Icea Faa 2010

The International Conference on
Administration and Business

ICEA - FAA 2010
4 – 5 JUNE 2010
http://conference.faa.ro
organized by
The Faculty of Business and Administration

University of Bucharest
Bucureşti, 2010
“Student’s Book” Publishing House
Phone: 004.031-402.95.90.
Phone/Fax: 004.021.322.74.93.
Matei Basarab Street No 106, Bl. 73, et. 8,
sect. 3, Bucharest, Romania
E-mail: cartea.studenteasca@rotex.ro
http://www.rotex.ro
CNCSIS Accredited Publishing House
Cover:: Dragoş George SPĂTARU

Make up: Dragoş George SPĂTARU
ISBN: 978-606-501-070-3
CUPRINS:
Preliminary Program .......................................................................................................11
EMPLOYEES AND COMPUTER CRIMES DURING ECONOMIC CRISIS ...........33

ANDRISESCU Dana Ramona
LABOR MARKET INSERTION OF YOUNG PEOPLE IN ROMANIA

ANGELESCU Coralia........................................................................................................40
ACELEANU Mirela Ionela
CREȚU Alina Ștefania
THE ROLE AND IMPLICATIONS OF MEDIATION IN PUBLIC

MARKETING ......................................................................................................................52
ARDELEANU Anca Monica
AN OVERVIEW OF EUROPEAN MONEY MARKET INTEGRATION UNDER

THE ECONOMIC AND MONETARY UNION ...............................................................59
AVADANEI Andreea
BUDGET EXPENDITURE STRUCTURE IN KOSOVO ..............................................67

MYRVETE- Badivuku-Pantina
SKENDER Ahmeti
MIXHAIT Reçi
DRITA-Kaçandolli-Gjonbalaj
CREATIVE MOTIVATION AND PERSONALITY AT THE ROMANIANS PUBLIC

FUNCTIONARIES .............................................................................................................78
BALGIU Beatrice Adriana
SOME CONSIDERATIONS ABOUT THE TAGUCHI LOSS AND RISK

FUNCTIONS .......................................................................................................................91
BÂRSAN-PIPU Nicolae
MANAGERIAL FORMATION AND COMPANY’S PERFORMANCE.......................95

BONCIU Cătălina
SIMA Cristian
POPA Gabriel
ROMANIAN HIGHLY SKILLED MIGRATION POST-1990. DIMENSIONS AND

CAUSAL FACTORS .........................................................................................................103
BONCIU Cătălina
BLIDARU Horaţiu
THEORETICAL APPROACHES OF THE IMPLEMENTATION SYSTEM OF

EUROPEAN COHESION POLICY................................................................................110
BOUROSU Alina
THE BUSINESS SYSTEM MANAGEMENT AND BASIC TYPES OF
DECISIONS.......................................................................................................................126
BRATU Anca
CORNESCU Viorel
GRIGORE Maria
GLOBALIZATION AND ECONOMIC GOVERNANCE .............................................134

BUCUR Ion
INTERCULTURAL COMPETENCE AND MANAGEMENT ....................................138

BUDRINA Irina
STATE AID THROUGH THE GOOD GOVERNANCE CONCEPT .........................140

CARAGANCIU Anatolie
CHIRIAC Mirela
QUANTIFICATION OF ECONOMIC AND SOCIAL IMPACT OF EXTERNAL

LABOR MIGRATION BY APPLICATION OF COST-BENEFIT ANALYSIS ........146
CARAGANCIU Anatol
DISTORTION OF COMPETITION: THEORETICAL APPROACHES AND

PRACTICAL CONSEQUENCES ...................................................................................156
CĂRARE Viorica
MAXIM Ion
HUMAN OBSOLESCENCE – A PERSONAL AND ORGANIZATIONAL

CHALLENGE ....................................................................................................................160
COMAN Adela
TOADER Rita
IS EDUCATION BASED ON GAMES A SOLUTION FOR FUTURE

LEARNING? ......................................................................................................................174
CONSTANTIN Ionut
DUMITRASCU Raluca-Bogdana
THE ROLE OF THE STATE IN OBTAINING NATIONAL COMPETITIVE

ADVANTAGE IN ROMANIAN ECONOMY .................................................................178
DASCALU Adina Gabriela
THE HISTORICAL APPROACH TO COMPETITION AND THE COMPARATIVE

ANALISYS OF COMPETITIVE MARKET VERSUS MONOPOLISTIC
MARKET ............................................................................................................................184
DASCALU Adina Gabriela
CHALLENGES IN FOOD SAFETY AND CONSUMER HEALTH...........................194

DAVID Oana
MIHAI Valia Maria
KNOWLEDGE MANAGEMENT IN E-BUSINESS ENTERPRISES........................198

DIANA Dorus
GLOBAL ECONOMICS AS A COMPLEX SELF-REGULATED SYSTEM:
THE CYCLE BIRTH AND POSSIBLE CONTROL FEATURES..............................202
DREIMANIS Andrejs
KNOWLEDGE MANAGEMENT – A TOOL FOR THE NEW WORLD ....................204

DUMITRU Paula
JOIA Radu-Marcel
BABONEA Alina-Mihaela
DESIGN AND IMPLEMENTATION OF THE SHORT-TERM DEMAND

FORECASTING PROCESS ............................................................................................211
EISENSTAT Eric
INTERNATIONAL POLITICAL ECONOMY IN AN AGE OF GLOBALIZATION,

GLOBAL TRADE AND GLOBAL FINANCE ..............................................................212
ENEA Constanţa
ENEA Constantin
A BRIEFLY ANALYSE OF “NON-STATE ACTORS”- NGOs IMPACT ON

MULTINATIONAL COMPANIES: CONFLICT OR COOPERATION? ..................219
LAURA Florescu
THE RIGHT OF CONSUMPTION : THE DECLINE OF WILL

AUTONOMY ?........................................................................................................230
GHEORGHE Anca Nicoleta
ETICAL AND LEGAL CONSEQUENCES OF COUNTERFEIT IN THE SOCIO-

ECONOMIC ENVIRONMENT FROM THE U.E. INTEGRATION ..........................235
GHEORGHE Carmen Adriana
RATULEA Gabriela
OFFSHORE COMPANIES .............................................................................................239

GHEORGHE Cristina
THE BALANCE OF PAYMENTS AND THE EXTERNAL DEBT. SPECIFIC

PROBLEMS IN ROMANIA ............................................................................................248
GIURGIU Adriana
HAŢEGAN D.B. Anca
NEGREA Adrian
INFLATION TARGETING, LONG-RUN INFLATION EXPECTATIONS AND THE

EFFECTIVENESS OF MONETARY POLICY.............................................................257
GULYAS Erika I.
UNDERSTANDING FIRM’S BEHAVIOR IN DIFFERENT

TECHNOLOGICAL REGIMES ......................................................................................258
HERMAN Radu
ECONOMIC GROWTH, LABOR PRODUCTIVITY AND TECHNICAL

PROGRESS: THE HISTORICAL LIMITS OF BAUMOL´S UNBALANCED
GROWTH MODELS .........................................................................................................267
ALAIN Herscovici
COMPETITIVENESS - CONCEPT and METODOLOGY ....................................278
HORNIANSCHI Nicoleta
ANALYSING THE PERFORMANCE OF WASTE MANAGEMENT COMPANIES

IN THE CONTEXT OF SUSTAINABLE INVESTMENTS AT THE GLOBAL
LEVEL ................................................................................................................................285
IAMANDI Irina-Eugenia
CONSTANTIN Laura-Gabriela
CERNAT-GRUICI Bogdan
REPUTATION RISK: DETERMINANTS AND IMPLICATIONS............................294

IANOLE Rodica
SANDU Mihaela
AN OUTLINE ON CULTURAL ECONOMICS - THE INFLUENCE OF ECONOMY

ON ROMANIAN THEATRE PRODUCTION...............................................................297
IANOLE Rodica
CARAIMAN Carmen
MODELING ONLINE CONSUMER BEHAVIOR THROUGH ONLINE SHOPPING

EXPERIENCE: THEORETICAL ISSUES....................................................................306
ICONARU Claudia
MACOVEI Octav-Ionut
THE DECENTRALIZATION DYNAMIC: HOW TO ENSURE GOOD

GOVERNANCE AT LOCAL LEVEL? ...........................................................................312
IFTENE Cristi
IMAGES OF BUSINESS ORGANIZATIONS IN KNOWLEDGE ECONOMY........318

JOIA Radu-Marcel
DUMITRU Paula
BABONEA Alina-Mihaela
MONETARY POLICY AND THE FINANCING OF ROMANIAN COMPANIES

IN THE CURRENT CRISIS............................................................................................324
VALENTIN Leoveanu
“WIKIHEALTH” FOR PUBLIC HEALTH MAPPING ...............................................333

LITAN Daniela
MOCANU (VIRGOLICI) Aura-Mihaela
SCENARIOS FOR SUSTAINABLE REHABILITATION OF LARGE

RESIDENTIAL ESTATES THROUGH EUROPEAN FUNDS..................................341
LUCA Oana
MARINESCU M.A. Desiree
THE ANALISIS OF THE SITUATION LOOKING THE ENVIRONMENT

PROTECTION IN ROMANIA THROUGH THE POS ENVIRONMENT
REFERENTIAL CHALLENGES AND THREATS......................................................350
MARDIROS Daniela
BORZA Mioara
THE ECONOMIC CRISIS AND FOREIGN DIRECT INVESTMENT IN ROMANIA.
A REGIONAL APPROACH ............................................................................................360
MĂRGINEAN Silvia
MODERN STRATEGIES OF TRANSNATIONAL COMPANIES FROM

EMERGING COUNTRIES..............................................................................................363
MĂRGULESCU Serghei
MĂRGULESCU Elena
ONLINE PAYMENT IN THE AGE OF ELECTRONIC COMMERCE ...................370

MATEI (NIŢOIU) Mădălina
RESEARCH ON NAMED AND OPTIONAL ARGUMENTS IN C# 4.0 ...................375

MIHAILESCU Marius Iulian
NEW PUBLIC MANAGEMENT AS A SOLUTION TO STATE’S INCAPACITY OF

MANAGING PUBLIC AFFAIRS. PUBLIC/ PRIVATE DISPUTES........................380
MINA Simona
THE IMPORTANCE OF INNOVATION IN DEVELOPING AND ORIENTING

COMPANIES IN THE GLOBAL ECONOMIC CRISIS..............................................388
MITITEL Elena
THE MICE TOURISM – A RECOVERY STRATEGY FOR

ROMANIAN TOURISM...................................................................................................394
MIHAELA-CARMEN Muntean
COSTEL Nistor
REGULATORY MEASURES IN THE ACTIVITY OF CEC BANK ..........................403

NEGOTIU Calin
UNCONVENTIONAL ADVERTISING – AN IMPORTANT OBJECTIVE IN THE

DEVELOPMENT OF THE COMPANY IN TIMES OF CRISIS................................410
MARINESCU Paul
NICULAE Sabin Mihai
TOMA Sorin
CRISIS COMMUNICATION – ESSENTIAL MANAGEMENT COMPONENT

IN CRISIS SITUATIONS ................................................................................................420
NICULAE Tudorel
MARINESCU Paul
TOMA Sorin
NICULAE Sabin Mihai
THE SELECTION OF METHOD OF DISTRIBUTIONWITH MODELING

PROCESS APPLIED ON AN NATIONAL MANUFACTURING COMPANY BY
MEANS OF DECISION TREE METHOD ....................................................................427
COSTEL Nistor
ROZALIA Nistor
CIPRIAN GEORGE Ticu
THE ROLE OF ELECTRONIC COMPUTER IN MODELING AND SIMULATION
OF THE ECONOMIC PROCESSES..............................................................................435
ROZALIA Nistor
ALEXANDRU Capatina
THE ROLE OF STRATEGIC LEADERSHIP IN THE EXECUTION OF

CORPORATE STRATEGIES .........................................................................................440
OLU Ojo
COMPETENCY LEVEL OF CONSTRUCTION PROJECT MANAGER IN

PENANG STATE, MALAYSIA .......................................................................................448
OMRAN Abdelnaser
MAHMOOD Abdullah
MANAGEMENT OF SAFETY IN CONSTRUCTION SITES IN MALAYSIA:

PERSPECTIVES ON THE ELEMENTS OF POOR ...................................................458
OMRAN Abdelnaser
OMRAN Abdelwahab
RAMLI Mayhuddin
PAKIR Abdul Hamid Kadir
CRITICAL SUCCESS FACTORS IN CONSTRUCTION INDUSTRY IN LIBYA .....468

OMRAN Abdelwahab
OMRAN Abdelnaser
IDENTIFYING THE KEY FACTORS THAT INFLUENCE DELIVERY OF

PROJECTS UNDERTAKEN BY LOCAL CONTRACTORS IN MALAYSIA: A CASE
STUDY................................................................................................................................473
OMRAN Abdelwahab
OMRAN Abdelnaser
MANAGING CONSTRUCTION CONFLICT: A CASE STUDY OF PAN PALACE

PLAZA COMMERCIAL COMPLEX IN PENANG STATE, MALAYSIA .................481
YEW Yeoh Keat
OMRAN Abdelnaser
MAHMOOD Abdullah
ONLINE VS. OFFLINE VS. MIXED PARTICIPATION FOR BETTER

GOVERNMENTAL POLICY-MAKING.........................................................................495
OPREA Radu Adrian
SARPE Ancuta Daniela
GROUP DECISIONS and IMPLICATION of GROUP DECISION SUPPORT

SYSTEMS IN TURKEY ...................................................................................................502
SAHİN Mehmet
PASAOGLU HAMSIOGLU Didem
THE IMPORTANCE OF COMMUNICATION IN PROJECT MANAGEMENT ....508
PISTOL Luminita
UNGUREANU Adrian
COMPETITIVE STRATEGIES IN THE GLOBALISATION’S CONTEXT.............515

PLATIS Magdalena
BABAN Eleonora Gabriela
A WORLD OF CHALLENGES: THE ACCELERATION OF FINANCIAL FLOWS

AND OF FOREIGN DIRECT INVESTMENTS ...........................................................522
POPESCU N. Gheorghe
POPESCU Veronica Adriana
POPESCU Cristina Raluca
NEW RULES FOR COMPANIES DUE TO CONTINUOUS GROWING

COMPETITIVENESS ......................................................................................................529
POPESCU Veronica Adriana
POPESCU N. Gheorghe
POPESCU Cristina Raluca
CENTRAL BANK MONETARISM TO KEYNESIAN GOVERNING

IMPULSES ........................................................................................................................536
RĂDOI Mădălina-Antoaneta
OLTEANU Alexandru
FOREIGN DIRECT INVESTMENTS AND THE ECONOMIC CRISIS ..................541

RADU Liviu
RADU Carmen
DECENTRALIZATION OF PRE-UNIVERSITY EDUCATION SYSTEM - A NEW

INSTITUTION CONSTRUCTION WHICH ENTAILS EFFICIENCY AND
EQUITY? ............................................................................................................................554
ROMAN Mihaela
CHALLENGES FOE A GLOBAL ACADEMIC RANKING........................................556

ROTARIU Ilie
REFORMING THE IMPLEMENTATION OF PUBLIC POLICIES IN THE

EDUCATIONAL SYSTEM ..............................................................................................560
ROVENTA IRINA
THE MACROECONOMIC EFFECTS OF EUROPEAN FINANCIAL

INTEGRATION.................................................................................................................565
ŞARGU Alina Camelia
CHIRLEŞAN Dan
IMPROVING THE MANAGEMENT OF A COMPANY USING BI

INSTRUMENTS................................................................................................................572
ŞERBANESCU Luminiţa
RĂDULESCU Magdalena
SOCIAL IMBALANCE ON THE LABOUR MARKET IN ROMANIA
FOLLOWING THE COUNTRY’S ACCESSION
TO THE EUROPEAN UNION........................................................................................577
SÎRGHI Nicoleta
HOHAN Dumitru
LIMITATION OF NULLITY EFFECTS THROUGH CIVIL LEGAL

MEANS ...................................................................................................................586
STĂNCIULESCU Camelia
THE NECESSITY TO HARMONIZE THE MECHANISMS CHARACTERISTIC TO

’THE CONTRACT OF CONSUMPTION’ TO GENERAL RULES ...........................591
STĂNCIULESCU Liviu
IMPACT OF THE GLOBAL CRISIS ON THE LINKAGES BETWEEN THE

INTEREST RATES AND THE STOCK PRICES IN ROMANIA ..............................595
STEFANESCU Razvan
DUMITRIU Ramona
FINANCIAL CRISIS AND PUBLIC DEBT IN EMERGENT AND DEVELOPING

COUNTRIES .....................................................................................................................608
STOICA Emilia Cornelia
HUMAN BEHAVIOUR BETWEEN THE HOLISTIC TRIAD AND THE TRAGIC

TRIAD ................................................................................................................................614
POPESCU Constantin
TAŞNADI Alexandru
OUTSOURCING STRATEGIES IN THE AUTOMOTIVE INDUSTRY: A CASE

STUDY ON THE TRANSACTION PATTERNS IN A TURKISH ASSEMBLY
PLANT................................................................................................................................615
YENİDOĞAN Gürçaylilar ...................................................................................................
SARVAN Fulya
PROBLEM STRUCTURING IN PUBLIC POLICY ANALYSIS:

THE CASE OF SECURITY STUDIES ..........................................................................622
ZULEAN Marian
The International Conference on
Administration and Business
ICEA - FAA 2010
4 – 5 JUNE 2010
http://conference@faa.ro
organized by

Organizing Committee
Conference Manager:
Professor Dr. Elena Druica, University of Bucharest
Email: druica_e@faa.ro or elenadruica@yahoo.com
Romanian Organizing Committee

 Professor Dr. Viorel Cornescu, founder of the Faculty of Business and
Administration
 Professor Dr. Magdalena Platis, Dean of the Faculty of Business and
Administration
 Assoc. Professor Dr. Cornelia Nistor, Vice Dean of the Faculty of Business and
Administration
 Assoc. Professor Dr. Razvan Papuc, Scientific Secretary of the Faculty of Business
and Administration
 Lecturer Dr. Siviu Cojocaru, Faculty of Business and Administration
 Lecturer Dr. Anca Bratu, Faculty of Business and Administration
 Teaching Assistant Dr. Cristina Popescu, Faculty of Business and Administration
 Dr. Student Ionut Constantin, Faculty of Business and Administration
 Dr Student Radu Herman, Faculty of Business and Administration
 Dr Student Ioana Josan, Faculty of Business and Administration
 Dr. Student Mihaela Sandu, Faculty of Business and Administration
 Economist Carmen Gheorghita, Financial Manager, Faculty of Business and
Administration
 Economist Andreea Stroe, external collaborator of the Faculty of Business and
Administration
Scientific Advisory Board
The organizers thank to the scientific advisory board of the Economic and
Administrative Sciences Series of the Annals of the University of Bucharest, as
well as to some of the members of the editorial board of the International Journal of
Innovation in the Digital Economy for their effort in reviewing the submissions.
Independent reviewers have also contributed to raising the scientific level of the registered
papers.
 Azlan Bin Amran, Universiti Sains Malaysia, Malaysia
 Adewale Aregbeshola, University of South Africa, South Africa
 Ibrahim Arslan, Gaziantrep University, Turkey
 Nimalathasan Balasundaram, University of Chittagong, Bangladesh
 Bidit Lal Dey, American International Universtiy, Bangladesh
 Subhajit Basu, Queen’s University of Belfast, UK
 Trond-Arne Borgersen, Department of Business, Social Sciences and Languages,
 Ion Bucur, University of Bucharest, Romania
 Trond Borgenstern, Østfold University College, Norway
 Anatolie Caraganciu, “Lucian Blaga” University from Sibiu, Romania
 Kaushik Chaudhuri, Reitaku University, Japan
 Viorel Cornescu, University of Bucharest, Romania
 Bidit Lal Dey, American International Universtiy, Bangladesh
 Ion Ignat, “Al. I. Cuza” University from Iasi, Romania
 Ryu Keikoh, Waseda University, Japan
 Oliver Krone, University of Lapland, Finland
 Bhekuzulu Kumalo, Toronto, Canada
 Jacky Mathonnat, University Auberge, France
 Stephen Mutula, University of Botswana, Botswana
 Shinji Naruo, Japan
 Olu Ojo, Covenant University, Nigeria
 Abdelnaser Omran, Universiti Sains Malaysia, Malaysia
 Abang Ekhsan Abang Othman, Universiti Malaysia Sarawak, Malaysia
 Didem Pasaoglu Hamsioglu, Anadolu University, Turkey
 Rajesh K Pillania, Management Development Institute, India
 Magdalena Platis, University of Bucharest, Romania
 Rauno Rusko, University of Lapland, Finland
 Miha Saloheimo, University of Lapland, Finland
 Azadeh Shafaei, Universiti Sains Malaysia, Malaysia
 Ryu Keikoh, Waseda University, Japan
 Mehran Nejati, Universiti Sains Malaysia, Malaysia
 Mostafa Nejati, Universiti Sains Malaysia, Malaysia
 Razvan Papuc, University of Bucharest, Romania
 Dan Popescu, “Lucian Blaga” University from Sibiu, Romania
 Ali Pourezzat, University of Tehran, Iran
 Andrei Stanoiu, “Nicolae Titulescu” University, Bucharest, Romania
 Alexandru Tasnadi, The Academy of Economic Studies, Bucharest, Romania
The International Conference in Economics and Administration
ICEA - FAA 2010
June 4th
9,00 a.m. Registration of the participants, in the hall of the “Rectorate” Building of
the University of Bucharest, Kogalniceanu Avenue 36 - 46, Sector 5.
9,30: Welcome to the participants: Professor Dr. Magdalena Platis, Dean of the
Faculty of Business and Administration, “Stoicescu” Hall, First Floor
Plenary Session
10,00 – 10,25: Speaker: Professor Shinji Naruo, Japan, Visiting professor, University of
Bucharest, Romania:
A DRASTIC REORGANIZATION OF INDUSTRY IN THE WORLD. WHAT IS THE

DRIVING FORCE FOR REORGANIZATION?
10,25 – 10,50: Speaker: Professor Dr. Fabio Musso, Department of Business Studies and
Law, University of Urbino “Carlo Bo”, Italy; Co – Author: Dr. Student Barbara Francioni,
Department of Business Studies and Law, University of Urbino “Carlo Bo”, Italy
INTERNATIONAL STRATEGY FOR SMES: CRITERIA FOR FOREIGN

MARKETS SELECTION
10,50 – 11,15: Speaker: Professor Dr. Viorica Cărare, Director of the National Agency of
Competition in Republic of Moldova ; Co–Author: Maxim Ion; Cooperative Trade
University of Moldova
COMPETITION DISTORSION. THEORETICAL APPROACHES AND

PRACTICAL CONSEQUENCES
11,15 – 11,45 Coffee Break. Discussions.
11,45 – 12,10: Speaker: Professor Dr. Hiroyuki Oba, Reitaku University, Japan
GAKUMON - RYOKU AND JAPANESE STYLE OF MANAGEMENT - DOES OUR

MANAGEMENT STYLE MATTER?
12,10 – 12,35: Speaker: Dr. Abdelnaser Omran, School of Housing, Building and
Planning, Universiti Sains Malaysia, Malaysia
ENVIRONMENTAL CRIME: A THREAT TO OUR FUTURE

12,30 – 13,00: Speaker: Professor Dr. Gabriela Stanciulescu, the Academy of Economic
Studies from Bucharest, Romania
YELD MANAGEMENT
13,00 – 13,25: Speaker: Professor Dr. Christina Suciu, the Academy of Economic
Studies from Bucharest, Romania
CONSUMER BEHAVIOUR AND NEW ECONOMICS
13, 45: Lunch Break. Discussions.
Place: The Students’ Restaurant of the University of Bucharest, Kogalniceanu

Avenue 36 - 46, Sector 5
15, 00: Sections Work
The halls and their places are mentioned in the remained pages of the
conference program.
19,00: Dinner

Section 1: Economics:
Hall: Amphitheatre 1, Ground Floor
Chairs:
 Professor Dr. Ion Bucur, Faculty of Business and Administration, University from
Bucharest
 Alain Herscovici, Universidade Federal do do Espírito Santo, Brazil
 Teaching Assistant. Cristina Popescu, Faculty of Business and Administration,
University from Bucharest
15,00 – 15,10: FREE TRADE – A PRIORITY ISSUE OF G-20 SUMMITS AFTER

THE WORLD ECONOMY WENT INTO RECESSION; Author: Haller Alina -
Petronela; ICES ,,Gh. Zane” – Iasi Branch of the Romanian Academy;
15,10 – 15,20: FOUNDING A NEW COMPANY IN THE PEOPLE’S REPUBLIC OF

CHINA: CASE STUDY; Author: Boštjan Polajžer, M. Sc., Faculty of Management
Koper, Slovenia
15,20 – 15,30: COMPETITIVENESS - CONCEPT AND METODOLOGY; Author: CPI

Dr. Nicoleta Hornianschi, Romanian Academy
15,30 – 15,40: ECONOMIC GROWTH, TECHNICAL PROGRESS AND LABOR

PRODUCTIVITY: KNOWLEDGE ECONOMICS AND NEW FORMS OF
TECHNICAL PROGRESS; Author: Alain Herscovici, Universidade Federal do do
Espírito Santo, Brazil
15,40 – 15,50: GLOBAL ECONOMICS AS A COMPLEX SELF - REGULATED

SYSTEM: THE CYCLE BIRTH AND POSSIBLE CONTROL FEATURES; Author:
Dreimanis Andrejs; Radiation safety centre of the State Environmental Service, Latvia;
15,50 – 16,00: SOCIAL IMBALANCE ON THE LABOUR MARKET IN ROMANIA

FOLLOWING THE COUNTRY’S ACCESSION TO THE EUROPEAN UNION;
Authors: Associate Professor Dr. Sîrghi Nicoleta, West University of Timisoara, Faculty
of Economics and Business Administration; Dr. Student Hohan Dumitru, CNSLR Fratia,
Bucuresti
16,10 – 16,20: AN EMPIRICAL ANALYSIS OF THE EXCHANGE RATE CHANNEL

IN TURKEY; Author: Assistant Professor Bengül Gülümser Arslan, Faculty of
Economics &Adm. Science/Department of economics, Turkey
16,20 – 16,30: NEW RULES FOR COMPANIES DUE TO CONTINUOUS GROWING

COMPETITIVENESS; Authors: Professor Dr. Popescu Veronica Adriana; Professor Dr.
Popescu N. Gheorghe; Academy of Economic Studies; Teaching Assistant Dr. Popescu
Cristina Raluca, University of Bucharest
16,30 – 16,40: THE DYNAMIC OF INTERNATIONAL COMMERCIAL EXCHANGE

UNDER GLOBALIZATION. COMPARATIVE ANALYSIS; Author: Dr. Ion Gr.
Ionescu, “Dimitrie Cantemir” Christian University, Constanta, Romania
16,40 – 16,50: THE DECENTRALIZATION DYNAMIC: HOW TO ENSURE GOOD
GOVERNANCE AT LOCAL LEVEL?; Author: Res. Dr. Cristi Iftene, Ovidius
University of Constanta, Romania
16,50 – 17,00: A BRIEFLY ANALYSE OF “NON-STATE ACTORS”- NGOs IMPACT

ON MULTINATIONAL COMPANIES: CONFLICT OR COOPERATION?; Author:
Laura Florescu; University “Alexandru Ioan Cuza” of Iasi, Romania;
17,00 – 17,30: Coffee break. Discussions.
17,30 – 17,40: COMPETITIVE STRATEGIES IN THE CONTEXT OF

GLOBALISATION; Authors: Professor Dr. Platis Magdalena, Teaching assistant Baban
Eleonora Gabriela, Faculty of Business and Administration, University of Bucharest,
Romania
17,40 – 17,50: GLOBALIZATION AND ECONOMIC GOVERNANCE; Author:

Professor Dr. Ion Bucur, Faculty of Business and Administration, University from
Bucharest
17,50 – 18,00:. IRANIAN STONE EXPORT TO UKRAINE: PROBLEMS AND

BARRIERS; Author: Farhad Parand, National Technical University of Ukraine “Kyiv
Polytechnic Institute”
18,00 – 18,10: ECOENTERPRISE, Author: Cornel Vintila, Edata, Bucharest
18,10 – 18,20: ROMANIAN HIGHLY SKILLED MIGRATION POST-1990.

DIMENSIONS AND CAUSAL FACTORS; Authors: Bonciu Cătălina, Faculty of
Administration and Business, University of Bucharest, Romania; Blidaru, Horaţiu,
Faculty of Political Sciences, „Dimitrie Cantemir” Christian University, Bucharest,
Romania
18,20 – 18,30: OFFSHORE COMPANIES; Author: Teaching Assistant Dr. Student

Cristina Gheorghe, Faculty of Business and Administration, University of Bucharest,
Romania
16,30 – 18,40: GROUP DECISIONS and IMPLICATION of GROUP DECISION

SUPPORT SYSTEMS IN TURKEY; Authors: Prof. Dr. Mehmet Sahin, Dr. Didem
Pasaoglu Hamsioglu; Turkey
Section 2: Applied Economics:
Hall: Amphitheatre 5, First Floor, next to “Stoicescu” Hall
Chairs:
 Professor Dr. Anatolie Caraganciu, “Lucian Blaga” University from Sibiu,

Romania
 Professor Dr. Coralia Angelescu, Academy of Economic Studies, Bucharest,
Romania
 Assistant Professor Herman Radu, Faculty of Administration and Business,
University of Bucharest, Romania
15,00 – 15,10: QUANTIFICATION OF ECONOMIC AND SOCIAL IMPACT OF

EXTERNAL LABOR MIGRATION BY APPLICATION OF COST-BENEFIT
ANALYSIS; Authors: Profesor Dr. Anatolie Caraganciu, "Lucian Blaga" University,
Sibiu; Dr. Student Belobrov Angela, Faculty of Finance, Academy of Economic Studies of
Moldova,
15,10 – 15,20: THE ROLE OF ELECTRONIC COMPUTER IN MODELING AND

SIMULATION OF THE ECONOMIC PROCESSES; Authors: Rozalia Nistor;
Alexandru Capatina; University “Dunarea de Jos” of Galati;
15,20 – 15,30: INFORMATION SYSTEMS USAGE IN BUSINESS AND

MANAGEMENT; Author: Associate Professor Dr. Mihane Berisha - Namani, Faculty of
Economics, University of Pristina, Kosova
15,30 – 15,40: THE SELECTION OF METHOD OF DISTRIBUTION WITH

MODELING PROCESS APPLIED ON A NATIONAL MANUFACTURING
COMPANY BY MEANS OF DECISION TREE METHOD; Authors: Costel Nistor;
Rozalia Nistor; Ciprian George Ticu, “Dunarea de Jos” University;
15,40 – 15,50: REPUTATION RISK: DETERMINANTS AND IMPLICATIONS;

Authors: Ianole Rodica, Faculty of Social and Administrative Sciences, “Nicolae
Titulescu” University, Romania, Sandu Mihaela, Faculty of Business and
Administration, University of Bucharest, Romania
15,50 – 16,00: RESEARCH ON NAMED AND OPTIONAL ARGUMENTS IN C# 4.0;

Author: Eng. Marius Iulian Mihailescu, Department of Computer Science, “Titu
Maiorescu” University from Bucharest, Romania
16,00 – 16,10: TAKING ACTION IN GREEN THROUGH BROWN; Author: Sevilay

Atlama, Faculty of Economics & Adm. Science/ Department of Economics, Anadolu
University, Turkey
16,10 – 16,20: IMAGES OF BUSINESS ORGANIZATIONS IN KNOWLEDGE

ECONOMY; Authors: Joia Radu-Marcel; Dumitru Paula; Babonea Alina-Mihaela;
“Nicolae Titulescu” University, Bucharest;
16,20 – 16,30: SCENARIOS FOR SUSTAINABLE REHABILITATION OF LARGE
RESIDENTIAL ESTATES THROUGH EUROPEAN FUNDS; Authors: Associate
Professor Dr. Luca Oana , Technical University of Civil Engineering Bucharest,
Romania; Dr Student Marinescu M.A. Desiree, Academy of Economic Studies, Bucharest,
Romania; Associate Professor Dr. Gaman Florian, Technical University of Civil
Engineering Bucharest, Romania
16,30 – 16,40: THE IMPORTANCE OF INNOVATION IN DEVELOPING AND

ORIENTING COMPANIES IN THE GLOBAL ECONOMIC CRISIS; Author: Dr.
Student Mititel Elena, Academy of Economic Studies, Bucharest, Romania
16,40 – 16,50: STATE AID THROUGH THE GOOD GOVERNANCE CONCEPT;

Authors: Profesor, Dr. Anatolie Caraganciu, Dr. Student Mirela Chiriac, "Lucian Blaga"
University, Sibiu
16,50 – 17,00: CONSIDERATIONS REGARDING FINANCING SOURCES FOR

ENERGY ACTIONS IN ROMANIA; Authors: Associate Professor Dr Luca Oana,
Associate Professor Dr Gaman Florian, Technical University of Civil Engineering
Bucharest, Romania; Dr Student Marinescu M.A. Desiree, Academy of Economic Studies,
Bucharest, Romania; Dr Stanescu Andrei, Technical University of Civil Engineering
Bucharest, Romania
17,00 – 17,30: Coffee break. Discusssions.
17,30 – 17,40: DESIGN AND IMPLEMENTATION OF THE SHORT-TERM

DEMAND FORECASTING PROCESS; Author: Dr. Eisenstat Eric; University of
California, Irvine;
17,40 – 17,50: LABOR MARKET INSERTION OF YOUNG PEOPLE IN ROMANIA;

Authors: Angelescu Coralia, Aceleanu Mirela Ionela, Creţu Alina Ștefania, Faculty of
Economics/Department of Economics and Economic Policies/Academy of Economic
Studies, Bucharest, Romania
17,50 – 18,00: SOME CONSIDERATIONS ABOUT THE TAGUCHI LOSS AND RISK
FUNCTIONS; Author: Professor Dr. Bârsan-Pipu Nicolae, Faculty of Finance, Banking
and Accounting, “Dimitrie Cantemir” Christian University, Braşov, Romania
18,00 – 18,10: IT SECURITY POLICY MANAGEMENT INTO THE BUSINESS

PROCESSES; Author: Associate Professor Dr. Barnoschi Adriana, University “Nicolae
Titulescu” Bucharest, Romania
18,10 – 18,20: ONLINE PAYMENT IN THE AGE OF ELECTRONIC COMMERCE;

Author: Dr. Student Mădălina Matei (Niţoiu), The Academy of Economic Studies,
Bucharest, Romania
18,20 – 18,30: CHALLENGES IN FOOD SAFETY AND CONSUMER HEALTH;

Authors: Lecturer Dr. David Oana; “Politehnica” University of Bucharest; Mihai Valia
Maria; Petroleum-Gas University of Ploiesti;
18,30 – 18,40: REGULATORY MEASURES IN THE ACTIVITY OF CEC BANK,

Author: Dr. Student Negotiu Calin, “Lucian Blaga” University from Sibiu, Romania
18,40 – 18,50: AN OUTLINE ON CULTURAL ECONOMICS - THE INFLUENCE OF
ECONOMY ON ROMANIAN THEATRE PRODUCTION; Authors: Ianole Rodica,
Caraiman Carmen, Faculty of Social and Administrative Sciences, “Nicolae Titulescu”
University, Romania
18,50 – 19,00: UNDERSTANDING FIRM’S BEHAVIOR IN DIFFERENT

TECHNOLOGICAL REGIMES; Author: Dr Student Herman Radu; Faculty of Business
and Administration, University of Bucharest; Romania
Section 3: Management and Marketing:
Hall: “Stoicescu” Hall, First floor
Chairs:
 Professor Dr. Paul Marinescu, Faculty of Bussines and Administration, University

of Bucharest, Romania
 Professor Dr. Sorin Toma, Faculty of Bussines and Administration, University of
Bucharest, Romania
 Teaching Assistant Joia Radu Marcel, Faculty of Economic Sciences, “Nicolae
Titulescu” University from Bucharest, Romania
15,00 – 15,10: MODELING ONLINE CONSUMER BEHAVIOR THROUGH

ONLINE SHOPPING EXPERIENCE: THEORETICAL ISSUES; Authors: Dr
Attendant Iconaru Claudia; Dr Attendant Macovei Octav-Ionut; The Academy of
Economic Studies, Bucharest, Romania
15,10 – 15,20: PERSPECTIVE ON THE PERSONAL AND PROFESSIONAL

NEEDS OF THE PROJECT LEADER IN CONSTRUCTION INDUSTRY IN LIBYA:
A CASE STUDY; Authors: Salahaldein Alsadey, Abdelnaser Omran, Abdul Hamid
Kadir Pakir, Universiti Sains Malaysia, Malaysia
15,20 – 15,30: INTERCULTURAL COMPETENCE AND MANAGEMENT; Author: Dr

Atendant Irina Budrina (Russia), The Academy of Economic Studies Bucharest, Romania
15,30 – 15,40: THE MICE TOURISM – A RECOVERY STRATEGY FOR

ROMANIAN TOURISM; Authors: Mihaela-Carmen Muntean, Costel Nistor, “Dunarea
de Jos” University, Galati, Romania
15,40 – 15,50: THE BUSINESS SYSTEM MANAGEMENT AND BASIC TYPES OF

DECISIONS; Authors: Bratu Anca; Cornescu Viorel, University of Bucharest; Grigore
Maria; “Nicolae Titulescu” University, Bucharest
15,50 – 16,00: HUMAN OBSOLESCENCE - A PERSONAL AND

ORGANIZATIONAL CHALLENGE; Authors: Associate Professor Dr. Adela Coman,
University of Bucharest; Associate Professor Dr. Rita Toader, The North University of
Baia Mare
16,00 – 16,30: ANALYSING THE PERFORMANCE OF WASTE MANAGEMENT

COMPANIES IN THE CONTEXT OF SUSTAINABLE INVESTMENTS AT THE
GLOBAL LEVEL; Authors : Iamandi Irina - Eugenia; Constantin Laura - Gabriela;
Cernat - Gruici Bogdan; Faculty of International Business and Economics; the Academy
of Economic Studies Bucharest; Romania
16,30 – 16,40: THE IMPORTANCE OF COMMUNICATION IN PROJECT

MANAGEMENT; Authors: Pistol Luminita, Ungureanu Adrian, Spiru Haret University;
Romania
16,40 – 16,50: KNOWLEDGE MANAGEMENT IN E-BUSINESS ENTERPRISES;

Author: Diana Dorus, University of Bucharest
16,50 – 17,00: NEW PUBLIC MANAGEMENT AS A SOLUTION TO STATE’S
INCAPACITY OF MANAGING PUBLIC AFFAIRS. PUBLIC/ PRIVATE
DISPUTES; Authors: Simona Mina, Ana Rodica Stăiculescu, Cornel Grigoruţ, Faculty of
Law and Public Administration, Ovidius University of Constanţa Romania,
17,30 – 17,40: THE SUSTAINABLE ENTERPRISE AT THE BEGINNING OF THE

21ST CENTURY; Authors: Associate Professor Dr. Vladimir-Codrin Ionescu, Professor
Dr. Viorel Cornescu, University of Bucharest, Romania
17,40 – 17,50: THE AFFIRMATION AND DEVELOPMENT DIRECTIONS OF THE

KNOWLEDGE - BASED SOCIETY, Professor Dr. Viorel Cornescu, Associate Professor
Dr. Vladimir-Codrin Ionescu, University of Bucharest, Romania
17,50 – 18,00: MANAGERIAL FORMATION AND COMPANY’S PERFORMANCE;

Authors: Professor Dr. Cătălina Bonciu, Faculty of Business and Administration,
University of Bucharest; Lecturer Dr. Cristian Sima, Centre for Industrial Economics
and Services, National Institute of Economic Research; Lecturer Dr. Gabriel Popa,
Polytechnic Institute of Bucharest, Faculty of Transports
18,00 – 18,10: MARKET RESEARCH ON BOTTLED WATER INDUSRTY AND

CONSUMPTION TRENDS IN EUROPE; Author: Irena Mnatsakanyan, BSC
BUSINESS SUPPORT CENTER LLC, Armenia
18,00 – 18,10: KNOWLEDGE MANAGEMENT – A TOOL FOR THE NEW WORLD;

Author: Dumitru Paula; Joia Radu-Marcel; Babonea Alina-Mihaela; “Nicolae Titulescu”
University, Bucharest;
18,10 – 18,20: CRISIS COMMUNICATION – ESSENTIAL MANAGEMENT

COMPONENT IN CRISIS SITUATIONS; Authors: Niculae Tudorel, ISOP, Bucharest;
Paul Marinescu, University of Bucharest, Faculty of Business and Administration; Sorin
Toma, University of Bucharest, Faculty of Business and Administration; Niculae Sabin
Mihai, Academy of Economic Studies, Bucharest
Faculty of Marketing
18,20 – 18,30: UNCONVENTIONAL ADVERTISING – AN IMPORTANT

OBJECTIVE IN THE DEVELOPMENT OF THE COMPANY IN TIMES OF
CRISIS; Authors: Paul Marinescu, University of Bucharest, Faculty of Business and
Administration; Niculae Sabin Mihai, Academy of Economic Studies, Bucharest, Faculty
of Marketing, Sorin Toma, University of Bucharest, Faculty of Business and
Administration
Section 4: Finance and Accounting:
Hall No: 120, Ground Floor
Chairs:
 Erika I. Gulyas, Trinity University, San Antonio TX

 Teaching Assistant Dr. Student Valentin Mihai Leoveanu, Faculty of Business
and Administration, University of Bucharest, Romania
15,00 – 15,10: INFLATION TARGETING, LONG-RUN INFLATION

EXPECTATIONS AND THE EFFECTIVENESS OF MONETARY POLICY; Author:
Erika I. Gulyas, Trinity University, San Antonio TX
15,10 – 15,20: THE FINANCIAL RELATED ANALYSIS ON SALES MANAGEMENT

AND HUMAN RESOURCES BY MEANS OF BI TYPE SOLUTIONS (Accepted to
be published in the International Journal of Innovation in the Digital Economy,
SUA); Authors: Lecturer Dr. Şerbanescu Luminiţa, University of Piteşti, Romania;
Associate Professor Dr. Rădulescu Magdalena, University of Piteşti, Romania,
15,20 – 15,30: A WORLD OF CHALLENGES: THE ACCELERATION OF

FINANCIAL FLOWS AND OF FOREIGN DIRECT INVESTMENTS; Authors:
Professor Dr. Popescu N. Gheorghe; Professor Dr. Popescu Veronica Adriana, Academy of
Economic Studies; Teaching Assistant Dr. Popescu Cristina Raluca, University of
Bucharest
15,30 – 15,40: THE ECONOMIC CRISIS AND FOREIGN DIRECT INVESTMENT

IN ROMANIA. A REGIONAL APPROACH; Author: Associate Professor Dr.
Mărginean Silvia; ”Lucian Blaga” University of Sibiu, Romania;
15,40 – 15,50: MONETARY POLICY AND THE FINANCING OF ROMANIAN

COMPANIES IN THE CURRENT CRISIS; Author: Teaching Assistant Valentin
Leoveanu, University of Bucharest, Romania
15,50 – 16,00: THE MACROECONOMIC EFFECTS OF EUROPEAN FINANCIAL

INTEGRATION; Author: Șargu Alina Camelia, Chirlean Dan; “Alexandru Ioan Cuza
University”, Iași; Romania
16,00 – 16,10: IDENTIFICATION, CLUSTERING AND COMPARING EFFECTIVE

INDUSTRIES AT TEHRAN STOCK EXCHANGE BEFORE AND AFTER ITS
LEGAL STRUCTURE CHANGE BY MINIMUM SPANNING TREE OF DISTANCE
ULTRA METRIC; Authors: M. Ashhar, D. Damoori, H. Anvar, Department of Financial
Management, College of Management, University of Yazd, Iran
16,10 – 16,20: FOREIGN DIRECT INVESTMENTS AND THE ECONOMIC CRISIS,

Authors: Lecturer Dr. Liviu Radu, Lecturer Dr. Carmen Radu, “Nicolae Titulescu”
University from Bucharest, Romania
16,20 – 16,30: OUTSOURCING STRATEGIES IN THE AUTOMOTIVE INDUSTRY:

A CASE STUDY ON THE TRANSACTION PATTERNS IN A TURKISH
ASSEMBLY PLANT; Authors: Tuğba Gürçaylilar Yenidoğan, Fulya Sarvan, Akdeniz
University, Antalya, Turkey
16,30 – 16,40: INVESTMENT ENVIRONMENT AND FOREIGN DIRECT

INVESTMENTS IN THE UNDERLYING TRENDS OF THE TURKISH ECONOMY;
Authors: Research Assistant Sevilay Atlama, Professor Dr. S. Ridvan Karluk, Fac. Of
Economics & Adm. Science/ Department of Economics, Anadolu University, Turkey
16,40 – 16,50: CHANGES IN THE DOW EFFECTS IN THE ROMANIAN FOREIGN

EXCHANGE MARKET; Authors: Dumitriu Ramona, Stefanescu Razvan, “Dunarea de
Jos” University from Galati, Romania
16,50 – 17,00. INTERNATIONAL POLITICAL ECONOMY IN AN AGE OF

GLOBALIZATION, GLOBAL TRADE AND GLOBAL FINANCE; Authors: Enea
Constanţa, Economics Faculty and Business Administration, „Constantin Brancusi”
University, Targu-Jiu, România, Enea Constantin, Economics Faculty of Law,
„Constantin Brancusi” University, Targu-Jiu, România
Place: Hall 114, Ground Floor
17,30 – 17,40: IMPROVING THE MANAGEMENT OF A COMPANY USING BI

INSTRUMENTS; Authors: Lecturer Dr. Şerbanescu Luminiţa, University of Piteşti,
Romania; Associate Professor Dr. Rădulescu Magdalena, University of Piteşti, Romania,
17,40 – 17,50: BUDGET EXPENDITURE STRUCTURE IN KOSOVO; Authors:

Associate Professor Myrvete Badivuku-Pantina, Associate Professor Skender Ahmeti,
University of Prishtina, Faculty of Economics, Kosovo; Associate Professor Mixhait Reçi,
University “Iliria”, Kosovo; Drita Kaçandolli-Gjonbalaj, Privatization Agency of Kosova,
Kosovo
17,50 – 18,00: IMPACT OF THE GLOBAL CRISIS ON THE LINKAGES BETWEEN

THE INTEREST RATES AND THE STOCK PRICES IN ROMANIA
Authors: Stefanescu Razvan, Dumitriu Ramona; Faculty of Economics, University

“Dunarea de Jos” Galati, Romania
18,00 – 18,10: FINANCIAL CRISIS AND PUBLIC DEBT IN EMERGENT AND

DEVELOPING COUNTRIES; Author: Associate Professor Dr. Stoica Emilia Cornelia,
“Nicolae Titulescu” University, Romania
Section 5: Education, Administration and Law:
Hall No: 124, Ground Floor
Chairs:
 Associate Professor Dr. Anca Monica Ardeleanu, Faculty of Business and
Administration, University of Bucharest
 Dr. Krone Oliver; University of Lapland, Faculty of Social Sciences;
 Dr. Student Ioana Josan, Faculty of Business and Administration, University of
Bucharest
15,00 – 15,10: CHALLENGES OF A GLOBAL ACADEMIC RANKING; Author:

Professor Dr. Rotariu Ilie; “Lucian Blaga” University of Sibiu; Romania
15,10 – 15,20: ONLINE VS. OFFLINE VS. MIXED PARTICIPATION FOR BETTER
GOVERNMENTAL POLICY-MAKING; Authors: Dr. Student Oprea Radu Adrian; Dr
Ancuta Daniela Sarpe, Dunarea de Jos University, Galati, Romania
15,30 – 15,40: DECENTRALIZATION OF PRE-UNIVERSITY EDUCATION

SYSTEM – A NEW INSTITUTION CONSTRUCTION WHICH ENTAILS
EFFICIENCY AND EQUITY?; Author: Roman Mihaela, Dr. Student at the National
School of Political Studies and Public Administration, Romania
15,40 – 15,50: THE RELATIONSHIP BETWEEN VOCATIONAL EDUCATION AND

ECONOMIC DEVELOPMENT IN TURKEY: AN EMPIRICAL ANALYSIS; Author:
Dr. Ceyda Özsoy, Anadolu University, Turkey
15, 50 – 16,00: BUSINESS EXCELLENCE WITH MANAGEMENT SYSTEMS AND

THE RELATION TO INFORMATION SYSTEMS; Author: Dr. Krone Oliver;
University of Lapland, Faculty of Social Sciences;
16,00 – 16,10: HORUS AND ERP ORIENTED PROCESS DESIGN –

OVERCOMING COMMUNICATION LAPSES OF PROCESSES; Author: Dr. Krone
Oliver; University of Lapland, Faculty of Social Sciences;
16,10 – 16,20: ETICAL AND LEGAL CONSEQUENCES OF COUNTERFEIT IN

THE SOCIO-ECONOMIC ENVIRONMENT FROM THE U.E. INTEGRATION;
Authors: Gheorghe Carmen Adriana; Ratulea Gabriela, Transilvania University; Brasov,
Romania
16,20 – 16,30: E-DEMOCRACY PLATFORMS FOR GOVERNMENTAL DECISION

MAKING. CASE STUDY ON “SMART METHOD OF PUBLIC POLICY”; Authors:
Dr Student Radu Adrian Oprea; “Dunarea de Jos” University, Dr Ancuta Daniela Sarpe;
Dunarea de Jos University;
16,30 – 16,40: THE ANALISIS OF THE SITUATION LOOKING THE

ENVIRONMENT PROTECTION IN ROMANIA THROUGH THE POS
ENVIRONMENT REFERENTIAL CHALLENGES AND THREATS; Authors:
Mardiros Daniela, Borza Mioara, University "Alexandru Ioan Cuza" of Iasi, Romania
16,40 – 16,50: THEORETICAL APPROACHES OF THE IMPLEMENTATION
SYSTEM OF EUROPEAN COHESION POLICY; Author: Dr. Student Alina Bourosu,
National School of Political Science; Bucharest, Romania
16,50 – 17,00: THE ROLE AND IMPLICATIONS OF MEDIATION IN PUBLIC

MARKETING, Author: Associate Professor Dr. Ardeleanu Anca Monica, Faculty of
Business and Administration, University of Bucharest, Romania
17,30 – 17,40: IS EDUCATION BASED ON GAMES A SOLUTION FOR FUTURE

LEARNING?; Authors: Constantin Ionut, Dumitrascu Raluca-Bogdana, Faculty of
Business and Administration, University of Bucharest, Romania
17,40 – 17,50: REFORMING THE IMPLEMENTATION OF PUBLIC POLICIES IN

THE EDUCATIONAL SYSTEM; Author: Roventa Irina, University of Bucharest,
Romania
17,50 – 18,00: STRATEGIES AND TECHNIQUES OF COMMUNICATION AND

PUBLIC RELATIONS APPLIED TO NON-PROFIT SECTOR; Author: Ioana –
Julieta Josan; Faculty of Business and Administration, University of Bucharest,
Romania
18,00 – 18,10: “WIKIHEALTH” FOR PUBLIC HEALTH MAPPING; Authors: Litan

Daniela, Mocanu (Virgolici) Aura-Mihaela; Academy of Economic Studies, Faculty of
Cybernetics, Statistics and Informatics Economics, Bucharest, Romania;
18,10 – 18,20: CREATIVE MOTIVATION AND PERSONALITY AT THE

ROMANIAN PUBLIC FUNCTIONARIES; Author: Balgiu Beatrice Adriana,
University POLITEHNICA of Bucharest, Romania
18,20 – 18,30: LIMITATION OF NULLITY EFFECTS THROUGH CIVIL LEGAL

MEANS; Author: Teaching Assistant Dr. Camelia Stănciulescu, Faculty of Business and
18,30 – 18,40: THE NECESSITY TO HARMONIZE THE MECHANISMS

CHARACTERISTIC TO ’THE CONTRACT OF CONSUMPTION’ TO GENERAL
RULES; Author: Professor Dr. Liviu Stănciulescu, Faculty of Law, „Nicolae Titulescu”
University from Bucharest, Romania
18,40 – 18,50: PROBLEM STRUCTURING IN PUBLIC POLICY ANALYSIS: THE

CASE OF SECURITY STUDIES; Author: Associate Professor Dr. Zulean Marian,
Faculty of Business and Administration, University of Bucharest;
18,50 – 19,00: THE RIGHT OF CONSUMPTION: THE DECLINE OF WILL

AUTONOMY?; Author: Teaching Assistant Anca Nicoleta Gheorghe, Faculty of Law,
„Nicolae Titulescu” University, Romania
June 5th
Workshop:
“Inter and Transdisciplinary Issues of Economic Behavior”
Place: Stoicescu” Hall, First Floor of the “Rectorat” Building of the University of
Bucharest, Kogalniceanu Avenue 36 - 46, Sector 5,
9,30 - 10,00 Professor Dr. Elena Druica, University of Bucharest

Associate Professor Dr. Mircea Nita, the National School for Political and
Administrative Sciences, Bucharest, Romania
About the event
SPECIAL GUESTS:
10,00 – 10,30: Speakers: Professor Dr. Alexandru Tasnadi, Professor Dr. Cosntantin
Popescu, The Academy of Economic Studies, Bucharest, Romania
HUMAN BEHAVIOR BETWEEN THE HOLISTIC TRIAD AND THE TRAGIC

TRIAD
10,30 – 11,00: Speaker: Associate Professor Dr. Mircea Aurel Nita, the National School
for Political and Administrative Sciences, Bucharest, Romania
JUMPING IN KNOWLEDGE BY REINTEGRATION OF SPIRITUALITY WITHIN

SCIENCES
11,00 – 11,30: Speaker: Dr. Oliver Krone, University of Lapland, Finland
ENTERING THE LABOUR MARKET – REFLECTIONS TO MAINTAIN SANITY
11,30 – 12,00: Speaker: Professor Dr. Fabio Musso, Department of Business Studies
and Law, University of Urbino “Carlo Bo”, Italy; Co – author: Dr Student Domenico
Consoli, Department of Business Studies and Law, University of Urbino “Carlo Bo”, Italy
TECHNOLOGY IN MARKETING CHANNELS: PRESENT AND FUTURE

DRIVERS OF INNOVATION
12,00 – 12,30: Coffee Break. Discussions.
Place: In front of “Stoicescu” Hall
Papers presentation:
12,30 – 13,00 INTERFEROGRAM - A NEW METHOD OF INTERCELLULAR

COMMUNICATION; Authors: Associate Professor Dr. T. Trandafir, Dr. M. Gheorghiu,
Associate Professor Dr. Mircea Nita, B.s. Biol. Katrina Alecsandru
13,00 – 13,30: OPTIMIZING OF HUMAN BEHAVIOUR BY BIOINFORMATIONAL
MEDCINE; Associate Professor Dr. Liana Marginean, UMF Iuliu Hateganu, Cluj,
Romania
13,30 – 14,00: LOZANOV METHOD - UPDATING EDUCATIONAL PYRAMID,

Lecturer Dr. Simona Malescu, The National Military University Bucharest, Romania
14,00 - Lunch Break. Discussions.

15,00 – 15,30: MIDDLE WAY - THE MATRIX OF UNIFYING THE

CONSCIOUSNESS, Lecturer Dr. Simona Malescu, The National Military University
Bucharest, Romania
15,30 – 16,00: ENERGETICAL AND VIBRATIONAL APPROACH AND THE

CHANGE OF KNOWLEDGE; Author: Associate Professor Dr. Mircea Aurel Nita, the
National School for Political and Administrative Sciences, Bucharest, Romania
16,00 – 16,30: ELEONA - ABOUT THE DIVINE ORDER FOR HUMAN

EVOLUTION IN OUR DAYS; Author: Andrea COSTAN - specialist in
Communications, Tg. Mures, Romania
16,30 – 17,00: SCIENTIFICAL APPROACH UPON TRINITY PRINCIPLE AS A

COMMON ELEMENT OF WORLD RELIGIES, Author: Crina POP - manager
assistent, specialist in Human Resuorces, Tg. Mures, Romania
17,00 – 17,30: SPIRITUAL CAPITAL, Autor: Associate Professor Dr. Ana-Maria

Grigore, Hyperion University, Bucharest
17,30: Coffee Break. Informal closing of the event

OTHER ICEA 2010 REGISTERED PAPERS
1. NOT ATTENDING AUTHORS: COMPETENCY LEVEL OF

CONSTRUCTION PROJECT MANAGER IN PENANG STATE, MALAYSIA;
Authors: Abdelnaser Omran, School of Housing, Building and Planning, Universiti
Sains Malaysia, Malaysia; Abdullah Mahmood, Department of Architecture and
Building Science, College of Architecture and Planning, Kind Saud University,
Kingdom of Saudi Arabia
2. NOT ATTENDING AUTHORS: MANAGEMENT OF SAFETY IN
CONSTRUCTION SITES IN MALAYSIA: PERSPECTIVES ON THE
ELEMENTS OF POOR, Authors: Abdelnaser Omran, Abdelwahab Omran,
Mayhuddin Ramli & Abdul Hamid Kadir Pakir, School of Housing, Building and
Planning, Universiti Sains Malaysia, Malaysia
3. NOT ATTENDING AUTHORS: IDENTIFYING THE KEY FACTORS THAT
INFLUENCE DELIVERY OF PROJECTS UNDERTAKEN BY LOCAL
CONTRACTORS IN MALAYSIA: A CASE STUDY; Authors: Abdelwahab
Omran, Abdelnaser Omran, Abdul Hamid Kadir Pakir & Mayhuddin Ramli,
Universiti Sains Malaysia, Malaysia; Abdullah Mahmood, College of Architecture
and Planning, Kind Saud University, Kingdom of Saudi Arabia
4. NOT ATTENDING AUTHORS: CRITICAL SUCCESS FACTORS IN
CONSTRUCTION INDUSTRY IN LIBYA; Authors: Abdelwahab Omran, Abdul
Hamid Kadir Pakir, Abdelnaser Omran & Mayhuddin Ramli, Universiti Sains
Malaysia, Malaysia
5. NOT ATTENDING AUTHORS: MANAGING CONSTRUCTION CONFLICT:
A CASE STUDY OF PAN PALACE PLAZA COMMERCIAL COMPLEX;
Authors: Yeoh Keat Yew, Abdelnaser Omran, Universiti Sains Malaysia,
Malaysia; Abdullah Mahmood, College of Architecture and Planning, Kind Saud
University, Kingdom of Saudi Arabia
6. NOT ATTENDING AUTHOR: FACTORS AFFECTING THE CHOICE OF
MARKET ENTRY MODES IN THE AFRICAN TELEPHONY INDUSTRY;
Author: Maxwell Chanakira, Harare Institute of Technology, Zimbabwe
7. NOT ATTENDING AUTHOR: EXPLAINING THE FORMATION OF
NETWORK INNOVATIONS BY SMALL AGRICULTURAL FIRMS: THE
CASE OF THE EX-SUGAR BEET FARMERS OF THE UK; Authors: Daniel E.
May, Graham J. Tatey, Leslie Worrall, Business School, University of
Wolverhampton, UK
8. NOT ATTENDING AUTHOR: EMPLOYEES AND COMPUTER CRIMES
DURING ECONOMIC CRISIS; Author: Andrisescu Dana Ramona, Doctoral
School of Economics, “Alexandru Ioan Cuza” University Iasi, Romania
9. NOT ATTENDING AUTHOR: AN OVERVIEW OF EUROPEAN MONEY
MARKET INTEGRATION UNDER THE ECONOMIC AND MONETARY
UNION; Author: Avadanei Andreea, Doctoral School of Economics, “Alexandru
Ioan Cuza” University - Iasi, Romania
10. NOT ATTENDING AUTHOR: THE ROLE OF STRATEGIC LEADERSHIP
IN THE EXECUTION OF CORPORATE STRATEGIES; Author: Dr. Student
Olu Ojo, Department of Business Administration, Osun State University, Nigeria
11. NOT ATTENDING AUTHOR: THE HISTORICAL APPROACH TO
COMPETITION AND THE COMPARATIVE ANALYSIS OF COMPETITIVE
MARKET VERSUS MONOPOLISTIC MARKET; Author: Dr. Student Adina
Gabriela Dascalu; University of Craiova;
12. NOT ATTENDING AUTHOR: THE ROLE OF THE STATE IN OBTAINING
NATIONAL COMPETITIVE ADVANTAGE IN ROMANIAN ECONOMY;
Author: Dr. Student Adina Gabriela Dascalu; University of Craiova
13. NOT ATTENDING AUTHORS: IDENTIFICATION AND CLASSIFICATION
OF IRAN AND INTERNATIONAL STOCK MARKETS ' VOLATILE
BEHAVIOR USING ARCH& GARCH METHOD. EVIDENCE: DAILY INDEX
RETURNS FOR IRAN AND INTERNATIONAL STOCK MARKETS; Authors:
M. Ashhar, D. Damoori, H. Anvar, Department of Financial Management, College
of Management, University of Yazd, Iran
14. NOT ATTENDING AUTHOR: INTRAPRENEURSHIP. APPROACH TO
EMPLOYING THE APPLIED EDUCATION’S STUDENTS; Author: Seyed
Reza Ghazanfari, Institute of Scientific – Applied Higher Education of Jihad-of-
Agriculture, Iran
15. NOT ATTENDING AUTHORS: CENTRAL BANK MONETARISM TO
KEYNESIAN GOVERNING IMPULSES; Authors: Rădoi Mădălina-Antoaneta;
Olteanu Alexandru; University Nicolae Titulescu, Bucharest;
16. NOT ATTENDING AUTHORS: MODERN STRATEGIES OF
TRANSNATIONAL COMPANIES FROM EMERGING COUNTRIES; Authors:
Mărgulescu Serghei; Mărgulescu Elena; “Nicolae Titulescu” University from
Bucharest; Romania
17. NOT ATTENDING AUTHORS: THE BALANCE OF PAYMENTS AND THE
EXTERNAL DEBT. SPECIFIC PROBLEMS IN ROMANIA; Authors: Giurgiu
Adriana; Haţegan D.B. Anca; Negrea Adrian; University of Oradea, Faculty of
Economic Sciences, Dept. of International Business, Romania
18. NOT ATTENDING AUTHORS: HOW CAN BE REACHED AND BE STAYED
ON BLUE OCEAN? CASE STUDY PARSIAN BANK OF IRAN; Authors:
Ahmad Ayatinia; MBA Department, Graduate Studies Faculty, University of
Science and Culture, Tehran, Iran; Mohammadreza Zarei; MBA Department,
Graduate Studies Faculty, University of Science and Culture, Tehran, Iran
Closing remarks
The organizers want to thank all the participants for their effort and
willingness to cooperate with the organizing committee of ICEA 2010. As
members of ICEA team, you will benefit from some special conditions once you
decide to participate in the next ICEA edition, which will he held in June 2011.
Important deadlines:
 Full Paper Submission (electronic registration): May 1st 2011.

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The International Conference on Administration and Business
ICEA - FAA 2010 4 – 5 JUNE 2010 http://conference.faa.ro
The International Conference on Economics and Administration, Faculty of Business and

ICEA – FAA Bucharest, 4-5th June 2010
EMPLOYEES AND COMPUTER CRIMES DURING ECONOMIC CRISIS
ANDRISESCU Dana Ramona

Doctoral School of Economics, “Alexandru Ioan Cuza” University Iasi, Romania
dana.andrisescu@yahoo.com
Abstract view. It has been proven that fraud

During hardships for organizations like committed by managers, employees and
economic crisis affecting their results, customers tripled compared to 2007 [1] and
employees “add more gas on fire” by we are going to see why. This matter will be
conducting activities in order to get some answered by presenting the reasons why the
benefits. Their main target during these employees do that, the losses they cause
times became money as life becomes difficult intentional or unintentional, assets
from day to day. Computer crime seems a important for an organization and have to be
very good solution for getting to the target protected, some security measures, as the
fast and easy. We are going to see in this papers we have seen and studied for this
paper how the economic crisis affects the paper do not reveal the reasons behind, they
organizations through their employees. only state that cybercrime or computer crime
has risen thanks to the economic crisis. It is
Key words: computer crime, crisis, true this is the main cause, but let us broad
employee, threat our perspective and say that it is not only
one reason but a mix of old desires, new
1. Introduction feelings and new needs. Most of the
economic or computer science writers state
From what we can see around us, regarding that economic crisis will be considered an
the economic crisis affecting people’s life and important reason for computer crime but
organizations’ well-fare, computer crimes coming from outsiders. We are going to
became a fast solution to get some money underline the fact that even the employee
even with the price of going to jail. People seen as a person with a job during this type
have financial problems like credits that of crisis can be a real menace for the
have to be paid off, children to go to school, organizations when threatened by financial
daily needs and so on, problems that cannot problems and job loss.
be solved when businesses go down, people
are laid off and the number of jobs decreases
every day. Employees become willing to take 2. Insider threat and computer crimes
some risks in order to provide goods for their
families. These risks become computer Nowadays, organizations depend on
crimes if they use computers to steal technology, no matter their activities. Many
information, identities, alter recordings and of them rely on the Internet to sell more
papers. products and to offer services or information
We will be discussing in this paper about to the customers, partners and so on.
computer crimes that can be done by Historically, IT and security managers have
employees in organizations, reasons behind focused on protecting the company network,
them and security solutions. We want also to and the information on it, from outside
underline the importance of the insider attackers or outsiders. Over the last several
threat represented by the employees and years, though, an increasing amount of
solutions to protect against it. attention has fallen on the risk associated
This study is important as it is a perspective with an organization’s own employees - the
on what employees are willing to do from the insider. Organizations have to assure that
breaking the information security point of information security is both for external and
33
internal threats. External threats come from

hackers, customers, suppliers, former Even though we can see that for 2009 the
employees. But, internal threats are the losses have decreased, in fact the companies
most risking ones as they come from the that answered the survey didn’t state their
employees, which have full access to losses as they fear their reputation will be
organizations’ resources. damaged or they didn’t make any estimation
Information and computer security has regarding this fact. But still, we consider
become an important issue for any losses are important and must be prevented.
organization that wants to preserve clients, Attacks automatically involve some type of
suppliers, employees, resources and have a loss. We have identified organizations’ losses
fruitful activity. We know that many from electronic attacks coming from
consider this as an easy thing to do, but in employees but of course available for the
reality, due to employees or other people and outsiders’ attacks as well. We have
their wrongdoings, information and physical categorized them according to attacks’
security becomes vital. Knowing how to deal intensity and their objective as:
with people and use the appropriate − Financial coming from:
technologies for protection means the o money theft, as the main objective
survival of the organization especially when of most of the attacks;
economies are threaten both from inside and o electronic fraud;
outside. o reputation damage;
Computer crimes coming from employees o loss of business opportunities
prove to be the second threat after viruses from lack of trust from partners;
according to CSI Computer Crime & o security measure costs to be taken
Security Survey [2], followed by laptop theft in the future and employees to be
or fraud. hired;
Cyber crime or computer crime proved to be o damaged assets to be restored;
very profitable as recent studies show. Making o projects, software that have to be
a comparison on several years from Computer done again;
Security Institute’s studies done every year; in o lawsuits;
2009 the losses have decreased as shown in o computer forensic investigations;
the table and graphic below. o loss of clients;
o interruption of activities and
Table 1. Losses services;
o interventions to re-establish
Losses in everything to normal;
Year o business recovery and marketing
million dollars
expenditures;
2005 $204,000 o loss of trustworthy employees;
2006 $168,000 o lost time due to malfunctioning of
2007 $345,000 systems and activities’
interruptions and re-establish
2008 $289,000 their normal functions;
2009 $234,000 − Materials coming from damage of
assets;
− Data coming from:
o databases modification, blocking,
theft;
o theft, destruction, vandalism of
hardware and other physical
devices;
o damaged documents and reports;
o damage of backups and storage
devices;
o intellectual property loss and
theft;
Graphic 1. 2005-2009 Losses
34
o theft of both employees’ and data, documents. People, forced by the

organizations’ data, physical and economic situation try to get money fast, and
electronic documents destruction. this is why cybercrime became cash from
Losses coming from internal attacks can be cool. People don’t find electronic attacks
reflected in the depth, quantity and value of interesting but dangerous no matter how
informational assets, reputation and they are done.
organization’s image. Most of the time, Employees are the first suspects in computer
attacks from inside stay inside in order not investigation and the reasons they go bad
to affect the image and to lose clients. are: money gain, revenge, pride, competition,
Regarding the insider threat, it is divided in fun, harassment, terrorism and any other
two categories, malicious insider threat and combined reason of those just mentioned.
non-malicious, and the situation is reflected Some organizations do not have strong
in the next graphics. access control or security policies and that is
why employees take advantage of their
rights in computer networks and access data
and files.
An insider is anyone in an organization with
approved access, privilege, or knowledge of
information systems, information services,
and missions [3]. By default, insiders are
trusted; they are already on organization’s
systems and usually within or behind most
of technical security controls. They usually
have some type of authority on the systems
they plan to attack. In some cases, this
authority is highly privileged (e.g. systems
administration) allowing the insider either
Graphic 2. Malicious threats from employees to abuse that privilege or gain higher
and their losses privileges through some means (e.g., social
engineering, shoulder surfing, sniffers, and
so on) [4].
Taylor (cited by Reyes, O’Shea) also notes
the problematic nature of attempting to
define computer crime and presents four
categories of computer crime or cybercrime
[5]:
- The computer as a target. The attack
seeks to deny the legitimate users or
owners of the system access to their
data or computers. A Denial-of-
Service (DOS) attack or a virus that
renders the computer inoperable
would be examples of this category.
- The computer as an instrument of
Graphic 3. Non-malicious threat from
the crime. The computer is used to
employees
gain some other criminal objective.
For example, a thief may use a
As we can see insider threat coming mostly
computer to steal personal
from employees are malicious, those done
information.
with intent like using viruses and other
- The computer as incidental to a
malware to steal something or do some
crime. The computer is not the
damage, and non-malicious like mistakes or
primary instrument of the crime; it
sending malware without intent. But
simply facilitates it. Money
comparing figures 2 and 3 we state that
laundering and the trading of child
most damages are done unintentionally and
pornography would be examples of
non-malicious. By mistake or without proper
this category.
training, employees could delete records,
35
- Crimes associated with the businesses, surfing for fun, find new things,
prevalence of computers. This play games, buy things in their or somebody
includes crimes against the else’s name, download malicious software,
computer industry, such as talking to other people, finding new ways to
intellectual property theft and commit electronic attacks.
software piracy. But let us see what is valuable and
Every author might state his or her own important to others, including the employer
opinion on computer crimes. Every country and could cause rule breaking, electronic
has its own point of view stated in legislation attacks launching and risks assuming in
made according to what has happened and order for organizations to know what they
the international collaboration. For more have to protect:
definitions for computer crimes we could - information on other employees,
look in every country’s legislation but we identities, bank accounts, cards’
have to state our own opinion on this PINs for personal use like buying
subject. goods in others’ name, revenge,
We consider computer crimes to be curiosity, fun, etc.;
traditional and new crimes committed using - information on transactions made by
information and communication technology organizations, clients lists, projects,
which have as result some type of loss for innovations which will be sold to
the victim either an organization or an competitors for important sums of
individual. It could also be any crime that money or for other political or
uses electronic means and has as way of personal interests;
getting to the target computers’ and - payments, acquisitions, sells,
networks’ security surpass. It involves expenses, incomes in industrial or
people, technology, information and economic spying;
knowledge. - databases as they have intangible
In times of economic difficulties, computer assets like passwords, accounts,
crimes seem a comfortable and easy way to research projects, financial reports,
get somebody else’s money. But in order to software, formulas and other
become a computer crime, first it has to be a intellectual properties;
threat that materializes in a crime through - discussions among managers,
electronic attacks as we can see in the figure images, video images, employees’
below. errors for blackmailing or revenge.
As we can see everything in an organization,
Electronic every asset whether tangible or intangible is
Threats Computer crimes
attacks
valuable if sold to other organizations.
Insider threat becomes real when electronic
attacks are launched and losses rise in
Figure 1. From threats to computer crimes different forms.
Current recession is increasing the security
Abrahams states that periods of falling risk for organizations. The greatest danger
employment and increased personal that poses as threat to sensitive information
financial pressure inevitably result in a of the network is the former workers. They
commensurate upward swing in criminal still have access to their accounts until the
activity. As individuals’ finances are employees with the job to disable the
squeezed, they will revert to the lowest cost accounts do their job. Until this is done if it
purchasing route available – the internet [6]. is really done, former employees surf the
As we can see, Abrahams limits only to the network and steal important information.
internet but let us ask ourselves what is Afterwards they use it to blackmail the
happening inside an organization as organization or sell it to competition. The
employees could do business in their work longer the economic crisis the more damages
schedule and we say that it is the same, no to organizations and countries rise.
matter in which physical locations they are, IT specialists tend to use their skills to do
using of course the internet. It is true that illegal actions like stealing databases,
they have used and still use employers’ accounts and sensitive information both for
resources for their own benefits. On Internet organizations and employees. Governments
they can spend time conducting own
36
and organizations focused since the - environmental infrastructure -

beginning of the global crisis to overcome the electrical power, communication
economic difficulties leaving other activities services, buildings, and
such as information security on second place. environmental controls; and
Police enforcements are busy with - humans and the information they
traditional crimes which have risen from the possess to run the system.
same reason, lack of jobs, money, future To guard information assets, organizations
perspectives and computer crimes are placed must guard all of these resources. This very
on second place even though they multiply. broad view of physical security encompasses
Now more than ever, forces must be joined to topics sometimes classified as
overcome the electronic threats. Many might environmental, personnel, and
think that first the economic problems administrative security. The second goal is
should be solved but in fact, no problem to prevent the misuse of information. Misuse
should be overlooked and postponed. can be accidental or intentional, malicious or
Halbheer says that today (cyber) attacks are well meaning. It may come in the form of
not about vandalism any more, today it’s vandalism, theft, theft by copying, or theft of
about cash [7]. services. These two goals, sustaining
Organizations must learn how to protect information and preventing its misuse, can
their cyber property as it becomes more and only be achieved by an appropriate
more valuable. In order to protect combination of devices and policies.
information users have to be monitored and In order to protect information and its loss,
be limited in their actions. Only those we have to assure all types of security.
activities that have to be done to fulfill Without power and humans, electronic
workplace’s duty must be allowed to the devices cannot work; data cannot be
computer user. Even administrators should inserted, processed and used. For example,
be supervised by the managers and even the the loss of power could lead to loss of data
managers should have limited privileges as and money according to nonworking period
they tend to spy their employees, find of time and data’s importance. The
confidential information and take advantage intervention team must be prompt and fix
in order to get revenge or have fun. the problems right away so that the losses
Guerra says that economic theory predicts are diminished. As long as people use the
that the global recession will probably devices, data can be processed and used. As
increase the amount of cyber crime as the we can see, no resource can be used without
recession deepens. This could result from a the others; they are dependent one on each
variety of causes: an increase in attacks on other.
more vulnerable and desperate people from Another security objective is to avoid
those with cyber skills joining the cyber incorrect use of information which can be
criminal ranks for needed income; and a accidental or intentional. This can manifest
decreased focus on and investment in as vandalism, physical theft and also as
computer security as a result of fewer copying data and documents and services
resources [8]. We have to sustain Guerra’s theft. Security assurance is done through
statement as we already said that adequate devices and politics use. A sure
organizations and law enforcements deal way for security of an electronic device
more and more with traditional crimes, compromising is to modify some settings in
organizations spend fewer money on security order to create some access ways for the ones
measures and personnel as their financial that want to obtain data or to block devices
resources decrease. that assure security.
According to Michael, the role of physical The human part of physical security is the
security is to protect the physical expression establishment, implementation, periodical
of information [9]. It just does this in two politics review and employees training.
distinct ways. The first goal is to sustain the Organizations have to be sure that
data by protecting its entire physical support employees know all the policies there are not
structure, specifically: only those concerning security but also the
- hardware, in the broadest sense - others (for example general rules,
storage and transmission media and responsibilities and of course consequences
information processing machines; of illegal actions).
37
Some of the physical security measures are: 4. Conclusions

special rooms for devices, activities
surveillance, employee monitoring, access The lack of dedicated and ongoing training,
control, cameras surveillance, shredding of sufficient remuneration, or even a clear
documents that are no more needed and career path, perspective of job loss is causing
destroying devices that could contain data cyber crime specialists to be lured into
and are used no more. underground economies.
Hardware security involves system integrity Perhaps one of the most illegal action done
assurance, as the IT team should keep up by employees is computer fraud as they gain
with the operations done using hardware some money (we have already specified that
and respond immediately when some this is the main reason for crime either
problem occurs somewhere. Proper traditional or electronic). Having access to
configuration of hardware is vital for the the organization’s resources, employees steal
good ongoing of the operations. Whenever data or just modify it in order to cover their
needed, the documentation should be theft.
complete and available. If hardware has very There are cases in which an employee stole
good performances and are bought form some money, altered the incomes, the
trustworthy producers which assure rapid recordings in accounting, deleted the log files
services for any malfunction then the on servers, so that nobody found out and still
organizations have nothing to fear about. they were discovered as either they made a
Hardware security is about keeping the mistake, they told somebody else of their
hardware functioning at its optimal “great” deeds or were discovered by
parameters and right away intervene in case computer specialists which deal with
of malfunctioning with all the computer crimes and know what to look for.
documentation, knowledge and tools needed Sometimes, stealing 1 cent a day or a weak,
to fix the problem in a very short time. in a long period of time it gathers a large
Software is used every day for data sum of money and a big loss for an
collecting, processing and displaying and organization.
that is why it faces both internal and We have seen in this paper that employees
external threats along its lifecycle, from its do represent a real threat and must not be
distribution and install to the phase when it ignored and they have to be monitored.
is gotten out of use. Threat exposure is Training is very important as employees
grater if software is used both inside and should be told what to do, what are their
outside the organizations by employees, responsibilities, what they have to do
customers, and partners and so on. When regarding information security,
implementing new software, the consequences of their actions,
organizations have to be sure that along the responsibilities after something has
development process their demands are happened like an unwanted event. We get to
respected as well as the security measures the conclusion that the main reason for
required by the protection of information. doing cybercrimes is mainly the money as
Producers have seen the demands of their there are hardships during economic crisis.
clients regarding security software and they Before this hardship the reasons were
have developed all types of software, from money, together with fame, revenge, fun and
antivirus to full solutions containing spending time.
antivirus, firewall, and intrusion detection In order to prevent cybercrime or computer
and so on. Unfortunately, no matter how crimes, organizations have to know their
much effort, time and money the producers employees and especially their IT specialists
put into software development, there will as they have access to most of the resources,
always be somebody or something (like a monitor their employees and train them.
virus, a Trojan or other malicious code) to This paper’s main objective was to underline
surpass it. the situation of cybercrimes during economic
crisis and to suggest that organizations
should not place information security on
second place and should allocate the
necessary funds in order to prevent
unwanted incidents such as electronic
attacks.
38
Future research could be focused on security [9] Michael, Mark. 2006. “Physical Security
measures, ethics, training methods, Measures”, in Bidgoli, Husein (ed).
technologies for monitoring and surveillance, “Information Security Handbook. Threats,
human resource management, business Vulnerabilities, Prevention, Detection, and
opportunities and any research related to Management”, 3rd Volume, Wiley Publishing
the subject of economic crisis, computer
crimes and employees.
References
[1] The 7th Annual e-Crime Congress,

KPMG. 2009. “E-Crime Survey 2009”.
[2] Richardson, Robert. 2008. 2009. “CSI
Computer Crime & Security Survey”,
Computer Security Institute.
http://www.gocsi.com/forms/csi_survey.jhtml;
jsessionid=NJBL3SYTS0X1FQE1GHPCKH4
ATMY32JVN
[3] Maybury, M., Chase, P., Cheikes, B.,
Brackney, D., Matzner, S., Hetherington, T.,
“Analysis and Detection of Malicious
Insiders”, Submitted to 2005 International
Conference on Intelligence Analysis,
McLean, VA, USA,
https://analysis.mitre.org/proceedings/Final_
Papers_Files/280_Camera_Ready_Paper.pdf,
Accessed November 2009
[4] Rogers, Marcus, “Internal Security
Threats” in Bigdoli, H. (ed.), “Handbook of
Information Security. Threats,
Vulnerabilities, Prevention, Detection, and
Management”, 3rd Volume, Wiley Publishing,
2006
[5] Reyes, Anthony. O’Shea, Kevin. Steele,
Jim. Hansen, Jon. Jean, Benjamin. Ralph,
Thomas. 2007. “Cyber Crime Investigations”,
Syngress Publishing
[6] Abrahams, Charlie. 2010. “Comment:
Cybercrime - Still a growth industry?”.
Infosecurity Magazine.
http://www.infosecurity-
magazine.com/view/6169/comment-
cybercrime-still-a-growth-industry/
[7] Barnetson, Denholm. 2009. “Economic
crisis’ to boost cyber crime’: Microsoft”.
http://news.theage.com.au/breaking-news-
technology/economic-crisis-to-boost-cyber-
crime-microsoft-20090417-a92m.html
[8] Guerra, Peter. 2009. “How Economics
and Information Security Affects Cyber
Crime and What It Means in the Context of
a Global Recession”.
http://www.blackhat.com/presentations/bh-
usa-09/GUERRA/BHUSA09-Guerra-
EconomicsCyberCrime-PAPER.pdf
39

LABOR MARKET INSERTION OF YOUNG PEOPLE IN ROMANIA *
ANGELESCU CORALIA
Faculty of Economics/Department of Economics and Economic Policies/Academy of
Economic Studies, Bucharest
coralia.angelescu@economie.ase.ro
ACELEANU Mirela Ionela

aceleanu_mirela@yahoo.com
CREȚU Alina Ștefania

chenicalina@yahoo.com
Abstract terms of the current economic climate, of the

It is often noted, with reason, that the training of youth, of the improvement of
labour market situation of young people inclusion through education, by linking the
depends to a large extent on economic and education programs with the labor market
employment trends affecting the economy as a requirements, through the flexibility of labor
whole. market.
This paper presents the general
context of labor and youth employment Key words: labor market, insertion,
problem in the labor market in Romania. In employment, education, flexibility
this respect it is shown the situation of
inserting the youth into the labor market in
Introduction
The paper The Insertion of youth into categories and skill levels, on sex and age etc.
the labor market in Romania is based on As a secondary market, it receives the
presenting the characteristics of the labor influences of the other markets and also
market in Romania, caused by the human generates effects that occur in all the socio-
specificity of the object that it operates with economic sectors.
and presents the analysis of some aspects The labor market is behaving, on the
regarding the inclusion of youth, in relation to one hand, as any market and on the other
the situation registered in other European hand, has its own characteristics, determined
states in the current economic context. by the human specificity of the object with
Labor market was formed and which it operates and of the services
operates in conjunction with the role of labor generated by it and that the entrepreneurs
in economic and social development and with buy.
the general requirements of markets and price The specificity of the labor market
theory. intertwines with the secondary one. As a
Man is more than merchandise, so secondary market, it is intended to ensure the
that the labor market has a special place in social-economic activities with the necessary
the economic theory and practice, being a work resources. If the produced goods with a
secondary market and the most regulated one. certain labor find no buyers, then neither the
It is heterogeneous, comprising several work resource used to produce that commodity
segments on gender by activities, on economic will find demand.
areas, on professions or occupations, on
40
be independent in a globalized world economy.

The historical experience shows that More so, the problem of insertion/reinsertion
the labor market always involves establishing of young people on the current labor market is
relationships between the carriers of the very important in the current economic
demand and the labor offers. This raises some environment, who knows both increases in
specifics about the adjustment of supply and unemployment on a general and youth level.
demand, about the formation of the price of On this economic background there are
work, about the existence of a system of norms intensifying the efforts to search for solutions
and social values. everywhere, appearing a consensus of
The labor market characteristics, in economically advanced countries, meaning
terms of its specificity, can be realized as it that getting out of the crisis and resuming a
follows: healthy growth can be achieved by
 the labor market is a market stimulating both the investment in
with high rigidity and infrastructure, and especially by developing
sensitivity, it is conditioned by the human capital through education,
the general economic research and innovation.
equilibrium and social politic It is widely accepted the idea that
one; young people into the labor market play a
 the labor market reflects decisive role in determining the economic and
interrelations between social welfare in their further development.
demographic realities that Thus, the labor market insertion of young
determine the offer of people is influenced by several factors, such as
employment and socio-economic restructuring and economic developments, the
development that generates the proliferation of new forms of employment,
demand for labor; unemployment among young people,
 the labor market is highly extending the period of education, migration
regulated and records the most and increased geographical mobility.
influences by many factors; In Romania, as in most countries of
 the labor market records during the UE, youth unemployment remains a social
time a specific segmentation; issue with important implications for the
 the labor market mechanisms whole society, thus facilitating the transition
have a high degree of from school to work which must become a
imperfection, for example, national priority.
salary is not the only one and, Our paper responds to these problems
often, neither the main lever for by analyzing the influencing factors of the
regulating the employment and inclusion of youth into the labor market in
use of labor resource; Romania, providing solutions on its
 the labor market reflects the improvement through education and training,
way in which there are provided by improving the labor market flexibility. For
the employment resources on this, we rely on specialized studies in the field,
departments, on sectors, on using sources such as Eurostat, INCSMPS,
professions and on skill levels. INS, and the results of some researches of the
The international labor market is National Institute of Scientific Research on
constantly changing because of the new the Labor and Welfare (INCSMPS) and of the
emerging technologies and therefore because Institute of Projects for Innovation and
of the role of increasing importance of the Development (IPID).
human capital in an economy increasingly
based on knowledge. On the other hand, we
live in an era in which most of the social and Literature review
economic life is determined by global
processes, where the cultures, economies and The challenges that aim at the labor
national boundaries have begun to disappear. market in Romania are related to reaching the
The economic and financial developments in a employment targets set in the Lisbon
country influence and are influenced by European Council, to achieve an employment
developments in other countries, along with structure based on the increasing
the globalization. The current crisis has once productivity, reducing the youth
again confirmed that economies are unemployment, by adopting a model of
interconnected and no region of the world can
41
economic growth based on the increasing In the current economic crisis,

employment. exacerbated by the organizational and
This paper points out the research macroeconomic failure, Romania must pursue
findings in the Project PN-CDII, No. 91-020, the modernization of the labor market, to
Determinants of labor market insertion of adapt the educational system to the market
graduates of higher education in Romania, requirements, to revive the scientific research
Development period 2007-2010, Coordinator and innovation, with emphasis on the
INCSMPS Bucharest, ASE Bucharest partner. relevance of the economic practice, to pursue
Among the important papers in this field we the flexibility of labor market and assuring
mention: Alves, M. G.: Perspective educative the conditions necessary for the development
sur l’insertion professionnelle des diplomes de of an optimal competitive climate. (Yifu Lin
l’enseignement superieur, Neagu, Gabriela: Justin - Senior Vice President and Chief
Education, employability and occupational Economist of The World Bank: The impact of
mobility, www.iccv.ro, Niall O’Higgins: Young the financial crisis on the developing countries,
People in the Labor Market in South East 2010, http://siteresources.worldbank.org).
Europe, Salas, M: Estimating the
determinants of the transition from higher Paper Content
education to work of European University At EU level, the knowledge of labor
Graduates. market entry process of young graduates and
Noteworthy is the fact that the the characteristics of this process have become
flexibility in recent years has been in the a priority both in formulating employment
spotlight in terms of the specific labor market policies, as well as in the educational ones. By
policies. Thus, by flexibility it takes place a evaluating the employability of young
better adaptation to new, to change. This graduates we obtain on the one hand an image
involves, among other things, a certain of youth transition from school to work, of the
structure of the educational system, a degree of consistency between the existing
structure of training systems at work, a strong supply and demand at a time in the labor
law, a labor market flexibility and mobility. In market, and on the other hand, the essential
this regard there are noted these publications: information on the effectiveness of the
Elke Viebrock, Jochen Clasen: Flexicurity and educational act.
welfare reform, www.oxfordjournals.org, In the EU, the unemployment rate
Maria Poenaru: Flexicurity versus labor among young people remains high in all
market rigidity, www.ier.ro. countries, especially amid the current crisis.
Unemployment rate by age < 25 years (%)
2000 2005 2009

European 17.3 18.4 19.6
Union (27
countries)
Italy 27 23.9 25.3
Germany 7.5 14.2 10.3
France 19.6 21.1 23.3
Poland 35.1 36.9 20.6
Hungary 12.4 19.4 26.5
Slovakia 36.9 30.1 27.3
Bulgaria 33.7 22.3 16.2
Romania 20 20.2 20.8
Source: http://epp.eurostat.ec.europa.eu
Romania has a youth unemployment Spain (37.8%), Lithuania (33.6%), Estonia

rate by 1.2 percentage point higher than the (27.5%) and Slovakia (27.3%). A youth
one recorded in the EU 27 level (in 2009). A unemployment rate below 10% is recorded in
higher level of this indicator is recorded in Norway (8.9%) and Netherlands (6.6%). The
42
table above shows the evolution of and construction area. Also significant
unemployment among young people under the reductions occurred in the fields of wholesale
age of 25 years, during 2000-2009. If during and retail, agriculture, mining, transport and
2000-2008, some countries have experienced a storage, real estate.
decrease in this indicator, after the financial Therefore, the issue of employment in
and economic crisis started (early 2008) there current conditions is a major one. As
was an increasing trend of this indicator in all investments go down, creating new jobs is an
EU countries. unattainable goal, and this leads to increased
A survey of the National Institute of unemployment, and also affects the graduates.
Statistics in 2009 shows that one year after In the context of the growing importance of
the end of their studies, 60.9% of the education, young people with low education or
university graduates had a job, and among no education face a higher risk of
people with low education there were unemployment and labor market exclusion.
employed only 14.6%. The projections for the Analyzing the influencing factors
job creation show a polarization of highly insertion of the youth labor market in
skilled jobs. At the same time, there is little Romania, we believe that they are related to
prospect of creating jobs for skilled the training of young people for their socio-
professions, but also a significant creation of economic status, such as technological change
skilled jobs, particularly in services. within firms, the effects of the current
In the current economic crisis, the economic and financial crisis, which requires a
major foreign investors in Romania have continuing need to adapt quickly to the
gradually restricted their activity, passing to changing economic environment, in an
the application of restrictive economic increasingly competitive environment.
measures, with direct impact on the According to some INCSMPS studies,
employment situation. the young people in Romania consider school a
According to the National Institute of success factor, but they believe that formal
Statistics, the number of employees in August education does not provide the necessary
2009 was 4537.7 thousand persons, 40.5 information to access the labor market.
thousand persons less than in the previous Moreover, the labor market experience before
months. The decreasing trend continued as graduation has an important role, allowing an
the number of employees in January 2010 easy access to the labor market. It is noticed
reached 4333.8 thousand people. Compared to the tendency to increase the number of
August 2008, the number of employees students who work before graduation, which
decreased in most areas of activity, the biggest enhances their integration.
reductions occurring in the manufacturing
The average period between the graduation and the first "significantly" job occupation on
promotions and profiles (in months)
Profile The
average
period
(months)
Technical 4
Agricultural 4.5
Economic 4.9
Medical 5.3
University 4.9
Juridical 6.3
Artistic 4.6
Source: INCSMPS
The average period between the medical and legal profiles have expected more,
graduation and the first "significantly" job the shorter period to fill a job registering for
occupation, on promotions and profiles (in the graduates from a technical profile.
months) shows that the graduates from the
43
As solutions to the improve labor professional training outline faster and more
market insertion of young people, we suggest, clearly both the future requirements and the
on the one hand the improvement of training, possibilities of making them.
taking into account the labor market In this respect, some authors consider
requirements and on the other hand the that: "regarding the investment to be made in
improvement of labor market flexibility. education and training people, the future
reward is so great that, in balance with the
 The instructive and educational effort, it highlights the highest economic and
training - a premise of insertion also social and human efficiency, that exist in
and professional reintegration our world.” (Popescu C.:1999)
The role of education institutions is From the J. K. Galbraith's perfect
changing in a world where information is society perspective, education serves primarily
accessible through modern informational and "to broadening the perspective on life and live
communicational systems. Education becomes it to increase satisfaction. It opens the person
an integral part of globalization and a base new horizons in the language, literature, art,
economic resource that can sustain a long- music and diversity towards the world. Those
term competitive advantage. who have benefited over the years of a solid
Today, the economic analysis of education, there were no doubts for a moment
education is increasingly highlighting the link the fact that they receive, they would receive a
between the investments in educational greater reward, the opportunity to receive a
human capital and in economic growth. “The solid education generalizes and expands this
human capital is the value of the potential reward.” (Galbraith, J. K.: 1997)
that people hold in order to bring income. It Education is essential for any
includes native capabilities and talent, as well economy, on the one hand because, through
as education and acquired skills. The education, they diversify the relations
education is the slowest, but strongest growth between man and society, the individual
factor.” (Dornbusch, R; Fischer, S: 1978) having the ability to contribute as a member
Education has long been perceived as of society with something to counterbalance
a system where young people came in order to what he receives as a result of the coexistence
be formed and return to society after a decade with the others.
or two of theoretical assimilation of Moreover, the current economy needs
information necessary for the productive well-trained workforce, in terms of
work. Regardless of how much we claim to globalization and technological revolution,
humanize the educational process by which requires the development of skills,
assigning several emotional, moral or creativity, solid knowledge, a greater sense of
aesthetic dimensions, the reality is that the responsibility. “In a world like ours, subjected
changes are difficult to be managed and that to permanent change, to stagnate in terms of
is due to the fact that education remains a preparation is a loss or even harmful behavior
system with an input and an output, for the contemporary man.” (Angelescu C.:
effectively as far as the used statistics, costs, 2003)
infrastructure and personnel show this fact. The economic performance of a
(Matei Ani, Iancu Diana: 2002) country increasingly dependents on more than
In the modern society, the role and the access to new technologies and their
functions of the education form the subject of adoption of new requirements, that are
some intense debates. Each time, however, imposed to the labor market in terms of
experience has shown that the highly training.
educational communities, with a high level of
44
Percentage Employment rate by highest level of

of the education attained % (aged 24 to 64)
population Pre-primary, Upper Tertiary
having primary and secondary education
completed at lower and post
most lower secondary secondary
secondary education non tertiary
education education
(aged 24 to
64)
European Union 28.5 46.2 69.1 82.9
(27 countries)
Italy 46.7 44.5 66.5 77

Germany 14.7 45.6 74.6 87
France 30.4 46 68.3 80
Poland 12.9 24.6 62.7 83.7
Hungary 20.3 25.7 61.6 78.1
Slovakia 10.1 14.3 67.1 80.3
Bulgaria 22.5 32.3 70 85.5
Romania 24.7 42 62.2 84.1
Maxim value Malta – 72.5 Iceland – Switzerland, Norway -89.9
71.2 Norway –
80.3
Minim value Lithuania – Slovakia – Greece, Italy – 77
9.4 14.3 Croatia – 60.4
The differences in living standards There may be more general social

between countries are assigned according to benefits for a less educated population,
the International Labor Office specialists because there is a productivity growth, and,
especially the disparities between the levels of the more time is allocated to educate a person,
training and the quality employment. Thus, the more adaptable to new challenges that
the countries with high levels of education are person becomes.
serious competitors for the others, by The investing in human capital can
increasing their ability to adapt better to new bring to people not only the best technological
technologies, to the challenges of knowledge, but by educating potential
globalization. People are, in this view, a vital innovators, it leads to advanced knowledge
resource of any organization that ensures the and contributes to the economic growth.
survival, the development and its competitive Another reason in supporting the
success, in other words, the competitive increasing of education is the gain of a greater
advantage of a company lies in its people. stability in the labor market, which reduces
(Manolescu A.:2003) the default risk of unemployment and allows a
Thus, the investment in human "soft" insertion on the labor market.
resources is the most important investment of The educated people have a higher
the organizations and of the society, whose participation rate on the labor
results become more evident over time market and their period of active life
because, the ideas, the known facts, knowledge is generally greater than those with lower
in general can be used and reused education. This is seen in the table below. The
indefinitely, it is assessed on the extent of use, employment is the highest in people with
thus helping to propel the growth process. higher education and lowest in those with
primary education.
45
absorb the new jobs created through these

Persons with low educational attainment programs, there is a need in Romania to draw
and employment rate by highest level of strategies for a better development of the
educational attained (% of age group 24- educational and economic activities. It is
64 years) in 2009 known that a certain preparation is often
Source: http://epp.eurostat.ec.europa.eu sufficient to find a job due to the lack of
capacity to absorb the labor market. Thus, it
Romania has an employment rate of is needed a better definition for the economic
people with higher education of 84.1%, 62.2% and educational objectives, a coordination of
persons with secondary education and 42% the assistance from local and external sources
people with primary education. The highest and improving the monitoring and evaluation
level of employment of persons with higher activities.
education is recorded in Norway (89.9%) and Currently, all studies of developed
the lowest in Italy (77%). Among the rate of countries but also of the international
employment of people with primary education, societies indicate that the technology becomes
it is noticed, in respect to the average rate in an increasingly important part in the lives of
the European Union, the lowest level is young people. This development has profound
recorded in Slovakia (14.3%) and the highest implications for the allocation of time between
in Iceland (71.2%). A high proportion of people different activities, how to interact with each
with primary education in the examined other.
countries is recorded in Italy (46.7%) and It takes place the development of a
France (30.4%), Romania reaching 24.7%, virtual market work for finding a job and
below the EU average level. recruiting the staff, via the Internet at a lower
To actively contribute to improving the cost and in a much shorter period of time. The
adaptability of workers on the long term, an contemporary labor market becomes more
important role is occupied by the improvement flexible, that is why there must be a
of access to education. This area of connection between the labor market and the
intervention is to prevent and combat the e-learning market, including schools,
marginalization and social exclusion by universities, training conducted within firms.
improving the participation rates in education In the European strategy for
with emphasis on the access to education for employment, the European Commission and
the disadvantaged groups and children living Member States pay a particular attention to
in poverty. Furthermore, an important role in young people as a key target group in their
adjusting the employment to labor market joint efforts to reduce and prevent
needs it also has improving the quality and unemployment. Especially in conditions of the
affordability of services of initial training. new economy, young people will have to
These will address both to the professional prepare more and more and develop their
educational institutions and to the native skills to compete in the labor market.
beneficiaries of subsidized training courses The guidelines regarding the unemployment
combining training, training schemes for have always referred to the Member States
trainers and investment to improve the aim to give all young unemployed people "a
existing facilities. This type of intervention is new point of departure" before reaching six
expected to cut the number of unemployed high months unemployment. Firstly, the young
school graduates or qualified professional. graduates will compete for jobs with people
The analysis of supply and demand for who already have a position in the labor
university education in Romania highlights market and, secondly, that their preparation
both achievements, and also some distortions may not correspond to the existing labor.
that occur, especially in linking the supply
with demand for education, making difficult Developing a new economy requires a
the labor market insertion of young graduates. growing number of completely new and
On the other hand, the educational offer must evolving professions. This development puts
take into account the rapid pace of change pressure on a new paradigm in the learning
that makes each sector needing constant systems, focusing on e-education, on lifelong
updating of skills, in addition to acquiring the learning, on forms of non-formal and non-
knowledge and skills. conventional education. Thus, after the Lisbon
Given the fact that it is necessary for conference, the educational and training
the economic activity to support both the components included in the guidelines were
education and training activities and also to strengthened to emphasize the need for that
46
the Member States, together with the social necessity, given the process of structural
partners to develop and implement a coherent change in the labor market in Romania. By
and comprehensive lifetime education and providing an increased adaptability of the
training. There are made references regarding labor market it will increase the capacity to
the need to "equip young people with basic anticipate and absorb the economic and social
skills relevant to employment", to "reduce the changes. The goal of developing a modern and
illiteracy among young people", to "reduce flexible labor market is in line with EU
substantially the number of young people who priority to improve the quality and
leave the school”. If in the education systems productivity, by developing and upgrading the
in Western Europe learning is increasingly skills according to the modern technologies
becoming an industry, the Romanian one did and to the value added sectors. The workforce
not show a similar trend. What you see and businesses will have to adapt to the new
instead is a marked imbalance between the technologies, being in the necessary position
curriculum of secondary and higher education for a permanent new approach.
and the structure of professions "required" by Flexibility is the socio-economic and
the New Economy. There is not a sufficient demographic process that means improving
suitable institutional framework and the the economic, educational and demographic
training is devoted almost exclusively to conditions in terms of reducing the stiffness of
under-qualified workers. No fiscal or any labor supply and demand. This concept
other incentive is offered for the training describes on the one hand the changes carried
activities, and the concerns for the continuing out in the nature of the work, targeting
professional training are not sufficient. diverse forms of employment, on the other
(Jinaru, A; Caragea, A; Turlea, G; Feldman, hand, the changes made in the technology
J.F.: 2002) used. It should be considered the difference
Since the performance of the between the concept of “flexibilization” and
Romanian economy and its ability to cope with flexibility, the latter accounting for the
the competitive pressure and market forces process and product “flexibilization”. This
within the EU are directly linked to the refers to acquiring and growing the capacity of
quality of the human factor and the structural labor market to adapt to the conjuncture and
adjustment of labor, an important place in the to the national and international
measures of the government programs must environment, for a better functioning.
have the actions aimed at the increasing
employment training, in the same time with The “flexibilization” of the labor market
its retraining and reorientation according to imposed itself to the general concern, in all
the current and foreseeable demand in the countries and key institutions of the labor
labor market. The global environment market, employers, unions, governments. It
requires the need for Romania to adapt to the can be seen as "the capacity to adapt to
new knowledge economy conditions, where the change, without prejudicing the financial or
competitive advantage is achieved through human resources means”. It is considered that
innovation and highly skilled workforce. The the flexibility is essential in the current
powerful companies, the future ones are those period, because it gives the labor market the
who can produce, own and control ability to adapt to the conjuncture and to the
information. national and international environment, and
Intensifying the international ability to contribute decisively to the
competition requires the workers to prepare conciliation of the economic efficiency with the
better and to adapt to change. The global social equity, the profitability with the social
economic competitiveness is increasingly protection, a better functioning of labor
based on knowledge and skills. Thus, the market with a better combat on
education and lifelong "learning by doing" unemployment and social insecurity,
method lead to a greater labor productivity, preventing the negative effects of
which corresponds to an increase in the technological change.
human capital stock. One of the problems that Romania has is
the low labor market flexibility. The main
 The flexibility of labor market - a reasons are the reduced flexibility of the
way to improve youth labor educational system, the high level of its
market insertion contributions, the wage rigidities of the Labor
The increasing adaptability of workers Code, the lack of effectiveness and diversity of
and enterprises to current conditions is a services regarding the quality of employment.
47
All these influence the integration of young participate to it even after many years after
people in the labor market, which can be they graduated.
improved by: qualification programs and The years preceding the economic crisis
retraining of unemployed people, information are characterized by economic growth, but not
and counseling to individuals seeking by the ability of the economy to generate jobs
employment, labor mediation through active adequate for the higher and higher
involvement of the ANOFM concerning the employment levels of training. It is noted that
placement of labor, improving the labor code. the educational system does not keep pace
In other countries with a more flexible with the development in the labor market, but
labor market, the students must not decide on it offers generations of increasingly large
their future profession at the age of 18 years, university graduates.
but at 20-21 years. Furthermore, the students The occupational mobility decreases with
should not decide on a profession without age, however, maintaining high levels. The
knowing anything about it, but after INCSMPS studies show a higher propensity of
participating in several courses in this area. young people to occupational and territorial
This is because the universities are organized mobility than to the external mobility. On the
differently: students participate in the first other hand, surprisingly, graduates rather
two years at basic courses and courses in the prefer a job`s security and a lower pay than an
areas selected by them. Only then do they unsafe workplace and a higher salary. In the
elect an area which they would like to study chart below it is highlighted the very high
more. If the choice turns out to be wrong, they incidence of initial job change among young
can change it quite easily because they people: about 70%. On educational profile, the
already have the base courses. In general, in lowest occupational mobility is in medical
order to change their field of activity it is graduates and the highest one in the arts and
necessary another year of study, but they can agriculture graduates.
Chart no. 1. Do you still practice the job

aquirred in school? On age groups, 2007(%)
48
The main reasons for the job change in the initial training and those aged 35 years
obtained by initial training, on age group is as changed the workplace for other better jobs.
it follows: young people aged 15-34 years
changed job because they found employment Chart no. 2. Reasons for job change by
initial training, on age groups, 2007 (%)
Source: INCSMPS, Comprehensive surveys of

labor dem
The Labor Code contains provisions that have including the pre-establishment stage of the
induced certain rigidity in the labor market company.
performance, mainly by: Another component of the labor
 the disproportionate regulation of the market flexibilization refers to supporting the
obligations of the parties of the training and obtaining the management
employment relationship, support, that can make from the
 introducing some bureaucratic dismissal entrepreneurship a career option, this action
procedures and restrictive conditions to having allocations in the European Social
end individual contracts of employment Funds in 2007-2013. It aims to encourage the
for a fixed period. corporate responsibility by providing
Therefore, in 2006, there were completed incentives for the employees, to develop
the provisions of Labor Code (OUG no. companies and careers, but also for the
55/2006 published in MO no. 788/18.06.2006) awareness of employers and employees on the
regarding the flexibility on procedures for need for continuous training.
collective dismissals, on the development of From this point of view, the Public
Pre- dismissal services, on the administrative Employment Service (SPO) will provide grants
simplification, to support training and of financial benefits for the employers to
obtaining the management qualifications. organize training programs for employees.
The flexibility of the collective Simultaneously with the increase of
dismissal procedures make the companies to labor market flexibility, it is necessary to
be able to resize their activity according to improve the level of protection of employees,
need, ensuring the protection of the workers including by individual responsibility about
who are to be fired. their efforts to find a job. From this
In the regional agencies for perspective an important role has the Public
employment (AJOFM) there will be developed Employment Service (SPO) who will refocus
pre - dismissal services, for those who will be their active measures on groups of
dismissed following the restructuring unemployed people who are reluctant in
operations carried out by employers. These engaging in programs of activation or who go
services consist of information, recruitment through difficulties in finding a job by:
and retraining.  increase the attractiveness of jobs;
Regarding the labor direction to the  the development of customized
conducting independent economic activities, support services for the unemployed persons,
as individuals (self-employed persons) or as especially for the long-term unemployed
family associations there were initiated a persons, youth and vulnerable groups;
series of measures for the administrative  improvement of training services
simplification and to cover the effective for older workers seeking employment;
operationalization of the company, which  increase the quality of services
consist of advice on the idea of business provided by the Public Employment Service.
49
Regarding the social security, by It will also be encouraged the

modifying the law on unemployment improvement of the system of wage
insurance system, the calculation of negotiation in the collective and individual
unemployment benefits was changed, so that employment contracts so as to reflect the
the allowance has currently a higher degree of training and work experience of the employee.
replacement of lost wages for workers. Thus,
taking into account the number of years and The requirement to include in the collective
the contribution to the unemployment agreements the clauses on training, and
insurance system it is expected for this compensation in case of dissolution of the
calculation method to bring in the future a individual employment contract, are measures
closer evaluation of the relationship between that ensure a certain level of employee safety,
the cost and benefit of a job search and a high but at the same time and a better opportunity
presence on the labor market. to reintegrate on the labor market.
Conclusions The national labor market problems in

Experts consider that the young Romania are generally caused by a reciprocal
people transition from school to work has relationship with economic growth level – the
become longer and more difficult now than in new jobs created are insufficient, the
the past few decades (OECD). Today few of adaptability and mobility of the workforce are
the young people leaving the education system maintained at low levels, which require
manage to integrate quickly into the labor strategic approaches to reduce the
market and to secure the newly gained discrepancies between supply and demand for
position. The high rates of youth professional qualifications of the labor market.
unemployment and the significant incidence of The labor productivity growth is one of
underemployment among them indicates the most important solutions in developing a
important difficulties which young people healthy economy; it depends very much on the
experience in the transition from school to quality of labor. Therefore, the employment
work. This phenomenon occurs not only in the policies and strategies should follow the
developing countries but also in the advanced increase of investment in human resources,
economies where the active measures and investment in training of young / adult at the
support programs are well developed. The company level, providing the access to all the
prolongation of the transition period from relevant information on education and
school to work is explained by several factors, training opportunities.
most important of which are the restructuring It must be also imposed the increase
and economic developments, the proliferation on long-term adaptability of the workforce
of new forms of employment, unemployment according to the market demand - which can
among youth, changes in social protection be achieved by investing in human resources
systems, the extension of the educational development, according to some strategies
period. based on continuous learning, as well as
Youth unemployment is a very serious flexible labor market.
problem. The problem of young people’s entry
into working life concerns not just the
quantity but the quality of work. The key to
any effective response lies in the reform of the
education system. One major way in which References:
this may be achieved is through strengthening
formal and informal links between schools and * This paper certifies the research findings in the
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are put in front of the challenge to generate education in Romania, during the period 2007-
new skills to meet the new job`s requirments 2010, Coordinator INCSMPS Bucharest, partner
ASE Bucharest
which will be created under the new economy
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and to improve the youth labor market policy strategies within the context of the current
integration and adaptability capacity. labor market”, ASE Publishing House, Bucharest
2010
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Alves, M. G.: “Perspective éducative sur l’insertion

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***http://epp.eurostat.ec.europa.eu
51

THE ROLE AND IMPLICATIONS OF MEDIATION

IN PUBLIC MARKETING
ARDELEANU Anca Monica

Faculty of Business and Administration
monica_ardeleanu@yahoo.com
Abstract create and maintain relationships that will

Marketing strategies enables public satisfy individual and organizational
organizations to go about their business in a objectives.’
customer orientated fashion, since setting In the public sector much of the marketing
priorities is helpful in giving the public what related activity is concerned with the
they want. It could encompass providing satisfaction of customers despite the fact
residents with a full range of leisure, that frequently there is no direct or even
education, recreation, economic and social indirect form of competition. Having a
services, and making them aware that their monopoly in terms of supply does not in
local authority does that efficiently and itself kill off the need for marketing. In the
quickly. But, because ‘the customer is always case of the public sector a poor customer
right’ principle is sometimes compromised, image does not enhance the organization’s
the stakeholders become unsatisfied and this, image in the eyes of its other stakeholders.
inevitably, leads to conflict. Seldom these Indeed, in the context of such organizations,
conflicts are settled through justice, but most marketing may have a broader role to play
times this attitude does not lead to a by having to satisfy the needs of different
favorable outcome for neither of the parties and sometimes conflicting interests.
involved in the conflict. This is where the We might consider replacing the term
mediation can ‘fix’ the relationship between ‘customers’ with stakeholders in any
public services and their beneficiaries. definition of the role and scope of marketing
since these include customers as well as the
Key Words: Marketing, Public marketing, many other individuals, groups and
Mediation, Mediator, Conflict management organizations that deal with or are even
employed by an organization. A definition of
1. Introduction – What is public marketing that best suits the purpose here
marketing is: ‘Marketing is the management process
responsible for identifying, anticipating and
Many people think of marketing as just satisfying stakeholder requirements and in so
advertising and/or selling of goods and doing serves to facilitate the achievement of
services despite the argument put forward in the organization’s objectives.’
the marketing literature that these are just In the 1990s, the public sector in various
two of the many marketing activities carried European countries started to see its
out by organizations. clientele as customers and perceived the
Marketing activities are those associated benefits of applying marketing tools and
with identifying the particular wants and strategic marketing planning, in order to
needs of a target market of customers, and ‘sell’ policies to citizens.
then going about satisfying them at least as Public organizations employ four types of
well as or better than competitors. This view marketing, which differ from each other in
is consistent with the definition by Boone the objectives underlying them:
and Kurtz (1998): ‘Marketing is the process of - first, ‘marketisation’ means that
planning and executing the conception, certain aspects of public sector
pricing, promotion, and distribution of ideas, activities become akin to commercial
goods, services, organizations, and events to marketing in the private sector by
52
subjecting products and services to the Stakeholders interact and participate in the
competitive forces of the commercial organization at all levels. Indeed the very
marketplace. The aim is to bring down functioning of an organization may be
the price level and to bring the thought of as the outcome of interactions
standard of quality more into line with between different stakeholder groups in the
customer demands; organization. A behavioral theory of
- second, all organizations use organizations would see the decisions and
marketing for promoting their self- policies that are set as being produced by a
interest. For instance, Burton suggests coalition of people representing the ideas
that public organizations use and wishes that they are pursuing.
stakeholder marketing to secure their Outcomes may well be related to the power
continued existence by support from possessed by individual groups of
the market and society; stakeholders or coalitions between sub-
- third, in the case of local authorities, groupings.
marketing is used to promote the area With any decision that is taken or policy
under the responsibility of the public that is set there may be parties that are
organization, such as city marketing; satisfied or dissatisfied with the outcome of
- finally, marketing may be the interaction that has taken place and
instrumental in promoting key what it has produced in the way of policies
political objectives, i.e. the realization or decisions. Marketing has a dual role: to
of social effects. help promote the view that the most
The possession of a marketing strategy satisfactory outcome has been achieved and
enables public organizations to go about to persuade all parties that there interests
their business in a customer orientated have been taken into account in achieving
fashion, since setting priorities is helpful in the outcome.
giving the public what they want. It could Large public sector organizations, such as
encompass providing residents with a full municipal councils, often have several layers
range of leisure, education, recreation, of management coordinating the work of a
economic and social services, and making large number of employees. All levels of
them aware that their local authority does management therefore have to take account
that efficiently and quickly. Yet another of employees as stakeholders and take into
important priority for local authorities is account employees’ interests when setting
concerned with speaking on behalf of the policies or making decisions. Individuals in
people they serve. People expect the local such organizations who deal with the
authority to speak on their behalf and even organization’s customers or other groups
protest on their behalf, particularly when such as government departments have got
there may be a threat such as plans to build external stakeholders whose interests must
a new motorway in the area or some other also be taken into account. In all these
new development which impinges on their instances marketing has relevance to the
lives. cross-boundary interactions that have to
It has been suggested that the public and take place. In the past the public sector may
non-profit sectors are badly in need of have been lacking in possessing a marketing
improved marketing practices. However, orientation, but as shown before, this may
given the many political and economic still be the case.
complexities of the public sector, marketing The public sector is constrained in terms of
within this environment is more problematic the services it is obliged to provide and
than within the private sector. hence may be unable to implement a
In the past, public sector organizations have customer-led approach even if this is
concentrated more on the way in which desired.
services are delivered rather than on putting Constraints may include:
emphasis on the end user. Arguably this has - legislative restrictions,
developed because an organization has had - political philosophies,
an idea of what the customer wanted, or - lack of physical resources,
considered that it knew what the customer - lack of financial resources.
needed from a professional perspective. Another problem has been to do with
something which is fundamental to the
53
marketing concept – respecting the determine who was right and who was
customer’s wishes at all times. Marketers wrong. Based on their decision, either a
maintain ‘the customer is always right’, but penalty or award is imposed.
in the public sector this principle is The mediator however, does not have
sometimes compromised. The customer can authority to impose a decision or force an
sometimes be wrong and the public sector outcome, so nothing is decided unless all
organization always has to adopt the best parties agree to it. This greatly reduces their
professional practice whether the customer tension and the likelihood of parties’ clinging
agrees or not. Many public sector to an extreme position. The parties are
organizations provide services for the public empowered to decide on their own ‘win-win’
good which are often restrictive and outcome and if mediation is successful,
controlling in nature. In such cases the user usually enter into a written agreement,
is far from happy with the service. Unlike which sets out the terms of settlement.
the private sector, the public sector does not
depend on individual users for its survival: 3. Mediator’s role
many organizations are in place due to
legislation, government policies, and so on. The Mediator is trained to facilitate the
Because ‘the customer is always right’ communication process between the parties
principle is sometimes compromised, due to by skillfully navigating through difficult and
the facts presented above, the stakeholders highly emotional issues, bringing an
become unsatisfied and this, inevitably leads independent perspective to the table in a
to conflict. Seldom these conflicts are settled safe, supportive and confidential
through justice, but most times this attitude environment. The mediator acts impartially,
does not lead to a favorable outcome for assisting the parties both jointly and
neither of the parties involved in the conflict. separately to reach consensus. One of the
This is where the mediation can ‘fix’ the mediator’s strengths is the ability to create a
relationship between public services and more productive discussion than the parties
their beneficiaries. could have had by themselves. Using a
variety of communication strategies and
2. What is mediation facilitation techniques, the mediator helps
the parties determine facts; keep focused
Mediation is a non-adversarial, out-of-court and generate options to assist them in
alternative for resolving disputes between finding a solution. Often the mediator has a
two or more parties in conflict. It is a process lot of background knowledge of the issues
in which the parties to a dispute, with the and type of dispute.
assistance of an independent and impartial The mediator’s role includes:
third person (the Mediator), identify the - facilitating structured communication
issues, develop and explore options, consider between the parties;
alternatives and endeavor to reach a - assisting the parties to work out what
mutually beneficial solution to their conflict. the dispute is about by isolating the
As the costs of pursuing legal avenues to issues involved;
resolve disputes continue to rise, more - encouraging co-operative problem-
people are turning to Mediation as a more solving and discouraging the parties
cost effective, efficient, quicker, friendlier from taking entrenched positions;
and less stressful alternative to litigating. - helping to determine where the parties
With a high success rate, all parties benefit have common, compatible and
from this co-operative, voluntary approach to conflicting interests and where
resolving conflict. It can preserve or restore appropriate, selectively sharing such
important relationships and may avoid the information with the other parties;
need for expensive, stressful and lengthy - systematically exploring issues and
legal action. mutually beneficial solutions by
Mediation looks to the future. The objective focusing on the interests and personal
for all parties is to work out a resolution needs of all parties;
they can live with and trust. The focus is on - generating options that meet the needs
solving problems, not necessarily uncovering and interests of all parties in an effort
the truth or imposing legal rules, as in a to resolve the dispute;
court case where a judge reviews the past to
54
- managing and making decisions about are more often than not scheduled within a
the process to achieve a ‘win-win’ few days or weeks from the time of initial
outcome for all parties. contact. Depending on the type of case, the
The mediator principally acts as a "process majority of sessions last only a few hours or
person", and helps the parties set an agenda, a day. In contrast, lawsuits often take many
identify and reframe the issues, months, or sometimes years, to resolve.
communicate more effectively, find areas of Preserve Relationships: If the dispute
common ground, negotiate fairly, and involves another person or organisation with
hopefully, reach an agreement. A successful whom (either by choice or circumstance) one
mediation effort has an outcome that is party wants to remain on good terms, then
agreed to, and ‘owned’ by the parties mediation is an exceptionally valuable
themselves. option to consider. Taking an adversarial
The Mediator does not decide the outcome of legal alternative can ultimately ruin these
the dispute or impose any binding decisions. relationships by polarizing the other party
Most agreements are compromises and whilst mediation provides the process and
parties do not always get everything they environment for resolving a dispute without
would ideally like. A successful outcome will destroying a relationship.
be an agreement that all parties can live Confidential: With very few exceptions,
with and abide by. The mediator will not mediation provides a confidential
advise on the solution or encourage or coerce environment where what is said cannot be
a party to accept a particular solution; legally revealed outside the mediation
provide legal advice or advice on legal proceedings or used later in a court of law.
avenues available to the parties or on the However, during court proceedings, by and
prospects of success. large everything said or submitted in
connection with a lawsuit becomes available
4. The role of mediation process to the public. This can be potentially
extremely damaging to personal reputations
Early mediation enables the disputing or a business’ image and brand. Only by a
parties to evaluate the issues in their special order of a judge can information be
conflict and encourages the early resolution "sealed" from public exposure. If it is
of the matter before undue time, money and important to protect the public, the privacy
effort are expended or litigation takes on a will be substantially greater with mediation
life of its own. than with litigation.
Mediation is usually the most effective way Provides an opportunity for parties to
to resolve disputes but as it is a voluntary exit an existing lawsuit: If the parties are
process, a successful result relies on the already involved in a lawsuit, mediation
genuine commitment of all the parties offers a way to resolve the dispute and leave
involved. Each disputant should participate the court system behind. Mediation is often
with good faith and the intention of effective even if the parties have hired
resolving the dispute respectfully and lawyers and the dispute has progressed to
peacefully. all-out litigation warfare. Since parties can
Mediation should be the first choice, speak for themselves during mediation, they
not the last resort! Guided by the can suggest creative ideas, discuss personal
mediator, the parties craft their own feelings, and raise practical solutions that
solutions which effectively meet their needs litigation might discourage. The mediation
and interests. Understanding the benefits process allows parties to escape the full force
and process of mediation is an important of the lawyers' approach to the lawsuit.
step before the parties commit themselves to There is the risk that when lawyers are so
it. focused on winning a case they can lose sight
Fast and efficient: If one party feels that of opportunities for resolution including
negotiating a settlement of the dispute restoring the parties' relationship. The
directly with the other party is no longer an mediator is in a position to identify the
option, mediation may be the most painless strengths and weaknesses of each side's
and successful way to resolve it. Compared position in non-adversarial terms, promoting
to a lawsuit, mediation is quick, impartial, an increased likelihood for resolution. This
private, and inexpensive. Mediation sessions may beneficially alter each party's view of
the prospects of winning (or losing) at trial,
55
and open the door to a mutually acceptable Empowering & Fair – Parties have a
settlement. In any case, it provides the greater degree of control over the outcome by
opportunity to exhaust all other options being directly involved in the resolution of
rather than taking expensive (financially the dispute and negotiating their own
and emotionally) court action. settlement. Mediation offers the highest
Greater chance of ongoing resolution: level of participation for the parties
Agreements reached through mediation are concerned of any alternative dispute
more likely to be carried out than those resolution process. Each party has the
imposed by a court. In court proceedings, the opportunity to have their ‘say’ and have
‘losing’ party is most often angry and may their concerns/needs addressed and retains
try to find ways of breaching the letter or the right to withdraw at any time. The
spirit of any imposed judgment. However, Mediator provides a fair and objective
studies have shown that people who have process in a controlled, supportive
freely arrived at their own solutions through environment for negotiations.
mediation are significantly more likely to be
committed and follow through on them Confidential – The process maintains
resulting in a prolonged success rate. privacy and confidentiality, which means
personal and corporate/public authorities
5. Benefits of mediation reputations can be preserved. Public
knowledge of a dispute can cause even more
Cost-effective, affordable solution – damage especially if the media or high
Saves time, financial, social and emotional profile parties are involved. Mediation
costs. In commercial or workplace disputes, provides the opportunity to work issues out
significant savings can be made by avoiding in private. Important relationships with
costs associated with productivity, staff customers, employees, creditors, suppliers,
turnover and opportunity loss. Emotional family or neighbors often become strained if
and financial costs of being in the legal a dispute becomes public. Discussions
system and costs of settlement are reduced between the mediator and each party are
significantly. Costs are established and confidential, increasing the prospect of
agreed upon before proceeding. All parties resolving the dispute.
share the fee for mediation services, which
are considerably less than litigation. Improves communication & preserves
relationships between the parties and
Flexible and informal process – enhances the likelihood of continuing their
Mediation can often be arranged on short relationships. Can assist in avoiding
notice and be terminated or suspended at grandstanding, power-plays and deadlocks
any time. Mediation can occur prior to or by providing a level playing field. Mediation
during litigation, or after judgment is assists in reducing hostility and increasing
rendered. understanding whereas litigation is an
adversarial process likely to exacerbate ill-
Fast and efficient – Disputes are often feeling, heighten conflict and mistaken
settled within a few hours and most assumptions between the parties. Mediation
mediations generally settle within weeks allows the parties to work collaboratively
from commencing the mediation process towards a mutually beneficial solution.
rather than months and years that can occur
with expensive litigation. Mediation often Prevents negotiations from getting
results in clarification of the issues and bogged down by moving the parties from
promotes continued negotiation, even if taking adversarial positions to focusing on
agreement is not reached initially. interests, mutual understanding and finding
common ground. Unlike litigation where the
Certainty – Decision-making power goal is to ‘win’ against the opposing party,
remains with the parties, allowing mediators assist the parties to restore co-
consensual problem solving. This provides operation and relations by focusing on the
the parties with the certainty of a negotiated present and future, not the past.
outcome rather than the indeterminate
‘lottery’ type of outcome associated with Positive Outcomes – Provides for the
litigation. exploration of an increased range of options
56
and ‘win-win’ solutions by focusing on what All the benefits of mediation, analyzed
can be changed now to resolve the dispute above, can occur in a conflict between a
and what can be done in the future to public authority and beneficiaries of the
prevent a reoccurrence. Parties are free to public service. Although the mediation is not
formulate how they wish to proceed for the well known by the parties involved in the
future and express the ground rules for this conflict, it seems that it is just beginning to
in an appropriate agreement. Mediation show positive results.
facilitates the identification and exploration Further on, there are a lot of other issues to
of all the issues in the dispute, including be examined, such as: in which public
those that may not be revealed in litigation sectors does mediation work?; which cases
or arbitration due to the application of rules are appropriate to mediation?; why
of evidence. mediation cannot be ignored?
We contend that mediation can only be truly
Not required to go to court or pay for facilitative, if it is structured against the
legal representation. Mediation works backdrop of an accessible legal system. It
with or without lawyers. Parties are not should not be mediation or law. It should be
bound by legal rules, which assists in mediation and law.
developing and reaching agreement.
References
Concludes with a written agreement
that is signed by all parties. An agreement  Journal articles
that is detailed and committed to writing Chapman, D. and Cowdell, T. (1998),
ensures all parties involved clearly New Public Sector Marketing, London:
Financial Times/Pitman
understand what was decided in mediation.
This relieves the parties of relying on their
Cousins, L. (1990), ‘Marketing planning
memories of how things were resolved and in the public and non-profit sectors’,
enables them to refer back to their written European Journal of Marketing, Vol. 24,
agreement for any clarification needed in the No. 7, pp. 15–30.
future.
Jagtenberg R & De Roo A,
High success rate and satisfaction with The New Mediation: Flower of the East in
the agreed solutions – Mediation has a a Harvard Bouquet (2001) Asia Pacific
Law Review Vol 9 No No 1.
very high success rate and agreements are
generally enduring because the parties
Kotler P. and Zaltman, G. (1971) ‘Social
themselves have formulated the agreement. marketing: an approach to planned social
There is an increased likelihood of voluntary change’, Journal of Marketing, Vol. 35,
compliance with the terms of any settlement pp. 3–12.
agreement reached between the parties as
the outcome has not been imposed on them.  Books
Bean, J. and Hussey, L. (1997),
Convenient – Time and location Marketing Public Sector Services,
arrangements suit the parties. London: HB Publications
Boone, L. E. and Kurtz, D. L (1998),

Nothing to lose – Even if the parties are Contemporary Marketing, Cincinnati:
not able to settle a dispute completely, the Southwestern/Thomson Learning.
key issues involved most likely have been
clearly identified. If however the mediation Burton, S. (1999) ‘Marketing for Public
is unsuccessful, the parties are still able to Organizations: new ways, new methods’,
take other measures, including legal action Public Management, Vol. 1. No. 3, pp.
to resolve the dispute. In this case, the 373–385
parties will likely benefit from refined
Simkin William E. & Fidandis Nicholas
discovery, early witness evaluation and
A., "Mediation and the Dynamics of
simplified preparation for trial, significantly Collective Bargaining," 43 (1986)
reducing litigation costs.
 Online documents
6. Conclusions MOTI (Marketing on the internet) (2005),
What is Marketing? Retrieved 2 June
57
2005 from
http://iws.ohiolink.edu/moti/homedefiniti
on.html
http://www.collaborateaustralia.com.au
accessed March 12, 2010
58

AN OVERVIEW OF EUROPEAN MONEY MARKET

INTEGRATION UNDER THE ECONOMIC AND MONETARY
UNION
AVADANEI Andreea
Doctoral School of Economics,
“Alexandru Ioan Cuza” University-Iasi
andreea_avadanei@yahoo.com
Abstract Key words: money market, monetary policy,

The first ten years of the Economic and financial turmoil, EONIA, common currency.
Monetary Union have generated a remarkable
increase in financial integration, even if the 1. Introduction
extent of convergence varies across different
sectors within the overall European financial The elimination of multiple currencies,
system. The scope of this article is to illustrate represented by the creation of the European
the general issues relevant for understanding Monetary Union, marks the fall of an
European financial integration by focusing on important barrier against financial
the money market. The link between the money integration. Money and bond market
market and the framework for implementing integration was an immediate consequence
the single monetary policy makes it the natural EMU. The introduction of the euro and the
starting point when trying to point out the intercept of the single monetary policy on
impact of the introduction of the common January 1, 1999, accelerated the pace of
currency on European financial market change. Before Monetary Union, much
integration. Among the various segments of the curiosity and different points of view
euro money market, the inter-bank unsecured surrounded the effect of euro adoption on the
deposit market has achieved the highest degree financial markets. As regards the money
of integration and, since the start of Stage market, attention focused, in particular, on
Three of EMU, has performed an important questions such as how smoothly the money
role in ensuring the smooth redistribution of market would integrate after the start of
liquidity among euro area credit institutions Stage Three of EMU, whether money markets
irrespective of their geographical location. The would perform their role efficiently in the
2007/2008 turmoil has led to increased monetary policy transmission process, and to
segmentation in the euro area money market. what extent EMU would affect the efficiency
The assessment of the state of financial of this market compared with that of the
integration for the last period is made very predecessor money markets.
difficult by the effects of the financial At the start of EMU in 1999, the condition of
dislocations on rates and spreads across the the various money market segments differed
different instruments and maturities of the greatly with regard to their potential
money market. However, the integration and integration, owing to the different nature of
standardization of the money market are not the instruments exchanged, as well as the
yet complete, and further evolution can be peculiarities regarding market participants
expected. and other institutional factors.
59
The gains in terms of integration, efficiency resources in the euro area and for promoting a
and liquidity achieved in each of the market more efficient pricing of short-term debt in the
segments following the introduction of the euro area.
euro depended on a number of factors such as: c) The article is structured to answer three
the degree of proximity of each market to research questions:
monetary policy implementation; the  What is the importance of European
structure of the market(i.e. mainly inter-bank money market integration for monetary
versus a customer-orientated structure, policy?
centralized versus an over-the –counter or  Which was the evolution of the euro-
non-centralized structure); its relative money market integration and which is
complexity(i.e. the number and nature of the actual stage, considering its main
instruments traded and market participants); segments?
infrastructural developments and a number of  What are the possible implications of the
regulatory, institutional and historical crisis on the integration of money market?
features. d) In order to develop hypotheses on the effect
a) The aim of this paper is to present an of the EMU on the money markets, the
overview of the European money market existing literature on the integration of these
integration since the introduction of the markets is being reviewed.
common currency in January 1999 until the
present financial turmoil, in term of evolution 2. Literature review
and achievements.
In examining developments and integration in An immediate consequence of the adoption of
the most important segments of the euro-zone the common currency was an integration of
money market, we focused on three commonly the euro-zone money and bond markets
distinguished markets: the market for (Adjaouté and Danthine, 2003; Hartmann et
unsecured deposits where credit institutions al., 2003). A number of studies analyze the
exchange short-term liquidity without the degree of European money market integration
guarantee of collateral, the repo market in from various angles.
which market participants exchange short- Santillan et al. (2000) investigate the effects of
term liquidity against collateral, and the the introduction of the euro in 1999 on euro
foreign currency swap market. We will also area bond and money markets; their study
look at the derivatives market and the concluded that while the unsecured money
markets for short-term securities. market segment very quickly became highly
b) Monitoring the integration of euro area integrated, the repo market lagged in this
money markets is important for a number of respect.
reasons. First, this market is central to the Hartmann et al. (2001) examine intra-day
implementation of the single monetary policy data for unsecured euro area lending rates
of the euro area, since it constitutes the first during a 5-month period and find cross-border
step in the transmission mechanism of the rate differentials to be very small. Therefore,
monetary policy. The monetary market is they concluded that the unsecured segment of
regularly used by the Eurosystem to the money market became very highly
distribute liquidity to the market. For integrated almost immediately after the
example, repo transactions are one of the introduction of the common currency.
main instruments used for the Eurosystem’s Gaspar, Perez-Quiros and Sicilia (2001)
regular refinancing operations. The document the story of what they called the
integration of these markets is therefore “learning period” in the money market. The
essential to allow a smooth flow of liquidity period is identified with the three weeks after
between markets and across country borders the introduction of the euro. They argue that
so that liquidity is distributed evenly within the introduction of the new operational
the money market. Beyond these framework proceeded remarkably smoothly. If
considerations, money market integration is one focuses on volatility or cross-bank
important for the efficient allocation of dispersion in overnight interest rates, the
60
effects found are much smaller that the effects member states (Dune et al. (2006), European
associated with recurring events such as the Commission (2008)). For corporate debt,
end of a reserve maintenance period. spreads can be related to sector and firm-level
This finding is all the more surprising because characteristics, with no important role for
national money markets, before the start of country-level factors (Baele at al. (2004). In
the single monetary policy, displayed relation to liquidity, Biais et al. (2006), show
important distinctive features. They also look that the liquidity of euro-denominated bonds
at the dispersion of interest rates across is superior to sterling or dollar denominated
banks. For this purpose, they use the interest bonds, which can be attributed to an open and
rate obtained by the major European banks competitive area wide market in which a large
when they lend funds in the overnight market. number of banks offer dealership services to a
In particular, each data point represents the wide array of prospective buyers.
average interest rate charged in that day by As is emphasized by Pagano and Von Thadden
each lending bank. The dataset was provided (2004), the growth in the volume of corporate
by the European Banking Federation (EBF) bond issues can be in part attributed in the
and is the one used to compute the time series euro, in relation to the contribution of the
for Euro Overnight Index Average (EONIA), single currency to the increase in competition
which is based on data from a panel of more among underwriters, which led to a
than 50 banks. It is important to emphasize substantial reduction in issuance costs and
that observations in the EBF database improved access for smaller and higher-risk
correspond to actual trends. They show that at firms.
the very beginning of the single monetary Still, caution is advised when trying to
policy, that is, during the first business week attribute the progress in integration to the
of 1999, some banks reporting to the EONIA EMU alone. It seems that some significant
panel lent at rates above the marginal lending integration has already taken place prior to
facility. EMU, as Hardouvelis, Malliaropulos and
Galati and Tsatsaronis (2001) and Gaspar et Priestly (1999) document.
al. (2003) reported that the percentage of The 2007/2008 financial market turmoil has
cross-border inter-bank lending increased been discussed extensively in the specialized
considerably around the time of euro’s press (i.e. Financial Times, Wall Street
introduction, indicating a strengthening of the Journal, the Economist), and in social
degree of integration in this segment. publications (Financial Stability Reviews
Focusing on inter-country differences, Baele et published by central banks, the IMF and BIS).
al. (2004) document the integration of money The academic literature is still in the process
markets in the euro area, using the cross- of analyzing the ongoing events (Ferguson et
sectional standard deviation of unsecured al. (2007), the articles in Banque de France
lending rates, among 12 average country rates (2008)). Several dimensions are being explored
and confirm the existence of a well integrated such as flaws in the pricing models and
market across countries. understanding of credit risk transfer products;
Gaspar, Perez-Quiros and Rodriguez- the role of securitization, SIVs and off-
Mendzibal (2004) also look at the cross balance-sheet exposures of banks and their
sectional dispersion of the EONIA overnight committed credit lines; the role of rating
rate. They characterize the distribution of agencies (Ashcraft and Schuermann (2007),
rates across contributing banks and study how Crouhy and Turnbull, (2008), Brunnermeier
it evolves over time. (2008)); central bank operations and their
As with the money markets, the level of impact (of lack of) money spreads and
general integration in the longer-term debt volatility (Taylor and Williams, 2008); the role
securities markets has been impressive. of collateral in open market operations
Although spreads are reasonably low in the (Ewerhart and Tapking, 2008); and the
government bond market, the efficiency and potential moral hazard implications of recent
liquidity of that market is constrained by interventions and innovations in central bank
differences in the issuance practices of the operating procedures (i.e. US Fed and Bank of
61
England’s securities swap facilities) (Buiter, facilities was temporarily narrowed to 50

2008). basis points, which limited the volatility that
might have been associated with the
transition to the new regime. When the
3. The importance of European money corridor was widened to its normal size, the
market integration for monetary policy market rate (measured by EONIA rate)
remained stable and close to the Eurosystem’
By definition, the start of the Third Stage of main refinancing operations rate of 3%. The
EMU had a significant impact on the money dispersion of rates across banks was also
market’s daily business. The shift in already much lower on January 22. However,
responsibility for monetary policy from the Gaspar, Perez-Quiros and Sicilia (2001)
national central banks to the ECB had a clear provide evidence showing that the transition
impact given the banks’ crucial role in the was not, strictly speaking, instantaneous and
money market regarding the distribution of that learning did take place. They identify a
liquidity and determining the level of short- number of inefficiencies and other forms of
term interest rate. abnormal behavior during the first day of the
The Eurosystem implements monetary policy month- for example, the above mentioned
through the money market. Its operational trading at rates significantly higher than the
framework is predicated on a well-functioning marginal lending facility on January 5.
monetary market, requiring only a limited However, they also show that banks have
presence of the monetary authority. The adapted quickly and easily to the new
Eurosystem’s operational framework is based environment.
on three key elements. First, reserve
requirements, with an averaging provision 3. Evolution and achievements pf the
other than reserve maintenance period, allow European money market integration
banks to spread out the impact of liquidity
shocks over time and thereby help to contain The most immediate and extensive impact of
volatility in overnight interest rates. Required EMU has been felt on the euro-area money
reserves also create a structural liquidity markets for unsecured money and derivatives.
shortage for the banking system as a whole, Almost from the outset of EMU, interest rate
ensuring that the central bank will be on inter-bank deposits and derivative
regularly required to supply liquidity to the contracts across euro area converged fully to
system. on the benchmark EURIBOR and EONIA
The second key element is standing facilities. rates. This rapid convergence reflected early
The Eurosystem provides two such facilities, a acceptance of the single monetary policy
marginal lending facility and a deposit among market participants and was
facility. Both are used on the initiative of facilitated by the availability of interconnected
commercial banks. The two standing facilities systems for real-time settlement of large-
define a corridor (or band) for overnight rates value payments in the form of TARGET,
(Posen, 2005). The third key element, open which was recently been replaced with a more
market operations, is used to control liquidity integrated platform, TARGET2. The
conditions in the market. In its regular main successful integration of these unsecured
refinancing operations, the Eurosystem uses markets was crucial to establishing ECB
repos, supplying liquidity by buying assets credibility in the very early period of EMU
under a repo or granting loans against and has provided the basis for a smooth-
adequate collateral. Money market integration functioning single monetary policy thereafter.
is therefore crucial for the implementation of In this context, the unsecured market became
the single monetary policy because it provides highly liquid and deep, with very big deal
the locus for the first step in the monetary sizes, tight bid-ask spreads and equal interest
policy transmission mechanism. rates at different locations, with the exception
During the period from January 4 to 21, 1999 of minimal differences, normally well within
the corridor defined by the two standing the bid-ask spreads.
62
The growth of the unsecured segment of the money market transactions in the euro area,
market was concentrated at the shorter is the rate at which one prime bank offers
maturities, indeed in overnight transactions, funds in euro to another prime bank in
which represented by far the largest share of exchange for EUREPO general collateral
unsecured operations. While the available (GC). The fact that EUREPO GC is clearly
information for the euro area money markets and uniquely defined for all market
is scarce on the price side, the EONIA participants facilitates cross-border trades
provides a clear indication for overnight and therefore promotes repo market
developments. The dispersion of the EONIA integration.
prevailing among euro area countries has As far as the integration of these markets is
been very small since 1999. still hindered by the differences in national
This is a key development because a common legal and tax frameworks and by the
short-term interest rate represents the first persistent fragmentation in national clearing
step in the transmission mechanism of and settlement infrastructures that make
monetary policy. difficult the cross-border movement of the
Between 1999 and 2007, the unsecured collateral. However, the implementation of the
segment was highly integrated, with the Financial Collateral Directive (FCD) has
creation of the euro area lending to a near- reduced the national legal differences and has
complete convergence in key indicators, such contributed to the grater usage of cross-border
as the overnight lending rate. Over the second collateral. Although a source of inefficiency,
half of 2007 and the first quarter of 2008, a segmentation in these markets was not
sharp widening of the dispersion in EONIA considered to be a major opportunity cost for
lending rates was seen in response to the the euro area economy so long as the inter-
financial turbulence. This could have been the bank market functioned smoothly. However,
result of two joint factors-an increase in the the liquidity problems experienced in the euro
variability of counterparty risk and a area inter-bank market since august 2007
temporarily higher home bias for unsecured amid the ongoing international financial
transactions (European Commission, 2008). turmoil have highlighted the importance of
This conclusion is supported by the positive access to efficient collateralized money
trend in the geographical counterparty markets and suggested a need for further
breakdown for 2006-2008. It appears that over effort in integrating these markets.
2007 and the first quarter of 2008 the secured Given the high fragmentation that has
segment has been less influenced by the characterized the commercial paper market
financial turbulence. Nevertheless some since the introduction of the euro; the
impact has been seen both in terms of reduced harmonization of market standards promoted
cross-border business and increased by the STEP initiative may significantly
variability of rates between countries. Outside contribute to the integration of this market
the euro area, unsecured money market segment.
interest rates were also converging up until Unlike the unsecured and secured segments,
the emergence of the market turmoil in the the market for short-term securities has
latter part of 2007. shown only limited signs of integration since
Integration has been less complete in secured the introduction of the common currency,
money markets within the euro area, such as mainly because of differences in market
the market for T-bills, commercial paper and practice and standards. An efficient
certificates of deposit, as well as the private commercial paper (CP) market is needed to
repo market. ensure the efficient financing for firms and a
The creation of EUREPO index by the smooth and timely transmission of monetary
European Repo Council and the European policy. Furthermore, the absence of a
Banking Federation in March 2002 was an sufficiently developed CP market may result
important recent initiative for promoting the in elevated and uneven costs of capital in the
repo market’s integration. EUREPO, which euro area.
was introduced as the benchmark for secured
63
Since June 2006, the STEP initiative aims at related to differences in liquidity properties
fostering the integration of this market by and credit risk.
promoting convergence of market standards.
In 2007, more than half of the outstanding 4. Main features of the money market in
euro-denominated commercial paper has been the light of the financial crisis
assigned the STEP label and its share
substantially expanded, even in a period of The European money market has been
contraction of the entire market (European particularly hit by the turmoil. In our view,
Commission, 2008). The segment has asymmetric information on credit risk played
therefore the potential to become a truly a crucial role in the transmission of the US
integrated euro area market, of a dimension sub-prime mortgage market credit shock to
comparable to that of the US market. this market. Transactions volumes, especially
Meanwhile, the markets for euro-denominated for longer maturities, have declined, and
derivatives have expanded significantly unsecured rates have been characterized by
beyond the size implied by legacy currencies, unusually high elevated spreads. As the
partly reflecting an explosive growth trend in financial turmoil unfolded, the dispersion of
such instruments on a global level, but also inter-bank lending rates across countries
the absence of liquidity in underlying cash reached unprecedented levels compared with
securities. Interestingly, the vast bulk of those observed before the crisis began and
activity in euro-denominated derivatives even in the initial stages of the turmoil in the
markets takes place outside the euro area in summer of 2007. Moreover, there are
London. indications of emerging differences between
Like the unsecured lending market, the euro domestic and cross-border rates in the
area interest rate swap rapidly became highly unsecured money market. In particular, the
integrated following the introduction of the volumes of cross-border trades declined
euro in 1999. Price-based measures of somewhat compared with domestic
integration in the euro area interest rate swap transactions. At first glance, this finding
market confirm that this segment indeed seems to indicate a breakdown of the cross-
already enjoyed a very high degree of border market with a possible segmentation of
integration shortly after the euro’s money markets across the euro area. The
introduction. On the whole, all evidence price for these transactions lowered in
suggests that the euro area interest rate swap comparison with domestic trades. Thus, a
market is not only extremely large and liquid, more likely interpretation seems to be that, as
but also one of the most integrated in the euro a result of the turmoil, cross-border inter-bank
area financial landscape. trades are now conducted mainly by banks
The integration of swaps and future markets with a relative high credit standing, who act
is significantly higher than the cash-based as money centers in the different countries of
markets, reflecting the greater concentration the euro area. The higher average quality of
in the derivatives markets among larger, more cross-country borrowers is reflected in the
sophisticated institutions. However, the short- lower interest rates. Other, most likely
term securities markets are the least smaller or less known banks are mainly
integrated component of the money markets: a trading in domestic markets, where interest
basic obstacle to a unified short-term are higher, because the average credit risk is
securities market has been the diversity in perceived to be higher. Thus, in the cross-
norms and definitions in the design of short- border context, the events seem to have
term securities contracts. enforced a two-tier system of the money
In respect with the longer-term debt market, in which smaller banks rely on
securities, the integration of this market has liquidity provision by internationally active
been impressive. For sovereign debt, spreads money center banks.
across member governments are small During the financial turmoil, the
relative to the pre-EMU patterns and can be increase in perceived liquidity and credit risks
generated a sharp increase of volatility and a
64
decline in trading activity in the euro area possessing the highest credit standing active
market not only for inter-bank unsecured in the cross-border money markets whereas
loans but also in segments of the secured non- smaller banks are confined to trading with
government repurchase agreements (repo) domestic counter-parties. The segmentation is
markets. Many banks no longer accept certain reflected in pricing data, with interest rates
asset types (i.e. ABSs and CDOs) as on cross-border inter-bank lending lower than
underlying collateral in repo transactions. on domestic inter-bank lending. As the money
Even in those secured money market markets return to more normal conditions, we
segments with high quality collateral, may expect the degree of segmentation to
turnover has decreased. The reduction in decline even if it does not fully return to the
turnover in these markets has two causes. pre-turmoil levels.
First, because market participants are
uncertain about counterparty risk, they have 5. Conclusion
cut their credit lines and reduced their loan
volumes markedly. Second, increased Responding to the introduction of the euro and
uncertainty about their own liquidity needs the monetary framework, the money market
has led to liquidity hoarding. The dramatic has undergone a process of deep integration
increase in perceived liquidity and credit risks and standardization throughout the euro area.
had a major impact on the rates, the volatility Nevertheless, the degree of integration
and spreads prevailing in the euro area money achieved o date differs among the various
markets. market segments. Those which are more
The cross-sectional standard deviation integrated are the unsecured deposit market,
of the EONIA lending rates across euro area in which banks exchange short-term liquidity
countries clearly signals tensions in the without the guarantee of collateral, and the
money market. After having reached its derivatives markets. Relatively less integrated
lowest level of 1 basis point in 2006, the segments of the market include the repo
standard deviation suddenly increased to 4 market, in which participants exchange short-
basis points in mid-2007 before reaching a term liquidity against collateral, and the
peak of more than 15 basis points in October short-term securities markets (Treasury bills,
2008 (Lane, 2008) . These developments commercial paper and certificates of deposit).
closely followed the different stages of the Recent developments suggest that the turmoil
financial crisis. is having a significant impact on euro area
Increased concerns about the financial integration in certain sectors: most
creditworthiness of counterparties and notably, in the unsecured inter-bank market
uncertainty about their own liquidity and in the government bond markets. Cross-
positions prompted banks to hoard liquidity border inter-bank activity started to decline in
and to lend funds only for the shortest certain areas in autumn 2008. We believe that
maturities or only against higher-grade this reversal in trend can be linked to
collateral in secured markets. In the transitional factors, including increased credit
unsecured segment, liquidity became very risk variance amongst intermediaries and a
scarce at maturities beyond one week, even temporarily higher home bias for financial
disappearing at longer maturities. Most inter- transactions. As such, this change in direction
bank unsecured lending concentrated on the should not be seen as a clear signal of a
overnight maturity, but even overnight permanent worsening in the level of market
liquidity remained scarce. integration. It is clear that further
The 2007/2008 turmoil has led to increased information and time is needed to shed
segmentation in the euro area money market sufficient light on these developments so that
(Cassola, 2008). we can be in a position to accurate judge the
Asymmetric information problems have been situation.
a central feature of the malfunctioning of the
money markets. This has led to a two-tier
market structure, with the larger banks
65
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66

BUDGET EXPENDITURE STRUCTURE IN KOSOVO
MYRVETE- Badivuku-Pantina, Associate Professor, University of Prishtina,

Faculty of Economics, Kosovo
myrvetebadivuku@yahoo.com
SKENDER Ahmeti, Associate Professor, University of Prishtina, Faculty of
Economics, Kosovo
Skender.ahmeti@yahoo.com
MIXHAIT Reçi, Associate Professor, University “Iliria”, Kosovo
mixhait@hotmail.com
DRITA-Kaçandolli-Gjonbalaj,
Privatization Agency of Kosova, Kosovo
dritakgj@hotmail.com
Abstract economy, the budget can increase and the

entire country could benefit from it.
Development of the budget enables a direct
link between policy priorities, as stated in Key words: budget, Kosovo, government
the country’s sectorial strategies, and the expenditures, informal economy.
priorities in expenditures with the aim of
an effective distribution of the country’s
available resources. A proper budget 1. Introduction
forecast, supported with clear objectives
and set mid-term priorities for all Despite showing an economic growth,
expenditure programs, s a prerequisite for Kosovo is still one of the most undeveloped
an effective and efficient management in countries in Europe. Kosovo’s economy
the realization of public expenses. This remains fragile. Also thanks to donors,
approach helps us further in the fiscal during the last three years satisfactory
discipline by enabling us to plan public results have been recorded. The real GDP
expenditures realistically, within the increase in 2007 and 2008 was 5%, which
macroeconomic and fiscal parameters. We is near the average level with the regional
have to add that Kosovo has shown countries. The investments share in the
continuous improvements of systematic GDP in 2008 was 22.7 percent, and their
and political mechanisms and instruments share in the total investments (private
in developing, reviewing and adopting the and public) 32.9%.
budgetary plan. Low levels of budgetary Development trends in the trading
revenues and sensible increases of public balance have worsened significantly
expenditures have exercised pressures thus, during this period, largely due to the fact
influencing a continuous reduction of that the imports have shown a faster
government expenditures. Equal to growth than the GDP. Kosovo’s economy
budgetary revenues, government continues to have a large dependency level
expenditures in Kosovo appear at a from imports, which comprises around
medium level of the transitional 50% of the GDP, while exports are very
economies. The purpose of this paper, low and cover a very small part of the
therefore, is to present an overview of the imports (less than 10%). This happens
budgetary expenditures in Kosovo during because the production capacity is low
2006-2008 and to show that by fighting the noncompetitive compared with the
negative phenomena, such as the informal regional one. Hence, the local prices for
67
many years depended on the import empirically researched the consequences

prices. As a result of the fast opening of of productive public expenditure.
Kosovo economy (as there was no other Literature produced includes works of
alternative), the inflation has been authors like Baxter-Kink (1993), Gramlich
transferred in the Kosovo’s economy and (1994), Glomm and Ravikumar (1997),
households. In 2008 inflation has shown Rioja (1999, 2003), Faltenstein & Morris
an increase, compared to that of 2007. (1990), Kalaitzidakis & Kalyvitis (2004),
Prices, measured with the Customer Price Coto-Martinez (2006), Duggal, Saltzman
Index (CPI) have increased for 9.4% in & Klesin (2007) and many others. These
2008 compared to an increase of 4.2% in authors explicitly focus on the
2007. During the period 2007-2008, the compromises / ratio between productive
exchange rate moved from 1€, which was infrastructural expenditure and positive
1.21 US $, and now, in 2009, the exchange effects of public consumption. Exceptional
rate was between 1.25 and 1.6 US $. to this are the views of Barro (1990),
Kosovo is a relatively rich country with which incorporates taxes to fund
natural resources: lignite/coal, nickel and governmental services that have an
other metals. However, for their long- impact on production and services, within
term and efficient exploitation issues such a model of endogenous economic growth;
as prioritization and property, financial, and Tumovski and Fisher (1995) that use
technical, and technological matters have a neoclassical framework but in a manner
to be resolved, in order to attract the that is rather similar with the Barro’s
necessary investments. Stabilization and analysis. Therefore, according to Ganelli
development of the electricity sector is of and Tervala, shifts in the public
critical importance to attract foreign expenditure content have significant
investors, to support the new industry of positive implications and create welfare
Kosovo, the times when the world inside and out. In special, an interim
economy is facing with notable problems. growth on internal public capital reserves
The large level of unemployment and is detrimental for internal welfare if
poverty are serious problems of Kosovo. public capital productivity is small. If
Despite improvements in revenues per shifts in public expenditure content are
capita, the material situation of Kosovars consistent, then local services are
remains fragile. Official assessments of improved, if governmental expenditure
the employment level are around 50%, and productivity is not too low the importance
thousands of young people (including of public consumption (in rapport with
those with university degrees) enter the private consumption) in private services is
labor market. Poverty, particularly not too high.
extreme poverty, has showed an increase
in the recent years which is a very According to National Account Statistics
worrying fact. This is a serious problem (NAS) – public investments are defined as
that needs to be tackled seriously by the expenses in fixed assets - tangible and
Kosovo government, and it requires untouchable assets - that are used in the
urgent solutions, within the development production process for more than one year,
policies. roads, buildings, computer software, etc.
The table no. 1 provides a summary of
some of the main macroeconomic Based on World Bank data, public
indicators of Kosovo for 2007 and 2008.1 investments have disproportionally failed
in certain time periods, due to regulation
2. Literature review in fiscal policies, e.g. the 1998 World Bank
Report shows that shortages in public
A number of authors, ranging from investments were in average three times
Aschauer (1989), have theoretically and higher than the average current
expenditure. Fiscal regulation also had
distinguished impacts on public
1 See table no.1 in Annex)
68
investments, especially in Latin American custom duties) in the last three years
countries (see Serven & Salimano, 1992 make up the vast majority of the tax
and Calderon, Easteriz and Serven, 2003). revenues in Kosovo, compared to direct
It is assumed that half of fiscal taxes. Municipal tax and no tax revenues
regulations undertaken during the 90s in comprise around 13,0% of the overall
Argentina, Bolivia, Brazil, Chile and Peru, budgetary revenues. The differences in the
have reflected on infrastructural ratios between taxes in the central and
investments (Calderon, Easterly) and the municipal level, in the analyzed years,
Serven 2003. are insignificant (estimates).2.
The greatest contribution is VAT followed

3. Theoretical Background by excise. It is important to mention that
the VAT and excise are predominantly
Budget study needs to be approached in a collected at borders. With regard to the
complex manner, from its two main expenditures, the ratio expenditures –
segments, budgetary revenues and GDP has increased from 19.3% in 2007, to
expenditures. To this end, however, our 26.8% in 2008. In 2006 and 2007 there
analysis will be focused in the budgetary was a budgetary surplus.
expenditures segment. In previous years Kosovo budget was
From the postwar period up to this day, mainly associated with a surplus. The
budget revenues were initially mainly government’s lack of ability to acquire
based on donations, grants and foreign public loans (internal and external) due to
assistance. Under these circumstances, a lack of legislation on public loans, and
there was no budget planning, as it was the non determination of the political
almost impossible. Kosovo’s budget was status as of February 2008, forced a rather
administered by UNMIK for several years. conservative approach of the government
As an international organization, UNMIK in fiscal policies. Therefore, the available
played the role of Kosovo’s government. means to fund the possible budgetary
For its staff and experts, UNMIK strived deficit comprised only from accumulated
to bring about best experiences of surpluses from the previous years.
developed countries and build a functional Nevertheless, Kosovo’s membership to
and efficient budget system. Positive IMF and the World Bank and the future
changes occurred in 2004, when Kosovo’s memberships to other financial
budgetary revenues were based on owned institutions and organizations and the
source revenues, and the budgetary cooperation in different international
processes are managed by the Ministry of areas, will open way for Kosovo to other
Economy and Finance (MEF), in line with funding sources, in order to address its
best practices developed economies. possible budgetary needs. Compared to
Customs continue to play an important 2004 and 2005, the years of a budgetary
part in that all hold revenues in Kosovo, surplus, in 2006, 2007 and 2008, Kosovo’s
compared to other countries: In end 2008, Budget was almost balanced with a
custom revenues compared to the barge to surplus of around 2.05 respectively 7.0%
revenues of several regional countries are ( MEF, 2009).
as follows: Kosovo 15,0%, Albania 9,0%,
Macedonia 10.2%, Rumania 3.5%,
Bulgaria 2.0%, etc. Their share in the
budgetary revenues in the country’s GDP
has continuously increased from 2002.
It is currently around 28.5%. In 2007 and
2008, this percentage was lower (around
27.0%, CBAK, Annual Report 2008).
From the data in the table below we see
that indirect taxes (VAT, excise, and
2 See Table no.2 in Annex
69
4. Paper Content the increased subsidies for public

utilities, which amounted to 60.1 €
The public expenditure structure is million in 2008 (28.6 percent of total
comprised of the public consumption of expenditures for subsidies and transfers),
goods (including no only goods and which is double that of 2007.
services, but also public sector employees’ Continuous increase of subsidies for
salaries, infrastructure maintenance, etc.) public utilities puts forward the need to
and the transferred consumption restructure them. On the other hand,
(different expenditures and taxes, such as inter alia, payments for basic pensions
regress, premiums and possible subsidies). comprise 37 percent and social assistance
In 2008, budgetary expenditures, as 12.4 percent. In 2008, the share of
indicated above, have followed a expenditures for wages and salaries in
relatively fast growing trend and realized total budget expenditures was 23.9
the highest annual growth level since percent, which is 7.6 percent lower from
2002. Budgetary expenditures in 2008 last year. This reduction was a result of
reached 950.5 € million, which is an the fast increase of capital expenditures,
annual increase of 43.8 percent. which considerably increased their
Compared to the GDP, budgetary participation in the total expenditures.
expenditures reached 25 percent Nonetheless, expenditures for wages and
(compared to 19.3 percent in 2007). The salaries marked an increase of 8.9
budgetary expenditures increase is percent compared 2007. This increase is
supported in the increase of capital mainly a result of an increase of salaries
expenditures, which in 2008 had reached for the education staff of Kosovo (primary
347.1 € million, an annual increase of and secondary schools) which is
124.3 percent. This caused the capital implemented as of September 2008.
expenditures in 2008 to absorb the largest Depending from the qualification level,
part of the Kosovo budget with a salaries of education employees increased
participation of 36.5 percent of the total on average for 20.0%. Goods and services
budget expenditures, compared to 23.4 absorbed the lowest share of budget
percent in the previous year. expenditures in 2008. Their participation
The highest participation in capital in the total budget expenditures in 2008
expenditures belongs to investments in was 16.6 percent compared to 21.9% in
road infrastructure. The increase of these 2007. The reduction of the share of goods
investments has contributed to an and services in the total budget
increase in job opportunities (at least in expenditures results despite the increase
short-term), by also contributing in of 8.9% compared to 2007. This is also
stimulating the demand. In the long- result of the fast increase of capital
term, capital investments shall also expenditures’ share. In 2009, budget
create more favorable conditions for the expenditures reached 1.1 € billion (16
business development in Kosovo, by percent higher than in 2008) while
having an impact in attracting foreign planned revenues were 956.5 € million
investments, which improve the living (1.5 percent higher than in 2008). As a
conditions for a more sustainable result, Kosovo’s budget in 2009 planned a
economic development. Another category deficit of around 137.9 € million.
of expenditures that largely contributed However, the effects of the economic crisis
to the overall increase of budget in Kosovo could have an impact in the
expenditures is the expenses for transfers performance of budget revenues and may
and subsidies. further deepen the budget deficit. The
In 2008, this category of expenditures beginning of 2009 showed a slowdown of
marked an annual increase of 42.8 imports, which could be used as an
percent, reaching to 218.5 € million (23 indicator for the slowdown of the overall
percent of total budget expenditures). economic activity in Kosovo, which could
This increase level mainly resulted from directly have an impact in the reduction
70
of the budget revenues. Revenues impact in attracting foreign investments,

collected in customs, which are the main which improves the living conditions for a
source of budget revenues, could be more sustainable economic development.
affected as a consequence of the import Another category of expenditures that
decline. As of January 2009, some largely contributed to the overall increase
changes were introduced in the Kosovo of budget expenditures is the expenses for
taxation system. These changes include transfers and subsidies.
lower taxes on personal incomes from 5, In 2008, this category of expenditures
10 and 20 percent to 4, 8 and 10 percent, marked an annual increase of 42.8
respectively. In addition, tax rates percent, reaching to 218.5 € million (23
applicable to taxable corporate incomes percent of total budget expenditures).
(which were among the highest in the This increase level mainly resulted from
region) or reduced from 20 to 10 percent, the increased subsidies for public
which now lists Kosovo among the utilities, which amounted to 60.1 €
countries with the lowest corporate million in 2008 (28.6 percent of total
income tax in the region. As a result of expenditures for subsidies and transfers),
these changes, budget revenues could be which is double that of 2007.
affected negatively in the short-term. Continuous increase of subsidies for
However, assessments of the Ministry of public utilities (in particular KEK,
Finance and Economy suggest that this Trepça, etc.) puts forward the need to
possible decline will be compensated with restructure them. On the other hand,
the increase of the VAT (from 15 to 16 within the expenditures for subsidies and
percent) and the excise on tobacco (from transfers, inter alia, payments for basic
17 to 21 euro per kilogram) applicable pensions comprise 37 percent and social
from January 2009. assistance 12.4 percent. In 2008, the
In 2008, budget expenditures have share of expenditures for wages and
followed a relatively fast growing trend, salaries in total budget expenditures was
and realized the highest annual growth 23.9 percent, which is 7.6 percent lower
from 2002. Budget expenditures in 2008 than in 2007. This reduction was a result
amounted to 950.5 € million, which is an of the fast increase of capital
annual increase of 43.8 percent. expenditures, which considerably raised
Compared to GDP, budget expenditures their participation in the total
reached 25 percent (compared to 19.3 expenditures.
percent in 2007). Budget expenditure Nonetheless, expenditures for wages and
increase is mainly due to the increase of salaries marked an increase of 8.9
capital expenditures, which in 2008 percent compared 2007. This increase is
amounted to 347.1 € million, an annual mainly a result of an increase of salaries
increase of 124.3 percent. Thus, capital for the education staff of Kosovo (primary
expenditures in 2008 absorbed the largest and secondary schools) which is
portion of the Kosovo budge, with a share implemented as of September 2008. An
of 36.5 percent of the overall budgetary increase of 10 percent was also marked in
expenditures, compared to 23.4 percent in public administration salaries in 2008.
2007, Aide Memories, IMF, 2006) Goods and services absorbed the lowest
The largest share in capital expenditures share of budget expenditures in 2008.
belongs to the road infrastructure Their participation in the total budget
investments. The increase of these expenditures in 2008 was 16.6 percent
investments has contributed to an compared to 21.9% in 2007. The reduction
increase of jobs (at least in the short- of the share of goods and services in the
term), and also contributed in stimulating total budget expenditures results despite
the demand. In the long-term, capital the increase of 8.9% compared to 2007.
investments shall also create more This is also a result of the fast increase of
favorable conditions for the business capital expenditures’ share. In 2009,
development in Kosovo, by having an budget expenditures reached 1.1 € billion
71
(16 percent higher than in 2008) while technical efficiency in the allocation and
planned revenues were 956.5 € million use of public revenues.
(1.5 percent higher than in 2008). As a Overall government expenditures in
result, Kosovo’s budget in 2009 plans to investments declined for almost 10% in
have a deficit of around 137.9 € million. 2007, also dye the decline of investments
However, the effects of the economic crisis from donors for 7.7%, thus lowering the
in Kosovo could have an impact in the participation in total investments to 4%,
performance of budget revenues and may from 5.5% in 2006. Total investments in
further deepen the budget deficit. 2007 marked an increase to 27% of GDP,
The beginning of 2009 showed a from 23% in 2006.
slowdown of imports, which could be used As result of the public administration
as an indicator for the slowdown of the reforms, public service employment
overall economic activity in Kosovo, which showed no significant increase.
could directly have an impact in the Consequently, expenditures for wages
reduction of the budget revenues. and salaries have been stable. By the end
Revenues collected in customs, which are of 2008, though, salaries have increased
the main source of budget revenues, could in nominal values, compared to the
be affected as a consequence of the import previous years. When analyzing the
decline. figures, the increase after 2006 for this
As of January 2009, some changes were category, in addition to the reforms, is
introduced in the Kosovo taxation system. also linked to the increase of salaries
These changes include lower taxes on (with notable increase for the education
personal incomes from 5, 10 and 20 system, public administration, defense,
percent to 4, 8 and 10 percent, justice, police, etc).
respectively. In addition, tax rates Although salary increases for the
applicable to taxable corporate incomes education and health in budget
(which were among the highest in the projections were considered as priority for
region) or reduced from 20 to 10 percent, the reduction of poverty, with a higher
which now lists Kosovo among the level compared to other sectors, we
countries with the lowest corporate believe that their increase levels
income tax in the region. As a result of should’ve been higher. Compared to other
these changes, budget revenues could be sector of the civil service, salaries in the
affected negatively in the short-term. health sector continue to remain among
However, assessments of the Ministry of the lowest. Salaries’ levels for these
Finance and Economy suggest that this sectors have been critical to a decline in
possible decline will be compensated with the education level and the lack of a
the increase of the VAT (from 15 to 16 medical treatment, particularly in the
percent) and the excise on tobacco (from rural areas.
17 to 21 euro per kilogram) applicable Although operational and infrastructure
from January (MEF, 2010). maintenance expenditures are planned to
Low levels of budget revenues and be increased (with the GDP growth level),
notable increases of public debt have their levels are considered as insufficient
exercised pressure for a more efficient to cope with infrastructure maintenance.
fiscal system in Kosovo, having an impact In most cases, operational and
in the continuous reduction of maintenance expenditures comprise less
government expenditures. From an than 13 percent of current costs. As a
effective and strategic management result, physical infrastructure is
perspective of government expenditures, improperly maintained, and is worsening
the application of the Mid-Term Budget rapidly. The quality of public services is
Program (MTBP, showed an improvement affected by the lack of equipment and the
of the fiscal discipline, and a better link of necessary basic materials. This is also
public expenditures with government becoming critical for possibility of
policies: This has encouraged an greater
72
physical infrastructure maintenance, delays and postponements in completing

reconstructed with donor funds. projects within the deadlines, thus
Thus, an increase has to be addressed for creating the necessity for additional
the health, education and physical funds, etc. 3
infrastructure sectors. Measures Public investments have shown an stable
undertaken by the Kosovo Government increase, reaching 7.4% in 2008. Essential
regarding subsidies, particularly for problems in public investments are the
schoolbooks, agriculture, urban transport lack professional capacities in ministries,
and employment programs (for project planning and budgeting, unclear
employers), are expected to generate the and transparent procurement procedures
first results in the upcoming years. The and accounting techniques. Project
majority of the subsidy funds needs to be monitoring mechanisms, particularly
multiplied, in order to support the infrastructural projects continues to be a
priority sectors such as agriculture problem, which has often created
(including the dairy products, vineyards, problems in the poor quality of works in
etc). Currently, subsidies are only funded projects, delays and
symbolical. However, measures postponements in completing projects
undertaken by KEK are expected to within the deadlines, thus creating the
improve the collection rates, and public necessity for additional funds, etc.
enterprises continue to be the major KEK It is important for the expenditures
debtors. This could have an effect in the structure to highlight expenditures in
further increase of KEK subsidies. Social education, health, and social protection.
protection transfers are mainly related to Low level of public expenditures has also
the pension schemes. Financial been reflected in the worsening of the
sustainability and material improvement public service in both sectors, with a direct
of this vulnerable category largely impact in the increased poverty level
depends on fiscal transfers. The number (measured with the following indicators). 4
of contributors is very low, and private General Expenditures, the largest portion
agriculture sector comprises less than 15 of expenditures by function, have declined
percent of the total contributors on the to under 25% from over 20% as part of the
system. The difficult material position of total, and Economic Matters’ expenditures
this category of population leaves room have increased from over 16% to 29%.
for improvement, if the number This large increase involves largely capital
households that enjoy economic benefits costs (57 percent of the total), and
is better managed. Good control systems particularly road expenditures in 2008.
and their gradual decentralization to local Social protection expenditures (which are
authorities may have an impact in the mainly periodical) have declined compared
reduction of the number of families that to other sectors, although in nominal
managed to go beyond the social scheme, terms, education and health have shown
to the favor of beneficiaries and the an increase, mainly comprised of
population in-need. periodical expenditures. This is also
Public investments have shown an reflected in the table no. 5:5
sustainable increase, reaching 7.4% in
2008. Essential problems in public 5. Conclusions and implications
investments are the lack professional
capacities in ministries, project planning Since 2004, MEF collects income for the
and budgeting, unclear and transparent budget of Kosovo through Kosovo’s Tax
procurement procedures and accounting Administration (KTA). KTA is responsible
techniques. Project monitoring for planning and ensuring other budgetary
mechanisms, particularly infrastructural
projects continues to be a problem, which
3
has often created problems in the poor See table no.3 in Annex
4
quality of works in funded projects, See table no.4 in Annex
5
See table no.5 in Annex
73
income through collected taxes. On the regarding the number of persons actively
other hand, the Department of Budget of engaged in informal economy.
MEF conducts budgetary planning, in The consequences of informal economy
conformity with the requests of respective should be viewed from a number of
line-Ministries of the Government of perspectives: they limit the possibilities
Kosovo and determines the respective for any proper economic analyses and
priorities, this taking into consideration well-informed decision-making, create
the vast needs of the ministries and other inequitable conditions for business
spending agencies. Finally, the budget is development and damage the interests of
approved by the Assembly of Kosovo and the country’s budget.
covers the following fiscal year. Effective In most countries in transition, informal
budget and budgetary expenditure economy grew in an accelerated manner.
management in general is founded on a This phenomenon is also applicable for
clear allocation of responsibilities within Kosovo. In countries where state
the Government. For this purpose, each institutions are strong and efficient,
country is responsible for issuing its legal informal economy holds a much smaller
infrastructure. The main bearer of the proportion. Even though there are no
budgetary legal infrastructure is the proper studies on the portion and
Ministry of Finance. occurrence dimensions of informal
Management of budgetary expenditure in economy, Kosovo economy assumptions
spending agencies in Kosovo is conducted state that it holds between 30 and 40
through public procurement processes. percent of the country’s GDP.
The supply needs of the Government of An important role for the growth of
Kosovo can only be met through the informal economy in Kosovo is the low
application of a procurement process, level of salaries in the official economy.
which is implemented based on the Law Studies on the informal labor market
on Public Procurement and many rules show it covers approximately 30 percent of
and secondary legislation acts. The Law the overall labor market, comprising a
on Public Procurement, enacted in 2004, considerable portion of the overall labor
brings public procurement in harmony market. Fiscal evasion (private entities
with international standards and avoidance of tax and custom payments),
practices. Data shows that over 80% of the except for significant effect on the
contracts are granted through open and disturbance of the country’s economic
competitive bidding. Regardless of this, structure and market deformation, has
such a figure is concerning. Tender cause incalculable flows of finances for the
documents and qualification requirements country. Similarly, there are no clear
are rather complex, and obligatory assessments of the scale of evasion in the
tendering procedure requirements are country.
difficult to meet (including financial, Therefore, a diminishment in informal
technical and professional criteria). The economy will lead to increased tax income,
market is not well prepared to address thus stimulating an increase in public
these complex and ambitious expenditure, especially in infrastructure
requirements. and services that support the expansion of
An important obstacle to a further production, subsequently bringing general
increase of budgetary income, is the increase of economic indicators. The
dimension of informal economy. Informal Government should place an emphasis on
economy is difficult to ascertain. This so, establishing rule of law and rigorously
because people engaged into informal implementing a minimal package of
activities do everything in their hands to necessary rules, instead of increasing the
not reveal details on their undertakings. number of rules applicable.
However, policy-drafters and government
administrators are in need of information
74
ANNEX: Tables
Table 1: Main macroeconomic indicators in Kosovo 2007-2008(million €)

2007 2008
Gross Domestic Production 3,400 3,757
Consumption 3,810 4,176
Investments 967 1,236
Export 343 410
Import 1,720 2,065
Nominal GDP growth 8.8% 10.5%
GDP Deflator 3.2% 5.3%
Real increase of GDP 5.4% 5.0%
Exchange rate USD/EUR 1.21-1.30 1.30-1.47
Source: Macro-economy Department – MEF
Table 2: General structure of revenues of the Kosovo Government 2006-2008

2006 2007 2008
Total revenues: 100.0 100.0 100.0
Taxes 87.2 79.6 84.4
Direct taxes 16.8 14.8 17.1
Indirect taxes 70.4 64.9 67.3
VAT 36.3 34.9 38.0
Excise 22.7 21.3 21.4
Custom taxes 11.5 9.0 9.8
Other 0.4 0.7 0.3
Tax refunds -0.5 -1.0 -2.2
Municipal and no tax revenues 12.8 12.0 14.3
Grants 0.0 0.0 1.3
One-time revenues 8.3
Source: Ministry of Economy and Finance, Financial overviews 2000-2008
Table 3: General expenditures of the Kosovo Government 2006-2008(€ million €)

2006 2007 2008
Wages and salaries 207.0 208.9 228.1
Goods and services 153.4 154.0 167.9
Subsidies and transfers 157.9 154.6 210.0
Total periodical 518.3 517.5 606.0
Capital expenses 138.4 159.2 351.7
Total 656.6 676.7 957.6
% of GDP 19.9 26.8
75
Table 4: General expenditures of the Kosovo Government (€ million)
As total As part of GDP

2006 2007 2008 2007 2008
Goods and services 31.5 30.9 23.8 6.1 6.4
Subsidies and transfers 23.4 22.8 17.5 4.5 4.7
Total periodical 24.0 22.8 21.9 4.5 5.9
Capital expenses 78.9 76.5 63.3 15.2 17.0
Total 21.1 23.5 36.7 4.7 9.8
Goods and services 100.0 100.0 100.0 19.9 26.8
Table 5. General expenditures of the Kosovo Government by functions 2006-2008
As total As part of GDP

2006 2007 2008 2007 2008
General services 24.6 19.6 20.1 3.9 5.4
Protection 2.6 2.7 1.9 0.5 0.5
Public order and safety 7.7 11.3 8.4 2.3 2.3
Economic mattes 16.4 18.4 28.9 3.7 7.8
Social protection 0.1 0.3 0.2 0.1 0.1
Community accommodation and
Equipment 2.0 2.5 2.1 0.5 0.6
Health 10.4 10.2 8.5 2.0 2.3
Recreation, culture and religion 1.2 1.2 1.3 0.2 0.3
Education 16.2 16.4 13.7 3.3 3.7
Social protection 18.8 17.5 14.9 3.5 4.0
Total 100.0 100.0 100.0 19.9 26.8
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Klein, Infrastructure and Productivity an 14. EBRD, Country Report 2008
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Composition of Government Expenditure and
its Consequences for Macroeconomic for
77

CREATIVE MOTIVATION AND PERSONALITY

AT THE ROMANIANS PUBLIC FUNCTIONARIES
BALGIU Beatrice Adriana

University POLITEHNICA of Bucharest
Humanities and Social Sciences Chair
beatricebalgiu@yahoo.com
ABSTRACT 1. INTRODUCTION
This study examines the There is much writing and

criticism on the public functionaries, the
importance of the creative motivation
person by which the state administration
within the personality of a group of public gets in touch with the citizen. If in the
functionaries of the central administration private sector there are strict rules of
from Romania. After applying some presentation, attitude and relationship of
psychological questionnaires, chosen in the public functionary with the client, in
step with the specific of the public clerks’ the public sector, of the public employees,
activity, we could note that group was as they are often called, it seems that
everyone acts as they deem fit. Although,
characterised by a moderate motivation,
ever since the 90’s, Perry and Wise
generated, specially by the voluntary popularizes the concept of motivation for
qualities and the high knowledge interests the public service, very little is known
but also by the low vocational involvement. about the motivation of the public
The creativity of the group is also average, functionary. In the USA there is a General
with differences in favour of the male Social Survey of the Public Functionary*
creativity. From the viewpoint of the accomplished with a certain periodicity
which considers the psychological
personality features we are dealing with a
evaluation of the worker in the public
predominantly introvert and emotionally
field. In Romania, the evaluation of the
stable group, with a social retractility and public functionaries’ performance aims at
low tolerance compared to the others. the degree in which the objectives
Another variable confirming the established are accomplished.
association to the creative motivation is the After a period in which in
locus of the control, meaning that the Romania little has been done in this
employees with a low motivation stand out respect, a great deal of studies appeared,
unfortunately most of them dealing with
by the faith in the internal locus of
the problem only form the legal viewpoint.
control. Under the terms of the above But the studies on the psychology of the
specific of the group, the creative public functionary are practically
motivation prevails on the creative skills, inexistent, except for the few ones,
the neuroticism, like emotional stability, dedicated to the bureaucratic personality
and the localization of control. from the sociologic perspective and the few
ones regarding the motivation of the
KEYWORDS: creative motivation, public functionary.
personality, locus of control,
administrative field.
*
General Social Survey
78
Next we intend to analyse the (the appreciation of directives and clear

motivation for performance in public expectations for managers).
functionaries taking as its criterion the Also in the analysis of the public
highest creative motivation. functionaries it is said that an essential
indicator for the performance is the
2. THE SIGNIFICANCE OF motivation for the public service. The term
THE CREATIVE MOTIVATION FOR has received several conceptualisations in
THE PERSONALITY OF THE PUBLIC time; which is clearly emphasized is its
FUNCTIONARIES social component. We bring it to question
in order to underline its specific intrinsic
2.1. Investigation of creative constituency and the creative motivation.
motivation to public functionaries For instance, for Vandenabeele (according
to Steen & Rutger, 2009) – the motivation
Most of the theories regarding the for the public service is represented by the
individual creativity in organisations, faith, values and attitudes going beyond
agree, for some time, on the importance of the personal and organisational interest.
the attitude features in performance, of In another context, it is shown that public
which the motivation to innovate is functionaries value the motives of their
emphasized (Amabile, 1988; Sternberg & activity differently, compared to the ones
Lubbart, 1996; Haslam, 2009). in the private organisations. For instance,
Not randomly, at the level of the the employees evaluated as having a high
public functionary, too, the motivation was performance standard invest in the
the most studied. As of 2001 there was intrinsic motivation of the work which is
also a “Guideline for the evaluation of the important to them and which provided
individual professional performances and them with a feeling of achievement, as
motivation of the public functionaries”, well as in the organisational
because of the Phare programs. In 2004, a accomplishments, whereas the
study carried out by the National Agency functionaries in the private area value
of the Public Functionaries, which is more the extrinsic motivation as the high
under the Ministry of Public income and flexible working hours
Administration and the National Institute (Houston, 2000).
of Administration on the 63 public What exactly would the creative
functionaries (Oros, 2009), uses in the motivation comprise? Besides the
analysis of the employees’ motivation, adherence to the profession there are also
tools drawn up by Ramball Management creative attitudes (Popescu-Neveanu,
and thus, takes into account a series of 1993) and one of the major components of
motivational factors in the public these creative attitudes is the disposal to
functionary’s activity, beginning with the hire in risk. The empiric evidence of this
autonomy, lifestyle, financial aspects and relationship for the field of the public
ending with the working environment, functionaries appears in several studies.
experience, creativity etc. Their hierarchy For instance, Dewett (2006) finds the
shows that on the last places there is the creative conduct of the public
freedom to assume new roles and functionaries developed by the disposal to
responsibilities followed by “variety” hire in risk defined as the disposal to hire
perceived as the wish to make new things, potential risks in the effort to produce
that is, exactly those factors involved in relevant results at the level of the
the individual’s orientation to the new and organisation. It is assumed that the risk is
openness to experience. On the last places prominent in the functionaries engaged in
in the motivational experience we are creative conducts at work. The climate
dealing with the lifestyle (time spent with itself for creativity exists when the
the family, hobbies, extracurricular workers have a high disposal to hire in
activities) and the contents of the activity risk (Tesluk and co, 1997).
79
2.2 Interaction attitude – important sources of the performance

creative aptitudes motivation (Judge & Ilies, 2002).
By the conception itself that
A number of studies emphasizes Eysenck offers to Extraversion, it is
the role of creative motivation in understood that, by its nature, it is
performance of public functionaries. It is directly related to the high energy,
recognized as a mechanism by which initiative and taking risks. The studies
innovation is high public officials to regarding the faces of the Extraversion
improve both general creative thinking from the personality model Big Five bring
skills (Scott et al, 2004) and, creative to the first plan correlations as activism,
attitudes (Nickerson, 1999). Affective- nonconformism, high energy, flexibility,
attitudinal factors, shows Nickerson, are imagination and so on. Most of the
more important than specific knowledge or researches show that the extraverted
domain knowledge to increase creativity individuals, because of the high energy,
techniques. The emotional factors, he calls report high degrees of self efficiency. The
mechanisms to improve motivation to empiric studies which relate the
innovate. motivation of Extraversion have also
Also, Birdi (2007), using self rating caused inconsistencies: for instance
scales of generation and implementation Barrick and co. (1993) think that
of ideas to work a year for functionaries, Extraversion does not correlate with the
shows that subjected to methods of accomplishment of the goals and to their
developing creativity, public level. Judge & Ilies (2002), in a meta-
functionaries who develop their creative analysis of the studies regarding the
potential and is oriented towards relationship personality – motivation,
generating and implementation of ideas considers that Extraversion is consistent
within the organization (in terms of with the motivation of performance from
negotiation and planning) are due to a the perspective of reaching the goals.
general creative thinking skills (be able to Neuroticism is often used to
issue and in practice many more ideas), describe the person with emotional
but creative motivation. stability, According to some authors, this
Consequently, the identification of it is a significant predictor for the
ways of scaling attitudes and report professional performance (Judge & Bono,
attitudes – aptitudes can be taken as an 2001). The results of the meta-analytical
indicator of performance in an study quoted above indicate Neuroticism
environmental situation. as the strongest and most consistent and
correlated predictor of the performance
Hypothesis 1 Creative motivation motivation. In other words, the
is positively associated with creative neuroticism influences the
aptitudes accomplishments achieved by the
motivation. To the same extent (Molleman
2.3. Creative motivation and and all., 2004) think that the individuals
individual differences with low neuroticism are confident in
choosing and achieving their goals.
The individual differences in the
terms of the personality features play an Hypothesis 2 Creative motivation
important part in the examination of the is moderately associated with Extraversion
motivation and creativity in organisations. and strong related with Neuroticism as
We will relate, next, to the data necessary emotional stability.
to our research considering the
relationship between the motivation and
the creative attitudes with two of the
personality features considered as
80
2.4. Creative motivation and Administration and Internal Affairs)1.

locus of control From the gender viewpoint, 29 of the
subjects are men, 52 women, and 3
In order to have the complete subjects have not answered the question
motivational “picture” of the public regarding the gender. At the real physical
functionary, we will refer to another level in the administrative field the ratio
variable related to the motivation of self- man/woman is in favour of the former.
achievement, namely the locus of control. With respect to the age, the
The locus of control aims at the beliefs of average of the batch is M = 39, 81, σ =
individuals regarding the localization of 8,53, minimum – 26 years, maximum – 56
factors that control their behaviour. If a years.
person feels that he/she has the control Method
over what happens, they express an The selection of the working
internal orientation of control. In contrast, instruments was done after checking the
if someone feels that fate, luck or chance public functionary’s job description
affect the events they go through, they broadly provided in the Government
have an external localization of control. Resolution 1209/2003. Its contents shows
What is the reason for taking into account that the psychological demands of the
such a variable so little studies for the public functionaries can be resumed to
actors of the administrative field? Most of three large dimensions:
the studies (Spector, 1982, Judge & Bono, – one connected to the innovative
2001; Schultz & Schultz, 2005) consider resolutivity of the situations arisen, the
there is a high relation between the capacity to innovatively enforce their own
motivation of self-achievement, solutions and the ones decided in order to
satisfaction, the effort made, performance achieve the objectives, in a word the
and the locus of control. In a similar way, demands for the cognitive style (we quote
the creative attitudes such as taking risks, from two sources, once, the counsellor’s job
looking for the new, appreciating description for 1st class, upper professional
originality as well as the volitional aspects degree, 1st step: “the ability to anticipate
raised are characteristic of the internal solutions and perform the activities in due
ones to a higher extent than the external time; the ability to predict the future
ones, etc. (Balgiu, 2009). demands, opportunities and constrictions,
Hypothesis 3 Internal locus of the possible risks and assuming their
control functionaries is by high possible consequences etc.“ and, secondly,
motivational structures than external locus from the competencies framework for the
of control functionaries. position of manager “it is necessary to
have the lateral thinking, the ability to
3. METHODOLOGY always look for new and better ways of
carrying out the activity”);
The object of the study consists in – the second one regards the
the analysis of the creative motivation in motivation for the chosen field, and the
the ensemble of the personality motivation to improve their activity;
characteristics in case of the group of – the last one refers to the social
public functionaries. competence comprised starting with the
Subjects: due to the demands of the communication skills and ending with the
psychosocial competencies framework, we effective support of the relationship.
have oriented on the upper segment of the Therefore, we have applied the
public functionaries and we have selected following tests:
a sample of 85 public functionaries with 1. The questionnaire of creative
managing positions from the central motivation (M.C.), author Popescu-
administration (The Ministry of
1
The subjects are mostly active in the
Department for local communities
81
Neveanu (1977). The main purpose of response options from 1 – completely true
using it considered the establishment of to 5 – very rare indeed. Acceptance of
the creative motivation coefficient others is put in direct relation to the
(Q.M.C.) as well as the altitudes acceptance of risk – essential component
contributing to it: the involvement of the of creative motivation. Sample items
ego and confidence in their own forces, reverse scored directly and score: ,“I can
voluntary qualities and sense of value, feel comfortable in the company of people
cognitive interest, vocational involvement whose ideals are different from mine”, ,“If
and directly creative attitudes regarding I do not do what is in the thread, I will
mainly the capacity to assume risks, probably angered others”.
treasuring the new, the tendency towards Application of questionnaires was
originality, the antirutinery position, the conducted during March-May 2009, both
innovative employment etc. The as individual pencil-paper and in
questionnaire consists in 50 items. Here electronic version and add time ranged
are some examples of items: “I am seldom from 5 to 30 minutes depending on the
satisfied with the way I work”, “I find the questionnaire.
routine is useful only to the extent in
which it can be exceeded by new methods”. 4. RESULTS AND
2. Test of creativity developed by DISCUSSIONS
Stoica-Constantin & Caluschi (1989) on
the Romanian population – measured as The data analysis consisted in
creative thinking skill and its parameters, average experimental performances of the
fluidity, flexibility and originality. The group, their reporting to the contents of
results are reported in a benchmark the instruments used and/or the
composed of classes from 1 – very poor to 9 comparable results from other research
– very good. plus a correlation analysis in and between
3. Eysenck Personality Inventory the dimensions.
(1997) – contains scales for diagnosing of
Neuroticism and Introversion- a) Motivational structures
Extraversion considered major dimensions
of personality structure that allows us to In order to see the motivational
describe the group in terms of how to level of the subjects analysed we appeal to
relate, to develop self and affectivity. the original standard of the test necessary
4. Scale of locus of control to analyze the average scores obtained
(Spector, 1988) measured internal locus of (table no. 1).
control (belief in behavior caused by its In the use of this trial, the median
own initiative, personal actions and free assessment level of the creative
will), ambivalent and external locus of motivation coefficient (Q.M.C.) the limit
control (belief in conduct determined by values 20 – 40. Therefore, below 20
fate, luck, powerful etc.). The content scale Q.M.C., a low level of creative motivation
is 16 items and how the response is in six is showed, between 21 – 40 Q.M.C. –
stages: 1 – I do not agree in large measure moderately creative motivation between
by 6 – I agree to a large extent. Of all 41 and 60 Q.M.C. there is a highly
questionnaires aimed at assessing the creative motivational structure, whereas
locus of control, we chose to instrument over 60 Q.M.C. we can speak of extremely
because of its sensitivity and its high creative motivation. By the reporting
construction methodology, in terms of to the gauge, we can mention the degree of
specificity of items, strictly on the creative motivation (M = 25,43), therefore,
organizational field. the need to innovate, the need for
5. Scale acceptance of others (AO) – performance for the subjects analysed are
author Fey apud. A. Neculau, 1998 – with framed at the moderate level. One single
20 statements concerning feelings and person (of the feminine gender)
attitudes toward others, each with 5 insignificant as sample, got a negative
82
score at the Q.M.C., evaluated as anti- makes us conclude on a possible

creative. characteristic of the employees in the
We bring to the front, as administrative field.
comparison, another study in the field of From the analysis of the
the public administration done on motivational components we can notice, at
counsellors and clerks in the city-halls (P. the first sight, that the vocational factor is
Popescu, 2001). This study uses the same the lowest of all the five factors existent.
instrument and finds a Q.M.C. of 39,73 We can assume that there is no vocation
situated at the upper level of the median for the administrative activity. In other
opening area. Therefore, the motivational words, the staff in these positions did not
level appreciated as moderate, relatively actually think or wished to end up in those
similar to the one obtained in this study, positions.
Table no. 1 Average scores – creative motivation
PUBLIC
SUBJECTS FUNCTIONARIES
VARIABILES
M σ
Q.M.C. 25,43 16,31
I.E. 4,34 4,03
Vol. 5,37 2,26
I.C 5,00 3,58
Voc. 2,06 3,50
A.C. 8,81 7,35
Obs.: the abbreviations represent: QMC – creative motivation coefficient, I.E –

involvement of the Ego, Vol. – volitional aspect, I.C. – cognitive interests, Voc.
– vocational involvement, A.C. – Creative attitudes
A more nuanced analysis, obtained something that many times can lead to
by the division of the averages to the results below the expectations.
number of items, shows us the hierarchy We mention that there were no
of the factors contributing to the final differences in gender with respect to the
score of Q.M.C. thus, on the first places in creative motivation.
the participation to the creative Next, we have resorted to the
motivation there is the volitional correlation analysis for the motivational
involvement. sphere (table no. 2).
The most important motivational- The table of those correlations
creative factor of the people involved in emphasizes 87 % (13 out of 15) significant
the administrative activity is the coefficients ranging from .26 and .87. The
volitional one, of taking decisions and five factors comprised in the creative
acting. Making correlations to the shortest motivation structure are reasonably
factor, as we have showed, the vocational represented, but those with significant
one, we may conclude that the contribution to the Q.M.C. are the ones
administrative personnel has the regarding the volitional aspect, cognitive
necessary will and the capacity to start interests and directly creative attitudes.
accomplishing the actions but they are not
interested in the field of their activity,
83
Table no. 2 Motivational intracorrelation
VARIABLES Q.M.C. I.E. VOL. I.C. VOC. A.C.

Q.M.C. –
I.E. .29* –
Vol. .70* .26* –
I.C .81* .33* .40* –
Voc. .51* – – .33* –
AC .87* .36* .61* .72* .28* –
Obs.: the abbreviations represent: QMC – creative motivation coefficient, I.E –
involvement of the Ego, Vol. – volitional aspect, I.C. – cognitive interests, Voc.
– vocational involvement, A.C. – Creative attitudes
b. Creative abilities of the subjects’ interest during the

resolution of the tests requirements and
As we can see in table no. 3, the finally of its fast filling in. Even under
creative thinking of the subjects analysed these circumstances, the results constitute
can be tagged as average, appreciated an indicator of the moderate creativity of
around class 6 of the gauge. We must the group expressed in the initiation,
show that this quiz is not an inventory- perspective thinking and finding new
type test, to which we can answer with ways of approaching a problem etc. The
“yes” or “no” but of the problem consistency of the interactions (table no. 4)
perception, of thinking orientation between the variables is given by the high
towards originality etc. Therefore, we do correlations, between .81 and .99, which
not omit, due to the demands of such an sustain each other and evolve
effort, the possibility of a low maintenance independently and in the same direction.
Table no. 3 Average values – Creative aptitudes
PUBLIC
SUBJECTS FUNCTIONARIES
VARIABLES
M σ
Fluidity 6,09 2,10
Flexibility 6,47 2,11
Originality 520 2,16
Creativity 5,95 2,14
Table no. 4 Creativity correlations
VARIABLES FL. FX. OR. CR.

Fluidity –
Flexibility .99* –
Originality .81* .80* –
Creativity .86* .84* .85* –
Fl. –Fludity, Fx. – Flexibility,
Or. – Originality, Cr. – Creativity
The gender distinction shows us higher scores in the creative thinking (t =

that the male public functionaries have
84
2.50) to which the fluidity (t = 3,25) and ability in the field. Or, from the
flexibility (t = 3,16) contributed, as perspective of the interpersonalisation
dimensions of creativity, compared to the abilities we see that the results obtained
feminine one. We cannot say by this which show the tendency towards
significance of the differences that the introversion, are somewhat in
masculine creative aptitude is higher, only contradiction to what the administration
that the creative aptitudes of women workers should be; the group analysed
“drawing down” the group’s creativity. displays closure to itself and little
Once again we notice that the communication.
main relationship which characterises the If we consider the positive effects
creativity is specific to the interaction of the tendency towards introversion, such
between the creative aptitudes and the as, for instance, reflexivity and propension
creative motivation holding the condition towards meditation, tendency towards
of “operating” the former. Thus, we can planning, the control of the feelings and
explain why in a moderate degree of lack of aggression, then, from this
creative motivation of the subjects (as viewpoint, it is interesting to explore the
showed in table no. 1) there are creative performativity of the public functionaries
aptitudes made to measure. It is known in this direction.
that the distinct note of the creative
subjects resides in the specific attitudes of Table no. 5 Average values –
those developing and vectorizing personality test
aptitudes.
PUBLIC
c) Personality characteristics SUBJECTS FUNCTIONARIES
M σ
For the plan of personality VARS.
characteristics, considering both the I-E 10,65 3,56
average and the standard deviation Neur. 7,37 4,00
obtained in case of Introversion –
Obs.: the abbreviations represent:
Extraversion (I-E), we consider that the
I-E: Introversion – Extraversion, Neur. –
group of public functionaries presents a
Neuroticism
prominently introvert structure, localized
at the upper limit of introversion,
therefore at the border between
introversion and ambivert structure
(table no. 5). We can, thus, say that the
batch is characterised by dynamism and
energy involved in the moderate level
social, the tendency to withdraw to
oneself, in a word low participation in the
exterior. The results also show the
presence of a lower tempo of the activity,
the lack of joy and initiative, possibly the
desire to remain in the background and
not to trust their own forces. The activity
in the public administration means,
besides theoretic and specific knowledge,
communication abilities and solution to
various problems which are pressing in
the tax payers’ lives – actually, we
consider that this is an essential specific

p = .001
85
For the “Neuroticism” scale, a by the combination of both internal and

gross score extremely high or extremely external localisation beliefs of the control.
low would express significantly The data offered by Spector (1988) on an
pathological load. It is not the case of American population (M = 36.00), show us
these subjects. According to the standard a difference of about 11 points between the
done on Romanian population, regarding two averages, of which we can deduct, in a
the emotional stability, we can say that first analysis, that the batch of public
the lot is within the limits of normality functionaries is defined by a higher degree
and the emotional stability is average, of externalism. For a greater certitude, we
meaning the public functionaries analysed find it relevant to report to the results
are not apathetic, inhibited and definitely, obtained from other applications such as
not with high excitability/emotional the ones done by us with the same scale of
instability. The result to this dimension students (N = 870) where M = 43,50 and σ
shows, again, a moderate conduct from the = 9.64 (t = 2,74, p = 000294). Under these
social viewpoint, and as positive point, we circumstances, the data impose the
can direct our attention to the behavioural ascertainment of a higher degree of
control so important in externalism in the public functionaries of
interpersonalisation. this batch.
So, the group analyzed can be From the perspective of the subject
characterized as being a stably introvert distribution, we note that 8,23 % are
one. A strong point of these introvert, as internalist, 51,76 % ambivalent and 40,09
certain representatives of the % externalist.
organisational psychology show (Taylor & We propose next a comparison to a
Humphrey, 2003), is noticed in their batch of engineers in the technical field
success “in positions in the local or central (Balgiu, 2009) with the aim of discovering
government” (p. 246) under the terms in a clarification, comparison that we shall
which they maintain good relations to a nuance by the calculation of the
smaller group of people for a longer period significance of the differences. As it results
of time. At the same time, in favour of from table no. 6, although both batches
solving the tasks by the stable introvert (public functionaries and engineers) fall
we bring in one of Bloom’s viewpoints within the category of “ambivalent”, we
(2007) which considers them capable of can speak of the placement of public
performance due to the good reactions in functionaries at the upper limit of the
front of stress and the fact that they do median are in the place of the control, and,
not trust the impulse of the moment. therefore, of a relative tendency towards
externalism from them. We consider,
d) The evaluation scale of the place under the sign of probability, that the
of control highest level of internalism might be the
consequence of accomplishing the batches
For the score of the locus of control (in case of engineers for the criterion of the
(L.C.) we get an average of 49,25 which certitude of a higher production degree).
puts the sample of public functionaries in
the category “ambivalent“, characterised
86
Table no. 6 The locus of the control – Average values and the significance of the
differences
PUBLIC FUNCTIONARIES(1) – ENGINEERS

SUBJECTS (2)
VARIABILES
M1 σ1 M2 σ2 t p
L.C. 49,25 9,50 41,12 11,55 3,68 .000316*
We mention that for the batch of accepting the others may reveal
public functionaries we have not obtained difficulties of accepting one's own self.
gender differences with respect to the
score of the place of control. To this end, f) Intercorrelation of the variables
the research reported presents some
differences. Still, the vast studies on adult The intercorrelational analysis of
population in the USA (D.P. Schultz & the variables has been motivated by
Schultz, 2005) show that the differences expectations able to express the influence
such as this one have not been found for of the creative motivation within the
the place of the control. Having as personality characteristics of the group
reference a study of Haynes & Ayliffe studied.
(2006) which shows that men in general A first group of correlations
have an internal place of control larger for associates the creative attitudes contained
the items regarding academic in the motivation with the creative
achievements, we consider there can be thinking. The creative attitudes act as
specific distinctions based on gender for activators on the fluidity and originality.
varied categories of items in the From the analysis of the positive
appreciation of the place of control. In this correlations (table no. 7) it appears that,
case, the women consider they hold the at the same time, in the future the
control on the activity carried out due to development of the creative attitudes will
the effort and own planning, and men act as stimulator on the creative potential
functionaries are noticed by the conviction of the subjects.
that they hold the control on the We notice the role that the
promotions in the organisation unlike the creative attitudes have as responsible for
women employees tempted to blame the the coordination or regulation of the
promotions on the external factors. creative operations and inducing the
authentic creativity, thus confirming the
e) Accepting the others first hypothesis proposed. Let us note the
contribution of the knowledge interests in
The average score at this scale (M the correlation configuration.
= 49,20 σ = 9,57) disclose a group Although the correlation
characterised by low tolerance towards the coefficients are relatively weak (.23 and
others, weak confidence in people but also .25), the significance of the cognitive
in themselves, social retractility, the interests in the constituency and
absence of the joy to relate etc. Not operation of the creativity comes out.
87
Table no. 7 Interdimensionality creative motivation – personality
FL. OR. CR. NEUR. L.C.

VARIABILES
Q.M.C. – – – –.38* –.26*
Involvement – – – – –
of the Ego
Cognitive – .25* .23* – –.42*
interests
Creative .20* .23* .24* – –.25*
attitudes
Q.M.C. – Creative motivation coefficient, Fl. – fluidity, Or.– Originality,

Cr. – Creativity, Neur. – Neuroticism, L.C. – locus of control
The next group of correlations relationship between motivation and the

emphasizes the relevance of the place of dimension Introversion-Extraversion.
control for the creative motivation.The
internalist people, who rely on themselves, 5. CONCLUSIONS
have knowledge interests and more developed
motivation. By opposition, the externalists The paper investigated the
have a lower level of creative motivation. The implications of the creative motivation in the
correlation associations suggest the fact that personality of a batch of public functionaries
this is contributed to the small range of starting from the theoretical data and the
knowledge interests (r = –.42) and creative research carried out. The following
attitudes (r = –.25). We can notice that as the characteristics of the group of public
externalism increases the knowledge interests, functionaries examined stood out:
the creative attitudes and implicitly the – The group is characterised by
creative motivation decrease. After the moderate motivation to
analysis of the items, we can say that the performance along with the
externalist people or with a tendency towards vocation for the administrative
externalism are not interested in news in the field. The most important
speciality or outside the profession, have no motivational-creative factor of
initiative and do not wish to surpass their own those involved in the
knowledge thresholds, and the internalists are administrative activity is the
better motivated creatively due to activism, volitional one, of making decisions
their knowledge interests and developed and acting.
creative attitudes. It is thus confirmed that – From the viewpoint of the creative
the validity of the third hypothesis. aptitudes, the group is situated at
Another intercorrelational affinity is an average level. Moreover, there
between the creative motivation and the is a predominantly introvert and
Neuroticism dimension (r = –.38) that we emotionally stable group with
interpret by the positive role of the creative social retractility and low tolerance
motivation in the balance of the group as to towards the others.
the activation and emotional stability, result – With respect to the faith of the
found in the extension of the research factors holding the behavioural
supporting neuroticism as one of the most control, the public functionaries
important predictors of the performance are mostly ambivalent (they have
motivation (Judge & Ilies, 2002). We thus not polarised the place of the
have the partial confirmation of the second control not in the inside nor the
hypothesis as to the association obtained outside), followed by the
between the creative motivation and the low externalist and to a lesser extent,
neuroticism but also the non-existence of the the internalist; the differences in
88
gender occurred only with respect 5. Birdi, K. (2007) „A lighthouse in

to some items and in case of value the desert? Evaluating the effects
of the place of control; the women of creativity training on employee
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90

SOME CONSIDERATIONS ABOUT THE TAGUCHI LOSS AND RISK

FUNCTIONS
BÂRSAN-PIPU Nicolae
Faculty of Finance, Banking and Accounting Braşov
“Dimitrie Cantemir” Christian University
barsan@universitatea-cantemir.ro
Abstract
The paper presents some aspects of the Taguchi 2. The Taguchi loss function
loss function and the Taguchi risk applied in
quality decision problems. The relationship Traditionally - and empirical – it is
between the specified performance level and the considered that the units produced outside
process capability indices of a process are the specified tolerances are “equal” defective,
investigated. while units located within the specified
limits product are equally consistent (or
Key words: Taguchi loss function, Taguchi risk, acceptable), depending on their location to
process capability indices, process performance the lower tolerance specified limit (LSL) or
level. upper specified limit (USL). The units outside
the specified tolerance are lost,
1. The Taguchi approach corresponding to the hatched area in Figure
1. Hence we obtain the so-called actual
In this paper we will examine some concepts defective fraction. The total loss results from
due to Japanese scientist Genichi Taguchi, considering the unit cost of reworking,
who has founded a number of methods for scrapping or replacement of defective
off-line quality control and design of product units.
experiments, of which we discuss here the The modern approach uses the concept of
Taguchi loss function and also the Taguchi natural tolerance interval (NTI), which is a
risk function. Quality control methods measure of the inherent variability in the
consist of off-line quality control and cost process, determined by the natural limits of
activities carried out in the stages of product tolerance. If x and s are respectively the
design and its implementation processes. average and the standard deviation of a
The general objectives of these methods are quality characteristic calculated for samples
improving the quality and reliability of analyzed from the process, then the lower
products and reducing development and natural limit (LNL) is LNL  x  3s , and the
production costs of these products. A key upper natural limit (UNL) is UNL  x  3s .
component in Taguchi’s philosophy is to
reduce variability. Technical specifications
often require that each quality characteristic
to have a specific nominal or target value.
The objective is to reduce variability from
that target. Taguchi has modeled the effects
Loss re
that may occur as a result of deviation from

Pierde
the target value by a quadratic loss function.

The loss refers to the cost that can occur
when using a product whose quality
characteristic deviates from the target value.
LSI T LSS
We shall discuss further the Taguchi
LSL USL
approach considering first the loss function

Figure 1: Empirical interpretation
defined by Taguchi, and then by calculating of the loss function
and analyzing the so-called Taguchi risk.
91
The proportion of non-conforming product 3. The Taguchi risk function

units, outside the specified tolerances, using
the normal distribution N t , x , s  is estimated Now consider the average value of the
that shape the process, by considering the Taguchi loss function. We get:
lower ( pinf ), the upper ( psup ) and the total  
E LT x, T   E k  x  T   k  E x  T 
2
 2
 . (7)
( ptot ) defective fraction, as the probabilities:

 k      T  2 2

pinf  ProbX  LSL   N t , x , s dt ,
LSL
(1) We obtained the Taguchi risk that is the

average loss associated with the
psup  ProbX  USL  1  ProbX  USL displacement of the process from its specified
, (2) target. Writing a more general formula, if
 N t, x , s dt
USL


LT x, T  is the loss function used as a model
and f x,  the probability distribution of the
ptot  ProbX  LSL or X  USL 
process, then the Taguchi risk is:
 ProbX  LSL  ProbX  USL  . (3)
E LT x, T    LT x, T   f x, dx .

 pinf  psup (8)

Applying the unit costs of reworking,

scraping or replacement, we obtain the 4. The Taguchi risk and the process
estimated total loss. performance
Let X be the random variable representing a
quality characteristic of a process, with T the We continue to analyze the Taguchi loss and
target value, modeled by a normal risk functions in conjunction with the
distribution N x,  ,   , where x  X and performance indicators of a process, that is
  T . Let also  be the deviation from the the potential index C p , which is a measure of
target of the process. Taguchi considered the process variability and is given by:
quadratic loss function of the form:
LSS  LSI
Cp  , (9)
LT x   k  x  T  . (4)
2
6
Let K be the loss for the deviation the capability index C pk , which is a measure
  x  T from the target T of the process. of process centering, and is defined by:
Then we have:  LSI   LSS   
C pk  min  , (10)
LT x   k   2  K  ,
;
(5)  3 3 
where from we get: and the precision index C pm , originally
K proposed by Taguchi, which is a measure of
k . (6)
2 the process deviation from the target,
computed with:
The Taguchi loss function is represented in
Figure 2. LSS  LSI
C pm  . (11)
6  2    T 
2
From the last relation and taking into

account relation (9), we can obtain the
following relationship between the precision
Pierdere
index C pm and the Taguchi risk, respectively:

Loss
2
 ITS 1 
E LT x, T   k  
K 
  . (12)
 6 C 
 pm 
LSI T LSS
The relationship obtained is interesting,
LSL USL
since for a process with a specified

Figure 2: The Taguchi loss function
performance level (SPL) of 3 sigma, the
92
potential index is C p  1.00 , then we have obtained if the case of the first process,
STI  6 , and the relation (12) becomes: which is the most decentered, fact which
confirms that Taguchi’s principle, as we
move away from the target of the process,
2
  
E LT x, T   k    . (13) the quality decrease and the costs increase
C 
 pm  significantly.
Generalizing for some specified performance
levels of three sigma, four sigma, five sigma Cp =2 Cp =2
and six sigma, which correspond to the Cpk =1 Cpk =2
values SPL  1.00;1.33;1.67; 2.00 , then the

Cpm =0,63 Cpm =2
Taguchi risk can be expressed according to

Cp =1
specified performance level of the process Cpk =1
and the precision index, with the relation: Cpm =1
2
 SPL   
E LT x, T   k    . (14)
 C 
 pm  21 21.5 22 22.5 23 23.5 24
Now consider, for example, a manufacturing

process that generates a quality Figure 3: Loss function for three processes
with different performance indices
characteristic with the specified tolerances
LSL = 21.5 mm and USL = 23.5 mm, with The values of the Taguchi risk can be
nominal value (target) T = 22.5 mm, and the obtained easily with the formula that we
unit cost of defective product (outside the proposed previously. Thus, we have
specified tolerance) being (expressed in STI  23.5  21.5  2.0 , and for the first
monetary units - m.u.) K   3 m.u.
process we get C pm  0.6325 . Therefore, the
In Figure 3 there are three cases related to
average of Taguchi loss, i.e. the Taguchi risk
this process. In the first case, the process is
is:
with a very good potential index C p  2.00 ,
2
but the capability and the precision indices  STI 1  2
E L1   k      3   2  1   0.83 m.u.

are inadequate, the process being strongly  6 C   6 0.6325 
 pm 
decentered.
In the second case, the process parameters Consider now the Taguchi risk function
are optimal regarding the process variability when the specified performance level for the
and central tendency, and therefore all process is six sigma. The target parameters
performance indicators are very good. for the six sigma is a potential index C p  2
In the third case, the process is at a 3 sigma and an index of capability C pk  1,5 , which
level of performance, all performance
indicators, being equal to 1.00. means a defective fraction of 3.4 ppm (parts
We will now calculate the Taguchi loss per million)! In our example, for the process
function for each of the three cases of the to be of six sigma must have parameters
process. For the first case, we have 1  22 , C p  2 , C pk  1,5 ; hence the average of the
 1  0.167 ,   21.5  22.5  1 , and k  3 1  3 . process can move towards the target value
between 22.25 and 22.75 respectively. Then
We have the average loss per unit of product the precision index is:
 
E L1   3  0.167 2  22  22,5  0.83 m.u.
2
23.5  21.5
For the second case, the parameters are C pm   1.11 .
6  0.167 2  22.75  22,5
2
 2  22.5 , with  2  0.167 , and the average
loss per unit of product will be When calculating Taguchi risk for the six
 
E L2   3  0.167 2  22.5  22.5  0.08 m.u.
2
sigma process we can apply the simple
Finally, in the third case, with  3  22.5 and formula proposed here, obtaining:
 3  0.333 , the average loss per unit will be  SPL   
2 2
E L6   k     3   2  0,167   0,27 m.u.

 2 2

E L3   3  0.333  22.5  22.5  0.33 m.u.  C
 pm


 1,11 
 
Note that, naturally, most of the average
loss, therefore the highest Taguchi risk, is
93
5. Conclusions
Using the concept of Taguchi risk, proposed

in this paper, we can easily calculate the
average loss for any process, based on
process performance indices and the process
specified performance level.
References
1. Bârsan-Pipu, N., Popescu, I. Managementul

riscului. Concepte - Metode - Aplicaţii. Editura
Universităţii „Transilvania”, Braşov, 2003.
2. Bowker, A. H., Lieberman, G. J. Engineering
Statistics. Prentice-Hall Inc, 1972.
3 . AIAG. Statistical Process Control - Reference
Manual, 1995.
94

MANAGERIAL FORMATION AND COMPANY’S PERFORMANCE
University professor Cătălina Bonciu, Ph.D.;

University of Bucharest, Faculty of Administration and Business;
catalina.bonciu@yahoo.com
Lecturer Cristian Sima,Ph.D.;

Centre for Industrial Economics and Services, National Institute of Economic
Research;
sima60cristian@yahoo.com
Lecturer Gabriel Popa, Ph.D.

Politehnica Institute of Bucharest, Faculty of Transports
gabi21popa@yahoo.com
Abstract Key words: strategic management,

The experience of developed countries, evaluation of management quality
especially the most important economic
actors on the world stage – USA, European 1. Introduction
Union, Japan – offered numerous “reference
anchors” in what concerns the definitive The strategic management made the object
characteristics of company management and of research and study over the years, being
its background. Such characteristics considered superior to the experimental
explained the fundamentals of their management. Numerous ideas encompassed
performances and their high competitiveness. the economic world, and those who knew
It was long studied the ability of managers how to apply the scientific fundamentals to
and management teams of drawing “strategic the actual contexts of their activities won. Of
lines” at national, regional, EU(the case of course, the countries with developed
companies inside the European Union) and economies ensured a favorable frame for
world level. Thanks to this ability the future launching theories to sustain the necessity of
development of such companies was possible, scientific, strategic, planned and detailed
and the developing methods and their management.
consolidation were shaped. The strategic Globalization imposed itself in the
management practice became extremely development of human society. The world
important, and it optimized the business dimension of interaction between events,
portfolio, the allocative efficiency and the processes, economic, social, scientific and
way resources were used. On this basis, technologic, politic, ecologic and cultural
companies became stronger on the phenomena took shape economically, in the
international market. evolution of the international economic
The future, instead, is at stake because of the system towards a new trade model,
crisis. All big companies experienced for the investments and economic development.
past two years new managerial methods and Until recently, this model was functioning
models, more or less strategic. The present under certain principles that were very
shows that those companies which resisted in different from the ones in the mainstream
front of the present realities of the market do economic theory. Mainly, it was oriented
not fit in the general strategic management. towards objectives qualitatively superior to
Often, the strategy does not excel one year. We those in the past. Also, it was based on
do not know what will happen in the evaluation criteria much more complex and
theoretical and practical future. with a wider reference area. As for the
95
present and future, the equations will the causes which underline the
change. methodological marks of quantifying the
The economic globalization was companies’ competitiveness. The quality of
advantageous for some countries, industries the managerial act brought to the discovery
and companies that were capable to and the study of the strategic management.
efficiently capitalize the numerous and Between the most notable representatives in
diverse opportunities of this phenomenon – the fields are: Bennis, W., Coulter, M., Dale,
enlarging the market of many products and E., Freeman, R.E., Robbins, S., Stoner, J. A.,
services, the possibility of developing the but also Burduş, E., Căprărescu, Gh.,
economy of scale, easier access to world Cornescu, V., Nicolescu, O., Russu, C., Vagu,
resources and their selective use according P., Zorlenţan, T...
to the economic efficiency criterion,
intensifying competition between companies. 3. Paper Content
The companies’ competitive capacity as well
as their potential of standing the The characteristics of companies’
competition depend, manly, on two management and of their action frame in the
determining factors, the first endogenous developed countries represent the starting
and the second exogenous [1]: point for tracing a series of methodological
elements for the evaluation of management
 The companies’ capacity of quality.
performing productive activities, of
trading efficiently their products/services,  Regarding companies’ management
of improving their competences and
position them on a superior level on the  The practice of scientific
market. Maximizing the action of this management at large scale, using a
factor depends on the quality of wide number of methods, techniques and
companies’ management, on their modern instruments, as well as the
professionalism, on its sensitivity at existence of a large and professional
powerful or weak market signals and the network of intellectual services for
capacity of reacting accordingly. management (managerial, marketing,
 The quality of the national business financial, tax, ecologic counseling etc.).
environment where companies exist,  The existence inside the
which is determined by the country’s companies of a well established
macroeconomic situation, the political structural frame, which clearly defines
stability, the strategic orientations of the the individual responsibilities of
governmental politics, the degree in leadership and execution, characterized
which the government takes part in the by organizational dynamism and
economic activity, taxation, legislation, flexibility[2], growing decentralization
the economic and social cohesion level etc. and improvement in what concerns the
decisional process. Decentralization,
The present work is aimed to indentify using flexible and temporary structural
permissive solutions for future strategic forms – task force, project team etc. – is
management. Mainly, the purpose is to one of the most important practices, with
explain the definitive elements and the the purpose of transforming the
conditions that are to be met for the two companies’ structural frame into a
determining factors of the companies’ dynamic one, making it easily adaptable
competitive capacity. Only after this stage, to modifications.
the research will be focused on defining and  The fast expansion of reorganization
developing new meanings for the strategic within companies for the purpose of
management, applicable to organizations modernizing activity and developing
emerging from the present crisis. competitiveness by introducing and
expanding the information and
2. Literature review communication technology, e-business
applications, the most important of all
Virtually, the scientific research establishes Enterprise Resource Planning, Supply
a relation between the theoretical Chain Management and Customer
fundamentals of scientific management and Relationship Management, e-procurement
96
(or online procurement) and e-  Amplifying the role of formal

marketplaces. E-business represents the and informal communication
communication networks that facilitate between the members of the
the exchange of information, and it company, intra-groups and inter-
comprises the electronic business groups, which infers a free and easy
processes (personnel recruitment, organizational climate, with as less as
strategic, tactical and operational possible conflicts, with meeting where
planning, reserve control and new ideas are welcome[6].
management, client support etc.) and e-  Engaging all companies in the
commerce (purchases and sales). total quality management (TQM),
 Personnel’s professionalism, the which offers and amplifies competitive
excellence spirit that challenges the best, advantages; TMQ is engaged in
the continuous desire to improve and productivity growth so that the
advance, all the factors that determine a production cost reduction don’t affect
high standard of labor productivity[3]. quality[7].
Such level of professionalism is also due  We have to mention the
to the functional policies in the human European management, which is
resources management, oriented towards emerging on world competition and is
formation and professional development, characterized by[8]:
towards the motivation of employees so  Concentration on unity by
that these would use all their creative accepting political, economic,
and productive potential, their knowledge social and cultural diversity of
and experience for the improvement of nation business environment in
the company, and towards promoting the the EU and stimulation of
fair competition spirit among employees expansion and strengthening the
in order to ensure the equilibrium common elements those
between performances and rewards. environments present;
 The practice of a rather free and  Shaping progressively the
easy relation leaders-employees, in „strategic visions” at EU and
order to stimulate individual values and world level;
efficient cooperation.  Decentralization by structuring
 The ability of managers and the trans-European activities in
management teams of drawing strategic business units and
“strategic lines” at national, regional, ensuring the development of
EU (the case of companies inside the informal relations;
European Union) and world level[4]. The  Ensuring the congruence
strategic management practice became between the trans-European
extremely important, and it optimized the companies and the local,
business portfolio, the allocative regional, national ones from the
efficiency and the way resources were EU member countries;
used and on this basis, companies became  Stimulation of human resources
stronger on the international market. international mobility –
 The importance of determining managers, specialists – by
ways and actions for the growth of promoting communications,
productivity by using modern intercultural exchanges and
organizational methods in terms of intra-cultural formation.
productive activities and labor processes
(for example, the Japanese Kanban  Regarding companies’ plan of action
system is everyday more used. This
system is based on saving time and costs  Diminishing the government’s
in production by making each employee involvement in the activity of
directly responsible for the quality of the companies, [9] even in the countries
product he/she produced. Another with a less liberal economy, as a result of
program is the just-in-time system that partial or total privatization of public
practically eliminates the reserves, it enterprises through direct,
establishes production standards for each indiscriminating exposure to the market
stage of the production process.)[5]. requests, their profound technological,
97
managerial and organizational contort the market’s competitive

restructuration, the major improvement character even when they lead to a
in managerial efficiency, as well as concentration of economic activities, but
applying neutral industrial policies. they are considered as destined to ensure
 The predominance of neutral, a greater business efficiency and
horizontal industrial policies, that are international competitiveness, without
aimed to perfect the market mechanisms affecting consumer’s interests. Thereby,
and to improve the specific production strategic alliances between companies are
factors (work force and infrastructures), stimulated, cooperation for research and
policies that are focused on improving the development, production and trading,
quality of those entering the productive purchasing smaller companies,
activity, especially by means of intangible restructuration as well.
investments – support for research  Creating, at national level,
activities and development, innovation networks of specialized units
and diffusion of technology, for work force (institutes, centers, offices, etc.)
formation and improvement at all capable of offering the interested
preparation stages, as well as for companies a wide range of professional
facilitating the entrance on market of services (information and documentation,
counseling, judicial, managerial, counseling, technical assistance,
marketing companies. On these lines, the professional formation), especially for
idea that companies, companies and small and medium size enterprises, that
industries should be adapted to a “state of are aimed to support the management of
art” is the best way for improving these companies to envision strategies
competitiveness. indispensable on a dynamic market, to
 Intensely supporting high-tech take the best decisions and measures.
industrial sectors, through  Extension of economic
governmental policies, by improving deregulation measures, by simplifying
infrastructure and organization of other the administrative regulations for the
economy and industry sectors. Industries foundation or cease of a business, as well
with a great capacity of “technological as the substantial cost reduction needed
irradiation” (expressed through the for formalities. Many deregulation
capacity of exporting high tech products, measures regard other sectors than the
direct investments in technologies, industry itself (especially banks, financial
returns from technological sales and institutions, transportation and
technical assistance) are intensely telecommunications), and their effect over
stimulated by adequate policies, used a the cost reduction and efficiency growth
wide range of efficient economic producing a benefic impact on the entire
instruments (support for technical society.
assistance, technology transfer,  Capitalizing efficiently the
technological partnership, creating location advantages. This
technological enterprises, ensuring the characteristic regards the continuous
risk-capital for companies in high tech emphasis that is put on the companies’
sectors, etc.)[10]. business environment, imposed by the
 Encouraging investments by actual context of globalization where
conferring facilities in the fiscal national economies’ capacity, open to the
environment. On these lines, reducing world competition, of attracting
taxation became a wide spread measure, international mobility resources (capital
and the risk-capital investments were and labor force) and to reach superior
encouraged in new created companies levels of production and investment
from the high tech industries. depends, in great measure, on its location
 Flexibility in competition policy advantages.[11] The main factors
under the market rapid globalization determining the existence of location
conditions, which changed dramatically advantages for investors are:
the companies’ behavior on the market.
Therefore, merging companies, buying  The quality and availability of
companies and creating semi-public public infrastructures on the
enterprises are no more actions that entire national territory;
98
 The ability to innovate products met by indirect taxation, standardizing

and processes, to develop them etc. The modernization implies:
according to the national and
international market requests;  Simplification in exercising the
 The existence of labor force responsibilities of public
properly qualified for that authorities, of public
certain activity, of a mechanisms that influence
technological know-how; industrial competitiveness;
 The market flexibility, their  Continuation of deregulation and
capacity to rapidly and efficiently administrative simplification,
adapt to the structural ensuring full transparency of
modification of supply and administrative procedures;
demand;  Ensuring the continuous
 The existence of a fair and stable exchange with the economic
judicial frame; transactor in what concerns the
 A low level of taxation. industrial performance;
 Ensuring tight relations with the
Between the factors determining the administrative departments
existence of location advantages, many of responsible for the research and
them regard the business environment, industrial activities;
which can be friendly, qualitative,  Cost reduction due to
attractive or, on the contrary, regulations;
unattractive or even hostile.  Redefining the public service
The most efficient methods to correctly objectives.
capitalize the location advantages are to
improve infrastructures, to ensure
stability and coherence in the national The synthetic classification of the most
legislation, to invest in the professional relevant and frequent characteristics of
formation and development, in company management, as they are practiced
universities and in the research and today in the developed countries, as well as
development units. the characteristics of the environment where
 Amplifying the role of the these companies activate, offer a convincing
environmental protection policies image of the diversity of determining factors
became an important factor which will in the managerial field, of the ways in which
actuate in the future the world economy the management is exercised, as well as the
and the globalization. The environmental general frame where it manifests.
protection policies applied at national When trying to establish certain
level condition the sustainable methodological elements to serve the
development, have global and trans- evaluation of the management quality and
national effects, reason why they have to the management team, we have to start from
be defined and widely applied, at these characteristics and from the diversity
regional, national and local level. The of the determining factors. In other words,
good and services production uses “clean the system of appreciation and its
technologies”, non-pollutant, which on methodological elements have to be capable
their turn are not polluted, and it became of totally covering the most significant parts
a powerful strategic weapon on the world of the managerial activity, so complex and
market, offering to producers important dynamic at companies’ level, as well as the
competitive advantages. most powerful influences that the action
 Modernizing the role of public framework of the company exercise on its
authorities is prevalent in many management. In the same time, the
countries[12]. The economic globalization evaluation system and its methodological
creates numerous and diversified elements have to be sufficiently simple and
opportunities for the growth of flexible to be easily applied and adapted, any
businesses, supported by the possibility of time it is needed, according to the specific
administrative and financial cost situations it encounters.
reduction, by cooperating with other
companies; these opportunities can be
99
4. Conclusions and implications managerial systems; the quality of

managerial culture; the management of
The system of evaluation we propose starts time.
by defining certain criteria and sub-criteria B. The quality of the managerial decisions:
in relation to which the evaluation is made, the available informational basis; the
the latter being divided in well established use of scientific methods; the decisional
indicators. reaction speed; the quality of the
The following proposals should be considered decisional act; the quality of
just a starting point in the research. transmission of a decision; the control
Thereby, these proposals cannot be over the execution of the decision; the
considered absolute or exhaustive, especially transparency of the decisional act; the
in the present context, when the practical equilibrium strategic decisions – tactic
realities rush the managerial theory. decisions – operational decisions.
C. The quality of leadership: the nature of
 Evaluation criteria for the quality of managers – subordinates relation; the
company’s managers[14] leadership style; the capacity of
mobilization; the level of involvement of
A. Professional training: basic formation; the company’s personnel in the
Masters education; Doctorate education; managerial process; the efficiency of
managerial formation in Universities; motivation at employees’ level; the
managerial development by post- quality of the organizational culture.
university programmes; complementary D. The company’s performances and the
formation; specialization in the country; management’s contribution at reaching
specialization outside the country. it: indicators regarding the company’s
B. Experience: experience within the profitability; indicators regarding the
profession; managerial experience; the active capital; indicators regarding the
level of the managerial office occupied; company’s debt; indicators regarding the
the relevance of the acquired experience company’s activity; the growth of
for the present executive job. company’s market share; the competitive
C. Managerial abilities: communication; position of the company on the market;
computer; linguistic; negotiation; the company’s image on the business
representation. environment; the effects of applying new
D. Behavior: figure; the level of self-control; managerial strategies.
behavioral balance; reaction
predictability.  Evaluation criteria for the quality of
E. Attitudes: conservationism; receptivity to the management team[16]
new; authoritarianism; liberalism;
conformism; bias. A. The rules that govern the collectivity:
F. Ethics: observe the legislation and the scientific support; ethic support;
regulations; respecting the business harmonization of economic and social
ethics; involvement in conflicts of reasons in the decisional act.
interest; the transparency of actions and B. Team spirit: interpersonal relations
decisions. between the team members; team
G. Managerial performances: the degree in cohesion; cooperation/competition
which the commitments regulated by the relation between team members; the
labor contract are met; the quality of the degree of solidarity regarding
strategy chosen; improvement of the responsibility.
company’s image. C. The synergy of the collective demarche:
convergence/divergence of individual
 Evaluation criteria for the quality of positions; the frequency of proposals; the
company’s management[15] selection of proposals; the stimulation of
group creativity; the quality of the
A. The quality of the management system: proposals adopted.
organizational structure; informational D. The efficiency of the collective demarche:
system; computer system; the frequency the duration of debates; the conditions
of delegations; activities’ for reaching a consensus; the collective
decentralization; the use of complex decisional reaction speed.
100
[15] Nicolescu, O., Verboncu, I., The

Summing-up all the points acquired for each Management of the Organization, Economic
of the above criteria and sub-criteria, Publishing House, Bucharest, 2008
[16] Nicolescu, O., (coordinator), Sistemul
equaled by certain importance coefficients,
decizional al organizaţiei, Colecţia Biblioteca de
we reach a general score of evaluation for
Management, Editura Economică, Bucureşti,
the analyzed managers and, in the same 1998
time, we can determine the positive and
negative parts of a certain company in what
concerns training, experience, abilities,
attitudes, behavior…
The way in which we propose to ideate and

apply the methodological elements for the
evaluation of the quality of company’s
management and of the management team
is schematized in the below Figure 1.
References
[1] Russu, C. Management strategic, Editura All

Beck, Bucureşti, 1999
[2] Zamfir,C., Măţăuan, G., Lotreanu, N.,
(coordonatori), Formarea managerială în
România: Nevoi şi capacităţi, Fundaţia
Internaţională de Management – FIMAN,
Editura Alternative, 1994
[3] Kotter, J.P. The Leadership Factor, The Free
Press, New York, 1988
[4] Comănescu, M., Management european,
Editura Economică, Bucureşti, 1999
[5] Nicolescu, O. Management comparat,
Editura economică, Bucureşti, 1997
[6] Nicolescu, O., (coordonator), Managerii şi
managementul resurselor umane, Colecţia
Biblioteca de Management, Editura Economică,
Bucureşti, 2004
[7] Robbins, S., Coulter, Mary. Management,
5th edition, Prentice Hall, Upper Saddle River,
New Jersey 07458, 1996
[8]* * * International Encyclopedia of Business &
Management, Edited by Malcolm Warner,
Routledge, London & New York, 1996
[9] Mihuţ, I. EUROmanagement, Editura
Economică, Bucureşti, 2002
[10] Toffler, A. Corporaţia adaptabilă (traducere
din limba engleză), Editura Antet, Bucureşti,
1996
[11] Zorlenţan, T., Burduş, E., Căprărescu,
Gh., Managementul organizaţiei, Editura
Economică, Bucureşti, 1998
[12] OECD Guide for Solving Interests Conflict in
Public Adminstration, June 2003
[13] Russu, C., Dumitrescu,M., Plesoianu, G.,
Calitatea managementului firmei. Evaluare si
interpretare, Editura Economica, Bucuresti 2008
[14] Nicolescu, O., (coordonator), Sisteme,
metode şi tehnici manageriale ale organizaţiei,
101
Company’s
Management
Endogenous Exogenous
factors factors
The general conception of methodological elements for the

evaluation of:
 Managers;
 Company’s management;
 Management team.
Establishing evaluation criteria and sub-criteria
Dividing sub-criteria in indicators
Elaborating the indicator sheet for each indicator
Establishing the weight of each criteria for:

 Managers;
 Company management;
 Management team.
Establishing the weight of each sub-criteria
Establishing a domain of points that are to be given for

each indicator
The actual evaluation, consisting in:

- giving a certain number of points for each
indicator;
- the gradual summation of points on sub-criteria,
criteria and objects of evaluation (managers,
company management, management team);
- the total sum of points for each object.
Figure 1 – The scheme of applying the methodological elements for

the evaluation of company’s management and management team
102
The International Conference on Economics and Administration, Faculty of Administration and

Business, University of Bucharest, Romania
ROMANIAN HIGHLY SKILLED MIGRATION POST-1990. DIMENSIONS

AND CAUSAL FACTORS
BONCIU, Cătălina
Faculty of Administration and Business, University of Bucharest, Romania
catalina.bonciu@yahoo.com
BLIDARU, Horaţiu
Faculty of Political Sciences, „Dimitrie Cantemir” Christian University, Bucharest,
Romania
horatiu.blidaru@yahoo.com
Abstract Romanian Academy and Open Society

After 1990, the phenomenon of external Foundation.
migration has decisively contributed to At the same time, using the same
deteriorating Romania’s demographics. A demographic indicators, we tried to identify
major component of the migration flows was the emigration patterns of tertiary educated
represented by the temporary external people in 2008 (the last year that is analyzed
migration for work, whose amplitude was in official statistical data).
highlighted in the 2002 census.
Official statistics cover only the legal Key words: high skilled emigration, brain
external migration – that is the Romanian drain
emigrants who settled down abroad for good,
which represents only a small part of the 1. Introduction
overall emigrants. Estimates of the Migration is one of the defining issues of the
“unknown” dimension of external migration beginning of the millennium. According to
(approximately 2.8 mil people in 2008) shape data provided by International Organization
a phenomenon that has become national for Migration, there are 214 million people
through its dimension, implications and worldwide who live outside their country of
geography of origins of the flows. origin, representing 2% of the world’s
In the present study we tackled upon the population.
issue of the highly skilled labor force In the past years at the level of the
migration, the so-called “brain drain”, a European Union there has been a growing
phenomenon of growing interest on scholarly interest in analyzing skilled
international level. migration, including the extent and impact
The analysis focuses on the one hand on of the outflow of the skilled workers after the
emphasizing the numerical evolution of 2004 and 2007 enlargement of the EU (EIC,
highly skilled external migration within the 2009).
period 1990-2008 and on its structure Despite the high interest of researchers for
according to gender, age, country of highly skilled migration, the so-called „brain
destination, profession, and on the other drain”, there are relatively few studies on
hand on establishing its causal factors, this issue.
resorting to data issued by Romanian The main hindrance in analyzing the
National Institute of Statistics (INSSE) and phenomenon is the absence of rigorous and
SOPEMI data of the Organisation for reliable statistical data that would cover the
Economic Co-operation and Develoment whole range of the migrating process. A
(OECD), as well as to the results of some study regarding the quality of emigration
research published in the past years under and emigration data issued by European
the care of European Institute of Romania, countries ranked Romania as the very worst
National Institute of Economic Research, with regard to quality of emigration data
(Kaczmarczyk and Okolski, 2005). The
103
impact of highly skilled labor force migration may have beneficial effects on the countries
is difficult to assess not only because of data of origin, described in the phrase “brain
limitations, but also of the complexity of the gain” (Docquier et al., 2008).
phenomenon. At the same time, globalization also
A significant percentage of unrecorded contributed to an increase in the number of
migration flows includes short-term qualified work force migrating temporarily
migrants, irregular migrants or migrants or permanently.
working in informal economy. In the global labor market, there is an
Migration changed completely in Romania increasing number of jobs demanding special
after the fall of the communist regime, in skills, professional experience being bought
form of permanent, temporary and circular or sold throughout the entire world (Iredale,
migrations. In the literature various 1999).
periodizations are described in the evolution In the literature in Romania, studies
of post-1990 emigrations (Sandu et al., 2004; dedicated to highly-skilled labor force are
Sandu, 2006; Baldwin-Edwards, M., 2007). relatively few, mainly due to the precarious
statistical data. Nowadays, there is no
2. Literature review satisfactory statistical system of recording
The first academic surveys focused on the immigration and emigration. We should add
phenomenon of highly qualified migration to this the fact that unlike other
were carried out by Anglo-Saxon demographic events, migrations cannot be
researchers. The term “brain drain” first diagnosed always at the very moment of its
appeared in a report entitled “Emigration of unfolding, nor can illegal migration be
Scientists from the United Kingdom”, made assessed. (Rotariu T., 2003).
by the Royal Society of London in 1963 and Temporary or circular migration was
referred to the exodus of the British considered one of the defining characteristics
scientists to the United States. of East-West mobility in Europe. In Romania
In the 1960s and 1970s, the literature was this kind of migration – the so called
orientated towards the emigration of “incomplete” migration to European
academics and professionals from developing countries for illegal work – emerged
countries. Researchers agreed upon the especially starting with 1999 (Sandu et al.
negative consequences of skilled emigration 2004).
for the countries of origin. It was considered The first estimates of Romanian migration
that the departure of the best qualified based on surveys were made in 2000.
persons deprives the Third World countries The main characteristics of contemporary
of the very people who were most capable of Romanian emigration were: circular
revitalizing their economies (Avveduto and migration with illegal employment in the
Brandi, 1995). Schengen area (mainly in Spain and Italy);
After the 1980s, researchers concerned with permanent emigration to OECD countries
the migrations of highly skilled people (mainly non EU) and temporary legal
changed their focus towards the labor migration through bilateral or other
market mobility and analyzed multinational agreements (Baldwin-Edwards, M. 2007).
companies and the migration of experts With respect to the driving forces of
within the context of international aid migration in post-1990 Romania, we need to
programmes. take into account the employment situation,
Interest in the brain drain phenomenon cultural and historical factors, as well as the
revived in the 1990s, in context of massive existence of groups of migrants in the host
emigrations from Eastern Europe and the countries (Zaman, 2000).
former Soviet Union, after the end of the Other authors concluded that the
Cold War gave way to the dissolution of the occupational characteristics of Romanian
Eastern Bloc (Dolgik E., 2000). Among other emigrants to the EU are less relevant than
issues, these studies emphasized the fact the individual connections abroad in shaping
that a great part of the highly skilled the pattern of foreign employment of
emigrants got hired in positions lower to Romanian nationals (Radu, 2001).
their qualifications, situation called “brain Another study underlined the tendency of
waste”. people who had been abroad once to go back
The so called “new economics of brain drain” again and take their partners along (Şerban
stressed the fact that high skill migration and Grigoraş, 2000).
104
Among the reasons to migrate mentioned by qualifications. The main classifying systems
Romanian emigrants in a 2008 barometer used are International Standard
initiated by the International Labour Classification of Education – ISCED,
Organization we can count: good experience adopted by the United Nations Educational,
of others (85%), networks abroad (18%) and Scientific and Cultural Organization in 1975
contacted people abroad (4%) (Silaşi and and, respectively, International Standard
Simina, 2008). Classification of Occupations – ISCO,
An analysis of temporary migration a adopted by the International Labour
concluded that higher education and high Organization in 1988.
satisfaction of living standards are For a unitary assessment of qualifications,
associated with tourism migration, while the European Union applies the
temporary labor migration is associated with recommendations of the Canberra Manual,
rural areas, high unemployment, secondary drawn up by Organization for Economic
education level and a high proportion of Cooperation and Development in 1995, that
youth (Sandu, 2005). combines the educational and occupational
A singular study at the level of destination skills. The term used to describe the persons
countries aimed at Romanian migrant with a high level of qualification is human
communities in Nice, France and El Ejido resources in science and technology, also
area, Spain (Potot, 2000, 2003). agreed by Eurostat, that uses it in
The study on the emigration trends of comparative analyses (Canberra Manual,
higher-educated emigrants over the 1980- OEDC, 1995). Other authors use other
2000 period, presented for the first time by synonyms for highly qualified migration:
Zaman G. and Sandu S. (2000), concluded “skilled international migration”, “skilled
that less than 0.3 percent of Romania’s international labor circulation”, “professional
higher education population had been living transientist”, “migration of expertise” and
abroad for a year or longer. “quality migration”.
The causes and consequences of migration In this paper we used the term “skilled
on work abroad within 1990-2006 were the persons” from the angle of years of formal
object of a complex study made under the education (Dumont and Lemaitre, 2005),
care of Open Society Foundation, which including here strictly tertiary educated
included a survey at a national level, micro- persons. We also adopted the general
regional research and quality research in six meaning of the term “brain drain”,
communities in the country and other four understood as migration of well educated
communities abroad (Sandu, D., 2006). people from less developed countries to more
developed ones.
3. Theoretical Background Data on emigrants refer only to Romanian
The analysis of highly skilled labor force is citizens who settled their permanent
hindered by the lack of a universally residence abroad.
accepted definition of the phenomenon,
which would allow a unitary system of 4. Paper Content
recording emigrants of this category. Studies regarding the out-migration of
Although concerns for the study of this kind Romanian labor force are hindered by the
of migration date back in the 1970s, the lack of official statistics that would reflect
concept of “highly skilled emigrant” remains the real dimension of the phenomenon.
a hazy one, difficult to define (ICMPD, 2005). The alleged figure of 2.8 million emigrants
Most researchers use the term “highly in 2008 underscores a phenomenon that has
qualified” to describe those persons who become national through its dimension,
have a university degree or equivalent. But implications and geography of flow origins,
many people who are not university transforming the temporary out-migration
graduates hold jobs that undoubtedly (the so-called “euro-commuters”) in a highly
demand high skills. For these reasons, some complex issue (CPARSD, 2009).
authors distinguish between qualifications An IOM 2005 field survey suggests that 15%
acquired through experience and of the Romanian adult population has
qualifications conferred by educational worked abroad after1990.
establishments (Koser and Salt, 1997). A study about economic migration of
The term “skilled” is usually interpreted in Romanians concluded that after 1990 about
terms of level of education and
105
12% of persons between 18 and 59 years The net migration between the two censuses
worked abroad (Sandu, 2006). (1992, 2002) shows the highest rate in
According to SOPEMI data, since 2000 the women having the most fertile ages, from 20
inflow of Romania emigrants to OECD to 40 (62%), which means adult persons with
states rose from around 80,000 to 192,000 in a work and innovation potential higher than
2006 (OECD, 2007). The increase was in other age groups (Alexandrescu A.-M. et
particularly strong in Spain and Italy. al., 2008).
The difficulty of establishing the dimension With respect to the favorite destination
of the phenomenon is also due to an countries of Romanian emigrants, after 2000
increasing circulatory character of the these were Germany, Canada, The United
phenomenon. In the period 1990-2006 States of America and Italy.
Romania was a country of negative
number of persons
migration. In the first year following the EU
2005 2006 2007 2008
integration (2007) there was a first-time Total 10938 14197 8830 8739
positive record of migration which doubled Australia 78 125 83 82
in 2008 (Ichim L., 2008). Austria 421 581 313 345
Canada 1220 1655 1787 1738
2007 2008 Rates at 1000 France 343 529 372 431
2007 2008 Germany 2196 3110 1902 1788
Greece 114 134 72 85
Immigrants 9575 10030 0,44 0,47 Israel 64 128 57 50
Italy 2731 3393 1401 1098
Emigrants 8830 8739 0,41 0,41 Spain 139 330 138 238
USA 1679 1982 1535 1591
Difference +745 +1291 0,03 0,05
Sweden 29 37 2 7
Hungary 1013 900 266 354
Other 911 1293 902 932
The gender structure of the temporary countries
external emigration reveals a feminization of Emigrants by country of destination, 2005 - 2008
the phenomenon, a remark that is viable for
the overall evolution of the post-1992 Starting from this general configuration of
phenomenon (Alexandrescu, A.-M. and al., the out-migration, we have tried to highlight
2008). these demographic indicators for highly
number of persons skilled emigrants.
2004 2005 2006 2007 2008
Total 13082 10938 14197 8830 8739
The 2002 census indicated that 7,7% of the
Male 4934 4110 5341 3088 3069 Romanian population possessed tertiary
Female 8148 6828 8856 5742 5670 education. The structure of emigrants
Emigrants by gender, 2004 - 2008 according to the level of their studies has
seen significant fluctuations in the 1990 -
The age structure indicates a concentration 2005 interval (Constantin D.-L. et al., 2008).
of emigrants for group of those aged between
26 and 40, respectively between 18 and 25. Year 1990 1995 2000 2005
Percentage 6,00 16,43 22,94 26,38
number of persons Higher-educated emigrants, 1990-2005
2004 2005 2006 2007 2008
Total 1308 1093 1419 8830 8739 After 1990, tertiary studies graduates,
2 8 7 assimilated to “brain drain”, represented
Under 18 1417 765 963
1003 1472 10% to 12% of the overall emigrants,
years
18-25 1920 1408 1726 1062 682
according to several estimates.
years Around the year 2000, the stock of
26-40 7174 6359 8198 4979 4563 Romanian emigrants in the main destination
years countries had the following composition by
41-50 1414 1355 1782 982 1239
years
education: low levels (ISCED 0 to 2) – 34%;
51-60 577 545 839 460 487 medium levels (ISCED 3 and 4) – 40% and
years high levels (ISCED 5 and 6) – 25%. (EIC,
61 years 580 506 689 344 296 2009)
and over From 1990 to 2000, 36,117 higher-educated
Emigrants by age group, 2004 - 2008
people emigrated from Romania, of whom
56.2% women (Zaman G. and Sandu S.,
2000).
106
number of persons developed countries (Zaman G. and Sandu

Total Male Female S., 2000).
36117 19,012 17,105
Higher-educated emigrants by gender, 1990-2000
Country Number Percent
Engineers, architects 19,122 52,9%
A typology proposed by the above mentioned
Medical doctors, 4,466 12,4%
authors distinguishes between three pharmacists
categories of longer-term voluntary Economists 4,937 13,7%
Romanian emigrants: emigrants searching Other professions 7,592 21%
better paid jobs abroad; higher-educated Higher-educated emigrants by professions, 1990-
2000
family members of early emigrants (family
reunification) and post-graduate emigrants/ Among the few professions that are included
students trying to upgrade their professional in statistical data, the most visible increase
and instruction level. was noticed in the interval 1995 – 2004 for
As for the motivation for the decision to engineers and architects (from approx. 8-9%
emigrate, voluntary emigrants usually to 12-14%), professors and economists (3-5%
search for a better paid job, giving up their at the end of the interval), technicians,
basic education, skill and training and medical doctors and pharmacists (3-4%)
accepting lower level skills positions. (CNPD, 2006).
The phenomenon has a legal aspect to which The most recent data issued by the National
we should add clandestine emigration, which Institute of Statistics on temporary out-
is very hard to evaluate. migration in 2008 indicates an overall figure
The distribution of higher-educated of 8,739 emigrants, of whom 2,903 (33.2%)
emigrants according to age and during the were higher-educated (Alexandrescu A.-M. et
same period revealed the fact that the 26-40 al., 2008).
years age group was the most inclined to The amount of women emigrants is
emigrate in order to set up a new life, having significantly higher for higher-educated
a strong potential to learn and work. emigrants (61.4%).
Total 26-40 41-50 51-60
Over
60 Total Male Female
Number 36,117 20,721 6,310 4,190 4,896 8739 3069 5670
Percent 100,0 57,4 17,5 11,6 13,6 Emigrants with tertiary education by gender, in
Higher-educated emigrants by age groups, 1990- 2008
2000
Tertiary educated emigrants structure by
In the period 1990-2000, the favorite age group indicate a higher number in the
destinations of Romanian higher-education category between 30 and 49 years.
emigrants were the EU countries, Canada,
Age Total Tertiary education
the United States of America and Australia. group Number Percent
20-24 682 58 8,5
Country Number Percent years
Total 36,117 100,0 25-29 1329 471 35,4
Austria 2,253 6,2 years
Canada 3,133 8,7 30-34 1840 914 49,7
France 1,778 9,9 years
Israel 708 1,9 35-39 1394 618 44,3
Italy 2,481 6,9 years
Germany 13,481 37,3 40-44 809 380 46,9
USA 4,132 11,4 years
Other countries 8,151 22,5 45-49 430 189 43,9
Higher-educated emigrants by country of years
destination, 1990- 2000 50-54 298 120 40,3
years
With regard to the distribution of emigrants 55-59 189 63 33,3
in professional categories for the interval years
60 years 296 90 30,4
1990-2000, the high number of engineers, and over
architects and economist was explained by Emigrants with tertiary education by age groups,
the fact these categories of professions have in 2008
a higher demand and are better paid in
107
Correlating the age and gender variable, we destination (pull factors). Personality,
find out that emigrants with tertiary studies particular goals and personal history also
are best represented for the age group 30-34, account for individual differences in high
and 35-39 respectively, for both genders. skilled migration.
A loss of skilled professionals and tertiary
Age group Total Tertiary education educated persons in particular represents an
Male Female important barrier to development.
20-24 58 17 41
years
But there is a series of factors which might
25-29 471 108 363 offset the impact of brain drain, such as:
years education inducement effects, technology
30-34 914 332 582 and knowledge transfer and remittances
years
(estimated by the Romanian National Bank
35-39 618 242 376
years to 6.3 billion Euros in 2008).
40-44 years 380 165 215 As for the factors that might lead to
45-49 189 103 86 emigrants’ returning to their country of
years origin (returning migration), it is considered
50-54 120 67 53
years
that these include: payment specific to
55-59 years 63 35 28 Romania compared to that in the countries
60 years 90 51 39 of destination, a relatively low cost of living
and over in Romania compared to the countries the
Emigrants with tertiary education by age groups migrants return from, as well as the quality
and gender, in 2008
of public institutions and services in
5. Conclusions and implications Romania (CPARSD, 2009).
Highly qualified labor force involved in the
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109

THEORETICAL APPROACHES OF THE IMPLEMENTATION SYSTEM OF EUROPEAN COHESION

POLICY
Alina BOUROSU;
PHD candidate National School of Political Science;
Bourosu_alina@yahoo.com
implementation has known various theoretical

Abstract approaches, ranging from early ones concerned with
the evolution of cohesion policies reforms right up to
This paper is considered to be at the intersection the contemporary analysis of what changes spurred in
of several studying fields, emphasizing on the the public management theory or in the public
intersection between public policy cycle, new policies` implementation systems.
institutionalism theories and new public
management. Structural funds can be considered As the European Cohesion Policy consolidated its role,
the link between the practice of new governance the structural funds implementation systems became
theory, economical convergence and divergence more and more sophisticated and integrated and ever
theories, governing the commons and principal- more decentralized. The idea of partnership and the
agent theory. What may seem to have in common involvement of the private and non-governmental
all these theoretical perspectives is the sector were the key elements in the evolution of
governance concept considered from the point of implementing the structural funds. Using
view of a common pool resource, of an mathematical models, the descriptive elements of the
implementation system model of “check and structural funds implementation systems were
balances”, of a macro-economical analysis of the intersected with the economic approach on funds
governing process results, of a certain way of allocation efficiency and the use of the allocated
rethinking public management and evolution funds, in an attempt to prove the probability for
cycle of public policies. In front of this complexity convergence/ divergence of the financial interventions.
of research I will draw up the guidance lines of
the analysis, specifying the theoretical principles Defined as “the most influential approach in studying
that govern the European cohesion policy taking the role that regions and the European Cohesion
into account the theoretical perspectives Policy play in the EU” 2 , the multilevel governance 3 is
mentioned above, shaping the implementation described as a continuous negotiation system
system of structural funds. involving the local, regional, national and
supranational governing bodies, being considered the
Key words: cohesion, structural funds, main core of this policy. Another approach on
implementation system, new principal agent governance is linked to the diffusion of the decisional
theory layer to the informal level, respectively to the level of
actors` networks. Moreover, the decision making
1. Introduction process is seen as being interconnected with all the
levels of the system, with the sub-national actors
The field of European Cohesion 1 Policy acting both at national and supranational level.
1
Cohesion is a concept vague defined in the field’s literature, assuming
2
different inequalities between living standards, venues, resources access, Rumford, Cris,“The European Union. A Political Sociology”, Blackwell
opportunities, etc. Economical/social convergence is a long term process Publishing, 2002, pg. 154.
3
which reflects the ability of a economical or social group to be in Concept set forward by Gary Marks “in order to show how the EU is shifting
competition. In the European context, near this sense of the concept, we to a decision making system in which the power is split between multiple
can talk about the disparate distribution of resources/benefices of levels of governance: sub-national, national and supranational”. Multiple
European integration in order to reduce the economical/social disparities actors with authority collaborate in a framework where the power is
between European regions to create a competitive background. The dissipated. Hooghe, Liesbet şi Marks, Gary, “Unraveling the Central State, but
instruments to create this environment are considered to be these How? Types of Multi-Level Governance”, The American Political Science
structural funds and the models of their implementation systems. Review, Vol. 97, Nr. 2, Mai, 2003.
110
simplification and concentration of the proposed

One of the criticisms 4 on this approach of the objectives.
European Cohesion Policy’s implementation
system talks about the fact that the multilevel The core principle of the evolution of European
governance model fails to explain why national Cohesion policy’s implementation system is related to
actors lose their influence in the decision making “sub-national actors being sometimes as important as
process. Jens Blom-Hansen finds that in this central governments of member-states in the
particular perspective, there is an unexplained elaboration and implementation process of European
assumption that the governance networks public policies. 6 ” Taking all that into account, the
involved in system control somehow the European following reforms of European Cohesion Policy shaped
Cohesion Policy. To put it in other words, if the system not only by new geographical criteria but
national or sub-national actors which implement also by functional criteria related to structural fund
the European Cohesion Policy can also influence management, applying principles as decentralization
the content of the European Cohesion Policy, one and subsidiarity at the level of management
might say that the policy control mechanisms are structures and financial instruments.
weak at the European level. The European
Cohesion Policy is a hardly manageable colossus Besides the principle related to the funds`
and there is a need for the intersection and concentration in different priority objectives, David
synchronization of actions across all levels. Allen identifies another four elements which act as
milestones for the implementation system of
2. European Cohesion Policy –Institutional European Cohesion Policy:
Management System’s Reform
1) Programming in a multi-annual and multi-
Where the social and economical system fails in regional perspective of interventions, in order
bringing the attended results, a series of to guarantee stability and impact of
interventions as public policies are needed to programmes.
enrich the system efficiency and to create the 2) Additionality that gives the opportunity for
minimal conditions for the system functioning. To each beneficiary (member-state) to add its
ensure a macro-economical stability of common national co-financing from the national
market, to create the Economical and Monetary budget.
Union a cohesion policy was created, having as 3) Partnership at national, regional and local
key elements the efficiency of financial level in order to implement these multi-
distribution from the developed countries to those annual programmes. This principle was
less developed, ensuring the functioning stability extended with the 1988 reform by including
for the common market and promoting a social partners in different stages of the
harmonious development of the European Union. implementing process of operational
European Cohesion Policy is a mix of financial programmes. Partnership principle
instruments used for certain policy objectives and encourages cooperation mechanisms between
rules to oblige social and economical actors to social actors in implementing public policies.
have certain actions relevant for the policy’s In this way, the accent can be on decision
objective 5 . making transparency, on the justification and
legitimacy of governmental interventions.
The evolution and consolidation process of this 4) Subsidiarity 7 -the problems are solved at the
policy is related the process of European sub-system level that these problems appear.
integration of new member states, the first The intervention should be made when it is
creating the premises of the second process, necessary; the sub-systems are being
especial taking into consideration the territorial encouraged to deal with their own problems
dimension of the European integration. The without appeal to the superior level.
consolidation process is related to multiplication
of financial instruments, to augmenting their All these elements have been consolidated during the
value, to defining and developing the reforms of European Cohesion Policy’s
implementation system in corroboration with the
6
Sutcliffe, John B. “The 1999 Reform of the Structural Fund Regulations:
Multi-level Governance or Renationalization?”, Journal of European Public
Policy, Vol. 7, 2000, pg. 292.
4 7
Blom-Hansen, Jens “Principals, agents, and the implementation of EU Allen, D. (2000) Cohesion and Structural Funds: Transfers and Trade-offs, in
cohesion policy”, Journal of European Public Policy 12:4, 2005. Wallace, H. &Wallace, W. (eds.) “Elaborarea Politicilor în Uniunea
5
Molle, W., “European Cohesion Policy”, Routledge, 2007 Europeană”, IER 2005
111
implementation system, observing an evolution implementation mechanisms. Reforms have been

from a „policy based on national strategies to balancing between these models. New challenges of
European strategic policy” 8 . Gian Paolo Manzella public management in the field are being related to
and Carlos Mendez talk about a step by step the strategic partnership development, to new
evolution from financial supporting assistance on investment instruments in human resources, to
different projects to multi-annual financial simplify the system and to ensure clear delegated
programming and integrated programmes, tasks for intermediate bodies in the decentralization
evolution that took place since 1988. Also we have process, efficient monitoring and evaluation schemes.
to mention that the programming responsibility of As Hooghe and Keaning` perspective in applying
the last two implementing periods was structural funds is necessary the mobilizing sub-
established at the member-states level. The national actors and well as private actors for the scope
simplification of the management system is also of „improving governing capacity on the entire
related to the integration of communitarian system”. 10
initiatives in the programming period 2007-2013
and to the elimination of innovative actions Tabel 1: Models of the evolution of structural
instruments. funds implementation systems (Jochen Lang)
Analysing these successive reforms, the Impleme Bureaucr Administra Strategic

implementation systems of structural funds ntation atic tive managem
became more and more sophisticated and model model of decentraliz ent and
integrated and the partnership concept became control ation decentral
the most important element that marked the ization
evolution of the system. As it is shown in the Managem Announced Announced Agreement
paper “Turning strategies into projects: The ent and detailed detailed on
implementation of 2007-2013 structural funds program objectives; objectives quantifyin
programmes” 9 , regarding the last programming ming and g the main
period of implementation systems we can talk model indicators; objectives
about an evolution of Monitoring Committees` and
responsibilities through “control and project indicators;
evaluation integrated systems”, about a higher Impleme Mix Administrati Programm
trend participation of economical and social ntation implement ve ing
partners in programme’s implementation, about structure ation decentralizat decentraliz
an horizontal and vertical consolidation of process; ion of ation and
partnership principle. The last two elements are decision implement
related especially to Lisbon Agenda, which making but ation – the
promotes an active implication of partners, not maintenance coaching
only on advisory bodies but also in of central and
implementation process itself. approval; stimulatin
g role of
In the article “Reforming the implementation of the
European Structural Funds - A next development European
step”, authors develop models for the successive Commissio
reforms of implementation systems of structural n;
funds, taking into a consideration the evolution Social Insignifica Accent is on Improvem
through a model of administrative inclusion nt regional the ent and
decentralization and strategic management. The participati information expansion
models are being classified according ro the on; and of the
following dimensions: programming and participation regional
management, implementation structure, regional process of dimension
inclusion, improvement and evolution of societal (local
actors (sub- institution
8
Manzella, G.P.; Mendez, C., “The turning points of EU Cohesion regional and s, societal
policy”, Report Working Paper, January. 2009,
http://ec.europa.eu/regional_policy/policy/future/pdf/8_manzella_final- social actors);
formatted.pdf
9
Ferry, M.; Gross, F.; Bachtler, J.; McMaster, I., “Turning strategies
10
into projects: The implementation of 2007-2013 structural funds Hooghe, L, Keaning, M, “The politics of European Union Regional
programmes”, European Policies Research Center, 2007- Policy”, Journal of European Public Policy,1994, apud Wallace, H., Wallace,
www.eprc.strath. ac.uk W., Pollack, M., “Elaborarea Politicilor în Uniunea Europeană”, IER 2005
112
partners) that allows each region and city to design and

Improvin Lack of Systematic
Continuu implement its own strategy” 13 .
g and coordinatio monitoring,
m decision
evolution n of evaluation,
making Implementation practice of European Cohesion Policy
of evaluation, control and
process is proves the interaction between three levels: regional,
implemen monitoring financial
oriented national, and European authorities. European
tation and measures;
through Commission proposes a budget and a series of rules
mechanis financial system for a programming period of 7 years on which the
ms control monitoring Council and European Parliament are supposed to
measures; and give an opinion and to adopt this budget. After this
evaluation procedure, the budget of European Cohesion Policy is
including spitted between member-states after member-states
trans- negotiations and consultations on eligible regions, on
national distribution criteria, on objectives, etc. As I already
strategic mentioned, the implementation system of structural
evaluation funds is based on a series of compulsory rules imposed
and by the EU regulations and informative documents,
through following the entire cycle of a programme’s
financial implementation, starting from the programming
control; phase, including identifying problems, finding
Lang J.; Naschold, F.; Reissert, B. “Reforming the solutions, financing agreements, implementation,
implementation of European Structural Funds A next monitoring, evaluation and control procedures.
development step” Wissenschaftszentrum Berlin für
Sozialforschung gGmbH (WZB) Reichpietschufer 50, The main elements in implementing this policy are:
10785 Berlin
 Legislative background at European level
Institutional reform of structural funds (e.g. Regulation for putting into practice the
implementation system has been accompanied by European Regional Development Fund
a functional reform of evaluation and monitoring (ERDF) or European Social Fund (ESF), at
process of the system. The reform was national level (normative background to
unstructured at the beginning and progressively implement structural funds in a certain
at European level there was established different member-state);
(relevance – needs associated with the  Institutional background at European and
programme/project priorities, efficiency - obtained national and regional level;
results associated with costs for reaching those  Financial instruments and Cohesion Fund;
results, efficacy - fulfilling the objectives of  National strategies for identifying the main
operational programmes, utility – response to priorities regarding structural funds
economical and social need and the improving the concentration;
life quality by those financial interventions, and  Operational programmes which are the
sustainability – the possibility to sustain those means used for funds allocation at the
interventions after exhausting the financial aid 11 ). national level;
 Evaluation and control mechanisms
3. General elements of European Cohesion (Monitoring Committees - MC Audit
Policy management system for 2007 - Authorities - AA, Certifying and Paying
2013 12 Authority - CPA, European Commission -
EC).
“There is no successful policy with one-size-fits-all
solutions. Cohesion Policy promotes flexibility This general framework of implementing the
European Cohesion Policy is interweaving with a
series of principles and rules to ensure structural fund
management’s transparency and efficiency. Besides
11
regulations and financial instruments established at
“Guidelines for the ex post evaluation of objective 5 B programmes
1994-1999 programming period”, European Commision,
13
http://ec.europa.eu/agriculture/eval/ben.pdf Opening statement of Commissioner Danuta Hubner at conference “Success
12
Bourosu, Alina, section from the article “Fondurile Structurale. Story of the EU Cohesion Policy and problems in practice”, may 2007 –aped.
Probleme, soluţii şi perspective pentru România.” in volumul “ Ferry, M.; Gross, F., Bachtler, J. , McMaster, I., “Turning strategies into
Evaluare de programme şi politici publice”, cood. Mirela Cerkez, projects: The implementation of 2007-2013 structural funds programmes”,
Polirom, Collegium, 2009 European Policies Research Center, 2007, www.eprc.strath. ac.uk
113
European level, the rest of the implementation Fig. 1 - Implementation system of

system follows each member-state’s institutional
structural funds 14
and legislative specificity. Taking all this into
consideration, it might result a lot of differences European
in the structural funds implementation system, implementation
especially at national and regional levels, model
differences that are the result of civic and political
culture of each country. Even though all member-
states use the same legislative background, there
are differences regarding the level of
decentralization of the system. For instance in Context
Actors Principles and
Hungary, we can talk about one operational (National, regional,
phases
socio-economical,
programme for each development region financed  European political, cultural,
by ERDF and coordinated at the governmental Commission
judiciary context)
 Programming
level, while in Romania there is only one  National  Management
Governments procedures
operational programme implemented from the  Regional  Monitoring and
national level with some decentralized tasks governments control system
delegated to intermediate bodies (IB). Even  Monitoring  Selection process
Committees  Financial
though there are these delegated activities to IBs,  Managing
Decentralization,
procedures
the level of decentralization is not the same as in Authorities
centralisation
 Coordination
Adaptation of the
Hungary. This element is also reflected in the  Certifying and
model at national level  Information and
competences` distribution in programme Paying Authorities publicity
to its context
 Intermediate  Partnership role
management at the local, regional, national level, Bodies
in political interests, in the number and purposes  Beneficiaries
of the operational programmes, in the existing  Social partners
administrative structures and their organization -  External experts
partnership structures, governmental agencies.
One of the main characteristics in the European
Cohesion Policy’s implementation system is relate
Foreword, I will emphasize the differences between
to the actions` stratification in the decision
the European and national level of the European
making process. In this way, we can talk about
Cohesion Policy`s implementation system:
the three levels mentioned above (European,
national and sub-national or regional level) which
IMPLEMENTATION SYSTEM OF EUROPEAN
are intersecting by the partnership principle, COHESION POLICY
lobby and advocacy actions. There is a certain Common elements at Specific element at national
complexity of the system given by these European level level
communicative levels but at the same time we can Principles:  Partnership principle
also identify some flexibility by the equilibration  Partnership  Regionalization,
of private - public relation in the attempt to principle decentralizing,
involve actors in the implementation process.  Regionalization, centralization
decentralizing  Programme and project
Another dimension that we can discuss regarding  Subsidiarity co-financing
 Additionality  Project management
structural funds implementation system at
 Project management  Multi-annual
member- states level is the dynamics of social  Multi-annual programming
problems that these funds should be the solution. programming  Incentives for feasible
Each country builds its own development strategy  Transparency project creation
taking into account its lean sectors, its resources  Efficiency in project
and it’s potential in a certain domains. In selection
different countries, actions are concentrated to the  Transparency
development of certain economic activities, taking  Administrative capacity
into consideration the socio-economical and zone  Absorption capacity
realities. Besides this, institution building process European Cohesion National economical and
Policy social development policy
has its own voice in personalizing the structural
 National priorities
funds implementation system in a country. All
these elements are detailed in the next figure:
14
Figure adapted from “A Study of the Efficiency of the Implementation
Methods for Structural Funds Final Report”, ÖIR in association with LRDP
and IDOM, Viena, 2003.
114
Communitarian National institutional 1) New governance theory 15 , which brings a new

institutional framework framework – with specific vision on principles used in public management,
 Coordination competences and especially emphasizing the accountability
(European  Coordination of citizens and their implication in
Commission) (Coordinator of the
partnerships and networks in managing
 Implementing National Strategic
 Monitoring reference framework -
structural funds.
 Evaluation (at the NSRF) 2) Principal agent theory and the relation between
level of European  Implementing actors in structural funds implementation
cohesion policy) (Managing Authorities system have been considered a critique to new
 Control of the operational governance 16 , bringing into the light the control
programmes) mechanisms and the contractual realtions
 Monitoring (Monitoring beetween actors, especially when an agent acts
Committee of NSRF and in a contractual relation as a representative of a
monitoring committees
principal. Aslo, the critics is related to the fact
of each operational
programme)
that national actors seem to loose their power in
 Evaluation (Coordinator the decision making process, not existing a so
of the National Strategic called “centre of accumulated authority” 17 .
reference framework – 3) The descriptive elements generated by the
at NSRF level and above mentioned theories have been crossed
Managing Authorities of with economical approaches on fund efficiency
operational programmes allocation and spending, more concrete with
– at programme level) the attempt to prove the convergence and
 Control (Audit divergence 18 probability of structural funds
Authority)
interventions, by using mathematical models.
Legislative background Legislative background–
– regulations regulation and specific The two concepts try to prove the existence of
national legislation a positive or negative correlation between
Means: financial Means: Operational these interventions and reducing socio -
instruments –structural programmes within the economical disparities. In particular, the
funds and cohesion fund funds are being accessed theories that take into account the differences
 Number of programmes
 Applicable domains and
key areas of 15
„Governance” has not the same sense „government”, the first term
interventions referring to a new method, a new process of governing the society. Problems
 Types of projects which appear in clarifying the concept mentioned above are related to
(integrated or not) specifying the method used to govern a society. Among the different senses of
Beneficiaries: member Beneficiaries: different the concept we can identify: „governance”–„good governance” –applying
new public management principles; „governance”–„socio-cybernetic
states/regions types of beneficiaries system”– interaction’s effects of governmental, political, social economical
(small and medium actors, interaction in which non of the mentioned types of actors is in a
enterprises, county position of information monopole of solving problems; „governance”–- „self
council, municipalities, organising networks”- networks in which individuals and public, private and
non-governmental non-governmental organizations interact for offering public services, the
accent being on their autonomy as alternative mechanism in providing public
organizations)
services Rhodes, W. „The New Governance: Governing without
Government”, Political Studies, XLIV, pg. 652-667, 1996.
4. Analysis on theoretical perspectives on 16
Blom-Hansen, Jens “Principals, agents, and the implementation of EU
structural funds implementation system cohesion policy”, Journal of European Public Policy 12:4, 2005.
17
Hooghe, L. ‘Introduction: Reconciling EU-wide policy and national
diversity’, aped. Blom-Hansen, Jens “Principals, agents, and the
After the period when public administration was implementation of EU cohesion policy”, Journal of European Public Policy
based on the Weber’s model of hierarchical 12:4, 2005
18
Regional development knew two opposite economical perspectives
bureaucracy, new perspectives of public regarding the economical space of regional disparities evolution Convergence
management raised with the diversification of theory of venues has its roots in neoclassical economical approaches of
actors and their interaction in the public sphere equilibrium, considering that there are no major obstacols in functioning the
market and that these forces on the long run will bring a general convergence
and with their contribution within partnership of regional venues. – G. Borts, J. Stein, J. W.; Chatterji M.; Barro R.; Sala-i
and coalitions to fulfil administrative tasks at Martin, X; Boldrin M; Canova, F.; Marcet, de la Fuente, A; Galor, O.
societal level. On this evolution the management Beugelsdijk M.; Eijffinger, Ezcurra R.; Rapu N; Lopez-Rodriguez J. Şi Faiña.
The second approach proves that there are no sufficient reasons to believe that
system of structural funds was built up, having at economic growth and venues will lead to convergence on long term, and
background different theoretical perspectives: regional disparities are more likely to occur. Economical growth models
developed by Perroux, F.; Myrdal, G. ; Kaldor, N; Miderlfart K; Overman
estimate that regional venues will tent to be divergent because market forces
are being in spatial lack of balance.
115
in technological development 19 estimate “A remarkable transformation has taken place in

those venue disparities will vanish in a recent years. The individualistic market-based
certain period of time, while economical solutions to the problems of government, so loudly
geography literature 20 argues the trumpeted in the two decades to the mid 1990s, are
emergence of an opposite phenomenon by quietly being replaced by more collaborative models
deepening the divergence between and practices of social organisation. The result has
analyzed counties. been the rapid growth of 'partnerships' involving a
wide variety of actors in undertaking an extensive
range of programmes across the public policy
Taking into consideration all the above mentioned agenda 22 . As George Fredrickson affirmed „public
the supporters of European Cohesion Policy are administration is steadly moving toward theories of
centred upon benefices brought by the cooperation, networking, governance and institution
implementation policy’s model, especially on the building anad maintenance”. 23
multi –annual programming which encourages a
strategic vision, on monitoring, control and
The phase of entreprenorial government in modern
evaluation conditions, which influence the
public administration centred on providing public
thinking and acting manner of public
services in colaboration with all sectors – public,
administration in new member-states, on
private and non-governamental, on using market
partnership principle’s role in the design and
mechanisms, on saving public budget, on preventing
implementation phases of administrative
problems, on efficiency princile and management
decentralization policy. From a financial point of
descentralization 24 have been considered the key
view it is being arguing that European Cohesion
elements in applying new governmance theory. J.
Policy puts together all the efforts and national
Ewalt makes an analysis of public management`s
strategies into an European perspective of
evolution starting form bureaucratic model of public
spreading European governance’s model.
administration untill new governance theory,
emphasizing the following:
Critics of this European policy are questioning the
fulfilment of its objectives, emphasizing costs,
a. The austerity of normative framework is
bureaucratic means, incapacity of quantifying the
being replaced with the ideas of pramatism,
policy’s scope, not having a clear mission focusing
flexibility;
on economical growth, being a “catch all policies”
21 .
b. Ierarchy is being replased by the
descentralization process;
c. Results are not the only one to be
I will analyze the implementation system of
considered, the admninistrative process is
European cohesion policy from the perspective of
also being taken into consideration;
new governance theories and principal - agent
d. Financing is related to administrative
theory, emphasizing the deficiencies appeared in
performance;
the management of this sector form functional
e. Institutions and actors from the non-
point of view.
governamental area are being involved in
the administrative process;
f. Autonomous partnership and networks are
4.1. Netwoking governance
included in the implementation phase of the
process and their action capacity is
independent from the governmental
authority;
19
This perspective suggests that if a region uses its structural funds g. Evolution through an adapting process,
allocations for promoting technological progress or for exploiting the learning by doing; 25
existing technological potential then the regional productivity will come
closer to the one of the more developed regions. Ederveen S.; Gorter, J;
Ruud de Mooij; Nahuis, R. “Funds and Games. The Economics of
22
European Cohesion Policy”, CPB Netherlands’ Bureau for Economic Skelcher, Chris, “Changing images of the State: overloaded, hollowed-out,
Policy Analysis, 2002, congested”, Public Policy and Administration.
http://www.cpb.nl/eng/pub/cpbreeksen/bijzonder/41/bijz41.pdf http://ppa.sagepub.com/cgi/content/abstract/15/3/3
20 23
This approach considers that if a company is located in a certain place, Fredrickson, G., “The reposition of American Public Administration”,
this will make that area more attractive for other companies to be located Political Science and Politics, Vol. 32, nr. 4, 1999
24
in. In this way, there are centrifugal forces in the developed regions and Osborne, D; Gaebler, T., “Reinventing Government: How the
for the undeveloped areas it will be difficult to recover the gap related to Entrepreneurial Spirit is Transforming the Public Sector”, Perseus Publishing,
crowded areas and to reverse the dynamics of this agglomeration. idem 1992.
21 25
Tarschys D., “Reinventing cohesion: the future of European Structural Ewalt. J.A, „Theories of Governance and new public Management: Links to
Policy”, SIEPS, Stockholm, 2003 Understand Welfare Policy Implementation”, Annual conference of the
116
h. Market mechanisms are being prefered Multi-level governance is also applied in the
over bureaucratic ones in public European Cohesion Policy’s negotiations on the three
management. different levels – European, national and sub-
national 29 . “1 “In one view, the 1988 reform was
On consider that the competitive system of the integral to the development of a system of multi-level
market can not cope with all the problems of a governance in the policy sector, whereby sub-national
society/community and this is why, there has been actors would become increasingly important alongside
adopted the idea of collective solutions produced European actors, such as the Commission, and the
by networks in which the state doesn’t have the central governments of the member states” 30 ,
central role anymore. Partnerships promote promoting partnership and cooperation between those
cooperation, reciprocity and are legitimate to be actors.
involved in governing the society. Networks have
the necessary expertise in certain areas, Negotiations for financial allocations, for institutional
intervening in the democratic process, framework of operational programmes`
constituting the middle level between state and implementation and for structural programming for
citizens. Under this paradigm the evolution of establishing the main priorities are important phases
European cohesion policy reforms took place. of European Cohesion Policy, where new governance
principles are being applied. Especially on this last
„The most influencial current approach to mentioned phase, member-states` governments
studying the role of region and cohesion appeal to a partnership system in order to fulfil the
policy in the EU is multi-level governance” 26 programming needed to manage allocated funds. The
vertical dimension (territorial dimension) and
horizontal dimension of European networks are part
Studies on European Union have as variable the
of the management system, but the size and
multi-level governance, initially described as a
magnitude of these networks depends on the specific
continuous negotiation system, within specificity
“political culture” 31 of each member- state. In some
of European Cohesion Policy, between local,
countries the participatory level of actors in the
regional, national governments,. Also, another
decision making process is higher than in other
approach was related to the diffusion of decisional
countries, and this leads to different degrees of
level at informal level and at the networks level.
societal actors` involvement in all the phases of the
The optimal authority allocation within the
structural funds management and control system. For
multitude of actors and the way that these actors
example, we can take as criterion the partnerships`
interact was the research elements on governance
involvement in the entire process of operational
at European level. Multi-level governance
programmes` implementation, or only in some
theoreticians 27 affirmed that European
phases 32 .
integration deals with numerous negotiations at
intergovernmental level, but the governments are
There are some advantages and disadvantages related
not remaining the gatekeepers of controlling this
to the use of this theory. As G. Fredrikson affirmed „it
process, there also were other actors involved in
is in governance theory that public administration
the process. This theory is less about market
wrestles with problems of representation, political
principles, rational choice and competition, is near
control of bureaucracy, and the democratic legitimacy
to institutionalism and natural/voluntary forms of
of institution and networks in this time of a
cooperation. New governance theory identifies the
fragmentated state” 33 . The key element is residing
debates as the most legitimate and efficient
into the actors and the relations between these actors.
mechanisms in decision making process in
The system’s description is reduced to the
complex organizational structures. Legislative
only establishes the directory lines of public
policies, cooperating with other actors involved in
29
Sutcliffe, B John., “The 1999 Reform of the Structural Fund Regulations:
Multi-level Governance or Renationalization?”, Journal of European Public
determining the best means for fulfilling the Policy, pg. 292, 2000.
objectives of the policy. 28 30
Marks, G apud.. Sutcliffe, John B, “The 1999 Reform of the Structural Fund
Regulations: Multi-level Governance or Renationalization?”, Journal of
European Public Policy, pg. 292, 2000.
31
„Political culture” is referring to attitudes towards political system, a set of
American Society for Public Administration, Easten Kentucky orientations towards a special set of objects and social processes. Almond, G.
University, Newark, NJ, 2001. şi Verba, S., “Cultura civică”, Bucureşti, DU Style CEU Press. 1996.
26 32
Rumford, C.,“The European Union. A Political Sociology”, Blackwell Bouroşu, Alina, “Fondurile Structurale. Probleme, soluţii şi perspective
Publishing, pg. 154, 2002 pentru România” în volumul “Evaluare de programe şi politici publice”,
27
Marks, G; Hooghe, L şi Blank cood. Mirela Cerkez, Polirom, Collegium, 2009
28 33
Ford, Cristie L.,"New Governance, Compliance, and Principles-Based Fredrickson, G. “The reposition of American Public Administration”.
Securities Regulation", American Business Law Journal, 2007. Political Science and Politics.Vol. 32. No 4, 1999.
117
nongovernmental action zone, to the actors` into the communication models 35 may lead to us to a
actions and competences areas, without conclusion related to the level of governance in the
emphasizing additional mechanisms used to structural funds implementation system. It can be
influence the management system. Taking into associated, for instance, in a matrix the actors`
consideration the principles mentioned above and involvement in all phases of the implementation
the democratic theories, the management system system and bidirectional and symmetrical model of
of the European Cohesion Policy is being placed at communication 36 .
a superior level of citizens’ responsibility, being
aware of problems in implementing public The implementation of European Cohesion Policy
policies. using networks perspective has also its difficulties.
Within networks there are independent actors with
In the article “Toward a Political Framework for different strategies, sometimes in conflict. Public
Flexible Management of Decline”, there are policies are not considered as ante-formulated
described the advantages of this approach in objectives, but as interactions and exchange of
public management, emphasising the flexibility of information between actors, being a building process
the system, the risks that actors assume in the of preferences, objectives and resources. Governance
process of a public policy creation, being a is concentred on conscious and deliberative actions of
participatory process with flexible structures in public actors (individuals, coalitions, organizations,
which consensus and proactive attitude are the etc) to influence social process 37 . According to the
main principles 34 . Among the advantages, the theoretical approach mentioned above the European
authors also talk about avoiding rigid reactions Cohesion Policy is a result of the interaction between
and the openness through all opportunities and these actors, being implemented in inter-depended
solutions, about the acceptance of a „shared networks.
governance” process, the consensus building and
negotiation in solving conflicts. All these elements Another disadvantage is related to .under-
legitimate the decision making process and create representation of key actors in public-private
a more transparent environment involving all the partnership, which can be explained by the
concerned actors in solving a social problem. impossibility to cope all the citizens in decisional
process and in implementing public policies. Also, we
All these principles vary in a comparative can add the resistance of some actors to reform; there
approach of structural funds implementation are certain social groups that, due to the advantages
system; differences are being evident on the that benefit at certain moment, would be against of all
vertical axe – between the communitarian and change of the system that could lead to loosing their
national level and on the horizontal axe – between initial status. Beside this, the inadaptability of public
member-states. As an example, the public administration to deal with diversity, to experiment,
communication function and the way that it has to to promote flexibility can also be considered a
be fulfilled is established at the communitarian disadvantage in applying the new governance theory
level, within regulations, and in this way it should in public policy. This inadaptability is due to the
be uniform to all member-states. But public rigidity of the weberian bureaucratic model of public
information differs from one state to another and administration.
also its communicational context, depending on
the public transparency legislation in public Walter J.M.Kickert, Erik-Hans Klijn and Joop F.M.
administration of these states. The involvement at Koppenjan talk about the following disadvantages in
national level of social actors, of interest groups in
the structural funds implementation system
depends on system building capacity, on the 35
There are 4 models of communication identified by taking into account the
specific civic culture, on a historical approach of phases in the public relations` evolution. These models are: agent popularity,
interest groups involvement in shaping and public information, the bidirectional and asymmetric communication and
implementing public policies. bidirectional and symmetrical communication. Details in Grunig, J.,
“Excellence and Public Relations and Communication Management”,
Lawrennce Erlbaum Associates Inc.,1992.
Analysing the communication function, the 36
Main characteristic of the model are: the accent is on the communication
involvement level of interest groups in the target groups` feedback, the organization using this feedback to reach its
management system and framing the analysis objectives and to identify the targeted public needs; the interested parties
involved in the communicational process have the same importance, the
mediation between the organization and its publics takes into account an
34
Rosenblatt, Z.; Rogers, S. K.; Nord, R. W.., “Toward a Political equity in interest representation of the involved actors in an equilibrate
Framework for Flexible Management of Decline”, Organization Science, relation. Grunig, J., “Excellence and Public Relations and Communication
Vol. 4, No. 1, Focused Issue: Organizational Decline and Adaptation: Management”, Lawrennce Erlbaum Associates Inc., 1992.
37
Theoretical Controversies, (Feb., 1993), pg. 76-91. idem
118
public policy’s implementation by using in the position in which can hide a part of
networking interaction: information from P. Loosing the loyalist
relation between A and P can be identified
a. the absence of incentives in the also in A breaking the rules in favour of C.
cooperation process between actors; the
blocking actions in collective decisions; 2. The model was developed by including
b. The policy’s objectives can be imprecise another variable – audit/supervisor – S, with
and vague and can vary from one group to the role of monitoring A`s actions. S is usually
another, which will lead to passionate hired to monitor and to report the quality and
disputes and the impossibility to reach a the corectness of A`s actions. Also, in this case
consensus; there can be corruption, as false reporting of S
c. Actors that act in the implementing field or A to P 39
of a public policy can be absent from its
elaboration, while the presence of other Fig. 2. Exemplifying contractual and monitoring
actors can discourage the interaction of relations in principal –agent theory 40
others.
d. The level of expertise in a certain field can
be different among actors that participate
at the elaboration of a public policy and
some decisions can be taken in
ignorance. 38 Contractual
agreement/contractual
benefices/ payment
4.2. Principal, agents and management
system of structural funds P
The approach of Jens Blom-Hansen in analysing

the structural funds implementation system is S
Correct reporting/
related to principal-agent theory. This approach false reporting
brings in the centre of analysis the control
Negotiate
mechanisms of the implementation system, more the
concrete, the contractual relation between an Contractual contract/
Monitoring
agent and a principal. This theory has been agreement/contractual fails
initially developed in the private sector, analysing benefices/ payment respecting
the contract Corrupti
the relation between private actors (owners, on acts
managers), afterwards it has been applied to
bureaucratic model of public institutions,
exemplifying corrupt relations. The model implies These elements A being found in the
are
the existence of three actors: principal - P, agent - implementation system of structural funds, being a
A and client - C: system with multiple contractual and control levels.
1. P creates the rules for A using a 1. The relations scheme mentioned above are
contractual agreement with the purpose of being multiplied on different levels of the
regulating different exchange actions European Cohesion Policy implementation
(licences, contracts, services) with C. In system, at communitarian, national, regional
the context of these relations it may and individual level, the last level is referring
appear some incompatibilities, conflicts of to beneficiaries. In this context, some actors
interest between P and A, taking into can take the place of P in a superior level and
consideration that each actor tries to the place of A at an inferior level or P in a
maximize its own utility and advantages, level and S in another level. This repeated
acting rationally. P tries to maximise its intersection of roles between actors and levels
own advantages by hiring or delegating ensures stability to the system and contouring
some tasks to A, and this last one,
disposing of an informational advantage is 39
Lambsdorff, J.G., “How Corruption in Government Affects Public
Welfare”. Center for Globalization and Europeanization of the Economy,
38
Kickert, J.M.W; Klijn, E-H; Koppenjan F.M. J.,(eds.), „Managing 2001.
40
Complex Networks- Strategies for the Public Sector” Sage Publications, Figure from Lambsdorff, J.G., “How Corruption in Government Affects
London, 1997 – review of Cristina Ion Public Welfare”. Center for Globalization and Europeanization of the
.www.iccv.ro/romana/revista/rcalvit/pdf/cv1999.3-4.r02.pdf Economy, 2001
119
the monitoring complex scheme of the ministries, the certifying authority situated at the
entire construction, creating circular level of ministry of finance most of the cases, the
relations. monitoring committees of operational programmes
and of national strategic framework. The main
2. At European level 41 P is represented by characteristics at this level is given by the
the European Union, especially by the multitude of intermediate bodies for each
European Commission, A is represented operational programmes, by the relation between
by the member-states and S by the A and P in the sense that A can be decentralized
European Court of Auditors or other agency of P or an independent institution towards
institutions with counterbalancing role. P. The nature of the contractual agreement
The main characteristics of this level is between A and P depends on the subordinating
given by the number of P, respectively the level of A towards P. In the case in which A is
number of member-states that negotiate independent towards P, the contractual relations
between them and with the European between those two actors take the form of
Commission (P) the values and the technical assistance agreements, management
contractual benefices, respectively the contracts for fulfilling the delegated tasks. Also,
national strategic frameworks for the we must add the multiplication of S and the
operational programmes` management. intersection of levels at this stage, realised by the
The contracts are between P and A, Certifying and Paying Authority placed in the
representing the national strategic responsible institution with the national strategic
frameworks of each eligible member-state framework and being responsible of verifying the
within the European Cohesion Policy. eligibility of expenditures and the fulfilment of
delegated tasks to A.
3. At national level, as almost a rule, P is 5. At individual level. P is represented by the

represented by the ministry of finance or by intermediate bodies of operational
the ministry responsible with the national programmes, A is constituted by the
strategic framework, A is represented by the beneficiaries of these programmes and S is
resort ministries and S is the audit authority audit authority of the national system, the
of the national system. The particularity of internal audit department of resort ministries
this level is also given by the number of A, and the certifying and paying authority.
number established according to the national
development priorities of each eligible Fig. 3. New governance theory`s intersection
member state, by the number of the with new –principal agent in the implmentation
operational programmes. Contractual system of European Cohesion Policy
agreements between A and P are the
operational programmes, negotiated between Legend:
As under the surveillance of the management
authority of national strategic framework. EC –European Commission
Also, at this stage we can emphasize an EP –European Parliament
intersection with the European level at P`s OP –Operational Programme
level, in the sense of the Commission MA –Managing Authority
approving the national operational MC –Monitoring Committee
programmes. IB –Intermediate Body
AA –Audit Authority
4. At regional level P is, as a rule, the resort CPA –Certifying and Paying Authority
ministry with implication in the NSRF –National Strategic Reference Framework
administrative field of the operational
programme, A is represented by the
intermediate bodies of different operational
programmes with delegated tasks in
implementing those programmes and S is the
audit authority of the national system,
internal audit departments of resort
41
Criteriul pentru clasificarea nivelelor luat în considerare este zona de
acţiune de la nivelul lui A.
120
Fig. 3. New governance theory`s intersection with new –principal agent in the
implmentation system of European Cohesion Policy
European level
Contract/beneficii
P - EC
contractuale/ EP – Budget approval for
CNSR si European Cohesion Policy
PO/fonduri
Monitoring
Negotiates
the contract
Monitoring
A– S –European
member Court of
-states Auditors/EP
National level
P – MA
NSRF
Contract/contractu
al benefices/
OP/funds
Monitoring
Negotiates
the contract
A –MA S–
Monitoring
OP AA/CPA/M
C/EC
P – MA
Delegated tasks`
OP
agreement/negotiatio
ns /funds
Negotiates Monitoring
the contract
A –IB
Monitoring
OP S–
AA/CPA/MC/A
whitin MA
Individual P – IB for
level Financial
each OP
contract
Monitoring
S –AA/CPA/MC/A
A– whitin IB and MA
beneficiaries Monitoring
121
As I already affirmed the principal agent New governance theory brings to this system
perspective has been developed as a of contractual agreements the partnership
criticism to new governance theory applied principle and governance networks applied by
to the structural funds implementation lobby and advocacy actions in strategic
system. Jens Blom-Hansen considers that in decision making, conferring a democratic view
new governance theory appears the of the entire system. New governance theory
supposition that the governance networks explains the process of including different
from the structural funds` implementation actors in the European cohesion policy’s
system control the European Cohesion implementation with the purpose of ensuring a
Policy, not explaining why this is more transparent management process and a
happening. In other words, if national/sub- higher absorption rate. The partnership
national actors that implement the principle and networking governance were
European Cohesion Policy can influence its implemented top-down, being the result of
content, its control mechanisms at European different reforms of European Cohesion Policy.
level are very weak. The main problem of From this level it can be observed the
the contract from the susbsidiarity applicability of the partnership principle,
perspective of structural funds` trying to decentralize the system and to create
implementation system is connected to the control and monitoring structures at
agent’s loyalty in the context of delegated local/regional level. This theory emphasizes
tasks and to ensure this loyalty. In this way the decisional process and social mechanism of
there are 4 control mechanisms - on the monitoring.
selection process of agents, a contractual
design with incentives for A in order to fulfil
it obligations, monitoring agents` actions
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125

THE BUSINESS SYSTEM MANAGEMENT AND BASIC TYPES OF

DECISIONS
BRATU Anca;
University of Bucharest;
bratuanca@yahoo.com
CORNESCU Viorel;
cornescuviorel@yahoo.com
GRIGORE Maria;
“Nicolae Titulescu” University, Bucharest
mgrigore@univnt.ro
Abstract decisions. Creating value for shareholders

The successful business management depends on obtaining a cash flow higher
requires the understanding of systemic than expected by them. The purpose and the
relations between the basic elements of business value depend on the generation of
investment and finance company operations long-term cash flows. Any business
and the impact on their decisions. An overall conducted successfully in all aspects as an
thinking of the business system is vital both integrated system will generate in future
to substantiate the strategy and for its such cash flows, thereby creating value for
implementation. shareholders.
Shareholders' expectations in terms of cash The success of the operational activities, the
flow are the beginning of creating value for performance and long-term sustainability of
them. The business value reported to the business depend equally on a number of
competitors or the market as a whole will fundamental, individual or collective
change according to these expectations. decisions of the management team. Each of
Creating value for shareholders is a key these decisions has an economic impact on
responsibility of business management, business. The management process always
whose success is linked to the use of coherent involves taking economic decisions, each
economic comparisons by business time by weighing the costs involved in cash
management. This requires a proper and expected cash benefits. In turn, these
understanding of the management structure decisions produce certain changes that can
of the economy and business implications of be identified in the financial and physical
decisions taken on cash flow, risks involved resources of a business.
and the organizational climate, which can The managers make decisions on behalf of
ensure consistency and coherence of policies the company shareholders, decisions that
and strategies, and making and affect a wide range of groups interested in
implementing decisions. the company's activity, like employees,
creditors and the community. In doing so,
Key words: financial decision, investment the managers are responsible for the
decision, operational decision, financial efficient allocation of internal and external
management, business system resources available to create economic gains
for shareholders, while earnings reflected by
Introduction the combination of the distribution of
dividends and the appreciation price of the
Any business is a system of financial shares held by theowners.
relationships and cash flows that are Although daily the management faces a
activated and directed by managerial variety of issues, in principle, most
126
managers’ tasks are similar, so that we can the principle of cost-benefit relationship
group all management decisions in three in optimizing the use of available
categories: resources;
 investment decisions (concerning issues  ensuring a prudent financing business,
related to allocation / investment of weighing the expected benefits and risks
resources); involved in balancing the financial
 operational decisions (involving the structure of capital based on the internal
conduct of business operations using the or external resources.
resources); The decisional variants must be selected and
 financial decisions (determining the targeted to ensure long-term success, not
appropriate financing structure of such limited to current achievements that cannot
allocations). be sustained in the future or which may
These basic types of managerial decisions divert the attention from long-term goals set.
properly rotate around each segment of the
system business decision: investments - 1. The Business System
We present the way how the operations are

Investment decision Financing
conducted through a company and a scheme
segments into
the business that includes cash flows, key relationships
operations - financing. and major decisions involving the approach
of a company as a system.
The system is organized into three segments
corresponding to the three decisional areas
Operations defined above: investments - operations -
financing.
1. The top segment represents the three
components of investment:
 the investment, which is already done
For a competitive management, the
 the surplus of new investment,
fundamental economic target is to select the
strategic resource allocation in order to  the disinvestment of resources that no
create an economic value over time sufficient longer prove their necessity in terms of
to recover all the involved resources and efficiency and strategic direction.
getting an acceptable gain in terms of risk Here is also presented the effect of
expected by the shareholders. amortization / depreciation on investments
The successful allocation of resources will and the income base due to the reductions in
result in superior value for business and accounts of some of the impaired assets.
automatically improves the net economic 2. The central system represents the
position of the shareholders / owners. If the operational interaction of three basic
company shares are traded on an organized elements:
market, its value is determined by financial  the price of products and services,
markets, if the company is not listed on a  the volume of products and services,
capital market, its value will be reflected in  the costs (fixed and variable) of products
the price offered by potential buyers of and services.
business. The result of interaction between the three
Creating value for shareholders depends, elements of the operational sectors is the
ultimately, on the proper coordination of the profit or loss after deduction for income tax.
three segments based decision-making The operating profit is a vital element in
common to all organizations: financing a company.
 the selection, implementation and 3. The last segment presents in two parts,
monitoring of all investments, based on a the basic options of financing a business:
coherent and sustainable economic the availability of the operating profit after
analysis of a concise and effective tax achieved during a certain period. It has
managerial process; three main directions: the payment of
 guideline the company transactions on dividends to shareholders, interest payments
the basis of profitability, in case of to creditors and undistributed profits,
choosing the decisional alternatives, and continued to reinvest in its business activity.
127
The cash used for dividends and interest investments that can be assimilated to
payments is an output of system. the basic ones.
 the available options for the use of long-
term capital resources. They reflect the
shareholders’ equity plus the non-
distributed profits and long-term debt to
external entities. The influencial
relationships between these elements
and the decisions that have been made
and which affect the level of
shareholders’ equity, the undistributed
profit or the long-term funding sources
have a direct impact on the financing
capacity, which affects the volume of new
New
investment
Investments
Depreciation Disinvestment
effect
Investment
base
Price Volume
Operations
Costs
(fixed & variable)
Operating profit
Dividends Adjusted
after taxes
interests
Undistributed
profit
Financing
Equity Long-term debts
Financing
capacity
Scheme The system of business
128
2. The Investment Decisions a successful combination of the existing

investments, coupled with the successful
The investment is the driving force of any implementation of new investment. The
economic activity. They are the source of management of the portofolio of the strategic
economic growth and the support of the activities of the enterprise is efficient if there
competitive strategies of the management, is a genuine value creation.
normally based on a prudent planning Assessing the performance and the value of
(investment budget) in order to ensure the investments and of the existing activities in
existence of sources of funding in three the value-based management are widely
major areas: used indicators such as economic benefits,
 working capital (cash, receivables and the value added in cash and cash return on
inventory, without commercial credit investment. The value-based management
from suppliers and other current expresses the inclination of the management
operating obligations); to maximize the company value, the main
 physical assets, fixed assets (land, aim being the maximizing of the
buildings, equipment, machinery, offices, shareholders’ wealth. The value-based
IT technical equipment, laboratory management seeks to avoid the managerial
equipment etc.). errors that occur because of the accounting
 fund allocation programs (R & D, data analysis using for this the management
developing new products and services, techniques, the elements of organizational
promotional programs, etc.) and culture and specific managerial performance
procurement. measurement tools. Proving its superiority
Investment is defined broadly in terms of over the traditional approach, the value-
resources allocated and recovered in time, based management is a philosophy adopted
not only according to accounting and promoted by large international
classifications which, for example, would consulting and financial planning firms.
include the resources for research on
projected expenses and investments. 3. Operational Decisions
In setting the budget for investment in the
regular planning process, the management The strategies and key decisions must focus
has to choose from a wide range of options on efficient use of resources invested to
regarding the new investment, which is make sure that their continued
intended to exceed the expectations on the implementation and operation are consistent
profitability or at least to be at the level of with the criteria and expectations that the
expectations. The level of profitability is original decision of allocation of these
generally correlated with the shareholders’ resources was based. In the beginning the
expectations how to determine the cost of company has to identify the basic skills they
capital. In this respect a key management have and to put them into service of the
responsibility is the consistent choice of segments of the target market, and to
investment options and their successful allocate human and material resources
implementation (the results exceed the effectively and prudently against
demands reflected by the cost of capital). The competitors’ products and services.
new investment is the vital factor of growth Companies must differentiate supply market
strategies, leads to the creation of value if to achieve a competitive advantage, being
the predetermined performance standards necessary to pursue excellence in meeting
are met or exceeded by the results. the real needs of consumers.
The successful companies regularly evaluate In this segment there are, besides strategic
the allocation of investment resources to see perspective, the advantages and practical
if the current performance and forecasts on use of low-cost production facilities, special
products, services or business segments are skills of employees, customer service quality,
still in line with the organization's overall information systems related to network
strategic position. When the economic performance reviews or unique opportunities
performance or projections arising from the for research and development. In carrying
analysis as being below expectations, the out the work, managers need to anticipate
decision option is disinvestment – seen as and cope with the consequences of price
diametrically opposed to investment. changes and the action of competitors on
Creating value for shareholders depends on sales and on the profitability of each
129
individual product or service. However, all the operating rates are ideally derived from
the activities of a company, whether the key factors determining firm
conducted internally or externally, must be performance, whether by physical assets,
organized on principles of efficiency and human resources skills, the resources or the
maintained at a level which allows it to application of new technologies.
achieve a competitive advantage in the Economically speaking the relative profit on
market. a product or the contribution to the product
The solid operating results can be achieved in cash for each product or service to achieve
only if the management has a realistic sales is important information to determine
understanding and perception of the the current performance and to guide
processes carried out, of the economic costs strategic decisions regarding product and
and benefits for each component of the service portfolio.
organization and the relative contribution of The distinction between indicators
each product or service in order to achieve calculated according to the accounting data
overall company results. This requires an and those resulting from economic analysis
information system properly articulated, are important in the operational segment,
which has a high degree of data collection because the results may vary significantly.
and reporting meaningful information to This problem has led to increasing use of
policymakers. Another necessity is the one recent methodology, which directly
related to the impact on the profitability addresses to these needs, called analysis-
determined by the level and the share of the based activities (activity-based analysis).
fixed costs and also by the variable nature This process is actually a step identification
and the volume of the business transactions of all physical activities involved in a
in a company. particular function of the firm or any
For the operational efficiency it is essential activities necessary to ensure the
an operational planning process. The targets achievement of certain product lines,
set are likely to increase the importance of followed by a thorough economic analysis of
economic decisions. Budgeting and review costs and benefits involved in running of
processes are designed to provide important each stage, and of the total. Because it is
feedback to management and to provide based on economic value this analysis has
signals on the need for corrective action, become an important tool to support the
without which it could not meet its current emphasis on management during
objectives. Modeling the activities and the the creation of value. In addition, reporting
company accounting based on activities such activities to the greatest achievements
(Activity-Based Accounting) represents new in the industry is another way to refine the
informational structures, whose measurements made in the company.
achievement is made possible by the
information technology which is more and 4. Financial Decisions
more efficient.
The key parts of the operational segment In this segment, various financing options
contain a number of operational indicators meet and they are available to management,
that measure the efficiency and effectiveness necessary for the operational assets and
of revenue and expenditure management. long-term investment. As shown by the
Among these are found a series of financial schematic representation, the financing
indicators such as operating income margin segment starts from the operational net
or indicators that relate to the various cost profit which is the major source of financing
items of revenue or sales. There are also a company. In this context one can identify
indicators that reflect an overall picture of two major decision areas, strategic and
an operational activity, such as turnover or opportunity (costs - benefits):
total assets per employee and certain  The destination of the profit
operating statistics such as average hourly  Modeling firm financing structure
production, increases the percentage of This type of comparison and decisions is the
production or consumer satisfaction. These power and top-management decisions, as the
operational indicators vary from one activity exclusive prerogative of the Board, as these
to another, because these indicators are decisions are crucial for future stability and
known according to the specific variables continuity of business activity.
that guide the company performance. In fact,
130
The first part, the division of proceeds, The second part, planning the capital
reflects the basic recipients of surplus structure involves the selecting and
created by the firm: balancing of the relative weight of capital
 Shareholders; received from shareholders and those
 Creditors; obtained from creditors. The combination
 Company itself (through reinvestment of chosen after consideration of risk and debt
profits). service requirements will have to provide
Each of these recipients of profits is affected financial support to a predetermined level of
in one way or another by the policies, profitability, linked to the risk acceptable to
strategies, opportunity analysis or current or management and Board of Directors. A key
previous management decisions. For factor in the choice of financing structure is
example, payment of dividends to the impact of financial lever of indebtedness.
shareholders is related to the Board It can be defined as a prudent use of capital
decision. Here, the main analysis of raised from fixed-cost obligations in the
opportunity is related to establishing the context of investment opportunities whose
amount of dividends paid to shareholders as earning potential is higher than the cost of
part of return on investment made, to the capital borrowed, the difference
alternative investment funds and maintain representing the benefit of the company.
them in the development of the company, in This process also requires a series of
order to create additional value added for comparative economic analysis, which is
the shareholders, reflected in the assessment facing the benefits associated with risks of
of the company shares on the market various financing options available to
quotations. management. The existing equity
Moreover, interest payments to creditors are shareholders may be reimbursed by the
a contractual obligation. Paying interest company repurchases shares on the market,
rates relative to the operating profit is a using some of the financing capacity. This
function of management policies and actions choice has become an important issue of the
regarding the use of debt. The debt ratio will management of the capital of a firm, as these
be higher in capital structure; the greater redemptions reduce the volume of shares
the need for cash will be required to pay available on the market, making existing
interest and the greater will be the ones more valuable. In addition, for those
company's risk exposure, raising the repurchased shares are not required a
possibility that the company basically is not dividend payment, thus saving funds for
able to pay its obligations on interest, if a possible acquisitions or investments. The
decline in activity occurs. choice to be made is between adding value
The undistributed profit is the residual through new investment or adding value to
earnings of the period after tax, a net existing unit by reducing their shares.
amount remaining after payment to the A basic economic principle of a success
company's interest and dividends. Normally, management is that the results from an
this amount constitutes an important part of investment must be higher than the average
the capacity needed for increased funding. cost of capital (own and borrowed), in order
Increasing the funding can be achieved to create added value for shareholders and to
through capital injections by creditors or obtain a satisfactory total return for them.
shareholders, according to management The results obtained are the weighted
policies aimed at ensuring long-term average cost of capital, have no impact on
sources. value, while those under the cost level will
The key indicators, in terms of distribution lead directly to the destruction of
of surplus created, are cash flow and net shareholder value. The manager's decision
profit, calculated as unit values per share. will be based on a careful analysis that
They are leading indicators of firm capacity distinguishes between measurements made
to pay both shareholders and creditors. In on the basis of accounting data and those
addition, one can use specific indicators to based on cash flows.
measure the proportion of dividends paid, If the business is based on the development
the coverage rates and interest repaid on of a stable political structure of capital, as
account of profit and how the company met growth occurs on account equity value on
its obligations relating to debt service. non-distributed profits, management will
want to benefit from this growth, to a certain
131
extent, by increasing the volume of long- positive impact through carefully selected
term debt, while the management decides to and implemented decisions.
change any policy debt. In this case a new In addition to the understanding of the
repayment plan will be considered and this system, an increasing importantance is to
will normally change the company's capital accommodate the economic manager to the
structure and the cash flow projections. decisional process. His trial work is oriented
to clearly define the issues analyzed,
5. Managers’ role in building and determining suitable alternatives,
operating a successful business system identifying relevant information to achieve
the purpose and interpretation of results in
The economic manager is the person who terms of long-term value creation for the
operates an economic system based on benefit of shareholders.
options applicable to each decision. Involving the managers in fragmentation of
Each person makes choices in analysis and the matter, in choice of instruments for
daily life, either consciously or unconsciously analytical work and direct effort result in
in the individual unconsciousness. Each of greater efficiency, both in terms of decision-
us has a certain system of measuring the making ability by managers and in terms
value received in exchange for which we leadeship's or organization's ability to guide
make a purchase or give an investment and, the economic criteria based business
conversely, that gives value in return that consistent with analysis of existing
we receive when we sell a certain good or opportunities.
provide services on the market. What
distinguishes the economic manager of other Conclusions
individuals is his level of understanding and
quantifying its analytical discipline applied The core business system that one compels
in practice. us to track and analyze a series of dynamic
The economic manager understands very relationships between strategies, policies
well the economic flows of the business and and management decisions and cash flows
its components, in particular business they generate. In fact, the system is reduced
segments that respond directly. The process to a simple financial model of firm growth in
begins by understanding the dimensions and its key variables interacting with one
implications of selected business system, purpose: to create value by generating
including the understanding and knowledge positive cash flows that exceed the cost of
of the characteristics and needs of capital. Achieving a certain consistency in
consumers, the supply circuit, positioning these choices and decisions on key variables
against the competition and efficiency and is critical for long-term success of the
procedural organization of business, all company management and shareholders to
general conditions of societal management. satisfy claims, whereas only one coherent
These requirements extend to the knowledge system can achieve calibrated performance.
of the contributions and demands of The basic idea of a successful management is
different groups of stakeholders, both inside to develop and maintain a compact and
and outside the company, but company uniform set of strategies, investment
obligations towards these groups. objectives and operational and financial
With such a stock of knowledge, economic policies that support one another, not to be
managers are in a position to identify and antithetical. They must be chosen from the
set priorities on the key drivers of value relevant and cautious analysis of the
creation, the key to long term success of the economic conditions and options, both
company. individually and in various combinations.
The economic manager sees business not The measurement and implementation
only as an integrated whole, but as a finely arrangements should be chosen so as to
tuned set of individual and interrelated support and emphasize the need to obtain
components. This knows the business long-term performance, which will lead to
segments that require special attention and improve the investors’ perceptions about the
he knows how to improve their methods. In flows released from the existing and future
addition, he understands the business model investments or disinvestments of
and its components well enough to have a underperforming units.
132
References
1. Brezeanu, P., Managementul deciziilor de

investiţii, Editura Universităţii Româno-
Britanice, Bucureşti, [2005]
2. Copeland, T., Koller T., Murrin J., Valuation:
Measuring and Managing the Value of
Companies, Wiley, New York, (1990).
3. Jensen M. C., Meckling W. H., “Theory of the
firm: Managerial behavior, agency costs and
ownership structure”, Journal of Financial
Economics 3, (1976).
4. Johnson, R.E., Shareholder Value – A Business
Experience, Butterworth-Heinemann, [2001]
5. Kalay A., “Signaling, information content and
reluctance to cut dividends”, Journal of Financial
and Quantitative Analysis, (1980).
6. Knight, J.A., Value-Based Management:
Developing a Systematic Approach to creating
Shareholder Value, McGraw-Hill, [1998]
7. Myers S., “Finance Theory and Financial
Strategy”, The New Corporate Finance: Where
Theory Meets Practice, McGraw-Hill, 1993.
8. Rappaport, A., Creating Shareholder Value,
New York, The Free Press, [1998].
9. Reimann, B.C., Managing for Value A Guide to
Value-Based Strategic Management, The
Planning Forum, [1987]
10. Spătaru, L., Analiza economico-financiară,
Instrument al managementului întreprinderilor,
11. Vasile, I., Gestiunea financiară a
întreprinderii, Meteor Press, Bucureşti, [2008]
133

GLOBALIZATION AND ECONOMIC GOVERNANCE
BUCUR Ion;
Faculty of Business and Administration;
Email: ion.bucur@drept.unibuc.ro
Abstract modernized capitalism expansion and of the

Noticing the failures of the current crisis faced by current international economy
globalization and of the corrupted governing order. The study of international
system has changed the debates on institutions' governing emphasize the lack of
identifying new and more correct adequate institutional structure, able to take
management and governing forms, witch over all functions transferred by national
could favor the speeding up of economic states, as well as the lack of adaptation of
growth and promotion of humanistic value. the institutions to economy's solutions.
The rhythms and sizes of the current
globalization call for better assurance of a The critics regarding the institutions for
correct balance between market and the state, managing international common actions
the capitalization of their adjusting refer to two categories of aspects: lack of
potentials and reciprocal failure clearly defined mission which could be
compensation. Also, the lack of transparency subject to a larger consensus; and the lack of
and of democratic responsibility imposes the capital and responsibility. The objective
reformation of the international institutional regarding global economic institution's
system's architecture and the promotion of democratization must be achieved under the
economic policies systems that could ensure context of reduced control placed over such
nations' prosperity and stability of the world by national states, given the fact that
economy. regulation national competencies are being
transferred. In the conditions of
Key words: globalization, worldwide globalization, the major economic governing
governing, market failures emergent institutions have increased their power and
economies, democratic deficit. influence, which significantly diminishes the
direct control from the sates. Given the
1. Introduction transfer of competencies towards
international authorities, the demand
Rapid and profound changes characterizing becomes increasing for democratic
the geo-political and institutional representation.
environment call for permanent adaptation
of the governing systems to the new Taking into account the numerous gaps in
prerequisites. The configuration of the the current governing system and its
current world economic governing represents inability of coping with globalization issues
the consequence of the arrangements made the need arises for urgent measures for
after the Second World War and is strengthening the international governing
dominated by a paradigm which is focused community. The perspectives for reforming
on international economic institutions and those international institutions witch play a
national states suzerainty. central role in the governing of world
economy represent a major source of
The weak points of contemporary economy disputes. The specific globalization players
governing are generated by numerous place considerable influence over governing
factors and multiple causes, manifested along with the new regulating bodies on a
under the circumstances of new economic global level. New and important forces such
and social organization forms' occurrence, of as nongovernmental organizations are
134
progressively manifesting. Along with public

governing authorities new “private” The generalization of governing and public
authorities and associations are occurring on policy concepts over those of government and
a global level. The occurrence of new public economy means that state's
worldwide authorities contribute both to intervention is grounded on the articulation
increasing the number and complexity of the of numerous public and private players,
economic governing bodies, and to the although the state plays and important role.
setting in of a new characteristics of the This symbiosis of the players in the
market regulation process. In the same time, governing process involves the mix of their
the influence and power of “private” functioning laws. Ensuring proper governing
authorities are increasing given the in the public goods production, witch creates
occurrence of a new generation of collective a new vision over governing, grounded on
players. In a wider sense, the private players the culture characteristic to each national
contribute to designing, legitimating, public production system. The de-
implementing and controlling institutional centralization strategies play an essential
norms that could influence the values role in respect with the governing and not
promoted by economic globalization. promoted as individual aim.
The reforms in the public sector and in the

Recent developments in the field of public management must be made upon the
international institutional system can context whereas a new public institutional
contribute to the identification of new forms design is configured, allowing for the public
of a more just globalization, able to allow for and private mechanisms to be compatible in
the economic growth to speed up and poverty the very middle of public production. Some
to be reduced. The central reason for international organizations have supported
globalization failure in the way in which the idea of “less government, more
decision are made on a international level. governing” for the very purpose of avoiding
During the past decades an original system public intervention and of allowing for
has developed for promoting international markets liberalization and for occurrence of
public policies, qualified as “global governing foreseen outcomes. The theme of governing,
without a world government”. ambiguous and differently perceived concept,
according to national cultures, seems to
2. Failures and reforms underline the pertinence of such approach.
Most of the core world decisions are made in Grounded on the national and world realities
international economic institutions the main in the field of governing, possible evolutions
mission of which is to ensure world economy can be forecasted both from an institutional
stability. As a result of recent developments, stand point, and in respect with the concrete
the idea has been increasingly admitted that manifestation forms. Hence, the idea has
of a defective global governing system exists imposed that new governing institutions and
(Stiglitz, 2006, p.29). The lack of control and regulation bodies should be
transparency and legitimacy, as essential established, as well as self-proclaimed
features of a democratic governing, governing forms (Attali, 2006, pp.292-294).
represent a preemptory proof that The occurrence governing forms providing
fundamental ruled regarding the functioning specialized assistance will be accomplished if
of democratic public institutions are governing itself will become a particularly
breached, as well as the mechanisms profitable economic sector.
characterizing the current world economy
governing. One of the main issues arising The idea of reforming the international
from less democratic and transparent economic institutions' architecture is
institutions is the possibility of remedying grounded on the need of coping with the
the market's failures worldwide. The economic globalization defies, having
emergency of promoting reforms aiming to generated a chaotic world governing system.
ensure more equitable globalization and Given the present context, it becomes more
governing is due to the complex political and and more difficult to reach a just equilibrium
economic mutations in the national and between the market and the state has
world environments.
135
imposed the need for a new rapport between condition of state' “deconstruction” (Attali,
the local, national and world order. 2006, p.241) and for the progressive
reduction of state's role. The victory of the
The market-state dichotomy represents an market over democracy will create a new
abusive simplification, whilst a more realist situation: a market without the sate,
vision is imposed over the state's role, the although the need is recognized of regulation
avoidance oppositions between different in order to ensure proper functioning of the
ideologies', market party-pries and the state. market. In the same times, the markets will
(Touffut, 2006, p.128). The national state find new profitability sources which are
which represented the center of the political currently performed by public services
and economic power for over a century and a (education, health care, environment,
half is new at the confluence of world suzerainty). The role played by the state and
economy forces and political exigencies of possibility for such to be harmonized with
power's evolution, although it does not the market is modified in time, is different
represent the only means for public from one country to another and provides
intervention. The idea is increasingly specific features to the economic governing
shaping that globalization enhances the mechanisms and forms. Capitalism has
need for powerful collective action. The generated a variety of practices during the
argument according to which the state in post-war period (Greenspan, 2007, pp.267-
ineffective by default is rather ideologically 294).
than scientifically grounded. Without
specific state interventions and regulations, Practicing own capitalism versions does not
the markets cannot lead to equilibrium and exclude the occurrence of problems of
economic efficacy. The state and the market general nature, affecting the basis of the
must cooperate, must complete each other, system. Such danger is first of all due to
as the only way of ensuring reciprocal excesses. Some of these challenges are the
failures compensation. Activities exist in fact that the large enterprises reveal
which the state can achieve better insolent profits, very comfortable wages for
performances than the private sector. The managers and distribute record dividends to
conspiring against the public side must be shareholders. All these under the
replaced by concerns for revalorizing the two circumstances of lent or stagnating economic
sectors and for making them to cooperate. growth, increased relocations and ever
Moreover, a new public-private mixture growing unemployment rate. The increased
constitutes a real challenge for economic vulnerability of the capitalism system is due
globalization. to the domination of a short term financial
vision in respect with “wealth creation”.
The old forms of market-state dualism are However, the low term profitability
under process of disappearing. Today, a obsession perverts the system and contains
certain conscience has developed over the the grains of its very end, as it involves
market's limits, and the validity of the old scarifying the future. This is about
general assertions over the efficacy of the capitalism without a project, unable to avoid
market is severely contested. The economic a new crisis (Artus, 2007, pp.6-9). In order to
doctrines of ”market fanaticism”, according avoid such faith, it is necessary to achieve
to which markets spontaneously lead to profound reform economic management and
equilibrium, is profoundly damaged (Stiglitz, impose new governing rules.
2006, p.13). Alan Creenspan, one of the
eminent champions of the market economy
evoked certain turbulences regarding the 3. Conclusions
“irrational exuberance” of the markets and
the necessary conditions for ensuring their Increased debates on globalization are
efficacy. The potential evolution of the justified by the need of evaluating current
markets depends both on the modifications stage and removing some myths and dogma
in their content, nature and manifestation around such controversial phenomenon.
forms, as well as on the perspectives of History demonstrates that globalization is
public interventions. Tendencies are not an unavoidable process and that it is of
somehow contradictory. A regulated and reversible nature, even though it is based on
global market will be achieved under the strong economic and political forces.
136
Such measure is grounded on the increased

sense of distrust generated by inappropriate
management of globalization, calling for
sustained researches for mitigating market
failures worldwide and identifying the
solutions for a better functioning of
globalization and governing. The difficulty is
also amplified by the fact that economic
theory and historic experience do not
comprise enough clues regarding the
reorganization and reforming of
globalization.
In an era in which free market de-regulation

and ideology have dominated the public
arena, ensuring economic prosperity implies
a realist vision over the state's role and its
harmonization with the market forces,
promoting economic policies systems able to
provide stability and to contribute to the
creation of new stronger economies and
societies, in witch humanistic values could
prevail.
References
1. Artus, P., Virard, M.P. (2007). Le capitalisme

est
en train de s’autodétruire, Edition Le
Découverte, Paris.
2. Attali, J. (2006). Une breve historie de l'avenir,
Fayard, Paris.
3. Greenspan, A. (2007). The Age of Turbulence.
Adventures in a New World, Penguin Books.
4. Stiglitz, J.E. (2006). Un autre monde contre le
fanatisme de marche, Fayard, Paris.
5. Touffut, J.P. et al. (2006). L'avancee des biens
publics, Edition Albin Michel.
137
“Your Culture, My culture, Our opportunities”
INTERCULTURAL COMPETENCE AND MANAGEMENT
Short paper
Irina Budrina (Russia)
Doctoral Student at ASE, Bucharest, Romania
irina-budrina@hotmail.com
Globalization is rapidly breaking down our the beginnings of intercultural competence ?

vision of a world with well-defined national, A good place to start is complex allegiance,
cultural and linguistic boundaries. Cheap where a person’s identity becomes less fixed.
computers and internet service, and Thoughts and emotions are less a product of
innovations like Google, YouTube and previous beliefs than an on-going process of
Wikipedia are enabling a constant flow of understanding. Sense of self moves in and
knowledge and ideas across borders. This, out of different world-views; one no longer
along with the emergence of faster and thinks in ethnocentric terms but according
cheaper transportation, has meant even the to ambiguous conditions, a natural set of
most remote parts of the planet are brought value systems.
into instantaneous contact with one another. Arnold Schwarzenegger is an excellent
Not surprisingly, intercultural competence example of what can be called “bicultural
has taken on an importance that no one belonging”. When visiting die Heimat, he’s
could have imagined even 20 years ago. as Austrian as it gets. But when he returns
We’ve shifted into a new mode of living to California, he’s home...
where transnational contact is almost a A truly intercultural person speaks more
daily occurrence. Our lives are enriched but than one language and knows that language
are also far more complex. is far more than a means of communication--
The very nature of cross-cultural not so much a system of vocabulary,
communication — different languages, grammar and syntax as a shared perception
behavior patterns and values — makes it of the world. Experience and meaning are
imperative to avoid assumptions of connected via a shared framework and each
similarity and to stimulate appreciation of new linguistic reality teaches you more
intrinsic differences. about yourself.
Thus, intercultural skill (the ability to The intercultural person is able to see and
understand the values and beliefs behind feel the relativity of beliefs, of decisions: an
behavior and reconcile them with your own) “absolute standard of rightness” no longer
are basic, necessary tools in today’s world. exists. Instead the process is dynamic, a
It’s not something that happens overnight! continuing awareness of your own cultural
Usually it means living in another boundaries. Which, in turn, allows you to
country/culture/language for several years expand your own parameters and wander
and, even then, one has to be both observant into another person’s mind.
and openminded. Take the well-adjusted American manager
But globalization has no time for that... of a U.S.-German pharmaceutical company
Whether it’s the economy, the ecology, or outside of Frankfurt. He wants to develop a
just plain international politics, the world new marketing campaign on a trial-and-
can’t seem to wait. Administrators and error basis but knows his team will feel
salesmen, diplomats and artists and aid- insecure about it. Understanding that the
workers race around the globe working on German need to plan things out is real, not
their assignments. Our job, as intercultural frivolous, he comes up with a reassuring
specialists, is to watch the process, to analogy.
explain the fundamentals of social “It’s not a hit-or-miss operation, quite the
communication while relating to the contrary. What we’re doing is running a loop
specifics of any society. But how do we know in a flow-chart on daily sales and will adapt
we’re getting through? How do we recognize the campaign accordingly.”
138
This “other” perspective builds on empathy should be taken more seriously. It should be
and permits events to be reconstructed as clearly understood that going abroad comes
alternative cultural experiences. along with certain cultural challenges,
However, the ability to see oneself according which are hard to grasp and explain, yet can
to dual frames of reference — a sort of heavily influence the outcome of one’s
“dynamic in-between-ness” — can cause international activities. The intercultural
some to lose their primary cultural identity preparation could make a big difference.
and create what might be described as Moreover, it should become also an
internal culture shock. integral part of all study programs in
The breakdown of identity leads to cultural International Business Administration.
marginality, an existence on the periphery of Higher attention to intercultural competence
two (or more) cultures. at university is indispensable. Students
If each life is ultimately insignificant, the should be
decisions you make, whether based on your prepared by university for a global,
own culture or an adopted one, don’t matter: intercultural working environment.
they have no weight, they don’t tie you Unfortunately, only few universities do
down. already offer intercultural training courses.
But insignificance is unbearable. When our None of them are offered in Bucharest
decisions lose their importance, our lives are (Romania). However, the universities do
set adrift. We no longer exist as clearly- provide language classes and didactic
defined individuals. It’s a common condition courses about specific cultures.
among long-term expatriates and “global Much more than education has been
nomads.” Conflicting identities often lead discussed about the impact of globalization
them to seek out other cultural marginals on multinational organizations and the new
rather than people belonging to a specific global leaders that will need to be developed
group. now for the next generation by the
Despite periodic identity-confusion and the universities as the prime business
“unbearable lightness” of an uprooted life, education.
such people may find roles as global The current development of world events –
mediators. The attempt to understand and politically and economically, necessitates a
reconcile cultural differences in both continuous and dynamic educational offering
perception and expression is a worthy by universities that can better prepare
personal goal as well as a viable career students to be responsible and empathetic
opportunity. global citizens and future leaders oriented
We are, however, being forced to move from on globalization of knowledge, economies,
a “nationalistic worldview” to the universal politics and conflicts. Our success in
recognition that each culture is unique and preparing our students and in managing the
must be accepted for what it is before any knowledge domain will largely be a function
real communication is possible. of how we develop the intercultural
competence.
The worldwide mobility among students is The goal of my research is to develop a
now higher than ever before and course=module “Intercultural Competence
particularly business students, who are very and Management” for Business
active in moving throughout the world. The Departments of the Universities in
exchange programs are nowadays more or Bucharest (ASE and the University of
less standard for business universities, and Bucharest).
the responsibility on the cultural level
139

STATE AID THROUGH THE GOOD GOVERNANCE CONCEPT
CARAGANCIU Anatolie, Professor, PhD.,

University “Lucian Blaga”, Sibiu
an_caraganciu@yahoo.com
CHIRIAC Mirela, post-graduate,

University “Lucian Blaga”, Sibiu
kiriakmirela@yahoo.com
Abstract Key words: state aid, competition, market

State aid is an important tool through which failure, distortion, society’s welfare.
the government intervenes in the market
economy for correcting some failures or for 1. Introduction
equilibrating some processes. The intervention
of the state in such situations could have Good governance supposes the intervention
benefic effects on society’s welfare. Sometimes, of the state in the economy to such an extent
the measures of aid offer unjustified selective as to ensure equilibrium between the
advantages for certain enterprises and could allocation of resources and the insurance of
lead to the distortion of the competition social needs. Starting from this principle, the
environment. After such distortions, consumers state has a very important role, to find the
can be harmed by facing bigger prices, lower middle point between the extreme of a
qualities and reduced innovation. So, the state planned economy and that of the total
must find the point of equilibrium in its liberalization.
interventions, so as to stimulate the In this framework, an important tool for the
development. intervention of state in the market economy
This paper analyzes situations where the state in order to equilibrate some economic
must intervene for correcting the failures of the processes is the state aid.
market mechanism, the so-called “market The state aid appears exactly where the
failures”, in order to maintain the equilibrium mechanism of market economy fails to solve
in the economy and to ensure good governance efficiently all the problems that may arise.
in the given society. Otherwise, the distortion of The involvement of the state in the economy
competition happens. The dangerous effects of in order to cover such failures is welcome.
competition distortion are further analyzed in But sometimes, the measures of state aid
the given work. offer unjustified selective advantages for
The purpose of the paper is to demonstrate that certain enterprises, thus complicating the
the role of the state in managing the task of market forces to reward the most
instrument of state aid is crucial, and that the competitive enterprises, and as a result the
efficiency of public resources administration general competitiveness may suffer. Such
depends much on it, which, in fact, influences measures could lead to the creation of the
the efficiency of the governing. In practice there market power of certain companies, for
is no ideal model, everything depends on the example when enterprises that do not
specific of national economy development. It is receive state aid have to reduce their
sure that the state must intervene exactly where presence on the market, or when the state
its contribution is needed to correct market aid is used for rising entry barriers on the
failures and to stimulate the activities that market. After such distortions, consumers
could have benefic effects for the society. can face bigger prices, lower qualities and
reduced innovation.
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Thus, according to the principles of good economists, as Hans W. Friederszick, Lars-

governance, the state must intervene in Hendrik Roller, Vincent Verouden (2006).
those situations where the solving of Market failures, which are covered by this
society’s problems is not possible to be done paper as situations in which the
by the mechanism of market economy; so, governments should intervene for
they are put in charge of the state. In other reestablishing the equilibrium, have been
words, the intervention of the state in the the subject of discussions and debates among
economy is necessary for correcting market economists many years. A big contribution
failures, facts which are going to be has been given by Paul A. Samuelson (1995),
demonstrated bellow. especially in what concerns the public goods-
Traditionally, market failures are defined as a situation of market failures. He states that
situations when the social surplus is bigger as the public goods can be used by all the
in an alternative allocation of resources than consumers at once, social marginal cost is
that in which the market equilibrium is equal to the sum of all persons’ rate, thus,
achieved. Thus, the market failure offers for assessing the quantum of needed public
reasons for the intervention of public goods for the equilibrium, it is necessary to
administration in the private problems. compare the sum of marginal advantages
The question may arise whether the market with the marginal cost of production.
would not succeed to distribute these Another failure – the market power, is
resources without the intervention of the profoundly analyzed in the “Market power
state. The answer is offered by Ronald Cose; handbook” of the American Bar Association,
he says that an efficient level of resources providing that the market power is identified
distribution would be possible only in the as the ability of a firm of a group of firms to
situation where property rights are clearly establish profitable prices over the general
defined and their application does not level of competitiveness, for a longer period
require any transaction cost. When of time. And the last part of the notion is the
transaction costs are very small or null, most important, because if any other
parties are interested to realize these companies that do not have a market power
transactions in order to optimize the will raise the prices for the products, they
distribution of resources. Really speaking, may not be able to maintain them for a long
the transaction costs cannot be excluded. period of time, and this is an important
The situation is even more difficult in the criterion for distinguishing the companies
case of the such-called “diffuse” externalities, with market power.
meaning that the number of external effects Also the aspects of competition distortion
transmitters is very high, and the individual through the application of state aids
effect referred to the transaction costs is attracted the attention of researchers.
very small. The same happens in the case Mathias Dewatripont, and Paul Seabright in
when there are a big number of receivers, their”Wasteful” Public Spending and State
every one of them suffering an external Aid Control of 2005 give a very interesting
effect which is lower than transaction costs. reason for thinking, saying that: “State aid
control is a paradox: in the name of
2. Literature review protecting competition, a public authority
intervenes in spending decisions taken by
The instrument of state aid and its effects other public authorities -rather than in
over the society’s welfare has been largely decisions taken by private firms, as in the
analyzed in the economic literature. One of rest of the domain of competition policy”.
the first important contributions concerning
the impact of state aids on the economic 3. Paper Content
development can be found in the so-called
“Welfare Theory”, appeared at the beginning Market failures include situations when the
of the XX-th century, the general idea of behavior of the market does not succeed to
which is that a public intervention can have maximize social surplus. In general, there
fruitful results only if the estimated total are four failures of the market: public goods,
welfare in the result of the intervention is externalities, informational asymmetry and
bigger that the cost of intervention. This market power. Besides traditional failures,
idea has been further promoted by other there are also other limits of the competition
framework, among which: problems of
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preference, problems of incertitude, certain consumers, thus every one being

temporary problems, and adaptation costs. obliged to pay. Here the services of general
The first category of market failures refer to economic interest, audiovisual, etc, can be
externalities. Those appear when the actions mentioned.
of an economic agent have consequences on Public goods are usually produced by public
another. The given effect can bear a negative powers and can be used by several
character, it means that it generates consumers in the same time, and also can be
negative externalities, or a positive one, produced by the private sector.
respectively it generates positive In what exactly the situation of failure
externalities. An example of negative consists when we speak about public goods?
externality is the situation when producers This one results from the non-exclusive and
do not take into account the negative effect non-generator of rivalry character of the
on the natural environment. An example of public good. Thus, when it is about
positive externality can be found in the consumption, more persons can obtain
research and development domain: when a consumption advantages from a certain good
company receives aid for research and in the same time. It means that the use of
development activities, the positive effect the good by a person does not affect the use
could be also felt by other companies, of the same good by another person. Here
through the diffuse of knowledge, the problem of evasion from debts may arise.
innovations, informational technologies, etc. In essence, in the case of existence of a big
Even so, these effects are open to number of persons, the demand of every
discussions, as the private benefits of an person is extremely low compared to the
economic agent must be put on the balance total demand and the total cost of the offer.
with the general benefits for the economy. Also, the contribution of a person is
The existence of externalities leads to extremely low, and in the case of its lacking,
divergences that arise form the fact that a the person who evaded from debts could
certain number of production factors of benefit from the public good in the same way
certain producers have not been paid, thus as those who contributed, without reducing
in the absence of incentives these production its quality. In the case when all the persons
factors are produced in very small of the society will evade from the acquittal of
quantities. Following this, the intervention contributions and only one person will
of state in this case must be oriented to the contribute, that single person will not
stimulation of positive externalities’ benefit from the public good, because the
producers, by compensating their expenses contribution of a sole person is insufficient to
for the production of factors of production offer the public good. So, in any situation,
that could be used by another producers (for the person who does not contribute is
ex: the compensation of expenses for advantaged. The state, through the public
fundamental scientific researches). And vice authorities, being the main furnisher of the
– versa, some harmful effects or non-utilities public goods, has the power to impose the
which influence negatively production obligation to execute debts and, in such a
functions of some economic agents are way, to eliminate the market failure.
produced in too big quantities if the damages To some extent, the public goods can be
that they provoke are not compensated or considered a situation of externality, because
the reduction of these damages is not being furnishers of those goods cannot estimate the
encouraged. benefits for all the consumers. As a result,
In this case, the intervention of the state public goods are not always offered at the
must be oriented to the stimulation of the highest level of efficiency. According to the
economic agents to reduce negative welfare theory, state aid for such kind of goods
externalities (for ex: the contribution of state and services is welcome.
to apply measures of environment
protection). The state also intervenes in the market
economy by applying state aid in the cases
The second category of market failures when an informational asymmetry is found, in
which provoke the intervention of state in other words, a discrepancy between the
the market economy are the public goods. information available on a portion of the
The public goods are those, from the market referred to the information on the
consumption of which cannot be deprived other part of the market. A good example in
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this sense is the financial market. Companies is combined with the problem of access to the
that ask for financing are usually better information in terms of a public good
informed about the capacities of the market (certificates of quality, standardization, etc).
than banks or investors. Or in the field of For example, there is no sufficient information
insurance: informational asymmetry happens concerning the quality of the imported
when the insured person knows better the agricultural products and autochthon ecologic
risks to which he is exposed than the insurer, agricultural products. In the case of export,
for example the real value of the insured there is no sufficient information concerning
goods. the aid for the promotion of goods on the
The information is implied in the market external markets, state aid for participation to
failure cases at least in two ways. First, fairs and exhibitions, etc.
information may be regarded as a public good, Another situation which is included in the
because consumption of information is non- category of market failures is the market
generator of rivalry and, as a result, we can power. Economists define it as the ability of a
affirm that the information is not a private firm or of a group of firms on a market to fix
good. Secondly, there are situations when the profitable prices for them, over the level of
quantity of information on the characteristics competitiveness, for a long period of time.
of a good varies from one person to another. Even if any company could raise the prices for
For example, the buyer and the seller can have its products or services not every of them does
different information on the quality of the it in the most profitable way. Following this,
traded product. We have to mention that the what characterizes the firms with market
cases of informational asymmetry most often power is the fact that even if the increase of
appear when there is a question of a good’s prices is not profitable, the given firms will not
characteristics. suffer too much loss. When we speak about
In order to assess whether the informational market power, we mean the ability of
asymmetry leads to market failure, the companies to raise the prices following more
information on goods must be classified in the level of competitive prices than the level of
three categories, according to the categories of current ones. This happens because the
goods: prospecting goods, experimental goods company with market power in the past
and goods after experimentation. As far as the already exercised its power and raised the
prospecting phase is concerned, the buyer can price to such a level over which the continuous
decide on the given good after an exterior increase of price would not be profitable,
examination of the specimen. In the case of because consumers would switch to substitute
experimental goods, the buyer can determine goods.
the characteristics only after acquisition, and The second part of definition, the one which
in the case of goods after experimentation, the refers to the longer period of time for
buyers find it difficult to determine the maintaining the increased price, is an
characteristics, even after they began to use important index in determining firms with
those goods (for example, in the cases of market power, because there may be
medicines), because the continuous situations when other companies, without
consumption does not emphasize the quality. market power, because of informational
The market failure caused by the asymmetry, have the occasion to raise the
informational asymmetry between the buyer price for a limited period of time, but are no
and the seller can be encountered on more capable to maintain it to such a level for a
markets. The inefficiency potential is in few longer period of time.
cases bigger for the prospecting goods and Sometimes the terms “market power” and
often bigger for the experimental goods and “monopoly” are used in the same context,
even bigger for the goods after without making a difference between them.
experimentation. The appearance of market Still, there is a difference, and in order to feel
failure is determined by the measure in which it, it is necessary to determine the level of
the problems generated by the public market power, for what a detailed economic
goods/services deter the functioning of analyses of the relevant market is needed. In
mechanisms for assurance of adequate the result of such researches, monopolies are
information. considered to be those companies or groups of
Thus, the market failure appears especially in companies which hold a significant market
the situation when the informational power and which are “protected” from
asymmetry on the market of the traded goods competitors through some substantial market
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barriers, even if the differences between the and for restoring the equilibrium among some
characteristics of monopolies’ products and processes in the economy. But the state has a
those of competitors are minor. huge responsibility for the application of the
The market power can also be encountered state aid, because the granting of unjustified
under the name of competition failure. In most aids could cause serious prejudices to the
of the cases market power can generate economy.
exaggerate prices, which affect the consumer. As far as the state aid is applied for the
Measures of state aid can reduce market correction of the above-mentioned market
power of some companies, for example by failures and it is justified from the economic
granting access for some smaller companies. and social point of view, this may have very
But in some cases, state aid can contribute to benefic effects on the society and fall into line
the creation of some entry barriers or to the with the principles of good governance. In the
aversion of competitors from the given market. case when there is a deviation from those
There are some other market failures, such as: principles, state aid can have very negative
-coordinated actions of the economic agents, effects, evinced through the following:
which represent serious infringements to the a)distortion of competition environment and,
law, this also being a serious deviation from as a consequence, increased prices, low
the fundamental principles of market quality, reduced innovation, etc.
economy. Thus, in such cases, the intervention b)inefficient use of the limited financial
of state is necessary; resources of the state.
- the problem of incertitude – public policies
can have the capacity to increase economic The distortion of competition happens when
efficiency in situations of incertitude. the rivalry between companies is disturbed.
- temporary allocation – with the change in This very often takes place when a firm
time of advantages it is necessary to use the receives state aid, this one reducing firm’s
social marginal rate of preferences, rate to costs and increasing its revenues. In such a
which anyone remains indifferent concerning situation, firm’s competitors will have to
the change of the current consumption with increase efforts in order to remain profitable.
the future one. In reality, on different markets In the case when state aid is given only to
this rate is different and this is determined by some firms and others do not have access to
the characteristics of the capital market and such support, or when state aid is provided
concern for the future generations. The illegally, the result may be that inefficient
reserves expressed in relation to the efficiency companies will prosper and efficient ones will
of capital markets and concern for the be affected negatively. This, in general terms,
preferences of the future generations can means distortion of competition.
constitute serious reasons for the application The distortion of competition through state aid
of public policies in the view of improving is a very serious danger for the economy.
temporary allocation of goods and resources; Usually distortion of competition takes place
- adaptation costs, result form the fact that because the firm receiving the state aid is
the economy is in a continuous change. The tempted to change its behavior. This happens
appearance of some new products, the because state aid influences the costs and
modification of the capital, the impact of revenues of the beneficiary company, and this
natural factors, need a continuous adaptation one may change the prices for its goods, focus
for an efficient allocation of advantages and on research and development activities, thus
costs. As long as the prices change freely in having an impact on competitors. Sometimes
function of demand and supply, the adaptation even the most efficient firms cannot compete
process takes place at minimum costs. In the with less efficient rivals who are granted state
case when fix prices are maintained, these aid.
restrictions on the change of prices can impede State aid may often cause inefficiencies,
the economy to achieve a new point of efficient because they will artificially reduce prices and
equilibrium. In such situations, there may be in such a way consumers may switch to that
an overrate of social surplus earnings and company, even if the real cost of the good is
underrate of social surplus loss, respectively, hidden.
the intervention of state is welcome. Bellow, there are presented three of the most
In the result of the above-mentioned it can be serious effects that state aid may have on
concluded that the role of the state is very competition:
important for correcting the market failures
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-Allocative inefficiency: this mean-s that -Dynamic inefficiency: state aid can also
production resources could be allocated in a influence investment decisions of the company.
wrong way, as a result of the application of Thus the firm can invest in wrong objectives,
state aid. For example, when there is a real which in the long run, can lead to wrong
competition in the market, consumers will activities dealt by the company.
indicate clearly to the company which products
they prefer and, respectively, where the All the above-analyzed effects demonstrate
company should allocate more resources in once again the significant impact that the
order to satisfy consumer needs. When the state aid has on the economic activity and
company receives state aid, the price will be social welfare. Respectively, the state has a
lowered, even if the cost of production will stay very important role in managing this
high. It is normal that consumers will prefer instrument, and the efficiency of public
products for a lower price, and will demand resources administration depends much on it,
more of those goods. But the allocation of more fact which influences the efficiency of the
resources to the subsidized activity is not the governing. The practice shows that there is no
best decision. ideal model and everything depends on the
-Productive inefficiency: the state aid can help specific of national economy development. It is
a firm to gain market share, and sometimes to sure that the state has a very important role,
stop the entry of other efficient companies. All to intervene exactly where its contribution is
these are driven by the additional source of necessary to correct market failures and to
capital, and not as a result of increasing stimulate the activities that could have benefic
efficiency of the firm. In the long run, this may effects for the society.
lead to productive inefficiency.
References 4. Market power handbook (USA,

Competition Law and Economic
1. Boardman A.E., Greenberg D.H., Weimer Foundations, ABA Section of Antitrust
D.L., Vining A.R. Analiza cost-beneficiu: Law, 2005).
concepte şi practica. (Chişinău, Edition 5. Mathias Dewatripont and Paul
ARC, 2004). Seabright,”Wasteful” Public Spending
2. Ciutacu Constantin and Chivu Luminiţa. and State Aid Control. (IDEI, Toulouse &
Evaluări şi analize economice ale CEPR, 2005).
ajutoarelor de stat. Definire. Politici. 6. Quigley C., Collins A. EC State Aid Law
Rezultate. (Bucureşti, Expert Edition, and Policy (Oxford, Portland Oregon,
2006). 2003).
3. Falon Marc. Droit matériel général de 7. Weimer D.L., Vining A.R. Analiza
l’Union Européenne (Academia-Bruylant, politicilor publice: concepte şi practica.
2002). (Chişinău, III-rd Edition, ARC, 2004).
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QUANTIFICATION OF ECONOMIC AND SOCIAL IMPACT OF

EXTERNAL LABOR MIGRATION BY APPLICATION OF COST-BENEFIT
ANALYSIS
CARAGANCIU Anatol, professor, ……….,

an _ caraganciu @yahoo.com
BELOBROV Angela, Ph.D. Student, Faculty of Finance, Academy of Economic
Studies of Moldova, belobrov_angela@yahoo.com
Cost-benefit analysis is a term that 2.Economic and financial analysis

refers both to: helping to appraise, or assess, methods
the case for a project or proposal, which itself The main generalized methods of
is a process known as project appraisal; and economic and financial analysis applicable in
an informal approach to making economic the analysis of projects / policies / actions,
decisions of any kind. Authors decided to through the process characterized by a
apply cost benefit analysis to assess the multitude of costs and benefits are listed:
impact of migration. In this article is Cost - benefit, cost-effectiveness and Multi
described methodological approach of Cost - criteria-analysis.
Benefit Analysis implementation for Cost-Benefit Analysis (CBA) is a
quantifying economic and social impact of conceptual framework applied to any
external labour migration. quantitative, systematic assessment of a
public or private project to determine
Key words: Cost-benefit analysis, whether or to what extent it is valuable from
labour migration, impact of migration. a social perspective. Cost - Benefit differs
from a simple financial assessment which
JEL classification: E2, G2, G3. takes into account all gains (benefits) and
losses (costs).
1. Introduction Cost-effectiveness (ACE) is a
The dynamic nature of economic monitoring and evaluation technique used
processes and phenomena, complexity, when benefits can not be reasonably
diversity and their mutations impose for an measured in monetary terms and the costs
ongoing concern improving the methods and can be estimated accurately. This is usually
analysis of the techniques aimed at their done by calculating the cost per unit of
correct management. Relevant product benefits “without monetary
characteristics of economic processes and equivalent” and requires the existence of
phenomena necessarily impose their means to quantify the benefits, but not by
systemic treatment. The specialized attaching to these benefits a monetary or
literature devoted to external migration of economic value.
the workforce focuses on the research of all Multi Criteria Analysis (AMC) is an
effects of this process. Researchers recognize assessment methodology which takes into
that migration has a wide range of account several objectives by assigning
consequences on the most varied fields of weights to each measurable objective. In
activity and the existence of human society. agreement with the CBA, which focuses on a
Most researchers recognize the causal single criterion (maximizing social welfare),
relationship “migration – development” and AMC is a tool that covers a set of different
focuses on identifying positive and negative objectives which can not be aggregated by
effects on the “general objective” of human using shadow prices and weight wealth, as
society - sustainable development. In order in is standard CBA.
to elucidate and implement these links and Based on the background
effects, of the generalized impact of the characteristics of these types of analysis, we
process of migration for work purpose, we’ve consider the cost-benefit analysis is the most
decided to analyze the relationship between appropriate for the application to the
the obtained results and consumed resources analysis of external migration for work.
in this process.
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3. Essence and use of cost-benefit determined in relation to the size and scope
analysis of the project, i.e. in relation to group / area
Traditionally cost-benefit analysis where the project has a relevant impact. In
(CBA) is a practical method, or an analytical the 70is there has been a certain decrease of
tool used to: interest in the CBA as a result of more and
i) chose of implementing a more frequently expressed reservations
particular project, which requires an about the possibility of using money as a
evaluation of the effects of medium and long measure of things like peace of mind,
term project implementation and a security, life, peace, clean air. In response to
comparison of costs incurred and expected these difficulties have been developed a
benefits, number of alternative techniques of analysis,
ii) assessment of policies, more moderate ambitions: studies on impact
which quantifie in monetary terms the value for analyzing complex effects of
of all consequences of this policy to all technologies or analysis of cost-effectiveness,
members of society. Cost-benefit analysis is were only costs are calculated in money and
a way to provide balance and evaluate the benefits remain in non-monetary units.
different policy options based on their costs The objective of the Cost – Benefit
and benefits, analysis is to identify and quantify all
iii) determine the net benefit potential impacts of the analyzed action in
of a program of measures applicable to a order to determine appropriate costs and
certain level (item level, Level subsystem, benefits (in monetary value). CBA should not
system level), be confused with income-cost analysis that
iv) estimate(in terms of allows choosing the optimum variant from
benefits and costs) socio-economic impact the economic point of view. The objectives
due to implementation of certain actions. considered in the CBA must obligatory
The impact must be assessed against include economic and social components. The
predetermined targets, the analysis is analysis will be done by systematic
usually accomplished by taking into account consideration of the relationship between
all individuals affected by the action, directly brought benefits (all the positive
or indirectly. We believe that successful CBA consequences) and its costs (resource costs),
can be used to assess socio-economic impact plus the negative effects. In principle, all
due to the onset of certain processes, as ex. impacts should be assessed: financial,
migration processes. Cost-benefit analysis economic, social, environmental, etc.
was taken from the private sector and Traditionally, the costs and benefits
applying it to evaluate various projects in are evaluated by analyzing the difference
the public sector is very much hampered by between the scenario ‘with a project”; and
the existence of future benefits and costs this alternative scenario: scenario “without
that can not be easily quantified. project”; (so-called “incremental approach”).
4. Problems and objectives of cost- Further, the results are combined to identify
benefit analysis the net benefits and determine if action is
In the specialized literature it is timely and deserves to be implemented.
discussed the question “Whose benefits and Thus, CBA can be used as a decision tool for
costs are taken into account?” Or “Whose evaluating the usefulness of investments /
welfare is included in the aggregate policies to be financed from public resources.
benefits?” In some cases, to identify those The rule is simple: if the net benefits to
affected we need to be aware of the existence society of the project (benefits minus costs)
of a number of social actors (stakeholders), are positive, then the company has some
as costs and benefits may affect large and advantages for the project because its
small groups of economic / social actors benefits outweigh the costs. Test application
based on the geographical level adopted by of the CBA, even if doesn’t lead to
analysis. undisputed results, is a useful exercise
Guide for Cost - Benefit of projects because it raises awareness to the screening
financed by EU structural instruments efficiency. For example: the current crisis of
requires that the CBA must decide whether social regulations. Community tends to
the analysis is done by adopting a local, adopt various regulations (rules, laws,
regional, national, EU or global perspective. measures, programs) to provide a solution to
The appropriate level of analysis must be the problems faced. However, the
147
accumulation of such regulations has often 6) Risk analysis;

negative indirect consequences, 7) Presentation of results.
unintentional (costs), which makes them Analysis of the migration process
sometimes even counterproductive. differs essentially from the analysis of an
These situations necessitate investment project or a government policy.
rethinking requirement: the regulations For argumentation of CBA selection to
should not be taken on the basis of vague assess the consequences of external
“impressions”, on the common sense belief migration for employment purposes, we can
that they could work, but following a mention that at this stage, the economic
thoroughly CBA by considering various approach to measuring vulnerability is based
short-and long-term consequences, direct on the Cost-Benefit Analysis. Research
and indirect, and costs involved. devoted to external migration of labor shows
4. The moment of performing a that economic and financial systems are
cost-benefit analysis vulnerable to migratory processes.
Depending on the temporal From the initial stage, we can state
relationship and the progress of ongoing the that proceeding from the specific process
Cost – Benefit Project, there can be studied will be avoided methodological
distinguished ex ante CBA and ex post CBA. problems in designing and implementing
Ex ante CBA is made in the period CBA and the entire analysis requires a
when a project is studied, before it’s certain degree of abstraction. Current
implementation or conduct of, it’s research goal is to quantify the impact of
contribution to decision making is direct, external migration of labor.
immediate and specific as the ex ante CBA is We consider it necessary to say that
carried out before the time when you must the term “migration phenomenon” is used
decide if limited resources should be with the meaning “lots of migration events”
allocated by the government for a project. where “event migration” “refers to the
Ex post analysis is carried out at the movement of a person - individual or group -
end of the project and the amount of analysis outside its community residence during the
is more comprehensive but less direct, as reference period data, to change his
they contribute to “learning” by the decision permanent address and / or usual work “. If
makers whether certain categories of the movement of the person exceeds the
projects are appropriate or not. boundaries of one or more States, it is
Further analysis is conducted over the defined as international migration. In the
life of a project that is - in medias res. Some case when the determinative factor of the
elements of such studies are similar to those purpose of traveling of a person represents
of ex ante analysis, while others are like an change or obtaining jobs, the change of
ex post analysis. residence is a condition that can be ignored,
There is also the fourth type of CBA, migration is defined as migration with labor
that compares an ex ante CBA with an ex purposes or for work. Placing the
post CBA for the same project. This phenomenon of work migration purposes on
comparative type of CBA is the most useful financial and economic coordinates qualifies
for the decision factors in policy matters to this phenomenon as labor force migration,
discover the effectiveness of CBA as a tool based on the fact that there is a movement
for evaluation and decision making. in space of factor of production - labor.
5. The steps of Cost benefit analysis Starting from the specific features of labor
applicable for external migration for work As migration, we believe that the way to build
to the Guide for Cost analysis – the benefit or the mechanism of Cost - Benefit analysis
of financed projects from structural applicable to this case can be segmented into
instruments by EU, proposed steps to at least six stages (Fig. 1).
achieve the CBA, in the context of
preparation the investment projects are:
1) Identifying the phenomenon and
defining the objectives;
2) Analysis of options,
3) Financial analysis;
4) Economic analysis,
5) Sensitivity analysis;
148
Figure 1. The mechanism of Cost – migration with the aim to work

Benefit analysis for external
I. Setting goals, specifying the reporting period,

geographical perspective and alternatives
II. Identification of participants and non participants

in the trial, the subjects who pay and those who
benefit from the process
III. Cataloging impacts, selection of indicators for

quantitative measuring and estimating
IV. Assigning monetary values to resources

(expenditures) and outcomes of the process
V. Estimation and analysis of benefits and costs over

time
VI. Cost / benefit ratio calculation, formulation of

conclusions and recommendations
Source: prepared by author. analysis of projects financed by EU from

structural instruments, provides that at
Phase I. Setting goals, specifying least three options to be considered:
the reporting period, geographical - zero option, represents the
perspective and alternatives alternative to continuation of activity
The pursued objectives of the CBA for without any intervention
migratory phenomenon to identify causality - medium variant, which includes
of immigration to the socio-economic realistic costs required for maintenance plus
phenomenon, to discern its net profit and to a minimum value of intervention or
find benchmarks for the design and redesign improvements necessary to prevent or delay
of management policies of the phenomenon, deterioration of the situation
considering the performance criterion. - maximum version, involves
Under the current circumstances, for maximum interventions proposed in order to
Moldova we will conduct an analysis of CBA achieve the expected objectives.
in medias res of migration phenomenon, ie
during the lifetime of the phenomenon. Phase II. Identification of
Accordingly, we use elements of the analysis participants and non participants in
of ex ante and similar to ex post analysis. the trial, the subjects who pay and
From a geographic perspective we will make those who benefit from the process
analysis by adopting national or global Characteristics of the analyzed
vision. Regarding the analysis of phenomenon, in the position of participants
alternatives, the Guide for Cost - Benefit in the process falls persons directly involved
149
in the migration process. We considere Some typical benefits include increasing

appropriate their separation in the following budget revenues from tax revenues, reducing
subgroups: budget expenditures related to the social aid
I. migratory flow directly insiders - etc. Beyond these direct benefits, there are
migrants or remittances also benefits that can not be measured
II. those left in the country (families, directly. The classic examples are increasing
households) who receive remittances. the quality of life and even of human life.
The state plays a distinct role, that For costs or benefits, the amount of
emerges from his fundamental tasks: on one which can not be measured directly, it must
hand state invests in human capital be determined a price-shadow, which is a
formation (education, social and medical procedure to make subjective judgments on
support, etc.), on the other hand he can’t monetary value of benefits and costs, when
claim on the direct recovery of this capital. the market price is not reliable or not
The group of non-participants includes available.
people who do not migrate and families have In the case of migration process
no member to work abroad and send analysis the determination of costs and
remittances. If the process is assessed in benefits requires a special approach. We will
terms of export-import migrant labor, in the estimate all the consequences on the basis of
analyzed items fall: our cost structure and revenue in terms of
I. participants - the country of economic theory. Cost is an economic
origin and country of destination of indicator that includes all labor and material
migrants, and indirectly the transit consumption expressed in monetary form
countries, made or to be made to perform work, service
II. non - participants- non etc. In the case of migration, costs include all
integrated countries in the migration process labor, material, psychological-emotional
with work purposes consumption, expressed in monetary form,
At this stage the goal is to seek and made or to be incurred for travel,
identify those who pay and those who benefit employment and deployment in labor by
from the process of labor migration migrants abroad.
processes. It is usually social groups From the perspective of analysis of the
(families, households), regions or entire CBA we consider the following cost
society. In the investigated work, we categories:
consider logical to use the following method: - Direct costs, which delimits the costs
instead of examining the benefits or costs in that can be individually and unambiguously
relation to a specific segment of individuals attributed to activities undertaken for travel
or groups, we examine the costs and benefits and employment abroad, among them: cost
to the whole society or government for a of completing the instruments expenses
whole set of criteria. related to obtaining visas, travel expenses,
Phase III. Cataloging the impacts, financing costs (borowing cost), the cost of
selection of indicators for measuring and consultancy services, payments to
quantitative estimation of impacts is a intermediaries migration schemes (social
fundamental step for successful networks of migration), studying foreign
implementation of the CBA for any type of expenditures, payments to find a job
action and especially the migration. The aim - Indirect costs from externalities. To
is to discover all the direct impacts of the demonstrate the need to include these costs
process, and externalities. in our analysis we consider it necessary to
Phase IV. After identifying the target specify the content of economic categories of
groups, cataloging the impacts and selection externalities. Externalities are known as
of measuring indicators, there should be external effects. The emergence of
assigned the monetary value to resources externalities is a consequence of
(expenditure or costs) and outcomes. In most interdependence that occurs between the
studies of state policies application, costs are utility function and the function of
defined in budgetary terms. The two major production or consumption, or between
categories of expenditure are reflected in consumers and producers.
material costs (equipment, buildings, etc.) In other words, the actions of a player
and administrative costs (salaries, etc.). And can have effects that reverberate on another
benefits are measured in monetary terms. actor, influencing their activity or positive or
150
negative welfare without ever last to make a a) financial benefits - as income flows
payment or compensation. Externalities can and financial funds, taxes on the process
be positive or negative. Economic theory outputs.
identifies positive and negative externalities b) economic benefits - economic, local,
as marginal or infra marginal. regional, national development - especially
Marginal externalities occur when in infrastructure development projects,
a change in the externality generating saving the resources used, consolidate its
activity affect production or utility position on the internal and external
experienced by affected agencies. Instead, markets,
infra marginal externalities are those c) social benefits – enhancing the
where a change in the activity generating quality of life, social stability effects in
the externality does not affect any economic and political stability.
production or utility experienced by affected - Indirect benefits from
agencies. If the externality generating externalities expressed as: market prices -
activity shall be amended so that the activity increased property value, lower costs of
affected by the externality is improved unemployment benefits, health benefits:
without generating the greenhouse to lower costs to public health, education and
worsen, an externality is said to be Pareto training benefits, the cost saving achieved by
type. reducing the tax burden on entrepreneurs,
Externalities arise because of market etc. Price-shadow - higher quality of public
failures. They, in turn, are explained by and private services, etc. In the analysis
market failure to respect property rights. In process with the aim of external migration
the analysis of the projects, externalities are for work, stressed from the perspective of
effects of the project not covered in the society as indirect costs and indirect benefits
financial records and therefore not included of externalities have major share in the total
in the evaluation. Costs, direct and indirect costs and benefits, evaluation and their
must be expressed in monetary value, i.e. in inclusion in the CBA is crucial for the
prices. Prices can be discussed in terms of: successful implementation of qualitative
market price, as ex. Replacement costs of analysis and its results.
productivity loss in education, medicine, Phase V. Estimation and analysis of
industry, agriculture, decreasing property benefits and costs of migration process over
value, etc. , and shadow price, as ex. time is the most complex and expensive step.
improving or deteriorating investment In this stage will be applied economic and
climate, changing the country's credit rating financial analysis techniques, updated
etc. In the application of CBA, frequently it techniques, techniques for sensitivity
is used the opportunity cost, which is the analysis and risk. Need to update is based on
value of the best chances slaughtered, to be the fact that while some assets may lose
waived when making a choice. In other value, they wear, while other items may
words, it measures the largest loss of become more valuable.
variants sacrificed, considering that the Phase VI. Last step consists of
choice made is the “winning”. The amount of calculation the cost-benefit ratio analysis
actual election sacrifices in terms of given and formulation of conclusions and
resources. The opportunity price expresses recommendations based on tests carried out.
the evaluation of the amount of goods that Cost-benefit ratio is a single numerical value
will can’t be produced because it was decided reflecting the relationship between costs and
to produce another good. Every activity has benefits. If the ratio is less than 1.00, it
an opportunity cost. This concept has a means that the benefits are outweighed by
broader meaning than the cost in the the costs, and vice versa for a value higher
current, normal expression. He is not than 1.00.
confined to mere expenditure of money, but In the final report, the ratios between
designates a subjective estimate of the costs and benefits for various items should
sacrificed opportunities, which may mean be presented in a table and detailed in a
more than money spent. descriptive-narrative way.
We consider the following benefits in 6. Pictures presentation of costs and
the CBA of the migration process with benefits of external migration process with
working purposes - direct benefits grouped the aim of employment, of labor force from
in: different perspectives according to the
151
perspective adopted by the application of social criticism of fundamental assumptions

CBA, general presentation pictures of costs regarding the usefulness of CBA, namely,
and benefits can be presented in various that the utility can offset gains with losses of
ways, eg. Table 1.1, 1.2, 1.3. some of the utility of others.
Is important to mention that in
practice there are disagreements about the
Table 1.1.
Society Participants Non-
Items (A) (migrants participants
(A=B+C) and (C)
households)
(B)
The costs of external migration for
employment purposes
Direct costs
Participant’s expenditure determined by - - 0
integration of the migratory process
Fees and taxes in the case they are migrating 0 - +
through state programs
Expenditure on maintenance of children of 0 + -
migrants in kindergartens and orphanages
Expenditure on education for children of migrants 0 + -
Expenditure on health care for children of 0 + -
migrants
Expenditure on social security for the parents of 0 + -
immigrants
Expenditure on health care for the parents of 0 + -
immigrants
(Social) allowances received by participants 0 + -
Expenditure on minimum-age pension insurance on 0 + -
their return in country (B)
State of Research Programs of the impact of - 0 -
external migration for work
State programs of information and legal support 0 + -
provided to participants
Indirect costs of externalities
Deteriorating the labor market - 0 -
Loss of human and intellectual capital - 0 -
Loss of investment in human capital formation - - ** -
Loss of qualification and labor skills - - 0
Loss in GDP caused by reduced potential labor - 0 -
Export loss resulting from the difference in yield - 0 -
potential
Net loss of income from labor migrants - - - ***
underestimation
Increasing the tax burden - 0 -
Increasing the imports - 0 -
Deterioration of the external balances - 0 -
Generating inflationary pressures - - -
Exchange rate appreciation of national currency 0 - +
Generation of demographic aging - 0 -
152
Generating pressure on the pension insurance - 0 -

system
Generating pressure on social security system - 0 -
Generating pressure on medical insurance system - 0 -
Increasing income inequality - 0 -
Destructive effects on the promotion of state - - -
policies
Dutch disease syndrome - 0 -
…
BENEFITS - Results related to incadration in
the migration process
Direct benefits
Remittances (in money, goods, technologies) + + 0
Accumulating knowledge and new skills + + 0
Indirect benefits of externalities
Decrease in unemployment – reducing the + 0 +
unemployment costs
Increasing demand for goods and services + 0 +
financed by remittances
Growth / Economic Development + + +
Poverty Reduction + + 0
Increased savings (from remittances) + + +
Increasing investment (from remittances) + + +
Maintaining the currency exchange rate 0 -* +
Positive multiplier effects + + +
Increasing FDI in the country of destination + + +
(attracted by migrants)
Reduction of external financial assistance + + +
Reduction of external borrowing to cover budget + 0 +
deficits
Reduction of foreign loans to cover deficits of the + 0 +
balance of payments (deficit trade balance)
Reduction of external loans to increase + 0 +
international reserve assets
Countering the pro-cyclicality of the economy + 0 +
…
Source: prepared by author.
Notes: * For participants in the migration process is more convenient the depreciation of national
currency, as in this case they will have to transfer less currency in the country to cover
consumption of their families / households. ** Investment in human capital has been made in
public and private resources, so participants bear the investment loss in self-funded education.
*** Non-participants indirectly suffer loss of externalities, as ex. reduction of indirect taxes paid
by participants.
Conclusions that we can make, analyzing the Table 1.1. (performed at this level of
abstraction of the research) focuses on the fact that external migration process with work
purposes, analyzed from the company's home country of migrants, involves higher costs than
benefits. Specifically, cost-benefit ratio is 20 items of cost to 16 items to benefits, so benefits are
outweighed by costs 1.25 times.
153
Table 1.2.
Stylized framework of cost-benefit analysis of external migration of labor force from
the perspective of the destination country
Society Participants Nonparticipants
Items (A) (migrants) (C)
(B+C) (B)
Costs
Social assistance given to immigrants 0 + -
Medical (health) assistance to immigrants 0 + -
Costs and detention of immigrants 0 + -
Travel costs to work native fired or forced to
change jobs - 0 -
…
Benefits -
Economic Prosperity + + +
Immigrants provide low-cost labor =>
increasing revenues of employers 0 - +
cost savings for consumers + + +
Increasing cultural diversity + 0 +
Increased living standards of immigrants 0 + -
…
Source: prepared by author.
Conclusions that we can make, analyzing the Table 1.1. (performed at this level of abstraction of
the research) focuses on the fact that external migration process with work purposes, are based
on the fact that the process of external migration with employment purposes, analyzed from the
point of view of the society of the destination country of migrants, comprises lower costs than
benefits. Specifically, cost-benefit ratio is 1 cost to 3 benefits items, so the benefits outweigh the
costs 3 times.
Table 1.3.
Stylized framework of cost-benefit analysis of external migration of work force
worldwide
Global society Home Countries
Items (A) countries of
(B+C) (B) destination
(C)
Costs
Investment in human capital formation 0 - +
…
Benefits
Economic prosperity + + +
…
Source: prepared by author. involvement of governments in the proper
management of migration for employment
Conclusions that we can make, purposes.
analyzing the Table 1. 1. (performed at this
level of abstraction of the research) focuses 7. Conclusions
on the fact that external migration process Conclusions stemming from cost-
with work purposes, analyzed in terms of benefit analysis of labor external migration
global society entails lower costs than (at this level of abstraction of research) is
benefits. Analysis allows us to say that summed up in terms of global society that
external migration for employment purposes labor external migration process involves net
is a phenomenon with favorable impact on benefits, whether in particular increasing
global economic prosperity. The report of the wealth, while foreign labor migration
analysis must include generalized involves net benefits for countries of
conclusions and recommendations on the destination and social net losses for the
154
countries of origin of migrants. The purpose ost/guide2008_en. pdf visited on 01 februarie

of cost-benefit analysis, summarizes broadly 2010.
in determining the net result of labor
migration, is to sensitize policy makers from References:
Moldova and other countries supplying 1 The „process” element was introduced in this
labor, decision makers at regional and context by the author, considering that any
international public opinion on the impact of project / policy is essentially a process.
Clarification was made basing on the distribution
external migration of labor that generates
of the meaning of words project / policy / process.
huge costs in the social, economic, political,
According to DEX: the process is a sequence of
cultural and democratic processes operations, states or events involved in any work,
deployment to serve for rational decision- there is a transformation. [DEX, p. 853].
making for the implementation and redesign ii Eng. Cost Benefit Analysis (CBA).
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eu/regional_policy/sources/docgener/guides/c
155

DISTORTION OF COMPETITION: THEORETICAL APPROACHES AND

PRACTICAL CONSEQUENCES
CĂRARE Viorica;
The National Agency for Protection of Competition, Republic of Moldova
viorica_carare@yahoo.com
MAXIM Ion;
Cooperative Trade University of Moldova
maxim@anpc.md
Abstract Specifically, state aid as a form of state

intervention in the economy is manifested by
When used without content explanation, the granting subsidies, including export tax,
term distortion of competition creates exemptions or reductions of taxes and social
impediments to business competition charges, credits or low interest loans or their
protection authorities. The study carried out refund delay, transformation of guaranteed
allows us to ascertain that the economic loans into capital, misconduct in domestic
content of this concept brings to law prices of goods and services, regional and
enforcement, and may vary depending on the sector aid, transfer of land and buildings free
economic policy pursued by each state at of charge or under profitable conditions, etc.
different times. The concept of competition allows us to
identify situations of misrepresentation,
Key words: competition, distorts competition, state distortion or restriction of competition and to
aids. understand the content and meaning of
these terms. When applying the legal
Introduction provisions, the situation becomes even more
difficult as the legislator uses the notions
Functional economy rules are important for but does not define them in the law content.
sustainable economic growth. The result of
the competitive activity increases while The Romanian law on State aid nr.143 of
reducing the barriers. State intervention can July 27, 1999, stipulates that state aid
produce rigid barriers, which would distort distorts or threatens to distort competition.
not only the domestic competition. As well the Moldovan Law on Competition
The economists support the idea that Protection of June 30, 2000 nr.1103 prohibits
competition increases efficiency and deems the actions on behalf of public
to be an important reason for innovation. administration authorities which restrict
But they also consider that competition can competition.
not solve all the problems that might arise in The decision-maker is to understand the fact
the economy, cases when state intervention of misrepresentation, distortion or
is necessary and substantiated. restriction of competition. Out of such
The consolidated version of the Treaty on the reasons the problem of identifying the
Functioning of the European Union art. 107 theoretical content of these concepts has a
paragraph 1 provides for the incompatibility great practical importance.
with the common market of the aids granted
by States or through State resources in any Literature review
form whatsoever which distorts or threatens
to distort competition by favouring certain The concept of competition in economic
undertakings or productions, so far as it theory is often discussed in a contradictorily.
affects trade between Member States. The fundamental question is: competition
situation or process?
156
The competition can be approached from two Hayek F., I. Kirzner; according to them, for a
points of view, static and dynamic. The first better understanding of this reality, the
is the case of traditional theory when competition shall be seen as a dynamic
competition is examined as a market process, promoting the idea that competition
condition, including a system conditions is a dynamic process by its nature, whose
specific for market in which the competitive fundamental particularity is to remove the
fight occurs. In this case it is dealt with a core conditions of the competition static
structural approach to competition. analysis.
The traditional theory of competition A considerable contribution in developing
provides for a number of conditions for the the concept of competition was provided by
existence of "pure and perfect competition". Harvard School and Chicago School.
The list of these conditions varies at Harvard School’s followers J. Clark, E.
different authors, but it usually includes the Mason, J. Bain tried to examine empirically
following elements: a large number of buyers the market phenomenon. They considered
and sellers, each having a relatively small that market structure affects market
economic size, a homogeneous and performance through behaviour and
commensurable product, and perfect excessive market concentration has negative
information. The condition on the relative impact on market achievements.
size of parties is critical while the other The concept of workable competition
conditions are secondary. promoted by J. Clark reveals the real
The traditional approach defines competition competition: competition in products’ sale, by
proceeding from the result of markets’ which every trader persuades a maximum
operation (in terms of production structures). profit, while the prices claimed by a seller
In traditional theory, the producers’ are limited by freedom of choice of the buyer
differentiation can only be transitional; who can buy what he considered to be same
resulting is a situation of final equilibrium product from rival sellers.
in which all producers are absolutely This type of competition was held even by
identical, using the same production Rome Treaty in 1957, the Court of Justice
techniques and obtaining null revenue. deciding that art. 85 of the Treaty "imply the
Passing to contemporary economy stage, this existence of a workable competition on the
theoretical model of perfect competition has market, i.e. the level of competition
been hit increasingly hard by reality. The necessary to meet the basic requirements
traditional theory adopts a technological and to achieve the objectives of the Treaty”.
vision of productive activities: in order to Chicago School’ followers represented by G.
manufacture a certain product, it is assumed Stigler, Demsetz H. and Y. Brozen criticize
that there exists an optimal technology the view of the Harvard School
which emerged in exogenously, being representatives considering that if the
available to all producers. market efficiency represents the objective of
However the information on production competition policy, the perspective must be
technologies is a rare knowledge which must changed, the correct paradigm having to
be discovered by innovators. Thus, one of the bind the market concentration efficiency and
core elements of pure and perfect namely the allocated efficiency.
competition, namely perfect information can Representatives of Chicago School found it
not be achieved. The gap between theory and necessary to recognize the market virtues of
practice occurs due to the phenomenon of concentration and self-regulation, with
undertakings’ concentration, which lead to minimal state competition policy. The
gradual disappearance of market biggest problem was deemed to be barriers
anatomicity, thus increasing state to market entry created by the state.
intervention in the economy. Pure and The competition as a dynamic process can be
perfect competition represents a theoretical approached behaviourally,
category, different from reality. It was entrepreneurially, functionally, evolutionary
sought to create an instrument of explaining and from Marxist perspective.
reality as it is, by modifying the theory of Approaching the competition from a
competition, in order to resolve the behavioural perspective has been supported
difficulties arising from the discrepancy by A. Smith, M. Weber. A. Smith regarded
between reality and theory. This approach competition as being a fair rivalry between
was initiated in particular by J. Schumpeter, market actors struggling for the best
157
conditions of goods’ sale. Weber regarded For countries as Moldova, claiming the
competition as being peaceful attempts to European membership and having a modest
create control over the possibilities and experience in implementing competition law,
benefits which are also sought by others. the study on member states’ experiences and
Thus in the case of behavioural approach, particularly the experiences of the recently
the competition content is rivalry to obtain joined the EU countries is of great
benefits and possession of rare goods. The importance.
domain subject to competition is the
exchange sphere manifested mainly through Paper Content
price competition. In case of behavioural
approach, the function of competition is Based on the approaches of competition
granting support for understanding market concept, the sense of the notion competition
signals, thus contributing to harmonization distortion may vary significantly, as follows:
of the production structure with the supply The examination of competition from the
structure. static point of view allows ascertaining that
The case of approaching the competition the competition shall be distorted if market
from the entrepreneurial perspective is structure changes, fact which shall set it
supported by I. Kirzner, J. Schumpeter, apart from the perfect competition. In this
being regarded as a struggle between old case the change of profitability of market
and new, a process of constructive actors takes place. The dynamic approach to
destruction. In this case the competition is competition of Harvard School allows
related to the innovative ideas of concluding that "workable competition" shall
entrepreneurs, competition applying be distorted if the profitability of competition
different methods than price. The and consumer welfare is affected;
competition’s function is to generate Chicago School brings arguments for the
incentives for change, highlighting and efficiency reduction as a criterion of
remunerating the best actors in the market. distortion;
The role of the competition is changing the For the Brussels School the competition
market to by means of technical progress shall be distorted if the single market is
and innovation. This approach allows its affected as a result, the resources are
interpretation as a differentiating force in inefficiently redistributed and the principle
accordance with deep and natural of justice is ignored.
aspirations of human being. Therefore, the The behavioural approach to competition is
competition encourages the producers not related to the fair rivalry between market
only to imagine new products and better actors in order to obtain benefits; in this case
production techniques, but also to develop the competition is deemed to be distorted if
better systems of organization. The theory of the legal and moral principles are violated;
economics and the competition policy whose In case of approach from entrepreneurial
essential expressions constitutes the Rome perspective, the competition is deemed to be
Treaty was approved by the Brussels school distorted if not based on innovative ideas of
term, which identifies three main objectives entrepreneurs.
in approaching competition at Community It is noteworthy to mention that all the
level: reforms elaborated by countries with
The first is a political one and involves the developed market economy were based on a
partial transfer of sovereignty in terms of well reasoned strategy proceeding from
achieving a single market between Member economic theories. It allowed determining
States of the community. clearly the reforms’ goal, the limits and
The second is an economic one overcoming possibilities of using the market mechanism,
the competition efficiency; the European the place, role and functions of the state, its
competition policy assumes multiple correlation with the market laws. The
functions related to productivity, income Legislative framework which must have
transfers between producers and consumers, been adopted by the State in order to
insurance and balanced use of labour force. promote reforms had to follow the adopted
The third goal is moral and social one, concept.
justified by partial renunciation of The State has always had and shall have
sovereignty by the Member States. significant importance for the functioning of
the economy; however the competition has
158
an important role in its functioning and Hayek, F., “The Use of Knowledge in Society”,
must be promoted by the state policy. 1945 American Economic Review, XXXV, No. 4;
September, 1945, pp. 519-30
Rydelski Michael Sánchez, The EC state aid regime:
Conclusions and implications Distortive effects of state aide on competition and trade//
Camerton May Ltd, 2006
Proceeding from the above mentioned, and Souty F., Le droit de la concurrence de l’Union
from the fact that competition is not an end Europene, Ed.Mont-Crestien, Paris, 1997
itself but it is a tool to achieve objectives, we Stigler G. The theory of economic Regulation // Bell
Journal of Economics, 1971 vol.2 N1, pp.359-365
ascertain that competition distortion by
Vickers, J., “Competition and Regulation: The UK
granting State aid should be seen three- Experience”, Industrial Economics Lectures on
dimensionally: Regulation, 1995
It is fundamental to appreciate the effects of Кирцнер Израэл М., Конкуренция и
state aid on social wealth and namely to предпринимательство /Пер. с англ. под ред. проф.
appreciate the net social benefit; А.Н. Романова. -- М.: ЮНИТИ-ДАНА, 2001.
It is essential to comply with the justice and Круглов В.В. Конкуренция Москва: ТК Велби
Издательство Проспект, 2004
legality, taking into account the social
peculiarity of our state need the principle of
fairness and legality;
Considering the objective of joining the
European Union, we ascertain that the
granting of state aid in the Republic of
Moldova shall be viewed through the
perspectives of communitarian legislation
existence.
In a functioning market economy, the
existence of competitive struggle can not be
denied; applying competition is a legitimate
and protected right; however, as any legal
right, the right to competition shall be
exerted in good faith, respecting the law and
morals. Competitive struggle is deemed to be
the unity and antagonism of the constructive
and destructive processes evolving over time,
to each participating parties.
In the same time, as mentioned above, the
competition is not an end itself; it is a tool
for certain objectives achieving.
Therefore, competition promotion does not
aim at creating conflict situations among
economic agents, but it persuades the
struggle between them which shall increase
the social welfare, which otherwise is the
purpose of any economic system.
Consequently the concept of competition
distortion shall be elucidated in terms of
state’s economic policy which guides its
development.
References
Clark J. M., Toward a concept of workable

competition. The American economic review, vol.30,
no.2, 1940, pp.241-256
Competition policy in subsidies and state aid,
Organisation for Economic Co-operation and
Development, 12-Nov-2001
159

HUMAN OBSOLESCENCE – A PERSONAL AND ORGANIZATIONAL

CHALLENGE
COMAN Adela
-assistant professor-
e-mail: adela_coman2003@yahoo.com
TOADER Rita
-assistant professor-
The North University of Baia Mare
e-mail: ritatoader@yahoo.com
Abstract differently and organizations should

create different strategies accordingly.
Human obsolescence has become an
important issue for organizations and
Key-words: human obsolescence,
societies as well since the rapid
updating knowledge, awareness,
technological change and the exponential
intention, behavior.
growth of knowledge. Managers and
professionals do not stop learning after
their formal education is completed.
Moreover, the expansion of the new
Introduction
knowledge and the inevitable
deterioration of the previous skills and The speed of change is so high in the 21st
abilities compel them to imagine and century that no organization can
create their own strategies for updating. accurately foresee the future for itself.
The literature review explores a two-ways And no organization can guarantee
approach that needs to be adopted to lifelong employment for anyone.
tackle human obsolescence: one at the Therefore, enhancement of employability
individual level and the other at the has become an issue of utmost importance.
organizational level. At the individual Peter Drucker in his book “Managing for
level, employees need to take the Future: The 1990 and Beyond” writes:
responsibility for their professional growth ‘From now on, the key is knowledge. The
and take initiatives for reinventing world is not becoming labor intensive, not
themselves. Organizations too are a part energy intensive, but knowledge intensive
in this process if they want to keep its (p.67). Further, in his 33rd book at the age
employees competent and committed to of 93 he said that as we begin our journey
the organizational objectives. Every in the 21st century it is clear that we live
organizational culture should include the in an increasingly interconnected world.
professional development of its employees He expressed that ‘the next society will be
as a major goal at every level of its a knowledge society in which knowledge
hierarchy. will be the resource and knowledge
workers will be the dominant work force.
In this article we suggest that employees
In the future, there will be two work forces
that are at different stages of awareness,
made up of the under-fifties and the over-
intention and behavior in relation to
fifties’. It means that education does not
updating themselves should be treated
stop when we finish our formal education.
In other words, gaining knowledge in
160
college is as important as gaining college dinosaurs’-individuals who will become

after college. Benjamin Franklin once said obsolete because they lack the knowledge
that ‘there will be plenty of time to sleep or skills to compete in the new knowledge
when you are dead’. We are going through era-will share that fate’.
a phase where there are no time-outs and
no commercial breaks. What is out of the
ordinary is the speed of change. The Obsolescence – Conceptual
question is not whether what is current Framework
will become obsolete, but how rapidly. Bill
According to Darwin, individuals – as a
Gates wrote in his book ‘Business@Speed
species – will survive only if they adapt to
of Thought’ that business is going to
the changing environment. Translated
change more in the next ten years than it
into the 21st century, this means that
did in the last fifty years. His statement
individuals have a chance to survive in
‘we are always two years away from
their jobs only if they adapt their skills
failure’ is a powerful indication towards
and abilities to the needs of an ever
uncertain and unsteady conditions. The
changing environment. Some choose to
speed of change is higher than ever and
react to the changes around them. Others
therefore the speed of human obsolescence
may choose to adopt rather a proactive
should be kept under control. Noceraz
attitude towards change and, by doing so,
(1996) said that one can expect the skills
they keep obsolescence away at least in
one has to be obsolete in three to five
the short run. When the individual’s
years. There is a dire need to remain
productivity declines, this is a sign that he
updated to survive which calls for
fails to adapt to change and that his role
unlearning and relearning the old habits,
in the organization will diminish in the
knowledge and skills. Howard (1995) said
long run (Dhar, 1994).
that in the post-industrial information
age, the balance of work has tipped from Obsolescence occurs when there is a gap
hand to head, from brawn to brain. between the job needs and the individual’s
capabilities or when the skills and the
Rown Gibson (1998) who has been called a
knowledge of a manager are inadequate to
‘Guru among the Gurus’ said in his book
perform his job effectively. Covey (2004),
“Rethinking the Future” that the winners
in his book “The 8th Habit” (p.295)
of the 21st century will be those who can
cautioned when he said that over 20% of
transform their organizations into
the present workforce is becoming obsolete
something that more resembles a jeep-an
and that unless they rededicate and
all-well drive, all-terrain vehicle that is
reinvent themselves, within a few years,
lean, mean and highly maneuverable.
another 20% will become obsolete.
Such an organization would be one that
Drucker (1995) emphasizing the
would move and shift direction quickly in
importance and relevance of knowledge
uncertain territory, reacting rapidly to the
said that ‘knowledge has become the key
changing nature of the business
economic resource and the dominant
environment, the changing nature of
perhaps even the only source of
competition and the changing needs of the
competitive advantage’. ‘Leveraging
customers. Waitley (2004) in his book
organizational knowledge is not only
“Empires of the Mind” said that ‘…the
important’, adds Drucker, ‘but may be the
only empire that will survive in the
most important job management has’.
twenty-first century will be the empire
Extending this further, an organization’s
you build within your own mind’.
capacity to improve existing skills and
Communicating the need to get adapted in
learn new ones offers the most defensible
this changing and challenging
competitive advantage of all (Prahalad
environment, Waitley also said that
and Hamel, 1990). Thus, it is very clear
‘unless many giant companies adapt, they
from the above that failure to update
will become the dinosaurs of the twenty-
oneself on a regular basis to be able to
first century, and millions of ‘worker
161
meet changing needs will render an ● occupational change;

individual obsolete sooner than later. ● organizational change;
● changes in practices.
A problem faced by all researchers and
writers in this area is that of definitions,
many of which are to be found in Technological Change
literature which focuses on different
Technology can render certain skills
factors underlying obsolescence. The most
obsolete. On one hand, technological
commonly subscribed to definitions of
changes have a positive impact on
obsolescence are those which are related
productivity. On the other hand, progress
to job performance (Burack and Pati,
is not possible if individuals do not update
1970, Fossum et al. 1986, Harel and
their knowledge, skills and abilities
Cohen, 1982, Kaufman, 1974, Mahler,
(KSAs). Goggin (1999) suggests that, in
1975, Norgren, 1965, Pazy, 1996, Reeser,
order to avoid obsolescence, workers must
1977). They all define obsolescence as the
continually develop KSAs. Goldberg (1999)
discrepancy between job performance and
observed that today, the only way to
an expected level of competence which
succeed is to embark on a continuous
incorporates new knowledge into a
learning program. He remarks that the
profession.
change is highly visible in the form of new
Managerial obsolescence is in relation to products being created by new methods of
knowledge, skill and attitude and production. Automation alone has
therefore we have the following two revolutionized organizational processes,
definitions: Jones and Cooper (1980) ranging from purchasing to production
define obsolescence as the extent to which scheduling and control.
a manager’s knowledge and skills have
One indication of this phenomenon is the
failed to keep pace with the current and
staggering increase in the use of
likely future requirements of his job.
computers. Fox (1965) in his article on
Another aspect related to obsolescence is
‘personal obsolescence’ identified
that of attitude which gets reflected in the
automation and cybernetics as two factors
definition by Mahler (1965) wherein
most instrumental in causing
managerial obsolescence is defined as ‘the
technological change. These factors have
failure of the once capable manager to
become even more evident in recent times
achieve results that are currently expected
with the move towards capital intensive
of him’. He identified two types of
industries resulting in higher rates of
obsolescence: ability obsolescence – the
unemployment and redundancies at both
manager’s abilities and skills are no
management and other levels (Hartley,
longer sufficient for him to keep up with
1978, Jones, 1979). Fox (1965) further
past jobs; and attitudinal obsolescence –
explained three fears associated with
the manager fails to maintain flexibility in
these technological changes:
attitude and approach and to changing
problems and conditions. -automation and cybernetics will
do away with many jobs and so
To be able to effectively tackle the problem
swell the numbers of the
of obsolescence it is necessary that we
unemployed;
identify the causes of obsolescence. Here,
the emphasis is on the obsolescence -the computer will become so
caused due to different types of changes. intelligent that it will replace man;
-many individuals cannot adapt
The Changing Scene themselves to the radical changes
happening at an ever increasing
There are four types of changes which
rate in technology.
make heavy demands o a professional’s
knowledge and skills: The survival of many organizations
● technological change; depends on their innovative capacity. If
162
they understand the nature of change, introduction of the European Monetary

they will make efforts to adapt their System – may also have a contribution to
products and processes to their customers’ the organizational change. Many
needs. The warehouse sized computer of structural changes range from the
1945 can presently be housed on a silicon introduction of organizational
chip the size of a fingernail. development programs to the creation of
new functions (such as training and R@D)
in the modern organizations of the
Occupational Change “knowledge economy”.
According to the Bureau of Labor
Statistics, the unemployment rate for
college graduates for the age of 25 was Changes in Practices
4.1% in February 2009, up from 2.1% a
Quantitative analysis and sophisticated
year ago. However, this rate is
computer methodologies are used to
substantially lower than the 8.3%
improve management information,
unemployment rate for people with only a
decision making and forecasting. In order
high school diploma. That situation is
to make employees more productive, some
partially due to automation,
research in behavioral economics is
mechanization and growth in productivity
focused on what motivates people when
that have reduced the number of blue-
making decisions. Based on these findings,
collar jobs. Many of these have just been
competitive management techniques do no
eliminated, while new white-collar jobs
longer neglect the need to keep balance
have been created under the impact of
between productivity and the need to
technological change.
create a more comfortable working
The white-collar jobs of the “knowledge environment for all.
economy” require new competencies.
The impact of these changes can be
White-collar workers are more
noticed in the fact that over 8.2 million
sophisticated, more demanding more
jobs were lost in the mining industry
aware of their value and therefore they
between 1889 and 1996 in nine countries
have higher expectations from their
of the Eastern Europe, for reasons ranging
organization. To keep that workforce
from lack of future career prospects to
highly motivated is definitely a challenge
difficulty in coping with intense work
for all organizations.
pressure (OECD, 1996).
Organizational Change
The Impact of Changes
An ever increasing number of companies
The effects of these changes on
are affected by organizational change
professionals are enormous. For, besides
every year.
having to cope with ‘knowledge changes’ in
Gibson (1998) states that only the their own discipline, they must also cope
companies that challenge their status quo with changes in other disciplines if they
by redefining their industries, creating hope to maintain their effectiveness.
new markets and products - will have a
‘Knowledge changes’ alone render
future. According to the same author, the
particular education programs of little
expansion of markets, the development of
value after a short time unless the
new products as well as mergers and
individual continues to study and acquire
acquisitions may favor and help
new learning. The concept of halflife, as
companies stay ahead of the changing
used in nuclear physics, has been applied
curve. External forces such as political
to explain the rate at which a
alliances – the European Union –
professional’s knowledge goes out of date.
economic alliances – the OPEC – and the
When used in this context, it is a measure
163
of the length of time after formal journals alone has doubled every 15 years
education when a professional’s education since they began 300 years ago.
is only half as relevant compared to the
To keep abreast with this newly published
total knowledge in his field. In some
information, it has been estimated that
disciplines, this is considered to be as low
20% of a professional’s working time
as five years (e.g., some branches of
should be devoted to reading (George and
engineering), while for others is as high as
Dubin, 1972). The implications are clear,
10-12 years (e.g., psychology). Because of
for few professionals can afford to do this
this, it is imperative for professionals to
and so, the consequences are that ever
engage in some form of continuing
increasing numbers are becoming
education/training in order to retain the
obsolete. According to a study conducted
currency of knowledge and skills to meet
by Chauhan and Chauhan (2005) in order
the changing demands of their jobs.
to ascertain the level of obsolescence
The growth in knowledge or the among Indian managers it was found that
knowledge revolution has been attributed 68.5% of the managers were obsolete, the
to the allocation of resources to research extent varying from slightly obsolete
and development and educational (23%) to moderately obsolete (24%) and to
activities, which together provide the basis obsolete (21.5%). Another significant
for the production and distribution of new revelation from the same study was that
knowledge, somewhat like the concept among the various factors causing
already alluded to ‘technology feeding on obsolescence, organizational climate and
itself’. Machlup (1962) and Drucker (1969) attitude of superiors were found to be the
both use the term knowledge economy to major contributors. It has been rightly
describe the phenomenon arising from the stated that what worked well yesterday
growth of the ‘knowledge industries’ which will be effective today, ineffective
deal with the production and distribution tomorrow and obsolete the day after
of ideas and information rather than goods tomorrow. The resultant effect of this
and services. The rapid increase in the obsolescence for managers is a decline in
number of knowledge workers has performance standards, affecting industry
resulted in a staggering growth in the at a time when greater demands are being
production and distribution of new made on these same industries to develop
information, sometimes referred to as the and expand.
‘information explosion’ (Bennett and
Two broad variables influencing
Weiher, 1972). The number of scientific
obsolescence are given in figure 1.
164
Figure 1
Variables Influencing Human Obsolescence
Level of Awareness:
 Denial obsolescence
 Lack of awareness to change
Level of Competence and Motivation:

 Lack of competence
INTERNAL
 Lack of confidence
FACTORS
 Negative attitude towards updating
 Lack of motivation
 Lack of experimentation
Inertia:
 Resistance to change
Job Related:
 Mismatch between person and job
 Lack of autonomy
 Non-involvement in decision making
Relationship Oriented:
EXTERNAL
 Non-supportive boss/organization
FACTORS
 Personality clash
Systems Related:
 Faulty/ineffective performance
Appraisal system
 Lack of reward/recognition
 Limited career progression
opportunities
Source: Chauhan and Chauhan 2005.

they realize that they cannot cope with
Chauhan and Chauhan (2005) in their study
pressure at work. Others may cause
‘Overcoming Managerial Obsolescence: The
trouble at work as a result of their
Key to Human Development’ found two
incompetence. And finally, if they are
broad dimensions for human obsolescence.
identified as ineffective or obsolete, some
These are: individual factors – which include
professionals may opt for Voluntary
professional knowledge/skills, motivation to
Retirement Schemes (Jones and Cooper,
update, self-initiated updating activities, on-
1980)
the-job updating activities and attitude
towards learning; organizational factors – The problem of obsolescence has far
organizational climate, organizational reaching consequences, for not only can it
support and attitude of superiors. affect the individual and his family, but
also the entire department or
Consequences of Obsolescence organization.
There are a number of outcomes for the The extent of the impact of obsolescence is
individuals: some decide to retire because illustrated in figure 2.
165
Figure 2
Implications of Human Obsolescence
High Self and Family

Degree of Impact
Department
Org
Low
Source: Chauhan and Chauhan, 2005.
by encouraging people to make reading a

How to Tackle Human Obsolescence
second nature. Nevertheless, we cannot
The main consensus of literature revealed expect them to dedicate 20% of their time
that combating of obsolescence was a to reading. But, if managers and
shared responsibility between the supervisors find a way of rewarding those
organization and its employees. Mohan who update their knowledge, probably
and Chauhan (1999) found that without more and more professionals would realize
continuous training and updating of skills that continuous reading and learning is a
and knowledge, the possibility of simple and direct way of keeping control
obsolescence increases. The problem of over one’s career. Kotter (1997) in his
obsolescence can be tackled by a two-ways book “The New Rules: Eight Business
approach: (1) initiatives taken at the Breakthroughs to Career Success in the
individual level for self-development and 21st Century”, advised that it is essential
updating; (2) interventions like training to aggressively seek learning
and continuing education to be taken at opportunities at work, not just to maintain
the organizational level. job satisfaction, but also to ensure
employability in a turbulent economic
environment. At the individual level,
Initiatives at the Individual Level professionals can work towards updating
themselves to maintain their effectiveness
How can a professional who is not
in their present jobs and also prepare
internally driven to updating activities –
themselves for taking up more responsible
be attracted to unlearn old skills and
and challenging jobs in the future.
relearn new skills and new attitudes? We
believe that one way of dealing with it is
166
The individual’s responsibility for (3) professional knowledge/skills;

updating has been clearly brought out by motivation to update.
Drucker who recommends that managers
Initiatives at the individual level can be
take specific command of their career
taken with regard to the following:
advancement opportunities with lifetime
● developing a prepare-today-for-
education and acceptance of complex
tomorrow attitude;
project assignments (Pressly, 1999). A pre-
post study of the effects of training on In case our actions are focused on
perceived obsolescence by Mohan and yesterday and today, then we may not
Chauhan (1999) has shown that training have a tomorrow to deal with. ‘…in this
helped in reducing the perception of business there are two kinds of people
obsolescence particularly on the really, the quick and the dead’ (Dell,
dimensions like: (1) self-initiated updating 2002). This dramatically sums up the
activities; (2) attitude towards learning; speed at which one has to prepare for the
future.
● develop a work ethic;
●strengthen communication with
This is done by putting the onus for individuals at all levels in the
continuous professional growth on oneself. organization;
● make professional development one’s
Those would be subordinates,
first loyalty;
peers, supervisors and senior managers.
Keep enhancing one’s skills in ways that One should not assume that they
will help ensure employability in and intuitively understand what one is doing
outside of the organization. and what progress is being made. An
● set high developmental goals; information vacuum breeds
misunderstanding.
Each year set high but attainable goals
and stretch oneself to achieve those goals. ●develop a fair understanding of
● develop short and long-term goals some other aspect of the organization’s
which expand knowledge and skills; work which might be related to one’s own;
This currency is especially crucial as more Regular informal discussions with
years elapse between the present and a colleague in another department address
one’s formal education. Read professional many of the ‘how-what-where-when-why’
journals, attend or participate in regional, issues.
national or international conferences
One’s awareness of the bigger picture
when possible.
beyond one’s immediate work is not only
● keep abreast with current
helpful in maintaining perspective, but
developments in one’s field;
may be the decisive factor in allowing a
This involves knowing how far one’s lateral move should the organization be
function within the organization deviates reorganized or downsized.
from the mainstream in one’s field. Have a  consider working towards an
working knowledge of how tasks might be advanced degree or certification
accomplished in other organizations which even if all course-work would be
differ in size, client demographics, completed on a part-time basis.
mission, etc. For all learning experiences,
While an additional credential should
whether it is reading, seeing, thinking or
justify the extra time, energy and money,
attending, apply the formula ‘Recognize,
it may tip the scales in one’s favor at the
relate, Assimilate and Apply’. These
time of promotion.
actions will help one grow in the direction
of one’s goals. Fisher (1996) observed that lifelong
learning has emerged as one of the major
challenges for the worldwide knowledge
society of the future. Some recent events
167
support this claim: (1) UNESCO has requires personal motivation. Successful
included ‘lifetime education’ as one of the transition is linked with one’s sense of
key issues in its planning; (2) the G7 autonomy or internal locus of control and
group of countries has named ‘lifelong is manifested in a willingness to learn and
learning’ as the main strategy in the fight a positive attitude. It is the force that
against unemployment. Fisher (1996) propels individuals to take the initiative in
believes that the previous notions of a directing their own lives and careers.
divided lifetime education followed by
Many people find value in their work as a
work are no longer tenable. Learning can
source of new learning and challenge.
no longer be dichotomized, spatially and
‘They return to school, enter training
temporally, into a place and time to
programs, or enroll in workshops and
acquire knowledge (school) and a place
seminars to keep up to date in their
and time to apply knowledge (the
current jobs or strike out on their own’
workplace).
(Bergguist et al, 1993: 122). Others,
hampered by lack of drive, fear or failure,
or reluctance to exit company retirement
Reinventing Yourself for
plans by terminating employment, stay in
Career Development
unsatisfying or stressful jobs. Bergguist et
Finding meaning in our work is al. ask if the sacrifice is necessary or
critical if we are to avoid stagnation and worthwhile. ‘When does the time come for
boredom (Bergguist et al, 1993). It is the us to cease deferring gratification for the
responsibility of each individual to effect future and begin actually living the fabled
the change necessary to reinvent work so future?’ (1993: 125). Whatever their age,
that it has personal relevance. Companies adults must find meaning and community
require that employees take responsibility in their work if they want to be generative
for their own careers. Grossman and and alive. Therefore, they must look
Blitzer (1992) suggest at least four towards continued opportunities to
strategies for career survival: (1) honest ‘reinvent work as a central part of
assessment of self and skills; (2) reinventing themselves’ (1993: 135).
motivation and drive to establish and
The views expressed by Hudson (1991) in
pursue a goal; (3) awareness and
relation with life transition are equally
knowledge of the strategic challenges of
applicable to managers taking the onus of
business (e.g. improving quality and
self-development upon them by following
customer service); (4) establishing an
principles such as:
action plan that is built upon realistic
(1) hold on to what is working;
expectations and that draws upon
(2) let go of what is not working;
available resources, both within and
(3) take on new learning and
outside the company.
exploration of new options;
Being able to accomplish successful career (4) move on to new commitments.
transitions within an existing
organization or a new organization
Organizational Initiatives
people for the job could be one way of
According to a study conducted by Bennett
ensuring the best results, organizations
and Bell (2005), it was found that the best
also need to develop their people.
organizations build their talent whereas
Performance appraisal should focus more
the rest buy talent. In this study, one of
on potential appraisal to assess the
the six characteristics of the best
potential of a manager to perform
organizations was that the best
additional and higher responsibilities
organizations ‘relentlessly develop the
rather than one which is based on past
best talent and invest in keeping them at
performance alone. This would help in
the leading edge’. While selecting the right
168
career planning and career development. and responsibility) and elbow room (scope
The appraisal should be followed by giving and variety). Organizations that are
feedback, counseling, coaching, mentoring decentralized in terms of business or profit
and training. To make training more centers create more opportunities for
effective it is suggested that it should be development than organizations that do
given its due and its return on investment not. Also, people with high potential
should be assessed not as an ‘activity’ but should move through a series of
as ‘the impact’ it produces in terms of challenging jobs. Jobs should provide a
improved performance by those trained. range of challenges. Finally, executives
need to learn from highly skilled
Organizations should seriously be
colleagues as well as from superiors.
concerned with the return on training
investment (ROTI) they get after training. As Drucker (1995) claims, ‘knowledge has
Today, training interventions play a key become the key economic resource and the
role and are viewed as very important. dominant, perhaps even the only source of
According to research conducted by competitive advantage’. ‘Leveraging
Bennett and Bell (2005), one of the organizational knowledge is not only
principal findings regarding training of important, but may be the most important
employees is that the best employers give job management has’ adds Drucker.
68 hours of training per employee per year Extending this further, an organization’s
while the ret give 49 hours of training per capacity to improve existing skills and
year per employee. Training may be a learn new ones offers the most defensible
means to upgrade skills and competencies competitive advantage of all (Prahalad
and thereby employability. It goes in line and Hamel, 1990).
with the other finding of the same
Organizations should adopt different
research that the best employers build
approaches in dealing with different
talent while the rest buy talent.
employees with regard to their own
Emphasizing the importance of training,
perception and self-initiated action
the president of Genpact said that
towards overcoming obsolescence. These
‘training has become the most essential
are explained in figure 3. In relation to
part of retaining people and consistently
updating activities, the interventions can
growing’.
be worked out by categorizing employees
Managers also need to be provided on-the- into: individuals at the awareness stage;
job experience in appropriate positions. individuals at the intention stage;
Jobs should be structured as challenging individuals at the behavioral stage
and at the same time make sure there is (Chauhan and Chauhan, 2005).
accountability. In other words, it should
provide sufficient headroom (authority
169
Figure 3
Organizational Interventions to Tackle Obsolescence
for Different Employees
LEVEL OF ORGANIZATIONAL
EMPLOYEES INTERVENTION
Unaware of Need Raise Awareness

to Change Recommend solutions
Level of Awareness
Concerned about Identify perceived barriers to

need to Change and benefits of behavioral
develop skills/knowledge
Intention
Motivated to Change Provide support/resources

Reduce barriers/
Provide opportunities to
develop skills/knowledge
Tries New Behavior Encourage continuance by

recognizing/rewarding
Behavior
Sustains New Behavior Appreciation/reward for

new behavior/groomed
for higher responsibilities
Source: Chauhan and Chauhan 2005.
170
- convey to employees how their

At the awareness level, employees could
future state will look like and what
fall into two categories: (1) those that are
type of orientation and support
unaware of the need to change should be
employees will receive for continuing
made aware through constant interactions
their learning and training
and communication and provided
activities.
suggestions; (2) those that are concerned
about the need to change but are At this stage, professionals are generally
uncertain about what is to be done; the motivated to change and therefore they
perceived barriers should be targeted and need to be provided constant support in
the benefits of behavioral change should terms of resources, commensurate job
be made known to them. profile, opportunities to develop skills and
efforts should be made to remove or
Depending on employees’ view of change,
reduce any barriers in the process of
an employee may display any of the
development. Dubin (1972) found that one
following responses: confusion, shock,
of the chief situational determinants for
anxiety, relief or denial.
motivating managers to update
For the organization, this stage is where it themselves is the behavior of their
finds the level of energy awareness that supervisors.
employees currently have, what will
In the behavior stage, employees could fall
encourage them to change behavior and
into two categories: those who are trying
how they will get involved. This is the
to make changes in behavior and those
stage where managers should identify an
who have made the necessary changes and
“audience” and create a message.
need to sustain them. For those who are in
When employees are in the awareness the process of trying out changes, they
stage, organizations can: need constant encouragement and praise
- communicate often, share in-depth and reward for any positive outcome of the
information; changed behavior. For continued effort
- solicit and address questions and with the changed behavior, organizations
concerns; should suitably reward the employees and
- let employees know that all feed- groom them for higher responsibilities.
back is appreciated. Earlier research by Locke (1970)
concluded that the supervisor aids in the
At the intention stage, employees
motivational process by helping a
begin to understand why updating is
subordinate to specify his goals within the
necessary: some may see this change as
context of his job and ensuring that
positive and are willing to make an effort
facilities exist for the subordinate to
to improve themselves; others may
update his skills and to accomplish his
perceive updating as negative and time-
goals. This takes the supervisor out of his
consuming and display decreased
traditional ‘regulatory role’ and into that
productivity and ambivalence.
of developer and facilitator of the
Employees may also begin to say subordinates’ motivational potential.
such things as: “I see some risks
When employees make a personal
associated with this new knowledge”.
commitment to lifelong education and
When employees are in the training and display energy and
intention stage, organizations can: enthusiasm in acquiring new skills and
- show concern for employees whose abilities, it is often a good time for
skills and abilities may soon become collaboration.
obsolete;
When individuals are in the behavior
- show sponsorship both verbally and
stage, the organization can:
by action in “healing” obsolescence;
171
- clarify and communicate desired - create frequent opportunities for

behaviors; celebrating talent;
- recognize and reward new attitudes - challenge the status quo by always
and skills; asking how can be things done
better.
stage, the intention stage and the

Conclusion
behavior stage.
We have discussed a two-ways approach to
If professionals need to reinvent
tackle the problem of human obsolescence:
themselves by acquiring new skills and
one at the individual level, based on a
abilities, organizations need to rethink
proactive approach to lifelong learning
their strategy for survival in a knowledge-
needs in order to adequately respond to
based economy and create opportunities
challenges of the knowledge-based
and resources to narrow the gap between
economy. At the organizational level,
a professional’s competencies and the
challenges should be addressed by
requirements of his/her future jobs in an
assessing the employees’ potential on a
ever changing working environment.
regular basis. Different strategies should
be designed in order to address the three
stages of an employee’s “road map” in
fighting obsolescence: the awareness
8. Dhar, J.L. 1994. Human Obsolescence:

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173

IS EDUCATION BASED ON GAMES A SOLUTION FOR FUTURE

LEARNING?
CONSTANTIN Ionut
ionut.constantin@drept.unibuc.ro
Dumitrascu Raluca-Bogdana
raluca-bogdana.dumitrascu@drept.unibuc.ro
Abstract Key words: edugames, game based

Computer games are today an important part education, e-learning.
of most children’s lives and increasingly an
important part of our culture as a whole. Introduction
Computer games are for our new generations
a way of relaxing and entertaining, learning One of the main uses of computers at
and communication. This games are home is for computer games. Computer
designed ‘to be learned’ and therefore provide games are very popular: a study showed that
models of good learning practices We often, 75% of children played video games, alone or
as adults, watch in amazement as children with friends. While there are games with an
dedicate hours to acting as football coaches, education focus, the main reason reported
designers of empires, controllers of robots, for playing games is enjoyment: games are
wizards and emperors. engaging and fun. The amount of time that
In this paper we explore the idea of children spend playing computer games at
combining education and software games to home suggests closer consideration of the
make the learning process motivating. Across role of games. Despite early concern about
the whole world, educators and professor are computer games and the negative effects like
increasingly becoming interested in the violence, addiction or poor school
potential role of computer and video games to performance, studies have also shown a
support young people’s learning. In academic positive side. Playing computer games can
research circles, video games are now a enhance visual processing skills, including
popular subject of study not only in computer visual attention, and the ability to
science departments but in media, manipulate objects or mental images
communication and cultural studies, literacy through space. Players discover strategies
studies, and education departments too. for overcoming obstacles, and construct
A key finding of our study was that teachers understanding of complex systems through
focusing on encouraging competency skills experimentation in natural and unobtrusive
such as teamwork, problem-solving, ways. There are countless games where
communication were more likely to maintain educational objectives are in the foreground,
the overarching narrative of the game in and learning is the explicit goal of the game.
lesson activities than teachers who were Thus the computer games technology
focusing on students' acquisition of content could be used to render educational software
knowledge. more motivating and engaging. In this
One other important conclusion suggested by respect, the difficult process of learning
our study is that when young people are could become more amusing.
playing games on their computer they are Recent studies suggest that when
engaged in learning activities that are more young people are playing computer and
complex and challenging than most of their video games they are implicate in learning
formal school tasks. activities that are more complex and
challenging than most of their formal school
174
tasks. This argument can be divided into multimodal environment. Instructional

three related strands: first, games as designers and educators continually seek
challenging learning environments; second, methods for fostering collaboration and
the sorts of things gamers may learn critical thinking in rich learning
through game play; and third, the social environments. Collaboration and critical
factors that contribute to learning through thinking are activities central to the
games. Briefly, before outlining these three MMORPG game play experience. For this
areas, it should be noted that it is highly reason, computer games have captured the
unlikely that many games exhibit or attention of educators and researchers who
inculcate all of the characteristics of are interested in how gaming might affect
learning that are listed; nor do we suppose pedagogy (Juul, 2001). The purpose of this
that games are good for learning everything website is to take a look at if the computer
or for every learner. Many educators have games indeed enhance the specific learning
used games for learning, games designed to skills as predicted by the researchers in
educate as well as entertain. There are many educational settings. All information is
genres of video and computer games such as based on research articles findings.
strategy games, adventure games, role- There are many researchers and
playing games, action games, and others. educators that advocate the use of software
Although each genre can inform games for the purposes of education. Papert
instructional designers and educators about (1993) notes that software games teach
engagement, the new game genre, massively children that some forms of learning are
multiple online role-playing games fast-paced, immensely compelling and
(MMORPG), may be of great relevance in the rewarding whereas by comparison school
design of interactive learning environments strikes many young people as slow and
because it provides a flexible environmental boring. Boyle (1997) points out those games
design which provides scaffolding for can produce engagement and delight in
problem-solving along with elements which learning; they thus offer a powerful format
foster intrinsic motivation. An MMORPG is for educational environments. Moreover,
a persistent, networked, interactive, there are studies that have shown that the
narrative environment in which players use of carefully selected computer games
collaborate, strategize, plan, and interact may improve thinking (Aliya 2002). As a
with objects, resources, and other players result, many researchers have developed
within a multimodal environment. games for educational purposes (e.g. Conati
Instructional designers and educators & Zhou 2002). However, the attempts to
continually seek methods for fostering create educational games have not reached
collaboration and critical thinking in rich schools yet. There are several reasons for
learning environments. Collaboration and this. At first, not all educators and parents
critical thinking are activities central to the are convinced that educational games can be
MMORPG game play experience. There are beneficial to students.
many genres of video and computer games Second there are criticisms about the
such as strategy games, adventure games, quality of the existing educational games.
role-playing games, action games, and For example, Brody (1993) points out that
others. Although each genre can inform the marriage of education and game-like
instructional designers and educators about entertainment has produced some not-very-
engagement (Dickey, 2005), the new game educational games and some not very-
genre, massively multiple online role-playing entertaining learning activities.
games (MMORPG), may be of great There are advantages and
relevance in the design of interactive disadvantages of using games for education
learning environments because it provides a and learning.
flexible environmental design which
provides scaffolding for problem-solving Advantages of game based education:
along with elements which foster intrinsic
motivation. An MMORPG is a persistent,  Clear learning goals - Educational
networked, interactive, narrative game have clearly defined goals.
environment in which players collaborate, Players know from the start what
strategize, plan, and interact with objects, kind of content, skills and strategies
resources, and other players within a
175
had to learn and how to apply them

in the game.
 Experiences and practice Disadvantages of game based
opportunities that challenge the education:
learner to increase the level of
expertise - Players are engages  High development cost -
with different learning situation Development of educational games is
where they can increase the level of very expensive and sometimes is not
expertise by going through them. It feasible. Public schools have in most
is important for the game to offer of the cases low budgets and it is
engaging experiences to captivate very hard to attract enough sponsors
the player for hours in problem for development.
solving activities.  Conservative prejudices – Using
 Progress monitoring and edutainment games are hard to
feedback - Player’s progress is accept for some parents and
continuously monitored and provides educators.
clear and immediate feedback. The  Evaluation problem: -
game must adapt at the level of Standardized examinations measure
player and make him improve his student’s performance only from
capabilities by offering new theoretical point of view while higher
challenges. order knowledge and skills, such as
 Provocation of inquiry, strategic thinking, interpretative
questions, and teamwork - Games analysis, problem solving, and
motivates players to seek out decision-making, are not revealed by
additional information (strategies them.
and concepts) about the game from  Games may cause addictiveness
friends, other players, tip guides, – Students must be warning about
websites, and other resources, the potential risk of addiction and
receive assistance from other game the play times spend monitored.
players through forums.
 Strong motivation and goal
orientation using bridging
Given the motivational advantages
between theory and practice:
of software games as well as the criticisms
Games had features that motivate
that have been made on educational games,
player to don’t give up. They will
there has to be further investigation on the
continue to play the game, even after
advantages and limitations of software
some failure, in order to improve
games for education. Such investigation may
their level of expertise. Also games
lead to useful guidelines for the design of
act as a bridge to connect concepts
effective educational software games.
and theory (what is learned) with
Indeed, educational software games should
how it is used.
be designed in such a way that they are
 Customization: Novice players
educationally beneficial for all students,
begin to play the game at easiest
even those that are not familiar with
level and then gradually increase the
computer games.
difficulty of tasks until he manage to
reach mastery.
 Unlimited patience and
CONCLUSIONS:
unlimited attempts – In games you
can try as many times as you want to
The strong motivational influence of
resolve milestones unlike teachers
computer games on children can be used
who can lose patience with students
positively within education. There are some
when they don’t perform well
points that have to be accomplishing to
affecting students performance and
reach education through games. For
self-confidence.
example:
Games which will be used in school
should provide progressively complex
176
challenges which are clear and finite and can courses of action; players may begin to
be repeated; players should be able to adapt understand alternative perspectives in
the level of difficulty (from novice to expert) particular social and political contexts.
if necessary. The literacy demands in games vary
Players need to be absorbed in from the fantastical to the professional and
meaningful activities whose aims and goals are often as complex as the literacy’s of
they clearly understand and the subject domains as diverse as science,
accomplishment of which stretches their literature and history; in-game literacy
current competence. demands may extend and stretch players’
Using a game in the classroom linguistic repertoire in particular contexts.
should not necessarily need players to be Playing games in classrooms can
‘trained’ beforehand; players should be prepare players for 21st century working
allowed to practice playing, often by failing and learning practices, by dealing with
and revising and re-trying tactics, but may diverse media and complex data, multi-
need support from staff or peers. tasking, communicating and working with
Tasks should be related closely to others, making decisions, analyzing pictures,
real-world practices and concrete audio and actions as well as written words,
experiences or be consistent with the and to engage in ongoing development
fantasy, and not staged as practice for some through ‘on the job’ practice. Space for
later test or exam, or, worse still, as reward reflection is rarely present in games; players
for completing a ‘learning activity’. in classrooms should be provided space to
The game demands that players review their performance and what they
interact with the rule system, by taking have learned by playing, eg to ask why
responsibility for actions in alternative particular courses of action always fail or
contexts, and by seeing their impact on the how it is they have learned to overcome
outcomes of the game as a whole. particular problems.
Players should be able to infer from
the feedback supplied how their actions have
caused particular effects, and whether these References
effects are the ones that were desired;
scoring systems provide immediate and  C. Dormann, J-P. Fiset, S . Caquard, B.
constant ‘assessment’ of progress and Woods, A. Hadziomerovic, E. Whitworth,
accomplishment, although cannot as yet A. Hayes, R. Biddle COMPUTER
GAMES AS HOMEWORK How to
provide any improvement or further
delight and instruct; Carleton University,
progress.
Ottawa, Canada;
Games which will be used in  Elliott, J., Adams, L., Bruckman; "No
classrooms should promote dialogue and the Magic Bullet: 3D Video Games in
exchange of knowledge and opinions; they Education"; Proceedings of ICLS 2002,
don’t need to be multiplayer titles, but International Conference of the Learning
should have some cultural relevance to the Sciences, Seattle, WA, October 23-26,
participating players. 2002.
Playing a game should be supported  Gunter, B. The Effects of Video Games
by the availability of additional resources on Children: The Myth Unmaske,
Sheffield: Sheffield Academic Press;
such as walkthrough guides and hints and
(1998).
tips on the internet in order to promote  Maria Virvou, George Katsionis and
wider understanding and knowledge about Konstantinos Manos; Combining
it. Software Games with Education:
It should not be assumed that all Evaluation of its Educational
players in a classroom have the same Effectiveness, Department of
expertise; some may be recruited to ‘tutor’ Informatics; (2005).
others how to play, including pointing them  Richard E. Mayer, Learning
towards relevant resources or sources of Environments: The Case for Evidence-
Based Practice and Issue-Driven
information.
Research; Educational Psychology
Games in the classroom should allow Review, Vol. 15, No. 4, December 2003;
players to take on new identities and to
experience these identities’ demands and
challenges, and to consider their potential
177

THE ROLE OF THE STATE IN OBTAINING NATIONAL COMPETITIVE

ADVANTAGE IN ROMANIAN ECONOMY
Adina Gabriela Dascalu, PhD student;

Univerity of Craiova;
adina_gabriela_dascalu@yahoo.com
Abstract Key words:

In Romania, the process of transforming a
centralized economy into a competitive 1.The Role of the State in Acquiring
market economy proved difficult and was National Competitive Advantage
accompanied of material setbacks for a long
period of time. Romania's accession to the In the continuous debate on the
European Union does not mean the end of competitiveness of nations, no matter raises
efforts to achieve the objectives related to more heated discussion and creates higher
economic development and competitiveness, disagreement than state's role. Many
but is just the beginning of a hard fight to consider state as a key supporter of the
gain a strong position in the Single European industry, which applies a set of policies to
Market characterized by fierce competition. contribute directly to ensuring the
Responsibility for achieving this goal does competitiveness of strategic fields or
not belong only to state or only business life subjects. Others accept the optics of free
but all economic actors should coordinate market economy that the economic
their efforts and find the most appropriate operations should be left to the “invisible
solutions and directions for action. hand” mechanisms.
Currently, it is considered that there is a Both approaches are incorrect. By following
clear convergence between trade and their logical outcome, both of them would
competition in the context of globalization lead to continuous erosion of the competitive
and national domestic market saturation, capacity of a country. On one hand,
therefore Romanian companies must be proponents of government’s industry support
prepared to deal with massive inflows of often propose policies that, in reality, would
foreign companies wishing to take advantage affect the long-term situation of companies,
of the less exploited Romanian market. To doing nothing but create a need for more
prevent the creation of barriers to trade the substantial aid. On the other hand,
following points must be on the agenda of supporters of reduced presence of state in
governments: the incidence of state the economy do not recognize the legitimate
monopolies, of exclusive rights and role that it plays in shaping the context and
regulatory policies on competition and institutional structure surrounding
international trade, the incidence of trade companies and creating an environment to
policy on competition; the report between stimulate companies to gain competitive
trade and competition policy and advantage.
development and growth; the analysis of The role of the state must be one of a
tools, rules and current activities on trade catalyst and a stimulant; it must encourage -
and competition policy; the incidence of or even push - companies to aim higher
organizations’ and companies’ anti- aspirations and to raise the bar of
competitive policies on international trade. competitiveness, even if it can be unpleasant
Moreover, it is well known the fact that the and difficult. The state can not create
economic effects of mergers, restrictive competitive economic fields, only companies
practices or abuses of dominant positions are can do that. The state plays an inherent
often felt in other countries than in those in partial role, and could be successful only
which the undertakings concerned are when favourable conditions necessary for the
formed. development of competitive advantage are
associated with its actions. However, state’s
178
role of transmission and amplification of Policies that offer static short-term cost
these forces is a very important one. advantages but unconsciously undermine
Successful government policies are the ones innovation and dynamism are the most
that create an environment where common and most serious error of state
companies can gain competitive advantage, industrial policy. Wishing to help the
not those directly involving the state in that government finds it very easy to adopt
process. The Romanian state shall take into measures such as conducting joint research
account that its role is an indirect, a not and development programs that would avoid
direct one. the "useless" research activity, measures
Romanian state should understand that that undermine the dynamism and
countries go through competitive competition. Even a 10% reduction in costs
development stages and the role of the state due to economies of scale is easily cancelled
changes as the economy progresses. By by the rapid improvement of products and
stimulating the demand for superior activities and the increase in volume of
products, by putting industry before the activity in international markets-
need of creation of new technologies through advantages that such measures undermine.
symbolic cooperation programs, by offering There are some simple, elementary
prizes to reward quality and by applying principles, which the Romanian state and
other policies which amplify the forces of the any state should meet in order to fulfil its
above conditions, the state can accelerate the role of supporting national competitiveness:
pace of innovation. fostering change, promotion of internal
It is not hard to understand why the state rivalry, stimulating innovation. Thus, there
can make mistakes when planning to ensure can be applied several policies designed to
the competitiveness of the nation: the time guide the national economy toward
needed by the companies to achieve competitive advantage and these will be
competitiveness differs, in principle, from presented further.
the time the government policies need to
take effect. Often it takes more than a 2.Fundamental Policies for Acquiring
decade for the industry to gain a competitive Competitive Advantage
advantage and this process involves an
extensive training to people skills, The focus over the creation of
investments in products and activities, the specialized production inputs. The state
creation of conglomerates and the bears the primary responsibility for
penetration of foreign markets. fundamental issues such as primary and
In politics, however, a decade means forever. secondary education systems, national basic
Therefore, most governments prefer policies infrastructure and research activities in
that provide benefits clearly visible in the broad areas of national interest such as
short term, such as subsidies, protection and health care. However, these generalized
arranged mergers - which are the exact efforts to create production inputs rarely
policies that delay innovation. That is why produce competitive advantage. Factors to be
the fact that competition law prohibits translated into competitive advantage are
subsidies or protection based on anti- advanced, specialized and tied to specific
competitive criteria and agreements between industries or industry groups. Mechanisms
firms, is a benefit for preventing the such as specialized apprenticeship programs,
government to bow to popular measures research activities undertaken by
involving long-term disadvantages. Most universities and related to a particular
policies that would produce real positive industry, trade union activities and, most
effects are too slow and require too much importantly, private investment by
patience from the politicians or, worse, companies create the ultimate factors that
require painful measures in the short term. will generate competitive advantage.
As it could be observed in the transition Avoiding any actions on the factors’ and
period in Romania, the liberalization of the currency market. By interventions on
protected industries, for example, quickly led the currency and the factors’ market, the
to the bankruptcies of many companies and state hopes to reduce the cost of production
only later to the emergence of other, stronger factors or to obtain a favourable exchange
and more competitive. rate to help companies compete more
effectively in the European market, frequent
179
interventions that also took place in product and services quality or to the
Romania. However, evidences gathered from improvement of production or distribution of
around the world indicate that these policies goods or provision of services.
- such as devaluation policy - are often Starting from the belief that independent
counter productive. They are hostile to the research activity carried out by competitors
improvement of industrial activities and to is unnecessary and is repetitive, that
the acquisition of a more sustainable collaborative efforts lead to achieving
competitive advantage. economies of scale and that it is likely that
Often, foreign currency shocks may force individual firms allocate insufficient funds
companies to improve their competitive for research and development because they
advantages. The idea is that it is not the can not exploit all the results, governments
state to implement policies that intentionally have embraced the idea of a more direct
lead to increased costs of production factors cooperation.
or exchange rate. Conversely, when market Collaborative projects stimulate companies
forces determine the factors’ cost or to explore new areas and increase internal R
exchange rate’s increases, the state should & D spending as firms know that their rivals
resist the temptation to reduce them. are studying their moves.
Applying strict standards on products, Under well defined conditions, research
products’ safety and natural cooperation can be beneficial. The respective
environment. Strict government projects should target commodities and
regulations may help to acquire the operational research, not issues which are
competitive advantage by stimulating and closely related to the sources of a firm's own
increasing the quality of domestic demand. advantage. They should represent only a
Stringent standards for product performance small part of the overall research program of
in service, their safety and effect on the a firm in a given field. Cooperation in
natural environment requires firms to research should have an indirect nature and
improve quality, improve technology and should be conducted by independent
provide products that meet social and organizations that have access to most
consumers’ requirements. Relaxation of economic operators in the respective
standards, no matter how tempting it seems, industry. Organizational structures, such as
it would be counterproductive [1]. university laboratories and centres of
When the tough regulations at national level excellence, reduce management problems
anticipate standards that will apply to and reduce the risk of rivalry. Finally, the
European or global scale, they may offer to most useful cooperation projects are focused
the Romanian companies the advantage of on issues related to several areas of activity
creating products and services that will be and require substantial investments in
appreciated throughout Europe or elsewhere. research and development.
For example, tough standards imposed by In conclusion, Romanian state should
Sweden in the field of natural environment allocate more funds for research and create
protection have helped to acquire the necessary organizational structures to
competitive advantage in many other encourage cooperation between companies
domains. But strict standards must be oriented towards obtaining advantages in the
combined with a fast and efficient regulatory benefit of several activity fields.
process that would not consume resources Promoting objectives that require long-
and cause no delay. term investments. The state plays a vital
Clear limitation of cooperation between role in influencing the objectives of investors,
rivals. The most sustained global policy managers and employees through policies in
imperative in the competitiveness area is various areas. For example, the way of
currently the cooperation in research and regulating capital markets influences the
the creation of groups of companies to obtain motivations of investors and therefore, the
the benefits of economies of scale. behaviour of companies. Romanian state
Competition law [2] in Romania, harmonized should encourage long-term investment in
with European legislation, provides as an human skills, innovation and tangible
exception to the anticompetitive assets. The most effective tool for increasing
arrangements those arrangements which the pace of long-term investment in industry
lead to the promotion of technical and is, probably, granting tax benefits for long-
economic progress, to the improvement of term capital gains (at least five years)
180
limited to new investment in a company’s ineffective and often very expensive for
shares. Tax facilities for long-term capital consumers. Instead of promoting innovation
gains should also be applied to pension in the Romanian industry, trade control can
funds, and other investors who currently do provide a market for inefficient companies.
not pay taxes and have little reason not to Government trade policy must aim at free
engage in rapid trading of shares. market access to each country. To be
Liberalization of competition. About this effective, the trade policy should not be a
aspect should be noted that regulation of passive tool, it cannot address grievances or
competition through policies that maintain a cannot serve only those areas that can
state monopoly, entry control into a field of generate sufficient political influence, it
activity or price fixing has two important should not be the result of a long period of
negative consequences: the first is the injustice or serve only to industries in
suppression of rivalry and innovation when difficulty. Trade policy should strive to open
firms become concerned about the markets when the nation has a competitive
relationship with regulators and about advantage, to actively help the growing
protecting what they already have, and industries and resolve problems since their
secondly, that area becomes less dynamic. early stage.
However, liberalization and privatization by
itself does not succeed without a vigorous 3.The implementation of policies aimed
domestic competition - and for that a at acquiring competitive advantage in
consistent and efficient competition policy is Romanian economy
needed - attributes that have not
characterized the Romanian competition As noted above, there is a set of policies to
policy at the time of liberalization and determine the acquisition of a nation's
privatization of many areas and many competitive advantage. These policies should
Romanian enterprises. first target the potential strategic areas, of
Implementation of effective antitrust most importance for the Romanian economy,
policies. This measure is worth mentioning after an analysis of the best way in which
because, although it is considered that each policy could be applied to develop and
mergers and alliances are necessary to meet increase their competitiveness. But how can
globalization by creating large national these economic areas be supported on long-
companies, they often undermine the term considering Romania's EU integration
competitive advantage. An effective and the globalization and
competition policy is of fundamental internationalization of world markets which
importance for innovation. Real national require the deregulation of all restrictions,
competitiveness requires governments to subsidies and protective measures?
reject the mergers, acquisitions and alliances The main methods of support should focus
involving leaders in the field. Moreover, the on actions at the microeconomic level and at
rules applied to mergers and alliances the level of production factors involved in the
should apply to both domestic and foreign process (the human factor and fixed capital).
companies. Finally, government policy Such concerted action involves:
should be favourable to the entry of new  the facilitation, through monetary
firms, both Romanian and foreign and fiscal policies, of fixed capital
companies, on the domestic market and stock growth, simultaneously with
unfavourable to acquisitions. Companies the investment in high-level
should however be allowed to buy smaller technology. The transparency of
companies in related fields where this action information in the field of technology
facilitates the transfer of skills that could and know-how transfer must have an
ultimately lead to competitive advantage important role in this area;
creation.  the creation of national programs of
Rejection of controlled trade. Controlled education and training in the
trade is a dangerous tendency to eliminate management and specialization in
side effects of national competitiveness. the areas mentioned above. The
Systematic marketing agreements, budgetary impact of these programs
voluntary restriction agreements and other is minimal, and temporary
instruments that set quantitative targets for restriction schemes for the "brain
the markets sharing are dangerous,
181
drain" [3] that might result can be globalized society, based on the
created; primacy of information transfers and
 elimination of bureaucratic on the promotion of competitive
regulations and restrictions in these systems at global level.
industries, the creation of simple Thirdly, the promotion of sectors that can
institutions specialized by industry bring the greatest benefits like the increase
(NGOs being the most appropriate), of their innovation capacity that will lead to
of special programs to facilitate the increase of export sales must be carried
export promotion and staff training through microeconomic policies and
in those fields. institutional means. Creation of specialized
Another question that arises is which should institutions to promote research and
be the best action to offer Romanian providing companies non-preferential access
economy the compatibility and to research and its results, or imposition of
competitiveness of other EU Member States. bureaucratic restrictions to reduce the
Firstly, Romania must apply a duration of transactions and any internally
competitiveness strategy for directing the generated administrative barriers are only
development of national economy on concrete some examples of practices needed by the
components. This strategy must focus on Romanian economy to get aligned with the
improving the overall framework which superior economic skills held by the
facilitates the promotion of exports and developed countries of the European Union.
boosts investment. Through it, high speed Finally, domestic investment environment
growth can be reached for long periods of can be boosted by the expansion,
time and the competitive advantage can be development and support of all
acquired. infrastructural systems that create the
Secondly, the competitiveness strategy must interface of economic structures:
involve a large national effort to enhance telecommunications infrastructure,
workforce’s education and lifelong learning transport network, information networks,
or retraining, in the spirit of competitive etc.
economy, of information society, in order to Romanian economy has shown in recent
meet the requirements of companies. The years that it can achieve significantly higher
transfer of high technology and know-how annual growth rates than Western European
from other countries should be supported countries that have experienced a very slow,
internally, with measures to promote but sustained, growth and were outrun
educational quality of the human factor, the mainly by emerging Asian economies.
only able to absorb rapid evolutionary jumps However, for competitiveness, development
and to change the inertia of economic and high but stable long-term rates of
structures (through actions at the economic growth, focused and targeted
microeconomic, micro-social and cultural actions are needed in order to implement the
level). There are two basic directions of this policies that lead to acquiring national
training policy: competitive advantage.
 the education and training of policy
makers and administrative staff, Conclusion
through both budget and private
effort in the spirit of competitive As mentioned in the first part of this paper,
mechanisms of economic systems of the government can play an important role
highly developed countries, in order in the economy, with all constraints imposed
to reduce bureaucracy, lack of on it by competitive legislation. It can find
flexibility of the central institutions more ways to support, directly or indirectly,
and managerial incompetence at firms’ investments in research and
macroeconomic level. Strategies of development in the competitiveness area.
implementation of such measures to Moreover, in many sectors the government is
minimize "brain drain" from still a buyer or supplier and can have a say
Romania, can be created through through the policies it adopts. For example,
incentives or contractual procedures. the government decided during the current
 restructuring the education system economic crisis to allow large gas consumers
so as to ensure the preparation of access to domestic gas supply, cheaper
new generations in the spirit of the compared to imports, for the reduction of
182
products and services costs of Romanian

producers affected by the crisis.
Another example may be that government
can influence the position of sectors
confronting substitute products through
regulations and other measures, such as
supporting firms seeking to produce
alternative sources of energy like solar
energy, by using instruments such as
taxation and providing funds for research in
this area. Safety and pollution standards
may influence the relative cost and quality of
substitute products.
No structural analysis can be complete
without the analysis, at all levels, of how
present and future government policy will
influence the structure of activity sectors.
From the perspective of strategic analysis, it
is more useful to analyze how the state
influences sectoral competition through the
competitive forces outlined above, than only
to consider it as a static force.
References
1.Michael Porter - "Despre concurenţă", page 309,

Meteor Press Publishing House, Bucharest, 2008.
2.Competition Law no. 21/1996, Art. 5.
3. Dan Voiculescu, Cezar Mereuţă- „Analiza de
competitivitate a economiei româneşti. Orizont
2000-2005-2010”, page 194, Romanian Academy
Publishing House, Bucharest, 1998.
183

THE HISTORICAL APPROACH TO COMPETITION AND THE

COMPARATIVE ANALISYS OF COMPETITIVE MARKET VERSUS
MONOPOLISTIC MARKET
Adina Gabriela Dascalu, PhD Attendant;

University of Craiova;
adina_gabriela_dascalu@yahoo.com
Abstract competition is not a new attempt, this

Competition’s existence in the concern appeared even in the ideology of
market for goods and services is not only the classical theory from which it has
a major concern of economists around evolved and acquired several forms along
the world, but also of all states, with the development of society.
especially in recent years. This is because
internal competition between national Key words: competition,
operators or between them and the progress, welfare, maximizing profit,
foreigns help boost international maximizing business value, perfect
competitiveness. competition, monopolistic competition.
It is known that economic
autonomy gives economic operators their The Historical Approach to
freedom to choose the economic field in Competition
which they invest capital, in setting
strategies for achieving their activities Over time, competition has been a
controversial topic for economists who have
and, secondly, private property is the one
attempted to explain its mechanisms and
that stimulates the process of provide appropriate solutions to situations in
consolidating the market positions held various stages of social development.
by business, the one that mobilizes all its Analyzing the supply and demand,
resources to streamline business and Adam Smith noted that a reduced supply
ultimately provides the fundamental lead to competition among buyers, which
achievement, maximize profit (short raises prices, while an excess supply leads to
term) and enterprise value (long term). competition for getting rid of surplus causing
However, within the competitive prices falling [1]. In "Wealth of Nations",
process, some traders win, others lose. It Book I, Chapter 7, he mentions not only the
multitude of sellers, but also perfect
is, however, a normal phenomenon
information and perfect mobility of resources
specific to the market economy as as a prerequisite for effective competition;
through the protection of competition it is only the homogeneous product is not
not looking to protect those adversely considered as a condition like in any modern
affected by competition, but to ensure the analysis on perfect competition. Therefore,
normal completion of competition, in the analysis conducted by Smith on
terms of loyalty and fairness, and the competition is not equivalent to the modern
orientation of the economy as a whole concept of perfect competition. He highlights
toards progress and welfare. the process of competition leading the
The concern of economists to market price towards natural prices. His
brief overview over monopoly is "old school":
define the optimal framework for
monopoly for any product is a fixed bid. Not
expression of competition between reproducible goods such as valuable
operators and to determine the most paintings or “the vineyards of France”, fall
appropriate rules governing economic outside the scope of competitive price theory.
activities based on principles of However, Smith notes that "industry
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secrets" involve monopoly, understanding In 1870, Jevons, Menger and

that they give the industrialist the power to Walras found almost simultaneously “the
decide on the price. He concludes that principle of reducing marginal utility”.
"monopoly price is almost in every case the Jevons approached value theory by
highest that can be pumped from buyers," a analyzing two individuals engaged in a trade
statement which acknowledges that demand of goods. He used the isolated case of
must meet the price level. bilateral and competitional exchange to
Book IV, Chapter 2 presents the view demonstrate the simple logic of competitive
of A. Smith in favor of free trade. The price determination. But, in fact, isolated
assertion that "what is prudence in the exchange has unmet properties in
management of each family life can be less competitive exchange and, later, Edgeworth
stupid in the life of a great kingdom" is a showed that isolated exchange, or what he
false theory which he condemned early at called "bilateral monopoly" is not unique and
mercantilists. A. Smith shows the basic does not determine relative prices.
reason of someones own interest to prove Based on the rule that each party
that the general welfare is best promoted by maximizes its satisfaction during the
removing all restrictions on imports and bilateral exchange, where each person shall
exports. By pursuing only their own good, procure such quantities of goods, and
people are led by an "invisible hand" to ultimately, the degree of usefulness of any
further social goals. Every man, if left alone, pair of goods will be inversely proportional to
will wish to maximize their own wealth and, the exchange ratios of goods, Jevons
therefore, all men, if unimpeded will concludes that all goods are distributed
maximize the total wealth. The sum of all through the exchange in order to produce
these separate actions determine prices; maximum benefit. But even if we consider
each person, considered separately, is the distribution of income as given, based on
dominated by prices and prices are governed the analysis of bilateral exchange it cannot
by the total amount of individuals’ reactions. be assumed that competitive exchange
Thereby, the "invisible hand" of the market maximizes all satisfaction. Jevons did not
provides such social outcomes that are take into account that the marginal utility of
independent of individual desires and each commodity must be equal for both
intentions. But the system of natural liberty, parties to exchange, at the time of
which is said to reconcile private interests equilibrium. So the utility is measurable
and economic efficiency becomes, after a only in terms of comparison of two or more
careful examination, identical to the concept goods and Jevons does not consider the
of competition: "the invisible hand is nothing possibility of comparisons between utility
more than the automatic balancing among individuals, thus the conclusion that
mechanism of the competitive market”. "total freedom of exchange must be of benefit
Smith's statement shows that to all" has not a too clear meaning.
competition, which equalizes the levels of Cournot is one of the predecessors
earnings and excess earnings are spent, of Alfred Marshall. He was the first writer to
leads to an optimal allocation of labor and define and draw the demand function. He
capital between industries. Protectionist was not interested in utility theory, but
measures are justified in the case of assumed that market demand curve is
embryonic industries and of the rematch negatively sloped: the market demand curve
against foreign tariffs. The state has three does not express the quantities in the
major tasks: ensuring military defense, the market that consumers would buy at
administration of justice and the duty to different prices, when the distribution of
raise and maintain public works and wealth, taste and habits are constant, but
appropriate public institutions, which are the quantities they buy currently at annual
not ment to save individual interests but the average prices; the demand curve traced by
interests of whole society. Cournot is the empirical relationship
So, in terms of public sector between sales and prices. He treated the
development, Adam Smith attempts to show monopoly as a pure case easily and
that the market mechanism leads to confronted the functions of total and
harmony, but that it must be surrounded by marginal revenue with total and marginal
an appropriate legal and institutional cost functions in order to show that the
framework. instant gains can be maximized if the
monopolist produces an output at which
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marginal cost equals marginal revenue. In party reaction, they can result in "minimum
1838, he proved the uniqueness of this and maximum point” and maximize profits
maximum by establishing the condition that considering that rivals adopt the most
the first derivative of the total profit dangerous policy or may lead to a
function to be cancelled and the second cooperative equilibrium. Each of these cases
derivative to be negative. contains different price-quantity pairs.
Marshall adopted Cournot's analysis Also, Cournot introduced the idea
for maximizing profit in his book that perfect competition limits the entire
"Principles", but expressed equilibrium spectrum of market structures defined by
conditions more in terms of cost and total the number of sellers. He tried to show that
revenue of the monopolist than in terms of duopolists will finally reach a common price
marginal values of these variables. Thus, the that will be lower than the price that would
concept of marginal income had to be have been obtained under a monopoly, but
rediscovered in 1920 when the situation of higher than that generated by free
imperfect competition pointed theorists’ competition with several sellers. He
attention to the possibility of tilting down maintained the concept that as the number
the demand curve in the case of an of sellers increases, the branch’s production
individual company. converges to the limit of the perfectly
Cournot not only founded the pure competitive branch’s production. Hence, it
theory of monopoly, but also duopoly theory. appears here in its early form, the concept of
Each duopolist estimates a demand function perfect competition later spread as a
for its products and then sets its quantity to standard for judging uncompetitive market
be sold on the assumption that its structures.
production levels remain fixed. They adjust Marshall's approach has inherited
their output at given prices. Although each its emphasis on price competition from
duopolist simultaneously adjusts its Cournot's static design and from the
production to the production of the other, profits’equalization process proceeds from
each assuming at any time that its classical school; these are obstacles in the
production level remains constant, the analysis of the competitive process.
determined solution never appears. Marshall's concept comprises three
Duopolist’s optimal production of output is elements: the replacement of partial
represented as a function of its rival output, equilibrium by the general equilibrium,
arguing that each can provide the entire placing the issues related to time passing in
production of one good and that production the static framework, the assumption that
cost is zero. Equilibrium is reached when the this model is suitable to clearly represent
two output levels are compatible with one the real world practical issues [2].
another, and even more, Cournot shows that Time is entered in Marshall's
the equilibrium is "stable" under certain analysis through the construction of two
specific conditions, meaning that any distinct models. First, a short-term model,
deviation from it leads to reactions that with determined capital, in which the
restore the quantities offered at equilibrium neoclassical considerations are dominant,
levels. particularly those related to the merger (the
In 1880, French mathematician number of market participants) in a given
Bertrand criticized Cournot's solution and market and competitive modes adopted by
suggested that vendors need to set their them, and secondly, a long- term model, the
prices and that each must determine his classic one, in which is also being considered
price by assuming the price of its rival, while the capital flow entering or leaving the
its output remains constant. Edgeworth, in market. The decision to determine when a
his "Theory of Monopoly" (1897), led this market is competitive assumes fixed
idea further and introduced the uncertainty schemes less popular among economists.
of mutual reactions, reaching the conclusion Competition situation on a market can be
that it plays an indefinite solution. defined as “pure” when it encounters a large
When we take into consideration the number of producers, while the adjective
behavior of firms that reciprocally test their "perfect" assumes the condition of free entry
reactions many cases may occur. They can to the market.
lead to Cournot's point of view, if non- As regards the monopoly profit,
cooperative equilibrium in which each party Marshall concludes that the maximum net
maximizes its profits relative to the other income is found by maximizing the
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difference between total revenue and total discover this would be when on the market is
cost, which tends to equal the marginal set a price so low that everyone "must dig
revenue with marginal cost. after profit””. Arguably, the production
Desiring to answer the question without profit is not necessarily a signal for
whether perfect competition maximizes the price increases, but, first, to explore ways to
gains from free exchange, Walras and Jevons rationalize the consumption of resources and
made the error to generalize the analysis to lowering production costs.
the case of two persons and two goods. So, unlike traditional design in
The dynamic approach. Friedrich von which costs are seen as an exogenous
Hayek. One of the most representative variable that determines the constraints to
contemporary economists, of the dynamic management in determining the production
approach of competition and a critic of the function, for Hayek, they are a challenge to
static approach, is F. Von Hayek. Among his resolve the problems of real economy. An
criticisms is also the one over perfect important concern in his approach is the way
competition, because, he said, if the state of of acquisition and use of knowledge in
affairs assumed by the theory actually ever economic decision making: “It has become
existed, it would deprive of their scope all customary for economists to stress only the
the actions involved by the verb "to need for knowledge of prices, apparently
compete", and moreover, would make all because, following the confusion between
these actions virtually impossible. objective and subjective data, complete
Thus, the emphasis on perfect knowledge of the other elements that make
competition, as static equilibrium, excludes up the true situation was taken for granted.
all manifestations of competing operators: Knowledge not only means posesing the
advertising, selling at lower prices than technology which is considered as known in
competitors, differentiated goods and static analysis. Classical theory assumes
services, this because perfect competition that there is a set of detailed plans for the
means the absence of any competitive conduct of economic activity, while Hayek
activity. The foundation of Hayek's dynamic supports a high number of ways to do
approach on competition as a behavioural business. For him it is impossible to believe
dynamic activity is an analysis of how that information is available to all agents at
knowledge is acquired and communicated in no cost. The entrepreneur must not continue
an economic system. For him, the to maximize an objective function subject to
neoclassical assumption of perfect knowledge constraints and exogenous variables
of the market has an inhibitory effect on the universally recognized, dictated by the level
investigation of firms’ conduct for someone of technological knowledge and preferences
who wants to research the market. It is on the market. On the contrary, through a
assumed that producers already know which process of interaction with the environment,
is the lowest cost for which a good can be the entrepreneur has to develop and
produced. However, this information that is experiment with new methods of production
assumed to be given and with which the (even in the absence of technological
analysis begins is one of the elements that innovation) and offer new products in
can be achieved only through the process of response to specific situations.
competition. The most damaging feature of Hayek's theory about the firm is
monopoly is not, in fact, the likelihood of related to behavior. The company is not a
excessive growth rate of profit, but the mere object of exogenous variables
tendency to generate higher costs than constraints, but is mandated to handle the
thoese in normal competition conditions. constraints. The very nature of business is to
Even under normal competition, reaching remove such obstacles, to create new
the minimum cost cannot be assumed for markets and to consider the old ones as part
itself, but it causes concentration of all of their creative work.
management efforts to minimize production Hayek's analysis stops to examine
costs. In fact, the lowest cost that could the action of a single person wishing to
produce a good is a dilemma, as Henry Ford demonstrate the effectiveness of the
said: "Although some carefully calculated institutions of a free market under all
what is their cost of production, and our conditions. For all times and places, for all
costs are, of course, calculated with the conditions of exchange, the information
utmost care, no one knows which is the communicated through price by individual
lowest cost that might occur. One way to economic agents, will be to society of greater
187
importance and more useful and, whatever before the law and their freedom of initiative
customers, traditions, customs, superstitions to be undertaken only within civil society [3].
in the market, these prices will lead always
to the best use of resources by individual Comparative analysis of
economic operators. Neoclassical theory competitive market’s efficiency versus
reaches the same conclusions, but also offers monopolistic market
a list of preconditions necessary for such an
outcome. Economic efficiency means proper
Hayek's approach should not be allocation of resources and to avoid wastage.
confused with the insistence on a separation Even when resources were allocated in full,
of subjective data available for individuals, they may be used inefficiently. Yet the main
on the one hand, and objective facts, on the objective of market competition is precisely
other. Confusion has often been maintained efficient resource allocation and economic
by two different conceptions of subjectivity welfare. For example, if too much of a
presented in his works. particular product and too little of another
Under the first concept, competition are produced, resources are also used
is a dynamic behavioural process, which has ineffectively. The conditions for ensuring
its bases in the subjective perception of economic efficiency were studied long ago by
economic agents on objective reality. The the Italian economist Pareto, so efficiency of
second concept says that the knowledge over resource usage is often called Pareto
the competitive process can be gained efficiency or Pareto’s optimum.
through a subjective analysis, an insight into Relative effectiveness of competition
the rational part. Hayek and his supporters and monopoly depends on a number of basic
have adopted both of the first and the second assumptions.
approach, but to demonstrate that, in the First, it requires about consumers
economy, competition is increasing, they are that are maximizers of utility, and
obliged to use Marshall's structural manufacturers are maximizers of profit. It is
categories. assumed that the price paid and received is
In response to the ideas developed by the value of the marginal unit traded
Hayek, the classical theorists have argued between seller and buyer. It also assumes
that any competent economic analysis must that the additional units of consumers and
look beyond static equilibrium theory. In producers can be collected and substracted,
general, classical theory can be regarded as meaning that one additional unit represents
appropriate for statistical confirmation from the same amount of benefit whether
the desire to establish a basic scientific accruing to the seller or the buyer.
generalization. In comparison, individual If competition policy objective is to
case studies give the impression of being maximize economic welfare, then the total
devoid of method and direction. surplus (consumer’s or producer’s surplus)
However, behavior has the central must be maximized. Thus, by comparing
position in the dynamic approach. alternative economic structures, the most
Separation between intentions and effective is defined as the one that generates
perceptions of ex ante and ex post results is the highest total surplus. This approach on
very important, but difficult to split from the effectiveness completely ignores the
statistics. In addition, there is ample important question of income distribution.
information available in case studies that With regard to economic efficiency is
are difficult to see in a statistical test. irrelevant whether the surplus is accruing to
To summarize, Hayek considers the consumer or to the manufacturer.
competition as the main factor in finding the The comparison between the relative
resources (human, material and financial) efficiency of perfect competition and of pure
and to stimulate scientific and technical monopoly shows monopoly’s inefficiency. The
creativity. Competition was awarded with basic argument against monopoly is that,
the merit of ordering on a scale of compared to perfect competition, it reduces
importance of the values and utilities the production capacity, it increases prices and
satisfaction of needs. In his view, the concept reduces welfare. So the main effect of
of market economy can only function within monopoly is to reduce economic welfare.
a democratic state of law, provided that its However, this result is based on the
structure is compatible with human assumption that all other factors remain
behavior, all economic operators are equal constant. Thus, mergers bring benefits by
188
reducing production costs through achieving gradual reduction, the most effective
economies of scale. It is undeniable that competitor in terms of production will
high-scale production may be technically remain on the market. Moreover, natural
efficient. In this way, as shown by monopolies do not last forever.
Williamson (1968), it is possible that the The emergence of new products and
final net effect of monopolization to be technologies may change the conditions
represented by benefits, and not by losses. giving rise to new competitive situations on
In the case of perfectly competitive the market. On the other hand, if a product
industry, supply curve is infinitely elastic. is individualized by elements representing a
Price and output are determined by the value for the consumer (design, brand
intersection of supply and demand curves. prestige, reputation of associated services),
There is no producer surplus and total he will be noticed and will detach from the
surplus consists entirely of consumer group of undifferentiated products.
surplus. Competitive pressure will lower and this
If it is assumed that the industry is product will thus be recognized in the
monopolized with no change in costs (an market through a higher price, which may
unrealistic assumption in real economic give the company a privileged position in the
environment), all production units merging market leading to a monopoly.
into one company, without changing their
number or production costs, a consequence of The analysis of welfare loss due
assumptions over constant cost is that in to monopoly.
monopoly case, marginal costs are equal to
average cost. There is no reason for Regarding the need for expensive
consumer preferences to change, thus the anti-monopoly policies, there have been
demand curve is not affected. Faced with a several studies that have followed the
demand curve with negative slope, the calculation of welfare losses caused by the
monopoly producer will maximize profits existence of monopolies in the U.S. economy.
when marginal cost equals marginal Through these studies many economists
revenue, production will be reduced and the have concluded that the losses would be
price will increase. Consumer surplus has small enough that do not necessarily justify
been transferred from consumers to the cost of implementing these policies
producers and the total surplus was reduced. (Harberger, Schwartyman, Worchester or
There is thus a net loss of surplus. Kamerschen).
Thus, economic prosperity has been American economist, Harvey
lowered. Given the fact that “all other Leibenstein, criticized these estimates of
elements of the market remain constant”, the actual cost of monopoly (such as
the monopoly will inevitably distort the Harberger's early test, who calculated that
allocation of resources and is inefficient the U.S. industry losses due to the existence
compared with perfect competition. of monopoly in the economy, in terms of
Analysts suggest that there is no economic welfare was only 0.1 % of GNP)
theoretical justification for condemnation of arguing that monopoly power allows
monopoly and/or direct mergers, since the managers and workers to operate at lower
negative effects of restriction of production levels of productivity than it would have
capacity could be offset by cost reductions. In been required to achieve in a competitive
such circumstances, monopolisation would framework, calling this (in)efficiency-x.
lead to an increase in total surplus. Inappropriate allocation of resources
Therefore, in an attempt to determine the associated with monopoly power is the main
effects of monopoly costs must be analyzed reason why economists opposed the
by comparison with benefits. In these monopoly and led to the popular perception
circumstances it is very important that there that monopoly firms use their market power
are ways to measure changes in the to exploit consumers, and explains why most
prosperity, but neither in this case there is governments have decreed laws against such
certainty of a high degree of accuracy. unlawful monopolization of potentially
Therefore, it can be concluded that competitive industries.
the monopoly is not harmful if it is a natural A pro-monopoly attitude has been
monopoly, which arises under certain supported several times by representatives
conditions, as the effect of market process. If, of firms who had or wished to obtain such
for example, a good’s production is subject to power, but also by economists, such as the
189
Austrian- American economist Joseph historical evidences. Marshall and his

Schumpeter, who argued that monopoly disciples seemed obsessed with “price”, but
serves to promote the research, development, business people who ran modern businesses
and the methods of efficient production. were concerned about other things. The way
Unlike other innovators in non- modern business is successful or not, is not
competitive theories of the firm, Schumpeter to reduce the price, but in bringing new
pursued a different approach, not by products or new technologies, or new sources
correcting the methods of the main economic of supply, or through reorganization (maybe
theory, but rather by ignoring them in becoming stronger through capturing several
favour of a historical analysis. For him, the market sectors), which doesn’t ignore the
structure of economy is the result of a long possibility of selling at a lower price, but
process of evolution, which he called a which also take into consideration other
process of “industrial mutation” through priorities. With regard to government
which the structures of existing economic regulations designed to “protect
organization were continuously destroyed, to competition”, Schumpeter deemed them as
be replaced by new ones. To describe this unproductive and unnecessary. In fact, he
process he created a single term: creative said, historical evidence shows that when
destruction - the two words are not only monopoly takes place, it rarely persists.
antonyms; there is a common point in their Attempts to penalize big businesses mean
contradiction. Namely, that capitalism's essentially to penalize success; that success
success stems from the fact that stable through which capitalism has succeeded to
businesses must, sooner or later, to make raise living standards for workers and
room for some new and more productive. In capitalists alike to unprecedented levels.
capitalism, as it can be seen today, there can Profits resulting from the monopoly,
be no stagnation. he believes, are some awards, less important
The agents of creative destruction in for the few lucky winners, but rather some
Schumpeter's system are entrepreneurs. incentives to encourage many to seek success
“These are individuals who come from time and at the same time increase productivity
to time with one new idea that could even be and welfare for all.
implemented. Even if it is about a new Arguments made by Schumpeter in
product, a new method of producing an defence of monopoly were not the only
existing product, a marketing strategy, or possible. Other economists have argued that
anything else. The true entrepreneur is seen it is technically possible that the
as an enemy of stable businesses, a threat monopolization of a prior competitive
worthy of being crushed by those in control industry will lead to lower costs. A great
at that time, once appeared, in order to organization, well financed, could introduce
preserve the status quo. This opposition tests new production methods, more efficient,
entrepreneur’s resistance. leading to decreasing the cost curves. If the
If success is achieved, the benefits of such cost savings would be passed
entrepreneur gains profits, and can build the on to consumers or not is another matter.
great enterprise. Should such success be Monopoly firm is motivated (as it is also, of
penalized? Should enterprising company course, the competitive company) to
that manages to take control of an industry maximize profits, not to minimize price.
be accused of something? Certainly not, said Unfortunately, there is no effective
Schumpeter, as it is the source of mobilizing solution against technical monopoly. There
force that made capitalism work, increasing are three alternatives from which to choose:
productive efficiency of businesses at an private unregulated monopoly, private
unthinkable level in other systems known in monopoly regulated by state and government
history”. Not surprisingly, Schumpeter operations.
opposed U.S. anti-trust legislation (anti- There is also the phenomenon of so-
monopoly) and the government's efforts to called natural monopolies (or “technical
preserve competition and protect inefficient monopolies”) that was mentioned above. In
business firms (usually small) against the such situations there is no possible
giants who owed their position to successful alternative to the monopolistic structure of
innovation. industry. Where scale economies are very
In Schumpeter's view, the problem in high and market sizes are limited, it is not
neoclassical economic theory of producer possible to have more than one
behaviour was that it had not considered the manufacturer.
190
Systems generating electricity and produced at the lowest cost technically

other public utilities, such as rapid transit possible. For economists, inefficiency arises
systems, exemplify situations where there is because an inadequate level of production is
no competition in practice. achieved. However, in the real world there is
This lack of a general conclusion (for still another concept of efficiency, which is
example, Cowling and Mueller have shown taking into account that real companies are
that the welfare losses caused by monopoly never as effective in terms of technique as
can be quite important), both in theory and theoretical firms. This type of inefficiency
empiricism, support cost-benefit approach to occurs because employees and management
monopoly, in which individual industries are are often poorly equipped and poorly
evaluated for their merits. However, not motivated and therefore the performances
even this idea is accepted by all, as it can be achieved do not reflect their maximum
seen from the different approaches of ad-hoc abilities. The inefficiency of this kind, which
or laissez-faire economists groups. involves the existence of a given level of
There are several considerations to production at a higher cost than a
be taken into account in analyzing the theoretical minimum cost, is called
market with monopolistic competition. "inefficiency-X" (it is what an ordinary man
Economies of scale. Economic theory would understand by the term "ineffective").
suggests that monopoly leads to inefficient Clearly, such inefficiency is incompatible
allocation of resources in the sense that the with perfect competition where competitive
production level is limited. There can be pressure would be sufficient to remove any
made a series of reservations about this less efficient firm. However, in monopolistic
claim, apart from the possibility of markets the cause of the inefficiency-X could
economies of scale appearance. They are be the absence of competitive discipline. It
especially important when considered their would appear that this comes to strengthen
likely effects in the real world. the arguments against the monopoly,
First, the analysis is entirely static, because it can be said that any move
ignoring changes that may take place over towards the monopoly could lead to higher
time. Thus, any demonstrable effect on the costs because of inefficiency-X. This would
surplus may be larger or smaller as industry counteract, to a certain point, any cost
progresses and the welfare losses that occur reduction through economies of scale.
over time can cancel the immediate gains, or The net effect on costs is therefore
vice versa. In practice, firms must make unclear, because the picture becomes more
decisions in an uncertain climate and the complex. An analysis of all costs and benefits
results will be different depending on their is required before making any
attitude towards risk. recommendation to adopt a policy.
Secondly, competition in economic Fourthly, a theoretical description of
theory is seen only in terms of price monopoly was done by comparing the two
competition and to a lesser extent in terms of theoretical extremes, namely perfect
maximizing profits. The above analysis competition and monopoly. In the real world
ignores the effects of other variables of the there will never occur a move of any one to
company such as product quality, diversity the other and the implications of
and product differentiation. Moreover, if inefficiency- X and of allocated
firms have other objectives than profit ineffectiveness are, therefore, even less clear.
maximization then the picture becomes even For example, if two companies merge in an
less accurate. For example, the theory of industry made up of 10 companies, thus
sales revenue maximization (Baumol 1959) approaching the industry to monopoly, the
[4] assumes that managers pursue the effects on either of the two types of
objective of maximizing revenues rather inefficiencies are not at all clear a priori
than profits, so there are pursued higher (even in the absence of economies of scale).
levels of production. The implications of this Again, it seems that this can be resolved
are that any proposed strategy for a only after a detailed investigation of the
particular industry can be made only after industry concerned.
an investigation not only of that industry’s Fifth, even if it is clearly about the
structure but also of the objectives and economies of scale, so that there is a net
conduct of firms in that industry. increase in surplus, it can still be discussed
Thirdly, in the economic theory it is whether or not it is a loss of social
assumed that any level of output is always opportunity. The surplus could be increased
191
further if the monopoly firm should produce conclusions can be drawn about the losses of
at a marginal cost equal to the price. welfare in the economy due to the presence
Sixth, and most importantly, the of monopoly. However, no consensus could be
theoretical analysis normally used is totally reached and the findings are even less
partial. This means that the repercussions consistent than the theoretical ones.
on the industry as a whole have been
ignored in considering the effects on an Conclusion
isolated industry. Thus, an individual
merger may be considered absolutely Basic economic theory identifies as
innocent, but if it is a merger among many important factor of economic progress the
other mergers, then the general trend of the existence of competitive market.
industry towards monopoly could be Competition is the vital principle of market
worrying. economy. It causes producers to act
Seventh, Baumol and his associates effectively to meet consumer preferences.
(1982) argued that resources will be Competition eliminates the ineffective[5].
allocated effectively (in the sense that price Competition determines the development of
will equal marginal cost) in the industries superior products and leads to the discovery
that are perfectly competitive, and that this of methods of lowering production costs.
result does not take into account the number Private interest, when oriented towards
of companies from that industry. A perfectly competition, is a source of economic progress.
competitive industry is characterized, in The benefits of competition between
addition to free entry on the market, by the businesses reflected on the welfare of society
completely free exit. Therefore, without any as a whole are detected by analyzing the
cost to exit from an industry, even modest many functions that it fulfills. It should be
profits would be an incentive for entry into stressed one important fact, namely that not
the industry. Therefore, when firms would only price it is subject to competition, as it
not obtain any profit, could leave the appears at first sight, but also the product,
industry quickly and without having to pay distribution and promotion (constituent
any cost. The only protection in the face of elements of marketing mix). Therefore,
this potential threat to competition is experts consider, that actually, the causes of
allowed only to companies that have prices success of an enterprise can be found in: the
equal to marginal costs and earn only quality of its product, launching new
normal profits. products, competitive prices, advantages in
Finally, the Austrian economic school terms of cost, its good location, the
interpreted differently the existence of these company’s size and importance, the
profits. Competition is seen as a process in dominance of distribution channels, the sale
which profit is both an impetus and a and distribution methods, advertising and
reward. Thus, the profit is rather a symbol of promotion, design, etc.[6]. But, in short, the
success, encouraging innovation and reason to be of competitive mechanism is to
progress than a symptom of an inefficient serve the consumer.
allocation of resources. As such, this requires Competition is an important premise
recognition of the dynamics of industrial of market economy and its manifestation
change, which is often obstructed by brings a number of advantages such as
referring strictly to the theoretical encouraging technical, economic and
comparative balance as it happens in the managerial innovation with benefic
neoclassical tradition. Consequently, the implications over long-term costs, and
followers of Austrian tradition would be less ensures consumers of the existence on the
inclined to proactive intervention measures. market of a wide range of products and high
Ideally, all points described above quality services and facilitates equitable
should be considered in any attempt to distribution of income in society, among
recommend a strategy. Theory shows that others.
lack of competition can certainly lead to As reflected in the analysis
inefficiency, but it also identifies the undertaken by economists over time,
potential benefits from production at a lower although welfare losses are not entirely clear
cost. A clear policy recommendation requires in the case of monopoly and competitive
the assessment of all these costs and market is the model to be achieved, the two
benefits. Many attempts were also made to types of market cannot be found in a pure
establish empirically whether general form in reality. Their combined
192
characteristics can be more often found in

structures such as the oligopoly or
monopolistic competition. However, in
economic theory, they still remain of
reference to which are compared all the
other structures. Perfect competition
remains, indisputably, the model in terms of
benefits and gains of prosperity, without
ignoring the positive aspects of monopoly,
despite the negative footprint it has in the
duo perfect competition-monopoly.
In most cases, practices restricting
competition have predominantly negative
effects, which bring more disadvantages
than benefits to consumers, and, in addition,
there always exists a conflict between the
interests of monopoly and consumer
interests. This is the reason and explanation
for the need for state intervention, with the
purpose of creating the necessary policies
and monitoring their application, or with the
purpose to control their behaviour and
reduce the harmful effects of such behavior
on consumer welfare.
These legislative measures were also
adopted in Romania, by alining the relevant
laws of competition with thoese applicable in
the European Union.
References:
1.Mark Blaug- “Economic Theory in Retrospect”,

Fourth edition, p. 77, Didactic and Pedagogic
Publishing House, Bucharest, 1992.
2. Tatiana Mosteanu, Theodor Purcarea-
“Competition. Guide to Business Performance”, p.
62, Economic Publishing House, Bucharest, 1998.
3. Costel Petcu- “The Factors of Economic
Development”, p. 38, Hermes Publishing House,
Craiova, 2000.
4. William J. Baumol- „Business behaviour: value
and growth”, Macmillan Publishing House, New
York, 1985.
5. Costel Petcu- “The Theory and Science of
Economics. Microeconomics”, p. 322, Drobeta
Publishing House, Drobeta Turnu Severin, 2006.
6. Sică Stanciu- “General Fundamentals of
Marketing”, University of Bucharest, 2002.
193

CHALLENGES IN FOOD SAFETY AND CONSUMER HEALTH
DAVID Oana;
“Politehnica” University of Bucharest;
davidgioana@yahoo.com
MIHAI Valia Maria;

Petroleum-Gas University of Ploiesti;
mihai_valia@yahoo.coms
Abstract that product will be considered safe when it

This paper aims to present the problems complies with the national regulations of
facing consumers in terms of how they are Romania or of the Member State where it is
produced, distributed and marketed food. being traded. Those regulations will be
After 2007, when Romania joined the added the principles of free circulation of the
European Union, our country has devoted market products and services, which
considerable attention to achieving food formulate the health and safety
security through the adoption of legislation requirements that the product needs to meet
and establishment of specialized institutions, so that it will be traded.
and ensures consumer health. A product will be regarded as safe, from the
point of view of risks and risk categories
Key words: consumer, food safety, consumer governed by the relevant optional national
health, foodstuff. standards that translate the European
standards and whose reference is published
1. Introduction in the Official Journal of the European
Communities. The references of such
Our life stile nowadays, compared to the harmonized national standards are made
past, is quite different. The rapid pace of public by the Romanian Standards
today, as well as the increase of the single, Association (ASRO).
mono-parental and working-women number The conformity of a product with the general
of households, has brought visible changes in requirement of products safety may be
how food is prepared and consumed. assessed by looking at the criteria below:
A positive outcome of such changes has been a) the optional national standards that
the quick advancement of the food translate the relevant European
technology, of food preparation and standards;
packaging, in order to provide safety and b) the standards that are set up in the state
good quality in food supplying. Despite of where the product is being traded;
these new discoveries, it is very likely to c) the guidelines in the area of products
have the food contaminated naturally or safety assessment;
accidentally, or an inappropriate treatment d) the codes of good practices in terms of
of food. products safety, applicable in that
respective sector;
4. Paper Content e) the present status of the scientific and/or
technical knowledge;
Food safety involves the assurance given to f) the reasonable expectations of the
the consumers that the products on the consumers, concerning the general safety
market are safe, and this includes all of products.
products. The producers are bound to launch only safe
From the perspective of the Romanian products on the market. Limited to their
legislation, which lacks the community activities, they need to provide the
stipulations specific to a product in itself, consumers with the useful information that
194
will allow him to assess or to avoid the the identification of product, the risk nature
inherent risks of a product during an and the measures taken.
average use time or for a reasonably The EU Member States make sure that the
predictable period of time. This will happen producers and suppliers fulfill their tasks, in
when they are not quickly enough perceived such a way that the products entering the
by the consumer, unless there is a pertinent market are safe.
warning. These States appoint or identify the
The distributors of the products are authorities that have a say-so in the
constrained to: monitoring of how the products meet the
a) to take a good care in complying with the general safety requirements and act upon it,
present safety requirements, mainly not so that these authorities have and apply the
to distribute products when they are prerequisities required in the appropriate
aware that these products do not meet measures to be used.
the safety criteria; The measures to be adopted may concern the
b) to participate, as limited in their following categories of products:
activities, into the monitoring of the (a) for any product:
safety of products on the market, mainly (i) to make proper verifications of the
by: product safety properties, even after its
1. the dissemination of information market launching, at a right scale, up to
regarding the products risks; the final stage of its use or consumption;
2. the storage and delivery of the (ii) to require all the necessary information
documents that are necessary to from the parties involved;
determine the products origin; (iii) to take product samples and test them
3. the cooperation in the actions taken by for safety;
the producers and the competent (b) for any product that might show risks
authorities to avoid the risks. under certain conditions:
Within the lines of their activities, the (i) to request its marking with appropriate
distributors need to take measures that will warnings, clearly formulated and easy to
allow their efficient cooperation with the understand, in the official language of
producers and the competent authorities in the Member State where the product is
this field. being traded, about the risks that might
In Romania, the competent authority for occur;
monitoring the market in respect to the (ii) to limit its trading under the previous
conformity of products with the general conditions, so that they will make it a
safety requirements, the control of safe product;
contraventions, the sanctions application (c) for any product that might present risks
and the complementary measures taking is for certain people: to give instructions that
the National Authority for Consumer the warnings be timely and appropriate with
Protection. the risk, including special warnings;
This organism may cooperate, according to (d) for any dangerous product that is already
its duties in the current legislation, with on the market:
other similar organizations monitoring the (i) to give instructions and have it recalled
market, with the purpose of building up immediately and effectively and to alert
actions towards the implementation of the the consumers in regards to the risks
present laws on the national territory. within them;
The consumers health and safety-related (ii) to give instructions and coordinate or,
information that regard the risks in as case may by, to organize, along with
products, held by the authority abilitated to the producers and suppliers, its recall
monitor the market for the compliance of from the consumers and destruction in
products with the general safety regulations, proper conditions.
needs to be available to the large public, in Any adopted measure that involves
line with the transparency criteria and not restrictions about the introduction of a
harming the restrictions that are required product into the market or requests its recall
during the activities of control and or return, needs to mention the underlying
investigation. The public needs to have reasons and indicate the available remedy
mainly access to the information regarding measures within the accepted legal
195
stipulations in the Member States and the The creation of the European Food Safety
deadlines for recovery. Auhority (EFSA) has come as a help with
The risk that the food is contaminated with the efforts made by the European
chemicals or micro-organisms is present institutions for protecting the European
throughout the entire food chain (production, consumers in this field, by providing
processing, transport and consumption). independent scientific counselling regarding
Generally speaking, the food safety is the new or current risks.
threatened by factors falling into two The basic principle of the EU strategy for
categories: food safety is the implementation of an
 Biological contamination - bacteria, fungi, integrated approach, such as ‚from farm to
viruses or parasytes. For such a table’, to cover all the food chain sectors –
contamination type, food displays easily including the fodder production, health in
identifiable signs, in most of the cases plants and animals, animals well-being, the
 Chemical contaminants - which include primary production, food processing, storage,
chemicals coming from the environment, transport, retailing, as well as their import
grounds of veterinary use medicine, heavy and export.
metals or other residua that enter the food This all-embracing and integrated approach,
unintentionally or by accident, during the where the responsibilities of the operators in
processes implied by agriculture or the food products and fodder sector, as well
animals and birds breeding, the food as the competent authorities’ are clearly
processing, transport or packaging defined, represents a more coherent, efficient
Should a contaminant agent generates a risk and dynamic food strategy.
or not, it depends on a lot of factors, among The consumer is the direct beneficiary of the
which we mention the substance absorbtion products that pass through the food chain,
and toxicity, the contaminant quantity in and his safety is vital for the health of every
food, the quantity of the consumed food and one.
the time of exposure to that contaminant. During the Second Meeting of the
Besides these, the individuals differ in Consumers Associations in Europe
regards to their sensitivity to contaminants. (Brussels, 2000), Romano Prodi, the
Also, other factors of diet may have an President of the European Commission
impact upon the toxic consequences of the during 1999-2004 highlighted the fact that,
contaminants. Another element that would at the European level, an integrated food
make difficult the things concerning the policy is being promoted, with a view to the
chemical contaminants is that many of the entire chain of food safety.
studies involving chemical contaminants There is no doubt that the ‚European
represent outcomes of animal-based studies. consumers expect their food be the safest’,
They never know for sure whether the Romano Prodi said. Hence, they have taken
chemical agents would have a similar effect measures of legislation modernization, of
upon humans, too. creating a flexible and efficient legislative
The process of globalization of the food chain framework in order to regain the consumer
triggers the constant emergence of trust in the products freely moving on the
challenges and risks for the health and European market.
interests of the European consumers. The The Romanian consumer will have a large
main objective of the European Union for the selection of food products to pick from, which
food safety is to reach the possibly highest for the last years went from natural products
degree of protection of human health and the to enriched ones, getting to the functional
consumers’ interests in terms of food. food. Lately, the European and Romanian
To this matter, the European Union (EU) is markets have accomodated the genetically
working hard to guarantee the food safety modified food.
and their correct labelling, taking into Even if the final choice belongs to the
account the products diversity, including the consumers, the producer duty is, though, to
traditional ones, and, at the same time, correctly inform the consumer by means of a
providing a good operation of the local correct labelling. This involves not only the
market. This is the reason why the EU has appropriate labelling of the food products,
created a comprehensive legislative body for but also the specification whether it is
food safety, which relies on the risks ecological, genetically modified or radiated
analysis. for the purpose of destroying the parasytes
196
or pathogenic bacterias, like Salmonella,

Lysteria, etc. References
The improvement of the food safety process
in Romania may count on the programs for 1. Boboc, D.,2005, Quality Management for
agriculture, rural development and Agricultural Products, Bucharest, Editor ASE;
environment, such as: SAPARD, ISPA and 2. Anastase, A., Anastase, I.,2004,
Standardization and certification of goods,
PHARE.
Bucharest, Editor ASE;
Also, the rural development will be
3. Oprean, C., Kifor, C.V., Suciu, O., 2005,
addressed to in a close connection with the Integrated Quality Management, Sibiu, Editor
durable development that may not avoid the “Lucian Blaga” University;
consumer’s protection. For this reason, the 4. http://europa.eu/index_ro;
SAPARD mentions under 1.2. item about the 5. http://www.anpc.gov.ro;
progression of the structures concerning the 6. http://www.legestart.ro;
quality, veterinary, phytosanitary control, 7. http://www.gov.ro.
the quality of food products and the
consumers protection.
Lastly but not the least, the food quality and
safety heavily relies on the efforts of all
people involved in the complex chain that
includes production, processing, transport
and consumption. According to the European
Union and the World Health Organization,
food safety is everyone’s responsibility,
starting with their origin up to the moment
they reach the tables.
In order to maintain food quality and safety
along this chain, we need both procedures to
make sure that food is safe, and also
monitoring procedures that will allow the
completion of all the operations under the
best conditions.
5. Conclusions and implications
Food safety will not be a real issue unless it

is a responsiblity of all people involved in the
food field, from professionals to consumers.
Along the food chain, diverse control
procedures and mechanisms are
implemented, which guarantee that the food
on the consumers’ tables are edible and the
contamination risk is minimum, so that the
population be healthier upon consuming safe
and healthy food.
Nevertheless, the zero risk in food does not
exist and we have to be aware that not even
the best legislation and the state-of-art
control systems are unable to fully protect us
from the evildoers.
The best way to implement food safety is to
inform ourselves about the basic principles
of food production and their safe treatment
in our houses. The issue of food safety may
not be approached but only in a strict
relation with the problems of environment,
agriculture and the economic and social
context in Romania.
197

KNOWLEDGE MANAGEMENT IN E-BUSINESS ENTERPRISES
DIANA Dorus
“University of Bucharest”, Business Administration
dorusdiana@gmail.com
Abstract: Since the concept of virtual organization

was implemented by Mowshowitz in 1986 and
In the last years, the topic of knowledge popularized by Davidow and Malone in 1992, I
management has gathered a lot of interest in believe has become increasingly used in
the corporate sectors, most of the management theory, and in particular, in the
interpretations of knowledge management information system literature.
being relevant in the world of business. Due to Virtual organizations use information
this interest, and because of the changes that technologies such as electronic mail to share
occurred in the world lately, knowledge information and coordinate their work. The
management is proposed to be seen from a structure of an eBusiness allows a high degree
new perspective, being implemented in the e- of flexibility, competitiveness and cost
business enterprises. efficiency, but it also involves a high level of
For the purpose of this article, the focus of trust between the individuals that take part of
the discussion is on e-business enterprises, a network.
and how knowledge management is Flexibility in the integration of knowledge
implemented by managers in this “new world” is easily facilitated by virtual organizations
of e-business, but also it consists in the because of their easy access to global
presentation of the relationship between e- collaborations without temporal and spatial
commerce and e-business, with detailed barriers. E-businesses contribute to increase
information about e-commerce in particular. flexibility in the communication between
Based on this discussion, a new perspective organizations, with the customers, in the
of knowledge management is proposed, and it methods of publicity that they adopt.
is also presented the importance of the Therefore they are superior to other options in
Internet in the nowadays enterprises, and its the integration of knowledge in rapidly
contribution to success. changing and hyper-competitive
environments.
Knowledge management in an eBusiness
Key words: knowledge management, e- enterprise, is interpreted in terms of potential
business, internet, network, e-commerce for action, as the philosopher and professor
Charles West Churchman had observed three
Introduction decades ago in his work, called “The design of
inquiring systems”: “knowledge resides in the
It is increasingly becoming an user and not in the collection of
understatement to say that the Internet and information…it is how the users react to a
related technologies are changing the ways in collection of information that matter”.
which we live. Because of this major impact of
the Internet, it was introduced on the market
the idea of Electronic business, commonly Literature review
referred to as "eBusiness" or "e-business".
This concept may be defined as the application There are described three myths about the
of information and communication knowledge management, as relevant to the
technologies (ICT) in support of all the new world of “e-business”, in the opinion of
activities of business. Yogesh Malhotra, in the book named
198
“Knowledge Management and Business Model developed on the Internet, and the older
Innovation”. traditional companies that are trying to adapt
The first one is called “The myth of to the new world of electronic business.
knowledge management technologies that can The role of online communities has become
deliver the right information to the right increasingly important to the success of E-
person at the right time”. This idea applies to business. The E-business enterprise's
an outdated business model. Information capability for creativity and ability to leverage
system in the old industrial model shows the the community will determine if it loses or
notion that businesses will change wins in the "market-space."
incrementally in a natural stable market, and Commercial success in E-business depends
executives can foresee change by examining on organizing and exploiting the potential of
historical data and trends. Businesses can not virtual communities. Their key argument is
plan long term; instead, they must shift to a based on the premise that the knowledge,
more flexible “anticipation-to-surprise” model. content, and resources produced by online
For more significant decision, it is impossible communities are extremely valuable
to build a system that can pre-define who the commodities. This perspective expands on the
right person is, what the right time is, and earlier role of the potential user or customer
what constitutes the right information. primarily in terms of self-service through
The second myth is called “Knowledge limited configuration.
management technologies that can store
human intelligence and experience”.
Technologies such as databases and
groupware application store a large quantity
of pixels and bits, but they can not store the
rich schemas like human minds, that are used
for making sense of bits and pixels. Moreover,
information is context sensitive. The same
assemblage of data can evoke different
responses from different people in different
points in time.
The third and the last myth, is known as
“The myth of knowledge management that can
distribute human intelligence”. Again, this
reveals that companies can predict the right Theoretical Background
information to distribute and the right person
to distribute it to. For most important The expanded role of the user includes
business decisions, technologies can not involvement in creation of content, in product
communicate the meaning embedded in and service reviews, and in self-support by
complex data as it is constructed by human asking questions of other users, addressing
minds. Often it is assumed that compilation of answers in return to gain recognition and
data in a central repository would somehow points in terms of goodwill,
ensure that everybody who has access to that Source: Stephen Denning, The
archive is capable and willing to utilize the Springboard: How Storytelling Ignites Action
information stored. Past research on this issue in Knowledge-Era Organizations and in
revealed that despite the availability of reviewing the comments posted by others.
databases, most executives take decisions As Zorayda Ruth Andam presented in the
based on their interactions with others, which book named “E-Commerce and V-Business”,
in their point of view are knowledgeable about the terms with the same name as the title of
the issues. the book, have increasingly become a
The arrival of e-business only underlines necessary component of business strategy and
the necessity for organizations to adopt a strong catalyst for economic development.
systematic approaches to sharing knowledge. With developments in the Internet and
The demands of e-business for rapid response Web-based technologies, distinctions between
and agile adaptation to the market-place is a traditional markets and the global electronic
challenge both for the new businesses marketplace-such as business capital size,
199
among others-are gradually being narrowed down.
“Electronic commerce or e-commerce refers Of course, we should also discuss about the
to a wide range of online business activities three forms of e-commerce:
for products and services”. (Anita Rosen, The
E-commerce Question and Answer Book (USA: 1. Auctions facilitated at a portal, such
American Management Association, 2000). “It as eBay, which allows online real-time
also pertains to “any form of business bidding
transaction in which the parties interact on items being sold in the Web;
electronically rather than by physical 2. Peer-to-peer systems, such as the
exchanges or direct physical contact.” (MK, Napster model (a protocol for sharing files
Euro Info Correspondence Centre (Belgrade, between users used by chat forums similar to
Serbia), E-commerce-Factor of Economic IRC) and other file exchange and
Growth). later money exchange models;
E-commerce is the use of electronic 3. Classified ads at portal sites, such as
communications and digital information Excite Classifieds and eWanted (an
processing technology in business transactions interactive,
to create, transform, and redefine online marketplace where buyers and sellers
relationships for value creation between or can negotiate and which features “Buyer
among organizations, and between Leads & Want Ads”).
organizations and individuals.
The Internet is relevant to e-commerce
because it allows people from all over the
While some use e-commerce and e-business world to get connected inexpensively and
interchangeably, they are distinct concepts. In reliably. As a technical infrastructure, it is a
e-commerce, information and communications global collection of networks, connected to
technology (ICT) is used in inter-business or share information using a common set of
inter-organizational transactions protocols.
(transactions between and among Also, as a vast network of people and
firms/organizations) and in business-to- information, the Internet is an enabler for e-
consumer transactions (transactions between commerce as it allows businesses to showcase
firms/organizations and individuals). and sell their products and services online and
gives potential customers, prospects, and
Three primary processes are enhanced in e- business partners access to information about
business according to Ruth Andam: these businesses and their products and
services that would lead to purchase.
1. Production processes, which include The use of the Internet for different aspects
procurement, ordering and replenishment of of the product dimension can be easily shown
stocks; processing of payments; electronic through a scheme.
links with suppliers; and production control
processes, among others;
2. Customer-focused processes, which
include promotional and marketing efforts,
selling over the Internet, processing of
customers’ purchase orders and payments,
and customer support, among others;
3. Internal management processes, which
include employee services, training, internal
information-sharing, video-conferencing, and
recruiting. Electronic applications enhance
information flow between production and
sales forces to improve sales force
productivity. Workgroup communications and
electronic publishing of internal business
information are likewise made more efficient.
200
Source: Stuart Barnes, Brian Hunt, E- development and approach to business in the
Commerce and V-Business future.
As technology develops more and more
Paper content tools and e-tools, allowing higher speed of
communication, more research shall be done
For a better evaluation of e-commerce and in the ways knowledge management is
e-business, a differential description is developed, maintained and passed around.
needed. Firstly, E -business and e-commerce
are terms that are sometimes used References
interchangeably, and sometimes they're used
to differentiate one vendor's product from 1.Yogesh Malhotra, Knowledge Management
another. But the terms are different, and that and Business Model Innovation (Idea Group
difference matters to today's companies. In Publishing)
the opinion of Andrew Bartels, E-commerce
covers outward-facing processes that touch 2.Kim Viborg Andersen, Steve Elliot, Paula
customers, suppliers and external partners, Swatman, Eileen Trauth, Niels Bjorn-Andersen,
including sales, marketing, order taking, Seeking Success in E-Business (Kluwer Academic
Publisher)
delivery, customer service, purchasing of raw
materials and supplies for production and
3. Stuart Barnes, Brian Hunt, E-Commerce & V-
procurement of indirect operating-expense Business (Business Models for Global Success)
items, such as office supplies. It involves new
business models and the potential to gain new 4.Caesar Camison, Daniel Palacios, Fernando
revenue or lose some existing revenue to new Garrigos, Carlos Devece, Connectivity and
competitors. Knowledge Managementin Virtual Organisations
(Premier Reference Source, 2009)
Conclusions and implications
5.Zoryda Ruth Andam, e-Commerce and e-
Business ( e-ASEAN Task Force, 2003)
E-commerce involves only three types of
integration: vertical integration of front-end 6.Stephen Denning, The Springboard: How
Web site applications to existing transaction Storytelling Ignites Action in Knowledge-Era
systems, cross-business integration of a Organizations (Butterworth Heinemann, Boston,
company with Web sites of customers, London: 2000)
suppliers or intermediaries such as Web-based
marketplaces, and integration of technology 7.C. West Churchman, The Design of Inquiring
with modestly redesigned processes for order Systems: Basic Concepts of Systems and
Organizations (New York, NY: Basic Books, 1971)
handling, purchasing or customer service.
E-business includes e-commerce but also
8.Anita Rosen, The E-commerce Question and
covers internal processes such as production, Answer Book (USA: American Management
inventory management, product development, Association, 2000)
risk management, finance, knowledge
management and human resources. E- 9.MK, Euro Info Correspondence Centre
business strategy is more complex, more (Belgrade, Serbia), E-commerce-Factor of Economic
focused on internal processes, and aimed at Growth
cost savings and improvements in efficiency,
productivity and cost savings.
E-commerce and e-business are both part of

Knowledge Management and address to a
technology infrastructure of databases,
application servers, security tools, systems
management and legacy systems, and both
involve the creation of new value chains
between a company and its customers and
suppliers, as well as within the company itself
and represent a serious part of the business
201

GLOBAL ECONOMICS AS A COMPLEX SELF-REGULATED SYSTEM:

THE CYCLE BIRTH AND POSSIBLE CONTROL FEATURES
DREIMANIS Andrejs;
Radiation safety centre of the State Environmental Service, Latvia;
Andrejs.Dreimanis@rdc.vvd.gov.lv
Abstract and conditions. The inner variety is regarded

The current global economics crisis has as a variety and wealth of the inner world of
seriously influenced the tendency of the individual/society, namely, the set of
sustainable development of our world, cultural, ethical and analogous qualities of
namely - the individual/the whole society.
a) via endangering – in short- as well in
the long-term scale – the quality of life, The basic problem of a human’s adequate
and primarily - the real running of the survival and adaptation to complex external
whole set of socio-economic-financial environment could be defined in a following
processes and their development, way: how should a human being develop
b) via demanding to reveal fundamental himself and to be educated, in oder to elevate
reasons of the origin of this crisis in the his own internal variety as well as the
context of general laws of sustainable internal variety of the whole society to the
functioning and development of complex level exceeding the external variety (where
systems. external variety could be regarded basically
as a multitude of material and related
Key words: complex systems, variety, matters). Let denote the internal variety as
systems thinking, creativity, education I, the external variety – as E, their algebraic
diference: (I – E) = D. Furthermore, let
The aim of our report – to reveal general propose: the pace of the development should
reasons of origin such socio-economic be proportional to the value, where the case
instabilities and to indicate possible D < 0 will mean negative development
approaches to prevent serious concussions of (crisis, degradation).
the development of global socio-economic
system treated as cybernetic system.The The fundamental principle of requisite
basis methodology of the present analysis variety serves as the basic mechanism
the W.R Ashby principle of requisite variety, providing the necessary self-regulation cycle
stating that for successful development of a of the global world exhibiting in following
given system (e.g. human being(s)) in the main steps:
external environment its internal variety or 1) inner variety I greatly > the
complexity of the given system should exceed environmental variety E: high
the variety of its environment. cultural-ethical level of people
ensures rapid progressive beneficial
Application of this principle gives following socio-economical progress and the
criterion of sustainable development of the growth of material well-being of the
global world society: the internal (or inner) society;
of an individual/society shall exceed the 2) the growing environmental varity
variety (complexity) of its external decreases of the diference inner
environment (denoted as the external variety-extern.variety, the society to
variety). At the present stage the internal a more extent enjoys the material
and external variety are defined on a wealths and entertainments
qualitative level environment is basically promoting further progressively
defined as a multitude of material, financial, decrease of that diference resulting
socio-economical, entetainmental benefits in the change of the sign of this
202
diference; the economics is continued Basic routes of elevating our internal self-
to grow; variety could be knowledge and flexible,
3) the external variety > the internal creative thinking, Moreover, in conditions of
variety: sustainable development crucially changing environment where there
starts to be interrupted, there are numerous degrees of the system to
originate financial and socioeconomic evolve, just the necessity of flexible integral
global as well as widespread local thinking will come in the forefront, which,
crisis, dropdown of production output according to the Banathy proposal, will
and material well-being and of the provide creative reaching out of the system’s
whole quality of life; own boundaries.
4) the drastic drop in the level of the
material well-being provides the A likely way to acquire the capability to
decrease environmental variety; in develop a novel, complementary state of
turn, in the crisis situation the thinking patterns and sensible perception to
people activate their inner cultural the hierarchy of multiple sets of individual
and creative resources thereby as well as global values seems to be the
increasing their internal variety as following one – namely, to develop a creative
well finding inner reserves for approach to world phenomena, problems and
reconsidering the existing values. It is highly important just nowdays –
approaches, procedures and opinions; in the period of mutually controversal
the inner variety again will overcome realities and values – that creative flexible
the environmental one, socio- thinking, as a manifestation of the systems
economic development is renewed; thinking, could promote the self-organization
the 4-step cycle has been completed. process in the direction facilitating an
integral perception of the world and its
Based on the above schema we derive 2 values.
forthcoming goals:
a) to acquire a possibility to control and As an important mechanism for the
impact the self-regulation cycle, by development of these necessary qualities and
trying to regulate the variation of the values of the society one consists of: 1)
D value, the amplitude and the adjustment of the principle of requisite
durations of these steps, variety to the case foreseing the necessity to
b) as the ultimate goal one could assume develop novel insight and apprehension of
to reach and maintain stable positive basic values; 2) on this basis to reorganize
D value – via progressively and optimize - taking into data of
stimulated permanenet growth of the contemporary natural and social scences –
inner variety - thereby providing the education system towards accelerated
steady complex material-cultural – and profound development of system
ethical development of the whole thinking being actual also for humane use of
society, in particularly, to ensure the contemporary knowledge, in particular –
the transition of the whole society to the safe use of nuclear energy.
a qualitatively novel state, where,
according to the Weidlich’s self- In conclusion, the proposed revealing of
consistency principle, the people the world economics dynamics internal rules
contribute, by means of their and possible tools to guide this dynamics is
cultural and economical activities, to worth further development towards
the generation of a general field of sustainable and humanious development of
civilization. our world.
203

KNOWLEDGE MANAGEMENT – A TOOL FOR THE NEW WORLD
DUMITRU Paula;
University Nicolae Titulescu, Bucharest;
pauladumitru@univnt.ro
JOIA Radu-Marcel;
radu.joia@univnt.ro
BABONEA Alina-Mihaela;
alinababonea@univnt.ro
Abstract 1. Introduction
Management based on knowledge is seeking In the “new economy” and “the knowledge
solutions to harmonize the objectives of society”, intangible assets such as knowledge
organizations of the human group, which management and information and
need to rationalize, to provide policy makers knowledge become the new core
and to implement. Although there is a competencies. According to Professor Quash
diversity of research in this area, the London School of Economics, we are in a
diversification that led to approach the world that emphasizes the economic value of
complex concept of management based on intangible assets. We are dealing with
knowledge, unfortunately, most “cognitive domains” in which ideas are worth
organizations in the value of a goal is still a billions, while the products still cost less.
matter for the future. In Peter Drucker’s vision in the future
That’s why, the main aim of our approach, is others will be key success factors:
to investigate the relevance management “traditional factors of production-land, labor
based on knowledge, operational routes on and capital-have not disappeared. But they
conceptual coordinates in the current have become secondary. Knowledge is only
international context. We will review the really relevant resource today. Knowledge
concept of knowledge management through a becomes essential component of the system
debate between two paradigms (positivist of contemporary economic and social
and constructivist) to develop valid methods development” (Drucker P., 1988).
of obtaining performance. Knowledge, unlike labor, land and capital is
The main purpose of our approach is just to an asset that is assessed as usage.
provide an epistemological and The more used the knowledge becomes more
methodological support for undertaking effective and efficient. In his opinion,
research and the same basic theory to (Sveiby, 1998) “the New Economy”,
management. Starting from here, our knowledge has four characteristics:
intention is to argue and disprove a failure  is tacit;
irreconcilable objection between positivist  is oriented towards action;
and constructivist paradigms.  based on rules;
 is amended regularly.”
Key words: knowledge, management based Understanding the implication tacit &
on knowledge, epistemology, positivism implicit [Nonaka & Takeuki model, 1999],
paradigm, constructivist paradigm shows dynamics of knowledge conversion
from explicit knowledge to tacit knowledge.
- But knowledge can be considered
as an existing theory?
204
It believes that more and more knowledge- that management based on knowledge must
based assets as tangible replace vital be placed in the current economic context.
support creating competitive advantage. An enterprise is a dynamic environment
Those who make the essential difference which has the main objective of adding
between organizations are people, not value. In terms of management based on
money, buildings or equipment knowledge, knowledge (resources) are a key
[Venkatraman & Subramaniam, 2002]. factor in the extent to which they are
Human resources are a key factor in this managed in such a way as to constitute a
context, for employees and the extent to source of benefits.
which they manage, play an essential role in
the success of an organization. 2. Literature review
Organization’s ability to adapt to the future
economy depends largely on developing a The main source of inspiration for this
new type of management, focused on value article is Davenport TH., Prusak L’s.,
creation of knowledge and scientific progress „Working Knowledge: How Organizations
achieved through the operational results of Manage What They Know” where the
scientific research. authors describes their own beliefs regarding
Thus, management based on knowledge as the economical issues in business
the result of knowledge progress achieved organization. Also they are presenting the
through the operational results of scientific important of the relation between the
research. knowledge management and fundamental
In defining the concept of management business strategy. As many business
based on knowledge (the world there are academics, the authors have long stressed
many approaches), noted that, regardless of the internal role knowledge plays in
the treatment, each definition is focused business strategy and organizational
around the ideas: economic performance, performance. This idea is also promoted in
creation of economic value added, improve Drucker P.’s book: „The coming of the new
operational efficiency, effectiveness and organizations” that shows hoe people have to
profitability. be organized across the business for bringing
Aware of the importance of the concept, the success. The main two sources are completed
Romanian school has treated knowledge by a lot of international articles in which the
management through leading knowledge management is the main subject
representatives of modern management – discussed.
[Nicolescu, O., I. Plumb, & collective, 2003],
defining a highly suggestive as “strategically 3. Paper Content
oriented approach to reasoning and facilitate
the employment of members of organizations From the intelligence company to the
to develop and use their cognitive company producing ideas
capacities”.
If we consider the theory in terms that we We mentioned implanted in a socio-economic
are in infancy, in terms of knowledge-based complex calls us, asking us new ways of
managerial practice, it is a step forward, approaching problems, new styles of
particularly in organizations working in behavior. To face the demands, will use its
areas such as informatics, creative potential, in every situation
telecommunications, biotechnique, etc. inventing alternative solutions originals. In
Quick dynamic world of ideas relating to these conditions, organizations are put in
management based on knowledge although front redefining own culture through
beneficial in terms of possible applications is processes of organizational redesign and
still considered a profusion and diversity change of strategy.
almost confusing. Focusing must be Concept of knowledge management, best
sufficiently broad to cover the interesting known in literature under the name Anglo-
mix of perspectives, conceptual approaches, Saxon “knowledge management” emerged in
theories and results which are due 1989 in the Harvard Business Review
interdisciplinary and nature with many magazine with a history of learning
facets of this area. organization concept in the ‘80s. He made
In this context, the argument for addressing several definitions over not present, among
personal issues that go beyond the finding
205
which the most representative present them documents or experts in the brain, they
below: cannot be directly exploited in conditions of
 “management based on knowledge all those concerned.
involves the acquisition, storage, From previous approaches, we could say that
generation and review of knowledge management based on knowledge emphasize
assets within the organization in a not only new phenomenology, but induces a
controlled” (Watson, 2002); different vision on how to conceive an
 “means to improve overall business practice management.
performance through operational In this sense, we could say that based on
knowledge in production, marketing, knowledge management is:
research development, planning and  to optimize the process of adopting
innovation” (Kim, 2003); decisions;
 “art of creating value by using  back to corporate experiences;
intangible assets” (Sveiby, 1999);  to increase the number of
 “Processes of creating, capturing and innovations;
using knowledge to enhance the  to acquire new knowledge;
performance of organizations.
Economic forces which determine the Epistemological and methodological
emergence of science – management components of the concept of
based on knowledge and use of management based on knowledge
intellectual capital are fundamental
and will continue to act” (Chan, This concept of management based on
2002); knowledge, is based on a deterministic
 “the collection and dissemination of approach, from the technological and
collective or individual experiences organizational factors.
that fulfill their missions to obtain At the beginning of the millennium, there
performance in an was convergence between perspective and
organization”(Nicolescu, 2005). technological management, through the
The starting point in addressing knowledge merger between organizational needs and
as an asset of the enterprise, and information technologies. Accordingly, the
Therefore attempt to evaluate the government issued a new management
intellectual capital is highlighting its paradigm based on knowledge, upper
components, so where they are at a time, positivism paradigm management based on
form and, most importantly, how can we control and authority.
measure and improve. Members of such organizations are aware of
Literature has identified and submitted in the relationship between goals and
time, several types of knowledge existing in objectives, means and results and between
an organization, but the really useful key to organizations and environment.
be retained and capitalized are: on the one There was recently the concept of
hand know-how or the ability to design, “knowledge base” used in a broad sense for
build, sell, and on the other hand, collective organizations that integrates both personal
and individual qualification (the ability to dimension of knowledge to individuals and
act, to adapt and to develop). groups, and its size, presented in artificial
In another perspective, there are tangible intelligent information systems.
elements (data, procedures, plans, models, In this context, “the knowledge base present
documents, analysis and synthesis, and organizational attributes of extended
intangible elements (ability, skill training, memory, designed to support cognitive
private knowledge, knowledge of the autonomous specific projects and to benefit
company). For intangible is necessary first to the cumulative results.” (Androniceanu A
formalize the know-how, which involves and Androniceanu M., 2007).
acquisition and knowledge representation. Fundamental problem of management based
Whole knowledge of a form the intellectual on knowledge is related to the production of
capital that is characterized by a high knowledge and know-how needed to use
volatility. Specialized studies show that over them. Knowledge production and know-how
80% of information and knowledge that form for operation is the result of a combination of
the memory are recorded in information factors of socio-human, cultural, technical,
systems, which are stored on paper etc. Knowledge is made increasingly more in
206
the area of “production” effective. Production represented by the book - itself or mental
of knowledge and know-how is related to this process that results from reading the book?
methodology as well as many different It is believed that knowledge is more than
elements of a practical-applicative, ethical, information stored. Knowledge may be called
technical and cultural. the mental state of ideas, facts, concepts,
If you return the organizational realm, we data, techniques, etc., recorded in the
can accept the idea expressed by Davenport memory of an individual. But two
and Prusak we cannot take claim of a final individuals who read the same book remain,
definition of knowledge, while epistemology often with a volume of knowledge differently.
enough to have dedicated entire life trying to This is because knowledge is strictly related
understand the essence of knowledge. From to a (processing) problem.
a pragmatic perspective, organizational, two Knowledge is obtained from individuals and
American authors use knowledge as a fluid groups of “knowledge” or analyzing
mixture of structured experience, values, organizational processes and procedures.
contextual information and expertise that Wisdom springs from understanding the
provide the framework for evaluating and fundamental principles on which are built
incorporating new information and grids representing knowledge. When belief
experiences (Davenport & Prusak, creates knowledge, beliefs, values guiding
1998). Hence the difficulty, even the behavior of an individual can speak
impossibility formalization, complex and wisely.
unpredictable nature of most of the (Bellinger, 1997) draws the following
knowledge. parallel:
About the information-knowledge, Alain  information: What? - description,
Godbout distinguish two different definition, or perspective,
approaches sensitive (Godbout, 2004). First  knowledge: Who? When? Where?,
we grouped those who assimilated the How? - the strategy, practice,
knowledge economy. For the second category approach;
of “knowledge is information in the step  wisdom: Why?, What implications? -
above a chain of value-time information- principle, conviction, archetype.
knowledge-wisdom”. The problem presents a Prusak and Davenport draw attention to the
great importance in defining the concept of fact that the value chain can be made
management based on knowledge. in respect downward, especially when due to
Represents the object of knowledge the huge volume of knowledge, the
management, knowledge management information becomes impossible to manage.
process or a mixture of the two approaches? Knowledge and information can become even
Speaking of management based on date.
knowledge, you must first clear the nature of To reinforce the idea, the authors make
the object (knowledge or information?) and reference to Eschil who said that “it is not
the nature of the process (learning or wise who knows many things, but useful
knowledge?) things” (Davenport & Prusak, 1998).
Machlup (quoted in Court, 1997) replaces Remains a crucial question: How do I build
the information process to inform and be the significance, meaning that data are
informed and inform the state of knowledge. “advanced degree” to information and then
He attached the concept of communication of knowledge, how we construct knowledge and
information, which suggests that acquire wisdom? Of course, it is sufficient to
information is dynamic. On the other hand, place science philosophical reflection.
knowledge is a state, a property of an Basic problem of epistemology - the validity
individual. and limits of knowledge - became a current
(Leave, 1996) states that knowledge always concern not only the current in the
undergoes a process of construction and philosophy or theory of organizations but
transformation in use. also organizations of concrete, in particular,
For Hill (quoted in Court, 1997) - knowledge, they each develop and test on a continuous
to be stored, you must first be concrete and representations about the business
have a real message. He takes the example environment, own mission and powers,
of a book. A book is practical and also a making them intelligible to its members
message. The problem: the knowledge is (Von Krogh & Ross Slocum, 1994).
207
In strict complementarity with the human factor in management based on

production of knowledge and know-how, knowledge, decisive and irreversible, is
epistemology proposes and implements difficult to verify both the theory and
systems for the recognition and practical solutions. Reality that must be
dissemination referential form of systemic addressed is an intrinsic inner (object and
accumulation. Two paradigms have been and subject of research come to confuse), is
are still considered the most significant and dominated by subjective (or is not entirely
robust construction: positivism and objective) is in fact the result of a series of
constructivism. interventions of the human factor, in its
The basic idea of positivism is that reality, various actions you succeed to produce a
the implicit social dimension is an objective, “social construction” meaning that having
external individuals and as such should be the man himself ill assigned a priori. This
evaluated on the basis of procedures and fact can only exist as an entity and can not
objectives beyond connections or influences be studied as such.
subjective measures produced by researchers The principles of constructivism have not
and subjects investigated. Reality is been explained, rather than in opposition to
therefore external and objective, and positivism.
knowledge becomes significant (true, (Le Moigne, 1995) conducted one of the first
actually) if implemented on the basis of attempts at systematizing the principles of
observation of this reality: “... there can be constructivism, based on corresponding
no real knowledge than to that based on elements of positivism provided by A. Comte,
observed facts” (Comte A., quoted by Zait & on the one hand, and theoretical references
Spalanzani, 2006). of the new doctrine, the logic and scientific
In social sciences, management and knowledge Piaget, in particular, on the other
therefore subject research is dominated by hand: representation principle, the principle
the subjective nature of relationships that of building the universe (postulate teleology)
can not be only rarely approaches that of the proiectivity principle (subject-object
researcher and drovers not to interfere and interaction), general argumentation
influence each other. On the other hand, principle.
there are problems and approaches to Defined by these basic principles,
management that may be subordinate to the constructivism satisfying the requirements
relative ease positivist canons. Moreover, a of research, at least for management, in
good time, they have developed well under particular. Because management is above all
the sway of positivism formally. projective, he should propose projects that
Management - decision science, contoured by represent in an intelligible intervention that
`50 years of the last century, seem even to occur within the enterprise, and to
final passage by positive subjects. Positivism anticipate the consequences of this
left practically out areas in which intervention.
intervention by the researcher subjectivity, So, our view is that the two paradigms can
in particular, could change anything in the cohabit just additional elements that each
state and evolution of the object brings to the other. In our orientation, it is
investigated. The objective (reality must be possible to recognize a dominant
dealt with “real”?), external (only the constructivist, but in-depth approach, the
approach of what we all could be outside intention was to argue the insufficiency of
objective) implies, in fact, lack any contact opposing and irreconcilable pieces between
with the object looked at, any of the attacks, positivism and constructivism. Premises and
because thus could be altered reality itself, the type is different, but the aim should
and consequently the results of the research remain the same: build a coherent system of
would not be conclusive. knowledge management based on a uniform
Even if positivism is operational, some methodology and structure practically
principles are also at least questionable even exploitable.
for the fields “positive”.
Given the above, my opinion is that Why we need a management based on
management based on knowledge, positivism knowledge?
paradigm is only partially valid, even if you
find principles of positivism in decision Management based on knowledge used to
theory, for example. The influence of the solve specific problems arising in an
208
organization, even when we are dealing with References

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Systems Thinking, Introduces KM
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We often face a situation where we do not Company (Xerox), in Capitalizing in
fully cover what we know, is left uncovered Knowledge Workers, APO, 2002, Tokio.
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Zait and Spalazani (2006), Editura
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and to incorporate them into new products information and personal knowledge in
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 Modern organizations focus on 6. Davenport TH., Prusak L., Working
knowledge, not capital (knowledge Knowledge: How Organizations Manage
intensive, not capital intensive); What They Know, Harvard Business
Scholl Press, Boston, MA.
 Markets increasingly unstable
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Efforts made under the current trends and Management Model for SMEs, in
analysis of literature reveals that became Knowledge Based Economy, Report of
required a radical change in terms of method the APO Symposium on
An organization is not just a warehouse of Entrepreneurship in Knowledge-based
stored knowledge, but a viable and dynamic Industry, Taipei, Republic of China,
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relationships and interactions that vary with 11. Leave (1996) The practice of learning.
Understanding practice: Perspective on
different intensities to ensure Activity and Context, New York,
transformation of knowledge for the sole Cambridge.
purpose of adding value. 12. Le Moigne (1995), Sur l’ingénierie de la
That is why the purpose of our study was to connaissance organisationnelle, Note de
draw attention to what is missing in an Recherche (93-02), GRASCE, Université
organization, of its objectives. d’Aix-Marseille, Aix-en-Provence.
209
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organizatiilor, Editura Economica,
Bucuresti, Romania.
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Economia, Firma si Managementul
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Management Review, vol.3, No.5.
22. Sveiby KE (1999) What is Knowledge
Management ?, from
http://sveiby.com/articles/Knowledge
theoryoffirm.htk.
210

DESIGN AND IMPLEMENTATION OF THE SHORT-TERM DEMAND

FORECASTING PROCESS
Eisenstat Eric;
University of California, Irvine;
eric.eisenstat@gmail.com
Abstract
The majority of managers, when asked, will of demand forecasting within a complex
readily agree that meticulous planning and enterprise, and propose a methodology for
pro-active decision making are crucial to the evaluating the need for forecasting accuracy
short and long-term success of any as well as the efficient design and
organization. To that end, an undeniably implementation of a Forecast Execution
significant portion of both high and low level Process (FEP). The FEP enters the process
business decisions are constantly made hierarchy as support to the higher level
according to anticipated future demand for Planning and Resource Allocation Process,
the company’s product(s). Yet, surprisingly and thereby, provides the unified core source
few organizations dedicate any noteworthy of forecasted demand information for all
attention to the actual functionality of business processes in the organization. The
demand forecasting internally – quite often, short-term forecasting technology is provided
the demand forecasts are little more than ad- by software-based algorithms that operate on
hoc side effects of other micro-planning historical demand data, along with relevant
activities (budgeting, sales target setting, control data, via well-known time-series
acquisition/replenishment, etc.). As a result, econometric models. The respective software
plans across various business units are module may be further integrated with an
misaligned, based on poorly formulated Enterprise Resource Planning (ERP)
assessments of the future, and altogether software for maximum efficiency in data
inefficiently constructed. Even worst, the processing and communication. Aside from
consequent problems arising under such design and implementation, continuous
circumstances are invariably difficult to process management methods targeting
identify and correct. optimal performance of forecasting and
In the present study, we take a business planning in the long term, are also discussed.
process based approach to analyzing the role
211

INTERNATIONAL POLITICAL ECONOMY IN AN AGE OF

GLOBALIZATION, GLOBAL TRADE AND GLOBAL
FINANCE
ENEA Constanţa,
Economics Faculty and Business Administration, „Constantin Brancusi”
University, Targu-Jiu, România, eneaconstanta@yahoo.com
ENEA Constantin,
Economics Faculty of Law, „Constantin Brancusi” University, Targu-Jiu,
România, eneaconstanta@yahoo.com
Abstract:
The first section of my paper outlines 1. Introduction
the history of the post war economy.
The history helps to explain why and Globalization poses new challenges
how international political economy (IPE) for all states and other actors in the world
has become so central to the study of economy. It is often assumed that
international relations. Amidst the many international institutions and organizations
actors, processes and events in the recent will manage these challenges. We will also
history of the worlds economy, it is not try- to answer the question "what role can
obvious where one might begin to analyze we expect institutions to play in managing
IPE. This task is made easier by three globalization?". We will distinguish three
traditional approaches to IPE which outline general conceptions of economic globalization
for us specific actors, processes and levels of and highlights the third, geographical notion
analysis. These are the liberal, mercantilist of increasing 'transborder' production,
and Marxist traditions which are outlined in markets and investment. This
the next section. More recently, IPE has 'superterritorial' dimension of contemporary
become divided by an argument about the world commerce is then described in more
uses and abuses of "rational choice” analysis. detail under headings of 'global trade' and
What "rational choice" means and the 'global finance'. Finally, globalization of
argument about how it should be used are commerce is linked to several major
both explored in section there. These problems of injustice and insecurity in
perspective and tools for studying IPE are contemporary world politics.
then applied to help us to make sense of The globalization of world politics
globalization and its impact on the world involves, among other things a globalization
economy. Regarding globalization, we will of economics. As Ngaire Woods has
examine one central question: emphasized, politics and economics are
Is globalization diminishing the role inseparable within social relations. Politics
of states in the world economy? (the distribution and exercise of power) is
integral to economics (the production,
exchange and consumption of resources). At
Key Words: Bretton Woods, General the same time and equally economics is
Agreement on Trade and Tariffs, IMF, World integral to politics, helping to determine
Bank, WTO, forced harmonization, high where power lies and how it is exercised.
protective barriers, internationalization, Economics does not explain
liberalization, open borders, transborder everything, but no account of world politics
transactions, production, products, (and hence no analysis of globalization as a
supraterritorial money, banking, security, key issue of contemporary world history) is
Euro currency. adequate if it does not explore the economic
dimension.
Countless discussions of globalization
have highlight edits economic aspect. For
212
example, Milton Friedman, the Nobel Prize - undergone a quantitative leap in recent
winning economist, remarks that it has decades. We are talking about the increase of
become possible 'to produce a product transactions between states reflected in
anywhere, using resources from anywhere, flows of trade, investment, and capital. The
by a company located anywhere, to be sold process of internalization have been
anywhere' (cited in Naisbitt 1994: 19). facilitated by inter - state agreements on
Management consultants have ceaselessly trade, investment and capital, as well as by
extolled the virtues of global markets. A domestic policies permitting the private
senior researcher with American Express sector to transact aboard. THE
has described global financial integration of TEHNOLOGICAL REVOLUTION is a
recent decades as marking 'the end of second aspect of globalization, describing the
geography'. Global governance bodies like effect of new electronic communication
the Bank for International Settlements (Internet, Satellite, high - tech computers)
(BIS), the Group of Seven (G7), the which permits firms and other actors to
International Monetary' Fund (lMF) the operate globally with much less regard for
Organization of Economic cooperation and location, distance, and borders. Finally,
Development (OECD), the United Nations LIBERALIZATION describes the policies
Conference on trade and Development undertaken by states which have made a
(UNCTAD), the World Bank Group (WBG), new global economy possible. Liberalization
and the World Trade Organization (WTO) describes government policies which reduce
have all put economic globalization high on the role of the state in the economy such as
their agendas. Usually these official circles through the dismantling of trade tariffs and
have endorsed and encouraged the trend, as barriers, the deregulation and opening of the
have most states. financial sector to foreign investors and the
Meanwhile many social movements privatization of state enterprises. This
have focused their critiques of globalization includes bottle the rules and institutions
on economic aspects of the process. Their created by powerful states to facilitate a new
analysis have depicted contemporary scale of transnational economic activity in
globalization of trade and finance as a major certain sectors of the world economy. It also
cause of high unemployment, a general includes the policies of smaller and less
decline in working standards, increased powerful states in the system, who, by
inequality, grater poverty, recurrent liberalizing trade, investment and
financial crises, and large scale production have integrated into the world
environmental degradation. economy.
In their different ways, all of these In IPE several competing claims are
assessments agree that the globalizing made about globalization. For example,
economy is a key development of while some people argue that globalization is
contemporary history. True, the trend is nothing new, others posit that globalization
often exaggerated. However it is just as is dramatically diminishing the role of the
wrong to argue, as some skeptics have done, state. Still others claim that globalization is
that claims about a new globalizing economy exacerbating inequalities and giving rise to a
rest on nothing but hype and myth. more unequal and unjust world. To make
Instead-as in the case of most sense of these different arguments and the
historical developments - economic evidence of adduced to support them, it is
globalization involves an intricate interplay worth thinking about the traditional
of changes and continuities. approaches of IPE (liberal, mercantilist and
Marxian) for they help to identify key
Contents: differences in emphasis, which give rise to
conflicting interpretations of globalization.
The nature and impact of For example, sceptics who deny that
globalization is the subject of profound globalization is transforming world politics
debate within IPE. The term globalization is tend to focus on the 'internationalization'
used to refer to at least three different sets of element of globalization.
forces processes in the world economy. They can then draw upon evidence
INTERNALIZATION describes the increase which throws into doubt whether the
in economic transactions across borders number of transactions taking place among
which has been taking place since the turn of states has indeed risen and make the
the century but which some argue has argument that there is 'nothing new' in the
213
growing interdependence of states, By Grahame Thompson, Globalization in

contrast, liberal enthusiasts of globalization Question, Cambridge, Polity Press, 1996).
focus on technological innovation and the The globalists:
non -political objective forces which are a „global economy is emerging' claim
shrinking the world economy. They argue those who depict a world in which
that this is creating a less political, more multinational trade, production, investment
efficient, more unified world order. Their and financing moves in and out of countries
optimism and emphasis is rejected by critics ever more easily. The globalist tell us that as
who focus on liberalization and the role of result, governments and states are losing
states policies in shaping globalization. their capacity to control economic
These critics highlight the role of powerful interactions. This is partly because the
states in setting the rules of the new quantity and rapidity of flows make it more
globalize international economy, and their difficult for governments to regulate trade,
increasing influence over the less powerful investments, or capital. Equally important is
states. the fact that firms and investors can more
Is globalization diminishing the easily take their business elsewhere puts
role of state in the worlsd economy? new constrains on governments trying to
The Sceptics: retain and encourage investment. The
Countering the 'global economy' view argument here is that footloose modern
are a variety of sceptics who highlighted business will simply exit from a country if a
flaws in the argument and the evidence government does not pursue liberalizing
proposed by those who argue that the state policies which foster corporate profitability
is losing power, the proposition that states and flexibility. For this reason governments
are under pressure to cut taxes and reduce are under pressure to reduce taxes and to
expenditure is attacked by scholars who cut back state expenditure on health,
examine data of industrialized counties and education, pensions, and so forth. When it
demonstrate that the evidence does not back comes to regulating international business,
up this claim. Nor does the evidence suggest governments are permitting investors
that there is a relocation of investments to themselves to set the rules and these private
area where there are lower wages and lower actors are doing so though new private
taxes. New research on investments international networks and self - regulatory
discloses that in the new knowledge- agencies. In sum, states are losing power in
intensive economy, factors such as the a global economic order in which state
availability of skilled and semi skilled - borders and governments are less
labor, good infrastructure and proximity to influential. This eventuality is embraced by
market are crucial ingredients to choices of those interpreting it from a liberal starting
location. The conclusion is that the role of point. "the nation state has become an
state is not eroding. To the contrary, states unnatural, even dysfunctional, unit for
and government still have a very important organizing human activity and managing
and substantial role to play in a successful economic endeavor in a borderless world. It
economy. represents no genuine, shared community of
"The closer we looked the shallower economic interest; it defines no meaningful
and more unfounded become the claims of flows of economic activity"(Kenichi Ohmae,
the more radical globalists. In particular, we The Borderless World: Power and Strategy
begun to be disturbed by three facts: first, in the Interlinked Economy, London, 1994).
the absence of a commonly accepted model of New Constrains on States
the new global economy and how it differs While sceptics knock holes in some of
from previous sates of the international the arguments about the erosion of state
economy, second... the tendency casually to power in the face of global multinational
cite examples of internationalization of enterprises, other aspects of globalization do
sectors and processes as if were evidence of constrain all states. In particular, the fact
the growth of an economy dominated by that billions of dollars can flute in or out of a
autonomous global market forces; and third country overnight sets a new constraint on
the lack of historical depth, the tendency to monetary policy and open up new
portray current changes as both unique and vulnerabilities in the financial sectors of all
without precedent and firmly set to persist countries. In other words governments have
long into the fixture" (Paul Hirst and to be very careful in managing interest rates
and managing or floating exchange rates.
214
Equally they need robust domestic banking international economic relations. They have
and financial systems. The punishment for little or no influence in the creation and
poor policy is instantaneous and devastating enforcement of rules in the system and they
Furthermore, as the Asian financial crisis of heave exercised little control over their own
1997 showed, it is not only the culprit integration into the world economy. For
country who bears the punishment. The example in the aftermath of the debt crisis of
financial crisis in Asia highlighted the the 1980s, many 'weak states' opened up
potential vulnerability of all countries to their economies, liberalized and deregulated
massive inflows and outflows of capital. It more as a result of coercive liberalization
also underlined that some states suffer the that of democratic policy choice. In the 1990s
impact of globalization more then others. this continued with ' what an international
The impact of globalization on economist called forced harmonization, for
different kind of states. instance, in the case of trade negotiations on
The Asian crisis highlights that intellectual property, developing countries
states have different capacities to respond to were coerced into an agreement which
globalization. Even though all states in the transfers 'billions of dollars' worth of
region were affected by the crisis, their monopoly profits from poor countries to rich
responses suggested that some enjoyed more countries under the guise of protecting the
choice or ' sovereignty' than others. property right of investors distinguishing
Indonesia, Thailand and Korea turned to the among states according to their capacity to
international Monetary Fond (IMF) for shape and respond to globalization is vital on
assistance conditional on policies mostly analyzing the impact on IPE. The example of
defined in Washington DC. Meanwhile the international financial system
Malaysia formulated its own policies of demonstrates that some states, in particular
adjustment and imposed policies such as the United States are 'rule makers' in the
capital controls which were greatly world economy and the less powerful states
disapproved of in Washington DC. Although are ‘rule takers'.
globalist and sceptics treat all states as Transborder production arises when
equal in their arguments about glob; it is a single process is spread across widely
worth questioning tliis. One way to think dispersed locations both between and within
about globalization is distinguish between countries. Supraterritorial coordination
strong states and week states. At the links research centers, design units,
extreme end strong states are those which procurement offices, materials processing
shape the rules and institutions which had installations, fabrication plants, assembly
make a global economy possible (for example lines, quality control operations, advertising
the US shaped the Bretton Woods System). and marketing bureuax, data-processing
A more general description of strong states is offices, after-sales since and so on. A global
that they can control the nature and speed of production operation is described by Haas:
their integration into the world economy. "our company buys denim in North Carolina,
Into this category we might place not only ships it to France where it is sewn into
relatively strong industrialized countries. jeans, launders these jeans in Belgium, and
Yet at the same time in each of these markets them in Germany using TV
countries there are high protective barriers commercials developed in England".
in important sectors of the economy and Through global sourcing the
serious debate about capital controls and the company draws materials. Components,
regulation of international capital. The machinery, finance, and services from
capacity of these countries to control their anywhere in the world. Distance and borders
integration into the world economy is figure only secondarily, if at all, in
doubtless related to their size, resources, determining the sites. In deed a firm may
geostrategic advantages and economic relocate certain stages of production several
strength. However, interestingly it seems times in short succession in search of profit
also to be related to their national and the maximization. A example of county-hopping
domestic power of the state. One thing that is Nike, which during a five years period
all strong states have in common is that they opened or closed fifty-five factories in North
guard with equal ferocity their independence America and East Asia in response to
in economic policy, foreign, policy, human changes in relative costs of production. What
rights and security issues. Weak states by others have called global factories where
contrast suffer from a lack of choice in their unknown before the 1940s they did no get
215
major prominence until the 1960s and have Cola was bottled in 27 countries and sold in
manly spread since the 1970s. 78 by 1929. On the whole, however, the
supraterritorial production has developed numbers of goods, costumers, and countries
mainly in the manufacture of textiles, motor involved in these earlier global markets were
vehicles, leather goods, sports articles, toys, relatively small.
optical products, consumer electronics, In contrast the global goods pervade
semiconductors airplanes and construction the contemporary world economy. In all the
equipment. sectors global products inject a touch of
In the same time become very familiar almost wherever on earth a person
important the international transfers of may travel. The countless examples include
goods and services between transborders Nescafe (sold in 200 varieties worldwide),
companies, in form of inter-firm trade. When Heineken Beer (drunk in 170 countries),
the intermediate inputs and finished goods Nokia mobile phones used in 120 Countries
pass from one country to another they are and so on. Today many shops are mainly
officially counted as 'international' stoked with transborder aticles.
commerce, yet they primarily involve Other supraterritorial markets have
movements within a global company rather developed since the 1990s through electronic
that between national economies. commerce. Today global consumer can -
Much transbordcr production has equipped with a credit card and telephone,
taken advantage of what a variously called television and internet - shop the world from
special economic zones (SEZs), export home. Mail order outlets and telesales units
processing zones (EPZs ) or free production have undergone exponential growth, while
zones (FPZs). Within these enclaves the optimistic projections estimate that
ruling international and provincial commerce on the World Wide Web will
government exempts assembly plants and expand from $2.6 billion in 1996 to over $
other facilities for transborder production 300 Billion in 2002 (Bacchetta, 1998,23).
from the usual import and export duties. The Global Finance
first such zone was created in 1954 in Finance has attracted some of the
Ireland, but most were created after 1970, greatest attention in contemporary debates
mainly in Asia, the Caribbean and so called on globalization, especially following the
maquiladora areas along the Mexican crisis in Latin America 1994 - 1995, Asia
frontier with the United States. Nearly 850 1997-1998, Russia 1998 and Brazil 1999.
EPS were in place worldwide at the turn of The rise of supaterritoriality has affected
the century. (UNDP, 1999). both the forms that money takes and the
Much of the output of both ways it is deployed in banking, securities
transborder and county-based production and insurance markets.
has acquired a supraterritorial market in the Supraterritorial money
contemporary globalizing economy. The development of global production
Hence a considerable proportion of and growth of global markets have each
the international trade now involves the encouraged the spread of global moneys. It
distribution and sale of global goods often was noted earlier that the fixed and later
under a transword brand name. floating exchange regimes operated through
Consumers dispersed across many the IMF have aloud a number of 'national'
corners of the planet purchase the same currencies to enter transworld use. No
articles at the same time. The country national denomination has been more global
location of a potential costumer for, say, a in this context that the US Dollar. About as
Xerox Photocopier, or a Kellogg’s corn flakes many Dollars circulate Inside and outside
is of limited importance. Design, packaging the USA. Indeed, in certain financial crisis
and advertising determine the market far this global money has displaced the locally
more than territorial distance and borders. issued currency in the everyday life of the
Like other aspects of globalization, national economy. Such ' dollarization' has
supprateritorial markets have a longer occurred in parts of Latin America and much
history that many contemporary scicntists of eastern Europe. Since the 1970s the
appreciate. For example Campbell Soup German Mark (now suspended by the Euro),
begun to become household names at widely Japanese Yen, Swiss Franc and other major
dispersed locations in the mid 1880s from currencies have also acquired a substantial
the outset Henry Ford regarded his first global character.
automobile, the Model T as a world Coca-
216
Foreign exchange dealing has Globalization has reshaped banking

become a supraterritorial business. This with the growth of supraterritorial deposits,
round the clock, round he world market has loans, branch networks and fund transfers.
no central meeting place. Many of the deals Securities markets have gained a global
have nothing to do with the countries were dimension through the development of
the currencies involved are initially issued transborder bonds and stocks, transworld
eventually spent. The trading itself also portofolios and electronic round the world
transpires without distance. Transactions trading.
are generally concluded over the phone and Globalization has likewise affected
confirmed by telex and e-mail between the instruments and modes of trading on
buyers and sellers across whatever distance. derivatives markets. Globalization have
Meanwhile shifts in exchange rates are changed forms of money with the spread of
flashed instantaneously and simultaneously transborder currencies, distinctly
on video monitors across the main dealing supraterritorial denominations. digital cash
rooms worldwide. and global creditcards.
Trandborder money also takes other But the economic globalization has
forms beside the national currencies. also some limits. We can highlight four main
Gold has already circulated across points:
the planed for several centuries. A newer • The continuing key place of the
and more fully supraterritorial state amidst these changes.
denomination is the Special Drawing Right, • The continuing significance of
issued through the IMF since the 1969. national attachments and cultural
SDRs reside only in computer memories and diversity in the present era of
not in pocketbooks from everyday economic globalization
transactions. • The unevenness with which the
Meanwhile other supraterritorial globalization of trade and finance has spead
money has daily use in plastic form (ATMs, • The continuing importance of
Smart Cards, Credit Cards). territoriality in the contemporary globalizing
Supraterritorial banking : economy.
Globalization has touched banking Global trade and finance have spread
mainly in terms of: the growth of unevenly between different regions and
transborder deposits; the advent of different circles of people. Territorial
transborder bank lending; the expansion of geography continues to be important in the
transborder branch networks and the contemporary- globalizing economy. While
emergence of instantaneous transworld economic globalization has weakened
interbank fund transfers. cultural diversity and national attachments
Eurocurrency accounts first in some respects, has promoted them in
appeared in the 1950s and expanded after other transborder commerce has to date
1970, especially with the flood of so called often widened material inequalities within
petrodollars that followed major rises of oil and between countries and the states
prices. Eurocurrencies are supraterritorial: exercise significant influence in global trade
they do not attach neatly to any countrie’s and finance.
money supply. They are not systematically We can say, as we showed that the
regulated by the national central bank that globalization of world politics is a deeply
issued them. economic affair. Economic globalization has
The supraterritorial character of affected different places and people to
much contemporary banking also lies in the different extends and it has far from
instanteneity on interbank fund transfers. eliminated other structures of world politics
Electronic messages have largely replaced like territory, state and nation.
territorial transfers by check of draft and
cost far less. The largest conduit for such References:
movements is the Society for Worldwide
Interbank Financial Telecommunications 1. Bacchetta, M ;Electrinic Commerce
Launched in 1977 SWIFT interconnected and the role of WTO, World Trade
over 6,900 financial institutions in 190 Organisation Raport, Geneva, 1998
2. Deutscher Bundestag:
countries by 1999. It carried payments with
Globalisierung der Weltwirtschaft,
an average daily values of more than $5 Leske + Budrich, Opladen, 2002
trillion.
217
3. Held D. Global Transformations: 7. Odell, J.: Negociating the World

Politics, Economics and Culture, Economy, Cornell University Press,
Cambrige, Polity Press, 1999 2000
4. Kenichi Ohmae, The Borderless 8. Smith, S.Baylis, J.: The
World: Power and Strtegy in the Globalization of World Politics, An
Interlinked Economy, London. 1994 introduction to international
5. Paul Hirst and Grahame Thompson, relations, Second Edition, Oxford,
Globalization in Question, University Press,2001.
Cambridge, Polity Press, 1996 9. UNDP: Human development Report,
6. Nuscheler, F: Entwicklung and 1994
Frieden im Zeichen der 10. Zentrum fuer Europaische
Globalisierung, Bundeszentrale fuer Wirtschaftsordnung: Wirtschaft
politische Bildung, Bonn,2000 Heute, Bundeszentrale fuer
politische Bildung, Bonn,2003
218

A BRIEFLY ANALYSE OF “NON-STATE ACTORS”-

NGOs IMPACT ON MULTINATIONAL COMPANIES: CONFLICT OR
COOPERATION?
LAURA Florescu;
University “Alexandru Ioan Cuza” of Iasi, Romania;
e-mail:laura.florescu@ymail.com
Abstract entities, other than nation-state,

Nonprofit organizations have become demonstrate the importance of the
important actors in world politics, social, globalization. Amid spatial scale and density
economic, but also in the business world. of global interconnection, are intertwined
Nonprofit organizations such as “Amnesty relationships between communities, states,
International”, “Greenpeace”, “Oxfam”, “Save international institutions, NGOs and
the Children” or “World Wide Fund for multinational companies. However emerging
Nature”, lead campaigns to support the so-called "world order", different from the
causes of socio-economic or humanitarian. state was mainly pawn in international
Many of these groups offer their services to relations.
improve economic and social issues Overlapping networks thus formed and
outstanding. Recent studies (Yaziji, Doh, interact, defining the structure by both
2009) indicate a rate of 400% in terms of evolutionary constraints and power,
increasing non-governmental organizations reputation, influence in all sections: social,
worldwide. This analysis is conducted amid economic, political, and cultural. This
macroeconomic crisis of 2007-2010 and structure becomes a product of both
global climate change. Ever collaboration individual actions and the cumulative
between the corporate sector and civil society interaction of many agents and institutions
wasn’t so important, because the XXI century worldwide. Few areas of social life beyond
began with a concerted international the influence of globalization, as reflected in
approach to the dissemination of "mutual specific aspects of economic, financial,
value" of capitalism not only by companies, political and cultural globalization can be
customers, suppliers, but also to communities seen as a different phenomenon, with
and the environment environment. This multiple facets.
chapter is intended to define NGOs as non- Though currently, the concept of non-state
state actors in major world political and actors in the globalized economy, despite a
economic scene, examines the important role vast and growing literature is one vehicle
of NGOs both in the "business" and society, that increasingly, we can not say that it is a
the impact of conflicting attitudes on solid theory, founded on systematic review of
multinational companies, but also possible its defining characteristics. Moreover, few
trends of cooperation between these two studies provide a consistent story about the
entities. drive concept, in terms of the existence of a
new reality, the involvement of non-state
Key words: “non-state” actors, NGOs, actors in transforming the shape and
multinationals, economic globalization prospects of world economy.
Based on these facts, this paper aims to
1. Introduction develop an overview of the most
representative categories of non-state actors
Addressing non-state actors in the literature in the economy, namely NGOs and
has increasingly become, in recent years, the multinational companies, through the
subject of analysis and debate. Relatively impact of NGOs on the behavior and exercise
recent date, the conceptualization of various modality action of multinational companies.
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Since last decade, pressure on NGOs began this perspective, the timing of their
to pursue the multinational companies was occurrence obviously is not the same.
based on attitudes and reactions "pro social"
them. The current dilemma is whether In the first decade of the century XXI
NGOs should be screaming to face or be in century, NGOs have shown considerable
cooperation with the characteristic attitude influence in civil society. Also, there is a
of multinational companies, oriented to growing influence of "visible" on the bodies
maximize profits? and institutions governing international law.
Personal contribution is just trying to pave As to the impact of NGOs on the global
the way for a new way of analysis of non- economy, a sound understanding of the
governmental organizations addressing actions undertaken by them is necessary, not
these non-state entities from another only in terms of the influence that these
perspective, the active players and current actors' non-state "manifests the increasingly
economic scene. Last two decades have led to prominent globally, but also in terms of
the development of NGOs in the context of interaction between NGOs and large
the event business-government-society corporations.
relations and the Cold War and opening Singh (2003) believes that the conventional
markets to new areas, uncharted, gave them approach on the definition of "NGO" is based
enough areas for action. Meanwhile, current on functional aspects of the activities of the
economic events allow us to conduct an entire category of NGOs and, in particular
analysis, perfectible, regarding the future of those relating to social services. In this
cooperation relations between multinational respect, criteria related to the definition of
companies and NGOs, in the globalized NGOs are limited to education and health
economy. services considered, usually the company's
vulnerabilities. Thus, the functional
2. Literature review definition of NGOs around the approaches
varied philanthropic, altruistic charity.
Making an overview of the definitions in the Structural aspects of the definition are
literature, we consider "non-state actors" in divided into two categories, namely residual
conditions of globalization are those entities, and institutional. Residual approach is
other than the nation state, showing a implemented strictly temporal and
greater influence on the economic, political emergency and unforeseen circumstances.
and social internationally. Therefore, waste services are ad hoc and
Higgott, Underhill and Bieler (2000) identify only used when deemed necessary.
two main categories of non-state actors: the Subsequently, the residual approach will be
first category consists of private sector gradually replaced by an institutional
corporate actors, they, in turn, are divided approach. From this perspective, NGOs
into transnational and multinational develop activities scheduled regularly on an
companies. The second category includes institutional basis.
non-governmental organizations with Term "NGO" dates from 1950 when the
international influence. United Nations has attempted a definition of
Although the term "non-state actors" is that term. Today however, the United
relatively recent and appears in the globalize Nations define NGOs any group of citizens as
economy in the early twenty-first century, volunteers, performing a non-profit, located
the starting point in tracing the evolutionary locally, nationally or internationally.
elements of this concept is considered by Oriented performance of an obligation and
some authors, as during of the Second World led by people with a common interest, NGOs
War (Strange, 1996). Other authors, taking provide a variety of humanitarian services,
into account the heterogeneity of non-state bring citizens' concerns to governments,
actors’ typology highlights the starting point monitor policies and encourage political
for the development of a global player, with involvement in the community. They provide
reference to NGOs, during the late analysis and expertise, serve as early
nineteenth century. warning mechanisms, and help monitor and
In this study we focus on two major implement international agreements. Some
categories of non-state actors, that are organized around certain specific issues
multinational companies and NGOs. From such as human rights, environment or
220
health. interest, such as international rail transport

However, a definition of non-governmental marine environmental protection, etc.
organizations is difficult due to various Charnovitz article seeks to demonstrate that
actions undertaken by them, and definitions NGOs meetings were followed shortly, since
will consider socio-economic and political that time, meetings of member governments
events in which these non-state actors of the main European countries where the
operate. same topics were discussed.
Such a test "technical" definition of NGOs is Thus, concomitant development of
provided by Hudson and Bielefeld, as communications and other technologies has
follows: NGOs are organizations that offer contributed decisively since that time, to
(in a legal sense), relevant goods or services, enhance the international activity of NGOs.
thus having a public purpose specified, are Reform in the postal system in the 1840s
organizations that prohibit distribution of with the development of telephone and
profits to individuals, are voluntary, telegraph systems, have facilitated
meaning that they are created, operated and communication between Europe's fastest.
ends its work on voluntary decision and Although it had heterogeneous activities of
initiative taken by members of a council and NGOs in Europe, Canada and the United
also expose the rationality of value, often States have expanded in Asia, Latin America
based on strong ideological component. and the Middle East. Carrie Meyer noted
Teegen et. al. (2004) offers a more succinct that, in 1850, there are a number of 66 non-
definition, referring only to social NGOs, as governmental organizations (foundations,
follows: NGOs are private organizations to religious and humanitarian groups, cultural
untargeted profit aimed at serving private associations or labor market) in Europe,
interests of society by focusing on defense and Canada and the United States; by 1910 their
/ or operational efforts in the social, political number reached 344.
and economic such as private equity, Another important period in terms of global
education, health, environmental protection expansion of NGOs was the period preceding
and human rights. and immediately following the end of the
Time of the first non-governmental Cold War. 80-90 years of the last century,
organizations is considered, according to but immediately after the end of the Cold
Carrie Meyer, when the first wave of War, led to the development of increasingly
globalization from the late nineteenth strong "global civil society." The question
century and early twentieth century. Seary that arises relates to the reason that "civil
(1996) considers the first appearance of society" is important when referring to non-
NGOs in the mid-nineteenth century. The state actors in general and NGOs in
first such international organizations particular? In terms of business expansion
belonged to religious and academic circles. beyond the sovereign state, "global civil
Charnovitz (1997) notes that the first society" is a concept similar to that of "non-
international conference of NGOs took place state actor" with the difference that civil
in the European and American international society activities are carried out by non-state
space. Many of these organizations focused actors.
on weather controversial trade issues such Higgott comprehensive attempt to define
as slave trade and opium. Others focused on this term and considers civil society as the
international issues of solidarity and peace, way in which individuals manifest both
international law, environmental protection, individually and collectively, on political,
etc. Charnovitz points out several events economic, and social. Civil society, states
organized in the mid-nineteenth century, Higgott, must be examined from two points
namely: Anti Slavery International of view: on the one hand, is composed of
Conference held in London in 1840, the individuals or groups of individuals
International Peace Congress held in Paris disadvantaged by the effects of globalization
in 1849, first international meeting of on the world economy, they protest and seek
workers in 1864, the first Conference alternatives. On the other hand, is more
International Red Cross since 1863. ambitious vision that of "global civil society"
As shown, the period between the late in which these global social movements,
nineteenth century and early twentieth taken as a whole, constitute a basis for an
century is marked by an "explosion" of such alternative to a new world order?
international meetings, on issues of global From his analysis emerges the idea of
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increasing importance Higgott civil society In terms of international development,

in the socio-economic world. The role of current estimates indicate that over 15% of
NGOs increased considerably since the end the total external aid is channeled through
of the Cold War, this political event allowing NGOs. Indeed, a report published by UN and
expansion of civil society globally. NGO Ability Sustain notes that
Although of relatively recent date, a "non- international non-profit sector with a
state actor" in the globalization of the turnover exceeding $ 1 trillion could be
economy is becoming increasingly the object classified as the eighth largest economy in
of analysis and argument. Heterogeneity the world. Yaziji and Doh (2009) notes that
concept leads us to experience difficulties in the United States in years 70, approximately
creating an integrated approach, 70% of resource flows to developing countries
homogeneous non-state actors. On the one came from official development assistance
hand, we have shown non-state actors a programs, while only 30% came from
strong influence in the current political and industry private. In 2003, only 15% of U.S. $
economic sphere. We refer here to 102.5 billion of resource flows came from
multinationals operating activities "from" government assistance, while 85% of non-
nation-state boundaries and interests. profit sector.
However, there is a close collaboration According to a 1995 report from the World
between state and corporation. Bank since the mid-70, NGO sector, both in
On the other hand, we have NGOs, non- developed and emerging countries has
state actors with social and political shown exponential growth. Teegen et al
influence, more recently, economic. Recent indicate that expression of civil society in
studies forecast for the next decade a general and civic action of NGOs, have
working relationship between these two broader implications for the role, scope and
categories of non-state actors. This will definition of corporations in the global
cause an inter-relationship between the economy.
three spheres of action: political, economic Doh and Teegen stress that, in some cases,
and social prerequisites to create uniform NGOs replace the government's "host" role
and consistent design vision for action in negotiating the historic relationship
among the various divergent interests: between the private sector and government,
maximizing profits, ethical, social protection, so NGOs currently has considerable
etc. influence on the operation of multinational
companies in developing countries.
3. Paper Content This increase in the number and influence of
NGOs is one of the most important
3.1 NGO event in the context of developments of society in recent decades.
business-government-society relations During this period there was a trend for
dynamic debate government policies
In the beginning of this research will publicly, on changes in corporate behavior.
highlight the conditions that favored the Researchers have noted that NGOs tend to
emergence of a significant number of constrain corporate behavior of those
nonprofit organizations in the past two affected.
decades, while the activism of NGOs is seen According to Yaziji and Doh (2009) are three
increasingly more prominent in public conditions necessary for an NGO to engage
debate in legislative changes, the need to in socially significant events, namely:
regulate or altering corporate behavior. • there is a dissatisfaction among certain
In the last two decades the number of NGOs segments of the population on social,
has grown considerably. Thus, if in 1993 the political, economic or technological
United Nations Development Program • the population must understand that this
identified 50 000 NGOs worldwide, while the complaint has not been adequately
Union of International Associations identify addressed by existing political structures
52 000, the 2001 total "independent sector" • social, economic, political, technological
(non-governmental, non-profit) was and social involvement should allow NGOs
estimated the United States at 1.4 million to be perceived as an effective means to
non-governmental organizations with address these deficiencies
revenues of approximately USD 680 billion On dissatisfaction related to the economic
and a total of 11.7 million employees. system, the literature identifies three forms
222
of market failure, namely: social needs, Impact of imperfect competition

outsourcing, influence imperfect competition. When we talk we consider imperfect
In developed countries, most NGOs (except competition, primarily from products
radical) see in a market capitalist system a monopoly or monopsony. Certain firms are
way of creating "added value" and wealth, in advantageous positions to negotiate with
the "invisible hand" of the price mechanism. partners who are not in perfect competition.
From this perspective, the vast majority of Market failures in this case refer to firms
NGOs consider that the capitalist system that pay unfair wages to workers who not
and companies operating within this system find other alternative for employment.
to benefit society. However, three types of Second, regarding imperfect competition, we
market failures mentioned above may occur can speak of "information asymmetry" or
and may cause social costs, economic or "influence those involved in a transaction."
environmental high; these disturbances For example, the attacks of NGO "Baby Milk
generate resentment and prepare the ground Action” because the company Nestle notes
for social movements organized by NGOs. how the company sells milk powder in
developing countries for mothers, in
Social needs conditions of full information, should not use
this product or would be used differently .
A market failure is when the market will Meanwhile, NGOs such as "Commercial
provide all goods and services adequate for Alert" or "McSpotlight" militated against
the simple reason that they are not companies that promote unhealthy snacks
profitable. Market will not occur, although easily influenced children.
there are "social demand" types of people in
desperate situations but lacking the Regulatory failures
economic means to acquire them. The most
telling examples relate to lack of food for In the case of these three types of market
third world countries, lack of vaccines for failures, the question arises to what extent
diseases that affect only developing and, especially, who must act to remedy the
countries and lack of medicines for poor effects of meaning. An answer could come
countries or developing countries. from governments that have regulatory
capacity and regulation of market failures.
Outsourcing However, sometimes, legislative or
regulatory systems may not provide
Outsourcing, another form of market failure, sufficient solutions to improve market
occurs when prices of goods and services failures. Yaziji and Doh (2009) identify four
does not reflect the true cost of their reasons for which regulatory systems could
production. Pollution arising from fail in their attempt:
production or use of a product is not included
in cost of production. For example, the use of • Inability to identify and agree on whether
genetically modified organisms and carbon putting a "problem" in the market
dioxide emissions from the production and • existence of different philosophical
use of fossil fuel based power sources is approaches regarding how the government
debate about the total cost of some of these should intervene in market regulation
practices from the perspective of sustainable • an imbalance in the political system
development and include the replacement • undue influence of certain shareholders in
cost resources used. the political and resource constraints (lack of
Another version of this type of distortion of funds, expertise and lack of control).
the market relates to the indirect costs There are many problems: pollution, climate
associated with a product or service. For change, inequality of wealth spread around
example, manufacturers of weapons, alcohol, the world to which only governments, even if
cigarettes are a source of debate within the sufficient resources can not have necessary
NGO because of indirect costs to society. control to address them. This problem is
They consider alcohol, tobacco, weapons use, called in literature "border issues" and
etc. as a "cultural pollution" and therefore a issues that do not belong to a single country
cost that society must pay. but by international society. Even if
governments identify regulatory failure
problems sometimes do not have sufficient
223
resources or influence to make decisions and in cooperation with the Federalist Society for
act global. Law and the Public Policy Initiative Studies
Wishing to resolve transnational problems showed a program entitled "Look at NGOs,
posed by globalization, governments have by attacking the actions and statements of
joined forces and created the global certain NGOs.
institutions to try to combat these Already internationally perceived need to
challenges. Some cross-governmental or have another set of organizations beyond the
supranational organizations have grown in "market players" or the government to
importance and influence, particularly those address market failures, is obvious. Teeter et
related to international trade and finance, as al. argue that NGOs can fill this gap by
well as WTO and IMF. However, some of finding solutions with regard to services or
them, among which the United Nations or markets or regulatory institutions do not
World Health Organization are considered to offer. However, the authors mention, that
be devoid of authority and resources to there are failures that should be covered, are
tackle global issues. These international not sufficient conditions for NGOs to become
associations allow transnational issues significant players in the world. Increasing
unresolved, given the slow deliberations impact on society and the environment
taking place within them and, as highlighted depends on social, political and technological
Teegen et al. "many global problems are developments that may affect the ability of
simply too complex and comprehensive as a NGOs to develop "advisors" capacity.
single sector to handle them.” However, entirely new regulatory failures
Moreover, cross-governmental organizations that may occur in the modern economy can
such as WTO, IMF or World Bank are not be considered the preserve of only
considered necessary authority and certain categories of dispersed non-state
resources, but can not adequately address actors, regardless of their good intention.
market failures precisely because legislative Heterogeneity of NGOs is already known,
or regulatory non-compliance. For example, but we must remember also about the
in the late of 90s, several NGOs started to heterogeneity of economic, political and
fight against what they perceived as the social issues existing in the world. To create
dominant economic interests, specifically, a homogenous global economic framework,
against the corporate interests of developed we have brought a convergence of different
countries in WTO. In 1998, street categories of NGOs - non-state actors with
demonstrations in Seattle during the WTO sufficient authority and responsibility to
ministerial meeting were actually the influence the development of these issues
moment that defined the creation of anti- ethical sense. Or, in a first analysis, it is
globalization movement. utopian to believe that we have such a
In conclusion, there are situations where regulatory framework, consistent, ethical
neither the market nor the nation-state is and globally in a short time.
perceived as welcoming to come into the
needs of society. This context, perceived 3.2 Multinational companies and NGOs:
regulatory failure, is actually "raison d'être" from conflict to cooperation
of NGOs.
In this framework, the question arises what Aspects on NGO actions against
happens if there are failures and conduct of multinational corporations
NGOs? To whom are NGOs responsible and
what happens if acting "irresponsibly"? Simultaneously with increased globalization,
Already know that many of these some negative effects of multinational
organizations have less responsibility and companies involved in various international
are much less transparent than government markets have become increasingly evident.
organizations or companies listed on stock Meanwhile, the increased role of civil society
exchanges only. has enabled NGOs to respond.
Both critics of NGOs and NGOs themselves Theoretical approach to research in this
are worried by this lack of responsibility. direction is a neo-institutional that
Opponents of certain non-governmental highlights issues related to NGOs
organizations have launched initiatives to involvement in the campaign against
curb the growing influence of NGOs. For multinational companies that form the
example, the American Enterprise Institute, normative de-legitimacy.
224
In this regard, many research projects have calling critical players interests, roles,
examined how organizations seek to create, responsibilities, values and norms.
maintain and restore legitimacy, especially In this respect, the concept of non-influential
in trying to cope institutional competitors. non-state actors in the globalization of the
Legitimacy is, according to the definition economy is becoming more widely publicized,
provided by Suchman (1995), the quality or and the role of these organizations in a
state of being perceived or understood as a conflict society, becoming more important.
set of standards or values about what is
desirable, good or desirable. On the other Collaboration between NGOs and
hand, Scott (2001) distinguishes analytical multinational companies
and normative legitimacy defined (unlike
cultural-cognitive forms of legitimacy or NGO actions against companies, may cause
regulation) as a form of legitimacy that is in adverse effects in the latter, by the
social values and is an indicator of moral additional costs of any regulatory changes,
evaluation of society, that the norms and reducing the market size or market share,
values of an organization. constraints on the behavior of shareholder
However, few are now those who are lawsuits and, most importantly, low
interested in research on the history and employee morale .
inter-organizational processes of The study conducted by Yaziji and Doh
organizational de-legitimate campaigns. (2009) gives us a good example in this regard
This process involves the initial that an interview with former CEO of Shell.
identification of business attributes, the He indicates that the worst consequence of
institutional context and analysis of a wide the actions of NGOs against Shell was not so
range of social factors that increase the risk low sales volume, especially as lower
that a firm is the target of a campaign to de- employee morale and difficulty in attracting
legitimate. other high quality employees, these issues
De-legitimate the regulatory review process, directly affecting company productivity.
Doh and Yaziji states that NGOs are its It is therefore apparent that the impact of
main vectors. However, the influence of NGOs campaigns directed against the large
NGOs on Companies is indirect because they multinational companies, although primarily
are non-governmental organizations and intended as a desire for fundamental social
therefore can not directly establish laws and change can be more extended and lead to
regulations aimed at corporate coercion. deterioration of general rules of operation of
Also, NGOs lack direct financial leverage on the company, the regulatory changes,
companies that suppliers, customers or changes legislation or taxation or the grants
competitors of companies they own. In these awarded.
circumstances, NGOs interrelated low in Suchman (1995) identified four generic
relation to companies. strategies of response from the
Consequently, the authors mention, NGOs multinationals. These relate to: compromise,
induce an indirect pressure to influence ignorance, defense or counter-attack.
corporate behavior by players criticism that The trend of cooperation between NGOs and
the organizations that have direct influence multinational companies began to emerge in
on corporate behavior, judges, politicians, the last decade, each of the two entities for
voters, consumers, employees, suppliers, this collaboration in terms of benefit. NGOs
shareholders and other categories that may and multinational companies are built on
influence economic performance of the values, structures and different principles.
company. Their influence may be manifested For this reason, over the years, relations
through the development of regulations, between NGOs and multinational companies
laws, court decisions, procurement decisions, were characterized as hostile or mutual
refusing to do business or resolutions of the distrust. This was mainly due to lack of
shareholders may restrict managers' shared experiences, trust and
decisions. Also, NGOs can influence various communication. However, lately, since the
business analysts or the media which, in beginning of the current macroeconomic
turn, show an indirect influence on player crisis, the relationship between the two
complaints. bodies gradually turned into a working
Whatever the mode of action, NGOs seek to relationship, especially regarding social
influence developments and actions by issues that are common for both a
225
representative body and to other. technologies analyzed in terms of

Doh and Yaziji structured analysis of environmental impact; these issues are not
collaboration between NGOs and MNCs on considered in the corporate environment.
two levels: in terms of corporate cooperation
and collaboration from NGOs perspective. • Benefits can be obtained from the
collaboration of NGOs - Macs
A. Cooperation in corporate perspective
Conflict between the two entities
• Strengths of NGOs in collaboration with Although NGOs are recognized as the engine
MNCs of confrontation, the most influential
organizations of this type have realized
Legitimacy lately that a direct negotiation between
According to a survey conducted by PR firm NGOs and multinational companies would
Edelman and that the same study the be more effective to address unpleasant
authors Yaziji and Doh, both Americans and events occurred. Corporate perspective and a
Europeans, believes that NGOs are more direct negotiation with NGOs would be more
credible than managers of large productive, one example is the working
corporations. Also, a fraction of the relationship between the "Doctors without
population considers the work of NGOs as Frontiers” and pharmaceutical companies to
mainly oriented towards activities aimed distribute drugs in developing countries.
directly benefit society, compared with the
primary motivation of companies to Innovation Acceleration
maximize profits. A collaboration of the two In the absence of a competitive threat, most
entities would increase corporate reputation. companies focus on improving the production
process. Meanwhile, NGOs rather examines
Awareness of social forces the impact of corporate practices on society
While corporations operate in different than profitability or costs. From this
markets, NGOs work in the sphere of justice perspective, NGOs, corporations demand
and safety of living globally. Although more than the market requires.
apparently there are considerable Collaboration between NGOs and
differences between the spheres of action of corporations would lead to radical solutions
the two entities, multinational companies, that could improve both the environment but
by working with NGOs, can understand and would also help to increase the
analyze socially and their involvement in the competitiveness of companies.
economic sphere. Forecast of changes in demand NGOs often
lead social movements. They begin by
Separate networks discovering hidden problems, which then
Multinational companies have formed amplifies them. Proposed new rules and
networks of customers, suppliers, values might influence consumer behavior
competitors or new companies formed, while and then endanger the entire industry by
the NGOs networks are made up of sponsors, changing demand. For example, genetically
regulators, legislators, etc. These networks modified organisms and nuclear energy
are large and thick, though most NGOs have issues have become sensitive public opinion
minimal financial resources. MNCs-NGOs after the NGOs began campaigns against
partnership would facilitate mutual access to these ideas. Thus, maintaining close such
information circulating within these organizations, which have the power to
separate networks. influence public opinion, could benefit both
companies in developing production and
Specialized technical expertise marketing but, watching the markets.
In the most important NGOs work lawyers,
political analysts and scientists. Half of the Training legislation
most influential NGO employees have The most important NGOs have the power to
master degrees or diplomas of law school, influence the regulatory institutions or
and 12-20% has a PhD degree. Most of these legislators. Maintaining a good relationship
employees have knowledge that employees with NGOs, multinational companies could
in large corporate environment is lacking. have a much stronger influence on
NGOs know the development of new legislative developments, than if they try to
226
obtain advantages in terms of building with the business in terms of public goods
regulations to follow only their own economic would result in changing this image.
interests and welfare of society often Research undertaken by Linderberg
forgotten. Both multinationals and NGOs suggests that NGOs and private sector
can earn much more influence over organizations have encountered difficulties
legislators by creating a partnership of in developing partnerships. However, he
public - private "or a coalition"-civil society - points out that studies undertaken in the
private sector. " next decade will reveal much more
transnational collaboration between NGOs
Setting standards in private sector and multinational companies.
Cooperation with NGOs provides an Ashman examine some examples of
opportunity to redefine corporate sector to collaboration between civil society
which they belong, mostly in their favor. organizations (NGOs) involved in business
They can do this by setting new standards in development in Brazil, India or South Africa.
technology, as it did when DKK The author assures us that we have some
Scharfenstein developed his new model benefits from such cooperation.
refrigerator. Those standards later became
the technology of new environmental and 3.3 Future collaboration between NGOs
labor standards that have been implemented and multinational companies, in a
by government decisions or because of globalized world
market preferences.
Globalization is not a recent phenomenon.
• Risks and Challenges However, the speed with which markets are
increasingly global leaves vulnerabilities,
While an NGO - MNC partnership is those "spaces" in which rules for a unified
possible, this is not without risks. First, if a and fully integrated market are missing.
company interacts with an NGO, by Under these conditions, the expansion of
extension, regulators and competitors will multinational companies in different
have access to information within the international markets, with a sometimes
corporation. R & D projects, strategic plans dizzying speed, has enabled NGOs to benefit
and internal audit tests might make the from breaches created. In other words,
relationship non-CNM positively, but also different social values, political structures
NGOs can become dangerous partners. and different economic interests lead to
Secondly, thanks to a partnership with a irrational economic behavior and economic
nonprofit organization, companies may be strategies of corporate heterogeneous, with
accused of only wanting to improve their which civil society can not agree entirely.
image. Third, Berger et al. identify some The current global economic order “staged”
foreseeable problems in collaboration the only international organization
between company and NGO namely: representing the interests of some developed
misunderstandings devote the costs and countries or of certain multinational
benefits influence on contradictions, companies, not necessarily serves the
contradictions of the partners, mistrust. interests of society as a whole.
Recent research developments have
B. Collaboration of NGO perspective emphasized that organizations, following a
Literature mentions the reason for which process of replacing, there will be new forms
NGOs should promote collaboration with of organization. This research illustrates the
large corporations. Kalegaonkar Brown nature of inter-relations in terms of new
believes that the business-NGO strategies and organizational structures.
collaboration would be beneficial to NGOs Analysts have observed, as mentioned in the
because they are faced with minimum current period, there is a trend of
resources and support from the business collaboration between NGOs and Mac’s,
would bring if the decrease in government isolated from interactions, discrete and
subsidies received. sometimes conflicting relationships and
Doh and Yaziji believe that, despite the gradually reaching more integrated.
benefits of sponsorship and reputation Over the years, NGOs have realized that
earned, many NGOs are perceived as wasting their minimal resources and energy
inflexible and inefficient, so collaboration into campaigns sometimes doomed to failure.
227
Increasingly, multinational companies, in NGOs have been analyzed in terms of

the context of globalization, have become relationships manifested in the context of
increasingly sophisticated and learned to business-government-society. In the last two
counteract these events by different decades, the number of NGOs has grown
methods. Noting this fact, most NGOs have considerably, with currently only the United
begun to explore the possibility of working States, 1.4 million NGOs with revenues of
with the business sector in terms of dual approximately USD 680 billion and a total of
perspective approach to corporate practices. 11.7 million employees. Against the
Naturally it was the third stage of existence of problems such as pollution,
cooperation and joint efforts that start climate change, inequality of wealth spread
mostly from voluntary NGOs to achieve a set around the world, NGOs have found
of standards of "best practices" in corporate expression and action area, in a context
sector. In the current economic conditions, where there are cases where neither the
progress towards the fourth stage of market nor the nation state are seen as
collaboration arose from the macroeconomic welcoming wine needs society.
effects of the crisis triggered in 2007. The Regulation failures may arise in the modern
global economic crises marked a turning economy can not be considered the preserve
point in economic thinking at the macro level of only certain categories of dispersed non-
and therefore more and more are voices that state actors, regardless of their good
want economic regulations homogeneous. In intention. Heterogeneity of NGOs, economic,
this regard, NGOs have found, finally, a political and social existing global lead us to
niche show and desire to achieve this goal. believe that, on first examination, it is
In many respects, however, homogeneous utopian to think that we have such a
international economic regulations, regulatory framework, consistent, ethical
including the corporate sector, seems a and global in a short time. Future relations
utopian goal to be achieved in a short time. of cooperation between NGOs and
Cultural differences, different economic multinational companies in the context of
interests, the existence of accounting and globalization must be analyzed in terms of
banking standards that leave room to expansion of multinational companies in
different interpretations inhomogeneous, the different international markets, with a
lack of international institutions to consider sometimes dizzying speed, thus providing
in a uniform manner and ethical non-governmental organizations can benefit
development and implementation of these from breaches created.
standards prevents NGOs to complete the
work . References
4. Conclusions and implications Ashman, D. 2001. Civil society collaboration with

business: Bringing empowerment back in, World
In recent decades, the globalization of the Development 29 (7), p.1097-1114
economy was significant changed in terms of
A.Y.Lewin and M.Koza 2001. Empirical research
nation-state's role in the sizing process of
in co-evolutionary processes of strategic
economic, political and social world. adaptation and change: The promise and the
Contemporary society is an “open-society” challenge, Organization Studies 22 (6), p.5-12;
and interconnected, and in its framework,
technology and free trade have a A.Y.Lewin and H.W.Volberda. 1999. Prolegomena
predominant role. Two decades ago, markets on coevolution: A framework for research on
seemed inaccessible were included in the strategy and new organizational forms,
current global phenomenon. Organization Science 10 (5), p.519-534;
Gradually, the state's role as an independent
Charnovitz, Steve.1997. Two Century of
entity, with strong global economic and
Participation: NGOs and International
political influence has diminished in favor of Governance, Michigan Journal of International
other actors appeared on the world economic Law, no.18
scene. Entities such as multinational
companies, NGOs, central banks, conducted Higgott, Richard, Geoffrey Underhill, Andreas
both independently and closely with each Bieler (eds.).2000. Nonstate Actors and Authority
other inter-state collaboration. in the Global System, London: Routledge
228
Hudson B.A. and Bielefeld, W.1997. Structures of

multinational nonprofit organizations, Nonprofit
Management and Leadership, p.32
H.W.Volberda and A.Y.Lewin. 2003. Co-

evolutionary dynamics within and between firms:
From evolution to co-evolution, Journal of
Management Studies 40,p.2111-2136
I.E.Berger, P.H.Cunningham and

M.E.Drumwright. 2004. Social alliances:
Company/nonprofit collaboration, California
Management Review no.47 (1), p.59-90
L.D. Brown and A. Kalegaonkar .2002. Support

organizations and the evolution of the NGO
sector, Nonprofit and Voluntary Sector Quaterly
31 , p.231-258
Linderberg, M. 2001. Reaching beyond the family:

New nongovernmental organization alliances for
global poverty alleviation and emergency
response, Nonprofit and Voluntary Sector
Quaterly 30, p.605
Strange, Susan. 1997. State si piete, Institutul

European, p.97-98
Singh, R.K. 2003. Role of NGOs in Socio-

Economic Development, Abhijeet Publications,
Delhi, India
Scott, R.W.2001. Institutions and organizations,

Thousand Oaks: Sage
Suchman, M.C. 1995. Managing legitimacy:

Strategic and institutional approaches, Academy
of Management Review 20 (3), p.571-610
Teegen, H., Doh, J.P. and Vachani, S.2004. The

importance of nongovernamental organizations
(NGOs) in global governance and value creation:
An international business research agenda,
Journal of International Business Studies 35 (6),
p.463-483
United Nations.1998. Agreements and Practices
for the Interaction of Non-Guvernmental
Organizations in All Actiities of the United
Nations System (New York: Report of the
Secretary General, United Nations, 1998),
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Yaziji, M. and Doh, Jonathan. 2009. NGOs and

Corporations. Conflict and Collaboration,
Cambridge University Press, p.15
http://economics.gmu.edu/working/WPE_99/99_07
.pdf, accesed october 2009, Meyer, Carrie, The
Political Economy of NGOs and Globalization,
229

THE RIGHT OF CONSUMPTION : THE DECLINE OF WILL

AUTONOMY ?
University Assistant Anca Nicoleta GHEORGHE

Nicolae Titulescu University, Faculty of Law
av.ancagheorghe@yahoo.com
Abstract According to the dominant

doctrinary opinion, the foundation for
The doctrine always raised the ’the economic liberalism’of the contract,
problem of the state intervention in the in the way it was conceived by the 1804
area of the contractual freedom. This lawman, does not correspond to the new
way, it was said that the state conditions and, therefore, the principle
intervention is justified for eliminating of the will autonomy remained just ’an
the social inequality of the principle of old myth’ 4.
the will autonomy (the state intervention
was qualified as an expression of ’the I. Introduction
tendencies of the law to socialize’, the
state being conceived as a refree hired
by social justice’)1. The drawing up of the contract
In modern economy context, it governed by the will autonomy
was concluded that for the rebirth of a principle, expresses a legal
theory fallen into disuse for several philosophical doctrine3 , according to
decades, respectively, of ’contractual which contractual obligation relies
solidarity’2, that assumes that at the exclusively on the parties will, a will
basis of drawing up the contract stands that is in its turn the source and
the concilliation of the selfish interests dimension of the rights created and of
of individuals who have a different the obligations undertaken through its
social position through their belonging conscious and free manifestation.
to a social group3. Thus, in the light of what has
been shown above, the contract becomes
1
See C. Stătescu C. Bîrsan, op. cit., p. the main source of the law, finding its
21 and the work qouted by the authors G.
Marty, P. Raynaud, op. cit., p. 34.
2
Regarded in the 18 th century as ’the E. Savaux, Le solidarism contractuel, Dalloz,
elementary phenomenon of the entire social Paris, 2005, p. 76: J. Flour, J.L. Aubert, E.
order’ ; see G. Farjant, Droit prive de l` Savaux, op. cit., p. 84-85.
4
economie. Theorie des obligations, PUF, For a larger analysis of the evolution
Themis, 1975, p. 49; J. Carbonnier, p. 53; E. of the will autonomy principle founded on a
Gounot, p. 53; A. Weill, F. Terre, Droit civil. minute search of philosophical basis of the
Les obligations, Precis Dalloz, Paris, 1975, p. legal act on private law, see also P.
52; J. Ghestin, Droit civil. Les obligations. Le Vasilescu, Philosophical Evolutionism and
contrat, L.G.D.J., Paris, 1980, p. 19-21. Legal Reverberations (in The Relativity of
3
In the positive law, solidarity, the Civil Legal Act. Landmarks For A New
extention of good faith at the drafting and General Theory of Private Law), Rosetti
execution of the contract, through Publishing House, Bucharest, 2003, p. 15 and
cooperation obligations between parties ; see the following.
230
force in the agreement of the wills norm - the law – authorises the entitled
required for its closure5. subjects to proclaim an inferior legal
As source of the rights and norm6.
liberties related to the State, the The contract that creates,
contract enables the establishment of changes, transmits or ends civil law
some entitled and useful individual relationships will have legal value only
relationships between the members of a in its conformity to positive law. We
community. The individual is the best specify that, in the shadow of the
judge for his needs and, since he can contractual ruling postulate, the state
express his will freely, he will close only has the duty to ensure the conciliation
those contracts that protect his of the effects of the contractual liberty
interests. Any compelling obligation principle, made known by the
becomes thus unjust, disregarding the dispositions of article 969 in the Civil
debtor’s interests. Code, in the limits of applying this
At the same time, the principle of principle, set up by the dispositions of
contractual liberty drawn on the will article 5 in the Civil Code: public order
autonomy doctrine admits the and good morals 7.
importance of the theory of consent We face a ’rethinking’ of the
vices, ensuring through it the protection contractual liberty principle, meant to
of a free, conscious and rational adjust the institution on the new social
consent8. It is well-known that the 1864 realities contract: the negotiated
Romanian lawman has done more a contracts give in way to adhesional
work of translation and adaptation of ready-made contracts as well as to
Napoleonic legislation, determined, on forced contracts; as a means of
one side by the imaturity of the protection, contractual formalism
Romanian law school and by the registers a notable sudden change in the
modernity and innovations of the detriment of the consensualism
French Code, but on the other side, by principle 8.
the necessity of the newly formed
Romanian State to adopt rapidly a II. The Contemporary Law of
modern legislation. Contracts
Still, we mention that the drafters
of the 1864 Civil Code adhered only As interests of participants to the
partially to the autonomous character of contemporary economic life head more
the individual will, despite the fact the and more to an emphasis on velocity
theory is famous in the epoch. The will and flexibility of the economic circuit,
of parties, through conditioning, gets a with direct effects on its efficiency and,
secondary role. This way, a contract on a larger scale, over the standard of
becomes compulsory when a superior
6
See O. Ungureanu, op. cit., p. 114.
5 7
We underline that the theory of the See L. Pop, op. cit., p. 35; RI.
will autonomy is the doctrine used by the Motica, E. Lupan, op. cit., p 31; I.R. Urs, op.
commentators of French Civil Code and of cit., p. 215
The 19 th Century Law Philosophy. Its origins 8
The moralizing role of the theory of the
lie in the canonic law and in the school of the cause is also reconsidered in drawing up the
natural law, but also in the influence of the contract and inclusively in ensuring the
Enlightment philosophers Jean- Jacques contractual balance; the prerogatives of the court
Rousseau and Immanuel Kant; see J. J. of justice are enhanced, creating thus the
Rousseau, The Social Contract, The premises of its interferance in the contract with
Scientific Publishing House, Bucharest, 1957, the purpose ’of moderating the severity
p. 28-35 and I. Kant, The Critique of moratorium or legal prorogation of the effects of
Practical Sensibility, The Scientific the contract; see P.C. Vlachide, Repetition of
Publishing House, Bucharest, 1972, p. 118- civil law principles, Nova Europe Publishing
130. House, Bucharest, 1994, p. 22-23.
231
society existance, the necessity to with the new economic aspects that
reconsider the institution of contract (in have determined the appearance of a
order to adapt it to the new new concept: the economic public
requirements) has become obvious. order12. In the same context, the states
The state’s intervention of the European Union talk nowadays
materialized: whether by issuing new about a European public order (which
regulations (by modifying the already the contracts closed are due to take into
existing ones) or by sanctioning by the account). By enlarging the notion of
legal authority of new interpretations public order, a few social issues were
(given to legal norms formerly also comprised (what western specialty
adopted)9. literature referred to as ’social public
The transformations underwent order’) 13.
juridically – contractually determined a But we underline that enlaring
defeat of the will autonomy principle, the notion of public order lead to the
which lately was referred to as ’the narrowing of contractual freedom area
existance of a contract crisis’ (as it was and, therefore, of the principle of the
conceived by then) 10. will autonomy (the initial view on this
According to the well known will principle being estimated as outdated).
autonomy conception, everything that is - predetermining by law the
contractual, it is just and legitimate. clauses that are to be included in some
The statement relies on the idea of the contracts, narrowing the sphere of the
presumed equality between the parties, parties’ convention. Hence, by law or by
while reality is different. jurisprudencial interpretations, some
A strong intervention of the state, clauses, considered compulsory for some
through imperative norms in the types of contracts, have been
contractual field. This intervention is established (for example, in areas like:
known in the doctrine as ’contractual transportation, insurance,
ruling’ 11. constructions, rental, services, etc).
’Ruling’ manifestations are - the appearance of ’forced
multiple, such as: contracts’ which are compulsory to be
- Extending the notion of public closed. Thus, on certain circumstances,
order (taking into account the the law enforces the obligation for some
growing persons to close a (certain) type of
intervention of the state in the contract (for example, in the tenant’s
economic and social life) in relation to area14, G. E.O. no 40/1999 forces the
the previous phase (when the notion of
public order was limited to the politic 12
and moral area of the family, of This side of public order gets
manifested especially in the different systems
individual freedom, etc) by enriching it
of managing and ruling of the economy: the
monetary and price policy, the nationalizing
9
See C. Stătescu, C. Bârsan, op. cit., p. of some economic sectors - energy sources,
19. transportation, etc – the crediting policy, the
10
See: C. Stătescu, C. Bârsan, op. cit., p. various economic plans, etc; see C. Stătescu,
19 and The French literature quoted . Marty, P. C. Bârsan, op. cit., p. 20.
Raynaud, Droit civil, Les obligations, Sirey,
13
Paris, 1961, p. 35 and the following; H. şi L. For example, measures taken by the
Mazeaud, J. Mazeaud, Lecons de droit civil. state regarding the regulation of work
Obligations, Montchrestien, Paris, 1961, p. 92 contracts, lodging rental contracts, etc; see R.
and the following; B. Starck, Droit civil. Savatier, La théorie des obligations. Vision
Obligations. Contrat, Librairies Techniques, juridique et économique, Dalloz, Paris, 1969,
Paris, 1972, p. 343-348. p. 161 and the following.
11
For a deeper analysis of the 14 Consequently: a) for premises regained
consequences of the will autonomy decline; by ex-land owners or their heirs and used at the
see L. Pop, op. cit., p. 30-34. date of retrocession by education units, socio-
232
proprietor to close a rental contract with legislative nature (because the lawman
the manager of the building on a three or is that who determines the economic
five years period or in the insurance area, and social policy of the state).
Law no 136/ 1995 that refers to the
compulsory civil responsability for
prejudices suffered via car accidents).
- limiting the compulsory force of III. Conclusions
the contract, whether because
sometimes its non-execution is accepted In modern view, individual will
or because an execution is admitted in develops as a privileged instrument for
other terms than those initially accomplishing social needs (thus
established. explaining the reference to
The aforementioned ’voluntariate’), but unlike the previous
manifestations rely on the concept that period, its power is restricted to the
the present public order notion is no respect it has to show towards the law
longer homogeneous (being completely (the only one that can identify and
different from its ’classical’ meaning)15. express the needs of the society in
Therefore, there is: an economic public general) 19.
order16, a social public order17 and even The French doctrine currently
a proffesional public order18, all being of spokes about a ’reconsideration’ of the
voluntariate theory, that has as basis
cultural establishments or public institutions, the the idea that ’the heart of the contract’
land owner will close, at the tenant’s request, a remains still the will. This way, we
rental contract for a period of three years don’t talk about a coming back to the
(article no 4 from the ordinance); b) for private classical principle of will autonomy, but
premises after January 1st, 1990 together with ’we cannot fall out into the extreme of
commercial corporations that owned them as denying the important role of the will’ 20.
apartments, work apartments, hostels for it is required a rethinking of the legal
employees - socio-cultural establishments or basis of principles that govern the
public institutions, the proprietor will close at general theory of the contract (because
the tenant’s or ex-tenant’s request who legal life can’t be conceived without the
effectively lives in the lodging, a rental contract
for a five years period (article 5 from the
ordinance); c) in the case of selling-buying professionals , by imposing the interdiction of
contracts closed by breaking the provisions of abusive contractual clauses the late ones
Law no 112/ 1995 for regulating the legal conclude with consumers.
19
situation of some premises destined for living More specifically, the individual will
and under the state’s propriety and canceled by a has power exclusively at the beginning and it
court judgement, the proprietor acknowledged by has no longer any autonomy; see: J.L.
the legal court, will close a rental contract for a Aubert, Le contrat. Droit des obligations,
five years Dalloz, Paris, 2005, p. 27-28; J. Flour, J.L.
15
See Ph. Malaurie, L. Aynès, Ph. Aubert, E. Savaux, op. cit., p. 86.
20
Stoffel-Munck, Droit civil. Les obligations, The recent French doctrine,
Defrenios, Paris, 2005, p. 316. acknowleges the role and necessity of the will
16
Economically, the state can adopt in the drafting of the contract, but this is
legislative measures that would favour the considered ’a simple element among others’ ;
development of market economy, that would be the common law of contract is governed by
reflected both in the contractual liberty of three new principles:’ contractal equality,
economic operations and in the legal equilibrium and brotherhood’ (relying on this
relationships between particulars. mechanism, the analysis of the consent is
17
Socially, the State can interfere with realised relying on the equality principle); see
legislative measures of protection of some C. Ouerdane-Aubert de Vincelles, Alteration
categories of persons: employees, tenants, etc du consentement et efficacite des sanctions
18
There is the tendency of ensuring the contractuelles, Dalloz, Paris, 2002, p. 11-31
protection of consumers against business and the doctrine quoted by the authoress.
233
institution of the contract) and the 11. P. Vasilescu, Philosophical

contract has to modernize, in order to be Evolutionism and Legal
an effective instrument in the process of Reverberations (in The
Relativity of Civil Legal Act.
rapid development of economic
Landmarks For A New
relationships that will multiply
General Theory of Private
exponentially with the liberalization of Law), Rosetti Publishing
exchanges, capitals and markets21. House, Bucharest, 2003
The interference of the law,
constraining the parties’s will remains
a constant, but in our opinion, this will
not defeat the free will manifestation,
which is the – the essence and the
fundament of the contract.
References
1. J.L. Aubert, Le contrat. Droit

des obligations, Dalloz, Paris,
2005
2. Civil Code (1864)
3. Law no. 294/2004 (Code of
Consumption)
4. Ph. Malaurie, L. Aynès, Ph.
Stoffel-Munck, Droit civil. Les
obligations, Defrenios, Paris,
2005
5. G. Marty, P. Raynaud, Droit
civil, Les obligations, Sirey,
Paris, 1961,
6. H. şi L. Mazeaud, J.
Mazeaud, Lecons de droit
civil. Obligations,
Montchrestien, Paris, 1961
7. L. Pop, Civil law treaty
.vol.II. The contract,
Universul Juridic Publishing
House, Bucureşti, 2009
8. J.J. Rousseau, Du contrat
social, Flamarion Publishing
House , Paris, 1992
9. B. Starck, Droit civil.
Obligations. Contrat, Librairies
Techniques, Paris, 1972
10. R. Savatier, La théorie des
obligations. Vision juridique et
économique, Dalloz, Paris, 1969
21
It was even asked: Is there a crisis of
the contract? Can we talk about a decline
resulted from the undermining of its
individualist and voluntarist origins?
Answering the above mentioned questions,
the doctrine asserted that ’today more than
ever, we cannot talk about a decline of the
idea of a contract or about an undermining of
its role and importance in the economic and
social life’; see P. Vasilescu, op. cit., p. 54.
234
The International Conference on Economics and Administration, Faculty of Business

ETICAL AND LEGAL CONSEQUENCES OF COUNTERFEIT IN THE

SOCIO-ECONOMIC ENVIRONMENT FROM THE U.E. INTEGRATION
GHEORGHE Carmen Adriana 1;

Transilvania University; Brasov, Romania
carmenghe2003@yahoo.com
RATULEA Gabriela 2;
Transilvania University; Brasov, Romania
gabiratulea@yahoo.com
Abstract models”, structured in 5 chapters as it

A universally accepted definition of follows:
counterfeit doesn’t exist, although there are Chapter I – General provisions, taxes,
different definitions of the term and the period, decline and nullity.
activities strongly related to it. The interest Chapter II – Formalities of deposition and
changes sometimes according to the context registration.
in which it is used. The counterfeit gives Chapter III – Book of industrial designs and
birth to a multitude of negative consequences, models.
not only for the original producers, but also Chapter IV – Counterfeits, pursue and
for the consumers. punishments.
Key words: Counterfeit, legal Chapter V – Final and divert provisions.
regulation of the European Community, legal This law draft was elaborated by the
internal regulation, consequences Industrial Property Office under the
influence of the already adopted legislations
1. Introduction. Brief historical in the industrially developed Western
disclosure concerning the counterfeit of European countries including observance of
industrial property the stipulations of the Paris Convention for
In what concerns the protection of the industrial property protection, approved
the design and the industry in Romania, a in Romania in 1920. The inauspicious
first form was established through the so- situation of Romania from that period
called “privileges” given by the rulers on a wouldn’t allow for the adoption of this law.
fixed period of time and prohibiting their use In 1924, The Association for
by the third persons. Consequently, the ruler Consumer’s Protection was founded, as a
Alexander Moruzi gave in 1800 a privilege to nongovernmental organization, apolitical
Stanila for a “factory near the water of and non-lucrative.
kerchiefs, bundles, quilts, pillows, Later, between the years 1970-1990,
blankets… for 15 years starting from 28 of the State Office for Inventions and Brands
May 1800”. elaborated several law drafts concerning the
The legal regulation came later, after Legal protection of the industrial designs
signing some international agreements. In and models (a law project being common
our country, the first law of letter patents with brands), but all are blocked by the
came into force on 17 of January 1906, and former N.C.S.T. (National Council for
the sole title of protection of the inventions is Science and Technology).
the letter patent, with a validity of 20 years, In 1996 the Romanian Office for
starting from the date of the regular Copyrights is founded, which from 2002 is
national deposit. In 1923, in the “Official subject to the Government.
Gazette” of the Industrial Property Office is In 2000, the Law of the copyrights
published in Romanian and French the “Law and the Legislation concerning the
draft concerning the industrial designs and
235
observance of property rights in certain source of counterfeited merchandises, but a

actions is issued. country of their destination”. Most of these
products come from China and Turkey.
2. The counterfeit in Romania– state From all the counterfeited and
member of the E.U. pirated products, the clothing and footwear
The Romanian Association for attract more and more the attention of the
Fighting the Counterfeit assesses that, in inspectors from the National Authority for
Romania, 60% of the market products are Consumers Protection (NACP). The products
counterfeited, our country being on the to which the inspectors pay attention are
second place, after Ukraine, from this point illegally using the name of some recognized
of view. brands, but are manufactured from poor
The phenomenon of counterfeit of quality materials that can cause allergies,
products and services is widely spread on the dermatitis or other skin diseases.
Romanian market, since the counterfeit, the One of the reasons for which the
fake and the piracy are phenomena strongly fashion industry was always the target of
related with the smuggling, the fraud, the the counterfeit is the fact that people want
illegal commerce. the latest of the fashion, and the majority
Romania is a consuming and can’t afford to buy the original product. Fore
transitory country, therefore the delinquency example, the “appetite” for designer’s bags is
in this field develops now in the two very big in America, where the Fendi bag
commercial processes, but generally, the has become the label of the fashion victims.
delinquent groups are involved in the While the large fashion companies have
delinquency across borders, both in waiting lists for the clients that want to buy,
production and distribution as well as in and stores like Saks are selling only for the
selling the counterfeited products. rich people, other clients discover the fakes,
“The factors that contribute to the being very satisfied with these products.
development of this phenomenon are: low So, the fakers of clothing products,
power of buying of the consumers, their wish on being influenced by the gigantic market
to buy brand products at low price, de low demand for the brand products “in fashion”,
degree of information in what concerns the insist more and more over the luxurious
manner of assessment of the products and counterfeits, and the amounts of money
services’ quality”. invested in the equipment of the clandestine
Counterfeited products are present factories allow them to produce articles
in the legal commerce more than in the which can hardly be distinguished from the
illegal one. The main sources for the original ones. Then they place them in
counterfeited products are the sellers of “reputation” stores (malls, wholesale stores)
smuggled products, stores, market stalls, and commercialize them. This is considered
old-clothes markets and boutiques. to be one of the new methods of money
In terms of selling the illegal laundry. Nowadays, the counterfeited
products at sight, legally and sometimes products are made at standards close to the
with a cash voucher, their illegal features original ones and are sold at high prices. In
become less obvious, providing support to what concerns the quality of these products,
the ones that are aware of buying it’s getting harder and harder to distinguish
counterfeited merchandise. the fake from the original. If in the past the
In Romania, most cases of fake was made from poor quality materials
counterfeits registered from the total or their logo was wrong written, now even
amount of counterfeits, are in clothing and the specialists have problems in making the
footwear, according to the data given by the difference.
Romanian Association Anti-Counterfeits of In conclusion, the times when the
Romania. On the second place are the counterfeited products could be identified
medicines, alcoholic drinks, cosmetics with the naked eye have come to an end. The
(especially perfumes), followed by the cell networks involved in placing such fake
phones, the labor-saving devices, toys etc. products on the market, manufactures as the
“At date, over 80% of Romanians articles of some famous companies, have
wear counterfeited footwear and over 80% of invested in the equipment of some factories
the existent perfumes on the Romanian that produce objects of quality close to the
market are counterfeited. Romania isn’t a original’s one.
236
lack of attitude of the competent official

institutions. Concomitantly, another baleful
3. Consequences of the counterfeit consequence refers to cheating consumers
because of the low quality of the
The baleful consequences of the
counterfeited products and their low value.
counterfeit are well known. It is enough to
mention the damages caused by the tax
dodging and other losses resulted from
collecting taxes, the dangers against health
and security and, least but not last, cheating
Unfortunately, the current
the consumers. The counterfeits are one of
Romanian market is full of examples which
the most rewarding businesses on the
show that the products commercialized in
planet, international studies pointing out
Romania are generally “not competitive”
that, as a matter of fact, the underground
usually because of the quality/price relation.
economy coming from counterfeits
This lack of competition of the Romanian
represents over a quarter of the world’s
products only shows that, while the
economy. All studies show that if at a kilo of
Romanians didn’t know how to impose their
cannabis the profit is of 2000 euros, at a kilo
brands on the market, countries like China,
of counterfeited CDs the profit is over 3000
Turkey came in Romania supported by
euros. The criminal risks for counterfeited
everybody, not only their authorities but also
products traffic is extremely low. Moreover,
the Romanian authorities, armed with
the unprecedented development of the
marketing strategies and aggressive
economical technology facilitates more and
promotions.
more the theft of intellectual property
The main problem of the high level
through piracy and counterfeits. The
of importing counterfeited products is the
dimensions of this phenomenon, as well as
high demand for these products, directly
its characteristics haven’t avoided the
influenced by the attitude of the Romanian
European continent either. At the Western
consumer. He/she knows the quality of these
European level a third of the software is
products but lets her/himself to be deceived
pirated and the companies producing sports
because of the fact that is in fashion to buy
equipment declare annual losses amounting
fakes, especially clothing, but also because
to 7.5 million euros. The counterfeits are
she /he can’t afford to buy Romanian
indirectly encouraged by the lack of official
products, to which the level of poverty
reaction of the states concerning the
contributes in first place.
phenomenon of violating the intellectual
As a matter of fact, if the
property right. This lack of attitude from the
phenomenon of counterfeits does not
authorities gives the delinquents a minimum
decrease, as a new member of the European
risk of getting caught and pay for their acts.
Union, Romania would have to pay from its
Another factor that encourages the
budget the damages claimed by the western
counterfeits is the facility of imitate products
companies injured because of the
nowadays, throughout the technological
counterfeits and this because Romania is
means of continuous development. Other
regarded as a country of transit of these
factors that, although with smaller
products.
influence, encourage the counterfeits are:
manifesting penury or a vacuum in
6.Proposals
supplying original products, fact that
Romania couldn’t oppose the wave of
tantalizes imitation, the impossibility of a
actions that Europe and the world states
compelling control executed in the
undertake for fighting this phenomenon.
commercial network, deficient in
Here’s what the Romanian authorities
personalizing the original product through
intend to do in what concerns this aspect.
packing and distinctive signs (the brand,
“That’s why the respect for the
corporate ID, packing) but also some
intellectual property and copyrights must
technical difficulties in identifying and
become a part of the new generation’s civic
measuring the fake. What is more,
culture. We want the Romanian society on
approximately 30% of the PIB (Gross
the whole to assume this project and we
Internal Profit) is owned by the underground
have to succeed!
economy, fact that connects someway the
237
We want mixed teams, made of

prosecutors, policemen, inspectors of 9. Lucian Mihai, Invenţia. Condiţii de fond
supervising authorities, officials of the ale brevetării, Drepturi, Ed. Universul
juridic, 2002
industries and professional associations to
10. Chavanne A., Burst J.-J., Droit de la
get involved in the deep investigations, that
propriété industrielle, Dalloz, 1993
could discover the real sources of the pirated
of counterfeited products. 11. Chisum D.S., Jacobs M.A.,
We expected and still expect the Understanding Intellectual Property
General Prosecuting Magistracy – Law, Ed. Mathew Bender, New, York,
throughout the central role of supervision – 1999
to be in the front line of these deep actions.
It is true that the depraved subtlety of these 12. Colombet C., Propriété litteraire et
artistique et droits voisins, ed. A VIII-a,
phenomena impose a consolidation of the
Ed. Dalloz, Paris, 1997
institutional capacities of response.
The number of the specialists has to 13. Cornish W.R., Intellectual property:
increase, but especially their survey must be patents, copyright, trade marks and
extended and their formation intensified. allied rights, ed. A III-a, Sweet &
An important support for Romania is Maxwell, London, 1996
the PHARE project which will assign 2.5
million euros for this purpose. Yet, for 14. Bertrand, Le droit d’auteur et les droits
Romania and other Central and Eastern voisins, ed. A II-a, Ed. Dalloz, Paris,
1999
European countries from Caucasus are and
Central Asia, the support of the Western
15. X. de Bellefods, Droits d’auteur et droits
partners or the contribution to the private voisins, Ed. Dalloz, Paris, 2002
environment for consolidating the survey
and the modern means of investigation are 16. Puttemans, Droit intellectuels et
absolutely necessaries. concurrence déloyale, Ed. Bruylant,
Bruxelles, 2000
References
17. Revista Română de Dreptul Proprietăţii
1. Yolanda Eminescu- Protecţia desenelor şi Intelectuale
modelelor industriale. Drept român şi
comparat- Editura Lumina Lex,
Bucureşti, 1993
2. D.S.Bogdan, V.Roş, O.Spineanu-Matei-
Dreptul proprietăţii intelectuale. Dreptul
proprietăţii industriale. Mărcile şi
indicaţiile geografice, Editura C.H.Beck,
Bucureşti, 2003
3. D.S.Bogdan, V.Roş, O.Spineanu-Matei-
Dreptul de autor şi drepturile conexe.
Tratat- Editura C.H.Beck, Bucureşti,
2005
4. T.Bodoasca- Dreptul proprietăţii
intelectuale, Editura All Beck, Bucureşti,
2006
5. Legislaţia proprietăţii intelectuale. Vol.I.
Reglementări interne, Editura C.H.Beck,
2006
6. Gheorghe Gheorghiu, Operele audio-
vizuale, Editura Lumina Lex, Bucureşti,
2004
7. Organizaţia Mondială a Proprietăţii

Intelectuale, Introducere în Proprietatea
Intelectuală, Editura Rosetti, Bucureşti,
2001
8. Ligia Dănilă, Dreptul de autor, Editura

All Beck, 2005
238
The International Conference on Economics and Administration, Faculty of Business and Administration,
University of Bucharest, Romania
OFFSHORE COMPANIES
Teaching Assistant drd. Cristina GHEORGHE

avocat_cristina_gheorghe@yahoo.com
ABSTRACT beneficial and whether it should be expressly

regulated in the Romanian legislation, along
In everyday reality, the increasingly with the other types of recognised trading
accentuated concern of economic agents puts companies.
an emphasis on discovering measures to
achieve a return on economic activities and to Key words: offshore, company, trade,
avoid excessive taxation, but without economic, taxation
infringing the legal limits laid down by the
legislation in force. I. Introduction to the notion of
Therefore offshore companies are in « Offshore companies »
this sense the legal solution, or on the brink of
law, towards which the majority of economic In free translation, by « offshore » one
agents focus their attention, currently understands the territory located beyond the
overwhelmed by the excessive tax obligation shore, while the American slang assigns to the
imposed by the Romanian State. same term the meaning of economic activities
In theory, offshore companies may be and trading companies that carry out their
set up wherever in the world, but not activity outside the national territory of the
everywhere it is possible to obtain tax State in which they have a status as resident.
advantages since companies are not exempt The same term, explained from the economic
from tax merely because they are offshore point of view, is the activity carried out in the
companies, but because they are offshore exterior, performed outside the laws of the
company registered in a tax haven. country the investor comes from.
This work aims at defining the notion In theory, offshore companies may be set up
of offshore company, the organisation and wherever in the world, but not everywhere it
operation conditions and the advantages and is possible to obtain tax advantages.
disadvantages posed to such a company, Companies are not exempt from tax merely
rendering evident at the same time the gap that because they are offshore companies, but
the national legislation currently has with because they are offshore companies
respect to this type of company, overlooked by registered in a tax haven.
the Romanian lawmaker upon adopting Law The term « tax haven » refers to a territory
on trading companies number 31/1990. A that offers a wide range of tax advantages to
presentation of the positive, but also of the offshore companies registered within such
negative effects is attempted, trying to territory. The original English term suggests
determine whether this type of company is
239
that « tax heaven » renders the idea of tax (Republic of Nauru) or in small countries
refuge. (Panama). The legislation of these states
In traditional tax havens, the operation of encourages foreign investors to set up such
offshore companies is supported by a companies in their territories. In order to
legislative mechanism extremely well attract capital of foreign investors, the
organised, meaning that in the country majority of serious offshore areas guarantee
concerned laws provide favourable taxation by their law the operation of these companies,
conditions to offshore companies. It must be the security of the foreign investments made,
mentioned that by non-payment of tax the as well as the protection of secret information.
company concerned is not in breach of the law, For example, the Legislative Council of the
but on the contrary, it complies with the law, British Virgin Islands adopted such a law in
as it is exempt, in whole or in part, from 1984 under the name of the International
payment of taxes. Business Companies Act. Therefore, the
Consequently, offshore companies are those companies registered here do not pay any
companies that are registered in countries or other kind of taxes to this state other than an
jurisdictions where the tax legislation does not annual tax amounting to USD 300,
stipulate the levying of taxes or the taxes are irrespective of the turnover obtained. In the
very low as long as the companies concerned Bahamas and Belize this annual tax amounts
do not carry out activities within the territory to USD 100, while in Panama it amounts to
where they are registered. From the point of USD 150.
view of the trade acts performed, offshore This legal measure must be considered not
companies may be deemed to be foreign only from the standpoint of the advantages
companies, since they do not yield revenues in offered to offshore companies incorporated on
the country where they have registered. the territory of the state concerned, but also
The purpose of setting up such a company lies from the point of view of the state that, as it
mainly in minimising the duty and in lowering usually is a small state with a low population,
the taxation, but by incorporating such a shall enjoy a series of advantages in its turn
company a better risk management and a following the incorporation of these
significant decrease of costs may also be companies. Thus, on the one hand, offshore
achieved. In addition to the permissive companies provide substantial revenues to
taxation regime, these companies also benefit these states as a result of the payment of
from confidentiality conditions in the event of registration duties, of re-registration and of
an exchange control, enjoying protection other duties determined, and on the other
against governmental intervention and hand new employments are created, given that
against foreign political changes. the existence of law firms, of registration
institutions, of banks registered in these
II. Regions where offshore companies territories, etc. is needed etc.
may be set up (and selection criteria of Moreover it is worth mentioning that although
such regions) offshore companies are often deemed to be
companies exempt from tax, there are no
Currently there are over 40 regions that offer companies completely and legally exempt from
offshore companies various advantages related any and all tax obligation in any part of the
to the taxation regime and to confidentiality world.
conditions. These tax havens, deemed to be
traditional, are located in archipelagos (The
British Virgin Islands), in island republics
240
III. Taxation principles used in tax c. Sham companies;

havens Holding companies are the companies that
hold an equity portfolio, without performing
As previously mentioned, the main purpose of themselves a business activity. They are
the incorporation of offshore companies in tax incorporated in those tax havens that allow
havens resides in lowering taxes and in them the “constitution of financial sanctuaries
benefiting from direct or indirect tax sheltered from any taxation” as J.C. Martinez
advantages. also asserted in his work “La fraude fiscale”.
For this purpose, in registration areas of Such centres are named “offshore financial
offshore companies the following principles are centres” and they supply “offshore funds”; they
applied: are located in countries such as Liechtenstein,
a. In states where the company yields Luxembourg, Switzerland, Monaco, Hong
revenues only from abroad, such revenue shall Kong, Singapore, Bermuda and they have
be completely exempt from payment of tax, multiple functions. When the tax conditions
while the company has the obligation to pay a offered become less attractive from the tax
fixed annual duty, irrespective of the turnover regulation point of view, holdings resort to
and of the company profit. Such states are: the dissolution and transfer themselves to another
British Virgin Islands, the Bahamas, Belize, state, more welcoming from the taxation point
etc. ; of view.
b. The tax does not depend on the turnover, Base companies are also registered in states
but on the registered capital of the company. with a relaxed taxation and do not perform
For example, in Lichtenstein foundations have themselves business activities, but they
the obligation to pay to the state 0.1% of the manage the treasury of the group that has
share capital or at least 1000 Swiss francs, on created them, concentrating and
an annual basis. administering the commercial and financial
c. Only revenues obtained abroad are exempt benefits yielded in other states with high
from taxes, while there is the possibility that taxation by the branches and enterprises
these companies may carry out domestic within the founding group.
economic activities as well and in this case the Sham companies are those front companies
revenues yielded this way shall be subject to a or dummy companies that do not have their
tax based on a linear rate. For example, in base in the refuge countries, but they are
Hong Kong, companies must separately state limited to a mere “mail box” temporarily
their domestic revenues within their annual created and attached to a bank, lawyer or
report. accountant, aiming on the one hand at
d. Taxation based on a linear rate; For determining the profits yielded following
example, in Cyprus, offshore companies pay a certain operations carried out in the refuge
tax of 4.25% of their net profits. countries and on the other hand at rendering
more difficult the tax control of the accounting
IV. Typology of offshore companies records of the group enterprise.
Offshore companies may be set up either as
The specialised literature discriminates companies (partnerships) having limited
between 3 types of possible companies liability (Limited Liability Company), or as
registered in territories with relaxed taxation. joint stock companies (Corporation), or as fund
These types are as follows: management foundations or trusts and may
a. Holding companies; exercise any legal activity, without the need to
b. Base companies; state the purpose in the registration
241
documents. The only exception to this rule subscribing the shares, but the decision to
refers to the activities carried out by banks issue shares belongs to the founders or to the
and insurance companies. persons appointed by the same. This type of
Limited Liability Company is a partnership offshore company appeared for the purpose of
between natural or legal persons where being able to continue to provide maximum
partners are deemed to be shareholders and tax protection to American clients, especially
whose liability is limited according to the by guaranteeing complete confidentiality.
participation share in the share capital, while Non-resident company is the least
the profit is considered by the tax bodies as demanding type of offshore company and it is
personal income and they tax it accordingly. used especially in the influence area of the
This type of company is frequent in the USA British laws.
and is subject to the “flow through taxation” Exempt company is that type of company
system, which means that the company does that is exempt from any normal tax provision,
not owe the tax, but the shareholders of the as it is a normal company that benefits from
company owe such tax, unless they stipulate facilities granted under certain conditions
otherwise. In order for such a company to while in jurisdictions with a normal tax
benefit from tax exemption in the USA, the regime. This exemption from payment of taxes
following conditions must be complies with: is annually obtained on the basis of a
a. The company shareholders must not be statement made by the persons in charge of
residents of the USA; the company who undertake not to do business
b. The company must not carry out trade in or with companies registered in the state
activities in the USA or with companies in the concerned, other than non-resident or exempt
USA; companies.
c. The LLC must not have a permanent
registered office, other than the one registered V. Incorporation of offshore companies
in the USA;
In other words, the shareholders of the LLC Registered name – Trade Register – in
must be natural or legal persons, residents of certain jurisdictions even appear some
tax havens, since they are the ones who owe restrictions regarding the registered name;
the tax. Share capital – in general there are no
Corporation is a generic name of joint stock restrictions regarding the amount – this
companies and their registered name may also situation is specific to less developed offshore
include the words: Limited, Corp., Inc., etc. areas: The British Virgin Islands, the
The difference between the joint stock Bahamas, with small exceptions: Malta,
companies recognised by the Romanian Liechtenstein. Two types of share capital may
legislation and the ones recognised by the be discriminated:
USA legislation lies in the fact that in the a. Authorised share capital – is the amount of
USA such companies may be incorporated shares that the company has the right to issue
without a share capital as well. or sell to shareholders.
International Business Company (IBC) is b. Issued share capital – is the amount of
the type of company that is specific to the shares that the company issues and sells and
territories belonging to the British Crown. may be different from the authorised share
They are joint stock companies set up by 1-2 capital.
founders who have no right whatsoever over The Trade Register must be informed about
the assets and liabilities of the company. The the increase of the share capital, by filling-in
company is practically owned by the person an information form and enclosing with the
242
same the resolution that authorises the VI. Offshore companies scope
modification of the share capital.
Company shares – may be registered as The main activity field where the offshore
bearer shares (which are not accepted by some companies are used are as follows:
banks for the purpose of preventing money International trade: by incorporating an
laundering). import – export offshore company in a tax
General Assembly – is convened annually (at haven the reduction of the tax on profit is
a maximum interval of 15 months), or more possible. The offshore company acts as
often under the name of Extraordinary intermediary between the manufacturing
General Assembly. company and the client. It buys the goods from
Manager of offshore company – the the manufacturer for a very small price (close
problem with electing the managers within an to the manufacturing price) and sells them to
offshore company is a delicate one. This is why the client for the market price, while the goods
people who wish to register offshore companies are delivered directly from the manufacturing
may opt for one of the following versions: company to the client and the passing of the
 the person concerned acts also as manager goods through the offshore company is only
and shareholder; theoretical, carried out based on documents.
 the person concerned is the manager, but Of course, more often than not, the owner of
uses named shareholders; the offshore company is also the owner of the
 the person concerned uses named managers, manufacturing company. This way the
but is a shareholder; offshore company (located in a tax haven)
 uses named persons both for the position of yields a substantial profit that shall not be
manager, as well as for the position of taxed, while the manufacturing company
shareholder. registered in a “tax hell” yields a low profit or
Named managers and shareholders are the no profit at all.
persons or the companies that in stead of the Investments: offshore investment companies
owner, but in the interest thereof, carry out may be used in order to make investments
certain duties within the company and that shall produce large profits. Thus, these
generally the same person acts as manager profits shall be kept away from high taxes.
and as shareholder. With the help of offshore investment
Advantages of using name managers: companies, the anonymity of the real investor
1. anonymity of the owner, since the same is may be guaranteed. Another advantage lies in
not included in the records of the authorities; the fact that in the company accounts foreign
2. may manage a company exempt from taxes, currency may be kept without limitation,
especially if the registered office of the eliminating thus the losses caused by
company is located where the named exchange rate differences.
managers live. Real estate transactions: if an offshore
Managers are permanently appointed and company is the owner of a real estate property,
may authorise any person to act as legal upon alienating the same significant amounts
representative. The same is re-elected during may be saved from taxes. This is why it is
the General Assembly. preferable for those who have properties to
Company secretary – is a natural or legal own them through an offshore company. There
person and is in charge of the company are a series of advantages such as the
relationships with the Trade Register and avoidance of succession duties, of taxes
with the governmental bodies. It is appointed resulting following the sale of capital
by the managers. investments.
243
Professional services: by payment of the  public has access to the files that
equivalent value of consultancy services comprise the share certificates, the
significant amounts may be transferred into incorporation documents of a company, etc.
the offshore company accounts without paying At world level, over 95% of the offshore
taxes. company owners use an anonymity structure,
while the remainder prefer an open structure.
VII. Main advantages of the Employees are obliged by oath to observe the
incorporation of offshore companies secrecy with respect to the names of non-
resident beneficiaries. Only general details are
In order to be able to declare ourselves for or presented now and then in order to inform the
against the regulation of such a company in government and the public about the evolution
the Romanian legislation as well, it is in this field. Depending on the company
necessary to analyse the main advantages beneficiary’s wish, the identity of the same
provided by this kind of company. The may be known only by those with whom they
advantages concerned are as follows: work directly, such as the general manager
Anonymity and confidentiality – are cited and the deputy manager.
as the main advantages of offshore companies, Are subject to low taxes and helps to
after the low taxes or even the absence perform a better international tax
thereof. Among the reasons that determine planning. World tax jurisdictions are divided
such a choice are the following: into two categories: the ones that have a high
 in most cases offshore companies are used level of taxes (income tax, VAT, tax on
as a third party that carries out transactions salaries, tax on dividends, local taxes, road
on the local market. In this case, the 2 taxes, real estate taxes, etc.) and the ones that
companies must not have the same manager(s) levy no tax at all or that levy low taxes. Within
because the same person cannot sign an jurisdictions that do not levy taxes, such as
agreement for 2 companies acting in his or her the Bahamas or Gibraltar, none of the above-
capacity as manager of both of them; mentioned tax is levied. Companies registered
 in many countries the obligation to pay within such jurisdiction pay no such taxes.
taxes is connected with the location of the If we consider a low tax jurisdiction, we speak
company management. If it is obvious that the about the tax on company profit. A jurisdiction
managers and shareholders of a foreign with such taxes is Cyprus, where a tax of
company are registered on the local market, 4.25% is applied to the gross profit. The gross
the revenues of the foreign company shall be profit is calculated by subtracting all the
deemed to be revenues of local owners and expenditures incurred by the company in
consequently shall be taxable; order to carry out its business from its
 business people wish to preserve their revenues. Therefore the cost of goods sold, the
anonymity as regards the activities carried salaries, the travel expenses, the
out, the profits accrued and the investments; accommodation and protocol expenses, the
 anonymity may no longer be achieved once professional duties and commissions and so on
the company has been registered based on its and so forth shall be included. There are no
real owners and the documents where the limitations as regards such expenditures other
shareholders and managers are mentioned than common sense. Moreover, salaries are
have been filed. On the other hand, when the not taxable. Nevertheless, other jurisdictions,
company is registered as anonymous and the such as the Island of Man, impose a fixed tax
owners at a certain time no longer wish this, (750 pounds or 1200$ in the case of the Island
the structure cannot be changed at any time;
244
of Man) to any company, irrespective of the After the appearance of the new independent
profit or loss thereof. states of the former Soviet bloc, the economic
As regards the international tax planning, restructuring process inevitably led to
international companies use offshore entities financial crises (bank bankruptcies, pyramid
in order to direct their profits towards the schemes, etc.), which to the population meant
same and to carry out their activity so as to the loss of savings.
pay as little taxes as possible. It is not a One of the greatest advantages of Cyprus as
surprise that thousands of business people offshore centre is its economic and political
and companies use offshore companies for stability within a vulnerable region from this
international tax planning, and among these point of view. The civil was in the Lebanon
there are companies famous around the world offered Cyprus its first advantage in 1970,
such as Pepsi Cola, Tetra Pak, Barclays RJR followed by the Gulf War in 1990 and the
Nabisco and many others. International collapse of Yugoslavia. Many companies that
double taxation avoidance treaties and the low arrived there to find a temporary refuge,
taxes offer huge possibilities to tax planning. stayed when they realised that this country
Lack of exchange controls. Many business offered more than that.
people try to avoid the establishment of a They operate within a well organised and
foreign headquarter where there are exchange development banking system. This is one of
controls or where the formalities regarding the priorities that any offshore financial centre
such operations are deliberately complicated. must comply with. To this the great banks of
Offshore companies are not subject to any kind the world that have established their
of exchange controls. They may receive funds operating centres in these areas and have
either in cash, in any kind of foreign currency consequently raised the standard of
and they may also make payments to any performing this activity have contributed.
person in any countries or may perform fund Considering the way in which today’s
withdrawals without any explanation or businesses are carried out, it is unconceivable
document requested by the bank. for an offshore financial centre not to have a
Consequently, the company operates within a well developed banking system.
non-restrictive banking system. Possibility to diversify the objects of
Offshore companies may maintain accounts in companies without any restriction.
any kind of foreign currency, in the form of Offshore financial centres frequently allow the
foreign accounts, notice accounts or fixed term diversification of the objects of a company,
deposit accounts, while the interests paid are operation that is not possible in the country of
similar to those internationally accrued. The origin of the investor. Companies that face
funds in these accounts may be transferred hard conditions and restrictions in their
abroad without any restriction and without country of origin may find numerous
the request for documents or permits. commercial solutions in offshore centres, thus
They operate within a stable economic removing many of their problems. For
and political system. Any business men, any example, Japanese or American banks cannot
investors want to carry out their activity in a undertake obligations with respect to certain
country that displays such features. Nobody issues related to the securities prohibited by
wants to see their money gone because of the law in their countries and enter this delicate
change of governments, of governing system or area with the help of offshore entities. It must
because of the economic instability that may be mentioned that the formalities required for
bring about inflation, economic recession and the diversification of activity of a company are
many other problems. complied with without too much bureaucracy.
245
Relaxed regulations. The fear of excessive this way goods may be more easily selected by
regulations is a major attraction towards this consumers.
domain and is the reason why the registration
of banks, insurance companies or sea VIII. Conclusions
transport companies has become an important
pillar of the offshore industry. A new wave of By analysing all the above-mentioned aspects
financial instruments is directed towards the and by ascertaining that the Romanian
offshore domain for this reason. This wave legislation has no legal provision that
includes open investment funds, payment regulates such type of company, we believe
instruments, Eurodollar trade. that a legislative initiative for this purpose
Much better expansion possibilities. Large would be welcome as long as the major
corporations see offshore centres as tendency of economic agents is to resort to any
indispensable to their expansion on new solution including the ones at the lower limit
markets at competitive prices. For example, of the law in order to avoid overwhelming
offshore financial centres dominate over a few taxation. We believe that the legal recognition
international activities such as: shipping, air of this type of company would bring real
transport, financial domain and captive economic benefits not only in favour of their
insurance companies. Lately approximately owners, but also in favour of the state by
one million offshore companies have been encouraging and supporting economic
registered around the world and many of the activities and investments in all activity
famous corporations on the world market sectors.
operate through these centres. Here we may
remind IBM and Microsoft in Dublin, Orient References
Express and American Airlines in the
Bermuda, De Burs in the Island of Man, GE  Adams C., (2003), A Historian Looks at Tax
and CNN in Cyprus. Therefore a company Haven, http://www.freedomandprosperity.org/;
 Bişa Cristian, Costea Ionuţ, Capotă Mihaela,
shall be able to easily a market or open a
Dăncău Bogdan, (2005) Utilizarea paradisurilor
branch or a subsidiary in a certain country
fiscale. Între evaziune fiscală legală şi fraudă
because it shall be deemed to be a foreign
fiscală, BMT Publishing House, Bucureşti;
company and shall be able to benefit from the  Corundeanu Carmen, (1998), Sistemul fiscal în
facilities granted by the government of the ştiinţa finanţelor, Editura Codecs, Bucureşti;
country concerned. Here as example of such  Dauphin C. (2002), Ghidul cu adevărat practic al
county may be Romania, which grants paradisurilor fiscale;
facilities to foreign investors who place their  Gobbe F., (2002), L’impact des paradis fiscaux sur
money into our country. les pays en developpément, Gresea-Echos;
Concealing the origin of goods by  Haslerud Gjermund, (2004), The Growth of Tax
Havens – A Theoretical Perspective and an
processing them in the free areas related
Empirical Analysis, disponibil la
to other offshore centres. Business people
http://www.sgir.org/conference2004/papers/;
may conceal the origin of the goods traded with  Hines James R., (2004), Prosperă paradisurile
the help of free areas. Thus they may introduce fiscale?, Univ. of Michigan & NBER;
goods in the free areas where they may change  Mănilă A., (2004), Companiile offshore sau
the packaging, may process them and conceal evaziunea fiscală legală, Ed. AllBeck, Bucureşti;
their origin in order for the goods to have as  Mitchel Daniel J., (2004) The Economics of Tax
place of origin the free area and implicitly the Competition: Harmonization vs.
country that has organised this free area and Liberalization,http://www.heritage.org/research/feat
ures/index/ChapterPDFs/chapter2.HTML ;
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 Peillon Vincent, Armand de Montebourg, (2002),

Les paradis fiscaux, Lecture croisée du rapport
d’ATTAC et du Rapport Parlementaire;
 Vonica Romul Petru, (2000), Drept comercial –
partea general, Editura Lumina Lex, Bucureşti;
 www.incorporateoffshore.org/Offshore/offshore-
llc.htm
 www.offshoreinfo.com/bvi.htm
 www.laveco.com
 http://en.wikipedia.org
247

THE BALANCE OF PAYMENTS AND THE EXTERNAL DEBT. SPECIFIC

PROBLEMS IN ROMANIA.
GIURGIU Adriana;
University of Oradea, Faculty of Economic Sciences, Dept. of International Business,
Romania;
email address: adrianagiurgiu@gmail.com
HAŢEGAN D.B. Anca;

Romania;
email address: anca_dodescu@yahoo.com
NEGREA Adrian;
Romania;
email address: ngr_adrian@yahoo.com
Abstract Romania relies more on technology transfer

The economic growth that is based on made by foreign capital firms.
internal demand has different effects on the Thus, this paper tries to summarize the
evolution of the exchange rate, on how is used specific problems encountered by the balance
- for investments or consumption -, of payments and the external debt in
facilitating access to credits, materialized in Romania, after 1990.
the expansion of the governmental credit,
based on the future growth of the revenues, Key words: BoP sustainability; external
and on the increasing competition among debt; foreign investments; foreign trade;
credit institutions. The rapid growth of the international operations.
both private and governmental credit, led to
an increase in the consumption credit. In 1. Introduction
Romania, the monetary policy has the
capacity to reduce the pressure coming from In order to debate the current specific
the internal demand, by applying an interest problems of the Romanian economy from the
rate. As a result, the investor perceptions perspective of the country’s Balance of
about Romania may change, leading to Payments (BoP) and external debt, we
massive capital outflows, sharp currency should refer first to the general economic
depreciation and rising prices. situation of Romania after 1990, with a
In 1990, 1992, 1996, 1998, 2001 and each major focus on the last years. In this
year after 2003, the non-sustainability of the purpose, this introductory part our paper
current account deficit, could support that, in will present the hypothesis of our further
these years, Romania recorded excessive analysis, such as pertinent remarks upon
current account deficits. To the increase in the general economic climate of Romania.
trade deficit has contributed a greater We do find the research topic our paper of
volume of imports of consumer goods, capital great importance, because it tries to explain
goods and fuels. Lack of a functional export the Romanian paradox: although there is an
strategy gave the foreign firms that have external deficit, the level of international
foreign direct investment in Romanian reserves has grown almost in every year of
economy to determine the profile of the the analyzed period, with a greater pace
country's exports. Furthermore, Romania is after 2000 (according to the policy of NBR
placed last at the innovation chapter, of all adopted in 1999, consisting in consolidating
the EU countries. So, we can appreciate that the level of international reserves). Thus, the
248
paper explains that this situation is possible published by reffered sources. The data are
because the cover of the external deficit was presented in the Table 1, included below.
made through foreign direct investments
and external loans. Furthermore, the vast Table 1: General and specific economic
sum of reserves is explained by the inflow of indicators of Romanian Balance of
foreign direct investments and portfolio and Payments, external trade, and debt,
the revenues from privatization. Moreover, 1990-2009
in the Romanian economy in the past couple
of years, the credit expansion took pace,
although in 2009 this suffered a contraction
due to the economic crisis. This represents a
problem, because these credits were destined
for consumption. The consumption appetite
of the local population can be seen in the
loans, but also in the imports of non-
productive goods.
The answers to the problems raised in this
paper resulted from the researches pursued
within the project financed by NCPM of
Romania (project achronim: SVACEX;
contract 92-073 /2008), with the following
objectives:
- analysing the Romanian balance of
payments’ accounts and the sub-accounts,
which are responsible for the existence of the
external deficit;
- emphasising the main features of the
current account evolution in Romania, in
order to establish the causes of its external
deficit;
- emphasising the main elements which
influence the sustainability of the current
account deficit;
- emphasising the impact of the BoP’s
evolution on the country’s foreign debt;
- the analysis of different specialized
indicators revealed by the existent
literature, such as the indicators of dynamic,
structure and foreign debt.
2. Literature Review and Theoretical

Background
This paper relies onto the research

developed in the Ph.D. thesis of the main
author, Dr. Adriana Giurgiu, which was
defended in 2007 at the Bucharest Academy
of Economic Studies, published thereafter
within the Economica Publishing House, and
continued through the research project
financed by NCPM of Romania (project
achronim: SVACEX; contract 92-073 /2008),
Source: The annual and monthly reports of the
and managed by the same author (please,
National Bank of Romania, and own
visit http://steconomice.uoradea.ro/svacex). computations
The indices and data used in present paper *) unavailable data
resulted from the calculus made based on Note: X IP are the exports of goods of the
official data, as well as on statistical data manufacturing industry in the year that the
249
indicator is calculated. The annual growth of possible that the increase of wages in the
every indicator is calculated based on the public sector is responsible for these effects,
formula: (X m –X m-1 )*100/X m-1 , were X m represents because of a lack in governmental policies
the variable in the current year, and X m-1
oriented on productive investments.
represents the indicator from the last year.
Identifying some viable solutions that can
melt the rapid growth of this type of credit is
Thus theoretically, the economic growth that
difficult. Raising the interest rate in order to
is based on internal demand has different
limit the inflation pressures could encourage
effects on the evolution of the exchange rate,
even more the credit in a foreign currency,
on how is destined to investments or
and this can affect those who already have a
consumption. On the evolution of Romania
high degree of loans. Another solution could
in the last couple of years (economic growth
come from the credit institutions, meaning
based on consumption and a growing
that the rise of credit would be in the same
external deficit), the national currency
field with the management capacity of the
should register an acute depreciation,
phenomenon, and with the actual and future
determining a rise in the local prices. Giving
level of the capital and provisions.
the facts that Romania wants to join the
As a result in the increase of the aggregate
euro-zone in the next 4-5 years, a growing
demand, the external deficit can become
inflation contravenes the objectives taken by
unsustainable. If these theories are not dealt
the NBR to hold the prices at a stable level,
with in the coming period, we can confront
and to attain the nominal criteria of
ourselves with a change of heart from the
convergence. So, the measures adopted by
investors’ point of view, manifested by a
the NBR constitute one of the causes of the
redraw of foreign capital
appreciation of the national currency in
On the other hand, according to the World
between 2005-2007, along with the inflow of
Bank analysts, this kind of evolution does
foreign direct investments, revenues from
not necessary incur a financial crisis. Their
privatizing.
explanation is based on Portugal’s situation,
Romanian authorities have not understood
where the economic expansion supported by
the current account deficit as a real risk in
loans before the accession was followed by
the last years, and therefore several
years of stagnation and slow economic
economic policies that stimulated the
growth, but not by a banking and currency
increase of our country’s deficit have been
crisis.
implemented. Among the reasons that
The risk of releasing such currency flow
explain the actual level of Romania’s current
rises with the global carry trade speculations
account deficit, there can be found the need
(operations type carry trade are realized on
for investment and consumption capital.
the Forex market, and they represented the
In the last couple of years, the current
buying of a currency that has a high interest
account deficit had the internal demand as
rate, and selling the one with a low interest
the main cause, backed by:
rate; the one who uses this type of strategy
- Relaxation of the revenue policy after 2005,
intends to obtain a profit speculating the
higher salary in those sectors that were
differences between the interest rates). The
experiencing temporary migration of
existence of this phenomenon had been
workers, widening the work force deficit,
determined not only by financial
wage pressures (when elections take place).
liberalization but also by the technological
One of the most vulnerable sector that
progress. Theoretically, a flexible exchange
experiences wage pressure is the textile
rate must assure the independence of the
sector, that holds an important but
monetary policy, and an increase of expected
decreasing share in the total of the
inflation should induce a depreciation of the
Romanian exports.
national currency. In reality, the global
- Facilitating access to credits, materialized
carry trade is a speculative short term
in the expansion of the governmental credit,
operation, with the help of which liquidity
based on the future growth of the revenues,
exports can be operated: the increase of
and on the increasing competition among
interest rate represents an instrument for
credit institutions.
stopping the inflation factors, which is
The rapid growth of the both private and
helpful for exchange rate nominal
governmental credit, led to an increase in
appreciation. If a country maintains its
the consumption credit. Instead, it is
interest rates at high levels it can lead to
250
increased short term capital inflows (in the would rise, and the macroeconomic
years 1970-1980, devaluation represented an confidence would begin to fall, having a
efficient way to improve the competitiveness, negative impact in the analysis taken by the
when this measure was sustained by some rating agencies, making it hard for us to
restrictive macroeconomic policies (fiscal and borrow money.
monetary). Though, the capital mobility In Romania, monetary, fiscal and exchange
wasn’t so high like nowadays, and it has rate policies were not correlated so that their
permitted some positive results in the combined action would have the purpose of
economy. achieving external balance. Also, in order to
Through the adopted monetary policy, the reduce the external deficit, the accent was
National Bank of Romania (NBR) tries to set on the exchange policy, trying to
maintain the prices’ stability, to prevent maintain a continuous real depreciation of
their raise, and also to stop the local the national currency against foreign
currency artificial appreciation. currencies in which contracts are signed.
In Romania, the monetary policy is In the last couple of years, there was an
transmitted through the exchange rate increased currency inflow in Romania. EUR
channel, as a response to the high level of or USD from foreign investors were
economic liberalization and to still attracted by the high returns, comparing
undeveloped financial systems. The capital with those existing at international level,
inflows increase the efficiency of this from Romanians who went to work abroad
channel, insuring a low short term inflation (which registered a high dynamic and a
rate through the contraction of the imports seasonal character) or from investment
prices, but also through its effects on the net funds (from EU) were transformed in LEI,
exports and on demand. Although it is that were “laying” in the market,
favorable on short term, the excessive use of determining the artificial currency
this mechanism risks to become dangerous appreciation (between 2005 and 2007),
because it can deepen the external because the economy didn’t had the capacity
imbalances and can increase the to absorb them. The absorption of this
vulnerability of capital flow reversibility. capital without affecting the macroeconomic
In Romania, the monetary policy has the equilibrium represents a problem.
capacity to reduce the pressure coming from With the entry into the EU and thus
the internal demand, by applying an interest respecting the European regulations
rate. The real interest rates, with an requirement, eliminating subsidies for
effective impact over the financial position of survival, exemptions or reductions of
the bank clientele, have been highly positive liabilities and penalties, the state is forced to
in the case of active interest rates, but decrease their involvement in the economy,
predominant negative on the liabilities side. in favor of market mechanisms that promote
The low return on investments in bank performance.
deposits explains the moderate growth On the other hand, large inflows of foreign
rhythm of savings. This situation of currency (produced after 2003) can lead to
mediocre return on investments of bank macroeconomic imbalances and
deposits explains why the credit channel vulnerabilities, which may trigger a crisis
does not function at the corresponding level with negative effects on price and financial
in Romania. stability, disturbing the NBR activity and
The fiscal policy of a country always affecting the real economy.
constitutes a reason of concern, because it As a result, investor perceptions may
was lax, contributing to the economic change, leading to massive capital outflows,
imbalances in the last years. There was also sharp currency depreciation and rising
a tendency of increasing the consumption prices. In this situation the authorities may
costs instead of those for investments, impose, according to economic theory,
deteriorating the perspectives for a long restrictive fiscal and monetary policies,
term growth. Moreover, the future incomes resulting in the compression of the aggregate
for the budget are expected to decline in demand, recession and unemployment, lower
2010, as a result of tempering Romania’s corporate profitability. In a small country,
economic growth. If the tendency of the last that conduct will be reflected more in the
years is followed, and the fiscal deficit is let current account deficits than in curbing
again to deteriorate, than the public debt inflation.
251
The biggest risk is that without any security given that our country has an untapped
and filtering method assumed by markets agricultural potential, recording an exclusive
and because of the failure of authorities to reliance of the agricultural production on
slow the economic growth by fiscal weather conditions due to poor development,
restrictions, could lead imbalances to lack of appropriate level of modernization.
accumulate and later to the collapse of the Trade balance risks remain and we can
market. expect deterioration because of the reduced
exports, given that not only our main
3. Balance of Payments. Specific partner, the EU has economic problems, but
Problems in Romania other countries in the world too, as the
international crisis expand.
In 1990, 1992, 1996, 1998, 2001 and each The negative values registered by the trade
year after 2003, the non-sustainability of the balance as part of GDP show that the
current account deficit, could support that, external trade effect on the internal
in these years, Romania recorded excessive economic process has been important in
current account deficits. Is economically Romania, because it decreased in the
rational for such deficits to exist, but not so analyzed period. After 2004 it reached
large. In addition, there is a risk that the concerning levels that imposed a close
current account deficit continues to increase monitoring of the trade balance evolution
due to the international crisis that acts to and also adopting different measures for
reduce our country's partners trading preventing this from becoming a national
demand. income spillover effect.
Trade deficit with the Russian Federation Analyzing the Romanian exports structure
contributes to the formation of Romanian we can observe that although the main
trade deficit in a downward trend from 1999 percent of our exports since 2005 is held by
until now, from a majority share to 12% in the group of products with a high processing
2008, due to reduced imports of mineral level and high technological complexity,
products, whose main provider for our „Machinery, equipments and
country is the Russian Federation. For one transportation”, with all this increase, in
country, this percentage is high, indicating 2006 it has not exceeded the value reached
the dependence of Romania of mineral in 1990, thus representing a negative
products and natural gas from the Russian warning for our country’s external trade
Federation. Though imports from this evolution. This situation is due to
country are convenient in terms of distance machinery sectors’ instability and to the
and transport cost implication, the present delayed restructuring and technological
world configuration makes dependency a processes. We can also notice that medium
major threat for the business sector in technological complexity and low processing
Romania, it can be a tool of economical and degree goods „Textiles, confections and
political "blackmail". Finding alternative footwear” hold an important percentage of
energy resources and upgrading the Romanian exports, although they decreased
extraction sites in our country, developing since 2002, after the increases registered
partnerships with other suppliers of gas and before. The explanation for increased exports
mineral products are the long term of this goods could be the work force low
sustainable solutions. prices, knowing that this industry uses this
To the increase in trade deficit has production factor. We continue exporting
contributed a greater volume of imports of raw materials and partially-made goods
consumer goods, capital goods and fuels. traditionally produced in our country two
While the first group of products remains decades ago and low added value and
very low for exports, the other two categories technological complexity goods that have low
contribute to the exports in order to prices, situation that reflects our economic
counteract the increased imports. If this situation in general and our industrial
trend continues, the balance of consumer situation in particular. We are talking about
goods will become the main cause of the “Metals and goods produced from metals”
worsening trade balance. and “Wood products, furniture and paper”.
The deterioration of the trade balance comes These products do not offer us important
from the agricultural sector, Romania being competitive advantages on the international
a net importer of agricultural products, markets, but the comparative advantages
252
could be maintained through price policies Romanian exports is the one of “Machinery,
and less through quality and productivity. equipments and transportation”, which
The low added values obtained through our represents high processing and technological
exports do not offer the needed imports complexity degree goods. The importance of
financial support, nor help the producers. this group increased over the analyzed
Qualitative and quantitative development of period, evolution explained by the Romanian
exports, is contrary to the limited expanding economy technical restructuring. We can
economic power of Romania, unsatisfactory also notice another groups’ importance with
pace of restructuring the real economic high processing degree „Chemical and
sector, the insufficient level of available plastic goods”. Thus more than a half of our
resources and the low ability to attract them, imports are goods with a high processing
while the industry has decline in a long and technological complexity degree,
period of time and producing largely with showing the Romanian economic
inefficient technologies; low capacity of development level and also generating
specialization by product category, which problems of the trade balance.
prevents the passage of the quantitative The imports evolution as a part of GDP
development of Romanian exports; chronic reflects that starting with 1999 the national
inability to specialize the production production is 38% completed by imports in
capacity of the economy of our country to 2008 (FOB imports). Thus we can notice the
respond rapidly to stimuli of the changes in high dependency of our national production
exchange rate and foreign demand; high on imports, a situation generating negative
domestic production costs, poor effects of the trade balance, of our country’s
infrastructure, information barriers, debt degree and of our sustainable economic
underdeveloped financial institutions, development.
financial regulations and legislative The “Tourism services” balance has changed,
instability. These facts explain the large registering high deficits maintained on all
share of intermediate and consumption the analyzed period on the account of the
goods of the Romanian exports, capital goods Romanian tourism that lacks its
representing only a small proportion of development, specialization and employees
exports for our country. training, the offered services quality,
Lack of a functional export strategy gave the undeveloped access infrastructure and
foreign firms that have foreign direct investments in accommodation capacity. All
investment in Romanian economy to these reasons and the high prices practiced
determine the profile of our country's in our country compared with those outside,
exports. Furthermore, Romania is placed determined the residents to spend their
last at the innovation chapter, of all the EU holidays elsewhere. Romania has special
countries. natural resources, some of them unique in
However, although Romania is far from the Europe, but that are not valued
stage where development should be based on Over the period 1990-2009, the earnings in
innovation, we cannot say that such a the chapter "Income from other equity
transformation system hasn’t got the germs. investments (interest)” have low values, no
The majority of the technology used in growth prospects, and those payments will
Romania is imported. We rely more on be increased continuously, reaching values
technology transfer made by foreign capital higher than those of the earnings, which
firms. And the technology brought by the explains the situation that Romania
foreign firms is not the latest generation, it encounters today, that our country gets
does not have innovation potential, and in foreign loans, and gives very little or none,
addition, there is insufficient capacity to most loans that Romania charges interest
assimilate it. In Romania, the degree of are those granted before 1990.
technological diffusion is small, while the We have to consider the fact that the risk of
postproduction development and innovation the “Income” balance contributing to the
is almost null. As a result of reduced labor increase of the current account deficit is
costs, Romanian exports are price increasing, because we can notice an
competitive, and not by the contribution of increase in repatriated profits, dividends
innovation. from FDI, interest rates paid for external
In the analyzed period, it can be noticed that loan, in accordance with a reduction of the
the group with the highest percentage in the
253
labor income inflows compared with the We also noticed a strange evolution of the
preceding years. „deposits” position. Thus, „Deposits held by
The increasing of "current transfers" slowed non-residents in Romania” has a less intense
in 2007 due to the evolution of remittances, evolution compared with the one of „Deposits
given the problems encountered in the labor held by residents outside the country”,
market in Spain and Italy. This trend is except few years when either the credit or
exacerbated by the crisis in Europe resulting debit was higher. In Romania the capital
in a slowdown of those economies where the exits were liberalized starting with 2003,
Romanians work, especially in the which leads us to the next question: How
construction sector, which may lead to the could this evolution be explained?
return of Romanian workers from abroad. The almost permanent exceeding „Statistical
Remittances sent by Romanians that leave discrepancy” position shows the fact that the
the country and work abroad, may be financial entries have been bigger than those
capped, and then decrease as they and their officially registered. How could something
family reunify. In addition, Romania's like this be explained? A possible
contribution to EU budget and that most explanation could be the Romanian workers’
funds raised from the Union are recorded on remittances and the money they send
the capital account will result in reducing unofficially back to their families. This
the positive contribution of current transfers surplus could also be explained by
to counteract current account deficit. underground economy. 2002, 2003, 2007 and
Adverse effects may arise from the use of 2008 are the exceptions over the analyzed
remittances; research conducted indicating a period and the „Statistical discrepancy”
possible negative effect on the trade balance balance shows a deficit.
and the employability of the workforce, due Although this positions values in „General
to stimulating imports. It has also affected Total” of the Romanian balance of payments
the real estate market, real estate prices are small enough so the information offered
increasing, thanks to a large part of this by this statistical indicator can be trustfully
money being spent on the real estate market and a faithfully mirror of our country’s
in Romania. economic international relations, there are
In 2007, FDI inflows continued orienting to several years when those percentages are
the industry sector, but in a slower pace high enough, that can lead to questioning
than that of the non-tradable goods, that this macroeconomic aggregate.
leads to a decrease or moderation of We also noticed a discrepancy between the
Romanian exports. Although this process is balance of payments credit values and its
normal in the context of recovering the debit values, according to the NBR 1990 –
disparities, a concentration of resources 2004 annual reports, probably owed to some
allocation to untradeable sector can generate errors.
boom and bust type of growth, because the Starting with 1997, the current account
FDI are not exclusively oriented to high tech deficit financing has realized primary from
sectors. Moreover, as the percentage of foreign direct investments that shows a high
financial flows to the non-tradable goods sustainability of the short term current
sector increases, the economy’s reorientation account deficit. But the medium term
flexibility grows. Analyzing our country we sustainability of this financing structure is
can notice that both negative influences questionable, keeping in mind that FDI in
reached high levels. Moreover, the non- Romania represent earnings from
tradable sector contribution to the GDP privatization, revenues that will reduce in
formation is decreasing slow, its growth the following years due to the a limited
rhythm being outran in the second half of number of assets, thus causing the increase
2007 by the one of tradable goods. of our country’s vulnerability.
The constant exceeding balance of “Loans FDI in products with a high processing
and long term credits received” show that degree are very important. Moreover, foreign
Romania’s external debt grew every year investors complain about the complexity of
after 1989. the financial sector, the low level of taxation,
We can observe an important raise of „Loans poor infrastructure, public policies’
and short term credits received” position, instability, public administration
starting with 2003, thus determining a short bureaucracy and corruption. The contracted
term external debt increase. credits also participated to the covering of
254
the current account deficit. The high aver the political discussions of the
percentage of capital inflows, taking the macroeconomic environment
shape of external credits that cover the The moment we entered on the private
current account deficit imposes a serious market in order to attract capital,
analysis of the microeconomic risks and represented the lack of a coherent
macroeconomic implications, from the management concerning the external debt.
external debt sustainability. The problems There is a tendency in channeling resources
that can increase the external debt on to non-exportable services, and the
medium and long term manifest with the diminishing foreign credits for the industry,
help of the exchange rate, its sudden that produces exportable goods. So the
depreciation would lead to an increase of nonguaranteed external debt contributes
external financing costs. less to the export sector.
When the capital entries are used to finance Another problem comes from the short term
the balance of payments deficit and for the external debt, private, that has multiply
external credits interest rates payment, the quickly since 2003, approaching the level of
external debt accumulation takes place. the external debt for the medium and long
term.
4. External Debt. Specific Features of This increase in the external debt has
Romania. associated high risks, because this debt must
be paid back. This trend can cause an
The discrepancy between the mechanism of increase in the fluctuation of the exchange
allocating resources and the economic rate (phenomenon that happened in the
performance, adjusting by forced the balance second part of 2007, spring and summer of
of the economy due to the slow process of 2008).
privatizing the state sector, lack of a legal The devaluation of the national currency
and institutional framework, simple and makes these credits even harder to pay back.
effective for the function of the private This will affect the ranking given by the
sector, together with slow and insufficient rating agencies for Romania, making it even
structural reforms have led to a structural harder.
imbalance of the Romanian economy, which The steep rise of the level of our short term
led to a wider and a perpetuation of external debt represents a major risk for the
significant current account deficits and the disinflation process.
consolidated budget of the state, generated The increase of the short term external debt
by an economy that consumes more than it is risky because in the real sector this kind
produces. Closely linked with a reduced rate of debt belongs to companies without activity
of internal accumulation, the cover of these that generate other currency revenues, and
deficits and internal absorption for the banking sector has already financed an
consumption and investment were made by important part of their loaning activity.).
using foreign savings, which, in case of The increasing pace of the external debt
Romania did not take the better shape. percentage in GDP represents a warning
Perpetuating deficits (budget and current that imposes a serious monitoring of the
account) attached external constraint, indicator and also adopting a coherent debt
increasingly significant scale. strategy, integrated in the country’s
The fluctuation of the national currency is macroeconomic policies. The increasing pace
reflected in the modification of the external of the general external debt overcomes the
debt, expressed in national currency, with a GDP dynamics that leads to the conclusion
direct impact over the budget equilibrium ;I that the external debt is not used in an
over the external trade balance effective way, does neither generate profit,
The flow of Romania’s debt has registered a nor economic growth, and instead it has
rising rhythm over the whole period. other destinations, amongst the inefficient
Giving the fact that more than 58% from the consumption.
public debt is externally financed, a On the other hand, the raise of the external
situation that does not exist in other debt in the same time with the increase of
developed countries, demonstrates the the trade balance and current account’s
fragility of the national economy. In these deficit leads us to the next question: are the
conditions, the problem of sustainability external loans used properly, or they are
should concern more and taken in action used to finance the imported consumption
255
goods? The information published by the Following Spain's Entry into the European
national and European statistics shows us Community. Journal of International Economics.
that we are right. Vol 51. pp 49-78
Dumitru, Ionut. 2008. O evaluare a
sustenabilităţii deficitului de cont curent în
România, Conferinţa “Tinerilor economişti”
Deficitul contului curent – corelaţii cu indicatori
In conclusion, the problems with the economici şi abordări structurale, BNR,
evolution of the external debt in our country septembrie 2008, Bucureşti;
refers to the growing short term debt as a Giurgiu, Adriana. 2008. Comerţul intraeuropean.
percentage in the total external debt, and O nouă perspectivă asupra comerţului exterior al
that of the non-guaranteed debt in the României (Intra-European Trade. A New
medium and long term debt; at the Perspective onto the External Trade of Romania),
Bucharest: Economica Publishing House
outpacing of the critical level of the external
McGettigan, D. 2000. Current Account and
debt rate service in 2005, and 2009; the
External Sustainability in the Baltics, Russia,
accelerating rate of the importance of the and Other Countries of the Former Soviet Union,
external debt in exports, and the high degree IMF Occasional Paper, No. 189
of the short term external debt service in the Reisen, H. 1998. Sustainable and Excessive
total amount of the external debt service. Current Account Deficits, OECD Technical
Another problem is the high growth rhythm Papers, No. 13
of the short term debt in comparison with Roubini, N., and Wachtel, Paul. 1999. Current-
the medium and long term debt, after 2000. Account Sustainability in Transition Economies,
in: Balance of Payments, Exchange Rates, and
The risks of this evolution are strengthened
Competitiveness in Transition Economies, Kluwer
by the unsatisfactory growth rate of the
Academic Publishers, pp. 19-93
Romanian exports, which are not capable of
sustaining an accelerated debt process.
Moreover, the growth of the international
reserves doesn’t sustain the growth rhythm
of the short term debt.
It can be stated that in the period after 1990,
Romania has witnessed a growth based on
debt, emphasizing on some imbalances, but
we do hope that our research and its
conclusion will serve as documentation basis
and work instrument for further studies
about the complex problem of BoP imbalance
and external debt.
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current account deficits in selected transition
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Aristovnik Aleksander. 2006. Current account
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256

INFLATION TARGETING, LONG-RUN INFLATION EXPECTATIONS

AND THE EFFECTIVENESS OF MONETARY POLICY
Erika I. GULYAS
Trinity University, San Antonio TX
Erika.gulyas@trinity.edu
Abstract moves in official interest rates. In our

This paper examines the questions whether analysis we draw on the experience of the
inflation targeting improves the effectiveness United Kingdom, one of the pioneers in the
of monetary policy. Particularly we focus on adoption of inflation targeting regime and
what Mervyn King, the Governor of the Bank emphasize the implications for the conduct of
of England, calls the “Maradona theory of inflation targeting monetary regime in
interest rates”: if the commitment of the Eastern European countries (the Czech
central bank to keeping inflation low is Republic, Poland, Hungary, Romania and
credible and financial markets expect the Slovakia).
central bank to change its official interest
rate in response to various economic shocks, Key words: inflation targeting, credibility,
the monetary authority can influence the monetary policy effectiveness, long-run
path of the economy without making large inflation anchor.
257

UNDERSTANDING FIRM’S BEHAVIOR IN DIFFERENT

TECHNOLOGICAL REGIMES
HERMAN Radu;
Faculty of Administration and Business,
Ph.D. Attendent, Academy of Economic Studies from Bucharest;
raduhermann@yahoo.com
Abstract: need considerable resources so as to adopt a

technology with a high opportunity cost of
learning, because there is the risk for the
firms of not exploiting the results through
This paper attempts to study the firms profit. The stock of knowledge on relatively
behavior within industries, being influenced old technologies is greater - the opportunity
by the type of analyzed technologies. Different cost of adopting known technologies is lower
author’s proved that certain patterns of firm’s - and firms are tempted to think in the short
behavior form, regarding to a mix of run, meaning that they want to exploit the
opportunities, approach, degree of knowledge technologies faster, through profit. There
accumulation and the capacity of learning were identified two technological regimes in
from firms. Evolutionary school paid Schumpeter’s books : a regime of creative
attention to the aspects of firm’s behavior. destruction (Schumpeter Mark I) and a
The evolutionary economists believe that regime of creative accumulation
firms have a certain behavior that can be (Schumpeter Mark II). This study aims to
understood with the help of some cognitive understand:
elements in psychology and the results of an a.Firm’s behavior in the technological regime
evolutionary process that cannot be known with creative destruction;
ex-ante. They have to make different b.Firm’s behavior in the technological regime
strategies in an entrepreneurial technological with creative accumulation.
regime (with a low opportunity cost of
adopting technologies) compared to a Why is the studied matter important?
technological regime for routine (with a high The study of these aspects shows a great
opportunity cost of adopting technologies). importance for an industrial policy maker.
Taking into consideration the homogeneous
behavior of all firms - independent of the
technology used in production - it could
Key words: Technological regimes, Firm affect both the firm’s performance at an
survival, Technological change, Evolutionary individual level and the level of productivity
perspective, Firm productivity. in the industry. Both in empirical studies
and in real economy can be noticed a certain
high degree of heterogeneity among firms,
Introduction due to the technology used, to the
organizational structure, to the human
What matter does the paper cover? capital structure and to the degree of
New technologies are shrouded in exposure to international competition etc. It
uncertainty and the firms that want to is important to understand the causes that
implement them and the firms that think in lead to a better learning of the configuration
the long run will invest in Research and of technology by some firms in the same
Development in order to learn their conditions of the market, which were the
configuration. This is a reason why firms factors that lead to the improvement in firms
258
performances, and also how the companies Literature review

act in these conditions. The market decides
which firm has learnt better, by rewarding it Firms face uncertainty and they do
through some rents or penalizing it by losing everything they can to diminish this
the position on the market, or in the worst uncertainty. However they have to make
scenario by leaving the market. choices about the type of technology used,
about the quality of work they wish to
How does the author intend to answer to engage, about the production processes,
this matter? about the distribution system etc. Firms can
In this study, I will try to show that the not rank all the alternatives they have at
firms behavior is heterogeneous within their disposal and they can not know the
industries, being significantly influenced by effects of these decisions – as claimed by the
the type of analyzed technologies. Although neoclassical economics - because there is a
uncertainty is present in firms, when the high level of asymmetry of information
behavior of firms is studied within regarding the new technologies. Firms face
technological regimes, certain patterns stand economic options on the type of technology
out and differ depending on the mix of they wish to implement and the mechanism
opportunities, approach, degree of of market selection is the only one that can
knowledge accumulation (for a certain determine ex - post which technology was
technology) and on the capacity of learning more efficient. In their actions, the
from firms. For these reasons, firms economists who belong to the evolutionary
behavior is not homogeneous within current brought solid arguments in order to
industries but some patters are created and show that the economic agents are
those patters can be studied with the help of characterized by a limited rationality, a
economic instruments. rationality that is characterized by different
informational asymmetries from which they
What is the relation between the paper and learn by experimentation and mistake.
the already existent specialized literature? Dosi (1997) defined technology as being a
Evolutionary school has paid attention to the “set of knowledge” both “practical” (related
aspects of firms’ behavior. The results of an to some specific problems) and theoretical
evolutionary process cannot be known ex- (which could be applied to some contextual
ante, some mathematical models of issues), and he also defined it as being
simulation by evolutionary scenarios are created by certain methods, procedures, past
being used. Firms have a certain behavior experiences and physical equipment.
that can be understood with the help of some For these reasons, the results of the
cognitive elements in psychology. Firms evolutionary process can not be known ex-
have similar characteristics to human ante, because there are certain gaps in the
beings, they learn about the new firm’s stock of knowledge regarding the use
technologies (concepts being used such as: of certain technologies. In order to reduce
learning by practicing, and learning by those gaps, the firms invest in Research and
using) they learn by trial and error and Development, experimenting (for example
sometimes they cannot adapt, sometimes the prototypes) with the new technologies.
they cannot grow in size and they are not Another way of saying this, the firms see in
able to survive the market selection. some new technologies, some opportunities
Several studies show that some behavior they consider they could capitalize on profit
patterns of firms are created when different and they start to invest financial and human
technologies are studied and these patterns resources in order to take advantage of these
are called “technological regimes”. opportunities but only by market selection
Researchers structured two technological (competitors and consumers) it can be
regimes which they called: the regime with decided which investments were opportune
“creative destruction” and the regime with and which were not.
“creative accumulation” (Nelson and Winter
1982), (Malerba and Orsenigo, 1995). Paper content
In Rosenberg’ s (1982) opinion, technology

means “certain knowledge which make
possible the achievement of a greater
259
quantity of output”, and a higher quality procedure is valid in the case of obtaining
output obtained from a certain quantity of “product innovation”.
resources”. From the economic point of view, In all this process of new technologies
it is certain that when the production implementation, the firms accumulate
process is improved, the production costs are knowledge and competence which gives
decreasing and the firms obtain a higher them a heterogeneous character. A lot of
profit, while maintaining steady the sales technological opportunities do not appear
prices and the quantity of products sold in a alone, they have to be identified by the
certain period of time, ceteris paribus. firms.[….] The innovative capacity consists
Several empirical studies showed that there in the identification of the opportunities but
is a strong connection between the adoption also in the achievement of new
of new technology and the increase in firms combinations, that means combining
productivity. Firms have a great interest in creativity with the existing factors in a more
adopting new technologies with a well efficient way.
prepared human capital. It remains to be discussed which will be the
But the adoption of new technology implies sources of generating the opportunities.
some theoretical and practical difficulties Metcalfe (1995) shows that the evolution of
reflected in a combination of “opportunities”, an industry is characterized by the
“conditions of approach” and “degree of permanent appearance of technological
accumulation of technological advances”. opportunities. There is a stochastic process
(Malerba and Orsenigo, 1995) of learning and also a permanent
modification of the economic structure of
1.Opportunities industry. Technologies are characterized by
Clearly, when the firms perceive certain informational asymmetries, and at the same
opportunities to gain profit they allocate a time the firms are characterized by limited
part of the resources to start taking rationality. The industry environment is
advantage of opportunities. Firms perceive turbulent, it is characterized by the entries
differently the opportunities of adoption of of new firms which see different
new technologies because of the opportunities of investments but at the same
exploitation’s possibilities on both vertical time there is a number of firms which leave
and horizontal sides. In order to understand the market because of the fact that they did
how the firms exploit these opportunities, we not manage to survive. Audretsch (1991)
need some elements from the innovation shows that there are certain elements
theory. Many technologies, for example the related to the sector of analyzed economy,
licenses, cannot be directly transformed into that the opportunities vary depending on the
production processes because the firms need scale economies, on the capital intensity and
to make some adjustments, which can be on the innovation rate of firms.
new for the people and which are simply To look even deeper, science increases the
called innovation. Several studies show that opportunities for innovation and it also
firms must constantly innovate in order to represents a source of identification of
be competitive. For example, supposing that opportunities in general. First of all, science
a company notices from its studies that a T is the one that provides new possibilities to
technology can increase its productivity in develop the technologies. So, firms that
the short run, but the firm does not have the invest in scientific research have a better
stock of knowledge needed in order to adopt understanding of technologies made by
that technology in an efficient production others and they can develop themselves new
process. If there are two production technologies. A scientific discovery provides
processes available in the market P1 and P2, lots of technological opportunities but firms
however, a company may choose not to buy a extend more these opportunities when they
license for any process, because from the adapt them to their contextual needs.
firm’s evaluation those processes are not Technology is not instantaneous adopted
efficient from an economic point of view. The within firms and an additional benefit of the
company sees an opportunity of adoption of scientific activity is the certification
new technology in an original way, and after possibility of some innovations which
this activity, appears another production increase more the technological
process P3, which represents a opportunities. For example, after some
“technological innovation”. The same scientific research regarding the
260
improvement of some electronic components some financial resources that they can invest
of an audio accessory (seen as a technology) in order to search for other rents. By
it was obtained an audio license which obtaining a product innovation, the firm
represents an accumulation of knowledge creates a market on a certain period of time
within the technology of audio equipment. At in which it benefits from an over profit of
the same time, another company buys that monopoly. In other words, the benefits are
license and when the production begins the temporary, influencing the firm’s profits
company achieves an innovation of the audio through the position it has of monopoly
equipment, which consists of its renters. But, obtaining these profits signals
miniaturization. competitors to enter that industry, and some
Scientific progress generates a set of will try to imitate that innovation in order to
knowledge that can be used for making new have benefits themselves.
technologies and this set of knowledge As noted earlier, firms are always in a
cannot be totally learnt by a company. search for opportunities, and these
Science provides opportunities of improving innovations are an attraction for their
through market and some knowledge investments. The element that makes a
generated in firms (not the tacit ones) will difference in firm’s inclination to invest in
lead to an increase in the existing set of Research and Development is the degree of
knowledge in an industry. In other words, exclusion of the innovation. Due to
firms that will enter that industry will be knowledge accumulation in an industry
able to assimilate a part of the technological (referring to a certain technology) any
knowledge, but they will not be able to technology involves a public good component
encompass the entire stock of knowledge and a private good component. The
because some of them remain tacit in innovative firm is interested in investing in
companies , in technologies or in human Research and Development as a private good
capital. The inclusion of knowledge in firms component in order to hold a larger share.
that start their activity in these industries, As the public good component of a
implies costs reflected in research and technology increases, the firm’s interest in
development expenditure and in specialized spending money on innovation decreases
staff expenditures. more, because the resulting knowledge will
So, the distribution of technological be easily learnt by the competitors. Most
opportunities for firms is not random, it technologies have the characteristics of a
largely depend on: good which is only partially exclusive
1.The characteristics of production activities because some components of the technology
in the firm’s sector. can be imitated, but some knowledge about
2.The distance reflected in the difference in that technology will remain tacit in firms.
the stock of knowledge compared to the The firm invests more when it does not
group of most intensive innovating firms. internalize all the benefits obtained through
3.The difficulty in assimilating this stock of innovation, because other firms take
knowledge. advantage of its efforts. As the capacity of
exclusion of an innovation increases (private
good component) firms gain more and more
2.Conditions of approach through the benefits brought by the
The conditions of approach are the ability of investment in Research and Development.
innovative firms to internalize gained profit The license has the most exclusive character
from an innovation, and their capacity to of an innovation and it guarantees to the
protect themselves from imitators. firm some future commercial contracts from
Many economists consider innovation as a legal point of view, but at the same time it
being a rent. The firms that innovate can be stimulates the firms to invest in Research
exploited through profit. By obtaining a and Development. By having a license (legal
more efficient production process, from a monopoly) firms have a guarantee that they
technical point of view, firms can do various will be able to internalize a significant part
adjustments of products sales prices in order of the profit. In the case of having a license,
to obtain a much more bigger market share. the degree of approach of the benefits
By reducing production costs, companies generated by the investments in research is
gain an additional profit because of this high because the firm can obtain profit with
temporary innovation, but they also gain low risks.
261
Dosi, Marengo an Pasquali (2006) defines

the conditions of approach as being “those 3. Degree of knowledge accumulation
properties of technological knowledge and The conditions of accumulation show in an
technical artifacts of markets and of the economy the degree in which a new
legal environment that permit innovations technology can be built on an existing
and protect them to varying degrees, as rent- technology, and in a firm these conditions
yielding assets against competitors show the innovative firm’s probability to
imitation”. In order to reduce the continue to innovate. (Malerba and
uncertainty faced by that firms, some of Orsenigo, 1995)
them make a number of internal rules Some technologies, as for example the
(strategies) that they intend to follow. When electronic computers provide major
they make the strategies, they intend to opportunities for innovation. Within the
follow them for a certain period of time. The manufacturing industry of electronic
consistent compliance with these strategies computers there is an accumulation of
involves giving up other opportunities and knowledge and innovations regarding that
because of this, firms search for mechanisms technology but at the same time there is an
through which they can protect their accumulation of knowledge and innovations
innovations, meaning those instruments in the firms that develop their activity in
through which they can draw lots of benefits. that industry. After the invention of the
Some instruments through which the electronic computer, the uncertainty
innovations can be protected, are: patents, regarding some future investments made by
secrecy, lead time, complementary firms has diminished, and the firms started
capabilities and learning curves. to search for innovations opportunities in
As the firms they try to use simultaneously this technology, both vertical and horizontal.
as many instruments of approach as they They began to invest in Research &
can. Their competitive advantage consists of Development, in this way starting a process
the stock of tacit knowledge about of knowledge accumulation. As the stock of
technologies, they intend to internalize a knowledge in the industry and in the firms
great part of their improvement. Supposing increases, the number of opportunities for
that a firm has a certain license, it buys future investments is also increasing. The
some licenses, achieves a certain innovation knowledge about the new technologies is
and engages specialists in this domain, all assimilated asymmetrically by the firms.
these results will have to be protected But the accumulation of knowledge is not a
because of the imitators. The rents obtained chaotic process of encompassing the
by having some tacit knowledge are information into the firm.
temporary and if firms intend to invest in Once the firms start to invest in researches
competitive advantages, they need to apply a for a certain technology, the researches are
mix of measures of approach. The measures made on certain directions of research
are some relative costs compared to the costs established within firms and that has as a
of imitation. The ability to exploit the rents result knowledge accumulation in certain
in the future increases when there are research directions. This process can be
applied the correct measures of approach. understood with some economic
For the competitors, the process of imitation instruments, being developed after certain
is a costly process because by trial and error patterns.
they have to absorb in an efficient way (
from an economic point of view, costs > Firms behavior in the evolutionary
benefits), the stock of tacit knowledge held perspective
by the innovator. Evolutionists claim that the economic agents
So, from the innovator’ s perspective it is have an imperfect agreement regarding the
important for them to have a stock of tacit environment in which they develop their
knowledge as high as possible, in order to activity and they are in this way
increase the opportunity cost of learning for characterized by a limited rationality
the imitator. We can see that there are because of some uncertainties they face.
technologies with a high degree of Even if they have the same stock of
opportunity and technologies with a low information, they want to generate different
degree of opportunity for the firms that want knowledge, this way increasing the degree of
to adopt those technologies. novelty (innovations) in the economic system
262
(Hanusch and Pyka 2007). They will discover in which they take actions. In the
new technologies and new forms of competition among firms regarding the
organization but as a whole these things will ability to learn and accumulate knowledge,
be achieved by certain behavior patterns. some of them cannot survive market
Starting from this assumption, the empirical selection. The capacity of learning cannot be
studies researched: known ex-ante, even if some estimates can
a. The ways through which firms from be made concerning the quality of goods and
different sectors learn about the new services obtained through the complete
technologies and how they adapt scientific amortization of the capital.
progress There are several types of learning A production capital is consumed in several
processes in a firm, depending on the way of production cycles and it can be measured by
learning – consistent strategies of learning the total flow of services (all harvests) which
within research laboratories, learning by will be brought by its physical use in
using, learning by practicing and by production. This means that the flow of
interacting with the clients etc. - some services is a physical quantity of products
patterns of learning can be systematized and (estimated for services) which can be really
they can be represented by some “maps”. measured through continuous production
(Dosi, 1997) function (the physical quantity of the
b. The existence of some directions and services flow should not be compared to the
evolution rates of technological changes. capital value on the market, which vary
From several studies there can be noticed depending on the market prices and on the
some relatively ordered patterns of technical consumers preferences). (OECD manual,
change in both spaces of input coefficients 2001) At the same time, there is a stock of
and product characteristics grounded in knowledge about the technology that is not a
rather invariant, incrementally augmenting, part of the capital, which is used by firms in
knowledge bases, every now and then the production process and which cannot be
intertwined by major discontinuities in both modified with continuous functions. This
the sources of knowledge and the directions stock of knowledge is the source of the
of change”. (Dosi, 1997) technological changes highlighted through
inventions and innovations which can
Besides the existence of certain patterns, change in a huge proportion the structure of
meaning the observed process which is not the economic activity. Even if coefficients
completely random, the evolutionists claim can be used to modify the production
that this process is similar to the evolution function output, this does not mean that the
of biological organisms. The evolutionary production factors will be proportionally
process is dynamic and irreversible and it is influenced.
characterized by periods of radical changes - The specialized literature of technological
which can be associated with the appearance changes makes a difference between the
of the revolutionary technologies - but also technology that is part of the production
by periods of smooth evolution, which can be capital and the technology that is not part of
associated with some known technologies. the production capital. The encompassed
That is why the results of the evolutionary technological changes are improvements in
process cannot be known ex-ante and that is the quality of the harvest obtained by the
why continuous production functions cannot equipment used in production and a firm can
be used for estimating the level of benefit from the technological change
production. In order to understand the through the acquisition of that equipment.
production process, mathematical models The encompassed technology in the capital
can be used to simulate various scenarios good but also the obtained products are easy
through which some evolutionary maps are to follow through market mechanism, which
elaborated. Firms have a certain “ behavior” represents a system of rewards and
which can be understood with the help of penalties through a selection from many
some cognitive elements in psychology. As available alternatives.
the time passes, more knowledge about the The parameters of some production
new technology is accumulated. Economic functions are easy to estimate, but much of
agents have to experiment in order to the economic significance it is lost because of
accumulate a stock of knowledge about the the impact, wrapped in uncertainty, of the
new technologies and about the environment technological knowledge that is not part of
263
the production capital. The market is the new companies is very high. Research and
only entity who decides which firm has Development expenditure for the
learnt better by rewarding it through assimilation of the great stock of public
various rents or penalizing it through higher knowledge in the industry and for the
costs or in the worst case by getting it out of recovery from the gap between them and the
the market. experienced firms, is very high (Malerba and
So, firms are forced to learn (learning by Orsenigo 1995).
practicing, learning by using, research and The technological regime of creative
development) permanently about destruction (called entrepreneurial regime)
technologies and about the market turbulent is characterized by “the technology which is
environment in order to survive and to available to everyone, by the technological
increase in size; firms learn ‘noisily” and the changes which are a random process made
ones that do not manage to adapt are forced by a homogeneous population of firms which
to leave the market. Due to these aspects the have a certain probability of exploiting the
market is characterized by entries and exits technological opportunities”, where the entry
of firms. and the exit of firms have an important role
because there is a mechanism that facilitate
Firms behavior in the technological innovation and adoption of new technologies
regimes leading to a reallocation of resources from
Malerba and Orsenigo (1995), identified two the less efficient firms to the efficient one.
technological classes that he called (Brusoni, Cefis and Orsenigo, 2006)
“Schumpeter Mark I” (or a regime with a Jovanovic (1982) shows that the entry in the
creative destruction) and “ Schumpeter creative destruction regime is preferred by
Mark II” (or a regime with a creative the small firms because it is a strategy
accumulation ). He associated in his study through which they minimize losses in case
the Schumpeter Mark I model with the of failure, but at the same time they are
mechanical industries and traditional forced to grow in size (scale economies) in
sectors, and Schumpeter Mark II model with order to survive for a long period of time.
the chemical industry and the industry of Few firms manage to survive in the long
electronic technologies. The author shows run, meaning that only a few firms will
that the firms innovation pattern differ succeed in accumulating a significant stock
among technological classes, but the of tacit knowledge. This explains the fact
patterns are the same among countries that the entry and the exit of firms in the
(U.S.A, United Kingdom, Italy, France , market is a process of trial and error. Firms
Germany, Japan ) for each technological do not have the time and the resources
class. The structure of the two technological needed (Research & Development) in order
regimes is given by the mix of opportunity to assimilate the stock of knowledge in the
conditions, the conditions of approach, industry (technology) but neither the critical
accumulation and ways of learning in stock of knowledge that can ensure them to
companies. Depending on the technological obtaining rents. That is why they prefer to
regime, firms different behaviors have been buy new technologies embedded in capital
noticed. Creative destruction regime is and the innovative new firms from an
characterized by high opportunities and low entrepreneurial regime are associated with a
approach which favor the entry of new new technology embedded in capital
innovating firms due to low opportunity (Meaning that a newly founded company is
costs of innovations; at the same time, the innovative if it has bought an equipment
degree of knowledge accumulation is low in which has embedded a new technology
the firms, and that is why the innovations do because it did not have time to accumulate
not persist in many firms. Creative tacit technologies that are not embedded in
accumulation regime is characterized by capital). At the same time, a significant
high opportunities, approach and number of old firms leave the market when
accumulation which allow the increase in new firms are founded, because of the
the stock of tacit knowledge in firms and in obsolescence of technologies embedded in the
this way, the increase in persistent capital of old firms.
innovation; at the same time due to the In the technological regime of creative
increase in the stock of tacit knowledge in accumulation” there is a strong tacit
firms, the innovation opportunity cost for the component that is specific to individual
264
firms. Innovation results from the survive for a long period of time, they have
accumulation of technological competences to grow fast in size so as to benefit from the
by a firm. Technological competences specific scale economies. Their entry and exit on the
to firms are cumulative, meaning that the market is a process of trial and error.
generation of new knowledge is based on Generally, they do not have the time and
what was learnt in the past, and the neither the resources needed in order to
accumulated competences constrain future accumulate a critical stock of tacit
technological performances of the firm. In knowledge to innovate, that is why they
time, the firm’s specific tacit knowledge encompass the technical progress through
represents entry barriers in that industry. A the acquisition of production capital which
small number of large firms come to include the embedded technology. Firms that
dominate the market by a stable oligopoly. enter on the market and that have the latest
(Brusoni, Cefis and Orsenigo, 2006) In this technologies eliminate a part of the existing
regime, firms invest a lot in R&D in order to firms due to their obsolescence of technology.
accumulate a larger stock of tacit knowledge 2. In the technological regimes of creative
and to keep their dominant position on the accumulation, firms are heterogeneous due
market. That is why the entry rate of new to the large stock of tacit knowledge they
firms in this technological regime is possess. Besides the technical progress
significantly lower. Technological changes embedded in capital, firms in this regime
and the innovation rate are concentrated in give great importance to the technical
a small number of firms and in order to progress that is not embedded in capital in
obtain an innovation in these industries they order to keep their dominant position on the
need a relatively greater volume of market and to build solid entry barrier for
knowledge, firms having a significant the firms that want to enter the market. The
comparative advantage in comparison with firms behavior is a strategic one, in which
the huge competitive firms and in they have the time and they allocate the
comparison with the small new founded resources needed in the process of deeply
firms. Due to great stocks of knowledge in learning of the existent technologies but also
the industry, large firms will have a high in reaching new technologies. The complete
level of entry fixed costs given by the R&D understanding of technologies is seen as
expenditures, needed for the recovery from some rents for the firms, and for the
the knowledge gap on technologies. The competitors it is a high opportunity cost of
opportunity cost of adopting technologies is learning the great stocks of knowledge in
high in this technological regime, that is why this domain.
the decisions of innovation are taken rarely
because of the significant losses in case of Future researches can be made on the
failure . people’s behavior when they intend to sign
economic agreements. The contract can be
Conclusions associated with a technological regime in
which the people’s behavior and their
Firms have to choose the technological strategies can be different depending on the
regime in which they will develop their alternatives they have. Within their
activity. They have to make different alternatives, they can meet contracts which
strategies in an entrepreneurial can be associated with a technological
technological regime (with a low opportunity regime with creative destruction or they can
cost of adopting technologies) compared to a encounter contracts which can be associated
technological regime for routine (with a high with a technological regime with creative
opportunity cost of adopting technologies). In accumulation.
this way, the behavior of the firm can be
stated in the two technological regimes:
1. In the technological regime with creative
destruction, also known as the
entrepreneurial regime (or Schumpeter
Mark I) firms are in general homogeneous
and they prefer to start their activity as
small firms because they want to minimize
their losses in case of failure. In order to
265
This article is a result of the project Malerba, Franco , Orsenigo, Luigi. 1995.
„Doctoral Program and PhD Students in the “Schumpeterian patterns of innovation are
education research and innovation triangle”. technology-specific”. Research Policy. 25: 451-478
This project is co funded by European Social
Metcalfe, J. S. 1995. “Economics, Organization
Fund through The Sectorial Operational
and Management: a Review of Milgrom and
Programme for Human Resources Roberts”, Industrial and Corporate Change, Vol. 4
Development 2007-2013, coordinated by The (No. 2), pp. 491-497
Bucharest Academy of Economic Studies.
Nelson, R. R. and S. G. Winter .1982, An
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The International Conference on Economics and Administration, Faculty of Business

ECONOMIC GROWTH, LABOR PRODUCTIVITY AND TECHNICAL

PROGRESS: THE HISTORICAL LIMITS OF BAUMOL´S UNBALANCED
GROWTH MODELS.
ALAIN Herscovici;
Degree´s Master
Universidade Federal do Espírito Santo (Brazil)
alhersco.vix@terra.com.br
Abstract macroeconomic analyses posit. This involves

The debate on deindustrialization assumes, studying the explanatory value of Kaldorian
generally, that domestic industry is a leading cumulative logics used to explain economic
sector and produces positive externalities for the growth, and questioning the linearity of
whole economy. This paper will partially refute
this relationship.
this these. Since the early 1990’s, most of the
For this purpose, I will use different models
developed and emerging economies have been
subjected to two paradoxes: the first one, the of unbalanced growth built by Baumol (1967
paradox of Solow, which calls into question the and 1992). These models express, from a
relationship between ICT investment and simple formalization, the linear
productivity gains, and the second one, the relationships that exist between technical
paradox of Gordon, showing that productivity progress, productivity gains, and economic
gains in the ICT sector do not propagate to all growth, i.e. they emphasize the crucial role
other sectors . of industry in the process of long-term
Following both a theoretical and an empirical
growth. I will thus study the macroeconomic
approach, such relationships are analyzed from
implications caused by meso and
the viewpoint of the various models of unbalanced
growth built by Baumol, which express the linear microeconomic changes related to the
relationship between growth, technical progress, production of intangible assets 1 .
labor productivity and industrial sector. Then, I I will show why and to what extent these
will highlight the limits of such models and I will different models can explain the stylized
provide elements for an alternative facts that characterize the Post-Fordist
explanation. Ultimately, the real problem is to phases of capitalism, especially the Solow
investigate the economic nature and the role that and the Gordon’s paradoxes
services, including the various forms of intangible
(Nordhaus, 2002). The first one emphasizes
capital, may play in the new dynamic of growth.
the fact that the increase of investments in
Information Technology (ICT) does not
Key words: Key-words: Economic growth- correspond to an increase in labor
Intangible capital – Labor productivity- productivity, the second one claims that
Solow´s paradox. about half of productivity gains is performed
in the producing ICT.
2)From a theoretical point of view, the
Introduction deindustrialization allows identifying two
problems: one concerns the methods of value
1)This study aims at examining the problem added creation, and the other regards the
of deindustrialization from the development level of employment and income distribution
of different forms of intangible capital, i.e. that matches it:
the so-called new economy. – mainly 3) In the first part, I will analyze the
characterized by the activities related to feedback model built by Baumol and Bowen
knowledge and information. This paper will (1992), which explains the mechanisms from
analyze relationship between technical which technical progress is endogeneized,
progress, gains in labor productivity and
economic growth, which most of the 1
See Herscovici (2009).
267
and confront the theoretical results derived

from this model with the stylized facts that The average cost of production of this sector
characterize the current phase of capitalism. is equal to:
In the second part, I will highlight the limits
of such explanation and propose an AC3 =k1 C1 + k2 C2 = k1. w/ ert + k2. w/b
alternative analysis, based on a (5)
reformulation of these macroeconomic
relations. AC3 ≈ k2. w/b, when t →∞
I) Baumol's analysis: the different The changes in the average cost of sector 3,
models of unbalanced growth asymptotically stagnant, are the same as
those of the stagnant sector. Thus, from the
1) The endogenization of labor moment that in certain activities there is a
productivity gains stagnant and a productive component, over
time, the costs of this sector tend to evolve as
1.1 The extension of the 1967 model the costs of the stagnant sector. This
evolution is explained as follows: while the
Baumol uses the results of the 1967 model, fall in the cost of input coming from the
and writes the following equations: productive sector offsets the increasing cost
of unproductive input, the average cost
y1 = cL1ert , y2 = bL2 (1) decreases. However, there will necessarily be
a point in which the cost of productive input
gets close to zero, while the cost related to
AC1 = wL1/y1 = w/c.ert the unproductive component continues to
increase indefinitely with time. From this
and AC2 = wL2/y2 = w/b (2) point, the costs of the asymptotic sector
evolve the same way as the costs of the
w/b unproductive sector.
AC2/AC1= _____ = c.ert/b (3)
w/c.ert AC3/AC1 ≈ k2 / b. c ert (6)
yi represents the production of sector i, w the The study of industries that use these two
wage rate, Li the amount of labor used by types of inputs illustrates this trend: in the
sector i, b and c positive constants; ACi case of the computer industry, the costs of
represents the unitary (or average) cost hardware, i.e. the productive component,
evaluated in labor. Index 1 relates to the decrease while the costs of software, labor
productive sector, index 2 relates to the intensive, increase. The labor costs increase
unproductive sector, and index 3 to the in terms of total costs, which is explained by
asymptotically stagnant sector. the presence of a stagnant
In this model, Baumol considers that w component. Similarly, in television activities,
represents the average wage rate practiced while the relative weight of technical costs is
(1992, p. 245), so unlike the 1967 model, the decreasing (broadcasting), the costs of
increase in wage rate is no longer indexed to programs increase, following the logic of the
the productivity increase taking place in stagnant sector (Herscovici, 1994). In short,
the productive sector. we can conclude the following: (a) the
Baumol will add a third sector, the differential cost between soft and hardware,
asymptotically stagnant increases with time, because the programs
sector, characterized by the fact that it uses are labor intensive (b) in the long term, the
inputs from the other two sectors, in total cost of this sector will evolve in the
constant proportion (Baumol and Wolff, same way as the cost of the stagnant sector.
1992, p. 251):
1.2 The model with feedback and
y13/y3 = k1, y23/y3 = k2 (4) endogenization of labor productivity gains
Then, Baumol will relax the hypothesis in

which the relative share of inputs of sector 3
is constant (k1 and k2 constants). He will
268
also assume that the sector of Research and depend directly on the productivity gains
Development (R&D), which “produces” achieved in the rest of the economy.
technical progress, can be assimilated to a Finally, prices are determined from the labor
stagnant industry, and that its production costs. The function of demand for
depends on the price elasticity of demand information is as follows:
from other sectors. Finally, the mechanism
that he constructs implies that the gains in y3t+1 - y3t/y3t = -E (p3t +1 - p3t) / p3t(11)
labor productivity are determined
endogenously.
The demand for information depends
Yi = fi (Y) Ci-Ei (7) directly on the price of this information, and
the elasticity price of demand for
information is negative.
Yi represents the production of the sector i, From (9), (10) and (11), we can write:
and Y the total output;-Ei represents the
price elasticity of demand of sector i. y3t+1 = y3t(1 – E.v.a) – E.v.b.(y2 3t ) (12)
Equation (7) means that, for a short time,
the income effect can offset the price effect
regarding the increased demand of sectors 2 Depending on the value of the parameters,
and 3. equation (12) shows that the evolution of
The value of the expenditures on goods of information production, i.e. y3t can become
sectors 1 and 3 can be represented by the chaotic (Baumol and Wolff, 1992). From
following equation: equation (9), we can deduce that these
oscillations produce oscillations of
Value of y3 AC3.y3 AC2 y3 y3t. Therefore, it can be assumed that
_________ = ____ _ ≈ _____ . ____ economic growth depends on the growth of
Value of y1 AC1. y1 AC1 y1 labor productivity. These changes in the rate
of productivity growth correspond to parallel
k2 Cert y3 changes in the rate of GDP growth.
≈ ______ . ______ (8) The mechanism of feedback produces these
endogenous fluctuations: the increase in the
b y1 production of information is reflected by an
increase in labor productivity in the whole
Equation (8) shows that when t increases, economy (equation 9). In turn, this increase
y3/y1 has to decrease; the production of in productivity of the economy will increase
sector 3 increases relatively less than the the prices of information (equation 10),
production sector 1. Thus, in the neoclassical which leads to a drop in demand for
tradition, there is perfect substitutability of information (equation 11). From there, the
factors of production, according to their same mechanisms operate in
relative prices. reverse. Regarding the 1967 model, there is
rt represents the rate of growth of labor an effective endogenization of the growth
productivity outside the R&D sector; y3, the rate of labor productivity. Nevertheless, it is
production of R&D; and p3, the price of important to note that the possibility of the
R&D. system to endogenously generate fluctuations
and to become chaotic comes from the fact
rt+1 = a + by3t (9) that the price elasticity of demand for
information is negative.
Productivity, on the whole economy, depends
directly on the production of R&D, with a
one-period lag. 2) Baumol’s analysis versus Solow and
Gordon’s paradoxes?
p3t+1-p3t/p3t = vr t+1 (10)
2.1 The localized effects of technical progress
The production of R&D, which Baumol calls Table 1 highlights the fact that
Information, is a labor-intensive activity. approximately half of the factor productivity
Consequently, the labor costs and the prices gains take place in the ICT sector. These
data confirm the analysis of Gordon (2000):
269
contrary to Baumol’s model, the sector that externalities they generate, on the forms of
produces the technological innovation is not appropriation of these externalities, and on
asymptotically stagnant. Rather, it performs the IPR system that currently limits these
half of the productivity gains of the entire types of appropriation (Herscovici, 2007 );
economy. At this level, the problem is to iii) In Fordism, the spillover effect of
study the nature and impact of aggregated technical progress was related mainly to the
externalities produced by the ICT sector. industrial and manufacturing activities. In
contrast, post-Fordism is reflected by a
Table 1: Contribution of different sectors to change in the nature and role of service
the growth of total factor productivity (in% activities, a decrease in industry weight, and
per year for the U.S. economy) (in a change in the nature of technical progress
attachments) and in its modalities of propagation.
As shown in Table 2, the increase in
2.2 The externalities generated by technical productivity in the industry can be conceived
progress as an autonomous technical progress, a
process which does not depend directly on
i) The data in Table 2, underscore the fact ICT.
that ICT does not generate positive
externalities to manufacturing Table 3 Economic growth and growth of
activities. Instead, this type of correlation is labor productivity: the case of the United
found with regard to service activities. States (in% per year). (in attachments)
ii) In the ICT sector, it is already possible to The nature of the externalities generated by
observe a dichotomy between the industries this type of technical progress and their
of material (hardware) and services. The potential effects in regard to economic
component connected to the production of growth depend on the following factors:
hardware performs important labor i) The IPR system and the limitations its
productivity gains, but it generates little modification imposes in terms of social
value. On the other hand, the stagnant appropriability are reflected by a small
component performs smaller productivity impact of the externalities produced by
gains, but represents a greater relative technical progress (Herscovici, 2007);
share of GDP. This may explain the ii) the institutional variables, as conceived in
nonlinear relationship that exists between the the regulationist or the neo-schumpeterian
growth rate of labor productivity and the approach, have an important role: they
growth rate of GDP (Table 3). define the specific ways employed to
endogeneize externalities and the different
effects of technical progress.
Table 2: The global effects of technical Consequently, as shows table 3, with regard
progress (in attachments) to these qualitative evolutions, it is not
possible, anymore, to build, in a
The observation of these data allows us to macroeconomic level, a linear relation
formulate some questions: between the growth of labor productivity and
i) The role of ICT-using services is essential the DGP growth.
to explain the gains in labor productivity:
they are large network services used as 2.3 The historical limits of the Baumolian
inputs and that generate externalities whose models
social and geographical appropriation
modalities are highly differentiated. 2.3.1 The R&D sector does not produce
ii) One of the main macroeconomic private commodities – these commodities
consequences is that the sectors related to must be conceived as public goods. As such,
ICT cannot not be regarded as a leading they are neither rivals nor exclusive: (a) the
sector (in the Schumpeterian sense), which indivisibility of consumption is reflected by
can promote a new long phase of the fact that they can be consumed in their
expansion. Their potential in terms of entirety by various economic agents
increase in labor productivity and GDP simultaneously; (b) They produce positive
growth rates depends on the nature of the externalities, and may be appropriated by
agents who do not pay for the right to use
270
them (Arrow, 2000). In this respect, the between marginal cost and marginal
theories of endogenous growth emphasize product, or in terms of labor costs. So, this
this specificity. invalidates Baumol’s assumptions once
Given these characteristics, it is not possible again.
(a) to establish a linear relationship of
inverse proportionality between price II) Elements for an alternative analysis
changes and decrease in quantity demanded
(b) or between the amount "produced" and 1) Some historical and methodological
the aggregated effects. Thus, the remarks
mechanisms that correspond to the In industrial capitalism, the creation of
endogenization of r and Baumol’s feedback value, or wealth, can be explained by the
relationship are not enforced. social labor applied to the production of
commodities. Economic growth is
2.3.2 There have been major changes in the measurable and depends directly on the
forms of competition and in the economic gains in labor productivity. Unlike in the
nature of goods and services: competition is post-industrial capitalism, the historical
no longer price competition, but quality forms of creation and appropriation of value
competition. In this regard, some economists have changed: the production of wealth,
conceived it as variety competition (Pascal more specifically in the form of knowledge
Petit, 2005). Attempts to incorporate and information, is highly socialized. It is
qualitative components in the construction not possible to quantify the amount of direct
of aggregates goes in the same direction 2 . In and indirect labor required to produce a
a more general way, the relationship between particular good or service.
costs and prices is not decisive concerning The increased use of information and
competitive dynamics.This contradicts the knowledge in the different services and
whole architecture of the different models products and in the different production
built by Baumol. processes result in a heterogeneity of labor,
2.3.3 Contrary to the hypothesis adopted by in a diversification of supply and its
Baumol, expenditures on R&D commodities qualitative characteristics, and in a
and service factors are not substitutable. In segmentation of the demand.
terms of industrial organization, these costs i) The GDP, in the way it is currently
represent a means to build barriers to entry, conceived, is no longer able to measure the
and they are irreversible. Ultimately, the wealth produced. The qualitative component
presumed reversibility of these expenditures is underestimated. According to some
meets the conditions for formulating the assessments, the production of the
contestable markets, notably, the absence of immeasurable sectors represents 70% of
sunk costs. total production (Griliches, 1994). The
measure of labor productivity is the object of
2.3.4 Finally, in regards to the modification the same type of distortion.
of the IPR system and the income ii) Given the heterogeneity of the different
distribution modalities, the labor labor processes, it is no longer possible to
remuneration that produces innovation, i.e. establish a linear relationship between
information, is directly linked to rentier productivity gains and output growth (see
logic, and not to a wage one. The table 3).In this respect, it is interesting to
"information and knowledge economics" is note that the very methods of income
characterized by the increasing socialization distribution have changed:
of knowledge production, according to the (a) due to a lack of definition of the objects
cumulative character of this type of on which the IPRs act (Herscovici, 2007), it
production.. is no longer possible to assimilate the income
The economic valorization of such production from production factors to its contribution to
is particularly uncertain, in the sense that it product, as defined by the traditional
is not regulated from a logic of costs, neoclassical framework.
whether it is in terms of equalization (b) On the other hand, Kaldor’s logic is not
verified: the growth of output is not
2
Hedonic prices, for example, and all the tentative necessarily reflected by an increase in global
in term of price and quantities, to incorporate productivity. On the contrary, as shown by
qualitative indicators. the different statistical data, technical
271
progress and increased labor productivity

are limited and do not spread to all the other Hypothesis 3: Depending on the dynamics of
sectors. the markets, the costs of R&D are
In regards to the heterogeneity of the irreversible. It is not possible to substitute
different factors of production, especially the investments in R&D by other factors of
capital and labor, we can observe changes in production. At a microeconomic level, this
the modalities of income distribution: the hypothesis corresponds to the complexity of
relative share of non-wage income in GDP assets, or to an increased
(financial capital, monopoly rents associated endogenous specificity of these assets
with ownership of IPR) increases in all (Saussier, Yvrande-Billon, 2007). Such
countries. investments are irreversible (Williamson,
Ultimately, we need to place the problem 2002).
concerning value creation, as highlighted in
the hard-software dichotomy (see Table 2). Hypothesis 4: the competition takes place
Value creation is not implemented in partly out of prices
industrial production, but in the production
of intangible commodities. This enables us to Hypothesis 5: The valorization of goods and
provide a different interpretation of services of sector 3 is random.
deindustrialization: the decreasing weight of We cannot build a production function in
industry in GDP cannot be explained by the which the amount produced depends on the
decrease in industrial activity in itself, but quantity of labor used. Labor is not
from the fact that the average value created homogeneous, and the randomness of
in this sector is decreasing. The increase in valorization does not permit such a linear
production volume does not correspond to a relationship.
relative increase in the value thus created
(Oreiro, op. cit, p. 2). Hypothesis 6: The growth rate of wage is
determined by the average growth rate of
labor productivity across the entire economy,
r; only part of the productivity gains are
passed on to wages. Moreover, the relative
share of wages in GDP decreases, to the
2) An alternative formalization benefit of financial gains, profits and income
related to intellectual property and
2.1 The hypotheses innovation.
We will consider the following three sectors: 2.2 The relations of the model
sector 1 is the stagnant sector in the sense
defined by Baumol; sector 2 is the industrial 2.2.1 The functions of production
sector (excluding the production of
hardware), and sector 3 is the one that Y1t = a L1t (1)
produces the ICT goods and services.
Y2t = b L2t e r2t (2)
Hypothesis 1: There is an autonomous
technical progress, which is translated into Y3t = c L3t e r3t /Ω (3)
an increase in labor productivity in sectors 2
and 3.
ri represents the growth rate of labor
Hypothesis 2: The goods and services of productivity in sector i, r represents the
sector 3 are public goods. average growth rate of labor productivity in
The economic implications are the following: the economy, and Ω, the random component
(a) the presence of externalities means that on the valorization of output of sector 3. A
there is not an inverse relationship between series of industry studies show that the
price changes and changes in the amounts randomness of valorization is part of the
demanded; (b) the cost structure is such strategies developed by different actors and
that average costs decline with consumption is translated into an over-cost and/or an
and that marginal cost is decreasing – prices underproduction (Herscovici 2009, Nelson
are not determined by costs. 2003).
272
2.2.2 The evolution of costs

2.2.3 The relationship between the
Supposing that xi, yi and zi represent the production of information and productivity.
technical coefficients of each sector, i.e. the
amount of inputs that come from 1, 2 and 3. The characteristics of public goods of
The average costs are as follows: Information and Knowledge do not allow
establishing (as does Baumol) a linear
Wert (L1t + y1L2t + z1 L3t) relationship between (a) the variation in
C1 = __________________________ (4) prices and demand information, or (b)
a.L1t between the production of information and
increased productivity in
Wert ( L2t + x2 L1t + z2 L3t) all economy. Externalities and their modes
C2 = ___________________________ (5) of internalization based on the definition of
b. L2t.e r2t the IPR system, represent a key variable.
Thus, the more open the IPR system, the
W ert L3t/Ω greater the aggregate effect of these
C3 = ____________________________ (6) externalities, and the higher the growth rate
c. L3t e r3t . n of labor productivity (Nelson, 2003).
The fact of considering that, in sectors 2 and
n represents the number of consumers, the 3, the technical progress is autonomous
production of knowledge and information is shows clearly that (a) contrary to the
characterized by the fact that the average analysis of Baumol, the technical progress is
cost decreases with the number of not endogenous; (b) there is not a linear
consumers. relationship between the production costs of
this technical progress and production of
C1 increases with time, as shown in innovations; and (c) due to the fact that the
equation (4). The evolution of C2 depend on technical coefficients are constant, the price
r2; if r2 is greater than or equal to r, C2 of innovation does not explain the level of its
decreases or is constant. demand.
Following the analysis of Gordon, we have
r3t > rt, consequently, C3 decreases. This 2.2.4 The determinants of growth in overall
decrease can be offset by an increasing productivity of labor
randomness from Ω, and this is necessarily
translated into an increase in transaction We can define different forms of technical
costs (Herscovici, 2009). progress in relation to gains in labor
productivity (Nordhaus, 2002, p. 215).
wert [L3t/ Ω ] i) an autonomous technical progress, defined
C3/C1 = ______________ in an exogenous way, i.e. outside the model.
c. L3t e r3t . n ii) The Baumol effect, i.e. the relationship
between the growth of productivity gains in
the sector and its relative share in total
a.L1t product. If the relative share of sectors with
x _____________________ (7) low (high) productivity increases with time,
wert (L1t + y1L2t + z1 L3t) global productivity gains of the economy will
decrease (increase), as well as output
growth. This mechanism corresponds to the
At the aggregate level, if the increase in Ω is model of 1967.
less than er3t, C3/C1 decreases. iii) An effect that measures the variation in
productivity from the relative weight of
The value of Y3/Y1 = inputs, i.e. an induced effect. This effect can
be induced from a decrease in the value of
Y3/Y1. C3 / C 1. (8) inputs and/or the modes of internalization of
externalities produced by these inputs.
If the second term on the right decreases, With regard to industry, technical progress
the first one has to increase, so Y3/Y1 is largely autonomous. There is no
increases. correlation between the use of ICT and
273
changes in labor productivity. The Technical progress can be compared with the
comparison between the EU and U.S. shows Schumpeterian grapes innovations, as they
clearly that the Baumol effect was negative: are determined in an exogenous
a lower relative weight of industry accounts way. Nevertheless, the pivotal role of these
for a positive differential in productivity. sectors is questionable. The weight of the
Concerning services, the induced effect dynamic sectors in the GDP accounts for
explains the productivity gains and the only a little over 30% and the modes of
Baumol’s effect – the component that uses internalizing externalities are highly
ICT sees its productivity increase as well as selective.
its relative weight. Finally, the productivity gains achieved in
Thus, the impacts of the new economy on the new economy seem limited. The average
productivity are twofold: (a) an autonomous productivity gains are not more important
and intra-sectorial technical progress than those that characterized
deriving from the Baumol effect; (b) the Fordism. Moreover, the relative share of the
technical progress that has induced a component that experiences the highest
positive effect on the services. productivity gains (hardware) is a weak part
These data demonstrate that the Baumol’s of GDP, while the stagnant component
effect (disease costs) has reached its limits. represents a twice as important relative
The sectors whose share of the GDP part. This can be explained by the specific
increases are those who have the biggest modalities of valorization of knowledge
increases in the labor productivity growth production ("logic of prototype"), and it
rate (Nordhaus, 2002, p. 228). The sector of emphasizes the limits of the new economy as
services now partially internalizes the a source of productivity gains in the long
externalities produced by the technical term.
progress. This can be explained both by the
changing nature and function of this sector
and by the changing nature of technical
progress. Conclusion
r = Ф (ri, yi/GDP, δij/yi) (10)
In light of the macroeconomic modifications
ri represents the autonomous technical produced by the development of this "New
progress of sector i; yi/GDP represents the economy", one could say that the industry
relative share of that sector in total output; can no longer be conceived as a leading
and δij/yi represents the technical progress sector. Thus, it does not produce a
induced by the use of inputs that come from cumulative causation able to sustain a long-
industry j, or the externalities generated by term growth. This type of analysis is no
this sector. This approach is fundamentally longer able to explain the current phase of
different from Baumol’s analysis. (a) part of the capitalist economies. They do not
the technical progress that is reflected in an incorporate the major changes relating to
increase in labor productivity is determined methods of production, to modalities of
regardless of knowledge production; (b) the appropriation of technical progress, and to
increase in global productivity can be its economic nature.
partially explained by labor productivity in The mechanisms used to build these models
the ICT sector; and (c) the global are characteristic of fordism fase: (a)
productivity depends on the effects induced demand growth is overall implemented by a
in different sectors and on their relative redistribution of productivity gains for labor;
weights. (b) a large and undifferentiated
appropriation of the externalities produced
According to some assessments during the by technical progress, based on a relatively
period, the new economy would be open IPR system; (c) in the sphere of non-
responsible for one third of the total increase differentiated offers, competition takes place
in productivity (Nordhaus, 2002, p. 229). on a price basis.
This can be explained by the relative Today, changes in the nature of productive
weakness of the ICT sector and the impact labor, of the externalities generated by
limited to 26 % of GDP. Thus, two thirds of technical progress, of modalities of
the productivity gains are related to competition, and of valorization allow us to
exogenous technical progress. question the explanatory value of economic
274
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Attachments
Table 1: Contribution of different sectors to the growth of total factor productivity (in% per
year for the U.S. economy)
1974-1990 1990-1995 1996-1999
Global factors
Growth productivity 0,40 0,57 1,25
- Computers 0,12 0,13 0,22

- Semiconductors 0,08 0,13 0,41
- Other sectors 0,20 0,30 0,62
Olinet and Sichel (2000)
Table 3 Economic growth and growth of labor productivity: the case of the United States
(in% per year).
DGP growth Growth of labor

productivity
1975-1982-2 3,0 0,7

1982-3 1990-4 3,7 1,6
1991-1-1999-4 3,5 2,0
A partir de 1995 4,2 2,6
Digital Economy, http://wwww.commerce.gov
276
Table 2: The global effects of technical progress
Labor productivity growth % GDP
1990-95 1995-2000 (2000)
EU US EU US EU US
Total Economy 1,9 1,1 1,4 2,5
ICT using
Industrys 3,1 -0,3 2,1 1,2 5,9 4,3
Non ICT using
Industry 3,8 3,0 1,5 1,4 11,9 9,3
ICT using
Services 1,1 1,9 1,4 5,4 21,1 26,3
Non ICT using
Services TIC 0,6 -0,4 0,2 0,4 44,7 43,0
ICT producing
industry 11,1 15,1 13,8 23,7 1,6 2,6
ICT producing
services 4,4 3,1 6,5 1,8 4,3 4,7
From van Ark B., Inklaar R and McGuckin R, 2002 and personal elaboration
277

COMPETITIVENESS - CONCEPT and METODOLOGY
Authors : Nicoleta Hornianschi

hornianschi@yahoo.com
JEL CLASIFICATION P27 - competitive advantages, measurement, methodology,ITC
Abstract : The approach to the procedures of firm competitiveness, industry(industries)

measurement of competitive advantages both at competitiveness, or competitiveness of nations.
the industrial sector level and at the company The studies on competitiveness of nations
level is justified by the fact that some tools and (“competitiveness of nations” or “country
forms of expression of competitiveness are valid competitiveness”) started in the ’40 years. The
for the two levels. Industry (as industrial most representative work in the field is the
sector) in defined as total number of producers commercial flow theory (Ohlin, 1952; Leontief,
of identical and replaceable goods services; 1953) which has its roots on the classic
what is true for a company is also true for an ricardian theory of the comparative
industry. advantage. The comparative advantage
theory which argues that the endowment with
factors of a nation determines its enhanced
Most of the studies designed to competitiveness as compared to other nations
competitiveness, published in the last years has been outclassed long time ago, falling into
combine the problem of external balance with desuetude due inclusively to the economic
the internal performances, enunciating some realities that infirmed it. It cannot explain a
definitions like “growth without trade situation seen by everybody today: globally
imbalances” (Competitiveness Policy Council, there are many resource-rich countries but
1994, Schumacher et al., 1995). The World with a poor economy and vice versa. In the
Economic Forum, at Geneva and the Institute present world where the raw materials, the
for Management Development in Lausanne capital and even the labor force are mobile,
use a few hundred objective and subjective becoming thus transnational, endowed with
indicators in order to estimate if a country factors, it cannot determine alone the
creates, proportionally, more income, from the enhanced competitiveness of nations.
participation on the world market, than its The main objective of the project aims the
competitors. All these approaches regarding elaboration of a national model for the
the competitiveness of a country have in view formalization and the evaluation of the
to find a comprehensive definition which shall competitive advantages of the Romanian
connect the competitiveness to the final sectors and enterprises and the application of
objective of the economic activity, respectively the model for a strategic positioning of the
the maximization of welfare Romanian companies on the national and
The works on competitiveness elaborated on European market. The work intends also to
national plan (CNS, 1990; Dăianu, 1992; identify the directions for an optimal
Hornianschi 1994, 1998; Voiculescu D., capitalization of the competitive advantages of
Mereuţă C., 1998, Iancu A, 1999; Hornianschi the Romanian enterprises and the
and collective 1999; Iancu, A, 2000; Russu C, consideration of the most efficient ways for
2001; Cojanu V. 2001 etc.) and, especially creating new competitive advantages and
those existent ion international plan (see conquering new markets. This approach
bibliography) can be divided in three distinct includes logically the evaluation of wages and
categories, according the entity at whose level productivity, as well as the evaluation of the
there is concentrated the analysis, namely: social and environmental standards that may
278
influence the competitiveness level. 1990); Womach et al. 1990). The fundamental
Many authors of some reference works in the argument is that at the level of the nation the
field of competitiveness presume, implicitly, competitiveness is generated by the internal
that as regards the competitiveness, at the companies, so that the specific factors of the
level of the company the dispute is settled. The companies that lead to competitiveness should
companies that survive are competitive, and be identified. The specialists in strategy and
those who come out the market are not. But, international business are trying to analyze
in reality, the companies exist and act in very the competitiveness determinants from this
various cost, technology and profit rate macroscopic perspective. For example, one of
conditions (see Aiginger and Pfaffermayr, 1997 them focuses on the comparative study of the
and the specialty literature regarding the Japanese and American companies, trying to
persistence of profit differences). Some identify the problems in the case of the
companies settle equal prices with medium American ones and the advantage sources, in
costs, other amplify their innovation or the the case of the Japanese ones. The results are
monopoly rent. One may ask: is this second suggesting that the American companies are
group of companies more competitive than the disadvantaged as compared to the Japanese
first? A middle way between the two extremes ones on two plans: that of the bureaucratic
has been proposed in the framework of an system and that of the manager-employees
American report (President’s Commission on relationships. Moreover, the activity of the
Industrial Competitiveness Report, USA, first ones is based on the little flexible system
1985): a company is competitive if it is able to of mass production and their R-D activity and
produce goods and services of superior quality the products design doesn’t have a real
or with lower costs as compared to its internal relation with the proper production. The
or external competitors. Taken ad literam this Japanese companies have established, as a
“statement” contains also the implicit rule, on long time, harmonious relationships
assertion that the company found at a medium with, their own workers, situation meet at the
level, from quality and costs point of view is, companies from USA (Dertousos et.al.1989).
by definition, uncompetitive. Wheelllwright (1987) points out the fact that
It is, also, a series of authors who deny the American companies ignored the
the importance of this concept, especially for importance of the processing sector, directing
the economic areas with free fluctuation, of the too much their efforts towards the services
exchange rate (Cooper, 1961; Suntum 1986) sector, for example the banking services, that,
and evidently, this happens because there through their intrinsic nature, generates, as a
are not incomes that may be lost due to the rule, high and rapid benefits. Similar
external balance deficit, in a world with a conclusions can be drawn also from the studies
mature market. Here the prices and the accomplished by Womack et. al.(1990) and
incomes always adjust, the resources are used Clark and Fujimoto (1991) on the American
completely and the balance of payment and Japanese automobile industry.
equilibrium is stable. Even certain political The “competitive firm” theory points out
men and empirical authors who accept the implicitly the fact that the achievement of
existence, on medium term, of a trade balance “competitiveness at national level” is not based
disequilibrium as a predictable fact are strictly on the simple existence of the
diminishing from various reasons the respective country’s specific factors (the well
importance of this problem. known “factors endowment” of the
All these approaches regarding comparative advantage theory), but it is
competitiveness of nation propose to find a hardly influenced by the specific factors of the
comprehensive definition which shall connect companies that being strongly rooted in the
the competitiveness to the final objective of the economic reality, are capitalizing the first.
economic activity, respectively the The new studies on competitiveness benefit by
maximization of welfare. a much more systemic approach through the
The second perspective on competitiveness integration of the two categories of factors
focuses at the level of the companies (Chandler mentioned above – those who are specific to
279
the country and those who are characteristic o through its effects, towards the
the companies – in the industrial superior aggregation levels, so that it
specialization analysis. can be more or less accurately
The Porter’s model is composed of 4 evaluated, according to the coverage
determinants of the nation advantages: the area, the instruments used, and the
favorable economic environment; The firm effects perceived at the level of the
strategy and competitiveness; the integrated national economy.
and connected industries and the products and Methodology
services demand. The force of this model The approach to the procedures of
consists of the fact that it includes factors measurement of competitive advantages both
specific to the company, industry and nation. at the industrial sector level and at the
By introducing the industry concept in the company level is justified by the fact that some
model, Porter integrates both the outlooks of tools and forms of expression of
competitiveness: the microscopic one and the competitiveness are valid for the two levels.
macroscopic one. As a matter of fact, his model Industry (as industrial sector) in defined as
has been initially conceived with the view of total number of producers of identical and
exploring the economies of the advanced replaceable goods services; what is true for a
countries that have finished the industrial company is also true for an industry.
revolution cycle. Yet, at mondoeconomic scale, In the last years, the re-organisation of
more than 160 nations from the 185 that are companies for activity modernisation and
members of the United Nations Organization competitiveness improvement has been closely
are in the stage of ”underdevelopment” or “in connected with the introduction and expansion
course of development”, being so out of the of ITC, in the form of e-business applications;
blessings of these four factors. In order to the most remarkable ones have been the
develop, the respective economies need a following: Enterprise Resource Planning
model that should not only explain them what (ERP), Supply Chain Management (SCM) and
kind of factors they should have but also to Customer Relationship Management (CRM).
foresee ”who” and “how” could create these To them one should add e-procurement (or
factors Starting from this finding, there has online procurement) and e-marketplaces.
been proposed (Dong-Sung Cho, 1998) a new The firts model of evaluation of the effects is
competitiveness model, more complex, the so based on the cross regression of a simple
called “Model of the 9 factors of international production function in which the capital stock,
competitiveness. labour inputs, organisational change variables
We consider that in the scientific debate on and control variables regress by value added.
the competitiveness concept it is fundamental The organisational change is achieved by three
the specification of its approach angle, namely: reorganisations for ensuring the increasing
a. If we see these things in the light of participation of the employees in the
creating, maintaining and developing company’s activity: more responsabilities at
the competitive advantages that the lower organisational levels, team work and
finally lead to competitiveness, the self-responsible teams. The three functions are
only place where this process develops aggregated as an independent factor –
is the activity area of the economic reorganisation – within a factor analysis.
operators, the productive area. The The reorganisation effects, that stimulated the
company, and only the company, is the amployees participation in management, were
only economic entity that may provide estimated by means of Cobb – Douglas
competitiveness; production function, where the dependent
b. If we will tackle competitiveness variable is value added, and the explanatory
from the point of view of the level and variables are: capital, number of employees,
measuring possibilities, the situation reorganisation, investment in ITC and
is completely changed because, continnous training of perssonnel, to which
although achieved only at the level if other control variables are added. The impact
the company, competitiveness spreads, of the „reorganisation” factor on productivity
280
was determined by means of a Cobb-Douglas which are the most protected by NTB and the
production function for cross-section sectors permitting that such barriers maitain
equatioins. considerable proce discrepancies between
The second model of estimation is based on countries. It is worth underlining that the
variable instrumental regressions, if the term „sensitive” refers to sectors which are
results yielded by the first model are strongly affected by integration and posivitely
influenced by the endogeneity of the or negatively impacted.
organisational changes (reorganisation factor). Of course, all economic sectors, not only the
Under such conditions, it is advisable to sensitive ones, will be sooner or later, directly
consider external tools that intuitively explain od indirectly, affected by the growing
the selection of variables within the analysed European economic integration and will
unit and provide the necessary statistical further require structural adaptation.
characteristics. In our opinion „non-sensitive” sectors are to
If the endogeneity of the decisions of the unit low NTB sectors. The sectors with moderate
that makes organisational changes is properly tariff barriers are classified as „sensitive” or
reflected by the selected variables, the „non-sensitive” by market segmentation
estimation of the cross-section production indicators, in corroboration of basic indicators
function might be distorted, since other such as concentration degree and potential of
explanatory variables, especially capital and scale economics.
labour, are endogenous. The endogeneity of To select the sensitive sectors, several studies,
these variables, as wel as other variables, in including EU studies, suggest several criteria
the production function may be determined by such as level of non-tariff barriers, rate of
the fact that the factors not varying in time import penetration, price disperssion among
are not considered – technological changes, the number countries and potential of scale
management quality or industrial relations – economics. Still, they finally use the NTB level
may influence the explanatory variables and and price dispersion.
value added. Evaluation of competitiveness
Our approach concerns, in the context of the After identifying the sensible sectors, we
Association Agreement and accesion to the proced to the next analysis stage for
EU, the industrial pools, which, in general, are evaluating the advantages of the companies
subject to free movement of customs duties working in the above sectors on the basic of a
between Romania and the EU. Nevertheless, set of empiric performance indicators.
the trade between the two parties will surelz According to the basic principle of evaluation
face non/tariff trade barriers (NTB), more or of sectoral competitiveness, the sectors with
less significant, such as oligferent technical high performance by the above factors are able
standards, preferential public procurement, to develop in the new, more competitive
customs procedures, etc. These non-tariff trade environment of the European Single Market.
barriers, supposed not to be entirely removed The analysis of the competitiveness of the
(at least in the near future) cause the selected sectors requires three steps, as
fragmentation of markets and protect the follows:
domestic producers against foreign Step 1: The analysis of historical
competition. trands of performance is not detailed in this
At the same time, we base our approach on the paper, because it has been approached in
idea that the higher the coefficient of intra- many studies made ny the Institute of
industry trade between countries (Grübel Industrial Economy (see Bibliography) in the
coefficient) is, the closer the development last ten years, but the conclusions will be
levels of those industries are and the higher presented in this paper. Of course,the stress in
the complementarity level is. laid on the last years, because of data
Identification of sensitive sectors availability; the evolution prior to 1990 is less
The analysis of the competitiveness of the relevant as regards the market economy.
processing companies in based on the concept Step 2: The analysis of structural
of „sensitive sectors” defined of the sectors changes and export performance of Romanian
281
processing companies represent the second Export of high-technology products of

step. As the results are generally known, they high value added is very efficient and proves a
will be considered within the methodology. country’s capability to carry out high – level
Further, we detail the analysis of research (to be turned to good account in
static and dynamic performance, while the foreign markets) and to innovate efficiently. At
diagnosis elements specific to the two steps of the same time, import of such products may be
the anthologyy will considered for the complementary to export, since the inflow of
assessment of the competitiveness of the new products and know-how in the importing
national companies, in order to identify country may stimulate the development of
possible ways to turn the competitive other sectors. In this respect, Ireland is an
advantages to good account. illustrative example, as it is the country with
Performance indicators regard to rates the highest import and export of high-
of import coverage by export, inside and technology products in the Community area.
outside the EU, and two indices of Also other countries with a consolidated
specialisation of export and production; the tradition in the science and technology field
four indices – individually or combined – could and a high innovative potential – France, the
revead the comparative advantage of various United Kingdom, Finland, the Netherlands –
processing industries, as well as their have a high share of high – technology export,
competitiveness level. which is an indicator of international
Step 3: Analysis of static and dynamic competitiveness of knowholge-based economy.
performance based on the levels of four indices
and the evolution of three of them between
1990-2005.
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The International Conference on Economics and Administration,

Faculty of Business and Administration, University of Bucharest, Romania
ANALYSING THE PERFORMANCE OF WASTE MANAGEMENT

COMPANIES IN THE CONTEXT OF SUSTAINABLE INVESTMENTS AT
THE GLOBAL LEVEL
IAMANDI Irina-Eugenia;
Bucharest Academy of Economic Studies;
Faculty of International Business and Economics;
irina_iamandi@yahoo.com
CONSTANTIN Laura-Gabriela;
constantinlauragabriela@gmail.com
CERNAT-GRUICI Bogdan;
cernatbogdan@yahoo.com
Abstract evidence of environmental challenges – such

Considering the increased importance of the as global climate change or depletion of
ecological dimension for the thorough natural resources – continue to grow, it is
debated sustainable development in the likely that sustainability issues will be
international forums, the purpose of the raised by financial institutions, especially
present research paper is to emphasize the those exposed to property loss or product
importance of waste management in order to liability. Given this backdrop, Gluck and
consolidate the investment decisions of Becker (2004, 3) consider that the
sustainable or responsible corporate impressive number of studies attempting to
investors, that have to align social and answer the question of whether “social
ecological requirements to their financial responsibility” or “sustainability” improves
rationales. The objectives pursued by the or detracts from investment performance is
authors reflect the scope of analysing the not surprising at all, especially taking into
performance of the most sustainable waste account the high number of conducted
management companies at the global level. researches that found positive correlations
The research conducted envisaged the between social/ecological performance and
modelling of the volatility of the SG Global financial performance (see, for example,
Waste Management Index, considered to be Guenster et al. 2005).
the most appropriate one for the scientific Linking social/ecological performance with
purpose of the paper. financial performance represents the
pragmatic interest of investors, but, at the
Key words: Sustainable Investment, Waste same time, corresponds with the main
Management, Société Générale Global Waste purpose that society has at large, meaning
Management Index, Garch Model, Risk sustainable development.
Minimization The ecological dimension of sustainable
development is frequently associated with
1. Introduction waste management, as an end-of-use part of
the production process.
Nowadays, one of the most stringent Following this specific line of thinking, the
concerns that have found a receptive present paper covers the matter of analysing
audience in many parts of the world refers to the performance of waste management
the sustainability of natural resources. As companies and their significance for the
285
sustainable investors interested in responsible investment (SRI) and sustainable

minimizing risks associated to their investment (SI). At the same time, Eurosif
investment decisions. As already mentioned, (2008) continues to use the term “SRI” as the
the studied matter is important in the comprehensive acronym for the three above
context of sustainable development, mentioned areas of this field, but having the
especially for the responsible investors direct meaning of “Sustainable and
trying to align their financial objectives with Responsible Investment”: “a generic term
the ecological and social objectives that covering ethical investments, responsible
society indirectly imposes to them. For investments, sustainable investments, and
answering to the emphasized topic, the any other investment process that combines
authors will present relevant data regarding investors’ financial objectives with their
sustainable investment, waste management, concerns about environmental, social and
Société Générale Global Waste Management governance (ESG) issues”. SRI describes an
Index and the corresponding companies in investment strategy which seeks to
the index, but also will model the volatility maximize financial return and social good.
of the SG Global Waste Management Index. Responsible Investment (RI) is an area
The authors intend to delineate the general developing particularly among the
background of the presented topic, especially institutional investors and remains most
considering the scarceness of scientific connected to the mainstream financial
articles aiming to achieve similar research community. Responsible investors take into
objectives, although the practical importance account the long-term influence of extra-
of the subject is increasing each day. financial factors such as environmental,
social and governance (ESG) issues in their
2. Literature review investment decision-making. They integrate
ESG factors into their stock portfolio
For encompassing the research objective and analysis and management, bringing together
results of the present paper, two main social and sustainability indicators with
aspects should be previously defined and traditional financial analysis.
briefly analysed: Sustainable Investment and Socially Responsible Investment (SRI) is an
Waste Management. The most important important area for the retail financial sector
information in the specialized literature is and may incorporate ESG issues as well as
presented, although the dynamics of the criteria more closely linked to a values-based
present topic leads to the impossibility of approach. It can involve the application of
exhaustively analysing the secondary effects. pre-determined social or environmental
values to investment selection. Investors
Sustainable Investment: choose to exclude or select particular
European Investment Sustainable Forum companies or sectors to invest in because of
(Eurosif 2008, 6) frequently uses terms such their impact on the environment or
as social, ethical, responsible, socially stakeholders.
responsible and sustainable investment in Sustainable Investment (SI) is a growing
order to encompass the full meaning of area where investors align their investments
socially responsible investments (SRI) as a with emerging environmental and social
main form of corporate social responsibility realities, because of their financial and
(CSR) implementation. The constant within sustainable returns prospects. This area
these above mentioned terms is represented brings together those in the financial sector
by the concern of sustainable or responsible committed to the sustainability imperative
investors with long-term investment, along with those interested by the
meanwhile supplementary environmental, investment opportunities that the ongoing
social and governance (ESG) issues are shift in regulations and market practices are
important criteria in determining long-term creating.
investment performance. In a specialized report prepared for the
Eurosif (2008) considers that the vast World Federation of Exchanges, Siddy (2009,
domain of sustainable and socially 2) considers that the term sustainable
responsible investments could be divided investment currently covers a range of
into three main areas, broadly described by concepts and niche asset classes, from
Iamandi and Constantin (2009, 63-65): carbon trading and clean technology
responsible investment (RI), socially investment to the use of environmental,
286
social and governance (ESG) information in environmental policy, corporate codes,

portfolio construction and voting policies. management systems and respect for human
Taken as a whole, sustainable investment is rights and working conditions); engagement
a dynamic, expanding and global market (the use by investors of solid dialogue with
worth several trillion US dollars and boards or other management representatives
participants include highly influential with the aim of altering corporate behaviour
pension funds and money managers, in relation to social, environmental and
investment banks, as well as many specialist ethical issues; e.g.: a lack of policy on climate
boutiques. This market trend is mirrored in change, pricing of medicines in developing
many of the world’s publicly listed countries); shareholder activism (the
companies and their strategic management exercise of shareholder powers through
of issues such as climate change, clean general protest voting at annual meetings
technology, labour standards and human and through the support of SRI-related
rights. More importantly, companies and shareholder resolutions; e.g.: voting against
their investors recognise that factors like resolutions to approve a company’s report
these can be essential to innovation, and accounts if it does not report on its
productivity and market growth as well as to environmental performance).
risk management and brand value. The new There are a large number of specific SRI
opportunities associated to sustainable products and instruments and the most
investments include improving information important of them are the following: ethical,
efficiency through sustainability indices, social and green funds – mutual funds that
disclosure guidance, specialist listing and select portfolios using ethical, social and
trading platforms. environmental criteria; pensions funds –
Socially responsible investors favour that invest part of their funds according to
corporate practices that promote corporate social responsibility criteria;
environmental stewardship, consumer sustainability indices – Dow Jones
protection, human rights, and diversity, but Sustainability Index (DJSI), Financial Times
avoid businesses involved in alcohol, tobacco, Stock Exchange for Good (FTSE4Good),
gambling, weapons, nuclear industry and/or Domini Social Index 400, Ethibel etc., that
abortion. Because many investors consider have an important role in the relationship
that the effects of climate change and waste between funds allotted to SRI and their
management represent a significant corresponding financial performance; listing
business and investment risk, SRI has processes – that should offer complete and
become lately increasingly defined as a way relevant information to investors in order to
to promote environmentally sustainable evaluate the potential of companies
development. (Iamandi and Constantin 2009).
Analysts consider that socially responsible
investments can be made in distinctive Waste Management:
companies or by appealing to a socially As previously mentioned, the use of
conscious mutual fund or exchange-traded environmental, social and governance (ESG)
fund (ETF). Mutual funds and ETFs offer an criteria in portfolio selection represents one
extra-advantage, because investors can gain of the new opportunities of the present
exposure to more companies in many sectors business environment, meanwhile waste
with a single investment. According to management has become one of the most
Székely and Knirsch (2005, 633), important factors for promoting
institutional investors analyze corporate SRI environmentally sustainable development.
and rank companies according to four main In this way, when analysing their
criteria: negative screening (the exclusion of investment options, financial investors have
certain companies or industrial sectors from a propensity in considering the waste
investment portfolios on the basis of their management companies, as a clear indicator
inability to meet various social, ethical and of future risk minimization associated to
environmental criteria; e.g.: the armaments, their core activity.
nuclear power and tobacco industries); Waste Management (WM) is the collection,
positive screening (actively including storage, transport, processing, recycling or
companies in investment portfolios on the disposal and monitoring of waste materials,
basis of their strong performance on social, from ordinary household waste to the waste
environmental or ethical issues; e.g.: generated at nuclear power plants. The term
287
usually relates to materials produced by Figure 1: The Waste Hierarchy

human activity, and is generally undertaken
to reduce their effect on health, the
environment or aesthetics. Moreover, waste
management is also carried out to recover
resources from it. Waste management can
involve solid, liquid, gaseous or radioactive
substances, with different methods and
fields of expertise for each of them.
Developing effective waste management
strategies is critical for nations all over the
world, as many forms of waste can develop
into a major problem when they are not
handled properly. Numerous firms provide
waste management services of a variety of
types, and several governments also regulate
the waste management industry for safety
and efficacy. Source:
There are a number of concepts about waste http://en.wikipedia.org/wiki/File:Waste_hierarchy.svg
management which vary in their usage
between countries or regions. Some of the 3. Theoretical Background
most general, widely-used concepts include:
The Waste Hierarchy refers to the “3 Rs” – As previously stated, the purpose of the
Reduce, Reuse and Recycle – which classify current research paper is to analyse the
waste management strategies according to performance of the most sustainable waste
their desirability in terms of waste management companies at the global level
minimization (see Figure 1). The waste and to identify their role in consolidating a
hierarchy remains the cornerstone of most more sustainable business environment.
waste minimization strategies. The aim of This type of performance is usually
the waste hierarchy is to extract the comprised in a waste management index,
maximum practical benefits from products whose methodology and components are to
and to generate the minimum amount of be described in the present section.
waste.
Extended Producer Responsibility (EPR) is a GARCH Model:
strategy designed to promote the integration In order to perform the analysis of the global
of all costs associated with products waste management index and, more
throughout their life cycle (including end-of- specifically, to model the serial dependence
life disposal costs) into the market price of of volatility, the GARCH (generalized
the product. EPR is meant to impose autoregressive conditional heteroscedasticity)
accountability over the entire lifecycle of time series technique will be used. GARCH,
products and packaging introduced to the then, is a mechanism that includes past
market. This means that firms which variances in the explanation of future
manufacture, import and/or sell products are variances. The time series is heteroscedastic
required to be responsible for the products when its variance varies with time.
after their useful life as well as during The GARCH models were introduced by
manufacture. Bollerslev (1986) and generalized Engle’s
“Polluter Pays” Principle is a principle where (1982) earlier ARCH models to include
the polluting party pays for the impact autoregressive (AR) as well as moving
caused to the environment. With respect to average (MA) terms.
waste management, this generally refers to From the various GARCH models, within
the requirement for a waste generator to pay this paper we will use the widely known
for appropriate disposal of the waste. EGARCH mechanism, with leverage terms.
P Q  t j  t  j  Q  t  j 
  Lj 
logt2  k  Gi logt2i  Aj   E 
i1 j 1 t  j
 t  j  j1   t  j 

288
SG Global Waste Management Index: Stericycle Inc. (USA) – 8.45%, and Sims
The financial performance of waste Metal Management Ltd. (Australia) – 5.69%.
management companies – expressed in a In addition, it is invested 58% in North
series of indices developed by specialized America, 32% in Europe and 10% in the rest
financial institutions – is one of the main of the World.
aspects that corporate investors take into 1. Waste Management Inc. (USA) is the
account when considering the possibility of leading provider of comprehensive waste and
investing in this type of companies. environmental services in North America. As
Therefore, in order to study this sector from of December 31, 2009, the company served
a financial perspective, the analysis will nearly 20 million municipal, commercial,
focus on one of the Société Générale (SG) industrial, and residential customers
sponsored sustainable indices aimed at through a network of 367 collection
reflecting the waste management sector operations, 355 transfer stations, 273 active
worldwide, mainly the total return SGI landfill disposal sites, 16 waste-to-energy
Global Waste Management index, that is plants, 134 recycling plants, and 111
calculated and published by Standard & beneficial-use landfill gas projects.
Poor’s, a division of the McGraw-Hill 2. Republic Services Inc. (USA) is one of
Companies, Inc (the “Index Calculation the main USA providers of services in the
Agent”). The rationale of investing in this domestic, non-hazardous solid waste
sustainable index is emphasized through the industry, offering waste collection services
following three pillars: representativeness (it for commercial, industrial, municipal, and
tracks the performance of the largest residential customers through 400 collection
companies within the industry), a secular companies in 40 states and Puerto Rico. The
global issue (waste is a GDP play, especially company also owns or operates 242 transfer
within the context of the globalization of stations, 213 solid waste landfills and 79
trade and the exponential growth of recycling facilities and it serves millions of
developing countries) and other numerous residential customers under terms of
supportive factors (such as population contracts with more than 3,000
growth in the less developed countries, municipalities for waste collection and
environmental pressures globally, increased residential services. Republic Services Inc.
privatization of waste-related activities, also serves some commercial customers
rising energy and commodity costs or the throughout its expansive service area.
limited space for landfills). 3. Veolia Environnement (France) is the
As it is stated on the SG indices website, this world leader in environmental services. With
index comprises the most representative operations on every continent and more than
companies that have as main activity the 336,013 employees, the company provides
collection, transport, processing and customized solutions to meet the needs of
recycling or disposal of waste. The index is municipal and industrial customers in four
invested 7% prevention/minimization, 42% complementary segments: water,
treatment, 20% recycling, 17% energy environmental services, energy services and
recovery and 14% disposal. This sectoral passenger transportation. Veolia
breakdown is expected to be fairly stable Environnement recorded revenue of 36.2
short-term, and yet may vary according to billion Euros in 2008.
changes in the industry dynamics. 4. Stericycle Inc. (USA) is a business and
consulting services company specialized in
Waste Management Companies in the protecting people and reducing risks, having
Index: more than 459,000 customers worldwide.
Société Générale assesses the index Stericycle provides services such as: medical
composition every six months and factors waste disposal and sharps disposal
like liquidity or other tradability constraints management; product recalls and retrievals;
are also considered. The number of stocks is OSHA compliance training; pharmaceutical
subject to change; currently there are thirty recalls and medical device returns;
companies included, of which five and their hazardous waste disposal; healthcare
weights in the index are worth mentioning: integrated waste stream management;
Waste Management Inc. (USA) – 16.22%, pharmaceutical waste disposal; medical
Republic Services Inc. (USA) – 16.01%, safety product sales, and high volume
Veolia Environnement (France) – 14.85%, notification services. The company operates
289
in the USA, United Kingdom, Ireland, from these figures there is indication that
Canada, Mexico, Argentina, Chile, Portugal one needs to use a correlation structure in
and Romania. the conditional mean.
5. Sims Metal Management Ltd.
(Australia) is the largest metals and Figure 2: SGI Global Waste Management
electronics recycler in the world, as well as 120
SGI Global Waste Management-Daily Price
in North America and Australasia. The

company has over 230 locations on 4 110
continents and over 5,500 employees, and it 100
operates two primary businesses: Sims

90
Metals Recycling and Sims Recycling
Index Value
Solutions. Sims Metals Recycling is the 80
world’s largest metals recycler, with 70

operations encompassing the buying,
processing and selling of ferrous and non- 60
ferrous recycled metals in five countries, 50
including the United States, Australia and

40
the United Kingdom. Sims Recycling 2000 2002 2004 2006 2008 2010 2012
Date
Solutions is a global e-recycling business,
with established operations in the United
Kingdom, Continental Europe and North Figure 3: SGI Global Waste Management –
Daily Returns
America and a developing presence in the
Daily Returns
Asia-Pacific region, offering a comprehensive 0.15
and cost-effective recycling service for “end 0.1

of life” and redundant electrical and
electronic equipment, devices and materials, 0.05
ranging from product assessment to

0
recycling.
Return
-0.05
4. Modelling the volatility of the SG

-0.1
Global Waste Management Index
-0.15
The data considered within the study are

-0.2
represented by the values of the above 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Date
mentioned index for the 31 December 2001 –
29 April 2010 period (downloaded from the
SG Indices website). Though the index was Figure 4: Sample Autocorrelation Function –
Daily Returns of SGIGWM
launched on the 13th of April 2007, there are ACF for Raw Return Series
also available previous data resulted from 1
backtesting. The study was performed by 0.8

using the Matlab computational package. As
one can notice from Figure 2, the raw time 0.6
Sample Autocorrelation
series is a non stationary process. Therefore,

0.4
within the analysis we considered the
returns series, exposed in Figure 3, that is a 0.2
stationary time series.

0
The following stage within the modelling
process consisted in checking for correlation -0.2
in the return series. With this scope, there

-0.4
were computed and plotted the sample 0 2 4 6 8 10 12 14 16 18 20
Lag
autocorrelation (ACF) and the partial-
autocorrelation (PACF) functions for the
return series with the respective upper and In order to emphasize the qualitative check
lower standard deviation confidence bounds, for correlation in the raw returns series, we
Figure 4 and Figure 5, respectively. As the used two hypothesis tests, mainly Ljung-
ACF and the PACF depict the broad Box-Pierce Q-test, whose null hypothesis
correlation characteristics of the returns, states the no serial correlation, and Engle’s
290
ARCH test, that checks for ARCH effects in Figure 6: Sample Autocorrelation Function –
the series. The H output, for both tests Daily Squared Returns of SGIGWM
(verified for up to 10, 15 and 20 lags), ACF of the Squared Returns
indicates the rejection of the null hypothesis

and implies the presence of serial correlation 0.8
(Table 1), as well as the evidence for the

presence of heteroscedasticity (Table 2). 0.6
0.4
Figure 5: Partial Autocorrelation Function –
Daily Returns of SGIGWM
0.2
PACF for Raw Return Series
1
0
0.8
-0.2
Sample Partial Autocorrelations
0.6 0 2 4 6 8 10 12 14 16 18 20
Lag
0.4
0.2
Table 3: Ljung-Box-Pierce Q-test – Squared
Returns
0 H pValue Stat CV
1.0000 0.0000 2745.4527 18.3070
-0.2 1.0000 0.0000 2906.2148 24.9958
1.0000 0.0000 3129.5005 31.4104
-0.4
0 2 4 6 8 10 12 14 16 18 20
Lag
Consequently, we estimated the following
ARMAX (1, 1, 0) / EGARCH (1, 1) model,
Table 1: Ljung-Box-Pierce Q-test – Returns whose parameters are displayed in Table 4.
H pValue Stat CV
1.0000 0.0000 235.2190 18.3070
1.0000 0.0000 260.1586 24.9958
Table 4: Parameters estimates
1.0000 0.0000 281.1549 31.4104 Standard T
Parameter Value
Error Statistic
C 0.00042 0.00042 1.0157
Table 2: Engle’s ARCH test – Returns AR(1) -0.87458 0.16191 -5.4016
H pValue Stat CV MA(1) 0.85836 0.17155 5.0036
1.0000 0.0000 958.0041 18.3070 K -0.17902 0.02886 -6.2030
GARCH(1) 0.97883 0.00318 307.5723
1.0000 0.0000 1004.8993 24.9958
ARCH(1) 0.16529 0.01050 15.7382
1.0000 0.0000 1039.6270 31.4104 Leverage(1) -0.04653 0.00644 -7.2172
As can be noticed from Table 4, AR (1) and

In addition, in order to check for correlation
MA (1) parameters have similar size.
in the squared returns, there was computed
Therefore, when rewriting the mean
and plotted their ACF, which also suggests
equation in backshift operator notation, the
significant correlation and persistence in the
autoregressive and moving-average
second-order moments (Figure 6).
polynomials come close to cancelling each
In addition, we verified the null hypothesis
other (Box, Jenkins, and Reinsel 1994, 263-
of no significant correlation in the squared
267). This supported the use of the simple
returns (tested for up to 10, 15, and 20 lags
EGARCH (1, 1) model (Table 5).
of the ACF at the 0.05 level of significance)
and the results showed that we can reject it
Table 5: Parameters estimates
(Table 3). Standard T
Parameter Value
Error Statistic
C 0.00023 0.00022 1.0529
K -0.18331 0.02915 -6.2876
GARCH(1) 0.97831 0.00321 304.0722
ARCH(1) 0.16862 0.01037 16.2543
Leverage(1) -0.04712 0.00655 -7.1854
As can be noted in Figure 7, volatility

clustering is present in the residuals
(innovations), the lower graph illustrating
291
the heteroskedasticity present in the filtered Figure 9: Sample Autocorrelation Function –

residuals. Standardized Residuals
After the filtering of the model residuals ACF of the Standardized Residuals
from the return series, the next stage

consisted in standardizing the residual with 0.8
the conditional standard deviation. From

0.6
Figure 8, one can notice that innovations
seem generally stable, displaying little 0.4
clustering.
0.2
Figure 7: Residuals and conditional

standard deviations – Fitted model 0
Innovations
0.2
-0.2
0 2 4 6 8 10 12 14 16 18 20
0.1 Lag
Innovation
-0.1 Figure 10: Sample Autocorrelation Function

-0.2 – Squared Standardized Residuals
0 500 1000 1500 2000 2500
ACF of the Squared Standardized Residuals
Conditional Standard Deviations
0.08
Standard Deviation
0.06 0.8
0.04
0.6
0.02
0
0 500 1000 1500 2000 2500 0.4
0.2
Figure 8: Standardized residuals

Standardized Reziduals 0
4
2 -0.2
0 2 4 6 8 10 12 14 16 18 20
Lag
0
-2
The last phase of the analysis consisted in
Innovation
-4 quantifying the correlation of the

-6
standardized residuals and the presence of
ARCH effects.
-8
-10 Table 6: Ljung-Box-Pierce Q-test –

Standardized Returns
-12
0 500 1000 1500 2000 2500 H pValue Stat CV
0.0000 0.7780 6.4282 18.3070
0.0000 0.9029 8.4830 24.9957
As can be noted in Figure 9, the 0.0000 0.9331 11.4673 31.4104
standardized residuals are now i.i.d. In
addition, by comparing Figure 10, Table 7: Ljung-Box-Pierce Q-test – Squared
representing the ACF of the squared Standardized Returns
standardized, with Figure 6, representing H pValue Stat CV
the ACF of the daily squared, one can notice 0.0000 0.1366 14.8763 18.3070
that the EGARCH model compensates 0.0000 0.1150 21.7325 24.9958
sufficiently for the variation in volatility. 0.0000 0.2753 23.2791 31.4104
Table 8: Engle’s ARCH test – Standardized

Returns
H pValue Stat CV
0.0000 0.1303 15.0486 18.3070
0.0000 0.0928 22.6083 24.9958
0.0000 0.2200 24.5302 31.4104
292
Therefore, the results of the Q-test and the 5. Gluck, Kimberly, and Ying Becker. 2004.
ARCH test (displayed in Table 6, Table 7 “Guest Editorial: Can Environmental Factors
and Table 8) indicate the rejection of their Improve Stock Selection?”. Journal of Asset
Management vol. 5 (no. 4): 220-222. Henry
null hypothesis and, consequently, the post-
Stewart Publications.
estimation analysis confirms the sufficient
6. Guenster, Nadja, Jeroen Derwall, Rob Bauer,
explanatory power of the identified and Kees Koedijk. 2005. “The Economic Value of
EGARCH model. Corporate Eco-Efficiency”. Paper presented at
2005 Academy of Management Conference, July
5. Conclusions and implications 25, in NY, USA.
7. Iamandi, Irina-Eugenia, and Laura-Gabriela
Considering the propensity of sustainable or Constantin. 2009. “Addressing Socially
socially responsible investments in the last Responsible Investments through Alternative
Risk Transfer Solutions at International Level”.
years, as a prerequisite of risk minimization
The Romanian Economic Journal 33 (year XII,
investors are searching for in a globalizing
no. 3/2009): 61-93. Bucharest: ASE Printing
world, the ecological dimension of the above House,
mentioned investments became more http://rejournal.eu/Portals/0/Arhiva/JE%2033/JE
important than ever, being usually %2033%20-%20IAMANDI%20CONSTANTIN.pdf.
associated with sustainable development. 8. Siddy, Dan. 2009. Exchanges and sustainable
This is the general background for investment. World Federation of Exchanges,
nourishing the development of waste http://www.world-
management at the global level, by granting exchanges.org/sustainability/WFE-ESG.pdf.
9. Székely, Francisco, and Marianna Knirsch.
special attention to the business and
2005. “Responsible Leadership and Corporate
financial performance of waste management Social Responsibility: Metrics for Sustainable
companies. Performance”. European Management Journal 23
The results of the present study emphasized (no. 6): 628-647. Oxford: Pergamon-Elsevier
that for the global waste management index Science Ltd.
the calibrated EGARCH (1, 1) sufficiently 10. Republic Services Inc. website,
explained for the volatility in the series. http://www.republicservices.com/contactUs.asp.
Therefore, as further directions of research, 11. Sims Metal Management Ltd.,
starting from the present paper that aimed http://www.simsmm.com/.
12. Stericycle Inc. website,
and performed the treatment of the volatility
http://www.stericycle.com/.
with an EGARCH model, the authors will 13. Veolia Environnement website,
consider the more advanced technique of http://www.veolia.com/en/.
bootstrapping, while considering the filtered 14. Waste Management Inc. website,
historical simulation, to evaluate the market http://www.wm.com/wm/about/corporate_profile.a
risk characterizing the global waste sp.
management equity sector. 15. www.mathworks.com/access/helpdesk/help/to
In addition, the authors will focus the olbox /econ/f8-82329.html.
research on other indices that track the 16. http://www.sgindex.com/index.php?country=
EN
performance of the sustainable industries.
17. http://www.sgindex.com/admins/files/other/sg
index/files/524.pdf.
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293

REPUTATION RISK: DETERMINANTS AND IMPLICATIONS
IANOLE Rodica
Faculty of Social and Administrative Sciences, “Nicolae Titulescu” University,
Romania
Email: ianole.rodica@gmail.com
SANDU Mihaela
Faculty of Administration and Business, University of Bucharest, Romania
Email: mihaela9sandu@yahoo.com
Abstract 2005) questioned 269 managers, asking

them to forecast how each category of risks
The main objective of the paper is to explore can affect their business. The answers
some of the main triggers of the reputation awarded have placed reputation risk on the
risk and its main implications for the first position of the top, with 52%
business area. The structure of the paper prospective damages, followed by
follows the line of a review of relevant technological and personnel risks, in the
literature, where the upshots frame the need same proportion of 41%, and then by the IT
for a holistic view of the topic, in socio- risk – 35%, market risk – 32%, and credit
economic, cultural and environmental terms. risk – 29%.
In this context, our paper aims to
Key words: reputation, reputation risk, accomplish a brief overview of the multiple
social responsibility perspectives existing on defining and
managing reputation risks. The second
1. Introduction section focuses on the reputation
determinants, while the goal of the third
Warren Buffet’s saying, „it takes 20 section is to depict its implications over the
years to build a reputation and 5 minutes to financial performances of organizations, but
destroy it”, is probably one of the most well- also over their social, ethical and
known references, and also among the most environmental results.
intriguing, regarding reputation. This
characteristic of extreme fragility 2. Determinants of corporate
immediately rises, from the early beginning, reputation risk
the necessity of managing it with great care
and consideration. Sometimes agnomen the “Cinderella
On the one hand, from an individual asset”, the reputation risk can arise from a
point of view, reputation can be considered variety of sources (Fombrun, Gardberg &
part of our identity, as defined by others. On Barnett, 2000), which we will briefly portray
the other hand, as part of the intangible in this chapter.
capital of a firm, this asset has gained Firstly, and most probably, the
greater and greater importance during the reputation risk may result from operational
last period of time, responding to the needs risks or from risks of a financial nature.
of various stakeholders: the investors, the However, the affected areas are usually
employees and the public (Botelho, 2004). those expressed rather by social and ethical
The importance of reputation at an threats, and not only simply putted in
organizational level, and thus of properly monetary or financial problems. This not
dealing with the associated risks, can be changes the fact that investors tend to judge
traced with the help of many studies and companies as better opportunities of
surveys. For example, the research made by investment according to their financial
the Economist Intelligence Unit in 2005 performances, correlated also with a high
(White Paper “Reputation: Risk of risks, reputation rating, (Shefrin, 2001). The logic
294
they follow is quite simple: if the investment & Cannon, 1997). This is, in our opinion, a
proves to be profitable, investors will key issue for reputation: the company trusts
continue to invest, will attract foreign its suppliers, the clients trust the company
capital and will remain loyal, otherwise not. and the society is trustworthy in the
A second category of important performed exchanges and activities, for the
determinants is constituted today, more general well-being.
than ever before, by the stakeholders who
became very interested in the environment 3. The large spectrum of
and the society. Thus, companies must be reputational implications
vigilant in respect to these issues. One of the
main responsibilities of managers, in this To begin the implications’ case with a
case, is to meet regularly with key strong and objective tone, we will bring into
stakeholders and reach an agreement on the the scene the quantitative perspective which
process and expected results. tells us that 63% of a company’s market
To illustrate the continuous challenges value is attributed to reputation (Weber
the companies have to face, it is enough to Shandwick/KRC Research, 2006). The same
recognize the development of various study reveals that over the past 5 years
communication channels that facilitates the three-quarters (79%) of the world’s number
rapid circulation of useful information but one most admired companies lost their
also of gossip. Bad news can go all over the crowns in their respective industries.
world in only 5 minutes over the internet. Under these circumstances, the first
That’s why communication is on top of most aspect to point out is clearly related to the
risk managers’ agenda. Thus, the company financial status, more precisely the benefits
should maintain close relation with media of a good reputation and the costs of a bad
and have a powerful public relations (PR) one. Larsen (2002) argues that this is the
department or, at least, a good PR central reason that makes companies
consultant. In a period of crisis, the person preocupied with managing their reputation,
that communicates with the press must be even if it is agreed that “financial statements
preferable from the top management of the are woefully inadequate in terms of
organization. The degree of openness and assessing and managing corporate
sincerity reflected in his speech can either reputation” (Cravens, Oliver & Ramamoorti,
solve the problem or, by contrary, deepen the 2003, p. 203)
reputation gap. Nonetheless, extending this more or less
Moving further, we reach other business obvious causality effect, we find ourselves in
partners like clients and suppliers: “it’s a the large perimeter of social and ethical
buyer’s market”, said Derek Mander, head of implications. For example, corporate social
financial and risk management for Bank of responsibility (CSR) is a concept that has
Ireland Securities Servicies (White Paper increasingly gained notoriety, attracting the
“Reputation: Risk of risks, 2005). Moreover, interest of both public and private entities:
he reinforces that in the past it was easier to “there has been a shift in the breadth and
meet the client’s service standards than nature of the perceived responsibilities of
nowadays when clients have so many companies to the societies in which they
options and they are more likely to simply operate (…) Companies are now forced to
change their service provider. That is why make decisions concerning the type and
any violation of rules, as any deviation from degree of responsibilities they have to
any unreasonable price increase may affect stakeholders, such as local communities, the
the business relationship with customers. natural environment, and employees.
Situated at the other end of the value Furthermore, these responsibilities must be
chain, we cannot neglect the suppliers. In balanced against those they have to financial
order to no generate into a risk, they must interest groups such as investors and
be fair, must meet their commitments to creditors” (Brammer & Pavelin, 2004, p.704).
provide good quality material, and must It is worth stating at this point the
comply with the deadlines and terms impact of a bad reputation in deepening
imposed by the contract. information asymmetry issues. In general
All these collaborative relationships rely outsiders don’t know as much about a
on relational forms of exchange company as insiders, so a good reputation,
characterized by high levels of trust (Doney often emphasized by social responsibility
295
actions, alleviates and allow customers to Corporate Reputation, Identity and

make a choice. Another fact to underline is Competitiveness, Boston .
that reputation evolves more slowly that a 7. Rochette, Michel (2007), “Reputation
risk”, retrieved from
firm’s image because it is tied more closely to
http://www.soa.org/files/pdf/lsprng07-
consistent actions. In this light, a positive
001-rochette.pdf on 1st of April, 2010
implication would be that it can serve as a 8. Shefrin, H. (2001),”Do investors expect
reservoir of goodwill in time of crises higher returns from safer stocks than
(Rochette, 2007). from riskier stocks?” The Journal of
Psychology and Financial Markets , No.
4. Conclusions 2, pp.176 – 181
9. Turner, M. (2004), “Reputation risk and
To sum up, reputation is a critical governance”, Risk management topic
paper No. 6
intangible asset that can be a good indicator
10. Weber Shandwick/KRC Research, (2006),
of past performance and future prospects.
‘Safeguarding Reputation’, November 17,
The most satisfactory conclusion that we retrieved from
can come to, after analyzing some of the http://governancefocus.blogspot.com/2006
prevalent perspectives on reputation risk, is /11/nearly-80-percent-believe-
the necessity of a proactive organizational responsible.html on 15th March 2010
behavior, truly assimilated in the 11. ***Economist Intelligence Unit, White
corporation’s identity. Paper “Reputation: Risk of risks, 2005,
The present short paper represents just retrieved from http://www.online-
reputationmanagement.org/images/Whit
an introductory stage for future research of
ePapers/risk_reputation_report_online-
investigating the importance of reputation
reputation-management-solutions.pdf on
building and risk management, setting the 29th March 2010
framework for possible inquiries regarding
the national business landscape.
References
1. Botelho, G. (2004), “Building and

Rebuilding Reputations: Executives Face
Challenges in Post-Scandal World”,
retrieved from
http://www.cnn.com/SPECIALS/2004/glo
bal.influentials/stories/overview/ on 17th
March 2010
2. Bramer, S. & Pavelin, S. (2004),
“Building a good reputation”, European
Management Journal Vol. 22, No. 6, pp.
704–713
3. Cravens, K., Oliver, E. & Ramamoorti, S.
(2003), “The Reputation Index:
Measuring and Managing Reputation”,
European Management Journal Vol. 21,
No. 2, pp. 201–212
4. Doney, P. & Cannon, J. (1997), “An
Examination of the Nature of Trust in
Buyer-Seller Relationships”, The Journal
of Marketing, Vol. 61, No. 2 pp. 35-51
5. Fombrun, C.J., Gardberg, N.A. &
Barnett, M.L. (2000), “Opportunity
Platforms and Safety Nets: Corporate
Citizenship and Reputation Risk”,
Business and Society Review, 105:1, pp.
85-106
6. Larsen, D. (2002), “Determining the
relationship between investor relations
and reputation”, paper presented at the
6th International Conference on
296

AN OUTLINE ON CULTURAL ECONOMICS - THE INFLUENCE OF

ECONOMY ON ROMANIAN THEATRE PRODUCTION
IANOLE RODICA
Romania
Email: ianole.rodica@gmail.com
CARAIMAN CARMEN
Romania
Email: caraiman_carmen@yahoo.com
Abstract culture, and this profoundly shapes human

behavior. Influencing preferences, imposing
The main objective of the present paper is to obligations or creating social identities, all of
explore the possible correlations between the these are consequences which may impact on
economic system and culture, more precisely economic behavior.
theatre production. The intricate relationship As a field of research, cultural economics
reveals its significance during two different is a young but quite well established one: it
economic and political systems (the has an association – ACEI, founded in 1973,
totalitarian regime that Romania a journal – first published in 1977, an
experienced between 1947 and 1989, as well international conference – first held in 1979,
as the democratic regime that our country and, most important of all, a growing body of
has experienced since 1989). To reach its literature (Throsby, 1994).
goals, our paper will take into consideration From the perspective of cultural
specific facts regarding Romanian cultural economics, culture is perceived as a
and economic life during the two analyzed potentially profitable activity, constituted of
periods: legislative framework, financial a set of offers existing on the consumption
resources allotted to cultural life, inner issues market materialized through its products
of production and theatre audience. The (plays, films, books, paintings, sculptures,
study is primarily an exploratory one, songs a.s.o.) addressed to various types of
wishing to underline the influence of consumers (the public interested in cultural
economy upon cultural production and the life) that are influenced in their choices by
integration of culture as an important factor cultural policies, as well as by their
that shapes human and economic behavior. educational background, profession, social
position, mass media etc.
Key words: cultural economics, theatre The importance of such implications has
production, Romanian playwrighting, been long ignored within the Romanian
consumer society. society, more or less in a conscient manner.
Our paper attempts to establish the
1. Introduction influence of the economic system upon
theatre representation, while identifying the
A key element of what is called way financial resources are alloted for this
nowadays the post-autistic movement in cultural activity, the specific types of
economics, suiting the purpose of reopening products (plays represented on the stage)
economics for free scientific inquiry, is that are promoted by stage directors
represented by the recognition of culture. (sometimes deliberately, sometimes under
All economic and social activities are, the pressure of the political regime), as well
without doubt and necessarily, embedded in
297
as the general characteristics of the or discuss the reasons behind the choices.
interested consumers (the theatre public). Yet people often make choices that bear a
To accomplish our goal, we have made mixed relationship to their own preference.
referrence to the Romanian cultural market A large literature from behavioral economics
during two different political regimes: 1947- and psychology finds that people often make
1989 (the totalitarian period), respectively inconsistent choices, fail to learn from
1989 up to the present (the democratic experience, exhibit reluctance to take into
period). Moreover, we will also underline the consideration information.
paradigmatic transformation brought once A possible answer to this issue is
with the instauration of the sugested by Throsby who alleges that
overconsumption society. cultural value and economic value have a
positive relationship. Thus, even if we
2. Literature review recognize that economic value is not
sufficient to capture cultural value, the two
The official foundation of the cultural could be highly correlated, since both values
economics branch seems to lay on the study are “formed by a negotiated process akin to a
of Baumol and Bowen (1966). Through simple market exchange” (Throsby, 2001, p.
“Performing Arts: The Economic Dilemma” 281).
they did not only emphasize the role of the Meeting the above though, Streeten
arts sector in the economy, but they also (2006, chapter 13, „Culture and Economic
impose the important concept of the “cost Development”, in the Handbook of the
disease”. This consists of a wage increase in Economics of Art and Culture) claims an
jobs that have not experienced an increase of improvement in the general perception over
the labor productivity, which totally goes the cultural impact on economic
against what classical economics postulates. development, explained through a shift in
In the original study, the authors give the thinking from a goods-centered to a human-
example of a Beethoven string quartet. The centered view of the development process.
number of musician needed to play it has not This aspect is part of the larger and holistic
changed during time, and, by consequence, paradigm in which economic, social, cultural
the productivity of the perfomance has not and environmental systems are seen as
increased. At the other end, of course their interrelated. Having this in mind, we will
salaries have increased. outline in the following chapters the parallel
Next to the public or merit good evolutions of the economic and cultural,
characteristics attributed to art, this specific theatre-industry related factors in Romania.
cost structure represents one of the
aknowledged arguments of economists that 3. Act one: theatre under the
art does not operate well on the market communist regime
(Snowball, 2008).
However, in the last 40 years, a This chapter plays the role of a
substantial literature has developed in order consistent inquiry into the past in order to
to analyze the issues in the arts and culture better understand the impact of political
with the help of economic tools. According to regulation over culture and the patterns of
Blaug, demand and supply, industrial consumption and behavior induced to
organization, labor markets, firm behavior theatre audience by the communist system
(including the cost disease) and public between 1947 and 1989.
subsidies are among the most discussed and The forced inclusion of the Romanian
expanded topics in the area (Blaug, 2001). State in the Soviet sphere of influence
Klamer (2003, p. 3) argues that, “the brought significant changes in our society at
dominant economic paradigm seriously all levels: economic, political, social and
hampers discussion of values among cultural.
economists” because it is too focused on the For the left-wing ideology, the attempt to
idea of utility and rational choice theory. ”create” a new ideal man and society implied
Based on the concept of revelead a process of deleting and re-interpreting the
preferences, the classical approach is that spiritual and cultural heritage of our nation
consumption and production, which with a view to correspond to the Soviet
determine market price, are an effective way political directions.
of valuing a good without having to observe
298
After our country was trapped in because it clearly suggests the changed
Russia’s political sphere of influence, at the nature and primary function of the cultural
end of the Second World War, the creative goods. In othe words, political pressure
spirit that animated Romanian culture transformed plays from cultural products
during the capitalist inter-war period was into ideological instruments.
almost entirely anihilated. In fact, the 1950’s Centralized economy implied that the
represent the most serious decline in our state budget was the only financing source
cultural life, for art and literature were for any form of cultural activity and for the
emptied of their aesthetic value and performance of any creation act.
transformed into propaganda means. Consequently, the money necessary for
However, the ”obsessive decade”, as the distribution, salary payment, set purchasing
1950’s are often referred to, was followed by etc. was limited to the sum alloted by the
a period of ideological thaw starting with state for theatre performings. On the other
April 1964. After this year, Romanian hand, theatre faculties were also financed by
cultural life began to diversify its offer (e.g. the state budget which settled the problem
books and plays were no longer of the workplaces, too, by strictly imposing a
written/represented only for political fixed number of vacant seats for students in
reasons, but also for aesthetic purposes). In the area. Quantitatively reflecting the issue,
consequence, after April 1964 Romanian according to Mihai Vasiliu (Vasiliu, 1995), at
culture breathed a new atmosphere and it the end of 1989, in Romania there were 42
enjoyed a sense of partial revival and theatres and 23 puppet theatres.
freedom of expression. Nevertheless, Another important aspect to discuss is
beginning with 1971 (after Ceausescu’s visit the fact that, during the communist period,
to China), cultural production was again the stage director had the role to adapt the
severely constrained in order to correspond dramatic text in order to correspond with the
to the directions imposed by the communist criteria imposed by cenzorship. On the other
party. hand, some stage director tried to
Theatre did not remain outside political subversively transmit a political message
pressure. The legislative frame that (which otherwise would have been
regulated the organization and functioning impossible to be communicated to the
of cultural activity proved to be rigid, audience – see Lucian Pintilie’s and Liviu
restrictive and abusive, as Article 16 of the Ciulei’s innovative vision as stage directors).
Armistice Convention – concluded between In fact, the stage directors played a
the Romanian Governmen and the UN significant role in orienting the audience
governments on the 12th of September 1944 towards a certain type of discourse that was
– demonstrates: ”Printing, import and not only admissible (according to the
dissemination of periodicals and non- cenzorship criteria), but also entertaining
periodicals, as well as theatre and provoking (in the eyes of the audience).
representations and film broadcasting in The discourse promoted by stage directors
Romania (...) shall be approved by the Soviet was cleansed of vulgar speech, moral in its
High Command i ”. (Marian Popescu, 2004: message and it also implied a serious
81, our translation) concern for aesthetic value and quality.
Under the cenzorship surveillance, Actually, the high standard of
theatre – as in fact all cultural and artistic professionalism that characterized
life – was cleansed of any ideological model Romanian theatre life in the 60’s, 70’s and
that could have reminded of the bourgeoisie 80’s is nowadays widely recognized and
regime. In this context, the plays appreciated.
represented on the stage were no longer The relations established between
important for their aesthetic value or playwrights – cenzorship, stage directors –
innovative topic, but rather for their cenzorship, as well as between actors-stage
propagandistic echo: ”As an art exclusively directors – audience should not be regarded
dedicated to the masses, through its very in an isolated way, but rather as
artistic particularities, theatre regained – interdependent. In fact, the complicity
within the new social reality – the function created between stage director-actors and
of a moral school and a combative weapon.” ii the audience was a way of avoiding the
(Collective author, 1956: pag. 29, our gloomy and narrow reality characteristic of
translation). This is an important insight the totalitarian times. Thus, the double
299
discourse became prominent in stage morality and thinking principles, the same
representation, basically by means of an for everybody, in which overtones could be
allusive vocabulary and symbolism expressed only by subversive representation
(identifiable especially at visual and and writing techniques that were used by
typological level). both stage directors (besides Liviu Ciulei
As Clayton Hamilton pointed out, and Lucian Pintilie, we should mention
theatre could not be possible outside its Cătălina Buzoianu, Andrei Serban, Silviu
audience which decodes the artistic message Purcărete, Alexandru Tocilescu, Ion Cojar
transmitted by a play and it assesses its a.o.) and playwrights (Marin Sorescu, Teodor
cultural value. Thus, being one of the most Mazilu, Dumitru Solomon Ion Băiesu, D.R.
”popular” forms of art, dramatic discourse is Popescu a.o.).
inevitably obliged to adapt itself to its The liberty of the market and the liberty
audience’s preferences and tastes: “The of thought and expression, brought by the
drama is the only art, excepting oratory and 1989 revolution, have imposed a new
certain forms of music that is designed to paradigm for culture, through direct and
appeal to a crowd instead of to an individual. indirect triggers, discussed in the next
The lyric poet writes for himself, and for section.
such selected persons here and there
throughout the world as may be wisely 4. Act two: democracy enters the
sympathetic enough to understand his scene
musings. The essayist and the novelist write
for a reader sitting alone in his library /…/. Culturally speaking, the democratic
But it is different with a play. Since a drama regime set up in our country after December
is, in essence, a story devised to be presented 1989 meant regaining the freedom of speech
by actors on a stage before an audience, it and artistic creativity, while simultaneously
must necessarily be designed to appeal at implying a sense of discontinuity in cultural
once to a multitude of people. We have to be performances, which was partly determined
alone in order to appreciate the Venus of by the modification of the stage director
Melos or the Sistine Madonna or the Ode to canon (Popescu, T.C., 2009, p.5) – a direct
a Nightingale or the Egoist or the Religio consequence of Romania’s re-defining its
Medici; but who could sit alone in a wide new political, economic, social and cultural
theatre and see Cyrano de Bergerac reality.
performed? The sympathetic presence of a Romania’s free market economy has led
multitude of people would be as necessary to to a slow, but inevitable modification of
our appreciation of the play as solitude in all theatre management, products, market and
the other cases. And because the drama producer-consumer relation. Ten years after
must be written for a crowd, it must be the December 1989 events, the famous
fashioned differently from the other, and less theatre critic Marian Popescu noticed: ”After
popular, forms of art.” (Hamilton, 1910: 30- 1989, the younger generation was caught in
58). This close linkage to the public, thus a difficult transition: the theatre institutions
consumers, confers theatre a special place have not changed in their structures, while
upon the other arts. As we have underlined subsidies have been significantly reduced.
before, the shaping of the audience’s Pressures of the new market economy hit
tastes/preferences was possible in the former theatres in a hard way and creative space for
regime by means of a double role played by alternative theatre remains very limited.”
stage directors in relation to the cenzorship (Popescu, M., 2000, p. 13).
and to the spectators. The slow improvement of Romanian
To look at this in another way, we can theatre life can be partly explained by a
say that during the communist period we natural resistence to new – a situation
have experienced the promotion of a characteristic particularly for theatre, which
restrictive and context-imposed model of functions on a complex interdependent
culture. The market value, methaporically equation: author – stage director and actors
speaking, was centrally assessed and it was – audience. If we take into consideration
reflected through the established number of that the positions of author/stage
theatres, representations and workplaces in director/actor used to be thoroughly
this area. The inner value of the cultural controlled and cenzored in the previous
experience was also polished within a rigid political regime to such an extent that each
300
of the three positions was constrained to formulated against the present cultural
adopt specific strategies of survival for 42 legislation (the one regaring theatre, in
years, we can infer the high degree of particular) is constant and abundant in the
resistence to change that the former theatre studies made on theatre life, which bring
structures still manifest. On the other hand, into evidence more discontent than
at present there is a numeric preponderence satisfaction on the part of the artists and
of state theatres over private ones. theatre producers. Theatre employees
Nowadays in Romania there are 59 state (directors, actors and technicians), as well as
theatres (financed by the state budget, dramatic critics, repeatedly draw attention
having employees with an ensured on the wrong legal approach concerning the
permanent contract), of which 7 are national salaries calculation for work performed on
theatres. At the same time, we can remark the stage. (see Alice Georgescu, 2010;
an important number of private theatre Cristina Modreanu, Dorina Lazăr, 2007;
companies that have been set up in Dana G. Ionescu, Horatiu Mălăele, 2010).
important towns in our country (in Cultural policies have become a major
Bucharest: La Scena, Teatrul Luni de la concern not only for state institutions, but
Green Hours, Teatrul Act, Teatrul also for NGOs. In this respect, we should
Metropolis, Compania „Passe Partout Dan mention the constant effort of UNITER (The
Puric", Teatrul Incomod, Prometheus, Romanian Theatre Union – a professional,
Laptaria Enache, Union, Galeriile Sigma, apolitical, non-governmental and non-profit
Desant, Compania Teatrala D"Aya, organization, constituted by the free
Compania Teatrul Meu - condusa de Grigore association of theatre producers) to develop
Gonta, Compania Independenta Off-Off, Romanian theatre. This Union supports the
Compania Teatrala Civic Art si Cafe D"Eco, development of Romanian theatre and tries
Compania INOROG ART; in Piatra Neamt: to make national cultural patrimony known
Compania Draga Olteanu Matei, in Iasi: at international level by means of the
Teatrul de Buzunar Grumazescu, in Cluj: projects and activities it develops every year.
Teatrul Imposibil; in Târgu Mures: Teatrul These activities and projects include: the
Ariel and Teatrul ”74”; in Brasov: Teatrul UNITER Prizes Ceremony, The Artists’
Joint etc.). Private theatres represent a House Project (meant to enhance theatre
cultural alternative to state ones, yet pensioners’ living standard), The National
competition between the two could be Campaign Artists for Artists, The Young
described as not advantageous for the former Actor Ceremony, The National Theatre
category. Festival (with international participation),
In the state-private theatre equation, The Best Romanian Play of the Year, The
the former category appears as privileged – Unitext Publishing House, The E-Mobility
thanks to its direct access to the state Programme.
budget, the availability of theatre buildings The new free market economy has also
(which means that no money is necessary to made room for the creation of private
be spent for renting) and its large audience theatre faculties – that represent an
(in today’s Romania, people still tend to alternative (how efficient this is will be
regard cultural state institutions with more proven in time by their alumni) to the state
trust especially thanks to their long ones. Consequently, the number of theatre
tradition and richer repertory). On the other graduates is large and this represents a
hand, private theatres may depend on hired major cause for the small number of
public buildings/spaces for which they must workplaces existing on the labour market for
pay an important amount of their income. theatre graduates.
According to Miron Manega (Manega, 2008) As far as the theatre audience is
a third of the income obtained after one concerned, we can notice a reconfiguration of
stage representation must be paid by private its composition and preferences. Starting
theatres to the budgetary theatres in order with 1990 the abundant information
to cover rent expenses. available in our society has re-shaped the
In nowadays Romania, the legislative theatre audience in a serious way. This
frame regulating cultural activities is situation would have been impossible before
flexible – in the sense that it may be adapted 1989, when sources of information were
to corespond to the existing needs of cultural scarce and cenzored and there existed a
institutions and its employees. Yet, criticism single authorized theatre repertory. The
301
result of this process is that the theatre directed by Victor Ioan Frunză, Mihai
audience has split into various groups that Măniutiu, Alexandru Dabija, Cătălina
can hardly be identifiable as belonging to the Buzoianu, Dragos Galgotiu, Tompa Gábor,
category of theatre consumers only. This Sorin Militaru and Radu Afrim impress the
situation was also seriously generated by the audience through originality and
competition brought to stage performances professionalism. On the other hand, drama
by other cultural products (films, television writers have published plays that were
programmes and Internet databases) that performed in the country and abroad with
are very cheap and may be regarded by art more or less success, some of them forcing
consumers as alternatives to average priced the language limits to a serious extent,
theatre representations (average priced in provoking criticism and discontent on the
relation to the medium income in Romania, part of theatre consumers. In the new
which is about 150 EUROS; a theatre ticket generation of playwrights, Matei Visniec is
normally varies between 15 RON and 35 the most appreciated and known author
RON, that is, approximately, between 4 and thanks to his prolific and valuable texts (of
9 EUROS). For a more comprehensive which we mention: Tara lui Gufy, piesa de
image, we can advance also some data teatru, Bucuresti, 1992; Angajare de clown,
regarding the average of 8.3% as piesa de teatru, Bucuresti, 1993; Si cu
consumption expenditures on recreation and violoncelul ce facem?, Frankfurt, 1994;
culture, of the total household consumption Buzunarul cu paine, piesa de teatru, Lyon,
expenditure, at the European Union level. In 1994; Trei nopti cu Madox, Belgia, 1995;
2005 our country ranked last but one, with a Povestea ursilor panda auzita de la un
half percentage of the EU average saxofonist care avea o iubita la Frankfurt,
(Consumers in Europe, p 310) piesa de teatru, Lyon, 1995; Teatru
In the former regime, theatre was descompus sau Omul-lada-de-gunoi, Paris,
regarded as a form of refuge from an 1995; Caii la fereastră, piesa de teatru,
unbearable reality and it was the most direct Paris, 1996; Paparazzi sau cronica unui
way to address to the public (thanks to the apus de soare avortat, Paris, 1996; Ultimul
communicative function of theatre). In fact, Godot, Lyon, 1996). Besides Matei Visniec,
before 1989 culture, in general, was Dumitru Solomon (Repetabila scenă a
perceived as a form of resistence (Theodor balconului – 1996, Zăpezile de altădată –
Cristian Popescu, 2009: pag. 16) to political 2003, Arma secretă a lui Arhimede – 2003
ideology, hence the privileged place that etc.), Alina Nelega (Amalia respiră adânc –
theatre artists enjoyed during the 2005, Decalogul după Hess – 2006), Vlad
totalitarian period. Nowadays, many famous Zografi (Isabela, dragostea mea – 1996,
actors are forgotten or manage to survive on Oedip la Delphi – 1997, Regele si cadavrul –
a very small income (the monthly pension). 1998, Viitorul e maculatură – 1999, Petru
As Cristina Modreanu points out in an sau petele din soare – 2007), Saviana
article in Ziarul Financiar (Cristina Stanescu (Apocalipsa gonflabilă – 2000,
Modreanu, 2010), the initiative of local Waxing West – 2007 etc.), Stefan Caraman
councils has proven generous as to the (Colonia îngerilor – 2007, Aeroport – 2008
building of new theatres – a result of the etc.), Geanina Carbunariu (Stop the Tempo –
good use of the local money and 2004, mady-baby.edu – 2005 etc.), Andreea
consequently of the decentralization process Vălean (Eu când vreau să fluier, fluier –
applied in public administration. The 1997, Ultimul joc de Taroc – 2004 etc.) and
renowned theatre critic makes reference to a others have created original and aesthtically
theatre-studio built in Cluj by the Magyar valuable plays.
Theatre (in December 2009) and a theatre
built in Timisoara – known as Sala 2 5. Act three: what has the
(finished at the beginning of 2010), which consumer society to say about
benefits of a mobile stage. New buildings are theatre?
under construction in Râmnicu Vâlcea and
Sf. Gheorghe. In order to better understand nowadays
In the new political and economic the approach to the theatre industry, we
context, most of the Romanian stage have to consider innerent the question posed
directors and playwrights have come up in this section’s title. To answer it, let us
with an innovative artistic vision. The plays
302
start with the core philosophy of our motivation to realistically appraise

contemporary society: to be or to have? alternative courses of action” (Janis, 1972,
The modern individual doesn’t know any p.9). The groups and individuals presented
other way to live than by possesion and by as successfull are mostly part of the same
consumption. To believe you can retain the category of parvenus, and the fact media
real through an image, to fill in a content acclaims them to be a good example to
through a simple cover, to posses things admire and to follow, is the equivalent of the
through signs and signs through things, this accomplices from the Asch line experiment
is the common description of the (Asch, 1955) that induces a conform answer
consumption society, in total opposition with with the imposed social norms.
a contemplation society. (Brune, 2003). In this respect, lifestyle, the choice of
The type of culture that is permeated by products and the desire for certain goods, is
consumerism is often referred to as a understood not only as a simple function of
consumer or a market culture, including the high or low income but considered to be
norms and values of the consumer society. generated from the habitus, the way that the
The cornerstone of this culture is perception of the social world is structured.
represented by the symbolic aspect of goods This leads us to the conclusion that social
and services. In other words, we consume distinction can be acquired as the result of
goods not primarily for their use-values but socialization into a way of life, the ‘habitus’.
for their sign-value. This pursuit of distinction is a “pure,
Going back to the classical forms of pointless expenditure” says Bourdieu (1984),
culture, and especially theatre, let us which shores up cultural capital, enhancing
envisage how the framework of market social status and prestige, but taking time
culture affects them. and taste, discernment.
As different studies show it, the This approach seems to confirm the
theatregoing experience is a complex one, far ideea that consumerism promotes different
from a simple measurement of innate tastes, manners of acquring distinction, than those
which implies long learning periods (Levy- implied by theatre. A quantitative
Garboua & Montmarquette, 1996). But illustration offered by the Eurostat report,
nowadays society doesn’t have anymore the ”Consumers in Europe”, states that many
patience of fostering long learning periods recreational and cultural goods cannot be
and thus the tendency of people to abandon considered as essential consumer goods, but
cultural practices, like theatregoing, for the rather as luxury purchases (holidays,
fast identification with their consumption cultural services, recreational and sporting
objects: luxury automobiles, designer services): „it is perhaps unsurprising,
clothing, or expensive jewelry. The consumer therefore, that a steadily increasing
society has developed a breathless proportion of household consumption
relationship with time, totally rejecting the expenditure was spent on recreation and
importance of reflection and proposing a life cultural activities as household income rose”
in the accelerated culture of our own (Consumers in Europe, p 311).
creation (see Carl Honore, 2008, for a witty
critique of the cult of speed). 6. Conclusions
Another core issue to discuss at this
point is emulation and the general trend of A first conclusion that can be drawn is
consumers to emulate those who are above that Romanian theatre is facing a series of
them in the social hierarchy. Unfortunately, difficulties from which it was protected
this constitutes into another argument before 1989. We should not deduce from this
against theatregoing, because the statement that the totalitarian regime was
contemporary celebirty icons of the the key to solve the existing theatre
Romanian society, and not only, are largely problems. On the contrary, we appreciate
engaged to the market culture. It is worth that out of the present controversies and
mentioning also the power of conformity and discontents that are generated by the
groupthinking, as asserted by social inclusion of culture in the free market
psychology: „A mode of thinking that people economy, Romanian theatre will find its way
engage in when they are deeply involved in a and depart from what the famous theatre
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strivings for unanimity override their Romanian theatre model”, a phrase referring
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305

MODELING ONLINE CONSUMER BEHAVIOR THROUGH ONLINE

SHOPPING EXPERIENCE: THEORETICAL ISSUES
ICONARU Claudia;
PhD Attendant
The Bucharest Academy of Economic Studies
iconaru.claudia@gmail.com
MACOVEI Octav-Ionut;
PhD Attendant
The Bucharest Academy of Economic Studies
octavmaco@gmail.com
Abstract Research forecast indicates that U.S. online

The aim of this paper is to provide a sales will continue to increase with a 10%
literature review of the concept of “web annual growth rate through 2014. (Forrester
experience”, also known as “online shopping Research, 2009). According to the same
experience”, through the analysis of scientific source, Western Europe online retail sales
literature findings over the last decade. The are expected to increase 1% faster than U.S.
objective of this paper is twofold: first it online retail sales, which means a 11%
intends to provide a clear understanding of annual growth rate, reaching $156 billion
current state of literature regarding the web through 2014. Although online retail sales
experience and its implications in influencing grow at a steady rate, more and more
online consumer behavior and second it is consumers have made at least one online
supposed to set the grounds for further purchase. A Global Nielson Consumer
theoretical and empirical research that could Report reveals the fact that a global average
incorporate the web experience into online of 86% of the interviewed people has at least
consumer models. The paper will manage to one purchased over the internet and 55%
meet its objectives by highlighting the most made a purchase less than one month ago.
important controllable factors by the online Analyzing these statistics, one could assume
vendors which can affect online consumer that besides the fact of experiencing at least
behavior. once a purchase over the internet, the
frequency of online shopping is still low.
Key words: online consumer behavior, web Through this paper we will focus on a better
experience, website functionality, website understanding of online consumer behavior
content, online trust towards online shopping acceptance and
continuance. We will analyze only those
1. Introduction factors influencing online consumer behavior
that can be controlled by the vendor in terms
On December 31st 2009 there were 1.8 billion of delivering a quality web experience to
Internet users and a world internet customers. Delivering a quality web
penetration of 26.6% (Internet World Stats). experience is highly associated with the
As the internet penetration rate increases, vendor’s competitive advantages.
so does the online retail sales. The U.S. Researchers suggest that increased online
Census Bureau of the Department of retail sales are due partially to superior
Commerce announced $32.4 billion online online shopping experience offered by e-
retail sales for the second quarter of 2009, commerce firms (Kotha et al. 2004, p. 109-
indicating an increase of 2.2% from the first 110). Due to its huge implication in
quarter. Moreover, online retail sales generating online sales, all vendors should
continue to grow steadily: a recent Forrester
306
try to ensure optimal online shopping environment characteristics can be grouped

experience for their customers. into social variables, cultural or community
The vendor can exercise control upon many variables and other environmental variables
factors such as website’s features: such us available information, legal
functionality (usability and interactivity), restraints or situational factors. (Turban et
content (aesthetics and marketing mix) and al. 2008, p.172).
online trust. Each of these factors will be Besides those factors that cannot be
addressed in an attempt to offer a controlled by vendors, there are controllable
comprehensive review of the literature and factors towards each marketing practitioners
to set grounds for further research. Both can exercise control. Marketers can influence
researchers and practitioners agree that the the online buying decision process by
quality of online shopping experience affects offering a proper online shopping experience,
the online consumer behavior, as shall be which is a combination of elements going
discussed in the next section, literature beyond the traditional marketing mix
review. (Constantinides, 2004, p.112). The online
shopping experience or the web experience
2. Literature review was most concentrated upon functionality
and aesthetics specifications of an online
Online consumer behavior has been an store (Chang et al. 2005, p. 549). As we shall
interdisciplinary subject of intense research discuss in this article, there are several
during the last decade. The first studies other components of online shopping
attempting to explain online consumer experience: trust building and marketing
behavior were published in the late 90s (Li, mix.
2002, p. 509). Research papers on online
consumer behavior are to be found in a 3. Main components of online shopping
variety of journals and conference experience
proceedings, covering the fields of
information systems, marketing science and Literature review shows a high interest in
related disciplines (Constantinides, 2004, studying the factors which influence the
p.113). Although significance progress has online consumer behavior, especially those
been made towards an integrated model of factors upon which control can be exercised
online consumer behavior, academic by the vendor. The controllable factors can
literature is still fragmented, most studies be manipulated in order to offer an
focusing on a single variable or group of extraordinary online shopping experience
variables that influence online consumer and gain a competitive advantage on the
behavior. Among the first attempts toward a internet (Novak et al. 2000, p. 23).
unifying framework that captures all the Regarding the attempt of grouping the
important factors explaining online controllable factors influencing the consumer
consumer behavior was the study of Cheung behavior that forms the online shopping
et al. Through a literature review, the experience, researchers have reached a
authors found five main groups of factors consensus. Therefore, online shopping
influencing online consumer behavior, as experience is formed by five main building
follows: online consumer characteristics, blocks and their related sub-categories:
environmental influences, product or service functionality with usability and interactivity
characteristics, medium characteristics and subcategories, trust building, aesthetics and
online vendor/intermediary characteristics marketing mix (Lorenzo, 2009). Each
(Cheung et al, 2003, p. 200). These groups of component will be discussed further in this
factors can be further classified as paper.
uncontrollable factors – online consumer
characteristics and environmental 4. Online store functionality
characteristics and controllable factors –
product or service characteristics, medium Online store functionality includes a set of
characteristics and vendor/intermediary functional features and functions in order to
characteristics (Constantinides, 2004, p.112). meet the users’ needs.
Online consumer characteristics refer to The online store functionality can affect
demographic factors, internal individual consumers’ perceived credibility of the
factors and behavioral characteristics while website. According to the Web Credibility
307
Project Research of Stanford University, content through the amount of information,

good impressions of website’s functionality variety of information, word count and
factors results in increasing credibility content quality were identified as some of
towards the online vendor or owner of the the key metrics influencing the success of
website (Fogg et al. 2002, p.46) websites (Palmer, 2002, p. 163).
The most important features of online store Website usability can be evaluated using an
functionality factors are: the website HTTP proxy for tracking the pages visited by
usability and interactivity (Constantinides, users, mouse tracking using client-side
2004, p.114). scripting and even eye movement tracking
4.1 Usability: Website usability or web (Atterer, 2006). Evaluating the website
usability have been defined as the ease by usability can provide practitioners with a set
which a website can be used in terms of of principles and common practices for
search and navigation (Abel, 2003). designing efficient online stores.
- Search: Jakob Nielsen, also entitled 4.2 Interactivity: The website interactivity
“the guru of web page usability” claims that is another key factor contributing to overall
search is one of the most important user online shopping experience. Website
interface elements of any large website (User interactivity has two forms: interactivity
Information Technology, useit.com). with the online vendor (customer service,
According to his studies, the primary task of interaction with the vendor’s personnel and
users when visiting a website is to use the website customization) and interactivity
search button in order to retrieve among website users (Constantinides, 2004,
information. Fewer are those users that p.118).
follow the links until finding the eligible Customization (the ability to customize the
information. According to a Stanford website’s look, feel and content) and
University Study, the biggest complaint of responsiveness (feedback and response
the interviewed people was the poor search features) influence the success of websites
facility. (Fogg et al. 2002, p.47) (Palmer, 2002, p. 155). If websites success
- Navigation: Along with the primacy was to be measured by website popularity,
of search, website usability requires a good then playfulness and reciprocal
navigation structure which can facilitate communication would be other salient
user’s movement through the information factors contributing to online shopping
architecture. Navigability represents the experience (Chen, 2004).
sequencing of pages, well organized layout
and consistency of navigation protocols 5. Online trust
(Palmer, 2002, p. 156).
A study of Jupiter Research (2006) The construct of online trust has been
addressing the retail website performance considerably studied due to its complexity
confirmed past academic research, ease of and its multi-dimensional character (Urban
navigation and website search facilities as et al. 2009, p. 180). Online trust is another
being key factors that influence online building block influencing online consumer
consumer buying decision. The most behavior, associated by researchers with the
important key factor revealed by the study long-term success or failure of online
was the ease of navigation, being indicated vendors. Online trust is a broad concept,
by sixty-five percent of the interviewed referring to trust in the online environment
online consumers. (Johnston, 2004, p. 221). The trust in online
- Other usability factors: There are environment means the consumers’ trust in
however other components of web usability, the website and the internet, as a
such as: convenience (associated with easy technology.
and fast internet browsing), accessibility Online trust and TAM: Considering the
(associated with high SERP – search engine website an information technology,
results page), website speed of loading and researchers applied TAM (Technology
information architecture (Constantinides, Acceptance Model) in order to verify the
2004, p.118). positive relation between a consumer’s trust
Navigability through arrangement, using an online store and his /her attitude
sequence, links, layout, website speed and intention toward using the online store.
through initial access speed and speed of It resulted that online shopping experience
display between website’s pages, website depends not only on the operational
308
characteristics of websites, but also to a pleasure experienced by user, in strong

greater degree on consumer trust towards correlation with the perceived website’s
websites (Tang, 2005, p. 7). Therefore, the usability (Lavie et al. 2003, pp. 276-277).
website is viewed as a standpoint of building Aesthetic factors were classified as:
consumer trust (Bart et al. 2004, p. 4). - “classical aesthetics” (orderly and
A more recent study of Urban et al. clear design, strongly related to usability)
highlights the advances in online trust - “expressive aesthetics” (creative and
research, providing a general framework of innovative design that breaks conventions)
online trust: as stated previously, the (Lavie et al. 2003).
website affects online trust which in turn Recent studies are concerned with
influences the online shopping experience. developing new web metrics for predicting
Online customers learn from positive past positive aesthetic impression and user
online shopping experience and build trust preference of websites design: objective
towards the website. Never the less, they factors (symmetry, order, complexity) and
spread e-wom (word-of-mouth) to other subjective factors (familiarity, novelty)
consumers through social networks (Urban (Papachristos, 2009, pp.119-122)
et al. 2009, pp. 180-181).
Urban et al. study reinforced past researches 7. Marketing mix
that considered online trust a mediating
variable between site characteristics and The online marketing mix influences directly
online sales. the online shopping experience through:
Website’s characteristics can influence: product, price, promotion, website’s
- the perceived financial risk (the fear characteristics and last, but not least,
of incurring financial losses) fulfillment. (Constantinides, 2004, pp. 114-
- information risk (the fear of personal 115). In addition to traditional 4P’s of the
information being exposed or misused) marketing mix, Constantinides identified
(Constantinides, 2004, p.118-119). Therefore, another element: fulfillment which is formed
the website privacy and security elements by: fast and flexible delivery, order tracking.
are the most important drivers of online
trust. Bagdoniene et al. confirmed past 8. Online shopping experience and the
studies, underlying that the biggest barrier theory of flow
to shop online is still the perceived risk of
security of their private information and The theory of flow was often referenced
disconfirmed past studies emphasizing that when studying online shopping experience.
payment system security is no longer a First introduced by M. Csikszentmihalyi, the
threat among online consumers (Bagdoniene flow is a state of mind experienced by
et al. 2009, p.373) individuals fully involved in an enjoyable
Recent studies brought evidence of the activity (Pace, 2003, p. 327). The main
existence of other elements that influence constructs directly affecting the flow
online trust: corporate reputation (Lu, 2009, experience are: web skills, control during
p.420) and website design (Urban et al. web interaction, challenge and arousal,
2009, pp. 181-182), the later emphasizing telepresence and time distortion (Novak et
that online consumer is more than privacy al. 2000, p. 25). While users' web skills
and security. cannot be influenced by the vendor, the
control variable perceived by the users,
6. Online store aesthetics which refers to web user’s ability to navigate
through the website and the website’s
Lavie et al. provide considerable insights to response to his inputs, can be improved.
understanding the role and evolution of Telepresence, which refers to the online
“aesthetics” in human-computer interaction: environment’s ability to appear more real or
until the beginning of the new century and dominant than the physical environment,
short after, website design was mainly can also be manipulated by online vendors.
focused on usability. After that, an increased The importance of users experiencing flow
awareness of aesthetics is manifested when buying from online stores is crucial for
through academic research and practice. a proper online shopping experience. In his
More and more studies suggested that study, Pace identifies some of the
aesthetics is a strong factor influencing the distractions that can terminate the web flow
309
experience: poor website design interface

and design elements such as inappropriate 10. Conclusions and implications
colors or cluttered page layout, lengthy
response time, disorganized content, This article examined different groups of
inconsistent navigation cues or pop-up factors affecting the overall online consumer
advertisements (Pace, 2003, p. 351). All the shopping experience and their importance
building blocks of the web experience and for influencing online consumer behavior.
their sub-categories should engage users in The classification of factors into five main
experiencing flow. building blocks was first introduced by
There is another element capable of Constantinides after conducting a literature
delivering experiential value to websites’ review of academic papers prior to 2004.
users, the play. Researchers showed that Fewer were the attempts to integrate all the
play is a crucial variable linking the flow controllable factors affecting the online
theory to online consumers’ attitude consumer behavior, rather most of the
formation. Attitudes towards the online academic papers focused on single
vendor may appear enhanced when subcategories or categories of factors that
consumers experience an engaging, Constantinides indentified. Taking into
enjoyable online experience (Mathwick, account recent academic papers related to
2004, pp.325 and 330). Following the same controllable factors that affect the online
path, Lit et al discusses a broader term than consumer behavior, we intended to bring a
flow which affect web experience: enjoyment. clear perspective on the current state of
Enjoyment has three dimensions: literature, rather fragmented than unified.
engagement in an activity (strong related to Further research should take into
focus), a positive affect (strong related to consideration other controllable factors
feelings of pleasure, happiness) and influencing the online consumer, such as
fulfillment of some need or desire (Lin et al. flow and related constructs.
2008, p.43). According to the same source, Furthermore, a framework of online
website’s engagement, sensation and shopping experience could be developed and
reaction has a positive and direct effect on applied to an integrated model of online
web usage. consumer behavior.
9. Final consideration on online

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311

THE DECENTRALIZATION DYNAMIC: HOW TO ENSURE GOOD

GOVERNANCE AT LOCAL LEVEL?
Cristi Iftene, PhD, Researcher
Abstract of citizens and the state for the institutions

Good governance and good public that govern them. The six measured indicators
administration are essential aspects of are: (a) voice and accountability; (b) political
democracy. The ability to distribute society’s stability and lack of violence; (c) government
resources, curb the abuse of power and effectiveness; (d) regulatory quality; (e) rule of
corruption and guarantee equality of all law; and (f) control of corruption. We can
persons before the law is fundamental to a remind here also the instruments enounced by
well-functioning society. Professor Xavier that we already have spoken.
The starting point of this research has been the
hypothesis that our new commitment to The decentralization process
“governance” norms is interlocked with the Decentralization and the development of
emergence of a new model (or new models) of democratic local governance continue quietly
legitimate political action and state regulation. to sweep the world. A wide variety of countries
are increasing the authority of local
governments and working to make them more
One of the stimulating challenges of recent responsive and effective. The prime
political history is the embodiment in motivations behind these reforms vary. Some
supranational institutions such as those of the countries are emerging from dictatorships
EU of a general concept of (good) “governance”. seeking to disperse power among smaller
This concept, however, raises a number of governmental units. Others are reducing the
questions related to its legitimacy. On the one size of the central government as part of a
hand, classical democratic ideals commit us to transition to a more efficient market economy.
the respect of popular voice, no matter the Many others seek to increase public
direction it takes, provided it is compatible involvement and accountability in government
with broadly defined human rights. On the decision-making. Where one country is
other hand, abuses of political power as well responding to donor pressures for popular
as common economic and technological reform, another is hoping that the poor
challenges leave one with a feeling of urgent performance of the national government can
need for international or supranational be overcome by allowing local governments to
organization, or at least coordinated network provide fundamentally local public services.
actions. 1 Since, in most cases, decentralized systems of
government have three different levels of
Good governance measurement government (a national level, a regional level,
indicators and a local level), in general, decentralization
The quality of governance is divided into six implies devolution of power (which may
categories aimed at capturing how include the transfer of resources,
governments are selected, monitored, and responsibilities for public services, or decision-
replaced; a government’s capacity to formulate making authority) away from the central
and implement sound policies; and the respect government to political and administrative
jurisdictions below the center. For some, this
1 means the transfer of authority and
See conclusions of the conference held at Merton
College, Oxford University, 11’th March 2006 responsibility for public activity from the
312
central government to “sub-national,” or the may deteriorate where financial and

provincial- or state-level governments. To administrative capacity is weak.
others, it is devolution to district, municipal, Democracy and Governance in particular is
and other local government-including the explicitly concerned with decentralization as a
lowest possible rung of local government. To political process and with its impact on a
still others, it is devolution to quasi- nation’s democratic development.
independent organizations, and to ancillary As countries decentralize and call on their
local community-based self-governing local governments to respond to their
organizations and NGOs. communities and to more effectively deliver
Even where democratic development is not a services, we can wonder: How can we improve
central consideration, in those countries where the democratic system through
genuine reform has occurred, there are decentralization reforms?
openings for continued democratic change. Decentralization gives the local governance
Decentralization promotes democracy in system the opportunity to become increasingly
myriad ways according to Western liberal democratic. It helps position local officials to
tradition. By bringing government closer to work for the benefit of the community at-large.
citizens, decentralization allows people to Evidently without decentralization, the
participate more effectively in local affairs, development of democratic local governance is
including identification of community much more difficult.2
priorities. Local leaders can be held As decentralization opens avenues for the
increasingly accountable for decisions that development of democratic local governance,
affect citizen’s lives. Citizens and their elected local governments gain the authority,
leaders gain experience in the practice of resources, and skills; make responsive choices
democracy. with citizen input; and operate effectively and
Decentralization signifies the dispersion of accountably.
central government power, increased
opportunities for responsive leaders or Elements of good governance at local
previously marginalized groups to enter level
politics, and increased attention to local Parting from the below two reports we will
concerns. With decentralization, local develop the elements of good governance at
decisions can be tailored to local needs, local level.
allowing scarce resources to be generated and In its report, Governance for Sustainable
expended with greater efficiency and public Human Development, the UNDP
services to be provided more effectively. Taken acknowledges the following as core
together, as local government performance characteristics of good governance.
improves, these changes can enhance the 1) Participation
legitimacy of the democratic system. 2) Rule of law
Decentralization is by no means always a 3) Transparency
positive experience. The process carries a 4) Responsiveness
number of potential disadvantages as well. It 5) Consensus orientation
can produce territorial inequality as wealthy 6) Equity
localities take advantage of their new 7) Effectiveness and efficiency
autonomy to push further ahead of low-income 8) Accountability
areas. 9) Strategic vision
Increased local authority may in some Accordingly, the key dimensions of governance
communities allow elites to dominate local identified by the World Bank were:
politics. Decentralization can threaten 1) Public sector management,
territorial integrity if it gives rise to separatist
demands and, especially when financial
oversight of local officials is weak, it can lead 2
Descentralization and democratic local governance
to increased corruption. Local service delivery programming handbook, Centre for democracy and
governance, Technical publication series, Washington
DC, May, 2000
313
2) Accountability, The following points are common in

3) Legal framework for development, and strengthening local government
4) Transparency and information. responsiveness, accountability, and
effectiveness.
Local democracy
Local democracy has been mainly perceived as Creation of opportunities for citizens to
an administrative issue defined in the narrow interact and to express point of views
framework of administrative and financial and priorities for local services
autonomy and simplified in a general Service is at the heart of local government
dichotomy with the central government3. performance and, if it meets the expectations
In the European political science literature of citizens, builds a sense of ownership that
problems of democracy and democratization underlies democratic governance. Establishing
have been one of the most popular research open processes for gathering citizen input on
issues but local democracy remained quite service priorities, standards, fees, and
neglected. The notion of “local democracy” satisfaction gives citizens the opportunity to
appeared mainly as an item of political voice their views and take responsibility as
discourses and propagandas except for a few active participants in the progress of their
works in which it generally indicated an community. In addition, it provides the local
enhanced autonomy for local governments. government with data from those who finance
Subjected to a strong administrative tutelage and rely on the services for informed decision-
as well as very limited economic resources and making4. Such interaction is essential to
expected just to provide basic public services, democratic local governance. In many
local governments are believed to suffer developing world societies, citizen’s
significantly from the centralist state involvement and the public official’s
tradition. expectation of community involvement is
In such an administrative tradition, local traditionally weak or nonexistent, often
democracy has been naturally perceived in characterized by passivity or intimidation. The
direct reference to the central government and objective is to get local officials to seek out and
thus corresponded roughly to the eventually expect public participation. The
administrative and financial autonomy of local locality needs to become involved, expect
governments, particularly that of results from its elected leaders, and develop a
municipalities. Trapped on such a narrow collective sense of community. Over time,
stage, the enhancement of local democracy through continual learning-by-doing,
was reduced to an isolated power struggle democratic governance can develop.
between the central and local players in which Access to public information
citizens have no significant role to play. Information dissemination is the currency of
local government-community relations.5 Local
Challenges of local democracy
There are challenges to be met before political 4
and social democracy can be achieved in local
http://apply07.grants.gov/apply/opportunities/instructi
government.
ons/oppRFA-511-08-015-instructions.DOC
The development of democratic local 5
Decision 1702/2001/GG of the European
governance requires increasingly responsive, Ombudsman, states that good administrative practice
accountable, participatory, and effective local or the principle of good administration demands that
government. That is, it calls for improved local applications be examined in the light of the
government-citizen interaction, the requirements to which they are subjected by the rules
strengthening of media reporting on local in force; likewise, applicants must be kept informed
government and community affairs, and about the decisions the administration adopts in their
building an active, more pluralistic civil regard, all the more so if such information is
society. requested by applicants; dealing with applications
within a reasonable time is also part of these same
principles, as is the right to be heard before an
3
http://ejts.revues.org/index1103.html adverse decision is taken.
314
policies, laws, and traditions that govern Create the support for participatory
public records, meetings, and citizens access procedures allowing citizen input on
rights can be reformed without enabling decisions regarding resource allocation
national legislation. Local officials can take and planning
the lead in this area by setting standards, Access to information is important because it
instituting policies, training staff to allows citizens to keep a watchful eye on
implement them, and informing the public of government behavior. Perhaps even more
their new rights and how to exercise them. significantly, it permits citizens to learn about
Many local governments in developing government plans or actions that may be
democracies have demonstrated their capacity critical to their interests. Therefore,
to develop standing information mechanisms governments need to improve the quantity,
city hall press centers, citizen information and quality and timeliness of the information that
service centers, annual budget summary they make available to citizens and civil
publications, and, increasingly, web site society organizations. In particular
applications. information about budgets, financial reports,
Strengthening communication and bills, laws, and tenders for contracts,
information mechanisms at the local level can recruitment opportunities and government
be less onerous than tackling access issues services must be available to the public7.
through national-level legislation. Local The development and use of procedures for
practices developed in targeted jurisdictions citizen’s input on major local government
can be scaled up and widely disseminated decisions: the annual budget, land use, and
through local government or professional construction build trust between local officials
associations, civil society organizations, and and citizens. This also helps improve decision-
news media unions. making reduce opportunities for corruption,
Widespread local adoption of these practices and build consensus on critical community
may reinforce or catalyze national-level issues. The budget process, for example, is a
efforts. practical entry point that provides an
Developing responsive and accountable local opportunity to introduce or reinforce existing
government requires an informed public. Local participation mechanisms, such as
officials must inform the community about neighborhood meetings, focus groups, and
local affairs and about their efforts to address public hearings, partnership with different
citizens concerns6. Citizens, in turn, must have specialized NGOs and the news media to
access to information to be able to act on their inform citizens on budget issues and
interests. In many developing countries, in opportunities to get involved. Demonstrate to
large part because the media are poorly local government officials how participation
developed or are dominated by particular can elicit useful information that helps them
groups of interests, transparency is extremely make tough budget decisions approaching
weak. Neither local government officials nor participation at the local level is less
their constituents fully appreciate the value of cumbersome and likely to be more effective
information to local affairs. The promotion of than at the national level. People are more
active, independent media to cover local affairs likely to participate if the issues involved, as is
can help address the lack of transparency. usually the case locally, affect their daily lives.
Participatory processes as well can be tested
in a limited number of target jurisdictions and
encouraged to spread to a larger area.
7
Decision 331/2002/(SM)GG, also states the
principle of good administrative behaviour likewise
6
Decision 1767/2001/GG concludes that it is good requires that decisions be taken within a reasonable
administrative practice to reply to citizens letters time; Decision 914/2002/ADB holds that the same
within a reasonable time, and that failure to do so principle (as above) requires letters to be answered
constitutes an instance of maladministration and decisions taken within a reasonable time
315
The existence of an active, pluralistic civil citizens; improving the effectiveness and
society is believed to be closely related to the openness of local governments; and increasing
successful emergence of democratic practice. A community involvement in local government
healthy civil society can help shape and focus decision-making and service delivery.
the energies of concerned citizens and ensure
public accountability to the community. In Create more effective and democratic
many developing countries, however, civil internal management systems
society is weak, and characterized by Improvement in internal management
clientelism and a predominance of systems is a requirement of an effective and
individualistic interests. autonomous legislature and a demonstration
that it has the capacity to manage its own
Building local government’s capacity to business.
work effectively with the news media Such systems require enabling regulations
The news media can serve as both a and procedures which allow the legislature to
government watchdog and a partner in operate effectively and democratically.
sharing clear, accurate, useful, and timely “Effective management” depends on
information about government services, administrative and secretarial support, and
issues, decisions, and opportunities for citizens might be reflected in agendas being published
to participate in decision-making. The media and salaries paid on time; and library and
and local government in new and emerging reference services, and electronic and other
democracies have a strong basis for information systems being available and used,
partnership: They are simultaneously as demonstrated by better informed debate
developing the skills they need to function and legislative initiatives. “Democratic
effectively in their new environment. The management” requires that all parties,
government has information the media want majority and opposition, and where relevant,
and need. gender or community (minority ethnic or
language or religious group) representatives
Encourage minorities groups to receive equivalent resources and support.
participate in local government Efficient and democratic internal management
Decentralization may open opportunities for of the legislature is an essential precondition
these groups and their leaders to participate to representation of the public, competent
in local affairs for the first time. Training and policy analysis and formulation, and to serving
other assistance can help bring them into as an effective political counter-balance to the
public life, and can be an important first step executive branch.8
to a larger programming effort.
We can find also other challenges of the local
Increasing Government responsiveness democracy in his road to ensure good
to citizens at the local level governance like:
Decentralization of government authority and 1. Promoting partnerships among local
responsibility can increase the competence and governments, civil society
responsiveness of public agencies by reducing organizations, the private sector, and
the burden on those at the center and allowing other groups
those most affected by an issue to make 2. Strengthening the local government’s
decisions about it. It enables citizens who are role in Policymaking
most directly concerned to influence decision- 3. Expansion of local revenue-generating
making by putting the source of the decision authority
closer to them. The main focus of many
programs to support democratic
decentralization is on encouraging the
devolution of authority to elected local
governments that are directly accountable and 8
Handbook of democracy and governance program
therefore primarily responsible to local indicators, Center for Democracy and Governance,
august 1998
316
4. Creation of a national training and resources to match its new functions. This is
policy/program analytical capacity for occurring through increased (or less
local officials conditioned) inter-governmental transfers
and/or according local government’s new local
Conclusions revenue-raising authority. Central
To be successful at promoting the development government officials also demonstrate
of democratic local governance, we must first increased concern for the development of
think hard about what effective locally generated revenue, for preventing
decentralization and good local governance inefficient or corrupt use of new local
might look like9. What characteristics do we resources, and for finding alternative means,
want to see in a developing system? What is such as credit markets, for local governments
the ideal? Of course, major changes do not to secure financing. Where local governance is
occur overnight, and each country context is democratizing, local governments are
somewhat distinct. Moreover, generalizing increasingly responsive to and interactive with
across all the countries of the world and across the community. They are more participatory,
their varied political histories and cultures is transparent, and accountable to local
by no means an exact process. The following residents. Services are increasingly provided
should not, therefore, be viewed as a single in response to citizen demand and priorities.
goal for all countries to reach. Indeed, each
country will move forward on its own terms.
We present the main characteristics of
effective decentralization, democratic local
governance, and effective local government
capacity. In an ideal scenario, the national
government has shifted a significant measure
of new authority to the local level. The
government has clearly demonstrated the
political will to decentralize. Reforms to the
constitution or legal code have been enacted.
These reforms, moreover, are being
implemented in accordance with the law or at
least in a gradual but steady fashion in
response to the new legal mandates or
regulations.
In the administrative area, under the ideal
scenario the central government is granting
local government clearly defined
responsibilities that significantly concern
communities and generate public interest in
local affairs. Local governments are being
accorded functions of fundamentally local
scope. Local governments are doing more than
merely cleaning streets; they are taking on a
variety of non-traditional service
responsibilities, such as assuring primary
health care, basic education, public security,
public utilities, environmental protection, and
building regulation. In the financial realm, the
central government is taking action to ensure
that the local system has access to the
9
http://stateofnature.org/democracyPromotion.html
317

IMAGES OF BUSINESS ORGANIZATIONS IN KNOWLEDGE ECONOMY
JOIA Radu-Marcel;
radu.joia@univnt.ro
DUMITRU Paula;
pauladumitru@univnt.ro
BABONEA Alina-Mihaela;
alinababonea@univnt.ro
Abstract integrated as an expression of organizational

“New Economy” requires organization to complexity 1 .
focus on human-centered paradigm. This This study is very important because it
implies, under the pressure of new demands, shows the different approaches of the
redefining the ways of structuring the organization. We tried to analyze the
humans in the organization’s relationship different approaches of the business
with its environment by giving priority to organizations by using specialized
social and human dimension. references. A great number of articles from
Great importance in achieving performance the reference literature treats in a
in an organization has the following factors: responsible manner that the organizations
the skills, values, explicit knowledge, face complex aspects, hard to solve and even
processes and organizational practices, along dangerous. In this way, we try to offer
with intellectual capital. solutions for the companies, to help them
In this context, through this article, we aim improve their management and to avoid
to answer questions such as: What is an difficulties.
organization? Why is it there? For what
reasons does it exist? 2. Literature review
Key words: business organization, The main source of inspiration for this
knowledge economy, organizational analysis, article is Morgan G.’s study, “Images of
efficiency, effectiveness. Organizations”, where the author, a
promoter of “metaphoric line of approach”,
1. Introduction describes his own beliefs regarding the
economical issues in business organization.
Gareth Morgan is the promoter of He uses the metaphoric expression for
“metaphoric line of approach” in highlighting the main problems the
organizations. Morgan believes that using organizations faces with. He emphasizes a
metaphors is like the awareness of needing top quality management; this idea is also
to learn to face with ambiguity, complexity promoted in Leavitt H.’s book, “Managerial
and paradox of reality in organizations. Each Psychology” that uses its own model to
metaphor provides a certain perspective on present key elements – structures,
organizational life, allowing us to see beyond technologies, objectives, members, functions
the appearances. The metaphors or the and activities - . The central part of Levitt’s
images of organizations work together, face rhomb is taken by objectives in the
or complete each other, creating a real organizational system. The main two sources
interactive and dynamic kaleidoscope are completed by an excellence model,
318
analyzed in Peters Th. and Waterman R.’s 7) The organization is “a psychological

book, “In Search of Excellence: Lessons from prison” - the processes and the inter-
America's Best-Run Companies”, that organizational behaviors and the
underlines the great importance of efficiency relationships between the
and effectiveness in order to achieve organization and its environment are
organizational success. We also used a the expression of the members in the
Romanian source in order to state that this organizations, the results of
subject has been also approached in the psychological processes, even if they
companies. are conscious or unconscious,
individual or collective.
3. Paper Content
These images reveal the richness, multivalent
Morgan shows that the one and the same and multidimensional nature of
organization is in the same time, several organizational dynamics. Organizational
different things: schemes, Member of functions, internal
1) The organization is a designed, regulations, documentation, accounts etc. In
assembled and functionalized design other words, formal gears in organizations
as a "scheme" to make clear rational are just "the top of the iceberg", the apparent,
targets; visible organization. "Under water" but it
carries a lot of power, philosophy of success,
2) The organization is a “body”, a "pulse" psychological perspectives, axiological
natural and opened system, that orientations, cognitive processes,
always adapts in order to survive communication dynamics that fill with life
and fight for existence with other formal structures. Organizations are always
organizations; something more than they seem. Performance
management is therefore a process of
3) The organization is a political field discovery and understanding of the
where different groups and interest organizational “hidden” parties. Morgan's
coalitions fight, and the internal life metaphors are, in this sense, an excellent tool
in the organization represent a mix of for knowledge.
conflicts, alliances, negotiations,
lobbies, sabotages, influences etc; Models of organizational analysis
4) The organization is a mechanism of There are a lot of theories, models and

dominations, an exercising power theoretical developments in management, but
and control system, of distribution of we chose to analyze “Leavitt’s rhomb”, an
privileges and fixation of servitudes; organizational model which is a social and
technical system and Le Moigne’s model of
5) The organization is a cultural organization. Both have been successful in
phenomenon, a little society, with the literature in this domain.
very personal values, beliefs, These models make it possible to analyze
mentalities, ideologies and rituals, organizations, despite their diversity and
that define “the organizational complexity, tackling them according to a set
personality” and further it of common elements that are found in all
determines how the real organization forms of organization. The principle is the
is perceived and interpreted, how are foundation on which the concept of these
things or events organized and models tries to explain how they are "built"
planned; and how the organization relates to its
operating environment, but also provides
6) The organization is “a brain”-in clear answers on the causes and ways to
order to work properly, it should ensure organizational effectiveness.
pick-up and process information and Graphic illustration of Harold Leavitt model
to develop knowledge. As a real is the following 2 (figure 1):
brain, the organization learns,
observes, lies, forgets, invents,
memorizes, analyses etc in order to
survive and develop;
319
Structures
in relation to relatively simple problems,
allowing strict control of processes
characterized by continuity, linearity and
repeatability. The purpose of these
techniques is the preservation of a situation
considered optimal. The underlying idea of
Members these streamlined and narrowed approaches
Technologies
Objectives is the intolerance towards any error or
deviation from a course considered “normal”.
But when the life organization takes place in
a dynamic environment and consists of many
challenges and discontinuities that require
flexibility, imagination, creativity,
Functions and
activities experimentation and action, rational-formal
management tools can become prohibitive
and inhibitory mechanisms. In these
situations, the key to organizational
Fig. 1 “Harold Leavitt model” effectiveness can be found in non-rational
aspects, informal, intuitive and rebel against
In this model, unifying the organizational the existing order. Peters and Waterman
element is the primary objectives. They have noted that management is a complex activity
a double significance. First, the objectives and its rational-formal methods -
are the organization's raison d'être, why it organization charts, budgets, financial
exists or more rigorous in terms of systems statements, schedules, performance
theory, a specific organization function standards, procedures and formal rules, etc...
purpose of the system. Secondly, the - Are essential, but may not be the only
objectives can be defined as desired end- benchmarks for governor. It also needs
state organization that allows their use as information about the quality of
criteria for assessing organizational organizational intervention area. Using the
effectiveness. Nature and the aspirations model of organizational excellence, Peters
embodied in the objectives determine the and Waterman seek to reconstruct the
characteristics of other elements of the balance between approaches based on
organization: relationships and formalized techniques and
The functions and activities are tasks, works management approaches such as
and operations of the organization that is particularistic, qualitative, heuristic, and
must be performed to achieve objectives. The phenomenological.
relationship between objectives and Organizational excellence is, in the authors
functions / activities is captured by making of this concept, the cumulative effect of the
the operational principle, a fundamental action of the following characteristics of the
principle of formal organization, rational - to organization 3 :
maintain stability and efficiency; it is 1. action orientation;
necessary that each organization is built 2. customer orientation;
around the activities that are undertaken to 3. high-quality benefit through a complex
achieve the objectives and only then it and appropriate reasoning of the
should be centered on individuals or groups organization members;
that are going to perform these activities. 4. encourage autonomy and
entrepreneurship;
Recent developments of the concept of 5. organizational structures and simple
efficiency and relaxed mechanisms;
6. focusing on key activities in which the
Thomas Peters and Robert Waterman organization is performing;
subjected to a critical examination the 7. rigor and appropriate dosing flexibility
formal and the rational analytical tools of in the mix of centralization-
management. As Simon and March before decentralization;
them, Peters and Waterman drew attention 8. support the key values that foster
to the inherent limits of these approaches: loyalty, professionalism, dedication
they are effective in stable environments and
320
and creativity of the organization ensure success. Distinctive core competence

members; is the interface between strategy and new
image of the organization, determining
Also, Peters and Waterman are the authors changes in other “S”.
of a strategic model that allows the systemic Shared values and ethical standards of
analysis of the key elements involved in the organization members circumscribe to the
development and restructuring of the organizational culture. They relate to things,
organizations. This model, widely known, is events, actions and conditions considered
enshrined as the “7S model”, which comes important for the organization survival and
from seven factors (seven words that in effectiveness. In other words, they show
English begin with the letter S) and which in what is “good” and what are “bad”, what to
the concept of Peters and Waterman, do and what not to do, what to be
exercise a decisive influence on encouraged and discouraged.
organizational dynamics: strategy; skills; The structure consists of interdependencies
shared value; structure; systems; staff and between parts of the organization, reflecting
style (figure 2). their functional and hierarchical
specialization and the communication flows,
the decision-making authority and the
Strategy
responsibility distribution.
Systems are, in 7S model, management and
Skills operating mechanisms that support the
Shared value
internal order: processes and operational
workflows and their adjustment
Structure mechanisms.
The “staff” factor refers to the profile
management team needed to promote their
organization's strategy. This issue does not
Style
Systems Staff depend on individual capacities of the
managers, but on the know-how and
organization's collective intelligence.
Fig. 2 “7S model” Management style has two dimensions:
personal style act of exercising leadership
In the initial phase change, is set the and symbolic actions. Style forms depending
organization's strategy which shows the on how managers' personal conduct and
priorities in resource allocation, the work signals are examples of implementation of
and organizational skills to achieve the organization staff.
competitive advantage arising. In other 7S model is not a detailed action guide or a
words, the strategy provides the answer to complex collection of infallible recipes for the
the question “Where, why and how the organization development, but a model that
organization will engage in competitive provides an integrative and holistic
fight?” organized human system. His cognitive
The next step is to determine the value is precisely that it clearly indicates the
organization's strengths and skills necessary “search areas" for solutions to the most
for successful promotion strategy. Further is important problems of organization, while
set the needed changes to determine other leaving sufficient intellectual freedom to
factors. formulate the final response.
Assuming that the organization has
developed a clear vision and coherent 4. Conclusions and implications
strategy to follow, it must select the main
organizational skills able to support the Concepts and methods that have dominated
implementation strategy. If the strategy thinking and practice management for more
suggests ways to adapt the organization to than a century - strict division of tasks,
its environment and exploitation of the formal authority, chain of command,
potential competitive, the skills analysis structure, control, loyalty, discipline,
facilitates finding practical way of coordination, incentives and sanctions - will
implementing the strategy. Skills must be cede ground to new approaches and
developed so that their operation strategy to conceptual frameworks. Management will
321
require new symbols to indicate the sources and therefore are difficult to define
of efficiency and competitiveness. Future and structure;
management models should be an expression 2. they are the result of “game” of power
of “kaleidoscopic thinking”, as Rosabeth and interests by generating
Moss Kanter argues, that guide the competition and conflict;
organization to change permanently and use 3. they generate change resistance from
inexhaustible opportunities offered by groups or organizational areas;
human imagination and creativity. The new 4. they involve psychological and moral
symbols should help address certain issues, often degenerated into
categories and unconventional solutions to opportunistic behavior;
stimulate exploration beyond traditional 5. they entail costs, often non-
boundaries, to develop the ability to quantifiable, and different allocations,
establish links and create synergies, to help that arise distributional conflicts or
invent new combinations. pragmatically problems;
Knowledge and intelligence are becoming 6. they are not isolated, but they
more and more important factors of manifest in complex interactions
organizational dynamics and the intangible between different aspects of
values of the organization are the words of organizational life
this power 4 . The same author has identified 7. their solution rarely dealt with within
three key values of intangible nature, the true-false dichotomy, being “good”
embedded in the “3C” model: or “unsatisfactory” according to the
1. concepts or the results of continuous reactions of various departments or
innovation and assimilation of the best interest groups within the
methods, practices, technologies and organization;
ideas;
2. competencies understood as Concepts and management tools are not
operational skills, particularly in neutral value, they do not generate practices
serving clients, skills formed through to serve equally well on everyone in the
a process of lifelong learning, selection organization. Before being a “social
and institutionalization of best technology”, management is an ideology, a
practices; vision that expresses a particular interest, a
3. connections established by developing practice that maintains a certain structure of
partnerships between the organization power distribution in the organization. Any
and various elements of its organization is political fields faced bear
environment in order to build an interest groups, values, beliefs, aspirations
integrated system, flexible one, based and attitudes different mentality. From this
on communications in order to connect perspective, the organization is presented as
the “inside” with the “outside” of the a mechanism of domination, namely as a tool
organization, facilitating access to to exercise power and control. Practices,
opportunities and innovations. policies and management systems in an
Competitive organizations direct their organization reflect the interests of small
human potential to investigate new and groups namely the groups holding power.
significant ideas. Such organizations couple Management can be regarded as legitimate
their internal communication networks to the by the control and coordination of the
business partners systems to generate organization only if such conflicts of interest
knowledge and recovery. are explicitly recognized, and the search for
The “3C” provides an example of a systemic solutions is institutionalized.
and high quality approach by highlighting
the importance of communication to internal References
and external interdependencies, the
importance of the information as coagulating 1. Kanter R.M., Kaleidoscope Thinking, in
principle in any type of organization. Cowdhoury S. (coord.) Management 21C,
The following features are specific to the London, Pearson Education Limited, pp.
256-261.
most managerial problems of modern
economic organization 5 : 2. Leavitt H., Managerial Psychology,
University of Chicago Press, 1972.
1. they are complex interweaving of
factors, causes and effects relations,
322
3. Morgan G., Images of Organizations,

London, Sage Publications, 1986.
4. Peters Th., Waterman R., In Search of
Excellence: Lessons from America's Best-
Run Companies, Harper & Row, 1982.
5. Tămaş S., Prospectiva socială, Editura
Victor, Bucureşti, 1998, p. 19.
1 Morgan G., Images of Organizations, London,

Sage Publications, 1986.
2 Leavitt H., Managerial Psychology, University
of Chicago Press, 1972.
3 Peters Th., Waterman R., In Search of
Excellence: Lessons from America's Best-Run
Companies, Harper & Row, 1982.
4 Kanter R.M., Kaleidoscope Thinking, in
Cowdhoury S. (coord.) Management 21C, London,
Pearson Education Limited, pp. 256-261.
5 Tămaş S., Prospectiva socială, Editura Victor,
Bucureşti, 1998, p. 19.
323

MONETARY POLICY AND THE FINANCING OF ROMANIAN

COMPANIES
IN THE CURRENT CRISIS
VALENTIN Leoveanu
Teaching Assistant, University of Bucharest, Romania
v.leoveanu@yahoo.com
The link between the monetary policy and its This paper aims to do an overview of the
impact on the financing of the companies was features of the period that cross the
a much-debated subject during the time but Romanian economy, particularly monetary
the actual financial crisis has revealed new policy conducted by the National Bank of
aspects. For Romania, the current external Romania (NBR) and the influence it has on
climate puts his mark through: the banks lending to Romanian companies.
worsening perception of risk, including the Crisis that crosses Romania is not a
association with regional developments; temporary economic crisis, but especially a
contraction of foreign sales markets; structural crisis due to the fact economic
difficulties in external financing; doubling growth in previous years was based on
the risk of liquidity and solvency at the domestic consumption financed from
microeconomic level. The NBR monetary external resources and the real estate boom,
policy in 2009 was characterized by a as amplified by fiscal and budgetary pro-
downward trend of interest rate and a cyclical policies.
reduction in the rate of reserve requirements Causes of economic crisis in Romania were
related liabilities. There are two structured and summarized in "The End of
vulnerabilities in banking fueled by global Illusion Economy" by Liviu Voinea: the
economic and financial crisis: credit risk and premature liberalization of capital account;
liquidity risk. In this respect, the NBR accelerated growth in consumption based on
intervened to maintain the functionality of short-term external financing; delays in
the money market, using a wide range of structural reforms in economy; reduced
instruments. In spite of monetary policy capacity to absorb financing of structural
decisions, the growth rate of credit to the funds; fiscal and budgetary pro-cyclical
companies continues to decrease due to policies.
increase the risk aversion of banks. A It is well known that during economic crises,
negative interference upon the slowdown in credit conditions established by banks tend
lending to businesses have had the to worsen for all agents in the economy. In
government by enhancing its financing needs these circumstances, the Keynesian
to budget. In order to regain the trust of macroeconomists agreed upon the
banks, Romanian companies must go application of an expansionary monetary
through a process of adaptation to new policy because this helps avoid a deep
conditions of crisis, transformation and recession and the risks of a credit crunch.
restructuring activity. That type of monetary policy leads, through
appropriate tools, to an increase in money
Key words: monetary policy, monetary supply in order to decrease the interest rate.
market instruments, financial stability, This decrease in interest rates will lead to
credit conditions, cost of credit. increased investment and volume growth in
aggregate demand.
Related to credit, monetary policy influences
it as an exogenous factor through interest
324
rate and certain coefficients. It is considered and short-term depending on credit

that the interest rate is the main instrument conditions.
of open market policy, which aims to Borrowing costs, which includes interest
maintain monetary variation within certain rate, and operation fees and bank charges
limits and relative exchange rate stability. for lending negative, hamper the activity,
Using the coefficients in monetary policy with a significant share in total expenditures
aims to maintain an optimal ratio between of a firm.
deposits and loans in order to avoid the The article tries to highlight some important
inflationary credit operations by multiplying issues in this respect: how monetary policy
money. evolved as the effects of the global financial
Credit is a monetary creation so that the use crisis upon the Romanian economy, how
of scriptural currency is determined by the influenced monetary policy the financing
needs and the will of indebtedness of decisions taken by companies and which
economic agents. actions they can take them to face the
The size of the interest rate on loans must be challenges of financing through bank credit.
correlated with subsequent refinancing costs
on the money market, taking into 2. Literature review
consideration the possibility of calling on the
resources of the National Bank. The link between the monetary policy and
The article starts from the current economic its impact on the financing of the companies
situation of Romania and highlights was a much-debated subject during the time
monetary policy decisions and actions but the actual financial crisis has revealed
undertaken by the National Bank in order to new aspects, especially for Romania whose
show that the current period requires a situation is apart.
reassessment of the perception of monetary The paper “Monetary policy and the
policy by businesses. financing of firms” by Fiorella de Fiore,
In this respect, they can say monetary policy Pedro Teles and Oreste Tristani (2009) try to
became more transparent, predictable, really response the question “How should
representing a lever to support decisions at monetary policy respond to changes in
the enterprise level. Nowadays business is financial conditions?” It is taken into
more ready to understand monetary policy consideration a simple model where
and its instruments used to mitigate companies are subject to macroeconomic
economic shocks. shocks that may force them to default on
Monetary policy impact on business health is their debt. It is well known that companies’
an important one, because monetary policy assets and liabilities are denominated in
has an indirect contribution to economic nominal terms and predetermined when
growth and increasing employment of shocks occur.
workers, by setting cost of money. Therefore, monetary policy can affect the
The economic agents take into consideration real value of funds used to finance
the effects of monetary policy as production. More than that, monetary policy
opportunities regarding behavioral and affects the loan and deposit rates. An
management actions. important result of the paper is that the
Monetary policy has alerted and mobilized optimal response to an exogenous reduction
businesses in terms of their ability in internal funds, which amounts to an
concerning their capacity of decision increase in companies’ leverage, is to reduce
confronting variables like interest rate and the nominal interest rate, if the nominal rate
exchange rate and gave them flexibility and is not at its zero bound, and to engineer a
power of adaptation against changes in short period of controlled inflation.
financial markets. The policy responses have the advantages of
By the monetary policy actions, high-level reducing the adverse consequences of the
decision makers also attempt to form a shock on bankruptcy rates. Another
specific behavior of agents in terms of important conclusion of this paper is that a
increasing the ability of company simple Taylor-type rule would produce
management. significantly different economic outcomes
As result, a particular importance is how from those prevailing if policy is set
businesses plan their financing activities, optimally. It is stressed that under a Taylor
ensuring their long-term funding sources
325
rule bankruptcy rates would increase during b) increasing the amount and frequency of
recessions. operations to ensure market liquidity and
Under the title “Responses to monetary c) expand the base of eligible collateral and
policy shocks in the East and the West of liquidity supply’s maturity.
Europe” by Marek Jarocinski (2009), the Cooperation between the world's major
author make a comparison of responses to central banks has become increasingly close
monetary policy shocks in the euro area and monetary policy actions more correlated.
countries before the EMU and in the New The more reduced influence of monetary
Member States from central-eastern Europe. policy led to greater emphasis on fiscal
The aim is to understand how different policy.
characteristics of these groups of countries Although, measures taken by governments
affect their monetary transmission. have concerned either support the banking
The results suggest that, when considering system through recapitalization, government
the differences between central-eastern and guarantees and acquisition of toxic asset or
Western Europe, we need to go beyond the stimulate aggregate demand by increasing
rule that monetary policy is less effective in government investment, tax cuts, programs
less financially developed countries. An to stimulate purchase of new vehicles,
important feature of the New Member States subsidies for employers, etc.
economies is the higher inflation level and Despite these efforts, credit conditions have
variance that they have experienced in the maintained restrictive, and the aggregate
past years. demand and employment in many countries
In their paper “Credit frictions and optimal continued to deteriorate. The difficulties of
monetary policy”, Vasco Curdia and Michael non-financial companies to obtain financing,
Woodford (2008) consider a model where and contracting demand amid the wealth
financial frictions matter for the allocation of effect of balance and have negative
resources, because of the heterogeneity in consequences on output.
households’ spending opportunities. They The world economy has weakened
show that credit spreads arise because loans considerably the growth rate to even a
are costly to produce, but they are linked to slowdown in 2009.
macroeconomic conditions through a flexible The IMF has become a financial
reduced-form function. organization more and more involved in
Lucian Croitoru in his article "Monetary solving problems facing a number of
policy in 2010" make an analysis of possible countries, from the developed to the
actions undertaken by the National Bank to underdeveloped. Financial support was
achieve the objectives of monetary policy, provided too many emerging countries,
taking into account Romania's accession to particularly those in Central and Eastern
the euro area around 2015. He shows that a Europe (Hungary, Ukraine, Latvia, Poland
key challenge for monetary policy is to or Romania).
achieve the inflation target while Monetary and fiscal policy measures have
minimizing risks to financial stability. been supplemented by extending protection
to depositors. EU regulations have been
3. The crisis’ effects upon the Romania’s amended on deposit guarantee schemes:
economic situation minimum guarantee limit increased to
50.000 (to reach up to 100.000 euro at the
The deterioration of the international end of 2010), co-insurance was abandoned
economic and financial environment has and the term of the payout was reduced.
continued to manifest also in 2009 and EU is pending a proposal to revise capital
future developments are marked by great requirements for banks, for the purposes of
uncertainty. better management of large exposures,
In the developed countries, the response of liquidity risk, the risk for securitized
central banks and governments was products, and better supervision of group’s
unprecedented in order to counter the effects cross-border banking and an improved
of the crisis. Fiscal and monetary policies quality of bank capital.
have become highly expansive. Economic crisis affects real convergence, to
Key measures taken by central banks were: the extent that emerging economies will
a) rapid and significant easing of monetary shrink much stronger than the euro area.
policy,
326
The rate of recovery the gaps between the finance internal (and external) can create
Central and Eastern European countries serious constraints on corporate debts.
and EU-15 countries had mixed The economic slowdown is already a reality
developments: in Romania or the Czech for Romania, so uncertainty remains on the
Republic slowed, became negative in some horizon resumption of economic growth.
countries (Latvia, Estonia and Hungary), International comparisons suggest that, in
while in other cases accelerated (e.g. terms of global crisis, countries with high
Poland). growth rates tend to go through decrease of
In the present crisis circumstances, the scale.
reduced economic activity lead to Attracting financial resources from
disinvestment and rising unemployment, international financial institutions are, from
which endangers the process of real this perspective, a welcome step. Increasing
convergence in the medium and long term. public investment and the competitiveness of
For Romania, the current external climate Romanian companies are desirable targets
puts his mark through: for sustainable economic growth.
a) the worsening perception of risk, As economic branches, construction and real
including the association with regional estate - by dynamic place in the economy
developments, and dependence on external and internal
b) contraction of foreign sales markets, financing - prove sensitive and important
c) difficulties in external financing, areas for financial stability.
d) doubling the risk of liquidity and solvency
at the microeconomic level. 4. The NBR monetary policy during
The transmission of external conditions in crisis
the economy, through such channels, affects
more strongly the financial system in The NBR’s monetary policy was developed
Romania, where the dominant role is holding on prudential coordinates in terms of
by banks. liquidity and exchange rate and was
First, the deterioration of market confidence characterized by the re-launching attempt of
to the countries of Central and Eastern lending companies and population. The
Europe, including to Romania, has Central bank key interest rate last year
influenced the dynamics of the cost of dropped five times from 10.25% to 8%. In
financing and the exchange rates of the addition, the central bank lowered the
currencies in these countries. reserve requirement to 15% of liabilities in
Secondly, the contraction of foreign markets lei and 25% of liabilities in international
affects Romanian export companies, which currencies. Latest decision on lowering
are an important part in bank portfolios. reserve requirements was taken in
Thirdly, external financing became more November 2009, when the central bank
difficult and more expensive, reflecting decided to reduce them from 30% to 25% for
increased risk aversion of foreign creditors liabilities in foreign currencies. The decision
and fierce competition on resources came following the postponement of the
generated by governments. third installment of Romania's foreign loan
Finally, persistent global crisis leads to a from the IMF. In early February this year,
reduction in economic activity, including the the National Bank lowered key interest rate
exit of firms out of the markets. half a percentage point to 7%. This level has
A new vulnerability is an economic not been reached in October 2007.
contraction, which equates to the worsening The banking sector continued to record good
financial position of companies and indicators of financial health, and well
increasing unemployment, with negative capitalized, although the financial results
repercussions on the particular financial have shown decreases in profits and even
system, particularly the banks. On the other losses. Analysis of the stress test indicates a
hand, the current account deficit - which in good absorption capacity of moderate shocks.
previous years was a serious challenge for There are two vulnerabilities fueled by
banking - diminishes relatively quickly and global economic and financial crisis: credit
thus affects less financial stability. risk and liquidity risk. Since the last period
Another new challenge for financial stability of 2008, is recorded the sharpest
is home banking itself: reducing access to deterioration in loan portfolio quality,
mainly reflecting the slowing of economic
327
activity and a depreciation of the domestic The efficiency of central bank interventions
currency rate. However, despite more rapid could be improved by enlarging the area of
worsening of the loan portfolio in the last operations that is providing liquidity in the
period, the overall quality of these portfolios market, such as extending the maturity and
is positive fit in the European context. In diversification of eligible collateral of the
addition, coverage with provisions of bad monetary policy operations.
loans from balance sheets of credit Loan agreements negotiated with the
institutions in Romania is higher than that International Monetary Fund and European
reported by several EU countries. Union and with the World Bank and other
Since the last quarter of 2008, the impact of international financial institutions, intend to
the financial and economic global crisis on give financial support to the government's
the Romanian banking sector manifests by economic program in order to strengthen
indirect channel, namely that of external macroeconomic and financial situation.
liquidity and the deterioration of macro- The Agreement with the IMF and EU aim
economic conditions. directly to adjust the external deficit, with
The worsening of global liquidity reflects in positive direct effect on the exchange rate
particular the increasing financing costs and and thus the financial position of companies,
risks related to their short maturity. population and the banking sector.
Short-term external debt of banks Banks that undertake to maintain exposure
represents a potential threat, which seems to Romania during the program and increase
to be reduced in terms of commitment from their own funds to ensure solvency over the
the parent banks of major nine credit 10 percent would not have to raise its
institutions with foreign capital to help required reserves for subordinated loans
maintain their exposure to Romania. provided by shareholders or international
The main concern linked to the reduced financial institutions.
liquidity refers to its impact on future Other measures of the Agreement include
growth of credit and the potential negative the transition arrangements to regulate the
impact on credit risk, but Central Bank minimum level of capital at 10 percent and
interventions had as effect the improvement the adoption - in a medium time horizon (1.5
of banking system liquidity. - 2 years) – of the accounting standards for
In addition, the risk of less favorable credit institutions by the Financial
developments, external shocks or internal Standards International Reporting
causes were significantly attenuated by Standards (IFRS).
external funding agreements with the IMF In these conditions, the NBR monetary
and the EU and other foreign financial policy in 2009 was characterized by a
institutions and by applying a consistent set downward trend of interest rate and a
of macroeconomic and structural policies. reduction in the rate of reserve requirements
In addition, the central bank aimed to avoid related liabilities.
excessive volatility in the exchange rate and This type of monetary policy was primarily
ensure smooth operation of the interbank motivated by prefiguring event, short-term
money market operation and the conditions inflationary effect of adjusting excise duties.
needed for the continued intermediation Equally, monetary policy decisions were
process during 2009. based on the adverse impact on inflation
The central bank provided an adequate exerted by increased risks related to fiscal
amount of liquidity through the active use of and income policies in the context of tension
open market operations, in particular repo of the internal political environment in late
transaction. Banks have attracted cash by 2009.
calling credit facilities. The most important risks that have
Appearance fears about a possible reduction influenced monetary policy in the last period
in funding banks parent bank subsidiaries of 2009 and early 2010 were:
increased distrust between them. In this a) risk of exceeding the programmed level of
respect, the NBR intervened to maintain the budget deficit and postpone measures to
functionality of the money market, using a adjust the structure of public spending and
wide range of instruments (repo fiscal consolidation foreseen in 2010 and
transactions, swaps, reducing reserve 2011;
requirements). b) risk of increasing difficulty of financing /
refinancing the deficit and public debt,
328
including possible disruption due to the The main features of the lending show
performance of loans with financial growing risks:
institutions and international institutions; a) Currency risk is very important.
c) predictable deterioration, in this context, Borrowing in foreign currency is 70 percent
of the perception of economic and financial of the total (December 2008), higher for
domestic environment, of the perspectives on companies. This value is even higher if loans
the Romanian economy likely to fuel were accounted for foreign credits. In such
pressure on national currency depreciation conditions, a non-fragmented evolution of
and inflation expectations implied. the exchange rate is essential to maintaining
Another important argument of lowering the financial stability.
interest rate monetary policy was the recent b) Companies hold almost two thirds of total
improvement of the leu exchange rate borrowing and a better diversification for the
behavior and expectations regarding its three categories of lenders (domestic banks,
future evolution. foreign creditors and IFN).
Decisions on monetary policy interest rate c) Borrowing is particularly medium and
have been adopted in terms of increasing long term (78 per cent of total borrowing).
firmness by NBR management of liquidity in On the horizon's long life span of the loan,
the banking system. the real economy will meet major structural
NBR has adjusted the volume and frequency changes (including in the context of entry
of repos representing their average level of into the euro area).
about one third of the value recorded in late d) Increase in financing costs and
2009 and maturity of these operations has uncertainties about the economic situation
been temporarily diminished, having values are the main factors that have reduced
between 2 and 7 days. demand for loans from companies,
Money market yields have broken downward regardless of their size.
trend and were placed over the largest range e) Developments in the money market in the
in the upper part of the interest rate corridor second half of 2008 and 2009 reflected the
defined by the central bank's standing gradual restriction of liquidity, but central
facilities, and emphasizing volatility. bank tries through interest rate policy to
The range of short-term interest rates then improve these conditions. Interest rates
dropped to lower values, reaching its remained high (above the rate of monetary
monetary policy interest rate fall. Evolution policy) in 2009. The effects were sent to
of the situation was due to the relative market and credit granted by banks, which
liquidity relief. had a negative impact on corporate
Yields on longer maturities continued their financing.
upward trajectory, which was entered in late
September, according to the need for 5. The influence of monetary policy on
substantial increase of budget deficit financing of Romanian companies
financing in late 2009, and increased
uncertainty of credit institutions upon the The company's financial situation has
evolution of liquidity conditions. remained relatively good in 2008 and their
Starting from these premises, the growth ability to absorb moderate shocks.
rate of credit to the private sector continue Deterioration of economic activity in late
to decrease, thus placing itself for the first 2008 that continued in 2009 made it difficult
time in eight years and a half on a negative the debt service to banks, small and medium
level (-1.4 percent). enterprises having the highest risk.
The downward trend characterized both The reliance by companies on short-term
loans in national currency, whose dynamics financing is a weakness in the sector,
was reduced to minimum in the last half especially in terms of more restrictive
past eight years and loans in international lending from banks that could limit these
currencies, so the percentage variation came credit lines.
for the first time in the last nine years and a Companies that have received foreign direct
half, in the negative trends. Slowdown of investment can withstand relatively better
lending to companies trend continued to be any shocks produced by current crisis, but
relatively more alert than lending to not significantly different from the rest of
population trend. the economy (cost-effectiveness and
efficiency of capital expenditure are higher
329
than average wages in the economy, but the banks are perceived as having a high risk,
arrears rate is weaker). which could affect investment financing.
The increase of that type of investment in The main factors that limit access to credit
the economy is not the sole factor to are: negative expectations regarding general
determine a faster real convergence process economic situation, increasing the risk
in conditions of crisis. associated with the industry the company
The access to external financing became operates, increasing the share of
more difficult and more expensive because: nonperforming loans in the portfolio of
a) there is a reluctance of international banks and ascending risk associated to the
lenders to provide new liquidity, collateral / guarantee.
b) governments worldwide have started to Credit terms have also become cautious;
compete vigorously with private sector these may include: requiring additional
resources and collateral, reducing the maximum maturity
c) some rating agencies have worsened the of loan and increase the premium required
perception of risk for Romania (levels below for riskier loans.
investment grade). In these conditions, the main challenges
Romanian companies and financial identified in bank lending to companies are
institutions applied consistently in 2008 for highlighted below.
external loan: the amount was EUR 13.7 The renewing credit lines for businesses
billion (growth of external debt), could be reduced. After the most of 2008, the
approximately the volume of domestic bank liquidity offered to the companies was
credit. abundant; the year 2009 was characterized
The slowdown of the non-government credit by a sudden reversal of banks offer.
growth was due to decrease the supply of The effect has not been the particular
credits, regarding: disapproval of renewal credits, but in
a) liquidity problems existing in reducing the maturity and increasing the
international markets, which have affected collateralization of exposures.
the banks with international business that Banks aim was to have access to as much
own subsidiaries in Romania, liquidity as possible and to protect against
b) reducing the excess liquidity that further damage in a more serious economic
characterized the past Romanian banking situation, with impact on borrowers capacity
system, to repay its debts.
c) increase the risk aversion of banks. The banks perception across the credit risk
Concerning the demand for loans, the most of the companies deteriorated, which make
important inhibitor factors were: their financing expensive. Firms in the real
a) the increase of the cost of credit, estate, construction, transport, communi-
b) the depreciation followed by appreciation cations, even tourism are highlighted as the
of domestic currency and uncertainties most risky. By size, SMEs are considered the
related to its evolution, companies that have the highest risk.
c) the negative perspectives related to Bad loans have a concerning dynamic. Until
economic growth and unemployment. September 2008, the rate of arrears has
Although the pace of deterioration in loan increased moderately, whilst maintaining
portfolio quality is very alert and very the benign values. Subsequently, the rate of
careful monitoring advertising from both increase in the rate of arrears is important
banks, as well as the supervisory authority, for companies in all sectors of the economy
the volume of arrears is maintained at a (but less pronounced in real estate and
relatively low level. manufacturing), both for SMEs, as well as
Despite these developments, the quality of for corporations.
credit portfolios Romanian banks is better Arrears rate on loans in record the sharpest
than banks in some EU countries, due to currency dynamics (from 0.4 percent in
situation and the fact that Romanian banks September 2008, to 2.3 percent in March
have held the portfolio of toxic assets, the 2009).
effects of international financial crisis and The concentration of bank loans arrears
global recession have been felt since the last increased in some sectors. Banks focuses on
quarter of 2008. real estate and construction sectors at the
Lending standards have tightened, expense of manufacturing. Moreover, the
especially for SMEs. Long-term loans from share of loans to the first 10 companies,
330
although it is significant for each sector of percent of foreign debt on medium and long
the economy, has higher values in all the term and short-term credit).
sectors mentioned. The structure of the creditors of the real
Bank loans granted to companies was economy is relatively diverse:
primarily ensured by real estate (about 75 Domestic banking sector is the main sponsor
percent of total loans, in March 2009). (66 percent). In the current conditions of
Rates arrears for these loans have made a reduced access to external resources, it is
significant leap last year (most important for possible that the role of the local banking
loans in foreign currency). sector to grow. Financing the real economy is
There are different behaviors of non- done by credit cash, but credit to finance
payment between the unsecured and secured inventories and equipment have become to
loans with mortgages: the rate of arrears is some extent important.
about the same (2,6-2,8 percent in 2009). Foreign creditors provide more than one fifth
The balance of outstanding loans reached of total financing. Until now, there has been
affected but at 9.4 percent in 2009 a stable source of financing (the share was
(compared to 3.2 percent in December 2007), maintained constant in recent years at
so the arrears rate has prerequisites to grow. around 21 per cent). The amounts were only
The risk of lending companies is dispersed available for companies (population owns
among Romanian banks, which is good only 0.08 percent of total external financing).
think. Discipline in payments has IFN provides 12 percent of domestic total
deteriorated strongly in the second half of funding. Most of the resources are directed
2008: the number of major incidents of to the companies (77 percent).
paying increased by 165 percent and its A negative interference upon the slowdown
value has tripled (in the period December in lending to businesses has had the
2007 - April 2009). government by enhancing its financing
Companies that generate that kind of needs to budget. Government - through the
problems to their business partners have Ministry of Finance – offered to the banks
also difficulties in honoring the debt service bonds at an attractive interest rate than
to banks (over 60 percent of the outstanding that obtained by company’s loans.
from such debtors). These companies become Thus, bank resources were diverted in the
increasingly important for financial stability: direction of state funding in place to ensure
owning more than 8 percent of the value the necessary resources to maintain and
added in the economy, they accumulate more develop the business activity.
than 10 percent of bank loans. It pointed out that state funding by banks is
The companies’ access to bank financing has not targeted to finance public investment,
improved in 2008, as well as that of the but only to cover short-term needs.
population. The number of companies that Financing public investment, especially the
received loans from financial institutions infrastructure, could have had an effect of
(domestic or foreign) reached 16 percent (of involvement of private companies in the
all companies active in Romania in March economic cycle and thus to increase
2009, compared to about 8 percent in 2005). employment, to ensure price stability and
The small number of the companies that GDP growth.
borrow show a decrease in financing could As a result, financing companies through
have significant negative consequences. banks is restricted due to influences coming
Commercial and real estate firms would from both external and internal country
experienced the most acute impact of environment.
lowering the access to finance, because they On the other hand, the private sector in
use the bank resources more intensively Romania, especially the Romanian
than they create added value. The difficulty companies must go through a process of
of maintaining external financing would adaptation to new conditions of crisis,
affect the strong real estate and transformation and restructuring activity.
manufacturing companies. The costs cutting without changes in
SMEs make up over two thirds of credit innovating products and without changes in
granted by Romanian banks (in terms that the way of thinking and acting of employees
contribute only about 50 percent in making cannot be a viable way to restructure a
VAB). These companies have good access to company. The process of transformation,
external financing (45 respectively 53 that firms should adopt, would require:
331
defensive adaptation (reducing the size of 6. Jarocinski, M., 2009, Responses to Monetary
business, increased productivity), strategic Policy Shocks in the East and the West of Europe,
Mimeo, European Central Bank
reorganization (new products, new market
niches) or organizational change ((changing 7. Pop, N., 2008, Virtuti ale politicii monetare,
organizational culture). Only in this way, Expert, Bucuresti, pp. 87-93
they can regain confidence and banks can
gain access to bank financing sources. 8. Voinea, L., 2009, Sfarsitul economiei iluziei. Criza
si anticriza. O abordare heterodoxa, Publica,
Bucuresti, pp. 63-65
6. Conclusions 9. Woodford, M, 2003. Interest and Prices, Princeton

University Press
The National Bank of Romania conducts its
monetary policy in order to have positive
effects on performance of economic agents:
a) tried to revive economic growth, which
was a support for actions of economic agents;
b) managed excess demand and liquidity
crisis in the previous period to ensure a
healthy economic growth and avoid an
overheating economy, which had positive
repercussions on the impact of the crisis on
the Romanian economy;
c) provided health and strengthening the
banking system, trying to pathways the
banks towards the real economy through
increased competition, diversification of
products and more flexible lending rules;
d) acted to increase the volume and depth of
the currency market in order to ensure
unimpeded access of traders to this, both for
commercial and financial;
e) created the conditions for economic agents
direct accessibility to external financing and
has created alternatives to optimize the
financial cost of business.
References
1. Carlstrom, C.T., and T. Fuerst, 2001, Monetary

Shocks, Agency Costs and Business Cycles,
Carnegie-Rochester Series on Public Policy, 51, pp. 1-
27
2. Croitoru, L., 2010, Politica monetara in 2010,

Business Standard
3. Curdia, V. and M. Woodford, 2009. Credit

Frictions and Optimal Monetary Policy, Mimeo, FRB
New York
4. De Fiore, F. and O. Tristani, 2008. Optimal

Monetary Policy in a Model of the Credit Channel,
5. De Fiore, F. Teles, P. and O. Tristani, 2009.

Monetary Policy and the Financing of the Firm,
332

“WIKIHEALTH” FOR PUBLIC HEALTH MAPPING
LITAN Daniela;
Academy of Economic Studies,
Faculty of Cybernetics, Statistics and Informatics Economics,
Bucharest, Romania;
litan_daniela@yahoo.com
MOCANU (VIRGOLICI) Aura-Mihaela;

Academy of Economic Studies,
Faculty of Cybernetics, Statistics and Informatics Economics,
Bucharest, Romania;
mocanuaura@yahoo.com
Abstract that’s why every government realized even

Diseases, epidemics, pandemics... in word: from antiquity that it has to assure public
health problems. The national, european or health, meaning mainly: epidemiology,
international authorized institutions register biostatistics and health services.
daily the reported new cases and use new The United Nations' World Health
information technologies such as Organization defines health as a state of
geographical information systems in their complete physical, mental and social well-
health strategies. But, since we live in an being and not merely the absence of disease
uncertain world, the citizens often prefer not or infirmity [1].
declaring or hiding as much as possible that Media has been playing an important role in
they suffer from a certain disease. The national and international public health
reasons are easy to identify: the possibility of programs. Once the Internet was available,
losing their workplace, of being rejected by more and more programs have been
the society or the mere refuse of accepting the promoted using this technology. In the
health problem which has appeared and the evolution of world wide web it can be
reasons may continue. Therefore, the identified: web 1.0, first concept of web used
statistics of the authorized institutions are in the first years after the Internet was
not totally correct. However, in order to assist launched, and web 2.0, concept which was
the national and international institutions launched several years ago which has
or/and to inform the population, we suggest changed the role of the Internet user. In web
to bring web 2.0 concepts in health as well, so 2.0, the user is no longer just a reader of
our proposal would be that the citizens use a some static web pages, the user becomes
website called “Wikihealth” for exchanging creator of web pages, of knowledge on the
health knowledge. This website gives the web. Now, it is common for each Internet
possibility of adding, under anonymous surfer to have a blog, to write about his
protection, the information regarding the knowledge in a certain area on collaboration
diseases the user or the persons who are close sites such as Wikipedia or upload GPS
to him/her are facing / have just faced. traces creating free road maps for the entire
world. Collaboration web sites, online wiki-
Key words: health; GIS; e-Government; systems and social online networks have
information system; collaborative portal. changed the way in which we interact with
each other and the way we exchange
1. Introduction knowledge.
Because information seems to come faster to
Health is the most precious wealth for each individuals with these new technologies,
individual and for each nation of this world, meaning, in fact, a global network of people
333
who can exchange knowledge in an easy  Identify potential health threats to life
way, we believe it will be a must to include and safety;
them in public health programs.  Conduct research on community health
Usually, information regarding health status;
problems, comes from the government.  Add geographic intelligence to the
Recently, we hear every day on television medical record;
official statistics with how many flu H1N1  Collect and verify community health
infected people are, how many deaths due to data;
this virus, but it will be great to have a  Conduct monitoring and evaluation of
virtual place, an online map-based health interventions and programs [2].
discussion forum that enables Internet users The spread of disease, especially infectious
to submit place-based comments and disease, is unavoidably spatial. Public health
respond to contributions from other experts have described infection moving
participants, where we can read personal from individual to individual following a
opinions of some people who really have network of contacts within a population
been infected or have been suspects. Of through local or even global transmission
course, this will not replace official [3].Using GIS the health organizations
information regarding diseases, or our visit generate maps showing case distribution at
to the doctor, but this new approach can multiple scales (e.g., world, country,
avoid mass panic and can make us informed regional, provincial, and district levels) and
citizens. predict which populations are most
vulnerable based on their proximity to risks.
2. Public Health and GIS With GIS, the spread of infectious disease
becomes more visible through temporal
Geographical Information Systems (GIS) are animation of maps and network analysis.
defined by Open Geospatial Consortium The Statistical Research and Applications
(OGC) as information systems used to Branch staff has an active research program
capture, store, verify, integrate, manipulate, in the area of Geographic Information
analyze and visualize geospatial data (data Systems, the statistical analysis of spatial
regarding geographic location of a certain and temporal patterns of cancer, and data
object on the Earth). The correlation visualization [4]. In addition, staff consult
between place and diseases has been across the Division on the analysis and
empirically made for many years, but GIS presentation of geographic data and help
technology and statistics now provide us coordinate extramural Geographic-Based
scientific methods to analyze the influence of Research in Cancer Control and
geographical locations on people’s health. Epidemiology. The Geographic Information
The combination of analytic methods and Systems Web site has additional information
computing technologies that GIS on GIS technology and NCI's uses of it.
incorporate, facilitates spatial analysis and Examples of current projects are:
visualization of tabular information. Spatial  prediction of the numbers of new cancer
analytic techniques, such as proximity cases for every US county and state,
estimations and cluster analysis, hot spot, based on hierarchical statistical models
density analysis are built on statistical of cancer patterns in SEER counties;
methods that incorporate distance and  analysis of the spatio-temporal patterns
direction measurements to generate of the age at first birth in the US and
spatially accurate maps and graphic reports examination of the impact of these
[2]. GIS technology is used primarily to: changing patterns on breast cancer risk;
 Track and manage infectious diseases;  development of the State Cancer Profiles
 Determine geographic accessibility of system, Web-based dissemination of
health services; cancer and risk factor statistics
 Identify geographic health disparities primarily for public health professionals;
and vulnerable populations;  development of improved methods to
 Locate health and social care facilities explore and display spatio-temporal
and services; patterns of cancer rates and their
 Recommend health policy and public association with sociodemographic and
protection; behavioral factors;
334
 collaboration with other agencies and Disease mapping

universities on a Digital Government
Initiative NSF grant to improve the Mapping disease includes mapping point
quality of federal statistical graphics; locations of cases, incidence rates by area,
 improvements in methods to detect and and standardized rates. Thematic Maps
display clusters of high cancer rates. [4]. show the spatial distribution of a wide
The Integrated System for Public Health variety of qualitative and quantitative
Monitoring of West Nile Virus (ISPHM- information. In fact, almost any subject that
WNV) is a real-time geographic information can be expressed as a geographical
system for public health surveillance of West distribution can be mapped. In practice, if
Nile virus and includes information on the data is stored in a spatially-enabled
Corvidae, mosquitoes, humans, horses, database, for example PostgreSQL/PostGIS,
climate, and preventive larvicide a thematic map can be generated as
interventions. It has been in operation in the described in [8] showing the number of
province of Quebec, Canada, since May 2003. infected persons with a certain disease by
The ISPHM-WNV facilitates the collection, county, like presented in Fig. 1.
localization, management and analysis of
monitoring data; it also allows for the
display of the results of analyses on maps,
tables and statistical diagrams [5].
The Public Health Mapping and Programme
was originally developed by World Health
Organization (WHO) and UNICEF in 1993
to boost efforts to eradicate guinea worm
disease, which affects the isolated, rural
poor, through the use of GIS. The system
allows the computer-assisted visualization of
disease foci, the monitoring of newly infected
or reinfected villages, the identification of at- Figure 1. Number of infected persons with a certain
risk populations, and the highly targeted, disease by county.
cost-effective distribution of interventions. It
is an example of how technologies developed This method is not rigorous but it can help
to accelerate the control of one disease can analysts to identify patterns and to
expedite the control of others [6]. investigate them with further analysis.
GIS displays have been used to show a clear
relationship between clusters of emergent Detection of clusters
Hepatitis C cases and those of known
intravenous drug users in Connecticut. A cluster, in epidemiology, is a number of
Causality is difficult to prove conclusively – health events situated close together in
collocation does not establish causation – but space and/or time.
confirmation of previously established causal Spatial SQL, which is used in Oracle,
relationships (like intravenous drug use and Manifold, MapInfo, and PostGIS can
Hepatitis C) can strengthen acceptance of replicate virtually every classic ESRI
those relationships, as well as help to command using spatial SQL and, can do
demonstrate the utility and reliability of very sophisticated spatial analysis (join
GIS-related solution techniques [1]. count, modifiable area unit problem, quadrat
analysis, nearest neighbor, variogram
3. Spatial Analysis Methods in Health creation) using a single declarative
Research statement that includes spatial constructs
with SQL.
The common spatial techniques used in
health research are described in [7]. They  Point patterns. The objective of
include disease mapping, clustering examining point patterns is to recognize
techniques, diffusion studies, identification when events are systematically organized or
of risk factors through map comparisons and structured compared with events distributed
regression analysis. at random [7]. The simplest pointpattern
analysis is visual inspection of a dot map
335
which displays a geographic distribution of clustering. While they traditionally evaluate

events (Fig. 1). Statistical tools, such as the level of similarity of adjacent areas, they
variance to mean ratio, may be needed to differ in the type of data they analyze:
evaluate subjective impressions. continuous, dichotomous, categorical.
 Nearest neighbor analysis uses inter- For dichotomous, areal data, the degree of
event distances to develop impressions of the clustering or dispersion can be quantified by
strength of the clustering of point data. measuring the number of total and
In practice, we can use SQL statements in dissimilar "joins" between areas, or join
spatial databases in order to retrieve count method.
neighbors of a certain geospatial object. For  Spatial autocorrelation analysis is
example, in PostgreSQL, an open source an additional technique used to detect
spatial database, the below SQL statement disease patterns. It is defined as the relation
gives you the nearest 5 neighbors from a among values of a single variable that is
reference row with gid = 1. attributable to the geographic arrangement
of areal units on a map. Spatial
SELECT g1.gid As gref_gid, g1.description autocorrelation is a measure of
As gref_description, g2.gid As gnn_gid, interdependence between values of a
g2.description variable at different geographic locations
FROM sometable As g1, sometable As g2 and can be used to identify the degree of
WHERE g1.gid = 1 and g1.gid <> g2.gid spatial clustering.
ORDER BY Oracle Spatial has the MDSYS.SDO_SAM
ST_Distance(g1.the_geom,g2.the_geom) package which contains subprograms for
LIMIT 5; spatial analysis and data mining described
in table 1.
Oracle Locator and Oracle Spatial,
proprietary spatial database, does have an SDO_SAM.
Computes the thematic
AGGREGATES_FOR_
SDO_NN and SDO_NN_DISTANCE GEOMETRY
aggregate for a geometry.
functions. SDO_SAM.
Computes thematic
aggregates for a layer of
AGGREGATES_FOR_LAYER
geometries.
SELECT g1.name FROM sometable g1, Computes the most-
sometable g2 SDO_SAM.BIN_GEOMETRY intersecting tile for a
geometry.
WHERE SDO_NN(g1.geometry, Assigns each location (and
g2.geometry) = 'TRUE' SDO_SAM.BIN_LAYER
the corresponding row) in a
data mining table to a
AND ROWNUM <= 5; spatial bin.
Performs a partial predicate-
SDO_SAM.
based join of tables, and
The following example finds the two objects COLOCATED_REFERENCE_
materializes the join results
FEATURES
from the SHAPE column in the HOSPITALS into a table.
table that are nearest to a specified point SDO_SAM.SIMPLIFY_
Simplifies a geometry.
GEOMETRY
(10,7), and it finds the distance between each SDO_SAM.SIMPLIFY_LAYER Simplifies a geometry layer.
object and the point. Computes clusters using the
existing R-tree index, and
returns a set of
SELECT /*+ INDEX(h SDO_REGION objects where
SDO_SAM.SPATIAL_
hospitals_spatial_idx) */ h.name, CLUSTERS
the geometry column
specifies the boundary of
SDO_NN_DISTANCE(1) dist each cluster and the
FROM hospitals h geometry_key value is set to
WHERE SDO_NN(h.shape, null.
Tiles aggregates for a
sdo_geometry(2001, NULL, domain. For each tile,
sdo_point_type(10,7,NULL), NULL, NULL), computes the intersecting
geometries from the theme
'sdo_num_res=2', 1) = 'TRUE' SDO_SAM.TILED_ table; the values in the
ORDER BY dist; AGGREGATES aggr_col_string column are
weighted proportionally to
the area of the intersection,
 Areal data. Frequently, spatial and aggregated according to
information is unavailable for point data, the aggr_col_string.
Tiles a two-dimensional
data are grouped or summarized as area or SDO_SAM.TILED_BINS space and returns geometries
regional data, or the focus is on identifying corresponding to those tiles.
clusters on a larger scale or area. Several Table 1. Oracle MDSYS.SDO_SAM Functions [6]
tests have been designed to identify areal
336
4. Issues with GIS for Public Health 5. E-Government Information System

Type Face to Face with “WikiHealth”
There are also concerns or issues with use of
GIS tools for public health efforts such as: All the technologies used in public health
 privacy and confidentiality of stretegies such as web 2.0, geographical
individuals. Public health is concerned about information systems or spatial analysis have
the health of the population as a whole, but to be merged into a so called e-government
must use data on the health of individuals to information system in order to benefit by
make many of those assessments, and their synergy. The implementation of
protecting the privacy and confidentiality of software products based on e-Government
those individuals is of paramount concept bring along a number of benefits
importance. Use of GIS displays and related both for the citizens and the public
databases raises the potential of institutions: much easier access to
compromising those privacy standards, so information and documents for citizens,
some precautions are necessary to avoid avoiding the queues in front of the counters
pinpointing individuals based on spatial and avoid working with the public for the
data. [1]; public institutions’ employees. Therefore, an
 statistical inference based on information system of e-Government type
aggregated data can lead researchers to has a large number of daily visitors, and the
erroneous conclusions, suggesting creation of a new module, which we propose
relationships that in fact do not exist or to name “Wikihealth”, could improve the
obscuring relationships that do in fact exist. statistics concerning the citizens’ health at
This issue is known as the Modifiable Areal national or international level.
Unit Problem. For example, New York public It is known that the main advantages of the
health officials worried that cancer clusters e-Government information systems are:
and causes would be misidentified after they reducing the corruption, increasing the
were forced to post maps showing cancer transparency, offering more comfort,
cases by ZIP code on the internet. Their increasing the revenues and / or the lowering
assertion was that ZIP codes were designed the costs. By implementing the “Wikihealth”
for a purpose unrelated to public health module within an e-Government information
issues, and so use of these arbitrary system type, the area of the above
boundaries might lead to inappropriate mentioned advantages expands, including:
groupings and then to incorrect conclusions.  information on the population’s state
[1]; of health in different geographical areas;
 present-day GIS fails to provide  the information will be viewed both
appropriate tools for epidemiology. Two as reports, by the citizens, and as maps: local
needs are most pressing. First, we must or national ones, depending on the criterion
reject the static view: meaningful inference selected by the user (disease category,
about the causes of disease is impossible disease, age and / or year);
without both spatial and temporal  the citizens will be able to post the
information. Second, we need models that information under the anonymous protection
translate space-time data on health so that there will no longer exist the fear of
outcomes and putative exposures into being identified later;
epidemiologically meaningful measures. The  new risk areas will be detected, for
first need will be met by the design and example in case of epidemics.
implementation of space-time information
systems for epidemiology; the second by Wikihealth - practical approach
process-based disease models.[9];
 the lack of suitable GIS data sets is a As in any “wiki” type website the user is the
major impediment to the growth of GIS in one who posts the information which will be
certain areas of the planet such as Africa; validated or corrected, to the extent this
 it was not proven yet the cost- thing can be done, by the website
effectiveness of GIS in the health arena. administrator or by a person who will be in
charge with such a task. We shall go on
presenting below our proposal concerning:
the database design and then the
337
implementation and use of a “Wikihealth” - Disease category id:

website type. Numeric, 5
- Country id: Numeric, 5
1) Proposal for database design - Add by: Numeric, 5
- Date see case: Date
The starting point of the project were the - City: Character, 50
relational databases, which contain the - School: Character, 50
following tables: - Age: Character, 30
 Users: This table contains data on - Gender: Character, 7
users who have created an account - Add date: Date
in the application in order to post
information; In the following figure we present the
conceptual scheme of the database, made by
 Diseases_category: This table
using the above entities:
contains data on disease categories
defined in the application, either by
the website administrator or by the
users;
 Diseases: This the users;
 Countries: this table lists the names
of all countries of the European
continent (in the case of our
experiment);
 Ill_persons: This table contains
information on sick people, the
information being added by the users
of the website.
Description of entities and attributes of each

entity:
 Users:
- User id: Numeric, 5
- Country id: Numeric, 5 Figure 2. Conceptual scheme of the database
- Username: Character, 50
- Password: Character, 50 2) Proposal for the implementation and
- Email: Character, 30 use of a “Wikihealth” type website
- Name: Character, 50
- Birthday: Date The “Wikihealth” module, within the e-
- Gender: Character, 1 Government information system type, as far
 Disease_category: as the interface with the users is concerned,
- Disease category id: will be built on a “friendly” website structure
Numeric, 5 and it will be easy to use even by less
- Add by: Numeric, 5 experienced citizens in the “world of
- Category name: Character, informatics”.
50
 Diseases: a) New Account or first time use of the
- Disease id: Numeric, 5 module "Wikihealth"
- Disease category id:
Numeric, 5 As we wrote above, the information on a sick
- Add by: Numeric, 5 person will be posted anonymously. However,
- Disease name: Character, 50 the user who wants to post the information
 Countries: will need to create an account in the
- Country id: Numeric, 5 application (Fig. 3), where it is not
compelling to fill in the field “Name” from the
- Country: Character, 50
“New Account” form.
 Ill_persons:
- Ill person id: Numeric, 5
338
system of “wiki” type, the user must have

the right to define the category of disease
(Fig. 5) or to have the possibility of adding
the name of a new disease (Fig. 6).
Figure 3. The window that allows the creation of a new Figure 5. The window that allows adding a new
user account in “Wikihealth” category of diseases
b) New case or adding a new sick

person
Once the user has logged on the website

“Wikihealth”, he will be able to access the
window through which one can add a new
seen case (information on a new sick person),
“New case” (Fig. 4). The compelling
minimum information which must be added Figure 6. The window that allows adding a new disease
are: name
 the country where the case was seen;

c) Statistics or the possibility to view
 the category of disease to which belongs
the information in the “Wikihealth” module
the new case that the user wants to add;
 the month and the year when the sick Within the experiment that I have carried
person was seen. out, I allowed the possibility of adding new
cases of sick people only from countries of the
European continent.
As users are introducing information in the
“Wikihealth” module, these can be also
viewed, primarily as maps, according to
certain selected criteria. The criteria
proposed by us are:
 per years (all diseases) – Fig. 7;
 per disease category;
 disease per name;
 per age (all diseases).
Figure 4. The window that allows adding a new event in

“Wikihealth”
It can often occur that a category of diseases

is not defined in the “Wikihealth” system or
a disease name does not exist, but, as in any
339
Figure 7. Proposal for viewing the information [4] National Cancer Institute , U.S. National
introduced by the users in the “Wikihealth” module Institutes of Health.
http://srab.cancer.gov/about/areas/gis_spatial.
This report (Fig. 7) can be very easily and html
intuitively interpreted: one can see on the [5] Pierre Gosselin, Germain Lebel, Sonia
Rivest, Monique Douville-Fradet, The
map of Europe that the countries are Integrated System for Public Health
separated and differently colored and under Monitoring of West Nile Virus (ISPHM-
each country there is a number. This number WNV): a real-time GIS for surveillance and
decision-making (International Journal of
represents the number of sick people or of Health Geographics 2005, 4:21, 2005).
those suffering from a certain disease; the [6] Oracle corporation. http://www.oracle.com
information can be viewed according to the [7] Dale A. Moore and Tim E. Carpenter, Spatial
criteria introduced by the user (disease Analytical Methods and Geographic
category, disease, age, year). Information Systems: Use in Health Research
and Epidemiology, (Epidemiol Rev, vol. 21,
no. 2, 1999).
[8] Aura-Mihaela Mocanu (Vîrgolici), Manole
Velicanu, A Study on GIS interoperability
The advantages of the implementation of the based on OGC Web Map Service (The Ninth
“Wikihealth” module in an e-Government International Conference on Informatics in
Economy, May 2009, The Bucharest Academy
information system type, are both obvious of Economic Studies, 2009), 645.
and important: [9] Geoffrey M. Jacquez, Spatial analysis in
 profiles of geographical areas where the epidemiology: Nascent science or a failure of
risk of epidemics or the emergence of GIS?, (Journal of Geographical Systems,
Volume 2, Number 1, 2000), 91-97.
some categories of disease is high can be
[10] Chuan Jun Su, Mobile multi-agent based,
obtained, complex spatial analysis can distributed information platform (MADIP) for
be further implemented; wide-area e- health monitoring, (Computers
 the problems a particular community is in Industry, no. 59, 2008 - ISI Thomson), 55–
68.
facing can be easily highlighted;
[11] Daniela Liţan, E-Government – fundamental
 the efficiency and quality of the services background and implementations, (The
provided by local medical institutions Ninth International Conference on
can be indirectly assessed; Informatics in Economy, May 2009, The
Bucharest Academy of Economic Studies,
 the citizens can learn from the 2009), 449.
experience/knowledge of each other. [12] [JOYC09] Kerry Joyce, To me it’s just another
Health monitoring has been traditionally a tool to help understand the evidence: decision-
time-consuming and costly process. So, there makers’ perceptions of the value of
geographical information systems (GIS),
is an urgent need to develop a system that is (Health & Place, no. 15, 2009), 831–840.
capable of performing wide-area health [13] ASP.NET Chart and Charting for .NET.
monitoring automatically and autonomously http://www.dotnetcharting.com
to users who are usually mobile and situate
in a low bandwidth, high latency,
asynchronous transaction, unstable
connection environment. In addition, the
system also needs to accommodate the
situation that wide area health monitoring
data is stored and distributed in
heterogeneous local servers [10].
References
[1] Wiki.GIS.COM, “GIS and Public Health”.

http://wiki.gis.com/wiki/index.php/GIS_and_P
ublic_Health
[2] “Geographic Information Systems and
Pandemic Influenza Planning and Response”,
ESRI, 380 New York Street, Redlands, CA
92373-8100 USA.
http://www.esri.com/library/whitepapers/pdfs/
gis-and-pandemic-planning.pdf
[3] Dionne C.G. Law, Rachel A. Wilfert, Mapping
for Surveillance and Outbreak Investigation,
(Focus on Field Epidemiology, vol. 5 no. 2,
2009).
340

SCENARIOS FOR SUSTAINABLE REHABILITATION OF LARGE

RESIDENTIAL ESTATES THROUGH EUROPEAN FUNDS
Associate Professor PhD LUCA Oana

Technical University of Civil Engineering Bucharest, Romania
oana@utcb.ro
PhD Student MARINESCU M.A. Desiree

Academy of Economic Studies, Bucharest, Romania
desiree_marinescu@yahoo.com
Associate Professor PhD GAMAN Florian

Technical University of Civil Engineering Bucharest, Romania
gflorin@utcb.ro
Abstract failures, thus the environment is favourable

The present paper presents an exciting to increased crime and social alienation.
subject to be discussed and studied from the The pulled alarm signals determined few
perspective of increasing quality of housing interventions limited to initiatives related to
in the large residential estates in Romania by creation of attics, energy rehabilitation,
setting up sustainable rehabilitation establishment of parking places,
scenarios applying available European consolidation of buildings, rehabilitation of
funds/ structural funds within the country. utilities branches and setting up of
Although some restrictions most notably individual connections with associated
with regard to housing remain, the fact that measurement equipment.
urban policy is now part of the mainstream But... the interventions were limited to
of EU structural policy is one of the major these actions. A drop in the ocean! The
changes in the new financial perspectives. initiatives have not been extended, even
though national programs supported by
Key words: rehabilitation, sustainable, regulation were elaborated, but without
residential, European / structural funds sufficient financial allocation. Moreover,
renovation of social infrastructure (cultural
centers, libraries, clubs, venues etc.) was out
1. Introduction of question, beside the fact that it is a
significant factor in social inclusion and fight
Current functional status of the existing against alienation feelings, particularly
large residential estates in all major cities in common in large urban areas.
Romania brought into attention serious All these aspects lead us to tackle the
questions on quality of life of beneficiaries of rehabilitation of the large residential estates
such housing. Designed as dormitory-cities, by taking successive partial rehabilitations
in the spirit of a centralized economy, starting with the basic element – living area.
directing the way of life for millions of A scenario can be established applying
people, these residential estates have the financial support of European funds
become places where grey is specific to both whose purpose is sufficiently well defined.
human lives and buildings, equipments, However, these funds do not cover the
utilities, green spaces, roads and not least whole range of existing problems, motivating
the social-cultural facilities. us to search for new financing options for
There is no single component of these rehabilitation projects of large residential
estates which is not encumbered by such estates.
341
explain the progressive development of a

2. Literature review common European urban policy agenda
based on the pursuit of development of more
The literature review as presented in “sustainable cities and communities”. The
this section covers European research paper briefly describes the recent evolution
projects on large scale estates rehabilitation: of European Union (EU) urban policy and
RESTATE – Restructuring Large Scale the incorporation of integrated urban
Housing Estates in European cities, development as a priority for Structural
SUREURO – Sustainable Refurbishment Funds support in the 2007–2013
Europe, LUDA – Improving the Quality of programming period. A second major change
Life in Large Urban Distressed Areas, the is the incentive to use non-conventional
article of Mateu Turró, Gianni Carbonaro, financial mechanisms to fund EU programs,
Brian Field “Innovative methods for aimed at putting into practice the
financing urban development: The European sustainable communities’ idea.
Union contribution” from the Journal of A study conducted by the International
Urban Regeneration and Renewal and a Energy Agency raises the issue of the
study conducted by International Energy extreme cost needed for effective energy
Agency. saving solutions in the high-rise housing
RESTATE a European research project, sector. The report identifies various barriers
was carried out from 2002 until 2005 and which prevent the occupants from
studied the current situation and future maintaining and refurbishing the high-rise
prospects of large housing estates in housing stock to the level of comfort and
European cities. It was concluded that an energy performance that meets the long-
integrated approach for policy making based term expectations. Based on a number of
on a strategic plan could contribute to better case studies and pilot projects, the benefits
outcomes. of incorporating energy saving measures as
SUREURO was a large European part of the widely needed overall
research project which provided refurbishment are evident.
management tools for sustainable and Frank Wasssenberg’s paper “High-rise in
consumer oriented refurbishment of post Europe: analysis and challenges” traces the
war housing areas in Europe. It was “careers” of high-rise in different market
developed in 2000-2004 by an international conditions, not least through the massive
consortium of 29 partners from 9 European political shift in Central and Eastern
countries. The main results consist in the Europe. The paper answers to questions
strategic management tools designed for related to adjustment of high-rise housing to
housing companies and decision makers changing demands over the past 30 or 40
(government) in order to integrate years and also the current profile of high-
sustainability and tenant participation in rise in fifteen countries, convergences and
rehabilitation processes management. divergences. The paper ends with future
LUDA was a research project of Key prospects for this most dominating, most
Action 4 “City of Tomorrow & Cultural direct and most visible result of urban
Heritage” financed by the programme planning across Europe.
“Energy, Environment and Sustainable
Development” within the Fifth Framework 3. Paper Content
Program of the European Union. The overall
goal of LUDA is to contribute to quality-of- The Framework Document for
life improvements in large urban distressed Implementation of the Regional Operational
areas by providing a systematic strategic Programme (ROP) limits the application of
planning and development approach. Structural Funds to individual projects.
The article of Mateu Turró, Gianni Individual projects are funded only after the
Carbonaro and Brian Field “Innovative approval of an integrated plan for urban
methods for financing urban development: development. The integrated plan must
The European Union contribution” from the include individual projects of at least two
Journal of Urban Regeneration and Renewal categories/types of activities of: a)
describes the financing of projects in the rehabilitation of urban infrastructure and
context of urban renewal and regeneration improvement of urban services, including
with their specific aspects that partly urban public transport, b) sustainable
342
development of the business environment, c) - housing acquired using public

rehabilitation of social infrastructure, financial sources or with state direct
including social housing and improvement of support (e.g. housing subsidised by
social services. It is compulsory that plans the Ministry for Regional
include activities of “rehabilitation of urban Development or by the State
infrastructure and improvement of urban Housing Development Fund,
services, including urban public transport”. respectively housing built by
The individual projects are focused on: municipalities without government
- B.1. “Rehabilitation of urban grants);
infrastructure and improvement of - other flats or family houses if their
urban services, including urban total floor area would not overpass
transport”, having as eligible the given threshold, e.g. 150 m2 in
activities “urban public case of family houses and 90 m2 in
infrastructure” if the project case of flats.
applicant proves the ownership of (Source: SAVE Programme Project)
the land/building or the lessee of the In the same time, in Czech Republic, the
land/building, for a period of Integrated Operational Plan includes
minimum 10 years. Priority 3 “National Support for Regional
- B.3. “Rehabilitation of social Development” with Measure 3.3
infrastructure, including social “Improvement and regeneration of declining
housing and improvement of social urban housing”, having as eligible activities
services” having as eligible activities the following:
renovation of multi-family social - refurbishment and regeneration of
housing (renovation of common parts the blocks of flats (collective panel
of multi-family buildings, including houses);
refurbishment of main structural - implementation of measures
parts of the building – roof, façade, increasing energy efficiency in
including the doors and windows, buildings;
staircase, inside and outside - refurbishment of buildings used for
corridors, entrance and their social housing.
exteriors, elevator; technical The eligible beneficiaries are the
installations of the building; energy municipalities and the building owners.
efficiency actions etc.) if the project (Source: Russe, May 2007)
applicant proves the ownership of In Bulgaria, the Priority 1 of the
the land/building or the lessee of the Regional Development Operational
land/building, for a period of Programme “Sustainable and integrated
minimum 10 years. urban development”, specify at the Operation
Dissatisfaction resulting in applying to 1.2 “Housing” the following eligible
these funds is perceived because one of the activities:
eligibility requirements is that the applicant - renovation of the common parts of
is the owner of the land/building or this is multi-family residential buildings as
the case of buildings/blocks that are in state follows: refurbishment of the
or local administration property (4-6% of all following main structural parts of
apartments), as consequence have a social the building (roof, façade,
housing nature and therefore does not refer windows/doors on the façade,
to the blocks of flats belonging to the staircase, inside and outside
associations of owners. corridors, entrances and their
In some countries of European Union the exteriors, elevator); technical vertical
approach is totally different. installations (water supply, sewage,
For example, in the Czech Republic electricity, heating, communications,
there is no official definition of social fire hydrants) of the building;;
housing. However, the one under elaboration - energy consumption audits and
comprises the following types of social energy efficiency measures for all
housing: projects related to housing,
- housing used for accommodation of mentioned above (e.g. thermal
that part of population which is insulation, replacement of
under the risk of social segregation; woodwork, local installations
343
connected to central heating - purchasing of information and

systems, gas supply connecting communication equipment for an
pipelines or alternative renewable increase access of citizens to the
energy sources); public services;
- delivery of modern social housing of - traffic management systems
good quality for vulnerable, minority (infrastructure works and
and lower income groups and other endowment with specific equipment
disadvantaged groups etc., through for traffic management).
renovation and change of use of Regarding the transport and the
existing buildings owned by public mobility of inhabitants, among the eligible
authorities or non-profit operators; actions are the following:
The eligible beneficiaries for these - extending and/or upgrading
actions include beside the public authorities tramway network and trolley
or non-profit corporate bodies (for example infrastructure as well as related
non-profit social housing organisations) the infrastructure;
associations of owners of multi-family - construction and/or arrangement of
residential buildings, which would resolve special lanes for buses and/or
failures related to large residential cycling,
complexes. Certainly, the beneficiary must prove the
The above aspects presented above lead public ownership of the object, as well the
us to emphasize more strongly the need to other eligibility criteria.
create a scenario applicable in Romania B.3. “Rehabilitation of social infrastructure,
based on existing rules. including social housing and improvement of
Thus, taking as basic unit the living area social services”, which include the following
subprojects can be prepares, on objects that eligible activities:
can allow independent applications of ROP - Renovation of multi-family social
provisions (version April 2007): housing - Renovation of multi-family
B.1. “Rehabilitation of urban infrastructure residential buildings (excluding
and improvement of urban services, areas within the flats), including:
including urban transport”, which include o refurbishment of main
the following eligible urban public structural parts of the
infrastructure activities: building, roof, façade,
- development and/or rehabilitation of staircase, inside and outside
urban public infrastructure and corridors, entrance and their
utilities (public lighting, water, exteriors, elevator;
sewerage, electricity, gas, phone, o technical installations of the
broadband networks, etc); building;
- creation and/or preservation of green o energy efficiency actions;
and recreation spaces (public - Purchasing of equipments necessary
gardens, parks, urban furniture, for increasing security and
container, waste, etc); preventing crimes (surveillance
- creation and rehabilitation of urban systems, etc).
public spaces: urban streets, Priority axis 2 of ROP “Improvement of
sidewalks, public squares, regional and local transport infrastructure”,
pedestrian areas, bridges, passages, with Key area of intervention 2.1
level crossing, foot bridge, etc; “Rehabilitation and modernization of county
- completion and/or renovation of roads and urban streets network”, including
abandoned buildings and their construction/rehabilitation of ring roads
preparation for new economic and proposes as eligible activities the following:
social activities; - rehabilitation and modernization of
- the demolition of badly deteriorated the urban streets network (category
buildings and/or structures, which I, II and III), as well as the category
don’t belong to the national cultural IV streets network from tourism
heritage and the arrangement of resorts;
deteriorated/ unused lands, for the - modernization and extension of the
construction of public use buildings utilities network existing within the
and green spaces;
344
road (water, wastewater, electricity, “Improve organisational effectiveness”, with

gas, phone network). only 2% contribution of the applicant.
Another area of intervention that could - Development and provision of
be addressed by local governments to use training programmes (including
European funds for rehabilitation of large preparation of curricula and
residential estates is the included in the teaching materials) in areas relevant
Priority Axis 3 of ROP “Improvement of to public administration, such as
social infrastructure”, with Key area of public procurement, ECDL,
intervention “Rehabilitation, modernisation, languages, projects development,
development and equipping of pre-university, tendering and project management
university education and continuous etc.
vocational training infrastructure”, including Public servants, especially those in the
eligible activities for: directorates of the project management and
- reconstruction, extension, European further integration can participate
consolidation of buildings (all type of in these types of training and achieve needed
infrastructure for compulsory skills.
education, except for the technical In addition to the above available funds,
and vocational campuses). another support instrument which is mainly
The proximity to educational units focused on exchange of experience between
(nurseries, kindergartens, schools) is one of cities of all EU Member States is URBACT
the reasons for which a residential place is II Programme 2007-2013. URBACT is an
agreed by most its inhabitants. These are European exchange and learning
largely cases near or within residential areas programme promoting sustainable urban
that could contribute to the smooth development. It has a budget of
development of the area. approximately 68 million Euro co-financing
Another possibility for financing from the European Regional Development
infrastructure rehabilitation in residential Fund (ERDF) is 78.62%.
areas is the Sectoral Operational The activities included in this
Programme for Environment (SOP programme cover interregional cooperation
Environment) that describes the different within the European Territorial Cooperation
types of projects eligible for priority axes: Objective of the EU Cohesion Policy. OP
- Axis 1 “Extension and modernization URBACT II could assist in the preparation
of water and wastewater systems” in of projects developed within national
various cities and counties, which programmes (Sectoral Operational
would include existing infrastructure Programmes and Regional Programme).
in residential areas; Thus, it can support the preparation of
- Axis 2 “Development of integrated bankable projects for urban regeneration/
waste management systems and rehabilitation of large residential estates.
rehabilitation of historically The Priority axes are:
contaminated sites” which include - Priority axis 1 “Cities, engines of
integrated waste management growth and jobs” and include
systems in some counties; measures such as entrepreneurship
- Axis 3 “Reduction of pollution and promotion, innovation improvement
mitigation of climate change by and enhancement of knowledge
restructuring and renovating urban economy, employment and human
heating systems towards energy capital development;
efficiency targets in the identified - Priority axis 2 “Attractive and
local environmental hotspots” which cohesive cities” and include measures
can contribute to rehabilitation of such as integrated development of
supply networks for hot water and degraded areas and those under
heating in residential areas. current degradation, social inclusion,
The Sectoral Operational Programme for environmental issues,
Administrative Capacity Development (SOP- administration and urban planning.
ACD) can finance related projects within Collection of funds will take place
Priority Axis 1 “Structural and process following public calls for proposals (tenders)
improvements of the public policy in which applicants from Romania will
management cycle”, Intervention Domain 1.3 participate as partners in joint projects or
345
project leaders, with main responsibility for urban development, including loans for
carrying out that project partnership, project social housing. Eligible beneficiaries are
development and implementation. Thus, public, municipal, private sectors.
Romanian cities have the opportunity to Also JASPERS Programme (Joint
submit and win urban development projects. Assistance in Supporting Projects in
URBACT II is a key element of cooperation European Regions), funded by the European
between the cities involved in the project. Commission, EIB and EBRD, assists
The program priorities are implemented Member States in implementing cohesion
through operations target at exchanging policy by expanding cooperation between
experience and knowledge, aiming to them on better organization and use of
establish 40 thematic networks and 25 expertise and resources. Jaspers' goal is to
working groups, capitalization (using support authorities in the regions of
capitalization instruments and through the Convergence to prepare major projects to be
“Fast Track” option), communication and approved by the Commission. This support is
dissemination of information, particularly by provided free to all stages of project cycle
building partnerships. The projects will from the initial project identification to the
focus on implementation of action plans, Commission's decision to award the grant.
development of thematic studies and reports, JASPERS is focused on large major projects
promotion and dissemination of information (more than 25 million Euro for
obtained through creation of websites or web environmental projects, more than 50
pages, printed brochures and publications in million Euro for transport and other areas).
its partner national language, organisation Priority is given to Romania and Bulgaria.
of conferences. The eligible beneficiaries of these
Acknowledging the fact that the quality programmes are the municipalities of the
of housing is a vital component of the quality Member States, universities and research
of environment, URBACT II Programme institutions. Private bodies or associations of
through Axis 2 “Environment” provides national/transnational cities/municipalities
financing to promote use of renewable can participate with their own funding.
energy and clean materials in the new Once funding sources with the largest
buildings and to rehabilitate buildings in share in the project budget are identified, it
large residential estates that are not in a is necessary to identify own sources for co-
satisfactory condition. This issue represents financing. Not always and not all potential
a priority of the programme especially as applicants have secured co-financing.
most of people in many Eastern European Possible sources of co-funding for
cities are living in such buildings. rehabilitation include:
The areas of expertise cover the - Municipal bonds or municipal
following: securities;
- active inclusion; - Bank loans from resident banks;
- cultural heritage and city - Loans from foreign banks (EIB,
development; EBRD etc.).
- disadvantaged neighbourhoods; Municipal bonds or municipal securities
- human capital and are debt securities issued by municipalities,
entrepreneurship; cities, counties, as well by other public
- innovation and creativity; authorities and their agencies to finance
- low carbon urban environments; investment projects to support local
- metropolitan governance; communities.
- port cities; For example, in 2005, in Alba Iulia was
- quality sustainable living. launched a bond issue, amounting to 24.5
Jessica Programme (Joint European million lei with a maturity of 20 years, which
Support for Sustainable Investment in City generated funds to finance 13 investment
Areas) is an initiative of the European projects for expanding the water and sewage
Commission in cooperation with the EIB and network, rehabilitation of roads, educational
the Council of the European Bank for institutions etc. For municipalities to launch
Development (CEB) to promote sustainable such programmes, the advantages are
investments, economic growth and obvious.
employment in European urban areas. It First of all, interest paid on loans made
provides access to loan capitals to promote from the debt securities is lower than
346
interest paid if the municipality borrows difficulty. Additionally, a bank loan requests
from the bank. Secondly, interest can be more severe evaluation of guarantees than
reduced once the inflation goes down more for debt securities issues, where the
easily, based on contract provisions and municipality guarantees with its fiscal and
position of the municipality in public offer, taxation power.
much easier for debt securities than in case We have presented above the elements of
of bank credits, in the latter case the a possible scenario for the rehabilitation of
decision belonging to the bank. large residential estates. The next figure
Another difference in favour of securities summarises the relations between the
is that the money are returned at more stakeholders, scenes and possible available
distant maturities, unlike bank loans where funds taken into account in a scenario for
the money must be returned immediately the rehabilitation of large residential
and grace periods are negotiated with estates.
Figure 1. Relations in a Scenario for the rehabilitation of large residential estates
347
Detailed description of a possible scenario is o Procurement of

presented hereby: environmentally friendly
transport means.
Objective: rehabilitation of a large
residential estate. Ante-financing actors:
- Applicants – local public authorities;
Location: urban action zone. According ROP - Financing banks;
the urban action zones are geographically - Private partners;
delimited within medium and large cities. - Direct beneficiaries (inhabitants);
- Specialised companies in
Scenes (eligible activities): consultancy services and
- Urban public infrastructure: monitoring/supervision;
o Development and/or - Regional Development Agencies
rehabilitation of urban public (RDAs).
infrastructure and utilities
(public lightning, water, Post-financing actors:
sewage, electricity, gas, - Designers and approval organisms;
telecommunication); - Quality checking entities;
o Creation/conservation of - Work performers;
green areas for recreation - Direct beneficiaries (inhabitants).
(public gardens, parks, urban
furniture, containers, waste); Benefits after project implementation
o Creation and rehabilitation (requested in cost-benefit analysis):
of urban public spaces, - Reduced poverty and social
markets, streets, sidewalks, exclusion;
pedestrian zones, bridges, - Decreased long-term unemployment;
passageways, walkways; - Positive demographic influence;
o Rehabilitation and - Positive trend in education;
modernisation of county - Negative trend in delinquency and
roads, urban streets; crime;
o Buildings and/or deteriorated - Increased economic activities;
structures demolition (not - Increased housing price;
included in national - Reduced energy consumption of
heritage) and improvements housing;
of land free of public utility - Emergence of investments that
constructions or green ; would grow existing activities or
o Systems for traffic start new activities.
management (infrastructure
works and provision of 4. Conclusions and implications
specific equipments);
o Integrated waste The data presented above could be
management systems; included in a possible scenario for the
o Rehabilitation of district rehabilitation of large residential estates.
heating systems. They allow us to present a model for the
- Social infrastructure including social practical application (see picture) which can
housing; be used in any urban locality or county by
- Educational infrastructure; the local administration.
- Transport and population mobility: However the funds we presented above
o Construction of stations for do not cover the whole range of existing
transport means; problems, motivating us to search in a future
o Extension/modernisation of study new financing options for
traffic routes infrastructure; rehabilitation projects of large residential
o Construction rehabilitation estates.
of special lines for of public The start is the most difficult especially
transport and/or individual when the administrative structure has no
means (bikes); organizational entity competent or
courageous enough, no start-up databases
348
exist or specialists in elaborating

applications are insufficient or not interested RESTATE – Restructuring Large Scale Housing
in attracting European funds for solving the Estates in European cities.
problems of inhabitants living in large
Russe, May 2007 “Financing sustainable energy
residential estates.
projects through the Structural Funds and the
Cohesion Fund in 2007-2013”.
References
SAVE Programme Project: “Innovative Financing
Bueren, E.M. van, Bougrain, F. & Knorr-Siedow, of Social Housing Refurbishment in Enlarged
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Experiences with the Transfer of Policy Europe: Current Trends And Future Prospects,
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Rise Refurbishment: The Energy-Efficient analysis and challenges, Chambridge, ENHR
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2005, Restructuring large housing estates in
Europe, Bristol: The Policy Press.
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Life of Europe’s Cities. Available online:
http://europa.eu.int/comm/regional_policy/urban2/
urban/audit/results/leipzig.htm
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Urban Distressed Areas.
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“Innovative methods for financing urban
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Increase of Economic Competitiveness for 2007-
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349

THE ANALISIS OF THE SITUATION LOOKING THE ENVIRONMENT

PROTECTION IN ROMANIA THROUGH THE POS ENVIRONMENT
REFERENTIAL CHALLENGES AND THREATS
MARDIROS Daniela
University "Alexandru Ioan Cuza" of Iasi
mardirosdaniela@yahoo.com
BORZA Mioara
University "AIexandru Ioan Cuza" of Iasi
mioara@uaic.ro
The purpose of the present paper is to
present generally aspects looking the The paper want to present the problems of
environment protection in Romania through the environmental protection in Romania
the POS environment referential, with have, according to certain referential which
as overall objectives the protection and the stipulated the problems which must be
improvement both of the environmental resolved by Romania as UE member. From
quality and living standards in Romania. the multitude of projects looking the
For a better understanding of it, the paper environment protection which has been
present the specific objectives of the reminded started in our country we present, mainly,
referential (the quality improvement and the the SOP Environment and the directions of
access to water and wastewater it.. We also take into account the challenges
infrastructure, by providing water and at the threats that Romania must face
sanitation in most urban areas by 2015 and looking the environment protection. The
the establishing of the efficient regional studied matter is an important one because,
structures for the management of the water / at world and at UE level, the concern for the
wastewater services; the development of the environment protection is bigger and bigger,
sustainable waste management, improving year after year. So, as responsible country
the waste management and reducing the and population, Romania and the
historic polluted areas in minimum 30 Romanians must do important efforts to
counties by 2015; the reduction of the protect the environment and its health, for
negative impacts over the environment and the present but, mainly, for the future. The
the diminution of the climate changes caused answer to this matter is given by the study
by the urban heating systems in the most of the aspects involved by the environment
polluted localities by 2015; the biodiversity protection (wastewater, public water supply
and the natural heritage protection and system, waste production, waste from
improvement through the supporting of the construction and demolition, waste
protected areas management, including the generated by the medical activity, air
implementation of Nature 2000; the pollution, soil pollution, biodiversity
reduction of the natural disasters risks protection, flood risk etc.), their particularly
which affect the population, by implementing form of expression for the Romanian
preventive measures in most vulnerable territory, the directions in which Romania
areas by 2015), the main problems which must action according with the European
appears for Romania looking the and world tendencies in matter and the
environment protection and, finally, the challenges and threats which manifested
existent challenges and threats bounded by against the fixed goals. The present paper is
the environment protection issue. based on the study of the Romanian
Keywords: environment, protection, legislation bounded by the European one
objective, challenge, threats. looking the environment protection such as:
Environment Sectoral Operational Program
350
(SOP), National Strategic Reference over the environment and the diminution of
Framework (NSRF), The Yearly Report the climate changes caused by the urban
looking the environment situation in heating systems in the most polluted
Romania, Romania’s Public Health Institute localities by 2015; the biodiversity and the
Report etc. natural heritage protection and
improvement through the supporting of the
2. Literature review protected areas management, including the
implementation of Nature 2000; the
Environment Sectoral Operational Program reduction of the natural disasters risks
(SOP) is closely linked to the national which affect the population, by
strategic objectives of the National implementing preventive measures in most
Development Plan (NDP) for 2007-2013 and vulnerable areas by 2015.
with the National Strategic Reference To achieve these objectives, was identified
Framework (NSRF) which is based on the the following priorities: the expanding and
principles, practices and objectives pursued the upgrading of the water and wastewater
at EU level. SOP environment is based on systems; the development of the waste
objectives and priorities for environmental integrated management and the
policies and infrastructure development of rehabilitation of the historically
the European Union, reflecting both contaminated sites; the pollution reduction
Romania's international obligations and and the climate change mitigation,
specific national interests. SOP ongoing restructuring the urban heating systems to
development programs at national achieve the energy efficiency targets in the
environmental infrastructure that were most affected by pollution areas; the
started in the pre-accession assistance, in implementation of adequate management
particular the Phare and ISPA. In addition systems for nature protection; technical
to the infrastructure development, through assistance. SOP's total budget for the 2007-
SOP will be established the efficient 2013 programming period is approximately
management structures of the relevant 5.6 billion Euros. Of these, approximately
services in terms of environmental 4.5 billion Euros is EU support, which
protection. Also, the SOP's priorities represents 23.5% of financial resources
includes assistance in areas far less allocated to the National Strategic Reference
discussed, as the efficiency of the urban Framework and 1.1 billion euros is from the
heating systems, risk prevention, national budget. Community sources used in
environmental reconstruction or the the implementation of SOP are provided
implementation of the management plans from the Cohesion Fund and European
Nature 2000. The overall objective of SOP Regional Development Fund.
environment is the protection and the The analysis of the current situation focuses
improvement both of the environmental on those environmental sectors that have in
quality and living standards in Romania. our days the biggest negative impact, which
The objective is to reduce the existent gap are most backward and where, the planned
between the EU and Romania on investments on medium term, although
environmental infrastructure in terms of costly, can contribute substantially to the
both quantity and quality. This should developing of a sustainable economy,
result in efficient public services, taking into stimulating job creation and business
account of the sustainable development development. In particularly, the analysis
principle and of the polluter pays principle. concerns the situation in the following
SOP's specific objectives are: the quality environmental sectors: water/wastewater,
improvement and the access to water and waste, soil pollution, air pollution, nature
wastewater infrastructure, by providing and biodiversity protection, flooding, coastal
water and sanitation in most urban areas by erosion.
2015 and the establishing of the efficient
regional structures for the management of 3. Paper content
the water / wastewater services; the
development of the sustainable waste Compared with other European countries,
management, improving the waste Romania is a medium sized country, with
management and reducing the historic complex ecosystems and natural landscape
polluted areas in minimum 30 counties by outstanding of a remarkable beauty, variety
2015; the reduction of the negative impacts and balance. Natural resources are an
351
essential component of Romania's wealth. investments are required both for the
To improve the living conditions in Romania rehabilitation/ the extension of the collecting
it is necessary that the natural resources be systems and to build sewage treatment
exploited in a sustainable manner. plants. In compliance with its obligations in
Sustainable development mission is to find the negotiation process, Romania must
ways of growth and development, while with comply with the provisions of Directive
the common use of the natural resources so 91/271/EC looking urban wastewater
that renewable resources can be maintained, treatment till 2018 and the implementation
and the non-renewable one to be used at a estimated costs are about 9.5 billion euros
rate that takes into account the needs of the for investment, in which EUR 5.7 billion for
future generations. Some of the main wastewater treatment plants and 3.8 billion
environmental issues are: 97.8% of for sewer systems.
Romania's hydrographic network is Looking the public water supply systems the
contained in the Danube River Basin; last years shows a decrease in the total
approximately 38% of the length of the quantity of water distributed in the network
Danube is Romanian territory; with an dued, mainly, to the reduction and metering
average of only 2660 m3/inhabitant/year, in of the industrial activities. The un equal
comparison with the average of 4000 distribution of the water resources on the
m3/inhabitant/year in Europe, Romania is country's surface, the insufficient level of
placed in the category of relatively poor regulation of flow on watercourses, the
countries in water resources. In accordance significant pollution of inland rivers are the
with the Environment State Report main factors that make that important parts
(produced annually by MMDD), Romania is of the country do not have sufficient water
equipped with all types of freshwater sources all the year, especially during the
resources (rivers, natural and artificial periods of drought or in the winter with low
lakes, the Danube River and groundwater). temperatures. The important decrease in
The most important freshwater resource is water demand has helped to reduce water
the Danube and other rivers. The volume of pollution by decreasing the volume of
the usable water resources is 2,660 wastewater discharged. Regarding
m3/inhabitant/year (the European average agriculture, Romania is still in a difficult
is 4,000 m3/inhabitant/year). This is mainly situation caused by the excessive
due to the contamination of the water fragmentation of ownership (households
resources; if are taken into account only the living predominating), by the existence of
surface resources, these are about 1770 weak machinery, by the precarious situation
m3/inhabitant/year, which places Romania of rural infrastructure, dramatically
among the countries with relatively low reduction of the irrigated areas, by the soil
water resources; in comparison with the degradation, by the chronic scarcity of the
other 25 European countries, Romania financial resources and by the lack of a
ranks ninth place. functional system of agricultural credit. In
The largest volume of wastewater, including accordance with country report on Romania
cooling water, was discharged from the unit over the Environment Strategic Evaluation
from: electricity and heat sector (over 51% of and the Risk Prevention, developed by
total), residential (over 36%), chemicals ECOLAS & GHK for the European
(approx. 5%) the rest being mining and Commission, regarding the water supply/the
metallurgy, animal husbandry. The biggest waste water treatment and also the
polluters of surface waters with organic investment needs for the 2007 – 2013
substances, suspensions, minerals, periods, Romania ranks second place after
ammonia, grease, cyanide, phenols, Poland (Table 1).
detergents and heavy metals are the major Romania will have to invest around 9.5
conurbations. The critical situation of billion euros to implement the European
wastewater treatment plants is generated directive on urban wastewater treatment, of
by the age of the sewerage and treatment which EUR 5.7 billion for wastewater
plants, by the sewage capacity change with treatment plants and 3.8 billion for sewer
no adjustment to the construction systems, according to a National
parameters, by the poor management Administration Romanian Waters (ANAR).
capacity and by the poor financial situation
of the public utility operators. This situation
reflects the fact that substantial
352
Table 1 Necessary investment in member come from cities with more than 100,000
states during 2007 - 2013 (million Euros) inhabitants, due to insufficient treatment
State Invest. in Invest. in Total stations existence or to the lack of facilities
water waste invest. at existing wastewater treatment plants.
supply water However, in the last 15 years, in Romania
treatment there was a significant reduction of nitrate
Bulgaria 3138 2487 5.625
and ammonium concentrations in rivers,
(no. 4)
especially since the requirement of water for
Cyprus 0 120 120
(no. 13) population, industry and agriculture has
Czech 1200 2400 3.600 declined significantly during 1990-2008,
Republic (no. 5) from 20 4 billion cubic meters in 1990 to
Estonia 23 267 290 9.44 billion cubic meters in 2008. According
( no. 12) to an ANAR press, even if the
Greece 1304 500 1.804 concentrations of nitrate and ammonium in
(no. 9) rivers are still 2-3 times higher in south-
Hungary 2121 3738 5.859 eastern Europe to those in northern Europe,
(no. 3) over the past 15 years, European countries
Latvia 879 1201 2.080 have made progress in terms of water
(no. 8)
management policies. During 2005-2008,
Lithuania 340 863 1.203
(no. 11)
Romania registered a 10% reduction in the
Malta 3 55 58 (no. 14) amount of pollutants discharged into
Poland 1100 7240 8.340 natural receivers, this phenomenon being
(no. 2) determined mainly by the decreased of the
Portugal 1061 1958 3.019 drinking water consumption, and by the
(no. 6) development or upgrading of the treatment
Romania 3800 4800 8.600 plants operation. Thus, in 2008, 70% of
(no. 1) wastewater from the main sources of
Slovakia 455 2132 2.587 pollution has reached the natural receivers,
(no. 7) untreated or insufficiently treated,
Slovenia 465 1175 1.640 compared with about 80% of the wastewater
(no. 10)
as it is recorded in 2005-2006. However, the
Source: Strategic Environmental
percentage of untreated water remains high
Assessment and Risk Prevention - Country
enough so that the major objective remains
Report - Romania, ECOLAS & GHK
to increase the number of treatment plants
and upgrading the existing ones, in order to
Romania obtained transition periods for
achieve the European standard of quality.
urban wastewater collection until 2013
Taking into account both positioning
December 31; for human agglomerations
Romania in the Danube basin and Black
with less than 10,000 population equivalents
Sea, and the necessity of environmental
(them) up to 2018 December 31; for human
protection in these areas, Romania declared
agglomerations with more than 10,000
its entire territory as sensitive area. This
population equivalents, according to the
decision is focused on the fact that the tie
ANAR report. For urban wastewater
with more than 10,000 equivalents
treatment and disposal, the transition is up
inhabitants should provide an infrastructure
to 2015 December 31; for human
for urban wastewater treatment to allow
agglomerations with less than 10,000
advanced treatment, especially in terms of
population equivalents, is until 2018
nutrients. In terms of degree of treatment,
December 31. According to ANAR interim
secondary treatment (biological step) is a
targets were set: 31 December 2010 - 61% of
general rule for tie less than 10,000
total biodegradable organic load and 51% for
equivalents inhabitants.
sewage collection; December 31, 2013 - 69%
In Romania, many individual farms and
of total biodegradable organic load and 61%
properties of the small type used manure as
for sewage collection; December 31, 2015 -
main fertilizer because it is cheaper and
80% of total biodegradable organic load to
more available. Regarding livestock,
the sewage collection and 77% for treatment;
households are often not provided with
December 31, 2018 for full compliance
protected platforms for collection of manure,
(100%). Currently, over 50% of the
so that nutrients, especially nitrates,
pollutants discharged into water sources
dissolved in groundwater. Moreover, these
353
platforms are not emptied for the collection recycling and the list of the monitoring
and storage. Larger farms and farm indicators. It also includes actions and
operators have storage facilities for manure appropriate means to comply with the
and liquid waste from animals, but most of environmental acquis in waste
the sewage treatment facilities and storage management. Regional waste management
should be rehabilitated or upgraded and plans, based on Romanian and EU
provided with facilities for handling and legislation transposing, at regional level, the
manouvering of the natural organic fertilizer objectives of the National Plan of Waste
in accordance with the law. Some of the Management. These documents promote the
major problems of water services in small cooperation between county and local
urban areas include: poor maintenance and authorities to establish and develop an
operation services; increased volume of integrated waste management system to
unpaid water caused by leaks in the replace the existing system, inefficient both
network and the low level of collection from economically and from the environmental
consumers; lack of investment for the protection. In this context, possible solutions
rehabilitation/expansion of infrastructure were identified, depending on specific
for water/wastewater; lack of suitable features of each region, to ensure national
personnel for promotion, management and objectives and commitments assumed by
implementation of major investment; Romania.
inadequate management of operating costs, The amount of municipal waste varies from
maintenance and staffing costs; unclear year to year, occurring in the last years a
roles and responsibilities of the tendency to increase, given both the growth
institutions/authorities involved in the in household consumption and increasing in
management of public utilities; inadequate the proportion of the population served by
institutional framework. There is a constant the public centralized sanitation services
need to ensure that all cities can invest in system. The amount of municipal waste
order to maintain and upgrade their generated per capita shows the level of
infrastructure to get good service, capable of economic development of the respective
achieving European standards. This state. National Environmental Protection
requires the adoption and implementation of Agency has set a target of 35% municipal
appropriate development policies focused on waste recycling rate in 2008, and of 40% by
meeting real needs of the population and an 2011.The EU new member states must
adequate degree of supportability. The reach 55% recycling by 2012, with some
accessing of the EU funds for investment exceptions: Latvia is the most important
needs will be an incentive to switch from a exception (till 2015), Poland and Bulgaria
large number of low quality service (till 2014) and Romania and Malta till 2013.
providers to a limited number of large and Under European legislation, Romania must
strong operators able to provide better recycle 33% of packaging waste generated in
services at acceptable price levels, ensuring 2008 and 55% of those generated in 2013.
full recovery of costs and repayment of loans
by local authorities. Table 2 Land filling in the EU
Waste management is one of the major (thousand tons of municipal waste)
problems facing Romania as regards State Recy- Treated Incine- Stored
environmental protection. It refers to the cled rated
Belgium 1,442 1,088 1,627 594
activities of collection, transportation,
Greece 375 32 - 4,233
treatment, recovery and disposal. Data
Spain 3,811 3,914 1,567 14,723
looking the waste management in Romania France 4,715 4,208 11,110 12,991
distinguish two major categories of waste: Romania 170 - - 6,695
municipal and similarly from the Source: Eurostat
commercial, industrial and institutions;
construction and demolition wastes; sludge In recent years, private economic agents
from municipal wastewater treatment have started supported actions to collect
plants; production waste. National Waste cardboard and plastics. In some localities
Management Plan, approved by Government have placed collection centers where people
Decision 1470/2004, provides a detailed can make (with or without pay) scrap,
analysis of waste management in Romania, cardboard, glass, plastic. In Romania, the
measures to prevent waste production and institutions of the glass, paper, and
to reduce their quantity, methods of
354
cardboard and plastics industry are however, important areas are affected by the
approved and began to take these wastes ballast, which affects soil quality by
from the collection centers for recycling deposition of extracted material extracted
and/or recovery. In some cities have set up which affect the soil quality; pollution from
pilot stations for the composting of the tailings dams, waste dumps, un adequate
biodegradable waste. In comparison with landfills (ponds in operation can affect the
EU countries that have chosen store, as surrounding lands in case of tailings dams
main method for waste treatment, according fail, through the contamination with heavy
to Eurostat data, Romania recorded the metals, cyanide and other excessive
lowest percentage of municipal waste elements); pollution with waste and
storage warehouse as a situation caused by inorganic residues (mineral, inorganic
the high number of irregular deposits. materials, metals, salts, acids, bases); these
Amount of construction and demolition cause disease in humans and animals and
waste generated in Romania is relatively soils are affected by acidification, which
low, but growth is expected, determined by decreases the nutrient content; pollution
the country's economic development. Still, caused by airborne substances
there is not an adequate recovery of (hydrocarbons, ethylene, ammonia, sulfur
construction and demolition waste, but an dioxide, chlorides, fluorides, nitrogen oxides,
internal reuse in their household or on an lead compounds, etc.); salted water pollution
undeclared market trade. Regional waste caused by oil industry, oil pollution
management strategies must provide (affecting both flora and water quality in
solutions to target this category of waste, surrounding areas being caused by broken
given that these become an acute problem. pipes or leaks).
Waste production is represented by In October 2004 with the support of PHARE
industrial and agricultural waste, including 2001, Romania has developed the National
those resulting from energy production. Strategy for Atmosphere Protection which
Organizing the production of waste is the has, as main objectives: the maintenance of
generator's obligation, under its own the ambient air quality in areas that comply
possibilities or by contracting services of with the limits set by the rules in force; the
specialized firms. These types of wastes are improvement of the ambient air quality in
managed under specific national legislation. areas where it does not comply with the
Mining waste is a problem not only in terms limits set by the rules in force; taking steps
of environmental protection, but also in necessary to minimize and finally the
economically and socially terms. elimination of the negative impact over the
Government seeks to address this problem environment and/ or the elimination of the
by using a specific strategy and programs trans-boundary impact; the fulfillment of
aimed at mine closure, environmental the obligations assumed through the
rehabilitation and improvement of social international agreements and treaties to
problems in mining areas. Thus, the "closing which Romania is part. The achievement of
mines and reducing social problems” project these objectives took into account both the
begins in 2000 and is continued by the" mine time horizon up to accession, 2004 - 2006,
closure, environmental rehabilitation and but a longer time horizon, 2007-2013.
socio-economic conditions "(2005-2010) Setting these goals has been made taking
project coordinated by the National Agency into account the need to protect human
for the Development of Mining Areas. The health and natural environment without the
waste resulted from medical activities requirement, for the residents and business
management is currently regulated by the environment in Romania, of unacceptable
Ministry of Health Order no. 219/2002 economic and social costs. These goals
which approved the technical rules on the represent an important part of the
management of waste arising from medical Government's objective to promote and
and data collection methodology for the achieve sustainable development of the
national database. country. Romania is the first country
The most important types of soil pollution included in Annex I (developed countries
identified by ICPA are: soil pollution and countries with economy in transition) of
(degradation) due to mining activities (for the United Nations Framework Convention
extraction of coal (lignite); mining destroys on Climate Change (UNFCCC), which
large areas which affects soil fertility and ratified the Kyoto Protocol to the UNFCCC,
lead to loss of agricultural land and forests; committing to reduce greenhouse gas
355
emissions (GGE) with 8% in the first Carpathian region), and also, one of the
commitment period (2008-2012), in most important wetlands in Europe, namely
comparison with the base year (1989). Also, the Danube Delta (the second largest in
by Law no. 271/2003, Romania ratified the Europe). In recent decades, natural and
Convention on Long-range Trans-boundary landscape conditions in Romania have been
Air Pollution. Our country take the particularly influenced by the developments
commitment that by 2010, the emissions of the economic activities, plus the economic
level should be in the limits set by the growth of the recent years which has often
Gothenburg Protocol, as shown in Table 4. led to an excessive exploitation of the
In this respect, concrete measures were natural resources. Under these conditions,
taken (assumed by each operator many plant and animal species are
separately), such as: programs to reduce threatened with extinction, and the
emissions of SO2, NOx, emissions from large landscape change is the first indicator of
combustion plants and also, from other environmental damage. A great variety of
activities (refining, petrochemicals, etc.). wild flora and fauna in Romania has great
Table 3 Romania's commitments economic importance, with multiple uses in
resulting from Gothenburg protocol various sectors. For those species of
commercial importance is necessary an
Poll. 1990 20021 2004 2010 2010 assessment of areas and available quantities
(thou. 2 emission emis. and, also, an adequate planning for the
tons) ceilings/ reduc.
Gothen. (% of rational use of these species to avoid over
protocol 1990) exploitation. In Romania there are 13
SO2 1311 781 960 918 -30% National Parks, 13 Natural Parks and, also,
NOx 546 357 326 437 -20% the Danube Delta Biosphere Reserve.
Source: National Statistics Institute Outside the national parks, natural parks
and biosphere reserves are about 935
There have been significant improvements scientific reserves, natural monuments and
in air quality in localities where industrial natural reserves whose total area is
production has ceased or have made approximately 180,000 hectares. Therefore,
investments that led to the emissions the land area of protected natural areas
reduction. However, in many areas, air covered about 8% of land area of the country
quality is very low, due to defective control in late 2005 but, till the end of 2013, this
of industrial emissions. One of the main percentage must rise to 15%. So, currently
sources of air pollution in many localities is dominate a series of threats to the
the combustion activities, especially those biodiversity in Romania, as result from next
resulting from large combustion plants explanation regarding the threat type/goals,
(LCPs) that produce energy and heat. manifestations and effects:
Emissions in the air of the pollutants from 1. Land conversion:
the IMA have a particularly negative impact Made for urban, industrial, agricultural,
on human's health and on the environment tourism and transport development, has, as
and represent the most important part of effect the degradation, the habitat
total emissions of SO2/NOx in urban areas. destruction and fragmentation; directions:
Romania is a country with a high biological the draining of the wetlands and the
diversity, at both ecosystem and species conversion into arable land or grassland,
level. Romania's territory includes a sustained even with environmental funds;
relatively equal proportion of three the river regulation and the alluvial
geographical units - plain, hill and ecosystems destruction, sustained even with
mountain, with a great diversity and water environment funds; the grasslands with low
conditions which make the difference productivity and steppe habitats
between 52 eco-regions with a variety of deforestation, wrong considered by the
terrestrial and aquatic ecosystems - specific authorities as "degraded" land; the
for the coastal and littoral of the Black Sea, destruction of grazing land for the expansion
steppe's zone, steppe's, hills, mountains, of shrub vegetation; abandoned meadows
lakes, rivers and their meadows, to the and pastures, especially in the highlands,
areas of dry or wet, including those specific less accessible, which will be invaded by
to the Danube Delta. Romania has a unique forest vegetation.
natural heritage, consisting of the 2. Infrastructure development:
Carpathian Mountains (65% of cross-
356
Stepping up the investments for exploitation of the mineral resources has the
infrastructure development; construction of effect of total destruction of habitats due to
wind farms, which may affect populations of scaling; waters formed in the abandoned
migratory species (birds and bats), in case of mine galleries, usually acidic and loaded
poor location, lack of maps detailed in terms with heavy metals reach in the surface
of species migration corridors and areas water; exploitation of thermal waters for use
with potential wind. in heating systems or for therapeutic
3. Expansion and development of the human purposes, may affect the discharge waters
settlements: from rivers collectors, due to the differences
Habitat fragmentation occurs when there of temperature.
are large agglomerations of dwellings, but 7. Invasive species:
also in those isolated, due to additional Intentional introduction of the
construction of access roads and utilities; allochthonous species from economic reasons
building random, without respect to a has a significant negative impact (the
coherent planning strategy leads to the Chinese carp which eliminated the native
building expansion against the natural one; carp populations); intentional introduction
the residential buildings and the one with of exotic fish species, for private aquariums,
seasonal destination from the coastal and may pose a risk in situations where they
mountainous area with touristic potential. come inland; invasive species arrived in
4. Hydraulic works: Romania inland on natural migration,
Hydro big power from the Iron Gates, the favored by the habitat changes due to both
thresholds bottom, guide dikes reduced 50 human intervention and climate changes; in
times numbers of sturgeon; Danube the Black Sea, the over fishing and the
impoundment, dikes sucking lead to the penetration of new species have produced
destruction of the reproductive for carp significant changes in existing organisms
areas (10-fold reduction of its workforce); the associations (pronounced reduction of
tendencies to tackle the problems caused by exploited fish stocks, reducing fishing
the floods by strengthening dykes and industry virtually to zero in some areas of
building new dams, against the maintaining the Black Sea).
and restoring of the transitional areas and 8. Climate changes:
the prohibiting of human settlements For Romania, as INMH - Bucharest, this
development in flood risk areas; hydraulic increase is of 0.30 C, higher in southern and
works realized in port areas has as eastern regions (0.80 C) and lower in the
consequences the disappearance of entire intra Carpathians regions (0.10 C); in the
species habitat valuable for ecologically but fourth report (2007) of the Committee
also economically point of view. International Climate Change (IPCC), for
5. Overexploitation of the natural resources: the period 2020-2030 in comparison with
Over-exploitation of timber and the illegal 2000 and in an optimistic variant, is
logging of forests recently returned and expected to increase an average global
which are not currently administered temperature of 0.50 C and in the pessimistic
fragment the habitats and lead to the soil variant, with 1.50 C and for the period from
erosion or to landslides; overgrazing causing 2030 to 2100 the growth, in the two
the decreases of the plant biomass and of a variants, is between 2.00 C and 5.00 C,
number of species with nutritional value which is extremely much.
(isolated problem due to the considerable 9. Pollution:
decrease livestock since 2004); Pollution incidents are relatively numerous
overexploitation of species of hunting in particular on the Danube and Black Sea
interest, economic or cultural represents due to the uncontrolled discharge of vessels
isolated phenomena being generated, and / or shipping accidents; diffuse pollution
mainly, by the over-valuation of the sources are represented in particular by
population number or by the poaching. chemical fertilizers used in agriculture,
6. Inappropriate exploitation of the non- pesticides used for pest and human
renewable resources: agglomerations in rural areas and urban;
How the ballast and sand mining from the around some industrial sources such as
inner river beds determine the degradation ferrous metallurgy units can occur
of the and aquatic habitat and destroy the atmosphere pollution with particulate
wetlands areas, affecting the species that matter and gaseous pollutants, the effects of
have their habitats in these areas; the some of these sources being felt, even after
357
the activity cessation; the pollution related achieve the Integrated Water Management
to the ferrous metallurgy produces human of disaster (WATMAN) with support from
and animal diseases in the surrounding the Agency for International Development
areas, within a radius of 20-30 km. and Trade Development Agency of the
Romania faced, during the time, with United States. Another aspect is the process
natural phenomena such as earthquakes, of Black Sea coastal erosion which has
droughts, floods, forest fires and many increased greatly now because of the
accidents caused by human activities, which planetary climate change which causes the
led to substantial material losses and have sea level rise (in the last 35 years the beach
had a negative impact on the environment. area lost was over 2400 hectares (approx. 80
In terms of climate, Romania faces with ha/year), while the accumulation was only
hydrological phenomena in cycles of 9-10 by 200 hectares (about 7 ha/year)). Another
years: years of drought followed by years of reason is the hydro facilities on the Danube
rain. Floods in Romania have a high and its main tributaries and, also, the
frequency. Unfortunately, there were coastal of the Black Sea which further lead
situations where, in terms of proportion and to the decreasement of the supply of sandy
spatial distribution, it has caused material transported by water on shore.
catastrophic losses. Massive deforestation Action sea erosion caused complete
after 1990 has magnified the seriousness of disappearance of large areas of beach.
the phenomenon, the floods having a National Administration "Romanian
torrential character in many areas. Given Waters" is the authority responsible for
the frequency and losses caused by flooding, management of Black Sea coastal zone.
the last one is the first in terms of natural In the process of developing plans for the
risks for population and economic activities. implementation of the environmental
Given the frequency and the intensity of acquis, MESD assessed the investment
natural risks listed above, both in terms of needs to comply with the EU environmental
casualties and material losses, Romanian legislation in 2018 (year which coinciding
authorities decided that the most important with the last transitional period accorded to
natural risk to be covered by specific and Romania) at 29 billion of which, approx. 18
significant interventions is the flood. billion represent the necessary of funds for
Romania faces an annual frequency of the next seven years. For 2007-2013 periods,
floods, especially in spring at the snow Romania has a contribution to the FSC by
melting and in summer due the torrential 4.5 billion euros for investments in the
rain, when the river flows increased greatly, environmental sector, contribution which is
causing floods, often catastrophic, with situated well below under the estimated
human losses and material damages. The needs for the same period.
frequency and the magnitude of floods has
increased because of climate change, the 4. Conclusions and implications
occupation of the main riverbed of the river The environmental general situation in
with unauthorized construction and Romania is characterized by deficiencies in
unauthorized deforestation. Given the large environmental infrastructure, particularly
number of human losses (283 people died) in: urban wastewater treatment, water
registered in the last decade, and the supply, solid waste management, flood
considerable material damage (affected prevention and urban warming. In addition
households and annexes, flooded farmland, to the commitments made during the
roads, bridges and culverts), whose value negotiation process, Romania must align
amounts to 3.5 billion (of which 2 billion with the requirements of the Single Market.
only in 2005), Romania must take measures In this regard, to ensure social and economic
to prevent and protect against water attractiveness of cities, as a precondition to
disasters. Was completed in 2003 National release economic growth and employment,
Integrated Meteorological System (NIMS), Romania, as new EU Member State, must
which allows more precise understanding have a modern infrastructure and to provide
and forecasting of hazardous weather and services of general interest quality for all
has started the achieving of Integrated citizens and at affordable costs, improving in
Information System in case of disasters that mode, the life quality. Also, a
caused by the water (DESWAT). In order to preliminary measure for economic growth
increase the responsiveness of government and jobs is to ensure the infrastructure for
in case of floods and accidental pollution will business. Romania's capacity to provide
358
efficient infrastructure and environmental

services, both nationally and locally, is an
important factor in the private sector
development. Environmental investments
lead to sustainable development in
industrial and commercial. Investment in
environmental infrastructure is strongly
connected with sustainable economic growth
and job creation. They help the convergence
promotion and the competitiveness growth
between regions. In this context, recurrent
elements were addressed, in time, by the
relevant authorities.
In conclusion, the environmental and water
infrastructure development through a
regional approach is considered a key
element in the implementation of the
national and regional strategies. These
include, as further actions the following one:
the need of regional cooperation, proper
implementation of national legislation in
line with EU acquis, public participation,
coordination of the different action plans
and regional issues bounded by the
administrative capacity implementation and
building.
References
1. Dutu, Mircea, Environmental Law Treaty,
Bucuresti, C.H. Beck Publishing House, 2007.
2. European Union, Rural Development in the
European Union. Statistical and Economic
Information, Report 2009.
http://ec.europa.eu/agriculture/agrista/rurdev200
9 (on 14th April 2010)
3. EUROSTAT, L’Europe en chiffres - L’annuaire
d’Eurostat 2009.
4. G.E.O. no. 57/2007 regarding the state of
natural protected areas, conservations of natural
habitats, of flora and wild fauna, Official Gazette
of Romania, no. 442/29 June 2007.
5 Marinescu, Daniela, Environmental Law
Treaty, Bucuresti, Univesul Juridic Publihing
House, 2008.
6. Ministry of Environment, Management
Authority for Environment Sectoral Operational
Program (SOP Environment).
http://www.mmediu.ro/vechi/proiecte_europene_p
os.htm.
7. National Strategy for Sustainable Development
of Romania, Horizons 2013-2020-2030, Document
approved by Romanian Government Decision no.
1460 from 12th November 2008, published in
Official Gazette no. 824/8th December 2008.
8. Rojanschi, Vladimir, and Bran, Florina,
Politics and strategies of environment, Bucuresti,
Economic Publishing House, 2002.
9. Statistical Yearbook of Romania, Bucuresti,
National Institute of Statistic (NIS), 2008.
10. Teseleanu, George, Economic development,
Petrosani, Universitas Publishing House, 2005.
359

THE ECONOMIC CRISIS AND FOREIGN DIRECT INVESTMENT IN

ROMANIA. A REGIONAL APPROACH
MĂRGINEAN Silvia;
”Lucian Blaga” University of Sibiu, Romania;
silvia_marginean@yahoo.com
Abstract of the foreign direct investments; (2) the

The paper analyzes the impact of the unemployment rate and foreign direct
economic crisis on the presence of the foreign investment are negatively related.
capital in Romania. Data for 2007-2009
shows that foreign investments were more 2. Theoretical Background
sensitive than GDP and unemployment at
global economic crisis. Using correlation First, the paper looks at the relationship
coefficients we find out some effects of between GDP decline and foreign direct
economic crisis and foreign investment on investment at national level in 2007 – 2009.
Romanian economy: companies with foreign
participation in share capital had a low After that, based on correlation coefficients
contribution to unemployment growth in we determined the relationship between the
Romania; and the foreign capital exits are new foreign direct investment (measured by
higher in the regions with low unemployment the number of trading companies with
rates. foreign participation in the share capital and
the value of the subscribed share capital)
Key words: foreign capital, crisis, region, and unemployment at national and regional
unemployment. level. The correlation coefficients don’t give
us indications on the causality. Our research
1. Introduction is about correlations and not about causality
and we try to make some assumptions about
The year 2007 was for the world economy the possible direction of causality.
the beginning of the worst economic crisis
since 1930. Globalization is making the 3. Foreign companies: entries and exits
difference. Multinational companies, looking on Romanian market
for profits or looses’ minimization, have
made significant changes in their The effects of the crisis on real GDP growth
investment behavior. rate are significant and visible in 2009,
when GDP registered an important
Before the crisis, the foreign direct slowdown in Romania (-7, 1%). In 2007 and
investments attracted by Romania increased 2008 the growth rates were 6, 3% and 7, 3%
year after year, as the whole economy. The per year, despite the global crisis. More
fact that in European Union the countries sensitive than GDP at global trends was the
with the highest growth rates before 2007 foreign capital. The number and the value of
have the strongest fall in 2007-2009 foreign capital entered in Romania through
(Mărginean, 2009) could determine the companies with foreign participation in
assumption that a strong GDP decline is share capital registered a major decline.
related to a great decline in FDI.
This paper explores the impact of the crisis

on foreign direct investments in Romania at
regional level by analysis the following
hypotheses: (1) the crisis determined the fall
360
Fig.1. Number of trading companies with foreign participation in Table 2. Regional unemployment rate in
share capital (number of entries and exists 2007-2009)
Romania 2007-2009 (%)
600
500
Region 2007 2008 2009
NE
400 SE NE 5 4,5 9,5
SE 8,5 7,2 9,3
300 S
200 SV
100
0
V S 8,2 6,8 10,2
NV
-100
CENTRU SV 6,8 6,5 11,5
-200
2007 New 2007 2008 New 2008 2009 New 2009
B – IF
V 5,6 5,7 7,5
Strike-off Strike-off Strike-off
NV 4,3 3,8 7,4
CENTRU 8,5 8,5 9,9
Since 2007 there is a decline of new B-IF 4,1 3,4 2,6
companies with foreign participation in TOTAL 6,4 5,8 8,4
share capital, at regional and national level Source: Eurostat, April 2010
and the number of strike-offs of the
Romanian market is higher every year. For The correlation coefficients calculated for
the first time in the last years, in 2009 the every region (2007, 2008 and 2009) to
balance is negative with 459 entries and 523 analyze the relationship between
exits, at national level. unemployment and market entries (number
and value) and market exists (number and
The value of the foreign capital invested in values) show that the impact of foreign
Romania looks to be more sensitive to global capital on employment is relatively low
crisis. (values between -0,14 in 2007 – number of
companies and -0,56 in 2009 – capital value).
Table 1. Entries and exits on Romanian’s
market (the balance of foreign participation in the 5. Conclusions and implications
share capital) – thousands Euro
Region 2007 2008 2009
The paper offers two kinds of conclusions
NE based on correlation between trading
-43739,4 -48833,6 -403679,3 companies with foreign participation in
SE share capital and unemployment in the eight
-131078,6 -63877,6 -117432,2
S regions. Analyzing the correlation
905315,9 71787 409635,3
SV coefficients, we find (1) a negative weak
15337,2 26866 -8705,8 correlation between the number and capital
V value of the new trading companies with
377429,3 3330223,1 -9154255,2
NV foreign participation in share capital and
8356,7 -21448109,4 -198563,5
unemployment rate in every region. This
CENTRU
1247446,3 -56612,4 -27439,6 result shows that between 2007 and 2009
B – IF new companies with foreign participation in
-7723777,7 -119455563 -21201490,4
Source: NTRO Statistical Synthesis no. share capital have a low contribution to
140/2009 unemployment growth in Romania; (2) a
stronger negative correlation between the
The economic downturn and the financial value of capital of the strike-off trading
crisis are having negative effect on various companies with foreign participation in
indicators: global competitiveness (European share capital and unemployment rate. The
Competitiveness Report 2009), innovation correlation coefficient is higher if we
(Kanerva and Hollanders, 2009), foreign determine the correlation between the
direct investments, etc. Knowing that capital values of strike-off in t0 and
unemployment is a lagging indicator we unemployment rate in t1. The foreign capital
studied the impact of diminishing foreign exits are higher in the regions with low
investments in Romania’s regions on unemployment rate.
regional unemployment rate.
The regional trends of unemployment are

similar to those of real GDP (Table 2).
361
References
 Mărginean, S., Business Cycles and

European Recovery. A Survey, Studies in
Business and Economics, vol.4/2009, Lucian
Blaga University Publishing House, Sibiu,
available at
http://eccsf.ulbsibiu.ro/RePEc/blg/journl/SBE/
447marginean.pdf
 Doing business 2010: reforming through
difficult times, Palgrave Macmillan, IFC, The
World Bank, 2009
 Companies by Foreign Direct Investment.
Statistical Synthesis of the National Trade
Register’s Data – 31 December 2009, no.
140/2009
 Kanerva, M. and Hollanders, H., The Impact of
the Economic Crisis on Innovation. Analysis
based on the Innobarometer 2009 survey,
available at http://www.proinno-
europe.eu/admin/uploaded_documents/EIS_200
9_Impact_of_financial_crisis_on_innovation.pdf
362

MODERN STRATEGIES OF TRANSNATIONAL COMPANIES FROM

EMERGING COUNTRIES
MĂRGULESCU Serghei;
University “Nicolae Titulescu” Bucharest;
margulescu@univnt.ro
MĂRGULESCU Elena;
University “Nicolae Titulescu” Bucharest;
margulescu@univnt.ro
Abstract
The analysis of strategies adopted in the last
10-15 years by companies in emerging -trillion-
countries that have managed to reach the Developed
Next 11 Total
status of global companies, enables us to G7 BRIC emerging emerging
countries
countries countries
appreciate that, in a first stage, emerging 2005 27,3 32,4 4,2 2,9 8,9
companies have followed the "normal" 2015 33,0 39,6 10,2 5,6 19,0
principles of corporate strategies leading 2030 43,0 51,6 28,2 12,5 46,8
Western companies to a multinational or a 2050 64,2 77,0 90,0 35,5 138,0
transnational status. But more important is Source: Antoine van Agtmael, in “The
what happened in the second stage, namely Emerging Markets Century”, Free Press,
that many emerging companies were able to New York, 2007, based on Goldman Sachs
overcome the classical principles and estimates for BRIC and another 11 emerging
strategies and to develop new business countries and JPMorgan for another
models. We consider that the most countries.
remarkable and ongoing process over the
past 10-15 years, and whose effects will Before, however, the years will validate or
increase in coming decades in a manner not this scenario, we can see the nowadays
which can not be said to have been predicted, realities in the world. A study undertaken by
that companies "functional" specialize, will Boston Consulting Group (BCG) has
definitely make its mark also on the recorded impressive economic concentrations
emerging companies strategies. that exist in emerging countries. In 2006, a
total of 100 companies in these countries
Key words: emerging countries, emerging have assets of 520 billion USD, this means
companies, classical strategies, modern more than the top 20 global automobile
strategies. manufacturers.
UNCTAD inventoried until 2004 a total of
1. Introduction five companies from emerging Asia, which
were among the top 100 transnational
One cannot talk about globalization without companies regarding the size and another 10
taking into account the economic momentum external assets, which could be included
of emerging countries, their development in among the first 200 companies.
rates two times higher than in developed In 2006, FDI from the emerging economies
countries and projections that indicate that (including mergers and acquisitions) reached
the cumulative Gross Domestic Product will the level of 174 billion in the USA, 14% of
be at a higher level within 25-30 years. The world total, up from 5% in 1990. Their share
BRIC countries (Brazil, Russia, India and in world FDI stock was 13%, representing $
China) will surpass the G7 countries from 1600 billion in US (compared to 8% in 1990).
this point of view, and the first 15 emergent Investment flows take place increasingly SN
countries will surpass the G7 after 2030. and SS relations as emerging economies
363
invest both in developed and in the less 4. to be globally competitive, not only in
developed countries. Chapter price, but also in quality,
technology and design;
2. Literature review 5. to refer to the biggest and the best
companies in the world.
This section must comprise referrals to The ways of achieving these performances,
specialized literature, compared against the the strategy adopted, there has never been a
paper’s subject, emphasizing the most single abstract step, but a succession of
important and relevant contributions on steps. These attempts have however one
which the author will ground his/her common denominator: the courage of
argumentation. In the reviewing process strategic management decisions, allowing
there shall be taken into consideration the faster browsing of those steps, getting out of
share of referrals to papers published in the classic pattern of organic development
international journals recognized by the that the Western occidental companies have
scientific community. This section must run across.
stress the fact that the author is familiar Analysis of strategies adopted in the last 10-
with the knowledge level in the studied area, 15 years by companies in emerging countries
that he/she has sufficient scientific training, that have managed to reach the status of
allowing him/her to have a pertinent opinion global companies, enables us to appreciate
over the studied issues. that, in a first stage, emerging companies
have followed the principles of "normal"
3. Paper Content corporate strategies that lead Western
companies to multinational or transnational
Tipology of strategies implemented by status, as following:
emerging companies  Focus on activities or core
competencies and outsource other;
According to Antoine van Agtmael, one can  Accession to the status of market
see three historical steps (the author calls leader in key markets around the
them „waves”) that define the commercial world;
relationships between industrial and Third  Keeping costs at a low level and
World countries during the last century: quality high level;
 First wave defined by FDI in  Impeccable customer service;
production facilities overseas;  R & D investment;
 Second wave dedined by outsourcing  Hiring the best specialists and their
and offshoring; corresponding reasons;
 The third wave defined by  Building a strong brand;
competition between transnational  Motivating employees through
companies from developed countries options and other incentives.
and strong global companies in
emerging countries; But more important is what happened in the
Today, we stand in the early stage of the second stage, namely that many emerging
third „wave”. companies were able to overcome the
Rise of a growing number of companies from conceptual principles and strategies to
emerging countries to the status of global develop classical and new business models.
companies is obvious. From the Currently, we cross a time when we try, by
methodological point of view, we accept the specialists and researchers, to "unveil the
criteria the author proposes to trace the mystery" of how many emerging companies
entrance of a company in the selected were able to achieve this unexpected
category of global companies, as following: success. For example, Boston Consulting
1. to be the world leader in the Group concludes that there are five types of
industry; strategy determinants, namely:
2. to have a global presence in exports
and even production; 1. Growth of local brands globally (eg.:
3. to have one of the top three market Hisense in China for consumer
share position as a sufficient number electronics, Bajaj Auto in India for
of countries in order to be
considered a global player;
364
two or three wheeled vehicles, Tata A. Classical strategies, which:

Motors of India for cars);  Global brand development
2. Transforming engineering excellence strategy;
in innovation globally (eg.: Embraer  Global development and supply of
of Brazil for the production of niche products strategy;
regional jets);  Non-organic growth strategy;
3. Acceding to the status of a global  The strategy of geographical
leader in a niche product (eg.: BYD adjustment of business flows on
in China which produces batteries, South-South and South-North
Johnson Electric in Hong Kong that directions;
produces electric motors and video
cameras for cars); B. Modern strategies, which:
4. Widening ownership advantage of  The strategy of integration of
natural resources by implementing "functions" resulted from the
new ways of marketing and global value chain restructuring,
distribution (eg.: Sadie and Brazilian based on the new "functional"
companies in international specialization in manufacturing
distribution Perdigao cereal, chicken and services, completed by the
and pork, Brazilian Vale Company in strategy of “steps getting on” on
world exports of iron ore); the overall chain of the "product"
5. Implementing new models for value;
business performance or new types  Strategy based on organizing
of market penetration (eg.: Mexican global networks of suppliers;
company Cemex in cement and  Reverse outsourcing strategy on
construction materials). South-North direction;
Certainly, the list of examples of each type Modern strategies implemented by

of strategy presented above can be extended companies emerging
enough to validate these trends.
In the following, we want to systematize in I. The strategy of integration of
our own way the range of the main "functions" completed by the
strategies implemented by emerging strategy of "steps getting on" on
companies until now, facing their efforts to the overall chain of the
become global players in an increasingly "product" value
globalized world.
We believe that the most remarkable and A unique strategy of building several
ongoing process developed in the last 10-15 corporations in emerging countries, which
years, and its effects will increase in the have started from scratch or have followed a
following decades, in a manner which cannot restructuring process, was the strategy
be said to have been predicted the specialized on a certain "function" of a
"functional" specialization of companies product value chain. This is the excellent
affects the strategies of emerging example of large contract manufacturers in
companies. We call them "modern East Asia, South and Southeast from
strategies." electronics, telecommunications and light
They join to a category of strategies that industry.
have direct link with the new division Their strategies can be grouped by the size
(national and international) of labor and complexity of the "functions" taken for
specialization based on "functions". We name execution, in conditions of anonymity, from
them classical strategies, and based on these the greatest western transnational
we refer to those who have provided the companies:
greatest success in recent years as emerging  simple strategies: focusing on
companies in their globalization plans. production function, as the "original
We believe that the following structure of technology manufacturers" (OEMs)
strategies practiced by emerging companies and global suppliers;
to accede to the status of global companies  more complex strategies: integrating
can be enlightening for today: several functions, usually
365
manufacturing and design, as Hon Hai has reached in the top because of
"original design manufacturers" the speed with which manages to translate
(MDGs) are; projects into products, while maintaining the
Some of the strategies of companies like league with the lowest cost producers, but
Taiwan Semiconductor Manufacturing also because it is developing a new
Company (TSCM), Hon Hai Precision organizational concept, called a one-stop
Industry and High Tech Computer (HTC), shopping. This model, like the direct
Pou Chen and Yue Yuen are emblematic in distribution model promoted by the Dell
this regard. The acquisition in the same time Company, requires an extremely generous
of the production function or of a offer module that can be easily assembled by
combination manufacturing and design from the beneficiaries. The company has
a large number of order companies vertically integrated into a model called
competing with each other, turned such CMMS (components, modules, moves and
functions integrators into "giant anonymous" services), which allow to quickly and
in terms of established brand in the market, continuously reposition to new products and
which remained in the position of partners new areas. In this approach, it is helped by
to the globally integrated business, the research and development centers in
unavoidable to major brand companies U.S., Europe and Japan, focused on the
worldwide. research and development of new products,
while centers in Taiwan and China are
Hon Hai Case dominant in the field of research and
We mentioned earlier the five largest engineering of wireless connections
companies’ contract manufacturers of processes. With over 3,000 engineers, Hon
electronic components based in the U.S., Hai, in 2005, had a total of 13,000 patents
some of which relocated their headquarters and 20,000 patent applications. The
in Singapore (as Flextronics and Solectron). company has to be noticed also in the
But in 2004 we are the witnesses of a research field where its strategic decision
spectacular evolution. Hon Hai Company was to move not only on their own, but
exceeds, with a turnover of 17 billion dollars, mainly in tandem with its big clients. It is
both Flextronics and Solectron, and so it is the adept of the philosophy according to
becoming the largest contract electronics which business partners and brand
manufacturer in the world. challenges will always pull you forward, so
The company is not only one of the largest, Hon Hai have always targeted at the first
but it's one of the most profitable, perhaps customers of the top 2-4 companies in each
due to heavy involvement in China. The area:
company strategy was to build in China a  Dell, HP, Intel, Apple in the
few "mega-cities" for the 100,000 workers computer field;
(out of 160,000), Chinese working in these  Nokia and Motorola in mobile phone
industrial parks, providing all the amenities services;
of cities. Profile of activity is more  Cisco and Sun Microsystems in
diversified, covering three areas: computers, networks;
communications and consumer electronics.  Sony and Nintendo in electronic
Founder, Terry Gou, is a graduate of games;
American University that began his own Also, at the insistence of such companies, it
business in 1974 with a garage company has diversified his international presence by
that produced plastic switches and other investing in Hungary, Czech Republic,
components for cheap televisions. But in Scotland, Mexico, Brazil, India, along with
1981 he came to the attention of PC makers, the migration from a pure fabrication from
for which he began to manufacture modules the position of a contract manufacturer to
and circuits. In 1991 he was listed on the position of the joint and even the original
Taiwan Stock Exchange and in 1993 was the design maker.
first Taiwanese electronics company that
has built large production capacity in China, II. Strategy based on organizing
representing 80% of its total capacity global networks of suppliers
(Flextronics had in 2004 only 40% of
capacity in China and Solectron 27%). Supplier’s networks establishment is a
fascinating example of strategy based on
366
non-organic growth, without involving any We analyzed in the previous chapter the
form of ownership of production capacities or principles and managerial innovations that a
equity provider’s network. great network orchestrator, Li & Fung
company, has implemented in order to
Li & Fung Case develop business. The network is actually a
Li & Fung Company is emblematic for it’s "global integrated business" that consists of
assertion that "the success of firms today a core company Li & Fung, in its turn, a
depends less on what they produce, but on "global company", and the many
their ability to work within a network". independent suppliers that revolve around
Though here we talk about Li & Fung as a her.
large producer of clothing, toys and other Gravitational force is given by the system
consumer goods, worth $ 9 billion per year, that offers benefits to network participants:
this company has not even a factory. providing access to a global demand, orders
It is defined as a "network orchestrator" a flow linearization based on the 30/70 rule,
network of over 8300 suppliers through a financing facilities, access to information
total of 70 supply centers located in over 40 and global connections.
countries. The "Li & Fung" network surpasses in many
Dispersion of manufacturing processes is not ways its predecessors in the original way in
the only one half of the network which it managed to integrate an
orchestration. Dispersed production involves increasingly diverse set of "functions" from
designing a complete supply chain, the global value chain of products. The
optimizing the management and relating company has expanded its presence in the
processes. supply chain to some important markets
The other half is represented by the network such as USA. Through a series of strategic
itself and the degree of flexibility obtained. acquisitions and licensing agreements, it
As the authors of the “Competition in a plain added a range of services provided
world” say, the network is a capacity or a simultaneously for a number of users,
potential energy. Supply chain harnesses the including product design, development,
potential for a particular demand. marketing, logistics, distribution and
Orchestration consists in developing and customer services, which the company
managing the network, but also in designing translated right in the client’s marketplace.
and management of specific supply chains. Company’s basic function, that of a "contract
Organizing a business as a network is manufacturer", has expanded to the concept
increasingly seen as a better alternative to of one - stop - shopping based on a complete
relocation operations, outsourcing or offer packages for the product, production
strategic alliances. Some studies show that supply, dynamic renewal of stocks, close
half of the companies that have relocated connection with purchase teams from
their activities haven’t obtained anticipated customers and ending with the development
gains, as only 40% of mergers and of private brands and national branding
acquisitions undertaken reach their strategy. The key word is the 'functional'
objectives and these strategic alliances are specialization of the network, which cannot
risky because more than half end in failure. be compared to traditional corporate models
Although there are still many examples of of transnational or multinational companies.
successfully running the business in
property-based systems, as in the case of III. Reverse outsourcing strategy on
vertically integrated companies (Esquel is a South-North direction
company, for example, which also owns the
chain, from plantations of cotton to fiber If until the past 20 years, integrated
processing, manufacturing, and final product companies in terms of functions were
distribution), we can observe the trend to the dominant, now it is possible to build a
transition from proprietary models to models business from practically any part of the
based on orchestration. If Esquel is the value chain. Contract manufacturers,
model of an extreme vertical designers without fabrication,
integration, Li & Fung is the example of manufacturing companies with no brand, no
an extreme orchestration.. brand manufacturers and many other
combinations have proven to be successful
organizational structures.
367
Retention of some functions within the pillars are from Kawasaki (Japan), titanium
company involves the outsourcing of others plates from the VSMPO (Russia), doors and
functions. We used to see Western fuselage parts are build in France, Spain
companies realizing outsourcing to other and Belgium, and the electronics is provided
companies in developed countries or by an American company.
emerging countries. This type of outsourcing allows Embraer to
Situations in which companies outsourcing obtain the highest quality with the lowest
functions are companies from emerging price of components which are purchased
countries have not yet entered into our daily worldwide, thus giving him an appreciable
perception. advantage over its competitors, which are
Outsourcing based on SS relationship, such more vertically or horizontally integrated
as the widely practiced by companies in (such as Bombardier). Company benefits in
Taiwan in the relationship with China this way of greater flexibility, increasing the
seems normal. Less normal in terms of productivity rate in an easier manner, by
business building is the outsourcing of building the delivery chain and the process
emerging companies to companies from of assembly. Outsourcing model is giving to
industrialized countries, which is why it is the Embraer, the possibility to establish
called "reverse outsourcing". strategic alliances with its suppliers, which
assure accelerate product development
Embraer Case phase, maintaining low costs and access to
Brazilian aircraft manufacturer, Embraer, is the most advanced technology.
the first example of a new type of company, Other advantages of this system lie in the
which being located in an emerging country, fact that both co-production and licensing
has nevertheless structured an extensive agreements give the ability to sell easier
network of suppliers in developing countries. their aircraft in developed countries and at
Aircraft manufacturer Embraer exists since the same time, to keep competition at a
1969, but after its privatization in 1995 it distance.
has developed a niche product, building
small and medium size regional aircrafts 5. Conclusions and implications
(50-110 seats).
In this example, it is not so much interesting The analysis of strategies adopted in the last
how the niche product was found, but rather 10-15 years by companies in emerging
how the business is structured. countries that have managed to reach the
The company is specialized in the functions status of global companies, shows that, as a
of manufacturing, logistics and assembly. first step, they followed the principles of
Company Embraer is the first example of a "normal" corporate strategies that have led
new type of company, which is located in an Western companies to the multinational or
emerging market, but which is central to a transnational status. We have named them
wide range of suppliers from developed classical strategies: global brand
countries. Thus, classical outsourcing first development strategy, strategy of
appeared reversed. development and global supply of niche
Embraer is able to design new planes, products, non-organic growth strategy and
medium size, to the highest standards of the strategy of geographical adjustment of
quality at lower costs than competitors, business flows on South-South and South-
using Brazilian engineers and specialists, North directions.
who are as well trained as those in But these strategies have a direct link with
developed countries, but claim a lower wage the new labor division (national and
level. international) based on "functional"
In these conditions, Embraer is making specialization.
aircraft on a global scale, remains an In the second stage, however, many
integrator, a designer and a regional emerging companies have managed to
supersonic aircraft assembler, noting that a overcome the classical principles and
series of parts are delivered by outsourcing strategies and to develop new business
operations. Thus, Embraer E-70 and E-90 models. Some of these new business models
(launched in 2002, and 2004) are powered by are directly related to the development of the
two engines designed and equipped by GE "functional" specialization of companies.
and Honeywell avionics, parts of wings and
368
We named them modern strategies and we

made reference to those who have largely
ensured the success of the recently emerging
companies in their efforts to accede to the
status of global companies, namely: the
strategy of integration of "functions"
resulted from the global value chain
restructuring, based on the new "functional"
specialization in manufacturing and
services, completed by the strategy of “steps
getting on” on the overall chain of the
"product" value, strategy based on
organizing global networks of suppliers,
reverse outsourcing strategy on South-North
direction.
References
1. Baldwin R.& Martin P. (1999):”Two Waves

of Globalisation: Superficial Similarities and
Fundamental Differences”. Capitol 1, p. 3-59.
Ed. H.Siebert.
2. Berger Suzanne and the MIT Industrial
Performance Center, How We Compete:
“What Companies Around the World Are
Doing to Make It in Today’s Global
Economy”, Currency Book, 2006.
3. Dunning H. John: “The New Globalism and
Developing Countries” – N.Y., 1997.
4. Fung K. Victor, William K.Fung, Yoram
(Jerry) Wind: Concurenta intr-o lume plata:
cum sa construim o companie intr-o lume
fara granite, Ed.Publica, 2009.
5. Goerg H., Greenaway D. & Kneller R.
(2008):” The Economic Impact of Offshoring.
Nottingham University’s Globalisation and
Economic Policy Centre”.
6. Grossman G. & Rossi-Hansberg E. (2006):
“The Rise of Offshoring:It’s Not Wine for
Cloth Anymore”. Paper presented at Kansas
Fed’s Jackson Hole conference for Central
Bankers.
7. Margulescu Serghei, Margulescu Elena,
“Trecerea de la globalizarea pietelor la
globalizarea productiei si serviciilor in
contextul starii de semiglobalizare”, in The
33-rd Annual Congress of the American
Romanian Academy of Arts and Sciences
(ARA) Proceedings, Volume I, Polytechnic
International Press, Montreal, Quebec, 2009.
8. Rugman Alan, Verbeke Alain: ‘A Perspective
of Regional and Global Strategies of
Multinational Enterprises”, Journal of
International Business Studies 35, no. 1
(January 2004).
9. UNCTAD, World Investment Report 2007.
10. Van Agtmael Antoine –“The Emerging
Markets Century”, Free Press, New York,
2007.
369

ONLINE PAYMENT IN THE AGE OF ELECTRONIC COMMERCE
MATEI (NIŢOIU) Mădălina

The Academy of Economic Studies,Bucharest
madalina_nitoiu@yahoo.com
Abstract payment systems. For instance, new types of

The emergence of e-commerce has created purchasing relationships-such as auction
new financial needs that in many cases between individuals online-have resulted in
the need for peer-to-peer3 payment methods
cannot be effectively fulfilled by the
that allows individuals to e-mail payments
traditional payment systems. Recognizing to the other individual. Recognizing this,
this, virtually all interested parties are virtually all interested parties (i.e.
exploring various types of electronic payment academicians, government, business
system and issues surrounding electronic community and financial service providers)
payment system and digital currency. are exploring various types of electronic
Broadly electronic payment systems can be payment system and issues surrounding
electronic payment system and digital
classified into four categories: Online Credit
currency. Some proposed electronic payment
Card Payment System, Online Electronic systems are simply electronic version of
Cash System, Electronic Cheque System and existing payment systems such as cheques
Smart Cards based Electronic Payment and credit cards, while, others are based on
System. Each payment system has its the digital currency technology and have the
advantages and disadvantages for the potential for definitive impact on today’s
customers and merchants. These payment financial and monetary system.
systems have numbers of requirements:
2. Literature review
security, acceptability, convenience, cost,
anonymity, control, and traceability. In the early 1990s the business and
Therefore, instead of focusing on the consumer world encountered a new way of
technological specifications of various conducting trade business which was named
electronic payment systems, the researcher electronic commerce. Over the years
electronic commerce has evolved into a
have distinguished electronic payment
popular and acknowledged way of
systems based on what is being transmitted conducting business. While researchers are
over the network; and analyze the difference still trying to understand it and gauge its
of each electronic payment system by importance and turnover, e-commerce is
evaluating their requirements, characteristics changing and growing incredibly quickly,
and assess the applicability of each system. producing such extraordinary results from
both business and consumer perspective that
Key Words: E-Commerce, Payment, Debit its phenomenon cannot be overlooked by
anyone who has ever thought of conducting
Cards, Credit Cards, Internet
business, whether in online or offline
environments. With many organizations and
1. Introduction people laboring in the field of e-commerce it
has become very clear that e-commerce is
As payment2 is an integral part of here to stay and organizations and
mercantile process, electronic payment customers are trying to get maximum
system is an integral part of e-commerce. benefit from it.
The emergence of e-commerce has created The most popular definition of e-commerce is
new financial needs that in many cases based on the online perspective of the
cannot be effectively fulfilled by traditional conducted business. E-commerce provides
370
the capability of buying and selling products, of present result, are the payment that are
information and services on the Internet and executed by the payer himself, whether the
other online environments. As for any latter is a consumer or a business, without
trading activity, the issue of sale and reliable the intervention of the another natural
money exchange between transacting parties person. Furthermore, the payment is made
is essential. In an e-commerce environment, from distance, without the physical presence
payments take the form of money exchange of the payer and naturally it does not include
in an electronic form, and are therefore cash. By providing such definition for the
called electronic payments. Electronic electronic payment system, researcher
payments are an integral part of e-commerce include the transfer of information
and are one of its most critical aspects. concerning the accounts of the parties
Generally defined, electronic payment is a involved in the e-commerce transactions, as
form of a financial exchange that takes place well as the technological means of
between the buyer and seller facilitated by distribution channels through which the
means of electronic communications. An e- transactions is executed.
commerce electronic payment is a financial
exchange that takes place in an online Conventional vs. Electronic Payment
environment (Kalakota & Whinston, 1997). System
To get into the depth of electronic payment
3. Paper Content process, it is better to understand the
Therefore, electronic payment systems and processing of conventional or traditional
in particular, methods of payment being payment system. A conventional process of
developed to support electronic commerce payment and settlement involves a buyer-to-
cannot be studied in an isolation. A failure to seller transfer of cash or payment
take place these developments into the information (i.e., cheque and credit cards).
proper context is likely to result in undue The actual settlement of payment takes
focus on the various experimental initiatives place in the financial processing network. A
to develop electronic forms of payment cash payment requires a buyer’s
without a proper reflection on the broader withdrawals form his/her bank account, a
implications for the existing payment transfer of cash to the seller, and the seller’s
system. deposit of payment to his/her account. Non-
cash payment mechanisms are settled by
Concept and Size of Electronic Payment adjusting i.e. crediting and debiting the
Payment systems that use electronic appropriate accounts between banks based
distribution networks constitute a frequent on payment information conveyed via cheque
practice in the banking and business sector or credit cards.
since 1960s, especially for the transfer of big
amounts of money. In the four decades that Types of electronic payment systems
have passed since their appearance, With the growing complexities in the e-
important technological developments have commerce transactions, different electronic
taken place, which on the one hand have payment systems have appeared in the last
expanded the possibilities of electronic few years. At least dozens of electronic
payment systems and on the other hand they payment systems proposed or already in
have created new business and social practice are found (Murthy, 2002). The
practice, which make the use of these grouping can be made on the basis of what
systems necessary. These changes, information is being transferred online.
naturally, have affected the definition of Murthy (2002) explained six types of
electronic payments, which is evolving electronic payment systems: (1) PC-Banking
depending on the needs of each period. In its, (2) Credit Cards (3) Electronic Cheques (i-
most general form, the term electronic cheques) (4) Micro payment (5) Smart Cards
payment includes any payment to and (6) E-Cash. Kalakota and Whinston
businesses, bank or public services from (1996) identified three types of electronic
citizens or businesses, which are executed payment systems: (1) Digital Token based
through a telecommunications or electronic electronic payment systems, (2) Smart Card
networks using modern technology. It is based electronic payment system and (3)
obvious that based on this definition, the Credit based electronic payment systems.
electronic payments that will be the objects Dennis (2001) classified electronic payment
371
system into two categories: (1) Electronic From the business perspective, new payment
Cash and (2) Electronic Debit-Credit Card products are notoriously difficult to
Systems. Thus, electronic payment system introduce as the barriers to entry (Lee, 1989;
can be broadly divided into four general Yin, 1994), acceptance, and ubiquity are
types (Anderson, 1998): high (Abrazhevich, 2002).
- Online Credit Card Payment System
- Electronic Cheque System Table 1: Factors Discouraging Consumer for
- Electronic Cash System and Online Payments
- Smart Card based Electronic Payment Factors Percentage
System Concern about 70
security
Usage of electronic payment systems Difficulties to enter 9
Overall Credit card is the most popular information
methods of payment over Internet. Internet Do not have credit
buyers seem to prefer credit cards to other cards/smart cards 7
electronic payment system that have been etc.
made available to them. One reason may be Do not like interest 6
the simple familiarity with the credit card, charge
as it is the oldest form of electronic payment Purchase value too 4
system. E-commerce is still new and small
intimidating to many. It is easier for the Exceeded personal 4
buyers to make purchase on the Internet limit
when they can use the familiar payment Source: www.PaymentOne.com
method, like credit card. However, this
payment system suffered from many Table 1 shows some factors, which are
limitations like security, merchant risk, high obstacles in the online payment systems. A
costs and affordability. For sellers’ side, good payment system should also consider
credit card has strategic disadvantages like: these factors. Added to this, new payment
(1) credit cards are subject to percentage fees products must be low margin to compete,
and these charges erode the profits margin, high volume to build critical mass and be
particularly on the inexpensive goods and profitable, receive favorable press treatment,
services; (2) a buyers who uses a credit card be well branded to gain customer confidence,
may refuse to pay the issuer on the grounds achieve rapid uptake, and be differentiated
that he/she has a claim or defense arising from check and credit card so that
out of the underlying transactions. When consumers and merchants find reason to
this happens, the issuer may pass the loss prefer and use them. Studies also revealed
back to the seller. Above all, credit cards that simplicity (Schwartz, 2001; Truman et.
have highest possibilities of frauds. al, 2003), trust (Herzberg, 2003; Juang,
Therefore, both buyers and sellers are 2006), security and mutuality (Peha and
shifting from credit cards to other innovative Khamitow, 2004; Baddeley, 2004; Oh et al,
payment products, such as smart cards and 2006) of stakeholder benefits are all of
electronic money. But, still it is expected importance to the adoption of e-commerce
that the buyers may continue to prefer credit payment system. Thus the factors which are
card system, particularly when making critical for the success of e-commerce
expensive purchase. payment systems are multifaceted. These
include integrity, non-repudiation,
Critical success factors of e-commerce authentication, authorization, confidentiality
payment system and reliability, which are discussed below:
Success of e-commerce businesses, including - Integrity: transaction data are
both the largest of corporations and small transmitted and received unchanged
retailers, rely on electronic payment system. and as intended.
Therefore, understanding the various critical - Non-repudiation: transactions have the
success factors of e-commerce payment quality of non deniable proof or receipts.
system is important. There are various - Authentication: identities and attributes
factors, which should be considered by an e- of parties engaged in commerce are
commerce, firm before introducing and
implementing e-commerce payment system.
372
established at some tolerable level of details. Further, all these systems have
risk. ability or potential to displace cash. Added to
- Authorization: individuals are this, widely different technical specifications
established and recognized as entitled to makes it difficult to choose an appropriate
receive, send or view transactions. payment system. On the basis of above
- Confidentiality: transactions can be analysis it is concluded that, smart cards
protected from view except by those who based electronic payment system is best. It
are authorized. has numerous advantages over the other
- Reliability: probability of failure in the electronic payment systems. Therefore,
transaction-send, receive, acknowledge- establishing a standard smart card based
is low. system, or making different system
Functionally, money technologies also need interoperable with one another is critical
to achieve these operating characteristics: success factor for the smart cards based
privacy, scalability, ease of use, personalize- payment system. Smart card organizations
able, seamlessness, interoperability, write around the world must establish a smart
one-apply anywhere and cost effective. card interface standard and a conformance
testing organization to make all smart card
Comparison of electronic payment system compatible; otherwise smart card
systems related products will not develop fully.
The electronic payment system- the ability
to pay electronically for goods and services 4. Conclusions and implications
purchased online- are an integral part of e- Technology has inarguably made our lives
commerce and an essential infrastructure for easier. It has cut across distance, space and
e-commerce models. One of the major even time. One of the technological
reasons for the widespread of e-commerce innovations in banking, finance and
transactions is perhaps the rapid commerce is the Electronic Payments.
development and growth of various Electronic Payments (e-payments) refers to
electronic payment systems. In the the technological breakthrough that enables
developed countries, credit cards have been us to perform financial transactions
used even before the advent of Internet. The electronically, thus avoiding long lines and
present part of the study revealed many other hassles. Electronic Payments provides
electronic payment systems and broadly greater freedom to individuals in paying
these electronic payment system can be their taxes, licenses, fees, fines and
grouped or classified into four categories: (1) purchases at unconventional locations and at
Online Credit Card Payment System (2) whichever time of the day, 365 days of the
Online Electronic Cash System (3) Electronic year. On the basis of present study, first
Cheque System and (4) Smart Cards based remark is that despite the existence of
Electronic Payment System. These payment variety of e-commerce payment systems,
systems have numbers of requirements: e.g. credit cards are the most dominant payment
security, acceptability, convenience, cost, system. This is consequences of
anonymity, control, and traceability. advantageous characteristics, most
Therefore, instead of focusing on the importantly the long established networks
technological specifications of various and very wide users‟ base. Second,
electronic payment systems, the researcher alternative e-commerce payment systems
have distinguished electronic payment are some countries are debit cards. In fact,
systems based on what is being transmitted like many other studies, present study also
over the network; and analyze the difference reveals that the smart card based e-
of each electronic payment system by commerce payment system is best and it is
evaluating their requirements, expected that in the future smart cards will
characteristics and assess the applicability eventually replace the other electronic
of each system. payment systems. Third, given the limited
After analysis and comparison of various users bases, e-cash is not a feasible payment
modes of electronic payment systems, it is option. Thus, there are number of factors
revealed that it is quite difficult, if not which affect the usage of e-commerce
impossible, to suggest that which payment payment systems. Among all these user base
system is best. Some systems are quite is most important. Added to this, success of
similar, and differ only in some minor e-commerce payment systems also depends
373
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industry agreement, authorization, security, (1996), Frontiers of Electronic Commerce,
authentication, non-refutability, accessibility Singapore: Pearson Education, p. 295.
16. Laudon, C. Kenneth and Traver, Carol (2002),
and reliability and anonymity and public
E-Commerce, New Delhi: Pearson Education.
policy.
17. Murthy, C.S.V. (2002), E-Commerce: Concepts,
Models and Strategies, New Delhi: Himalaya
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Overview of the Payments Mechanisms for the
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Privacy”, Scientific American, August,pp 96-101
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374
RESEARCH ON NAMED AND OPTIONAL ARGUMENTS IN C# 4.0
Marius Iulian Mihailescu, Eng.

Titu Maiorescu University, str. Dâmbovnicului, no. 22, sector 4, postal code 040441
mihailescu.marius@yahoo.com
Abstract: The purpose in writing this work paper is two-fold: firstly, represents the brief study about the new
language features up and coming in C# 4.0 and secondly, the results need to be shared. This article is a bite-sized and
more then a simple introduction to named and optional arguments in the forthcoming version of the framework. The
big addition to .NET 4.0 is dynamic programming support through the DLR (Dynamic Language Runtime). .NET has
traditionally been statically typed, where objects have class types that are known at run-time, as is the structure of
the types themselves. There is, increasingly, interaction with objects that have typing which is not fully known until
run-time: Iron Ruby is available for .NET 4 and we interact more often with dynamically typed languages.
1. Introduction The big addition to .NET 4.0 is dynamic

programming support through the DLR
F# (pronounced F Sharp) is a multi-paradigm (Dynamic Language Runtime). .NET has
programming language, targeting the .NET traditionally been statically typed, where objects
Framework, that encompasses functional have class types that are known at run-time, as
programming as well as imperative object- is the structure of the types themselves. There is,
oriented programming disciplines. It is a variant increasingly, interaction with objects that have
of ML and is largely compatible with the OCaml typing which is not fully known until run-time:
implementation. F# was initially developed by Iron Ruby is
Don Syme at Microsoft Research but is now being
developed at Microsoft Developer Division and
will be distributed as a fully supported language
in the .NET Framework and Visual Studio as available for .NET 4 and we interact more often
part of Visual Studio 2010 [1]. with dynamically typed languages; COM objects
F# brings you type safe, succinct, efficient and are interacted with; .NET types can be accessed
expressive functional programming language on reflectively; one extremely common task is to
the .NET platform. It is a simple and pragmatic deserialize XML into “object-world”, where we
language, and has particular strengths in data- might not want to create or need a statically
oriented programming, parallel I/O typed class. Code dealing with any of these
programming, parallel CPU programming, normally gives off a “bad smell”, being long
scripting and algorithmic development. It lets winded and often difficult to read.
you access a huge .NET library and tools base
and comes with a strong set of Visual Studio
development tools. F# combines the advantages 2. Understanding Named and Optional
of typed functional programming with a high- Arguments
quality, well-supported modern runtime system.
This combination has been so successful that the Visual C# 2010 introduces named and optional
language is now a first class language in Visual arguments. Named arguments enable you to
Studio 2010, and can also be used on Mac, Linux specify an argument for a particular parameter
and other platforms. F# originates from Microsoft by associating the argument with the
Research, Cambridge, and the MSR F# team, led parameter's name rather than with the
by Don Syme, continues as partners with the parameter's position in the parameter list.
Microsoft Developer Divsion. We seek to continue Optional arguments enable you to omit
to break new ground in programming language arguments for some parameters. Both techniques
design and implementation by making F# even can be used with methods, indexers,
better in upcoming versions. constructors, and delegates. When you use
named and optional arguments, the arguments
375
are evaluated in the order in which they appear parameters in the parameter lists of called
in the argument list, not the parameter list. methods. The parameter for each argument
Named and optional parameters, when used can be specified by parameter name. For
together, enable you to supply arguments for example, a function that calculates body
only a few parameters from a list of optional mass index (BMI) can be called in the
parameters. This capability greatly facilitates standard way by sending arguments for
calls to COM interfaces such as the Microsoft weight and height by position, in the order
Office Automation APIs. [2] defined by the function.
a) Named arguments
Named arguments free you from the need to
remember or to look up the order of
b) Optional arguments
The definition of a method, constructor, C# 4.0c, the same code can be written much
indexer, or delegate can specify that its more expressively:
parameters are required or that they are
optional. Any call must provide arguments public class Foo
{
for all required parameters, but can omit
//......
arguments for optional parameters. Each public void Bar(string id, int amount= 0)
optional parameter has a default value as {
part of its definition. If no argument is sent //Work Done here
}
for that parameter, the default value is used.
//......
Default values must be constants. Optional }
parameters are defined at the end of the
parameter list, after any required In this code, it is still possible to call both
parameters. If the caller provides an Foo(string) which defaults the amount to 0
argument for any one of a succession of and Foo(string, int). This is a boon if you
optional parameters, it must provide have multiple overloads, potentially
arguments for all preceding optional removing a lot of boilerplate code.
parameters.
Named and Optional arguments are one of

the rafts of measures intended to support the
need to interact with non-statically typed 3. Invalid Syntaxes
constructs. Let’s take the common example of
an overloaded method, where the overload Naturally, some invalid syntaxes are defined.
specifies a default value where it is not The compiler will report an error for the
supplied: following:
public class Foo public void foo(int amount = 0, string id) { /* ... */ }
{
//......
The error reported is as required parameters are
public Bar(string id)
{ not allowed after optional ones. This too causes a
//No amount specified, assume 0. syntax error:
Bar(itemCode, 0);
} public void Foo(string id, int count = 0) { /* ... */ }
public Bar(string id, int amount) public void foo(string id = “Foo”, int count = 0) { /* ... */ }
{
//Work Done here
} These methods, if written together will fail as the
//...... method signatures are the same, effectively
} defining the method twice. The two invalid
Overloading a method like this is a common syntaxes are defined so that consistent overload
task, but it is uglier that it needs to be. With resolution can be achieved.
the Named and Optional Arguments added to
376
4. Named Arguments called. Then a betterness test determines which

of the applicable methods is actually called.To be
This method is intended to set the initial position applicable, the parameters passed by the call
on three axes, defaulting to [0,0,0]. must match (or be directly convertible to) the
required arguments of the overload, as per
public void SetInitialPosition(int x = 0, int y = 0, int z = 0) earlier versions of the framework. Only void
{
OverloadedMethod(string x) fails this test as the
// Work Done here
} value passed (0) is not directly convertible to a
string. Overloads 1-3 pass this criterion as the
Now suppose we want to set the x and z axes required argument needs are met. Overloads 4 -
only, one option Microsoft could have chosen is: 6 also meet this criterion almost “by stealth”,
SetInitialPosition(0, ,0); they have no required arguments, so these are
met and the argument that is supplied can be
Mercifully, Microsoft did not choose this for thei matched (by position in this example) to an
syntax. My Example here is not too bad, but if optional argument.
there are many optional arguments it would be If we had called OverloadedMethod(0, a: "bar");
hard to keep track of which are being set (e.g. none of the methods would be applicable,
DoSomething(0, , 0, 0, , 0, , , , 0) requires the overload 3 would have if we hadn't specified a
developer to count the position of each string as being destined for argument “a”.
parameter). A named syntax was chosen: Similarly Overload 6 would become acceptable if
we called OverloadedMethod(x : 0); as the
SetInitialPosition(0, z:0); parameter would refer to a named optional
argument. Now that Overloads 0 and 6 have
Two things to be aware of, are: been deemed un-applicable, the framework
 SetInitialPosition(1, z: 2, y: 3); will set “z” to applies its betterness test. Overload 1 is rejected
2 and “y” to 3 as expected, even though the order as the conversion to an object is required, but
the method declares in is x, y, z. This is this is not the case for overloads 2-4 where the
potentially confusing! int can be used without conversion. Overloads 3,
 If we just wish to set the first two 4, and 5 are all rejected as the framework
parameters, we can do this by name or position: favours the call with the fewest number of
SetInitialPosition(6, 9); default values used. This leaves Overload 2 as
SetInitialPosition(6, y:9); the one that is called (0 defaults). As an
SetInitialPosition(x:6, y:9); interesting side-note, if Overload 2 did not exist,
All specify the same thing. what would happen? Overloads 0 & 6 are in-
5. Overload Resolution applicable, Overload 1 still requires conversion
and overload 5 has more unspecified optional
Those of you who are still awake at this arguments. This leaves Overloads 3 & 4 neck and
point will realize there is a potential neck, even in terms of the betterness test. In this
case, an ambiguous call error is reported at build
minefield if the methods themselves are
time.
overloaded: 6. The Third Paradigm
public void OverloadedMethod(string x) {/* Overload 0 */}
public void OverloadedMethod(object x) {/* Overload 1 */}
Finally, the third paradigm supported by F# is
public void OverloadedMethod(int x) {/* Overload 2 */} language oriented programming (the design of F#
public void OverloadedMethod(int x, string y = "foo") {/* in this area is largely influenced by ML, Haskell
Overload 3*/} and also by LINQ). In general, language oriented
public void OverloadedMethod(int x = 0, int y = 0) {/*Overload
4 */}
programming is focused on developing executors
public void OverloadedMethod(int x = 0, int y = 0, int z = 0) for some code which has a structure of a
{/*Overload 5*/} language (be it a declarative language like XML,
public void OverloadedMethod(string s = "foo", int x = 0 ) or a fully powerful language like some subset of
{/*Overload 6*/}
F#). In this overview, I will focus on two
What happens if I call OverloadedMethod(0);?
techniques provided by F# that allow you to give
The framework firstly applies an applicability
a different meaning to a blocks of F# code. In a
test that determines which methods can be
377
programming language theory, this is often in any other .NET language. We first discussed it
called internal domain specific languages, with Don Syme during my internship at
because the code is written in the host language, Microsoft Research and I found it very elegant, so
but is specifically designed as a way for solving I made some space for it in the book. In fact, the
problems from some specific domain. An example entire Chapter 16 discusses various reactive
of such language (and an associated executor) is programming techniques that can be used in F#.
a block of code that is written as a linear code,
but is executed asynchronously (in F# this can be ,,When designing applications that don't react to
implemented using computation expressions), or external events, you have lots of control flow
a query that is written in F#, but is executed as a constructs available, such as if-then-else
SQL code by some database server (this can be expressions, for loops and while loops in
implemented using F# quotations). imperative languages, or recursion and higher-
order functions in functional languages.
7. Programming user interfaces using F# Constructs like this make it easy to describe what
Workflows the application does. The control flow is clearly
visible in the source code, so drawing a flowchart
Numerous Manning partners already published to describe it is straightforward.
several exceprts from my Real-World Functional Understanding reactive applications is much
Programming book [3]. You can find a list on the more difficult. A typical C# application or GUI
book's web page [4]. However, the last excerpt control that needs to react to multiple events
published at DotNetSlackers [5] is particularly usually involves mutable state. When an event
interesting. It discusses how to use F# occurs, it updates the state and may run more
asynchronous workflows to write GUI code in response to the event, depending on the
applications. This is a very powerful current state. This architecture makes
programming pattern that is very difficult to do
it quite difficult to understand the potential states flow of the application visible even for reactive
of the application and the transitions between applications.’’ [5].
them. Using asynchronous workflows, we can
write the code in a way that makes the control
8. How to install F# some code from the editor window with the
mouse, hit Alt-Enter, and the text will be
Before any F# coding can take place, you must automagically pasted and executed in the
install the F# binaries. As of this writing, F# still Interactive Window. (This is by far the easiest
resides on the Microsoft Research Web site, the way to explore the language and its concepts.)
latest version is 1.9.4.17 and is most easily found Note that the F# package will also install into
via the F# Web site there-simply visit the Visual Studio Isolated Shell, so programmers
http://research.microsoft.com/fsharp/fsharp.aspx who don’t have a copy of the commercial Visual
and find the latest release link from the Studio bits can still play along.
announcements column on the right-hand side Assuming F# has installed successfully, fire up
(the actual download URL changes with each Visual Studio, create a new F# Project (under the
release). “Other Project Types” node), add a new item (“F#
When installed, F# will not only put several Source file”), and call it file1.fs (the default).
executables, assemblies, and assorted samples Notice that when you open the new file, the
into the installation directory, but will also compiler populates it with a large number of F#
register its Visual Studio language service example snippets, which serve as an easy way of
support. This registration gives the F# developer getting started with the language. Have a look at
much the same development experience as the the code in that template file later; for now,
C# or VB developer, with an added bonus: an delete it all and replace it with the following
extra tool window called interactive mode, which code: F#’s version of the ubiquitous “Hello world”
allows the F# developer to type some F# code and program:
execute it immediately, much as the Immediate
Window works in the debugger. Simply “swipe”
378
#light
let language = "F#"

printfn "Hello, %A" language
9. Conclusions 10. References
Named and optional arguments are a very [1] F Sharp (programming language),
useful, expressive addition to the C# language. http://en.wikipedia.org/wiki/F_Sharp_programming_la
Optional augments allow us to write overloaded nguage ;
[2] Named and Optional Arguments (C#
code in a far terser way than has been the case in
Programming Guide),http://msdn.microsoft.com/en-
previous versions, removing a lot of boilerplate us/library/dd264739(VS.100).aspx ;
code. Named arguments allow us to specify [3] Tomasn Petricek and Jon Skeet, Real-World
optional arguments “out of order”, preventing the Functional Programming, With examples in F# and
need to supply placeholders for all arguments C#, ISBN: 9781933988924;
(and the attendant comma – counting to keep [4] Functional Programming in .NET,
track), but does mean we need to be aware that a http://functional-programming.net/ ;
named argument called is not necessarily [5] Programming user interfaces using F#
supplied in the same order as the method workflows, http://functional-programming.net/ ;
[6] Don Syme, Adam Granicz, Antonio Cisternino,
declaration, though in well written code this
F# Expert, ISBN13: 978-1-59059-850-4, ISBN10:1-
should not occur.
59059-850-4, Aspress, 2007;
379

NEW PUBLIC MANAGEMENT AS A SOLUTION TO STATE’S INCAPACITY

OF MANAGING PUBLIC AFFAIRS. PUBLIC/ PRIVATE DISPUTES
Simona MINA
Ana Rodica STĂICULESCU
Cornel Grigoruţ
Ovidius University of Constanţa Romania
Faculty of Law and Public Administration
staicul@univ-ovidius.ro
simonamina@univ-ovidius.ro
Abstract Key words
The present scientific study’s objective is to citizen empowerment; bureaucracy; new public
challenge the managerial principles applied management; new governance; the invisible
within the Romanian public sector. The hands’ theory; trained incapacity
organizational behavior that defines the public
system is transcending from the bureaucratic 1. Introduction
weberialism towards Friederick Taylor’s
The public organizations’ resistance to
management. The study intends to quantify
change has represented a real concern for the
the manner in which taylorism/the new public
public system management; furthermore, the
management might be implemented in the
organizational psychological studies have
public institutions’ realities. Today, the
pointed out that the responsibility of the
altered effects of bureaucracy are measured
inability to adjust to change is determined
quantitatively and qualitatively due to the lack
from top to bottom, from the managerial-
of resources within the public system(and the
executive level of the public institutions.
threat of state bankruptcy in Europe). From a
Zoltan Boghaty[1,Boghaty 2009,103] has
different perspective, the present study also
pointed out that, in Romania, ironically after
analysis the altered effects of the new public
the 90’s, the experimental research carried out
management: managerialism means that the
within the work group has illustrated that the
public servants are exposed to public life (the
managerial team itself is the one that is
growth of the politicized traditional model of
resisting/opposing to changes[2, Maricutoiu
career development in the public office).
2004.92].
Romania will need to promote the Anglo-Saxon
model of flexible development of career The present study’s main objective is
management within the public service. In to ascertain another cause for the
order for this to take place, the private-public endorsement of the webberian traditional
sector dilemma must be solved, promoting the model regarding promotion in the public
participative political culture and assuming service, instead of the situations illustrated to
responsibility at the public policies level for the the present day by the organizational behavior
governing models in order to counteract “The and conflict studies. The American
states’ failure”. sociologists, Robert Merton and Friederick
380
Taylor are the advocates of the theory Furthermore, “the maximizing power
regarding the distorted effects of bureaucracy of bureaucracy” (this being a great public
(trained incapacity of bureaucracy); according service “consumer”), that Merton has
to this theory, the negative effects of described, is another factor added to the
bureaucracy illustrated initially by Webber, equation. The ideologists that embrace the
prove to be at the present moment true theory of social decision (public choice) have
managerial inefficiency principals, responsible estimated that the monopoly of offers
for the 1980’s “State’s failure”. regarding the services, will allow the offices to
expand and use resources over the social
The American sociologists as well as bounds, thus becoming inefficient. The
the specialists in the public policies domain inefficient management of the public affairs is
have criticized in the 80’s, the state’s inability determined by the exacerbated need for
to manage the public affairs in a judicious respect and recognition on behalf of the
manner. These are the first steps in bureaucrat, which will determine a direct
estimating the global financial crisis, marked correlation between “the size of the office and
by the alarming increase of the budget deficit the derived utility from the public servants.
in the traditional democratic countries (which The liberal economic changes have determined
have promoted the social well being model in reforms in the U.S. and Europe, which
the last 20 years). The threat of the consider diminishing the public sector’s input
increasing budget deficit constitutes the best or reforming the public sector following the
plea for the need of reform of the public sector. private organizations’ model. It is time to
The alarming increase of the budget deficit in implement the decentralization policies of the
Europe is the consequence of the increasing state. Adam Smith’s invisible hand is invoked
“consumption” of public services, exceeding the with regard to the ever increasing
output and productivity markers. The insufficiency of the public bureaucracies. In
European citizens took started to consider the the present day it is considered that the
public services to be a legitimate right, as a common good is achieved by the rational and
consequence of the “from cradle to the grave” egocentric interests of the bureaucrat [3
social well being policy, such that, the citizen Mihai Păunescu 2008,34-43].
is the main interest of the state’s policies,
he/she being protected from birth until death. 2. Literature review
However, the assisting state has become
unacceptably reactive for the democratic “Changes in public sector accounting
governing models; it has become an extremely in a number of OECD countries over the
important a social player in the society by 1980’s were central to the rise of the “New
offering comprehensive public services to its Public Management” NPM and its associated
citizens. The public services thus becoming, doctrines of public accountability and
public establishments. The Germanic type of organizational best practice”. The paper of
governing, which was successful in Europe Christopher Hood (London School of
during 1980-1990’s, has neglected the adverse Economics and Political Science) published in
reactions of bureaucracy and the democratic Accounting Organizations and Society,
need to decentralize the state’s policies. vol.20,no 2/3 pp.93-109, 1995, Elseiver Science
Economic decline has determined the inability LTD and also published on Sage Journals on
of the budgets to sustain these types of offers line: http://ppa.sagepub.com discusses the rise
regarding public services. of NMP as an alternative to the tradition of
public accountability embodied in progressive-
381
era public administration ideas. It argues that public governing1. Globalization, the spread
“in spite of allegations of internalization and of technology and the consolidation of
the adoption of a new global paradigm in supranational governing organizations, the
public management, there was considerable liberalization of the capital flow and of the
variation in the extent to which different work force, globalization of the professional
OECD countries adopted NPM over the 1980’s. training market (universities), have
It further argues that conventional determined the governing systems to become
explanations of the rise of NPM (“Englishness, inoperative2.
party political incumbency, economic
performance record and government size) Two solutions are outlined in surmounting the
seem hard to sustain even from a relatively state’s crisis:
brief inspection of such cross-national data as
 The new public management-answer
are available, and that an explanation based
to the financial crisis and to the states’
on initial endowment may give us a different
need in becoming more efficient3
perspective on those changes.”
 The new pluralist governance – in the
The term new does not imply that 90’s, as a result of the demographic
NPM doctrines appeared for the first time in and technological changes
the 1980’s any more than “New Learning” of
The state as a non-invasive social player
the fifteenth and sixteenth centuries involved
followed by the present American governing
the first discovery of Latin and Greek. Many
model “The great society” might jointly
NPM doctrines repackage ideas which have
constitute the best means in reviving the
been in public administration since it earliest
public sector.
beginnings. Nor must NPM be confused with
the New Public Administration movement in Public spending is allowed; whatever the
the USA in the late 1960’s and early 1970’s budget deficit might be, for certain public
which achieved no real mainstream influence. services, due to the fact that its output (the
These conclusion were established by Marini, productivity levels) can be measured in the
F. in Toward New Public Administration work market: education and healthcare. This
(Scranton, PA:Chandler, 1971). is the model that Sweden refers to as “Strong
Society” and the United States endorses it as
The internalization of public
“Great Society”.
management parallels the internalization of
public and private sector economies. Similarly,
Osborne and Gaebler write of 1 The end of the Germanic “Social well-being”
NPM(1992,pp.322-330) as a new global efficiency model, successfully promoted in post-war
paradigm, claiming that transition to the new Europe until the 80’s
paradigm is inevitable” just asa transition
from machine rule to progressive government 2 Adam Smith’s Invisible hand theory represents
was inevitable”(p.325). the generator for the need of subsidiaries and
decentralization, stated by the European
3. Paper Content Commission as being the needs of a United Europe
of the 90’s
The warning of the acute financial
crisis of the 80’s that justified the public
3 Due to a 4,7 budget deficit, Romania is confronted
with the threat of inadequate resources for the
system reform and other factors as well,
public sector
determined the need for a different type of
382
Some NPM 4authors (new public and increasing efficiency. The two authors
management) are engaged in redefining and state that the entrepreneurial governments
revising the states dimension and especially of have adopted new governing principles, such
its administrative body. According to Osborne as: the competition among the service
and Gaebler[4, David Osborne, Ted Gaebler providers; earning the citizens’ trust by
1992,93] the implementation of public policies placing the control away from bureaucracy
should be carried out by means of the market and inside the community; measuring the
or by creating fairly autonomous organizations agencies’ performance by concentrating on
that will determine a specific market results; the conduct should take into
environment. The idea is not new and it is consideration the objectives and not the rules
improved by Gordon Tullock[5,Tullok or regulations; redefining the attitude towards
2000,120] who states that the existence of the clients and recommend alternatives;
offices with the same purpose, independent problem deterrence; attempting to save up;
from one another, will lead to competition decentralization of authority; choosing the
among them. Therefore, the cost for providing market means; the involvement of every sector
a certain public service will decrease. The in solving the community’s problems.
mechanism is as follows: whenever they are
not competing, taking advantage of the fact The new public management
that it is hard to evaluate the real cost of comprises the following:
providing a certain service if you are not part
1. Professionalization of management
of that office, the bureaucrats in management
within the public service organizations
positions tend to boost their budgets. When
they are competing, due to the need for
This means, promoting to leadership
affirmation, they take into consideration the
positions of certain managers that were
cost, which will lead to a price that is much
trained to lead public organization. They are
closer to the real cost of providing that certain
not just the administrators of the public
service. One of the tools used for the
institutions; they become responsible for the
motivation of a specific market environment
results of these institutions.
recommended by Osborne and Gaebler, is the
The public managers become responsible
contract. The government should sign
for the degree of implementation of the
contracts with the organizations that
policies and if the results are not what it has
implement public policies and provide goods
been expected, they can be dismissed for
and public services. The benefit of the
professional and managerial incompetence.
contracts is that they can precisely stipulate
It is remarkable the perception of the
the services that the certain organization has
relation with the politicians, which have the
to provide, as well as the funds that the
possibility to recruit professional managers,
organization will receive in implementing the
whom they entitle as chief of departments and
certain policies.
agencies for undetermined time periods, in
According to Osborne and Gaebler, the two order to carry on the application of the
main objectives of the NPM (new public political parties’ programs. The next
management) are: reducing the state’s budget managerial level, that of the executive
managers, is hired and transferred managers
who in time have attained certain
performances and have a certain level of
4 NB: The New Public Management professional and managerial aptitudes, rather
383
than attaining their experience as a result of and to steer their actions based on this
carrying out their duties. The increase of knowledge;
efficiency in establishing and providing public
services within the public organizations is The basis for the management based on
expected, as a result of professional and performance, is the efficient management of
managerial competence on behalf of all the human, material, informational and financial
public service managers. Therefore, it is public resources, to fulfill the general social
considered that the general managers of the needs in order to achieve a higher level of
services’ organizations must not be specialists, performance.
engineers, doctors, economists or lawyers; In order to apply this procedure,
instead, they have to be competent managers. elaborating and implementing a monitoring of
performance system is a must, a system that
An important role was played by the is met in all of the public institutions of the
following in professionalizing the public developed countries; countries that are
management: permanently evolving as well as the
a) The management based on “organizations that are going through the
knowledge5 learning process” of achieving a higher level of
b) The management based on performance.
performance By implementing these types of
The aim of this task is to create within methods in any public management system, it
the public institutions’ framework a certain will lead to fulfilling the public interests, by
perception, systematization and capitalization taking into consideration the economic and
of the established programs and is based on: managerial criteria.
‐ the public institutions’ vision
and mission regarding the 2. Determining and following certain
capitalization of knowledge; standards and an indicator of
‐ The strategic objectives are performances’ system for each
representing the purposes organization in the public sector,
determined and regarding the accomplishment of certain
acknowledged in time objectives
‐ Types of action taken in order
to achieve the planned The process of reform within the public
objectives. sector involves the achievement of
performance by each employee, as well as by
Finally, the public institutions will each public organization. In order to achieve
allow the public servants to employ their this goal, every public institution determines
knowledge more efficiently and efficaciously performance markers in order to be able to
measure the progress made by each one, with

regard to accomplishing the prerequisite
5
The important concepts in the management based objectives. The individual performance
on knowledge make reference to knowledge,
evaluation system establishes the
competence, learning, and the ability to learn. contribution of each employee, in
accomplishing the objectives throughout the
year. Depending on these evaluations, a
reward is offered or one might be

reprimanded. It is considered that the
384
informal evaluation methods are inefficient reduce personnel from the services’ system to
and lead to the decrease of the public a group, formed by individuals with high
institutions’ revenues. ranking positions, with the purpose of
Governmental organizations try to supervising the manner in which the
enhance the long term planning methods and ministries and departments are managed and
to expand the area of application of the monitored.
strategic management. It is achieved by Due to this change, in 1994, 60% of the
determining the organizations’ missions public servants in Great Britain have been
within the public sector, the objectives that involved in the “Next Step” program, and by
they have to accomplish, the degree of the end of 1995, over 95% of them were
adaptability to their environment, the ability integrated in this new system. Similar
to capitalize the strong points and to solve changes followed in New Zeeland and later on
the problems they encounter, the availability in the U.S. and Australia, although at a much
to anticipate their environments’ constraints. slower pace than in Great Britain. Although
The politicians can intervene if they it uses a different approach, this change
have this information, in order to support the tends to emulate Woodrow Wilson’s ideas,
process of accomplishing the objectives by the which underline the need for separation of
public institutions. the political departments from the agencies,
basically a separation between politics and
3. The control of the results, not of the public administration. In this new
processes and steps environment, the agencies providing the
services were not required to be part of the
The New public management public sector, due to the fact that they were
representatives request the reduction of carrying out their activity based on a contract
bureaucratic forms of control that are present and the their employees didn’t have to be
in different stages and levels of the processes; public servants.
processes which the public institutions utilize
in accomplishing and intensifying their 5. Increasing the level of competition in the
mission, thus leading to varied forms of public sector6
control of the results.
This attribute refers mainly to the
4. Decentralization of the system, of which governmental services and its objective was
the public organizations are part of to diminish costs. The basis was that, if
certain services are unsatisfactory,
This process has started in Great Britain according to these criteria they can be
in 1998, during Margaret Thatcher’s auctioned. Therefore, the accelerated
administration, labeled as “Next Step”

program, and it expanded to New Zeeland,
Holland and gradually covering all countries 6The public services’ beneficiaries are non-
from the Scandinavian Peninsula. The volunteer clients, especially where alternate public-
manner in which this applied was based on private services’ markets haven’t evolved in a
creating separate agencies, responsible for competitive manner and where private-public
the accomplishment and providing of services partnerships represent a deficiency of the public
as a result of a signed contract with a sector
specialized political department within the

system. The objective of this change was to
385
privatization was considered part of this the governments of the developed states
process. As a result of this new course, a expect from the public organizations
series of changes take place, such as: testing
the services on the market, cost and quality Public services exist in order to
supervision of the services rendered. accomplish the public interest’s objectives, to
improve the citizens’ fulfillment of the needs
6. Expanding the type of leadership and expectations’ level, through a political
applied in the private sector’s process. All of the outlined managerial
organizations, by renouncing the changes strive to implement the public
authoritarian approach objectives and providing the information as
efficiently as possible, absolutely necessary in
Under these circumstances, two taking informed decisions by the politicians
associations are taken into consideration: who collaborate with the public organizations
between the training profile of the personnel during a management process, which is
and the position held within the organization, carried out in an interactive manner.
and between the achieved performances and
The specialists cannot estimate
the applied wages system, based on merit.
however, when the results of the new
The emphasis put on achieving performances,
implemented values of the new public
determines the job and position placement
management will be known, but they are
based on a contract, to be carried out for a
convinced that, in time, as Osborne and
short term period, due to the fact that those
Gaebler were stating back in 1992, that the
certain public managers are not efficient.
public managers the other public servants will
become “entrepreneurs” and they will discover
7. Discipline and appropriate use of the
new methods for accomplishing and providing
public organizations’ resources
public services, in such a manner that most of
The new public management requires extra the promoted values of the NPM be achieved,
attention with regard to the management as a result of the evolving managerial
resources, which certainly include the dimension of the activities, carried out within
reduction of costs, as well as a greater the public sector’s organizations. This can
awareness of the programs through which only lead to cost reductions for the
strategic objectives are carried out. Therefore, bureaucratic spending and an increase of the
the governments have the possibility to control resources assigned for the efficiency of the
the manner in which the financial, human, services, by enhancing of relations with the
material and informational resources are private sector.
managed.
A more flexible public management
within the Romanian public institutions
cannot be achieved by adopting normative acts
4. Conclusions and implications that are universally valid with regard to the
organizations’ structure or the decisional
In most of the developed countries, process, and with any central authority’s
elements of the traditionalist model, as well as interference or ministerial orders. The
elements of the new public management can solution lies in the “recovery of the system”, by
be identified. The reality reveals that the new treating it from the inside, through the
public management’s content is closer to what enhancement of the public institutions’
386
managerial abilities, by placing career public [3] Mihai Păunescu, The Romanian public
servants in public positions and functions, who management(Iaşi: Polirom, 2008), 34-43
are prepared to become professional public
[4] David Osborne, Ted Gaebler, Reinventing the
managers with individual precise objectives, government: How the entepre-neutral Spirit is
duties, competences and responsibilities[6, transforming the public sector( Addison-Wesley,
Simona Mina, Nicolae Naum, Remus Zagan 1992),93
2010,120]
[5] Gordon Tullock, The politics of
Time will tell if the public sector’s Bureaucracy(Washington:Public affairs Press,
organizations will be able to accomplish a few 2000),120
of the fundamental values of the traditionalist
[6] Simona Mina, Nicolae Naum, Remus Zagan, The
model, such as: professionalism, impartiality,
management and quality of public
high ethical standards, nonexistence of services(Constanta: Ed. Ex Ponto, 2010),120
corruption, and to incorporate some of the
fundamental values of the NPM.
5. References
[1] Zsoltan Boghaty, Organizational Conflicts(Ed.

Eurostampa, Timisoara, 2009),103-107
[2] Laurenţiu P. Măricuţoiu,” Organizations’

efficiency regarding the acceptance of change or the
dominant management. A transverse analysis”,
Organizational Psychology 1-2/2004- 92-105
387

THE IMPORTANCE OF INNOVATION IN DEVELOPING AND

ORIENTING COMPANIES IN THE GLOBAL ECONOMIC CRISIS
MITITEL Elena
PhD Student, Academy of Economic Studies, Bucharest, Romania
elenammititel@yahoo.com
Abstract rely more on effective consumer protection

This paper presents some aspects and systems. Markets within which consumer
general considerations on the role and trust is high new innovative products can
implications of innovation regarding the penetrate easier.
potential growth of companies to exploit own
resources and to identify solutions that save Key words: innovation, innovation
them in crisis. management, economic crisis, enterprise,
In a short period of time, economic sustainable development
globalization has modified the economic
order, promoting changes, but also new
opportunities. European Councils of Lisbon 1. Introduction
and Barcelona have indicated the important
role of research and innovation in the Starting from the analysis of current
European Union. They identified as a key realities of European economic and social
concern the need to make the enterprises context, strongly influenced by the effects of
environment more favorable to innovation, in global financial and economic crisis, it can be
benefit of all citizens. stated that the main goal proposed by the
One of the objectives of innovation policy Lisbon strategy, namely to make the EU
is facilitating innovative potential “the most competitive and dynamic
development by creating an environment in knowledge-based economy”, it is not possible
which businesses can start a business and now.
can develop. Cooperation between national However, in the current economic
and international enterprises represents a downturn, innovation is regarded as the
main feature of these actions. main engine able to trigger economy as a
Implementation of significant changes in whole. Innovation has become an obsession
business practices, workplace organization or for all economic actors: enterprises,
external relations, aiming to improve the managers, local communities, governors, and
innovative capacity of the enterprise were consumers. By introducing innovations into
important factors in developing innovations practice, products with improved quality
on organizational management. characteristics, quality services, new
In order to be competitive during the production processes, more efficient and
global economic crisis, enterprises must be cleaner (ecological), improved models of
inventive and to better respond better to business management system, modern
consumer needs and preferences, because the management methods of work force etc. can
success of innovation depends on consumers be obtained.
and citizens demand for new products and There are multiple reasons for
services. enterprises and organizations to innovate,
This fact mainly implies consumer including: increasing market share,
confidence in these products and services, achieving new markets, improving product
especially in their security (provable). quality, expanding range of products,
Consumers will have even more confidence in replacing outdated products, reducing
unknown products and services as they may impact on environment, improving services
388
quality to meet consumer requirements at competencies, that will help the company to
the highest level. achieve their strategic intent.
Innovation is inextricably linked with The new product development process
creativity. Innovation and creativity must maximize the probability that projects
processes are interrelated processes, because succeed, both technical and commercial. To
finding a solution to the problems that arise achieve these, the following conditions are
in the innovation process requires creativity. necessary: understanding the dynamics of
Innovation consists in producing, acquiring innovation, an innovation strategy well
and operating successfully innovations in founded, respectively well-designed
economic and social spheres, helping processes to implement an strategy
companies to conquer new markets, or to innovation (Schilling, A., M., p.5).
remain competitive. In the same book, the author shows that
Innovation has many forms, from an many studies emphasize the fact that
invention resulting from research and companies consider the inside research and
development efforts to adaptation of development activity, as the most important
production processes, acquiring new source of innovation (Schilling, A., M., p.23)
markets, use of organizational changes or and that main forms of collaboration
create new market concepts. The race for between companies, for research-
innovation can be as important as price development project are strategic alliances,
competition, companies playing an active joint ventures, licensing, outsourcing,
role in this area, respectively in taking over research and development joint activities
research results and increasing (Schilling, A., M., p.160).
competitiveness. The main objective is to Dessau, G., G. Lumpkin, G., T., Eisner,
improve the business environment through A., B., Strategic Management, 2nd Edition,
interaction with the field of competition, Mc Graw - Hill Irwin, Boston, 2006:
internal market, regional policy, fiscal ”innovation is one of the most important
measures, education and vocational training, forces in obtaining a strategic advantage in a
standardization and patents. strong competitive market, and we have to
learn”.
2. Literature review In the paper - Bratianu, C., Knowledge
Dynamics in Organizations, in The
In the book Strategic Management of Proceedings of the 6th, International
Technological Innovation, 2nd edition, Mc Biennale SIMPEC 2006 Economic
Graw Hill, New York, 2008, the author Symposium, vol. 1, pp 51-57, Infomarket,
Schilling, A. M., 2008, p. 4, points out that Brasov, 2006, he says it is important to
based on the desire to maintain the create new mentalities for companies in
competitiveness, many companies launch Romania, encourage performance ideas,
them in the innovation race, meaning that which may constitute real changes for all
they develop new products without having a companies in Romania.
clear strategy and proper project
management. These firms initiate more 3. Paper Content
projects that can actually take over they
choose projects that are not based on Knowledge – innovative strategic
company resources, have long development resource in business environment
cycles and high failure rates.
Most new ideas, relating to a product do Each company has its own way of
not turn into a new product that will development based on a behavior difficult to
succeed. Many studies show that only one be simulated by other firms that combines
from thousands of ideas result in a organizational, functional and technological
successful new product, to be accepted by the skills and capabilities in a unique approach.
market. They are improved in time by accumulation,
In order to improve the success rate of application and enrichment of intangible
innovation in a company, you need a well knowledge. A firm's competitive advantage
founded strategy. Innovation projects of a lies on how this knowledge adds value to its
company must be based on company products or services.
objectives and resources, on core The operation of such organizations the
following processes essential:
389
 innovation (creation of new  development of methods to exploit

knowledge); the intellectual capital of the
 learning (knowledge assimilation); Company;
 interaction (sharing knowledge).  evaluation of the innovation process
The strategies applied by organizations in all its phases;
in their struggle for survival, knowledge  ensuring continuity of the innovation
and innovation become strategic process.
resources. Lifelong learning, knowledge The main problems that the innovation
intensive, represents essential conditions for manager has to deal with in its activity are:
introducing innovation in any organization, implementation within the company at all
public or private. levels the mentality to which innovation is
Knowledge-based business strategies the best solution for competitiveness and
include in each component of the strategy – economic development, as well as the
mission, objectives, resources, options, implementation of organizational culture
deadlines and competitive advantage, specific to innovative firms. Also, an
knowledge as essential elements that must innovation manager should focus his
be used and exploited, and in this way the strategies in order to facilitate the creation
company acquires a strong innovative and marketing of new products and
dimension. innovative services, on markets where they
From the macroeconomic perspective, it have to be understood as being beneficial for
is recognized that innovations have a all citizens.
positive impact on organizations and Wishing to maintain competitiveness,
employees. Innovation are key factors in many companies are involved in innovation
business success and is the most important projects without having a proper innovation
factor in increasing the profitability of management that better exploit the
companies, technologies, processes and new available resources and then are registering
products are essential for economic survival. expensive failures.
Innovation management should be
treated as part of the firm’s business strategy. New products and modern enterprise
The strategic context includes business success
objectives, current and future status of the
firm, managers’ implications, and markets Products improvement often fails to
dynamics, and competition, economic and protect them from aging and to continue
regulatory environment. The innovation generate interest for buyers. The most
manager is responsible for the effective effective fight against aging a range of
management of innovation processes in a products goes through diversification by
company, being responsible for the creating new products.
identification of ideas, new solutions, Introduction of new products is linked to
analysis, synthesis and forecasting, research & development and marketing
organizing, training, coordination, control expenditures, with no guarantee of success.
and evaluation, as well as change of Risk is inevitable, because the new itself,
products, technologies/services according to technical or economic progress, involves a
demand. risk on the part of the one who takes a
Framework activities that an decision regarding a solution.
innovation manager has to perform are: A business manager is faced with a
 elaboration of the firm’s innovation dilemma: on one hand he has to broaden the
strategy, after its auditing; product range with new creations, on the
 implementation of the action plan to other hand, their success is uncertain.
achieve the firm’s innovation Adequate capitalization of the
strategy; information provided by market and
 coordination of the professional technical research eliminates much of the
development of team; risk, reducing it to acceptable proportions.
 coordination of gathering of creative The enterprise manager will have to provide
ideas; a more rational shape for the activities
 creation of a data management related to creation and introduction of new
system regarding innovation ideas; products by undertaking a good division of
390
tasks and improving administrative central public administration should make

organization. specific requests for innovation, according to
When research efforts are concentrated the national, regional and local strategic
in specific areas of competence of the development objectives and priorities. Public
enterprise to create successful products, procurement and introduction of advanced
then broadening its own and related range of technologies in different socio-economic
products ensures the premise for achieving sectors will contribute to the development of
success. Research, Development and Innovation.
By introducing products in areas related Through the RDI strategy, Romania will
to its main business, the company acquires support innovative projects initiated by the
new experiences, develops new techniques private environment, as well to develop
and specific manufacturing processes and in research capacity of public entities to
this way increases its brand prestige. respond to these initiatives.
Innovation represents a successful Innovation is the main engine of the
solution for Romanian companies in the competitiveness of economic operators,
world of economic crisis. Products launched especially in an intensive and competitive
on the market must include technology, market such as the EU. According to the
innovation, be competitive and to be able for characterization carried out by the European
selling anywhere in Europe. Innovation Scoreboard, 2007, Romania has
Modern companies should not develop a an innovative performance level falling
product that does not have anything new, on among catching up countries.
contrary they have to design new products The EU leaders in innovation are
with a higher frequency of two to three Sweden, Finland, Germany, Denmark and
years. Great Britain, along with Switzerland which
is not part of the community block.
Harmonization regarding theory and Although the gap between the EU, on
practice in innovation process one hand and the U.S. and Japan, on the
other hand, it is reduced gradually,
Innovation as process with many investments in innovation carried out by EU
variables is centered on collaboration Member States are still low compared with
between research and industry. In the last those made in the largest two economies the
decade, developed countries have proposed world.
intermediate entities or forms of interaction Sustainable development through
and collaboration through which to develop innovation is based on the growth of regional
bridges between the two sectors, allocating business activity by attracting talents and
increased public financial resources to these developing access to knowledge and
entities. opportunities. To achieve this goal,
The EU integration of our country sustained actions are recommended in order
creates pressure on orienting to:
competitiveness to innovation and actions to  maintain and improve human
support private sector interest in this area. capital
Political commitment of 1% of GDP for  promote cooperation between
public expenditures on research and companies,
development, related to Romania’s  facilitate harmonization between
important commitment to the Lisbon market and knowledge,
Strategy is extremely important.  support for obtaining intellectual
Structural Funds for innovation and property rights,
human resources development are  support for regional economic system
complementary to public investment in competitiveness through reducing
tertiary education and in research and the significant technological gap by
development and will play an important role facilitating procurement of
both on Romania's socio-economic technological equipment and
development and in reducing regional services,
disparities.  development of educational system
According to the vision of National through PhD and post-PhD
Strategy for Research and Innovation
Development for 2007-2013, local and
391
programs in association with Innovation process must be carefully

business environment. managed as a whole correlated processes:
European Parliament stresses out that developing ideas, screening ideas, concept
SMEs should be considered one of the development and testing, economic analysis,
most important innovation drivers in development and prototype testing,
Europe and requires full support for them marketing test, distribution.
according to their skills (including measures Innovation is a global process of
to streamline and effective administrative technological and commercial creativity,
procedures and tax system and measures on transfer of new ideas or a new concept to
public procurement). final stage of a new product, process or
Content of innovative actions programs activity accepted on the market.
can cover several aspects, such as: Innovation is trying to propose
 creation and reinforcement of innovations, unknown and untried up to
cooperation networks between present, des-stabilizing temporarily the
companies and groups of firms, system, so that it will be adopted usually
research centers and universities, following internal pressures.
organizations responsible for Representing one of the strategic
improving the quality of human priorities of modern enterprise, innovation
resources, financial institutions and represents the measure of its capacity to
specialized consultants, etc.. adapt to the social and economic
 staff exchanges between research requirements.
centers, universities and companies, In the innovative process, the
particularly SMEs; development of new products or new
 dissemination of research results technologies is considered differently,
and technological adaptation among depending on the branch of activity in which
SMEs; the company is involved, its prospects and
 establishment of technological available creative potential.
strategies for regions, including pilot In the current conditions of market
projects; economy, the manufacturing companies are
 support for new enterprises which required to provide an increased attention to
have links with universities and optimize the distribution of efforts between
research centers, encouraging trends the production of new technologies and of
from academic and large companies new products, while the technology
oriented towards innovation and alternative must have a higher dose of
technological development; interest and efforts in terms of obtaining
 schemes to support scientific and financial funding.
technological projects, designed Taking into account that the
together with SMEs, universities international market requirements for new
and research centers; technologies represent a priority it is
 contribute to the development of new imperative to offer competitive technologies
financial instruments to start and more profitable for the exporter than
businesses. the new products based on these
technologies.
Innovation is the central element that
5. Conclusions and implications determines competitiveness and the world
states, especially the developed ones, have
Innovation provides the key and engaged in a systematic generation of it by
foundation of today’s competitive strategies. developing national systems and
These days, companies are facing a dilemma. international interactions more
If they do not innovate, they risk to die. If sophisticated.
they introduce innovative methods in their The global economic crisis, competitive
activities and innovations are not successful, pressure from business environment,
firms are subject to the same risk. requires to firms to continuously seek for
Innovation and imagination have to be innovative solutions, enabling to achieve a
transformed into a firm’s capability. better market position, a policy which is an
essential condition for existence of the
company.
392
18. Olteanu, V., Management-Marketing, O

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Scoreboard. Comparative analysis of innovation
performance, January, 2009;
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territoires: Économie sociale, environnement et
innovation, Marché et Organisation, Éditeur L
́Harmattan, 2008;
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Bucureşti, 2008;
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organizaţiei, Editura Economică, Bucureşti, 2007;
393

THE MICE TOURISM – A RECOVERY STRATEGY FOR

ROMANIAN TOURISM
MIHAELA-CARMEN Muntean
“Dunarea de Jos” University, Galati
mihaela_c_muntean@yahoo.com
COSTEL Nistor
“Dunarea de Jos” University, Galati
cos_nis@yahoo.com
Abstract Keywords: business tourism, Romanian

Business tourism represents a relatively touristic market, business travels, tourists,
recently launched touristic product on the hotel’s capacity
Romanian touristic market. On the real
market the term MICE (meetings, incentives, Introduction
conventions, expositions) market is frequently
used representing 53,8% of the European The present paper is a research of the
market, followed by Asia with 19,9% and the business touristic phenomenon in Romania
North America occupies the third position compared with the international one, placing
with only 19,2%. Out of the Central and Romania on the MICE international market.
Eastern European countries, Hungary holds The paper is structured on three chapters,
the most privileged position, namely position the first one establishing the business
23 in the world, having 53 meetings in 2004. tourism place within the international
As compared with other East European tourism, types of business tourism present
countries, in Bucharest there are 6.000 on the MICE market as well as the
accommodation places whereas in Prague requirements that should be met by a city to
there are 24.000 and in Budapest 18.000. be allowed to organize international
Approximately 85% of the Bucharest hotels meetings and congresses. The second
turnover but also from the country represents chapter deals with the impact of the urban
amounts of money that are refunded by the image upon the business tourism and the
Romanian or foreign companies: almost all factors that influence the selection of the
checking-ins in the Romanian hotels are the organizing place of a certain event which is
result of the business travels, travels which included in the international business
actually keep in business the hotel market tourism. The third chapter presents the
from the great cities. business touristic phenomenon in Romania
Not only the FIA GT 2007 competition drew in 2007.
on almost 70.000 spectators in Bucharest, out
of which over 13.000 from the country and 1. The business tourism place within
over 2.000 from abroad. During this the international tourism
manifestation the amount of money brought
in by the tourists was over 2 million euros, Business tourism corresponds to some
taking into consideration a medium budget extremely various fields. It includes world
of 800 euro/foreign visitor and a minimum level diplomatic reunions, state
budget of 200 euro/local visitor. representatives meetings, economic
Moreover the market is influenced not only by reunions, scientific and technical
the lack of capacity but also by the information exchange meetings, meetings
organizing problems of the great events like hold to deliver the results of some research-
the Summit of the Francophony in 2006. development projects, cultural and
394
educational meetings as well as offered by the airline companies, etc.) Even

manifestations specific to certain cultural the selection of a destination could be made
events, sports competitions, etc. taking into account the presence of a hotel
Business tourism also includes broadly that belongs to a certain chain. It should be
speaking, trips of the employees taken with mention that quality is very important for
certain purposes connected with their work, all service categories that are employed.
more precisely, official, commercial trips, Nowadays international tourism has become
participations to various manifestations a sophisticated industry that imposed itself
organized by economic companies or as one of the most dynamic and profitable
administrative organisms for their components of the tourism industry.
representatives. (R. Minciu, 2003) Among the business tourism particularities
Although all these trips involve the that have contributed to this
performance of some paid activities, they are characterization we could mention:
included in tourism as they involve the use substantial profit made by organizers and
of touristic endowments and specific service suppliers; independence regarding
services. According to the content, the types the natural conditions and contribution to
of business tourism are divided into: diminishing season periods, better
 Individual business trips (missions) employment of material endowments, and
common to many positions, for which the reduced impact over the environment.
involved persons agree to travel outside According to specialists, business tourism is
their town; included in MICE (meetings, incentives,
 Reunions tourism, meetings that include conventions and expositions), particular
a wide range of events (conferences, segment of the international tourism that
seminars, team-buildings, product recorded 10,318 meetings, 8864
launching, annual meetings, etc.) of some international organization meetings, 1454
companies or associations to facilitate other international meetings in 2007.
communication with/between their Europe represents 53,8% of the market,
employees, clients, shareholders or followed by Asia with 19,9%, and America
members; (North and South) occupies the third
 Various fairs and exhibitions generally position having only 19,2%, the last places
intended for product presentations; are held by Africa 3,9% and
 Incentive trips, respectively those trips Australia/Pacific 3,2%. In Europe, the top
that employees receive as a reward from position is held by France, on the American
their employers for good work results; continent – USA, and in Asia - Japan is the
 Corporate events that include generous one that has the highest number of
variants of entertainment which companies international meetings as it can be seen in
offer to their most valuable clients or to the following figure.
potential clients with the purpose of building
or intensifying their business relationships. INTERNATIONAL MEETINGS ON
Business tourists are generally more exigent CONTINENTS
and less price sensitive and at the same time
more preoccupied with their statute. Europe
Moreover they have a certain schedule that 3,9 3,2
America (North
should be taken into consideration. As a
and South)
consequence, transport services are very 19,9
Asia
important; the transport means employed
should be rapid, comfortable and adequate to 53,8
Africa
their schedule. Also the transporter 19,2
punctuality and prestige are of high interest, Australia/Pacific
the booking systems should also be very
efficient. (G. Stǎnciulescu, 2004)
Regarding the accommodation facilities,
chain hotels are generally preferred whose Source: ICCA,2008
standard is well-known and which provide Fig. 1. International meetings on
besides quality services, various bonuses for continents
regular customers that have a significant
impact upon business tourists (loyalty cards, The top of the 10 congresses and
scoring sometimes cumulated to the ones international meetings organizing countries
395
was in 2007 the following: USA, France, - elaboration of the social schedule;
Germany, Singapore, Japan, Holland, Italy, - printing and multiplying the materials
Spain, Austria, and UK. required by the congress theme;
Out of the 100 world greatest cities selected - accomplishing the promotional material
as congress destinations, the first 10 and its distribution;
positions were held in 2007 by: Singapore, - invitations delivery;
Paris, Vienna, Brussels, Geneva, Barcelona, - organization of the congress participants
New York, Tokyo, Seoul, Amsterdam (UIA, registration;
Yearbook of International Organizations, - suppliers selection;
2008). - accommodation booking;
For a city to be qualified as congress - visits and touristic circuits organizing
destination, it should meet certain before and after the congress;
requirements which are even more exigent if - organizing of the exhibitions connected
the city also candidates for international with the congress theme;
organization office. These requirements, set - congress works performance monitoring;
according to the EFCT, are the following: - insurance of the possible ceremonial and
- to provide congress facilities, services and protocol;
endowments for at least 300 participants; - catering supplying;
- their hotel capacities should be included - contacting mass-media representatives.
in 5 star international category for all The touristic offer for organizing events
accommodation services for at least 300 (scientific, political, economic, cultural,
participants; sports, etc.) also includes trip arrangements
- to set up cooperation relationships with a during which are employed both general
national airline company that would be the touristic services provided by the touristic
official transporter of the congress industry suppliers (accommodation,
participants; catering, transfers and local transport, tours
- to have a budget intended for congress pre and post congress) and specific touristic
tourism offer development; services (strategic planning and event
- to have a team of congress organizing management, renting locations and
experts and professionals; conference places, renting audio-video
- to be able to prove that the hotel has equipment and the necessary technical
accommodated in satisfactory conditions at assistance, employing translators-
least 5 international congresses over the last interpreters, hostess, organizing adjacent
3 years; social programs, production of items and
- to guarantee free entrance of foreign personalized promotional materials, printing
citizens and of residents exit. the leaflets, catalogues, paper cases and the
For a city to be competitive on the European volume that includes the conference
market of business and congress tourism, scientific papers. (C. Cristureanu, 2006).
characterized by high quality offer and
sophisticated endowments, it should provide 2. Urban image and business tourism
to the participants of these events the
accommodation conditions similar to those Business meeting organizers take into
intended by foreign investors. consideration four main factors (Law, C.M.,
The MICE touristic product is made up of a 1993) when they select the location where
group of services characterized by „delicate the meeting takes place, namely:
product” or by „ordered product” feature; its - the quality of the facilities associated with
standardizing is not possible as the tour- the business meetings;
operator should collaborate with the - cost;
potential client during the event production - accessibility;
process by performing the following - image of the potential locations.
activities: However the relative importance of these
- proposal formulation and event organizing factors may vary depending on the type of
agreeing; the meeting; most international
- establishing the place of performance; organizations conferences take place in
- budget establishing; locations that have good connections with
- identification of finance and subsidizing the airline companies, a high standard of
resources; facilities and an attractive image whereas
- establishing of the scientific schedule; the image role as well as the attractiveness
396
is not so important in choosing a proper In conclusion, the image is the key of

location for an exhibition. Therefore image is understanding the capital movement
important both for conference organizers manifested in changes of company location,
that have to decide the location where the work places mobility and investments.
event will take place and for the potential Nevertheless when the decisions regarding
visitors. Nevertheless some people select a the location establishment are taken, certain
location for a conference due to its factors are taken into consideration, like
destination and not the location. It could be that fact that the meetings take less than 5
assumed that this preference for certain days and that particular image might be
destinations that have attractive images will even more important taking into account the
be reflected in the event locations selected by following attributes of a city: 1. Accessibility;
the organizers. Some authors consider that 2. Location quality and versatility; 3.
images are very important in determining Catering companies and services provided by
the success or the failure of some cities in banks; 4. Quality as well as the service
business meeting field. range that it offers; 5. Physical location and
Other factors that have a great influence associated facilities (hotels, restaurants,
upon this selection take into consideration shops); 6. Technology and technological
the following aspects: facilities; 7. City image; 8. Clients/high level
- reputation and image of a potential events organized previously.
conference centre. How attractive, All persons involved in the business
interested and popular is it considered to be? environment are in favor of a more rapid and
How many utilities and other important efficient development of the tourism being
characteristics does it have? These aspects necessary an infrastructure, roads, modern
are included totally or partially in the sub- and ultramodern accommodation capacities,
consciousness of every participant to a qualified trained personnel that speak
conference or of a organizer of a conference fluently several international languages
and they are very important. thus foreign tourists would feel as if they
- costs and available accommodation were in their own country.
number of places. However it seems that In Romania their is both natural touristic
there is an agreement regarding the fact potential, opening towards new, availability
that a negative urban image is the main manifested by the new generation for the
factor that determines the organizers to know-how achieving and above all the
select another location instead the one in a obligatory character to meet the
city with problematic images. Having the requirements of the European Union
image as a reason for establishing the standards in all fields of activity therefore in
location of some international events, cities tourism as well.
can be classified into three main categories:
cities that have a positive image, cities that 3. Business tourism in Romania
have a negative image that can even be
intimidated and cities that lack the powerful Romania has manifested itself successfully
and distinctive images. This classification is over the last few years in the competition
based on the following factors: with the classical event locations, relying on
- cultural factors: including the local culture, a series of advantages that turns it into a
new images and modern associations with reference point for the development of this
the night life; industry in Eastern Europe and not only.
- social factors: violence, thefts and Aspects that support this type of tourism are
infringements of the law; connected to many other factors like:
- environmental factors: locations esthetic - a new destination, ready to impress the
attractiveness; visitors with a unique combination of
- political factors; natural, cultural and historic values, well-
- economic development factors: they derive preserved and generously presented and in a
from the success of the recent regeneration hospitable manner in all geographic regions;
projects; - ideal location in the central and eastern
- specific factors connected with the involved European space and easy to access through
locations but also connected with the airline connections with most world capitals;
facilities associated with the involved - thousands of years of culture, history and
locations; traditions that are reflected in Romania’s
- accessibility to the involved locations. cultural heritage;
397
- the well-known hospitability of the (with all costs included) is placed around 485
Romanian people, an advanced level of dollars/day. The conference average duration
implementation of the international on the international level is of 4,3 days, thus
standards already existing in the the participation of a person to an
hospitability industry; international conference involves costs of up
- old experience in organizing fairs and to 2.000 dollars. In Romania, the total
exhibitions; amount of money spent/participant is low
- professional specialization of increasingly (approximately 350 euros), and the duration
more Romanian companies that have the of the events is shorter (approximately 3, 4
capacity of taking over entirely the reunions days), which determines total expenses of
organizing process, thus being able to about 1.200 euros. From this amount of
become reliable partners of any organizers or money, most part (over 80%) remains in the
beneficiaries from the entire world that visit country, city respectively that organizes the
Romania as destination for their events; event. On the other hand there are
- dedicated infrastructure for hosting significant costs differences between the
conferences and exhibitions in an locations from Bucharest and the ones from
increasingly modernizing process, the country. Under similar organizing
unprecedented rapid diversification and conditions an event can be planned in
expansion, generating at the same time certain locations from the country at 3 times
possibilities for foreign or mixed investments or even 50% cheaper than the costs charged
that can redeemed be in an efficient period for its organization in Bucharest.
of time; Almost all hotels built over the last 5 years
- market emergence of some new business include conference rooms in their structure,
centers as well as of new hotel chains like: statistics and different enquires
Marriot, Hilton, Crowne Plaza, accomplished over the last 2 years show that
Intercontinental, Howard Johnson, Sofitel, 60-70 % of the hotel income of 3-5 star
Best Western, Ibis, Golden Tulip, Novotel, category from Bucharest come from event
Ramada recording increasingly expansion organizing/hosting. One of the elements that
from one year to another; provide to Bucharest the statute of
- political and civil stability as a EU attractive location for reunion organizing are
member country; the lower charges compared with other
- economic increases over the last few world cities. Moreover even the management
years. fees charged by a Romanian company for
The developing markets as well as the organizing an event is 5% cheaper than the
competitive prices have turned Romanian ones charged in the Western Europe. Being
into a favorite destination for MICE tourism. considered an attractive city and with a high
Even if in Romania there is a high potential in business tourisms, Bucharest
accommodation cost (and sometimes of lacks however the accommodation capacity
catering services), it is placed in the category required for hosting high level conferences
of relative cheap destinations. The medium as well as reception rooms for a great
value of a conference participation fee is number of people. Of all Bucharest hotels of
about 450 euros on international level over 3 stars category, only a few accomplish
whereas in Romanian it is about 150 euros. the standards required by International
This aspect is mainly due to low price level Congress and Convention Association
of the management fee, of translating and (ICCA), and of all conference rooms only
interpreting services, of technical services Sala Palatului is the only one that could
and sometimes of rooms renting. For the host about 4.000 participants. In Bucharest
first three elements mentioned above the there are over 2.000 high standards
costs are from 3 up to 10 times lower than in accommodation places but the required ones
other Western Europe countries. Conference would be of about 9.000. Comparatively, in
organizers do not charge a fix fee for to the Prague, Warsaw or Sofia the accommodation
value of the net services they integrate. The capacity is much greater and the prices
fee increases proportionally with the considerable lower.
conference degree of complexity and not According to the estimations regarding the
necessarily with the size with its budget. dynamics of hotel investments in the
The latest international statistics show that following 5 years the accommodation
the world average of the amount spent by a capacity will increase by about 3.000 rooms
participant to an international conference for all comfort categories. In 2005 was
398
recorded an increase of 580 rooms and for Conference or other events organizing can be
2006 and 2007 it took place an increase of considered as the most efficient component
720 rooms and 640 rooms respectively. In and also the most profitable from tourism.
2008 other 450 rooms were ready to be used, Maybe this is the reason for the increasingly
but the most significant increase will be interest of the investors in the development
attained in 2009 when 900 rooms are of this offer particularly in Bucharest,
estimated to be introduced in the touristic Timişoara, Braşov, Oradea, Arad, Cluj,
circuit. Out of the existing 3.000 rooms, Sibiu, Constanţa, etc. However the tourism
approximately 54% will have 3 star-comfort specialists consider that currently there is
level. The current existing capacity in still an insufficiency of event host spaces,
Bucharest is about 17.000 market places. especially for those events that involve the
What the Romanian capital needs as specific participation of a great number of persons
infrastructure is a modern and (over 300 persons).
multifunctional conference centre designed Another dynamic component is the
and built with this purpose that will ensure organizing of the incentive-type trips. An
a total capacity of 8.000-10.000 places, with increasingly number of Romanian companies
a main conference room of 4.000-5.000 having a modern management, use as a
places. Outside Bucharest, the cities that means of reward, company paid trips and
have a development potential for reunion offered to their most deserving employees.
industry still remain Cluj, Timişoara, They are also the ones the employ modern
Constanţa, Braşov, Craiova, Suceava or training methods, product launching or
Târgu-Mureş. team-building. Thus more tourism agencies
From organizational point of view, since emerged specialized in providing services
December 1997, the Romanian industry of linked with these types of events.
this type is no longer an exception from the About 85% of the hotels turnover from
world level, due to the existence of the Bucharest but also from the country
Romanian Convention Bureau (RCB), which represents amounts of money that are
is the established denomination of the refunded by the Romanian or foreign
National Association of Conference and companies: almost all checking-ins in the
Exhibition Professional Organizers that acts Romanian hotels are the result of the
in favor of its members and local and business travels, travels which actually keep
international beneficiaries. RCB is a non- in business the hotel market from the great
governmental and non-profit entity which in cities.
1999 became member of the most important Not only the FIA GT 2007 competition drew
organization in the filed, namely ICCA. on almost 70.000 spectators in Bucharest,
Romanian Convention Bureau currently out of which over 13.000 from the country
combines 55 public and private companies and over 2.000 from abroad. During this
able to ensure the entire range of services manifestation the amount of money brought
dedicated to congresses, conferences in by the tourists was over 2 million euros,
seminars, fairs, specialized exhibitions, taking into consideration a medium budget
business and motivational tourism. RCB of 800 euro/foreign visitor and a minimum
categories of members are: conference and budget of 200 euro/local visitor.
exhibition professional organizers, tour- Moreover the market is influenced not only
operator agencies and destination by the lack of capacity but also by the
management, conference centers and organizing problems of the great events like
exhibitions, reunion facilities hotels, service the Summit of the Francophony in 2006.
suppliers, dedicated equipment (audio-video, Romania has organized several world level
translators-interpreters, advertising, IT & events aver the years among which we
multimedia), air and auto transporters, mention: Crans Montana Forums (1994,
banking and insurance institutions, cultural 1996), inter-parliamentary congresses,
locations (www.conventionbureau.ro). NATO and OSCE meetings, conferences of
Romanian reunions infrastructure involves the Pact of Stability for Europe, General
over 22 conference and exhibitions centers, Meeting of the inter-governmental agency of
approximately 320 hotels that have reunion Francophony (1998), Planetary Congress of
facilities but also about 61 non-conventional Cosmic Space Explorers Association (1999),
locations (museums, palaces, universities, scientific congresses, various specialized
theatres, etc.). reunions. Here are some examples of events
399
organized in Bucharest and what they to use this new destination.

involved: (www.conventionbureau.ro).
 the 23rd edition of the World New locations for organizing meetings.
Congress of the Post Offices Universal Every location presented above is
Union 15.09.- 05.10.2004. During the entire characterized by a slogan that reflects it’s
performance interval, over 2500 persons specific.
participated from 204 countries, the service • Majestic Hotel has the newest
value regarding the trip and stay conference centre in the middle of
arrangements and event complex Bucharest. The traditional presence in the
organization, was estimated at over 5,8 commercial, financial and cultural centre of
million EUR. Bucharest, in a remarkable area
 International Union Congress of characterized by a spectacular architecture
Road Transporters (IRU), 2002, it had and accessibility (Calea Victoriei - Str.
about 1.500 participants and it lasted 3 Academiei), the 4* Majestic Hotel, RCB
days. It involved all categories of services member, is considered a standard of
(including those covered by the Romanian elegance, professionalism and discretion,
part) – accommodation, catering, transfers characteristics which are extremely
and local transport, renting locations and appreciated by Romanian and foreign
conference places, renting audio-video business people. Since it has recently added
equipment and the necessary technical new reasons for its clients’ satisfaction, ),
assistance, employing translators- the Majestic Hotel has extended and
interpreters, hostess, organizing adjacent modernized its structure, now having the
social programs, production of items and most recent conference centre in the middle
personalized promotional materials, printing of Bucharest. The spaces which are
the leaflets, catalogues, paper cases and the dedicated to reunions of the Majestic Hotel
volume that includes the conference can also host successfully conferences,
scientific papers, etc. – the event budget seminars or reception, as it has 5 rooms.
worked out at about 1,6 million euros, the • U Business Center (UzinExport), "On
participants personal expenses were not top of Bucharest" events. For event
included. organizers that are constantly looking for
 Annual General Meeting and accessible locations for participant who are
European Bank for Reconstruction and increasingly in a hurry and at the same time
Development Conference, 2002, about accustomed with their presence in the
2.200 participants, the event budget under conference and seminars rooms, the business
similar circumstances mentioned above centre which is placed in the Victoria Market
worked out at 2,2 million EUR. (Piaţa Victoriei) has all the necessary
 Summit of the Francophony, 2006, facilities for reunions hosting and makes a
about 4000 participants (36 high level good impression by a well-defined concept
representatives, 56 official delegations, 950 due to its chromatics and interior design,
journalists out of which 450 from abroad, those being considered valuable assets. U
3500 policemen, employees of security Business Center (UzinExport) thus offers a
companies). The Romanian state spent solution having 12 rooms that bear the
350.000 euros only on the accommodation of manes of precious stones adequate to the
the official delegations. Other 500.000 Euros decorative specific of each of them.
were spent for the participants transport but • Remarkable reunion facilities provided by
the money was provided by France. Astoria Touristic Complex- Snagov Sat.
Moreover France also ensured the Being located at about 45 km distance from
endowment of the press centre investing Bucharest, the Astoria Touristic Complex -
about 500.000 euro and Canada provided Snagov Sat has enriched its offer of spaces
equipment whose value amounts at 2 million and services with a new conference centre
Euros. equipped with state-of-the-art equipment.
Romania’s successive presence to numerous The spectacular environment of the natural
reunion tourism international exhibitions park, accessibility of the Snagov Lake and
over the last few years, among which we the constant preoccupation for well
mention the most important world specialty preserving of the location make the Snagov
fair - EIBTM Geneva, captured the attention Sat Complex an ideal location for events,
of the event foreign organizers that motivational programs and relaxation.
expressed their intention to now better and
400
• Crowne Ballroom - "Brand-new and for a fashionable sport. The club can be
sometimes available". A fashionable integrated successfully in the touristic and
location, (5*) Crowne Plaza Hotel Bucharest social programs performed on Valea
conference centre, part of ANA Hotels makes Prahovei, providing the tourists the
the best of the business advantages provided satisfaction of a short game and of a
to its partners and clients. Crowne Plaza has gorgeous driving range for long shots.
now 12 conference rooms being all (with only Moreover the Golf Club offers multiple
2 exceptions) natural illuminated, having facilities including reunion hosting.
acclimatizing and having their own spaces • the 5th Best Western Hotel in
for coffee breaks. Romania. After Balvanyoş, Bucharest,
• Mogoşoaia Palace - a cultural jewelry Mamaia and Arad, Best Western Hotels
that provides serious arguments within Romania network (RCB member) has
the circuit of events. The Mogoşoaia inaugurated at Gura Humorului, Suceava
Palace has recently become affiliated and the 5th hotel – Best Western Bucovina.
member of RCB, is included in the Being located in the close neighborhood of
Brâncoveanu Palaces form Bucharest Gates the famous Romanian monasteries from
("Palatele Brâncoveneşti de la Porţile Bucovina: Voroneţ and Humor, at about 30
Bucureşti-ului"), Cultural Centre together minutes from Suceava, the recently-built
with Arhonderia (Elchingen Villa), the park hotel is a remarkable location in the area
(36 ha), a restaurant, guest house and that complies successfully with the
together with the Brâncoveanu Palace from international standards.
Potlogi. Romania is the heiress of a long tradition,
• "Sydney 2000" Olympic Centre – a being one of the few countries that
spectacular space for reunions near participated to the Universal Exhibition that
Snagov Lake. A state-of-the-art building took place 133 years ago in Paris, where it
finished in 1997, located at about 30 minutes won 3 golden medals, 3 silver ones, 25
driving distance from Bucharest, on DN 1, at bronze and 28 honor certificates. In 1863 the
the 33 km, (from Ciolpani village, 2 km right government of that time initiated an activity
sideway, in Izvorani, near Pacea Complex), of organizing agricultural and industrial
"Sydney 2000" Olympic Centre is a exhibitions in the main urban centers. After
spectacular and unexpected emergence in the war, the current ROMEXPO
the Snagov Lake scenery. Being used by the Exhibitional Centre was inaugurated in
Romanian Olympic Committee as a token of Bucharest, in 1962, where took place in 1964
appreciation of the Romanian sportsmen the Exhibition of the National Economy
achieved during the Olympic Games from Accomplishments, the first general
2000, the complex offers spaces and exhibition having an international impact.
professional services for organizing Currently ROMEXPO has a modern
conferences, meetings, seminars, exhibitions, Conference and Congress Centre (9 rooms
product launching, fashion presentations, that have a capacity between 30 and 2.000
receptions, cocktails, etc. places), created especially to promote the
• Intercontinental Hotel, Bucharest – image of Bucharest as business meeting city,
spaces and approaches renewal An next to its already known role of fairs city.
emblematic presence in the centre of
Bucharest, the (5*) Intercontinental Hotel Conclusions
intents to promote this year not only on
international level but also on the local Professional associations in business tourism
hospitability industry level its ability to have the merit of promoting unitary our
organize reunions due to its optimized country as destination for the specific
standards of accommodation and conference manifestations, providing consultancy and
rooms. support in the development of these touristic
• The first field and professional golf activities, but still being in an early stage
club from Romania has conference showing a positive, promising tendency
facilities. LAC DE VERDE Golf Club (RCB however.
member) is Romania’s first official golf field. Most tourism agencies have understood the
The unique construction appreciated by high profitability of the business tourism
experts (9 holes), made and modernized and have adjusted their activity in the
according to the highest standards, the direction of service providing specific to
location provides all the necessary facilities business trips. The offer of the tourism
401
agencies in business tourism field involves  Professional and moral training of all
services provided by those to organize employees from the hospitability industry as
congresses, conferences, symposiums, an essential element for the insurance of
reunions and other events specific to this quality touristic services.
type of tourism. For a more efficient promotion some
Another dynamic component is the thorough research is required for every
organizing of the incentive-type trips. An country where Romania has tourism offices
increasingly number of Romanian companies to fundament promotional policies adjusted
having a modern management, use as a to the specific of every partner country as a
means of reward, company paid trips and possible source of tourists.
offered to their most deserving employees.
They are also the ones the employ modern References
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emerged specialized in providing services turismul internaţional, Editura C. H. Beck,
linked with these types of events. Bucureşti
In order to prove its dynamism and Davidson R., Cope B., (2003) – Business Travel,
Editura Prentice Hall, Londra
efficiency, business tourism in Romania
Greaves, S., (1998) - Competing for business,
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directions and a coherent strategy. These Law, C.M., (1993) - Urban Tourism: Attracting
should be priorities of the central organism Visitors to Large Cities,Editura Mansell, Londra
activities (National Tourism Authority), local Minciu R., (2003) - Economia turismului, Editura
or of the service providers in the field. Uranus, Bucureşti
Romania should take advantage of the Muntean M. C., Manea L. D., Nistor C., (2009) –
ascendant trend of the business tourism on Business Tourism – A New Form of Tourism in
the world and national level taking into Romania, ISI Proceeding ISI Thomson 16th
International Economic Conference IECS 2009,
consideration the economic advantages of
“Industrial Revolutions, from the Globalization
this type of tourism. and Post-Globalization Perspective”, 7-8 May,
To prove its dynamism and efficiency, Sibiu, ISBN 978-973-739-594-8
business tourism in Romania should benefit Muntean M. C., Manea L. D., Nistor C., (2009) –
of a powerful support from all directions. Romanian Business Tourism, Proceeding of the
First of all the economic increase should be 2009 International Conference on Tourism, 22-25
carried on, as well as the policy of drawing April, Messina, Italy, ISBN 978-88-96116-20-3
on foreign investments to determine an Nistor C., Muntean M. C., Manea L. D., (2009) –
increase of the business-purposes tourists Tourism Specialization and Romania’s Economic
Development Post-Accesion, ISI Proceeding ISI
flux.
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The development of the transport IECS 2009, “Industrial Revolutions, from the
infrastructure will therefore have a decisive Globalization and Post-Globalization
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at accomplishing the same increasingly 594-8
trend regarding the following: Stǎnciulescu G., (2004) – Managementul
 Accommodation capacity that should be operaţiunilor de turism, Editura All Beck,
extended especially in great cities with Bucureşti
www.conventionbureau.ro
modern units of superior comfort category,
www.iccaworld.com
providing services specific to business www.uia.org – The Union of International
tourism; Association
 Quality of services provided by hotels and www.wttc.org- The World Travel & Tourism
restaurants, by specialized tourism agencies, Council
business centers and reunions;
 Professionalism of the operators and
event organizers;
 Attracting international events, process
in which the central administration may
have an important part;
 Business tourism promotion in our
country to various specialized international
fairs;
402

REGULATORY MEASURES IN THE ACTIVITY OF CEC BANK
NEGOTIU Calin PhD Student

,,Lucian Blaga” University of Sibiu
negotiuc@yahoo.com
Abstract Regulations issued by the central bank [Money

The paper makes a description of the journey market regulations, Minimum required
towards banking regulations made by the CEC reserve system (RMO), Reference rate,
Bank, with modifications, progress and current Regulation on Foreign Exchange, Electronic
state of alignment with European banking payment instruments, the Central Banking
standards. Risks (CRB), the Payment Incident Bureau
(PIB), Regulation on some reports statistical
Key words: banking system, banking NBR, Regulation on use of IBAN in Romania,
supervision, CEC Bank Regulation No. 3 of 2007 to limit credit risk on
loans for individuals, regulations on currency
Introduction redenomination] EU regulations and decisions
have been translated into policy of CEC Bank.
Over time the banking system and regulation Banking regulation has followed international
of banking has always appeared in the system standards. Since technically, Romanian
to identify problems and how to solve their regulations are harmonized with the EU. EU
guidance and control policies, starting with regulations have however seen the
central banks, with the mission and their role intermingling with the other two perspectives:
in the economic systems, the role of banks in on the one hand, certain preconditions need to
monetary policy; regulation is done in ethics ensure macroeconomic, structural and
perspectives, in the spirit of fair competition of cultural, on the other hand, international
appropriate prudential regulations risk. standards.
Banking, including deposits and loans as But in the situation we find that the ethical
major banking activity with related services rules of the game are not respected, and this is
and supplies, is an economic activity carefully happening and identify the periods of crisis,
regulated public. and then we have the example causes collapse
of banks, an example of the possibilities
Paper content offered by the deregulation in banking
practice.
Banking system not only influences the
We have done a review of major regulatory
perceived macroeconomic environment but
actions in the work of CEC Bank, in its long also the quality of macroeconomic policies and
history of over 145 years (table annexed). instruments for their implementation.
Regarding macroeconomic policies, they can be
Theoretical Background characterized as fluctuating (between firmness
and laxity), according to the electoral cycle
Market economy environment involved (which is especially visible in revenue policy)
remodeling and replacement of an economic and macro-economic pressures, especially the
system to another, with an institutional external sector. Unpredictable variation
framework with systems: financial, banking, induced macroeconomic uncertainty and credit
monetary and exchange specific to market policy of banks' interest. Similarly, in periods
economy. This process was aimed on the one of laxity of economic policies, credit expansion
hand, recreating a particular banking market has tended to grow beyond the limits of
economy, and secondly that of harmonizing the prudent banking. Alternatively, the steps of
Romanian legislation with European Union
restrictiveness of policies, real interest rates
countries.
403
tended to increase too, with negative policies of banks, according to periods of

influences on the ability of debtors for economic expansion to meet credit growth and
repayment of loans, also dropped the banks' the tightening of contraction was observed in
liquidity situation, representing a factor this case and the explanation is very simple -
worsening the overall situation of banks. no longer have damage indicators allowed
Viability of the banking system depends affected banks to be exposed in all conditions.
largely on macroeconomic stabilization policies Restoring financial situation while rebuilding
and the availability of healthy and the reputation of financial institutions and
sustainable. Health banks will depend, markets will mark their return point. From
ultimately, the general improvement of the this perspective maintain trust between
macroeconomic climate. partners remains an important point in the
Reform of the banking system (legal and development of banking. Even if it's a cliché,
institutional) and reinforce the policy they and confidence building, including the banking
reflect the strong dependence of the banking market, depends on each partner.
system developments in real sector (production Looking ahead, but having compared the
dynamics and Restructuring). On the one current situation of the banking system, there
hand, reform measures have been coordinated are still significant challenges whose solution
system with European standards (in terms of will determine the positioning of the
regulation and banking supervision) and, if Romanian banking system to future meeting.
authorized banks were cautious. Moreover,
effective implementation of prudential rules References
established by the end of the decade was a
clear weakness. 1. Ştefan Petre Kirson Casa de Economii şi
Consemnaţiuni (1864 - 2004), 140 years of
Conclusions existence, (Bucuresti., 2004)
2. Victor Slavescu. - Enric Winterhalder's life and
economical work, (Ed. Cultural Foundation History
The activity is based largely on trust - trust in Magazine, Bucharest 2002)
bank's customer’s ability to repay loans, banks 3. Victor Slavescu – Menelas Ghermani's life and
will keep customer confidence that their work, (Ed. Cultural Foundation History Magazine,
savings are safe, or that operations will run Bucharest 2004)
correctly. Although trust is an abstract notion, 4. CEC Annual Report: 1997 - 2009
there are models (quantitative / qualitative) 5. NBR Annual Report: 2005 - 2009
which estimates, for example, which is the
probability that a customer will not repay the
debt maturity, the ability of banks to deal with
customer requests for payment or even what
can be wrong when an operation is performed
on behalf of clients. What was lost in the
current period, crossed by a global financial
crisis still difficult to assess at this moment, is
ultimately trust: trust in "healthy" financial
institutional partners and companies or
individual customers the ability to handle
payments in liabilities. The close correlation
between economic expansion and lending
Nr. Date Law MO Approval Observations
1 28. 07. 1864 Draft regulations and 268 / 01. 12. 24. 11. 1864 Iniţiator Costache Balcescu
establishment of the 1864 Alexandru Ioan Partially changed
Cassa de Depozite and Cuza Iniţiator Nicolae Rosetti-
Consignatii State Council Balanescu - Acting Minister of
Finance
2 21. 06. 1876 Approval of operating 174 / 08.08.1876 Council of Iniţiator Ion C. Bratianu
rules 267 / 30. Ministers Royal
11.1876 Decree
404
1509 / 03. 08. 1876

3 05. 1880 Romania NBR regulations establishing
Parliament edited by Eugeniu Carada
4 12. 1879 Establishment of Casa de 12 / 16. 01. 1880 Senate Iniţiator Dimitrie A. Sturdza –
Economii Deputies Meeting Minister of Finance
Change its name to Casa Sanctioned by
de Depuneri, King Carol I – 05.
Consemnatiuni and 01. 1880
Economie (2 institutions)
5 23.03.1893 Law for the organization 24 / 30. 04. 1893
of services and staff
6 1900 Change law articles 1876 241 / 27. 01. Amending articles related to
1900 investment policy
7 1901 Law direct and indirect 293 / 31. 03.
tax increases 1901
8 1922 Amending legislation Raising the ceiling for loans,
improving the financial status
of employees
9 1928 Legislative intervention Activity in the territories
annexed to the Romanian
kingdom in 1918
10 1930 Regulations for the 170 / 01. 08. Deputies of the Have the primary purpose, "to
encourage, collecting and
Casele de Economii 1930 Senate Assembly
keeping the economy,
organization 64 / 6. 09. 1930 High Royal Decree generating interest and
returning them to demand the
2842 / 28. 07. 1930
highest relief’s”. The amounts
deposited, together with their
interests were guaranteed by
the state.
11 1932 Regulations for the 247 /21. 10. Chamber of Legislative intervention was
determined mainly by the
Casele de Economii 1932 Deputies and the
establishment division and
organization. Senate current accounts and transfers
through postal checks, by
Name is changed from High Royal Decree
using the postal network in
Casa Generala de 3032 / 19. 10. 1932 dealing with people.
Casa Naţională de Economii
Economii in Casa
and Cecuri Poştale acquires a
Nationala de Economii very important role in
economic and financial gears
and Cecuri Postale
of Romania, and that receives,
(abbreviate CEC, from by law, the power to undertake
public education work in
Casa – Economii –
saving / provision became a
Cecuri) cultural factor national bank,
the organization of publicity
actions of the most diverse and
using all media: literary
exposure, conferences,
presentations of theater and
cinema, billboards, awards for
best papers on saving contests
and prizes offered by
depositors lot, etc..
12 1937 Decree Law 69 / 24. 03. 1937 Initiator Virgil Madgearu -
Minister of Finance, establish
a Commission to develop the
405
law to restructure the

institution. CDC activities and
powers are so separated from
those of CNECP.
13 01. 11. 1938 Decree - Law 254 / 01. 11. Proposal of FM Appointment of Board of
1938 Royal Decree Directors of CDC
14 01. 11. 1939 Sanction Decree - Law 253 / 01. 11. CDC Administrative
1939 reorganization.
Initiator Mitita
Constantinescu – Finance
Minister
15 1941 - 1942 Decree - Law 78 / 01. 04. 1942 CDC Reorganization.
Initiator Victor Slavescu –
CDC President
(Opening agency – Sibiu, Mai
1943)
16 15. 08. 1947 Monetary stabilization 186 / 15. 08. PCR Blocking the population
1947 Decision no. 19 / deposits from Casa Nationala
14. 08. 1947 of the de Economii si Cecuri Postale
Ministerial and CDC, was an act of
Committee for nationalization carried out by
Economic applying stabilizing monetary
Recovery and confiscation (recalculated to
Monetary report 1/leu new deposits to
Stabilization 20,000 old lei, recalculated the
amounts, blocked, without
interest).
17 1947 03. 09. 1947 PCR National Bank was authorized
to guarantee deposits in cash
at sight or term, made the
savings passbooks and
received a limited number of
credit institutions benefiting
from this guarantee only
deposits made after
stabilization. Through this
legal action, Casa Naţională
de Economii şi Cecuri Poştale
and CDC lose the accord of
state guarantee on deposits
which is going on NBR.
18 1947 Decision Council of Were forced to act as collectors
Ministers of savings offices (PTT offices,
popular banks, cooperatives
designated by NBR) and,
generally, all public
institutions with cashiers,
406
except fiscal. Were obliged to

post the collection and refund
of economies, all private
enterprises employing at least
100 employees. In the schools,
they were to do only office to
receive the savings, and no
refund. Collector offices were
not allowed to receive deposits
to fruition for their own
account, only institutions with
guaranteed deposits..
19 01. 08. 1948 Law liquidation of private Are received by the Casa
banks Naţională de Economii and
Cecuri Poştale, unlocking
instructions deposits in old
money. Calculation
changeover was 20,000: to one
stabilized leu. The calculation
is performed after the last
release capital from existing
accounts August 15, 1947, and
not to calculate interest for the
period August 15, 1947 to
August 13, 1948. Existing
capital at Aug. 15, 1947
(deposit plus interest) is
returned.
20 25. 05. 1948 NBR Project - Situation of The main proposal was that
28. 07. 1947 CEC and Casa de the two institutions "to be
Depuneri absorbed entirely by the
202 / 01. 09. Decree central bank”.
1948 CDC and CNECP merged in
CEC
21 07. 10. 1949 Decree nr. 387 64 / 07. 10. 1949 About the organization,
operation and administration
of CEC in RPR.
22 1958 Decree 371 32 / 19. 08. 1958 About the organization,
operation and administration
of CEC in RPR.
23 1961 December 1960 Decision of the Active contribution to the
Council of development process of saving
Ministers in rural areas is made by own
units, developed and
established by the institution.
24 1972 Law amending and Official Bulletin
supplementing Law No. of R. S. R., nr.
407
finances. 9 / 1972 - 59 / 1979

Finance Law
25 C.C. of PCR Measures were taken which
Decision, 22 - 23. would lead to the development
03. 1978 on and economic planning -
improving financial, monetary and credit
economic – relations improve, the
financial increased role of banks in
management and building the multilaterally
planning. developed socialist society.
26 29.03.91 Law 33/1991 70 / 03. 04. Romanian Banking law
1991 Parliament
27 1996 Law nr.66 140 / 05. 07. Reorganization of CEC as
1996 Romanian banking stock
company.
28 HG Government The bank was reorganized and
Decision nr. 88 gained a new legal regime.
from 22. 10. 1996 Casa de Economii and
Consemnaţiuni SA statute was
approved, so that year, the
bank has acquired a complete
legal and regulatory organic.
29 Law nr. 250 516 / 30. 12. CEC is a legal person of
1996 private law and there are
made changes in the object of
activity.
30 05. 03. 1998 Law nr. 58 121 / 23. 03. Romanian Banking law
1998 Parliament
31 OUG nr. 61 377 / 04. 06. Expanding range of services
Law nr. 589 2002 offered by CEC SA
828 / 18. 11.
2002.
32 11. 03. 2004 OUG nr. 5 Considering the limited
budgetary resources and
investment (...) need
completion already being
employed or in employment
under the Action Plan on Good
Governance Program (2001-
2004) – CEC SA may be
compelled by Government
subordinated to credit
facilities, under the
coordination authority or
ministry.
33 2005 OUG nr. 42 / 26. 05. 2005 463 / 01. 06. Establishment of measures to
Law nr. 285 / 2005 as 2005 restructure CEC SA (private
408
amended legal entity organized and

operated as a stock bank,
according to Law no. 58/1998)
for privatization.
34 Order no. 979/8. 07. 05 635 / 19. 07. The approving CEC - SA
issued by Ministry of 2005 statute.
Finance
35 HG nr. 806 / 14. 07. 05 The approved privatization
strategy
36 10. 08. 2005 Ministry of Finance Public announcement of the
privatization of CEC – SA.
Following political pressure
and from various
organizations that process is
stopped.
37 06. 12. 2006 OUG nr.99 1027 / 27. 12. Romanian On credit institutions and
Law 227 / 2007 2006 Parliament capital adequacy
38 14. 02. 08 Order no. 425/14. 02. 08 164 / 4. 03. 2008 The approving CEC - SA
issued by Ministry of statute.
Economy and Finance
39 25.04.08 Change Order no. 1312- 347 / 06. 05. 08 FM Order Amending Order No. 425/14.
1325. 04. 2008, issued by 02. 08, order stating the name
the Ministry of Economy and image (brand) change of
and Finance CEC Bank SA and status
40 07. 07. 08 Change Order no. 425/14. 535 / 16. 07. 08 FM Order Change of bank capital
02. 08 issued by Ministry that is subscribed and paid
of Economy and Finance to 719.200.000 lei
41 04. 11. 08 Change Order no. 425/14. 767 / 14. 11. 08 FM Order Change status CEC Bank SA
02. 08 issued by Ministry
of Economy and Finance
42 16. 07. 09 Change Order no. 425/14. 517 / 28. 07. 09 FM Order Change of bank capital
02. 08 issued by Ministry that is subscribed and paid
of Economy and Finance to 949.285.000 lei
409

UNCONVENTIONAL ADVERTISING – AN IMPORTANT OBJECTIVE IN

THE DEVELOPMENT OF THE COMPANY IN TIMES OF CRISIS
Paul Marinescu
Niculae Sabin Mihai

Academy of Economic Studies, Bucharest
Sorin Toma
Abstract company’s offer. For this step to have the

The article reviews and analyzes the desired finality, the company must take into
importance of communication and different consideration some audience characteristics
unconventional communication methods and as a receptor of publicitary informations,
unconventional approaches to highlight the those being: the public’s desire to be treated
power of the unusual. There article enlist a as an active and exigent partener in the
range of communication tools and methods dialog with the market agents, the
that want to create an impact among manifestation of some diferential
consumers and to help companies find and availabilities to react to the pyblicitary
select new mediums of communication. phenomenon, the capacity to express their
own ideas and exigences towards this type of
Key words: communication, unconventional activity.
advertising, guerrilla communication, 3600
communication, communication media. THE UNCONVENTIONAL
ADVERTISING MARKET IN ROMANIA
Advertising represents one of the most
utilised means of communication in the Unconventional publicity takes places
market activities- some specialists wherever it cans, using sight, hear and smell
considering it as the political communication to draw the attention of an eterogen and
axis of the company. hard to impress audience. Television tells
In essence, publicity contains all the actions her story, in the 14 minutes of advertising,
that have as purpose the indirect that broadcast every hour. Radios carry us
presentation (unpersonal) – oral or visual- of from pitch to colage, and the printed press
a message about a produc, a service or a firm crowds into pages discretly stamped borders,
by any identified sustainer (payer).In other in the upper-left side.The outdoor is growing
words, through the publicity actions, the and is headed to sold-out.
company wants to assure a very large Perhaps more than in other domains from
audience information about the activity, the the communication sphere, the advertising
products and its services, the brands under market is one constantly subdued to the
these are present on the market, to convince imperative of change, a normal consequence
and determine him to perform the purchaise of the fact that two of its major components
act. It targets on the long term, behaviour – the message, but also the way chosen to
modifications at the level of different transmit the message – are subdued to a fast
categories of consumers and also the “alteration” process (either is the TV
maintaining of those’s fidelity towards the commercial, radio, magazines, outdoor, there
410
is “expiration date” of the mediatic product). Sociologs say it’s a very natural thing, taking
The advertisers are therefore in a continous into consideration the fact that it is a closed
search – not only about the way in witch and anost environment, to look for
they draw the audience’s attention, but also something interesting to read.
the means used for this purpose, which Domain researches show the fact that in a
makes the orientation towards the utilised closed environment, of small sizes, in which
informative forms of media to become there are no visual or auditive stimulies, a
therefore more signifiant. publicitary message has over 95% impact
from the point of view of the reading and
ELEVATOR ADVERTISING over 80% from the memorising point of view.
The showing of your commercial in the
Media support relatively new in Romania, elevators makes the message you send
elevator publicity came as an answer to the unforgetable, having a maximum impact
growing need for communication in an that collects audience permanently.
unconventionally and impact manner, in the The commercials type in this environment
context of the growing crowding of includes in the presents framed prints in a
publicitary messages on the traditional format a bit larger that A3. There can be
media channels. At the television, radio, on also made special projects like decorated
the street signs or mail boxes are overlaped mirrors or lenticulary posters ( visible as
various publicitary messages, many times 3D), but this format hasn’t been very
coming from direct competitors. In the solicitated because of the high costs.
elevator, for a change, there can be What are the advantages of such a support?
exclusivity for a brand, fact that contributes As for the advantages of this media support,
to the differentiation of the brands. the differential elements from other
It proposed to the home market a new communication channels are the following:
concept : VCTH (very close to home). Being •The complementary, innovative form of
the only place in which a company or brand commercial.
can have an intimate communication with a •The very close nearness from both physical
potential customer. Through this new and emotional point of view towards the
concept is tried to offer to customers an consumers. This space is beween the
alternative to already known promovation intimacy of home and the exterior
environments, providing an intimate space, environment, creating therefore personalised
detached of the “ message war” we meet and relations between the brand and its
see everywhere. There are no other consumer.
publicitary supports on which a company •The over 90% rate of those who read the
can talk directly to a potential consumer publicitary message – in most of cases the
without its message being bruited. lack of other activities in a closed, captive
The elevator is a restrained space, in which environment, makes the publicitary boards
you are obligated to spend some seconds attractive and as a consequence, provokes a
alone or in the company of other persons. positive reaction to the persons in the
The interpersonal communication laws elevator.
determine the travelling parteners to avoid •The memoration rate for the publicitary
to look at each other and throw their eyes on message that outranks the majority of
the walls...where awaits quetly the commercial forms, that have the rate
publicitary message. The elevator offers an between 20 and 30%; the lack of any other
intimate communication with a potetial attention distraction sources makes the
customer in a restraining environment, and persons in the elevator stay focused on the
the message isn’t bruited by paper articles, publicitary message.
other commercials, noise or horns. •A target group that can get the publicitary
How many times did it happed to you during message during the whole day, every day,
the elevator journey – either in the block of even before they make important decisions
flats you live in or at the office to be very towards the purchase of a product or service.
bored or feel incomodated by other people’s
presence or to read the using instructions for ADVERTISING IN TOILETS
the elevator or different writings on the
elevator’s walls? “Give piss a chance” is the slogan that we’re
used to in the restaurant, club or
411
McDonald’s toilets. The journalist Mircea alternative promovation method, but also to
Toma was creating at the end of the last small and medium companies that allocate
millenium, the publicity agency OOPS low budgets for advertising and that want
Media, that brought from the Occident the campanies for short periods. The bicycle
model of toilet publicity. publicity targets active persons between 18-
“The originality of this publicity, the raport 50 years, from the urban environment, that
between price and impact, the exact frequent crowded areas at the rush hour.
targeting on a type of consumer, the lack of This type of bussiness has already a profite
other visual stimuly, the extense freedom to marge of 35-40%, and the initial inverstment
express the messages, all lead to the can be situated between 1000 and 5000
customer orientation in a growing and more euros for five bicycles, being covered even in
important proportion towards the the first three months of activity. The
publicitary supports in toilets” thinks amount differs from how much is invested in
Cristian Dragan, the executive director pf the commercial.
OOPS Media. The toilet publicity only This development niche hasn’t been exploit
strikes the mentalities of some of the by the big companies because of the small
customers that consider that the space isn’t incomes generated by this type of bussiness.
suited for their brand promovation. Advertising in moving on bicycles. Soon, the
With an initial moderate investment, OOPS centre of the Capital Coty and shore will be
Media managed to double their bussiness covered by bicycles that will have publicitary
capital annualy. Customers come from fields pannels. Although at an international level,
like pharma, telecomunication, cellphone mobile publicity mounted on bicycles or
producers, auto, drinks, mass media. The scuters is no longer something so unique, on
cost of the exposure of a poster in the toilet a national plan, such a niche bussiness
board is of 30 euros/month. According ro a hasn’t been yet developed.
research made by OOPS Media, 80% of the An enthusiastic young man – Dinu Iftode,
restaurant customers remember the actionary in the immobiliary agency
messages exposed in the toilets. Platinum Expert, thought to implement in
our country what is a success at an
European level.
Mobile publicity on bicycles is a new format
ADVERTISING ON BICYCLES on the romanian market and offers
something that the large companies don’t
Riding the bicycle is healthy. And with a have in their portfolio. The short-term
small publicitary panel attached, it can promovation of any customer’s products that
become lucrative and effective. The choose such a popularisation method. Dinu
advantage for bicycles is that they can enter Iftode, sales director of Platinum Expert
in the areas in which the car access is company, that is now launching on the
restricted, such as parks and crowded advertisement market, says that a new
sidewalks. Publicitary bicycles can station in bussiness that is now entering the local
front of a cafeteria or a store, even in the market takes part from a greater strategy to
middle of an intersection from the centre of create a new publicity agency.
Bucharest at a rush hour, case in which the In his oppinion, the advantage of the use of
message is being seen by tens of thousands such a commercial strategy by a company
of people in a few minutes. consists of the great movement liberty that
the bicycles have. These, unlike cars, car
Another advantage is that of the accesible circulate in very crowded spaces, where
costs for this type of publicity. For a bicycle, autovehicles don’t have access, like parks, or
the tax is for 10 euros/hour and can reach 8 places where the circulation is prohibited
euros/hour for campains that have 20 days, etc. The development plans are great, and
each of 8 hours/day. A disadvantage of this the bussiness initiator has already began
type of publicity is the lack of bicycle tracks negociations with big companies present on
in mosy of the cities in the country, which the Romanian market for bicycle
would make a lot easier the employees work. promovation.
Bicycle publicity is adressed to larger
companies from different fields, as an
412
AIRLINE ADVERTISING
ADVERTISING IN CABS
A first advantage of the airline publicity
would be that of the fact that it draws In the New York from a couple of decades
attention faster than any other publicitary ago, the yellow cabs that were crossing the
material. Additionally, it remains in the boulevards in a rush strarted to wear on a
interes field with more than 60 seconds than platform the commercials for different
any other type of publicity, thank to the american companies.The publicitary
atipic and attractive frame in which it is messages extended in time on the interior of
presented, claim the specialists. the vehicle, where they travel with the client
Impact, visibility, flexibility, uniqueness are along the entire trip in an intimate
the key trades of this kind of environment.
communicating. The inconveniment of such a publicity is that
Airline publicity is firstly visible. People are it can measure audience only aproximately,
fascinated by flying objects. It is in without an exact centralisation thiks Angelo
everybody’s instinct to watch towards the Dorobantu, general director at the Angelsoft
sky, especially when there is something Computers company, that represent the
moving, that is why the publicitary message advertising company in cabs, Taxi
will be definetly be remarqued and all will Advertising.
remember a long time after. Cab commercials has many cattegories of
Publicitary messages transmitted through customers, like travelling agencies,
the tradtionally formes reach harder the imobiliary agencies, bars or FMCG, because
target audience. Advertising made through the persons that travel with the taxi come
the airlines can’t be ignored, they draw from different social cattegories.
attention and the publicitary message is The standard cost for a cab publicity is 10
definetly remarqued. euros/header/2 weeks. Depending on the
number of cars and the duration, there can
A first player on this market is the company be discounts of almost 50%.
Regional Air Services that offer, along with
agrement flights, operational services and “The passangers in the taxi are also your
flying lessons, airline publicity through: clients. Show them your offer! “ is the slogan
towing banners with the airplane, ballased that would resume the idea that led to the
written flyers, parachuttes launches for appearance of TAXI.AD, affirmed the
promoting activities. representatives of the Taxi Advertising
company – the service supplier- company
The predilect customers of this type of specialised on the distribution of advertising
publicity are large companies, multinational in cabs.
companies, banking institutions, agro- The service TAXI.AD means today the access
alimentary companies, imobiliary at about 40% of the cab market in
companies, casinos. “Our customers choose Bucharest, from a total of 10.000 licences
to inform the turists that have more time given by the City Hall of Bucharest, affirm
available to see their message, those who are the officials of the service. According to the
not disturbed by the noise of a plane that unconventional publicity supplier, the
tows a banner or that throws advertising company has the first contacts with cab
matterials” declared Elena Lepadatu, firms established in october 2006.
Marketing and Publicity director of the The procent is translated every month in a
company. media coverage of aproximatively 4 million
As for the efficiency of the airline publicity, persons transported every month, according
nine of ten potentially customers perceive as to the informations offered by the taxi
they should the message transmitted companies parteners with the advertising
through such a type of publicity and eight service. The advertising service promovated
out of ten customers buy the product. by the TAXI.AD represents advertising
Cost very between 270 and 350 euros/ hour pannels of A5 dimensions (landscape)
for banner towing and between 275 and 375 attached to the headers of the chairs in front
euros/hour for the ballase of written flyers. of the taxi cars, targeting the passengers
that stay on the backseat.
413
According to the dates given by Taxi Match Point has been launched 5 years ago
Advertising, from the National Audience with an investment of 9000 euro. The
Study aproximatively 15.72% of the persons company management estimates that in the
in Bucharest that were asked ride the taxi present time there would be needed at least
about 1-3 times per month, 7.86 once or 150000 euro to launch such a bussiness.
twice a week and 2.5 say that they take the Match Point had its bussiness number of
cab 3-7 times a week. 1.150.000 euros untill 2007 and estimates
“To me, the most important thing is social sales of over 2 millions this year. On the
variety of the cab passengers, the balanced retail zone of safety matches, the company
raport between women and men, single and holds about 45% of the market, and in the
married, youth and adults, etc. Therefore, advertising safety matches has a market
although it is an unconventionally share of 70%. The profit marge of the
environment, it it not exclusivist. And that is bussiness is 4-8%.
good. It can send messages for a multitude of “On the Romanian market extern
fields”, says Claudia Dorobantu – Managing competition comes. In the larger projects
Partner at Taxi Advertising. The officials cases (quantities that are over 100.000 boxes
from Taxi Advertising say that organising of publicitary safety matches), where
the same type of unconventionally companies invite at auctions foreign
advertising campaigns, the Taxi Media producers”, explains Ovidiu Popa. The
division of the ClearChannel group is production director from Match Point
enjoying a real success, on the exterior estimates that one of its atues dealing the
products and interior ones, conclude the competition with players from other markets
company’s representatives. is the base of supplying the basic goods of
From a statistical point of view we know the company. Match Point takes its primary
that each day a car makes about 20 races, goods from Czech Republic, China, Poland,
with a duration between 20-80 minutes per Hungary and Chile.
track. Having about 2 customers/ track, with Ovidiu Popa appreciates that the main
a simple mathematical operation, we can see competitor of the company that he leads on
that each month about 1000 persons travel the Romanian market is Grafinet, a
with the cab. company that has as clients brands such as:
British American Tobacco Romania, Philip
ADVERTISING ON SAFETY MATCHES Morris Romania, JT International, Marriot,
BOXES Howord Johnson, Sofitel Hotel, Princess
Casino, Vernescu, House, Game World,
Publicity on safety matches boxes is from Bucuresti Casino, Continental Hotel and
before the direct marketing. It lasts from Grand Casino.
over 100 years and will continue to exist a The Match Point representative sustains his
long time from now- as long as we will need business reminding of the benefits of the
fire. The safety matches box is one of the communication mix. “ The quality safety
most spresded publicity supports in America, matches boxes are a powerful support for
even though the access to Interned and commercials. The accessible price, the high
mass-media is very large. In Romania, 80% exposure number and the controlled
of the population uses safety matches. distribution make them irreplaceable. They
“The advertising messages from the saferty can be used single or can be included in
matches reach direct to the hand of the complex campaigns, with advertising in
consumer, ofering the biggest number of written press, radio, TV, direct mailing,
repeted views: at least 10 for envelope-box, presentations at exhibits and fairs and other
38 for a standard box, 200 for a home box. BTL events”, explains Popa.
And that is because you cannot light a safety Among the Match Point customers there are
match without looking at the box, and multinational companies from different
therefore at what is printed on the box”, fields banks, retailers and distributors,
declared Ciprian Banciu, executive director service providers, small and medium
at Match Point. producers, newspapers and magazines,
The disadvantages of saftey matches hotels, restaurants, ONG and even political
publicity is the small printing surface. parties and persons. “We can approach any
type of customers, because, practically, all
safety matches offered by Match Point can
414
be used as an advertising support. The spot of 30 seconds, paid 5-6 times higher”
difference is made mainly by the distribution said Oprisan. Some other advantages are the
channels. The standard safety matches, the large audiences for the sports channels and
barbeque and the longer ones are sold the retransmission of those in some analysis
through all the big department stores: shows for the sport games.
Metro, Billa, Selgros, Plus, Real, Kaufland,
and through wholesalers through the entire From 1991, ISM owns publicitary rights on
country. Envelope safety matches, those the Romanian soccer stadiums for the games
with special shapes and the personalized in the First League ( A Division). In each
ones are directly distributed by the competitional stage, ISM offers 4 games in
customers. As for the shape that can be which there are put out advertising pannels
given to the boxes, the possibilities are at the side of the soccer field.
practically unlimited : houses, telephones, Also, ISM offers publicity at the official and
bottles, square boxes, rectangular ones, friendly soccer games of the Romanian
triangles, envelopes, cards.” , explained teams with others from the abroad, games
Ovidiu Popa. Starting from last year, Match from European competitions ( Romanian
Point has extended its activity in Europe, Soccer National or soccer clubs in Romania).
companies from countries like Switzerland,
Czech Republic, Holland, Italy, Bulgaria or ISM offers publicity for other sport events:
Serbia, becoming customers of the company. soccer games in the room, handbal games,
In 2007, Match Point has continued its etc. Based on her 15 years of experience for
expansion on markets like Armenia, advertising in sports, ISM has become the
Georgia, Azerbaijan or Libyan, through the most professional company from the sport
integration in their portfolio of some management and marketing.
multinational companies. The bussiness number of the company is
Among the services offered by Match Point situated at some million euros, International
are the obtained results after the Sport Management operating on a
collaboration with the Design Echo company, competition-less market in the South-East
but also the publicity agency of the Europe. After the purchaise in 2006 of a
customers. Due to these collaborations, it speed time led sistem, the company has
results the graphic image and the joined, from a technological point of view,
representated messages from the safety the players from the Occident. The price for
matches. showing a publicitary message on the
Prices vary between 4.5 and 9.9 euros/ 1000 stadium is 5-6 times smaller that that of a tv
boxes, the classic version, being able to reach spot, with a medium audience on the all
816 euros/ 1000 boxes in the Extralong urban segment of 6-7%.
version.
VISUAL-OLPHACTIVE ADVERTISING
PUBLICTY ON STADIUMS
This type of publicity is based on the strong
The soccer games attrach hundreds of bond between smell and the emotional traits,
thousands roumanians in front of their so using the olphactive supports in the
televisions. Besides the commercial brakes, advertising campaigns assure reaction from
TV spectators are targeted, during the entire the consumers, even more is you “must
show with messages exposed on the breathe”.
advertising boards along the stadiums. An advertising agency that used among
International Sport Management is the bluetooth and mobile panneling publicity the
company that has been dealing from over ten smell advertising is Motion Vision
years with the administration of the Communication (MV.com), through the
advertising boards from different sport MV.com- SCENT programme. The perfumed
stadiums in Romania. According to Catalin devices allow a strategical placement, either
Oprisan, Sales Manager of the company, one in the interior of the means of transport,
of the advantages for this type of publicity is either on the shelf, on different dummys and
the high duration of exposure for the can be adapted to any communication ideas.
advertising message. “ A customer can have “ The MV.com supports are mainly utilised
5 minutes on the stadium, translated into 3- in the advertising campaigns that have as a
4 minutes on the “screen”, unlike the TV purpose the direct interaction with the
415
consumer, which constantly implies the ADVERTISING IN AIRPORTS

unmasket exposure of those and therefore
the damage risk. This aspect is available for The waiting room of an airport may become
especially for the MV.com-SCENT supports the place in which we spend several hours,
that are more appealing to the consumer’s waiting and analyzing every corner of the
curiosity and therefore the tendince to room, from the electric panels to the
closesly explore the smelling suports”, advertising panels. Advertising benefits in
declared Marian Costache, the director of the airport consist, in first place, in the
the company. diversity of the target audience and the time
that this public spends in the airport. ( one
Smell is an essential component in the hour in average for every passenger). In all
coerent development of our evolution. With this time, the travelers are consuming the
all of these still, untill now there have been advertising messages exposed in different
registred shy attempts to use smell as an forms.
advertising communication instrument,
although the primordial advantage of the Dasson is the company who owns and
use of flavours in advertising is given by the administrates the advertising space from the
nature of the stimuly: International Airport Bucharest Baneasa-
•We all feel the same smell of orange, rose, Aurel Vlaicu. The clients of the company are
etc. representatives of the different industrial
•We smell.. we enjoy... we smell... we get types. “ The target audience of our clients is
sad... because the olphactive stimuly formed from the business men (because on
activate the centre of emotions and feeling. this airport is operating the executive
•Smell has assured itself an indispensable aviation – business men, presidency, VIP`s,
place in all the levels of the piramidal private plans), the medium class who flies
structure of our lives: from the bottom ones from this airport, the Romanians returning
to the supperior, the detection of a flavour from abroad and, of course, the foreign
giving the need to identify, interpretate and citizens who are coming in Romania
understand the source. generally for different business
•Smell has become an element that assures opportunities” said Dan Mihai Ene, CEO
coerence to life : we associate the smells with Dasson.
persons, events, etc, it is the anchor in The prices in airport advertising varies
launching the memories, the recognising of between 100 euros/month - the light box
persons or places. from the terminal, to 3500 euros/month the
•Most people search for their suited light box of 40 square meters.
perfume, one that would underline their
personality traits... so the smell has become IN-STORE ADVERTISING
a landmark point in the social life... has
become an aspirational element.. The last battle is given in stores. Once with
•An olphactive stimuly can lead to a verified the expansion of Modern Trade, there has
knowing and unexplainable of a product/ been created a propitious environment for
person, independent of other factors around the transmission of the publicitary message,
it and can direct the embrace of a favourbale with small costs compared to what the same
attitude towards it before knowing it action meant until now in Traditional Trade.
closely.. Modern Trade brought the esthetic, the
•Unlike other systems, smell is sudden and centralized working method as well as the
unlimited, we can smell somethin g we never traffic that could be reached until yesterday
tried before, something for what our only if you were the sponsor of a stadium
evolution hasn’t prepared us. concert. Nicoleta Padure, General Manager
Having as a starting point those described Cupon Pro.
above, the olphactive avertising Until yesterday, a store action presumed a
communcation services have all the atues to promoter at the shelf that was giving away
reach a high audience. flyers and was offering some information
Smell is one the most unexpected and about the sold product; today, things have
unconventional ways to appropach the evolved and producers use an entire arsenal
consumer. – from branded stands for tasting, samples
of the product, giving prizes through
416
different contests or instant, to mascots, the store offerts becomes indispensable for
different types of store branding and on the the client in our days.
special screens, where there are put The large diversity of the products on the
advertising spots or information of different hipermarkets shelves makes sometimes
promotions that take place at that time in difficult the identification by the customer of
the store. the new products or special offers, That is
Starting with the last half of the last year, why it is being appealed to the alternative
there has been registred an increase of the communication methods, in the different
investments in store actions, which points of the customer’s crossing through the
validated the theory according to whom the store, as explains Andreea Mihai, Marketing
last battle is given at the shelf. On the Director for Carrefour Romania: “Publicity
future we estimate that the in-store won’t be on the entering gates of the hypermarket
excluded from the mix of the communication greed the customer with the most recent
channels of the producers from the large offerts. Right after the entrance, the
consume goods industry (FMCG) and not Infokiosk pannel aknowledges him of the in-
only. store promotions. In the same time, thanks
The commmunication methos in stores are to the “Tin storet” different advertising
getting diversed from year to year, among supports, the customer finds out about the
the newest counting the branding of the services he can get,in-store and after the
security buffer from the shopping charts, the sale. In the crowded periods, when the cash
buffers separating the cash registres and the registres are crowded and the espectation is
special placement of products in gigant- longer, the “Tin storet” publicity becomes the
dimensions inside the commercial galeries. customer’s ally. He can spend his considered
Each of these channels presumes a series of wasted time in an usefull way, informing
actions, from validation, production, himself while he is looking at the publictary
implementation, monitorization, to de- spots that are being shown on the LCDs
activation. All that the producer has to do is from the cash registers. “Tin storet” publicity
decide what method is he using and the is giving for free important information for
favourite location. the customer, for his advantage.
The buying decision influences in store The in-store advertising demand is
Classic publicity either we like it or not, increasing
decreases the efficiency and is more and Camelia Dragomirescu, Trade Marketing
more expensive. Aditionally, costumers Manager, Quadrant Amroq Beverages (the
became more educated, more informed and Pepsi maker în Romania),explains: “We live
less influentiable. Now, there appear in a speed era, when everything is
companies specialised in shopper marketing, happening very fast and if don’t adapt while
that is in store publicity. walking, you can miss important
According to the profile companies, the occasions.This is not only applied to life, but
alternative promovation, in store is suited to bussiness as well. “Tin storet”
for any type of product. In this case, the communication is a growing and inovative
benefits are multiple for the companies that trend. To understand better the specific of
use an alternative promovation: the method the buyer in modern commerce – the large
has impact for the type of persons to whom hypermakets- and the intern specific of
the classical commercial isn’t enough, the these organisations, you must use some
costs are significantly smaller, it is a new professionals.We used for the first time shelf
method that can cause the interest of more tasting for Prigat, one of our brands. This
segments of the population and adtitionally action has been supported by the “Tin
it offers the possibility to quantificate the Storet” branding, more specifically the
results through the gathering of the coupon personalisation of the security buffers. The
number of talons used, for example. impact of these actions is a very important
Therefore, through communication methods because you interact directly with the
in store, the producers are helped to reach consumer: you can see his reaction, you can
better the final consumer, especially through find out his oppinion, you can see after if you
physical interaction ( getting a coupon, seing managed to convince him to buy your
a banner that indicates a promotion, tasting product or not.”
the product at the stand etc. ). This thing is The operators who have studied the instore
very important because the information for marketing phenomenon say that the tarket
417
audience of these comercials is almost

completely identified with any person that Oficiours advertising (TV spots, radio,
comes into a hypermarket for this, the posters/ advertising pannels, etc.) sing the
tarket-audience is none other than the buyer swamn song in front of the competition
or the consumer, when he is in the store. brought by new forms of media. The classical
Specialists in marketing research claim that advertising just hasn’t the same efficiency as
70% of the consumers make the decision to it had in the past. Firstly, because the
buy in the store. In this case, the consumer adverising spots,the posters, the advertising
must be cheased and “touched” all over the messages have increased exponentially, and
buying cycle – from home, on the street, the all this competition led to a background
store entrance, shelf and even at the exit, for noise that prohibits any message. Secondly,
loyalisation. In these conditions, we expect because the consumers are, today, harder to
that the instore advertising market to grow win than in the past. In time, they have
sustainly in the next years. The direct developed censor filtres to the advertising
approach towards the consumer by using all noise, as a way to adjust the media
the communication channels from the in- environment.
store – the BTL activities as well as the
merchandise ones – leads to an At the same time, the competition grows, on
extraordinary efficiency for the producer all markets. The voices are multiplying and
that chooses these mean of promovation. become more powerful and loud. To offer
them some development space, the
CONCLUSIONS advertising agencies take into consideration
the bicycles, elevators, toilets, safety
Advertising represents one of the most used matches or the blue sky. The conclusion is
means in the market activities – some that any space, static or mobile, with a
specialists considering it as the axium of the certain visibility, can become the carrier of
company’s political communication. an advertising message. The fight is on
Unlike the classic information characteristic efficiency, reach, impact and prices.
to mass-media, the advertising messages are
short, dense and selective. Through the Although, about the place that Romania is
forms under which it is presented, publicity situated on from the innovatice mediatic
seeks to be appealing and seductive, in this forms, Romania is without an appeal right
purpose combining the rational and “after”, us having less dare in Romania to
affective. implement innovative solutions, but we have
For this reason, in the last years, companies no problems with the creativity.
avoid the imitation, especially about the
message’s idea, the text, the presentation, Althous the PR industry is in it’s incipient
the illustration, the product labelling, the faze, Romanians have proven creativity in
format, the advertising slogan etc. It is the prize ceremony of the Sabre Awards,
considered that the imitation of such Paul Holmes, the organiser of the
clements, characteristic to other companies, competition and one of the most important
may create a certain confusion in the minds personalities of the worldwide PR declared,
of the audience and decrease the efficiency of talking to all present, that Romania has the
the action. most competitive and creative PR market in
For this reason, in the last years, companies Europe.
started to orientate to the unconventional
ways publicity, that offer new innovative At only an year and a half from its
channels for the companies, for them to send foundation, The Practice team has won the
their message. These channels manage Platinum for the Best PR Programme of the
through their innovative character to send year at the European SABRE Awards, for
their advertising message with a higher the PR component of the campaign “Men
degree of succes. Day 2007”, Bergembier/InBev Romania.
Unconventional advertising makes way

wherever it cans, using sight, hearing and The representatives of The Practice agency
smell to draw the attention of an heterogen entered the scene three times gathering 3
and hard to impress audience. awards for the ”Men Day”: the Gold Sabre
418
for “Industries”, the category “Food &

Beverages”, Gold Sabre at the “Geographical 10. *** http://www.skyzepp.ro/
Area”, category “Eastern Europe” and for the
11. *** http://www.taxiad.ro/
first time in Romania, the Platinum Sabre,
the most important prize of the competition,
12. *** http://www.matchpoint.ro/
given for the best PR campaign of the year.
13. *** http://www.iaa.ro/Articole/Studii-de-
Definetly, the future is optimistic about the caz/Ziua-barbatului-sau-succesul-unei-campanii-
evolution of these promovation methods in integrate/1468.html
our country, in the context of the
aglomeration of publicity messages on all the
other channels, unconventionally methods
will be the ones who will gain from the
budget increase for the advertising from the
romanian companies.
Until now, the indoor advertising drawn less

than 5% of the advertisers budgets from
Romania, last year the market reaching
about 2 million euros.
The conclusion drawn is that any static or

mobile space that has some visibility, can
become an efficient carrier for a creative
advertising message. The new key words
are: reach, impact, communication, vital,
word of mouth, efficiency.
References
1. Cathelat, Bernard. 2005. Publicitate şi

societate. Bucuresti: Editura Trei.
2. Farbey, A.D. 2005. Publicitatea eficienta.

Notiuni fundamentale. Bucuresti: Editura
Niculescu.
3. Jouve, Michele. 2005. Comunicarea. Publicitate

şi relatii publice. Bucuresti: Editura Poliron.
4. Lane, Kleppner Russel. 2004. Manual de

publicitate. Bucuresti: Editura Teora.
5. Petre, Dan, and Nicola, Mihaela. 2004.

Introducere în publicitate. Bucuresti: Editura
Comunicare.ro.
6. Veghes Ruff, Iulian, and Grigore, Bogdan.

2003. Relatiile publice şi publicitatea online.
Bucuresti: Editura Polirom.
7. *** Aproape totul despre publicitatea

neconventionala din Romania
http://www.wall-street.ro/slideshow/Marketing-
PR/32087/Aproape-totul-despre-publicitatea-
neconventionala-din-Romania.html
8. *** http:// www.trender.ro/
9. *** http://www.elevate.ro/
419

CRISIS COMMUNICATION – ESSENTIAL MANAGEMENT COMPONENT

IN CRISIS SITUATIONS
NICULAE Tudorel;
ISOP, Bucharest;
ntudorel_ntcsp@yahoo.com
Paul Marinescu
Sorin Toma
Niculae Sabin Mihai

Academy of Economic Studies, Bucharest
Abstract of cases lived by the Romanian societu, that

shows that this period is one shaked by
The article analyses the place and role numerous crisis. Nowadays, the crisis
that the crisis communication has in crisis (economical, cultural, value, learning
management and also, it proposes an system, society, etc. ) has become a normal
approach for the communication activities, in state, and the word has entered the current
order to make crisis management more vocabulary for the institution leaders,
efficient. A crisis may bring severe prejudices jurnalists and the entire audience.
to the organisation if it isn’t well managed Any organisation can come agains a crisis
from all points of view, including from a situation, that can put into danger her
communication point of view, and a good normal function and the reputation a certain
communication during the crisis can community has. Some crisis are predictable
alleviate and even prevent negative reactions and can be prevented, other can’t be
that can appear. suspected or correctly anticipated.
Experience has shown that, despite all the
Key words: Crisis management, precautions taken (technical, economical,
communication, risk evaluation, financiar, educational ones etc.) to stop or
organizational communication, control a crisis, it can get out of control and
organizational remodeling grow.
The organisation’s management together
1. Introduction with the public relations department must
be prepaired from time to handle some
The fall of some funds or piramidal games, unexpected or not normal situations. The
bankrupts or the lack of lichidity of some management of the crisis can’t be
banks, airplanes crushing, cathastrophical improvised: on the contrary, it is based on
floods, fires, water pollutions, violent the correct evaluation of the circumstances
manifestations, attacks and assasinates of and the possession of adequate response
some personalities, succesive epidemies, strategies, prepared strategies and
scandals regarding fake diplomas or experimented a long time before the crisis is
highschool registration. triggered.
Here are only some examples from hundreds

420
2. Communication in crisis b) Along with the speed factor, CMP

management creates a system of organized and efficient
answers. CMP offers a system that can save
There are no miracle recepies for the lives, can reduce the exposure of some
management of a crisis situation. organisations to the risk factors and can
The correct crisis management represents „a allow the remedial actions to be made
collection of measures, prepared from time, without other detailed analyses.
that allow the organisation to coordonate Efficient crisis management includes, as a
and control any emergencies”, therefore: main component, crisis communcation. This
• Efficient management of the crisis not only can make easier the crisis situation,
allows an organisation to maximise their but can also bring to the organisation a
chances and reduce the danger it comes up better reputation than the one it had before
against. the crisis. Crisis communication represents
• Crisis management represents a set the communication between the organisation
of factors designed to combat the crisis and and its audiences before, during and after
reduce the damages created by themand to the negative elements. This communication
protect the organisation, the involved is designed to reduce the dangerous
audiences and the domain from the possible elements that could effect the organisation’s
damages. image.
• Crisis management is a process of The crisis communication domain implies
strategical planning, having as purpose to numerous activities that have a strategic
eliminate a part of the risk and insecurity and tactical content. Crisis communication
that come from the negative events, allowing implies four big types of activities:
the organisation to have control over its 1. risk evaluation
evolution. 2. planning for the crisis
Crisis situation management is a field that communication
has known for the last years a quick 3. the answer
development, both in the sphere of practical 4. the organisation’s remake.
aplications and in the research one.
There are some texts with implementative
character, including an ample repertoar of 3. Risk evaluation
indications about the preparation techniques
for the crisis situations, to the persons that This activity is based on the identification of
must be involved in these activities, to the different existing threats in the environment
necessary strategies, to the steps and in which the organisation is operating. In
application forms, and normally, to the this purpose, consultants from some
communication tactiques that can be used specialised companies or organisation’s
both in the interior and the exterior of the specialists can be appealed, that can make a
organisation. team for crisis planification.
The control over such events is based on the The plan includes a very rich list, from the
elaboration of a Crisis Management Plan impact of the climat conditions to the
(CMP). This includes a complete list of political kneadings, from the possible work
procedures that must be applied in all the accidents to the reactions of different
sectors over it could actionate the effect of religious or civic organisations, from the
different crises. actions of some bad groups to the own errors
Such a plan represents an essential work of conceal or production, etc.
instrument because: For this purpose, there will be formed a
a) the crisis are events that take place planning team, made from the management
under the pressure of time and in which fast of the organisation, the chief of the public
answers are vital. A CMP contributes to the relations and the managers of other
decrease of the response time through departments ( than can be implicated in the
offering the necessary context information, crisis) from the organisation, such as: the
through the identification of responsabilities technical director, the responsable for
and through the assignment of specific tasks human resources, the jurist, the responsable
to well identified persons. for organisation’s security etc.
421
These will identify the possible desasters or computer, in the conditions in which these
conflicts that the organisation may come could be affected by fires, earthquarkes or
against. Also, they will analyse the crisis even shortcuts.
that the organisation has been through and The Crisis Communication Plan
will try to imagine the worst things that targets the same audiences of an
could happen. organisation that are targeted by the regular
S. Fink elaborated a diagrame of the crises communication campaigns. An organisation
based on two axiums: must have more PCCs, adjusted to different
• the value of the crisis impact ( crisis types of crises found. A fire PCC is different
impact value) and than the one for a product of bad quality: the
• the probability factor. audiences are/can be different, targeted
mass-medias are/can be different, the
On the first axium, the scale of the crisis is messages sent are/can be different. These
determined with the help of five questions: plans facilitate the communication with
1. If a crisis risks to grow in intensity, different types of audiences. Still, they are
who large is this intensity and how fast will not magical formulas that assure succes, but
the growth be? only a guide of action, flexible, that
2. How will the crisis enter the interes organises actions and communication forms.
sphere of the involved audiences? After K. Fearn-Banks such a plan must
3. How will the crisis affect the normal have:
activities of the organisation? -The cover – This has the title of the plan
4. How is the organisation guilty for and the date in which it was elaborated or
the crisis trigger? seen. On the cover it is specified the fact that
5. How is the company affected by the the document is for internal use
crisis? (confidential) and that it can’t be multiplied
On the second axium, the crisis probabiliy is or broadcasted without authorisation.
determined on a scale from 0 to 10, in which - The introduction – This document must be
0 represents the zero probability of a crisis written by one of the organisation’s
appearance, and 10 the certainty of a crisis managers. It underlines the importance of
shown. The two axiums, divided into ten PCC, releves the estimated results and
units, forms through their intersection a draws attention to the forced keeping of
„crisis barometre”. what says there.
- Purposes and objectives- They express the
action principles of the organisation in crisis
4. Planification of the crisis situations and the policies through which
communication these principles will be obtained.
De asemenea, pot fi precizate acele
The second step, maybe the most important informaţii sau politici care, din motive ce
is dominated by the activities regarding the variază de la o organizaţie la alta, nu pot fi
elaboration of a Crisis Communication Plan făcute publice.
(PCC). - The components of the crisis cell - This
For an efficient crisis management, it is document gathers the members of the cell,
needed to be made, still from calm periods, a their competence field, their mission in the
communication crisis plan. This is made by cell, adresses and phone numbers. To this
the specialists in public relations – which, list there can be added another, gathering
according to authors from the crisis external consultants or specialists to which
management domain, must be envolved in it can be appeled. The crisis cell is a
all the steps and all the events associated to transversal and functional group, that
a crisis. gathers those designated persons to deal
PCC has, usually the shape of file with any type of crisis.
with instructions. He must be organised so It has 3 main purposes:
the relationists to find easily the specific - To conceive a Crisis Management
sections. Also, it must resist to the unforseen Plan. This is accomplished after there have
situations of a crisis – that is why it is not been established, through different research
recommended to keep him exclusively on the methods, the vulnerable aspects of the
422
organisation. CMP must anticipate and collect as much information as possible

answer most of the types of crises with about the crisis.
whom the organisation may come against; - The statements – Members of the crisis
- To apply this plan. The application of cell and the lead of the organisation sign
CMP is firtsly made in the crisis simulations that they aknowledge and will respect the
and than in the confruntation with the real foreseen of the crisis management plan and
crisis; of crisis communication. This enhances the
- To react efficiently to the team’s and the management’s responsability
unanticiped problems or those that weren’t towards the forseen of these plans.
included in the CMP. No plan can anticipate - The calendar for crisis stimulation – The
all the details of a crisis, that is why the actions and techniques forseen for the most
crisis cell must be capable to offer sollutions probable crisis must be simulated once a
for these problems that weren’t foreseen in year, if not often. Even if during a real crisis
the CMP, but can come up anytime in a real may appear new ways of action, these
crisis. simulations allow the check of preparation
The crisis cell is lead by a crisis for the crisis cell and the capacity to react,
manager (usually the public relations coming from the other members of the
director), that collaborates with the lead of organisation.
the organisation, coordonates the other - The list of the involved audiences – This
team-member’s work and makes the document includes the intern and extern
decisions, conceals, sketches and verifies the audiences with whom it must be
texts that have o be send. The crisis cell also communicated during the crisis ( The
includes a sub director of the manager, a members of the Board, shareholders,
crisis control center coordonator, other financial partners, investors, clients,
specialists in public relations with different suppliers, employees, the leaders of the
responsabilities. Obviously, the componence community in which the organisation
of this team will be different from event to activates, organisations with the same
event. Along with the persons mentioned profile, mass-media, sindicates,
above, depending on the nature of the crisis, guvernamental oficialities etc.)
there can be included the technical director, - The ways to inform the involved audiences
the chief of the financial department, the – In order to assure the efficient
chief of the marketing department, the transmission of the information it is
lawyer and other specialists that have necessary a time preparation of a specific
competences in the action sphere of the information system, with adequate
crisis. The list includes each member’s tasks transmitting technical supports, that must
during the crisis ( during the crisis period, be put together for each type of audience (
the members of this team will be relieved phone for management members; meetings
from their current responsabilities). or posting for the employees, fax, e-mail or
Crisis management is a group activity, in phone for mass-media).
which there are made crucial decisions - The spokesman during the crisis – The
collectively.That is why the knowledges, the designated person to have this role, has the
abilities and the character traits of the crisis mission to gestionate the consistency and
cell members have to respond to those accuracy of the messages the organisation
responsabilities. The choose of the crisis cell sends to her audiences. He must be a good
members is made depending on the tasks communicator, both in the interior of the
these must meat. organisation and the working team, and also
a. To act like a team to facilitate the in the journalist relations ( which means the
reach of the crisis cell objective. capacity to listen and respons adequately).
b. To conceal and apply CMP, to The spokesman has to be well chosen,
facilitate the abrogation of some efficient because to the audience it represents the
organisational answers. organisation or the company. He will be part
c. To adopt in the collective the of the crisis team and it would be good to be
necessary decisions to solve efficiently the one of the board members, because therefore
problems that come up in the crisis cell. he will be seen as a person who expresses an
d. To listen to the other’s oppinions to oficial point of view. Also, he must know all
423
the aspects of the crisis, understand all its so, he must cultivate a style that brings
envolvements, have the responsability and together control and compassion, through it
authority to speak for the organisation. He language and attitude; he must look good on
must seem like a rational person, tv, have a pleasant voice and a clear diction,
preocuppied by the needs of the have a measured mimic and gestures, that
organisation, sensible to the concerns of the underline the ideas, to be communicative
persons affected by the crisis, decided to and gain the other’s simpathy.
contribute to the solvement of the created • He must control the tough questions:
situation. that is why he must be capable to identify
It is extremely important that the dangerous questions, to have tact and
during a crisis there is an only spokesman, know how to explain why certain
that would express an unique point of view. information can’t be given for publication,
This thing must be known by the other team know how to ask for a clarification of the
members of the crisis and organisation team. question from the journalists, to be able to
This way, there will be avoided the decide rapidly which of the elements of a
contradictory or confuse statements coming multiple question are more important and in
from these, statements that leave the which order must he answer them or say
impression that in the middle of the more about the other elements of the
organisatios chaos exists and that the events respinse, know how to correct the mistakes
aren’t mastered and monitorised coherently. or bad informations that come into the press
Ofcourse, he will be helped by other etc.
specialist, who, in certain situations can - The crisis control center – This is the place
replace him for press communcation actions in which the crisis management team will
that are less important. Because he is the take actions. This center is made of at least
„key person” in the relations with the entire two rooms, one large enough to be made at
press, it is necessary for him to posses the any time into a conference roomn and one
necessary knowledges and abilities for an designated for the work of the crisis cell and
efficient communication with the journalists. if necessary, the individual interviews
The spokesman must have more specific wanted by the journalists. These rooms must
qualities, qualities that corespond to the be equiped and operational. They must
main tasks that come to him in these contain enough tables and chairs, xerox,
moments: direct phones, faxes, video and audio
• He must present in an accesible way equipment, computers connected to a
the crisis informations. That is why, he must network, maps, phonebooks, block-notes,
have the ability to talk so everyone can pens, pencils, paper, etc. Additionaly, here
understand (avoiding the jargon) and to must be the up to date press files, containing
understand the journalists or audience documentary materials about the
expectations, so he can structure his organisation, photographs frpm different
answers after those; sectors or persons from the organisation,
• He must give a convincing anwer to statistics, etc. Also, the existence of Intranet
the questions. That is why, he must master and Internet may simplify the searching
all the crisis dates and to find fast the work for the information, and can increase
required information (a wrong or incomplete the access speed for the data bases
information may make the crisis worse (especially the internal ones through the
through the creation of some negative Internet). Besiders, the creation of a site
publical oppinions); the spokesman mustn’t about the crisis, where are placed relevant
leave long pauses between the question and and actual information, allows to the
the answer, to avoid the no comment involved audiences and other audiences the
reactions, and not get into arguments with quick acces to those dates and gives more
the journalists ; credibility to the organisation ( transparency
• He must offer a conving image over is a factor that increases the audience’s trust
the organisation, transmitting the idea that in an institution).
it controls the situation and adopts a - The list with the intervention personnal –
attitude full of understanding for the In a crisis, there appear different emergency
persons or institutions affected by the crisis; situations, that need the implication of some
424
specialists from various fields of activity. the crisis situation was triggered because of
Such a list will include phone numbers, it) and mustn’t accuse the others if those are
adresses and the names of some officials not obviously guilty.
from the fire department, ambulance and The Crisis Communication Plan must be
hospitals, police, DEA office, water regim, seen and approved by the board and by
electricity etc. Also, it is very useful to have specialists from different activity sectors of
the dates of the guvernment representatives the organisation. After the necessary
and local administration as well. corrections are made, the PCC is finalised
- Crisis charts – After the officialties, the and is distributed for the information of
journalist are the next audience that must allthe organisation’s members, that could be
be informed of the crisis situation. Any involved in the crisis situations. PCC must
department of the public relations or any be renewed and enhanced periodly.
press office of an organisation must have its
press files up to date. In the crisis situations, 5. The answer
these documents are more important,as the
event is more serious.Therefore, sometimes The third stept is the application of the
it is needed in an hour or two to be urgently Crisis Communication .If this was well
sent press releases or to be convocated an made, if the correct decissions were made, in
unforseen press conference. Without the up- consens with the strategies fixed by the
to-date charts, well structured and complete, PCC, the organisation will be rewarded
neither of these vert important ways of through the limitation of the negative effects
communication with the mass-media can be of the crisis and kept for the key-audience’s
accomplished. Also, there must be gathered trust.
from time and to bring again up to date the In these moments, it is essential that the
documents about the organisation, organisation reacts fast and not transmit to
documents that will be put at the use of all the affected audienced or interesed by the
journalists to serve as an information source, crisis an innitial answer: this is usually
right after the crisis is triggered. made of by the first statement of the
- Data bases – Under the pressure of the spokesman. Any crisis triggers a lust for
crisis it is hard to gather statistical or information, expressed mainly in the mass-
archive dates, that is why it is better for media formed requests. If the organisation
those to be already grouped into doens’t respond quickly to those needs, then
documentary files. In this category enter the another group will distribute the
materials like annual reports, proceeding information, and this could be wrong or
and quality or security guarantee manuals, incomplete.
the history of the organisation, scort The answer not only has to be fast, but also
biographical files of the liders, photographs, consistent: it must contain exact
the adresses for the organisantion’s offices, informations, uncontradictory ( that is why
etc. Also, there can be prepared press release it’s necessary that the organisation will
schemes, adequate to each type of crisis express itself only through the spokesman’s
determined in the risk evaluation process. voice), with a practical character ( in which
- Messages – For each cattegory of audience to be shown the concrete consequences of the
there must be buit a specific crisis and the immediate measures taken by
message,depending on the interests and the organisation). Additionally, he must
involment degree of each audience in the life show the responsability of the organisation,
of the organisation. Additionally, there must her simpathy for the persons involved in the
be made a common statement for all the crisis, the efforts made to solve the crisis and
audiences in which to name the nature of the the limitation of its effects. For this purpose,
crisis, the basic facts about it, the there are used the Crisis Communication
precautions that the organisation is taking Strategies.
to stop or limit the crisis, the loss, the Still, it mustn’t be forgotten the fact that, a
victims or affected persons, the Crisis Communication Plan is a guide that
environmental impact or on other indicates the major actions. It is not an
organisations. In this statement, the unique, rigid and restrictive receipy. In any
organisation must take all responsability (if crisis appear unpredictable factors : some
425
elements of the crisis can’t be anticipated, content: risk evaluation, the planning of the
some less important audiences of the crisis communication, the answer and
organisation can be brought into a view in remake of the organisation. These imply the
the crisis situations, some response identification of the different existing
mechanisms can be very affected by those threats in the environment in which the
crises triggered by natural disasters or organisation is operating, the making of a
accidents ( 1989, after the earthquake that Communcation Crisis Plan – under the form
affected San Francisco, the main spokesman of an instruction file, the application of the
and the secondary one from the Pacific Gas Communication Crisis Plan and the
and Electric company couldn’t reach the evaluation of the quality of the applied
crisis control center and had to be used a response.
different member from the public relations
department).
8. References
6. The remake of the organisation
1. Altman, S.; Valenzi, E.; Hodgetts, R.,
Constitutes the final step and is marked, Organizational Behavior - Theory and Practice,
Academic Press Inc., New York, 1985.
mainly by the evaluation of the quality of the
2. Baron, R.; Byrne, D., Social Psychology –
applied product..
Understand Human Interaction, Allyn and Bacon
In this case, the organisation shoul put some Inc., New York, 1987.
major questions: 3. Cooper, C.; Cartwright, S.; Early, C.,
- Were the actions during the crisis Organizational Culture and Climate, John Wiley
according to the values and principles of the & Sons Ltd., New York, 2001.
organisation? 4. Wilcox, Dennis L.,Ault, Philip H., Agee,
- What crisis aspects were anticipated by the Warren K., Public Relations Strategy and Tactics,
PCC? Harper Colluns Inc., New York, 1992.
5. Grunig, James E., Hunt, Todd,
- What conclusions can be drawn out of these
Managing Public Relations, Holt,
success? Rinehart and Winston,
- What aspects haven’t been anticipated and Philadelphia,1984.
what changes must be made as a 6. Peretti, André de, Tehnici de comunicare,
consequence to the communication plan? Editura Polirom, Iaşi, 2001.
- How did the organisation’s members act? 7. ***Instructions MI, nr.171/2001,
- Were they adequately ready to handle the organization of public relations activities,
crisis? traditions, education and sports in the Ministry of
- What are the long lasting efects of the Interior
crisis?
- What measures must be taken?
- How does the audience look at the changes
brought to the organisation by crisis
situations?
- What actions can be triggered to take
advantage of the oportunities brought by the
resolve of the crisis?
7. Conclusions
Crisis communication is an essentially

component of efficient crisis management, in
the purpose that it not only can make easier
the crisis situation, but can also bring a
better reputation to the organisation that
the one it had before the crisis.
Crisis communication implies as the main
activities with a strategical and tactical
426

ICEA – FAA Bucharest, 14-15th November 2009
THE SELECTION OF METHOD OF DISTRIBUTIONWITH MODELING

PROCESS APPLIED ON AN NATIONAL MANUFACTURING COMPANY
BY MEANS OF DECISION TREE METHOD
COSTEL Nistor; ROZALIA Nistor; CIPRIAN GEORGE Ticu;

“Dunarea de Jos” University;
cos_nis@yahoo.com; rozalia.nistor@selir.com; ciprianticu@yahoo.com
Abstract Economic modeling provides to the

In this paper, we emphasize the simulation of management activities its multiple ways of
a decision making process applied to an reconciling the resources (material, human,
national manufactured company from financial) in order to achieve the objectives
Romania. Our goal was to establish the most formulated for a certain period of time,
efficient decision, having in view two giving management the opportunity to think
alternatives: sales through intermediaries and act better and faster, and without
without the involvement of the consulting distorting the reality. The constant need to
firm to identify market situation, the find the best solutions in management
marketing of products on their own efforts, processes, organizations are searching for
without testing the market, market research the continuous improvement of the
and then use one of the 2 forms of sale decisional processes. In this context, the
presented above. In view to determine actual business environment leads the
mathematically the best decision, we applied scientists to develop and improve ways and
the decision tree method, in the conditions in methods of observation and analysis of the
which the company’s manager offered us a real business processes.
feasibility analysis concerning these As a general theory of programming and
alternatives. We also reveal in this paper the control of projects, requirements modeling
opportunity provided by DELMS software method contains chapters devoted to the
functions, which reduce the time involved by activities of a project, like: basic parameters
solving this decision problem. under analysis (time, cost, and resources),
the nature of the input data (deterministic
Keywords: modeling, simulation, decision, or stochastic); aspects of structure or size of
software, optimization, efficiency, resources. projects, ranging series of activities, etc.
This method, with wide applications in
1. Introduction industry, construction, transport, focuses on
the design of decision points throughout the
Today we are in a period when the mix of complex decision-making process, as a basic
traditional, classical decision making tools tool in management, organization and
based on intuition and experience, are economic activity, helping to optimize
emerging and a great number of modern resource availability.
scientific methods have appeared. These The business simulations can
scientific processes are characterized by a simultaneously track several criteria such as
solid theoretical background, based mainly maximizing turnover, net income, value
on the use of mathematical methods, but added, the loading capacity of production
maintaining a general guide, practical and and minimize material consumption, the
realistic. break times etc. Only if they have to achieve
In these conditions, higher qualitative only one of these criteria may affect the
decision-making are possible by the means of optimization of one of the others. The
a large range of methods and techniques correction of this situation requires the use
that facilitate decision choosing the optimal of Multi-analysis.
decision, each of these variants decision
fitting to a decision model.
427
Multi-analysis doesn’t lead to optimal selecting a data set on which discovery is to

solution, as it is considered to be sub-optimal be performed, choosing the appropriate data
against each criterion taken separately. The mining tasks and deployment of the decision
multi-analysis ensures the best compromise tree in the order to select the optimal
in the optimization for the criteria decision. [2]
considered. Failure is compensated by the Decision tree models are the transition point
singular optimum harmonization criteria at from the structuring phase to the evaluation
the best compromise. phase of the decision analysis process. The
In the developed countries, mathematical issues generated during the business
programming is applied frequently in the assessment and the decision hierarchies are
shaping of the economic processes. important for the foundation of the decision
Consequently, many models have been tree model. [3]
developed and there were designed various Today, the use of computer technology in
software for solving problems of "routing". achieving production but also in decision
The majority of the Romanian companies making at the microeconomic level has
have adapted their strategies to the e- become an important factor of competitive
business environment requirements and advantage for any company.
begun in the last period to use the benefits of Enterprises in Romania, dynamically linked
computer technology. to the environment that they operate (and as
The education plays an essential role in a consequence of the process of
creating and training the future specialists globalization), have begun in recent years to
in view to make efficient decisions at the use the widespread benefits of computer
micro – economic level. Therefore, as technology [4].
university teachers, in order to illustrate Education plays an essential role in creating
how computing can help in making relevant and training specialists who can be put in
and efficient decisions at the company level, the situation of making decisions at micro –
we designed a software that we "called" in a economic level. Therefore, as university
generic way - DELMS (Delphi for modeling professors, in order to illustrate how
and simulation). computing can help in making relevant
In order to understand how the software decisions at company level (for a less
"DELMS runs, no programming knowledge complex) we have made an application which
is required, but only minimal knowledge of is called in a generic way DELMS (Delphi for
personal computer use, knowledge that was Modeling and Simulation) [5].
gained during the first years of academic To understand how to use the DELMS
formation. application, no programming knowledge is
required, only a minimal knowledge of using
2. Literature review a personal computer, knowledge that is
usually gained during the first years of
The management decisions making process academic formation [6].
using the method of the decision tree are
made in the decisional complex situations, in 3. Application of the decision tree
which random events that take place method in the decisions modeling
successively are involved. By means of this process in a manufactured company
method, the multi-sequential decisional
processes are described under the form of The "GALFIRTEXT" Company from Galati
some diagrams in which the future events (Romania) produces and markets the
condition the decision, determining a set of product "bedclothes and eiderdown”. The
values concerning the results of each company management wants to analyze the
considered decision alternative [1]. need of conducting a market survey by a
This method offers to the managers an firm which is specialized in marketing in
extremely useful tool for making operative issues. The market survey will analyze the
decisions, being successfully used in the case opportunity of launching the product on the
of a succession of decisions interconnected in market if the market is favorable and the
time. product is launched or the market is
Decision tree method in the data mining unfavorable and the new product is
approach involves several stages: developing abandoned.
an understanding of the application model,
428
The analysis of opportunity should take into to the company from selling the “bedclothes
account the cost of consultancy provided by and eiderdown” product.
the firm specialized in market-surveying Certain data regarding the physical
services in Bucharest. The cost of study has production and value can be provided by the
been approximated at 50,000 USD, which statistical statements of the company, on
will be paid to the consulting firm when which the expected revenues and the
submitting the survey results. The probability of occurrence of the 3 cases can
Marketing Company specialists are be estimated, as shown in the data
concentrated on obtaining information that presented in Table 1.
indicates the opportunity of the product
launching on the market: the market is Table 1. Probability of occurrence of the three
favorable and the product is launched or the strategic variants
market is unfavorable bad and the product is
abandoned. States of Probabilities Estimated income
The product is expected to have as nature of occurrence (thousands mu)
development potential a weight of about 25% SN1 0.5 1000
of the national market, although the market SN2 0.3 800
is quite competitive, beside the local SN3 0.2 400
producers being present and a number of
foreign companies with a range of products, The marketing study has determined the
that although the quality is questionable, probability of 0.55 that the market is
they have successful sales to consumers due favorable and 0.45 for an unfavorable
to lower prices. market. Experts have estimated the
Besides the market research, the producing probability of simultaneous accomplishment
company is also facing another problem, of different states of nature according to the
namely how they choose the best data presented in Table 2 below.
distribution method which is the most cost-
effective more and which also has the largest Table 2. Probability of occurrence of the three
market coverage. The company management strategic variants
has the following variants to choose from:
 V1- to sell the entire new product States Favorable Un Absolute
quantity by intermediaries (which means of market favorabl probabiliti
a contract for mediation for a secure income nature e market es
SN1 0.38 0.12 0.5
of 750,000 mu/ year).
SN2 0.12 0.18 0.3
 V2 – to sell products by their own SN3 0.05 0.15 0.2
efforts (through their own chain of Absolut
0.55 0.45 1
shops and employed traders). In the V2 e
case the following situations (states of
nature) are taken into account: (a) Database entry:
- SN1 – massive sales of the product on  the estimated income of the company and
the market, rapid product acceptance; the probabilities of occurrence of the three
- SN2 – average sales volumes, moderate situations outlined (SN1, SN2, SN3);
product acceptance on the market;  probability of a new product favorable
- SN3 – very weak sales under aggressive market (55%) and probability of a new
competition circumstances. product unfavorable market (45%);
The company management has the following  probability of simultaneous
available strategies (S): accomplishment of different states of nature
 S1: sales through intermediaries presented in Table 3. This table shows that
without the involvement of the consulting the probability of a favorable market and
firm to identify market situation; the company sells large quantities of
 S2: the marketing of products on their products is
own efforts, without testing the market; - 0.38 and the probability of an
 S3: market research and then use one unfavorable market and the company sells
of the 2 forms of sale presented above. large quantities of products is
To be established the sales strategy that - 0.12, the probability that the market is
brings the highest expected average income favorable and the company sells average
429
quantities of products is 0.12 and the where:

probability that the market is unfavorable Pj = probabilities associated to the states
and the firm sells the average quantity of of nature;
products is Cij = indicator value for i alternative in j
- 0.18, the probability that the market is state.
favorable and the company sells small Various possible situations are displayed by
quantities of products is the graphic method in a tree diagram, using
- 0.05 and the probability that the market the following symbols: the event will be
is unfavorable and the company sells small represented by branches (sales through
quantities of products is 0.15. intermediaries, own-account sales, and pre-
Probabilities change depending on the market testing sales);
results of the market survey, to the extent The nodes or points that appear different
that more information regarding the market, decisional alternatives are presented under
the potential customers as well as how they various forms, as follows:
react to changes in environmental conditions - if the company management is making
that will be made available. the choice, then the node will be represented
Based on data displayed in Table 2 the as a small circle which empty inside where
probabilities of the SN1, SN2 and SN3 the name of the node will be inserted;
statements will be calculated depending on a - if "nature” is responsible for choosing
favorable or unfavorable market as follows: one of the possible alternatives, therefore
- the probability of massive sales depending independent of the firm factors, then the
on a favorable market: node will be represented by a quarrel empty
inside where the name of the node will be
P (SN1) = 0.38/0.55 = 0,690; inserted.
The analysis of various decisional
- the probability of average sales of alternatives on the basis of the probable
depending on a favorable market: average income could be accomplished by
choosing the strategic alternative that yields
P (SN2) = 0.12/0.55 = 0,218; the maximum economic benefit.
(c) Solution
- the probability of unsatisfactory sales The activity diagram is built as in Figure 1
depending on of favorable market: below.
P (SN3) = 0.05/0.55 = 0.090
The results thus achieved can be

summarized in a situation as that presented
in Table 3 below.
Table 3. Probabilities depending on a

favorable and unfavorable market
Probabilities Favorable Unfavorabl

market e market
P(SN1) 0.690 0.266

P(SN2) 0.218 0.4
P(SN3) 0.092 0.334
Absolute probabilities 1 1
(b) Calculus Algorithm:

The expected average income (EAI) of the
decision (i) is calculated considering the
nature of states j (j=1, 2…n). Figure 1 - Diagram of activities
n
VMAi   p j * Cij  in node 1 there are 3 possibilities: market
i 1
launch of the new product after a
430
preliminary market testing, selling the new  in node 6 the average income that would
product on the market by intermediaries and be accomplished if the sale is made through
selling the new product on the company’s intermediaries is secured and will be 750
own effort; thousand mu;
 in node 2 the "nature" is responsible for  in node 5 - choosing the selling variant
the choice, the launch enjoying 55% will be based on the average income to be
probability of great success and 0.45% accomplished. The selling variant will be
probability of failure. Therefore the choice chosen to ensure the accomplishment of the
depends on the decision-maker as follows: maximum expected average revenue:
- in terms of a nature-friendly state, the
decision-maker may decide to sell through Max (750; 1.230) = 1.230 mu thousand,
intermediaries, in which case the earnings
are of 750 thousand mu, which will be also corresponding to the selling variant on their
the average revenue value of node 12, or to own. It can be concluded that when the
sell on their own efforts in which case the market position is unfavorable, you can
estimated income that could be achieved will choose to sell on their own strategic option,
be different depending on the 3 strategies variant which allows the highest average
(SN1, SN2, SN3). income to be accomplished;
- the average income that might be  in node 4 - choosing the selling variant
accomplished in node 10, starting from will be based on the average income to be
probabilities of occurrence of the three obtained, will be chosen the selling variant
strategies on the favorable market that allows the maximum expected average
conditions (0.69, 0.22, 0.09) will be: revenue to be accomplished:
1800*0.69 + 1200*0.22 + 800*0.09 = 1.242 + max (750; 1.578) = 1.578

264 + 72 = 1.578 thousand;
corresponding to the strategic selling variant
- under the circumstances of an on their own under the circumstances of a
unfavorable state of nature, the decision- favorable market.
maker may decide to sell through  In node 2 - choosing the selling variant
intermediaries, in which case the earnings will be based on the average income to be
will be also of 750 thousand mu and which obtained, will be chosen the selling variant
will be the average revenue value of node 16, that ensures the maximum expected average
or to sell on their own efforts in which case revenue:
the estimated revenue that could be
achieved will be different depending on the max (1.578; 1.578) = 1.578
probabilities of occurrence of the three
strategies in unfavorable environmental corresponding to the strategic selling variant
conditions. The average income that could be on their own regardless of the market
achieved in the node 11 starting from the position at a certain point: favorable or
probabilities of expression of the three unfavorable.
strategies in favorable market conditions
(0.69, 0.22, 0.09) will be: 4. The role of the information
technology applications in the decision
1800*0.27 + 1200*0.40 + 800*0.33 = 486 + tree problem solution
480 + 264 = 1.230 thousand;
4.1. Simulation management with the help
 in node 3 the choice belongs to the of DELMS
"decision-maker" who can choose one of the
The application DELMS presents six types
selling strategies on their own, which would
of economic simulation issues. From the
yield an expected average income of 1420
main window of the application through the
mu to the company calculated as follows:
"issues" certain components start running
that address to the following applications:
1800*0.5 + 1200*0.3 + 800*0.2 = 900 + 360 +
 Analysis of the market share evolution of
160 = 1.420 mu thousand;
competitive products by using Markov
chains;
431
 Forecast sales of goods on the market

(exponential adjustment method of Brown);
 A review orders from different clients
(made with spectral vectors);
 Analysis of decision making under
uncertainty and risk (using Hurwitz
optimistic criteria; the regrets criterion or
Savage's criterion; the prudent / pessimistic
criterion or Wald's criterion; Laplace
criterion);
 Allocation of resources at company level;
 Analysis of decision-making processes in
cascade (decision trees).
4.2. The roll of DELMS application in the

decision tree problem solution
The application of the decision tree method
in the decisions modeling process in a
Figure 3. Problem description
manufacture company using DELMS
software can be solved by following these
(b) then we access, by pressing the left
steps:
mouse button the "informational basis"
(a) the main menu is selected from of the
window, which switches to the loading a new
six available applications, the application
data base as follows (Figure 4).
"decision-making processes in cascade” as
Moving from one box to another within the
shown in Figure 2 below.
"informational basis" window will be done
After choosing the problem which is aimed to
only by mouse. After entering all required
be resolved by pressing the left mouse
data: number of items, the period for which
button, a window will be opened in which we
it is desired to make forecasts, market
will be presented synthetically details
shares of the original, the probability matrix
regarding: the informational basis, solving
of transition from one product to another,
methods and algorithm of calculation, as in
the initial data will be confirmed by clicking
Figure 3 presented below.
"Confirm initial data" button using the
mouse and the application will proceed to
the calculation by clicking the "Perform
calculations” button.
3. After the "Perform calculations"
command was given, the "Results" window
can be opened where we find all input data
processed, on the structure of the example
above, achieving instead a summary of the
type shown in Figure 5.
(d) Based on data from the matrix above, the
"DELMS" program accomplishes significant
“graphical representations”, which
illustrate the evolution of the phenomena
mentioned above, graphs on which decisions
can be taken regarding the policies / trade
strategies that may be taken by the company
(see Figure 6 below).
Analyzing the graph above we can say that it
shows clearly that the strategic option to be
followed by company management in the
Figure 2. Choosing the problem process of launching the new product on the
market, is to choose the strategy that
ensures the achievement of maximum
expected average income, namely the
432
strategy that launches the product on the 5. Conclusions

market with pre-market testing. Even after
We have made DELMS to be used
the expenses were paid on market research,
exclusively for educational purposes, as
the remaining income will be higher than all
support for applied activities that have the
other variants.
following features:
 Modeling is a partial management as
simulating a small number of activities in
some fictitious companies;
 Participatory management is a simulation,
because the participants are organized into
teams, the adoption of decisions by the
group, one of the main objectives we have
pursued is achieving simulation by the
involvement of all team members that
participate in decision making and also the
awareness of the benefits provided by
teamwork;
 Is a management simulation involving in
particular the average level of management,
marketing departments namely: supply,
production and finance?;
 Is a computerized management simulation
as it facilitates the decision making by the
participants and especially processing
decisions (simulation proper) that uses an
application?
In the globalization of the manufacture
Figure 5. Results achieving market product and in the context of the
financial crisis, the competition pushes the
companies’ managers to make strategic,
tactic and operational decisions which allow
the implementation of strategies focused on
low costs and implicitly low prices for
customers.
The decision tree method represents a
simple decision tool, but in the same time
complex as it provides the opportunity to
design several decision alternatives and to
choose the most efficient one. The simulation
of the economic consequences of the different
decision alternatives, before their effective
implementation, offers the surety of the
decisions making process quality.
Our model reveals the advantages of the
decision making process simulation,
facilitated by DELMS software. Once the
optimal decision is found, the manufactured
company manager can seek to improve that
solution by finding ways to relax binding
constraints. This model can be personalized
to any type of business activity, revealing
Figure 6. Graphical representation of the the interdependences between its variables
problem to be solved and constraints and emphasizing the value
of the decision tree approach in the
formulation of a business problem.
433
References
[1] Raţiu-Suciu C. – “Modeling and Simulations

of Economic Processes”, Ed. Economica,
Bucuresti, 2004
[2] Rokach L., Maimon O. – “Data Mining with
Decision Trees”, World Scientifice Publishing
Co., Singapore, 2008
[3] Skinner D. – “Introduction to Decision
Analysis”, Third Edition, Probabilistic
Publishing, Gainsville, 2003
[4] Nistor R., Capatina A. – “Management
Simulations and Projects”, Ed. Academica,
Galati, 2005;
[5] Nistor R – “Economic modeling and
simulation company's Computer Aided” Ed
Academica, Galati, 2003;
[6] Nistor R – “Economic modeling and
simulation”, Ed. Fundatiei Universitare
“Dunarea de Jos” Galati, 2006;
434

THE ROLE OF ELECTRONIC COMPUTER IN MODELING AND

SIMULATION OF THE ECONOMIC PROCESSES
ROZALIA Nistor;
University “Dunarea de Jos”of Galati;
Rozalia.Nistor@selir.com
ALEXANDRU Capatina;
University “Dunarea de Jos”of Galati;
Rozalia.Nistor@selir.com
Abstract Economic modeling provides to the

Today, the use of information technology in management activities its multiple ways of
achieving production but also in decision reconciling the resources (material, human,
making at the microeconomic level has financial) in order to achieve the objectives
become an important factor of competitive formulated for a certain period of time,
advantage for any company, regardless of giving management the opportunity to think
industry. As a consequence of the process of and act better and faster, and without
globalization, the enterprises from Romania, distorting the reality. The constant need to
dynamically linked to the business find the best solutions in management
environment that they operate have started to processes, organizations are searching for
use widely the benefits of using computer the continuous improvement of the
technology in decision making. To illustrate decisional processes. In this context, the
how computing can help in decision making actual business environment leads the
inside a company, regardless of level and scientists to develop and improve ways and
decision, we created a software dedicated to methods of observation and analysis of the
support modeling and simulation processes real business processes.
entitled "DELMS”. The business simulations can
simultaneously track several criteria such as
Key words: resources assignment, maximizing turnover, net income, value
optimization, modeling, simulation, added, the loading capacity of production
efficiency. and minimize material consumption, the
break times etc. Only if they have to achieve
1. Introduction only one of these criteria may affect the
optimization of one of the others. The
Today we are in a period when the mix of correction of this situation requires the use
traditional, classical decision making tools of multi analysis.
based on intuition and experience, are In the developed countries, mathematical
emerging and a great number of modern programming is applied frequently in the
scientific methods have appeared. These shaping of the economic processes.
scientific processes are characterized by a Consequently, many models have been
solid theoretical background, based mainly developed and there were designed various
on the use of mathematical methods, but software for solving problems of "routing".
maintaining a general guide, practical and The majority of the Romanian companies
realistic. have adapted their strategies to the e-
In these conditions, higher qualitative business environment requirements and
decision making are possible by the means of begun in the last period to use the benefits of
a large range of methods and techniques computer technology.
that facilitate decision choosing the optimal The education plays an essential role in
decision, each of these variants decision creating and training the future specialists
fitting to a decision model. in view to make efficient decisions at the
435
micro – economic level. Therefore, as Raymond J. Madachyb and David M. Raffo,

university teachers, in order to illustrate 1999).
how computing can help in making relevant Many companies are taking a process view
and efficient decisions at the company level, as a result of business process re engineering
we designed a software that we "called" in a exercises, statutory compliance, reaction to
generic way - DELMS (Delphi for modeling market forces and the promotion of
and simulation). integrated computer and information
In order to understand how the software systems. This means questioning the way in
"DELMS runs, no programming knowledge which companies operate and has
is required, but only minimal knowledge of implications for management.
personal computer use, knowledge that was Business process modelling (BPM) and
gained during the first years of academic business process simulation (BPS) help to
formation. facilitate process thinking. BPM provides
a. The necessary hardware features. In management with a static structured
view to use DELMS software, it is necessary approach to business improvement,
to have available a personal computer in providing a “holistic” perspective on how the
which is installed any version of business operates, and provides a means of
Windows2000/XP/Millenium/2007. documenting the business processes while
b. Programming language used. Delphi BPS allows management to study the
language is a visual programming dynamics of the business and consider the
environment, object oriented, which provides effects of changes without risk (RJ Paul, GM
fast development. Giaglis, V Hlupic, 1999).
Using the Delphi system we can design There are a number of BPM and BPS
effective software applications in the methodologies, approaches and tools
Windows operating system. Delphi language available, each of which may be applicable to
requires a minimum number of code writing different circumstances. (K.D. Barber, F.W.
(to write some simple applications do not Dewhurst, R.L.D.H. Burns, J.B.B. Rogers,
need the keyboard since the program code 2003).
can be generated only using the mouse). Process modeling becomes more and more an
Based on data provided by the company important task not only for the purpose of
producing the Delphi language, system software engineering, but also for many
speed is extremely high. other purposes besides the development of
If somebody wants a full system installation software. Therefore it is necessary to
of Delphi (including utilities as Borland evaluate the quality of process models from
Database Engine and SQL Links Database different viewpoints. This is even more
Desktop, which provides multiple important as the increasing number of
opportunities for managers), hard disk space different end users, different purposes and
must have minimum 110 megabytes. the availability of different modeling
techniques and modeling tools leads to a
2. Literature review higher complexity of information models.
(J Becker, M Rosemann,
Within the last few years, the topic of Christoph von Uthmann, 2000).
modeling and simulation of the economic A new approach to modeling systems is
process has gathered a lot of interest in the Agent-based modeling and simulation
corporate sector. Researchers are (ABMS). ABMS promises to have far
demonstrating an increasing interest in the reaching effects on the way that businesses
topic. Software process simulation modeling use computers to support decision making
is increasingly being used to address a and researchers use electronic laboratories
variety of issues from the strategic to support their research. Computational
management of software development, to advances have made possible a growing
supporting process improvements, to number of agent-based applications in a
software project management training. variety of fields. Applications range from
The scope of software process simulation modeling agent behavior in the stock market
applications ranges from narrow focused and supply chains, to predicting the spread
portions of the life cycle to longer term of epidemics and the threat of bio warfare,
product evolutionary models with broad from modeling consumer behavior to
organizational impacts. (Marc I. Kellnera, understanding the fall of ancient
436
civilizations, to name a few. (Macal Ch,

North M, 2008).
3. Presentation of DELMS (Delphi for

Modeling and Simulation) software
The software that we designed using Delphi

language - DELMS, allows the solving of six
types of specific applications based on
modeling and simulation of economic
processes, in a manner that has enabled a
user-friendly and interactive user.
The user receives instructions in Romanian,
which makes it easier for our students but
we intend to customize it by making
available in several languages. The first
window that the user comes in contact is
presented as in Figure 1. The interface that Figure 1 – Choice of a problem
the user will find is stimulating in view to
discover the details about the issues subjects
The application also allows DELMS practice
that must be solved.
and saving data entry in one of these
extensions.
The software presents six types of problems
After the user selects a specific problem
concerning the business simulation. The
which would be solved with the help of
main window of the software provides the
DELMS opens a window where the user
opportunity to select one of the following
must choose one of these options (figure 1):
applications:
 Evolution of market share;
 Analysis of the market share evolution of
 Forecast sale of good;
competitive products using Markov chains;
 Customer order analysis;
 Sales forecasting on the market
 Decisions in conditions of risk;
(exponential single smoothing – Brown
 Resource allocation;
method);
 Cascade decisions making processes;
 The analysis of the orders made by
a. "Description problem” is the window
different clients (spectral vectors method);
where a user can find some information and
 Analysis of decision making under
clarification on the typology / nature of the
uncertainty and risk (using criteria of
application he wants to solve. "Method of
Hurvicz optimistic; the criterion regrets or
Solving" and “The algorithm for calculating”
Savage's criterion; criterion prudent /
represents two important tools which
pessimistic or Wald's criterion; Laplace
facilitate the understanding of the
criterion);
theoretical concepts involved by the
 Resources assignment at the company
problems. In the following example, we
level;
present the menu "Description in the case of
 Analysis of the decision-making processes
the problem "Cascade decisions making
using the decision trees method.
processes" (Figure 2).
To start running one of the six issues above,
b. "The Information" is gathered in the
the cursor is positioned on the problem that
database of the software that can be built
is intended to be solved, and do click on the
freely by the user that must to reach an
left button of the mouse. Practice application
infinite number of variables. If one of the
DELMS loading of input data files built.
applications is made by hand, the number of
These files have the extension "p1" "p2" "p3",
inputs is reduced to facilitate the work and
"p4", "P5" and "P6".
reduce computing time. Design for
applications provides a large number of
input variables, fast speed of processing and
a reduced time for results display.
437
For example, we present a simulation for the

application "Cascade decisions making
processes"”. The database is created by
loading the target file, noted in our case
"problem4.p4”. After loading the data entry,
a user will click on the "Confirm initial data"
to accept the data entered and then the
"calculations" tab in order to automatically
solve the problem.
c. Using "The results obtained" menu, the
user can view the results obtained at the box
"the results" just by driving the left button of
the mouse. This box summarizes the results
of calculations that were made. (Figure 4).
d. "Graphics”. DELMS software provides a
range of facilities such as graphic
representation, enabling an easier analysis
of results obtained by the algorithms. We
Figure 2 - Description problem illustrate this feature of the program
At this stage of solving the problem, the user through a pattern of three-dimensional
can confirm the data entered by clicking the graphs (Figure 5).
left mouse button on the box "Confirm data”. The user has available the option of printing
"Perform calculations” button allows the the graph obtained from processing data in
resolution of the problem in real time. view to facilitate the analysis and
The user has the possibility to upload and interpretation of the results; we consider
another set of data and save data issues that graphical representations generate a
through the menu "File" and its two valid support decision making at the
components: "Load Example" and "Save microeconomic level. Printing is done simply
Sample" (Figure 3). by pressing the button "printer" with the
mouse.
Figure 3-The Information inserted in the Figure 4 – Results provided by DELMS

software’s database software
438
practical way forward, Business Process

Management Journal, 2003;
 Macal Ch, North M, 2008) -Agent-based
modeling and simulation: ABMS examples,
Proceedings of the 40th Conference on Winter
Simulation, Florida, 2008;
 Marc I. Kellnera,, Raymond J. Madachyb and
David M. Raffo - Software process simulation
modeling: Why? What? How?, Journal of Systems
and Software, 1999;
 Rădăceanu E – “Metode decizionale în
conducerea sistemelor complexe“, Editura
Militară, Bucureşti, 1985;
 Rădulescu D, Gheorghiu O – “Optimizarea
flexibilă şi decizii asistate de calculator“, Editura
Ştiinţifică, Bucureşti 1992;
 Rozalia Nistor – “Modelarea si Simularea
proceselor economice”, Editura Fundatiei
Universitare “Dunarea de Jos” Galati, 2006;
 Rozalia Nistor – “Modelarea si Simularea
proceselor economiche ale firmei asistata de
Figure 5 - Graphical representation calculator, Editura accademica, Galati, 2003;
 Rozalia Nistor, Costel Nistor, Alexandru
Capatina – Metodoligii Informatice
4. Conclusions and implications Managemriale, Editura Academica, Galati, 2004;
DELMS software provides a real support for  Rozalia Nistor; Alexandru Capaţină – “Simulări
business simulations, being designed şi proiecte de Management – Marketing”, Editura
exclusively for educational purposes, Academica, Galaţi, 2005.
including the following features;
 Modeling and simulation of a small
number of activities in some virtual
companies;
 It facilitates teamwork spirit, because the
participants are organized into teams,
making decisions by group; one of the main
objectives we have pursued is the
involvement of all team members
participating in decision making;
 The simulation involves particularly the
average level of management, being focused
on departments like marketing, supply,
production and finance;
 It is a computerized management
simulation as it facilitates the decision
making by the participants and especially
processing decisions with specialized
software.
References
 Gheorghiţă M. – ”Modelarea şi simularea

proceselor economice”, Lito ASE, Bucuresti 1994;
 Jörg Becker, Michael Rosemann and
Christoph von Uthmann - Guidelines of Business
Process Modeling, Springer Berlin / Heidelberg,
2000;
 K.D. Barber, F.W. Dewhurst, R.L.D.H. Burns,
J.B.B. Rogers - Business-process modelling and
simulation for manufacturing management: A
439

THE ROLE OF STRATEGIC LEADERSHIP IN THE EXECUTION OF

CORPORATE STRATEGIES
OLU Ojo
Osun State University, Nigeria
oluojoe@yahoo.com
ABSTRACT When plans are neither attended to nor

This study takes a critical look at the role of executed properly, performance expectations
strategic leadership in the execution of cannot be achieved.
corporate strategies as obtained in the Despite the experience of many
banking industry in Nigeria. The researcher organizations, it is possible to turn strategies
tries to ascertain the degree to which strategic and plans into individual actions, necessary
leadership plays a role in the execution of to produce a great business performance.
corporate strategies and how this can be But it’s not easy. Many companies
improved upon with reference to decision repeatedly fail to truly motivate their people
making and motivation, to enable employees to work with enthusiasm, all together,
feel at home in executing corporate strategies towards the corporate aims. Most companies
so that organisations could reach the peak of and organizations know their businesses,
success by achieving their goals and and the strategies required for success.
objectives maximally. From this research, it However many corporations –especially
can be concluded that strategic leadership large ones –struggle to translate the theory
plays a crucial role in execution of corporate into action plans that will enable the
strategies as the strategic leaders who are the strategy to be successfully implemented and
principal heads of all strategic affairs sustained. Therefore, this study tries to
inculcates the need for an excellent examine the role that strategic leadership
implementation to all organisational plays in successful execution of corporate
members, through motivation, decision strategies. This study become very important
making and skill. The strategic leaders in the face of turbulent environments in
therefore have the foremost role to play in any which many organisation have found
execution plan and this role should be taken themselves couple with their inability to
with all seriousness. translate their good and workable strategies
KEY WORDS: Corporate Strategy, into brilliant business performance. This
Strategic Leadership, Strategy Execution, study also reveals that the strategic
Strategies. leadership role goes far beyond strategic
1. INTRODUCTION planning in corporate performance. It
Strategy execution has always been one of involves strategic thinking, foresight, team
the more difficult problems in business building, cultural understanding and
(Davenport, 2007). Creating a brilliant personnel management.
strategy is nothing compared to executing it This study therefore takes a critical look at
successfully. It has always been much easier the role of strategic leadership in the
to create a strategy document than to get execution of organisational strategies. In
employees to abide by it. Many employees other words, this study fills the gap between
don’t even know the details of strategies. strategy and execution. The exploratory
440
method of study was employed in this results (Thompson, Gamble, and Strikland,
research. This study tries to provide answers 2004) According to Hannagan (2002)
to two major questions generated. These are: leadership is a vital ingredient in developing
(i) What is the relationship between strategic the purpose and strategy of organizations
leadership and execution of corporate because strategic management is concerned
strategies? (ii) What is the effect of strategic with the way forward for an organization.
leadership decisions on the outcome of The people who develop a strategy may or
strategies execution? A number of studies may not be the same as those who take the
have been carried out on this important topic lead in managing strategic change. Some
that points out the need for further studies managers may be especially good at creating
especially in the developing countries. a vision for the future, but may need to rely
Additionally, Cannella & Monroe (1997) note on others to take a lead in implementing the
that in recent years the attention of many changes (Hannagan, 2002).
leadership theorists has shifted to strategic The Gap Between Strategy and
leadership by executives and the top Execution
management team. This shift in focus The strategy-execution gap is not new to
reflects an increased interest in most leaders. Leadership is about initiating
understanding how corporate executives and leading change. This requires strategy,
must transform their companies to cope with the casting of vision as well as guides the
the growing international competition (Yukl, implementation and execution of the
2006). This study is significant to many strategy. To be successful leaders need to be
organizations today in many respects: It will as diligent in guiding the execution as they
help in the successful implementation of are at setting and communicating strategic
organizational strategies, by staff and direction.
leaders alike when they play their role If becoming a strategist is the “ends,” then
intelligently. leadership is the “ways,” and development is
the “means.” Learning to become a strategic
LITERATURE REVIEW leader requires special preparation in
Conceptual Framework several areas. First, one must understand
how such a leader develops—in essence the
Many attempts have been made to come up anatomy of strategic leadership. Second, one
with a definition of strategic leadership, should recognize some of the essential
however, all these definitions complements competencies a strategic leader must have.
rather than contradict one another. In the Finally, the prospective leader needs to
words of Ireland and Hitt (1999), strategic assess his or her current abilities and
leadership is the ability to anticipate, commit to a development plan (Guillot,
envision, maintain flexibility, think 2003).
strategically, and work with others to
initiate changes that will create a positive
future for an organization. In addition, The Path to Strategic Leadership
strategic leadership is about motivating The development of a strategic leader
people to move in a particular direction in involves a number of important aspects.
order to achieve particular objectives First, the most important, indeed
(Hannagan, 2002). While strategy execution foundational, part of this preparation
entails figuring out all the how’s- the specific concerns values, ethics, codes, morals, and
techniques, actions and behaviours that are standards. Second, the path to strategic
needed for a smooth strategy running- leadership resembles the building of a
supportive operation- and then following pyramid (See Figure 1 below).
through to get things done and deliver
441
Figure 1. Anatomy of a Strategic Leader

(Source:http://www.airpower.maxwell.af.mil/airchorinicles/apj/apj03/win03/Guillot.html)
we stand a pretty good chance of success.
Shortcuts do not exist, and one can’t start at Even then success is not guaranteed. If your
the top—strategic leaders are made, not competitors have better strategies and
born. Strategic leaders gradually build execute them with more dispatch, diligence
wisdom, defined as acquiring experiences and dedication, we will lose the battle of
over time (Jacobs, 2000). One must also business. So, even if we get the strategy
remember that certain activities can right and even if we carry it out efficiently
accelerate these experiences and widen and effectively, all we can really say is that
perspectives. Leaders should know that even the odds are in our favour.
though some individuals with strategic Strategy Execution
competency may not become strategic It is not enough to make good strategic
decision makers, they can still influence and decisions; they must be implemented
contribute to decisions. Additionally, having effectively to be successful. Member
strategic competency will allow one to fully commitment is important for effective
understand strategic decisions and implementation of strategic decisions
perspectives (Guillot, 2003). (Schweiger and Sandberg, 1991). According
Strategy is getting it right and doing it right. to Harrison (1992), executives vary greatly
On the one hand, we have to pick the right in their perceptions on effective leadership in
course of action. On the other hand, once successfully implementing strategic choices.
chosen, we have to carry it out properly. The Thompson Jr. and Strickland III (2003)
interplay of our strategy and its execution explain that in crafting a strategy
yields the consultant’s dream (Mintzberg, management is saying in effect ‘among all
1994). If strategy is sound but its execution the paths and actions we have chosen, we
is flawed, we are guilty of muffing it. We have decided to move in this direction, focus
have botched the job. The real but hidden on these markets and customers needs,
danger here is that we will be quick to blame compete in this fashion, allocate our
an otherwise sound strategy. With the resources and energies in this way, and rely
strategy condemned, a new one, probably of on these particular approaches to doing
lesser quality, will be sought out. A series of business’. Executing a strategy are top-
events in which a sound strategy is botched priority managerial tasks for two very
during execution can result in a series of serious reasons; first, there is the compelling
shifts to increasingly inadequate strategies, need for managers to proactively shape how
leading to a downward spiral in the level of the company’s business will be conducted. It
the organization’s performance. Only when is management’s responsibility to exert
our strategy and its execution are sound do strategic leadership and commit the
442
enterprise to going about its business in one 1. Staying on top of what is happening, closely
fashion rather than another (Thompson Jr. monitoring progress, ferreting out issues,
and Strickland III, 2003). and learning what obstacles lay in the path
Achieving results thrusts a manger into a of good execution.
variety of leadership roles in managing the 2. Promoting a culture and espirit de corps that
strategy execution process. There are times mobilizes and energizes organizational
when leading the strategy execution process members to execute strategy in a competent
entails being authoritarian and hardnosed. fashion and perform at a high level.
For the most part, leading the strategy 3. Keeping the organization responsive to
execution process has to be top-down and changing conditions, alert for new
driven by mandates to get things done and opportunities, bubbling with innovative
show good results. Leading the drive for good ideas, ahead of rivals in developing
strategy execution and operating excellence competitively valuable competencies and
calls for several actions on the part of the capabilities.
manger-in-charge. (Thompson Jr. et al., 4. Exercising ethics leadership and insisting
2004) that the company conduct its affairs like a
David (1997) says that interpersonal skills model corporate citizen.
are especially critical for successful strategy 5. Finally, pushing corrective actions to
execution. Strategy execution activities improve execution and overall strategic
affect all the employees and managers in an performance.
organization. He also said that they must Dess, Lumpkin and Taylor (2005) see leaders
decide on answers to questions such as as change agents whose success is measured
“what must we do to implement our part of by how effectively they implement a
the organizations strategy”? “How best can strategy. Strategic leadership is vital in
we get the job done”? As observed by Bryson ensuring that strategies are formulated and
(1995), creating a strategic plan is not implemented in an effective manner.
enough. Developing effective programs, Leaders must play a central role in
projects, action plans, budgets and performing three critical and interdependent
implementation processes will bring life to activities. Setting the direction, designing
the strategies and create real value for the the organization and nurturing the culture
organization, community and stakeholders. committed to excellence and ethical
A major concern of top management as noted behaviour (Dess et al., 2005).
by Pearce II and Robinson Jr., (1997) is Strategy Execution and the Strategic
implementing a strategy, particularly if it Leader
involves a major change, the right Strategic leadership is very important in this
management should be in the right position executing task as Bryson (1995) says
to facilitate execution of the new strategy. strategic leaders need to have a clear view of
This strategy executing task is easily the the strategic direction of the organization,
most complicated and time consuming part where it wants to be, and also have a clear
of strategic management. It cuts across view of where it is now. Many organizations
virtually all facets of managing. The action are only motivated to change when their
agenda for executing strategy emerges from problems are so bad that they have to
careful assessment of what the organization change. Strategic leadership motivates
needs to do differently or better (Pearce II people to change before this situation arises.
and Robinson Jr., 1997). Strategic leaders are also responsible for
Role of the Strategic Leader building a foundation of purpose and core
Pearce II and Robinson Jr. (1997) listed out values. They can do this through long term
five roles of strategic leaders which are; policies and fostering strategic thinking. The
strategic leader also has to be a teacher or
443
coach in the sense of bringing to the surface objectives. In this study, survey research
peoples assumptions and challenging them. design was adopted. Survey research design
People will develop a range of assumptions was chosen because the sampled elements
about their work, leaders as teachers, may and the variables that are being studied are
want to change this impression, strategic simply being observed as they are without
leaders help people to restructure their making any attempt to control or manipulate
views of reality, to see beyond the superficial them (Ojo, 2003). For the purpose of this
conditions and events into the underlying research, the sampling method used was
causes of problems, and therefore to see new purposive and convenience sampling
possibilities for shaping the future (Bryson, methods which are non probability sampling
1995). techniques in which selection of sample
Hitt, Ireland and Hoskisson (1999) note that elements from a given population is based
employees may look to the strategic leader entirely on the subjective choice of the
for relief from stress in times of change, but researcher. In all, samples were drawn
rather than protecting them from outside bearing in mind the organisational level of
threats it is the role of a leader to stimulate the respondents. Primary method of data
his or her employees to adapt. Instead of collection was used in this study. The
maintaining norms leaders encourage primary data consists of a number of items
employees to change the way business is in structured questionnaire that was
done. Leaders are needed who take interest administered to the respondents. The
in employees and develop a firm’s human decision to structure the questionnaire is
capital. Strategic leaders are now required to predicated on the need to reduce variability
be transformational managers who not only in the meanings possessed by the questions
help firms operate efficiently, but can as a way of ensuring comparability of
provide visionary leadership which responses. To ensure the validity and
empowers not only managers with good reliability of the questionnaire used for the
product ideas but motivates people to make study, even number of experts were
the necessary changes as well (Hitt et al., consulted to look at the questionnaire items
1999). Strategic leaders must learn how to in relation to its ability to achieve the stated
influence human behaviour effectively in an objectives of the research, level of coverage,
uncertain environment by word or by comprehensibility, logicality and suitability
personal example and through their ability for prospective respondents. A total of 185
to dream pragmatically, effective strategic copies of the questionnaire were distributed
leaders meaningfully influence the to our sample size of 185 respondents who
behaviours, thoughts and feelings of those are leaders in their business organisations.
with whom they work (Gardner, 1995). The Managers and leaders at strategic level with
ability to manage human capital may be the significant experience and responsibilities
most critical of the strategic leader’s skills for organic functional areas in their
(Quinn, Anderson, and Finkelstein, 1996). respective organizations were the subjects of
Competent strategic leaders also establish this research. One hundred and fifty
the context through which stakeholders (e.g. respondents adequately filled and returned
employees, customers and suppliers) are able their completed questionnaire resulting in a
to perform at peak efficiency (Kets De Vries, response rate of 81.08 %. Data collected from
1995). the questionnaire were analysed with the aid
3. METHODS AND MATERIALS of descriptive statistical techniques such as
total score, and percentage while chi-square
This section focuses on the research inferential statistics was used to proof the
techniques adopted and used for this study level of significance in testing stated
with the aim of achieving the research hypotheses.
444
calculated chi-square value is greater than

4. PAPER CONTENT the tabulated value of chi-square. We
This section of the study presents the major therefore accepts our alternative hypothesis
results that emanated from the test of that strategic leadership has a significant
hypotheses. The hypotheses in this research and positive role to play in the execution of
would be tested using chi-square method. corporate strategies.
The chi-square test is used as a goodness fit Hypothesis 2: Strategic leadership
to assess whether a particular set of decisions do affect the outcome of corporate
observation is sufficiently reliable for the strategies execution.
purpose for which is has been collected (Ojo: Table 2: Chi-Square Calculation for
2003). Having obtained the observed and Hypothesis 2
expected frequency table, the chi- square test Alternative O E O- (O- (O-E)²
is performed using the standard formula: Responses E E)² E
Strongly 45 30 15 225 7.5
x2 = ∑ (O – E) 2 agree
E Agree 85 30 55 3025 100.83
Where: ∑ = Summation Undecided 15 30 - 225 7.5
O = Observed frequency 15
E = Expected frequency Disagree 5 30 - 625 20.83
The two hypotheses were tested at a 25
significance level of 0.05 with the degree of Strongly 0 30 - 900 30
freedom of 4 (i. e. n-1, where n= number of disagree 30
alternatives; 5 in this case). Total 150 166.67
Hypothesis 1: There is a positive
relationship between strategic leadership x2 Calculated Value= 7.5 + 100.83 + 7.5 +
and execution of corporate strategies. 20.83 + 30 = 166.67
Table 1: Chi-Square Calculation for x2 Tabulated Value at 0.05= 9.49
Hypothesis 1 At the 0.05 level of significance, the
Alternative O E O- (O- (O-E)² calculated chi-square value is greater than
Responses E E)² E the tabulated value of chi-square. We
Strongly 100 30 70 4900 163.33 therefore conclude that strategic leadership
agree decisions do affect the outcomes of corporate
Agree 50 30 20 400 13.33 strategies’ execution.
Undecided 0 30 - 900 30 This study was carried out to test whether
30 strategic leadership played a role in strategy
Disagree 0 30 - 900 30 execution. Two hypotheses were tested to
30 find out whether strategic leadership has a
Strongly 0 30 - 900 30 significant role to play in strategy execution
disagree 30 and to prove if strategic leadership decisions
Total 150 266.66 affect the outcome of strategy execution. The
E = no of respondents 150 ₌ two hypotheses were proved positive and we
30 can therefore infer that strategic leadership
no of alternatives 5 plays positive role in corporate strategies
x 2 Calculated Value = 163.33+13.33 + execution.
30+30+30 =266.66
x2= Tabulated Value at 0.05 = 9.49 5. CONCLUSIONS AND IMPLICATIONS
From the above computations, chi-square In this section our attention shall be focused
calculated value is 266.66 while chi-square on two major items: conclusions and
tabulated is 9.49. This means that the implications of the study. This section
445
however is divided into three sub-sections increase organisational productivity and

discussed in the next few paragraphs. compete successfully. The main outcome of
Successful strategy making depends on this study can be summarised thus; strategic
business vision, solid industry and leadership plays significant roles in the
competitive analysis, successful strategy execution of corporate strategies.
execution depends on doing a good job of
working with and through others, building Implications of the Outcome
and strengthening competitive capabilities, It can be inferred from this study that good
motivating and rewarding people in a strategy and good strategy execution are
strategy- supportive manner, and instilling the most trustworthy signs of good
discipline of getting things done. Executing management. Managers do not deserves a
strategy is an action-oriented; 'make-things gold star for designing a potentially
happen' task that test a leader’s ability to brilliant strategy but failing to put the
direct organizational change, achieve organizational means in place to carry it
continuous improvement in operations and out in high fashion: because weak
business processes, create and nurture a implementation and execution undermine
strategy supportive culture and consistently the strategies potential and pave the way
meet or beat performance targets. It takes for shortfalls in customer satisfaction and
adept managerial leadership to convincingly company performance. It is essential for
communicate the strategy and the reasons leaders to note that they play a very
for it, to overcome pockets of doubt and crucial role when it comes to strategy
disagreement, secure the commitment and execution task. It is also important to note
enthusiasm of concerned parties, identify that a good strategy is not complete
and build consensus on the entire how’s of without an equally good execution and that
implementation and execution, and also to a flawed execution spoils a very good
get all the pieces into place. strategy. Also that working together with
Summary of the Main Outcome employees is likewise important, as a
This study takes a critical look at the role of strategy execution task cannot be carried
strategic leadership in the execution of out alone and for there to be an equal
organisational strategies. It is believed that amount of enthusiasm for the task from
strategy execution has always been one of the leader and employees the strategic
the more challenging tasks in business. Most leader needs to influence, provoke and
companies know their businesses, and the motivate his employees to work. This
strategies vital for success. However many knowledge would lead to better and more
corporations battle seriously to translate the proficient organizations which would give
theory into action plans that will enable the them the knowledge which they would use
strategy to be successfully implemented and to compete successfully and stakeout a
sustained, therefore the need to look at how market position. Therefore, leaders in
these strategies can be implemented easily every sphere should constantly and totally
through strategic leadership becomes involve themselves in strategy execution
imperative. Employees look to leaders to tasks. Also subordinates’ should be
bring meaning, to make sense of the involved in task relating to strategy
seemingly limitless demand for results and execution and their views should be taken
the need for individuals to find the drive and into consideration when it comes to issues
value to work. In a competitive business that concern execution of corporate
environment like that of Nigeria, it is strategies. In addition, leaders should
essential for organisations to have an motivate their employees as this gives
extensive knowledge of how strategy them the confidence to make useful
execution can be improved in order to suggestions that may lead to effective
446
execution of corporate strategies. Gardner, H. Leading Minds: an Anatomy of

Additionally, everybody should be carried Leadership. New York: Basic Books. 1995.
along in the execution process and believe Guilliot, M. Strategic Leadership: Defining the
Challenge. Retrieved on the 31st August 2009
that they as an individual have a part to
from the website (www.airpower.maxwell.mil).
play. Also it is important that the
2003
subordinates understand the strategy Hannagan, T. Mastering Strategic Management.
before being told to work, as adequate New York: Palgrave. 2002.
understanding builds up enthusiasm. Hitt, M A, R. D. Ireland, R E. Hoskisson
Similarly leaders need to be as diligent in Strategic Management Competiveness and
directing the execution as they are at Globalization (3rd edition) Cincinnati: South-
communicating strategic direction. As they Western College Publishing. 1999.
are both equally important if stated goals Ireland, R. D. and Hitt, M. A. Achieving and
Maintaining Strategic Competitiveness in the 21st
want to be seen.
Century: The Role of Strategic Leadership,
Suggestions for Further Study
Academy of Management Executive 13, No. 1 pp.
Although this present study assessed the 43 57. 1999
role of strategic leadership in the execution Jacobs, T O. Strategic Leadership the Competitive
of corporate strategies in the private sector Edge. Washington D.C: College of Armed Forces.
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Mintzberg, H. The Rise and Fall of Strategic
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Planning. New York: Free Press. 1994
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Ojo, O. Fundamentals of Research Methods.
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findings cannot be generalized across all Management Formulation, Implementation and
other sectors of Nigerian economy. Thus, Control (6th edition) Chicago: Irwin. 1997.
there is compelling need for future research Schweiger, D. M and Sandberg, W. R A Team
efforts to focus on these other sectors in Approach to Top Management’s Strategic
order to determine the attitude of the Decisions. Handbook of Business Strategy. New
York: Warren, Gorham & Lamont. 1999.
operators of these sectors to the role that
Thompson, A. A, John E. Gamble, A. J Strickland
strategic leadership plays in the execution of
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Thompson Jr., J A and A J Strickland III
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447
COMPETENCY LEVEL OF CONSTRUCTION PROJECT MANAGER IN

PENANG STATE, MALAYSIA
Abdelnaser Omran
naser_elamroni@yahoo.co.uk;
School of Housing, Building and Planning, Universiti Sains Malaysia, 11800, Minden,
Pulau Pinang, Malaysia
Abdullah Mahmood
Department of Architecture and Building Science, College of Architecture and
Planning, Kind Saud University, Riyadh 11574, Kingdom of Saudi Arabia
Abstract of the word. However, as noted by Robothan

Many countries over the worldwide recognize and Jubb (1996) the concept has evolved
project management as a core business incorporating different meanings, it has also
capability and seek to reap the benefits of the
become one of the most used terms in
effeminacy of management to seep into their
organizational literature. A good definition
business. In construction industry, successful
of a project is always determined by the of competence is presented by Berglund
competency of the project manager who is (1999) in Glader (2001):
exercising the competency framework as
practices by the profession’s leading “Competence is used to accomplish
researchers today. Today’s construction something. It includes knowledge in all their
project manager needs to supplement their shapes, but it also includes personality
traditional functions with other non- traits and abilities, such as social
engineering knowledge and skills to meets competence, persistence, stress tolerance and
with higher demands from professional so on. Competence is at first an individual
which have burden them with bundle of based term, but is however not impossible
responsibility. As a result to identify the to also talk about organisational competence.
competency of construction project managers, One can then refer back to the complete
competence at the individuals in the
this paper has listed out a few project
organisation, or the stored knowledge
Management competency practitioners’
concerning systems, techniques or the culture”.
framework. PEAKS framework which is
developed by Murry-Webster and Hillson is By analyzing this definition it can be
applied in order to determine the competency understood that competence can be looked at
of our construction Project Managers in their from an individual perspective and also from
projects. an organizational point of view. In the
organizational perspective the firm possesses
Keywords: Competency level, construction competence as an institution. This
industry, Project Manager, PEAKS. perspective is presented by Söderlund’s
(2005), who looks at project competence in
1.0 Introduction to competence terms of organizational capability. In his view
the organization is deemed to posses’ project
According to the Cambridge Advanced manager competence if it is able to
generate/select and implement/execute
Learner’s Dictionary “competence is the
projects in a skillful manner. These two
ability to do something well”. Among the different views are not contradicting, after
many definitions provided by the Oxford all an organization is an inanimate
English Dictionary, one with a similar character that exists only through its people.
meaning would be that competence is Therefore, for an organization to have
“sufficiency of qualification; capacity to deal competence it is essential that the people
inside are competent. Nevertheless, there is a
adequately with a subject”. Both definitions difference on how competence is approached;
offer a general explanation which is quite one perspective looks at the individual parts
representative of the common understanding and the other at the whole. In many
448
construction companies, construction project

manager are selected based on their years of 2.0 PEAKS Framework
working experience and most of the
construction project managers’ education The PEAKS framework is structured in a
level do not achieve the tertiary education way that clearly separates and defines the
levels. This will normally lead to the lack of raw materials of competency. This is
job competency and not to mention that most
achieved by distinguished five component
of their work performances express more on
elements, then defining each unambiguously
technical aspect rather than on management
in a way which allows them to be assessed
aspect. The general purpose of this study
was to determine how competent of our objectively, and finally recombining the
project manager in our construction industry elements into an overall assessment of
today, using PEAKS model. This study has project management competence (Hilson and
been clearly defined four core competency for Muray-Webster, 2002). The PEAKS acronym
project manager and each component. captures the understanding that competence
Basically, this paper aimed particularly to requires the presence of five elements,
seek perception from our project manager namely Personal Characteristics,
and they are required to answer two Experience, Attitudes, Knowledge and Skill.
fundamental questions. Firstly’ “what is the These must all be present for true
level of importance of these core competence to exist, whether this is in
competency?’ and secondly; “What is your project management or any other area. The
level for the core competency?”. The five elements are each defined and described
competency model and implications derived in Table 1, with specific examples relating to
from the findings of this study should be project manager. Figure 1 illustrates
valuable to our project manager or others diagrammatically the relationships between
concerned in developing the competence of the PEAKS elements, showing that the four
job incumbents and maximizing competent Personal Characteristics, Experience,
performance in an organization. In order to Attitudes and Knowledge form a foundation,
obtain effective performance at this position but these must all applied with Skill in order
level, the project manager needs to have job
to produce the appropriate behaviours
incumbents well equipped with these
associated with Competence.
competencies.
Table 1. The Five Core Element of Competency
PEAKS element Description

Personal characteristics Personal characteristics are natural preferences and
“Who am I?” traits. These tend to form the basis of a person’s
natural reactions to situations. Some may change over
time through personal development or gaining
experience, but in general they are not easily influenced
by traditional training. Some personal characteristic
indicate an individual’s aptitude for project
management. Examples relevant to project
management include: self-confidence, pragmatism, or
the needs to be organized and to organize.
Experience Experience must be acquired as the outcome of
“What have I done?” practicing project management or working within
projects. It is not only acquired formal paid jobs, but
can be obtained in the life context. Experience does not
simply equate to time spent in a project environment,
but measured by relevant achievements. The
assessments of experience will always be relative to the
needs of specific organizational requirements. For
example, experience of relevant organizational policies,
procedures and methods; or project start up and
definition.
449
Attitudes Attitudes are chosen responses to situation. Some

“How shall I respond?” attitude may be deeply rooted, representing core value
of that individual, but they nevertheless represent a
choice. Others attitudes may be more malleable.
Attitudes differ from personal characteristics in that
they are situational responses rather than natural
preferences or traits, and chosen attitudes may
therefore differ depending on the context. Example may
include attitudes that planning is important, a concern
for stakeholder needs, or commitment to ethical
behaviour.
Knowledge Knowledge is learned, often theoretically via traditional
“What do I know?” learning, or can be gained on the job. It includes
familiarly with the widely-held principles about a
particular subject; and the way those principles should
be applied to best effect. Examples of project
management knowledge areas are contained in the
bodies of knowledge for the project management
professional organizational and in related standards
and guidance documentation.
Skills Skills are learned, but must learn experientially. They
“How ably do I apply?” are more accurately describe as being the skillful
application of P, E, A and K as described above. For
example the skills of planning, (i.e. the ability to plan
effectively) requires ( as a minimum): a personal
characteristic to need to be organized, experience of
planning, relevant planning tools and methods; an
attitude that planning is important; and knowledge of
how to plan scope, time, cost, quality and etc.
Source: Hilson & Muray-Webster (2002).
PEAK
Figure 1. Relationship between PEAKS

Elements
Source: Hilson & Murary-Webster, (2002)
3.0 Methodology management consultants and contractors

firms, which is related to the construction
PEAKS framework is selected and applied in industry in Penang state, Malaysia. A total
this paper and the questionnaire was of 50 questionnaires were sent out and only
basically designed based on PEAKS 30 respondents were successfully received
framework. Questionnaires survey was for four weeks after mailing analyzed.
distributed to specific number of project
450
4. Results and Discussion the highest mean. This value falls on the
minimum and maximum value of 0 to 11 and
4.1 Personal Characteristic Competence with the lowest standard deviation of 3.35 in
Variables the part a. From this, it can be summarized
Table 2 depicts the competency level for that the variable is unsuited to our personal
personal characteristics competence of our characteristic of project manager where they
project manager in Penang construction are most likely not to enjoy problems during
industry today. From the data, it is crystal their working life. Table 2 shows the results
clear that there are 2 constituents to be for the personal characteristic competency
considered, a) self reflection; and b) on the leadership/team management. From
leadership/team management. From part a), the results, the biggest mean value was
the highest mean value of 19.87 was recorded as 18.03, which is second highest
recorded on the variable sustained energy score in the Table 5.13, falls on the variable
and enthusiasm. This value falls between adaptable. The standard deviation of 9.163
the minimum and maximum of 1 and 24 shows the top value in the table, means that
thus suggesting that the mentioned variable this variable is very important and to be
is the ideal personal characteristic which is possessed by project manager. It is clear,
inherits in our project manager This follow this variable has been an ideal personal
by the standard deviation that recorded as characteristic for our project manager today.
8.419 which is at the high concentration The lowest mean value falls on variable
score side if compare with the existing charismatic and inspiration, where the value
highest score of standard deviation of 9.163. was recorded as 8.93 and the standard
The smallest mean value was found on the deviation shows 3.778, a value second lowest
variable enjoys problems where the value in the part b).
was recorded as 8.43 which is far away from
Table 2: Competency Level for Personal Characteristic Competence of Components
Descriptive
Statistic
Personal Characteristic Competence Variables
Mean Std
Deviation
a. Self reflection
1. Seeks out and is comfortable with change 13.27 6.136
2. Aptitude to uncertainty 11.67 3.790
3. Enjoys problems 8.43 3.350
4. At ease with prioritization & decision making 9.87 4.361
5. Critical thinking 12.53 6.947
6. Need to be organized 11.20 5.598
7. Need to deliver results/achievement oriented 11.20 5.598
8. Pragmatic 11.87 4.547
9. Self driven & tenacious 14.53 7.877
10. Self confidence 16.80 8.814
11.Sustained energy & enthusiasm 19.87 8.419
12.Self - controlled 16.93 8.562
13.Self – awareness & regulation 18.03 9.163
b. Leadership / Team Management
14. Seeks out face to the communication 9.80 2.565
15.Charismatic & Inspirational 8.93 3.778
16.Intuitive & sensitive to the needs of others 10.80 5.696
17.Adaptable 18.03 9.163
18.Integrity 11.30 6.691
4.2 Attitudes Competence Variables our project manager today. There are total 2
constituents and 11 subs-constituents have
Table 3 displays the statistic results of been analyzed, a) personal values and d)
competency level for attitudes competence of organization / project. From section a) the
451
biggest mean value of 12.47 was recorded on the attitudes competency on the organization
the variable team approach. This value falls / project. From the results, the biggest mean
between the minimum and maximum of 3 value was recorded as 13.20, which is the
and 18 with the highest standard deviation highest score in the Table 5.14, falls on the
value that recorded as 6.912. This results variable prepared to serve the aspirations of
with the high concentration score shows that the organization regardless of personal
our project managers are well suited with agenda. The value falls on the minimum and
the above variable where they are team maximum value of 2 and 18 with the
approach player in the market. In contrast, standard deviation of 6.250. This result
the smallest mean value was found on the implies that our project managers are very
variable prepare to take responsibility where obligated to their work and have very good
the value was recorded as 9.03 which is far attitudes with concerning to their
away from the highest mean. This value falls organization or project. The lowest mean
on the minimum and maximum value of 0 to value falls on variable willing to play at
14 and with the lowest standard deviation of organization politics, where the value was
in the Section a). From this, it can be recorded as 8.97 and the standard deviation
summarized that the variable is unsuited to shows 3.746, with the lowest value Table 3.
our personal value of attitudes for project It is clear that this attitude had rejected by
manager where they are most likely not well majority or our project manager as they are
prepared to take responsibility during their reluctant to play in the organization politics.
working life. Table 3 shows the results for
Table 3: Competency Level for Attitudes Competence of Components
Descriptive Statistic
Attitudes Competence Variables Mean Std
Deviation
a. Personal Values
1. Concern for ethical behaviour/courteous 10.53 6.056
2. Team approach 12.47 6.912
3. Prepared to take appropriate risk 11.23 6.745
4. Prepared to take responsibility 9.03 4.810
5. Open minded 10.87 5.637
6. Maturity 9.97 5.346
b. Organization / Project
7. Concern for stakeholder needs 11.23 6.745
8. Concern to learn from experience 11.07 5.126
9. Concern to learn from experience 11.07 5.126
10.Willing to play at organizational politics 8.97 3.746
11.Prepared to serve the aspirations of the organization 13.20 6.250
regardless of personal agenda
4.3 Knowledge Competence Variables minimum and maximum of 0 and 17 with

the highest standard deviation value that
Table 4 shows the statistic results of recorded as 6.745. This results with the high
competency level for knowledge competence concentration score shows that our project
of our project manager today. There are total managers are well suited with the above
4 constituents (as listed below) and 17 subs- variable where they are able to coordinate
constituents have been analyzed, a) project development process and phases at
Organizational Context; b) Scope, Quality, very well skills. In contrast, the smallest
Risk and Value; c) Time and Cost and d) mean value was found on the variable
Human Material Resources and programmed project management where the
Procurement Management. For value was recorded as 9.80 which are far
organizational context, the biggest mean away the highest mean. This value falls on
value of 11.23 was recorded on the variable the minimum and maximum value of 1 to 15
coordinate project development processes & and with the lowest standard deviation of in
phases. This value falls between the the Section a. From this, it can be
452
summarized that our project manager are estimating. The value falls on the minimum
lack of the experience on programmed and maximum value of 0 and 15 with the
project management and as an improver this standard deviation of 4.406. This result
might need time to practice during their implies that with the high concentration of
working life. Section “c” shows the results for the score, our project managers are master
the knowledge competency on the scope, and sensitive in estimating the time and cost
quality, risk and value. From the results, of a project as this will direct incur the profit
the biggest mean value was recorded as of an organization. The lowest mean value
11.73, which is the highest score, falls on the falls on variable time scheduling and
variable quality and regulatory phasing management, where the value was
management. The value falls on the recorded as 8.93 and the standard deviation
minimum and maximum value of 0 and 15 shows 4.920. It is clear that our project
with the standard deviation of 5.747. This managers are still lack of the knowledge on
result implies that with the high the time scheduling and phasing
concentration of the score, our project management as this knowledge had to gain
managers are very expert in manage the by exposure and experienced of projects.
quality and regulatory work pertaining to Section “d” shows the results for the
their organization or project. The lowest knowledge competency on the human
mean value falls on variable project strategic material resources and procurement
planning, where the value was recorded as management. The highest mean value was
9.73 and the standard deviation shows recorded as 14.80, which is the highest score;
4.323, with the lowest value Table 4, it is falls on the variable plan and evaluate
clear that the competency level of our project contract. The value falls on the minimum
managers are still at the improver level as and maximum value of 2 and 20 with the
this knowledge had to gain by exposure and standard deviation of 7.568. The lowest
experienced of projects. In Table 4, Section mean value falls on variable manage
“c” shows the results for the knowledge internal and external project material
competency on the time and cost. The resources, where the value was recorded as
highest mean value was recorded as 11.37, 9.50 and the standard deviation shows
which is the highest score in the Table 4, 4.562.
falls on the variable time and cost
Table 4: Competency Level for Knowledge Competence of Components
Descriptive
Statistic
Knowledge Competence Variables
Mean Std
Deviation
a. Organizational Context
1. Identify project environment & context 10.27 6.253
2. Coordinate project development processes & phases 11.23 6.745
3. Establish project organization structure & role 11.07 5.452
4. Programme project management 9.80 5.378
5. Organize completion & handover activities 10.80 5.696
b. Scope, Quality, Risk & Value
6. Project Strategic Planning 9.73 4.323
7. Quality & regulatory management 11.37 4.406
8. Decide & identify risk management 10.53 4.100
9. Process review and value engineering knowledge 11.07 5.747
c. Time and Cost
10. Appraisal techniques for evaluating options 9.73 4.323
11. Time & cost estimating 11.37 4.406
12. Time scheduling & phasing management 8.93 4.920
13. Budgeting & cost management 9.63 4.089
d. Human, Material Resources & Procurement
Management
14. Manage internal & external project material resources. 9.50 4.562
453
15. Acquire, develop & manage project team. 11.07 5.452

16. Plan & evaluate contracts 14.80 7.568
17. Perform contract close out 10.60 4.731
4.4 Skills Competence Variables biggest mean value was recorded as 14.27,
which is the highest score in the Table 5,
Table 5 shows the statistic results of falls on the variable project communication
competency level for skills competence of our needs and methods. The value falls on the
project manager today. There are total 3 minimum and maximum value of 2 and 20
constituents (as listed below) and 17 subs- with the standard deviation of 8.267. From
constituents have been analyzed, (a) project the results, it can be conclude that with the
process; (b) communication; and c) high concentration of the score, our project
leadership. For Section a) the biggest mean managers are master in project
value of 13.23 was recorded on the variable communication needs and methods in such a
manage project execution. This value falls way to comply and fulfil the stakeholder’s
between the minimum and maximum of 0 requirements. The lowest mean value falls
and 19 with the highest standard deviation on variable facilitate and resolve conflicts,
value that recorded as 7.749. This results where the value was recorded as 9and the
with the high concentration score shows that standard deviation shows 3.667, with the
our project managers are master with the lowest value section b). It is clear that our
above variable where they are at the expert project managers are lack of the skills of
level to manage and coordinate project facilitate and resolve conflicts as this skill
execution. In contrast, the smallest mean involve human being and engineering and
value was found on the variable develop non-engineering background. The skills have
projects resources and capacity planning to polish and improve by exposure and
where the value was recorded as 11.33 which experienced of projects. The final section is
are far away from the highest mean. This refers to the leadership variable. The highest
value falls on the minimum and maximum mean value was recorded as 13.23; and the
value of 2 to 16 and with the lowest standard lowest mean value is only marked as 10. The
deviation of 5.339 in the Section “a”. From highest score is falls on the variable critical
this, it can be summarized that our project thinking and rational decision making where
manager are lack of the skills on develop the value falls on the minimum and
projects resources and capacity planning and maximum value of 0 and 19 with the
as an improver this might need time to standard deviation of 7.749. The lowest
practice from time to time. Section “b” shows mean value falls on variable negotiation and
the results for the skills competency on the delegation of project information and process
communication. From the results, the where the standard deviation shows 4.068.
Table 5: Competency Level for Skills Competence of Components
Descriptive Statistic
Skills Competence Variables Mean Std
Deviation
a. Project Process
1. Define project requirement 12.40 6.976
2. Develop Projects Resources & Capacity Planning 11.33 5.339
3. Manage project execution 13.23 7.749
4. Monitoring & controlling projects 13.10 7.928
5. Close project 12.67 6.712
b. Communication
6. Project communication needs & methods 14.27 8.267
7. Communication in wiring at all levels 13.20 6.250
8. Communicate verbally at all levels 10.27 3.552
(presentation/public speaking)
9. Facilities & resolve conflicts 9.00 3.667
c. Leadership
10. Managing information 13.20 6.250
454
(gathering, assessing, integrating, organizing and

documenting)
11. Negotiation and delegation of project information and 13.20 3.044
process
12. Critical thinking and rational decision making 13.23 7.749
13. Building, leading and motivating teams to ensure 12.40 4.344
commitment, respect and loyalty
14. Transfer knowledge (coaching, mentoring, training) 11.33 5.339
15. Ability to manage legal issues 10.00 4.068
16. Ability to listen 12.03 6.150
17. Ability to complete project on time 13.20 6.250
5. Identifying the level of competencies the challenges on site. In the other hand,
of Construction Project Managers they have good attitudes in which the
statistic shows they are very well as a team
From the statistic results, it can be approach player, concern for stakeholder
concluded that our project manager today is needs prepared to take appropriate risk. All
at the high level of competent. The level these attitudes are stated in the highest
which is indicated in the Table 6 can be used mean of the score from the Table 3. For the
as a reference when we obtained the data knowledge and skills competence, the results
from the statistic. For the personal stated that our project managers are at the
competence, our project manager have very level of practitioner and still have a need for
ideal of characteristic which is suited to our improvement. Young to middle age of
highly demanding of construction market. practicing project managers must learn to
They are well equipped with the personality identify and handle risk management and to
of adaptability, self confidence on work, self- delegate project information and process to
awareness and regulation and have good the relevant stakeholders.
sustained energy and enthusiasm to seek out
Table 6: Results for Competence Level of Project Manager
Personal Characteristic Competence Variables Std Deviation
1. Self awareness & regulation 9.163
2. Adaptable 9.163
3. Self confidence 8.814
4. Seeks out face to face communication 2.565
Attitudes Competence Variables
1. Team approach 6.912
2. Concern for stakeholder needs 6.745
3. Prepared to take appropriate risk 6.745
4. Willing to play at organizational politics 3.746
Knowledge Competence Variables
1. Plan & evaluate contracts 7.568
2. Coordinate project development processes & phases 6.745
3. Identify project environment & context 6.253
4. Decide & identify risk management 4.100
Skills Competence Variables
1. Project communication needs & methods 8.267
2. Monitoring & controlling projects 7.928
3. Critical thinking and rational decision making 7.749
4. Negotiation and delegation of project information and process 3.044
6. Conclusions practicing project manager had rated their

competency. The results established the
This paper was aimed at providing insight importance level of personal characteristic of
on the level of importance of project competency for project manager are self-
manager’s competency and how the reflection on the need to deliver results,
455
followed by the leadership or team manager should possess and keep on develop
management characteristic on seeks out face all these skills during their working life. As
to face communication and integrity. In far as for the actual competency level of
contrast, the least important personal knowledge, most of the practicing project
characteristic is self driven and tenacious. In managers are generally at the proficient
terms of actual current level of this level of competent where some of young
competency for practicing project manager, project manager still lack of experience on
the personal characteristic of self-awareness the certain variables such as time
and regulations is the highest followed by scheduling; phasing management and
adaptable and self-confidence. For the programmed project management. This
attitudes competency variables, the most knowledge of competence have to improve
importance personal value is open minded, and polish through varies exposure and
followed by team approach and maturity. In working environment. For the competency
contrast, the practicing project managers level of skills components, the results shows
perceived and agreed that willing to play at our project managers are at the level of
organization politics is the least importance practitioner and still have great space to
variable in the attitudes competency. From improve. Some of our young to middle age of
the results, the current competency level project managers must learn to facilitate and
posses by practicing project manager shows resolve conflict, learn to communicate
that the team approach is the highest verbally at all levels and develop their skills
followed by the personal value of prepare to in the manner that able to manage legal
take appropriate risk and concern for issues. These are not a one day job but they
stakeholder needs. The attitude of team need sometimes to get better and build up
approach in this result had shown that both their skills from time to time.
level of importance and their current
competency level are equally important as 7. Recommendations
dedicated in the literature chapter which is
marked as the second highest variables. As recommendation, this study can be
Team approach was identified as an develop into further research where
important attitude suggesting that today’s incorporates the competencies identified
project managers have a need to well-equip above into its future competency-based
with this attitude for better efficiency in project manager plan. First, it is essential
their works performance. The results that competencies be included in job
established the changing role of project descriptions because a list of job
managers and increasingly, they are responsibilities and the results of job tasks
required to perform roles outside the are not sufficient measures to ensure
traditional scope of project management. success; rather well-defined skill
The survey established that the personal competencies for a position encourage job
characteristic, attitudes, knowledge and incumbents to work more effectively. This
skills necessary to maintain their study provides a competency model
competency, in order to fulfil these changing consisting of a list of competencies needed at
demands are acquired largely from their this position level, therefore an effective job
experiences. From our project manager’s description for the Construction Project
perception, knowledge and skills competence Manager position level in organization
are very important to a project manager in should include the required competencies.
order to achieve his goal in the construction Second, the findings of this study
industry. These are include organize and demonstrate the need for a competency –
coordinate project development process, base training required in this position.
establish the project organizational Multiple training courses were
structure and role and organize the project recommended although the current
completion and handover activities. All of incumbents may have the opportunity to
these works execution need an expert skills attend a number of training courses, very
where the skills must be learn and build up few have access to formal training designed
from the project handled. Therefore, this for this position. Maybe this implication
results implies that our project manager are ought to be given attention during
very alert and aware of current market competency enhancement. Finally, apart
trend where the construction project from training and development, a
456
competency model can be used by an

organization in a variety of ways. For
example, this model can be used for selection
of project manager, performance
management and career development of
manager in improving efficiency of
performance for an organization.
8. References
Glader, A. (2001). Learning and competence

development – The study of competence
development in large Swedish organizations.
(Master). Umea School of Business and
Economics.
Murray-Webster, R. and Hillson, D. (2002).
Scaling the PEAKS project management
competences. Proceeding conference paper
presented at PMI Europe, The project
management festival, 19-12 June 2002, Noga
Hilton, Cannes, France.
Robotham, D. and Jubb, R. (1996). Competences:
measuring the unmeasurable. Management
Development Review, 9(5), 25-29.
Söderlund, J. (2005). Developing project
competence: Empirical Regularities in
Competitive Project Operations. International
Journal of Innovation Management, 9(4), 451-480.
457
MANAGEMENT OF SAFETY IN CONSTRUCTION SITES IN MALAYSIA:

PERSPECTIVES ON THE ELEMENTS OF POOR
Abdelnaser Omran, Abdelwahab Omran, Mayhuddin Ramli

& Abdul Hamid Kadir Pakir
naser_elamroni@yahoo.co.uk;
ABSTRACT construction industry is very poor in

The creation of safety programs comes in a developing countries such as Malaysia. In
very wide scope and there is just no USA, the practice of safety in construction is
limitation on the strategies that can be taken regulated by governmental agencies such as
to provide an efficient health and safety the Occupational Safety and Health
planning and procedures to be practiced. As Administration (OSHA), which provides
construction site is the main source of strict rules and regulations to enforce safety
fatalities and accidents in the construction and health standards on job sites. However,
industry, the concept of the safety legislation alone cannot reduce accident
management which stressed the importance rates unless craftsmen and management
of a well-defined organization structure and take positive actions to integrate these rules
the safety planning, eventually, this concept into their everyday activities by
is seen as having the potentials on implementing a safety management
eliminating the hazard risks that normally programmed. However, in most developing
occur on the construction site. This paper countries, safety consideration in
aims to examine the status of safety construction project delivery is not given a
management in the Malaysia construction priority, and employment of safety measures
industry, and indentify factors affecting during construction is considered a burden
construction site safety. The findings reveal (Mbuya and Lema, 2002). Safety
that the main factors affecting safety management is an approach aimed at
performance include lack of training, lack of removing or minimizing the forces which
certified skill labour, ineffective operation of cause losses through injured workers, or
safety regulations as the most important damaged equipment and facilities. It is
factors. Based on the finding, it can be commonly known that accidents have
concluded that the industry should be more serious implications to the construction
active in organizing training programmes for industry both in financial and humanitarian
educating people and improving safety terms. Construction accidents may cause
performance. many problems, such as demotivation of
workers, disruption of site activities, delay of
KEYWORDS: Safety programme, project progress and adversely affecting the
construction safety, management, Malaysia overall cost, productivity and reputation of
the construction industry (Mohamed, 2002).
1. Introduction Considering the adverse impacts of
accidents, construction safety management
The construction industry is considered as is of genuine concern to all stakeholders in
one of the most hazardous industrial sectors the construction industry. Government,
wherein the construction workers are more unions and insurers have spent a great deal
prone to accidents (Tam et al., 2004). In of time and effort attempting to evolve
developed countries such as United Kingdom legislation, rules and regulations to help
and United States of America, there is strict reduce the large loss of life and limbs, and
legal enforcement of safety in the the high number of "lost-work days"
construction industry and also in the (Goldsmith, 1987). The rate at which
implementation of safety management infrastructural development is increasing
systems which are designed to minimize or and the complexities of modern time
eliminate accidents at work places (Dorji et associated with it, surely calls for more
al., 2006). However, occupational safety in concern to safety at construction sites if
458
meaningful reduction in fatalities is

required. The number of fatalities at work in 2. Construction Fatality Rates in
the construction sector remains a matter of Europe
serious concern for the Government,
employers and employees alike (HSA, 1999). The HSE (2001) reports that the European
Statistics on fatalities generally places the average fatality rate in construction was
construction sector as the second highest 13.3 per 100,000 workers in 1996. In
industry, only surpassed by the agricultural contrast with that figure, the HSA (1999)
sector. Among the most common sources of has reported a rate of 8 fatalities for 100,000
fatalities in construction, falls from heights workers for the Republic of Ireland in 1996.
is the category that accounts for the highest Although under the European average of
proportion of deaths. A brief comment of fatalities, Ireland still shows a higher
some statistics will be given below. Some incidence than countries as France, the
international figures for falls from heights United Kingdom or Spain (Table 1).
will also be reproduced as an example of the
relatively high percentage of fatalities:
Table 1: Fatality rates for selected EU Member States
Country Year Fatality Rate per 100, 000 workers

Europe 1996 13.3
Germany 1996 15.4
Italy 1996 14.4
France 1996 12.1
Romani 1996 8.0
United Kingdom 1996 5.6
Spain 1996 4.2
Source: Mcdonald and Hrymak (2006).
3. International Construction Related 1. The accident rate in construction is four to

Fatalities due to fall from heights five times higher than that of
Berg (1999) attributes falls as the leading the manufacturing sector on the global scale.
cause of deaths in construction worldwide. There is an increase in the number of work
Berg states the percentage of fatalities from related diseases associated with construction
falls on German construction sites accounts all over the world.
for 50% of all fatalities in that work sector. 2. After the initial employment, there is a
Cattledge et al., (1996) analyzed construction dramatic increase in accident frequency over
fatality rates in the United States between the following six to eight months. This shows
1980 and 1989. They found that 49.6% of all that more workers meet with accidents
occupational related fatalities due to falls during the first year of their employment.
occurred on construction sites. In Asia, 3. A study conducted in four industrialised
Jeong (1998) reported on construction countries - Canada, Japan, UK and US -
related fatalities in South Korea. This study showed that danger in the construction
showed that falls from heights accounted for industry was more than four times than
42% of all construction related fatalities those in the manufacturing industry.
between 1991 and 1994. Tam and Fung 4. Another study of seven industrialised
(1998) report the fatality rate among countries indicated that the average number
construction workers in Hong Kong during of such occurrences per 1, 00,000 workers
1985 and 1994 was 86.8 per 100,000. was 12 per year, with some countries
reporting 35 instances per 1, 00,000 workers
4. Some of the findings of the annually.
International Labour Organisation From the above statistics, it can be deduced
(ILO) in the field of safety in that poor construction safety on sites is
construction are: evident globally and thus Malaysia is no
exception.
459
5. Previous studies of accident occurrence at construction site.

According to him, good safety programs
An accident can be defined as an unplanned, would certainly help in reducing injuries at
undesirable, unexpected, and uncontrolled construction site and also minimize
event. An accident does not necessarily construction costs, increase productivity and
result in an injury, it can be in term of profitability and more importantly it could
damage to equipment and materials and save lives of workers and consequently
especially those that result in injury receive contribute positively to construction industry
the greatest attention (Hinze, 1997). Safety and nation as a whole. Ahmad et al., (2000)
is therefore of importance regardless of the explained that although sometimes the
loss or damage because even if accidents do contractors questioned the importance of
not cause damage to personnel, material or spending an amount of money for the
equipment, it may foretell future accident purpose of safety aspects in construction, the
with les desirable result. benefits and returns that they would enjoy
from an effective safety management system
5.1 The Importance of Safety were much more than the cost spent. Other
Management in Construction benefits are avoidance in project delay,
The importance of safety at construction site machines and equipments breakdowns and
certainly needs to be given a serious litigation. Safety system also facilitates the
attention by the site management team and management in conducting any accident
also by all parties who are directly involved investigation at workplace. Furthermore,
in the construction industry. According to providing a safe and healthy workplace is
Tey (1999), among the importance of safety one of the most effective strategies in for
are to eliminate or reduce the probability of holding down the cost of doing construction
accident and disease occurrence to the business. Accidents cause not only delays in
workers. For example, the workers can operations and project deliverables but also
perform their works more conductively and directly and indirectly incur costs (Bakri et
be able to complete the project as scheduled. al., 2006). Therefore as required by the
It is also to ensure the smoothness of Occupational Safety and Health Act 1994
progress of works on site. If any accident (OSHA), it is mandatory for all construction
occurs at site, thus the work progress will be companies to provide a safe and conducive
hampered due in order to make way for the working environment for their workers and
accident investigation to be carried out by subcontractors at construction and
the responsible authorities. Consequently fabrication sites. Hinze and Harrison (1981)
the completion of the whole project will have identified that good safety program
finally be affected. In addition to that, it practiced in a big company can helps to
certainly could foster the productivity of the reduce the injury rate at construction site.
workers and cost savings. Once the workers The success of a big company in tackling
aware that the construction site is safe and safety aspects is due to the fact that there
comfortable to work in, it will induce the are safety competency certificate holders
workers mood to work harder and also exist among its workers not withstanding
improve the construction cost since the any working level. With better enforcement
works on site can be completed on time as of the legislation and commitment from
scheduled. There is no loss of skilled employers and employees, construction
workers. With efficient safety management, safety management has obviously received a
skilled workers will feel secured and greater attention (Ahmad et al., 1999).
comfortable working in that particular Consequently, the improvement of safety
construction site. Finally, it will increase and health management in construction is a
client confident towards the competency of very important goal for all construction
that particular construction company in stakeholders in order to provide a better and
managing the safety and health effectively safer workplace which will help to improve
and hence completing and delivering the productivity, reduce construction costs,
project on time. Khalid (1996) stressed in his better time performance and deliverables
writing that although the construction and also increase in profitability.
industry involved a very complex process, it
should emphasis on finding a management
strategy and resolution in reducing the rate
460
5.2 Accidents and their costs Construction safety management deals with
Construction work covers many activities, actions that managers at all levels can take
techniques, materials and hazards and it is to create an organizational setting in which
this diversity that increases the probability workers will be trained and motivated to
of accidents occurring. There is a perform safe and productive construction
commonality of accidents within the work (Levitt and Samelson, 1987). The
industry and the factors that can contribute system should delineate responsibilities and
indirectly to an accident. An accident may accountabilities. It should also outline
be defined as ``any unplanned event that procedures for eliminating hazards and
resulted in injury or ill health of people, or identifying potential hazards before they
damage or loss to property, plant, materials become the contributing factors to
or the environment''. A recurring theme is unfortunate accidents.
that people are killed during simple, routine
work and in many cases a clear lack of 5.4 Safety Policy
planning contributed to the tragedy. An A health and safety policy is a written
underlying belief is that the majority of statement of principles and goals embodying
accidents are not caused by careless workers the company's commitment to workplace
but by failures in control which ultimately is health and safety. It demonstrates top
the responsibility of management. Improved management's commitment to ensure safe
health and safety management systems are working methods and environment at the
assumed to make good financial sense and construction sites. Koehn et al., (1995)
should be part of the cost conscious culture states that in order to reduce financial risk,
of companies dedicated to efficiency and management support for safety programmed
profitability. It has been recognized that a in both developed and developing countries
reduction in the level of accidents would be should be considered as an economic
the principal quantifiable benefit of new necessity since accidents had proved quite
construction design and management costly to the contractor. This is in addition
regulations. to the ethical and professional responsibility
of the management for providing a safe work
5.3 Safety Management System site for all employees. Sawacha et al., (1999)
Management approach to health and safety also stresses the importance of
in construction industry can be seen in three management's viability and participation in
important ways. Firstly, from legal point of achieving successful safety performance.
view, the need to abide the rules and
regulations of the place is important. Second 5.4.1 Organizing
is about the socio-humanitarian aspects One of the essential elements of the safety
which is to consider human lives and finally, management is the designation of individual
the financial-economic aspects of the with responsibilities and accountabilities in
accidents which have high direct and the implementation of the construction
indirect to the costs. Safety management safety programmed and plan. The
also can be described as a set of actions or organization should demonstrate how
procedures relating to health and safety in accountabilities are fixed, how policy
the workplace, put in place and actively implementation is to be monitored, how
endorsed by management to achieve the safety committees and safety representatives
following: are to function and how individual job
- Identification, assessment and control of descriptions should reflect health and safety
all workplace hazards and risks. responsibilities and associated
- Active involvement in health and safety accountabilities (Stranks, 2000). Such as, in
matters with managers, supervisors and order for the safety policy to be effective,
workers working together both formally both management and employees have to be
and informally to improve health and actively involved and committed. In the
safety. research finding of Sawacha et al., (1999), it
- Providing information and training for indicates that having a well-trained safety
people at all levels so they can effectively representative on site can improve safety
meet their responsibilities. performance by undertaking fault spotting
- Designing and implementing company and insisting on corrective action being
goals and objectives about health and safety. taken. Also having full-time safety
461
personnel will somehow relieves the analysis and control, safety promotion, and
pressure on the on-site construction project personal protective equipment.
team (Koehn et al., 1995). Sawacha et al.,
(1999) further indicates that companies with 5.4.3 Measuring Safety Performances
effective safety committees are more likely to Safety performance measures are used
take steps that improve safety performance. primarily for comparisons among companies
This means that safety committees can play and supervisors. In addition, they are also
a positive role in the improvement of safety used as a means for pinpointing problem.
performance. According to Laufer and Ledbetter (1986), a
key factor in the control and improvement of
5.4.2 Planning and Implementing any performance aspect on site is the ability
Planning is a critical area in the control and to measure the performances. Measuring
enforcement of a safety program. It is a safety performances is important to check
process that prepares, creates, implements the effectiveness of various training methods
and monitors the safety programmed, and it also serves as an instrument in
thereby addressing the workplace health and choosing a contractor. There are various
safety through an organized, step-by-step methods of measuring the safety
strategy (CSAO, 1993). Planning starts with performances. Some of the common methods
the company's written health and safety are experience modification rating (EMR),
policy. It ensures that health and safety accident costs, frequency rate, behavior
efforts of all job-site personnel really work by based safety and OSHA recordable incidence
designing a programmed that translates rates.
policy into practice. Planning such as,
entails identifying the objectives and targets 5.5 Root causes affecting safety
which are attainable and relevant, setting performance
performance standards for management, There are various factors influencing safety
considering and controlling risks to all management in the construction industry.
employees and to other people who may be These factors can be grouped into people
affected by the organization's activities, and role, organization, management, technology,
ensuring documentation of all performance industrial relationship and so on. Due to
standards (Holt, 2001). The safety and differences in culture, management and the
health programmed covers a range of market structure, these factors have diverse
general safety procedures and practices. influence on construction safety. Table 2
Some of them are safety training, safety below shows the previous researches on
meeting, safety inspection, accident safety management.
investigation and reporting, job hazard
Table 2: Previous studies on safety programs
Area Items Relatives researches

People role Role of leaders Hakkinen (1995), Koehn et al., (1995), Levitt and
Parker (1976), Tam and Fung (1998) and Wentz
(1998).
Worker behavior Hinze (1981) and Yu (1990).
Organization and Training Gun (1993), Hakkinen (1995), Hale (1984), Krause
management (1993); Tam and Fung (1998);
Safety systems Hale et al., (1997), Hale and Hovden (1998), Hinze
(1981), Jaselskies et al., (1996) and Tam et al.,
(2001).
Apparatus and Equipment Jaselskies and Suazo (1994), Krause (1993);
equipment Larson and Field (2002).
Technology Technology Blank et al., (1997), Lingard and Holmes (2001)

control and Jannadi and Assaf (1998).
Industrial Market Safety Hinze and Raboud (1988); Kartam et al., (2000);
relationship regulations Gun (1993) and Seppala (1995).
462
5.6 Factors affecting site safety - Daily interaction between contractors’

Even though no two construction sites are safety officer and departmental safety in
similar, yet the followings are given an charge.
effective construction site safety: - Monthly safety meetings by each works
1. Site organization: A well defined manager of the contractor along with his
safety organization for contractors, safety officer with departmental group.
subcontractors and interface with - Sectional safety meetings for the
departments is vey essential. departmental and contractor employees.
Implementation of safety is a management - Quarterly project level apex safety
function, and therefore its ownership lies committee meeting.
with them. These managers are to be backed - Regular experience feedback among
up by competent persons in construction various agencies.
safety that provide expertise and supervision On the other hand (Tam et al., 2004),
of work environment and equipments such suggested the followings as constraints to
as lifting tools, plants, scaffolding. effective site safety: (1) Poor safety
2. Safety training: the objective is to awareness of firms top leaders; (2) Poor
ensure safe working condition, hence it is safety awareness of project managers; (3)
necessary to understand and implement Reluctance to input resources for safety; (4)
proactive training measures. This may be in Reckless operation; (5) Lack of certified skill
the form of pre-job briefing and talks in labor; (6) Poor equipment; (7)Lack of first aid
order to bring awareness to the contract and measures; (8) Lack of rigorous enforcement
departmental employees. of safety regulations; (9) Lack of
3. Job hazard analysis and work organizational commitment ; (10) Poor safety
procedure: the dynamism and complexities conscientiousness of workers; (11) Lack of
construction are unavoidable. These personal protective equipment; (12)
activities though planned, are carried out by Ineffective operation of safety regulation;
the work force which is skilled in the (13) Lack of strict operational procedures;
execution of work but lack of awareness of (14) Lack of experienced project managers;
safety requirements, overconfidence, (15) Shortfall of safety regulations; and (15)
complacency, at times leads to breach in Poor information flow.
safety requirement. Hence a regular
monitoring and surveillance program along 6. Research methodology
with coaching and meeting of employees
during execution becomes necessary to Questionnaires survey was carried out
correct the aberrations in safety within Penang State. Three 3 respondents
implementation. from (construction sites within Penang) were
4. Safety provisions and personnel involved in this survey and they respond to
protective equipment: even after the the survey positively. A check list of the
implementation of the safety requirements, most safety factors was adapted from Tam el
there will always be residual risk to workers. al., (2004) and used to assist in the
Thus as a good safety culture, all workers investigation during the site survey.
should be ensured to use the required
personnel protective equipment. These may 7. Result analysis and Discussion
include helmets, safety belts, safety boots,
hand gloves, goggles, fall arrester etc. Summary of the results and discussion
5. Safety meeting: in order to ensure presented below are based on the analysis of
proper coordination and communication on the 15 factors of affecting construction site
safety aspects on a periodical basis, it is safety.
necessary to have regular exchange of views
and experience as given below:
463
Table: Factors affecting construction site safety
No. Factors affecting construction site safety Mean Rank

1 Lack of training 4.3 1
2 Lack of certified skill labour 4 2
3 Ineffective operation of safety regulation 4 2
4 Shortfall of safety regulations 4 2
5 Poor equipment 3.7 5
6 Poor safety conscientiousness of workers 3.7 5
7 Poor safety awareness of firm’s top leaders 3.3 7
8 Reckless operation 3.3 7
9 Lack of first aid measures 3.3 7
10 Lack of organizational commitment 3.3 7
11 Lack of strict operational procedures 3.3 7
12 Poor information flow 3.3 7
13 Poor safety awareness of project managers’ 2.7 13
14 Lack of experienced project managers 2.7 13
15 Lack of rigorous enforcement safety regulations 3 15
Based on the respondents, they provide their safety regulation at construction site not pay
opinions on the importance of 15 factors full attention by all workers. The safety
affecting construction site safety. Based on regulation plays an important role at
the respondents’ rank, the lack of training is construction site. Everyone at construction
the most important factors to affect site must follow the safety regulation or
construction site safety. The mean of lack of rules. It can prevent all accidents, injuries
training is 4.33 which is the highest rank. and occupational illnesses though the
Training programs must provide for activities of every employees of a company.
workers. Both of them are rank agree and According to the Occupational Health and
strongly agree on this factor. Training Safety Regulation 2001- REG174ZD, as an
programs help personnel carry out a lot of occupier must ensure that the safety
activities effectively. Training programs equipment required controlling an identified
helps to ensure a safety, professional and risk in relation to the storage or handling of
fully qualified workforce. Safety training and dangerous goods, the equipment is provided,
orientation are necessary to provide at maintained and accessible to person
construction site. Supervisors and workers authorized to be on the premises. If not
need to understand the safety policy and apply the safety regulation in effective way,
procedures which related to their work. The it is easily to make accident at construction
second important ranks of the factors are site. All workers include supervisors follow
lack of certified skill labour, ineffective the safety regulation at construction site,
operation of safety regulation and shortfall then will be a very smoothly way to complete
of safety regulations which the mean is 4. the construction task and strongly to prevent
Lack of certified skill labour always being the accident occur. The number five
the hot topic of problems at construction site. important and agree by the respondents are
Certified skill labour need to pay with higher poor equipment and poor safety
salary if compare with unskilled labour. conscientiousness of workers with 3.66
Lack of certified skill labour, ineffective mean. Construction equipment is considered
operation and shortfall of safety regulation to be one of the important things at
are important to affect construction site construction site. Equipment at site should
safety. Certified skill labours are need for be fully provided. Safety equipment such as
some activities with high level skill such as goggles, helmets, eye-shields are prepared to
tower crane, scaffold erection and framework prevent accident. Helmets should be worn as
etc. If those equipment control by uncertified supplementary protection. Workers safety
skill labour without experience, any accident and public safety must be first in mind when
will easily occur. The other is ineffective company uses construction cranes or heavy
operation of safety regulation. Operations of construction equipment. Some equipment
464
not safety being uses will cause accident at construction site safety. For the poor safety
construction site. Poor equipment is an awareness of project managers and lack of
important issue. It can cause dangerous experienced project managers are queue in
accident happen. Workers should have number 13 with 2.66 mean. It means these
responsibilities to understand and apply the two factors not important to affect
safety equipment at site. They also need to construction site safety based on the
follow safe work procedure, helping new respondents. The safety awareness at
employees recognize job site hazards and construction site must be everyone’s
follow proper work procedures and correct responsibilities. Each person work at
unsafe work practice and unsafe conditions. construction site must learn and understand
Supervisors have responsible to instruct the safety policy and procedures. Lack of
workers to follow safe work practices and experienced project managers maybe
correcting unsafe acts and conditions. The important for handle the construction site
respondents rank that they agree on poor problems or management. Project managers
safety awareness of firm’s top leaders, need to understand and know that the
reckless operation, lack of first aid measures, construction safety management important
lack of organizational commitment, lack of at site. If happen any problem or people
strict operational procedures and poor injured at site, it will cause many problems
information flow which those are located at occur, the work will be stop and delay. At the
rank number seven important to affect last, the lack of rigorous enforcement of
construction site safety. It means that firm’s safety regulation is the last and not
top leader play an important role in important to affect construction site safety.
construction site safety management. The The respondent’s ranks disagree on the lack
personal factors of top leader maybe of rigorous enforcement of safety regulation.
influence the workers to follow up. If the top Many clients do not consider past safety
leader lack of knowledge to perform the work records of contractors in the tender pre-
properly, the workers would not know the qualification process.
leader do the correct or wrong choice, maybe
they just follow up. So the top leader such as 8. Conclusion
supervisor at site needs to perform the work While accident frequency is an objective
as well. Effective safety manager need to measure in safety-related researches,
manage in efficiency way such as display measures based on compliance with
strong safety attitudes at site. With a good procedures seems to be more appropriate for
basic understanding of the principles of work comparison between sites as is identifying
site safety and a belief in effective safety change when intervention programs are
programs planned by manager. A manager implemented. The following broad
also needs to incorporate job safety planning. observations can be made about the state of
Managers need to incorporate job safety the art of safety in the Malaysian
planning with considerations for necessary construction industry:
safety equipment and proper safe work at
construction site. While for the lack of first 8.1 Training
aid measures also need to pay attention. A greater percentage of operatives report
Mostly the first aid measures not take as that they have received no safety training
important prevent at construction site. Each from the main contractor. While managers
construction site must provide the first aid consider this safety training to be necessary
measures to provide for emergency use. Lack and indeed should be supplemented by
of organizational commitment need to further refresher courses, many believe the
cooperate by everyone at site includes the way it is currently carried out is primarily to
manager, supervisors and workers. "cover them" in case something goes wrong.
Organizational commitment has an Very few sites claimed to have a systematic
important role. The attitude, behaviours and in recruiting operatives, apart from the
performance effectiveness of employee can be certificates required for scaffolders, crane
influence by the organizational commitment. and digger drivers, etc. Thus it seems clear
Manager need to manage and learn how that for the majority of operatives the main
leadership styles affect employees at work way in which they achieve knowledge of the
place. Some respondents feel like disagree on risks of their work is through their
the lack of first aid measure will affect experience of work itself. Even where the
465
main contractor provides induction training, addressed. While some of these have
this is often perceived as a formality, to demonstrated success in the short term, a
protect the company, with little expectation common conclusion emphasizes the
that it would influence the knowledge and importance of sustained management
behavior of workers. The low level of commitment and activity in ensuring the
provision of safety training is particularly effective implementation of these programs.
worrying considering that a great percentage However, there is a lack of systematic
of the operatives report that they have research concerning the management of
worked in the industry for less than one safety in construction. Also, while there have
year. Thus their level of experience of the been some studies of attitudes and
risks associated with the job and of how to perceptions of construction workers towards
manage them may not be that great. Direct safety and safety management, they have
and vicarious experience of hazards may be not addressed the link between these
the main way of gaining knowledge of the variables and safety behaviors and
risks of construction and how to manage compliance with safety procedures. In
them. This is a reactive and potentially general note, the finding of this study
dangerous way of learning. reveals that accidents are the result of many
contributing factors, causes, and sub causes.
8.2 Safety management Some of the critical factors are unsafe
Both the management interviews and method, human element, unsafe equipment,
analysis of safety documentation indicated job site conditions, management, and unique
that whereas virtually all the sites had a nature of the industry. The causes of
safety plan, these were mostly generic accidents in Malaysia were found to be
documents that could be applied to any similar to that mentioned in literature
construction site. Thus, few contained a review. However, some of the causes are low
management structure with clear delegation in frequency of occurrence. The main cause
of responsibilities. Few contained safety of construction accidents found are lack of
statements from subcontractors. Although training, in effective operation of safety
half the sites had risk assessments which regulations, failure of workers to obey work
were site specific, in some of these not all the procedures, operating equipment without
relevant site activities were addressed. safety devices, poor site management, low
These documents played little or no role in knowledge and skill level of workers, failure
ongoing management activities and their to use personal protective equipments and
function appeared solely to meet legislative poor workers attitude about safety.
requirements. All sites conducted safety
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467
CRITICAL SUCCESS FACTORS IN CONSTRUCTION INDUSTRY IN

LIBYA
Abdelwahab Omran, Abdul Hamid Kadir Pakir and Abdelnaser Omran

School of Housing, Building and Planning, Universiti Sains Malaysia, Pulau Pinang,
Malaysia
naser_elamroni@yahoo.co.uk
Abstract generally relatively higher, and its trough

Performance of a project has always been an lower and both peaks and troughs tend to
important issue in the construction industry. precede their counterparts in a general
A critical success factors is something that business cycle (BPS, 2003). Over the past
the organization must do well to succeed. two decades, construction industry sectors
Critical success factors are very important have been experiencing chronic problem
cause influence that to project success. This such as low productivity, poor safety,
paper seeks to identify the major factors inferior working conditions and insufficient
influencing the success of the project, quality. These problems have been identified
particularly in construction projects in as factors that affect construction’s
Libya. A questionnaire survey was carried performance. Hampsons (1997) believed that
out to explore the most critical success factors construction performance affects
for construction projects. A sample of 35 productivity across all sectors of the
participants was involved in this study. As economy. Generally, problems in
results, it was revealed that, project construction can be divided 2(two) which is
understanding, cost and time estimate, External and Internal Difficulties. According
communication, adequate project control, top to Odeh and Battaineh (2002), External
management support, client involvement, factors were the lowest ranked group of
competent project team, problem solving factor by both parties. It seems that all
ability and authority of the project manager parties are familiar with these factors and
are ranked as higher critical success factors were able to deal with them effectively
in Libya. without causing any major delay. Al-
Momami (2002) indicated in his survey that
Keywords: Critical success factors, the major causes identified were: poor
Construction industry, Survey, Libya design, change order, weather, site
conditions, late delivery, economic conditions
1. INTRODUCTION and increase in quality.
Construction is an activity to build buildings 2. FACTORS EFFECTING OF THE

or constructions that are inseparable with PROJECT SUCCESS
their location. The result of construction
activities are such as building construction, Project success factors are those input to the
road, bridge, railway, tunnel subway, airport project management system that lead
building, dams and etc. This activity directly or indirectly to the success of the
includes planning, preparation, execution, project or business (Cooke and Davies,
demolition and repairing buildings and 2002). Belassi and Tukel, (1996), categorized
other constructions. The construction success factors into four main group. These
industry generally represents a significant are factors relating to the project managers,
share of the total economic activity of a factors relating to the project, factors
country with corresponding demand of relating to the organization and factors
materials, services and labour inputs. It is relating to the external environment. Chan
sensitive to the movements in the general et al., (2002) Identified a set of project
level of business activities; the movements success factors; project team commitment,
in the construction tending to both amplify contractor’s competencies, risk and liability
and lead those movements in the economy as assessment, client’s competencies, end-users’
a whole. In other words, its peaks are needs, and constraints imposed by end-user.
Shenhar et al., (2002), used multivariate
468
analysis method to identify project success basic criteria to project success, and they are
factors. They found that project success identified and discussed in almost every
factors vary with project type, they depend article on project success, such as that of
on high uncertainty or low uncertainty, and Belassi and Tukel (1996), Hatush and
that project managers must carefully Skitmore (1997) and Walker (1995,1996).
identify the factors that are critical to their Atkinson (1999) called these three criteria
particular projects. High – uncertainty the “iron triangle”. He further suggested
projects demand a specific focus on project that while other definitions on project
definition, milestones, design, management have developed, the iron
documentation, and policy and customer triangle is always included in the alternative
participation. Low–uncertainty projects need definitions. Pinto and Pinto (1991)
to focus more on formal and structured advocated that measures for project success
selection of contractors, budget monitoring, should also include project psychosocial
quality and managerial autonomy. outcomes which refer to the satisfaction of
interpersonal relations with project team
3. CRITERIA OF PROJECT SUCCESS members. Subjective measures such as
participant’s satisfaction level are known as
Project success means different things to “soft” measures. The inclusion of satisfaction
different people. Each industry, project team as a success measure is suggested by
or individual has its own definition of Wuellner (1990). Pocock et al. (1996) further
success. Over the last 10 years, a number of suggested including the absence of legal
researchers have shown intense interests in claims as an indicator of project success.
this topic. Munns and Bjeirmi (1996) This then calls for including “safety” as a
consider a project as the achievement of success indicator as well, since it is sensible
specified objective, which involves a series of to expect that if accidents occur, both
activities and tasks that consume resources. contractors and clients may be subject to
From the oxford Dictionary (1990), criterion legal claims, as well as financial loss and
is defined as a standard of judgment or contract delay in the construction project.
principal by which something is measured Kometa et al., (1995) used a comprehensive
for value. Lim and Mohamed (1999) approach to assess project success. Their
advocate a criterion as a principle or criteria include: safety, economy
standard by which anything is or can be (construction cost), running/maintenance
judged. The Oxford Dictionary further cost, time and flexibility to users. Songer
defines success as a favorable outcome or the and Molenaar (1997) considered a project as
gaining of fame or prosperity. When successful if it is completed on budget, on
combining these terms together, criteria of schedule, conforms to user’s expectations,
project success can be defined as the set of meets specifications, attains quality
principles or standards by which favourable workmanship and minimizes construction
outcomes can be completed within a set aggravation. Kumarasamy and Thorpe
specification. Pariff and Sanvido (1993) (1996) included a variety of criteria in their
consider success as an intangible perceptive study of project evaluation. These include
feeling, which varies with different meeting budget, schedule, quality of
management expectations, among persons, workmanship, client and project manager’s
and with the phases of project. Owners, satisfaction, transfer of technology,
designers, consultants, contractors, as well friendliness of environment, health and
as sub-contractors have their own project safety.
objectives and criteria for measuring
success. However, client may value other 4. METHODOLOGY
dimensions more. Albert and Ada (2004)
defined project success are dependent on As the primary objective of this study is to
project type, size and sophistication, project identify factors related successful project in
participants and experience of owners, etc. construction industry. This study was
In the early 1990s, project success was carried out using structured questionnaire.
considered to be tied to performance As stated by (Sekaran, 2003) questionnaire
measures, which in turn were tied to project is a popular method of collecting data
objectives. At project level, success was because researchers can gather information
measured by the project duration, monetary fairly easily and the questionnaire responses
cost and project performance (Navarre and are easily coded. The dependent variable for
Schaan, 1990). Time cost and quality are the this study is successful project management
469
in construction industry. This dependent collected information from the survey were
variable is measured using 13 items. The checked and verified for their correctness.
items are as follows: All items were rated The returned questionnaires were then
using a 5- point Liker scale with 1 analyzed using Statistical Package for
representing strongly disagree to 5 Social Science (SPSS); Version 11.5 for
representing strongly agree. The targeted windows software. Further, after keying in
population for this study was project leader the data into SPSS, a Relative Importance
and members from construction sector in Index (RII) was used to determine the most
Libya. The sample was project leaders and critical success factors (CSFs). The 5-point
members from Libyan construction Likert scale was converted to relative
companies. This study aims to collect a importance index for each factor, which
sample size of about 63 using purposive made it possible to cross-compare the
sampling as the targeted sample need to be relative importance of each of the factors as
exposed to project management. All the perceived by the respondents.
Relative importance index (RII) = 4n1 + 3n2 + 2n3 +1n4 +0n5

4N
(0 < RII <1)
Where N = Total number of respondent, 4= an atmosphere for achieving project success

highest weighted score (0, 1, 2, 3, 4) on scale (Hartman, 1996). Communication is not
of agreement (whereas n1 = number of only essential within the project team, but
respondents for Not Very important, n2= also between the team and the rest of the
respondents for Not Important, n3= organization and the client (Pinto, 1988).
respondents for moderately important, Further, in successful project the project
n4=respondents for Important and n5 = manager is not only strongly committed to
respondents for Very important. meeting project objectives, but also has the
authority to have control over developing
5. RESULTS AND DISCUSSION plans, making changes as required, and
fulfilling them (Chua, 1999). Consequently,
A critical success factors is something that a factor such as “Realistic cost and time
the organization must do well to succeed. In estimates” was ranked fourth. However,
terms of information system projects, a realistic and accurate cost and time
critical success factors is what a system estimates are critical to project success
must do to accomplish what it was (Chua, 1999; Pinto, 1989). The next factor
designed to do. Based on the mean value that considered as important CSFs in
criterion, the first ranking by the construction projects in Libya was “Problem
respondents’ as CSFs was project solving ability” and ranked as factor
understanding that is the major Critical number fifth. Regardless of carefully a
success factor in construction projects in project is planned, it is impossible to
Libya. It is important that the project team foresee every problem that could arise. It is
understand the project, particularly with vital that the project team is responsive
respect to project goals and objectives. and capable of taking appropriate action
Understanding the project mission is the when problems develop (Jiangand, 1996,
most important factors related to project Pinto, 1989). Followed by, ‘Project manager
success (Pinto, 1988). The factor “Competent authority” factor which is ranked as sixth.
project team” seems to be the second-ranked Factor like “project planning” was ranked
factor that is as CSFs in construction as the seventh critical factor. This is an
projects in Libya. The competence of the important factor that project manager;
project manager and project team members engineer etc should be taken into
is a critical factor for project success, consideration. In fact, the external factors
(Belassi, 1996). It is important that the which meant here are lack of materials
project manager and project team be on the market; lack of equipment and
selected wisely to ensure they have the tools on the market; poor weather
necessary skills and commitment to conditions; poor site conditions (location,
perform their functions affectively. ground, etc.); poor economic conditions
“Effective communication” was ranked as the (currency, inflation rate, etc.); changes in
third critical success factor. “Whereas, laws and regulations; transportation delays;
effective communication is vital in creating and external work due to public agencies
470
(roads, utilities and public services) and mechanisms give the project manager the
etc. “Adequate project control” are ranked as ability to anticipate problems, oversee
sixth factor followed by “resources” as the corrective measures, and ensure that no
ninth CSFs. “Top management support” has deficiencies are overlooked (Pinto, 1998).
been ranked the tenth CSFs. However, The eleventh CSFs appeared in our results
management support for has long been was external factor. Another critical success
considered of great importance factors were observed by the respondents
indistinguishing between success and was that project characteristics and it is
failure (Belassi, 1996) and (Pinto, 1989). ranked the eighth (see Table 1). The last
Project management i s dependent on top CSFs are Clint involvement and it is
management for authority, direction and ranked. However, in the project delivery is
support. Top management should make it important to project success, but this study
clear that the project is worthwhile and has shown that this kind of factor is ranked
that they support it, (Belassi, 1996) and by the respondents as the latest factor that
(Nicholas, 1989). Interestingly, many upper might be as critical factor in construction
managers are unaware of how their project in Libya. However, a research by
behavior influences project success Jiang, (1996) proved that such factor can be
(Graham, 1997). Additionally, successful considered as one of the priorities factor to
projects have good control and reporting be making the project a success. For
systems that provide adequate monitoring successful project the user must be strongly
and feedback that enables comparison of committed to the project goals and be
team performance and project goals (Gioia, involved in the project management
1996, Jian, 1996, Jaselskis, 1988). process (Kharbanda, 1996).
Adequate monitoring and feedback
Table 1. Ranking the most important Critical Success Factors in Libya
Factor RII Ranking

Project understanding 0.891 1
Competent project team 0.853 2
Communication 0.833 3
Realistic time and cost estimates 0.831 4
Problem solving 0.829 5
Project manager authority 0.801 6
Project planning 0.792 7
Adequate project support 0.788 8
Resources 0.781 9
Top management support 0.704 10
External factors 0.689 11
Project characteristics 0.674 12
Client involvement 0.661 13
6. CONCLUSION of a project and to identify the factors’

relative importance as the project journeyed
The project management process is complex, throughout the life cycle. This paper,
usually required extensive and collective therefore, identified the major factors
attention to a broad aspect of human, influencing the success of the project,
budgetary and technical variables. In particularly in Libya.
addition, projects often possess a specialized
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Graham, R. J., Englund, R. L. (1997) Creating an Pheng, S.L., Chuan, T. Q. (2006). Environmental
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Gray, C.F., Larson, E. W. (2002). Project International Journal of Project Management.
Management. McGraw-Hill, Boston. Vol. 24, p. 24-37.
Jaselskis,E.J., Ashley,D.B. (1988). Achieving Pinto, J.K., Slevin, D.P. (1989). Critical success
construction project success through predictive factors in R& D projects. research Technology
discrete choice models. 9th World Congress on Management . Vol. 32(1), p. 31-35.
Project Management, Glasgow, p. 71-85. Pinto, J.K., Slevin, D.P. (1988). Critical success
Jaselskis,E.J., Ashley,D.B. (1991). Optimal factors in effective project implementation.
allocation of project management resources for International Project Management Handbook.
achieving success. Journal of Construction Cleland, D. I., King, W.R. (Eds), Princeton, Van
Engineering and Management (ASCE). Vol. Nostrand Reinhold. p. 479-512.
117(2), p. 321-340. Project Management Institute (2000). A Guide to
Jian, J.J., Klein, G., Balloun, J. (1996) Ranking of the Project Management Body of Knowledge
System Implementation Success Factors. Project (PMBOK).
Management Journal. Vol. 27(4), p. 49-53. Sanvido, V., Parfit, K., Guvenis, M., Coyle, M.
Judev, K., Muller, R. (2005). A retrospective look (1992) Critical success factors for construction
at evolving understanding of project success. projects. Journal of Construction Engimeering
Project Management Journal. Vol. 36(4), p. 19-31. and Management (ASCE). Vol. 118(1), p. 94-111.
Kharbanda,D.C., Pinto, J.K. (1996)What made Sekaran, U. (2003). Research Methods for
Gertie gallop? Lessons from project failures. Business, 4th edition. John Wiley and Sons. p.249.
New York, Van Nostrand Reinhold.
472
IDENTIFYING THE KEY FACTORS THAT INFLUENCE DELIVERY OF

PROJECTS UNDERTAKEN BY LOCAL CONTRACTORS IN MALAYSIA:
A CASE STUDY
Abdelwahab Omran, Abdul Hamid Kadir Pakir and Abdelnaser Omran

School of Housing, Building and Planning, Universiti Sains Malaysia, Pulau Pinang,
Malaysia
Abstract
Many studies have been conducted to identify the factors influencing project performance that
contribute to either success or failure. These studies has concluded that success can be measured by
the budget and schedule performance, customer satisfaction, work experience, safety record, as well
as other subjective and objective factors. Project failure is due to various factors hence, the
objectives in this study are to discover possible solutions and propose ways to prevent future
occurrence of these problems. The reasons for project failures among local Malaysian contractors
should be viewed as challenges that need prime attention. Therefore, to ensure successful
completion of a project, the contracts awarding procedures need to be evaluated and appraised to
ensure that only the best contractor for the job will be appointed. The aim of this study is to
determine the key factors that influence delivery of projects undertaken by the local Malaysian
contractors in Malaysia. It will basically focused on identifying the internal and external factors
affecting the delivery of projects undertaken by the local Malaysian contractors and to identify the
intervention that can be applied to assist local Malaysian contractors to overcome their problems.
Keywords: Internal and external factors; project delivery, local contractors, Malaysia.
1. Introduction its performance on schedule (time), cost,

quality and no-dispute. A successful
The concept of project success factors is one completion of a project refers to a project
of the most widely researched topics in that is completed on time and meets the
project management (Ashley et al., 1987). required quality as defined in the contract
Many studies have been conducted to documents. (Abd Rahman et al., 2006).
identify the factors influencing project Delays or late deliveries, sub-standard
performance that contribute to either workmanship and materials, poor safety
success or failure. These studies has management on sites and cost over-run of
concluded that success can be measured by projects are some of the issues that are often
the budget and schedule performance, faced by local Malaysian contractors. (Abd
customer satisfaction, work experience, Rahman et al., 2006). Delay gives rise to
safety record, as well as other subjective and disruption of work and loss of productivity,
objective factors (Menches & Hanna, 2006). late completion of project increased time
The construction industry represents one of related costs, and third party claims and
the most dynamic and complex industrial abandonment or termination of contract. It
environment. Peurifoy and Ledbetter (1985) is important that general management keep
identified that the construction industry is track of project progress to reduce the
one that deals mainly with the conversion of possibility of delay occurrence or identify it
plans and specifications into a finished in early stages (Martin, 1976). Project failure
product. In developing countries, the is due to various factors hence, it is our
construction sector forms a high percentage objectives in this study to uncover possible
of the economy (Abdul-Rahman et al., 2006). solutions and propose ways to prevent future
In Malaysia, the report of DSM (2004) had occurrence of these problems. The reasons
shown in the third quarter of 2004, the for project failures among local Malaysian
construction sector contracted 3% compared contractors should be viewed as challenges
to a positive growth of 2.4% in the same that need prime attention. Therefore, to
quarter a year ago. In the present study, the ensure successful completion of a project, the
success of a project is measured in terms of contracts awarding procedures need to be
473
evaluated and appraised to ensure that only project dimensions; relevant experience, track
the best contractor for the job will be record, quality, expertise, capability, cost,
appointed. (Abd Rahman et al., 2006). The safety record, and capacity to name a few. In
aim of this research is to determine the key terms of the their importance in evaluating
factors that influence delivery of projects and selecting contractors, these studies
undertaken by the local Malaysian showed that no individual criteria or group
contractors in Malaysia. The establishment of criteria are consistently reported as being
of research aim helps in the formulation of more important than others. Hughes (1986)
the dissertation objectives. The objectives conducted a survey to identify the factors
are: that affect project performance. He
1. To identify the internal and external concluded that projects fail because of
factors affecting the delivery of projects improper basic managerial principles, such
undertaken by the local Malaysian as the improper focus of the management
contractors. system, by rewarding the wrong actions, and
2. To identify the intervention that can be the lack of communication of goals. Morris
applied to assist local Malaysian contractors and Hough (1987) studied eight large,
to overcome their problems. complex projects which had great potential
economic impact but were poorly managed
2.0 Literature Review and generally failed. They identified the
success and failure factors for each of them.
The construction industry represents one of They concluded that although their analysis
the most dynamic and complex industrial of success factors is aimed at large, complex
environment. Peurifoy and Ledbetter (1985) projects, they are also relevant to projects in
identify that the construction industry is one general. One of the first efforts to classify
that deals mainly with the conversion of critical factors was carried out by Schultz et
plans and specifications into a finished al., (1987) who classified factors as strategic
product. In developing countries, the or tactical. These two groups of factors affect
construction sector forms a high percentage project performance at different phases of
of the economy (Abdul-Rahman et. al., 2006). implementation. The strategic group
In Malaysia, the report of DSM (2004) includes factors such as "project mission",
showed that in the third quarter of 2004, the "top management support" and "project
construction sector contracted by 3.0% scheduling" whereas the tactical group
compared to a positive growth of 2.4% in the consists of factors such as "client
same quarter a year ago. The problem of consultation", "personnel selection and
delays in the construction industry is a training". In their follow-up work, Pinto and
global phenomenon and the construction Slevin (1989) identified success factors, and
industry in Malaysia is no exception. The their relative importance, for each stage of a
construction sector in Malaysia, a fast research and development project life-cycle.
developing country in South-East Asia has In a similar study by Pinto and Prescott
not escaped the problem of delays. In 2005, (1988) the relative importance of each group
about 17.3% of 417 government contract (tactical vs. strategic) over the project life-
projects in Malaysia were considered sick cycle was analysed. It was found that the
(more than 3 months of delay or abandoned) relative importance of success factors varies
(Abdul-Rahman et. al, 2006). The at different stages of the project's life-cycle,
importance of the criteria used to evaluate depending on the success measure used.
and select contractors or suppliers has been When external success measures are
examined under various industrial employed, planning factors dominate tactical
purchasing situations. These include the factors throughout the project life-cycle.
supply of professional management services Faridi and El-Sayegh (2006) reported that
and procurement of capital equipment and shortage of skills of manpower, poor
systems, for the delivery of large scale supervision and poor site management,
projects (Alsugair, 1999; Cardozo and unsuitable leadership, shortage and
Cagley, 1971; Dempsey, 1978; Dickson, 1966; breakdown of equipment among others
Hakansson and Wootz, 1975; Hatush, 1997; contribute to construction delays in the
Hensher et. al). The criteria included those United Arab Emirates. Hanson et al., (2003)
in which evaluators could gauge contractors examined causes of client dissatisfaction in
and their likely performance across key the South Africa building industry and
474
identified conflict, poor workmanship and they employ very few permanent staff,
incompetence of contractors to be among the usually less than ten employees. The
factors which would negatively impact conditions in developing countries present
project performance. The performance of additional challenges, which include,
contractors in Zambia is apparently below amongst others, the lack of resources for
expectation; it is not uncommon to learn of training contractors, such as funds, poor
local projects that have not been completed construction procurement systems and lack of
or significantly delayed. This poor management capacity and resources to equip
performance of many local contractors has managers to operate their business
huge implications in terms of their enterprises effectively and efficiently. In
competitiveness (Zulu and Chileshe 2008). regard to legal barriers of construction
For example, Dissanayaka and disturbing contractors’ development and
Kumaraswamy (1999) found that project growth, a commonly perceived constraint of
time and cost performance are influenced by micro enterprises is the labour laws which
project characteristics, procurement system, are said to raise the cost of employment
project team performance, client artificially prolong retrenchments or
representation's characteristics, contractor corrective action and do not allow for
characteristics, design team characteristics, adequate flexibility especially in wage
and external conditions. Similarly, Iyer and settings and the arrangement of working
Jha (2005) identified many factors as having time (Bhorat et al., 2002). As a result
influence on project cost performance. These enterprises feel a profit squeeze and impact
include project manager's competence, top on the willingness to create jobs.
management support, project manager's
coordinating and leadership skills, 3. Research Methodology
monitoring and feedback by the participants,
decision- making, coordination among Data is collected as secondary data consists
project participants, owners' competence, of literature review from references books,
social condition, economic condition, and local and international journals, published
climatic condition. Coordination among reports, online database and etc. This
project participants, however, was identified method had been chosen in this case because
as the most significant of all the factors, it is an ideal method for research with
having maximum influence on cost stringent time constraint. After the
performance. Interestingly, Love et al., secondary data i.e. journals, theses,
(2005) examined project time-cost newspaper and etc are collected, the raw
performance relationship, and their results data is reviewed and analysed. Here,
indicate that cost is a poor predictor of time internal and external factors that influence
performance. Elyamany et al., (2007) delivery of the projects undertaken by the
introduced a performance evaluation model local Malaysian contactors are identified.
for construction companies in order to
provide a proper tool for the company's 4.0 Results And Discussion
owners, shareholders and funding agencies
to evaluate the performance of construction The results and discussions are divided into
companies in Egypt. Further, Dlungwana two parts. The first part discusses the
and Rwelamila (2003) proved that internal and external factors that influence
contractors can be distinguished from each delivery of project undertaken by Local
other by variables such as the size of annual Malaysian Contractors. The second part
turnover, capacity and capability. The discusses the interventions that can be
challenges facing small and medium-sized applied to assist the Local Malaysian
contractors can be distinguished between Contractors to overcome their problems.
those that affect small-scale contractors and
those that affect medium-sized contractors. 4.1. Internal and External Factors
Some key features of small-scale contractors Influencing Project Delivery
are that they are largely unregistered,
operate in the informal sector of the economy The internal and external factors that
and have very little formal business systems. influence delivery of projects undertaken by
The small-scale sector comprises the largest Local Malaysian Contractors are divided into
percentage of total contractors, although several categories as shown in Table 1 and
475
Table 2. After identifying the main

categories of the internal and external Table 1: Seven main categories of
factors, other sub-items under those internal factors that influence delivery
categories are described. These sub-items or of projects undertaken by Local
sub -factors were created based on the Malaysian Contractors
collected data or information from critical
and comprehensive reviewing.
No. Categories
1 Financial factor
2 Managerial factor
3 Technical factor
4 Project management action factor
5 Project procedure factor
6 Project-related factor
7 Human related factor
Table 2: Four main categories of external factors that influence delivery of projects
undertaken by Local Malaysian Contractors
No. Categories
1 Economics factor
2 Legal factor
3 Political factor
4 Environmental factor
The complete statements of the factors and sub-factors are stated in Table 3 and Table 4.
Table 3: Internal factors
Internal Factors Sub-factor

Financial -credit rating
-capital supply
-insufficient cash flow
-rental
Managerial -productivity
-improper planning
-poor cost control
-site management
Technical -change in design
-delay in design
-design failure
-no advanced equipment or machineries
476
Table 4: External Factors

External Factors Sub-factor
Economic -material supply
-labour supply
-price increase in building material
-equipment availability
-inflation
-tariffs
Legal -contract clause
-regulations & codes
-drawing issues & approval
Political -delay in approval
-corruption
-change in law
Environment -weather
-soil condition
-environment impact
As results, the study have come out with the most critical external and internal factors that
influence the delivery of projects undertaken by local contractors in Malaysia, these factors are
listed accordingly to their degree of importance as shown in Table 5.
Table 5: Ranking the internal and external factors that influence delivery of projects
undertaken by local Malaysian contractors
Rank Internal External

1 Poor cost control Increase in price for material
and machinery
2 Improper planning Site condition
3 Site management Equipment availability
4 Change in design Material supply
5 Health and safety Drawing issuance and approval
6 Productivity Weather
7 Lacked of skilled workers Inflation
8 Delay in design Change in law
9 Estimation error Environment impact
10 Insufficient cash flow Tariffs
11 Credits rating Contract clause
12 No advanced equipment or Labour supply
machinery
4.2 Interventions that can be applied to with a sum of 216, changes in designs with a
assist the Local Malaysian Contractors sum of 206, health and safety with a sum of
to overcome their problem 205, productivity with a sum of 199, lack of
skilled workers with a sum of 197, delays in
Table 6 presents the key factors (internal) design with a sum of 190, estimation error
that influence delivery of projects with a sum of 185, insufficient cash flows
undertaken by local contractors with with a sum of 182, credit ratings and no
maximum value is poor cost control with a advanced equipments or machines with a
sum of 224. Then, it is followed by improper sum so 179, rentals and loan facilities with a
planning with a sum of 217 site management sum of 175 and designs failure with a sum of
477
163. The lowest value for key factors undertaken by local contractors is lack of
(internal) that influences delivery of projects experiences with a sum of 152.
Table 6: Ranking of Key Factors (Internal) That Influence Delivery of Projects

Undertaken by local Malaysian contractors
Factor N Su Mea
m n
Poor cost control 60 224 3.73
Improper planning 60 217 3.62
Site management 60 216 3.60
Changes in designs 60 206 3.43
Health and Safety 60 205 3.42
Productivity 60 199 3.32
Lack of skilled workers 60 197 3.28
Delay in design 60 190 3.17
Insufficient cash flows 60 185 3.08
Credit rating 60 182 3.03
No advanced equipments/ machines 60 179 2.98
Rentals 60 179 2.98
Loan facilities 60 175 2.92
Design failure 60 163 2.72
Lack of experiences 60 152 2.53
Table 7 shows the key factors (external) that tariffs with a sum of 187, contract clauses
influence delivery of projects undertaken by with a sum of 185, labour supply with a sum
local Contractors with maximum value is of 183, regulations and codes with a sum of
increase in price of construction materials 180, delay in approvals with a sum of 179,
and machineries with a sum of 205. Then, it corruption with a sum of 177, limited
is followed by site conditions with a sum of business relationship with a sum of 176 and
204, equipment availability with a sum of lack of knowledge on regulations with a sum
200, materials supply with a sum of 198, of 167. The lowest value for key factors
drawing issuance and approval and weather (external) that influence delivery of projects
with a sum of 197, inflations with a sum of undertaken by Local Contractors is exchange
194, change in law with a sum of 191, rates with a sum of 146.
environmental impact with a sum of 190,
Table 7: Ranking of Key Factors (External) that influence delivery of projects

undertaken by local Malaysian contractors
Factor N Su Mea
m n
Increase In Price Of Construction Materials & 60 205 3.42
Machineries
Site Conditions 60 204 3.40
Equipment Availability 60 200 3.33
Material Supply 60 198 3.30
Drawing Issuance & Approval 60 197 3.28
Weather 60 197 3.28
478
Inflations 60 194 3.23

Change in law 60 191 3.18
Environmental impact 60 190 3.17
Tariff s 60 187 3.12
Contract clauses 60 185 3.08
Labour supply 60 183 3.05
Regulations & Codes 60 180 3.00
Delay in approvals 60 179 2.98
Corruption 60 177 2.95
Limited business relationship 60 176 2.93
Lack of knowledge on regulations 60 167 2.78
Exchange rates 60 146 2.43
5.0 Conclusion 3. Cut down operating costs, work hard

and look for more contacts.
The construction industry is a complex 4. Reduce red tape with authority.
business involving a dynamic industrial 5. Improve system for quality control.
environment, various professional and non- 6. Improve communications and follow up
professional participants, as well as third on project progress.
parties with indirect yet substantial 7. Make quick and accurate decisions on
involvement in the project. There have been site.
many witnesses of project failures in the 8. Ensure proper planning of works.
industry, most of which fail to complete, or
were completed at a loss. This scenario 6.0 References
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some of the main issues often faced by local Abdul-Rahman, H. and Alidrisyi (1994) A
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have been conducted in topics related to a Fast Developing Economy: The Case of
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issue. It can be concluded that the internal Important Causes of Delay in Public Utility
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480
MANAGING CONSTRUCTION CONFLICT: A CASE STUDY OF PAN

PALACE PLAZA COMMERCIAL COMPLEX IN PENANG STATE,
MALAYSIA
Yeoh Keat Yew, Abdelnaser Omran, Abdul Hamid Kadir Pakir & Abdullah Mahmood
Abstract
Normally every project in the construction industry encounters conflict at the very beginning of the
project, which is at the inception stage till the project commissioning and handover. Therefore, it
is important to identify the factor that lead to conflict and the impact it bring to the construction
industry. While all this factors of conflict are indentify, a great many destructive conflicts have
arisen which could be managed effectively. If all deadlines were met, if all claims are paid in full
and on time, if all specification are followed, if all claims were reasonable and honest, if
expectation were realistic and if the people involved communicate with accuracy and complete
understanding, with a willingness to be flexible and to seek solutions to problems that would
benefit all concerned, conflict within the industry should be avoidable. Of course, with so many
imponderables and human nature being less than perfect, some degrees of conflict is inevitable. In
view of such conflicts that may arises, the project report describe in details the factor and impact
of conflict toward a project, and method to manage the conflict in a project such as the case study
of an on-going project. A case study of a nine story shopping complex in Taman Lip Sin located in
Penang has been discussed and factor that lead to conflict such as inadequate resources, late
payment, inexperienced site personnel, lack of supervision, coordination problems, decision
making, contract duration, discrepancies in construction drawing, fluctuation of price and
peoples’ interest with such conflict arises in this study.
Keywords: managing construction, conflict, Pan Palace Plaza, Commercial complex, Pinang,
Malaysia
manager, quantity surveyor, supervisor and
1. Introduction subordinates to safeguard the interest of the
company in a project. A number of
In the 21st century, the construction researchers and practitioners in project
industry had gone through a few cycle of management have reported that there is an
evolution. The recent change in the increasing trend in the use of cross-
construction industry was thirty years ago functional project teams because of the
such as the tendency of the economic to dynamic nature of today's projects and their
swing alternately between period of boom life cycles (Kezsbom, 1992; Ranney and
and recession, emergence of claim Deck, 1995). More and more, conflict is being
consultants to handle discrepancies, perceived and accepted as inevitable in such
procurement method available, hierarchy of a stressful project-oriented environment.
contractors relationship with sub Project managers should therefore be able to
contractors, expectation of clients and mode identify the sources of conflicts and apply
of payment and credit term. This change can appropriate resolutions in today's project
cause conflict and have impact toward the environment. Tjosvold (1991) and Deustch
project. Changes can be viewed from a (1994) suggest that when conflict is
number of perspectives such as the increase appropriately managed, it could be
in the incidence of conflict between parties constructive and even add substantial value
involved in the construction industry and to an organisation. They, and a number of
construction companies had evolved to be other Western researchers, have written
mange by not only individual but a whole much about how to effectively confront and
project team members comprising of project resolve the various types of organisational,
manager, project engineer, contract task-related or personal conflicts (Kezsbom,
481
1992; Tjosvold, 1991; Deutsch, 1994; objectives: (i) To identify factors that lead to
Thamhain & Wilemon, 1975; Rahim, 1986; construction conflict due to progress claim,
Gupta & Wilemon, 1998; Amason, 1996). Interaction on site, coordination of site work,
The form of contract had change to become sequence of trade to proceed then followed
more one sided, i.e the Department of by other trades, contracts, technical
Engineering (JKR 203 Contract that side the specification, method of construction and
authorities, the PAM Contract that sides the completion of project on time. (ii) To
consultant and the CIDB Contract that side examine the impact of conflict toward the
the contractor. Although, many types of project whether does it bring advantage or
contract had emerged until today, the disadvantage to the project? The impact
traditional standard form of procurement toward a project brings tremendous change
which are still been used which is the PAM to the project outlook and output. (iii) To
Contract. Furthermore, new contracts have study method used to mitigate the impact of
proliferated that the experienced construction conflict on the project and how
practitioner likes the consultants, the conflicts are managed in a project.
developers, contractors and sub-contractors
and also the supplier have become uncertain 2. Methodology
of the terms embodied in the standard form
of contracts. Every player in the The selected project was started in January
construction is still trying to safeguard their and completed in March 2007. It involved
interest in their dealing with knowledge, the construction of a nine story building
experience and contracts that bind the work comprise of a three level basement car park
together. Conflict does emerge in every and six level shopping complex in Taman
single project which may be due to site Lip Sin located in Penang Island
problems, coordination, management, (Malaysia). The study was tried to describe
financing, site personnel’s affair on site and the conflict at a project site and method used
the quality of work on site. Conflict that to manage the conflict effectively on site
occurs on site especially within this case without hindering the progress work on site.
study was due to the method of construction For the initial observation, is to study the
during the initial stage (foundation and sub- source of conflicts in a construction industry
structure), this is because the three story and the type of conflict that occur ranging
basement was constructed by constructing from the mild to the severe cases that can
the center portion of the basement structure jeopardize the entire progress on the job site.
and finally the retaining wall. This is a new Once a conflict had been identified, a
method of construction and created conflict detailed analysis is performed to determine
on site due the method used. Along the the human involvement in the conflict.
construction process, conflicts are causes by Effective measures must be taken to either
time, financial, quality and human factors. avoid or resolving the conflicts. A well-
This has prompted me to analyze in detail planned strategy and tactic must be
the causes of conflict, impact of conflict produced to solve the conflicts on the job
toward the project and method to handle site. For the final stage, is to formulate an
conflict effectively. Conflicts on site are effective construction management
unavoidable and every project has their own technique in handling conflict in the future.
set of conflicts. Question that arises when It also equips the project manager to handle
analyzing conflict in a project are as follow: conflict efficiently with the three core
 What are the causes of conflicts in a qualities in mind this is time, cost and the
project? quality. An improved set of guideline on how
 What kind of impacts that the to manage a conflict in the construction
occurrence of conflict bring in a industry are produced as a guideline for all
project? future project manager in the construction
 What are the methods used to industry. Details on the project where the
mitigate conflicts in a project? case study was carried out, is shown in
Based on these questions, this paper is Table 1.
attempted to explore the following
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Table 1: Project information
Client consultant team member

Client Bukit gambir land Sdn Bhd (BGL)
Architect Architect BK Lee (BKL)
C&S Engineer Jurutera Perunding Cescon (JPC)
M&E Engineer Han Yang Consultancy (HYC)
Main contractor Langkah Kemas Construction (LKC)
Sub-contractors
Foundation Soil Mechanic (SM)
Earthwork Amasser Construction (AC)
Carpenter Loh Yam Seng (LYS)
Bar bender Tan Chin Seng (TCS)
Masonry Law Tek Leong (LTL)
Soil Nailing Great Soil Eng (GS)
Plumber Ban Hong (BH)
Infrastructure Boon Yong Lee (BYL)
Landscape Eng Hor Nursery (EH)
Interior designer Adbantec (ID)
Nominated sub-contractors
Electrician Emas Jaya Electrical (EJE)
Aircon & ventilation ITS Technology (ITS)
Fire fighting Conquest Engineering (CFE)
Lift and Escalator Thyssenkrupp (TKE)
Genset supplier Hong Seng Power (HS)
Suppliers and dealers
Concrete supplier Hanson Concrete (HC)
Sand supplier Tech Quarry (TQ)
Tiling supplier White Horse (WH)

3. Analysis and discussion of the case upset and even able to help you keep your
study team on track with deadlines. And your loud
co-worker might not even realize that he is
Conflict at work site such as many case broadcasting his personal life all over the
studies may seem like something to avoid. office and might just thank you for pointing
But it does not have to be. By learning how it out. Conflicts consist of two major
to manage conflict effectively, you will create components – the issue at hand and the
better relationships, open yourself up to new relationship between those involved. You
alternatives and enhance your overall job might find that you repeatedly knock heads
satisfaction. Consider the scenario with your with someone in the office over seemingly
workers. If you have an open and honest trivial matters. Unless the relationship
discussion about what sidetracked the big component is addressed, conflicts only
project, chances are he or she will be less remain idle until the next issue arises.
483
Case Study Discussion and Analysis
Foundation (Case 1) LKC and SM plan to discuss matters privately. They have decided on a specific time and place to meet, preferably
on neutral ground such as the case of the sub contractors cannot meet eye to eye with the main contractor.
Finally, they planned to keep any issue pertaining to conflict privately until LKC had a chance to discuss and try
to resolve it. Be willing to compromise. As LKC and SM approach the situation, they recognize that both of them
have something at stake. They find ways to meet in the middle, if necessary such as this case study were the
dispute is due to cost budgeting. Compromise is most effective when each person feels right, to a certain degree,
despite differing opinions. Before negotiating a compromise, make clear which issues are negotiable and which are
not.
Foundation (Case 2) Acknowledge the problem at hand which is the welfare of workers working on site is not taken care. Effectively
managing a conflict at site requires facing up to it because the problem will not just go away such as the basic
amenities are not provided for workers. Ignoring a conflict won’t make it go away but will worsen the situation
where the worker are reluctant to work. LKC knew that and acknowledge the problem at site and are prepared to
spend a bit to ease the burden of workers. Conflict raise awareness of what is important to individuals especially
the workers and this make Langkah Kemas Construction (LKC) aware of the needness of basic amenities at site.
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All team members are working for their self interest in a project such as LKC is trying to save cost in a manner
that jeopardize others. This lead to a degree of selfishness of LKCI but if LKC are brought to the table to discuss,
then LKC might be aware that their interest are second compare to the on going project.
Foundation (Case 3) Conflict requires creativity to find the best outcomes such as the lack of water supply at site resulted in LKC
484
outsourcing from the nearest water source. Communication and discussion regard the inadequate of water usage
at site between team members may lead to argument and sometime conflict on the discussion table. But
brainstorming on the table creates ample solution to a problem they may be discussed by all the team members
such as outsourcing water from the nearest water source.
Foundation (Case 4) Discussing conflicting views between LKC and AM can lead to better solutions. Certain conflict matters between
4 – 5 JUNE 2010
project team members may turn out to be a sore point in the construction progress but in the end everyone is
working toward the interest of the project. Such as AM could not agree to the method of construction but LKC
stated that excavation work can be carried out in three stages and no LAD will be imposed. At the same time. AM
allow the usage of excavator for pile cap excavation free of charge.
Excavation (Case 5) LKC have to focus on the issue although TH is not keen to carried out the job due to complication. If the problem
is complex such as the team member such as TH is not working with the project team members, focus on one issue
at a time. In fact, most conflicts have several components. Break the problem down so that a satisfactory
resolution won’t seem unattainable. Such as to excavate a trench first to attain the soft ground then allow TH to
drive the sheet piles into the ground.
LKC able to keep their emotions in check. It’s understandable that LKC might get emotional if LKC have
something at stake such as the sub contractors does not want to cooperate or give hard time to the main
contractor. But venting your emotions may only prevent you from expressing your views logically. Anger, for
example, often leads to a negative and destructive conversation. If a situation becomes explosive, wait for another
opportunity to discuss the matter. Therefore, LKC take a further step to create an opportunity for TH to carried
out the job and make TH feel that LKC is a contractor that does care for the sub contractors.
Construction of Sub- LKC accept personality differences such in LYS not wanting to cooperate when problem arises. LKC might find
structure (Case 9) themselves repeatedly clashing with the same person over minor issues such as LYS. LKC might have to accept
that they have a personality conflict in hand. It’s harder to let the little things go when LKC don’t particularly like
a person like LYS. But, LKC try to keep the differences from negatively impacting LKC working relationship. The
bottom line is, LKC have direct control over a LYS’s behaviours and opinions and can be tactful LYS. LKC choose
to focus their energy on how LKC can speed up the job to prevent an unpleasant situation in the future.
Construction of sub- Conflicts are challenging and exciting such as the delay in confirmation of the architecture finished by BGL will
structure (Case 12) delay the site work. This will create conflict due to delay in time. Activities on site are always very demanding and
the interaction of site personnel among themselves is very heavy. The interaction between BGL and LKC is very
important to confirm the shop drawing. Demand on site are also very demanding and this require the site
personnel to be able to sort all problems on site without creating a friction among themselves. For example:
architecture finished confirmation.
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Architecture Work BGL understand that work had been done already, no point to blame any of the project team members now. BGL
(Case 14) and LKC will brainstorm on method to put shop lot signage’s due to the ceiling headroom is too low.
The floor finishes have to be decide as to award the tiling work to which supplier and sub contractor. BGL and
LKC brainstorm on the pros and cons of the tiling grade and decide on the most analytical approach they can
485
obtain.
Architecture Work This conflict arises because AS are confidence of getting LKC’s director support. AS do not respect LKC’s site
(Case 15) personnel although they ask for endorsed shop drawing for comparison. Whatever LKC’s site personnel request, it
will fall into deaf ear of the AS’s representative. Finally, JPC inspected the roof truss and not satisfied with the
roof truss design at all. JPS commented that they are not comfortable to certify that the roof structure is safe and
4 – 5 JUNE 2010
sound. This matter arises because there was no mutual respect between LKC and AS site representative. This
resulted in AS having to bear the total cost loss and have to satisfy JPC and LKC and BGL that the roof truss is
safe and sound.

4. Case Study Analysis and Discussion
Scope of Work Conflict Description Factor of Conflict Impact of Conflict Managing Conflict
Foundation (Case 1) 1. Awarding of contract to Misunderstanding Time Communicate With
undertake the 1. LKC feel that they have 1. Delay in work Precision
construction bore piling awarded the job for a high commencement. 1. LKC meet up with SM
(foundation). The LKC price to SM. 2. Trust between at SM office to show
initial wanted to award 2. Beside that SM insisted to LKC and SM become sincerity and discuss on
the foundation work to use two piling frame to something the outcome of job on
SM at an agreed price. complete the job in three questionable. site.
When SM wanted to (3) month and this 3. As discussion is 2. LKC renegotiate every
commence job on site and resulted in a VO to LKC. needed to come to a item stated in the work
mobilize equipment to 3. LKC ordered SM to agreeable ground, order and come out with
site, LKC immediately remove all site machinery time is wasted and a proper solution that is
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issued a stop work order from site pending final also result into to create a win-win
to SM to stop work. LKC discussion with SM or fluctuating cost. situation for both parties.
wanted to discuss the LKC will take legal action 3. LKC then come out
pricing and duration to to remove SM from site. with a solution top
486
complete the job again provide material for the
before allowing SM to construction of
commence job. foundation and SM with
provide machinery and
labour to finish the job by
4 – 5 JUNE 2010
early February 2005 due

to CNY around the
corner.
Foundation (Case 2) 1. SM mobilise machinery People Time Look for Common
and labour into site to 1. Accommodation provided 1. Create Ground
commence work. SM by LKC to SM. Inconvenience to 1. LK allow SM to put
requested LKC to provide 2. Makeshift toilet not the worker up containers to

accommodation and basic provided for SM worker working on site. accommodate SM’s
necessities for SM worker on site. 2. Workers workers on site at SM
to stay. 3. LKC promise to look into dissatisfied with own cost.
the problem and state the welfare on 2. LKC will construct a

that the SM’s workers site. Resulted in makeshift toilet to
should not stay on site the workers allow SM’s workers to
after work. reluctant to work. all basic necessities on
site.
3. LKC and SM agree
that the workers
staying on site will
follow the curfew at
10.00 pm and no
visitors are allowed to
come into site.
Foundation (Case 3) 1. The construction of Slow in Decision Making Time & Cost Address the Conflict
bore pile foundation is 1. SM requested LKC to
using the method of provide more water to 1. Delay in the 1. LKC brainstorm for
reverse water carry out these method of construction of alternative to the
circulation that construction for bore bore pile. water crisis.
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require the usage of piling. 2. Have to spend 2. As a result, LKC

adequate water to bore 2. LKC ask SM to use the additional cost to outsource water from
a hole into the ground water that are provided buy water to the nearest concrete
487
at a length of average by the utility company carried out the plant to supply
35m. but SM said that the job. Cost for work 100m3 of water to
2. By using the tap water water is not adequate to on site increase site daily by concrete
is not enough to bore a use. slightly. work.
hole into the ground. 3. SM suggested to LKC to 3. This make SM
4 – 5 JUNE 2010
Therefore an use the fire hydrant happy to carried out

alternative is needed water to construction site. the job and LKC and
to carry out the job. LKC decline and SM say demand that SM
that with this current complete the job on

water supply provided, site or earlier.
they are unable to finish
up the job on time.

Excavation (Case 4) 1. The negotiation of unit Contract Duration Time Be Honest and
rate and quantity for Understand
the excavation work 1. The method of 1. AM not satisfied
because the excavation construction that AM with the rate they 1. LKC suggested that
work involves four (4) cannot agree to because it are given to carried the duration of
stages for excavation involve to many stages of out the job. excavation work to be
work. work to be done. 2. To do the job in divided into four sub
2. Stage 1 - centre portion 2. AM also could not agree good faith and not to contracts under the
3. Stage 2 – Front portion to the contract amount ruin reputation in the main contracts. This
4. Stage 3 – Left and Back suggested by LKC construction market. will give advantage to
Portion because the duration to 3. Time wasted on AM to complete the
5. Stage 4 – Right and complete the excavation the discussion table as excavation work stage
Back Portion work as a whole is too time is critical to get by stage.
Discussion on the method of long. the project going. 2. On the unit rate, LKC
construction with the usage AM do not want the LAD to be allow AM to quote 3
of sheet pile as temporary part of the contract because different rate for the
earthwork protection. the excavation work method is 10m excavation such
suggested by LKC and AM is as the first 30m is
not comfortable with it. RM2.00, 3m-6m is
RM7.50 and above 6m
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is RM8.00 AM is
comfortable with this
rate and allow the
488
usage of excavator for
excavation of pile cap
at Free Of charge.
3. This creates a win-
win situation for both
4 – 5 JUNE 2010
parties.
LKC believe in AM that
they will not delay the
excavation work on site

because AM has a
reputable track records.
Construction of Sub- 1. The construction of Coodination Problems & Cost Look for Common
structure pilecap and slab for Misunderstanding & Ground
Excavation (Case 5) Basement 3 have to be People 1. Subcontractors
constructed in stages are not satisfied 1. LKC quickly called for
and not in a single cast. 1. The stages of work of the with the method a daily meeting to
2. As per figure attached sub structure had created diffuse this matter on
below, due to the a conflict between the of construction site.
method of construction, sub contractors and the 2. LKC explain to the sub
the pile cap and slab are main contractor. 2. Argument created contractors that this
cast in stages. This does on site between stage of construction is
hamper the job progress 2. The carpenter, LYS LKC and LYS. part of the job and the
on site but on the other complained that stages of Bad relationship. sub structures are
hand, there are cost construction method had completed.
saving. make him not being able 3. Material used 3. LKC reassure the
to make and meet due to excessively and subcontractors that
the work on site does not this resulted in their profit can be gain
measure with the wages wastage. when the pile cap and
that he have to pay his basement 3 slab are
worker. As a result, he is completed as a base is
making loss. needed for the
construction to gain
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3. The masonry, LTL had composure.

also said that the LKC need to work out a
construction. Method daily schedule to inform
489
applied by the main the subcons of the trade
contractors is not that will be performing a
economical and slow week and update on a
down the work progress daily basis.
on site. 5. LKC also make sure
4 – 5 JUNE 2010
every trade have a job to

4. The bar bender, TCS said
do daily to make sure
that his workers on site
workers on site are not
are not able to work on

cut off from their daily
the daily basis because
wages.
the sequence of
constructing the
basement involved many
trade to constructed a
pile cap and slab.
Construction of Sub- 1. LKC calculated the Fluctuation in Price & Time & Cost Recognize and
structure quantity of formwork Inadequate Resources 1. Due to Understand Issues
Excavation (Case 9) material needed on site 1. LYS keep on asking LKC insufficient of 1. LKC scout for
and ordered this to order formwork material on site, materials on site and
material based on the material to site and LYS has to informed of the
quantity calculated. demanded that the utilize all outstanding materials
2. LYS keep on asking material to be delivered resources on site that can be
LKC to order formwork to site ASAP. available on site. used to construct the
material to site to 2. LKC explain that the 2. This causes delay formwork for the
construct formwork. material on site is to the project. structure.
3. LKC in a dilemma on sufficient to construct the 3. LKC have to 2. LKC also hold a
where is all the formwork for the decide whether meeting with LYS to
formwork materials structure. to order check on the material
LKC ordered as the 3. LYS said that the construction delivered to site and
material on site seem to material on site has been material to site compare with the
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be not enough to used for different or utilize the material needed to

construct the structure. measurement and they available construct the already
have to construct new resources. completed structure.
490
formwork for the 4. LKC do not trust 3. LKC found out that
structure. LYS in handling LYS had been using
4. LYS said that if LKC do of materials. new formwork
not order the material to Therefore, LKC material to construct
site, LYS will ask his did the quantity formwork structure
4 – 5 JUNE 2010
worker to stop work as calculation and and not recycling the

there are no materials to order formwork material on
work with. accordingly. site.
4. LKC reminded LYS

to be more attentive
and responsible in
utilizing the
formwork material on
site.
Architecture Work 1. Confirmation of ceiling Misunderstanding & Quality Do Not Dispute
(Case 12) board, either 2” x 2” or 2” Values 1. The ceiling height Trivial Matters
x 4”. 1. The typical floor height become lower 1. BGL finally
2. The height of the ceiling from floor to floor is actually than expected. understand that
is discussed as the ceiling 4.1m. After taking into there are no points to
clearance after taking consideration of the beam blade anybody for the
into consideration of all soffit, aircon ducting, clearance height.
the fitting are installed at sprinkler head, plumbing Because, blaming
the soffit of the slab is and electrical point, the will not bring us
only 2.7m for the typical clearance from floor finish nowhere.
floor and the ground floor to ceiling is only 2.7m. 2. BGL gave a memo to
is only 3.2m. BGL not 2. This makes BGL not happy LKC to take not of
happy with the height with the consultants and any unique or
clearance. LKC. BGL blame discrepancies in the
consultants for not paying shop drawing.
ICEA - FAA 2010
attention to this matter. 3. BGL will deal with

3. BGL asked the consultants the consultants when
to compensate for the the project is finish.
491
mistake make and the 4. BGL called for a
consultants blamed LKC meeting with the
for not informing them of consultants and
this situation. main contractor to
4. LKC asked for a fair solve this dispute
4 – 5 JUNE 2010
judgement because and finish up the job

consultants are the one that earlier.
prepare the shop drawing 5. BGL will think of
for construction. ways to minimize the

effect of low ceiling at
the typical floor.
Architecture Work 1. AS construct the roof Inaccurate Shop Drawing Time & Quality Look for Common
(Case 14) without submitting a & Misunderstanding 1. The roof Ground
shop drawing to LKC and 1. AS think that due to their construction 1. The dispute between
JPC to confirm. relationship with the top causes delay to BGL and LKC was
2. LKC had reminded AS to management of LKC, they the whole project bring to the table to
submit proposal for the can do what they want on by 1 month. discuss with the
roof construction but AS site. 2. The roof could not presence of JPC.
did not take note on this 2. JPC inspected the site and be completed by They agree to ask AS
matter seriously. was no satisfied with the the time the to provide
3. AS caused delay in the roof design because it did escalators and satisfactory shop
construction of the roof not follow JPC’s proposed lifts arrived on drawing with a PE
truss and this make LKC drawing. JPC issued a site. endorsement for JPC
not happy and refuse letter to LKC to follow 3. Dispute between to evaluate.
payment to LKC. specification given. LKC and AS due 2. LKC then meet up
3. LKC that instructed AS to to the delay and with AS to request
provide shop drawing to documentation. AS to provide
satisfied JPC but AS could 4. JPC reminded documentation and
not get the drawing ready BGL that LKC to come up with a
due to some technical does not follow final account in
problem. specification. favour of LKC. LKC
4. There was a delay in the 5. BGL delay will pay AS a final
ICEA - FAA 2010
completion of the roof truss payment to LKC amount and taking

and roofing material and LKC delay consideration into
payment to AS. the problem that
492
arises due to AS
negligence.
3. AS come up with a
reduced claim
amount from the
4 – 5 JUNE 2010
original amount and

LKC is satisfied to
pay them in goodwill
basis.
4. Therefore, LKC AS
LKC went and BGL
look for a common

ground to solve
problem.
Architecture Work 1. The road widening Coordination of Work Time Communicate with
(Case 15) cannot be done because 1. LKC had the interest to 1. It because delay Precision
of the existing utilities finish up the infrastructure to the road 1. LKC went to
and trees along the work and BYL had the widening and approach the person
affected stretch. obligation to carried out the resurfacing in charge in the
2. LKC had to apply to the road widening. process. authority and tell
authorities to relocate 2. LKC asked BYL to help in 2. BGL not happy them the reality of
these utilities and trees chasing the authorities to with the delay in the road
before road widening can relocate the utilities but infrastructure widening will affect
proceed. BYL do not have the progress that the publics’
3. LKC and BYL discuss capabilities to handle the LKC promise to convenience using
this matter with the authorities. carried out. the road.
authorities and this will 3. The authorities are very 3. Each day waiting 2. BGL make a
take time for approval. slow in the relocation for the authorities proposal to relocate
4. LKC do not have the because of too many red to approve the the trees to the
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time to wait and have to tapes involved. relocation will nearest community
make a decision on this 4. The environment of process make BGL and field to preserve the
matter. makes it hard for LKC and LKC loss tome trees. BGL will also
493
5. BYL requested that LKC BYL to carried out the job. and increase relocate the cables by
assist in the relocating of overhead cost. lowering the cables
utilities for road into the ground and
widening. protect the cables
from exposure to the
4 – 5 JUNE 2010
public.
3. BGL, LKC and the
authorities look for
common ground to
solve this matter.
5. Conclusion and Recommendation address issues pertaining construction

conflict. The contract should be fair to
It can be concluded that conflicts are both parties and the current contract used
causes by money, time, quality, honesty should go through a reform. We need to be
and people toward the best interest of the innovative in the field of preparing
project. As a result, we found that the contract documentation to ensure that
greatest emphasis should be placed on the conflict is avoided whenever possible.
prevention of conflicts. The most difficult
conflict that arise involved people. 6. References
Therefore, it could be recommend that the
people involved directly or indirectly in Amason, A.C. (1996). Distinguishing the effects
the project to be reduce such as using the of functional and dysfunctional conflict on
strategic decision making: resolving a paradox
method of Build, Operate, Transfer
for top management teams. The Academy of
procurement method (BOT) as the society Management Journal, 1996, 39(1), 123-148.
is moving into the new era of VISION Defence Management Journal, 11(3), 29-40.
2020, this recommendation will come Deutsch, M. (1994). Constructive conflict
timely as society change to adapt to new resolution: principles, training and research.
environment. Education plays an Journal of Social Issues, 50 (1), 13-32.
important part to teach the professionals Gupta, A.K. and Wilemon, D. (1988). The
and people in the construction industry Credibility co-operation connection at the
which aim to reduce conflict in R&D-marketing interface. Journal of Product
Innovation Management, 5, 20-31.
construction. The universities and colleges
Kezsbom, D.S. (1992). Re-opening Pandora's
are teaching the new generation of
box: sources of project conflict in the `90s.
construction graduates a better way of Industrial Engineering (USA), May, 54-59.
working. These graduates will be leaders Rahim, M.A. (1986). Managing Conflict in
and managers of tomorrow in the Organizations. Praeger Publishers, New York.
industry. Therefore, it can be Ranney, J. and Deck, M. (1995). Making teams
recommended that those who have been in work: lessons from the leaders in new product
the industry for some time to share their development. Planning Review, 23(4), 6-12.
experiences with those graduates who Thamhain, H.J. and Wilemon, D.L. (1975). The
effective management of conflict in project-
have theoretical knowledge in new
oriented work environments.
construction industry and to exchange
Tjosvold, D. (1991). The Conflict Positive
ideas for the better of a new society Organization: Stimulate Diversity and Create
generally and construction industry. The Unity. Addison Wesley.
form of contract can be modified to
494

ONLINE VS. OFFLINE VS. MIXED PARTICIPATION FOR BETTER

GOVERNMENTAL POLICY-MAKING
OPREA Radu Adrian;

PhD Candidate 2011, Dunarea de Jos University;
Founder of “SMART Method of Public Policy;”
office@public-policies.org
SARPE Ancuta Daniela;

PhD, Dunarea de Jos University;
d_sarpe2000@yahoo.fr
Abstract project referral. It will just sum up the

The purpose of this paper is to find the theoretical and practical functionalities of
characteristics of a better participation model the new citizen engagement model.
that would generate stronger leverage in the
decision-making process. The objective is to The study of SolveNet is important, to give
analyze the advantages and disadvantages of the participation efforts of every-day citizens
online, offline and mixed participation greater leverage to their constructive ideas,
models, given relevant literature available, in order to generate more community action.
real world examples and theoretical In doing this, the paper is framing the
predictions. characteristics of a participation method
that would achieve efficiency of time and
Key words: online, offline, participation, costs to participate and at the same time an
policy-making, decision-making. increased effectiveness.
1. Introduction The answer to this matter will be sought

after carefully analyzing relevant literature
The “great thing” about a better about participative democracy, the most
participation tool is to allow any person the famous participation projects that
possibility to recommend solutions to various communities organize, the characteristics of
community problems at local, national and the online dialogue, and using the
international levels. assumption of a constructive attitude. The
already-existent literature forms the
This paper is going to identify the defining backbone of the paper, helping to project the
characteristics of a better citizen better participation model. Scholars have
engagement model that copes with the been showcasing many advantages and
disadvantages of traditional offline and disadvantages of various participation
online participation methods and builds attempts and their research conclusions
upon the advantages of the two. The paper is form important theoretical background for
also comparing some of the most used this paper.
projects of participative democracy and
analyzes ways to improve the face-to-face 2. Literature review
participative democracy endeavors and the
traditional participation options allowed by The relevant literature that has been
the laws. studied includes titles like Brian E. Adams,
Citizen Lobbyists. Local efforts to influence
A better citizen engagement model will be public policy; Matt Leighninger, The Next
called in this paper SolveNet, for easier Form of Democracy; Cass Sunstein,
reference. The name does not constitute any Infotopia; and Mark H. Moore, Creating
495
Public Value: Strategic Management in 3. be sustainable: it is likely to attract

Government. public support, authority and money
from the political, social or business
Scholars who study the resources used by environments.
citizens participating in politics have found
that three are critically important: time, 3. Paper Content
money and civic skills (Verba, Schlozman
and Brady 1995, 270-272). In his book, Brian 3.1. Participation Problems
E. Adams adds a fourth resource to that list:
social networks. The importance of social SolveNet has to address two major citizen
networks consists in creating opportunities engagement problems:
for others to mobilize citizens, fostering  The lack of participation of every-day
democratic norms and civic virtues and people and experts in solving
helping citizens develop political skills. community problems at local, national
Brian E. Adams argues that we need to and international levels.
make a distinction between citizens’ capacity  The flows of the citizen engagement
to participate, which is enhanced by social tools that people and organizations
networks, and citizens’ effectiveness at use nowadays.
influencing policy.
Researches show that people don’t
In his book, The Next Form of Democracy, participate in solving community problems
Matt Leighninger advises that in order to mainly because of “lower socioeconomic
make democratic governance work, you status, lack of impact of personal
have to move past the civic stereotypes and participation compared to collective
create environments that will appeal to real participation, limited time and money, lack
citizens. The author points out one of the of information and knowledge about issues,
main weaknesses of most citizen and lack of confidence in their ability to be
involvement efforts: they focus on the goals effective.” i SolveNet’s theory for social
and agenda of the organizers, rather than the change has thus to focus around the
citizens. individuals, who feel they need to take
action and fix what is wrong in the
Cass Sunstein argues in “Infotopia” that the community, but they are limited due to one
key goal of deliberation is to improve choices, or more of the reasons mentioned above.
not to legitimate whatever choice ultimately
is made. Wikipedia is successful because of As scholars argue that governments alone
the large numbers of knowledgeable people cannot solve pressing social problems, a
who are willing to participate in creating it. better citizen engagement model will have to
People are motivated by the desire to see provide the resources that every-day people
their words in print, the value of self- need, to bring their knowledge to the table.
expression and the apparently widespread The problems of local, national or
desire to be helpful and constructive. Status international communities need to become
and motivation can play a significant role in opportunities for the new model.
wiki communities. Participants compete for
prestige by giving time, energy and There are many attempts to facilitate
creativity away. Innovation improves people’s input in the policy-making process.
people’s reputations. Some of the most used ones are citizen
assemblies, deliberative polling, citizen
Mark Moore advocates in his book, Creating juries, study circles, and choice dialogues.
Public Value, that in order for a solution to They are based on meetings where people
generate stronger leverage, it needs to have a direct contact with one another. From
comply with three criteria: the authors’ point of view, they face two
1. be feasible: this means that it can be major problems. The first one is stated by
accomplished by the existing Matt Leighninger: “the whole notion of
organizations or with help from others. citizen involvement centers on the needs and
2. be valuable: it should bring value to goals of the person doing the involving, not
overseers, people in general or members the citizen…ordinary people are only needed
of various communities. to play limited roles on certain occasions.” ii
496
The other problem concerns the high costs time to learn about them during the
associated with these engagement programs. unfolding of the project. The longer the
participative democracy process, the
The authority under which participation more time you have to think about issues
programs come from, vary from governments and recommend a better solution.
to non-governmental organizations,  Lack of ability to be effective. A couple
community leaders and various interest of major factors influence this. One of
groups. They usually tend to provide them is the lack of accountability.
unbiased information to the people they Usually, you don’t have access to
engage. However, there is no accountability people’s data to ask them about the
on the end result, which is usually a new participative democracy process or about
policy proposal, a prioritization, or an the policy they chose. Sometimes, even
opinion. the project participants are not confident
enough in their ability to influence
The traditional participative democracy policy. So far, hardly any participative
models usually use random sampling to democracy initiative has generated a
choose their participants—Study Circles use change of policy.
self selecting criteria. They usually try to be
representative for various demographics. The greatest advantages of the traditional
The number of participants can be as high as participation programs are the face-to-face
thousands in the case of Citizen Assemblies, discussions and the fact that they usually
hundreds in the case of Deliberating Polling tend to be representative for the targeted
or Choice Dialogues, and as small as 15-30 communities. These two advantages give
for Citizen Juries. The high-number models them greater leverage to change policies, at
usually last for one day to one weekend, least in theory.
while the lower-number models tend to last
from a couple of days to months. The costs
associated with these projects are usually 3.2. Elements of a better participation
very high and can even reach millions of model
dollars in the case of Citizen Assemblies.
Organizers have to cover costs that include The new model has to allow people with
food, accommodation, travels, stipends and various backgrounds to participate, from
even prizes. PhD professors to unskilled workers. All
they need to have in common is the desire to
These face-to-face or offline participative solve community problems. SolveNet will
democracy models face important challenges thus allow anybody to choose a public issue
that SolveNet has to minimize: of importance to him/her, provide the
 Limited time and money – in order to strategy and the tools to address it, mobilize
participate in the programs, people other interested people to form a small policy
need to dedicate first of all time. This is working group and create an opportunity to
a big problem in attracting professionals, build awareness and influence policy. If
as they are usually very engaged in these opportunities are presented to them,
many projects. The projects are also citizens may be more likely to participate.
expensive to organize.
 Sometimes, group discussions tend to SolveNet has to focus mainly on the quality
be polarized by one or few members. of the solutions that emerge out of its
This requires facilitators to make sure participation model. These should comply
that everybody’s opinion is being heard. with the three criteria, inspired from Mark
However, they are not all the time Moore’s Creating Public Value: be valuable,
effective and can be expensive. sustainable and feasible.
 Lack of knowledge about issues. This
is more prevalent in the case of Citizen Under SolveNet, nonprofits with activity and
Assemblies and Deliberative Polling interest in participative democracy have to
that last for short periods of time. The run the model and thus form the general
randomly selected people usually don’t authority, while the citizens who recommend
have enough knowledge about the issues solutions to community problems are held
being discussed and there is not enough accountable for their ideas. This ensures
497
that they receive the appropriate The main advantages of SolveNet have to
acknowledgement for their contribution, as consist in its cost of use, flexibility in terms
well as prestige from the communities they of time to offer a solution to a community
contribute to. SolveNet has also to transform problem and an educational approach.
the raw solution ideas into official policy People have to use SolveNet at no cost.
papers with a leveraging layout, under the Because they can use the participation
endorsement of a nonprofit in charge of the platform from basically anywhere they have
participation model. The scope of this is an Internet connection, they will offer their
twofold: On one hand, this is a motivation input whenever they have time. More over,
for the citizens to recommend a valuable, people can use additional time to do
sustainable and feasible solution. As Cass individual research on the issue they want to
Sunstein mentions, people are motivated by solve and thus make more informed solution
“the desire to see their words in print, the proposals. One important side of the method
value of self-expression and the apparently of participation has to focus on the
widespread desire to be helpful and educational approach. The participation
constructive.” iii On the other hand, the platform has to offer basic tutorials that
information about the participants would show citizens what the policy-making steps
allow decision makers, mass-media and are and how to work online. This is aimed at
other target audiences to obtain more offering basic policy skills to all participants,
information from them, if they want to. in order to make them more confident in
their ability to be effective as a group. Also,
The face-to-face participative democracy the educational tutorials will help shorten
models usually focus on generating new the education gap between more educated
policies, making an educated opinion, people and less educated ones.
prioritizing various policies, and predicting
people’s future views. These are usually SolveNet will face a series of difficulties that
complex issues that are supposed to help are specific to the Internet-based enterprises
decision makers make better decisions or and to the participative democracy models in
people vote new ballot initiatives. Issues general. The first one will be the absence of
vary greatly and include health care, new the face-to-face discussions. Some ways to
voting systems, the future of various combat this problem will include using a
communities, education reform, community friendly format of the citizen engagement
planning, racism, emigration, land use, or platform that will also host the pictures of
other social problems. While SolveNet can the participants. On the other hand, the
deal with all these issues and others of online presence will allow for collaborations
importance to the network members, the end between people from different regions or
product will be different. It will basically countries. They need to have in common the
consist in a policy paper that has specific desire to solve problems in a specific
layout characteristics. The content of the community.
paper will recommend a solution to a specific
community problem or a well-defined policy Another important challenge for SolveNet
or action plan from a pool of policies, while will be the leverage for the recommended
carefully analyzing other alternative solutions. The online approach means that
solutions. the participation process will not be
representative for any community. That is
Under SolveNet, any citizen has to be able to why the focus of the participation platform is
raise a problem of public concern that is of on the quality of the solutions that citizens
interest to her/him on a specially-created recommend. The policy papers that the
online policy-making platform. In the case of scripts generate will follow a well designed
SolveNet, the citizen’s needs and goals are template that addresses all the options for a
actually advantages, because they are the solution. Another way to gain more leverage
ones who push the policy-making process stands in the professions of the persons who
further. This way, ordinary people will not participate.
be just some tools to play limited roles, but
accountable citizens. The effectiveness of the policy papers is
another challenge. This is what SolveNet
and the other participative democracy
498
models will have in common. In order to be

effective and influence a change of policy SolveNet could be used as a follow-up of
once the solutions come out of SolveNet, the various offline governmental participation
participants need to act creatively. They programs. An example would be community
need to find the best ways to promote their meetings. During a summer internship at
solutions and, may be, lobby the right Los Angeles Mayor’s Office, I attended such
persons. This is also true for the other a meeting. During approximately two hours,
models. It could be argued that SolveNet and policy analysts from the Mayor’s Office
the other models of participative democracy presented the Mayor’s initiatives to their
will have at least the same chances to constituents from Hollywood and other
influence a policy. representatives of nonprofit organizations.
The participants raised a lot of questions
Cass Sunstein argues in Infotopia that and expressed their concerns about major
“deliberation on the Internet (through blogs) problems. These didn’t always fit the
can produce errors and nonsense.” Blogs are proposed initiatives. However, two hours a
indeed not a good and encouraging month that the Mayor’s representatives use
environment to deliberate on pressing to meet their constituents is not enough to
issues. However, SolveNet will not use blogs. create meaningful projects. As a follow-up of
The citizen engagement platform has to be these kinds of meetings, participants could
new software that will consist in many agree to use SolveNet and work on its
different scripts that will guide the citizens participation platform on solutions to
throughout the policy-making process and community problems in their neighborhoods.
transform their rough work into a policy The policy papers that would come out could
paper. be discussed at the following community
meeting and influence new projects or
There is also the issue of Internet pranks. allocation of resources. More over, the group
When referring to wikis, Sunstein mentions members would also benefit from an initial
that “at first glance, the democratic quality face-to-face contact.
of wikis seems to be a big problem. If anyone
in the world can make changes, isn’t the text The same situation could be true for people
vulnerable to pranks and even destruction?” who attend offline participative democracy
Cunningham and Leuf say that “experience projects. Some of them may want to work
shows that in fact little damage is done to more on certain issues and come up with a
wiki content even in the absence of security better solution or policy. So SolveNet could
mechanisms.” Of course, SolveNet is not be nicely used in combination with both
wiki. However, pranks might want to participation options provided for by the
register and use it. Compared to wikis, laws and the traditional participative
SolveNet will have security mechanisms. democracy projects.
The proposed problems and solutions have to
be moderated, so that licentious language is On August 11, 2007, California Speaks
avoided. But the main reason that pranks organized a “statewide conversation on
might not actually try to inadequately use health care.” The organization randomly
SolveNet is also stated by Sunstein when chose 3.500 participants who met in eight
referring to wikipedia: “an essential part of sites throughout California. The purpose
the answer is that large numbers of was to find the “enlightened opinion of
knowledgeable people are willing to people.” Overall, the organizers had 400
participate in creating it; status and facilitators, contacted 120,000 people, sent
motivation can play a significant role in wiki 300,000 letters and made +2,000,000 phone
communities; participants compete for calls. The budget for this project was
prestige by giving time, energy and approximately $4.5 million. The end result is
creativity away.” Also, “innovation (creative summarized in the event’s final report: 82%
solutions in the case of SolveNet) improves of participants say the system requires
people’s reputations.” major change; 86% say it is essential or
important for reform to pass this year; 84%
3.3. Coordination with governmental say they are at least somewhat willing to
participation programs and share responsibility for paying for reform.
participative democracy projects
499
Some of the major problems of this event are of discussions, and lack of knowledge about
associated with the lack of time for the issues.
participants to discuss about health reform,
the impossibility to consider tradeoffs and As the majority of the work is done online,
alternatives, the reliance of their decisions the policy-making process is pushed further
mainly on a booklet provided by the using the authority of a legally established
organizers, the high costs, and even its nonprofit organization. This way, the most
outcomes. feasible, valuable and sustainable solution
proposals from citizens, are sent to the desks
If SolveNet had existed, people could have of elected and appointed officials.
used its platform to recommend a solution to
improve the health care system. In this case, The participation model lacks the
those who are sensitive about the issue, advantages of face-to-face discussions
could have established online working between the participants, but the online
groups. For example, a health care specialist citizen engagement platform offers an
from California, a Wal-Mart worker, a nurse, interactive participation experience that
a professor from France and an MPP allows people from different regions to work
student, could have offered solutions based together creatively in solving community
on their experiences and expertise. Together, problems. The people who participate are not
they would have as much time as needed to representative for any given community.
analyze tradeoffs and alternatives, do That is why the main focus is on the quality
research on their own and exchange ideas on of the solutions that are exchanged on the
the participation platform. Other advantages platform and not on the background of the
would consist in working during their free citizens.
time—at home, during breaks, no costs, the
possibility to see the result of their work SolveNet faces however the problem that
right away, the motivation to see their name every participation model has: effectiveness
printed on the platform, and the possibility in generating a change of policy. It is
to send the policy paper to anybody they see ultimately up to the decision-makers to
fit like executives, legislature, mass-media. consider the results of any participative
democracy exercise or not. The main
If third parties are interested to see advantage of SolveNet is in this case the
solutions in a particular deadline or time little effort that every-day people make, in
frame, they could simply offer awards order to make their voices heard in the
through the nonprofits that run SolveNet. In community.
this case, instead of spending $4.5 million on
a one-day event, the six foundations that A mixed participation model to support
secured the funding would have spent little governmental decision-making seems to
on awards for the best policy solutions that work the best, in order to benefit the most
people offer to the health care situation in from citizen engagement. This model has to
California. provide for authority, accountability,
creativity, exchange of constructive ideas,
5. Conclusions and implications educational approach, and perseverance.
Future research could identify such a model
SolveNet is a combination of online and and showcase it.
offline citizen engagement. It benefits from
advantages specific to the online dialogue Acknowledgements: Research was conducted
like little to no cost of use, flexibility of within the project POSDRU-6 /1.5/S/15 -
participants to give solutions to problems of Management System of Scholarships for
public concern, educational approach, and Doctoral Students - 6583, funded by the EU
interactivity among the participants. At the and the Romanian Government. The authors
same time, SolveNet is coping with the thank the team of project management for
disadvantages of offline engagement, like the financial support.
lack of accountability of the end result of a
participation endeavor, limited time and Annex: the Participative Democracy
money of participants to offer input in Matrix.
pressing community problems, polarization
500
SolveNet (online and offline

Citizen Assembly Deliberative Polling Choice Dialogue
participation)
Product New policy Educated opinion; Product Prioritization of policies; A policy paper;
Prioritization of policies Prediction of peoples' future Specific solutions to a community
views problem
Authority Governments; International and National
Authority Civic organizations; A legally-established nonprofit
Big NGO's Governments Governements; organization
Accountability None None Administrative Agencies;
Technique Random selection of large Large scale project; statistical Foundations
number of people; sampling; could reach Accountability None The nonprofit organization and
representative sample; hundreds the person raising a problem of
incentives to participate; could public concern on the online
reach thousands policy-making platform
Time frame One day Long weekends Technique Random selection of Online exchange of solution ideas,
Costs Can reach millions of dollars Very high; provide for participants; could reach 200- unlimited participants, issuance of
accomodation, food, 400 people total; small groups official policy papers for decision
transportation makers
Participating People Random people and targeted Random and representative Time frame Three to eight days No time frame, the person
recruiting participants of large publishing a problem of public
concern sets his/her own deadline
communitites
Information source Organizers and partners Experts Costs High No fees from the part of the
Target audience Politicians; Legislature; persons using the citizen
Press; Press engagement platform; the
Ballots nonprofit organization will have
Problems High costs; no time for Nothing has to happen; high operational costs that tend to be
participants to think at the costs fixed
Participating People Random people and leaders Any person interested in solving
problems
community problems
Information source Organizers Person publishing the problem;
individual research
Citizen Jury Study Circle Target audience Governments and other Governments; mass-media,
agencies individual politicians; elected and
Product Prioritization of policies New policy proposals; appointed officials; other agencies
Prioritization of policies
Authority Nonprofits; Nonprofits; Problems No face to face interaction;
Local and National Governments; participants may not be
represenatative for the targeted
Governments; Administrative Agencies
communitites
Administrative Agencies
Accountability None None
Technique Small groups of people; could Self selected participants;
reach 15-30 participants groups of 8-12 people; could
References
reach 6-8,000 participants
Time frame Two-five days From 3-4 weeks to 4-10 1. Brian E. Adams, Citizen Lobbyists. Local efforts
months
Costs Can get big; participants are High to influence public policy (Temple University
paid; provide for Press 2007).
2. Cass R. Sunstein, Infotopia. How Many Minds
accomodation, food,
transportation
Participating People Selected through random Self selected Produce Knowledge (Oxford University Press
phone calls 2006).
Information source Usually an advisory board Organizers and partners
Target audience Any agency; Governments 3. Matt Leighninger, The Next Form of Democracy
PR campaigns (Vanderbilt University Press 2006).
Problems Hard to get representation Not really an informed
from profesionals because of opinion; no demographics
4. Mark H. Moore, Creating Public Value:
time; participants are not Strategic Management in Government (Harvard
representative
University Press, 1995).
i
Brian E. Adams, "Citizen Lobbyists. Local efforts
to influence public policy," Temple University
Press 2007, Chapter 2, Citizen Efforts to Influence
Local Policy.
ii
Matt Leighninger, “The Next Form of
Democracy,” Vanderbilt University Press 2006.
ii
Cass R. Sunstein, “Infotopia. How Many Minds
Produce Knowledge,” Oxford University Press
2006
iii
Cass R. Sunstein, “Infotopia. How Many Minds
Produce Knowledge,” Oxford University Press
2006.
501

GROUP DECISIONS and IMPLICATION of GROUP DECISION

SUPPORT SYSTEMS IN TURKEY
Prof. Dr. Mehmet SAHİN

Anadolu University, Turkey
msahin@anadolu.edu.tr
Dr. Didem PASAOGLU HAMSIOGLU;

Anadolu University, Turkey
dpasaoglu@anadolu.edu.tr
Abstract information technologies affect people and

Group decision making has been going on businesses working with computer-based
since of the time. It is a critical part of good systems and render it compulsory for
management. However, the meeting at which businesses to keep up with developments.
joint decisions are made have always been Importance of systems making it possible to
time consuming, and in some instances, not obtain information increases proportionally
always effective and efficient. Throughout the with the importance of information.
years, management theorists and specialists Businesses have to attain information that is
have devised and adopted a number of necessary for them. Rapid changes and
techniques and developed technology to activities in the current environment make
improve the effectiveness of what has come to it essential to reach the correct information
be known as the Group Decision Support in the shortest period of time. It is very hard
Systems (GDSS). for the decision-maker to contemplate on all
Nowadays, GDSS technology has made necessary details of the problem due to
enormous technical advances. This study increasing complexity of the environment.
looks at which GDSS is currently being used This is why most of the businesses choose to
in businesses in Turkey. Base for the study is comply with group decisions rather than
depended on Delone and McLean’s study; a individual decisions. However, they do not
survey sample 102 is selected from 56 only ground their decisions on human factor
businesses which use GDDS in Turkey. but also on technologic developments while
Descriptive statistics based on the which choosing group decisions. One of them is
current implementations are heaviest in each Group Decision Support System (GDSS).
of the GDDS types. GDSS helps by ensuring interaction and
exchange and therefore better and faster
Keywords: Group Decisions, GDSS, Types of decisions without letting others know about
GDSS, Decision Room, Local Decision preferences and opinion holders. (Aiken and
Network, Teleconference Vanjani, 2001, p.39) Previous studies show
that group members using the system
participate in the discussions more, make
1. Introduction more comments and they are more satisfied
as a result of GDSS compared to traditional
Rapid developments that have been meeting methods. (Aiken and Vanjani, 2001,
encountered in technology recently can also p.41)
be seen in the field of management as well.
Parallel with this rapid technologic 2. Group Decisions
development, management techniques are Studies regarding Group Decisions go back
also improving. Especially, developments 1900s. (Lam and Schaubroeck, 2000, p. 185)
that are being encountered in the field of From 1900s to today, researchers have been
502
trying to bring up the factors affecting group Decision Room

decision making process. No certain results
have been achieved on group decision First type of GDSSs is decision room.
making process in spite of the abundance of Decision room is equivalent to the meeting
the studies. rooms where traditional decision meetings
Some common results have been put forward are held. However, decision room has some
as a result of studies regarding factors differences from traditional decision rooms.
affecting group decision making process in For example, there is a computer screen and
categorization of groups. First of these is the a keyboard instead of a horse shoe shaped
size of group. Size of group is a factor table and papers and pens. As well,
affecting decision making process. It also decisions are made in electronic media.
affects communication networks, Another difference is that participants state
participation, satisfaction and reliance. their opinions by the help of a keyboard and
Studies have shown that groups consisting of these opinions are transferred to the big
7 or less members have more advantages screen in the decision room and therefore
over larger groups. (Kerr and Tindale, 2004, they can be seen by everyone (Haag and
p. 654) It has also been observed that Lagunoff, 2003, p. 112). Decision room is the
uneven participations can be seen among the simplest type among GDSSs.
members of these larger groups. Besides, it Communication in decision rooms is both
is more difficult for the members of these verbal and by means of computer.
large groups to unite compared to smaller
groups and some members can not put Local Decision Network
forward their opinions clearly while some
members speak a lot. As a result of this Second type of GDSSs is local decision
study, it is obvious that groups consisting of network. There are fixed group members
5-7 members are more efficient and effective who are close to each other in local decision
rather than larger or smaller groups. network. (Kim and Hiltz, 2002, p. 383)
Actually, even if members of the group can
Definition of GDSS change according to the decision to be made
in GDSS, group members are fixed in local
It is very difficult for the decision maker to decision network. These members try to find
contemplate on all the details regarding a solutions to the problems given to them
problem due to increasing complexity of the depending on some grounds. (Kim and Hiltz,
socio-economic environment. This is why 2002, p.383) Group members make their
most of the businesses choose to comply with decisions using local decision network
group decisions rather than individual instead of using decision room. Meeting is
decisions. However, they do not only ground held by connecting each other from their own
their decisions on human factor but also on studies by the help of local network.
technologic developments while choosing
group decisions. One of them is GDSS. GDSS Teleconference
helps by ensuring interaction and exchange
and therefore better and faster decisions Teleconference is a type of GDSS in which
without letting others know about group members are geographically distant
preferences and opinion holders (Aiken and from each other, however they come together
Vanjani, 2001, p.39) to make a decision. In this type of GDSS, two
or more decision rooms connect via visual or
Types of GDSS communication tools. (Aiken and Vanjani,
2001, p. 32) Teleconference includes all
They have variations according to the features of the decision room. The only
duration of decision making process and difference is the employment of
distance between the group members. communication tools in teleconference.
(Dennis and Garfield, 2003, p. 292) There
are three types of GDSS: 3. Study On Group Decision Support
 Decision Room Systems
 Local Decision Network
 Teleconference Purpose and Importance of the Study
503
GDSS is one of the developments in the field Valid N 102

of information technology. Purpose of the
study is to introduce the degree to which In Table 2, sectoral distribution of the
GDSS is used in businesses in Turkey. participants is shown. It is being observed
that most of the GDSS user businesses have
Extent of the Study been working in the field of automotive; this
Within the extent of the study, analysis sector is followed by electronic and retailing.
level, specifying universe and sample, pre-
study results, preparing questionnaire form Table 2. Industry / Sector of the Business
and garnering data were explained. F % Valid Total
% %
Analysis Level, Universe and Sample Food and 6 5.9 5.9 5.9
Beverage
Universe of the study consists of first 500
Pharmaceutical 6 5.9 5.9 11.8
businesses in Turkey published in 2007 Industry
August issue of Capital magazine. We tried Electronic 15 14.7 14.7 26.5
to find out which businesses implement
Automotive 39 38.2 38.2 64.7
GDSS by calling them on the phone in year
2007. As a result of telephone interviews 75 Retailing 15 14.7 14.7 79.4
of the businesses using GDSS were reached. Telecommunication 9 8.8 8.8 88.2
It was concluded that questionnaire method
Transportation 6 5.9 5.9 94.1
had to be implemented so as to obtain the
optimum data from the businesses in this Computer- 6 5.9 5.9 100
sample. Data by questionnaire were Hardware-
Software
collected by face to face interview technique.
Total 102 102 102
As a result of this study,
102 questionnaires from 34 businesses using
GDSS were collected. There are various positions in GDSS. There
are users using GDSS and a manager
Questions in the Questionnaires managing the system or a project leader.
Questionnaires were filled in during face to Findings regarding answers given to that
face interviews. Questions focus on GDSS. question can be seen in table 3. 33.3% of the
Questions regarding the use of GDSS were positions in GDSSs are managers, whereas
cited from a survey of Delone and McLean 58.8% are users and 7.8% are project team
called Success Model of Information Systems members.
(1992)
Table 3. Position of Employees in GDSS
Descriptive Analysis of Businesses F % Valid Total
% %
Using GDSS Manager 34 33.3 33.3 33.3
Findings regarding the employees of 34 User 60 58.8 58.8 92.2

businesses using GDSS are shown in table 1. Project 8 7.8 7.8 100
Participants have been working for their Team Member
current employers at least for 2 to at most Total 102 100 100
for 35 years. It is being observed that their
range of age is between 35 to 67 years. Findings regarding the type of GDSS in
Numbers of employees vary from 192 to businesses of the participants of the survey
34700. can be observed in table 4. According to the
table, decision room is the most preferred
Table.1 Findings Regarding Employees type. However, as a result of the survey it
N Min. Max. Averag Standard
e Deviation
has also been seen that teleconference
Age 102 35 67 44.92 9.766 besides decision room is also implemented
especially in some international businesses
Years 102 2 35 15.19 7.468
of work
and businesses having international
Number 102 192 34700 6049.5 6735.1 contacts.
of
employees Table 4. Type of GDSS in businesses
504
F % Valid Total 7 12 11.8 11.8 100

% %
Decision Room 56 54.9 54.9 54.9 Total 102 100 100
Local 22 21.6 21.6 76.5

Decision Findings regarding people using GDSS most
Network frequently can be seen in table 7. It has been
Teleconference 24 23.5 23.5 100
concluded that employees who use GDSS
Total 102 100 100 most frequently are department managers
and employees.
Findings regarding the number of
participants in the decision room can be Table 7. People Using GDSS Most
observed in table 5. It is seen that 35.3% of Frequently in Businesses
F % Valid Total
participants in the decision room consists of % %
7 people. Even if different figures are given Department 48 47.1 47.1 47.1
in literature regarding number of Managers
participants using GDSS, it is being Department 54 52.9 52.9 100
observed that groups consisting of members Employees
Total 102 100 100
from 5 to 7 are preferred as they are more
efficient and active. As a result of the
survey, it is found out that 35.3% of the Findings regarding the most used function of
businesses make decision by an optimum GDSS are shown in table 8. It can be well
number. seen in table 8 that most used function of
GDSS is electronic brainstorming.
Table 5. Number of Participants in Decision
Room Table 8. Most used functions in GDSS
F % Valid Total F % Valid Total
% % % %
6 15 14.7 14.7 14.7
Electronic 33 32.4 32.4 32.4
7 36 35.3 35.3 50 Brainstorming
8 12 11.8 11.8 61.8 Classification 27 26.5 26.5 73.5
9 12 11.8 11.8 73.5 Others 27 41.2 41.2 100

(Group
10 15 14.7 14.7 88.2 commenting,
Commenting,
12 12 11.8 11.8 100 Voting)
Total 102 100 100 Total 102 100 100
Findings regarding the monthly average Findings regarding the types of decisions in
number of sessions of GDSS in the which GDSS is implemented can be seen in
businesses of participants of survey can be table 9. As a result of the survey, it has been
seen in table 6. It has been found out that found out that GDSS is mostly used for
47.1% of the businesses hold 5 GDSS strategic decisions.
sessions in one month at average. As a result
of survey, it has been specified that most of Table 9. Decisions in which GDSS is used in
the businesses holding 2 to 3 sessions per Businesses
F % Valid Total
month before the crisis raised the number to
% %
4 or above after the crisis. Strategic 81 79.4 79.4 79.4
Decision
Table 6. Number of Average GDSS Sessions Managerial 6 5.9 5.9 85.3
in Businesses Decision
F % Valid Total Operational 15 14.7 14.7 100
% % Decision
3 15 14.7 14.7 14.7 Total 102 100 100
4 27 26.5 26.5 41.2

Conclusions and Suggestions
5 48 47.1 47.1 88.2
505
In today’s world, it is very difficult for the and active. As a result of survey, it is
decision maker to contemplate on the factors found out that 35.3% of the
regarding the problems he/she encounters in businesses make decisions by an
detail due to increasing complexity of the optimum number.
socio-economic environment. This is why  As a result of interviews, it has been
most businesses prefer group decisions to specified that most of the businesses
individual decisions in decision making that had been holding 2 to 3 sessions
process. However, not only the human factor before the crisis raised this number
but also the technologic developments play to 4 or above after the crisis.
vital role in handling the group decisions.  It has also been observed that
GDSS is one of these technologic department managers and
developments. Studies regarding this subject employees are the ones using GDSS
show us the fact that, group members using most frequently.
the system take part in the discussions  Of the functions listed in literature
more, make more comments and they are that are electronic brainstorming,
more satisfied when compared to traditional classification, commenting and
decision making methods. (Aiken and voting; the function for which GDSS
Vanjani, 2001, p.41). Purpose of GDSS is to is most frequently used is electronic
connect different decision processes of a brainstorming.
group of members consisting of group GDSS is one of the newest technologies
managers, analysts and employees. (Costa et and it can be referred that the use of GDSS
al, 2003, p. 290) is going to increase when the findings of
Many different studies and studies are checked.
researches have been conducted on the
concept of GDSS so far. However, not a References
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507

THE IMPORTANCE OF COMMUNICATION IN PROJECT

MANAGEMENT
PISTOL Luminita
Spiru Haret University
prolu2001@yahoo.com
UNGUREANU Adrian
Spiru Haret University
aungureanu75@yahoo.com
Abstract Introduction
Project management is the application of Project management is the application of
knowledge, skils, tools, and techniques to knowledge, skils, tools, and techniques to
project activities to meet the project project activities to meet the project
requirements.Communication activity has requirements. This paper present the
many potential dimensions, like internal and important of comunication in project
external, formal and informal, vertical and management. We know that communication
horizontal, official and unofficial, written activity has many potential dimensions, like
and oral and verbal and non-verbal. Most internal and external, formal and informal.
communication skills are common for Most communication skills are common for
management and for project management management and for project management
too, but not limited to: listening actively and too. The paper is important becouse it
effectively, educating to increase team’s reports the process of collecting and
knowledge so that they can be more effective, distributing performance information for
setting and managing expectations, resolving realize a successful communication in a
conflict to prevent disruptive impact, project management, starting with plan
Communication in Project Management communication, than comunication
includes the processes required to ensure technology with communication method,and
timely and appropriate generation, collection, finaly the management project plan. For
distribution, storage, retrieval and ultimate prove all this, we try to explain clear the
disposition a project information. Project method of the project plan communication,
managers spend the majority of their time which used to share information among
communicating with team members of other project and can be broadly classified into:
projects stakeholders, whether they are interactive communication, push
internal (of all organizational levels)or communication and pull communication.
external to the organization. Effective Then we present tow project plans: a small
communication create a bridge between one and a larger one. The small projects tend
diverse stakeholders involved in project , to have very simple and straight
connecting various cultural and communication paths, usually do not need
organizational backgrounds, different levels more than basic status reporting, in the
of expertise, and various perspectives and second one, communication takes place in
interests in the project execution or outcome. context of an overall. This paper can be a
starting point of view for better project
Key words: project management, plans.Using this communication methods to
communication, performance, information; share information among project the project
management plan. manager can achieve the best format for the
communications.
508
The Project Communications Listening actively and effectively,

Management processes include the Questioning, probing ideas and situations to
following: ensure better understanding, Educating to
increase team’s knowledge so that they can
Identify Stakeholders—The process of
be more effective, Fact-finding to identify or
identifying all people or organizations
confirm information, Setting and managing
impacted by the project, and documenting
expectations, Persuading a person or
relevant information regarding their
organization to perform an action,
interests, involvement, and impact on
Negotiating to achieve mutually acceptable
project success.
agreements between parties, Resolving
Plan Communications—The process of conflict to prevent disruptive impacts, and
determining the project stakeholder Summarizing, recapping, and identifying the
information needs and defining a next steps.
communication approach.
Plan Comunication. Plan Communications
Distribute Information—The
is the process of determining the project
process of making relevant
stakeholder information needs and defining
information available to project
a communication approach. The Plan
stakeholders as planned.
Communications process responds to the
Manage Stakeholder Expectations—The information and communications needs of
process of communicating and working the stakeholders. For example, who needs
with stakeholders to meet their needs and what information, when they will need it,
addressing issues as they occur. how it will be given to them, and by whom.
While all projects share the need to
Report Performance—The process of
communicate project information, the
collecting and distributing performance
informational needs and methods of
information, including status reports,
distribution vary widely. Identifying the
progress measurements, and forecasts.
information needs of the stakeholders and
These processes interact with each other and determining a suitable means of meeting
with processes in the other Knowledge those needs are important factors for project
Areas. Each process occurs at least once in success.
every project and, if the project is divided
Improper communication planning will lead
into phases, it could occur in one or more
to problems such as delay in message
project phases.
delivery, communication of sensitive
Communication activity has many potential information to the wrong audience, or lack of
dimensions, including: communication to some of the required
stakeholders. A communication plan allows
 Internal (within the project) and
the project manager to document the
external (customer, other projects,
approach to communicate most efficiently
the media, the public)
and effectively with stakeholders. Effective
 Formal (reports, memos, briefings)
communication means that the information
and informal (emails, ad-hoc
is provided in the right format, at the right
discussions),
time, and with the right impact. Efficient
 Vertical (up and down the communication means providing only the
organization) and horizontal (with information that is needed. On most
peers), projects, the communications planning is
 Official (newsletters, annual report) done very early, such as during project
and unofficial (off the record management plan development. This allows
communications), appropriate resources, such as time and
budget, to be allocated to communication
 Written and oral, and Verbal and activities. The results of this planning
non-verbal (voice inflections, body process should be reviewed regularly
language). throughout the project and revised as needed
Most communication skills are common for to ensure continued applicability.
general management and project The Plan Communications process is
management, such as, but not limited to: tightly linked with enterprise
509
environmental factors, since the

organization’s structure will have a major The analysis of the communication
effect on the project’s communications requirements determines the information
requirements. needs of the project stakeholders. These
requirements are defined by combining the
type and format of information needed with
an analysis of the value of that information.
Project resources are expended only on
communicating information that contributes
to success, or where a lack of communication
can lead to failure.
The project manager should also consider
the number of potential communication
channels or paths as an indicator of the
complexity of a project’s communications. A
key component of planning the project’s
actual communications, therefore, is to
determine and limit who will communicate
with whom and who will receive what
information.
Information typically used to determine
project communication requirements
includes:
Organization charts,
Plan Communications: Inputs, Tools & Project organization and stakeholder
Techniques, and Outputs responsibility relationships,
Plan Communications Data Flow
Disciplines, departments, and specialties
Diagram
involved in the project,
Logistics of how many persons will be
involved with the project and at which
locations,
Internal information needs
External information needs
Communication Technology
The methods used to transfer information
among project stakeholders can vary
significantly. For example, a project team
may use techniques from brief
conversations all the way through to
extended meetings, or from simple written
documents to material (e.g., schedules and
databases) that is accessible online as
methods of communication.
Factors that can affect the project include:
Urgency of the need for information. Is
project success dependent upon having
frequently updated information available on
a moment’s notice, or would regularly issued
written reports suffice?
510
Availability of technology. Are appropriate management plan is contained in or is a

systems already in place or do project needs subsidiary of the project management
warrant change? For example, do the plan. The communications management
intended stakeholder(s) have access to a plan can be formal or informal, highly
selected communications technology? detailed or broadly framed, and based on
Expected project staffing. Are the proposed the needs of the project. The
communication systems compatible with the communications management plan
experience and expertise of the project usually provides:
participants, or is extensive training and  Stakeholder communication
learning required? requirements;
 Information to be
communicated, including
Duration of the project. Is the available language, format, content,
technology likely to change before the project and level of detail;
is over?  Reason for the distribution of
that information;
Project environment. Does the team meet  Time frame and frequency
and operate on a face-to-face basis or in a for the distribution of
virtual environment? required information;
 Person responsible for
communicating the
Communication Methods There are several information;
communication methods used to share  Person responsible for
information among project stakeholders. authorizing release of
These methods can be broadly classified into: confidential information;
 Person or groups who will
Interactive communication. Between two or
receive the information;
more parties performing a multidirectional
 Methods or technologies used
exchange of information. It is the most
to convey the information,
efficient way to ensure a common
such as memos, e-mail,
understanding by all participants on
and/or press releases;
specified topics, and includes meetings,
 Resources allocated for
phone calls, video conferencing, etc.
communication activities,
Push communication. Sent to specific including time and budget;
recipients who need to know the Escalation process
information. This ensures that the identifying time frames and
information is distributed but does not the management chain
certify that it actually reached or was (names) for escalation of
understood by the intended audience. Push issues that cannot be
communication includes letters, memos, resolved at a lower staff
reports, emails, faxes, voice mails, press level;
releases etc.  Method for updating and
refining the communications
Pull communication. Used for very large
management plan as the
volumes of information, or for very large
project progresses and
audiences, that requires the recipients to
develops;
access the communication content at
 Glossary of common
their own discretion. These methods
terminology;
include intranet sites, e-learning, and
 Flow charts of the
knowledge repositories, etc.
information flow in the
The project manager decides, based on project, workflows with
communication requirements, what, how, possible sequence of
and when communication methods are to authorization, list of reports,
be used in the project. and meeting plans, etc.;
 Communication constraints,
Management Plan The communications usually derived from specific
511
legislation or regulation, Team entire project team should

technology, and Members, attend project status
organizational policies, etc. Clients meetings. The meetings
 The communications should focus on the status
management plan can also against the project schedule
include guidelines and and uncovering any current
templates for project status issues, scope change
meetings, project team requests or potential risks.
meetings, e-meetings, and e- The client should be invited
mail. to attend, but his
 The use of a project website attendance is not
and project management mandatory. The frequency
software can also be included of the meetings depends on
if they are used in the the timetable for the project
project. and the need to get
information in a timely
Project plan for managing communication on manner. For instance, if the
a small projects: Small projects tend to have project is three weeks, the
very simple and straight communication team might want to meet
paths. Small projects usually do not need twice a week. If the project
more than basic status reporting. If the is eight weeks, weekly is
project manager is doing any hands-on work probably appropriate. The
on the project, he probably has a very good status meeting is optional
idea of the overall status. since on small projects the
project team is probably
Role Status Reporting (Small only a couple people (or
Projects) maybe just one) and the
1. Team Create team status reports chances are that you meet
Members for the project manager often anyway to discuss
Project team members send what is going on.
a status update to the
project manager on a Project plan for managing communication on
weekly basis. a large project. All communication takes
2. Project Create sponsor and place in context of an overall Communication
Manager stakeholder status reports Management Plan. Status meetings and
It is important for the status reporting are required. In addition,
project manager to use there are many other types of proactive
Status Reports and other communication that need to be considered.
communication methods to This creative and proactive communication
manage expectations. The is laid out in a Communication Management
project manager sends a Plan. A large projects also need to consider
status update to the project basic and more sophisticated techniques for
sponsor and stakeholders on managing the documentation on the project.
a weekly or bi-weekly basis.
If the project is small, the ROLE Manage
sponsor may get no updates Communication (Large
before the project is Projects)
completed – or maybe just 1 Project Determine the project
one. This does not give the Manager stakeholders In some
sponsor time to react if cases these are
there is anything unusual. stakeholder groups such
The project manager should as a project steering
report status bi-weekly or committee. In other cases,
weekly in those cases. there may be a single
3. Project Schedule and attend status person such as the
Manager, meetings (optional) The sponsor.
512
2 Project Determine the project team. Implement

Manager communication needs for the communication options
each stakeholder The that provide high value
project manager can and require low effort from
categorize the the project team.
communication needs into 6 Project Implement mandatory
three areas. • Mandatory. Manager communications
This generally includes Regardless of the
project Status Reports, prioritization, implement
legal requirements, any communication
financial reporting, etc. options that are
This information is pushed mandatory for the project.
out to the recipients. • This will definitely include
Informational. This is project Status Reports, but
information people want to there may also be
know or that they may government-required
need for their jobs. This reports, legal reports, etc.
information is usually 7 Project Add the resulting
made available for people Manager communication activities
to read, but requires them to the schedule This will
to take the initiative, or include assigning
pull the communication. • frequencies, due dates,
Marketing. This effort hours and a
communication is designed responsible person(s) for
to build buy-in and each communication
enthusiasm for the project option implemented.
and its deliverables. 8 Project Execute the
3 Project For each stakeholder, Manager Communication
Manager brainstorm how to fulfill Management Plan The
the communication need It Communication
is important for the project Management Plan details
manager to use Status the stakeholders, their
Reports and other information requirements,
communication methods to how often they should
manage expectations receive communications,
4 Project Determine the effort the best format for the
Manager required Estimate the communications, etc. The
effort required to create project manager needs to
and distribute each of the execute the
identified communication Communication
options outlined in step 3. Management Plan to make
Also determine the it real. This also includes
potential benefit of the responding to ad-hoc
communication to the requests for information.
recipient and the project 9 Project Schedule and attend
team. Manager, status meetings The team
5 Project Prioritize the Team should attend status
Manager communication options Members, meetings on a weekly or
Discard the Client biweekly basis. If the
communication options project manager prefers,
that require high effort for there could be a status
marginal benefit. Also meetings for the project
discard those that provide team and a separate
marginal benefit even meeting with the client.
though they may take There should be a
little effort from the standard agenda for the
513
meetings and the meeting overall Communication management plan.

should be kept to no more status meetings and status reporting are
than one hour. In general, required. For large projects especially, the
the purpose of the project team should be creative in
meetings is to determining how, what, to whom, where and
communicate status, not how frequently the communication takes
solve problems. (An place.
agenda for the meeting is
included in the deliverable References
section.) Prince 2, London: Stationery Office
10 Project Create sponsor and A Guide to the Project Management Body of
Manager stakeholder status reports Knowledge, PMBOK Guide - Fourth edition,
Project Management Institute
The project manager
www.itil-officialsite.com
should send Status www.mpmm.com
Reports to all stakeholders www.pmi.org
on a bi-weekly or monthly www.projectmanagement.com
basis. Depending on the www.tenstep.com
financial reporting cycle,
the monthly Status Report
should include a financial
status as well.
11 Team Create team status reports
Members for the project manager
The project team members
should send a weekly or
bi-weekly Status Report to
the project manager
detailing their progress
during the reporting
period. This information is
used by the project
manager to update each
assigned activity in the
schedule. This report is in
addition to the status
meeting.
Conclusions
Properly communicating on a project is a
critical success factor for managing the
expectations of the sponsor and the
stakeholders. A project manager has to
implement any communication options and
all methods for achieve a success small
project or a large project. Small projects
usually do not need more than basic status
reporting. If the project manager is doing
any hands-on work on the project, he
probably has a very good idea of the overall
status. Small projects tend to have very
simple and straight communication paths
About large projects, it should utilize a
Communication management plan to make
sure the communications is proactive and
multi-faceted. In a large project, all
communication takes place in context of an
514

COMPETITIVE STRATEGIES IN THE GLOBALISATION’S CONTEXT
PLATIS Magdalena
Faculty of Business and Administration, University of Bucharest
Email: magdalena.iordache-platis@drept.unibuc.ro
BABAN Eleonora Gabriela

Faculty of Business and Administration, University of Bucharest
Email: baban.eleonora@yahoo.com
Abstract (consumer protection, privacy, the

In the context of globalization, the modern environment). G. Soros considers that the
market economy leads companies to cope current business world relies on global
with the dynamic and frequent changes of markets expand. Soros, 1999. To rule the
the business medium. Frequent changes of market a firm must sell on all major
internal and external medium of the markets, must adopt effective competitive
organization influenced the economic strategies for each product or service.
activity, redirecting them toward effective Globalization is a complex process that
strategic options to meet their objectives. allows the implementation of a modern
This paper aims to highlight the main economic policy and culture, emphasizing
marketing strategies used by leaders, the concern for the environment or for the
"challengers", "chasers" and by the small life itself.
firms. Significant objectives of the study are: Frequent changes occurring in society and in
1). Importance of the competitive strategy in the world economy amplifies the
the context of globalization; phenomenon of globalization, which is
2).The relationship between marketing characteristic of the contemporary world.
strategy and marketing firm’s position; Companies are interested in entering global
3).The market strategy and its characteristics markets, and to cope with fierce competition
in the context of globalization; existing are preparing and implementing
4). The normal competitive medium and its effective strategies. The risks faced by the
coordinated on the market. firms can not be accurately anticipated and
To obtain performance and business success are difficult to evaluate.
organizations must implement a competitive To succeed in business, companies must
strategy. implement successful competitive strategies
Competitive market strategy is defined and must exploit efficiently and profitably
according to the aspects that characterize the resources that are available. The strategy is
competitive market. Competitive strategies the means by which firms meet their goals.
depending on the position of an C. Florescu considers that in the strategic
organizationon on the market determine the management competence of any firm enters
medium and long term actions (strategy) and three key elements, namely: defining activity
the short-term actions (tactics). domain of an enterprise; setting targets and
performance indicators to be achieved;
Keywords: leaders, competition,
developing strategies that creates the
"challengers", globalisation.
conditions most appropriate to deal the
1. Importance of the competitive objectives [Florescu,1981]. The main
strategy in the context of globalization objectives of a company are: an incentive
Today on the business market, marked by profit, increasing market share, increase
the globalization phenomena is necessary to sales volume, recording a high return. Firm’s
implement competitive strategies which targets must be characterized by the
must contribute to the performance by the following features: realistic, proper sizing in
organization and to meet the needs of society time, rigorously. Any objective should be
515
characterized by the ability to provide the the small firms that have 10% of market
efficiency utilization in real terms of the share.
financial, material and human resource, The strategies of the leading firm
efficiency that contributed to performance. In every industry there is a firm that has
Developing a competitive strategy is a market leadership and influencing economic
complex process by which the company activity of other firms that are operating on
concentrates its efforts towards achieving its the market.
goals. Thus, the main competitive Although the leading company holds a
advantages and disadvantages in relation to market position of supremacy, it can easily
the competition are key elements that reach the second or even third place in the
characterize the substantiation of strategy presence of a sophisticated product on the
competition. market which has a superior quality from its
products. In this situation, ranked for the
2. The relationship between marketing
first leading place, the company is acting
strategy and the marketing firm
promptly and is trying to find ways to
position.
increase total demand by increasing market
On the business market companies are share strategy using both offensive and
showing an economic force and have a strong defensive strategies.
market position over competitors and Therefore, strategies of the leading
customers. The main items on the market companies are: direct defense, flank defense,
are: a). dominance position: belongs to a preventive defense, counter, mobile defense,
company with monopolistic behavior that the withdrawal defense.
has lead the market; this company can The leading company must constantly
choose the right strategy from a wide range defend their position, be attentive to the
of strategic alternatives; b). strong position: actions of other firms, because those firms
belongs to economic entities that have a high could exploit a moment of weakness of the
economic power, acting independently, leading company and could obtain easily the
retains its position relative to competitors leading place. It is necessary to be found the
and has been preoccupied to lead the alternatives whereby the leading company
marketplace; c).sustainable position: belongs may extend its activities by discovering and
to the firms that can maintain market share, promoting new uses of the product,
but moderate work, trying to resist to the attracting new buyers who may not know
influence and pressures of the business that the product exists, by convincing the
environment; d).viable position: belongs to consumers to buy a larger quantity of the
small companies that are willing to improve product they want.
business by finding alternatives for The leading firm tries to maintain its
improvement. With poor results, the market position by applying strategic
company is trying to establish relations of alternatives, being concerned about
tolerance from large companies. Otherwise, continuing to oversee the work, to
if their situation doesn’t improve, the permanently protect from the competitors’
company will have to withdraw from the attacks .Even when the leading company
market; e). favorable positions: belongs to attacks, it must focus on the situation, and
the firms that demonstrates strong potential not leave any of the sides uncovered. By
development to increase market share, being keeping costs low, by getting the prices lower
able to continuously improve marketing and by taking account of business ethics, the
enter position by exploiting the favorable company always tries to maintain its leading
market situations; f).unsustainable position: market position and to fully valuing
belongs to companies that are trying to business opportunities.
survive, but they cannot improve their Throw applying the: direct defense, the
performance, which requires its exit from leading company strengthens its leadership
the market. Market strategies, in position because of the pressure from the
conjunction with categories of economic outside; flank defense, the leading
agents are as follows: market leader, which company is looking to defend its place by
holds 40% of market share; challengers, driving priority resources to eliminate
companies aspiring to the first place and pressures came from its competitors;
hold 30% of market share, the pursuing preventive defense, on the market are
companies, holding 20% of market share and give out, in the opinion of Michael Porter,
516
signals from the leading company to the detected the requested route, draws all its
competitors for perusing them do not attack troops there, but launches the attack on the
[Porter,1980]; counterattack, the leading flanks or on the competitors’ back (the
company responds to other competitors who “challenger” identifies the weaknesses of the
are trying to reduce the prices, or to sale leading company and also the unmet needs
superior quality products or to invade its of the customer and attacks in the place
area (the answer is by counterattack, the where the leading company does not expect
company leader mobilize all its forces to to be attacked); encircling attack,
meet the attack, forcing the opponent to “challenger” company is focusing its
withdraw a part of “the troops” and to attention on a segment neglected by the
defend); mobile defense, the leading competitors (for example, if the abuser has
company tries to maintain its leading greater resources than his opponent,
market position answering his opponent's increase supply on the market by launching
attack by aggressive defense and by a broad offensive on several fronts); avoid
development of an innovative activity (by attack – the “challenger” firm temporarily is
expanding market leading company need to focusing its attention on an item of tangible
focus not on his product, but on the real need or intangible product and is avoiding direct
that this product meets them, trying to contact with the leader; guerrillas attacks
improve itself, without excessive abuse of – the “challenger" firms with low financial
the market expansion; the diversification of power attacks leading company through
assortment by developing new activities intermittent actions in order to harass that
unrelated with the scope of the company, is a firm.
strategic choice to lead the company to Strategies of the “pursuing” firm
maintain its market position); withdrawal "The pursuer" is a company that decides to
defense the leading company admits follow the market leader by copying its bid.
temporary waiver to have control of a Leading company can be a winner from a
segment of the market (systematic potential war with the both companies-
withdrawal from the market of the leading “challenger” (which is fixing the lower prices
company when competitors attack on several than the leading company) and the “pursuer”
fronts is a smart strategy and is facilitating (who copies the leading company’s products)
the temporary withdrawal on the - because it has the ability to easily achieve
competitive labor). the same performances. However, "pursuers"
The strategies of the “challenger” firm apply their own growth strategies,
Philip Kotler believes that the “challenger” emphasizing among them: the strategy of
is a company which aggressively is trying to copying, imitation of the leading companies
expand its market position by attacking the is total; the strategy of imitation,
leader, other competitors or smaller firms in processing of product attributes is partially;
the same industry [Kotler, 1998]. The adaptation strategy, the leading company
“challengers” are companies aspiring to the processing action takes place through better
first place. The targets of these companies products which are sold in different markets.
are to increase the market share, to improve The strategies of the small firms
economic activity, which inevitably will lead Philip Kotler considers that a company that
to achieving high returns. Knowing who the serves a market niche is a small company
enemies are and who the competitors are, which is operating on specialized market’s
the “challenger” may establish and segments neglected by the large firms
implement offensive strategies that will lead [Kotler, 1998]. Strategy of the small firms
them to achieve performance and business concerns to the application of measures for
success. The strategies of the “challenger” survival, namely: reducing production costs,
firms are: frontal assault- the company development of after-sales services,
aspiring to the first place detected improving quality, price adjustment to
vulnerable elements of the leading company income customers, short product distribution
and is attacking its strengths (attacker channels, promoting low-cost products.
exploit their own resources, reduce the price 3. The market strategy and its
below that charged by his opponent and characteristics in the context of
reducing costs production, improving its globalization
offer advertising to reach the level of his The market strategy means a combination of
opponent); lateral attack -the “challenger” several actions based on internal and
517
external business factors which are typical consumer and other aspects of seller-
correlated in terms of several criteria. buyer relationship. Main strategic options
Strategy means development and correlation are: market strategy high, medium and low
with the company’s mission and with the demanding;
implementation process. 5). the level of competition – according with
The main factors to consider in developing a this criterion the market strategy reflects
strategy refers to endogenous factors, courses of action through which the
including aspects that characterize internal organization defines its market movements
synergy or all the elements that micro against competitors and this is causing
medium formed in the company, and group reactions or side adapts to competitors. The
factors expressing exogenous stimulus main strategic options are: offensive market
outside of the organization. strategy (expressed the ability to initiate a
The market strategy is defined by finding movement by a firm), defensive strategy
the answers of many questions and (expressed the attitude of an organization to
expressing certain criteria based on defining the actions initiated by other firms).
strategic directions. These criteria are: Strategies by this criterion relates to higher
1). market dynamics – according with this or lower differences in terms of temporary or
criterion the market strategy must include percentage: reduce the price sooner or later,
measurable elements reflecting the or more or less. To define a market strategy
organization's position or a product on a is means to identify a strategic option for
particular market. each criterion (for example: market strategy
The measuring element is the market share, at company X may be: to increase market
and therefore strategic variants are: the share, indiscriminate, adaptive, and
strategy to increase market share, the defensive than the requirement). The
strategy to maintain market share, the marketing strategy is focused on strategic
strategy of market share decline. options of marketing mix. The marketing
2).the market structure- the market mix expresses a set of market variables that
strategy under this criterion comprises are leading to implementation of strategies
several courses of action that reflect and of individual actions.
characteristics of the product in relation to 4. The normal competitive medium and
market in terms of supply diversification. its coordinated on the market
The strategic variants are: A strategy to demonstrate its efficiency must
-differentiated strategy (product clearly be applied by the merchandisers in terms of
stands out from other products on the a normal competitive medium. The normal
market); competitive medium is an economic
-focused strategy (product can not be environment which recognizes features of
compared; the legislative, social, informational,
-undifferentiated strategy (product technological, cultural and demographic
homogeneity is linked with other products); areas.
The prerequisites for formation of a normal
Different elements may relate the diversity competitive medium are:
of organization’s activity on different 1).Economic autonomy of the merchandisers
markets. – which occurs in the context of division of
3).The change-market- according with this labor application;
criterion strategy is characterized by the 2). Private property is the main form of
ability of the organization in response to ownership that promotes free enterprise; 3).
different environmental challenges and it Intervention of the state that should be
includes reaction rate. The main strategy indicative and may become mandatory only
options are: active strategy (marketing under large disturbances;
company initiated changes), adaptive 4). Acceptance of entrepreneurship as a
strategy (the company is subject to changes priority element in creating the legislative
and deal with them), the passive strategy framework in the spirit of the law so they
(the company does not respond to changes can respond to questions like, “Where to
and can lead to reduced market share); invest?”, “When are we investing?”, and
4). market demands- according with this “Where to invest? “;
criterion the market strategy is focused on
issues related to product quality, features
518
5). Prices in a market economy must be presented in the figure number 1, anexes
allowed to form freely and be admitted price one.
limits only by public administration; The main risks of the organization in terms
6). Business development capacity to be of cost strategy are: decreasing the risk of
managed by internal autonomous decisions profit, risk of competition affirmation with
trader. the superior products or lower costs, the risk
The normal competitive medium is an of a negative perception product by the
economic medium characterized by the consumers in the form of direct correlation
following characteristics: between price and quality.
-encourages formation and development of The main risks of the organization in terms
the company within the meaning of of differentiation strategy are: the risk of
sustainability; imitation of a differentiation element by the
-must be a dynamic medium, able to accept competition, risk of confusion (beneficial or
changes and act in the spirit of competition; negative) generated by approximation with
-is an environment which recognizes cyclic rival products, the risk of time gap in terms
fluctuations in the economy, but within of price movement or introduction of a new
limits accepted by achieving the main level of differentiation if appears the
objectives of economic agents; competitive advantage destabilization.
-is a medium that must seek a balance In the literature review there are presented
between economic and political tools. five market forces with the purpose of gain
The literature review identifies the following and retain competitive advantage: the
types of competitors: competition among existing firms,
a). exceeded competitor - is a trader that can bargaining power of suppliers, bargaining
not focus on its efforts to counter power of customers, the risk of substitutable
competition, who tries to dominate him products, the risk of appearance of the
either directly or indirectly; newcomers.The relationship between the
b). selective competitor - is that economic market forces and the type of competitive
agent that hasn’t got a stable position in the medium are presented in the figure number
market and it is seeking ranges from a 2.
favorable position to an instable position. Figure number 2: The relationship
c). fierce competitor - is the trader who has between the market forces and the type
the ability to influence decisions of others of competitive medium
and act with solid defense strategies; Types of Favorable Unfavorable
d).unpredictable competitor- is the trader medium competitive competitive
who has not an economic force on the medium medium
market, but is acting after a period of time
with unforeseeable and secure instruments. Market
The strategic assessment of prices takes into forces
account, the synchronization between the 1. The Relatively Large
coordinates of two types of control: first is competition low
the management business and on the other between the
hand is the local market management. firms
Achieving the optimal objectives of an 2.The power Weak Strong
organization requires the involvement of of
business management strategies as price negociation
correlation with other marketing mix of suppliers
strategies. Involving local market manager 3. The power Small High
is essential in customizing business-level of
segment of consumers especially when it negociation
comes the business expansion. of clients
The organisation is that economic agent who 4.The risk of Limitated Relatively
manages the best resources available to substitutable high
build upon the advantages of the market and products
if that organization is controlling very good 5. The risk of Large Moderate
the risk it can adopt a cost strategy or a the
differentiation strategy. These strategies are newcomers
519
approach to the chance of success in terms of

If the market forces are weaker the the current economic dynamism conditions.
competitive environment is more conductive To complete the process of setting strategy
to obtain good positions. If the organization and position in the minds of potential
wants to obtain competitive advantages is consumers, traders implement and apply
neccesary to take into account the ability of competitive strategies.
managers to implement strategy and
therefore the effectiveness of communication References
strategy for all those involved . 1.Ansoff, I., Strategie du developpment de
5. Conclusions and implications l’entreprise, Les Editions d’organisation, Paris,
Organizations that operate under the 1989.
2.Anton,V.,Marketing interorganizaţional,
economic dynamism that characterizes the
Editura Expert, Bucureşti, 2006.
current market are obligated to adapt to the 3. Florescu, C., Marketing, Independenţa
process of globalization. Economică, Piteşti, 1997.
With globalization increasing competition in 4. Florescu, C., Marketing, Editura Didactică şi
markets, the firms are concerned with Pedagogică”, Bucureşti, 1981.
finding competitive strategies which should 5. Hrebiniak, L.G., Strategia în afaceri.
help the firm to operate in optimum Implementarea şi executarea eficienţei, Editura
conditions. All, Bucureşti,2009.
Conducting dynamic globalization process 6. Popa, I., Management strategic, Editura
Economică, Bucureşti,2004.
involves research and development,
7.Porter, E. Michael, Competitive strategy, New
production, marketing on the world market,
York: Free Press, 1980.
the organization is forced to face some stiff 8. Porter, E. Michael, Despre concurenţă Editura
challenges. Who does not participate at the Meteor Press, Bucureşti, 2008.
process of globalization can not survive on 9. Platis, M., Preţul şi formarea lui, Editura
the business market. Development on the Economică, Bucureşti, 1997.
market is a complex process whose action is 10. Manfred Bruhn, Marketing, Editura
inevitable. The process of globalization, also Economică,Bucureşti, 1999.
the process of development are inevitable 11. Munteanu, V., Medrihan, G., Bucur, M.,
Petrescu, Gh., Stirbu, E., Boier, R., Epuran, Gh.,
even when are backed by political and
Marinescu, G., Bazele marketingului, Editura
economic forces. The mechanisms of Graphix, Iaşi, 1992.
globalization generates major social 12. Kotler, Ph., Principiile marketingului, Editura
conflicts, affects economic efficiency, Teora, Bucureşti, 1998.
economic diversity and consumer protection. 13. Kotler, Ph., Managementul marketingului,
The market business strategies are inspired Editura Teora, Bucureşti, 1998.
by the military strategy. 14.Soros, G., Criza capitalismului global.
The main rules of behavior are inspired by Societate deschisă în primejdie, Editura Polirom
the military sphere: the company does not Arc, Iaşi, 1999.
15.Stiglitz, E. Joseph, Mecansimele globalizării,
directly attack the main rival, but must
Editura Polirom, 2008.
exploiting the slightest error of his rival, the
company must be with a real concern for
Annex 1- Figure number 1: Competitive
prudent action (to avoid egotism). A firm
advantage strategy
must have a backup strategy on the business
market and must act promptly, bold, be
aggressive, but in a positive way.
The competitive strategy of economic
construction must follow a mandatory
orientation after targeting profit.
The development of strategy for the
economic agents may follow one of the
following four alternatives: the option of
price war, the option of price competition,
the option non-price competition, the option
of differentiation or production niche.
A competitive strategy in the context of
globalization should have a competitive
520
Competitive
advantage strategy
Total marketlow Total market Partial market low Partial market

cost: product cost: product
Low cost strategy differentiation: Low cost strategy to differentiation:
to dominate the Differentiation dominate the partial Differentiation
overall market strategy on the market strategy on the
total market partial market
521

A WORLD OF CHALLENGES: THE ACCELERATION OF FINANCIAL

FLOWS AND OF FOREIGN DIRECT INVESTMENTS
POPESCU N. Gheorghe;
Academy of Economic Studies;
popescu_gh_cafr@yahoo.com
POPESCU Veronica Adriana;

popescu_va@yahoo.com
POPESCU Cristina Raluca;

popescu_cr@yahoo.com
Abstract these products, they fuelled the demand for

Although the issue of contemporary risky mortgages and inflated the bubble that
debate on globalization has been widely ultimately burst in August 2007.
discussed, it was not always as it should
have been. Nobody doubts that some very Key words: financial flows, foreign direct
significant global processes - economic, investment, audit, accounting, globalization.
social, cultural, political and environmental -
are ongoing and that it affects (almost) 1. Introduction
everyone and (nearly) everything. However,
there is no agreement on how exactly to The starting point of the globalization
define this thing we call “globalization” or was the growth of the foreign direct
which of its components are precisely good or investments during the period of 1980-
bad and for whom. 1990. The foreign direct investments
For most of us, within the analysis of brought with them the informational
globalization, its potential and pitfalls had a revolution and the qualitative improvement
tremendous effect on people. The discussion of the technological systems in the
regarding the connections between communication domain. This led to the
environment and globalization was similarly decreasing of transportation costs and to the
the result of several unjustified expectations dispersion of products production in different
and concerns about the connections between parts of the world in order to be assembled
these two areas. at the place where they will be
While the GSEs dominated the securitization commercialized. The globalization had a
market during the 1980s and 1990s, by 2000 more rapid spreading after the collapse of
they began losing market share to private the Bretton Woods system. The financial
financial institutions as more and more sub- globalization brought the detailed
prime mortgages began to be securitized. As knowledge of the foreign commodity markets
the securitization market came to be as well as the development of financial
dominated by the financial sector, it grew transactions which now could have been
more complex, and more opaque. Not only made at any hour, in any corner of the
did the market become riskier and less world. The globalization phenomenon is
transparent, but it shifted into a financial supposed to be profitable for all the
world that was unregulated and little countries of this world but still it has
understood. As banks, brokers, hedge funds, been proven that powerful – developed
and other institutions utilized new financial and industrialized countries hold a
innovations to maximize their exposure to considerable advantage in that which
522
means profits obtained after the the 1980’s with an ulterior increase of the
globalization. As a result the less capital flows between them.
developed countries or in course of As it was mentioned, the global monetary
development have a small level of benefits system suffered three revolutions, all in the
obtained from the globalization. In most of same time: liberalization,
the less developed countries the labor force internationalization and innovation. The
is exploited by the multinational companies financial liberalization created the
because there the per capita income is small ecological politics for the extension of the
and the labor force is very cheap. The capital’s mobility. However the rise of
standard of living has grown very little or capital flows was impelled by the
not at all in the countries that are exploited informatics revolution and the
after the globalization, countries such as communication technology. This made
Eastern or South-East Asia, the countries possible the improved and faster knowledge
from Sahara – Africa. of the foreign markets, the worldwide
By allowing banks to sell whole loans off development and at any hour of the financial
their books, and by distributing risk transactions and the appearance of new
according to the risk appetite of investors, it financial instruments especially of
has lowered the cost of lending for all and derivatives.
facilitated the extension of credit to new The tendency towards the financial
borrowers who otherwise would be shut out liberalization started even since the end of
of credit markets. However, as the market the 1980’s. This varied from simple steps
became increasingly opaque and complex, such as unifying the trade rates and
new instruments based on technical removing the surveillances of the credit
computer models were wildly traded by allocations in the domestic market to the full
highly leveraged institutions, many of whom development of the financial system’s
did not even understand the underlying liberalization that included opening the
models. In good times, these arcane instru- capital accounts. In the developing countries
ments were sources of enormous profits, but the second type of reform was initially
their complexity and the lack of any serious restrained to a group of countries with
infrastructure and public information about medium wages, with a relatively larger
them created a massive panic in the range of activity of the institutions of
financial system that began August 2007. financial intermediary that included the
obligations and markets with their own
1. The Acceleration of Financial Flows capital. The action in terms of increased
and of Foreign Direct Investments private financial flows from North to South
was concentrated in these developing
A. Financial Flows markets.
These flows consisted of elements such as
The most dramatic element of the investments in the markets with their own
globalization in the last two decades was capital of those countries by the investment
the rapid integration of the financial accounts (a great deal which was from the
markets. The Bretton Woods system that part of the pension funds), the bank loaning
was created after the Second World War was the corporatist sector, and short term
at the base of the accounts with closed speculative flows especially in the monetary
capital and the fixed exchange rates. markets. Loaning through the international
Therefore in contrast with the commerce and bank of bonds has also increased in the
foreign direct investments where the 1990s at the beginning of the financial
gradual liberalization was initiated, the globalization.
financial globalization was not even on the
agenda of that time. The world was living B. Foreign Direct Investments
with a system of separate national financial
markets. At the beginning of the 1980’s, the foreign
This began to change in 1973 with the direct investments started to increase
collapse of the Bretton Woods system. But it absolutely as well as percentages from the
was not an immediate rush in liberalizing gross domestic product. Even since the year
the capital accounts. This only began in the 1980 the political environment in the entire
industrialized countries at the beginning of world has favored a lot more the increased
523
foreign direct investments. Throughout the smaller” and a more “global” planet, they
1990’s the number of countries that adopted have also resulted in new environmental
significant measures of liberalization of the “stress”, especially through increased
foreign direct investments grew constantly. atmospheric carbon concentrations.
Indeed many of these hopes were not Technology has sped up prosperity for many,
fulfilled. In spite of the rapid flow of growth but it has also allowed extraction of
of foreign direct investments in the resources - fish, timber, metals, minerals,
developing countries the investments remain etc. - at unprecedented rates, thereby
concentrated in approximately 10 countries placing new and massive pressures on
of the world. stocks.
Besides their increased volume the nature of Technological solutions will inevitably
these investments also changed. The determine the future of globalization as well
informational revolution and the as the global environment. But they will do
communication technology one, associated so within the context of global consumption
with the decreased transport costs, made demands. Technology cannot change the
possible on a multinational level the demands or help us satisfy all of them but it
excessive growth of the goods and services can, through globalization, help meet these
production on a technical and economical demands in a more planet-friendly way.
level. The production processes could have The trajectories of the future - as well as the
been scattered and located along the globe in technologies available - will be shaped by our
order to exploit the economical advantages aspirations of what a “good life” really is.
that appeared from different costs, the The moral and spiritual dimension of
salesmen’s availability and the propitious planetary aspirations may not seem like an
character of the investments climate. In appropriate subject for policy discussions,
consequence the components and parts can but it lies at the very heart of the type of
be sent in the entire world and assembled global society that we want to live in and the
according to everyone’s own desire. The type of global society that we are
communication revolution made the constructing.
coordination and control of these dispersed Security is about protecting people from
production systems possible. critical and pervasive threats. This ranges
from the security of nations to that of
2. The Technique and Technology – a individuals and of societies.
Continuing Evolving World For “winners” of the process, globalization
becomes an integrating phenomenon - one
The industrialized countries were the source that brings together markets, ideas,
of the technological revolution that individuals, goods, services and
facilitated the globalization but the communications. For the “losers” in the
revolution had an effect of a gradual process, however, it can be a marginalizing
influenced growth over the rest of the global phenomenon.
economy. At some point the new technology The dependence within society on each other
changed the international advantage becomes diminished as trans-boundary
comparatively making the understanding an dependence increases. The combined effects
important factor of production. The of globalization regarding marginalization
advanced technology industry and the one can wreak havoc on whatever resilience poor
based on knowledge are the fastest sectors communities might otherwise have
that develop in the global economy and the possessed.
successful economical development will In many ways, climate change is the
eventually start to demand for the countries ultimate threat to global security because it
to be capable to enter and compete in these can existentially threaten security at every
sectors. This implies that they will have to level from the individual to the planetary.
emphasize their investments in education, Nevertheless there are serious imbalances
training and in knowledge distribution. between the North and South in the access
Technology is the key element nowadays. to information and technology, like in the
The policy decisions we now take will case of transactions and foreign direct
influence future trajectories of technology investments. Almost all the new technologies
development. Transport technologies, for originate from the North where most of the
example, have not only made “the world research and development processes take
524
place. This is an important resource in securitization that really exploded after

dominating the multinational firms on the 2000. CDO issuers purchased different
global markets and their power of tranches of “mortgage-backed security” and
negotiation with regard to the developing pooled them together with other “asset-
countries’ governments backed securities” (ABS). The other ABS was
The effects of this new technology have largely backed by credit card loans, auto
spread a lot over the economical domain loans, business loans and student loans. A
although they are still developing now. The “senior” CDO was made up predominantly of
same technology that permitted the rapid the highly rated tranches of MBS and other
economical globalization was also exploited ABS, while “mezzanine” CDOs pooled
for general use by governments, civil together a higher share of junior tranches.
societies and individual people. With the Indeed, a CDO essentially re-applied the
distribution of the internet, electronic mail, structure of an MBS. A CDO could thus
low cost international phone services, mobile further re-distribute the risk of its assets by
phones and electronic conferences, the world re-tranching and selling off new securities.
has become more interconnected. The vast In a seemingly miraculous form of “ratings
and rapid growth of the information supplies arbitrage,” a middle-sized CDO could pool
that can be from science to general together low-grade junior tranches of MBS
knowledge can now allow access from any and other ABS and could convert some of
location in the world that is connected to the them into new senior AAA-rated securities.
internet. This can be transmitted and The payment stream of an AAA-rated
discussed just as easy. In the same time the tranche of a middle-sized CDO was thus
satellite television and electronic press based on junior-rated MBS and ABS. The
formed the forth veritable condition. issuers worked directly with ratings
agencies to structure the CDO tranches so
3. Financial Securitization, an that they could optimize the size of highly-
Innovation Extremely Beneficial for rated tranches in order to lower the funding
the Credit Markets costs of the CDOs; However, the higher the
share of senior tranches, the lower the
One of the central reasons the current crisis subordination and thus protection of those
has been so severe was that much of the sub- tranches. As an additional protection, CDO
prime mortgage exposure has been issuers would purchase credit default swaps
concentrated in the leveraged financial (CDS) or credit insurance to raise ratings on
sector. The term “leverage” typically refers the securities they issued. However, when a
to the use of borrowed funds to magnify wave of CDO downgrades hit in 2007, many
returns on any given investment. If asset previously highly-rated tranches became
prices are rising, and the cost of borrowing is exposed to losses. In practice, therefore, the
low, then banks will naturally try to reduced net risk exposure that CDOs
maximize their exposure to rising asset appeared to embody was mostly illusory and,
prices by borrowing as much as they can. importantly, this second round of
While borrowed funds are central to the securitization made it even more difficult for
concept of “leverage,” its definition can investors to determine what risks they were
expand to any instrument through which a actually taking.
bank can magnify its exposure to a given The first CDO was created in 1987 by the
asset. now-defunct Drexel Burnham Lambert, but
this security structure was not widely used
4. Collateralized Debt Obligations until the late 1990s when a banker at
Canadian Imperial Bank of Commerce first
As the securitization of mortgages developed a formula called a Gaussian
increasingly became an affair of the private Copula that theoretically could calculate the
financial sector, it spurred further probability that a given set of loans could
innovation in products that in good times face correlated losses. Annual CDO
generated large profits, but have also been issuances went from nearly 0 in 1995 to over
the source of some of the biggest losses since $500 billion in 2006. As CDO issuances
the crisis unfolded in 2007. Collateralized grew, so did the share of them that was de-
Debt Obligations (CDOs) represented a voted to mortgages: Mason and Rosner
further step into the new world of (2007) tell us that 81 percent of the
525
collateral of CDO’s issued in 2005 were made allowed banks to leverage their holdings of
up of MBS, or about $200 billion total Thus, these assets more than they could on their
during the last several years of the housing balance sheets. To fund these assets, the
bubble, CDOs increasingly funded mortgage SIVs issued asset-backed commercial paper
loans, especially sub-prime ones. (ABCP) and medium term notes as their
Indeed, Mason and Rosner (2007) go even liabilities. Because they obtained the legal
further to explain the insight that CDOs title of “bankruptcy remote,” SIVs could
added significant liquidity to, and thus obtain cheaper funding than banks could,
helped fuel the demand for, sub-prime and thus increased the spread between their
mortgages and MBS. They estimate that in short-term liabilities and long-term assets.
2005, of the reported $200 billion of CDO col- SIV assets reached $400 billion in July 2007.
lateral comprised of sub-prime MBS assets Until the crisis hit in August 2007, this
issued in that year, roughly $140 billion of business model worked smoothly
that amount was in MBS. They then use because a SIV could typically rollover
figures from the Securities Industry and its short term liabilities automatically.
Financial Markets Association to estimate Liquidity risk was not perceived as a
that roughly $133 billion in MBS tranches problem, as SIVs could consistently
were issued in 2005. Thus, CDOs purchased obtain cheap and reliable funding, even
more MBS tranches in 2005 than were as they turned to shorter term
actually issued that year! While these borrowing. Technically, the SIVs were
estimates are not precise, they make the separate from the banks and hence did
clear case that CDOs provided nearly all the not add to the banks’ capital or reserve
demand for lower-grade sub-prime MBS requirements. Once the SIVs ran into
during the later boom years, and in so doing financial trouble, however, the banks
provided a critical credit source for sub- took them back onto their balance
prime mortgages, fuelling demand and sheets for reputation reasons, to avoid
bringing the crisis near. alienating investors and perhaps to
avoid law suits.
5. Structured Investment Vehicles and
Off-Balance Sheet Entities 6. Impact over the Economic Growth
One of the constraints on banks and some A basic step in evaluating the globalization’s
other institutions is that they must meet impact is to look at what happened with the
capital requirements, that is to say, they economic growth rate globally as well as
must fund a given percentage of their assets across countries. The amazing factor here is
with shareholders’ capital rather than with that since the year 1990 the global increase
some form of debt. Capital requirements for GDP was slower than in the previous
banks are mandated jointly by the FDIC, the decades, the period of the most pronounced
Comptroller of the Currency, and the globalization. At least this result differs with
Federal Reserve. As we will observe in a the more optimistic prediction about the
forthcoming article, since 1989, when the impact of the enhanced globalization growth.
international Basel Accord went into effect, The growth was also unequally distributed
U.S. banks have had to meet both the Basel between the industrialized countries and the
requirement and a separate U.S. standard. developing ones. In terms of increased
Capital requirements lower the profitability incomes per capital only 16 developing
of the banks, since they limit the extent to countries have grown to more than 3
which banks can leverage any initial percentages per year between 1985 and
shareholder investment. 2000. In contrast with this, 55 developing
Naturally, therefore, banks looked for ways countries have grown less than 2
to circumvent the requirements. The percentages per year and of these 23
favoured means of getting around these countries suffered a negative growth.
mandated capital requirements became At the same time the income difference
what were known as Structured Investment between the strongest and the poorest
Vehicles (SIVs), an off-balance sheet SPV set countries has significantly grown.
up by banks to hold MBS, CDOs and other This model of unequal growth shapes the
long-term institutional debt as their assets. new geographical world economy. The most
By dodging capital requirements, SIVs striking change is the rapid economic growth
526
in China in the last two decades together to lessen the collapse we are now going
with a great gradual but significant through. While it is difficult to know for sure
improvement in the India’s economic growth if there is an asset price bubble when it is
achievement, these two countries accounting happening, the fact that is crystal clear is
together more than a third of the world’s that most careful observers of the housing
population. market in 2006 knew that a collapse was
Even though it is significant, China’s and very possible. Even if McCarthy and Peach
India’s improvement is just a part of an were correct about there being no bubble in
image that reveals the unequal distribution 2004, there sure was one a couple of years
of the globalization’s benefits between later. We now conclude that monetary policy,
countries. The industrialized countries with which kept interest rates so low, was one
their initial powerful economic base and the reason for the financial crisis.
abundant capital, knowledge and Even so, it is a mistake to overstate the
technological advantage have been well possible impact that might have resulted
placed in order to earn substantial benefits from different choices. Apart from Fed
from the increased globalization of the world policy, one very important reason interest
economy. rates have remained low in the United
Enlarging the global markets for goods States and around the world is because the
and services provided new commodity supply of savings has been large relative to
markets for their exports while the the demand for funds for investment.
emergence of the global systems of Because of the globalization of financial
production and the liberalization of markets and because of all the money from
investments rules have generated new around the world looking for returns, the
opportunities for their multinational firms U.S. economy was able to finance its housing
thus increasing their area of global activity boom at low interest rates.
and the market power. Similar to this the We cannot know exactly what would have
growth of financial global markets has happened should the issues have been
provided increased opportunities for approached differently. But it seems highly
investments with larger earnings in the likely that there would have been higher
upcoming markets. U.S. interest rates and less of a housing
On the other extent excluding from the boom. The discipline in the federal budget
globalization benefits the less developed developed in the 1990s was justified,
countries which includes the majority of the correctly, on this basis. Generally, it is better
countries in the South-Sahara African to finance investment with savings
region, remains a stubborn reality. The less generated at home, but if those savings are
developed countries are caught in a vicious not forthcoming, it is better to keep
circle of interconnected handicaps that investing productively and borrow the
include poverty and illiteracy, civil conflict, money. Without access to foreign funds, the
geographical disadvantages, bad government U.S. economy would have invested less in all
and rigid economies much dependent on a kinds of capital. The problem was the
single base product. In return many are also diversion of too much investment into
burdened by high external debts and badly housing that was not productive at the
affected by the continuing decline of the margin. Moreover, foreign investors have
primary basic products’ prices. These taken a big hit from their lending to us as
problems were aggravated by the continuous banks all across the globe have faced heavy
protection of the agriculture in the losses on their assets related to US
industrialized countries. This restricts the mortgages.
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528

NEW RULES FOR COMPANIES DUE TO CONTINUOUS GROWING

COMPETITIVENESS
POPESCU Veronica Adriana;

popescu_va@yahoo.com
POPESCU N. Gheorghe;
popescu_gh_cafr@yahoo.com
POPESCU Cristina Raluca;

popescu_cr@yahoo.com
Abstract The extended enterprise model studied in this

Work nowadays is not and does not have the material shows that the business world
same structure it had, say, 4 decades ago. involves many unknowns that must be taken
Humans have evolved, science has evolved, into account. First, is the vulnerability of a
and technology has evolved, it seems that chain of systems consisting of several
even nature has responded to these companies, some of global size and some
developments. We can give here the example medium-sized or small, and the second is
of Japan which in 1995 closed the Kobe about the people involved within these
harbour for 26 months because of an structures and how effective they can be
earthquake thus disturbing the production motivated to do their job as they should.
process of many firms and the examples of
these natural disasters may continue. Key words: growing competitiveness,
Nations must provide an environment to information, financial security, globalization,
support the Extended Enterprise model. Also, knowledge.
nations can use this model as a tool to
increase their prosperity. 1. Introduction
Globalization works because the developed
nations can use their discount structure to It is understood that these firms depend on
attract investment, and, at the same time, to each other regardless of their size, if an error
gain access to technology and knowledge. occurs in the system all three categories of
Even the least developed countries have a firms will be affected, so the best way to
place within the global business prevent the vulnerability is to study the
environment, since the distance was greatly market carefully and to find early solutions
reduced by transportation and to combat the problems where businesses
telecommunications. In such a world, even are vulnerable. Of course there are
perishable products, such as fresh cut flowers situations that can not be prevented in
and vegetables, can be delivered daily in advance, as it was the case of the
Latin America or Africa or in shopping malls earthquakes or other natural disasters.
from America or Europe. The same type of model also implies a
One of the major risks of the Extended certain complexity that sometimes makes a
Enterprise model is that if a collapse arises company difficult to be managed, but there
in “the value chain” from a company are people that are specially trained and
somewhere in the world, it can spread they are called sophisticated managers and
quickly with devastating effects throughout they know their field of activity. If we do a
the organization. SWOT analysis of this enterprise model, on
529
the weaknesses list we may note the understand why, they feel helpless to
inefficiency of transactions, not because they change.
are being made in an inappropriate manner, In addition, the company's value system
but because it takes too long with filling in is changing, placing more emphasis on the
the documents, administration and others. balance of life at work.
The Extended Enterprise model requires The emergence of a new business model
nations certain rules to thrive, among them and the change of values lead to a
being: speed and efficiency, zero tolerance to situation in which work is now different
corruption, special attention to from what it used to be - work is being
infrastructure, efficiency of transactions, practically “reinvented”.
protection of intellectual property and the
list could go on. 1. The Extended Enterprise model and
The point to be bear in mind is that the new rules for companies
everything is unpredictable and in ten
years everything could be different As we said before, thanks to the evolution of
than it is now, but until then we must mankind in all respects the labour structure
learn to enjoy the benefits of the has changed as well, evolving into three
present structure of labour. concentric circles. The first circle is the
Both nations and people are affected by “periphery”, and people that are occupying
the developments of the Extended jobs within this circle are not very motivated
Enterprise. People also experience a to do the best job, those jobs being
profound change in their working considered “second hand”. The third circle
environment. In a world without is represented by the people who know
boundaries, with assets that can be their objectives very well, are paid by
transferred easily from one place to the quality of their work and are
another, working daily in an extended motivated to perform their tasks best.
enterprise is very different. These jobs are considered real privileges and
Job security is becoming more of a their owners are considered to be privileged,
concept that disappears - loyalty and but some employees are much stressed. The
leadership do not have the same meaning as second circle belongs to the
they had two decades ago. “independents” - if they can be called so –
The purpose of work has changed. Some they do not belong in any company and their
wonder whether competitiveness, as it interest is to do their work as well as they
promoted by the Extended Enterprise can in order to cooperate in the future with
model is indeed a source of prosperity for those companies.
the nation. Companies are especially careful to
Reorganizing the companies, reintegrating balance the cost benefits that are
processes or relocating the assets and increasing the insured investments
activities abroad, does not necessarily mean against the risk that a single local
that in this way the prosperity of the people collapse can seriously interrupt
that live in the market economy is operations.
increasing. To cope with the extended enterprise model,
For many, globalization has become a bad nations should follow the following rules:
word. The largest division today is not 1) A standard of excellence for
between capitalism and communism, but investments worldwide: A low cost
between those who support globalization transaction does not represent an excuse
and those who are against it. for low quality – there can not be
People are less affected by major theories changes and compromises in the quality
than by the changes that take place directly of international investments. A bad
within their working environment. investment can affect the rest of the
Individuals have a direct, an even personal value chain. Nations must ensure an
connection, to their job. environment to support the
Within the extended enterprise, the nature standards required by the
and structure of work has changed international investment grades.
drastically. Employees realize they are at 2) A global standard for speed and
risk more than ever. Because they do not efficiency: Delays are as harmful as
poor quality. Administrative procedures
530
must be fast and transparent to avoid want to be sure that they can rely on
bottlenecks in operations, which in turn integrated, fast and efficient
hurt the profitability of companies transactions with official government
worldwide. Nations should be very channels, such as those related to taxes,
attentive to the speed and efficiency finance, customs and immigrations.
in their legislative and 7) Protection of intellectual property:
administrative processes. A network of partners can work
3) Zero tolerance to corruption and effectively if all its members can share a
inappropriate practices: Many similar level of knowledge, technology
companies refuse to tolerate such and management. Science, as property
unethical practices which are against held by one or more partners, “flows” in
their corporate cultures, and even the system and the owner’s rights must
against their national legislation. be protected.
Practically speaking, companies can not 8) Security of foreign and personal
operate in an opaque environment. They assets: The assets and installations of
are lacking resources, time and skills to foreign companies increase the target of
handle things on this issue. Leaders political motivated assaults, especially if
from many developed nations sometimes the brand is associated with country of
do not realize that for many global origin. We can mention, in this sense,
companies, appreciation is not the assets of companies such as
negotiable and the committees must be McDonald's, Coca Cola and HSBC, which
provided in a transparent manner. have been the target of extremist groups.
Firms are facing difficulties in their These companies refuse to send their
attempt to balance the regulatory employees and their families in countries
rigidities imposed by their own nation they consider unsafe because they may
(maybe even more expensive) with the be targets of violence. There are jobs in
regulatory fluidity of the host nation countries like Nigeria or Colombia that
(maybe also expensive), creating a major are still difficult to fill because of
misunderstanding. security factor. Such problems become
4) The predictable framework for extreme in war zones such as Iraq or
economic policy: Large investments, Afghanistan, where kidnappings of
as sites for manufacturing chips or cars, foreigners have become common. In
are the investment of billions of dollars. contrast, China, Japan and Singapore
A firm can not commit to such a level of have focused on protection of business
investment, especially if it has a critical and foreign individuals.
value in “the value chain”, if the local 9) Support for small and medium
environment can become excessively enterprises: Providing support and
moody, volatile and unpredictable. promotion should encourage the local
Companies can adapt and operate in SME (i.e., small and medium
almost any environment as long as the enterprises) to develop the necessary
rules of the game are clear and stable in skills and to enter the global network of
order to plan in advance their enterprises.
operations. 10) Emphasizing the role of education.
5) Special attention to infrastructure: The Extended Enterprise model needs
The assets must be transported through “sophisticated” and talented people on
an efficient network that includes every level of the organization. Global
highways, railways, ports and airports. companies grant a considerable amount
6) The efficiency of transactions: The – between 3% and 5% of their income -
efficiency of transactions is built on an for training and developing their
advanced technological structure that workforce.
supports traffic information. New The idea is that the implementation of the
management techniques such as ERP enterprise model has led to the emergence of
(Enterprise Resource Planning) or new types of working relationships. Also, the
CRM (Customer Relationship relocation of physical and personal assets,
Management) depend on the existence controlled by the central enterprise defines
of a sophisticated communications the extended enterprise. The goal of most
infrastructure. When investing, firms companies, especially those located in the
531
exchange market is to maximize profits, Companies must carefully balance the

using as few physical assets and human management of the two distribution
resources. channels - direct and indirect – and the
impact on final customers. We give here the
2. The structure of the Extended example of Hewlett Packard, who was a
Enterprise Model in the pioneer in developing an effective channel
Globalization Age strategy. Today more than 80% of its sales
come from indirect channels. Another
The work structure has evolved in three example is Dell, which has proved very
concentric circles, due to the work effective in using technology to create a
place, the way work is carried out and “direct model”, which directs distributions
its relations with the central enterprise. and sales straight to the final consumers.
This new structure of work is complex Migrating from one channel to another
and vaguely defined, because it keeps is not easy; it can lead to increased
evolving. Companies make adjustments to aggression in terms of sales in the
the model, correcting the mistakes as soon existing channels and to seriously
as they occur. increased tensions between partners if
Within the extended enterprise, the centre of they lose profitable business.
the company has the main knowledge Most companies develop a strategy using
regarding the key processes of the company. both channels in parallel, but they are
Conventionally, the best paid jobs are faced with the dilemma of defining the types
more likely to find within the centre of of sales that are better made and by which
the enterprise rather than at its channel.
periphery. The employees from the central
enterprise identify themselves with the 3.1. New strategies for the supply chain
enterprises’ objectives and also with the management
corporate culture and are more likely to
develop long term careers. Technology has increased the number of
Certain jobs must not be carried out within choices of available channels to reach
the location of the central enterprise, these customers as new business models arise.
jobs being mobile jobs. Sales agents are the a) The simplification strategy: Great
perfect example for this type of job. companies are trying to get rid of as
However, labour is not something that many intermediaries as possible between
can be moved freely from one place to the original vendors and final customers.
another, without consequences for the PC companies like Dell, airports
firm or company. Some changes in the companies like Easyjet and Schwab for
work and relations structure must be banks, are aiming at this type of
decided and implemented carefully, because simplification strategy. The significant
these changes have a strong reduction of distribution costs and
psychological effect not only on turning to customers’ savings by
employees but also on organizations. directing the services is the key to this
A strategy of “cut-costs” is not always the strategy.
best way to get a work structure which is in b) The re-intermediation strategy: Re-
fact increasing the company’s intermediation occurs when a service
competitiveness. One can reach following provider is caught in the middle between
undesirable situation: people and the seller and the buyer. A company
processes can be destabilizing, and thus involved in this strategy comes between
it can lead to a very strong and deep the central company, or the traditional
impact on the minds of employees - distributors and the final customers to
those who remain and those who leave - ensure a high quality service. Companies
and on the ground structure of the like Amazon.com, Yahoo!, eBay and
company. lastminute.com are examples of such
companies - they provide services to
3. Supply Chain Management versus multiple partners on a common platform
Customer Management of consumers.
c) The reverse auction strategy:
reverse auction reverses the sale
532
process. In traditional sales, a seller c) Maintains long-term relationship

specifies a price to a buyer and maybe, with the customers so as to benefit
after some negotiations, the sale is from repeated business.
made. In the process of reverse auction It should be noted that the size of the
the buyer sets the minimum and supply chain model is more productive
maximum price for a particular product than the part regarding the long-term
or service and invites vendors to compete relationship with the customer.
to meet the lowest price possible below Technology allows us to identify customers
the price that was previous set. The individually, better than ever. The objective
sales from the reverse auction manage, is to recognize a certain type of behaviour
in an increase rate to obtain large and a buyer profile. The “One to One”
quantities of standardized products, marketing, as it is called, allows a company
such as supplies, food, and/or technology, to target its key customers, to exploit its
especially in the “business to business” maximum and best potential. The aim is also
(B2B) platforms. to get rid of bad customers, to find out which
Thanks to the revolution in business and are the customers on which money is spent,
technology processes, supply chain without too much profit.
management is highly effective. When a In this case, the 80 to 20 principle shall
company receives an order, generally it apply: 80% of the sales are generated, in
knows what to do with it and can carry it out general, by 20% of the consumers.
effectively. The same level of efficiency does
not apply for another part of the model – it A. Being competitive by developing
could be used more in obtaining similar equality of customers
production profits generating new and
repetitive orders, as well as improving Being competitive requires developing
customer relations. equality of customers: a portfolio of loyal
In many companies, the difference in the and dedicated customers who have a long
sophisticated process of handling both term relationship with the company.
sides of the model is striking, while Therefore, we mention the following ways to
supply chain management is often very be considered by companies:
advanced, customer management is still  Firms should lead carefully the
lagging behind. customer database.
 Companies should remain in contact
3.2. New strategies for customer with the customers, even when they
management are not working on an important
business, thus maintaining an open
It is one thing to find customers, and is relation and creating the possibility
something else and more importantly, of repeated sales. Repeated sales are
to keep them in a long term more profitable than “cold selling”.
relationship. Repeated relationships are
cheaper to obtain and maintain in B. Being competitive by creating a
comparison to those of a new client. product “wrapped” in a service
In most cases, large companies maintain a
closer relationship between the central Being competitive means creating as well
company and the consumer while remaining a product to present and then sell to
true to the three golden rules. customers as a service. Few are those who
The extended company: sell products from a single category. A
a) Understands the customer's business product always comes “wrapped” in a
model and how to interfere its own service, the key components of customer
value chain with the customer’s being the product itself and the services that
value chain; come together with the product. The system
b) Identifies the most profitable must be treated as a whole. The product
customers determining which of itself must obey the imperatives of quality
them brings the greatest value to his and cost efficiency. “The wrapped”, in other
company. words, the service around the product,
must express a rewarding experience to the
customer. Lack of satisfaction of many
533
customers today, derives not from defective Lately, customers want a simple and
products, but from bad services around the profitable experience when buying a product
product. or a service.
One example is that of the types of close We recall in this respect companies
relationships within the private banking Amazon.com, Dell and Easyjet that have
industry, which are set between the bank well-known models, and whose success
and its customers. Efficient managers factors cover their availability, speed and
develop a privileged and confident low cost. These companies are also
relationship with their clients for many successful because customers find their
years. They know everything about their business models easy to understand and
business, their families, their financial manage. Therefore, buying a book or a CD
statements, and about their private lives. from Amazon, buying a computer from Dell
They often become business partners and or buying a ticket from Easyjet is very
personal confidents. When bankers leave one handy.
bank for another, their clients usually The conclusion is that simplicity can be a
follows them. The employment companies very competitive advantage. So, being
recognize their superior value not only by competitive also means to operate as simple
paying the newcomer bankers a salary, but and understandable as possible to
also by giving them a contribution to health customers.
or a reward for the number of loyal
customers that they bring with them. 5. Conclusions and implications
C. Being competitive requires Modern technology, particularly IT and

simplicity telecommunications technology, has
made such a business model possible. Some
Being competitive means also to act transactions may be performed
according to some simple rules that are automatically. Systems like Epos create a
as transparent as possible and easy to link between the inventory of the shelves in
understand. a store or a customer’s warehouse and the
Technology enables companies to have adequate suppliers. The vulnerability has
much better knowledge about the customers developed from the fact that the human
that lead to a “one to one” strategy that factor is still present in many
target promotions for the exact needs of each transactions.
individual. Transactions have increased the number of
Another example is that of Amazon.com, office and administration operations within
which keeps track of the sales made by the large and international companies.
consumer and actively promotes particular A business model of the extended
products that match the buyer profile of each enterprise must be led and controlled
consumer. by the centre. Since transactions are the
The idea to keep in mind here is that the source of inefficiency and collapses, most
Extended Enterprise model can become companies are monitoring closely and
complex and sometimes difficult to creating incorporated backup systems. As a
manage. Sophisticated managers are result, companies draw new prices, the same
able to conduct such operations. They should as the multitude of financial controls,
be skilful within the management process auditors, accountants and granting officials
and able to conduct relations with a network that infiltrate in the system. In addition the
of business partners. government increased the complexity of
For the extended enterprises the transactions due to the deviations from the
reduction of business producers law, regulations and procedures, which now
represents a priority. Partners in this companies must obey.
model of business relationships are a Companies that operate under the principles
common system that is transparent and of extended enterprise model have unleashed
easy to manage, allowing decisions to considerable productivity gains for
be implemented quickly, and this reduces themselves.
the risk of collapse. The model is based, in fact, on increasing
productivity through better working
534
methods, such as quality and producing produselor,proceselor si

without resources. serviciilor”/”Environmental Management
The model was further boosted by coupling Accounting (EMA): Reflection of
Environmental Factors in the Accounting
better work techniques with saving
Processes through the Identification of the
opportunities offered by globalization. In an
Environmental Costs Attached to Products,
open world, limiting activities wisely, one Processes and Services”, Revista Economie
can lead to significant cost advantages. teoretică şi aplicată, nr. 10 (505), pp. 81-86,
It should be noted however, that the decembrie 2006, articol indexat în bazele de
enterprise model is more refined upstream, date internaţionale RePEc (IDEAS,
when it refers to interacting with the Econpapers) şi DOAJ, cod ISSN 1841-8678.
procurement of supplies and/or 5) Anica-Popa Adrian, Manole Alexandru,
manufacturing, rather than downstream, Barbu Cristian - „Aprovizionarea internă vs.
a provizionarea externă în industria
when it refers to sales, generating orders
fabtricării materialelor de construcţii”,
(i.e., the speed of the transactions),
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they expect people to accommodate them.
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Roman Constantin, Manole Alexandru,
„Contabilitatea Managementului de Mediu
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procesele contabile prin identificarea
costurilor de mediu corespunzatoare
535

CENTRAL BANK MONETARISM TO KEYNESIAN GOVERNING

IMPULSES
RĂDOI Mădălina-Antoaneta;
aolteanu@univnt.ro
OLTEANU Alexandru;
aolteanu@univnt.ro
Abstract On the other hand, ECB is concerned – for

Dissenting opinions have appeared as to the achieving its objective of stabilizing prices in
main objectives of stabilizing prices, reducing the Euro zone countries – with avoiding
the unemployment rate and implementing budgetary deficits, on the basis of the
monetary, budgetary, social, salary and other harmonious economic policy of the member
interwoven policies. These divergent states.
standpoints have been adopted by different That is why we have approached in the
opinion poles concerned with maintaining present paper the dominant conflicts that
their independent positions. exist nowadays between governments and
For the European Central Bank (ECB), price Central Banks, conflicts that are regarded as
stabilization, conditioned by the success of all a current problem, while noticing that in
economic and social policies, especially with particular circumstances these dissenting
reference to unemployment reduction and the positions may become convergent.
reduction of other budgetary deficits, is
regarded as condemnably lax. 2. Literature review
Policies are an answer given to monetarist or
Keynesian theories. These references – 1. Theoretical Essentials of Monetary
approached in the present paper – are more Orthodoxy
or less explicit, acknowledged or created by Classic and Neoclassic Analyses set up the
central banks and governments. theoretical essentials of monetary analysis.
Price evolution control is accomplished by
Key words: monetarist policies, Keynesian controlling the monetary mass.
policies, monetary mass, credit based Before these analyses were made, empirical
economy, market financial economy, M3 studies, which lacked any theoretical
monetary aggregate, exchange market, approaches, outlined the connections
directory interest rate. existing between price evolution and the
currently used currency. This connection
1. Introduction appeared in the XVIth century, when the
high rise of prices in France, e.g., led to the
European Central Banks maintain an Bodin-Malestroit controversy.
orthodox monetary policy thanks to the Jean Bodin was not a forerunner of the
rights they used to have before their recent quantity monetary theory. In his “Answer to
joining the economic and Monetary Union. the Malestroit paradoxes”, which is an
At the same time, governmental directions outline of such an analysis, Jean Bodin did
are determined by the unpredictable not make any reference to this theory.
economic context and their electoral success. Basically, he does not state that monetary
Nevertheless, governmental orientations led tendencies exclusively act upon prices and
to the signing of the EU Stability and not upon transactions. He belongs to the
Growth Pact, which is bound to be applied classics’ group that elaborated the first
directly. versions of such theories. David Ricardo
536
(1810) agreed with the “Currency School” economic increase that was already weak by
theoretical approach. This school regards restrictive budgetary measures.
money circulation as the fundamental cause Public finances deviation, existing especially
for an excessive bank notes issue and also as in France and Germany, is strongly
the basic supporter of integral convertibility criticized by the European Central Bank,
of the bank notes into gold. which lacks the instruments necessary for
According to this principle, provided in the applying the Stability Pact in the two states
Peel Act, 1844, England, only a small that, actually, initiated it.
amount of the circulating bank notes was At the beginning of May 2005, in contrast to
not converted into gold. Ricardo’s the requirements reiterated by several
quantitative theory is well rendered by the politicians and also by IMF, ECB refused to
exposed exchange equation created by Irving reduce the directory interest rate,
Fisher in the 1920’s. pretending that “rate reduction is not an
In the equation M = PT, Ricardo brought option”. Unless it had a worrying evolution
into evidence M’s incidence and monetary as to the increasing unemployment in EU, it
availabilities over P, which is the medium is obvious that ECB would not expect an
price level. Ricardo did not take into account accommodative policy to be implemented in
the speed circulation currency. the situation in which it would imitate
Many authors improved the quantity American federal Reserves in their
currency theory. Marshall and Pigon increasing the directory interest rates.
replaced the similarities implied by the Under these circumstances, all the re-
Fisher transactions with the ones implied by launching policies, identified as Keynesian,
monetary collections. However, the activities seem to be inappropriate.
performed by Milton Friedman (1956) are
incontestable. Milton Friedman has revealed 3. Paper Content
the influences determined by the monetary
fluxes over the price evolution. Milton Convergent Points between
Friedman’s theoretical approach is a Governments and Central Banks
reference point in monetary orthodoxy.
For Friedman, inflation stands at the basis All central banks aim at price stability and
of currency origin. Price control is regard this as their main role. This was the
accomplished by controlling the monetary case of the French and German Central
mass. It is important for price control to Banks before the monetary unification. On
avoid governmental influence so that the other hand, US Federal Reserves aim at
progress may be compatible with price more ambitious objectives: they do not
stability. Currency must be protected by confine to achieve price stability, but
from governmental intervention and all the attempt to ensure economic growth. This
discretionary policies – as Friedman points might involve a weak currency if the price
out in his theories. This is the only paid for encouraging growth and using
possibility for the Central Bank to be workforce is determined by a medium
independent. inflationist risk.
Two situations –totally opposed – are worth
2. Relationships between ECB and Euro being mentioned. In France, prior to the
zone governments monetary unification, policies convergence
The main objective of the ECB is to ensure was exercised as a restrictive one, according
price stability. The answer is given by two to the monetary doctrine. However, in the
poles: controlling the monetary aggregate USA, during 2001-2004, deliberately lax
rise – M3 and a composite pillar constituted policies were applied in monetary and
by a series of economic and financial indices budgetary matters.
(securities and exchange market), which
allow the assessment of price evolution (A) Objective: fight against inflation
approaches. Some pretend that applying very restrictive
For achieving European monetary unity, the monetary and economic policies leads to the
relationships between ECB and the Euro triumph of the unique judgment. This was
zone governments were tense for the case of France whose policy was second
governments did not intend to sanction an rated in comparison with the German one
537
implemented before the setting up of the companies prefer to receive negotiable

ECB and the Euro zone. securities.
Despite the divergences existing between the For a while, their purchase was predominant
French Central Bank and its government, a on the monetary market.
predominantly convergent opinion was The reallocations of the patrimony were
formed when it became necessary to fight considered important by the French Bank
against inflation, fight which was followed which took them into account when it
by adopting an appropriate policy by the amended the restructuring of the monetary
Manroy – Delors II, in 1983, after the three aggregates and also when it analyzed total
devaluations of the Franc in 1981, 1982 and internal loan (TIL) - regarded as target
1983. aggregates in the replacement of the M3
During the period that preceded the monetary aggregate.
European Monetary unification, the French Consequently, a strong currency
Bank statutes stipulated – as a main underestimates import prices and it is also a
objective – the fight against inflation, which factor which favors disinflation, at the same
involved the acquiring of two secondary time offering prestige to the state in which it
objectives: controlling M3 monetary circulates.
aggregate and creating a strong currency. The reaction of the public power and the
The control and evolution of monetary Bank of France – which attempted to defend
aggregates was a guarantee of success in the the Franc – appeared when the exchange
fight against inflation and, thus, the rate crisis occurred in August 1933. This
dissenting evolutions existing among the reaction was contrary to the one of the
monetary mass and the prices evolutions Italians and the British who, a year before,
were contested. The “currency directed adopted the European Monetary System
against using the work force!” was Exchange Mechanism before giving up the
denounced by the detractors of this policy. lira and the pound. The French reaction was
An aggressive interest rate was introduced favored by the application of swap
by means of central banks in the 1990s, agreements between the French Bank and
when economy penalization was forced and the Bundesbank, the latter being an open
perverse effects were induced. gate for the loans that were meant to
The monetary mass counterpart – consisting support the French currency by buying
of “the receivables over economy” - clarified Francs on the exchange markets.
the accusations brought against it thanks to The necessity to unify the convergent
the price flexibility offered for the numerous criteria in order to take part in the European
borrowing requirements. economic and monetary Union favored the
Managers and companies forced the application of the orthodox economic and
reduction of the lending they offered. monetary policies. In order not to create a
On the other hand, the directory interest clash between governments and their
rate reduction initiated by the French political convictions made the states,
Central Bank and, consequently, of the particularly France and Germany, to
debtors’ and creditors’ rate, implemented conclude the Stability and Growth Pact.
with the help of commercial banks, modified Such an agreement could not have been
the behaviors and led to a serious approved by the central banks of the
restructuring of the economic agents’ Economic and Monetary Union (EMU). The
monetary patrimony. The adoption of the convergence between central banks and
regulated interest rate (the rate for saving governments existed before the European
bank-books, long-term savings …) instead of monetary unification.
the market interest rate inverted the normal
hierarchy existing between short term (B) Objective: fight against inflation and
interest rate and long term interest rate, ensuring economic growth
while large fiscality favored economic agents The famous independence of the US Federal
who invested on a short term in negotiable Reserve is well-known. However, the Federal
receivables and monetary securities of the Reserve has not applied a monetary policy
Collective Investment Securities Bodies. that conformed to the presidential will.
The debtors’ interest rates may be modified Nevertheless, quite recently it has
as to the marginal efficacy of the capital for manifested as a defender of the value of the
dollar, while regarding the concerns of the
538
American central banks as secondary. June 2004. Consequently, all this time,
Consequently, the Federal Reserve has two inflation did not seem worrying; it appeared
objectives. as a mechanic effect of import higher costs
Like all the issuing institutions, the Federal alongside with the American currency
Reserve favors price stability but, equally, it depreciation which was lowered by reducing
takes into account the American economic the prices invoiced by the US foreign
growth objective. It presents a very suppliers who wished to protect outlets.
important difference in relationship with the The serious financial crisis starting in 2008
ECB status. determined to a massive Keynesian
Subsequently to the 2001 USA events, all intervention of the state in economy, which
the economic and monetary policy levers led to a strong depreciation of the dollar, the
worked to encourage economic growth and concerning growth of unemployment and
unemployment prevention. inflation. The Federal Reserve successively
reduced the directory interest rate – which
An “accommodative monetary policy” at the beginning of September 2009 was 0.25
Between 2001 and June 2004, the US – 0% - in order to stimulate credit activity,
Federal Reserves initiated 30 reductions of consumption and economic growth. The
the main directory interest rate, the funds Central European Bank also reduced the
federal rates, and the inter-banking rates political monetary rate with 0.5% in
that had a lesser value after 1958, September 2008.
respectively of 1%. This represents the Monetarists and economists accused Alan
“accommodative monetary policy”, according Greenspan (the former FED president) of
to the expression used by Greenspan (the having reduced the interests to a minimum
former FED president), and it refers to level between 2001 and 2004 in order to keep
economic re-launching and the fight against economy running and a low unemployment
unemployment. rate. Central Bank officials had recognized
While protecting economic growth, the for a long time that it is not cautious to
change of the monetary policy, partially reduce interests in order to keep a low
operated in June 2004, determined the unemployment rate because the immediate
Federal Reserve to increase its interest consequence is an inflationary spiral.
directory rate “in a measured rhythm”. At The aggressive reduction by the FED of “the
3%, followed by eight successive raises of a rates under the natural level” has
quarter of a point, the funds federal rate contributed to the appearance of the crisis.
became 2%, without favoring the dollar’s The Swedish economist Knut Wicksell
return on the exchange markets. defined “the natural level” in 1920 like this:
“the interest at which – the whole domestic
A major budgetary deficit: economy – the wished investments are equal
Since inflation was not threatening, public to the wished savings, without involving
finances deficits did not manifest themselves pressures upward on the prices for
as an alarming war either to the executive consumption and resources or for salaries,
power or to the Federal Reserve. These when the aggregated demand surpasses the
attitudes were not surprising, the dollar offer, or downward pressures when the offer
remaining the key currency, which surpasses demand”.
unfortunately disappeared after the Bretton Although we can say that Greenspan
Woods that became public after the 1996 policies, formulated at the beginning of the
Jamaican agreements. 2000’s, were wrong, we cannot state that he
aggressively reduced the interest rate under
A weak dollar its natural level. In fact, he failed in
A strong dollar on the exchange markets monitoring the market and omitted to
favored American exports. They represented increase the rate over the natural level to
the engines for re-launching the USA. generate unemployment and to avoid the
However, these attempts were discouraged financial-real estate bubble.
in April 2005 by the extraordinary deficit of
the commercial balance.
Despite the important deficits, the Federal
Reserve maintained its accommodative
policy for the directory interest rate until
539

The policies formulated and applied by the
Central Banks and Governments were
implemented by clarifying oppositions
existing between these policies. Central
Banks claimed to be independent in applying
monetary policy, away from political games.
Each of these institutions express their
views from a political point of view which
separate them, while Central European
Bank expresses its ever growing regrets for
the flexibility of the Stability Pact. The
opposition existing between Governments
and Central Banks is not immutable,
however. Without establishing an exhaustive
chronicle of the complicated relationships
between Central Banks and Governments,
they seem to be two symbolical cases of
opposition between the two institutions with
more frequent occurrences. One cannot
exclude the emergence of convergent
analyses and policies at present, these
reconciliations could belong to Governments
or Central Banks.
References
1. J.M. Keynes, The General Theory of

Employment, Interest and Money,
Reprinted in Keynes, Collected Writing,
vol. 7, 1936, book I, Chapter I.
2. David Ricardo, The High Price of
Bullion. A Proof of the Depreciation of
Bank Notes, London John Murray, 1810,
Chapter I.
3. Banca Nazionale del Lavaro, “European
Monetary Union: the Transition to Single
Currency”, Ed. BNL, Roma, 1996.
4. Cukiermann Alex, “Central Bank
Strategy. Credibility and Independence”,
Cambridge, Mass. The MIT Press, 1992.
5. Olteanu Alex, Rădoi Mădălina
Antoaneta, „Politici si strategii naţionale
şi comunitare în domeniul financiar-
bancar”, Ed. Dareco, Bucureşti, 2007.
6. European Central Bank, „Monetary
Policy Transmission in the Euro Area”,
Monthly Bulletin, Tuly, 2000.
7. Bank of England, „The Transmission of
Monetary Policy”, 2000.
8. Milton Friedman:
9. „Studies in the Quantity Theory of
Money”, University of Chicago Press,
1956.
10. The Optimum Quantity of Money”,
Aldine Tranzaction, 2005, cap. II.
540

FOREIGN DIRECT INVESTMENTS AND THE ECONOMIC CRISIS
University Lecturer Liviu Radu, PhD

University Lecturer Carmen Radu, PhD
Nicolae Titulescu University, Bucharest, Romania
Faculty of Social and Administrative Sciences
lgradu2005@yahoo.co.uk
Abstract investments, banking and financial sector,

At the present, Romania is international economic system.
confronting more than ever, from January 1,
2007, the moment which marked its
integration and Bulgaria’s in the European
Union, with the globalization phenomenon Introduction
and all its positive and negative influences.
At the beginning of the financial crisis in The foreign direct investments are
2008, Romanian economy had been through an important factor which directly influences
a quite favorable period, of some years of an economy’s potential for a sustainable
economic growth, but accompanied by the development growth.
increase of short-term external foreign debt The development of foreign
and by the accumulation of a raised external productive assets, based on some initial
deficit. The banking sector (which dominates transfers of complex resources – FDI, can be
the Romanian financial market) has evolved traced back in humanity’s economic past,
in an encouraging way in the crisis’ first routs which remind us, for example, of the
manifestation period, resisting many external 14th century Hanseatic League or the British
pressures. The deterioration of the Dutch and Eastern Indian Companies from
international economic and financial the beginning of the 17th century, which
environment in 2008 and 2009 has were real precursors of the modern
manifested increasingly powerful and the transnational corporations [1]. As it’s known,
medium term economic evolutions are the Hanseatic League was contributing to
marked by high global and national Poland’s agricultural development,
uncertainties. The external economic climate England’s sheep raising, Sweden’s iron
influences Romanian economy by: worsening production [2]. Nonetheless, a significant
the risk perception (including by comparison role of the foreign worldwide investments
with the regional economies’ evolutions); can only be mentioned starting with the last
contracting the external sales markets; decades of the 19th century.
difficulties in the external financing; Until the Second World War started,
doubling the liquidity risk with that of the capital movements were associated with
economic solvency and not in the least, the great population displacements from
reducing the foreign direct investments. For Europe to America and especially consisted
Romania it is essential that the annual in portfolio investments. Between 1914 and
increase rate of foreign direct investments 1918 the first companies with transnational
grows constantly. This paper aims at aspirations started to take shape [3],
analyzing the influence of the economic and consequently 20 companies had already
financial crisis, started in the year 2008 in reached a high level of transnationalization,
the global and Romanian economy, over the such as Saint-Gobain, Solvav, Nestle, Ciba,
direct foreign investments. Siemens, Hoechst, Texaco, Kodak,
Keywords: international financial Westinghouse.
crisis, multinational corporations, In spite of all this, the interwar
globalization, flows of foreign direct period had not represented a special stage in
international investments’ evolution. The
541
great economic crisis (1929-1933), which In the context of the actual financial
affected the United States and furthermore crisis, the FDI flows are recording obvious
Europe, led to adopting economical policies falls, but, in the same time, promoting
which especially concerned the internal foreign direct investments can help global
market. Therefore, establishing the currency economy and national economies to re-
control, trade barriers, currency launch the economic growth.
depreciation, and prices cartels have affected
the external investment phenomenon,
mainly the portfolio investments. Literature review
From a historical perspective, the
flows of foreign direct investments (FDI) The role of foreign direct
reached a new period within the investments in the economical development
international investments after the Second has been widely debated in the economics
World War, when the United States made theory, the specialized literature has
massive investments in Western Europe’s received competent responses from many
reconstruction. famous authors, who have analyzed the
The most significant flows of foreign activity of transnational corporations as
direct investments, statistically recorded at main sources of foreign direct investments,
the end of the 20th century, took place in the among which are John H. Dunning
9th decade. According to UNCTAD’s annual (Multinational Enterprise and the Global
rapports regarding FDI’s international Economy, Governments, Globalization and
market, it can be observed that in the period International Business, Global Capitalism,
1980-1990, FDI grew four times with an FDI and Competitiveness), William
average annual rate of 15%. In the period Northaus (Managing the Global Commons:
marked by the most accelerated growth in The Economics of Climate Change) or Ngaire
the 9th decade, that of 1983-1989, the annual Woods (The Political Economy of
average rate was that of 29%, three times Globalization). At the level of international
larger than the one recorded by the global organizations, the phenomenon of foreign
exports of material goods and services and direct investments is periodically analyzed
four times larger than the one reached by (the global Bank, Centre European Bank,
global production. Transnational UNCTAD – the Global Report of
corporations represent genuine monopolies Investments etc). In Romanian economical
in the global bank financial system, making literature there are distinguished special
foreign direct investments of over 200 billion contribution from the researchers Costea
dollars and controlling of over half the Munteanu and Alexandra Horobet, Finante
activity of the global trade of goods and transnationale (Transnational finances);
services. Anda Mazilu, Transnationalele si
Therefore, we can affirm that the competitivitatea – o perspectiva est-
existence and development of transnational europeana (Transnationals and
corporations represents a sign of changes competitiveness – an eastern-European
(managerial, technological and human), perspective), Foreign direct investments and
initiated and imposed by these but also the increase of Romanian economy
recognized by the countries in which these performance, in „Romania in contextul
corporations extend their activity. In this integrarii europene si globalizarii” (Romania
respect, the recent dispute widely publicized in the context of European integration and
in the Romanian and German press, that globalization); Anghel Ion, Investitiile
started from the transfer of the finish Nokia straine directe in Romania (Foreign direct
corporation’s production activity from the investments in Romania); Misu Negritoiu,
German city Bochum in Romania, near Cluj Salt inainte – dezvoltarea si investitiile
(Jucu locality), represents the best example straine directe (A step forward –
in this case. In conclusion we can affirm that development and foreign direct investments)
through the scale of events the transnational as well as Liviu Voinea, Corporatiile
corporations can cause certain reactions both transnationale si capitalismul global (
from the origin countries and especially from Transnational corporations and global
the host countries, which are motivated dew capitalism).
to the infusion of direct foreign investments
flows realized by these corporations.
542
1. Evolution of foreign direct evolution of foreign direct investments’

investments on a global level, before the flows. In this respect, in order to establish
manifestation of the economical crisis’ the national economies’ competitiveness and
effects potential in attracting external direct
investments, UNCTAD has calculated two
indicators, namely: FDI Attracting
1.1. States’ competitiveness in Performance Index and the FDI Attracting
attracting foreign direct investments Potential Index.
According to the FDI Attracting
The situation of regional flows Performance Index, countries in which the
distribution does not provide details index has a value larger than 1 (>1) attract
regarding the main factors which lead to the external direct investments higher than
un-localization of production; however it expected, compared to their relative
provides only the whole picture over the economic power.
FDI Attracting Share of the FDI flow in a country within the

Performance Index
= global flows / Share of the economy in the
global GDP
The FDI Attracting Potential Index foreign direct investments: GDP/inhabitant,

classifies countries in accordance with their share of the exports in the GDP; real annual
potential for absorbing direct investments. GDP growth; number of phone lines per 1000
This index quantifies the structural factors inhabitants; consumed energy per
which tend to modify extremely slow, which inhabitant; share of the research and
generates a relatively stable value of the development expenses and the growth in
index on a short term. The FDI Attracting gross national revenues; share of students in
Potential Index comprises eight variables, the higher education system in the total
considered as key factors for attracting number of population and the country risk.
FDI Attracting (Value of the country variable – Minimum

Potential Index
= value of the variable worldwide) / (Maximum
value – Minimum value of the variable
worldwide)
UNCTAD has attempted to combine  countries with high performances in

the two indexes, thus creating a world state’s respect with foreign direct investments
typology. The classification of the countries and with low potential (“above-potential
depending on both the Performance Index countries”). In this category there are
and the Potential Index leads to the included most poor countries, without
following matrix [1]: powerful industrial grounds and without
 countries with high performances in stimulant structural factors, but which
respect with the foreign direct have been successful in attracting
investments and with high potential foreign direct investments;
(“front-runners”). In this category there  countries with low performances in
are included over 40 countries, among respect with foreign direct investments
which developed countries (France, and with high potential (“bellow-
Sweden, Switzerland, Belgium and potential countries”). In this category
Luxemburg), Asian countries (Hong- there are mostly included developed or
Kong, Singapore), countries in Latin relatively industrialized countries which
America (Brazil, Chile); have not recorded significant FDI
inflows, according to their economic
543
potential, due to unfavorable or investments, which are sometimes

traditional investments policies (Italy, significant;
Japan, Korea, Taiwan), or due to  countries with low performances in
unfavorable investments policies, social respect with foreign direct investments,
factors or low competitiveness. In the and with low potential (“under-
last mentioned category there have performers”). In the said category there
lately been included USA and the are included poor countries which for
developing countries abounding of economic or other type of reasons do not
capital, such as Saudi Arabia. However, benefit of the advantages of
there must not be let aside that this international production as economic
index does not consider the portfolio growth factor (Algeria, Cameroon,
Kenya, Turkey, Pakistan etc).
Chart 1. The 2003* countries classification matrix after the performance and potential
index
FDI with high performances FDI with low performances
front-runners below-potential economies
FDI with Bahamas, Bahrain, Belgium and Argentina, Australia, Austria, Belarus,
high Luxemburg, Brunei, Botswana, Brazil, Canada, Germany, Greece, Island, Italia,
potential Bulgaria, Chile, China, Costa Rica, Iran, Jordan, Japan, Kuwait, Lebanon,
Croatia, Cyprus, Czech Republic, Libya, Malaysia, Malta, New Zeeland,
Denmark, Dominican Republic, Norway, Oman, Philippines, Poland,
Switzerland, Estonia, Finland, France, Korea, Russia, Saudi Arabia, Taiwan,
Hong-Kong, Hungary, Ireland, Israel, Thailand, United Arab Emirates, USA,
Latvia, Lithuania, Kazakhstan, Mexico, Ukraine, United Kingdom.
Holland, Panama, Portugal, Qatar,
Singapore, Slovakia, Slovenia, Spain,
Sweden, Trinidad-Tobago, Tunisia,
Vietnam
above-potential economies under-performers
FDI with Albania, Angola, Armenia, Azerbaijan, Algeria, Bangladesh, Benin, Burkina
low Bolivia, Columbia, Ethiopia, Ecuador, Faso, Cameroon, Columbia, Ivory Coast,
potential Gambia, Georgia, Guyana, Honduras, Egypt, Salvador, Gabon, Ghana,
Jamaica, Mali, Morocco, Mongolia, Guatemala, Guinea, Haiti, India,
Mozambique, Nigeria, Peru, Romania, Indonesia, Kenya, Kyrgyzstan,
Syria, Namibia, Nicaragua, Tanzania, Madagascar, Malawi, Nepal, Niger,
Congo, Moldova, Sudan, Macedonia, Togo, Pakistan, Paraguay, Papua New Guinea,
Uganda, Zambia. Rwanda, Senegal, Sierra Leone, South
Africa, Sri Lanka, Surinam, Tajikistan,
Turkey, Uruguay, Uzbekistan, Venezuela,
Yemen, Zimbabwe.
Source: United Nations – UNCTAD – “World Investment Report 2005. Transnational
Corporations and the Internationalization of R & D”, New York and Geneva, 2005, page
25 * the data are limited to 2003 dew to the unavailable data for 2004, for the Potential
Index
What conclusions can be drawn from investments environment, whilst the

this analysis? For the high performances countries oscillating between the last
countries in respect with foreign direct mentioned ones and the economies which are
investments and with high potential, above average will have to make efforts in
intending to remain important receivers of order to rapidly create competitive potential
foreign direct investments, the issue is to allowing them to attract investors.
maintain their competitiveness in order to
attract FDI. Under-performers will have to
improve the aspects regarding their
544
1.2. Global foreign direct investments the conditions are favourable. To these
flows factors the reasons which determine the
At the present moment, in the world developing countries to invest beyond their
economy three major power pillars are national borders can also be added. These
structured, known as the so-called “Triad”, factors can be grouped as it follows [4]: 1.
around which groups of countries gravitate, Market related factors, which consider that
connected to various economic relations, increased dependency on the internal
sometimes preferential or integration markets represents a risk for modern
focused. corporations, such that more and more
From the data presented in figure 1, corporations will occur in the developing
we can notice two major tendencies with countries which will intend to develop their
chances for long term maintenance, which activity abroad. 2. Factors regarding the
require deep implications towards the ever increasing production cost in the
globalization and integration process of the internal economies of the developing
global economy: the relative approach of the countries. 3. Factors which depend on the
share owned by the most developed countries competitive pressures in the developing
in the global stock of foreign direct countries, which determine such to expand
investments; the realization of a superior beyond national borders. And finally 4.
level of combining the developed economies’ factors regarding governmental policies
capital on an international scale. applied in the host countries, policies which
In order to invest abroad it is could be, even on a relatively short term,
necessary for companies to have capitals and more attractive than in the developing
exceeding accumulations which could be country under discussion.
profitably invested in other countries where
Figure 1 Global flows of foreign direct investments, the first 20 economies,

2004-2005a (billions of dollars)
A) foreign direct investments inflows) B) foreign direct investments outflows
Source: UNCTAD, World Investment Report 2006
The developed countries investments 59% of the global foreign direct investments
have reached in 2005 the amount of 542 inflows. The share of developing countries
billion dollars, with an increase of 37% was of 36%, whilst Eastern Europe and the
compared to 2004, whilst in the case of the Independent States Community represented
developing countries, investments reached approximately 4%.
the highest level ever – 334 billion dollars. Great Britain recorded an
As percentage, the share of developed investments inflows increase of 108 billion
countries increased slightly, representing dollars, reaching the amount of 165 billion
545
dollars, and thus becoming the largest FDI billion dollars, representing almost half of
beneficiary in 2005. Despite the decline it the global total. South Asia, Eastern and
faced in respect with investments, the South-Eastern Asia received 165 billion
United States of America was the second dollars, or the fifth part of the global total,
large receiver of foreign direct investments. the amount received by the Eastern Asian
In respect with the developing economies, sub-region representing approximately three
the list of the larger FDI beneficiaries, quarters of the entire region. The next
compared to previous years, remained position is of North America, with 133 billion
stable, with China and Hong Kong (China) dollars, and of Central and South America,
leading the top, followed by Singapore, with 65 billion dollars. Western Asia
Mexico and Brazil (see figure 1). On a recorded the largest increase in the direct
regional level, the European Union, by its 25 investments inflows (85%), representing 34
members (in 2005) represented the favored billion dollars. Africa received 31 billion, the
destination, with inflows amounting to 422 largest FDI inflows in this region so far.
Figure 2 The FDI intra and inter-regional flows in the developing countries, excluding
the financial offshore centers, media 2002-2004 (millions of dollars)
Source: UNCTAD, World Investment Report 2006
In Africa, the foreign direct the exploitation activities in a series of

investments inflows have grown from 17 African countries, including Algeria, Egypt,
billion dollars in 2004 to 31 billion dollars Equatorial Guinea, Libyan Arab Jamahiriya,
(unprecedented number) in 2005. Mauritania, Nigeria and Sudan. The
Nevertheless, the percentage of the region in multinational corporations in the United
the global FDI remains small, around 3%. States and European Union have continued
South Africa was the largest beneficiary of to dominate the industry, but a series of
investments, receiving approximately 21% MNC from developing countries, as for
(6.4 billion dollars) from regional inflows, example CNOOC in China, Petronas from
mainly dew to the ABSA acquisition (South Malaysia and ONGC Videsh from India are
Africa) by Barclays Bank (United Kingdom). extending more and more in Africa. The total
Egypt was the second largest receiving state, value of the FDI’ s which entered in six
followed by Nigeria. The 2005 foreign direct African oil-producing countries – Algeria,
investments inflows in Africa were directed Chad, Egypt, Equatorial Guinea, Libyan
especially towards natural resources, oil in Arab Jamahiriya, Mauritania, Nigeria and
particular, although the services as well Sudan - is of 15 billion dollars, which
represented an important destination. The represents approximately 48% of the region
high prices of the consumer goods and the entries in 2005.
high demand for oil led to an expansion of
546
The foreign direct investments in which countries gather and report data).
inflows in the South, East and South-East of Developed countries remain the main source
Asia reached 165 billion dollars in 2005, of such outflows. In 2005, Nederland
representing 18% of the global inflows. registered capital outflows in the form of
Approximately two thirds were destined to investments amounting to 119 billion
two economies: China (72 billion dollars) and dollars, followed by France and Great
Hong-Kong (36 billion dollars). The South- Britain. The role of developing and
Eastern Asian region received 37 billion transition economies as foreign direct
dollars, the first position of the top being investments sources is increasing.
held by Singapore (20 billion dollars), Insignificantly low until the middle 80s,
followed by Indonesia (5 billion dollars), investments flows coming from these
Malaysia and Thailand (each with 4 billion economies reached 133 billion dollars last
dollars). The South Asia capital inflows were year, corresponding to a share of 17% in the
a lot smaller (10 billion dollars), although in global total.
some states it increased significantly, India
registering the larger level in its history – 7 1.3. Foreign direct investments in
billion dollars [2]. Romania before the beginning of the
The countries in Southern, Eastern crisis
and South-Eastern Asia continue to open
their economy in order to receive FDI. The evolution of FDI inflows received
Important steps were made in 2005 in this by Romania, in the period 2004-2006,
direction, especially in the services field. For reflects an unprecedented increase of the
instance, India receives at the present external investment activities, which
moment FDI in the single-brand commerce strongly contrasts with the tendencies from
or in constructions, whilst China increased the previous period. Comparing the average
its geographic restrictions over the foreign of FDI flows from the years 2004-2006, with
banks and foreign tourism agencies the average of those received in 2001-2003,
operations. Several measures have also been we will notice an increase of 4 times their
taken in order to meet the concerns volume, in the case in which the foreign
regarding the trans-borders mergers and direct investments’ flows received by
acquisitions in countries such as Republic of Romania have reached the highest level,
Korea. estimated to 9,08 billion EUR in 2006
Southern, Eastern and South- (according to NBR’s information[5]).
Eastern Asia are also becoming FDI sources Although under the terms of foreign direct
(amongst the developing countries), with investments stock attracted by our country
investments which reached 68 billion dollars until the year 2005 – the value of over 20
in 2005, which meant a decrease of 11% billion EUR – the disparity while compared
compared to 2004. However, the capital to other new state-members of the European
outflows from China increased and are Union is still very obvious (Poland – 70
expected to further increase. Many of the billion EUR, Hungary – 52 billion EUR,
countries in the region accumulated large Czech Republic: 50 billion dollars). In this
foreign reserves, which could lead to an context, the dynamics of the foreign direct
increase of FDI outflows. Amongst the most investments in Romania from the last years
recent investments made by the companies indicates a remarkable increase of
in the region are the 2006 acquisition by Romania’s attractiveness as a destination
Temasek (Singapore) of 11.5% of the country for the decisions of the great
Standard Chartered shares (Great Britain) national corporations in locating foreign
and the 2005 taking over by CNPC (China) direct investments.
of Petrokazakhstan. China and India In the same context, the UNCTAD
persistently intended to purchase oil related (UNCTAD, WIR 2005) documents classify
assets and in some cases they even 140 countries in the world under an index of
collaborated [2]. foreign direct investments performance for
The foreign direct investments the year 2004, using a movable average of
outflows on a global level reached 779 billion the statistical data recorded over a period of
dollars (the figure is different from the three years. In this classification, Bulgaria
estimated inflows of foreign direct obtained the best place, being placed on the
investments because of the various manners 12th position. Croatia and Romania are on
547
the positions 33 and 35, Albany being on the have gone over 9 billion EUR in 2006, have
42nd and Macedonia on 72, while Bosnia financed 86% of the value of the current
Herzegovina and Serbia Montenegro are not account deficit. Without the amounts of
included in the classification [6]. privatization, the finance becomes 69%, in a
The inflows under the form of slow increase compared to the previous years
foreign direct investments (FDI) in Romania (Figure 3.).
Figure 3 FDI structure and the financing of the current account(CA) through FDI
Source: RNB(2007), Report on the financial stability- 2007, page 55
Romania attracted in the year 2007 a volume of foreign direct investments of 7.25 billion
EUR (Figure 4). The majority of the foreign investments come from greenfield projects,
considering the fact that the great privatizations were concluded.
548
Figure 4: FDI flows evolution in Romania between the years 2003-2007
Source: RNB – Report over FDI 2008
Relating to the Growth Competitiveness although the foreign direct investments’

Index and to the Business Competitiveness value reached high rates, no opportunities
Index, our country was on the 50th place existed on improving the national potential
until the year 2003 and in 2005 on the 33rd, in the investors’ vision
considered to be a country in which,
Figure 5: FDI in Romania at 31 of December 2007 – on countries of origin
Source: RNB – Report on FDI 2008
Contrary to the data mentioned Romania attracts smaller investments per

above, the Romanian economy continues to capita, compared to other countries in the
present a relatively low level of region, due to the absence of a transparent
competitiveness, in European context, framework and an emphasized regional
549
competition. The competitive disparity the inflows. The United States maintained
towards the other countries members of the their position of the largest unique FDI
EU cannot be ignored because the European source, followed by France and Japan (with a
market is important for Romania. Even if in growth of 74% of the FDI flows) [7].
the last years a continuous opening of the Generally, the flows from the developing
external commerce has been registered, countries continued to grow, reaching 293
Romanian exports are still not diversified billion USA dollars in 2008, with important
enough. This is half caused by the fact that variations of achievement. From the
only few Romanian enterprises have developing and transition economies the
innovative activities based on research for biggest three sources of foreign direct
their products’ and services’ development. A investments were Hong Kong (China), The
closer look over Romania’s main exports Russian Federation and China, which were
easily reveals that the majority are products ranked as the top 20 investors in the world.
of the traditional sectors. On the Romanian A major factor that contributed to the FDI
economy level there are few industries that global increase was the massive withdrawal
intensively use innovative technology, of last on a global level of the great transnational
generation. Consequently, Romania needs to corporations’ investments. Starting with the
set as a strategic priority the maintenance middle of the year 2008, these withdrawals
on a high level of the competitive advantages outlasted the FDI gross flows in a series of
of developing the capacity and competences countries. Significant in this context was the
of the exporting sectors, by attracting local fact that approximately 30% of the cross-
and foreign investments, of creating an border mergers and acquisitions during the
efficient economy capable to develop in the year 2008 and in the first half of the year
conditions of free commerce on a more and 2009 implied selling the foreign branches to
more global market. The foreign direct other companies.
investments represent a source for capital, of Thus the cross-border mergers and
know-how, technologies and managerial acquisitions (a major growth source of FDI in
capabilities which stimulate economical the period before the crisis) have increased
growth. as the financial markets’ blockage took place
in the second part of the year 2008.
Politics are an important factor in
2. Foreign direct investments’ evolution attracting FDI in the European South-East
on a global level after the manifestation region and NIS and most of the political
of the economical crisis’ effects changes were more favorable to the foreign
investors. Some countries continued to
2.1. Global flows of foreign direct liberalize some regulations referring to FDI
investments in the period 2008-2009 in a series of sectors, such as the energy
industry in the Russian Federation, but
The period 2000-2008 represented a opened for a partial foreign participation
continuing increase of the foreign direct other domains such as the banking one,
investments. In the developed countries the retail sales and telecommunications in
FDI flows have decreased slower (-17%) than Belarus.
550
Chart 2. South-East Europe and NIS: FDI flows in the selected countries 2008-2009, on
trimesters
(millions of dollars)
Source: UNCTAD, Global Report of Investments 2009: Transnational Corporations,

Agricultural production and development
Figure 6. Global FDI flows in the period 2007-2008
Source: UNCTAD, Global Report of Investments 2009: Transnational Corporations,

Agricultural Production and Development, annex table B.1 and FDI/TNC ,
(www.unctad.org/fdistatistics )
551
The international financial markets’ negative: economical declines are

situation has strongly deteriorated since generalizing (except Poland), transnational
September 2008, along with the bankruptcy companies are reducing their investments
of the American investment bank, Lehman and unemployment is approaching 10%,
Brothers Inc. The level of trust from the current account deficits are rising, fiscal
participators on the financial markets deficits are significantly increased. More and
dropped considerably and the risk premiums more states feel they need agreements
have increased to high levels. The inter- regarding international finance with The
banking market’s functioning was severely International Monetary Fond.
affected; the banks with excessive liquidity The end of 2008 manifested through
were reluctant to lend the surplus to other a strong decrease of foreign direct
banks. This situation intensified in investments (FDI), according to the
September 2008, severely affecting the information provided by the National Bank
global economical growth as well. The of Romania (NBR). In December the
forecast of the economical advance on an investments registered only 384 million
international level for the year 2008 and of EUR, the smallest monthly volume of FDI in
3.2 percent is estimated to be replaced by a the year 2008. However, the large flow of
decrease of 1.3 percent in 2009 (IMF, WEO foreign capital that entered in the previous
April 2009). First, the financial crisis months, generated a total FDI of 9.02 billion
affected especially the developed countries. EUR, throughout the entire year of 2008.
The risk aversion from these countries still The areas that attracted the highest number
passed on rapidly to the emerging areas and of investments projects remained the
Central and Eastern Europe were more and automotive and auto components industry,
more affected. construction materials industry, IT domain,
Unfortunately, the amplitude and electronic industry, wood industry, the sector
intensity of the financial-economical crisis of non-conventional energy and of services.
were underestimated by authorities from the Romania was situated in 2008 on the
entire world. The uncertainties regarding tenth position in the European Union, with
the following evolutions are large. foreign direct investments received from
other state members (8.1 billion EUR) and
on the 14th position on the EU level, after the
2.2. Foreign direct investments in foreign direct investments received from
Romania in 2008-2009 outside the Union (0.8 billion EUR).
In the year 2009 the foreign direct
The decrease in the level of foreign investments dropped with 47.9% in the
investments in our country is part of the period January – July, amounting to 3.097
international trend, where for 2009 it is billion EUR, compared to 5.948 billion EUR
estimated that the value of investments is in the similar period of the year 2008
fewer than 1200 billion dollars, compared to (according to information from the National
the 1700 billion dollars registered in 2008. Bank of Romania).
The negative effects over Romania are From the total of the investments
caused by the contraction of the made in 2009, the participations on the
international sales market, increasingly capital represented 41.2%, the intra-group
difficult external financing (with all the loans 48.6% and the reinvested profit 10.2%.
considerable contributions and loans of the Furthermore, according to the NBR
IMF and EU) and by the restraining information the foreign investments from
activities of the great corporations operating this year have totally covered the current
in Romania. A special case is represented by account deficit of 2.72 billion EUR. At the
Renault – Dacia, which benefited by the end of July, the foreign investors have
determined growth of orders due to the auto realized investments of 2.894 billion EUR,
park’s renewal politics in the West-European with a decrease of over 42% compared to the
countries. same period of the year 2008.
Romania’s region entered an area of
high economical risk, our country being Conclusions
affected in its turn and the negative regional The international business
influences are manifesting more strongly. environment of the last 2 years has
The forecasts for the regional economies are manifested through a strong financial
552
instability and massive governmental [3] Wilkins Mira and Franko G. Lawrence (1970) -
interventions in hopes of economical The Emergence of Multinational Enterprises,
recovery. Concerning the public politics’ Harvard Press;
[4] United Nations – UNCTAD – “World
protectionism towards the great
Investment Report 2005. Transnational
investments, modifications are noticed to be
Corporations and the Internationalization of R &
generally favorable to the legislation and D””, New York and Geneva, 2006, page 25;
national regulations in the FDI domain (over [5] NBR (National Bank of Romania) (2007),
110 new measures- from which 85 are Directorate of Statistics, Payment Balances
favorable to foreign investors). Statistics;
The actual global crisis has [6] UNCTAD (2005) – World Investment Report
determined the reduction of the 2005, New York and Geneva, 2005;
international production of goods and [7] Global investment report 2009: Transnational
corporations, agricultural production and
services, offered by the 82,000 transnational
development, annual study of the UNCTAD-
corporations and by the 810,000 branches of
United Nations Conference on Trade and
theirs, which function on global grounds. At Development- regarding the investment trends.
the transnational corporations’ level there (www.unctad.org/fdistatistics )
have registered decreases in profit, capital
withdrawals, massive layoffs, restructurings
and even bankruptcies.
The economical activity in the main
partner states of Romania has diminished in
2009, causing a decrease in the national
consumers trust and thus affecting the
external goods demand. Consequently,
Romanian exports’ sales markets are
negatively influenced and the exterior
commerce domestic firms encounter great
difficulties in their activity. The national
currency depreciation is a factor which
modifies these difficulties.
In spite of the crisis’ negative
effects, the transnational corporations have
continued through their branches to
represent a major economical force (10% of
the global GDP and 78 million employees).
The UNCTAD reports estimate a gradual
recuperation of the FDI inflows in 2010
(around 1400 billion dollars) and a more
substantial increase in 2011 (an estimation
of 1800 billion dollars).
References:
[1] Ghibutiu, Agnes (Coord.), Mazilu, A. Pencea

S., et alias (2001) - tTendinte iin reglementarea
amultilaterala a fluxurilor tinternationale de
servicii ssi de tinvestitii directe (Tendencies in
the multilateral reglementation of international
flows of services and direct investments).
Incidente asupra integrarii Romaniei in Uniunea
Europeana (Incidents on Romania’s integration in
the European Union), Romanian Academy, The
Global Economy Institute, Bucharest;
[2] Dunning, J. H. (1993), “Multinational
Enterprise and the Global Economy”, Edison-
Wesley Publishing Company, Wokingham,
England, pages 97-98;
553

DECENTRALIZATION OF PRE-UNIVERSITY EDUCATION SYSTEM - A

NEW INSTITUTION CONSTRUCTION WHICH ENTAILS EFFICIENCY
AND EQUITY?
Author: Roman Mihaela, PhD student at the National School of Political Studies and
Public Administration, 2nd year of study, political studies 1
mihaela.roman@gmail.com
Decentralization of pre- The institution that brought to the

University education system is a topic forefront of public attention the need
on the Romanian public agenda, in the for public administration
context of launching the new education decentralization in Romania, but also
law project in March 2010 - the law the need to speed up the education
into force was adopted 15 years ago - reform is the presidential institution.
which proposes a series of radical The Presidential Commission for
measures on the organization and Analysis and Elaboration of Education
operation of the system by transferring and Research Policies in Romania was
administrative and financial powers incorporated in 2007, and made a
onto the school and local authorities. diagnosis on the current status of
The International Conference of Romanian research and education. The
Economics and Administration ICEA- Commission’s report conclusions point
FAA 2010 is the appropriate framework out that the Romanian pre-university
of discussions between researchers, education system is a centralized one,
scientists, experts and students from even as we speak, funded on non-
all branches of economy and transparent criteria, schools have no
administration, adding international contribution to the construction and
experience to Romanian perspective, an implementation of the budget and the
idea that addresses issues such as budget is not linked to the educational
education, administrative policy priorities. Centralization makes
decentralization and local government it difficult for school and students to
altogether. The question that I am get closer to the community, it does not
launching with this scientific debate is: encourage civic participation and social
"Is the new institutional construction responsibility. The Commission’s report
emerging from decentralizing the qualifies the educational system as
school education system leading to inefficient and inequitable.
efficiency and equity?"
1 1
Beneficiary of the project “Doctoral scholarships supporting research: Competitiveness, quality, and cooperation in the
European Higher Education Area”, co-funded by the European Union through the European Social Fund, Sectorial
Operational Programme Human Resources Development 2007-2013
554
The results of students’ international the local authorities is to organize the school
evaluations rank Romania below the European network. In terms of curriculum,
and the international average and inequity decentralization has two components: 20%
between rural and urban environments is School Decision Curriculum for gymnasium
high. The proposed solution to the problems of school and 30% for high-schools and the
efficiency, quality and social equity is the curriculum to the teacher’s disposition who
decentralization of the educational system, will decide how to use 25% of the time for each
which “gives school the opportunity to regain subject. The curriculum also offers the
its central role and prestigious position within opportunity for local community and
the community.” Bringing Romanian associations and employers to get involved in
education to the public agenda made all the the education act.
stakeholders sit around the negotiation and The financial decentralization of the
debate table: the Presidency as an institution, system will be conducted on three levels: basic
the Parliament, the Government, the Ministry, funding, complementary funding and
education establishments, teachers, students, additional funding. Basic funding shall be
parents, civil society, trade unions, academia, provided from the state budget and consists of
experts outside the political environment, etc. the standard cost per student / preschooler and
Thus, the necessary framework for coherent will go directly into the school’s account.
and long-term measures was created and the Complementary funding is provided on
consensus on the objectives a new education different categories of expenditures and shall
law should reach, including decentralization be managed by local authorities. Additional
was expressed by signing a National Pact for funding is a way of awarding excellence that is
Education in 2008. - schools with outstanding results in terms of
Decentralisation involves the transfer inclusion or school performance. Education
of administrative and financial competence establishments may also be self-funded. The
from central public administration to local new funding mechanism will be supervised by
public administration or to the private area in the ministry and the county school
order to provide the citizens with better public inspectorates.
services which shall better meet their real Starting with the general principles of
needs. The principles of decentralization refer public educational policies, decentralization
to the minimum measures that must be met so should lead to increased education quality,
that it may be efficiently organized, namely: efficiency and equity of the educational
competence performed by the citizens’ closest system. Decentralization as a solution to the
authority, ensure adequate resources to system malfunction shall solve the
transferred competences, achieving quality administrative and financial issues, but will
standards in the service performed by the newly proposed institutional framework
authorities, rendering them responsible and solve the efficiency and equity problems? How
ensuring all local community citizens’ access to will we measure the effectiveness of the
the services provided. educational process and the equity of the
Decentralization, efficiency and equity educational system?
are among the principles governing the pre- I believe that the public debate at the
University education system under the new International Conference of Economics and
law. Decentralization includes both the Administration ICEA-FAA 2010 will bring
administrative and financial component. new and more objective and documented
From the administrative point of view, approaches and perspectives on the measures
the new law proposes schools to be run by a proposed by the new education law in Romania
Board of Administration comprising the to achieve the objective of decentralizing the
representatives of the teachers, local council pre-University education system and unlike
and parents, one third each. The Board of any other debates in Romania attended by
Administration will organize the competition decision makers directly concerned with the
for the school principal position and will sign a outcome of these proposals, this meeting is
management contract therewith. I think this attended by researchers, scientists and
measure will settle a very good relationship specialists with extensive expertise in economy
between all these school decision makers and administration involved in the process of
which will be beneficial both to the school and reorganizing the system.
the students. A new competence transferred to
555

CHALLENGES FOE A GLOBAL ACADEMIC RANKING
ROTARIU Ilie;
“Lucian Blaga” University of Sibiu;
Ilie.rotariu@ulbsibiu.ro
Abstract universities with the direct effect of

Universities’ ranking is the nowadays major enlarging or restricting the access to public
subject mainly for mass media. A deep funds for students’ training.
analyze show that it is difficult to draw up a Ranking the universities is a wide approach
fare ranking system because of diversity of and several bodies of operating procedures
education units, the handling with teaching public regularly their own ranking among
and research activities in the same time and the world universities. We have not found
the new transformation of training system. the will to be among, and a technical
More, the relations with mass media must be approach was carried out in order to check
handled to avoid false messages towards the subject. IREG Observatory on Academic
population and public funds administrators. Ranking and Excellence, an association with
IREG has started a good practices’ the declared goal in global ranking, is
dissemination and the works for a finalizing a methodology and procedures for
methodology in organizing a ranking tool audit system of university rankings. Their
that might be general admitted. The last conference in Astana (June 2009) and
conclusion of Astana meeting and their the next one in Berlin (October 2010) allow a
implementation in Romania are presented technical and competent approach of the
too. ranking subject. As ranking principles are
less know by almost all the universities
Key words: ranking, ranking methodology, communities this paper intend to advocate
hierarchy, IREG. the IREG’s principles in order to start a real
and professional debate on universities
The universities ranking is a “hot” subject ranking.
not only in Romania. It is generally admitted The 23 interventions presented in Astana by
that the strong high education system is a well known specialist in high level education
key of a competitive economy, the goal that all round the world have allow a synthesis
every country and people is looking for, that might offer a real view on ranking and
mainly during a global economic crises like its implications and might lead to the
the nowadays’ one. Is a ranking system an decision that more Romanian universities
issue? How can such a system supply an will join the ranking process.
advantage in the global competition? For
small countries, such as Romania, with a Any member of the academic community is
relatively young university net, still under ready to acquire more information on
reconstruction after being for half a century ranking system. He is also aware of existing
into the Soviet domination with a socialist ranking list that are published periodically
structure looks like obvious to count itself as well as the general principles behind
among the ones in the top. Unfortunately them. The literature in the matter is few,
none of the global universities ranking count and rare in Romania.
any of the Romanian universities among the The IREG group transformed itself into an
first 500’s. A close look on the subject has international non-profit association IREG
relieved interesting views that are less Observatory on Academic Ranking and
known in our country. The new education Excellence in October 2009, and registered
law (still a project when registering this in Brussels under the Belgian law. The
paper) claims to introduce the ranking of proceedings of its 3 international conferences
556
and the presentation and the debates during methodology of ranking, except the key
Astana conference has supply the principle of the most known global
information that underlies the ideas of this hierarchies are less known among the
paper. The subject was analyzed by several majority of academic community members.
specialists with different cultural We can state that a graduation diploma of
background and relevant experience, my university allows the same legal rights
representing the Jiao Tong University in on labor market all over the world as an
Shanghai, China, Directorate General for Oxford’s one and by that fact they are equal,
Education and Culture, European there is no difference between them. Except
Commission, Belgium, U.S. News & World 600’s years! And this is the first assertion we
Report, USA, Research Evaluation and highlight: there is a huge number of high
Bibliometric Data, Thomson Reuters, education units all round the world: ones
Elsevier, the Netherlands, Center for College famous, others useful and necessarily on
Affordability and Productivity, Ohio labor market. Ranking will not be useful if it
University, USA, Human Development will try to split the universities between
Network, The World Bank, Universities and good or bad. Ranking must not be a
Researchers, DG Research, European hierarchy but a way of evaluating the
Commission, Belgium as speakers. level of development of every unit, stating
To stress the expertise of IREG we cote (the not necessarily standards (this is the
Economist March 27, 2010)”IREG mission of accreditation bodies) but goals. As
Observatory is finalizing a methodology and long as the accreditation methodology is
procedures for audit system of university general international accepted any
rankings. The “IREG audit” will be carried accredited university has the right and
out upon those producing rankings and should benefit of the academic privileges. As
assess their rankings against the highest long as we based the academic system on the
methodology standards. Those rankings that principle that the university is the
will pass the IREG audit will be entitled to communion of professors and students to
use “IREG Recognized” label. Such audits look for truth (Ortega Y Gasset 1949) any
will become an important force to give both small community has to have the liberty to
the public and academia confidence that express itself and as the world academic
higher education rankings are being community as a global body.
conducted using high standards. The audit The nowadays economic system is based on
criteria of university rankings will be based open competition as a market economy,
foremost on the Berlin Principles on including the universities as high studies
Ranking of Higher Education Institutions formers. They compete on the market for
which were established by IREG in Berlin in students but mainly for funds either for
2006” education or research activities. An upper
position in a ranking table is a definitive
The first idea when talking about advantage in the competition. This might be
universities ranking is to look the list. Next one of the reasons we face a strong pressure
on the top is to see why, how and which are on using a ranking tool. IREG state as its
the criteria the top rely on. For a small goal: “taking into consideration the
university is become irrelevant to think increasing importance of rankings among
about being into the top. For a nation it is a future students, and the fact that rankings
problem of pride that night affect personal can influence financial decisions of
and collective feelings. Romanian cannot yet government bodies responsible for higher
be found on the list of the first 300 education”.
universities, even if the general opinion It is but natural that the units of excellence
about the national high education system is should enjoy appropriate resources in order
either a good one or an adverse one. Mass to provide best training or requested funds
media has press on public by highlighting its for research. But even the small ones cannot
fails. We do not intend value the Romanian be neglected as they are carrying the large
high education, but to see its positioning on amount of forming the labor force and the
ranking system. routine research activities.
In spite of the fact that one of the vice We can conclude that ranking is compulsory
presidents of IREG is a Romanian and for all kind of universities. It must be a tool
ranking seems to be pressing, the to regular evaluate themselves versus past
557
and others. There is one challenge: how to ranking must be adjusted in order to fit the
manage the mass media? It is looking for restrictions of diversity and seize.
news to feed its public, not for professional The research activity of university stresses
explanations; the dedicated ones are not again the advantage in competition for funds
available among the mass of future students, in favor of some bodies using the ranking
parents of funds managers. And the general list. It is also clear that the high class
conclusion, as long as someone is looking for research need to use a minimum size. As
a specific one that is missing, is a bad one, as well as in order to allow a competitive
in Romania. advantage for some universities, just for
The general conclusion of IREG discussions their research activities in spite of teaching
was that it must be settled a methodology on ones. A high education institution is
how to manage or administrate the supposed to teach students and form the
communication between the ranking maker, future labor force, including researchers! It
universities and mass media, in order to is an edge position and there is no common
keep a fear competition. accepted way of evaluating. The progress is
still obvious: once a problem stated it will
Another sensitive subject is about the huge have a solution, sooner or later.
diversity of the universities. To summarize it
is about how to add “apples” with “pears”, Our world is a more and more competitive
that is how to compare a gold medal on one. EU has organized the Bologna Process
Olympics with a Nobel Prize, or an Oscar in order to shorter the gap between its
with a prize on mathematics. The diversity education system and US’s. The new
of teaching fields is huge and it is practically architecture of the European high education
impossible to use the same criteria for total system is similar with the American one.
different domains. More, there is a large There is one piece missing that – in our
diversity a high education units: some opinion – as leaded to fail: the listing
organized as universities, assembling a vacancies system. In EU life working
number of teaching domains and others very contract are still majorities and have blocked
specialized, acting only in one field: to have the push for long life training. A short time
the picture it is enough to have a tour of working contract for 3-7 years is much more
high education institutions in Romania: convenient and lead to permanent learning.
specialized only on one field: economics or The education system has by now some
medicine, or agriculture or assembling under levels as expertise: college, master, doctor
the same roof from history and philosophy to and post doctoral studies, and as time:
sport, engineering, economics etc. It is bachelor, master, doctor and long life
senseless to measure with the same units learning. A specialization is compulsory. But
such different academic institution. This is how can meet the accreditations rules of
one more reason to distribute the ranking different countries with the ranking
findings among the academia that can judge methodology still in progress. There are few
professionally on the matter and only an bodies to analyze and discuss the matter and
agreed version to be distributed later on to the conclusions of the few existing ones are
mass media. not disseminate among the academic
More, it is generally admitted that a high community, even among the decision makers
education institution must carry a research of it. It seams compulsory that such a
activities. And this activity must be funded structure must be created in Romania. Still,
and its findings must be materialized into it seems there is a research in progress to
“teachable” results as innovations, registered settle the rules of a national ranking system
brands, articles in specialized publications, and draw up the first national ranking. But
rewards on art, sport, new theories, know it might not be useful for international
how etc. It is impossible to “add” so divers competition if it will not incorporate the
results in order to evaluate them by a single global existing rankings: but which ones, as
label. High standard researches need large there are several and everyone based on
funds and investments into research labs other principles. More, in order to exist you
that might be prohibitive to small must notify your presence: there are few
universities. But this do not exclude that the data sources from Romania available to
last one are not able to provide high actual major ranking organizers. Romania
standard training. Again the methodology of and its universities has to join and be active
558
in international structure involved in global Productivity and Institutional Research

ranking no matter the annual subscription. Performance: Using Publication and Citation Key
Performance Indicators”
10. Robert Reisz, “Soft and Hard Data and
The conclusions are:
Definitions for University Ranking”
- Romania has to join the global ranking
11. Yukum Harsono, “How Can "Research
organizations and dissipate the Leadership" be Measured – The View of the
information among the large academic Scientific Publisher”
population: professors, students and 12. Ying Cheng, “International and National
officials. Academic Rankings: Commonalities and
- Ranking methodology is still in progress Differences in Ranking Indicators”
and the specificity of our system must be 13. Robin van Ijperen, “Towards a Multi
presented and our specialist has to dimensional Ranking: The View of the European
Commission on Transparency in Missions and
contribute to the works in course,
Performances of Higher Education Institution”
including necessary funding. It is the 14. Robert J. Morse, “Why Academic
save way to ask for being included into Rankers Should Not Stop Publishing New
the circles where the future decision will Rankings until the Financial and Economic Crisis
be taken Ends”
- To organize works (books, articles,
conferences etc.) about ranking should be
considered by Romanian academic staff.
- A system of relating with mass media
about the ranking publications must be
settled for the benefit of the population,
students and professors as well as funds
administrators of public sector
References
a. Ortega y Gasset, O interpetare a

Istoriei universale , Editura Stiintifica, Bucuresti
1999
b. Presentations at Astana IREG
conference June 14-16 June, 2009:
1. Liu Nian Cai, “Academic Ranking of
World Universities (ARWU): Purpose and
Methodology”
2. Peer Eider: “The Lisbon Council
University Systems Ranking: Measuring the
Contribution of Tertiary Education Beyond
Research”
3. Claude Sauvageot, Gero Federkeil,
“Mapping, Ranking and Typology of Higher
Education Institutions: the European Approach”
4. Stefaan Hermans, “Sustainable Data
Collection as the Basis for Classification and
Ranking – New perspectives – New Initiatives”
5. Yung-chi Hou (Angela),”New
Personalized Ranking of the Taiwanese
Universities”
6. Nova Jayne Heath, “Complete University
Guide and Its Interactivity and Accessibility”
7. Richard Vedder, “The Forbes Rankings
and Beyond: The Future of Rankings in the
United States”
8. Koenraad Debackere,” Bibliometric and
the ‘Multi-dimensionality’ of Research Activity:
Implications for University Ranking”
9. Jeffrey Clovis, “Assessing Faculty
559

REFORMING THE IMPLEMENTATION OF PUBLIC POLICIES IN THE

EDUCATIONAL SYSTEM
ROVENTA IRINA
Irina.roventa@yahoo.com
Abstract By extending the previous definition, the

public policy express manifestations and
In any democratic system, the debate on guidelines set by the authorities as public
how policies are designed and bodies, central or local, to key areas or
implemented occupies a large space, and activities that take place either at
this is visible even in the most stable, national or territorial-administrative
predictable and institutionalized systems levels.
of government. In a society in constant A public policy is a network of interlinked
transformation, social problems change decisions on election goals, means and
rapidly, public policy must adapt to new resources to meet them in specific
requirements and meet the needs of people situations.
in difficulty. This article aims to make a There are three parts to public policy-
diagnosis of public policy instruments making: problems, players, and the policy.
implemented in Romania, in general and The problem is the issue that needs to be
in the educational system, presenting addressed. The player is the individual or
also possible solutions. group that is influential in forming a plan
to address the problem in question. Policy
is the finalized course of action decided
Key words: Public, policy, upon by the government. In most cases,
implementation, education, reform policies are widely open to interpretation
by non-governmental players, including
those in the private sector.
1. Importance of public policies and The public policy cycle explains the
implementation process policies as a logical series of steps: agenda
settlement, policy formulation, policy
In any society, governmental entities implementation and policy evaluation.
enact laws, make policies, and allocate Synoptic pattern, made by Herbert Simon
resources. This is true at all levels. Public (1945), involves the following steps:
policy can be generally defined as  problem formulation;
a system of laws, regulatory measures,  investigate the current situation;
courses of action, and funding priorities  develop a range of potential
concerning a given topic promulgated by a solutions;
governmental entity or its  assess the consequences for each
representatives. of the alternatives considered;
Politics is a "domain of human activity  optimal solution;
targeting relations, events and guidelines  implementation of the solution;
between social groups and other  checking how to implement;
organizations active in a state or between  assessment.
citizens and confrontations to capture,
consolidate, develop and maintain power Implementation stage is probably the
and control its functioning" most important public policy process since
560
on the success of this stage is based the process have their own motivations and
achievement of the specific public policy. resources, apart from direct political
action, are influenced by many
As Martin Rein and Francine Rabinovitz circumstantial factors. An old problem is
noted, the implementation process has that most studies on implementation are
three “imperatives”: focused on finding explanations for
 respect for legal intend success or failure of policy.
 civil servants` concern for Public policy is what public officials within
instrumental rationality government, and by extension the citizens
 general expectation that concerted they represent, choose to do or not to do
action requires consensus both about public problems. Public policy
within the implementing agencies advocates help government officials to
and in their external political make sound decisions in respects to public
system. problems for their clients. In any given
The efficient implementation of a public case, the choice depends on how the public
policy option involves tracking a realistic defines the problem and on prevailing
implementation plan. While the societal attitudes about private action in
implementation process is being relation to the government’s role. Public
developed, the purpose of monitoring policy is a course of government action or
reports is to assess the outcome and the inaction in response to public problems.
status of implementation of public policy
in terms of specific objectives, results and These elements of public policy can be
performance indicators for each activity. found in many different legal expressions
This information is extremely important such as laws, executive orders,
for the implementation coordinators team regulations, and judicial rulings. Public
to intervene in time and fix any difficulties policies reflect not only society’s most
or irregularities in the implementation important values but also conflict between
process. values. Policies represent which of many
different values are given the highest
The idea that government institutions priority in any given decision.
have as their main activity the process of
structuring and implementation of public
policies, penetrated with difficulty in our 2. Legislation
country.
Starting with 2006 there is an integrated
Public policy implementation is often seen system of developing the public policy, to
as a blocking point of the policy as a increase the coherence of governance act
system. A total of 57 senior officials were and significantly reducing the number of
asked whether: "Implementation of sector legal acts adopted by the Government.
policy has created problems inside or From the perspective of initiating the
outside their field of activity?". 68% of public policy by adopting the legislation at
them responded affirmatively. The main the central level and in response to the
obstacles mentioned were the bureaucracy need for technical foundation of the
(42%), time pressure (33%), lack of proposed legislation was necessary to
cooperation of civil servants (25%), regulate activities undertaken at the
coordination problems (23%) and ministries and central public
information problems (17%). administration, pre-elaboration of
normative acts.
Implementation is an interactive process,
involving not only public authorities but In this respect, was adopted no. 775/2005
also representatives belonging to the Government Decision approving the
target area of policy and other interested Regulation on procedures for drafting,
groups. The characters involved in this monitoring and evaluating public policies
561
at central level, which covered the responsibility in the preparation, training

following issues: and specialization of human resources,
- activities of development, monitoring and primarily, the implementation of modern
evaluating the public policies in the methods and, secondly, countering
ministries and other bodies of central resistance to change required nationally
government which are initiating and locally.
normative acts;
Romanian school network, consisting of
- A coherent and cohesive framework of nearly 30,000 schools, 1300 high-schools,
developing the public policy to be included 1200 post-secondary, 800 vocational
in each ministry and specialized body of schools and over 300 universities, strive,
central government; relying on European Community
programs, to adapt educational system at
- Adequate technical substantiation of the current and future changes. In the
legal acts in order to avoid further absence of appropriate trainings, scarcity
challenged and where the regulations are of relevant specialization will reduce the
difficult or impossible to enforce; effectiveness of reforms and human
resource, negativelly affecting the labour
- Establishment of tools to help increase market.
the coordination capacity of the The development of coherent policies and
Government regarding development plans is crucial to bring about real and
procedures for public policy by ministries sustainable change in education systems
and other bodies of central government; throughout the world.
- Establishment of unique forms to be

completed in all ministries to be set Development of national education to
milestones and research results prepare a society and economy based on
substantiating a draft of a legislative act; knowledge, in order to ensure an equitable
access to a lifelong education, to prevent
- Creating at the ministries level, special the risk of social exclusion and facilitate
public policy organisms to coordinate the growth of the occupancy rate in the
preliminary activities of laws` elaboration labor market, is a policy priority of the
that work in conjunction with specialized Romanian Government.
departments of the Government. Ministry of Education, Research and
Youth, as a specialized body of central
3. The particular case of educational public administration, leads the national
policies system of education, youth and research,
exerting also duties established by laws
Although the overall educational level in and other normative sphere of activity.
Romania is quite high, qualifications Ministry designs, develops, implements,
structure is not yet adapted to the society monitor and evaluate policies and
movements and the ability to react of the strategies, in line with the strategy and
labor market to these mutations is still governance program in education, youth,
weak. scientific research, technological
development and innovation, as well as
The great difficulty of reform initiated at with the European policies and
all levels of education - vocational, international commitments.
primary, secondary and university- According the Presidential Commission
remains the at low level of allocated funds Report for analysis and preparation of
by public authorities for maintaining and policies in education and research area
improving educational infrastructure. It elaborated in 2009, the Romanian system
can be added to other risks such as limited has four major problems: it is inefficient,
capacity of government to assume irrelevant, unfair and poor quality.
562
Maintaining the current education system those in urban areas, the proportion of
in Romania jeopardize competitiveness those who obtain good results in the same
and prosperity of the country. subjects is 2-3 times less! Approximately
80% of youth out of school are rroma
Positioning Romania in relation to the people, of whom 38% are functionally
Lisbon indicators illiterate. The proportion of rroma people
children enrolled in primary schools is
LISBON INDICATORS ROMANIA UE NOW UE PURPOSE
Early leaving of education system * 23,6% 14,9% Max. 10%

Share of population 22 years who 66,5% 77,3% Min. 85%
has completed at least
lyceum (upper secondary
education)
Share of pupils of 15 years who fail 41% 19,4% 15%
to meet
even the lowest level of
performance (PISA
2001)
The proportion of graduates in the 23% 24,1% +10%
fields of mathematics, science and
Technology
Adult participation in lifelong 1,6% 10,8% 12,5%
learning
Performances of students in Romania to 64% compared to 98.9% - national
major international assessments: (PISA, average.
TIMSS and PIRLS) is well below Infrastructure and resources of the
International Media. education system are of poor quality. In
Olympic results are hardly relevant to our summary, the current educational system
system: they reflect their personal has serious problems of efficiency, equity,
excellence and a few teachers who prepare quality and relevance knowledge economy.
them, not the system. Romania occupies In order to improve the educational
the position 34 of the 42 participating system in Romania, it was implemented
countries in the OECD Program for the National Strategy of Innovation,
International Students Assessment. Research and Development. Ensemble
forward consultations led to a list of 25
In the Lisbon Agenda, the EU has priorities grouped in 8 areas, described in
established 5 indicators showing how the document as priorities of Public
one country and the EU as a whole, are investment in research.
able to face challenges of knowledge The strategy reaffirms the role of the state
economy. Positioning Romania in relation in creating conditions and incentives
to knowledge economy indicators (“Lisbon firstly for creating knowledge, and
indicators") the analysis of these data secondly to apply knowledge for general
show a clear conclusion: the current interest, through innovation.
education system is unable to ensure to Its main purpose is to recover the existing
Romania a competitive position in gaps compared with the level of
knowledge economy. European countries and prepares the CDI
system in Romania to identify and
Current educational system is unfair. The consolidate the areas in Romania where to
proportion of rural students who obtained excel.
poor results in Romanian, mathematics Quality and leadership for the Romanian
and science is of 2-6 times higher than higher education Project has as its general
563
objective to develop, by involving all

relevant partners, the vision for the Popescu Luminiţa Gabriela, Sectoral policy-
Romanian higher education, on which to course support, Bucuresti
base policies and actions of the medium
and long term, to contribute at the
Presidential Commission for Analysis and
improvement of strategic management, Policy Making in Education and research in
finance, human resources and educational Romania, Presidential Commission Report for
resources in universities, to promote analysis and preparation of policies in
innovation, cooperation and partnership education and research areas, Bucuresti, 2007
between universities, businesses and
research centers for development of Rein M, Rabinovitz F, Implementation: a
Knowledge Society in Romania. theoretical perspective, Eds W Burnham, M
It will be elaborated a vision document with Weinburg (MIT Press, Cambridge, MA, 1980)
the 2025 time horizon and a set of
strategical recommendations embodied in Secretariatul General al Guvernului României,
the Higher Education Strategy 2009-2013, Manual de Metode Folosite în Planificarea
providing that the Romanian universities Politicilor Publice şi Evaluarea Impactului,
will develop and will act as key players in 2006
the socio-economic development of Romania
http://edu.ro/
4. Conclusion http://edu2025.ro/
www.sgg.ro
What is the implication of the new world
of governance for the old issues about the
implementation process?
Application in practice of public policy is
not a simple process. It is presented as a
series of activities spread over a fairly long
period of time, whose beginning and end is
difficult to differentiate, involving also
numerous actors.
This article tries to briefly present the
current situation of the Romanian public
policies and some measures taken in this
direction.
PREFERENCES:
Bertram H. Raven, Policy Studies, Review

Annual, Volume 4, SAGE Publications Ltd.,
London ECITY 8QE, England, 1980
Cabinet Office, Regulatory Impact Assessment

Guidance, Great Britain, 2005
General Secretariat of Government, Public
Policy Unit, Manual for developing public
policy proposal,
General Secretariat of Government, Legislative

procedures of government: problems and
possible improvements
Miroiu Adrian, Zulean Marian, Radoi Mireille,

Public Policies, Editura Politeia
(2002)
564

THE MACROECONOMIC EFFECTS OF

EUROPEAN FINANCIAL INTEGRATION
ŞARGU Alina Camelia;

“Alexandru Ioan Cuza University”, Iaşi;
s_alina_camelia@yahoo.com
CHIRLEŞAN Dan;
“Alexandru Ioan Cuza University”, Iaşi;
danch@uaic.ro
Abstract functional European common market. In this

The European financial integration process regard the financial integration process
is one of the most dominant trends that is appears as the back-bone of the whole
manifesting at the European level. Having a European integration process. The mater
direct effect not only on the financial markets raise here is what effects - positive and/or
but also on the general European economical negative - will the European financial
environment, it is one of the central pieces of integration process have on the European
the European integration process. Even if the economies, as it deepens, touching every
efforts undertook for the realisation of this aspects of the European economical
process have been fruitful, the results are environment.
very different within the financial markets. It has become especially important to take a
The aim of this paper is to present, using an deeper look at the financial integration
extended literature review, the main opinions process, as it can no longer be praised as an
expressed in the studies undertaken so far on all good transformation. This has become
the subject. We will also present in a non- especially evident since the contagion of the
exhaustive meaner the advantages and recent financial crises has proven that the
disadvantages of the European financial systemic risk can have a devastating effect on
integration process, using an empirical the integrated European economies, striking
analysis, with the accent on the euro zone, as both: developed and emerging economies.
it’s providing a more European integrated Thus, a more carefully evaluation of the
economical environment. effects of the financial integration process
must be taken, starting from the main
Key words: European financial integration, academic theories regarding its benefits and
euro zone, financial development, compare them with the empirical data that
international risk sharing, systemic risk. emphasising the true effects of the process
on the European economies.
1. Introduction In order to achieve this, the paper, uses an
extensive literature review, which
In order to understand the European underlines the main concepts regarding the
integration process we must take into financial integration process of the European
consideration its roots. The motivation financial markets. Using empirical data the
behind this process has been always paper provides an image of the evolution of
political, aiming at achieving what Jean the financial integration process first by
Monnet called “The United States of underling the convergence of the main
Europe”, but the means to achieve this goal indicators for financial development and
have been always economical. The second secondly, using the model Backus-Smith,
article from the Treaty of Rome from 1957 emphasising the evolution of risk dispersion
identifies as the main objective of the in the euro-area – the most integrated zone
European Community the creation of an from the European Union.
economically integrated area with a fully
565
The paper comes to complete the existing Harvey, 1995 and 1997, Rockinger and Urga,
academic literature, providing an overview of 2001). Instead, the second definition implies
the different ideas embodied in the studies the analysis of the changes in cross-border
undertaken so far on the effects of the financial flows between countries, as a result
European financial integration process while of integration (e.g. Dumas, Harvey and Ruiz,
also providing its own original conclusions 2003).
on the subject. During the process of establishing the
current state of knowledge regarding the
2. The current state of knowledge European financial integration problems we
regarding the European financial have observed that the most empirical
integration problems – Literature studies have been focused especially on the
Review more developed European markets (e.g.
Jorion and Schwartz, 1986; Korajczyk and
Taking into account the various implications Viallet, 1989; Campbell and Hamao, 1992;
of the integration process at the European Carrieri, Errunza and Sarkissian, 2004;
level, the issue regarding the degree of Baele et al., 2004, and Flood and Rose, 2005)
European financial markets integration and only lately the European emerging
represents a subject of real interest, both, for economies have been taken into
the political decision making factors and also consideration (e.g. Bekaert and Harvey,
for the participants on these markets, like 1995 and 1997; De Santis and Imrohoglu,
listed companies, investors or financial 1997; Bekaert et al, 1998; Bekaert, 1999;
intermediaries. Thus, on the one hand a Bekaert and Haevey, 2000; Rockinger and
higher degree of integration leads to Urga, 2001; Gerard, Thanyalapark and
sustainable economic growth, facilitates Batten, 2003; Jong and de Roon, 2005; Ang,
portfolio diversification and access to 2008). Still, only few studies have been
funding, improves risk-sharing opportunities focused exclusively on the new member
and increases market liquidity. But on the states of the European Union, despite their
other hand, it could also lead to the raise of interesting economical characteristics (e.g.
the interdependence of European economies, Dvorak and Geiregat, 2004; Reininger and
which can facilitate the emergence of Walko, 2005; Lorenzo Cappiello, Bruno
systemic risks and the eventual eruption of Gérard, Arjan Kadareja and Simone
crisis, like the one that started in 2007. Manganelli, 2007; Iorgova and Ong, 2008).
For a better understanding of the Thus, we must account the fact that the real
implications of this process we must first economy of these countries has gone, in less
underline the conceptual meters regarding than twenty years, from a centralised
the process of integration. Although there is economy to a market economy and forth to a
a vast academic literature covering this fully open market. In parallel, it was
field, there is no unanimous accepted necessary the development of the economy
definition for the concept of integration. and the liberalisation of the financial
Thus, in the case of the financial sector, the markets, this process being undertaken
markets are considered completely approximately in the same time by all new
integrated only when the regional factors member states. Nevertheless, we must
(European) have a determined role in the acknowledge that these countries will adopt
homogenisation of prices, and partially in the near future the single European
integrated when the local factors (national) currency. All these aspects underline the
have, also, a determined role (e.g. Adler and necessity for studding the European
Dumas, 1983; Stulz, 1981; Errunza and financial integration process, both from the
Losq, 1985; Flood and Rose, 2005; Stoll, perspective of the developed and the
2008). A more wide definition regarding the emerging economies, emphasising the
integration of the financial markets interrelations between them.
emphasises the importance of strong and For a better underling of the evolutions in
real financial connections between the this field, the analysis will focus especially
economies (see, inter alia, Dumas, Haevey on the euro area, mainly because these
and Ruiz, 2003). In general, the testing of economies are much more alike from a
the first definition implies the carrying out structural and development point of view,
of sophisticated analyses regarding the emphasizing with a higher fidelity the
convergence of prices (e.g. Bekaert and European integration process in general.
566
3. Financial integration, financial pressure leads to the reduction of costs,

development and economic growth especially for the private persons and the
firms from the lesser financial developed
Various studies, regarding the international countries, leading implicitly to the
environment and also some more focused on development of these local financial markets.
the European Union’s particular situation, The development of foreign banks through
proved that financial development leads to branches and subsidisers in these markets
sustainable economic growth (Guiso et al diminishes, in general, the profit of the local
2004, Levine 2005, Papaioannou 2007, banks. Still, if through these mergers and
Jappelli and Pagano 2008, Caporale et al acquisitions the activity of the local banks
2009). More precise, the results of the becomes more efficient, then the process will
studies, undertaken at micro and macro- be associated with a drop in the price of
level, prove the fact that financial financial intermediation. Intense
development raises the productivity of the competition combined with cost cuts
inputs in the developed economies, while translates, ultimately, into a higher volume
also enhancing the economic growth through of credits and/or a reduction of the interest
the reduction of capital costs both in the rates.
developed and the emerging economies. Another important aspect necessary in order
Similar, the financial integration at for the financial integration to lead to
European level contributes directly to the financial development, regards the
overall financial development and implicitly harmonisation of the legislative environment
to the gaining of long term economic benefits from the national level with the European
for the European Union. one, which will lead to an enhancement in
The financial integration process can cross-border transactions and the raise of
promote financial development through a the activity of foreign investors on the
series of mechanisms. Thus, the more European financial markets.
integrated and liquid financial markets In another train of thoughts, the removal of
should lead to a reduction of capital costs, structural barriers in the process of financial
because of a greater risk dispersion perceived integration can lead to the enhancement of
by investors at international level and also the way in which financial services are
because of the diminishing of transaction provided and the spur of their convergence,
cost, through the enhancement of aspect that can be highlighted through the
transactions volume and the raise of raise of value of some indicators for domestic
specialisation in financial services delivery. financial development, like domestic stock
Moreover, the extension of financial markets market capitalization and the volume of
diversifies the firm’s possibilities for bank lending relative to GDP. Figure 1
financing, because it won’t be made no more underlines the convergence in time, through
only through the banking system, but also the coefficient of variation for the euro zone
through other viable sources (e.g. financing economies, of three such indicators: the
through capital markets). Also, the academic percentage of the stock market capitalisation
research shows that the enhancement of in GDP, the capitalisation of the bond
financial development optimises the process market issued by the private sector in GDP
of allocation of capitals at inter-sector level, and the capitalisation of the private credit
because the firms’ facile access to financing sector in GDP.
sources allows a quicker sector development The enhancement in convergence for the
(Hartmann et al 2007). Additionally, the euro area countries implies the decreasing of
dispersion of risk can facilitate the financing the degree of dispersion of these indicators,
of more risky projects that could generate, in between 1990 and 2009. And in fact it can be
time, higher revenues (e.g. Obstfeld 1994). observed a constant decreasing of the
But the main mechanism through which the coefficient of variation in the case of the
financial integration contributes to the bonds issued by the private sector, from
financial development of the internal market approximately 0,7 percentage points in 1990
is represented by the enhancement of to less than 0,4 percentage points in 2009,
competition through the arrival of foreign while in the case of the private credit sector
financial intermediaries, which are more the decrees is not that big, but still
sophisticated or are offering financial considerable (from 0,4 to 0,3), mainly
services at a lower price. This competition because in this case there was a bigger
567
homogenisation of the cross-border markets risky projects, which could offer higher
even since 1990. In the case of the coefficient paybacks (Obstfeld, 1994).
of variation for the stock markets there is no As we have mentioned earlier, in order to
clearly visible trend, mainly because this better underline the evolutions in this field,
coefficient is influenced by the variation of the analysis will be focused especially on the
the stock prices, which is determined euro area, because of the higher closeness
especially by country-specific factors. degree and structure of these economies,
allowing a better underlining of the
Graphic 1. Indicators of financial development in relationships between the European
the euro-area between 1990 and 2009
financial integration process and the
diversification of the cross-border risks.
Keeping all the other factors constant, the
increase of the international investments in
the euro area has lead to a better
diversification of the cross-border risks.
Therefore, for example at the microeconomic
level, the fact that after the adoption of the
common monetary policy the households
Source: Author’s calculations based on the International portfolios of assets and financial product
Monetary Fund (http://www.imfstatistics.org/imf/) and
the European Central Bank (http://sdw.ecb.europa.eu/)
held in pension funds are more
data internationally diversified in comparison
with the period preceding the monetary
It can be acknowledged that from analysing union represents a explicit fact (e.g. the
all the three markets, the private bonds study of Jappelli and Pistaferri, 2008 –
market has registered the biggest progresses which analyses the impact of the euro
regarding its convergence while the private currency on the Italian households
credit market and the stock market have portfolios). In the case of the corporate
registered the smallest ones. Even if when sector, the increase of the direct foreign
compared with the private bonds market and investments meant a greater geographical
the wholesale banking market, the stock diversification of incomes, while in the case
market and the retail banking market from of the banking sector an important
the European Union are the least integrated, proportion of the total assets is held by
the premises for their integration already foreign banks (from other EU countries).
exist.
Graphic 2. Percentage of other EU banks assets
in total euro-zone banking assets
4. Financial integration and the between 2004 and 2008
diversification of cross-border risks in
the euro area
Basically, the diversification of risks at cross-

border level can serve as an alternative
stabilisation mechanism, taking into
consideration the fact that the investments
and the local consumption can be protected
from shocks determined by local factors
Source: Author’s calculations based on the International
through the compensation of the loses Monetary Fund (http://www.imfstatistics.org/imf/) and
registered at national level with the gains the European Central Bank (http://sdw.ecb.europa.eu/)
from the international exposure. Moreover, if data
the preferences for consumption in the euro
area are similar, then the efficiency of the Moreover, the increasing level of financial
single monetary policy will be grater. A development leads to a better diversification
higher degree of cross-border risk of risks. Because of the financial
diversification can enhance the growth rate development it has become possible to better
of the economy on the long run, since the capitalise the income flows and implicitly to
various hedging possibilities should better allocate the capitals at European
encourage entrepreneurs to invest in more level. Accordingly, the capacity of
568
individuals and firms to share risks at effects, amplified by the relative

national and cross-border level is directly “inconstancy” and the mimetic behaviour of
dependable to the level of financial the financial institutions, can lead to a raise
development that their origin country has. of the volatility of the output and consume,
The empirical measurement of instead of diminishing it, as the
diversification of risks at macroeconomic diversification of risks theory emphasises
level is difficult to realise at the euro zone (Rogoff, Kose, Prasad and Wei, 2006).
level, especially given the short period of Probably the high risk of contagion because
time since the single European currency has of the integration process is not that
been created. Still, staring from the pronounced in the case of the euro zone
condition of the Backus-Smith, it is possible countries than in the case of the emerging
to empirically underline the diversification European economies, as the more advance
of risks at the euro zone level, through the economies, like the ones from the euro zone,
cross-country standard deviation of tend to be less vulnerable when faced with
consumption growth. financial crises (Lane and Milesi Ferretti,
2006). The most vulnerable are the countries
Graphic 3. The dispersion in consumption growth which liberalise their financial sector
rates for the euro zone between 1970 and 2009
without having the strong institutions and
the correct macroeconomic policies for this
process (Demirgüc-Kunt and Detragiache,
1999). On this line, the analysis of Kose,
Prasad, Rogoff and Wei (2009) underlines
the minimal condition which must be met in
order for the financial integration process to
lead to economic growth and the diminishing
of the systemic risk. These conditions refer to
some economic characteristics – like a
Source: Author’s calculations based on the International
Monetary Fund (http://www.imfstatistics.org/imf/) and
developed financial sector, the institutional
the European Central Bank (http://sdw.ecb.europa.eu/) quality governance and the integration of
data the goods and services markets – and also to
the macroeconomic policies employed.
Analysing the standard deviation of Graphic 4. Basic conditions for the success of the
consumption growth in the case of the euro financial integration process
zone countries, we can observe that despite
the drop after 1999 in comparison to the
1970 it is difficult to establish a clear
difference from the 1980 and 1990. In other
words, despite the raise in the diversification
of the risks at the euro area level since de
adaptation of the single currency, the level is
far from the optimal figure, which a fully
integrated zone could provide.
5. Limits of the European financial

integration process Source: Kose, Prasad, Rogoff and Wei (2009),
Thresholds in the process of international financial
integration
The more recent academic literature has
underlined the potential cost of the It cannot be denied the fact that there are
European financial integration, which ways/modalities in which the financial
counter-balance the benefits offered by the integration process can enhance the
enhancement in cross-border risk vulnerability of the European financial
diversification. Therefore, in a world with system, but this can only happen if the raise
imperfect financial markets, the integration of the contagion risk in not coherently
process could enhance the vulnerabilities of compensated through a clear, complete and
the countries to external macroeconomic
shocks and financial crises. The contagion
569
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571

IMPROVING THE MANAGEMENT OF A COMPANY USING BI

INSTRUMENTS
Ph.D. Lecturer ŞERBANESCU Luminiţa,

University of Piteşti, Romania
luminitaserb@yahoo.com
Ph.D. Associate Professor RĂDULESCU Magdalena,

University of Piteşti, Romania,
magdalenaradulescu@yahoo.com
Abstract The demand for dynamic multidimensional

All companies need information in order to systems used to support the intelligent and
make decisions. There is usually too much predictive decision making processes, has
data spread in the IT systems of the determined the development of the systems
company, but transforming the data into of BI type. These systems become more and
information that can be analyzed in order to more complex, being able of a
make decisions is a difficult process. multidimensional analysis of data and
Considering the demands imposed by the display real abilities of statistics and
knowledge society, each organization strives predictive analysis in order to serve much
to become an intelligent organization and, by more to the decision- assisted systems.
the means of new and innovative Business Business intelligence represents the
Intelligence(BI) strategy, to gain a market assembly of the activities of researching,
competition advantage. The new BI era collecting, treating and transmitting useful
integrates information into the decision information to the economic agents, with a
process through the means of decision view to get competitive advantages, by its
services, relates business processes to exploitation in a defensive or/and offensive
business rules that may be changed at any way. The BI applications of assisted
time, and integrates BI benefits to decisions facilitate a great number of
capabilities provided by teamwork, activities, including the multidimensional
cooperation, and business process analysis, data mining, the predictable
management. In this article, I will present a capacity, the business analysis, the inquiry,
BI solution, implemented through QlikView reporting and graphics designing facilities,
Application, thanks to which it is possible to the geo-space analysis, the knowledge
analyse the employee expenses and for management etc.
management sales. The BI concept represents an architecture
and a collection of applications and
Key words: business intelligence, sales, integrated operative databases, as well as of
human resource, reports, QlikView systems based on decision assistance, that
provide to the business community easy
1. Introduction access to the data on the respective business.
The BI concept represents a series of
The goal of BI solutions is to offer marketing techniques and analyses which
customized analyses to the right users, at can be fulfilled with the help of a special
the right time, enabling them to make better software. By means of this system, the
business decisions. The companies need to experts analyse the internal data of a
implement analyses to hundreds or even company. The BI concept focuses on the
thousands of users, assuring, at the same interdepartmental activities of a company,
time, that they all have access to the latest the analysis of material and informational
operations. flows as well as the improvement strategies
of the activities inside of the company.
572
Because of the large amount of data and of with advanced capabilities in collaboration
huge processing needs, both the dynamic and implementation work, make the
reporting solutions and the data mining QlikView application easily adaptable inside
require a powerful informational the organizations (companies or public
infrastructure designed to enable storage, institutions) that intensively use electronic
interconnected, processing and huge stored data. The QlikView applications are
correlation capacities (we can talk here not developed rapidly, they are easily
only about the hardware but also about the administered by the IT department within a
software capacities, including here the company, and they offer to the final users an
specific parameters for every organization). unlimited freedom of queries, at any level of
The central warehouse that shelters the database.
totality of the collected data from the
computer systems represents the central A. Example of sales management
part of the system. It is best known under
the name of Data Warehouse. In order to In order to exemplify, we considered a
collect data in the data warehouse from company which deals with products delivery.
more computer structures, that can be later The company has many warehouses situated
correlated, even if they come from other in different locations and supplies products
systems, it is usually necessary a computer to a lot of customers around the country.
layer to collect, clean, filter and transform All the accounting papers can be easily
the ultimate data of the operational systems. modified, by a few clicks, by setting and
Usually, this task is fulfilled by the ETL changing the respective dimensions, such as:
services (Extract, Transformation, Load) of time, the warehouses location, the
BI systems. customers, the products, etc. These can be
BI integrated systems offer data extraction, combined by defining certain groups.
data analysis removes irrelevant Further on, some reporting analysis on sales
information, the risk management and offers are presented:
support for managing decisions at high
speed and with almost perfect relevance. 1.1 Variations on sales. In this chart,
Business is run through IT systems within there are determined the differences
BI and do not depend on the computer between two days in different months. Thus,
department. to exemplify, I considered a day in August
and at 20days’ distance, a day in July (see
2. The implementation of BI solutions Figure 1). There can be noticed the
with the Qlikview application differences between the sold quantities, the
products value, and the price for every
In order to design the reports on sales product which is found in the existing group
analysis inside of a company we used the of products.
QlikView application, which is an excellent
tool in analyzing the critical information on
a business, such as sales. QlikView is a
complex and powerful BI software package
and data analysis which offers a better way
to work with the data of a business. The
graphic interface offers an increasing
interaction to the users. With a few clicks on
the mouse, they have immediate access to
information that goes from the general level
to the level of the slightest details. The
organizations, thus, succeed in discovering
still unsuspected information, in
understanding better what is going on in
their current activity and, as such, in
making the best decisions for their Figure 1 – Variations on sales
development.
The extensive facilities on personalization
and visualization of information, combined
573
This chart can be modified easily by

changing the dimensions, in this way,
visualizing the same information grouped
differently. For instance, we can find
differences in the quantities, values and
prices for a group of products , or for other
customers or types of customers (partners or
non-partners), or from certain warehouses,
or from a locality, etc. Selections can also be
made, for example, we can choose to draw a
statistics only for a certain group of
products, for a certain customer, a certain
geographic area or for a certain group of
customers etc. In fact, these selections can
be made in all accounting papers built by
means of this QlikView application.
1.2. Evaluations „What-if”. This report Figure 3 – Days of the week comparisons
shows how sales value modifies if the price
or the quality of the products changes, or - Period comparisons era done using the
both simultaneously. same dimensions, but we establish a certain
period for which we want to visualize sales
evolution. For example, if we use a 7 days
period, this does not mean that we built the
evolution for that week, but for a 7 days
period previous to the analysis date.
- Monthly comparisons – we draw the sales
evolution following the three dimensions for
each of the 12 months previous to the
analysis date.
B. Example of human resources

analysis
For exemplifying, I consider a firm which

deals with the human resources analysis
Figure 2 – What if within a company.
A part of the designed reports for
Usually when the price raises the quantity accomplishing an analysis on human
decreases, and when price drops the resources within a company are presented in
quantity raises. When both the quantity and the following:
the price raise a new market should be
found, depending on the competition. 2.1. Evolution of costs contains the graphic
with monthly values on net salary, gross
1.3 Comparisons on certain periods such salary, standard salary and on the total cost
as: for a three-month period of time. This
- Comparisons between the days of the week. graphic enables the manager to notice the
We build the evolution on a certain day of monthly differences between the expenses
the week of the value, average price and sold with the employees and it offers computer
quantity. For example, establishing the date support for controlling the salary increases
of 01.08.2007 we get specific data for the within a firm with a decentralized decision
three dimensions only for the day of and with many employees. The total cost
Wednesday from the current or previous and the wages display the same trend,
month (we take in account the last 4 weeks) because they are in a direct connected.
and we compare these days to one another in Anyway, the share of wages in the total cost
order to establish if there was or not an is more than 55%. If the manager makes a
evolution of the sales. connection between this trend of the wages
574
and of the total cost with sales development, Figure 5 - Bonus analysis
he will have a full image of the firm
profitability and its development. So, his 2.3 The analysis of extra work hours
decisions can be supported with concrete done by the company per month (see figure
data and can aim each worker or each 5). The average of total expenses, the
department. average number of extra hours, and the
value of the extra hours per employee are
calculated for the company. The last column
shows the ratio of the value of the extra
work hours to the total expenses of the
department. The supplementary working
hours are noticed here at the logistics
operations department and that explains the
larger wages and primes given by the
company to these departaments that
contribute to the increase of the firm
performances. If the firm manager will
correlate the increase of the total cost due to
the supplementary working hours with the
sales increase due to these working hours,
Figure 4 - Costs Evolution he can decide if it is efficient or not to ask for
such enlarged working program and pay for
2.2 Bonus analysis contains for each it.
department of the company the sums in the The features of this report can be modified
incentive category (bonus) given to the and thus the total expenses per department,
employees every month (see figure 4). The per salary earner or per budget group can be
chart can be used for statistics on the carried out.
bonuses given by a company to its employees
in a month or over a certain period of time.
At the same time, the sums in the incentive
category given by the company to its
employees can be compared, for the whole
company or for each department. By placing
the mouse on a certain department in the
chart (a certain color) detailed information
on department, month and the incentives
given to employees are shown. We can notice
that in August, which is a holiday month, all
departaments and workers got primes, while
in the rest of the months, only some
departaments got primes, namely, again, the
logistic operations department and the sales
department were in top.
Figure 6 - The analysis of extra hours
3. Conclusions
We must admit that these technologies are

at the beginning of a long journey, in a world
where the key to success lies on the ability to
make better decisions and in a much shorter
period of time than the competition.
However, the life of a company depends
more and more on such decisions, fact that
575
makes impossible to deny the benefit that

the BI can bring.
The cost of implementing the BI systems is
rendered by a visible save of time that is
accomplished by the company’s management
for the period when it gets the information
and by the earnings of money that come
from the quality of decisions.
This information system is a Business
Intelligence product offers informational
support to those with analysis and decision
powers in the „HR” and „Sales” departments.
Implementing a business intelligence
solution has the following benefits:
- It places at the users’ disposal all relevant
information about the business they need in
due time.
- Simplifies the search for complex data and
automatizes business processes
- The solution is adapted to the specific
requirements of the organization, unlike a
prefabricated and difficult to adjust one
- It makes use of the existing technologies:
Excel and requires little training as it is
based on the present knowledge of the users.
-It reduces the period of time for decision
making, allowing rapid reaction to changes
and generating a competitive advantage.
Even though in Romania the interest for this
kind of solutions does not raise to the level of
the developed markets, it seems that the
situation has changed lately. At the world
level there have occurred changes in the
basic philosophy of the BI software solutions.
References
1. Krizan, L., Intelligence Essentials for

Everyone (Washinghton: DoD, Joint Military
Intelligence College, 1999), www.scip.com.
2. Moss, L. T., Atre, S., Business Intelligence
Roadmap: The Complete Project Lifecycle for
Decision-Support Applications (Addison Wesley:
2003).
3. QlikTech International, QWT Business
Intelligence (Enterprise Script: 2009).
4. QlikTech International, QWT Business
Intelligence (Professional Layout: 2009)
5. Thompson, Olin, Business Intelligence
Success, Lessons Learned (2004)
http://www.technologyevaluation.com.
6. Turban, E., Aronson, J.E., Liang, T.P.,
Sharda, R., Decision Support and Business
Intelligence Systems (New Jersey: Pearson,
Prentice Hall, 2007)
576

SOCIAL IMBALANCE ON THE LABOUR MARKET IN ROMANIA

FOLLOWING THE COUNTRY’S ACCESSION
TO THE EUROPEAN UNION
Associate Professor Ph.D. SÎRGHI Nicoleta

West University of Timisoara,Faculty of Economics and Business Administration
nicoleta.sirghi@yahoo.com
PhD Candidate HOHAN Dumitru

CNSLR Fratia, Bucuresti
economic@cnslr-fratia.ro
According to the disequilibrium theory, Labour market is one of the most
the prices for goods and services, as well as the complex market forms in the economy, since
salaries are fixed, and any imbalance on the labour represents the transaction factor. This
labour goods/services market entails a factor is made up of several biopsychological,
restriction of quantities. EU accession has demographic, academic, professional and
modified Romania’s internal market/external behavioural features, which clearly
market ratio as compared to the other 26 differentiate it from any other factor involved
Member States. Low intraeuropean demand is in the exchange relationships on other
the result of insufficient competitiveness. In markets. Labour market transactions are
terms of economic policy, the attempt to remedy focused on the workforce, defined as the whole
the Keynesian unemployment by a greater of the physical and intellectual human
flexibility of the labour market does not solve abilities that are used when the human being
this situation as long as the production is low, creates economic goods [1]. The functioning
regardless of the salary level. On the other state of the labour market is reflected in the
hand, relaunching the demand will have no dynamics of the total population, the
effect on classic unemployment, because the employed population and the number of
high labour costs affect the return on employees.
investment in a negative way. EU Member States have several
Statistical data indicate lower common objectives in terms of employment,
employment in Romania as compared to the which aim at modernizing the labour markets
EU average, extremely low participation of the and the structural policies. Employment
workforce to life-long education, higher policies in the EU Member States are based
unemployment level of the young population as on common objectives such as: full
compared to the European average. Romania employment, increased labour quality and
must face the challenges of low employment productivity and increased social cohesion and
and continue to promote the objectives of the inclusion.
Lisbon strategy, through a more efficient The aim of the Lisbon Agenda was to
distribution of the internal resources and by make the EU “the most competitive and
using the financing opportunities provided by dynamic knowledge-based economy in the
the structural instruments. world capable of sustainable economic growth
with more and better jobs and greater social
Keywords: labour market, employment policies, cohesion,” by 2010. The new, relaunched
unemployment, new labour market theories strategy proposes the transformation of the
EU in a more attractive area for investments
and work, the promotion of knowledge and
577
innovation and the creation of more and better In modern economies, workers sell
jobs. For the financial perspective 2007-2013, their services to capital owners within the
Member States shall allocate sums from the labour market. According to neoclassics,
structural funds they will receive to finance labour demand depends on the real salary, i.e.
projects related to reaching the Lisbon targets. the increase of the real salary causes the
decrease of labour demand, while the latter
causes the increase of unemployment. These
2. Theoretical Considerations on the divergences in terms of labour demand factors
Labour Market may be explained by the ambivalence of the
notion of salary. In the neoclassics vision,
Labour market is the meeting point of salary is a production cost (which should be as
labour offer and demand. There are several low as possible) while in the Keynesian theory
points of view regarding the labour demand. salary is viewed as an income (which should
According to J. M. Keynes, labour demand be as high as possible).
from companies depends on the anticipated Companies offer jobs and demand
demand of households, which, in its turn, is workforce in exchange, while the active
influenced by the salary of the people who are population offers workforce and demands jobs,
already employed. Following high in its turn. Thus, we can state that labour
unemployment rates and social tensions which offer is equivalent to the jobs demand, and the
characterised the 1929-1933 crisis, Keynes jobs offer corresponds to the companies’ labour
identified the socio-economic implications of demand.
unemployment and social inequalities, as well The neoliberal theory brings into focus
as the necessity to take measures that the classical and neoclassical views of the
contribute to saving the economic and political labour market and emphasizes the notion of
order. Keynes was mostly concerned with voluntary unemployment to explain the
identifying macroeconomic equilibrium, which sufficient unemployment of the population.
cannot be achieved without using a maximum The neoliberal theory is based on the idea that
extent of labour force. Keynes points out that voluntary unemployment is opposed to
workers formulate their demand in terms of involuntary unemployment, i.e. the labour
nominal salary and not in terms of real salary market offers jobs, but many refuse these jobs,
[8]. A high level of employment can be due to low salary or other considerations. With
achieved by stimulating demand and this idea in mind, the neoliberal theory
investments. Keynes suggests the state develops several theories which have marked
intervention to unblock the economy and the study of economics.
stimulate insufficient demand. Keynes states Labour market may be approached
that the state must stimulate individual both at microeconomic level, with accent of the
consumption and redistribute income to those employer-employee relationship, and at
willing to spend in the detriment of excess macroeconomic level (unemployment-
savings. inflation). This paper analyses the labour
Full employment is the main pillar of market at company level, since any
the classical employment and unemployment relationship between the company and the
theory. In the classical theory, unemployment employer is materialized in a work contract.
is a consequence of the labour market game, The implied contract theory was initiated by
but the imbalance that can occur between Azariadis (1975), Baily (1974) and Gordon
demand and offer is annulled by salary (1974) [12]. Salary and unemployment are the
adjustments. According to the neoclassical main issues analysed. By partially
theory, unemployment is a consequence of the abandoning the hypothesis of a perfectly
rigid functioning of the labour market. Labour competitive world, the contract theory sees
is a good like any other, subject to market labour as an exchange object between
exchange. Labour offer is an increasing companies and employees. This type of signed
function of the real salary. The neoclassics contract is characterized by a high degree of
state that the labour demand is a decreasing uncertainty, as the employers are unaware of
function of the real salary. the “state of nature”, i.e. what will happen in
578
future. To avoid such risks, the economic plays an important part in setting the
agents must conclude various insurance occupational level.
contracts which anticipate certain possible In 1957, Leibenstein’s paper Economic
risks. Applied on the labour market, this idea Backwardness and Economic Growth,
breaks off from the traditional neoclassical dedicated to developing countries, states that
theory and has numerous consequences both the productivity of an employee depends
on jobs and on salary. directly on the real salary. According to this
Generally speaking, a contract is an relationship, salary increase determines an
agreement concluded between two parties. increase of the labour cost, and, at the same
The effective materialization occurs time, of the work productivity [11]. When
subsequently, and the “state of nature” may employers set the level of salary for their
occur in the meantime. Let us suppose, for employees, they must choose between a high
example, that a company may face two work productivity level and implicitly a high
situations: in the first situation, the demand production cost or a low productivity level.
for its goods increases, therefore the economic The resulting optimum salary is called
conjuncture is favourable; this is a case of efficiency wage, and it does not depend on the
“good state of nature”; in the second labour market fluctuations, but on the
situation, the demand for the company’s goods objectives set by employers regarding labour
decreases and this is a case of “bad state of efficiency.
nature”. In early 1980s, several economists
If companies could set the number of (Solow 1979, Salop 1979, Calvo 1979 etc.)
jobs and the salaries after observing the began developing this concept. There are four
evolution of the demand for goods and versions in the economic theory which explain
services, there would be no uncertainty, as the link between salary and productivity. The
they would know the economic conjuncture most popular is based on the hypothesis that
before any decision-making. This is a employees’ actions are unknown to the
theoretical situation which can only occur on a employers. In this situation, the employees
perfectly competitive market. Salary changes have the possibility to set the level of effort
more than the jobs level according to economy they make, while the employers must set a
variations. However, in reality, the situation mechanism to reach their objectives
is completely different, as the salary is rigid to (maximize profit). Another explanation is
decrease and economy changes only affect the based on the idea that a company manager
jobs level [10]. cannot observe the whole set of individual
A company can act as an insurer to its competences of the employees. In this case, a
employees, in the following way: it will obtain high salary level could be set in order to
an “insurance premium” from its employees attract the best employees. According to the
in case of a favourable economic conjuncture third, more traditional explanation of
and, in exchange, will preserve the same efficiency wages, lower salary level determines
salary level regardless of the economic the rotation of the workforce, which causes the
situation. This is the case of an optimum decrease in productivity, both in the short run
contract which implies a constant salary level, and in the long run. An explanation of the
regardless of the state of nature. In this productivity-salary relationship has a
situation, the company shall grant its sociological determination, i.e. the employers
employees a complete insurance against the should normally induce the employees the
economy fluctuations. The more favourable feeling that they are well treated. The Solow
the economic conjuncture, the higher the model explains the theory of efficiency wages
number of jobs. On a perfectly competitive starting from the traditional company theory,
market, jobs are characterized by production where a certain production level is associated
efficiency, as the real salary is equal to the to each production factor. The effort made by
marginal productivity of labour. Within this each employee becomes an individual variable,
type of contract, there is no production because the employee will choose the level of
efficiency, because the salary is lower than the effort made according to certain advantages or
work productivity. In contract theory, salary disadvantages. The following factors can be
579
taken into account by an employee when company activity according to the competences
setting the level of effort to be made: the they acquired during their training.
salary level, his/her career objectives, the fair During the training period, the
play feeling and the work environment. employees can determine whether they will be
Solow (1979) starts from the satisfied or not by staying in the respective
hypothesis that the effort of an employee company. The satisfaction level is marked
depends on the real salary the company offers with θ, while the company offers its employees
its employees. The effort function is in direct a real salary equal to w. In this case, the
relationship with the employee, and the utility level obtained by the employees is
productivity scale of a company is considered equal to: w+θ. q represents the level of utility
as decreasing from a certain employee level. the employees can acquire by leaving the
Labour has a different role from the other company. A condition for an employee to stay
production factors in a company, since the with the company at the end of the training
incentive mechanisms offered by the employer period is that the level of utility they get if
to the employees must be maintained they stay should be higher than the utility
permanently, so that the latter make the they should have by leaving the respective job,
highest possible efforts in their activity [3]. i.e.: w+ θ>q.
Setting the salary level depends on the effort Each employee’s satisfaction from a
function and is not a result of the certain job is subjective. We can therefore
confrontation between labour demand and consider θ as a random variable, while H is its
offer. Thus, there is a certain rigidity of the repartition function. At company level, the
real salary to economy fluctuations as to the probability that employees leave their jobs
occupational level. should not be confused with the exit rate. For
We will continue to analyse efficiency this reason, the exit rate is calculated as
wages by focusing on the workforce rotation follows: p (w) = H(q-w), and p’(w) < 0, i.e. an
cost, which can confirm or infirm the salary- increase in salary decreases the workforce
productivity relationship. Workforce fluctuation rate [5].
fluctuations occur when the employees of a Let us consider the case of a company
company decide to leave their current jobs, for whose production function is marked with F.
various reasons. When an employee leaves If the company decides to hire L employees, it
his/her job, the company incurs significant will only benefit from (1-p(w))L employees in
costs (training costs), because it is forced to the end, as the rest will leave the company.
hire other staff. The decrease of the workforce For each person employed, the company will
fluctuation rate at company level is an pay a training cost equal to c. In this
indicator of the increase of the work situation, the company’s profit is equal to:
productivity duet o salary increase. Thus, we Ð= F[(1 – p(w))L] – Cl – w(1-p(w))L
can infer a positive relationship between the (1.1)
salary level and productivity [4]. In this case, the efficient work quality
The first models that are the basis of becomes: Le=(1-p(w))L. If we take formula (9)
the existing relationship between salary, into account, the profit can be expressed as:
fluctuation rate and productivity were Ð=F(Le) – c - wLe Ð = F(Le) – Le
formulated by Stiglitz (1974) and Salop (1979).
The relationship between the three variables
may be explained starting from the following (1.2)
model formulated by Carmichael (1990) and
Picard (1993). In analysing this model, we To obtain the optimum salary w*, the total
start from the hypothesis that the work unit cost of the workforce must be minimal:
relationships evolve in two stages. In the w* = min CTL, and CTL=
first state, new employees are trained ; (1.3)
according to their respective position. At the
end of the training period, each employee has The efficient occupational level L*e
the right to leave the company if he/she is not corresponds to the equality between marginal
satisfied. Those who stay will integrate in the production and marginal cost of the workforce,
580
as follows: F’(L*e) = CmgL(w*). Starting from manager cannot observe the whole set of
L*e one can calculate the occupational level individual competences of the employees. This
L*, which is equal to the ratio between: The is a case of adverse selection.
efficient occupational level which results in Adverse selection and efficiency wage
maximum profit for the company and the “job- show that each potential employee has certain
keeping” rate (employees who wish to remain competences that cannot be known to the
in the respective company after the probation employer after a simple job interview. The
period): employer could get information from former
employers or test the employee, but such
L*= .
procedures are time-consuming and would
(1.4) involve high employment costs.
This method of labour market analysis In this situation, candidates for a job
is the basis of the conclusions formulated by must inform the potential employer as to the
Solow, as the salary is not set by confronting amount of money (reserve salary) they wish to
labour demand and offer, but depends on the receive. For the employer, this is a signal
work productivity. Efficiency wage may also which reflects the level of knowledge the
be approached from a sociological perspective, candidate holds. In other words, the reserve
as work productivity depends on the way the salary is an increasing function as compared
employers treat their employees. to the competences of each potential employee.
The sociological approach was The optimum salary which results from these
elaborated by Akerlof (1984), with the aim of conditions is called efficiency wage. The
theorising the concept of efficiency wage [4]. company will have no interest in reducing this
Akerlof believes that the productivity of an salary level, because work productivity and,
employee can increase if the employee feels eventually, the company profit would
that he/she is treated well by his/her decrease. If an employee accepts to work for a
employer. In these conditions, if the company lower salary than the one for which he/she
offers the employee a higher salary than the qualified, he/she will reduce his/her chances to
reserve salary (i.e. a salary he/she can obtain get the job. The employer will believe that the
from another company), the employee’s candidate’s productivity is lower based on the
productivity will grow. In his approach, signal he/she transmitted.
Akerlof starts from the premise that the The reserve salary, i.e. the salary
employees generally make similar efforts to requested by the candidate for a job has
their peers. We can therefore speak of an certain interesting aspects. The company
“effort norm” at the company level. In its declines a candidate who requests a lower
turn, the company sets an effort norm for each reserve salary than the one the company set,
salary level, which it imposes to employees. based on the assumption that the respective
According to Akerlof’s model, there are candidate has a low productivity. However, it
two types of employees within a company: is possible that the candidate to a job requests
those who make greater efforts than the a lower salary on purpose, with the objective
group’s norm and those who do not feel the of getting the job. This is a case of adverse
effort as a utility and tend to offer lower effort selection [10]. Reserve salary represents a
levels. The proportion of the two groups in the selection criterion for the employer. If the
total number of employees allows the efficiency wage is set at a higher level than
calculation of the average work efficiency. the equilibrium wage, this will lead to
Akerlof’s conclusion is that the company is involuntary unemployment. Due to salary
interested in setting a lower norm than that increase, there will be fewer jobs, and there
adopted by each group, thus inducing its will be no opportunities for those who wish to
employees the feeling that they are well get hired for lower salaries. On the other
treated. As an effect to this reward, employees hand, those who request a higher reserve
make greater efforts, and work productivity salary than the efficiency wage will also be
will grow. unemployed, since they respect the “signal
Efficiency wage may be explained theory”.
starting from the premise that a company
581
This paper approaches the labour different dynamic processes. The level, the
market at a microeconomic level, as the structures and the efficiency of employment at
employer-employee relationship plays an a certain moment reflect the macroeconomic
important role on this market. By performances, the ability of the economic body
understanding the labour market at a to use and value the available resources,
company level, we will better understand the including the human resources and its
labour market at a macroeconomic level. The competitive force. Setting the point where the
employer must stimulate the employee to economy is in a state of full employment (plein
make as much efforts as possible in carrying emploi) is a major problem of the economic
out his/her tasks, without being able to policy. Full employment is characterized by
quantify these efforts. That is why the the complete use of the workforce.
employer must offer the employee an The employment policy is a set of
efficiency wage, which is expressed by the public interventions on the labour market, to
positive correlation between the work stimulate the creation of jobs, to improve the
productivity and salary. On his/her turn, in appropriateness of work resources to the
order to obtain an efficient work contract, the needs of the economy, to ensure fluidity and
employee, must ensure a “good signalling” on flexibility on the labour market. Since the
the labour market, i.e. a reserve salary that creation of the Single Market, employment
matches his/her competences and knowledge. has equally represented a preoccupation for
The contract concluded between the two the European Union. The first action in this
parties is optimum when the salary is respect was materialized in the 1991 Treaty of
constant, regardless of the economic Maastricht, which anticipated the objectives of
conjuncture, but at an employment level the future European Strategy for
which is below optimum. Employment. Romania is facing an
employment crisis due to the privatisation and
restructuring of the Romanian economy,
which had a significant influence on the
3. Dimensions of Employment and
labour market and caused massive
Unemployment in Romania in the First
unemployment. The negative demographic
Years after the EU Accession
trends determined low involvement of the
Employment and unemployment – two
population in economic activities, while the
complementary concepts – are among the
economic problems further reduced
most burning problems of today’s society.
employment opportunities [13].
They are influenced by a complex set of factors
generated by various conditions, within
Figure 1: Employment rate by age groups
Source: Institutul Naţional de Statistică (National Statistics Institute)
582
Figure 1 shows that the employment result of the restructuring process and the
rate of active population (age 15-54) in the adaptation of the national economy to the
third quarter of 2009 was 60.4%, up from 2008 requirements of an open market economy. In
(59%). There is a gap of 9.6 points to 70%, the developed countries, unemployment is
which was Lisbon Agenda’s target for 2010 regarded as a natural phenomenon which
[13]. During the second quarter of 2009, generates a competitive climate for both job
Romania had an active population of 10226 seekers and employers. Due to the relative
thousand inhabitants, of whom 9527 thousand nature of the institutional data in analysing
were employed and 699 thousand were unemployment, the possibility of greater
unemployed BIM [13].The 60.4% employment amplitude of the phenomenon should be
rate was lower as compared to the third considered.
quarter of 2008 (0.1%), but higher than the In early 1990s, women accounted for
second quarter of 2009 (+1.2%). Employment the majority of unemployed citizens (58.9% in
rate of young population (age 15-24) was 1993 as compared to 41.1% men), but since
26.1%. 1997, the percentage of unemployed women
The main causes for these facts were: has decreased, as unemployment mainly
the general economic downturn, the decrease touched the sectors with predominantly male
of the production volume, especially in the staff (mining, civil engineering etc.). Another
industrial sector, the narrowing down of the factor that contributed to reducing female
internal market and the loss of several unemployment was the development of the
significant segments on the foreign market, textile industry, including clothing and shoes
the late privatization, the decrease of manufacturing, where the workforce is
investments and the restructuring of several predominantly feminine. In most countries,
unprofitable economic agents, low workforce the level of female education and training is
mobility, the global economic trends, mainly increasing. When the global employment level
the economic crisis. decreases, the feminine workforce tends to be
Unemployment translates in an more affected due to the female implication in
imbalance on the labour market, when offer is the process of demographic reproduction. The
higher than demand. As an economic analysis of unemployment according to age
phenomenon, unemployment has deep social groups shows that young inhabitants with age
implications, as it has a negative impact on under 25 are the most affected, followed by
the development of the society. It is a direct the age group 25-34.
Figure 2: BIM unemployment rate Figure 3: BIM unemployment rate

by age groups 2007 by age groups 2008
583
BIM unemployment rate in 2008 was the highest unemployment rate: 22.9%,
highest (18.6%) in young population (age followed by Spain with 18.8%.
15-24), lower than the previous year (21.2%)
and higher than the following year (22.3%), 4. Conclusions
due to the global economic downturn [13]. Employment and unemployment are
Although labour laws stimulate the two important components of the labour
employment of young population, the economy market both on the national and international
has reduced capacities to absorb newcomers, level. Although they receive significant
which shows that the labour market has attention, they are far from showing a positive
discriminatory elements. According to evolution. Both employment and
qualifications, the labour force includes: unemployment show trends that may be
workers, high school graduates and higher considered as threats to the social peace.
education (university) graduates. Unemployment has negative effects both at
Unemployment mainly affects workers and the society level and especially at individual
high school graduates. In 2008, 30.6% of the level, because it involves personal and moral
total BIM unemployed citizens had low levels losses, behaviour deviations that are related
of education, while 62.7% were high school to violence and criminal acts.
graduates. A higher percentage of those with The current employment rate in
low education were males (34.7%) as Romania (60.4%) is significantly lower than
compared to females (23.3%). There were the European average and especially as
10.3% of unemployed university graduates in compared to the targets set by the European
2009, among whom 14.4% females and 7.8% Commission through the Lisbon strategy
males. The unemployment rate according to (9.6% lower than the 70% target). The
the education level was highest in high school unemployment rate in 2007 and 2008
graduates and citizens with low education decreased as compared to the previous years.
(7.2%). University graduates were less In 2009, the unemployment rate increased
affected by unemployment (only 4.7%). A from 3.9% in September 2008 to 6.9% in
higher rate of low level education is registered September 2009, mainly due to the global
in rural areas. economic downturn. The unemployment rate
Long-term unemployment is a problem according to the education level was highest in
for all European countries and it shows the high school graduates and citizens with low
flexibility of the labour market. In Romania, education (7.2%). University graduates were
long-term unemployment (more than 12 less affected by unemployment (only 4.7%). A
months) has registered a steady decrease higher rate of low level education is registered
between 2003 and 2008, from 61.9% in 2003 to in rural areas.
41.3% in 2008. In 2008, very long-term The challenges Romania must face
unemployment (at least 24 months) accounted pertain to the employment level - statistical
for almost 20% of the unemployment total, data shows an employment rate lower than
following a 40% peak between 2003 and 2004. the European average - (60.4% as compared to
In the period 2007-2008, long-term 58.8% in 2007), the unemployment rate
unemployment rate decreased both in the (according to the National Agency for
rural and the urban areas [13]. Employment, the unemployment rate reached
Romania has a lower unemployment 8.1% in 2010, from 7.8% at the end of 2009
rate than the UE27 average of 9.5%. The and 4.9% in January 2009), reduced level of
unemployment rate in the Euro zone (UE16) employment of the population in the age group
is 10%. Compared to the same period of the 55-64, the extremely reduced participation of
previous year, there was an increase of 2%, the workforce in life-long learning schemes,
from 8% in November 2008 to 10% in the higher unemployment rate than the EU
November 2009. The global economic average for young population (19.6% in 2009,
downturn is the main reason for this increase. as compared to the EU average of 18.3%,
The Netherlands has the lowest according to Eurostat) and the need to
unemployment rate: 4.2%, while Latvia has promote the Lisbon strategy.
584
Romania has high quality human entre convergence et cohesion, Colloque ASRDLF –
resources that can sustain the socio-economic Bruxelles ;
development of the country, if used [8] Keynes, J. M., 1919, The Economic
Consequences of the Peace, MacMillan, Londra,
appropriately. However, part of the human
[9] Iancu Aurel, 2006, Problema convergenţei
resources are confronted with problems such
economice, Supliment al Revistei de Economie
as inappropriate work management, hard teoretică şi aplicată: România în Uniunea
working conditions, obsolete technologies, Europeană. Potenţialul de convergenţă, Bucureşti;
which may have a negative impact on [10] Silaşi, Gr., Sîrghi, Nicoleta, 2008,
productivity and competitiveness, in the Macroeconomia în fişe, Editura Mirton, Timişoara;
competitive context of European integration. [11] Silaşi, Gr., Rollet, Ph., Trandafir, N., Vădăsan,
It is estimated that the total population of Ioana, 2005, Economia Uniunii Europene: o poveste
Romania will decrease annually by de succes?, Editura de Vest, Timişoara;
approximately 0.4% until 2013, and will [12] Stiglitz, J. E., Walsh C. E., 2005, Economie,
Editura Economică, Bucureşti;
undergo significant changes in terms of age
[13] ***- Institutul Naţional de Statistică, Forţa de
groups, i.e. young population under 15 will muncă România. Ocupare şi şomaj în trimestrul
decrease, while ageing population will III, 2009
increase.
In conclusion, all processes and trends
in the employment area and the means used
up to now must be reconsidered in order to
take more effective political and employment
measures. Enhanced efforts are required to
strengthen the administrative ability to
manage and implement the Social European
Fund. Significant progress had been made in
the fields of social inclusion and social
protection, but the success in implementing
measures lies in the existence of sufficient
resources.
References
[1] Beveridge, L., 1954, Full emplyment in Free

Society, Ediția a III-a, Londra;
[2] Constantin Daniela-Luminiţa, 2004, Elemente
fundamentale de economie regională., Editura ASE,
Bucureşti;
[3] Dinu M., Socol C., Marinaş M., 2005, Mecanisme
de convergenţă şi coeziune, Editura Economică,
Bucureşti;
[4] Dinu M., Socol C., Niculescu Aura,2006,
Fundamentarea şi coordonarea politicilor economice
în Uniunea Europeană, Editura Economică,
Bucureşti;
[5] Dornbusch R., Fischer S., Startz R.,
Macroeconomie, Editura Economică, Bucureşti,
2007;
[6] Egger P., 2005, Spatial beta and sigma
convergence: Theoretical foundation, econometric
estimation and an application to the growth of
European region, Paper prepared for Spatial
Econometrics Workshop, University of Kiel;
[7] Frankel J.,2004, Real convergence and Euro
Adoption in Central and Eastern Europe: Trade
Gaubert N., La politique regionale europeenne
585
LIMITATION OF NULLITY EFFECTS THROUGH CIVIL LEGAL

MEANS
University Assistant Dr. Camelia STĂNCIULESCU

Faculty of Business and and Administration
Bucharest University
Abstract will agreement of parties – with the

In an unwritten opinion, but tacitly consequence of exclusive dissolution of
and unanimously accepted by the doctrine, provisions, over which a genuine
the civil legal act, regardless of its form, agreement of wills could not be identified.
whether it is at a unilateral level, as a The evolution in the process of launching
contract or a collective act, is presumed to partial nullity as a rule, appears together
be validly closed. Thus, until the moment with the rectification brought to the
of determining (or pronouncing) judicial theory of will autonomy and with the
nullity, the legal act will determine its recognition of inequality between
pre-established effects. contractors.
Previously to invoking the cause of Partial nullity is a sanction enacted
nullity before the court, civil law admits in the interest of the party that hires a
other institutions meant to avoid the contract from a lower position, case when
nullity of legal act that, eventually, will the preservance of the contract has a
lead to the closing of judicial will. special use for the latter, because it gives
The most common means to lower the possibility to exclusively annul the
the effects of nullity are: partial nullity, illegal provisions that are in its
relative nullity, confirmation and disadvantage.
regularization. The imbalance caused by the vice of
consent at the closure of a contract, can be
1. Introduction To Partial eliminated only by removing the
Nullity contractual provision in conflict with the
law, most often placing the victim back in
The doctrine unanimously admits the previous situation involving a positive
that relative nullity must become a act, an amendament to the contract. This
subsidiary sanction of the contract, which amendment to contractual provisions
should be apllied only when could materialize in a price adjustment or
regularization is not possible, either even in a change of the object of the
materially or legally or when the contract.
cancellation of the contract appears to be The doctrine often raised the
the only possibility to repair the damage question whether a judge may intervene a
suffered by the victim. contract? It was unanimously agreed that
In its turn, relative nullity can be court interference in a contract was
partial or total. possible only in special circumstances,
Partial relative nullity will be used when there was a legal provision in that
whenever the preservance of the contract respect, such as, the possibility provided
itself will be relevant for the victim, fact in art. 1021 of the Civil Code, to grant the
that brings together the legal regime of debtor some grace periods in order to
this sanction to that of regularization. fulfill his obligation.
In exchange, total relative nullity The judge’s intervention in order to
will be used in those cases when the re-establish the contractual balance, even
convention can be retroactively abolished between these boundaries, is the result of
in its whole, precisley because it does not a long evolution, often stopped by the
preserve any use for the victim. principle of will autonomy. The contract,
Applying the sanction of partial being the consequence of fusion between
nullity implies the study of contractual at least two autonomous free and
elements - which were not subjected to the responsible wills, can be altered,
586
according to the principle of symmetry of relative nullity is subordinated to

civil legal acts, only through the same will extinctive prescription, but it establishes
agreement that determined it. the moment from which the prescription
term starts to run.
2. Relative Nullity- The We underline that the issue
Possibility To Save Legal Act whether the invocation of relative nullity
as an exception (using the background
Absolute and relative nullity defense) is subjected or not to extinctive
classification is of utmost importance for prescription, did not receive a unitary
the legal system, because of the different solution in the specialty literature.
character each of the fore-mentioned One opinion considers that invoking
nullities has. relative nullity as an exception, is
The legal regime of relative nullity imprescriptable (quae temporalia sunt ad
focuses on the following rules: agendum, perpetua sunt ad excipiendum).
Another general opinion, to which
a. Relative nullity can be invoked we subscribe, considers that relative
only by the interested party nullity is prescriptible if invoked
exceptionally.
This rule is justified by the fact that The expiry date of the extinctive
relative nullity is meant to protect an prescription assumes the tacit
individual interest. confirmation will of the legal act struck by
But we have to underline that, relative nullity.
although the rule in discussion is
formulated restrictively, however, the 3. Confirmation (expressively or
possibility to invoke relative nullity of a tacitly).
legal act belongs to a wider range of
persons. Conceived as ’the act whereby a
Thus, relative nullity can be person yields unilaterally to take
invoked by the individual whose interest advantage of the relative nullity of a legal
was ignored when the legal act was closed document and which, expressly or tacitly,
or by the legal representative, by the may come from a spontaneous execution’,
inheritants of the party tutored, by the confirmation is a cause of prescription of
prosecutor, by the simple contract the regularization action and of the action
creditors of the protected party (using the in annulment of the legal act affected by
oblique action method). the vice of consent.
But the doctrine does not The coverage area of confirmation is
comprehend a unitary agreed point of limited by legal acts altered by the
view regarding the issue if relative nullity sanction of relative nullity.
can be invoked also by the legal tutor of At a first analysis, the favored area
the under-aged with limited power of of confirmation is that of legal acts
decision. affected by incapacities or vices of
Another preffered opinion consent, but confirmation is that
acknowledges the right of the legal tutor unilateral legal act through which one
to invoke relative nullity, relying on an gives up his right to invoke relative
extensive and theological interpretation of nullity.
art. 9, paragraph 2 from the Decree no Confirmation may be either express
167/ 1958. or tacit.
The possibility of express
b. Relative nullity is prescriptible confirmation with general character,
results from art. 1190 of the Civil Code,
Being conceived for the protection of according to which ’the act of confirmation
some individual interests, relative nullity or ratification of an obligation, against
is about to yield in favour of some general which the law admits the action in
interests that the institution of extinctive nullity, is valid only when the object, the
prescription provides. cause and the nature of obligation, are
The Decree no 167/ 1958, does not included, and when it specifies the reason
excusively consider that the action in of the action in nulity, as well as when it
587
mentions the intention of repairing the Please note that the institution of
vice the respective action relies on’. In confirmation must not be confused with
order to become valid, the act of express ratification, the latter being the document
confirmation must meet the following whereby a person becomes part of the
requirements: legal act closed in absence or in excess of
- to come from the person entitled to empowerment necessary to close the act.
invoke relative nullity and to be done in Confirmation cannot also be
full knowledge of facts; mistaken with the re-writing of the act,
- the vice that affected the legal act because in such a case a new legal act
struck by relative nullity (the cause of comes into being and takes effect from
relative nullity) to be ceased upon that very moment, while the confirmation
confirmation (otherwise, the act of operates retroactively 2 .
confirmation itself is doomed to
annulment);
- to include the object, the cause and
nature of obligation and to remind the
reason of the action in relative nullity; 4. Conclusions On Regularization – A
- the intention to cover the nullity Sanction Characteristic To Civil
area should be obvious from the content of Contracts Affected By A Vice Of
the act. Consent
Tacit confirmation results from
deeds that leave no doubt on the intention Curative sanctions can be divided
to cover relative nullity. Thus, the in: sanctions that allow the maintaining of
voluntary execution of a legal document the contract itself (the regularization) and
struck by relative nullity is a tacit sanctions that annul the contract (relative
confirmation (however, it is necessary for nullity).
the respective person to have known the Depending on the contractual
cause of relative nullity and to have imbalance the victim suffered because of
executed the act in full knowledge of the the vice of consent, which may belong to
facts). present or future, contractual sanctions
Similarly, art. 1167, paragraph (1) can be either of curative or preventive
of the Civil Code, states that ’without an nature.
act of confirmation or ratification, it is In order not to deprive the victim of
sufficient for the obligation to be executed an effective protection of consent, the
voluntarily, after the period when the French doctrine makes the apology of an
obligation could have been validly unheard-so-far sanction, alternative to
confirmed or ratified’, and, according to the nullity of the contract: regularization,
paragraph 2 of the same article that is very likely to preserve the
’confirmation, ratification and voluntary desirable effects of the convention,
execution, in the form and period ensuring simultaneously the repairing of
determined by law, can replace the prejudices caused to the victim of the
renunciation regarding the means and alteration of consent through objective or
exceptions that could be opposed to this subjective contractual imbalance.
act, without any harm to the rights of This institution can be sometimes
third parties 1 .’ mistaken with the confirmation, because
Confirmation, whether express or regularization is a voluntary
tacit, has the effect of validating legal manifestation of the co-contractor’s will
acts struck by relative nullity, and this
effect occurs retroactively (ex tunc), and
dates since the confirmed legal act has
been closed.
2
Do not confuse confirmation with the
1
In case of not invoking relative recognitory act, the latter being used to
nullity during the extinctive prescription acknowledge a pre-existant legal act
period, it is estimated that a tacit refering only to its existance, and not in
confirmation would be involved, too. reference to its validity.
588
who could have claimed the annulment of met in the area of contract execution,
the contract 1 . when the creditor, being entitled to the
Regularization refers to the action execution of obligation in its specific form,
of returning not only to status quo ante, may constrain the debtor to fulfill the
but also to the situation that would have exact claim of the undertaken service, by
existed if the rule had been observed, to a means of execution by force.
state ’cured’ of any vice. Therefore, A major obstacle, that hampers the
regularization can be defined as a implementation of positive regularization,
sanction of the contract touched by a vice is the admission by law on the judge’s
of consent that has as result the repairing limited possibility to interfere in the
of the consequences determined by contract.
consent alteration, thus the victim is Positive regularization would
brought back in the situation he/ she suppose the acknowledgement of the
would have gone through if the vice hadn’t judge’s creative role, since, under this
affected his/ her consent. sanction, the judge should be able to alter
Regarding the legal mechanism for the contractual provisions, changing the
the operation of regularization, it can be object, the nature and even the extent of
noticed that this gives to the already obligation of the contractual partner of
mentioned sanction the particularity to the victim with the purpose to restore the
easily adjust to the victim’s necessities: contractual balance.
regularization enables the integration of The French doctrine estimated that
different forms of redressing, such as the the judge may issue a positive
elimination of an abusive provision regularization, but the mentioned
(negative regularization) or the alteration regularization must, materially speaking,
of an obligation (positive regularization) 2 . give the possibility to the contractual
If negative regularization is a legal partner of the victim to be able to fulfill
mechanism easier to understand, and if it. For example, a trader can positively
taking into account the possible analogies regulate his obligation if he made an
to the legal regime of other sanctions, inconsistent delivery of goods, offering
such as partial nullity or winning an other goods according to the obligations
abusive provision as unwritten, some taken, while the seller of a land- that
observations are required concerning the afterwards proves doomed to building-
legal mechanism of positive cannot regulate his contract.
regularization. It should be noticed that Regularization, due to the
positive regularization raises particular advantages it brings, comes as a useful
difficulties determined by the fact that, sanction (because of the flexibility of its
sometimes, this sanction imposes on the legal nature).
co-contractor – victim task, the execution The national doctrine chose in
of another obligation instead of the favour of a legal regulation of
already assumed one by contract, fact that regularization, fact that would lead to a
violates the principle of the compulsory restoration of the efficacity of civil
force of the contract. sanctions in relation to vices of consent.
On the other hand, similar results
to positive regularization can be rather
1 References
The French literature supports the
idea that regularization, unlike G. Boroi, Civil Law. General part.
confirmation, is ’an objective validity Individuals., 3rd edition, Hamangiu
procedure’(s.n.) Publishing House,Bucharest, 2008
2 M. Nicolae, Extinctive Prescription,
Positive regularization consists in
the alteration of the contract, either from the Rosetti Publishing House, Bucureşti, 2004
T. Pop, Romanian Civil Law. General
initiative of the parties or from the Theory, Lumina Lex Publishing House,
interference of the judge, concerning the Bucharest, 1993
readjustment of obligations undertaken by T.R. Popescu, Civil Law, vol. I, General
the co-contractor in front of the victim. Introduction, Oscar Print Publishing House,
Bucharest, 1994
589
E. Poenaru, Civil Law. General Part. D.M. Fruth-Oprişan, The Execution In

Individuals, All Beck Pusblishing House, Nature Of The Obligation To Do, in R.R.D. no.
Bucharest, 2002 8/1986
D. Alexandresco, Principles of Civil O. Gout, Le juge et l anulation du
Law, vol I, Socec Publishing House, contract, PU Aix, Marseille, 1999, p. 253.
Bucharest, 1926 C. Ouerdane-Aubert de Vincelles,
A. Ionaşcu, Civil Law. General Part, Alteration du consentement et efficacite des
Pedagogical and Didactical Publishing sanction contractuelles, Dalloz, Paris, 2002
House, Bucharest, 1963 M. Mureşan, Civil Law. General
Tr. Ionaşcu, E. Barrasch, Civil Law Introduction, Cordial Publishing House, Cluj-
Treaty, vol. I, General Part, Academy Napoca, 1994
Publishing House, Bucharest,1967 V.V. Popa, Civil Law. General
D. Cosma, General Theory On Civil Introduction. Individuals, All Beck Publishing
Legal Act, Scientific Publishing House, House, Bucharest, 2005
Bucharest, 1969 G. Couturier, La confirmation des actes
O. Căpăţînă, Treaty Of Civil Law. nulls, LGDJ, Paris, 1972
General Introduction, vol I, The I.R. Urs, Roman Civil Law.General
Academy Publishing House S.R.R., Theory, Oscar Print Publishing House,
Bucharest, 1989 Bucharest, 2001
P.M. Cosmovici, Civil Law. Ph. Merle, Droit commercial. Societes
Introduction To Civil Law, All commerciales, Dalloz, Paris, 2000
Publishing House, Bucharest, 1998 G. Berlioz, Le contract d adhesion,
E. Chelaru, Civil Law. General LGDJ, Paris, 1973
Introduction. All Beck Publishing
House, Bucharest, 2003
590
THE NECESSITY TO HARMONIZE THE MECHANISMS

CHARACTERISTIC TO ’THE CONTRACT OF CONSUMPTION’ TO
GENERAL RULES
Professor Ph. D. Liviu STĂNCIULESCU

Faculty of Law , Bucharest
„Nicolae Titulescu” University
II. Supports and solutions.

Abstract
Together with the issue of the The reference point of our approach
consumption contracts, the doctrine was relies on the one hand, on the provisions of
confronted with new specific mechanisms Art. 1177 of the Civil Code 2009 1 according
imposed by law, among which we mention to which ’the contract closed with consumers
the precontractual obligation to information, is subjected to special laws and additionally,
the consent of consumption, the unilateral on the other hand, to the ’provisions of the
denunciation and the abusive clauses. present code’ and , on Art. 5 from
Starting with the premise that the Government Ordinance No 130/ 2000,
consumption contract is included within the according to which ’if parties have not
general rules of the contract, it is compulsory agreed otherwise, the contract is considered
for its specific institutions to find a distance contract when the consumer
immediately the right place in the general receives the confirmation message of his
background of the contractual structure. order.’Thus, relating to the ’receival’ of the
The harmonization of the special confirmation message’(the content of the
institutions of 'the contract of consumption’ message is not relevant, its receival counts),
with the general rules is an activity that the theory of reception can be defined and
needs to be realized by the doctrine and the therefore, the contract is closed with the will
national jurisprudence. of both parties, respectively, the vendor and
the consumer 2 .
Key words: consumption contract, The doctrine considers that
unilateral denunciation, harmonization with consumer’s right of ’unilateral
the general rules. denunciation’ was and is a subject of
continuous debate.
I. Introduction. In a nutshell, two questions raise
juridically:
The differences between the general - the right of the consumer to
rules established by the teory of obligations ’unilateral denunciation’ is
which frame the institution to civil contract related to the drawing up of
and special rules introduced in the field of the contract or to the closing
consumption contract created an apparent phase?
dispute vain but in our opinion it can be - if consumer’s right to
overcome through the harmonization action ’unilateral denunciation’ is
is doctrine and national jurisprudence. related to the phase of closing
Taking into consideration the space the contract, then: Which
issue, the present study intends to briefly condition of validity will suffer
and exclusively analyze the institution of (the consent, the capacity or
unilateral denunciation of the consumption the cause)?
contract and to propose some solutions of
harmonization with the general rules. Thus, 1
Enclosed in title 2nd, ’The Springs of
one of the questions that requires a solution
Obligations’, Chapter 1 ’The Contract’, Section 2nd,
is: how can consumer’s law of ’unilateral ‘Different categories of contracts’.
denunciation’ (such as the case of a 2 L. Pop, Treaty Of The Civil Right. Obligations.
consumption selling, for example) be 2nd Volume. The Contract, The Legal Universe
interpreted, justified and harmonized? Publishing House, Bucharest, 2009, p. 298 and the
following.
591
Trying to find an answer to the fore- The right of unilateral denunciation

mentioned questions, we begin by stating (called in the community directives and in
that in the specialized literature the the legislations of other states, ’the right to
concept of consumerism of ’unilateral retract’) is justified because it allows the
denunciation’ received several consumer a plus of protection, given by the
qualifications. possibility to think over the decision taken
Relying on the principle of compulsory and to check the way the vendor fulfills his
force (pacta sunt servanda) valid closed duties. The same way ’through its effects,
contracts have judicial effects (of compulsory the law of denunciation compels the vendor
nature) for contractual parties. to have a behaviour as honest as possible
According to the principle of towards the consumer and to execute the
irrevocability, the contract cannot be contract properly.
unilaterally denounced. The doctrine considers that consumer’s
Hence, once the parties consented and right to ’unilateral denunciation’
the contract was validly signed, the parties (established by law) was and still is a theme
cannot unilaterally have second thoughts of discussions, especially in the terms of its
over the existance of the contract, being juridical nature.
obliged to put into force the contractual Consumer’s right to unilateral
clauses. denunciation in the Code of Consumption
As an exception, contracts can also and in its special laws is a legal and free
come to an end on unilateral denunciation right. Because it does not involve the
(from the will of a sole party). Under these agreement of a professional person, it is a
circumstances, the right of unilateral potestative right 3 .
denunciation (enforced by law or by the will Although, only consumer’s right to
of the parties 1 ) is only an exception to the unilateral denunciation is regulated, we do
principle of irrevocability (and a reason to not exclude the possibility that proffesionals
end the contract). can also benefit from a similar right.
Taking into account the dispositions of In the specialized literature, the law of
the community acquis regarding the unilateral denunciation belonging to the
protection of consumer’s interests, the consumer received several qualifications.
buyer’s right of unilateral denunciation (of One opinion of the French doctrine 4 ,
contradiction) was regulated as a rule (this shows that the signing of the contract by the
time), established in favour of the consumer. consumer is only a stage in the gradual
Hence, according to Art. 82 from Law No formation of the consumer’s will. The will of
296/ 2004 (The Code Of The Consumer), the the consumer is not irrevocable, because he
contract of purchasing the products and has the possibility to think over the
services must stipulate a precise clause on denunciation term. Subsequently, the right
consumer’s right to ’unilaterally denounce’ of denunciation does not affect the
the contract. compulsory force of the contract, as it is used
We underline that, together with the at a moment in which the contract is not
right of unilateral denunciation of the
contract, the French legisation also defines
the institution of a ’time of reflection’ 2 .
compulsory minimal clauses, the contract of
1
The clause of contradiction is a contractual purchase and services must include (1st
provision through which one of the parties paragraph, letter g, from the enclosure to the
reserves its right to require the cancellation of law)
the contract (before the expiry term and
sometimes against the payment of a
3
contradiction tax is imposed; See I. Reghini, Considerations on potestative
2
The term ’reflection’ (given to the consumer rights,in RDC no 4/2003, p. 236
4
before closing the contract, for example, when See Fr. Terre, Ph. Simler, Y. Lequette, Droit
purchasing a property) or the term of grace civil. Les obligations, Dalloz, Paris, 1999, p.
period (given by the Court to the debtor in 189; Ch. Larroumet, Droit civil. Les
order to pay out his debt) cannot be mistaken obligations. Le contrat, Economica, Paris,
with ’the term of reflection’ that is one of the 2007, p. 248 and the following
592
completely closed’ 1 . It is also explained why given at the perfect termination of the
the contract cannot produce effects as long contract.
as the contract is not fully drawn up 2 . On the above mentioned terms, the
Another opinion 3 estimates that the contradiction (se rétracter,see French word:
right of denunciation is a faculty of to contradict from what it has originally
contradiction that can be applied only within been said) is not a way to put an end to a
a certain term, thus taking into discussion contract (such as the unilateral denunciation
the compulsory force of the contract. of the location closed on an indefinite term),
The doctrine supported the theory of but it is a way of ’retracting the consent’ 5 .
formation of the contract ’in stages’, The exertion of the right of
according to which although, in a first phase denunciation determines the retroactive
the professional consent met the consumer’s cancellation of the contract, having as
consent, the contract was not completly consequence the paying back of services.
drawn up (was not signed), but only at a Although the right of denunciation is a
provisional stage. If , in the terms of more advantageous alternative for the
contradiction, the consumer does not exert consumer, this one can use other means put
his right of retraction, his consent will at his disposal whether by the common law,
become better and the contract will or by the specific regulations of this domain,
strenghten up to its final drafting 4 . with the purpose of defending his own
We do not share the opinion of gradual interests. For example, one can claim the
formation of the contract as the legal clauses annulment of the contract on the ground of
do not prove that the gradual constitution of consent vice or the annulment of a clause on
consent was taken into account. The same the ground of being abusive. A special
way, in certain cases, the term of exertion of provision cannot eliminate the applying of
the right of denunciation is calculated from another provision having the same
the date the contract was closed. Even more, character, as well as it cannot exclude the
the contract produces effects, too, and thus, occuring of a general rule with a different
the consequences of the right of denunciation judicial basis.
over services already done are being
regulated. III. Conclusions.
We consider that consumer’s right of
’unilateral denunciation’ is a faculty granted Nowadays, the general theory of the
(ad legem) to ’the purchaser’ to ’renege on contract is subjected to a new pressure
signing the contract’, which juridically is exerted by the new rules, ’full of
understood as one’s possibility to contradict vitality’belonging to the right of consumption
(change one’s mind) regarding the consent or to the right of competence (and, generally,
of its adjustment to the present social and
economic conditions). Thus, the doctrine
1
Consumer’s right to unilateral denunciation is admits unanimously that the general theory
not an issue to revoke the contract ; see G. of the contract undergoes a period of
Boroi, op. cit, p. 208. reassessment and reconstruction 6 .
2
See J. Goicovici, The Right Of The main difficulty of adjusting the
contract to the new conditions, consists in
Consumption;The Juridical Sphere Publishing
the fact that the lawman (belonging to
House, Cluj-Napoca, 2006, p. 101.
3 modern times) created a legislative
See V. Stoica, Al. Bleoanca, The
Enumeration from the list comprised in annex
5
of The Governamental Ordinance no See C. Toader, Opinions on the ordinance
130/2000, regarding the juridical regime of regarding the contracts closed outside
distance closed contracts, is limitative or commercial spaces, in RDC no. 12/1999, p. p.
exemplifying?, in RDC no. 11/2002, p. 31. 164.
4 6
See J. Goicovici, Protecting the consent of’ See I. Picod, E. Davo, Droit de la
the weak party’ through Law no 289/ 2004 consommation, Armand Colin, Paris, 2005, p.
concerning the legal regime of consumption 92. Y. Picod, Le devoir de loyaute dans l
contracts destined for consumers taken as execution du contract, L.G.D.J., Paris, 1989, p.
natural persons, in Law no. 8/2005, p. 28-32. 122.
593
background meant to meet the present social 13. Law nr. 289/2004 on the legal for the
and economic interests, without caring about consumer credit
its (real) implementation within the existant 14. O.G. nr. 130/2000 on the legal status
of contracts remote
judicial system. Therefore, the translation
15. Civil Code of 1864
and adoption of some new institutions
16. Civil Code 2009 (Law nr. 287/2009)
generated by the market economy (such as,
consumer’s right of retraction) can lead to
the reconsidering or even to the elimination
of some contractual rules (that are against
the pure economic standards).
Under these circumstances, the role
of harmonization the new rules to the present
legal system is played by the doctrine and the
jurisprudence, which must be present in the
finding of some effective solutions. But we
mention that although the influence of the
right of consumption over the common right
of contracts is confirmed, the role of
protecting the customer is still played by
common law.
References
1. G. Boroi, Civil law. General part.

Persons, ediţia a III-a , Hamangiu,Bucureşti,
2008
2. J. Goicovici, The Right Of
Consumption;The Juridical Sphere Publishing
House, Cluj-Napoca, 2006
3. J. Goicovici, Protecting the consent of’
the weak party’ through Law no 289/ 2004
concerning the legal regime of consumption
contracts destined for consumers taken as natural
persons, in Law no. 8/2005
4. Ch. Larroumet, Droit civil. Les
obligations. Le contrat, Economica, Paris, 2007
5. I. Picod, E. Davo, Droit de la
consommation, Armand Colin, Paris, 2005
6. Y. Picod, Le devoir de loyaute dans l
execution du contract, L.G.D.J., Paris, 1989
7. L. Pop, Treaty Of The Civil Right.
Obligations. 2nd Volume. The Contract, The
Legal Universe Publishing House, Bucharest,
2009
8. I. Reghini, Considerations on
potestative rights,in RDC no 4/2003
9. V. Stoica, Al. Bleoanca, The
Enumeration from the list comprised in annex of
The Governamental Ordinance no 130/2000,
regarding the juridical regime of distance closed
contracts, is limitative or exemplifying?, in RDC
no. 11/2002
10. Fr. Terre, Ph. Simler, Y. Lequette,
Droit civi. Les obligations, Dalloz, Paris, 1999
11. C. Toader, Opinions on the ordinance
regarding the contracts closed outside commercial
spaces, in RDC no. 12/1999
12. Law nr. 294/2004 (Comsumption
Code)
594

IMPACT OF THE GLOBAL CRISIS ON THE LINKAGES BETWEEN THE

INTEREST RATES AND THE STOCK PRICES IN ROMANIA
STEFANESCU Razvan
University “Dunarea de Jos” Galati, Faculty of Economics
rzvn_stefanescu@yahoo.com
DUMITRIU Ramona
University “Dunarea de Jos” Galati, Faculty of Economics
rdumitriu@ugal.ro
Abstract Very often the crisis induces the Romanian interbank market and BET –
changes in the linkages between the financial XT, a representative index compound on the
variables. This paper explores, through a most liquid 25 shares traded on the
Vector Autoregression model and Granger Bucharest Stock Exchange (BSE). We
Causality tests, the impact of the global crisis identify the linkages between the two
on the relation between the Romanian stock variables using a Vector Autoregressive
prices and the interest rates. We found this (VAR) model and Granger Causality tests.
relation was very weak before the crisis, when
the Romanian stock market experienced an During the year 2007, ROBOR 3M
ascendant trend. Instead, it became quite experienced an ascendant trend reflecting a
significant during the crisis when the prudent monetary policy applied by the
financial markets are very sensitive to the National Bank of Romania (NBR). During
external stimuli and the monetary policy has the first ten months of 2008, in the context of
to take into consideration the impact of substantial threats for the monetary
interest rates on the stock prices. stability, the interest rates were raised until
much higher levels. Between 15 and 20
Key words: Granger causality, Vector October, facing significant speculators
Autoregression, Romanian stock market, attacks against the national currency, NBR
interest rates, global crisis determined a major growing of ROBOR 3M
from 15 to 49 percents. After this episode, in
1. Introduction an attempt to stimulate the national
economy affected by the global crisis, NBR
In this paper we approach the changes slowly reduced the interest rates (Figure 1).
induced by the global crisis in the relation
between the interest rates and the stock After Romania’s adhesion to the European
prices from Romania. The study of this Union, in January 2007, BET – XT
relation is important for the monetary policy experienced months of substantial increase.
decisions and for the attempts to predict the During 2008 the Romanian stock market
stock markets evolution. In this article we was in decline, induced by the evolution of
explore the linkages between the interest the international financial markets. After
rates and the stock prices from October 2008 that, the stock prices regained the ascendant
to March 2010, when the Romanian economy trend, but their values were much lower in
was affected significantly by the global crisis. comparison with those from 2007 (Figure 2).
As a base for the comparison we use a period The impact of crisis on the linkages between
of time from January 2007 to September interest rates and stock prices was revealed
2008. In our analysis we use the daily values in several papers (for example, Blanchard;
of ROBOR 3M, a reference for the interest 1981, Kindleberger and Aliber; 2005, Bordo
rates at which the banks could borrow three et al.; 2007). To our knowledge, until now no
months unsecured funds from other banks in attempt was made to evaluate the impact of
595
the actual global crisis on the relation (Kent and Lowe; 1997). The extent to which
between the interest rates and the stock the monetary policy should react to the stock
prices from Romania. Although the end of prices changes is still a controversial subject
this crisis is still far, this paper could provide (Goodfriend; 2003).
a basis for further researches on this theme.
Very often, the financial crisis induced
The rest of this paper is organized as follows. substantial transformations in the relation
The second part approaches the specialized between the interest rates and the stock
literature, the third part describes the data prices. In such a context the financial
and the methodology employed, the fourth markets become more sensitive to the
part presents the empirical results and the external evolutions, while the central bank is
fifth part concludes. much careful not to aggravate the stock
prices decline (Kindleberger and Aliber;
2. Literature Review 2005).
The relation between the interest rates and 3. Data and Methodology
the stock prices was largely approached in
the specialized literature. Bernanke and In our analysis we employ daily values of
Kuttner (2005) studied the mechanisms by ROBOR 3M, provided by the National Bank
which the stock prices were affected by the of Romania (NBR) and daily closing values of
interest rates. In general, the investors BET-XT, provided by the Bucharest Stock
compare the earnings offered by the stocks Exchange (BSE). Our data cover the period
with the earnings provided by the bonds or of time between 3 January 2007 and 31
by the bank deposits. They are also sensitive March 2010. We divide this sample in two
to the operations financing cost. sub – samples:
- The first sub-sample, from 3 January
It is well known that an increase of the 2007 to 30 September 2008,
interest rates lead to a decline of the corresponding to a relative tranquil
economic activity which reduces the period of time;
dividends. Such potential evolutions - The second sub-sample, from 1 October
influence the expectations regarding the 2008 to 31 March 2010, when the global
stock prices which have an important role, at crisis affected substantially the financial
least on short term. The impact of the markets from Romania.
interest rates variation on the stock prices
was approached in the Efficient Market We use the returns of the two variables:
Hypothesis (EHM) framework. According to
this theory, in case of rational expectations RROB=(lnROBOR 3M t – lnROBOR 3M t-1 )*100
of the investors, only unanticipated changes (1)
could generate shocks in the stock prices
evolution (Fama; 1970). and:
The influence of the stock prices on the RBETXT = (ln BET-XT t – ln BET-XT t-1 ) * 100
(2)
interest rates is related to the monetary
policy issues. Bernanke and Gertler (2001)
where:
describe the circumstances in which central
banks reacted to asset prices evolution. In - ROBOR 3M t and ROBOR 3M t-1 are
general, a central bank has adequate tools to the values of three months ROBOR
determine the interest rates evolutions. In in the day t, respectively t-1;
implementing the monetary policy a central - BET-XT t and BET-XT t-1 are the
bank has to take into consideration the values of BET-XT index in the day t,
impact of the stock market evolution on the respectively t-1.
macroeconomic stability (Cecchetti et al.;
2000). The descriptive statistics of the two variables
for the two sub – samples are presented in
The asset booms and the busts could have the Tables 1, 2, 3 and 4. They indicate
significant differences between the
inflationary effects, while a stock crush could
bring the national economy into recession evolutions in the two periods of time. For all
596
four time series the hypothesis of non are presented the results of the Granger
normality was rejected. causality tests for the first sub-sample. They
indicate no causality between the two
In order to avoid the spurious regression we variables.
test the stationarity of the four time series.
We begin with the classical Augmented For the second sub – sample the graphical
Dickey-Fuller Test. The numbers of lags representation suggests using only intercept
were chosen based on the Akaike as deterministic variable for the VAR
Information Criterion. Based on the equations. In the Table 10 there are
graphical representation we use two forms of presented the coefficients of the two
test: one with no constant and no trend, equations. The values of R-squared
other with constant and no trend (Figures 3, coefficients indicate a significant influence
4, 5 and 6). The results, presented in the for the first equation (with RROB as
Tables 5 and 6, indicate the stationarity of dependent variable). The Figure 8 shows the
all four time series. impulses – responses between RROB and
RBETXT. A shock in one of the two variables
Because of the two variables complex provokes a fluctuant evolution of the other
evolutions we double the Augmented Dickey- variable which finally is back to the initial
Fuller Test with the test proposed by level. The Granger causality tests for the
Saikkonen and Lutkepohl (2002) and Lanne second sub-sample are presented in the
et al (2002) which allows taking into account Table 12, proving a bi-directional causality
the eventual structural breaks. The shift between the two variables.
functions were chosen based on the graphical
representation. For RROB we used an 5. Conclusions and implications
impulse dummy for both sub – samples,
while for RBEXT we use, also for both sub – In this paper we studied the relation
samples, a shift dummy. In the Tables 7 and between the Romanian stock prices and the
8 there are presented the results of the tests interest rates before and during the global
indicating the stationarity of all four time crisis. We use a VAR model employing daily
series. values of BET – XT and ROBOR 3M.
The interactions between RROB and RBEXT The results indicate quite weak linkages
for the two samples will be studied using the between the interest rates and the stock
Vector Autoregressive (VAR) models. The prices before the global crisis. This situation
number of lags for the VAR model is chosen could be explained by the economic trend
based on the Schwartz Bayesian Criterion. from this period of time. The stock market
In the VAR framework we test the Granger experienced an ascendant trend which was
causality between the two variables. quite insensitive to the interest rates. The
monetary policy was applied with less regard
4. Empirical Results to the stock market.
Based on the graphical representation we During the global crisis we found significant
used intercept and trend as deterministic linkages between the two variables. A bi-
variables for the VAR equations of the first directional Granger causality was revealed
sub-sample. The coefficients of the two by the tests, suggesting that in the global
equations are presented in the Table 9. The crisis context the stock prices became much
values of R-squared coefficients suggested, more sensitive to the interest rates
for both equations, weak linkages between evolution. In these circumstances the
the variables. management of the monetary policy has to
take into consideration the interest rates
The impulses – responses between RROB impact on the stock market.
and RBETXT are shown in the Figure 7. A
shock in RROB leads initially to a decline in This investigation could be continued in the
RBETXT. However, after some fluctuations, future, in the next phases of the global crisis,
RBETXT is back to the initial level. A shock when the relation between the interest rates
in RBETXT provokes the decline of RROB and the stock prices could suffer changes.
followed by a recovery. In the Table 11 there
597
References 11. Hayford, M. D. and Malliaris, A.G. (2004)

Monetary Policy and the U.S. Stock Market.
1. Bernanke, B. S. and Gertler, Mark. (2001) Economic Inquiry, 42(3), pp. 387-401.
Should Central Banks Respond to Movements in 12. Kent, C., Lowe, P. (1997) Asset price bubbles
Asset Prices?, American Economic Review 91(3), and monetary policy, Research Discussion Paper
pp. 253-57. 9707. Reserve Bank of Australia.
2. Bernanke, B. S. and Gertler, M. (1999) 13. Kindleberger, C. P., and Robert Z. A. (2005)
Monetary Policy and Asset Volatility, Federal Manias, Panics and Crashes: A History of
Reserve Bank of Kansas City Economic Review Financial Crises, Fifth Edition, Palgrave-
84(4), pp. 17-52. MacMillan.
3. Bernanke, B. S. and Kuttner, K.N. (2005) What 14. Lanne, M., Lütkepohl, H. and Saikkonen, P.
Explains the Stock Market’s Reaction to Federal (2001) Test procedures for unit roots in time series
Reserve Policy?, Journal of Finance 60(3), pp. with level shifts at unknown time, Discussion
1221-57. paper, Humboldt-Universität Berlin.
4. Bordo, M.D., Dueker, M. J. and Wheelock, D. 15. Lütkepohl, H. (2007) Econometric Analysis
C. (2007) Monetary Policy and Stock Market with Vector Autoregressive Models, European
Booms and Busts in the 20th Century, Federal University Institute, Working Papers, ECO
Reserve Bank of St. Louis, Research Division. 2007/11.
5. Blanchard, O. J. (1981) Output, the stock 16. Rigobon, R. and Sack, B. (2003) Measuring the
market, and interest rates, American Economic Reaction of Monetary Policy to the Stock Market,
Review, 71, pp. 132–43. Quarterly Journal of Economics, 118(2), pp. 639-
6. Cecchetti, S.G.; Genberg, H.; Lipsky, J. and 69.
Wadhwani, S. (2000) Asset Prices and Central 17. Saikkonen, P. and Lütkepohl, H. (2002)
Bank Policy, Geneva Reports on the World Testing for a unit root in a time series with a level
Economy 2, International Center for Monetary shift at unknown time, Econometric Theory
and Banking Studies and Centre for Economic 18:313-348.
Policy Research. 18. Shiller, R. J. (2005) Irrational Exuberance,
7. Fama, E.F. (1970) Efficient capital markets: a 2nd Edition, Princeton: Princeton University
review of theory and empirical work, Journal of Press.
Finance, 25, 383-417. 19. Schwartz, A. J. (1995) Why Financial Stability
8. Flannery, M.J. and James, C.M. (1984) The Depends on Price Stability, Economic Affairs
Effect of Interest Rate Changes in The Common 15(4), Autumn, pp. 21-25.
Stock Returns of Financial Institutions, Journal of 20. Titman, S. and Warga, A. (1989), Stock
Finance, Vol. 39, 1141-1153. Returns As Predictors of Interest Rates and
9. Goodfriend, M. (2003) Interest Rates Policy Inflation, Journal of Financial and Quantitative
Should Not React Directly to Asset Prices, in Analysis, Vol. 24.
William C. Hunter, George G. Kaufman, and 21. Wicker, E. (2006) Stock Market Speculation
Michael Pomerleano, eds., Asset Price Bubbles: and the Federal Reserve, Indiana University
The Implications for Monetary, Regulatory, and working paper.
International Policies. Cambridge, MA: The MIT
Press, pp. 445-57.
10. Granger, C.W.J. (1969) Investigating Causal
Relations by Econometric Models and Cross-
Spectral Methods, Econometrica.
APPENDIX
Table 1 - Descriptive Statistics of variable RBETXT for the first sub – sample
Mean Median Minimum Maximum

-0.151964 -0.0298130 -6.67267 5.08820
Std. Dev. C.V. Skewness Ex. kurtosis
1.75067 11.5203 -0.452883 1.19925
Doornik-Hansen test = 19.9756, with p-value 0.000001

Jarque-Bera test = 39.3374, with p-value 0.000001
598
Table 2 - Descriptive Statistics of variable RROB for the first sub – sample

0.102417 0.000000 -6.43700 8.54417
1.28606 12.5571 0.433076 10.0646

Table 3 - Descriptive Statistics of variable RBETXT for the second sub – sample

0.00749916 0.142541 -11.7104 10.6842
3.01230 401.685 -0.413574 2.07939

Table 4 - Descriptive Statistics of variable RROB for the second sub – sample

-0.212636 -0.0949217 -42.7784 50.6237
4.79044 22.5288 2.66813 75.2595

Table 5 - Augmented Dickey-Fuller Test for the observations from the first sub-sample
Variable Deterministic terms Lagged Test statistics

differences
RROB No constant and no trend 1 -10.5592***
Constant and no trend 1 -10.6393***
RBETXT No constant and no trend 8 -5.5584***
Note: *** denotes significance at 1% level.
Table 6 - Augmented Dickey-Fuller Test for the observations from the second sub-sample
Variable Deterministic terms Lagged differences Test statistics

RROB No constant and no trend 10 -5.8861***
RBETXT No constant and no trend 4 -7.8536***
599
Table 7 - Unit root tests with structural breaks for the observations from the first sub-sample
Variable Shift Break Date Lagged Test statistics

Function differences
RROB Impulse 406 1 -10.4370***
dummy
RBETXT Shift dummy 266 6 -2.6492*
Note: * and *** denote significance at 10% and 1% levels, respectively.
Table 8 - Unit root tests with structural breaks for the observations
from the second sub-sample
Variable Shift Function Break Date Lagged Test statistics

differences
RROB Impulse dummy 34 10 -6.4166***
RBETXT Shift dummy 31 4 -5.1239***
Table 9 - VAR system for the first sub - sample
Equation 1 (with RROB as dependent variable)
Variable Coefficient Std. Error t-ratio p-value

const -0.0781013 0.149184 -0.5235 0.60089
RROB1_1 0.156001 0.0895539 1.7420 0.08226*
RROB1_2 0.179452 0.0684053 2.6234 0.00903***
RBETXT1_1 -0.00235969 0.0295597 -0.0798 0.93641
RBETXT1_2 -0.00387094 0.0307654 -0.1258 0.89994
time 0.000729586 0.000631028 1.1562 0.24828
Mean dependent var 0.110875 S.D. dependent var 1.272631

Sum squared resid 620.1673 S.E. of regression 1.229879
R-squared 0.077309 Adjusted R-squared 0.066057
F(5, 410) 2.573525 P-value(F) 0.026191
rho -0.001465 Durbin-Watson 1.997403
Equation 2 (with RBETXT as dependent variable)

const 0.163944 0.147939 1.1082 0.26843
RROB1_1 -0.0164433 0.0674078 -0.2439 0.80740
RROB1_2 -0.0703323 0.0622556 -1.1297 0.25925
RBETXT1_1 0.0553248 0.063359 0.8732 0.38307
RBETXT1_2 0.0138408 0.0564917 0.2450 0.80657
time -0.00141276 0.000690961 -2.0446 0.04153**
Mean dependent var -0.153410 S.D. dependent var 1.751596

600

F(5, 410) 1.861435 P-value(F) 0.099988
rho 0.002886 Durbin-Watson 1.990960
Note: *, ** and *** denote significance at 10%, 5% and 1% levels, respectively.
Table 10 - VAR system for the second sub - sample
Equation 1 (with RROB as dependent variable)

const -0.199001 0.187959 -1.0587 0.29048
RROB2_1 0.891966 0.110021 8.1072 <0.00001***
RROB2_2 -0.493022 0.119904 -4.1118 0.00005***
RROB2_3 0.164703 0.110045 1.4967 0.13541
RROB2_4 -0.165267 0.110349 -1.4977 0.13516
RROB2_5 -0.336594 0.159555 -2.1096 0.03564**
RROB2_6 0.405434 0.145889 2.7791 0.00576***
RROB2_7 -0.160549 0.11532 -1.3922 0.16478
RROB2_8 -0.122198 0.120609 -1.0132 0.31171
RROB2_9 0.0980794 0.0986244 0.9945 0.32071
RROB2_10 -0.333667 0.126966 -2.6280 0.00898***
RROB2_11 0.353089 0.137063 2.5761 0.01042**
RROB2_12 -0.220304 0.112072 -1.9657 0.05015*
RROB2_13 0.0150518 0.0954356 0.1577 0.87477
RROB2_14 -0.0637042 0.0683786 -0.9316 0.35219
RROB2_15 -0.0133139 0.0781298 -0.1704 0.86479
RROB2_16 0.0533691 0.0962554 0.5545 0.57964
RROB2_17 -0.0993711 0.0889865 -1.1167 0.26492
RROB2_18 0.0274701 0.0713853 0.3848 0.70062
RROB2_19 -0.0642147 0.0465293 -1.3801 0.16848
RBETXT2_1 -0.120703 0.108299 -1.1145 0.26585
RBETXT2_2 0.130747 0.144299 0.9061 0.36554
RBETXT2_3 0.148244 0.102285 1.4493 0.14818
RBETXT2_4 -0.12642 0.169663 -0.7451 0.45672
RBETXT2_5 -0.215602 0.0638579 -3.3763 0.00082***
RBETXT2_6 -0.0286544 0.10946 -0.2618 0.79365
RBETXT2_7 -0.105657 0.0836101 -1.2637 0.20722
RBETXT2_8 -0.222082 0.104935 -2.1164 0.03505**
RBETXT2_9 0.209669 0.0861815 2.4329 0.01550**
RBETXT2_10 -0.087443 0.04778 -1.8301 0.06812*
RBETXT2_11 0.00777719 0.0502644 0.1547 0.87713
RBETXT2_12 0.00599198 0.0513044 0.1168 0.90709
RBETXT2_13 -0.0482937 0.0491687 -0.9822 0.32671
RBETXT2_14 0.0200357 0.063662 0.3147 0.75317
RBETXT2_15 -0.0662256 0.0424732 -1.5592 0.11989
RBETXT2_16 0.0682025 0.0737276 0.9251 0.35560
RBETXT2_17 0.011889 0.0687835 0.1728 0.86288
RBETXT2_18 -0.0936829 0.0499684 -1.8748 0.06168*
RBETXT2_19 0.229245 0.139756 1.6403 0.10188
601
Mean dependent var -0.222211 S.D. dependent var 4.897979

F(38, 335) 24.93559 P-value(F) 4.43e-76
Equation 2 (with RBETXT as dependent variable)

const 0.0282105 0.150269 0.1877 0.85120
RROB2_1 0.0206103 0.0513611 0.4013 0.68847
RROB2_2 0.000917498 0.060439 0.0152 0.98790
RROB2_3 -0.114261 0.0645741 -1.7695 0.07773*
RROB2_4 0.0757979 0.0669618 1.1320 0.25846
RROB2_5 -0.208128 0.0742494 -2.8031 0.00536***
RROB2_6 0.00149619 0.0803933 0.0186 0.98516
RROB2_7 -0.125922 0.0872155 -1.4438 0.14973
RROB2_8 0.107818 0.0849681 1.2689 0.20535
RROB2_9 -0.0264117 0.0842908 -0.3133 0.75422
RROB2_10 -0.0494278 0.0791032 -0.6249 0.53249
RROB2_11 -0.00684864 0.0672442 -0.1018 0.91894
RROB2_12 0.0534905 0.057183 0.9354 0.35024
RROB2_13 0.018557 0.0648056 0.2863 0.77479
RROB2_14 -0.065045 0.0625035 -1.0407 0.29878
RROB2_15 0.112218 0.0559006 2.0075 0.04550**
RROB2_16 -0.0293258 0.0592641 -0.4948 0.62104
RROB2_17 0.0978468 0.0598187 1.6357 0.10284
RROB2_18 -0.154919 0.0569951 -2.7181 0.00691***
RROB2_19 0.130532 0.0400809 3.2567 0.00124***
RBETXT2_1 0.0751265 0.0784733 0.9574 0.33908
RBETXT2_2 -0.0443009 0.0790436 -0.5605 0.57554
RBETXT2_3 -0.0606551 0.0699589 -0.8670 0.38656
RBETXT2_4 -0.0439212 0.0608598 -0.7217 0.47100
RBETXT2_5 0.137539 0.0630806 2.1804 0.02993**
RBETXT2_6 -0.0411248 0.0554856 -0.7412 0.45910
RBETXT2_7 -0.0814389 0.0561202 -1.4512 0.14767
RBETXT2_8 0.138557 0.0569236 2.4341 0.01545**
RBETXT2_9 0.0747237 0.0511981 1.4595 0.14536
RBETXT2_10 0.000996279 0.055267 0.0180 0.98563
RBETXT2_11 -0.0625423 0.0591501 -1.0573 0.29111
RBETXT2_12 0.0438554 0.0656953 0.6676 0.50488
RBETXT2_13 -0.0826586 0.0672691 -1.2288 0.22002
RBETXT2_14 0.0397776 0.0557052 0.7141 0.47568
RBETXT2_15 0.0971288 0.072878 1.3328 0.18352
RBETXT2_16 0.138811 0.0752119 1.8456 0.06583*
RBETXT2_17 0.095425 0.069736 1.3684 0.17211
RBETXT2_18 0.00680669 0.0719774 0.0946 0.92472
RBETXT2_19 0.0498156 0.0529737 0.9404 0.34770
Mean dependent var 0.060230 S.D. dependent var 2.959718

602

F(38, 335) 6.342439 P-value(F) 3.05e-22
Note: *, ** and *** denote significance at 10%, 5% and 1% levels, respectively.
Table 11 - Granger causality between RROB and RBETXT for the first sub – sample
Null hypothesis F-statistic P-value Causal inference

RROB do not Granger-cause 0.6227 0.5368 RROB do not Granger-
RBETXT cause RBETXT
RBETXT do not Granger-cause 0.0090 0.9911 RBETXT do not Granger-
RROB cause RROB
Table 12 - Granger causality between RROB and RBETXT for the second sub – sample
Null hypothesis F-statistic P-value Causal inference

RROB do not Granger-cause 3.5885 0.00001 RROB Granger-cause
RBETXT RBETXT
RBETXT do not Granger-cause 4.8550 0.00001 RBETXT Granger-cause
RROB RROB
1600
1400
1200
1000
BETXT
800
600
400
200
0
2007 2008 2009 2010
Figure 1 - Evolution of BET-XT from 3 January 2007 to 31 March 2010
603
50
45
40
35
30
ROBOR3M
25
20
15
10
5
2007 2008 2009 2010
Figure 2 - Evolution of ROBOR3M from 3 January 2007 to 31 March 2010
0
RBETXT1
-2
-4
-6
-8
Mar May Jul Sep Nov 2008 Mar May Jul
Figure 3 - Evolution of RBETXT from 3 January 2007 to 30 September 2008
604
10
2
RROB1
-2
-4
-6
-8
Mar May Jul Sep Nov 2008 Mar May Jul
Figure 4 - Evolution of RROB from 3 January 2007 to 30 September 2008
15
10
5
RBETXT2
-5
-10
-15
Sep Nov 2009 Mar May Jul Sep Nov 2010 Mar
Figure 5 - Evolution of RBETXT from 1 October 2008 to 31 March 2010
605
60
50
40
30
20
10
RROB2
-10
-20
-30
-40
-50
Sep Nov 2009 Mar May Jul Sep Nov 2010 Mar
Figure 6 - Evolution of RROB from 1 October 2008 to 31 March 2010
RROB1 -> RROB1 RROB1 -> RBETXT1

1.4 0
-0.01
1.2
-0.02
1 -0.03
0.8 -0.04
-0.05
0.6 -0.06
0.4 -0.07
-0.08
0.2
-0.09
0 -0.1
0 5 10 15 20 25 30 0 5 10 15 20 25 30
periods periods
RBETXT1 -> RROB1 RBETXT1 -> RBETXT1

0 1.8
-0.001 1.6
-0.002 1.4
1.2
-0.003
1
-0.004
0.8
-0.005
0.6
-0.006 0.4
-0.007 0.2
-0.008 0
0 5 10 15 20 25 30 0 5 10 15 20 25 30
periods periods
Figure 7 - Impulse – response analysis in a VAR framework for the first sub - sample
606
RROB2 -> RROB2 RROB2 -> RBETXT2

3 0.3
2.5 0.2
2 0.1
1.5
0
1
-0.1
0.5
-0.2
0
-0.3
-0.5
-1 -0.4
-1.5 -0.5
-2 -0.6
0 5 10 15 20 25 30 0 5 10 15 20 25 30
periods periods
RBETXT2 -> RROB2 RBETXT2 -> RBETXT2

0.8 3
0.6
2.5
0.4
0.2 2
0 1.5
-0.2
-0.4 1
-0.6 0.5
-0.8
0
-1
-1.2 -0.5
0 5 10 15 20 25 30 0 5 10 15 20 25 30
periods periods
Figure 8 - Impulse – response analysis in a VAR framework for the second sub - sample
607

FINANCIAL CRISIS AND PUBLIC DEBT IN EMERGENT AND DEVELOPING COUNTRIES
STOICA Emilia Cornelia

Nicolae Titulescu University
liastoica@gmail.com
Abstract process, finding tools to improve the evolution

The global financial crisis emerged in the and the resumption of economic growth is
advanced economies has a brake on growth in crucial. (3) In the article, we propose to
the rest of the world in 2008 and 2009. examine indicators that are key points of
However, some countries have fared better than financial market development and their
others. Should we attribute these results to correlations with macroeconomic indicators,
their best level of trade openness and financial, namely those tied to the country's public
lack of basic weaknesses, which makes them finances, since the latters are subject to policy
less vulnerable to external forces, or the quality intervention of public authorities in the
of their economic policies, which would have domestic economy. (4) Numerous papers and
made the away from the global turmoil. then many books have debated since the
For developing markets, the shock was mainly beginning of the crisis that triggered the fall of
transmitted through financial channels, the great aspects of financial institutions in
including rapid credit growth and high debts, developed countries and how to spread it all
the consequences are worse if the fixed over the globe. But as the crisis develops dress
exchange rate. The debt alone explains almost very different issues in countries around the
the revised growth rate of the least affected globe, to highlight the causes that lead to
group. continuous shocks and economic failures in
In this paper we try to present some factors some countries, compared with gradual
which could explain why in some countries the resumption of growth in others a need for new
balance is better, and also the impact of the approaches. Thus, specialists in international
recent developments on the public debt institutions, and non-financial, economic
evolution. analysts from various corporations, economic
or media, including summonses can be found
Key words: in literature of this article, follow carefully the
financial crisis, public debt, developing evolution of the phenomenon.
countries
1. Introduction
(1) The paper presents some factors affecting Analysis of the evolution of public debt subject
the financial position of developing countries, to a rich literature, even in our country: the
represented by the evolution of public debt, treaty of "Public Finance", led by academician
mainly the government, under the browsing of Vacarel Julian and others, etc..and foreign
the current financial crisis. (2) The current literature, where may be mentioned both the
financial crisis has affected most countries in extensive manual on public finance and hence
the world, turning a crisis generated by a public debt issued by international financial
mismanagement of the U.S. housing market institutions. Paper now is to make a
into a deep economic crisis, a systemic one, the correlation between the recent evolution of the
worst affected countries beeng those with financial crisis and its impact on public debt
weaker economies, namely developing management, which developing countries
countries. In this situation, identifying the must take the issues different from those in
factors that generate risks in the development
608
developed countries, which already shows emerging countries continue to confront gross
signs of a resumption of growth. financial difficulties.
This is mainly due to the impact of the
4. Paper Content external financial crises, but also to
macroeconomic policies adopted in recent
The public debt managers operate in financial years, including weak fiscal and monetary
contexts very sophisticated and complex. A policies which encourage consumption rather
global capital market can be the source of than investment, promoting credit rises above
many benefits, including access, lower costs, the productivity of industry, construction and
an expanded pool of capital, the most efficient other sectors that produce value added. The
domestic financial markets and the consumption exceeding the production,
opportunity to better adapt to the economic and financial deeping, the macro-
circumstances the risks of using new financial financial situation further deteriorate.
instruments. By cons, strategies for managing A way out of this vicious circle is builds upon
the public debt may become vulnerable as a the local economies, both by decentralization
result of such unforeseen deterioration in the public services and by attracting funding for
balance of the private sector, capable of local investment.
triggering fiscal crises, financial and economic. To develop a market in local currency, the
Economic shocks can affect the external debt reduction in macroeconomic volatility so
and make vulnerable the strategy for typical in the develloping countries, is
managing public debt, and such vulnerability undoubtedly a precondition. In that sense, it is
may in turn affect the economy and be necessary not only to maintain but also
detrimental to the alarming financial situation strengthen the pillars that characterize this
of a government. Some recent examples among new paradigm macroeconomic cyclical
emerging economies has shown that shocks components with clear (Manasse, 2003):
are likely to turn into financial crises, - tax solvency, because the tax liability in most
problems with debt management and emerging countries is not a political slogan, it
budgetary consequences. is simply common sense;
The debt managers, eager to protect the - robustness and consistency of money;
financial position of their government, must - exchange rate regimes more flexible;
create solid strategies for debt management - reduction of external debt and exposure to
and sound risk management practices. currency risk. One lesson of the present
One of the most significant challenges we financial turmoil is only emerging in a
faced at that time is to find the capacity and situation of fiscal deficit and current accounts,
flexibility to coordinate the various policy asset prices have been more negatively
instruments such as economic, fiscal policy, affected. We can conclude that such countries
wage, monetary, competition and so on to cope are in a position more vulnerable position to
with the various tensions in our societies. It is sudden movements in capital flows.;
highly necessary to implement regulatory - realize dynamic business, diversifying
affairs for the promotion of economic growth destinations and products;
without neglecting the monetary stability and - accumulation of international reserves which
financial stability. became an insurance deal with external
In the first term, we can point out that the shocks. This is a common behavior among
economic prospects of developing countries are emerging countries. Currently, without a
quite different from those corresponding to lender of last resort in the world, there is not
other periods marked by financial turbulence. an adequate substitute for the policy of
For the first time, we're not at the epicenter of accumulating external assets in each country.
a crisis as well as the conditions of infection, The construction of a stock of international
are less obvious. reserves as a preventive mechanism is
While in developed countries there are some particularly important in the developing
signs of exceeding the financial crisis, countries, where there is a closer relationship
609
between fiscal policy, monetary policy and monitoring functions in the weak financial
financial stability. services sector are all factors that increase the
Several changes in supply and demand in vulnerability of financial a government and its
domestic and foreign markets have greatly sensitivity to economic shocks. For example
increased the availability of capital in the last (Bill Gross, 2010), significant volumes of
decade. Debt securities were issued through public and private external debt, including
the deepening of domestic markets and new short-term debt in foreign currency,
information technologies and new financial uncovered, can expose governments to
instruments evolved. financial risks. Many developing countries and
Other factors may explain the proliferation of emerging countries have recourse to capital
international loans, including those held by inflows to finance their economic growth, the
contracted emerging economies and large deficit in current account, public
developing countries: the decline in interest spending and massive public debt
rates on world markets, which prompted Despite these current weaknesses, emerging
investors to favor emerging markets with a and developing economies are able to attract
rate high yield on their investments, the capital because very often they have adopted
improvement in credit ratings, through the fixed exchange rate regimes or determined by
restructuring of external debt, deregulation reference to another currency or, furthemore,
and structural reform macroeconomic a managed exchage rate regime. These plans
'stability' apparent, resulting from fixed give investors the impression that they have
exchange rate regimes, the the possibility to transfer to the government
internationalization of financial institutions, the risk of volatility of exchange rates.
access to bank consortium. All these factors However, the fixed exchange rate regimes,
led to the escalation of private capital flows - determined by reference or weakly managed
mainly in the form of short-term loans in float regime may become unbearable and
foreign currency-, to emerging economies and being the target of speculators if, for example,
developing countries, due to low perceived monetary policy does not show a strong
risk, with a high yield. commitment to low inflation, the banking
The big volume of outstanding capital loaned system includes deficiencies or international
led economic booms and used to finance reserves are considered insufficient.
current account deficits. The managers of the Economies with large debt in foreign currency
debt of emerging economies and developing and practicing the exchange rate regimes
countries are facing capital markets in described above can be very vulnerable if they
different conditions. The absence of capital face attacks speculators.
markets deep and liquid which could absorb Governments that choose a floating exchange
domestic debt, forced many governments to rate and lenders are not immune, as a fall in
issue debt in foreign currency without power, market confidence triggered the depreciation
very often, adequately cover the exchange risk of currencies. The monetary authorities could
or interest rates. intervene if they deem it necessary, by
On the one hand, the increased access to involving foreign currency assets or raising
capital in international financial markets has interest rates to protect the currency. A
likely led to significant economic benefits such currency crisis is likely to cause higher
as economic growth, rising living standards, domestic interest rates. Regardless of the
reduction of poverty. However, on the other current system, governments, especially in the
hand, the sensitivity of capital markets may presence of large external debts public and
lead to instability in weaken economic private not covered adequately, are likely to
conditions and some games of gross capitals see increases dramatically the cost of servicing
may come out unexpectedly from the capital debt and have difficulty in accessing markets
markets. international capital (Overseas). The financial
Poor management of debt and risk, including markets will determine the adequacy of the
the management of foreign reserves, the exchange rate regime based on its credibility.
provision of inadequate information and As long as fiscal policy is sustainable, that the
610
banking system is adequately controlled and downturn reducing state revenues, monetary
regulated, that monetary policy is credible and and exchange rate policies resulting in
that foreign reserves are adequate, the inadequate depreciation of the currency or a
significant vulnerability to external shocks mismatch of assets and liabilities private
should be minimal. sector, which require costly rescue of the
After the financial crisis and economy is still government. Moreover, exogenous shocks can
uncertain. In large economies, which have be. The international interest rates that affect
been responsible for the outbreak of financial the service the public debt, world prices of
crisis, we observed clear signs of recovery and commodities down causing balance of
growth in 2009 was a sluggish than expected. payments problems, currency devaluations or
That being so, the crisis has had serious simply contagion from neighboring countries
repercussionssur the labor market and the are all external shocks that could weaken the
situation deteriorated s poor (ONU 184 financial position of a government.
EX/10). The quality of management practices in public
In addition, prospects for 2010 are still debt will affect the financial vulnerability of a
unclear. In developing countries, the effects of government and its sensitivity to shocks. If the
the crisis on the macro-economic contrast has strategy for public debt management is not
been more. For many such economies, the sufficiently focused on the risks and costs, as
crisis has resulted in a reduction in the rate of well as the possible macroeconomic and
growth. However, it has often been heavy financial shortcomings, the government may
consequent socially. In countries where growth have difficulty meeting its obligations to
has been maintained or restored through the service debt. Policymakers should aim
adoption of the Budget Measures vigorous, the particularly delicate balance between the
magnitude of the deficit undermines the desire to minimize the cost of servicing the
future development and it is difficult to decide debt and that of minimizing exposure to risks
between on the one hand, the necessity of like those of the market and rollover risks.
maitena longer intervention of public The debt managers should identify and
authority can and secondly, the desire to recommend sound policies governing the
restore budget balance public debt in order to protect the
Since the beginning of the century and government's financial position. This
millennium, many financial crises that have recommendation must be based on sound risk
affected various parts of the world have management practices. This means that
affected the ability of governments to repay managers should manage public debt in
their debts, a situation which led to financial relation to the probability of occurrence of
difficulties and economic disruption. In certain events and consequences and costs
addition, they have been serious consequences, that they might have on the government's
such as reduced growth rates, increased financial position. Managers must pursue
poverty, economic instability, social unrest, affordable strategies that government will
and so on. The financial vulnerability of cover, as much as possible, financial risks.
governments forced to refinance debt in the Emerging economies and developing
economic conditions becoming less and less Given the consequences of recent financial
good (including high interest rates, devalued crises and complexity of financial markets,
currencies, the collapse of the banking sector, debt managers from emerging economies and
the refusal of lenders) has increased developing countries (Dominique Strauss-
considerably Kahn, 2009) may wish to consider strategies
The combination of financial markets risk aimed at reducing financial vulnerability.
averse and vulnerable domestic situations can Thus, when seeking to balance the costs and
pose challenges to managers of public debt. risks, they would be well advised to give
The origin of the shock varies from one preference, to the extent of their financial
country to another. They arise sometimes resources, minimization of risks.
domestic macroeconomic imbalances, such as The political, economic and institutional will
unsustainable fiscal policies, an economic influence the management of public debt, and
611
managers will adjust their business to the markets are limited and massive borrowing in
risks and costs posed by the environment. foreign markets unavoidable, managers will
Note in this regard, the existence of inverse clearly limit the exchange risk by using, where
relationships between the size of an economy possible, to derivatives, with the aim of
and its vulnerability. Emerging economies and mitigating the effect the fluctuation of
developing countries, whose domestic financial currencies. However, because of the nature
markets are underdeveloped, which have and complexity of derivatives, debt managers
limited access to foreign capital and that should be aware that a program of mitigation
diversification is restricted are, in all poorly designed may actually have the
likelihood, more vulnerable and exposed than opposite effect and further increase the
others to economic shocks, including contagion exposure .
from neighboring countries. Moreover, given the dominant role of
We must reach a compromise between the government as an issuer of securities in the
desire to minimize the risks and reduce costs. market economies in this category, debt
Both can be expensive. Long term running managers should pay particular attention to
means reduce the risk but can be very costly if their market approach and be wary of
the yield curve is positive. In short terms to opportunism .
maturity in foreign currency resources are Arguably, the recent financial crisis could at
attractive in terms of servicing the debt, but least be mitigated if a more rigorous
they can involve significant risks and increase regulatory framework was in place and if the
the government's financial vulnerability. The financial sector had been subject to greater
government depends too of floating rate supervision that would have resulted in better
securities or short-term instruments, even if practices regulated capital flows and loan and
they are relatively inexpensive and may have financial systems more transparent, including
to bear a greater degree of vulnerability financial statements accurate.
because of the potential impact of higher It is estimated that widespread adoption of
interest rates the cost of servicing the debt. It standards and practices recognized
may also be disadvantaged by the internationally and bearing in particular on
continuation of low foreign exchange reserves risk management, the need for transparency
because of the increased risk of non-payment and disclosure, public governance, business
in time of crisis. ethics and accounting standards could
Regarding emerging economies and developing contribute to the good performance of financial
countries, they may be advantageous to markets and the strengthening of
assume a heavier burden of costs of service in international financial systems. While
order to develop a term structure that protects promoting international financial stability,
the financial balance. improving the functioning of markets and
Managers of public debt may want to consider reducing systemic risks, these initiatives could
also the strategy is to use as possible to diminish if they prove effective, the financial
domestic capital markets. It might be unwise vulnerability of governments.
to borrow on foreign markets and the use of Recent developments have shown that
foreign currency securities are not covered, economic vulnerability and global financial
because of the risks and potential markets can be an explosive mixture. It is
consequences that this entails. Debt feared that sound fiscal policies that lead to a
denominated in foreign currencies are not smaller ratio of public debt to GDP is not
covered can dramatically increase the liability sufficient to protect the financial position of a
and vulnerability (eg the risk of non-payment) government against economic shocks.
if the exchange rate decreases when the Recent financial crises have shown that the
maturity and the refinancing of debt. In this financial position of governments that could be
perspective, what seems a solid management vulnerable not only to traditional
strategy that minimizes the cost of service, shortcomings as a deficit or an increasing
could become an unwise decision if market trade imbalance, but also the impact of
conditions deteriorate. Where domestic capital
612
volatile financial markets may have on public adequate economic and/or financial
and private debt . instruments, to encourage employment
For emerging economies and developing good through the implementation of development
practices for debt management and risks projects and improve, also, the national
include substantial foreign reserves in light of financial balance, both in the private sector
the entire foreign debt of the economy, and in the public one.
reducing rollover risk by increasing the long-
term debt, lengthening the average term to References
maturity and the issue of debt securities in Bill Gross, PIMCO Investment Outlook, The Ring of
national currency gradually abandoning Fire, February 2010
currency loans. Dominique Strauss-Kahn, Managing Director,
International Monetary Fund, At the Brookings
5. Conclusions and implications Institution, The Impact of the Financial Crisis on
Low-Income Countries, , Washington, D.C., March
3, 2009
(1) The paper tries to make a review of key Mannasse P., Roubini N et Schimmelpfennig A.,
issues facing developing countries regarding 2003, « Predicting Sovereign Debt Crises », IMF
government borrowing in terms of a major Working Paper n° 03/221.
financial crisis, which and can not be overcome ONU 184 EX/10 “Effet de la crise financiere et
without attaching decisive measures both in economique actuelle sur les efforts fournis par les
taxation, and in the monetary and exchange pays en developpement pour atteindre les objectifs
rate regime. (2) Proposed measures relate de l’education pour tous (EPT)
primarily to a sustainable fiscal policy and Overseas Development Institute The global
financial crisis and developing countries, ODI
correlated with socio-economic characteristics
Working Papers (Online) ISSN 1759 2917
of the country. (3) Future works will need to
focus on specific developing and emerging
countries, and the possibilities of using
613
HUMAN BEHAVIOUR BETWEEN THE HOLISTIC TRIAD AND THE

TRAGIC TRIAD *
Authors: PhD Professor Constantin Popescu

PhD Professor Alexandru Taşnadi
The Academy of Economic Studies, Bucharest
Abstract: Key phrases: tragic optimism, tragic triad,

The authors embracing the new holistic vision holistic triad, economy of the tragic optimism,
regard economy as a living entity consisting of ecological economy.
human beings and social systems interacting
continuously one another and with the
ecosystems of which part they are and on which
our life depends.
Human behaviours, under the form of choices
in the economic life and not only, are to be
studied under the perspective of unavoidable
aspects of human existence resulting into „the
tragic triad”, circumscribed to: 1) suffer; 2)
guilt; 3) death and „ the holistic triad”, defined
by: 1) limits; 2) uncertainty and 3) open
interdependencies.
This interaction regarding nature and human
society, in certain circumstances characterizing
coexistence and generational succession, leads
to the failure of our choices that we do when
fighting against „ the nature greed”, the
evolution uncertainties, peoples’ injustice facts
and age disadvantages.
The interpretation of human behaviours, from
the perspective of „tragic optimism” based on
the interactions of „ twin triads”, joining
naturally coexistence and human life
succession, stands for a way of taking our
microcosms as a sole living organism of
processes reciprocally expressed by the
following formula: „One in All; All in One; One
in One; All in All ”.
*This paper was supported by CNCSIS- UE FISCSU, PN II- 774/ 2007
614

OUTSOURCING STRATEGIES IN THE AUTOMOTIVE INDUSTRY: A

CASE STUDY ON THE TRANSACTION PATTERNS IN A TURKISH
ASSEMBLY PLANT
Tuğba GÜRÇAYLILAR YENİDOĞAN

Akdeniz University
Antalya, Turkey
gurcaylilar@akdeniz.edu.tr
Fulya SARVAN
Akdeniz University
Antalya, Turkey
fulyas@akdeniz.edu.tr
Abstract Equipment Manufacturers (OEMs). First

In this paper, authors explore the strategic tier suppliers immediately reacted to this
choice of transaction patterns between new formation with a strategy called follow
automakers and suppliers with an emphasis policy and began to relocate near the auto
on the outsourcing of designing and transplants. Some of them even located in
manufacturing of auto parts. The study is the assembler’s supply park named as in-
based on a case study in a Turkish assembly house outsourcing by Bonazzi and Antonelli,
plant to explore the transaction patterns (2003). The second important strategy was
classified as detail controlled parts, black box the reorganization of vehicle portfolio around
parts and supplier proprietary parts product platforms in order to protect
depending on the supplier involvement in automakers from short product life cycle
product development. The relationships problem of vehicle models. Modular
between the assembler and suppliers are production strategy basically aims to
discussed and conclusions are drawn globalize manufacturing system through
concerning supplier switching costs, tier 1 outsourcing and higher integration with
suppliers’ willingness to share information, suppliers (Shamsuzzoha etc., 2008). In this
supplier capabilities on designing and system modules are assembled by outside
manufacturing, assumed quality suppliers on their subassembly lines and
responsibility, the need for advanced delivered and assembled into finished
technology, market structure and etc. in products on the main line of the automaker
relation to the transaction pattern explored. (Takaishi and Fujimoto, 2001). Modularity is
not only a modular assembly strategy, but
Key words: outsourcing, transaction also a product design strategy. The concept
patterns, supplier involvement, Turkish of product design modularity is used to
automotive industry. describe the outsourcing of product
designing and a component in product
1. Introduction design is treated as a ‘black box’. The driving
forces behind outsourcing of product design
Automotive industry adopted a global and manufacturing are defined as a
perspective during 1990s and automakers combination of financial issues, need to focus
began to implement a set of strategies on core competence, quality improvement,
(Velosa and Kumar, 2002). The competition increasing pace of innovation and cost
in the industry led the auto transplants to efficiency (Larsson, 2002, Brandes etc.,
acquire a global identity in order to find a 1998). In this connection, outsourcing
solution to the overcapacity, cost pressure strategies cause transfer of competencies
and low profitability problems of Original from OEMs to suppliers (Caputo and Zirpoli,
615
2002; Chanaron, 2001). As a result, related technology, market structure etc. in relation
literature has witnessed ongoing research on to the transaction patterns explored.
supplier involvement in product
development which gives assemblers the The aim is to explore how the outsourcing
opportunity to concentrate on the overall strategies have created transaction patterns
architecture of the production process. according to part type in exchange relations
between automakers and suppliers, rather
Sourcing decision is explored by three than giving support to outsourcing decisions
streams of the literature: transaction cost on product design and manufacturing of
theory, core competencies approach and automakers in globalized world. The paper
resource based view. Transaction cost will contribute to the related literature by
theory defines the three major governance combining transaction patterns with part
mechanisms for economic activities and type in a case study.
provides an explanation to firms’ boundary
choices by focusing on the minimization of
transaction costs (Williamson, 1985). Two 2. Supplier involvement in product
extreme alternatives among the three basic development in the history of
modes of governance structures offered are automotive industry
market and hierarchy governance, meaning
that either a firm makes a component itself Joint engineering concept is usually defined
or buys it from an autonomous supplier in relation to the Japanese style production
(Williamson, 1981:556). Hierarchy is directly system which has provided Japanese firms
linked with insourcing while the market and competitive advantage by focusing on core
hybrid structures are relevant to outsourcing competencies. Indeed the American
strategies. The focus of core competencies automotive suppliers often participated in
approach is on strategic importance of component design before 1920’s (Hochfelder
transactions for a company and its main idea and Helper, 1997; Fujimoto, 1994). In the
is that a good or service should be insourced early American automotive industry, the
if it is considered as a core competence engineering contributions to make a car
(Arnold, 2000). According to the resource attractive with features of low price and
based view (Wernerfelt, 1984; Barney, 1986) reliability were expected from the suppliers
the firms are differentiated in resource by Henry Ford and Alexander Winton who
endowments and each firm possesses some designed their cars in detail. Between the
heterogeneous resources and capabilities years 1903-1908 more than hundred
which may be both valuable and inimitable. automakers entered into the market after
The suggestion of the view is to access solving critical design problems. Almost all
complementary resources which are of those firms assembled their automobiles
necessary for business success via from outsourced parts such as motor,
outsourcing. carburetor, transmission, brakes, electrical
system, axles etc. The components were
In this article authors focus on the usually off-the shelf parts because the
outsourcing strategies in the automotive suppliers were sharing proprietary designs
industry. Firstly they explain the evolution with competitors. Between the years 1910-
of supplier involvement in product 1920 Ford and GM implemented vertical
development in three phases: integration strategy in design activities in
Interchangeable parts in the USA, mass order to raise the entry barriers into the
production at Ford Company and Toyota industry. Prior to the mass production era in
Production System. Secondly a literature the USA, marketed goods (supplier
review on classification of transaction proprietary parts) were used in the industry,
patterns in automotive industry is and then automakers started to rely on
presented. Lastly this paper employs a case detailed controlled parts with the advance of
study in a Turkish assembly plant to explore mass production. Consequently, the
the existing transaction patterns and draw engineering capabilities of auto supply
conclusions concerning supplier switching industry weakened. Until the 1980’s,
costs, tier 1 suppliers’ willingness to share suppliers increasingly produced components
information, supplier capabilities on according to the automaker’s drawings and
designing and manufacturing, assumed specifications and technical information that
quality responsibility, the need for advanced
616
could easily be provided to the other engineering in the second category. There
suppliers (Hochfelder and Helper, 1997:40). are two sub-categories of black box parts as
approved drawings and consigned drawings.
The first attempts in automobile production In both sub categories the suppliers carry
in Japan started with Ford’s knock-down responsibilities for detailed engineering such
(KD) assembly plant that was built in 1925 as drafting of parts and subassembly
in Yokohama and GM’s subsidiary that was drawings, prototyping and unit testing while
established in 1927 in Osaka (Fujimoto and the functional specifications are set by the
Tidd, 1994). Japanese government prevented assembler. Then the assembler approves the
the operation of foreign automakers in design after checking the part drawings to
Japan with the Act of Automobile determine if they are in compliance with
Manufacturing Enterprise in 1936 and related specifications. The difference
subsidized the domestic companies, Toyota, between them concerns property rights. In
Nissan and Isuzu. At the beginning Toyota consigned drawings system called “design-
followed in-house production policy for most in” in the USA, the assembler pays for the
of the parts and relied on part designs by design to the supplier as a separate contract
Ford and GM due to the quality problems of and is free to switch suppliers at the
imitation part makers in Tokyo and Osaka. manufacturing stage. While approved
In 1939 Toyota changed its procurement drawings tend to be applied to functional
policy and reduced the number of purchased parts, consigned drawing system is found
parts per vehicle by emphasizing on in-house more often among press and plastic parts
production (Fujimoto, 1994). After the 2nd (Clark and Fujimoto, 1991:133). Ge and
World War, Toyota changed its procurement Fujimoto (2004) used drawing entrusted
policy again and stressed the importance of system instead of consigned drawings
outsourcing. In 1949 Nippondenso, the system in their study on the strategic choice
electric parts division of Toyota, was of transaction patterns in the Japanese auto
separated from Toyota and made its part industry. In the third category the assembler
drawings based upon specification drawings carries both functional specifications and
(rough assembly drawings) provided by detailed engineering while the supplier only
Toyota. In this system known as black box manufactures the part according to the
parts system or approved drawing system of drawings supplied by the assembler.
Toyota supplier’s drawings must be
submitted for approval. In 1952 Clark and Fujimoto (1991) classification is
Nippondenso expanded its operation through almost the same with Asanuma (1989)
non-Toyota makers such as Mazda, classification which is based on
Mitsubishi and Honda. differentiation of supplier capabilities in
manufacturing and product development.
3. Transaction patterns in automotive Asanuma (1989) defined auto parts in two
supply system categories as marketed goods and ordered
goods. Marketed goods are directly
The architectural attributes of auto parts purchasable by selecting from the supplier
and their transaction patterns have been catalog while ordered goods are supplied
classified according to the supplier according to specifications issued by the
involvement in product development in the assembler. In his classification ordered goods
related literature. Clark and Fujimoto are divided into two categories as drawings
(1991) identified three basic categories called supplied (DS) parts and drawings approved
supplier proprietary parts, black box parts, (DA) parts. The definition of DS parts
and detail controlled parts. In the first corresponds to detail controlled parts in the
category the supplier develops a component former classification. He did not make a
entirely from concept to manufacturing as its distinction according to the property in the
standard product, and the assembler simply definition of DA parts. DS suppliers are
orders the item from the supplier’s catalogue providing basically only capabilities for
(Clark and Fujimoto, 1991:132). The manufacturing of the parts transacted, while
assembler creates basic design information DA suppliers are providing capabilities for
such as cost/performance requirements, product development as well (Asanuma,
exterior shapes and interface details 1989:15).
according to the total vehicle planning and
layout while the supplier makes detail
617
Hsuan (1999) characterized the supplier structured interviews were conducted with
involvement in engineering by the degree of the manager of the quality development
functional specification and detailed directorate and two experts from the
engineering responsibilities carried out by directorate of project coordination & systems
the supplier. She added the definition of management. These directorates are
question mark parts into the classification of reporting to the purchasing department. The
Clark and Fujimoto. In this transaction quality development directorate selects the
pattern supplier defines the functional suppliers which are able to fulfill its
specification of a part while the assembler is requirements, and works with suppliers to
responsible for the detail engineering. This sustain their continuous improvement. The
case is observed in Japanese practices in task of the directorate of project coordination
which suppliers invest in developing ideas & systems management is to design and
and plans. develop systems to coordinate the
relationships between assembler and
Twigg (1998) developed a typology of suppliers. The interviewed staff described
supplier involvement using the the outsourcing policy and the qualification
classifications of related literature. In this process of suppliers and the decision making
typology, assembler makes in-house design strategies on the design and manufacturing
when a part is aesthetic critical or its design of specific parts determined by the
is a core competence. The major systems and interviewers. Each interview lasted from 90
subsystems such as clutches, brakes, drive to 120 minutes and was tape recorded. Upon
assemblies and seating which are similar to completion of the interview sessions the
black box, but more reliant on proprietary interview data were transcribed.
technology are called proprietary parts. The Concurrently some observations were made
black box parts are characterized by major on the occasion of the visit to the assembly
design authority of the supplier and plant.
specifications of the assembler. Electrical
accessories and modular doors can be shown There are three purchasing divisions in the
as examples. Detail controlled parts are assembly plant. One of them purchases
divided in two categories as functional parts indirect materials such as gloves for
and aesthetic parts. In both the workers, oil used in molds, pistol, turning
specifications are set by the assembler. But tip, drill etc. which are not directly used in
performance requirements are critical in the manufacturing of the vehicle, but that are
functional parts while aesthetic aspects are requisite for the manufacturing process. The
critical in the aesthetic parts. Inlets and other two divisions purchase direct materials
exhaust manifolds, cylinder heads, blocks, necessary for manufacturing a vehicle. These
valve springs can be shown as examples of are also divided into two groups depending
functional critical detail controlled parts, on commodity basis. One of them mainly
and exterior trims like bumper, wheel trim purchases interior trimming materials such
and interior trims like fascias, steering as plastics, roof coating, steering, seat,
wheels are examples of aesthetic critical textile etc. while the other part purchases
detail controlled parts. The parts purchased body parts and chassis parts such as sheet
by the supplier’s standard parts catalogue metal parts, absorber, spring etc.
are called standard catalogue parts (off-the-
shelf) in the typology. The suppliers make The assembly plant works with a supplier
their technical development in-house for a portfolio selected by its members by using
wide range of customers. Fasteners, gaskets, certain criteria generally concerning quality
audio equipment and batteries can be given requirements. As a result of an achievement
as examples. in specific performance measurements set by
the company, the suppliers will be eligible to
4. A case study on examining obtain the certificate issued by the company.
transaction patterns of an assembly The fundamental condition for suppliers to
plant in Turkish automotive industry work with the assembler is to have this
quality certification. The company also
The purpose of this study is to identify the works with suppliers that have the potential
transaction patterns of an assembly plant in to get this document within 1 year. If the
the Turkish automotive industry after supplier can not obtain the quality
exploring its sourcing decisions. Semi- certificate in the required time period, first
618
no new project will be given and then the asked to select some parts of their best
supplier will be replaced with another selling vehicle model (seen in the sample
supplier in the same business. The certified column) which differed from each other with
suppliers are classified according to the respect to outsourcing strategies, and the
points obtained in their performance data. interviews were conducted on these specific
Also in certain commodities they have parts. At the end of the interviews the
specific suppliers defined as strategic selected parts were placed on Fujimoto’s
supplier. For example, there are too many (1999) matrix. In the present study the
suppliers producing plastic injection parts approved drawing parts category was
and all of them have the requested classified as utility model, patented products
certificate, but some of them are considered and patented standard products and the
as strategic suppliers. The difference is authors expect to make a contribution to the
arising from the technical capabilities and related literature from this perspective.
performance data. Currently the company is
working with 262 suppliers and aims to Fuel tank and rear bumper were given as an
reduce this number in order to facilitate the example to detail controlled parts. The
coordination. assembler designs fuel tank and rear
bumper and then relies on the
The land of the assembly plant consists of manufacturing capabilities of suppliers.
welding, painting and assembling production These suppliers do not have any technical
lines, administration building and supplier detail of the parts. The company is working
park. The units in the supplier park are with 3 fuel tank suppliers and 2 rear bumper
rented to the suppliers identified as full suppliers in the same project period.
service suppliers. In the supplier park of the Although the parts can be manufactured via
assembly plant there are 7 supplier firms matured technology by a broad supplier
producing seats, ABS brakes, airbags etc. portfolio in the market, switching of the
Full service suppliers can identify the needs suppliers is not preferred because of
of the assembler and design, manufacture transaction costs like the costs of finding a
and assemble those parts in compliance with new supplier, installing the drawings on a
the specifications. Also they are liable for the new supplier’s system, adapting a new
quality of the products. This relationship manufacturing process. However ownership
provides these suppliers low rental charges of the assembler on drawings makes supplier
and higher payments for their services. In switching costs relatively low.
this way as the suppliers locate closer to the
assembly plant they can feed the production Black box parts usually consisting of
line faster. As a consequence transaction functional parts are perceived as non-core
costs like stock costs, coordination costs etc. business and outsourcing is preferred in
are minimized. The supplier is responsible designing and manufacturing of these parts.
for quality defects while the assembler is Designing of head lamps and steering wheel
responsible for funding the necessary require the assembler and supplier to work
investments to improve the quality of the together because of their aesthetic
suppliers. importance. As a result of this the assembler
provides only rough drawings and their
The outsourcing strategies of the company completion is entrusted to the supplier. The
may vary for each part type according to company is working with 3 head lamps
manufacturing capabilities, basic and detail suppliers and 2 steering wheel suppliers at
designing capabilities, assumed the same project period. Both of them are
responsibility of quality and ownership of manufactured via matured technology and
drawings (Figure 1). After reviewing the supplier switching costs are relatively low.
related literature the respondents were
619
Outsourcing Interfirm task partitioning Responsibility and

authority
Sample
Parts Detail design Basic Drawings Quality
production design ownership responsibility
Detail-controlled parts S A A A A fuel tank, rear
bumper
S S A A A head lamps,
Consigned drawings
steering wheel
Utility S S A A/S S exhaust/shock
model absorber
Black box parts Patented S S A S S ABS brakes,
Approved
drawings product airbag
Patented S S A S S tires, battery
standard
product*
*Defined as supplier proprietary parts in the literature.

A=Assembler, S=Supplier
Figure 1. Supplier Involvement in Product Development and Transaction Patterns of
the Assembly Plant, adapted by Fujimoto
(1999:137). suppliers are not willing to share information
and have high level of tacit knowledge.
For black box parts such as exhaust and shock Depending on the characteristics of the
absorber the assembler only provides oligopolistic market there are few competitors
specifications and performance requirements and supplier switching costs are high.
and then relies on both designing capability
and manufacturing capability of suppliers. However it is necessary to distinguish between
Although the manufacturing and designing of patented products and patented standard
these parts are realized by matured technology products. Although patented standard parts
and explicit knowledge, they are defined as are designed in accordance with the
black box parts because they require specific specifications of the assembler, they can be
engineering effort for each vehicle model. But sold with standard features in the
the suppliers do not apply to patent aftermarket, and are called either “off the shelf
registration for these parts because developing parts” or “supplier proprietary parts” in the
the product does not require technological literature. All these parts could easily be
innovations. Utility models are considered selected from the supplier’s catalogue and
particularly suited for suppliers that make assembled to all vehicles. Although these parts
minor improvements in and adaptations of are called supplier proprietary parts in the
existing products. The ownership of drawings literature, in this study the authors called
belongs to the suppliers and in this way they these parts black box parts and defined them
can prevent imitation of the product for a as a sub-category of approved drawings,
certain period. because the original parts in this category
have different specifications from the parts
Nevertheless utility model is applied sold in the aftermarket. The low adaptation
differently in some specific products like costs of patented standard products make the
exhaust in the Turkish automotive industry. supplier switching costs lower. The company is
Exhaust is recognized as a special component working with 2 suppliers for the above
due to its effect on the performance of the mentioned four parts.
vehicle. Accordingly the assembler receives the
ownership of the picture of the exhaust Conclusions
developed as a utility model with an additional
agreement after paying the right of This paper explored the transaction patterns
engineering in cash or by reflecting the full of a Turkish assembly plant. The outsourcing
cost per part. Thus assembler may replace the strategies of the assembly plant were
supplier with another supplier any time. The illustrated according to the specifications of
company is working with 2 suppliers both for part type and the transaction patterns were
the exhaust and the shock absorber. identified in basically two categories as detail
controlled parts and black box parts. The
ABS brakes, airbag, tires, battery etc. are transaction patterns constituted by
patented products. Manufacturing of these outsourcing strategies were analyzed and
parts require advanced technology and their conclusions were drawn concerning supplier
620
switching costs, tier 1 suppliers’ willingness to

share information, supplier capabilities on Fujimoto, T., Tidd, J. (1994) The UK & Japanese
designing and manufacturing, assumed Automobile Industries: Adoption & Adaptation of
Fordism, Actes du GERPISA, no. 11, University of
quality responsibility, the need for advanced
Tokyo, Japan.
technology, market structure depending on the
part type. As the designing and manufacturing Ge, D., Fujimoto, T. (2004) The Architectural
capabilities of the suppliers improve and Attributes of Auto Parts and Their Transaction
advanced technology is required, the switching Patterns in Japan’s Automobile Industry,
costs will be higher, the supplier’s willingness Manufacturing Management Research Center, 21
to share information will be lower. COE, University of Tokyo MMRC Discussion Paper
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621

PROBLEM STRUCTURING IN PUBLIC POLICY ANALYSIS:

THE CASE OF SECURITY STUDIES
ZULEAN Marian
mzulean@faa.ro
Abstract to apply for the EU membership some

This paper discusses the methodology of twinning programs taught public servants
problem structuring in policy analysis and what is policy analysis while the system of
proposes a normative model that contributes education introduced such courses as public
to an objective and scientific definition of policy or policy analysis in curriculum.
national security policy. This paper not only that brings the most
relevant literature on policy analysis and
Key words: public policy, policy analysis, explain the methods for problem structuring
problem structuring, national security, but also exemplifies the methodology in one
security policy. of the most complex domains: security
studies.
1. Introduction
The process of structuring a policy
problem—“what is the problem?”— is the Professor William Dunn considers that
key initial step in policy analysis. By policy analysis is “an applied science
defining policy analysis as the process of discipline which uses multiple methods of
producing knowledge of and in the policy inquiry and argument to produce and
process we may find that this is as old as the transform policy relevant information that
civilization itself (Dunn, 1984:70). Both may be utilized in political settings to
Delphi’s Oracle in Ancient time, or resolve policy problems”. However, an
contemporary Romanian Public Policy Units analyst should distinguish between policy
have the same functions: to define a policy problems and policy issues. As Dunn pointed
problem and guide the decision-makers’ out, the policy problems have the next
actions to solve the problems. characteristics:
According to William Dunn the policy • Interdependence (Public problems
problems are unrealized values, needs or are not independent realities);
opportunities, which however identified, • Subjectivity (Public problems are
may be attained through policy actions. products of thought);
There are many doubts about a correct • Artificiality (Problems have no
assessment and definition of the problems existence apart from individuals who define
because of human nature. The way in which them);
people agrees on the definition, classification • Dynamics (There are many solutions
and explanation of a problem depends on for a given problem).
what values and needs people consider most The policy issues are the result of prior
important. dispute about the definition, classification,
The study investigates the way in which a explanation and evaluation of a problem.
problem is structured and the contribution of On the other hand, an analyst should keep
problem structuring to the larger process of in mind that there are three main classes of
policy analysis. policy problems: well-structured; moderately
Literature on policy analysis and problem structured and ill-structured.
structuring is a pretty new domain in The well-structured problems are those
Romania. Only after Romanian was invited which involve one or few decision-makers
622
and a small set of policy alternatives. exist for both. Only that, a qualitative
Moderately structured problems are those researcher, in order to make valid
involving one or a few decision-makers and a inferences, needs to be more attuned to
relative limited number of alternatives. Ill methodological issues. All these methods
structured problems are those which and types of arguments depend by the mode
typically involve many different decision- in which we have structured the problem.
makers, whose utilities are either unknown Nevertheless, the problem structuring is the
or impossible to rank in a consistent fashion. most critical phase of policy analysis. Since
Many of the most important problems are ill the majority of problems are ill structured it
structured. seems that much of policy analysis is
Problem structuring is a creative and properly devoted to problem structuring and
iterative exercise and, similarly, the only secondarily to problem solving.
methods used in the process must be based Therefore, the problem structuring plays the
on creativity and sensitivity to competing fundamental role.
perspectives held by the various
stakeholders, rather than a rigid, 3. Problem structuring in security
thoughtless application of a ready-made studies
technique
Problem structuring in policy This paper brings in discussion an example
analysis may be viewed as a process with of structuring an ill-structured problem in
three distinguishable but independent national security domain. After the end of
phases: Cold War, the East European countries have
• Problem conceptualization; faced the problem of re-defining national
• Problem specification; interests and building national security
• Problem sensing. policy. The process of designing a security
Although the process of structuring may policy as public policy is an ill structured
begun in any phase, a prerequisite for problem. Problem conceptualization as the
problem structuring is the recognition of a first phase of problem structuring is difficult
problematic situation and moving on toward because the concept is bi-dimensional: a
a substantive problem (Dunn, 1984: 107). subjective perception of the threats by main
This process of moving from substantive to a actors (do the people feel threatened?) and
formal problem is carried out through an objective evaluation (is the danger really
problem specification, that typically involves present?). That makes the issue of problem
a model of substantive problem. The main specification in security policy the core of
risk in problem specification is to choose a analysis. Security for whom: an individual, a
wrong formal representation (model) of the social class, the elite, an ethnic group or the
substantive problem. Policy models are nation? A theoretical and heuristic model
simplified representations of selected aspects could be useful in problem sensing and this
of a problematic situation for particular chapter imagines such a model (see the
purposes (Dunn, 110). They are very useful Figure 1).
for an analyst but hang as a Damocles’ I assume that a policy analyst in security
sword. Choosing a descriptive or normative studies has a very thin line in designing the
model, a verbal or symbolic one makes the policy, which should propose a course of
analyst to choose the method of study for action to move the people’s state of mind
argumentation. from insecure status to a secure one. The
Until recently, quantitative analysis as a analyst has to avoid the pitfalls of obsession
tool of the positivist mainstream in social and false security and imagine goals and
sciences has been considered the most means to achieve security.
objective method, if not the only one
scientific. But failures in econometric models
made reconsideration of qualitative
arguments.
King, Verba and Keohane have
demonstrated that the differences between
quantitative and qualitative analysis is only
stylistic and substantive unimportant. In
principle, the same problems of inference
623
Figure 1 benefit analysis is most appropriate and

desirable.
National security policy formulation could be
Actors feel seen as a public policy and policy analysis
helps in understanding what are the policy
threatened Presence of danger issues, what are the risks and threats and
what objectives are feasible. The problem
structuring as an analytic tool needs to be
Present absent adopted by the military and security
bureaucracy in order to avoid manipulation,
insecure obsession waste of resources or miscalculations. Thus
Yes the transformation of security sector and
changing the curricula for both military
academies or public administration have to
Security policy incorporate policy analysis as core course.
false security
References
No
secure Dunn, William N. 1984. Public Policy Analysis,
An Introduction. Prentice Hall, Engelwood Cliffs,
NJ 07632.
Ghica, Luciana, Zulean, Marian (Eds.). 2007.

Politica de Securitate Nationala, Editura Polirom,
The avoidance of obsession is very difficult in Iasi.
that area because historical legacy built a
diffuse feeling about the danger of foreign King, Gary, Keohane, Robert, & Verba, Sidney.
1994. Designing Social Inquiry: Scientific
intervention. Therefore the population is
Inference in Qualitative Research. Princeton, NJ,
very sensitive to national-extremist Princeton University Press.
messages and can push the policy maker to
adopt a “paranoid” security policy. Miroiu, Adrian, Radoi, Mireilel, Zulean, Marian.
The avoidance of false security is hard to be 2002. Politici Publice, Editura Politea, Bucuresti.
avoided as well. This is the situation of
Romania between the WWI and WWII. That
security system failed when the WW II was
triggered.
To build a democratic security policy, the
political elite should correctly evaluate the
threats and vulnerabilities and to take into
consideration the public perception and the
international security environment (Ghica,
Zulean, 2007: 39).
Therefore, the problem structuring is the

main step in a policy analysis. The way in
what a policy problem is defined influences
the next steps of analysis. It should avoid
the error of type III (solving the other
problem).
On the other hand, the qualitative or
quantitative arguments have the same type
of inference but since the most important
constraint I consider is financial one
(resource) I think that a quantitative cost-
624

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The International Conference on

Administration and Business

The Faculty of Business and Administration

CNCSIS Accredited Publishing House

Cover:: Dragoş George SPĂTARU

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