data have become part of the plan and we can talk about the inte-
grated project plan.
The preparation of the project environment evolves parallel to the project ac-
tivities development. It consists of analysis of all project participants and draft-
ing of the communication plan, i.e. the system according to which information
on the project will be shared with all participants. Demands within the com-
munication plan define ways of data exchange on the project and the way final
results are presented in reports (Radujković, 2012).
Since during its life cycle a project evolves in a number of phases, the plan-
ning of the project itself is conducted on a number of levels. The basic or master
plan is created in the initialization phase. It can be composed of a few dozen ac-
tivities, contains basic information on time and budget and serves for planning
1151
at the strategic level. With time the plan evolves and depending on the complex-
ity of the project and higher management demands it can grow to a couple of
thousands of activities. By using specialized planning tools it is possible to make
templates which serve as standardized forms of the project plan in each phase,
make the job easier and contribute to unambiguity in the vertical of managing
projects (Butković et al, 2011).
Master plan or its activities represent a project definition, i.e. tasks that de-
fine the project from its nomination, preparation, procurement, contracting, re-
alization to final takeover or project closure (op.cit.).
.. Project control and change management

Control is the most critical of all project phases. It is difficult to establish

project control patterns if there is no basic execution plan – Baseline. If it exists,
it has to be realistic because otherwise deviations from plans start already in the
first weeks of the project (Rastovski, 2011). It is therefore necessary to manage
the project plan.
In order to ensure good-quality information on performances of the proj-
ect, it is necessary to have a good-quality plan and update the system regularly
with all available pieces of information that occurred on the project. This means
that real beginnings and ends of planned activities are recorded, which makes
tracking of due dates realization possible. Also, by entering each single cost into
the system financial statuses are updated (Butković et al., 2011). This approach
detects all delays and budget overspending on single activities and the overall
project, and enables timely replanning of the remaining activities by bringing
the project back to defined deadlines and budget.
Apart from entering real dates and costs, comparison with the starting plan
is made continuously and deviations are defined. When needed, replanning
of the remaining activities is conducted in order to bring single activities back
into the limits of the set deadlines and budget. Since during realization changes
occur, the task of the project manager is to detect all new input information,
changes and potential risks and to gather and enter them into the system in a
way to make timely insight into the changes for all project participants possible
(Barković, 2011).
1152
3. POSSIBILITIES PROVIDED BY SPECIALIZED
PROJECT PLANNING AND CONTROL TOOLS
When talking about managing projects on operational level using some of
the available tools for planning and control, we can say that on the low level of
planning, in case of managing a single project, we manage a group of activities
at the level of tasks that are logically interlinked, i.e. we manage a time plan. If
we assign resources needed for execution of these tasks to activities, we get a
financial plan because each resource in the system is defined through price per
unit and number of units per time, i.e. time and quantity needed for task com-
pletion. Since every resource defined this way is directly connected to a single
activity in the plan, we get costs distributed in time, which connects the time
and financial component of the plan into an integrated document. Planning at a
higher level in case of managing a group of projects or a programme or portfolio
requires the application of sophisticated tools that use one of the methodolo-
gies (Radujković, 2012). Here, much before the definition of activities on the
project, we come to the definition of the structure of projects, i.e. project portfo-
lios structure, single project structure, organizational structure and their inter-
dependence. Why is this important? In order to provide a transparent model for
undisturbed flow of all relevant information on all projects in the portfolio in
real time. Data structured this way provide channels for undisturbed informa-
tion transfer top-down in case of for example budgeting, and bottom-up in case
of for example reporting on the status of project performances.
As already stated in the introduction, the basic prerequisite for managing
a portfolio or a programme is a clearly defined structure according to which INTERDISCIPLINARY MANAGEMENT RESEARCH XI
projects are grouped. Besides a certain level of knowledge the project planner
and the management should possess, for managing this kind of systems it is
necessary to invest into technological solutions in form of specialized project
planning and control tools. We here need to pay attention to the project com-
plexity level and for the needs of managing a portfolio we need parameters such
as consolidation possibility and project coordination on the level of the whole
organization (Radujković, 2012).
The basic document in this process is the integrated plan which contains
all relevant pieces of information about the project. A standardized and meth-
odological approach ensures unambiguous flow of all pieces of information
from all projects. Through summarization of all data from the structure of all
1153
projects, it is possible to obtain an overview of the basic information on the
portfolio.
Picture 4 – integrated time and financial plan

Source: individual work of author
Picture 4 shows an example of an intergrated time and financial project plan

made with Oracle Primavera P6 solution for project management. In order to
show the link between time and financial plan only main activities that contain
costs on the project are filtered. It is evident from the spreadsheet that the cost
of each single activity is shown exactly in the point in time when this activity
is happening, and by summarizing data obtained from all activities bottom-up
on to the project level, cash flow of the whole project is obtained. The graphic
part presents a histogram which shows budget spending in each time inter-
val separately and an S-curve which shows cumulative spending. It is visible at
first sight that in the first half of the project lower intensity of project budget
spending is expected, i.e. more significant spending is expected when works and
equipment installation start, since these contracts are most valuable, with em-
phasis that the spending peak will happen at the moment they overlap. S-curve
1154
is a graphic method that further in the realization phase enables control of the
project through comparison of the planned and actual S-curves.
Modern, sophisticated tools for project management contain modules for
usage of the earned value management systems method which serve for pre-
cise measurements of the physical execution in comparison to the detailed plan,
which in the end enables a much more precise forecasting of final costs and
duration on the project (Fleming & Koppelman, 2000). This method measures
the Planned and the Actual Value, as well as the Earned Value. If Earned Value
is compared to Planned and Actual Value, it is possible to differ spending and
time deviations on the project. We therefore differ between Schedule Perfor-
mance Index (SPI) which shows if time plan is ahead (SPI>1,0) or behind
(SPI<1,0) the planned values, and the Cost Performance Index (CPI) which
shows if financial plan, i.e. spending is lower (CPI>1,0) or higher (CPI<1,0)
than planned values.
Earned value is based on an integrated approach to planning and provides
project managers with a certain “early warning” which enables them to under-
take corrective activities, if spending on the project exceeds physical execution.
These warning signs become available to the management relatively early in the
project, depending on the detailedness of the plan and updating period, which
is early enough to undertake corrective activities which can influence the un-
wanted outcome.
1155
Picture 5 – project control with EVA method
Source: Rastovski et al, 2006
Picture 5 shows a model for project control using the Earned Value Analysis
(EVA) method made with Oracle Primavera P6 project management solution.
The example from the picture shows: time indicators: Variance – Duration and
Schedule Performance Index (SPI) and spending indicators: Baseline Total
Cost, At Completion Total Cost, Variance Total Cost, Planned Value Cost,
Earned Value Cost, Actual Cost, Cost Performance Index (CPI).
According to momentary situation the project is 36% behind the plan
(SPI=0,64) and by now 66% of funds less than planned have been spent
(CPI=1,66). This means that the planned quantities from the bill of quantity
(in this case we are talking about a construction project) were much higher than
actually realized quantities. Total cost in the end will be 123.358,42 € higher
than planned due to variations of works, i.e. changes that happened on the proj-
ect (Rastovski et al, 2006).
When talking about forecasting, the realized spending is much lower than
planned, but if all demands for changes are accepted, the total project budget
will exceed the planned budget from the beginning of the project. We should
emphasise that all changes are entered into the system at the moment they oc-
cur, regardless of the acceptance status because this is the only way to track all
1156
changes on the project and the extent to which they influence the final deadline
and the budget. Based on these pieces of information, project manager can set
priorities and make decisions on what demands to accept or deny much easier.
Project or portfolio managers have on overview of project performances at
every moment because control of time and financial indicators is made possible,
since all pieces of information on all projects in the portfolio are located in the
central data base. Access to database is enabled to all participants in the extent
they have access to single project or portfolio segments.
4. CONCLUSION
Experiences from practice and pieces of research show that the majority of
public projects are planned and executed without a serious methodological ap-
proach and that specialized tools are used for planning only to show activities in
time. Financial plans still mainly exist in MS Excel tables and MS Word docu-
ments. The majority of data on changes in the project are recorded in notes,
memos, schedule planners and e-mails. We can conclude that information on
the project can be found in different places and cannot be available to all proj-
ect participants at the same time which in certain situations can be of criti-
cal importance, when the system of reaction or decision making on the project
is in question. The second, and maybe the biggest problem, is that because of
non-existence of integral plans, the system cannot serve the purpose of proj-
ect management but more of project administration. If time schedule is made
before the beginning of the project and it does not change during the time of
realization and if at the same time financial parameters are recorded in some
other documents on the level of issued invoices, it can easily be concluded that
the whole system is actually static and does not provide adequate information
on project performances. However, if time schedule is connected to financial
plan, in which costs and all other data are distributed in time, we get a dynamic
environment where depending on the project flow, the plan can progress in time
followed by all accompanying data. This kind of methodological approach to
managing projects with this kind of dynamic plan, which is obtained through
a systematic update of actual data where all changes and estimates of duration
and costs by the end of the project are recorded and continuous replanning of
the remaining activities is done, enables higher levels of management to have
the actual data available in real time, which is much needed for good-quality de-
1157
cision making. This is why we can rightfully talk about the most efficient model
of managing projects and project control.
There is knowledge that is available and technologies that can respond to
this kind of challenge. A good-quality and systematic education of people in
the system and investments into technological solutions would for sure make
a big change towards a more efficient management system. We here have to
mention that this system implies educatedness on all levels of management and
good knowledge of the methodology, since quality of information in the system
directly depends on the demand which comes from higher management levels.
Literature:
Barković, Dražen; Uvod u operacijski management, II dopunjeno izdanje, Ekonomski

fakultet u Osijeku, 2011.
Butković, D.; Kartelo R.; Meštrović H.; Rastovski T., (2011). Preparation and Conducting
Projects Co-Financed by EU Funds, Projects and Project Management Conference Preceed-
ings, pg. 239-247, Zaprešić/Zagreb, Croatia
Fleming, Q.W.; and Koppelman, J.M.; Earned Value Project Management, Second Edition,
Project Management Institute Inc., USA, 2000
Oracle Primavera P6 User’s Guide, Release 8.3, Oracle Inc., USA, 2013
PMBOK Guide - A Guide To The Project Management Body of Knowledge - Fourth Edition,
Project Management Institute Inc., USA, 2008
Radujković, Mladen i suradnici; Planiranje i kontrola projekata; Sveučilište u Zagrebu,
Građevinski fakultet, 2012.
Rastovski, T; Delić, D.; Meštrović, H., (2006). Primastep Methodology for Project Manage-
ment in Public Administration, Proceedings of 7th International Conference Organization,
Technology and Management in Construction, pg. 347-354, Zadar, Croatia
Rastovski, Tomislav; Planiranje, praćenje i kontrola građevinskih projekata u javnoj upravi;
Magistarski rad, Sveučilište u Zagrebu, Građevinski fakultet, 2011.
1158
THE APPROACH OF SYSTEMS
THINKING IN STRATEGIC
MARKETING CONTROLLING
Gabriele HILDMANN
Geschäftsführende Gesellschafterin KAIROS Gesellschaft
für Unternehmensberatung mbH, Kronberg/Ts.
Ulrich VOSSEBEIN, PH.D.

Technische Hochschule Mittelhessen
(University of Applied Sciences)
1. THE APPROACH OF SYSTEMS THINKING IN

STRATEGIC MARKETING CONTROLLING
Strategic marketing can look back on a long history of success. Controlling
of strategic marketing still lags behind the trend. This may be based on the
fact that in general, controlling in Germany is handled quantitative. Dealing
with qualitative data and weak signals, typical for strategic queries, is difficult,
especially for costing orientated controllers. In view of globalisation and the
resulting challenges, strategic marketing controlling will advance as a success
factor. Since the world has become a (global) village, the individual urban area
can no longer isolate itself from a crisis situation. A local crisis can easily create
a global breakdown which in the past would have possibly had little influence
on the own development. At the rate at which the context of the environment is
dynamically changing, discontinuities and complexity tend to increase. The old
rules on known regularities, if they ever existed at all, are no longer applicable.
Through the development of new situations and the increase of relevant influ-
encing factors, the prediction of changes becomes slighter in the entrepreneurial
internal and external world. Even if the enterprise is successful in registering the
relevant factors and their dependencies, the variables prove to be more difficult
to manage on account of their stronger impact. Globalisation leads to more ex-
1159
treme booms and downturns and trends are reinforced and accelerated. These
developments complicate the adaptation of enterprises, respectively prolong the
adaptation time (Gomez 1981). There is a danger to exhaust energy in the man-
agement of the different crises instead of being proactive for the future.
Parallel to this purpose the improvement of information flow leads to an
increased rationality of the decision maker. Since value for money comparisons
are easier the pressure for differentiation is higher for the enterprises. As a re-
action to the improved market transparency the innovation rate will further
Gabriele Hildmann • Ulrich Vossebein: THE APPROACH OF SYSTEMS THINKING IN STRATEGIC MARKETING CONTROLLING
increase, the product life cycle will be shorter and the pressure on pricing will
increase. At the same time, as a consequence of dynamic markets, the phases
have become shorter to take an easier pace during which the enterprise can be-
come stabilised and align itself (Malik 2008). The changes force enterprises to
develop and implement procedures to:
1. better recognise the developments of the external and internal environ-
ment, i.e. more exact and premature
2. to be able to structure the interdependence of the enterprise rel-
evant variables, the strength of impact as well as the timing related
interdependence.
Since these tasks aim at understanding the external and internal environ-
ment of the enterprise, they are to be handled in the field of strategic marketing
controlling (Probst, Bassi 2014).
2. OBJECTIVES AND APPLICATIONS OF

A HOLISTIC STRATEGIC MARKETING
CONTROLLING
If the following speaks about strategic marketing then it is in the sense of a
unitary, evolutionary thinking and acting, based on a holistic world view. The
strategic, unitary marketing controlling as a management instrument has the
objective to recognise, build up and maintain the success potential of an enter-
prise in order to survive the environmental changes (Müller 2009). It is appro-
priately geared for the future and is closely related with strategic management,
planning and controlling, whereby the definition of action oriented strategies
stays in the background. Referring to a changing enterprise environment, the
strategic marketing controlling should record the flexibility of the enterprise
1160
and protect the enterprise from surprises by supplying the necessary informa-
tion reflecting the change of success relevant parameters. In order to fulfil the
tasks, strategic marketing controlling has to:
• be based on an holistic understanding of the system,
• have the aid of weak signals,
• have the basis for a proactive and flexible procedure
• have control discontinuity
in order to guarantee the adaptability of the enterprise.
3 SIX STEPS FOR AN HOLISTIC STRATEGIC

MARKETING CONTROLLING
The basis of the holistic strategic marketing controlling is the recording of
the entrepreneurial environment including its cross-impact whereby the dy-
namics of the system should always be clearly outlined. The methods for a sys-
tems thinking were developed to allow for successful reaction to complexity
(Wiener 1963). The understanding of the short- and long-term consequences
of an action requires a dynamic model to simulate the multiloop, non-linear
nature of the system. The condition for this is a circular causal logic, which the
registration of cross-impact of the system variable allows (Vester/Hessler 1990).
In the late 80’s these methods reached a broader audience in Europe, thanks to
the works of Ulrich (Ulrich/Probst 1988), Gomez (Gomez/Probst 1995) and
Probst (Probst/Gomez 1991). In the meantime holistic approaches are being
used to resolve various entrepreneurial questions.
1161
Figure 1: The six steps of the holistic strategic marketing controlling
Definition of
objectives
Implementation Analysis of the

and controlling interdependences
Planing of Recording future

strategies and possible changes
measures
Finding abilities
to influence the
system
Based on cybernetics, the enterprise is recorded as a system which is part of

a larger system. The advantages of this method results from the possibility to
register complex systems and situations more comprehensive than with other
approaches and therefore react more successfully. Systems thinking is an itera-
tive process done in six steps (cf. Ill. 3).
. Definition of Objectives

Problems are always then observed when there are deviations between the
wishes of the enterprise and reality. The precise definition of enterprise objec-
tives is the requirement for recognising problems. The question of strategic ob-
jectives of an enterprise and its interdependence is widely discussed. In the end
each enterprise has to create its own objectives. A high disturbance stability and
a distinct fault tolerance are strategic objectives which are generally accepted
and are positively combined with stronger, economic distinctive objectives. On
the other hand, the orientation towards one-sided economic objectives can for
instance lead to a choice of a strategy which on a long-term basis destabilises
the enterprise. From a strategic marketing point of view, it should never be to
achieve certain states. Moreover, capabilities have to be acquired which warrant
success in a changing environment. Systems thinking in the strategic field will
never result in wanting to adapt the environment to its prognosis and therefore
1162
wasting energy fighting unforeseen developments. Systems thinking makes the
enterprise take on and use opportunities arising from environment changes, ac-
cording to the jiu-jitsu principle1. A prerequisite for this, apart from the ability
to register changes, is a reorientation of the enterprise that must observe itself
and others from a different perspective. Instead of the widespread orientation
on competition (cf. Strengths-Weaknesses Analysis), the enterprise has to con-
sider itself as part of a large system. The perspective may no longer turn from
internal to external but rather the own activities are to be seen from the per-
spective of the system. By doing this a changed consciousness results automati-
cally for the interaction of individual entrepreneurial activities.
. Analysis of the Interdependencies

The analysis of the interdependencies is the heart of the holistic strategic
marketing controlling. It makes it possible to register the environment as a sys-
tem. The best way to learn a system is to design it. Therefore the findings are
visualised in the form of a network and the essential system variables are evalu-
ated by means of a cross-impact matrix. The process of uncovering the system
structures usually starts with a brainstorming session. Therefore a deliberate
subjective procedure is applied in order to collect knowledge about the system.
In this case, the variables considered as essential are noted and discussed. A
relatively homogeneous idea from the entrepreneurial environment rapidly de-
velops. The results of the brainstorming session will be even better when the
participating persons have varied backgrounds. This should be considered when
selecting participants for the appropriate project group. The next step is to de- INTERDISCIPLINARY MANAGEMENT RESEARCH XI
termine the relevancy of the variables (Vester 1999, p 184). Independent of the
fact whether they are a quantitative or qualitative variables, they always form
the intersections of the system and portray the interdependencies. Since vari-
ables can unite several aspects, the system description should always be comple-
mented by a variable description.
The connection between a system variable, the sub-variables and the indica-
tors is documented in the variable description. This way, the system variable
“image” can combine the different aspects such as quality, design, service or
price. Each variable can then be determined on the basis which indicators it
1
According to the Jiu-Jitsu principle, available energies, even if they are apparently disturbing,
can be accepted and with little energy diverted to the desired direction.
1163
should be describing, respectively measuring. In an example the service qual-
ity can be fixed for consulting time, duration for repairs, the number of client
calls, etc. The indicators can be both of a qualitative and quantitative nature.
According to its lead time and its problem adequacy, the indicators will emit
weak or strong signals. The described interdependency varies from enterprise
to enterprise, so that an existing multicausal loop diagram cannot be transferred
from one enterprise to another. The systemic structure of an enterprise is as
individual as the enterprise itself and requires continuous modifications.
Figure 2: The connection between variables and indicators

Variable Variable description Indicator
..........
.......... Consulting time
Quality Duration for
......... Design repairs
Image Service Number of client
......... Price calls
......... ........... Number of service-
employees
...........
Based on the central causal loop, step by step the system is formed and ex-
tended (Gomez/Probst 1995, p 78ff ). Secondary causal loops are determined
and fed into the system so that in the end the loops becomes one unit and a
network of essential related impacts is created. To begin with, the network pro-
vides a static picture of the system, only when the strengths, direction and the
interdependence timing of the related impacts are recorded, then the dynamics
of the system are shown. The direction of the cross-impacts are illustrated by
arrows in the diagram (Figure 4). Similarly directed variables are shown with a
positive sign and opposite directed variables are shown with a negative sign. The
number of signs clarifies the strength of impacts. This simple procedure has the
advantage that all related impacts, even those which are not quantifiable, can be
documented in a uniform manner and results in an homogenous overall picture.
1164
(To determine impacts, a statistical procedure such as the LISREL approach.
The timing of the cross-impacts which essentially constitute the dynamics of
the system, can be shown by different arrow sizes. Due to the dynamics of the
system, the system interdependencies are subject to modifications. It should
therefore be tested continuously whether the represented relations are also ef-
fective for the future. If necessary adaptations should be made.
. Recording of Future Modification Options and

Discovering Abilities to Influence the System
Last but not least, due to the intrinsic dynamic, the complex system should
be examined regarding further development. On the basis of the portrayed rela-
tions in the network, possible changes within the system environment or in the
system can be simulated. Future opportunities and dangers as well as the effect
of individual interventions in the system can be revealed. Since many external
influences can not be predicted with causal methods, the corresponding sce-
narios have to be developed so as to capture the modifications of the general
conditions.
By means of the determined cross-impacts a synchronised early warning
system can be developed. The system relevance of the absorbed signals can be
easily evaluated by taking into consideration the information incorporated into
the network. The new information with regard to its influence on the system
structure is checked simultaneously. This way, the influence of discontinuity can
be currently registered. The result is a network which adapts itself to the varied
structures. If, for example, the enterprise recognises a danger in strong supplier
dependence and reduces this danger through a targeted expansion of subcon-
tractor relationships, then the influence of the subcontractors will also be cor-
respondingly regressive on other system variables, for instance product quality
or prodit. This in turn leads to a re-evaluation of the variable and a modified
system structure.
1165
Figure 3: Cross-impact matrix
on 1. 2. 3. 4. 5. 6. ... n. Intervention
Influence . amount (=
from active amount)
1. Sales 0 4 3 0 1 1
2. Investments 3 1 3 2 2 1
3. Research and Development 3 0 2 2 3 2

4. Customer focus
5. Labor cost
6. Market share
n. .............
Influence amount (=passive

amount)
The evaluation of the system variables and their interdependence is done

with the aid of an cross-impact matrix (Vester 1999, p 192ff ). The strength
of the impacts are evaluated by means of a set scale, mostly five scaling proves
to be sufficient. This way the cross-impact of the variables can be recorded. A
high column total (influence amount) illustrates that the variable is influenced
strongly by other system components. A high line total (intervention amount)
illustrates that the variable considerably influences the system.
. Planing Strategies and Measures

The simulation of modification options provides the decision maker with a
number of alternatives for taking action and influence the system both in the
strategic and operations areas. As a result, the capability of taking action nor-
mally increases and new channels are disclosed which are faster, less expensive
or more suitable for the enterprise than the standard strategies. The enterprise
can easily develop its own individual strategies and does not remain at rest on
well trodden paths. Even in the event that no new action alternatives are shown,
as it rule it increases the efficiency of decisions. Due to the holistic approach it
allows for the contradiction between the demand for stability of a strategy and
the compulsion to adaptation of a strategy for a changing environment, if it is
1166
not resolved then at least it is reduced considerably. This is possible because
previously various strategies regarding their sensitivity to environment changes
were able to be checked. The adaptability of a strategy to a changing environ-
ment can be simulated and evaluated. Furthermore the larger number of action
options enables strategies to be adapted more sensitively i.e. more impercep-
tible. Also, the smooth inter-meshing of strategic and operations planning is
facilitated. Strategic planning becomes far more effective and operations plan-
ning become far more efficient.
. Implementation and Controlling

The enterprise will always choose and implement the action alternatives
which show the highest possible flexibility in order to consequently have the
lowest risk. Experience shows, however, even with the most careful planning,
the chosen strategy is not fully applied since imponderables will always remain.
The task of controlling is, the planning progress, the deviations and to scruti-
nise the impacts in order to keep the confrontations going with the complex
system “enterprise”.
4 IMPLEMENTATION OF A HOLISTIC
STRATEGIC MARKETING CONTROLLING
At first glance, the requirements appear high to produce an integral control-
ling. There is, however, a system that supports management both in strategic
and operational decisions. The necessary integration of early warning informa-
tion and the inclusion of weak signals assist to avoid the most frequent mistakes
which are made in decision situations. The clear system structure improves the
tuning between operational and strategic measures and considerably improves
the quality of decision.
This also applies to holistic controlling, it is only as good as its acceptance.
For that reason strong promoters and decision makers should be included in the
development of the system. The self-conception of the controlling staff mem-
bers must also change, stop data-mining and move on to being a consultant.
Within the field of controlling the essential data still requires to be co-ordinat-
ed, however communications with other fields will change. The staff member in
the holistic strategic marketing controlling will primarily provide conclusions
1167
and argumentation to other departments. Whereas the continuous data flow
via a corresponding information system is guaranteed.
. Network as an Information Base

The development of an efficient and generally accepted network (Figure 4) is
above all the main focus of marketing controlling. The targeted level of detail of
the system results from the objective. It has proved effective to carry out exten-
sions successively after determining the primary causal loop. After all secondary
loops are registered, they are finally integrated into a system.
Figure 4: The Network
Distribution
+
- Competitors
Competitiveness
+
+ -
Service Profit +
+
Investments
Sales
+
+
Quality +
R+D
Customer benefit
shortt. +
+
mediumt. + New products
Product Mix
longt.
A broad acceptance of holistic controlling can only be achieved if staff mem-

bers accept both the methods and its implementation. It is recommended from
the beginning, to document the considerations of the project group in order to
keep other staff members informed on the development of the network. It is al-
ways necessary to present the network and the related, essential considerations
of systems thinking to all staff members. The better this information phase is
planned and carried out, the better the acceptance to work with the system.
Consequently, the quality of the planning and the implementation of internal
communication represents an essential factor for project success. Within the
scope of the presentation, it should be emphasised that:
1168
1. the cross-impacts of variables is certainly undisputed;
2. the network enables the interdependence to be recorded
3. planning safety increases;
4. more opportunities for influence are recognised
5. the network adapts to the environmental developments;
6. suggestions for improvements are always welcome.
. Definition of the Relevant Variables

A deciding factor for the practical implementation of the findings of the sys-
tems thinking is the quantification of the system variables. By using the cross-
impact matrix, the interdependence is determined. To visualise the results, the
variables are represented in a two-dimensional diagram. The influence amount
(= passive amount) is shown on x scale and the intervention amount (= active
amount) is shown on the y scale. From the situation in the diagram, the role can
be well recognised which a variable in the system plays. Four decisive roles can
be distinguished:
1. The buffering variable: its influence on the system is minimal, simultane-
ously it is slightly influenced by the system variables; overall it is hardly
involved with occurrence in the system.
2. The active variable: it exercises a strong influence on the system, however,
it is hardly affected by the system;
3. The crucial variable: it is involved strongly in occurrences in the system
because on the one hand, it strongly intervenes occurrences and on the
other hand, it is strongly affected;
4. The reactive variable: It is strongly affected by the system, however, it
hardly influences the system.
On account of their shown qualities the variables have different tasks in stra-
tegic marketing controlling.
• Active variables offer good starting points for controlling intervention,
above all their relevance comes into effect with discontinuity manage-
ment, especially if it has to do with stabilising the system again.
1169
• Reactive variables are particularly suitable as indicators because they
react noticeably to changes in the system areas. Due to their minor system
relevance, they are unsuitable for management measures.
• Buffering variables are effective as a damper and therefore stabilise the
system, however, they are somewhat unsuitable both as indicator and
steering variable.
• Crucial variables on the one hand are suitable as an indicator, on the
other hand, they are suitable for steering variables. Intervention, however,
on crucial areas is to be done with the utmost caution otherwise it could
easily lead to rocking or capsizing the system. Particularly during the ini-
tial phase due to lack of experience, strategies should be favoured which
use active variables to influence the system.
. Generation of Early Warning Indicators

On the basis of the represented, time frame network and the findings of the
cross-impact matrix, those indicators can be determined which have an early
warning function. Each indicator is to be pre-determined:
1. how it will determine,
2. which aspects are to be registered,
3. in which time frequency the information is to be raised and,
4. as of which threshold value a signal is to be sent out.
The early determination of procedures is recommended for all indicators,
however, it is particularly advisable in the case of the early warning indicators
due to the low sensitivity of the decision makers for weak signals.
1170
5 HOLISTIC, STRATEGIC MARKETING
CONTROLLING: AN APPROPRIATE ANSWER
TO INCREASING DEMANDS
In view of the more complex environment, controlling will take over new
tasks and therefore have to implement new instruments. A cost orientated
controlling is hardly in a position to cope with this. Only if all relevant cross-
impacts are known and considered, can marketing controlling fulfil its primary
task, namely support management in its decision making. For this purpose, it is
not enough only to develop new instruments but rather to comply all activities
into a system. It is also required that impulses are given internally for new ways
of thinking. Move away from causal linear thinking and move on to a systems
thinking. These changes will not be easy and therefore can only be managed
with the support of the power promoters, which in the end is necessary on ac-
count of the initial expenditure. If an enterprise is successful in setting up an
holistic, strategic controlling then this implementation expenditure will quickly
show a payback.
Bibliography
Ansoff, H. I., Management-Strategie, München 1966
Becker, J., Marketing-Konzeptionen: Grundlagen des strategischen und operativen Market-
ing-Managements, 10. Auflage, München 2009
Checkland, P., Systems Thinking, Systems Practice, New York 1981.
Dörner, D., Die Logik des Misslingens, 2. Auflage, Reinbek 2004.
Gomez, P., Modelle und Methoden des systemorientierten Managements. Eine Einführung, INTERDISCIPLINARY MANAGEMENT RESEARCH XI
Bern 1981.
Gomez, P. / Probst, G. J. B., Die Praxis des ganzheitlichen Problemlösens, Bern-Stuttgart 3.
Auflage, 2001.
Hildmann, G., Vernetztes Denken als Grundlage erfolgreicher Marketingentscheidungen,
in: Planung und Analyse, 2/1996, S. 9 – 15.
Hildmann, G., Vernetztes Denken als Ausgangspunkt der Steuerung von Marketingak-
tionen, in: Planung und Analyse 6/1999, S. 28 – 31.
Hildmann, G. / Vossebein, U., Informationsintegration, in: Planung und Analyse 4/1994,
S. 51 – 54.
Krystek, U. / Müller-Stewens, G., Frühaufklärung für Unternehmen: Identifikation und
Hand
Macharzina, K., Diskontinuitätenmanagement. Strategische Bewältigung von Struktur-
brüchen bei internationaler Unternehmenstätigkeit, Hohenheim 1984.
1171
Malik, F., Strategie des Managements komplexer Systeme, Ein Beitrag zur Management-
Kybernetik evolutionärer Systeme, 10. Auflage, Bern-Stuttgart 2008.
Müller, A., Grundzüge eines ganzheitlichen Controllings, 2. Auflage München 2009
Probst, G. J. B./ Bassi, A. M.: Tackling Complexity, A Systematic Approach For Decision
Makers, Sheffield 2014
Probst, G. J. B. /Gomez, P., Vernetztes Denken, 2. Auflage, Wiesbaden 1991.
Ulrich, H. / Probst G., Anleitung zum ganzheitlichen Denken und Handeln, Bern-Stuttgart
1988.
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Vester, F. / Hessler, A., Sensitivitätsmodell, Frankfurt 1990.

Wiener, N., Kybernetik, Düsseldorf 1963.
1172
Some Investigations of the Sample Maximum
Wolfgang Gohout
Hochschule Pforzheim, Tiefenbronner Str. 65, D–75175 Pforzheim, Germany,
phone: +49-7231-286597, wolfgang.gohout@hs-pforzheim.de
(corresponding author)
Katja Specht
Technische Hochschule Mittelhessen, Wilhelm–Leuschner–Str. 13,
D–61169 Friedberg, Germany, katja.specht@wi.thm.de
Abstract
Day by day we are confronted with records and extremes. Newsletters and
media report on the hottest day, the highest tide, the best–performing in-
vestment fund, and so on. And often people wonder at the level of these
extreme values. The sheer amount of the maximum income or property of
the richest one out of some millions of people easily contradicts human in-
tuition and may lead to envy and jealousy. In this paper, we consider some
examples and various methods of estimating the sample maximum. Starting
with a simple introductory example, we are going to raise the difficulty as
well as the realism of our exemplary applications. The multivariate normal
case may be treated by simulation and will be illustrated with annual yields
of some DAX30 equities. The asymptotic estimation is well established. A
proper example is the private wealth of the richest Germans, which has been
investigated by a special issue of the social–economic panel study (SOEP) INTERDISCIPLINARY MANAGEMENT RESEARCH XI
by DIW. It will be shown that the amount of wealth of the richest German
is not so surprising.
1 Introduction
Financial magazines routinely report on the best investment funds and simi-
lar assets, and their managers are beeing praised. Similarly, newsletters and
1173
sports magazines inform us about the shortest running time or other records.
And the ’Forbes’ magazine periodically gives an account of the richest peo-
ple and their property. Reading this, our emotions are somewhere between
admiration and jealousy. And sometimes we feel surprised by the extent of
these extreme values.
In seemingly different situations, we have an anxious look at the highest level
of the tide or at the maximum financial loss of a firm. In risk management
it is essential to have a good imagination of an extreme loss. Statistically
speaking, we are interested in the distribution of extreme values. It is suffi-
cient to restrict the investigation to the sample maximum. The results may
easily be transferred to the minimum.
We shall start with a very simple example, which allows easy and exact calcu-
lations. Thereafter, we proceed with independent and identically distributed
normal variables. The harder case of (commonly) normally distributed vari-
ables calls for a simulation approach. At last, we consider asymptotic meth-
ods.
2 A simple example
Wolfgang Gohout: SOME INVESTIGATIONS OF THE SAMPLE MAXIMUM
Let us consider independent and identically distributed (iid) random vari-

ables X1 , . . . , Xn with the probability function:
⎧
⎨0.2 x=0
P (Xi = x) = 0.5 x=2 (1)
⎩
0.3 x=4
The expected yield of each fund can easily be calculated:
E(Xi ) = 0.5 · 2 + 0.3 · 4 = 2.2 (%). (2)
The sample maximum Mn := max{X1 , . . . , Xn } shows up the cumulative
distribution function:
F (x) := P (Mn ≤ x) = P (X1 ≤ x, . . . , Xn ≤ x) (3)
⎧ n
⎨0.2 0≤x<2
= P (X1 ≤ x)n = 0.7n 2≤x<4 (4)
⎩
1.0 4≤x
1174
Eventually, we get the probability function and the expected value of the
sample maximum:
⎧
⎨ 0.2n x=0
P (Mn = x) = 0.7n − 0.2n x=2 (5)
⎩
1 − 0.7n x=4
E(Mn ) = 2 · (0.7n − 0.2n ) + 4 · (1 − 0.7n ) = 4 − 2 · 0.7n − 2 · 0.2n . (6)

It can be seen that the expected value will tend to the highest possible yield,
namely four, if the number of variables grows towards infinity. Table 1 shows
the expected maximum yields for some sample sizes n.
Table 1: Expected maximum yields for some sample sizes n
n 1 2 3 4 5 10 20 30
E(Mn ) 2.2000 2.9400 3.2980 3.5166 3.6632 3.9435 3.9984 4.0000
It is impressing, how fast the expected value of the maximum converges to the
highest possible yield. If you look for the best one out of ten of such funds,
you will find an expected yield of about 3.94 %, although the expected yield
of each single fund merely comes to 2.2 %.
3 Independent and identically distributed nor-

mal variables
In this section, we shall consider independent and identically distributed (iid)

normal random variables with the cumulated distribution function Φ:
Xi ∼ N (μ, σ 2 ), i = 1, . . . , n. (7)
After standardizing:
Xi − μ iid
Zi := ∼ N (0, 1), i = 1, . . . , n, (8)
σ
n := max{Z1 , . . . , Zn } has the distribution function
the sample maximum M
n ≤ x) = Φ(x)n .
Fn (x) := P (M (9)
1175
Its expectation value and variance may be calculated numerically:
∞

E(Mn ) = x · n · Φ(x)n−1 · φ(x) dx (10)
−∞
∞
n ) =
V (M x2 · n · Φ(x)n−1 · φ(x) dx − n ))2 .
(E(M (11)
−∞
Table 2 contains expected values and standard deviations for some sample
sizes.
Table 2: Expected values and standard deviations of the sample maximum
for some sample sizes
n 1 2 3 4 5 10 20 50 100 1000
n )
E(M 0 0.564 0.846 1.029 1.163 1.539 1.867 2.249 2.508 3.241
σM
n 1 0.826 0.748 0.701 0.669 0.587 0.525 0.464 0.429 0.351
The expected value and the variance of the maximum of the original variables,
Mn := max{X1 , . . . , Xn }, then read:
n ) + μ
E(Mn ) = σ · E(M (12)
n ).
V (Mn ) = σ 2 · V (M (13)
Example 1 The iid and normality assumption may be valid for a metric
attribute in a serial production such as the filling amount of a single bottle
in a bottling plant. Let us consider a target amount of 700 ml and a standard
deviation of 4 ml. Then we can calculate the expected value of the maximum
filling amount in a lot of 1000 bottles, for instance:
E(M1000 ) = 4 · 3.241 + 700 = 712.964 ml. (14)
The standard deviation comes to 4 · 0.351 = 1.404 ml. Similarly, we can

calculate the probability that a given volume is sufficient for a given number
of bottles. Or we can answer requests for a minimum volume, which will
prevent from an overflow:
n
xp − μ
Fn (xp ) := P (Mn ≤ xp ) = Φ =p (15)
σ
1176
⇐⇒ xp = μ + σ · Φ−1 (p1/n ). (16)
The probability for a sufficient volume of 720 ml in a lot of 1000 bottles is
about 99.97 %. The minimum volume, which will be sufficient in this lot at
a probability of 99%, amounts to 717.055 ml.
The critical value, which will be exceeded with a given probability, is a wide–
spread risk measure and well–known as Value at Risk (VaR). Additionally,
in many applications of risk management it is important to know the excess
function. This is the expected value of the excess of the maximum above a
given (variable) value x, conditionally under the assumption that the maxi-
mum in fact has exceeded x. Writing z := (x−μ)/σ, we achieve the following
equations (cf. Rinne 2008, p. 282ff.):
∞
1
E(Mn − x | Mn > x) = · (1 − Fn (y)) dy (17)
1 − Fn (x) x
∞ n
1 y−μ
= · 1−Φ dy (18)
1 − Φ(z)n x σ
∞
1
= · σ · (1 − Φ(t)n ) dt (19)
1 − Φ(z)n z
= σ · E(M n − z | M n > z). (20)
Figure 1 shows the excess function for n = 50 and σ = 1.
Figure 1: Excess function for n = 50 and σ = 1
E(Mn − x | Mn > x)
2.5 INTERDISCIPLINARY MANAGEMENT RESEARCH XI
2.0
1.5
1.0
0.5
0 x
0 1 2 3 4 5 6 7
1177
Example 2 Insurance companies are interested in the excess loss for some
critical values. Let us presume that the amounts of loss, Xi , of a certain
insurance policy are iid normal with an expected value of 1000 e and a
standard deviation of 200 e. Let us further suppose a number of n = 50
contracts and a critical value of 1200 e. What is the expected maximum
excess above this value, given that this value has been exceeded?
Xi − 1000 iid n := max{Z1 , . . . , Z50 }
Zi := ∼ N (0, 1), M (21)
200
1200 − 1000 n − z | M
n > z) ≈ 1.2493
z= = 1 ⇒ E(M (22)
200
⇒ E(Mn − 1200 | Mn > 1200) ≈ 200 · 1.2493 ≈ 249.86. (23)
The mean excess sought after, therefore amounts to about 250 e.
4 Multivariate normal distribution
Now we shall consider a multivariate normal distribution

⎛ ⎞
X1
⎜ . ⎟
⎜
X := ⎝ .. ⎟⎠ ∼ N (μ, Σ) (24)
Xn
with expectation vector μ and covariance matrix Σ. In order to achieve an

approximate expected value of the maximum Mn := max{X1 , . . . , Xn }, we
will choose a simulation approach.
Let Z be a vector of n independent standard normal random numbers and
let AA = Σ be the Cholesky decomposition of Σ. Then, X = μ + A · Z
will be distributed like N (μ, Σ). We may estimate the expected value of the
maximum by the mean of the maxima of these random vectors in one million,
say, replications.
Example 3 Table 3 shows the annual yields of some German equities with
their mean values in the last row.
1178
Table 3: Annual yields of ten DAX30 equities and their means
year ADI ALL BAS DAI DBA DTE FRE HEN SAP EON
2001 0.14 -0.26 -0.09 -0.08 -0.21 -0.45 -0.17 -0.13 -0.06 -0.03
2002 -0.15 -0.72 -0.22 -0.45 -0.52 -0.37 -0.38 -0.18 -0.42 -0.32
2003 0.32 0.43 0.38 0.49 0.70 0.34 0.27 0.26 0.59 0.31
2004 0.21 -0.16 0.15 -0.13 -0.01 0.01 0.13 0.04 -0.13 0.31
2005 0.00 0.48 0.24 0.36 0.35 -0.19 0.42 0.37 0.41 0.33
2006 0.28 0.11 0.12 0.03 0.23 0.08 0.17 0.27 -0.14 0.10
2007 0.40 0.00 0.41 0.38 -0.16 0.06 0.08 -0.02 -0.00 0.48
2008 -0.44 -0.53 -0.55 -0.65 -0.75 -0.33 -0.06 -0.48 -0.22 -0.46
2009 0.26 0.14 0.75 0.38 0.98 -0.07 0.04 0.81 0.17 0.02
2010 0.26 0.26 0.41 0.70 0.10 0.03 0.19 0.22 0.31 -0.08
2011 0.10 -0.15 0.07 -0.22 -0.23 -0.10 0.26 0.06 0.09 -0.33
2012 0.34 0.23 0.18 -0.03 -0.02 -0.02 -0.03 0.31 0.33 -0.14
Ri 0.14 -0.01 0.15 0.06 0.04 -0.08 0.08 0.13 0.08 0.01
All yields pass the Anderson–Darling test of normality with p–values larger
than 0.1 (e.g. Anderson and Darling 1952; d’Agostino et al. 1990; Shapiro
and Wilk 1965). The expectation vector is estimated by R := (R1 , . . . , Rn )
and the covariance matrix is estimated by its empirical counterpart

= 1 · (R − 1 · R ) (R − 1 · R ),
Σ (25)
n INTERDISCIPLINARY MANAGEMENT RESEARCH XI
where R is the matrix of all yields and 1 is a column vector of ones. The
simulation with one million replications results in an expected value of the
mamimum yield of about 35.5% with a large standard deviation of 28%.
5 Asymptotic estimation
For growing sample size n, the maximum Mn := max{X1 , . . . , Xn } of iid vari-

ables with distribution function F almost surely converges to the supremum
1179
of the distribution support:
a.s.
Mn −→ sup{x | F (x) < 1} =: x∗ . (26)
To see this for x∗ < ∞, consider the events An := {Mn < x∗ − ε} with an
arbitrarily small ε > 0 and with probabilities:
P (An ) ≤ F (x∗ − ε)n . (27)
Because the infinite series of these probabilities does converge, the Borel–
Cantelli lemma (cf. Bauer 1978, p. 168) yields:
P (lim sup An ) = P (An i.o.) = 0 (28)
P (lim Mn = x∗ ) = 1 − P (An i.o.) = 1, (29)

where i.o. means ’infinitly often’.
Now, assume x∗ = ∞ and consider An := {Mn ≤ x}, for some arbitrarily
large real number x, with probability P (An ) = F (x)n and F (x) < 1. Again,
the infinite series of probabilities is finite and the Borel–Cantelli lemma yields
P (lim sup An ) = P (An i.o.) = 0 (30)

P (lim Mn = ∞) = 1 − P (An i.o.) = 1. (31)

Therefore, the maximum of normal variables tends to infinity with probability
one. More precisely, the following equality is valid:

P ( lim Mn / 2 · ln(n) = 1) = 1. (32)
n→∞
The proof is outlined in the appendix. It may be concluded that the conver-
gence is very slow.
In extreme value theory it is shown that for properly scaled maxima there are
only three limiting distributions. For many practically relevant distributions
of the Xi , including the exponential and the normal distribution, the limiting
distribution is the Gumbel distribution, named after Emil Julius Gumbel
(1958):
Λ(x) := exp (− exp (−x)) , x ∈ R. (33)
The expected value of the Gumbel distribution is the Euler–Mascheroni con-
stant, γ ≈ 0.57722, and its variance is π 2 /6 (cf. Rinne 2008, p. 352). It can
1180
be shown (cf. de Haan 2006, p. 12; Pfeifer 1989, p. 48) that for standard
normal Xi and with parameters
ln(4π) + ln(ln(n))
an := 2 · ln(n), bn := an − (34)
2 · an
for all real numbers x the following convergence holds true:
n→∞
P (an · (Mn − bn ) ≤ x) = P (Mn ≤ x/an + bn ) −→ Λ(x). (35)
Example 4 In the earlier example of the bottling plant and the iid normal
filling amounts Xi ∼ N (700, 42 ), we can calculate the parameters an ≈ 3.7169
and bn ≈ 3.1165 for n = 1000. Then, we get for the maximum of the
standardized variables:
n − bn )) = an · (E(M
E(an · (M n ) − bn ) = γ ⇒ n ) ≈ 3.272
E(M (36)
n − bn )) = a2n · V (M
V (an · (M n ) = π 2 /6 ⇒ n ≈ 0.345.
σM (37)
For the maximum filling amount we achieve the approximate expected value
700 + 4 · 3.272 = 713.088 ml and the standard deviation 4 · 0.345 = 1.380 ml.
Example 5 Periodically, the economic research institute DIW in Berlin is

conducting a social–economic panel study, the SOEP. In 2007, there was a
special focus on the private wealth of German inhabitants above 17 years of
age (cf. Bach et al. 2011, p. 7ff.). About 20,000 people in 12,000 households
took part in the survey, out of a total of about 70 million people.
We cannot go into the details of methods and factual definitions. Instead, INTERDISCIPLINARY MANAGEMENT RESEARCH XI
let us start with the table of percentage points of wealth, wp (in thousand
e), as a result of this study. Thus, we concentrate on the one percent of the
richest Germans. Additionally, Table 4 contains two derived values in the
third and fourth column.
1181
Table 4: Percentage points of wealth and two derived values
(cf. https:\\wipo.verdi.de\wirtschaftspolitik aktuell\data\DIW-Zahlen.pdf)
p wp Φ−1 (p) ln(wp )
0.990 772 2.326348 6.648985

0.992923 1000 2.453331 6.907755
0.995 1200 2.575829 7.090077
0.997471 2000 2.803317 7.600902
0.998703 5000 3.012155 8.517193
0.999 6080 3.090232 8.712760
0.999488 10000 3.283848 9.210340
0.999798 20000 3.537457 9.903488
0.999941 50000 3.850244 10.819778
0.999977 100000 4.075073 11.512925
0.999991 200000 4.288357 12.206073
Typically, the richest people will not join a survey. Therefore, we have added
two further percentage points (and the derived values), which we calculated
from the ’Forbes’ list of the year 2007 (cf. Spiegel–Online 9/3/2007). These
values are listed in Table 5.
Table 5: Additional values, calculated from the ’Forbes’ list 2007
p wp Φ−1 (p) ln(wp )
0.9999995 1739130 4.891638 14.368896

0.9999999 6304348 5.199338 15.656750
The logarithmic values in the last column pass the Anderson–Darling test of
normality and further tests of normality (cf. e.g. Seier 2002; Henze 1994;
Yazici and Yolacan 2007) with a p–value clearly larger than 0.1. Thus, the
percentage points wp stem from a log–normal distribution. For the log–
1182
normal random variable W we receive:

ln(wp ) − μ
P (W ≤ wp ) = P (ln(W ) ≤ ln(wp )) = Φ =p (38)
σ
⇐⇒ ln(wp ) = μ + σ · Φ−1 (p). (39)

= −0.8945 and σ
This linear regression yields the estimates μ
= 3.1019. The
coefficient of determination amounts to 99.43%. Figure 2 shows the scatter
plot and the regression line.
Figure 2: Scatter plot and regression line of the linear regression of ln(wp )
on Φ−1 (p)
16 ln(wp )
15
14
13
12
11
10
9
8
7
6 Φ−1 (p)
2 3 4 5
If we assume Xi = ln(Wi ) to be iid normal with expectation value μ
and
variance σ
2 for i from 1 to 70, 000, 000, then we can calculate the scale pa-
rameters an ≈ 6.0107 and bn ≈ 5.5594. Therefore, the expectation value and
the standard deviation of the maximum M n of the standardized variables
will be:
n − bn )) = an · (E(M
E(an · (M n ) − bn ) = γ ⇒ n ) ≈ 5.6554 (40)
E(M
n − bn )) = a2n · V (M
V (an · (M n ) = π 2 /6 ⇒ n ≈ 0.2134.
σM (41)
The expectation value and the standard deviation of the maximum of the
non–standardized values, Mn := max{X1 , . . . , Xn }, will then be:
μMn := E(Mn ) ≈ −0.8945 + 3.1019 · 5.6554 ≈ 16.6478 (42)

· σM
σMn := σ n ≈ 3.1019 · 0.2134 ≈ 0.6619. (43)
1183
Eventually, a Taylor approximation of the exponential function yields esti-
mates of the expected maximum individual wealth and its standard deviation:
E(max{W1 , . . . , Wn }) = E(exp(Mn ))
≈ exp(μMn ) · (1 + 0.5 · σM
2
n
) ≈ 20, 704, 323 (44)
σmax{W1 ,...,Wn } = σexp(Mn ) ≈ σMn · exp(μMn ) ≈ 11, 241, 354. (45)
Remember that the unit is ’thousand e’, therefore the expected value of the
maximum amounts to 20.7 billion e. By the way, the richest German in 2007,
due to ’Forbes’, was Karl Albrecht with an (estimated) wealth of about 15.5
billion e. Due to our statistical reasoning, this is less than expected.
6 Conclusion
Intuitive human imagination sometimes will be biased, if we are looking at

extreme values. Often we are surprised by the amount of the maximum
value of a lot of comparable items. Statistical estimation of the maximum is
a pretty hard business, and mostly it needs approximations or asymptotics.
But at last, it can uncover the biased intuitive glance at extreme events.
Appendix
To be proved:
If Xi are independent standard normal variables and Mn := max{X1 , . . . , Xn },
it will be shown that:

P ( lim Mn / 2 · ln(n) = 1) = 1. (46)
n→∞

Writing the short–cut cαn := 2α · ln(n) for some positive constant α, it will
be sufficient to show:
P (Mn ≤ cαn i.o.) = 0 for all α < 1 (47)
and
P (Mn > cαn i.o.) = 0 for all α > 1. (48)
1184
Using l’Hospital’s rule, we get the following asymptotics for large n:
n
α α n 1
P (Mn ≤ cn ) = Φ (cn ) ∼ 1 − √ (49)
2π · nα · cαn
nα ·cαn n1−α /cαn
1 n1−α
= 1− √ ∼ exp − √ . (50)
2π · nα · cαn 2π · cαn
If α is near to one, then δ := (1 − α)/2 will be near to zero, and even nearer
than 1 − α.
First, let be α < 1 and thus δ > 0. Because of the asymptotics, it is possible
to find n0 such alike that for all n ≥ n0 we get:
n1−α
√ ≥ nδ (51)
2π · cαn

P (Mn ≤ cαn ) ≤ exp −nδ (52)

∞
∞

P (Mn ≤ cαn ) ≤ exp −nδ < ∞. (53)
n=n0 n=n0
From the Borel–Cantelli lemma we conclude:
P (Mn ≤ cαn i.o.) = 0. (54)
Now, let be α > 1. For any non–decreasing sequence of positive numbers cαn
the following equivalence is valid (cf. Kabluchko and Munk 2008):

∞

P (Mn > cαn i.o.) = 1 ⇐⇒ (cαn )−1 · exp −(cαn )2 /2 = ∞. (55)
n=1
We achieve:

∞
∞
1 1
∞
(cαn )−1 α 2
· exp −(cn ) /2 = < < ∞. (56)
n=2 n=2
nα · cαn n=2
nα
Therefore, P (Mn > cαn i.o.) = 0 for any α > 1 by Kolmogorov’s 0–1 law (cf.
Bauer 1978, p. 149). This completes the proof.
1185
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Assoc. 49, 765–769 (1952)
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DIW, Berlin (2011)
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Opatija, 2014

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

Under the auspices of the President of the

For the Publisher:

Language Editing and Proofreading:

Design and print:

Microeconomics, Macroeconomics and Monetary Economics

Law and Economics

Business Administration and Bussines Economics

Economic Development, Technological Change and Growth

Es ist uns ein Vergnügen, das Konferenzband „Interdisziplinäre Managementforschung

Die neueste Ausgabe von „Interdisziplinäre Managementforschung XI / Interdisciplinary

Prof. Dr. Dražen Barković

It is our pleasure to introduce the book “Interdisziplinäre Managementforschung XI /

The latest edition, i.e. “Interdisziplinäre Managementforschung XI / Interdisciplinary

Prof. Dr. Dražen Barković

Lena DUSPARA, BSc

Dražen HOLMIK, M.Sc.

competitive forces. Competitive advantage is unimaginable to reach without

.. Porter’s five generic competitive forces

Fine competitive forces are shown in picture 1:

-Threat of substitute products. Companies that compete in an industry are

.. Indicators of competitiveness in Republic of Croatia

Source: Izvješće o globalnoj konkurentnosti 2014-2015

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

Source: Nacionalno vijeće za konkurentnost, 2014

Table 3. Range of competitiveness in period from 2008-2013

Table 4. Value of GDP in Republic of Croatia on period form 2007-2013.

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

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

es: 16 small, 3 medium and 1 big manufacturing enterprises in Republic of Cro-

Table 5. Number of employees in each enterprise

In table 6. are presented revenues, 2 enterprises have revenues in interval

which are competitive on European market. According to research enterprises

INTERDISCIPLINARY MANAGEMENT RESEARCH XI

REDUCTION “NVAT” ACTIVITIES

Robert OBRAZ, univ.spec.oec.

Zlatko REŠETAR, univ.spec.oec.

Nikolina PAVIČIĆ, univ.spec.oec.

2. CONCEPT OF LEAN MANAGEMENT

cycles, “Just-In-Time” method, pull systems, few or no supplies, a continuous

.. Historical Overview of the Lean Management

.. Principles of Lean Management

.. Activities according to Lean management

3. THE CONCEPT OF LEAN PRODUCTION IN

.. Description of the product assembly process

Figure 1. Scheme of semi-automatic assembly handrail

Source: created by authors

Measurement of the labour time required to perform the operations accord-

.. Process analysis according to Lean activities

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

Source: created by authors

According to ﬁrst diagram 22% of working activities in the process make

.. Processes improving by applying the methodology of

Figure 2. Automated handrail assembly process

Source: created by authors

.. Analysis of the new process according to Lean activities

Source: created by authors

Table 1. Comparison of manual and automated product assembly.

Lazibat, T. (2009). Upravljanje kvalitetom, Znanstvena knjiga d.o.o., ISBN 978-953-95902-

Igor PURETA, Ph.D. Candidate

.. Learning as a result of the knowledge, tools, activities

of learning, students interact among themselves and with teachers, creating a